<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 13, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
---------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
CARRIZO OIL & GAS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<C> <C> <C>
TEXAS 1311 76-0415919
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
CARRIZO OIL & GAS, INC.
14811 ST. MARY'S LANE, SUITE 148
HOUSTON, TEXAS 77079
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
S. P. JOHNSON IV
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CARRIZO OIL & GAS, INC.
14811 ST. MARY'S LANE, SUITE 148
HOUSTON, TEXAS 77079
(281) 496-1352
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
---------------------
Copies to:
<TABLE>
<S> <C>
GENE J. OSHMAN T. MARK KELLY
BAKER & BOTTS, L.L.P. VINSON & ELKINS L.L.P.
3000 ONE SHELL PLAZA 1001 FANNIN, SUITE 2500
HOUSTON, TEXAS 77002-4995 HOUSTON, TEXAS 77002-6760
(713) 229-1234 (713) 758-2222
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(1) OFFERING PRICE(2)(3) REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share........... -- -- $37,375,000 $11,326
==================================================================================================================
</TABLE>
(1) In accordance with Rule 457(o) under the Securities Act of 1933, as amended,
the number of shares being registered and the proposed maximum offering
price per share are not included in this table.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) Includes shares of Common Stock issuable upon exercise of the Underwriters'
over-allotment option.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JUNE 13, 1997
2,500,000 SHARES
[LOGO]
CARRIZO OIL & GAS, INC.
COMMON STOCK
($0.01 PAR VALUE)
All of the shares of Common Stock offered hereby are being sold by Carrizo
Oil & Gas, Inc. (the "Company"). Application will be made for inclusion of the
Common Stock on the Nasdaq National Market under the symbol "CZOG." Prior to the
Offering, there has been no public market for the Common Stock. It is currently
anticipated that the initial public offering price will be between $11.00 and
$13.00 per share. See "Underwriting" for factors to be considered in determining
the initial public offering price.
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" ON PAGE 11.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
==============================================================================================================
UNDERWRITING
PRICE DISCOUNTS AND PROCEEDS TO
TO PUBLIC COMMISSIONS(1) COMPANY(2)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share............................... $ $ $
- --------------------------------------------------------------------------------------------------------------
Total(3)................................ $ $ $
==============================================================================================================
</TABLE>
(1) See "Underwriting" for indemnification arrangements.
(2) The estimated expenses of $ are payable by the Company.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to an additional 375,000 shares of Common Stock solely to cover
over-allotments. If this option is exercised in full, total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."
The shares of Common Stock offered hereby are being offered by the several
Underwriters, subject to prior sale and acceptance by the Underwriters and
subject to their right to reject any order in whole or in part. It is expected
that the Common Stock will be available for delivery on or about ,
1997 at the offices of Schroder Wertheim & Co. Incorporated, New York, New York.
SCHRODER WERTHEIM & CO. JEFFERIES & COMPANY, INC.
, 1997
<PAGE> 3
[MAP SHOWING LOCATIONS OF THE COMPANY'S PROJECT AREAS]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES OFFERED
HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE SHORT
COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise indicated, the information in
this Prospectus (i) gives effect to the Combination Transactions (as defined
below under "-- The Combination Transactions") and the issuance of approximately
2,290,000 shares of Common Stock pursuant to such transactions, (ii) assumes
that the Underwriters' over-allotment option will not be exercised and (iii) has
been adjusted to reflect the 521-for-one split of the Common Stock effected in
June 1997. Unless otherwise indicated by the context, references herein to
"Carrizo" mean Carrizo Oil & Gas, Inc., a Texas corporation that is the issuer
of the Common Stock offered hereby, and references to the "Company" mean Carrizo
and its corporate and partnership subsidiaries and predecessors. Certain terms
used herein relating to the oil and natural gas industry are defined in the
Glossary of Certain Industry Terms included elsewhere in this Prospectus.
THE COMPANY
OVERVIEW
Carrizo is an independent oil and gas company engaged in the exploration,
development, exploitation and production of natural gas and crude oil. The
Company's operations are currently focused onshore in proven oil and gas
producing trends along the Gulf Coast, primarily in Texas and Louisiana in the
Frio, Wilcox and Vicksburg trends. The Company believes that the availability of
economic onshore 3-D seismic surveys has fundamentally changed the risk profile
of oil and gas exploration in these regions. Recognizing this change, the
Company has aggressively sought to control significant prospective acreage
blocks for targeted, proprietary, 3-D seismic surveys. As of May 31, 1997, the
Company had assembled approximately 322,000 gross acres under lease or option.
Approximately 75% of the Company's current acreage position is covered by
3-D seismic data that the Company has acquired, or is in the process of
acquiring, in its first 15 seismic surveys. The Company expects to acquire
additional 3-D seismic data during the remainder of 1997 and 1998 that will
cover substantially all of its remaining current acreage position. From the data
generated by its first seven proprietary seismic surveys, covering 200 square
miles, 94 drillsites have been identified. The Company's capital budgets for
1997 and 1998 of approximately $22.6 million and $54.2 million, respectively,
include amounts for the acquisition of additional 3-D seismic data and for the
drilling of 67 gross wells (24.6 net) in 1997 with a 37% average working
interest and the drilling of 147 gross wells (67.5 net) in 1998 with an
anticipated 46% average working interest. In addition, the Company anticipates
that as its 3-D seismic data is further evaluated, additional prospects will be
generated for drilling beyond 1998.
Typically, the Company's primary drilling targets have been shallow (from
4,000 to 7,000 feet), normally pressured reservoirs that generally involve
moderate cost (averaging $200,000 to $500,000 per completed well) and risk. Many
of these drilling prospects also have secondary, deeper, over-pressured targets
which have greater economic potential but generally involve higher cost
(averaging $1 million to $2 million per completed well) and risk. The Company
often seeks to sell a portion of these deeper prospects to reduce its
exploration risk and financial exposure while still allowing the Company to
retain significant upside potential. Deeper targets have been identified in
seven of the Company's 67 prospects budgeted for drilling in 1997. The Company
operates the majority of its projects through the exploratory phase but may
relinquish operator status to qualified partners in the production phase to
control costs and focus resources on the higher-value exploratory phase. As of
May 31, 1997, the Company operated 66 producing oil and gas wells, which
accounted for 57% of the wells in which the Company had an interest.
3
<PAGE> 5
The Company seeks to increase its exposure to projects in its core areas
through the use of a broad project generation network, including outside
regional geologists, joint venture partners and its internal geophysical team.
Similarly, the Company uses contract geoscientists with expertise in a
particular project area, the prospect generation teams of its industry partners
and its internal geophysical staff to identify drillsites. The Company believes
that this strategy has enhanced its ability to control general and
administrative expenses, which averaged $0.27 per Mcfe of production for the
first quarter of 1997.
The Company has experienced rapid increases in reserves, production and
earnings before interest expense, income taxes, depreciation, depletion and
amortization ("EBITDA") since its inception in 1993 due to the growth of its 3-D
based drilling and development activities. From January 1, 1996 to March 31,
1997, the Company participated in the drilling of 29 gross wells (8.9 net) with
a commercial well success rate of approximately 79%. This drilling success
contributed to the Company's total proved reserves as of March 31, 1997 of
approximately 38.8 Bcfe, with a PV-10 Value of $30.4 million. From inception
through March 31, 1997, the Company's average finding and development cost was
approximately $0.47 per Mcfe. The Company's production has increased 125% from
321 MMcfe for the three months ended March 31, 1996 to 721 MMcfe for the three
months ended March 31, 1997. EBITDA has also increased significantly from
$328,000 for the three months ended March 31, 1996 to $1.1 million for the three
months ended March 31, 1997.
In addition to its core exploratory operations, the Company operates a
heavy oil project in Anderson County, Texas which, as of March 31, 1997,
contained proved reserves of approximately 3.6 MMBbls of 19 degrees API gravity
crude oil. The project produces from a depth of 500 feet and utilizes a tertiary
steam drive as an enhanced oil recovery process. During the first quarter of
1997, the Company produced 107 Bbls/d of oil from this project, which averaged a
$0.65 per Bbl premium over West Texas Intermediate crude due to the produced
oil's suitability as a lube oil feedstock.
The Company's management team has extensive energy industry experience.
S.P. Johnson IV, the Company's President and Chief Executive Officer, has 18
years of industry experience, including 15 years with Shell Oil Company where he
served in various managerial positions. The Company's technical and operating
employees have an average of 15 years of industry experience, in many cases with
major and large independent oil companies, including Shell Oil Company, Vastar
Resources, Inc., Pennzoil Company and Tenneco Inc. The Company's Board of
Directors and major shareholders include its Chairman, Steven A. Webster, who is
also Chairman and Chief Executive Officer of Falcon Drilling Company Inc., and
Paul B. Loyd, Jr., the Chairman and Chief Executive Officer of Reading & Bates
Corporation.
The Company believes that its future growth will be driven by the drilling
and development of existing identified opportunities as well as new 3-D based
prospects that are continually being identified from its growing project
portfolio. The Company intends to use the proceeds of this Offering to
accelerate its drilling and development activities, expand its prospective
acreage acquisition program and increase the number and size of, and working
interest in, additional 3-D based projects.
BUSINESS STRATEGY
The Company's business strategy is to profitably expand its reserve base,
production levels and EBITDA through the following key elements:
Aggressive Acreage and Seismic Acquisition Program. The Company seeks to
control significant prospective acreage positions in proven producing trends and
then acquire 3-D seismic data to evaluate this acreage. The Company believes
that recent technical improvements and cost reductions of onshore 3-D seismic
surveys and oil and gas drilling techniques have changed the risk/reward profile
of exploration in these regions and allow for the profitable exploration and
development of previously undetected or uneconomic drilling prospects. The
Company believes that
4
<PAGE> 6
its existing large acreage position and seismic database will generate a
significant inventory of drillsites over the next several years.
Focused Exploration. The Company intends to maintain its exploration focus
primarily in the onshore Gulf Coast region, which it believes offers numerous
advantages, including: (i) geologic trends that are prone to the accumulation of
significant oil and gas reserves in multiple target zones, (ii) a large number
of over-looked or under-exploited drilling prospects, (iii) familiarity of the
Company's personnel with the geology of the region, (iv) established
relationships with other regional participants and (v) availability of pipeline
and operating infrastructure. Based on the results to date of its exploration
activities, the Company believes that significant undiscovered reserves remain
in this region, and the Company plans to utilize its existing database of 3-D
seismic and geologic data and its knowledge of the region's producing fields and
trends to further expand its operations within this core region.
Leveraged Project and Drillsite Generation Program. The Company maintains a
flexible and diversified approach to project identification to increase its
exposure to projects in its core areas. The Company's project areas have been
identified by a broad network that includes contract geoscientists who have
expertise in a particular project area, the exploration teams of several
industry partners as well as the Company's internal geophysical team. This
approach has enabled the Company to increase the number and diversity of
projects from which the Company has developed its exploration program while
controlling the costs associated with these operations. Similarly, in
identifying specific drillsites within a project area, the Company's internal
exploration team has worked with outside contract geoscientists and joint
venture partners.
Prospects with Attractive Risk/Reward Balance. The Company seeks to retain
significant working interest positions in exploration prospects that fit its
risk/reward criteria. Many of the Company's exploration prospects contain both
primary targets with shallower, normally pressured reservoirs that generally
involve moderate cost and risk, as well as secondary targets that consist of
deeper, over-pressured and often larger reservoirs but involve higher cost and
risk. The Company typically retains all or the majority of its interests in the
shallow targets and often sells a portion of its interests in the deeper targets
to industry partners in order to mitigate its exploration risk and fund the
anticipated capital requirements for the retained portion of these targets. The
Company believes that this strategy affords it significant upside potential with
reduced overall risk.
5
<PAGE> 7
CURRENT EXPLORATORY PROJECTS
The Company is currently evaluating 32 exploration project areas. As of May
31, 1997, the Company had an existing 3-D seismic database of 661 square miles
and was acquiring an additional 436 square miles of data (totaling 1,097 square
miles of 3-D seismic data). To date, all project areas for which seismic data
has been interpreted have yielded multiple prospects and drillsites. The Company
is continuing to receive and interpret data covering these project areas and
believes that each project area has the potential for additional prospects and
drillsites. For additional information as to these project areas, see
"Business -- Significant Project Areas."
1997-1998 EXPLORATION PROGRAM
<TABLE>
<CAPTION>
SQ. MILES OF 3-D
GROSS SEISMIC DATA AT TOTAL
ACREAGE MAY 31, 1997 1997
LEASED OR ---------------------- AND
UNDER BUDGETED 1997 1998 1998 AVERAGE
OPTION AT EXISTING FOR BUDGETED BUDGETED BUDGETED AVERAGE NET
MAY 31, OR BEING ACQUISITION GROSS GROSS GROSS WORKING REVENUE
PROJECT AREAS 1997 ACQUIRED 1997-1998 WELLS(1) WELLS(2) WELLS INTEREST(3) INTEREST(3)
------------- --------- -------- ----------- -------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TEXAS
Starr/Hidalgo........... 4,888 340(4) -- 11 15 26 50.0% 37.5%
Encinitas/Kelsey........ 9,110 32 -- 14 1 15 27.5% 23.0%
Buckeye................. 16,280 22 20 9 11 20 50.0% 39.0%
La Rosa................. 8,260 22 -- 2(2) 4 6 31.5% 23.6%
Mexican Sweetheart...... 29,421 40 -- -- 8 8 25.0% 18.8%
McFaddin Ranch.......... 5,300 15 -- 1 4 5 37.5% 28.1%
Cologne................. 25,160 40 -- 2(2) 8 10 25.0% 18.8%
South Cabeza Creek...... 10,406 20 -- 1(2) 4 5 52.5% 39.4%
East McFaddin........... 6,640 11 -- 3 -- 3 20.0% 16.5%
Hiawatha................ 14,985 22 -- 10 4 14 42.0% 31.5%
Western 325............. -- 320(4) -- -- 5 5 50.0% 37.5%
Lance................... 16,000 30 -- 3 5 8 25.0% 19.3%
Highway 59.............. 3,947 -- 20 -- 4 4 20.0% 15.0%
Geronimo................ 66,161 107 -- 5 10 15 15.0% 11.3%
RPP Welder.............. 26,585 60 -- -- 10 10 15.0% 11.3%
Midway.................. 3,040 -- 15 2(2) 4 6 50.0% 37.5%
Lost Bridge............. 1,625 16 -- 1(2) 3 4 50.0% 37.5%
Drake 202............... 12,000 -- 19 -- -- -- 100.0% 82.8%
Other (11 Areas)........ 57,605 -- 291 -- 42 42 72.5% 56.9%
LOUISIANA
North Chalkley.......... 640 -- 20 1 2 3 18.0% 14.2%
Atchafalaya............. 3,400 -- -- 1 2 3 55.4% 41.5%
Live Oak................ 350 -- -- 1 1 2 20.0% 15.0%
------- ----- --- -- --- ---
TOTAL..................... 321,803 1,097 385 67 147 214
======= ===== === == === ===
</TABLE>
- ---------------
(1) Consists of identified drillsites included in the Company's 1997 capital
budget that are fully evaluated, leased and have been or are scheduled to be
drilled during 1997, except as otherwise indicated. Of these budgeted wells,
19 had been drilled as of May 31, 1997.
(2) Consists of wells included in the Company's 1997 and 1998 capital budgets,
but as to which 3-D seismic data has either not been obtained or fully
evaluated, or for which the Company has not yet acquired leases or option
rights. The number of wells indicated is based upon statistical results of
drilling activities in 3-D project areas that the Company believes are
geologically similar.
(3) Anticipated as of May 31, 1997.
(4) Represents non-proprietary "group shoots" in which the Company is a
participant.
6
<PAGE> 8
Although the Company has budgeted to drill the number of wells set forth in
the preceding table, there can be no assurance that these wells will be drilled
at all or within the expected time frame. In particular, budgeted wells that are
based upon statistical results of drilling activities in other project areas are
subject to greater uncertainties than wells for which drillsites have been
identified. The final determination with respect to the drilling of any budgeted
wells will be dependent upon a number of factors, including (i) the results of
exploration efforts and the acquisition, review and analysis of the seismic
data, (ii) the availability of sufficient capital resources by the Company and
the other participants for the drilling of the prospects, (iii) the approval of
the prospects by other participants after additional data has been compiled,
(iv) the economic and industry conditions at the time of drilling, including
prevailing and anticipated prices for oil and natural gas and the availability
of drilling rigs and crews, (v) the financial resources and results of the
Company, and (vi) the availability of leases on reasonable terms and permitting
for the prospect. There can be no assurance that any of the budgeted wells
identified on the preceding table will, if drilled, encounter reservoirs of
commercially productive oil or natural gas. See "Risk Factors -- Dependence on
Exploratory Drilling Activities," "-- Reserve Replacement Risk" and
" -- Uncertainty of Reserve Information and Future Net Revenue Estimates."
THE COMBINATION TRANSACTIONS
The Company currently conducts its operations through a number of
affiliated entities that will be combined in a series of transactions at the
time of the closing of the Offering (the "Combination Transactions"). As a
result of the Combination Transactions, the Company will issue approximately
2,290,000 shares of Common Stock in exchange for the equity interests in these
entities that it does not currently own. See "Certain Transactions -- The
Combination Transactions."
THE OFFERING
Common Stock offered by the
Company.......................... 2,500,000 shares
Common Stock to be outstanding
after the Offering............... 10,000,000 shares(1)
Proposed Nasdaq National Market
Symbol......................... CZOG
Use of proceeds.................. To accelerate the Company's exploration and
development program, to repay indebtedness
and for general corporate purposes,
including funding the acquisition of
additional acreage and 3-D seismic data.
See "Use of Proceeds."
- ---------------
(1) Assumes approximately 2,290,000 shares will be issued in connection with the
Combination Transactions. Does not include (i) approximately 220,000 shares
of Common Stock issuable pursuant to options at an exercise price per share
equal to the initial public offering price that will be granted to
directors, officers and employees of the Company concurrent with the
Offering and (ii) 222,120 shares of Common Stock issuable pursuant to
outstanding options at a weighted average exercise price of $3.60 per share
(including vested options for 99,954 shares). See "Management -- Incentive
Plan."
7
<PAGE> 9
SUMMARY COMBINED FINANCIAL AND OPERATING DATA
The financial information of the Company set forth below for the three
years ended December 31, 1996 has been derived from the audited combined
financial statements of the Company. The financial information set forth below
as of March 31, 1997 and for the three months ended March 31, 1996 and 1997 is
derived from unaudited financial statements of the Company. The results of
operations for the interim periods are not necessarily indicative of a full
year's operations. The following table also sets forth certain pro forma net
income per share information. The information should be read in conjunction with
"Capitalization," "Selected Combined Financial and Operating Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the combined financial statements of the Company and the related
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------- -------------------
1994 1995 1996 1996 1997
------ ------- ------- -------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Oil and natural gas revenues............... $ 597 $ 2,428 $ 5,195 $ 791 $ 1,853
Costs and expenses:
Oil and natural gas operating expenses... 518 1,814 2,384 418 557
Depreciation, depletion and
amortization.......................... 98 488 1,136 142 382
General and administrative............... 237 425 515 44 198
------ ------- ------- ------- -------
Total costs and expenses......... 853 2,727 4,035 604 1,137
------ ------- ------- ------- -------
Operating income (loss).................... (258) (299) 1,160 187 716
Interest expense (net of amounts
capitalized)............................. (7) (192) (80) (43) --
Other income............................... 6 24 20 -- --
------ ------- ------- ------- -------
Net income (loss).......................... $ (259) $ (467) $ 1,100 $ 144 $ 716
====== ======= ------- ======= -------
Pro forma income taxes(1).................. 396 258
------- -------
Pro forma net income(1).................... $ 704 $ 458
======= =======
Pro forma net income per share(1)(2)....... $ 0.09 $ 0.06
======= =======
Pro forma weighted average shares
outstanding(2)........................... 7,722 7,722
STATEMENT OF CASH FLOW DATA:
Net cash provided by (used in) operating
activities............................... $ (258) $ 406 $ 3,325 $ 486 $ 1,836
Net cash provided by (used in) investing
activities............................... (819) (6,785) (8,221) (1,353) (4,354)
Net cash provided by financing
activities............................... 1,183 6,343 6,319 867 2,525
OTHER OPERATING DATA:
EBITDA(3)(5)............................... $ (158) $ 189 $ 2,296 $ 328 $ 1,098
Operating cash flow(4)(5).................. (159) 21 2,236 285 1,098
Capital expenditures....................... 819 6,857 9,480 1,353 4,417
</TABLE>
8
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<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
----------------------
AS ADJUSTED
FOR THE
ACTUAL OFFERING(6)
------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $(1,758) $12,286
Property and equipment, net................................. 19,162 19,162
Total assets................................................ 23,912 38,268
Long-term debt, including current maturities................ 12,254 --
Equity...................................................... 5,407 32,260
</TABLE>
- ---------------
(1) During each of the periods presented, Carrizo and the other entities being
combined in the Combination Transactions were not required to pay federal
income taxes due to their status as partnerships or Subchapter S
corporations. The amounts shown reflect pro forma income taxes that
represent federal income taxes which would have been reported under
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes," had Carrizo and such entities been tax-paying entities during the
periods presented. See Note 8 to the Company's combined financial
statements.
(2) Pro forma net income (loss) per share has been computed based on the pro
forma net income shown above, assuming the 5,210,000 currently outstanding
shares of Common Stock, the estimated 2,290,000 shares of Common Stock that
may be issued in connection with the Combination Transactions and the
currently outstanding options to purchase 222,120 shares of Common Stock
were outstanding since January 1, 1996.
(3) EBITDA represents earnings before interest expense, income taxes,
depreciation, depletion and amortization.
(4) Operating cash flow represents cash flows from operating activities prior to
changes in assets and liabilities.
(5) Management of the Company believes that EBITDA and operating cash flow may
provide additional information about the Company's ability to meet its
future requirements for debt service, capital expenditures and working
capital. EBITDA and operating cash flow are financial measures commonly used
in the oil and gas industry and should not be considered in isolation or as
a substitute for net income, operating income, cash flows from operating
activities or any other measure of financial performance presented in
accordance with generally accepted accounting principles or as a measure of
a company's profitability or liquidity. Because EBITDA excludes some, but
not all, items that affect net income and because operating cash flow
excludes changes in assets and liabilities and these measures may vary among
companies, the EBITDA and operating cash flow data presented above may not
be comparable to similarly titled measures of other companies.
(6) Assumes the issuance in the Offering of 2,500,000 shares of Common Stock at
$12.00 per share and the application of the net proceeds therefrom.
9
<PAGE> 11
SUMMARY RESERVE AND OPERATING DATA
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------- ----------------
1994 1995 1996 1996 1997
------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
PRODUCTION VOLUMES:
Oil (MBbls)................................... 33 78 107 21 21
Natural gas (MMcf)............................ 5 565 1,273 196 592
Natural gas equivalent (MMcfe)................ 203 1,033 1,915 321 721
AVERAGE SALES PRICES:
Oil (per Bbl)................................. $ 17.69 $ 19.64 $ 21.54 $19.02 $ 21.50
Natural gas (per Mcf)......................... 0.88 1.60 2.27 1.97 2.35
Natural gas equivalent (per Mcfe)............. 2.94 2.36 2.71 2.44 2.57
AVERAGE COSTS (PER MCFE):
Camp Hill operating expenses.................. $ 2.64 $ 2.06 $ 3.15 $ 2.55 $ 2.80
Other operating expenses...................... 1.85 1.63 0.94 0.99 0.60
Total operating expenses............ 2.55 1.76 1.24 1.29 0.77
General and administrative expenses........... 1.17 0.41 0.27 0.14 0.27
Gross profit (loss)........................... (0.19) 0.19 1.19 1.01 1.53
ESTIMATED PROVED RESERVES (AT PERIOD END)(1):
Oil (MBbls)................................... 3,785 3,810 3,895 N/A 4,289
Natural gas (MMcf)............................ 272 5,437 12,148 N/A 13,026
Total (MMcfe)................................. 22,982 28,297 35,518 N/A 38,758
PV-10 Value (in thousands)(2)................. $ 9,677 $16,467 $46,342 N/A $30,421
Standardized Measure (in thousands)(3)........ 6,498 11,981 33,021 N/A 22,120
Oil prices used............................... $ 16.31 $ 17.64 $ 20.88 N/A $ 19.71
Natural gas prices used....................... 1.54 1.94 3.69 N/A 1.74
FINDING AND DEVELOPMENT COST (PER MCFE)(4).... $ 0.47
NUMBER OF WELLS DRILLED:
Gross......................................... -- -- 20.0 4.0 9.0
Net........................................... -- -- 4.7 1.5 4.2
</TABLE>
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N/A -- Not available.
(1) The estimated net proved oil and natural gas reserves and the present
value of estimated future net revenues attributable thereto are based
upon (i) the reserve report (the "Ryder Scott Report") prepared by Ryder
Scott Company, independent petroleum engineers ("Ryder Scott"), and (ii)
the reserve report (the "Fairchild Report" and, collectively with the
Ryder Scott Report, the "Reserve Reports") prepared by Fairchild, Ancell
& Wells, Inc., independent petroleum engineers ("Fairchild"). Summaries
of the Reserve Reports as of March 31, 1997 are included as Annex A to
this Prospectus. All calculations of estimated net proved reserves have
been prepared in accordance with the rules and regulations of the
Securities and Exchange Commission (the "Commission") and in accordance
with such regulations, the Reserve Reports used oil and natural gas
prices in effect at period end (as shown above) to calculate the
estimated future net revenues as of such period end. There are numerous
uncertainties inherent in estimating quantities of proved reserves and in
projecting future rates of production and timing of development
expenditures, including many factors beyond the control of the Company.
See "Risk Factors -- Uncertainty of Reserve Information and Future Net
Revenue Estimates."
(2) Represents the estimated future net revenues attributable to the
Company's reserves giving no effect to federal or state income taxes
otherwise attributable to estimated future net revenues from the sale of
oil and natural gas and discounted at 10% per annum.
(3) Represents the present value of estimated future net revenues after
income taxes discounted at 10% per annum.
(4) Calculated as total capital expenditures from inception to March 31, 1997
divided by reserve additions for such period.
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<PAGE> 12
RISK FACTORS
Prospective purchasers of the Common Stock should carefully consider the
risk factors set forth below, as well as the other information contained in this
Prospectus. This Prospectus contains certain forward-looking statements. Actual
results may differ materially from those projected in the forward-looking
statements as a result of any number of factors, including the risk factors set
forth below.
DEPENDENCE ON EXPLORATORY DRILLING ACTIVITIES
The success of the Company will be materially dependent upon the success of
its exploratory drilling program, which will be funded in part with the proceeds
of the Offering. Exploratory drilling involves numerous risks, including the
risk that no commercially productive oil or natural gas reservoirs will be
encountered. The cost of drilling, completing and operating wells is often
uncertain, and drilling operations may be curtailed, delayed or canceled as a
result of a variety of factors, including unexpected drilling conditions,
pressure or irregularities in formations, equipment failures or accidents,
adverse weather conditions, compliance with governmental requirements and
shortages or delays in the availability of drilling rigs and the delivery of
equipment. Although the Company believes that its use of 3-D seismic data and
other advanced technologies should increase the probability of success of its
exploratory wells and should reduce average finding costs through elimination of
prospects that might otherwise be drilled solely on the basis of 2-D seismic
data, exploratory drilling remains a speculative activity. Even when fully
utilized and properly interpreted, 3-D seismic data and other advanced
technologies only assist geoscientists in identifying subsurface structures and
do not enable the interpreter to know whether hydrocarbons are in fact present
in such structures. In addition, the use of 3-D seismic data and other advanced
technologies requires greater predrilling expenditures than traditional drilling
strategies and the Company could incur losses as a result of such expenditures.
The Company's future drilling activities may not be successful, and if
unsuccessful, such failure will have a material adverse effect on the Company's
results of operations and financial condition. There can be no assurance that
the Company's overall drilling success rate or its drilling success rate for
activity within a particular project area will not decline. The Company may
choose not to acquire option and lease rights prior to acquiring seismic data
and, in many cases, the Company may identify a prospect or drilling location
before seeking option or lease rights in the prospect or location. Although the
Company has identified or budgeted for numerous drilling prospects, there can be
no assurance that such prospects will ever be leased or drilled (or drilled
within the scheduled or budgeted time frame) or that oil or natural gas will be
produced from any such prospects or any other prospects. In addition, prospects
may initially be identified through a number of methods, some of which do not
include interpretation of 3-D or other seismic data. Wells that are currently
included in the Company's capital budget may be based upon statistical results
of drilling activities in other 3-D project areas that the Company believes are
geologically similar, rather than on analysis of seismic or other data. Actual
drilling and results are likely to vary from such statistical results and such
variance may be material. Similarly, the Company's drilling schedule may vary
from its capital budget, and there is increased risk of such variance from the
1998 capital budget because of future uncertainties, including those described
above. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
VOLATILITY OF OIL AND NATURAL GAS PRICES
The Company's revenues, future rate of growth, results of operations,
financial condition and ability to borrow funds or obtain additional capital, as
well as the carrying value of its properties, are substantially dependent upon
prevailing prices of oil and natural gas. Historically, the markets for oil and
natural gas have been volatile, and such markets are likely to continue to be
volatile in the future. Prices for oil and natural gas are subject to wide
fluctuation in response to relatively minor changes in the supply of and demand
for oil and natural gas, market uncertainty and a variety of additional factors
that are beyond the control of the Company. These factors include the level of
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<PAGE> 13
consumer product demand, weather conditions, domestic and foreign governmental
regulations, the price and availability of alternative fuels, political
conditions in the Middle East, the foreign supply of oil and natural gas, the
price of foreign imports and overall economic conditions. It is impossible to
predict future oil and natural gas price movements with certainty. Declines in
oil and natural gas prices may materially adversely affect the Company's
financial condition, liquidity, ability to finance planned capital expenditures
and results of operations. Lower oil and natural gas prices also may reduce the
amount of oil and natural gas that the Company can produce economically. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Marketing."
The Company periodically reviews the carrying value of its oil and natural
gas properties under the full cost accounting rules of the Commission. Under
these rules, capitalized costs of proved oil and natural gas properties may not
exceed the present value of estimated future net revenues from proved reserves,
discounted at 10%. Application of this "ceiling" test generally requires pricing
future revenue at the unescalated prices in effect as of the end of each fiscal
quarter and requires a write-down for accounting purposes if the ceiling is
exceeded, even if prices were depressed for only a short period of time. The
Company may be required to write down the carrying value of its oil and natural
gas properties when oil and natural gas prices are depressed or unusually
volatile. If a write-down is required, it would result in a charge to earnings,
but would not impact cash flow from operating activities. Once incurred, a
write-down of oil and natural gas properties is not reversible at a later date.
In order to reduce its exposure to short-term fluctuations in the price of
oil and natural gas, the Company periodically enters into hedging arrangements.
The Company's hedging arrangements apply to only a portion of its production and
provide only partial price protection against declines in oil and natural gas
prices. Such hedging arrangements may expose the Company to risk of financial
loss in certain circumstances, including instances where production is less than
expected, the Company's customers fail to purchase contracted quantities of oil
or natural gas or a sudden, unexpected event materially impacts oil or natural
gas prices. In addition, the Company's hedging arrangements limit the benefit to
the Company of increases in the price of oil and natural gas. Total natural gas
purchased and sold under swap arrangements during the years ended December 31,
1995 and 1996 was 40,000 MMbtu and 60,000 MMbtu, respectively. Losses realized
by the Company under such swap arrangements were $23,466 and $26,887 for the
years ended December 31, 1995 and 1996, respectively. The Company did not engage
in hedging prior to 1995 and did not engage in hedging during the quarter ended
March 31, 1997. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- General" and "Business -- Marketing."
RESERVE REPLACEMENT RISK
In general, the volume of production from oil and natural gas properties
declines as reserves are depleted, with the rate of decline depending on
reservoir characteristics. Except to the extent the Company conducts successful
exploration and development activities or acquires properties containing proved
reserves, or both, the proved reserves of the Company will decline as reserves
are produced. The Company's future oil and natural gas production is, therefore,
highly dependent upon its level of success in finding or acquiring additional
reserves. The business of exploring for, developing or acquiring reserves is
capital intensive. To the extent cash flow from operations is reduced and
external sources of capital become limited or unavailable, the Company's ability
to make the necessary capital investment to maintain or expand its asset base of
oil and natural gas reserves would be impaired. The failure of an operator of
the Company's wells to adequately perform operations, or such operator's breach
of the applicable agreements, could adversely impact the Company. In addition,
there can be no assurance that the Company's future exploration, development and
acquisition activities will result in additional proved reserves or that the
Company will be able to drill productive wells at acceptable costs. Furthermore,
although the Company's
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<PAGE> 14
revenues could increase if prevailing prices for oil and natural gas increase
significantly, the Company's finding and development costs could also increase.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
UNCERTAINTY OF RESERVE INFORMATION AND FUTURE NET REVENUE ESTIMATES
There are numerous uncertainties inherent in estimating oil and natural gas
reserves and their estimated values, including many factors beyond the control
of the producer. The reserve data set forth in this Prospectus represent only
estimates. Reservoir engineering is a subjective process of estimating
underground accumulations of oil and natural gas that cannot be measured in an
exact manner. Estimates of economically recoverable oil and natural gas reserves
and of future net cash flows necessarily depend upon a number of variable
factors and assumptions, such as historical production from the area compared
with production from other producing areas, the assumed effects of regulations
by governmental agencies and assumptions concerning future oil and natural gas
prices, future operating costs, severance and excise taxes, development costs
and workover and remedial costs, all of which may in fact vary considerably from
actual results. For these reasons, estimates of the economically recoverable
quantities of oil and natural gas attributable to any particular group of
properties, classifications of such reserves based on risk of recovery, and
estimates of the future net cash flows expected therefrom prepared by different
engineers or by the same engineers but at different times may vary substantially
and such reserve estimates may be subject to downward or upward adjustment based
upon such factors. Actual production, revenues and expenditures with respect to
the Company's reserves will likely vary from estimates, and such variances may
be material. In addition, the 10% discount factor, which is required by the
Commission to be used in calculating discounted future net cash flows for
reporting purposes, is not necessarily the most appropriate discount factor
based on interest rates in effect from time to time and risks associated with
the Company or the oil and natural gas industry in general. See "Business -- Oil
and Natural Gas Reserves."
OPERATING RISKS OF OIL AND NATURAL GAS OPERATIONS
The oil and natural gas business involves certain operating hazards such as
well blowouts, craterings, explosions, uncontrollable flows of oil, natural gas
or well fluids, fires, formations with abnormal pressures, pipeline ruptures or
spills, pollution, releases of toxic gas and other environmental hazards and
risks, any of which could result in substantial losses to the Company. The
availability of a ready market for the Company's oil and natural gas production
also depends on the proximity of reserves to, and the capacity of, oil and
natural gas gathering systems, pipelines and trucking or terminal facilities.
The Company delivers natural gas through gas gathering systems and gas pipelines
that it does not own. Federal and state regulation of natural gas and oil
production and transportation, tax and energy policies, changes in supply and
demand and general economic conditions all could adversely affect the Company's
ability to produce and market its oil and natural gas. In addition, the Company
may be liable for environmental damages caused by previous owners of property
purchased and leased by the Company. As a result, substantial liabilities to
third parties or governmental entities may be incurred, the payment of which
could reduce or eliminate the funds available for exploration, development or
acquisitions or result in the loss of the Company's properties. In accordance
with customary industry practices, the Company maintains insurance against some,
but not all, of such risks and losses. The Company does not carry business
interruption insurance. The Company may elect to self-insure if management
believes that the cost of insurance, although available, is excessive relative
to the risks presented. In addition, pollution and environmental risks generally
are not fully insurable. The occurrence of an event not fully covered by
insurance could have a material adverse effect on the financial condition and
results of operations of the Company. As of March 31, 1997, the Company had
participated in a substantial percentage of its wells on a non-operated basis,
which may limit the Company's ability to control the risks associated with oil
and natural gas operations. See "Business -- Operating Hazards and Insurance."
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<PAGE> 15
DEPENDENCE ON KEY PERSONNEL
The Company depends to a large extent on the services of certain key
management personnel, the loss of any of which could have a material adverse
effect on the Company's operations. Prior to completion of the Offering, the
Company has entered into employment agreements with each of S.P. Johnson IV (the
Company's President and Chief Executive Officer), Frank A. Wojtek (the Company's
Chief Financial Officer), George F. Canjar (the Company's Vice President of
Exploration Development) and Kendall A. Trahan (the Company's Vice President of
Land) substantially as described herein under "Management -- Employment
Agreements." The Company does not maintain key-man life insurance with respect
to any of its employees.
ABILITY TO MANAGE GROWTH AND ACHIEVE BUSINESS STRATEGY
The Company has experienced significant growth in the recent past through
the expansion of its 3-D seismic data acquisition and drilling program. The
Company's rapid growth has placed, and is expected to continue to place, a
significant strain on the Company's financial, technical, operational and
administrative resources. The Company has relied in the past and expects to
continue to rely on project partners and independent contractors that have
provided the Company with seismic survey planning and management, project and
prospect generation, land acquisition, drilling and other services. At May 31,
1997, the Company had 15 full-time employees and two part-time employees. As the
Company increases the number of projects it is evaluating or in which it is
participating, there will be additional demands on the Company's financial,
technical, operational and administrative resources and continued reliance by
the Company on project partners and independent contractors, and these strains
on resources, additional demands and continued reliance may negatively affect
the Company. The Company's ability to continue its growth will depend upon a
number of factors, including its ability to obtain leases or options on
properties for 3-D seismic surveys, its ability to acquire additional 3-D
seismic data, its ability to identify and acquire new exploratory sites, its
ability to develop existing sites, its ability to continue to retain and attract
skilled personnel, its ability to maintain or enter into new relationships with
project partners and independent contractors, the results of its drilling
program, hydrocarbon prices, access to capital and other factors. Although the
Company intends to upgrade its technical, operational and administrative
resources following the Offering and to increase its ability to provide
internally certain of the services previously provided by outside sources, there
can be no assurance that it will be successful in doing so or that it will be
able to continue to maintain or enter into new relationships with project
partners and independent contractors. The failure of the Company to continue to
upgrade its technical, operational and administrative resources or the
occurrence of unexpected expansion difficulties, including difficulties in
recruiting and retaining sufficient numbers of qualified personnel to enable the
Company to expand its seismic data acquisition and drilling program, or the
reduced availability of project partners and independent contractors that have
historically provided the Company seismic survey planning and management,
project and prospect generation, land acquisition, drilling and other services,
could have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, the Company has only limited
experience operating and managing field operations, and there can be no
assurances that the Company will be successful in doing so. Any increase in the
Company's activities as an operator will increase its exposure to operating
hazards. See "Risk Factors -- Operating Risks of Oil and Natural Gas
Operations." There can be no assurance that the Company will be successful in
achieving growth or any other aspect of its business strategy.
SIGNIFICANT CAPITAL REQUIREMENTS
The Company has experienced and expects to continue to experience
substantial working capital needs, particularly as a result of its active 3-D
seismic data acquisition and drilling program. In addition to cash generated
from operations, additional financing may be required in the future to fund the
Company's growth. No assurances can be given as to the availability or terms of
any such
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<PAGE> 16
additional financing that may be required or that financing will continue to be
available under existing or new credit facilities. In the event such capital
resources are not available to the Company, its drilling, development and other
activities may be curtailed. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
CONTROL BY CERTAIN SHAREHOLDERS
Upon completion of the Offering and the Combination Transactions, the
Company's officers and directors will beneficially own approximately 59.2%
(57.1% if the Underwriters' over-allotment option is exercised in full) of the
outstanding shares of Common Stock. As a result, such shareholders will be in a
position to significantly influence or control the outcome of certain matters
requiring a shareholder vote, including the election of directors, the adoption
or amendment of provisions in the Company's Articles of Incorporation or Bylaws
and the approval of mergers and other significant corporate transactions. Such
ownership of Common Stock may have the effect of delaying, deferring or
preventing a change of control of the Company and may adversely affect the
voting and other rights of other shareholders. See "Security Ownership of
Certain Beneficial Owners and Management."
TECHNOLOGICAL CHANGES
The oil and gas industry is characterized by rapid and significant
technological advancements and introductions of new products and services
utilizing new technologies. As others use or develop new technologies, the
Company may be placed at a competitive disadvantage, and competitive pressures
may force the Company to implement such new technologies at substantial cost. In
addition, other oil and gas companies may have greater financial, technical and
personnel resources that allow them to enjoy technological advantages and may in
the future allow them to implement new technologies before the Company. There
can be no assurance that the Company will be able to respond to such competitive
pressures and implement such technologies on a timely basis or at an acceptable
cost. One or more of the technologies currently utilized by the Company or
implemented in the future may become obsolete. In such case, the Company's
business, financial condition and results of operations could be materially
adversely affected. If the Company is unable to utilize the most advanced
commercially available technology, the Company's business, financial condition
and results of operations could be materially and adversely affected. See
"Business -- Competition."
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
Oil and natural gas operations are subject to various federal, state and
local government regulations which may be changed from time to time in response
to economic or political conditions. Matters subject to regulation include
discharge permits for drilling operations, drilling bonds, reports concerning
operations, the spacing of wells, unitization and pooling of properties and
taxation. From time to time, regulatory agencies have imposed price controls and
limitations on production by restricting the rate of flow of oil and natural gas
wells below actual production capacity in order to conserve supplies of oil and
natural gas. The Company is also subject to changing and extensive tax laws, the
effects of which cannot be predicted. Legal requirements are frequently changed
and subject to interpretation, and the Company is unable to predict the ultimate
cost of compliance with these requirements or their effect on its operations. No
assurance can be given that existing laws or regulations, as currently
interpreted or reinterpreted in the future, or future laws or regulations will
not materially adversely affect the Company's results of operations and
financial condition. The development, production, handling, storage,
transportation and disposal of oil and natural gas, by-products thereof and
other substances and materials produced or used in connection with oil and
natural gas operations are subject to regulation under federal, state and local
laws and regulations primarily relating to protection of human health and the
environment. The discharge of oil, natural gas, or other pollutants into the
air, soil or water may give rise to significant liabilities on the part of
15
<PAGE> 17
the Company to the government and third parties and may require the Company to
incur substantial costs of remediation. See "Business -- Regulation."
COMPETITION
The Company encounters competition from other oil and natural gas companies
in all areas of its operations, including the acquisition of exploratory
prospects and proven properties. The Company's competitors include major
integrated oil and natural gas companies and numerous independent oil and
natural gas companies, individuals and drilling and income programs. Many of its
competitors are large, well-established companies with substantially larger
operating staffs and greater capital resources than those of the Company and
which, in many instances, have been engaged in the oil and natural gas business
for a much longer time than the Company. Such companies may be able to pay more
for exploratory prospects and productive oil and natural gas properties and may
be able to define, evaluate, bid for and purchase a greater number of properties
and prospects than the Company's financial or human resources permit. The
Company's ability to explore for oil and natural gas prospects and to acquire
additional properties in the future will be dependent upon its ability to
conduct its operations, to evaluate and select suitable properties and to
consummate transactions in this highly competitive environment. See
"Business -- Competition."
LIMITED OPERATING HISTORY AND HISTORICAL OPERATING LOSSES
The Company commenced its operations in September 1993 and has only a
limited operating history. Potential investors, therefore, have limited
historical financial and operating information upon which to base an evaluation
of the Company's performance and an investment in shares of Common Stock. For
example, the producing wells within exploration projects in which the Company is
participating have been on production only for a short period of time.
Therefore, estimations with respect to the proved reserves and level of future
production attributable to these wells are difficult to determine and there can
be no assurance as to the volume of recoverable reserves that will be realized
from such wells. The Company's prospects must be considered in light of the
risks, expenses and difficulties frequently encountered by companies in the
early stages of their development. The Company incurred net losses in 1994 and
1995 of $258,509 and $466,610, respectively. The development of the Company's
business and its participation in an increasingly larger number of projects have
required and will continue to require substantial expenditures. The Company's
future financial results will depend primarily on its ability to economically
locate and produce hydrocarbons in commercial quantities and on the market
prices for oil and natural gas. There can be no assurance that the Company will
achieve or sustain profitability or positive cash flows from operating
activities in the future. See "-- Significant Capital Requirements," "Selected
Combined Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business -- Oil and Gas Reserves."
ACQUISITION RISKS
The successful acquisition of producing properties requires an assessment
of recoverable reserves, future oil and natural gas prices, operating costs,
potential environmental and other liabilities and other factors. Such
assessments are necessarily inexact and their accuracy inherently uncertain. In
connection with such an assessment, the Company performs a review of the subject
properties that it believes to be generally consistent with industry practices,
which generally includes on-site inspections and the review of reports filed
with various regulatory entities. Such a review, however, will not reveal all
existing or potential problems nor will it permit a buyer to become sufficiently
familiar with the properties to fully assess their deficiencies and
capabilities. Inspections may not always be performed on every well, and
structural and environmental problems are not necessarily observable even when
an inspection is undertaken. Even when problems are identified, the seller may
be unwilling or unable to provide effective contractual protection against all
or part of such problems. There can be no assurances that any acquisition of
property interests by the
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<PAGE> 18
Company will be successful and, if unsuccessful, that such failure will not have
an adverse effect on the Company's future results of operations and financial
condition.
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of Common Stock in the public market
following the Offering could adversely affect the market price for the Common
Stock. The 5,210,000 shares outstanding prior to the Offering were not, and the
approximately 2,290,000 shares to be issued in the Combination Transactions will
not be, registered under the Securities Act of 1933, as amended (the "Securities
Act"), and, therefore, are not freely tradeable unless subsequently registered
under the Securities Act or exempted from such registration. At the time of the
expiration of the lock-up period described below, all of the previously
outstanding shares may be sold pursuant to the requirements of Rule 144
promulgated under the Securities Act ("Rule 144"), subject to certain volume
limitations, manner of sale and other requirements relating to the sale of
securities. Following a period of one year from the closing of this Offering,
all of such shares to be issued in the Combination Transactions may be sold
pursuant to the requirements of Rule 144, subject to certain volume limitations,
manner of sale and other requirements relating to the sale of securities. In
addition, options to purchase shares of Common Stock are issuable pursuant to
outstanding options and up to 220,000 shares of Common Stock will be issuable
pursuant to options to be granted to certain officers and employees of the
Company prior to or immediately after the closing of the Offering, and the
Company anticipates that shares of Common Stock issuable upon exercise of such
options will become available for future sale in the public market pursuant to a
subsequently filed registration statement on Form S-8. In addition, the Company
will enter into a registration rights agreement with the Company's directors and
officers who will own approximately 6,292,809 shares of Common Stock following
the Combination Transactions. Pursuant to the registration rights agreement,
such persons collectively will receive demand and piggyback registration rights
that provide for the registration of the resale of such shares at the Company's
expense. The Company, its current shareholders, its executive officers and its
directors have agreed not to offer for sale, sell or otherwise dispose of any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for shares of Common Stock for a period of 180 days after the date
of this Prospectus, without the prior written consent of the representatives of
the Underwriters, subject to certain exceptions. Such consent may be given at
any time and without public notice. See "Management -- Incentive Plan," "Shares
Eligible for Future Sale" and "Underwriting."
ABSENCE OF DIVIDENDS ON COMMON STOCK
The Company currently intends to retain any earnings for the future
operation and development of its business and does not currently anticipate
paying any dividends in the foreseeable future. Any future dividends also may be
restricted by the Company's then-existing loan agreements. See "Dividend
Policy," "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and Note 4 to the
Company's Financial Statements.
CERTAIN ANTI-TAKEOVER EFFECTS
The Company's Articles of Incorporation authorize the Board of Directors to
set the terms of and issue Preferred Stock without shareholder approval. The
Board of Directors could use the Preferred Stock as a means to delay, defer or
prevent a takeover attempt that a shareholder might consider to be in the
Company's best interest. In addition, certain provisions of the Company's
Articles of Incorporation and Bylaws might impede a takeover of the Company. See
"Description of Capital Stock."
NO PRIOR PUBLIC MARKET
Prior to the Offering, there has been no public market for the Common
Stock. The initial public offering price will be determined by negotiation
between the Company and the Underwriters and
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<PAGE> 19
may not be indicative of the price at which the Common Stock will trade
following the completion of the Offering. See "Underwriting" for a discussion of
the factors to be considered in determining the initial public offering price.
The completion of the Offering provides no assurance that an active trading
market for the Common Stock will develop or, if developed, that it will be
sustained. The market price of the Common Stock could also be subject to
significant fluctuation and may be influenced by many factors, including
variations in results of operations, variations in oil and natural gas prices,
investor perceptions of the Company and the oil and natural gas industry and
general economic and other conditions.
DILUTION
Purchasers of Common Stock in the Offering will experience immediate and
substantial dilution in the net tangible book value of their stock of $8.77 per
share (assuming an initial public offering price of $12.00 per share). See
"Dilution."
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USE OF PROCEEDS
The net proceeds to the Company from the Offering at an assumed initial
public offering price of $12.00 per share are estimated to be approximately
$26.9 million ($31.1 million if the Underwriters' over-allotment option is
exercised in full). The Company intends to use a portion of the net proceeds to
repay approximately $9.4 million of indebtedness incurred under the Company's
revolving credit facilities that currently bear interest at 9.0% and mature in
June 1998 and approximately $2.9 million of promissory notes to certain of the
Company's directors and officers that currently bear interest at 8.3% and are
due in April 1998. The remainder of the net proceeds will be used to accelerate
the Company's exploration and development program and for general corporate
purposes, including funding additional acreage and 3-D seismic acquisitions. The
indebtedness incurred under both the Company's revolving credit facilities and
such promissory notes was used primarily for its exploration, development and
acquisition activities and to provide working capital. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
DIVIDEND POLICY
The Company has not paid any dividends in the past and does not intend to
pay cash dividends on its Common Stock in the foreseeable future. The Company
currently intends to retain any earnings for the future operation and
development of its business, including exploration, development and acquisition
activities. Following the Offering, the Company expects to enter into a Secured
Revolving Line of Credit with Compass Bank (the "Company Credit Facility").
Under the proposed terms of the facility, the Company's ability to pay dividends
will be restricted. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
19
<PAGE> 21
DILUTION
As of March 31, 1997, the pro forma net tangible book value of the Company
would have been approximately $5.4 million, or approximately $0.72 per share of
Common Stock, after giving pro forma effect to the issuance of approximately
2,290,000 shares of Common Stock in connection with the Combination Transactions
as if such transactions had been completed at such date. Net tangible book value
per share represents the amount of the Company's tangible book value (total book
value of tangible assets less total liabilities) divided by the total number of
shares of Common Stock outstanding. After further giving effect to the receipt
of the estimated net proceeds from the Offering (net of estimated underwriting
discounts and offering expenses) at an assumed initial public offering price of
$12.00 per share, the adjusted pro forma net tangible book value of the Common
Stock outstanding at March 31, 1997 would have been $3.23 per share,
representing an immediate increase in net tangible book value of $2.51 per share
to existing shareholders and an immediate dilution of $8.77 per share (the
difference between the assumed initial public offering price and the net
tangible book value per share after the Offering) to persons purchasing Common
Stock at the assumed initial public offering price. The following table
illustrates such per share dilution:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share............. $12.00
Pro forma net tangible book value per share before the
Offering............................................... $0.72
Increase in pro forma net tangible book value per share
attributable to sale of Common Stock in the Offering... 2.51
-----
Adjusted pro forma net tangible book value per share after
giving effect to the Offering............................. 3.23
------
Dilution in net tangible book value to the purchasers of
Common Stock in the Offering.............................. $ 8.77
======
</TABLE>
The following table sets forth, on a pro forma basis to give effect to the
Combination Transactions as of March 31, 1997, differences between the number of
shares of Common Stock to be acquired or to be acquired from the Company by
existing shareholders and by investors purchasing shares in the Offering, the
total price paid or to be paid and the average price per share paid or to be
paid by existing shareholders and investors purchasing shares in the Offering
(based upon an assumed initial public offering price per share of $12.00).
<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION(2)
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders......... 7,500,000 75% $ 5,296,000 15% $ 0.71
New investors................. 2,500,000 25% 30,000,000 85% 12.00
---------- ---- ----------- ----
Total............... 10,000,000 100% $35,296,000 100%
========== ==== =========== ====
</TABLE>
- ---------------
(1) Does not include (i) approximately 220,000 shares of Common Stock issuable
pursuant to options at an exercise price per share equal to the initial
public offering price that will be granted to directors, officers and
employees of the Company upon completion of the Offering and (ii) 222,120
shares of Common Stock issuable pursuant to outstanding options at a
weighted average exercise price of $3.60 per share (including vested options
for 99,954 shares). The exercise of such stock options at a price below the
initial public offering price will be dilutive to new investors. See
"Management -- Incentive Plan."
(2) Total consideration paid by existing shareholders represents the aggregate
of (i) in the case of the current shareholders of Carrizo, the amounts paid
by such shareholders to the Company for their Common Stock and (ii) in the
case of persons receiving Common Stock in the Combination Transactions, the
book value at March 31, 1997 of the allocable portion of the net assets and
liabilities received by the Company in the Combination Transactions.
20
<PAGE> 22
CAPITALIZATION
The following table gives effect to the 521-for-one split of the Common
Stock effected in June 1997 and sets forth the Company's cash and cash
equivalents and capitalization as of March 31, 1997 as follows: (i) on a
historical basis, (ii) pro forma after giving effect to the issuance of
approximately 2,290,000 shares of Common Stock in connection with the
Combination Transactions and (iii) pro forma as adjusted to give effect to the
sale of 2,500,000 shares of Common Stock in the Offering at an assumed initial
public offering price of $12.00 per share and the application of the estimated
net proceeds therefrom. This table should be read in conjunction with the
Combined Financial Statements and notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1997
------------------------------------
PRO FORMA
AS ADJUSTED PRO FORMA
FOR THE AS ADJUSTED
COMBINATION FOR THE
ACTUAL TRANSACTIONS OFFERING
------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents................................... $ 1,500 $ 1,500 $15,856
======= ======= =======
Long-term debt.............................................. $12,254 $12,254 --
Shareholders' equity(1):
Preferred stock, $0.01 par value, 10,000,000 shares
authorized; none outstanding........................... -- -- --
Common stock, $0.01 par value, 40,000,000 shares
authorized; 5,210,000 shares issued and outstanding;
7,500,000 shares issued and outstanding pro forma;
10,000,000 shares issued and outstanding pro forma as
adjusted............................................... -- 75 100
Additional paid-in capital................................ 4,356 4,281 31,109
Retained earnings......................................... 1,051 1,051 1,051
------- ------- -------
Total shareholders' equity........................... 5,407 5,407 32,260
------- ------- -------
Total capitalization.............................. $17,661 $17,661 $32,260
======= ======= =======
</TABLE>
- ---------------
(1) Does not include (i) approximately 220,000 of Common Stock issuable pursuant
to options at an exercise price per share equal to the initial public
offering price in the Offering that will be granted to directors, officers
and employees of the Company upon completion of the Offering and (ii)
222,120 shares of Common Stock issuable pursuant to outstanding options at a
weighted average exercise price of $3.60 per share (including vested options
for 99,954 shares).
21
<PAGE> 23
SELECTED COMBINED FINANCIAL AND OPERATING DATA
The financial information of the Company set forth below for the period
from inception of operations (September 24, 1993) through December 31, 1993, and
for the three years ended December 31, 1996, has been derived from the audited
combined financial statements of the Company. The financial information set
forth below as of March 31, 1997 and for the three months ended March 31, 1996
and 1997 is derived from the unaudited financial statements of the Company. The
results of operations for the interim periods are not necessarily indicative of
a full year's operations. The following table also sets forth certain pro forma
net income per share information. The information should be read in conjunction
with "Capitalization," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the audited combined financial
statements of the Company and the related notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION OF
OPERATIONS
(SEPTEMBER 24, THREE MONTHS ENDED
1993) THROUGH YEAR ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, --------------------------- -------------------
1993 1994 1995 1996 1996 1997
-------------- ------- ------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Oil and natural gas
revenues.................... $ 5 $ 597 $ 2,428 $ 5,195 $ 791 $ 1,853
Costs and expenses:
Oil and natural gas
operating expenses....... 20 518 1,814 2,384 418 557
Depreciation, depletion and
amortization............. 1 98 488 1,136 142 382
General and
administrative........... 24 237 425 515 44 198
----- ------- ------- ------- ------- -------
Total costs and
expenses.......... 45 853 2,727 4,035 604 1,137
----- ------- ------- ------- ------- -------
Operating income (loss)....... (40) (258) (299) 1,160 187 716
Interest expense (net of
amounts capitalized)........ -- (7) (192) (80) (43) --
Other income.................. -- 6 24 20 -- --
----- ------- ------- ------- ------- -------
Net income (loss)............. $ (40) $ (259) $ (467) $ 1,100 $ 144 $ 716
===== ======= ======= ------- ======= -------
Pro forma income taxes(1)..... 396 258
------- -------
Pro forma net income(1)....... $ 704 $ 458
======= =======
Pro forma net income per
share(1)(2)................. $ 0.09 $ 0.06
======= =======
Pro forma weighted average
shares outstanding(2)....... 7,722 7,722
STATEMENTS OF CASH FLOW DATA:
Net cash provided by (used in)
operating activities........ $ 12 $ (258) $ 406 $ 3,325 $ 486 $ 1,836
Net cash provided by (used in)
investing activities........ (118) (819) (6,785) (8,221) (1,353) (4,354)
Net cash provided by financing
activities.................. 106 1,183 6,343 6,319 867 2,525
OTHER OPERATING DATA:
EBITDA(3)(5).................. $ (41) $ (158) $ 189 $ 2,296 $ 328 $ 1,098
Operating cash flow(4)(5)..... (41) (159) 21 2,236 285 1,098
Capital expenditures.......... 113 819 6,857 9,480 1,353 4,417
</TABLE>
22
<PAGE> 24
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
---------------------
AS
AS OF DECEMBER 31, ADJUSTED
-------------------------------- FOR THE
1993 1994 1995 1996 ACTUAL OFFERING(6)
---- ------ ------ ------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital..................... $(52) $ 152 $ (265) $(1,005) $(1,758) $12,286
Property and equipment, net......... 113 803 6,960 15,206 19,162 19,162
Total assets........................ 130 1,057 7,645 18,869 23,912 38,268
Long-term debt, including current
maturities........................ -- 533 3,480 9,684 12,254 --
Equity.............................. 65 452 3,381 4,596 5,407 32,260
</TABLE>
- ---------------
(1) During each of the periods presented, Carrizo and the other entities being
combined in the Combination Transactions were not required to pay federal
income taxes due to their status as partnerships or Subchapter S
corporations. The amounts shown reflect pro forma income taxes that
represent federal income taxes which would have been reported under
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes," had Carrizo and such entities been tax-paying entities during the
periods presented. See Note 8 to the Company's combined financial
statements.
(2) Pro forma net income (loss) per share has been computed based on the pro
forma net income shown above, and assuming the 5,210,000 currently
outstanding shares of Common Stock, the estimated 2,290,000 shares of Common
Stock that may be issued in connection with the Combination Transactions and
the currently outstanding options to purchase 222,120 shares of Common Stock
were outstanding since January 1, 1996.
(3) EBITDA represents earnings before interest expense, income taxes,
depreciation, depletion and amortization.
(4) Operating cash flow represents cash flows from operating activities prior to
changes in assets and liabilities.
(5) Management of the Company believes that EBITDA and operating cash flow may
provide additional information about the Company's ability to meet its
future requirements for debt service, capital expenditures and working
capital. EBITDA and operating cash flow are financial measures commonly used
in the oil and gas industry and should not be considered in isolation or as
a substitute for net income, operating income, cash flows from operating
activities or any other measure of financial performance presented in
accordance with generally accepted accounting principles or as a measure of
a company's profitability or liquidity. Because EBITDA excludes some, but
not all, items that affect net income and because operating cash flow
excludes changes in assets and liabilities and these measures may vary among
companies, the EBITDA and operating cash flow data presented above may not
be comparable to similarly titled measures of other companies.
(6) Assumes the issuance in the Offering of 2,500,000 shares of Common Stock at
$12.00 per share and the application of the net proceeds therefrom.
23
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL OVERVIEW
The Company began operations in September 1993 and initially focused on the
acquisition of producing properties. As a result of the increasing availability
of economic onshore 3-D seismic surveys, the Company began to obtain 3-D seismic
data and options to lease substantial acreage in 1995 and began to drill its 3-D
based prospects in 1996. The Company drilled 20 wells in 1996 and 19 wells
through the five months ended May 31, 1997. The Company expects such increases
to continue and has budgeted to drill a total of 67 gross wells (24.6 net) in
1997 and 147 gross wells (67.5 net) in 1998. As a result, depreciation,
depletion and amortization, oil and gas operating expenses and production are
expected to increase. The Company has typically retained the majority of its
interests in shallow, normally pressured prospects and sold a portion of its
interests in deeper, over-pressured prospects.
The Company uses the full-cost method of accounting for its oil and gas
properties. Under this method, all acquisition, exploration and development
costs, including any general and administrative costs that are directly
attributable to the Company's acquisition, exploration and development
activities, are capitalized in a "full-cost pool" as incurred. The Company
records depletion of its full-cost pool using the unit-of-production method. To
the extent that such capitalized costs in the full-cost pool (net of
depreciation, depletion and amortization and related deferred taxes) exceed the
present value (using a 10% discount rate) of estimated future net after-tax cash
flows from proved oil and gas reserves, such excess costs are charged to
operations. The Company has not been required to make any such write-downs. Once
incurred, a write-down of oil and gas properties is not reversible at a later
date.
The Company has primarily grown through the internal development of
properties within its exploration project areas, although the Company acquired
properties with existing production in the Camp Hill Project in late 1993, the
Encinitas Project in early 1995 and the La Rosa Project in 1996. The Company
made these acquisitions through the use of limited partnerships with Carrizo or
Carrizo Production, Inc. as the general partner. However, as operations have
expanded, the Company has increasingly funded its activities through bank
borrowings and cash flow from operations in order to retain a greater portion of
the interests it develops.
The combined financial statements set forth elsewhere in this Prospectus
are prepared on the basis of a combination of Carrizo and the entities that are
a party to the Combination Transactions. Carrizo and the entities being combined
with it in the Combination Transactions were not required to pay federal income
taxes due to their status as partnerships or Subchapter S corporations, which
are not subject to federal income taxation. Instead, taxes for such periods were
paid by the shareholders and partners of such entities. On May 16, 1997, Carrizo
terminated its status as an S corporation and thereafter became subject to
federal income taxes. Upon the consummation of the Combination Transactions, the
Company will be required to record its deferred taxes, if any, in accordance
with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes." Giving pro forma effect to the Combination Transactions, for the
12 months ended December 31, 1996 and the three months ended March 31, 1997, pro
forma income taxes were $396,000 and $258,000, respectively.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1997 Compared to the Three Months Ended March 31,
1996
Oil and natural gas revenues for the three months ended March 31, 1997
increased 134% to $1.9 million from $791,000 for the same period in 1996.
Production volumes for natural gas during the three months ended March 31, 1997
increased 202% to 592.3 MMcf from 195.9 MMcf for the same period in 1996.
Average gas prices increased 19% to $2.35 per Mcf in the first quarter of 1997
24
<PAGE> 26
from $1.97 per Mcf in the same period in 1996. Production volumes for oil in the
first quarter of 1997 were flat at 21.4 MBbls from 21.3 MBbls for the same
period in 1996 as reduced production at the Camp Hill Project (resulting from
reduced steam injection levels because of high fuel gas prices) offset increases
in production elsewhere. Average oil prices increased 13% to $21.50 per barrel
in the first quarter of 1997 from $19.02 per barrel in the same period in 1996.
The increase in natural gas production was due primarily to production from new
wells drilled and completed in the second half of 1996 and early 1997, as well
as the acquisition of the La Rosa properties in 1996, which were fully onstream
for the first quarter of 1997.
The following table summarizes production volumes, average sales prices and
operating revenues for the Company's oil and natural gas operations for the
three months ended March 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 PERIOD COMPARED TO
MARCH 31, 1996 PERIOD
--------------------- -----------------------
1996 1997 INCREASE % INCREASE
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Production volumes
Oil and condensate (MBbls)........... 21.3 21.4 0.1 --
Natural gas (MMcf)................... 195.9 592.3 396.4 202%
Average sales prices(1)
Oil and condensate (per Bbl)......... $ 19.02 $ 21.50 $ 2.48 13%
Natural gas (per Mcf)................ 1.97 2.35 0.38 19%
Operating revenues
Oil and condensate................... $405,189 $ 459,975 $ 54,786 14%
Natural gas.......................... 385,324 1,393,195 1,007,871 262%
-------- ---------- ----------
Total........................ $790,513 $1,853,170 $1,062,657 134%
======== ========== ==========
</TABLE>
- ---------------
(1) Including impact of hedging.
Oil and natural gas operating expenses for the three months ended March 31,
1997 increased 32% to $557,000 from $418,000 for the same period in 1996. Oil
and natural gas operating expenses increased primarily due to increased
production as described above, which was offset by a decrease in operating
expenses per equivalent unit to $0.77 per Mcfe in the first quarter of 1997 from
$1.29 per Mcfe in the same period in 1996. The per unit cost decreased as a
result of increased production of natural gas which had lower per unit operating
costs.
Depreciation, depletion and amortization ("DD&A") expense for the three
months ended March 31, 1997 increased 170% to $382,000 from $142,000 for the
same period in 1996. This increase was due to increased production and a 20%
increase in the 1997 depletion rate to $0.53 per Mcfe from $0.44 per Mcfe in the
three months ended March 31, 1996, as a result of increased drilling and related
seismic costs.
General and administrative expense for the three months ended March 31,
1997 increased 347% to $198,000 from $44,000 for the same period in 1996, as a
result of increases in the number of employees and related benefits, plus
increased office space.
Interest expense for the three months ended March 31, 1997 increased 77% to
$188,000 from $107,000 in the same period in 1996. Increases in interest expense
were due to increased debt levels in late 1996 and early 1997. Capitalized
interest increased to $188,000 in the first quarter of 1997 from $64,000 in the
first quarter of 1996 as a result of increased levels of exploration activity
and higher levels of unevaluated property. All interest expense during the first
quarter of 1997 was capitalized.
Net income for the three months ended March 31, 1997 increased to $716,000
from $144,000 for the same period in 1996, as a result of the factors described
above.
25
<PAGE> 27
Year Ended December 31, 1996 Compared to the Year Ended December 31, 1995
Oil and natural gas revenues for 1996 increased 114% to $5.2 million from
$2.4 million in 1995. Production volumes for natural gas in 1996 increased 125%
to 1,272.5 MMcf from 565.3 MMcf in 1995. Average natural gas prices increased
42% to $2.27 per Mcf in 1996 from $1.60 per Mcf in 1995. Production volumes for
oil in 1996 increased 38% to 107.3 MBbls from 77.6 MBbls in 1995. Average oil
prices increased 10% to $21.54 per barrel in 1996 from $19.64 per barrel in
1995. The increase in oil and natural gas production was due primarily to new
wells being successfully drilled and completed during 1996, along with
recompletions of existing wells. Also contributing to the increase in oil and
gas revenues from 1995 to 1996 was the acquisition of the La Rosa properties.
The following table summarizes production volumes, average sales prices and
operating revenues for the Company's oil and natural gas operations for the
years ended December 31, 1995 and 1996:
<TABLE>
<CAPTION>
1996 PERIOD COMPARED TO
DECEMBER 31, 1995 PERIOD
----------------------- -----------------------
1995 1996 INCREASE % INCREASE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Production volumes
Oil and condensate (MBbls)......... 77.6 107.3 29.7 38%
Natural gas (MMcf)................. 565.3 1,272.5 707.2 125%
Average sales prices(1)
Oil and condensate (per Bbl)....... $ 19.64 $ 21.54 $ 1.90 10%
Natural gas (per Mcf).............. 1.60 2.27 0.67 42%
Operating revenues
Oil and condensate................. $1,524,002 $2,310,798 $ 786,796 52%
Natural gas........................ 904,046 2,883,911 1,979,865 219%
---------- ---------- ----------
Total...................... $2,428,048 $5,194,709 $2,766,661 114%
========== ========== ==========
</TABLE>
- ---------------
(1) Including impact of hedging.
Oil and natural gas operating expenses for 1996 increased 31% to $2.4
million from $1.8 million in 1995. Oil and natural gas operating expenses
increased due to increased production generated from new oil and gas wells
drilled and completed since December 31, 1995, as well as the acquisitions of
the La Rosa and Encinitas properties. Operating expenses per equivalent unit in
1996 decreased to $1.24 per Mcfe from $1.76 per Mcfe in 1995. The per unit cost
decreased as a result of increased production of natural gas which had lower per
unit operating costs.
DD&A expense for 1996 increased 133% to $1.1 million from $488,000 in 1995.
This increase was due to the increase in oil and gas production as well as a 25%
increase in the depletion rate (to $0.59 per Mcfe in 1996 from $0.47 per Mcfe in
1995). The increased depletion rate was primarily caused by increased
exploration expenditures attributable to 3-D seismic surveys performed for new
wells drilled and completed since December 31, 1995.
General and administrative expense for 1996 increased 21% to $515,000 from
$425,000 for 1995 due primarily to an increase in salary expense as a result of
the addition of new employees.
Interest expense for 1996 decreased 59% to $80,000 from $192,000 in 1995.
This decrease was primarily due to the increase in interest capitalized
consistent with increases in capital expenditures.
Net income for 1996 increased to $1.1 million from a loss of $467,000 in
1995 as a result of the factors described above.
26
<PAGE> 28
Year Ended December 31, 1995 Compared to the Year Ended December 31, 1994
Oil and natural gas revenues for 1995 increased 307% to $2.4 million from
$597,000 in 1994. Production volumes for natural gas for 1995 increased to 565.3
MMcf from 5.4 MMcf in 1994. Average gas prices increased 81% to $1.60 per Mcf in
1995 from $0.88 per Mcf in 1994. Production volumes for oil for 1995 increased
135% to 77.6 MBbls from 33 MBbls in 1994. Average oil prices increased 11% to
$19.64 per barrel in 1995 from $17.69 per barrel in 1994. Oil and natural gas
revenues were significantly impacted by the acquisition of the Encinitas
properties, which added 579 MMcfe of production.
The following table summarizes production volumes, average sales prices and
operating revenues for the Company's oil and natural gas operations for the
years ended December 31, 1994 and 1995:
<TABLE>
<CAPTION>
1995 PERIOD COMPARED TO
DECEMBER 31, 1994 PERIOD
--------------------- -----------------------
1994 1995 INCREASE % INCREASE
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Production volumes
Oil and condensate (MBbls)......... 33.0 77.6 44.6 135%
Natural gas (MMcf)................. 5.4 565.3 559.9 *
Average sales prices (1)
Oil and condensate (per Bbl)....... $ 17.69 $ 19.64 $ 1.95 11%
Natural gas (per Mcf).............. 0.88 1.60 0.72 81%
Operating revenues
Oil and condensate................. $591,975 $1,524,002 $ 932,027 157%
Natural gas........................ 4,758 904,046 899,288 *
-------- ---------- ----------
Total...................... $596,733 $2,428,048 $1,831,315 307%
======== ========== ==========
</TABLE>
- ---------------
* Not meaningful.
(1) Including impact of hedging.
Oil and gas operating expenses increased 250% to $1.8 million from $518,000
in 1994. The increase was primarily attributable to increased operating expenses
of approximately $964,000 on the Encinitas properties. Operating expenses per
equivalent unit in 1995 decreased to $1.76 per Mcfe from $2.55 per Mcfe in 1994.
The per unit cost decreased as a result of increased production of natural gas
which had lower per unit operating costs.
DD&A expense increased 397% to $488,000 from $98,000 in 1994 as a result of
increased production with a relatively flat depletion rate ($0.47 per Mcfe in
1995 from $0.48 per Mcfe in 1994).
General and administrative expense increased 79% to $425,000 from $237,000
in 1994, primarily as a result of the hiring of additional engineering staff and
other employees as well as salary increases for existing employees.
Interest expense increased to $192,000 from $7,000 in 1994. This increase
in 1995 was due to the additional debt incurred to finance the acquisition of
the Encinitas properties. The increase in the weighted average outstanding debt
balance and effective interest rate was due to the additional debt incurred
which bore interest at a bank's prime rate plus 2.75%.
The Company incurred a net loss in 1995 of $467,000, compared to a net loss
of $259,000 in 1994, as a result of the factors described above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity have included funds generated by
operations, equity capital contributions and borrowings, primarily under
Carrizo's Secured Reducing Revolving
27
<PAGE> 29
Line of Credit (the "Carrizo Credit Facility") with Compass Bank ("Compass"). A
portion of the proceeds from this Offering will be used to repay the amounts
outstanding under the Carrizo Credit Facility, the Encinitas Credit Facility
(defined below) and the notes from certain of the current shareholders of
Carrizo. Following the Offering, the Carrizo Credit Facility, the Encinitas
Credit Facility and the shareholder loans will be terminated, and the Company
expects to enter into the Company Credit Facility, as described below under
"-- Financing Arrangements."
Cash flows (used in) provided by operations were $(258,000), $406,000, $3.3
million and $1.8 million in 1994, 1995, 1996 and the three months ended March
31, 1997, respectively. The increase in cash flows provided by operations in
1996 as compared to 1995, and 1995 as compared to 1994, was due primarily to
increased revenues from production.
The Company has budgeted capital expenditures in 1997 of approximately
$22.6 million. Substantially all of the capital expenditures will be used to
fund 3-D seismic surveys, land acquisitions and drilling activities in the
Company's project areas. The Company expects to drill approximately 67 gross
wells (24.6 net) in 1997 and has budgeted for approximately 147 gross wells
(67.5 net) in 1998. The actual amounts of capital expenditures and number of
wells drilled may differ significantly from such estimates. See
"Business -- Significant Project Areas." In addition to its existing leased
acreage, the Company has acquired various 3-D seismic options that will allow it
to lease up to approximately 252,000 gross undeveloped acres (91,000 net) if
determined by 3-D seismic data to be prospective for drilling.
The Company has continued to reinvest a substantial portion of its cash
flows into increasing its 3-D prospect portfolio, improving its 3-D seismic
interpretation technology and funding its drilling program. Oil and gas capital
expenditures were $800,000, $6.6 million, $9.1 million and $4.3 million in 1994,
1995, 1996 and the three months ended March 31, 1997, respectively. The
Company's drilling efforts resulted in the successful completion of 16 gross
wells (3.8 net) in 1996 that increased the Company's net reserves by 4.3 Bcf of
gas and 70 MBbls of oil at March 31, 1997.
The Company's revenues, profitability, future growth and ability to borrow
funds or obtain additional capital, and the carrying value of its properties,
are substantially dependent on prevailing prices of oil and natural gas. It is
impossible to predict future oil and natural gas price movements with certainty.
Declines in prices received for oil and natural gas may have an adverse effect
on the Company's financial condition, liquidity, ability to finance capital
expenditures and results of operations. Lower prices may also impact the amount
of reserves that can be produced economically by the Company.
Due to the instability of oil and natural gas prices, in 1995 the Company
began utilizing, from time to time, certain hedging instruments (e.g., NYMEX
futures contracts) for a portion of its oil and gas production to achieve a more
predictable cash flow, as well as to reduce the exposure to price fluctuations.
The Company's hedging arrangements apply to only a portion of its production,
provide only partial price protection against declines in oil and natural gas
prices and limit potential gains from future increases in prices. Such hedging
arrangements may expose the Company to risk of financial loss in certain
circumstances, including instances where production is less than expected, the
Company's customers fail to purchase contracted quantities of oil or natural gas
or a sudden unexpected event materially impacts oil or natural gas prices. The
Company accounts for all these transactions as hedging activities and,
accordingly, gains and losses from hedging activities are included in oil and
gas revenues during the period the hedged transactions occur. Historically,
gains and losses from hedging activities have not been material. The Company
expects that the amount of hedges that it has in place will vary from time to
time. The Company had no outstanding hedge positions as of December 31, 1996 or
March 31, 1997.
The Company has experienced and expects to continue to experience
substantial working capital requirements primarily due to the Company's active
exploration and development programs and, to a much lesser extent, its
technology enhancement programs. While the Company believes that the net
proceeds from this Offering, cash flow from operations and borrowings under the
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<PAGE> 30
Company Credit Facility should allow the Company to implement its present
business strategy during 1997 and 1998, additional financing may be required in
the future to fund the Company's growth, development and exploration program and
continued technological enhancement. In the event such capital resources are not
available to the Company, its exploration and other activities may be curtailed.
FINANCING ARRANGEMENTS
Following the closing of this Offering, the Company expects to enter into
the Company Credit Facility, which will provide for a maximum loan amount of $25
million, subject to borrowing base limitations. Under the new facility, the
principal outstanding will be due and payable upon maturity in June 1999 with
interest due monthly. The interest rate for borrowings will be calculated at a
floating rate based on the Compass Bank index rate or LIBOR plus 2%. The
Company's obligations will be secured by certain of its oil and gas properties
and cash or cash equivalents included in the borrowing base.
Under the Company Credit Facility, Compass, in its sole discretion, will
make semiannual borrowing base determinations based upon the proved oil and
natural gas properties of the Company. Compass may redetermine the borrowing
base and the monthly borrowing base reduction at any time and from time to time.
The Company may also request borrowing base redeterminations in addition to
their required semiannual reviews at the Company's cost.
The Company will be subject to certain covenants under the terms of the
Company Credit Facility, including but not limited to, (a) maintenance of
specified tangible net worth and (b) maintenance of a ratio of quarterly cash
flow (net income plus depreciation and other noncash charges, less noncash
income) to quarterly debt service (payments made for principal in connection
with the credit facility plus payments made for principal other than in
connection with such credit facility) of no less than 1.25 to 1.00. The Company
Credit Facility will also place restrictions on, among other things, (i)
incurring additional indebtedness, loans and liens, (ii) changing the nature of
business or business structure, (iii) selling assets and (iv) paying dividends.
The foregoing description of the Company Credit Facility is based upon a
preliminary term sheet negotiated with the lender. There can be no assurance
that the Company will enter into any final agreement with the terms described,
or at all.
In December 1996, Carrizo entered into the Carrizo Credit Facility with
Compass, which provides for a maximum loan amount of $25 million, subject to
borrowing base limitations. Under the Carrizo Credit Facility, the principal
outstanding is due and payable upon maturity in June 1998 with interest due
monthly. At March 31, 1997, the borrowing base was $7.2 million and borrowings
outstanding were $7.0 million. The interest rate for borrowings is calculated at
a floating rate based on a published prime rate plus .75%. Carrizo's obligations
under this facility are secured by substantially all of its oil and natural gas
properties. Individually and collectively, Paul B. Loyd, Jr., Frank A. Wojtek,
Steven A. Webster, Douglas A.P. Hamilton and S.P. Johnson IV are guarantors of
Carrizo's obligations under the Carrizo Credit Facility. In addition, certain
shares of Common Stock owned by current shareholders are pledged to Compass as
security for borrowings under the Carrizo Credit Facility. The Company will use
a portion of the proceeds of the Offering to repay all outstanding indebtedness
under the Carrizo Credit Facility. Upon such repayment, this facility will be
terminated and such guarantees and pledges will be released.
In June 1996, Encinitas Partners Ltd. ("Encinitas") entered into the
Secured Reducing Revolving Line of Credit (the "Encinitas Credit Facility") with
Compass, which provides for a maximum loan amount of $10 million, subject to
borrowing base limitations. Under the Encinitas Credit Facility, the principal
outstanding is due and payable upon maturity in June 1998 with interest due
monthly. At March 31, 1997, the borrowing base under the Encinitas Credit
Facility was $2.6 million, of which $2.4 million was outstanding and $224,000
was reserved for outstanding letters of credit. The interest rate for borrowings
is calculated at a floating rate based on a published
29
<PAGE> 31
prime rate plus .75%. Encinitas' obligations under this facility are secured by
substantially all of its oil and natural gas properties. The Company will use a
portion of the proceeds of the Offering to repay all outstanding indebtedness
under the Encinitas Credit Facility. Upon such repayment, this facility will be
terminated.
Necessary waivers effective as of December 31, 1996 were received from
Compass Bank to decrease the tangible net worth requirement (Encinitas Facility)
and to permit Carrizo (under the Carrizo Credit Facility) to advance funds to
one of the affiliated entities for exploration expenditures.
In January 1995, the Company entered into a loan agreement with Texas
Commerce Bank ("TCB") for the acquisition and development of oil and gas
properties by Encinitas Partners Ltd. Borrowings under the loan facility, which
totaled $2.1 million and bore interest at the prime rate as specified by TCB
plus 2.75%, were repaid with borrowings under the Encinitas Credit Facility
(defined below), and this loan facility was terminated. As additional
consideration, the Company assigned to TCB a 1% royalty interest in the
Encinitas/Kelsey properties.
In addition to borrowings under the credit facilities described above, the
Company had outstanding borrowings from certain shareholders totaling $1.4
million, $2.8 million and $2.9 million at December 31, 1995 and 1996 and March
31, 1997, respectively. See "Certain Transactions." These loans bear interest at
TCB's prime rate and are due in 1998. The Company will use a portion of the
proceeds of the Offering to prepay all outstanding borrowings from its
shareholders and does not expect to continue such arrangements with its
shareholders following the Offering.
EFFECTS OF INFLATION AND CHANGES IN PRICE
The Company's results of operations and cash flows are affected by changing
oil and gas prices. If the price of oil and gas increases (decreases), there
could be a corresponding increase (decrease) in the operating cost that the
Company is required to bear for operations, as well as an increase (decrease) in
revenues. Inflation has had a minimal effect on the Company.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121
regarding accounting for the impairment of long-lived assets. The Company
adopted SFAS No. 121 effective January 1, 1996. However, its provisions are not
applicable to the Company's oil and gas properties as they are accounted for
under the full-cost method of accounting.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, which is a new standard of accounting for stock-based compensation that
establishes a fair value method of accounting for awards granted after December
31, 1995 under stock compensation plans. SFAS No. 123 encourages, but does not
require, companies to adopt the fair value method of accounting in place of the
existing method of accounting for stock-based compensation, whereupon
compensation, costs are recognized only in situations where stock compensation
plans award intrinsic value to recipients at the date of grant.
The Company has elected not to adopt the fair value accounting of SFAS No.
123 and will account for any plans under APB Opinion No. 25, under which no
compensation costs have been recognized. The Company has reported the impact of
SFAS No. 123 on a pro forma basis as allowed under the pronouncement. See Note 6
of the notes to combined financial statements.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128 regarding earnings per share. SFAS No. 128 cannot be adopted until December
15, 1997; however, pro forma disclosures are allowed to minimize the impact of
year-end adoption. As a result of the noncomplex nature of the Company's capital
structure and treatment of all stock options as outstanding for all periods
pursuant to Staff Accounting Bulletin No. 83, SFAS No. 128 would have no current
impact on the pro forma calculation of earnings per share.
30
<PAGE> 32
BUSINESS
OVERVIEW
Carrizo is an independent oil and gas company engaged in the exploration,
development, exploitation and production of natural gas and crude oil. The
Company's operations are currently focused onshore in proven oil and gas
producing trends along the Gulf Coast, primarily in Texas and Louisiana in the
Frio, Wilcox and Vicksburg trends. The Company believes that the availability of
economic onshore 3-D seismic surveys has fundamentally changed the risk profile
of oil and gas exploration in these regions. Recognizing this change, the
Company has aggressively sought to control significant prospective acreage
blocks for targeted, proprietary, 3-D seismic surveys. As of May 31, 1997, the
Company had assembled approximately 322,000 gross acres under lease or option.
Approximately 75% of the Company's current acreage position is covered by
3-D seismic data that the Company has acquired, or is in the process of
acquiring, in its first 15 seismic surveys. The Company expects to acquire
additional 3-D seismic data during the remainder of 1997 and 1998 that will
cover substantially all of its remaining current acreage position. From the data
generated by its first seven proprietary seismic surveys, covering 200 square
miles, 94 drillsites have been identified. The Company's capital budgets for
1997 and 1998 of approximately $22.6 million and $54.2 million, respectively,
include amounts for the acquisition of additional 3-D seismic data and for the
drilling of 67 gross wells (24.6 net) in 1997 with a 37% average working
interest and the drilling of 147 gross wells (67.5 net) in 1998 with an
anticipated 46% average working interest. In addition, the Company anticipates
that as its 3-D seismic data is further evaluated, additional prospects will be
generated for drilling beyond 1998.
Typically, the Company's primary drilling targets have been shallow (from
4,000 to 7,000 feet), normally pressured reservoirs that generally involve
moderate cost (averaging $200,000 to $500,000 per completed well) and risk. Many
of these drilling prospects also have secondary, deeper, over-pressured targets
which have greater economic potential but generally involve higher cost
(averaging $1 million to $2 million per completed well) and risk. The Company
often seeks to sell a portion of these deeper prospects to reduce its
exploration risk and financial exposure while still allowing the Company to
retain significant upside potential. Deeper targets have been identified in
seven of the Company's 67 prospects budgeted for drilling in 1997. The Company
operates the majority of its projects through the exploratory phase but may
relinquish operator status to qualified partners in the production phase to
control costs and focus resources on the higher-value exploratory phase. As of
May 31, 1997, the Company operated 66 producing oil and gas wells, which
accounted for 57% of the wells in which the Company had an interest.
The Company seeks to increase its exposure to projects in its core areas
through the use of a broad project generation network, including outside
regional geologists, joint venture partners and its internal geophysical team.
Similarly, the Company uses contract geoscientists with expertise in a
particular project area, the prospect generation teams of its industry partners
and its internal geophysical staff to identify drillsites. The Company believes
that this strategy has enhanced its ability to control general and
administrative expenses, which averaged $0.27 per Mcfe of production for the
first quarter of 1997.
The Company has experienced rapid increases in reserves, production and
EBITDA since its inception in 1993 due to the growth of its 3-D based drilling
and development activities. From January 1, 1996 to March 31, 1997, the Company
participated in the drilling of 29 gross wells (8.9 net) with a commercial well
success rate of approximately 79%. This drilling success contributed to the
Company's total proved reserves as of March 31, 1997 of approximately 38.7 Bcfe,
with a PV-10 Value of $30.4 million. From inception through March 31, 1997, the
Company's average finding and development cost was approximately $0.47 per Mcfe.
The Company's production has increased 125% from 321 MMcfe for the three months
ended March 31, 1996
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<PAGE> 33
to 721 MMcfe for the three months ended March 31, 1997. EBITDA has also
increased significantly from $328,000 for the three months ended March 31, 1996
to $1.1 million for the three months ended March 31, 1997.
In addition to its core exploratory operations, the Company operates a
heavy oil project in Anderson County, Texas which, as of March 31, 1997,
contained proved reserves of approximately 3.6 MMBbls of 19 degrees API gravity
crude oil. The project produces from a depth of 500 feet and utilizes a tertiary
steam drive as an enhanced oil recovery process. During the first quarter of
1997, the Company produced 107 Bbls/d of oil from this project, which averaged a
$0.65 per Bbl premium over West Texas Intermediate crude due to the produced
oil's suitability as a lube oil feedstock,.
The Company's management team has extensive energy industry experience.
S.P. Johnson IV, the Company's President and Chief Executive Officer, has 18
years of industry experience, including 15 years with Shell Oil Company where he
served in various managerial positions. The Company's technical and operating
employees have an average of 15 years of industry experience, in many cases with
major and large independent oil companies, including Shell Oil Company, Vastar
Resources, Inc., Pennzoil Company and Tenneco Inc. The Company's Board of
Directors and major shareholders include its Chairman, Steven A. Webster who is
also Chairman and Chief Executive Officer of Falcon Drilling Company Inc., and
Paul B. Loyd, Jr., the Chairman and Chief Executive Officer of Reading & Bates
Corporation.
The Company believes that its future growth will be driven by the drilling
and development of existing identified opportunities as well as new 3-D based
prospects that are continually being identified from its growing project
portfolio. The Company intends to use the proceeds of this Offering to
accelerate its drilling and development activities, expand its prospective
acreage acquisition program and increase the number and size of, and working
interest in, additional 3-D based projects.
The address of the Company's principal executive office is 14811 St. Mary's
Lane, Suite 148, Houston, Texas 77079 and its telephone number is (281)
496-1352.
BUSINESS STRATEGY
The Company's business strategy is to profitably expand its reserve base,
production levels and EBITDA through the following key elements:
Aggressive Acreage and Seismic Acquisition Program. The Company seeks to
control significant prospective acreage positions in proven producing trends and
then acquire 3-D seismic data to evaluate this acreage. The Company believes
that recent technical improvements and cost reductions of onshore 3-D seismic
surveys and oil and gas drilling techniques have changed the risk/reward profile
of exploration in these regions and allow for the profitable exploration and
development of previously undetected or uneconomic drilling prospects. The
Company believes that its existing large acreage position and seismic database
will generate a significant inventory of drillsites over the next several years.
Focused Exploration. The Company intends to maintain its exploration focus
primarily in the onshore Gulf Coast region, which it believes offers numerous
advantages, including: (i) geologic trends that are prone to the accumulation of
significant oil and gas reserves in multiple target zones, (ii) a large number
of over-looked or under-exploited drilling prospects, (iii) familiarity of the
Company's personnel with the geology of the region, (iv) established
relationships with other regional participants and (v) availability of pipeline
and operating infrastructure. Based on the results to date of its exploration
activities, the Company believes that significant undiscovered reserves remain
in this region, and the Company plans to utilize its existing database of 3-D
seismic and geologic data and its knowledge of the region's producing fields and
trends to further expand its operations within this core region.
Leveraged Project and Drillsite Generation Program. The Company maintains a
flexible and diversified approach to project identification to increase its
exposure to projects in its core areas.
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<PAGE> 34
The Company's project areas have been identified by a broad network that
includes contract geoscientists who have expertise in a particular project area,
the exploration teams of several industry partners as well as the Company's
internal geophysical team. This approach has enabled the Company to increase the
number and diversity of projects from which the Company has developed its
exploration program while controlling the costs associated with these
operations. Similarly, in identifying specific drillsites within a project area,
the Company's internal exploration team has worked with outside contract
geoscientists and joint venture partners.
Prospects with Attractive Risk/Reward Balance. The Company seeks to retain
significant working interest positions in exploration prospects that fit its
risk/reward criteria. Many of the Company's exploration prospects contain both
primary targets with shallower, normally pressured reservoirs that generally
involve moderate cost and risk, as well as secondary targets that consist of
deeper, over-pressured and often larger reservoirs but involve higher cost and
risk. The Company typically retains all or the majority of its interests in the
shallow targets and often sells a portion of its interests in the deeper targets
to industry partners in order to mitigate its exploration risk and fund the
anticipated capital requirements for the retained portion of these targets. The
Company believes that this strategy affords it significant upside potential with
reduced overall risk.
EXPLORATION APPROACH
The Company generally seeks to rapidly accumulate large amounts of 3-D
seismic data along prolific, producing trends of the onshore Gulf Coast after
obtaining options to lease areas covered by the data. The Company then uses this
data to identify or evaluate prospects before drilling the prospects that fit
its risk/reward criteria. The Company typically seeks to explore in locations
within its core areas of expertise that it believes have (i) numerous
accumulations of normally pressured reserves at shallow depths and in geologic
traps that are difficult to define without the interpretation of 3-D seismic
data and (ii) the potential for large accumulations of deeper, over-pressured
reserves.
As a result of the increased availability of economic onshore 3-D seismic
surveys and the improvement and increased affordability of data interpretation
technologies, the Company has relied almost exclusively on the interpretation of
3-D seismic data in its exploration strategy. The Company generally does not
invest any substantial portion of the costs for an exploration well without
first interpreting 3-D seismic data. The principal advantage of 3-D seismic data
over traditional 2-D seismic analysis is that it affords the geoscientist the
ability to interpret a three dimensional cube of data representing a specific
project area as compared to interpreting between widely separated two
dimensional vertical profiles. As a consequence, the geoscientist is able to
more fully and accurately evaluate prospective areas, improving the probability
of drilling commercially successful wells in both exploratory and development
drilling. The use of 3-D seismic allows the geoscientist to identify and use
areas of irregular sand geometry to augment or replace structural interpretation
in the identification of potential hydrocarbon accumulations. Additionally,
detailed analysis and correlation of the 3-D seismic response to lithology and
contained fluids assist geoscientists in identifying and prioritizing drilling
targets. Because 3-D analysis is completed over an entire target area cube,
shallow, intermediate and deep objectives can be analyzed. Additionally, the
more precise structural definition allowed by 3-D seismic data combined with
integration of available well and production data assists in the positioning of
new development wells.
The Company has sought to obtain large volumes of 3-D seismic data either
by participating in large seismic data acquisition programs either alone or
pursuant to joint venture arrangements with other energy companies, or through
"group shoots" in which the Company shares the costs and results of seismic
surveys. By participating in joint ventures and group shoots, the Company is
able to share the up-front costs of seismic data acquisition and interpretation,
thereby enabling it to participate in a larger number of projects and diversify
exploration costs and risks. Substantially all of the Company's operations are
conducted through joint operations with industry participants. The Company is
currently actively involved in 32 project areas, and following the Offering,
intends to
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<PAGE> 35
further increase the number and size of seismic data acquisition projects in
which it participates to accelerate its exploration activities.
The Company's primary strategy for acreage acquisition is to obtain leasing
options covering large geographic areas in connection with 3-D seismic surveys.
Prior to conducting proprietary surveys, the Company typically seeks to acquire
seismic permits that include options to lease the acreage, thereby ensuring the
price and availability of leases on drilling prospects that may result upon
completing a successful seismic data acquisition program over a project area.
The Company generally attempts to obtain these options covering at least 80% of
the project area for these proprietary surveys. The size of these surveys has
ranged from 10 to 70 square miles. When the Company participates in 3-D group
shoots, it generally seeks prospective leases as quickly as possible following
interpretation of the survey. In connection with some group shoots in which the
Company believes that competition for acreage may be especially strong, the
Company may seek to obtain lease options or leases in prospective areas prior to
the receipt or interpretation of 3-D seismic data.
The Company maintains a flexible and diversified approach to project
identification by focusing on the estimated financial results of a project area
rather than limiting its focus to any one method or source for obtaining leads
for new project areas. The Company's current project areas resulted from leads
developed by its project generation network that includes small, independent
"prospect generators," the Company's joint venture partners and the Company's
internal staff. The Company believes that it has been able to increase the
number of potential projects and reduce its costs through the use of these
outside sources of project generation. Similarly, in identifying specific
drillsites from within a project area, the Company has relied upon outside
contract geoscientists and joint venture partners who have worked with the
Company's own geoscientists. Currently, over 20 geoscientists from this network
are devoting some or all of their time to identifying project areas or
evaluating drillsites in which the Company expects to have an interest.
Similarly, the Company also utilizes outside independent landmen with expertise
in a particular project area. This outsourcing strategy has enabled the Company
to control costs without maintaining a large internal land and exploration
department.
OPERATING APPROACH
The Company's management team has extensive experience in the development
and management of projects along the Texas and Louisiana Gulf Coast. The Company
believes that the experience of its management in the development of 3-D
projects in its core operating areas is a competitive advantage for the Company.
The Company's technical and operating employees have an average of 15 years of
industry experience, in many cases with major and large independent oil
companies, including Shell Oil Company, Vastar Resources, Inc., Pennzoil Company
and Tenneco Inc.
The Company generally seeks to obtain lease operator status and control
over field operations, and in particular seeks to control decisions regarding
3-D survey design parameters and drilling and completion methods. In some cases,
the Company may thereafter relinquish its operator status in order to
concentrate its resources on exploration activities, especially if the Company
has had successful prior experience with an industry partner acting as operator.
The Company currently operates 66 producing oil and natural gas wells, which
range in depth from 450 feet to greater than 6,500 feet.
The Company emphasizes preplanning in project development to lower capital
and operational costs and to efficiently integrate potential well locations into
the existing and planned infrastructure, including gathering systems and other
surface facilities. In constructing surface facilities, the Company seeks to use
reliable, high quality, used equipment in place of new equipment to achieve cost
savings. The Company also seeks to minimize cycle time from drilling to hook-up
of wells, thereby accelerating cash flow and improving ultimate project
economics.
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The Company seeks to use advanced production techniques to exploit and
expand its reserve base. Following the discovery of proved reserves, the Company
typically continues to evaluate its producing properties through the use of 3-D
seismic data to locate undrained fault blocks and identify new drilling
prospects and performs further reserve analysis and geological field studies
using computer aided exploration techniques. The Company seeks to integrate its
3-D seismic data with reservoir characterization and management systems through
the use of geophysical workstations which are compatible with industry standard
reservoir simulation programs.
SIGNIFICANT PROJECT AREAS
The Company is currently evaluating 32 exploration project areas. As of May
31, 1997, the Company had an existing 3-D seismic database of 661 square miles
and was acquiring an additional 436 square miles of data (totaling 1,097 square
miles of 3-D seismic data). To date, all project areas for which seismic data
has been interpreted have yielded multiple prospects and drillsites. The Company
is continuing to receive and interpret data covering these project areas and
believes that each project area has the potential for additional prospects and
drillsites.
1997-1998 EXPLORATION PROGRAM
<TABLE>
<CAPTION>
SQ. MILES OF 3-D
SEISMIC DATA AT
GROSS MAY 31, 1997
ACREAGE ---------------------- TOTAL 1997
LEASED OR BUDGETED 1997 1998 AND 1998 AVERAGE
UNDER EXISTING FOR BUDGETED BUDGETED BUDGETED AVERAGE NET
OPTION AT OR BEING ACQUISITION GROSS GROSS GROSS WORKING REVENUE
PROJECT AREAS MAY 31, 1997 ACQUIRED 1997-1998 WELLS(1) WELLS(2) WELLS INTEREST(3) INTEREST(3)
------------- ------------ -------- ----------- -------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TEXAS
Starr/Hidalgo.......... 4,888 340(4) -- 11 15 26 50.0% 37.5%
Encinitas/Kelsey....... 9,110 32 -- 14 1 15 27.5% 23.0%
Buckeye................ 16,280 22 20 9 11 20 50.0% 39.0%
La Rosa................ 8,260 22 -- 2(2) 4 6 31.5% 23.6%
Mexican Sweetheart..... 29,421 40 -- -- 8 8 25.0% 18.8%
McFaddin Ranch......... 5,300 15 -- 1 4 5 37.5% 28.1%
Cologne................ 25,160 40 -- 2(2) 8 10 25.0% 18.8%
South Cabeza Creek..... 10,406 20 -- 1(2) 4 5 52.5% 39.4%
East McFaddin.......... 6,640 11 -- 3 -- 3 20.0% 16.5%
Hiawatha............... 14,985 22 -- 10 4 14 42.0% 31.5%
Western 325............ -- 320(4) -- -- 5 5 50.0% 37.5%
Lance.................. 16,000 30 -- 3 5 8 25.0% 19.3%
Highway 59............. 3,947 -- 20 -- 4 4 20.0% 15.0%
Geronimo............... 66,161 107 -- 5 10 15 15.0% 11.3%
RPP Welder............. 26,585 60 -- -- 10 10 15.0% 11.3%
Midway................. 3,040 -- 15 2(2) 4 6 50.0% 37.5%
Lost Bridge............ 1,625 16 -- 1(2) 3 4 50.0% 37.5%
Drake 202.............. 12,000 -- 19 -- -- -- 100.0% 82.8%
Other (11 Areas)....... 57,605 -- 291 -- 42 42 72.5% 56.9%
LOUISIANA
North Chalkley......... 640 -- 20 1 2 3 18.0% 14.2%
Atchafalaya............ 3,400 -- -- 1 2 3 55.4% 41.5%
Live Oak............... 350 -- -- 1 1 2 20.0% 15.0%
------- ----- --- -- --- ---
TOTAL........... 321,803 1,097 385 67 147 214
======= ===== === == === ===
</TABLE>
- ---------------
(1) Consists of identified drillsites included in the Company's 1997 capital
budget that are fully evaluated, leased and have been or are scheduled to be
drilled during 1997, except as otherwise indicated. Of these budgeted wells,
19 had been drilled as of May 31, 1997.
(2) Consists of wells included in the Company's 1997 and 1998 capital budgets,
but as to which 3-D seismic data has either not been obtained or fully
evaluated, or for which the Company has not yet acquired leases or option
rights. The number of wells indicated is based upon statistical results of
drilling activities in 3-D project areas that the Company believes are
geologically similar.
(3) Anticipated as of May 31, 1997.
(4) Represents non-proprietary "group shoots" in which the Company is a
participant.
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<PAGE> 37
Set forth below are descriptions of the Company's key project areas where
it is actively exploring for potential oil and natural gas prospects and in some
cases currently has production. The 3-D surveys the Company is using to analyze
its project areas range from regional, non-proprietary "group shoots" to single
field proprietary surveys. The Company has, in many cases, participated in these
project areas with industry partners to share the up-front costs associated with
obtaining option arrangements with landowners, seismic data acquisition and
related data interpretation, to mitigate its exploration risk and to increase
the number of projects in which it is able to participate.
Although the Company is currently pursuing prospects within the project
areas described below, and has budgeted to drill the number of wells set forth
in the preceding table, there can be no assurance that these prospects will be
drilled at all or within the expected time frame. In particular, budgeted wells
that are based upon statistical results of drilling activities in other project
areas are subject to greater uncertainties than wells for which drillsites have
been identified. The final determination with respect to the drilling of any
identified drillsites or budgeted wells will be dependent on a number of
factors, including (i) the results of exploration efforts and the acquisition,
review and analysis of the seismic data, (ii) the availability of sufficient
capital resources by the Company and the other participants for the drilling of
the prospects, (iii) the approval of the prospects by other participants after
additional data has been compiled, (iv) the economic and industry conditions at
the time of drilling, including prevailing and anticipated prices for oil and
natural gas and the availability of drilling rigs and crews, (v) the financial
resources and results of the Company and (vi) the availability of leases on
reasonable terms and permitting for the prospect. There can be no assurance that
these projects can be successfully developed or that the identified drillsites
or budgeted wells discussed will, if drilled, encounter reservoirs of
commercially productive oil or natural gas. The reserve data set forth below is
based upon the Reserve Reports. There are numerous uncertainties in estimating
quantities of proved reserves, including many factors beyond the control of the
Company. See "Risk Factors -- Dependence on Exploratory Drilling Activities,"
"-- Reserve Replacement Risk" and "-- Uncertainty of Reserve Information and
Future Net Revenue Estimates."
TEXAS
Starr/Hidalgo Project Area: Frio and Vicksburg Formations
The Starr/Hidalgo Project Area is located in Starr and Hidalgo Counties,
Texas in the Frio and Vicksburg formations. The Company and a partner licensed
approximately 340 square miles of non-proprietary 3-D seismic data that was
delivered during August 1995 and June 1996. Sixty-four prospects have been
identified in the shallow Frio trend and the deeper, structurally complex
Vicksburg trend, as well as two large prospects in the relatively unexplored
Eocene trend. The Company and its partner have leases covering 4,888 acres in
this project area and currently control 18 of these prospects (10 Frio, seven
Vicksburg and one Eocene). The Company sold a portion of its interest in four of
the deeper and riskier Vicksburg prospects to industry partners. During the
quarter ended March 31, 1997, the Company's share of production from wells in
this project area was approximately 40 Bbls/d of oil and 2.6 MMcf/d of natural
gas. As of April 30, 1997, the Company and its partners have drilled a total of
13 wells resulting in 11 producing wells with estimated proved reserves net to
the Company of 19.0 MBbls of oil and 2.5 Bcf of natural gas at March 31, 1997.
The Company and its partners have identified 11 locations that have been or are
scheduled to be drilled during 1997. The Company believes that continuing
interpretation and seismic processing of the Starr/Hidalgo Project Area 3-D
seismic data will result in additional prospects and drilling locations.
Encinitas/Kelsey Project Area: Frio and Vicksburg Formations
The Encinitas/Kelsey Project Area is located in Brooks County, Texas in the
Frio and Vicksburg formations. The Company acquired an interest in leases
covering 9,110 acres in this area in
36
<PAGE> 38
December 1994 to re-develop the property. Upon acquisition of its interests in
this project area, the Company undertook a comprehensive petrophysical study and
acquired a 32 square mile 3-D seismic survey. This effort has resulted in the
identification of numerous Frio and Vicksburg prospects. At March 31, 1997, the
Company had estimated proved reserves net to the Company of 106.4 MBbls of oil
and 2.1 Bcf of natural gas. During the quarter ended March 31, 1997, the
Company's share of production from wells in this project area was 138 Bbls/d of
oil and 1.8 MMcf/d of natural gas. As of April 30, 1997, the Company and its
partners have drilled a total of seven wells resulting in six producing wells.
The Company and its partners have identified 14 locations that have been or are
scheduled to be drilled in 1997, with the possibility of additional follow-up
drilling in 1998.
Buckeye Project Area: Wilcox, Hockley, Pettus and Yegua Formations
The Buckeye Project Area is located in Live Oak County, Texas. The Company
and its partner currently hold 5,440 acres under lease and 31,000 acres under
option and have acquired an approximately 22 square mile 3-D seismic survey over
the first 12,000 optioned acres. A 3-D seismic survey over the other 9,000 acres
under option is planned for the summer of 1997. The exploration objectives for
the Buckeye Project Area are the shallow zones of the Hockley, Pettus and Yegua
formations and the deep zones of the expanded Upper Wilcox formation. The data
for the first phase was received from processing in April 1997 and initial
interpretation has generated nine shallow prospects. The first prospect has been
successfully drilled, a second is drilling, with the remainder scheduled to be
drilled during mid-1997.
La Rosa Project Area: Frio Formation
The La Rosa Project Area is located in Refugio County, Texas over a
producing field leasehold of 3,700 acres. The area covers Frio
barrier/strandplain sands productive down to 8,200 feet. Data is currently being
processed from a 3-D seismic survey over 22 square miles that was conducted by
the Company during the first quarter of 1997. The Company will attempt to use
the 3-D seismic data to identify shallow objectives, delineate reservoir
compartments for drilling of bypassed reserves and identify flank prospects and
deeper prospects in the Vicksburg trend. The Company has budgeted to drill two
prospects in this project area during 1997. The Company's leases cover 3,700
acres and its seismic options cover 4,560 acres in this project area.
Mexican Sweetheart Project Area: Frio Formation
The Mexican Sweetheart Project Area is located in southwestern Jackson
County, Texas in the Frio producing trend. A secondary objective for this
project area may be the shallow Miocene trend and the Yegua and Wilcox trends.
The area is directly south of successful 3-D seismic projects conducted by the
Company's partners in this project and covers historical field discoveries. The
Company has planned and directed a 40 square mile 3-D seismic survey covering
the project area, and field operations were initiated in March 1997. The Company
will seek to use the 3-D seismic data to identify shallow objectives, delineate
reservoir compartments for drilling of bypassed reserves and identify flank
prospects and deeper, higher risk prospects in the Yegua and Upper Wilcox
trends, which the Company would seek to explore on a carried basis with an
industry partner. The Company's leases cover 676 acres and its seismic options
cover 28,745 acres in this project area.
McFaddin Ranch Project Area: Miocene and Frio Formations
The McFaddin Ranch Project Area is located in Victoria County, Texas in the
Miocene and Frio formations. Data is currently being interpreted from a 15
square mile 3-D seismic survey conducted in the first quarter of 1997. The
Company will seek to use the 3-D seismic data to delineate a prospect identified
through subsurface geological work and interpretation of 2-D seismic data. This
project area is immediately northwest of the East McFaddin Field Project Area.
The Company has
37
<PAGE> 39
budgeted to drill one prospect in this project area during 1997. The Company's
seismic options in this project area cover approximately 5,300 acres.
Cologne Project Area: Frio Formation
The Cologne Project Area is located in Goliad and Victoria Counties, Texas
in the Frio formation. A secondary objective for this project area may be the
Yegua and Wilcox formations. The area covers several historical field
discoveries. A 40 square mile 3-D seismic survey is currently being conducted in
the project area. The Company will seek to use the 3-D seismic data to identify
shallow opportunities, to delineate any reservoir compartments for drilling of
bypassed reserves and seek to identify flank prospects and deeper, higher risk,
prospects in the Yegua and Upper Wilcox formations. The Company has budgeted to
drill two prospects in this project area during the remainder of 1997. The
Company's leases cover 4,160 acres and its seismic options cover 21,000 acres in
this project area.
South Cabeza Creek Project Area: Frio Formation to Lower Wilcox Sands
The South Cabeza Creek Project Area is located in Goliad County, Texas in
an area having significant production in the shallow Frio and lower Wilcox
trends. The Company is currently in the process of acquiring seismic options and
leases for a proposed 20 square mile 3-D seismic shoot in the project area that
is currently scheduled to begin in the second or third quarter of 1997. The
Company intends to use the 3-D seismic data to identify potential Frio,
Vicksburg and Yegua opportunities and to verify and optimize a Wilcox prospect.
The Company has budgeted drilling one prospect in this project area beginning in
1997. The Company currently has 906 acres under lease and 9,500 acres under
seismic option in this project area.
East McFaddin Project Area: Frio Formation
The East McFaddin Project Area is located in Victoria County, Texas. In
1995, the Company obtained a 20% working interest in 4,680 acres under lease and
1,760 acres under seismic option by funding an approximately 11 square mile 3-D
seismic survey in the project area. During the quarter ended March 31, 1997, the
Company's share of production from wells in this project area was 25 Bbls/d of
oil and 0.7 MMcf/d of natural gas. As of March 31, 1997, the Company and its
partners had drilled a total of five wells resulting in two producing wells with
estimated proved reserves net to the Company of 2.3 MBbls of oil and 0.6 Bcf of
gas. The Company and its partners have identified three additional locations
scheduled to be drilled in 1997, with the possibility of additional follow-up
drilling in 1998.
Hiawatha Project Area: Pettus and Yegua Formations
The Hiawatha Project Area is located in Duval County, Texas and covers
existing producing fields originally developed in the 1940s, with the most
recent drilling in the 1970s. In August 1996, the Company and its partners
acquired an approximately 22 square mile 3-D seismic survey and currently hold
leases covering 1,965 acres and seismic options covering 13,000 acres in the
project area. During the quarter ended March 31, 1997, the Company's share of
production from wells in this project area was 20 Bbls/d of oil and 0.6 MMcf/d
of natural gas. As of April 30, 1997, the Company and its partners have drilled
a total of eight wells resulting in six producing wells with estimated proved
reserves net to the Company of 28.2 MBbls of oil and 0.5 Bcf of natural gas at
March 31, 1997. The Company and its partners have identified ten locations that
have been or are scheduled to be drilled in 1997, with the possibility of
additional follow-up drilling depending on the results of the scheduled
drilling.
38
<PAGE> 40
Western 325 Project Area: Wilcox and Jackson-Yegua Formations
The Western 325 Project Area is located in Webb and Duval Counties, Texas
in the Wilcox and Jackson-Yegua formations. The Company and a partner have
joined others in underwriting a non-proprietary 3-D seismic data shoot covering
approximately 320 square miles in the project area. Multiple prospects have been
identified from data covering approximately 100 square miles that was delivered
in April 1997. The remainder of the data is currently expected to be delivered
in the third quarter of 1997 and the first quarter of 1998. The Company believes
that experience gained in the Starr/Hidalgo Project Area may assist in
exploration efforts in the Western 325 Project Area.
Lance Project Area: Frio Formation
The Lance Project Area is located in Bee County, Texas in an area of
prolific shallow Frio production. The primary exploration objectives in this
project area are the Frio/Vicksburg trends, with secondary objectives in the
deeper Vicksburg, Jackson and Yegua formations. The Company is currently
interpreting data from a 30 square mile 3-D seismic survey completed in the
second half of 1996. The Company will seek to use the 3-D seismic data to
delineate reservoir compartments for drilling of bypassed Frio reserves as well
as to identify flank and deeper Vicksburg prospects. The Company has scheduled
to drill three prospects in this project area during 1997. The Company's seismic
options in this project area cover an aggregate of approximately 16,000 acres.
Highway 59 Project Area: Frio, Yegua and Wilcox Formations
The Highway 59 Project Area is located in Fort Bend and Wharton Counties,
Texas in an area of several historical field discoveries and production in the
Frio and Yegua formations and in the highly competitive Wharton County Wilcox
trend. A survey design has been completed for a 20 square mile 3-D seismic
survey in the project area, and field work is expected to begin during the
second quarter of 1997. The Company and two large independent industry partners
will seek to use the 3-D seismic data to identify shallow opportunities and to
delineate Yegua and Wilcox prospects identified through the interpretation of
2-D seismic data. The Company's leases in this project area currently cover
3,947 acres.
Geronimo Project Area: Frio Formation
The Geronimo Project Area is located in San Patricio County, Texas in an
area of predominantly Frio production. Numerous fault systems run through the
area, particularly in the basal Frio and Vicksburg formations. A 67 square mile
3-D seismic survey was conducted in 1996, with the initial interpretation of
data generating five prospects. The Company has scheduled to drill these
prospects during 1997, with possible follow-up development anticipated in 1998.
A northeast extension of the initial 3-D seismic survey covering an additional
40 square miles is planned for the second half of 1997. The Company's leases
cover 10,278 acres and its seismic options cover 55,883 acres in this project
area.
RPP Welder Project Area: Frio and Vicksburg Formations
The RPP Welder Project Area is located in San Patricio and Refugio
Counties, Texas in an area of predominantly upper Frio production and is
adjacent to the Geronimo, Midway and LaRosa Project Areas. Numerous fault
systems run through the area, particularly at the relatively unexplored basal
Frio and Vicksburg levels. The primary producing formations in this area have
historically been Miocene and upper Frio oil objectives. Field operations for a
60 square mile 3-D seismic survey commenced during the second quarter of 1997.
The Company's leases cover 310 acres and its options cover 26,275 acres in this
project area.
39
<PAGE> 41
Midway Project Area: Frio Formation
The Midway Project Area is located in San Patricio County, Texas in an area
of predominantly Frio production. The area is a southwest extension of the
Geronimo Project Area and includes the Company's producing properties from the
Midway Field along with contiguous leases and seismic option areas. The Company
has designed a 15 square mile 3-D seismic survey in this project area, and field
operations are planned to commence in the third quarter of 1997. The Company has
budgeted to drill two prospects in this project area during the second half of
1997. The Company's leases cover 2,400 acres and its options cover 640 acres in
this project area.
Lost Bridge Project Area: Frio, Yegua and Wilcox Formations
The Lost Bridge Project Area is located in northern Jackson County, Texas
in the Frio, Yegua and Wilcox formations. The area covers several historical
field discoveries and recent Wilcox production. The Company expects to begin
work in the second quarter of 1997 on a 16 square mile 3-D seismic survey. The
Company will seek to use the 3-D seismic data to delineate a Yegua prospect
identified with 2-D seismic data, identify shallow opportunities and image the
deeper Wilcox trend. The Company's strategy is to drill any Yegua prospects and
sell a portion of its interest in any Wilcox prospects while retaining a carried
interest. The Company is currently acquiring seismic options in the project area
and has 850 acres under lease and 775 acres under option to date. The Company
anticipates drilling one prospect in this project area during 1997.
Drake 202 Project Area: Frio and Vicksburg Formations
The Drake 202 Project Area is located in Bee County, Texas adjacent to the
Lance Project Area. Primary exploration objectives for this project area are the
Frio and Vicksburg formations, as well as deeper, higher risk prospects in the
Yegua formation. In this project area, the Company's seismic options cover
12,000 acres. A 19 square mile 3-D seismic survey is budgeted for late 1997.
LOUISIANA
North Chalkley Project Area: Miogyp Sand
The North Chalkley Project Area is located in Calcasieu and Cameron
Parishes, Louisiana in an area of production from the Miogyp sand trend. The
exploration objective of this project area is a prospect identified through the
interpretation of 2-D seismic data in the third Camerina and Miogyp sands. The
Company's leases in this project area cover an aggregate of approximately 640
acres. The Company sold a portion of its interest in the project area to two
large independent oil and natural gas companies for cash and retained an 18%
working interest, which will be carried to casing point on the first well that
is scheduled to be drilled during the second and third quarter of 1997.
Depending on well results, the Company expects that it and its partners would
conduct a 20 square mile 3-D seismic survey of the area.
Atchafalaya Project Area: Cib Op-C Sand
The Atchafalaya Project Area is located in Atchafalaya Bay in Louisiana. In
1991, a well was drilled in this fault block resulting in a field discovery at
approximately 17,500 feet. The Company and its partners control 3,400 acres in
this project area under a farm-in agreement and two state leases. The Company's
partners have access to 20 square miles of 3-D seismic data covering this
project area. As of March 31, 1997, the Company's net estimated proved reserves
in the fields were 308 MBbls of oil and 5.8 Bcf of natural gas. The Company
plans to drill one well in this project area with a barge rig during the
remainder of 1997. The Company plans to sell a portion of its interests in this
project area.
40
<PAGE> 42
Live Oak Project Area: Chris II Sand
The Live Oak Project Area is located in Vermillion Parish, Louisiana. In
1996, the Company and its partners acquired access to a 20 square mile 3-D
seismic survey. The Company promoted its interest in the project area to two
independents and will pay 11% of the well costs for 20% of the working interest.
The Company's leases in this project area cover an aggregate of approximately
350 acres. One well is scheduled to be drilled in the third quarter of 1997.
OTHER PROJECT AREAS
In addition to the project areas described above, the Company has 11
additional project areas in the early stages of development. These project areas
are located in the onshore Texas Gulf Coast region, with the primary exploration
objectives being the Frio and Yegua formations, as well as one project area in
the Cotton Valley Lime Reef trend. The Company is in the process of acquiring
interests with respect to most of these project areas and has acquired leases
and seismic options covering approximately 57,605 acres to date. 3-D seismic
surveys covering an aggregate of approximately 291 square miles are budgeted for
acquisition during 1997 and 1998. Any drilling in these project areas is not
expected to be completed any earlier than 1998.
SIGNIFICANT DEVELOPMENT PROJECT -- Camp Hill
The Company owns interests in and operates six leases totaling 282 acres in
the Camp Hill field in Anderson County, Texas. During the quarter ended March
31, 1997, the project produced 107 Bbls/d of 19 degrees API gravity oil. The
project produces from a depth of 500 feet and utilizes a tertiary steam drive as
an enhanced oil recovery process. Although efficient at maximizing oil recovery,
the steam drive process is relatively expensive to operate because natural gas
is burned to create the steam injectant. Lifting costs during the first quarter
of 1997 averaged $16.80 per barrel ($2.80 per Mcfe). Because profitability
increases when natural gas prices drop relative to oil prices, the project is a
natural hedge against decreases in natural gas prices relative to oil prices.
The crude oil produced, although viscous, commands a higher price (an average
premium of $.65 per barrel during the first quarter of 1997) than West Texas
intermediate crude due to its suitability as a lube oil feedstock. As of March
31, 1997, the Company had 3.6 MMBbls of oil of proved reserves in this project,
with 0.9 MMBbls of oil currently developed. The Company anticipates that it will
drill additional wells and increase steam injection to develop the proved
undeveloped reserves in this project, with the timing and amount of expenditures
depending on the relative prices of oil and natural gas. The Company has an
average working interest of 92.5% in its leases in this field and an average net
revenue interest of 74.0%.
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<PAGE> 43
OIL AND NATURAL GAS RESERVES
The following table sets forth estimated net proved oil and natural gas
reserves of the Company and the PV-10 Value of such reserves as of March 31,
1997. The reserve data and the present value as of March 31, 1997 were prepared
by Ryder Scott and Fairchild. For further information concerning Ryder Scott's
and Fairchild's estimate of the proved reserves of the Company at March 31,
1997, see the Reserve Reports included as Annex A to this Prospectus. The PV-10
Value was prepared using constant prices as of the calculation date, discounted
at 10% per annum on a pretax basis, and is not intended to represent the current
market value of the estimated oil and natural gas reserves owned by the Company.
For further information concerning the present value of future net revenue from
these proved reserves, see Note 9 of Notes to Financial Statements. Also see
"Risk Factors -- Uncertainty of Reserve Information and Future Net Revenue
Estimates."
<TABLE>
<CAPTION>
PROVED RESERVES(1)
--------------------------------------------
DEVELOPED UNDEVELOPED TOTAL
--------- ----------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Oil and condensate (Mbbls)................... 1,225 3,063 4,289
Natural gas (Mmcf)........................... 6,405 6,621 13,026
Total proved reserves (Mmcfe)................ 13,757 25,001 38,758
PV-10 Value(2)............................... $15,344 $15,076 $30,421
</TABLE>
- ---------------
(1) The Reserve Reports as of March 31, 1997 do not include reserves for five
wells completed as of March 31. In addition, eight wells were completed from
March 31, 1997 through May 31, 1997. See "-- Drilling Activity."
(2) The PV-10 Value as of March 31, 1997 was determined by using the March 31,
1997 weighted average sales prices of $19.71 per Bbl of oil and $1.74 per
Mcf of natural gas.
There are numerous uncertainties inherent in estimating quantities of
proved oil and natural gas reserves and in projecting future rates of production
and timing of development expenditures, including many factors beyond the
control of the producer. The reserve data set forth herein represents estimates
only. Reserve engineering is a subjective process of estimating underground
accumulations of oil and natural gas that cannot be measured in an exact way,
and the accuracy of any reserve estimate is a function of the quality of
available data and of engineering and geological interpretation and judgment. As
a result, estimates made by different engineers often vary from one another. In
addition, results of drilling, testing and production subsequent to the date of
an estimate may justify revision of such estimates, and such revisions may be
material. Accordingly, reserve estimates are generally different from the
quantities of oil and natural gas that are ultimately recovered. Furthermore,
the estimated future net revenues from proved reserves and the present value
thereof are based upon certain assumptions, including future prices, production
levels and costs, that may not prove correct.
No estimates of proved reserves comparable to those included herein have
been included in reports to any federal agency other than the Commission.
In accordance with Commission regulations, the Reserve Reports used oil and
natural gas prices in effect at March 31, 1997. The prices used in calculating
the estimated future net revenue attributable to proved reserves do not
necessarily reflect market prices for oil and natural gas production subsequent
to March 31, 1997. There can be no assurance that all of the proved reserves
will be produced and sold within the periods indicated, that the assumed prices
will actually be realized for such production or that existing contracts will be
honored or judicially enforced.
42
<PAGE> 44
VOLUMES, PRICES AND OIL & GAS OPERATING EXPENSE
The following table sets forth certain information regarding the production
volumes of, average sales prices received for and average production costs
associated with the Company's sales of oil and natural gas for the periods
indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS
---------------------------- ENDED
1994 1995 1996 MARCH 31, 1997
------ ------ ------ --------------
<S> <C> <C> <C> <C>
PRODUCTION VOLUMES
Oil (MBbls).................................... 33 78 107 21
Natural gas (MMcf)............................. 5 565 1,273 592
Natural gas equivalent (MMcfe)................. 203 1,033 1,915 721
AVERAGE SALES PRICES
Oil (per Bbl).................................. $17.69 $19.64 $21.54 $21.50
Natural gas (per Mcf).......................... 0.88 1.60 2.27 2.35
Natural gas equivalent (per Mcfe).............. 2.94 2.36 2.71 2.57
AVERAGE COSTS (PER MCFE)
Camp Hill operating expenses................... $ 2.64 $ 2.06 $ 3.15 $ 2.80
Other operating expenses....................... 1.85 1.63 0.94 0.60
Total operating expenses(1).......... 2.55 1.76 1.24 0.77
</TABLE>
- ---------------
(1) Includes direct lifting costs (labor, repairs and maintenance, materials and
supplies), workover costs and the administrative costs of production
offices, insurance and property and severance taxes.
FINDING AND DEVELOPMENT COSTS
Since inception, the Company has incurred total gross development,
exploration and acquisition costs of approximately $20.0 million. Total
exploration, development and acquisition activities since inception have
resulted in the addition of approximately 42.4 Bcfe, net to the Company's
interest, of proved reserves at an average finding and development cost of $0.47
per Mcfe.
The Company's finding and development costs have historically fluctuated on
a year-to-year basis. Finding and development costs, as measured annually, may
not be indicative of the Company's ability to economically replace oil and
natural gas reserves because the recognition of costs may not necessarily
coincide with the addition of proved reserves.
DEVELOPMENT, EXPLORATION AND ACQUISITION CAPITAL EXPENDITURES
The following table sets forth certain information regarding the gross
costs incurred in the purchase of proved and unproved properties and in
development and exploration activities.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS
------------------------ ENDED
1994 1995 1996 MARCH 31, 1997
---- ------ ------ --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Acquisition costs
Unproved prospects............................. -- $ 317 $ 51 $ 11
Proved properties.............................. 329 3,588 1,908 --
Exploration...................................... 280 2,364 4,724 3,550
Development...................................... 177 208 1,956 549
---- ------ ------ ------
Total costs incurred................... $786 $6,478 $8,639 $4,110
</TABLE>
43
<PAGE> 45
DRILLING ACTIVITY
The following table sets forth the drilling activity of the Company for the
years ended December 31, 1994, 1995 and 1996 and the three months ended March
31,1997. In the table, "gross" refers to the total wells in which the Company
has a working interest and "net" refers to gross wells multiplied by the
Company's working interest therein. As shown below, the Company's drilling
activity from January 1, 1994 to March 31, 1997 has resulted in a commercial
success rate of approximately 79%.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED
---------------------------------------------- MARCH 31,
1994 1995 1996 1997
------------- ------------- ------------ ------------
GROSS NET GROSS NET GROSS NET GROSS NET
----- ---- ----- ---- ----- --- ----- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Exploratory Wells
Productive.................. -- -- -- -- 16 3.8 7 3.3
Nonproductive............... -- -- -- -- 4 0.9 2 0.9
---- ---- ---- ---- -- --- -- ---
Total............... -- -- -- -- 20 4.7 9 4.2
==== ==== ==== ==== == === == ===
Development Wells
Productive.................. -- -- -- -- -- -- -- --
Nonproductive............... -- -- -- -- -- -- -- --
---- ---- ---- ---- -- --- -- ---
Total............... -- -- -- -- -- -- -- --
==== ==== ==== ==== == === == ===
</TABLE>
From March 31, 1997 to May 31, 1997, the Company drilled nine gross
productive exploratory wells (2.1 net), of which seven were successfully
completed, and one gross productive development well (0.27 net) that was
successfully completed. As of May 31, 1997, the Company was drilling or
evaluating four gross exploratory wells (1.5 net) and no gross development
wells.
PRODUCTIVE WELLS
The following table sets forth the number of productive oil and natural gas
wells in which the Company owned an interest as of March 31, 1997.
<TABLE>
<CAPTION>
COMPANY-
OPERATED OTHER TOTAL
------------ ------------ ------------
GROSS NET GROSS NET GROSS NET
----- ---- ----- ---- ----- ----
<S> <C> <C> <C> <C> <C> <C>
Oil............................................... 56 56.0 23 5.0 79 61.0
Natural gas....................................... 10 6.9 26 7.3 36 14.2
-- ---- -- ---- --- ----
Total................................... 66 62.9 49 12.3 115 75.2
== ==== == ==== === ====
</TABLE>
ACREAGE DATA
The following table sets forth certain information regarding the Company's
developed and undeveloped lease acreage as of March 31, 1997. Developed acres
refers to acreage within producing units and undeveloped acres refers to acreage
that has not been placed in producing units.
<TABLE>
<CAPTION>
DEVELOPED UNDEVELOPED
ACREAGE ACREAGE TOTAL
-------------- --------------- ---------------
GROSS NET GROSS NET GROSS NET
------ ----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Louisiana............................... 0 0 4,390 3,217 4,390 3,217
Texas................................... 29,643 9,979 32,972 9,945 62,615 19,924
------ ----- ------ ------ ------ ------
Total......................... 29,643 9,979 41,309 13,951 67,005 23,141
====== ===== ====== ====== ====== ======
</TABLE>
The table does not include 252,000 gross acres (91,000 net) that the
Company has a right to acquire pursuant to various seismic option agreements at
May 31, 1997. Under the terms of its option agreements, the Company typically
has the right for a period of one year, subject to
44
<PAGE> 46
extensions, to exercise its option to lease the acreage at predetermined terms.
The Company's lease agreements generally terminate if wells have not been
drilled on the acreage within a period of three years.
MARKETING
The Company's production is marketed to third parties consistent with
industry practices. Typically, oil is sold at the wellhead at field-posted
prices plus a bonus and natural gas is sold under contract at a negotiated price
based upon factors normally considered in the industry, such as distance from
the well to the pipeline, well pressure, estimated reserves, quality of natural
gas and prevailing supply/demand conditions.
The Company's marketing objective is to receive the highest possible
wellhead price for its product. The Company is aided by the presence of multiple
outlets near its production in the Texas and Louisiana Gulf Coast. The Company
takes an active role in determining the available pipeline alternatives for each
property based upon historical pricing, capacity, pressure, market
relationships, seasonal variances and long-term viability.
There are a variety of factors which affect the market for oil and natural
gas, including the extent of domestic production and imports of oil and natural
gas, the proximity and capacity of natural gas pipelines and other
transportation facilities, demand for oil and natural gas, the marketing of
competitive fuels and the effects of state and federal regulations on oil and
natural gas production and sales. The Company has not experienced any
difficulties in marketing its oil and natural gas. The oil and natural gas
industry also competes with other industries in supplying the energy and fuel
requirements of industrial, commercial and individual customers.
The Company from time to time markets its own production where feasible
with a combination of market-sensitive pricing and forward-fixed pricing.
Forward pricing is utilized to take advantage of anomalies in the futures market
and to hedge a portion of the Company's production deliverability at prices
exceeding forecast. All of such hedging transactions provide for financial
rather than physical settlement. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- General Overview."
Despite the measures taken by the Company to attempt to control price risk,
the Company remains subject to price fluctuations for natural gas sold in the
spot market due primarily to seasonality of demand and other factors beyond the
Company's control. Domestic oil prices generally follow worldwide oil prices,
which are subject to price fluctuations resulting from changes in world supply
and demand. The Company continues to evaluate the potential for reducing these
risks by entering into, and expects to enter into, additional hedge transactions
in future years. In addition, the Company may also close out any portion of
hedges that may exist from time to time as determined to be appropriate by
management. As of March 31, 1997, there were no existing hedge positions. Total
natural gas purchased and sold under swap arrangements during the years ended
December 31, 1995 and 1996 were 40,000 MMbtu and 60,000 MMbtu, respectively.
Gains and losses realized by the Company under such swap arrangements were
$23,466 and $26,887 for the years ended December 31, 1995 and 1996,
respectively. The Company did not engage in hedging prior to 1995 and did not
engage in hedging during the quarter ended March 31, 1997.
COMPETITION
The Company encounters competition from other oil and natural gas companies
in all areas of its operations, including the acquisition of exploratory
prospects and proven properties. The Company's competitors include major
integrated oil and natural gas companies and numerous independent oil and
natural gas companies, individuals and drilling and income programs. Many of its
competitors are large, well-established companies with substantially larger
operating staffs and greater capital resources than those of the Company and
which, in many instances, have been engaged in the oil and natural gas business
for a much longer time than the Company. Such
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<PAGE> 47
companies may be able to pay more for exploratory prospects and productive oil
and natural gas properties and may be able to identify, evaluate, bid for and
purchase a greater number of properties and prospects than the Company's
financial or human resources permit. In addition, such companies may be able to
expend greater resources on the existing and changing technologies that the
Company believes are and will be increasingly important to the current and
future success of oil and natural gas companies. The Company's ability to
explore for oil and natural gas prospects and to acquire additional properties
in the future will be dependent upon its ability to conduct its operations, to
evaluate and select suitable properties and to consummate transactions in this
highly competitive environment. The Company believes that its exploration,
drilling and production capabilities and the experience of its management
generally enable it to compete effectively. Many of the Company's competitors,
however, have financial resources and exploration and development budgets that
are substantially greater than those of the Company, which may adversely affect
the Company's ability to compete with these companies.
REGULATION
The availability of a ready market for oil and gas production depends upon
numerous factors beyond the Company's control. These factors include regulation
of oil and natural gas production, federal and state regulations governing
environmental quality and pollution control, state limits on allowable rates of
production by well or proration unit, the amount of oil and natural gas
available for sale, the availability of adequate pipeline and other
transportation and processing facilities and the marketing of competitive fuels.
For example, a productive natural gas well may be "shut-in" because of an
oversupply of natural gas or lack of an available natural gas pipeline in the
areas in which the Company may conduct operations. State and federal regulations
generally are intended to prevent waste of oil and natural gas, protect rights
to produce oil and natural gas between owners in a common reservoir, control the
amount of oil and natural gas produced by assigning allowable rates of
production and control contamination of the environment. Pipelines are subject
to the jurisdiction of various federal, state and local agencies. The following
discussion summarizes the regulation of the United States oil and gas industry.
The Company believes that it is in substantial compliance with such statutes,
rules, regulations and governmental orders, although there can be no assurance
that this is or will remain the case. The following discussion is not intended
to constitute a complete discussion of the various statutes, rules, regulations
and governmental orders to which the Company's operations may be subject.
Regulation of Oil and Natural Gas Exploration and Production. The Company's
operations are subject to various types of regulation at the federal, state and
local levels. Such regulation includes requiring permits for the drilling of
wells, maintaining bonding requirements in order to drill or operate wells and
regulating the location of wells, the method of drilling and casing wells, the
surface use and restoration of properties upon which wells are drilled in, the
plugging and abandoning of wells and the disposal of fluids used in connection
with operations. The Company's operations are also subject to various
conservation laws and regulations. These include the regulation of the size of
drilling and spacing units or proration units and the density of wells which may
be drilled in and the unitization or pooling of oil and gas properties. In this
regard, some states allow the forced pooling or integration of tracts to
facilitate exploration while other states rely primarily or exclusively on
voluntary pooling of lands and leases. In areas where pooling is voluntary, it
may be more difficult to form units, and therefore, more difficult to develop a
project if the operator owns less than 100% of the leasehold. In addition, state
conservation laws establish maximum rates of production from oil and natural gas
wells, generally prohibit the venting or flaring of natural gas and impose
certain requirements regarding the ratability of production. The effect of these
regulations may limit the amount of oil and natural gas the Company can produce
from its wells and may limit the number of wells or the locations at which the
Company can drill. The regulatory burden on the oil and gas industry increases
the Company's costs of doing business and, consequently, affects its
profitability. Inasmuch as such laws and regulations are frequently
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<PAGE> 48
expanded, amended and reinterpreted, the Company is unable to predict the future
cost or impact of complying with such regulations.
Regulation of Sales and Transportation of Natural Gas Historically, the
transportation and sale for resale of natural gas in interstate commerce have
been regulated pursuant to the Natural Gas Act of 1938 (the "NGA"), the Natural
Gas Policy Act of 1978 (the "NGPA") and the regulations promulgated thereunder
by the Federal Energy Regulatory Commission (the "FERC"). Maximum selling prices
of certain categories of natural gas sold in "first sales," whether sold in
interstate or intrastate commerce, were regulated pursuant to the NGPA. The
Natural Gas Wellhead Decontrol Act (the "Decontrol Act") removed, as of not
later than January 1, 1993, all remaining federal price controls from natural
gas sold in "first sales." The FERC's jurisdiction over natural gas
transportation was unaffected by the Decontrol Act. While sales by producers of
natural gas and all sales of crude oil, condensate and natural gas liquids can
currently be made at market prices, Congress could reenact price controls in the
future.
The Company's sales of natural gas are affected by the availability, terms
and cost of transportation. The price and terms for access to pipeline
transportation are subject to extensive regulation. In recent years, the FERC
has undertaken various initiatives to increase competition within the natural
gas industry. As a result of initiatives like FERC Order 636, issued in April
1992, the interstate natural gas transportation and marketing system has been
substantially restructured to remove various barriers and practices that
historically limited non-pipeline natural gas sellers, including producers, from
effectively competing with interstate pipelines for sales to local distribution
companies and large industrial and commercial customers. The most significant
provisions of Order No. 636 require that interstate pipelines provide
transportation separate or "unbundled" from their sales service, and require
that pipelines provide firm and interruptible transportation service on an open
access basis that is equal for all natural gas supplies. In many instances, the
result of Order No. 636 and related initiatives have been to substantially
reduce or eliminate the interstate pipelines' traditional role as wholesalers of
natural gas in favor of providing only storage and transportation services.
The FERC has announced several important transportation-related policy
statements and proposed rule changes, including a statement of policy and a
request for comments concerning alternatives to its traditional cost-of-service
ratemaking methodology to establish the rates interstate pipelines may charge
for their services. A number of pipelines have obtained FERC authorization to
charge negotiated rates as one such alternative. In February 1997, the FERC
announced a broad inquiry into issues facing the natural gas industry to assist
the FERC in establishing regulatory goals and priorities in the post-Order No.
636 environment. Similarly, the Texas Railroad Commission has been reviewing
changes to its regulations governing transportation and gathering services
provided by intrastate pipelines and gatherers. While the changes being
considered by these federal and state regulators would affect the Company only
indirectly, they are intended to further enhance competition in natural gas
markets.
The Company owns certain natural gas pipelines that it believes meet the
standards the FERC has used to establish a pipeline's status as a gatherer not
subject to FERC jurisdiction under the NGA. State regulation of gathering
facilities generally includes various safety, environmental, and in some
circumstances, nondiscriminatory take requirements, but does not generally
entail rate regulation. Natural gas gathering may receive greater regulatory
scrutiny at both state and federal levels in the post-Order No. 636 environment.
The Company cannot predict what further action the FERC or state regulators
will take on these matters; however, the Company does not believe that it will
be affected by any action taken materially differently than other natural gas
producers with which it competes.
Additional proposals and proceedings that might affect the natural gas
industry are pending before Congress, the FERC, state commissions and the
courts. The natural gas industry historically
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<PAGE> 49
has been very heavily regulated; therefore, there is no assurance that the less
stringent regulatory approach recently pursued by the FERC and Congress will
continue.
Oil Price Controls and Transportation Rates. Sales of crude oil, condensate
and gas liquids by the Company are not currently regulated and are made at
market prices. The price the Company receives from the sale of these products
may be affected by the cost of transporting the products to market. Effective
January 1995, the FERC implemented regulations establishing an indexing system
under which oil pipelines will be able to change their transportation rates,
subject to prescribed ceiling limits. The indexing system generally indexes such
rates to inflation, subject to certain conditions and limitations. The Company
is not able at this time to predict the effects of these regulations, if any, on
the transportation costs associated with oil production from the Company's oil
producing operations.
Environmental Regulations. The Company's operations are subject to numerous
laws and regulations governing the discharge of materials into the environment
or otherwise relating to environmental protection. Public interest in the
protection of the environment has increased dramatically in recent years. The
trend of more expansive and stricter environmental legislation and regulations
could continue. To the extent laws are enacted or other governmental action is
taken that restricts drilling or imposes environmental protection requirements
that result in increased costs to the oil and gas industry in general, the
business and prospects of the Company could be adversely affected.
The Company generates wastes, including hazardous wastes, that are subject
to the federal Resource Conservation and Recovery Act ("RCRA") and comparable
state statutes. The EPA and various state agencies have limited the approved
methods of disposal for certain hazardous and nonhazardous wastes. Furthermore,
certain wastes generated by the Company's oil and natural gas operations that
are currently exempt from treatment as "hazardous wastes" may in the future be
designated as "hazardous wastes," and therefore be subject to more rigorous and
costly operating and disposal requirements.
The Company currently owns or leases numerous properties that for many
years have been used for the exploration and production of oil and gas. Although
the Company believes that it has utilized good operating and waste disposal
practices, prior owners and operators of these properties may not have utilized
similar practices, and hydrocarbons or other wastes may have been disposed of or
released on or under the properties owned or leased by the Company or on or
under locations where such wastes have been taken for disposal. In addition,
many of these properties have been operated by third parties whose treatment and
disposal or release of hydrocarbons or other wastes was not under the Company's
control. These properties and the wastes disposed thereon may be subject to
CERCLA, RCRA and analogous state laws. Under such laws, the Company could be
required to remove or remediate previously disposed wastes (including wastes
disposed of or released by prior owners or operators) or property contamination
(including groundwater contamination) or to perform remedial plugging operations
to prevent future contamination.
The Company's operations may be subject to the Clean Air Act ("CAA") and
comparable state and local requirements. Amendments to the CAA were adopted in
1990 and contain provisions that may result in the gradual imposition of certain
pollution control requirements with respect to air emissions from the operations
of the Company. The EPA and states have been developing regulations to implement
these requirements. The Company may be required to incur certain capital
expenditures in the next several years for air pollution control equipment in
connection with maintaining or obtaining operating permits and approvals
addressing other air emission-related issues. However, the Company does not
believe its operations will be materially adversely affected by any such
requirements.
Federal regulations require certain owners or operators of facilities that
store or otherwise handle oil, such as the Company, to prepare and implement
spill prevention, control, countermea-
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sure and response plans relating to the possible discharge of oil into surface
waters. The Oil Pollution Act of 1990, as amended ("OPA"), contains numerous
requirements relating to the prevention of and response to oil spills into
waters of the United States. The OPA subjects owners of facilities to strict
joint and several liability for all containment and cleanup costs and certain
other damages arising from a spill, including, but not limited to, the costs of
responding to a release of oil to surface waters. The OPA also requires owners
and operators of offshore facilities that could be the source of an oil spill
into waters of the United States, including wetlands, to post a bond, letter of
credit or other form of financial assurance in the amount of $35 million,
subject to later increase to as much as $150 million if a formal risk assessment
indicates that the increase is warranted, to cover costs that could be incurred
by governmental authorities in responding to an oil spill. In addition to OPA,
other federal and state laws for the control of water pollution also provide
varying civil and criminal penalties and liabilities in the case of releases of
petroleum or its derivatives into surface waters or into the ground. Regulations
are currently being developed under OPA and state laws concerning oil pollution
prevention and other matters that may impose additional regulatory burdens on
the Company. In addition, the CWA and analogous state laws require permits to be
obtained to authorize discharge into surface waters or to construct facilities
in wetland areas. With respect to certain of its operations, the Company is
required to maintain such permits or meet general permit requirements. The EPA
recently adopted regulations concerning discharges of storm water runoff. This
program requires covered facilities to obtain individual permits, participate in
a group permit or seek coverage under an EPA general permit. The Company
believes that it will be able to obtain, or be included under, such permits,
where necessary, and minor modifications to existing facilities and operations
that would not have a material effect on the Company.
The Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA"), also known as the "Superfund" law, and similar state laws impose
liability, without regard to fault or the legality of the original conduct, on
certain classes of persons that are considered to have contributed to the
release of a "hazardous substance" into the environment. These persons include
the owner or operator of the disposal site or sites where the release occurred
and companies that disposed or arranged for the disposal of the hazardous
substances found at the site. Persons who are or were responsible for releases
of hazardous substances under CERCLA may be subject to joint and several
liability for the costs of cleaning up the hazardous substances that have been
released into the environment and for damages to natural resources, and it is
not uncommon for neighboring landowners and other third parties to file claims
for personal injury and property damage allegedly caused by the hazardous
substances released into the environment.
The Company also is subject to a variety of federal, state and local
permitting and registration requirements relating to protection of the
environment. Management believes that the Company is in substantial compliance
with current applicable environmental laws and regulations and that continued
compliance with existing requirements will not have a material adverse effect on
the Company.
OPERATING HAZARDS AND INSURANCE
The oil and natural gas business involves a variety of operating risks,
including the risk of fire, explosion, blow-out, pipe failure, casing collapse,
abnormally pressured formations and environmental hazards such as oil spills,
gas leaks, ruptures and discharges of toxic gases, the occurrence of any of
which could result in substantial losses to the Company due to injury or loss of
life, severe damage to or destruction of property, natural resources and
equipment, pollution or other environmental damage, cleanup responsibilities,
regulatory investigation and penalties and suspension of operations.
In accordance with customary industry practice, the Company maintains
insurance against some, but not all, of the risks described above. The Company's
insurance does not cover business interruption or protect against loss of
revenues. There can be no assurance that any insurance obtained by the Company
will be adequate to cover any losses or liabilities. The Company cannot predict
the continued availability of insurance or the availability of insurance at
premium levels that
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justify its purchase. The occurrence of a significant event not fully insured or
indemnified against could materially and adversely affect the Company's
financial condition and operations.
TITLE TO PROPERTIES
The Company believes it has satisfactory title to all of its producing
properties in accordance with standards generally accepted in the oil and
natural gas industry. The Company's properties are subject to customary royalty
interests, liens incident to operating agreements, liens for current taxes and
other burdens which the Company believes do not materially interfere with the
use of or affect the value of such properties. As is customary in the industry
in the case of undeveloped properties, little investigation of record title is
made at the time of acquisition (other than a preliminary review of local
records). Investigations, including a title opinion of local counsel, are
generally made before commencement of drilling operations. The Company's
revolving credit facilities are secured by substantially all of its oil and
natural gas properties.
EMPLOYEES
At May 31, 1997, the Company had 15 full-time employees, including two
geoscientists and three engineers, and two part-time employees. As drilling and
production activities increase, the Company intends to hire additional
technical, operational and administrative personnel as appropriate. The Company
believes that its relationships with its employees are good. In order to
optimize prospect generation and development, the Company utilizes the services
of independent consultants and contractors to perform various professional
services, particularly in the areas of 3-D seismic data mapping, acquisition of
leases and lease options, construction, design, well site surveillance,
permitting and environmental assessment. Field and on-site production operation
services, such as pumping, maintenance, dispatching, inspection and testing, are
generally provided by independent contractors. The Company believes that this
use of third party service providers has enhanced its ability to contain general
and administrative expenses, which averaged $0.27 per Mcfe for the first quarter
of 1997.
LEGAL PROCEEDINGS
From time to time the Company is a party to various legal proceedings
arising in the ordinary course of business. The Company is not currently a party
to any litigation that it believes could have a material adverse effect on the
financial position of the Company.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to
executive officers and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
S.P. Johnson IV................ 41 President, Chief Executive Officer and Director
Frank A. Wojtek................ 41 Chief Financial Officer, Vice President, Secretary,
Treasurer and Director
George F. Canjar............... 39 Vice President of Exploration Development
Kendall A. Trahan.............. 46 Vice President of Land
Steven A. Webster.............. 45 Chairman of the Board
Douglas A.P. Hamilton.......... 50 Director
Paul B. Loyd, Jr. ............. 50 Director
</TABLE>
Set forth below is a description of the backgrounds of each of the
executive officers and directors of the Company:
S.P. Johnson IV has served as the President, Chief Executive Officer and a
director of the Company since December 1993. Prior to that he worked 15 years
for Shell Oil Company. His managerial positions included Operations
Superintendent, Manager of Planning and Finance and Manager of Development
Engineering. Mr. Johnson is a Registered Petroleum Engineer and has a B.S. in
Mechanical Engineering from the University of Colorado.
Frank A. Wojtek has served as the Chief Financial Officer, Vice President,
Secretary, Treasurer and a director of the Company since 1993. In addition,
since 1992 Mr. Wojtek has been the Assistant to the Chairman of the Board of
Reading & Bates Corporation ("Reading & Bates") (an offshore drilling company).
Mr. Wojtek also holds the positions of Vice President and Secretary/Treasurer
for Loyd and Associates, Inc. (a private financial consulting and investment
banking firm). Mr. Wojtek has held the positions of Vice President and Chief
Financial Officer of Griffin-Alexander Drilling Company from 1984 to 1987,
Treasurer of Chiles-Alexander International Inc. from 1987 to 1989 and Vice
President and Chief Financial Officer of India Offshore Inc. from 1989 to 1992,
all of which are companies in the offshore drilling industry. Mr. Wojtek is a
Certified Public Accountant and holds a B.B.A. in Accounting from the University
of Texas.
George F. Canjar has been head of the Company's exploration activities
since joining the Company in July 1996 and was elected Vice President of
Exploration Development in June 1997. Prior thereto he worked for over 15 years
for Shell Oil Company and its overseas affiliates where he held various
technical and managerial positions, including Technical Manager-Geology &
Petrophysics, Section Head Geology & Seismology and Team Leader for numerous
integrated production, development, exploration and project execution groups.
Mr. Canjar is a Registered Petroleum Engineer, Registered Geologist and has a
B.S. in Geological Engineering from the Colorado School of Mines.
Kendall A. Trahan has been head of the Company's land activities since
joining the Company in March 1997 and was elected Vice President of Land of the
Company in June 1997. From 1991 to February 1997, he served as a Director of
Joint Ventures Onshore Gulf Coast for Vastar Resources, Inc. From 1982 to 1991,
he worked as an Area Landman and then a Division Landman and Director of
Business Development for Arco Oil & Gas Company. Prior to that, Mr. Trahan
served as a Staff Landman for Amerada Hess Corporation and as an independent
landman. He is a certified professional landman and holds a B.S. degree from the
University of Southwestern Louisiana.
Steven A. Webster has been the Chairman of the Board of the Company since
June 1997 and has been a director of the Company since 1993. Mr. Webster has
been Chairman and Chief
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Executive Officer of Falcon Drilling Company Inc., an offshore drilling company,
and its predecessor companies since 1988. Mr. Webster is also a director of DI
Industries, Inc. (an onshore drilling company) and Crown Resources Corporation
(a precious metals mining company). He is a trust manager of Camden Property
Trust (a real estate investment trust). Mr. Webster holds an M.B.A. degree from
Harvard Business School.
Douglas A.P. Hamilton has been a director of the Company since 1993 and of
Falcon Drilling Company, Inc. since 1992. Mr. Hamilton has since 1979 been the
President of Anatar Investments, Inc., a diversified investment capital firm
with active investments in oil and gas and offshore contract drilling. Mr.
Hamilton has a degree from the University of North Carolina and completed the
PMD program at Harvard Business School.
Paul B. Loyd, Jr. has been a Director of the Company since 1993. Mr. Loyd
has been Chairman of the Board and Chief Executive Officer of Reading & Bates
since 1991 and President of Reading & Bates since 1993. Mr. Loyd has been
President of Loyd & Associates, Inc., a financial consulting firm, since 1989.
Mr. Loyd was Chief Executive Officer and a director of Chiles-Alexander
International, Inc. from 1987 to 1989, President and a director of
Griffin-Alexander Drilling Company, from 1984 to 1987, and prior to that, a
director and Chief Financial Officer of Houston Offshore International, all of
which are companies in the offshore drilling industry. Mr. Loyd is also a
director of Wainoco Oil Corporation. Mr. Loyd served as President of the Company
from its inception in September 1993 until December 1993. Mr. Loyd holds an
M.B.A. degree from Harvard Business School.
Officers are elected annually by the Board of Directors and serve at the
discretion of the Board. The Company's Board of Directors is currently composed
of five directors, two of whom are employees of the Company. All of the current
directors serve until the next annual shareholders' meeting or until their
successors have been duly elected and qualified. The Board of Directors will
have two standing committees: the Audit Committee (which will consist of Messrs.
Wojtek, Hamilton and Loyd) and the Compensation Committee (which will consist of
Messrs. Webster, Hamilton and Loyd).
DIRECTOR COMPENSATION
Directors who are employees of the Company are not entitled to receive
additional compensation for serving as directors. Following the Offering, each
director who is not an employee of the Company or a subsidiary (a "Non-employee
Director") will receive an annual retainer of $7,500. All directors will be
reimbursed for out-of-pocket expenses incurred in attending meetings of the
Board or Board committees and for other expenses incurred in their capacity as
directors. In addition, Nonemployee Directors will receive options for the
purchase of Common Stock pursuant to the Incentive Plan of the Company (the
"Incentive Plan"). See "-- Incentive Plan."
OFFICER AND DIRECTOR INDEMNIFICATION
The Company's Bylaws provide for the indemnification of its officers and
directors, and the advancement to them of expenses in connection with
proceedings and claims, to the fullest extent permitted by the Texas Business
Corporation Act. The Company has also entered into indemnification agreements
with each of its directors and certain of its officers that contractually
provide for indemnification and expense advancement and include related
provisions meant to facilitate the indemnitee's receipt of such benefits. In
addition, the Company expects to purchase directors' and officers' liability
insurance policies for its directors and officers in the future. The Bylaws and
such agreements with directors and officers provide for indemnification for
amounts (i) in respect of the deductibles for such insurance policies, (ii) that
exceed the liability limits of such insurance policies and (iii) that are
available, were available or which become available to the Company or which are
generally available to companies comparable to the Company but which the
officers or directors of the Company determine is inadvisable for the Company to
purchase, given the cost involved of the
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<PAGE> 54
Company. Such indemnification may be made even though directors and officers
would not otherwise be entitled to indemnification under other provisions of the
Bylaws or such agreements.
EXECUTIVE COMPENSATION
The following table sets forth certain summary information concerning the
compensation provided by the Company to its President and Chief Executive
Officer during the year ended December 31, 1996 (the "Named Executive Officer").
No other executive officer of the Company received combined salary and bonus
from the Company that exceeded $100,000 during such year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION(1)
--------------------
NAME AND PRINCIPAL POSITION SALARY BONUS
--------------------------- -------- --------
<S> <C> <C>
S. P. Johnson IV............................................ $180,000 --
President and Chief Executive Officer
</TABLE>
- ---------------
(1) The Named Executive Officer did not receive any annual compensation not
properly categorized as salary or bonus, except for certain perquisites and
other personal benefits which are not shown because the aggregate amount of
such compensation, if any, for the named executive officer during the fiscal
year did not exceed the lesser of $50,000 or 10% of total salary and bonus
reported for such executive officer.
No options were granted to the Named Executive Officer in 1996, and the
Named Executive Officer did not exercise any stock options during 1996. The
Company has no outstanding stock appreciation rights, shares of restricted stock
or long-term incentive plans. See "-- Incentive Plan" below for information
regarding the Incentive Plan, which the Company expects to adopt prior to
completion of the Offering.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with each of Mr. S. P.
Johnson IV and Mr. Frank A. Wojtek which provides for an annual base salary in
an amount not less than $180,000 in the case of Mr. Johnson and $150,000 in the
case of Mr. Wojtek (but Mr. Wojtek's salary will not begin until he commences
full time employment with the Company). Upon completion of this Offering, Mr.
Johnson and Mr. Wojtek will also each receive option grants, pursuant to the
Incentive Plan, to purchase 100,000 and 40,000 shares of Common Stock,
respectively, at the price to the public set forth on the cover page of this
Prospectus. See "-- Incentive Plan."
The Company and Mr. Kendall Trahan were parties to a two-year employment
agreement, pursuant to which Mr. Trahan served as the Company's Vice President
of Land at an annual salary of $135,000. The Company recently has entered into a
new employment agreement which provides for an annual base salary in an amount
not less than $135,000. The new agreement continues and revises a previously
granted stock option, such that he has the option to purchase up to 83,295
shares of the Company's Common Stock at an aggregate exercise price of $300,000.
These options vest according to a two-year vesting schedule.
The Company had previously entered into a three-year employment agreement
with Mr. George Canjar, pursuant to which Mr. Canjar served as the Company's
Manager of Exploration Development at an annual salary of $126,000. The Company
recently has entered into a new employment agreement with Mr. Canjar which
provides for an annual base salary in an amount not less than $126,000. The
agreement includes a provision that entitles Mr. Canjar to an undivided 0.5%
overriding royalty interest, proportionately reduced to the Company's working
interest, in all oil, gas and other minerals that may be produced and saved from
prospects generated by Mr. Canjar. The
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<PAGE> 55
new agreement continues and revises a previously granted stock option, such that
he has the option to purchase up to 138,825 shares of the Company's Common Stock
at an aggregate exercise price of $500,000. These options vest according to a
two-year vesting schedule.
Each of the employment agreements of Mr. Johnson, Mr. Wojtek, Mr. Trahan
and Mr. Canjar has an initial three-year term provided that at the end of the
second year of such initial term and on every day thereafter, the term of each
such employment agreement will automatically be extended for one day, such that
the remaining term of the agreement shall never be less than one year. Under
each agreement both the Company and the employee may terminate the employee's
employment at any time. Upon termination of employment on account of disability
or if employment is terminated by the Company for any reason (except under
certain limited circumstances defined as "for cause" in the agreement), or if
employment is terminated either (x) by the employee subsequent to a change of
control (as defined and including certain terminations prior to a change of
control if caused by a person involved in precipitating a change of control) or
(y) by reason of death during a sixty day period following the elapse of one
year after such a change of control ("window period") or with good reason (as
defined), under the agreement the employee will generally be entitled to (i) an
immediate lump sum cash payment equal to 150% (375% if termination occurs after
a change of control) of his annual base salary that would have been payable for
the remainder of the term of the applicable agreement discounted at 6%, (ii)
continued participation in all the Company's welfare benefit plans and continued
life insurance and medical benefits coverage and (iii) the immediate vesting of
any stock options or restricted stock previously granted to such employee and
outstanding as of the time immediately prior to the date of his termination, or
a cash payment in lieu thereof. If employment terminates due to death of the
employee and other than in a window period, the Company will pay a sum equal to
the amount of the employee's annual base salary for the remaining term of the
agreement, reduced by the amount payable under any life insurance policies to
the extent that such amounts are attributable to premiums paid by the Company.
The salaries in each of these agreements are subject to periodic review and
provide for increases consistent with increases in base salary generally awarded
to other executives of the Company. Each agreement entitles the employee to
participate in all of the Company's incentive, savings, retirement and welfare
benefit plans in which other executive officers of the Company participate. The
agreements each provide for an annual bonus in an amount comparable to the
annual bonus of other Company executives, taking into account the individual's
position and responsibilities.
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<PAGE> 56
INCENTIVE PLAN
Prior to the completion of the Offering, the Company expects to adopt the
Incentive Plan. The objectives of the Incentive Plan are to (i) attract and
retain the services of key employees, qualified independent directors and
qualified consultants and other independent contractors and (ii) encourage the
sense of proprietorship in and stimulate the active interest of those persons in
the development and financial success of the Company by making awards ("Awards")
designed to provide participants in the Incentive Plan with proprietary interest
in the growth and performance of the Company.
The Company plans to reserve 1,000,000 shares of Common Stock for use in
connection with the Incentive Plan. Persons eligible for Awards are (i)
employees holding positions of responsibility with the Company or any of its
subsidiaries and whose performance can have a significant effect on the success
of the Company, (ii) Nonemployee Directors and (iii) certain nonemployed
consultants and other independent contractors providing, or who will provide,
services to the Company or any of its subsidiaries.
The Compensation Committee of the Company's Board of Directors (the
"Committee") will administer the Incentive Plan. With respect to Awards to
employees and independent contractors, the Committee has the exclusive power to
administer the Incentive Plan, to take all actions specifically contemplated
thereby or necessary or appropriate in connection with the administration
thereof, to interpret the Incentive Plan and to adopt such rules, regulations
and guidelines for carrying out its purposes as the Committee may deem necessary
or proper in keeping with the objectives of such plan. With respect to Awards to
employees and independent contractors, the Committee may, in its discretion,
among other things, extend or accelerate the exercisability of, accelerate the
vesting of or eliminate or make less restrictive any restrictions contained in
any Award, waive any restriction or other provision of the Incentive Plan or in
any Award or otherwise amend or modify any Award in any manner that is either
(i) not adverse to that participant holding the Award or (ii) consented to by
that participant. The Committee also may delegate to the chief executive officer
and other senior officers of the Company its duties under the Incentive Plan.
The Board of Directors may amend, modify, suspend or terminate the
Incentive Plan for the purpose of addressing any changes in legal requirements
or for any other lawful purpose, except that (i) no amendment or alteration that
would adversely affect the rights of any participant under any Award previously
granted to such participant shall be made without the consent of such
participant and (ii) no amendment or alteration shall be effective prior to its
approval by the shareholders of the Company to the extent such approval is then
required pursuant to Rule 16b-3 in order to preserve the applicability of any
exemption provided by such rule to any Award then outstanding (unless the holder
of such Award consents) or to the extent shareholder approval is otherwise
required by applicable legal requirements. The Board of Directors may make
certain adjustments in the event of any subdivision, split or consolidation of
outstanding shares of Common Stock, any declaration of a stock dividend payable
in shares of Common Stock, any recapitalization or capital reorganization of the
Company, any consolidation or merger of the Company with another corporation or
entity, any adoption by the Company of any plan of exchange affecting the Common
Stock or any distribution to holders of Common Stock of securities or property
(other than normal cash dividends).
Awards to employees and independent contractors may be in the form of (i)
rights to purchase a specified number of shares of Common Stock at a specified
price ("Options"), (ii) rights to receive a payment, in cash or Common Stock,
equal to the fair market value or other specified value of a number of shares of
Common Stock on the rights exercise date over a specified strike price, (iii)
grants of restricted or unrestricted Common Stock or units denominated in Common
Stock, (iv) grants denominated in cash and (v) grants denominated in cash,
Common Stock, units denominated in Common Stock or any other property which are
made subject to the attainment of one or more performance goals ("Performance
Awards"). An Option may be either an incentive
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<PAGE> 57
stock option ("ISO") that qualifies, or a nonqualified stock option ("NSO") that
does not qualify, with the requirements of Section 422 of the Code; provided,
that independent contractors cannot be awarded ISOs. The Committee will
determine the employees and independent contractors to receive Awards and the
terms, conditions and limitations applicable to each such Award, which
conditions may, but need not, include continuous service with the Company,
achievement of specific business objectives, attainment of specified growth
rates, increases in specified indices or other comparable measures of
performance. Performance Awards may include more than one performance goal, and
a performance goal may be based on one or more business criteria applicable to
the grantee, the Company as a whole or one or more of the Company's business
units and may include any of the following: increased revenue, net income, stock
price, market share, earnings per share, return on equity or assets or decrease
in costs.
On the date the Offering closes, Options under the Incentive Plan will be
granted to approximately 10 employees of the Company to purchase a total of
approximately 220,000 shares of Common Stock at an exercise price per share
equal to the initial public offering price per share set forth on the cover page
of this Prospectus. These awards include options to be granted to Messrs.
Johnson and Wojtek to purchase 100,000 and 40,000 shares of Common Stock,
respectively. All such options will have a term of ten years and become
exercisable in cumulative annual increments of one-third of the total number of
shares of Common Stock subject thereto, beginning on the first anniversary of
the date of grant.
On the date the Offering closes, each of the current Nonemployee Directors,
Messrs. Webster, Hamilton and Loyd, automatically will be granted NSOs to
purchase 10,000 shares of Common Stock. In addition, on the first business day
following the date on which each annual meeting of the Company's shareholders is
held, each Nonemployee Director then serving will automatically be granted NSOs
to purchase 2,500 shares of Common Stock. Any person who first becomes a
Nonemployee Director on or after the date the Offering closes automatically will
be granted, on the date of his or her election, NSOs to purchase 10,000 shares
of Common Stock. Each NSO granted to Nonemployee Directors will (i) have a
ten-year term, (ii) have an exercise price per share equal to the fair market
value of a Common Stock share on the date of grant (the initial public offering
price in the case of NSOs granted on the closing of the Offering) and (iii)
become exercisable in cumulative annual increments of one-third of the total
number of shares of Common Stock subject thereto, beginning on the first
anniversary of the date of grant. If a Nonemployee Director resigns from the
Board without the consent of a majority of the other directors, such director's
NSOs may be exercised only to the extent they were exercisable on the
resignation date.
The foregoing description summarizes the principal terms and conditions of
the Incentive Plan, does not purport to be complete and is qualified in its
entirety by reference to the Incentive Plan, a copy of which has been filed as
an exhibit to the Registration Statement of which this Prospectus is a part.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In June 1997, the Company established a Compensation Committee. In the
past, matters with respect to the compensation of executive officers of the
Company were determined by the nonemployee members of the Board of Directors, as
a whole.
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CERTAIN TRANSACTIONS
THE COMBINATION TRANSACTIONS
The Company currently conducts its operations through a number of
affiliated entities that will be combined in the Combination Transactions.
Carrizo conducts oil and natural gas operations directly with industry partners
and through certain affiliated partnerships as described below. Prior to
completion of the Offering, the shareholders of the Company are Steven A.
Webster, S.P. Johnson IV, Frank A. Wojtek, Douglas A.P. Hamilton and Paul B.
Loyd, Jr. (the "Founders"), each of whom is an officer and/or a director of the
Company, and DAPHAM Partnership L.P., the limited partner of which is a
charitable remainder trust of which the beneficiaries include Mr. Hamilton and
his wife and children. Carrizo Production, Inc. is a corporation that is owned
by the Founders. The officers and directors of Carrizo Production, Inc. also
serve in the same capacity for Carrizo. Carrizo Production, Inc. is the general
partner of and holds a 1.42% before payout/28.82% after payout interest in
Encinitas Partners Ltd. The remaining partnership interests in Encinitas
Partners Ltd. are held by limited partners, including the Founders. Carrizo
holds a 50% general partner interest in La Rosa Partners Ltd. The remaining 50%
interest in La Rosa Partners Ltd. is held by the Founders (other than Mr.
Wojtek) as limited partners. Carrizo is the general partner and holds a 13.33%
before payout/31.67% after payout interest in Carrizo Partners Ltd.; the
remaining partnership interests in Carrizo Partners Ltd. are held by limited
partner investors that include S.P. Johnson IV who as a special limited partner
is entitled to a 0.001% prepayout and 25% after payout interest. Carrizo owns a
50% general partner interest in Placedo Partners Ltd., and Carrizo Partners Ltd.
holds the remaining 50% limited partner interest in Placedo Partners Ltd.
The Combination Transactions will include the following: (i) Carrizo
Production, Inc. will be merged into Carrizo (the "Carrizo Production Merger"),
and the outstanding shares of capital stock of Carrizo Production, Inc. will be
converted into an aggregate of 343,000 shares of Common Stock; (ii) Carrizo will
acquire Encinitas Partners Ltd. in two steps: (a) Carrizo will acquire the
Founder's limited partner interests in Encinitas Partners Ltd. for an aggregate
consideration of 468,533 shares of Common Stock (the "Founder's Purchase
Transaction") and (b) Encinitas Partners Ltd. will be merged into Carrizo (the
"Encinitas Merger"), and the outstanding partnership interests in Encinitas
Partners Ltd. will be converted into an aggregate of 860,699 shares of Common
Stock; (iii) La Rosa Partners Ltd. will be merged into Carrizo (the "La Rosa
Merger"), and the outstanding partnership interests in La Rosa Partners Ltd.
will be converted into an aggregate of 48,750 shares of Common Stock; and (iv)
Carrizo Partners Ltd. will be merged into Carrizo (the "Carrizo Partners
Merger"), and the outstanding partnership interests in Carrizo Partners Ltd.
will be converted into an aggregate of 569,068 shares of Common Stock. As a
result of the Carrizo Partners Merger, Carrizo will own all of the partnership
interests in Placedo Partners Ltd. Each of the Combination Transactions will
close concurrently with the closing of the Offering.
An aggregate of 2,290,000 shares of Common Stock will be issued in
connection with the Combination Transactions. Mr. Webster will receive 77,175
shares of Common Stock in the Carrizo Production Merger, 132,721 shares of
Common Stock in the Founder's Purchase Transaction and 14,610 shares of Common
Stock in the La Rosa Merger, and Cerrito Partners, of which Mr. Webster is a
general partner, will receive 31,126 shares of Common Stock in the Encinitas
Merger. Mr. Johnson will receive 34,300 shares of Common Stock in the Carrizo
Production Merger, 46,075 shares of Common Stock in the Founder's Purchase
Transaction, 4,870 shares of Common Stock in the La Rosa Merger and 176,841
shares of Common Stock in the Carrizo Partners Merger. Mr. Wojtek will receive
77,175 shares of Common Stock in the Carrizo Production Merger and 24,296 shares
of Common Stock in the Founder's Purchase Transaction. Mr. Hamilton will receive
77,175 shares of Common Stock in the Carrizo Production Merger, 132,721 shares
of Common Stock in the Founder's Purchase Transaction and 14,610 shares of
Common Stock in the La Rosa Merger. Mr. Loyd will receive 77,175 shares of
Common Stock in the Carrizo Production Merger,
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132,721 shares of Common Stock in the Founder's Purchase Transaction and 14,610
shares of Common Stock in the La Rosa Merger.
MASTER TECHNICAL SERVICES AGREEMENT
In August 1996, the Company entered into the Master Technical Services
Agreement (the "MTS Agreement") with Reading & Bates Development Co. ("R&B
Development"), which is a subsidiary of Reading & Bates. Paul B. Loyd, Jr., a
director of the Company, is the Chairman of the Board, Chief Executive Officer
and President and a director of Reading & Bates. Under the MTS Agreement, the
Company provides certain engineering and technical services to R&B Development
in connection with R&B Development's technical service, procurement and
construction projects in offshore drilling and floating production, and the
Company is paid an amount generally equal to the salaries of its personnel that
provide such services, pro rata based on the amount of time that is spent
providing such services. The Company was paid $117,726 for services provided
during 1996 under the MTS Agreement, has continued to perform services under the
contract in 1997 and expects to continue to perform services under the contract
following the Offering. The MTS Agreement may generally be terminated by either
party upon five days prior written notice to the other party.
AMOUNTS OWED BY THE COMPANY TO CERTAIN OFFICERS AND DIRECTORS
Between December 1993 and December 1996, Carrizo issued promissory notes to
certain officers and directors of the Company, in consideration of funds
advanced to Carrizo by such officers and directors to assist Carrizo in its
operations. Each of such promissory notes is payable on demand and bears
interest equal to the Texas Commerce Bank, N.A. prime rate. The outstanding
aggregate balance, including accrued interest, of the notes payable to Paul B.
Loyd, Jr. was, as of December 31, 1994, 1995 and 1996, respectively, $66,525,
$370,601 and $775,553. The outstanding aggregate balance, including accrued
interest, of the notes payable to Steven A. Webster was, as of December 31,
1994, 1995 and 1996, respectively, $63,125, $370,195 and $772,475. The
outstanding aggregate balance, including accrued interest, of the notes payable
to Frank A. Wojtek was, as of December 31, 1994, 1995 and 1996, respectively,
$66,524, $345,379 and $711,403. The outstanding aggregate balance, including
accrued interest, of the notes payable to Douglas A.P. Hamilton was, as of
December 31, 1994, 1995 and 1996, respectively, $72,658, $370,608 and $774,701.
The outstanding aggregate balance, including accrued interest, of the notes
payable to S.P. Johnson IV was, as of December 31, 1994 and 1995, respectively,
$26,555 and $14,783. The Company borrowed $1.8 million from Douglas A. P.
Hamilton on May 31, 1997. The Company used the proceeds of this loan to repay a
portion of the indebtedness owed to Messrs. Loyd, Webster and Wojtek. The
Company made a payment of $600,000 to each of Messrs. Loyd and Wojtek on May 31,
1997, and a payment of $600,000 to Mr. Webster on June 3, 1997. As of May 31,
1997, the total principal owed on such promissory notes was $115,916 to Paul B.
Loyd, Jr.; $715,916 to Steven A. Webster ($115,916 after the June 3, 1997
payment); $59,250 to Frank A. Wojtek and $2,515,916 to Douglas A.P. Hamilton. As
of May 31, 1997, the remaining amounts due on such promissory notes, including
accrued interest, are as follows: $200,037 to Paul B. Loyd, Jr.; $797,237 to
Steven A. Webster ($197,237 after the June 3, 1997 payment); $133,927 to Frank
A. Wojtek and $2,600,302 to Douglas A.P. Hamilton.
In addition, between February 1997 and March 1997, La Rosa Partners, Ltd.
issued promissory notes in favor of certain officers and directors of the
Company, in consideration of funds advanced to La Rosa Partners, Ltd. by such
officers and directors to assist La Rosa Partners, Ltd. in its operations. Each
of such promissory notes is payable on demand and bears interest equal to the
Texas Commerce Bank, N.A. prime rate. As of May 31, 1997, the total principal
owed on such promissory notes is $30,000 to Paul B. Loyd, Jr.; $30,000 to Steven
A. Webster; $15,000 to Frank A. Wojtek and $30,000 to Douglas A. P. Hamilton. As
of May 31, 1997, the remaining amounts due on
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such promissory notes, including accrued interest, are as follows: $30,624 to
Paul B. Loyd, Jr.; $30,692 to Steven A. Webster; $15,309 to Frank A. Wojtek and
$30,671 to Douglas A.P. Hamilton.
The Company intends to repay Carrizo's and La Rosa Partners Ltd.'s
indebtedness to such officers and directors of the Company evidenced by the
above-referenced promissory notes from the proceeds of the Offering. The Company
does not intend to incur any further indebtedness to, or make any loans to, any
of its executive officers, directors or other affiliates following the
completion of the Offering.
FINANCIAL/ACCOUNTING SERVICES AGREEMENT
In March 1994, the Company entered into the Financial/Accounting Services
Agreement (the "Services Agreement"), effective as of December 1, 1993, with
Loyd & Associates, Inc. ("Loyd & Associates"), a private financial consulting
and investment banking firm. Paul B. Loyd, Jr. serves as President and owns
92.5% of the stock of Loyd & Associates, and Frank A. Wojtek serves as Vice
President and Secretary/Treasurer and owns 7.5% of the stock of Loyd &
Associates. Under the Services Agreement, Loyd & Associates provides, on an
as-needed basis and at market rates, financial consulting, accounting and
administrative services to the Company, Carrizo Partners Ltd. and Placedo
Partners Ltd. The Services Agreement also provides for reimbursement to Loyd &
Associates of certain expenses. Total payments for services rendered were
$43,500 in 1994, $60,000 in 1995 and $60,000 in 1996. The Services Agreement
will terminate at the closing of the Offering. In addition to serving as Vice
President and Secretary/Treasurer of Loyd & Associates, Mr. Wojtek serves as
Assistant to the Chairman of the Board of Reading & Bates. Following the
Offering, Mr. Wojtek will serve full time as the Company's Chief Financial
Officer, Vice President and Secretary.
AGREEMENTS WITH THE COMPANY'S CURRENT SHAREHOLDERS
From the date of its formation until shortly prior to the closing of the
Offering, Carrizo Production, Inc. will be, and from the date of its formation
until May 16, 1997 Carrizo was, an S corporation for federal income tax
purposes. The Company has entered into tax indemnification agreements with the
Founders that provide for, among other things, the indemnification of the
Founders for any losses or liabilities with respect to any additional taxes
(including interest, penalties and legal fees) resulting from Carrizo's and
Carrizo Production, Inc.'s operations during the period in which each was an S
Corporation. The Company also has entered into a registration rights agreement
with the current shareholders of the Company as described under "Shares Eligible
for Future Sale."
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to beneficial
ownership of the Common Stock both after giving effect to the Combination
Transactions but before giving effect to the Offering and after giving effect to
the Combination Transactions and the Offering by: (i) all persons who will be
the beneficial owner of 5% or more of the outstanding Common Stock; (ii) each
director; (iii) each executive officer of the Company; and (iv) all officers and
directors of the Company as a group, assuming in each case, the issuance of an
aggregate of 2,290,000 shares of Common Stock to all parties to the Combination
Transactions.
<TABLE>
<CAPTION>
COMMON
STOCK
BENEFICIALLY PERCENT OF COMMON
OWNED STOCK BENEFICIALLY
FOLLOWING THE OWNED FOLLOWING THE
COMBINATION COMBINATION
TRANSACTIONS TRANSACTIONS
------------- ---------------------
PRIOR TO
NUMBER OF THE AFTER THE
NAME(1) SHARES OFFERING OFFERING
------- ------------- -------- ---------
<S> <C> <C> <C>
S.P. Johnson IV(2)......................................... 783,085 10.4% 7.8%
Frank A. Wojtek(3)......................................... 1,273,721 17.0% 12.7%
George Canjar(4)........................................... 83,295 1.0% *
Ken Trahan(5).............................................. 16,659 * *
Steven A. Webster(6)....................................... 1,427,882 19.0% 14.3%
Douglas A.P. Hamilton(7)................................... 1,000,796 13.3% 10.0%
Paul B. Loyd, Jr.(8)....................................... 1,396,756 18.6% 14.0%
All directors and executive officers as a group (7
persons)(9).............................................. 5,982,194 78.7% 59.2%
Kenneth Huff(10)........................................... 441,695 5.9% 4.4%
</TABLE>
- ---------------
* Less than one percent.
(1) Except as otherwise noted and pursuant to applicable community property
laws, each shareholder has sole voting and investment power with respect to
the shares beneficially owned. The business address of each director and
executive officer is c/o Carrizo Oil & Gas, Inc., 14811 St. Mary's Lane,
Suite 148, Houston, Texas 77079.
(2) Shares shown represent (i) 521,000 shares of Common Stock currently owned,
(ii) 34,300 shares of Common Stock to be acquired through the Carrizo
Production Merger, (iii) 46,075 shares of Common Stock to be acquired
through the Founder's Purchase Transaction, (iv) 4,870 shares of Common
Stock to be acquired through the La Rosa Merger and (v) 176,840 shares of
Common Stock to be acquired through the Carrizo Partners Merger.
(3) Shares shown represent (i) 1,172,250 shares of Common Stock currently
owned, (ii) 77,175 shares of Common Stock to be acquired through the
Carrizo Production Merger and (iii) 24,296 shares of Common Stock to be
acquired through the Founder's Purchase Transaction.
(4) Shares shown represent 83,295 shares of Common Stock to be acquired
pursuant to stock options that are immediately exercisable or exercisable
within 60 days of this Prospectus.
(5) Shares shown represent 16,659 shares of Common Stock to be acquired
pursuant to stock options that are immediately exercisable.
(6) Shares shown represent (i) 1,172,250 shares of Common Stock currently
owned, (ii) 77,175 shares of Common Stock to be acquired through the
Carrizo Production Merger, (iii) 132,721 shares of Common Stock to be
acquired through the Founder's Purchase Transaction by Mr. Webster and
31,126 shares of Common Stock to be acquired through the Encinitas Merger
by Cerrito Partners, of which Mr. Webster is a general partner and shares
voting and dispositive power with the other general partners, and (iv)
14,610 shares of Common Stock
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to be acquired through the La Rosa Merger. Mr. Webster may be deemed a
beneficial owner of the shares of Common Stock to be acquired through the
Encinitas Merger by Cerrito Partners. Mr. Webster disclaims such beneficial
ownership.
(7) Shares shown represent (i) 776,290 shares of Common Stock currently owned
by Mr. Hamilton, (ii) 77,175 shares of Common Stock to be acquired through
the Carrizo Production Merger, (iii) 132,721 shares of Common Stock to be
acquired through the Founder's Purchase Transaction and (iv) 14,610 shares
of Common Stock to be acquired through the La Rosa Merger.
(8) Shares shown represent (i) 1,172,250 shares of Common Stock currently
owned, (ii) 77,175 shares of Common Stock to be acquired through the
Carrizo Production Merger, (iii) 132,721 shares of Common Stock to be
acquired through the Founder's Purchase Transaction and (iv) 14,610 shares
of Common Stock to be acquired through the La Rosa Merger.
(9) Shares shown include 99,954 shares of Common Stock to be acquired pursuant
to stock options that are immediately exercisable or exercisable within 60
days of this Prospectus.
(10) Shares shown represent (i) 395,960 shares of Common Stock currently owned
by DAPHAM Partnership L.P., of which Mr. Huff is the general partner and a
charitable remainder trust, of which Mr. Hamilton and his wife and children
are among the beneficiaries, is the limited partner, (ii) 15,564 shares of
Common Stock to be acquired through the Encinitas Merger and (iii) 30,171
shares of Common Stock to be acquired through the Carrizo Partners Merger.
The business address of Mr. Huff is 9256 N. Pelham Parkway, Milwaukee,
Wisconsin 53217.
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DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 40,000,000 shares of
Common Stock and 10,000,000 shares of Preferred Stock. Following consummation of
the Offering and the Combination Transactions, there will be approximately
10,000,000 shares of Common Stock outstanding (assuming the over-allotment
option is not exercised and the issuance of approximately 2,290,000 shares of
Common Stock in the Combination Transactions), and no shares of Preferred Stock
will be outstanding.
The following description of certain provisions of the Company's Amended
and Restated Articles of Incorporation (the "Articles of Incorporation") and the
Company's Amended and Restated Bylaws (the "Bylaws") are necessarily general and
do not purport to be complete and are qualified in their entirety by reference
to the Articles of Incorporation and Bylaws, which are included as exhibits to
the Registration Statement of which this Prospectus is a part. The Company was
organized in September 1993 and is a Texas corporation.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share with respect to
all matters required by law to be submitted to shareholders of the Company.
Holders of Common Stock have no preemptive rights to purchase or subscribe for
securities of the Company, and the Common Stock is not convertible or subject to
redemption by the Company.
Subject to the rights of the holders of any class of capital stock of the
Company having any preference or priority over the Common Stock, none of which
will be outstanding upon completion of the Offering, the holders of the Common
Stock are entitled to dividends in such amounts as may be declared by the Board
of Directors of the Company from time to time out of funds legally available for
such payments and, in the event of liquidation, dissolution or winding up of the
Company, to share ratably in any assets of the Company remaining after payment
in full of all creditors and provisions for any liquidation preferences on any
outstanding stock ranking prior to the Common Stock.
American Securities Transfer & Trust, Inc. is the registrar and transfer
agent for the Common Stock.
PREFERRED STOCK
The Board of Directors, without further action by the shareholders, is
authorized to issue up to 10 million shares of Preferred Stock in one or more
series and to fix and determine as to any series all the relative rights and
preferences of shares in such series, including, without limitation,
preferences, limitations or relative rights with respect to such series. The
Company has no present intention to issue any Preferred Stock, but may determine
to do so in the future.
The issuance of shares of Preferred Stock, or the issuance of rights to
purchase such shares, could adversely affect the voting power of the Common
Stock, discourage an unsolicited acquisition proposal or make it more difficult
for a third party to gain control of the Company. For instance, the issuance of
a series of Preferred Stock might impede a business combination by including
class voting rights that would enable the holder to block such a transaction, or
facilitate a business combination by including voting rights that would provide
a required percentage vote of the shareholders. In addition, under certain
circumstances, the issuance of Preferred Stock could adversely affect the voting
power of the holders of the Common Stock. Although the Board of Directors is
required to make any determination to issue such stock based on its judgment as
to the best interests of the shareholders of the Company, the Board of Directors
could act in a manner that would discourage an acquisition attempt or other
transaction that some, or a majority, of the shareholders might believe to be in
their best interests or in which shareholders might receive a premium for their
stock over the then market price of such stock. The Board of Directors does not
at
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present intend to seek shareholder approval prior to any issuance of currently
authorized stock, unless otherwise required by law or the rules of the Nasdaq
National Market.
SPECIAL MEETINGS
Special Meetings of the shareholders of the Company may be called by the
chairman of the board, the president, the Board of Directors or by shareholders
holding not less than 50% of the outstanding voting stock of the Company.
VOTING
Holders of Common Stock are entitled to cast one vote per share on matters
submitted to a vote of shareholders and do not have cumulative voting rights.
Each director will be elected annually. Because the Common Stock does not have
cumulative voting rights, the holders of more than 50% of the shares may, if
they choose to do so, elect all of the directors and, in that event, the holders
of the remaining shares will not be able to elect any directors. See "Risk
Factors -- Control by Principal Shareholders."
Subject to any additional voting rights that may be granted to holders of
future classes or series of stock, the Company's Articles of Incorporation
and/or Texas law requires the affirmative vote of holders of 66 2/3% of the
outstanding shares entitled to vote thereon to approve any merger, consolidation
or share exchange, any disposition of the assets of the Company or any
dissolution of the Company and requires the affirmative vote of holders of a
majority of the outstanding shares entitled to vote thereon to approve any
amendment to the Articles of Incorporation or any other matter for which a
shareholder vote is required by the Texas Business Corporation Act. If any class
or series of shares is entitled to vote as a class with regard to the
above-described events, the vote required will be the affirmative vote of the
holders of a majority of the outstanding shares within each class or series of
shares entitled to vote thereon as a class and at least a majority of the
outstanding shares of capital stock otherwise entitled to vote thereon.
Approval of any other matter not described above that is submitted to the
shareholders requires the affirmative vote of the holders of a majority of the
shares of Common Stock represented at a meeting at which a quorum is present or
represented. The holders of a majority of the shares entitled to vote will
constitute a quorum at meetings of shareholders.
The Company's Bylaws provide that shareholders who wish to nominate
directors or to bring business before a shareholders' meeting must notify the
Company and provide certain pertinent information at least 80 days before the
meeting date (or within ten days after public announcement pursuant to the
Bylaws of the meeting date, if the meeting date has not been publicly announced
at least 90 days in advance).
The Company's Articles of Incorporation and Bylaws provide that following
the Offering no director may be removed from office, except for cause and upon
the affirmative vote of the holders of a majority of the outstanding shares of
all capital stock of the Company entitled to vote generally in the election of
the Company's directors. The following constitute "cause": (i) such director has
been convicted, or is granted immunity to testify where another has been
convicted, of a felony; (ii) such director has been found to be grossly
negligent or guilty of willful misconduct in the performance of duties to the
Company by a court or by the affirmative vote of a majority of all other
directors; (iii) such director is adjudicated mentally incompetent; or (iv) such
director has been found by a court or by the affirmative vote of a majority of
all other directors to have breached his duty of loyalty to the Company or its
shareholders or to have engaged in a transaction with the Company from which
such director derived an improper personal benefit.
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LIMITATION OF DIRECTOR LIABILITY AND INDEMNIFICATION ARRANGEMENTS
The Articles of Incorporation of the Company contain a provision that
limits the liability of the Company's directors as permitted by the Texas
Business Corporation Act. The provision eliminates the personal liability of a
director to the Company and its shareholders for monetary damages for an act or
omission in the director's capacity as a director. The provision does not change
the liability of a director for breach of his duty of loyalty to the Company or
to shareholders, acts or omissions not in good faith that involve intentional
misconduct or a knowing violation of law, an act or omission for which the
liability of a director is expressly provided for by an applicable statute, or
in respect of any transaction from which a director received an improper
personal benefit. Pursuant to the Articles of Incorporation, the liability of
directors will be further limited or eliminated without action by shareholders
if Texas law is amended to further limit or eliminate the personal liability of
directors.
The Company's Bylaws provide for the indemnification of its officers and
directors, and the advancement to them of expenses in connection with
proceedings and claims, to the fullest extent permitted by the Texas Business
Corporation Act. The Company has also entered into indemnification agreements
with each of its directors and certain of its officers that contractually
provide for indemnification and expense advancement and include related
provisions meant to facilitate the indemnitee's receipt of such benefits. In
addition, the Company may purchase directors' and officers' liability insurance
policies for its directors and officers in the future. The Bylaws and such
agreements with directors and officers provide for indemnification for amounts
(i) in respect of the deductibles for such insurance policies, (ii) that exceed
the liability limits of such insurance policies and (iii) that are available,
were available or become available to the Company or are generally available to
companies comparable to the Company but which the officers or directors of the
Company determine is inadvisable for the Company to purchase, given the cost
involved of the Company. Such indemnification may be made even though directors
and officers would not otherwise be entitled to indemnification under other
provisions of the Bylaws or such agreements.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Combination Transactions and the Offering,
approximately 10,000,000 shares of Common Stock will be outstanding. The shares
of Common Stock sold in the Offering will be registered under the Securities Act
and will be freely tradeable without restriction or further registration under
the Securities Act, except for certain manner of sale, volume limitations and
other restrictions with respect to any shares purchased in the Offering by an
affiliate of the Company (a "Company Affiliate"), which will be subject to the
resale limitations of Rule 144 (not including the holding period requirement)
under the Securities Act. Under Rule 144 under the Securities Act, a person is
an affiliate of an entity if such person directly or indirectly controls or is
controlled by or is under common control with such entity and may include
certain officers and directors, principal shareholders and certain other
shareholders with special relationships. All of the remaining 7,500,000 shares
that will be outstanding following the Offering will be owned by officers and
directors of the Company and other participants in the Combination Transactions
and will constitute "restricted securities" within the meaning of Rule 144. Such
shares may not be resold in a public distribution except pursuant to an
effective registration statement under the Securities Act or an applicable
exemption from registration, including pursuant to Rule 144. This Prospectus may
not be used in connection with any resale of shares of Common Stock acquired in
the Offering by Company Affiliates or in the Combination Transactions.
In general, under Rule 144 as currently in effect, if a minimum of one year
has elapsed since the later of the date of acquisition of the restricted
securities from the issuer or from an affiliate of the issuer, a person (or
persons whose shares of Common Stock are aggregated), including persons who may
be deemed "affiliates" of the Company, would be entitled to sell within any
three-month period a number of shares of Common Stock that does not exceed the
greater of (i) 1% of the then-outstanding shares of Common Stock (i.e.,
approximately 100,000 shares immediately after
64
<PAGE> 66
consummation of the Offering) and (ii) the average weekly trading volume during
the four calendar weeks preceding the date on which notice of the sale is filed
with the Commission. Sales under Rule 144 are also subject to certain provisions
as to the manner of sale (which provision is proposed to be eliminated), notice
requirements and the availability of current public information about the
Company. In addition, under Rule 144(k), if a period of at least two years has
elapsed since the later of the date restricted securities were acquired from the
Company or the date they were acquired from an affiliate of the Company, a
shareholder who is not an affiliate of the Company at the time of sale and who
has not been an affiliate for at least three months prior to the sale would be
entitled to sell shares of Common Stock in the public market immediately without
compliance with the foregoing requirements under Rule 144. Rule 144 does not
require the same person to have held the securities for the applicable periods.
The foregoing summary of Rule 144 is not intended to be a complete description
thereof.
The Company currently has outstanding options to purchase 222,120 shares of
Common Stock (99,954 of which are vested) and will grant options to purchase
220,000 shares (none of which will be vested) as of the closing of the Offering
under the Incentive Plan. Such shares for which the vested portion of
outstanding options may be exercised may generally be sold in reliance on the
resale provisions of Rule 701. In general, any employee or consultant to the
Company who purchased shares pursuant to a written compensatory plan or contract
entered into prior to the Company's initial public offering is entitled to rely
on the resale provisions of Rule 701, which permit non-affiliates to sell their
Rule 701 shares without having to comply with the public information, holding
period, volume limitation or notice provisions of Rule 144, and permit
affiliates to sell their Rule 701 shares without having to comply with the Rule
144 holding period restrictions, in each case commencing 90 days after the date
of this Prospectus. The holders of vested outstanding options to purchase 99,954
shares could exercise these options and could then sell such shares in
compliance with Rule 701. Holders of all options granted prior to the Offering
have agreed not to sell the shares of Common Stock for a period of 180 days
following the date of the final prospectus for the Offering.
The Company intends to file a registration statement on Form S-8 under the
Securities Act to register the shares of Common Stock reserved or to be
available for issuance pursuant to the Long-Term Incentive Plan. Shares of
Common Stock issued pursuant to such plan generally will be available for sale
in the open market by holders who are not Company Affiliates and, subject to the
volume and other limitations of Rule 144, by holders who are Company Affiliates.
The Company, its executive officers, its directors and its current
shareholders have agreed not to offer for sale, sell, or otherwise dispose of
any shares of Common Stock or any securities convertible into or exercisable or
exchangeable for shares of Common Stock for a period of 180 days after the date
of this Prospectus, without the prior written consent of the representatives of
the Underwriters, subject to certain exceptions. See "Underwriting."
Prior to the Offering, there has been no public market for the Common
Stock, and no prediction can be made of the effect, if any, that sales of Common
Stock or the availability of shares for sale will have on the market price
prevailing from time to time. Following the Offering, sales of substantial
amounts of Common Stock in the public market or otherwise, or the perception
that such sales could occur, could adversely affect the prevailing market price
for the Common Stock.
REGISTRATION RIGHTS OF CURRENT SHAREHOLDERS
The Registration Rights Agreement dated as of June 6, 1997 among the
Company and its current shareholders provides registration rights with respect
to the Common Stock currently outstanding as well as shares issued in the
Combination Transactions or otherwise purchased from the Company (the
"Registrable Securities"). Shareholders owning not less than 51% of the then-
outstanding shares of Registrable Securities may demand that the Company effect
a registration under the Securities Act for the sale of not less than 5% of the
shares of Registrable Securities then
65
<PAGE> 67
outstanding. The Company's current shareholders also have limited rights to
require the Company to include their shares of Common Stock in connection with
registered offerings by the Company. All of the Founders have agreed to waive
these registration rights in connection with the Offering. The Company may
generally be required to effect three demand registrations (provided that no
such registration may occur six months after the closing of the Offering) and
three additional demand registrations for certain offerings registered on SEC
Form S-3, subject to certain conditions and limitations. The registration rights
will terminate as to any holder of Registrable Securities at the later of (i)
one year after the closing of the Offering or (ii) at such time as such holder
may sell under Rule 144 in a three-month period all Registrable Securities then
held by such holder. The Company's current shareholders may not exercise their
registration rights with respect to any shares received in the Combination
Transaction for a period of at least one year following the effective date of
the registration statement of which this Prospectus is a part.
Registration of shares under the Securities Act would result in such shares
becoming freely tradeable without restriction under the Securities Act (except
for shares purchased by affiliates of the Company) immediately upon the
effectiveness of such registration.
66
<PAGE> 68
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Underwriters named below, for whom Schroder Wertheim & Co.
Incorporated and Jefferies & Company, Inc. are acting as Representatives (the
"Representatives"), have severally agreed to purchase from the Company an
aggregate of 2,500,000 shares of Common Stock. The number of shares of Common
Stock that each Underwriter has agreed to purchase is set forth opposite its
name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Schroder Wertheim & Co. Incorporated........................
Jefferies & Company, Inc....................................
---------
Total............................................. 2,500,000
=========
</TABLE>
The Underwriting Agreement provides that the Underwriters' obligation to
pay for and accept delivery of the shares of Common Stock offered hereby is
subject to certain conditions precedent and that the Underwriters will be
obligated to purchase all such shares, excluding shares covered by the
over-allotment option, if any are purchased. The Underwriters have informed the
Company that no sales of Common Stock will be confirmed to discretionary
accounts.
The Company has been advised by the Underwriters that they propose
initially to offer the Common Stock to the public at the public offering price
set forth on the cover page of this Prospectus and to certain dealers at such
price, less a concession not in excess of $ per share. The Underwriters
may allow and such dealers may reallow a concession not in excess of $
per share to certain other brokers and dealers. After the Offering, the public
offering price, the concession and reallowances to dealers and other selling
terms may be changed by the Underwriters.
The Company has granted to the Underwriters an option exercisable for 30
days after the date of this Prospectus to purchase up to an aggregate of 375,000
additional shares of Common Stock to cover over-allotments, if any, at the same
price per share to be paid by the Underwriters for the other shares of Common
Stock offered hereby. If the Underwriters purchase any such additional shares
pursuant to the over-allotment option, each Underwriter will be committed,
subject to certain conditions, to purchase a number of the additional shares of
Common Stock proportionate to such Underwriter's initial commitment.
The Company, its directors and executive officers, and each of its current
shareholders have agreed with the Representatives, for a period of 180 days
after the date of this Prospectus, not to issue, sell, offer to sell, grant any
options for the sale of, or otherwise dispose of any shares of Common Stock or
any rights to purchase shares of Common Stock (other than stock issued or
options granted pursuant to the Company's stock incentive plans), without the
prior written consent of Schroder Wertheim & Co. Incorporated. See "Shares
Eligible for Future Sale."
The Company has agreed to indemnify the Underwriters against certain
liabilities that they may incur in connection with the sale of the Common Stock,
including liabilities arising under the Securities Act, and to contribute to
payments that the Underwriters may be required to make with respect thereto.
Prior to this Offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock will be determined
by negotiation between the Company and
67
<PAGE> 69
the Representatives. Among other factors considered in determining the public
offering price will be prevailing market and economic conditions, revenues and
earnings of the Company, the state of the Company's business operations, an
assessment of the Company's management and consideration of the above factors in
relation to market valuation of companies in related businesses and other
factors deemed relevant. There can be no assurance, however, that the prices at
which the Common Stock will sell in the public market after the Offering will
not be lower than the public offering price.
In order to facilitate the Offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may overallot in
connection with the Offering, creating a short position in the Common Stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of the Common Stock, the Underwriters may bid for, and purchase, shares of
Common Stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an underwriter or a dealer for distributing the
Common Stock in the Offering, if the syndicate repurchases previously
distributed Common Stock in transactions to cover syndicate short positions, in
stabilization or otherwise. Any of these activities may stabilize or maintain
the market price of the Common Stock above independent market levels. The
Underwriters are not required to engage in these activities, and may end any of
these activities at any time.
The Company intends to file an application for quotation of its Common
Stock on the Nasdaq National Market under the symbol "CZOG."
LEGAL MATTERS
Certain legal matters in connection with the shares of Common Stock offered
hereby are being passed upon for the Company by Baker & Botts, L.L.P., Houston,
Texas, and for the Underwriters by Vinson & Elkins L.L.P., Houston, Texas.
EXPERTS
The audited combined financial statements included in this Prospectus and
elsewhere in the registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated by their report with respect
thereto, and is included herein in reliance upon the authority of said firm as
experts in giving said report.
The letter reports of Ryder Scott and Fairchild included as Annex A to this
Prospectus and certain information with respect to the Company's oil and natural
gas reserves derived therefrom have been included herein in reliance upon such
firms as experts with respect to such matters.
68
<PAGE> 70
ADDITIONAL INFORMATION
The Company has not previously been subject to the reporting requirements
of the Exchange Act. The Company has filed a Registration Statement under the
Securities Act with the Commission with respect to the Offering. This
Prospectus, filed as a part of the Registration Statement, does not contain all
of the information set forth in the Registration Statement or the exhibits and
schedules thereto in accordance with the rules and regulations of the
Commission, and reference is hereby made to such omitted information. Statements
made in this Prospectus concerning any document filed as an exhibit to the
Registration Statement are not necessarily complete, and in each instance
reference is made to such exhibit for a complete statement of its provisions.
The Registration Statement and the exhibits and schedules thereto may be
inspected, without charge, at the public reference facilities of the Commission
at its principal office at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and its regional offices at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661, and at 7 World Trade
Center, 13th Floor, New York, New York 10048. Copies of all or any portion of
the Registration Statement can be obtained at prescribed rates from the Public
Reference Section of the Commission at its principal office at Judiciary Plaza,
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. The Commission
maintains an Internet web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission (http://www.sec.gov).
69
<PAGE> 71
GLOSSARY OF CERTAIN INDUSTRY TERMS
The definitions set forth below shall apply to the indicated terms as used
in this Prospectus. All volumes of natural gas referred to herein are stated at
the legal pressure base of the state or area where the reserves exist and at 60
degrees Fahrenheit and in most instances are rounded to the nearest major
multiple.
After payout. With respect to an oil or gas interest in a property, refers
to the time period after which the costs to drill and equip a well have been
recovered.
Bbl. One stock tank barrel, or 42 U.S. gallons liquid volume, used herein
in reference to crude oil or other liquid hydrocarbons.
Bbls/d. Stock tank barrels per day.
Bcf. Billion cubic feet.
Bcfe. Billion cubic feet equivalent, determined using the ratio of six Mcf
of natural gas to one Bbl of crude oil, condensate or natural gas liquids.
Before payout. With respect to an oil or gas interest in a property, refers
to the time period before which the costs to drill and equip a well have been
recovered.
Btu or British Thermal Unit. The quantity of heat required to raise the
temperature of one pound of water by one degree Fahrenheit.
Completion. The installation of permanent equipment for the production of
oil or gas or, in the case of a dry hole, the reporting of abandonment to the
appropriate agency.
Developed acreage. The number of acres which are allocated or assignable to
producing wells or wells capable of production.
Development well. A well drilled within the proved area of an oil or gas
reservoir to the depth of a stratigraphic horizon known to be productive.
Dry hole or well. A well found to be incapable of producing hydrocarbons in
sufficient quantities such that proceeds from the sale of such production exceed
production expenses and taxes.
Exploratory well. A well drilled to find and produce oil or gas reserves
not classified as proved, to find a new reservoir in a field previously found to
be productive of oil or gas in another reservoir or to extend a known reservoir.
Farm-in or farm-out. An agreement whereunder the owner of a working
interest in an oil and natural gas lease assigns the working interest or a
portion thereof to another party who desires to drill on the leased acreage.
Generally, the assignee is required to drill one or more wells in order to earn
its interest in the acreage. The assignor usually retains a royalty or
reversionary interest in the lease. The interest received by an assignee is a
"farm-in" while the interest transferred by the assignor is a "farm-out."
Field. An area consisting of a single reservoir or multiple reservoirs all
grouped on or related to the same individual geological structural feature
and/or stratigraphic condition.
Finding costs. Costs associated with acquiring and developing proved oil
and natural gas reserves which are capitalized by the Company pursuant to
generally accepted accounting principles, including all costs involved in
acquiring acreage, geological and geophysical work and the cost of drilling and
completing wells.
Gross acres or gross wells. The total acres or wells, as the case may be,
in which a working interest is owned.
MBbls. One thousand barrels of crude oil or other liquid hydrocarbons.
70
<PAGE> 72
MBbls/d. One thousand barrels of crude oil or other liquid hydrocarbons per
day.
Mcf. One thousand cubic feet.
Mcf/d. One thousand cubic feet per day.
Mcfe. One thousand cubic feet equivalent, determined using the ratio of six
Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids.
MMBbls. One million barrels of crude oil or other liquid hydrocarbons.
MMBtu. One million British Thermal Units.
MMcf. One million cubic feet.
MMcf/d. One million cubic feet per day.
MMcfe. One million cubic feet equivalent, determined using the ratio of six
Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids,
which approximates the relative energy content of crude oil, condensate and
natural gas liquids as compared to natural gas. Prices have historically been
higher or substantially higher for crude oil than natural gas on an energy
equivalent basis.
Net acres or net wells. The sum of the fractional working interests owned
in gross acres or gross wells.
Normally pressured reservoirs. Reservoirs with a formation-fluid pressure
equivalent to 0.465 psi per foot of depth from the surface. For example, if the
formation pressure is 4,650 psi at 10,000 feet, then the pressure is considered
to be normal.
Over-pressured reservoirs. Reservoirs subject to abnormally high pressure
as a result of certain types of subsurface formations.
Petrophysical study. Study of rock and fluid properties based on well log
and core analysis.
Present value. When used with respect to oil and natural gas reserves, the
estimated future gross revenue to be generated from the production of proved
reserves, net of estimated production and future development costs, using prices
and costs in effect as of the date indicated, without giving effect to
nonproperty-related expenses such as general and administrative expenses, debt
service and future income tax expense or to depreciation, depletion and
amortization, discounted using an annual discount rate of 10%.
Productive well. A well that is found to be capable of producing
hydrocarbons in sufficient quantities such that proceeds from the sale of such
production exceed production expenses and taxes.
Proved developed nonproducing reserves. Proved developed reserves expected
to be recovered from zones behind casing in existing wells.
Proved developed producing reserves. Proved developed reserves that are
expected to be recovered from completion intervals currently open in existing
wells and able to produce to market.
Proved developed reserves. Proved reserves that can be expected to be
recovered from existing wells with existing equipment and operating methods.
Proved reserves. The estimated quantities of crude oil, natural gas and
natural gas liquids that geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions.
Proved undeveloped location. A site on which a development well can be
drilled consistent with spacing rules for purposes of recovering proved
undeveloped reserves.
71
<PAGE> 73
Proved undeveloped reserves. Proved reserves that are expected to be
recovered from new wells on undrilled acreage or from existing wells where a
relatively major expenditure is required for recompletion.
PV-10 Value. The present value of estimated future revenues to be generated
from the production of proved reserves calculated in accordance with Commission
guidelines, net of estimated production and future development costs, using
prices and costs as of the date of estimation without future escalation, without
giving effect to non-property related expenses such as general and
administrative expenses, debt service, future income tax expense and
depreciation, depletion and amortization, and discounted using an annual
discount rate of 10%.
Recompletion. The completion for production of an existing well bore in
another formation from that in which the well has been previously completed.
Reservoir. A porous and permeable underground formation containing a
natural accumulation of producible oil and/or gas that is confined by
impermeable rock or water barriers and is individual and separate from other
reservoirs.
Royalty interest. An interest in an oil and natural gas property entitling
the owner to a share of oil or gas production free of costs of production.
3-D seismic data. Three-dimensional pictures of the subsurface created by
collecting and measuring the intensity and timing of sound waves transmitted
into the earth as they reflect back to the surface.
Undeveloped acreage. Lease acreage on which wells have not been drilled or
completed to a point that would permit the production of commercial quantities
of oil and natural gas regardless of whether such acreage contains proved
reserves.
Working interest. The operating interest that gives the owner the right to
drill, produce and conduct operating activities on the property and a share of
production.
Workover. Operations on a producing well to restore or increase production.
72
<PAGE> 74
CARRIZO OIL & GAS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Carrizo Oil & Gas, Inc., and Affiliated Entities --
Report of Independent Public Accountants.................. F-2
Combined Balance Sheets, December 31, 1995 and 1996, and
March 31, 1997......................................... F-3
Combined Statements of Operations for the Years Ended
December 31, 1994, 1995 and 1996, and the Three Months
Ended March 31, 1996 and 1997.......................... F-4
Combined Statements of Equity for the Years Ended December
31, 1994, 1995 and 1996, and the Three Months Ended
March 31, 1997......................................... F-5
Combined Statements of Cash Flows for the Years Ended
December 31, 1994, 1995 and 1996, and the Three Months
Ended March 31, 1996 and 1997.......................... F-6
Notes to Combined Financial Statements.................... F-7
</TABLE>
F-1
<PAGE> 75
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and
Board of Directors of
Carrizo Oil & Gas, Inc.:
We have audited the accompanying combined balance sheets of Carrizo Oil &
Gas, Inc. (a Texas corporation), and affiliated entities identified in Note 1
(collectively, the Company) as of December 31, 1995 and 1996, and the related
combined statements of operations, equity and cash flows for each of the three
years in the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of the Company as of
December 31, 1995 and 1996, and the combined results of their operations and
cash flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
June 5, 1997
F-2
<PAGE> 76
CARRIZO OIL & GAS, INC. AND AFFILIATED ENTITIES
COMBINED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------------- MARCH 31,
1995 1996 1997
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............. $ 69,536 $ 1,492,603 $ 1,500,493
Accounts receivable, trade............ 357,956 1,654,032 2,283,104
Accounts receivable, joint interest
owners............................. -- 82,296 295,394
Accounts receivable from related
parties............................ -- 79,578 55,598
Other current assets.................. 15,794 15,472 57,924
---------- ----------- -----------
Total current assets.......... 443,286 3,323,981 4,192,513
PROPERTY AND EQUIPMENT, net (full-cost
method of accounting for oil and gas
properties)........................... 6,959,513 15,205,587 19,162,276
OTHER ASSETS............................ 242,099 339,789 557,506
---------- ----------- -----------
$7,644,898 $18,869,357 $23,912,295
========== =========== ===========
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable, trade............... $ 646,238 $ 4,326,299 $ 5,928,520
Other current liabilities............. 62,315 22,976 22,125
---------- ----------- -----------
Total current liabilities..... 708,553 4,349,275 5,950,645
NOTES PAYABLE TO RELATED PARTIES........ 1,396,196 2,773,935 2,878,935
LONG-TERM DEBT.......................... 2,083,684 6,910,000 9,375,000
OTHER LONG-TERM LIABILITIES............. 75,366 240,197 301,213
COMMITMENTS AND CONTINGENCIES (Note 5)
EQUITY:
Capital............................... 4,146,000 4,261,000 4,915,678
Retained earnings (deficit)........... (764,901) 334,950 1,050,566
Deferred compensation................. -- -- (559,742)
---------- ----------- -----------
3,381,099 4,595,950 5,406,502
---------- ----------- -----------
$7,644,898 $18,869,357 $23,912,295
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-3
<PAGE> 77
CARRIZO OIL & GAS, INC. AND AFFILIATED ENTITIES
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
FOR THE YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------- ---------------------
1994 1995 1996 1996 1997
--------- ---------- ---------- -------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OIL AND NATURAL GAS REVENUES............ $ 596,733 $2,428,048 $5,194,709 $790,513 $1,853,170
COSTS AND EXPENSES:
Oil and natural gas operating
expenses........................... 518,022 1,813,406 2,384,145 417,728 557,464
Depreciation, depletion and
amortization....................... 98,262 487,949 1,135,797 141,674 382,475
General and administrative............ 237,460 425,198 514,644 44,194 197,615
--------- ---------- ---------- -------- ----------
Total costs and expenses...... 853,744 2,726,553 4,034,586 603,596 1,137,554
--------- ---------- ---------- -------- ----------
OPERATING INCOME (LOSS)................. (257,011) (298,505) 1,160,123 186,917 715,616
OTHER INCOME AND EXPENSES:
Interest expense...................... -- (274,585) (312,409) (76,480) (146,447)
Interest expense, related parties..... (7,263) (35,059) (189,881) (30,306) (42,051)
Capitalized interest.................. -- 117,288 422,493 64,216 188,498
Other income.......................... 5,765 24,251 19,525 -- --
--------- ---------- ---------- -------- ----------
NET INCOME (LOSS)....................... $(258,509) $ (466,610) $1,099,851 $144,347 $ 715,616
========= ========== ========
(UNAUDITED):
PRO FORMA INCOME TAXES.................. 395,946 257,622
---------- ----------
NET INCOME (after pro forma income
taxes)................................ $ 703,905 $ 457,994
========== ==========
PRO FORMA PRIMARY AND FULLY DILUTED
EARNINGS PER SHARE (Note 2)........... $ 0.09 $ 0.06
========== ==========
PRO FORMA WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING (Note 2).... 7,722,120 7,722,120
========== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-4
<PAGE> 78
CARRIZO OIL & GAS, INC. AND AFFILIATED ENTITIES
COMBINED STATEMENTS OF EQUITY
<TABLE>
<CAPTION>
RETAINED
EARNINGS DEFERRED TOTAL
CAPITAL (DEFICIT) COMPENSATION EQUITY
---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1993.............. $ 100,000 $ (39,782) $ -- $ 60,218
Net loss.............................. -- (258,509) -- (258,509)
Capital contributions................. 650,000 -- -- 650,000
---------- ---------- --------- ----------
BALANCE, December 31, 1994.............. 750,000 (298,291) -- 451,709
Net loss.............................. -- (466,610) -- (466,610)
Capital contributions................. 3,500,000 -- -- 3,500,000
Distributions......................... (104,000) -- -- (104,000)
---------- ---------- --------- ----------
BALANCE, December 31, 1995.............. 4,146,000 (764,901) -- 3,381,099
Net income............................ -- 1,099,851 -- 1,099,851
Capital contributions................. 450,000 -- -- 450,000
Distributions......................... (335,000) -- -- (335,000)
---------- ---------- --------- ----------
BALANCE, December 31, 1996.............. 4,261,000 334,950 -- 4,595,950
UNAUDITED:
Net income............................ -- 715,616 -- 715,616
Distributions......................... (45,000) -- -- (45,000)
Deferred compensation related to
certain stock options.............. 699,678 -- (699,678) --
Compensation related to certain stock
options............................ -- -- 139,936 139,936
---------- ---------- --------- ----------
BALANCE, March 31, 1997................. $4,915,678 $1,050,566 $(559,742) $5,406,502
========== ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-5
<PAGE> 79
CARRIZO OIL & GAS, INC. AND AFFILIATED ENTITIES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------------------- -----------------------------
1994 1995 1996 1996 1997
---------- ---------- ----------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................... $ (258,509) $ (466,610) $ 1,099,851 $ 144,347 $ 715,616
Adjustment to reconcile net income
(loss) to net cash provided by
(used in) operating activities --
Depreciation, depletion and
amortization................. 98,262 487,949 1,135,797 141,674 382,475
Changes in assets and liabilities --
Accounts receivable............... (100,090) (245,365) (1,457,950) (158,401) (818,190)
Other current assets.............. 9,296 (9,433) 322 2,334 (42,452)
Accounts payable, trade........... 38,215 518,166 2,422,257 341,309 1,538,883
Interest payable to related
parties......................... (38,936) 88,174 105,278 14,545 60,051
Other current liabilities......... (6,067) 32,772 19,886 -- 114
---------- ---------- ----------- ----------- -----------
Net cash provided by (used
in) operating activities... (257,829) 405,653 3,325,441 485,808 1,836,497
---------- ---------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures -- accrual
basis............................. (818,775) (6,857,057) (9,479,561) (1,353,233) (4,416,945)
Adjustment to cash basis............. -- 71,664 1,258,132 -- 63,338
---------- ---------- ----------- ----------- -----------
Net cash used in investing
activities................. (818,775) (6,785,393) (8,221,429) (1,353,233) (4,353,607)
---------- ---------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt......... -- 2,083,684 6,910,000 194,733 2,965,000
Debt repayments...................... -- -- (2,083,684) -- (500,000)
Proceeds from related party notes
payable........................... 532,500 863,696 1,377,739 222,643 105,000
Contributions........................ 650,000 3,500,000 450,000 450,000 --
Distributions........................ -- (104,000) (335,000) -- (45,000)
---------- ---------- ----------- ----------- -----------
Net cash provided by
financing activities....... 1,182,500 6,343,380 6,319,055 867,376 2,525,000
---------- ---------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS..................... 105,896 (36,360) 1,423,067 (49) 7,890
CASH AND CASH EQUIVALENTS, beginning of
year................................. -- 105,896 69,536 69,536 1,492,603
---------- ---------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of
year................................. $ 105,896 $ 69,536 $ 1,492,603 $ 69,487 $ 1,500,493
========== ========== =========== =========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest (net of
amounts capitalized).............. $ -- $ 122,471 $ -- $ -- $ --
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-6
<PAGE> 80
CARRIZO OIL & GAS, INC. AND AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION, COMBINATION AND NATURE OF OPERATIONS:
The Combination
Carrizo Oil & Gas, Inc. (Carrizo, a Texas corporation) was formed in 1993
and will be the surviving entity upon the completion of a series of combination
transactions (the Combination). The Combination will include the following
transactions: (a) Carrizo Production, Inc. (a Texas corporation and an
affiliated entity with ownership identical to Carrizo) will be merged into
Carrizo and the outstanding shares of capital stock of Carrizo Production, Inc.
will be exchanged for an aggregate of 343,000 shares of common stock of Carrizo
(the Common Stock); (b) Carrizo will acquire Encinitas Partners Ltd. (a Texas
limited partnership of which Carrizo Production, Inc. serves as the general
partner) as follows: Carrizo will acquire from the current shareholders who
serve as directors of Carrizo (the Founders) their limited partner interests in
Encinitas Partners Ltd. for an aggregate consideration of 468,533 shares of
Common Stock and, on the same date, Encinitas Partners Ltd. will be merged into
Carrizo and the outstanding limited partner interests in Encinitas Partners Ltd.
will be exchanged for an aggregate of 860,699 shares of Common Stock; (c) La
Rosa Partners Ltd. (a Texas limited partnership of which Carrizo serves as the
general partner) will be merged into Carrizo and the outstanding limited partner
interests in La Rosa Partners Ltd. will be exchanged for an aggregate of 48,700
shares of Common Stock; and (d) Carrizo Partners Ltd. (a Texas limited
partnership of which Carrizo serves as the general partner) will be merged into
Carrizo and the outstanding limited partner interests in Carrizo Partners Ltd.
will be exchanged for an aggregate of 569,068 shares of Common Stock. Carrizo
plans to complete each of the above transactions concurrently with the
consummation of an initial public offering of its Common Stock (see Note 8).
Principles of Combination
The accompanying combined financial statements include the accounts of
Carrizo, Carrizo Production, Inc., and the combined interests of the
aforementioned limited partnerships, all of which share common ownership and
management (collectively, the Company). Upon completion of the transactions
described above, the combination will be accounted for as a reorganization of
entities as prescribed by Securities and Exchange Commission (SEC) Staff
Accounting Bulletin 47 because of the high degree of common ownership among, and
the common control of, the combining entities. Accordingly, the accompanying
combined accounts have been prepared using the historical costs and results of
operations of the affiliated entities. There were no significant differences in
accounting methods or their application among the combining entities. All
intercompany balances have been eliminated.
Nature of Operations
The Company is an independent energy company engaged in the exploration,
development, exploitation and production of oil and natural gas. The Company's
operations are focused on Texas and Louisiana Gulf Coast trends, primarily the
Frio, Wilcox and Vicksburg trends. The Company has acquired or is in the process
of acquiring 1,097 square miles of 3-D seismic data. Additionally, the Company
has assembled approximately 322,000 gross acres under lease or option.
Consistent with other companies in the energy industry, the Company is subject
to certain risks, including volatility of oil and natural gas prices,
uncertainty of reserve information, operating risks of oil and natural gas
operations, and significant requirements for capital.
F-7
<PAGE> 81
CARRIZO OIL & GAS, INC. AND AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Oil and Natural Gas Properties
Investments in oil and natural gas properties are accounted for using the
full-cost method of accounting. All costs directly associated with the
acquisition, exploration and development of oil and natural gas properties are
capitalized. Such costs include lease acquisitions, seismic surveys, and
drilling and completion equipment. No general and administrative costs have been
capitalized at December 31, 1994, 1995 or 1996. During the three-months ended
March 31, 1997, the Company capitalized $139,936 of deferred compensation
related to stock options granted to personnel directly associated with
exploration activities.(See Note 6.)
Oil and natural gas properties are amortized based on the
unit-of-production method using estimates of proved reserve quantities.
Investments in unproved properties are not amortized until proved reserves
associated with the projects can be determined or until impairment occurs.
Unevaluated properties were evaluated for impairment on a property-by-property
basis annually through 1995 and quarterly beginning in 1996. If the results of
an assessment indicate that the properties are impaired, the amount of
impairment is added to the proved oil and natural gas property costs to be
amortized. The amortizable base includes estimated future development costs and,
where significant, dismantlement, restoration and abandonment costs, net of
estimated salvage values. The depletion rate per thousand cubic feet equivalent
(Mcfe) for 1994, 1995, 1996 and the three months ended March 31, 1997, was
$0.48, $0.47, $0.59 and $0.53, respectively.
Dispositions of oil and gas properties are accounted for as adjustments to
capitalized costs with no gain or loss recognized, unless such adjustments would
significantly alter the relationship between capitalized costs and proved
reserves. Through March 31, 1997, there have been no dispositions of oil and gas
properties.
The net capitalized costs of proved oil and gas properties are subject to a
"ceiling test," which limits such costs to the estimated present value,
discounted at a 10 percent interest rate, of future net cash flows from proved
reserves, based on current economic and operating conditions. If net capitalized
costs exceed this limit, the excess is charged to operations through
depreciation, depletion and amortization. For the accompanying reporting
periods, no write-down of the Company's oil and natural gas assets was
necessary.
Depreciation of other property and equipment is provided using the
straight-line method based on estimated useful lives ranging from five to 10
years.
Financing Costs
Offering costs of $211,575 through March 31, 1997 have been deferred and
are anticipated to be applied against stock offering proceeds (see Note 8).
Long-term debt financing costs of $47,194 are capitalized as deferred assets and
are being amortized over the term of the loans.
Statements of Cash Flows
For statement of cash flow purposes, all highly liquid investments with
original maturities of three months or less are considered to be cash
equivalents.
Financial Instruments
The Company's financial instruments consist of cash, receivables, payables
and long-term debt. The carrying amount of cash, receivables and payables
approximates fair value because of the
F-8
<PAGE> 82
CARRIZO OIL & GAS, INC. AND AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
short-term nature of these items. The carrying amount of long-term debt
approximates fair value as the individual borrowings bear interest at floating
market interest rates.
Hedging Activities
The Company periodically enters into hedging arrangements to manage price
risks related to oil and natural gas sales and not for speculative purposes. The
Company's hedging arrangements apply only to a portion of its production,
provide only partial price protection against declines in oil and natural gas
prices and limit potential gains from future increases in prices. For financial
reporting purposes, gains and losses related to hedging are recognized as income
when the hedged transaction occurs. Historically, gains and losses from hedging
activities have not been material. Total oil and natural gas hedged in 1995 and
1996 was 9,000 Bbls and 3,000 Bbls, respectively, and 40,000 MMBtu and 60,000
MMBtu, respectively. There was no hedging activity during 1994. The Company had
no outstanding hedged positions as of December 31, 1996, or March 31, 1997.
Income Taxes
Carrizo and the combined affiliated entities either have elected to be
treated as S Corporations under the Internal Revenue Code or are otherwise not
taxed as entities for federal income tax purposes. The taxable income or loss is
therefore allocated to the equity owners of Carrizo and the combined affiliated
entities. Accordingly, no provision was made for income taxes in the
accompanying combined historical financial statements. (See Note 8.)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from these estimates. Significant
estimates include depreciation, depletion and amortization of proved oil and
natural gas properties. Oil and natural gas reserve estimates, which are the
basis for unit-of-production depletion and the ceiling test, are inherently
imprecise and are expected to change as future information becomes available.
Concentration of Credit Risk
Substantially all of the Company's accounts receivable result from oil and
natural gas sales or joint interest billings to third parties in the oil and
natural gas industry. This concentration of customers and joint interest owners
may impact the Company's overall credit risk in that these entities may be
similarly affected by changes in economic and other conditions. Historically,
the Company has not experienced credit losses on such receivables.
Recently Issued Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121
regarding accounting for the impairment of long-lived assets. The Company
adopted SFAS No. 121 effective January 1, 1996. However, its provisions are not
applicable to the Company's oil and gas properties as they are accounted for
under the full-cost method of accounting.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128 regarding earnings per share. SFAS No. 128 cannot be adopted until December
15, 1997; however, pro forma disclosures are allowed to minimize the impact of
year-end adoption. As a result of the noncomplex
F-9
<PAGE> 83
CARRIZO OIL & GAS, INC. AND AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
nature of the Company's capital structure and treatment of all stock options as
outstanding for all periods pursuant to Staff Accounting Bulletin No. 83, SFAS
No. 128 would have no current impact on the pro forma calculation of earnings
per share.
Interim Financial Data (Unaudited)
The unaudited financial statements as of March 31, 1997, and for the
three-month periods ended March 31, 1996 and 1997, and all related footnote
information for these periods have been prepared on the same basis as the
audited financial statements and, in the opinion of management, include all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of financial position and results of operations and cash flows in
accordance with generally accepted accounting principles.
Earnings Per Share
Historical earnings per share have been omitted from the combined
statements of operations since such information is not meaningful and the
historically combined company is not a separate legal entity with a singular
capital structure. Pro forma earnings per share is presented using the weighted
average number of common shares outstanding after giving effect to the
Combination (7,500,000 shares). All common stock options have been treated as
outstanding for all periods presented (222,120 shares), as required by SEC Staff
Accounting Bulletin No. 83.
3. PROPERTY AND EQUIPMENT:
At December 31, 1995 and 1996, and March 31, 1997, property and equipment
consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1995 1996 1997
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Proved oil and natural gas properties........ $4,813,440 $ 9,217,027 $10,550,738
Unproved oil and natural gas properties...... 2,680,876 7,455,698 10,416,676
Other equipment.............................. -- 62,073 106,548
---------- ----------- -----------
Total property and equipment....... 7,494,316 16,734,798 21,073,962
Accumulated depreciation, depletion and
amortization............................... (534,803) (1,529,211) (1,911,686)
---------- ----------- -----------
Property and equipment, net.................. $6,959,513 $15,205,587 $19,162,276
========== =========== ===========
</TABLE>
Oil and natural gas properties not subject to amortization consist of the
cost of undeveloped leaseholds, undesignated seismic costs, exploratory wells in
progress, and secondary recovery projects before the assignment of proved
reserves. These costs are reviewed periodically by management for impairment,
with the impairment provision included in the cost of oil and natural gas
properties subject to amortization. Factors considered by management in its
impairment assessment include drilling results by the Company and other
operators, the terms of oil and natural gas leases not held by production,
production response to secondary recovery activities and available funds for
exploration and development. Of the $7,455,698 of unproved property costs at
December 31, 1996 being excluded from the amortizable base, $2,680,876 and
$4,774,822 were incurred in 1995 and 1996, respectively. The Company expects it
will complete its evaluation of the properties representing the majority of
these costs within the next three years.
F-10
<PAGE> 84
CARRIZO OIL & GAS, INC. AND AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. LONG-TERM DEBT:
In January 1995, the Company entered into a loan agreement with Texas
Commerce Bank (TCB) in the amount of $1,800,000 for the acquisition of the
Encinitas oil and gas properties. This loan was amended on February 18, 1995, to
provide funds for the development of those properties. Borrowings under this
agreement, which totaled $2,083,684 at December 31, 1995, and bore interest at
the prime rate as specified by TCB plus 2.75 percent, were repaid with
borrowings under the Encinitas Facility (defined below), and this loan facility
was terminated in 1996. As additional consideration, the Company assigned a 1
percent royalty interest in the Encinitas/Kelsey properties to TCB.
In June 1996, the Company entered into a $10 million revolving credit
facility with Compass Bank (the Encinitas Facility). Proceeds from this facility
were used to pay off the existing loan from TCB as well as fund exploration and
development activities. The facility is subject to a borrowing base calculation
and had a commitment of $3,350,000 at December 31, 1996, and $2,634,000 at March
31, 1997. The facility is also available for letters of credit, one of which has
been issued for $224,000. The Encinitas Facility is secured by the interests in
oil and natural gas properties owned by Encinitas Partners, Ltd., and bears
interest at the prime rate as defined by Compass Bank plus .75 percent, and the
borrowings must be repaid by June 1, 1998. At December 31, 1996, and March 31,
1997, borrowings under the Encinitas Facility totaled $2,910,000 and $2,410,000,
respectively. At December 31, 1996, $216,000 was available to the Company for
future borrowings. No additional amounts were available for borrowing at March
31, 1997. The weighted average interest rate under the Encinitas Facility for
1996 was 9 percent.
In December 1996, Carrizo entered into a separate $25 million revolving
credit facility with Compass Bank (the Carrizo Facility), which is subject to a
borrowing base determination, and total commitment was $6 million and
approximately $7.2 million at December 31, 1996, and March 31, 1997,
respectively. Interest on this facility is the prime rate as defined by Compass
Bank plus .75 percent, and the borrowings must be repaid by June 1, 1998.
Proceeds from this facility have been used to provide working capital for
exploration and development activity. Substantially all of Carrizo's oil and
natural gas property and equipment is pledged as collateral under this facility.
At December 31, 1996, and March 31, 1997, borrowings under this facility totaled
$4 million and $6,965,000, respectively, with an additional $2 million and
approximately $250,000, respectively, available for future borrowings. The
weighted average interest rate for 1996 on the Carrizo Facility was 9 percent.
Encinitas Partners, Ltd., and Carrizo are each subject to certain covenants
under the terms of the Encinitas Facility and the Carrizo Facility,
respectively, including but not limited to (a) maintenance of specified tangible
net worth and (b) maintenance of a ratio of quarterly cash flow (net income plus
depreciation and other noncash expenses, less noncash net income) to quarterly
debt service (payments made for principal in connection with each credit
facility plus payments made for principal other than in connection with such
credit facility) of no less than 1.25 to 1.00. The credit facilities also place
restrictions on, among other things, (a) incurring additional indebtedness,
guaranties, loans and liens, (b) changing the nature of business or business
structure and (c) selling assets. Necessary waivers effective as of December 31,
1996, were received from Compass Bank to decrease the Encinitas Facility
tangible net worth requirement and to permit Carrizo (under the Carrizo
Facility) to advance funds to one of the affiliated entities for exploration
expenditures.
The Company also had outstanding borrowings from certain shareholders
totaling $1,396,196, $2,773,935 and $2,878,935 at December 31, 1995 and 1996,
and March 31, 1997, respectively.
F-11
<PAGE> 85
CARRIZO OIL & GAS, INC. AND AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
These loans bore interest at the TCB prime rate, and repayment of the funds and
interest is due in April 1998. Accrued interest on shareholder borrowings is
included in other long-term liabilities.
At December 31, 1995 and 1996, and at March 31, 1997, notes payable and
long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------ -----------
1995 1996 1997
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Notes payable to shareholders (due April,
1998)................................... $1,396,196 $2,773,935 $ 2,878,935
Notes payable to TCB...................... 2,083,684 -- --
$10 million revolving credit facility (due
June 1, 1998)........................... -- 2,910,000 2,410,000
$25 million revolving credit facility (due
June 1, 1998)........................... -- 4,000,000 6,965,000
---------- ---------- -----------
$3,479,880 $9,683,935 $12,253,935
========== ========== ===========
</TABLE>
5. COMMITMENTS AND CONTINGENCIES:
The Company is, from time to time, party to certain legal actions and
claims arising in the ordinary course of business. While the outcome of these
events cannot be predicted with certainty, management does not expect these
matters to have a materially adverse effect on the financial position or results
of operations of the Company.
At December 31, 1996, Carrizo was obligated under a noncancelable operating
lease for office space. Rent expense for the years ended December 31, 1994, 1995
and 1996, was $5,400, $7,600 and $14,900, respectively. Following is a schedule
of the remaining future minimum lease payments under this lease:
<TABLE>
<S> <C>
1997.................................................... $ 68,680
1998.................................................... 75,390
1999.................................................... 75,390
2000.................................................... 12,562
</TABLE>
6. EQUITY:
On July 19, 1996, and March 1, 1997, the Company entered into separate
stock option agreements with two executives of Carrizo whereby such employees
were granted the option to purchase 138,825 shares and 83,295 shares of Carrizo
common stock, respectively, at an exercise price of $3.60 per share. The options
vest ratably through August 1, 1998, and March 1, 1999, respectively.
The Company did not record any compensation expense related to the July,
1996 options because the related exercise price was at or above the estimated
fair value of Carrizo's Common Stock at the time such options were granted. In
connection with a planned initial public offering (see Note 8), the Company has
recorded deferred compensation related to the March 1997 stock option agreement,
as additional paid-in capital and an offsetting contra-equity account. Such
compensation accrual is based on the difference between the option price ($3.60)
and the fair value of Carrizo's common stock when such options were granted
(using the $12.00 per share estimate of the initial public offering common stock
price as an estimate of fair value). Such deferred compensation is
F-12
<PAGE> 86
CARRIZO OIL & GAS, INC. AND AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
recognized in the period in which the options vest, which resulted in $139,936
being recorded in the three-month period ended March 31, 1997.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 123. SFAS No. 123 is a new standard
of accounting for stock-based compensation and establishes a fair value method
of accounting for awards granted under stock compensation plans. SFAS No. 123
encourages, but does not require, companies to adopt the fair value method of
accounting in place of the existing method of accounting for stock-based
compensation whereupon compensation costs are recognized only in situations
where stock compensation plans award intrinsic value to recipients at the date
of grant. Companies that do not adopt the fair value method of accounting
prescribed in SFAS No. 123 must, nonetheless, make annual pro forma disclosures
of the estimated effects on net income and earnings per share in their year-end
1996 financial statements as if the fair value method had been used for grants
after December 31, 1994. Had compensation cost for the options granted in July,
1996 been determined consistent with SFAS 123, the Company's reported 1996 net
income and pro forma earnings per share would have been adjusted to the
following pro forma amounts:
<TABLE>
<S> <C> <C>
Net Income..................... As reported $1,099,851
Pro forma $1,038,490
EPS............................ As reported (pro forma) $ 0.14
Pro forma $ 0.13
</TABLE>
The fair value of these options is estimated on the date of grant using the
Black-Scholes option pricing model, with the following assumptions: risk-free
interest rate of 6.82%, expected dividend yield of 0%, expected life of 10
years, and expected volatility of 30%.
7. RELATED-PARTY TRANSACTIONS:
In August 1996, the Company entered into the Master Technical Services
Agreement (the MTS Agreement) with Reading & Bates Development Co. (R&B), which
is a subsidiary of Reading & Bates Corporation. Paul Loyd, a member of the board
of the Company, is the chairman of the board, president, chief executive officer
and a director of Reading & Bates Corporation. Under the MTS Agreement, certain
employees of the Company provide engineering and technical services to R&B at
market rates in connection with R&B's technical service, procurement and
construction projects in offshore drilling and floating production. The Company
provided $117,726 in services under this agreement in 1996.
The Company has an agreement with Loyd & Associates Inc., which is owned by
Paul Loyd, a director of Carrizo, and Frank Wojtek, vice president, chief
financial officer and a director of Carrizo, to provide certain financial
consulting and administrative services at market rates to the Company. Payments
are made monthly and total payments to Loyd & Associates Inc. for services
rendered were $43,500, $60,000 and $60,000 in 1994, 1995 and 1996, respectively.
These expenditures were included in general and administrative expenses for each
year.
8. SUBSEQUENT EVENTS (UNAUDITED):
Carrizo and its affiliated entities are anticipated to be combined in a
series of transactions concurrent with the consummation of an initial public
offering of common stock. As a result of the Combination, Carrizo will issue
approximately 2,290,000 shares of common stock for the equity interests that it
does not already own in these entities.
F-13
<PAGE> 87
CARRIZO OIL & GAS, INC. AND AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Carrizo anticipates filing a registration statement on Form S-1 in June
1996 for the sale of 2,500,000 shares of common stock. The net proceeds from
this sale at an assumed initial public offering price of $12.00 per share are
estimated to be approximately $26.9 million. Carrizo intends to use a portion of
the net proceeds to repay approximately $9.4 million of indebtedness incurred
under the revolving credit facilities and approximately $2.9 million of
promissory notes to certain of the Company's directors and officers. The
remainder of the net proceeds will be used to accelerate the Company's
exploration and development program and for general corporate purposes.
Following the completion of the initial public offering, the Company expects to
enter into a new credit facility and the Encinitas Facility and Carrizo Facility
will be terminated.
On June 4, 1997, the board of directors authorized a 521-for-1 split of the
Company's stock and increased the number of authorized shares to 40 million
shares of common stock and 10 million shares of preferred stock. All share
amounts presented in these combined financial statements are presented on a
retroactive, post-split basis.
On May 16, 1997, Carrizo terminated its status as an S corporation and
thereafter became subject to federal income taxes. In accordance with SFAS No.
109, "Accounting for Income Taxes", the Company will be required to establish a
deferred tax liability in the second quarter of 1997 and is currently in process
of determining such amount. Additionally, the Company has entered into tax
indemnification agreements with the founders of the Company pertaining to
periods in which the Company was an S Corporation.
9. SUPPLEMENTARY FINANCIAL INFORMATION ON OIL AND GAS EXPLORATION, DEVELOPMENT
AND PRODUCTION ACTIVITIES (UNAUDITED):
The following disclosures provide unaudited information required by SFAS
No. 69, "Disclosures About Oil and Gas Producing Activities."
Costs Incurred
Costs incurred in oil and natural gas property acquisition, exploration and
development activities are summarized below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------
1994 1995 1996
-------- ---------- ----------
<S> <C> <C> <C>
Property acquisition costs --
Unproved................................... $ -- $ 316,820 $ 50,720
Proved..................................... 329,146 3,588,173 1,907,890
Exploration cost............................. 280,001 2,364,056 4,724,102
Development costs............................ 177,285 208,696 1,955,917
-------- ---------- ----------
Total costs incurred(1)............ $786,432 $6,477,745 $8,638,629
======== ========== ==========
</TABLE>
- ---------------
(1) Excludes capitalized interest on unproved properties of $117,288 and
$422,493 for the years ended December 31, 1995 and 1996, respectively.
Oil and Natural Gas Reserves
Proved reserves are estimated quantities of oil and natural gas which
geological and engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs under existing economic and
operating conditions. Proved developed reserves are
F-14
<PAGE> 88
CARRIZO OIL & GAS, INC. AND AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
proved reserves that can reasonably be expected to be recovered through existing
wells with existing equipment and operating methods.
Proved oil and natural gas reserve quantities at December 31, 1996, and the
related discounted future net cash flows before income taxes are based on
estimates prepared by Ryder Scott Company and Fairchild, Ancell & Wells, Inc.,
independent petroleum engineers. Such estimates have been prepared in accordance
with guidelines established by the Securities and Exchange Commission. Amounts
at December 31, 1994 and 1995, and for the periods then ended were rolled back
from December 31, 1996, balances, ignoring the impact of revisions of estimates
during those periods, if any.
The Company's net ownership interests in estimated quantities of proved oil
and natural gas reserves and changes in net proved reserves, all of which are
located in the continental United States, are summarized below:
<TABLE>
<CAPTION>
BARRELS OF
OIL, CONDENSATE AND
NATURAL GAS LIQUIDS
-----------------------------------
AT DECEMBER 31,
-----------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Proved developed and undeveloped reserves --
Beginning of year............................ 3,750,000 3,785,000 3,810,000
Purchases of oil and gas properties.......... 68,000 103,000 12,000
Extensions and discoveries................... -- -- 180,000
Production................................... (33,000) (78,000) (107,000)
--------- --------- ---------
End of year.................................... 3,785,000 3,810,000 3,895,000
========= ========= =========
Proved developed reserves at end of year....... 1,085,000 1,100,000 1,048,000
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
THOUSANDS OF CUBIC FEET OF
NATURAL GAS
----------------------------------
AT DECEMBER 31,
----------------------------------
1994 1995 1996
------- --------- ----------
<S> <C> <C> <C>
Proved developed and undeveloped reserves --
Beginning of year............................ 277,000 272,000 5,437,000
Purchases of oil and gas properties.......... -- 5,730,000 338,000
Extensions and discoveries................... -- -- 7,646,000
Production................................... (5,000) (565,000) (1,273,000)
------- --------- ----------
End of year.................................... 272,000 5,437,000 12,148,000
======= ========= ==========
Proved developed reserves at end of year....... -- 3,810,000 8,110,000
======= ========= ==========
</TABLE>
F-15
<PAGE> 89
CARRIZO OIL & GAS, INC. AND AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Standardized Measure
The standardized measure of discounted future net cash flows relating to
the Company's ownership interests in proved oil and natural gas reserves as of
year-end is shown below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1994 1995 1996
----------- ----------- ------------
<S> <C> <C> <C>
Future cash inflows...................... $61,727,000 $77,739,000 $126,155,000
Future oil and natural gas operating
expenses.............................. 40,576,000 43,529,000 47,675,000
Future development costs................. 7,711,000 7,918,000 9,375,000
Future income tax expenses............... 4,415,000 7,163,000 19,864,000
----------- ----------- ------------
Future net cash flows.................... 9,025,000 19,129,000 49,241,000
10% annual discount for estimating timing
of cash flows......................... 2,527,000 7,148,000 16,220,000
----------- ----------- ------------
Standardized measure of discounted future
net cash flows........................ $ 6,498,000 $11,981,000 $ 33,021,000
=========== =========== ============
</TABLE>
Future cash flows are computed by applying year-end prices of oil and
natural gas to year-end quantities of proved oil and natural gas reserves.
Prices used in computing year end 1996 future cash flows were $20.88 and $3.69
for oil and natural gas, respectively. Such prices declined significantly in the
first quarter of 1997. Future operating expenses and development costs are
computed primarily by the Company's petroleum engineers by estimating the
expenditures to be incurred in developing and producing the Company's proved oil
and natural gas reserves at the end of the year, based on the year-end costs and
assuming continuation of existing economic conditions.
Future income taxes are based on year-end statutory rates, adjusted for tax
basis and applicable tax credits. A discount factor of 10 percent was used to
reflect the timing of future net cash flows. The standardized measure of
discounted future net cash flows is not intended to represent the replacement
cost or fair market value of the Company's oil and natural gas properties. An
estimate of fair value would also take into account, among other things, the
recovery of reserves not presently classified as proved, anticipated future
changes in prices and costs, and a discount factor more representative of the
time value of money and the risks inherent in reserve estimates.
F-16
<PAGE> 90
CARRIZO OIL & GAS, INC. AND AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Change in Standardized Measure
Changes in the standardized measure of future net cash flows relating to
proved oil and natural gas reserves are summarized below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Changes due to current-year operations --
Sales of oil and natural gas, net of oil
and natural gas operating expenses..... $ (79,000) $ (614,000) $(2,811,000)
Extensions and discoveries................ - - 19,641,000
Purchases of oil and gas properties....... 104,000 2,770,000 2,079,000
Changes due to revisions in standardized
variables-
Prices and operating expenses............. 6,761,000 6,343,000 9,781,000
Income taxes.............................. (2,785,000) (1,307,000) (8,834,000)
Estimated future development costs........ - - (670,000)
Accretion of discount..................... 131,000 968,000 1,647,000
Production rates (timing) and other....... 1,449,000 (2,677,000) 207,000
----------- ----------- -----------
Net change.................................. 5,581,000 5,483,000 21,040,000
Beginning of year........................... 917,000 6,498,000 11,981,000
----------- ----------- -----------
End of year................................. $ 6,498,000 $11,981,000 $33,021,000
=========== =========== ===========
</TABLE>
Sales of oil and natural gas, net of oil and natural gas operating
expenses, are based on historical pretax results. Sales of oil and natural gas
properties, extensions and discoveries, purchases of minerals in place and the
changes due to revisions in standardized variables are reported on a pretax
discounted basis, while the accretion of discount is presented on an after-tax
basis.
F-17
<PAGE> 91
ANNEX A
[RYDER SCOTT COMPANY LETTERHEAD]
June 9, 1997
Carrizo Oil & Gas, Inc.
14811 St. Mary's Lane, Suite 148
Houston, Texas 77079
Gentlemen:
At your request, we have prepared an estimate of the reserves, future
production, and income attributable to certain leasehold interests of Carrizo
Oil & Gas, Inc. (Carrizo) as of March 31, 1997. The subject properties are
located in the states of Louisiana and Texas. The income data were estimated
using the Securities and Exchange Commission (SEC) guidelines for future price
and cost parameters.
The estimated reserves and future income amounts presented in this report
are related to hydrocarbon prices. March 1997 hydrocarbon prices were used in
the preparation of this report as required by SEC guidelines; however, actual
future prices may vary significantly from these prices. Therefore, volumes of
reserves actually recovered and amounts of income actually received may differ
significantly from the estimated quantities presented in this report. The
results of this study are summarized below.
SEC PARAMETERS
Estimated Net Reserves and Income Data
Certain Leasehold Interests of
CARRIZO OIL & GAS, INC.
As of March 31, 1997
-------------------------------------------------
<TABLE>
<CAPTION>
Proved
--------------------------------------------------------------------------------------
Developed Total
------------------------------------------
Producing Non-Producing Undeveloped Proved
------------------ -------------------- ------------------- ----------------
<S> <C> <C> <C> <C>
NET REMAINING RESERVES
Oil/Condensate - Barrels 126,049 15,876 322,180 464,105
Plant Products - Barrels 78,040 76,981 40,875 195,896
Gas - MMCF 4,394 2,011 6,621 13,026
INCOME DATA
Future Gross Revenue $10,022,455 $4,204,793 $18,145,781 $32,373,029
Deductions 1,909,546 1,106,379 5,738,842 8,754,767
----------- ---------- ----------- -----------
Future Net Income (FNI) $ 8,112,909 $3,098,414 $12,406,939 $23,618,262
Discounted FNI @ 10% $ 6,852,037 $1,933,074 $ 7,593,621 $16,378,732
</TABLE>
Liquid hydrocarbons are expressed in standard 42 gallon barrels. All gas
volumes are sales gas expressed in millions of cubic feet (MMCF) at the
official temperature and pressure bases of the areas in which the gas reserves
are located.
<PAGE> 92
Carrizo Oil & Gas, Inc.
June 9, 1997
Page 2
The future gross revenue is after the deduction of production taxes. The
deductions are comprised of the normal direct costs of operating the wells, ad
valorem taxes, recompletion costs, and development costs. The future net income
is before the deduction of state and federal income taxes and general
administrative overhead, and has not been adjusted for outstanding loans that
may exist nor does it include any adjustment for cash on hand or undistributed
income. No attempt was made to quantify or otherwise account for any
accumulated gas production imbalances that may exist. Gas reserves account for
approximately 66 percent and liquid hydrocarbon reserves account for the
remaining 34 percent of total future gross revenue from proved reserves.
RESERVES INCLUDED IN THIS REPORT
The proved reserves included herein conform to the definition as set forth
in the Securities and Exchange Commission's Regulation S-X Part 210.4-10 (a) as
clarified by subsequent Commission Staff Accounting Bulletins. The definition
of proved reserves is included in the section entitled "Definitions of
Reserves" which is attached with this report.
The proved developed non-producing reserves included herein are comprised
of the behind pipe category. The various reserve status categories are defined
in the section entitled "Reserve Status Categories" which is attached with this
report.
ESTIMATES OF RESERVES
In general, the reserves included herein were predominantly estimated by
the volumetric method due to the limited production history of the wells
considered in this study. However, performance methods were used in certain
cases where characteristics of the data indicated this method was more
appropriate in our opinion. The reserves estimated by the performance method
utilized extrapolations of various historical data in those cases where such
data were definitive. Reserves were estimated by the volumetric method in those
cases where there were inadequate historical performance data to establish a
definitive trend or where the use of production performance data as a basis for
the reserve estimates was considered to be inappropriate.
The reserves included in this report are estimates only and should not be
construed as being exact quantities. They may or may not be actually recovered,
and if recovered, the revenues therefrom and the actual costs related thereto
could be more or less than the estimated amounts. Moreover, estimates of
reserves may increase or decrease as a result of future operations.
FUTURE PRODUCTION RATES
Initial production rates are based on the current producing rates for
those wells now on production. Test data and other related information were
used to estimate the anticipated initial production rates for those wells or
locations which are not currently producing. If no production decline trend has
been established, future production rates were held constant, or adjusted for
the effects of curtailment where appropriate, until a decline in ability to
produce was anticipated. An estimated rate of decline was then applied to
depletion of the reserves. If a decline trend has been established, this trend
was used as the basis for estimating future production rates. For reserves not
yet on production, sales were estimated to commence at an anticipated date
furnished by Carrizo.
In general, we estimate that future gas production rates limited by
allowables or marketing conditions will continue to be the same as the average
rate for the latest available 12 months of actual production until such time
that the well or wells are incapable of producing at this
<PAGE> 93
Carrizo Oil & Gas, Inc.
June 9, 1997
Page 3
rate. The well or wells were then projected to decline at their decreasing
delivery capacity rate. Our general policy on estimates of future gas
production rates is adjusted when necessary to reflect actual gas market
conditions in specific cases.
The future production rates from wells now on production may be more or
less than estimated because of changes in market demand or allowables set by
regulatory bodies. Wells or locations which are not currently producing may
start producing earlier or later than anticipated in our estimates of their
future production rates.
HYDROCARBON PRICES
Carrizo furnished us with prices in effect at March 31, 1997 and these
prices were held constant except for known and determinable escalations.
Product prices which were actually used for each property reflect adjustment
for gravity, quality, local conditions, and/or distance from market. In
accordance with Securities and Exchange Commission guidelines, changes in
liquid and gas prices subsequent to March 31, 1997 were not taken into account
in this report. Future prices used in this report are discussed in more detail
in the section entitled "Hydrocarbon Pricing Parameters" which is attached with
this report.
COSTS
Operating costs for the leases and wells in this report are based on the
operating expense reports of Carrizo and include only those costs directly
applicable to the leases or wells. When applicable, the operating costs include
a portion of general and administrative costs allocated directly to the leases
and wells under terms of operating agreements. No deduction was made for
indirect costs such as general administration and overhead expenses, loan
repayments, interest expenses, and exploration and development prepayments that
are not charged directly to the leases or wells.
Development costs were furnished to us by Carrizo and are based on
authorizations for expenditure for the proposed work or actual costs for
similar projects. At the request of Carrizo, their estimate of zero abandonment
costs after salvage value was used in this report. Ryder Scott has not
performed a detailed study of the abandonment costs nor the salvage value and
makes no warranty for Carrizo's estimate.
Current costs were held constant throughout the life of the properties.
GENERAL
While it may reasonably be anticipated that the future prices received for
the sale of production and the operating costs and other costs relating to such
production may also increase or decrease from existing levels, such changes
were, in accordance with rules adopted by the SEC, omitted from consideration
in making this evaluation.
The estimates of reserves presented herein were based upon a detailed
study of the properties in which Carrizo owns an interest; however, we have not
made any field examination of the properties. No consideration was given in
this report to potential environmental liabilities which may exist nor were any
costs included for potential liability to restore and clean up damages, if any,
caused by past operating practices. Carrizo has informed us that they have
furnished us all of the accounts, records, geological and engineering data, and
reports and other data required for this investigation.
<PAGE> 94
Carrizo Oil & Gas, Inc.
June 9, 1997
Page 4
The ownership interests, prices, and other factual data furnished by Carrizo
were accepted without independent verification. The estimates presented in this
report are based on data available through March 1997.
Neither we nor any of our employees have any interest in the subject
properties and neither the employment to make this study nor the compensation
is contingent on our estimates of reserves and future income for the subject
properties.
This report was prepared for the exclusive use and sole benefit of Carrizo
Oil & Gas, Inc. The data, work papers, and maps used in this report are
available for examination by authorized parties in our offices. Please contact
us if we can be of further service.
Very truly yours,
RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
/s/ MICHAEL F. STELL
Michael F. Stell, P.E.
Petroleum Engineer
MFS/sw
Approved:
/s/ DON P. ROESLE
- -------------------------------------
Don P. Roesle, P.E.
Senior Vice President
<PAGE> 95
DEFINITIONS OF RESERVES
PROVED RESERVES (SEC DEFINITION)
Proved reserves of crude oil, condensate, natural gas, and natural gas
liquids are estimated quantities that geological and engineering data
demonstrate with reasonable certainty to be recoverable in the future from
known reservoirs under existing operating conditions, i.e., prices and costs as
of the date the estimate is made. Prices include consideration of changes in
existing prices provided only by contractual arrangements, but not on
escalation based on future conditions.
Reservoirs are considered proved if economic producibility is supported by
either actual production or conclusive formation test. In certain instances,
proved reserves are assigned on the basis of a combination of core analysis and
electrical and other type logs which indicate the reservoirs are analogous to
reservoirs in the same field which are producing or have demonstrated the
ability to produce on a formation test. The area of a reservoir considered
proved includes (1) that portion delineated by drilling and defined by fluid
contacts, if any, and (2) the adjoining portions not yet drilled that can be
reasonably judged as economically productive on the basis of available
geological and engineering data. In the absence of data on fluid contacts, the
lowest known structural occurrence of hydrocarbons controls the lower proved
limit of the reservoir.
Reserves that can be produced economically through the application of
improved recovery techniques are included in the proved classification when
these qualifications are met: (1) successful testing by a pilot project or the
operation of an installed program in the reservoir provides support for the
engineering analysis on which the project or program was based, and (2) it is
reasonably certain the project will proceed. Improved recovery includes all
methods for supplementing natural reservoir forces and energy, or otherwise
increasing ultimate recovery from a reservoir, including (1) pressure
maintenance, (2) cycling, and (3) secondary recovery in its original sense.
Improved recovery also includes the enhanced recovery methods of thermal,
chemical flooding, and the use of miscible and immiscible displacement fluids.
Proved natural gas reserves are comprised of non-associated, associated
and dissolved gas. An appropriate reduction in gas reserves has been made for
the expected removal of natural gas liquids, for lease and plant fuel, and for
the exclusion of non-hydrocarbon gases if they occur in significant quantities
and are removed prior to sale. Estimates of proved reserves do not include
crude oil, natural gas, or natural gas liquids being held in underground or
surface storage.
Proved reserves are estimates of hydrocarbons to be recovered from a given
date forward. They may be revised as hydrocarbons are produced and additional
data become available.
<PAGE> 96
RESERVE STATUS CATEGORIES
Reserve status categories define the development and producing status of
wells and/or reservoirs.
PROVED DEVELOPED (SEC DEFINITION)
Proved developed oil and gas reserves are reserves that can be expected to
be recovered through existing wells with existing equipment and operating
methods. Additional oil and gas expected to be obtained through the application
of fluid injection or other improved recovery techniques for supplementing the
natural forces and mechanisms of primary recovery should be included as "proved
developed reserves" only after testing by a pilot project or after the
operation of an installed program has confirmed through production response
that increased recovery will be achieved.
Developed reserves may be subcategorized as producing or non-producing
using the SPE/SPEE Definitions:
Producing
Producing reserves are expected to be recovered from completion intervals
open at the time of the estimate and producing. Improved recovery reserves
are considered to be producing only after an improved recovery project is
in operation.
Non-Producing
Non-producing reserves include shut-in and behind pipe reserves. Shut-in
reserves are expected to be recovered from completion intervals open at the
time of the estimate, but which had not started producing, or were shut-in
for market conditions or pipeline connection, or were not capable of
production for mechanical reasons, and the time when sales will start is
uncertain. Behind pipe reserves are expected to be recovered from zones
behind casing in existing wells, which will require additional completion
work or a future recompletion prior to the start of production.
PROVED UNDEVELOPED (SEC DEFINITION)
Proved undeveloped oil and gas reserves are reserves that are expected to
be recovered from new wells on undrilled acreage, or from existing wells where
a relatively major expenditure is required for recompletion. Reserves on
undrilled acreage shall be limited to those drilling units offsetting
productive units that are reasonably certain of production when drilled. Proved
reserves for other undrilled units can be claimed only where it can be
demonstrated with reasonable certainty that there is continuity of production
from the existing productive formation. Estimates for proved undeveloped
reserves are attributable to any acreage for which an application of fluid
injection or other improved technique is contemplated, only when such
techniques have been proved effective by actual tests in the area and in the
same reservoir.
<PAGE> 97
HYDROCARBON PRICING PARAMETERS
SECURITIES AND EXCHANGE COMMISSION PARAMETERS
OIL AND CONDENSATE
Carrizo furnished us with oil and condensate prices in effect at March 31,
1997 and these prices were held constant to depletion of the properties. In
accordance with Securities and Exchange Commission guidelines, changes in
liquid prices subsequent to March 31, 1997 were not considered in this report.
PLANT PRODUCTS
Carrizo furnished us with plant product prices in effect at March 31, 1997
and these prices were held constant to depletion of the properties.
GAS
Carrizo furnished us with gas prices in effect at March 31, 1997 and with
its forecasts of future gas prices which take into account SEC guidelines,
current spot market prices, contract prices, and fixed and determinable price
escalations where applicable. In accordance with SEC guidelines, the future gas
prices used in this report make no allowances for future gas price increases
which may occur as a result of inflation nor do they make any allowance for
seasonal variations in gas prices which may cause future yearly average gas
prices to be somewhat lower than March 31, 1997 gas prices. For gas sold under
contract, the contract gas price including fixed and determinable escalations,
exclusive of inflation adjustments, was used until the contract expires and
then was adjusted to the current market price for the area and held at this
adjusted price to depletion of the reserves.
<PAGE> 98
[FAIRCHILD, ANCELL & WELLS, INC. LETTERHEAD]
June 4, 1997
Carrizo Oil & Gas, Inc.
14811 St. Mary's Lane, Suite 148
Houston, Texas 77079
Re: Reserves Evaluation to the Interests of Carrizo Oil & Gas, Inc.
Heavy Oil Properties, Anderson County, Texas
Gentlemen:
Fairchild, Ancell & Wells, Inc. (FAW) has performed an engineering evaluation
to estimate proved reserves and future cash flows from heavy oil (steamflood)
properties to the interests of Carrizo Oil & Gas, Inc. in Anderson County,
Texas. This evaluation was authorized by Mr. S.P. Johnson IV, President of
Carrizo Oil & Gas, Inc. (Carrizo). Projections of the anticipated future annual
oil production and future cash flows have also been prepared utilizing property
development schedules provided by Carrizo. The reserves and future cash flows
to the evaluated interests were based on economic parameters and operating
conditions considered applicable and are pursuant to the financial reporting
requirements of the Securities and Exchange Commission (SEC).
The results of the study are summarized below.
ESTIMATED PROVED RESERVES AND FUTURE CASH FLOWS
CAMP HILL FIELD ANDERSON COUNTY, TEXAS
TO THE INTERESTS OF CARRIZO OIL & GAS, INC.
EFFECTIVE 3/31/97
<TABLE>
<CAPTION>
Future
Cash Flows (M$)
Net --------------------------------------
Reserves Mbbls Undiscounted Discounted at 10%
-------------- ------------ -----------------
<S> <C> <C> <C>
Proved Producing 928.4 8,270.8 6,559.3
Proved Undeveloped 2,700.2 13,242.6 7,482.7
Total Proved 3,628.6 21,513.4 14,042.0
</TABLE>
<PAGE> 99
Carrizo Oil & Gas, Inc. Page 2
June 4, 1997
FUTURE CASH FLOW -
TOTAL PROJECT BY YEAR
<TABLE>
<CAPTION>
Future
Cash Flows (M$)
-----------------------------------
Discounted
Year Undiscounted at 10%
--- ------------ ----------
<S> <C> <C> <C>
1997 262.8 250.6
1998 2,541.9 2,203.3
1999 4,067.4 3,205.0
2000 2,809.9 2,012.9
2001 2,906.3 1,892.6
2002 3,044.9 1,802.6
2003 2,255.9 1,214.1
2004 2,426.3 1,187.1
2005 979.2 435.5
2006 218.9 88.5
TOTAL 21,513.4 14,042.0
</TABLE>
The estimated reserves and future cash flows shown in this report are for
proved developed producing and proved undeveloped reserves. Our estimates do
not include any value which might be attributed to interests in undeveloped
acreage beyond those tracts for which reserves have been assigned.
In performance of this evaluation, we have relied upon information furnished by
Carrizo with respect to property interests owned, production from such
properties, current costs of operation and development, current prices for
production, agreements relating to current and future operations and sale of
production. With respect to the technical files supplied by Carrizo, we have
accepted the authenticity and sufficiency of the data contained therein.
Future cash flow is presented after deducting production taxes and after
deducting future capital costs and operating expenses, but before consideration
of Federal income taxes. The future cash flow has been discounted at an annual
rate of 10 percent to determine its "present worth." The present worth is shown
to indicate the effect of time on the value of money and should not be
construed as being the fair market value of the properties Our estimates of
future revenue do not include any salvage value for the lease and well
equipment nor the costs of abandoning the properties.
Fairchild, Ancell & Wells, Inc. expresses no opinion as to the fair market
value of the evaluated properties.
<PAGE> 100
Carrizo Oil & Gas, Inc. Page 3
June 4, 1997
The reserves included in this report are estimates only and should not be
construed as being exact quantities. They may or may not be actually recovered,
and if recovered, the revenues therefrom and the actual costs related thereto
could be more or less than the estimated amounts. Because of governmental
policies and uncertainties of supply and demand, the actual sales rates and the
prices actually received for the reserves along with the costs incurred in
recovering such reserves may vary from those assumptions included in this
report. Also, estimates of reserves may increase or decrease as a result of
future operations.
In evaluating the information at our disposal concerning this report, we have
excluded from our consideration all matters as to which legal or accounting,
rather than engineering, interpretation may be controlling. As in all aspects
of oil and gas evaluation, there are uncertainties inherent in the
interpretation of engineering data and, therefore, our conclusions necessarily
represent only informed professional judgments.
The titles to the properties have not been examined by Fairchild, Ancell &
Wells, Inc. nor has the actual degree or type of interest owned been
independently confirmed. We are independent petroleum engineers and geologists;
we do not own an interest in these properties and are not employed on a
contingent basis. Basic geologic and field performance data together with our
engineering work sheets are maintained on file in our office and are available
for review.
It has been a pleasure to serve you by preparing this engineering evaluation.
Yours very truly,
/s/ FAIRCHILD, ANCELL & WELLS, INC.
Fairchild, Ancell & Wells, Inc.
<PAGE> 101
======================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF.
---------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................... 3
Risk Factors......................... 11
Use of Proceeds...................... 19
Dividend Policy...................... 19
Dilution............................. 20
Capitalization....................... 21
Selected Combined Financial and
Operating Data..................... 22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 24
Business............................. 31
Management........................... 51
Certain Transactions................. 57
Security Ownership of Certain
Beneficial Owners and Management.. 60
Description of Capital Stock......... 62
Shares Eligible for Future Sale...... 64
Underwriting......................... 67
Legal Matters........................ 68
Experts.............................. 68
Additional Information............... 69
Glossary of Certain Industry Terms... 70
Index to Financial Statements........ F-1
Letters of Petroleum Engineers....... A-1
</TABLE>
---------------------
UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
2,500,000 SHARES
[LOGO]
CARRIZO OIL & GAS, INC.
COMMON STOCK
($0.01 PAR VALUE)
SCHRODER WERTHEIM & CO.
JEFFERIES & COMPANY, INC.
, 1997
======================================================
<PAGE> 102
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following are the estimated expenses (other than underwriting discounts
and commission) of the issuance and distribution of the securities being
registered, all of which shall be paid by the Company:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee......... $11,326
NASD Filing Fee............................................. 4,238
Nasdaq National Market Fees................................. 42,500
Printing Expenses........................................... *
Legal Fees and Expenses..................................... *
Accountants' Fees and Expenses.............................. *
Blue Sky Fees and Expenses.................................. *
Transfer Agent and Registrar Fees........................... *
Miscellaneous Expenses...................................... *
-------
Total............................................. $ *
=======
</TABLE>
- ---------------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article 2.02-1 of the Texas Business Corporation Act provides that a
corporation may indemnify any director or officer who was, is or is threatened
to be made a named defendant or respondent in a proceeding because he is or was
a director or officer, provided that the director or officer (i) conducted
himself in good faith, (ii) reasonably believed (a) in the case of conduct in
his official capacity, that his conduct was in the corporation's best interests
or (b) in all other cases, that his conduct was at least not opposed to the
corporation's best interests and (iii) in the case of any criminal proceeding,
had no reasonable cause to believe his conduct was unlawful. Subject to certain
exceptions, a director or officer may not be indemnified if the person is found
liable to the corporation or if the person is found liable on the basis that he
improperly received a personal benefit. Under Texas law, reasonable expenses
incurred by a director or officer may be paid or reimbursed by the corporation
in advance of a final disposition of the proceeding after the corporation
receives a written affirmation by the director or officer of his good faith
belief that he has met the standard of conduct necessary for indemnification and
a written undertaking by or on behalf of the director or officer to repay the
amount if it is ultimately determined that the director or officer is not
entitled to indemnification by the corporation. Texas law requires a corporation
to indemnify an officer or director against reasonable expenses incurred in
connection with the proceeding in which he is named defendant or respondent
because he is or was a director or officer if he is wholly successful in defense
of the proceeding.
Texas law also permits a corporation to purchase and maintain insurance or
another arrangement on behalf of any person who is or was a director or officer
against any liability asserted against him and incurred by him in such a
capacity or arising out of his status as such a person, whether or not the
corporation would have the power to indemnify him against that liability under
Article 2.02-1.
The Company's Bylaws provide for the indemnification of its officers and
directors, and the advancement to them of expenses in connection with
proceedings and claims, to the fullest extent permitted by the Texas Business
corporation Act, the Company has also entered into indemnification agreements
with each of its directors and certain of its officers that contractually
provide for indemnification and expense advancement and include related
provisions meant to facilitate the indemnitee' receipt of such benefits. These
provisions cover, among other things: (i) specification
II-1
<PAGE> 103
of the method of determining entitlement to indemnification and the selection of
independent counsel that will in some cases make such determination, (ii)
specification of certain time periods by which certain payments or
determinations must be made and actions must be taken and (iii) the
establishment of certain presumptions in favor of an indemnitee. The benefits of
certain of these provisions are available to an indemnitee only if there has
been a change in control (as defined). In addition, the Company may purchase
directors' and officers' liability insurance policies for its directors and
officers in the future. The Bylaws and such agreements with directors and
officers provide for indemnification for amounts (1) in respect of the
deductibles for such insurance policies, (2) that exceed the liability limits of
such insurance policies and (3) that are available, were available or which
become available to the Company but which the officers or directors of the
Company determine is inadvisable for the Company to purchase, given the cost
involved of the Company. Such indemnification may be made even though directors
and officers would not otherwise be entitled to indemnification under other
provisions of the Bylaws or such agreements.
The above discussion of Article 2.02-1 of the Texas Business Corporation
Act and of the Company's Bylaws is not intended to be exhaustive and is
respectively qualified in its entirety by such statute and the Bylaws.
Reference is made to the form of the Underwriting Agreement, filed as
Exhibit 1.1 hereto, which contains provisions for indemnification of the
Company, its directors, officers and any controlling persons by the Underwriters
against certain liabilities for information furnished by the Underwriters.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Carrizo Oil & Gas, Inc. has not sold any securities, registered or
otherwise, within the past three years, except as set forth below.
Carrizo Oil & Gas, Inc. has granted to employees options to purchase
222,120 shares of Common Stock. Such transaction was exempt from the
registration requirements of the Securities Act by virtue of Rule 701
thereunder.
Carrizo Oil & Gas, Inc. expects to sell approximately 2,290,000 shares of
Common Stock in the Combination Transactions. Such transaction is exempt from
the registration requirements of the Securities Act by virtue of Section 4(2)
thereof as a transaction not involving any public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*1.1 -- Form of Underwriting Agreement.
2.1 -- Combination Agreement by and among the Company, Carrizo
Production, Inc., Encinitas Partners Ltd., La Rosa
Partners Ltd., Carrizo Partners Ltd., Paul B. Loyd, Jr.,
Steven A. Webster, S.P. Johnson IV, Douglas A.P. Hamilton
and Frank A. Wojtek dated as of June 6, 1997.
3.1 -- Amended and Restated Articles of Incorporation of the
Company.
3.2 -- Amended and Restated Bylaws of the Company.
*4.1 -- Form of certificate representing Common Stock.
4.2 -- Secured Reducing Revolving Line of Credit by and between
Encinitas Partners Ltd. And Compass Bank dated June 26,
1996.
4.3 -- First Amendment to Loan Agreement by and between
Encinitas Partners Ltd. and Compass Bank dated December
6, 1996.
4.4 -- Secured Reducing Revolving Line of Credit by and between
the Company and Compass Bank dated December 6, 1996.
</TABLE>
II-2
<PAGE> 104
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4.5 -- First Amendment to Loan Agreement by and between the
Company and Compass Bank dated April 4, 1997.
4.6 -- Second Amendment to Loan Agreement by and between the
Company and Compass Bank dated May 15, 1997.
*4.7 -- Third Amendment to Loan Agreement by and between the
Company and Compass Bank.
-- The Company is a party to several debt instruments under
which the total amount of securities authorized does not
exceed 10% of the total assets of the Company and its
subsidiaries on a consolidated basis. Pursuant to
paragraph 4(iii)(A) of Item 601(b) of Regulation S-K, the
Company agrees to furnish a copy of such instruments to
the Commission upon request.
*5.1 -- Opinion of Baker & Botts, L.L.P.
*10.1 -- Incentive Plan of the Company.
*10.2 -- Employment Agreement between the Company and S. P.
Johnson IV.
*10.3 -- Employment Agreement between the Company and Frank A.
Wojtek.
*10.4 -- Employment Agreement between the Company and Kendall A.
Trahan.
*10.5 -- Employment Agreement between the Company and George
Canjar.
10.6 -- Form of Indemnification Agreement between the Company and
each of its directors and executive officers.
10.7 -- Registration Rights Agreement by and among the Company,
Paul B. Loyd, Jr., Steven A. Webster, S. P. Johnson IV,
Douglas A. P. Hamilton and Frank A. Wojtek dated as of
June 6, 1997.
*10.8 -- S Corporation Tax Allocation, Payment and Indemnification
Agreement among the Company and Messrs. Loyd, Webster,
Johnson, Hamilton and Wojtek.
*10.9 -- S Corporation Tax Allocation, Payment and Indemnification
Agreement among Carrizo Production, Inc. and Messrs.
Loyd, Webster, Johnson, Hamilton and Wojtek.
*11.1 -- Computation of Net Income Per Common and Common
Equivalent Share.
21.1 -- Subsidiaries of the Company.
23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consent of Ryder Scott Company.
23.3 -- Consent of Fairchild, Ancell & Wells, Inc.
*23.4 -- Consent of Baker & Botts, L.L.P. (included in Exhibit
5.1).
24.1 -- Power of Attorney (included on the signature page of this
Registration Statement).
*27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
(b) Financial Statement Schedules.
Schedule I -- Condensed Financial Information of Registrant
All other schedules are omitted because they are not applicable or because
the required information is contained in the financial statements or notes
thereto included in this Registration Statement.
II-3
<PAGE> 105
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the
Underwriters, at the closing specified in the Underwriting Agreement,
certificates representing the shares of Common Stock offered hereby in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
(1) For the purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as a part of
this Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the Offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-4
<PAGE> 106
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF HOUSTON, STATE OF TEXAS,
ON THE 13TH DAY OF JUNE, 1997.
CARRIZO OIL & GAS, INC.
By: /s/ S. P. JOHNSON IV
----------------------------------
S. P. Johnson IV
President and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints S. P. Johnson IV
and Frank A. Wojtek and both of them, either of whom may act without the joinder
of the other, as his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities to sign any and all amendments (including post-
effective amendments) to this Registration Statement and any registration
statement for the same offering filed pursuant to Rule 462 under the Securities
Act of 1933, and to file the same, with all exhibits thereto and all other
documents in connection therewith, with the Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing appropriate or necessary to be done, as fully and for all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or their substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on June 13, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ S. P. JOHNSON IV President, Chief Executive Officer and
- ----------------------------------------------------- Director (Principal Executive Officer)
S. P. Johnson IV
/s/ FRANK A. WOJTEK Chief Financial Officer, Vice President,
- ----------------------------------------------------- Secretary, Treasurer and Director (Principal
Frank A. Wojtek Financial Officer and Principal Accounting
Officer)
/s/ STEVEN A. WEBSTER Chairman of the Board
- -----------------------------------------------------
Steven A. Webster
/s/ DOUGLAS A. P. HAMILTON Director
- -----------------------------------------------------
Douglas A. P. Hamilton
/s/ PAUL B. LOYD, JR. Director
- -----------------------------------------------------
Paul B. Loyd, Jr.
</TABLE>
II-5
<PAGE> 107
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*1.1 -- Form of Underwriting Agreement.
2.1 -- Combination Agreement by and among the Company, Carrizo
Production, Inc., Encinitas Partners Ltd., La Rosa
Partners Ltd., Carrizo Partners Ltd., Paul B. Loyd, Jr.,
Steven A. Webster, S.P. Johnson IV, Douglas A.P. Hamilton
and Frank A. Wojtek dated as of June 6, 1997.
3.1 -- Amended and Restated Articles of Incorporation of the
Company.
3.2 -- Amended and Restated Bylaws of the Company.
*4.1 -- Form of certificate representing Common Stock.
4.2 -- Secured Reducing Revolving Line of Credit by and between
Encinitas Partners Ltd. And Compass Bank dated June 26,
1996.
4.3 -- First Amendment to Loan Agreement by and between
Encinitas Partners Ltd. and Compass Bank dated December
6, 1996.
4.4 -- Secured Reducing Revolving Line of Credit by and between
the Company and Compass Bank dated December 6, 1996.
4.5 -- First Amendment to Loan Agreement by and between the
Company and Compass Bank dated April 4, 1997.
4.6 -- Second Amendment to Loan Agreement by and between the
Company and Compass Bank dated May 15, 1997.
*4.7 -- Third Amendment to Loan Agreement by and between the
Company and Compass Bank.
-- The Company is a party to several debt instruments under
which the total amount of securities authorized does not
exceed 10% of the total assets of the Company and its
subsidiaries on a consolidated basis. Pursuant to
paragraph 4(iii)(A) of Item 601(b) of Regulation S-K, the
Company agrees to furnish a copy of such instruments to
the Commission upon request.
*5.1 -- Opinion of Baker & Botts, L.L.P.
*10.1 -- Incentive Plan of the Company.
*10.2 -- Employment Agreement between the Company and S. P.
Johnson IV.
*10.3 -- Employment Agreement between the Company and Frank A.
Wojtek.
*10.4 -- Employment Agreement between the Company and Kendall A.
Trahan.
*10.5 -- Employment Agreement between the Company and George
Canjar.
10.6 -- Form of Indemnification Agreement between the Company and
each of its directors and executive officers.
10.7 -- Registration Rights Agreement by and among the Company,
Paul B. Loyd, Jr., Steven A. Webster, S. P. Johnson IV,
Douglas A. P. Hamilton and Frank A. Wojtek dated as of
June 6, 1997.
*10.8 -- S Corporation Tax Allocation, Payment and Indemnification
Agreement among the Company and Messrs. Loyd, Webster,
Johnson, Hamilton and Wojtek.
*10.9 -- S Corporation Tax Allocation, Payment and Indemnification
Agreement among Carrizo Production, Inc. and Messrs.
Loyd, Webster, Johnson, Hamilton and Wojtek.
*11.1 -- Computation of Net Income Per Common and Common
Equivalent Share.
21.1 -- Subsidiaries of the Company.
23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consent of Ryder Scott Company.
23.3 -- Consent of Fairchild, Ancell & Wells, Inc.
</TABLE>
<PAGE> 108
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*23.4 -- Consent of Baker & Botts, L.L.P. (included in Exhibit
5.1).
24.1 -- Power of Attorney (included on the signature page of this
Registration Statement).
*27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 2.1
COMBINATION AGREEMENT
DATED JUNE 6, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I. DEFINITIONS; ORDER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.1 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.2 Combination Transactions Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE II. THE ENCINITAS PURCHASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.1 The Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.2 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.3 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.4 Deliveries at Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.5 Consent to Limited Partner Interest Transfer . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE III. THE PRODUCTION MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.1 The Production Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.2 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.3 Production Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.4 Conversion of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.5 Surrender and Exchange of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE IV. THE ENCINITAS MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 4.1 The Encinitas Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 4.2 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.3 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.4 Conversion of Partnership Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.5 Surrender and Exchange of Partnership Interests . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE V. THE LA ROSA MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 5.1 The La Rosa Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 5.2 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 5.3 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 5.4 Conversion of Partnership Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 5.5 Surrender and Exchange of Partnership Interests . . . . . . . . . . . . . . . . . . . . . . 14
Section 5.6 No Dissenters' Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE VI. THE CARRIZO PARTNERS MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 6.1 The Carrizo Partners Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 6.2 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 6.3 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 6.4 Conversion of Partnership Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 6.5 Surrender and Exchange of Partnership Interests . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
ii
<PAGE> 3
<TABLE>
<S> <C>
Section 6.6 No Dissenters' Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE VII. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . 17
Section 7.1 Organization; Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 7.2 Capitalization of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 7.3 No Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 7.4 Authority and Authorization; Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 7.5 Litigation, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 7.6 Financial Statements of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 7.7 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE VIII. REPRESENTATIONS AND WARRANTIES OF THE FOUNDERS . . . . . . . . . . . . . . . . . . . . . . 19
Section 8.1 Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 8.2 No Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 8.3 Authority and Authorization; Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 8.4 Experience; Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 8.5 Access to Company Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 8.6 Investment Purposes; Rule 144 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 8.7 Additional Restriction on Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE IX. REPRESENTATIONS AND WARRANTIES OF PRODUCTION . . . . . . . . . . . . . . . . . . . . . . . 22
Section 9.1 Organization; Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 9.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 9.3 No Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 9.4 Authority and Authorization; Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 9.5 Litigation, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 9.6 Financial Statements of Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 9.7 Ownership of Encinitas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 9.8 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 9.9 Limited Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE X. REPRESENTATIONS AND WARRANTIES OF ENCINITAS . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 10.1 Formation; Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 10.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 10.3 No Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 10.4 Authority and Authorization; Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 10.5 Litigation, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 10.6 Financial Statements of Encinitas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 10.7 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 10.8 Limited Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE XI. REPRESENTATIONS AND WARRANTIES OF LA ROSA . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 11.1 Formation; Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
</TABLE>
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Section 11.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 11.3 No Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 11.4 Authority and Authorization; Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 11.5 Litigation, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 11.6 Financial Statements of La Rosa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 11.7 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 11.8 Limited Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE XII. REPRESENTATIONS AND WARRANTIES OF CARRIZO PARTNERS . . . . . . . . . . . . . . . . . . . . 28
Section 12.1 Formation; Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 12.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 12.3 No Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 12.4 Authority and Authorization; Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 12.5 Litigation, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 12.6 Financial Statements of Carrizo Partners . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 12.7 Ownership of Placedo Partners Ltd . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 12.8 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 12.9 Limited Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE XIII. COVENANTS AND AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 13.1 Equityholder Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 13.2 Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 13.3 Third Party Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE XIV. CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 14.1 Conditions to the Obligations of All Parties to Effect the Combination Transactions . . . . 32
Section 14.2 Conditions to the Obligations of the Company and each of the Founders to Effect the
Encinitas Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 14.3 Conditions to the Obligations of the Company and Production to Effect the Production
Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 14.4 Conditions to the Obligations of the Company and Encinitas to Effect the Encinitas
Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 14.5 Conditions to the Obligations of the Company and La Rosa to Effect the La Rosa Merger . . . 33
Section 14.6 Conditions to the Obligations of the Company and Carrizo Partners to Effect the
Carrizo Partners Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 14.7 Conditions to the Obligations of the Company to Effect Any of the Combination
Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 14.8 Other Combination Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
</TABLE>
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ARTICLE XV. TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 15.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 15.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE XVI. MISCELLANEOUS AND GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 16.1 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 16.2 Modification or Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 16.3 Restrictions on Transfer; Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 16.4 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 16.5 Stock Splits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 16.6 No Rights as Shareholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 16.7 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 16.8 Entire Agreement, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 16.9 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 16.10 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 16.11 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 16.12 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 16.13 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
</TABLE>
Exhibits
Exhibit A Production Plan of Merger
Exhibit B Transferor Representations and Warranties
Exhibit C Encinitas Plan of Merger
Exhibit D La Rosa Plan of Merger
Exhibit E Carrizo Partners Plan of Merger
Exhibit F Founders Disclosure Schedule
Exhibit G Production Disclosure Schedule
Exhibit H Encinitas Disclosure Schedule
Exhibit I La Rosa Disclosure Schedule
Exhibit J Carrizo Partners Disclosure Schedule
Schedules
Schedule 1.1(A) Carrizo Partners Limited Partners' Percentages
Schedule 1.1(B) Encinitas Limited Partners' Percentages
Schedule 1.1(C) La Rosa Limited Partners' Percentages
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COMBINATION AGREEMENT
THIS COMBINATION AGREEMENT (this "Agreement"), dated as of June 6,
1997, is by and among (i) Carrizo Oil & Gas, Inc., a Texas corporation (the
"Company"), (ii) Carrizo Production, Inc., a Texas corporation ("Production"),
(iii) Encinitas Partners Ltd., a Texas limited partnership ("Encinitas"), (iv)
La Rosa Partners Ltd., a Texas limited partnership ("La Rosa"), (v) Carrizo
Partners Ltd., a Texas limited partnership ("Carrizo Partners"), and (vi) Paul
B. Loyd, Jr., Steven A. Webster, Sylvester P. Johnson, IV, Douglas A. P.
Hamilton and Frank A. Wojtek (each, a "Founder" and together, the "Founders").
RECITALS
WHEREAS, the Company, Production, Encinitas, La Rosa, Carrizo Partners
and the Founders desire to combine certain of the oil and gas properties and
exploration and development operations owned and conducted by the Company,
Production, Encinitas, La Rosa and Carrizo Partners (the "Combination") through
the purchase by the Company of certain limited partner interests in Encinitas
and the merger of Production, Encinitas, La Rosa and Carrizo Partners with and
into the Company at or about the time of the closing of the initial public
offering (the "Offering") of shares of the Company's common stock, par value
$0.01 per share (the "Common Stock"), pursuant to the Securities Exchange Act
of 1933, as amended (the "Securities Act"), as will be described in the
Company's registration statement on Form S-1, to be filed with the Securities
and Exchange Commission (the "SEC") with respect to the Offering; and
WHEREAS, to effect the Combination, the Company plans (i) a purchase
of limited partner interests in Encinitas from the Founders (the "Encinitas
Purchase") for Common Stock, (ii) a merger (the "Production Merger") of
Production with and into the Company in which the stockholders of Production
(the "Production Stockholders") will receive Common Stock, (iii) a merger (the
"Encinitas Merger") of Encinitas with and into the Company in which the limited
partners of Encinitas (the "Encinitas Limited Partners") will receive Common
Stock, (iv) a merger (the "La Rosa Merger") of La Rosa with and into the
Company in which the limited partners of La Rosa (the "La Rosa Limited
Partners") will receive Common Stock and (v) a merger (the "Carrizo Partners
Merger") of Carrizo Partners with and into the Company in which the limited
partners of Carrizo Partners (the "Carrizo Partners Limited Partners") will
receive Common Stock (the Encinitas Purchase, the Production Merger, the
Encinitas Merger, the La Rosa Merger and the Carrizo Partners Merger
collectively may be referred to herein as the "Combination Transactions," and
each may be referred to herein as a "Combination Transaction"); and
WHEREAS, the Board of Directors of the Company has deemed each of the
Combination Transactions to be in the best interest of the Company and the
stockholders of the Company, and has approved, and recommended that the
stockholders of the Company approve, this Agreement and each of the Combination
Transactions; and
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<PAGE> 7
WHEREAS, the Board of Directors of Production has deemed the
Production Merger and the other Combination Transactions to be in the best
interest of Production and the stockholders of Production, and has approved,
and recommended that the stockholders of Production approve, this Agreement and
the Production Merger; and
WHEREAS, the Board of Directors of Production, as the general partner
of Encinitas, has deemed the Encinitas Merger and the other Combination
Transactions to be in the best interest of Encinitas and the Encinitas Limited
Partners, and has approved, and recommended that the Encinitas Limited Partners
approve, this Agreement, an amendment to the Encinitas Partnership Agreement
(as defined in Section 1.1) to permit the Encinitas Merger and the Encinitas
Merger; and
WHEREAS, the Board of Directors of the Company, as the general partner
of La Rosa, has deemed the La Rosa Merger and the other Combination
Transactions to be in the best interest of La Rosa and the La Rosa Limited
Partners, and has approved, and recommended that the La Rosa Limited Partners
approve, this Agreement, an amendment to the La Rosa Partnership Agreement (as
defined in Section 1.1) to permit the La Rosa Merger and the La Rosa Merger;
and
WHEREAS, the Board of Directors of the Company, as the general partner
of Carrizo Partners, has deemed the Carrizo Partners Merger and the other
Combination Transactions to be in the best interest of Carrizo Partners and the
Carrizo Partners Limited Partners, and has approved, and recommended that the
Carrizo Partners Limited Partners approve, this Agreement, an amendment to the
Carrizo Partners Partnership Agreement (as defined in Section 1.1) to permit
the Carrizo Partners Merger and the Carrizo Partners Merger; and
WHEREAS, the parties hereto desire to set forth the terms and
conditions of the Combination and to provide for certain relationships and
obligations among the parties hereto following the Closing Date (as defined in
Section 1.1):
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants set forth herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and intending to be
legally bound hereby, the aforesaid parties hereto hereby agree as follows:
ARTICLE I.
DEFINITIONS; ORDER
SECTION 1.1 DEFINED TERMS. As used in this Agreement, the following
terms have the meanings specified in this Section 1.1. Other capitalized terms
have the meanings assigned to them elsewhere in this Agreement.
Accredited Investor means an "Accredited Investor" as defined in Rule
501(a) promulgated under the Securities Act.
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<PAGE> 8
Carrizo Partners After Payout Consideration means, with respect to each
Carrizo Partners Limited Partner Interest, the product of (i) 707,358 shares of
Common Stock (which is equal to the difference between (a) the Carrizo Partners
Aggregate Valuation Shares and (b) the quotient of (1) the aggregate Carrizo
Partners Before Payout Consideration with respect to all Carrizo Partners
Limited Partner Interests, divided by (2) 86.667% (the aggregate Before Payout
Percentages with respect to all Carrizo Partners Limited Partner Interests as
set forth on Schedule 1.1(A) hereto)), multiplied by (ii) the percentage set
forth on Schedule 1.1(A) hereto as the After Payout Percentage with respect to
such Carrizo Partners Limited Partner Interest. For purposes of clarity, it is
agreed that the Carrizo Partners After Payout Consideration with respect to
each of the units representing a Carrizo Partners Limited Partner Interest
attributable to an original capital contribution of $50,000 by an Investor
Limited Partner (as defined in the Carrizo Partners Partnership Agreement) is
23,578 shares of Common Stock, and the aggregate Carrizo Partners After Payout
Consideration with respect to all Carrizo Partners Limited Partner Interests is
483,361 shares of Common Stock.
Carrizo Partners Aggregate Valuation Sharesmeans 806,250 shares of
Common Stock, which is equal to the number of shares of Common Stock that would
be issued to the partners of Carrizo Partners if shares were being issued in
respect of all partner interests in Carrizo Partners in the Carrizo Partners
Merger (it being understood, however, that because no shares are being issued
in respect of the general partner interest in Carrizo Partners in the Carrizo
Partners Merger, the number of shares issuable in the Carrizo Partners Merger
will be less than the Carrizo Partners Aggregate Valuation Shares).
Carrizo Partners Approvalsmeans the approval of the Carrizo Partners
Partnership Agreement Amendment by the general partner of Carrizo Partners and
a majority in interest of the Carrizo Partners Limited Partners Interests, in
accordance with the Carrizo Partners Partnership Agreement, and the approval of
the Carrizo Partners Merger by the partners of Carrizo Partners in accordance
with the Carrizo Partners Partnership Agreement, as amended by the Carrizo
Partners Partnership Agreement Amendment.
Carrizo Partners Before Payout Consideration means, with respect to
each Carrizo Partners Limited Partner Interest, the product of (i) 98,892
shares of Common Stock (which is equal to the quotient of (a) $1,040,344 (which
is the amount of cash that if distributed with respect to all partner interests
in Carrizo Partners at August 1, 1997 (the assumed Carrizo Partners Effective
Time (as defined in Section 6.3)) would result in distributions to the Investor
Limited Partners in an amount sufficient to cause a Conversion Date to occur
(i.e., an amount that would be sufficient to repay a loan or loans in the
amounts, and made at the times, of the Capital Contributions of the Investor
Limited Partners, bearing interest at 20% per annum compounded annually) minus
the aggregate amount of distributions made by Carrizo Partners with respect to
all partner interests in Carrizo Partners prior to the Carrizo Partners
Effective Time, divided by (b) the Share Valuation Price), multiplied by (ii)
the percentage set forth on Schedule 1.1(A) hereto as the Before Payout
Percentage with respect to such Carrizo Partners Limited Partner Interest. For
purposes of clarity, it is agreed that the Carrizo Partners Before Payout
Consideration with respect to each of the units representing a Carrizo Partners
Limited Partner Interest attributable to an original capital contribution of
$50,000
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<PAGE> 9
by an Investor Limited Partner is 6,593 shares of Common Stock, and the
aggregate Carrizo Partners Before Payout Consideration with respect to all
Carrizo Partners Limited Partner Interests is 85,707 shares of Common Stock.
Capitalized terms used in this definition and not otherwise defined in this
Agreement shall have the meanings given to them in the Carrizo Partners
Partnership Agreement.
Carrizo Partners Limited Partner Interests means the limited partner
interests in Carrizo Partners of the limited partners of Carrizo Partners.
Carrizo Partners Merger Consideration means, with respect to each
Carrizo Partners Limited Partner Interest, the sum of the Carrizo Partners
Before Payout Consideration and the Carrizo Partners After Payout Consideration
with respect to such Carrizo Partners Limited Partner Interest. For purposes
of clarity, it is agreed that the Carrizo Partners Merger Consideration with
respect to each of the units representing a Carrizo Partners Limited Partner
Interest attributable to an original capital contribution of $50,000 by an
Investor Limited Partner (as defined in the Carrizo Partners Partnership
Agreement) is 30,171 shares of Common Stock, and the aggregate Carrizo Partners
Merger Consideration with respect to all Carrizo Partners Limited Partner
Interests is 569,068 shares of Common Stock.
Carrizo Partners Partnership Agreement means the Agreement of Limited
Partnership of Carrizo Partners Ltd. dated January 7, 1994 as it has or may be
amended from time to time.
Carrizo Partners Partnership Agreement Amendmentmeans the proposed
amendment to the Carrizo Partners Partnership Agreement to permit the Carrizo
Partners Merger upon the approval of a majority in interest of the Carrizo
Partners Limited Partner Interests.
Closing means the closing of each of the Offering, the Encinitas
Purchase Closing (if consummated), the Production Merger (if consummated), the
Encinitas Merger (if consummated), the La Rosa Merger (if consummated) and the
Carrizo Partners Merger (if consummated).
Closing Date means the date of the closing of the Offering, the
Encinitas Purchase Closing (if consummated), the Production Merger (if
consummated), the Encinitas Merger (if consummated), the La Rosa Merger (if
consummated) and the Carrizo Partners Merger (if consummated).
Encinitas After Payout Consideration means, with respect to each
Encinitas Limited Partner Interest, the product of (i) 1,166,111 shares of
Common Stock (which is equal to the difference between (a) the Encinitas
Aggregate Valuation Shares and (b) the quotient of (1) the aggregate Encinitas
Before Payout Consideration with respect to all Encinitas Limited Partner
Interests, divided by (2) 98.58% (the aggregate Before Payout Percentages with
respect to all Encinitas Limited Partner Interests as set forth on Schedule
1.1(B) hereto)), multiplied by (ii) the percentage set forth on Schedule 1.1(B)
hereto as the After Payout Percentage with respect to such Encinitas Limited
Partner Interest. For purposes of clarity, it is agreed that the Encinitas
After Payout Consideration with respect to each of the units representing an
Encinitas Limited Partner Interest attributable to an original capital
contribution of $50,000 by an Additional Limited Partner (as
4
<PAGE> 10
defined in the Encinitas Partnership Agreement) is 8,329 shares of Common
Stock, and the aggregate Encinitas After Payout Consideration with respect to
all Encinitas Limited Partner Interests is 829,932 shares of Common Stock.
Encinitas Aggregate Valuation Sharesmeans 1,672,500 shares of Common
Stock, which is equal to the number of shares of Common Stock that would be
issued to the partners of Encinitas if shares were being issued in respect of
all partner interests in Encinitas in the Encinitas Merger (it being
understood, however, that because no shares are being issued in respect of the
general partner interest in Encinitas in the Encinitas Merger, the number of
shares issuable in the Encinitas Merger will be less than the Encinitas
Aggregate Valuation Shares).
Encinitas Approvals means the approval of the Encinitas Partnership
Agreement Amendment by the general partner of Encinitas and a majority in
interest of the Encinitas Limited Partners Interests, in accordance with the
Encinitas Partnership Agreement, and the approval of the Encinitas Merger by
the partners of Encinitas in accordance with the Encinitas Partnership
Agreement, as amended by the Encinitas Partnership Agreement Amendment.
Encinitas Before Payout Consideration means, with respect to each
Encinitas Limited Partner Interest, the product of (i) 506,389 shares of Common
Stock (which is equal to the quotient of (a) $5,327,211 (which is the amount of
cash that if distributed with respect to all partner interests in Encinitas at
August 1, 1997 (the assumed Encinitas Effective Time (as defined in Section
4.3)) would result in distributions to the Additional Limited Partners in an
amount sufficient to cause a Conversion Date to occur (i.e., an amount that
would result in the aggregate amount of distributions to the Additional Limited
Partners being equal to the sum of the aggregate Capital Contributions of the
Additional Limited Partners, plus 20% per annum thereon from the Amendment
Date, compounded annually) minus the aggregate amount of distributions made by
Encinitas with respect to all partner interests in Encinitas prior to the
Encinitas Effective Time, divided by (b) the Share Valuation Price), multiplied
by (ii) the percentage set forth on Schedule 1.1(B) hereto as the Before Payout
Percentage with respect to such Encinitas Limited Partner Interest. For
purposes of clarity, it is agreed that the Encinitas Before Payout
Consideration with respect to each of the units representing an Encinitas
Limited Partner Interest attributable to an original capital contribution of
$50,000 by an Additional Limited Partner is 7,234 shares of Common Stock, and
the aggregate Encinitas Before Payout Consideration with respect to all
Encinitas Limited Partner Interests is 499,300 shares of Common Stock.
Capitalized terms used in this definition and not otherwise defined in this
Agreement shall have the meanings given to them in the Encinitas Partnership
Agreement.
Encinitas Limited Partner Interests means the limited partner
interests in Encinitas of the limited partners of Encinitas.
Encinitas Merger Consideration means, with respect to each Encinitas
Limited Partner Interest, the sum of the Encinitas Before Payout Consideration
and the Encinitas After Payout Consideration with respect to such Encinitas
Limited Partner Interest. For purposes of clarity, it is
5
<PAGE> 11
agreed that the Encinitas Merger Consideration with respect to each of the
units representing an Encinitas Limited Partner Interest attributable to an
original capital contribution of $50,000 by an Additional Limited Partner (as
defined in the Encinitas Partnership Agreement) is 15,563 shares of Common
Stock, and the aggregate Encinitas Merger Consideration with respect to all
Encinitas Limited Partner Interests is 1,329,232 shares of Common Stock.
Encinitas Partnership Agreement means the Amended and Restated
Agreement of Limited Partnership of Encinitas Partners Ltd. as it has or may be
amended from time to time.
Encinitas Partnership Agreement Amendment means the proposed amendment
to the Encinitas Partnership Agreement to permit the Encinitas Merger upon the
approval of a majority in interest of the Encinitas Limited Partner Interests.
Encinitas Purchase Consideration means, with respect to each Founder,
the sum of the Encinitas Before Payout Consideration and the Encinitas After
Payout Consideration with respect to the Encinitas Limited Partner Interests
owned by such Founder.
La Rosa Aggregate Valuation Shares means 48,700 shares of Common
Stock, which is equal to the number of shares of Common Stock that would be
issued to the partners of La Rosa if shares were being issued in respect of all
partner interests in La Rosa in the La Rosa Merger (it being understood,
however, that because no shares are being issued in respect of the general
partner interest in La Rosa in the La Rosa Merger, the number of shares
issuable in the La Rosa Merger will be less than the La Rosa Aggregate
Valuation Shares).
La Rosa Approvals means the approval of the La Rosa Partnership
Agreement Amendment by the general partner of La Rosa and a majority in
interest of the La Rosa Limited Partners Interests, in accordance with the La
Rosa Partnership Agreement, and the approval of the La Rosa Merger by the
partners of La Rosa in accordance with the La Rosa Partnership Agreement, as
amended by the La Rosa Partnership Agreement Amendment.
La Rosa Limited Partner Interests means the limited partner interests
in La Rosa of the limited partners of La Rosa.
La Rosa Merger Consideration means, with respect to each La Rosa
Limited Partner Interest, the sum of the product of (i) the La Rosa Aggregate
Valuation Shares multiplied by (ii) the percentage set forth on Schedule 1.1(C)
hereto with respect to such La Rosa Limited Partner Interest.
La Rosa Partnership Agreement means the Agreement of Limited
Partnership of La Rosa Partners Ltd. dated March 26, 1996 as it may be amended
from time to time.
La Rosa Partnership Agreement Amendment means the proposed amendment
to the La Rosa Partnership Agreement to permit the La Rosa Merger upon the
approval of a majority in interest of the La Rosa Limited Partner Interests.
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<PAGE> 12
Mergers means the Production Merger, the Encinitas Merger, the La Rosa
Merger and the Carrizo Partners Merger.
Offering Memorandum means the Offering Memorandum of the Company
dated June 6, 1997.
Production Merger Consideration means 70 shares of Common Stock (which
is equal to the whole number nearest to the quotient of (i) the difference
between (a) the Encinitas Aggregate Valuation Shares and (b) the sum of (1) the
aggregate Encinitas Merger Consideration in the Encinitas Merger with respect
to all Encinitas Limited Partner Interests and (2) the aggregate Encinitas
Purchase Consideration of all Founders, divided by (ii) 4,900 (the total number
of shares of Production's common stock currently outstanding and to be
outstanding at the Production Effective Time (as defined in Section 3.3))).
Shares means shares of Common Stock acquired pursuant to the
Combination Transactions.
Share Valuation Pricemeans $10.52 (which is the price per share of
Common Stock that was established by the Company for use in determining the
Carrizo Partners Merger Consideration and the Encinitas Merger Consideration
(it being understood that such price likely will differ, and may differ
significantly, from the sale price per share to the public of the Common Stock
in the Offering)).
Surviving Corporation means the Company, which shall be the surviving
corporation of each of the Mergers.
SECTION 1.2 COMBINATION TRANSACTIONS ORDER. The Combination
Transactions shall occur on the Closing Date in the following order: (a) the
Encinitas Purchase Closing, if consummated, immediately followed by (b) the
Production Merger, if consummated, immediately followed by (c) the Encinitas
Merger, the La Rosa Merger and the Carrizo Partners Merger, which, if
consummated, shall occur simultaneously.
ARTICLE II.
THE ENCINITAS PURCHASE
SECTION 2.1 THE PURCHASE. Subject to the terms and conditions of this
Agreement, on the Closing Date, the Company will purchase and acquire from each
of the Founders, and each of the Founders will sell, assign and transfer to the
Company, all of his Encinitas Limited Partner Interests free and clear of any
liens, encumbrances or defects ("Liens").
SECTION 2.2 PURCHASE PRICE. In exchange for each Founder's Encinitas
Limited Partner Interests, the Company shall pay each such Founder his
Encinitas Purchase Consideration.
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<PAGE> 13
SECTION 2.3 CLOSING. The closing of the Encinitas Purchase (the
"Encinitas Purchase Closing"), if consummated, shall take place at the offices
of Baker & Botts, L.L.P., 910 Louisiana, Houston, Texas 77002 (or at such other
place as the parties hereto shall mutually agree), on the Closing Date,
provided that the conditions set forth in Sections 14.1, 14.2 and 14.7 shall
have been fulfilled or waived in accordance with this Agreement.
SECTION 2.4 DELIVERIES AT CLOSING. At the Encinitas Purchase Closing,
each Founder shall deliver a duly executed assignment in form and substance
reasonably acceptable to the Company transferring his Encinitas Limited Partner
Interests to the Company and directions to the general partner of Encinitas to
transfer on the books of Encinitas such Founder's Encinitas Limited Partner
Interests to the Company. At or promptly following the Encinitas Purchase
Closing, the Company shall deliver to each Founder, in exchange for such
Founder's Encinitas Limited Partner Interests, a stock certificate from the
Company in the name of such Founder representing the number of shares of Common
Stock equal to such Founder's Encinitas Purchase Consideration, as set forth in
Section 2.2.
SECTION 2.5 CONSENT TO LIMITED PARTNER INTEREST TRANSFER. By its
execution of this Agreement, Production, as general partner of Encinitas,
consents to the transfer of any Encinitas Limited Partner Interests to the
Company or its permitted assigns pursuant to the Encinitas Purchase, and to
the admittance of the Company as an Encinitas Limited Partner in respect of
such transferred Encinitas Limited Partner Interests.
ARTICLE III.
THE PRODUCTION MERGER
SECTION 3.1 THE PRODUCTION MERGER. Subject to the terms and
conditions of this Agreement, at the Production Effective Time (as defined in
Section 3.3), Production shall be merged with and into the Company in
accordance with the Plan or Merger attached hereto as Exhibit A (the
"Production Plan of Merger"), which is hereby made a part hereof and
incorporated herein by reference, and the separate existence of Production
shall thereupon cease. The Company shall be the surviving corporation in the
Production Merger and shall continue to be governed by the laws of the State of
Texas, and the separate existence of the Company with all its rights,
privileges, immunities, and franchises shall continue unaffected by the
Production Merger. The Production Merger shall have the effect specified in
the Texas Business Corporation Act (the "TBCA") with respect to Production and
with respect to the Surviving Corporation.
SECTION 3.2 CLOSING. The closing of the Production Merger (the
"Production Merger Closing"), if consummated, shall take place at the offices
of Baker & Botts, L.L.P., 910 Louisiana, Houston, Texas 77002 (or at such other
place as the parties hereto shall mutually agree), on the Closing Date,
provided that the conditions set forth in Sections 14.1, 14.3 and 14.7 shall
have been fulfilled or waived in accordance with this Agreement.
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SECTION 3.3 PRODUCTION EFFECTIVE TIME. At the Production Closing,
Production and the Company will cause the Articles of Merger, including the
Production Plan of Merger incorporated by reference therein, to be filed with
the Secretary of State of the State of Texas as required by, and executed in
accordance with, the TBCA. The Production Merger shall become effective at the
time (the "Production Effective Time") specified in the Production Plan of
Merger.
SECTION 3.4 CONVERSION OF SHARES. As provided in the Production Plan
of Merger:
(a) at the Production Effective Time, by virtue of the Production
Merger and without any action on the part of the holder of any share of Common
Stock or capital stock of Production:
(i) subject to Section 3.4(b) and Article VII of the
Production Plan of Merger, each share of common stock of Production
("Production Common Stock") outstanding immediately prior to the
Production Effective Time, other than Production Common Stock that is
to be canceled pursuant to Section 3.4(a)(ii), shall be converted into
and represent the right to receive the Production Merger
Consideration, payable as provided in Section 3.5;
(ii) each share of Production Common Stock that is held by
Production or any subsidiary thereof as treasury stock immediately
prior to the Production Effective Time shall be canceled, and no
payment shall be made with respect thereto; and
(iii) each share of Common Stock outstanding immediately
prior to the Production Effective Time shall remain outstanding and
continue unchanged as one share of Common Stock; and
(b) no fractional shares of Common Stock shall be issued in the
Production Merger, and each holder of shares of Production Common Stock will
be issued a whole share of Common Stock in lieu of any fractional share
interest to which such holder would otherwise be entitled.
SECTION 3.5 SURRENDER AND EXCHANGE OF SHARES. (a) Promptly after the
Production Effective Time, the Surviving Corporation will send to each
recordholder of shares of Production Common Stock immediately prior to the
Production Effective Time (i) a letter of transmittal for use in exchanging
certificates representing shares of Production Common Stock for the Production
Merger Consideration and (ii) instructions for use in effecting the surrender
of the certificates representing shares of Production Common Stock in exchange
for certificates representing shares of Common Stock. Upon surrender of
certificates for Production Common Stock for cancellation to the Surviving
Corporation, together with a duly executed letter of transmittal and such other
documents as the Surviving Corporation shall reasonably require, the holder of
such certificates shall be entitled to receive in exchange therefor a
certificate representing that number of whole shares of Common Stock into which
the shares of Production Common Stock theretofore represented by the
certificates for Production Common Stock so surrendered shall have been
converted pursuant to the provisions of Section 3.4, and the certificates for
Production Common Stock so surrendered shall be canceled. The letter of
transmittal shall (x) specify, among other things, that delivery shall be
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effected, and risk of loss and title to the Production Common Stock shall pass,
only upon actual delivery of the certificates for shares of Production Common
Stock to the Surviving Corporation, (y) include provisions ensuring the rights
of each party hereunder including customary provisions and a statement that
satisfies the requirements of Treas. Reg. Section 1.1445-2(b)(2) certifying
that the holder submitting such letter of transmittal is not a "foreign person"
and provide that if such statement is not made, appropriate tax withholding
will be made from the Production Merger Consideration and (z) include the
representations and warranties set forth on Exhibit B hereto and other
provisions to ensure that the receipt by such holder of shares of Common Stock
otherwise complies with Regulation D promulgated under the Securities Act and
other applicable laws.
(b) Until surrendered in accordance with the terms hereof, each
certificate for shares of Production Common Stock shall after the Production
Effective Time represent for all purposes only the right to receive the
Production Merger Consideration. Unless and until so surrendered, no dividends
or other distributions payable to the holders of Common Stock, as to any time
on or after the Production Effective Time, will be paid to the holder of such
outstanding certificates.
(c) From and after the Production Effective Time, there shall be
no further registration of transfers on the books of Production of shares of
Production Common Stock that were outstanding immediately prior to the
Production Effective Time.
(d) Notwithstanding the foregoing, the Surviving Corporation shall
not be liable to any holder of shares of Production Common Stock for any amount
paid to a public official pursuant to applicable abandoned property laws. Any
amounts remaining unclaimed by holders of shares of Production Common Stock
three years after the Production Effective Time (or such earlier date
immediately prior to such time as such amounts would otherwise escheat to or
become property of any governmental entity) shall, to the extent permitted by
applicable law, become the property of the Surviving Corporation free and clear
of any claims or interests of any person previously entitled thereto.
ARTICLE IV.
THE ENCINITAS MERGER
SECTION 4.1 THE ENCINITAS MERGER. Subject to the terms and conditions
of this Agreement, at the Encinitas Effective Time (as defined in Section 4.3),
Encinitas shall be merged with and into the Company in accordance with the Plan
of Merger attached hereto as Exhibit C (the "Encinitas Plan of Merger"), which
is hereby made a part hereof and incorporated herein by reference and the
separate existence of Encinitas shall thereupon cease. The Company shall be
the surviving corporation in the Encinitas Merger and shall continue to be
governed by the laws of the State of Texas, and the separate existence of the
Company with all its rights, privileges, immunities, and franchises shall
continue unaffected by the Encinitas Merger. The Encinitas Merger shall have
the effect specified in the Texas Revised Limited Partnership Act (the "TRLPA")
and the TBCA, respectively, with respect to Encinitas and with respect to the
Surviving Corporation.
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SECTION 4.2 CLOSING. The closing of the Encinitas Merger (the
"Encinitas Merger Closing"), if consummated, shall take place at the offices of
Baker & Botts, L.L.P., 910 Louisiana, Houston, Texas 77002 (or at such other
place as the parties hereto shall mutually agree), on the Closing Date,
provided that the conditions set forth in Sections 14.1, 14.4 and 14.7 shall
have been fulfilled or waived in accordance with this Agreement.
SECTION 4.3 EFFECTIVE TIME. At the Encinitas Closing, Encinitas and
the Company will cause the Articles of Merger, including the Encinitas Plan of
Merger incorporated by reference therein, to be filed with the Secretary of
State of the State of Texas as required by, and executed in accordance with,
the TRLPA and the TBCA. The Encinitas Merger shall become effective at the
time (the "Encinitas Effective Time") specified in the Encinitas Plan of
Merger.
SECTION 4.4 CONVERSION OF PARTNERSHIP INTERESTS. As provided in the
Encinitas Plan of Merger:
(a) at the Encinitas Effective Time, by virtue of the Encinitas
Merger and without any action on the part of the holder of any share of Common
Stock or partnership interest of Encinitas:
(i) subject to Section 4.4(b), all of the Encinitas
Limited Partner Interests outstanding immediately prior to the
Encinitas Effective Time, other than Encinitas Limited Partner
Interests that are to be canceled pursuant to Section 4.4(a)(ii),
shall be converted into and represent the right to receive the
Encinitas Merger Consideration, payable to the holder of such
Encinitas Limited Partner Interests as provided in Section 4.5;
(ii) any Encinitas Limited Partner Interests outstanding
immediately prior to the Encinitas Effective Time that are held by
Encinitas or any subsidiary thereof or by the Company (pursuant to the
Encinitas Purchase or otherwise) shall be canceled, and no payment
shall be made with respect thereto;
(iii) all general partner interests in Encinitas
outstanding immediately prior to the Encinitas Effective Time shall be
canceled, and no payment shall be made with respect thereto; and
(iv) each share of Common Stock outstanding immediately
prior to the Encinitas Effective Time shall remain outstanding and
continue unchanged as one share of Common Stock; and
(b) no fractional shares of Common Stock shall be issued in the
Encinitas Merger, and each holder of Encinitas Limited Partner Interests will
be issued the whole number of shares of Common Stock nearest to the number of
shares to which such holder would otherwise be entitled.
SECTION 4.5 SURRENDER AND EXCHANGE OF PARTNERSHIP INTERESTS. (a)
Promptly after the Encinitas Effective Time, the Surviving Corporation will
send to each recordholder of Encinitas
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Limited Partner Interests immediately prior to the Encinitas Effective Time a
letter of transfer for use in delivery to such holder of the Encinitas Merger
Consideration. Upon delivery of a duly executed letter of transfer and such
other documents as the Surviving Corporation shall reasonably require, the
holder of such Encinitas Limited Partner Interests shall be entitled to receive
a certificate representing that number of whole shares of Common Stock into
which the Encinitas Limited Partner Interests shall have been converted
pursuant to the provisions of Section 4.4. The letter of transfer shall (x)
specify, among other things, that delivery shall be effected only upon actual
delivery of the letter of transfer to the Surviving Corporation, (y) include
provisions ensuring the rights of each party hereunder including customary
provisions and a statement that satisfies the requirements of Treas. Reg.
Section 1.1445-2(b)(2) certifying that the holder submitting such letter of
transfer is not a "foreign person" and provide that if such statement is not
made, appropriate tax withholding will be made from the Encinitas Merger
Consideration and (z) include the representations and warranties set forth on
Exhibit B hereto and other provisions to ensure that the receipt by such holder
of shares of Common Stock otherwise complies with Regulation D promulgated
under the Securities Act and other applicable laws.
(b) Until a letter of transfer with respect to each Encinitas
Limited Partner Interest is accepted by the Company in accordance with the
terms hereof, Encinitas Limited Partner Interests shall after the Encinitas
Effective Time represent for all purposes only the right to receive the
Encinitas Merger Consideration. Unless and until so surrendered, no dividends
or other distributions payable to the holders of Common Stock, as to any time
on or after the Encinitas Effective Time, will be paid to the holder of such
Encinitas Limited Partner Interests.
(c) From and after the Encinitas Effective Time, there shall be no
further registration of transfers on the books of Encinitas of Encinitas
Limited Partner Interests that were outstanding immediately prior to the
Encinitas Effective Time.
(d) Notwithstanding the foregoing, the Surviving Corporation shall
not be liable to any holder of Encinitas Limited Partner Interests for any
amount paid to a public official pursuant to applicable abandoned property
laws. Any amounts remaining unclaimed by holders of Encinitas Limited Partner
Interests three years after the Encinitas Effective Time (or such earlier date
immediately prior to such time as such amounts would otherwise escheat to or
become property of any governmental entity) shall, to the extent permitted by
applicable law, become the property of the Surviving Corporation free and clear
of any claims or interests of any person previously entitled thereto.
SECTION 4.6 NO DISSENTERS' RIGHTS. Encinitas Limited Partners shall
have no appraisal, dissenters' or similar rights in connection with the
Encinitas Merger.
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ARTICLE V.
THE LA ROSA MERGER
SECTION 5.1 THE LA ROSA MERGER. Subject to the terms and conditions
of this Agreement, at the La Rosa Effective Time (as defined in Section 5.3),
La Rosa shall be merged with and into the Company in accordance with the Plan
of Merger attached hereto as Exhibit D (the "La Rosa Plan of Merger"), which is
hereby made a part hereof and incorporated herein by reference, and the
separate existence of La Rosa shall thereupon cease. The Company shall be the
surviving corporation in the La Rosa Merger and shall continue to be governed
by the laws of the State of Texas, and the separate existence of the Company
with all its rights, privileges, immunities, and franchises shall continue
unaffected by the La Rosa Merger. The La Rosa Merger shall have the effect
specified in the TRLPA and the TBCA, respectively, with respect to La Rosa and
with respect to the Surviving Corporation.
SECTION 5.2 CLOSING. The closing of the La Rosa Merger (the "La Rosa
Merger Closing"), if consummated, shall take place at the offices of Baker &
Botts, L.L.P., 910 Louisiana, Houston, Texas 77002 (or at such other place as
the parties hereto shall mutually agree), on the Closing Date, provided that
the conditions set forth in Sections 14.1, 14.5 and 14.7 shall have been
fulfilled or waived in accordance with this Agreement.
SECTION 5.3 EFFECTIVE TIME. At the La Rosa Closing, La Rosa and the
Company will cause the Articles of Merger, including the La Rosa Plan of Merger
incorporated by reference therein, to be filed with the Secretary of State of
the State of Texas as required by, and executed in accordance with, the TRLPA
and the TBCA. The La Rosa Merger shall become effective at the time (the "La
Rosa Effective Time") specified in the La Rosa Plan of Merger.
SECTION 5.4 CONVERSION OF PARTNERSHIP INTERESTS. As provided in the
La Rosa Plan of Merger:
(a) at the La Rosa Effective Time, by virtue of the La Rosa Merger
and without any action on the part of the holder of any share of Common Stock
or partnership interest of La Rosa:
(i) subject to Section 5.4(b), all of the La Rosa Limited
Partner Interests outstanding immediately prior to the La Rosa
Effective Time, other than La Rosa Limited Partner Interests that are
to be canceled pursuant to Section 5.4(a)(ii), shall be converted into
and represent the right to receive the La Rosa Merger Consideration,
payable to the holder of such La Rosa Limited Partner Interests as
provided in Section 5.5;
(ii) any La Rosa Limited Partner Interests outstanding
immediately prior to the La Rosa Effective Time that are held by La
Rosa or any subsidiary thereof or by the Company shall be canceled,
and no payment shall be made with respect thereto;
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(iii) all general partner interests in La Rosa outstanding
immediately prior to the La Rosa Effective Time shall be canceled, and
no payment shall be made with respect thereto; and
(iv) each share of Common Stock outstanding immediately
prior to the La Rosa Effective Time shall remain outstanding and
continue unchanged as one share of Common Stock; and
(b) no fractional shares of Common Stock shall be issued in the La
Rosa Merger, and each holder of La Rosa Limited Partner Interests will be
issued the whole number of shares of Common Stock nearest to the number of
shares to which such holder would otherwise be entitled.
SECTION 5.5 SURRENDER AND EXCHANGE OF PARTNERSHIP INTERESTS. (a)
Promptly after the La Rosa Effective Time, the Surviving Corporation will send
to each recordholder of La Rosa Limited Partner Interests immediately prior to
the La Rosa Effective Time a letter of transfer for use in delivery to such
holder of the La Rosa Merger Consideration. Upon delivery of a duly executed
letter of transfer and such other documents as the Surviving Corporation shall
reasonably require, the holder of such La Rosa Limited Partner Interests shall
be entitled to receive a certificate representing that number of whole shares
of Common Stock into which the La Rosa Limited Partner Interests shall have
been converted pursuant to the provisions of Section 5.4. The letter of
transfer shall (x) specify, among other things, that delivery shall be effected
only upon actual delivery of the letter of transfer to the Surviving
Corporation, (y) include provisions ensuring the rights of each party hereunder
including customary provisions and a statement that satisfies the requirements
of Treas. Reg. Section 1.1445-2(b)(2) certifying that the holder submitting
such letter of transfer is not a "foreign person" and provide that if such
statement is not made, appropriate tax withholding will be made from the La
Rosa Merger Consideration and (z) include the representations and warranties
set forth on Exhibit B hereto and other provisions to ensure that the receipt
by such holder of shares of Common Stock otherwise complies with Regulation D
promulgated under the Securities Act and other applicable laws.
(b) Until a letter of transfer with respect to each La Rosa
Limited Partner Interest is accepted by the Company in accordance with the
terms hereof, La Rosa Limited Partner Interests shall after the La Rosa
Effective Time represent for all purposes only the right to receive the La Rosa
Merger Consideration. Unless and until so surrendered, no dividends or other
distributions payable to the holders of Common Stock, as to any time on or
after the La Rosa Effective Time, will be paid to the holder of such La Rosa
Limited Partner Interests.
(c) From and after the La Rosa Effective Time, there shall be no
further registration of transfers on the books of La Rosa of La Rosa Limited
Partner Interests that were outstanding immediately prior to the La Rosa
Effective Time.
(d) Notwithstanding the foregoing, the Surviving Corporation shall
not be liable to any holder of La Rosa Limited Partner Interests for any amount
paid to a public official pursuant to
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applicable abandoned property laws. Any amounts remaining unclaimed by holders
of La Rosa Limited Partner Interests three years after the La Rosa Effective
Time (or such earlier date immediately prior to such time as such amounts would
otherwise escheat to or become property of any governmental entity) shall, to
the extent permitted by applicable law, become the property of the Surviving
Corporation free and clear of any claims or interests of any person previously
entitled thereto.
SECTION 5.6 NO DISSENTERS' RIGHTS. La Rosa Limited Partners shall
have no appraisal, dissenters' or similar rights in connection with the La Rosa
Merger.
ARTICLE VI.
THE CARRIZO PARTNERS MERGER
SECTION 6.1 THE CARRIZO PARTNERS MERGER. Subject to the terms and
conditions of this Agreement, at the Carrizo Partners Effective Time (as
defined in Section 6.3), Carrizo Partners shall be merged with and into the
Company in accordance with the Plan of Merger attached hereto as Exhibit E (the
"Carrizo Partners Plan of Merger"), which is hereby incorporated herein by
reference, and the separate existence of Carrizo Partners shall thereupon
cease. The Company shall be the surviving corporation in the Carrizo Partners
Merger and shall continue to be governed by the laws of the State of Texas, and
the separate existence of the Company with all its rights, privileges,
immunities, and franchises shall continue unaffected by the Carrizo Partners
Merger. The Carrizo Partners Merger shall have the effect specified in the
TRLPA and the TBCA, respectively, with respect to Carrizo Partners and with
respect to the Surviving Corporation.
SECTION 6.2 CLOSING. The closing of the Carrizo Partners Merger (the
"Carrizo Partners Merger Closing"), if consummated, shall take place at the
offices of Baker & Botts, L.L.P., 910 Louisiana, Houston, Texas 77002 (or at
such other place as the parties hereto shall mutually agree), on the Closing
Date, provided that the conditions set forth in Sections 14.1, 14.6 and 14.7
shall have been fulfilled or waived in accordance with this Agreement.
SECTION 6.3 EFFECTIVE TIME. At the Carrizo Partners Closing, Carrizo
Partners and the Company will cause the Articles of Merger, including the
Carrizo Partners Plan of Merger incorporated by reference therein, to be filed
with the Secretary of State of the State of Texas as required by, and executed
in accordance with, the TRLPA and the TBCA. The Carrizo Partners Merger shall
become effective at the time (the "Carrizo Partners Effective Time") specified
in the Carrizo Partners Plan of Merger.
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SECTION 6.4 CONVERSION OF PARTNERSHIP INTERESTS. As provided in the
Carrizo Partners Plan of Merger:
(a) at the Carrizo Partners Effective Time, by virtue of the
Carrizo Partners Merger and without any action on the part of the holder of any
share of Common Stock or partnership interest of Carrizo Partners:
(i) subject to Section 6.4(b), all of the Carrizo
Partners Limited Partner Interests outstanding immediately prior to
the Carrizo Partners Effective Time, other than Carrizo Partners
Limited Partner Interests that are to be canceled pursuant to Section
6.4(a)(ii), shall be converted into and represent the right to receive
the Carrizo Partners Merger Consideration, payable to the holder of
such Carrizo Partners Limited Partner Interests as provided in Section
6.5;
(ii) any Carrizo Partners Limited Partner Interests
outstanding immediately prior to the Carrizo Partners Effective Time
that are held by Carrizo Partners or any subsidiary thereof or by the
Company shall be canceled, and no payment shall be made with respect
thereto;
(iii) all general partner interests in Carrizo Partners
outstanding immediately prior to the Carrizo Partners Effective Time
shall be canceled, and no payment shall be made with respect thereto;
and
(iv) each share of Common Stock outstanding immediately
prior to the Carrizo Partners Effective Time shall remain outstanding
and continue unchanged as one share of Common Stock; and
(b) no fractional shares of Common Stock shall be issued in the
Carrizo Partners Merger, and each holder of Carrizo Partners Limited Partner
Interests will be issued the whole number of shares of Common Stock nearest to
the number of shares to which such holder would otherwise be entitled.
SECTION 6.5 SURRENDER AND EXCHANGE OF PARTNERSHIP INTERESTS. (a)
Promptly after the Carrizo Partners Effective Time, the Surviving Corporation
will send to each recordholder of Carrizo Partners Limited Partner Interests
immediately prior to the Carrizo Partners Effective Time a letter of transfer
for use in delivery to such holder of the Carrizo Partners Merger
Consideration. Upon delivery of a duly executed letter of transfer and such
other documents as the Surviving Corporation shall reasonably require, the
holder of such Carrizo Partners Limited Partner Interests shall be entitled to
receive a certificate representing that number of whole shares of Common Stock
into which the Carrizo Partners Limited Partner Interests shall have been
converted pursuant to the provisions of Section 4.7. The letter of transfer
shall (x) specify, among other things, that delivery shall be effected only
upon actual delivery of the letter of transfer to the Surviving Corporation,
(y) include provisions ensuring the rights of each party hereunder including
customary provisions and
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a statement that satisfies the requirements of Treas. Reg. Section
1.1445-2(b)(2) certifying that the holder submitting such letter of transfer is
not a "foreign person" and provide that if such statement is not made,
appropriate tax withholding will be made from the Carrizo Partners Merger
Consideration and (z) include the representations and warranties set forth on
Exhibit B hereto and a statement that the holder submitting such letter of
transfer is an Accredited Investor and other provisions to ensure that the
receipt by such holder of shares of Common Stock otherwise complies with
Regulation D promulgated under the Securities Act and other applicable laws.
(b) Until a letter of transfer with respect to each Carrizo
Partners Limited Partner Interest is accepted by the Company in accordance with
the terms hereof, Carrizo Partners Limited Partner Interests shall after the
Carrizo Partners Effective Time represent for all purposes only the right to
receive the Carrizo Partners Merger Consideration. Unless and until so
surrendered, no dividends or other distributions payable to the holders of
Common Stock, as to any time on or after the Carrizo Partners Effective Time,
will be paid to the holder of such Carrizo Partners Limited Partner Interests.
(c) From and after the Carrizo Partners Effective Time, there
shall be no further registration of transfers on the books of Carrizo Partners
of Carrizo Partners Limited Partner Interests that were outstanding immediately
prior to the Carrizo Partners Effective Time.
(d) Notwithstanding the foregoing, the Surviving Corporation shall
not be liable to any holder of Carrizo Partners Limited Partner Interests for
any amount paid to a public official pursuant to applicable abandoned property
laws. Any amounts remaining unclaimed by holders of Carrizo Partners Limited
Partner Interests three years after the Carrizo Partners Effective Time (or
such earlier date immediately prior to such time as such amounts would
otherwise escheat to or become property of any governmental entity) shall, to
the extent permitted by applicable law, become the property of the Surviving
Corporation free and clear of any claims or interests of any person previously
entitled thereto.
SECTION 6.6 NO DISSENTERS' RIGHTS. Carrizo Partners Limited Partners
shall have no appraisal, dissenters' or similar rights in connection with the
Carrizo Partners Merger.
ARTICLE VII.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants the following to each of
the other parties hereto. Except as set forth in the Offering Memorandum:
SECTION 7.1 ORGANIZATION; QUALIFICATION. The Company is a corporation
duly organized under the TBCA and is validly existing and in good standing
under the laws of the State of Texas. The Company has all requisite corporate
power and authority to own, operate or lease its properties and to carry on its
business as now being conducted.
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SECTION 7.2 CAPITALIZATION OF THE COMPANY. The authorized capital
stock of the Company consists solely of 40,000,000 shares of Common Stock and
10,000,000 shares of preferred stock, par value $0.01 per share. As of the
date hereof (taking into account the 521-for-one stock split that has been
approved by the Board of Directors of the Company) 5,210,000 shares of Common
Stock and no shares of preferred stock are outstanding, as well as outstanding
options to purchase 208,400 shares of Common Stock. All outstanding shares of
capital stock of the Company are, and the shares of Common Stock to be issued
pursuant to this Agreement, when issued in accordance with the terms hereof and
thereof, will be, duly authorized, validly issued, fully paid and nonassessable
and not subject to preemptive rights.
SECTION 7.3 NO CONFLICTS. Subject to the Company Shareholder Approval
(as defined in Section 13.1), consummation of the transactions contemplated
hereby and compliance with the terms and provisions of this Agreement will not
conflict with, result in a breach of, require notice under or constitute a
default under either the Company's Articles of Incorporation or Bylaws or any
judgment, order, injunction, decree or ruling of any court or governmental
authority or under any material agreement, indenture or instrument to which the
Company is a party. No consent, approval, order or authorization of, or
registration, declaration or filing with, any court or governmental authority
or other third party is required on the part of the Company in connection with
the execution and delivery of this Agreement or for the consummation by the
Company of the transactions contemplated by this Agreement, other than the
Company Shareholder Approval and filings with the Secretary of State of the
State of Texas in connection with the Mergers or filings pursuant to federal or
state securities laws.
SECTION 7.4 AUTHORITY AND AUTHORIZATION; BINDING EFFECT. The Company
has all requisite corporate power and authority to execute and deliver this
Agreement and, subject to the Company Shareholder Approval, to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and, subject to the Company Shareholder Approval, the consummation by the
Company of the transactions contemplated hereby have been duly authorized by
all necessary corporate action on the part of the Company. This Agreement has
been duly executed and delivered by the Company and, assuming the due
authorization, execution and delivery hereof by the other parties hereto,
constitutes a valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, subject to laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
rules of law governing specific performance, injunctive relief or other
equitable remedies.
SECTION 7.5 LITIGATION, ETC. (a) There is no action, claim or
proceeding pending or, to the knowledge of the Company, threatened to which the
Company is or would be party before any court or governmental authority acting
in an adjudicative capacity or any arbitration or arbitration tribunal with
respect to which there is a reasonable likelihood of a determination having, or
which, insofar as reasonably can be foreseen, in the future would have a
material adverse effect on the Company, (b) the Company is not subject to any
outstanding order, writ, injunction or decree having, or which, insofar as
reasonably can be foreseen, in the future would have a material adverse effect
on the Company, and (c) since its formation, there have been no claims made or
actions or proceedings
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brought against any officer or director of the Company arising out of or
pertaining to any action or omission within the scope of his employment or
position with the Company, which claim, action or proceeding is material to the
Company.
SECTION 7.6 FINANCIAL STATEMENTS OF THE COMPANY. Each of the balance
sheets of the Company included in the Offering Memorandum (including the
related notes and schedules) fairly presents, in all material respects, the
financial position of the Company as of its date, and each of the statements of
income and changes in financial position included in the Offering Memorandum
(including any related notes and schedules) fairly presents the results of
operations, shareholders' equity, retained earning and changes in financial
position, as the case may be, of the Company for the periods set forth therein
(subject, in the case of unaudited statements, to normal year-end audit
adjustments not material in amount of effect), in each case in accordance with
generally accepted accounting principles consistently applied during the
periods involved, except as may be noted therein. Since December 31, 1996, no
dividends, distributions, repurchases of interests or any other payment has
been made to any equityholder of the Company as such. The Company did not have
on December 31, 1996 or the date of any subsequent balance sheet of the
Company, any material contingent liabilities, liabilities for taxes,
obligations, guarantees or unrealized or anticipated losses from any
unfavorable commitments, except as referred to or reflected or provided for in
the balance sheet, including the notes thereto, of the Company as of said date.
Since December 31, 1996, there has been no material adverse change in the
financial condition, assets or operation of the business of the Company.
SECTION 7.7 COMPLIANCE WITH LAWS. The operations of the Company do
not violate any federal, state, local or other laws or regulations or any order
or requirement of any court or governmental agency or authority in any material
respect, including without limitation those laws, regulations, orders or
requirements relating to environment or health. Such operations are not
subject to any existing, pending or, to the knowledge of the Company,
threatened action, suit, investigation, inquiry or proceeding by or before any
court or governmental agency or authority under any federal, state or local
environmental law, rule or regulation, except in each case for any matter that
would not have a material adverse effect on the Company.
ARTICLE VIII.
REPRESENTATIONS AND WARRANTIES OF THE FOUNDERS
Each of the Founders hereby represents and warrants the following to
the Company (with each Founder making representations and warranties solely
with respect to that Founder). Except as set forth on the Founders Disclosure
Schedule, attached hereto as Exhibit F:
SECTION 8.1 OWNERSHIP. The Founders Disclosure Schedule sets forth
the true and correct Encinitas Limited Partner Interests owned by such Founder.
The Founder owns its Encinitas Limited Partner Interest free and clear of all
Liens.
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SECTION 8.2 NO CONFLICTS. Consummation of the transactions
contemplated hereby and compliance with the terms and provisions of this
Agreement will not conflict with, result in a breach of, require notice or
consent under or constitute a default under any judgment, order, injunction,
decree or ruling of any court or governmental authority or under any material
agreement, indenture or instrument to which the Founder is a party. No
consent, approval, order or authorization of, or registration, declaration or
filing with, any court or governmental authority or other third party is
required on the part of the Founder in connection with the execution and
delivery of this Agreement or for the consummation of the transactions
contemplated by this Agreement.
SECTION 8.3 AUTHORITY AND AUTHORIZATION; BINDING EFFECT. The Founder
has all requisite authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. This Agreement has been duly
executed and delivered by the Founder and, assuming the due authorization,
execution and delivery hereof by the other parties hereto, constitutes a valid
and binding obligation of the Founder enforceable against the Founder in
accordance with its terms, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief or other equitable remedies.
SECTION 8.4 EXPERIENCE; STATUS. (a) The Founder has experience in
analyzing and investing in companies like the Company and is capable of
evaluating the merits and risks of his investment in the Company and has the
capacity to protect his own interests. To the extent necessary, the Founder
has retained, at his own expense, and relied upon, appropriate professional
advice regarding the investment, tax and legal merits and consequences of the
Combination Transactions, or any part thereof, and owning Shares, it being
understood that the Company has not retained legal or financial advisors on
behalf of the Founder.
(b) The Founder is an Accredited Investor, is able to bear the
economic risk of his investment in the Shares and has sufficient net worth to
sustain a loss of his entire investment in the Company without economic
hardship if such loss should occur.
SECTION 8.5 ACCESS TO COMPANY INFORMATION. (a) The Founder has had
an opportunity to discuss the Company's business, management and financial
affairs with the members of the Company's management and has had the
opportunity to review the Company's facilities. The Founder has also had an
opportunity to ask questions of the officers of the Company, which questions
were answered to his satisfaction. The Founder acknowledges that he is familiar
with all aspects of the Company's business.
(b) The Founder has received and carefully reviewed a copy of the
Offering Memorandum. The Founder understands that information in such Offering
Memorandum is preliminary and subject to change. The Founder acknowledges that
he has reviewed the information in such Offering Memorandum solely for general
background purposes and that, in particular, information with respect to the
Offering and the Combination Transactions is expected to change prior to the
Closing. The Founder recognizes that he will receive no supplement or
amendment to such Offering Memorandum. The Founder acknowledges that his
investment decision is based
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primarily on his familiarity with the assets the Company currently owns and is
expected to acquire and the Company's management.
(c) The Founder has received no representations or warranties from
the Company, or its employees, affiliates, attorneys, accountants or agents,
except as set forth in this Agreement.
(d) The Founder understands that the purchase of the Shares
involves numerous risks, including those outlined in the Offering Memorandum.
SECTION 8.6 INVESTMENT PURPOSES; RULE 144. (a) The Founder is
acquiring Shares solely for investment for his own account, not as a nominee or
agent, and not with the view to, or for resale in connection with, any
distribution thereof. The Founder understands that the Shares have not been
registered under the Securities Act or applicable state and other securities
laws by reason of a specific exemption from the registration provisions of the
Securities Act and applicable state and other securities laws, the availability
of which depends upon, among other things, the bona fide nature of the
investment intent and the accuracy of the Founders' representations as
expressed herein. The Founder understands that the Company is relying, in
part, upon the representations and warranties contained in this Agreement for
the purpose of determining whether the Combination Transactions meet the
requirements for such exemptions.
(b) The Founder acknowledges and understands that he must bear the
economic risk of his investment in the Shares for an indefinite period of time
because the Shares must be held indefinitely unless subsequently registered
under the Securities Act and applicable state and other securities laws or
unless an exemption from such registration is available. The Founder
understands that, except as described in the Offering Memorandum, the Company
has not agreed to and does not plan to file a registration statement to
register the resale of the Shares under the Securities Act.
(c) The Founder is aware of the current provisions of Rule 144
promulgated under the Securities Act ("Rule 144") which permit limited resale
of securities purchased in a private placement subject to the satisfaction of
certain conditions, including among other things, the existence of a public
market for the securities, the availability of certain current public
information about the issuer of the securities, the resale occurring not less
than one year after a party has purchased from an issuer or its affiliate and
paid the full purchase price for the securities to be sold, the sale being
effected through a "broker's transaction" or in transactions directly with a
"market maker" and the number of securities being sold during any three-month
period not exceeding specified limitations. The Founder understands that any
transfer agent of the Company will be issued stop-transfer instructions with
respect to such Shares unless such transfer is subsequently registered under
the Securities Act and applicable state and other securities laws or unless an
exemption from such registration is available. The Founder understands that
for purposes of Rule 144, he will be deemed an affiliate of the Company.
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(d) The Founder acknowledges and agrees that the foregoing
representations are true as of the date hereof, the time of receipt of Shares
and the time of the vote on and effective time of any merger or other
transaction that resulted in the issuance of Shares.
SECTION 8.7 ADDITIONAL RESTRICTION ON TRANSFER. The Founder has
received a copy of the Amended and Restated Bylaws of the Company and
understands that the Shares will be subject to the restrictions on transfer
contained in Article I of such Bylaws. The Founder also acknowledges the
restrictions on transfer of the Shares in Section 16.3 of this Agreement.
ARTICLE IX.
REPRESENTATIONS AND WARRANTIES OF PRODUCTION
Production hereby represents and warrants the following to the
Company. Except as set forth on the Production Disclosure Schedule, attached
hereto as Exhibit G:
SECTION 9.1 ORGANIZATION; QUALIFICATION. Production is a corporation
duly organized under the TBCA and is validly existing and in good standing
under the laws of the State of Texas. Production has all requisite corporate
power and authority to own, operate or lease its properties and to carry on its
business as now being conducted.
SECTION 9.2 CAPITALIZATION. The authorized capital stock of
Production consists solely of 100,000 shares of common stock, par value $0.01
per share, of which 4,900 shares are outstanding as of the date hereof and will
be outstanding as of the Production Effective Time. Production does not, and
will not as of the Closing Date, have any outstanding subscriptions, options or
other arrangements or commitments obligating it to issue any additional shares
of capital stock. All outstanding shares of capital stock of Production are
duly authorized, validly issued, fully paid and nonassessable and not subject
to preemptive rights.
SECTION 9.3 NO CONFLICTS. Subject to the Production Shareholder
Approval (as defined in Section 13.1), consummation of the transactions
contemplated hereby and compliance with the terms and provisions of this
Agreement will not conflict with, result in a breach of, require notice or
consent under or constitute a default under Production's Articles of
Incorporation or Bylaws or any judgment, order, injunction, decree or ruling of
any court or governmental authority or under any material agreement, indenture
or instrument to which Production is a party. No consent, approval, order or
authorization of, or registration, declaration or filing with, any court or
governmental authority or other third party is required on the part of
Production in connection with the execution and delivery of this Agreement or
for the consummation by Production of the transactions contemplated by this
Agreement other than the Production Shareholder Approval and filings with the
Secretary of State of the State of Texas in connection with the Production
Merger.
SECTION 9.4 AUTHORITY AND AUTHORIZATION; BINDING EFFECT. Production
has all requisite corporate power and authority to execute and deliver this
Agreement and, subject to the Production
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Shareholder Approval, to consummate the transactions involving Production
contemplated hereby. The execution and delivery of this Agreement and, subject
to the Production Shareholder Approval, the consummation of the transactions by
Production contemplated hereby have been duly authorized by all necessary
corporate action on the part of Production. This Agreement has been duly
executed and delivered by Production and, assuming the due authorization,
execution and delivery hereof by the other parties hereto, constitutes a valid
and binding obligation of Production enforceable against Production in
accordance with its terms, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief or other equitable remedies.
SECTION 9.5 LITIGATION, ETC. (a) There is no action, claim, or
proceeding pending or, to the knowledge of Production, threatened, to which
Production is or would be a party before any court or governmental authority
acting in an adjudicative capacity or any arbitrator or arbitration tribunal
with respect to which there is a reasonable likelihood of a determination
having, or which, insofar as reasonably can be foreseen, in the future would
have a material adverse effect on Production, (b) Production is not subject to
any outstanding order, writ, injunction or decree having, or which, insofar as
reasonably can be foreseen, in the future would have a material adverse effect
on Production, and (c) there have been no claims made or actions or proceedings
brought against any officer or director of Production arising out of or
pertaining to any action or omission within the scope of his employment or
position with Production, which claim, action or proceeding is material to
Production.
SECTION 9.6 FINANCIAL STATEMENTS OF PRODUCTION. Each of the balance
sheets of Production included in the Offering Memorandum (including the related
notes and schedules) fairly presents, in all material respects, the financial
position of Production as of its date, and each of the statements of income and
changes in financial position included in the Offering Memorandum (including
any related notes and schedules) fairly presents the results of operations,
stockholders' equity, retained earning and changes in financial position, as
the case may be, of Production for the periods set forth therein (subject, in
the case of unaudited statements, to normal year-end audit adjustments not
material in amount of effect), in each case in accordance with generally
accepted accounting principles consistently applied during the periods
involved, except as may be noted therein. Since December 31, 1996, no
dividends, distributions, repurchases of interests or any other payment has
been made to any equityholder of Production as such. Production did not have
on December 31, 1996 or the date of any subsequent balance sheet of Production,
any material contingent liabilities, liabilities for taxes, obligations,
guarantees or unrealized or anticipated losses from any unfavorable
commitments, except as referred to or reflected or provided for in the balance
sheet, including the notes thereto, of Production as of said date. Since
December 31, 1996, there has been no material adverse change in the financial
condition, assets or operation of the business of Production.
SECTION 9.7 OWNERSHIP OF ENCINITAS. Production owns its general
partner interest in Encinitas free and clear of all Liens.
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SECTION 9.8 COMPLIANCE WITH LAWS. The operations of Production do not
violate any federal, state, local or other laws or regulations or any order or
requirement of any court or governmental agency or authority in any material
respect, including without limitation those laws, regulations, orders or
requirements relating to environment or health. Such operations are not
subject to any existing, pending or, to the knowledge of Production, threatened
action, suit, investigation, inquiry or proceeding by or before any court or
governmental agency or authority under any federal, state or local
environmental law, rule or regulation, except in each case for any matter that
would not have a material adverse effect on Production.
SECTION 9.9 LIMITED PARTNERS. To the knowledge of Production, as the
general partner of Encinitas, all of the Encinitas Limited Partners are
Accredited Investors.
ARTICLE X.
REPRESENTATIONS AND WARRANTIES OF ENCINITAS
Encinitas hereby represents and warrants the following to the Company.
Except as set forth on the Encinitas Disclosure Schedule, attached hereto as
Exhibit H:
SECTION 10.1 FORMATION; QUALIFICATION. Encinitas is a limited
partnership duly formed under Texas law and is validly existing and in good
standing under the laws of the State of Texas. Encinitas has all requisite
partnership power and authority to own, operate or lease its properties and to
carry on its business as now being conducted.
SECTION 10.2 CAPITALIZATION. Production is the sole general partner
of Encinitas and owns all the general partner interests in Encinitas free and
clear of all Liens. All the outstanding limited and general partner interests
of Encinitas are duly authorized, validly issued, fully paid to the extent
required under the Encinitas Partnership Agreement and nonassessable (except as
provided by Texas partnership law) and were issued free of preemptive rights.
Encinitas does not, and will not as of the Closing Date, have any outstanding
subscriptions, options or other arrangements or commitments obligating
Encinitas to issue any additional limited or general partner interests.
Immediately prior to the Encinitas Effective Time, there will be no outstanding
interests in Encinitas other than those set forth in the Encinitas Partnership
Agreement, a true and correct copy of which has heretofore been delivered to
the Company.
SECTION 10.3 NO CONFLICTS. Assuming the Encinitas Approvals,
consummation of the transactions contemplated hereby and compliance with the
terms and provisions of this Agreement will not materially conflict with,
result in a material breach of, require notice or consent under or constitute a
material breach under the Encinitas Partnership Agreement or the certificate of
limited partnership of Encinitas or any judgment, order, injunction, decree or
ruling of any court or governmental authority or under any material agreement,
indenture or instrument to which Encinitas or the general partner of Encinitas
is a party. No consent, approval, order or authorization of, or registration,
declaration or filing with, any court or governmental authority or other third
party is
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required on the part of Encinitas or the general partner of Encinitas in
connection with the execution and delivery of this Agreement or for the
consummation by Encinitas of the transactions contemplated by this Agreement,
other than the Encinitas Approvals. There are no agreements or arrangements
regarding the management or internal governance of Encinitas or relating to the
allocation of its assets, revenues or costs other than the Encinitas
Partnership Agreement.
SECTION 10.4 AUTHORITY AND AUTHORIZATION; BINDING EFFECT. Encinitas
has all requisite partnership power and authority to enter into and, subject
to the Encinitas Approvals, perform the provisions of this Agreement involving
Encinitas. The execution and delivery of this Agreement and the consummation
by Encinitas of the transactions contemplated hereby have been duly authorized
by all necessary partnership action on the part of Encinitas, subject to the
Encinitas Approvals. Subject to such approvals, this Agreement has been duly
executed and delivered by Encinitas and, assuming the due authorization,
execution and delivery hereof by the other parties hereto, constitutes a valid
and binding obligation of Encinitas enforceable against Encinitas in accordance
with its terms, subject to laws of general application relating to bankruptcy,
insolvency and the relief of debtors and rules of law governing specific
performance, injunctive relief or other equitable remedies.
SECTION 10.5 LITIGATION, ETC. (a) There is no action, claim or
proceeding pending or, to the knowledge of Encinitas, threatened, to which
Encinitas is or would be a party before any court or governmental authority
acting in an adjudicative capacity or any arbitrator or arbitration tribunal
with respect to which there is a reasonable likelihood of a determination
having, or which, insofar as reasonably can be foreseen, in the future would
have a material adverse effect on Encinitas, (b) Encinitas is not subject to
any outstanding order, writ, injunction or decree having, or which, insofar as
reasonably can be foreseen, in the future would have a material adverse effect
on Encinitas, and (c) there have been no claims made or actions or proceedings
brought against any officer or director of the general partner of Encinitas
arising out of or pertaining to any action or omission within the scope of his
employment or position as an officer or director of the general partner of
Encinitas, which claim, action or proceeding is material to Encinitas.
SECTION 10.6 FINANCIAL STATEMENTS OF ENCINITAS. Each of the balance
sheets of Encinitas included in the Offering Memorandum (including the related
notes and schedules) fairly presents, in all material respects, the financial
position of Encinitas as of its date, and each of the statements of income and
changes in financial position included in the Offering Memorandum (including
any related notes and schedules) fairly presents the results of operations,
partners' equity, retained earnings and changes in financial position, as the
case may be, of Encinitas for the periods set forth therein (subject, in the
case of unaudited statements, to normal year-end audit adjustments not material
in amount or effect), in each case in accordance with generally accepted
accounting principles consistently applied during the periods involved, except
as may be noted therein. Since December 31, 1996, no distributions, repurchases
of interests or any other payment has been made to any equityholder of
Encinitas as such. Encinitas did not have on December 31, 1996 or the date of
any subsequent balance sheet of Encinitas, any material contingent liabilities,
liabilities for taxes, obligations, guarantees or unrealized or anticipated
losses from any unfavorable commitments,
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except as referred to or reflected or provided for in the balance sheet,
including the notes thereto, of Encinitas as of said date. Since December 31,
1996, there has been no material adverse change in the financial condition,
assets or operation of the business of Encinitas.
SECTION 10.7 COMPLIANCE WITH LAWS. The operations of Encinitas do not
violate any federal, state, local or other laws or regulations or any order or
requirement of any court or governmental agency or authority in any material
respect, including without limitation those laws, regulations, orders or
requirements relating to environment or health. Such operations are not
subject to any existing, pending or, to the knowledge of Encinitas, threatened
action, suit, investigation, inquiry or proceeding by or before any court or
governmental agency or authority under any federal, state or local
environmental law, rule or regulation, except in each case for any matter that
would not have a material adverse effect on Encinitas.
SECTION 10.8 LIMITED PARTNERS. The general partner of Encinitas
believes, based upon its prior substantive relationship with each of the
Encinitas Limited Partners, that each of the Encinitas Limited Partners are
Accredited Investors and that each of the other representations and warranties
set forth on Exhibit B hereto are true and correct with respect to each of the
Encinitas Limited Partners to the same extent as if such limited partners had
signed such Exhibit B.
ARTICLE XI.
REPRESENTATIONS AND WARRANTIES OF LA ROSA
La Rosa hereby represents and warrants the following to the Company.
Except as set forth on the La Rosa Disclosure Schedule, attached hereto as
Exhibit I:
SECTION 11.1 FORMATION; QUALIFICATION. La Rosa is a limited
partnership duly formed under Texas law and is validly existing and in good
standing under the laws of the State of Texas. La Rosa has all requisite
partnership power and authority to own, operate or lease its properties and to
carry on its business as now being conducted.
SECTION 11.2 CAPITALIZATION. The Company is the sole general partner
of La Rosa and owns all the general partner interests in La Rosa free and clear
of all Liens. All the outstanding limited and general partner interests of La
Rosa are duly authorized, validly issued, fully paid to the extent required
under the La Rosa Partnership Agreement and nonassessable (except as provided
by Texas partnership law) and were issued free of preemptive rights. La Rosa
does not, and will not as of the Closing Date, have any outstanding
subscriptions, options or other arrangements or commitments obligating La Rosa
to issue any additional limited or general partner interests. Immediately
prior to the La Rosa Effective Time, there will be no outstanding interests in
La Rosa other than those set forth in the La Rosa Partnership Agreement, a true
and correct copy of which has heretofore been delivered to the Company.
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SECTION 11.3 NO CONFLICTS. Assuming the La Rosa Approvals,
consummation of the transactions contemplated hereby and compliance with the
terms and provisions of this Agreement will not materially conflict with,
result in a material breach of, require notice or consent under or constitute a
material breach under the La Rosa Partnership Agreement or the certificate of
limited partnership of La Rosa or any judgment, order, injunction, decree or
ruling of any court or governmental authority or under any material agreement,
indenture or instrument to which La Rosa or the general partner of La Rosa is a
party. No consent, approval, order or authorization of, or registration,
declaration or filing with, any court or governmental authority or other third
party is required on the part of La Rosa or the general partner of La Rosa in
connection with the execution and delivery of this Agreement or for the
consummation by La Rosa of the transactions contemplated by this Agreement,
other than the La Rosa Approvals. There are no agreements or arrangements
regarding the management or internal governance of La Rosa or relating to the
allocation of its assets, revenues or costs other than the La Rosa Partnership
Agreement.
SECTION 11.4 AUTHORITY AND AUTHORIZATION; BINDING EFFECT. La Rosa has
all requisite partnership power and authority to enter into and, subject to
the La Rosa Approvals, perform the provisions of this Agreement involving La
Rosa. The execution and delivery of this Agreement and the consummation by La
Rosa of the transactions contemplated hereby have been duly authorized by all
necessary partnership action on the part of La Rosa, subject to the La Rosa
Approvals. Subject to such approvals, this Agreement has been duly executed
and delivered by La Rosa and, assuming the due authorization, execution and
delivery hereof by the other parties hereto, constitutes a valid and binding
obligation of La Rosa enforceable against La Rosa in accordance with its terms,
subject to laws of general application relating to bankruptcy, insolvency and
the relief of debtors and rules of law governing specific performance,
injunctive relief or other equitable remedies.
SECTION 11.5 LITIGATION, ETC. (a) There is no action, claim or
proceeding pending or, to the knowledge of La Rosa, threatened, to which La
Rosa is or would be a party before any court or governmental authority acting
in an adjudicative capacity or any arbitrator or arbitration tribunal with
respect to which there is a reasonable likelihood of a determination having, or
which, insofar as reasonably can be foreseen, in the future would have a
material adverse effect on La Rosa, (b) La Rosa is not subject to any
outstanding order, writ, injunction or decree having, or which, insofar as
reasonably can be foreseen, in the future would have a material adverse effect
on La Rosa, and (c) there have been no claims made or actions or proceedings
brought against any officer or director of the general partner of La Rosa
arising out of or pertaining to any action or omission within the scope of his
employment or position as an officer or director of the general partner of La
Rosa, which claim, action or proceeding is material to La Rosa.
SECTION 11.6 FINANCIAL STATEMENTS OF LA ROSA. Each of the balance
sheets of La Rosa included in the Offering Memorandum (including the related
notes and schedules) fairly presents, in all material respects, the financial
position of La Rosa as of its date, and each of the statements of income and
changes in financial position included in the Offering Memorandum (including
any related notes and schedules) fairly presents the results of operations,
partners' equity, retained earnings and changes in financial position, as the
case may be, of La Rosa for the periods set forth
27
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therein (subject, in the case of unaudited statements, to normal year-end audit
adjustments not material in amount or effect), in each case in accordance with
generally accepted accounting principles consistently applied during the
periods involved, except as may be noted therein. Since December 31, 1996, no
distributions, repurchases of interests or any other payment has been made to
any equityholder of La Rosa as such. La Rosa did not have on December 31, 1996
or the date of any subsequent balance sheet of La Rosa, any material contingent
liabilities, liabilities for taxes, obligations, guarantees or unrealized or
anticipated losses from any unfavorable commitments, except as referred to or
reflected or provided for in the balance sheet, including the notes thereto, of
La Rosa as of said date. Since December 31, 1996, there has been no material
adverse change in the financial condition, assets or operation of the business
of La Rosa.
SECTION 11.7 COMPLIANCE WITH LAWS. The operations of La Rosa do not
violate any federal, state, local or other laws or regulations or any order or
requirement of any court or governmental agency or authority in any material
respect, including without limitation those laws, regulations, orders or
requirements relating to environment or health. Such operations are not
subject to any existing, pending or, to the knowledge of La Rosa, threatened
action, suit, investigation, inquiry or proceeding by or before any court or
governmental agency or authority under any federal, state or local
environmental law, rule or regulation, except in each case for any matter that
would not have a material adverse effect on La Rosa.
SECTION 11.8 LIMITED PARTNERS. The general partner of La Rosa
believes, based upon its prior substantive relationship with each of the La
Rosa Limited Partners, that each of the La Rosa Limited Partners are Accredited
Investors and that each of the other representations and warranties set forth
on Exhibit B hereto are true and correct with respect to each of the La Rosa
Limited Partners to the same extent as if such limited partners had signed such
Exhibit B.
ARTICLE XII.
REPRESENTATIONS AND WARRANTIES OF CARRIZO PARTNERS
Carrizo Partners hereby represents and warrants the following to the
Company. Except as set forth on the Carrizo Partners Disclosure Schedule,
attached hereto as Exhibit J:
SECTION 12.1 FORMATION; QUALIFICATION. Carrizo Partners is a limited
partnership duly formed under Texas law and is validly existing and in good
standing under the laws of the State of Texas. Carrizo Partners has all
requisite partnership power and authority to own, operate or lease its
properties and to carry on its business as now being conducted.
SECTION 12.2 CAPITALIZATION. The Company is the sole general partner
of Carrizo Partners and owns all the general partner interests in Carrizo
Partners free and clear of all Liens. All the outstanding limited and general
partner interests of Carrizo Partners are duly authorized, validly issued,
fully paid to the extent required under the Carrizo Partners Partnership
Agreement and nonassessable (except as provided by Texas partnership law) and
were issued free of preemptive rights. Carrizo Partners does not, and will not
as of the Closing Date, have any outstanding
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subscriptions, options or other arrangements or commitments obligating Carrizo
Partners to issue any additional limited or general partner interests.
Immediately prior to the Carrizo Partners Effective Time, there will be no
outstanding interests in Carrizo Partners other than those set forth in the
Carrizo Partners Partnership Agreement, a true and correct copy of which has
heretofore been delivered to the Company.
SECTION 12.3 NO CONFLICTS. Assuming the Carrizo Partners Approvals,
consummation of the transactions contemplated hereby and compliance with the
terms and provisions of this Agreement will not materially conflict with,
result in a material breach of, require notice or consent under or constitute a
material breach under the Carrizo Partners Partnership Agreement or the
certificate of limited partnership of Carrizo Partners or any judgment, order,
injunction, decree or ruling of any court or governmental authority or under
any material agreement, indenture or instrument to which Carrizo Partners or
the general partner of Carrizo Partners is a party. No consent, approval,
order or authorization of, or registration, declaration or filing with, any
court or governmental authority or other third party is required on the part of
Carrizo Partners or the general partner of Carrizo Partners in connection with
the execution and delivery of this Agreement or for the consummation by Carrizo
Partners of the transactions contemplated by this Agreement, other than the
Carrizo Partners Approvals. There are no agreements or arrangements regarding
the management or internal governance of Carrizo Partners or relating to the
allocation of its assets, revenues or costs other than the Carrizo Partners
Partnership Agreement.
SECTION 12.4 AUTHORITY AND AUTHORIZATION; BINDING EFFECT. Carrizo
Partners has all requisite partnership power and authority to enter into and,
subject to the Carrizo Partners Approvals, perform the provisions of this
Agreement involving Carrizo Partners. The execution and delivery of this
Agreement and the consummation by Carrizo Partners of the transactions
contemplated hereby have been duly authorized by all necessary partnership
action on the part of Carrizo Partners, subject to the Carrizo Partners
Approvals. Subject to such approvals, this Agreement has been duly executed
and delivered by Carrizo Partners and, assuming the due authorization,
execution and delivery hereof by the other parties hereto, constitutes a valid
and binding obligation of Carrizo Partners enforceable against Carrizo Partners
in accordance with its terms, subject to laws of general application relating
to bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief or other equitable remedies.
SECTION 12.5 LITIGATION, ETC. (a) There is no action, claim or
proceeding pending or, to the knowledge of Carrizo Partners, threatened, to
which Carrizo Partners is or would be a party before any court or governmental
authority acting in an adjudicative capacity or any arbitrator or arbitration
tribunal with respect to which there is a reasonable likelihood of a
determination having, or which, insofar as reasonably can be foreseen, in the
future would have a material adverse effect on Carrizo Partners, (b) Carrizo
Partners is not subject to any outstanding order, writ, injunction or decree
having, or which, insofar as reasonably can be foreseen, in the future would
have a material adverse effect on Carrizo Partners, and (c) there have been no
claims made or actions or proceedings brought against any officer or director
of the general partner of Carrizo Partners arising out of or pertaining
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<PAGE> 35
to any action or omission within the scope of his employment or position as an
officer or director of the general partner of Carrizo Partners, which claim,
action or proceeding is material to Carrizo Partners.
SECTION 12.6 FINANCIAL STATEMENTS OF CARRIZO PARTNERS. Each of the
balance sheets of Carrizo Partners included in the Offering Memorandum
(including the related notes and schedules) fairly presents, in all material
respects, the financial position of Carrizo Partners as of its date, and each
of the statements of income and changes in financial position included in the
Offering Memorandum (including any related notes and schedules) fairly presents
the results of operations, partners' equity, retained earnings and changes in
financial position, as the case may be, of Carrizo Partners for the periods set
forth therein (subject, in the case of unaudited statements, to normal year-end
audit adjustments not material in amount or effect), in each case in accordance
with generally accepted accounting principles consistently applied during the
periods involved, except as may be noted therein. Since December 31, 1996, no
distributions, repurchases of interests or any other payment has been made to
any equityholder of Carrizo Partners as such. Carrizo Partners did not have on
December 31, 1996 or the date of any subsequent balance sheet of Carrizo
Partners, any material contingent liabilities, liabilities for taxes,
obligations, guarantees or unrealized or anticipated losses from any
unfavorable commitments, except as referred to or reflected or provided for in
the balance sheet, including the notes thereto, of Carrizo Partners as of said
date. Since December 31, 1996, there has been no material adverse change in
the financial condition, assets or operation of the business of Carrizo
Partners.
SECTION 12.7 OWNERSHIP OF PLACEDO PARTNERS LTD. Carrizo Partners
owns its fifty percent (50%) limited partner interest in Placedo Partners Ltd.
free and clear of all Liens.
SECTION 12.8 COMPLIANCE WITH LAWS. The operations of Carrizo Partners
do not violate any federal, state, local or other laws or regulations or any
order or requirement of any court or governmental agency or authority in any
material respect, including without limitation those laws, regulations, orders
or requirements relating to environment or health. Such operations are not
subject to any existing, pending or, to the knowledge of Carrizo Partners,
threatened action, suit, investigation, inquiry or proceeding by or before any
court or governmental agency or authority under any federal, state or local
environmental law, rule or regulation, except in each case for any matter that
would not have a material adverse effect on Carrizo Partners.
SECTION 12.9 LIMITED PARTNERS. The general partner of Carrizo
Partners believes, based upon its prior substantive relationship with each of
the Carrizo Partners Limited Partners, that each of the Carrizo Partners
Limited Partners are Accredited Investors and that each of the other
representations and warranties set forth on Exhibit B hereto are true and
correct with respect to each of the Carrizo Partners Limited Partners to the
same extent as if such limited partners had signed such Exhibit B.
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<PAGE> 36
ARTICLE XIII.
COVENANTS AND AGREEMENTS
SECTION 13.1 EQUITYHOLDER APPROVAL. (a) The Company shall, as
promptly as practicable, submit this Agreement and the transactions
contemplated hereby for the approval of its shareholders (the "Company
Shareholder Approval") and, subject to the fiduciary duties of the Board of
Directors of the Company under applicable law, shall use its reasonable best
efforts to obtain shareholder approval and adoption of this Agreement and the
transactions contemplated hereby.
(b) Production shall, as promptly as practicable, submit this
Agreement and the Production Merger for the approval of its shareholders (the
"Production Shareholder Approval") and, subject to the fiduciary duties of the
Board of Directors of the Company under applicable law, shall use its
reasonable best efforts to obtain shareholder approval and adoption of this
Agreement and the transactions contemplated hereby.
(c) Subject to its fiduciary duties as a general partner under
applicable law, Production, as general partner of Encinitas, shall, as promptly
as practicable, recommend the Encinitas Approvals to the limited partners of
Encinitas, and shall use its reasonable best efforts to obtain such approvals.
(d) Subject to its fiduciary duties as a general partner under
applicable law, the Company, as general partner of La Rosa, shall, as promptly
as practicable, recommend the La Rosa Approvals to the limited partners of La
Rosa, and shall use its reasonable best efforts to obtain such approvals.
(e) Subject to its fiduciary duties as a general partners under
applicable law, the Company, as general partner of Carrizo Partners, shall, as
promptly as practicable, recommend the Carrizo Partners Approvals to the
limited partners of Carrizo Partners, and shall use its reasonable best efforts
to obtain such approvals.
SECTION 13.2 CONDUCT OF BUSINESS. Production, Encinitas, La Rosa and
Carrizo Partners agree that prior to the Closing, and except as otherwise
contemplated herein or consented to in writing by the Company or as relates to
the Offering, each shall (a) conduct its business in the ordinary course and
shall use reasonable efforts to preserve intact its present business
organization, maintain the services of its present officers and employees and
preserve the relations with its customers, suppliers and others having business
relations with it; (b) except as set forth on a Disclosure Schedule attached
hereto, not pay or declare dividends or other distributions, split, combine or
otherwise reclassify its capital stock or partnership interests or directly or
indirectly repurchase or otherwise acquire shares of its capital stock or
partnership interests; (c) not issue any capital stock, partnership interests
or debt securities having voting rights for directors or any rights, options,
securities convertible or exchangeable therefor, except under existing employee
stock option plans or presently outstanding convertible or exchangeable
securities; and (d) not amend or modify its certificates or articles of
incorporation, by-laws, partnership agreements or other governing
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<PAGE> 37
documents, except for the Encinitas Partnership Agreement Amendment, the La
Rosa Partnership Agreement Amendment and the Carrizo Partners Partnership
Agreement Amendment.
SECTION 13.3 THIRD PARTY CONSENTS. Each of the parties hereto will
use its best efforts to obtain such consents of third parties to agreements
which would otherwise be violated by any provisions hereof, to take all actions
necessary to effect the transactions contemplated hereby, and to make such
filings with governmental authorities necessary to consummate the transactions
contemplated by this Agreement including, without limitation, the execution and
delivery of any additional instruments reasonably necessary to consummate the
transactions contemplated by this Agreement.
ARTICLE XIV.
CONDITIONS
SECTION 14.1 CONDITIONS TO THE OBLIGATIONS OF ALL PARTIES TO EFFECT
THE COMBINATION TRANSACTIONS. The respective obligations of each of the
parties to effect the Combination Transactions shall be subject to the
fulfillment (or waiver) at or prior to the Closing of the following conditions:
(a) Initial Public Offering. The Offering shall occur prior to or
simultaneously with the Closing.
(b) Company Shareholder Approval. The approval of the
shareholders of the Company to this Agreement and the transactions contemplated
hereby shall have been obtained.
SECTION 14.2 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND EACH OF
THE FOUNDERS TO EFFECT THE ENCINITAS PURCHASE. The respective obligations of
the Company and each of the Founders to effect the Encinitas Purchase shall be
subject to the fulfillment (or waiver) at or prior to the Closing of the
following additional conditions:
(a) No Orders. There shall not be issued and in effect any order
restraining, prohibiting or delaying consummation of the Encinitas Purchase.
SECTION 14.3 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND
PRODUCTION TO EFFECT THE PRODUCTION MERGER. The respective obligations of the
Company and Production to effect the Production Merger shall be subject to the
fulfillment (or waiver) at or prior to the Production Effective Time of the
following additional conditions:
(a) No Orders. There shall not be issued and in effect any order
restraining, prohibiting or delaying consummation of the Production Merger.
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<PAGE> 38
(b) Production Shareholder Approval. The approval of the
shareholders of Production to this Agreement and the Production Merger shall
have been obtained.
SECTION 14.4 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND
ENCINITAS TO EFFECT THE ENCINITAS MERGER. The respective obligations of the
Company and Encinitas to effect the Encinitas Merger shall be subject to the
fulfillment (or waiver) at or prior to the Encinitas Effective Time of the
following additional conditions:
(a) No Orders. There shall not be issued and in effect any order
restraining, prohibiting or delaying consummation of the Encinitas Merger.
(b) Encinitas Approvals. The Encinitas Approvals shall have been
obtained.
SECTION 14.5 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND LA ROSA
TO EFFECT THE LA ROSA MERGER. The respective obligations of the Company and La
Rosa to effect the La Rosa Merger shall be subject to the fulfillment (or
waiver) at or prior to the La Rosa Effective Time of the following additional
conditions:
(a) No Orders. There shall not be issued and in effect any order
restraining, prohibiting or delaying consummation of the La Rosa Merger.
(b) La Rosa Approvals. The La Rosa Approvals shall have been
obtained.
SECTION 14.6 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND CARRIZO
PARTNERS TO EFFECT THE CARRIZO PARTNERS MERGER. The respective obligations of
the Company and Carrizo Partners to effect the Carrizo Partners Merger shall be
subject to the fulfillment (or waiver) at or prior to the Carrizo Partners
Effective Time of the following additional conditions:
(a) No Orders. There shall not be issued and in effect any order
restraining, prohibiting or delaying consummation of the Carrizo Partners
Merger.
(b) Carrizo Partners Approvals. The Carrizo Partners Approvals
shall have been obtained.
SECTION 14.7 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY TO EFFECT
ANY OF THE COMBINATION TRANSACTIONS. The obligations of the Company to effect
any of the Combination Transactions shall be subject to the fulfillment (or
waiver) at or prior to the Closing of the following additional conditions:
(a) Accuracy of Representations and Warranties. The
representations and warranties of each of the Founders, Production, Encinitas,
La Rosa and Carrizo Partners contained in Articles VIII, IX, X, XI and XII,
respectively, shall be true and correct in all material respects on and as of
the Closing as if made on and as of such time (except for representation and
warranties made of as a
33
<PAGE> 39
specified date or time, which shall be true and correct in all material
respects as of such specified date or time); at the Closing each of the
Founders, Production, Encinitas, La Rosa and Carrizo Partners shall deliver a
certificate signed by such party, or an officer or general partner thereof (as
applicable), certifying the foregoing.
(b) Performance of Covenants. The Founders, Production,
Encinitas, La Rosa and Carrizo Partners shall have performed and complied in
all material respect with the covenants and agreements contained in this
Agreement that are required to be performed or complied with by it on or prior
to the Closing.
(c) Combination Transactions Closings. Each of the Combination
Transactions shall close.
SECTION 14.8 OTHER COMBINATION TRANSACTIONS. For further clarity,
the parties hereby acknowledge that it is not a condition to the obligation of
any party (other than the Company) to consummate any Combination Transactions
that any other Combination Transactions is consummated.
ARTICLE XV.
TERMINATION
SECTION 15.1 TERMINATION. This Agreement may be terminated and the
Combination contemplated hereby may be abandoned at any time prior to the
Effective Time, whether before or after approval of any other matter by any
equityholder of the parties:
SECTION (a) By mutual consent of the Company, Production,
Encinitas, La Rosa and Carrizo Partners, including, without limitation, for the
purpose of engaging in another transaction involving the merger or sale or
other business combination of one or more of such entities into any other
entity or another similar transaction;
SECTION (b) By the Company, if a court of competent jurisdiction
or governmental, regulatory or administrative agency or commission shall have
issued an order, decree or ruling or taken any other action, in each case
permanently restraining, enjoining or otherwise prohibiting the Combination
Transactions contemplated by this Agreement; or
(c) By the Company, if the Company determines that there is a
reasonable probability that the Offering or the Combination Transactions will
not be consummated on or prior to December 31, 1997.
SECTION 15.2 EFFECT OF TERMINATION. In the event of termination of
this Agreement by a party as provided in Section 15.1, written notice thereof
shall promptly be given to the other parties,
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and this Agreement shall forthwith terminate without further action of the
parties hereto. If this Agreement is terminated as provided, however, there
shall be no liabilities or obligations hereunder on the part of the parties,
except that nothing herein shall relieve any party hereto from liability for
any breach of this Agreement that resulted in the termination.
ARTICLE XVI.
MISCELLANEOUS AND GENERAL
SECTION 16.1 SURVIVAL. The representations and warranties in
Articles VII, IX, X, XI and XII and any statement made in any certificate
required under Section 14.7 shall expire at the Effective Time, and the
representations and warranties in Article VIII shall survive the Effective
Time.
SECTION 16.2 MODIFICATION OR AMENDMENT. At any time before or after
approval of any matter by any equityholder of the parties, the parties hereto
may modify, waive or amend this Agreement by written agreement executed and
delivered by duly authorized representatives of the respective parties.
SECTION 16.3 RESTRICTIONS ON TRANSFER; LEGENDS. Prior to any proposed
transfer (whether by sale, assignment, pledge or otherwise) of Shares, the
proposed transferor (the "Transferor") will give written notice to the Company
of his intention to effect such transfer. Each such notice shall describe the
manner and circumstances of the proposed transfer in sufficient detail, and
shall be accompanied by a written opinion of legal counsel who shall be
reasonably satisfactory to the Company, addressed to the Company, to the effect
that the proposed transfer of the securities in question may be effected
without registration under the Securities Act, and that such proposed transfer
does call into question the exemption from registration under which such Shares
were initially issued by the Company. Any such legal opinion must be
reasonably satisfactory to the Company and must state that it may also be
relied upon by any transfer agent, stock exchange or counsel to the Company.
The Company may also require a certificate of the Transferor that certifies as
to matters that assist the Company in establishing compliance with securities
laws at the time of the original issuance of the Shares as well as at the time
of the proposed transfer (including without limitation, the representations set
forth on Exhibit B attached hereto). Upon compliance with the terms hereof to
the satisfaction of the Company, the Transferor shall be entitled to transfer
such securities in accordance with the terms of the notice delivered by the
Transferor to the Company. Each certificate evidencing the Shares so
transferred shall bear an appropriate restrictive legend reasonably deemed
appropriate by the Company, including any appropriate legend relating to the
restrictions and obligations under this Agreement. The Transferor will, prior
to any transfer (unless such transfer is made pursuant to Rule 144 or an
effective registration statement under the Securities Act), cause any
transferee of the Shares, to enter into an agreement with the Company that the
transferee will take and hold such securities subject to the provisions and
upon the conditions specified herein. Without limiting the generality of any
other provision hereof, the provisions of this Section 16.3 shall be binding on
successive transferees. The Company shall have no obligation to
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<PAGE> 41
effect any transfer on its books and records (and no such attempted transfer
shall be effective) unless such transfer is made in accordance with the terms
hereof. The Company may issue stop transfer instructions to any transfer agent
for the Common Stock in order to implement any restriction on transfer
contemplated by this Agreement. The Shares shall contain the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN OPINION OF COUNSEL SATISFACTORY TO
THE COMPANY AS TO THE AVAILABILITY OF AN EXEMPTION FROM REGISTRATION
THAT SUCH REGISTRATION IS NOT REQUIRED AND THAT ANY PROSPECTUS
DELIVERY REQUIREMENTS ARE NOT APPLICABLE. THE SHARES WERE (1) ISSUED
PURSUANT TO AN AGREEMENT AND (2) ARE SUBJECT TO PROVISIONS OF THE
BYLAWS OF THE COMPANY, BOTH OF WHICH INCLUDE ADDITIONAL RESTRICTIONS
ON THEIR TRANSFER AND COPIES OF SUCH AGREEMENT AND AMENDED AND
RESTATED BYLAWS MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY
THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE
COMPANY AT THE PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY.
SECTION 16.4 INDEMNIFICATION. (a) Whether or not any of the
Combination Transactions are consummated, the Company hereby agrees to
indemnify the directors and officers of the Company and Production, acting in
their capacity as an officer or director, as the case may be, of the Company or
Production, respectively, in its own capacity or in its capacity as the general
partner of Encinitas, La Rosa or Carrizo Partners (each an "Indemnitee"), and
hold the Indemnitees harmless from and against, and shall reimburse them on
demand for, any and all losses, damages, liabilities, claims, demands,
deficiencies, judgements, settlements, whether or not arising out of
third-party claims, including without limitation the reasonable fees and
expenses of counsel and other related costs and expenses ("Losses") resulting
from or arising out of the Combination Transactions, including but not limited
to (i) all liabilities of the Company, Production, Encinitas, La Rosa and
Carrizo Partners in connection with the Combination Transactions and (ii) any
liabilities to the limited partners of Encinitas, La Rosa or Carrizo Partners
in connection with the Combination Transactions; provided that the Company
shall not be required by this Agreement to indemnify (1) the officers and
directors of the Company or Production to the extent that the Company or
Production breaches this Agreement or the officers and directors of the Company
or Production in such entities' capacity as general partners of Encinitas, La
Rosa or Carrizo Partners to the extent that Encinitas, La Rosa or Carrizo
Partners, as the case may be, breaches this agreement for Losses resulting from
the termination or breach of this Agreement ("Termination Related Losses") in
the event that this Agreement shall be terminated pursuant to Section 15.1(c)
as a result of such breach of this Agreement by the Company, Production,
Encinitas, La Rosa or Production, as applicable or (2) (without limiting the
generality of any other clause hereof) any Indemnitee for any Losses to such
36
<PAGE> 42
Indemnitee resulting from, arising out of or in such Indemnitee's capacity as
an equityholder of any of the parties hereto ("Equityholder Losses").
(b) If a claim by a third party is made against a party
indemnified pursuant to this Section 16.4, and if such indemnified party
intends to seek indemnity with respect thereto under this Section 16.4, the
indemnified party shall promptly notify the indemnifying party of such claim;
provided that the failure of the indemnified party to notify the indemnifying
party of any such claim shall not relieve the indemnifying party of its
obligations under this Section 16.4, except to the extent the indemnifying
party is actually prejudiced by such failure. In case any action or proceeding
including any such claim is brought against the indemnified party, the
indemnifying party shall be entitled to participate therein and to assume the
defense thereof with counsel reasonably satisfactory to the indemnified party
to the extent it may wish; provided, that, in the event the indemnifying party
so assumes the defense, the indemnified party shall still have the right to
employ separate counsel at its own expense in any such action and to
participate in the defense thereof. Without the prior written consent of the
indemnified party, which consent shall not unreasonably be withheld, the
indemnifying party will not consent to the entry of any judgment or enter into
any settlement of any such claim which does not include as an unconditional
term thereof the giving by the claimant or plaintiff thereof to such
indemnified party of a release from any and all liability in respect of such
claim or litigation. The indemnified party will not enter into any settlement
or pay (except pursuant to a final court order or judgment) any such claim
without the prior written consent of the indemnifying party, which consent
shall not be unreasonably withheld. Notwithstanding the foregoing, the
indemnified party shall have the right to pay or settle any such claim,
provided that in such event it shall waive any right to indemnity therefor by
the indemnifying party or parties.
(c) Without limiting the generality of any other provision
hereunder, it is the express intent of this Agreement that the Indemnitees be
indemnified regardless of such Indemnitee's acts of negligence or gross
negligence, to the extent that such indemnification is allowed pursuant to the
terms of this Agreement; provided, that, notwithstanding the foregoing or any
other provision hereof, the Company shall not indemnify any Indemnitee under
this Section 16.4 for any action taken or any failure to act by such Indemnitee
after the date of this Agreement if such action or failure to act is in
material breach of any provision hereof or if such action or inaction
constituted intentional misconduct or a willful violation of law.
SECTION 16.5 STOCK SPLITS. The consideration to be received in the
Combination Transaction is based upon the number of shares of Common Stock that
will be outstanding following the 521-for-one stock split described in Section
7.2. The Company may change such consideration to make an appropriate
adjustment to reflect any other subsequent stock split, stock dividend, reverse
stock split or reclassification of shares, but need not make any other
adjustment in respect of any other distribution or transaction. The provisions
of this Section shall apply notwithstanding any other provision of this
Agreement to the contrary contained herein or in any attachment or Exhibit
thereto.
SECTION 16.6 NO RIGHTS AS SHAREHOLDER. Prior to the time that Common
Stock is issued in accordance with the terms hereof, nothing contained in this
Agreement shall be construed as
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conferring upon any person any rights as a shareholder of the Company,
including without limitation the right to vote, receive distributions, call
meetings, consent or receive notices as a shareholder in respect of any meeting
of shareholders or imposing any fiduciary or other duty on the Company, its
officers, directors or shareholders, in favor of such person, all of which
rights and duties are expressly disclaimed and waived with respect to such
person.
SECTION 16.7 FURTHER ASSURANCES. The parties hereto without
additional consideration shall execute and deliver or shall cause to be
executed and delivered such further documents and certificates and to take such
further actions as may be reasonably required or desirable to carry out the
provisions of this Agreement and consummate the transactions contemplated
hereby, and if an entity, such party shall its reasonable best efforts to cause
its equity holders to do the same. In particular, without limiting the
generality of the foregoing sentence, at any time after the Closing, any party
hereto will execute and deliver or shall cause to be executed and delivered any
deeds, bills of sale, assignments, assurances, or any other actions or things
as are necessary or desirable to vest, perfect, or confirm of record or
otherwise in the Company its rights, title, or interest in, to, or under any of
the rights, properties, or assets acquired or to be acquired by the Company as
a result of or in connection with the Combination Transactions or otherwise to
carry out this Agreement, and will give any additional information and execute
any reasonably requested certificate or document in order to ensure compliance
with applicable securities laws with respect to the transactions contemplated
hereby.
SECTION 16.8 ENTIRE AGREEMENT, ETC. This Agreement (a) constitutes
the entire agreement, and supersedes all other prior agreements and
understandings, both written and oral, among the parties, with respect to the
subject matter hereof, and (b) shall not be assignable by any party and (c) is
not intended to create any obligations to, or rights in respect of, any persons
other than the parties hereto and the Indemnitees as described in Section 16.4.
SECTION 16.9 CONSTRUCTION. As used herein the phrase "the
transactions contemplated hereby" and similar phrases shall refer to the
transactions to be effected pursuant to this Agreement, but specifically shall
not include the Offering.
SECTION 16.10 NOTICES. Any notice or other communication required or
permitted under this Agreement shall be by facsimile actually received or in
writing and mailed by certified or registered mail, return receipt requested,
postage prepaid. Any such notice shall be deemed given upon its receipt at the
following address:
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<PAGE> 44
<TABLE>
<S> <C> <C> <C>
(a) If the Company: (b) If to Production:
Carrizo Oil & Gas, Inc. Production, Inc.
14811 St. Mary's Lane, Suite 148 14811 St. Mary's Lane, Suite 148
Houston, Texas 77079 Houston, Texas 77079
Attn: President Attn: President
Tel: (281) 496-1352 Tel: (281) 496-1352
Fax: (281) 496-0884 Fax: (281) 496-0884
with a copy to: with a copy to:
Gene J. Oshman Gene J. Oshman
Baker & Botts, L.L.P. Baker & Botts, L.L.P.
3000 One Shell Plaza 3000 One Shell Plaza
910 Louisiana 910 Louisiana
Houston, Texas 77002 Houston, Texas 77002
Tel: (713) 229-1178 Tel: (713) 229-1178
Fax: (713) 229-1522 Fax: (713) 229-1522
(c) If to Encinitas: (d) If to La Rosa:
Encinitas Partners Ltd. La Rosa Partners Ltd.
14811 St. Mary's Lane, Suite 148 14811 St. Mary's Lane, Suite 148
Houston, Texas 77079 Houston, Texas 77079
Attn: President Attn: President
Tel: (281) 496-1352 Tel: (281) 496-1352
Fax: (281) 496-0884 Fax: (281) 496-0884
(e) If to Carrizo Partners Ltd.: (f) If to a Founder:
Carrizo Partners Ltd. [Founder]
14811 St. Mary's Lane, Suite 148 c/o Carrizo Oil & Gas, Inc.
Houston, Texas 77079 14811 St. Mary's Lane, Suite 148
Attn: President Houston, Texas 77079
Tel: (281) 496-1352 Attn: President
Fax: (281) 496-0884 Tel: (281) 496-1352
Fax: (281) 496-0884
</TABLE>
Any party may, by notice given in accordance with this section to the other
parties, designate another address or person for receipt of notices hereunder.
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SECTION 16.11 CAPTIONS. The article, section and paragraph captions
herein are for convenience of reference only, do not constitute part of this
Agreement and shall not be deemed to limit or otherwise affect any of the
provisions hereof.
SECTION 16.12 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each such counterpart being deemed to be an original,
and all such counterparts taken together shall constitute the same agreement.
SECTION 16.13 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
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IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the parties hereto on the date first hereinabove written.
CARRIZO OIL & GAS, INC, CARRIZO PRODUCTION, INC.,
a Texas corporation a Texas corporation
By: /s/ S.P. JOHNSON IV By: /s/ S.P. JOHNSON IV
--------------------------------- ---------------------------------
Name: Name:
Title: Title:
ENCINITAS PARTNERS LTD. LA ROSA PARTNERS LTD.
By: Carrizo Production, Inc., By: Carrizo Oil & Gas, Inc.,
a Texas corporation a Texas corporation
Title: General Partner Title: General Partner
By: /s/ S.P. JOHNSON IV By: /s/ S.P. JOHNSON IV
------------------------ -------------------------
Name: Name:
Title: Title:
CARRIZO PARTNERS LTD.
By: Carrizo Oil & Gas, Inc.,
a Texas corporation
Title: General Partner
By: /s/ S.P. JOHNSON IV
------------------------
Name:
Title:
[Signature Page to Combination Agreement among Carrizo Oil & Gas, Inc., a Texas
corporation, Carrizo Production, Inc., a Texas corporation, Encinitas
Partners Ltd., a Texas limited partnership, La Rosa Partners
Ltd., a Texas limited partnership, Carrizo Partners
Ltd., a Texas limited partnership, and
Paul B. Loyd, Jr., Steven A. Webster,
Sylvester P. Johnson, IV, Douglas
A. P. Hamilton and Frank A. Wojtek]
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<PAGE> 47
FOUNDERS
/s/ PAUL B. LOYD, JR.
- ---------------------------------
Paul B. Loyd, Jr.
/s/ STEVEN A. WEBSTER
- ---------------------------------
Steven A. Webster
/s/ SYLVESTER P. JOHNSON, IV
- ---------------------------------
Sylvester P. Johnson, IV
/s/ DOUGLAS A.P. HAMILTON
- ---------------------------------
Douglas A.P. Hamilton
/s/ FRANK A. WOJTEK
- ---------------------------------
Frank A. Wojtek
[Signature Page to Combination Agreement among Carrizo Oil & Gas, Inc., a Texas
corporation, Carrizo Production, Inc., a Texas corporation, Encinitas
Partners Ltd., a Texas limited partnership, La Rosa Partners Ltd.,
a Texas limited partnership, Carrizo Partners Ltd., a Texas
limited partnership, and Paul B. Loyd, Jr., Steven A.
Webster, Sylvester P. Johnson, IV, Douglas A. P.
Hamilton and Frank A. Wojtek]
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<PAGE> 48
SCHEDULES
The schedules have been intentionally omitted herefrom. The
Company will furnish supplementally a copy of any or all of such omitted
schedules to the Commission upon request.
<PAGE> 49
EXHIBIT A
PLAN OF MERGER
MERGING
CARRIZO PRODUCTION, INC.
(A TEXAS CORPORATION)
WITH AND INTO
CARRIZO OIL & GAS, INC.
(A TEXAS CORPORATION)
This Plan of Merger (this "Plan") is between Carrizo Production,
Inc., a Texas corporation ("Production"), and Carrizo Oil & Gas, Inc., a Texas
corporation ("Carrizo Oil & Gas") (Production and Carrizo Oil & Gas being
hereinafter collectively referred to as the "Constituent Corporations").
W I T N E S S E T H:
WHEREAS, Production is a corporation duly organized and existing
under the laws of the State of Texas with an authorized capital of 100,000
shares of common stock, par value $.01 per share ("Production Common Stock"),
of which 4,900 shares are issued and outstanding; and
WHEREAS, Carrizo Oil & Gas is a corporation duly organized and
existing under the laws of the State of Texas with an authorized capital of (a)
40,000,000 shares of common stock, par value $.01 per share ("Common Stock"),
of which 5,210,000 shares are issued and outstanding and (b) 10,000,000 shares
of Preferred Stock, par value $.01 per share, of which no shares are issued and
outstanding; and
WHEREAS, Production and Carrizo Oil & Gas are parties to a
certain Combination Agreement dated as of June 6, 1997 (the "Combination
Agreement"); and
WHEREAS, each of the boards of directors of the Constituent
Corporations deems it advisable and in the best interest of each of such
corporations and their respective shareholders that Production be merged with
and into Carrizo Oil & Gas under and pursuant to the Texas Business Corporation
Act (the "TBCA") as contemplated herein (the "Merger") and accordingly has
approved this Plan and recommended that the shareholders of such corporation
approve this Plan; and
WHEREAS, no shareholder of Production will become personally
liable for the liabilities or obligations of any other person or entity as a
result of the Merger;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained, the parties hereto have agreed and
do hereby agree, subject to the conditions hereinafter set forth, as follows:
<PAGE> 50
ARTICLE I
MERGER AND NAME OF SURVIVING CORPORATION
At the Effective Time, as hereinafter defined, Production shall
be merged with and into Carrizo Oil & Gas, and Carrizo Oil & Gas is hereby also
designated as the "Surviving Corporation" and shall not be a new corporation
and shall continue its corporate existence as a Texas corporation governed by
the laws of the State of Texas.
ARTICLE XVIII
TERMS AND CONDITIONS OF MERGER
At the Effective Time, the Merger shall have the effect specified
in the TBCA with respect to Production and with respect to the Surviving
Corporation.
ARTICLE XVIIII
MANNER AND BASIS OF CONVERTING SHARES
(a) Subject to paragraph (a) of Article VII hereof and
paragraph (d) of this Article III, at the Effective Time, each share of
Production Common Stock issued and outstanding immediately prior to the
Effective Time, other than Production Common Stock that is to be canceled
pursuant to paragraph (b) of this Article III, shall be converted into and
represent the right to receive 70 shares of Common Stock (the "Production
Merger Consideration").
(b) At the Effective Time, each share of Production Common
Stock that is held by Production or any subsidiary thereof as treasury stock
immediately prior to the Effective Time shall be canceled, and no payment shall
be made with respect thereto.
(c) At the Effective Time, each share of Common Stock
outstanding immediately prior to the Effective Time shall remain outstanding
and continue unchanged as one share of Common Stock.
(d) No fractional shares of Common Stock shall be issued in
the Merger. Each holder of shares of Production Common Stock will be issued a
whole share of Common Stock in lieu of any fractional share interest to which
such holder would otherwise be entitled.
ARTICLE IV
ARTICLES OF INCORPORATION, BYLAWS
AND OFFICERS AND DIRECTORS
(a) The Articles of Incorporation of Carrizo Oil & Gas in
effect immediately prior to the Effective Time shall be and constitute the
Articles of Incorporation of the Surviving Corporation, until duly amended in
accordance with the terms thereof and the TBCA.
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<PAGE> 51
(b) The Bylaws of Carrizo Oil & Gas in effect immediately
prior to the Effective Time shall be and constitute the Bylaws of the Surviving
Corporation, until duly amended in accordance with the terms thereof and the
TBCA.
(c) The directors of Carrizo Oil & Gas immediately prior to
the Effective Time shall thereafter continue to be the directors of the
Surviving Corporation. The officers of Carrizo Oil & Gas in office immediately
prior to the Effective Time shall thereafter continue to be the officers of the
Surviving Corporation. Each such director and officer will hold office in
accordance with the Articles of Incorporation and Bylaws of the Surviving
Corporation.
ARTICLE V
APPROVAL AND EFFECTIVE TIME OF THE MERGER
The Merger shall be effected when all the following actions in
paragraphs (a) through (c) have been taken:
(a) This Plan shall have been approved by the shareholders of
the Constituent Corporations in accordance with the TBCA;
(b) Articles of Merger pursuant to the TBCA shall have been
filed with the Secretary of State of the State of Texas; and
(c) Each of the conditions of the Constituent Corporations set
forth in Sections 14.1, 14.3 and 14.7 of the Combination Agreement shall have
been satisfied or waived.
The Surviving Corporation shall file a statement complying with Article 10.03
of the TBCA with the Secretary of State of the State of Texas, within 90 days
of the date of the filing of the Articles of Merger, setting forth the time and
date upon which all the conditions set forth in paragraphs (a), (b) and (c) of
this Article V have been satisfied (such time and date being referred to as the
"Effective Time").
ARTICLE VI
ABANDONMENT OF PLAN
This Plan may be abandoned at any time prior to the Effective
Time by the filing with the Secretary of State of the State of Texas of a
statement complying with Section 5.03(I) of the TBCA stating that this Plan has
been abandoned. In the event of the abandonment of this Plan pursuant to this
Article VI, this Plan and the transactions contemplated hereby shall become
void and have no effect, without any liability on the part of either
Constituent Corporation or their respective directors, officers or
stockholders, as the case may be, in respect of this Plan.
-46-
<PAGE> 52
ARTICLE VII
MISCELLANEOUS
(a) Notwithstanding paragraph (a) of Article III hereof,
shares of Production Common Stock outstanding immediately prior to the
Effective Time and held by a holder who makes a written demand for the payment
of the fair value of such holder's shares in the manner provided under the TBCA
(a "Dissenting Shareholder") shall not be converted into the right to receive
the Production Merger Consideration, unless such holder shall have failed to
perfect or shall have effectively withdrawn or lost his right to payment of the
fair value of his shares of Production Common Stock under the TBCA. If after
the Effective Time such holder shall have failed to perfect or shall have
effectively withdrawn or lost his right to payment of the fair value of his
shares of Production Common Stock under the TBCA, such shares of Production
Common Stock shall be treated as if they had been converted as of the Effective
Time into the right to receive the Production Merger Consideration. Production
shall give the Carrizo Oil & Gas prompt notice of any objections or demands
received by Production from any shareholder exercising his right to dissent,
and, prior to the Effective Time, Carrizo Oil & Gas shall have the right to
participate in all negotiations and proceedings with respect thereto. Prior to
the Effective Time, Production shall not, except with the prior written consent
of Carrizo Oil & Gas, make any payment with respect to, or settle or offer or
agree to settle, any such demands.
(b) This Plan shall be governed by and construed in accordance
with the laws of the State of Texas.
(c) If at any time the Surviving Corporation shall consider or
be advised that any further assignment, assurance or other action is necessary
or desirable to vest in the Surviving Corporation the title to any property or
right of either of the Constituent Corporations or otherwise to carry out the
purposes of this Agreement, the proper officers, directors or representatives
of the relevant Constituent Corporation shall execute and make all such proper
assignments or assurances and take such other actions. The proper officers,
directors or representatives of the Surviving Corporation are hereby authorized
in the name of each of the Constituent Corporations, or otherwise, to take any
and all such action.
-47-
<PAGE> 53
IN WITNESS WHEREOF, the undersigned have caused this Plan of
Merger to be executed this 6th day of June, 1997.
CARRIZO PRODUCTION, INC.
By:
---------------------------
Name:
Title:
CARRIZO OIL & GAS, INC.
By:
---------------------------
Name:
Title:
-48-
<PAGE> 54
EXHIBIT B
TRANSFEROR REPRESENTATIONS AND WARRANTIES
The undersigned hereby represents and warrants to Carrizo Oil & Gas,
Inc., a Texas corporation (the "Company"), the following (capitalized terms
used herein shall have the meanings given to them in the Combination Agreement
dated as of June 6, 1997 among the Company and the other parties thereto (the
"Combination Agreement"):
(a) EXPERIENCE; STATUS.
(i) The undersigned has experience in analyzing and investing
in companies like the Company and is capable of evaluating the merits
and risks of his investment in the Company and has the capacity to
protect his own interests. To the extent necessary, the undersigned has
retained, at his own expense, and relied upon, appropriate professional
advice regarding the investment, tax and legal merits and consequences
of the Combination Transactions, or any part thereof, and owning the
shares of Common Stock the undersigned will receive pursuant to the
Combination Transactions (the "Shares"), it being understood that the
Company has not retained legal or financial advisors on behalf of the
undersigned.
(ii) The undersigned is an Accredited Investor, is able to bear
the economic risk of his investment in the Shares and has sufficient net
worth to sustain a loss of his entire investment in the Company without
economic hardship if such loss should occur.
(b) ACCESS TO COMPANY INFORMATION.
(i) The undersigned has had an opportunity to discuss the
Company's business, management and financial affairs with the members of
the Company's management and has had the opportunity to review the
Company's facilities. The undersigned has also had an opportunity to
ask questions of the officers of the Company, which questions were
answered to his satisfaction. The undersigned acknowledges that he is
familiar with all aspects of the Company's business.
(ii) The undersigned has received and carefully reviewed a copy
of the Offering Memorandum. The undersigned understands that information
in such Offering Memorandum is preliminary and subject to change. The
undersigned acknowledges that he has reviewed the information in such
Offering Memorandum solely for general background purposes and that, in
particular, information with respect to the Company, the Offering and
the Combination Transactions, is expected to change prior to the closing
of the Combination Transactions. The undersigned recognizes that he
will receive no supplement or amendment to such Offering Memorandum.
The undersigned acknowledges that his investment decision is based
primarily on his familiarity with the assets the Company currently owns
and may acquire and the Company's management.
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<PAGE> 55
(iii) The undersigned has received no representations or
warranties from the Company, or its employees, affiliates, attorneys,
accountants or agents, except as set forth in the Combination Agreement.
(iv) The undersigned understands that the purchase of the
Shares involves numerous risks, including those outlined in the Offering
Memorandum.
(c) INVESTMENT PURPOSES; RULE 144.
(i) The undersigned is acquiring Shares solely for investment
for his own account, not as a nominee or agent, and not with the view
to, or for resale in connection with, any distribution thereof. The
undersigned understands that the Shares have not been registered under
the Securities Act or applicable state and other securities laws by
reason of a specific exemption from the registration provisions of the
Securities Act and applicable state and other securities laws, the
availability of which depends upon, among other things, the bona fide
nature of the investment intent and the accuracy of the undersigned's
representations as expressed herein. The undersigned understands that
the Company is relying, in part, upon the representations and warranties
contained in this consent for the purpose of determining whether the
Combination Transactions meet the requirements for such exemptions.
(ii) The undersigned acknowledges and understands that he must
bear the economic risk of his investment in the Shares for an indefinite
period of time because the Shares must be held indefinitely unless
subsequently registered under the Securities Act and applicable state
and other securities laws or unless an exemption from such registration
is available. The undersigned understands that, except as described in
the Offering Memorandum, the Company has not agreed to and does not plan
to file a registration statement to register the resale of the Shares
under the Securities Act.
(iii) The undersigned is aware of the current provisions of Rule
144 promulgated under the Securities Act which permit limited resale of
securities purchased in a private placement subject to the satisfaction
of certain conditions, including, among other things, the existence of a
public market for the securities, the availability of certain current
public information about the issuer of the securities, the resale
occurring not less than two years (soon to be amended to one year) after
a party has purchased from an issuer or its affiliate and paid the full
purchase price for the securities to be sold, the sale being effected
through a "broker's transaction" or in transactions directly with a
"market maker" and the number of securities being sold during any three-
month period not exceeding specified limitations. The undersigned
understands that any transfer agent of the Company will be issued stop-
transfer instructions with respect to such Shares unless such transfer
is subsequently registered under the Securities Act and applicable state
and other securities laws or unless an exemption from such registration
is available.
(d) OTHER. The undersigned acknowledges and agrees that the
foregoing representations are true as of the date hereof, the time of receipt
of Shares and the time of the vote on and effective time of any merger or other
transaction that resulted in the issuance of Shares.
-50-
<PAGE> 56
(e) ADDITIONAL RESTRICTION ON TRANSFER. The undersigned has
received a copy of the Amended and Restated Bylaws of the Company and
understands that the Shares will be subject to the restrictions on transfer
contained in Article I of such Bylaws. The undersigned also acknowledges and
agrees to be bound by the restrictions on transfer of the Shares in Section
16.3 of the Combination Agreement.
------------------------------
[signature]
-51-
<PAGE> 57
EXHIBIT C
PLAN OF MERGER
MERGING
ENCINITAS PARTNERS LTD.
(A TEXAS LIMITED PARTNERSHIP)
WITH AND INTO
CARRIZO OIL & GAS INC.
(A TEXAS CORPORATION)
This Plan of Merger (this "Plan") is between Encinitas Partners
Ltd., a Texas limited partnership ("Encinitas"), and Carrizo Oil & Gas, Inc., a
Texas corporation ("Carrizo Oil & Gas") (Encinitas and Carrizo Oil & Gas being
hereinafter collectively referred to as the "Constituent Entities").
W I T N E S S E T H:
WHEREAS, Encinitas is a limited partnership duly organized and
existing under the laws of the State of Texas; and
WHEREAS, Carrizo Oil & Gas is a corporation duly organized and
existing under the laws of the State of Texas with an authorized capital of (a)
40,000,000 shares of common stock, par value $.01 per share ("Common Stock"),
of which 5,210,000 shares are issued and outstanding and (b) 10,000,000 shares
of Preferred Stock, par value $.01 per share, of which no shares are issued and
outstanding; and
WHEREAS, Encinitas and Carrizo Oil & Gas are parties to a certain
Combination Agreement dated as of June 6, 1997 (the "Combination Agreement");
and
WHEREAS, the board of directors of Carrizo Production, Inc., a
Texas corporation and the general partner of Encinitas, has deemed the merger
of Encinitas with and into Carrizo Oil & Gas under and pursuant to the Texas
Revised Limited Partnership Act (the "TRLPA") and the Texas Business
Corporation Act (the "TBCA") as contemplated herein (the "Merger") advisable
and in the best interest of Encinitas and the partners of Encinitas, and has
approved, and recommended the limited partners of Encinitas approve, (a) the
amendment (the "Partnership Agreement Amendment") to the Amended and Restated
Agreement of Limited Partnership of Encinitas Partners Ltd. (the "Encinitas
Partnership Agreement") to permit the Merger upon the vote of a majority in
interest of the limited partners of Encinitas and (b) this Plan and the Merger;
and
WHEREAS, the board of directors of Carrizo Oil & Gas has deemed
the Merger advisable and in the best interest of Carrizo Oil & Gas and its
shareholders and accordingly has approved, and recommended that the
shareholders of Carrizo Oil & Gas approve, this Plan and the Merger; and
-52-
<PAGE> 58
WHEREAS, no partner of Encinitas will become personally liable
for the liabilities or obligations of any other person or entity as a result of
the Merger;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained, the parties hereto have agreed and
do hereby agree, subject to the conditions hereinafter set forth, as follows:
ARTICLE I
MERGER AND NAME OF SURVIVING CORPORATION
At the Effective Time, as hereinafter defined, Encinitas shall be
merged with and into Carrizo Oil & Gas, and Carrizo Oil & Gas is hereby also
designated as the "Surviving Corporation" and shall not be a new corporation
and shall continue its corporate existence as a Texas corporation governed by
the laws of the State of Texas.
ARTICLE XIXI
TERMS AND CONDITIONS OF MERGER
At the Effective Time, the Merger shall have the effect specified
in the TRLPA and the TBCA, respectively, with respect to Encinitas and with
respect to the Surviving Corporation.
ARTICLE XXI
MANNER AND BASIS OF CONVERTING SHARES
(a) Subject to paragraph (e) of this Article III, at the
Effective Time, all of the limited partner interests in Encinitas (the
"Encinitas Limited Partner Interests") outstanding immediately prior to the
Effective Time, other than Encinitas Limited Partner Interests that are to be
canceled pursuant to paragraph (b) of this Article III, shall be converted into
and represent the right to receive the Encinitas Merger Consideration (defined
below) payable to the holder of such Encinitas Limited Partner Interest. As
used herein, the following terms have the meanings specified below:
Encinitas After Payout Consideration means, with respect to each
Encinitas Limited Partner Interest, the product of (i) 1,166,111 shares of
Common Stock multiplied by (ii) the percentage set forth on Schedule A hereto
as the After Payout Percentage with respect to such Encinitas Limited Partner
Interest.
Encinitas Before Payout Consideration means, with respect to each
Encinitas Limited Partner Interest, the product of (i) 506,389 shares of Common
Stock multiplied by (ii) the percentage set forth on Schedule A hereto as the
Before Payout Percentage with respect to such Encinitas Limited Partner
Interest.
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<PAGE> 59
Encinitas Merger Consideration means, with respect to each Encinitas
Limited Partner Interest, the sum of the Encinitas Before Payout Consideration
and the Encinitas After Payout Consideration with respect to such Encinitas
Limited Partner Interest.
(b) At the Effective Time, any Encinitas Limited Partner
Interests outstanding immediately prior to the Effective Time that are held by
Encinitas or any subsidiary thereof or by Carrizo Oil & Gas shall be canceled,
and no payment shall be made with respect thereto.
(c) At the Effective Time, all general partner interests in
Encinitas outstanding immediately prior to the Effective Time shall be
canceled, and no payment shall be made with respect thereto.
(d) At the Effective Time, each share of Common Stock
outstanding immediately prior to the Effective Time shall remain outstanding
and continue unchanged as one share of Common Stock.
(e) No fractional shares of Common Stock shall be issued in
the Merger. Each holder of Encinitas Limited Partner Interests will be issued
a whole share of Common Stock in lieu of any fractional share interest to which
such holder would otherwise be entitled.
ARTICLE IV
ARTICLES OF INCORPORATION, BYLAWS
AND OFFICERS AND DIRECTORS
(a) The Articles of Incorporation of Carrizo Oil & Gas in
effect immediately prior to the Effective Time shall be and constitute the
Articles of Incorporation of the Surviving Corporation, until duly amended in
accordance with the terms thereof and the TBCA.
(b) The Bylaws of Carrizo Oil & Gas in effect immediately
prior to the Effective Time shall be and constitute the Bylaws of the Surviving
Corporation, until duly amended in accordance with the terms thereof and the
TBCA.
(c) The directors of Carrizo Oil & Gas immediately prior to
the Effective Time shall thereafter continue to be the directors of the
Surviving Corporation. The officers of Carrizo Oil & Gas in office immediately
prior to the Effective Time shall thereafter continue to be the officers of the
Surviving Corporation. Each such director and officer will hold office in
accordance with the Articles of Incorporation and Bylaws of the Surviving
Corporation.
ARTICLE V
APPROVAL AND EFFECTIVE TIME OF THE MERGER
The Merger shall be effected when all the following actions in
paragraphs (a) through (d) have been taken:
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<PAGE> 60
(a) The Partnership Agreement Amendment and this Plan shall
have been approved by the partners of Encinitas in accordance with the TRLPA
and the Encinitas Partnership Agreement;
(b) This Plan shall have been approved by the shareholders of
Carrizo Oil & Gas in accordance with the TBCA;
(c) Articles of Merger pursuant to the TBCA shall have been
filed with the Secretary of State of the State of Texas; and
(d) Each of the conditions of the Constituent Entities set
forth in Sections 14.1, 14.4 and 14.7 of the Combination Agreement shall have
been satisfied or waived.
The Surviving Corporation shall file a statement complying with Section 2.12 of
the TRLPA and Article 10.03 of the TBCA with the Secretary of State of the
State of Texas, within 90 days of the date of the filing of the Articles of
Merger, setting forth the time and date upon which the conditions set forth in
paragraphs (a), (b), (c) and (d) of this Article V have been satisfied (such
time and date being referred to as the "Effective Time").
ARTICLE VI
ABANDONMENT OF PLAN
This Plan may be abandoned at any time prior to the Effective
Time by the filing with the Secretary of State of the State of Texas of a
statement complying with Section 2.12 of the TRLPA and Section 5.03(I) of the
TBCA stating that this Plan has been abandoned. In the event of the
abandonment of this Plan pursuant to this Article VI, this Plan and the
transactions contemplated hereby shall become void and have no effect, without
any liability on the part of either Constituent Entity or their respective
directors, officers, partners or shareholders, as the case may be, in respect
of this Plan.
ARTICLE VII
MISCELLANEOUS
(a) This Plan shall be governed by and construed in accordance
with the laws of the State of Texas.
(b) If at any time the Surviving Corporation shall consider or
be advised that any further assignment, assurance or other action is necessary
or desirable to vest in the Surviving Corporation the title to any property or
right of either of the Constituent Entities or otherwise to carry out the
purposes of this Agreement, the proper officers, directors or representatives
of the relevant Constituent Entity shall execute and make all such proper
assignments or assurances and take such other actions. The proper officers,
directors or representatives of the Surviving Corporation are hereby authorized
in the name of each of the Constituent Entity, or otherwise, to take any and
all such action.
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<PAGE> 61
IN WITNESS WHEREOF, the undersigned have caused this Plan of
Merger to be executed this 6th day of June, 1997.
ENCINITAS PARTNERS LTD.
By: Carrizo Production, Inc.,
as general partner
By:
-----------------------
Name:
Title:
CARRIZO OIL & GAS, INC.
By:
------------------------------
Name:
Title:
-56-
<PAGE> 62
SCHEDULE A
ENCINITAS LIMITED PARTNER INTEREST PERCENTAGES
<TABLE>
<CAPTION>
CAPITAL BEFORE PAYOUT AFTER PAYOUT
PARTNER CONTRIBUTION PERCENTAGE PERCENTAGE
------- ------------ ---------- ----------
<S> <C> <C> <C>
Initial Limited Partners:
Partner $201,891.67 5.76833% 8.87654%
Partner 201,891.67 5.76833 8.87654
Partner 201,891.66 5.76833 8.87654
Partner 50,225 1.43500 1.46035
Partner 70,100 2.00286 3.08143
Partner 75,000 2.14286 2.14286
------------ ---------- ----------
Total Initial Limited Partners $ 801,000 22.88571% 33.31426%
Additional Limited Partners:
Partner $ 250,000 7.14286% 3.57143%
Partner 275,000 7.85714 3.92857
Partner 50,000 1.42857 0.71429
Partner 50,000 1.42857 0.71429
Partner 50,000 1.42857 0.71429
Partner 50,000 1.42857 0.71429
Partner 300,000 8.57143 4.28571
Partner 200,000 5.71429 2.85714
Partner 25,000 0.71429 0.35714
Partner 100,000 2.85714 1.42857
Partner 150,000 4.28571 2.14286
Partner 150,000 4.28571 2.14286
Partner 100,000 2.85714 1.42857
Partner 75,000 2.14286 1.07143
</TABLE>
<PAGE> 63
<TABLE>
<CAPTION>
CAPITAL BEFORE PAYOUT AFTER PAYOUT
PARTNER CONTRIBUTION PERCENTAGE PERCENTAGE
------- ------------ ---------- ----------
<S> <C> <C> <C>
Additional Limited Partners (continued):
Partner 100,000 2.85714 1.42857
Partner 100,000 2.85714 1.42857
Partner 100,000 2.85714 1.42857
Partner 100,000 2.85714 1.42857
Partner 50,000 1.42857 0.71429
Partner 50,000 1.42857 0.71429
Partner 100,000 2.85714 1.42857
Partner 100,000 2.85714 1.42857
Partner 50,000 1.42857 0.71429
Partner 50,000 1.42857 0.71429
Partner 25,000 0.71429 0.35714
----------- --------- ---------
Total Additional Limited Partners $ 2,650,000 75.71429% 37.85714%
----------- --------- ---------
Total Limited Partners $ 3,451,000 98.60000% 71.17140%
General Partner:
Partner $ 49,000 1.40000% 28.82860%
----------- --------- ---------
Total General and Limited Partners $ 3,500,000 100.00000% 100.00000%
=========== ========== ==========
</TABLE>
<PAGE> 64
EXHIBIT D
PLAN OF MERGER
MERGING
LA ROSA PARTNERS LTD.
(A TEXAS LIMITED PARTNERSHIP)
WITH AND INTO
CARRIZO OIL & GAS INC.
(A TEXAS CORPORATION)
This Plan of Merger (this "Plan") is between La Rosa Partners
Ltd., a Texas limited partnership ("La Rosa"), and Carrizo Oil & Gas, Inc., a
Texas corporation ("Carrizo Oil & Gas") (La Rosa and Carrizo Oil & Gas being
hereinafter collectively referred to as the "Constituent Entities").
W I T N E S S E T H:
WHEREAS, La Rosa is a limited partnership duly organized and
existing under the laws of the State of Texas; and
WHEREAS, Carrizo Oil & Gas is a corporation duly organized and
existing under the laws of the State of Texas with an authorized capital of (a)
40,000,000 shares of common stock, par value $.01 per share ("Common Stock"),
of which 5,210,000 shares are issued and outstanding and (b) 10,000,000 shares
of Preferred Stock, par value $.01 per share, of which no shares are issued and
outstanding; and
WHEREAS, La Rosa and Carrizo Oil & Gas are parties to a certain
Combination Agreement dated as of June 6, 1997 (the "Combination Agreement");
and
WHEREAS, the board of directors of Carrizo Oil & Gas, as the
general partner of La Rosa, has deemed the merger of La Rosa with and into
Carrizo Oil & Gas under and pursuant to the Texas Revised Limited Partnership
Act (the "TRLPA") and the Texas Business Corporation Act (the "TBCA") as
contemplated herein (the "Merger") advisable and in the best interest of La
Rosa and the partners of La Rosa, and has approved, and recommended the limited
partners of La Rosa approve, (a) the amendment (the "Partnership Agreement
Amendment") to the Amended and Restated Agreement of Limited Partnership of La
Rosa Partners Ltd. (the "La Rosa Partnership Agreement") to permit the Merger
upon the vote of a majority in interest of the limited partners of La Rosa and
(b) this Plan and the Merger; and
WHEREAS, the board of directors of Carrizo Oil & Gas has deemed
the Merger advisable and in the best interest of Carrizo Oil & Gas and its
shareholders and accordingly has approved, and recommended that the
shareholders of Carrizo Oil & Gas approve, this Plan and the Merger; and
<PAGE> 65
WHEREAS, no partner of La Rosa will become personally liable for
the liabilities or obligations of any other person or entity as a result of the
Merger;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained, the parties hereto have agreed and
do hereby agree, subject to the conditions hereinafter set forth, as follows:
ARTICLE I
MERGER AND NAME OF SURVIVING CORPORATION
At the Effective Time, as hereinafter defined, La Rosa shall be
merged with and into Carrizo Oil & Gas, and Carrizo Oil & Gas is hereby also
designated as the "Surviving Corporation" and shall not be a new corporation
and shall continue its corporate existence as a Texas corporation governed by
the laws of the State of Texas.
ARTICLE XXII
TERMS AND CONDITIONS OF MERGER
At the Effective Time, the Merger shall have the effect specified
in the TRLPA and the TBCA, respectively, with respect to La Rosa and with
respect to the Surviving Corporation.
ARTICLE XXIII
MANNER AND BASIS OF CONVERTING SHARES
(a) Subject to paragraph (e) of this Article III, at the
Effective Time, all of the limited partner interests in La Rosa (the "La Rosa
Limited Partner Interests") outstanding immediately prior to the Effective
Time, other than La Rosa Limited Partner Interests that are to be canceled
pursuant to paragraph (b) of this Article III, shall be converted into and
represent the right to receive the La Rosa Merger Consideration (defined below)
payable to the holder of such La Rosa Limited Partner Interest. As used
herein, the following terms have the meanings specified below:
La Rosa Merger Consideration means, with respect to each La Rosa
Limited Partner Interest, the sum of the product of (i) 48,700 multiplied by
(ii) the percentage set forth on Schedule A hereto with respect to such La Rosa
Limited Partner Interest.
(b) At the Effective Time, any La Rosa Limited Partner
Interests outstanding immediately prior to the Effective Time that are held by
La Rosa or any subsidiary thereof or by Carrizo Oil & Gas shall be canceled,
and no payment shall be made with respect thereto.
(c) At the Effective Time, all general partner interests in La
Rosa outstanding immediately prior to the Effective Time shall be canceled, and
no payment shall be made with respect thereto.
-60-
<PAGE> 66
(d) At the Effective Time, each share of Common Stock
outstanding immediately prior to the Effective Time shall remain outstanding
and continue unchanged as one share of Common Stock.
(e) No fractional shares of Common Stock shall be issued in
the Merger. Each holder of La Rosa Limited Partner Interests will be issued a
whole share of Common Stock in lieu of any fractional share interest to which
such holder would otherwise be entitled.
ARTICLE IV
ARTICLES OF INCORPORATION, BYLAWS
AND OFFICERS AND DIRECTORS
(a) The Articles of Incorporation of Carrizo Oil & Gas in
effect immediately prior to the Effective Time shall be and constitute the
Articles of Incorporation of the Surviving Corporation, until duly amended in
accordance with the terms thereof and the TBCA.
(b) The Bylaws of Carrizo Oil & Gas in effect immediately
prior to the Effective Time shall be and constitute the Bylaws of the Surviving
Corporation, until duly amended in accordance with the terms thereof and the
TBCA.
(c) The directors of Carrizo Oil & Gas immediately prior to
the Effective Time shall thereafter continue to be the directors of the
Surviving Corporation. The officers of Carrizo Oil & Gas in office immediately
prior to the Effective Time shall thereafter continue to be the officers of the
Surviving Corporation. Each such director and officer will hold office in
accordance with the Articles of Incorporation and Bylaws of the Surviving
Corporation.
ARTICLE V
APPROVAL AND EFFECTIVE TIME OF THE MERGER
The Merger shall be effected when all the following actions in
paragraphs (a) through (d) have been taken:
(a) The Partnership Agreement Amendment and this Plan shall
have been approved by the partners of La Rosa in accordance with the TRLPA and
the La Rosa Partnership Agreement;
(b) This Plan shall have been approved by the shareholders of
Carrizo Oil & Gas in accordance with the TBCA;
(c) Articles of Merger pursuant to the TBCA shall have been
filed with the Secretary of State of the State of Texas; and
(d) Each of the conditions of the Constituent Entities set
forth in Sections 14.1, 14.5 and 14.7 of the Combination Agreement shall have
been satisfied or waived.
-61-
<PAGE> 67
The Surviving Corporation shall file a statement complying with Section 2.12 of
the TRLPA and Article 10.03 of the TBCA with the Secretary of State of the
State of Texas, within 90 days of the date of the filing of the Articles of
Merger, setting forth the time and date upon which the conditions set forth in
paragraphs (a), (b), (c) and (d) of this Article V have been satisfied (such
time and date being referred to as the "Effective Time").
ARTICLE VI
ABANDONMENT OF PLAN
This Plan may be abandoned at any time prior to the Effective
Time by the filing with the Secretary of State of the State of Texas of a
statement complying with Section 2.12 of the TRLPA and Section 5.03(I) of the
TBCA stating that this Plan has been abandoned. In the event of the
abandonment of this Plan pursuant to this Article VI, this Plan and the
transactions contemplated hereby shall become void and have no effect, without
any liability on the part of either Constituent Entity or their respective
directors, officers, partners or shareholders, as the case may be, in respect
of this Plan.
ARTICLE VII
MISCELLANEOUS
(a) This Plan shall be governed by and construed in accordance
with the laws of the State of Texas.
(b) If at any time the Surviving Corporation shall consider or
be advised that any further assignment, assurance or other action is necessary
or desirable to vest in the Surviving Corporation the title to any property or
right of either of the Constituent Entities or otherwise to carry out the
purposes of this Agreement, the proper officers, directors or representatives
of the relevant Constituent Entity shall execute and make all such proper
assignments or assurances and take such other actions. The proper officers,
directors or representatives of the Surviving Corporation are hereby authorized
in the name of each of the Constituent Entity, or otherwise, to take any and
all such action.
-62-
<PAGE> 68
IN WITNESS WHEREOF, the undersigned have caused this Plan of
Merger to be executed this 6th day of June, 1997.
LA ROSA PARTNERS LTD.
By: Carrizo Oil & Gas, Inc.,
as general partner
By:
-----------------------
Name:
Title:
CARRIZO OIL & GAS, INC.
By:
------------------------------
Name:
Title:
-63-
<PAGE> 69
SCHEDULE A
LA ROSA LIMITED PARTNER INTEREST PERCENTAGES
<TABLE>
<CAPTION>
CAPITAL
PARTNER CONTRIBUTION PERCENTAGE
------- ------------ ----------
<S> <C> <C>
Limited Partners:
Partner $67,500 15%
Partner 67,500 15
Partner 67,500 15
Partner 22,500 5
-------- ---
Total Limited Partners $225,000 50%
General Partner:
Partner $225,000 50%
-------- ---
Total General and Limited Partners $450,000 100%
======== ===
</TABLE>
<PAGE> 70
EXHIBIT E
PLAN OF MERGER
MERGING
CARRIZO PARTNERS LTD.
(A TEXAS LIMITED PARTNERSHIP)
WITH AND INTO
CARRIZO OIL & GAS INC.
(A TEXAS CORPORATION)
This Plan of Merger (this "Plan") is between Carrizo Partners
Ltd., a Texas limited partnership ("Carrizo Partners"), and Carrizo Oil & Gas,
Inc., a Texas corporation ("Carrizo Oil & Gas") (Carrizo Partners and Carrizo
Oil & Gas being hereinafter collectively referred to as the "Constituent
Entities").
W I T N E S S E T H:
WHEREAS, Carrizo Partners is a limited partnership duly organized
and existing under the laws of the State of Texas; and
WHEREAS, Carrizo Oil & Gas is a corporation duly organized and
existing under the laws of the State of Texas with an authorized capital of (a)
40,000,000 shares of common stock, par value $.01 per share ("Common Stock"),
of which 5,210,000 shares are issued and outstanding and (b) 10,000,000 shares
of Preferred Stock, par value $.01 per share, of which no shares are issued and
outstanding; and
WHEREAS, Carrizo Partners and Carrizo Oil & Gas are parties to a
certain Combination Agreement dated as of June 6, 1997 (the "Combination
Agreement"); and
WHEREAS, the board of directors of Carrizo Oil & Gas, as the
general partner of Carrizo Partners, has deemed the merger of Carrizo Partners
with and into Carrizo Oil & Gas under and pursuant to the Texas Revised Limited
Partnership Act (the "TRLPA") and the Texas Business Corporation Act (the
"TBCA") as contemplated herein (the "Merger") advisable and in the best
interest of Carrizo Partners and the partners of Carrizo Partners, and has
approved, and recommended the limited partners of Carrizo Partners approve, (a)
the amendment (the "Partnership Agreement Amendment") to the Amended and
Restated Agreement of Limited Partnership of Carrizo Partners Ltd. (the
"Carrizo Partners Partnership Agreement") to permit the Merger upon the vote of
a majority in interest of the limited partners of Carrizo Partners and (b) this
Plan and the Merger; and
WHEREAS, the board of directors of Carrizo Oil & Gas has deemed
the Merger advisable and in the best interest of Carrizo Oil & Gas and its
shareholders and accordingly has
<PAGE> 71
approved, and recommended that the shareholders of Carrizo Oil & Gas approve,
this Plan and the Merger; and
WHEREAS, no partner of Carrizo Partners will become personally
liable for the liabilities or obligations of any other person or entity as a
result of the Merger;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained, the parties hereto have agreed and
do hereby agree, subject to the conditions hereinafter set forth, as follows:
ARTICLE I
MERGER AND NAME OF SURVIVING CORPORATION
At the Effective Time, as hereinafter defined, Carrizo Partners
shall be merged with and into Carrizo Oil & Gas, and Carrizo Oil & Gas is
hereby also designated as the "Surviving Corporation" and shall not be a new
corporation and shall continue its corporate existence as a Texas corporation
governed by the laws of the State of Texas.
ARTICLE XXIIII
TERMS AND CONDITIONS OF MERGER
At the Effective Time, the Merger shall have the effect specified
in the TRLPA and the TBCA, respectively, with respect to Carrizo Partners and
with respect to the Surviving Corporation.
ARTICLE XXIVI
MANNER AND BASIS OF CONVERTING SHARES
(a) Subject to paragraph (e) of this Article III, at the
Effective Time, all of the limited partner interests in Carrizo Partners (the
"Carrizo Partners Limited Partner Interests") outstanding immediately prior to
the Effective Time, other than Carrizo Partners Limited Partner Interests that
are to be canceled pursuant to paragraph (b) of this Article III, shall be
converted into and represent the right to receive the Carrizo Partners Merger
Consideration (defined below) payable to the holder of such Carrizo Partners
Limited Partner Interest. As used herein, the following terms have the
meanings specified below:
Carrizo Partners After Payout Consideration means, with respect to each
Carrizo Partners Limited Partner Interest, the product of (i) 707,358 shares of
Common Stock multiplied by (ii) the percentage set forth on Schedule A hereto
as the After Payout Percentage with respect to such Carrizo Partners Limited
Partner Interest.
Carrizo Partners Before Payout Consideration means, with respect to each
Carrizo Partners Limited Partner Interest, the product of (i) 98,892 shares of
Common Stock multiplied by (ii) the percentage set forth on Schedule A hereto
as the Before Payout Percentage with respect to such Carrizo Partners Limited
Partner Interest.
-66-
<PAGE> 72
Carrizo Partners Merger Consideration means, with respect to each
Carrizo Partners Limited Partner Interest, the sum of the Carrizo Partners
Before Payout Consideration and the Carrizo Partners After Payout Consideration
with respect to such Carrizo Partners Limited Partner Interest.
(b) At the Effective Time, any Carrizo Partners Limited
Partner Interests outstanding immediately prior to the Effective Time that are
held by Carrizo Partners or any subsidiary thereof or by Carrizo Oil & Gas
shall be canceled, and no payment shall be made with respect thereto.
(c) At the Effective Time, all general partner interests in
Carrizo Partners outstanding immediately prior to the Effective Time shall be
canceled, and no payment shall be made with respect thereto.
(d) At the Effective Time, each share of Common Stock
outstanding immediately prior to the Effective Time shall remain outstanding
and continue unchanged as one share of Common Stock.
(e) No fractional shares of Common Stock shall be issued in
the Merger. Each holder of Carrizo Partners Limited Partner Interests will be
issued a whole share of Common Stock in lieu of any fractional share interest
to which such holder would otherwise be entitled.
ARTICLE IV
ARTICLES OF INCORPORATION, BYLAWS
AND OFFICERS AND DIRECTORS
(a) The Articles of Incorporation of Carrizo Oil & Gas in
effect immediately prior to the Effective Time shall be and constitute the
Articles of Incorporation of the Surviving Corporation, until duly amended in
accordance with the terms thereof and the TBCA.
(b) The Bylaws of Carrizo Oil & Gas in effect immediately
prior to the Effective Time shall be and constitute the Bylaws of the Surviving
Corporation, until duly amended in accordance with the terms thereof and the
TBCA.
(c) The directors of Carrizo Oil & Gas immediately prior to
the Effective Time shall thereafter continue to be the directors of the
Surviving Corporation. The officers of Carrizo Oil & Gas in office immediately
prior to the Effective Time shall thereafter continue to be the officers of the
Surviving Corporation. Each such director and officer will hold office in
accordance with the Articles of Incorporation and Bylaws of the Surviving
Corporation.
ARTICLE V
APPROVAL AND EFFECTIVE TIME OF THE MERGER
The Merger shall be effected when all the following actions in
paragraphs (a) through (d) have been taken:
-67-
<PAGE> 73
(a) The Partnership Agreement Amendment and this Plan shall
have been approved by the partners of Carrizo Partners in accordance with the
TRLPA and the Carrizo Partners Partnership Agreement;
(b) This Plan shall have been approved by the shareholders of
Carrizo Oil & Gas in accordance with the TBCA;
(c) Articles of Merger pursuant to the TBCA shall have been
filed with the Secretary of State of the State of Texas; and
(d) Each of the conditions of the Constituent Entities set
forth in Sections 14.1, 14.6 and 14.7 of the Combination Agreement shall have
been satisfied or waived.
The Surviving Corporation shall file a statement complying with Section 2.12 of
the TRLPA and Article 10.03 of the TBCA with the Secretary of State of the
State of Texas, within 90 days of the date of the filing of the Articles of
Merger, setting forth the time and date upon which the conditions set forth in
paragraphs (a), (b), (c) and (d) of this Article V have been satisfied (such
time and date being referred to as the "Effective Time").
ARTICLE VI
ABANDONMENT OF PLAN
This Plan may be abandoned at any time prior to the Effective
Time by the filing with the Secretary of State of the State of Texas of a
statement complying with Section 2.12 of the TRLPA and Section 5.03(I) of the
TBCA stating that this Plan has been abandoned. In the event of the
abandonment of this Plan pursuant to this Article VI, this Plan and the
transactions contemplated hereby shall become void and have no effect, without
any liability on the part of either Constituent Entity or their respective
directors, officers, partners or shareholders, as the case may be, in respect
of this Plan.
ARTICLE VII
MISCELLANEOUS
(a) This Plan shall be governed by and construed in accordance
with the laws of the State of Texas.
(b) If at any time the Surviving Corporation shall consider or
be advised that any further assignment, assurance or other action is necessary
or desirable to vest in the Surviving Corporation the title to any property or
right of either of the Constituent Entities or otherwise to carry out the
purposes of this Agreement, the proper officers, directors or representatives
of the relevant Constituent Entity shall execute and make all such proper
assignments or assurances and take such other actions. The proper officers,
directors or representatives of the Surviving Corporation are hereby authorized
in the name of each of the Constituent Entity, or otherwise, to take any and
all such action.
IN WITNESS WHEREOF, the undersigned have caused this Plan of
Merger to be executed this 6th day of June, 1997.
-68-
<PAGE> 74
CARRIZO PARTNERS LTD.
By: Carrizo Oil & Gas, Inc.,
as general partner
By:
--------------------------
Name:
Title:
CARRIZO OIL & GAS, INC.
By:
---------------------------------
Name:
Title:
-69-
<PAGE> 75
SCHEDULE A
CARRIZO PARTNERS LIMITED PARTNER INTEREST PERCENTAGES
<TABLE>
<CAPTION>
CAPITAL BEFORE PAYOUT AFTER PAYOUT
PARTNERS CONTRIBUTION PERCENTAGE PERCENTAGE
-------- ------------ ---------- ----------
<S> <C> <C> <C>
Special Limited Partner:
Partner $ 0 0.001% 25.00000%
--------- -------- --------
Investor Limited Partners:
Partner $ 175,000 23.333% 11.66667%
Partner 50,000 6.667 3.33333
Partner 50,000 6.667 3.33333
Partner 100,000 13.333 6.66667
Partner 50,000 6.667 3.33333
Partner 50,000 6.667 3.33333
Partner 50,000 6.667 3.33333
Partner 50,000 6.667 3.33333
Partner 75,000 10.000 5.00000
--------- ------- -----------
Total Investor Limited Partners $ 650,000 86.666% 43.33333%
--------- ------- ----------
Total Limited Partners $ 650,000 86.667% 68.33333%
General Partner:
Partner $ 100,000 13.333% 31.66667%
--------- ------- ---------
Total General and Limited Partners $ 750,000 100.000% 100.00000%
========= ======= =========
</TABLE>
<PAGE> 76
EXHIBIT F
FOUNDERS DISCLOSURE SCHEDULE
None.
<PAGE> 77
EXHIBIT G
PRODUCTION DISCLOSURE SCHEDULE
None.
<PAGE> 78
EXHIBIT H
ENCINITAS DISCLOSURE SCHEDULE
None.
<PAGE> 79
EXHIBIT I
LA ROSA DISCLOSURE SCHEDULE
None.
<PAGE> 80
EXHIBIT J
CARRIZO PARTNERS DISCLOSURE SCHEDULE
None.
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
CARRIZO OIL & GAS, INC.
ARTICLE ONE
Carrizo Oil & Gas, Inc., a Texas corporation (the "Company"),
pursuant to the provisions of Article 4.07 of the Texas Business Corporation
Act, hereby adopts these Amended and Restated Articles of Incorporation, which
accurately copy the Articles of Incorporation of the Company in effect on the
date hereof, as further amended by these Amended and Restated Articles of
Incorporation as hereinafter set forth, and contain no other change in any
provisions thereof.
ARTICLE TWO
The Articles of Incorporation of the Company are amended by
these Amended and Restated Articles of Incorporation as follows:
The amendments made by these Amended and Restated Articles of
Incorporation (the "Amendments") alter or change Articles One through Eleven
and delete Article Twelve of the Articles of Incorporation. The full text of
each provision altered or added is as set forth in Article Five hereof.
The Amendments effect a 521 for 1 stock split of the
outstanding shares of the common stock, par value $0.01 per share, of the
Company (the "Common Stock") and increase the number of authorized shares of
capital stock of all classes from 100,000 to 50,000,000. Simultaneously with
the effective date of the Amendments (the "Effective Date"), each issued and
outstanding share of previously authorized Common Stock ("Old Common Stock"),
shall thereby and thereupon be reclassified, changed and split up into
5,210,000 validly issued, fully paid and nonassessable shares of Common Stock,
par value $0.01 per share, of the Company ("New Common Stock"). Each holder of
a certificate or certificates that immediately prior to the Effective Date
represented outstanding shares of Old Common Stock (the "Old Certificates,"
whether one or more) shall be entitled to receive upon surrender of such Old
Certificates to the Company for cancellation, a certificate or certificates
(the "New Certificates," whether one or more) representing the number of whole
shares of the New Common Stock into which and for which the shares of the Old
Common Stock formerly represented by such Old Certificates so surrendered, are
reclassified, changed and
1
<PAGE> 2
split up under the terms hereof. From and after the Effective Date, Old
Certificates shall represent only the right to receive New Certificates
pursuant to the provisions hereof. No certificates or scrip representing
fractional share interests in the New Common Stock will be issued, and no such
fractional share interest will entitle the holder thereof to vote, or to any
rights of a shareholder of the Company. Any fractional shares otherwise
issuable will be rounded up to the nearest whole share.
ARTICLE THREE
The Amendments have been effected in conformity with the
provisions of the Texas Business Corporation Act, and the Amended and Restated
Articles of Incorporation were duly adopted by all of the shareholders of the
Company pursuant to a written consent dated June 4, 1997.
ARTICLE FOUR
On that date there were 10,000 shares of Common Stock
outstanding, all of which were entitled to vote on the Amendments. All 10,000
shares of Common Stock were voted in favor of the Amendments.
ARTICLE FIVE
The Articles of Incorporation of the Company filed with the
Secretary of State of the State of Texas on September 24, 1993 are hereby
superseded by the following Amended and Restated Articles of Incorporation,
which accurately copy the entire text thereof as amended hereby:
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
CARRIZO OIL & GAS, INC.
ARTICLE ONE
The name of the corporation is Carrizo Oil & Gas, Inc.
2
<PAGE> 3
ARTICLE TWO
The period of its duration is perpetual.
ARTICLE THREE
The purpose or purposes for which the corporation is organized
is the transaction of all lawful business for which a corporation may be
incorporated under the corporation laws of the State of Texas.
ARTICLE FOUR
The aggregate number of shares that the corporation shall have
the authority to issue, is 50,000,000 shares, consisting of 40,000,000 shares
of Common Stock, par value $0.01 per share, and 10,000,000 shares of Preferred
Stock, par value $0.01 per share.
The descriptions of the different classes of capital stock of
the corporation and the preferences, designations, relative rights, privileges
and powers, and the restrictions, limitations and qualifications thereof, of
said classes of stock are as follows:
Division A
The shares of Preferred Stock may be divided into and issued
in one or more series, the relative rights and preferences of which series may
vary in any and all respects. The board of directors of the corporation is
hereby vested with the authority to establish series of Preferred Stock by
fixing and determining all the preferences, limitations and relative rights of
the shares of any series so established, to the extent not provided for in
these Articles of Incorporation or any amendment hereto, and with the authority
to increase or decrease the number of shares within each such series; provided,
however, that the board of directors may not decrease the number of shares
within a series below the number of shares within such series that is then
issued. The authority of the board of directors with respect to each such
series shall include, but not be limited to, determination of the following:
(1) the distinctive designation and number of shares of
that series;
(2) the rate of dividend (or the method of calculation
thereof) payable with respect to shares of that series, the dates,
terms and other conditions upon which such dividends shall be payable,
and the relative rights of priority of such dividends to dividends
payable on any other class or series of capital stock of the
corporation;
3
<PAGE> 4
(3) the nature of the dividend payable with respect to
shares of that series as cumulative, noncumulative or partially
cumulative, and if cumulative or partially cumulative, from which date
or dates and under what circumstances.
(4) whether shares of that series shall be subject to
redemption, and, if made subject to redemption, the times, prices,
rates, adjustments and other terms and conditions of such redemption
(including the manner of selecting shares of that series for
redemption if fewer than all shares of such series are to be
redeemed);
(5) the rights of the holders of shares of that series in
the event of voluntary or involuntary liquidation, dissolution or
winding up of the corporation (which rights may be different if such
action is voluntary than if it is involuntary), including the relative
rights of priority in such event as to the rights of the holders of
any other class or series of capital stock of the corporation;
(6) the terms, amounts and other conditions of any
sinking or similar purchase or other fund provided for the purchase or
redemption of shares of that series;
(7) whether shares of that series shall be convertible
into or exchangeable for shares of capital stock or other securities
of the corporation or of any other corporation or entity, and, if
provision be made for conversion or exchange, the times, prices,
rates, adjustments and other terms and conditions of such conversion
or exchange;
(8) the extent, if any, to which the holders of shares of
that series shall be entitled (in addition to any voting rights
provided by law) to vote as a class or otherwise with respect to the
election of directors or otherwise;
(9) the restrictions and conditions, if any, upon the
issue or reissue of any additional Preferred Stock ranking on a parity
with or prior to shares of that series as to dividends or upon
liquidation, dissolution or winding up;
(10) any other repurchase obligations of the corporation,
subject to any limitations of applicable law; and
(11) notwithstanding their failure to be included in (1)
through (10) above, any other designations, preferences, limitations
or relative rights of shares of that series.
Any of the designations, preferences, limitations or relative rights (including
the voting rights) of any series of Preferred Stock may be dependent on facts
ascertainable outside these Articles of Incorporation.
4
<PAGE> 5
Shares of any series of Preferred Stock shall have no voting
rights except as required by law or as provided in the preferences, limitations
and relative rights of such series.
Division B
1. Dividends. Dividends may be paid on the Common Stock
out of any assets of the corporation available for such dividends subject to
the rights of all outstanding shares of capital stock ranking senior to the
Common Stock in respect of dividends.
2. Distribution of Assets. In the event of any
liquidation, dissolution or winding up of the corporation, after there shall
have been paid to or set aside for the holders of capital stock ranking senior
to the Common Stock in respect of rights upon liquidation, dissolution or
winding up the full preferential amounts to which they are respectively
entitled, the holders of the Common Stock shall be entitled to receive, pro
rata, all of the remaining assets of the corporation available for distribution
to its shareholders.
3. Voting Rights. The holders of the Common Stock shall
be entitled to one vote per share for all purposes upon which such holders are
entitled to vote.
Division C
1. No Preemptive Rights. No shareholder of the
corporation shall by reason of his holding shares of any class have any
preemptive or preferential right to acquire or subscribe for any additional,
unissued or treasury shares of any class of the corporation now or hereafter to
be authorized, or any notes, debentures, bonds or other securities convertible
into or carrying any right, option or warrant to subscribe to or acquire shares
of any class now or hereafter to be authorized, whether or not the issuance of
any such shares, or such notes, debentures, bonds or other securities, would
adversely affect the dividends or voting or other rights of such shareholder,
and the board of directors may issue or authorize the issuance of shares of any
class, or any notes, debentures, bonds or other securities convertible into or
carrying rights, options or warrants to subscribe to or acquire shares of any
class, without offering any such shares of any class, either in whole or in
part, to the existing shareholders of any class.
2. Share Dividends. Subject to any restrictions in
favor of any series of Preferred Stock provided in the relative rights and
preferences of such series, the corporation may pay a share dividend in shares
of any class or series of capital stock of the corporation to the holders of
shares of any class or series of capital stock of the corporation.
3. No Cumulative Voting. Cumulative voting for the
election of directors is expressly prohibited as to all shares of any class or
series.
5
<PAGE> 6
ARTICLE FIVE
The corporation will not commence business until it has
received for the issuance of its shares consideration of the value of One
Thousand Dollars ($1,000.00), consisting of any tangible or intangible benefit
to the corporation, including cash, promissory notes, services performed,
contracts for services to be performed or other securities of the corporation.
ARTICLE SIX
The street address of the corporation's registered office is
14811 St. Mary's Lane, Suite 148, Houston, Texas 77079, and the name of its
registered agent at such address is Frank A. Wojtek.
ARTICLE SEVEN
1. Number and Term of Directors. The number of
directors shall be fixed by, or in the manner provided by, the bylaws of the
corporation. The number of directors constituting the current board of
directors is five, and the names and addresses of such persons constituting the
board of directors, who are to serve until their successors are elected and
qualified are as follows:
Name Address
---- -------
Steven A. Webster 14811 St. Mary's Lane, Suite 148
Houston, Texas 77079
S. P. Johnson, IV 14811 St. Mary's Lane, Suite 148
Houston, Texas 77079
Frank A. Wojtek 14811 St. Mary's Lane, Suite 148
Houston, Texas 77079
Douglas A. P. Hamilton 14811 St. Mary's Lane, Suite 148
Houston, Texas 77079
Paul B. Loyd, Jr. 14811 St. Mary's Lane, Suite 148
Houston, Texas 77079
2. Removal of Directors. No director of the Corporation
shall be removed from such office by vote or other action of the shareholders
of the Corporation or otherwise, except by the affirmative vote of holders of
at least a majority of the then outstanding Voting Stock (as defined below),
voting together as a single class. The term "Voting Stock" shall mean all
outstanding shares
6
<PAGE> 7
of all classes and series of capital stock of the Corporation entitled to vote
generally in the election of directors of the Corporation, considered as one
class; and, if the Corporation shall have shares of Voting Stock entitled to
more or less than one vote for any such share, each reference in these
Articles of Incorporation to a proportion or percentage of Voting Stock shall
be calculated by reference to the portion or percentage of votes entitled to be
cast by holders of such shares generally in the election of directors of the
Corporation. Prior to the date (the "Public Status Date") of the closing of
the Corporation's first offering of the Common Stock to the general public
registered under a registration statement filed by the Corporation with the
Securities and Exchange Commission, any such removal of a director of the
Corporation may be with or without cause. On and after the Public Status Date,
no director of the Corporation shall be removed from such office, except for
cause, which shall be deemed to exist only if: (i) such director has been
convicted, or such director is granted immunity to testify where another has
been convicted, of a felony by a court of competent jurisdiction (and such
conviction is no longer subject to direct appeal); (ii) such director has been
found by a court of competent jurisdiction (and such finding is no longer
subject to direct appeal) or by the affirmative vote of at least a majority of
the Whole Board (as defined below) at any regular or special meeting of the
board of directors called for such purpose to have been grossly negligent or
guilty of willful misconduct in the performance of his duties to the
Corporation in a matter of substantial importance to the Corporation; (iii)
such director has been adjudicated by a court of competent jurisdiction to be
mentally incompetent, which mental incompetency directly affects his ability to
perform as a director of the Corporation; or (iv) such director has been found
by a court of competent jurisdiction (and such finding is no longer subject to
direct appeal) or by the affirmative vote of at least a majority of the Whole
Board at any regular or special meeting of the board of directors called for
such purpose to have breached such director's duty of loyalty to the
Corporation or its shareholders or to have engaged in any transaction with the
Corporation from which such director derived an improper personal benefit. No
director of the Corporation so removed may be nominated, re-elected or
reinstated as a director of the Corporation so long as the cause for removal
continues to exist. The term "Whole Board" shall mean the total number of
authorized directors of the Corporation whether or not there exist any
vacancies in previously authorized directorships. This paragraph shall be
subject to the rights, if any, of holders of any class or series of stock to
elect directors and remove directors elected by them.
ARTICLE EIGHT
A director of the corporation shall not be liable to the
corporation or its shareholders for monetary damages for an act or omission in
the director's capacity as a director, except that this article does not
eliminate or limit the liability of a director for: (1) a breach of a
director's duty of loyalty to the corporation or its shareholders; (2) an act
or omission not in good faith that constitutes a breach of duty of that
director to the corporation or an act or omission that involves intentional
misconduct or a knowing violation of the law; (3) a transaction from which a
director received an improper benefit, whether or not the benefit resulted from
an action taken within the scope of the
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director's office; or (4) an act or omission for which the liability of a
director is expressly provided for by an applicable statute.
If the Texas Miscellaneous Corporation Laws Act or the Texas
Business Corporation Act (the "TBCA") is amended to authorize action further
eliminating or limiting the personal liability of directors, then the liability
of a director of the corporation shall be eliminated or limited to the fullest
extent permitted by such statutes, as so amended. Any repeal or modification
of this article shall not adversely affect any right or protection of a
director of the corporation existing at the time of such repeal or
modification.
ARTICLE NINE
Prior to the Public Status Date, any action required or
permitted to be taken at any annual or special meeting of shareholders of the
Corporation may be taken without a meeting, without prior notice and without a
vote, if a consent or counterpart consents in writing, setting forth the action
so taken, shall be signed by the holder or holders of shares having not less
than the minimum number of votes that would be necessary to take such action at
a meeting at which the holders of all shares entitled to vote on the action
were present and voted. Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to
those shareholders who did not consent in writing to the action.
ARTICLE TEN
The vote of shareholders required for approval of any
amendment of the articles of incorporation of the corporation for which the
TBCA requires a shareholder vote, shall be (in lieu of any greater vote
required by the TBCA) the affirmative vote of the holders of a majority of the
outstanding Voting Stock entitled to vote thereon, unless any class or series
of shares is entitled to vote as a class thereon, in which event the vote
required shall be the affirmative vote of the holders of a majority of the
outstanding shares within each class or series of shares entitled to vote
thereon as a class and at least a majority of the outstanding Voting Stock
otherwise entitled to vote thereon.
ARTICLE ELEVEN
Special meetings of shareholders may be called by the
corporation's chairman of the board, the president or the board of directors.
Subject to the provisions of the corporation's bylaws governing special
meetings, holders of not less than 50% of the outstanding shares of stock
entitled to vote at the proposed special meeting may also call a special
meeting of shareholders by furnishing the corporation a written request which
states the purpose or purposes of the proposed meeting in the manner set forth
in the bylaws.
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EXECUTED AND EFFECTIVE this 5th day of June, 1997.
CARRIZO OIL & GAS, INC.
By: /s/ S. P. JOHNSON, IV
-------------------------------
S. P. Johnson, IV
President
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EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
CARRIZO OIL & GAS, INC.
The following Amended and Restated Bylaws, adopted by the Board
of Directors of Carrizo Oil & Gas, Inc. (the "Corporation") as of June 4, 1997,
shall govern the business of the Corporation, except as the same may be
afterwards amended:
ARTICLE I
CAPITAL STOCK
Section 1. Certificates Representing Shares. The Corporation
shall deliver certificates representing all shares to which shareholders are
entitled. Such certificates shall be signed by the President or a Vice
President and either the Secretary or any Assistant Secretary or such other
officer or officers as the Board of Directors shall designate, and shall bear
the seal of the Corporation or a facsimile thereof. The signatures of such
officers upon a certificate may be facsimiles. In case any officer who has
signed or whose facsimile signature has been placed upon such certificate shall
have ceased to be such officer before such certificate is issued, it may be
issued by the Corporation with the same effect as if he were such officer at
the date of its issuance.
Section 2. Shareholders of Record. The Board of Directors of
the Corporation may appoint one or more transfer agents or registrars of any
class of stock of the Corporation. Unless and until such appointment is made,
the Secretary of the Corporation shall maintain among other records a stock
transfer book, the stubs in which shall set forth the names and addresses of
the holders of all issued shares of the Corporation, the number of shares held
by each, the certificate numbers representing such shares, the date of issue of
the certificates representing such shares, and whether or not such shares
originate from original issues or from transfer. The names and addresses of
shareholders as they appear on the stock transfer book shall be the official
list of shareholders of record of the Corporation for all purposes. The
Corporation shall be entitled to treat the holder of record of any shares of
the Corporation as the owner thereof for all purposes and shall not be bound to
recognize any equitable or other claim to, or interest in, such shares or any
rights deriving from such shares, on the part of any other person, including
(but without limitation) a purchaser, assignee or transferee, unless and until
such other person becomes the
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holder of record of such shares, whether or not the Corporation shall have
either actual or constructive notice of the interest of such other person.
Section 3. Transfer of Shares. The shares of the Corporation
shall be transferable on the stock transfer books of the Corporation by the
holder of record thereof, or his duly authorized attorney or legal
representative, upon endorsement and surrender for cancellation of the
certificates for such shares. All certificates surrendered for transfer shall
be canceled, and no new certificate shall be issued until a former certificate
or certificates for a like number of shares shall have been surrendered and
canceled, except that in the case of a lost, destroyed or mutilated
certificate, a new certificate may be issued therefor upon such conditions for
the protection of the Corporation and any transfer agent or registrar as the
Board of Directors or the Secretary or any other officer may prescribe.
Section 4. Restrictions on Transfer of Combination Common Stock.
(a) Reference is made to (i) the Combination Agreement (the
"Combination Agreement") dated as of June 6, 1997 among Carrizo Oil & Gas,
Inc., Carrizo Production, Inc., Carrizo Partners Ltd., Encinitas Partners Ltd.,
La Rosa Partners Ltd. and each of Paul B. Loyd, Jr., Steven A. Webster,
Sylvester P. Johnson, IV, Douglas A. P. Hamilton and Frank A. Wojtek. A
shareholder that receives shares of the Corporation's common stock pursuant to
the Combination Agreement and the Combination Transactions (as defined in the
Combination Agreement) is referred to herein as a "Combination Shareholder" and
such shares of common stock are referred to herein as "Combination Common
Stock." Prior to any proposed transfer (whether by sale, assignment, pledge or
otherwise) of Combination Common Stock, the proposed transferor (the
"Transferor") will give written notice to the Corporation of his intention to
effect such transfer. Each such notice shall describe the manner and
circumstances of the proposed transfer in sufficient detail, and shall be
accompanied by a written opinion of legal counsel who shall be reasonably
satisfactory to the Corporation, addressed to the Corporation, to the effect
that the proposed transfer of the securities in question may be effected
without registration under the Securities Act of 1933, as amended (the
"Securities Act"), and that such proposed transfer does not call into question
the exemption from registration under which such Combination Common Stock were
initially issued by the Corporation. Any such legal opinion must be reasonably
satisfactory to the Corporation and must state that it may also be relied upon
by any transfer agent, stock exchange or counsel to the Corporation. As a
condition to the transfer, the Corporation may also require a certificate of
the Transferor that certifies as to matters that assist the Corporation in
establishing compliance with securities laws at the time of the original
issuance of the Combination Common Stock as well as at the time of the proposed
transfer (including without limitation a certificate containing the
representations set forth in Exhibit B to the Combination Agreement). Upon
compliance with the terms of these Bylaws to the satisfaction of the
Corporation, the Transferor shall be entitled to transfer such securities in
accordance with the terms of the notice delivered by the Transferor to the
Corporation. Each certificate evidencing the Combination Common Stock so
transferred shall bear an appropriate restrictive legend reasonably deemed
appropriate by the Corporation, including any appropriate legend relating to
the restrictions and obligations under this Bylaw. The Transferor must, prior
to any transfer (unless such transfer is made pursuant to
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Rule 144 or an effective registration statement under the Securities Act),
cause any transferee of the Shares, to enter into an agreement with the
Corporation that the transferee will take and hold such securities subject to
the provisions and upon the conditions specified herein. Without limiting the
generality of any other provision hereof, the provisions of this Section 4(a)
shall be binding on successive transferees.
(b) Any sale or transfer, or purported sale or transfer, of
Combination Common Stock shall be null and void, and the Corporation shall have
no obligation to effect any transfer unless the terms, conditions and
provisions of this Section 4 are strictly observed and followed or are waived
by the Corporation. The Corporation may issue stop transfer instructions to
any transfer agent for the Corporation's common stock in order to implement any
restriction on transfer contemplated by this Bylaw.
(c) In addition to any other legend, the certificates
representing Combination Common Stock shall bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN OPINION OF COUNSEL SATISFACTORY TO
THE CORPORATION AS TO THE AVAILABILITY OF AN EXEMPTION FROM
REGISTRATION, THAT SUCH REGISTRATION IS NOT REQUIRED AND THAT ANY
PROSPECTUS DELIVERY REQUIREMENTS ARE NOT APPLICABLE. THE SHARES WERE
(1) ISSUED PURSUANT TO AN AGREEMENT AND (2) ARE SUBJECT TO PROVISIONS OF
THE BYLAWS OF THE CORPORATION, BOTH OF WHICH INCLUDE ADDITIONAL
RESTRICTIONS ON THEIR TRANSFER AND COPIES OF SUCH AGREEMENT AND BYLAWS
MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF
RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE CORPORATION AT THE
PRINCIPAL EXECUTIVE OFFICES OF THE CORPORATION.
(d) If any provision or provisions of this Section 4 of the
Amended and Restated Bylaws shall be held to be invalid, illegal or
unenforceable for any reason whatsoever, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby; and, to the fullest extent possible, the provisions of this
Section 4 of the Amended and Restated Bylaws shall be construed so as to give
effect to the intent manifested by the provision held invalid, illegal or
unenforceable.
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ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. Place of Meetings. All meetings of shareholders
shall be held at the registered office of the Corporation, or at such other
place within or without the State of Texas as may be designated by the Board of
Directors or officer calling the meeting.
Section 2. Annual Meeting. Annual meetings of the shareholders
shall be held during each calendar year on a date and at a time designated by
the Board of Directors or as may otherwise be set forth in the notice of the
meeting, and on any subsequent day or days to which such meeting may be
adjourned, for the purposes of electing directors and of transacting such other
business as may properly come before the meeting. Failure to designate a time
for the annual meeting or to hold the annual meeting at the designated time
shall not work a dissolution of the Corporation.
Section 3. Special Meetings. Special meetings of the
shareholders may be called by the Chairman of the Board, the President or the
Board of Directors. Special meetings of shareholders shall be called by the
Secretary upon the written request of the holders of shares entitled to cast
not less than the following specified percentages of all the votes entitled to
be cast at such meeting: (a) prior to the date (the "Public Status Date") of
the closing of the Corporation's first offering of the Common Stock to the
general public registered under a registration statement filed by the
Corporation with the Securities and Exchange Commission, 10% and (b) on and
after the Public Status Date, 50%. Such request shall state the purpose or
purposes of such meeting and the matters proposed to be acted on thereat. Upon
receipt of such request and any notice required by Sections 8 and/or 9 of
Article II, the Board of Directors shall set a date for the special meeting,
set a record date in accordance with Article II, Section 5, and shall cause an
appropriate officer of the Corporation to give the notice required under
Article II, Section 4.
Section 4. Notice of Meeting. Written notice of all meetings
stating the place, day and hour of the meeting and in the case of a special
meeting, the purpose or purposes for which the meeting is called, shall be
delivered not less than 10 nor more than 60 days before the meeting to the
shareholders of record entitled to vote at such meeting unless the Board of
Directors is seeking shareholder approval of a plan of merger or exchange, in
which case notice shall be delivered not less than 20 nor more than 60 days
before the meeting to all shareholders whether or not entitled to vote. If
mailed, such notice shall be deemed to be delivered when deposited in the
United States mail addressed to the shareholder at his address as it appears on
the stock transfer books of the Corporation, with postage thereon prepaid. Any
notice required to be given to any shareholder under any provision of the Texas
Business Corporation Act or any successor statutory provision, as from time to
time amended (the "TBCA"), the Amended and Restated Articles of Incorporation
or these Amended and Restated Bylaws need not be given to the shareholder if
(1) notice of two consecutive annual meetings and all notices of meetings held
during the period between those annual meetings, if any, or (2) all (but in no
event less than two) payments (if sent by first class mail) of distributions or
interest on securities during a 12-month period have been
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mailed to that person, addressed at his address as shown on the records of the
Corporation, and have been returned undeliverable. Any action or meeting taken
or held without notice to such a person shall have the same force and effect as
if the notice had been duly given. If such a person delivers to the
Corporation a written notice setting forth his then current address, the
requirement that notice be given to that person shall be reinstated.
Section 5. Fixing of Record Date. The Board of Directors shall
fix and shall have the exclusive authority to fix, in advance, a date as the
record date for the purpose of determining shareholders entitled to notice of
or to vote at any annual or special meeting of shareholders or any adjournment
thereof, or shareholders entitled to receive a distribution by the Corporation
(other than a distribution involving a purchase or redemption by the
Corporation of any of its own shares) or a share dividend, or in order to make
a determination of shareholders for any other proper purpose. Such date, in
any case, shall be not more than 60 days, and in the case of a meeting of
shareholders not less than 10 days (20 days if voting on a plan of merger or
exchange), prior to the date on which the particular action requiring such
determination of shareholders is to be taken.
Section 6. Voting List. The officer or agent having charge of
the stock transfer books of the Corporation shall make, at least 10 days before
each meeting of shareholders, a complete list of the shareholders entitled to
vote at such meeting or any adjournment thereof, arranged in alphabetical
order, with the address of and the number of shares held by each, which list,
for a period of 10 days prior to such meeting, shall be kept on file at the
registered office of the Corporation and shall be subject to inspection by any
shareholder at any time during usual business hours. Such list shall also be
produced and kept open at the time and place of the meeting and shall be
subject to the inspection of any shareholder during the whole time of the
meeting. The original stock transfer books shall be prima facie evidence as to
who are the shareholders entitled to examine such list or transfer books or to
vote at any meeting of shareholders. Failure to comply with any requirements
of this Section 6 shall not affect the validity of any action taken at such
meeting.
Section 7. Voting. Except to the extent otherwise provided in
the Amended and Restated Articles of Incorporation, each holder of shares of
the Corporation entitled to vote shall be entitled to one vote for each such
share, either in person or by proxy executed in writing by him or by his duly
authorized attorney-in-fact. No proxy shall be valid after 11 months from the
date of its execution unless otherwise provided in the proxy. Each proxy shall
be revocable unless the proxy form conspicuously states that the proxy is
irrevocable and the proxy is coupled with an interest.
Section 8. Nomination of Directors. (a) The provisions of
subsection (b) hereof shall become effective upon (and, notwithstanding any
other provision of these Amended and Restated Bylaws, shall not be effective
with respect to any action specified in subsection (b) hereof to be taken on
any date prior to) the Public Status Date.
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(b) Subject to the rights of holders of any class or series of
stock having a preference over Common Stock of the Corporation as to dividends
or upon liquidation to elect directors under specified circumstances,
nominations of persons for election to the Board of Directors may be made only
(a) by the Board of Directors or a committee appointed by the Board of
Directors or (b) by any shareholder who is a shareholder of record at the time
of giving of the shareholder's notice provided for in this Section 8, who shall
be entitled to vote at such meeting and who complies with the notice procedures
set forth in this Section 8. A shareholder wishing to nominate one or more
individuals to stand for election in the election of members of the Board of
Directors at an annual or special meeting must provide written notice thereof
to the Board of Directors not less than 80 days in advance of such meeting;
provided, however, that in the event that the date of the meeting was not
publicly announced by the Corporation by a mailing to shareholders, a press
release or a filing with the Securities and Exchange Commission pursuant to
Section 13(a) or 14(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), more than 90 days prior to the meeting, such notice, to be
timely, must be delivered to the Board of Directors not later than the close of
business on the tenth day following the day on which the date of the meeting
was publicly announced. A shareholder's notice shall set forth (i) the name
and address, as they appear on the Corporation's books, of the shareholder
making the nomination or nominations; (ii) such information regarding the
nominee(s) proposed by such shareholder as would be required to be included in
a proxy statement filed pursuant to the proxy rules of the Securities and
Exchange Commission had the nominee(s) been nominated or intended to be
nominated by the Board of Directors; (iii) a representation of the shareholder
as to the class and number of shares of capital stock of the Corporation that
are beneficially owned by such shareholder, and the shareholder's intent to
appear in person or by proxy at the meeting to propose such nomination; and
(iv) the written consent of the nominee(s) to serve as a member of the Board of
Directors if so elected. No shareholder nomination shall be effective unless
made in accordance with the procedures set forth in this Section 8. The
chairman of the meeting shall, if the facts warrant, determine and declare to
the meeting that a shareholder nomination was not made in accordance with the
provisions of these Amended and Restated Bylaws, and if the chairman should so
determine, he shall so declare to the meeting and the defective nomination
shall be disregarded.
Section 9. Proposals of Shareholders. (a) The provisions of
subsection (b) hereof shall become effective upon (and, notwithstanding any
other provision of these Amended and Restated Bylaws, shall not be effective
with respect to any action specified in subsection (b) hereof to be taken on
any date prior to) the Public Status Date.
(b) At any meeting of shareholders, there shall be conducted only
such business as shall have been brought before the meeting (a) by or at the
direction of the Board of Directors or (b) by any shareholder of the
Corporation who is a shareholder of record at the time of giving of the
shareholder's notice provided for in this Section 9, who shall be entitled to
vote at such meeting and who complies with the notice procedure set forth in
this Section 9. For business to be properly brought before a meeting of
shareholders by a shareholder, the shareholder shall have given timely notice
thereof in writing to the Secretary of the Corporation. To be timely, a
shareholder's notice shall be delivered to or mailed and received at the
principal executive offices
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of the Corporation not less than 80 days in advance of such meeting; provided,
however, that in the event that the date of the meeting was not publicly
announced by the Corporation by a mailing to shareholders, a press release or a
filing with the Securities and Exchange Commission pursuant to Section 13(a) or
14(a) of the Exchange Act, more than 90 days prior to the meeting, such notice,
to be timely, must be delivered to the Board of Directors not later than the
close of business on the tenth day following the day on which the date of the
meeting was first so publicly announced. A shareholder's notice shall set
forth as to each matter proposed to be brought before the meeting: (1) a brief
description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and, in the event that such
business includes a proposal regarding the amendment of either the Amended and
Restated Articles of Incorporation or these Amended and Restated Bylaws of the
Corporation, the language of the proposed amendment; (2) the name and address,
as they appear on the Corporation's books, of the shareholder proposing such
business; (3) a representation of the shareholder as to the class and number of
shares of capital stock of the Corporation that are beneficially owned by such
shareholder, and the shareholder's intent to appear in person or by proxy at
the meeting to propose such business; and (4) any material interest of such
shareholder in such proposal or business. Notwithstanding anything in these
Amended and Restated Bylaws to the contrary, no business shall be conducted at
a shareholders meeting unless brought before the meeting in accordance with the
procedure set forth in this Section 9. The chairman of the meeting shall, if
the facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting and in accordance with the provisions of
these Amended and Restated Bylaws, and if the chairman should so determine, the
chairman shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted.
Section 10. Quorum and Voting of Shareholders. The holders of a
majority of shares entitled to vote on a matter, represented in person or by
proxy, shall constitute a quorum as to that matter at a meeting of
shareholders, but, if a quorum is not present or represented, a majority in
interest of those present or represented may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present or represented. At such adjourned meeting at which a quorum
shall be present or represented any business may be transacted which might have
been transacted at the meeting as originally notified. With respect to any
matter, other than a matter for which the affirmative vote of the holders of a
specified portion of the shares entitled to vote is required by law, the
Amended and Restated Articles of Incorporation, or these Amended and Restated
Bylaws, the vote of the holders of a majority of the shares entitled to vote on
that matter and represented in person or by proxy at a meeting at which a
quorum is present or represented shall be the act of the shareholders' meeting.
Section 11. Officers. The President, shall, if present, preside
at and be the chairman of, and the Secretary shall keep the records of, each
meeting of shareholders. In the absence, or failure or refusal to perform, of
such person, his duties shall be performed by an officer or Director of the
Corporation appointed by the Board of Directors or appointed at the meeting.
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Section 12. Conduct of Meetings. The chairman of a meeting of
shareholders shall have the power to appoint inspectors of election and to
establish and interpret rules for the conduct of the meeting.
Section 13. Consent of Shareholders in Lieu of Meeting. Prior
to the Public Status Date, any action required or permitted to be taken at any
annual or special meeting of shareholders of the Corporation may be taken
without a meeting, without prior notice and without a vote, if a consent or
counterpart consents in writing, setting forth the action so taken, shall be
signed by the holder or holders of shares having not less than the minimum
number of votes that would be necessary to take such action at a meeting at
which the holders of all shares entitled to vote on the action were present and
voted. Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those shareholders who
did not consent in writing to the action.
ARTICLE III
DIRECTORS
Section 1. Number and Tenure. The business and affairs of the
Corporation shall be managed by a Board of Directors initially consisting of
five directors as of the date of the adoption of these Amended and Restated
Bylaws. Subject to any limitations contained in the Amended and Restated
Articles of Incorporation, the number of directors may be increased or
decreased from time to time by resolution of the Board of Directors or by due
election of that number of directors by the shareholders, but no decrease by
the Board of Directors shall have the effect of shortening the term of any
incumbent director. Unless sooner removed in accordance with these Amended and
Restated Bylaws, members of the Board of Directors shall hold office until the
next annual meeting of shareholders and until their successors shall have been
elected and qualified. The Board of Directors, in its discretion, may elect
from the directors a Chairman of the Board who, if present, shall preside at
meetings of the Board of Directors.
Section 2. Qualifications. Directors need not be shareholders
of the Corporation.
Section 3. Vacancies. Any vacancy occurring in the Board of
Directors or any directorship to be filled by reason of an increase in the
number of directors may be filled by election at an annual or special meeting
of shareholders called for that purpose or by the affirmative vote of a
majority of the remaining directors, though less than a quorum of the entire
Board; provided, however, that any directorship to be filled by the Board of
Directors by reason of an increase in the number of directors may be filled for
a term of office continuing only until the next election of one or more
directors by the shareholders; and provided, further, that the Board of
Directors may not fill more than two directorships to be filled by reason of an
increase in the number of directors during the period between any two
successive annual meetings of shareholders. Subject to the foregoing, a
director elected to fill a vacancy shall be elected for the unexpired term of
his predecessor in office.
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Section 4. Place of Meeting. Meetings of the Board of Directors
may be held either within or without the State of Texas, at whatever place is
specified by the officer calling the meeting. In the absence of specific
designation, the meetings shall be held at the principal office of the
Corporation.
Section 5. Regular Meetings. The Board of Directors shall meet
each year immediately following the annual meeting of the shareholders, at the
place of such meeting, for the transaction of such business as may properly be
brought before it. No notice of annual meetings need be given to either
existing or newly elected members of the Board of Directors. Regular meetings
may be held at such other times as shall be designated by the Board of
Directors.
Section 6. Special Meetings. Special meetings of the Board of
Directors may be held at any time upon the call of the Chairman of the Board,
the President or any two directors of the Corporation. Notice of special
meetings shall be given to each director, and may be given by any of the
following methods: (a) by mail or telegram sent to the last known business or
residence address of such director at least four days before the meeting, (b)
by facsimile to the last known business or residence facsimile number of such
director transmitted at least two days before the meeting or (c) orally at
least one day before the meeting. For purposes of the foregoing sentence,
notice shall be deemed given (i) by mail, when deposited in the U.S. mail,
postage prepaid, or by telegram, when the telegram is delivered to the
telegraph company for transmittal, (ii) by facsimile, when transmittal is
confirmed by the sending facsimile machine and (iii) orally, when communicated
in person or by telephone to the director or to a person at the business or
residence of the director who may reasonably be expected to communicate it to
the director. In calculating the number of days' notice received by a
director, the date the notice is given by any of the foregoing methods shall be
counted, but the date of the meeting to which the notice relates shall not be
counted. Notice of the time, place and purpose of a special meeting may be
waived in writing before or after such meeting, and shall be equivalent to the
giving of notice. Attendance of a director at such meeting shall also
constitute a waiver of notice thereof, except where the director attends for
the announced purpose of objecting to the transaction of any business on the
ground that the meeting is not lawfully called or convened. Except as
otherwise herein provided, neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the Board of Directors need be
specified in the notice or waiver of notice of such meeting.
Section 7. Quorum. One-half of the number of directors fixed in
the manner provided in these Amended and Restated Bylaws as from time to time
amended shall constitute a quorum for the transaction of business, but a
smaller number may adjourn from time to time until they can secure the
attendance of a quorum. The act of a majority of the directors present at any
meeting at which a quorum is present shall be the act of the Board of
Directors. Any regular or special directors' meeting may be adjourned from
time to time by those present, whether a quorum is present or not.
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Section 8. Committees. The Board of Directors, by resolution or
resolutions passed by a majority of the whole Board of Directors, may designate
one or more members of the Board of Directors to constitute an Executive
Committee and one or more other committees, which shall in each case consist of
such number of directors as the Board of Directors may determine. The
Executive Committee shall have and may exercise, subject to such restrictions
as may be contained in the Amended and Restated Articles of Incorporation or
that may be imposed by law, all of the authority of the Board of Directors,
including without limitation the power and authority to declare a dividend and
to authorize the issuance of shares of the Corporation. Each other committee
shall have and may exercise such powers of the Board in the management of the
business and affairs of the Corporation, including without limitation the power
and authority to declare a dividend and to authorize the issuance of shares of
the Corporation, as the Board of Directors may determine by resolution and
specify in the respective resolutions appointing them, subject to such
restrictions as may be contained in the Amended and Restated Articles of
Incorporation or that may be imposed by law. Such committee or committees
shall have such name or names as may be determined from time to time by
resolution adopted by the Board of Directors. A majority of all the members of
any such committee may fix its rules of procedure, determine its action and fix
the time and place, whether within or without the State of Texas, of its
meetings and specify what notice thereof, if any, shall be given, unless the
Board of Directors shall provide otherwise by resolution. The Board of
Directors shall have power to change the membership of any such committee at
any time, to fill vacancies therein and to disband any such committee, either
with or without cause, at any time. Each committee shall keep regular minutes
of its proceedings and report the same to the Board of Directors when required.
Section 9. Compensation. Directors may be paid their expenses,
if any, of attendance at each regular or special meeting of the Board of the
Directors or any committee thereof, and a salary as director as may be fixed by
the Board of Directors from time to time; provided, that nothing contained
herein shall be construed to preclude any director from serving the Corporation
in any other capacity and receiving compensation therefor.
Section 10. Removal. No director of the Corporation shall be
removed from such office by vote or other action of the shareholders of the
Corporation or otherwise, except by the affirmative vote of holders of at least
a majority of the then outstanding Voting Stock (as defined below), voting
together as a single class. The term "Voting Stock" shall mean all outstanding
shares of all classes and series of capital stock of the Corporation entitled
to vote generally in the election of directors of the Corporation, considered
as one class; and, if the Corporation shall have shares of Voting Stock
entitled to more or less than one vote for any such share, each reference in
these Bylaws to a proportion or percentage in voting power of Voting Stock
shall be calculated by reference to the portion or percentage of votes entitled
to be cast by holders of such shares generally in the election of directors of
the Corporation. Prior to the Public Status Date, any such removal of a
director of the Corporation may be with or without cause. On and after the
Public Status Date, no director of the Corporation shall be removed from such
office, except for cause, which shall be deemed to exist only if: (i) such
director has been convicted, or such director is granted immunity to testify
where another has been convicted, of a felony by a court of competent
jurisdiction (and such conviction is no longer subject to direct appeal); (ii)
such director has been found by a court
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of competent jurisdiction (and such finding is no longer subject to direct
appeal) or by the affirmative vote of at least a majority of the Whole Board
(as defined below) at any regular or special meeting of the board of directors
called for such purpose to have been grossly negligent or guilty of willful
misconduct in the performance of his duties to the Corporation in a matter of
substantial importance to the Corporation; (iii) such director has been
adjudicated by a court of competent jurisdiction to be mentally incompetent,
which mental incompetency directly affects his ability to perform as a director
of the Corporation; or (iv) such director has been found by a court of
competent jurisdiction (and such finding is no longer subject to direct appeal)
or by the affirmative vote of at least a majority of the Whole Board at any
regular or special meeting of the board of directors called for such purpose to
have breached such director's duty of loyalty to the Corporation or its
shareholders or to have engaged in any transaction with the Corporation from
which such director derived an improper personal benefit. No director of the
Corporation so removed may be nominated, re-elected or reinstated as a director
of the Corporation so long as the cause for removal continues to exist. The
term "Whole Board" shall mean the total number of authorized directors of the
Corporation whether or not there exist any vacancies in previously authorized
directorships. This paragraph shall be subject to the rights, if any, of
holders of any class or series of stock to elect directors and remove directors
elected by them.
Section 11. Action Without a Meeting. Any action required or
permitted to be taken at a meeting of directors or any committee may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all of the directors or members of the committee, as the
case may be, and such consent shall have the same force and effect as a
unanimous vote at a meeting.
ARTICLE IV
OFFICERS
Section 1. Officers. The officers of the Corporation shall be
elected by the Board of Directors, and shall consist of a President and a
Secretary. The Board of Directors, in its discretion, may also elect a Chief
Executive Officer, a Chief Financial Officer, a Chief Operating Officer, one or
more Vice Presidents, a Treasurer and such other officers as the Board of
Directors may from time to time designate, all of whom shall hold office until
their successors are elected and qualified. Any two or more offices may be
held by the same person. The Board of Directors may designate which of such
officers are to be treated as executive officers for purposes of these Amended
and Restated Bylaws or for any other purpose.
The salaries of the officers shall be determined by the Board of
Directors, and may be altered by the Board of Directors from time to time
except as otherwise provided by contract. All officers shall be entitled to be
paid or reimbursed for all costs and expenditures incurred in the Corporation's
business.
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Section 2. Vacancies. Whenever any vacancies shall occur in any
office by death, resignation, increase in the number of officers of the
Corporation, or otherwise, the same shall be filled by the Board of Directors,
and the officer so elected shall hold office until his successor is chosen and
qualified.
Section 3. Removal. Any officer or agent elected or appointed
by the Board of Directors may be removed by the Board of Directors whenever in
its judgment the best interests of the Corporation will be served thereby, but
such removal shall be without prejudice to the contract rights, if any, of the
person so removed. Election or appointment of an officer or agent shall not of
itself create contract rights.
Section 4. Chief Executive Officer. The Chief Executive
Officer, if there is one, shall be subject to the control of the Board of
Directors, and shall in general supervise and control all business and affairs
of the Corporation. The Chief Executive Officer may sign, with the Secretary
or any other proper officer of the Corporation thereunto authorized by the
Board of Directors, certificates for shares of the Corporation, any deeds,
mortgages, bonds, contracts or other instruments which the Board of Directors
has authorized to be executed, except in cases where the signing and execution
thereof shall be expressly delegated by the Board of Directors or by these
Amended and Restated Bylaws to some other officer or agent of the Corporation,
or shall be required by law to be otherwise signed and executed; and in general
shall perform all duties incident to the office of Chief Executive Officer and
such other duties as may be prescribed by the Board of Directors from time to
time. In the absence of the Chairman, or if the directors neglect or fail to
elect a Chairman, then the Chief Executive Officer of the Corporation, if he is
a member of the Board of Directors, shall automatically serve as Chairman of
the Board of Directors.
Section 5. President. In the absence of the Chief Executive
Officer, or in the event of his death or inability to act or refusal to act,
the President shall perform the duties of the Chief Executive Officer and when
so acting shall have all of the powers of and be subject to all of the
restrictions upon the Chief Executive Officer. In general, he shall perform
all duties incident to the office of President and such other duties as may be
prescribed by the Chief Executive Officer or the Board of Directors from time
to time.
Section 6. Chief Operating Officer. The Chief Operating Officer
shall, subject to the control of the Board of Directors, the Chief Executive
Officer, the President and the Chairman of the Board, if there is one, in
general assist the chief executive officer, and shall perform all duties
relating to the general management and operation of the Corporation incident to
the office of Chief Operating Officer and such other duties as may be
prescribed by the Board of Directors from time to time.
Section 7. Chief Financial Officer. The Chief Financial Officer
shall, subject to the control of the Board of Directors, the President, the
Chief Executive Officer and the Chairman of the Board, if there is one, in
general assist the chief executive officer, and shall perform all duties
relating to the general management and operation (with specific attention to
financial
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matters) of the Corporation incident to the office of Chief Financial Officer
and such other duties as may be prescribed by the Board of Directors from time
to time.
Section 8. Vice President. Any Vice President may perform the
usual and customary duties that pertain to such office (but no unusual or
extraordinary duties or powers conferred by the Board of Directors upon the
President) and, under the direction and subject to the control of the Board of
Directors, such other duties as may be assigned to a Vice President.
Section 9. Secretary. It shall be the duty of the Secretary to
attend all meetings of the shareholders and Board of Directors and record
correctly the proceedings had at such meetings in a book suitable for that
purpose. It shall also be the duty of the Secretary to attest with his
signature and the seal of the Corporation all stock certificates issued by the
Corporation and to keep a stock ledger in which shall be correctly recorded all
transactions pertaining to the capital stock of the Corporation. The Secretary
shall also attest with his signature and the seal of the Corporation all deeds,
conveyances or other instruments requiring the seal of the Corporation. The
person holding the office of Secretary shall also perform, under the direction
and subject to the control of the Board of Directors, such other duties as may
be assigned to the Secretary. The duties of the Secretary may also be
performed by any Assistant Secretary.
Section 10. Treasurer. The Treasurer shall keep such moneys of
the Corporation as may be entrusted to his keeping and account for the same.
The Treasurer shall be prepared at all times to give information as to the
condition of the Corporation and shall make a detailed annual report of the
entire business and financial condition of the Corporation. The person holding
the office of Treasurer shall also perform, under the direction and subject to
the control of the Board of Directors, such other duties as may be assigned to
the Treasurer. The duties of the Treasurer may also be performed by any
Assistant Treasurer.
Section 11. Other Officers. Assistant Secretaries, if any, and
Assistant Treasurers, if any, shall have the duties set forth in Sections 9 and
10, respectively, of this Article IV. Any officer whose duties are not set
forth in Sections 4 through 10 of this Article IV shall have such duties as the
Board of Directors, the Chief Executive Officer or the President may prescribe.
Section 12. Delegation of Authority. In the case of any absence
of any officer of the Corporation or for any other reason that the Board may
deem sufficient, the Board of Directors may delegate some or all of the powers
or duties of such officer to any other officer or to any director, employee,
shareholder or agent for whatever period of time seems desirable.
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<PAGE> 14
ARTICLE V
INDEMNITY
Section 1. Indemnification of Directors and Executive Officers.
Each person who at any time shall serve, or shall have served, as a director or
executive officer of the Corporation, or any person who, while a director or
executive officer of the Corporation, is or was serving at the request of the
Corporation as a director, officer, partner, venturer, proprietor, trustee,
employee, agent or similar functionary of another foreign or domestic
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan or other enterprise (each such person referred to herein as an
"Indemnitee"), shall be entitled to indemnification as and to the fullest
extent permitted by Article 2.02-1 of the TBCA. The foregoing right of
indemnification shall not be deemed exclusive of any other rights to which
those to be indemnified may be entitled as a matter of law or under any
agreement, other provision of these Amended and Restated Bylaws, vote of
shareholders or directors, or other arrangement. The Corporation may enter
into indemnification agreements with its officers and directors that
contractually provide to them the benefits of the provisions of this Article V
and include related provisions meant to facilitate the Indemnitees' receipt of
such benefits and such other indemnification protections as may be deemed
appropriate.
Section 2. Advancement or Reimbursement of Expenses. The rights
of Indemnitee provided under the preceding section shall include, but not be
limited to, the right to be indemnified and to have expenses advanced in all
proceedings to the fullest extent permitted by Article 2.02-1 of the TBCA. In
the event that an Indemnitee is not wholly successful, on the merits or
otherwise, in a proceeding but is successful, on the merits or otherwise, as to
any claim in such proceeding, the Corporation shall indemnify Indemnitee
against all expenses actually and reasonably incurred by him or on his behalf
relating to each claim. The termination of a claim in a proceeding by
dismissal, with or without prejudice, shall be deemed to be a successful result
as to such claim. In addition, to the extent an Indemnitee is, by reason of
his corporate status, a witness or otherwise participates in any proceeding at
a time when he is not named a defendant or respondent in the proceeding, he
shall be indemnified against all expenses actually and reasonably incurred by
him or on his behalf in connection therewith. The Corporation shall pay all
reasonable expenses incurred by or on behalf of Indemnitee in connection with
any proceeding or claim, whether brought by the Corporation or otherwise, in
advance of any determination respecting entitlement to indemnification pursuant
to this Article V within 10 days after the receipt by the Corporation of a
written request from Indemnitee reasonably evidencing such expenses and
requesting such payment or payments from time to time, whether prior to or
after final disposition of such proceeding or claim; provided that the
Indemnitee undertakes and agrees in writing that he will reimburse and repay
the Corporation for any expenses so advanced to the extent that it shall
ultimately be determined by a court, in a final adjudication from which there
is no further right of appeal, that Indemnitee is not entitled to be
indemnified against such expenses.
Section 3. Determination of Request. Upon written request to
the Corporation by an Indemnitee for indemnification pursuant to these Amended
and Restated Bylaws, a
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determination, if required by applicable law, with respect to Indemnitee's
entitlement thereto shall be made in accordance with Article 2.02-1 of the TBCA
provided, however, that notwithstanding the foregoing, if a Change in Control
shall have occurred, such determination shall be made by Independent Counsel
selected by the Indemnitee, unless the Indemnitee shall request that such
determination be made in accordance with Article 2.02-1F (1) or (2). The
Corporation shall pay any and all reasonable fees and expenses of Independent
Counsel incurred in connection with any such determination. If a Change in
Control shall have occurred, the Indemnitee shall be presumed (except as
otherwise expressly provided in this Article) to be entitled to indemnification
under this Article upon submission of a request to the Corporation for
indemnification, and thereafter the Corporation shall have the burden of proof
in overcoming that presumption in reaching a determination contrary to that
presumption. The presumption shall be used by Independent Counsel, or such
other person or persons determining entitlement to indemnification, as a basis
for a determination of entitlement to indemnification unless the Corporation
provides information sufficient to overcome such presumption by clear and
convincing evidence or the investigation, review and analysis of Independent
Counsel or such other person or persons convinces him or them by clear and
convincing evidence that the presumption should not apply.
Section 4. Effect of Certain Proceedings. The termination of
any proceeding or of any claim in a proceeding by judgment, order, settlement
or conviction, or upon a plea of nolo contendere or its equivalent, shall not
(except as otherwise expressly provided in this Article) by itself adversely
affect the right of Indemnitee to indemnification or create a presumption that
Indemnitee did conduct himself in good faith and in a manner that he reasonably
believed in the case of conduct in his official capacity, that was in the best
interests of the Corporation or, in all other cases, that was not opposed to
the best interests of the Corporation or, with respect to any criminal
proceeding, that Indemnitee had reasonable cause to believe that his conduct
was unlawful and Indemnitee shall be deemed to have been found liable in
respect of any claim only after he shall have been so adjudged by a court of
competent jurisdiction after exhaustion of all appeals therefrom.
Section 5. Expenses of Enforcement of Article. In the event
that Indemnitee, pursuant to this Article V, seeks a judicial adjudication to
enforce his rights under, or to recover damages for breach of, rights created
under or pursuant to this Article, Indemnitee shall be entitled to recover from
the Corporation, and shall be indemnified by the Corporation against, any and
all expenses actually and reasonably incurred by him in such judicial
adjudication but only if he prevails therein. If it shall be determined in
said judicial adjudication that Indemnitee is entitled to receive part but not
all of the indemnification or advancement of expenses sought, the expenses
incurred by Indemnitee in connection with such judicial adjudication shall be
reasonably prorated in good faith by counsel for Indemnitee. Notwithstanding
the foregoing, if a Change in Control shall have occurred, Indemnitee shall be
entitled to indemnification under this Section 5 regardless of whether
Indemnitee ultimately prevails in such judicial adjudication.
Section 6. Indemnification of other Officers, Employees and
Agents. The Corporation, by adoption of a resolution of the Board of
Directors, may indemnify and advance expenses to an officer who is not an
executive officer, an employee or agent of the Corporation
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to the same extent and subject to the same conditions (or to such lesser extent
and/or with such other conditions as the Board of Directors may determine)
under which it may indemnify and advance expenses to an Indemnitee under this
Article V; and the Corporation may indemnify and advance expenses to persons
who are not or were not directors, officers, employees or agents of the
Corporation, but who are or were serving at the request of the Corporation as
a director, officer, partner, venturer, proprietor, trustee, employee, agent or
similar functionary of another foreign or domestic corporation, partnership,
joint venture, sole proprietorship, trust, employee benefit plan or other
enterprise against any liability asserted against him and incurred by him in
such a capacity or arising out of his status as such a person to the same
extent and subject to the same conditions (or to such lesser extent and/or with
such other conditions as the Board of Directors may determine) that it may
indemnify and advance expenses to Indemnitees under this Article V.
Section 7. Insurance and Self-Insurance Arrangements. The
Corporation may, but is not required to, procure or maintain insurance or other
similar arrangements, at its expense, to protect itself and any person,
including any Indemnitee, who is or was a director, officer, employee, agent or
fiduciary of the corporation or who is or was serving at the request of the
corporation as a director, officer, partner, venturer, proprietor, trustee,
employee, agent or similar functionary of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, against any
expense, liability or loss asserted against or incurred by such person, in such
a capacity or arising out of his status as such a person, whether or not the
Corporation would have the power to indemnify such person against such expense
or liability. In considering the cost and availability of such insurance, the
Corporation, (through the exercise of the business judgment of its directors
and officers), may from time to time, purchase insurance which provides for any
and all of (i) deductibles, (ii) limits on payments required to be made by the
insurer, or (iii) coverage exclusions and/or coverage which may not be as
comprehensive as that which might otherwise be available to the Corporation but
which otherwise available insurance the officers or directors of the
Corporation determine is inadvisable for the Corporation to purchase given the
cost involved. The purchase of insurance with deductibles, limits on payments
and coverage exclusions and/or noncomprehensive insurance will be deemed to be
in the best interest of the Corporation but may not be in the best interest of
the Indemnitees. As to the Corporation, purchasing insurance with deductibles,
limits on payments and coverage exclusions and/or noncomprehensive insurance is
similar to the Corporation's practice of self-insurance in other areas. In
order to protect Indemnitees who would otherwise be more fully or entirely
covered under such policies, the Corporation shall indemnify and hold
Indemnitees harmless to the extent (i) of such deductibles, (ii) of amounts
exceeding payments required to be made by an insurer or (iii) of coverage under
policies of officer's and director's liability insurance that are available,
were available or which became available to the Corporation or which are
generally available to companies comparable to the Corporation but which the
officers or directors of the Corporation determine is inadvisable for the
Corporation to purchase, given the cost involved. The obligation of the
Corporation in the preceding sentence shall be without regard to whether the
Corporation would otherwise be entitled to indemnify such officer or director
under the other provisions of these Amended and Restated Bylaws, or under any
law, agreement, vote of shareholders or directors or other arrangement.
Notwithstanding the foregoing provision of
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this Section 7, an Indemnitee shall not be entitled to indemnification for the
results of his conduct that is intentionally adverse to the interests of the
Corporation. This Section 7 is authorized by Section 2.02-1(R) of the TBCA as
in effect on the date of adoption of these Amended and Restated Bylaws, and
further, is intended to establish an arrangement of self-insurance pursuant to
that section.
Section 8. Severability. If any provision or provisions of this
Article shall be held to be invalid, illegal or unenforceable for any reason
whatsoever, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby; and, to the
fullest extent possible, the provisions of this Article shall be construed so
as to give effect to the intent manifested by the provision held invalid,
illegal or unenforceable.
Section 9. Definitions. The following terms are used herein as
follows:
"Change in Control" means a change in control of the Corporation
occurring after the date of adoption of these Amended and Restated
Bylaws of a nature that would be required to be reported in response to
Item 6(e) of Schedule 14A of Regulation 14A (or in response to any
similar item on any similar schedule or form) promulgated under the
Exchange Act, whether or not the Corporation is then subject to such
reporting requirement; provided, however, that, without limitation, such
a Change in Control shall be deemed to have occurred if at any time
after the date of adoption of these Amended and Restated Bylaws (i) any
"person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of
the Corporation representing 40% or more of the combined voting power of
the Corporation's then outstanding securities without the prior approval
of at least two-thirds of the members of the Board of Directors in
office immediately prior to such person attaining such percentage
interest; (ii) the Corporation is a party to a merger, consolidation,
share exchange, sale of assets or other reorganization, or a proxy
contest, as a consequence of which members of the Board of Directors in
office immediately prior to such transaction or event constitute less
than a majority of the Board of Directors thereafter or (iii) during any
15-month period, individuals who at the beginning of such period
constituted the Board of Directors (including for this purpose any new
director whose election or nomination for election by the Corporation's
shareholders was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning of
such period) cease for any reason to constitute at least a majority of
the Board of Directors.
"Corporate status" means the status of a person who is or was a
director, officer, partner, employee, agent or fiduciary of the
Corporation or of any other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise which such person is or
was serving at the request of the Corporation.
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"Disinterested Director" means a director of the Corporation who
is not a named defendant or respondent to the proceeding or subject to a
claim in respect of which indemnification is sought by Indemnitee.
"Independent Counsel" means a law firm, or a member of a law
firm, that is experienced in matters of corporation law and neither
contemporaneously is, nor in the five years theretofore has been,
retained to represent: (a) the Corporation or Indemnitee in any matter
material to either such party, (b) any other party to the proceeding
giving rise to a claim for indemnification hereunder or (c) the
beneficial owner, directly or indirectly, of securities of the
Corporation representing 40% or more of the combined voting power of the
Corporation's then outstanding voting securities. Notwithstanding the
foregoing, the term "Independent Counsel" shall not include any person
who, under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing either the
Corporation or Indemnitee in an action to determine Indemnitee's rights
to indemnification under these Amended and Restated Bylaws.
ARTICLE VI
MISCELLANEOUS PROVISIONS
Section 1. Amendments. These Amended and Restated Bylaws may be
amended or repealed, or new bylaws adopted, (a) by the Board of Directors,
unless the shareholders in amending, repealing or adopting a particular bylaw
expressly provide that the Board of Directors may not amend or repeal that
bylaw or unless the Amended and Restated Articles of Incorporation or the TBCA
reserves the power to take such action to the shareholders in whole or part or
(b) by the shareholders, unless the Amended and Restated Articles of
Incorporation or a bylaw adopted by the shareholders provides otherwise as to
all or some portion of these Amended and Restated Bylaws; provided that any
amendment or repeal of these Amended and Restated Bylaws by the shareholders
may only be effected at a shareholders meeting for which notice has been given
pursuant to Article II, Section 9 of these Amended and Restated Bylaws.
Section 2. Waiver. Whenever any notice is required to be given
to any shareholder, director or committee member under the provisions of any
law, the Amended and Restated Articles of Incorporation or these Amended and
Restated Bylaws, a waiver thereof in writing signed by the person or persons
entitled to such notice, whether before or after the time stated therein, shall
be equivalent to the giving of such notice.
Section 3. Conference Telephone Meetings. Meetings of
shareholders, directors, or any committee thereof, may be held by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other. Participation in a
meeting pursuant to this Section 3 shall constitute presence in person at such
meeting, except where a person participates in the meeting for the express
purpose
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of objecting to the transaction of any business on the ground that the meeting
is not lawfully called or convened.
Section 4. Offices. The principal office of the Corporation
shall be located in Houston, Texas, unless and until changed by resolution of
the Board of Directors. The Corporation may also have offices at such other
places as the Board of Directors may from time to time designate, or as the
business of the Corporation may require.
Section 5. Resignations. Any director or officer may resign at
any time. Such resignations shall be made in writing and shall take effect at
the time specified therein, or, if no time be specified, at the time of its
receipt by the Chief Executive Officer, President or Secretary. The acceptance
of a resignation shall not be necessary to make it effective, unless expressly
so provided in the resignation.
Section 6. Seal. The seal of the Corporation shall be circular
in form with a five pointed star in the center and the name of the Corporation
around the margin thereof, or in such other form as may be fixed by resolution
of the Board of Directors.
Section 7. Fiscal Year. The fiscal year of the Corporation
shall be the calendar year, or such other fiscal year as shall be fixed by the
resolution of the Board of Directors.
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EXHIBIT 4.2
LOAN AGREEMENT
$10,000,000.00
SECURED REDUCING REVOLVING LINE OF CREDIT
FROM
COMPASS BANK
TO
ENCINITAS PARTNERS LTD
June 26, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II. THE LOAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.01 The Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.02 Advances and Payments of Principal Under the Note . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.03 Payments of Interest under the Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.04 Provisions Relating to Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.05 Advances to Satisfy Obligations of Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.06 Mandatory Prepayment of the Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.07 Borrowing Base Determination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.08 Assignment of Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.09 Commitment Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.10 Facility Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.11 Addition of Borrowing Base Oil & Gas Properties . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE III. CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.01 Receipt of Note, Agreement and Certificate of Compliance . . . . . . . . . . . . . . . . . . . . . . 14
3.02 Receipt of Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.03 Receipt of Organizational Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.04 Receipt of Certified Copy of Partnership/Corporate Proceedings and Certificates of Incumbency . . . 14
3.05 Receipt of Certificates of Authority and Certificates of Good Standing . . . . . . . . . . . . . . . 15
3.06 UCC Search . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.07 Bank Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.08 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.09 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.10 Request for Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.11 Accuracy of Representations and Warranties and No Event of Default . . . . . . . . . . . . . . . . . 15
3.12 Legal Matters Satisfactory to Counsel to Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.13 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.14 Status of Record Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.15 Collateral Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.16 Legal Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.17 Documents Required for Subsequent Disbursements . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.18 McGill Bros. NCT-1 No. 74 Well and Womack #1 Well . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE IV. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.01 Existence and Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.02 Due Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
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4.03 Valid and Binding Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.04 Title to Borrowing Base Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.05 Oil and Gas Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.06 Interest in the Borrowing Base Oil and Gas Properties . . . . . . . . . . . . . . . . . . . . . . . 18
4.07 Oil and Gas Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.08 Producing Wells . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.10 Scope and Accuracy of Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.11 Liabilities, Litigation and Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.12 Margin Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.13 Authorizations and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.14 Compliance with Laws, Rules, Regulations and Orders . . . . . . . . . . . . . . . . . . . . . . . . 20
4.15 Proper Filing of Tax Returns and Payment of Taxes Due . . . . . . . . . . . . . . . . . . . . . . . 21
4.16 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.17 Investment Company Act Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.18 Public Utility Holding Company Act Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.19 Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE V. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.01 Use of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.02 Maintenance and Access to Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.03 Quarterly Unaudited Financial Statements of Borrower . . . . . . . . . . . . . . . . . . . . . . . . 23
5.04 Annual Unaudited Financial Statements of Guarantor . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.05 Annual Audited Financial Statements of Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.06 Compliance Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.07 Statement of Material Adverse Change in Condition . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.08 Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.09 Compliance with Laws and Payment of Assessments and Charges . . . . . . . . . . . . . . . . . . . . 24
5.10 Maintenance of Existence and Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.11 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.12 Initial Expenses of Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.13 Subsequent Expenses of Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.14 Maintenance of Tangible Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.15 Maintenance of Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.16 Inspection of Tangible Assets/Right of Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.17 Payment of Note and Performance of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.18 ERISA Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.19 Tangible Net Worth Requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
</TABLE>
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5.20 Cash Flow to Debt Service Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.21 Compliance with Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.22 Hazardous Substances Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.23 Changes in Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.24 Operating Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE VI. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.01 Other Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.02 Guaranty of Payment or Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.03 Loans or Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.04 Mortgages or Pledges of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.05 Nature of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.06 Sales of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.07 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.08 Payment of Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.09 Cancellation of Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.10 Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.11 Changes in Business Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.12 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE VII. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.01 Enumeration of Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.02 Rights Upon Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE VIII. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.01 Security Interests in Deposits and Right of Offset or Banker's Lien . . . . . . . . . . . . . . . . 32
8.02 Survival of Representations, Warranties and Covenants . . . . . . . . . . . . . . . . . . . . . . . 32
8.03 Notices and Other Communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.04 Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.05 Renewals and Extensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.06 No Waiver by Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.07 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.08 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.09 Incorporation of Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.10 Survival Upon Unenforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.11 Rights of Third Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.12 Amendments or Modifications of this Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.13 Agreement Construed as an Entirety . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.14 Number and Gender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.15 AGREEMENT SUPERSEDES ALL PRIOR AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.16 Controlling Provision Upon Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
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8.17 Time, Place and Method of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.18 Counterpart Execution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
</TABLE>
EXHIBITS
EXHIBIT A Borrowing Base Properties
EXHIBIT B Compliance Certificate
EXHIBIT C Note
EXHIBIT D Security Instruments
EXHIBIT E Form of Request for Advance
SCHEDULES
3.09 Matters to be Covered by Opinion of Counsel for Borrower and
Guarantor
4.09 Purchasers of Production
4.11 Litigation
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LOAN AGREEMENT
THIS LOAN AGREEMENT, is entered into as of the 26th day of
June 1996, by and among ENCINITAS PARTNERS LTD., a Texas limited partnership
(the "Borrower"), CARRIZO PRODUCTION, INC., a Texas corporation (the
"Guarantor"), and COMPASS BANK, a Texas chartered bank (the "Bank").
W I T N E S S E T H
WHEREAS, Borrower desires to obtain a loan from Bank in order
to refinance existing debt, acquire additional oil and gas reserves, conduct
developmental drilling, and use as working capital for other ordinary business
of the partnership; and
WHEREAS, Guarantor is the sole general partner of Borrower and
owns a partnership interest in Borrower, and accordingly, Guarantor will
benefit from the loans to Borrower pursuant to this Agreement; and
WHEREAS, Bank is willing to loan such funds to Borrower in
accordance with the terms of this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, Bank, Borrower and Guarantor agree as follows:
ARTICLE I. DEFINITIONS
As used in this Agreement, the following terms shall have the
meanings indicated:
"Affiliate" means, as applied to any Person, any other Person,
directly or indirectly, controlling, controlled by, or under common control
with, that Person. For purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling", "controlled by", and "under
common control with"), as applied to any Person, means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of that Person, whether through the ownership of voting
securities, by contract, or otherwise.
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<PAGE> 7
"Agreement" means this Loan Agreement, as the same may be
amended or supplemented from time to time.
"Bank" has the meaning set forth in the preamble hereof.
"Borrower" has the meaning set forth in the preamble hereof.
"Borrowing Base" means the maximum loan amount supported by
the Borrowing Base Properties, as determined by Bank from time to time in
accordance with Section 2.07 of this Agreement, and which is $3,000,000.00 as
of the date of this Agreement.
"Borrowing Base Properties" means those properties of Borrower
that are to be made subject to the liens created by the Security Instruments to
secure the Obligations, which initial Borrowing Base Properties are described
in Exhibit "A" attached hereto and made a part hereof, together with such
additional Oil and Gas Properties as are subsequently added to the Borrowing
Base Properties pursuant to Section 2.11.
"Business Day" means a day other than a Saturday, Sunday or
legal holiday for commercial banks under the laws of the State of Texas.
"Compliance Certificate" means the certificate of the
president or vice president of the sole general partner of Borrower required to
be submitted to Bank from time to time pursuant to this Agreement, which
certificate shall be in the form attached hereto as Exhibit "B."
"Environmental Laws" means (a) the following federal laws as
they may be cited, referenced and amended from time to time: the Clean Air Act,
the Clean Water Act, the Safe Drinking Water Act, the Comprehensive
Environmental Response, Compensation and Liability Act, the Endangered Species
Act, the Resource Conservation and Recovery Act, the Occupational Safety and
Health Act, the Hazardous Materials Transportation Act, the Superfund
Amendments and Reauthorization Act, and the Toxic Substances Control Act; (b)
any and all environmental statutes of any state in which property of Borrower
is situated, as they may be cited, referenced and amended from time to time;
(c) any rules or regulations promulgated under or adopted pursuant to the above
federal and state laws; and (d) any other federal, state or local
2
<PAGE> 8
statute or any requirement, rule, regulation, code, ordinance or order adopted
pursuant thereto, including, without limitation, those relating to the
generation, transportation, treatment, storage, recycling, disposal, handling
or release of Hazardous Substances.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations and published
interpretations thereof.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) which together with Borrower would be treated as a single
employer under Section 4001 of ERISA.
"Event of Default" means any of the events specified in
Section 7.01 of this Agreement.
"Financial Statements" means the statements of the financial
condition of the indicated Person, as at the point in time and for the period
indicated and consisting of at least a consolidated balance sheet, income
statement and statement of cash flows, and, when the foregoing are audited,
accompanied by the certification of such Person's independent certified public
accountants and footnotes to any of the foregoing, all of which shall be
prepared in accordance with GAAP applied on a basis consistent with that of the
preceding year.
"Floating Rate" means the Index Rate in effect from time to
time plus three-quarters of one percent (.75%).
"GAAP" means generally accepted accounting principles, applied
on a consistent basis, as set forth in Opinions of the Accounting Principles
Board of the American Institute of Certified Public Accountants and/or in
statements of the Financial Accounting Standards Board and/or their respective
successors and which are applicable in the circumstances as of the date in
question. Accounting principles are applied on a "consistent basis" when the
accounting principles observed in a current period are comparable in all
material respects to those accounting principles applied in a preceding period.
"Guarantor" has the meaning set forth in the preamble hereof.
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<PAGE> 9
"Guaranty" means the guaranty of all of Borrower's Obligations
to Bank arising under this Agreement, in form and substance satisfactory to
Bank, duly executed by Guarantor.
"Hazardous Substances" means flammables, explosives,
radioactive materials, hazardous wastes, asbestos or any material containing
asbestos, polychlorinated biphenyls (PCBs), toxic substances or related
materials, petroleum and petroleum products and associated oil or natural gas
exploration, production and development wastes or any substances defined as
"hazardous substances", "hazardous materials", "hazardous wastes" or "toxic
substances" under the Comprehensive Environmental Response, Compensation and
Liability Act, as amended, the Superfund Amendments and Reauthorization Act, as
amended, the Hazardous Materials Transportation Act, as amended, the Resource
Conservation and Recovery Act, as amended, the Toxic Substances Control Act, as
amended, or any other Environmental Laws now or hereafter enacted or
promulgated by any regulatory authority or governmental body.
"Indebtedness" means, as to any Person, (a) all items of
indebtedness or liability (other than capital, surplus, deferred credits and
reserves, as such) which in accordance with GAAP would be included in
determining total liabilities as shown on the liability side of a balance sheet
as at the date as of which Indebtedness is to be determined, (b) indebtedness
secured by any mortgage, pledge or lien existing on or encumbering property
owned by the Person whose Indebtedness is being determined, whether or not the
indebtedness secured thereby shall have been assumed, and (c) all indebtedness
of others which such Person has directly or indirectly guaranteed, endorsed
(otherwise than for collection or deposit in the ordinary course of business),
discounted with recourse, agreed (contingently or otherwise) to purchase or
repurchase or otherwise acquire, or in respect of which such Person has agreed
to supply or advance funds (whether by way of loan, purchase of securities or
capital contribution, through a commitment to pay for property or services
regardless of the nondelivery of such property or the nonfurnishing of such
services or otherwise), or in respect of which such Person has otherwise become
directly or indirectly liable, contingently or otherwise, whether now existing
or hereafter arising.
"Index Rate" means, at any time, the prime rate established in
The Wall Street Journal's "Money Rates" or similar table. If multiple prime
rates are quoted in the table, then the
4
<PAGE> 10
highest prime rate will be the Index Rate. In the event that the prime rate is
no longer published by The Wall Street Journal in the "Money Rates" or similar
table, then Bank may select an alternative published index based upon
comparable information as a substitute Index Rate. Upon the selection of a
substitute Index Rate, the applicable interest rate shall thereafter vary in
relation to the substitute index. Such substitute index shall be the same
index that is generally used as a substitute by Bank on all Index Rate loans.
The Index Rate is eight and one-quarter percent (8.25%) as of the date of this
Agreement.
"Investment" in any Person means any stock, bond, note or
other evidence of Indebtedness or any other security (other than current trade
and customer accounts) of, or loan to, such Person.
"Leases" means oil and gas leases and all oil, gas and mineral
leases constituting any part of the Borrowing Base Properties.
"Limitation Period" means any period while any amount remains
owing on the Note and interest on such amount calculated at the Floating Rate,
plus any fees payable hereunder and deemed to be interest under applicable law,
would exceed the Maximum Rate.
"Loan" means, singly, any advance by Bank to Borrower pursuant
to this Agreement and "Loans" means, cumulatively, the aggregate sum of all
money advanced by Bank to Borrower pursuant to this Agreement.
"Loan Documents" means this Agreement and all promissory
notes, security agreements, guaranties, and other instruments, documents, and
agreements executed and delivered pursuant to or in connection with this
Agreement, as such instruments, documents, and agreements may be amended,
modified, renewed, extended, or supplemented from time to time.
"Loan Excess" means, at any point in time, the amount, if any,
by which the outstanding balance on the Loans evidenced by the Note exceeds the
Revolving Commitment then in effect.
"Marketable Title" means good and indefeasible title free and
clear of all mortgages, liens and encumbrances, except for Permitted
Encumbrances.
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<PAGE> 11
"Maturity Date" means June 1, 1998.
"Maximum Rate" means the maximum non-usurious interest rate
permissible under applicable laws of the State of Texas or those of the United
States of America applicable to Bank.
"Monthly Borrowing Base Reduction" means the amount of the
automatic monthly reduction to the Borrowing Base, as determined by Bank from
time to time in accordance with Section 2.07 of this Agreement.
"Multi-employer Plan" means a plan described in Section
4001(a)(3) of ERISA which covers employees of Borrower or any ERISA Affiliate.
"Note" means that certain promissory note in the original face
amount of $10,000,000.00, dated of even date herewith, made by Borrower payable
to the order of Bank, in the form attached hereto as Exhibit "C," together with
all deferrals, renewals, extensions, amendments, modifications or
rearrangements thereof, which promissory note shall evidence the advances to
Borrower by Bank pursuant to Section 2.01 hereof.
"Obligations" means all obligations, indebtedness, and
liabilities of Borrower to Bank, now existing or hereafter arising, including,
but not limited to, the indebtedness evidenced by the Note, whether direct,
indirect, related, unrelated, fixed, contingent, specified, unspecified, joint,
several, or joint and several, and all interest and fees accruing thereon and
all attorneys' fees and other expenses incurred in the enforcement or
collection thereof.
"Oil and Gas Properties" means fee, leasehold or other
interests in or under mineral estates or oil, gas and other liquid or gaseous
hydrocarbon leases with respect to properties situated in the United States,
including, without limitation, overriding royalty and royalty interests,
leasehold estate interests, net profits interests, production payment interests
and mineral fee interests, together with all contracts executed in connection
therewith, all oil, gas and other minerals produced and to be produced
therefrom, all proceeds thereof, and all tenements, hereditaments,
appurtenances and properties, real or personal, appertaining, belonging,
affixed or incidental thereto.
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<PAGE> 12
"Permitted Encumbrances" means:
(A) Liens for taxes, assessments, or similar charges,
incurred in the ordinary course of business that are not yet
due and payable;
(B) Liens of mechanics, materialmen, warehousemen,
carriers, or other similar liens, securing obligations
incurred in the ordinary course of business that are not yet
due and payable;
(C) Encumbrances consisting of zoning restrictions,
easements, or other restrictions on the use of real property,
none of which materially impairs the use of such property by
Borrower in the operation of its business, and none of which
is violated in any material respect by existing or proposed
operations;
(D) Liens in favor of Bank;
(E) The following, if the validity or amount thereof is
being contested in good faith by appropriate and lawful
proceedings, so long as levy and execution thereon have been
stayed and continue to be stayed, and in Bank's sole judgment
they do not, in the aggregate, materially detract from the
value of the property of Borrower or any Subsidiary, or
materially impair the use thereof in the operation of its
business:
(1) Claims or liens for taxes, assessments, or
similar charges; and
(2) Claims or liens of mechanics, materialmen,
warehousemen, carriers, or other similar liens.
"Person" means an individual, company, corporation,
partnership, limited partnership, joint venture, trust, association,
unincorporated organization or a government or any agency or political
subdivision thereof.
"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
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"Prohibited Transaction" means any transaction set forth in
Section 406 of ERISA or Section 4975 of the Internal Revenue Code of 1954, as
amended from time to time.
"Proved Reserves" means the estimated quantities of crude oil,
condensate, natural gas liquids and natural gas which geological and
engineering data demonstrate with reasonable certainty to be recoverable by
primary producing mechanisms in future years from known reservoirs underlying
lands or interests therein constituting Oil and Gas Properties, under existing
economic and operating conditions. Reserves which can be produced economically
through application of improved recovery techniques (e.g., fluid injection)
will be included in Proved Reserves when successful testing by a pilot project
or the operation of an installed program in the reservoir provides support for
the engineering analysis on which the pilot project or installed program was
based. In general, the economic productivity of the estimated proved reserves
is supported by actual production or a conclusive formation test; however, in
certain instances proved reserves are assigned to reservoirs on the basis of a
combination of electrical and other type logs and core analyses which indicate
these reservoirs are analogous to similar reservoirs in the same field which
are producing or have demonstrated the ability to produce on a formation test.
"Reportable Event" means any of the events set forth in
Section 4043 of ERISA.
"Request for Advance" means the written request by Borrower
for an advance by Bank pursuant to this Agreement, which Request for Advance
shall be in a form, and shall include the information and accompanying
supporting documentation, as prescribed in Exhibit "E" attached hereto.
"Revolving Commitment" means the obligation of Bank, subject
to the provisions of this Agreement and existing only through the last Business
Day prior to the Maturity Date, to advance to Borrower funds, not to exceed at
any one time outstanding an amount equal to the Borrowing Base then in effect.
"Security Instruments" means the security instruments
described on Exhibit "D," in form and substance satisfactory to Bank, to be
executed by Borrower pursuant to Section 3.15, and any
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and all other instruments or documents hereafter executed in connection with or
as security for the payment of the Note.
"Subsidiary" means, with respect to Borrower and Guarantor,
respectively, (a) any corporation in which Borrower or Guarantor, directly or
indirectly through its Subsidiaries, owns more than fifty percent (50%) of the
stock of any class or classes having by the terms thereof the ordinary voting
power to elect a majority of the directors of such corporation; and (b) any
partnership, association, joint venture, or other entity in which Borrower or
Guarantor, respectively, directly or indirectly through its Subsidiaries, has
more than a fifty percent (50%) equity interest at the time.
"Tangible Net Worth" means the total assets of Borrower
exclusive of (a) those assets classified as intangible, including, without
limitation, goodwill, patents, trademarks, trade names, copyrights, franchises
and deferred charges, (b) treasury stock and minority interests in any Person,
(c) cash set apart and held in a sinking or other analogous fund established
for the purpose of redemption or other retirement of capital stock, (d) to the
extent not already deducted from total assets, allowances for depreciation,
depletion, obsolescence and/or amortization of properties, uncollectible
accounts, and contingent but probable liabilities as to which an amount can be
established, (e) deferred taxes and (f) all assets arising from advances to
officers, former officers or sales representatives of Borrower made outside of
the ordinary course of business; less total liabilities of Borrower; all of the
above being determined in accordance with GAAP.
"Unmatured Event of Default" means any event or occurrence
which solely with the lapse of time or the giving of notice or both will ripen
into an Event of Default.
Undefined financial accounting terms used in this Agreement
shall be defined in accordance with GAAP.
ARTICLE II. THE LOAN
2.01 The Loan. Upon the terms and conditions (including,
without limitation, the right of Bank to terminate the Revolving Commitment
hereunder upon an Event of Default or an Unmatured Event of Default) and
relying on the representations and warranties contained in this Agreement, Bank
agrees, for a period
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from and after the date hereof through the last Business Day prior to the
Maturity Date, to make advances for the account of Borrower from time to time
following receipt of a Request for Advance; provided, however, that the
aggregate principal amount of all Loans at any one time outstanding shall not
exceed the Revolving Commitment.
Through the last Business Day prior to the Maturity Date,
Borrower may use this revolving credit by borrowing, prepaying and reborrowing,
all in accordance with the terms and conditions of this Agreement. The
borrowings made by Borrower pursuant to the Revolving Commitment shall be made
at the principal office of Bank and shall be evidenced by the Note. The entire
principal amount of the Note is due on the Maturity Date.
2.02 Advances and Payments of Principal Under the Note.
Each time an advance is made against or payment is made on the Note, Bank is
hereby irrevocably authorized by Borrower to make appropriate entries of such
in its records in accordance with the usual and customary practices of
accounting for advances and payments on notes; provided, however, the failure
of Bank to do so shall not relieve Borrower of its correct liability hereunder
or under the Note.
The aggregate unpaid amount of advances reflected by the
notations by Bank on its records or the ledger sheets affixed to the Note shall
be deemed rebuttably presumptive evidence of the principal amount owing on the
Note. The liability for payment of principal and interest evidenced by the
Note shall be limited to principal amounts actually advanced to Borrower and
outstanding under this Agreement and interest on such amounts calculated in
accordance with this Agreement. Interest provided for in the Note and herein
shall be calculated on unpaid sums actually advanced and outstanding under the
Note pursuant to the terms of this Agreement and only for the period from the
date or dates of such advances until repayment.
2.03 Payments of Interest under the Note. Subject to the
terms and provisions of this Agreement, interest on the Loan, calculated at the
Floating Rate, shall be due and payable monthly as it accrues beginning August
1, 1996, and continuing thereafter on the first day of each succeeding calendar
month while any amount remains owing on the Note and at the Maturity Date, the
interest payment in each instance to be that which has been earned and
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remains unpaid. The rate of interest charged on the Loan shall be adjusted,
effective on the effective date of each change in the Index Rate.
2.04 Provisions Relating to Interest. All Loans
hereunder and outstanding from time to time shall bear interest at a daily rate
equal to the Floating Rate per annum, each such change in the rate of interest
charged on the Loans to become effective without notice to Borrower, on the
effective date of each change in the Index Rate, calculated on the basis of a
year of three hundred sixty-five or three hundred sixty-six (365 or 366) days,
as applicable, from the date of advance through the date of repayment.
It is the intention of the parties hereto to comply strictly
with the usury laws of the State of Texas and the United States of America and,
in this connection, there shall never be collected, charged or received on any
sums advanced hereunder interest in excess of the Maximum Rate. For purposes
of Article 5069-1.04, Vernon's Texas Civil Statutes, as amended, Borrower
agrees that the maximum rate to be charged shall be the "indicated (weekly)
rate ceiling" as defined in said Article, provided that Bank may also rely to
the extent permitted by applicable laws of the State of Texas or the United
States of America, on alternative maximum rates of interest under other
applicable laws of the State of Texas or the United States of America
applicable to Bank, if greater. Interest on past due interest and principal
shall be at a daily rate equal to the lesser of (a) the Maximum Rate per annum
or (b) the Floating Rate plus three percent (3%) per annum, calculated on the
basis of a year of three hundred sixty-five or three hundred sixty-six (365 or
366) days, as applicable, for the number of days elapsed; and if no Maximum
Rate exists, all past due interest and principal shall bear interest at a daily
rate equal to the Floating Rate plus three percent (3%) per annum, calculated
on a year of three hundred sixty-five or three hundred sixty-six (365 or 366),
as applicable, days for the number of days elapsed. Notwithstanding anything
herein or in the Note to the contrary, during any Limitation Period, the
interest rate to be charged on amounts evidenced by the Note shall be the
Maximum Rate and the obligation of Borrower for any fees payable hereunder and
deemed to be interest under applicable law shall be suspended. During any
period or periods of time following a Limitation Period, to the extent
permitted by applicable laws of the State of Texas or the United States of
America, the interest rate to be charged hereunder shall remain at the Maximum
Rate until such time as there has been
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paid to Bank (a) the amount of interest in excess of the Maximum Rate that Bank
would have received during the Limitation Period had the interest rate remained
at the relevant Floating Rate and (b) all interest and fees otherwise due to
Bank but for the effect of such Limitation Period.
If under any circumstances the aggregate amounts paid on the
Note or under this Agreement include amounts which by law are deemed interest
and which would exceed the amount permitted if the Maximum Rate were in effect,
Borrower stipulates that such payment and collection will have been and will be
deemed to have been, to the extent permitted by applicable laws of the State of
Texas or the United States of America, the result of mathematical error on the
part of both Borrower and Bank, and Bank shall promptly refund the amount of
such excess (to the extent only of such interest payments above the Maximum
Rate which could lawfully have been collected and retained) upon discovery of
such error by Bank or notice thereof from Borrower.
2.05 Advances to Satisfy Obligations of Borrower. Bank
may, but shall not be obligated to, make advances hereunder and apply same to
the satisfaction of any condition, warranty, representation or covenant of
Borrower contained in this Agreement, and the funds so advanced and applied
shall be part of the Loan proceeds advanced under this Agreement and evidenced
by the Note.
2.06 Mandatory Prepayment of the Notes. In the event
that Bank or Borrower determine that a Loan Excess exists, Borrower shall
immediately, but in no event later than thirty (30) days following notice from
Bank of any such determination, (i) prepay the principal of the Note in an
aggregate amount at least equal to such Loan Excess or (ii) add to the
Borrowing Base Properties additional Oil and Gas Properties of Borrower
sufficient in value, as determined by Bank in its sole discretion pursuant to
Section 2.07, to increase the Borrowing Base to equal the unpaid principal
amount of the Note.
2.07 Borrowing Base Determination. The initial Borrowing
Base is hereby established at $3,000,000.00, effective as of the date hereof.
Subject to the other provisions of this Agreement, the Borrowing Base shall be
automatically reduced commencing on August 1, 1996, by the Monthly Borrowing
Base Reduction, which is initially established at $90,000.00.
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If and when both of the McGill Brothers NCT-1 #77 and #78
wells (as more fully described on Exhibit "A" attached hereto) are completed as
wells capable of producing oil or gas in paying quantities on or before the
first Borrowing Base review occurring after the date of this Agreement, have
been producing oil or gas for at least ten consecutive days, and have commenced
sales of such production, Borrower shall notify Bank thereof and provide Bank
with the completion reports for such wells, documentary evidence that the
production and sale of oil and gas therefrom have commenced, and such other
information relative to the wells as Bank may request. Following the Bank's
evaluation of such information, if the Bank determines in its sole discretion
that its preliminary evaluation of such wells has been reconfirmed, the
Borrowing Base then in effect will increase by $800,000.00, effective upon
Bank's written notification to Borrower of such increase.
On or before October 1, 1996, Borrower shall furnish to Bank
information sufficient to update to an effective date of July 1, 1996, the most
recent petroleum engineering reports and geological data provided to Bank prior
to Closing relative to the Proved Reserves that are attributable to the Oil and
Gas Properties that constitute part of the Borrowing Base Properties, as well
as such other information as Bank may request regarding volumes of production
produced and sold, contracts, pricing, gross revenues, expenses, and other
information and engineering and geological data as may relate to the Borrowing
Base Properties (collectively the "Borrowing Base Property Data"). Upon
receipt of such Borrowing Base Property Data, Bank shall, in the normal course
of business, endeavor to make a determination by December 1, 1996, of the
Borrowing Base and the Monthly Borrowing Base Reduction which shall become
effective upon written notification from Bank to Borrower, and which, subject
to the other provisions of this Agreement, shall be the basis on which the
Borrowing Base shall thereafter be calculated until the effective date of the
next redetermination of the Borrowing Base and the Monthly Borrowing Base
Reduction as set forth in this Section. Thereafter, on or before each
succeeding April 1 and October 1 until the Maturity Date, Borrower shall
furnish to Bank a report, in form and substance satisfactory to Bank, which
report shall set forth, as of each preceding January 1 or July 1, as
applicable, such Borrowing Base Property Data as Bank may request attributable
to the Borrowing Base Properties. Each report to be provided on or before each
April 1 shall be a complete report relating to the Borrowing Base Property
Data, prepared by an independent petroleum engineer or firm of engineers
satisfactory to
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Bank. Each report to be provided on or before each October 1 shall simply
update the previous complete report, and may be prepared by Borrower's own
engineers and shall be certified by the President of the general partner of
Borrower. Upon receipt of each such report, Bank shall, in the normal course
of business, make a determination of the Borrowing Base and the Monthly
Borrowing Base Reduction which shall become effective upon written notification
from Bank to Borrower, and which, subject to the other provisions of this
Agreement, shall be the basis on which the Borrowing Base shall thereafter be
calculated until the effective date of the next redetermination of the
Borrowing Base and the Monthly Borrowing Base Reduction as set forth in this
Section. Bank may redetermine the Borrowing Base and the Monthly Borrowing
Base Reduction at any time, and from time to time, which redetermination shall
become effective upon written notification from Bank to Borrower and which,
subject to the other provisions of this Agreement, shall be the basis on which
the Borrowing Base shall thereafter be calculated until the effective date of
the next redetermination of the Borrowing Base and the Monthly Borrowing Base
Reduction, as set forth in this Section.
Beginning with the delivery of the Borrowing Base Property
Data due by October 1, 1996, and continuing as and when Borrower is required to
provide to Bank each semi-annual report, as required by the provisions of this
Section, Borrower shall contemporaneously pay an engineering fee of $5,000.00
to Bank for Bank's analysis of such report and redetermination of the Borrowing
Base and the Monthly Borrowing Base Reduction. At any time engineering reviews
are requested by Borrower in connection with a Borrowing Base redetermination,
other than the semi-annual reviews required by Bank, an additional fee of
$5,000.00 shall be paid to Bank for Bank's analysis of such report and
redetermination of the Borrowing Base.
The Borrowing Base shall represent Bank's determination, in
accordance with its customary lending practices in effect from time to time, of
the maximum loan amount that may be supported by the Borrowing Base Properties.
Borrower and Bank acknowledge that (a) due to the uncertainties of the oil and
gas extraction process, the Borrowing Base Properties are not subject to
evaluation with a high degree of accuracy and are subject to potential rapid
deterioration in value, and (b) for this reason and the difficulties and
expenses involved in liquidating and collecting against the Borrowing Base
Properties, Bank's determination of the
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maximum loan amount with respect to the Borrowing Base Properties contains an
equity cushion, which equity cushion is acknowledged by Borrower as essential
for the adequate protection of Bank.
2.08 Assignment of Production. Certain of the Security
Instruments covering the Borrowing Base Properties contain an assignment unto
and in favor of Bank of all oil, gas and other minerals produced and to be
produced from or attributable to the Oil and Gas Properties that constitute
part of the Borrowing Base Properties, together with all of the revenues and
proceeds attributable to such production, and such Security Instruments further
provide that all such revenues and proceeds which may be so collected by Bank
pursuant to the assignment shall be applied to the payment of the Note and the
satisfaction of all other Indebtedness to be secured by such Security
Instruments. Borrower hereby appoints Bank as its agent and attorney-in-fact
for all purposes deemed by Bank to be necessary or desirable in connection with
such assignment of production, including, but not limited to, completing the
letter transfer orders delivered to Bank pursuant to Sections 3.15 and/or 3.17
hereof, which power is coupled with an interest and is not revocable.
2.09 Commitment Fee. As consideration for the commitment
of Bank to make Loans to Borrower through the Maturity Date pursuant to this
Agreement, Borrower agrees to pay to Bank within three (3) Business Days of
receipt of Bank's statement as to quarterly periods ending March 31, June 30,
September 30 and December 31 of each year (except the first period shall be for
a period of time from the Closing to September 30, 1996) during the period
commencing on the date of this Agreement to and including the Maturity Date and
at the Maturity Date, a fee equal to 1/2 of 1% per annum (computed on the basis
of 365 or 366 days, as the case may be) multiplied by an amount equal to the
daily average excess, if any, of the Revolving Commitment over the aggregate
principal amount outstanding on the Note during the period from the date of
this Agreement or previous calculation date provided above, whichever is later,
to the relevant calculation date or the Maturity Date, as the case may be.
2.10 Facility Fee. As consideration for the commitment
of Bank to make Loans to Borrower pursuant to this Agreement, Borrower shall
pay to Bank a fee ("Facility Fee") of $38,000.00, one-half of which has
heretofore been paid, and the remaining $19,000.00 of which shall be paid
simultaneously with the Closing.
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If the Revolving Commitment is ever increased to an amount exceeding
$3,800,000.00, then at the time such increase becomes effective, Borrower shall
pay Bank an additional Facility Fee equal to one percent (1.0%) of the amount
by which such increased Revolving Commitment exceeds either: (a)
$3,800,000.00, or (b) the highest Revolving Commitment amount previously in
effect, if greater than $3,800,000.00.
2.11 Addition of Borrowing Base Oil & Gas Properties.
Borrower may, from time to time upon thirty (30) days prior written notice to
Bank, propose to add Oil and Gas Properties of Borrower to the Borrowing Base
Properties. Any such proposal to add Oil and Gas Properties of Borrower to the
Borrowing Base Properties shall be accompanied by an engineering report
applicable to such Oil and Gas Properties that conforms to the requirements of
Section 2.07, evidence sufficient to establish that Borrower has Marketable
Title to such Oil and Gas Properties, and such other data as Bank may
reasonably request. Any such addition shall become effective at such time as:
(a) Bank has made its determination in the ordinary course of business of the
amount by which the Borrowing Base would be increased as the result of such
addition and (b) the conditions set forth in Article III hereof, to the extent
they are applicable to such additional Oil and Gas Properties of Borrower, have
been satisfied.
ARTICLE III. CONDITIONS
The obligation of Bank to make the Loan referred to in Article
II of this Agreement is subject to satisfaction of the following conditions
precedent stated in this Article III. The obligation of Bank to make
subsequent advances pursuant to this Agreement is subject to the prior or
contemporaneous satisfaction of the conditions precedent stated in Sections
3.10 through 3.17.
3.01 Receipt of Note, Agreement and Certificate of
Compliance. Bank shall have received the Note, multiple counterparts of this
Agreement, as requested by Bank, and the Certificate of Compliance duly
executed by an authorized officer for Borrower and, as to the Agreement, by
Guarantor.
3.02 Receipt of Guaranty. Bank shall have received from
Guarantor the Guaranty, duly executed by Guarantor.
3.03 Receipt of Organizational Documents.
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a. Bank shall have received from Borrower its
Certificate of Limited Partnership certified by the Secretary of State of the
state of its formation and its Partnership Agreement certified by the secretary
or an assistant secretary of the general partner of Borrower.
b. Bank shall have received from Guarantor its Articles
of Incorporation certified by the Secretary of State of the state of its
incorporation and its bylaws certified by the secretary or an assistant
secretary of Guarantor.
3.04 Receipt of Certified Copy of Partnership/Corporate
Proceedings and Certificates of Incumbency. Bank shall have received from
Guarantor, in its capacity as Guarantor and in its capacity as general partner
of Borrower, copies of all resolutions of its board of directors with respect
to the transactions set forth in this Agreement and the execution of this
Agreement, the Note (as to Borrower only) and those of the Security Instruments
to which it is a party, such copy or copies to be certified by the secretary or
an assistant secretary as being true and correct and in full force and effect
as of the date hereof. In addition, Bank shall have received from Guarantor,
in its capacity as Guarantor and in its capacity as general partner of
Borrower, a certificate of incumbency signed by the secretary or an assistant
secretary of Guarantor setting forth (a) the names of the officers executing
this Agreement, the Note (as to Borrower only) and those of the Security
Instruments to which it is a party, (b) the office(s) to which such Persons
have been elected and in which they presently serve and (c) an original
specimen signature of each such person.
3.05 Receipt of Certificates of Authority and
Certificates of Good Standing. Bank shall have received certificates, as of
the most recent dates practicable, of the Secretary of State of each state in
which Borrower is qualified as a foreign limited partnership, and the
department of revenue or taxation of each of the foregoing states, as to the
good standing of Borrower;
3.06 UCC Search. The results of a Uniform Commercial
Code search showing all financing statements and other documents or instruments
on file against Borrower and Guarantor, in the Offices of the Secretaries of
State of the State of Texas and in the counties in which Borrowing Base
Properties are located, such
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search to be as of a date no more than ten (10) days prior to the date of the
advance of the Loan.
3.07 Bank Fees. Bank shall have contemporaneously
received the facility fee required by Section 2.10.
3.08 Financial Statements. Bank shall have received
consolidated Financial Statements of Borrower and Guarantor, respectively, as
of March 31, 1996, with respect to Borrower and as of December 31, 1995, with
respect to Guarantor, showing financial information consistent with that
previously provided to Bank.
3.09 Opinion of Counsel. Bank shall received a
satisfactory legal opinion from the firm of Gardere Wynne Sewell & Riggs,
L.L.P., counsel for Borrower and Guarantor, in form and substance acceptable to
Bank, covering the matters prescribed on Schedule 3.09 hereof.
3.10 Request for Advance. Bank shall have received from
Borrower a Request for Advance.
3.11 Accuracy of Representations and Warranties and No
Event of Default. The representations and warranties contained in Article IV
of this Agreement shall be true and correct in all material respects on the
date of the making of such Loans or advances with the same effect as though
such representations and warranties had been made on such date; and no Event of
Default shall have occurred and be continuing or will have occurred at the
completion of the making of such Loans or advances, and Bank shall have
received a Compliance Certificate signed by the president or controller of the
general partner of Borrower.
3.12 Legal Matters Satisfactory to Counsel to Bank. All
legal matters incident to the consummation of the transactions hereby
contemplated shall be satisfactory to counsel for Bank.
3.13 No Material Adverse Change. No material adverse
change shall have occurred since the date of this Agreement in the condition,
financial or otherwise, of Borrower or Guarantor.
3.14 Status of Record Title. Bank shall have been
satisfied that Borrower has Marketable Title to its Borrowing Base Properties,
and that Borrower owns record title to an undivided net revenue interest in the
production from each Oil and Gas Property
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that is Borrowing Base Property that is not less than the net revenue interest
therein attributed to Borrower in the Loan Documents, as amended from time to
time, as well as an undivided working interest in each such Oil and Gas
Property that is not greater than the working interest therein attributed to
Borrower in the Loan Documents, as amended from time to time (unless there is a
corresponding increase in the net revenue interest attributed to such party
therein).
3.15 Collateral Documents. As security for the payment
of the Note and the performance of the obligations of Borrower under this
Agreement, Bank shall have received the duly executed Security Instruments.
3.16 Legal Fees. All legal fees and disbursements owed
to Bank's special counsel who provided representation to this Bank in
connection with this Agreement or any amendment hereto and in connection with
the review of title to the Borrowing Base Properties shall have been paid.
3.17 Documents Required for Subsequent Disbursements. As
of the time of funding any additional advances to Borrower that have been
approved by Bank pursuant to Section 2.01 and are made in conjunction with the
addition of Oil and Gas Properties owned by Borrower to the Borrowing Base
Properties, Borrower shall have duly delivered to Bank: (i) the Security
Instruments that are necessary or appropriate, in the opinion of Bank, relating
to such additional Oil and Gas Properties, and (ii) Transfer Order Letters
applicable to the production of oil and gas from any additional Oil and Gas
Properties added to the Borrowing Base Properties.
3.18 McGill Bros. NCT-1 No. 74 Well and Womack #1 and #3
Wells. Bank shall have received evidence satisfactory to it, in its sole
discretion, confirming that the production of oil or gas in paying quantities
has commenced from the McGill Bros. NCT-1 No. 74 Well and the Womack #1 and #3
Wells.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES
To induce Bank to enter into this Agreement and to make the
Loan hereunder, Borrower and, except as otherwise provided, Guarantor represent
and warrant to Bank (which representations and warranties will survive the
delivery of the Note) that:
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4.01 Existence and Good Standing.
a. Borrower is a limited partnership, duly
organized, legally existing and in good standing under the laws of its
jurisdiction of formation and is duly qualified and in good standing as a
foreign limited partnership in all jurisdictions wherein the property owned or
the business transacted by it makes such qualification necessary, other than
those jurisdictions wherein the failure to so qualify does not have a material
adverse effect on Borrower, and Guarantor is the duly appointed and acting sole
general partner of Borrower.
b. Guarantor is a corporation, duly organized,
legally existing and in good standing under the laws of its jurisdiction of
incorporation and is duly qualified and in good standing as a foreign
corporation in all jurisdictions wherein the property owned or the business
transacted by it makes such qualification necessary, other than those
jurisdictions wherein the failure to so qualify does not have a material
adverse effect on Guarantor.
4.02 Due Authorization. As to Borrower, the execution
and delivery by Borrower of this Agreement and the borrowings hereunder; the
execution and delivery by Borrower of the Note and the Security Instruments;
and the repayment by Borrower of Indebtedness evidenced by the Note and
interest and fees provided in the Note and this Agreement are (a) within the
partnership power of Borrower; (b) have been duly authorized by all necessary
partnership action; and (c) do not and will not (i) require the consent of any
regulatory authority or governmental body, (ii) violate any provision of law or
of the certificate of limited partnership or limited partnership agreement of
Borrower, (iii) cause a default to occur under the terms and provisions of any
indenture, instrument or other agreement to which Borrower is a party or by
which its property may be presently bound or encumbered, or (iv) result in or
require the creation or imposition of any mortgage, lien, pledge, security
interest, charge or other encumbrance in, upon or of any of the properties or
assets of Borrower under any such indenture, instrument or other agreement,
other than under any of the Security Instruments. As to Guarantor, the
execution and delivery of this Agreement and the Guaranty are (a) within the
corporate power of Guarantor; (b) have been duly authorized by all necessary
corporate action, and (c) do not and will not (i) require the consent of any
regulatory authority or
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governmental body, (ii) violate any provision of law or of the charter or
bylaws of Guarantor, (iii) cause a default to occur under the terms and
provisions of any indenture, instrument or other agreement to which Guarantor
is a party or by which Guarantor may be presently bound or encumbered, or (iv)
result in or require the creation or imposition of any mortgage, lien, pledge,
security interest, charge or any other encumbrance in, upon or of any of the
properties or assets of Guarantor under such indenture, instrument or other
agreement, other than under this Agreement or the Guaranty.
4.03 Valid and Binding Obligations. This Agreement, the
Note, the Security Instruments and the Guaranty, when duly executed and
delivered, will be, as to each such instrument executed by Borrower and
Guarantor, respectively, the legal, valid and binding obligations of and
enforceable against Borrower and Guarantor, as applicable, in accordance with
their respective terms (subject to any applicable bankruptcy, insolvency or
other laws of general application affecting creditors' rights and judicial
decisions interpreting any of the foregoing).
4.04 Title to Borrowing Base Properties. Borrower has
Marketable Title to all its Borrowing Base Properties, free and clear of all
mortgages, liens and encumbrances, except for Permitted Encumbrances.
4.05 Oil and Gas Leases. The Leases which constitute any
part of the Borrowing Base Properties are in full force and effect, are valid,
subsisting leases covering the entire estates to which they pertain and all
rentals, royalties and other amounts due and payable in accordance with the
terms of the Leases, overriding royalties, net profits or other production
burdens have been duly paid or provided for; the obligations to be performed
under the Leases have been duly performed; and neither Borrower nor Guarantor
is aware of any default by any third party under any of the Leases with respect
to such third party's obligations.
4.06 Interest in the Borrowing Base Oil and Gas
Properties. With respect to each of the Borrowing Base Properties, the
ownership of Borrower in such property will, with respect to the wells, units
and/or tracts of land described in Exhibit "A" hereto in connection with such
property, (i) entitle Borrower to receive (subject to the terms and provisions
of this Agreement) a decimal share of the oil and gas produced from, or
allocated to,
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such wells, units and/or tracts equal to not less than the decimal share set
forth in Exhibit "A" in connection with such wells, units and/or tracts, and
(ii) cause Borrower to be obligated to bear a decimal share of the cost of
exploration, development and operation of such wells, units and/or tracts of
land not greater than the decimal share set forth in Exhibit "A" in connection
with such wells, units and/or tracts, unless any increase in Borrower's share
of costs is accompanied by a pro-rata increase in Borrower's share of revenue.
Except as set forth in the instrument and agreements, if any, more particularly
described in Exhibit "A", all such shares of production which Borrower is
entitled to receive, and shares of expenses which Borrower is obligated to
bear, are not subject to change, except for changes attributable to future
elections by Borrower not to participate in operations proposed pursuant to
customary forms of applicable joint operating agreements, and except for
changes attributable to changes in participating areas under any federal units
wherein participating areas may be formed, enlarged or contracted in accordance
with the rules and regulations of the applicable governmental authority.
4.07 Oil and Gas Contracts. Borrower is not obligated,
by virtue of any prepayment under any contract providing for the sale by
Borrower of hydrocarbons which contains a "take-or-pay" clause or under any
similar prepayment agreement or arrangement, including, without limitation,
"gas balancing agreements", to deliver a material amount of hydrocarbons
produced from the Borrowing Base Properties at some future time without then or
thereafter receiving full payment therefor (i.e., in the case of oil, not in
excess of sixty (60) days, and in the case of gas, not in excess of ninety (90)
days). The Borrowing Base Properties are not subject to any contractual, or
other arrangement for the sale of crude oil which cannot be cancelled on ninety
(90) days' (or less) notice, unless the price provided for therein is equal to
or greater than the prevailing market price in the vicinity. The Borrowing
Base Properties are not subject to any gas sales contract that contains any
material terms which are not customary in the industry within the region in
which the Borrowing Base Properties affected thereby are located. The
Borrowing Base Properties are not subject to any regulatory refund obligation
and no facts exist which might cause the same to be imposed.
4.08 Producing Wells. All producing wells located on the
Borrowing Base Properties have been, during all times that such were under the
direction or control of Borrower and, to the
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knowledge of Borrower, at all other times, drilled, operated and produced in
conformity with all applicable Laws, rules, regulations and orders of all
regulatory authorities having jurisdiction, are subject to no penalties on
account of past production, and are bottomed under and are producing from, and
the well bores are wholly within, the Borrowing Base Properties or on Oil and
Gas Properties which have been pooled, unitized or communitized with the
Borrowing Base Properties.
4.09 Purchasers of Production. The persons who are
purchasing Borrower's interests in oil and gas produced from the Borrowing Base
Properties as of the calendar month during which the Loans are made hereunder
are identified on Schedule 4.09 attached hereto.
4.10 Scope and Accuracy of Financial Statements. All
Financial Statements submitted and to be submitted to Bank hereunder,
including, without limitation, the Financial Statements of Borrower and
Guarantor, are and will be complete and correct in all material respects; are
and will be prepared in accordance with GAAP and practices consistently
applied; and do and will fairly reflect the financial condition and the results
of the operations of Borrower and Guarantor in all material respects as of the
dates and for the period stated therein (subject only to normal year-end audit
adjustments with respect to such unaudited interim statements of Borrower and
Guarantor); and no material adverse change has since occurred in the condition,
financial or otherwise, of Borrower or Guarantor, or their respective
Subsidiaries (taken as a whole).
4.11 Liabilities, Litigation and Restrictions. Except as
disclosed in the Financial Statements, neither Borrower nor Guarantor has any
liabilities, direct or contingent, which may materially and adversely affect
the business or assets of such party. Except as described on Schedule 4.11,
there is no litigation or other action of any nature pending before any court,
governmental instrumentality, regulatory authority or arbitral body or, to the
knowledge of Borrower or Guarantor, threatened against or affecting Borrower or
Guarantor, or any of their Subsidiaries, which might reasonably be expected to
result in any material, adverse change in the business or assets of Borrower or
Guarantor, or their respective Subsidiaries (taken as a whole). No unusual or
unduly burdensome restriction, restraint or hazard exists by contract, law,
governmental regulation or otherwise relative to the
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business or material properties of Borrower or Guarantor other than such as
relate generally to Persons engaged in the business activities conducted by
Borrower or Guarantor, as the case may be.
4.12 Margin Stock. None of the proceeds of the Loans
will be used for the purpose of buying or carrying margin stock.
4.13 Authorizations and Consents. No authorization,
consent, approval, exemption, franchise, permit or license of, or filing with,
any governmental or public authority or any third party is required to
authorize, or is otherwise required in connection with the valid execution and
delivery by Borrower or Guarantor, as applicable, of this Agreement, the Note,
and those of the Security Instruments to which it is a party or any instrument
contemplated hereby, the repayment by Borrower of advances against the Note and
interest and fees provided in the Note and this Agreement, or the performance
by Borrower or Guarantor of its obligations under any of the foregoing.
4.14 Compliance with Laws, Rules, Regulations and Orders.
To the best of the knowledge and belief of Borrower and Guarantor, neither the
business nor any of the activities of Borrower or Guarantor, as presently
conducted, violates any law or any rule, regulation or directive of any
applicable judicial, administrative or other governmental instrumentality
(including, but not by way of limitation, any law or any rule, regulation or
directive of any judicial, administrative or other governmental instrumentality
relating to zoning, to any Environmental Law, to the stabilization of wages or
prices or to the development, production, transportation or purchase or sale of
oil, gas or other hydrocarbons) the result of which violation would have a
material adverse effect on Borrower or Guarantor, or their respective
Subsidiaries (taken as a whole), and Borrower and Guarantor each possess all
licenses, approvals, registrations, permits and other authorizations necessary
to enable it to carry on its business in all material respects as now
conducted, and all such licenses, approvals, registrations, permits and other
authorizations are in full force and effect; and neither Borrower nor Guarantor
has reason to believe that Borrower or Guarantor will be unable to obtain the
renewal of any such licenses, approvals, registrations, permits and other
authorizations.
4.15 Proper Filing of Tax Returns and Payment of Taxes
Due. Borrower and Guarantor have each duly and properly filed all
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United States Income Tax returns and all other tax returns which are required
to be filed, and have paid all taxes due pursuant to said returns or pursuant
to any assessment received, except such taxes, if any, as are being contested
in good faith and as to which adequate provisions and disclosures have been
made; and the respective charges and reserves on the books of Borrower and
Guarantor with respect to any taxes or other governmental charges are adequate.
4.16 ERISA. Borrower and Guarantor are each in
compliance in all material respects with all applicable provisions of ERISA.
Neither a Reportable Event nor a Prohibited Transaction has occurred and is
continuing with respect to any plan; no notice of intent to terminate a plan
has been filed, nor has any plan been terminated; no circumstances exist which
constitute grounds under Section 4042 of ERISA entitling the PBGC to institute
proceedings to terminate, or appoint a trustee to administrate a plan, nor has
the PBGC instituted any such proceedings; neither Borrower nor Guarantor, nor
any ERISA Affiliate has completely or partially withdrawn under Sections 4201
or 4204 of ERISA from a Multi-employer plan; Borrower and Guarantor, and each
ERISA Affiliate have met their minimum funding requirements under ERISA with
respect to all of their plans and the present value of all vested benefits
under each plan exceeds the fair market value of all plan assets allocable to
such benefits, as determined on the most recent valuation date of the plan and
in accordance with the provisions of ERISA and the regulations thereunder for
calculating the potential liability of Borrower or Guarantor, or any ERISA
Affiliate to the PBGC or the plan under Title IV of ERISA; and neither Borrower
nor Guarantor, nor any ERISA Affiliate has incurred any liability to the PBGC
under ERISA.
4.17 Investment Company Act Compliance. Neither Borrower
nor Guarantor is, nor is it directly or indirectly controlled by or acting on
behalf of any person or entity which is, an investment company or an
"affiliated person" of an investment company within the meaning of the
Investment Borrower Act of 1940.
4.18 Public Utility Holding Company Act Compliance.
Neither Borrower nor Guarantor is a "holding company", or an "affiliate" of a
"holding company" or of a "subsidiary company" of a "holding company", within
the meaning of the Public Utility Holding Company Act of 1935, as amended.
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4.19 Environmental Laws. To the best of the knowledge
and belief of Borrower and Guarantor:
(a) no property of Borrower or Guarantor is currently
on, or has ever been on, any federal or state list of superfund sites
as listed on the Environmental Protection Agency National Priority
List or any comparable state registries or list in any state of the
United States (collectively "Superfund Sites");
(b) no Hazardous Substances have in the past been
generated, transported, and or disposed of, by Borrower or Guarantor
at any Superfund Site;
(c) except in accordance with a valid permit, license,
certificate or approval of the relevant regulatory authority or
governmental body, there has been no emission, spill, release,
disposal or discharge of any Hazardous Substance into or upon (i) the
air, (ii) soils or any improvements located thereon, (iii) surface
water or groundwater, or (iv) the sewer, septic system or waste
treatment, storage or disposal system servicing any property of
Borrower or Guarantor; and
(d) no complaint, order, directive, claim, citation,
notice of environmental report, notice of investigation or other
notice by any regulatory authority or governmental body or any other
Person with respect to (i) air emissions, (ii) spills, releases or
discharges to soils or any improvements located thereon, surface
water, groundwater or the sewer, septic system or waste treatment,
storage or disposal systems servicing any property of Borrower or
Guarantor, (iii) solid or liquid waste disposal, (iv) the use,
generation, storage, transportation or disposal of any Hazardous
Substance, or (v) other environmental, health or safety matters
affecting any property of Borrower or Guarantor, any improvements
located thereon, or the business thereon conducted, has been received
by Borrower or Guarantor, nor has Borrower or Guarantor been given
oral or written notice thereof;
provided, however, that the representations and warranties set forth in
subparagraphs (c) and (d) above shall apply only to events and conditions which
either resulted in (i) a continuing lien or encumbrance on the property of
Borrower or Guarantor or (ii)
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otherwise materially affect Borrower's or Guarantor's use or operation of its
property or Borrower's ability to repay the Indebtedness evidenced by the Note,
or Guarantor's ability to perform its Guaranty.
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ARTICLE V. AFFIRMATIVE COVENANTS
Borrower and Guarantor, as applicable, covenant, so long as
any Indebtedness of Borrower to Bank remains unpaid under this Agreement or
Bank remains obligated to make advances hereunder, to:
5.01 Use of Funds. Use the proceeds advanced under the
Loan to refinance the existing Debt described on Schedule 5.01, acquire Oil and
Gas Properties, conduct developmental drilling, and use as working capital for
other ordinary business activities of Borrower, and furnish Bank such evidence
as it may reasonably require with respect to such use.
5.02 Maintenance and Access to Records. Keep adequate
records in accordance with good accounting practices, of all of its
transactions so that at any time, and from time to time, its true and complete
financial condition may be readily determined and, at Bank's reasonable
request, make all financial records and records relating to the Borrowing Base
Properties available for Bank's inspection and permit Bank to make and take
away copies thereof for Bank's internal use only and subject to such
confidentiality agreements as Borrower may reasonably require.
5.03 Quarterly Unaudited Financial Statements of
Borrower. Deliver to Bank, on or before the forty-fifth (45th) day after the
end of each calendar quarter, unaudited Financial Statements of Borrower as at
the end of such period and from the beginning of such fiscal year to the end of
the respective period, as applicable, which Financial Statements shall be
certified by the president or chief financial officer of the general partner of
Borrower as being true and correct, subject to changes resulting from year-end
audit adjustments.
5.04 Annual Unaudited Financial Statements of Guarantor.
Deliver to Bank, on or before the one hundred twentieth (120th) day after the
close of each fiscal year of Guarantor, unaudited Financial Statements of
Guarantor as at the end of such fiscal year, which Financial Statements shall
be certified by the president or chief financial officer of Guarantor as being
true and correct.
5.05 Annual Audited Financial Statements of Borrower.
Deliver to Bank, on or before the one hundred and twentieth (120th)
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day after the close of each fiscal year of Borrower, a copy of the annual
audited Financial Statements of Borrower.
5.06 Compliance Certificate. Deliver to Bank a
Compliance Certificate: (a) at the time of Borrower's execution of this
Agreement, (b) at the time of delivery of the Financial Statements pursuant to
Section 5.03 above, and (c) at the time of delivery of the Financial Statements
pursuant to Section 5.05 above.
5.07 Statement of Material Adverse Change in Condition.
Deliver to Bank, promptly upon any officer of the general partner of Borrower,
or any officer of Guarantor, having knowledge of any material adverse change in
the condition, financial or otherwise, of Borrower or its Subsidiaries (or any
event or circumstance that would result in any such material adverse change in
condition including, but not limited to, litigation and changes in business), a
statement of the president or vice president of the general partner of
Borrower, setting forth the change in condition or event or circumstance likely
to result in any such change and the steps being taken by Borrower or the
applicable Subsidiary with respect to such change in condition or event or
circumstance.
5.08 Additional Information. Furnish to Bank, promptly
upon Bank's reasonable request, such additional financial or other information
concerning the assets, liabilities, operations, and transactions of Borrower
and of Guarantor, respectively, in such party's possession or to which it has
access, including, without limitation, information concerning the Borrowing
Base Properties.
5.09 Compliance with Laws and Payment of Assessments and
Charges. Comply with all applicable statutes and government regulations,
including, without limitation, ERISA, and pay all taxes, assessments,
governmental charges, claims for labor, supplies, rent, its share of all costs
and expenses incurred under any joint operating agreement, and other
obligations which, if unpaid, might become a lien against its property, except
any of the foregoing being contested in good faith and as to which satisfactory
accruals have been provided and unless failure to comply or pay would not have
a material adverse effect on the assets of Borrower and its Subsidiaries (taken
as a whole).
5.10 Maintenance of Existence and Good Standing.
Maintain Borrower's limited partnership existence and good standing
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and Guarantor's corporate existence and good standing in the jurisdiction of
its respective formation or incorporation, as applicable, and in all
jurisdictions wherein the property now owned or hereafter acquired or business
now or hereafter conducted necessitates same, other than those jurisdictions
wherein the failure to so qualify will not have a material adverse effect on
Borrower or on Guarantor, as applicable.
5.11 Further Assurances. Promptly cure any defects in
the execution and delivery of this Agreement, the Note, the Security
Instruments, the Guaranty or any other instrument referred to herein or
executed in connection with the Note, and upon notice, immediately execute and
deliver to Bank, all such other and further instruments as may be reasonably
required or desired by Bank from time to time in compliance with the covenants
and agreements made in this Agreement.
5.12 Initial Expenses of Bank. Pay all fees and expenses
of special legal counsel for Bank, incurred in connection with the negotiation
and preparation of this Agreement, the Note, the Security Instruments, the
Guaranty or any other instrument referred to herein or executed in connection
with the Note, the satisfaction of the conditions precedent set forth in
Article III of this Agreement and the consummation of the transactions
contemplated in this Agreement.
5.13 Subsequent Expenses of Bank. Upon request, promptly
reimburse Bank for all reasonable amounts expended, advanced or incurred by
Bank to collect the Note or to enforce the rights of Bank under this Agreement,
the Note, the Security Instruments, the Guaranty, or any other instrument
referred to herein or executed in connection with the Note, which amounts shall
be deemed compensatory in nature and liquidated as to amount upon notice to
Borrower by Bank and which amounts will include, but not be limited to, (a) all
court costs, (b) attorneys' fees, (c) fees of auditors and accountants, (d)
investigation expenses, (e) internal fees of Bank's in-house legal counsel, (f)
fees and expenses incurred in connection with Bank's participation as a member
of the creditors' committee in a case commenced under Title 11 of the United
States Code or other similar law of the United States, the State of Texas or
any other jurisdiction, (g) fees and expenses incurred in connection with
lifting the automatic stay prescribed in Sections 362 Title 11 of the United
States Code, and (h) fees and expenses incurred in connection with any action
pursuant
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to Sections 1129 Title 11 of the United States Code, incurred by Bank in
connection with the collection of any sums due under this Agreement, together
with interest at the Floating Rate per annum, calculated on a basis of a year
of three hundred sixty-five (365) or three hundred sixty-six (366) days, on
each such amount from the date of notification to Borrower that the same was
expended, advanced or incurred by Bank until the date it is repaid to Bank,
with the obligations under this Section 5.13, surviving the non-assumption of
this Agreement in a case commenced under Title 11 of the United States Code or
other similar law of the United States, the State of Texas or any other
jurisdiction and being binding upon Borrower or a trustee, receiver or
liquidator of any such party appointed in any such case.
5.14 Maintenance of Tangible Property. Maintain all of
its tangible property in good repair and condition and make all necessary
replacements thereof and operate such property in a good and workmanlike manner
in accordance with standard industry practices, unless the failure to do so
would not have a material adverse effect on Borrower and its Subsidiaries
(taken as a whole) or the value of the Borrowing Base Properties.
5.15 Maintenance of Insurance. Continue to maintain, or
cause to be maintained, insurance with respect to the properties and business
of Borrower and Guarantor against such liabilities, casualties, risks and
contingencies and in such amounts as is customary in the industry, in an amount
and form, and underwritten by an insurer or insurers, as are acceptable to Bank
in its sole discretion, and furnish to Bank, at the execution of this Agreement
and annually thereafter, certificates evidencing such insurance.
5.16 Inspection of Tangible Assets/Right of Audit.
Permit any authorized representative of Bank, to visit and inspect (at the risk
of Bank and/or such representative) any tangible asset of Borrower and
Guarantor, and/or to audit the books and records of Borrower and Guarantor
during normal business hours.
5.17 Payment of Note and Performance of Obligations. As
to Borrower, pay the Note according to the reading, tenor and effect thereof,
as modified hereby, and do and perform every act and discharge all of the
obligations provided to be performed and discharged hereunder.
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5.18 ERISA Reports. Promptly after the filing or
receiving thereof, copies of all reports, including annual reports, and notices
which Borrower or Guarantor files with or receives from the PBGC or the U.S.
Department of Labor under ERISA; and promptly after Borrower or Guarantor knows
or has reason to know that any Reportable Event or Prohibited Transaction has
occurred with respect to any plan or that the PBGC or Borrower or Guarantor has
instituted or will institute proceedings under Title IV of ERISA to terminate
any plan, Borrower will deliver to Bank a certificate of the controller of
Borrower setting forth details as to such Reportable Event or Prohibited
Transaction or plan termination and the action Borrower or Guarantor, as
applicable, proposes to take with respect thereto.
5.19 Tangible Net Worth Requirement. Borrower shall
maintain a total Tangible Net Worth of not less than $2,750,000.00, plus: (a)
fifty percent (50%) of net income (excluding losses) of Borrower subsequent to
March 31, 1996, and (b) one hundred percent (100%) of any increases in
partners' capital resulting from additional capital contributions to Borrower
or the sale or issuance of any partnership interest in Borrower subsequent to
March 31, 1996.
5.20 Cash Flow to Debt Service Ratio. Borrower will
maintain (calculated in accordance with GAAP) a ratio of quarterly Cash Flow to
quarterly Debt Service of not less than 1.25 to 1.0. Compliance with this
covenant shall begin with the quarter ending September 30, 1996. For the
purposes of calculating this ratio:
(a) "Cash Flow" shall be defined as the sum of net income plus
depreciation and other non-cash charges less non-cash income of
Borrower, and
(b) "Debt Service" shall be defined as the sum of (i) actual
principal amounts paid by Borrower during such quarter on Indebtedness
other than in connection with this Loan; and (ii) principal amounts
required to be paid by Borrower during such quarter in connection with
this Loan.
5.21 Compliance with Environmental Laws. Comply in all
material respects with any and all requirements of law, including, without
limitation, Environmental Laws, (a) related to any natural or environmental
resource or media located on, above, within, in the vicinity of, related to or
affected by any Borrowing Base
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Properties or any other property of Borrower or Guarantor, or (b) required for
the performance or conduct of its operations, including, without limitation,
all permits, licenses, registrations, approvals and authorizations, and, in
this regard, comply fully and in a timely manner with, and cause all employees,
crew members, agents, contractors, subcontractors and future lessees (pursuant
to appropriate lease provisions) of Borrower and Guarantor while such Persons
are acting within the scope of their relationship with Borrower or any
Guarantor, to so comply with, all requirements of law, including, without
limitation, Environmental Laws, and other requirements with respect to the
property of Borrower or Guarantor and the operation thereof necessary or
appropriate to enable Borrower and Guarantor to fulfill their respective
obligations under all requirements of law, including, without limitation,
Environmental Laws, applicable to the use, generation, handling, storage,
treatment, transport and disposal of any Hazardous Substances now or hereafter
located or present on or under any such property.
5.22 Hazardous Substances Indemnification. Indemnify and
hold Bank harmless from and against any and all claims, losses, damages,
liabilities, fines, penalties, charges, administrative and judicial proceedings
and orders, judgments, remedial actions, requirements and enforcement actions
of any kind, and all costs and expenses incurred in connection therewith
(including, without limitation, attorneys' fees and expenses), arising directly
or indirectly, in whole or in part, out of (a) the presence of any Hazardous
Substances on, under or from its property, whether prior to or during the term
hereof, or (b) any activity carried on or undertaken on or off its property,
whether prior to or during the term hereof, and whether by Borrower or
Guarantor, or any predecessor in title or any employees, agents, contractors or
subcontractors of Borrower or Guarantor, or any predecessor in title, or any
third Persons at any time occupying or present on such property, in connection
with the handling, treatment, removal, storage, decontamination, cleanup,
transportation or disposal of any Hazardous Substances at any time located or
present on or under such property; with the foregoing indemnity further
applying to any residual contamination on or under the property of Borrower or
Guarantor, or any property of any other Person, or affecting any natural
resources, and to any contamination of any property or natural resources
arising in connection with the generation, use, handling, storage,
transportation or disposal of any Hazardous Substances, irrespective of whether
any of such activities were or
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will be undertaken in accordance with applicable requirements of law,
including, without limitation, Environmental Laws, and surviving satisfaction
of all Indebtedness of Borrower to Bank and the termination of this Agreement,
provided, further, that the claims and other actions of any kind against Bank
which give rise to such indemnity are not barred by the applicable statute of
limitations at the time such claims or actions are instituted and such
indemnity shall not extend to any act or omission by Bank or any Affiliate of
Bank or any of Bank's employees or agents with respect to the relevant property
subsequent to Bank becoming the owner of, taking possession of to the exclusion
of Borrower or Guarantor or assuming operations of any property previously
owned by Borrower or Guarantor and with respect to which property such claim,
loss, damage, liability, fine, penalty, charge, proceeding, order, judgment,
action or requirement arises subsequent to the acquisition of title thereto,
taking possession thereof or assumption of operations thereon by Bank or any
Affiliate of Bank or any of Bank's employees or agents. Notwithstanding
anything herein to the contrary, the provisions of this Section 5.22 shall
survive any termination of this Agreement and shall survive the payment and
performance in full of all Obligations owed by Borrower and Guarantor to Bank.
5.23 Changes in Management. Notify Bank of any change in
the general partner or other senior management of Borrower or in the senior
management of Guarantor existing as of the date hereof.
5.24 Operating Accounts. Maintain all principal
operating accounts of Borrower with Bank.
ARTICLE VI. NEGATIVE COVENANTS
Without the prior written consent of Bank and so long as any
part of the principal or interest on the Note shall remain unpaid or Bank
remains obligated to make advances hereunder, Borrower and, where provided,
Guarantor, including their respective Subsidiaries, will not:
6.01 Other Indebtedness. Incur, create, assume or suffer
to exist any Indebtedness, whether by way of loan or the issuance or sale of
securities except (a) Loans hereunder, (b) loans by Bank under other credit
arrangements, (c) Indebtedness owed to Bank by any Affiliates of Borrower, and
(d) unsecured accounts payable incurred in the ordinary course of business
which
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are not overdue or if overdue, are acceptable to Bank and are being contested
in good faith by appropriate proceedings.
6.02 Guaranty of Payment or Performance. Guaranty any
contract or obligation of any Person, except for any Indebtedness owed to Bank
by any Affiliates of Borrower, and except that the foregoing restriction shall
not apply to endorsements of instruments for collection in the ordinary course
of business.
6.03 Loans or Advances. As to Borrower, only, make or
agree to make or allow to remain outstanding any loans or advances to any
Person, including Affiliates of Borrower, in amounts which exceed $25,000 in
the aggregate, except advances or extensions of credit in the form of accounts
receivable incurred in the ordinary course of business.
6.04 Mortgages or Pledges of Assets. Create, incur,
assume or permit to exist, any mortgage, pledge, security interest, lien or
encumbrance on any of its properties or assets (now owned or hereafter
acquired), except that the foregoing restrictions shall not apply to any
matters that would constitute or result in Permitted Encumbrances.
6.05 Nature of Business. Permit any material change to
be made in the character of its business as conducted as of the date hereof, or
permit any Subsidiary to permit any material change to be made in the character
of such Subsidiary's business as conducted as of the date hereof.
6.06 Sales of Assets. Sell, lease, assign, transfer or
otherwise dispose of, in one or any series of related transactions, all or any
part of its assets, if such transfer is material to Borrower's operations, nor
enter into any arrangement, directly or indirectly, with any Person to sell and
rent or lease back such assets or any part thereof which are intended to be
used for substantially the same purpose or purposes as the assets sold or
transferred.
6.07 Dividends and Distributions. Declare or pay any
dividend from Borrower or make any distribution on, or purchase, redeem or
otherwise acquire for value, any interest in Borrower or its Subsidiaries.
6.08 Payment of Accounts Payable. Allow any account
payable to remain unpaid after its due date, except such as are
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overdue that are acceptable to Bank, are being contested in good faith, and as
to which adequate provision or accrual has been made.
6.09 Cancellation of Insurance. Allow any insurance
policy required to be carried hereunder to be terminated or lapse or expire
without provision for adequate renewal thereof.
6.10 Investments. Make Investments in or purchase or
otherwise acquire all or substantially all of the assets of any Person other
than Borrower and its Subsidiaries, or any shares of stock of, or similar
interest in, any Person.
6.11 Changes in Business Structure. Consolidate or merge
with or purchase (for cash or securities) all or any part of the assets or
capital stock of any corporation, firm, association or enterprise, or allow any
such entity to be merged into Borrower, nor shall Borrower dissolve or
liquidate, nor shall Borrower or Guarantor, respectively, cause or permit any
change to occur in the ownership of the capital stock of Guarantor or in
Guarantor's ownership interest in Borrower (other than conversions of ownership
interest in Borrower, as prescribed in Borrower's current Agreement of Limited
Partnership).
6.12 Transactions with Affiliates. Enter into any
transaction between or among Borrower and/or any Subsidiaries with any
Affiliate on terms that are less favorable than could be obtained in an
arms-length transaction with a Person that is not an Affiliate.
ARTICLE VII. EVENTS OF DEFAULT
7.01 Enumeration of Events of Default. Any of the
following events shall be considered an Event of Default as that term is used
herein:
(a) Default shall be made by Borrower in the payment of
any installment of principal on the Note,
(b) Default shall be made by Borrower in the payment of
any installment of interest on the Note, or any fees or other monetary
obligation payable hereunder, and such default shall remain unremedied
in excess of three (3) days after notice being given by Bank,
36
<PAGE> 42
(c) Default shall be made by Borrower or Guarantor in
the due observance or performance of any affirmative covenant required
in this Agreement, the Note, the Security Instruments, or the
Guaranty, and such default shall remain unremedied for in excess of
thirty (30) days after the earlier of: (i) such default becoming known
to Borrower or Guarantor, or (ii) notice being given by Bank.
(d) Default shall be made by Borrower or Guarantor in
the due observance or performance of any negative covenant required in
this Agreement, the Note, the Security Instruments, or the Guaranty.
(e) Any representation or warranty herein made by
Borrower or Guarantor proves to have been untrue in any respect
material to Borrower or Guarantor, or any representation, statement
(including Financial Statements), certificate or data furnished or
made by Borrower or Guarantor to Bank in connection herewith proves to
have been untrue in any respect material to Borrower or Guarantor as
of the date the facts therein set forth were stated or certified;
(f) Default shall be made by Borrower or Guarantor (as
principal or guarantor or other surety) in payment or performance of
any bond, debenture, note or other evidence of Indebtedness for
borrowed money, or any other credit agreement, loan agreement,
indenture, promissory note or similar agreement or instrument executed
in connection with any of the foregoing in excess of $25,000 in the
aggregate; and such default shall remain unremedied for in excess of
the period of grace, if any, with respect thereto, with the effect of
accelerating the maturity of any such Indebtedness;
(g) Borrower or Guarantor applies for or consents to the
appointment of a receiver, trustee or liquidator of it or all or a
substantial part of its assets, or (ii) files a voluntary petition
commencing a case under Title 11 of the United States Code, seeking
liquidation, reorganization or rearrangement or taking advantage of
any bankruptcy, insolvency, debtor's relief or other similar law of
the United States, the State of Texas or any other jurisdiction, or
(iii) makes a general assignment for the benefit of creditors, or (iv)
is unable, or admits in writing its inability to pay its debts
generally as they become due, or (v) files an answer admitting the
material allegations of a petition filed against
37
<PAGE> 43
it in any case commenced under Title 11 of the United States Code or
any reorganization, insolvency, conservatorship or similar proceeding
under any bankruptcy, insolvency, debtor's relief or other similar law
of the United States, the State of Texas or any other jurisdiction;
(h) An order, judgment or decree shall be entered
against Borrower or Guarantor by any court of competent jurisdiction
or by any other duly authorized authority, on the petition of a
creditor or otherwise, granting relief under Title 11 of the United
States Code or under any bankruptcy, insolvency, debtor's relief or
other similar law of the United States, the State of Texas or any
other jurisdiction, approving a petition seeking reorganization or an
arrangement of its debts or appointing a receiver, trustee,
conservator, custodian or liquidator of it or all or any substantial
part of its assets, and the failure to have such order, judgment or
decree dismissed within ten (10) days of its entry;
(i) Borrower or Guarantor has concealed, removed, or
permitted to be concealed or removed, any part of its property, with
intent to hinder, delay or defraud its creditors or any of them; or
has made or suffered a transfer of any of its property which may be
fraudulent under any bankruptcy, fraudulent conveyance or similar law;
or has made any transfer of its property to or for the benefit of a
creditor at a time when other creditors similarly situated have not
been paid; or has suffered or permitted, while insolvent, any creditor
to obtain a lien upon any of its property through legal proceedings or
distraint which is not vacated within thirty (30) days from the date
thereof.
7.02 Rights Upon Default. Upon the happening of an Event
of Default specified in Subsections 7.01 (g) or (h), the entire aggregate
principal amount of all Indebtedness then outstanding hereunder and the
interest accrued thereon shall automatically become immediately due and
payable, and upon the happening and continuation of any other Event of Default,
Bank may declare the entire aggregate principal amount of all Indebtedness then
outstanding hereunder and the interest accrued thereon immediately due and
payable. In either case, the entire principal and interest shall thereupon
become immediately due and payable, without notice (including, without
limitation, notice of intent to accelerate maturity or notice of acceleration
of maturity) and without presentment, demand, protest, notice of protest or
other
38
<PAGE> 44
notice of default or dishonor of any kind, except as provided to the contrary
elsewhere herein, all of which are hereby expressly waived by Borrower and
Guarantor.
Upon the happening and continuation of any Event of Default,
all obligations (if any) of Bank hereunder shall immediately cease and
terminate unless and until Bank shall reinstate the same in writing.
ARTICLE VIII. MISCELLANEOUS
8.01 Security Interests in Deposits and Right of Offset
or Banker's Lien. Borrower hereby transfers, assigns and pledges to Bank
and/or grants to Bank a security interest (as security for the payment and/or
performance of the obligations of Borrower under this Agreement and the Note,
with such interest of Bank to be retransferred, reassigned and/or released by
Bank at the expense of Borrower upon payment in full and/or complete
performance by Borrower of all such obligations) and the right, exercisable at
such time as any obligation hereunder shall mature, whether by acceleration of
maturity or otherwise of offset or banker's lien against all funds or other
property of Borrower now or hereafter or from time to time on deposit with or
in the possession of Bank, including, without limitation, all certificates of
deposit and other depository accounts.
8.02 Survival of Representations, Warranties and
Covenants. All representations and warranties of Borrower and Guarantor and
all covenants and agreements herein made shall survive the execution and
delivery of the Note and this Agreement and shall remain in force and effect so
long as any debt is outstanding under the Note, or any renewal or extension of
this Agreement or the Note, or Bank remains obligated to make advances
hereunder.
8.03 Notices and Other Communications. Notices, requests
and communications hereunder shall be in writing and shall be sufficient in all
respects if delivered to the relevant address indicated below (including
delivery by registered or certified United States mail, telex, telegram or
hand):
(a) If to Bank:
COMPASS BANK
24 Greenway Plaza, Suite 1401
39
<PAGE> 45
Houston, Texas 77046
Attention: Energy Lending
Fax: (713) 968-8222
(b) If to Borrower:
Encinitas Partners Ltd.
14825 St. Mary's Lane, Suite 110
Houston, Texas 77079
Attention: Mr. Frank A. Wojtek
Fax: (713) 496-1749
(c) If to Guarantor:
Carrizo Production, Inc.
14825 St. Mary's Lane, Suite 110
Houston, Texas 77079
Attention: Mr. Frank A. Wojtek
Fax: (713) 496-1749
Any party may, by proper written notice hereunder to the
other, change the individuals or addresses to which such notices to it shall
thereafter be sent.
8.04 Parties in Interest. All covenants and agreements
herein contained by or on behalf of Borrower and Guarantor shall be binding
upon Borrower and Guarantor and their respective successors and assigns and
inure to the benefit of Bank and its successors and assigns.
8.05 Renewals and Extensions. All provisions of this
Agreement relating to the Note shall apply with equal force and effect to each
and all promissory notes hereafter executed which in whole or in part represent
a renewal, extension, amendment, modification or rearrangement of any part of
the Indebtedness originally represented by the Note.
8.06 No Waiver by Bank. No course of dealing on the part
of Bank, its officers or employees, nor any failure or delay by Bank with
respect to exercising any of its rights, powers or privileges under this
Agreement, the Note, the Security Instruments or any other instrument referred
to herein or executed in connection with the Note shall operate as a waiver
thereof. The rights and remedies of Bank under this Agreement, the Note, the
Security Instruments or any other instrument referred to herein or
40
<PAGE> 46
executed in connection with the Note shall be cumulative and the exercise or
partial exercise of any such right or remedy shall not preclude the exercise of
any other right or remedy. In the event that Borrower or Guarantor is unable
to satisfy any covenant, warranty or condition herein, no advance of loan
proceeds by Bank shall have the effect of precluding Bank from thereafter
declaring any such continuing inability to be an Event of Default as
hereinabove provided.
8.07 INDEMNIFICATION. BORROWER AND GUARANTOR HEREBY
RELEASE AND AGREE TO INDEMNIFY AND HOLD BANK AND ITS OFFICERS, EMPLOYEES,
DIRECTORS, AGENTS AND ATTORNEYS (COLLECTIVELY THE "BANK PARTIES") HARMLESS,
FROM AND AGAINST ALL CLAIMS, DAMAGES, LIABILITIES AND EXPENSES, KNOWN OR
UNKNOWN, ACCRUED AND UNACCRUED, INCLUDING ANY OF THE FOREGOING ALLEGED TO HAVE
RESULTED FROM NEGLIGENCE OF ANY OF THE BANK PARTIES, UNLESS ATTRIBUTABLE TO
BANK PARTIES' OWN GROSS NEGLIGENCE OR WILFUL MISCONDUCT, THAT MAY NOW OR
HEREAFTER BE ASSERTED AGAINST ANY OF BANK PARTIES IN CONNECTION WITH OR ARISING
OUT OF ANY INVESTIGATION, LITIGATION OR PROCEEDING DIRECTLY OR INDIRECTLY
RELATING TO OR ARISING OUT OF ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT.
8.08 GOVERNING LAW. THIS AGREEMENT AND THE NOTE SHALL BE
DEEMED TO BE CONTRACTS MADE UNDER AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF TEXAS.
8.09 Incorporation of Exhibits. The Exhibits attached to
this Agreement are incorporated herein for all purposes and shall be considered
a part of this Agreement.
8.10 Survival Upon Unenforceability. In the event any
one or more of the provisions contained in this Agreement, the Note, the
Security Instruments or in any other instrument referred to herein or executed
in connection with the Note shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision hereof or of any other
instrument referred to herein or executed in connection herewith.
8.11 Rights of Third Parties. All provisions herein are
imposed solely and exclusively for the benefit of Bank, Borrower and Guarantor
and no other Person shall have standing to require satisfaction of such
provisions in accordance with their terms or be entitled to assume that Bank
will refuse to make advances in the absence of strict compliance with any or
all thereof and any or all
41
<PAGE> 47
of such provisions may be freely waived in whole or in part by Bank at any time
if in its sole discretion it deems it advisable to do so.
8.12 Amendments or Modifications of this Agreement.
Neither this Agreement nor any provision hereof may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against whom enforcement of the change, waiver, discharge or
termination is sought.
8.13 Agreement Construed as an Entirety. This Agreement,
for convenience only, has been divided into Articles and Sections and it is
understood that the rights, powers, privileges, duties and other legal
relations of the parties hereto shall be determined from this Agreement as an
entirety and without regard to the aforesaid division into Articles and
Sections and without regard to headings prefixed to said Articles or Sections.
8.14 Number and Gender. Whenever the context requires,
reference herein made to the single number shall be understood to include the
plural and likewise the plural shall be understood to include the singular.
Words denoting sex shall be construed to include the masculine, feminine, and
neuter, when such construction is appropriate, and specific enumeration shall
not exclude the general, but shall be construed as cumulative.
8.15 AGREEMENT SUPERSEDES ALL PRIOR AGREEMENTS. THIS
AGREEMENT, TOGETHER WITH THE NOTE AND THE Security Instruments, CONSTRUED
TOGETHER WITH THE REVOLVING CREDIT AGREEMENT AND ALL INSTRUMENTS EXECUTED
PURSUANT THERETO, REPRESENT, COLLECTIVELY, THE FINAL AGREEMENT BETWEEN THE
PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES AND SHALL SUPERSEDE ANY PRIOR AGREEMENT BETWEEN THE
PARTIES HERETO, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
8.16 Controlling Provision Upon Conflict. In the event
of a conflict between the provisions of this Agreement and those of the Note,
the Security Instruments or any other instrument referred to herein or executed
in connection with the Note, the provisions of this Agreement shall control.
42
<PAGE> 48
8.17 Time, Place and Method of Payments. All payments
required pursuant to this Agreement or the Note shall be made in immediately
available funds; shall be deemed received by Bank on the next Business Day
following receipt if such receipt is after 3:00 p.m., on any Business Day, and
shall be made at the principal banking quarters of Bank.
8.18 Counterpart Execution. This Agreement may be
executed as one instrument signed by all parties or in separate counterparts
hereof, each of which counterparts shall be considered an original and all of
which shall be deemed to be one instrument, and any signed counterpart shall be
deemed delivered by the party signing it if sent to any other party hereto by
electronic facsimile transmission.
IN WITNESS WHEREOF, this Agreement is executed as of the date
first above written.
BORROWER:
ENCINITAS PARTNERS LTD.
By: CARRIZO PRODUCTION, INC.,
its sole general partner
By: /s/ Frank A. Wojtek
-------------------------
Frank A. Wojtek
Vice President
BANK:
COMPASS BANK
By: /s/ Kathleen J. Bowen
------------------------------
Kathleen J. Bowen
Vice President
43
<PAGE> 49
GUARANTOR:
CARRIZO PRODUCTION, INC.
By: /s/ FRANK A. WOJTEK
--------------------------
Frank A. Wojtek
Vice President
44
<PAGE> 50
SCHEDULES AND EXHIBITS
The schedules and exhibits have been intentionally omitted herefrom.
The Company will furnish supplementally a copy of any or all of such omitted
schedules and exhibits to the Commission upon request.
45
<PAGE> 1
EXHIBIT 4.3
AMENDMENT NO. 1
TO
LOAN AGREEMENT DATED JUNE 26, 1996
BY AND ENCINITAS PARTNERS LTD.
AND COMPASS BANK
This Amendment No. 1 to Loan Agreement dated June 26, 1996
(this "First Amendment") by and between ENCINITAS PARTNERS LTD., a Texas
limited partnership (the "Borrower") and COMPASS BANK, a Texas chartered bank
(the "Bank"), is entered into this 6th day of December, 1996.
W I T N E S S E T H:
Borrower and Bank entered into a Loan Agreement dated June 26,
1996 (as such may be further amended, modified, supplemented or restated, the
"Loan Agreement").
Borrower has requested that the Loan Agreement be amended to
provide a $1,000,000 sublimit for the Bank's issuance of Letters of Credit, and
Bank has agreed to such request, subject to the terms and conditions of the
Loan Agreement, as amended by this First Amendment.
NOW, THEREFORE, in consideration of the promises herein
contained, and each intending to be legally bound hereby, the parties agree as
follows:
I. Amendments to Loan Agreement.
Article I, DEFINITIONS, is amended by adding the following
definitions:
"First Amendment" means Amendment No. 1 to this Agreement,
executed by Borrower and Bank on December 6, 1996.
"Letters of Credit" means letters of credit to be issued by
the Bank for the account of the Borrower pursuant to Section
2.12, in the form acceptable to the Bank, and all extensions,
renewals and modifications thereof.
Article II, THE LOAN, is amended by adding the following sections:
-1-
<PAGE> 2
2.12 Letters of Credit. Subject to the terms and
conditions of this Agreement, the Bank agrees to issue standby Letters
of Credit for the account of the Borrower from time to time following
receipt of a Request for Advance three (3) Business Days prior to the
requested date of issuance in such amount as the Borrower may request
in an aggregate amount of up to (i) One Million Dollars
($1,000,000.00), but (ii) not to exceed at any time the unborrowed
portion of the Revolving Commitment. The amount of any such Letters
of Credit issued under the Revolving Commitment shall be deemed to be
a Loan and to reduce the amount available under the Revolving
Commitment and shall be governed by the terms of this Agreement. The
Bank may require in connection with the issuance of any Letter of
Credit that Borrower execute the Bank's then-current form of
application for a Letter of Credit, but if there is any conflict
between the terms of any such application and the terms of this
Agreement, the terms of this Agreement shall control. No Letter of
Credit shall have an expiration date that is later than the Maturity
Date.
2.13 Repayment of Letters of Credit. If drawn upon by the
beneficiary of a Letter of Credit, all amounts so drawn shall be due
and payable by the Borrower immediately upon receipt of Bank's
statement.
2.14 Letter of Credit Fee. As consideration for the
issuance by the Bank of Letters of Credit for the account of the
Borrower, the Borrower agrees to pay to the Bank a fee of one percent
(1.0%), per annum, of the amount of each such Letter of Credit
(subject to a $300.00 minimum fee per year on each Letter of Credit),
the first such per annum fee for each Letter of Credit to be payable
in advance of the issuance of such Letter of Credit, with successive
per annum fees to be paid in advance of the anniversary date of the
issuance of such Letter of Credit if it is to remain in effect beyond
such anniversary date.
II. Reaffirmation of Representations and Warranties. To induce
the Bank to enter into this First Amendment, the Borrower hereby reaffirms, as
of the date hereof, its representations and warranties contained in Article IV
of the Loan Agreement and in all other documents executed pursuant thereto, and
additionally represents and warrants as follows:
-2-
<PAGE> 3
A. The execution and delivery of this First Amendment
and the performance by the Borrower of its obligations under this
First Amendment are within the Borrower's power, have received all
necessary governmental approval (if any shall be required), and do not
and will not contravene or conflict with any provision of law or of
any agreement binding upon the Borrower.
B. The Loan Agreement as amended by this First Amendment
represents the legal, valid and binding obligations of the Borrower,
enforceable against the Borrower in accordance with their respective
terms subject as to enforcement only to bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally.
C. No Event of Default or Unmatured Event of Default has
occurred and is continuing as of the date hereof.
III. Defined Terms. Except as amended hereby, terms used herein
that are defined in the Loan Agreement shall have the same meanings herein.
IV. Reaffirmation of Loan Agreement. This First Amendment shall
be deemed to be an amendment to the Loan Agreement, and the Loan Agreement, as
amended hereby, is hereby ratified, approved and confirmed in each and every
respect. All references to the Loan Agreement herein and in any other
document, instrument, agreement or writing shall hereafter be deemed to refer
to the Loan Agreement as amended hereby.
V. Entire Agreement. The Loan Agreement, as hereby amended,
embodies the entire agreement between the Borrower and the Bank and supersedes
all prior proposals, agreements and understandings relating to the subject
matter hereof. The Borrower certifies that it is relying on no representation,
warranty, covenant or agreement except for those set forth in the Loan
Agreement as hereby amended and the other documents previously executed or
executed of even date herewith.
VI. Governing Law. THIS First AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE APPLICABLE
LAWS OF THE UNITED STATES OF AMERICA. This First Amendment has been entered
into in Harris County, Texas, and it shall be performable for all purposes in
Harris County, Texas.
-3-
<PAGE> 4
Courts within the State of Texas shall have jurisdiction over any and all
disputes between the Borrower and the Bank, whether in law or equity,
including, but not limited to, any and all disputes arising out of or relating
to this First Amendment or any other Loan Document; and venue in any such
dispute whether in federal or state court shall be laid in Harris County,
Texas.
VII. Severability. Whenever possible each provision of this First
Amendment shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this First Amendment shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this First Amendment.
VIII. Execution in Counterparts. This First Amendment may be
executed in any number of counterparts and by the different parties on separate
counterparts, and each such counterpart shall be deemed to be an original, but
all such counterparts shall together constitute but one and the same agreement.
IX. Section Captions. Section captions used in this First
Amendment are for convenience of reference only, and shall not affect the
construction of this First Amendment.
X. Successors and Assigns. This First Amendment shall be binding
upon the Borrower and the Bank and their respective successors and assigns, and
shall inure to the benefit of the Borrower and the Bank, and the respective
successors and assigns of the Bank.
XI. Non-Application of Chapter 15 of Texas Credit Codes. The
provisions of Chapter 15 of the Texas Credit Code (Vernon's Texas Civil
Statutes, Article 5069-15) are specifically declared by the parties hereto not
to be applicable to the Loan Agreement as hereby amended or any of the other
Loan Documents or to the transactions contemplated hereby.
XII. Notice. THIS First AMENDMENT TOGETHER WITH THE LOAN AGREEMENT
AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.
-4-
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to be duly executed as of the day and year first above written.
BORROWER:
ENCINITAS PARTNERS LTD.
By: Carrizo Production, Inc.,
its sole general partner
By: /s/ FRANK A. WOJTEK
----------------------------
Frank A. Wojtek,
Vice President
BANK:
COMPASS BANK
By: /s/ KATHLEEN J. BOWEN
--------------------------------
Kathleen J. Bowen,
Vice President
Agreed To and Accepted:
by GUARANTOR
CARRIZO PRODUCTION, INC.
By: /s/ FRANK A. WOJTEK
-------------------------
Frank A. Wojtek,
Vice President
-5-
<PAGE> 1
EXHIBIT 4.4
LOAN AGREEMENT
$25,000,000.00
SECURED REDUCING REVOLVING LINE OF CREDIT
FROM
COMPASS BANK
TO
CARRIZO OIL & GAS, INC.
December 6, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II. THE LOAN . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.01 The Loan . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.02 Advances and Payments of Principal Under the Note . . . . . 9
2.03 Payments of Interest under the Note . . . . . . . . . . . . 9
2.04 Provisions Relating to Interest . . . . . . . . . . . . . . 10
2.05 Advances to Satisfy Obligations of Borrower . . . . . . . . 11
2.06 Mandatory Prepayment of the Notes . . . . . . . . . . . . . 11
2.07 Borrowing Base Determination . . . . . . . . . . . . . . . . 11
2.08 Assignment of Production . . . . . . . . . . . . . . . . . . 14
2.09 Commitment Fee . . . . . . . . . . . . . . . . . . . . . . . 14
2.10 Facility Fee . . . . . . . . . . . . . . . . . . . . . . . . 15
2.11 Addition of Borrowing Properties . . . . . . . . . . . . . . 15
2.12 Letters of Credit . . . . . . . . . . . . . . . . . . . . . 15
2.13 Repayment of Letters of Credit . . . . . . . . . . . . . . . 16
2.14 Letter of Credit Fee . . . . . . . . . . . . . . . . . . . . 16
ARTICLE III. CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.01 Receipt of Note, Agreement and Certificate of Compliance . . 16
3.02 Receipt of Guaranty . . . . . . . . . . . . . . . . . . . . 16
3.03 Receipt of Organizational Documents . . . . . . . . . . . . 16
3.04 Receipt of Certified Copy of Corporate Proceedings and
Certificates of Incumbency . . . . . . . . . . . . . . . . . 16
3.05 Receipt of Certificates of Authority and Certificates of
Good Standing . . . . . . . . . . . . . . . . . . . . . . . 17
3.06 UCC Search . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.07 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.08 Financial Statements . . . . . . . . . . . . . . . . . . . . 17
3.09 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . 17
3.10 Payment of Other Indebtedness and Release of Liens . . . . . 17
3.11 Subordination Agreement . . . . . . . . . . . . . . . . . . 17
3.12 Request for Advance . . . . . . . . . . . . . . . . . . . . 18
3.13 Accuracy of Representations and Warranties and No Event of
Default . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.14 Legal Matters Satisfactory to Counsel to Bank . . . . . . . 18
3.15 No Material Adverse Change . . . . . . . . . . . . . . . . . 18
3.16 Status of Title . . . . . . . . . . . . . . . . . . . . . . 18
3.17 Security Instruments . . . . . . . . . . . . . . . . . . . . 18
3.18 Legal Fees . . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
3.19 Documents Required for Subsequent Disbursements . . . . . . 19
ARTICLE IV. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . 19
4.01 Existence and Good Standing . . . . . . . . . . . . . . . . 19
4.02 Due Authorization . . . . . . . . . . . . . . . . . . . . . 19
4.03 Valid and Binding Obligations . . . . . . . . . . . . . . . 19
4.04 Title to Borrowing Base Properties . . . . . . . . . . . . . 20
4.05 Oil and Gas Leases . . . . . . . . . . . . . . . . . . . . . 20
4.06 Interest in the Borrowing Base Oil and Gas Properties . . . 20
4.07 Oil and Gas Contracts . . . . . . . . . . . . . . . . . . . 20
4.08 Producing Wells . . . . . . . . . . . . . . . . . . . . . . 21
4.09 Purchasers of Production . . . . . . . . . . . . . . . . . . 21
4.10 Scope and Accuracy of Financial Statements . . . . . . . . . 21
4.11 Liabilities, Litigation and Restrictions . . . . . . . . . . 22
4.12 Margin Stock . . . . . . . . . . . . . . . . . . . . . . . . 22
4.13 Authorizations and Consents . . . . . . . . . . . . . . . . 22
4.14 Compliance with Laws, Rules, Regulations and Orders . . . . 22
4.15 Proper Filing of Tax Returns and Payment of Taxes Due . . . 23
4.16 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.17 Investment Company Act Compliance . . . . . . . . . . . . . 23
4.18 Public Utility Holding Company Act Compliance . . . . . . . 23
4.19 Environmental Laws . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE V. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . 24
5.01 Use of Funds . . . . . . . . . . . . . . . . . . . . . . . . 25
5.02 Maintenance and Access to Records . . . . . . . . . . . . . 25
5.03 Quarterly Unaudited Financial Statements of Borrower . . . . 25
5.04 Annual Audited Financial Statements of Borrower . . . . . . 25
5.05 Annual Unaudited Financial Statements of Guarantor . . . . . 25
5.06 Guarantor's Tax Returns. . . . . . . . . . . . . . . . . . . 25
5.07 Compliance Certificate . . . . . . . . . . . . . . . . . . . 25
5.08 Monthly Borrowing Base Certificate . . . . . . . . . . . . . 26
5.09 Statement of Material Adverse Change in Condition . . . . . 26
5.10 Additional Information . . . . . . . . . . . . . . . . . . . 26
5.11 Compliance with Laws and Payment of Assessments and Charges 26
5.12 Maintenance of Existence and Good Standing . . . . . . . . . 26
5.13 Further Assurances . . . . . . . . . . . . . . . . . . . . . 26
</TABLE>
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<TABLE>
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5.14 Initial Expenses of Bank . . . . . . . . . . . . . . . . . . 27
5.15 Subsequent Expenses of Bank . . . . . . . . . . . . . . . . 27
5.16 Maintenance of Tangible Property . . . . . . . . . . . . . . 27
5.17 Maintenance of Insurance . . . . . . . . . . . . . . . . . . 28
5.18 Inspection of Tangible Assets/Right of Audit . . . . . . . . 28
5.19 Payment of Note and Performance of Obligations . . . . . . . 28
5.20 ERISA Reports . . . . . . . . . . . . . . . . . . . . . . . 28
5.21 Tangible Net Worth Requirement . . . . . . . . . . . . . . . 28
5.22 Cash Flow to Debt Service Ratio . . . . . . . . . . . . . . 28
5.23 Compliance with Environmental Laws . . . . . . . . . . . . . 29
5.24 Hazardous Substances Indemnification . . . . . . . . . . . . 29
5.25 Changes in Management . . . . . . . . . . . . . . . . . . . 30
5.26 Operating Accounts . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE VI. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . 30
6.01 Other Indebtedness . . . . . . . . . . . . . . . . . . . . . 30
6.02 Guaranty of Payment or Performance . . . . . . . . . . . . . 31
6.03 Loans or Advances . . . . . . . . . . . . . . . . . . . . . 31
6.04 Mortgages or Pledges of Assets . . . . . . . . . . . . . . . 31
6.05 Nature of Business . . . . . . . . . . . . . . . . . . . . . 31
6.06 Sales of Assets . . . . . . . . . . . . . . . . . . . . . . 31
6.07 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.08 Payment of Accounts Payable . . . . . . . . . . . . . . . . 31
6.09 Cancellation of Insurance . . . . . . . . . . . . . . . . . 31
6.10 Investments . . . . . . . . . . . . . . . . . . . . . . . . 31
6.11 Changes in Business Structure . . . . . . . . . . . . . . . 32
6.12 Shareholder Control . . . . . . . . . . . . . . . . . . . . 32
6.13 Transactions with Affiliates . . . . . . . . . . . . . . . . 32
ARTICLE VII. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . 32
7.01 Enumeration of Events of Default . . . . . . . . . . . . . . 32
7.02 Rights Upon Default . . . . . . . . . . . . . . . . . . . . 34
ARTICLE VIII. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . 34
8.01 Security Interests in Deposits and Right of Offset or Banker's
Lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.02 Survival of Representations, Warranties and Covenants . . . 34
8.03 Notices and Other Communications . . . . . . . . . . . . . . 34
8.04 Parties in Interest . . . . . . . . . . . . . . . . . . . . 35
8.05 Renewals and Extensions . . . . . . . . . . . . . . . . . . 35
8.06 No Waiver by Bank . . . . . . . . . . . . . . . . . . . . . 35
8.07 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . 35
</TABLE>
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<TABLE>
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8.08 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . 36
8.09 Incorporation of Exhibits . . . . . . . . . . . . . . . . . 36
8.10 Survival Upon Unenforceability . . . . . . . . . . . . . . . 36
8.11 Rights of Third Parties . . . . . . . . . . . . . . . . . . 36
8.12 Amendments or Modifications of this Agreement . . . . . . . 36
8.13 Agreement Construed as an Entirety . . . . . . . . . . . . . 36
8.14 Number and Gender . . . . . . . . . . . . . . . . . . . . . 36
8.15 AGREEMENT SUPERSEDES ALL PRIOR AGREEMENTS . . . . . . . . . 37
8.16 Controlling Provision Upon Conflict . . . . . . . . . . . . 37
8.17 Time, Place and Method of Payments . . . . . . . . . . . . . 37
8.18 Counterpart Execution . . . . . . . . . . . . . . . . . . . 37
</TABLE>
EXHIBITS
EXHIBIT A Compliance Certificate
EXHIBIT B Note
EXHIBIT C Security Instruments
EXHIBIT D Form of Request for Advance
EXHIBIT E Form of Monthly Borrowing Base Certificate
SCHEDULES
1.01(a) Borrowing Base Oil and Gas Properties
1.01(b) Borrowing Base Cash
2.07 Borrowing Base Adjustment for Successfully Completed Wells
3.09 Form of Opinion of Counsel for Borrower
3.10 Indebtedness to be Discharged
3.11 Indebtedness to be Subordinated
4.09 Purchasers of Production
4.11 Litigation
iv
<PAGE> 6
LOAN AGREEMENT
THIS LOAN AGREEMENT, is entered into as of the 6th day of
December 1996, by and among CARRIZO OIL & GAS, INC., a Texas corporation (the
"Borrower") and COMPASS BANK, a Texas chartered bank (the "Bank").
W I T N E S S E T H
WHEREAS, Borrower desires to obtain a loan from Bank in order to
refinance existing debt, acquire additional oil and gas reserves, conduct
developmental drilling, obtain letters of credit, and use as working capital
for other ordinary business of Borrower; and
WHEREAS, each Guarantor is a stockholder in Borrower, and
together constitute all of the stockholders of Borrower, and accordingly,
Guarantor will benefit from the loans to Borrower pursuant to this Agreement;
and
WHEREAS, Bank is willing to loan such funds to Borrower in
accordance with the terms of this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, Bank and Borrower agree as follows:
ARTICLE I. DEFINITIONS
As used in this Agreement, the following terms shall have the
meanings indicated:
"Affiliate" means, as applied to any Person, any other Person,
directly or indirectly, controlling, controlled by, or under common control
with, that Person. For purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling", "controlled by", and "under
common control with"), as applied to any Person, means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of that Person, whether through the ownership of voting
securities, by contract, or otherwise.
1
<PAGE> 7
"Agreement" means this Loan Agreement, as the same may be amended
or supplemented from time to time.
"Bank" has the meaning set forth in the preamble hereof.
"Borrower" has the meaning set forth in the preamble hereof.
"Borrowing Base" means the aggregate sum of: (a) Three Million
Dollars ($3,000,000.00), plus (b) the maximum loan amount supported by the
Borrowing Base Properties, as determined by Bank from time to time in
accordance with Section 2.07 of this Agreement.
"Borrowing Base Properties" means the Borrowing Base Oil and Gas
Properties, the Borrowing Base Cash, and the Borrowing Base Securities.
"Borrowing Base Oil and Gas Properties" means those Oil and Gas
Properties of Borrower that are to be made subject to the liens created by
certain of the Security Instruments to secure the Obligations, which initial
Borrowing Base Oil and Gas Properties are described in Schedule 1.01(a)
attached hereto and made a part hereof, together with such additional Oil and
Gas Properties as are subsequently added to the Borrowing Base Properties
pursuant to Section 2.11.
"Borrowing Base Cash" means the Cash and Cash Equivalent of
Borrower that is to be made subject to the liens created by certain of the
Security Instruments to secure the Obligations, which initial Borrowing Base
Cash is described in Schedule 1.01(b) attached hereto and made a part hereof,
together with such additional Cash and Cash Equivalent as is subsequently added
to the Borrowing Base Properties pursuant to Section 2.11.
"Borrowing Base Securities" means Eligible Marketable Securities
of Borrower that are added to the Borrowing Base Properties pursuant to Section
2.11.
"Business Day" means a day other than a Saturday, Sunday or legal
holiday for commercial banks under the laws of the State of Texas.
2
<PAGE> 8
"Cash" means legal tender of the United States of America.
"Cash Equivalent" means certificates of deposit issued by the
Bank and/or other certificates of deposit approved by the Bank in its sole
discretion.
"Compliance Certificate" means the certificate of the president
or vice president of Borrower required to be submitted to Bank from time to
time pursuant to this Agreement, which certificate shall be in the form
attached hereto as Exhibit "A."
"Eligible Marketable Securities" means the unrestricted shares
of stock in Falcon Drilling Company, Inc. and Reading & Bates Corporation, and
any other unrestricted shares of stock that are approved by the Bank in its
sole discretion.
"Environmental Laws" means (a) the following federal laws as they
may be cited, referenced and amended from time to time: the Clean Air Act, the
Clean Water Act, the Safe Drinking Water Act, the Comprehensive Environmental
Response, Compensation and Liability Act, the Endangered Species Act, the
Resource Conservation and Recovery Act, the Occupational Safety and Health Act,
the Hazardous Materials Transportation Act, the Superfund Amendments and
Reauthorization Act, and the Toxic Substances Control Act; (b) any and all
environmental statutes of any state in which property of Borrower is situated,
as they may be cited, referenced and amended from time to time; (c) any rules
or regulations promulgated under or adopted pursuant to the above federal and
state laws; and (d) any other federal, state or local statute or any
requirement, rule, regulation, code, ordinance or order adopted pursuant
thereto, including, without limitation, those relating to the generation,
transportation, treatment, storage, recycling, disposal, handling or release of
Hazardous Substances.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations and published
interpretations thereof.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) which together with Borrower would be treated as a single
employer under Section 4001 of ERISA.
3
<PAGE> 9
"Event of Default" means any of the events specified in Section
7.01 of this Agreement.
"Financial Statements" means the statements of the financial
condition of the indicated Person, as at the point in time and for the period
indicated and consisting of at least a consolidated balance sheet, income
statement and statement of cash flows, and, when the foregoing are audited,
accompanied by the certification of such Person's independent certified public
accountants and footnotes to any of the foregoing, all of which shall be
prepared in accordance with GAAP applied on a basis consistent with that of the
preceding year.
"Floating Rate" means the Index Rate in effect from time to time
plus three-quarters of one percent (.75%).
"GAAP" means generally accepted accounting principles, applied on
a consistent basis, as set forth in Opinions of the Accounting Principles Board
of the American Institute of Certified Public Accountants and/or in statements
of the Financial Accounting Standards Board and/or their respective successors
and which are applicable in the circumstances as of the date in question.
Accounting principles are applied on a "consistent basis" when the accounting
principles observed in a current period are comparable in all material respects
to those accounting principles applied in a preceding period.
"Guarantor" means, individually and collectively, Paul B. Loyd,
Jr., Frank A. Wojtek, Steven A. Webster, Douglas A.P. Hamilton and S. P.
Johnson.
"Guaranty" means the guaranty of all of Borrower's Obligations to
Bank arising under this Agreement, in form and substance satisfactory to Bank,
duly executed by each Guarantor.
"Hazardous Substances" means flammables, explosives, radioactive
materials, hazardous wastes, asbestos or any material containing asbestos,
polychlorinated biphenyls (PCBs), toxic substances or related materials,
petroleum and petroleum products and associated oil or natural gas exploration,
production and development wastes or any substances defined as "hazardous
substances", "hazardous materials", "hazardous wastes" or "toxic substances"
under the Comprehensive Environmental Response, Compensation and Liability Act,
as amended, the Superfund
4
<PAGE> 10
Amendments and Reauthorization Act, as amended, the Hazardous Materials
Transportation Act, as amended, the Resource Conservation and Recovery Act, as
amended, the Toxic Substances Control Act, as amended, or any other
Environmental Laws now or hereafter enacted or promulgated by any regulatory
authority or governmental body.
"Indebtedness" means, as to any Person, (a) all items of
indebtedness or liability (other than capital, surplus, deferred credits and
reserves, as such) which in accordance with GAAP would be included in
determining total liabilities as shown on the liability side of a balance sheet
as at the date as of which Indebtedness is to be determined, (b) indebtedness
secured by any mortgage, pledge or lien existing on or encumbering property
owned by the Person whose Indebtedness is being determined, whether or not the
indebtedness secured thereby shall have been assumed, and (c) all indebtedness
of others which such Person has directly or indirectly guaranteed, endorsed
(otherwise than for collection or deposit in the ordinary course of business),
discounted with recourse, agreed (contingently or otherwise) to purchase or
repurchase or otherwise acquire, or in respect of which such Person has agreed
to supply or advance funds (whether by way of loan, purchase of securities or
capital contribution, through a commitment to pay for property or services
regardless of the nondelivery of such property or the nonfurnishing of such
services or otherwise), or in respect of which such Person has otherwise become
directly or indirectly liable, contingently or otherwise, whether now existing
or hereafter arising.
"Index Rate" means, at any time, the prime rate established in
The Wall Street Journal's "Money Rates" or similar table. If multiple prime
rates are quoted in the table, then the highest prime rate will be the Index
Rate. In the event that the prime rate is no longer published by The Wall
Street Journal in the "Money Rates" or similar table, then Bank may select an
alternative published index based upon comparable information as a substitute
Index Rate. Upon the selection of a substitute Index Rate, the applicable
interest rate shall thereafter vary in relation to the substitute index. Such
substitute index shall be the same index that is generally used as a substitute
by Bank on all Index Rate loans. The Index Rate is eight and one-quarter
percent (8.25%) as of the date of this Agreement.
5
<PAGE> 11
"Investment" in any Person means any stock, bond, note or other
evidence of Indebtedness or any other security (other than current trade and
customer accounts) of, or loan to, such Person.
"Leases" means oil and gas leases and all oil, gas and mineral
leases constituting any part of the Borrowing Base Oil and Gas Properties.
"Letters of Credit" means letters of credit to be issued by the
Bank for the account of the Borrower pursuant to Section 2.12, in the form
acceptable to the Bank, and all extensions, renewals and modifications thereof.
"Limitation Period" means any period while any amount remains
owing on the Note and interest on such amount calculated at the Floating Rate,
plus any fees payable hereunder and deemed to be interest under applicable law,
would exceed the Maximum Rate.
"Loan" means, singly, any advance by Bank to Borrower pursuant to
this Agreement and "Loans" means, cumulatively, the aggregate sum of all money
advanced by Bank to Borrower pursuant to this Agreement.
"Loan Documents" means this Agreement and all promissory notes,
security agreements, guaranties, and other instruments, documents, and
agreements executed and delivered pursuant to or in connection with this
Agreement, as such instruments, documents, and agreements may be amended,
modified, renewed, extended, or supplemented from time to time.
"Loan Excess" means, at any point in time, the amount, if any, by
which the outstanding balance on the Loans evidenced by the Note exceeds the
Revolving Commitment then in effect.
"Marketable Title" means good and indefeasible title and
ownership, free and clear of all mortgages, liens and encumbrances, except for
Permitted Encumbrances.
"Maturity Date" means June 1, 1998.
"Maximum Rate" means the maximum non-usurious interest rate
permissible under applicable laws of the State of Texas or those of the United
States of America applicable to Bank.
6
<PAGE> 12
"Monthly Borrowing Base Certificate" means a certificate of the
President or Chief Financial Officer of Borrower attesting to Borrower's
calculation of the Borrowing Base as of the last day of the month preceding the
month in which such certificate is executed and delivered to the Bank, pursuant
to Section 5.08, in the form attached hereto as Exhibit "E."
"Monthly Borrowing Base Reduction" means the amount of the
automatic monthly reduction to the Borrowing Base, as determined by Bank from
time to time in accordance with Section 2.07 of this Agreement.
"Multi-employer Plan" means a plan described in Section
4001(a)(3) of ERISA which covers employees of Borrower or any ERISA Affiliate.
"Note" means that certain promissory note in the original face
amount of $25,000,000.00, dated of even date herewith, made by Borrower payable
to the order of Bank, in the form attached hereto as Exhibit "B," together with
all deferrals, renewals, extensions, amendments, modifications or
rearrangements thereof, which promissory note shall evidence the advances to
Borrower by Bank pursuant to Section 2.01 hereof.
"Obligations" means all obligations, indebtedness, and
liabilities of Borrower to Bank, now existing or hereafter arising, including,
but not limited to, the indebtedness evidenced by the Note, whether direct,
indirect, related, unrelated, fixed, contingent, specified, unspecified, joint,
several, or joint and several, and all interest and fees accruing thereon and
all attorneys' fees and other expenses incurred in the enforcement or
collection thereof.
"Oil and Gas Properties" means fee, leasehold or other interests
in or under mineral estates or oil, gas and other liquid or gaseous hydrocarbon
leases with respect to properties situated in the United States, including,
without limitation, overriding royalty and royalty interests, leasehold estate
interests, net profits interests, production payment interests and mineral fee
interests, together with all contracts executed in connection therewith, all
oil, gas and other minerals produced and to be produced therefrom, all proceeds
thereof, and all tenements, hereditaments, appurtenances and properties, real
or personal, appertaining, belonging, affixed or incidental thereto.
7
<PAGE> 13
"Permitted Encumbrances" means:
(A) Liens for taxes, assessments, or similar charges, incurred
in the ordinary course of business that are not yet due and
payable;
(B) Liens of mechanics, materialmen, warehousemen, carriers,
or other similar liens, securing obligations incurred in the
ordinary course of business that are not yet due and payable;
(C) Encumbrances consisting of zoning restrictions, easements,
or other restrictions on the use of real property, none of which
materially impairs the use of such property by Borrower in the
operation of its business, and none of which is violated in any
material respect by existing or proposed operations;
(D) Liens in favor of Bank;
(E) The following, if the validity or amount thereof is being
contested in good faith by appropriate and lawful proceedings, so
long as levy and execution thereon have been stayed and continue
to be stayed, and in Bank's sole judgment they do not, in the
aggregate, materially detract from the value of the property of
Borrower or any Subsidiary, or materially impair the use thereof
in the operation of its business:
(1) Claims or liens for taxes, assessments, or similar
charges; and
(2) Claims or liens of mechanics, materialmen,
warehousemen, carriers, or other similar liens.
"Person" means an individual, company, corporation, partnership,
limited partnership, joint venture, trust, association, unincorporated
organization or a government or any agency or political subdivision thereof.
"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
8
<PAGE> 14
"Prohibited Transaction" means any transaction set forth in
Section 406 of ERISA or Section 4975 of the Internal Revenue Code of 1954, as
amended from time to time.
"Proved Reserves" means the estimated quantities of crude oil,
condensate, natural gas liquids and natural gas which geological and
engineering data demonstrate with reasonable certainty to be recoverable by
primary producing mechanisms in future years from known reservoirs underlying
lands or interests therein constituting Oil and Gas Properties, under existing
economic and operating conditions. Reserves which can be produced economically
through application of improved recovery techniques (e.g., fluid injection)
will be included in Proved Reserves when successful testing by a pilot project
or the operation of an installed program in the reservoir provides support for
the engineering analysis on which the pilot project or installed program was
based. In general, the economic productivity of the estimated proved reserves
is supported by actual production or a conclusive formation test; however, in
certain instances proved reserves are assigned to reservoirs on the basis of a
combination of electrical and other type logs and core analyses which indicate
these reservoirs are analogous to similar reservoirs in the same field which
are producing or have demonstrated the ability to produce on a formation test.
"Reportable Event" means any of the events set forth in Section
4043 of ERISA.
"Request for Advance" means the written request by Borrower for
an advance by Bank pursuant to this Agreement, which Request for Advance shall
be in a form, and shall include the information and accompanying supporting
documentation, as prescribed in Exhibit "D" attached hereto.
"Revolving Commitment" means the obligation of Bank, subject to
the provisions of this Agreement and existing only through the last Business
Day prior to the Maturity Date, to advance to Borrower funds, not to exceed at
any one time outstanding an amount equal to the lesser of: (a) Six Million
Dollars ($6,000,000.00), or (b) the Borrowing Base then in effect.
"Security Instruments" means the security instruments described
on Exhibit "C," in form and substance satisfactory to Bank, to be executed by
Borrower pursuant to Section 3.17, and any
9
<PAGE> 15
and all other instruments or documents hereafter executed in connection with or
as security for the payment of the Note.
"Subsidiary" means, with respect to Borrower and Guarantor,
respectively, (a) any corporation in which Borrower or Guarantor, directly or
indirectly through its Subsidiaries, owns more than fifty percent (50%) of the
stock of any class or classes having by the terms thereof the ordinary voting
power to elect a majority of the directors of such corporation; and (b) any
partnership, association, joint venture, or other entity in which Borrower or
Guarantor, respectively, directly or indirectly through its Subsidiaries, has
more than a fifty percent (50%) equity interest at the time.
"Tangible Net Worth" means the total assets of Borrower exclusive
of (a) those assets classified as intangible, including, without limitation,
goodwill, patents, trademarks, trade names, copyrights, franchises and deferred
charges, (b) treasury stock and minority interests in any Person, (c) cash set
apart and held in a sinking or other analogous fund established for the purpose
of redemption or other retirement of capital stock, (d) to the extent not
already deducted from total assets, allowances for depreciation, depletion,
obsolescence and/or amortization of properties, uncollectible accounts, and
contingent but probable liabilities as to which an amount can be established,
(e) deferred taxes and (f) all assets arising from advances to officers, former
officers or sales representatives of Borrower made outside of the ordinary
course of business; less total liabilities of Borrower; all of the above being
determined in accordance with GAAP.
"Unmatured Event of Default" means any event or occurrence which
solely with the lapse of time or the giving of notice or both will ripen into
an Event of Default.
Undefined financial accounting terms used in this Agreement shall
be defined in accordance with GAAP.
ARTICLE II. THE LOAN
2.01 The Loan. Upon the terms and conditions (including,
without limitation, the right of Bank to terminate the Revolving Commitment
hereunder upon an Event of Default or an Unmatured Event of Default) and
relying on the representations and warranties contained in this Agreement, Bank
agrees, for a period
10
<PAGE> 16
from and after the date hereof through the last Business Day prior to the
Maturity Date, to make advances for the account of Borrower from time to time
following receipt of a Request for Advance; provided, however, that the
aggregate principal amount of all Loans at any one time outstanding shall not
exceed the Revolving Commitment.
Through the last Business Day prior to the Maturity Date,
Borrower may use this revolving credit by borrowing, prepaying and reborrowing,
all in accordance with the terms and conditions of this Agreement. The
borrowings made by Borrower pursuant to the Revolving Commitment shall be made
at the principal office of Bank and shall be evidenced by the Note. The entire
principal amount of the Note is due on the Maturity Date.
2.02 Advances and Payments of Principal Under the Note. Each
time an advance is made against or payment is made on the Note, Bank is hereby
irrevocably authorized by Borrower to make appropriate entries of such in its
records in accordance with the usual and customary practices of accounting for
advances and payments on notes; provided, however, the failure of Bank to do so
shall not relieve Borrower of its correct liability hereunder or under the
Note.
The aggregate unpaid amount of advances reflected by the
notations by Bank on its records or the ledger sheets affixed to the Note shall
be deemed rebuttably presumptive evidence of the principal amount owing on the
Note. The liability for payment of principal and interest evidenced by the
Note shall be limited to principal amounts actually advanced to Borrower and
outstanding under this Agreement and interest on such amounts calculated in
accordance with this Agreement. Interest provided for in the Note and herein
shall be calculated on unpaid sums actually advanced and outstanding under the
Note pursuant to the terms of this Agreement and only for the period from the
date or dates of such advances until repayment.
2.03 Payments of Interest under the Note. Subject to the terms
and provisions of this Agreement, interest on the Loan, calculated at the
Floating Rate, shall be due and payable monthly as it accrues beginning January
1, 1997, and continuing thereafter on the first day of each succeeding calendar
month while any amount remains owing on the Note and at the Maturity Date, the
interest payment in each instance to be that which has been earned and
11
<PAGE> 17
remains unpaid. The rate of interest charged on the Loan shall be adjusted,
effective on the effective date of each change in the Index Rate.
2.04 Provisions Relating to Interest. All Loans hereunder and
outstanding from time to time shall bear interest at a daily rate equal to the
Floating Rate per annum, each such change in the rate of interest charged on
the Loans to become effective without notice to Borrower, on the effective date
of each change in the Index Rate, calculated on the basis of a year of three
hundred sixty-five or three hundred sixty-six (365 or 366) days, as applicable,
from the date of advance through the date of repayment.
It is the intention of the parties hereto to comply strictly with
the usury laws of the State of Texas and the United States of America and, in
this connection, there shall never be collected, charged or received on any
sums advanced hereunder interest in excess of the Maximum Rate. For purposes
of Article 5069-1.04, Vernon's Texas Civil Statutes, as amended, Borrower
agrees that the maximum rate to be charged shall be the "indicated (weekly)
rate ceiling" as defined in said Article, provided that Bank may also rely to
the extent permitted by applicable laws of the State of Texas or the United
States of America, on alternative maximum rates of interest under other
applicable laws of the State of Texas or the United States of America
applicable to Bank, if greater. Interest on past due interest and principal
shall be at a daily rate equal to the lesser of (a) the Maximum Rate per annum
or (b) the Floating Rate plus three percent (3%) per annum, calculated on the
basis of a year of three hundred sixty-five or three hundred sixty-six (365 or
366) days, as applicable, for the number of days elapsed; and if no Maximum
Rate exists, all past due interest and principal shall bear interest at a daily
rate equal to the Floating Rate plus three percent (3%) per annum, calculated
on a year of three hundred sixty-five or three hundred sixty-six (365 or 366),
as applicable, days for the number of days elapsed. Notwithstanding anything
herein or in the Note to the contrary, during any Limitation Period, the
interest rate to be charged on amounts evidenced by the Note shall be the
Maximum Rate and the obligation of Borrower for any fees payable hereunder and
deemed to be interest under applicable law shall be suspended. During any
period or periods of time following a Limitation Period, to the extent
permitted by applicable laws of the State of Texas or the United States of
America, the interest rate to be charged hereunder shall remain at the Maximum
Rate until such time as there has been
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paid to Bank (a) the amount of interest in excess of the Maximum Rate that Bank
would have received during the Limitation Period had the interest rate remained
at the relevant Floating Rate and (b) all interest and fees otherwise due to
Bank but for the effect of such Limitation Period.
If under any circumstances the aggregate amounts paid on the Note
or under this Agreement include amounts which by law are deemed interest and
which would exceed the amount permitted if the Maximum Rate were in effect,
Borrower stipulates that such payment and collection will have been and will be
deemed to have been, to the extent permitted by applicable laws of the State of
Texas or the United States of America, the result of mathematical error on the
part of both Borrower and Bank, and Bank shall promptly refund the amount of
such excess (to the extent only of such interest payments above the Maximum
Rate which could lawfully have been collected and retained) upon discovery of
such error by Bank or notice thereof from Borrower.
2.05 Advances to Satisfy Obligations of Borrower. Bank may,
but shall not be obligated to, make advances hereunder and apply same to the
satisfaction of any condition, warranty, representation or covenant of Borrower
contained in this Agreement, and the funds so advanced and applied shall be
part of the Loan proceeds advanced under this Agreement and evidenced by the
Note.
2.06 Mandatory Prepayment of the Notes. In the event that Bank
or Borrower determine that a Loan Excess exists, Borrower shall immediately,
but in no event later than fifteen (15) days following the earlier of either:
(a) Borrower becoming aware that a Loan Excess exists, or (b) notice from Bank
of any such determination, (i) prepay the principal of the Note in an aggregate
amount at least equal to such Loan Excess or (ii) add to the Borrowing Base
Properties additional Oil and Gas Properties, Cash, Cash Equivalent, and/or
Eligible Marketable Securities of Borrower sufficient in value, as determined
by Bank in its sole discretion pursuant to Section 2.07, to increase the
Borrowing Base to equal the unpaid principal amount of the Note plus all
accrued, unpaid interest.
2.07 Borrowing Base Determination. The initial Borrowing Base
is hereby established at $4,000,000.00 effective as of the date hereof.
Subject to the other provisions of this Agreement, the Borrowing Base shall be
automatically reduced
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commencing on January 1, 1997, by the Monthly Borrowing Base Reduction, which
is initially established at $15,000.00.
a. Borrowing Base Oil and Gas Properties. If and when
the La Brisa Ranch #1-A (Ranier), La Brisa Land & Cattle #1 (McKinley) and La
Brisa Ranch #1 (Wheeler) wells (as more fully described on Schedule 1.01(a)
attached hereto): (i) are completed as wells capable of producing oil or gas in
paying quantities on or before the first scheduled Borrowing Base review
occurring after the date of this Agreement, (ii) have been producing oil or gas
for at least ten consecutive days, and (iii) have commenced sales of such
production, Borrower shall notify Bank thereof and provide Bank with the
completion reports for such wells, documentary evidence that the production and
sale of oil and gas therefrom have commenced, and such other information
relative to the wells as Bank may request. Following the Bank's evaluation of
such information, if the Bank determines in its sole discretion that its
preliminary evaluation of such wells has been reconfirmed, the Borrowing Base
and Monthly Borrowing Base Reduction then in effect with respect to the
Borrowing Base Oil and Gas Properties will be redetermined to the respective
amounts reflected on Schedule 2.07 attached hereto, effective upon Bank's
written notification to Borrower of such increase.
On or before April 1, 1997, Borrower shall furnish to Bank
information sufficient to update to an effective date of January 1, 1997, the
most recent petroleum engineering reports and geological data provided to Bank
prior to Closing relative to the Proved Reserves that are attributable to the
Oil and Gas Properties that constitute part of the Borrowing Base Oil and Gas
Properties, as well as such other information as Bank may request regarding
volumes of production produced and sold, contracts, pricing, gross revenues,
expenses, and other information and engineering and geological data as may
relate to the Borrowing Base Oil and Gas Properties (collectively the
"Borrowing Base Property Data"). Upon receipt of such Borrowing Base Property
Data, Bank shall, in the normal course of business, redetermine the Borrowing
Base and the Monthly Borrowing Base Reduction attributed to the Borrowing Base
Oil and Gas Properties, which redetermination shall become effective upon
written notification from Bank to Borrower, and which, subject to the other
provisions of this Agreement, shall be the basis on which the Borrowing Base
shall thereafter be calculated until the effective date of the next
redetermination of the Borrowing Base and the Monthly Borrowing Base Reduction
as set
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forth in this Section. Thereafter, on or before each succeeding October 1 and
April 1 until the Maturity Date, Borrower shall furnish to Bank a report, in
form and substance satisfactory to Bank, which report shall set forth, as of
each preceding July 1 or January 1, as applicable, such Borrowing Base Property
Data as Bank may request attributable to the Borrowing Base Oil and Gas
Properties. Each report to be provided on or before each April 1 (except for
April 1, 1997) shall be a complete report relating to the Borrowing Base
Property Data, prepared by an independent petroleum engineer or firm of
engineers satisfactory to Bank. Each report to be provided on or before each
October 1 (and the one to be provided on or before April 1, 1997) shall simply
update the previous complete report, and may be prepared by Borrower's own
engineers and shall be certified by the President of the general partner of
Borrower. Upon receipt of each such report, Bank shall, in the normal course
of business, make a determination of the Borrowing Base and the Monthly
Borrowing Base Reduction which shall become effective upon written notification
from Bank to Borrower, and which, subject to the other provisions of this
Agreement, shall be the basis on which the Borrowing Base attributable to the
Borrowing Base Oil and Gas Properties shall thereafter be calculated until the
effective date of the next redetermination of the Borrowing Base and the
Monthly Borrowing Base Reduction as set forth in this Section.
Beginning with the delivery of the Borrowing Base Property Data
due by April 1, 1997, and continuing as and when Borrower is required to
provide to Bank each semi-annual report, as required by the provisions of this
Section, Borrower shall contemporaneously pay an engineering fee of $5,000.00
to Bank for Bank's analysis of such report and redetermination of the Borrowing
Base and the Monthly Borrowing Base Reduction. At any time engineering reviews
are requested by Borrower in connection with a Borrowing Base redetermination,
other than the semi-annual reviews required by Bank, an additional fee of
$5,000.00 shall be paid to Bank for Bank's analysis of such report and
redetermination of the Borrowing Base.
b. Borrowing Base Cash. At each time that the Bank
redetermines the Borrowing Base attributable to the Borrowing Base Oil and Gas
Properties, as set forth in subsection 2.07(a), it shall also include in the
Borrowing Base calculation the face value of all Borrowing Base Cash that is in
the Bank's possession and is subject to one or more of the applicable Security
Agreements.
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c. Borrowing Base Securities. At each time that the
Bank redetermines the Borrowing Base attributable to the Borrowing Base Oil and
Gas Properties, as set forth in Section 2.07(a), it shall also include in the
Borrowing Base calculation seventy-five percent (75%) of the market value of
the Borrowing Base Securities that are in the Bank's possession and are subject
to one or more of the applicable Security Agreements, with the market value
thereof to be determined based on the announced value at which such securities
were trading as of the close of trading on the last trading day of the month
preceding the month in which the Bank notifies Borrower of the redetermination
of the Borrowing Base.
d. Equity Cushion. The Borrowing Base shall represent
Bank's determination, in accordance with its customary lending practices in
effect from time to time, of the maximum loan amount that may be supported by
the Borrowing Base Properties. Borrower and Bank acknowledge that (a) due to
the uncertainties of the oil and gas extraction process, the Borrowing Base Oil
and Gas Properties are not subject to evaluation with a high degree of accuracy
and are subject to potential rapid deterioration in value, and (b) for this
reason and the difficulties and expenses involved in liquidating and collecting
against the Borrowing Base Oil and Gas Properties, Bank's determination of the
maximum loan amount with respect to the Borrowing Base Oil and Gas Properties
contains an equity cushion, which equity cushion is acknowledged by Borrower as
essential for the adequate protection of Bank.
e. Unscheduled Borrowing Base Redeterminations. In
addition to scheduled redeterminations of the Borrowing Base, the Bank may
redetermine the Borrowing Base and the Monthly Borrowing Base Reduction at any
time, and from time to time, which redetermination shall become effective upon
written notification from Bank to Borrower and which, subject to the other
provisions of this Agreement, shall be the basis on which the Borrowing Base
shall thereafter be calculated until the effective date of the next
redetermination of the Borrowing Base and the Monthly Borrowing Base Reduction,
as set forth in this Section.
2.08 Assignment of Production. Certain of the Security
Instruments covering the Borrowing Base Oil and Gas Properties contain an
assignment unto and in favor of Bank of all oil, gas and other minerals
produced and to be produced from or attributable to the Oil and Gas Properties
that constitute part of the Borrowing
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Base Oil and Gas Properties, together with all of the revenues and proceeds
attributable to such production, and such Security Instruments further provide
that all such revenues and proceeds which may be so collected by Bank pursuant
to the assignment shall be applied to the payment of the Note and the
satisfaction of all other Indebtedness to be secured by such Security
Instruments. Such Security Instruments further provide that the Bank grants to
Borrower a license to receive and collect the revenues and proceeds
attributable to such production unless and until an Event of Default shall
occur, and upon the occurrence of an Event of Default, the Bank, acting in its
sole discretion, shall have the right to terminate Borrower's license to
collect such revenues and proceeds. Borrower hereby appoints Bank as its agent
and attorney-in-fact for all purposes deemed by Bank to be necessary or
desirable in connection with such assignment of production, including, but not
limited to, completing the letter transfer orders delivered to Bank pursuant to
Sections 3.17 and/or 3.19 hereof, which power is coupled with an interest and
is not revocable.
2.09 Commitment Fee. As consideration for the commitment of
Bank to make Loans to Borrower through the Maturity Date pursuant to this
Agreement, Borrower agrees to pay to Bank within three (3) Business Days of
receipt of Bank's statement as to quarterly periods ending March 31, June 30,
September 30 and December 31 of each year (except the first period shall be for
a period of time from the Closing to December 31, 1996) during the period
commencing on the date of this Agreement to and including the Maturity Date and
at the Maturity Date, a fee equal to 1/2 of 1% per annum (computed on the basis
of 365 or 366 days, as the case may be) multiplied by an amount equal to the
daily average excess, if any, of the greater of either: (a) $6,000,000.00, or
(b) the Revolving Commitment, over the sum of: (x) the aggregate principal
amount outstanding on the Note, plus (y) the aggregate face amount of all
outstanding Letters of Credit, throughout the period from the date of this
Agreement or previous calculation date provided above, whichever is later, to
the relevant calculation date or the Maturity Date, as the case may be.
2.10 Facility Fee. As consideration for the commitment of Bank
to make Loans to Borrower pursuant to this Agreement, Borrower shall pay to
Bank a fee ("Facility Fee") of $60,000.00, one-half of which has heretofore
been paid, and the remaining $30,000.00 of which shall be paid simultaneously
with the Closing.
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If the Revolving Commitment is ever increased to an amount exceeding
$6,000,000.00, then at the time such increase becomes effective, Borrower shall
pay Bank an additional Facility Fee equal to one percent (1.0%) of the amount
by which such increased Revolving Commitment exceeds either: (a)
$6,000,000.00, or (b) the highest Revolving Commitment amount previously in
effect, if greater than $6,000,000.00.
2.11 Addition of Borrowing Properties. Borrower may, from time
to time upon thirty (30) days prior written notice to Bank, propose to add Oil
and Gas Properties, Cash, Cash Equivalent, and/or Eligible Marketable
Securities of Borrower to the Borrowing Base Properties. Any such proposal to
add Oil and Gas Properties of Borrower to the Borrowing Base Properties shall
be accompanied by an engineering report applicable to such Oil and Gas
Properties that conforms to the requirements of Section 2.07, evidence
sufficient to establish that Borrower has Marketable Title to such Oil and Gas
Properties, and such other data as Bank may reasonably request. Any such
proposal to add Eligible Marketable Securities of Borrower to the Borrowing
Base properties shall be accompanied by evidence sufficient to establish that
Borrower has Marketable Title to such Eligible Marketable Securities, and such
other data as Bank may reasonably request. Any such additions shall become
effective at such time as: (a) Bank has made its determination in the ordinary
course of business of the amount by which the Borrowing Base would be increased
as the result of such addition and (b) the conditions set forth in Article III
hereof, to the extent they are applicable to such additional Borrowing Base
Properties of Borrower, have been satisfied.
2.12 Letters of Credit. Subject to the terms and conditions of
this Agreement, the Bank agrees to issue standby Letters of Credit for the
account of the Borrower from time to time following receipt of a Request for
Advance three (3) Business Days prior to the requested date of issuance in such
amount as the Borrower may request in an aggregate amount of up to (i) One
Million Dollars ($1,000,000.00), but (ii) not to exceed at any time the
unborrowed portion of the Revolving Commitment. The amount of any such Letters
of Credit issued under the Revolving Commitment shall be deemed to be a Loan
and to reduce the amount available under the Revolving Commitment and shall be
governed by the terms of this Agreement. The Bank may require in connection
with the issuance of any Letter of Credit that Borrower execute the Bank's
then-current form of application for a Letter of Credit, but if
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there is any conflict between the terms of any such application and the terms
of this Agreement, the terms of this Agreement shall control. No Letter of
Credit shall have an expiration date that is later than one year from the date
of its issuance, or, if sooner, beyond the Maturity Date.
2.13 Repayment of Letters of Credit. If drawn upon by the
beneficiary of a Letter of Credit, all amounts so drawn shall be due and
payable by the Borrower immediately upon receipt of Bank's statement therefor.
2.14 Letter of Credit Fee. As consideration for the issuance
by the Bank of Letters of Credit for the account of the Borrower, the Borrower
agrees to pay to the Bank a fee of one percent (1.0%), per annum, of the amount
of each such Letter of Credit (subject to a $300.00 minimum fee per year on
each Letter of Credit), the first such per annum fee for each Letter of Credit
to be payable in advance of the issuance of such Letter of Credit, with
successive per annum fees to be paid in advance of the anniversary date of the
issuance of such Letter of Credit if it is to remain in effect beyond such
anniversary date.
ARTICLE III. CONDITIONS
The obligation of Bank to make the Loan referred to in Article II
of this Agreement is subject to satisfaction of the following conditions
precedent stated in this Article III. The obligation of Bank to make
subsequent advances pursuant to this Agreement is subject to the prior or
contemporaneous satisfaction of the conditions precedent stated in Sections
3.12 through 3.19.
3.01 Receipt of Note, Agreement and Certificate of Compliance.
Bank shall have received the Note, multiple counterparts of this Agreement, as
requested by Bank, and the Certificate of Compliance duly executed by an
authorized officer for Borrower.
3.02 Receipt of Guaranty. Bank shall have received from each
Guarantor the Guaranty, duly executed by Guarantor.
3.03 Receipt of Organizational Documents. Bank shall have
received from Borrower its Articles of Incorporation and its bylaws certified
by the secretary or an assistant secretary of Borrower.
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3.04 Receipt of Certified Copy of Corporate Proceedings and
Certificates of Incumbency. Bank shall have received from Borrower copies of
all resolutions of its board of directors authorizing the transactions set
forth in this Agreement, and the execution of this Agreement, the Note, and
those of the Security Instruments to which it is a party, such copy or copies
to be certified by the secretary or an assistant secretary as being true and
correct and in full force and effect as of the date hereof. In addition, Bank
shall have received from Borrower a certificate of incumbency signed by the
secretary or an assistant secretary of Borrower setting forth (a) the names of
the officers executing this Agreement, the Note, and those of the Security
Instruments to which it is a party, (b) the office(s) to which such Persons
have been elected and in which they presently serve and (c) an original
specimen signature of each such person.
3.05 Receipt of Certificates of Authority and Certificates of
Good Standing. Bank shall have received certificates, as of the most recent
dates practicable, of the Secretary of State of the state in which Borrower is
incorporated attesting to Borrower's existence, and of each state in which
Borrower is qualified to do business as a foreign corporation attesting to such
qualification, and from the department of revenue or taxation of each of the
foregoing states, as to the good standing of Borrower;
3.06 UCC Search. The results of a Uniform Commercial Code
search showing all financing statements and other documents or instruments on
file against Borrower and Guarantor, in the Offices of the Secretaries of State
of the State of Texas and in the counties in which Borrowing Base Oil and Gas
Properties are located, such search to be as of a date no more than ten (10)
days prior to the date of the advance of the Loan.
3.07 Fees. Bank shall have contemporaneously received the fees
required by Section 2.10.
3.08 Financial Statements. Bank shall have received the
Financial Statements of Borrower as of August 31, 1996, showing financial
information consistent with that previously provided to Bank.
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3.09 Opinion of Counsel. Bank shall received a satisfactory
legal opinion from the firm of Gardere Wynne Sewell & Riggs, L.L.P., counsel
for Borrower, in form and substance acceptable to Bank, covering the matters
prescribed on Schedule 3.09 hereof.
3.10 Payment of Other Indebtedness and Release of Liens. Bank
shall have received evidence satisfactory to it, in its sole discretion, that
the other Indebtedness of Borrower described on Schedule 3.10 hereof has been
fully paid and discharged, and that the holder(s) of such indebtedness have
executed and delivered to Borrower recordable releases, in form satisfactory to
the Bank, in its sole discretion, releasing all liens and security interests
owned or claimed by such holder(s) to secure such Indebtedness.
3.11 Subordination Agreement. With respect to all of the other
Indebtedness described on Schedule 3.11 attached hereto, the Bank, the
Borrower, and each holder of such Indebtedness shall have entered into a
subordination agreement in form and substance acceptable to the Bank, in its
sole discretion, providing that no payments of principal or interest on the
Indebtedness covered by such subordination agreement may be paid by Borrower or
accepted by the holder of such indebtedness without the prior written consent
of the Bank.
3.12 Request for Advance. Bank shall have received from
Borrower a Request for Advance.
3.13 Accuracy of Representations and Warranties and No Event of
Default. The representations and warranties contained in Article IV of this
Agreement shall be true and correct in all material respects on the date of the
making of such Loans or advances with the same effect as though such
representations and warranties had been made on such date; and no Event of
Default shall have occurred and be continuing or will have occurred at the
completion of the making of such Loans or advances.
3.14 Legal Matters Satisfactory to Counsel to Bank. All legal
matters incident to the consummation of the transactions hereby contemplated
shall be satisfactory to counsel for Bank.
3.15 No Material Adverse Change. No material adverse change
shall have occurred since the date of this Agreement in the condition,
financial or otherwise, of Borrower or Guarantor.
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3.16 Status of Title. Bank shall have been satisfied that
Borrower has Marketable Title to its Borrowing Base Properties, and that
Borrower owns record title to an undivided net revenue interest in the
production from each Oil and Gas Property that is a Borrowing Base Property
that is not less than the net revenue interest therein attributed to Borrower
in the Loan Documents, as amended from time to time, as well as an undivided
working interest in each such Oil and Gas Property that is not greater than the
working interest therein attributed to Borrower in the Loan Documents, as
amended from time to time (unless there is a corresponding increase in the net
revenue interest attributed to such party therein).
3.17 Security Instruments. As security for the payment of the
Note and the performance of the Obligations of Borrower under this Agreement,
Bank shall have received the Security Instruments, duly executed by Borrower
with respect to Borrowing Base properties owned by Borrower and duly executed
by the applicable Guarantor with respect to Borrowing Base Properties owned by
such Guarantor.
3.18 Legal Fees. All legal fees and disbursements owed to
Bank's special counsel who provided representation to the Bank in connection
with this Agreement or any amendment hereto and in connection with the review
of title to the Borrowing Base Oil and Gas Property shall have been paid.
3.19 Documents Required for Subsequent Disbursements. As of
the time of funding any additional advances to Borrower that are made in
conjunction with the addition to the Borrowing Base Properties of Oil and Gas
Properties, Cash, Cash Equivalent, and/or Eligible Marketable Securities owned
by Borrower or any Guarantor, Borrower or such Guarantor shall have duly
delivered to Bank: (i) the Security Instruments that are necessary or
appropriate, in the opinion of Bank, relating to such additional Borrowing Base
Properties, (ii) Transfer Order Letters applicable to the production of oil and
gas from any additional Oil and Gas Properties added to the Borrowing Base
Properties, and (iii) possession of any such additional Borrowing Base Cash and
Borrowing Base Securities.
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ARTICLE IV. REPRESENTATIONS AND WARRANTIES
To induce Bank to enter into this Agreement and to make the Loan
hereunder, Borrower represents and warrants to Bank (which representations and
warranties will survive the delivery of the Note) that:
4.01 Existence and Good Standing. Borrower is a corporation,
duly organized, legally existing and in good standing under the laws of its
jurisdiction of incorporation and is duly qualified and in good standing as a
foreign corporation in all jurisdictions wherein the property owned or the
business transacted by it makes such qualification necessary, other than those
jurisdictions wherein the failure to so qualify does not have a material
adverse effect on Borrower.
4.02 Due Authorization. As to Borrower, the execution and
delivery by Borrower of this Agreement and the borrowings hereunder; the
execution and delivery by Borrower of the Note and the Security Instruments;
and the repayment by Borrower of Indebtedness evidenced by the Note and
interest and fees provided in the Note and this Agreement are (a) within the
corporate power of Borrower; (b) have been duly authorized by all necessary
corporate action; and (c) do not and will not (i) require the consent of any
regulatory authority, governmental body, or any other Person, (ii) violate any
provision of law, the certificate of incorporation, the articles of
incorporation, or the bylaws of Borrower, (iii) cause a default to occur under
the terms and provisions of any indenture, instrument or other agreement to
which Borrower is a party or by which its property may be presently bound or
encumbered, or (iv) result in or require the creation or imposition of any
mortgage, lien, pledge, security interest, charge or other encumbrance in, upon
or of any of the properties or assets of Borrower under any such indenture,
instrument or other agreement, other than under any of the Security
Instruments.
4.03 Valid and Binding Obligations. This Agreement, the Note,
the Security Instruments and the Guaranty, when duly executed and delivered,
will be, as to each such instrument executed by Borrower and Guarantor,
respectively, the legal, valid and binding obligations of and enforceable
against Borrower and Guarantor, as applicable, in accordance with their
respective terms (subject to any applicable bankruptcy, insolvency or other
laws of general application affecting creditors' rights and judicial decisions
interpreting any of the foregoing).
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4.04 Title to Borrowing Base Properties. Borrower has
Marketable Title to all of its Borrowing Base Properties, and each Guarantor
has marketable title to all of its Borrowing Base Properties.
4.05 Oil and Gas Leases. The Leases which constitute any part
of the Borrowing Base Properties are in full force and effect, are valid,
subsisting leases covering the entire estates to which they pertain and all
rentals, royalties and other amounts due and payable in accordance with the
terms of the Leases, overriding royalties, net profits or other production
burdens have been duly paid or provided for; the obligations to be performed
under the Leases have been duly performed; and Borrower is not aware of any
default by any third party under any of the Leases with respect to such third
party's obligations.
4.06 Interest in the Borrowing Base Oil and Gas Properties.
With respect to each of the Borrowing Base Oil and Gas Properties, the
ownership of Borrower in such property will, with respect to the wells, units
and/or tracts of land described in Schedule 1.01(a) hereto in connection with
such property, (i) entitle Borrower to receive (subject to the terms and
provisions of this Agreement) a decimal share of the oil and gas produced from,
or allocated to, such wells, units and/or tracts equal to not less than the
decimal share set forth in Schedule 1.01(a) in connection with such wells,
units and/or tracts, and (ii) cause Borrower to be obligated to bear a decimal
share of the cost of exploration, development and operation of such wells,
units and/or tracts of land not greater than the decimal share set forth in
Schedule 1.01(a) in connection with such wells, units and/or tracts, unless any
increase in Borrower's share of costs is accompanied by a pro-rata increase in
Borrower's share of revenue. Except as set forth in the instrument and
agreements, if any, more particularly described in Schedule 1.01(a), all such
shares of production which Borrower is entitled to receive, and shares of
expenses which Borrower is obligated to bear, are not subject to change, except
for changes attributable to future elections by Borrower not to participate in
operations proposed pursuant to customary forms of applicable joint operating
agreements, and except for changes attributable to changes in participating
areas under any federal units wherein participating areas may be formed,
enlarged or contracted in accordance with the rules and regulations of the
applicable governmental authority.
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4.07 Oil and Gas Contracts. Borrower is not obligated, by
virtue of any prepayment under any contract providing for the sale by Borrower
of hydrocarbons which contains a "take-or-pay" clause or under any similar
prepayment agreement or arrangement, including, without limitation, "gas
balancing agreements", to deliver a material amount of hydrocarbons produced
from the Borrowing Base Oil and Gas Properties at some future time without then
or thereafter receiving full payment therefor (i.e., in the case of oil, not in
excess of sixty (60) days, and in the case of gas, not in excess of ninety (90)
days). The Borrowing Base Oil and Gas Properties are not subject to any
contractual, or other arrangement for the sale of crude oil which cannot be
cancelled on ninety (90) days' (or less) notice, unless the price provided for
therein is equal to or greater than the prevailing market price in the
vicinity. The Borrowing Base Oil and Gas Properties are not subject to any gas
sales contract that contains any material terms which are not customary in the
industry within the region in which the Borrowing Base Oil and Gas Properties
affected thereby are located. The Borrowing Base Oil and Gas Properties are
not subject to any regulatory refund obligation and no facts exist which might
cause the same to be imposed.
4.08 Producing Wells. All producing wells located on the
Borrowing Base Oil and Gas Properties have been, during all times that such
were under the direction or control of Borrower and, to the knowledge of
Borrower, at all other times, drilled, operated and produced in conformity with
all applicable Laws, rules, regulations and orders of all regulatory
authorities having jurisdiction, are subject to no penalties on account of past
production, and are bottomed under and are producing from, and the well bores
are wholly within, the Borrowing Base Oil and Gas Properties or on Oil and Gas
Properties which have been pooled, unitized or communitized with the Borrowing
Base Oil and Gas Properties.
4.09 Purchasers of Production. The persons who are purchasing
Borrower's interests in oil and gas produced from the Borrowing Base Oil and
Gas Properties as of the calendar month during which the Loans are made
hereunder are identified on Schedule 4.09 attached hereto.
4.10 Scope and Accuracy of Financial Statements. All Financial
Statements submitted and to be submitted to Bank hereunder, including, without
limitation, the Financial Statements
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of Borrower and Guarantor, are and will be complete and correct in all material
respects; with RESPECT to Borrower, are and will be prepared in accordance with
GAAP and practices consistently applied; with respect to Guarantor, are and
will be prepared on a cash accounting basis and tax accounting practices
consistently applied; and do and will fairly reflect the financial condition
and the results of the operations of Borrower and Guarantor in all material
respects as of the dates and for the period stated therein (subject only to
normal year-end audit adjustments with respect to such unaudited interim
statements of Borrower and Guarantor); and no material adverse change has since
occurred in the condition, financial or otherwise, of Borrower or Guarantor, or
their respective Subsidiaries (taken as a whole).
4.11 Liabilities, Litigation and Restrictions. Except as
disclosed in the Financial Statements, neither Borrower nor Guarantor has any
liabilities, direct or contingent, which may materially and adversely affect
the business or assets of such party. Except as described on Schedule 4.11,
there is no litigation or other action of any nature pending before any court,
governmental instrumentality, regulatory authority or arbitral body or, to the
knowledge of Borrower, threatened against or affecting Borrower or Guarantor,
or any of their Subsidiaries, which might reasonably be expected to result in
any material, adverse change in the business or assets of Borrower or
Guarantor, or their respective Subsidiaries (taken as a whole). No unusual or
unduly burdensome restriction, restraint or hazard exists by contract, law,
governmental regulation or otherwise relative to the business or material
properties of Borrower or Guarantor other than such as relate generally to
Persons engaged in the business activities conducted by Borrower or Guarantor,
as the case may be.
4.12 Margin Stock. None of the proceeds of the Loans will be
used for the purpose of buying or carrying margin stock.
4.13 Authorizations and Consents. No authorization, consent,
approval, exemption, franchise, permit or license of, or filing with, any
governmental or public authority or any third party is required to authorize,
or is otherwise required in connection with the valid execution and delivery by
Borrower or Guarantor, as applicable, of this Agreement, the Note, and those of
the Security Instruments to which it is a party or any instrument contemplated
hereby, the repayment by Borrower of advances against the Note and interest and
fees provided in the Note and this
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Agreement, or the performance by Borrower or Guarantor of its obligations under
any of the foregoing.
4.14 Compliance with Laws, Rules, Regulations and Orders. To
the best of the knowledge and belief of Borrower, neither the business nor any
of the activities of Borrower or Guarantor, as presently conducted, violates
any law or any rule, regulation or directive of any applicable judicial,
administrative or other governmental instrumentality (including, but not by way
of limitation, any law or any rule, regulation or directive of any judicial,
administrative or other governmental instrumentality relating to zoning, to any
Environmental Law, to the stabilization of wages or prices or to the
development, production, transportation or purchase or sale of oil, gas or
other hydrocarbons) the result of which violation would have a material adverse
effect on Borrower or Guarantor, or their respective Subsidiaries (taken as a
whole), and Borrower and Guarantor each possess all licenses, approvals,
registrations, permits and other authorizations necessary to enable it to carry
on its business in all material respects as now conducted, and all such
licenses, approvals, registrations, permits and other authorizations are in
full force and effect; and Borrower has no reason to believe that either
Borrower or Guarantor will be unable to obtain the renewal of any such
licenses, approvals, registrations, permits and other authorizations.
4.15 Proper Filing of Tax Returns and Payment of Taxes Due.
Borrower and Guarantor have each duly and properly filed all United States
Income Tax returns and all other tax returns which are required to be filed,
and have paid all taxes due pursuant to said returns or pursuant to any
assessment received, except such taxes, if any, as are being contested in good
faith and as to which adequate provisions and disclosures have been made; and
the respective charges and reserves on the books of Borrower and Guarantor with
respect to any taxes or other governmental charges are adequate.
4.16 ERISA. Borrower is in compliance in all material respects
with all applicable provisions of ERISA. Neither a Reportable Event nor a
Prohibited Transaction has occurred and is continuing with respect to any plan;
no notice of intent to terminate a plan has been filed, nor has any plan been
terminated; no circumstances exist which constitute grounds under Section 4042
of ERISA entitling the PBGC to institute proceedings to terminate,
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or appoint a trustee to administrate a plan, nor has the PBGC instituted any
such proceedings; neither Borrower nor any ERISA Affiliate has completely or
partially withdrawn under Sections 4201 or 4204 of ERISA from a Multi-employer
plan; Borrower and each ERISA Affiliate have met their minimum funding
requirements under ERISA with respect to all of their plans and the present
value of all vested benefits under each plan exceeds the fair market value of
all plan assets allocable to such benefits, as determined on the most recent
valuation date of the plan and in accordance with the provisions of ERISA and
the regulations thereunder for calculating the potential liability of Borrower
or any ERISA Affiliate to the PBGC or the plan under Title IV of ERISA; and
neither Borrower nor any ERISA Affiliate has incurred any liability to the PBGC
under ERISA.
4.17 Investment Company Act Compliance. Neither Borrower nor
Guarantor is, nor is it directly or indirectly controlled by or acting on
behalf of any person or entity which is, an investment company or an
"affiliated person" of an investment company within the meaning of the
Investment Borrower Act of 1940.
4.18 Public Utility Holding Company Act Compliance. Borrower
is not a "holding company", or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company", within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
4.19 Environmental Laws. To the best of the knowledge and
belief of Borrower:
(a) no property of Borrower or Guarantor is currently on, or
has ever been on, any federal or state list of superfund sites as listed
on the Environmental Protection Agency National Priority List or any
comparable state registries or list in any state of the United States
(collectively "Superfund Sites");
(b) no Hazardous Substances have in the past been generated,
transported, and or disposed of, by Borrower or Guarantor at any
Superfund Site;
(c) except in accordance with a valid permit, license,
certificate or approval of the relevant regulatory authority or
governmental body, there has been no emission, spill,
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release, disposal or discharge of any Hazardous Substance into or upon
(i) the air, (ii) soils or any improvements located thereon, (iii)
surface water or groundwater, or (iv) the sewer, septic system or waste
treatment, storage or disposal system servicing any property of Borrower
or Guarantor; and
(d) no complaint, order, directive, claim, citation, notice of
environmental report, notice of investigation or other notice by any
regulatory authority or governmental body or any other Person with
respect to (i) air emissions, (ii) spills, releases or discharges to
soils or any improvements located thereon, surface water, groundwater or
the sewer, septic system or waste treatment, storage or disposal systems
servicing any property of Borrower or Guarantor, (iii) solid or liquid
waste disposal, (iv) the use, generation, storage, transportation or
disposal of any Hazardous Substance, or (v) other environmental, health
or safety matters affecting any property of Borrower or Guarantor, any
improvements located thereon, or the business thereon conducted, has
been received by Borrower or Guarantor, nor has Borrower or Guarantor
been given oral or written notice thereof;
provided, however, that the representations and warranties set forth in
subparagraphs (c) and (d) above shall apply only to events and conditions which
either resulted in (i) a continuing lien or encumbrance on the property of
Borrower or Guarantor or (ii) otherwise materially affect Borrower's or
Guarantor's use or operation of its property or Borrower's ability to repay the
Indebtedness evidenced by the Note, or Guarantor's ability to perform its
Guaranty.
ARTICLE V. AFFIRMATIVE COVENANTS
Borrower covenants, so long as any Indebtedness of Borrower to
Bank remains unpaid under this Agreement or Bank remains obligated to make
advances hereunder, to:
5.01 Use of Funds. Use the proceeds advanced under the Loan to
refinance the existing Indebtedness described on Schedule 3.10, acquire Oil and
Gas Properties, conduct developmental drilling, and use as working capital for
other ordinary business activities of Borrower, and furnish Bank such evidence
as it may reasonably require with respect to such use.
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5.02 Maintenance and Access to Records. Keep adequate records
in accordance with good accounting practices, of all of Borrower's transactions
so that at any time, and from time to time, its true and complete financial
condition may be readily determined and, at Bank's reasonable request, make all
financial records and records relating to the Borrowing Base Properties
available for Bank's inspection and permit Bank to make and take away copies
thereof for Bank's internal use only and subject to such confidentiality
agreements as Borrower may reasonably require.
5.03 Quarterly Unaudited Financial Statements of Borrower.
Deliver to Bank, on or before the forty-fifth (45th) day after the end of each
of the first three calendar quarters of each fiscal year, unaudited Financial
Statements of Borrower as at the end of such period and from the beginning of
such fiscal year to the end of the respective period, as applicable, which
Financial Statements shall be certified by the president or chief financial
officer of Borrower as being true and correct, subject to changes resulting
from year-end audit adjustments.
5.04 Annual Audited Financial Statements of Borrower. Deliver
to Bank, on or before the one hundred and twentieth (120th) day after the close
of each fiscal year of Borrower, a copy of the annual audited Financial
Statements of Borrower.
5.05 Annual Unaudited Financial Statements of Guarantor.
Deliver or cause to be delivered to Bank, on or before the ninetieth (90th) day
after the close of each calendar year, unaudited personal Financial Statements
of Guarantor as at the end of such year, which Financial Statements shall
include cash flow and contingent liability information, and shall be certified
by the Guarantor as being true and correct.
5.06 Guarantor's Tax Returns. Deliver or cause to be delivered
to Bank, on or before the forty-fifth (45th) day after each Guarantor's annual
personal tax return for the preceding tax year is filed with the Internal
Revenue Service, copies of the first two pages of such annual personal tax
return of such Guarantor for the such tax year, certified by such Guarantor as
being true and correct.
5.07 Compliance Certificate. Deliver to Bank a Compliance
Certificate: (a) at the time of Borrower's execution
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of this Agreement, and (b) at the time of delivery of each of the Financial
Statements pursuant to Sections 5.03 and 5.04 above.
5.08 Monthly Borrowing Base Certificate. Deliver to Bank on or
before the 15th day of each month a Monthly Borrowing Base Certificate
evidencing Borrower's calculation of the Borrowing Base according to the
parameters described in Section 2.07, effective as of the first day of such
month.
5.09 Statement of Material Adverse Change in Condition.
Deliver to Bank, promptly upon any officer of the Borrower having knowledge of
any material adverse change in the condition, financial or otherwise, of
Borrower or its Subsidiaries (or any event or circumstance that would result in
any such material adverse change in condition including, but not limited to,
litigation and changes in business), a statement of the president or vice
president of Borrower, setting forth the change in condition or event or
circumstance likely to result in any such change and the steps being taken by
Borrower or the applicable Subsidiary with respect to such change in condition
or event or circumstance.
5.10 Additional Information. Furnish to Bank, promptly upon
Bank's reasonable request, such additional financial or other information
concerning the assets, liabilities, operations, and transactions of Borrower
and of each Guarantor, respectively, in such party's possession or to which it
has access, including, without limitation, information concerning the Borrowing
Base Properties.
5.11 Compliance with Laws and Payment of Assessments and
Charges. Comply with all applicable statutes and government regulations,
including, without limitation, ERISA, and pay all taxes, assessments,
governmental charges, claims for labor, supplies, rent, its share of all costs
and expenses incurred under any joint operating agreement, and other
obligations which, if unpaid, might become a lien against its property, except
any of the foregoing being contested in good faith and as to which satisfactory
accruals have been provided and unless failure to comply or pay would not have
a material adverse effect on the assets of Borrower and its Subsidiaries (taken
as a whole).
5.12 Maintenance of Existence and Good Standing. Maintain
Borrower's corporate existence and good standing in the
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jurisdiction of its incorporation, and in all jurisdictions wherein the
property now owned or hereafter acquired or business now or hereafter conducted
necessitates same, other than those jurisdictions wherein the failure to so
qualify will not have a material adverse effect on Borrower.
5.13 Further Assurances. Promptly cure any defects in the
execution and delivery of this Agreement, the Note, the Security Instruments,
the Guaranty or any other instrument referred to herein or executed in
connection with the Note, and upon notice, immediately execute and deliver to
Bank, all such other and further instruments as may be reasonably required or
desired by Bank from time to time in compliance with the covenants and
agreements made in this Agreement.
5.14 Initial Expenses of Bank. Pay all fees and expenses of
special legal counsel for Bank, incurred in connection with the negotiation and
preparation of this Agreement, the Note, the Security Instruments, the Guaranty
or any other instrument referred to herein or executed in connection with the
Note, the satisfaction of the conditions precedent set forth in Article III of
this Agreement and the consummation of the transactions contemplated in this
Agreement.
5.15 Subsequent Expenses of Bank. Upon request, promptly
reimburse Bank for all reasonable amounts expended, advanced or incurred by
Bank to collect the Note or to enforce the rights of Bank under this Agreement,
the Note, the Security Instruments, the Guaranty, or any other instrument
referred to herein or executed in connection with the Note, which amounts shall
be deemed compensatory in nature and liquidated as to amount upon notice to
Borrower by Bank and which amounts will include, but not be limited to, (a) all
court costs, (b) attorneys' fees, (c) fees of auditors and accountants, (d)
investigation expenses, (e) internal fees of Bank's in-house legal counsel, (f)
fees and expenses incurred in connection with Bank's participation as a member
of the creditors' committee in a case commenced under Title 11 of the United
States Code or other similar law of the United States, the State of Texas or
any other jurisdiction, (g) fees and expenses incurred in connection with
lifting the automatic stay prescribed in Sections 362 Title 11 of the United
States Code, and (h) fees and expenses incurred in connection with any action
pursuant to Sections 1129 Title 11 of the United States Code, incurred by Bank
in connection with the collection of any sums due under this
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Agreement, together with interest at the Floating Rate per annum, calculated on
a basis of a year of three hundred sixty-five (365) or three hundred sixty-six
(366) days, on each such amount from the date of notification to Borrower that
the same was expended, advanced or incurred by Bank until the date it is repaid
to Bank, with the obligations under this Section 5.15, surviving the
non-assumption of this Agreement in a case commenced under Title 11 of the
United States Code or other similar law of the United States, the State of
Texas or any other jurisdiction and being binding upon Borrower or a trustee,
receiver or liquidator of any such party appointed in any such case.
5.16 Maintenance of Tangible Property. Maintain all of
Borrower's tangible property in good repair and condition and make all
necessary replacements thereof and operate such property in a good and
workmanlike manner in accordance with standard industry practices, unless the
failure to do so would not have a material adverse effect on Borrower and its
Subsidiaries (taken as a whole) or the value of the Borrowing Base Oil and Gas
Properties.
5.17 Maintenance of Insurance. Continue to maintain, or cause
to be maintained, insurance with respect to the properties and business of
Borrower against such liabilities, casualties, risks and contingencies and in
such amounts as is customary in the industry, in an amount and form, and
underwritten by an insurer or insurers, as are acceptable to Bank in its sole
discretion, and furnish to Bank, at the execution of this Agreement and
annually thereafter, certificates evidencing such insurance.
5.18 Inspection of Tangible Assets/Right of Audit. Permit (or
cause to be permitted) any authorized representative of Bank, to visit and
inspect (at the risk of Bank and/or such representative) any tangible asset of
Borrower and Guarantor, and/or to audit the books and records of Borrower and
Guarantor during normal business hours.
5.19 Payment of Note and Performance of Obligations. As to
Borrower, pay the Note according to the reading, tenor and effect thereof, as
modified hereby, and do and perform every act and discharge all of the
obligations provided to be performed and discharged hereunder.
5.20 ERISA Reports. Promptly after the filing or receiving
thereof, copies of all reports, including annual reports,
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and notices which Borrower files with or receives from the PBGC or the U.S.
Department of Labor under ERISA; and promptly after Borrower knows or has
reason to know that any Reportable Event or Prohibited Transaction has occurred
with respect to any plan or that the PBGC or Borrower has instituted or will
institute proceedings under Title IV of ERISA to terminate any plan, Borrower
will deliver to Bank a certificate of the controller of Borrower setting forth
details as to such Reportable Event or Prohibited Transaction or plan
termination and the action Borrower proposes to take with respect thereto.
5.21 Tangible Net Worth Requirement. Borrower shall maintain a
total Tangible Net Worth of not less than $1,000,000.00, plus: (a) fifty
percent (50%) of net income (excluding losses) of Borrower subsequent to
December 31, 1996, and (b) one hundred percent (100%) of any increases in
shareholders' equity resulting from the sale or issuance of stock in Borrower
subsequent to December 31, 1996. For purposes of this section 5.21, Tangible
Net Worth shall include notes payable by the Borrower to its shareholders,
together with accrued interest thereon, provided that such Indebtedness is
expressly subordinated to the Obligations of Borrower to the Bank pursuant to a
subordination agreement executed in accordance with Section 3.11 hereof.
5.22 Cash Flow to Debt Service Ratio. Borrower will maintain
(calculated in accordance with GAAP) a ratio of quarterly Cash Flow to
quarterly Debt Service of not less than 1.25 to 1.0. Compliance with this
covenant shall begin with the quarter ending March 31, 1997. For the purposes
of calculating this ratio:
(a) "Cash Flow" shall be defined as the sum of net income plus
depreciation and other non-cash charges less non-cash income of
Borrower, and
(b) "Debt Service" shall be defined as the sum of (i) actual
principal amounts paid by Borrower during such quarter on Indebtedness
other than in connection with this Loan; and (ii) principal amounts
required to be paid by Borrower during such quarter in connection with
this Loan.
5.23 Compliance with Environmental Laws. Comply in all
material respects with any and all requirements of law, including, without
limitation, Environmental Laws, (a) related to any natural or environmental
resource or media located on, above, within, in
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the vicinity of, related to or affected by any Borrowing Base Oil and Gas
Properties or any other property of Borrower, or (b) required for the
performance or conduct of its operations, including, without limitation, all
permits, licenses, registrations, approvals and authorizations, and, in this
regard, comply fully and in a timely manner with, and cause all employees, crew
members, agents, contractors, subcontractors and future lessees (pursuant to
appropriate lease provisions) of Borrower while such Persons are acting within
the scope of their relationship with Borrower, to so comply with, all
requirements of law, including, without limitation, Environmental Laws, and
other requirements with respect to the property of Borrower and the operation
thereof necessary or appropriate to enable Borrower to fulfill its obligations
under all requirements of law, including, without limitation, Environmental
Laws, applicable to the use, generation, handling, storage, treatment,
transport and disposal of any Hazardous Substances now or hereafter located or
present on or under any such property.
5.24 Hazardous Substances Indemnification. Indemnify and hold
Bank harmless from and against any and all claims, losses, damages,
liabilities, fines, penalties, charges, administrative and judicial proceedings
and orders, judgments, remedial actions, requirements and enforcement actions
of any kind, and all costs and expenses incurred in connection therewith
(including, without limitation, attorneys' fees and expenses), arising directly
or indirectly, in whole or in part, out of (a) the presence of any Hazardous
Substances on, under or from its property, whether prior to or during the term
hereof, or (b) any activity carried on or undertaken on or off its property,
whether prior to or during the term hereof, and whether by Borrower or any
predecessor in title or any employees, agents, contractors or subcontractors of
Borrower or any predecessor in title, or any third Persons at any time
occupying or present on such property, in connection with the handling,
treatment, removal, storage, decontamination, cleanup, transportation or
disposal of any Hazardous Substances at any time located or present on or under
such property; with the foregoing indemnity further applying to any residual
contamination on or under the property of Borrower, or any property of any
other Person, or affecting any natural resources, and to any contamination of
any property or natural resources arising in connection with the generation,
use, handling, storage, transportation or disposal of any Hazardous Substances,
irrespective of whether any of such activities were or will be
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undertaken in accordance with applicable requirements of law, including,
without limitation, Environmental Laws, and surviving satisfaction of all
Indebtedness of Borrower to Bank and the termination of this Agreement,
provided, further, that the claims and other actions of any kind against Bank
which give rise to such indemnity are not barred by the applicable statute of
limitations at the time such claims or actions are instituted and such
indemnity shall not extend to any act or omission by Bank or any Affiliate of
Bank or any of Bank's employees or agents with respect to the relevant property
subsequent to Bank becoming the owner of, taking possession of to the exclusion
of Borrower or assuming operations of any property previously owned by Borrower
and with respect to which property such claim, loss, damage, liability, fine,
penalty, charge, proceeding, order, judgment, action or requirement arises
subsequent to the acquisition of title thereto, taking possession thereof or
assumption of operations thereon by Bank or any Affiliate of Bank or any of
Bank's employees or agents. Notwithstanding anything herein to the contrary,
the provisions of this Section 5.24 shall survive any termination of this
Agreement and shall survive the payment and performance in full of all
Obligations owed by Borrower to Bank.
5.25 Changes in Management. Notify Bank of any change in the
senior management of Borrower existing as of the date hereof.
5.26 Operating Accounts. Maintain all principal operating
accounts of Borrower with Bank.
ARTICLE VI. NEGATIVE COVENANTS
Without the prior written consent of Bank and so long as any part
of the principal or interest on the Note shall remain unpaid or Bank remains
obligated to make advances hereunder, Borrower and its Subsidiaries will not:
6.01 Other Indebtedness. Incur, create, assume or suffer to
exist any Indebtedness, whether by way of loan or the issuance or sale of
securities except (a) Loans hereunder, (b) loans by Bank under other credit
arrangements, (c) Indebtedness owed to Bank by any Affiliates of Borrower, and
(d) unsecured accounts payable incurred in the ordinary course of business
which are not overdue or if overdue, are acceptable to Bank and are being
contested in good faith by appropriate proceedings; provided that Borrower
shall be permitted to increase the amount of Indebtedness
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owed the holders thereof identified on Schedule 3.11 hereof, provided that any
increased amount of such Indebtedness shall contemporaneously be subordinated
to all of Borrower's Obligations to the Bank on terms that are satisfactory to
the Bank, in its sole discretion.
6.02 Guaranty of Payment or Performance. Guaranty any contract
or obligation of any Person, except for any Indebtedness owed to Bank by any
Affiliates of Borrower, and except that the foregoing restriction shall not
apply to endorsements of instruments for collection in the ordinary course of
business.
6.03 Loans or Advances. As to Borrower, only, make or agree to
make or allow to remain outstanding any loans or advances to any Person,
including Affiliates of Borrower, in amounts which exceed $25,000 in the
aggregate, except advances or extensions of credit in the form of accounts
receivable incurred in the ordinary course of business.
6.04 Mortgages or Pledges of Assets. Create, incur, assume or
permit to exist, any mortgage, pledge, security interest, lien or encumbrance
on any of its properties or assets (now owned or hereafter acquired), except
that the foregoing restrictions shall not apply to any matters that would
constitute or result in Permitted Encumbrances.
6.05 Nature of Business. Permit any material change to be made
in the character of its business as conducted as of the date hereof, or permit
any Subsidiary to permit any material change to be made in the character of
such Subsidiary's business as conducted as of the date hereof.
6.06 Sales of Assets. Sell, lease, assign, transfer or
otherwise dispose of, in one or any series of related transactions, all or any
part of its assets, if such transfer is material to Borrower's operations, nor
enter into any arrangement, directly or indirectly, with any Person to sell and
rent or lease back such assets or any part thereof which are intended to be
used for substantially the same purpose or purposes as the assets sold or
transferred.
6.07 Dividends and Distributions. Declare or pay any dividend
from Borrower or make any distribution on, or purchase, redeem or otherwise
acquire for value, any interest in Borrower or its Subsidiaries.
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6.08 Payment of Accounts Payable. Allow any account payable to
remain unpaid after its due date, except such as are overdue that are
acceptable to Bank, are being contested in good faith, and as to which adequate
provision or accrual has been made.
6.09 Cancellation of Insurance. Allow any insurance policy
required to be carried hereunder to be terminated or lapse or expire without
provision for adequate renewal thereof.
6.10 Investments. Make Investments in or purchase or otherwise
acquire all or substantially all of the assets of any Person other than
Borrower and its Subsidiaries, or any shares of stock of, or similar interest
in, any Person.
6.11 Changes in Business Structure. Consolidate or merge with,
or purchase (for cash or securities) all or substantially all of the assets or
all or any part of the capital stock of any corporation, firm, association or
enterprise, or allow any such entity to be merged into Borrower, nor shall
Borrower dissolve or liquidate; provided that Borrower shall be permitted to
merge with Carrizo Production, Inc. ("CPI"), if, at the time of such merger,
CPI owes no Indebtedness and contemporaneous with the consummation of such
merger the Tangible Net Worth that Borrower is required to maintain pursuant to
Section 5.21 shall be increased by the amount of the Tangible Net Worth of CPI.
6.12 Shareholder Control. Cause or permit any change to occur
in Guarantor's ownership interests in Borrower that would reduce Guarantor's
aggregate ownership of the voting common stock of Borrower to less than fifty-
one percent (51%).
6.13 Transactions with Affiliates. Enter into any transaction
between or among Borrower and/or any Subsidiaries with any Affiliate on terms
that are less favorable than could be obtained in an arms-length transaction
with a Person that is not an Affiliate.
ARTICLE VII. EVENTS OF DEFAULT
7.01 Enumeration of Events of Default. Any of the following
events shall be considered an Event of Default as that term is used herein:
(a) Default shall be made by Borrower in the payment of any
installment of principal on the Note,
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(b) Default shall be made by Borrower in the payment of any
installment of interest on the Note, or any fees or other monetary
obligation payable hereunder, and such default shall remain unremedied
in excess of three (3) days after notice being given by Bank,
(c) Default shall be made by Borrower or Guarantor in the due
observance or performance of any affirmative covenant required in this
Agreement, the Note, the Security Instruments, or the Guaranty, and such
default shall remain unremedied for in excess of thirty (30) days after
the earlier of: (i) such default becoming known to Borrower, or (ii)
notice being given by Bank.
(d) Default shall be made by Borrower or Guarantor in the due
observance or performance of any negative covenant required in this
Agreement, the Note, the Security Instruments, or the Guaranty.
(e) Any representation or warranty herein made by Borrower
proves to have been untrue in any respect material to Borrower or
Guarantor, or any representation, statement (including Financial
Statements), certificate or data furnished or made by Borrower or
Guarantor to Bank in connection herewith proves to have been untrue in
any respect material to Borrower or Guarantor as of the date the facts
therein set forth were stated or certified;
(f) Default shall be made by Borrower or Guarantor (as
principal or guarantor or other surety) in payment or performance of any
bond, debenture, note or other evidence of Indebtedness for borrowed
money, or any other credit agreement, loan agreement, indenture,
promissory note or similar agreement or instrument executed in
connection with any of the foregoing in excess of $25,000 in the
aggregate; and such default shall remain unremedied for in excess of the
period of grace, if any, with respect thereto, with the effect of
accelerating the maturity of any such Indebtedness;
(g) Borrower or Guarantor applies for or consents to the
appointment of a receiver, trustee or liquidator of it or all or a
substantial part of its assets, or (ii) files a voluntary petition
commencing a case under Title 11 of the United States Code, seeking
liquidation, reorganization or rearrangement or taking advantage of any
bankruptcy,
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insolvency, debtor's relief or other similar law of the United States,
the State of Texas or any other jurisdiction, or (iii) makes a general
assignment for the benefit of creditors, or (iv) is unable, or admits in
writing its inability to pay its debts generally as they become due, or
(v) files an answer admitting the material allegations of a petition
filed against it in any case commenced under Title 11 of the United
States Code or any reorganization, insolvency, conservatorship or
similar proceeding under any bankruptcy, insolvency, debtor's relief or
other similar law of the United States, the State of Texas or any other
jurisdiction;
(h) An order, judgment or decree shall be entered against
Borrower or Guarantor by any court of competent jurisdiction or by any
other duly authorized authority, on the petition of a creditor or
otherwise, granting relief under Title 11 of the United States Code or
under any bankruptcy, insolvency, debtor's relief or other similar law
of the United States, the State of Texas or any other jurisdiction,
approving a petition seeking reorganization or an arrangement of its
debts or appointing a receiver, trustee, conservator, custodian or
liquidator of it or all or any substantial part of its assets, and the
failure to have such order, judgment or decree dismissed within ten (10)
days of its entry;
(i) Borrower or Guarantor has concealed, removed, or permitted
to be concealed or removed, any part of its property, with intent to
hinder, delay or defraud its creditors or any of them; or has made or
suffered a transfer of any of its property which may be fraudulent under
any bankruptcy, fraudulent conveyance or similar law; or has made any
transfer of its property to or for the benefit of a creditor at a time
when other creditors similarly situated have not been paid; or has
suffered or permitted, while insolvent, any creditor to obtain a lien
upon any of its property through legal proceedings or distraint which is
not vacated within thirty (30) days from the date thereof.
7.02 Rights Upon Default. Upon the happening of an Event of
Default specified in Subsections 7.01 (g) or (h), the entire aggregate
principal amount of all Indebtedness then outstanding hereunder and the
interest accrued thereon shall automatically become immediately due and
payable, and upon the happening and continuation of any other Event of Default,
Bank may declare the entire aggregate principal amount of all Indebtedness
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<PAGE> 46
then outstanding hereunder and the interest accrued thereon immediately due and
payable. In either case, the entire principal and interest shall thereupon
become immediately due and payable, without notice (including, without
limitation, notice of intent to accelerate maturity or notice of acceleration
of maturity) and without presentment, demand, protest, notice of protest or
other notice of default or dishonor of any kind, except as provided to the
contrary elsewhere herein, all of which are hereby expressly waived by
Borrower.
Upon the happening and continuation of any Event of Default, all
obligations (if any) of Bank hereunder shall immediately cease and terminate
unless and until Bank shall reinstate the same in writing.
ARTICLE VIII. MISCELLANEOUS
8.01 Security Interests in Deposits and Right of Offset or
Banker's Lien. Borrower hereby transfers, assigns and pledges to Bank and/or
grants to Bank a security interest (as security for the payment and/or
performance of the obligations of Borrower under this Agreement and the Note,
with such interest of Bank to be retransferred, reassigned and/or released by
Bank at the expense of Borrower upon payment in full and/or complete
performance by Borrower of all such obligations) and the right, exercisable at
such time as any obligation hereunder shall mature, whether by acceleration of
maturity or otherwise of offset or banker's lien against all funds or other
property of Borrower now or hereafter or from time to time on deposit with or
in the possession of Bank, including, without limitation, all certificates of
deposit and other depository accounts.
8.02 Survival of Representations, Warranties and Covenants.
All representations and warranties of Borrower and all covenants and agreements
herein made shall survive the execution and delivery of the Note and this
Agreement and shall remain in force and effect so long as any debt is
outstanding under the Note, or any renewal or extension of this Agreement or
the Note, or Bank remains obligated to make advances hereunder.
8.03 Notices and Other Communications. Notices, requests and
communications hereunder shall be in writing and shall be sufficient in all
respects if delivered to the relevant address indicated below (including
delivery by registered or certified United States mail, telex, telegram or
hand):
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<PAGE> 47
(a) If to Bank:
COMPASS BANK
24 Greenway Plaza, Suite 1401
Houston, Texas 77046
Attention: Energy Lending
Fax: (713) 968-8222
(b) If to Borrower:
CARRIZO OIL & GAS, INC.
14811 St. Mary's Lane, Suite 148
Houston, Texas 77079
Attention: Frank A. Wojtek
Fax: (713) 496-0884
Any party may, by proper written notice hereunder to the other,
change the individuals or addresses to which such notices to it shall
thereafter be sent.
8.04 Parties in Interest. All covenants and agreements herein
contained by or on behalf of Borrower shall be binding upon Borrower and its
successors and assigns and inure to the benefit of Bank and its successors and
assigns.
8.05 Renewals and Extensions. All provisions of this Agreement
relating to the Note shall apply with equal force and effect to each and all
promissory notes hereafter executed which in whole or in part represent a
renewal, extension, amendment, modification or rearrangement of any part of the
Indebtedness originally represented by the Note.
8.06 No Waiver by Bank. No course of dealing on the part of
Bank, its officers or employees, nor any failure or delay by Bank with respect
to exercising any of its rights, powers or privileges under this Agreement, the
Note, the Security Instruments or any other instrument referred to herein or
executed in connection with the Note shall operate as a waiver thereof. The
rights and remedies of Bank under this Agreement, the Note, the Security
Instruments or any other instrument referred to herein or executed in
connection with the Note shall be cumulative and the exercise or partial
exercise of any such right or remedy shall not preclude the exercise of any
other right or remedy. In the event that Borrower is unable to satisfy any
covenant, warranty or condition herein, no advance of loan proceeds by Bank
shall have
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<PAGE> 48
the effect of precluding Bank from thereafter declaring any such continuing
inability to be an Event of Default as hereinabove provided.
8.07 INDEMNIFICATION. BORROWER HEREBY RELEASES AND AGREES TO
INDEMNIFY AND HOLD BANK AND ITS OFFICERS, EMPLOYEES, DIRECTORS, AGENTS AND
ATTORNEYS (COLLECTIVELY THE "BANK PARTIES") HARMLESS, FROM AND AGAINST ALL
CLAIMS, DAMAGES, LIABILITIES AND EXPENSES, KNOWN OR UNKNOWN, ACCRUED AND
UNACCRUED, INCLUDING ANY OF THE FOREGOING ALLEGED TO HAVE RESULTED FROM
NEGLIGENCE OF ANY OF THE BANK PARTIES, UNLESS ATTRIBUTABLE TO BANK PARTIES' OWN
GROSS NEGLIGENCE OR WILFUL MISCONDUCT, THAT MAY NOW OR HEREAFTER BE ASSERTED
AGAINST ANY OF BANK PARTIES IN CONNECTION WITH OR ARISING OUT OF ANY
INVESTIGATION, LITIGATION OR PROCEEDING DIRECTLY OR INDIRECTLY RELATING TO OR
ARISING OUT OF ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
8.08 GOVERNING LAW. THIS AGREEMENT AND THE NOTE SHALL BE
DEEMED TO BE CONTRACTS MADE UNDER AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF TEXAS.
8.09 Incorporation of Exhibits. The Exhibits attached to this
Agreement are incorporated herein for all purposes and shall be considered a
part of this Agreement.
8.10 Survival Upon Unenforceability. In the event any one or
more of the provisions contained in this Agreement, the Note, the Security
Instruments or in any other instrument referred to herein or executed in
connection with the Note shall, for any reason, be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision hereof or of any other
instrument referred to herein or executed in connection herewith.
8.11 Rights of Third Parties. All provisions herein are
imposed solely and exclusively for the benefit of Bank and Borrower and no
other Person shall have standing to require satisfaction of such provisions in
accordance with their terms or be entitled to assume that Bank will refuse to
make advances in the absence of strict compliance with any or all thereof and
any or all of such provisions may be freely waived in whole or in part by Bank
at any time if in its sole discretion it deems it advisable to do so.
8.12 Amendments or Modifications of this Agreement. Neither
this Agreement nor any provision hereof may be changed,
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<PAGE> 49
waived, discharged or terminated orally, but only by an instrument in writing
signed by the party against whom enforcement of the change, waiver, discharge
or termination is sought.
8.13 Agreement Construed as an Entirety. This Agreement, for
convenience only, has been divided into Articles and Sections and it is
understood that the rights, powers, privileges, duties and other legal
relations of the parties hereto shall be determined from this Agreement as an
entirety and without regard to the aforesaid division into Articles and
Sections and without regard to headings prefixed to said Articles or Sections.
8.14 Number and Gender. Whenever the context requires,
reference herein made to the single number shall be understood to include the
plural and likewise the plural shall be understood to include the singular.
Words denoting sex shall be construed to include the masculine, feminine, and
neuter, when such construction is appropriate, and specific enumeration shall
not exclude the general, but shall be construed as cumulative.
8.15 AGREEMENT SUPERSEDES ALL PRIOR AGREEMENTS. THIS
AGREEMENT, TOGETHER WITH THE NOTE AND THE SECURITY INSTRUMENTS, CONSTRUED
TOGETHER WITH THE REVOLVING CREDIT AGREEMENT AND ALL INSTRUMENTS EXECUTED
PURSUANT THERETO, REPRESENT, COLLECTIVELY, THE FINAL AGREEMENT BETWEEN THE
PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES AND SHALL SUPERSEDE ANY PRIOR AGREEMENT BETWEEN THE
PARTIES HERETO, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
8.16 Controlling Provision Upon Conflict. In the event of a
conflict between the provisions of this Agreement and those of the Note, the
Security Instruments or any other instrument referred to herein or executed in
connection with the Note, the provisions of this Agreement shall control.
8.17 Time, Place and Method of Payments. All payments required
pursuant to this Agreement or the Note shall be made in immediately available
funds; shall be deemed received by Bank on the next Business Day following
receipt if such receipt is after 3:00 p.m., on any Business Day, and shall be
made at the principal banking quarters of Bank.
44
<PAGE> 50
8.18 Counterpart Execution. This Agreement may be executed as
one instrument signed by all parties or in separate counterparts hereof, each
of which counterparts shall be considered an original and all of which shall be
deemed to be one instrument, and any signed counterpart shall be deemed
delivered by the party signing it if sent to any other party hereto by
electronic facsimile transmission.
45
<PAGE> 51
IN WITNESS WHEREOF, this Agreement is executed as of the date
first above written.
BORROWER:
CARRIZO OIL & GAS, INC.
By: /s/ FRANK A. WOJTEK
------------------------------
Frank A. Wojtek
Vice President and Chief
Financial Officer
BANK:
COMPASS BANK
By: /s/ KATHLEEN J. BROWN
------------------------------
Kathleen J. Bowen
Vice President
46
<PAGE> 52
SCHEDULES AND EXHIBITS
The schedules and exhibits have been intentionally omitted herefrom.
The Company will furnish supplementally a copy of any or all of such omitted
schedules and exhibits to the Commission upon request.
47
<PAGE> 1
EXHIBIT 4.5
FIRST AMENDMENT
TO
LOAN AGREEMENT
BY AND BETWEEN CARRIZO OIL & GAS, INC.
AND COMPASS BANK
This First Amendment to the Loan Agreement (this "First Amendment") by
and between CARRIZO OIL & GAS, INC., a Texas corporation (the "Borrower"), and
COMPASS BANK, a Texas chartered bank (the "Bank"), is entered into on this 4th
day of April 1997 and shall be effective as of that date for all purposes.
W I T N E S S E T H:
Borrower and Bank entered into a Loan Agreement dated December 6, 1996
(the "Loan Agreement"). Capitalized terms used, but not defined, herein shall
have the meanings prescribed therefor in the Loan Agreement.
Borrower has requested that Bank advance to Borrower, in addition to
the revolving loan originally provided for in the Loan Agreement, a term loan
in the amount of $3,000,000.00, and Bank has agreed to provide the requested
term loan according to the terms set forth herein, which shall be incorporated
into the Loan Agreement.
NOW, THEREFORE, in consideration of the mutual promises herein
contained, and for other good and valuable consideration, the receipt and
sufficiency of which are acknowledged by Borrower and Bank, and each intending
to be legally bound hereby, the parties agree as follows:
I. Specific Amendments to Loan Agreement.
Article I is hereby amended by adding, replacing or amending the
following definitions therein:
"Borrower's IPO Closing" means the date on which an initial
public offering of stock in Borrower is consummated and funded.
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<PAGE> 2
"First Amendment" means the First Amendment to this Agreement
executed by Borrower and Bank on April 4, 1997.
"Floating Rate" means: (a) with respect to the Revolving Loan
evidenced by the Note, the Index Rate in effect from time to time plus
three-quarters of one percent (.75%), and (b) with respect to the Term
Loan evidenced by the Term Note, the Index Rate in effect from time to
time plus two percent (2.00%).
"Notes" means, collectively, the Note and the Term Note, and
any extension, renewal, rearrangement of, or substitute for either of
such Notes. All references to the defined term, "Note," throughout
this Agreement, as it existed prior to the First Amendment, shall be
construed to refer to both of the Notes, with the exception of the
references to the term, "Note," in the definitions of Floating Rate,
Loan Excess, and Note, and in Sections 2.01 through 2.03, 2.06, 2.09,
3.01, 3.04 and Exhibit "B," all of which shall remain singular and
shall be construed to refer to the Note evidencing the Revolving Loan.
"Revolving Loan(s)" means the Loan(s) made pursuant to Section
2.01 hereof.
"Subordination Agreement" means each of the subordination
agreements executed by each respective Guarantor on or about December
6, 1996, pursuant to Section 3.11 of the Agreement.
"Term Loan" means that certain $3,000,000.00 term loan made or
to be made by Bank to Borrower pursuant to Section 2.15 hereof.
"Term Loan Maturity Date" means the earlier of January 5,
1998, or the date of Borrower's IPO Closing.
"Term Note" means the promissory note in the original face
amount of $3,000,000.00 dated April 4, 1997, made by Borrower payable
to the order of Bank, in substantially the form attached to the First
Amendment as Exhibit "A," together with all deferrals, renewals,
extensions, amendments, modifications or rearrangements thereof, which
promissory note shall evidence the advances to Borrower by Bank
pursuant to Section 2.15 hereof.
2
<PAGE> 3
Article II is hereby amended to add the following sections:
2.15 Term Loan. Subject to the terms and conditions and
relying on the representations and warranties contained in this
Agreement, Bank agrees to make the Term Loan to Borrower in a single
advance on or after April 4, 1997.
2.16 The Term Note. The obligation of Borrower to repay the
Term Loan shall be evidenced by the Term Note.
2.17 Repayment of Term Loan. Interest on the Term Note,
calculated as aforesaid in Section 2.04, shall be repaid by Borrower
in monthly installments on the first day of each month following the
advance from Bank to Borrower pursuant to Section 2.15, through and
including the Term Loan Maturity Date, when the entire unpaid balance
of the Term Note, inclusive of principal and interest, shall be paid
in full.
2.18 Voluntary Prepayment of the Term Note. Borrower shall
have the right and option to prepay, at any time subject to the
contemporaneous payment of the prepayment fee prescribed below, the
entire balance outstanding on the Term Note, together with all
accrued, unpaid interest. No partial prepayments shall be permitted.
If Borrower prepays the indebtedness evidenced by the Term Note prior
to the Term Loan Maturity Date, then as consideration for and as a
condition to such prepayment privilege, Borrower shall simultaneously
pay Bank a fee in the amount of $30,000.00.
Article III is hereby amended to add the following Section 3.20.
3.20 Conditions Precedent in Connection With the First
Amendment. The obligation of Bank to make the Term Loan referred to
in Section 2.15 of this Agreement is subject to satisfaction of the
following conditions precedent:
(a) Receipt of Term Note, First Amendment and Certificate
of Compliance. Bank shall have received the Term Note, multiple
counterparts of the First Amendment, as requested by Bank, and the
Certificate of Compliance duly executed by an authorized officer for
Borrower.
3
<PAGE> 4
(b) Receipt of Certified Copy of Corporate Proceedings
and Certificate of Incumbency. Bank shall have received from Borrower
copies of the resolutions of its board of directors authorizing the
transactions set forth in the First Amendment and the execution of the
First Amendment and the Term Note, such copy or copies to be certified
by the secretary or an assistant secretary as being true and correct
and in full force and effect as of the date of such certificate. In
addition, Bank shall have received from Borrower a certificate of
incumbency signed by the secretary or an assistant secretary setting
forth (a) the names of the officers executing the First Amendment and
the Term Note (b) the office(s) to which such Persons have been
elected and in which they presently serve and (c) an original specimen
signature of each such person.
(c) Accuracy of Representations and Warranties and No
Event of Default. The representations and warranties contained in
Article IV of this Agreement shall be true and correct in all material
respects on the date of the making of such Term Loan with the same
effect as though such representations and warranties had been made on
such date; and no Event of Default shall have occurred and be
continuing or will have occurred at the completion of the making of
such Loan.
(d) Legal Matters Satisfactory to Special Counsel to
Bank. All legal matters incident to the consummation of the
transactions contemplated by the First Amendment shall be satisfactory
to the firm of Hutcheson & Grundy, L.L.P., special counsel for Bank.
(e) No Material Adverse Change. No material adverse
change shall have occurred since the date of this Agreement in the
condition, financial or otherwise, of Borrower or the Guarantors.
(h) Collateral Documents. As security for the payment of
the Term Note and the performance of the obligations of Borrower and
the Guarantors under this Agreement and the respective Guaranties,
Bank shall have received the duly executed:
4
<PAGE> 5
(i) Amendment and ratification by each Guarantor
of its respective Guaranty and Subordination Agreement, in
form and substance satisfactory to Bank; and
(ii) a Stock Pledge Agreement from each Guarantor
for the benefit of Bank covering the stock of Borrower owned
by such Guarantor, along with a stock power, both in form and
substance satisfactory to Bank.
(i) Facility Fee. Bank shall have received the Facility
Fee in the amount of $30,000.00 as provided in that certain commitment
letter between Bank and Borrower dated March 31, 1997.
Section 5.01 is hereby amended in its entirety as follows:
5.01 Use of Funds. Use the proceeds advanced under the
Revolving Loan to refinance the existing Indebtedness described on
Schedule 3.10, acquire Oil and Gas Properties, conduct developmental
drilling, and use as working capital for other ordinary business
activities of Borrower, and use the proceeds advanced under the Term
Loan to fund the cost of three dimensional seismic data programs,
acquire Oil and Gas Properties, and conduct developmental drilling,
and furnish Bank such evidence as it may reasonably require with
respect to such uses.
II. Reaffirmation of Representations and Warranties. To induce
Bank to enter into this First Amendment, Borrower and each Guarantor hereby
reaffirms, as of the date hereof, its representations and warranties contained
in Article IV of the Loan Agreement and in all other documents executed
pursuant thereto, and additionally represents and warrants as follows:
A. The execution and delivery of this First Amendment
and the performance by Borrower and each Guarantor of its obligations
under this First Amendment are within Borrower's and each Guarantor's
power, have been duly authorized by all necessary corporate action,
have received all necessary governmental approval (if any shall be
required), and do not and will not contravene or conflict with any
provision of law or of the charter or by-laws of Borrower or any
Guarantor or of any agreement binding upon Borrower or any Guarantor.
5
<PAGE> 6
B. The Loan Agreement as amended by this First Amendment
represents the legal, valid and binding obligations of Borrower and
each Guarantor, enforceable against each in accordance with their
respective terms subject as to enforcement only to bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
the enforcement of creditors' rights generally.
C. No Event of Default or Unmatured Event of Default has
occurred and is continuing as of the date hereof.
III. Defined Terms. Except as amended hereby, terms used herein
that are defined in the Loan Agreement shall have the same meanings herein.
IV. Reaffirmation of Loan Agreement. This First Amendment shall
be deemed to be an amendment to the Loan Agreement, and the Loan Agreement, as
further amended hereby, is hereby ratified, approved and confirmed in each and
every respect. All references to the Loan Agreement herein and in any other
document, instrument, agreement or writing shall hereafter be deemed to refer
to the Loan Agreement as amended hereby.
V. Entire Agreement. The Loan Agreement, as hereby further
amended, embodies the entire agreement between Borrower, the Guarantors and
Bank and supersedes all prior proposals, agreements and understandings relating
to the subject matter hereof. Borrower and each Guarantor certifies that it is
relying on no representation, warranty, covenant or agreement except for those
set forth in the Loan Agreement as hereby further amended and the other
documents previously executed or executed of even date herewith.
VI. Governing Law. THIS FIRST AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE APPLICABLE
LAWS OF THE UNITED STATES OF AMERICA. This First Amendment has been entered
into in Harris County, Texas, and it shall be performable for all purposes in
Harris County, Texas. Courts within the State of Texas shall have jurisdiction
over any and all disputes between Borrower and Bank, whether in law or equity,
including, but not limited to, any and all disputes arising out of or relating
to this First Amendment or any other Loan Document; and venue in any such
dispute whether in federal or state court shall be laid in Harris County,
Texas.
6
<PAGE> 7
VII. Severability. Whenever possible each provision of this First
Amendment shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this First Amendment shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this First Amendment.
VIII. Execution in Counterparts. This First Amendment may be
executed in any number of counterparts and by the different parties on separate
counterparts, and each such counterpart shall be deemed to be an original, but
all such counterparts shall together constitute but one and the same
instrument, and any signed counterpart shall be deemed delivered by the party
executing such counterpart if sent to any other party hereto by electronic
facsimile transmission.
IX. Section Captions. Section captions used in this First
Amendment are for convenience of reference only, and shall not affect the
construction of this First Amendment.
X. Successors and Assigns. This First Amendment shall be binding
upon Borrower, each Guarantor and Bank and their respective successors and
assigns, and shall inure to the benefit of Borrower, each Guarantor and Bank,
and the respective successors and assigns of Bank.
XI. Non-Application of Chapter 15 of Texas Credit Codes. The
provisions of Chapter 15 of the Texas Credit Code (Vernon's Texas Civil
Statutes, Article 5069-15) are specifically declared by the parties hereto not
to be applicable to the Loan Agreement as hereby further amended or any of the
other Loan Documents or to the transactions contemplated hereby.
XII. Notice. THIS FIRST AMENDMENT TOGETHER WITH THE LOAN AGREEMENT,
AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to be duly executed as of the day and year first above written.
BORROWER
CARRIZO OIL & GAS, INC.
By: /s/ Frank A. Wojtek
-----------------------------
Frank A. Wojtek
Vice President
BANK
COMPASS BANK
By: /s/ Kathleen J. Bowen
-----------------------------
Kathleen J. Bowen
Vice President
8
<PAGE> 9
SCHEDULES AND EXHIBITS
The schedules and exhibits have been intentionally omitted herefrom. The
Company will furnish supplementally a copy of any or all of such omitted
schedules and exhibits to the Commission upon request.
9
<PAGE> 1
EXHIBIT 4.6
SECOND AMENDMENT
TO
LOAN AGREEMENT
BY AND BETWEEN CARRIZO OIL & GAS, INC.
AND COMPASS BANK
This Second Amendment to the Loan Agreement (this "Second Amendment")
by and between CARRIZO OIL & GAS, INC., a Texas corporation (the "Borrower"),
and COMPASS BANK, a Texas chartered bank (the "Bank"), is entered into on this
15th day of May 1997 and shall be effective as of that date for all purposes.
W I T N E S S E T H:
Borrower and Bank entered into a Loan Agreement dated December 6,
1996, as amended by First Amendment thereto dated April 4, 1997 (collectively,
the "Loan Agreement"). Capitalized terms used, but not defined, herein shall
have the meanings prescribed therefor in the Loan Agreement.
Borrower has requested that Bank increase the principal amount of the
Term Loan to $6,000,000.00, and Bank has agreed to do so according to the terms
set forth herein, which shall be incorporated into the Loan Agreement.
NOW, THEREFORE, in consideration of the mutual promises herein
contained, and for other good and valuable consideration, the receipt and
sufficiency of which are acknowledged by Borrower and Bank, and each intending
to be legally bound hereby, the parties agree as follows:
I. Specific Amendments to Loan Agreement.
Article I is hereby amended by adding, replacing or amending the
following definitions therein:
"Certificate of Liquidity" shall have the meaning set forth in
Section 5.27.
"Liquid Assets" means Cash on hand and balances in checking
accounts available for immediate withdrawal, the value, from time to
time, of short-term, highly liquid
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<PAGE> 2
investments that are readily convertible to Cash, such as treasury
bills, commercial paper and money market funds, and the value, from
time to time, of unrestricted shares of stock that are publicly traded
on the New York Stock Exchange, the American Stock Exchange, or
NASDAQ, but only to the extent the foregoing are free from all liens,
claims and encumbrances, including liens or security interests in
favor of the Bank.
"Revolving Commitment" means the obligation of Bank, subject
to the provisions of this Agreement and existing only through the last
Business Day prior to the Maturity Date, to advance to Borrower funds,
not to exceed at any one time outstanding an amount equal to the
lesser of: (a) Seven Million Two Hundred Thousand Dollars
($7,200,000.00), or (b) the Borrowing Base then in effect.
"Second Amendment" means the Second Amendment to this
Agreement executed by Borrower and Bank on May 15, 1997.
"Term Loan" means that certain $6,000,000.00 term loan made or
to be made by Bank to Borrower pursuant to Section 2.15 hereof.
"Term Note" means the amended and restated term note in the
original face amount of $6,000,000.00 dated May 15, 1997, made by
Borrower payable to the order of Bank, in substantially the form
attached to the Second Amendment as Exhibit "A," together with all
deferrals, renewals, extensions, amendments, modifications or
rearrangements thereof, which promissory note shall evidence the
advances to Borrower by Bank pursuant to Section 2.15 hereof.
Section 2.15 is hereby amended by adding the following text at
the end of such section:
Within one (1) business day after Borrower has satisfied the
conditions set forth in Section 3.21, and provided Borrower is not
then in default of any of the other terms, conditions, representations
or warranties contained in this Agreement, Bank shall make a single
advance to Borrower in the amount of $3,000,000.00, such that the
resulting outstanding principal balance of the Term Loan shall then be
$6,000,000.00.
2
<PAGE> 3
Section 2.18 is hereby amended by replacing the sum,
"$30,000.00" that appears in the last line thereof with the sum, "$60,000.00."
Article III is hereby amended to add the following Section 3.21.
3.21 Conditions Precedent in Connection With the Second
Amendment. The obligation of Bank to make the additional advance
pursuant to Section 2.15 that increases the principal balance of the
Term Loan from $3,000,000.00 to $6,000,000,00 is subject to
satisfaction of the following conditions precedent:
(a) Receipt of Term Note, Second Amendment and
Certificate of Compliance. Bank shall have received the Term Note,
multiple counterparts of the Second Amendment, as requested by Bank,
and the Certificate of Compliance duly executed by an authorized
officer for Borrower.
(b) Accuracy of Representations and Warranties and No
Event of Default. The representations and warranties contained in
Article IV of this Agreement shall be true and correct in all material
respects on the date of the making of such Term Loan with the same
effect as though such representations and warranties had been made on
such date; and no Event of Default shall have occurred and be
continuing or will have occurred at the completion of the making of
such Loan.
(c) Legal Matters Satisfactory to Special Counsel to
Bank. All legal matters incident to the consummation of the
transactions contemplated by the Second Amendment shall be
satisfactory to the firm of Hutcheson & Grundy, L.L.P., special
counsel for Bank.
(d) No Material Adverse Change. No material adverse
change shall have occurred since the date of this Agreement in the
condition, financial or otherwise, of Borrower or the Guarantors.
(e) Facility Fee. Bank shall have received an additional
facility fee in the amount of $30,000.00.
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Article V is hereby amended by adding thereto the following new
Section 5.27:
5.27 Liquidity of Certain Guarantors. Borrower shall cause
each of the Guarantors Hamilton, Loyd, and Webster to deliver to Bank
on or before October 15, 1997, a Certificate of Liquidity in the form
attached as Exhibit "B" to the Second Amendment, certifying the value
of such Guarantor's Liquid Assets effective as of September 30, 1997.
Section 7.01 is hereby amended by adding thereto the following new
clause (j):
(j) Borrower shall fail to cause each of the Guarantors
identified in Section 5.27 to deliver a Certificate of Liquidity of
such Guarantor by the date specified in such section, or any such
Certificate of Liquidity shall be false or misleading in any material
respect or shall disclose that such Guarantor owns Liquid Assets
valued at less than $2,500,000.00.
II. Reaffirmation of Representations and Warranties. To induce
Bank to enter into this Second Amendment, Borrower and each Guarantor hereby
reaffirms, as of the date hereof, its representations and warranties contained
in Article IV of the Loan Agreement and in all other documents executed
pursuant thereto, and additionally represents and warrants as follows:
A. The execution and delivery of this Second Amendment
and the performance by Borrower and each Guarantor of its obligations
under this Second Amendment are within Borrower's and each Guarantor's
power, have been duly authorized by all necessary corporate action,
have received all necessary governmental approval (if any shall be
required), and do not and will not contravene or conflict with any
provision of law or of the charter or by-laws of Borrower or any
Guarantor or of any agreement binding upon Borrower or any Guarantor.
B. The Loan Agreement as amended by this Second
Amendment represents the legal, valid and binding obligations of
Borrower and each Guarantor, enforceable against each in accordance
with their respective terms subject as to enforcement only to
bankruptcy, insolvency, reorganization,
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moratorium or other similar laws affecting the enforcement of
creditors' rights generally.
C. No Event of Default or Unmatured Event of Default has
occurred and is continuing as of the date hereof.
III. Defined Terms. Except as amended hereby, terms used herein
that are defined in the Loan Agreement shall have the same meanings herein.
IV. Reaffirmation of Loan Agreement. This Second Amendment shall
be deemed to be an amendment to the Loan Agreement, and the Loan Agreement, as
further amended hereby, is hereby ratified, approved and confirmed in each and
every respect. All references to the Loan Agreement herein and in any other
document, instrument, agreement or writing shall hereafter be deemed to refer
to the Loan Agreement as amended hereby.
V. Entire Agreement. The Loan Agreement, as hereby further
amended, embodies the entire agreement between Borrower, the Guarantors and
Bank and supersedes all prior proposals, agreements and understandings relating
to the subject matter hereof. Borrower and each Guarantor certifies that it is
relying on no representation, warranty, covenant or agreement except for those
set forth in the Loan Agreement as hereby further amended and the other
documents previously executed or executed of even date herewith.
VI. Governing Law. THIS SECOND AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE APPLICABLE
LAWS OF THE UNITED STATES OF AMERICA. This Second Amendment has been entered
into in Harris County, Texas, and it shall be performable for all purposes in
Harris County, Texas. Courts within the State of Texas shall have jurisdiction
over any and all disputes between Borrower and Bank, whether in law or equity,
including, but not limited to, any and all disputes arising out of or relating
to this Second Amendment or any other Loan Document; and venue in any such
dispute whether in federal or state court shall be laid in Harris County,
Texas.
VII. Severability. Whenever possible each provision of this Second
Amendment shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Second Amendment shall be
prohibited by or invalid under
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<PAGE> 6
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Second Amendment.
VIII. Execution in Counterparts. This Second Amendment may be
executed in any number of counterparts and by the different parties on separate
counterparts, and each such counterpart shall be deemed to be an original, but
all such counterparts shall together constitute but one and the same
instrument, and any signed counterpart shall be deemed delivered by the party
executing such counterpart if sent to any other party hereto by electronic
facsimile transmission.
IX. Section Captions. Section captions used in this Second
Amendment are for convenience of reference only, and shall not affect the
construction of this Second Amendment.
X. Successors and Assigns. This Second Amendment shall be
binding upon Borrower, each Guarantor and Bank and their respective successors
and assigns, and shall inure to the benefit of Borrower, each Guarantor and
Bank, and the respective successors and assigns of Bank.
XI. Non-Application of Chapter 15 of Texas Credit Codes. The
provisions of Chapter 15 of the Texas Credit Code (Vernon's Texas Civil
Statutes, Article 5069-15) are specifically declared by the parties hereto not
to be applicable to the Loan Agreement as hereby further amended or any of the
other Loan Documents or to the transactions contemplated hereby.
XII. Notice. THIS SECOND AMENDMENT TOGETHER WITH THE LOAN AGREEMENT,
AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.
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<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amendment to be duly executed as of the day and year first above written.
BANK BORROWER
COMPASS BANK CARRIZO OIL & GAS, INC.
By: /s/ Kathleen J. Bowen By: /s/ Frank A. Wojtek
---------------------------- -------------------------
Kathleen J. Bowen Frank A. Wojtek
Vice President Vice President
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SCHEDULES AND EXHIBITS
The schedules and exhibits have been intentionally omitted herefrom. The
Company will furnish supplementally a copy of any or all of such omitted
schedules and exhibits to the Commission upon request.
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<PAGE> 1
EXHIBIT 10.6
CARRIZO OIL & GAS, INC.
INDEMNIFICATION AGREEMENT
This Agreement ("Agreement") is made and entered into as of the
____ day of ___________, 1997, by and between Carrizo Oil & Gas, Inc., a Texas
corporation (the "Corporation"), and ___________________ ("Indemnitee").
RECITALS
A. Highly competent persons are becoming more reluctant to
serve corporations as directors, executive officers or in other capacities
unless they are provided with adequate protection through insurance or adequate
indemnification against inordinate risks of claims and actions against them
arising out of their service to and activities on behalf of the corporation.
B. The Board of Directors of the Corporation (the "Board")
has determined that the inability to attract and retain such persons would be
detrimental to the best interests of the Corporation and its shareholders and
that the Corporation should act to assure such persons that there will be
increased certainty of such protection in the future.
C. The Board has also determined that it is reasonable,
prudent and necessary for the Corporation, in addition to purchasing and
maintaining directors' and officers' liability insurance, contractually to
obligate itself to indemnify such persons to the fullest extent permitted by
applicable law and to provide an arrangement of self-insurance so that they
will serve or continue to serve the Corporation free from undue concern that
they will not be so indemnified.
D. Indemnitee is willing to serve, continue to serve and on
behalf of the Corporation on the condition that he be so indemnified.
E. In ____________, 1997, the Amended and Restated Bylaws of
the Corporation were approved by the Board and by the Corporation's
shareholders which Bylaws provided for indemnification, advancement of
expenses, arrangements of insurance and self-insurance and specifically
authorized the Corporation to enter into indemnification agreements that
contractually provide to indemnitees the benefits of the provisions of Article
V of such Bylaws and that include related provisions and which agreements
facilitate indemnitees' receipt of such benefits and such other indemnification
protections as may be deemed appropriate.
In consideration of the mutual covenants herein contained, the
parties agree as follows:
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ARTICLE I
CERTAIN DEFINITIONS
As used herein, the following words and terms shall have the
following respective meanings (whether singular or plural):
"Change in Control" means a change in control of the Corporation
occurring after the date of this Agreement of a nature that would be required
to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or
in response to any similar item on any similar schedule or form) promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
whether or not the Corporation is then subject to such reporting requirement;
provided, however, that, without limitation, such a Change in Control shall be
deemed to have occurred if at any time after the date of this Agreement (i) any
"person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act)
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Corporation
representing 40% or more of the combined voting power of the Corporation's then
outstanding securities without the prior approval of at least two-thirds of the
members of the Board of Directors in office immediately prior to such person
attaining such percentage interest; (ii) the Corporation is a party to a
merger, consolidation, share exchange, sale of assets or other reorganization,
or a proxy contest, as a consequence of which members of the Board of Directors
in office immediately prior to such transaction or event constitute less than a
majority of the Board of Directors thereafter or (iii) during any 15-month
period, individuals who at the beginning of such period constituted the Board
of Directors (including for this purpose any new director whose election or
nomination for election by the Corporation's shareholders was approved by a
vote of at least two-thirds of the directors then still in office who were
directors at the beginning of such period) cease for any reason to constitute
at least a majority of the Board of Directors.
"Claim" means an actual or threatened claim or request for
relief.
"Corporate Status" means the status of a person who is or was a
director, officer, partner, employee, agent or fiduciary of the Corporation or
of any other corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise which such person is or was serving at the request of
the Corporation.
"Disinterested Director" means a director of the Corporation who
is not a named defendant or respondent to the Proceeding or subject to a Claim
in respect of which indemnification is sought by Indemnitee.
"Expenses" means all attorneys' fees, retainers, court costs,
transcript costs, fees of experts, witness fees, travel expenses, duplicating
costs, printing and binding costs, telephone charges, postage, delivery service
fees and all other disbursements or expenses of the types
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<PAGE> 3
customarily incurred in connection with prosecuting, defending, preparing to
prosecute or defend, investigating or being or preparing to be a witness in a
Proceeding.
"Independent Counsel" means a law firm, or a member of a law
firm, that is experienced in matters of corporation law and neither
contemporaneously is, nor in the five years theretofore has been, retained to
represent: (a) the Corporation or Indemnitee in any matter material to either
such party, (b) any other party to the Proceeding giving rise to a claim for
indemnification hereunder or (c) the beneficial owner, directly or indirectly,
of securities of the Corporation representing 40% or more of the combined
voting power of the Corporation's then outstanding voting securities.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing either the
Corporation or Indemnitee in an action to determine Indemnitee's rights under
this Agreement.
"person" shall have the meaning ascribed to such term in Sections
13(d) and 14(d) of the Exchange Act.
"Proceeding" means any threatened, pending or completed action,
suit, arbitration, investigation, administrative hearing or any other
proceeding whether civil, criminal, administrative or investigative (except one
initiated by Indemnitee pursuant to Article VI of this Agreement to enforce his
rights under this Agreement), and any appeal in or related to any such action,
suit, arbitration, investigation, hearing or proceeding and any inquiry or
investigation that could lead to such an action, suit, proceeding or
arbitration.
"TBCA" means the Texas Business Corporation Act and any successor
statute thereto as either of them may from time to time be amended.
ARTICLE II
SERVICES BY INDEMNITEE
Indemnitee agrees to serve as a director of the Corporation.
Indemnitee may from time to time also agree to serve, as the Corporation may
request from time to time, as a director, officer, partner, employee, agent or
fiduciary of either the Corporation or any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise in which the
Corporation has an interest. Indemnitee and the Corporation each acknowledge
that they have entered into this Agreement as a means of inducing Indemnitee to
serve the Corporation in such capacities. Indemnitee may at any time and for
any reason resign from such position or positions (subject to any other
contractual obligation or any obligation imposed by operation of law). The
Corporation shall have no obligation under this Agreement to continue
Indemnitee in any such position or positions.
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<PAGE> 4
ARTICLE III
INDEMNIFICATION
Section 3.1. General. The Corporation shall indemnify, and
advance Expenses, to Indemnitee to the fullest extent permitted by applicable
law in effect on the date hereof and to such greater extent as applicable law
may thereafter from time to time permit. The rights of Indemnitee provided
under the preceding sentence shall include, but shall not be limited to, the
right to be indemnified and to have Expenses advanced in all Proceedings to the
fullest extent permitted by Article 2.02-1 of the TBCA. The provisions set
forth in this Agreement are provided in addition to and as a means of
furtherance and implementation of, and not in limitation of, the obligations
expressed in this Article III. No requirement, condition to or limitation of
any right to indemnification under this Article III, or to advancement of
Expenses under Articles III and IV shall in any way limit the rights of
Indemnitee under Section 7.3.
Section 3.2. Additional Indemnity of the Corporation.
Indemnitee shall be entitled to indemnification pursuant to this Section 3.2
if, by reason of his Corporate Status, he is, or is threatened to be made, a
party to any Proceeding (except to the extent limited by Section 3.3).
Pursuant to this Section 3.2, Indemnitee shall be indemnified against Expenses,
judgments, penalties (including excise or similar taxes), fines and amounts
paid in settlement actually and reasonably incurred by him or on his behalf in
connection with such Proceeding or any Claim therein, if (1) he conducted
himself in good faith; (2) he reasonably believed: (a) in the case of conduct
in his official capacity, that his conduct was in the Corporation's best
interest; and (b) in all other cases, that his conduct was at least not opposed
to the Corporation's best interests and, (3) in the case of any criminal
Proceeding, had no reasonable cause to believe his conduct was unlawful.
Nothing in this Section 3.2 shall limit the benefits of Section 3.1 or any
other Section hereunder.
Section 3.3. Limitation on Indemnity. The Indemnification
otherwise available to an Indemnitee under Section 3.2 shall be limited to the
extent set forth in this Section 3.3. In the event that an Indemnitee is found
liable to the Corporation or is found liable on the basis that personal benefit
was improperly received by the Indemnitee whether or not the benefit resulted
from an action taken in Indemnitee's official capacity the Indemnitee shall,
with respect to the Claim in the Proceeding in which such finding is made, be
indemnified only against reasonable Expenses actually incurred by him in
connection with that Claim. Notwithstanding the foregoing, no indemnification
against such Expenses shall be made in respect of any Claim in such Proceeding
as to which Indemnitee shall have been adjudged to be liable for willful or
intentional misconduct in the performance of his duty to the Corporation;
provided, however, that, if applicable law so permits, indemnification against
such Expenses shall nevertheless be made by the Corporation in such event if
and only to the extent that the court in which such Proceeding shall have been
brought or is pending, shall determine.
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ARTICLE IV
EXPENSES
Section 4.1. Expenses of a Party Who Is Wholly or Partly
Successful. Notwithstanding any other provision of this Agreement, Indemnitee
shall be indemnified against all Expenses actually and reasonably incurred by
him in connection with any Proceeding to which Indemnitee is a party by reason
of his Corporate Status and in which Indemnitee is successful, on the merits or
otherwise. In the event that Indemnitee is not wholly successful, on the
merits or otherwise, in a Proceeding but is successful, on the merits or
otherwise, as to any Claim in such Proceeding, the Company shall indemnify
Indemnitee against all Expenses actually and reasonably incurred by him or on
his behalf relating to each Claim. For purposes of this Section 4.1 and
without limitation, the termination of a Claim in a Proceeding by dismissal,
with or without prejudice, shall be deemed to be a successful result as to such
Claim.
Section 4.2. Expenses of a Witness. Notwithstanding any other
provision of this Agreement, to the extent that Indemnitee is, by reason of his
Corporate Status, a witness or otherwise participates in any Proceeding at a
time when he is not named a defendant or respondent in the Proceeding, he shall
be indemnified against all Expenses actually and reasonably incurred by him or
on his behalf in connection therewith.
Section 4.3. Advancement of Expenses. The Corporation shall pay
all reasonable Expenses incurred by or on behalf of Indemnitee in connection
with any Proceeding or Claim, whether brought by the Corporation or otherwise,
in advance of any determination respecting entitlement to indemnification
pursuant to Article V hereof within 10 days after the receipt by the
Corporation of a written request from Indemnitee requesting such payment or
payments from time to time, whether prior to or after final disposition of such
Proceeding or Claim. Such statement or statements shall reasonably evidence
the Expenses incurred by Indemnitee. Indemnitee hereby undertakes and agrees
that he will reimburse and repay the Corporation for any Expenses so advanced
to the extent that it shall ultimately be determined by a court in a final
adjudication from which there is no further right of appeal, that Indemnitee is
not entitled to be indemnified against such Expenses.
ARTICLE V
PROCEDURE FOR DETERMINATION OF ENTITLEMENT
TO INDEMNIFICATION
Section 5.1. Request by Indemnitee. To obtain indemnification
under this Agreement, Indemnitee shall submit to the Corporation a written
request, including therein or therewith such documentation and information as
is reasonably available to Indemnitee and is reasonably necessary to determine
whether and to what extent Indemnitee is entitled to indemnification. The
Secretary or an Assistant Secretary of the Corporation shall, promptly upon
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receipt of such a request for indemnification, advise the Board in writing that
Indemnitee has requested indemnification.
Section 5.2. Determination of Request. Upon written request by
Indemnitee for indemnification pursuant to the first sentence of Section 5.1
hereof, a determination, if required by applicable law, with respect to
Indemnitee's entitlement thereto shall be made in the specific case: (a) if a
Change in Control shall have occurred, by Independent Counsel (selected in
accordance with Section 5.3) in a written opinion to the Board, a copy of which
shall be delivered to Indemnitee, unless Indemnitee shall request that such
determination be made in accordance with Article 2.02-1F (1) or (2) of the
TBCA; (b) if a Change in Control shall not have occurred, in accordance with
Article 2.02-1 of the TBCA. If it is so determined that Indemnitee is entitled
to indemnification hereunder, payment to Indemnitee shall be made within 10
days after such determination. Indemnitee shall cooperate with the person
making such determination with respect to Indemnitee's entitlement to
indemnification, including providing to such person upon reasonable advance
request any documentation or information that is not privileged or otherwise
protected from disclosure and that is reasonably available to Indemnitee and
reasonably necessary to such determination. Any costs or expenses (including
attorneys' fees and disbursements) incurred by Indemnitee in so cooperating
with the person making such determination shall be borne by the Corporation
(irrespective of the determination as to Indemnitee's entitlement to
indemnification) and the Corporation hereby agrees to indemnify and hold
harmless Indemnitee therefrom.
Section 5.3. Independent Counsel. If a Change in Control shall
have occurred and Indemnitee elects that the determination as to
indemnification is to be made by Independent Counsel, the Independent Counsel
shall be selected by Indemnitee, and Indemnitee shall give written notice to
the Corporation within 10 days advising it of the identity of the Independent
Counsel so selected (unless Indemnitee shall request that such selection be
made by the Board, in which event the Corporation shall give written notice to
Indemnitee within 10 days after receipt of Indemnitee's request for
indemnification advising him of the identity of the Independent Counsel so
selected). In either event, Indemnitee or the Corporation, as the case may be,
may, within seven days after such written notice of selection shall have been
given, deliver to the Corporation or to Indemnitee, as the case may be, a
written objection to such selection. Any objection to selection of Independent
Counsel pursuant to this Section 5.3 may be asserted only on the ground that
the Independent Counsel so selected does not meet the requirements of the
definition of "Independent Counsel" in Article I hereof, and the objection
shall set forth with particularity the factual basis of such assertion. If
such written objection is timely made, the Independent Counsel so selected may
not serve as Independent Counsel unless and until a court has determined that
such objection is without merit. In the event of a timely written objection to
a choice of Independent Counsel, the party originally selecting the Independent
Counsel shall have seven days to make an alternate selection of Independent
Counsel and to give written notice of such selection to the other party, after
which time such other party shall have five days to make a written objection to
such alternate selection. If, within 30 days after submission by Indemnitee of
a written request for indemnification pursuant to Section 5.1 hereof, no
Independent Counsel shall have been selected and not objected to, either the
Corporation or Indemnitee may petition a court of competent jurisdiction (the
"Court") for resolution
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of any objection that shall have been made by the Corporation or Indemnitee to
the other's selection of Independent Counsel and/or for the appointment as
Independent Counsel of a person selected by the Court or by such other person
as the Court shall designate, and the person with respect to whom an objection
is so resolved or the person so appointed shall act as Independent Counsel
under Section 5.2 hereof. The Corporation shall pay any and all reasonable
fees and expenses of Independent Counsel incurred by such Independent Counsel
in connection with acting pursuant to Section 5.2, and the Corporation shall
pay all reasonable fees and expenses incident to the procedures of this Section
5.3, regardless of the manner in which such Independent Counsel was selected or
appointed. Upon the due commencement of any judicial proceeding or arbitration
pursuant to Section 6.1(c) of this Agreement, Independent Counsel shall be
discharged and relieved of any further responsibility in such capacity (subject
to the applicable standards of professional conduct then prevailing).
Section 5.4. Presumptions and Effect of Certain Proceedings.
(a) If a Change in Control shall have occurred, the Indemnitee
shall be presumed (except as otherwise expressly provided in this Agreement) to
be entitled to indemnification under this Agreement upon submission of a
request for indemnification under Section 5.1, and thereafter the Corporation
shall have the burden of proof in overcoming that presumption in reaching a
determination contrary to that presumption. The presumption shall be used by
Independent Counsel (or other person or persons determining entitlement to
indemnification) as a basis for a determination of entitlement to
indemnification unless the Corporation provides information sufficient to
overcome such presumption by clear and convincing evidence or the
investigation, review and analysis of Independent Counsel (or such other person
or persons) convinces him by clear and convincing evidence that the presumption
should not apply.
(b) If the person or persons empowered or selected under
Article V of this Agreement to determine whether Indemnitee is entitled to
indemnification shall not have made a determination within 60 days after
receipt by the Corporation of the request by Indemnitee therefor, the requisite
determination of entitlement to indemnification shall be deemed to have been
made and Indemnitee shall be entitled to such indemnification, absent (i) a
knowing misstatement by Indemnitee of a material fact, or knowing omission of a
material fact necessary to make Indemnitee's statement not materially
misleading, in connection with the request for indemnification, or (ii) a
prohibition of such indemnification under applicable law; provided, however,
that such 60-day period may be extended for a reasonable time, not to exceed an
additional 30 days, if the person making the determination with respect to
entitlement to indemnification in good faith requires such additional time for
the obtaining or evaluating of documentation and/or information relating to
such determination; and provided, further, that the 60-day limitation set forth
in this Section 5.4(b) shall not apply and such period shall be extended as
necessary (i) if within 30 days after receipt by the Corporation of the request
for indemnification under Section 5.1 the Board has resolved to submit such
determination to the shareholders pursuant to Section 5.2(b) of this Agreement
for their consideration at an annual meeting thereof to be held within 90 days
after such receipt and such determination is made thereat, or a special meeting
of shareholders is called within 30 days after such receipt for the purpose of
making such determination, such meeting is held for such purpose
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within 60 days after having been so called and such determination is made
thereat, or (ii) if the determination of entitlement to indemnification is to
be made by Independent Counsel pursuant to Section 5.2(a) of this Agreement, in
which case the applicable period shall be as set forth in Section 6.1(c).
(c) The termination of any Proceeding or of any Claim by
judgment, order, settlement or conviction, or upon a plea of nolo contendere or
its equivalent, shall not (except as otherwise expressly provided in this
Agreement) by itself adversely affect the right of Indemnitee to
indemnification or create a presumption that Indemnitee did conduct himself in
good faith and in a manner that he reasonably believed in the case of conduct
in his official capacity, that was in the best interests of the Corporation or,
in all other cases, that was not opposed to the best interests of the
Corporation or, with respect to any criminal Proceeding, that Indemnitee had
reasonable cause to believe that his conduct was unlawful. Indemnitee shall be
deemed to have been found liable in respect of any Claim only after he shall
have been so adjudged by a court in competent jurisdiction after exhaustion of
all appeals therefrom.
ARTICLE VI
CERTAIN REMEDIES OF INDEMNITEE
Section 6.1. Indemnitee Entitled to Adjudication in an
Appropriate Court. In the event (a) a determination is made pursuant to
Article V that Indemnitee is not entitled to indemnification under this
Agreement; (b) there has been any failure by the Corporation to make timely
payment or advancement of any amounts due hereunder; or (c) the determination
of entitlement to indemnification is to be made by Independent Counsel pursuant
to Section 5.2 and such determination shall not have been made and delivered in
a written opinion within 90 days after (i) such Independent Counsel's being
appointed, (ii) the overruling by the Court of objections to such counsel's
selection or (iii) expiration of all periods for the Corporation or Indemnitee
to object to such counsel's selection, Indemnitee shall be entitled to commence
an action seeking an adjudication in an appropriate court of the State of
Texas, or in any other court of competent jurisdiction, of his entitlement to
such indemnification or advancement of Expenses. Alternatively, Indemnitee, at
his option, may seek an award in arbitration to be conducted by a single
arbitrator pursuant to the rules of the American Arbitration Association.
Indemnitee shall commence such action seeking an adjudication or an award in
arbitration within 180 days following the date on which Indemnitee first has
the right to commence such action pursuant to this Section 6.1, or such right
shall expire. The Corporation agrees not to oppose Indemnitee's right to seek
any such adjudication or award in arbitration.
Section 6.2. Adverse Determination Not to Affect any Judicial
Proceeding. In the event that a determination shall have been made pursuant to
Article V that Indemnitee is not entitled to indemnification, any judicial
proceeding or arbitration commenced pursuant to this Article VI shall be
conducted in all respects as a de novo trial or arbitration on the merits, and
Indemnitee shall not be prejudiced by reason of such initial adverse
determination. In any judicial proceeding or
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arbitration commenced pursuant to this Article VI, the Corporation shall have
the burden of proving that Indemnitee is not entitled to indemnification or
advancement of Expenses, as the case may be.
Section 6.3. Company Bound by Determination Favorable to
Indemnitee in any Judicial Proceeding or Arbitration. If a determination shall
have been made or deemed to have been made pursuant to Article V that
Indemnitee is entitled to indemnification, the Corporation shall be bound by
such determination in any judicial proceeding or arbitration commenced pursuant
to this Article VI, absent a knowing misstatement by Indemnitee of a material
fact, or a knowing omission of a material fact necessary to make a statement by
Indemnitee not materially misleading, in connection with the request for
indemnification.
Section 6.4. Corporation Bound by the Agreement. The
Corporation shall be precluded from asserting in any judicial proceeding or
arbitration commenced pursuant to this Article VI that the procedures and
presumptions of this Agreement are not valid, binding and enforceable and shall
stipulate in any such court or before any such arbitrator that the Corporation
is bound by all the provisions of this Agreement.
Section 6.5. Indemnitee Entitled to Expenses of Judicial
Proceeding. In the event that Indemnitee seeks a judicial adjudication of or
an award in arbitration to enforce his rights under, or to recover damages for
breach of, this Agreement, Indemnitee shall be entitled to recover from the
Corporation, and shall be indemnified by the Corporation against, any and all
expenses (of the types described in the definition of Expenses in Article I)
actually and reasonably incurred by him in such judicial adjudication or
arbitration but only if he prevails therein. If it shall be determined in said
judicial adjudication or arbitration that Indemnitee is entitled to receive
part but not all of the indemnification or advancement of expenses or other
benefit sought, the expenses incurred by Indemnitee in connection with such
judicial adjudication or arbitration shall be reasonably prorated in good faith
by counsel for Indemnitee. Notwithstanding the foregoing, if a Change in
Control shall have occurred, Indemnitee shall be entitled to indemnification
under this Section 6.5 regardless of whether Indemnitee ultimately prevails in
such judicial adjudication or arbitration.
ARTICLE VII
MISCELLANEOUS
Section 7.1. Non-Exclusivity. The rights of Indemnitee to
receive indemnification and advancement of Expenses under this Agreement shall
not be deemed exclusive of any other rights to which Indemnitee may at any time
be entitled under applicable law, the Articles of Incorporation or Bylaws of
the Corporation, any other agreement, vote of shareholders or a resolution of
directors, or otherwise. No amendment or alteration of the Articles of
Incorporation or Bylaws of the Corporation or any provision thereof shall
adversely affect Indemnitee's rights hereunder and such rights shall be in
addition to any rights Indemnitee may have under the Corporation's Articles of
Incorporation, Bylaws and the TBCA or otherwise. To the extent that there is a
change in the TBCA (whether by statute or judicial decision) which allows
greater
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<PAGE> 10
indemnification by agreement than would be afforded currently under the
Corporation's Articles of Incorporation or Bylaws and this Agreement, it is the
intent of the parties hereto that the Indemnitee shall enjoy by virtue of this
Agreement the greater benefit so afforded by such change.
Section 7.2. Insurance and Subrogation.
(a) To the extent that the Corporation maintains an insurance
policy or policies providing liability insurance for directors, officers,
employees, agents or fiduciaries of the Corporation or of any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise that such person serves at the request of the Corporation,
Indemnitee shall be covered by such policy or policies in accordance with its
or their terms to the maximum extent of the coverage available for any such
director, officer, employee, agent or fiduciary under such policy or policies.
(b) In the event of any payment by the Corporation under this
Agreement, the Corporation shall be subrogated to the extent of such payment to
all of the rights of recovery of Indemnitee, who shall execute all papers
required and take all action necessary to secure such rights, including
execution of such documents as are necessary to enable the Corporation to bring
suit to enforce such rights.
(c) The Corporation shall not be liable under this Agreement
to make any payment of amounts otherwise indemnifiable hereunder if and to the
extent that Indemnitee has otherwise actually received such payment under any
Bylaw, insurance policy, contract, agreement or otherwise.
Section 7.3. Self Insurance of the Corporation. The parties
hereto recognize that the Corporation may, but is not required to, procure or
maintain insurance or other similar arrangements, at its expense, to protect
itself and any person, including the Indemnitee, who is or was a director,
officer, employee, agent or fiduciary of the Corporation or who is or was
serving at the request of the Corporation as a director, officer, partner,
venturer, proprietor, trustee, employee, agent or similar functionary of
another corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise against any expense, liability or loss asserted against or
incurred by such person, in such a capacity or arising out of his status as
such a person, whether or not the Corporation would have the power to indemnify
such person against such expense or liability.
In considering the cost and availability of such insurance, the
Corporation, (through the exercise of the business judgment of its directors
and officers), may from time to time, purchase insurance which provides for any
and all of (i) deductibles, (ii) limits on payments required to be made by the
insurer, or (iii) coverage exclusions and/or coverage which may not be as
comprehensive as that which might otherwise be available to the Corporation but
which otherwise available insurance the officers or directors of the
Corporation determine is inadvisable for the Corporation to purchase given the
cost involved. The purchase of insurance with deductibles, limits on payments
and coverage exclusions will be deemed to be in the best interest of the
Corporation
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<PAGE> 11
but may not be in the best interest of the Indemnitee. As to the Corporation,
purchasing insurance with deductibles, limits on payments and coverage
exclusions is similar to the Corporation's practice of self-insurance in other
areas. In order to protect Indemnitee who would otherwise be more fully or
entirely covered under such policies, the Corporation shall indemnify and hold
Indemnitee harmless to the extent (i) of such deductibles, (ii) of amounts
exceeding payments required to be made by an insurer or (iii) of coverage under
policies of officer's and director's liability insurance that are available,
were available or which became available to the Corporation or which are
generally available to companies comparable to the Corporation but which the
officers or directors of the Corporation determine is inadvisable for the
Corporation to purchase, given the cost involved. The obligation of the
Corporation in the preceding sentence shall be without regard to whether the
Corporation would otherwise be entitled to indemnify such officer or director
under the other provisions of this Agreement, or under any law, agreement, vote
of shareholders or directors or other arrangement. Notwithstanding the
foregoing provisions of this Section 7.3, the Indemnitee shall not be entitled
to indemnification for the results of his conduct that is intentionally adverse
to the interests of the Corporation. Without limiting the generality of any
provision of this Agreement, the procedures in Article V hereof shall, to the
extent applicable, be used for determining entitlement to indemnification under
this Section 7.3. This Agreement is authorized by Section 2.02-1(R) of the
TBCA as in effect on _____________, 1997, and further is intended to establish
an arrangement of self-insurance pursuant to that section.
Section 7.4. Certain Settlement Provisions. The Corporation
shall have no obligation to indemnify Indemnitee under this Agreement for
amounts paid in settlement of a Proceeding or Claim without the Corporation's
prior written consent. The Corporation shall not settle any Proceeding or
Claim in any manner that would impose any fine or other obligation on
Indemnitee without Indemnitee's consent. Neither the Corporation nor
Indemnitee shall unreasonably withhold their consent to any proposed
settlement.
Section 7.5. Exculpation of Directors. If Indemnitee is or was
a director of the Corporation, he shall not in that capacity be liable to the
Corporation or its shareholders for monetary damages for an act or omission in
Indemnitee's capacity as a director, except that Indemnitee's liability shall
not be eliminated or limited for: (a) a breach of Indemnitee's duty of loyalty
to the Corporation or its shareholders; (b) an act or omission not in good
faith that constitutes a breach of duty of the director to the Corporation or
an act or omission that involves intentional misconduct or a knowing violation
of the law; (c) a transaction from which Indemnitee received an improper
benefit, whether or not the benefit resulted from an action taken within the
scope of Indemnitee's office; or (d) an act or omission for which the liability
of Indemnitee is expressly provided for by statute.
Section 7.6. Duration of Agreement. This Agreement shall
continue for so long as Indemnitee serves as a director of the Corporation or
as a director, officer, partner, employee, agent or fiduciary of any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise in which the Corporation has an interest, and thereafter shall
survive until and terminate upon the later to occur of: (a) 20 years after the
date that Indemnitee shall have ceased to
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<PAGE> 12
serve as a director of the Corporation or of any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
which Indemnitee served at the request of the Corporation; (b) the final
termination of all pending Proceedings in respect of which Indemnitee is
granted rights of indemnification or advancement of expenses hereunder and of
any proceeding commenced by Indemnitee pursuant to Article VI relating thereto;
or (c) the expiration of all statutes of limitation applicable to possible
Claims arising out of Indemnitee's Corporate Status. This Agreement shall be
binding upon the Corporation and its successors and assigns and shall inure to
the benefit of Indemnitee and his heirs, executors, legal representatives and
administrators.
Section 7.7. Notice by Each Party. Indemnitee agrees to
promptly notify the Corporation in writing upon being served with any summons,
citation, subpoena, complaint, indictment, information or other document or
communication relating to any Proceeding or Claim for which Indemnitee may be
entitled to indemnification or advancement of Expenses hereunder. The
Corporation agrees to promptly notify Indemnitee in writing, as to the pendency
of any Proceeding or Claim which may involve a claim against the Indemnitee for
which Indemnitee may be entitled to indemnification or advancement of Expenses
hereunder.
Section 7.8. Amendment. This Agreement may not be modified or
amended except by a written instrument executed by or on behalf of each of the
parties hereto.
Section 7.9. Waivers. The observance of any term of this
Agreement may be waived (either generally or in a particular instance and
either retroactively or prospectively) by the party entitled to enforce such
term only by a writing signed by the party against which such waiver is to be
asserted. Unless otherwise expressly provided herein, no delay on the part of
any party hereto in exercising any right, power or privilege hereunder shall
operate as a waiver thereof, nor shall any waiver on the part of any party
hereto of any right, power or privilege hereunder operate as a waiver of any
other right, power or privilege hereunder nor shall any single or partial
exercise of any right, power or privilege hereunder preclude any other or
further exercise thereof or the exercise of any other right, power or privilege
hereunder.
Section 7.10. Entire Agreement. This Agreement and the
documents expressly referred to herein constitute the entire agreement between
the parties hereto with respect to the matters covered hereby, and any other
prior or contemporaneous oral or written understandings or agreements with
respect to the matters covered hereby are expressly superseded by this
Agreement.
Section 7.11. Severability. If any provision of this Agreement
(including any provision within a single section, paragraph or sentence) or the
application of such provision to any person or circumstance, shall be
judicially declared to be invalid, unenforceable or void, such decision will
not have the effect of invalidating or voiding the remainder of this Agreement
or affect the application of such provision to other persons or circumstances,
and the parties hereto agree that the part or parts of this Agreement so held
to be invalid, unenforceable or void will be deemed to have been stricken
herefrom and the remainder of this Agreement will have the same force and
effectiveness as if such part or parts had never been included herein;
provided, however, that the
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<PAGE> 13
parties shall negotiate in good faith with respect to an equitable modification
of the provision or application thereof declared to be invalid, unenforceable
or void. Any such finding of invalidity or unenforceability shall not prevent
the enforcement of such provision in any other jurisdiction to the maximum
extent permitted by applicable law.
Section 7.12. Notices. Unless otherwise expressly provided
herein, all notices, requests, demands, consents, waivers, instructions,
approvals and other communications hereunder shall be in writing and shall be
deemed to have been duly given if personally delivered to or mailed, certified
mail return receipt requested, first-class postage paid, addressed as follows:
If to the Corporation, to it at:
Carrizo Oil & Gas, Inc.
14811 St. Mary's Lane, Suite 148
Houston, Texas 77079
Attn: Chief Financial Officer
If to Indemnitee, to him at:
--------------------------
or to such other address or to such other individuals as any party shall have
last designated by notice to the other parties. All notices and other
communications given to any party in accordance with the provisions of this
Agreement shall be deemed to have been given when delivered or sent to the
intended recipient thereof in accordance with the provisions of this Section
7.12.
Section 7.13. Governing Law. This Agreement shall be construed
in accordance with and governed by the laws of the State of Texas without
regard to the principles of conflict of laws.
Section 7.14. Headings. The Article and Section headings in
this Agreement are for convenience of reference only, and shall not be deemed
to alter or affect the meaning or interpretation of any provisions hereof.
Section 7.15. Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall be deemed to be an original and
all of which together shall be deemed to be one and the same instrument.
Section 7.16. Certain Persons Not Entitled to Indemnification.
Notwithstanding any other provision of this Agreement, Indemnitee shall not be
entitled to indemnification or advancement of expenses hereunder with respect
to any Proceeding or any Claim therein, brought
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<PAGE> 14
or made by such person against the Corporation, except as specifically provided
in Article V or Article VI hereof.
Section 7.17. Indemnification for Negligence, Gross Negligence,
etc. Without limiting the generality of any other provision hereunder, it is
the express intent of this Agreement that Indemnitee be indemnified and
expenses be advanced regardless of Indemnitee's acts of negligence, gross
negligence, intentional or willful misconduct to the extent that
indemnification and advancement of expenses is allowed pursuant to the terms of
this Agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered to be effective as of the date first above written.
CARRIZO OIL & GAS, INC.
By:
-----------------------------------
Name:
Title:
INDEMNITEE
-------------------------------------------
Name:
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<PAGE> 1
EXHIBIT 10.7
CARRIZO OIL & GAS, INC.,
a Texas corporation
- --------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
June 6, 1997
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<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Restrictions on Transferability . . . . . . . . . . . . . . . . . . 3
3. Restrictive Legend . . . . . . . . . . . . . . . . . . . . . . . . . 3
4. Notice of Proposed Transfers . . . . . . . . . . . . . . . . . . . . 4
5. Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . 4
5.1 Requested Registration . . . . . . . . . . . . . . . . . . . 4
5.2 Company Registration . . . . . . . . . . . . . . . . . . . . 7
5.3 Registration on Form S-3 . . . . . . . . . . . . . . . . . . 8
5.4 Limitations on Subsequent Registration Rights . . . . . . . 10
5.5 Expenses of Registration . . . . . . . . . . . . . . . . . . 10
5.6 Registration Procedures . . . . . . . . . . . . . . . . . . 11
5.7 Indemnification . . . . . . . . . . . . . . . . . . . . . . 12
5.8 Certain Agreements of Holders . . . . . . . . . . . . . . . 15
5.9 Rule 144 Reporting . . . . . . . . . . . . . . . . . . . . . 16
5.10 Transfer of Registration Rights . . . . . . . . . . . . . . 17
5.11 Lockup Agreement . . . . . . . . . . . . . . . . . . . . . . 17
5.12 Termination of Registration Rights . . . . . . . . . . . . . 17
5.13 IPO Registration Waiver. . . . . . . . . . . . . . . . . . 18
6. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.2 Successors and Assigns . . . . . . . . . . . . . . . . . . . 18
6.3 Effectiveness . . . . . . . . . . . . . . . . . . . . . . . 18
6.5 Notices, Etc. . . . . . . . . . . . . . . . . . . . . . . . 18
6.6 Delays or Omissions . . . . . . . . . . . . . . . . . . . . 19
6.7 Understanding of Agreement . . . . . . . . . . . . . . . . . 19
6.8 Severability . . . . . . . . . . . . . . . . . . . . . . . . 19
6.9 Titles and Subtitles . . . . . . . . . . . . . . . . . . . . 19
6.10 Gender . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.11 Stock Split . . . . . . . . . . . . . . . . . . . . . . . . 19
6.12 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
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<PAGE> 3
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is entered into as of the ___ day of
June, 1997 by and among Carrizo Oil & Gas, Inc., a Texas corporation (the
"Company"), and the shareholders of the company, each of whom has previously
purchased securities of the Company and whose names are set forth on Annex A
attached hereto (the "Purchasers").
Recitals
The Purchasers previously purchased all of the currently outstanding
shares of Common Stock, as authorized by resolutions of the Board of Directors
of the Company dated September 24, 1993 and November 5, 1993 (the "Purchase
Authorizations"). The Company has determined that it is in the best interest
of the Company to consummate an IPO (as defined herein). In order to induce
the Purchasers to amend the Company's certificate of incorporation to increase
the authorized number of shares of Common Stock and to take certain steps that
will promote the ability of the Company to consummate an IPO, the Company
wishes to grant registration rights to the Purchasers and the Purchasers wish
to enter into certain agreements with the Company and among themselves as more
fully set forth herein.
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties hereby agree as follows:
1. Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
"Combination Transactions" shall have the meaning given to such term in the
Combination Agreement dated as of June 6, 1997 among Carrizo Oil & Gas, Inc.,
Carrizo Production, Inc., Carrizo Partners Ltd., Encinitas Partners Ltd., La
Rosa Partners Ltd. and each of the Purchasers.
"Commission" shall mean the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"Common Stock" shall mean the common stock of the Company, par value $.01
per share, and any other securities issued in respect of Common Stock upon any
stock split, stock dividend, recapitalization, merger, consolidation, share
exchange or similar event.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
or any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
<PAGE> 4
"Holder" shall mean any Purchaser holding Registrable Securities and any
person holding Registrable Securities to whom the rights under this Agreement
have been transferred in accordance with Section 5.10 hereof.
"Initiating Holders" shall mean any Holder(s) who in the aggregate are
Holders of not less than 51% of the then outstanding Registrable Securities.
"IPO" shall mean the first offering of the Company's securities to the
general public registered under a registration statement filed by the Company
with the Commission.
"Outstanding Registrable Securities" means those Registrable Securities
that are then outstanding as well as those Registrable Securities, if any,
which are issuable upon exercise or conversion (in one or more steps) of
securities which are then outstanding.
"Purchased Shares" shall mean the Common Stock purchased by the Purchasers
pursuant to the Purchase Authorizations.
"Person" means any individual, any foreign or domestic corporation, general
partnership, limited partnership, limited liability company, firm, joint
venture, association, individual retirement account, joint stock company,
trust, estate, unincorporated organization, governmental or regulatory body or
other entity.
"Registrable Securities" shall mean the shares of Common Stock of the
Company held by the Purchasers on the date hereof Shares or securities of the
Company hereafter acquired by a Holder from the Company (including without
limitation, any Common Stock issued to such Purchaser in the Combinations
Transactions) or another Holder; provided, however, that securities shall be
treated as Registrable Securities only if and only for so long as they are held
by a Holder or a permitted transferee pursuant to the terms hereof, and (i)
they have not been disposed of pursuant to a registration statement declared
effective by the Commission, so that all transfer restrictions and restrictive
legends with respect thereto are removed upon the consummation of such sale, or
(ii) they have not been sold in a transaction exempt from the registration and
prospectus delivery requirements of the Securities Act, so that all transfer
restrictions and restrictive legends with respect thereto are removed upon the
consummation of such sale, or (iii) the registration rights as to the Holder of
such Registrable Securities have not expired pursuant to Section 5.12.
The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses, other than Selling
Expenses (as defined below), incurred by the Company in complying with Section
5.1, 5.2 or 5.3 hereof, including, without limitation, all registration,
qualification and filing fees, printing expenses, escrow fees, fees and
disbursements of counsel for the Company, blue sky fees and expenses, the
expense of any
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<PAGE> 5
special audits incident to or required by any such registration (but excluding
the compensation of regular employees of the Company which shall be paid in any
event by the Company) and the reasonable fees and disbursements of one counsel
for all Holders.
"Restricted Securities" shall mean the securities of the Company required
to bear the legend set forth in Section 3 hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
the Holders and, except as set forth above, all fees and disbursements of
counsel for any Holder.
2. Restrictions on Transferability. The Purchased Shares or any other
securities issued in respect of the Purchased Shares upon any stock split,
stock dividend, recapitalization, merger, consolidation share exchange or
similar event shall not be sold, assigned, transferred or pledged except upon
the conditions specified in this Agreement, which conditions are intended to
ensure compliance with the provisions of the Securities Act. Each Purchaser
will cause any proposed purchaser, assignee, transferee or pledgee of the
Purchased Shares or any other securities issued in respect of the Purchased
Shares upon any stock split, stock dividend, recapitalization, merger,
consolidation share exchange or similar event held by a Purchaser to agree to
take and hold such securities subject to the provisions and upon the conditions
specified in this Agreement.
3. Restrictive Legend. Each certificate representing the Purchased
Shares or any other securities issued in respect of the Purchased Shares upon
any stock split, stock dividend, recapitalization, merger, consolidation, share
exchange or similar event, shall (unless otherwise permitted by the provisions
of Section 4 below) be stamped or otherwise imprinted with a legend noted
conspicuously on the certificate substantially in the following form (in
addition to any legend required under applicable state securities laws or
otherwise):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS THE COMPANY RECEIVES AN OPINION
OF COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR
TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SAID ACT. THE SHARES REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO
-3-
<PAGE> 6
REQUIRED APPROVALS FOR TRANSFER AND CERTAIN OTHER RESTRICTIONS ON
TRANSFER, ALL OF WHICH RIGHTS, OPTION AND RESTRICTIONS ARE BINDING ON
TRANSFEREES. COPIES OF THE AGREEMENT COVERING THE FOREGOING MATTERS
AND RESTRICTING THE TRANSFER OF SUCH SHARES MAY BE OBTAINED AT NO COST
BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO
THE SECRETARY OF THE COMPANY AT THE PRINCIPAL EXECUTIVE OFFICES OF THE
COMPANY.
Each Purchaser consents to the Company making a notation on its records and
giving instructions to any transfer agent of the Purchased Shares in order to
implement the restrictions on transfer established in this Agreement. The
Company agrees to keep a copy of this Agreement (as it may from time to time be
amended) at its place of business and to make such Agreement subject to the
same right of examination by shareholder of the Company, in person or by agent,
attorney or accountant, as are the books and records of the Company.
4. Notice of Proposed Transfers. The holder of each certificate
representing Restricted Securities, by acceptance thereof, agrees to comply in
all respects with the provisions of this Section 4. Prior to any proposed
sale, assignment, transfer or pledge of any Restricted Securities, unless there
is in effect a registration statement under the Securities Act covering the
proposed transfer, the holder thereof shall give written notice to the Company
of such holder's intention to effect such transfer, sale, assignment or pledge.
Each such notice shall describe the manner and circumstances of the proposed
transfer, sale, assignment or pledge in sufficient detail, and shall be
accompanied, at such holder's expense by either (i) a written opinion of legal
counsel who shall be reasonably satisfactory to the Company, addressed to the
Company, to the effect that the proposed transfer of the Restricted Securities
may be effected without registration under the Securities Act or any state or
foreign securities law, or (ii) a "no action" letter from the Commission to the
effect that the transfer of such securities without registration will not
result in a recommendation by the staff of the Commission that action be taken
with respect thereto, whereupon the holder of such Restricted Securities shall
be entitled to transfer such Restricted Securities in accordance with the terms
of the notice delivered by the holder to the Company. Each certificate
evidencing the Restricted Securities transferred as above provided shall bear
the appropriate restrictive legend set forth in Section 3 above, except that
the first two sentences shall not be required if such transfer is either (i)
made pursuant to Rule 144, or (ii) if in the opinion of counsel for such holder
and of counsel for the Company such legend is not required in order to
establish compliance with any provision of the Securities Act.
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<PAGE> 7
5. Registration Rights.
5.1 Requested Registration.
(a) Request for Registration. In case the Company shall receive
from Initiating Holders a written request that the Company effect any
registration, qualification or compliance with respect to not less than 5% of
the shares of Registrable Securities then outstanding, the Company will:
(i) promptly give written notice of the proposed
registration, qualification or compliance to all other Holders; and
(ii) as soon as practicable, use its reasonable best
lawful efforts to effect such registration, qualification or compliance
(including, without limitation, appropriate qualification under applicable blue
sky or other state securities laws and appropriate compliance with applicable
regulations issued under the Securities Act and any other governmental
requirements or regulations) as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Registrable
Securities as are specified in such request, together with all or such portion
of the Registrable Securities of any Holders joining in such request as are
specified in a written request received by the Company within 20 days after
receipt of such written notice from the Company; provided, however, that the
Company shall not be obligated to take any action to effect any such
registration, qualification or compliance pursuant to this Section 5.1:
(A) In any particular jurisdiction in which the
Company would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance unless the Company is
already subject to service in such jurisdiction and except as may be required
by the Securities Act;
(B) Prior to six months after the closing date of
the IPO;
(C) During the period starting with the date
sixty (60) days prior to the Company's estimated date of filing of, and ending
on the date three (3) months immediately following the effective date of, a
Company- initiated registration statement pertaining to securities of the
Company (other than a registration of securities in a Rule 145 transaction or
with respect to an employee benefit plan), provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective (and provided, further, that the
Company cannot pursuant to this Section 5.1(a)(ii)(C) or pursuant to Section
5.3(a)(ii)(B) delay implementation of a demand for registration more than once
in any 24-month period);
(D) After the Company has effected three such
registrations pursuant to this Section 5.1(a), and such registrations have been
declared or ordered effective; or
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<PAGE> 8
(E) If the Company shall furnish to such Holders
a certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors it would be seriously detrimental to
the Company or its shareholders for a registration statement to be filed in the
near future, then the Company's obligation to use its reasonable best lawful
efforts to register, qualify or comply under this Section 5.1 shall be deferred
once (with respect to any demand for registration hereunder) for a period not
to exceed ninety (90) days from the date of receipt of written request from the
Initiating Holders, provided that the Company cannot pursuant to this Section
5.1(a)(ii)(E) or pursuant to Section 5.3(a)(ii)(D) delay implementation of a
demand for registration more than once in any 12-month period.
Subject to the foregoing clauses (A) through (E), the Company shall file a
registration statement covering the Registrable Securities so requested to be
registered as soon as practicable, after receipt of the request or requests of
the Initiating Holders.
(b) Underwriting. In the event that a registration pursuant to
Section 5.1 is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as part of the notice given pursuant to
Section 5.1(a)(i). In such event, the right of any Holder to registration
pursuant to Section 5.1 shall be conditioned upon such Holder's participation
in the underwriting arrangements required by this Section 5.1, and the
inclusion of such Holder's Registrable Securities, as the case may be, in the
underwriting to the extent requested shall be limited to the extent provided
herein.
The Company shall (together with all Holders and other holders proposing to
distribute their securities through such underwriting) enter into an
underwriting agreement in customary form with the managing underwriter selected
for such underwriting by a majority in interest of the Initiating Holders, but
subject to the Company's reasonable approval. Notwithstanding any other
provision of this Section 5.1, if the managing underwriter determines that
marketing factors require a limitation of the number of shares to be
underwritten, the underwriter may limit the Registrable Securities to be
included in such registration and underwriting (provided that securities of
other securityholders are not included therein). In the event of a limitation
on the number of Registrable Securities to be included in a registration, then
the Company shall so advise all Holders and the number of Registrable
Securities that may be included in the registration and underwriting shall be
allocated among all Holders thereof in proportion, as nearly as practicable, to
the respective amounts of Registrable Securities held by such Holders. No
Registrable Securities excluded from the underwriting by reason of the
underwriter's marketing limitation shall be included in such registration. To
facilitate the allocation of Registrable Securities in accordance with the
above provisions, the Company or the underwriters may round the number of
Registrable Securities allocated to any Holder to the nearest 100 shares.
If any Holder of Registrable Securities disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the managing underwriter and the Initiating Holders. The
Registrable Securities so withdrawn shall also be withdrawn from registration,
and such Registrable Securities shall not be transferred in a public
distribution prior to
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<PAGE> 9
180 days after the effective date of such registration, or such other shorter
period of time as the underwriters may require.
(c) The Company shall not register securities for sale for its own
account in any registration requested pursuant to this Section 5.1 unless
permitted to do so by the written consent of Holders who hold at least 2/3 of
the Registrable Securities as to which registration has been requested or
unless the underwriter shall indicate in writing to the Initiating Holders that
the inclusion of the shares to be sold for the account of the Company will not
adversely affect the registration, the price of the shares to be sold and the
number of shares to be sold for the account of the Holders. The Company may
not cause any other registration of securities for sale for its own account
(other than a registration effected solely to implement an employee benefit
plan or stock option plan or a transaction contemplated by Rule 145 of the
Commission) to be initiated after a registration requested pursuant to Section
5.1 and to become effective less than 90 days after the effective date of any
registration requested pursuant to Section 5.1.
5.2 Company Registration.
(a) Notice of Registration. If at any time or from time to time
the Company shall determine to register any of its securities, either for its
own account or the account of a security holder or holders, other than (x) a
registration relating solely to employee benefit plans, or (y) a registration
relating solely to a Commission Rule 145 transaction, the Company will:
(i) promptly give to each Holder written notice thereof;
and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
or requests, made within 20 days after receipt of such written notice from the
Company, by any Holder.
(b) Underwriting. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 5.2(a)(i) . In such event the right of any Holder to
registration pursuant to Section 5.2 shall be conditioned upon such Holder's
participation in such underwriting, and the inclusion of Registrable Securities
in the underwriting shall be limited to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting
shall (together with the Company and the other holders distributing their
securities through such underwriting) enter into an underwriting agreement in
customary form with the managing underwriter selected for such underwriting by
the Company. Notwithstanding any other provision of this Section 5.2, if the
managing underwriter determines that marketing factors require a limitation of
the number of shares to be underwritten, the underwriters may exclude some or
all Registrable Securities from such registration and underwriting (provided
that securities of other securityholders are similarly excluded. In the event
of a limitation (or elimination) on the number of Registrable Securities and
other securities to be included in a registration, the Company shall so
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<PAGE> 10
advise all Holders and any other holders requesting to distribute their
securities through such underwriting pursuant to piggy-back registration rights
and the number of Registrable Securities and other such securities that may be
included in the registration and underwriting shall be allocated among all
Holders thereof and such other holders in proportion, as nearly as practicable,
to the respective amounts of securities requested to be included in such
registration. To facilitate the allocation of Registrable Securities in
accordance with the above provisions, the Company may round the number of
Registrable Securities and other securities allocated to any Holder or other
holder to the nearest 100 shares. If any Holder disapproves of the terms of
any such underwriting, he may elect to withdraw therefrom by written notice to
the Company and the managing underwriter. Any securities excluded or withdrawn
from such underwriting shall be withdrawn from such registration, and shall not
be transferred in a public distribution prior to 180 days after the effective
date of the registration statement relating thereto, or such other shorter
period of time as the underwriters may require.
(c) Right to Terminate Registration. The Company shall have the
right to terminate or withdraw any registration initiated by it under this
Section 5.2 prior to or after the effectiveness of such registration whether or
not any Holder has elected to include securities in such registration.
5.3 Registration on Form S-3.
(a) In addition to the registration rights provided in Sections
5.1 and 5.2, if the Company shall receive from Initiating Holders a written
request that the Company file a registration statement on Form S-3 (or any
successor form to Form S-3) for a public offering of shares of the Registrable
Securities and the Company is a registrant entitled to use Form S-3 to register
the Registrable Securities for such an offering by selling Holders the Company
will:
(i) promptly give written notice of the proposed
registration, qualification or compliance to all other Holders; and
(ii) as soon as practicable, use its best lawful efforts
to effect such registration, qualification or compliance (including, without
limitation, appropriate qualification under applicable blue sky or other state
securities laws and appropriate compliance with applicable regulations issued
under the Securities Act and any other governmental requirements or
regulations) as may be so requested and as would permit or facilitate the sale
and distribution of all or such portion of such Registrable Securities as are
specified in such request, together with all or such portion of the Registrable
Securities and of any Holders joining in such request as are specified in a
written request received by the Company within 20 days after receipt of such
written notice from the Company; provided, however, that the Company shall not
be obligated to take any action to effect any such registration, qualification
or compliance pursuant to this Section 5.3:
(A) In any particular jurisdiction in which the
Company would be required to execute a general consent to service of process in
effecting such registration,
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<PAGE> 11
qualification or compliance unless the Company is already subject to service in
such jurisdiction and except as may be required by the Securities Act;
(B) During the period starting with the date
sixty (60) days prior to the Company's estimated date of filing of, and ending
on the date three (3) months immediately following the effective date of, any
registration statement pertaining to securities of the Company (other than a
registration of securities in a Rule 145 transaction or with respect to an
employee benefit plan), provided that the Company is actively employing in good
faith all reasonable efforts to cause such registration statement to become
effective (and provided, further, that the Company cannot pursuant to this
Section 5.3(a)(ii)(B) or pursuant to Section 5.1(a)(ii)(C) delay implementation
of a demand for registration more than once in any 24-month period);
(C) After the Company has effected three such
registrations pursuant to this Section 5.3(a), and such registrations have been
declared or ordered effective; or
(D) If the Company shall furnish to such Holders
a certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors it would be seriously detrimental to
the Company or its shareholders for a registration statement to be filed in the
near future, then the Company's obligation to use its reasonable best lawful
efforts to register, qualify or comply under this Section 5.3 shall be deferred
once (with respect to any demand for registration hereunder) for a period not
to exceed ninety (90) days from the date of receipt of written request for
registration; provided, however, that the Company cannot pursuant to this
Section 5.3(a)(ii)(D) or pursuant to Section 5.1(a)(ii)(E) delay implementation
of a demand for registration more than once in any 12-month period.
Subject to the foregoing clauses (A) through (D), the Company shall file a
registration statement covering the Registrable Securities so requested to be
registered as soon as reasonably practicable, after receipt of the request or
requests for registration.
(b) Underwriting. In the event that a registration pursuant to
Section 5.3 is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as part of the notice given pursuant to
Section 5.3(a)(i). In such event, the right of any Holder to registration
pursuant to Section 5.3 shall be conditioned upon such Holder's participation
in the underwriting arrangements required by this Section 5.3, and the
inclusion of such Holder's Registrable Securities, as the case may be, in the
underwriting to the extent requested shall be limited to the extent provided
herein.
The Company shall (together with all Holders and other holders proposing to
distribute their securities through such underwriting) enter into an
underwriting agreement in customary form with the managing underwriter selected
for such underwriting by a majority in interest of the Initiating Holders, but
subject to the Company's reasonable approval. Notwithstanding any other
provision of this Section 5.3, if the managing underwriter determines that
marketing factors require a limitation of the number of Registrable Securities
to be underwritten, the underwriters may limit the
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<PAGE> 12
Registrable Securities to be included in such registration and underwriting
(provided that securities of other securityholders are not included therein).
In the event of a limitation on the number of Registrable Securities to be
included in a registration, the Company shall so advise all Holders, and the
number of shares of Registrable Securities that may be included in the
registration and underwriting shall be allocated among all Holders thereof in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities held by such Holders at the time of filing the registration
statement. No Registrable Securities excluded from the underwriting by reason
of the underwriter's marketing limitation shall be included in such
registration. To facilitate the allocation of Registrable Securities in
accordance with the above provisions, the Company or the underwriters may round
the number of Registrable Securities allocated to any Holder to the nearest 100
shares.
If any Holder disapproves of the terms of the underwriting, such Person may
elect to withdraw therefrom by written notice to the Company, the managing
underwriter and the Initiating Holders. The Registrable Securities so
withdrawn shall also be withdrawn from registration, and such securities shall
not be transferred in a public distribution prior to 180 days after the
effective date of such registration, or such other shorter period of time as
the underwriters may require.
(c) The Company shall not register securities for sale for its own
account in any registration requested pursuant to this Section 5.3 unless
permitted to do so by the written consent of Holders who hold at least 2/3 of
the Registrable Securities as to which registration has been requested or
unless the underwriter shall indicate in writing to the Initiating Holders that
the inclusion of the shares to be sold for the account of the Company will not
adversely affect the registration, the price of the shares to be sold and the
number of shares to be sold for the account of the Holders. The Company may
not cause any other registration of securities for sale for its own account
(other than a registration effected solely to implement an employee benefit
plan or stock option plan or a transaction contemplated by Rule 145 of the
Commission) to be initiated after a registration requested pursuant to Section
5.3 and to become effective less than 90 days after the effective date of any
registration requested pursuant to Section 5.3
5.4 Limitations on Subsequent Registration Rights.
(a) Within the limitations prescribed by this Section 5.4(a), but
not otherwise, the Company may grant to subsequent investors in the Company
registration rights such as those provided in Section 5.2. Such rights may only
pertain to shares of Common Stock, including shares of Common Stock into which
any other securities may be converted. Such rights may be granted with respect
to (i) registrations requested pursuant to Section 5.1 or 5.3, but only in
respect of that portion of any such registration as remains after inclusion of
all Registrable Securities requested by Holders to be included in such
registration and (ii) registrations initiated by the Company, provided that
such rights shall be limited in all cases to sharing pro rata in the available
portion of the registration in question with Holders, such sharing to be based
on the number of shares of Common Stock held by the respective Holders and held
by such other investors, plus the number of shares of Common Stock into which
other securities held by the Holders and such other investors are convertible,
which are entitled to registration rights.
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<PAGE> 13
(b) The Company may not grant to subsequent investors in the
Company rights of registration upon request (such as those provided in Section
5.1) unless (i) such rights are limited to shares of Common Stock and (ii) all
Holders are given the right to participate in registrations requested by such
subsequent investors (but subject to the right of priority of registration for
such subsequent investors), such participation to be on the pro rata basis
described in Section 5.4(a), provided that no demand registration is permitted
which could result in such registration statement being declared effective
prior to either of the two demand registrations granted in Section 5.1 hereof.
5.5 Expenses of Registration. All Registration Expenses incurred in
connection with the registrations pursuant to Section 5.1, Section 5.2 and
Section 5.3 shall be borne by the Company. Unless otherwise stated, all
Selling Expenses relating to securities registered on behalf of the Holders or
other holders registering securities shall be borne by the Holders or holders
of such securities pro rata on the basis of the number of shares so registered.
5.6 Registration Procedures. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Agreement,
the Company will keep each Holder advised in writing as to the initiation of
each registration, qualification and compliance and as to the completion
thereof. At its expense the Company will:
(a) Prepare and file with the Commission a registration statement
with respect to such securities and use its best lawful efforts to cause such
registration statement to become and remain effective for a period of one
hundred twenty (120) days or until the Holder or Holders have completed the
distribution described in the registration statement relating thereto,
whichever first occurs; provided, however, that (i) such 120-day period shall
be extended for a period of time equal to the period the Holder refrains from
selling any securities included in such registration at the request of an
underwriter of Common Stock (or other securities) of the Company; and (ii) in
the case of any registration of Registrable Securities on Form S-3 which are
intended to be offered on a continuous or delayed basis, such 120-day period
shall be extended, if necessary, to keep the registration statement effective
until all such Registrable Securities are sold, provided that Rule 415, or any
successor rule under the Securities Act, permits an offering on a continuous or
delayed basis, and provided further that applicable rules under the Securities
Act governing the obligation to file a post-effective amendment permit, in lieu
of filing a post-effective amendment that (I) includes any prospectus required
by Section 10(a)(3) of the Securities Act or (II) reflects facts or events
representing a material or fundamental change in the information set forth in
the registration statement, the incorporation by reference of information
required to be included in (I) and (II) above to be contained in periodic
reports filed pursuant to Section 13 or 15(d) of the Exchange Act in the
registration statement;
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply with
the provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement;
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<PAGE> 14
(c) Furnish such number of prospectuses and other documents
incident thereto, including any amendment of or supplement to the prospectus,
as a Holder from time to time may reasonably request;
(d) Notify each seller of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading or incomplete in the light of the
circumstances then existing, and at the request of any such seller, prepare and
furnish to such seller a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such shares, such prospectus shall not include
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading or incomplete in the light of the circumstances then existing;
(e) Cause all such Registrable Securities registered pursuant
hereto to be listed on each securities exchange or quoted on a quotation system
on which similar securities issued by the Company are then listed or quoted;
(f) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant to such registration statement and a CUSIP
number for all such Registrable Securities, in each case not later than the
effective date of such registration;
(g) Otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its securities
holders, as soon as reasonably practicable, an earnings statement covering the
period of at least 12 months, but not more than 18 months, beginning with the
first month after the effective date of the Registration Statement, which
earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act; and
(h) If requested by Holders of 50% of all of the Registrable
Securities that are being registered in such registration, furnish to each
prospective seller a signed counterpart, a "comfort" letter signed by the
independent public accountants who have certified the Company's financial
statements included in the registration statement, covering substantially the
same matters with respect to the registration statement (and the prospectus
included therein) and with respect to events subsequent to the date of the
financial statements, as are customarily covered (at the time of such
registration and closing) in "comfort" letters delivered to the underwriters in
underwritten public offerings of securities.
5.7 Indemnification.
(a) To the extent permitted by law, the Company will indemnify
each Holder, each of its officers and directors, partners and legal counsel and
each Person controlling such
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<PAGE> 15
Holder within the meaning of Section 15 of the Securities Act, with respect to
which registration, qualification or compliance has been effected pursuant to
this Agreement, and each underwriter, if any, and each Person who controls any
underwriter within the meaning of Section 15 of the Securities Act, against all
expenses, claims, losses, damages or liabilities (or actions or proceedings in
respect thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, prospectus, offering circular or other document, or any
amendment or supplement thereto, incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to
make the statements therein, not misleading, or any violation by the Company of
the Securities Act or any rule or regulation promulgated under the Securities
Act applicable to the Company in connection with any such registration,
qualification or compliance, and the Company will reimburse each such Holder,
each of its officers and directors, partners and legal counsel and each Person
controlling such Holder, each such underwriter and each Person who controls any
such underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating, preparing, settling or defending any such claim,
loss, damage, liability or action, provided that the Company will not be liable
in any such case to the extent that any such claim, loss, damage, liability or
expense arises out of or is based on any untrue statement or omission or
alleged untrue statement or omission, made in reliance upon and in conformity
with written information furnished to the Company by such Holder, controlling
Person or underwriter and stated to be specifically for use therein.
Notwithstanding the foregoing, insofar as the foregoing indemnity relates to
any such untrue statement (or alleged untrue statement) or omission (or alleged
omission) made in the preliminary prospectus but eliminated or remedied in the
amended prospectus on file with the Commission at the time the registration
statement becomes effective or in the final prospectus filed with the
Commission pursuant to Rule 424(b) of the Commission, the indemnity agreement
herein shall not inure to the benefit of any underwriter if a copy of the final
prospectus filed pursuant to Rule 424(b) was not furnished to the Person or
entity asserting the loss, liability, claim or damage at or prior to the time
such furnishing is required by the Securities Act.
(b) To the extent permitted by law, each Holder will, if
Registrable Securities held by such Holder are included in the securities as to
which such registration, qualification or compliance is being effected,
indemnify the Company, each of its directors, officers and legal counsel, each
underwriter, if any, of the Company's securities covered by such a registration
statement, each Person who controls the Company or such underwriter within the
meaning of Section 15 of the Securities Act, and each other such Holder, each
of its officers and directors and each Person controlling such Holder within
the meaning of Section 15 of the Securities Act, against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any such registration statement, prospectus, offering circular or
other document, or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse the Company, such Holders, such
directors, officers, legal counsel, Persons, underwriters or control persons
for any legal or any other
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<PAGE> 16
expenses reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability or action, in each case to the extent, but
only to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by such Holder and
stated to be specifically for use therein. Notwithstanding the foregoing, the
liability of each Holder under this subsection (b) shall be limited in an
amount equal to the net proceeds from the sale of the sold by such Holder. In
addition, insofar as the foregoing indemnity relates to any such untrue
statement (or alleged untrue statement) or omission (or alleged omission) made
in the preliminary prospectus but eliminated or remedied in the amended
prospectus on file with the Commission at the time the registration statement
becomes effective or in the final prospectus filed pursuant to Rule 424(b) of
the Commission, the indemnity agreement herein shall not inure to the benefit
of the Company, any underwriter or (if there is no underwriter) any Holder if a
copy of the final prospectus filed pursuant to Rule 424(b) was not furnished to
the Person or entity asserting the loss, liability, claim or damage at or prior
to the time such furnishing is required by the Securities Act.
(c) Each party entitled to indemnification under this Section 5.7
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be sought,
and shall permit the Indemnifying Party to assume the defense of any such claim
or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or any
litigation resulting therefrom, shall be approved by the Indemnified Party
(whose approval shall not unreasonably be withheld), and the Indemnified Party
may participate in such defense at such party's expense, and provided further
that the failure of any Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its obligations under this
Agreement unless the failure to give such notice is materially prejudicial to
an Indemnifying Party's ability to defend such action and provided further,
that the Indemnifying Party shall not assume the defense for matters as to
which there is a conflict of interest or separate and different defenses. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. No Indemnified Party shall consent to entry of any judgment or
enter into any settlement without the consent of each Indemnifying Party (which
consent shall not be unreasonably withheld). Each Indemnified Party shall
furnish such information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as shall be reasonably
required in connection with defense of such claim and litigation resulting
therefrom.
(d) If the indemnification provided for in this Section 5.7 is
held by a court of competent jurisdiction to be unavailable to an Indemnified
Party with respect to any losses, claims, damages, expenses or liabilities
referred to therein, then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damages, expenses or
liabilities in such
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<PAGE> 17
proportion as is appropriate to reflect the relative fault of the Company on
the one hand and all shareholders offering securities in the offering (the
"Selling Shareholders") on the other in connection with the statements or
omissions which resulted in such losses, claims, damages, expenses or
liabilities, as well as any other relevant equitable considerations. The
relative fault of the Company on the one hand and the Selling Shareholders on
the other shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Company or by the Selling Shareholders and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Selling Shareholders agree that it
would not be just and equitable if contribution pursuant to this Section 5.7(d)
were based solely upon the number of entities from whom contribution was
requested or by any other method of allocation which does not take account of
the equitable considerations referred to above in this Section 5.7(d). The
amount paid or payable by an Indemnified Party as a result of the losses,
claims, damages, expenses and liabilities referred to above in this Section
5.7(d) shall be deemed to include any legal or other expenses reasonably
incurred by such Indemnified Party in connection with investigating or
defending any such action or claim, subject to the provisions of Section 5.7(c)
hereof. Notwithstanding the provisions of this Section 5.7(d), no Selling
Shareholder shall be required to contribute any amount or make any other
payments under this Agreement which in the aggregate exceed the proceeds
received by such Selling Shareholder. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with an underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
5.8 Certain Agreements of Holders.
(a) The Holder(s) included in any registration shall furnish to
the Company such information regarding such Holder(s), the Registrable
Securities and the distribution proposed by such Holder(s), as the Company may
reasonably request in writing and as shall be reasonably required in connection
with any registration, qualification or compliance referred to in Section 5.
(b) The failure of any Holder(s) to be included in a registration
to furnish the information requested pursuant to Section 5.8(a) shall not
affect the obligation of the Company under Section 5 to the remaining Holder(s)
who furnish such information unless, in the reasonable opinion of counsel to
the Company or the underwriters, such failure impairs or may impair the
legality of the registration statement or the underlying offering.
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<PAGE> 18
(c) Each Holder agrees that, upon receipt of any notice from the
Company of the happening of any event requiring the preparation of a supplement
or amendment to a prospectus relating to Registrable Securities so that, as
thereafter delivered to such Holder, such prospectus will not contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, each
Holder will forthwith discontinue disposition of Registrable Securities
pursuant to the registration statements contemplated by this Agreement until
its receipt of copies of the supplemented or amended prospectus from the
Company and, if so directed by the Company, each Holder shall deliver to the
Company all copies, other than permanent file copies then in such Holder's
possession, of the prospectus covering such Registrable Securities that is
current at the time of receipt of such notice.
(d) Each Holder agrees to notify the Company, at any time when a
prospectus relating to the registration statement contemplated by this
Agreement is required to be delivered by it under the Act, of the occurrence of
any event relating to such Holder which requires the preparation of a
supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of Registrable Securities, such prospectus will not contain an
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
relating to such Holder, and such Holder shall promptly make available to the
Company information necessary to enable the Company to prepare any such
supplement or amendment. Each Holder agrees not to take any action with
respect to any distribution deemed to be made pursuant to such registration
statement that constitutes a violation of Rule 10(b)6 under the Exchange Act or
any other applicable rule, regulation or law.
(c) Each Holder acknowledges and agrees that in the event of sales
under a shelf registration statement pursuant to this Agreement, (1) the
Registrable Securities sold pursuant to such registration statement are not
transferable on the books of the Company unless the share certificate submitted
to the transfer agent evidencing such Registrable Securities is accompanied by
a certificate reasonably satisfactory to the Company to the effect that (A) the
Registrable Securities have been sold in accordance with such registration
statement and (B) the requirement of delivering a current prospectus has been
satisfied and (2) such Holder will not effect any public sale or distribution
of Registrable Securities pursuant to such shelf registration statement
pursuant to this Agreement at any time that the Company shall have advised the
Holders in writing that the sale by such Holders pursuant to such shelf
registration could reasonably be expected to adversely affect, or require the
premature disclosure of any proposed acquisition, disposition or other
transaction involving the Company; provided, however, the Company may not
restrict any such sales unless at least five (5) days' prior written notice is
provided to each Holder and provided further the Company may not restrict sales
by Holders for a total of more than 60 (sixty) days during any one year period.
5.9 Rule 144 Reporting. With a view to making available the benefits
of certain rules and regulations of the Commission which may at any time permit
the sale of the Restricted Securities to the public without registration, after
such time as a public market exists for the Common Stock of the Company, the
Company agrees to use its best lawful efforts to:
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<PAGE> 19
(a) Make and keep public information regarding the Company
available, as those terms are understood and defined in Rule 144 under the
Securities Act, at all times from and after 90 days following the effective
date of the first registration under the Securities Act filed by the Company
for an offering of its securities to the general public.
(b) File with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements);
(c) So long as a Holder owns any Restricted Securities, furnish to
such Holder forthwith upon request a written statement by the Company as to its
compliance with the reporting requirements of said Rule 144 (at any time from
and after 90 days following the effective date of the first registration
statement filed by the Company for an offering of its securities to the general
public), and of the Securities Act and the Exchange Act (at any time after it
has become subject to such reporting requirements), a copy of the most recent
annual or quarterly report of the Company, and such other reports and documents
of the Company and other information in the possession of or reasonably
obtainable by the Company as a Holder may reasonably request in availing itself
of any rule or regulation of the Commission allowing such Holder to sell any
such securities without registration.
5.10 Transfer of Registration Rights. The rights granted to a
Holder under Section 5 may be assigned to a transferee or assignee in
connection with any transfer or assignment of Registrable Securities by a
Holder provided that: (i) such transfer may otherwise be effected in
accordance with applicable securities laws, (ii) such assignee or transferee
acquires at least the lesser of (a) one-half of the number of Registrable
Securities originally held by the Holder that owned such Registrable Securities
on the date hereof and (b) Registrable Securities consisting of 100,000
(subject to appropriate adjustment for any other stock splits, dividends,
subdivisions, combinations, recapitalizations and the like) and (iii) the
Holder notifies the Company in writing of the transfer or assignment, stating
the name and the address of the transferee or assignee and identifying the
securities with respect to which such registration rights are being transferred
or assigned and the assignee or transferee agrees in writing to be bound by the
provisions of this Agreement.
5.11 Lockup Agreement. In consideration for the Company's agreeing
to its obligations under this Agreement, each Holder hereby agrees in
connection with any registration of the Company's securities other than (x) a
registration relating solely to employee benefit plans, or (y) a registration
relating solely to a transaction contemplated by Rule 145 of the Commission
(whether or not the Holder's Registrable Securities are included in a
registration statement pursuant thereto, not to sell, make any short sale of,
loan, grant any option for the purchase of, or otherwise dispose of any
Registrable Securities (other than those included in the registration) other
than intra-family transfers and transfer to trusts for estate planning purposes
without the prior written consent of the Company or underwriters managing the
offering, as the case may be, in the case of (i) an IPO, during such period of
time from the effective date of such registration as the underwriters may
specify (not to exceed one year) and, (ii), all other registrations above,
during the 90-day period
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<PAGE> 20
beginning on the effective date of a registration statement filed pursuant
hereto; provided, however, that such Holder shall be relieved of its
obligations under this Section 5.11 unless all executive officers and directors
of the Company enter into similar agreements. Each Holder hereby agrees that,
upon the request of the Company or the underwriters, it will confirm in writing
the provisions of this Section 5.11. The Company may impose stock-transfer
instructions with respect to securities subject to the foregoing restriction
until the end of said restriction.
5.12 Termination of Registration Rights. The registration rights
granted pursuant to this Agreement shall terminate as to any Holder at the
later of (i) one year after the closing of the IPO or (ii) at such time as such
Holder may sell under Rule 144 (which shall include sales pursuant to Rule
701(c)(3)) in a three-month period all Registrable Securities then held by such
Holder.
5.13 IPO Registration Waiver. Notwithstanding anything to the
contrary contained in this Agreement, each Holder agrees that, as to any of
such Holder's Registrable Securities, it waives any right to notice of or
inclusion in, any registration that is made for an IPO. Although the preceding
sentence may be waived by the Company, any such waiver must be made pro rata as
to all Holders based on the number of Registrable Securities held by each
Holder.
6. Miscellaneous.
6.1 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS
BY THE INTERNAL LAWS OF THE STATE OF TEXAS.
6.2 Successors and Assigns. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
6.3 Effectiveness. This Agreement shall become effective upon its
execution by each Purchaser.
6.4 Entire Agreement; Amendment. This Agreement constitutes the full
and entire understanding and agreement between the parties with regard to the
subject hereof. Except as expressly provided herein, neither this Agreement
nor any term hereof may be amended, waived, discharged or terminated other than
by a written instrument signed by the party against whom enforcement of any
such amendment, waiver, discharge or termination is sought; provided further,
however, that any provisions hereof may be amended, waived, discharged or
terminated upon the written consent of the Company and the holders of a
majority in interest of the aggregate of the then outstanding Registrable
Securities.
6.5 Notices, Etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by hand or by
messenger, including Federal Express or similar courier service, or by
facsimile transmission addressed (a) if to a Purchaser, at such Purchaser's
address and/or
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<PAGE> 21
telefax number set forth in Annex A attached hereto, or at such other address
as such Purchaser shall have furnished to the Company in writing, or (b) if to
the Company, to Carrizo Oil & Gas, Inc., 14811 St. Mary's Lane, Suite 148,
Houston, Texas 77079, Attn: President; telefax number (281) 496-0884, or at
such other address as the Company shall have furnished to the Holders.
Each such notice or other communication shall for all purposes of this
Agreement be treated as effective or having been given when delivered if
delivered personally, or, if sent by mail, at the earlier of its receipt or
five days after the same has been deposited in a regularly maintained
receptacle for the deposit of the United States mail, addressed and mailed as
aforesaid, or, if sent by courier, on the next business day following the day
of dispatch or sent by facsimile transmission, on the date of such transmission
if confirmation of such transmission is received.
6.6 Delays or Omissions. Except as expressly provided herein, no
delay or omission to exercise any right, power or remedy accruing to any party
upon any breach or default of another party the Company under this Agreement
shall impair any such right, power or remedy of such party that is not in
breach or default nor shall it be construed to be a waiver of any such breach
or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any party of any breach or default under this
Agreement, or any waiver on the part of any party of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to any party, shall be
cumulative and not alternative.
6.7 Understanding of Agreement. Each Person signing this Agreement
acknowledges:
(a) that he was urged by the other parties to secure legal counsel in
connection with this Agreement;
(b) has carefully read and understood the provisions of this
Agreement;
(c) he has given informed consent to this Agreement and was not
subjected to fraud, duress, or overreaching.
6.8 Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective
if it materially changes the economic benefit of this Agreement to any party.
6.9 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not considered in construing or
interpreting this Agreement.
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<PAGE> 22
6.10 Gender. As used herein, masculine pronouns shall include the
feminine and neuter, neuter pronouns shall include the masculine and the
feminine.
6.11 Stock Split. This Agreement takes into account the Encinitas
521 for 1 stock split expected to be effected by the Company in June 1997. In
the event the Company shall declare any other stock split, stock dividend or
other distribution of securities in respect of, or issue in replacement of or
exchange for, other , (a) such new that are received by the holder of such
original securities shall be subject to this agreement, and the provisions of
this agreement providing for calculations based on the number of securities
shall include the new securities issued in respect of the original securities,
and (b) the number of securities shall be equitably adjusted as appropriate to
give effect to such event.
6.12 Shares from Combination Transactions. Notwithstanding
anything to the contrary contained herein, in any registration effected
hereunder, no Holder shall be entitled to include any Registrable Securities
that were received pursuant to any of the Combination Transactions until the
expiration of a period ending on the one year anniversary of the closing of the
Combination Transactions.
6.13 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 23
IN WITNESS WHEREOF, the undersigned or each of their respective duly
authorized officers or representatives have executed this agreement effective
upon the date first set forth above.
"COMPANY"
CARRIZO OIL & GAS, INC.
By:
----------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
"PURCHASERS"
--------------------------------------------------
Douglas A.P. Hamilton
--------------------------------------------------
Paul B. Loyd, Jr.
--------------------------------------------------
Steven A. Webster
--------------------------------------------------
Frank A. Wojtek
--------------------------------------------------
Sylvester P. Johnson IV
DAPHAM PARTNERSHIP L.P.
By:
----------------------------------------------
Kenneth Huff
General Partner
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<PAGE> 24
ANNEX A
PURCHASERS
Douglas A.P. Hamilton
14811 St. Mary's Lane
Suite 148
Houston, Texas 77079
Paul B. Loyd, Jr.
14811 St. Mary's Lane
Suite 148
Houston, Texas 77079
Steven A. Webster
14811 St. Mary's Lane
Suite 148
Houston, Texas 77079
Frank A. Wojtek
14811 St. Mary's Lane
Suite 148
Houston, Texas 77079
Sylvester P. Johnson IV
14811 St. Mary's Lane
Suite 148
Houston, Texas 77079
DAPHAM Partnership L.P.
14811 St. Mary's Lane
Suite 148
Houston, Texas 77079
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<PAGE> 1
Exhibit 21.1
SUBSIDIARIES OF THE COMPANY*
The Company has no subsidiaries.
- -----------------------
*Assumes the consummation of each of the Combination Transactions as described
in the Company's Registration Statement on Form S-1, which will occur
simultaneously with the closing of the Offering described in the Company's
Registration Statement on Form S-1.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report (and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Houston, Texas
June 13, 1997
<PAGE> 1
EXHIBIT 23.2
[RYDER SCOTT COMPANY LETTERHEAD]
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
We hereby consent to (i) the use in the Prospectus (the "Prospectus")
constituting a part of the Registration Statement on Form S-1 filed by Carrizo
Oil & Gas, Inc., a Texas corporation (the "Company"), under the Securities Act
of 1933, of information contained in our reserve report that the Prospectus in
Annex A), relating to the oil and gas reserves and revenue, as of March 31,
1997 of certain interests of the Company and the information derived from such
letters, (ii) all references to such report letters and/or to this firm in such
Prospectus, and further consent to our being named as an expert therein, and
(iii) the incorporation of this consent in any Registration Statement filed for
the same offering pursuant to Rule 462(b) under the Act.
/s/ RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
Houston, Texas
June 10, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
We hereby consent to (i) the use in the Prospectus (the Prospectus)
constituting a part of the Registration Statement on Form S-1 filed by Carrizo
Oil & Gas, Inc., a Texas corporation (the Company), under the Securities Act of
1933, of information contained in our reserve report that the Prospectus in
Annex A), relating to the oil and gas reserves and revenue, as of March 31,
1997 of certain interests of the Company and the information derived from such
letters, (ii) all references to such report letters and/or to this firm in such
Prospectus, and further consent to our being named as an expert therein, and
(iii) the incorporation of this consent in any Registration Statement filed for
the same offering pursuant to Rule 462(b) under the Act.
/s/ FAIRCHILD, ANCELL & WELLS, INC.
FAIRCHILD, ANCELL & WELLS, INC.
Houston, Texas
June 4, 1997
