Debt Restructure Agreement

DEBT RESTRUCTURE AGREEMENT


BETWEEN


BENZ ENERGY, INC.,
TEXSTAR PETROLEUM, INC.
STEWART PECK, IN HIS CAPACITY AS
COLLATERAL AGENT, STEWART PECK,
IN HIS CAPACITY AS DEPOSIT AGENT,
PARTICIPATING CREDITORS AND,
SOLELY FOR THE PURPOSES INDICATED IN
SECTION 25.09, AQUILA ENERGY CAPITAL CORPORATION


DEBT RESTRUCTURE AGREEMENT


This Debt Restructure Agreement ("Agreement") is made by and among Benz Energy, Inc., Texstar Petroleum, Inc., Stewart Peck, in his capacity as Collateral Agent, Stewart Peck, in his capacity as Deposit Agent, Participating Creditors and, solely for the purposes indicated in Section 25.09, Aquila Energy Capital Corporation.


ARTICLE I


DEFINITIONS


The following terms, as used in this Agreement, shall have the meanings indicated below, unless the context otherwise requires:


1.01 "ALLOWED AMOUNT" shall mean the amount of a creditor's claim which is either (i) acknowledged and agreed to by the Companies, or (ii) is established as due and owing by the Companies pursuant to the arbitration procedures set forth in Section 6.03. In no event shall the Allowed Amount include interest for the period prior to the Closing Date or attorneys' fees.


1.02 "AQUILA" shall mean Aquila Energy Capital Corporation, a Delaware corporation, its successors and assigns.


1.03 "AVERAGE ADJUSTED SHARE PRICE" shall mean the average of the closing price of shares of Benz common stock for the thirty (30) trading days prior to payment in full of the Participating Creditor Claims as provided in this Agreement (excluding the Upside Payment) adjusted for share consolidations and dilutions from issuance of stock at less than market price (other than that resulting from the exercising, existing or proposed warrants or options disclosed in the Benz Energy Inc. Offer to Exchange and Offer to Sell dated June 15, 1999 or options and warrants issued in the future at exercise price less than the then market price).


1.04 "BENZ" shall mean Benz Energy, Inc.


1.05 "BUSINESS DAY" shall mean a day other than a Saturday, a Sunday, or any federal holiday.


1.06 "CAPITAL EXPENDITURES" shall mean, from and after the first day of the month following the Closing Date, all costs required to be capitalized initially according to generally accepted accounting procedures under the full cost accounting method, and shall include oil and gas lease acquisition costs, seismic data acquisition expenses, seismic data processing expenses, delay rental payments, plugging and abandonment expenses, and (to the extent not treated as lease operating expenses) costs to comply with governmental regulations.


1.07 "CASH" means legal tender of the United States or equivalents thereof.


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1.08 "CLOSING DATE" shall mean the first Business Day following satisfaction of all conditions to this Agreement set forth in Article II, which shall be August 6, 1999 unless extended by the Companies in their sole discretion; provided that in no event shall the Closing Date be extended beyond September 30, 1999.


1.09 "COLLATERAL AGENT" shall mean Stewart Peck or his successor appointed pursuant to the terms of this Agreement and the Collateral Agent Agreement.


1.10 "COLLATERAL AGENT AGREEMENT" shall mean the Collateral Agent Agreement in the form of Exhibit 8.


1.11 "COLLATERAL DOCUMENTS" shall mean the Deeds of Trust, Assignment of Production, Security Agreement and Financing Statement and Act of Mortgage, Pledge and Security Agreement substantially in the form of Exhibits 3, 4 and 5 and the Security Agreement substantially in the form of Exhibit 6 to this Agreement.


1.12 "COMPANIES" shall mean Benz and Texstar.


1.13 "CONVENIENCE CLAIM" shall mean any claim against either or both of the Companies that is (i) $10,000 or less, or (ii) more than $10,000 if the holder has elected on a timely basis, to reduce its claim to $10,000.


1.14 "CREDITOR RATIFICATION" shall mean the Ratification and Limited Power of Attorney in the form attached as Exhibit 1.


1.15 "DEBT SERVICE" shall mean payments of principal and interest that are required to be made on the Senior Indebtedness, the Enabling Loan and Future Loans from and after the first day of the month following the Closing Date.


1.16 "DEDICATED PORTION OF NET LOAN PROCEEDS" shall mean fifty percent (50%) of the Net Loan Proceeds.


1.17 "DEDICATED PORTION OF NET PROPERTY SALE PROCEEDS" shall mean on a property-by-property basis fifty percent (50%) of the Net Property Sales Proceeds.


1.18 "DEDICATED RECEIVABLES" shall mean the dollar amount owed to Texstar by (i) Century Offshore Management Co. for operations on the Oakvale Dome property and Wausau property through June 30, 1999, and (ii) Akasha Partners LLC for operations on the Wausau property and the East Morgantown property through June 30, 1999.


1.19 "DEPOSIT AGENT" shall mean Stewart Peck.


1.20 "DISPUTED CLAIM" shall mean that portion of an Eligible Claim held by a Participating Creditor in excess of the Allowed Amount.


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1.21 "DISPUTED CLAIM RESERVE" shall mean the dollar amount which at any point in time would have been paid to a Participating Creditor for and on account of its Disputed Claim if such Disputed Claim was an Allowed Amount.


1.22 "ELIGIBLE CLAIMS" shall mean the claims held by the creditors of the Companies for services, materials or supplies provided on or before June 14, 1999 listed on Exhibit 2 to this Agreement and in the amounts which are listed in Exhibit 2, plus (i) any additional amounts which are later determined to have been owed in accordance with Article VI, and (ii) any additional creditor and claim which the Companies elect at any point (including after the Closing Date) to include as Eligible Claims. The dollar amount of Eligible Claims shall be adjusted to reflect any settlements or arbitration awards.


1.23 "ENABLING LOAN" shall mean all loans by Aquila (and other amounts due Aquila) pursuant to the loan agreement entered into on or about the Closing Date between Texstar and Aquila, which loans shall not be in an aggregate amount less than $25,000,000 nor greater than $35,000,000 unless the Requisite Majority otherwise consents in writing.


1.24 "EVENT OF DEFAULT" shall mean the occurrence of any conditions, events or acts described in Article XXII.


1.25 "EXEMPTED MERGER" shall mean a merger by Benz approved by a majority of Senior Management with a U.S. corporation that is effected for the primary purpose of enabling Benz to list its common shares on the NASDAQ or similar system or American Stock Exchange. A merger with any company listed on the NASDAQ, American Stock Exchange or similar system will be deemed to be effectively for the primary purpose of enabling Benz to list its common shares on such exchange or system if the other company has an Enterprise Value equal to or less than half of the Enterprise Value of Benz. For the purpose of this section, "Enterprise Value" is the aggregate of total debt, principal amount of preferred stock not traded on a public market and the market value of all publicly traded stock.


1.26 "FUTURE LOAN" shall mean any lending transactions (other than vendor financing), including any loans by Aquila other than the Enabling Loan, which are entered into subsequent to the Closing Date.


1.27 "G&A EXPENSES" shall mean, from and after the first day of the month following the Closing Date, all customary and routine expenses generated or incurred by the Companies for legal, accounting, data processing, geological, engineering or secretarial services, group services and costs, depreciation (other than depreciation relating to real property), travel, office rent, telephone, reasonable employee compensation and benefits comparable to that paid by similar publicly traded oil and gas exploration companies (compensation in accordance with existing agreements or past levels is deemed reasonable), maintenance of the publicly traded status of the Benz Stock, and other items of a general and administrative nature, whether like or unlike the foregoing, and any other incidental expenses reasonably necessary to conduct the Companies' business.


1.28 "INITIAL PAYMENTS" shall mean the payments to Participating Creditors provided for


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in Section 8.01.


1.29 "LOAN EXPENSES" shall mean, from and after the first day of the month following the Closing Date, the direct costs, fees and expenses incurred by the Companies in connection with obtaining financing or refinancing on the Oil and Gas Properties, including but not limited to, commissions, finders fees, title policy premiums, endorsement charges, escrow fees, reasonable and actual legal fees and charges of the lender (i.e., engineering, repairs and repair allowances, legal, appraisal and loan fees), survey expenses, and title company charges and legal fees incurred by the Companies.


1.30 "NET LOAN PROCEEDS" means the gross proceeds from a Future Loan minus the sum of (i) Loan Expenses, (ii) the dollar amount of such loan proceeds used to repay any loan (including the Senior Indebtedness, the Enabling Loan and any Future Loan) secured by liens with priority greater than that of the liens securing the obligations to the Collateral Agent, and (iii) the portion of the loan proceeds required by the lender to be dedicated for purposes other than repayment of existing debt.


1.31 "NET PROPERTY SALE PROCEEDS" shall mean the gross proceeds from the sale of one or more of the Oil and Gas Properties less the sum of the Selling Expenses, Senior Indebtedness, Enabling Loan and Future Loan.


1.32 "NET REVENUE FROM OPERATIONS" shall mean the amount by which cumulative Revenue from Operations exceeds cumulative Operation Expenses.


1.33 "NON-PARTICIPATING CLAIMS" shall mean the amount of Eligible Claims of creditors that fail to become Participating Creditors.


1.34 "NON PARTICIPATING CREDITOR RESERVE" shall mean the dollar amount which at any point in time would have been paid to holders of Non Participating Claims pursuant to this Agreement if they had elected to be Participating Creditors.


1.35 "OIL AND GAS PROPERTIES" shall mean the Companies' interest in oil and gas leases pledged as collateral pursuant to the Collateral Documents (excluding third party royalties, overriding royalties, net profit interests or interests held in trust for the benefit of third parties), together with the interest in any oil and gas leases acquired by the Companies (excluding third party royalties, overriding royalties, net profit interests or interests held in trust for the benefit of third parties) subsequent to the Closing Date that are required to be pledged as collateral pursuant to Article XIX. The security interest in the Old Ocean property pledged as collateral shall be fifty percent (50%) of the Companies' working interest as of July 1, 1999. Accordingly, any interest in the Old Ocean property in excess of a fifty percent (50%) of the Companies' working interest as of July 1, 1999 is not included within the definition of an Oil and Gas Property for purposes of this Agreement. The security interest in the Rayburn property pledged as collateral shall be a sixty percent (60%) working interest. Accordingly, any interest in the Rayburn property in excess of a sixty percent (60%) working interest is not included within the definition of an Oil and Gas Property for purposes of this Agreement. The Plum Grove property shall not be included as an Oil and Gas


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Property.


1.35 "OPERATING AGREEMENT" means the operating agreements in effect as of the date hereof, and from time to time hereafter, for the Oil and Gas Properties between either of the Companies and other working interest owners.


1.36 "OPERATION EXPENSES" shall mean and shall include the following costs and expenses actually incurred by the Companies from and after the first day of the month following the Closing Date:


(i) all costs of gathering, transporting and marketing
production from the Oil and Gas Properties;


(ii) all costs of operating, producing and maintaining the Oil
and Gas Properties (including any third party non-operating interest
owner's share of expenses advanced by the Companies pursuant to the terms
of an Operating Agreement);


(iii) Capital Expenditures;


(iv) all costs of processing production from the Oil and Gas
Properties;


(v) G&A Expenses;


(vi) Debt Service;


(vii) Taxes;


(viii) the Non Participating Creditor Reserves and payments to Non
Participating Creditors up to the amount of the Non Participating
Creditor Reserve; and


(ix) payments for and on account of Participating Creditors'
Claims.


1.37 "PARTICIPATING CREDITOR'S CLAIM" shall mean the Allowed Amount of an Eligible Claim of a Participating Creditor and shall not include the Upside Payment Amount.


1.38 "PARTICIPATING CREDITORS" shall mean the holders of Eligible Claims that satisfy the requirements to become Participating Creditors.


1.39 "PRO RATA" means the proportion that the balance of the Allowed Amount of a Participating Creditor Claim bears to the aggregate balance of all Eligible Claims held by Participating Creditors unless otherwise provided.


1.40 "REQUISITE MAJORITY" shall mean Participating Creditors holding at least sixty percent (60%) by number of all Participating Creditor Claims that timely return ballots in response to a Solicited Action, provided that such claims must have originally totaled at least $3,500,000


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(based on Allowed Amounts prior to crediting payments pursuant to this Agreement).


1.41 "REVENUE FROM OPERATIONS" shall mean the following amounts actually earned and received by the Companies from and after the first day of the month following the Closing Date:


(i) gross proceeds from the sale of hydrocarbons produced from
the Oil and Gas Properties;


(ii) funds received from third party non-operating interest
owners to reimburse the Companies for advances pursuant to an Operating
Agreement;


(iii) all material proceeds received by the Companies from the
sale, from and after the Closing Date, of any materials, supplies,
equipment and other personal property or fixtures, or any part thereof or
interest therein, located on or used in connection with the Oil and Gas
Properties;


(iv) all insurance proceeds received by the Companies as a
consequence of the loss or damage from and after the Closing Date to the
Oil and Gas Properties, or any part thereof or interest therein, or any
materials, supplies, equipment or other personal property or fixtures
located on or used in connection with any of the Oil and Gas Properties,
unless such proceeds are used by the Companies within 180 days of receipt
to replace any such lost or damaged materials, supplies, equipment and
other personal property; and


(v) the proceeds of all judgments and claims received by the
Companies (excluding the Dedicated Receivables) for damages from and
after the Closing Date directly related to the Oil and Gas Properties, or
any part thereof or interest therein, or any materials, supplies,
equipment or other personal property or fixtures, or any part thereof or
interest therein, located on or used in connection with any of the Oil
and Gas Properties and which is specifically allocated to the Oil and Gas
Properties or the materials, supplies, equipment or other personal
property or fixtures or any part thereof located on or used in connection
with any of the Oil and Gas Properties.


Proceeds from the sale of Oil and Gas Properties and loan proceeds are not included within Revenue from Operations.


1.42 "SELLING EXPENSES" shall mean the direct costs, fees and expenses incurred by the seller in connection with the sale of an Oil and Gas Property, including but not limited to, all transfer gains and sales taxes, sales commissions, employee supplemental compensation of ten percent (10%) of Net Property Sales Proceeds from undeveloped properties net of all other Selling Expenses, finders fees, title policy premiums, endorsement charges, escrow fees, survey expenses and title company charges, repair costs and repair allowances, actual legal costs and fees.


1.43 "SENIOR INDEBTEDNESS" shall mean the indebtedness described in Exhibit 7.


1.44 "SENIOR MANAGEMENT" shall mean Prentis Tomlinson, Bob Herlin and Todd Grabois.


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1.45 "SOLICITED ACTION" shall mean any proposed action or agreement that Participating Creditors are requested to approve in accordance with the procedures set forth in Section 24.02.


1.46 "SUBSTANTIAL MANAGEMENT CHANGE" shall mean the termination or resignation of two (2) or more of the existing Senior Management.


1.47 "TAXES" means all taxes of any type including income, franchise, transfer, ad valorem, property, occupation, gathering, pipeline regulating, windfall profit, severance, gross production, energy, excise and other taxes and governmental charges and assessments imposed on the Oil and Gas Properties, regardless of whether incurred before or after the Closing Date.


1.48 "TEXSTAR" shall mean Texstar Petroleum, Inc.


1.49 "UPSIDE PAYMENT" shall mean the payment provided for in Article X.


1.50 "UPSIDE PAYMENT AMOUNT" shall mean one percent (1%) of the balance of Participating Creditor Claims, after crediting the Initial Payment, for every $.05 (Canadian) that the Average Adjusted Share Price exceeds $.70 (Canadian) up to a maximum of five percent (5%). For purposes of this calculation, the Average Adjusted Share Price will be rounded to the nearest number evenly divisible by five. For example, if the Average Adjusted Share Price was $.82 (Canadian) a Participating Creditor's Upside Payment Amount would be two percent (2%) of the balance of that claim after crediting the Initial Payment. In the event that the shares of Benz common stock become denominated in U.S. dollars, the above amounts that are in Canadian dollars will be converted to U.S. dollars at the exchange rate between Canada and U.S. currency published by Bloomberg on the Business Day preceding such change in denomination.


ARTICLE II


CONDITIONS


2.01 CONDITIONS TO BE SATISFIED BY TEXSTAR. The obligations of Benz, Participating Creditors and the Collateral Agent under this Agreement are conditioned upon the completion of the following conditions on or before the Closing Date, each of which constitute a condition precedent to their covenants and agreements under this Agreement.


(a) AGREEMENT. Texstar shall execute and deliver this
Agreement to the Deposit Agent.


(b) COLLATERAL DOCUMENTS. Texstar shall execute and deliver
the Collateral Documents to the Deposit Agent.


(c) COLLATERAL AGENT AGREEMENT. Texstar shall execute and
deliver the Collateral Agent Agreement to the Deposit Agent.


(d) INITIAL PAYMENT. Texstar shall execute and deliver to the
Deposit Agent


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company checks payable to Participating Creditors for Participating
Creditor Claims in the amount of the required Initial Payments as
provided in Section 8.01.


(e) REPRESENTATION. The representations of Texstar set forth in
this Agreement shall be true in all material respects as of the Closing
Date.


2.02 CONDITIONS TO BE SATISFIED BY BENZ. The obligations of Texstar, Participating Creditors and the Collateral Agent under this Agreement are conditioned upon completion of the following conditions on or before the Closing Date.


(a) AGREEMENT. Benz shall execute and deliver this Agreement
to the Deposit Agent.


(b) REPRESENTATION. The representations of Benz set forth in
this Agreement shall be true in all material respects as of the Closing
Date.


2.03 CONDITION TO BE SATISFIED BY PARTICIPATING CREDITORS. The obligations of the Companies and the Collateral Agent under this Agreement are conditioned upon holders of Eligible Claims holding at least eighty-five percent (85%) by dollar amount of all Eligible Claims timely satisfying the requirements to become Participating Creditors as provided in Article V hereof. Unless extended by the Companies, in their sole discretion, the deadline for satisfaction of this condition is August 13, 1999. The timely satisfaction of this condition constitutes a condition precedent to the covenants and agreements of the Companies and the Collateral Agent under this Agreement.


2.04 OTHER CONDITIONS TO BE SATISFIED. The obligations of the Companies, the Collateral Agent and the Participating Creditors are conditioned upon (i) closing and funding of the Enabling Loan, (ii) the Benz Offer to Exchange Shares of Class A Series II Convertible Preferred Stock for Convertible Debentures and Sell Class A Series II Convertible Preferred Stock dated June 15, 1999, (iii) purchase of Class A Redeemable Preferred Stock Series A by EnCap Energy Capital Fund III, L.P., and (iv) delivery by counsel for the Companies to the Deposit Agent of an Opinion of Counsel substantially in the form of Exhibit 9, on or before the Closing Date, each of which constitutes a condition precedent to the covenants and agreements under this Agreement.


ARTICLE III


DEPOSIT AGENT


3.01 DEPOSITS IN ESCROW. Pending satisfaction of the conditions set forth in Article II, the instruments delivered to the Deposit Agent shall be held in escrow.


3.02 DELIVERY TO COLLATERAL AGENT IN EVENT CONDITIONS ARE SATISFIED. In the event the conditions set forth in Article II are timely satisfied, the Deposit Agent shall deliver to the Collateral Agent (i) this Agreement fully executed by the Companies, Participating Creditors and the Collateral Agent, and (ii) copies of Creditor Ratifications executed by Participating Creditors, and (iii) the


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Collateral Documents fully executed by Texstar.


3.03 DELIVERY TO PARTICIPATING CREDITORS IN THE EVENT CONDITIONS ARE SATISFIED. In the event that the conditions set forth in Article II are timely satisfied, then, within two (2) Business Days of satisfaction of all conditions, the Deposit Agent shall mail the checks representing the Initial Payment to each Participating Creditor.


3.04 DELIVERY TO THE COMPANIES IN THE EVENT CONDITIONS ARE SATISFIED. In the event that the conditions set forth in Article II are timely satisfied, the Deposit Agent shall simultaneous with receipt of the checks for the Initial Payment deliver the originals of each Creditor Ratification to Texstar.


3.05 INSTRUCTIONS IN EVENT CONDITIONS ARE NOT TIMELY SATISFIED. In the event that the conditions set forth in Article II are not satisfied within the times (including any extensions granted in accordance therewith) set forth therein, then this Agreement shall be void and the instruments delivered to the Deposit Agent shall be of no force and effect and shall be destroyed by the Deposit Agent. The Collateral Agent shall have no obligation or duties in the event the conditions set forth in Article II are not timely satisfied.


3.06 LIMITATION ON DUTY AND LIABILITY OF DEPOSIT AGENT. The duties and responsibilities of the Deposit Agent shall be limited to those expressly set forth in this Agreement. No implied duties of the Deposit Agent shall be read into this Agreement, and the Deposit Agent shall not be subject to, or obliged to recognize, any other agreement between, or direction or instruction of, any or all of the parties hereto even though reference thereto may be made herein. The Deposit Agent is authorized, in its sole discretion, to disregard any and all notices or instructions given by any other party hereto or by any other person, firm or corporation, except only such notices or instructions as are herein provided for or orders of any court entered or issued with or without jurisdiction. If any property subject hereto is at any time attached, garnished, or levied upon under any court order or in case the payment, assignment, transfer, conveyance or delivery of any such property shall be stayed or enjoined by any court order, or in case any order, judgment or decree shall be made and entered by any court affecting such property or any part hereof, then and in any such event the Deposit Agent is authorized, in its sole discretion, to rely upon and comply with any such order, writ, judgment or decree with which it is advised by legal counsel of its own choosing is binding upon it; and if it complies with any such order, writ, judgment or decree, it shall not be liable to any other party hereto or to any other person, firm or corporation by reason of such compliance even though such order, writ, judgment or decree may be subsequently reversed, modified, annulled, set aside or vacated. The Deposit Agent may rely, and shall be protected in acting or refraining from acting, upon any instruments furnished to it hereunder and believed by it to be genuine and believed by it to have been signed or presented by the appropriate party or parties. The Deposit Agent shall not be responsible for the sufficiency or accuracy, or the form, execution, validity or genuineness, of documents hereafter deposited or received hereunder, or of any endorsement thereon, or for lack of endorsement thereon, or for any description therein; nor shall it be responsible or liable in any respect on account of the identity, authority or rights of any person executing, depositing or delivering or purporting to execute, deposit or deliver any such document, security or endorsement or this Agreement, or on account of or by reason of forgeries, false representations, or the exercise


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of its discretion in any particular manner; nor shall the Deposit Agent be liable for any mistake of fact or any error of judgment, or for any act or omission, except as a result of its gross negligence or willful malfeasance.


3.07 INDEMNITY. The Companies hereby agree to protect, defend, indemnify and hold harmless the Deposit Agent against and from any and all costs, losses, liabilities, expenses (including counsel fees and expenses) and claims imposed upon or asserted against the Deposit Agent on account of any action taken or omitted to be taken by it in good faith in connection with its acceptance of or performance of its duties and obligations as Deposit Agent under this Agre ...