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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): December 30, 1999
BENZ ENERGY INC.
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(Exact name of registrant as specified in its charter)
Delaware 76-0577348
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1000 Louisiana Street, 15th Floor
Houston, Texas 77002
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (713) 739-0351
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On December 30, 1999, Benz Energy Inc. ("Benz") sold a portion of its
exploratory program to Harken Energy Corporation. The sale involved three
prospects in Texas, including the Old Ocean 3D project, and six prospects in
Mississippi and certain assets related to those prospects.
The purchase price for the exploratory assets was $12 million,
payable in the form of $12 million in convertible subordinated notes of
Harken Energy Corporation. The convertible notes bear interest at the rate of
5% per annum and are convertible into Harken Energy common shares based on a
conversion price of $6.50 per share. The convertible notes are mandatorily
convertible if the market price per share of harken Energy common share over
any consecutive 30 day period is equal to or greater than $8 1/8. During the
year prior to maturity, Harken Energy may redeem the convertible notes for
Harken common shares based on its then market price, provided that, the
redemption must be at a 10% premium if the redemption occurs within six
months of maturity.
In addition to the convertible notes, Benz retained a reversionary
20% working interest in the prospect, which vests after payout of 110% of
Harken Energy's drilling costs and purchase price.
In connection with the transaction, Prentis Tomlinson, Benz's then
President and Chief Executive Officer, resigned from those executive
positions and he and five other departing employees joined with a company
affiliated with Mr. Tomlinson that entered into exploration consulting and
incentive agreements with a subsidiary of Harken Energy. The consulting
agreement is for an initial term of one year and provides for the rendering
of exploration management services for certain of Harken's exploratory assets
(including the assets purchased from Benz) at a base fee of $100,000 per
month. The incentive agreement provides for payments to the consulting
affiliate based on a percentage of the difference between (1) a proven
reserve value as of December 31, 2000 (based on a negotiated proven reserve
formula) and (2) the proven reserve value as of December 31, 2001 and 2002
for certain exploratory assets of the Harken subsidiary, including the
exploratory assets purchased from Benz. The percentage payout is 20% unless a
merger between Benz and Harken Energy occurs, in which case the percentage is
increased to 40%. The incentive fee is payable in cash or Harken Energy
common shares.
A copy of the press release announcing the closing of the Harken
Energy asset sale and related matters is filed as an exhibit to this Current
Report on Form 8-K.
ITEM 5. OTHER EVENTS.
Robert Herlin, Benz's current Chief Financial Officer, was appointed
to the additional positions of President and Chief Executive Officer. Mr.
Herlin replaces Prentis Tomlinson who resigned his executive positions
effective January 1, 2000 following the closing of the asset sale with Harken
Energy Corporation described above. Mr. Tomlinson will continue with the
Company as the non-executive Chairman of the Board of Directors and has
agreed to provide technical advice as to the Company's ongoing development
drilling in Mississippi.
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A copy of the press release announcing the appointments of Mr. Herlin
and the resignation of Mr. Tomlinson, together with information relating to
the asset sale, is filed as an exhibit to this Current Report on Form 8-K.
On January 7, 2000, Benz received written notice that Russell
Cleveland resigned as a board member of Benz effective January 5, 2000.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS.
(c) Exhibits. The following exhibits are filed as part of this report:
Exhibit No. Description of Document
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2.1 Purchase and Sale Agreement by and among Benz Energy
Inc. and Harken Energy Corp. dated December 30, 1999.
99.1 Press release dated January 13, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
BENZ ENERGY INC.
Date: January 14, 2000 By: /s/ Robert S. Herlin
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Robert S. Herlin
President, Chief Executive Officer
and Chief Financial Officer
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PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement ("Agreement") is made and entered
into on this 30th day of December, 1999, between TEXSTAR PETROLEUM, INC., a
Texas corporation ("Texstar"), and BENZ ENERGY INC., a Delaware corporation
("Benz"), whose addresses are 1000 Louisiana, 15th Floor, Houston, Texas
77002 (collectively, "Seller") and HARKEN ENERGY CORPORATION, a Delaware
corporation, and HARKEN GULF EXPLORATION COMPANY, a Delaware corporation,
whose addresses are 16285 Park Ten Place, Suite 600, Houston, Texas 77084
(collectively, "Buyer").
RECITALS
WHEREAS, Seller is the owner of the Subject Interests (as
hereinafter defined); and
WHEREAS, Seller is willing to sell to Buyer, and Buyer is willing to
purchase from Seller, the Subject Interests, upon the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the respective representations,
warranties, covenants, agreements and conditions contained in this Agreement
and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Buyer agrees to purchase the Subject Interests
from Seller and Seller agrees to sell the Subject Interests to Buyer, on the
terms set forth below.
ARTICLE 1.
AGREEMENT TO PURCHASE AND SALE
1.1 PURCHASE AND SALE. Subject to the terms and conditions of this
Agreement, Seller agrees to sell to Buyer, and Buyer agrees to purchase from
Seller, all of Seller's right, title and interests in and to the following:
(a) The oil and gas prospects ("Prospects") as described in
EXHIBIT A-1, attached hereto and incorporated herein by reference
("Prospects");
(b) The oil and gas leases ("Leases") and options to lease
("Options"), but only insofar as said Leases and Options cover the
lands ("Lands") described in EXHIBIT A-1, attached hereto and
incorporated herein by reference;
(c) All of Seller's interest in all agreements and other rights of
Seller that benefit or burden the Leases or Options (the "Contracts"),
including any participating agreements, operating agreements, letter
agreements, pooling or unitization agreements, farmouts, easements,
area of mutual interest agreements, surface agreements, and other
contracts as described on EXHIBIT A-2 or appurtenant to Leases or
Lands;
(d) All personal property, equipment, and fixtures located on the
Leases and used in connection with the operation of the Leases
("Equipment") as described on EXHIBIT A-3;
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(e) The files, records, data, title opinions, maps, logs,
geological data, and other documentary information maintained by Seller
pertaining to the Prospects, Leases and Options (collectively, the
"Records");
(f) All existing software used by Seller in connection with the
interpretation of 3-D seismic data, all proprietary geophysical and
seismic data in the possession of Seller relating to the Prospects,
Leases, Lands and Options, and those certain seismic licensing and
sub-licensing agreements as set forth in EXHIBIT A-4, attached hereto
and incorporated herein by reference (collectively, the "Seismic
Data"). The parties further agree that nonproprietary seismic data in
the possession of Seller relating to and necessary for the Prospects,
Leases, Lands and Options that due to a contractual covenant cannot be
transferred to Buyer as separately identified and set out in EXHIBIT
A-4 hereof ("Restricted Seismic"), shall be subject to a purchase price
adjustment as set forth in ARTICLE V herein;
(g) Office furniture and equipment as identified in EXHIBIT A-5,
attached hereto and incorporated herein by reference ("Office
Equipment"); and
(h) Computer/workstations identified in EXHIBIT A-6, (but
excluding the computer terminals set forth in EXHIBIT 1(h),) attached
hereto and incorporated herein by reference, used by Seller in
connection with software to interpret the Seismic Data set forth in
1(f) above ("3-D Workstations").
The Prospects, Leases, Options, Lands, Contracts, Equipment,
Records, Seismic Data, Office Furniture and 3-D Workstations shall
collectively be called the "Subject Interests."
1.2 EXCLUDED ASSETS. Those assets listed on SCHEDULE 1.2 are hereby
excluded from the Subject Interests and are not being sold to Buyer hereunder
(the "Excluded Assets").
1.3 RESTRICTED SEISMIC. To the extent that Seller can not legally
transfer the Restricted Seismic to Buyer, Seller will, to the extent
allowable under the license restrictions, allow Buyer access to the
Restricted Seismic for purposes of exploring and developing the Prospects.
1.4 SELLER'S REVERSIONARY INTEREST. Seller shall reserve and retain
a twenty percent (20%) working interest in the Subject Interests after
Project Payout. Project Payout shall mean the first day of the month
following recovery by Buyer, from Buyer's share of production and all other
proceeds attributable to or arising out of the Subject Interests (after
payment of lessor royalties, overriding royalties and other interests
burdening the Leases which are of record as of the date of this Agreement,
and all production, severance, ad valorem, excise and other pertinent taxes
attributable to production), the Purchase Price for the Subject Interests,
and 100% of all direct costs of material and labor (excluding any costs for
overhead, consulting costs, office administration, insurance, amortization or
depreciation, or costs of capital) incurred in connection with the drilling,
testing, completing, equipping, and operating of any well located on the
Leases, Options or Prospects, or any lands pooled therewith, subsequent to
the date of this Agreement, lease costs, rentals, title costs, option
payments, seismic costs, costs of processing, treating, transportation and
marketing (if incurred in arms-length third party transactions), which costs
are incurred in
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connection with and attributable to the Leases, Options and Prospects, plus a
ten percent (10%) cash on cash return on the allowable costs included in the
Payout calculation ("Payout"). A fee in the amount of $25,000 per month for
geological and geophysical services may be included as costs in the Payout
calculation only for the period beginning with the date of this Agreement and
ending upon termination of that certain Consulting Contract by and between
Harken Gulf Exploration Company and Benz Resources, L.L.C., but in any event
terminating June 30, 2001. Payout shall be computed for the purpose of the
Working Interest on a project basis (including all of the Prospects, Leases
and Options) and not on a well-by-well or Prospect-by-Prospect basis. Upon
completion of any well and quarterly thereafter, until Payout, Buyer shall
deliver to Seller an itemized statement of all allowable costs, as described
above, which are received by Buyer on or in connection with the Subject
Interests and all revenues derived from the Subject Interests.
1.5 SALE OF SUBJECT INTERESTS. In the event Buyer sells, transfers
or conveys any portion of the Subject Interests, Buyer shall assign and
deliver to Seller an undivided twenty percent (20%) interest in and to all
non-cash compensation (including without limitation overriding interests, net
profit interests and carried working interests). Buyer shall be entitled to
retain all cash consideration and eighty percent (80%) of all non-cash
consideration from such sale of the Subject Interests, and all proceeds
attributable thereto shall be included as revenues in the Payout calculation
as set forth in SECTION 1.4 above.
ARTICLE 2.
PURCHASE PRICE AND PAYMENT
2.1 PURCHASE PRICE. The total purchase price for the Subject
Interests shall be TWELVE MILLION DOLLARS ($12,000,000) (the "Purchase
Price"), payable at Closing in the form of Buyer's 5% Senior Convertible
Notes in the forms attached as SCHEDULE 2.1 (the "Convertible Notes").
Attached to this Agreement as EXHIBIT B, attached hereto and incorporated
herein by reference, is an allocation of the Purchase Price among the
constituent interests comprising the Subject Interests (the "Allocated
Value"). The Allocated Value, which is to be mutually agreed upon by Seller
and Buyer, is a means solely for adjusting the Purchase Price of the Leases
and Options and Seismic Data resulting from loss of title or other defect as
provided in ARTICLE 5 of this Agreement. The Allocated Value shall not be
deemed a representation or warranty as to value by either party and shall not
obligate either party to account for the Subject Interests as allocated.
2.2 SELLER'S PUT.
(a) GENERAL. For a period of nine (9) months after Closing
(the "Restricted Put Period"), Seller and Permitted Assignee shall have
the right from time to time to compel Buyer (subject to the provisions
stated herein) to redeem the Convertible Notes into either cash or
shares of Buyer's Common Stock (as more fully set forth and provided in
the Convertible Notes), PROVIDED THAT (a) the Put Consideration is used
solely for the purpose of retiring or exchanging secured obligations of
Seller (including without limitation vendor notes, preferred stock
indentures of Seller) and (b) the retirement or exchange of the
securities is at a discount to the amount of secured obligation and/or
the amount of the Put
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Consideration to be received pursuant to the Put, which discount will
be acceptable to Buyer in its sole and absolute discretion. If at
any time during a term of nine (9) months beginning after the
Restricted Put Period or for a term of nine (9) months beginning
earlier if the Letter of Intent between Buyer and Seller has
terminated or the parties are no longer pursuing the Merger
Transactions (as defined in the Letter of Intent), the Put shall be
freely exercisable at the sole discretion of Seller or the Permitted
Assignee without restriction and without approval of Buyer, for 50% of
the then outstanding principal amount of the Convertible Notes (and
accrued interest thereof) payable either in cash or shares of Buyer's
Common Stock, at the election of Buyer (and in the manner set out in
Section 5(B) of the Convertible Notes); provided, however, that such
Put must be exercised by Seller or Permitted Assignee by aggregating
not less than 50% of the then outstanding principal balance of the
Notes and if such Put is not timely exercised, such Put shall terminate
and be null and void.
(b) AUTOMATIC PUT. Notwithstanding the exercise of the Put
during the time periods set out in SECTION 2.2(a) above (as more fully
set forth and provided in the Convertible Notes), if at any time from
the Closing Date until May 26, 2003, the Permitted Lienholder
institutes an action to foreclose on the Notes, in whole or in part,
such filing shall immediately cause the exercise of the Put, subject to
the Buyer's right to waive such automatic exercise, insofar as it
covers the undivided share of the Notes beneficially held by, or
pledged to, the Permitted Lienholder as set forth in SECTION 2.2(a)
above. Upon the automatic exercise of the Put herein provided, Buyer
shall have a period of five (5) business days from the date the
foreclosure action was filed, to advise Seller or the Permitted
Lienholder whether it elects to (i) accept the automatic exercise of
the Put or (ii) waive the automatic exercise of the Put. Should Buyer
elect to exercise of the Put, Seller or the Permitted Lienholder shall
have an additional period of five (5) business days from the receipt of
Buyer's notice to deliver the Notes as set forth in SECTION 2.2(a).
Should the Company elect to waive the automatic exercise of the Put,
the Permitted Lienholder shall automatically become a Permitted
Assignee for all purposes hereunder and under the Convertible Notes be
deemed to be a Permitted Assignee for the portion of the Note for which
such foreclosure action was instituted.
ARTICLE 3.
SELLER'S REPRESENTATIONS AND WARRANTIES
Seller represents and warrants to Buyer as of Closing that:
3.1 ORGANIZATION. Seller is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and Texstar is duly qualified to do business in states where
the Subject Interests are located.
3.2 AUTHORITY. Seller has full power and authority and has taken all
requisite action, corporate or otherwise, to authorize Seller to carry on
Seller's business as presently conducted, to own the Subject Interests, to
enter into this Agreement and to perform Seller's obligations under this
Agreement.
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3.3 ENFORCEABILITY. This Agreement has been duly executed and
delivered on behalf of Seller and constitutes the legal, valid and binding
obligation of Seller enforceable in accordance with its terms. At the Closing
(as hereinafter defined), all documents required hereunder to be executed and
delivered by Seller shall be duly authorized, executed and delivered and
shall constitute legal, valid and binding obligations of Seller enforceable
in accordance with the respective terms, except as such enforceability may be
limited by bankruptcy, insolvency, or other laws relating to or affecting
generally the enforcement of creditor's rights and general principles of
equity, regardless of whether considered in a proceeding in equity or at law.
3.4 NON-CONTRAVENTION. Except for approvals required to be obtained
from governmental entities who are lessors under leases forming a part of the
Subject Interests (or who administer such leases on behalf of such lessors)
which are customarily obtained post-closing, neither the execution, delivery,
and performance by Seller of this Agreement and each other agreement,
instrument, or document executed or to be executed by Seller in connection
with the transactions contemplated hereby to which it is a party nor the
consummation by it of the transactions contemplated hereby and thereby do or
will (a) conflict with or result in a violation of any provision of the
charter or bylaws or other governing instruments of Seller, (b) conflict with
or result in a violation of any provision of, or constitute (with or without
the giving of notice or the passage of time or both) a default under, or give
rise (with or without the giving of notice or the passage of time or both) to
any right of termination, cancellation, or acceleration under, any bond,
debenture, note, mortgage, indenture, lease, contract, agreement, or other
instrument or obligation to which Seller is a party or by which Seller or any
of its properties may be bound, (c) result in the creation or imposition of
any lien or other encumbrance upon the properties of Seller, or (d) violate
any applicable law, rule or regulation binding upon Seller.
3.5 APPROVALS. Except as set forth on SCHEDULE 3.5 and for approvals
required to be obtained from governmental entities who are lessors under
leases forming a part of the Subject Interests (or who administer such leases
on behalf of such lessors) which are customarily obtained post-closing, no
consent, approval, order, or authorization of, or declaration, filing, or
registration with, any court or governmental agency or of any third party is
required to be obtained or made by Seller in connection with the execution,
delivery, or performance by Seller of this Agreement and each other
agreement, instrument, or document executed or to be executed by Seller in
connection with the transactions contemplated hereby to which it is a party
or the consummation by it of the transactions contemplated hereby and thereby.
3.6 PENDING LITIGATION. There are no pending suits, actions, or
other proceedings in which Seller is a party which affect the Subject
Interests in any material respect, or affecting the execution and delivery of
this Agreement or the consummation of the transactions contemplated hereby or
that would, if determined adversely to Sellers, or any of the Subject
Interests (i) result in the material impairment or loss of Seller's title to
the Subject Interests, (ii) hinder or impede the operation of all or any
portion of any Subject Interests or (iii) restrain, prohibit or impose damage
on Buyer or Sellers with respect to the transactions contemplated herein.
3.7 FINDER'S FEES. Seller has not incurred any liability, contingent
or otherwise, for brokers' or finders' fees in respect to this transaction
for which Buyer shall have any responsibility
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whatsoever. Seller shall indemnify and hold Buyer harmless from and against
all claims, demands, suits, actions or causes of action whatsoever arising
from any allegation by a broker, finder or other intermediary that it is
entitled to a commission, finder's fee or other compensation as a result of
having dealt with Seller.
3.8 TITLE. Seller makes no representation or warranty as to title to
the Subject Interests except for claims arising by, through or under Seller,
but not otherwise.
3.9 MATERIAL CONTRACTS. Except as set forth on SCHEDULE 3.9, at
Closing, the Subject Interests are not subject to (i) any instrument or
agreement evidencing or related to indebtedness for borrowed money, whether
directly or indirectly; or (ii) any agreement in which the amount involved is
in excess of Twenty-five Thousand Dollars ($25,000). With respect to the
Subject Interests, (A) to the best of Seller's knowledge, all Material
Contracts, are in full force and effect and are the valid and legally binding
obligations of the parties thereto and are enforceable in accordance with
their respective terms; (B) Seller is not in material breach or default with
respect to any of its obligations pursuant to any such Material Contract; (C)
all payment (including, without limitation, valid calls for advance payment
under unit or operating agreements) due by Seller thereunder have been made
by Seller; and (D) neither Seller nor any other party to any Material
Contract has given notice of any action to terminate, cancel, rescind, or
procure a judicial reformation of a Material Contract or any provision
thereof. Except as set forth on SCHEDULE 3.9, no contracts contain any
provision that prevents Buyer from owning, managing and operating the Subject
Interests in accordance with historical practices.
3.10 NO OPERATIONS OR CURRENTLY DUE PAYMENTS. Except as set forth on
SCHEDULE 3.10, with respect to the Subject Interests, (i) there are no
outstanding calls for payments which are due or which Seller has committed to
make with respect to the Subject Interests which have not been made; (ii)
there are no material operations with respect to which Seller has become a
party; (iii) there are no commitments for the expenditure of funds for
drilling or other capital projects; (iv) there are no existing contracts
solely between Seller affecting or providing services or support to any of
the Subject Interests or operations on the Subject Interests; and (v) Seller
has not consented to, non-consented, issued or received any notice of a
proposed drilling, reworking, plugging and abandonment or other operation
with respect to the Subject Interests, any notice of a proposed or required
delay rental or other Lease or Option payment, or any Authority for
Expenditure (AFE) with respect to the Subject Interests.
3.11 EQUIPMENT. There is no Equipment owned by Seller appertaining
to the Leases, Prospects or Options.
3.12 CANCELLATION OF LEASES. Seller has not received notice of any
pending claims for cancellation (as opposed to termination according to the
terms of the Leases and/or Options) from any lessors or optionors with
respect to the Leases and/or Options.
3.13 LIENS. There are no liens burdening the Subject Interests other
than Permitted Encumbrances.
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3.14 NO OTHER REPRESENTATIONS. Except as and to the extent set forth
in this ARTICLE 3, Seller makes no representations or warranties whatsoever
to Buyer and hereby disclaims all liability and responsibility for any
representation, warranty, statement, or information made, communicated, or
furnished (orally or in writing) to Buyer or its representatives (including
without limitation any opinion, information, projection, or advice that may
have been or may be provided to Buyer by any director, officer, employee,
agent, consultant, or representative of Seller).
3.15 TITLE HELD BY AGENTS. It is understood and agreed that as to
the Leases or Options acquired in the name of W.G. Foster, V.L. Phillips,
C.H. Wilkinson, Jr., or other agents of Seller ("Agents"), Seller represents
that the Leases and Options initially held by Agents on behalf of Seller have
been assigned and conveyed to Seller, and that all leases and options now
vested in such Agents are for the benefit of unrelated third parties pursuant
to unrecorded participation agreements set forth in SCHEDULE 3.15.
3.16 SUBROGATION TO WARRANTIES. Seller shall subrogate Buyer to any
warranty claim in the Subject Interests which it may have against any third
party, vendor, or assignor.
3.17 TAXES PAID. All ad valorem, property, and similar taxes based
on the ownership of property due and payable as of the Closing Date have been
paid timely and such taxes that accrue prior to the Closing Date and relate
to the period prior to the Closing Date shall be timely paid by Seller.
3.18 NO HYDROCARBON CONTRACTS. No hydrocarbons to be produced from
the Subject Interests are subject to a gas sales contract or a gas
transportation agreement which are not cancelable within thirty (30) days,
and no person has any call upon, option to purchase, preferential right to
purchase, or similar rights under any agreement with respect to the
production from the Subject Interests.
3.19 PLUGGING OBLIGATIONS. Seller has not been notified by any
governmental agency requiring that it plug and abandon any well located on
the Subject Interests.
3.20 ENVIRONMENTAL LIABILITY ACQUIRED BY CONTRACT. To Seller'
knowledge, there has not been any spill, discharge, release or handling of
Hazardous Materials on, in, through or under the Lands covered by the
Prospect, Leases and Options which would result in contractual liability
against or upon Seller as a result of agreements entered into by Seller.
3.21 NON-TRANSFERABILITY OF CONVERTIBLE NOTES. Seller represents
that by reason of its knowledge and experience regarding financial
instruments, Seller has evaluated the merits and risks of accepting the
Convertible Notes as consideration for the Subject Interests and has formed
an opinion based solely on Seller's knowledge and business experience and not
on any representations or warranties made by Buyer except those
representations and warranties expressly set forth in this Agreement.
Further, Seller warrants and acknowledges that the Convertible Notes to be
received by Seller as consideration for the Subject Interests are not
registered securities under the U.S. securities laws and, subject to the
transfer to the Permitted Assignee and to the pledge to the Permitted
Lienholder, may not be transferable without the prior written consent of
Seller. This
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covenant of non-transferability shall extend to and bind any subsequent
holders of Seller, Permitted Assignee or Permitted Lienholder, who will also
in turn be subject to the same restriction of non-transferability.
3.22 ALL INTERESTS. The Subject Interests conveyed hereunder
constitute all of the interests and rights to acquire interests in and to the
Prospects, Leases, Lands and Options that are owned by Seller or its
affiliates, except for such interests as may be subject to or arising out of
the Contracts.
3.23 DISCLOSURE TO SELLER'S BOARD. Contemporaneous with the
execution of this Agreement, Benz Resources, L.L.C. and Harken Gulf
Exploration Company shall sign an Incentive Compensation Agreement and a
Consulting Agreement relating to the Subject Interests (the "Related
Agreements"). Seller represents and warrants that it has made full disclosure
concerning the Related Agreements to its Board of Directors and creditors, if
necessary.
ARTICLE 4.
BUYER'S REPRESENTATIONS AND WARRANTIES
Buyer represents and warrants to Seller as of Closing that:
4.1 ORGANIZATION. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the state of its
incorporation and is qualified to do business and is in good standing under
the laws of the State of Texas and by Closing will be duly qualified to carry
on its business in states in which the Subject Interests are located.
4.2 AUTHORITY. Buyer has full power and authority to carry on its
business as presently conducted, to enter into this Agreement, to purchase
the Subject Interests on the terms described in this Agreement and to perform
its obligations under this Agreement. Neither the execution and delivery of
this Agreement nor the performance of Buyer's obligations hereunder will (i)
violate its articles of incorporation or bylaws; or (ii) violate or
constitute a default under any law, regulation, contract, agreement, consent,
decree or judicial order by which Buyer or any of its officers, directors,
stockholders are bound.
4.3 ENFORCEABILITY. This Agreement has been duly executed and
delivered on behalf of Buyer and constitutes the legal, valid and binding
obligation of Buyer enforceable in accordance with its terms. At the Closing,
all documents required hereunder to be executed and delivered by Buyer
(including without limitation the Convertible Notes) shall be duly
authorized, executed and delivered and shall constitute legal, valid and
binding obligations of Buyer enforceable in accordance with the respective
terms, except as such enforceability may be limited by bankruptcy,
insolvency, or other laws relating to or affecting generally the enforcement
of creditor's rights and general principles of equity, regardless of whether
considered in a proceeding in equity or at law.
4.4 NON-CONTRAVENTION. The execution, delivery, and performance by
Buyer of this Agreement and each other agreement, instrument, or document
executed or to be executed by Buyer in connection with the transactions
contemplated hereby to which it is a party and the consummation
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by it of the transactions contemplated hereby and thereby do not and will not
(a) conflict with or result in a violation of any provision of the charter or
bylaws or other governing instruments of Buyer, (b) conflict with or result
in a violation of any provision of, or constitute (with or without the giving
of notice or the passage of time or both) a default under, or give rise (with
or without the giving of notice or the passage of time or both) to any right
of termination, cancellation, or acceleration under, any bond, debenture,
note, mortgage, indenture, lease, contract, agreement, or other instrument or
obligation to which Buyer is a party or by which Buyer or any of its
properties may be bound, (c) result in the creation or imposition of any lien
or other encumbrance upon the properties of Buyer, or (d) violate any
applicable law, rule or regulation binding upon Buyer.
4.5 APPROVALS. No consent, approval, order, or authorization of, or
declaration, filing, or registration with, any court or governmental agency
or of any third party is required to be obtained or made by Buyer in
connection with the execution, delivery, or performance by Buyer of this
Agreement and each other agreement, instrument, or document executed or to be
executed by Buyer in connection with the transactions contemplated hereby to
which it is a party or the consummation by it of the transactions
contemplated hereby and thereby, other than compliance with any applicable
requirements of the Securities Act and any applicable state securities laws.
4.6 PENDING LITIGATION. There are no pending suits, actions, or
other proceedings in which Buyer is a party which affect the execution and
delivery of this Agreement or the consummation of the transactions
contemplated hereby.
4.7 KNOWLEDGEABLE PURCHASER AND TEXAS DECEPTIVE TRADE PRACTICES ACT.
Buyer represents that by reason of its knowledge and experience in the
evaluation, acquisition, and operation of oil and gas properties, Buyer has
evaluated the merits and risks of purchasing the Subject Interests from
Seller and has formed an opinion based solely on Buyer's knowledge and
experience and not on any representations or warranties by Seller. Buyer is
acquiring the Subject Interests for its own account and without a view to the
distribution thereof within the meaning of the Securities Act of 1933 (and
the rules and regulations pertaining thereto), as amended. Buyer can and does
expressly waive the provisions of the Texas Deceptive Trade Practices Act.
4.8 FINDER'S FEES. Buyer has not incurred any liability, contingent
or otherwise, for brokers' or finders' fees in respect to this transaction
for which Seller shall have any responsibility whatsoever. Buyer shall
indemnify and hold Seller harmless from and against all claims, demands,
suits, actions or causes of action whatsoever arising from any allegation by
a broker, finder or other intermediary that it is entitled to a commission,
finder's fee or other compensation as a result of having dealt with Buyer.
4.9 CONVERTIBLE NOTES. The Convertible Notes to be delivered to
Seller hereunder are duly authorized, issued, outstanding and enforceable
obligations of Buyer, but are not registered or tradeable on any U.S.
exchange under the U.S. securities laws.
4.10 COMMON STOCK. Buyer's Common Stock to be delivered to Seller
under the terms of the Convertible Notes or pursuant to Seller's Put will be,
when delivered, duly authorized, validly
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issued, fully paid and non-assessable; the shares of Buyer's Common Stock to
be issued upon conversion of the Convertible Notes will, at Closing, be duly
authorized and reserved.
4.11 REGISTRATION STATEMENT. Buyer will file, or cause to be filed,
a separate registration statement on Form S-3 (as contemplated by the
Convertible Notes set forth in SCHEDULE 2.1 attached hereto) to register
Buyer's Common Stock under the U.S. Securities Act of 1933, as amended, and
any applicable state securities or blue sky law, within five (5) months
following Closing and shall use its commercially reasonable best efforts for
such registration statement to become effective as soon as practicable and to
further maintain the effectiveness of such registration statement until such
time as holders of such securities will be eligible to sell such securities,
but in any event within one (1) year.
4.12 S-3 ELIGIBLE. Buyer is eligible to file the registration
statement described in SECTION 4.11 above on Form S-3 and in the event Buyer
is no longer S-3 eligible at the time of filing, Buyer shall file the
registration statement on Form S-1 (or other applicable form which Buyer
shall be eligible to file) pursuant to the applicable federal and state
securities laws.
4.13 RELIANCE. In making its decision to purchase the Subject
Interests from the Seller as contemplated by this Agreement, Buyer has relied
solely upon: (i) the representations and warranties of the Seller set forth
in this Agreement, and (ii) Buyer's own independent investigation, analysis,
and evaluation of the Subject Interests, including its own estimate of the
oil and gas reserves represented by the Subject Interests. Buyer has not
relied on any representations or warranties made by or on behalf of the
Seller other than as expressly set forth in this Agreement.
4.14 FINANCIAL STATEMENTS ARE TRUE AND CORRECT. On or before the
Closing, Buyer shall deliver to Seller a copy of the Buyer's unaudited
balance sheet as of October 31, 1999 (the "BALANCE SHEET"). The Balance Sheet
(i) shall be prepared from the books and records of Buyer and (ii) shall
accurately and fairly present Buyer's financial position as of the date
thereof in all material respects, subject to normal year-end adjustments.
4.15 STOCK EXCHANGE LISTING. Buyer's Common Stock is listed on the
American Stock Exchange and Buyer has received no notice threatening
de-listing of the shares.
4.16 RELATED AGREEMENTS. Contemporaneous with the execution of this
Agreement, Benz Resources, L.L.C. and Harken Gulf Exploration Company shall
sign the Related Agreements. The Related Agreements are the only agreements
between Buyer or any of its affiliates with Benz Resources, L.L.C., or with
any person (or any affiliate or related entities of any such person) who were
employees of Seller immediately prior to Closing.
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ARTICLE 5.
TITLE DEFECTS
5.1 DEFENSIBLE TITLE. "Defensible Title," with respect to Options
and Leases, means such right, title or interest held by Seller that (i) will
entitle Buyer, as Seller's assignee, to receive from its aggregate ownership
interest(s) not less than the net revenue interest shown in EXHIBIT A-1 under
the terms of a particular Lease or Option; (ii) obligates Buyer, as Seller's
assignee, to bear an aggregate percentage of costs and expenses related to
the maintenance, operation and development of a particular Lease or Options
not greater than the working interest shown in EXHIBIT A-1, unless there is a
corresponding and proportionately equal increase in the net revenue interest,
and (iii) is free of all liens, security interests, encumbrances and defects,
except for Permitted Encumbrances. "Defensible Title," with respect to
Seismic Data that is not Restricted Seismic, means such right, title or
interest held by Seller that will entitle Buyer to (i) own the data and (ii)
to possess the data. "Defensible Title," with respect to Restricted Seismic,
means such right, title or interest held by Seller that will entitle Buyer to
(i) own the data, or (ii) possess the data or (iii) review the data in
offices of Seller in connection with a particular Prospect.
5.2 TITLE DEFECTS. "Title Defects" means any encumbrance,
encroachment, irregularity or defect in Seller's title, excluding Permitted
Encumbrances, that causes Seller's title to the Leases, Options, Seismic Data
or Restricted Seismic to be less than Defensible Title. For the purposes
hereof, a Title Defect related to a Lease or Option occurs when the net
revenue interest or working interest related to the underlying leasehold
interest is subject to a Title Defect as defined in SECTION 5.1 above. In
determining whether a Title Defect exists, consideration shall be given to,
among other factors (i) whether a person engaged in the ownership,
development and operation of oil and gas properties with knowledge of all
relevant circumstances and appreciation of their legal significance would be
willing to accept and pay for the affected Lease, Option, Seismic Data or
Restricted Seismic notwithstanding the Defect, and (ii) whether a material
issue has ever arisen concerning the Defect.
5.3 NOTICE OF DEFECT. From the execution date of this Agreement
until one hundred one hundred twenty (120) days after the Closing Date (the
"Examination Period"), Seller shall permit Buyer or its representatives to
examine in Seller's offices all abstracts of title, title opinions, title
files, ownership maps, lease files, assignments, contracts, division orders,
operating records, leasehold summaries, and other documents relating to the
Subject Interests to the extent such records are in the possession of Seller.
During the Examination Period, Buyer shall notify Seller in writing of all
Title Defects. Such notice shall include (a) a description of the Lease(s),
Option(s), Seismic Data or Restricted Seismic affected by the Defect, (b) a
detailed description of the basis for the Defect, and (c) the amount, not to
exceed its Allocated Value, by which Buyer believes the value of the affected
Lease(s), Option(s), Seismic Data or Restricted Seismic is reduced by the
Defect. The failure of Buyer to deliver written notice of Defect to Seller as
of 5:00 p.m. on the last day of the Examination Period as herein provided
shall constitute a waiver by Buyer of such Defect(s) arising out of this
Agreement.
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5.4 If Buyer's examination of title discloses a Title Defect with
respect to the Lease(s), Option(s), Seismic Data or Restricted Seismic and
Buyer has given due notice thereof to Seller as provided above, then:
(a) Seller and Buyer shall attempt to agree upon a reduction in
the Purchase Price based on the Title Defect raised by Buyer,
but in no event shall the reduction amount be more than the
Allocated Value of the Lease(s), Option(s), Seismic Data or
Restricted Seismic subject to the Title Defect ("Reduction
Amount");
(b) If Seller and Buyer are able to agree upon an appropriate
Reduction Amount in accordance with subparagraph (a) above,
the face value of the Convertible Notes shall be reduced by
the Reduction Amount agreed upon by the parties and the
Lease(s), Option(s), Seismic Data or Restricted Seismic
assigned to Buyer at Closing shall be subject to such Title
Defect, which shall be considered a Permitted Encumbrance; or
(c) All disputes arising out of or in connection with this
Agreement, including any determination required to be made by
the parties in which they are unable to agree on an
appropriate Reduction Amount, the dispute shall be settled by
arbitration in Houston, Texas. Any matter to be submitted to
arbitration hereunder may be submitted to arbitration by
either party. Any matter submitted to arbitration shall be
conducted in accordance with the rules of the American
Arbitration Association. Any award by the arbitrator(s) shall
be final, binding and non-appealable, and judgment may be
entered thereon in any court of competent jurisdiction.
5.5 THRESHOLD AND MAXIMUM REDUCTION AMOUNT. In no event shall the
Purchase Price be adjusted unless and until the Reduction Amount equals a
minimum of $100,000, in which event the Purchase Price shall be adjusted for
the total Reduction Amount for all asserted Title Defects; however, the
aggregate Reduction Amount resulting from the asserted Title Defects shall in
no event exceed the Purchase Price.
ARTICLE 6.
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER
The obligations of Seller to be performed at the Closing are subject to the
fulfillment (or waiver by Seller in its sole discretion), before or at the
Closing, of each of the following conditions:
6.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties by Buyer set forth in this agreement shall be true and correct in
all material respects at and as of the Closing as though made at and as of
the Closing; and Buyer shall have performed and complied with in all material
respects all agreements required to be performed and satisfied by it at or
prior to Closing.
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6.2 NO LITIGATION. There shall be no suits, actions or other
proceedings pending or threatened to enjoin the consummation of the
transactions contemplated by this Agreement or seeking substantial damages
against Seller in connection therewith.
6.3 CONSENTS. All consents and approvals required to be obtained for
the assignment of the Subject Interests to Buyer shall have been obtained or
waived or shall have expired without being exercised, except for those
consents and approvals which are customarily obtained after closing.
6.4 BONDS. At Closing, Buyer agrees that it will have all necessary
bonds for owning and operating all Subject Interests and will be qualified to
own and operate federal leases being conveyed herein.
6.5 CLOSING OF OTHER AGREEMENTS. The parties shall have executed and
delivered simultaneously with the Closing of this Agreement, the agreements
set forth in ARTICLE 8 hereof and the Letter of Intent.
6.6 EMPLOYMENT CONTRACTS. Certain officers and employees of Seller
as set forth in SCHEDULE 6.6 below having employment contracts, contractual
change of control or severance benefits, or similar contractual employment or
consulting arrangements, shall have canceled or modified such arrangements
with Seller at no cost to Seller.
6.7 VSE APPROVAL. Seller shall have received unconditional approval
of the Agreement and the transactions contemplated in this Agreement from the
Canadian Venture Exchange.
ARTICLE 7.
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER
The obligations of Buyer to be performed at the Closing are subject to the
fulfillment (or waiver by Buyer in its sole discretion), before or at the
Closing, of each of the following conditions:
7.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties by Seller set forth in this agreement shall be true and correct in
all material respects at and as of the Closing as though made at and as of
the Closing; and Seller shall have performed and complied with in all
material respects all agreements required to be performed and satisfied by it
at or prior to Closing.
7.2 NO LITIGATION. There shall be no suits, actions or other
proceedings pending or threatened to enjoin the consummation of the
transactions contemplated by this Agreement or seeking substantial damages
against Buyer in connection therewith.
7.3 CONSENTS. All consents and approvals required to be obtained for
the assignment of the Subject Interests to Buyer shall have been obtained or
waived or shall have expired without being exercised, except for those
consents and approvals which are customarily obtained after Closing.
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7.4 CLOSING OF OTHER AGREEMENTS. The parties shall have executed and
delivered simultaneously with the Closing of this Agreement, the agreements
set forth in ARTICLE 8 hereof.
ARTICLE 8.
CLOSING
8.1 THE CLOSING. The closing ("Closing") of the transactions
contemplated hereby shall take place at the offices of Porter & Hedges,
L.L.P. at 700 Louisiana, Suite 3500, Houston, Texas, at 10:00 a.m. Central
Standard Time on or before December 31, 1999, or at such other date and time
as the Buyer and Seller may mutually agree upon ("Closing Date").
8.2 CLOSING OBLIGATIONS. At the Closing the following events shall
occur, each event under the control of one Party hereto being a condition
precedent to the events under the control of the other Party, and each event
being deemed to have occurred simultaneously with the other events:
(a) Seller shall execute and deliver to Buyer and Buyer shall
execute and receive:
(1) Assignments and Bills of Sale (the "Assignments")
conveying the Leases, Options, Prospects (insofar as said
Leases, Options and Prospects cover the Lands) and/or Seismic
Data in substantially the forms annexed hereto as EXHIBIT C-1
AND C-2 with the blanks and exhibit(s) appropriately completed
conveying the Subject Interests from Seller to Harken Gulf
Exploration Company;
(2) a Bill of Sale in substantially the form annexed
hereto as EXHIBIT D with the blanks and exhibit(s)
appropriately completed conveying the Office Furniture and 3D
workstations from Seller to Harken Gulf Exploration Company;
and
(3) a Certificate of a corporate officer, dated as of
the Closing Date, certifying on behalf of Seller that the
representations and warranties set forth in ARTICLE 3 hereof
are true and correct as of the Closing Date.
(b) Buyer shall execute and deliver to Seller and Seller shall
receive:
(1) a Certificate of a corporate officer, dated as of
the Closing Date, certifying on behalf of Buyer that the
representations and warranties set forth in ARTICLE 4 hereof
are true and correct as of the Closing Date.
(c) Seller shall deliver to Buyer possession of the Subject
Interests.
(d) Buyer shall deliver to Seller the Purchase Price in the
form of the Convertible Notes.
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ARTICLE 9.
ASSUMPTION OF CERTAIN OBLIGATIONS
Upon and after Closing, Buyer shall own the Subject Interests and
agrees to assume, pay, perform, fulfill and discharge all the rights, duties,
obligations and liabilities accruing or arising out of the ownership of the
Subject Interests after Closing. Seller retains all obligations and
liabilities covering or arising out of the ownership of the Subject Interests
before Closing.
ARTICLE 10.
INDEMNIFICATION
10.1 SELLER'S INDEMNIFICATION OF BUYER. Seller agrees to indemnify
and hold harmless Buyer and its shareholders, directors, officers, partners,
employees, their agents and assigns ("Buyer Indemnified Party") from and
against any loss or damage (including, without limitation, reasonable
attorneys' fees and costs) reasonably incurred (excluding any consequential
damage or loss) (a "Loss") by Buyer resulting from, based upon, or arising
from, directly or indirectly:
(i) Any inaccuracy in or breach of Seller's representations and
warranties set forth herein.
(ii) Any other matter as to which Seller in other provisions of
this Agreement has expressly agreed to indemnify Buyer;
(iii) Any lawsuits, liens, judgments, costs, reasonable attorneys'
fees, claims or proceedings of any nature relating to the
ownership or operations of the Subject Interests (but
excluding environmental liabilities which are only subject
to indemnity by Seller in the event of breach of the
representation set forth in SECTION 3.20) and arising out of
any act, transaction or circumstance involving Buyer,
whether based on negligence or otherwise, and occurring
prior to the Closing Date;
(iv) Any claims, losses, damages, lawsuits, liens, judgments,
costs, reasonable attorneys' fees, claims or proceedings of
any nature made by third parties, including any and all
governmental agencies or entities relating to the Subject
Interests, relating to the ownership and operation of the
Subject Interests or incidents occurring before the Closing
Date (but excluding environmental liabilities which are only
subject to indemnity by Seller in the event of breach of the
representative set forth in SECTION 3.20).
10.2 BUYER'S INDEMNIFICATION OF SELLER. Buyer agrees to indemnify
and hold harmless Seller and its shareholders, directors, officers,
employees, agents and assigns ("Seller Indemnified Party") from and against
any Loss of Seller resulting from, based upon or arising from, directly or
indirectly:
(i) Any inaccuracy in, or breach any of the representations or
warranties of Buyer set forth in this Agreement;
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(ii) Any other matter as to which Buyer in other provisions of this
Agreement has expressly agreed to indemnify Seller;
(iii) Any lawsuits, liens, judgments, costs, reasonable attorneys'
fees, claims or proceedings of any nature relating to the ownership or
operations of the Subject Interests and arising out of any act, transaction
or circumstance involving Seller, whether based on negligence or otherwise,
and occurring after the Closing Date; and
(iv) Any claims, losses, damages, lawsuits, liens, judgments, costs,
reasonable attorneys' fees, claims or proceedings of any nature made by third
parties, including any and all governmental agencies or entities relating to
the Subject Interests, relating to the ownership and operation of the Subject
Interests or incidents occurring after the Closing Date.
10.3 NOTICE AND OPPORTUNITY TO DEFEND. After receipt by any party
thereto (the "Indemnified Party") of notice of any demand, claim, or
circumstances that, with the lapse of time, could give rise to a claim, or
the commencement (or threatened commencement) of any action, proceeding, or
investigation, that in either case could give rise to a right to
indemnification pursuant to this ARTICLE 10 (an "Asserted Liability"), the
Indemnified Party will give the party that may become obligated to provide
indemnification under this ARTICLE 10 (the "Indemnifying Party") written
notice describing the Asserted Liability in reasonable detail and indicating
the amount (estimated, if necessary) of the Loss that has been or may be
suffered by the Indemnified Party. After accepting in writing an obligation
to indemnify the Indemnified Party against the assumed liability, the
Indemnifying Party may defend, at its own expenses and by its own counsel,
any Asserted Liability, and the Indemnified Party will cooperate in such
defense against such Asserted Liability. If the Indemnified Party fails to
defend the Asserted Liability with thirty (30) calendar days after notice
thereof (or sooner if the nature of the Asserted Liability so requires) or
contests its obligation to indemnify under this Agreement, the Indemnified
Party may pay, compromise, or defend such Asserted Liability for the account,
and at the expense of, the Indemnifying Party. Notwithstanding the foregoing,
neither the Indemnifying Party nor the Indemnified Party may settle or
compromise any claim over the objection of the other; provided, however, that
consent to settlement or compromise will not be unreasonably withheld. In
connection with the defense of any claim, the Indemnified Party will make
available to the Indemnifying Party any books, records, or other documents
within its control that are necessary or appropriate for such defense. In
addition, any Indemnifying Party will be subrogated to the rights of the
Indemnified Party with respect to the respective Loss. If Buyer is entitled
to indemnification from Seller hereunder, Buyer shall, at Seller's exclusive
option, be entitled to receive cash or reduce the face value of the
Convertible Notes by the amount of its Loss Claim.
10.4 RECOVERABLE AMOUNT. Neither Buyer nor Seller shall be entitled
to recover from Seller or Buyer, respectively, for any losses, costs,
expenses, or damages arising under this Agreement or in connection with or
with respect to the transactions contemplated in this Agreement any amount in
excess of the actual compensatory damages, court costs and reasonable
attorney fees, suffered by such party. Buyer and Seller shall have no right
to recover punitive, special, exemplary and consequential damage arising in
connection with or with respect to the transactions contemplated in this
Agreement.
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10.5 NO SETTLEMENT IF ADVERSE IMPACT. No person entitled to
indemnification hereunder or otherwise to damages in connection with or with
respect to the transactions contemplated in this Agreement shall settle,
compromise or take any other action with respect to any claim, demand,
assertion of liability or legal proceeding that could prejudice or otherwise
adversely impact the ability of the person providing such indemnification or
potentially liable for such damages to defend or otherwise settle or
compromise with respect to such claim, demand, assertion of liability or
legal proceeding.
10.6 WAIVER OF BREACH. Neither Seller nor Buyer shall have any
obligation or liability under this Agreement or in connection with or with
respect to the transactions contemplated in this Agreement for any breach,
misrepresentation or noncompliance with respect to any representation,
warranty, covenant or obligation if such breach, misrepresentation or
noncompliance shall have been expressly waived by the other party.
10.7 LIMITATION OF LIABILITY.
(i) SELLER'S THRESHOLD. Seller shall have no liability to Buyer or
any other Buyer Indemnified Party with respect to any Loss
described in SECTION 10.1, unless and until the Loss exceeds a
threshold amount of $100,000 and upon satisfying that amount,
Seller shall be responsible to Buyer for all Loss up to the
limit set forth in subparagraph (ii).
(ii) LIMIT ON SELLER'S LIABILITY. Seller shall have no liability to
Buyer or any other Buyer Indemnified Party with respect to any
Loss described in SECTION 10.1, or to pay any other amount in
connection with or with respect to the transactions
contemplated by this Agreement, in any amount exceeding, in
the aggregate, the Purchase Price, as adjusted unless the
Convertible Notes have been exchanged or redeemed under the
Seller's Put, in which event the limitation of liability shall
extend to the full amount of consideration received upon
exchange or redemption of the Convertible Notes.
(iii) BUYER'S THRESHOLD. Buyer shall have no liability to Seller or
any other Seller Indemnified Party with respect to any Loss
described in SECTION 10.2, unless and until the Loss exceeds
a threshold amount of $100,000 and upon satisfying that
amount, Buyer shall be responsible to Seller for all Losses
up to the limit set forth in subparagraph (iv).
(iv) LIMIT ON BUYER'S LIABILITY. Buyer shall have no liability to
Seller or any other Seller Indemnified Party with respect any
Loss described in SECTION 10.2, or to pay any other amount in
connection with or with respect to the transactions
contemplated by this Agreement, in any amount exceeding, in
the aggregate, the Purchase Price, as adjusted unless the
Convertible Notes have been exchanged or redeemed under the
Seller's Put, in which event the limitation of liability shall
extend to the full amount of consideration given upon exchange
or redemption of the Convertible Notes.
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ARTICLE 11.
CERTAIN AGREEMENTS OF BUYER
11.1 REGISTRATION RIGHTS. Seller and all subsequent holders of the
Convertible Notes shall have the following rights with respect to
registration of Buyer's Common Stock to be acquired by Seller under the terms
of the Convertible Notes and this Agreement. It is understood and agreed that
any shares of Buyer's Common Stock issued pursuant to Seller's Put will be
registered by Buyer for the benefit of the holders of the Convertible Notes
put to Buyer after exercise of the Put under the terms as set forth in
SECTIONS 11.2 and 11.3 below, except that in such event the date of exercise
of the Put will be considered "Closing" for those purposes.
11.2 PIGGY-BACK REGISTRATION. If after five (5) months following
Closing Buyer shall at any time or times determine to register under the U.S.
Securities Act of 1933 (the "1933 Act") any shares of Buyer's common stock to
be issued by Buyer pursuant to an offering whereby Buyer will receive cash
for the sale of same and any shares issued to or then issuable to holders of
the Notes under the terms of this Agreement have not been previously included
by Buyer in an effective registration, it will notify the holders of the
Convertible Notes at least thirty (30) days prior to filing the registration
statement and, upon the receipt of written request by such holders
representing at least forty percent (40%) of Buyer's Common Stock issued
under this Agreement given within fifteen (15) days after receipt of such
notification, Buyer will cause any of Buyer's Common Stock, as specified in
such request, to be registered under the 1933 Act pursuant to such
registration statement; provided, however, that if the managing underwriter
selected by Buyer advises Buyer in writing that, in its opinion, the
inclusion of Buyer's Common Stock requested to be included in such
registration would materially adversely affect the distribution of all such
Buyer's Common Stock, then the holders of such Buyer's Common Stock issued
pursuant to this Agreement shall not be permitted to register their Common
Shares as specified in such request.
11.3 DEMAND REGISTRATION. Within five (5) months following Closing,
Buyer shall file a separate registration statement on Form S-3 (or Form S-1
if Buyer is not S-3 eligible at the time of the filing) for the purpose of
permitting the sale of Buyer's Common Stock in a secondary distribution and
use its commercially reasonable best efforts to be effective as soon as
possible after filing and to further maintain the effectiveness of such
registration statement until such time as the holder of such securities will
be eligible to sell such securities, but in any event within one (1) year.
11.4 EXPENSES. Buyer will pay all expenses incurred in connection
with any registration pursuant to this Agreement.
11.5 LISTING ON U.S. NATIONAL EXCHANGE. Buyer will maintain listing
of Buyer's Common Stock on the American Stock Exchange or another U.S.
national exchange.
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ARTICLE 12.
LIMITATION OF WARRANTIES
12.1 DISCLAIMER OF WARRANTIES. The parties agree that to the extent
required by applicable law, the disclaimers of certain warranties and
releases contained in this SECTION 12.1 are "conspicuous." Anything in this
Agreement to the contrary notwithstanding, the Subject Interests are being
sold by Seller to Buyer without recourse, covenant, or warranty of any kind,
express, implied, or statutory, with the sole exception that each Seller will
warrant title to the Subject Interests, subject to the Permitted
Encumbrances, against every person whomsoever lawfully claiming or to claim
the same or any part thereof by, through, or under each Seller, but not
otherwise. SELLER ALSO EXPRESSLY DISCLAIMS AND NEGATES ANY IMPLIED OR EXPRESS
WARRANTY AT COMMON LAW, BY STATUTE OR OTHERWISE RELATING TO THE ACCURACY OF
ANY OF THE INFORMATION FURNISHED WITH RESPECT TO THE EXISTENCE OR EXTENT OF
RESERVES OR THE VALUE OF THE SUBJECT INTERESTS BASED THEREON; THIS DISCLAIMER
AND DENIAL OF WARRANTY ALSO EXTENDS TO THE EXPRESS OR IMPLIED REPRESENTATION
OR WARRANTY AS TO THE PRICES BUYER AND SELLER ARE OR WILL BE ENTITLED TO
RECEIVE FROM PRODUCTION OF OIL, GAS OR OTHER SUBSTANCES FROM THE SUBJECT
INTERESTS, IT BEING UNDERSTOOD THAT ALL RESERVE, PRICE AND VALUE ESTIMATES
UPON WHICH BUYER HAS RELIED OR IS RELYING HAVE BEEN DERIVED BY THE INDIVIDUAL
EVALUATION OF BUYER. EXCEPT TO THE EXTENT SET FORTH IN ARTICLE 3 OF THIS
AGREEMENT, SELLER DISCLAIMS AND BUYER RELEASES SELLER FROM AND AGAINST ALL
LIABILITY AND RESPONSIBILITY FOR ANY STATEMENT OR INFORMATION MADE OR
COMMUNICATED ORALLY OR IN WRITING TO THE BUYER, BY THE SELLER, ITS AFFILIATES
OR ANY OF THEIR DIRECTORS, EMPLOYEES, OFFICERS OR REPRESENTATIVES.
ARTICLE 13.
MISCELLANEOUS
13.1 PRIME OPTION PROCEEDS. In the event that the Prime Option is
exercised, Buyer shall be entitled to receive the consideration arising out
of such exercise ("Option Proceeds") and Buyer shall convey to Prime the
Subject Interests which are subject to the Prime Option.
13.2 RIGHT OF TERMINATION. This Agreement and the transactions
contemplated hereby may be terminated at any time at or prior to Closing:
(a) by mutual consent; or
(b) by either party if the Closing shall not have occurred as
hereinabove provided, due to the failure of the other party to
meet a material condition to Closing.
In the event this Agreement is terminated because Closing did not
occur because of Buyer's failure to meet a material condition of Closing,
and, Seller was not in default of a material condition to Closing, Seller, at
its sole option, may (i) enforce the right of specific performance, or (ii)
seek such other legal or equitable remedies as provided by law for actual
damages incurred due to such
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breach or default of the transaction contemplated hereunder. In the event
this Agreement is terminated because Closing did not occur because of
Seller's failure to meet a material condition of Closing, and, Buyer was not
in default of a material condition to Closing, Buyer, at its sole option, may
(i) enforce the right of specific performance, or (ii) seek such other legal
or equitable remedies as provided by law for actual damages incurred due to
such breach or default of the transaction contemplated hereunder."
13.3 SURVIVAL. Except as otherwise specifically referred to herein,
the respective representations, warranties, covenants and indemnities set
forth in this Agreement shall survive the Closing for a period of one year
following Closing. The provisions hereof shall not be extinguished by the
Doctrine of Merger by Deed or otherwise.
13.4 FURTHER ASSURANCES. After the Closing, Seller and Buyer shall
execute, acknowledge and deliver or cause to be executed, acknowledged and
delivered such instruments and take such other action as may be necessary or
advisable to carry out their obligations under this Agreement and under any
exhibit, document, certificate or other instrument delivered pursuant hereto.
Seller shall use its best efforts to obtain all approvals and consents
required by or necessary for the transactions contemplated by this Agreement
that are customarily obtained after Closing.
13.5 DELIVERY OF RECORDS TO BUYER. Within thirty (30) days after
Closing, Seller shall deliver to Buyer, at Seller's address, or at such other
place as any of same may be kept, duplicate copies of the Records which Buyer
requested to be delivered at Closing.
13.6 NOTICES. All notices required or permitted under this Agreement
shall be in writing and shall be delivered personally or by certified mail,
postage prepaid and return receipt requested or by telecopier as follows:
Seller: Texstar Petroleum, Inc.
1000 Louisiana, 15th Floor
Houston, Texas 77002
Telephone: (713) 739-0351
Telecopier: (713) 739-8402
Attention: Robert Herlin
Hand Delivery: Land Department
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Buyer: Harken Energy Corporation
Harken Gulf Exploration Company
16285 Park Ten Place, Suite 600
Houston, Texas 77084
Telephone: (281) 717-1300
Telecopier: (281) 717-1420
Attention: Bruce Huff, President
Copy to: Harken Energy Corporation
16285 Park Ten Place, Suite 600
Houston, Texas 77084
Telephone: (281) 717-1300
Telecopier: (281) 717-1420
Attention: Larry Cummings, General Counsel
or to such other place within the United State of America as either Party may
designate as to itself by written notice to the other. All notices given by
personal delivery or mail shall be effective on the date of actual receipt at
the appropriate address. Notices given by telecopier shall be effective upon
actual receipt if received during recipient's normal business hours or at the
beginning of the next business day after receipt if received after the
recipient's normal business hours. All notices by telecopier shall be
confirmed in writing on the day of transmission by either mailing by postage
prepaid certified mail with return receipt requested, or by personal delivery.
13.7 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas.
13.8 ASSIGNMENT/RELIANCE. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors
and assigns. No such assignment shall release any party of any of its
obligations under this Agreement. Nothing in this Agreement shall entitle any
Person other than the parties hereto or their respective permitted successors
and assigns to any claim, cause of action, remedy or right of any kind. The
Permitted Lienholder may rely on Buyer's and Seller's representations and
warranties as previously set forth in this Agreement and the officer's
certificates to be delivered at Closing in connection with such
representations and warranties.
13.9 ENTIRE AGREEMENT; AMENDMENTS; WAIVERS. This Agreement
constitutes the entire Agreement between the Parties hereto with respect to
the subject matter hereof, superseding all prior negotiations, discussions,
agreements and understandings, whether oral or written, relating to such
subject matter. This Agreement may not be amended and no rights hereunder may
be waived except by a written document signed by the Party to be charged with
such amendment or waiver. No waiver of any of the provisions of the Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver
unless otherwise expressly provided.
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13.10 SEVERABILITY. If a court of competent jurisdiction determines
that any clause or provision of this Agreement is void, illegal, or
unenforceable, the other clauses and provisions of the Agreement shall remain
in full force and effect and the clauses and provisions which are determined
to be void, illegal, or unenforceable shall be limited so that they shall
remain in effect to the extent permissible by law.
13.11 HEADINGS. The headings of the Articles and Sections of this
Agreement are for guidance and convenience of reference only and shall not
limit or otherwise affect any of the terms or provisions of this Agreement.
13.12 COUNTERPARTS. This Agreement may be executed by Buyer and
Seller in any number of counterparts, each of which shall be deemed an
original instrument, but all of which together shall constitute but one and
the same instrument.
13.13 EXPENSES, FEES AND TAXES. Each party shall pay its own fees
and expenses incident to the negotiations and preparation of this Agreement
and consummation of the transactions contemplated hereby, including
attorney's fees, investment bank fees and financial advisory fees. Buyer
shall be responsible for the cost of all fees for the recording of transfer
documents. If a determination is ever made that a sales tax or other transfer
tax applies, Buyer shall be liable for such tax as well as any applicable
conveyance, transfer and recording fees, and real estate transfer stamps or
taxes imposed on any transfer of property pursuant to this Agreement.
13.14 LAWS AND REGULATIONS. From and after the Closing, (a) Buyer
shall comply with all applicable laws, ordinances, rules and regulations and
shall properly obtain and maintain all permits required by public authorities
with regard to the Subject Interests, and shall provide and maintain with the
applicable regulatory agency(ies) all required bonds and permits.
13.15 ACCESS TO SELLER'S LEASE RECORDS SYSTEM. For a period of one
(1) year following Closing, Seller shall allow Buyer access and use of
Seller's Lease Records System and related computer software and records for
Buyers to use in connection with Buyer's maintenance of the Leases and
Options acquired from Seller hereunder. Buyer shall provide its own personnel
for all such access and updating such records insofar as they relate to these
Leases and Lands. Seller will provide access to Buyer during normal business
hours and at times that Buyer's use of the System will not unreasonably
interfere with Seller. Should Seller decide to discontinue use of its current
Lease Records System and related computer software during this one (1) year
period, then it will give prior notice of such to Buyer and use its
reasonable efforts to assist Buyer in taking over or assuming such Lease
Records System and related computer software, if Buyer so requests.
13.16 EXHIBITS. The following enumerated Exhibits and Schedules are
incorporated herein and are a part hereof.
APPENDIX A Definitions
EXHIBIT A-1 Description of Prospects, Leases, Options and
Lands
EXHIBIT A-2 Description of Contracts
EXHIBIT A-3 Description of Equipment
22
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EXHIBIT A-4 Transferable Seismic Data
EXHIBIT A-5 Description of Office Furniture
EXHIBIT A-6 Description of 3D Workstations
EXHIBIT B Allocation of Purchase Price
EXHIBIT C-1 Form of Assignment and Bill of Sale
(Mississippi)
EXHIBIT C-2 Form of Assignment and Bill of Sale (Texas)
EXHIBIT D Form of Bill of Sale
EXHIBIT 1(h) Excluded computer terminals/workstations
SCHEDULE 1.2 Excluded Assets
SCHEDULE 2.1 Form of Harken Energy Corporation Convertible
Notes
SCHEDULE 3.5 Consents To Assign
SCHEDULE 3.9 Material Contracts
SCHEDULE 3.10 Calls for Payments
SCHEDULE 3.15 Title Held by Seller's Agents/Unrecorded
Participation Agreements
SCHEDULE 6.6 Employment Contracts
[SIGNATURES BEGIN ON FOLLOWING PAGE]
23
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Executed as of the date set forth above.
SELLER:
TEXSTAR PETROLEUM, INC.
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
BENZ ENERGY INC.
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
BUYER:
HARKEN ENERGY CORPORATION
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
HARKEN GULF EXPLORATION COMPANY
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
THIS IS A SIGNATURE PAGE TO THE PURCHASE AND SALE AGREEMENT
24
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APPENDIX A
DEFINITIONS
Capitalized terms used in this Agreement shall have the meanings
ascribed to them in this Appendix A unless such terms are defined elsewhere
in this Agreement:
"AGREEMENT" shall mean this Purchase and Sale Agreement.
"ALLOCATED VALUE" shall have the meaning ascribed to such term in
SECTION 2.1.
"ASSIGNMENTS" shall have the meaning ascribed to such term in
SECTION 8.2.
"BALANCE SHEET" shall have the meaning ascribed to that term in
SECTION 4.14.
"BUYER'S COMMON STOCK" shall mean the common stock of Buyer to be
issued and delivered to Seller under the terms of (i) the Convertible Notes
whether through conversion, redemption or exchange, or (ii) the common stock
of Buyer to be issued pursuant to Seller's Put.
"CHEYENNE PREFERENTIAL RIGHT TO PURCHASE" shall mean that certain
preferential right to purchase in favor of Cheyenne Petroleum Company with
respect to certain interests within the Old Ocean Prospect.
"CLOSING" shall have the meaning ascribed to such term in
SECTION 8.1.
"CLOSING DATE" shall have the meaning ascribed to such term in
SECTION 8.1.
"CONTRACT" shall have the meaning ascribed to such term in
SECTION 1.1(c).
"CONVERTIBLE NOTES" shall have the meaning ascribed to such term in
SECTION 2.1.
"ENCAP NET PROFITS INTEREST" shall mean that certain variable net
profits interest in favor of EnCap Energy Capital Fund III et al.
"EQUIPMENT" shall have the meaning ascribed to such term in
SECTION 1.1(d).
"EXCLUDED ASSETS" shall have the meaning ascribed to such term in
SECTION 1.2.
"LANDS" shall have the meaning ascribed to such term in
SECTION 1.1(a).
"LEASES" shall have the meaning ascribed to such term in
SECTION 1.1(b).
"LETTER OF INTENT" shall mean that certain letter of intent between
Buyer and Seller dated of even date herewith relating to the Merger
Transactions.
Appendix A, Page -1-
<PAGE>
"MATERIAL CONTRACT" shall mean a contract to which Seller is a party
and involves payments of over $100,000 in any twelve month period.
"MERGER TRANSACTIONS" shall have the meaning ascribed to such term
in the Letter of Intent.
"OFFICE EQUIPMENT" shall have mean the inventory of goods described
in EXHIBIT A-5.
"OPTION PROCEEDS" shall have the meaning ascribed to such term in
SECTION 13.1.
"OPTIONS" shall have the meaning ascribed to such term in
SECTION 1.1(b).
"PERMITTED ASSIGNEES" shall mean (i) Mr. Stewart Peck, in his
capacity as Collateral Agent for the participating creditors under that
certain Debt Restructure Agreement by and among certain trade creditors and
Seller and (ii) upon the Buyer's election to waive the automatic exercise of
the Put, as set forth in SECTION 2.2(b), the Permitted Lienholder.
"PERMITTED ENCUMBRANCES" shall mean any or all of the following:
(i) encumbrances that arise under operating agreements to
secure payment of amounts not yet delinquent and are of a type and
nature customary in the oil and gas industry;
(ii) encumbrances that arise as a result of pooling and
unitization agreements, declarations, orders or laws to secure payment
of amounts not yet delinquent;
(iii) encumbrances securing payments to mechanics and
materialmen and Encumbrances securing payment of Taxes or assessments
that are, in either case, not yet delinquent;
(iv) consents to assignment by Governmental Authorities that
are customarily obtained after the consummation of transactions of the
nature contemplated by this Agreement;
(v) easements, rights-of-way, servitudes, permits, surface
leases, surface use restrictions and other surface uses and impediments
on, over or in respect of any of the Oil and Gas Interests that are not
such as to interfere materially with the operation, value or use of any
of the Oil and Gas Interests;
(vi) such title defects as Buyer has expressly waived in
writing;
(vii) rights reserved to or vested in any municipality or
governmental, tribal, statutory or public authority to control or
regulate any of the Oil and Gas Interests in any manner, and all
applicable laws, rules and orders of any municipality or governmental
or tribal authority;
Appendix A, Page -2-
<PAGE>
(viii) the terms and conditions of (A) the Leases, (B) the
Options, (C) the Contracts and all other agreements required to be
executed under the terms and conditions of items (A) through (D) above;
(ix) the Prime Option
(x) the EnCap Net Profits Interest; and
(xi) the Cheyenne Preferential Right to Purchase.
"PERMITTED LIENHOLDER" means EnCap Energy Capital Fund III, L.P. for
an amount equal to $7,928,679.26 out of the Principal Amount of the Note,
plus interest accrued or thereafter payable thereon.
"PRIME OPTION" shall mean that certain option to purchase oil and
gas interests in favor of Prime Natural Resources, Inc. ("Prime") as set
forth in that certain Purchase and Sale Agreement dated August 25, 1999 by
and between Seller and Prime.
"PROJECT PAYOUT" shall have the meaning ascribed to such term in
SECTION 1.4.
"PROSPECT" shall mean the geographic area described and identified
in EXHIBIT A-1 and determined to be conducive for exploration of an
underlying geologic structure.
"RECORDS" shall have the meaning ascribed to such term in
SECTION 1.1(e).
"SEISMIC DATA" shall have the meaning ascribed to such term in
SECTION 1.1(f).
"PURCHASE PRICE" shall have the meaning ascribed to such term in
SECTION 2.1.
"SUBJECT INTERESTS" shall have the meaning ascribed to such term in
SECTION 1.1.
"3-D WORKSTATIONS" shall have the meaning ascribed to such term in
SECTION 1.1(h).
"VENDOR'S NOTES" shall have the meaning ascribed to such term in the
Letter of Intent.
Appendix A, Page -3-
<PAGE>
News Release [Logo]
January 13, 2000
FOR IMMEDIATE RELEASE
BENZ SELLS PORTION OF EXPLORATORY PROGRAM
HOUSTON, TEXAS - BENZ ENERGY INC. (VSE: BZG) today announces that it
has sold a portion of its exploratory program to Harken Energy Corporation
(Amex: HEC) for $12 million in convertible notes. The Company has retained a
twenty percent working interest, proportionately reduced to Benz Energy's
interest in each prospect, that vests after pay-out of Harken's drilling
costs, purchase price and cost of capital.
The sale covers three prospects in Texas, including the Old Ocean 3D
project and six prospects in Mississippi. Two wells have been proposed to
date on the Old Ocean project and the Company anticipates an aggressive
capital expenditure program by Harken to develop the prospects. The Company
will retain other exploratory assets in Mississippi and South Texas.
As part of the transaction, certain exploratory staff and
management, including the President and CEO, Prentis Tomlinson, have resigned
from the Company effective January 1, 2000. Robert Herlin, the current Chief
Financial Officer, has been elected to the additional position of President
and Chief Executive Officer. Mr. Tomlinson will continue with the Company as
the non-executive Chairman of the Board of Directors and has agreed to
provide technical advice as to the Company's ongoing development drilling in
Mississippi. Mr. Tomlinson and certain other departing employees have joined
with a company that has entered into exploration consulting and incentive
agreements with a subsidiary of Harken Energy Corporation.
Further, the Company has engaged Petrie Parkman and Co. to advise on
strategic options to maximize the value of the Company. These options could
include additional sales of assets, capital restructuring or possible sale or
merger of the Company.
Robert Herlin, President and CEO of Benz Energy, commented "This
transaction monetizes certain of our exploratory prospects while providing
Benz Energy with the opportunity to significantly participate in the upside
potential without risking further capital. To date, the Company has delayed
the testing of its prospect inventory, such as at Old Ocean, due to limited
resources. In addition, the reduction in staff and related expenses should
cut recurring overhead costs by 50% and bring the Company's ongoing cost
structure more in line with its existing production revenues."
Benz Energy Inc. is an exploration and development company based in
Houston, Texas focused on natural gas in the U.S. Gulf Coast of Texas and
Mississippi.
# # #
Cautionary Statement as to Forward-Looking Information
------------------------------------------------------
Investors are cautioned that the preceding statements of the
Company include certain estimates, assumptions and other forward-looking
information ("forward-looking statements (information)"). The actual future
performance, developments and/or results of the Company may differ materially
from any or all of the forward-looking statements (information), which
include current expectations, estimates and projections, in all or part
attributable to general economic conditions and other risks, uncertainties
and circumstances partly or totally outside the control of the Company,
including rates of inflation, natural gas prices, reserve estimates, drilling
risks, future production of oil and gas, changes in future costs and expenses
related to oil and gas activities and hedging, financing availability and
other risks related to financial activities.
The Vancouver Stock Exchange has not reviewed and does not accept
responsibility for the adequacy or the accuracy of this release.
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
For additional information contact: Robert S. Herlin
1000 Louisiana, 15th Floor, Houston, Texas 77002 Tel: (713) 739-0351
Fax: (713) 739-8402
e-mail: [email protected]
