<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): January 8, 1998
CARRIZO OIL & GAS, INC.
(Exact name of registrant as specified in its charter)
TEXAS 000-22915 76-0415919
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation) File Number) Identification No.)
14811 ST. MARY'S LANE
SUITE 148
HOUSTON, TEXAS 77079
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (281) 496-1352
Page 1
<PAGE> 2
ITEM 5. OTHER EVENTS.
On January 8, 1998, Carrizo Oil & Gas, Inc., a Texas corporation
(the "Company"), consummated the transactions contemplated by the Stock
Purchase Agreement dated January 8, 1998 (the "Purchase Agreement") among the
Company, Enron Capital & Trade Resources Corp., a Delaware corporation
("Enron"), and Joint Energy Development Investments II, a Delaware limited
partnership ("JEDI II"). Such transactions included (i) the payment by Enron
and JEDI II of an aggregate purchase price of $30,000,000, (ii) the sale of
75,000 shares of 9% Series A Preferred Stock, par value $.01 per share, of the
Company (the "Preferred Stock"), the terms of which are set forth in the
Statement of Resolution Establishing Series of Shares designated 9% Series A
Preferred Stock (the "Statement of Resolution"), to Enron and 225,000 shares of
Preferred Stock to JEDI II, (iii) the grant of warrants (the "Warrants") to
purchase 250,000 and 750,000 shares of the common stock, par value $.01 per
share, of the Company (the "Common Stock"), the terms of which are set forth in
Warrant Certificates issued to each of Enron and JEDI II, at an exercise price
of $11.50 per share to Enron and JEDI II, respectively, and (iv) the execution
and delivery of the Shareholders' Agreement dated January 8, 1998 (the
"Shareholders' Agreement") among the Company, S.P. Johnson IV, Frank A. Wojtek,
Steven A. Webster, Paul B. Loyd, Jr., Douglas A.P. Hamilton, DAPHAM Partnership
L.P., the Douglas A.P. Hamilton 1997 GRAT, Enron and JEDI II. The Company
agreed in the Purchase Agreement to use the proceeds of the Enron and JEDI II
investment for oil and natural gas exploration and development activities in
Texas and Louisiana, the payment of dividends on the Preferred Stock and the
payment of fees and expenses. In connection with transactions, the Company
paid a fee of $1,000,000 to an affiliate of Enron.
The descriptions of the Purchase Agreement, the Statement of
Resolution, the Shareholders' Agreement and the Warrant Certificates set forth
herein do not purport to be complete and are qualified in their entirety by the
provisions of each of the Purchase Agreement, the Statement of Resolution, the
Shareholders' Agreement and the Warrant Certificates, a copy of each of which
have been filed as Exhibit 99.1, Exhibit 4.1, Exhibit 99.2 and Exhibit 4.2
hereto, respectively, and which are incorporated by reference herein.
THE PURCHASE AGREEMENT
In addition to providing for the foregoing transactions, the Purchase
Agreement provides that, for so long as Enron, JEDI II and their respective
affiliates hold more than 51% of the Preferred Stock, Enron is generally
entitled to designate persons employed by Enron or a subsidiary of Enron Corp.
to attend meetings of the Board of Directors of the Company as observers and to
receive certain written information and reports distributed to the Board of
Directors. The Purchase Agreement includes provisions that are intended to
limit Enron's and JEDI II's obligations or liability to the Company including
those that provide that, to the fullest extent permitted by law, Enron, JEDI II
and their respective affiliates are not restricted from engaging in any
business activity, regardless of whether such activity is in direct or indirect
competition with the Company and are not required to offer any business
opportunity to the Company.
Page 2
<PAGE> 3
In addition, pursuant to the Purchase Agreement, the Company granted
the holders ("Holders") of shares of Common Stock received upon exercise of the
Warrants (the "Warrant Shares") registration rights with respect to the Warrant
Shares. Holders holding no less than 333,000 Warrant Shares may demand that
the Company effect two registrations under the Securities Act of 1933, as
amended (the "Securities Act"), for the sale of all or part of the Warrant
Shares held by such Holder or Holders. One of such demand registrations may be
for a shelf registration and one may be for an underwritten registration. The
Holders also have rights to require the Company to include their Warrant Shares
in connection with registrations by the Company of shares of Common Stock. The
registration rights may be assigned or transferred provided that (i) the
transfer is effected in accordance with applicable securities laws, (ii) the
assignee or transferee acquires at least 100,000 Warrant Shares and (iii) the
Holder notifies the Company of the transfer or assignment. The registration
rights terminate as to any Holder at such time as such Holder may sell under
Rule 144 in a three-month period all Warrant Shares then held by such Holder
(assuming the cashless exercise of any Common Stock underlying Warrants).
Registration expenses, other than underwriting expenses, are to be paid by the
Company.
The Purchase Agreement includes certain representations, warranties
and covenants by the parties. The Company and the Purchasers are each
obligated to indemnify the other for breaches of representations, warranties
and covenants contained in the Purchase Agreement or in the other documents
furnished in connection with the Purchase Agreement.
STATEMENT OF RESOLUTION
The Statement of Resolution establishes a series of 500,000 shares
(300,000 of which are initially being issued to Enron and JEDI II under the
Purchase Agreement) of the Company's preferred stock, designated as 9% Series A
Preferred Stock with preferences, limitations and relative rights that include
the following:
Dividends. Holders of Preferred Stock are entitled to receive
cumulative dividends at the rate of $9.00 per year on each share of Preferred
Stock, payable quarterly. Dividends will be paid, at the option of the
Company, (i) in cash or (ii) until and including the January 15, 2002 dividend
due date, by issuing additional shares of Preferred Stock at the annual rate of
0.09 of a share of Preferred Stock on each share of Preferred Stock.
Redemption. The Preferred Stock is required to be redeemed by the
Company (i) on January 8, 2005, or (ii) after a request for redemption from the
holders of at least 30,000 shares of the Preferred Stock (or, if fewer than
such number of shares of Preferred Stock are outstanding, all of the
outstanding shares of Preferred Stock) and the occurrence of the following
events: (a) the Company has failed at any point in time to declare and pay any
two dividends in the amount then due and payable on or before the date the
second of such dividends is due and such dividends remain unpaid at such time,
(b) the Company breaches certain other covenants concerning the payment of
dividends or other distributions on or redemption or acquisition of shares of
its capital stock ranking at parity with or junior to the Preferred Stock, (c)
for two consecutive fiscal quarterly periods the
Page 3
<PAGE> 4
quarterly Cash Flow (as defined below) of the Company is less than the amount
of the dividends accrued in respect to the Preferred Stock, (d) the Company
fails to pay certain amounts due on indebtedness for borrowed money or there
has otherwise been an acceleration of such indebtedness for borrowed money, (e)
there is a violation of the Shareholders' Agreement that is not waived or (f)
the Company sells, leases, exchanges or otherwise disposes of all or
substantially all of its property and assets which transaction does not provide
for the redemption of the Series A Preferred Stock. "Cash Flow" means net
income prior to preferred dividends and accretion (i) plus (to the extent
included in net income prior to preferred dividends and accretion) depreciation,
depletion and amortization and other non-cash charges and losses on the sale of
property (ii) minus non-cash income items and required principal payments on
indebtedness for borrowed money with a maturity from the original date of
incurrence of such indebtedness of six months or greater (excluding voluntary
prepayments and refinancings, but including prepayments (other than in
connection with refinancings) which would otherwise be due under such
indebtedness within a 60-day period following the date of such prepayment).
Once an event giving rise to the right to have shares of Preferred
Stock redeemed has occurred, holders of shares of Preferred Stock may elect to
have all or any portion of their shares of Preferred Stock redeemed by
requesting redemption within 45 days of receipt of notice of the occurrence of
the event from the Company. If a holder does not so elect, such holder may
make a request for redemption each year within 30 days following the date of
filing by the Company with the Securities and Exchange Commission of its Annual
Report on Form 10-K or its Quarterly Report on Form 10-Q with respect to the
first six months of its fiscal year, unless the Company fails to make any such
filing on or before March 31 with respect to such Annual Report and August 15
with respect to such Quarterly Report, in which case a request may be made any
time from and after such dates until 30 days following the date the Company
makes such filing.
The Preferred Stock also may be redeemed at the option of the Company
at any time in whole or in part.
All redemptions are at a price per share, together with dividends
accumulated and unpaid to the date of redemption as follows: (i) if the
redemption occurs within 12 months of the date of initial issuance of Preferred
Stock, $104.50 per share; (ii) if the redemption occurs after 12 months from
but within 24 months of the date of initial issuance of the Preferred Stock,
$102.25 per share; (iii) if the redemption occurs after 24 months from but
within 36 months of the date of initial issuance of the Preferred Stock
$101.125 per share; and (iv) if the redemption occurs after 36 months from the
date of initial issuance of the Preferred Stock, $100.00 per share.
Voting. Holders of the Preferred Stock generally have no right to
vote for directors or on other matters except in certain circumstances
described herein or as otherwise required by law.
The holders of Preferred Stock have the right to approve, by the
affirmative vote of the holders of a majority of the shares of Preferred Stock,
a merger or share exchange where Carrizo is the surviving entity and (i) the
voting power of the number of voting shares outstanding
Page 4
<PAGE> 5
immediately after the merger exceeds by more than 30 percent the voting power
of the total number of voting shares of Carrizo outstanding immediately before
the merger; or (ii) the number of participating shares outstanding immediately
after the merger exceeds by more than 30 percent the total number of
participating shares of Carrizo outstanding immediately before the merger.
If, and only if, the Company fails to redeem the required number of
shares of Preferred Stock pursuant to clauses (a) through (d) of the first
paragraph under "--Redemption" above, the number of directors constituting the
Board of Directors will be expanded and the holders of the Preferred Stock will
have the right, voting separately as a class, to elect a majority of the board.
These voting rights continue only until such time as the shares of Preferred
Stock presented for redemption and required to be redeemed have been redeemed
or all necessary funds have been set aside for payment.
If, and only if, the Company fails to redeem the required number of
shares of Preferred Stock pursuant clause (e) of the first paragraph under
"--Redemption" above, the number of directors constituting the Board of
Directors will be expanded by the number equal to the difference between (i)
the whole number nearest to the quotient of (A) the number of directors then
constituting the Board of Directors (unless such number is less than two, in
which case the number of directors then constituting the Board of Directors
will be deemed to be two) divided by (B) 0.73 and (ii) the number of directors
then constituting the Board of Directors, and the holders of shares of
Preferred Stock have the right, voting separately as a class, to elect the
directors to fill such newly created directorships. These voting rights
continue only until such time as the shares of Preferred Stock presented for
redemption and required to be redeemed have been redeemed or all necessary
funds have been set aside for payment.
In addition, holders of the Preferred Stock have the right to
approve any authorization or issuance, or increase in the authorized amount of
(i) any stock ranking senior to the Preferred Stock or ranking on a parity with
the Preferred Stock and (ii) any security convertible into or exchangeable or
exercisable for stock of such class.
Holders of Preferred Stock also have the right to vote as a class in
a number of other circumstances as are required by Texas Business Corporation
Act ("TBCA"). The affirmative vote of the holders of a majority of the holders
of Shares of Preferred Stock entitled to vote thereon (unless a higher
percentage is required by law or the Amended and Restated Articles of
Incorporation of the Company) is required for any of these actions. The
Statement of Resolution sets forth such provisions as they currently exist
under the TBCA with respect to certain amendments to the Company's Articles of
Incorporation and certain mergers.
The terms of the Preferred Stock, including the voting rights
thereof, could have the effect of delaying, deferring or preventing a takeover
attempt of the Company.
Liquidation. In the event of any voluntary or involuntary
dissolution, liquidation or winding up of the Company (a "Liquidation"), before
any distribution of assets is made to the
Page 5
<PAGE> 6
holders of any Junior Stock (as defined below) of the Company, the holder of
each share of Preferred Stock then outstanding will be entitled to be paid out
of the assets of the Company available for distribution to its shareholders, an
amount equal to the amount set forth below plus all dividends accumulated and
unpaid on such share on the date fixed for the distribution of assets of the
Company to the holders of Preferred Stock: (i) if the Liquidation occurs
within 12 months of the date of initial issuance of Preferred Stock, $104.50
per share; (ii) if the Liquidation occurs after 12 months from but within 24
months of the date of initial issuance of the Preferred Stock, $102.25 per
share; (iii) if the Liquidation occurs after 24 months from but within 36
months of the date of initial issuance of the Preferred Stock $101.125 per
share; and (iv) if the Liquidation occurs after 36 months from the date of
initial issuance of the Preferred Stock, $100.00 per share.
Ranking and Certain Covenants. The Preferred Stock ranks senior to
the Common Stock and all other series of the Company's preferred stock (none of
which are issued and outstanding as of the date hereof) as to the payment of
dividends, as to payments upon redemption and as to the distribution of assets
upon liquidation, dissolution or winding up unless, after the approval of the
holders of a majority of the shares of Preferred Stock, the terms of such other
series provide otherwise. So long as any shares of Preferred Stock are
outstanding, (i) no dividends in cash, securities or other property may be
declared, paid or set aside for payment or any other distribution made upon any
Junior Stock (defined to include all stock ranking junior to the Preferred
Stock, including the Common Stock) (other than dividends or distributions in
Junior Stock or dividends of rights to purchase preferred or common stock of
the type commonly known as "poison pill rights"; provided that such poison pill
rights are not triggered solely as a result of the exercise of the rights and
remedies under the Statement of Resolution, Stock Purchase Agreement,
Shareholders' Agreement and/or Warrant Certificates); and (ii) except for
redemptions, purchases or acquisitions of Preferred Stock, no parity stock may
be (A) redeemed pursuant to a sinking fund or otherwise (unless all the parity
stock is redeemed or a pro rata redemption is made from all holders of parity
stock, the amount allocable to each series of such parity stock being
determined on the basis of the aggregate liquidation preference of the
outstanding shares of each series and the shares of each series are to be
redeemed only on a pro rata basis) or (B) purchased or otherwise acquired for
any consideration by the Company; and (iii) no Junior Stock may be redeemed or
acquired for consideration except by conversion into or exchange for other
Junior Stock; provided however that the Company shall be entitled to pay in
cash such sum as may be required to eliminate fractional shares.
Holders of Preferred Stock have no preemptive rights to purchase or
subscribe for securities of the Company. There is no sinking fund established
for the Preferred Stock.
SHAREHOLDERS' AGREEMENT
Each of S.P. Johnson IV, Frank A. Wojtek, Steven A. Webster, Paul B.
Loyd, Jr., Douglas A.P. Hamilton, DAPHAM Partnership L.P. and the Douglas A.P.
Hamilton 1997 GRAT (the "Major Shareholders") have agreed with the Company,
Enron and JEDI II that it shall not (without the consent of Enron or, if Enron,
JEDI II and their respective affiliates do not beneficially
Page 6
<PAGE> 7
own the largest outstanding amount of Preferred Stock that is then beneficially
owned by any shareholder, then only with the consent of the holders of a
majority of the shares of Preferred Stock) transfer, assign, donate, sell,
devise, encumber or in any other manner alienate (collectively "Transfer") any
of the Common Stock deemed under the Shareholders' Agreement to be beneficially
owned by it as of the date of the Shareholders' Agreement (783,085 shares;
1,273,721 shares; 1,371,016 shares; 1,396,756 shares; 800,796 shares; 395,960
shares; and 200,000 shares, respectively, representing approximately 60.0% of
the issued and outstanding shares of Common Stock as of the date of the
Shareholders' Agreement) except as provided below.
Each Major Shareholder may Transfer during each calendar year
beginning January 1, 1998 through and including 2001 up to 20% of the Common
Stock held by such Major Shareholder as of the date of the Shareholders'
Agreement and any portion of such shares permitted to be Transferred in prior
calendar years that were not so Transferred. Upon redemption of shares of
Preferred Stock, a proportionate number of shares of Common Stock held by each
Major Shareholder will be released from all transfer restrictions imposed by the
Shareholders' Agreement, which release will be in addition to other releases
from the transfer restrictions therein. Notwithstanding the foregoing, each
Major Shareholder has agreed to retain the final 20% of his holdings of Common
Stock until no shares of Preferred Stock remain outstanding. A partition of
shares of Common Stock held by a Major Shareholder between a Major Shareholder
and his spouse upon divorce and Transfers upon a Major Shareholder's death are
not Transfers that are restricted pursuant to the Shareholders' Agreement;
provided that the spouse or transferee, as a condition to the partition or
Transfer, agrees in writing to take such shares of Common Stock subject to the
terms of the Shareholders' Agreement. In addition, Transfers by a Major
Shareholder to his Family Group (as defined herein) are not restricted; provided
that the transferee has agreed in writing to be bound by the terms of the
Shareholders' Agreement. "Family Group" means, for purposes hereof, (i) the
spouse of a Major Shareholder or (b) certain trusts established solely for the
benefit of the Major Shareholder, the Major Shareholder's spouse or any of their
respective ancestors or descendants. Transfers back to a Major Shareholder from
his Family Group are permitted. Pledges of Common Stock are not restricted by
the Shareholders' Agreement, although attempts to realize upon the value of the
pledged Common Stock constitute Transfers and are therefore subject to the
limitations described above.
In addition, the Major Shareholders consented to certain
transactions contemplated by the Stock Purchase Agreement, including (i) the
adoption of the Statement of Resolution, (ii) the election of directors to the
Board of Directors by the holders of shares of Preferred Stock to the extent
provided in the Statement of Resolution, and (iii) the provisions allowing
Enron, JEDI II and their affiliates to engage in business activities that might
be, directly or indirectly, in competition with the Company.
Page 7
<PAGE> 8
WARRANT CERTIFICATES
The Warrants are exercisable during the period beginning January 8,
1999 and ending January 8, 2005 for the purchase of an aggregate of 1,000,000
shares of Common Stock at an exercise price of $11.50 per share, subject to
certain adjustments. The Warrants are not transferable until January 8, 2000.
Each Warrant may be exercised by (i) paying the exercise price (A)
in cash or (B) by surrender to the Company of shares of Preferred Stock or (ii)
exercising the Warrant for a number of net warrant shares equal to (x) the
number of Warrant Shares issuable upon exercise of the Warrant multiplied by
the difference between the average market price of the Common Stock during the
20 trading day period preceding the date of exercise and the exercise price
divided by (y) the average market price of the Common Stock during the 20
trading day period preceding the date of exercise. In addition, with the
consent of the Company, the holder of the Warrant may receive a cash payment
equal to the number of Warrant Shares for which the Warrant is exercised
multiplied by the difference between the average market price of the Common
Stock during the 20 trading day period preceding the date of exercise and the
exercise price.
The number of Warrant Shares and exercise price are subject to
adjustment in certain circumstances, including (i) if the Company makes a
distribution of shares of Common Stock, subdivides or combines its outstanding
shares of Common Stock or issues any shares of its capital stock or distributes
other assets in a reclassification or reorganization of the Common Stock, (ii)
if the Company issues shares of Common Stock or securities exercisable or
exchangeable for or convertible into shares of Common Stock for no
consideration or for less than the market value of the Common Stock, subject to
certain exceptions, and (iii) if the Company engages in a consolidation, merger
or business combination with, or sells all or substantially all of its assets
to, another corporation.
OTHER
In connection with the sale of Preferred Stock, each of the
Company's four executive officers entered into amendments to their employment
agreements that provide that the exercise by the holders of shares of Preferred
Stock of the rights and remedies, including voting rights to elect any
directors to the Board of Directors, as provided under the Basic Documents (as
such term is defined in the Stock Purchase Agreement), will not constitute a
"Change in Control" within the meaning of such term in each such employee's
employment agreement.
Page 8
<PAGE> 9
<TABLE>
<CAPTION>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
<S> <C>
(c) Exhibits.
4.1 Statement of Resolution Establishing Series of Shares designated 9% Series A Preferred Stock.
4.2 Warrant Certificates.
99.1 Stock Purchase Agreement dated January 8, 1998 among the Company, Enron Capital & Trade Resources
Corp. and Joint Energy Development Investments II Limited Partnership.
99.2 Shareholders' Agreement dated January 8, 1998 among the Company, S.P. Johnson IV, Frank A. Wojtek,
Steven A. Webster, Paul B. Loyd, Jr., Douglas A.P. Hamilton, DAPHAM Partnership, L.P., The Douglas
A.P. Hamilton 1997 GRAT, Enron Capital & Trade Resources Corp. and Joint Energy Development
Investments II Limited Partnership.
99.3 Form of Amendment to Executive Officer Employment Agreement.
99.4 Press Release dated January 8, 1998.
</TABLE>
Page 9
<PAGE> 10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CARRIZO OIL & GAS, INC.
By: /s/ FRANK A. WOJTEK
----------------------------
Frank A. Wojtek
Chief Financial Officer,
Vice President and Secretary
Date: January 9, 1998
Page 10
<PAGE> 11
<TABLE>
<CAPTION>
Exhibit Description
<S> <C>
4.1 Statement of Resolution Establishing Series of Shares designated 9% Series A Preferred Stock.
4.2 Warrant Certificates.
99.1 Stock Purchase Agreement dated January 8, 1998 among the Company, Enron Capital & Trade Resources
Corp. and Joint Energy Development Investments II Limited Partnership.
99.2 Shareholders' Agreement dated January 8, 1998 among the Company, S.P. Johnson IV, Frank A. Wojtek,
Steven A. Webster, Paul B. Loyd, Jr., Douglas A.P. Hamilton, DAPHAM Partnership, L.P., The Douglas
A.P. Hamilton 1997 GRAT, Enron Capital & Trade Resources Corp. and Joint Energy Development
Investments II Limited Partnership.
99.3 Form of Amendment to Executive Officer Employment Agreement.
99.4 Press Release dated January 8, 1998.
</TABLE>
Page 11
<PAGE> 1
EXHIBIT 4.1
CARRIZO OIL & GAS, INC.
STATEMENT OF RESOLUTION ESTABLISHING SERIES OF SHARES
DESIGNATED
9% SERIES A PREFERRED STOCK
Pursuant to Article 2.13 of the Texas Business Corporation Act
Carrizo Oil & Gas, Inc., a Texas corporation (the
"Corporation"), hereby certifies:
A. That, pursuant to the authority contained in Article
IV of the Restated Articles of Incorporation of the Corporation (the "Articles
of Incorporation") and in accordance with the provisions of Article 2.13 of the
Texas Business Corporation Act (the "TBCA"), the Board of Directors of the
Corporation has duly adopted, by unanimous written consent dated as of January
6, 1998, the following resolution creating and providing for the establishment
and issuance of a series of shares of Preferred Stock as hereinafter described,
providing for the designations, preferences, limitations and relative, voting,
redemption and other rights thereof and the qualifications, limitations or
restrictions thereof, in addition to those set forth in the Articles of
Incorporation, all in accordance with the provisions of Article 2.13 of the
TBCA.
RESOLVED, that pursuant to Article IV of the Articles of
Incorporation, which authorizes the issuance of 50,000,000 shares of stock,
consisting of 10,000,000 shares of preferred stock, par value of $.01 per share
(the "Preferred Stock"), none of which is outstanding, and 40,000,000 shares of
common stock, par value $.01 per share (the "Common Stock"), the Corporation
hereby provides for the issuance of a series of 500,000 shares of Preferred
Stock, designated as 9% Series A Preferred Stock ("Series A Preferred Stock"),
and hereby approves the designation, issuance and sale by this Corporation of
500,000 shares of the Series A Preferred Stock and hereby provides for the
following designations, preferences, limitations and relative, voting,
redemption and other rights thereof and the qualifications, limitations or
restrictions thereof:
1. Designation of the Series. There shall be a series
of Preferred Stock designated as "9% Series A Preferred Stock", par value $.01
per share, consisting of 500,000 shares. Each share of Series A Preferred
Stock shall be referred to herein as a "Series A Preferred Share" or "Share".
1
<PAGE> 2
2. Voting.
(a) Except as provided in this Section 2 or as otherwise
required by law, the Series A Preferred Stock shall not have any right to vote
for the election of directors or for any other purpose. So long as the Series
A Preferred Stock is outstanding, the Corporation shall not, without the
affirmative vote of the holders of a majority of the Shares entitled to vote
thereon (unless a higher percentage is required by law or the Articles of
Incorporation) or written consent of the holders of a majority of all
outstanding Shares, voting or consenting separately as a class:
(i) authorize or issue, or increase the authorized amount
of, (A) any Senior Stock (as defined herein) or Parity Stock (as
defined herein) or (B) any security convertible into or exchangeable
or exercisable for Senior Stock or Parity Stock; provided that the
foregoing shall not restrict the issuance of additional shares of
Series A Preferred Stock pursuant to the first two paragraphs of
Section 3 of this Statement of Resolution;
(ii) amend the Articles of Incorporation to: (A) increase
or decrease the aggregate number of authorized shares of Series A
Preferred Stock, (B) increase or decrease the par value of the shares
of Series A Preferred Stock, (C) effect an exchange, reclassification
or cancellation of all or part of the shares of Series A Preferred
Stock, (D) effect an exchange, or create a right of exchange, of all
or any part of the shares of another class into the shares of Series A
Preferred Stock, (E) change the designations, preferences,
limitations, or relative rights of the shares of Series A Preferred
Stock, (F) change the shares of Series A Preferred Stock into the same
or a different number of shares, either with or without par value, of
the same class or series or another class or series, (G) create a new
class or series of shares having rights and preferences equal, prior
or superior to the shares of Series A Preferred Stock, or increase the
rights and preferences of any class or series having rights and
preferences equal, prior or superior to the shares of Series A
Preferred Stock, or increase the rights and preferences of any class
or series having rights or preferences later or inferior to the shares
of Series A Preferred Stock in such a manner as to become equal, prior
or superior to the shares of Series A Preferred Stock or (H) cancel or
otherwise affect dividends on the shares of Series A Preferred Stock
which had accrued but had not been declared;
(iii) merge or effect a share exchange with any corporation
or other entity (as defined in Article 1.02 of the TBCA) if (A) the
plan of merger contains provisions that if contained in a proposed
amendment to the Articles of Incorporation would require approval
under clause (ii) above, (B) shares of Series A Preferred Stock are to
be exchanged pursuant to the plan of exchange or (C) the Corporation
is the sole surviving corporation in the merger and (1) the voting
power of the number of voting shares (as defined in Article 5.03 of
the TBCA) outstanding immediately after the merger, plus the voting
power of the number of voting shares
2
<PAGE> 3
issuable as a result of the merger (either by the conversion of
securities issued pursuant to the merger or the exercise of rights to
purchase securities issued pursuant to the merger), exceeds by more
than 30 percent the voting power of the total number of voting shares
of the Corporation outstanding immediately before the merger; or (2)
the number of participating shares (as defined in Article 5.03 of the
TBCA) outstanding immediately after the merger, plus the number of
participating shares issuable as a result of the merger (either by the
conversion of securities issued pursuant to the merger or the exercise
of rights to purchase securities issued pursuant to the
merger),exceeds by more than 30 percent the total number of
participating shares of the corporation outstanding immediately before
the merger; and
(iv) sell, lease, exchange or otherwise dispose (not
including any pledge, mortgage, deed of trust or trust indenture, but
including any sale, lease, exchange or other disposition in
foreclosure, liquidation or otherwise in any attempt to realize upon
the value of such pledge, mortgage, deed of trust or other trust
indenture) of all, or substantially all, the property and assets of
the Corporation, with or without the good will of the Corporation,
whether or not made in the usual and regular course of its business
and whether in a single transaction or series of related transactions,
if such sale, lease, exchange or other disposition would adversely
impact the preferences, rights, powers or privileges of the holders of
the Series A Preferred Stock.
Except as otherwise set forth herein, to the extent that the
holders of the Series A Preferred Stock shall have the right to vote as a class
(alone or together with any other series of stock of the Corporation) pursuant
to the requirements of applicable law on any matter not set forth herein as
requiring the vote of such holders, the approval of such matter shall require
only the vote of the holders of a majority of the Shares entitled to vote
thereon (unless a higher percentage is required by law or the Articles of
Incorporation) or written consent of the holders of a majority of the Shares
entitled so to vote. Without limiting the generality of the foregoing, to the
extent the vote of holders of Series A Preferred Stock is required (pursuant to
provisions of current law or any change thereto) for approval of (1) any plan
of merger, consolidation or exchange for which the TBCA requires a shareholder
vote, (2) any disposition of assets for which the TBCA requires a shareholder
vote, (3) any dissolution of the Corporation for which the TBCA requires a
shareholder vote, and (4) any amendment of the articles of incorporation of the
Corporation for which the TBCA requires a shareholder vote, such 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 shares of Series A Preferred Stock
entitled to vote thereon.
(b) If the Corporation fails to redeem the required
number of Series A Preferred Shares (1) on January 8, 2005 as required by
Section 4(b)(i) or (2) on the applicable Redemption Date (as defined herein) as
required by Section 4(b)(ii) (excluding Section 4(b)(ii)(E) and (F)), then the
number of directors constituting the Board of Directors shall, effective as of
the time of election of such additional directors as hereinafter provided and
without further action, be increased by that
3
<PAGE> 4
number of directors constituting the Board of Directors plus one additional
director and the holders of shares of Series A Preferred Stock shall have, in
addition to the other voting rights set forth herein, the exclusive right,
voting separately as a single class, to elect the directors of the Corporation
to fill such newly created directorships (the remaining directors to be elected
by other classes of stock entitled to vote therefor) at each meeting of
shareholders held for the purpose of electing directors. Such additional
directors shall continue as directors and such additional voting right shall
continue until such time as the shares of Series A Preferred Stock presented
for redemption and required to be redeemed as provided in Section 4(b)
(excluding Section 4(b)(ii)(E) and (F)) have been redeemed or all necessary
funds have been set aside for payment as provided in Section 6, as the case may
be, at which time (A) such additional directors shall cease to be directors,
(B) such additional voting right of the holders of Series A Preferred Stock
shall terminate and (C) the number of directors constituting the Board of
Directors shall, without further action, be decreased to that number of
directors remaining as directors following the effect of clause (A) above (but
subject to later adjustment in accordance with the Articles of Incorporation
and the Bylaws); provided that this sentence shall not limit the effect of the
preceding sentence upon the failure by the Corporation to redeem the required
number of Series A Preferred Shares upon the occurrence of any subsequent
redemption obligation provided in Section 4(b). The rights under this
subparagraph expire at such time as the Corporation has repurchased or redeemed
all of the outstanding Series A Preferred Stock.
(c) Unless and for so long as holders of Series A
Preferred Stock are entitled to elect directors pursuant to Section 2(b), if
the Corporation fails to redeem the required number of Series A Preferred
Shares on the applicable Redemption Date (as defined herein) as required by
Section 4(b)(ii)(E), then the number of directors constituting the Board of
Directors shall, effective as of the time of election of such additional
directors as hereinafter provided and without further action, be increased by
the number equal to the difference between (i) the whole number nearest to the
quotient of (A) the number of directors then constituting the Board of
Directors (unless such number is less than two, in which case the number of
directors then constituting the Board of Directors shall be deemed to be two
for purposes of this calculation) divided by (B) 0.73 and (ii) the number of
directors then constituting the Board of Directors, and the holders of shares
of Series A Preferred Stock shall have, in addition to the other voting rights
set forth herein, the exclusive right, voting separately as a single class, to
elect the directors of the Corporation to fill such newly created directorships
(the remaining directors to be elected by other classes of stock entitled to
vote therefor) at each meeting of shareholders held for the purpose of electing
directors. Such additional directors shall continue as directors and such
additional voting right shall continue until such time as the shares of Series
A Preferred Stock presented for redemption and required to be redeemed as
provided in Section 4(b)(ii)(E) have been redeemed or all necessary funds have
been set aside for payment as provided in Section 6, as the case may be, at
which time (A) such additional directors shall cease to be directors, (B) such
additional voting right of the holders of Series A Preferred Stock shall
terminate and (C) the number of directors constituting the Board of Directors
shall, without further action, be decreased to that number of directors
remaining as directors following the effect of clause (A) above (but subject to
later adjustment in accordance with the Articles of Incorporation and the
Bylaws); provided that this sentence shall not limit the effect of the
preceding sentence upon the
4
<PAGE> 5
failure by the Corporation to redeem the required number of Series A Preferred
Shares upon the occurrence of any subsequent redemption obligation provided in
Section 4(b). The rights under this subparagraph expire at such time as the
Corporation has repurchased or redeemed all of the outstanding Series A
Preferred Stock.
(d) The rights of holders of shares of Series A Preferred
Stock to take any action as provided in this Statement of Resolutions may be
exercised at any annual meeting of shareholders or at a special meeting of
shareholders held for such purpose or at any adjournment thereof, or 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 holders of Series A Preferred
Shares who did not consent in writing to the action.
For the taking of any action as provided in this Section 2 by
the holders of shares of Series A Preferred Stock or for any action as to which
the holders of Series A Preferred Stock are entitled to vote, each such holder
shall have one vote for each share of such stock standing in its name on the
transfer books of the Corporation as of any record date fixed for such purpose
or, if no such date be fixed, at the close of business on the business day next
preceding the day on which notice is given, or if notice is waived, at the
close of business on the business day next preceding the day on which the
meeting is held.
So long as the right to vote pursuant to Section 2(b) or
Section 2(c) continues (and unless such right has been exercised by written
consent of the minimum number of shares required to take such action), upon the
written request of holders of a majority of the shares of Series A Preferred
Stock outstanding addressed to the Secretary of the Corporation at the
principal office of the Corporation, the Secretary of the Corporation shall
call a special meeting of the holders of shares entitled to vote as provided
herein. Such meeting shall be held within thirty (30) days after delivery of
such request to the Secretary, at the place and upon the notice provided by law
and in the bylaws of the Corporation, as then in effect (the "Bylaws"), for the
holding of meetings of shareholders.
Each director elected by the holders of shares of Series A
Preferred Stock as provided in Section 2(b) or Section 2(c) shall, unless such
director's term shall expire earlier, hold office until the annual meeting of
shareholders next succeeding such director's election or until such director's
successor, if any, is elected and qualified.
In case any vacancy shall occur among the directors elected by
the holders of shares of Series A Preferred Stock as provided in Section 2(b)
or Section 2(c), such vacancy may be filled for the unexpired portion of the
term by majority vote of the remaining directors theretofore elected by such
holders (if there is one or more remaining directors), or each such director's
successor in office. If any such vacancy is not so filled within 20 days after
the creation thereof or if all directors
5
<PAGE> 6
so elected by the holders of Series A Preferred Stock shall cease to serve as
directors before their terms shall expire, the holders of the Series A
Preferred Stock then outstanding and entitled to vote for such directors may,
by written consent as herein provided, or at a special meeting of such holders
called as provided herein, elect successors to hold office for the unexpired
term of the directors whose places shall be vacant.
Holders of shares of Series A Preferred Stock wishing to
nominate one or more individuals to stand for election pursuant to Section 2(b)
or Section 2(c) at an annual or special meeting must provide written notice
thereof to the Board of Directors not less than two business days in advance of
the meeting. Directors that are elected by holders of Series A Shares shall be
elected by a plurality of the votes cast by the holders of Shares entitled to
vote in such election at a meeting of holders of such Shares at which a quorum
is present.
Any director elected by the holders of shares of Series A
Preferred Stock may be removed from office with or without cause only by the
vote or written consent of the holders of at least a majority of the
outstanding shares of Series A Preferred Stock. A special meeting of the
holders of shares of Series A Preferred Stock for such purpose may be called in
accordance with the procedures set forth in Section 2(b) or Section 2(c).
3. Dividends. The fifteenth day of January (but not
January 15, 1998), April, July and October on which the Series A Preferred
Stock shall be outstanding shall be deemed to be a "Dividend Due Date" (except
that if any such date is a Saturday, Sunday or legal holiday, then the next
succeeding date that is not a Saturday, Sunday or legal holiday shall be the
Dividend Due Date). The holders of Series A Preferred Shares shall be entitled
to receive, if, when and as declared by the Board of Directors out of funds
legally available therefor, cumulative dividends at the rate of $9.00 per year
on each Series A Preferred Share and no more, calculated on the basis of a year
of 360 days consisting of twelve 30-day months, payable quarterly on each
Dividend Due Date, with respect to the quarterly period ending on the Record
Date (as defined herein) with respect to such Dividend Due Date. Dividends
will be paid, at the option of the Corporation, (i) in cash or (ii) until and
including the January 15, 2002 Dividend Due Date, by issuing additional fully
paid and nonassessable shares of Series A Preferred Stock (or fractions
thereof) at the annual rate of 0.09 of a Share of Series A Preferred Stock on
each Series A Preferred Share. Dividends on each Series A Preferred Share (or
fraction thereof) shall accumulate and be cumulative from and after the date of
initial issuance of Series A Preferred Shares (or in the event of a Share (or
fraction thereof) initially issued after the first issuance of any Shares, from
the immediately preceding Dividend Due Date or, if none, from the date of such
first issuance). The record date for the payment of dividends shall be the
last day of December, March, June or September, as the case may be, immediately
preceding the relevant Dividend Due Date (the "Record Date"). For purposes
hereof, the term "legal holiday" shall mean any day on which banking
institutions are authorized to close in New York, New York or Houston, Texas.
Each fractional share of Series A Preferred Stock outstanding
shall be entitled to a ratably proportionate amount of all dividends accruing
with respect to each outstanding share of
6
<PAGE> 7
Series A Preferred Stock pursuant to this Section 3 and all such dividends with
respect to such outstanding fractional shares shall be cumulative and shall
accrue, and shall be payable in the same manner and at such times as provided
for in this Section 3 with respect to dividends on each outstanding share of
Series A Preferred Stock. Each fractional share of Series A Preferred Stock
outstanding shall also be entitled to a ratably proportionate amount of all
distributions made with respect to each outstanding share of Series A Preferred
Stock pursuant to this Section 3, and all such distributions shall be payable
in the same manner and at such times as provided for in this Section 3 with
respect to distributions on each outstanding share of Series A Preferred Stock.
On each Dividend Due Date all dividends which shall be
accumulated on each Series A Preferred Share outstanding on such Dividend Due
Date shall be deemed to become "due". Any dividend which shall not be paid on
the Dividend Due Date on which it shall become due shall be deemed to be "past
due" until such dividend shall be paid or until the Series A Preferred Share
with respect to which such dividend became due shall no longer be outstanding,
whichever is the earlier to occur. If any dividend payable pursuant to this
Section 3 is not paid on the Dividend Due Date therefor, then the amount of
such dividend shall be computed as if the amount thereof had been compounded
quarterly from the date of such Dividend Due Date to the date such dividend is
paid.
When dividends are not paid in full upon all shares of Parity
Stock (including Series A Preferred Stock), all dividends declared upon shares
of Parity Stock will be declared pro rata, subject to either rounding or the
elimination of fractional shares in accordance with Texas law, so that in all
cases the amount of dividends declared per share on the Parity Stock bears to
each other the same ratio that the accumulated dividends per share on the
shares of Parity Stock bear to each other. So long as any Series A Preferred
Shares are outstanding, (i) no dividends in cash, securities or other property
may be declared, paid or set aside for payment or any other distribution made
upon any Junior Stock (other than dividends or distributions in Junior Stock or
dividends of rights to purchase preferred or common stock of the type commonly
known as "poison pill rights"; provided that such poison pill rights shall not
be triggered solely as a result of the exercise of the rights and remedies
under this Statement of Resolution, the Stock Purchase Agreement dated as of
January 8, 1998 by and among the Corporation and Enron Capital & Trade
Resources Corp., a Delaware corporation ("Enron"), and Joint Energy Development
Investments II Limited Partnership, a Delaware limited partnership ("JEDI II"),
the Warrant Certificates dated as of January 8, 1998 issued pursuant to such
Stock Purchase Agreement and/or the Shareholders' Agreement dated as of January
8, 1998 (as it may from time to time be amended) by and among the Company, S.
P. Johnson IV, Frank A. Wojtek, Paul B. Loyd, Jr., Steven A. Webster, Douglas
A. P. Hamilton, DAPHAM Partnership L.P., Douglas A. P. Hamilton 1997 GRAT,
Enron and JEDI II (the "Shareholders' Agreement"), and (ii) except for
redemptions, purchases or acquisitions of Series A Preferred Stock, no Parity
Stock may be (A) redeemed pursuant to a sinking fund or otherwise (unless all
the Parity Stock is redeemed or a pro rata redemption is made from all holders
of Parity Stock, the amount allocable to each series of such Parity Stock being
determined on the basis of the aggregate liquidation preference of the
outstanding shares of each series and the shares of each series are to be
redeemed only on a pro rata basis) or (B) purchased or otherwise acquired for
any consideration by the Corporation; and (iii) no Junior Stock may be redeemed
or acquired for
7
<PAGE> 8
consideration except by conversion into or exchange for other Junior Stock;
provided however that the Corporation shall be entitled to pay in cash such sum
as may be required to eliminate fractional shares. "Parity Stock" shall
collectively mean all equity securities of the Corporation which rank on a
parity with the Series A Preferred Stock, as to dividends (when such term is
used with respect to the payment of dividends), as to payments upon redemption
(when such term is used with respect to payments upon redemption) or as to the
distribution of assets upon liquidation, dissolution or winding up of the
Corporation (when such term is used with respect to the distribution of assets
upon liquidation, dissolution or winding up), whether or not the dividend
rates, dividend payment dates or redemption or liquidation prices per share
thereof be different from those of the Series A Preferred Stock, if the holders
of such class of stock and the Series A Preferred Stock shall be entitled to
the receipt of dividends (when such term is used with respect to the payment of
dividends) or of amounts payable upon redemption (when such term is used with
respect to payments upon redemption) or distributable upon liquidation,
dissolution or winding up of the Corporation (when such term is used with
respect to the distribution of assets upon liquidation, dissolution or winding
up), as the case may be, in proportion to their respective amounts of accrued
and unpaid dividends per share or redemption or liquidation prices, without
preference or priority of one over the other. "Junior Stock" shall
collectively mean all equity securities (including the common stock, par value
$.01 per share) of the Corporation which do not have a preference or priority
over the Series A Preferred Stock, as to dividends (when such term is used with
respect to the payment of dividends), as to payments upon redemption (when such
term is used with respect to payments upon redemption) or as to the
distribution of assets upon liquidation, dissolution or winding up of the
Corporation (when such term is used with respect to the distribution of assets
upon liquidation, dissolution or winding up), if the holders of Series A
Preferred Stock shall be entitled to receipt of dividends (when such term is
used with respect to the payment of dividends) or of amounts payable upon
redemption (when such term is used with respect to payments upon redemption) or
distributable upon liquidation, dissolution or winding up of the Corporation
(when such term is used with respect to the distribution of assets upon
liquidation, dissolution or winding up), as the case may be, in preference or
priority to the holders of shares of such stock. "Senior Stock" shall
collectively mean all equity securities of the Corporation which rank prior to
the Series A Preferred Stock, as to dividends (when such term is used with
respect to the payment of dividends), as to payments upon redemption (when such
term is used with respect to payments upon redemption) or as to the
distribution of assets upon liquidation, dissolution or winding up of the
Corporation (when such term is used with respect to the distribution of assets
upon liquidation, dissolution or winding up), if the holders of such class
shall be entitled to the receipt of dividends (when such term is used with
respect to the payment of dividends) or of amounts payable upon redemption
(when such term is used with respect to payments upon redemption) or
distributable upon liquidation, dissolution or winding up of the Corporation
(when such term is used with respect to the distribution of assets upon
liquidation, dissolution or winding up), as the case may be, in preference or
priority to the holders of Series A Preferred Stock.
Any reference to "dividend" or "distribution" in this Section
3 shall not be deemed to include any distribution made in connection with any
liquidation, dissolution or winding up of the
8
<PAGE> 9
Corporation, whether voluntary or involuntary, unless such reference
specifically refers to such liquidation, dissolution or winding up of the
Corporation.
4. Redemption.
(a) The Series A Preferred Shares may be redeemed at the
option of the Corporation, upon 30 days' prior written notice, as a whole at
any time or in part from time to time, at a Redemption Price (as set forth in
(i) through (iv) below) per share, together with all dividends accumulated and
unpaid to the Redemption Date (as defined below), as follows:
(i) if the Redemption Date occurs within 12 months of the
date of initial issuance of the Series A Preferred Shares, $104.50 per
share;
(ii) if the Redemption Date occurs after 12 months from
but within 24 months of the date of initial issuance of the Series A
Preferred Shares, $102.25 per share;
(iii) if the Redemption Date occurs after 24 months from
but within 36 months of the date of initial issuance of the Series A
Preferred Shares, $101.125 per share; and
(iv) if the Redemption Date occurs after 36 months from
the date of initial issuance of the Series A Preferred Shares, $100.00
per share.
(b)(i) The Series A Preferred Shares shall be called for
redemption by the Corporation and redeemed on January 8, 2005 at a
Redemption Price per share of $100 plus all dividends accumulated and
unpaid to the Redemption Date.
(ii) The Series A Preferred Shares shall be redeemed by
the Corporation at a Redemption Price (as set forth in (i) through
(iv) of Section 4(a)) per share, together with all dividends
accumulated and unpaid to the Redemption Date, on a Redemption Date
occurring no later than 90 days following a request for redemption by
holders of at least 30,000 of the Series A Preferred Shares (as
adjusted for any stock splits or combinations from the date of initial
issuance, or if fewer than such number of Series A Preferred Shares
are outstanding at such time, then all of the outstanding Series A
Preferred Shares) and the occurrence of one of the following events
(an "Optional Redemption Event"): (A) at any point in time the
Corporation has failed to declare and pay any two dividends in the
amount then due and payable on or before the Dividend Due Date for the
second of such dividends and such dividends remain unpaid at such time
or (B) the Corporation breaches any covenant set forth in the
penultimate paragraph of Section 3 hereof or (C) for two consecutive
fiscal quarterly periods after the initial date of issuance of any
Series A Preferred Stock, the quarterly Cash Flow (as defined below)
of the Corporation is less than the
9
<PAGE> 10
amount of the dividends accrued in respect to the Series A Preferred
Stock during such fiscal quarter (provided that solely for purposes of
this provision, notwithstanding anything in this Statement of
Resolution to the contrary, all dividends shall be deemed to be
accrued in cash) or (D) (1) the Corporation shall have failed to pay
more than $50,000 of any obligation on any indebtedness for borrowed
money of more than $1,000,000 when such amount more than $50,000
becomes due and payable and such failure shall continue after the
applicable grace period, if any, granted by the lender for such
indebtedness; or (2) any other event shall occur or condition shall
exist under any indebtedness for borrowed money at a time when the
outstanding principal amount thereunder is at least $1,000,000, if
such event or condition has caused the acceleration of such
indebtedness or (E) there is a violation (which has not been waived)
of Section 2.1 of the Shareholders' Agreement or (F) there occurs by
the Corporation a sale, lease, exchange or other disposition (not
including any pledge, mortgage, deed of trust or trust indenture, but
including any sale, lease, exchange or other disposition in
foreclosure, liquidation or otherwise in any attempt to realize upon
the value of such pledge, mortgage, deed of trust or other trust
indenture) of all, or substantially all, the property and assets, with
or without the good will of the Corporation, whether or not made in
the usual and regular course of its business and whether in a single
transaction or series of related transactions which sale, lease,
exchange or other disposition does not provide for the redemption of
the Series A Preferred Stock (and without limiting the generality of
any other provision hereof, such right to be redeemed constitutes a
preference, right, power and privilege of the holders of the Series A
Preferred Stock); provided, however, that if an Optional Redemption
Event has previously occurred, any subsequent event shall not be
deemed to be an Optional Redemption Event. For purposes hereof, "Cash
Flow" shall mean net income prior to preferred dividends and accretion
(i) plus (to the extent included in net income prior to preferred
dividends and accretion) depreciation, depletion and amortization and
other non-cash charges and losses on the sale of property and (ii)
minus non-cash income items and required principal payments on
indebtedness for borrowed money with a maturity from the original date
of incurrence of such indebtedness of six months or greater (excluding
voluntary prepayments and refinancings, but including prepayments
(other than in connection with refinancings) which would otherwise be
due under such indebtedness within a 60-day period following the date
of such prepayment).
A request for redemption pursuant to this Section 4(b)(ii) may
be made by holders, (1) at any time after such Optional Redemption
Event and not later than 45 days after the Corporation provides notice
to holders of Series A Preferred Shares of such Optional Redemption
Event and (2) on one or more occasions from and after the expiration
of such 45-day period with respect to an Optional Redemption Event
until all Series A Preferred Shares are redeemed, within 30 days
following the date the Corporation files with the Securities and
Exchange Commission its Annual Report on Form 10-K or its Quarterly
Report on Form 10-Q with respect to the first
10
<PAGE> 11
six months of its fiscal year, unless the Corporation fails to make
any such filing on or before March 31 with respect to such Annual
Report and August 15 with respect to such Quarterly Report, in which
case a request may be made any time from and after such dates until 30
days following the date the Corporation makes such filing.
(c) For purposes hereof, "Redemption Date" shall mean the
applicable date of any redemption of the Series A Preferred Shares made by the
Corporation pursuant to this Section 4 and "Redemption Price" shall mean the
applicable redemption price per share paid by the Corporation for any
redemption of the Series A Preferred Shares pursuant to this Section 4.
No sinking fund shall be established for the Series A
Preferred Stock.
Notice of any redemption of the Series A Preferred Shares
required to be given by the Corporation shall be mailed by means of certified
mail (return receipt requested), postage paid, addressed to the holders of
record of the Series A Preferred Shares, at their respective addresses then
appearing on the books of the Corporation and last known address (if
different), and transmitted by facsimile to holders of Series A Preferred
Shares that have provided the Corporation with facsimile instructions (at the
facsimile number so provided), at least twenty (20) but not more than sixty
(60) days prior to the Redemption Date, and each such notice shall be deemed
received by the holder of record three days following deposit with the United
States Postal Service. Each notice of redemption shall specify (i) the
Redemption Date that has been selected by the Company (but which must be within
60 days of the date of the mailing of the notice of redemption and in all cases
no later than January 8, 2005), (ii) the Redemption Price, (iii) the place for
payment and for delivering the stock certificate(s) and transfer instrument(s)
in order to collect the Redemption Price (which shall be at a reasonable
location in the United States), (iv) whether all or less than all Series A
Preferred Shares are being redeemed and the total number of Series A Preferred
Shares being redeemed and (v) whether the redemption is pursuant to Section
4(a) or (b) hereof, and if pursuant to Section 4(b)(ii), that the redemption is
pursuant to one or more of clause (A) through (F) thereof. If fewer than all
the outstanding Series A Preferred Shares are to be redeemed pursuant to
Section 4(a), the Corporation will select those to be redeemed as nearly pro
rata as practicable. Failure by the Corporation to give any notice described
in this paragraph, or the formal insufficiency of any such notice, shall not
prejudice or effect the rights of any holders of Series A Preferred Shares to
cause the Corporation to redeem any such shares held by such holder.
The Corporation shall, within five business days of its having
concluded that an Optional Redemption Event has occurred, transmit notice of
such Optional Redemption Event to holders of Series A Preferred Shares, which
notice shall set forth a description of such event. Such notice shall be
mailed by means of certified mail (return receipt requested), postage paid,
addressed to the holders of record of Series A Preferred Shares, at their
respective addresses then appearing on the books of the Corporation and last
known address (if different) and transmitted by facsimile to holders of Series
A Preferred Shares that have provided the Corporation with facsimile
instructions (at the facsimile number so provided). Any request for redemption
given by the holder or holders of the Series A Preferred Shares pursuant to
Section 4(b) shall be mailed by means of certified mail
11
<PAGE> 12
(return receipt requested), postage paid, addressed to the Corporation at its
registered office, and transmitted by facsimile to the Corporation (at the
following facsimile number: (281) 496-0884; or such other facsimile number as
the Corporation provides by notice to holders of Series A Preferred Shares).
If any holder of Series A Preferred Shares making such request for redemption
has not received notice of such Optional Redemption Event from the Corporation,
but has concluded that an Optional Redemption Event has occurred, such holder
shall include in such request for redemption a description of such Optional
Redemption Event.
After the Redemption Date for any Series A Preferred Shares,
the holder of such shares shall not be entitled to receive payment of the
Redemption Price for such Shares until such holder shall cause to be delivered
to the place specified in the notice given (which shall be at a reasonable
location in the United States) with respect to such redemption the
certificate(s) representing such Series A Preferred Shares and, if required by
the Corporation, duly endorsed to the Corporation or in blank and accompanied
by instruments of transfer to the Corporation. No interest shall accrue on the
Redemption Price of any Series A Preferred Share after its Redemption Date.
At the close of business on the Redemption Date for any Series
A Preferred Share, such Share shall (provided the Redemption Price of such
Share has been paid or properly provided for in accordance with Section 6) be
deemed to cease to be outstanding and all rights of any person other than the
Corporation in such Share shall be extinguished on the Redemption Date
(including all rights to receive future dividends with respect to such Share)
except for the right to receive the Redemption Price, without interest, for the
Shares in accordance with the provisions of this Section 4, subject to
applicable escheat laws.
Subject to Section 3 hereof, the Corporation shall have the
right at any time to acquire any Series A Preferred Shares from the owner of
such Shares on such terms as may be agreeable to such owner without offering
any other shareholder an equal opportunity to sell his stock to the
Corporation, and no purchase by the Corporation from any shareholder pursuant
to this paragraph shall be deemed to create any right on the part of any other
shareholder to sell any Series A Preferred Stock (or any other stock) to the
Corporation.
(d) Redemption Subject to Applicable Law.
Notwithstanding the redemption rights granted to the holders of Series A
Preferred Shares in this Section 4, the Corporation shall redeem shares of
Series A Preferred Stock only if funds therefor are legally available under the
TBCA, as from time to time amended, which as of the date of this Statement of
Resolution provides that a corporation may effect a redemption only if (i)
after giving effect to the redemption, the corporation would not be insolvent,
(ii) the net assets of the corporation are not less than the amount of the
proposed redemption or (iii) funds are otherwise legally available therefor
under the TBCA. Without limiting the generality of any provision hereof or of
any applicable law, failure to redeem the Series A Preferred Shares in
accordance with the requirements of this Section 4 shall result in the holders
of such Shares having the voting rights specified in Section 2(b) or Section
2(c) and shall result in dividends continuing to accrue on such Shares (and all
other rights and obligations
12
<PAGE> 13
continuing as set forth in this Statement of Resolution), and shall result in
the payment of the Redemption Price of such Shares to continue as an obligation
(but not to be deemed to be a debt) of the Corporation.
In the event that the total amount of funds legally available
for redemption of shares of Series A Preferred Stock and any other Parity Stock
is insufficient to redeem the Series A Preferred Shares and any shares of other
Parity Stock that are the subject of a notice of redemption, then the Series A
Preferred Shares and any shares of other Parity Stock shall be redeemed ratably
based on the aggregate redemption amount payable with respect to the shares of
Series A Preferred Stock and any shares of other Parity Stock then redeemable.
If a notice of redemption is given and the Corporation is
unable to redeem the shares of Series A Preferred Stock that are the subject of
such notice of redemption because funds therefor are not legally available to
the Corporation as described above, the obligation of the Corporation to redeem
such shares of Series A Preferred Stock shall continue until the Corporation
redeems such Series A Preferred Stock in accordance with this Section 4(d).
5. Liquidation. In the event of any voluntary or
involuntary dissolution, liquidation or winding up of the Corporation (for the
purposes of this Section 5, a "Liquidation"), before any distribution of assets
shall be made to the holders of any Junior Stock of the Corporation, the holder
of each Series A Preferred Share then outstanding shall be entitled to be paid
out of the assets of the Corporation available for distribution to its
shareholders, an amount equal to the amount set forth below plus all dividends
accumulated and unpaid on such Share on the date fixed for the distribution of
assets of the Corporation to the holders of Series A Preferred Stock:
(A) if the Liquidation occurs within 12 months of the
date of initial issuance of the Series A Preferred Shares, $104.50 per
share;
(B) if the Liquidation occurs after 12 months from but
within 24 months of the date of initial issuance of the Series A
Preferred Shares, $102.25 per share;
(C) if the Liquidation occurs after 24 months from but
within 36 months of the date of initial issuance of the Series A
Preferred Shares, $101.125 per share; and
(D) if the Liquidation occurs after 36 months from the
date of initial issuance of the Series A Preferred Shares, $100.00 per
share.
If upon any Liquidation of the Corporation, the assets
available for distribution to the holders of Series A Preferred Stock and any
Parity Stock issued by the Corporation which shall then be outstanding
(hereinafter in this paragraph called the "Total Amount Available") shall be
insufficient to pay the holders of all outstanding Series A Preferred Stock and
all such Parity Stock the full amounts (including all dividends accumulated and
unpaid) to which they shall be entitled by reason of such Liquidation of the
Corporation, then there shall be paid to the holders of the
13
<PAGE> 14
Series A Preferred Stock in connection with such Liquidation of the
Corporation, an amount equal to the product derived by multiplying the Total
Amount Available times a fraction, the numerator of which shall be the full
amount to which the holders of the Series A Preferred Stock shall be entitled
under the terms of the preceding paragraph by reason of such Liquidation of the
Corporation and the denominator of which shall be the total amount which would
have been distributed by reason of such Liquidation of the Corporation with
respect to the Series A Preferred Stock and all Parity Stock then outstanding
had the Corporation possessed sufficient assets to pay the maximum amount which
the holders of all such stock would be entitled to receive in connection with
such Liquidation of the Corporation.
The voluntary sale, conveyance, lease, exchange or transfer of
all or substantially all the property or assets of the Corporation (unless in
connection therewith the Liquidation of the Corporation is specifically
approved) or the share exchange with, or the merger or consolidation of the
Corporation into or with any other corporation, or the merger of any other
corporation into the Corporation, or any purchase or redemption of some or all
of the shares of any class or series of stock of the Corporation, shall not be
deemed to be a Liquidation of the Corporation for the purpose of this Section
5.
The holder of any Series A Preferred Shares shall not be
entitled to receive any payment owed for such Shares under this Section 5 until
such holder shall cause to be delivered to the Corporation at such reasonable
location in the United States as the Corporation may designate the
certificate(s) representing such Series A Preferred Shares and, if required by
the Corporation, duly endorsed to the Corporation or in blank or accompanied by
instruments of transfer to the Corporation or in blank. As in the case of the
Redemption Price, no interest shall accrue on any payment upon liquidation
after the due date thereof, provided that the Corporation has duly provided
therefor in Section 6 below.
After payment of the full amount of the liquidating
distribution, the Series A Preferred Stock will not entitle the holder thereof
to any further participation in any distribution of assets by the Corporation.
6. Payments. In the event a redemption is required
pursuant to Section 4 hereof and payment is not made with respect to the
required number of Series A Preferred Shares 90 days after the Redemption Date
or in the event of a liquidation occurs pursuant to Section 5 hereof and
payment is not made with respect to all Series A Preferred Shares 90 days after
the date fixed for distribution of assets of the Corporation, the Corporation
shall be obligated to deposit funds for the payment of the Redemption Price for
such Series A Preferred Shares pursuant to this Section 6. The Corporation
may, but shall not be obligated to, provide funds for any payment of the
Redemption Price for any Series A Preferred Shares prior to 90 days after the
Redemption Date or any amount distributable with respect to any Series A
Preferred Shares under Section 5 hereof prior to 90 days after the date fixed
for distribution of assets of the Corporation by depositing such funds pursuant
to this Section 6. The Corporation shall make any deposit of funds
contemplated by this Section 6 with a commercial bank or trust company selected
by the Corporation having a capital and surplus
14
<PAGE> 15
in excess of $100,000,000 and having its principal place of business in
Houston, Texas, Dallas, Texas or New York, New York, in trust for the benefit
of the holder of such Series A Preferred Shares under arrangements providing
for such funds to be invested, to the greatest extent possible, in securities
issued by the United States Department of Treasury and providing irrevocably
for payment upon delivery of certificate(s) representing such Series A
Preferred Shares and, if required by the Corporation, duly endorsed to the
Corporation or in blank and accompanied by instruments of transfer to the
Corporation. All interest and other income earned by any funds while they
shall be deposited as contemplated by this Section 6 shall be paid to holders
of Series A Preferred Shares receiving payments of funds deposited pursuant to
this Section 6, pro rata based on the number of Series A Preferred Shares then
entitled to receive payment of such funds.
Any payment which may be owed for the payment of the
Redemption Price for any Series A Preferred Shares pursuant to Section 4 or the
payment of any amount distributed with respect to any Series A Preferred Shares
under Section 5 shall be deemed to have been "paid or properly provided for"
upon the earlier to occur of: (i) the date upon which the funds sufficient to
make such payment shall be deposited in a manner contemplated by the preceding
paragraph or (ii) the date upon which a check payable to the person entitled to
receive such payment shall be delivered to such person or mailed to such person
at either the address of such person then appearing on the books of the
Corporation or such other address as the Corporation shall deem reasonable,
provided such check shall provide good funds when presented for payment, and
provided further that in the event any holder of Series A Preferred Shares is
entitled to receive over $3,000,000 as payment of the Redemption Price for such
Shares and such holder has requested payment by wire transfer and provided
payment instructions to the Corporation three days prior to the Redemption
Date, the Corporation shall make such payment by wire transfer in accordance
with such instruction.
7. Status of Reacquired Series A Preferred Shares.
Shares issued and reacquired by the Corporation (including Series A Preferred
Shares that have been redeemed) shall have the status of authorized and
unissued shares of Preferred Stock undesignated as to series, subject to later
issuance.
8. Preemptive Rights. The Series A Preferred Stock is
not entitled to any preemptive or subscription rights in respect of any
securities of the Corporation.
9. Ranking. The Series A Preferred Stock shall rank
senior to the common stock, par value $.01 per share, of the Corporation, and
all other series of the Corporation's Preferred Stock as to the payment of
dividends, as to payments upon redemption and as to the distribution of assets
upon liquidation, dissolution or winding up unless, after the approval under
Section 2(a) has been obtained, the terms of such other series provide
otherwise.
15
<PAGE> 16
10. Severability of Provisions. Whenever possible, each
provision hereof shall be interpreted in a manner as to be effective and valid
under applicable law, but if any provision hereof is held to be prohibited by
or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating or otherwise
adversely affecting the remaining provisions hereof.
IN WITNESS WHEREOF, this Statement of Resolution has been
executed by an officer of the Corporation, this 8th day of January, 1998.
CARRIZO OIL & GAS, INC.
By: /s/ S.P. JOHNSON IV
---------------------------------------
S. P. Johnson IV
President and Chief Executive Officer
16
<PAGE> 1
EXHIBIT 4.2
- --------------------------------------------------------------------------------
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. SUCH SECURITIES 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 SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO REQUIRED APPROVALS FOR TRANSFER,
CERTAIN OTHER RESTRICTIONS ON TRANSFER AND CERTAIN RESTRICTIONS ON THE ACTIONS
OF THE HOLDER, ALL OF WHICH RESTRICTIONS ARE BINDING ON TRANSFEREES. COPIES OF
THE AGREEMENT COVERING THE FOREGOING MATTERS AND RESTRICTING THE TRANSFER OF
SUCH SECURITIES MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE
HOLDER OF RECORD OF THE CERTIFICATE TO THE SECRETARY OF THE COMPANY AT THE
PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY.
- --------------------------------------------------------------------------------
CARRIZO OIL & GAS, INC.
Common Stock Purchase Warrant
Representing Right To Purchase Shares of
Common Stock
of
Carrizo Oil & Gas, Inc.
Certificate No. 1
FOR VALUE RECEIVED, CARRIZO OIL & GAS, INC., a Texas corporation (the
"Company"), hereby certifies that ENRON CAPITAL & TRADE RESOURCES CORP., a
Delaware corporation ("ECT"), is entitled, subject to the provisions of this
Warrant, to purchase from the Company, at any time or from time to time during
the Exercise Period (as hereinafter defined), the Warrant Shares (as
hereinafter defined) at a price per share equal to the Exercise Price (as
defined below). This Warrant (together with such other warrants as may be
issued in exchange, transfer or replacement of this Warrant, the "Warrants") is
issued to the Holder (as hereinafter defined) pursuant to the Stock Purchase
Agreement (as defined below) and entitles the Holder to purchase the Warrant
Shares and to exercise the other rights, powers and privileges hereinafter
provided.
-1-
<PAGE> 2
Section 1. DEFINITIONS. The following terms, as used herein,
have the following respective meanings:
"Closing Date" means January 8, 1998 or such other date as may be
agreed upon by the parties.
"Combined Warrant Shares" means the Warrant Shares combined with the
"Warrant Shares" (as defined under the JEDI II Warrant).
"Common Stock" means the Company's common stock, par value $.01 per
share.
"Company" is defined in the introductory paragraph of this Warrant.
"Date of Issuance" means January 8, 1998.
"Exercise Period" means the period of time between 12:01 a.m.
(Houston, Texas time) on January 8, 1999 and 5:00 p.m. (Houston, Texas time) on
January 8, 2005.
"Exercise Price" means an amount, per share, equal to $11.50. The
Exercise Price shall be subject to adjustment, as set forth in Section 4.
"Holder" means ECT and its permitted assignees.
"JEDI II Warrant" means the Warrant (certificate No. 2) issued to
Joint Energy Development Investments II Limited Partnership on the date hereof
which upon exercise entitles the holder thereof to purchase from the Company
750,000 shares of Common Stock.
"Market Value" of shares of Common Stock on any day means the average
of the high and low reported sales prices regular way of a share of Common
Stock on such day (if such day is a Trading Day, and if such day is not a
Trading Day, on the Trading Day immediately preceding such day) or in case no
such reported sale takes place on such Trading Day the average of the reported
closing bid and asked prices regular way of a share of Common Stock on such
Trading Day, in either case on the Nasdaq National Market, or if the shares of
Common Stock are not quoted on such Nasdaq National Market on such Trading Day,
the average of the high and low reported sales prices regular way on such
Trading Day of a share of Common Stock on the principal national securities
exchange on which the shares of Common Stock are listed, or if the shares of
Common Stock are not so listed, the average of the closing bid and asked prices
of a share of Common Stock in the over-the-counter market on such Trading Day
as furnished by any New York Stock Exchange member firm selected from time to
time by the Company, or if such closing bid and asked prices are not made
available by any such New York Stock Exchange member firm on such Trading Day,
the market value of a share of Common Stock as determined by nonbinding
negotiation, mediation and arbitration as contemplated in Section 10.12 of the
Stock Purchase Agreement provided that (a) the "Market Value" of any share of
Common Stock on any day prior to the "ex" date or any similar date for any
dividend or distribution paid or to be paid with respect to such Common Stock
shall be reduced by the fair market value of the per share amount of such
dividend or distribution as determined in good faith by the Board of Directors
of the Company and (b) the "Market Value" of
-2-
<PAGE> 3
any share of Common Stock on any day prior to (i) the effective date of any
subdivision (by stock split or otherwise) or combination (by reverse stock
split or otherwise) of outstanding shares of Common Stock or (ii) the "ex" date
or any similar date for any dividend or distribution with respect to such
shares of Common Stock in shares of Common Stock shall be appropriately
adjusted to reflect such subdivision, combination, dividend or distribution.
"Net Warrant Shares" is defined in paragraph 2(a) of this Warrant.
"Person" means any individual or individuals, a partnership, a
corporation, a company, a limited liability company, an association, a
joint-stock company, a trust, a joint venture, an unincorporated organization,
any other form of legal entity, or a governmental authority.
"Required Holders" means the holders of more than 50% of all Combined
Warrant Shares then outstanding (assuming the full exercise of all Warrants
plus the JEDI II Warrant).
"Stock Purchase Agreement" means the Stock Purchase Agreement, dated
as of January 8, 1998, between the Company, ECT and Joint Energy Development
Investments II Limited Partnership, as such agreement shall be modified,
amended and supplemented and in effect from time to time.
"Trading Day" means each weekday other than any day on which shares of
Common Stock are not traded on the Nasdaq National Market or in the
over-the-counter market.
"Warrants" is defined in the introductory paragraph of this Warrant.
"Warrant Shares" means the shares of Common Stock (or amount of other
property) equal to the number of shares of Common Stock, as adjusted from time
to time pursuant to the terms hereof, which would be received upon the exercise
of all or any portion of this Warrant, which is, at the date hereof, equal to
250,000 shares of Common Stock.
Section 2. EXERCISE OF WARRANT; CANCELLATIONS OF WARRANT.
(a) This Warrant may be exercised in whole or in part, at
any time or from time to time, during the Exercise Period. The Holder
shall have the right to exercise this Warrant by:
(i) presentation and surrender hereof to the
Company at its principal office at the address set forth in
Section 12, with the duly executed Purchase Form annexed
hereto as Exhibit A; and
(ii) either (at the option of the Holder):
(A) paying the Exercise Price (1) in
cash, (2) by certified or official bank check payable to the
order of the Company, or (3) by the surrender to the Company
of Series A Preferred Stock of the Company (each share thereof
being
-3-
<PAGE> 4
valued for purposes hereof as having a value equal to $100 per
share plus any accrued and unpaid dividends thereon), or
(B) exercising this Warrant for the
number of Net Warrant Shares to be determined as follows: Net
Warrant Shares = [WS x (SP-EP)]/SP (the "Net Warrant Shares").
"WS" is the number of Warrant Shares issuable upon exercise of
the Warrants in question. "SP" is the average of the Market
Value of the Common Stock during the 20 Trading-Day period
preceding the date of exercise. "EP" shall mean the Exercise
Price.
Upon exercise of this Warrant as aforesaid, the Company shall
as promptly as practicable, and in any event within 3 business days
thereafter, execute and deliver to the Holder a certificate or
certificates for the total number of Warrant Shares or Net Warrant
Shares for which this Warrant is being exercised, in such names and
denominations as requested in writing by the Holder. The Company
shall pay any and all documentary stamp or similar issue taxes payable
in respect of the issue of the Warrant Shares. If this Warrant is
exercised in part only, the Company shall, upon surrender of this
Warrant, execute and deliver a new Warrant evidencing the rights of
the Holder thereof to purchase the balance of the Warrant Shares
issuable hereunder. In the event that the Holder exercises the
Warrant pursuant to Section 2(a)(ii)(A), then it shall be a condition
of such exercise that the Holder deliver a certificate to the Company
in the form of Exhibit A.
(b) Notwithstanding the aforementioned rights of the
Holder, the Holder may also request from the Company and, upon consent
and approval of the Company (which consent and approval may be
withheld in the Company's sole discretion) and presentation and
surrender hereof to the Company at its principal office at the address
set forth in Section 12, receive a cash payment for the current value
of each Warrant (known as the In-the-Money Option). For the purposes
of this Section 2(b), the amount of the cash payment for each Warrant
surrendered shall be determined as described by the following formula:
Cash Payment = (SP-EP).
Section 3. EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT.
This Warrant is exchangeable, without expense, at the option of the
Holder, upon presentation and surrender hereof to the Company for other
Warrants of different denominations, entitling the Holder to purchase in the
aggregate the same number of Warrant Shares. The Holder of this Warrant shall
not be entitled to transfer or assign all or any portion of its interest in
(and rights under) this Warrant during the first two years following the
Closing Date providing however that the restriction on transfer contemplated in
this Section 3 shall not apply to any transfer between Holder and any affiliate
of Holder. After the expiration of two years from the Closing Date, subject to
the provisions of the Stock Purchase Agreement, the Holder of this Warrant
shall be entitled to transfer or assign all or any portion of its interest in
(and rights under) this Warrant to any Person or Persons without the consent or
approval of the Company. Subject to the foregoing, upon surrender of this
Warrant to the Company, with the Assignment Form annexed hereto as Exhibit B
duly executed, the Company shall, without charge, execute and deliver a new
Warrant or Warrants representing such portion of the Holder's interest as has
been assigned in the name of the assignee or assignees named
-4-
<PAGE> 5
in such Assignment Form and, if the Holder's entire interest is not being
assigned, in the name of the Holder, and this Warrant shall promptly be
canceled; provided, however, Holder shall use reasonable efforts in any
transfer of this Warrant to effectuate such transfer in a way to minimize or
avoid transfer taxes on such transfer. This Warrant may be divided or combined
with other Warrants that carry the same rights upon presentation hereof at the
office of the Company, together with a written notice specifying the names and
denominations in which new Warrants are to be issued and signed by the Holder
hereof. Upon receipt by the Company of evidence satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of reasonably satisfactory indemnification
(including, if required in the reasonable judgment of the Company, a statement
of net worth of such Holder that is at a level reasonably satisfactory to the
Company), and upon surrender and cancellation of this Warrant, if mutilated,
the Company shall execute and deliver a new Warrant of like tenor and date.
Section 4. ANTIDILUTION PROVISIONS. Each of the number of Warrant Shares
purchasable pursuant hereto and the Exercise Price shall be subject to
adjustment from time to time as provided in this Section 4.
(a) STOCK DIVIDENDS, SPLITS AND RECLASSIFICATIONS. In
case the Company shall at any time after the Date of Issuance (i) pay
a dividend of shares of Common Stock or make a distribution of shares
of Common Stock, (ii) subdivide its outstanding shares of Common Stock
into a larger number of shares of Common Stock, (iii) combine its
outstanding shares of Common Stock into a smaller number of shares of
Common Stock or (iv) issue any shares of its capital stock or
distribute other assets in a reclassification or reorganization of the
Common Stock (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing
entity), then (x) the securities purchasable pursuant hereto shall be
adjusted to the number of Warrant Shares and amount of any other
securities, cash or other property of the Company which the Holder
would have owned or would have been entitled to receive after the
happening of any of the events described above, had this Warrant been
exercised immediately prior to the happening of such event or any
record date with respect thereto, and (y) the Exercise Price shall be
adjusted to equal the Exercise Price immediately prior to the
adjustment multiplied by a fraction, (A) the numerator of which is the
number of Warrant Shares for which this Warrant is exercisable
immediately prior to the adjustment, and (B) the denominator of which
is the number of Warrant Shares for which this Warrant is exercisable
immediately after such adjustment. The adjustment made pursuant to
this Section 4(a) shall become effective immediately after the
effective date of the event creating such right of adjustment,
retroactive to the record date, if any, for such event. Any Warrant
Shares purchasable as a result of such adjustment shall not be issued
prior to the effective date of such event.
For the purpose of this Section 4(a) and Sections 4 (b) and
(c) below, the term "shares of Common Stock" means (i) the classes of
stock designated as the Common Stock of the Company as of the date
hereof, or (ii) any other class of stock resulting from successive
changes or reclassifications of such shares consisting solely of
changes in par value, or from par value to no par value, or from no
par value to par value. In the event that at any time, as a result of
an adjustment made pursuant to this Section 4(a), the Holder shall
become entitled to receive any securities of the Company other than
shares of Common Stock, thereafter the
-5-
<PAGE> 6
number of such other securities so receivable upon exercise of this
Warrant shall be subject to adjustment from time to time in a manner
and on terms as nearly equivalent as practicable to the provisions
with respect to the Warrant Shares contained in this Section 4.
(b) BELOW MARKET VALUE STOCK ISSUANCES. Except for
antidilution adjustments which are provided for under Sections 4(a) or
(c) hereof, in case the Company shall at any time after the Date of
Issuance issue or sell any shares of its Common Stock (or rights,
options, warrants or convertible securities containing the right to
subscribe or exchange for, convert into or purchase Common Stock
(collectively "Options")) for no consideration or for consideration
less than the average Market Value during the five Trading days
preceding such sale, except upon the sale of any securities of the
Company (i) in a public offering of such securities for cash that is
registered with the Securities and Exchange Commission; (ii) in a
private placement of securities in which there is a discount to
average Market Value during the 5 Trading days preceding such
placement with respect to such securities, to the extent such discount
is (A) attributable to the illiquidity of or restrictions on transfer
of such securities as determined in good faith by the Company's Board
of Directors and described in a resolution of the Board of Directors
provided to the Holder and (B) no more than 20% of average Market
Value during the 5 Trading days preceding such placement; (iii) in
connection with any stock option plan, stock purchase plan or any
other "employee benefit plan" as such term is defined in Section 3(3)
of ERISA including but not limited to, any employee benefit plan that
may be exempted from some or all of the provisions of ERISA, which
plan is for the benefit of employees, former employees, independent
contractors, consultants or agents of the Company; (iv) any merger,
share exchange, consolidation, liquidation or other business
combination approved by the requisite vote of the shareholders of the
Company; (v) any exercise of the Warrants; or (vi) the exercise of
Options for which an adjustment has already occurred under the
Warrants, then (x) the Exercise Price in effect immediately prior
thereto shall be adjusted to a price obtained by multiplying such
Exercise Price by a fraction, the numerator of which shall be the
number of shares of Common Stock outstanding on such date and issuable
pursuant to securities of the Company outstanding on such date that
are exercisable or exchangeable for or convertible into shares of
Common Stock plus the number of shares which the aggregate purchase
price of the total number of shares of Common Stock so sold or of the
Options so sold would purchase at such average Market Value during the
five Trading days preceding such sale and the denominator of which
shall be the number of shares of Common Stock outstanding on such date
and issuable pursuant to securities of the Company outstanding on such
date that are exercisable or exchangeable for or convertible into
shares of Common Stock plus the number of additional shares of Common
Stock so sold or issuable pursuant to the Options so sold, and (y) the
number of shares of Common Stock purchasable pursuant to this Warrant
shall be correspondingly increased by multiplying such number of
shares by a fraction, the numerator of which is the Exercise Price in
effect immediately prior to such adjustment and the denominator of
which is the new Exercise Price in effect immediately after such
adjustment. Any such adjustments shall become effective immediately
after the issuance of such shares of Common Stock so sold or the
issuance of such Options so sold. Upon the expiration of any Options
for which an adjustment was made under this Section 4(b) upon the sale
thereof, the Exercise Price, to the extent the Warrant has not then
been exercised, shall, upon such expiration, be readjusted and shall
thereafter be such as it would have been had it been
-6-
<PAGE> 7
originally adjusted (or had the original adjustment not been required,
as the case may be) on the basis of (i) the number of shares of Common
Stock, if any, actually issued or sold upon the exercise of such
Options, and (ii) the consideration actually received by the Company
upon such exercise plus the consideration, if any, actually received
by the Company for the issuance or sale of all such Options whether or
not exercised; provided, however, that no such readjustment shall have
the effect of increasing the Exercise Price or decreasing the number
of shares of Common Stock purchasable upon exercise of the Warrants by
an amount in excess of the amount of the adjustment initially made in
respect of the issuance or sale of such Options. If any Options for
which an adjustment was made under this Section 4(b) upon the sale
thereof by its terms provides, with the passage of time or otherwise,
for any increase or decrease in the amount of additional consideration
payable to the Company or increase or decrease in the number of shares
of Common Stock issuable upon such exercise or conversion or exchange
(by change of rate or otherwise) (other than in either case by action
of antidilution provisions), upon the occurrence of any such increase
or decrease, the Exercise Price shall be readjusted to reflect such
increase or decrease insofar as it affects rights of acquisition,
exchange or conversion which have not theretofore expired. In the
event of an issuance of Options, the determination of whether such
issuance is at less than Market Value shall be made at the time of the
issuance of such Options rather than at the time of the issuance of
the Common Stock underlying such Options.
(c) REORGANIZATION, MERGER, ETC. If any capital
reorganization, reclassification or similar transaction involving the
capital stock of the Company (except for other antidilution
adjustments which are provided for under Section 4(a)), any
consolidation, merger or business combination of the Company with
another corporation or the sale or conveyance of all or substantially
all of its assets to another corporation, shall be effected in such a
way that holders of the shares of Common Stock shall be entitled to
receive stock, securities or assets (including, without limitation,
cash) with respect to or in exchange for shares of the Common Stock,
then, prior to and as a condition of such reorganization,
reclassification, similar transaction, consolidation, merger, business
combination, sale or conveyance, lawful and adequate provision shall
be made whereby the Holder shall thereafter have the right to purchase
and receive upon the basis and upon the terms and conditions specified
in this Warrant and in lieu of the Warrant Shares immediately
theretofore, purchasable and receivable upon the exercise of this
Warrant, such shares of stock, securities or assets as may be issued
or payable with respect to or in exchange for a number of outstanding
Warrant Shares equal to the number of Warrant Shares immediately
theretofore purchasable and receivable upon the exercise of this
Warrant, had such reorganization, reclassification, similar
transaction, consolidation, merger, business combination, sale or
conveyance not taken place. The Company shall not effect any such
consolidation, merger, business combination, sale or conveyance unless
prior to or simultaneously with the consummation thereof the survivor
or successor corporation (if other than the Company) resulting from
such consolidation or merger or the corporation purchasing such assets
shall assume by written instrument executed and sent to the Holder,
the obligation to deliver to the Holder such shares of stock,
securities or assets as, in accordance with the foregoing provisions
of this Section 4(c), the Holder may be entitled to receive.
-7-
<PAGE> 8
(d) STATE ON WARRANT. Irrespective of any adjustments in
the Exercise Price or the number or kind of Warrant Shares, this
Warrant may continue to express the same price and number and kind of
shares as are stated in Section 1 hereof.
(e) EXCEPTION TO ADJUSTMENT. Anything herein to the
contrary notwithstanding, the Company shall not be required to make
any adjustment of the number of Warrant Shares issuable hereunder or
to the Exercise Price in the case of the issuance of the Warrants or
the issuance of shares of the Common Stock (or other securities) upon
exercise of the Warrants. No adjustment in the number of Warrant
Shares purchasable pursuant to the Warrant or to the Exercise Price
shall be required unless such adjustment would require an increase or
decrease of at least one percent of the Exercise Price or an increase
or decrease of at least one percent in the number of Warrant Shares
then purchasable upon the exercise of the Warrant or, if the Warrant
is not then exercisable, the number of Warrant Shares purchasable upon
the exercise of the Warrant on the first date thereafter that the
Warrant become exercisable; provided, however, that any adjustments
which by reason of this subsection (e) are not required to be made
immediately shall be carried forward and taken into account in any
subsequent adjustment.
(f) TREASURY SHARES. The number of shares of the Common
Stock outstanding at any time shall not include treasury shares or
shares owned or held by or for the account of the Company and the
disposition of any such shares shall be considered an issue or sale of
the Common Stock for the purposes of this Section 4.
(g) ADJUSTMENT NOTICES TO THE HOLDER. Upon any increase
or decrease in the number of Warrant Shares purchasable upon the
exercise of this Warrant or the Exercise Price the Company shall,
within 30 days thereafter, deliver written notice thereof to all
Holders, which notice shall state the increased or decreased number of
Warrant Shares purchasable upon the exercise of this Warrant and the
adjusted Exercise Price, setting forth in reasonable detail the method
of calculation and the facts upon which such calculations are based.
(h) COMPUTATION OF CONSIDERATION. For the purposes of
Section 4(b), the following shall be used to determine the
consideration received or deemed received by the Company in connection
with the issuance of shares of Common Stock or Options covered by
Section 4(b) (including in determining "consideration less than Market
Value" and "aggregate purchase price" as such terms are used therein):
(i) Irrespective of the accounting treatment of
such consideration, the consideration for the issuance of any
shares of Common Stock or Options,
(A) insofar as it consists of cash,
shall be computed at the gross amount of cash
received by the Company;
(B) insofar as it consists of property
(including securities) other than cash, shall be
computed as of the date immediately preceding such
issuance at the fair market value of such
consideration as determined in good
-8-
<PAGE> 9
faith by, and evidenced by a duly adopted resolution
of, the Board of Directors of the Company; and
(C) if shares of Common Stock or Options
are issued together with other stock or securities or
other assets of the Company for a consideration which
covers both, shall be the portion of such
consideration so received, computed as provided in
clauses (A) and (B) above, allocable to such shares
of Common Stock or Options all as determined in good
faith by, and evidenced by a duly adopted resolution
of, the Board of Directors of the Company.
(ii) Irrespective of the accounting treatment of
such consideration, Options covered by Section 4(b) shall be
deemed to have been issued for a consideration per share equal
to the quotient of
(A) the total amount, if any, received
and receivable by the Company as consideration for
the issuance of the Options in question, plus the
minimum aggregate amount of additional consideration
(as set forth in the instruments relating thereto,
without regard to any provision contained therein for
a subsequent adjustment of such consideration to
protect against dilution (except as specifically
provided in Section 4(b))) payable to the Company
upon the exercise, conversion or exchange in full of
such Options, divided by
(B) the maximum number of shares of
Common Stock (as set forth in the instruments
relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such
number to protect against dilution (except as
specifically provided in Section 4(b))) issuable upon
the exercise, conversion or exchange of such Options.
Section 5. NOTIFICATION BY THE COMPANY. In case at any time
while this Warrant remains outstanding:
(a) the Company shall declare any dividend or make any
distribution upon its Common Stock or any other class of its capital
stock for which the Warrant may be exercised; or
(b) the Company shall offer for subscription pro rata to
the holders of its Common Stock or any other class of its capital
stock any additional shares of stock of any class or any other
securities convertible into or exchangeable for shares of stock or any
rights or options to subscribe thereto; or
(c) the Board of Directors of the Company shall authorize
any capital reorganization, reclassification or similar transaction
involving the capital stock of the Company, or a sale or conveyance of
all or a substantial part of the assets of the Company, or a
consolidation, merger or business combination of the Company with
another Person; or
-9-
<PAGE> 10
(d) actions or proceedings shall be authorized or
commenced for a voluntary or involuntary dissolution, liquidation or
winding-up of the Company;
then, in any one or more of such cases, the Company shall give written notice
to the Holder, at the earliest time legally practicable (and not less than 7
days before any record date or other date set for definitive action) of the
date on which (i) the books of the Company shall close or a record shall be
taken for such dividend, distribution or subscription rights or options or (ii)
such reorganization, reclassification, sale, conveyance, consolidation, merger,
dissolution, liquidation or winding-up shall take place or be voted on by
shareholders of the Company, as the case may be. Such notice shall also
specify the date as of which the holders of the Common Stock of record shall
participate in said dividend, distribution, subscription rights or options or
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reorganization, reclassification, sale,
conveyance, consolidation, merger, dissolution, liquidating or winding-up, as
the case may be. If the action in question or the record date is subject to
the effectiveness of a registration statement under the Securities Act or to a
favorable vote of shareholders, the notice required by this Section 5 shall so
state.
Section 6. NO VOTING OR DIVIDEND RIGHTS; LIMITATIONS OF
LIABILITY. Prior to exercise, this Warrant will not entitle the Holder to any
rights as a shareholder of the Company including without limitation, voting
rights, the right to call meetings, consent or receive notices as a shareholder
in respect of any meeting all of which rights and duties expressly disclaimed
and waived by the Holder. No dividends are payable or will accrue on this
Warrant or the Warrant Shares until, and except to the extent that, this
Warrant is exercised. No provision hereof, in the absence of affirmative
action by the Holder to exercise this Warrant, and no enumeration herein of the
rights or privileges of the Holder, shall give rise to any liability of the
Holder for the purchase price of the Warrant Shares pursuant to the exercise
hereof.
Section 7. GOVERNMENTAL CONSENTS. In the event the Company
reasonably believes and informs the Holder in writing that the exercise of the
Warrant may cause a violation or conflict with any provision of, or require any
filing or unobtained consent, authorization or approval under, the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the rules and
regulations thereunder, then this Warrant shall not be exercised in whole or in
part until the Holder shall have delivered to the Company a written assurance
or a legal opinion reasonably satisfactory to the Company that such violation,
conflict or requirement shall not occur or be required.
Section 8. AMENDMENT AND WAIVER.
(a) No failure or delay of the Holder in exercising any
power or right hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of such right or power, or any
abandonment or discontinuance of steps to enforce such a right or
power, preclude any other or further exercise thereof or the exercise
of any other right or power. The rights and remedies of the Holder
are cumulative and not exclusive of any rights or remedies which it
would otherwise have. The provisions of this Warrant may be amended,
modified or waived with the written consent of the Company and the
Required Holders or, as to this Warrant only, with the written consent
of the Company and the then current Holder.
-10-
<PAGE> 11
(b) No notice or demand on the Company in any case shall
entitle the Company to any other or further notice or demand in
similar or other circumstances.
Section 9. NO FRACTIONAL WARRANT SHARES. The Company shall not
be required to issue stock certificates representing fractions of Warrant
Shares, but in respect of any fraction of a Warrant Share may, at its option,
either make a payment in cash based on the Market Value of the Common Stock on
the Trading Day immediately preceding the applicable date of exercise or
conversion of the Warrants or round the number of Warrant Shares issued up to
the nearest number of whole Warrant Shares, based upon the rounding convention
of rounding up to the nearest whole number any amount which is .5 or larger.
Section 10. QUOTATION ON NASDAQ. The Company shall have the
Warrant Shares listed for quotation on The Nasdaq National Market on or before
the date of the first anniversary of the Closing Date, and the Company will
file any and all agreements, forms and other documents, including, without
limitation, The Nasdaq National Market Notification Form for Listing of
Additional Shares and take all other action necessary for the listing of the
Warrant Shares on or before such anniversary date. Company shall maintain the
designation and quotation, or listing, of its Common Stock on the Nasdaq
National Market (or on the New York Stock Exchange or the American Stock
Exchange) until the later to occur of (i) the date on which none of the
Preferred Stock remains outstanding (as defined in the Stock Purchase
Agreement) and (ii) the date on which none of the Warrants, the JEDI II Warrant
or Combined Warrant Shares remain outstanding.
Section 11. RESERVATION OF WARRANT SHARES. The Company shall
authorize, reserve and keep available at all times, free from preemptive
rights, a sufficient number of Warrant Shares to satisfy the requirements of
this Warrant.
Section 12. NOTICES. Unless otherwise specified, whenever this
Warrant requires or permits any consent, approval, notice, request, or demand
from one party to another, that communication must be in writing (which may be
by telecopy) to be effective and is deemed to have been given (a) if by
telecopy, when transmitted to the appropriate telecopy number (and all
communications sent by telecopy must be confirmed promptly by telephone; but
any requirement in this parenthetical does not affect the date when the
telecopy is deemed to have been delivered), or (b) if by any other means,
including by internationally acceptable courier or hand delivery, when actually
delivered. Until changed by notice pursuant to this Warrant, coming into
effect 3 days after receipt of such notice, the address (and telecopy number)
for the Holder and the Company are:
If to Holder: Enron Capital & Trade Resources Corp.
1400 Smith Street
Houston, Texas 77002
Attn: Donna W. Lowry
Phone: (713) 853-1939
Facsimile: (713) 646-4039
-11-
<PAGE> 12
If to Company: Carrizo Oil & Gas, Inc.
14811 St. Mary's Lane, Suite 148
Houston, Texas 77079
Attn: S.P. Johnson IV
Phone: (281) 496-1352
Facsimile: (281) 496-0884
With copies to: Baker & Botts, L.L.P.
3000 One Shell Plaza
Houston, Texas 77002
Attn: Gene Oshman
Phone: (713) 229-1234
Facsimile: (713) 229-1522
Section 13. SECTION AND OTHER HEADINGS. The headings contained
in this Warrant are for reference purposes only and will not affect in any way
the meaning or interpretation of this Warrant.
Section 14. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
Section 15. BINDING EFFECT. The terms and provisions of this
Warrant shall inure to the benefit of the Holder and its successors and assigns
and shall be binding upon the Company and its successors and assigns,
including, without limitation, any Person succeeding to the Company by merger,
consolidation or acquisition of all or substantially all of the Company's
assets.
Section 16. COMPLIANCE WITH SECURITIES LAWS. By its acceptance
of this Warrant, the Holder recognizes and agrees that the transfer of both the
Warrants and the Warrant Shares are subject to restrictions on transfer
contained in the Stock Purchase Agreement and such restrictions are binding and
effective on the Holder and any purchaser, assignee, transferee or pledgee to
the same degree as if stated in their entirety herein.
Section 17. SHORT SELLING. By acceptance of this Warrant, the
Holder agrees that it will not create a "short position" in the Common Stock at
any time during the two (2) years following the Closing Date. For purposes
hereof, a "short position" shall be deemed to have been maintained or created
by Holder if Holder (i) enters into a "short sale" (as such term is defined in
Rule 3b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) or sells "short against the box" (as that term is generally understood),
(ii) purchases a put option to sell shares of Common Stock or (iii) enters into
a derivative or other similar transaction whereby Holder will be compensated
(or receive economic benefit) in the event of a decline in the price of Common
Stock; provided, however, that such term shall not include any short sales
effective at any time the Company (i) is in breach in any material respect of
any representation, warranty or covenant under any Basic Document (as defined
in the Stock Purchase Agreement) or (ii) has failed to redeem any Series A
Preferred Stock following a request for redemption.
-12-
<PAGE> 13
Section 18. INFORMATION. In connection with any exercise of the
Warrants pursuant to Section 2 hereof, the Company agrees to answer questions
on behalf of the Holder relating to and will otherwise discuss the terms and
conditions of the offering of the Warrant Shares and the other information set
forth in the SEC Documents and the Company's business, management and financial
affairs; further, the Company shall provide the Holder with all current SEC
Documents. The failure of the Company to comply with the preceding sentence
shall release the Holder from the requirement of making the representation in
clauses b(i) and (ii) of Exhibit A to this Warrant.
-13-
<PAGE> 14
IN WITNESS WHEREOF, the Company has executed this Warrant as of
January 8, 1998.
CARRIZO OIL & GAS, INC.
By: /s/ S.P. JOHNSON IV
--------------------------------
Name: S.P. Johnson IV
Title: President
-14-
<PAGE> 15
EXHIBIT A
TO
WARRANT
PURCHASE FORM
To Be Executed by the Holder
Desiring to Exercise a Warrant of
Carrizo Oil & Gas, Inc.
The undersigned holder hereby exercises the right to purchase ______
shares of Common Stock covered by the within Warrant, according to the
conditions thereof, and herewith makes payment in full of the Exercise Price of
such shares, in the amount of $_________. If the exercise hereof is made
pursuant to Section 2(a)(ii)(A) of the Warrant, the undersigned warrants to the
Company that (a) the undersigned holder (i) is acquiring the Securities and the
Warrant Shares for its own account and not with a view to the public resale of
all or any part thereof in any transaction which would constitute a
"distribution" within the meaning of the Securities Act and (ii) acknowledges
that the Securities and the Warrant Shares have not been registered under the
Securities Act and may be resold only if registered pursuant to the provisions
of the Securities Act or if an exemption from registration is available and (b)
that the undersigned holder (i) has received a copy of the SEC Documents (as
defined in the Stock Purchase Agreement) and has had a reasonable opportunity
to ask questions relating to and otherwise discuss the terms and conditions of
the offering of the Warrant Shares and the other information set forth in the
SEC Documents and the Company's business, management and financial affairs with
the Company's management, customers and other parties, and the undersigned
holder has received satisfactory responses to its inquiries; provided, however,
that the Company may not have released certain confidential information; (ii)
has relied solely upon the representations in the Basic Documents and in the
SEC documents in making the decision to invest in the Securities; and (iii) is
an "accredited investor" as such term is defined in SEC Regulation D.
Name of Holder:
--------------------------------
Signature:
----------------------
Title:
--------------------------
Address:
------------------------
--------------------------------
--------------------------------
Dated:
--------------------
-15-
<PAGE> 16
EXHIBIT B
TO
WARRANT
ASSIGNMENT FORM
To Be Executed by the Holder
Desiring to Transfer a Warrant of
Carrizo Oil & Gas, Inc.
FOR VALUE RECEIVED, the undersigned holder hereby sells, assigns and
transfers unto _______________________ the right to purchase _______ shares of
Common Stock covered by the within Warrant, and does hereby irrevocably
constitute and appoint __________________ Attorney to transfer the said Warrant
on the books of the Company (as defined in such Warrant), with full power of
substitution.
Name of Holder:
--------------------------------
Signature:
----------------------
Title:
--------------------------
Address:
------------------------
--------------------------------
--------------------------------
Dated:
--------------------
In the presence of
- --------------------------
NOTICE:
The signature to the foregoing Assignment Form must correspond to the name as
written upon the face of the within Warrant in every detail, without alteration
or enlargement or any change whatsoever.
-16-
<PAGE> 17
- --------------------------------------------------------------------------------
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. SUCH SECURITIES 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 SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO REQUIRED APPROVALS FOR TRANSFER,
CERTAIN OTHER RESTRICTIONS ON TRANSFER AND CERTAIN RESTRICTIONS ON THE ACTIONS
OF THE HOLDER, ALL OF WHICH RESTRICTIONS ARE BINDING ON TRANSFEREES. COPIES OF
THE AGREEMENT COVERING THE FOREGOING MATTERS AND RESTRICTING THE TRANSFER OF
SUCH SECURITIES MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE
HOLDER OF RECORD OF THE CERTIFICATE TO THE SECRETARY OF THE COMPANY AT THE
PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY.
- --------------------------------------------------------------------------------
CARRIZO OIL & GAS, INC.
Common Stock Purchase Warrant
Representing Right To Purchase Shares of
Common Stock
of
Carrizo Oil & Gas, Inc.
Certificate No. 2
FOR VALUE RECEIVED, CARRIZO OIL & GAS, INC., a Texas corporation (the
"Company"), hereby certifies that JOINT ENERGY DEVELOPMENT INVESTMENTS II
LIMITED PARTNERSHIP, a Delaware limited partnership ("JEDI II"), is entitled,
subject to the provisions of this Warrant, to purchase from the Company, at any
time or from time to time during the Exercise Period (as hereinafter defined),
the Warrant Shares (as hereinafter defined) at a price per share equal to the
Exercise Price (as defined below). This Warrant (together with such other
warrants as may be issued in exchange, transfer or replacement of this Warrant,
the "Warrants") is issued to the Holder (as hereinafter defined) pursuant to
the Stock Purchase Agreement (as defined below) and entitles the Holder to
purchase the Warrant Shares and to exercise the other rights, powers and
privileges hereinafter provided.
-1-
<PAGE> 18
Section 1. DEFINITIONS. The following terms, as used herein,
have the following respective meanings:
"Closing Date" means January 8, 1998 or such other date as may be
agreed upon by the parties.
"Combined Warrant Shares" means the Warrant Shares combined with the
"Warrant Shares" (as defined under the ECT Warrant).
"Common Stock" means the Company's common stock, par value $.01 per
share.
"Company" is defined in the introductory paragraph of this Warrant.
"Date of Issuance" means January 8, 1998.
"ECT Warrant" means the Warrant (certificate No. 1) issued to Enron
Capital & Trade Resources Corp. on the date hereof which upon exercise entitles
the holder thereof to purchase from the Company 250,000 shares of Common Stock.
"Exercise Period" means the period of time between 12:01 a.m.
(Houston, Texas time) on January 8, 1999 and 5:00 p.m. (Houston, Texas time) on
January 8, 2005.
"Exercise Price" means an amount, per share, equal to $11.50. The
Exercise Price shall be subject to adjustment, as set forth in Section 4.
"Holder" means JEDI II and its permitted assignees.
"Market Value" of shares of Common Stock on any day means the average
of the high and low reported sales prices regular way of a share of Common
Stock on such day (if such day is a Trading Day, and if such day is not a
Trading Day, on the Trading Day immediately preceding such day) or in case no
such reported sale takes place on such Trading Day the average of the reported
closing bid and asked prices regular way of a share of Common Stock on such
Trading Day, in either case on the Nasdaq National Market, or if the shares of
Common Stock are not quoted on such Nasdaq National Market on such Trading Day,
the average of the high and low reported sales prices regular way on such
Trading Day of a share of Common Stock on the principal national securities
exchange on which the shares of Common Stock are listed, or if the shares of
Common Stock are not so listed, the average of the closing bid and asked prices
of a share of Common Stock in the over-the-counter market on such Trading Day
as furnished by any New York Stock Exchange member firm selected from time to
time by the Company, or if such closing bid and asked prices are not made
available by any such New York Stock Exchange member firm on such Trading Day,
the market value of a share of Common Stock as determined by nonbinding
negotiation, mediation and arbitration as contemplated in Section 10.12 of the
Stock Purchase Agreement provided that (a) the "Market Value" of any share of
Common Stock on any day prior to the "ex" date or any similar date for any
dividend or distribution paid or to be paid with respect to such Common Stock
shall be reduced by the fair market value of the per share amount of such
dividend or distribution as
-2-
<PAGE> 19
determined in good faith by the Board of Directors of the Company and (b) the
"Market Value" of any share of Common Stock on any day prior to (i) the
effective date of any subdivision (by stock split or otherwise) or combination
(by reverse stock split or otherwise) of outstanding shares of Common Stock or
(ii) the "ex" date or any similar date for any dividend or distribution with
respect to such shares of Common Stock in shares of Common Stock shall be
appropriately adjusted to reflect such subdivision, combination, dividend or
distribution.
"Net Warrant Shares" is defined in paragraph 2(a) of this Warrant.
"Person" means any individual or individuals, a partnership, a
corporation, a company, a limited liability company, an association, a
joint-stock company, a trust, a joint venture, an unincorporated organization,
any other form of legal entity, or a governmental authority.
"Required Holders" means the holders of more than 50% of all Combined
Warrant Shares then outstanding (assuming the full exercise of all Warrants
plus the ECT Warrant).
"Stock Purchase Agreement" means the Stock Purchase Agreement, dated
as of January 8, 1998, between the Company, Enron Capital & Trade Resources
Corp. and JEDI II, as such agreement shall be modified, amended and
supplemented and in effect from time to time.
"Trading Day" means each weekday other than any day on which shares of
Common Stock are not traded on the Nasdaq National Market or in the
over-the-counter market.
"Warrants" is defined in the introductory paragraph of this Warrant.
"Warrant Shares" means the shares of Common Stock (or amount of other
property) equal to the number of shares of Common Stock, as adjusted from time
to time pursuant to the terms hereof, which would be received upon the exercise
of all or any portion of this Warrant, which is, at the date hereof, equal to
750,000 shares of Common Stock.
Section 2. EXERCISE OF WARRANT; CANCELLATIONS OF WARRANT.
(a) This Warrant may be exercised in whole or in part, at
any time or from time to time, during the Exercise Period. The Holder
shall have the right to exercise this Warrant by:
(i) presentation and surrender hereof to the
Company at its principal office at the address set forth in
Section 11, with the duly executed Purchase Form annexed
hereto as Exhibit A; and
(ii) either (at the option of the Holder):
(A) paying the Exercise Price (1) in
cash, (2) by certified or official bank check payable to the
order of the Company, or (3) by the surrender to the Company
of Series A Preferred Stock of the Company (each share thereof
being
-3-
<PAGE> 20
valued for purposes hereof as having a value equal to $100 per
share plus any accrued and unpaid dividends thereon), or
(B) exercising this Warrant for the
number of Net Warrant Shares to be determined as follows: Net
Warrant Shares = [WS x (SP-EP)]/SP (the "Net Warrant Shares").
"WS" is the number of Warrant Shares issuable upon exercise of
the Warrants in question. "SP" is the average of the Market
Value of the Common Stock during the 20 Trading-Day period
preceding the date of exercise. "EP" shall mean the Exercise
Price.
Upon exercise of this Warrant as aforesaid, the Company shall
as promptly as practicable, and in any event within 3 business days
thereafter, execute and deliver to the Holder a certificate or
certificates for the total number of Warrant Shares or Net Warrant
Shares for which this Warrant is being exercised, in such names and
denominations as requested in writing by the Holder. The Company
shall pay any and all documentary stamp or similar issue taxes payable
in respect of the issue of the Warrant Shares. If this Warrant is
exercised in part only, the Company shall, upon surrender of this
Warrant, execute and deliver a new Warrant evidencing the rights of
the Holder thereof to purchase the balance of the Warrant Shares
issuable hereunder. In the event that the Holder exercises the
Warrant pursuant to Section 2(a)(ii)(A), then it shall be a condition
of such exercise that the Holder deliver a certificate to the Company
in the form of Exhibit A.
(b) Notwithstanding the aforementioned rights of the
Holder, the Holder may also request from the Company and, upon consent
and approval of the Company (which consent and approval may be
withheld in the Company's sole discretion) and presentation and
surrender hereof to the Company at its principal office at the address
set forth in Section 12, receive a cash payment for the current value
of each Warrant (known as the In- the-Money Option). For the purposes
of this Section 2(b), the amount of the cash payment for each Warrant
surrendered shall be determined as described by the following formula:
Cash Payment = (SP-EP).
Section 3. EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT.
This Warrant is exchangeable, without expense, at the option of the
Holder, upon presentation and surrender hereof to the Company for other
Warrants of different denominations, entitling the Holder to purchase in the
aggregate the same number of Warrant Shares. The Holder of this Warrant shall
not be entitled to transfer or assign all or any portion of its interest in
(and rights under) this Warrant during the first two years following the
Closing Date providing however that the restriction on transfer contemplated in
this Section 3 shall not apply to any transfer between Holder and any affiliate
of Holder. After the expiration of two years from the Closing Date, subject to
the provisions of the Stock Purchase Agreement, the Holder of this Warrant
shall be entitled to transfer or assign all or any portion of its interest in
(and rights under) this Warrant to any Person or Persons without the consent or
approval of the Company. Subject to the foregoing, upon surrender of this
Warrant to the Company, with the Assignment Form annexed hereto as Exhibit B
duly executed, the Company shall, without charge, execute and deliver a new
Warrant or Warrants representing such portion of the Holder's interest as has
been assigned in the name of the assignee or assignees named
-4-
<PAGE> 21
in such Assignment Form and, if the Holder's entire interest is not being
assigned, in the name of the Holder, and this Warrant shall promptly be
canceled; provided, however, Holder shall use reasonable efforts in any
transfer of this Warrant to effectuate such transfer in a way to minimize or
avoid transfer taxes on such transfer. This Warrant may be divided or combined
with other Warrants that carry the same rights upon presentation hereof at the
office of the Company, together with a written notice specifying the names and
denominations in which new Warrants are to be issued and signed by the Holder
hereof. Upon receipt by the Company of evidence satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of reasonably satisfactory indemnification
(including, if required in the reasonable judgment of the Company, a statement
of net worth of such Holder that is at a level reasonably satisfactory to the
Company), and upon surrender and cancellation of this Warrant, if mutilated,
the Company shall execute and deliver a new Warrant of like tenor and date.
Section 4. ANTIDILUTION PROVISIONS. Each of the number of Warrant Shares
purchasable pursuant hereto and the Exercise Price shall be subject to
adjustment from time to time as provided in this Section 4.
(a) STOCK DIVIDENDS, SPLITS AND RECLASSIFICATIONS. In
case the Company shall at any time after the Date of Issuance (i) pay
a dividend of shares of Common Stock or make a distribution of shares
of Common Stock, (ii) subdivide its outstanding shares of Common Stock
into a larger number of shares of Common Stock, (iii) combine its
outstanding shares of Common Stock into a smaller number of shares of
Common Stock or (iv) issue any shares of its capital stock or
distribute other assets in a reclassification or reorganization of the
Common Stock (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing
entity), then (x) the securities purchasable pursuant hereto shall be
adjusted to the number of Warrant Shares and amount of any other
securities, cash or other property of the Company which the Holder
would have owned or would have been entitled to receive after the
happening of any of the events described above, had this Warrant been
exercised immediately prior to the happening of such event or any
record date with respect thereto, and (y) the Exercise Price shall be
adjusted to equal the Exercise Price immediately prior to the
adjustment multiplied by a fraction, (A) the numerator of which is the
number of Warrant Shares for which this Warrant is exercisable
immediately prior to the adjustment, and (B) the denominator of which
is the number of Warrant Shares for which this Warrant is exercisable
immediately after such adjustment. The adjustment made pursuant to
this Section 4(a) shall become effective immediately after the
effective date of the event creating such right of adjustment,
retroactive to the record date, if any, for such event. Any Warrant
Shares purchasable as a result of such adjustment shall not be issued
prior to the effective date of such event.
For the purpose of this Section 4(a) and Sections 4 (b) and
(c) below the term "shares of Common Stock" means (i) the classes of
stock designated as the Common Stock of the Company as of the date
hereof, or (ii) any other class of stock resulting from successive
changes or reclassifications of such shares consisting solely of
changes in par value, or from par value to no par value, or from no
par value to par value. In the event that at any time, as a result of
an adjustment made pursuant to this Section 4(a), the Holder shall
become entitled to receive any securities of the Company other than
shares of Common Stock, thereafter the
-5-
<PAGE> 22
number of such other securities so receivable upon exercise of this
Warrant shall be subject to adjustment from time to time in a manner
and on terms as nearly equivalent as practicable to the provisions
with respect to the Warrant Shares contained in this Section 4.
(b) BELOW MARKET VALUE STOCK ISSUANCES. Except for
antidilution adjustments which are provided for under Sections 4(a) or
(c) hereof, in case the Company shall at any time after the Date of
Issuance issue or sell any shares of its Common Stock (or rights,
options, warrants or convertible securities containing the right to
subscribe or exchange for, convert into or purchase Common Stock
(collectively "Options")) for no consideration or for consideration
less than the average Market Value during the five Trading days
preceding such sale, except upon the sale of any securities of the
Company (i) in a public offering of such securities for cash that is
registered with the Securities and Exchange Commission; (ii) in a
private placement of securities in which there is a discount to
average Market Value during the 5 Trading days preceding such
placement with respect to such securities, to the extent such discount
is (A) attributable to the illiquidity of or restrictions on transfer
of such securities as determined in good faith by the Company's Board
of Directors and described in a resolution of the Board of Directors
provided to the Holder and (B) no more than 20% of average Market
Value during the 5 Trading days preceding such placement; (iii) in
connection with any stock option plan, stock purchase plan or any
other "employee benefit plan" as such term is defined in Section 3(3)
of ERISA including but not limited to, any employee benefit plan that
may be exempted from some or all of the provisions of ERISA, which
plan is for the benefit of employees, former employees, independent
contractors, consultants or agents of the Company; (iv) any merger,
share exchange, consolidation, liquidation or other business
combination approved by the requisite vote of the shareholders of the
Company; (v) any exercise of the Warrants; or (vi) the exercise of
Options for which an adjustment has already occurred under the
Warrants, then (x) the Exercise Price in effect immediately prior
thereto shall be adjusted to a price obtained by multiplying such
Exercise Price by a fraction, the numerator of which shall be the
number of shares of Common Stock outstanding on such date and issuable
pursuant to securities of the Company outstanding on such date that
are exercisable or exchangeable for or convertible into shares of
Common Stock plus the number of shares which the aggregate purchase
price of the total number of shares of Common Stock so sold or of the
Options so sold would purchase at such average Market Value during the
five Trading days preceding such sale and the denominator of which
shall be the number of shares of Common Stock outstanding on such date
and issuable pursuant to securities of the Company outstanding on such
date that are exercisable or exchangeable for or convertible into
shares of Common Stock plus the number of additional shares of Common
Stock so sold or issuable pursuant to the Options so sold, and (y) the
number of shares of Common Stock purchasable pursuant to this Warrant
shall be correspondingly increased by multiplying such number of
shares by a fraction, the numerator of which is the Exercise Price in
effect immediately prior to such adjustment and the denominator of
which is the new Exercise Price in effect immediately after such
adjustment. Any such adjustments shall become effective immediately
after the issuance of such shares of Common Stock so sold or the
issuance of such Options so sold. Upon the expiration of any Options
for which an adjustment was made under this Section 4(b) upon the sale
thereof, the Exercise Price, to the extent the Warrant has not then
been exercised, shall, upon such expiration, be readjusted and shall
thereafter be such as it would have been had it been
-6-
<PAGE> 23
originally adjusted (or had the original adjustment not been required,
as the case may be) on the basis of (i) the number of shares of Common
Stock, if any, actually issued or sold upon the exercise of such
Options, and (ii) the consideration actually received by the Company
upon such exercise plus the consideration, if any, actually received
by the Company for the issuance or sale of all such Options whether or
not exercised; provided, however, that no such readjustment shall have
the effect of increasing the Exercise Price or decreasing the number
of shares of Common Stock purchasable upon exercise of the Warrants by
an amount in excess of the amount of the adjustment initially made in
respect of the issuance or sale of such Options. If any Options for
which an adjustment was made under this Section 4(b) upon the sale
thereof by its terms provides, with the passage of time or otherwise,
for any increase or decrease in the amount of additional consideration
payable to the Company or increase or decrease in the number of shares
of Common Stock issuable upon such exercise or conversion or exchange
(by change of rate or otherwise) (other than in either case by action
of antidilution provisions), upon the occurrence of any such increase
or decrease, the Exercise Price shall be readjusted to reflect such
increase or decrease insofar as it affects rights of acquisition,
exchange or conversion which have not theretofore expired. In the
event of an issuance of Options, the determination of whether such
issuance is at less than Market Value shall be made at the time of the
issuance of such Options rather than at the time of the issuance of
the Common Stock underlying such Options.
(c) REORGANIZATION, MERGER, ETC. If any capital
reorganization, reclassification or similar transaction involving the
capital stock of the Company (except for other antidilution
adjustments which are provided for under Section 4(a)), any
consolidation, merger or business combination of the Company with
another corporation or the sale or conveyance of all or substantially
all of its assets to another corporation, shall be effected in such a
way that holders of the shares of Common Stock shall be entitled to
receive stock, securities or assets (including, without limitation,
cash) with respect to or in exchange for shares of the Common Stock,
then, prior to and as a condition of such reorganization,
reclassification, similar transaction, consolidation, merger, business
combination, sale or conveyance, lawful and adequate provision shall
be made whereby the Holder shall thereafter have the right to purchase
and receive upon the basis and upon the terms and conditions specified
in this Warrant and in lieu of the Warrant Shares immediately
theretofore, purchasable and receivable upon the exercise of this
Warrant, such shares of stock, securities or assets as may be issued
or payable with respect to or in exchange for a number of outstanding
Warrant Shares equal to the number of Warrant Shares immediately
theretofore purchasable and receivable upon the exercise of this
Warrant, had such reorganization, reclassification, similar
transaction, consolidation, merger, business combination, sale or
conveyance not taken place. The Company shall not effect any such
consolidation, merger, business combination, sale or conveyance unless
prior to or simultaneously with the consummation thereof the survivor
or successor corporation (if other than the Company) resulting from
such consolidation or merger or the corporation purchasing such assets
shall assume by written instrument executed and sent to the Holder,
the obligation to deliver to the Holder such shares of stock,
securities or assets as, in accordance with the foregoing provisions
of this Section 4(c), the Holder may be entitled to receive.
-7-
<PAGE> 24
(d) STATE ON WARRANT. Irrespective of any adjustments in
the Exercise Price or the number or kind of Warrant Shares, this
Warrant may continue to express the same price and number and kind of
shares as are stated in Section 1 hereof.
(e) EXCEPTION TO ADJUSTMENT. Anything herein to the
contrary notwithstanding, the Company shall not be required to make
any adjustment of the number of Warrant Shares issuable hereunder or
to the Exercise Price in the case of the issuance of the Warrants or
the issuance of shares of the Common Stock (or other securities) upon
exercise of the Warrants. No adjustment in the number of Warrant
Shares purchasable pursuant to the Warrant or to the Exercise Price
shall be required unless such adjustment would require an increase or
decrease of at least one percent of the Exercise Price or an increase
or decrease of at least one percent in the number of Warrant Shares
then purchasable upon the exercise of the Warrant or, if the Warrant
is not then exercisable, the number of Warrant Shares purchasable upon
the exercise of the Warrant on the first date thereafter that the
Warrant become exercisable; provided, however, that any adjustments
which by reason of this subsection (e) are not required to be made
immediately shall be carried forward and taken into account in any
subsequent adjustment.
(f) TREASURY SHARES. The number of shares of the Common
Stock outstanding at any time shall not include treasury shares or
shares owned or held by or for the account of the Company and the
disposition of any such shares shall be considered an issue or sale of
the Common Stock for the purposes of this Section 4.
(g) ADJUSTMENT NOTICES TO THE HOLDER. Upon any increase
or decrease in the number of Warrant Shares purchasable upon the
exercise of this Warrant or the Exercise Price the Company shall,
within 30 days thereafter, deliver written notice thereof to all
Holders, which notice shall state the increased or decreased number of
Warrant Shares purchasable upon the exercise of this Warrant and the
adjusted Exercise Price, setting forth in reasonable detail the method
of calculation and the facts upon which such calculations are based.
(h) COMPUTATION OF CONSIDERATION. For the purposes of
Section 4(b), the following shall be used to determine the
consideration received or deemed received by the Company in connection
with the issuance of shares of Common Stock or Options covered by
Section 4(b) (including in determining "consideration less than Market
Value" and "aggregate purchase price" as such terms are used therein):
(i) Irrespective of the accounting treatment of
such consideration, the consideration for the issuance of any
shares of Common Stock or Options,
(A) insofar as it consists of cash,
shall be computed at the gross amount of cash
received by the Company;
(B) insofar as it consists of property
(including securities) other than cash, shall be
computed as of the date immediately preceding such
issuance at the fair market value of such
consideration as determined in good
-8-
<PAGE> 25
faith by, and evidenced by a duly adopted resolution
of, the Board of Directors of the Company; and
(C) if shares of Common Stock or Options
are issued together with other stock or securities or
other assets of the Company for a consideration which
covers both, shall be the portion of such
consideration so received, computed as provided in
clauses (A) and (B) above, allocable to such shares
of Common Stock or Options all as determined in good
faith by, and evidenced by a duly adopted resolution
of, the Board of Directors of the Company.
(ii) Irrespective of the accounting treatment of
such consideration, Options covered by Section 4(b) shall be
deemed to have been issued for a consideration per share equal
to the quotient of
(A) the total amount, if any, received
and receivable by the Company as consideration for
the issuance of the Options in question, plus the
minimum aggregate amount of additional consideration
(as set forth in the instruments relating thereto,
without regard to any provision contained therein for
a subsequent adjustment of such consideration to
protect against dilution (except as specifically
provided in Section 4(b))) payable to the Company
upon the exercise, conversion or exchange in full of
such Options, divided by
(B) the maximum number of shares of
Common Stock (as set forth in the instruments
relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such
number to protect against dilution (except as
specifically provided in Section 4(b))) issuable upon
the exercise, conversion or exchange of such Options.
Section 5. NOTIFICATION BY THE COMPANY. In case at any time
while this Warrant remains outstanding:
(a) the Company shall declare any dividend or make any
distribution upon its Common Stock or any other class of its capital
stock for which the Warrant may be exercised; or
(b) the Company shall offer for subscription pro rata to
the holders of its Common Stock or any other class of its capital
stock any additional shares of stock of any class or any other
securities convertible into or exchangeable for shares of stock or any
rights or options to subscribe thereto; or
(c) the Board of Directors of the Company shall authorize
any capital reorganization, reclassification or similar transaction
involving the capital stock of the Company, or a sale or conveyance of
all or a substantial part of the assets of the Company, or a
consolidation, merger or business combination of the Company with
another Person; or
-9-
<PAGE> 26
(d) actions or proceedings shall be authorized or
commenced for a voluntary or involuntary dissolution, liquidation or
winding-up of the Company;
then, in any one or more of such cases, the Company shall give written notice
to the Holder, at the earliest time legally practicable (and not less than 7
days before any record date or other date set for definitive action) of the
date on which (i) the books of the Company shall close or a record shall be
taken for such dividend, distribution or subscription rights or options or (ii)
such reorganization, reclassification, sale, conveyance, consolidation, merger,
dissolution, liquidation or winding-up shall take place or be voted on by
shareholders of the Company, as the case may be. Such notice shall also
specify the date as of which the holders of the Common Stock of record shall
participate in said dividend, distribution, subscription rights or options or
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reorganization, reclassification, sale,
conveyance, consolidation, merger, dissolution, liquidating or winding-up, as
the case may be. If the action in question or the record date is subject to
the effectiveness of a registration statement under the Securities Act or to a
favorable vote of shareholders, the notice required by this Section 5 shall so
state.
Section 6. NO VOTING OR DIVIDEND RIGHTS; LIMITATIONS OF
LIABILITY. Prior to exercise, this Warrant will not entitle the Holder to any
rights as a shareholder of the Company including without limitation, voting
rights, the right to call meetings, consent or receive notices as a shareholder
in respect of any meeting all of which rights and duties expressly disclaimed
and waived by the Holder. No dividends are payable or will accrue on this
Warrant or the Warrant Shares until, and except to the extent that, this
Warrant is exercised. No provision hereof, in the absence of affirmative
action by the Holder to exercise this Warrant, and no enumeration herein of the
rights or privileges of the Holder, shall give rise to any liability of the
Holder for the purchase price of the Warrant Shares pursuant to the exercise
hereof.
Section 7. GOVERNMENTAL CONSENTS. In the event the Company
reasonably believes and informs the Holder in writing that the exercise of the
Warrant may cause a violation or conflict with any provision of, or require any
filing or unobtained consent, authorization or approval under, the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the rules and
regulations thereunder, then this Warrant shall not be exercised in whole or in
part until the Holder shall have delivered to the Company a written assurance
or a legal opinion reasonably satisfactory to the Company that such violation,
conflict or requirement shall not occur or be required.
Section 8. AMENDMENT AND WAIVER.
(a) No failure or delay of the Holder in exercising any
power or right hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of such right or power, or any
abandonment or discontinuance of steps to enforce such a right or
power, preclude any other or further exercise thereof or the exercise
of any other right or power. The rights and remedies of the Holder
are cumulative and not exclusive of any rights or remedies which it
would otherwise have. The provisions of this Warrant may be amended,
modified or waived with the written consent of the Company and the
Required Holders or, as to this Warrant only, with the written consent
of the Company and the then current Holder.
-10-
<PAGE> 27
(b) No notice or demand on the Company in any case shall
entitle the Company to any other or further notice or demand in
similar or other circumstances.
Section 9. NO FRACTIONAL WARRANT SHARES. The Company shall not
be required to issue stock certificates representing fractions of Warrant
Shares, but in respect of any fraction of a Warrant Share may, at its option,
either make a payment in cash based on the Market Value of the Common Stock on
the Trading Day immediately preceding the applicable date of exercise or
conversion of the Warrants or round the number of Warrant Shares issued up to
the nearest number of whole Warrant Shares, based upon the rounding convention
of rounding up to the nearest whole number any amount which is .5 or larger.
Section 10. QUOTATION ON NASDAQ. The Company shall have the
Warrant Shares listed for quotation on The Nasdaq National Market on or before
the date of the first anniversary of the Closing Date, and the Company will
file any and all agreements, forms and other documents, including, without
limitation, The Nasdaq National Market Notification Form for Listing of
Additional Shares and take all other action necessary for the listing of the
Warrant Shares on or before such anniversary date. Company shall maintain the
designation and quotation, or listing, of its Common Stock on the Nasdaq
National Market (or on the New York Stock Exchange or the American Stock
Exchange) until the later to occur of (i) the date on which none of the
Preferred Stock remains outstanding (as defined in the Stock Purchase
Agreement) and (ii) the date on which none of the Warrants, the ECT Warrant or
Combined Warrant Shares remain outstanding.
Section 11. RESERVATION OF WARRANT SHARES. The Company shall
authorize, reserve and keep available at all times, free from preemptive
rights, a sufficient number of Warrant Shares to satisfy the requirements of
this Warrant.
Section 12. NOTICES. Unless otherwise specified, whenever this
Warrant requires or permits any consent, approval, notice, request, or demand
from one party to another, that communication must be in writing (which may be
by telecopy) to be effective and is deemed to have been given (a) if by
telecopy, when transmitted to the appropriate telecopy number (and all
communications sent by telecopy must be confirmed promptly by telephone; but
any requirement in this parenthetical does not affect the date when the
telecopy is deemed to have been delivered), or (b) if by any other means,
including by internationally acceptable courier or hand delivery, when actually
delivered. Until changed by notice pursuant to this Warrant, coming into
effect 3 days after receipt of such notice, the address (and telecopy number)
for the Holder and the Company are:
If to Holder: Joint Energy Development Investments II
Limited Partnership
1400 Smith Street
Houston, Texas 77002
Attn: Donna W. Lowry
Phone: (713) 853-1939
Facsimile: (713) 646-4039 or (713) 646-4946
-11-
<PAGE> 28
If to Company: Carrizo Oil & Gas, Inc.
14811 St. Mary's Lane, Suite 148
Houston, Texas 77079
Attn: S.P. Johnson IV
Phone: (281) 496-1352
Facsimile: (281) 496-0884
With copies to: Baker & Botts, L.L.P.
3000 One Shell Plaza
Houston, Texas 77002
Attn: Gene Oshman
Phone: (713) 229-1234
Facsimile: (713) 229-1522
Section 13. SECTION AND OTHER HEADINGS. The headings contained
in this Warrant are for reference purposes only and will not affect in any way
the meaning or interpretation of this Warrant.
Section 14. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
Section 15. BINDING EFFECT. The terms and provisions of this
Warrant shall inure to the benefit of the Holder and its successors and assigns
and shall be binding upon the Company and its successors and assigns,
including, without limitation, any Person succeeding to the Company by merger,
consolidation or acquisition of all or substantially all of the Company's
assets.
Section 16. COMPLIANCE WITH SECURITIES LAWS. By its acceptance
of this Warrant, the Holder recognizes and agrees that the transfer of both the
Warrants and the Warrant Shares are subject to restrictions on transfer
contained in the Stock Purchase Agreement and such restrictions are binding and
effective on the Holder and any purchaser, assignee, transferee or pledgee to
the same degree as if stated in their entirety herein.
Section 17. SHORT SELLING. By acceptance of this Warrant, the
Holder agrees that it will not create a "short position" in the Common Stock at
any time during the two (2) years following the Closing Date. For purposes
hereof, a "short position" shall be deemed to have been maintained or created
by Holder if Holder (i) enters into a "short sale" (as such term is defined in
Rule 3b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) or sells "short against the box" (as that term is generally understood),
(ii) purchases a put option to sell shares of Common Stock or (iii) enters into
a derivative or other similar transaction whereby Holder will be compensated
(or receive economic benefit) in the event of a decline in the price of Common
Stock; provided, however, that such term shall not include any short sales
effective at any time the Company (i) is in breach in any material respect of
any representation, warranty or covenant under any Basic Document (as defined
in the Stock Purchase Agreement) or (ii) has failed to redeem any Series A
Preferred Stock following a request for redemption.
-12-
<PAGE> 29
Section 18. INFORMATION. In connection with any exercise of the
Warrants pursuant to Section 2 hereof, the Company agrees to answer questions
on behalf of the Holder relating to and will otherwise discuss the terms and
conditions of the offering of the Warrant Shares and the other information set
forth in the SEC Documents and the Company's business, management and financial
affairs; further, the Company shall provide the Holder with all current SEC
Documents. The failure of the Company to comply with the preceding sentence
shall release the Holder from the requirement of making the representation in
clauses b(i) and (ii) of Exhibit A to this Warrant.
-13-
<PAGE> 30
IN WITNESS WHEREOF, the Company has executed this Warrant as of
January 8, 1998.
CARRIZO OIL & GAS, INC.
By: /s/ S.P. JOHNSON IV
-------------------------------
Name: S.P. Johnson IV
Title: President
-14-
<PAGE> 31
EXHIBIT A
TO
WARRANT
PURCHASE FORM
To Be Executed by the Holder
Desiring to Exercise a Warrant of
Carrizo Oil & Gas, Inc.
The undersigned holder hereby exercises the right to purchase ______
shares of Common Stock covered by the within Warrant, according to the
conditions thereof, and herewith makes payment in full of the Exercise Price of
such shares, in the amount of $_________. If the exercise hereof is made
pursuant to Section 2(a)(ii)(A) of the Warrant, the undersigned warrants to the
Company that (a) the undersigned holder (i) is acquiring the Securities and the
Warrant Shares for its own account and not with a view to the public resale of
all or any part thereof in any transaction which would constitute a
"distribution" within the meaning of the Securities Act and (ii) acknowledges
that the Securities and the Warrant Shares have not been registered under the
Securities Act and may be resold only if registered pursuant to the provisions
of the Securities Act or if an exemption from registration is available and (b)
that the undersigned holder (i) has received a copy of the SEC Documents (as
defined in the Stock Purchase Agreement) and has had a reasonable opportunity
to ask questions relating to and otherwise discuss the terms and conditions of
the offering of the Warrant Shares and the other information set forth in the
SEC Documents and the Company's business, management and financial affairs with
the Company's management, customers and other parties, and the undersigned
holder has received satisfactory responses to its inquiries; provided, however,
that the Company may not have released certain confidential information; (ii)
has relied solely upon the representations in the Basic Documents and in the
SEC documents in making the decision to invest in the Securities; and (iii) is
an "accredited investor" as such term is defined in SEC Regulation D.
Name of Holder:
----------------------------------
Signature:
------------------------
Title:
----------------------------
Address:
--------------------------
----------------------------------
----------------------------------
Dated:
------------------
-15-
<PAGE> 32
EXHIBIT B
TO
WARRANT
ASSIGNMENT FORM
To Be Executed by the Holder
Desiring to Transfer a Warrant of
Carrizo Oil & Gas, Inc.
FOR VALUE RECEIVED, the undersigned holder hereby sells, assigns and
transfers unto _______________________ the right to purchase _______ shares of
Common Stock covered by the within Warrant, and does hereby irrevocably
constitute and appoint __________________ Attorney to transfer the said Warrant
on the books of the Company (as defined in such Warrant), with full power of
substitution.
Name of Holder:
----------------------------------
Signature:
------------------------
Title:
----------------------------
Address:
--------------------------
----------------------------------
----------------------------------
Dated:
------------------
In the presence of
- -------------------------
NOTICE:
The signature to the foregoing Assignment Form must correspond to the name as
written upon the face of the within Warrant in every detail, without alteration
or enlargement or any change whatsoever.
-16-
<PAGE> 1
STOCK PURCHASE AGREEMENT
AMONG
CARRIZO OIL & GAS, INC.,
ENRON CAPITAL & TRADE RESOURCES CORP.
AND
JOINT ENERGY DEVELOPMENT
INVESTMENTS II LIMITED PARTNERSHIP
DATED
JANUARY 8, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I.
DEFINITIONS
1.1 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II.
SALE AND PURCHASE OF SHARES; CLOSING
2.1 SALE AND PURCHASE OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF ISSUER
3.1 CORPORATE EXISTENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.2 CORPORATE POWER AND AUTHORIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.3 BINDING OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.4 NO VIOLATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.5 CONSENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.6 SEC DOCUMENTS AND FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.7 RESERVE REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.8 NO MATERIAL ADVERSE EFFECT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.9 LIABILITIES; INDEBTEDNESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.10 LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.11 SPECIFIED CONTRACTS AND COMMITMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.12 TITLE TO PROPERTIES AND ASSETS; LEASES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.13 COMPLIANCE WITH THE LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.14 TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.15 EMPLOYEE BENEFIT MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.16 INVESTMENT COMPANY ACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.17 PUBLIC UTILITY HOLDING COMPANY ACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.18 NO RESTRICTIONS ON AFFILIATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.19 CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.20 SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.21 ENVIRONMENTAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.22 INTELLECTUAL PROPERTY AND OTHER INTANGIBLE ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.23 NO PUBLIC OFFER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.24 INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.25 CERTAIN TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.26 USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
3.27 PLUGGING AND ABANDONMENT OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.28 NO MATERIAL MISSTATEMENTS OR OMISSIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.29 FEES AND COMMISSIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.30 DISCLOSURE LETTER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF PURCHASERS
4.1 CORPORATE; PARTNERSHIP EXISTENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.2 CORPORATE; PARTNERSHIP POWER AND AUTHORIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.3 BINDING OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.4 NO VIOLATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.5 PURCHASE FOR INVESTMENT; EXPERIENCE, ILLIQUIDITY; ACCREDITED INVESTOR . . . . . . . . . . . . . . . 19
4.6 FEES AND COMMISSIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.7 INVESTIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.8 SHORT SELLING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.9 INVESTMENT COMPANY ACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.10 PUBLIC UTILITY HOLDING COMPANY ACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE V.
COVENANTS
5.1 OPERATION OF BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.2 ACCESS TO INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.3 USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.4 NO RESTRICTIONS ON AFFILIATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.5 CERTAIN PUBLIC UTILITY MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.6 CORPORATE EXISTENCE AND TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.7 COMPLIANCE WITH LAWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.8 PROVISION OF INFORMATION AND SEC REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.9 QUOTATION ON NASDAQ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.10 RESERVATION OF COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.11 MAJOR SHAREHOLDER RESTRICTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.12 NOTICE OF EVENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE VI.
CLOSING CONDITIONS
6.1 CONDITIONS TO OBLIGATION OF PURCHASERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.2 CONDITIONS TO OBLIGATION OF ISSUER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE VII.
REGISTRATION RIGHTS
7.1 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.2 PIGGYBACK REGISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.3 DEMAND REGISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.4 DELAY IN REGISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.5 DESIGNATION OF UNDERWRITER; UNDERWRITING AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.6 EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.7 INDEMNITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.8 OBLIGATIONS OF ISSUER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.9 ASSIGNMENT OF REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.10 LOCKUPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.11 SUBSEQUENT GRANTS OF REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.12 CERTAIN AGREEMENTS OF HOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.13 TERMINATION OF REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE VIII.
OTHER PROVISIONS
8.1 FEES AND COMMISSIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.2 BUSINESS OPPORTUNITY MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.3 CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.4 SURVIVAL; FAILURE TO CLOSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.5 RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE IX.
INDEMNIFICATION
9.1 ISSUER INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
9.2 PURCHASERS INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
9.3 PROCEDURES RELATING TO INDEMNIFICATION UNDER ARTICLE IX . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE X.
MISCELLANEOUS
10.1 AMENDMENTS; WAIVERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
10.2 SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
10.3 SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
10.4 DESCRIPTIVE HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
10.5 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
10.6 ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C>
10.7 EXECUTION IN COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
10.8 FURTHER COOPERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
10.9 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
10.10 NO WAIVER; REMEDIES CUMULATIVE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
10.11 EXHIBITS; AMENDMENT OF DISCLOSURE LETTER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
10.12 DISPUTE RESOLUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
</TABLE>
EXHIBITS
Exhibit A -Form of Statement of Resolution
Exhibit B -Form of Shareholders' Agreement
Exhibit C -Form of Warrant Certificate
Exhibit D -Disclosure Letter
iv
<PAGE> 6
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement") is made as of January 8,
1998, by and between Carrizo Oil & Gas, Inc., a Texas corporation ("Issuer"),
and Enron Capital & Trade Resources Corp., a Delaware corporation ("ECT"), and
Joint Energy Development Investments II Limited Partnership, a Delaware limited
partnership ("JEDI II") (ECT and JEDI II are hereinafter individually referred
to as a "Purchaser" and collectively as "Purchasers").
RECITALS
Issuer desires to issue and sell to Purchasers and Purchasers desire to
purchase, subject to the terms and conditions set forth herein , an aggregate
of (i) 300,000 shares of Preferred Stock (as herein defined) and (ii) 1,000,000
Warrants (as herein defined) exercisable for the purchase of 1,000,000 shares
of Common Stock (as herein defined).
Issuer has agreed to use all of the Proceeds (as hereinafter defined)
for the activities as described in Section 5.3.
AGREEMENTS
In consideration of the recitals and the mutual covenants herein contained
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE I.
DEFINITIONS
1.1 DEFINITIONS. In addition to the capitalized terms defined
elsewhere in this Agreement, the following capitalized terms shall have the
following respective meanings when used in this Agreement:
"AFFILIATE" as applied to any specified Person shall mean any
other Person directly or indirectly controlling, controlled by, or
under direct or indirect common control with, such specified Person.
The term "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 10% or more of the voting power (or in the case of a Person which
is not a corporation, 10% or more of the ownership interest,
beneficial or otherwise) of such Person or the power otherwise to
direct or cause the direction of the management and policies of that
Person, whether through voting, by contract or otherwise. For the
purpose of this paragraph, "voting power" of any Person means the
total number of votes which may be cast by the holders of the total
number of outstanding shares of equity of any class or classes of such
Person. For purposes of this Agreement (i) all executive officers and
directors of a Person shall be deemed to be Affiliates of such Person,
1
<PAGE> 7
and (ii) for avoidance of doubt, Enron Corp. and its Affiliates shall
be deemed to be Affiliates of Purchasers.
"BASIC DOCUMENTS" shall mean this Agreement, the Statement of
Resolution, the Shareholders' Agreement, the Letter Agreement and the
Warrant Certificate.
"BOARD OF DIRECTORS" shall mean the Board of Directors of
Issuer or any committee thereof duly authorized to act on behalf of
the Board of Directors.
"CAPITALIZED LEASE OBLIGATIONS" shall mean all payment
obligations arising under any lease of property which, in accordance
with GAAP, would be capitalized on Issuer's balance sheet or for which
the amount of the asset and liability thereunder as if so capitalized
should, in accordance with GAAP, be disclosed in a note to such
balance sheet.
"CAPITAL STOCK" of any Person shall mean any and all shares,
interests, participations or other equivalents (however designated)
of, or rights, warrants or options to purchase, corporate stock or any
other equity (however designated) of or in such Person.
"CHARTER" shall mean, for any Person, such Person's
certificate of incorporation, articles of incorporation, limited
partnership agreement or other organizational documents, as the case
may be, as the same may be amended.
"CLAIMS" shall have the meaning assigned to such term in
Section 9.1.
"CLOSING" shall have the meaning assigned to such term in
Section 2.2.
"CLOSING DATE" shall have the meaning assigned to such term in
Section 2.2.
"CODE" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and all rules and regulations promulgated
thereunder, and any successor statute.
"COMMISSION" shall have the meaning assigned to such term in
Section 3.6.
"COMMON STOCK" shall mean the common stock, par value $.01 per
share, of Issuer.
"COMMON STOCK EQUIVALENTS" shall mean rights, warrants, or
options to purchase shares of Capital Stock of Issuer, or any other
security convertible into or exchangeable for Capital Stock of the
Issuer.
"CONSOLIDATED" shall refer to the consolidation of financial
statements in accordance with GAAP.
"DEFENSIBLE TITLE" shall mean, with respect to the assets of
Issuer (i) the title of Issuer to such assets is free and clear of all
Liens of any kind whatsoever, and (ii) as to those wells for which a
"working interest" and a "net revenue interest" are set forth in
Section 3.12
2
<PAGE> 8
of the Disclosure Letter, Issuer is entitled to receive the percentage
of all hydrocarbons produced, saved and marketed from such wells in an
amount not less than the net revenue interest set forth therein,
without reduction, suspension or termination throughout the duration
of the productive life of such wells, and Issuer is obligated to bear
the percentage of costs and expenses related to the maintenance,
development and operation of such wells in an amount not greater than
the working interest set forth in such Section, without increase
throughout the productive life of such wells, except increases that
also result in a proportionate increase in net revenue interest and as
set forth in such Section.
"DISCLOSURE LETTER" shall mean that certain disclosure letter
of even date herewith delivered to Purchasers by Issuer relating to
Issuer's disclosures in connection with its representations and
warranties hereunder and attached hereto as Exhibit D.
"ENVIRONMENTAL LAWS" shall mean any and all Governmental
Requirements pertaining to health or the environment in effect in any
and all jurisdictions in which Issuer conducts business or at any time
has conducted business including without limitation, the Clean Air
Act, as amended, the Comprehensive Environmental, Response,
Compensation, and Liability Act of 1980 ("CERCLA"), as amended, the
Federal Water Pollution Control Act, as amended, the Occupational
Safety and Health Act of 1970, as amended, the Resource Conservation
and Recovery Act of 1976 ("RCRA"), as amended, the Safe Drinking Water
Act, as amended, the Toxic Substances Control Act, as amended, the
Superfund Amendments and Reauthorization Act of 1986, as amended, the
Hazardous and Solid Waste Amendments Act of 1984, as amended, the
Hazardous Materials Transportation Act, as amended, the Outer
Continental Shelf Lands Act, as amended, the Coastal Zone Management
Act, as amended, and other environmental conservation or protection
laws. The terms "hazardous substance" and "release" (or "threatened
release") have the meanings specified in CERCLA, and the terms "solid
waste" and "disposal" (or "disposed") have the meanings specified in
RCRA; provided, however, that to the extent the laws of the state in
which any property or operation is located has established a meaning
for "hazardous substance," "release," "solid waste" or "disposal"
which is broader than that specified in either CERCLA or RCRA, such
broader meaning shall apply.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time.
"ERISA AFFILIATE" shall have the meaning assigned to such term
in Section 3.15.
"EXCHANGE ACT" shall have the meaning assigned to such term in
Section 3.6.
"FEE LETTER" shall mean that certain letter agreement of even
date herewith regarding Issuer's agreement to pay a structuring fee to
ECT Securities Corp.
"GAAP" shall mean generally accepted accounting principles
(including principles of consolidation), in the United States in
effect from time to time, consistently applied.
3
<PAGE> 9
"GOVERNMENTAL AUTHORITY" shall mean any foreign or domestic
federal, state, county, municipal, or other governmental or regulatory
authority, agency, board, body, commission, instrumentality, court, or
any political subdivision thereof.
"GOVERNMENTAL REQUIREMENT" shall mean any law, statute, code,
ordinance, order, rule, regulation, judgment, decree, injunction,
franchise, permit, certificate, license, authorization, determination
or other direction or requirement (including but not limited to any of
the foregoing which relate to Environmental Laws, energy regulations
and occupational, safety and health standards or controls) of any
Governmental Authority.
"INDEBTEDNESS" shall mean, with respect to any Person, the
principal of, premium, if any, and interest on: (a) indebtedness for
money borrowed from others whether or not evidenced by notes, bonds,
debentures or otherwise; (b) indebtedness of another Person
guaranteed, directly or indirectly, in any manner by such Person,
including, without limitation, through an agreement, contingent or
otherwise, (i) to purchase or pay any such indebtedness, (ii) to
advance or supply funds for the purchase or payment of such
indebtedness, (iii) to purchase and pay for property if not delivered
or pay for services if not performed, primarily for the purpose of
enabling such other Person to make payment of such indebtedness or to
assure the owners of the indebtedness against loss, or (iv) to
maintain working capital, equity capital or other financial condition
of such other Person so as to enable it to pay such indebtedness; (c)
all indebtedness secured by any Lien upon property owned by such
Person, even though such Person has not in any manner become liable
for the payment of such indebtedness; (d) all indebtedness of such
Person created or arising under any conditional sale, lease (intended
primarily as a financing device) or other title retention or security
agreement with respect to property acquired by such Person even though
the rights and remedies of such Persons, lessor or lender under such
agreement or lease in the event of default may be limited to
repossession or sale of such property; (e) all obligations of such
Person issued or assumed for the deferred purchase price of property
or services, including all trade credit; (f) Capitalized Lease
Obligations and the present value of all future lease payments under a
lease other than Capitalized Lease Obligations; (g) all unfunded
post-retirement and post-employment benefits including, without
limitation, unfunded pension liabilities to the extent required to be
reflected on such Person's balance sheet in accordance with GAAP; (h)
mandatory redemption or mandatory dividend rights on ordinary shares
(or other equity); (i) obligations of discontinued businesses that are
subsumed within the single-sum amount of the net assets of the
discontinued operations being held for sale, and (j) all obligations
of such Person under or with respect to letters of credit.
"INTERIM BALANCE SHEET" shall have the meaning assigned to
such term in Section 3.6.
"INTERMEDIARY" shall have the meaning assigned to such term in
Section 8.1.
"LETTER AGREEMENT" shall mean that certain Letter Agreement of
even date herewith between ECT and Issuer.
4
<PAGE> 10
"LIEN" shall mean, with respect to any Person, any mortgage,
deed of trust, lien, security interest, pledge, lease, conditional
sale contract, claim, charge, easement, right of way, assessment,
restriction and other encumbrance of every kind.
"MATERIAL ADVERSE EFFECT" shall mean, with respect to a
Person, any change or event that, individually or in the aggregate,
would or could reasonably be expected to have a material adverse
effect on (a) the assets, liabilities, condition (financial or
otherwise), business, results of operations or prospects of such
Person and its Subsidiaries on a Consolidated basis, (b) the ability
of such Person to perform its obligations on a timely basis or to
carry on its business as it exists on the date of this Agreement or
proposed at the date of this Agreement to be conducted or (c) the
consummation of the transactions contemplated hereby; provided,
however, that any change or event resulting from (i) changes in the
price of oil, gas, natural gas liquids or other hydrocarbon products,
or (ii) changes in general economic conditions shall not constitute a
Material Adverse Effect.
"PERMITS" shall mean all licenses, permits, exceptions,
franchises, accreditations, privileges, rights, variances, waivers,
approvals and other authorizations (including, without limitation,
those relating to environmental matters) of, by or from Governmental
Authorities necessary for the conduct of the business of Issuer and
its Subsidiaries as currently conducted and as proposed to be
conducted by Issuer and its Subsidiaries after the Closing.
"PERMITTED ASSIGNS" shall mean any Affiliate of ECT or JEDI II
and any Person to whom any Purchaser has transferred an interest in
the Securities, the Warrant Shares and the Basic Documents pursuant to
Section 10.2 hereof, subject to the limitations upon transfer of the
Warrants set forth in the Warrant Certificate.
"PERSON" shall mean an individual or individuals, a
partnership, a corporation, a company, a limited liability company, an
association, a joint stock company, a trust, a joint venture, an
unincorporated organization, any other form of legal entity, or a
Governmental Authority.
"PLAN" shall have the meaning assigned to such term in Section
3.15(a)(i).
"PREFERRED STOCK" shall mean the 9% Series A Preferred Stock,
par value $0.01, having the relative rights, preferences, privileges
and limitations set forth in the Statement of Resolution.
"PROCEEDS" shall mean $30,000,000.
"RESTRICTED SECURITIES" shall mean the Securities and Warrant
Shares of the Company required to bear the legend set forth in Section
8.5 hereof.
"SEC DOCUMENTS" shall have the meaning assigned to such term
in Section 3.6.
"SECURITIES" shall mean collectively the Shares and the
Warrants.
5
<PAGE> 11
"SECURITIES ACT" shall have the meaning assigned to such term
in Section 3.6.
"SHAREHOLDERS' AGREEMENT" shall mean that certain
Shareholders' Agreement attached hereto as Exhibit B.
"SHARES" shall have the meaning assigned to such term in
Section 2.1.
"STATEMENT OF RESOLUTION" shall mean the Statement of
Resolution relating to the Preferred Stock, a form of which is
attached hereto as Exhibit A.
"SUBSIDIARY" shall mean, as to any Person ("Owning Person"),
any Person of which Owning Person or one or more of its Subsidiaries
or Owning Person and one or more of its Subsidiaries owns sufficient
equity or voting interests to enable it or them (as a group)
ordinarily, in the absence of contingencies, to elect a majority of
the directors (or Persons performing similar functions) of such
entity, and any Person if more than a 50% interest in the profits or
capital thereof is owned by Owning Person or one or more of its
Subsidiaries or Owning Person and one or more of its Subsidiaries.
"THIRD PARTY CLAIM" shall mean a Claim that is not a Claim by
Issuer, Purchasers for their own losses.
"WARRANTS" shall mean the warrants which are exercisable into
Common Stock having the relative rights, preferences, privileges and
limitations set forth in the Warrant Certificate attached hereto as
Exhibit C.
"WARRANT CERTIFICATE" shall mean those certain Warrant
Certificates in the form thereof attached hereto as Exhibit C dated of
even date herewith in favor of each of the Purchasers, respectively.
"WARRANT SHARES" shall mean shares of Common Stock or other
securities issuable upon exercise of the Warrants.
ARTICLE II.
SALE AND PURCHASE OF SHARES; CLOSING
2.1 SALE AND PURCHASE OF SHARES. Subject to the satisfaction of
the terms and conditions herein set forth and in reliance upon the respective
representations, warranties, and covenants of the parties set forth herein or
in any document delivered pursuant hereto, at the Closing Issuer agrees to sell
and deliver to Purchasers, and Purchasers respectively agree to purchase and
accept, (a) 75,000 shares of Preferred Stock by ECT, (b) 225,000 shares of
Preferred Stock by JEDI II, (c) one Warrant Certificate to ECT representing
Warrants to purchase 250,000 Warrant Shares and (d) one Warrant Certificate to
JEDI II representing Warrants to purchase 750,000 Warrant Shares. The shares
of Preferred Stock to be acquired by Purchasers hereunder are hereinafter
referred to as the "Shares."
6
<PAGE> 12
2.2 CLOSING. The closing of the sale and purchase of the
Securities (the "Closing") will occur at 9:30 p.m. on January 8, 1998, or on
such other date as may be agreed by the parties, at the offices of Vinson &
Elkins L.L.P. (the "Closing Date").
2.3 DELIVERY. Delivery of the Securities pursuant to this
Agreement shall be made at the Closing by Issuer delivering against payment
therefor as provided below, (a) one certificate to ECT representing 75,000
Shares, (b) one certificate to JEDI II representing 225,000 Shares, (c) one
certificate to ECT representing Warrants to purchase 250,000 Warrant Shares and
(d) one certificate to JEDI II representing Warrants to purchase 750,000
Warrant Shares, each registered in the name of the respective Purchaser.
2.4 PAYMENT. Payment in the amount of $30,000,000 for the
Securities shall be made by a wire transfer of $7,500,000 from ECT and a wire
transfer of $22,500,000 from JEDI II, both in immediately available funds to an
account of Issuer at a commercial bank, which account shall have been
designated by Issuer at least two business days prior to the Closing Date.
2.5 WARRANT VALUATION. Issuer shall provide Purchasers with a
resolution of the Board of Directors of Issuer setting forth the value of the
Warrants as determined by the Board of Directors. The Issuer and the
Purchasers hereby agree with such valuation for federal income tax purposes and
further agree not to take a position contrary to such valuation.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF ISSUER
Issuer represents and warrants to Purchasers as follows:
3.1 CORPORATE EXISTENCE. Issuer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Texas.
Issuer has all necessary power and authority to conduct its business as it is
now being conducted and to own, operate and lease the properties and assets it
currently owns, operates and holds under lease. Issuer is duly qualified to do
business and is in good standing in each jurisdiction in which the nature of
its business activities or its ownership or leasing of property makes such
qualification necessary. On or before the date hereof Issuer has delivered or
made available to Purchasers true and complete copies of Issuer's Charter and
bylaws, together with all amendments thereto. Except for the Statement of
Resolution, no other amendment to Issuer's Charter has been approved by the
Board of Directors or shareholders of Issuer or filed with the Secretary of
State of the State of Texas.
3.2 CORPORATE POWER AND AUTHORIZATION. Issuer has all requisite
power and authority to issue the Securities and the Warrant Shares and to
execute, deliver, and perform the Basic Documents, and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of
the Basic Documents and the consummation of the transactions to be performed by
Issuer have been duly and validly authorized by all necessary action on the
part of the Board of Directors, and no other corporate proceedings are
necessary to authorize the execution and delivery
7
<PAGE> 13
of this Agreement by Issuer or to consummate the transactions to be performed
by Issuer, other than filing the Statement of Resolution with the Secretary of
State of the State of Texas on or prior to the Closing on the Closing Date.
3.3 BINDING OBLIGATIONS. Each of the Basic Documents when
executed and delivered by Issuer, shall constitute a legal, valid and binding
obligation of Issuer enforceable in accordance with their terms, except insofar
as the enforceability thereof may be limited (i) by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and (ii) by general principles of
equity and public policy (regardless of whether considered at law or in
equity). When issued and delivered to Purchasers at the Closing upon payment
therefor as provided in this Agreement, the Shares will be duly authorized,
validly issued, fully paid and nonassessable and free and clear of any liens.
3.4 NO VIOLATION. The execution and delivery by Issuer of the
Basic Documents, the consummation of the transactions provided for therein and
contemplated thereby, and the fulfillment by Issuer of the terms thereof, will
not (a) conflict with or result in a breach of any provision of the Charter or
bylaws of Issuer, (b) result in any default or in any material modification of
the terms of any Indebtedness, material contract or agreement, of Issuer or the
creation of any Lien upon any of the properties or assets owned by Issuer, or
(c) violate any Governmental Requirement or Permit applicable to Issuer or any
of its Subsidiaries.
3.5 CONSENTS. All consents, approvals, qualifications, orders or
authorizations of, or filings with, any Governmental Authority, and all
consents under any material contracts, agreements, or instruments by which
Issuer is bound or to which it is subject, and required in connection with
Issuer's valid execution, delivery, or performance of this Agreement, and the
consummation of the transactions contemplated hereby, has been obtained or
made except for the filing of the Statement of Resolutions with the Secretary
of State of the State of Texas and the filing of a Form D with the Securities
and Exchange Commission.
3.6 SEC DOCUMENTS AND FINANCIAL STATEMENTS. (a) Issuer has
timely filed with the United States Securities and Exchange Commission (the
"Commission") all forms, reports, schedules, statements and other documents
required to be filed by it since August 5, 1997 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), or the Securities Act of 1933, as
amended (the "Securities Act") (such documents, as supplemented and amended
since the time of filing, collectively, the "SEC Documents"). The SEC
Documents, including, without limitation, any financial statements or schedules
included therein, at the time filed (and, in the case of registration
statements, on the dates of effectiveness) (a) did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading, and (b)
complied in all material respects with the applicable requirements of the
Exchange Act and the Securities Act, as the case may be. The financial
statements of Issuer included in the SEC Documents at the time filed (and, in
the case of registration statements, on the dates of effectiveness) complied as
to form in all material respects with applicable accounting requirements and
with the published rules and regulations of the Commission with respect
thereto, were prepared in accordance with GAAP applied on a consistent basis
during the periods involved (except as may
8
<PAGE> 14
be indicated in the notes thereto or, in the case of unaudited statements, as
permitted by Form 10-Q of the Commission), and fairly present (subject in the
case of unaudited statements to normal, recurring audit adjustments) the
combined financial position of Issuer, as of the dates thereof and the combined
results of operations and cash flows for the periods then ended. The combined
balance sheet for Issuer included in its quarterly report on Form 10-Q for the
fiscal quarter ended September 30, 1997 is referred to herein as the "Interim
Balance Sheet".
3.7 RESERVE REPORT. Issuer has delivered to the Purchasers a copy
of the reserve report dated as of March 31, 1997 prepared by Ryder Scott
Company Petroleum Engineers and Fairchild, Ancell & Well, Inc. (the "Petroleum
Engineers"), respectively, (the "Reports"), relating to the oil and gas
reserves attributable to properties owned to which Issuer has rights under
lease or farmout or other written agreement by Issuer. To the knowledge of
Issuer, the estimates of reserves in the Reports were prepared in accordance
with standard geological and engineering methods generally accepted in the oil
and gas industry. The estimates of the lease operating expenses in the
Reports reasonably reflect the historical experience of Issuer and Issuer has
no reason to believe that the estimates will not reflect future lease operating
expenses and the historical factual information supplied by Issuer to the
independent engineering firm in connection with the preparation of the Reports
was, at the time of delivery to such firm, true and complete in all material
respects.
3.8 NO MATERIAL ADVERSE EFFECT. Since September 30, 1997, there
has been no Material Adverse Effect with respect to Issuer nor any acquisition
or disposition of any material asset by Issuer or any contract or arrangement
therefor, otherwise than for fair value in the ordinary course of business.
3.9 LIABILITIES; INDEBTEDNESS. Except for liabilities incurred in
the ordinary course of business and that would not, individually or in the
aggregate, have a Material Adverse Effect, Issuer does not have any
liabilities, direct or contingent (including but not limited to liability with
respect to any Plan or, to Issuer's knowledge, any Environmental Law) other
than those provided for in the Interim Balance Sheet or disclosed in Section
3.9 of the Disclosure Letter. Except as would not have a Material Adverse
Effect or as disclosed on the Interim Balance Sheet or in the audited financial
statements of the Issuer or as incurred in the ordinary course of business,
Issuer has no Indebtedness other than the Indebtedness disclosed in Section 3.9
of the Disclosure Letter.
3.10 LITIGATION. Except as disclosed in Section 3.10 of the
Disclosure Letter, there is no action, suit or proceeding, or any governmental
investigation or any arbitration, in each case pending or, to the knowledge of
Issuer, threatened against Issuer or any material property of Issuer before any
Governmental Authority (i) which challenges the legality, enforceability or
validity of the Basic Documents, or (ii) which, if adversely determined, would
have a Material Adverse Effect or impair the ability or obligation of Issuer to
perform fully on a timely basis any obligations which it has or will have under
the Basic Documents.
3.11 SPECIFIED CONTRACTS AND COMMITMENTS. (a) Except as set forth
in Section 3.11 of the Disclosure Letter and except for the Basic Documents to
be entered into pursuant to or in connection with this Agreement, Issuer has no
(i) employment or consulting contract involving annual payments by Issuer in
excess of $125,000 and not cancelable without liability on sixty days'
9
<PAGE> 15
notice or less; (ii) capital redemption or purchase agreements; (iii)
agreements providing for the indemnification of other parties for such parties'
negligence or other fault (except for such obligations incurred in the ordinary
course of business as an owner or operator of oil and gas properties, including
obligations under master service agreements, drilling contracts and similar
agreements) or the sharing of the tax liability of other parties; (iv)
collective bargaining agreements; (v) gas sales or purchase contract, gas
marketing agreement or transportation agreement under which Issuer is the
seller, which agreement is not terminable without penalty on thirty days'
notice or less, and which provides for a price less than fair market value;
(vi) agreement for capital expenditures, the acquisition of commodities,
equipment or material or the construction of fixed assets which individually
are expected to require aggregate future payments by Issuer in excess of
$750,000 and all which in the aggregate would be expected to require future
payments in excess of $2,500,000; (vii) agreement for, or that contemplates,
the sale of any interest in oil or gas leases which involves payment (including
property received in exchange or other non-cash consideration) to Issuer in
excess of $1,000,000 in the aggregate; (viii) agreement which requires future
payments by Issuer in excess of $400,000 (and not included in clauses (vi) or
(vii)) which is not otherwise specifically disclosed herein; (ix) agreements
containing covenants limiting or restricting the freedom of Issuer to compete
in any line of business or territory or with any person or entity; (x) area of
mutual interest agreements binding Issuer; (xi) futures, hedge, swaps, collars,
puts, calls, floors, caps, options or other contracts that are intended to
benefit from or reduce or eliminate the risk of fluctuations in the price of
commodities, including hydrocarbons; (xii) indentures, mortgages, promissory
notes, loan agreements, guaranties or other agreements or commitments for the
borrowing of money or any related security agreements (other than relating to
the Indebtedness described in Section 3.9 of the Disclosure Letter); (xiii)
voting trust or other agreement or understanding with respect to the voting of
its Capital Stock; (xiv) contracts, commitments, agreements, understandings or
arrangements of any kind to which Issuer is a party relating to the issuance of
any Capital Stock of Issuer or any Common Stock Equivalents, other than the
Basic Documents, or (xv) agreement with respect to any of its Securities which
grants registration rights to any Person other than the Basic Documents
(collectively, "Specified Contracts"). None of the Specified Contracts have
been amended or modified except as set forth in Section 3.11 of the Disclosure
Letter.
(b) All of the Specified Contracts are in full force and effect
and constitute legal, valid and binding obligations of Issuer, and, to the
knowledge of Issuer, the other parties thereto, enforceable in all material
respects in accordance with their respective terms, except insofar as the
enforceability thereof may be limited (i) by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and (ii) by general principles of equity and public
policy (regardless of whether considered at law or in equity). Neither Issuer
nor, to the knowledge of Issuer, any other party to any Specified Contract, is
in default in complying with any provisions thereof, and no condition or event
or fact exists which, with notice, lapse of time or both would constitute a
default thereunder on the part of Issuer or, to the knowledge of Issuer, any
other party thereto, except for any such default, condition, event or fact
that, individually or in the aggregate, would not have a Material Adverse
Effect.
(c) Issuer has no contracts or subcontracts whereby Issuer
receives payments from the federal government for the sale of products to, or
the provision of services to the government.
10
<PAGE> 16
Issuer has provided Purchasers with a true and complete copy of each contract,
agreement and instrument listed in Section 3.11 of the Disclosure Letter or has
otherwise made such documents available for Purchasers to review.
3.12 TITLE TO PROPERTIES AND ASSETS; LEASES. (a) Except as set
forth in Section 3.12 of the Disclosure Letter, Issuer has Defensible Title to
all of its properties and assets (real and personal, tangible and intangible)
reflected on the Interim Balance Sheet and all of the material assets
thereafter acquired by Issuer (except to the extent that such assets have
thereafter been disposed of in the ordinary course of business consistent with
past practice), and, in each case free and clear of all Liens except (i) Liens
for taxes not yet due and payable or, if payable, that are being contested in
good faith in the ordinary course of business, (ii) statutory Liens (including
materialmen's, mechanic's, repairmen's, landlord's, and other similar liens)
arising in the ordinary course of business to secure payments not yet due and
payable or, if payable, that are being contested in good faith in the ordinary
course of business, (iii) easements, restrictions, reservations or other
encumbrances, as well as such imperfections or irregularities of title, if any,
as are not material, (iv) obligations or duties to any municipality or public
authority with respect to any franchise, grant, license or permit and all
applicable laws, rules, regulations and orders of any governmental authority,
(v) all lessors' royalties, overriding royalties, net profits interests,
production payments, carried interests, reversionary interests and other
burdens on or deductions from the proceeds of production, (vi) the terms and
conditions of joint operating agreements and other oil and gas contracts, (vii)
all rights to consent by, required notices to, and filings with or other
actions by governmental or tribal entities, if any, in connection with the
change of ownership or control of an interest in federal, state, tribal or
other domestic governmental oil and gas leases, if the same are customarily
obtained subsequent to such change of ownership or control, but only insofar as
such consents, notices, filings and other actions relate to the transactions
contemplated by this Agreement, (viii) any preferential purchase rights, (ix)
required third party consents to assignment, (x) conventional rights of
reassignment prior to abandonment and (xi) the terms and provisions of oil and
gas leases, unit agreements, pooling agreements, communication agreements and
other documents creating interests comprising the oil and gas properties;
provided, however, the exceptions described in clauses (iv) through (xi)
inclusive above are qualified to include only those exceptions in each case
which do not operate to (A) reduce the net revenue interest of Issuer below
that set forth in such Section, (B) increase the proportionate share of costs
and expenses of leasehold operations attributable to or to be borne by the
working interest of Issuer above that set forth in such Section without a
proportionate increase in the net revenue interest of Issuer or (C) increase
the working interest of Issuer above that set forth in such Section without a
proportionate increase in the net revenue interest of Issuer, and, provided,
further, however, the foregoing defects, limitations, liens and encumbrances,
whether individually material or not, do not in the aggregate create a Material
Adverse Effect upon the Company. To Issuer's knowledge, all equipment now
owned by Issuer which is necessary to the business of Issuer is in good
condition and repair (ordinary wear and tear excepted), except where the
failure to be in good condition and repair would not have a Material Adverse
Effect.
(b) Except as set forth in Section 3.12 of the Disclosure Letter,
but only to the knowledge of Issuer with respect to oil and gas leases not
operated by any of Issuer the oil and gas leases in
11
<PAGE> 17
which Issuer owns an interest (i) have been maintained according to their terms
and in compliance with all material agreements to which such oil and gas leases
are subject, except where the failure to be so maintained or any noncompliance
would not have a Material Adverse Effect, and (ii) are in full force and
effect, except where the failure to be in full force and effect would not have
a Material Adverse Effect.
(c) All royalties, overriding royalties, compensatory royalties
and other payments due with respect to the oil and gas properties of Issuer
have been properly and correctly paid, except where the failure to make such
payment would not have a Material Adverse Effect.
3.13 COMPLIANCE WITH THE LAW. Issuer (i) is not in violation of
any Governmental Requirement and (ii) has not failed to obtain any Permit,
necessary to the ownership of any of its properties or the conduct of its
business, except in either case where a violation or failure would not have a
Material Adverse Effect.
3.14 TAXES. Issuer (i) has filed all tax returns and reports ("Tax
Returns") required to be filed by or with respect to Issuer, (ii) has included
all items of income, gain, loss, deduction and credit or other items required
to be included in each such Tax Return, and (iii) has paid all taxes,
assessments, fees, imposts, duties or other charges, including any interest and
penalties (all collectively referred to herein as "Taxes"), due with respect to
such Tax Returns except for such failures as would not have a Material Adverse
Effect. There is no claim against Issuer for any Taxes, and no assessment,
deficiency or adjustment has been asserted or proposed with respect to any Tax
Return of or with respect to Issuer.
3.15 EMPLOYEE BENEFIT MATTERS.
(a) Definitions. Where the following words and phrases appear in
this Agreement, they shall have the respective meanings set forth below, unless
the context clearly indicates to the contrary:
(i) Plan: Each "employee benefit plan," as such term is
defined in Section 3(3) of ERISA, including, but not limited to, any
employee benefit plan that may be exempt from some or all of the
provisions of ERISA, which is sponsored, maintained, or contributed to
by Issuer or any of ERISA Affiliates for the benefit of the employees,
former employees, independent contractors, or agents of Issuer or any
of its ERISA Affiliates, or has been so sponsored, maintained or
contributed to since September 2, 1974.
(ii) Benefit Program or Agreement: Each personnel policy,
stock option plan, collective bargaining agreement, workers'
compensation agreement or arrangement, bonus plan or arrangement,
incentive award plan or arrangement, vacation policy, severance pay
plan, policy or agreement, deferred compensation agreement or
arrangement, executive compensation or supplemental income
arrangement, consulting agreement, employment agreement, and each
other employee benefit plan, agreement, arrangement, program, practice
or understanding, which is not described in Section 3.15(a)(i) and
which is sponsored, maintained, or contributed to by Issuer for the
benefit of the employees, former employees,
12
<PAGE> 18
independent contractors, or agents of Issuer or any of its
Subsidiaries, or has been so sponsored, maintained, or contributed to
since September 2, 1974.
(iii) Benefit Plans: Collectively, the Plans and Benefit
Programs or Agreements.
(b) EMPLOYEE BENEFIT PLAN COMPLIANCE.
(i) Neither Issuer nor any corporation, trade, business,
or entity under common control with Issuer, within the meaning of
Section 414(b), (c), (m), or (o) of the Code or Section 4001 of ERISA,
("ERISA Affiliate") contributes to or has an obligation to contribute
to, nor has Issuer or any ERISA Affiliate at any time within six years
prior to the Closing Date contributed to or had an obligation to
contribute to, a multi-employer plan within the meaning of Section
3(37) of ERISA or any plan subject to Title IV of ERISA; and
(ii) All obligations, whether arising by operation of law
or by contract, required to be performed in connection with the
Benefit Plans have been performed, and there have been no defaults,
omissions, or violations by any party with respect to any Benefit Plan
or law applicable thereto, except as would not have a Material Adverse
Effect; and
(iii) Each Plan that is intended to be qualified under
Section 401(a) of the Code (A) satisfies the requirements of such
Section in all material respects, (B) has received a favorable
determination letter from the Internal Revenue Service ("IRS")
regarding such qualified status and (C) has not, since receipt of the
most recent favorable determination letter, been amended or operated
in a way that would materially and adversely affect such qualified
status and, to the extent such letter does not cover amendments
required by law, both the time for adopting such amendments if not
previously adopted and filing such amendments with the Internal
Revenue Service if not previously filed has not expired.
(c) NO ADDITIONAL RIGHTS OR OBLIGATIONS. Except as set forth in
Section 3.15 of the Disclosure Letter, the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby will not
(i) require Issuer to make a larger contribution to, or pay greater benefits
under, any Benefit Plan than it otherwise would, or (ii) create or give rise to
any additional vested rights or service credits under any Benefit Plan.
(d) NO ADDITIONAL SEVERANCE. Issuer is not a party to any
agreement, nor has Issuer established any policy or practice requiring it to
make a payment or provide any other form of compensation or benefit to any
person performing services for Issuer upon termination of such services that
would not be payable or provided in the absence of the consummation of the
transactions contemplated by this Agreement.
(e) NO EXCESS PARACHUTE PAYMENTS. In connection with the
consummation of the transaction contemplated by this Agreement, no payments
have or will be made under the Benefit Plans.
13
<PAGE> 19
(f) NO PARACHUTE PAYMENTS AS RESULT OF CERTAIN EVENTS. The
exercise by holders of the Preferred Stock of the rights and remedies of such
holders provided under the Basic Documents shall not trigger any excess
payments under the Benefit Plans.
3.16 INVESTMENT COMPANY ACT. Issuer is not an "investment company"
or a company "controlled" by an "investment company," within the meaning of the
Investment Company Act of 1940, as amended.
3.17 PUBLIC UTILITY HOLDING COMPANY ACT. Issuer is not a "holding
company," or a "subsidiary company" of a "holding company," or an "affiliate"
of a "holding company" or of a "subsidiary company" of a "holding company," or
a "public utility" within the meaning of the Public Utility Holding Company Act
of 1935, as amended.
3.18 NO RESTRICTIONS ON AFFILIATES. Issuer is not a party to any
agreement that would purport to impose restrictions or limitations on
Purchasers or any of their Affiliates.
3.19 CAPITALIZATION. The authorized capital stock of the Issuer
consists of (i) 40,000,000 shares of Common Stock of which 10,375,000 Shares
are issued and outstanding and an additional 1,000,000 shares are reserved for
issuance under the Incentive Plan of the Issuer and 222,120 shares are reserved
for issuance pursuant to other outstanding options and (ii) 10,000,000 shares
of preferred stock, par value $0.01 per share, none of which have been issued
or are outstanding. Section 3.19 of the Disclosure Letter sets forth the name
and address of each person known to Issuer to be the beneficial owner of 5% or
more of the outstanding shares of Common Stock. Except for up to 1,000,000
shares of Common Stock reserved for issuance upon purchases of shares of Common
Stock under the Incentive Plan of the Issuer or the other outstanding options
set forth in Section 3.19 of the Disclosure Letter, there are no outstanding
subscriptions, warrants, options, calls, commitments or other rights to
purchase or acquire, or Securities convertible into or exchangeable for, any
capital stock of Issuer or its Subsidiaries. All of the outstanding shares of
Common Stock are validly issued, fully paid, and nonassessable. As of the time
of Closing on the Closing Date, the Warrant Shares (assuming the exercise of
all Warrants) would represent approximately 8.44% on a fully diluted basis of
the shares of Common Stock outstanding. There have been reserved for issuance,
and Issuer shall at all times keep reserved, out of the authorized and unissued
shares of Issuer's Common Stock, a number of shares sufficient to provide for
the exercise of the rights of purchase represented by the Warrants, and such
shares, when issued upon receipt of payment therefor or upon a net exercise in
accordance with the terms of the Warrants and of this Agreement, will be
legally and validly issued, fully paid and nonassessable and will be free of
any preemptive rights of shareholders.
3.20 SUBSIDIARIES. Issuer does not own any subsidiaries and does
not own, directly or indirectly, any interest or investment in any Person,
other than interests under any joint operating agreement of oil and gas
property that expressly provides the relationship of the parties created by
such agreement is not intended to render the parties thereto liable as
partners.
14
<PAGE> 20
3.21 ENVIRONMENTAL MATTERS. Except as set forth in Section
3.21 of the Disclosure Letter:
(a) the properties and operations of Issuer are not in violation
of any Environmental Laws or any order or requirement of any court or
Governmental Authority to the extent pertaining to health or the
environment, except where a violation would not have a Material Adverse
Effect, nor are there any conditions existing on such property or
resulting from operations thereon that may give rise to any on-site or
off-site remedial obligations under any Environmental Law, except for any
condition that would not have a Material Adverse Effect;
(b) without limitation of Section 3.21(a) above, Issuer are not
subject to any pending or, to the knowledge of Issuer, threatened action,
suit, investigation, inquiry or proceeding by or before any court or
Governmental Authority under any Environmental Law;
(c) except as would not have a Material Adverse Effect, (i) all
notices, Permits, licenses or similar authorizations, if any, required to
be obtained or filed by Issuer under any Environmental Law, including
without limitation those relating to the treatment, storage, disposal or
release of a hazardous substance or solid waste into the environment, have
been duly obtained or filed, and (ii) Issuer is in compliance with the
terms and conditions of all such notices, Permits, licenses and similar
authorizations;
(d) except as would not have a Material Adverse Effect, (i) all
hazardous substances or solid wastes generated by or as a result of
operations on properties owned by Issuer and requiring disposal have been
transported only by carriers maintaining valid authorizations under
applicable Environmental Laws and treated and disposed of only at
treatment, storage and disposal facilities maintaining valid
authorizations under applicable Environmental Laws, and, (ii) such
carriers and facilities have been and are operating in compliance with
such authorizations and are not the subject of any pending or threatened
action, investigation or inquiry by any Governmental Authority in
connection with any Environmental Laws;
(e) except as would not have a Material Adverse Effect, (i) there
are no asbestos-containing materials on or in any property owned or used
by Issuer and (ii) there are no storage tanks or similar containers
exceeding 55 gallons in size on or under any such properties from which
hazardous substances, petroleum products or other contaminants may be
released into the surrounding environment;
(f) without limiting the foregoing, there is no material liability
(accrued or contingent) to any non-governmental third party in tort or
under common law in connection with any release or threatened release of
any hazardous substances, solid wastes, petroleum, petroleum products, and
oil and gas exploration and production wastes into the environment as a
result of operations conducted on its properties; and
(g) Section 3.21 of the Disclosure Letter separately lists for
Issuer any and all existing Claims in which there is a possible uninsured
loss greater than $250,000 or $500,000 in the aggregate against or
affecting it and relating to the release, discharge or emission of any
hazardous substance, or to the generation, treatment, storage or disposal
of
15
<PAGE> 21
any wastes, or otherwise relating to the protection of the environment or
to the non-compliance with any notices, Permits, licenses, consent decrees
or other authorization and the disposition of each such Claim. With
respect to each such pending or prior matter, Section 3.21 of the
Disclosure Letter hereto lists the date of the Claim, the claimant or
investigating agency, the nature and a brief description of the matter,
the damages claimed or relief sought, and the status or outcome of the
matter. Except as set forth on Section 3.21 of the Disclosure Letter,
Issuer has not received any written notice that it is a potentially
responsible party under any Environmental Laws.
3.22 INTELLECTUAL PROPERTY AND OTHER INTANGIBLE ASSETS. Issuer
(i) owns or has the right to use, free and clear of all Liens, all patents,
trademarks, service marks, trade names, and copyrights, and all applications,
licenses, and rights with respect to the foregoing, and all trade secrets,
including know-how, inventions, designs, processes, works of authorship,
computer programs, and technical data and information (collectively,
"Intellectual Property") used and sufficient for use in the conduct of its
business as now conducted without infringing upon or violating any right, Lien,
or claim of others, and (ii) except as described in Section 3.22 of the
Disclosure Letter, is not obligated or under any liability whatsoever to make
any payments by way of royalties, fees, or otherwise to any owner or licensee
of, or other claimant to, any patent, trademark, service mark, trade name,
copyright, or other intangible asset, with respect to the use thereof or in
connection with the conduct of its business or otherwise, except for such
failures to have the right to use such obligations and not have a Material
Adverse Effect.
3.23 NO PUBLIC OFFER. Neither Issuer nor anyone acting on its
behalf has offered to any Person securities of Issuer, nor any part thereof,
nor any instruments convertible, exercisable, or exchangeable into such
securities, or has solicited from any Person any offer to acquire the same, in
a manner so as to make the transactions contemplated by this Agreement not
exempt from the registration requirements of Section 5 of the Securities Act.
3.24 INSURANCE. Issuer maintains property, casualty, general
liability and other insurance policies with coverage limits in amounts and with
carriers as in each case are customary in accordance with sound business
practices and which Issuer believes are adequate in the circumstances. Issuer
has previously provided, or made available to Purchasers true and complete
copies of all of Issuer's insurance policies. Issuer has given in a timely
manner to its insurers all notices required to be given under such insurance
policies with respect to all material claims and actions covered by insurance,
and no insurer has denied coverage of any such claims or actions or reserved
its rights in respect of or rejected any of such claims. Issuer has not
received any notice or other communication from any such insurer canceling or
materially amending any of such insurance policies, and no such cancellation is
pending or threatened.
3.25 CERTAIN TRANSACTIONS. Except as set forth on Section 3.25 of
the Disclosure Letter, (a) Issuer is not indebted directly or indirectly to any
of its officers, directors or stockholders or to their respective spouses or
children in any amount whatsoever, (b) none of such officers, directors or
stockholders, or any members of their immediate families, are indebted to
Issuer or have any direct or indirect ownership interest in any Person with
which Issuer has a business relationship (other than ownership interests of
less than 5% in a publicly traded company), or any Person that
16
<PAGE> 22
competes with Issuer (other than ownership interests of less than 5% in a
publicly traded competitor), and (c) no officer, director or 10% shareholder,
or any member of his immediate family, has a direct or material indirect
financial interest in any material contract with Issuer other than employment
arrangements and benefit plans.
3.26 USE OF PROCEEDS. All proceeds from the issuance of Securities
will be used by Issuer only in accordance with the provisions of Section 5.3
hereof. No part of the Proceeds from the issuance of Securities or Warrant
Shares will be used by the Issuer to purchase or carry any Margin Stock or to
extend credit to others for the purpose of purchasing or carrying Margin Stock.
Neither the purchase of the Securities nor the use of the proceeds thereof will
violate or be inconsistent with the provisions of Regulations G, T, U or X of
the Federal Reserve Board.
3.27 PLUGGING AND ABANDONMENT OBLIGATIONS. Except as set forth in
Section 3.27 of the Disclosure Letter and as would not have a Material Adverse
Effect, there is no well located upon any property owned by Issuer that Issuer
is currently obligated by law or contract to plug and abandon.
3.28 NO MATERIAL MISSTATEMENTS OR OMISSIONS. The Basic Documents
do not contain any untrue statement of a material fact or omits to state a
material fact necessary to make the statements herein or therein not
misleading, in view of the circumstances in which they were made. To the
knowledge of Issuer, there is no fact or information relating to the business,
prospects, condition (financial or otherwise), affairs, operations, or assets
of Issuer that has not been disclosed to Purchasers in writing by Issuer which
could result in a Material Adverse Effect, including, without limitation,
through disclosure in the SEC Documents. The financial statements and other
related financial data (excluding all projections and proforma financial data)
and reserve reports furnished to the Purchasers by or at the direction of
Issuer in connection with the negotiation of this Agreement do not contain any
material misstatement of fact and, when considered with all other written
statements furnished to the Purchasers in that connection, such financial
statements, related financial data (excluding all projections and proforma
financial data) and reserve reports do not omit to state a material fact or any
fact necessary to make the statement contained therein not misleading. The
circumstances and events that are not required to be identified on the
Disclosure Letter by reason of the materiality qualifications contained in the
representations and warranties in this Article III, or which are otherwise
within such qualifications, in the aggregate do not have, and could not
reasonably be expected to have, a Material Adverse Effect on Issuer when taken
in the context of all of the assets, obligations and operations of the Issuer.
3.29 FEES AND COMMISSIONS. Issuer has not retained, nor are any
fees due from Issuer to, any intermediary retained by such party, any finder,
broker, agent, financial advisor, or other intermediary (collectively, an
"Intermediary") other than in accordance with the Fee Letter, in connection
with the transactions contemplated by this Agreement.
3.30 DISCLOSURE LETTER. The Disclosure Letter is complete and
accurate as of the time of the execution of this Agreement.
17
<PAGE> 23
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF PURCHASERS
ECT and JEDI II, as applicable, represent and warrant to Issuer as follows
(each Purchaser's representations and warranties are being made as to that
Purchaser only and not the other):
4.1 CORPORATE; PARTNERSHIP EXISTENCE.
(a) ECT is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware.
(b) JEDI II is a limited partnership duly formed and
validly existing under the laws of the State of Delaware.
4.2 CORPORATE; PARTNERSHIP POWER AND AUTHORIZATION.
(a) ECT has all requisite power and authority to
execute, deliver and perform each of the Basic Documents to which it
is a party and to consummate the transactions contemplated thereby.
All action on the part of ECT requisite for the due execution,
delivery and performance of each of the Basic Documents to which it is
a party has been duly and effectively taken. The execution and
delivery of each of the Basic Documents to which ECT is a party and
the consummation of the transactions to be performed by ECT thereunder
has been duly and validly authorized by all necessary action on the
part of the boards of directors of ECT thereunder, and no other
corporate proceedings are necessary to authorize the execution and
delivery by ECT of each of the Basic Documents to which it is party or
to consummate the transactions to be performed by it thereunder.
(b) JEDI II has all requisite power and authority to
execute, deliver and perform each of the Basic Documents to which it
is a party and to consummate the transactions contemplated thereby.
All action on the part of JEDI II requisite for the due execution,
delivery and performance of each of the Basic Documents to which it is
a party has been duly and effectively taken. The execution and
delivery of each of the Basic Documents to which JEDI II is a party
and the consummation of the transactions to be performed by JEDI II
thereunder has been duly and validly authorized by all necessary
action on the part of JEDI II, its partners and any shareholder of or
partner in any of its partners, and no other partnership or corporate
proceedings, as the case may be, are necessary to authorize the
execution and delivery by JEDI II of each of the Basic Documents to
which it is a party or to consummate the transactions to be performed
by it thereunder.
4.3 BINDING OBLIGATIONS. Each of the Basic Documents to which
Purchaser is a party when executed and delivered by it, shall constitute legal,
valid and binding obligations of Purchaser enforceable in accordance with their
terms, except insofar as the enforceability thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws
18
<PAGE> 24
affecting the enforcement of creditors' rights generally and by general
principles of equity (regardless of whether considered at law or in equity).
4.4 NO VIOLATION. The execution and delivery by Purchaser of each
of the Basic Documents to which it is a party, the consummation of the
transactions provided for therein and contemplated thereby, and the fulfillment
by Purchaser of the terms thereof, will not (a) conflict with or result in a
breach of any provision of the Charter or bylaws or other organizational
document of Purchaser, (b) result in any default or in any material
modification of the terms of any Indebtedness, material contract, agreement,
obligation, commitment applicable to Purchaser, (c) require any consent or
approval (which has not been obtained or waived) under any material instrument
or material obligation to which Purchaser is a party or by which Purchaser may
be bound, or (d) violate any Governmental Requirement applicable to Purchaser.
4.5 PURCHASE FOR INVESTMENT; EXPERIENCE, ILLIQUIDITY; ACCREDITED
INVESTOR. Purchaser is acquiring its portion of the Securities and the Warrant
Shares for its own account and not with a view to the public resale of all or
any part thereof in any transaction which would constitute a "distribution"
within the meaning of the Securities Act. Purchaser acknowledges that the
Securities and the Warrant Shares acquired by it have not been registered under
the Securities Act and may be resold only if registered pursuant to the
provisions of the Securities Act or if an exemption from registration is
available.
Each Purchaser acknowledges and understands that it must bear the economic
risk of its investment for an indefinite period of time because the Securities
must be held until subsequently registered under the Securities Act and
applicable state and other securities laws, unless an exemption from
Registration is available. Each Purchaser understands that any transfer agent
of the Issuer will be issued stop-transfer instructions with respect to the
Securities 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. Each Purchaser has experience in analyzing and
investing in entities like the Issuer, each Purchaser can bear the economic
risk of its investment, including the full loss of its investment, and by
reason of its business or financial experience or the business or financial
experience of its professional advisors has the capacity to evaluate the merits
and risks of its investment and protect its own interest in connection with the
purchase of the Securities from the Issuer at the Closing. Each Purchaser
represents that it does not have any contract, undertaking, agreement or
arrangements with any person to sell, transfer or grant participation to such
person or to any third person, with respect to any of the Securities.
4.6 FEES AND COMMISSIONS. Purchaser has not retained, nor are any
fees due from Purchaser to, any Intermediary in connection with the
transactions contemplated by this Agreement except pursuant to and as set forth
in the Fee Letter.
4.7 INVESTIGATION. Purchaser has received copies of the SEC
Documents. Purchaser has had a reasonable opportunity to ask questions
relating to and otherwise discuss the terms and conditions of the offering and
the other information set forth in the SEC Documents and the Issuer's business,
management and financial affairs with the Issuer's management, customers and
other parties, and Purchaser has received satisfactory responses to its
inquiries. Purchaser has relied solely
19
<PAGE> 25
upon the representations in the Basic Documents and in the SEC documents in
making the decision to invest in the Securities. Purchaser is an "accredited
investor" as such term is defined in SEC Regulation D.
4.8 SHORT SELLING. Neither Purchaser nor any of its Subsidiaries
will create a "short position" in the Common Stock at any time during the two
(2) years following the Closing Date. For purposes hereof, a "short position"
shall be deemed to have been maintained or created by a Person if such Person
(i) enters into a "short sale" (as such term is defined in Rule 3b-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) or sells
"short against the box" (as that term is generally understood), (ii) purchases
a put option to sell shares of Common Stock or (iii) enters into a derivative
or other similar transaction whereby such Person will be compensated (or
receive economic benefit) in the event of a decline in the price of the Common
Stock; provided, however, that such term shall not include any short sales
effected at any time when the Issuer (i) is in breach in any material respect
of any of the representations, warranties or covenants under any Basic
Documents or (ii) has failed to redeem any Series A Preferred Stock as required
within the allowed time period following a request for redemption.
4.9 INVESTMENT COMPANY ACT. Purchaser is not an "investment
company" or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended.
4.10 PUBLIC UTILITY HOLDING COMPANY ACT. Purchaser is not subject
to, or is exempt from, registration as a "holding company," or a "subsidiary
company" of 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.
ARTICLE V.
COVENANTS
5.1 OPERATION OF BUSINESS. Unless otherwise expressly
contemplated by this Agreement or consented to in writing by ECT (which consent
shall not be unreasonably withheld), during the period between the execution of
this Agreement and the Closing (i) Issuer shall:
(a) operate its business only in the usual and ordinary course
consistent with past practices;
(b) preserve its business and properties, including its present
operations, leases, working conditions and relationships with lessors,
licensors, suppliers, customers and employees;
(c) maintain and keep its properties and assets in as good repair
and condition as at present, ordinary wear and tear excepted; and
20
<PAGE> 26
(d) keep in full force and effect insurance comparable in amount
and scope of coverage to that currently maintained;
and (ii) Issuer shall not:
(a) make any declaration for setting aside or payment of dividends
or distributions in respect of shares of Common Stock or any redemption,
purchase or other acquisition of any of its Capital Stock;
(b) make any capital expenditures, or commit to make any capital
expenditures, other than in the ordinary course of business;
(c) except for the incurrence of obligations in the ordinary
course of business incur any Indebtedness; and
(d) amend or modify its Charter (except by filing the Statement of
Resolutions).
5.2 ACCESS TO INFORMATION. For so long as the Purchasers and their
respective Affiliates hold more than 51% of the Preferred Stock, ECT (acting on
behalf of itself and JEDI II) shall be entitled to (a) receive prior notice of
any action proposed in advance of a regularly scheduled board meeting to be
taken by the Board of Directors (or any committee thereof) at such meeting, (b)
receive such notices as are given to directors of Issuer (at the same time and
in the same manner as such notices are given to such directors) of any meeting
of the Board of Directors (or any committee thereof), (c) receive, when
distributed to directors of the Issuer, copies of materials evidencing proposed
action of the Board of Directors or any committee thereof (d) designate from
time to time no more than three persons employed by Enron Corp. or a subsidiary
thereof to attend any meeting of the Board of Directors, as observers, and (e)
receive when distributed to directors of the Issuer all written management
reports and written management accounts relating to Issuer, to the extent such
reports and accounts are provided to the Board of Directors (or any committee
thereof). The Issuer reserves the right to withhold any information and to
exclude such ECT's designees from any meeting or portion thereof if, in the
written opinion of Issuer's legal counsel, access to such information or
attendance at such meeting could adversely affect the attorney-client privilege
between the Issuer and its counsel. It is understood that unauthorized
disclosure or use of any of the confidential, non-public Information obtained
as a result of the access contemplated in this Section may be detrimental to
the Issuer. Accordingly, ECT agrees to maintain such information in confidence
in accordance with Section 8.3 hereof. ECT acknowledges that the purchase or
sale of any securities of the Issuer or the agreement to such purchase or sale
of securities that are exercisable, convertible or exchangeable for securities
of the Issuer at such time as it has any material nonpublic information is
prohibited by laws, rules and regulations relating to the trading of
securities, including without limitation Section 10b and Rule 10(b)-5 under the
Exchange Act.
21
<PAGE> 27
THE ISSUER COVENANTS AS TO (I) SECTIONS 5.3 AND 5.5 THROUGH 5.12 FOR SO
LONG AS ANY SHARES OF PREFERRED STOCK REMAIN OUTSTANDING, (II) SECTIONS 5.3,
5.5, 5.6, 5.7 AND 5.8 FOR SO LONG AS ANY WARRANTS OR WARRANT SHARES REMAIN
OUTSTANDING BUT NOT LONGER THAN SEVEN (7) YEARS AFTER THE DATE HEREOF AND
PROVIDED, ECT, JEDI II AND THEIR RESPECTIVE AFFILIATES OWN 50% BENEFICIAL
INTEREST IN THE NUMBER OF WARRANTS SHARES ORIGINALLY ISSUED (ASSUMING FULL
EXERCISE OF ALL THE WARRANTS), (III) SECTION 5.4 (FOR THE BENEFIT OF PURCHASERS
AND THEIR AFFILIATES ONLY) FOR SO LONG AS PURCHASERS OR ANY OF THEIR AFFILIATES
OWN ANY WARRANTS OR WARRANT SHARES AND (IV) SECTIONS 5.9 AND 5.10 FOR SO LONG
AS ANY WARRANTS OR WARRANT SHARES REMAIN OUTSTANDING (OR IN EACH CASE, UNTIL
SUCH EARLIER TIME AS IS SPECIFIED WITH RESPECT TO ANY PARTICULAR SECTION):
5.3 USE OF PROCEEDS. All Proceeds from the issuance of the Shares
and purchase of the Warrants shall be used by Issuer for any and all activities
necessary or related to the exploration for or development of oil and natural
gas in Texas and Louisiana, to repay indebtedness incurred for the foregoing
purposes, to pay dividends with respect to the Preferred Stock and for the
repayment of fees and expenses incurred with respect thereto.
5.4 NO RESTRICTIONS ON AFFILIATES. For so long as Purchasers or
their Affiliates own any Preferred Stock, or any Warrants or Warrant Shares
neither Issuer nor any of its future Subsidiaries will enter into any agreement
that would purport to impose restrictions or limitations on the business,
operations or assets of Purchasers or their Affiliates by virtue of Purchasers'
or their Affiliates' ownership in the Issuer immediately after the Closing
(exclusive of the exercise of any rights of Purchasers under Sections 2(b) and
2(c) of the Statement of Resolution) including, without limitation, any "area
of mutual interest" agreement or similar agreement that would have the effect
of binding Purchasers or any of their respective Affiliates or their respective
properties. For purposes of this Section 5.4, the term "Affiliate", when used
to refer to Affiliates of Purchasers, shall exclude Issuer and its Affiliates.
5.5 CERTAIN PUBLIC UTILITY MATTERS. Except as contemplated
herein, Issuer will not take any action that would be inconsistent with the
representations contained in Sections 3.16 and 3.17 hereof so long as the
Purchasers or their Affiliates or the Permitted Assigns hold any shares of
Common Stock or Preferred Stock. For purposes of this Section 5.5, the term
"Affiliate", when used to refer to Affiliates of Purchasers, shall exclude
Issuer and its Affiliates.
5.6 CORPORATE EXISTENCE AND TAXES. Issuer shall maintain its
corporate existence and good standing and shall pay all taxes owed by it when
due except for taxes which the Issuer reasonably disputes or as to which the
failure to pay could not reasonably be expected to have a Material Adverse
Effect on the business or financial condition of the Issuer and the Issuer
shall establish adequate reserves in accordance with GAAP with respect thereto.
5.7 COMPLIANCE WITH LAWS. Except with the consent of the holders
of a majority of the outstanding Preferred Stock, Issuer will comply with all
applicable Governmental Requirements and shall maintain any Permit necessary to
the ownership of any of its properties or the conduct of its business, except
in either case where a violation or failure would not have a Material Adverse
Effect.
22
<PAGE> 28
5.8 PROVISION OF INFORMATION AND SEC REQUIREMENTS. Issuer shall
provide Purchasers and their Permitted Assigns with copies of its annual
reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K and proxy statements and other materials sent to stockholders, in each such
case promptly after the filing thereof with the Commission, until the
redemption of all of the Preferred Stock and exercise in full of all of the
Warrants. Issuer shall comply in all material respects with all applicable
rules, regulations and requirements of the Commission and shall make timely
filings of all items required to be filed by the Commission and in connection
with the Securities Act and the Exchange Act.
5.9 QUOTATION ON NASDAQ. Issuer shall have the Warrant Shares
listed for quotation on The Nasdaq National Market on or before the date of the
first anniversary of the Closing, and the Issuer will file any and all
agreements, forms and other documents, including, without limitation, The
Nasdaq National Market Notification Form for Listing of Additional Shares and
take all other action necessary for the listing of the Warrant Shares on or
before such anniversary date. Issuer shall maintain the designation and
quotation, or listing, of its Common Stock on the Nasdaq National Market (or on
the New York Stock Exchange or the American Stock Exchange) until the
redemption of all the Preferred Stock.
5.10 RESERVATION OF COMMON STOCK. Issuer has reserved for issuance
and shall at all times keep reserved, out of the authorized and unissued shares
of Issuer's Common Stock, a number of shares sufficient to provide for the
exercise of the rights of purchase represented by the Warrants and shall keep
such shares free of any preemptive rights of shareholders.
5.11 MAJOR SHAREHOLDER RESTRICTION. So long as the Shareholders'
Agreement is in effect, the Issuer agrees to:
(a) make appropriate notations in its records concerning
the restrictions contained in Section 2.1 of the Shareholders'
Agreement;
(b) issue stop transfer orders (i.e., an "issuer hold")
and instructions to each transfer agent concerning the Restricted
Shares (as defined in the Shareholder's Agreement);
(c) promptly provide ECT with copies of all Schedule 13Ds
or amendments thereto relating to the Common Stock, filed with the
Securities and Exchange Commission and delivered to Issuer; and
(d) report quarterly in writing to ECT any transfers of
stock made by or on behalf of the Major Shareholders on the books of
the Issuer.
5.12 NOTICE OF EVENTS. Within 5 business days after receipt from a
holder of the Preferred Stock of a request for its Preferred Stock to be
redeemed, Issuer shall send a Dispute Notice to such holder pursuant to Section
10.12(b) in every case in which Issuer intends to dispute anything in
connection with such request for redemption.
23
<PAGE> 29
ARTICLE VI.
CLOSING CONDITIONS
6.1 CONDITIONS TO OBLIGATION OF PURCHASERS. The obligation of
Purchasers to consummate the transactions contemplated hereby is subject to
satisfaction of the following conditions at the time of closing:
(a) the representations and warranties contained in Article III,
shall be accurate in all respects, as of the time of Closing on the
Closing Date (provided that this provision shall not require the text of
any representation that refers to a specific date to be changed with
respect to such reference);
(b) Issuer shall have performed and complied with all of the
covenants and agreements contemplated in the Basic Documents required to
be performed or complied with by it at or prior to the time of Closing;
(c) no action, suit, or proceeding shall be pending before any
Governmental Authority wherein an unfavorable injunction, judgment, order,
decree, ruling, charge, penalty or onerous condition would prevent
consummation of any of the transactions contemplated by the Basic
Documents, and no such injunction, judgment, order, decree, ruling,
charge, penalty or onerous condition shall be in effect;
(d) the Statement of Resolution shall have been filed with the
Secretary of State of the State of Texas and Issuer shall have delivered
confirmation of same to Purchasers on or prior to the time of Closing on
the Closing Date;
(e) there shall not have occurred since 9/30/97 any events or
developments, individually or in the aggregate, resulting in a Material
Adverse Effect;
(f) Issuer shall at the Closing pay all amounts payable pursuant
to the Fee Letter;
(g) the Closing shall not be later than 3:00 p.m. CST on January
16, 1998;
(h) all material notices, consents and approvals required for the
consummation of the transactions contemplated hereby shall have been given
or obtained, including, without limitation consent of Compass Bank and
Schroder & Co. Inc.;
(i) Issuer shall have delivered to Purchasers a certificate from
an officer of Issuer to the effect that each of the conditions specified
above in Section 6.1(a)-(h) has been satisfied in all respects;
(j) Purchasers shall have received an opinion of Baker & Botts,
L.L.P. dated as of the Closing Date, that addresses such matters as are
reasonably requested by Purchasers
24
<PAGE> 30
and containing such exceptions and assumptions as are customary in such
opinions, all in form and substance reasonably acceptable to Purchasers;
and
(k) Issuer, significant shareholders and Purchasers shall have
entered into a Shareholders' Agreement in the form of Exhibit B attached
hereto.
6.2 CONDITIONS TO OBLIGATION OF ISSUER. The obligations of Issuer
to consummate the transactions contemplated hereby are subject to satisfaction
of the following conditions:
(a) the representations and warranties contained in Article IV shall
be accurate in all respects, and, to the extent not so qualified, shall be
accurate in all respects, as of the time of Closing on the Closing Date
(provided that this provision shall not require the text of any
representation that refers to a specific date to be changed with respect
to such reference);
(b) each of the Purchasers shall have performed and complied with all
of the covenants under the Basic Documents required to be performed or
complied with in all respects at or prior to the time of Closing on the
Closing Date;
(c) no action, suit, or proceeding shall be pending before any
Governmental Authority wherein an unfavorable injunction, judgment, order,
decree, ruling, charge, penalty or onerous condition would prevent
consummation of any of the transactions contemplated by the Basic
Documents and no such injunction, judgment, order, decree, ruling, charge,
penalty or onerous condition shall be in effect; and
(d) each of the Purchasers shall have delivered to Issuer a
certificate from an executive officer of such Purchaser to the effect that
each of the conditions specified above in Section 6.2(a)-(c) is satisfied
in all respects.
(e) Issuer shall have received an opinion of (i) Julia Heintz Murray,
Vice President and General Counsel - Finance of ECT addressing the
matters set forth in Sections 4.1(a) and 4.2(a), (ii) Julia Heintz
Murray, Vice President and General Counsel - Finance of Enron Capital II
Corp., addressing the matters set forth in Sections 4.1(b) and 4.2(b), and
(iii) Vinson & Elkins L.L.P. addressing the matters set forth in Section
4.3, in each case dated as of the time of Closing on the Closing Date and
including such exceptions and assumptions as are customary in such
opinions, in form and substance reasonably acceptable to Issuer.
ARTICLE VII.
REGISTRATION RIGHTS
The following provisions govern the registration of Issuer's securities:
7.1 DEFINITIONS. As used in this Article VII, the following terms
have the following meanings:
25
<PAGE> 31
"HOLDERS" means the holders of Registrable Shares (which
initially shall be Purchasers) and shall include transferees to
whom Holders are permitted to assign rights hereunder pursuant to
Section 7.9.
"INITIATING HOLDERS" shall mean Holders holding no less than
333,000 Registrable Shares (subject to adjustment for stock
splits and other similar events).
"REGISTER," "REGISTERED" and "REGISTRATION" refer to a
registration effected by filing a registration statement in
compliance with the Securities Act and the declaration or
ordering by the Commission of effectiveness of such registration
statement.
"REGISTRABLE SHARES" means any of the Warrant Shares received
after the date hereof by the Holders upon exercise of the
Warrants provided, however, that securities shall be treated as
Registrable Shares 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 Shares have not expired pursuant to Section
7.13. Without limiting the generality of any other provision
hereof, it is expressly understood that the registration rights
granted hereunder are not intended to, and do not extend to the
Warrants or the Preferred Stock.
7.2 PIGGYBACK REGISTRATION. If Issuer at any time proposes to
register any shares of Common Stock (or securities convertible into or
exercisable or exchangeable for Common Stock), other than in a demand
registration pursuant to Section 7.3 of this Agreement and other than in a
registration on Form S-4 or Form S-8 for purposes similar to those permissible
as of the date hereof (provided, however, with respect to Form S-8, Purchasers
are not entitled pursuant to the rules and regulations relating to such Form to
use such Form), it shall give prompt notice to the Holders of such intention.
Upon the written request of any Holder given within 20 days after receipt of
any such notice, Issuer shall include in such registration all of the
Registrable Shares indicated in such request, so as to permit the disposition
of the shares so registered. For all distributions which are underwritten, all
Holders proposing to distribute their securities through such underwriting
shall (together with the Issuer and the other holders distributing their
securities through such underwriting) enter into an underwriting agreement in
customary form (not inconsistent with the terms of this Article 7) with the
managing underwriter selected for such underwriting by the Issuer.
Notwithstanding any other provision of this Section 7.2, if the managing
underwriter determines that marketing factors require a limitation of the
number of shares to be underwritten and the inclusion of Purchasers'
Registrable Shares would materially jeopardize successful marketing of the
shares being registered thereunder, the underwriters may exclude some or all
Registrable Shares from such registration and underwriting (provided that
securities of other security holders are similarly
26
<PAGE> 32
excluded). In the event of a limitation (or elimination) on the number of
Registrable Shares and other securities to be included in a registration, the
Issuer shall so 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 Shares 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
Shares in accordance with the above provisions, the Issuer may round the number
of Registrable Shares 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 Issuer 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 90 days after the effective
date of the registration statement relating thereto, or such other shorter
period of time as the underwriters may require. The Issuer shall have the
right to terminate or withdraw any registration initiated by it under this
Section 7.2 prior to or after the effectiveness of such registration whether or
not any Holder has elected to include securities in such registration.
Notwithstanding anything to the contrary contained herein, the rights granted
under this Section 7.2, to the extent they are related to (i) registrations
requested pursuant to Section 5.1 or 5.3 of the Registration Rights Agreement
dated as of June 4, 1997 among Issuer and the persons described therein (the
"Founders Registration Rights Agreement"), shall be limited to that portion of
any such registration as remains after inclusion of all securities requested by
holders under the Founders Registration Rights Agreement to be included in such
registration and (ii) registrations initiated by the Issuer, shall be limited
in all cases to sharing pro rata in the available portion of the registration
in question with holders under the Founders Registration Rights Agreement, such
sharing to be based on the number of shares of Common Stock and Warrants held
by such respective holders and held by the holders of such other investors,
plus the number of shares of Common Stock into which other securities held by
the holders under the Founders Registration Rights Agreement and the holders
are convertible, which are entitled to registration rights.
7.3 DEMAND REGISTRATION. At any time, one or more Initiating
Holders may request in writing that all or part of the Registrable Shares held
by such Holder or Holders shall be registered for sale under the Securities Act
in the manner specified in such notice. Within 5 days after receipt of any
such request, Issuer shall give written notice of such request to the other
Holders and shall include in such registration all Registrable Shares held by
all such Holders who wish to participate in such demand registration and
provide Issuer with written requests for inclusion therein within 20 days after
the receipt of Issuer's notice. Thereupon, Issuer shall use its best efforts
to effect the registration of all Registrable Shares as to which it has
received requests for registration specified in the request for registration.
Issuer shall not be required to effect any such registration prior to the first
anniversary date hereof; provided, however, that the Initiating Holders may
request registration hereunder prior to the first anniversary hereof and in
such event Issuer shall undertake to issue the notices referred to herein prior
to such first anniversary so as to permit the filing of registration statement
promptly after such first anniversary. Notwithstanding any other provision of
this Article VII, if the managing underwriter advises the Holders in writing
that marketing factors require
27
<PAGE> 33
a limitation of the number of shares to be underwritten and the inclusion of
Purchasers' Registrable Shares would materially jeopardize successful marketing
of the shares being registered thereunder, then there shall be excluded from
such registration and underwriting to the extent necessary to satisfy such
limitation, first shares to be offered by Issuer or by shareholders other than
the Holders, and second, to the extent necessary, and only if all shares to be
offered by Issuer and by shareholders other than Holders have been excluded,
Registrable Shares. Without limiting the generality of any other provision
hereof, it is expressly understood that the registration rights granted
hereunder are not intended to, and do not extend to the Warrants or the
Preferred Stock. Issuer 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 a Rule 145(a) transaction) to be
initiated after a registration requested pursuant to this Section 7.3 and to
become effective less than 90 days after the effective date of any registration
requested pursuant to this Section 7.3. Issuer shall not be required to effect
more than two registrations pursuant to this Section 7.3, one of which may be
for a shelf registration and both of which may be for an underwritten
registration, and, unless all Registrable Shares requested to be included are
included in such registration, then such registration shall not count as one of
such two registrations.
7.4 DELAY IN REGISTRATION. If Issuer shall furnish to the Holders
a certificate signed by the President of Issuer stating that in the reasonable
good faith judgment of the Board of Directors of Issuer it would result in a
Material Adverse Effect upon the Issuer for a registration statement to be
filed at such time or would materially adversely effect a pending public
offering of Issuer's securities or would require the disclosure of a material
transaction in which the Company is then engaged, Issuer shall have the right
to defer the filing of a registration statement requested pursuant to Section
7.3 hereof for a period of not more than 45 days after receipt of the request
of the Holders under Section 7.3; provided, however, that Issuer shall not
utilize this right more than once in any rolling 12-month period.
7.5 DESIGNATION OF UNDERWRITER; UNDERWRITING AGREEMENT. In the
case of any registration effected pursuant to Section 7.3 for an underwritten
public offering, the managing underwriter shall be selected by the Initiating
Holders, but must be reasonably acceptable to the Issuer. In the event that a
registration pursuant to Section 7.2 or 7.3 is for a registered public offering
involving an underwriting, the Issuer shall so advise the Holders as part of
the notice given to them. In such event, the right of any Holder to
registration pursuant to Section 7.2 or 7.3 shall be conditioned upon such
Holder's participation in the underwriting arrangements required by this
Section 7.5, and the inclusion of such Holder's Registrable Shares, as the case
may be, in the underwriting to the extent requested shall be limited to the
extent provided herein; provided, however, in any demand registration pursuant
to Section 7.3 hereof, the underwriting agreement must be mutually agreeable to
the Issuer and the Holder of the Registrable Shares being included.
7.6 EXPENSES. All expenses incurred in connection with any
registration and all listing expenses including without limitation, any
transfer taxes, all fees, reasonable out-of-pocket expenses and expenses of one
counsel for all Holders, under Sections 7.2 or 7.3 shall be borne by Issuer;
provided, however, that each of the Holders participating in such registration
shall pay its pro rata portion of the fees, discounts or commissions payable to
any underwriter and provided that the
28
<PAGE> 34
Holder shall use reasonable efforts in any transfer of Securities to effectuate
such transfer in a way to minimize or avoid transfer taxes on such transfer.
7.7 INDEMNITIES. In the event of any registered offering of
Common Stock pursuant to this Article VII:
(a) Issuer will indemnify and hold harmless, to the fullest extent
permitted by law, any Holder, each of its officers and directors, partners
and legal counsel and any underwriter for such Holder, and each person, if
any, who controls the Holder or such underwriter within the meaning of
Section 15 of the Securities Act, from and against any and all losses,
damages, claims, liabilities, joint or several, and expenses (including
any amounts paid in any settlement of litigation, commenced or threatened)
to which the Holder or any such underwriter or controlling person may
become subject under applicable law or otherwise, insofar as such losses,
damages, claims, liabilities (or actions or proceedings in respect
thereof), or expenses arise out of or are based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in the
registration statement or included in the prospectus, as amended or
supplemented, or (ii) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they are
made, not misleading, and Issuer will reimburse the Holder, each of its
officers and directors, partners and legal counsel, such underwriter and
each such controlling person of the Holder or the underwriter, for any
legal or any other expenses reasonably incurred by them in connection with
investigating, preparing to defend or defending against or appearing as a
third party witness in connection with such loss, claim, damage,
liability, action or proceeding; provided, however, that Issuer will not
be liable in any such case to the extent that any such loss, damage,
claim, liability, or expense arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission so
made in conformity with written information furnished by a Holder to
Issuer specifically for inclusion therein; provided, further, that the
indemnity agreement contained in this subsection 7.7(a) shall not apply to
amounts paid in settlement of any such claim, loss, damage, liability or
action if such settlement is effected without the consent of Issuer, which
consent shall not be unreasonably withheld. Such indemnity shall remain
in full force and effect regardless of any investigation made by or on
behalf of the selling Holder, the underwriter or any controlling person of
the selling Holder or the underwriter, and regardless of any sale in
connection with such offering by the selling Holder. Such indemnity shall
survive the transfer of securities by a selling Holder. 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.
29
<PAGE> 35
(b) Each Holder participating in a registration hereunder will
indemnify and hold harmless, to the fullest extent permitted by law,
Issuer, each of its directors, officers and legal counsel, any underwriter
for Issuer, and each person, if any, who controls Issuer or such
underwriter within the meaning of Section 15 of the Securities Act, from
and against any and all losses, damages, claims, liabilities, or expenses
(including any amounts paid in any settlement) to which Issuer or any such
controlling person and/or any such underwriter may become subject under
applicable law or otherwise and each other such Holder, insofar as such
losses, damages, claims, liabilities (or actions or proceedings in respect
thereof), of litigation, commenced or threatened or expenses arise out of
or are based on (i) any untrue or alleged untrue statement of any material
fact contained in the registration statement or included in the
prospectus, as amended or supplemented, or (ii) the omission or the
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and each such
Holder will reimburse Issuer, each of its directors, officers and legal
counsel, any underwriter and each such controlling person of Issuer or any
underwriter and each other such Holder, promptly upon demand, for any
legal or other expenses reasonably incurred by them in connection with
investigating, preparing to defend or defending against or appearing as a
third party witness in connection with such loss, claim, damage,
liability, action or proceeding; in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was so made in conformity with written
information furnished by such Holder to Issuer specifically for inclusion
therein; provided, however, that the indemnity agreement contained in this
subsection 7.7(b) shall not apply to amounts paid in settlement of any
such claim, loss, damage, liability, or action if such settlement is
effected without the consent of such Holder, which consent shall not be
unreasonably withheld. In no event shall the liability of any Holder
exceed the gross proceeds received by such Holder from the offering. Such
indemnity shall survive the transfer of securities by a selling Holder.
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.
(c) Each party entitled to indemnification under this Section 7.7
shall give notice to the party required to provide indemnification
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 or parties shall have
the right to select one separate counsel to participate in the defense of
such action on behalf of such indemnified party or parties. After notice
from the indemnifying
30
<PAGE> 36
party to such indemnified party of its election to assume the defense
thereof, the indemnifying party will not be liable to such indemnified
party pursuant to the provisions of said subsections 7.7(a) or (b) for any
legal or other expense subsequently incurred by such indemnified party in
connection with the defense thereof, unless (i) the indemnified party
shall have employed counsel in accordance with the provision of the
preceding sentence, (ii) the indemnifying party shall not have employed
counsel reasonably satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after the notice of the
commencement of the action and within 15 days after written notice of the
indemnified party's intention to employ separate counsel pursuant to the
previous sentence, or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party. 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 7.7 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 proportion as is appropriate to
reflect the relative fault of the Issuer on the one hand and each
shareholder 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 Issuer on the one hand and each Selling Shareholder 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 Issuer or by such Selling Shareholder and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. It would not be just and equitable if
contribution pursuant to this Section 7.7(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 7.7(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 7.7(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 7.7(c)
hereof. Notwithstanding the provisions of this Section 7.7(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
31
<PAGE> 37
received by such Selling Shareholder net of selling expenses. 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
foregoing provisions shall control.
7.8 OBLIGATIONS OF ISSUER. Whenever required under this Article
VII to effect the registration of any Registrable Shares, Issuer shall, as
expeditiously as possible:
(a) prepare and file with the Commission 45 days after notice (in
the case of a registration under Section 7.3, as soon as practicable) a
registration statement with respect to such Registrable Shares and use its
best efforts to cause such registration statement to become effective,
and, upon the request of the Holders of a majority of the Registrable
Shares registered thereunder, keep such registration statement effective
for a period of up to one year (180 days if a firm commitment underwriting
plus equal time for any delays attributable to the Issuer) or, if sooner,
until the distribution contemplated in the Registration Statement has been
completed;
(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 Registrable Shares covered by such registration statement;
(c) furnish to each Holder selling Registerable Shares pursuant to
the registration statement such number of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of
the Securities Act, and such other documents as they may reasonably
request in order to facilitate the disposition of Registrable Shares owned
by them;
(d) in the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering; each
Holder participating in such underwriting shall also enter into and
perform its obligations under such an agreement;
(e) immediately notify each Holder of Registrable Shares 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 act or omits to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing (and Issuer
shall promptly amend such prospectus or take other appropriate corrective
action);
32
<PAGE> 38
(f) cause all Registrable Shares registered pursuant hereunder to
be listed on each securities exchange or quoted on a quotation system on
which similar securities issued by Issuer are then listed or quoted;
(g) provide a transfer agent and registrar for all Registrable
Shares registered pursuant hereunder and a CUSIP number for all such
Registrable Shares in each case not later than the effective date of such
registration; and
(h) if requested by Holders of 50% of all of the Registrable
Securities that are being registered in such registration, furnish, at the
request of any Holder requesting registration of Registrable Shares
pursuant to this Section, on the date that such Registrable Shares are
delivered to the underwriters for sale in connection with a registration
pursuant to this Article VII, if such securities are being sold through
underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to
such securities becomes effective, (i) an opinion, dated such date, of the
counsel representing Issuer for the purposes of such registration, in form
and substance as is customarily given to underwriters in an underwritten
public offering, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Shares and (ii) a letter dated such
date, from the independent certified public accountants of Issuer, in form
and substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering, addressed
to the underwriters, if any, and to the Holders requesting registration of
Registrable Shares.
7.9 ASSIGNMENT OF REGISTRATION RIGHTS. The rights granted to a
Holder under this Article 7 may be assigned to a transferee or assignee in
connection with any transfer or assignment of Registrable Shares by a Holder
provided that (i) such transfer may be effected in accordance with applicable
securities laws, (ii) such assignee or transferee acquires at least 100,000
Registrable Shares (subject to appropriate adjustment for any other stock
splits, dividends, subdivisions, combinations, recapitalizations and the like),
and (iii) the Holder notifies the Issuer 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 Article 7.
7.10 LOCKUPS. Each Holder agrees, so long as such Holder holds 5%
or more of the outstanding shares of Common Stock, that in connection with any
registration of the Issuer's securities (whether pursuant to this Agreement,
for the Issuer's own account or for the account of any other shareholder of the
Issuer) that, at all times prior to the expiration of the registration rights
provided for herein, it will upon request by the managing underwriter in any
underwriting of Common Stock or securities convertible into or exchangeable for
Common Stock or upon the request of the Issuer, it will agree, at all times
with respect to registrations in which Holder's Registrable Shares are included
and no more often than once in any twelve-month period with respect to any
registration in which the Holder's Registrable Shares are not included, not to
sell, make any short sale of, loan, grant any option for the purchase of, or
otherwise dispose of any Registrable Shares (other than those included in the
registration) other than transfers to Affiliates that agree to be bound
33
<PAGE> 39
by this restriction, intra-family transfers and transfer to trusts for estate
planning purposes without the prior written consent of the Issuer or
underwriters managing the offering, as the case may be, for such period of time
(which may not exceed 90 days) from the effective date of the registration
statement as may be requested by such underwriters; provided, however, that the
obligations of such Holders pursuant to this Section 7.10 shall be conditioned
upon the receipt by such underwriters or the Issuer of lockup agreements for
the same period of time and on the same terms as the time period and terms
requested of such Holders from each executive officer and director of the
Issuer and each holder of 5% or more of the outstanding shares of Common Stock
(if such holder has been granted registration rights by the Issuer). Any
delays occasioned pursuant to this Section 7.10 shall further extend the time
period referenced in Section 7.8(a) hereof.
7.11 SUBSEQUENT GRANTS OF REGISTRATION RIGHTS. After the date
hereof, Issuer will not prior to the time the registration rights hereunder
have expired enter into any agreement granting any holder or prospective holder
of any securities of Issuer registration rights (i) unless such registration
rights include lockup provisions which are substantially the same as those
provisions set forth in Section 7.10 hereof, and (ii) unless any demand
registration rights granted to such holders or prospective holders give the
Holders the right to participate in registrations requested by such subsequent
holders (but subject to the right of priority of registration for such
subsequent holders), such participation to be on the pro rata basis described
in Section 7.2,
7.12 CERTAIN AGREEMENTS OF HOLDERS.
(a) The Holder(s) included in any registration shall
furnish to the Issuer such information regarding such Holder(s), the
Registrable Shares and the distribution proposed by such Holder(s), as the
Issuer may reasonably request in writing and as shall be reasonably required in
connection with any registration, qualification or compliance referred to in
Section 7.2 and 7.3.
(b) The failure of any Holder(s) to be included in a
registration to furnish the information requested pursuant to Section 7.12(a)
shall not affect the obligation of the Issuer under Section 7.8 to the
remaining Holder(s) who furnish such information.
(c) Each Holder agrees that, upon receipt of any notice
from the Issuer of the happening of any event requiring the preparation of a
supplement or amendment to a prospectus relating to Registrable Shares 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
Shares pursuant to the registration statements contemplated by this Agreement
until its receipt of copies of the supplemented or amended prospectus from the
Issuer and, if so directed by the Issuer, each Holder shall destroy or deliver
to the Issuer all copies, other than permanent file copies then in such
Holder's possession, of the prospectus covering such Registrable Shares that is
current at the time of receipt of such notice provided, however, the Issuer may
not restrict any such sales unless at least five (5) days' prior written notice
is provided to each Holder and provided further the Issuer may not restrict
sales by Holders for a total of more than sixty (60) days during any one year
period. Any delays occasioned pursuant to this Section 7.12(c) shall further
extend the time period referenced in Section 7.8(a) hereof.
34
<PAGE> 40
(d) Each Holder acknowledges and agrees that in the event
of sales under a shelf registration statement pursuant to this Agreement, (1)
the Registrable Shares sold pursuant to such registration statement are not
transferable on the books of the Issuer unless the share certificate submitted
to the transfer agent evidencing such Registrable Shares is accompanied by a
certificate to the effect that (A) the Registrable Shares 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 Shares pursuant to such
shelf registration statement pursuant to this Agreement at any time that the
Issuer 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 Issuer, provided, however, the
Issuer may not restrict any such sales unless at least five (5) days' prior
written notice is provided to each Holder and provided further the Issuer may
not restrict sales by Holders for a total of more than sixty (60) days during
any one year period. Any delays occasioned pursuant to this Section 7.12(d)
shall further extend the time period referenced in Section 7.8(a) hereof.
7.13 TERMINATION OF REGISTRATION RIGHTS. The registration rights
granted pursuant to this Agreement shall terminate as to any Holder at such
time as such Holder may sell under Rule 144 in a three-month period all
Registrable Shares then held by such Holder (assuming the cashless exercise of
any Common Stock underlying Warrants).
ARTICLE VIII.
OTHER PROVISIONS
8.1 FEES AND COMMISSIONS. Each party agrees to pay, and to
indemnify and hold harmless the other party from and against liability for, any
compensation to any Intermediary retained by such party, any finder, broker,
agent, financial advisor, or other intermediary (collectively, an
"Intermediary") in connection with the transactions contemplated by this
Agreement, and the fees and expenses of defending against such liability or
alleged liability. Issuer further agrees to pay up to an aggregate of $60,000
to ECT promptly following demand and whether or not the transactions
contemplated by this Agreement are consummated for all reasonable outside
legal, professional and other bills and costs incurred by ECT and its
Affiliates in connection with the negotiation and preparation of this Agreement
and the evaluation of, and due diligence investigation with respect to, the
transactions contemplated hereby (including, without limitation, title due
diligence and filing fees and expenses, whether incurred by ECT, its Affiliates
or counsel or other third party professionals), provided in each case that the
expenses are reasonable and properly documented. Issuer shall also pay all the
amounts required to be paid by Issuer in accordance with the Fee Letter. ECT
represents and warrants that ECT Securities Corp. is duly licensed and
registered under and in compliance with all regulations, rules and laws to the
extent necessary to perform its obligations under the Fee Letter and to receive
payment thereunder.
8.2 BUSINESS OPPORTUNITY MATTERS. To the fullest extent permitted
by law, (a) Issuer and Purchasers acknowledge and agree that neither of the
Purchasers nor any of their respective Affiliates shall be expressly or
implicitly restricted or proscribed pursuant to this Agreement, the
35
<PAGE> 41
relationship that exists between Purchasers and Issuer or otherwise, from
engaging in any type of business activity or owning an interest in any type of
business entity, regardless of whether such business activity is (or such
business entity engages in businesses that are) in direct or indirect
competition with the businesses or activities of Issuer or any of its
Affiliates. Without limiting the foregoing and to the fullest extent permitted
by law, Purchasers and Issuer acknowledge and agree that (i) neither Issuer nor
its Affiliates nor any other Person shall have any rights, by virtue of the
Basic Documents, the relationship that exists between Purchasers and Issuer or
otherwise, in any business venture or business opportunity of Purchasers or any
of its Affiliates, and neither Purchasers nor their respective Affiliates shall
have any obligation to offer any interest in any such business venture or
business opportunity to Issuer, any Affiliate of Issuer or any other Person, or
otherwise account to any of such Persons in respect of any such business
ventures, (ii) the activities of Purchasers or any of their respective
Affiliates that are in direct or indirect competition with the activities of
Issuer or any of its Affiliates are hereby approved by Issuer, and (iii) by
virtue of the Basic Documents it shall not be deemed a breach of any fiduciary
or other duties, if any and whether express or implied, that may be owed by
Purchasers or their respective Affiliates to the Issuer or its Affiliates for
Purchasers to permit themselves or one of their respective Affiliates to engage
in a business opportunity in preference or to the exclusion of Issuer, its
Affiliates or any other Person.
(b) For purposes of this Section 8.2, the term "Affiliate" when
used to refer to Affiliates of Purchasers, shall exclude Issuer and its
Affiliates.
8.3 CONFIDENTIALITY. In addition to the restrictions contained in
that certain Confidentiality Agreement (the "Confidentiality Agreement") dated
November 24, 1997, by and between ECT and Issuer, which shall remain in effect
according to its term, the Purchasers will hold, and will cause their
respective officers, directors, employees, accountants, counsel, consultants,
advisors, and agents to hold, in confidence, unless compelled to disclose by
judicial or administrative process or by other requirements of law, all
documents and information (including without limitation, the Information)
concerning the Issuer furnished to the ECT (on its behalf and on behalf of JEDI
II) in connection with the right of ECT to have persons attend board of
director meetings pursuant to Section 5.2, except to the extent that such
information (i) can be shown to have been in the public domain through no fault
of the ECT, (ii) was already in the possession of ECT or (iii) was acquired
from a third party which does not have an obligation of confidentiality to
Issuer; provided that the ECT may disclose such information to JEDI II and the
respective officers, directors, employees, accountants, counsel, consultants,
advisors, and agents of ECT and JEDI II in connection with the transactions
contemplated by this Agreement so long as such Persons are informed by the ECT
of the confidential nature of such information and are directed by, and agree
with, the ECT to treat such information confidentially in accordance with this
Section and (without limiting or waiving the obligation of such other Persons)
ECT remains responsible for obligations of such other Persons. The Purchasers
will use all such documents and information solely for the purpose of
monitoring their investment in the Securities and Warrant Shares. The
confidentiality obligations under this Section 8.3 shall terminate two years
from and after the date upon which the ECT elects (irrevocably in writing
delivered to Issuer) to no longer attend the Board of Director's meetings
pursuant to Section 5.2 or to receive information in regards thereto and upon
expiration of said two-year period, the Purchasers will, and will cause its
officers, directors, employees, accountants, counsel, consultants, advisors,
and agents to, destroy or deliver to the Issuer, upon request, all
36
<PAGE> 42
documents and other materials, and all copies thereof, obtained by the
Purchasers pursuant to Section 5.2 hereof.
8.4 SURVIVAL; FAILURE TO CLOSE. All representations, warranties,
indemnities, and covenants contained herein or made in writing by any party in
connection herewith will survive the execution and delivery of this Agreement
and any investigation made at any time by or on behalf of Purchasers, except
that any claim for a breach of a representation or warranty must be brought
within three years following the Closing. Notwithstanding anything herein to
the contrary, in the event the funding by Purchasers of their investment has
not occurred on or before January 16, 1998, because one or more conditions set
forth in Article VI has not been satisfied, either party may terminate its
obligations under this Agreement by written notice to the other; provided,
however, that the provisions of Sections 8.1, 8.3 and 8.4 shall survive any
such termination provided further, however that no party may terminate this
Agreement if such funding has failed to occur because such party (or any
Affiliate thereof) willfully or negligently fail to perform or observe its
material agreements and covenants hereunder.
8.5 RESTRICTIONS.
(a) Restrictions on Transferability. The Restricted Securities
shall not be sold, assigned, transferred or pledged except in compliance with
the conditions specified in this Agreement, which conditions are intended to
ensure compliance with the provisions of the Securities Act. The Purchasers
will cause any purchaser, assignee, transferee or pledgee of the Restricted
Securities or any other securities issued in respect of the Restricted
Securities upon any stock split, stock dividend, recapitalization, merger,
consolidation share exchange or similar event held by the Purchasers to agree
to take and hold such securities subject to the provisions and upon the
conditions specified in Section 8.5 of this Agreement.
(b) Restrictive Legend. Each certificate representing the
Securities, the securities issued upon exercise of the Warrants or any other
securities issued in respect of the Securities, the securities issued upon
exercise of the Warrants upon any stock split, stock dividend,
recapitalization, merger, consolidation, share exchange or similar event, all
of the foregoing being referred to herein as the "Restricted Securities" shall
(unless otherwise permitted by the provisions of Section 8.5(c) 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 SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. SUCH SECURITIES 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 SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO REQUIRED
37
<PAGE> 43
APPROVALS FOR TRANSFER AND CERTAIN OTHER RESTRICTIONS ON TRANSFER, ALL
OF WHICH RESTRICTIONS ARE BINDING ON TRANSFEREES. COPIES OF THE
AGREEMENT COVERING THE FOREGOING MATTERS AND RESTRICTING THE TRANSFER
OF SUCH SECURITIES 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.
The Purchasers consent to the Issuer making a notation on its records and
giving instructions to any transfer agent of the Restricted Securities in order
to implement the restrictions on transfer established in this Agreement. The
Issuer 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 Issuer, in person or by agent,
attorney or accountant, as are the books and records of the Issuer.
(c) 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 8.5(c). 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 Issuer
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 Issuer, addressed to the
Issuer, 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 Issuer. 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 Issuer such legend is not required in order to establish
compliance with any provision of the Securities Act. The Purchasers may not
transfer the Warrants unless the proposed transferee is able to, and does make
for the benefit of the Issuer the representations and agreements that would
apply or relate to the Warrants or the transfer thereof set forth in Section
4.5, 4.7 and 4.8 (if transferred during the two-year period specified therein
and then only for the same two-year period with regard to 4.8). The Purchasers
may not transfer the Warrants or the Preferred Stock, unless the proposed
transferee is notified of the provisions of Section 10.12 and is requested to
agree in writing with the Issuer to be bound by such provisions; provided such
transferee is not obligated to agree.
38
<PAGE> 44
(d) Approval of Warrant Transfer. The Warrants shall not be
transferrable (except to an Affiliate) for a period of two years from the date
hereof without the prior written approval of the Issuer.
ARTICLE IX.
INDEMNIFICATION
9.1 ISSUER INDEMNIFICATION. Issuer agrees to indemnify, defend,
and hold harmless Purchasers and each Affiliate of either of the Purchasers (a
"Purchasers' Indemnified Person") from, against, and in respect of any and all
claims, demands, losses, reasonable costs and expenses, obligations,
liabilities, damages, recoveries, and deficiencies, including interest,
penalties and reasonable attorneys' fees (collectively, "Claims"), that such
Purchasers' Indemnified Party shall incur or suffer, which arise, result from,
or relate to (a) any breach of, or failure by Issuer to perform, any of its
representations, warranties, covenants, or agreements in this Agreement or in
any schedule, certificate, exhibit, or other instrument furnished or to be
furnished by Issuer in connection with the transactions contemplated by this
Agreement, or in the Charter of Issuer or (b) any claims of any applicable
Governmental Authority or other Person arising under any Governmental
Requirement (including without limitation any Environmental Law or regulation
under ERISA). WITHOUT LIMITATION, THE FOREGOING INDEMNITY SHALL APPLY TO EACH
PURCHASER INDEMNIFIED PERSON WITH RESPECT TO LOSSES WHICH IN WHOLE OR IN PART
ARE CAUSED BY OR ARISE OUT OF THE CONCURRENT OR COMPARATIVE NEGLIGENCE OR THE
STRICT LIABILITY OF SUCH PURCHASER INDEMNIFIED PERSON; PROVIDED, HOWEVER, NO
PURCHASER INDEMNIFIED PARTY SHALL BE INDEMNIFIED FOR ITS OWN NEGLIGENCE OR
WILFUL MISCONDUCT.
9.2 PURCHASERS INDEMNIFICATION. Purchasers agree to indemnify,
defend, and hold harmless Issuer and each Affiliate of Issuer (an "Issuer
Indemnified Person") from, against, and in respect of any and all Claims, that
such Indemnified Party shall incur or suffer, which arise, result from, or
relate to any breach of, or failure by Purchasers to perform, any of its
representations, warranties, covenants, or agreements in this Agreement or in
any schedule, certificate, exhibit, or other instrument furnished or to be
furnished by Purchasers in connection with the transactions contemplated by
this Agreement. WITHOUT LIMITATION, THE FOREGOING INDEMNITY SHALL APPLY TO
EACH ISSUER INDEMNIFIED PERSON WITH RESPECT TO LOSSES WHICH IN WHOLE OR IN PART
ARE CAUSED BY OR ARISE OUT OF THE CONCURRENT OR COMPARATIVE NEGLIGENCE OR THE
STRICT LIABILITY OF SUCH ISSUER INDEMNIFIED PERSON; PROVIDED, HOWEVER, NO
ISSUER INDEMNIFIED PARTY SHALL BE INDEMNIFIED FOR ITS OWN NEGLIGENCE OR WILFUL
MISCONDUCT.
9.3 PROCEDURES RELATING TO INDEMNIFICATION UNDER ARTICLE IX. (a)
Any Purchasers' Indemnified Person or Issuer Indemnified Person seeking
indemnification under this Article IX (the "Indemnified Party") with respect to
a Claim that is not a Third Party Claim shall commence and resolve such Claim
solely in accordance with the dispute resolution procedures set forth in
Section 10.12.
39
<PAGE> 45
(b) If any Third Party Claim is asserted against an Indemnified
Party and such Indemnified Party intends to seek indemnification hereunder from
a party to this Agreement (the "Indemnifying Party"), then such Indemnified
Party shall give notice of the Third Party Claim to the Indemnifying Party as
soon as practicable after the Indemnified Party has reason to believe that the
Indemnifying Party will have an indemnification obligation with respect to such
Third Party Claim and shall provide the Indemnifying Party with all papers
served with respect to such Third Party Claim. Such notice shall describe in
reasonable detail the nature of the Third Party Claim, an estimate of the
amount of damages attributable to the Third Party Claim and the basis of the
Indemnified Party's request for indemnification under this Agreement. The
failure of the Indemnified Party to so notify the Indemnifying Party of the
Third Party Claim shall not relieve the Indemnifying Party from any duty to
indemnify hereunder unless and to the extent that the Indemnifying Party
demonstrates that the failure of the Indemnified Party to promptly notify it of
such Third Party Claim prejudiced its ability to defend such Third Party Claim;
provided, that the failure of the Indemnified Party to notify the Indemnifying
Party shall not relieve the Indemnifying Party from any liability which it may
have to the Indemnified Party otherwise than under this Agreement. Thereafter,
the Indemnified Party shall deliver to the Indemnifying Party, within five
business days after the Indemnified Party's receipt thereof, copies of all
notices and documents (including court papers) received by the Indemnified
Party relating to the Third Party Claim.
(c) The Indemnifying Party shall have the right to participate in,
or assume control of, and the Indemnifying Party's insurance carrier shall
have the right to participate in, the defense of the Third Party Claim at its
own expense by giving prompt written notice to the Indemnified Party, using
counsel of its choice reasonably acceptable to the Indemnified Party. If it
elects to assume control of the defense of such Third Party Claim, the
Indemnifying Party shall defend such Third Party Claim by promptly and
vigorously prosecuting all appropriate proceedings to a final conclusion or
settlement. After notice from the Indemnifying Party to the Indemnified Party
of its election to assume the defense of such Third Party Claim, the
Indemnified Party shall have the right to participate in the defense of the
Third Party Claim using counsel of its choice, but the Indemnifying Party shall
not be liable to the Indemnified Party hereunder for any legal or other
expenses subsequently incurred by the Indemnified Party in connection with its
participation in the defense thereof unless (i) the employment thereof has been
specifically authorized in writing by the Indemnifying Party, (ii) the
Indemnifying Party fails to assume the defense or diligently prosecute the
Third Party Claim or (iii) there shall exist or develop a conflict that would
ethically prohibit counsel to the Indemnifying Party from representing the
Indemnified Party. If requested by the Indemnifying Party, the Indemnified
Party agrees to cooperate with the Indemnifying Party and its counsel in
contesting any Third Party Claim that the Indemnifying Party elects to contest,
including the making of any related counterclaim against the Third Party
asserting the Third Party Claim or any cross-complaint against any Person, in
each case only if and to the extent that any such counterclaim or
cross-complaint arises from the same actions or facts giving rise to the Third
Party Claim. The Indemnifying Party shall have the right, acting in good faith
and with due regard to the interests of the Indemnified Party, to control all
decisions regarding the handling of the defense without the consent of the
Indemnified Party, but shall not have the right to admit liability with respect
to, or compromise, settle or discharge any Third Party Claim or consent to the
entry of any judgment with respect to such Third Party Claim without the
consent of the Indemnified Party, which consent shall not be unreasonably
withheld, unless such settlement, compromise or consent includes
40
<PAGE> 46
an unconditional release of the Indemnified Party from all liability and
obligations arising out of such Third Party Claim and which would not otherwise
adversely affect the Indemnified Party.
(d) If the Indemnifying Party fails to assume the defense of a
Third Party Claim within thirty (30) days after receipt of written notice of
the Third Party Claim, then the Indemnified Party shall have the right to
defend the Third Party Claim by promptly and vigorously prosecuting all
appropriate proceedings to a final conclusion or settlement. The Indemnifying
Party shall have the right to participate in the defense of the Third Party
Claim using counsel of its choice, but the Indemnified Party shall not be
liable to the Indemnifying Party hereunder for any legal or other expenses
incurred by the Indemnifying Party in connection with its participation in the
defense thereof. If requested by the Indemnified Party, the Indemnifying Party
agrees to cooperate with the Indemnified Party and its counsel in contesting
any Third Party Claim that the Indemnified Party elects to contest, including
the making of any related counterclaim against the Third Party asserting the
Third Party Claim or any cross-complaint against any Person, in each case only
if and to the extent that any such counterclaim or cross-complaint arises from
the same actions or facts giving rise to the Third Party Claim. The Indemnified
Party shall have the right, acting in good faith and with due regard to the
interests of the Indemnifying Party, to control all decisions regarding the
handling of the defense without the consent of the Indemnifying Party, but
shall not have the right to compromise or settle any Third Party Claim or
consent to the entry of any judgment with respect to such Third Party Claim
without the consent of the Indemnifying Party, which consent shall not be
unreasonably withheld, unless such settlement, compromise or consent includes
an unconditional release of the Indemnifying Party from all liability and
obligations arising out of such Third Party Claim.
ARTICLE X.
MISCELLANEOUS
10.1 AMENDMENTS; WAIVERS. No amendment or waiver of any provision
of this Agreement, nor consent to any departure by Issuer or Purchasers
therefrom, shall in any event be effective unless the same shall be in writing
and signed by Purchasers and Issuer in the case of amendments, and Purchasers
or Issuer, as the case may be, in the case of waivers. The agreement and
signature of Permitted Assigns shall not be required for amendments or waivers.
Waivers involving the rights of Holders may be signed by the Holders of a
majority of the Registrable Shares that are then subject to the registration
rights hereunder, and then such waiver or consent shall be effective only in
the specific instance or for the specific purpose for which given.
10.2 SUCCESSORS AND ASSIGNS. All of the respective rights,
obligations and interests of the parties hereto shall be binding upon and inure
to the benefit of the respective successors of the parties hereto, and to the
extent allowed by the introduction to Section 5.2 in Article V, all covenants
contained in such Article V by or on behalf of any of the parties hereto will
bind and inure to the benefit of the respective Permitted Assigns of the
parties hereto whether so expressed or not and without limitation and without
need of any express assignment. Except as set forth herein, this Agreement and
the rights and obligations of each party thereunder shall not be assigned
without the prior written consent of the other party. Notwithstanding the
preceding sentence, subject to
41
<PAGE> 47
compliance with applicable laws and with the terms and conditions hereof and of
the other Basic Documents, a Purchaser may assign or transfer any or all of its
rights and obligations under Article VII of this Agreement (and no other
provision hereof) without the consent of Issuer. Notwithstanding the
foregoing, a Purchaser may at any time assign or transfer any of its rights or
obligations under this Agreement to an Affiliate. In addition, a Purchaser may
transfer the Securities to third persons, subject to the provisions of this
Agreement.
10.3 SEVERABILITY. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the
remainder of this Agreement unless the consummation of the transaction
contemplated hereby is materially and adversely affected thereby.
10.4 DESCRIPTIVE HEADINGS. The descriptive headings of this
Agreement are inserted for convenience of reference only and do not constitute
a part of and shall not be utilized in interpreting this Agreement.
10.5 GOVERNING LAW. This Agreement shall be deemed a contract and
instrument made under the laws of the State of Texas and shall be construed and
enforced in accordance with and governed by the laws of the State of Texas,
without regard to principles of conflicts of law.
10.6 ENTIRE AGREEMENT. Except for the Confidentiality Agreement
defined in Section 8.3 the Basic Documents constitute the entire agreement
among Issuer and Purchasers concerning the matters referred to herein and
therein, and supersede all prior agreements and understandings among Issuer and
Purchasers relating to the subject matter hereof and thereof. There are no
unwritten oral agreements between or among the parties.
10.7 EXECUTION IN COUNTERPARTS. This Agreement may be executed in
any number of counterparts, each of which when so executed and delivered shall
be deemed an original, and such counterparts together shall constitute one
instrument.
10.8 FURTHER COOPERATION. At any time and from time to time, and
at its own expense, each party shall promptly execute and deliver all such
documents and instruments, and do all such acts and things, as the other may
reasonably request in order to further effect the purposes of this Agreement.
10.9 NOTICES. All notices, requests, and other communications to
any party hereunder shall be in writing (including telecopy) and shall be given
to such party at its address or telecopy number set forth on the signature
pages hereof or such other address or telecopy number as such party may
hereafter specify by notice to the other parties.
10.10 NO WAIVER; REMEDIES CUMULATIVE. No failure or delay on the
part of a party in exercising any right or remedy under this Agreement and no
course of dealing among Issuer and either of the Purchasers shall operate as a
waiver thereof, nor shall any single or partial exercise of
42
<PAGE> 48
any right or remedy under this Agreement preclude any other or further exercise
thereof or the exercise of any other right or remedy under this Agreement. The
rights and remedies expressly provided are cumulative and not exclusive of any
rights or remedies that a party would otherwise have. No notice to or demand
on a party not otherwise required by this Agreement or shall entitle that party
to any other or further notice or demand in similar or other circumstances or
constitute a waiver of the rights of that Party to any other or further action
in any circumstances without notice or demand.
10.11 EXHIBITS; AMENDMENT OF DISCLOSURE LETTER. The exhibits
attached to this Agreement and the Disclosure Letter are incorporated herein
and shall be considered to be a part of this Agreement for the purposes stated
herein, except that in the event of any conflict between any of the provisions
of such exhibits and the provisions of this Agreement, the provisions of this
Agreement shall prevail.
10.12 DISPUTE RESOLUTION. (a) Any controversy, dispute or claim
arising out of or relating to the Basic Documents, or the transactions
contemplated thereby (a "Dispute") shall be resolved in accordance with this
Section 10.12.
(b) either party may give the other party written notice (a
"Dispute Notice") of any Dispute which has not been resolved in the normal
course of business. Within four (4) business days after delivery of the
Dispute Notice, the receiving party shall submit to the other party a written
response (the "Response"). The Dispute Notice and the Response shall each
include (i) a statement setting forth the position of the party giving such
notice, a summary of the arguments supporting such position and, if applicable,
the relief sought and (ii) the name and title of a senior manager of such party
who has authority to settle the Dispute and will be responsible for the
negotiations related to the settlement of the Dispute (the "Senior Manager").
(c) Within four (4) business days after delivery of the Response
provided for in Section 10.12(b), the Senior Managers of both parties shall
meet or communicate by telephone at a mutually acceptable time and place, and
thereafter as often as they reasonably deem necessary, and shall negotiate in
good faith to attempt to resolve the Dispute that is the subject of such
Dispute Notice. If such Dispute has not been resolved within ten (10) business
days after delivery of the Dispute Notice, then the parties shall attempt to
settle the Dispute pursuant to Section 10.12(d).
(d) If the Dispute has not been resolved by negotiation between
the Senior Managers pursuant to Section 10.12(c), a neutral mediator acceptable
to both parties (the "Mediator") shall be appointed within four (4) business
days. The Mediator shall attempt, through negotiations in any manner deemed
reasonably appropriate by the Mediator, in which the parties shall participate,
to resolve the Dispute. The Mediator shall be compensated at a rate agreeable
to Issuer, Purchasers and the Mediator, and each of Issuer and Purchasers shall
pay its one-half of such compensation and other expenses of the mediation.
(e) In the event that the Dispute has not been resolved within
five (5) business days after the appointment of the Mediator, the Dispute shall
be resolved by arbitration administered by the American Arbitration Association
(the "AAA") in accordance with the terms of this Section 10.12,
43
<PAGE> 49
the Commercial Arbitration Rules of the AAA, and, to the maximum extent
applicable, the United States Arbitration Act. Judgment on any matter rendered
by arbitrators may be entered in any court having jurisdiction. Any
arbitration shall be conducted before three arbitrators. The arbitrators shall
be individuals knowledgeable in the subject matter of the Dispute. Each party
shall select one arbitrator who agrees to comply with the provisions of this
Section 10.12 and the two arbitrators so selected shall select the third
arbitrator who agrees to comply with the provisions of this Section 10.12. If
the third arbitrator is not selected within three (3) business days after the
request for an arbitration, then any party may request the AAA to select the
third arbitrator who agrees to comply with the provisions of this Section
10.12. The arbitrators may engage engineers, accountants or other consultants
they deem necessary to render a conclusion in the arbitration proceeding. To
the maximum extent practicable, an arbitration proceeding hereunder shall be
concluded within forty-five (45) days of the filing of the Dispute with the
AAA. Arbitration proceedings shall be conducted in Houston, Texas.
Arbitrators shall be empowered to impose sanctions and to take such other
actions as the arbitrators deem necessary to the same extent a judge could
impose sanctions or take such other actions pursuant to the Federal Rules of
Civil Procedure and applicable law. At the conclusion of any arbitration
proceeding, the arbitrators shall make specific written findings of fact and
conclusions of law. The arbitrators shall have the power to award recovery of
all costs and fees to the prevailing party. All fees of the arbitrators and
any engineer, accountant or other consultant engaged by the arbitrators, shall
be shared equally unless otherwise awarded by the arbitrators.
Nothing in the preceding paragraph, nor in the exercise of any right to
negotiate, mediate or arbitrate thereunder, shall limit the right of any party
hereto to obtain provisional or ancillary remedies such as replevin, injunctive
relief, attachment or appointment of a receiver from a court having
jurisdiction, before, during or after the pendency of any negotiation,
mediation or arbitration proceeding. The institution and maintenance of any
action for such relief, or the pursuit of provisional or ancillary remedies,
shall not constitute a waiver of the right or obligation of any party to submit
any claim or dispute to negotiation, mediation or arbitration, including those
claims or disputes arising from the exercise of any relief or pursuit of
provisional or ancillary remedies.
(f) All negotiations between the Senior Managers pursuant to this
Section 10.12 shall be treated as compromise and settlement negotiations.
Nothing said or disclosed, nor any document produced, in the course of such
negotiations which is not otherwise independently discoverable shall be offered
or received as evidence or used for impeachment or for any other purpose in any
current or future negotiation, mediation, arbitration or litigation.
(g) Nothing in this Section 10.12 shall limit or delay the right
of Purchasers to obtain provisional or ancillary remedies such as injunctive
relief in order to exercise the mandatory redemption provisions and the voting
rights provided to them under the Statement of Resolution.
44
<PAGE> 50
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first set forth above.
CARRIZO OIL & GAS, INC.
By: /s/ S.P. Johnson IV
------------------------------------
S.P. Johnson IV, President
Address for Notice:
14811 St. Mary's Lane, Suite 148
Houston, Texas 77079
Attention: S.P. Johnson IV
Telecopy: 281-496-0884
with a copy to:
Baker & Botts, L.L.P.
3000 One Shell Plaza
Houston, TX 77002
Attn: Gene Oshman, Esq.
Telecopy: 713-229-1522
ENRON CAPITAL & TRADE
RESOURCES CORP.
By: /s/ Timothy J. Detmering
------------------------------------
Name: Timothy J. Detmering
Title: Vice President
Address for Notice:
Enron Capital & Trade Resources
Attn:
----------------------------------
1400 Smith Street
Houston, Texas 77002
Phone: (713) 853-1939
Fax: (713) 646-4039 or (713) 646-4946
45
<PAGE> 51
JOINT ENERGY DEVELOPMENT INVESTMENTS II
LIMITED PARTNERSHIP
By: ENRON CAPITAL MANAGEMENT II
LIMITED PARTNERSHIP,
its sole general partner
By: ENRON CAPITAL II CORP., its
sole general partner
By: /s/ Timothy J. Detmering
-------------------------------
Name: Timothy J. Detmering
Title: Agent and Attorney-in-Fact
Address for Notice:
1400 Smith Street
Houston, Texas 77002
Attn: Donna W. Lowry
Phone: 713/853-1939
Fax: 713/646-4039 or 713/646-4946
46
<PAGE> 1
EXHIBIT 99.2
SHAREHOLDERS' AGREEMENT
This Shareholders' Agreement (this "Agreement") dated as of the 8th
day of January, 1998, ("Effective Date") is by and among CARRIZO OIL & GAS,
INC., a Texas corporation (the "Company"), S.P. Johnson IV, Frank A. Wojtek,
Steven A. Webster, Paul B. Loyd, Jr., Douglas A. P. Hamilton, DAPHAM
Partnership L.P. and the Douglas A.P. Hamilton 1997 GRAT (individually, a
"Major Shareholder" and collectively, the "Major Shareholders"); ENRON CAPITAL
& TRADE RESOURCES CORP., a Delaware corporation ("ECT"); and JOINT ENERGY
DEVELOPMENT INVESTMENTS II LIMITED PARTNERSHIP, a Delaware limited partnership
("JEDI II").
W I T N E S S E T H:
WHEREAS, the Major Shareholders are the current owners of a
substantial number of shares of Common Stock (as hereinafter defined);
WHEREAS, contemporaneously herewith, ECT and JEDI II are to acquire a
substantial number of shares of Series A Preferred Stock and Warrants (as
hereinafter defined);
WHEREAS, the Company, the Major Shareholders, ECT and JEDI II desire
to enter into this Agreement to evidence their agreement regarding certain
matters related to the Series A Preferred Stock and the Warrants.
NOW, THEREFORE, in consideration of the mutual agreements and promises
herein contained and on this date made and other consideration, the sufficiency
of which is hereby acknowledged, the Major Shareholders, ECT, JEDI II and the
Company, each with the other, do hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1. Certain Defined Terms. As used in this Agreement, the
following terms shall have the meanings indicated:
Agreement: This Shareholders' Agreement, as the same may be
supplemented or amended from time to time.
Articles of Incorporation: means the Amended and Restated Articles of
Incorporation of the Company.
Board of Directors: means the Board of Directors of the Company.
Bylaws: means the Amended and Restated Bylaws of the Company, as
amended.
-1-
<PAGE> 2
Common Stock: means the common stock, par value $.01 per share, of
the Company or any successor class of the Company's common stock.
Person: means an individual or individuals, a partnership, a
corporation, a company, a limited liability company, an association, a joint
stock company, a trust, a joint venture, an unincorporated organization, any
other form of legal entity, or a governmental authority.
Series A Preferred Stock: means the 9% Series A Preferred Stock, par
value $0.01, having the relative rights, preferences, privileges and
limitations set forth in the Statement of Resolution (attached hereto as
Exhibit A) (the "Statement of Resolution").
Stock Purchase Agreement: means the Stock Purchase Agreement dated
January 8, 1998 between the Company, ECT and JEDI II (attached hereto as
Exhibit B).
Warrants: means the warrants which are exercisable for the purchase
of 1,000,000 shares of Common Stock having the relative rights, preferences,
privileges and limitations set forth in the Warrant Certificate (as defined in
the Stock Purchase Agreement).
1.2 For purposes of this Agreement, shares of Common Stock shall
be deemed to be beneficially owned by a Person if such Person would be deemed
to be the beneficial owner of such shares under Rule 13d-3(a) of the Securities
Exchange Act of 1934, as amended (excluding the application of Rule 13d-5(b)(1)
as a result of this agreement).
ARTICLE II
TRANSFER RESTRICTION PROVISION
2.1 Transfer Restriction. (a) Each of the Major Shareholders
hereby agrees that it shall not, without the consent of ECT (acting on behalf
of itself and JEDI II) (or if ECT, JEDI II and their respective Affiliates do
not beneficially own the largest amount of the outstanding Series A Preferred
Stock that is then beneficially owned by any shareholder, then only with the
consent of the holders of a majority of the Series A Preferred Stock),
transfer, assign, donate, sell, devise, encumber or in any other manner
alienate (collectively "Transfer") any portion of the Common Stock beneficially
owned by it as of the date hereof as set forth beside its signature (such
shares, excluding the Nonrestricted Shares (as defined below), are referred to
herein as the "Restricted Shares") provided that commencing on January 1, 1998
each of the Major Shareholders may Transfer during each calendar year through
and including 2001 up to 20% of the number of shares of Common Stock owned by
such Major Shareholder as of the date hereof and any portion of such shares
permitted hereby to be Transferred in prior calendar years that were not so
transferred or assigned (such shares that may be so Transferred are referred to
herein as the "Nonrestricted Shares"). Further, each Major Shareholder shall
retain the final 20% of its current holdings until no shares of the Series A
Preferred Stock remains outstanding. Upon any redemption of any shares of the
Series A Preferred Stock (the percentage of the outstanding shares so redeemed,
being called the "Released Percentage"), a Released Percentage of the
Restricted Shares shall thereupon be released from transfer restrictions
-2-
<PAGE> 3
imposed hereby (which release shall be in addition to the other releases from
the transfer restrictions provided hereby).
(b) No partition of the shares of a Major Shareholder between a
Major Shareholder and his spouse upon divorce nor any assignment or transfer
upon a Major Shareholder's death shall be considered a Transfer; provided that
such spouse or such transferee upon death must, as a condition of such
partition, assignment or transfer agree in writing to take such shares of
Common Stock subject to the terms and conditions of this Agreement. Nothing in
this Section 2.1 shall prevent a Major Shareholder from a Transfer of
Restricted Shares to his Family Group; provided, that no Transfer may be made
to a Major Shareholder's Family Group until the transferee has agreed in
writing to be bound by the terms of this Agreement. "Family Group" means, with
respect to a Major Shareholder, (a) the spouse of the Major Shareholder, or (b)
any trust solely for the benefit of the Major Shareholder, the Major
Shareholder's spouse, and/or their respective ancestors and/or descendants,
including any descendants by adoption; provided, however, that the trustee or
trustees (including any substitute or replacement trustee or trustees) must be
a trustee on the date hereof or shall have been approved by ECT on behalf of
itself and JEDI II, which approval may not be unreasonably withheld. Any
Transfer back to a Major Shareholder from his Family Group shall not be
restricted by this Section 2.1.
(c) The restrictions of this Section 2.1 shall not prohibit the
pledge of Common Stock of any Major Shareholder; provided, however, any
transfer following such pledge in foreclosure, liquidation or otherwise in any
attempt to realize upon the value of the pledged Common Stock shall be
considered a Transfer hereunder.
ARTICLE III
NEW SERIES OF PREFERRED STOCK
3.1. Series A Preferred Stock. The Major Shareholders consent to
the adoption of the Statement of Resolution and the consummation of all
transactions contemplated therein.
3.2 New Directors.
(a) The Major Shareholders (without limitation of the
consent set forth in Section 3.1 above) consent to the provisions in the
Statement of Resolution which provide that if the Company fails to redeem the
required number of Series A Preferred Stock on January 8, 2005 or the
applicable Redemption Date (as defined in the Statement of Resolution)
("Redemption Date") then the number of directors constituting the Board of
Directors shall, effective as of the time of election of such additional
directors as provided in the Statement of Resolution and without further
action, be increased as set forth in the Statement of Resolution. The Major
Shareholders further consent to the provisions of the Statement of Resolution
which provide that such additional directors shall continue as directors and
such additional voting right shall continue until such time as the Series A
Preferred Stock presented for redemption and required to be redeemed as
provided in Section 4(b) of the Statement of Resolution (excluding Section
4(b)(ii)(F) have been redeemed or all necessary funds have been set aside for
payment as provided in Section 6 of the Statement of Resolution, as the case
may be, at which time (A) such additional directors shall cease to be
-3-
<PAGE> 4
directors, (B) such additional voting right of the holders of Series A
Preferred Stock shall terminate and (C) the number of directors constituting
the Board of Directors shall, without further action, be decreased to that
number of directors remaining as directors following the effect of clause (A)
above (but subject to later adjustment in accordance with the Articles of
Incorporation and the Bylaws), provided that this sentence shall not limit the
effect of the preceding sentence upon the failure by the Corporation to redeem
the required number of Series A Preferred Shares upon the occurrence of any
subsequent redemption obligation provided in Section 4(b).
(b) The Major Shareholders hereby agree that they shall
not object to or oppose any increase in the Board of Directors as contemplated
in Section 3.1(a). Notwithstanding the foregoing, the foregoing does not
constitute an agreement by the Major Shareholders as to the voting of their
shares of Common Stock.
(c) Each Major Shareholder agrees without duplication to
promptly provide ECT and JEDI II with copies of all Schedule 13D's, all Forms 4
and 5, and all amendments thereto pertaining to such Major Shareholder filed by
them with the Securities and Exchange Commission.
ARTICLE IV
BUSINESS OPPORTUNITY MATTERS
Section 4.1 No Restrictions on Business Activities. The Major
Shareholders consent to the provisions of the Stock Purchase Agreement which
provide that:
a) Subject to the restrictions contained in the Stock
Purchase Agreement and to the fullest extent permitted by law, neither ECT,
JEDI II nor any of their Affiliates (as defined in the Stock Purchase
Agreement) shall be expressly or implicitly restricted or proscribed pursuant
to the Stock Purchase Agreement (attached hereto as Exhibit B), the
relationship that exists between ECT, JEDI II and the Company or otherwise,
from engaging in any type of business activity or owning an interest in any
type of business entity, regardless of whether such business activity is (or
such business entity engages in businesses that are) in direct or indirect
competition with the businesses or activities of the Company or any of its
Affiliates. Without limiting the foregoing, subject to the restrictions
contained in the Stock Purchase Agreement and to the fullest extent permitted
by law, (i) neither the Company nor its Affiliates nor any other Person shall
have any rights, by virtue of the Basic Documents (as defined in the Stock
Purchase Agreement), the relationship that exists between ECT, JEDI II and the
Company or otherwise, in any business venture or business opportunity of ECT,
JEDI II or any of their Affiliates, and neither ECT, JEDI II nor their
Affiliates shall have any obligation to offer any interest in any such business
venture or business opportunity to the Company, any Affiliate of the Company or
any other Person, or otherwise account to any of such Persons in respect of any
such business ventures, (ii) the activities of ECT, JEDI II or any of their
Affiliates that are in direct or indirect competition with the activities of
the Company or any of its Affiliates are hereby approved by the Majority
Shareholders, and (iii) by virtue of the Basic Document (as defined in the
Stock Purchase Agreement), it shall not be deemed a breach of any fiduciary or
other duties, if any and whether express or implied, that may be owed by ECT,
JEDI II or their Affiliates to the Company or its Affiliates for ECT or JEDI II
to permit themselves or one
-4-
<PAGE> 5
of their Affiliates to engage in a business opportunity in preference or to the
exclusion of the Company, its Affiliates or any other Person.
(b) For purposes of Section 8.2 of the Stock Purchase Agreement,
the term "Affiliate" when used to refer to Affiliates of ECT or JEDI II, shall
exclude the Company and its Affiliates.
ARTICLE V
MISCELLANEOUS
5.1. Remedies. Subject to Section 5.13 hereof, each party hereto
acknowledges that a remedy at law for any breach or attempted breach of this
Agreement will be inadequate, agrees that each other party hereto shall be
entitled to specific performance and injunctive and other equitable relief in
case of any such breach or attempted breach, and further agrees to waive any
requirement for the securing or posting of any bond in connection with the
obtaining of any such injunctive or any other equitable relief.
5.2. Termination. The provisions of this Agreement shall terminate
upon the earlier of (a) the date upon which neither ECT nor JEDI II hold any
Series A Preferred Stock of the Company and (b) seven years from the date
hereof.
5.3. Amendment. This Agreement may only be amended by an instrument
in writing signed by the parties hereto.
5.4. Reliance. The parties hereto acknowledge and agree that the
Persons signatory to the Stock Purchase Agreement are entering into such
agreement in reliance on the terms and provisions of this agreement.
5.5. Notices. Any notice, request, reply, instruction or other
communication (herein severally and collectively called notice) in this
Agreement provided or permitted to be given to the Company, any Major
Shareholder, ECT or JEDI II must be given in writing and may be given or served
by depositing the same in the United States mail, in certified or registered
form, postage fully prepaid, addressed to the party or parties to be notified,
with return receipt requested, or by delivering the same in person to such
party or parties. Notice deposited in the United States mail, mailed in the
manner hereinabove described, shall be effective upon deposit. Notice given in
any other manner shall be effective only if and when received by the party to
be notified. For purposes of notice hereunder:
-5-
<PAGE> 6
the address for ECT shall be:
Enron Capital & Trade Resources Corp.
1400 Smith Street
Houston, Texas 77002
Attn: Donna W. Lowry
Phone: 713/853-6973
Fax: 713/646-3750
the address for JEDI II shall be:
Joint Energy Development Investments II
Limited Partnership
1400 Smith Street
Houston, Texas 77002
Attn: Donna W. Lowry
Phone: 713/853-1939
Fax: 713/646-4039 or 713/646-4946
the address for the Company shall be:
Carrizo Oil & Gas, Inc.
14811 St. Mary's Lane, Suite 148
Houston, Texas 77079
Attn: S.P. Johnson IV
Phone: 281/496-1352
Fax: 713/229-1522
-6-
<PAGE> 7
the address for each of the Major Shareholders shall be:
<TABLE>
<S> <C>
S.P. Johnson IV Douglas A.P. Hamilton
14811 St. Mary's Lane, Suite 148 14811 St. Mary's Lane, Suite 148
Houston, Texas 77079 Houston, Texas 77079
Frank A. Wojtek The Douglas A.P. Hamilton 1997
14811 St. Mary's Lane, Suite 148 1997 GRAT
Houston, Texas 77079 c/o Mr. Kim Baptiste
Schulte Roth & Zabel L.L.P.
Steven A. Webster 900 Third Avenue
14811 St. Mary's Lane, Suite 148 New York, New York 10022
Houston, Texas 77079
DAPHAM Partnership, L.P.
Paul B. Loyd, Jr. c/o Mr. Kenneth Huff
14811 St. Mary's Lane, Suite 148 7629 N. Pinesview Avenue
Houston, Texas 77079 Scottsdale, Arizona 85258
and
9256 N. Pelham Parkway
Milwaukee, Wisconsin 53217
</TABLE>
5.6. GOVERNING LAW. THIS AGREEMENT SHALL BE SUBJECT TO AND
GOVERNED BY THE LAWS OF THE STATE OF TEXAS.
5.7. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties to this Agreement and their respective
heirs, executors, distributees, successors and assigns. No rights under this
Agreement may be assigned without the consent of the other parties hereto.
5.8. Representations. Each of the Major Shareholders hereby
represents and warrants that as of the date of the execution of this Agreement
it beneficially owns all of (and not a greater number than) the number of
shares of Common Stock set forth beside its signature, and that all such shares
are held in the name set forth below its signature, except for less than
100,000 shares owned by Cerrito Partners in which Steven Webster is a
beneficial owner.
5.9. Invalid Provisions. Should any portion of this Agreement be
adjudged or held to be invalid, unenforceable or void, such holding shall not
have the effect of invalidating or voiding the remainder of this Agreement, and
the portion so held invalid, unenforceable or void shall, if possible, be
deemed amended or reduced in scope, or to otherwise be stricken from this
Agreement to the extent required for the purposes of validity and enforcement
thereof.
5.10. Section Headings. The section and paragraph headings contained
herein are for reference purposes only and shall not in any way affect the
meaning and interpretation of this Agreement.
-7-
<PAGE> 8
5.11. Execution in Counterparts. This Agreement may be executed in
any number of counterparts, each of which when so executed and delivered shall
be deemed an original, and such counterparts together shall constitute only one
instrument.
5.12. Entire Agreement. This Agreement constitutes the entire
agreement among the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the parties, and there are no agreements between
the parties in connection with the subject matter hereof except as set forth
specifically herein and therein.
5.13 Dispute Resolution. (a) Any controversy, dispute or claim
arising out of or relating to this Agreement, or the transactions contemplated
hereby (a "Dispute") shall be resolved in accordance with this Section 5.13.
(b) any party hereto may give any other party hereto written
notice (a "Dispute Notice") of any Dispute which has not been resolved in the
normal course of business. Within four (4) business days after delivery of the
Dispute Notice, the receiving party shall submit to the party giving such
Dispute Notice a written response (the "Response"). The Dispute Notice and the
Response shall each include (i) a statement setting forth the position of the
party giving such notice, a summary of the arguments supporting such position
and, if applicable, the relief sought and (ii) the name and title of a senior
manager of such party who has authority to settle the Dispute and will be
responsible for the negotiations related to the settlement of the Dispute (the
"Senior Manager").
(c) Within four (4) business days after delivery of the Response
provided for in Section 5.13(b), the Senior Managers of both parties shall meet
or communicate by telephone at a mutually acceptable time and place, and
thereafter as often as they reasonably deem necessary, and shall negotiate in
good faith to attempt to resolve the Dispute that is the subject of such
Dispute Notice. If such Dispute has not been resolved within ten (10) business
days after delivery of the Dispute Notice, then the parties shall attempt to
settle the Dispute pursuant to Section 5.13(b).
(d) If the Dispute has not been resolved by negotiation between
the Senior Managers pursuant to Section 5.13(c), a neutral mediator acceptable
to all parties to the mediation (the "Mediator") shall be appointed within four
(4) business days. The Mediator shall attempt, through negotiations in any
manner deemed reasonably appropriate by the Mediator, in which the parties
shall participate, to resolve the Dispute. The Mediator shall be compensated
at a rate agreeable to all parties to the mediation and the Mediator. The
Compensation and other expenses of the mediation shall be shared equally among
all parties to the mediation.
(e) In the event that the Dispute has not been resolved within
five (5) business days after the appointment of the Mediator, the Dispute shall
be resolved by arbitration administered by the American Arbitration Association
(the "AAA") in accordance with the terms of this Section 5.13, the Commercial
Arbitration Rules of the AAA, and, to the maximum extent applicable, the United
States Arbitration Act. Judgment on any matter rendered by arbitrators may be
entered in any court having jurisdiction. Any arbitration shall be conducted
before three arbitrators. The arbitrators shall be individuals knowledgeable
in the subject matter of the Dispute. ECT, if a party to the arbitration, or
JEDI II, if a party to the arbitration, shall select one arbitrator, the Major
Shareholders and the
-8-
<PAGE> 9
Company shall jointly select one arbitrator and the two arbitrators so selected
shall select the third arbitrator. If the third arbitrator is not selected
within three (3) business days after the request for an arbitration, then any
party to the mediation may request the AAA to select the third arbitrator. The
arbitrators may engage engineers, accountants or other consultants they deem
necessary to render a conclusion in the arbitration proceeding. To the maximum
extent practicable, an arbitration proceeding hereunder shall be concluded
within forty-five (45) days of the filing of the Dispute with the AAA.
Arbitration proceedings shall be conducted in Houston, Texas. Arbitrators
shall be empowered to impose sanctions and to take such other actions as the
arbitrators deem necessary to the same extent a judge could impose sanctions or
take such other actions pursuant to the Federal Rules of Civil Procedure and
applicable law. At the conclusion of any arbitration proceeding, the
arbitrators shall make specific written findings of fact and conclusions of
law. The arbitrators shall have the power to award recovery of all costs and
fees to the prevailing party. All fees of the arbitrators and any engineer,
accountant or other consultant engaged by the arbitrators, shall be paid one
half by ECT and JEDI II and one half by the Major Shareholders and the Company
jointly, unless otherwise awarded by the arbitrators.
In addition, nothing in the preceding paragraph, nor in the exercise
of any right to negotiate, mediate or arbitrate thereunder, shall limit the
right of any party hereto to obtain provisional or ancillary remedies such as
replevin, injunctive relief, attachment or appointment of a receiver from a
court having jurisdiction, before, during or after the pendency of any
negotiation, mediation or arbitration proceeding. The institution and
maintenance of any action for such relief, or the pursuit of provisional or
ancillary remedies, shall not constitute a waiver of the right or obligation of
any party to submit any claim or dispute to negotiation, mediation or
arbitration, including those claims or disputes arising from the exercise of
any relief or pursuit of provisional or ancillary remedies.
(f) All negotiations between the Senior Managers pursuant to this
Section 5.13 shall be treated as compromise and settlement negotiations.
Nothing said or disclosed, nor any document produced, in the course of such
negotiations which is not otherwise independently discoverable shall be offered
or received as evidence or used for impeachment or for any other purpose in any
current or future negotiation, mediation, arbitration or litigation.
5.14 Company a Party; Stop Transfer Instructions. The Company
agrees to give effect to the transfer restrictions imposed by this Agreement by
placing an "issuer hold" on the shares owned by the Major Stockholders and it
will not release such issuer hold except for Nonrestricted Shares in accordance
with the terms hereof, and the Company is entering into such Agreement solely
for such purpose. Each Major Shareholder consents to the Company making a
notation on its records and giving instructions to any transfer agent of the
Restricted Shares in order to implement the restrictions or 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 shareholders
of the Company, in person or by agent, attorney or accountant, as are the books
and records of the Company.
5.15 No Shareholders Meeting. The consents of the Major
Shareholders given in this Agreement are not intended to and do not constitute
the action on behalf of all shareholders of the Company, nor an action pursuant
to a meeting of shareholders, nor an action by written consent without a
meeting pursuant to Article 9.10 of the Texas Business Corporation Act.
-9-
<PAGE> 10
5.16 Reliance. Each Major Shareholder acknowledges that ECT and
JEDI II, in making their investment in the Series A Preferred Stock and the
Warrants, are relying on the representations, warranties and covenants of each
Major Shareholder as set forth in this Agreement.
-10-
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by themselves or by their respective representatives thereunto duly
authorized as of the date first above set forth.
CARRIZO OIL & GAS, INC.
By: /s/ S. P. Johnson IV
------------------------------------
Name:
Title:
ENRON CAPITAL & TRADE RESOURCES CORP.
By: /s/ Timothy Detmering
------------------------------------
Name:
Title:
-11-
<PAGE> 12
JOINT ENERGY DEVELOPMENT
INVESTMENTS II LIMITED PARTNERSHIP
By: ENRON CAPITAL MANAGEMENT II
LIMITED PARTNERSHIP,
its sole general partner
By: ENRON CAPITAL II CORP., its
sole general partner
By: /s/ Timothy Detmering
------------------------------
Name:
----------------------------
Title:
---------------------------
-12-
<PAGE> 13
Shares Owned:
783,085 /s/ S.P Johnson IV
- ----------- -------------------------------
S.P. Johnson IV
1,273,721 /s/ Frank A. Wojtek
- ----------- -------------------------------
Frank A. Wojtek
1,371,016 /s/ Steven A. Webster
- ----------- -------------------------------
Steven A. Webster
800,796 /s/ Douglas A.P. Hamilton
- ----------- -------------------------------
Douglas A.P. Hamilton
1,396,756 /s/ Paul B. Loyd, Jr.
- ----------- -------------------------------
Paul B. Loyd, Jr.
DAPHAM PARTNERSHIP L.P.
395,960 /s/ Kenneth Huff
- ----------- -------------------------------
Kenneth Huff,
General Partner
DOUGLAS A.P. HAMILTON 1997 GRAT
200,000 /s/ Kim E. Baptiste
- ----------- -------------------------------
Kim E. Baptiste,
Trustee
-13-
<PAGE> 1
EXHIBIT 99.3
AMENDMENT TO EMPLOYMENT AGREEMENT
Carrizo Oil & Gas, Inc., a Texas corporation ("Company"), and ___________,
("Executive") have previously entered into an Employment Agreement dated as of
June __, 1997 ("Employment Agreement"), and by this agreement hereby amend the
Employment Agreement effective as of January ___, 1998 as follows:
If the holders of shares of the Company's 9% Series A Preferred Stock, par
value $.01 per share (which stock is contemplated to be sold by the Company to
Enron Capital & Trade Resources Corp., a Delaware corporation ("Enron"), and
Joint Energy Development Investments II Limited Partnership, a Delaware limited
partnership ("JEDI II")), exercise their rights and remedies, including their
voting rights to elect any directors to the board of directors of the Company,
as provided under the Basic Documents (as such term is defined in the Stock
Purchase Agreement dated January __, 1998 among the Company, Enron and JEDI
II), the exercise of such rights and remedies of such holders will not
constitute a "Change in Control" within the meaning of Section 9 of the
Employment Agreement.
In witness whereof, the parties have caused these presents to be executed
this ___ day of January, 1998, effective as of the day and year first above
written.
CARRIZO OIL & GAS, INC.
By:
--------------------------
Name:
Title:
-----------------------------
Name:
l
<PAGE> 1
EXHIBIT 99.4
THURSDAY JANUARY 8, 2:17 PM EASTERN TIME
COMPANY PRESS RELEASE
SOURCE: Carrizo Oil & Gas, Inc.
CARRIZO OIL & GAS, INC. SELLS $30 MILLION OF PREFERRED STOCK AND WARRANTS TO
AFFILIATES OF ENRON CORP.
HOUSTON, Jan. 8/PRNewswire/ -- Carrizo Oil & Gas, Inc. (Nasdaq: CRZO - news)
today announced the closing of the sale to affiliates of Enron Corp. (NYSE: ENE
- - news) of 300,000 shares of 9% Series A Preferred Stock of Carrizo (the
"Preferred Stock") and warrants to purchase 1,000,000 shares of Carrizo common
stock, for an aggregate purchase price of $30 million. S.P. Johnson IV,
Carrizo's President and Chief Executive Officer stated, "We welcome Enron as a
major investor in Carrizo. We are proud of the fact that one of the world's
leading energy companies has shown such confidence in our future."
Carrizo expects to use the proceeds primarily for the expansion of its oil and
natural gas exploration and development activities in Texas and Louisiana. Mr.
Johnson noted, "Since the completion of our initial public offering, Carrizo has
begun to consider a significant number of newly identified exploration projects
in Texas and Louisiana. We have either acquired or have letters of intent in
place for an additional approximately 152,000 gross acres (81,000 net acres) of
leases and/or seismic options in four South Texas counties, which if acquired,
would allow us to increase our net acreage position by more than 60% over our
net acreage position at the completion of the initial public offering. In
addition, we have acquired a 12.5% working interest in nine newly identified 3D
seismic supported medium-depth, high-potential drilling prospects, primarily in
South Louisiana, seven of which are expected to be drilled during the first six
months of 1998. The proceeds of this financing will allow the Company to
participate in these attractive new projects in our core areas of expertise and
provide additional capital to further expand our acreage and seismic acquisition
programs."
The Preferred Stock entitles the holder to receive cumulative dividends at the
rate of $9.00 per year on each share of Preferred Stock. For the first four
years, dividends may, at the Company's option, be paid either in cash or in
additional shares of Preferred Stock.
The Preferred Stock is redeemable at Carrizo's option at any time and is
required to be redeemed by Carrizo (i) on January 7, 2005 or (ii) upon the
occurrence of certain events. The Preferred Stock is entitled to a liquidation
preference per share equal to its redemption price. Holders of the Preferred
Stock have certain class voting rights and the right to elect a majority of the
Board of Directors upon certain failures to redeem.
All of the Company's current directors and certain of their related holders,
who own in the aggregate approximately 60% of Carrizo's outstanding Common
Stock, have agreed to certain restrictions on the transfer of these shares
during the time the Preferred Stock is outstanding.
The Warrants (i) enable the holders to purchase 1,000,000 shares of Common
Stock at a price of $11.50 per share, subject to adjustments, (ii) expire after
a seven-year term, and (iii) are exercisable after one year.
Net proceeds to Carrizo after fees and related costs should total approximately
$28.8 million.
Carrizo is an independent oil and gas company engaged in the exploration,
development, exploitation and production of natural gas and crude oil.
Statements in this news release, including but not limited to those relating to
the results or effects arising out of the Preferred Stock financing, (including
the use of proceeds or the results of any new projects) the amount of any
acreage acquired, the number, potential or timing of drilling projects or
prospects and other statements that are not historical facts are forward
looking statements that are based on current expectations. Although the Company
believes that its expectations are based on reasonable assumptions, it can give
no assurance that these expectations will prove correct. Important factors that
could cause actual results to differ materially from those in the forward
looking statements include the results of, and dependence on exploratory
drilling activities, volatility of natural gas and oil prices, risks relating
to reserve replacement, reserve information and future net revenue estimates,
operating risks, regulatory and environmental matters, ability to manage
growth and achieve business strategy, capital requirements, dependence on key
personnel, availability of drilling rigs, weather, land issues and other risks
described in the Company's filings with the Securities and Exchange Commission.
