<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): December 15, 1999
CARRIZO OIL & GAS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
TEXAS 000-22915 76-0415919
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation) File Number) Identification No.)
</TABLE>
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> 2
ITEM 5. OTHER EVENTS.
On December 15, 1999, Carrizo Oil & Gas, Inc., a Texas
corporation (the "Company"), consummated the transactions (the "Financing")
contemplated by a Securities Purchase Agreement dated December 15, 1999 (the
"Securities Purchase Agreement") among the Company, CB Capital Investors, L.P.
("Chase"), Mellon Ventures, L.P. ("Mellon"), Paul B. Loyd, Jr., Douglas A.P.
Hamilton and Steven A. Webster (excluding the Company, the "Investors"). Such
transactions included (i) the payment by the Investors of an aggregate purchase
price of $30,000,000, (ii) the sale of an aggregate of $22,000,000 principal
amount of 9% Senior Subordinated Notes due 2007 (the "Notes") to the Investors,
(iii) the sale of an aggregate of 3,636,364 shares of the Company's Common Stock
for $2.20 per share to the Investors, (iv) the sale of warrants (the "Warrants")
to purchase up to 2,760,189 shares of the Company's Common Stock (the "Warrant
Shares") at the exercise price of $2.20 per share, subject to adjustments, to
the Investors, (v) the execution of the Shareholders Agreement dated December
15, 1999 (the "Shareholders Agreement") among the Company, Chase, Mellon, Paul
B. Loyd, Jr., Douglas A.P. Hamilton, Steven A. Webster, S.P. Johnson IV, Frank
A. Wojtek and DAPHAM Partnership, L.P., (vi) the execution and delivery of the
Warrant Agreement dated December 15, 1999 (the "Warrant Agreement") among the
Company, Chase, Mellon, Paul B. Loyd, Jr., Douglas A.P. Hamilton and Steven A.
Webster, (vii) the execution of the Registration Rights Agreement dated December
15, 1999 ("Chase Registration Rights Agreement") among the Company, Chase and
Mellon, (viii) the execution of the Amended and Restated Registration Rights
Agreement dated December 15, 1999 ("Amended Founders Registration Rights
Agreement") among the Company, Paul B. Loyd, Jr., Douglas A.P. Hamilton, Steven
A. Webster, S.P. Johnson IV, Frank A. Wojtek and DAPHAM Partnership, L.P., and
(ix) the execution of a Compliance Sideletter dated December 15, 1999 among the
Company, Chase and Mellon (the "Compliance Sideletter").
Also on December 15, 1999 the Company consummated the
transactions (the "Enron Repurchase") contemplated by the Stock and Warrant
Purchase Agreement dated December 1, 1999 ("Enron Purchase Agreement") among the
Company and Enron North America Corp. ("ENA"), Joint Energy Development
Investments II Limited Partnership ("JEDI II") and Sundance Assets, L.P.
("Sundance") (ENA, JEDI II and Sundance, collectively, the "Enron Parties").
Such transactions included (i) the payment to the Enron Parties of an aggregate
purchase price of $12,000,000 and other fees, (ii) the repurchase of all the
outstanding shares of the Company's 9% Series A Preferred Stock, (iii) the
repurchase of 750,000 currently outstanding warrants to purchase the Company's
Common Stock held by the Enron Parties and (iv) the amendment of the terms of
250,000 warrants (the "Retained Enron Warrants") to purchase the Company's
Common Stock retained by the Enron Parties . The exercise price of the Retained
Enron Warrants was reduced from $11.50 per share to $4 per share as contemplated
by the Enron Purchase Agreement.
The Company also at this time entered into a Ninth Amendment
to the First Amended, Restated and Combined Loan Agreement dated August 28, 1997
(the "Ninth Amendment") by and between the Company and Compass Bank ("Compass"),
whereby, among other things, the $9 million of principal amount due in the year
2000 under the existing term loan facility was extended and Compass consented to
the Financing and the Enron Repurchase. The
2
<PAGE> 3
revised amortization under the term loan facility provides for a $2 million
principal payment that was made at closing, $1.74 million of principal payments
during the second half of the year 2000, $2.64 million of principal payments
during the first half of the year 2001 and the remaining balance due in July
2001. In addition, the maturity date for the existing borrowing base facility
was extended from June 2000 until January 2002, subject to interim borrowing
base reviews. The Ninth Amendment requires the Company to maintain (i) a
Tangible Net Worth (as defined in the Ninth Amendment) of $34 million, subject
to certain increases, (ii) a ratio of quarterly EBITDA to quarterly Debt Service
(as such terms are defined in the Ninth Amendment) of not less than 1.25 to 1.0
at any time and (iii) a minimum Working Capital (as defined in the Ninth
Amendment) balance of $2 million at all times.
THE SECURITIES PURCHASE AGREEMENT
In addition to providing for the foregoing transactions, the
Securities Purchase Agreement provides that the Notes will be subordinated and
subject in right of payment to the prior payment of the senior indebtedness of
the Company, which includes but is not limited to certain indebtedness under the
Company's senior credit facility with Compass Bank, certain indebtedness
incurred pursuant to borrowing base limitations supported by the Company's oil
and gas properties, certain purchase money indebtedness issued or incurred to
finance consolidated capital expenditures, and certain indebtedness incurred
pursuant to the financing of certain acquisitions or the development of the
Company's oil and gas properties with proved reserves.
The Securities Purchase Agreement includes certain
representations, warranties and covenants by the parties. The Securities
Purchase Agreement includes various covenants by the Company including without
limitation affirmative covenants that require, among other things, the Company
to maintain its existence and provide certain information to the Investors and
negative covenants that provide for certain limits on the Company's ability to
(i) incur indebtedness, (ii) incur or allow liens, (iii) make investments, loans
and advances, (iv) engage in mergers, consolidations, sales of assets and
acquisitions, (v) declare dividends and effect certain distributions (including
restrictions on distributions upon the Common Stock), (vi) engage in
transactions with affiliates, (vii) effect changes in the business of the
Company, (viii) issue capital stock of the Company's subsidiaries, (ix) make
certain repayments and prepayments, including any prepayment of the Company's
term loan, any subordinated debt, indebtedness that is guaranteed or
credit-enhanced by any affiliate of the Company, and prepayments that effect
certain permanent reductions in revolving credit facilities, and (x) effect
amendments, waivers or modifications of certain documents including those
relating to certain indebtedness and senior debt. The covenants also require the
Company to (a) maintain a Tangible Net Worth (as defined in the Securities
Purchase Agreement) of $26,000,000 subject to certain increases, (b) maintain a
ratio of quarterly EBITDA to quarterly Debt Service (as such terms are defined
in the Securities Purchase Agreement) of not less than 1.00 to 1.00 at any time
and (c) limit its capital expenditures to an amount equal to $16,800,000 for the
fiscal year ended December 31, 2000 and for any fiscal year thereafter equal to
the Company's EBITDA for the immediately prior fiscal year. The Company is
obligated to indemnify the Investors for breaches of representations, warranties
and covenants contained in the Securities Purchase Agreement or in
3
<PAGE> 4
other documents furnished in connection with the Securities Purchase Agreement
and for certain third-party claims.
Chase required that the Company's outside directors, Messrs.
Loyd, Hamilton and Webster, invest an aggregate of at least $3,000,000 in the
Financing and each invested $1,000,000 in the Financing. As part of the
Financing, an aggregate fee of $405,000 was paid to Chase and Mellon.
Of the approximately $29,000,000 net proceeds of the
Financing, $12,060,000 was used to fund the Enron Repurchase and related
expenses, $2,025,000 was used to repay a bridge loan extended to the Company by
its outside directors, $3,000,000 was used to repay other indebtedness, and the
Company expects the remaining proceeds to be used to fund the Company's ongoing
exploration and development program and general corporate purposes.
SHAREHOLDERS AGREEMENT
Under the Shareholders Agreement each of S.P. Johnson IV,
Frank A. Wojtek, Paul B. Loyd, Jr., Douglas A.P. Hamilton, Steven A. Webster,
DAPHAM Partnership, L.P., Chase and Mellon (the "Shareholders") have agreed not
to transfer shares of the Common Stock or the Warrants to a competitor of the
Company and have agreed to cause certain transfers to be bound by the
Shareholders Agreement.
The Shareholders Agreement provides that so long as Chase owns
at least 15% of the Common Stock of the Company (with percentage ownerships
being determined as specified in the Shareholders Agreement), the Shareholders
agree to vote their shares to cause the number of directors constituting the
Board of Directors to be seven and to cause the election of two directors to be
nominated by Chase. The Shareholders have agreed, so long as Chase owns at least
7.5% of the Common Stock (with percentage ownerships being determined as
specified in the Shareholders Agreement) of the Company but less than 15%, to
vote their shares to cause the number of directors constituting the Board of
Directors to be seven and to cause the election of one director to be nominated
by Chase. The Shareholders have also agreed if at any time after December 15,
2004, Chase then owns at least 15% of the Common Stock (with percentage
ownerships being determined as specified in the Shareholders Agreement) that,
unless there shall have occurred certain completed or proposed sale transactions
involving the Company or there has occurred a specified minimum public float of
Common Stock, then Chase has the right to designate two additional members to
the Board and the size of the Board shall be increased accordingly. The
Shareholders have agreed to vote their shares in accordance with such
arrangement. The Company may, upon Board approval, increase the size of the
Board by one additional member at any time after its next shareholders meeting.
If the Company at any other time increases the size of the Board of Directors,
the Shareholders have agreed to take action, including the voting of their
securities, to cause to be elected the number of directors nominated by Chase
necessary to maintain the applicable proportion of directors nominated by Chase
to the Board of Directors.
4
<PAGE> 5
Pursuant to the Shareholders Agreement, Messrs. Christopher
Behrens and Arnold Chavkin were appointed to the Company's Board of Directors.
Mr. Behrens is a General Partner of Chase Capital Partners, the private equity
investment affiliate of Chase Manhattan Capital Corporation. From 1990 to 1994,
Mr. Behrens was a Vice President in The Chase Manhattan Corporation's Merchant
Banking Group. Mr. Behrens is a director of The Pantry, Inc., Portola Packaging,
Patina Oil & Gas Corporation, as well as various private companies. Mr. Chavkin
has been a General Partner of Chase Capital Partners since January 1992 and has
served as the President of Chemical Investments, Inc. since March 1991. Mr.
Chavkin is also a director of R&B Falcon Corporation, American Tower
Corporation, Wireless One, Inc. and Patina Oil & Gas Corporation. Prior to
joining Chemical Investments, Inc., Mr. Chavkin was a specialist in investment
and merchant banking at Chemical Bank for six years.
For so long as Chase is entitled to designate a director, at
least one such director is required to be a member of each committee of the
Company's Board of Directors and the board of directors of any subsidiary of the
Company. The Company has, in connection with the Shareholders Agreement,
established a Budget Committee of the Board of Directors that will consider
matters relating to the Company's drilling program, the Company's budget and
related matters. In certain circumstances in which Chase is entitled to name a
director and such directorship is vacant, Chase may instead appoint one or more
Board observers in lieu of directors.
The Company has agreed to submit for approval by the Company's
shareholders the issuance of the Warrants, the Warrant Shares and the Common
Stock as contemplated by the Securities Purchase Agreement at the Company's next
shareholders' meeting. The Shareholders have agreed to vote their securities to
approve such action.
The Company agreed in the Shareholders Agreement to limit the
maximum number of common stock equivalents issuable under the Company's equity
incentive plans to 2.5 million shares and equivalents (including any shares and
equivalents issued or issuable as of the date of the Shareholders Agreement).
The Shareholders have also agreed in the Shareholders
Agreement to cooperate with the Company in complying with the terms of the
Compliance Sideletter (described below), including by voting in favor of actions
taken to remedy certain regulatory problems.
If S.P. Johnson IV, Frank A. Wojtek, Paul B. Loyd, Jr.,
Douglas A.P. Hamilton, Steven A. Webster, DAPHAM Partnership L.P. or certain
transferees thereof (each a "Founder Shareholder") desires to make certain
transfers of shares of Common Stock that are not Public Sales
5
<PAGE> 6
(as determined in the Shareholders Agreement), such Founder Shareholder must
allow Mellon and any Shareholder who holds at least 10% of the Common Stock of
the Company and is not a Founder Shareholder (collectively, the "Significant
Shareholders") the option also to include shares in the transfer. If the
prospective transferee is unwilling or unable to acquire all such shares, then
the transferring Founder Shareholder may either cancel the proposed transfer or
allocate on a proportional basis the number of shares the prospective transferee
is willing to acquire among the transferring Founder Shareholder and the
Significant Shareholders.
Under the Shareholders Agreement, the Company has granted to
the Significant Shareholders rights to purchase certain (i) equity securities,
(ii) debt securities, (iii) options, warrants and other rights to acquire each
of such securities and (iv) common stock equivalents convertible into or
exchangeable for equity securities issuable by the Company, provided that
securities issued pursuant to equity incentive plans, securities issued in
certain public offerings, securities issued as consideration in a merger,
business combination or acquisition, certain securities issued upon conversion
of other securities, the Warrant Shares, and certain distributions of securities
are all excluded from this right.
The Shareholders Agreement terminates upon the first to occur
of (a) notice of termination by holders of 50% of the shares held by Chase or
Mellon (and certain of their transferees), (b) certain sale transactions
involving the Company or (c) the time neither Chase nor Mellon (or certain of
their transferees) owns more than 7 1/2% of the Common Stock.
WARRANT AGREEMENT
The Warrants are exercisable at any time prior to the
expiration date on December 15, 2007 for the purchase of an aggregate of
2,760,189 shares of Common Stock at an exercise price of $2.20 per share,
subject to certain adjustments.
Each Warrant may be exercised by cash payment or on a
"cashless basis" by utilizing the average market price during the 4-day trading
period preceding the date of exercise.
The number and kind of Warrant Shares issued and the exercise
price are subject to adjustment in certain circumstances, including (a) if the
Company pays a dividend in Common Stock or distributes shares of its Common
Stock, subdivides, splits or reclassifies its outstanding shares of Common Stock
into a larger number of shares of Common Stock, or combines its outstanding
shares of Common Stock into a smaller number of shares of Common Stock, (b) 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 ( as specified in the Warrant) of the Common
Stock, subject to certain exceptions, (c) if the Company distributes any of its
equity securities (other than Common Stock or options) to the holders of the
Common Stock on a pro rata basis, (d) if the Company engages in a consolidation,
merger or business combination, sells all of its assets to another person or
entity, or enters into certain capital reorganizations or reclassifications of
the capital stock of the Company or (e) the Company takes certain other actions
affecting its Common Stock.
6
<PAGE> 7
CHASE REGISTRATION RIGHTS AGREEMENT
The Chase Registration Rights Agreement provides registration
rights with respect to the shares of Common Stock held by Chase and Mellon as of
December 15, 1999 and any shares issuable upon the conversion of certain other
securities of the Company (the "Investor Registrable Securities"). The Company
may generally be required to effect four demand registrations, subject to
certain conditions and limitations. Shareholders owning not less than 51% of the
then-outstanding shares of Investor Registrable Securities may demand that the
Company effect a registration under the Securities Act for the sale of not less
than 5% of the shares of Investor Registrable Securities then outstanding. The
holders of the registration rights also have limited rights to require the
Company to include their shares of Common Stock in connection with other
registered offerings by the Company. The registration rights will terminate as
to any holder of Investor Registrable Securities at such time as such holder may
sell under Rule 144 all Investor Registrable Securities then held by such
holder. This agreement requires the investor parties to this agreement to agree
to certain lock-up restrictions in connection with certain public offerings
registered by the Company.
FOUNDERS REGISTRATION RIGHTS AGREEMENT
The Founders Registration Rights Agreement was amended to
provide that the Company may generally be required to effect four demand
registrations (rather than the previous six), subject to certain conditions and
limitations, and to provide for the integration of such agreement with the Chase
Registration Rights Agreement.
OTHER
The Company agreed in a Compliance Sideletter with Chase and
Mellon to, among other things, use commercially reasonable efforts to assist
these shareholders in remedying or preventing certain regulatory problems of
such shareholders that may be asserted by the Small Business Administration, the
Federal Reserve Board, the Controller of Currency or any other governmental
regulatory agency concerned with the regulation of banks or financial services
institutions. These actions include without limitation, assisting in
facilitating certain transfers and permitting such investors to exchange voting
securities for similar non-voting securities. The Company also agreed with Chase
and Mellon to comply with certain small business administration and other
regulation and to provide information relating thereto to such investor.
In connection with the Financing, each of the Company's four
executive officers entered into an amendment to his employment agreement that
provides that nothing in the Shareholders Agreement or in the transactions
contemplated by the Securities Purchase Agreement will constitute a "Change of
Control" within the meaning of such term in each such employee's employment
agreement.
Each of the Company's five directors entered into an amendment
to his indemnification agreement that provides that nothing in the Shareholders
Agreement or in the transactions contemplated by the Securities Purchase
Agreement will constitute a "Change of Control" within the meaning of such term
in each such director's indemnification agreement.
The Company also amended its Amended and Restated Bylaws (the
"Bylaws") to provide that nothing in the Shareholders Agreement or in the
transactions contemplated by the Securities Purchase Agreement will constitute a
"Change of Control" within the meaning of such term in the Bylaws.
The Company issued a press release dated December 16, 1999
describing certain of the matters described above.
7
<PAGE> 8
DESCRIPTIONS OF CERTAIN DOCUMENTS
The descriptions of the Securities Purchase Agreement, the
Shareholders Agreement, the Warrant Agreement, the Chase Registration Rights
Agreement, the Amended Founders Registration Rights Agreement, the Compliance
Sideletter, the Enron Purchase Agreement, the Ninth Amendment, the Retained
Enron Warrants, the form of amendment to employment agreements, the form of
amendment to the indemnification agreements, and the amendment to the Company's
Amended and Restated Bylaws do not purport to be complete and are qualified in
their entirety by provisions of each such agreement, copies of which have been
filed as Exhibits 99.1, 99.2, 99.3, 99.4, 99.5, 99.6, 99.9, 99.10, 4.1, 99.7,
99.8, and 3.1, respectively, and which are incorporated by reference herein.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits.
3.1 Amendment No. 2 to the Company's Amended and Restated
Bylaws.
4.1 Amended Enron Warrant Certificates.
99.1 Securities Purchase Agreement dated December 15, 1999
among the Company, CB Capital Investors, L.P., Mellon
Ventures, L.P., Paul B. Loyd, Jr., Douglas A.P.
Hamilton and Steven A. Webster.
99.2 Shareholders Agreement dated December 15, 1999 among
the Company, CB Capital Investors, L.P., Mellon
Ventures, L.P., Paul B. Loyd, Jr., Douglas A.P.
Hamilton, Steven A. Webster, S.P. Johnson IV, Frank
A. Wojtek and DAPHAM Partnership, L.P.
99.3 Warrant Agreement dated December 15, 1999 among the
Company, CB Capital Investors, L.P., Mellon Ventures,
L.P., Paul B. Loyd, Jr., Douglas A.P. Hamilton and
Steven A. Webster.
99.4 Registration Rights Agreement dated December 15, 1999
among the Company, CB Capital Investors, L.P. and
Mellon Ventures, L.P.
99.5 Amended and Restated Registration Rights Agreement
dated December 15, 1999 among the Company, Paul B.
Loyd, Jr., Douglas A.P. Hamilton, Steven A. Webster,
S.P. Johnson IV, Frank A. Wojtek and DAPHAM
Partnership, L.P.
99.6 Compliance Sideletter dated December 15, 1999 among
the Company, CB Capital Investors, L.P. and Mellon
Ventures, L.P.
8
<PAGE> 9
99.7 Form of Amendment to Executive Officer Employment
Agreement.
99.8 Form of Amendment to Director Indemnification
Agreement.
99.9 Stock and Warrant Purchase Agreement dated December
1, 1999 among the Company, Enron North America Corp.,
Sundance Assets, L.P. and Joint Energy Development
Investments II Limited Partnership (incorporated
herein by reference to Exhibit 99.1 to the Company's
8-K filed December 3, 1999).
99.10 Ninth Amendment to the First Amended, Restated and
Combined Loan Agreement dated August 28, 1997 by and
between Carrizo Oil & Gas, Inc.
and Compass Bank.
99.11 Press Release of the Company dated December 16, 1999.
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
--------------------------------------
Name: Frank A. Wojtek
Title: Vice President and Chief
Financial Officer
Date: December 22, 1999
10
<PAGE> 11
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
3.1 Amendment No. 2 to the Company's Amended and Restated
Bylaws.
4.1 Amended Enron Warrant Certificates.
99.1 Securities Purchase Agreement dated December 15, 1999
among the Company, CB Capital Investors, L.P., Mellon
Ventures, L.P., Paul B. Loyd, Jr., Douglas A.P.
Hamilton and Steven A. Webster.
99.2 Shareholders Agreement dated December 15, 1999 among
the Company, CB Capital Investors, L.P., Mellon
Ventures, L.P., Paul B. Loyd, Jr., Douglas A.P.
Hamilton, Steven A. Webster, S.P. Johnson IV, Frank
A. Wojtek and DAPHAM Partnership, L.P.
99.3 Warrant Agreement dated December 15, 1999 among the
Company, CB Capital Investors, L.P., Mellon Ventures,
L.P., Paul B. Loyd, Jr., Douglas A.P. Hamilton and
Steven A. Webster.
99.4 Registration Rights Agreement dated December 15, 1999
among the Company, CB Capital Investors, L.P. and
Mellon Ventures, L.P.
99.5 Amended and Restated Registration Rights Agreement
dated December 15, 1999 among the Company, Paul B.
Loyd, Jr., Douglas A.P. Hamilton, Steven A. Webster,
S.P. Johnson IV, Frank A. Wojtek and DAPHAM
Partnership, L.P.
99.6 Compliance Sideletter dated December 15, 1999 among
the Company, CB Capital Investors, L.P. and Mellon
Ventures, L.P.
<PAGE> 12
99.7 Form of Amendment to Executive Officer Employment
Agreement.
99.8 Form of Amendment to Director Indemnification
Agreement.
99.9 Stock and Warrant Purchase Agreement dated December
1, 1999 among the Company, Enron North America Corp.,
Sundance Assets, L.P. and Joint Energy Development
Investments II Limited Partnership (incorporated
herein by reference to Exhibit 99.1 to the Company's
8-K filed December 3, 1999).
99.10 Ninth Amendment to the First Amended, Restated and
Combined Loan Agreement dated August 28, 1997 by and
between Carrizo Oil & Gas, Inc.
and Compass Bank.
99.11 Press Release of the Company dated December 16, 1999.
<PAGE> 1
EXHIBIT 3.1
AMENDMENT NO. 2
TO
THE
AMENDED AND RESTATED
BYLAWS
OF
CARRIZO OIL & GAS, INC.
The following Amendment No. 2 to the Amended and Restated Bylaws, is
adopted by the Board of Directors of Carrizo Oil & Gas, Inc. (the
"Corporation") as of December 15, 1999:
1. Article IV, Section 9 of the Amended and Restated Bylaws is amended by
replacing the definition of "Change of Control" in its entirety with the
following:
"Change in Control" means a change in control of the Corporation
occurring after the date of adoption of these Amended and Restated Bylaws of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A (or in response to any similar item on any
similar schedule or form) promulgated under the Exchange Act, whether or not
the Corporation is then subject to such reporting requirement; provided,
however, that, without limitation, such a Change in Control shall be deemed to
have occurred if at any time after the date of adoption of these Amended and
Restated Bylaws (i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the
Corporation representing 40% or more of the combined voting power of the
Corporation's then outstanding securities without the prior approval of at least
two-thirds of the members of the Board of Directors in office immediately
prior to such person attaining such percentage interest; (ii) the Corporation
is a party to a merger, consolidation, share exchange, sale of assets or other
reorganization, or a proxy contest, as a consequence of which members of the
Board of Directors in office immediately prior to such transaction or event
constitute less than a majority of the Board of Directors thereafter or (iii)
during any 15-month period, individuals who at the beginning of such period
constituted the Board of Directors (including for this purpose any new director
whose election or nomination for election by the Corporation's shareholders was
approved by a vote of at least two-thirds of the directors then still in office
who were directors at the beginning
<PAGE> 2
of such period) cease for any reason to constitute at least a majority of the
Board of Directors.
Nothing in the Shareholders Agreement dated December 15, 1999 among S.P.
Johnson IV, Frank A. Wojtek, Paul B. Loyd, Jr., Douglas A.P. Hamilton, Steven
A. Webster, CB Capital Investors, L.P. ("Chase") and certain other investors
(the "Shareholders Agreement") or in the transactions contemplated by the
Securities Purchase Agreement dated December 15, 1999 among Paul B. Loyd, Jr.,
Douglas A.P. Hamilton, Steven A. Webster, Chase and certain other investors, as
it may be amended from time to time (including the addition of any new parties
thereto), shall constitute a "Change of Control" within the definition in this
Section 9. Without limiting the generality of the foregoing, no "Change of
Control" shall result from the attribution of beneficial ownership directly or
indirectly through the Shareholders Agreement such that a shareholder is deemed
to beneficially own 40% or more of the shares of the Company's common stock
then outstanding (a "40% Holder"), unless such shareholder would be deemed to
be a 40% Holder in the absence of the Shareholders Agreement.
2
<PAGE> 1
EXHIBIT 4.1
- --------------------------------------------------------------------------------
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. 4
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> 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 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 issued to Enron Capital & Trade
Resources Corp. on the Date of Issuance which originally upon exercise entitled
the holder thereof to purchase from the Company 250,000 shares of Common Stock
and which following amendment of such Warrant in December 1999 entitled the
holder to purchase from the Company 62,500 shares of Common Stock.
"Exercise Period" means the period of time between 12:01 a.m. (Houston,
Texas time) of January 8, 1999 and 5:00 p.m. (Houston, Texas time) on January 8,
2005.
"Exercise Price" means an amount, per share, equal to $4.00. 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
-2-
<PAGE> 3
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 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 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, at the Date of Issuance, was equal
to 750,000 shares of Common Stock and which following amendment of this Warrant
in December 1999, was equal to 187,500 shares of Common Stock.
-3-
<PAGE> 4
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 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
-4-
<PAGE> 5
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 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.
-5-
<PAGE> 6
(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 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
-6-
<PAGE> 7
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 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
-7-
<PAGE> 8
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. Notwithstanding anything to the contrary contained herein, no
adjustments shall be made under this paragraph in connection with any
private placement of securities or exercise of warrants issued in such
private placement, to the extent that a portion of the proceeds thereof
are used by the Company to fund the payment under the Stock Purchase
Agreement among the Company, Sundance Assets, L.P., Joint Energy
Development Investments II Limited Partnership and Enron North America
Corp. dated December 1, 1999.
(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
-8-
<PAGE> 9
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.
(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
-9-
<PAGE> 10
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 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
-10-
<PAGE> 11
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
(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
-11-
<PAGE> 12
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.
(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
-12-
<PAGE> 13
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
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
-13-
<PAGE> 14
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.
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.
-14-
<PAGE> 15
IN WITNESS WHEREOF, the Company has executed this Warrant as of
December 15, 1999.
CARRIZO OIL & GAS, INC.
By: /s/ S. P. JOHNSON IV
-------------------------------------
Name: S. P. Johnson IV
Title: President
-15-
<PAGE> 16
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:
--------------------------------
<PAGE> 17
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.
<PAGE> 18
EXHIBIT 4.1
- --------------------------------------------------------------------------------
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 REQUESTS 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. 5
FOR VALUE RECEIVED, CARRIZO OIL & GAS, INC., a Texas corporation (the
"Company"), hereby certifies that SUNDANCE ASSETS, L.P. ("SUNDANCE"), 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.
<PAGE> 19
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 November 30, 1999.
"Exercise Period" means the period of time between 12:01 a.m. (Houston,
Texas time) on November 30, 1999 and 5:00 p.m. (Houston, Texas time) on January
8, 2005.
"Exercise Price" means an amount per share, equal to $4.00. The
Exercise Price shall be subject to adjustment, as set forth in Section 4.
"Holder" means Sundance and its permitted assignees.
"JEDI II Warrant" means the Warrant issued to Joint Energy Development
Investments II Limited Partnership on the Date of Issuance which originally upon
exercise entitled the holder thereof to purchase from the Company 750,000 shares
of Common Stock and which following amendment of such Warrant in December 1999
entitled the holder to purchase from the Company 187,500 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
2
<PAGE> 20
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 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) 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.
"New 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, Sundance 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 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, at the Date of Issuance, was equal
to 250,000 shares of Common Stock and which following amendment of this Warrant
in December 1999, was equal to 62,500 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:
3
<PAGE> 21
(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 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 delivers a certificate 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 et forth in Section 12, receive a cash payment for the current value
of each Warrant (known as the In-the-Money Option). For the purpose 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).
4
<PAGE> 22
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 Warranty 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 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 cancelled; 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 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
5
<PAGE> 23
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 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 sales 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 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
6
<PAGE> 24
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, 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
originally adjusted (or had the original adjustment not been required, as the
case may be) on the basis of (i) the number 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
7
<PAGE> 25
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. Notwithstanding anything
to the contrary contained herein, no adjustments shall be made under this
paragraph in connection with any private placement of securities or exercise of
warrants issued in such private placement, to the extent that a portion of the
proceeds thereof are used by the Company to fund the payment under the Stock
Purchase Agreement among the Company, Sundance Assets, L.P., Joint Energy
Development Investments II Limited Partnership and Enron North America Corp.
dated December 1, 1999.
(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 share 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 an 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.
(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.
8
<PAGE> 26
(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 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 purpose 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
9
<PAGE> 27
determined in good 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 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 it 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
10
<PAGE> 28
the Company, or a consolidation, merger or business combination of the
Company with another Person; or
(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 or 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 the 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 to 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, no shall any
single or partial exercise of such right or power, or any abandonment
or discontinuance of steps to enforce
11
<PAGE> 29
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.
(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
12
<PAGE> 30
after receipt of such notice, the address (and telecopy number) for the Holder
and the Company are:
13
<PAGE> 31
If to Holder: Sundance Assets, L.P.
c/o Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
Attn: Corporate Trust Administration
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 insure 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
14
<PAGE> 32
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.
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.
15
<PAGE> 33
IN WITNESS WHEREOF, the Company has executed this Warrant as of December 15,
1999.
CARRIZO OIL & GAS, INC.
By: /s/ S. P. JOHNSON IV
-------------------------
Name: S. P. Johnson IV
Title: President
16
<PAGE> 34
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
--------------------------------
<PAGE> 35
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.
<PAGE> 1
EXHIBIT 99.1
EXECUTION COPY
================================================================================
SECURITIES PURCHASE AGREEMENT
AMONG
CARRIZO OIL & GAS, INC.
AS ISSUER,
AND
THE INVESTORS LISTED ON SCHEDULE 1.1 HERETO
DECEMBER 15, 1999
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Article I DEFINITIONS.............................................................................................2
1.1 Defined Terms...........................................................................................2
1.2 Terms Generally........................................................................................16
1.3 Use of Defined Terms...................................................................................16
1.4 Cross-References.......................................................................................17
1.5 Currency...............................................................................................17
1.6 Accounting Terms; GAAP.................................................................................17
Article II PURCHASE AND SALE OF THE PURCHASED SECURITIES.........................................................17
2.1 Authorization and Issuance of the Purchased Securities.................................................17
2.2 Delivery of the Purchased Securities...................................................................18
2.3 Closing................................................................................................18
Article III PROVISIONS OF THE NOTES AND THE WARRANTS.............................................................18
3.1 The Notes..............................................................................................18
3.2 General Provisions As To Payments......................................................................18
3.3 Interest...............................................................................................19
3.4 Interest on Overdue Amounts............................................................................21
3.5 Mandatory Prepayment...................................................................................21
3.6 Optional Prepayments...................................................................................22
3.7 Securities Register....................................................................................22
3.8 Lost, Etc. Securities..................................................................................23
3.9 Several Obligations; Remedies Independent..............................................................23
Article IV REPRESENTATIONS AND WARRANTIES........................................................................23
4.1 Corporate Existence....................................................................................23
4.2 Corporate Power and Authorization......................................................................24
4.3 Binding Obligations....................................................................................24
4.4 No Violation...........................................................................................24
4.5 Consents...............................................................................................24
4.6 SEC Documents and Financial Statements.................................................................24
4.7 Reserve Report.........................................................................................25
4.8 No Material Adverse Effect.............................................................................25
4.9 Liabilities; Indebtedness..............................................................................25
4.10 Litigation.............................................................................................26
4.11 Specified Contract and Commitments.....................................................................26
4.12 Title to Properties and Assets; Leases.................................................................27
4.13 Compliance with the Law................................................................................28
4.14 Taxes..................................................................................................29
4.15 Employee Benefit Matters...............................................................................29
4.16 Investment Company Act.................................................................................30
4.17 Public Utility Holding Company Act.....................................................................30
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
4.18 No Restrictions on Affiliates..........................................................................31
4.19 Capitalization.........................................................................................31
4.20 Subsidiaries...........................................................................................31
4.21 Environmental Matters..................................................................................31
4.22 Intellectual Property and Other Intangible Assets......................................................33
4.23 No Public Offer........................................................................................33
4.24 Insurance..............................................................................................33
4.25 Certain Transactions...................................................................................33
4.26 Use of Proceeds........................................................................................34
4.27 Plugging and Abandonment Obligations...................................................................34
4.28 No Material Misstatements or Omissions.................................................................34
4.29 Fees and Commissions...................................................................................35
4.30 Enron Purchase Agreement...............................................................................35
4.31 Projections............................................................................................35
Article V REPRESENTATIONS AND WARRANTIES OF INVESTORS............................................................35
5.1 Representations and Warranties of Each Investor........................................................35
Article VI CONDITIONS TO PURCHASE................................................................................36
6.1 Conditions to Obligations of Investors on the Closing Date.............................................36
Article VII AFFIRMATIVE COVENANTS................................................................................37
7.1 Existence; Businesses and Properties...................................................................38
7.2 Insurance..............................................................................................38
7.3 Taxes, Etc.............................................................................................38
7.4 Financial Statements, Reports, etc.....................................................................39
7.5 Litigation and Other Notices...........................................................................40
7.6 Employee Benefits......................................................................................41
7.7 Maintaining Records; Access to Properties and Inspections..............................................41
7.8 Subsidiaries...........................................................................................42
7.9 Compliance with Environmental Laws.....................................................................42
7.10 Preparation of Environmental Reports...................................................................42
7.11 Amendments.............................................................................................42
7.12 Fiscal Year............................................................................................42
Article VIII NEGATIVE COVENANTS..................................................................................43
8.1 Indebtedness...........................................................................................43
8.2 Liens..................................................................................................44
8.3 Investments, Loans and Advances........................................................................46
8.4 Mergers, Consolidations, Sales of Assets and Acquisitions..............................................47
8.5 Dividends and Distributions; Restrictions on Ability of Subsidiaries to Pay Dividends..................49
8.6 Transactions with Affiliates...........................................................................49
8.7 Business of Company and Subsidiaries...................................................................50
8.8 Subsidiary Capital Stock...............................................................................50
8.9 Limitation on Certain Payments and Prepayments.........................................................50
8.10 Tangible Net Worth Requirement.........................................................................50
8.11 EBITDA to Debt Service Ratio...........................................................................50
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
8.12 Consolidated Capital Expenditures......................................................................50
8.13 Certain Documents and Agreements.......................................................................51
Article IX SUBORDINATION OF NOTES................................................................................52
9.1 Notes Subordinate to Senior Indebtedness...............................................................52
9.2 Payment Over of Proceeds Upon Dissolution, Etc.........................................................52
9.3 No Payment When Senior Indebtedness in Default.........................................................53
9.4 Payment Permitted If No Default........................................................................55
9.5 Subrogation to Rights of Holders of Senior Indebtedness................................................55
9.6 Provisions Solely to Define Relative Rights............................................................56
9.7 No Waiver of Subordination Provisions..................................................................56
9.8 Notice to Investors....................................................................................56
9.9 Reliance on Judicial Order or Certificate of Liquidating Agent.........................................57
9.10 Holders of Senior Indebtedness as Third Party Beneficiary..............................................57
Article X TRANSFER OF SECURITIES.................................................................................58
10.1 Restriction on Transfer................................................................................58
10.2 Restrictive Legends....................................................................................58
10.3 Notice of Transfer.....................................................................................59
Article XI EVENTS OF DEFAULT.....................................................................................59
11.1 Defaults...............................................................................................59
Article XII MISCELLANEOUS........................................................................................62
12.1 Notices................................................................................................62
12.2 Survival of Agreement..................................................................................62
12.3 Successors and Assigns.................................................................................63
12.4 Expenses of the Investors..............................................................................63
12.5 Indemnification........................................................................................64
12.6 Third Party Claims.....................................................................................65
12.7 GOVERNING LAW..........................................................................................67
12.8 Waivers; Amendments....................................................................................67
12.9 Independence of Covenants..............................................................................68
12.10 No Fiduciary Relationship; No Duty of Designated Holder................................................68
12.11 No Duty................................................................................................69
12.12 Construction...........................................................................................69
12.13 Severability...........................................................................................69
12.14 Counterparts...........................................................................................69
12.15 Confidentiality........................................................................................69
12.16 Headings...............................................................................................70
12.17 Entire Agreement.......................................................................................70
</TABLE>
iii
<PAGE> 5
EXHIBITS
EXHIBIT A - Form of Compliance Sideletter
EXHIBIT B - Form of Note
EXHIBIT B - Form of Solvency Certificate
EXHIBIT D - Form of Payment Direction Letter
EXHIBIT E - Form of Opinion of Company's Counsel
ANNEXES
ANNEX A - Schedule of Documents
SCHEDULES
SCHEDULE 1.1 - Investors
SCHEDULE 1.2 - Projections
SCHEDULE 4.9 - Liabilities
SCHEDULE 4.10 - Litigation
SCHEDULE 4.11 - Specified Contracts
SCHEDULE 4.12 - Exceptions to Title
SCHEDULE 4.15 - Employee Benefit Matters
SCHEDULE 4.19 - Ownership; Capital Stock
SCHEDULE 4.21 - Environmental Matters
SCHEDULE 4.22 - Liens
SCHEDULE 4.25 - Certain Transactions
SCHEDULE 4.27 - Plugging and Abandonment Obligations
SCHEDULE 4.29 - Fees and Commissions
SCHEDULE 8.1 - Existing Indebtedness
SCHEDULE 8.2 - Existing Liens
SCHEDULE 8.6 - Transactions with Affiliates
iv
<PAGE> 6
SCHEDULE 1.1
INVESTORS AND ADDRESSES FOR NOTICES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
INVESTOR PRINCIPAL AMOUNT OF PURCHASE PRICE OF NUMBER OF WARRANT
NOTES PURCHASED NOTES SHARES
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CB Capital Investors, L.P. $17,600,001 $17,401,267.32 2,208,152
380 Madison Avenue
12th Floor
New York, NY 10017
Attention: Christopher C. Behrens
Dorian Faust
Telephone: (212) 622-3100
Telecopier: (212) 622-3101
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: Frederick M. Bachman, Esq.
Telephone No.: (212) 408-2400
Telecopier No.: (212) 728-5950
- --------------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
INVESTOR PURCHASE PRICE OF NUMBER OF SHARES OF PURCHASE PRICE OF
WARRANTS PURCHASED COMMON PURCHASED COMMON
STOCK STOCK
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CB Capital Investors, L.P. $198,733.68 2,909,092 $6,400,002
380 Madison Avenue
12th Floor
New York, NY 10017
Attention: Christopher C. Behrens
Dorian Faust
Telephone: (212) 622-3100
Telecopier: (212) 622-3101
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: Frederick M. Bachman, Esq.
Telephone No.: (212) 408-2400
Telecopier No.: (212) 728-5950
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 7
<TABLE>
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
Mellon Ventures, L.P. 2,200,000 2,175,158.29 276,019
5 Radnor Corporate Center
100 Matsonford Road, Suite 170
Radnor, PA 19087
Attention: Marc A. Cole
Telephone: (610) 688-4758
Telecopier: (610) 688-3930
with a copy to:
Dechert Price & Rhoads
400 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103-2793
Attention: David S. Denious
Telephone: (215) 994-4000
Telecopier: (215) 994-2222
- ----------------------------------------------------------------------------------------------------------
Douglas A.P. Hamilton 733,333 725,052.46 92,006
14811 St. Mary's Lane
Suite 148
Houston, TX 77079
- ----------------------------------------------------------------------------------------------------------
Paul B. Loyd, Jr. 733,333 725,052.46 92,006
14811 St. Mary's Lane
Suite 148
Houston, TX 77079
- ----------------------------------------------------------------------------------------------------------
Steven A. Webster 733,333 725,052.46 92,006
14811 St. Mary's Lane
Suite 148
Houston, TX 77079
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Mellon Ventures, L.P. 24,841.71 363,636 800,000
5 Radnor Corporate Center
100 Matsonford Road, Suite 170
Radnor, PA 19087
Attention: Marc A. Cole
Telephone: (610) 688-4758
Telecopier: (610) 688-3930
with a copy to:
Dechert Price & Rhoads
400 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103-2793
Attention: David S. Denious
Telephone: (215) 994-4000
Telecopier: (215) 994-2222
- ---------------------------------------------------------------------------------------------------------
Douglas A.P. Hamilton 8,280.54 121,212 266,666
14811 St. Mary's Lane
Suite 148
Houston, TX 77079
- ---------------------------------------------------------------------------------------------------------
Paul B. Loyd, Jr. 8,280.54 121,212 266,666
14811 St. Mary's Lane
Suite 148
Houston, TX 77079
- ---------------------------------------------------------------------------------------------------------
Steven A. Webster 8,280.54 121,212 266,666
14811 St. Mary's Lane
Suite 148
Houston, TX 77079
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 8
ANNEX A
SCHEDULE OF DOCUMENTS
1. INSURANCE. Satisfactory evidence that the insurance policies required
by Section 7.2 of the Agreement are in full force and effect.;
2. CERTIFIED CHARTER. A copy of the Articles of Incorporation of the
Company, and all amendments thereto, certified by the Secretary of
State or other appropriate official of the jurisdiction of
incorporation;
3. GOOD STANDING CERTIFICATES. Good standing certificates for the Company
issued by the Secretary of State or other appropriate official of the
jurisdiction of incorporation of such Person and each jurisdiction
where the conduct of the Company's business activities or the ownership
of its Properties necessitates qualification;
4. SOLVENCY CERTIFICATE. A certificate from the Financial Officer of the
Company, substantially in the form of Exhibit C to the Agreement.
5. PROJECTIONS. True and complete copies of the Projections.
6. OFFICER'S CERTIFICATE. A certificate of a Responsible Officer of the
Company certifying as to the matters set forth in Section 6.1(b) and
(d) of the Agreement.
7. SECRETARY'S CERTIFICATE. A Certificate of the Secretary of the Company,
together with true and correct copies of the Articles of Incorporation
and Bylaws of the Company, and all amendments thereto, true and
complete copies of the resolutions of the Board of Directors of the
Company authorizing or ratifying the execution, delivery and
performance of the Transaction Documents and the Enron Purchase
Agreement and the names of the officer or officers of the Company
authorized to sign the Transaction Documents (or amendments thereto)
and the Enron Purchase Agreement together with a sample of the true
signature of each such officer;
8. LEGAL OPINIONS. The favorable, written opinion of Baker & Botts,
L.L.P., counsel to the Company, as to the transactions contemplated by
the Transaction Documents, substantially in the form of Exhibit D to
the Agreement, dated the Closing Date, addressed to the Investors;
9. ACCOUNTANT'S LETTER. A letter authorizing the independent certified
public accountants of the Company to communicate with the Investors or
their designated representatives in accordance with Section 7.7.
<PAGE> 9
10. LIEN SEARCHES. Satisfactory results of (i) a Uniform Commercial Code
lien search and other filings and registrations of Liens against
Properties of the Company and (ii) pending litigation and judgment
searches, in each such jurisdiction as the Investors shall reasonably
require;
11. ENRON REPURCHASE. True and complete copies of the duly executed Enron
Purchase Agreement and all documents executed in connection therewith.
Each of the conditions precedent to the Company's obligations to
consummate the Enron Repurchase shall have been satisfied or waived
with the consent of the Investors and the Enron Repurchase shall have
been consummated in accordance with all Applicable Law;
12. AMENDMENT TO SENIOR CREDIT AGREEMENT. True and complete copies of the
executed amendment to the Senior Credit Agreement. Copies of all legal
opinions required to be delivered thereunder, together with letters
from counsel rendering such opinions permitting the Investors to rely
thereon. All conditions precedent to the initial borrowings thereunder
shall have been satisfied;
13. PAYMENT DIRECTION LETTER. Duly executed originals of a letter of
direction, in substantially the form of Exhibit E to the Agreement.
14. SMALL BUSINESS CONCERN DOCUMENTS. (i) Deliver to CB Capital Investors,
L.P. and Mellon Ventures, L.P. a Size Status Declaration on SBA Form
480 and an Assurance of Compliance on SBA Form 652 and (ii) provide to
CB Capital Investors, L.P. and Mellon Ventures, L.P. the information
necessary for the preparation of CB Capital Investors, L.P. and Mellon
Ventures, L.P. of a Portfolio Financing Report on SBA Form 1031.
15. NASDAQ. Evidence satisfactory to the Investors that NASDAQ has
concurred with the Company that the transactions contemplated by the
Transaction Documents do not trigger the shareholder approval
requirements of Rule 4660(i) and are in compliance with NASDAQ's Voting
Rights Policy of Rule 4310(c)(21);
16. AMENDED FOUNDERS REGISTRATION RIGHTS AGREEMENT. True and complete
copies of the Amended Founders Registration Rights Agreement, the terms
and conditions of which shall be reasonably satisfactory to the
Investors;
17. FEE LETTER. Duly executed originals of the Fee Letter; and
18. OTHER DOCUMENTS. Such other documents, instruments and agreement as the
Investors shall reasonably require.
<PAGE> 10
SECURITIES PURCHASE AGREEMENT dated as of
December 15, 1999, by and among CARRIZO OIL
& GAS, INC., a corporation organized under
the laws of the State of Texas (the
"COMPANY"), and the Persons listed on
Schedule 1.1 hereto (together with
successors and permitted assignees thereof,
individually, an "INVESTOR" and
collectively, the "INVESTORS").
RECITALS
WHEREAS, the Company is engaged in the exploration,
development, exploitation and production of natural gas and crude oil (the
"SUBJECT BUSINESS");
WHEREAS, the Company desires to issue to the Investors and the
Investors, severally and not jointly, desire to purchase from the Company (i) up
to $22,000,000 principal amount of the Notes (as hereinafter defined), (ii)
warrants to purchase 2,760,189 shares of Common Stock (as hereinafter defined),
and (iii) 3,636,364 shares of Common Stock, on the terms and for the
consideration provided herein, in each case on the terms and for the
consideration provided herein;
WHEREAS, the Company has entered into an agreement (the "ENRON
PURCHASE AGREEMENT") with Enron North America Corp., Sundance Assets, L.P. and
Joint Energy Development Investments II Limited Partnership (collectively, the
"ENRON PARTIES"), pursuant to which the Company will, concurrently with the
execution and delivery of this Agreement and the sale of the Purchased
Securities (as hereinafter defined), purchase (the "ENRON REPURCHASE") from the
Enron Parties all of the Company's 9% Series A Preferred Stock, par value $0.01
(liquidation amount of approximately $34,000,000) and warrants to purchase
750,000 shares of the Common Stock in consideration for $12,000,000 and the
amendment of the terms of the warrants to purchase 250,000 shares of the Common
Stock to be retained by the Enron Parties;
WHEREAS, the proceeds of the Purchased Securities shall be
used (i) to pay the cash consideration for the Enron Repurchase, (ii) to fund
the Company's ongoing drilling program, (iii) to fund working capital and (iv)
for general corporate purposes;
WHEREAS, the Notes shall be subordinated, to the extent and in
the manner provided herein, to the senior credit facility provided to the
Company pursuant to the terms of the First Amended, Restated and Combined Loan
Agreement dated as of August 28, 1997 (as such agreement has been or may be
amended, modified, restated or otherwise supplemented through the date hereof
and from time to time after the date hereof in accordance with the provisions
thereof and hereof, including, without limitation Section 8.13(c) hereof, the
"SENIOR CREDIT AGREEMENT") among the Company and Compass Bank (together with
successors and permitted assignees thereof the "SENIOR LENDER").
1
<PAGE> 11
NOW THEREFORE, the parties to this Agreement hereby agree as
follows:
ARTICLE I
DEFINITIONS
1.1 DEFINED TERMS.
As used in this Agreement, the following terms shall have the following
respective meanings:
"ACCELERATED AMOUNT" has the meaning given to such term in
Section 9.3(g).
"ACQUISITION" has the meaning given to such term in Section
8.4.
"ACQUISITION LIMIT" has the meaning given to such term in
Section 8.4.
"AFFILIATE" means, with respect to any specified Person, (i)
any other Person that directly or indirectly through one or more intermediaries
Controls, is Controlled by or is under common Control with such Person, (ii) any
Person owning, beneficially or of record, five percent or more of the voting
stock of the Company (on a fully diluted basis) and (iii) any director or
executive officer of such Person.
"AGREEMENT" means this Agreement, together with all Schedules,
Exhibits and Annexes attached hereto, as amended, supplemented or otherwise
modified from time to time in accordance with the terms hereof.
"AMENDED FOUNDERS REGISTRATION RIGHTS AGREEMENT" means the
Registration Rights Agreement dated as of June 4, 1997 among the Company,
Douglas A. P. Hamilton, Paul B. Loyd, Jr., Steven A. Webster, Frank A. Wojtek,
S. P. Johnson IV and DAPHAM PARTNERSHIP, L.P., as amended on the date hereof .
"APPLICABLE LAW" means all provisions of laws, statutes,
ordinances, rules, regulations, permits, certificates or orders of any
Governmental Authority applicable to the Person in question or any of its assets
or property, and all judgments, injunctions, orders and decrees of all courts
and arbitrators in proceedings or actions in which the Person in question is a
party or by which any of its assets or properties are bound.
"APPLICABLE PREPAYMENT PREMIUM" means, at any date of
determination in connection with a prepayment of the Notes in accordance with
Sections 3.5 and 3.6 hereof during any period set forth below, an amount equal
to the amount set forth below opposite such period:
2
<PAGE> 12
<TABLE>
<CAPTION>
PREPAYMENT DATE DURING % OF PRINCIPAL
THE PERIOD BEING PAID
---------- ----------
<S> <C>
Closing Date to and including the first anniversary of
the Closing Date 9%
After the first anniversary of the Closing Date to and
including the second anniversary of the Closing Date 7%
After the second anniversary of the Closing Date to and
including the third anniversary of the Closing Date 5%
After the third anniversary of the Closing Date to and
including the fourth anniversary of the Closing Date 4%
After the fourth anniversary of the Closing Date to and
including the fifth anniversary of the Closing Date 3%
After the fifth anniversary of the Closing Date to and
including the sixth anniversary of the Closing Date 2%
After the sixth anniversary of the Closing Date to and
including the seventh anniversary of the Closing Date 1%
At any time after the seventh anniversary of the Closing
Date 0%
</TABLE>
provided, however, that the amount of any Applicable Prepayment Premium payable
to an Investor in accordance with the foregoing may be reduced by such Investor,
in its sole discretion.
"ASSET SALE" has the meaning given to such term in Section
8.4.
"BANKRUPTCY CODE" means the United States Bankruptcy Code, 11
U.S.C. Section 101 et seq., as amended from time to time.
"BENEFIT PLANS" has the meaning given to such term in Section
4.15(a).
"BENEFIT PROGRAM OR AGREEMENT" has the meaning given to such
term in Section 4.15(a).
"BOARD" means the board of directors of the Company.
"BOARD OF GOVERNORS" means the Board of Governors of the
Federal Reserve System of the United States of America.
"BUSINESS DAY" means any day other than a Saturday, Sunday or
a day on which banks are authorized or required to be closed in New York, New
York or Houston, Texas; provided, however, that any determination of a Business
Day relating to a securities exchange or
3
<PAGE> 13
other securities market means a Business Day on which such exchange or market is
open for trading.
"CAPITAL LEASE OBLIGATIONS" means any Indebtedness represented
by obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP.
"CAPITAL STOCK" of any Person means any and all shares,
interests, rights to purchase, warrants, options, participations or other
equivalents of or interests in (however designated) equity of such Person, but
excluding any debt securities convertible into such equity.
"CB CAPITAL DIRECTOR" has the meaning given to such term in
the Shareholders Agreement.
"CHANGE OF CONTROL" means the occurrence of any of the
following events: (i) the Company shall have merged into or consolidate with any
other Person, or permitted any other Person to merge into or consolidate with it
or sold, leased or sub-leased (as lessor or sub-lessor) or voluntarily
transferred or otherwise disposed of all or substantially all of its assets or
liquidated, wound-up or dissolved itself (or suffered any liquidation or
dissolution in any such case in a transaction that would violate Section 8.4,
(ii) any "PERSON" (as such term is used in Sections 13(d) and 14 (d) of the
Exchange Act) other than a Permitted Holder is or becomes the beneficial owner
(as defined in Rules 13d-3 and 13d-5 of the Exchange Act) provided that such
person shall be deemed to have "BENEFICIAL OWNERSHIP" of all shares that such
person has the right to acquire, whether such right is exercisable immediately
or only after the passage of time), directly or indirectly, of more than 35% of
the total voting power of the outstanding voting securities of the Company
(excluding attribution of beneficial ownership directly or indirectly through
the Shareholders Agreement and, for purposes of determining the 35% threshold,
excluding beneficial ownership of any Purchased Securities or Warrant Shares
(other than Purchased Securities and Warrant Shares that have been transferred
at any time in a Public Sale)); or (iii) during any period of two consecutive
years, individuals who at the beginning of such period constituted the Board
(together with any new directors (A) elected in accordance with the Shareholders
Agreement so long as such agreement is in effect or (B) whose election by such
members of the Board or whose nomination for election by the shareholders of the
Company, as the case may be, was approved by a vote of at least a majority of
the directors of the Company then still in office) cease for any reason to
constitute a majority of the Board then in office.
"CHANGE OF CONTROL NOTICE" has the meaning given to such term
in Section 3.5(b).
"CLOSING" means the issuance and purchase of the Purchased
Securities on the Closing Date.
"CLOSING DATE" has the meaning given to such term in Section
2.2.
"CODE" means the Internal Revenue Code of 1986, as amended,
and the rules and regulations issued thereunder, as from time to time in effect,
or any successor thereto.
4
<PAGE> 14
"COMMISSION" means the Securities and Exchange Commission (or
a successor thereto).
"COMMON STOCK" means the common stock, $.01 par value per
share, of the Company.
"COMPANY" has the meaning given to such term in the Preamble
to this Agreement.
"COMPANY NOTICE DATE" has the meaning given to such term in
Section 3.5(b).
"COMPANY PARTIES" has the meaning given to such term in
Section 7.7.
"COMPETITOR" has the meaning given to such term in the
Shareholders Agreement.
"COMPLIANCE SIDELETTER" means the Regulatory Compliance
Sideletter in substantially the form of Exhibit A hereto, as such Sideletter may
be amended, supplemented or otherwise modified from time to time.
"CONFIDENTIAL INFORMATION" has the meaning given to such term
in Section 12.15.
"CONSOLIDATED CAPITAL EXPENDITURES" shall mean, for any
period, the aggregate of all expenditures (whether paid in cash or other
consideration or accrued as a liability) by the Company or any of the
Subsidiaries during such period that, in accordance with GAAP, are or should be
included in "additions to property, plant and equipment" or similar items
reflected in the consolidated statement of cash flows of the Company and the
Subsidiaries for such period (including the amount included under GAAP in
connection with any Capital Lease Obligation entered into during such period but
excluding (i) expenditures made with the proceeds of insurance used to purchase
like-kind assets and (ii) capitalized interest on the Notes and (iii)
expenditures made or recorded in connection with any Acquisition or Production
Payment.
"CONTROL" means, with respect to any Person, the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
"DEBT SERVICE" means the sum of (i) actual cash principal and
interest amounts paid (including any capitalized interest payments) that the
Company is obligated to pay during such quarter on Indebtedness other than in
connection with the Senior Credit Agreement and (ii) cash principal and interest
amounts (including any capitalized interest payments) required to be paid by the
Company during such quarter in connection with the Senior Credit Agreement
(excluding (A) payments made in connection with the closing of the transactions
contemplated by the Transaction Documents, (B) payments required by the Ninth
Amendment, (C) the scheduled balloon payment on the term loan under the Senior
Credit Agreement due August 31, 2001 and (D) the scheduled balloon payment due
July 1, 2001 to be applied against the Seitel Note; provided that the interest
payments under (i) and (ii) above shall be net of interest income.
5
<PAGE> 15
"DEFAULT" means any event or condition the occurrence of which
would, with the lapse of time or the giving of notice, or both, become an Event
of Default.
"DEFENSIBLE TITLE" shall mean, with respect to the assets of
the Company (i) the title of the Company 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 on Schedule 4.12, the
Company 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 the Company 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 on such Schedule, 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 on such
Schedule.
"DEFERRED INTEREST AMOUNT" has the meaning given to such term
in Section 3.3(a).
"DESIGNATED HOLDER OF SUBORDINATED OBLIGATIONS" means CB
Capital Investors, L.P., as of the date hereof, and any substitute holder of
Subordinated Obligations thereafter designated as such by notice to the Company
given by the Required Investors.
"DESIGNATED SENIOR INDEBTEDNESS" means (a) any Indebtedness
outstanding under the Senior Credit Agreement and (b) any other Senior
Indebtedness which had an aggregate original principal amount, together with
commitments to lend additional amounts, of at least $5,000,000, if the
instrument governing such Senior Indebtedness expressly states that such
Indebtedness is "Designated Senior Indebtedness" for the purpose of this
Agreement.
"DESIGNATED TITLE EXCEPTIONS" has the meaning given to such
term in Section 4.12(a).
"DISQUALIFIED STOCK" means any Capital Stock that, by its
terms (or by the terns of any security into which its is convertible, or for
which its is exchangeable, in each case at the option of the holder thereof), or
upon the happening of any event, matures or is mandatorily redeemable, pursuant
to a sinking fund obligation or otherwise, or redeemable at the option of the
holder thereof, in whole or in part, on or prior to the date that is 91 days
after the date on which the Notes mature. Notwithstanding the preceding
sentence, any Capital Stock that would constitute Disqualified Stock solely
because the holders thereof have the right to require the Company to repurchase
such Capital Stock upon the occurrence of a change of control or an asset sale
shall not constitute Disqualified Stock if the terms of such Capital Stock
provide that the Company may not repurchase or redeem any such Capital Stock
pursuant to such provisions unless such repurchase or redemption complies with
Section 8.6 hereof.
"EBITDA" means, with respect to the Company and its
Subsidiaries for any period, the sum of net income plus interest (net of
interest income), taxes, depletion, depreciation, amortization, any other
non-cash charges and capitalized (cash) income not reflected in the Company's
income statement, less non-cash income items and all capitalized
6
<PAGE> 16
general and administrative expenses, including capitalized expenses relating to
full-time staff salaries allocated to capital projects, all as determined in
accordance with GAAP.
"ENRON PARTIES" has the meaning given to such term in the
recitals hereof.
"ENRON PURCHASE AGREEMENT" has the meaning given to such term
in the recitals hereof.
"ENRON REPURCHASE" has the meaning given to such term in the
recitals hereof.
"ENVIRONMENTAL LAWS" means all federal, state, local and
foreign statutes, regulations, ordinances and other provisions having the force
or effect of law, all judicial and administrative orders and determinations, all
contractual obligations and all common law concerning public health and safety,
worker health and safety, pipeline safety and pollution or protection of the
environment, including without limitation all those relating to the presence,
use, production, generation, handling, transportation, treatment, storage,
disposal, distribution, labeling, testing, processing, discharge, release,
threatened release, control, or cleanup of any hazardous materials, substances
or wastes, chemical substances or mixtures, pesticides, pollutants,
contaminants, toxic chemicals, petroleum products, distillates or byproducts,
drilling fluids, produced waters, other wastes from the exploitation,
development or production of crude oil or natural gas, asbestos, polychlorinated
biphenyls, noise or radiation, each as amended and as now or hereafter in
effect.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and all rules and regulations from time to time promulgated
thereunder.
"EVENT OF DEFAULT" has the meaning given to such term in
Section 11.1.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"FEE LETTER" means the letter agreement dated as of the date
hereof among the Company, CB Capital Investors, L.P. and Mellon.
"FINAL MATURITY DATE" means December 15, 2007.
"FINANCIAL OFFICER" of any Person means its chief financial
officer or principal accounting officer.
"GAAP" means generally accepted accounting principles in the
United States of America in effect from time to time.
"GOVERNMENTAL AUTHORITY" means any federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality, or any court, in each case whether of the United States or any
political subdivision thereof, or of any other country.
"GUARANTY" of or by any Person shall mean any obligation,
contingent or otherwise, of such Person guarantying or having the economic
effect of guarantying any
7
<PAGE> 17
Indebtedness or other obligation of any other Person (the "PRIMARY OBLIGOR") in
any manner, whether directly or indirectly, and including any obligation of such
Person, direct or indirect, (a) to purchase or pay (or advance or supply funds
for the purchase or payment of) such Indebtedness or other obligation or to
purchase (or to advance or supply funds for the purchase of) any security for
the payment of such Indebtedness or other obligation, (b) to purchase or lease
property, securities or services for the purpose of assuring the owner of such
Indebtedness or other obligation of the payment of such Indebtedness or other
obligation or (c) to maintain working capital, equity capital or any other
financial statement condition or liquidity of the primary obligor so as to
enable the primary obligor to pay such Indebtedness or other obligation;
provided, however, that the term "Guaranty" shall not include endorsements for
collection or deposit in the ordinary course of business.
"HAZARDOUS MATERIALS" shall mean all explosive or radioactive
substances or wastes, hazardous or toxic substances or wastes, pollutants,
solid, liquid or gaseous wastes, including petroleum or petroleum distillates,
byproducts, drilling fluids, produced waters, other wastes from the
exploitation, development or production of crude oil or natural gas, asbestos or
asbestos containing materials, polychlorinated biphenyls ("PCBs") or
PCB-containing materials or equipment, radon gas, infectious or medical wastes
and all other substances or wastes of any nature regulated pursuant to any
Environmental Law.
"INDEBTEDNESS" of any Person shall mean, without duplication,
(a) all obligations of such person for borrowed money or with respect to
deposits or advances of any kind, including the undischarged balance of any
production payments created by such Person or for the creation of which such
Person directly or indirectly received payment and obligations to deliver goods
or services including hydrocarbons in consideration of advance payments other
than (i) obligations to sell or purchase hydrocarbons, (ii) obligations with
pipelines for firm transportation of natural gas of such Person, and (iii) oil
and gas balancing agreements, take or pay agreements or other prepayment
obligations in respect of hydrocarbons, in each case, incurred in the ordinary
course of business and which are customary in the oil and gas industry, (b) all
obligations of such Person evidenced by bonds, debentures, notes or similar
instruments, (c) all obligations of such Person upon which interest charges are
customarily paid, (d) all obligations of such Person under conditional sale or
other title retention agreements relating to property or assets purchased by
such Person, (e) all obligations of such Person issued or assumed as the
deferred purchase price of property or services (excluding trade accounts
payable, accrued obligations (including management fees) incurred in the
ordinary course of business and the amount of any deferred rent obligations),
(f) all Indebtedness of others secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien on property owned or acquired by such Person, whether or not the
obligations secured thereby have been assumed, (g) all Guarantees given by such
Person of Indebtedness of others, (h) all Capital Lease Obligations of such
Person, (i) all obligations of such Person in respect of commodity price hedging
agreements or arrangements, interest rate protection agreements, foreign
currency exchange agreements or other interest or exchange rate hedging
arrangements and (j) all obligations and exposures of such Person as an account
party in respect of letters of credit and bankers' acceptances. The Indebtedness
of any Person shall include the Indebtedness of any other entity (including any
partnership in which such Person is a general partner) to the extent such Person
is liable therefor as a result of such Person's ownership interest in or
8
<PAGE> 18
relationship with such entity, except to the extent the terms of such
Indebtedness provide that such Person is not liable therefor.
"INDEMNIFIED PERSON" has the meaning given to such term in
Section 12.5.
"INDEMNIFYING PERSON" has the meaning given to such term in
Section 12.6.
"INTEREST PAYMENT DATE" means each March 31, June 30,
September 30 and December 31.
"INTEREST PERIOD" means (i) initially, the period from and
including the Closing Date to but excluding the first Interest Payment Date to
occur thereafter and (ii) thereafter, the period from and including each
Interest Payment Date to but excluding the immediately following Interest
Payment Date.
"INTERIM BALANCE SHEET" has the meaning given to such term in
Section 4.6.
"INVESTMENTS" has the meaning given to such term in Section
8.4.
"IRS" has the meaning given to such term in Section 4.15(b).
"LIEN" means any interest in Property securing an obligation
owed to, or a claim by, a Person other than the owner of the Property, whether
such interest is based on common law, statute or contract. The term "Lien" shall
also include reservations, exceptions, encroachments, easements, rights-of-way,
covenants, conditions, restrictions, leases and other title exceptions and
encumbrances affecting Property. For the purpose of the Agreement, the Company
shall be deemed to be the owner of any Property which it has acquired or holds
subject to a conditional sale agreement or other arrangement pursuant to which
title to the Property has been retained by or vested in some other Person for
security purposes; provided, however, that the term "Lien" shall not include a
trust or similar arrangement established for the purpose of defeasing any
Indebtedness pursuant to the terms evidencing or providing for the issuance of
such Indebtedness but only to the extent that such defeasance is permitted under
this Agreement.
"MATERIAL ADVERSE EFFECT" means (a) a material adverse effect
on the business, assets, liabilities (actual or contingent), operations, results
of operations, condition (financial or other) or prospects of the Company and
its Subsidiaries, taken as a whole, (b) any material impairment of the ability
of the Company or any of its Subsidiaries to perform any of its material
obligations under any Transaction Document or (c) any material impairment of any
material rights of or benefits available to the Investors under any Transaction
Document.
"MATERIAL INDEBTEDNESS" means Indebtedness of the Company or
any of its Subsidiaries in an aggregate principal amount exceeding $3,750,000.
"MAXIMUM LAWFUL RATE" has the meaning given such term in
Section 3.3(c).
"MULTIEMPLOYER PLAN" has the meaning set forth in Section
4001(a)(3) of ERISA
9
<PAGE> 19
"NINTH AMENDMENT" means the Ninth Amendment to the Senior
Credit Agreement between the Company and the Senior Lender dated as of the date
hereof.
"NONMONETARY BLOCKAGE PERIOD" has the meaning given to such
term in Section 9.3(b).
"NOTE DOCUMENTS" means this Agreement, the Notes and any other
document or instrument executed and delivered by the Company in connection with
the Notes or this Agreement (other than the Warrant Agreement, the Warrants, the
Shareholders Agreement and the Registration Rights Agreement).
"NOTES" means the $22,000,000 aggregate principal amount of 9%
Senior Subordinated Notes due 2007 dated the Closing Date in substantially the
form of Exhibit A hereto.
"NOTE REGISTER" shall have the meaning given to such term in
Section 3.7(a).
"OBLIGATIONS" means the due and punctual payment of the
principal of, premium, if any, and interest on the Notes, and other monetary
obligations, liabilities and the performance of all other obligations of the
Company to the Investors, howsoever created, arising or evidenced, whether
direct or indirect, joint or several, absolute or contingent, primary or
secondary, due or to become due, or now existing or hereafter arising, under
this Agreement, the Notes or any other Note Document.
"OIL AND GAS PROPERTIES" means fee, leasehold or other
interests in or under mineral estates or oil, gas or other liquid or gaseous
hydrocarbon leases, including, without limitation, overriding royalty and
royalty interests, leasehold estate interests, net profits interests, production
payment interests and mineral fee interests, together with all contracts
executed in connection therewith, all oil, gas and other minerals produced and
to be produced therefrom, all proceeds thereof, and all tenements,
hereditaments, appurtenances and properties, real or personal, appertaining,
belonging, affixed or incidental thereto.
"PAYMENT BLOCKAGE PERIOD" has the meaning given to such term
in Section 9.3(a).
"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 the Company.
"PERMITTED HOLDERS" shall mean CB Capital Investors, L.P. and
Mellon Ventures, L.P.
"PERMITTED INVESTMENTS" shall mean:
(i) direct obligations of, or obligations the principal of and
interest on which are unconditionally guarantied by, the United States of
America (or by any agency thereof to the
10
<PAGE> 20
extent such obligations are backed by the full faith and credit of the United
States of America), in each case maturing within one year from the date of
acquisition thereof;
(ii) investments in commercial paper maturing within 270 days
from the date of acquisition thereof and having, at such date of acquisition,
the highest credit rating obtainable from Standard & Poor's Ratings Service or
from Moody's Investors Service, Inc.;
(iii) investments in certificates of deposit, banker's
acceptances, repurchase agreements and time deposits maturing within one year
from the date of acquisition thereof issued or guaranteed by or placed with, and
money market deposit accounts issued or offered by, any domestic office of any
commercial bank organized under the laws of the United States of America or any
State thereof that has a combined capital and surplus and undivided profits of
not less than $250,000,000; and
(iv) shares of funds registered under the Investment Company
Act of 1940, as amended, that have assets of at least $100,000,000 and invest
only in obligations described in clauses (i) through (iii) above to the extent
that such shares are rated by Moody's Investors Service, Inc. or Standard &
Poor's Ratings Service in one of the two highest rating categories assigned by
such agency for shares of such nature
"PERMITTED LIENS" means any Lien permitted in accordance with
Section 8.4.
"PERSON" shall be construed as broadly as possible and
includes natural person, corporation, limited liability company, partnership,
joint venture, trust, unincorporated association or other organization and a
Governmental Authority.
"PLAN" has the meaning given to such term in Section 4.15(a).
"PROCEEDING" has the meaning given such term in Section 9.2.
"PRODUCER'S LIEN" means the security interest created by a
Producer's Lien Statute in favor of royalty owners, producers and other interest
owners of oil and gas production in their oil and gas production and certain
related proceeds.
"PRODUCER'S LIEN STATUTE" means Section 9-319 or 9.319 of the
Uniform Commercial Code (as the case may be) as in effect in the states of
Texas, Kansas and Wyoming, Section 48-9-1 et seq. of the New Mexico Statutes
1978 Annotated, Section 458 of the Oklahoma Statutes Annotated and any other
statutes in effect in any other state of the United States granting royalty
owners, producers and other interest owners of oil and gas production a security
interest in their oil and gas production and certain related proceeds to secure
payment of the purchase price for such production.
"PRODUCTION PAYMENTS" means the grant or transfer to any
Person of a production payment (whether volumetric or dollar denominated) or
similar royalty, overriding royalty, net profits interest or other similar
interest in Oil and Gas Properties, or the right to receive all or a portion of
the production or the proceeds from the sale of production attributable to such
Oil and Gas Properties where the holder of such interest has recourse solely to
such interest and the grantor or the transferor thereof has an express
contractual obligation to produce
11
<PAGE> 21
and sell hydrocarbons from such Oil and Gas Properties to be so operated and
maintained, in each case in a reasonably prudent manner.
"PROJECTIONS" means the Company's forecasted (a) quarterly
cash flow statements, (b) drilling plan and (c) balance sheet, working capital
and capitalization all attached here to as Schedule 1.1A.
"PROPERTY" means any interest in any kind of property or
asset, whether real, personal or mixed, or tangible or intangible.
"PUBLIC SALE" has the meaning given to such term in the
Shareholders Agreement.
"PURCHASED COMMON STOCK" means the 3,636,364 shares of Common
Stock purchased at the Closing.
"PURCHASE MONEY INDEBTEDNESS" means Indebtedness incurred to
finance the acquisition, construction or improvement of any fixed or capital
assets, including Indebtedness assumed in connection with the acquisition of any
such assets or secured by a Lien on any such assets prior to the acquisition
thereof, and any extension, renewal or replacement of any such Indebtedness.
"PURCHASED SECURITIES" means the Notes, the Warrants and the
Purchased Common Stock.
"REGISTRATION RIGHTS AGREEMENT" has the meaning given to such
term in the Warrant Agreement.
"RELEASE" shall mean any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping,
disposing, depositing, dispersing, emanating or migrating of any Hazardous
Material in, into, onto or through the environment.
"REMEDIAL ACTION" means (a) "remedial action" as such term is
defined in CERCLA, 42 U.S.C. Section 9601(24), and (b) all other actions
required by any Governmental Authority or voluntarily undertaken to (i) clean
up, remove, treat, abate or in any other way address any Hazardous Material in
the environment; (ii) prevent the Release or threat of Release, or minimize the
further Release of any Hazardous Material so it does not migrate or endanger or
threaten to endanger public health, welfare or the environment; or (iii) perform
studies and investigations in connection with, or as a precondition to, the
actions described in clause (i) or (ii) above.
"REPORTABLE EVENT" means any of the events set forth in
Section 4043(b) of ERISA.
"REPORTS" has the meaning given to such term in Section 4.7.
"REQUIRED INVESTORS" means Investors holding Notes
representing a majority of the then outstanding principal balance of the Notes.
12
<PAGE> 22
"RESPONSIBLE OFFICER" of any Person means, (i) with respect to
any individual, such individual or any other Person duly authorized to act on
behalf of such individual and (ii) with respect to any institution, the chief
executive officer or a Financial Officer of such Person.
"RESTRICTED SECURITIES" means the Purchased Securities and the
Warrant Shares, to the extent the Purchased Securities and the Warrant Shares
have not then been sold to the public pursuant to (a) registration under the
Securities Act or (b) Rule 144 (or similar or successor rule) promulgated under
the Securities Act.
"REPURCHASE CLOSING DATE" has the meaning given to such term
in Section 3.5(b).
"REPURCHASE NOTICE" has the meaning given to such term in
Section 3.5(b).
"REPURCHASE NOTICE DATE" has the meaning given to such term in
Section 3.5(b).
"SEC DOCUMENTS" has the meaning given to such term in Section
4.6.
"SECURITY" has the meaning given to such term in Section 2(l)
of the Securities Act.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SENIOR CREDIT AGREEMENT" has the meaning given to such term
in the recitals hereof.
"SENIOR CREDIT DOCUMENTS" has the meaning given to the term
"LOAN DOCUMENTS" in the Senior Credit Agreement.
"SENIOR INDEBTEDNESS" means the following Indebtedness,
including the principal of, and premium (if any) and interest on loans and other
extensions of credit under the documents evidencing such Indebtedness
(including, without limitation, any interest accruing subsequent to the
commencement of any Proceeding whether or not such interest constitutes an
allowed claim in any such Proceeding) and all commitment, facility and other
fees payable under the documents evidencing such Indebtedness and all expenses,
reimbursements, indemnities and other amounts payable by the Company and its
Subsidiaries under the documents evidencing such Indebtedness:
(a) all "Obligations" under and as defined in the Senior Credit
Agreement, now existing or hereinafter created, under the Senior Credit
Agreement;
(b) Indebtedness incurred pursuant to borrowing base limitations
which are supported by Oil and Gas Properties and are reasonable and customary
for financings in the Subject Business;
(c) Purchase Money Indebtedness issued or incurred to finance
Consolidated Capital Expenditures;
13
<PAGE> 23
(d) Indebtedness (other than Production Payments) incurred to
finance the cash purchase price, or issued to sellers as all or part of the
purchase price, of Acquisitions permitted under Section 8.4;
(e) Indebtedness (other than Production Payments) incurred to
finance expenditures incurred for the development of Oil and Gas Properties with
proved hydrocarbon reserves;
(f) with respect to any Subsidiaries of the Company, the
contingent obligations or guaranty, if any, of such Subsidiary, under or in
respect of Indebtedness covered under clauses (a) through (e) above; and
(g) subject to the provisions of Section 8.13(c), any and all
refinancings, replacements or refunding of any of the amounts referred to in
clauses (a) and (f) above;
provided, that any Indebtedness specified in the foregoing clauses (a) through
(g) (or any refinancing, replacement or refunding thereof) shall not constitute
"Senior Indebtedness" if (A) at the time of incurrence thereof, the Company
shall elect, and the documents evidencing such Indebtedness shall confirm, that
such Indebtedness is not Senior Indebtedness or (B) after giving pro forma
effect to the incurrence of such Indebtedness, (i) the financial covenants set
forth in Sections 8.10 and 8.11 would be violated or (ii) Total Debt to
Capitalization would be greater than 60%. Senior Indebtedness shall be
considered outstanding whenever any loan commitment under the Senior Credit
Agreement or any Senior Refinancing Agreement is outstanding.
"SENIOR LENDER" has the meaning given to such term in the
recitals hereof.
"SENIOR NONMONETARY DEFAULT" means the occurrence or existence
of any event, circumstance, condition or state of facts that, by the terms of
any instrument pursuant to which any Senior Indebtedness is outstanding, permits
one or more holders of such Senior Indebtedness (or a trustee or agent on behalf
of the holders thereof) to declare such Senior Indebtedness due and payable
prior to the date on which it would otherwise become due and payable, other than
a Senior Payment Default.
"SENIOR NONMONETARY DEFAULT NOTICE" shall have the meaning
given to such term in Section 9.3(b).
"SENIOR PAYMENT DEFAULT" means any default in the payment of
principal of (or premium, if any) or interest on, or other amount payable in
respect of, any Senior Indebtedness when due that, by the terms of any
instrument pursuant to which any Senior Indebtedness is outstanding, permits one
or more holders of such Senior Indebtedness (or a trustee or agent on behalf of
the holders thereof) to declare such Senior Indebtedness due and payable prior
to the date on which it would otherwise become due and payable, other than a
Senior Nonmonetary Default.
"SENIOR REFINANCING AGREEMENT" has the meaning given to such
term in Section 8.13(c).
14
<PAGE> 24
"SHAREHOLDERS AGREEMENT" means the Shareholders Agreement
dated as of the date hereof among the Company and the shareholders of the
Company party thereto as amended from time to time.
"SOLVENT" means, as to any Person, such Person (i) owns
Property whose fair saleable value is greater than the amount required to pay
all of such Person's Indebtedness (including contingent debts), (ii) is able to
pay all of its Indebtedness as such Indebtedness matures and (iii) has capital
sufficient to carry on its business and transactions and all business and
transactions in which it is about to engage.
"SPECIFIED CONTRACTS" has the meaning given to such term in
Section 4.11.
"STATED RATE" has the meaning given to such term in Section
3.3 hereof.
"SUBJECT BUSINESS" has the meaning given to such term in the
recitals to this Agreement.
"SUBORDINATED OBLIGATIONS" shall have the meaning given to
such term in Section 9.1.
"SUBSIDIARY" means, with respect to any Person, any other
Person of which more than fifty percent (50%) of the shares of stock or other
interests entitled to vote in the election of directors or comparable Persons
performing similar functions (excluding shares or other interests entitled to
vote only upon the failure to pay dividends thereon or other contingencies) are
at the time owned or controlled, directly or indirectly through one or more
Subsidiaries, by such Person. Unless the context otherwise requires, the term
"Subsidiary" means a Subsidiary of the Company.
"SURVIVAL DATE" has the meaning given to such term in Section
12.2.
"TANGIBLE NET WORTH" means the total assets of the Company
exclusive of (i) those assets classified as intangible, including, without
limitation, goodwill, patents, trademarks, trade names, copyrights, franchises
and deferred charges, (ii) treasury stock and minority interests in any Person,
(iii) cash set apart and held in sinking or other analogous fund established for
the purpose of redemption or other retirement of capital stock, (iv) to the
extent not already deducted from total assets, allowances for depreciation,
depletion, obsolescence and/or amortization of properties, uncollectible
accounts, and contingent but probable liabilities as to which an amount can be
established, (v) deferred taxes and (vi) all assets arising from advances to
officers, former officers or sales representatives of the Company made outside
of the ordinary course of business; less total liabilities of the Company, all
of the above being determined in accordance with GAAP.
"TAXES" has the meaning given to such term in Section 4.14
"TAX RETURNS" has the meaning given to such term in Section
4.14.
"THIRD PARTY CLAIM" has the meaning given to such term in
Section 12.6.
15
<PAGE> 25
"TOTAL DEBT" shall mean, at any date and without duplication,
(i) the aggregate amount of all Indebtedness of the Company and the Subsidiaries
on a consolidated basis at such date (other than any Indebtedness described in
clause (i) or (j) of the definition of the term "Indebtedness" and other than
Production Payments) minus cash on hand (excluding any cash representing the
proceeds of any Indebtedness the incurrence of which is subject to any
calculation that includes Total Debt) to the extent the amount of such cash
exceeds $2,000,000.
"TOTAL DEBT TO CAPITALIZATION" means the ratio, expressed as a
percentage of (i) Total Debt to (ii) Total Debt plus Tangible Net Worth.
"TRANSACTION DOCUMENTS" means the Warrants, the Warrant
Agreement, the Registration Rights Agreement, the Compliance Sideletter, the
Note Documents, the Shareholders Agreement, the Fee Letter and the Amended
Founders Registration Rights Agreement.
"TRANSFER" means any sale, transfer, assignment, or other
disposition of any interest in, with or without consideration, any security,
including any disposition of any security or of any interest therein which would
constitute a sale thereof within the meaning of the Securities Act.
"US$" AND "UNITED STATES DOLLARS" shall each mean lawful
currency of the United States. "UNITED STATES" means the United States of
America.
"WARRANT AGREEMENT" means the Warrant Agreement dated the date
hereof among the Company and the other signatories thereto, as such Agreement
may be amended, supplemented or otherwise modified from time to time.
"WARRANTS" has the meaning given to such term in the Warrant
Agreement.
"WARRANT SHARES" has the meaning given to such term in the
Warrant Agreement.
1.2 TERMS GENERALLY.
The definitions in Section 1.1 shall apply equally to the singular and
plural forms of the terms defined. Whenever the context may require, any pronoun
shall include the corresponding masculine, feminine and neuter forms. The words
"INCLUDE", "INCLUDES" and "INCLUDING" shall be deemed to be followed by the
phrase "WITHOUT LIMITATION".
1.3 USE OF DEFINED TERMS.
Terms defined in this Agreement and used in any Exhibit, Schedule,
Certificate, Annex or any Transaction Document or other document delivered in
connection with this Agreement, shall have the meanings assigned herein unless
otherwise defined or the context otherwise requires.
16
<PAGE> 26
1.4 CROSS-REFERENCES.
Unless otherwise specified, references in this Agreement or any
Transaction Document to any Article or Section are references to such Article or
Section of this Agreement or such Transaction Document, as the case may be, and
references in any Article, Section or definition to any clause are references to
such clause of such Section, Article or definition.
1.5 CURRENCY.
Unless otherwise specified herein, all statements or references to
dollar amounts or $ set forth herein or in any other Transaction Document shall
refer to United States Dollars.
1.6 ACCOUNTING TERMS; GAAP.
Any accounting term used in this Agreement shall have, unless otherwise
specifically provided herein, the meaning customarily given such term in
accordance with GAAP, and all financial computations hereunder shall be
computed, unless otherwise specifically provided herein, in accordance with GAAP
consistently applied. That certain terms or computations are explicitly modified
by the phrase "in accordance with GAAP" shall in no way be construed to limit
the foregoing. If any changes in accounting principles from those currently
employed become effective by the promulgation of rules, regulations
pronouncements and opinions by or required by the Financial Accounting Standards
Board (FASB) or the American Institute of Certified Public Accountants (AICPA)
(or any successors thereto) resulting in a change in any financial covenant
calculations required by Sections 8.10, 8.11 or 8.12, such covenants shall
continue to be calculated under the previous accounting principles and the
holders of the Notes and the Company agree to negotiate in good faith to amend
such covenant calculations to equitably reflect such changes with the desired
result that the criteria for evaluation of the financial condition of the
Company and its Subsidiaries shall be the same as if such changes had not been
made. If no agreement can be reached regarding such amendments within thirty
(30) days after the effectiveness of such change in accounting principles, then
the Company shall continue to calculate those covenants which were affected
using the previous accounting principles.
ARTICLE II
PURCHASE AND SALE OF THE PURCHASED SECURITIES
2.1 AUTHORIZATION AND ISSUANCE OF THE PURCHASED SECURITIES.
(a) The Company has authorized the issuance of the Purchased
Securities.
(b) On the Closing Date, the Company shall sell to each Investor,
and each Investor shall severally purchase from the Company, upon satisfaction
of the conditions set forth in Section 6.1 hereof (or waiver in writing of such
conditions by such Investor), (i) a Note in the principal amount equal to the
amount set forth opposite such Investor's name on Schedule 1.1 for the purchase
price set forth opposite its name, (ii) Warrants to purchase the number of
shares of Common Stock set forth opposite its name on Schedule 1.1 for the
purchase price set forth
17
<PAGE> 27
opposite its name and (iii) the number of shares of Common Stock set forth
opposite its name on Schedule 1.1 for the purchase price set forth opposite its
name.
(c) Each Investor and the Company hereby acknowledge and agree
that the Notes are part of an "INVESTMENT unit" within the meaning of Section
1273(c)(2) of the Code, that includes the Warrants and the Common Stock.
Notwithstanding anything to the contrary contained herein or in the Warrant
Agreement, each Investor and the Company hereby further acknowledge and agree
that solely for United States federal income tax purposes the aggregate "ISSUE
PRICE" of the Notes, the Warrants and the Common Stock being purchased by such
Investor, for purposes of Section 1273(b) of the Code (and for purposes of
comparable state and local income tax laws) shall equal the purchase price set
forth on Schedule 1.1 opposite such Investor's name. The Investors and the
Company agree to use the foregoing issue prices for all income tax purposes with
respect to this transaction.
2.2 DELIVERY OF THE PURCHASED SECURITIES.
On the Closing Date, the Company shall deliver to each Investor (i) a
duly executed Note (payable to the order of such Investor), (ii) the Warrants
registered in such Investor's name representing the right to purchase the number
of shares of Common Stock set forth opposite such Investor's name on Schedule
1.1 and (iii) a certificate, registered in such Investor's name, representing
the shares of Purchased Common Stock purchased by such Investor at the Closing.
Delivery shall be made against receipt by the Company of the aggregate purchase
price for the Purchased Securities being purchased by such Investor by wire
transfer of immediately available funds to an account designated by the Company.
2.3 CLOSING.
Subject to the satisfaction of the conditions precedent set forth in
Section 6.1 hereof (or the waiver in writing of such conditions by the
Investors), the delivery of the Purchased Securities shall take place at the
offices of Baker & Botts, L.L.P., One Shell Plaza, 910 Louisiana, Houston, Texas
77002-4995 on the date of execution of the Transaction Documents and the closing
of the transactions contemplated thereby (the "CLOSING Date").
ARTICLE III
PROVISIONS OF THE NOTES AND THE WARRANTS
3.1 THE NOTES.
The Notes shall be in the aggregate principal amount of Twenty Two
Million Dollars ($22,000,000). The Notes shall be dated the Closing Date. The
aggregate amount of the Notes shall, subject to the provisions for mandatory and
optional prepayment and acceleration contained herein, mature and be payable in
full on the Final Maturity Date.
3.2 GENERAL PROVISIONS AS TO PAYMENTS.
(a) The Company shall make each payment in respect of the
principal of, premium, if any, or accrued interest on the Notes, or any other
amount due to the Investors under
18
<PAGE> 28
this Agreement or any other Note Document, not later than 2:00 p.m., New York
City time, on the day when due, to the Investors as provided in the Notes and
Schedule 1.1 attached hereto, or in such other manner as instructed from time to
time in writing by the Investor. All payments hereunder shall be made in United
States Dollars by wire transfer of immediately available funds.
(b) Whenever any payment (including principal of, premium, if any,
or interest on the Notes or other amount) hereunder or under any other Note
Document shall become due, or otherwise would occur, on a day that is not a
Business Day, such payment shall be made on the next succeeding Business Day,
and such extension of time shall in such case be included in the computation of
such interest, or other amount, if applicable.
(c) The Company hereby authorizes the Investors to make
appropriate notations on the grid attached to the Notes, including the date,
outstanding principal amount and any prepayment thereof and the Deferred
Interest Amounts to be added to the principal amount of the Notes in accordance
with Section 3.3(a), which notations shall be conclusive absent manifest error;
provided, however, that the failure of the Investors to make such notation or
any error on the Notes shall not affect the obligation of the Company to repay,
in accordance with the terms of the Notes and this Agreement, the principal
amount of the Notes together with all interest, prepayment premiums, if any, and
other amounts due hereunder.
(d) Neither the Company nor any of its Subsidiaries shall
purchase, redeem or otherwise acquire any Notes from any holder thereof except
upon payment or prepayment thereof in accordance with the specific terms thereof
and of this Agreement unless the Company or such Subsidiary shall have offered
to purchase, redeem or otherwise acquire, as the case may be, Notes from each
holder of the Notes at the time outstanding upon the same terms and conditions
and on a pro rata basis (based upon the principal amount of the Notes then held
by each such holder). Any Notes so purchased, redeemed or otherwise acquired by
the Company or any Subsidiary of the Company shall be cancelled and not be
deemed outstanding for any purpose under this Agreement.
(e) Except to the extent otherwise provided herein, each payment
of principal of the Notes by the Company shall be made for the account of the
holders thereof pro rata in accordance with the respective unpaid principal
amounts of the Notes held by them and each payment of interest on Notes shall be
made for the account of the holders thereof pro rata in accordance with the
amounts of interest on such Notes then due and payable to the respective
Investors.
3.3 INTEREST.
(a) Interest shall be payable on the principal amount of the
Notes, and to the maximum extent permitted by Applicable Law on any increase
thereof as provided below, at a fixed rate per annum equal to 9% (the "STATED
Rate"). Notwithstanding the foregoing, in connection with any Interest Payment
Date occurring prior to the fifth anniversary of the Closing Date, the Company
may elect to defer a portion of the interest owing on such Interest Payment Date
provided that (i) no Default or Event of Default has occurred and is continuing,
and (ii) the Company gives the Investors written notice of such election prior
to the commencement of the
19
<PAGE> 29
related Interest Period, which notice shall include the amount of interest the
Company elects to defer on such Interest Payment Date; and provided further that
the maximum amount of interest the Company may elect to defer on any Interest
Payment Date shall be an amount equal to 60% of the interest accrued on the
Notes during such Interest Period. If the Company elects to defer a portion of
the interest due on any Interest Payment Date (such amount being hereinafter
referred to as the "DEFERRED INTEREST AMOUNT"), then the aggregate principal
amount of the Notes shall be automatically deemed to be increased by an amount
equal to the Deferred Interest Amount owing on such Interest Payment Date.
(b) Interest on the Notes shall accrue from day to day and shall
be payable (as provided in Section 3.3(a) above) on each Interest Payment Date,
commencing March 31, 2000, on the date of any prepayment in accordance with
Sections 3.5 and 3.6 hereof and on maturity of the Notes, whether by
acceleration or otherwise. All computations of interest hereunder shall be made
on the basis of a 360-day year consisting of twelve 30-day months.
(c) The Investors, the Company and any other parties to the
Transaction Documents intend to contract in strict compliance with applicable
usury law from time to time in effect. In furtherance thereof such Persons
stipulate and agree that none of the terms and provisions contained in the
Transaction Documents shall ever be construed to create a contract to pay, for
the use, forbearance or detention of money, interest in excess of the maximum
amount of interest permitted to be charged by applicable law from time to time
in effect (the "Maximum Lawful Rate"). Neither the Company, nor any Subsidiary,
nor any present or future guarantors, endorsers, or other Persons hereafter
becoming liable for payment of any Obligation shall ever be liable for unearned
interest thereon or shall ever be required to pay interest thereon in excess of
the Maximum Lawful Rate, and the provisions of this section shall control over
all other provisions of the Transaction Documents which may be in conflict or
apparent conflict herewith. The Investors expressly disavow any intention to
charge or collect excessive unearned interest or finance charges in the event
the maturity of any Obligation is accelerated. If (a) the maturity of any
Obligation is accelerated for any reason, (b) any Obligation is prepaid and as a
result any amounts held to constitute interest are determined to be in excess of
the legal maximum, or (c) any Investor or any other holder of any or all of the
Obligations shall otherwise collect moneys which are determined to constitute
interest which would otherwise increase the interest on any or all of the
Obligations to an amount in excess of that permitted to be charged by applicable
law then in effect, then all sums determined to constitute interest in excess of
such legal limit shall, without penalty, be promptly applied to reduce the then
outstanding principal of the related Obligations or, at such Investor's or
holder's option, promptly returned to the Company or the other payor thereof
upon such determination. In determining whether or not the interest paid or
payable, under any specific circumstance, exceeds the Maximum Lawful Rate, the
Company and the Investors (and any other payors thereof) shall to the greatest
extent permitted under applicable law, (i) characterize any non-principal
payment as an expense, fee or premium rather than as interest, (ii) exclude
voluntary prepayments and the effects thereof, and (iii) amortize, prorate,
allocate, and spread the total amount of interest throughout the entire
contemplated term of the instruments evidencing the Obligations in accordance
with the amounts outstanding from time to time thereunder. Notwithstanding
anything to the contrary set forth in this Section 3.3 or Section 3.4, if a
court of competent jurisdiction determines in a final order that the rate of
interest payable hereunder exceeds the Maximum Lawful Rate, then so long as the
Maximum Lawful Rate would be so exceeded, the rate of interest payable hereunder
shall be
20
<PAGE> 30
equal to the Maximum Lawful Rate; provided, however, that if at any time
thereafter the rate of interest payable hereunder is less than the Maximum
Lawful Rate, the Company shall continue to pay interest hereunder at the Maximum
Lawful Rate until such time as the total interest received by the Investors, is
equal to the total interest which would have been received had the interest rate
payable hereunder been (but for the operation of this paragraph) the interest
rate payable since the Closing Date as otherwise provided in this Agreement.
Thereafter, interest hereunder shall be paid at the rate(s) of interest and in
the manner provided in Section 3.3(a) and (b) and Section 3.4, unless and until
the rate of interest again exceeds the Maximum Lawful Rate, and at that time
this paragraph shall again apply. In no event shall the total interest received
by any Investor pursuant to the terms hereof exceed the amount which such
Investor could lawfully have received had the interest due hereunder been
calculated for the full term hereof at the Maximum Lawful Rate. If the Maximum
Lawful Rate is calculated pursuant to this paragraph, such interest shall be
calculated at a daily rate equal to the Maximum Lawful Rate divided by the
number of days in the year in which such calculation is made. As used in this
section the term "applicable law" means the laws of the State of New York or the
laws of the United States of America, whichever laws allow the greater interest,
as such laws now exist or may be changed or amended or come into effect in the
future.
3.4 INTEREST ON OVERDUE AMOUNTS.
So long as any Event of Default shall have occurred and be continuing,
the Company shall pay, in cash on demand from time to time, interest to the
extent permitted by law on the Notes at a rate per annum equal to two percent
(2%) above the Stated Rate.
3.5 MANDATORY PREPAYMENT.
(a) Any and all principal of the Notes remaining unpaid, together
with all interest accrued but unpaid thereon, automatically and unconditionally
shall be due and payable in full in cash on the Final Maturity Date.
(b) In the event of a Change of Control, each Investor shall have
the option to require the Company to repurchase all the Notes held by such
Investor at a purchase price in cash equal to the then outstanding principal
amount of the Notes plus the Applicable Prepayment Premium, together with all
interest accrued on such Notes through the date of repurchase. The Company shall
give the Investors notice (a "CHANGE OF CONTROL NOTICE") of any transaction that
would result in a Change of Control not less than thirty (30) days prior to the
anticipated date of the consummation of such transaction (but in no event later
than the third Business Day following the Company becoming aware thereof). Any
Investor may exercise its right to require the Company to repurchase the Notes
held by it by delivering written notice of such exercise (a "REPURCHASE NOTICE")
to the Company within twenty (20) days after receipt of the Change of Control
Notice. Within 15 days after the first date of receipt of a Repurchase Notice by
the Company (the "REPURCHASE NOTICE DATE"), the Company shall give a notice to
all other Investors advising them of the receipt by the Company of such
Repurchase Notice, together with a copy of such Repurchase Notice. The date upon
which the Company shall so advise such other Holders is herein called the
"COMPANY NOTICE DATE". Within 15 days after the Company Notice Date, each such
other Investor also may give a Repurchase Notice to the Company and each such
Repurchase Notice shall be deemed given as of the date of the Repurchase Notice
21
<PAGE> 31
given by the Investor initially exercising its repurchase rights hereunder. The
repurchase of the Notes shall be consummated on a date selected by the Company
upon at least 15 days' prior written notice to the Investors which have given
the relevant Repurchase Notice(s), but in no event later than the date of
consummation of such Change of Control or three (3) Business Days after the
Company becomes aware of such Change of Control (the "REPURCHASE CLOSING DATE").
On the Repurchase Closing Date, the Company shall purchase from the Investors
which have given such Repurchase Notice(s), and such Investor shall sell to the
Company, the Notes held by such Investor for the purchase price specified in
this paragraph (b).
(c) In connection with any Change of Control, the Company
covenants to (i) repay in full all Indebtedness under the Senior Credit
Agreement and to terminate all commitments thereunder and to repay in full all
other Senior Indebtedness the terms of which require repayment upon a Change of
Control or offer to repay in full and terminate all commitments under all
Indebtedness under the Senior Credit Agreement and all other such Senior
Indebtedness or (ii) obtain the requisite consents under the Senior Credit
Agreement and all other Senior Indebtedness to permit the repurchase of the
Notes as provided in paragraph (b) above.
3.6 OPTIONAL PREPAYMENTS.
(a) The Company may, at any time, at its option, prepay the Notes
in whole and from time to time in part, upon not less than thirty (30) days'
prior written notice to the Investors; provided, however, that each partial
prepayment shall be in an aggregate principal amount not less than $1,000,000 or
integral multiples of $100,000 in excess thereof. Each prepayment of the Notes
shall include payment in cash of the principal amount of the Notes proposed to
be prepaid on such prepayment date, all accrued but unpaid interest thereon to
the date of such prepayment on the portion of the Notes being prepaid and the
Applicable Prepayment Premium in respect of the portion of the Notes being
prepaid. In the case of each partial prepayment of the Notes, the principal
amount of the Notes to be prepaid shall be allocated pro rata among all of the
Notes outstanding at such time in proportion, to the respective unpaid principal
amounts.
(b) Each notice of prepayment pursuant to this Section 3.6 shall
specify the proposed date of such prepayment, the principal amount of the Notes
to be prepaid, the interest owing on such principal amount and the aggregate
Applicable Prepayment Premium in respect of the Notes being prepaid on such
prepayment date.
3.7 SECURITIES REGISTER.
(a) The Company shall cause to be kept at its principal office a
register for the registration and transfer of the Notes (the "NOTE REGISTER").
The names and addresses of the holders of the Notes, the transfer of the Notes,
and the names and addresses of the transferees of the Notes shall be registered
in the Note Register.
(b) The Person in whose name any registered Note shall be
registered shall be deemed and treated as the owner and holder thereof for all
purposes of this Agreement and the Company shall not be affected by any notice
to the contrary, until due presentment of such Note for registration of transfer
so provided in this Section 3.7(b). Payment of or on account of the
22
<PAGE> 32
principal, premium, interest and any other amount paid on any registered Note
shall be made to (or based upon the written order of) such registered holder.
3.8 LOST, ETC. SECURITIES.
Upon receipt of evidence reasonably satisfactory to the Company (an
affidavit of a financial institution or other institutional investor being
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
any Note, and in the case of any such loss, theft or destruction, upon receipt
of an indemnity reasonably satisfactory to the Company (if such Investor is a
financial institution or other institutional investor, its own agreement being
satisfactory) or, in the case of any such mutilation, upon surrender for
cancellation of such Note, the Company shall, without charge, issue, register
and deliver in lieu of such Note a new Note of like kind representing the same
rights represented by and dated the date of such lost, stolen, destroyed or
mutilated Note. Any such new Note shall constitute an original contractual
obligation of the Company, whether or not the allegedly lost, stolen, mutilated
or destroyed Note shall be at any time enforceable by any Person.
3.9 SEVERAL OBLIGATIONS; REMEDIES INDEPENDENT.
No Investor shall have any obligation to any other Investor in respect
of the failure by such Investor to purchase any Note required to be purchased by
such Investor. The amounts payable by the Company at any time hereunder and
under the Notes to each Investor shall be separate and independent debt and,
subject to the provisions of Articles IX and XI, each holder shall be entitled
to protect and enforce its rights arising out of this Agreement and the Notes
held by it and it shall not be necessary for any other holder to consent to or
be joined as an additional party in, any proceedings for such purposes.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Company hereby represents and warrants to the Investors
that, after giving effect to the Enron Repurchase and the issuance and sale of
the Purchased Securities, as of the Closing Date:
4.1 CORPORATE EXISTENCE.
The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Texas. The Company 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. The Company 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 the Company has delivered
or made available to the Investors true and complete copies of the Company's
Articles of Incorporation and By-laws, together with all amendments thereto.
23
<PAGE> 33
4.2 CORPORATE POWER AND AUTHORIZATION.
The Company has all requisite power and authority to issue the
Purchased Securities and to execute, deliver, and perform the Transaction
Documents and to consummate the transactions contemplated thereby. The
execution, delivery and performance of the Transaction Documents and the
consummation of the transactions to be performed by the Company thereunder have
been duly and validly authorized by all necessary action on the part of the
Board of Directors, and no other corporate proceedings on the part of the
Company are necessary to authorize the execution, delivery and performance of
the Transaction Documents by the Company or to consummate the transactions to be
performed by the Company thereunder.
4.3 BINDING OBLIGATIONS.
Each of the Transaction Documents when executed and delivered by the
Company, shall constitute a legal, valid and binding obligation of the Company
enforceable in accordance with its 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 the
Investors at the Closing upon payment therefor as provided in this Agreement,
the Purchased Securities will be duly authorized, validly issued, fully paid and
nonassessable and free and clear of any Liens created by the Company.
4.4 NO VIOLATION.
The execution, delivery and performance by the Company of the
Transaction Documents and the Enron Purchase Agreement, the consummation of the
transactions provided for therein and contemplated thereby, and the fulfillment
by the Company of the terms thereof, will not (a) conflict with or result in a
breach of any provision of the Articles of Incorporation or By-laws of the
Company, (b) result in any default or in any material modification of the terms
of any Indebtedness, material instrument or agreement, of the Company or the
creation of any Lien upon any of the properties or assets owned by the Company,
or (c) result in a violation by the Company of any Applicable Law or Permit
applicable to the Company.
4.5 CONSENTS.
All consents, approvals, qualifications, orders or authorizations of,
or filings with, any Governmental Authority required to be obtained by the
Company, and all consents under any material contracts, agreements, or
instruments by which the Company is bound or to which it is subject, and
required in connection with the Company's valid execution, delivery, or
performance of the Transaction Documents and the Enron Purchase Agreement, and
the consummation of the transactions contemplated thereby, has been obtained or
made other than the filing of a Form D with the SEC.
4.6 SEC DOCUMENTS AND FINANCIAL STATEMENTS.
The Company has timely filed with the Commission all forms, reports,
schedules, statements and other documents required to be filed by it since
August 5, 1997 under the
24
<PAGE> 34
Exchange or 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) (i) 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 (ii) 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 the Company 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 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 the Company, as of the dates thereof and the
combined results of operations and cash flows for the periods then ended. The
condensed balance sheet for the Company included in its quarterly report on Form
10-Q for the fiscal quarter ended September 30, 1999 is referred to herein as
the "INTERIM BALANCE SHEET".
4.7 RESERVE REPORT.
The Company has delivered to the Investors a copy of the reserve report
dated as of February 19, 1999, prepared by Ryder Scott Company Petroleum
Engineers and the reserve report dated as of March 11, 1999 prepared by
Fairchild, Ancell & Well, Inc., respectively, (the "REPORTS"), relating to the
oil and gas reserves attributable to properties owned to which the Company has
rights under lease or farm out or other written agreement by the Company. To the
knowledge of the Company, 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 the
Company and the Company has no reason to believe that the estimates will not
reflect future lease operating expenses and the historical factual information
supplied by the Company 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.
4.8 NO MATERIAL ADVERSE EFFECT.
Since December 31, 1998, there has been no Material Adverse Effect with
respect to the Company nor any acquisition or disposition of any material asset
by the Company or any contract or arrangement therefor, otherwise than for fair
value in the ordinary course of business.
4.9 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, the Company does not have any liabilities, direct or contingent
(including but not limited to liability with respect to any Plan or, to the
Company's knowledge, any Environmental Law) other than those provided for in the
25
<PAGE> 35
Interim Balance Sheet or disclosed on Schedule 4.9. 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 Company or as incurred in the ordinary
course of business, the Company has no Indebtedness other than the Indebtedness
disclosed on Schedule 4.9.
4.10 LITIGATION.
Except as disclosed on Schedule 4.10, there is no action, suit or
proceeding, or any governmental investigation or any arbitration, in each case
pending or, to the knowledge of the Company, threatened against the Company or
any material property of the Company before any Governmental Authority (i) which
challenges the legality, enforceability or validity of this Agreement of the
Transaction Documents, or (ii) which, if adversely determined, would have a
Material Adverse Effect or impair the ability or obligation of the Company to
perform fully on a timely basis any obligations which it has or will have under
the Transaction Documents.
4.11 SPECIFIED CONTRACT AND COMMITMENTS.
(a) Except as set forth on Schedule 4.11 and except for the
Transaction Documents to be entered into pursuant to or in connection with this
Agreement, the Company has no (i) employment or consulting contract involving
annual payments by the Company in excess of $125,000 and not cancelable without
liability on sixty days' 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 the
Company 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 the Company 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 the Company in excess of $1,000,000 in the aggregate; (viii)
agreement which requires future payments by the Company 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 the Company to compete in any line of business or territory or
with any person or entity; (x) area of mutual interest agreements binding the
Company; (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 relating to the borrowing of money or the incurrence
of any other Indebtedness, or any related security agreements; (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 the Company is a party relating to the
issuance of any Capital Stock of the Company, other than
26
<PAGE> 36
the Transaction Documents, (xv) agreements with respect to any of its Capital
Stock which grant registration rights to any Person other than the Transaction
Documents, (xvi) confidentiality agreements that would prohibit or restrict the
disclosure of any information to the Investors (other than agreements that
impose confidentiality restrictions involving seismic, geological or geophysical
data or similar technical and business matters relating to the exploration for
oil and gas and agreements that impose confidentiality restrictions relating to
discussions with potential investors or potential parties to business
combinations with the Company, provided that such discussions are no longer
ongoing) or (xvii) any other material agreement or instrument (collectively,
"SPECIFIED CONTRACTS"). None of the Specified Contracts have been amended or
modified except as set forth on Schedule 4.11.
(b) All of the Specified Contracts are in full force and effect
and constitute legal, valid and binding obligations of the Company, and, to the
knowledge of the Company, 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 the
Company nor, to the knowledge of the Company, 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 the Company or, to the
knowledge of the Company, 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) The Company has no contracts or subcontracts whereby the
Company receives payments from the federal government for the sale of products
to, or the provision of services to the government. The Company has provided the
Investors with a true and complete copy of each contract, agreement and
instrument listed on Schedule 4.11 or has otherwise made such documents
available for the Investors to review.
4.12 TITLE TO PROPERTIES AND ASSETS; LEASES.
(a) Except as set forth on Schedule 4.12, the Company 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 the Company (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,
27
<PAGE> 37
(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 the Company below
that set forth on Schedule 4.12, (B) increase the proportionate share of costs
and expenses of leasehold operations attributable to or to be borne by the
working interest of the Company above that set forth on Schedule 4.12 without a
proportionate increase in the net revenue interest of the Company or (C)
increase the working interest of the Company above that set forth on Schedule
4.12 without a proportionate increase in the net revenue interest of the
Company, and, provided, further, that 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 (the categories of exceptions
in clauses (iv) through (xi), as so qualified and as any such exceptions may
exist from time to time, being referred to as the "DESIGNATED TITLE
EXCEPTIONS"). To the Company's knowledge, all equipment now owned by the Company
which is necessary to the business of the Company 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 on Schedule 4.12, but only to the
knowledge of the Company with respect to oil and gas leases not operated by the
Company, the oil and gas leases in which the Company 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 the Company
have been properly and correctly paid, except where the failure to make such
payment would not have a Material Adverse Effect.
4.13 COMPLIANCE WITH THE LAW.
The Company (i) is not in violation of any Applicable Law 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.
28
<PAGE> 38
4.14 TAXES.
The Company (i) has filed all tax returns and reports ("TAX RETURNS")
required to be filed by or with respect to the Company, (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 the Company 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 the Company.
4.15 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 the Company or any of ERISA Affiliates (as hereinafter defined) for
the benefit of the employees, former employees, independent
contractors, or agents of the Company 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 the Company for the
benefit of the employees, former employees, independent contractors, or
agents of the Company 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 the Company nor any corporation, trade, business,
or entity under common control with the Company, 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 the Company or any ERISA Affiliate at any time within six
years prior to the Closing Date contributed to or had an obligation to
29
<PAGE> 39
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 on
Schedule 4.15, the execution, delivery and performance of the Transaction
Documents and the consummation of the transactions contemplated thereby will not
(i) require the Company 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. The Company is not a party to any
agreement, nor has the Company 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 the Company upon termination of such services
that would not be payable or provided in the absence of the consummation of the
transactions contemplated by the Transaction Documents.
(e) No Excess Parachute Payments. In connection with the
consummation of the transaction contemplated by the Transaction Documents, no
payments have or will be made under the Benefit Plans.
4.16 INVESTMENT COMPANY ACT.
The Company 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.
4.17 PUBLIC UTILITY HOLDING COMPANY ACT.
The Company 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.
30
<PAGE> 40
4.18 NO RESTRICTIONS ON AFFILIATES.
The Company is not a party to any agreement that would purport to
impose restrictions or limitations on the Investors or any of their Affiliates.
4.19 CAPITALIZATION.
The authorized capital stock of the Company consists of (i) 40,000,000
shares of Common Stock of which 14,011,364 shares will be issued and outstanding
as of the Closing Date (after giving effect to the Enron Repurchase and the
consummation of the transactions contemplated by the Transaction Documents) and
an additional 1,000,000 shares are reserved for issuance under the Incentive
Plan of the Company 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, none of which will be issued and outstanding (after giving effect
to the Enron Repurchase and the consummation of the transactions contemplated by
the Transaction Documents). Schedule 4.19 sets forth the name and address of
each person known to the Company 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 Company or the other outstanding options set forth on
Schedule 4.19, 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 the Company. All of the
outstanding shares of Common Stock are validly issued, fully paid, and
nonassessable. There have been reserved for issuance, and the Company shall at
all times keep reserved, out of the authorized and unissued shares of the
Company'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 the Warrant Agreement, will be
legally and validly issued, fully paid and nonassessable and will be free of any
preemptive rights of shareholders.
4.20 SUBSIDIARIES.
The Company 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.
4.21 ENVIRONMENTAL MATTERS.
Except as set forth on Schedule 4.21:
(a) the properties and operations of the Company have not violated
and 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;
31
<PAGE> 41
(b) without limitation of Section 4.21(a) above, the Company is
not subject to any pending or, to the knowledge of the Company, 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 the Company under any Environmental Law, including without
limitation those relating to the treatment, storage, disposal or release of any
Hazardous Material into the environment, have been duly obtained or filed, and
(ii) the Company has complied and 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 Materials generated by or as a result of operations on properties
owned by the Company 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 the
Company and (ii) there are no storage tanks or similar containers on or under
any such properties from which Hazardous Materials may be released into the
surrounding environment;
(f) without limiting the foregoing, there is no material liability
of the Company (accrued or contingent) to any non-governmental third party in
tort or under common law or under Environmental Laws in connection with any
release or threatened release of any Hazardous Material into the environment as
a result of operations conducted on its properties; and
(g) Schedule 4.21 separately lists for the Company any and all
existing liabilities (whether accrued, absolute, contingent, unliquidated or
otherwise), including any investigatory, remedial or corrective obligations 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 Material, or to the generation, treatment, storage or
disposal of 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 authorizations and the disposition of each such
liability. With respect to each such pending or prior matter, Schedule 4.21
hereto lists the date of such liability, 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 Schedule
4.21, the Company has not received any written notice that it is a potentially
responsible party under any Environmental Laws.
32
<PAGE> 42
4.22 INTELLECTUAL PROPERTY AND OTHER INTANGIBLE ASSETS.
The Company (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 on Schedule 4.22, 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.
4.23 NO PUBLIC OFFER.
Neither the Company nor anyone acting on its behalf has offered to any
Person securities of the Company, or any part thereof, or any instruments
convertible, exercisable, or exchangeable into such securities, or has solicited
from, or otherwise approached or negotiated in respect thereof with, any Person
other than the Investors and not more than 25 institutional investors any offer
to acquire the same, in a manner, or taken or failed to take any other action,
so as to make the transactions contemplated by this Agreement subject to the
registration requirements of Section 5 of the Securities Act.
4.24 INSURANCE.
The Company 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 the
Company believes are adequate in the circumstances. The Company has previously
provided, or made available to the Investors true and complete copies of all of
the Company's insurance policies. The Company 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. The Company 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.
4.25 CERTAIN TRANSACTIONS.
Except as set forth on Schedule 4.25 , (a) the Company is not indebted
directly or indirectly to any of its officers, directors or shareholders or to
their respective spouses or children in any amount whatsoever, (b) none of such
officers, directors or shareholders, or any members of their immediate families,
are indebted to the Company or have any direct or indirect ownership interest in
any Person with which the Company has a business relationship (other than
ownership interests of less than 5% in a publicly traded company), or any Person
that competes
33
<PAGE> 43
with the Company (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 the Company other than employment
arrangements and benefit plans.
4.26 USE OF PROCEEDS.
All proceeds from the issuance of the Purchased Securities will be used
by the Company only in accordance with the recitals of this Agreement. No part
of the proceeds from the issuance of the Purchased Securities will be used by
the Company to purchase or carry any "margin securities" as that term is defined
in Regulation U of the Federal Reserve Board 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 T, U or X of the Federal Reserve Board.
4.27 PLUGGING AND ABANDONMENT OBLIGATIONS.
Except as set forth on Schedule 4.27 and as would not have a Material
Adverse Effect, there is no well located upon any property owned by the Company
that the Company is currently obligated by law or contract to plug and abandon.
4.28 NO MATERIAL MISSTATEMENTS OR OMISSIONS.
None of the Transaction Documents contains 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 (provided that, except as set forth in Section 4.30, the Company makes
no representation or warranty as to any representations or warranties made by
any Person other than the Company or its Subsidiaries in any Transaction
Document). To the knowledge of the Company, there is no fact or information
relating to the business, prospects, condition (financial or otherwise),
affairs, operations, or assets of the Company that has not been disclosed to the
Investors in writing by the Company 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 pro forma financial data) and reserve reports furnished to the
Investors by or at the direction of the Company 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
Investors in that connection, such financial statements, related financial data
(excluding all projections and pro forma 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 Schedules hereto by reason of the materiality
qualifications contained in the representations and warranties in this Article
IV, 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
the Company when taken in the context of all of the assets, obligations and
operations of the Company.
34
<PAGE> 44
4.29 FEES AND COMMISSIONS.
Except as set forth on Schedule 4.29, the Company has not retained, nor
are any fees due from the Company to, any intermediary retained by such party,
any finder, broker, agent, financial advisor, or other intermediary, in
connection with the transactions contemplated by the Transaction Documents.
4.30 ENRON PURCHASE AGREEMENT.
The representations and warranties of the Company and, to the Company's
knowledge, of the other parties to the Enron Purchase Agreement contained in the
Enron Purchase Agreement are true in all material respects.
4.31 PROJECTIONS.
The Projections have been prepared in good faith based upon material
assumptions that were reasonable at the time the Projections were prepared and
as of the Closing Date; provided that, notwithstanding any other provisions
hereof, it is recognized by the Investors that the Projections and any reserve
report delivered in connection with this Agreement as they relate to future
events are not to be viewed as fact and that the actual results during the
period or periods covered by the Projections or reserve reports may differ from
the projected results set forth therein by a material amount; and, without
limiting the generality of the foregoing, no representation or warranty is made
as to future prices of hydrocarbons or as to the timing or results of future
exploration or production operations, other than the representation that the
assumptions relating thereto were reasonable.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF INVESTORS
5.1 REPRESENTATIONS AND WARRANTIES OF EACH INVESTOR.
Each Investor represents and warrants to the Company, severally and not
jointly, as of the date hereof as follows:
(a) Purchase for its Own Account. Such Investor is purchasing the
Purchased Securities for its own account, without a view to the distribution
thereof in violation of the Securities Act, all without prejudice, however, to
the right of such Investor at any time, in accordance with this Agreement or the
Transaction Documents, lawfully to sell or otherwise to dispose of all or any
part of the Purchased Securities held by it.
(b) Accredited Investor. Such Investor is an "accredited investor"
within the meaning of Regulation D under the Securities Act.
(c) Authority, Etc. Such Investor has the power and authority to
enter into and perform this Agreement and the execution and performance hereof
have been duly authorized by
35
<PAGE> 45
all proper and necessary action; this Agreement constitutes the valid and
legally binding obligation of such Investor, enforceable against it in
accordance with its terms, except as limited by bankruptcy, insolvency or other
similar laws now or hereafter in effect affecting the enforcement of creditors'
rights and the application of equitable principles.
(d) Securities Act Compliance. Such Investor understands that the
Company has not registered the Purchased Securities under the Securities Act,
and each Investor agrees that the Purchased Securities may not be sold or
transferred or offered for sale or transfer by it without registration under the
Securities Act or the availability of an exemption therefrom, all as more fully
provided in Article X hereof. Such Investor understands that any transfer agent
of the Company will be issued stop-transfer restrictions with respect to the
Purchased 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. Such Investor has experience in
analyzing and investing in entities like the Company, such Investor 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 Purchased Securities from the Company at the Closing. Such
Investor has received copies of the SEC Documents. Such Investor 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 Company's business, management and financial affairs with
the Company's management, customers and other parties, and such Investor has
received satisfactory responses to its inquiries. Such Investor does not have
any contract, undertaking, agreement or arrangements with any Person to sell,
transfer or grant a participation to such Person or to any third Person, with
respect to any of the Purchased Securities in violation of the Federal or any
state securities laws.
ARTICLE VI
CONDITIONS TO PURCHASE
6.1 CONDITIONS TO OBLIGATIONS OF INVESTORS ON THE CLOSING DATE.
The obligations of the Investors to purchase the Notes hereunder is
subject to the satisfaction of the following conditions:
(a) Transaction Documents. The Investors shall have received, in
form and substance satisfactory to them and their counsel, a duly executed copy
of each of the Transaction Documents, together with such additional documents,
instruments, certificates as the Investors and their counsel shall reasonably
require in connection therewith, including those listed in the Schedule of
Documents attached hereto as Annex A and incorporated herein, each in form and
substance satisfactory to the Investors and their counsel.
(b) No Default. On the Closing Date and after giving effect to the
transactions contemplated by the Transaction Documents and the Enron Purchase
Agreement, no Default or Event of Default shall have occurred and be continuing.
36
<PAGE> 46
(c) No Litigation. There shall exist no actions, suits or
proceedings at law or in equity by or before any Governmental Authority now
pending or threatened against or affecting the Company or its business, assets
or rights which involve any of the transactions contemplated by the Transaction
Documents or the Enron Purchase Agreement.
(d) Enron Repurchase. The Enron Repurchase shall have been
consummated, or will be consummated simultaneously with the closing of the
transactions contemplated hereby, substantially in accordance with the terms of
the Enron Purchase Agreement, the terms and conditions of which shall be
reasonably acceptable to the Investors.
(e) Senior Facility. The Company shall have entered into, or will
simultaneously with the closing of the transactions contemplated hereby, an
amendment to the Senior Credit Agreement, the terms and conditions of which
shall be acceptable to the Investors.
(f) Payment of Fees and Expenses. All fees and expenses owing by
the Company to the Investors under the terms of any Transaction Document or any
other document executed in connection herewith or therewith shall have been paid
to the Investors or other party to which owed on the Closing Date. The counsel
for the Investors shall have received payment in full to the extent invoiced for
all reasonable legal fees, and all costs and expenses incurred, by such counsel
through the Closing Date in connection with the transactions contemplated under
the Transaction Documents and instruments in connection therewith.
(g) Requisite Approvals. The Company shall have obtained copies of
all required governmental and other consents, licenses, Permits and approvals
relating to the transactions contemplated by the Transaction Documents, which
consents, licenses, Permits and approvals shall be in form and substance
acceptable to Investors and its counsel.
(h) Representations and Warranties; Performance of Covenants. The
representations and warranties of the Company contained in each Transaction
Document and in any certificate or other instrument delivered pursuant to any of
the foregoing shall be correct in all material respects as though made on and as
of the Closing Date. The Company shall have satisfied each of the conditions
precedent set forth therein on and as of the Closing Date.
(i) Legal Matters. All matters relating to the Enron Repurchase
and the Transaction Documents and the transactions contemplated thereby shall be
reasonably satisfactory to the Investors and their counsel.
ARTICLE VII
AFFIRMATIVE COVENANTS
The Company covenants and agrees with each Investor, solely in
its capacity as a purchaser of a Note, that until payment in full of all
Obligations (other than contingent or disputed indemnity and expense
reimbursement obligations for which no claim has been made), unless the Required
Investors shall otherwise consent in writing, the Company will, and will cause
each of its Subsidiaries to:
37
<PAGE> 47
7.1 EXISTENCE; BUSINESSES AND PROPERTIES.
(a) Do or cause to be done all things necessary to preserve, renew
and keep in full force and effect its legal existence, except as otherwise
expressly permitted under Section 8.4 (including without limitation any Asset
Sales permitted by such Section); and
(b) Do or cause to be done all things necessary to obtain,
preserve, renew, extend and keep in full force and effect the rights, licenses,
Permits, franchises, authorizations, patents, copyrights, trademarks and trade
names used or held for use in the conduct of its business except where the
failure to do so could not reasonably be expected to have a Material Adverse
Effect;
(c) Comply with all applicable laws, rules, regulations and
decrees and orders of any Governmental Authority, whether now in effect or
hereafter enacted except where the failure to do so could not reasonably be
expected to have a Material Adverse Effect; and
(d) Maintain and preserve at all times all property material to
the conduct of such business and keep such property in reasonable repair
(subject to ordinary wear and tear), working order and condition and from time
to time make, or cause to be made, all needful and proper repairs, renewals,
additions, improvements and replacements thereto necessary in order that the
business carried on in connection therewith may be conducted at all times in
accordance with industry standards for a prudent operator (except as otherwise
expressly permitted under Section 8.4, including without limitation any Asset
Sales permitted by such Section); provided, that this Section 7.1(d) shall not
prevent the Company or any Subsidiary from discontinuing the operation and the
maintenance of any of its properties, provided that such discontinuance of
operation or maintenance could not reasonably be expected to have a Material
Adverse Effect.
7.2 INSURANCE.
At all times, maintain with financially sound and reputable insurers
insurance with respect to its properties and businesses against loss or damage
of the kind customarily insured against by companies of established reputation
engaged in the same or similar businesses and similarly situated, of such types
and in such amounts as are customarily carried under similar circumstances by
such companies.
7.3 TAXES, ETC.
Pay and discharge promptly when due all taxes, assessments and
governmental charges or levies imposed upon it or upon its income or profits or
in respect of its property, before the same shall become delinquent or in
default, as well as all lawful claims for labor, materials and supplies or
otherwise that, if unpaid, might give rise to a Lien upon such properties or any
part thereof; provided, however, that such payment and discharge shall not be
required with respect to any such tax, assessment, charge, levy or claim if (i)
the validity, applicability or amount thereof shall be contested in good faith
by appropriate proceedings and the Company shall have set aside on its books
adequate reserves with respect thereto in accordance with GAAP and such contest
operates to suspend collection of the contested obligation, tax, assessment or
charge and enforcement of a Lien or (ii) the nonpayment thereof could not
reasonably be expected to have a Material Adverse Effect.
38
<PAGE> 48
7.4 FINANCIAL STATEMENTS, REPORTS, ETC.
In the case of the Company, furnish to each Investor:
(a) within 90 days after the end of each Fiscal Year, its
consolidated and consolidating balance sheets and related statements of
operations, shareholders' equity and cash flows showing the financial condition
of the Company and its consolidated Subsidiaries as of the close of such Fiscal
Year and the results of its operations and the operations of such Subsidiaries
during such year, in each case setting forth comparative figures for the
preceding Fiscal Year and comparable budgeted figures for such period, in the
case of such consolidated financial statements (but not such budgeted figures)
audited by Arthur Andersen LLP or another firm of independent public accountants
of recognized national standing reasonably acceptable to the Required Investors
and accompanied by an opinion of such accountants (which shall not be qualified
as to the scope of the audit or as to the going-concern status of the Company
and its Subsidiaries) to the effect that such consolidated financial statements
fairly present in all material respects the financial condition and results of
operations of the Company and its consolidated Subsidiaries on a consolidated
basis in accordance with GAAP consistently applied (unless the Company's
certified public accountants concur in any change therein, and such change is
disclosed to the Investors and is consistent with GAAP);
(b) within 45 days after the end of each of the first three fiscal
quarters of each Fiscal Year, its unaudited consolidated and consolidating
balance sheets and related statements of operations, shareholders' equity and
cash flows showing the financial condition of the Company and its consolidated
Subsidiaries as of the close of such fiscal quarter and the results of its
operations and the operations of such Subsidiaries during such fiscal quarter
and the then elapsed portion of the Fiscal Year, in each case setting forth
comparative figures for the corresponding periods in the prior Fiscal Year and
comparable budgeted figures for such period, all certified by one of its
Financial Officers as fairly presenting in all material respects the financial
condition and results of operations of the Company and its consolidated
Subsidiaries on a consolidated basis in accordance with GAAP consistently
applied (unless the Company's certified public accountants concur in any change
therein, and such change is disclosed to the Investors and is consistent with
GAAP), subject to normal year-end audit adjustments;
(c) within 30 days after the end of each month, reports setting
forth its operating and production data for such month and unaudited financial
statements (estimated by management of the Company in good faith based on
reasonable assumptions, but not required to be certified by a Financial Officer)
setting forth the Company's results of operations for such month and financial
condition as of the end of such month, such reports and financial statements to
be prepared on a basis consistent with the Company's current practice or as
reasonably agreed by the Company and the Required Investors;
(d) concurrently with any delivery of financial statements under
sub-paragraph (a) or (b) above, a certificate of the accounting firm or
Financial Officer opining on or certifying such statements (which certificate,
when furnished by an accounting firm, may be limited to accounting matters and
disclaim responsibility for legal interpretations) (i) certifying that, to such
firm or person's best knowledge, no Event of Default or Default has occurred or,
if such an Event of Default or Default has occurred, specifying the nature and
extent thereof and any
39
<PAGE> 49
corrective action taken or proposed to be taken with respect thereto and (ii)
setting forth computations in reasonable detail satisfactory to the Investors
demonstrating compliance with the covenants contained in Sections 8.10 and 8.11;
(e) promptly after the sending or filing thereof, as the case may
be, copies of any proxy statements, financial statements or reports which the
Company has made available to its shareholders and copies of any regular,
periodic and special reports or registration statements which the Company filed
with the Commission or any Governmental Authority which may be substituted
therefor, or any national securities exchange or quotation system;
(f) promptly, from time to time, such other information
(including, without limitation, current and projected annual budgets (presented
on a monthly basis) regarding the operations, business affairs and financial
condition of the Company or any Subsidiary, or compliance with the terms of any
Transaction Document, as the Required Investors may reasonably request, subject
in all cases to any confidentiality restrictions that may be applicable to the
Company and to any confidentiality restrictions that the Company reasonably
imposes on the Persons receiving such information; provided that the Company
will use commercially reasonable efforts to furnish such information (excluding
information covered by confidentiality restrictions in agreements relating to
seismic, geologic or geophysical data or similar technical and business matters
relating to the exploration for oil and gas), which requirement shall be
satisfied if the Investor is offered the opportunity to review such confidential
information by executing or otherwise becoming a party to the confidentiality
restrictions on substantially the same terms (including any standstill
provisions) as are applicable to the Company; provided, further, that neither
the Company nor any of its Subsidiaries shall be required to disclose to any
Investor or any agents or representatives thereof any information which is the
subject of attorney-client privilege or attorney's work product privilege
properly asserted by the applicable Person to prevent the loss of such privilege
in connection with such information.
7.5 LITIGATION AND OTHER NOTICES.
Upon any Responsible Officer of the Company obtaining knowledge
thereof, furnish to each Investor prompt written notice of the following:
(a) any Event of Default or Default, specifying the nature and
extent thereof and the corrective action (if any) taken or proposed to be taken
with respect thereto;
(b) the filing or commencement of, or any written threat or
written notice of intention of any person to file or commence, any action, suit,
proceeding or investigation, whether at law or in equity or by or before any
Governmental Authority, against the Company or any Affiliate thereof that if
adversely determined could result in a Material Adverse Effect;
(c) any written or oral notice of any violation of, or liability
under, any Environmental Laws, the subject matter of which could reasonably be
expected to result in a Material Adverse Effect;
(d) any notices of a default or event of default under the Senior
Credit Agreement or any Senior Refinancing Agreement; and
40
<PAGE> 50
(e) any development that has resulted in, or could reasonably be
expected to result in, a Material Adverse Effect.
7.6 EMPLOYEE BENEFITS.
Comply in all material respects with the applicable provisions of ERISA
and the Code and furnish to the Investors as soon as possible after, and in any
event within 10 days after any Responsible Officer of the Company or any ERISA
Affiliate knows or has reason to know that, any ERISA Event has occurred that,
alone or together with any other ERISA Event could reasonably be expected to
result in liability of the Company in an aggregate amount exceeding $500,000 or
requiring payments exceeding $100,000 in any year, a statement of a Financial
Officer of the Company setting forth details as to such ERISA Event and the
action, if any, that the Company proposes to take with respect thereto.
7.7 MAINTAINING RECORDS; ACCESS TO PROPERTIES AND INSPECTIONS.
Keep proper books of record and account in which proper entries in
conformity with GAAP and all requirements of law are made of all dealings and
transactions in relation to its business and activities; permit, and will cause
each of its Subsidiaries to permit, any representatives designated by the
Required Investors to visit and inspect the financial records and the properties
of the Company or any Subsidiary at reasonable times and as often as reasonably
requested, and to make extracts from and copies of such financial records, and
permit any representatives designated by any such Investor to discuss the
affairs, finances and condition of the Company or any Subsidiary with the
officers thereof and independent accountants therefor (with representatives of
the Company being given reasonable opportunity to be present unless an Event of
Default or Default has occurred and is continuing), subject in all cases to any
confidentiality restrictions that may be applicable to the Company and to any
confidentiality restrictions that the Company reasonably imposes on the Persons
receiving such information; provided, however, that notwithstanding the
provisions of Section 12.5, any Investor for whose benefit such inspection and
visitation is made acknowledges that in connection with such inspection and
visitation, none of the Company, its Affiliates and their respective officers,
directors, employees and agents (the "COMPANY PARTIES") shall have any
responsibility for the condition of any operational property of the Company or
its Subsidiaries so visited and inspected, the access and egress thereto, and
any vice or defect therein or thereon, and assumes all responsibility for and
hereby releases and indemnifies the Company Parties against any claim for damage
or injury to such Investor (or the representatives thereof) (other than any
claim for damage or injury arising out of the gross negligence or willful
misconduct of any Company Party); provided, further, that neither the Company
nor any of its Subsidiaries shall be required to disclose to any Investor or any
agents or representatives thereof any information which is the subject of
attorney-client privilege or attorney's work product privilege properly asserted
by the applicable Person to prevent the loss of such privilege in connection
with such information; and provided, further, that the Company will use
commercially reasonable efforts to furnish such information (excluding
information covered by confidentiality restrictions in agreements relating to
seismic, geologic or geophysical data or similar technical and business matters
relating to the exploration for oil and gas), which requirement shall be
satisfied if the Investor is offered the opportunity to review such confidential
information by executing or otherwise becoming a party
41
<PAGE> 51
to the confidentiality restrictions on substantially the same terms (including
any standstill provisions) as are applicable to the Company.
7.8 SUBSIDIARIES.
Promptly inform the Investors of the creation or acquisition of any
direct or indirect Subsidiary (subject to the provisions of Section 8.4 hereof)
and cause each direct or indirect Subsidiary to enter into a guaranty in form
and substance reasonably satisfactory to the Investors, which guaranty shall
provide for a guaranty by such Subsidiary of the Notes on a senior subordinated
basis.
7.9 COMPLIANCE WITH ENVIRONMENTAL LAWS.
Comply, and use commercially reasonable efforts to cause all lessees
and other persons occupying its Properties to comply, in all respects with all
Environmental Laws and Permits applicable to its operations and Properties
except to the extent that the failure to comply therewith could not reasonably
be expected to result in liability in a Material Adverse Effect; obtain and
renew all Permits necessary for its operations and Properties, except where the
failure to do so could not reasonably be expected to have a Material Adverse
Effect; and promptly implement and diligently conduct and complete any Remedial
Action required under, and in accordance with, Environmental Laws, except to the
extent that: (a) the cost of such Remedial Action could not reasonably be
expected to exceed $100,000; or (b) the necessity of any such Remedial Action is
being contested in good faith by appropriate proceedings timely instituted and
in the manner provided by applicable law.
7.10 PREPARATION OF ENVIRONMENTAL REPORTS.
If a Default caused by reason of a breach of Section 4.21 or 7.9 shall
have occurred and be continuing, at the request of the Required Investors,
provide to the Investors as soon as reasonably practical after such request, at
the expense of the Company, an environmental site assessment report for the
properties which are the subject of such Default prepared by an environmental
consulting firm reasonably acceptable to the Required Investors and indicating
the presence or absence of Hazardous Materials and the estimated cost of any
compliance or Remedial Action in connection with such Properties.
7.11 AMENDMENTS.
Promptly supply to the Investors certified copies of any amendments to
the Senior Credit Agreement (in each case, subject to Section 8.13 hereof).
7.12 FISCAL YEAR.
Maintain a fiscal year ending on December 31 of each year.
42
<PAGE> 52
ARTICLE VIII
NEGATIVE COVENANTS
The Company covenants and agrees with each Investor, solely in
its capacity as a purchase of a Note, that, until payment in full of all
Obligations (other than contingent and disputed indemnity and expense
reimbursement obligations for which no claim has been made), unless the Required
Investors shall otherwise consent in writing, the Company will not, nor will it
cause or permit any of the Subsidiaries to:
8.1 INDEBTEDNESS.
Incur, create, assume or permit to exist any Indebtedness, except:
(a) Indebtedness existing on the Closing Date and set forth in
Schedule 8.1;
(b) the Senior Indebtedness;
(c) Indebtedness under this Agreement and the other Note
Documents;
(d) in the case of the Company, interest rate protection
agreements, foreign currency exchange agreements or other interest or interest
rate hedging agreements entered into in the ordinary course and not for
speculative purposes;
(e) Indebtedness of the Company to any wholly owned Subsidiary of
the Company and Indebtedness of any wholly owned Subsidiary of the Company to
the Company or any other wholly owned Subsidiary of the Company, so long as such
Indebtedness is evidenced by an intercompany note pledged to the Senior Lender
to the extent provided in the Senior Credit Agreement and any Indebtedness of
the Company to any wholly owned Subsidiary shall be subordinated to all Senior
Indebtedness and the Notes;
(f) all Indebtedness with respect to Production Payments;
(g) in the case of the Company, additional unsecured Indebtedness
in an aggregate principal amount at any time outstanding not in excess of
$500,000;
(h) in the case of the Company, commodity price hedging agreements
or arrangements entered into in the ordinary course and not for speculative
purposes;
(i) Guaranties by the Company of Indebtedness of any Subsidiary
and by any Subsidiary of Indebtedness of the Company or any other Subsidiary;
(j) Indebtedness of any Person that becomes a Subsidiary after the
date hereof; provided, that (i) such Indebtedness exists at the time such Person
becomes a Subsidiary and is not created in contemplation of or in connection
with such Person becoming a Subsidiary and (ii) the aggregate principal amount
of Indebtedness permitted by this clause (j) shall not exceed $2,500,000 at any
time outstanding;
43
<PAGE> 53
(k) Indebtedness arising under any performance bond, or letter of
credit obtained for similar purposes, or any reimbursement obligations in
respect thereof, entered into in the ordinary course of business; and
(l) Purchase Money Indebtedness and Capital Lease Obligations to
the extent such Purchase Money Indebtedness and Capital Lease Obligations do not
constitute Senior Indebtedness, in an aggregate principal amount at any time
outstanding not in excess of $10,000,000.
8.2 LIENS.
Create, incur, assume or permit to exist any Lien on any property or
assets (including stock or other securities of any person, including any
Subsidiary) now owned or hereafter acquired by it or on any income or revenues
or rights in respect of any thereof, except:
(a) Liens existing on the date hereof and set forth in Schedule
8.2, provided that such Liens shall secure only those obligations which they
secure on the date hereof;
(b) any Lien securing Senior Indebtedness, provided that, in the
case of security interest securing Purchase Money Indebtedness, (i) such
security interest secures Indebtedness permitted by the definition of Senior
Indebtedness, (ii) such security interest is incurred, and the Indebtedness
secured thereby is created, within 180 days after the acquisition (or completion
of construction) of the property or assets subject thereto, (iii) the
Indebtedness secured thereby does not include any other Indebtedness that is not
Senior Indebtedness from the same financing source and (iv) such security
interest do not apply to any other property or assets of the Company or any
Subsidiary except any such property or assets which are the subject of any Lien
securing Senior Indebtedness from such financing source;
(c) any Lien existing on any property or asset (together with any
receivables, intangibles and proceeds related thereto) prior to the acquisition
thereof by the Company or any Subsidiary, provided that (i) such Lien is not
created in contemplation of or in connection with such acquisition and (ii) such
Lien does not apply to any other property or assets of the Company or any
Subsidiary; and provided, further, that such Liens do not secure any
Indebtedness or other obligation not permitted under this Agreement;
(d) Liens for taxes, assessments and governmental charges or liens
which are being contested in compliance with Section 7.3;
(e) carriers', warehousemen's, mechanics', materialmen's,
repairmen's, landlord's or other like Liens arising in the ordinary course of
business and securing obligations that (i) are not due and payable, (ii) which
are being contested in compliance with Section 7.3, or (iii) which are not being
contested, provided that such Liens do not exceed $50,000 at any one time
outstanding;
(f) pledges and deposits made in the ordinary course of business
in compliance with workmen's compensation, unemployment insurance and other
social security laws or regulations;
44
<PAGE> 54
(g) deposits to secure the performance of bids, trade contracts
(other than for Indebtedness), leases (other than Capital Lease Obligations),
statutory obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature incurred in the ordinary course of business;
(h) zoning restrictions, easements, licenses, covenants,
conditions, rights-of-way, restrictions on use of real property and other
similar encumbrances incurred in the ordinary course of business and minor
irregularities of title that, in the aggregate, are not substantial in amount
and do not materially detract from the value of the property subject thereto or
interfere with the ordinary conduct of the business of the Company or any of its
Subsidiaries;
(i) Liens securing Purchase Money Indebtedness in real property,
improvements thereto or equipment hereafter acquired (or, in the case of
improvements, constructed) by the Company or any Subsidiary (together with any
receivables, intangibles and proceeds related thereto), provided that (i) such
security interests secure Indebtedness permitted by Section 8.1(l), (ii) such
security interests are incurred, and the Indebtedness secured thereby is
created, within 180 days after such acquisition (or completion of construction),
(iii) the Indebtedness secured thereby does not exceed 85% of the lesser of the
cost or the fair market value of such real property, improvements or equipment
at the time of such acquisition (or construction) (provided that this clause
(iii) shall not apply to the extent such Indebtedness is recourse only to such
assets) and (iv) such security interests do not apply to any other property or
assets of the Company or any Subsidiary;
(j) Liens arising out of judgments or awards (other than any
judgment that is described in clause (i) of Article VII and constitutes an Event
of Default thereunder) in respect of which the Company shall in good faith be
prosecuting an appeal or proceedings for review and in respect of which it shall
have secured a subsisting stay of execution pending such appeal or proceedings
for review, provided the Company shall have set aside on its books adequate
reserves, in accordance with GAAP, with respect to such judgment or award;
(k) deposits, Liens or pledges to secure payments of workmen's
compensation and other payments, public liability, unemployment and other
insurance, old-age pensions or other social security obligations, or the
performance of bids, tenders, leases, contracts (other than contracts for the
payment of money), public or statutory obligations, surety, stay or appeal
bonds, or other similar obligations arising in the ordinary course of business;
(l) unperfected Liens arising by operation of law under Article 2
of the Uniform Commercial Code in favor of unpaid sellers or prepaying buyers of
goods relating to amounts that are not past due in accordance with their
respective terms of sale;
(m) any rights arising as a matter of law or existing on the
Closing Date, in each case of the lessor of any premises leased by the Company
with respect to tangible property on the leased premises;
(n) any Designated Title Exceptions which are incurred in the
ordinary course of business and would not materially adversely affect the
operations of the Company or otherwise in the aggregate have a Material Adverse
Effect;
45
<PAGE> 55
(o) any Producer's Lien;
(p) Liens on the property or assets of any Person existing at the
time such Person becomes a Subsidiary of the Company and not incurred as a
result of (or in connection with or in anticipation of) such Person's becoming a
Subsidiary of the Company, provided that such Liens do not extend to or cover
any property or assets of the Company or any of its Subsidiaries other than the
property or assets encumbered at the time such Person becomes a Subsidiary of
the Company, and provided, further, that such Liens do not secure any
Indebtedness or other obligation not permitted under this Agreement; and
(q) Liens securing Indebtedness permitted to be incurred under
Section 8.1(d) and (h).
8.3 INVESTMENTS, LOANS AND ADVANCES.
Purchase, hold or acquire any Capital Stock, evidences of indebtedness
or other securities of, make or permit to exist any loans or advances to, or
make or permit to exist any investment or any other interest in, any other
Person ("INVESTMENTS"), except:
(a) Permitted Investments;
(b) loans or advances to employees in the ordinary course of
business in an aggregate amount to any single employee not in excess of $75,000
(or, if and to the extent such loans or advances shall be used by such employee
for relocation expenses, $100,000) and in an aggregate amount for all employees
of the Company and the Subsidiaries not in excess of $500,000 at any one time
outstanding;
(c) trade credits and accounts arising in the ordinary course of
business;
(d) loans or advances by the Company or any wholly owned
Subsidiary to the Company or any wholly owned Subsidiary that are permitted
under Section 8.1(e);
(e) Investments in any Subsidiary formed after the date hereof by
the Company, provided that the Company and such Subsidiary comply with the
provisions of Section 7.8;
(f) interest rate and commodity price protection agreements
permitted under Section 8.1(d) and (h);
(g) Investments made as a result of the receipt of non-cash
consideration from an asset sale that was made pursuant to and in compliance
with Section 8.5;
(h) Investments made in any debtor of the Company as a result of
the receipt of stock, obligations or securities in settlement of debts created
in the ordinary course of business and owing to the Company or any of its
Subsidiaries;
(i) Investments made pursuant to the requirements of farm-out,
farm-in, joint operating, joint venture or area of mutual interest agreements,
gathering systems, pipelines or other similar or customary arrangements entered
into in the ordinary course of business
46
<PAGE> 56
(including, without limitation, advances to operators under operating agreements
entered into by Borrower in the ordinary course of business) (provided that any
such single Investment in excess of $1,000,000 shall be approved by the Board of
Directors of the Company);
(j) Investments made in connection with Acquisitions permitted
under Section 8.4;
(k) any other Investments in any Person having an aggregate fair
market value (measured on the date each such investment was made and without
giving effect to subsequent changes in value), when taken together with all
other investments made pursuant to this clause (k) not to exceed $1,000,000; and
(l) any other Investment made by the Company or any of its
Subsidiaries with the consent of the Required Investors (such consent not to be
unreasonably withheld).
8.4 MERGERS, CONSOLIDATIONS, SALES OF ASSETS AND ACQUISITIONS.
(a) Merge into or consolidate with any other Person, or permit any
other Person to merge into or consolidate with it or sell, lease or sub-lease
(as lessor or sub-lessor) or voluntarily transfer or otherwise dispose of all or
substantially all of the assets (whether now owned or hereafter acquired) of the
Company or any Subsidiary of the Company or liquidate, wind-up or dissolve
itself (or suffer any liquidation or dissolution);
(b) Sell the Capital Stock of any Subsidiary;
(c) Sell, convey, lease or sub-lease (as lessor or sub-lessor) or
voluntarily transfer or otherwise dispose of, in one transaction or a series of
transactions, any of its business, assets or property of any kind whatsoever,
whether real, personal or mixed and whether tangible or intangible, whether now
owned or hereafter acquired, other than the Capital Stock of any Subsidiary (an
"ASSET SALE"); or
(d) Purchase, lease or otherwise acquire all or substantially all
of the business, property or assets of any Person, or Capital Stock of any
Person, or any division, line of business or business unit of any Person
(including, without limitation, (i) by the merger or consolidation of such
Person into the Company or any of its Subsidiaries or by the merger of a
Subsidiary of the Company into such Person and (ii) the purchase of proved
reserves) (an "ACQUISITION");
except that:
(i) any wholly owned Subsidiary of the Company may be merged
with or into the Company or any of the Company's other wholly owned
Subsidiaries, or be liquidated, wound-up or dissolved, or all or any
part of its business, property or assets may be conveyed, sold, leased,
transferred or otherwise disposed of, in one transaction or a series of
transactions, to the Company or any of the Company's wholly owned
Subsidiaries; provided, in the case of such a merger involving the
Company, the Company shall be the continuing or surviving Person, and
in the case of any other such merger, the Company or such wholly owned
Subsidiary shall be the continuing or surviving Person;
47
<PAGE> 57
(ii) the Company and its Subsidiaries may make Consolidated
Capital Expenditures;
(iii) the Company and its Subsidiaries may sell or otherwise
dispose of inventory (including oil and gas sold as produced and
seismic data) or Permitted Investments in the ordinary course of
business;
(iv) the Company and its Subsidiaries may make Asset Sales
(including, without limitation, the sale of the Capital Stock of any
Subsidiary) provided that (A) in addition to Asset Sales permitted by
clauses (iii), (vi) and (viii), proved reserves sold in Asset Sales in
any Fiscal Year do not represent more than 25% of the net present value
of the Company's proved reserves determined as of the Company's most
recent reserve report; or (B) the book value of assets (net of
allowances for depreciation, amortization and depletion) sold in Asset
Sales (other than those specified in clauses (iii), (iv)(A), (vi) and
(viii) does not exceed $10,000,000 in any Fiscal Year;
(v) the Company and its Subsidiaries may make Acquisitions
provided that the aggregate consideration paid (including any assumed
liabilities) for any Acquisition does not exceed $12,500,000 (the
"ACQUISITION LIMIT"), and provided further that, for each Fiscal Year
from and after January 1, 2001, the Acquisition Limit shall be
increased by $1,000,000 at the beginning of such Fiscal Year;
(vi) the Company and its Subsidiaries may make other Asset
Sales and Acquisitions with the consent of the Required Investors (such
consent not to be unreasonably withheld);
(vii) the Company or any of its Subsidiaries may make Asset
Sales constituting the conveyance of Production Payments to the extent
that (A) such conveyance is made to a Person providing financing for
the Acquisition of proved reserves permitted by clause (v) of this
Section 8.4 or (B) such conveyance applies to proved reserves
theretofore owned by the Company or such Subsidiary and such conveyance
constitutes an Asset Sale permitted by clause (iv)(A) of this Section
8.4;
(viii) the Company and its Subsidiaries may make Asset Sales
of equipment which is replaced by equipment of equal suitability and
value provided that the aggregate book value of such replacement
equipment does not exceed $5,000,000 in any Fiscal Year;
(ix) any wholly owned Subsidiary of the Company may be merged
into any other Person in connection with an Acquisition provided that
such Acquisition would be permitted under clause (v) of this Section
8.4.; and
(x) the Company or any Subsidiary may make Asset Sales to any
Subsidiary formed after the date hereof by the Company provided that
the Company and such Subsidiary comply with the provisions of Section
7.8.
48
<PAGE> 58
8.5 DIVIDENDS AND DISTRIBUTIONS; RESTRICTIONS ON ABILITY OF SUBSIDIARIES TO
PAY DIVIDENDS.
(a) In the case of the Company or any Subsidiary, declare or pay,
directly or indirectly, any dividend or make any other distribution (by
reduction of capital or otherwise), whether in cash, property, securities or a
combination thereof, with respect to any shares of its capital stock or directly
or indirectly redeem, purchase, retire or otherwise acquire for value (or permit
any Subsidiary to purchase or acquire) any shares of any class of its Capital
Stock or set aside any amount for any such purpose; provided, however, that (i)
any Subsidiary may declare and pay dividends or make other distributions to the
Company, (ii) the Company may declare and pay dividends consisting entirely of
capital stock of the Company, (iii) the Company may make cash payments in lieu
of fractional shares in an aggregate amount not exceeding $100,000, (iv) the
Company may declare and pay distributions effecting "poison pill" rights plans
provided that any securities or rights so distributed have a nominal fair market
value at the time of declaration and (v) the Company may consummate the Enron
Repurchase on the terms set forth in the Enron Purchase Agreement as in effect
on the date hereof.
(b) Permit its Subsidiaries to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any encumbrance or
restriction on the ability of any such Subsidiary to (i) pay any dividends or
make any other distributions on its capital stock or any other interest or (ii)
except as provided by Section 8.1(e) of this Agreement or Sections 6.01 and 6.03
of the Senior Credit Agreement (or similar no more restrictive limitations in
other agreements evidencing permitted Senior Indebtedness) , make or repay any
loans or advances to the Company or the parent of such Subsidiary.
8.6 TRANSACTIONS WITH AFFILIATES.
Except as provided in the Transaction Documents and as set forth on
Schedule 8.6, sell or transfer any property or assets to, or purchase or acquire
any property or assets from, or otherwise engage in any other transactions with,
any of its Affiliates unless such transaction is on terms that are no less
favorable to the Company or such Subsidiary, as the case may be, than those that
could be obtained at the time of such transaction on an arm's-length basis from
a Person who is not an Affiliate and if such transaction involves an amount in
excess of $500,000, such transaction has been approved by a majority of the
members of the Board having no personal stake in such transaction; provided,
however, that this Section 8.6 (i) shall not apply to transactions between a
Subsidiary and the Company or any other Subsidiary, (ii) shall not prohibit any
person serving as an officer, director, employee or consultant of the Company or
any Subsidiary from (A) receiving reasonable compensation, benefits or
indemnification in connection with his or her services in such capacity (except
as otherwise included hereby), provided that any such compensation, benefits or
indemnification are approved by a majority of the disinterested members of the
Board or by the Compensation Committee, (B) receiving advances for travel or
other business expenses made in the ordinary course of business or (C)
participating in any benefit or compensation plan; and (iii) shall not restrict
the Company from repaying to any director or its Affiliates when due on its
scheduled maturity dates any Indebtedness for borrowed money permitted to be
incurred in accordance with this Agreement.
49
<PAGE> 59
8.7 BUSINESS OF COMPANY AND SUBSIDIARIES.
Engage at any time in any business or business activity other than the
Subject Business and business activities reasonably connected thereto.
8.8 SUBSIDIARY CAPITAL STOCK.
Issue any shares or other units of any class of Capital Stock of any
Subsidiary (other than directors' qualifying shares), except Capital Stock that
is issued to the Company or any other wholly owned Subsidiary.
8.9 LIMITATION ON CERTAIN PAYMENTS AND PREPAYMENTS.
Optionally prepay, repurchase or redeem or otherwise defease with
respect to any Indebtedness of the Company or any Subsidiary that is payable to,
or guaranteed by or otherwise credit-enhanced by, any Affiliate (other than a
Subsidiary of the Company) of the Company or that is subordinated to the Notes;
except that, to the extent this Section 8.9 is applicable, the Company may make
optional prepayments under the Senior Credit Agreement provided that (i) the
term loans thereunder shall only be paid in accordance with their scheduled
maturities or in accordance with the mandatory repayment provisions set forth in
the Senior Credit Agreement as in effect on the date hereof, (ii) the guarantees
by Affiliates of the Company of such term loans shall remain outstanding until
payment in full of such term loans and (iii) to the extent the revolving credit
facility under the Senior Credit Agreement is so guaranteed or credit-enhanced
no prepayment shall effect a permanent reduction in the amount of the revolving
credit facility under the Senior Credit Agreement unless replaced by a revolving
credit facility of at least the same amount.
8.10 TANGIBLE NET WORTH REQUIREMENT.
Permit Tangible Net Worth at any time to be less than $26,000,000,
increasing by (i) fifty percent (50%) of net income (excluding losses) of the
Company subsequent to December 31, 1999 and (ii) one hundred percent (100%) of
any increases in shareholders' equity resulting from the sale or issuance of
stock in the Company subsequent to December 31, 1999.
8.11 EBITDA TO DEBT SERVICE RATIO.
Permit the ratio of quarterly EBITDA to quarterly Debt Service to be
less than 1.00 to 1.00 at any time.
8.12 CONSOLIDATED CAPITAL EXPENDITURES.
The Company shall not make Consolidated Capital Expenditures
(i) in the fiscal year ending December 31, 2000, in excess of $16,800,000 and
(ii) in any fiscal year thereafter, in excess of the Company's EBITDA for the
immediately prior fiscal year, in each case unless such excess Consolidated
Capital Expenditures are approved by the Board and at least one CB Capital
Director votes in favor of such approval.
50
<PAGE> 60
8.13 CERTAIN DOCUMENTS AND AGREEMENTS.
(a) Permit any amendment or modification that is materially
adverse to the Investors to the Enron Purchase Agreement.
(b) Permit any waiver, supplement, modification, amendment,
termination or release of any indenture, instrument or agreement pursuant to
which any Indebtedness is outstanding in an aggregate amount of more than
$500,000 that is payable to any Affiliate (other than a Subsidiary) of the
Company or that is subordinated to the Notes, to the extent that any such
waiver, supplement, modification, amendment, termination or release would be
materially adverse to the Investors.
(c) The Company shall not, and shall not permit any of its
Subsidiaries to, amend, supplement or otherwise modify the terms of the Senior
Credit Documents, or refinance, replace or refund the same (any agreement under
which such refinancing, replacement or refunding is incurred being referred to
as a "SENIOR REFINANCING Agreement"), without the prior consent of the Required
Investors, if the effect of such amendment, supplement or other modification or
such refinancing, replacement or refunding is to: shorten the scheduled maturity
of any payment of any principal amount of the term loans under the Senior Credit
Agreement or Senior Refinancing Agreement from the scheduled maturity thereof as
in effect on the date hereof, provided that the foregoing shall not prohibit any
acceleration (whether automatic or upon notice) of the scheduled maturity date
based on the occurrence of any Event(s) of Default or mandatory prepayments as
provided in the Senior Credit Agreement as in effect on the date hereof; or (ii)
make more restrictive (except to the extent that any such covenant becomes more
restrictive by its terms) any one or more of the financial covenants under the
Senior Credit Agreement (or related definitions) as in effect on the date hereof
(or any comparable provisions of any Senior Refinancing Agreement) or add any
new financial covenant unless simultaneously with such amendment of the Senior
Credit Agreement or any Senior Refinancing Agreement, this Agreement shall be
deemed to be automatically amended in such a manner (including adding new
financial covenants or revising existing financial covenants in each case
preserving the current percentage setback) as shall make the provisions hereof
similarly more restrictive on the Company and each Investor and the Company
agree to promptly thereafter execute and deliver an amendment hereto that
incorporates each such deemed amendment; provided that if after any covenants
are made more restrictive an amendment to the Senior Credit Agreement or Senior
Refinancing Agreement makes the financial covenants less restrictive, then this
Agreement shall be deemed to be automatically amended in such a manner as shall
make the provisions hereof similarly less restrictive, but in no event shall any
amendment of this Agreement make the provisions less restrictive than the
provisions existing as of the Closing Date or as amended thereafter other than
pursuant to this Section 8.13(c).
51
<PAGE> 61
ARTICLE IX
SUBORDINATION OF NOTES
9.1 NOTES SUBORDINATE TO SENIOR INDEBTEDNESS.
The Company hereby covenants and agrees (and to the extent applicable
to clause (ii) below, shall cause such Subsidiary to agree), and the Investors
by their acceptance of the Notes, likewise covenant and agree, that, to the
extent and in the manner hereinafter set forth in this Article IX, the
Indebtedness represented by (i) the Notes, the payment of the principal of (and
premium, if any) and interest on the Notes (ii) any guaranty executed and
delivered by a Subsidiary pursuant to Section 7.8 hereof and (iii) any other
Obligations of the Company hereunder or under any of the Note Documents
(collectively all such amounts being hereinafter referred to as the
"SUBORDINATED OBLIGATIONS") are hereby expressly made subordinate and subject in
right of payment to the prior indefeasible payment in full in cash of all Senior
Indebtedness as set forth below.
For the purposes of this Article IX, payments on account of the
Subordinated Obligations shall include, without limitation, payments as a
sinking fund for the Subordinated Obligations or in respect of a redemption,
retirement, purchase or other acquisition of any of the Subordinated
Obligations.
9.2 PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC.
(a) In the event of (i) any insolvency or bankruptcy case or
proceeding, or any receivership, liquidation, reorganization or other similar
case or proceeding in connection therewith, relative to the Company, or to its
assets, or (ii) any proceeding for liquidation, dissolution or other winding up
of the Company, whether voluntary or involuntary and whether or not involving
insolvency or bankruptcy, or (iii) any assignment for the benefit of creditors
or any other marshalling of assets and liabilities of the Company, then and in
any such event specified in (i), (ii) or (iii) above (each such event, if any,
herein sometimes referred to as a "PROCEEDING") the holders of Senior
Indebtedness shall be paid in full in cash or otherwise to the satisfaction of
the holders of Senior Indebtedness of all amounts due or to become due on or in
respect of all Senior Indebtedness before the holders of the Subordinated
Obligations are entitled to receive any payment or distribution of any kind or
character, whether in cash, property or securities, by set off or otherwise
(except for securities excluded under Section 9.2(c)) on account of the
Subordinated Obligations, and to that end the holders of Senior Indebtedness
shall be entitled to receive, for application to the payment thereof, any
payment or distribution of any kind or character, whether in cash, property or
securities (including any such payment or distribution which may be payable or
deliverable by reason of the payment of any other Indebtedness of the Company
being subordinated to the payment of the Notes) which may be payable or
deliverable in respect of the Subordinated Obligations in any such Proceeding.
(b) In the event that, notwithstanding the foregoing provisions of
this Section 9.2, any holder of the Subordinated Obligations shall have received
any payment or distribution of assets of the Company of any kind or character,
whether in cash, property or securities (including any such payment or
distribution which may be payable or deliverable by reason of the payment
52
<PAGE> 62
of any other indebtedness of the Company being subordinated to the payment of
the Subordinated Obligations), in violation of this Article IX, and if such
violation shall have been known to such holder, such payment or distribution
shall be paid over or delivered forthwith to the holders of Senior Indebtedness
or such other Person who is agent for the holders of Senior Indebtedness for
application to the payment of all Senior Indebtedness remaining unpaid, to the
extent necessary to pay all Senior Indebtedness in full, after giving effect to
any concurrent payment or distribution to or for the holders of Senior
Indebtedness.
(c) For purposes of this Article only, the words "CASH, PROPERTY
OR SECURITIES" shall not be deemed to include securities of the Company as
reorganized or readjusted, or securities of the Company or any other Person
provided for by a plan of reorganization or readjustment authorized by an order
or decree of a court of competent jurisdiction in a Proceeding under any
applicable bankruptcy law which are subordinated in right of payment to all
Senior Indebtedness which may at the time be outstanding to substantially the
same extent as, or to a greater extent than, the Subordinated Obligations are so
subordinated as provided in this Article IX.
9.3 NO PAYMENT WHEN SENIOR INDEBTEDNESS IN DEFAULT.
(a) In the event that any Senior Payment Default with respect to
any Senior Indebtedness shall have occurred and be continuing (including any
Senior Payment Default arising upon any acceleration (whether automatic or upon
notice) of Senior Indebtedness following the occurrence of a Senior Nonmonetary
Default) or would result from any payment of the Subordinated Obligations, then,
no payment or distribution of any kind or character, whether in cash, property
or securities, by set-off or otherwise (including any payment which may be
payable by reason of the payment of any other indebtedness of the Company being
subordinated to the payment of the Subordinated Obligations) shall be made by
the Company, and no such payment or distribution shall be accepted by the
Investors, on account of the Subordinated Obligations unless and until (i) such
Senior Payment Default shall have been cured or waived in accordance with the
agreement or instrument evidencing such Senior Indebtedness or shall have ceased
to exist or (ii) the holders of such Senior Indebtedness or their duly
authorized agents have waived the benefit of this Section 9.3(a) in writing or
(iii) all amounts then due and payable in respect of such Senior Indebtedness
shall have been paid in full in cash (such period during which a Senior Payment
Default continues being, a "PAYMENT BLOCKAGE PERIOD").
(b) In the event that any Senior Nonmonetary Default shall have
occurred and be continuing, then, upon the receipt by the Company and the
Designated Holder of Subordinated Obligations of written notice of such Senior
Nonmonetary Default (a "SENIOR NONMONETARY DEFAULT NOTICE") from any holder of
Designated Senior Indebtedness, no payment or distribution of any kind or
character, whether in cash, property or securities, by set-off or otherwise
(including any payment which may be payable by reason of the payment of any
other indebtedness of the Company being subordinated to the payment of the
Subordinated Obligations) shall be made by the Company or accepted by the
Investors on account of the Subordinated Obligations during the period (the
"NONMONETARY DEFAULT BLOCKAGE PERIOD") commencing on the date of receipt of such
Senior Nonmonetary Default Notice and ending on the earlier of (a) the date on
which such Senior Nonmonetary Default shall have been cured or
53
<PAGE> 63
waived in accordance with the agreement or instrument evidencing such Senior
Indebtedness or shall have ceased to exist and any acceleration of such Senior
Indebtedness shall have been rescinded or annulled or the Senior Indebtedness to
which such Senior Nonmonetary Default relates shall have been discharged or (b)
or the holders of such Senior Indebtedness or their agents have waived the
benefits of this Section 9.3(b) in writing or (c) the 181st day after the date
of receipt of such written notice; provided, however, that during any period of
360 consecutive days, the aggregate number of days during which a Nonmonetary
Default Blockage Period shall be in effect shall not exceed 181 days and there
shall be a period of at least 179 consecutive days in each such 360-day period
when no Nonmonetary Default Blockage Period is in effect. For all purposes of
this Section 9.3(b), no Senior Nonmonetary Default which existed or was
continuing on the date of commencement of any Nonmonetary Default Blockage
Period with respect to any Senior Indebtedness shall be, or be made, the basis
for the commencement of a another Nonmonetary Default Blockage Period by the
holders (or any agent or other representative thereof) of such Senior
Indebtedness whether or not within a period of 360 consecutive days, unless such
Senior Nonmonetary Default shall have been cured or waived for a period of not
less than 90 consecutive days (it being acknowledged that any subsequent action,
or any breach of any financial covenants for a period commencing after the date
of commencement of such Nonmonetary Default Blockage Period that, in either
case, would give rise to a Senior Nonmonetary Default pursuant to any provisions
under which a Senior Nonmonetary Default previously existed or was continuing
shall constitute a new Senior Nonmonetary Default for this purpose).
(c) In the event that, notwithstanding the foregoing, the Company
or a trustee shall make any payment or distribution to the holders of
Subordinated Obligations prohibited by the foregoing provisions of this Section
9.3, and if such fact shall have been known to the Investors, then such payment
or distribution shall be deemed received by the Investors in trust for the
benefit of the holders of Senior Indebtedness and shall promptly be paid over
and delivered forthwith to the holders of such Senior Indebtedness or such other
Person who is agent for the holders of such Senior Indebtedness.
(d) The provisions of this Section shall not apply to any payment
with respect to which Section 9.2 would be applicable.
(e) Notwithstanding anything to the contrary contained herein, the
Notes shall continue to accrue interest during any Payment Blockage Period or
Nonmonetary Default Blockage Period at the rates provided hereunder or under the
Notes.
(f) If an Event of Default shall occur and be continuing at any
time during the continuance of a Payment Blockage Period or a Nonmonetary
Default Blockage Period, no holder of Subordinated Obligations shall ask, demand
or sue for any payment or distribution or seek any other remedy (except as
otherwise provided in paragraph (g) below) in respect of the Subordinated
Obligations or commence or join in with any other creditor (other than the agent
for the holders of Senior Indebtedness) in commencing any Proceeding prior to
the earliest to occur of (i) acceleration of such Senior Indebtedness, (ii) the
occurrence of an Event of Default specified in Sections 11.1(f) or (g) hereof or
(iii) the earliest to occur of (x) 181 days after the commencement of such
Payment Blockage Period or Nonmonetary Blockage Period or (y) the expiration of
such Payment Blockage Period or Nonmonetary Default Blockage Period.
54
<PAGE> 64
(g) Nothing in this Section 9.3 shall limit the rights of holders
of Subordinated Obligations to accelerate the maturity of the Subordinated
Obligations during a Payment Blockage Period or Nonmonetary Default Blockage
Period; provided, however, that if, at the termination or expiration of such
Payment Blockage Period or Nonmonetary Default Blockage Period, as the case may
be, all existing Defaults and Events of Default, except non-payment of principal
or interest that has become due solely because of acceleration (the "ACCELERATED
Amount"), have been cured or waived, then the holders of Subordinated
Obligations shall not take any action to collect, or exercise any remedies in
respect of, the Accelerated Amount and, absent subsequent Defaults or Events of
Defaults, the Accelerated Amount shall be paid in accordance with the original
scheduled terms.
9.4 PAYMENT PERMITTED IF NO DEFAULT.
Nothing contained in this Article or elsewhere in this Agreement or in
any other Note Document shall prevent the Company, at any time except during any
Proceeding referred to in Section 9.2 hereof or under the conditions described
in Section 9.3 hereof, from making payments (including any payment which may be
payable by reason of the payment of any other Indebtedness of the Company being
subordinated to payment of the Subordinated Obligations) at any time on account
of the Subordinated Obligations.
9.5 SUBROGATION TO RIGHTS OF HOLDERS OF SENIOR INDEBTEDNESS.
(a) Subject to the prior payment in full in cash of all Senior
Indebtedness, the holders of the Subordinated Obligations shall be subrogated to
the extent of the payments or distributions made to the holders of such Senior
Indebtedness pursuant to the provisions of this Article (equally and ratably
with the holders of all Indebtedness of the Company which by its express terms
is subordinated to indebtedness of the Company to substantially the same extent
as the Subordinated Obligations are subordinated and is entitled to like rights
or subrogation) to the rights of the holders of such Senior Indebtedness to
receive payments and distributions of cash, property and securities applicable
to the Senior Indebtedness until the principal of (and premium, if any) and
interest on the Subordinated Obligations shall be paid in full. For purposes of
such subrogation, no payments or distributions to the holders of the Senior
Indebtedness of any cash, property or securities to which the holders of the
Subordinated Obligations would be entitled except for the provisions of this
Article to the holders of Senior Indebtedness by the holders of the Subordinated
Obligations, shall, as among the Company, its creditors other than holders of
Senior Indebtedness and the holders of the Subordinated Obligations, be deemed
to be a payment or distribution by the Company to or on account of the Senior
Indebtedness.
(b) If any payment by the Company in respect of Senior
Indebtedness must be disgorged by any holder of Senior Indebtedness as a result
of any action under the United States Bankruptcy Code or other debtor relief
law, the obligations in respect of which such payment was made shall continue to
constitute Senior Indebtedness and shall remain entitled to the benefit of the
provisions of this Article IX. Without limitation of the foregoing, in the event
of any such disgorgement by a holder of Senior Indebtedness, all holders of
Subordinated Obligations, if any, who have become subrogated to the rights of
such holder of Senior Indebtedness pursuant to this Section 9.5 and have
obtained payment from the Company through the exercise of such subrogation
rights shall disgorge and pay to such holder of Senior Indebtedness any payment
so
55
<PAGE> 65
obtained, to the extent of the payment or payments disgorged by such holders of
Senior Indebtedness.
9.6 PROVISIONS SOLELY TO DEFINE RELATIVE RIGHTS.
The provisions of this Article are and are intended solely for the
purpose of defining the relative rights of the holders of the Subordinated
Obligations on the one hand and the holders of Senior Indebtedness on the other
hand. Nothing contained in this Article or elsewhere in this Agreement or in any
other Note Document is intended to or shall (a) impair, as among the Company,
its creditors other than holders of Senior Indebtedness and the holders of the
Subordinated Obligations, the obligation of the Company, which is absolute and
unconditional, to pay to the holders of the Subordinated Obligations the
principal of (and premium, if any) and interest on the Notes as and when the
same shall become due and payable in accordance with its terms and the terms of
this Agreement; or (b) affect the relative rights against the Company of the
holders of the Subordinated Obligations and creditors of the Company other than
the holders of Senior Indebtedness; or (c) prevent the holders of the
Subordinated Obligations from exercising all remedies otherwise permitted by
Applicable Law upon default under this Agreement, subject to the rights, if any,
under this Article of the holders of Senior Indebtedness and subject further to
the provisions of Sections 9.3(f) and (g).
9.7 NO WAIVER OF SUBORDINATION PROVISIONS.
(a) No right of any present or future holder of any Senior
Indebtedness to enforce subordination as herein provided shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
the Company or by any act or failure to act, in good faith, by any such holder,
or by any noncompliance by the Company with the terms, provisions and covenants
of this Agreement, regardless of any knowledge thereof any such holder may have
or be otherwise charged with.
(b) Without in any way limiting the generality of the foregoing
paragraph, the holders of Senior Indebtedness may, at any time and from time to
time, without the consent of or notice to the holders of the Subordinated
Obligations, without incurring responsibility to the holders of the Subordinated
Obligations and without impairing or releasing the subordination provided in
this Article or the obligations hereunder of the holders of the Subordinated
Obligations to the holders of Senior Indebtedness, do any one or more of the
following: (i) except as otherwise provided in Section 8.12(c), change the
manner, place or terms of payment or extend the time of payment of, or renew or
alter, Senior Indebtedness, or otherwise amend or supplement in any manner
Senior Indebtedness, or any instrument evidencing the same or any agreement
under which Senior Indebtedness is outstanding; (ii) sell, exchange, release or
otherwise deal with any property pledged, mortgaged or otherwise securing Senior
Indebtedness; (c) release any Person liable in any manner for the collection of
Senior Indebtedness; and (iii) exercise or refrain from exercising any rights
against the Company and any other Person.
9.8 NOTICE TO INVESTORS.
(a) The Company shall give prompt written notice to the holders of
Subordinated Obligations of any fact known to the Company which would prohibit
the making of any payment
56
<PAGE> 66
or distribution to the holders of Subordinated Obligations in respect of the
Subordinated Obligations. Notwithstanding the provisions of this Article or any
other provision of this Agreement, insofar as the rights of the holders of
Senior Indebtedness are concerned, the holders of Subordinated Obligations shall
be charged with knowledge of the existence of any facts actually known to them
(notwithstanding the absence of any such notice from the Company) which would
prohibit the making of any payment to the holders of Subordinated Obligations in
respect of the Subordinated Obligations; provided, however, that the foregoing
shall not affect the requirement of a Senior Nonmonetary Default Notice to
initiate a Nonmonetary Default Blockage Period under Section 9.3(b).
(b) The holders of Subordinated Obligations shall be entitled to
rely on the delivery to them of any written notice by a Person representing
himself to be a holder of Senior Indebtedness (or a trustee or agent therefor)
to establish that such notice has been given by a holders of Senior Indebtedness
(or a trustee or agent therefor) entitled to deliver any notice under this
Article. In the event that the holders of Subordinated Obligations determine in
good faith that further evidence is required with respect to the right of any
Person as a holder of Senior Indebtedness to participate in any payment or
distribution pursuant to this Article, the holders of Subordinated Obligations
may request such Person to furnish evidence to the reasonable satisfaction of
the holders of Subordinated Obligations as to the amount of Senior Indebtedness
held by such Person, the extent to which such Person is entitled to participate
in such payment or distribution and any other facts pertinent to the rights of
such Person under this Article, and if such evidence is not furnished, the
holders of Subordinated Obligations may defer any payment to such Person pending
judicial determination as to the right of such Person to receive such payment.
9.9 RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING AGENT.
Upon any payment or distribution of assets of the Company referred to
in this Article, the holders of Subordinated Obligations shall be entitled to
rely upon any order or decree entered by any court of competent jurisdiction in
which such Proceeding, or a certificate of the trustee in bankruptcy, receiver,
liquidating trustee, custodian, assignee for the payment or distribution,
delivered to the Investors, for the purpose of ascertaining the Persons entitled
to participate in such payment or distribution, the holders of the Senior
Indebtedness and other indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article.
9.10 HOLDERS OF SENIOR INDEBTEDNESS AS THIRD PARTY BENEFICIARY.
The provisions of this Article IX (i) are intended for the benefit of
the holders of Senior Indebtedness (ii) shall be deemed to be a continuing offer
to all holders of Senior Indebtedness to act in reliance on such provisions (but
such reliance shall not be required to be proven to receive the benefits hereof)
and (iii) may be enforced against the Company and the holders of Subordinated
Obligations by the holders of Senior Indebtedness.
57
<PAGE> 67
ARTICLE X
TRANSFER OF SECURITIES
10.1 RESTRICTION ON TRANSFER.
The Restricted Securities shall not be transferable except a holder of
Restricted Securities may transfer such Restricted Securities upon the
conditions specified in this Article X, which conditions are intended to ensure
compliance with the provisions of the Securities Act in respect of the transfer
thereof; provided, however, that any such transfer shall be subject to the
restrictions contained in the Warrant Agreement and the Shareholders Agreement
and any transferee, by acceptance of the Restricted Securities, will be deemed
to have agreed to be bound by and entitled to the benefits of Section 12.15; and
provided, further, that neither the rights of any Investor under the Note
Documents nor the Purchased Securities nor any part thereof or participation
therein may be transferred or assigned to a Competitor, and the Notes may not be
transferred or assigned in aggregate principal amounts of less than $1,000,000.
10.2 RESTRICTIVE LEGENDS.
Each certificate for the Restricted Securities, and each certificate
for any such securities issued to subsequent transferees of any such certificate
shall (unless otherwise permitted by the provisions of Section 10.3 hereof) be
stamped or otherwise imprinted with a legend in substantially the following
form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR ANY STATE SECURITIES OR BLUE SKY
LAWS. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER
SAID ACT OR APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
ADDITIONALLY, THE TRANSFER OF THESE SECURITIES IS SUBJECT TO
THE CONDITIONS SPECIFIED IN THE SECURITIES PURCHASE AGREEMENT
DATED AS OF DECEMBER ___, 1999, AMONG THE ISSUER HEREOF AND
CERTAIN OTHER SIGNATORIES THERETO, AND NO TRANSFER OF THESE
SECURITIES SHALL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS
HAVE BEEN FULFILLED. UPON THE FULFILLMENT OF CERTAIN OF SUCH
CONDITIONS, THE ISSUER HEREOF HAS AGREED TO DELIVER TO THE
HOLDER HEREOF A NEW CERTIFICATE, NOT BEARING THIS LEGEND, FOR
THE SECURITIES REPRESENTED HEREBY REGISTERED IN THE NAME OF
THE HOLDER HEREOF. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT
NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD
58
<PAGE> 68
OF THE CERTIFICATE TO THE SECRETARY OF THE ISSUER HEREOF."
10.3 NOTICE OF TRANSFER.
(a) Each holder shall, prior to any Transfer of any Restricted
Securities, give 5 Business Days prior written notice (or, if such 5 Business
Day notice period is not reasonably practicable, such notice as is reasonably
practicable), to the Company of such holder's intention to effect such Transfer
and to comply in all other respects with the provisions of this Section 10.3 in
making such proposed Transfer. Each such notice shall describe the manner and
circumstances of the proposed Transfer. Upon request by the Company, the holder
delivering such notice shall deliver a written opinion, addressed to the
Company, of counsel for such holder (which may be one of its internal counsels),
stating that in the opinion of such counsel (which opinion must be reasonably
satisfactory to the Company) such proposed Transfer does not involve a
transaction requiring registration of such Restricted Securities under the
Securities Act. Such holder shall thereupon be entitled to Transfer the
Restricted Securities in accordance with the terms of the notice delivered to
the Company, if the Company does not reasonably object to such Transfer and
request such opinion, within five days after delivery of such notice or, if the
Company does request such opinion, upon its receipt thereof. Each certificate or
other instrument evidencing the securities issued upon the Transfer of any
Restricted Securities (and each certificate or other instrument evidencing any
untransferred balance of such Restricted Securities) shall bear the legend set
forth in Section 10.2 above unless (i) such opinion of counsel is to the effect
that registration of any future Transfer is not required by the applicable
provisions of the Securities Act or (ii) the Company shall have waived the
requirement of such legend.
(b) Notwithstanding the foregoing provisions of this Section 10.3,
the restrictions imposed by Section 10.3(a) upon the transferability of any
Restricted Securities shall cease and terminate when (i) such Restricted
Securities are sold or otherwise disposed of pursuant to an effective
registration statement under the Securities Act or as otherwise contemplated by
paragraph (a) above in a manner that does not require that the Restricted
Securities so transferred continue to bear the legend set forth in Section 10.2
above or (ii) the holder of such Restricted Securities has met the requirements
for Transfer of such Restricted Securities under Rule 144(k). Whenever the
restrictions imposed by this Section shall terminate, upon the written request
of the holder of any Restricted Securities as to which such restrictions have
terminated, as promptly as practicable but in any event within ten (10) Business
Days of receipt of such request, the Company shall, without charge, issue,
register and deliver a new instrument not bearing the restrictive legend set
forth in Section 10.3 above and not containing any other reference to the
restrictions imposed by this Section.
ARTICLE XI
EVENTS OF DEFAULT
11.1 DEFAULTS.
The occurrence of one or more of the following events shall constitute
an "EVENT OF DEFAULT":
59
<PAGE> 69
(a) Payment of Principal. The Company shall fail to make any
payment of principal on the Notes when and as the same shall become due and
payable including at the due date thereof, by acceleration or otherwise;
(b) Payment of Interest and Fees. The Company shall fail to make
any payment of interest on any Note, or any fee or any other amount payable
hereunder or under the Notes when and as the same shall become due and payable
including at the due date thereof, by acceleration or otherwise, and such
failure shall continue unremedied for five (5) Business Days after the due date
thereof;
(c) Covenant Defaults. The Company or any of its Subsidiaries
shall default in the due observance or performance of any covenant or agreement
to be observed or performed under this Agreement or any Note Document (other
than a covenant which is dealt with specifically elsewhere in this Section 11.1)
and such default shall continue unremedied for thirty (30) days after the
earlier of (i) notice thereof from the Required Investors and (ii) a Responsible
Officer of the Company or such Subsidiary becoming aware of such default;
(d) Misrepresentations. Any representation, warranty or
certification by or on behalf of the Company or any of its Subsidiaries or a
Responsible Officer made or furnished in writing to the Investors by or on
behalf of the Company or any of its Subsidiaries in this Agreement, any of the
other Transaction Documents or any instrument, certificate or financial
statement furnished (in compliance with or in reference thereto) proves to have
been false or misleading in any material respect when made or furnished;
(e) Other Defaults. The Company or any of its Subsidiaries shall
fail to pay when due any amount in excess of $3,750,000 payable with respect to
any Indebtedness and such failure shall continue beyond any applicable period of
grace, or any other event shall occur or condition shall exist in respect of any
Material Indebtedness or under any evidence of any such Material Indebtedness or
of any mortgage, indenture or other agreement relating thereto, and such other
event or condition shall have caused the acceleration of the payment of such
Material Indebtedness and such Material Indebtedness shall not have been paid in
full within six (6) Business Days of the date of such acceleration;
(f) Voluntary Insolvency and Related Proceedings. The Company or
any of its Subsidiaries shall (i) voluntarily commence any proceeding or file
any petition seeking relief under Title 11 of the United States Code, or any
other federal, state or foreign bankruptcy, insolvency or similar law, (ii)
consent to the institution of, or fail to controvert in a timely and appropriate
manner, any such proceeding or the filing of any such petition, (iii) apply for,
consent to the appointment of, or a court of competent jurisdiction shall enter
an order appointing, a receiver, trustee, custodian, sequestrator or officer
with similar powers of itself or for any substantial part of its property or
assets, (iv) file an answer admitting the material allegations of a petition
filed against it in any such proceeding, (v) make a general assignment for the
benefit of creditors, (vi) fail generally to pay its debts as they become due
(vii) shall be adjudicated insolvent or (viii) take any corporate or stockholder
action in furtherance of any of the foregoing;
60
<PAGE> 70
(g) Involuntary Insolvency and Related Proceedings. (i) An
involuntary proceeding shall be commenced or an involuntary petition shall be
filed in a court of competent jurisdiction seeking (x) relief in respect of the
Company or any of its Subsidiaries or of any substantial part of the property or
assets thereof, under Title 11 of the United States Code or any other federal,
state or foreign bankruptcy, insolvency or similar law, (y) the appointment of a
receiver, trustee, custodian, sequestrator or similar official for any such
Person or for any substantial part of its property or (z) the winding-up or
liquidation of any such Person, and any such proceeding, petition or order shall
continue unstayed and in effect for a period of sixty (60) consecutive days or
(ii) a warrant of attachment, execution or similar process shall be issued
against any substantial part of the Property of the Company or any of its
Subsidiaries and the enforcement of such attachment, execution or similar
process is not stayed pending appeal;
(h) ERISA. A Reportable Event shall occur which the Requisite
Investors, in its or their sole discretion, shall determine in good faith
constitutes grounds for the termination by the Pension Benefit Guaranty
Corporation of any Plan or for the appointment by the appropriate United States
district court of a trustee for any Plan, or if any Plan shall be terminated or
any such trustee shall be requested or appointed, or if the Company or any of
its Subsidiaries is in "default" (as defined in Section 4219(c)(5) of ERISA)
with respect to payments to a Multiemployer Plan resulting from the Company or
such Subsidiary's complete or partial withdrawal from such Plan;
(i) Challenge to Agreement. This Agreement or any other Note
Document shall cease to be in full force and effect and enforceable in
accordance with its terms, or the Company or any of its Subsidiaries shall
assert the invalidity of any of the foregoing; or
(j) Judgments. A judgment or judgments for the payment of money in
excess of $2,500,000 in the aggregate shall be rendered against the Company and
the same shall not (i) be fully covered by insurance or other comparable bond,
or (ii) within sixty (60) days after the entry thereof, have been discharged or
execution thereof stayed pending appeal, or shall not have been discharged
within sixty (60) days after the expiration of any such stay; then, and in any
such event (other than an event described in paragraphs (f) or (g) above), and
at any time thereafter during the continuance of such event, the Required
Investors may, take any of the following actions and at the same or different
times: (i) declare the Notes (if outstanding) to be forthwith due and payable,
whereupon the entire unpaid principal of the Notes, together with accrued but
unpaid interest thereon and all other Obligations, shall become forthwith due
and payable in full in cash, without presentment, demand, protest or any other
notice of any kind, all of which are hereby expressly waived by the Company,
anything contained herein or in any other Note Document to the contrary
notwithstanding, or (ii) exercise any and all other remedies provided under any
Note Document upon the occurrence and continuance of an Event of Default;
provided, however, that with respect to the occurrence of an Event of Default
described in paragraphs (f) or (g) above, the principal of the Notes, together
with accrued but unpaid interest and fees thereon and any other liabilities of
the Company and any of their Subsidiaries accrued hereunder or any other Note
Document, shall automatically become due and payable in full in cash, all
without presentment, demand, protest or other notice of any kind, all of which
are hereby expressly waived by the Company, anything contained herein or in any
other Note Document to the contrary notwithstanding.
61
<PAGE> 71
ARTICLE XII
MISCELLANEOUS
12.1 NOTICES.
All notices, demands and requests of any kind to be delivered to any
party hereto in connection with this Agreement shall be (a) delivered
personally, (b) sent by nationally-recognized overnight courier, (c) sent by
first class, registered or certified mail, return receipt requested or (d) sent
by facsimile, in each case to such party at its address as follows:
(i) if to the Company, to:
Carrizo Oil & Gas, Inc.
14811 St. Mary's Lane, Suite 148
Houston, Texas 77079
Attention: Chief Financial Officer
Telephone No.: (281) 496-1352
Telecopier No.: (281) 496-1251
with a copy to:
Baker & Botts, L.L.P.
One Shell Plaza
910 Louisiana
Houston, Texas 77002-4915
Attention: Gene Oshman, Esq.
Telephone No.: (713) 229-1178
Telecopier No.: (713) 229-1522
(ii) if to any Investor, to such Investor's address set forth
in Schedule 1.1 hereto.
Any notice, demand or request so delivered shall constitute
valid notice under this Agreement and shall be deemed to have been received (A)
on the day of actual delivery in the case of personal delivery, (B) on the next
Business Day after the date when sent in the case of delivery by
nationally-recognized overnight courier, (C) on the fifth Business Day after the
date of deposit in the U.S. mail in the case of mailing or (D) upon receipt in
the case of a facsimile transmission or the next Business Day is such day is not
a Business Day. Any party hereto may from time to time by notice in writing
served upon the other as aforesaid designate a different mailing address or a
different person to which all such notices, demands or requests thereafter are
to be addressed.
12.2 SURVIVAL OF AGREEMENT.
All agreements, representations and warranties contained herein or made
in writing by or on behalf of the Company in connection with the transactions
contemplated hereby shall survive
62
<PAGE> 72
the execution and delivery of this Agreement and the other Transaction Documents
without limit; provided, however, that for purposes of the indemnification
contained in Section 12.5 but without affecting the rights of the holders of the
Notes under Section 11.1 (including, without limitation, Section 11.1(d)), the
representations and warranties set forth in Article IV (other than Sections 4.2,
4.3 and 4.19) shall survive until the third anniversary of the Closing Date (the
"SURVIVAL DATE"). No termination or cancellation (regardless of cause or
procedure) of this Agreement shall in any way affect or impair the powers,
obligations, duties, rights and liabilities of the parties hereto in any way
with respect to any transaction or event occurring prior to such termination or
cancellation, or any of the representations contained in this Agreement and the
other Transaction Documents and all such undertakings, agreements, covenants,
warranties and representations shall survive such termination or cancellation as
provided above. The Company further agrees that to the extent the Company makes
a payment or payments to the Investors as holders of Notes under this Agreement
or any other Transaction Document, which payment or payments or any part thereof
are subsequently invalidated, declared to be fraudulent or preferential, set
aside or required to be repaid to a trustee, receiver or any other party under
any bankruptcy, insolvency or similar state or United States federal law, common
law or equitable cause, then to the fullest extent permitted by applicable law,
to the extent of such payment or repayment, the Obligation or part thereof
intended to be satisfied shall be revived and continued in full force and effect
as if such payment had not been received by the Investors. The Investors shall
be entitled to rely upon, and shall be deemed to have relied upon, all
representations, warranties and covenants to be performed prior to the Closing
Date contained in any Transaction Document, notwithstanding any knowledge of the
Investors to the contrary, or any contrary information delivered to the
Investors by the Company or any other Person.
12.3 SUCCESSORS AND ASSIGNS.
Whenever in this Agreement any of the parties hereto is referred to,
such reference shall be deemed to include the successors and permitted assigns
of such party, and all covenants, promises and agreements by or on behalf of the
Company or the Investors that are contained in the Transaction Document shall
bind and inure to the benefit of their respective successors and permitted
assigns except that the Company shall not assign its rights or obligations
hereunder without the consent of the Required Investors. Each Investor shall
have the right, subject to the provisions of Article X hereof, to assign or
otherwise transfer its rights under this Agreement (in connection with the
transfer of Restricted Securities) or any Purchased Securities held by it.
12.4 EXPENSES OF THE INVESTORS.
The Company shall pay (a) all out-of-pocket expenses reasonably
incurred by the Investors (including, without limitation, the reasonable fees,
charges and disbursements of counsel for the Investors and any auditors,
accountants, appraisers, consultants, advisors and agents employed or retained
by the Investors) in connection with (i) the preparation, execution and delivery
of this Agreement and the other Transaction Documents, (ii) the purchase of the
Purchased Securities hereunder (including the Investors' due diligence
investigation in connection therewith) and (iii) all filings by any Investor
required to be made by the Commission in connection with the transactions
contemplated by the Transaction Documents and (b) all out-of-pocket expenses
incurred by the Investors, including the fees, charges and disbursements of
counsel for the Investors, in connection with the enforcement or protection of
the Investors'
63
<PAGE> 73
rights under the provisions of any Transaction Document provided that the
Investors prevail in any such enforcement proceedings. The expenses of any
exercise by any Investor of its rights of inspection and visitation under
Section 7.7 shall not be borne by the Company; provided, however, that (i) the
Required Investors shall be entitled to make, or designate representatives to
make, two visits and inspections per year at the expense of the Company
(provided that the aggregate amount of such expenses shall not exceed $2,500 per
visit) and (ii) the Company shall bear all expenses of any visit or inspection
if a Default has occurred and is continuing at the time of such visit or
inspection.
12.5 INDEMNIFICATION.
(a) In addition to all rights and remedies available to the
Investors at law or in equity, the Company shall indemnify the Investors and
their affiliates, stockholders, officer, directors, employees, agents,
representatives, counsel, successors and permitted assigns (collectively, the
"INDEMNIFIED PERSONS") and save and hold each of them harmless against and pay
on behalf of or reimburse such party as and when incurred for any loss
(excluding any tax and any diminution in value of the Notes), liability, demand,
claim, action, cause of action, cost, damage, deficiency, penalty, fine or
expense, whether or not arising out of any claims by or on behalf of the Company
or any third party, including interest, penalties, reasonable attorneys' fees
and expenses and all amounts paid in investigation, defense or settlement of any
of the foregoing (collectively, "LOSSES") which any such party may suffer,
sustain or become subject to, to the extent arising out of or as a result of:
(i) any misrepresentation or breach of a representation or
warranty on the part of the Company under Article IV of this Agreement;
(ii) any nonfulfillment or breach of any covenant or agreement
on the part of the Company under this Agreement or any other
Transaction Document;
(iii) any action, demand, proceeding, investigation or claim
by any third party (including, without limitation, governmental
agencies) against any Indemnified Person that, if successful, would
give rise to or evidence the existence of or relate to a breach of any
of the representations, warranties or covenants of the Company; and
(iv) any action, demand, proceeding, investigation or claim by
any third party (including, without limitation, governmental agencies)
against any Indemnified Person relating to or arising from
Environmental Laws (including without limitation relating to or arising
from any Hazardous Material regarding the Company or its Subsidiaries
and relating to the Company or its Subsidiaries or any predecessor
thereto or any of the operators, properties or assets of any of them).
(b) Notwithstanding the foregoing, and subject to the following
part of this sentence, upon judicial determination, which is final and no longer
appealable, that the act or omission giving rise to the indemnification
hereinabove provided resulted primarily out of or was based primarily upon the
Indemnified Person's gross negligence, fraud or willful misconduct (unless such
action was based upon the Indemnified Person's reliance in good faith upon any
of the representations, warranties, covenants or promises made by the Company in
the Transaction
64
<PAGE> 74
Documents) by the Indemnified Person, the Company shall not be responsible for
any Losses sought to be indemnified in connection therewith, and the Company
shall be entitled to recover from the Indemnified Person all amounts previously
paid in full or partial satisfaction of such indemnity with interest thereon at
the rate of interest borne by the Notes, together with all costs and expenses of
the Company reasonably incurred in effecting such recovery, if any.
(c) All indemnification rights hereunder shall survive the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby without limit, regardless of any investigation,
inquiry or examination made for or on behalf of, or any knowledge of the
Investors and/or any of the Indemnified Persons or the acceptance by the
Investors of any certificate or opinion; provided, however that any Indemnified
Person shall be required to assert any claim for indemnification in respect of
Losses to the extent arising out of or as a result of any representation or
warranty referred to in clause (i) or (iii) of Section 12.5(a) on or prior to
the Survival Date, if any, applicable to such representation or warranty.
(d) The indemnity obligations that the Company have under this
Section 12.5 shall be in addition to any liability that the Company may
otherwise have. The Company further agrees that the indemnification commitment
set forth in this Agreement shall apply whether or not the Indemnified Person is
a formal party to any such lawsuits, claims or other proceedings.
(e) (e) Any indemnification of the Investors or any other
Indemnified Person by the Company pursuant to this Section 12.5 shall be
effected by wire transfer of immediately available funds from the Company to an
account designated by the Investors or any other Indemnified Person within
fifteen (15) days after the determination thereof.
12.6 THIRD PARTY CLAIMS.
(a) If any claim (a "THIRD PARTY CLAIM") is asserted against an
Indemnified Person and such Indemnified Person intends to seek indemnification
hereunder from the Company (the "INDEMNIFYING PERSON"), then such Indemnified
Person shall give notice of the Third Party Claim to the Indemnifying Person as
soon as practicable after the Indemnified Person has reason to believe that the
Indemnifying Person will have an indemnification obligation with respect to such
Third Party Claim and shall provide the Indemnifying Person with all papers
served with respect to such Third Party Claim. Such notice shall describe in
reasonable detail, to the extent known, 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 Person's request for indemnification under this
Agreement. The failure of the Indemnified Person to so notify the Indemnifying
Person of the Third Party Claim shall not relieve the Indemnifying Person from
any duty to indemnify hereunder unless and to the extent that the Indemnifying
Person demonstrates that the failure of the Indemnified Person 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 Person to notify the
Indemnifying Person shall not relieve the Indemnifying Person from any liability
which it may have to the Indemnified Person otherwise than under this Agreement.
Thereafter, the Indemnified Person shall deliver to the Indemnifying Person,
within five business days after the Indemnified Person's receipt thereof, copies
of all notices and documents (including court papers) received by the
Indemnified Person relating to the Third Party Claim.
65
<PAGE> 75
(b) The Indemnifying Person shall have the right to participate
in, or assume control of, and the Indemnifying Person'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 Person, using
counsel of its choice reasonably acceptable to the Indemnified Person. If it
elects to assume control of the defense of such Third Party Claim, the
Indemnifying Person 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 Person to the Indemnified Person
of its election to assume the defense of such Third Party Claim, the Indemnified
Person shall have the right to participate in the defense of the Third Party
Claim using counsel of its choice, but the Indemnifying Person shall not be
liable to the Indemnified Person hereunder for any legal or other expenses
subsequently incurred by the Indemnified Person in connection with its
participation in the defense thereof unless (i) the employment thereof has been
specifically authorized in writing by the Indemnifying Person, (ii) the
Indemnifying Person 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 Person from representing the
Indemnified Person. If requested by the Indemnifying Person, the Indemnified
Person agrees to cooperate with the Indemnifying Person and its counsel in
contesting any Third Party Claim that the Indemnifying Person 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 Person shall have the right, acting in good faith
and with due regard to the interests of the Indemnified Person, to control all
decisions regarding the handling of the defense without the consent of the
Indemnified Person, 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 Person, which consent shall not be unreasonably withheld,
unless such settlement, compromise or consent includes an unconditional release
of the Indemnified Person from all liability and obligations arising out of such
Third Party Claim and which would not otherwise adversely affect the Indemnified
Person.
(c) If the Indemnifying Person 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 Person 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 Person shall
have the right to participate in the defense of the Third Party Claim using
counsel of its choice, but the Indemnified Person shall not be liable to the
Indemnifying Person hereunder for any legal or other expenses incurred by the
Indemnifying Person in connection with its participation in the defense thereof.
If requested by the Indemnified Person, the Indemnifying Person agrees to
cooperate with the Indemnified Person and its counsel in contesting any Third
Party Claim that the Indemnified Person 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 Person
shall have the right, acting in good faith and with due regard to the interests
of the Indemnifying Person, to control all decisions regarding the handling of
the defense without the consent of the Indemnifying Person, but shall not have
the right to
66
<PAGE> 76
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 Person, which consent shall not be unreasonably withheld, unless
such settlement, compromise or consent includes an unconditional release of the
Indemnifying Person from all liability and obligations arising out of such Third
Party Claim.
12.7 GOVERNING LAW.
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT
TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE (WHETHER IN THE STATE OF NEW
YORK OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF
ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK.
(b) THE PARTIES TO THIS AGREEMENT AGREE THAT JURISDICTION AND
VENUE IN ANY ACTION BROUGHT BY ANY PARTY HERETO PURSUANT TO THIS AGREEMENT SHALL
LIE IN ANY FEDERAL OR STATE COURT LOCATED IN THE STATE OF NEW YORK OR THE STATE
OF TEXAS. BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE PARTIES HERETO
IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF SUCH COURTS FOR
THEMSELVES AND IN RESPECT OF THEIR PROPERTY WITH RESPECT TO SUCH ACTION. THE
PARTIES HERETO IRREVOCABLY AGREE THAT VENUE WOULD BE PROPER IN SUCH COURT, AND
HEREBY WAIVE ANY OBJECTION THAT SUCH COURT IS AN IMPROPER OR INCONVENIENT FORUM
FOR THE RESOLUTION OF SUCH ACTION.
(c) THE COMPANY HEREBY AGREES THAT SERVICE UPON THEM BY REGISTERED
OR CERTIFIED MAIL (RETURN RECEIPT REQUESTED) SHALL CONSTITUTE SUFFICIENT NOTICE.
NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE INVESTORS TO BRING PROCEEDINGS
AGAINST THE COMPANY IN THE COURTS OF ANY OTHER JURISDICTION.
(d) BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL
TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND
EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY,
THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH
APPLICABLE LAWS. THEREFORE, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY
IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR
REMEDIES UNDER THIS AGREEMENT, THE TRANSACTION DOCUMENTS OR ANY DOCUMENTS
RELATED HERETO.
12.8 WAIVERS; AMENDMENTS.
(a) No failure or delay of the Investors in exercising any power
or right hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right or
67
<PAGE> 77
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 Investors hereunder are
cumulative and not exclusive of any rights or remedies which they would
otherwise have. No waiver of any provision of this Agreement or any other
Transaction Document or consent to any departure by the Company therefrom shall
in any event be effective unless the same shall be authorized as provided in
paragraph (b) below, and then such waiver or consent shall be effective only in
the specific instance and for the purpose for which given. 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.
(b) Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to an agreement or agreements in writing
entered into by the Company and the Required Investors; provided that no such
amendment, waiver or modification shall (i) reduce the principal amount of any
Note or reduce the rate of interest thereon, without the written consent of each
Investor affected thereby, (ii) postpone the scheduled date of payment of the
principal amount of any Note, or any interest thereon, or reduce the amount of,
waive or excuse any such payment, without the written consent of each Investor
affected thereby, (iii) change Section 3.2(e) hereof in a manner that would
alter the pro rata sharing of payments required thereby, without the written
consent of each Investor, (iv) change any of the provisions of this Section 12.8
or the definition of "Required Investors" or any other provision hereof
specifying the number or percentage of Investors required to waive, amend or
modify any rights hereunder or make any determination or grant any consent
hereunder, without the written consent of each Investor or (v) increase the
obligations of any Investor or otherwise disproportionately adversely affect any
of the rights of any Investor under this Agreement, without the written consent
of each Investor affected thereby.
12.9 INDEPENDENCE OF COVENANTS.
All covenants hereunder shall be given in any jurisdiction independent
effect so that if a particular action or condition is not permitted by any of
such covenants, the fact that it would be permitted by an exception to, or be
otherwise within the limitations of, another covenant shall not avoid the
occurrence of a Default or an Event of Default if such action is taken or
condition exists.
12.10 NO FIDUCIARY RELATIONSHIP; NO DUTY OF DESIGNATED HOLDER.
(a) No provision in this Agreement or in any of the other
Transaction Documents and no course of dealing between the parties shall be
deemed to create any fiduciary duty by the Investors to the Company other than
any fiduciary duty any Investor may have as a member of the Board of Directors
of the Company.
(b) The Designated Holder of Subordinated Obligations (i) is being
designated under this Agreement for the convenience of the holders of Designated
Senior Indebtedness in connection with the giving of notices under Section 9.3
and (ii) does not constitute the agent, trustee or other fiduciary or
representative of any other holder of Subordinated Obligations. The Designated
Holder of Subordinated Obligations shall not have any duties or obligations to
any holder of Subordinated Obligations, whether for the retransmission of any
notice under Section 9.3
68
<PAGE> 78
or otherwise, and each such holder, by its acceptance of any Subordinated
Obligations, expressly disclaims any duty or obligation.
12.11 NO DUTY.
All attorneys, accountants, appraisers, and other professional Persons
and consultants retained by the Investors shall have the right to act
exclusively in the interest of the Investors and shall have no duty of
disclosure, duty of loyalty, duty of care, or other duty or obligation of any
type or nature whatsoever to the Company or any of it's shareholders or any
other Person.
12.12 CONSTRUCTION.
The Company and the Investors acknowledge that each of them has had the
benefit of legal counsel of its own choice and has been afforded an opportunity
to review this Agreement and the other Transaction Documents with its legal
counsel and that this Agreement and the other Transaction Documents shall be
construed as if jointly drafted by the Investors and the Company.
12.13 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 invalid, illegal or unenforceable in
any respect under any Applicable Law in any jurisdiction, such invalidity,
illegality or unenforceability will not affect any other provision or any other
jurisdiction, and such invalid, void or otherwise unenforceable provisions shall
be null and void. It is the intent of the parties, however, that any invalid,
void or otherwise unenforceable provisions be automatically replaced by other
provisions which are as similar as possible in terms to such invalid, void or
otherwise unenforceable provisions but are valid and enforceable to the fullest
extent permitted by Applicable Law.
12.14 COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of
which shall constitute an original but all of which when taken together shall
constitute but one contract.
12.15 CONFIDENTIALITY.
For the purposes of this Section 12.15, "CONFIDENTIAL INFORMATION"
means information delivered to any Investor by or on behalf of the Company or
any Subsidiary in connection with the transactions contemplated by or otherwise
pursuant to this Agreement (including, without limitation, any information
regarding the transactions contemplated hereby provided prior to the Closing
Date), provided that such term does not include information that (a) was
publicly known or otherwise known to such Investor prior to the time of such
disclosure, (b) subsequently becomes publicly known through no act or omission
by any Investor or any Person acting on its behalf, or (c) otherwise becomes
known to any Investor other than through disclosure by the Company or any
Subsidiary. Each Investor will maintain the confidentiality of such Confidential
Information in accordance with procedures adopted by such Investor in good faith
to protect confidential information of third parties delivered to such Investor,
provided that such Investor
69
<PAGE> 79
may deliver or disclose Confidential Information to (i) its directors, officers,
employees, agents, attorneys and affiliates (to the extent such disclosure
reasonably relates to the administration of the investment represented by the
Purchased Securities, including, without limitation, acting as an Observer (as
defined in the Shareholders Agreement)), (ii) its financial advisors and other
professional advisors who are made aware of the confidential nature of such
information, (iii) any other holder of Purchased Securities, (iv) any
institutional investor to which any Investors sells or offers to sell Purchased
Securities or any part thereof or any participation therein (if such Person has
agreed in writing prior to its receipt of such Confidential Information to be
bound by the provisions of this Section 12.15), (v) any Person from which such
Investor offers to purchase any security of the Company (if such Person has
agreed in writing prior to its receipt of such Confidential Information to be
bound by the provisions of this Section 12.15), (vi) any federal or state
regulatory authority having jurisdiction over such Investor, (vii) the National
Association of Insurance Commissioners or any similar organization, or any
nationally recognized rating agency that requires access to information about
its investment portfolio, or (viii) any other Person to which such delivery or
disclosure may be necessary or appropriate (w) to effect compliance with any
law, rule, regulation or order applicable to such Investor, (x) in response to
any subpoena or other legal process, (y) in connection with any litigation to
which such Investor is a party or (z) if an Event of Default has occurred and is
continuing, to the extent such Investor may reasonably determine such delivery
and disclosure to be necessary or appropriate in the enforcement or for the
protection of the rights and remedies under the Notes and this Agreement. Each
holder of Purchased Securities, by its acceptance of Purchased Securities, will
be deemed to have agreed to be bound by and to be entitled to the benefits of
this Section 12.15 as though it were a party to this Agreement. On reasonable
request by the Company in connection with the delivery to any holder of
Purchased Securities of information required to be delivered to such holder
under this Agreement or requested by such holder (other than a holder that is a
party to this Agreement or its nominee, such holder will enter into an agreement
with the Company embodying the provisions of this Section 12.15. Notwithstanding
anything to the contrary contained herein, no Person may disclose any
information that such Person knows was received in violation of the last
sentence of Section 2.6(c) of the Shareholders Agreement.
12.16 HEADINGS.
Article and Section headings and the Table of Contents used herein are
for convenience of reference only and are not to affect the construction of, or
to be taken into consideration in interpreting, this Agreement.
12.17 ENTIRE AGREEMENT.
This Agreement and the agreements and documents referred to herein
contain the entire agreement of the parties and supersede any and all prior
agreements among the parties with respect to the subject matter hereof
(including, without limitation, the Commitment Letter and Term Sheet dated
December 1, 1999 between the Company and Chase Capital Partners and the
Confidentiality Agreement dated November 1, 1999 between the Company and Chase
Capital Partners).
* * * *
70
<PAGE> 80
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their authorized officers, all as of the day
and year first above written.
COMPANY
CARRIZO OIL & GAS, INC.
By: /s/ S. P. Johnson IV
------------------------------------
Name: S. P. Johnson IV
Title: President
INVESTORS
CB CAPITAL INVESTORS, L.P.
By: CB Capital Investors, Inc.,
its General Partner
By: /s/ Christopher Behrens
-------------------------------------
Name: Christopher Behrens
Title: General Partner
/s/ Douglas A. P. Hamilton
------------------------------------------
Douglas A. P. Hamilton
/s/ Paul B. Loyd, Jr.
------------------------------------------
Paul B. Loyd, Jr.
/s/ Steven A. Webster
------------------------------------------
Steven A. Webster
[Securities Purchase Agreement]
<PAGE> 81
MELLON VENTURES, L.P.
By: MVMA, L.P., its general partner
By: MVMA, Inc., its general partner
By: /s/ John P. Shoemaker
---------------------------------
Name: John P. Shoemaker
Title: Managing Director
[Securities Purchase Agreement]
<PAGE> 1
EXHIBIT 99.2
EXECUTION COPY
CARRIZO OIL & GAS, INC.
(A TEXAS CORPORATION)
SHAREHOLDERS AGREEMENT
DECEMBER 15, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
Article I DEFINITIONS; RULES OF CONSTRUCTION......................................................................1
1.1 Definitions.............................................................................................1
1.2 Rules of Construction...................................................................................9
Article II BOARD OF DIRECTORS; SHAREHOLDER ACTION.................................................................10
2.1 Election of Directors Generally........................................................................10
2.2 Election of Additional CB Capital Directors............................................................10
2.3 Committees of the Board................................................................................11
2.4 Expenses...............................................................................................11
2.5 Vacancies..............................................................................................11
2.6 Board and Committee Observer...........................................................................11
2.7 Boards of Subsidiaries.................................................................................12
2.8 Number of Directors....................................................................................13
2.9 Issuance of Purchased Securities.......................................................................13
2.10 Covenant to Vote.......................................................................................13
2.11 Expiration of this Article.............................................................................13
Article III ISSUANCES AND TRANSFERS OF STOCK.......................................................................14
3.1 Joinder Agreement; Certain Transfers...................................................................14
3.2 Tag-Along Rights.......................................................................................15
Article IV RIGHTS TO SUBSCRIBE FOR SECURITIES.....................................................................15
4.1 General................................................................................................15
4.2 Excluded Securities....................................................................................17
Article V COVENANTS..............................................................................................17
5.1 Equity Incentive Plans.................................................................................17
5.2 Other Covenants........................................................................................17
Article VI AMENDMENT AND WAIVER...................................................................................18
6.1 Amendment..............................................................................................18
6.2 Waiver.................................................................................................18
Article VII DURATION; TERMINATION..................................................................................18
Article VIII MISCELLANEOUS..........................................................................................19
8.1 Severability...........................................................................................19
8.2 Entire Agreement.......................................................................................19
8.3 Certain Shareholders...................................................................................19
8.4 Successors and Assigns.................................................................................19
8.5 Remedies...............................................................................................20
8.6 Notices................................................................................................20
8.7 GOVERNING LAW..........................................................................................21
8.8 Further Assurances.....................................................................................22
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
8.9 Representation and Warranties of the Shareholders......................................................22
8.10 Legends; Stop Transfer Instructions....................................................................23
8.11 Conflicting Agreements.................................................................................23
8.12 Counterparts; Validity.................................................................................23
8.13 Regulatory Matters.....................................................................................24
8.14 Consent of Spouses.....................................................................................24
8.15 Fiduciary Duties.......................................................................................24
</TABLE>
<PAGE> 4
SCHEDULES AND EXHIBITS
Schedule I - Shareholders
Exhibit A - Form of Joinder Agreement
Exhibit B - Spousal Consent
<PAGE> 5
EXECUTION COPY
SHAREHOLDERS AGREEMENT
dated as of December 15, 1999, among
CARRIZO OIL & GAS, INC., a Texas
corporation (the "COMPANY"), and the
Shareholders (as hereinafter defined).
PREAMBLE
The Company and the Investors (as hereinafter defined) who are
initially parties to this Agreement have entered into a Securities Purchase
Agreement, dated as of the date hereof (the "PURCHASE AGREEMENT"), pursuant to
which such Investors acquired from the Company shares of Common Stock and
Warrants. The execution and delivery of this Agreement is a condition to the
completion of the transactions contemplated by the Purchase Agreement.
ACCORDINGLY, in consideration of the mutual covenants and
agreements contained in this Agreement, the sufficiency of which is hereby
acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION
1.1 DEFINITIONS.
Capitalized terms used in this Agreement have the meanings ascribed to
them below:
"ADDITIONAL CB CAPITAL DIRECTOR" and "ADDITIONAL CB CAPITAL
DIRECTORS" have the meanings given to such terms in Section 2.2.
"AFFILIATE" means, with respect to any specified Person, any
other Person that directly or indirectly through one or more intermediaries
Controls, is Controlled by or is under common Control with such Person.
"APPLICABLE LAW" means all provisions of laws, statutes,
ordinances, rules, regulations, permits, certificates or orders of any
Governmental Authority applicable to the Person in question or any of its assets
or property, and all judgments, injunctions, orders and decrees of all courts
and arbitrators in proceedings or actions in which the Person in question is a
party or by which any of its assets or properties are bound.
"BOARD" and "BOARD OF DIRECTORS," unless otherwise specified,
means the Board of Directors of the Company.
"BUSINESS" means the exploration, development, exploitation
and production of natural gas and crude oil.
"BUSINESS DAY" means any day other than a Saturday, Sunday or
a day on which banks are authorized or required to be closed in New York, New
York or Houston, Texas;
<PAGE> 6
provided, however, that any determination of a Business Day relating to a
securities exchange or other securities market means a Business Day on which
such exchange or market is open for trading.
"BY-LAWS" means the By-laws of the Company, as amended,
modified, supplemented or restated and in effect from time to time.
"CB CAPITAL" means CB Capital Investors, L.P., a Delaware
limited partnership, and any successor thereto.
"CB CAPITAL DIRECTOR" and "CB CAPITAL DIRECTORS" have the
meanings given to such terms in Section 2.2.
"CHARTER" means the Articles of Incorporation of the Company
as amended and restated and filed with the Secretary of State of the State of
Texas and all amendments thereto in effect on the date hereof.
"COMMITTEE" has the meaning given to such term in Section 2.3.
"COMMON STOCK" means (i) the Common Stock, $.01 par value, of
the Company and (ii) any other class of capital stock of the Company hereafter
authorized that is not limited to a fixed sum or percentage of par or stated
value with respect to the rights of the holders thereof to participate in
dividends or in the distribution of assets upon any liquidation, dissolution or
winding up of the Company.
"COMMON STOCK EQUIVALENTS" means all shares of Common Stock
outstanding, all shares of Common Stock issuable (without regard to any present
restrictions on such issuance) upon the conversion, exchange or exercise of all
securities of the Company that are convertible, exchangeable or exercisable for
Common Stock and all Common Stock appreciation rights, phantom Common Stock
rights and other rights to acquire, or to receive or be paid an amount based on
the Market Price (less any exercise, conversion or purchase price) of, the
Common Stock.
"COMPANY" has the meaning given to such term in the caption on
the first page of this Agreement.
"COMPETITOR" has the meaning given such term in Section
3.1(c).
"COMPLIANCE SIDELETTER" has the meaning given to such term in
the Purchase Agreement.
"CONTROL" means, with respect to any Person, the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of such Person, whether through the ownership of voting
securities, by contract or otherwise.
"CONVERTIBLE SECURITIES" means any capital stock, evidence of
indebtedness or other securities or rights convertible into or exchangeable for
Common Stock
2
<PAGE> 7
"EQUITY INCENTIVE PLANS" means any stock option, issuance,
appreciation rights, restricted stock, phantom stock, stock purchase plan or
other equity incentive plan for the directors, officers, and employees of, and
consultants to, the Company and its Subsidiaries.
"EXCLUDED SECURITIES" has the meaning given to such term in
Section 4.2.
"EXISTING SHARES" means the shares owned by the Original
Founder Shareholders as of the Closing Date other than any shares issued to such
Original Founder Shareholder pursuant to the Purchase Agreement.
"FOUNDER SHAREHOLDERS" shall mean, collectively, (i) the
Original Founder Shareholders and (ii) any Transferee of the Securities held by
an Original Founder Shareholder who hereafter becomes a party to this Agreement
as a "Founder Shareholder" pursuant to a Joinder Agreement executed and
delivered pursuant to Section 3.1(a).
"FULLY DILUTED COMMON STOCK" means, with respect to the Common
Stock at any time of determination, the number of shares of Common Stock that
would be issued and outstanding at such time, assuming full conversion, exercise
and exchange of all issued and outstanding Convertible Securities and Options
that shall be (or may become) exchangeable for, or exercisable or convertible
into, Common Stock, including the Warrants, except that the number of shares of
Fully Diluted Common Stock shall not include the number of shares of Common
Stock issuable upon exercise, conversion or exchange of Options or Convertible
Securities that, at the time of determination, are Out of the Money. For
purposes of determining the percentage of the Fully Diluted Common Stock, any
Investor shall be deemed to hold shares of Common Stock issuable upon any such
exercise, conversion or exchange of Convertible Securities and Options held by
such Investor.
"GOVERNMENTAL AUTHORITY" means any federal, state, municipal
or other government, governmental department, commission, board, bureau, agency
or instrumentality, or any court, in each case whether of the United States of
America or any political subdivision thereof, or of any other country.
"INITIAL CB CAPITAL DIRECTOR" and "INITIAL CB CAPITAL
DIRECTORS" have the meanings given to such terms in Section 2.1.
"INVESTORS" means, collectively, those persons listed on
Schedule I attached hereto under the heading "Investors," and every other Person
who hereafter becomes a party to this Agreement as an "Investor" pursuant to a
Joinder Agreement executed and delivered pursuant to Section 3.1(a).
"JOINDER AGREEMENT" has the meaning given to such term in
Section 3.1.
"LIQUIDITY OPPORTUNITY" means (i) a Sale of the Company, (ii)
a proposed Sale of the Company which would include the sale of the Shares held
by CB Capital and which would have been consummated but for the failure of CB
Capital to vote in favor of, or elect to participate in, such proposed Sale of
the Company or (ii) the occurrence of a Minimum Public Float.
3
<PAGE> 8
"MARKET PRICE" means, for any security as of any date of
determination:
(a) if such security is Publicly Traded as of the date of
determination, the price determined by computing the average, over a period
consisting of the most recent four (4) Business Days occurring on or prior to
the date of determination, of the applicable price set forth below (but
excluding any trades or quotations that are not bona fide, arm's length
transactions):
(i) the average of the closing prices for such
security on such Business Day on all domestic national
securities exchanges on which such security may be listed if
such exchanges are the primary securities markets for such
security, or
(ii) if there have been no sales on any such exchange
on such Business Day, the average of the highest bid and
lowest asked prices on all such exchanges at the end of such
Business Day if such exchanges are the primary securities
markets for such security, or
(iii) if on any Business Day such security is not so
listed, the closing sales price on such Business Day quoted on
the Nasdaq National Market or the Nasdaq Small-Cap Market, as
applicable, or if there have been no sales on the Nasdaq
National Market or the Nasdaq Small-Cap Market, as the case
may be, on such business day, the average of the highest bid
and lowest asked prices quoted on the Nasdaq National Market
or the Nasdaq Small-Cap Market, as the case may be, or
(iv) if on any Business Day such security is not
quoted in the Nasdaq National Market or Nasdaq Small-Cap
Market, the average of the highest bid and lowest asked prices
on such Business Day in the domestic over-the-counter market
as reported by the National Quotation Bureau, Incorporated, or
any similar successor organization;
provided, that (1) for the purposes of any determination of the "Market Price"
of any share of a security on any day after the "ex" date or any similar date
for any dividend or distribution paid or to be paid with respect to such
security, any price of such security on a day prior to such "ex" date or similar
date 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 (2) for the purposes of any determination of the "Market
Price" of any security on any day after (i) the effective day of any subdivision
(by stock split or otherwise) or combination (by reverse stock split or
otherwise) of outstanding securities or (ii) the "ex" date or any similar date
for any dividend or distribution with respect to such securities in shares of
that security, any price of such security on a day prior to such effective date
or "ex" date or similar date shall be appropriately adjusted to reflect such
subdivision, combination, dividend or distribution; and
(b) if such security is not Publicly Traded as of the date of
determination, (i) in the case of the Common Stock, the Market Value Per Share,
determined in accordance with the Valuation Procedure, and (ii) in the case of
any other security, the fair market value of one share or other applicable unit
of such security, determined in accordance with the Valuation Procedure.
4
<PAGE> 9
"MARKET VALUE" means the highest price that would be paid for
the entire common equity interest in the Company on a going-concern basis in a
single arm's-length transaction between a willing buyer and a willing seller
(neither acting under compulsion), using valuation techniques then prevailing in
the securities industry and assuming full disclosure of all relevant information
and a reasonable period of time for effectuating such sale. For the purposes of
determining the Market Value, (i) the exercise price of Options to acquire
Common Stock that are not Out of the Money shall be deemed to have been received
by the Company and (ii) the liquidation preference or indebtedness, as the case
may be, represented by Convertible Securities that are not Out of the Money
shall be deemed to have been eliminated or cancelled.
"MARKET VALUE PER SHARE" means the price per share of Common
Stock obtained by dividing (A) the Market Value by (B) the number of shares of
Fully Diluted Common Stock at the time of determination.
"MELLON" means Mellon Ventures, L.P.
"MINIMUM PUBLIC FLOAT" means an aggregate value determined
using the then Market Price of all shares of Common Stock held by Persons other
than Affiliates of the Company of not less than $40,000,000 and a minimum
trading volume of 250,000 shares (the level of trading volume to be determined
in accordance with clause (ii) and (iii) of subsection (e)(1) of Rule 144 under
the Securities Act.
"NONVOTING SECURITIES" has the meaning given to such term in
Section 4.1(d).
"OBSERVER" has the meaning given to such term in Section 2.6.
"OFFERED SECURITIES" has the meaning given to such term in
Section 4.1(a).
"OPTIONS" means any warrants, options or other rights to
subscribe for or to purchase (i) Common Stock or (ii) Convertible Securities.
"ORIGINAL FOUNDER SHAREHOLDERS" means S.P. Johnson IV, Frank
A. Wojtek, Steven A. Webster, Douglas A. P. Hamilton, Paul B. Loyd, Jr. and
DAPHAM Partnership L.P. (and each, individually, an "ORIGINAL FOUNDER
SHAREHOLDER"). With respect to each Founder Shareholder, the Original Founder
Shareholder is the Original Founder Shareholder from whom such Founder
Shareholder acquired, whether directly or indirectly, its Shares.
"OUT OF THE MONEY" means, at any date of determination (a) in
the case of an Option, that the aggregate fair market value as of such date of
the shares of Common Stock issuable upon the exercise of such Option is less
than the aggregate exercise price payable upon such exercise and (b) in the case
of a Convertible Security, that the quotient resulting from dividing the fair
market value as of such date of such Convertible Security by the number of
shares issuable as of such date upon conversion or exchange of such Convertible
Security is greater than the fair market value of a share of Common Stock.
"PERMITTED TRANSFER" shall mean any Transfer by a Founder
Shareholder (i) to the spouse, parent, sibling or any lineal descendant of the
Original Founder Shareholder of such Founder Shareholder, (ii) to any trust for
the benefit of any person specified in clause (i) above
5
<PAGE> 10
or to any family partnership or other estate planning vehicle, the interests of
which are held by such Founder Shareholder and/or the persons specified in
clause (i) above, (iii) by gift to a charitable organization qualified under
Section 501(c) of the Internal Revenue Code, (iv) to the estate of such Founder
Shareholder, (v) of up to $3 million in aggregate Market Price of shares of
Common Stock to one or more other Founder Shareholders, or (vi) to any Person in
a Public Sale; provided, however, that in each case (other than clauses (v) and
(vi)) such Permitted Transfer is made in accordance with Section 3.1(b).
"PERSON" shall be construed as broadly as possible and shall
include an individual or natural person, a partnership (including a limited
liability partnership), a corporation, an association, joint stock company, a
limited liability company, a trust, a joint venture, an unincorporated
organization and a Governmental Authority.
"PREEMPTIVE OFFER" has the meaning given to such term in
Section 4.1(a).
"PREEMPTIVE OFFER ACCEPTANCE NOTICE" has the meaning given to
such term in Section 4.1(b).
"PREEMPTIVE OFFER PERIOD" has the meaning given to such term
in Section 4.1(a).
"PROPORTIONATE PERCENTAGE" means, with respect to any
Shareholder, the fraction, expressed as a percentage, (i) the numerator of which
is the total number of shares of Common Stock and Warrant Shares (including any
Warrant Shares to be issued to such Shareholder upon exercise of the Warrants)
held by such Shareholder and (ii) the denominator of which is the total number
of shares of Fully Diluted Common Stock at the time of determination.
"PUBLIC OFFERING" means a public offering of Common Stock
pursuant to a registration statement declared effective under the Securities
Act, except that a Public Offering shall not include an offering made in
connection with a business acquisition or an employee benefit plan.
"PUBLIC SALE" means any sale of Securities to the public
pursuant to an offering registered under the Securities Act or to the public
through a broker, dealer or market maker (pursuant to the provisions of Rule 144
or otherwise or pursuant to a tender offer made to all shareholders of the
Company pursuant to Regulation 14D (or successor regulations) under the
Securities Exchange Act of 1934).
"PUBLICLY TRADED" means, with respect to any security, that
such security is (a) listed on a domestic securities exchange, (b) quoted on the
Nasdaq National Market or the Nasdaq Small-Cap Market or (c) traded in the
domestic over-the-counter market, which trades are reported by the National
Quotation Bureau, Incorporated.
"PURCHASE AGREEMENT" has the meaning given to such term in the
Preamble.
"REFUSED SECURITIES" has the meaning given to such term
Section 4.1(c).
6
<PAGE> 11
"REGULATED HOLDER" has the meaning given to such term in the
Compliance Sideletter.
"REGULATORY PROBLEM" has the meaning given to such term in the
Compliance Sideletter.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement dated as of the date hereof entered into simultaneously with the
execution and delivery of this Agreement between the Company and the Investors
named therein.
"REQUISITE INVESTORS" means those Investors who hold in the
aggregate in excess of 50% of the outstanding shares of Common Stock and the
Warrant Shares (including any Warrant Shares to be issued to such Shareholder
upon exercise of the Warrants) held by all Investors at the time in question.
"REQUISITE FOUNDER SHAREHOLDERS" means those Founder
Shareholders who hold in excess of 50% of the outstanding shares of Common Stock
held by all Founder Shareholders at the time in question.
"SALE OF THE COMPANY" means (i) the sale (in one or a series
of related transactions) of all or substantially all of the Company's assets to
a Person or a group of Persons acting in concert, (ii) the sale or transfer (in
one or a series of related transactions) of all or substantially all of the
outstanding capital stock of the Company, to one Person or a group of Persons
acting in concert, or (iii) the merger or consolidation of the Company with or
into another Person who is not an Affiliate of the Company, in each case in
clauses (ii) and (iii) above under circumstances in which the holders of a
majority in voting power of the outstanding capital stock of the Company,
immediately prior to such transaction, own less than a majority in voting power
of the outstanding capital stock of the Company, or the surviving or resulting
corporation or acquirer, as the case may be, immediately following such
transaction. A sale (or multiple related sales) of one or more subsidiaries of
the Company (whether by way of merger, consolidation, reorganization or sale of
all or substantially all assets or Securities) which constitutes all or
substantially all of the consolidated assets of the Company shall be deemed a
Sale of the Company.
"SALE NOTICE" has the meaning given to such term in Section
3.2(a).
"SECURITIES" means, with respect to any Person, such Person's
"securities" as defined in Section 2(1) of the Securities Act of 1933, as
amended, and includes such Person's capital stock or other equity interests or
any options, warrants or other securities that are directly or indirectly
convertible into, or exercisable or exchangeable for, such Person's capital
stock or other equity or equity-linked interests, including phantom stock and
stock appreciation rights.
"SECURITIES ACT" means the Securities Act of 1933, as amended,
or any successor federal statute, and the rules and regulations of the
Securities and Exchange Commission thereunder, all as the same shall be in
effect from time to time.
"SECURITIES AND EXCHANGE COMMISSION" means the Securities and
Exchange Commission or any Governmental Authority succeeding to the functions
thereof.
7
<PAGE> 12
"SHAREHOLDERS" means the holders of Common Stock and the
holders of Common Stock Equivalents (including, without limitation, the
Warrants), in each case, who are parties hereto, and shall include any other
Person who hereafter becomes a party to this Agreement as a Shareholder pursuant
to a Joinder Agreement executed and delivered pursuant to Section 3.1 or 3.2(b).
"SHARES" means any shares or other units of Stock issued by
the Company and purchased or otherwise acquired by any Shareholder. As to any
particular Securities constituting Shares, such Securities will cease to be
Shares for all purposes of this Agreement when they have (a) been Transferred in
a Public Sale or (b) ceased to be outstanding.
"SIGNIFICANT SHAREHOLDER" means (i) Mellon or (ii) a
Shareholder who at the time in question holds at least 10% of the Fully Diluted
Common Stock in the aggregate and who is not a Founder Shareholder. No
Transferee of Mellon shall be deemed to be a Significant Shareholder unless such
Transferee satisfies the criteria set forth in clause (ii) above by virtue of
ownership of Purchased Securities issued under the Purchase Agreement.
"SPOUSAL CONSENT" has the meaning given to such term in
Section 8.14.
"STOCK" means the Common Stock and the Warrants and any and
all other capital stock or equity Securities (including derivative Securities
therefor) of the Company, excluding Options but including, to the extent
applicable, the Stock received upon exercise of the Options.
"SUBSIDIARY" means, with respect to any Person, any other
Person of which more than fifty percent (50%) of the shares of stock or other
interests entitled to vote in the election of directors or comparable Persons
performing similar functions (excluding shares or other interests entitled to
vote only upon the failure to pay dividends thereon or other contingencies) are
at the time owned or controlled, directly or indirectly through one or more
Subsidiaries, by such Person.
"TAG-ALONG NOTICE" has the meaning given to such term in
Section 3.2(b).
"TRANSFER" of Securities shall be construed broadly and shall
include any issuance, sale, assignment, transfer, participation, gift, bequest,
distribution, or other disposition thereof (but not any pledge or hypothecation
thereof, placement of a lien thereon or grant of a security interest therein or
other encumbrance thereon until the execution and foreclosure with respect to
the foregoing), in each case whether voluntary or involuntary or by operation of
law or otherwise. "TRANSFEROR" means a Person Transferring Securities, and
"TRANSFEREE" means a Person acquiring Securities through a Transfer.
"TRANSFERRING SHAREHOLDER" has the meaning given such term in
Section 3.2(a).
"VALUATION PROCEDURE" means, with respect to the determination
of any amount or value required to be determined in accordance with such
procedure (the "VALUATION AMOUNT"), a determination (which shall be final and
binding on the Company and the Shareholder) made (i) by agreement among the
Company and the Requisite Investors within thirty (30) days following the event
requiring such determination or (ii) in the absence of such an agreement, by a
nationally recognized investment banking firm (an "APPRAISER") (as defined
8
<PAGE> 13
below) selected in accordance with the further provisions of this definition. If
the Board and the Requisite Investors are unable to agree upon an acceptable
Appraiser within ten (10) days after the date either party proposed that one be
selected, the Appraiser will be selected by an arbitrator located in New York
City, New York, selected by the American Arbitration Association (or if such
organization ceases to exist, the arbitrator shall be chosen by a court of
competent jurisdiction). The arbitrator shall select the Appraiser (within ten
(10) days of his appointment) from a list, jointly prepared by the Board and the
Requisite Investors, of not more than six Appraisers of national standing in the
United States, of which no more than three may be named by the Board and no more
than three may be named by the Requisite Investors. The arbitrator may consider,
within the ten-day period allotted, arguments from the parties regarding which
Appraiser to choose, but the selection by the arbitrator shall be made in its
sole discretion from the list of six. The Board and the Requisite Investors
shall submit to the Appraiser their respective determinations of the valuation
amount, and any supporting arguments and other data as they may desire, within
ten (10) days of the appointment of the Appraiser, and the Appraiser shall as
soon as practicable thereafter make its own determination of the valuation
amount. The final valuation amount for purposes hereof shall be the average of
the two valuation amounts closest together, as determined by the Appraiser, from
among the valuation amounts submitted by the Board (the "COMPANY'S VALUATION")
and the Requisite Holders (the "HOLDERS' VALUATION") and the valuation amount
calculated by the Appraiser. The fees and expenses of the Appraiser and
arbitrator (if any) used to determine the valuation amount shall be (i) paid by
the Company if the Company's Valuation is not used to determine the average in
the preceding sentence, (ii) paid by the Holders if the Holders' Valuation is
not used to determine the average in the preceding sentence or (iii) borne
equally by the Company and the Holders if the Company's Valuation and the
Holders' Valuation are both used to determine the average in the preceding
sentence. If required by any Appraiser or arbitrator, the Company shall execute
a retainer and engagement letter containing reasonable terms and conditions,
including, without limitation, customary provisions concerning the rights of
indemnification and contribution by the Company in favor of such Company or
arbitrator and its officers, directors, partners, employees, agents and
Affiliates.
"WARRANT AGREEMENT" means the Warrant Agreement dated as of
the date hereof entered into simultaneously with the execution and delivery of
this Agreement between the Company and the Investors named therein.
"WARRANTS" has the meaning given to such term in the Warrant
Agreement.
"WARRANT SHARES" has the meaning given to such term in the
Warrant Agreement.
1.2 RULES OF CONSTRUCTION.
The use in this Agreement of the term "including" means "including,
without limitation." The words "herein," "hereof," "hereunder" and other words
of similar import refer to this Agreement as a whole, including the schedules
and exhibits, as the same may from time to time be amended, modified,
supplemented or restated, and not to any particular section, subsection,
paragraph, subparagraph or clause contained in this Agreement. All references to
sections, schedules and exhibits mean the sections of this Agreement and the
schedules and exhibits
9
<PAGE> 14
attached to this Agreement, except where otherwise stated. The title of and the
section and paragraph headings in this Agreement are for convenience of
reference only and shall not govern or affect the interpretation of any of the
terms or provisions of this Agreement. The use herein of the masculine, feminine
or neuter forms shall also denote the other forms, as in each case the context
may require. Where specific language is used to clarify by example a general
statement contained herein, such specific language shall not be deemed to
modify, limit or restrict in any manner the construction of the general
statement to which it relates. The language used in this Agreement has been
chosen by the parties to express their mutual intent, and no rule of strict
construction shall be applied against any party.
ARTICLE II
BOARD OF DIRECTORS; SHAREHOLDER ACTION
2.1 ELECTION OF DIRECTORS GENERALLY.
(a) Subject to Section 2.8, for so long as CB Capital owns at
least 15 % of the Fully Diluted Common Stock, each Shareholder shall from time
to time take such action, in his capacity as a shareholder of the Company,
including the voting of all Securities owned or controlled by such Shareholder,
as may be necessary to cause the number of directors constituting the Company's
entire Board to be fixed at seven and to cause the election of two directors
nominated by CB Capital (each an "INITIAL CB CAPITAL DIRECTOR" and together the
"INITIAL CB CAPITAL DIRECTORS").
(b) Subject to Section 2.8, for so long as CB Capital owns at
least 7 1/2% of the Fully Diluted Common Stock but less than 15% of the Fully
Diluted Common Stock, each Shareholder shall from time to time take such action,
in his capacity as a shareholder of the Company, including the voting of all
Securities owned or controlled by such Shareholder, as may be necessary to cause
the number of directors constituting the Company's entire Board to be fixed at
seven and to cause the election of one Initial CB Capital Director.
2.2 ELECTION OF ADDITIONAL CB CAPITAL DIRECTORS.
(a) Subject to Section 2.8, in addition to the Initial CB
Capital Directors designated pursuant to Section 2.1, if at any time after the
fifth anniversary of the date hereof and for so long as (i) CB Capital owns at
least 15% of the Fully Diluted Common Stock and (ii) a Liquidity Opportunity has
not occurred, CB Capital shall have the right to designate two additional
members of the Board (each an "ADDITIONAL CB CAPITAL DIRECTOR" and together the
"ADDITIONAL CB CAPITAL DIRECTORS"). The Initial CB Capital Directors and the
Additional CB Capital Directors are referred to herein collectively as the "CB
CAPITAL DIRECTORS" and each, individually, a "CB CAPITAL DIRECTOR". Each
Shareholder shall, at such times as CB Capital is entitled to designate the
Additional CB Capital Directors and upon written notice from the Company or CB
Capital, take such action, in his capacity as a Shareholder of the Company,
including the voting of all Securities owned or controlled by such shareholder,
as may be necessary to cause the number of directors constituting the Company's
entire Board to be fixed at nine and to cause the Additional CB Capital
Directors to be elected to the Board.
10
<PAGE> 15
(b) Notwithstanding anything to the contrary contained herein,
no Stockholder shall be required to vote or otherwise take action to cause the
election of any Person under Article II or otherwise who has been removed from
the Board for "cause" (as defined in Article 7, Section 2 of the Charter) or who
the Board has determined could, if elected, be removed for cause as a result of
prior actions or omissions. With respect to any determination of cause hereunder
for which a determination is otherwise to be made by the Board, such
determination shall require the affirmative vote of all CB Capital Directors
other than those CB Capital Directors that the Company has alleged may be
removed for cause.
2.3 COMMITTEES OF THE BOARD.
For so long as CB Capital is entitled to designate a CB Capital
Director, (i) the Company shall have at least three committees established by
the Board (any committee established by the Board, a "COMMITTEE"), including
without limitation, an Audit Committee, a Compensation Committee and a Budget
Committee, (ii) at least one CB Capital Director shall be a member of each
Committee, (iii) all actions taken by any Committee shall be taken at a meeting
or shall be approved by unanimous written consent of the members of the
Committee and (iv) if no CB Capital Director is a member of any Committee, any
action proposed to be taken by such Committee shall be approved by the Board
before such action becomes effective.
The Budget Committee shall consider matters relating to the Company's
drilling program and the Company's budget and related matters; provided,
however, that such committee's actions shall be advisory only and not binding on
the Company or the Board except to the extent otherwise decided by the Board.
2.4 EXPENSES.
The Company shall pay the reasonable out-of-pocket expenses incurred by
each Board member designated pursuant to Section 2.1 or 2.2 in connection with
attending the meetings of the Board and any Committee.
2.5 VACANCIES.
If a vacancy is created on the Board by reason of the death, removal or
resignation of any CB Capital Director, then (i) such vacancy may be filled by
the remaining directors in accordance with Sections 2.1 or 2.2, as applicable,
and (ii) if not so filled, each of the Shareholders shall, as promptly as
practicable upon the request of CB Capital, take such action, in his capacity as
a shareholder of the Company, including the voting of all Securities owned or
controlled by such Shareholder, as may be necessary to elect a director to fill
such vacancy in accordance with the selection procedures set forth in Sections
2.1 and 2.2 as applicable.
2.6 BOARD AND COMMITTEE OBSERVER.
(a) If, at any time CB Capital is entitled to (i) nominate and
have elected a CB Capital Director , such directorship shall be vacant and CB
Capital has acted with reasonable promptness to propose a nominee to be elected
to the Board or (ii) have a CB Capital Director designated as a member of any
Committee and CB Capital has acted with reasonable promptness to propose a CB
Capital Director to be appointed to such Committee and such designation shall
11
<PAGE> 16
not have been made, then CB Capital shall have the right to have one or more
representatives (each such representative, an "OBSERVER") present at all
meetings of the Board of Directors and all such Committees, as the case may be.
The number of Observers shall at all times and from time to time be equal to
that number of CB Capital Directors that CB Capital is then entitled to elect
pursuant to Sections 2.1 and 2.2 above but whose directorships on the Board or
membership on such Committee, as the case may be, are at the time vacant.
(b) Each Observer, to the fullest extent permitted by law, shall
be entitled to participate in any meeting of the Board or any Committee, as the
case may be, as if such Observer were a director or member of such Committee,
but shall not be entitled to vote on any actions proposed to be taken by the
Board or such Committee. The Company will give each Observer reasonable prior
notice (it being agreed that the same prior notice given to the members of the
Board shall be deemed reasonable prior notice) of the time and place of any
proposed meeting of the Board, such notice in all cases to include, subject to
the terms hereof, true and complete copies of all documents furnished to any
director in connection with such meeting. The Company will deliver to each
Observer copies of all papers which may be distributed from time to time to the
members of the Board or any applicable Committee at such time as such papers are
so distributed to them, including copies of any written consent. In addition,
from time to time upon the request of each Observer, the Company will furnish to
such Observer such information regarding the business, affairs, prospects and
financial condition of the Company which a member of the Board or any applicable
Committee would be entitled to receive.
(c) The Company reserves the right to withhold any information
and to exclude an Observer from any meeting or portion thereof if (i) access to
such information or attendance at such meeting could reasonably be expected,
based on advice of counsel, to adversely affect the attorney-client privilege
between the Company and its counsel or (ii) such disclosure is prohibited by an
agreement with a third party; provided that, in the case of clause (ii), the
Company will use commercially reasonable efforts to provide such information or
allow the Observer to attend such meeting, which requirement shall be satisfied
if the Observer is offered the opportunity to obtain such information or attend
such meeting by executing or otherwise becoming a party to the confidentiality
restrictions on substantially the same terms (including any standstill
provisions) as are applicable to the Company. CB Capital acknowledges that any
information provided to an Observer shall be subject to the confidentiality
provisions contained in Section 12.15 of the Purchase Agreement and each
Observer will be deemed to have agreed to be bound by and entitled to the
benefits of Section 12.15 of the Purchase Agreement. Notwithstanding anything to
the contrary contained in this Agreement or the Purchase Agreement, no person
serving as an Observer may use or disclose any information received by such
Observer as such, unless and except to the extent that such use or disclosure
could have been made by a director of the Company in compliance with all laws
and duties applicable to a director as such under such circumstances.
2.7 BOARDS OF SUBSIDIARIES.
The Company shall use its reasonable best efforts, in its capacity as a
shareholder, partner or member of each of its Subsidiaries with net assets of at
least $3,000,000, to cause the composition of the board of directors or
equivalent governing body of such Subsidiary and any committees thereof to be
identical, or as nearly identical as possible, to the composition of the
12
<PAGE> 17
Board of the Company (including the CB Capital Directors) and any Committees
thereof and shall cause such Subsidiary to provide to CB Capital, observation
and information rights identical, or as nearly as identical as possible, to
those provided by the Company in Section 2.6.
2.8 NUMBER OF DIRECTORS.
(a) The Company may increase the size of the Board by one
additional member at any time at or after the time of the first shareholders'
meeting following the Closing Date provided such increase has been approved by
the Board.
(b) If the Company at any time increases the size of the Board
beyond that set forth herein (specifically excluding increases pursuant to
Sections 2.1, 2.2 and 2.8(a)), then the size of the Board shall be further
increased, if necessary, and CB Capital shall be entitled to nominate, and each
Shareholder shall from time to time take such action, in his capacity as a
shareholder of the Company, including the voting of all Securities owned or
controlled by such Shareholder, as may be necessary to cause to be elected, that
number of directors such that (i) the proportion of the number of CB Capital
Directors (excluding any directors to be elected pursuant to Section 2.2) to the
total number of members of the whole Board is at least as great as the
proportion of CB Capital's ownership of the Fully Diluted Common Stock at the
time in question and (ii) to the extent applicable, the Additional CB Capital
Directors are elected pursuant to Section 2.2.
2.9 ISSUANCE OF PURCHASED SECURITIES.
The Company shall submit the issuance of the Warrants, the Warrant
Shares and the Common Stock included in the Purchased Securities (as defined in
the Purchase Agreement) as a matter to be approved by the shareholders at the
Company's first shareholders' meeting following the Closing Date in accordance
with Section 5.7(i) of the Warrant Agreement. The Shareholders shall take such
action, in their capacity as a shareholders of the Company, including the voting
of all Securities owned or controlled by such Shareholder, as may be necessary
to approve such issuance.
2.10 COVENANT TO VOTE.
If any Shareholder is required to take any action pursuant to this
Article II, then, without limiting the generality of the foregoing provisions,
such Shareholder shall, in his capacity as a shareholder of the Company, act,
together with CB Capital and the other Shareholders, to call, and otherwise use
reasonable efforts to assist CB Capital to cause the Company to promptly hold, a
special meeting of shareholders, and each of the Shareholders hereby agrees to
vote all of the Securities owned by such Shareholder and entitled to vote at
such meeting, in person or by proxy in favor of such action.
2.11 EXPIRATION OF THIS ARTICLE.
Notwithstanding anything to the contrary contained herein, the
provisions of this Article (other than Section 2.9) shall expire at such time
that CB Capital no longer owns at least 7 1/2% of the Fully Diluted Common
Stock.
13
<PAGE> 18
ARTICLE III
ISSUANCES AND TRANSFERS OF STOCK
3.1 JOINDER AGREEMENT; CERTAIN TRANSFERS.
(a) The provisions regarding Transfers of Stock contained in
this Article III shall apply to all shares of Stock now owned or hereafter
acquired by a Shareholder, including shares of Stock acquired by reason of
original issuance, dividend, distribution, exchange, conversion and acquisition
of outstanding shares of Stock from another Person, and such provisions shall
apply to any shares of Stock obtained by a Shareholder upon the exercise,
exchange or conversion of any option, warrant or other derivative Security.
(b) Except for transfers that constitute Public Sales, no
Shareholder shall Transfer any shares to a Person (other than the Company or a
Subsidiary of the Company) not already a party to this Agreement as a
Shareholder unless and until such Person executes and delivers to the Company a
joinder agreement in substantially the form attached hereto as Exhibit A and
otherwise in form and substance reasonably acceptable to the Company and the
Requisite Investors (a "JOINDER AGREEMENT"), pursuant to which such Person will
thereupon become a party to, and be bound by and obligated to comply with the
terms and provisions of, this Agreement, as a Shareholder hereunder. Any Person
who executes a Joinder Agreement shall be designated an Investor if the
Transferor was an Investor and the Transferee was not a Founder Shareholder or
an Affiliate of a Founder Shareholder. No Person who is not a Shareholder who
acquires Stock in a Public Sale shall be permitted or required to execute a
Joinder Agreement. No Person who acquires less than 7 1/2% of the Fully Diluted
Common Stock pursuant to a Transfer shall be permitted or required to execute a
Joinder Agreement. Any Transferor shall notify the Company at least five days
prior to any Transfer that requires the execution of a Joinder Agreement.
(c) No Shareholder shall, without the prior written consent of
the Company, Transfer any Stock, or any interest therein, to any Competitor. A
Shareholder may rely in good faith on a representation from the Company for a
period of three months that a potential Transferee is not a Competitor, and
unless such Shareholder has actual knowledge that such representation has become
untrue, such Transfer shall be valid; provided, however, that if a Shareholder
requests but does not receive a representation from the Company that a potential
Transferee is not a Competitor, such Shareholder shall be entitled to rely on a
representation from the potential Transferee that such potential Transferee is
not a Competitor. As used herein, the term "COMPETITOR" means (i) any Person who
is actively engaged in the Business and (ii) any Affiliate of a Person
identified in clause (i) above (it being agreed that an investment firm shall
not be deemed to control a Person described in clause (i) above merely as a
result of owning a minority interest in such Person if it does not otherwise
control such Person).
(d) The Company shall provide (and upon written request by any
Shareholder, authorize such Shareholder to provide) any readily-available
financial and other information concerning the Company to any prospective
transferee of Stock owned by such Shareholder as such purchaser may reasonably
request; provided that, the provision of any such information shall be subject
to the confidentiality provisions set forth in Section 12.15 of the Purchase
14
<PAGE> 19
Agreement and any such prospective transferee of Stock shall be deemed to have
agreed to be bound by and entitled to the benefits of Section 12.15 of the
Purchase Agreement.
3.2 TAG-ALONG RIGHTS.
(a) If at any time any Founder Shareholder (the "TRANSFERRING
SHAREHOLDER") proposes to Transfer any shares of Common Stock (other than
Permitted Transfers), then at least twenty five (25) days prior to the expected
closing of such Transfer, such Transferring Shareholder shall deliver a written
notice (the "SALE NOTICE") to the Significant Shareholders offering the
Significant Shareholders the option to participate in such proposed Transfer.
Such Sale Notice shall specify in reasonable detail the identity of the
prospective Transferee and, to the extent known, the terms and conditions of the
Transfer.
(b) Any Significant Shareholder may, within 15 days of the
receipt of a Sale Notice, give written notice (each, a "TAG-ALONG NOTICE") to
the Transferring Shareholder stating that such Significant Shareholder wishes to
participate in such proposed Transfer and stating that such notice is binding
and irrevocable and specifying the amount of Common Stock such Significant
Shareholder desires to include in such proposed Transfer.
(c) If none of the Significant Shareholders gives the
Transferring Shareholder a timely Tag-Along Notice with respect to the Transfer
proposed in the Sale Notice, the Transferring Shareholder may thereafter
transfer the shares specified in the Sale Notice on substantially the same terms
and conditions set forth in the Sale Notice. If one or more Significant
Shareholders give the Transferring Shareholder a timely Tag-Along Notice, then
the Transferring Shareholder shall use all reasonable efforts to cause the
prospective Transferee(s) to agree to acquire all shares identified in all
Tag-Along Notices that are timely given to the Transferring Shareholder, upon
the same terms and conditions as applicable to the Transferring Shareholder's
shares. If such prospective Transferee(s) are unwilling or unable to acquire all
shares proposed to be included in such sale upon such terms, then the
Transferring Shareholder may elect either to cancel such proposed Transfer or to
allocate the maximum number of shares that each prospective Transferee is
willing to purchase among the Transferring Shareholder or Transferring
Shareholders, as the case may be, and the Significant Shareholders giving timely
Tag-Along Notices in proportion to such Shareholders' (including the
Transferring Shareholder's or Transferring Shareholders', as the case may be)
Proportionate Percentages.
ARTICLE IV
RIGHTS TO SUBSCRIBE FOR SECURITIES
4.1 GENERAL.
(a) Except in the case of Excluded Securities (as hereinafter
defined), the Company shall not issue, sell or exchange, agree to issue, sell or
exchange, or reserve or set aside for issuance, sale or exchange (i) any equity
Security of such Company, (ii) any debt Security of such Company which by its
terms is convertible into or exchangeable for any equity Security of such
Company, (iii) any option, warrant or other right to subscribe for, purchase or
otherwise acquire any equity Security or any debt Security referred to in clause
(i) or (ii) or (iv) any other
15
<PAGE> 20
Common Stock Equivalent, unless in each case the Company shall have first
offered or caused such Subsidiary to offer (the "PREEMPTIVE OFFER") to sell such
Securities to the Significant Shareholders (the "OFFERED SECURITIES") by
delivery to such Significant Shareholders of written notice of such offer
stating that such Company proposes to sell such Offered Securities, and to the
extent then known, the number or amount of the Offered Securities proposed to be
sold, the proposed purchase price therefor and any other terms and conditions of
such offer (such notice shall be deemed to be satisfactory if such terms and
conditions are set out in the same general level of detail as the term sheet
used in connection with the offering contemplated by the Purchase Agreement).
Without limiting the generality of any other provisions hereof, the final terms
and conditions of the Offered Securities (and the drafts of any purchase or
ancillary documents) need not be set prior to the mailing of the Preemptive
Offer. The Preemptive Offer shall by its terms remain open and irrevocable for a
period of 10 Business Days from the date it is delivered by such Company (the
"PREEMPTIVE OFFER PERIOD").
(b) Each Significant Shareholder shall have the option,
exercisable at any time during the Preemptive Offer Period by delivering a
binding and irrevocable written notice to the Company (a "PREEMPTIVE OFFER
ACCEPTANCE NOTICE"), to subscribe for the number or amount of such Offered
Securities up to its Proportionate Percentage of the total number or amount of
Offered Securities proposed to be issued.
(c) If Preemptive Offer Acceptance Notices are not given by the
Significant Shareholders for all the Offered Securities, the Company shall have
90 days from the expiration of the Preemptive Offer Period to sell all or any
part of such Offered Securities as to which Preemptive Offer Acceptances Notices
have not been given by the Significant Shareholders (the "REFUSED SECURITIES")
to any other Persons, but only upon terms and conditions in all material
respects, including unit price and interest rates, which are no more favorable,
in the aggregate, to such other Persons or less favorable, in the aggregate, to
the Company than those set forth in the Preemptive Offer. Upon the closing,
which shall include full payment to the Company, of the sale to such other
Persons of all the Refused Securities, the Significant Shareholders shall
purchase from the Company, and the Company shall sell to the Significant
Shareholders, the Offered Securities with respect to which Preemptive Offer
Acceptance Notices were delivered by the Significant Shareholders, at the terms
specified in the Preemptive Offer. The Significant Shareholders purchasing the
Offered Securities under this Section must execute all documents and agreements
no later than the time of the Closing to the extent reasonably requested by the
Company. In each case, any Offered Securities not purchased by the Significant
Shareholders or any other Persons in accordance with this Section 4.1 may not be
sold or otherwise disposed of until they are again offered to the Significant
Shareholders under the procedures specified in this Section 4.1.
(d) To the extent, pursuant to a Preemptive Offer, a Significant
Shareholder is issued nonvoting Securities or other Securities (the "Nonvoting
Securities") due to a Regulatory Problem (as provided in the Compliance
Sideletter), such nonvoting Securities shall be deemed to be part of the same
Preemptive Offer and such Significant Shareholder shall not be entitled to
additional Offered Securities and the issuance of such Nonvoting Securities
shall not be treated as a new issuance for purposes of this Article IV.
16
<PAGE> 21
4.2 EXCLUDED SECURITIES.
The rights of the Significant Shareholders under Section 4.1 shall not
apply to the following Securities (the "EXCLUDED SECURITIES"):
(a) Securities issued or granted to eligible officers, employees
or directors of, or consultants to, the Company and its Subsidiaries pursuant to
an Equity Incentive Plan;
(b) any Securities issued by the Company in any Public Offering;
(c) any Securities issued by the Company as consideration in a
merger, business combination or acquisition of property or assets;
(d) Securities issued upon the exercise or conversion of
outstanding Common Stock Equivalents and other derivative Securities and Common
Stock Equivalents and other derivative Securities issued in compliance with (or
not otherwise in violation of) this Article IV;
(e) the Warrant Shares; and
(f) Securities issued in a distribution from the Company, stock
split, reverse stock split, subdivision, stock dividend, reclassification,
combination or capital reorganization.
ARTICLE V
COVENANTS
5.1 EQUITY INCENTIVE PLANS.
The maximum number of Common Stock Equivalents issuable under the
Equity Incentive Plans shall not exceed 2,500,000 shares and equivalents
(including any shares and equivalents issued or issuable as of the Closing Date)
(subject to pro rata adjustment in the event of any stock dividend or
distribution paid in shares of Common Stock or any stock split or subdivision,
reverse stock split or combination or other similar pro rata recapitalization
event affecting the Common Stock).
5.2 OTHER COVENANTS.
The Company shall comply with, and (i) each Investor for so long as
such Investor owns at least 7 1/2 % of the Fully Diluted Common Stock and (ii)
Mellon (but not its Transferee unless such Transferee satisfies the criteria in
clause (i) above by virtue of ownership of Purchased Securities issued under the
Purchase Agreement) shall be entitled to the benefit of, the provisions of
Sections 7.4, 7.7 and 8.6 of the Purchase Agreement, as in effect on the date
hereof or as amended with the consent of the Requisite Investors, whether or not
any Notes remain outstanding.
17
<PAGE> 22
ARTICLE VI
AMENDMENT AND WAIVER
6.1 AMENDMENT.
Except as expressly set forth herein, the provisions of this Agreement
may only be amended or waived with the prior written consent of (i) the Company,
(ii) the Requisite Founder Shareholders and (iii) the Requisite Investors;
provided, however, that (A) any such amendment, modification, or waiver that
would adversely affect in any material respect the rights hereunder of any
Investor or any Founder Shareholder, in their capacities as such, without
similarly affecting the rights hereunder of all the Investors or Founder
Shareholders, as the case may be, may not be made without the prior written
consent of such adversely affected Investor or Founder Shareholder, (B) no
amendment to Section 8.15 or this clause may be made without the prior written
consent of CB Capital, for so long as it or any of its Affiliates holds 7 1/2%
of the Fully Diluted Common Stock any Securities of the Company, and (C)
Schedule I to this Agreement shall be deemed to be automatically amended from
time to time to reflect Transfers of Stock made in accordance with Section
3.1(a) without requiring the consent of any party, and the Company will, from
time to time, distribute to the Shareholders a revised Schedule I to reflect any
such changes.
6.2 WAIVER.
No course of dealing between the Company, its Subsidiaries and the
Shareholders (or any of them) or any delay in exercising any rights hereunder
will operate as a waiver of any rights of any party to this Agreement. The
failure of any party to enforce any of the provisions of this Agreement will in
no way be construed as a waiver of such provisions and will not affect the right
of such party thereafter to enforce each and every provision of this Agreement
in accordance with its terms.
ARTICLE VII
DURATION; TERMINATION
The provisions of this Agreement, other than Section 2.6(c), shall
terminate upon the first to occur of (A) notice of termination by the Requisite
Investors , (B) a Sale of the Company which has been consented to by the
Requisite Investors and the consideration received by the Shareholders in
connection with such sale consists solely of cash and (C) no Investor owns more
than 7 1/2% of the Fully Diluted Common Stock; provided, however that the
provisions of Section 3.1(c) shall survive until terminated by agreement of the
Company, the Requisite Investors and the Requisite Founder Shareholders.
Anything contained herein to the contrary notwithstanding, as to any particular
Shareholder, this Agreement shall no longer be binding or of further force or
effect as to such Shareholder, except as otherwise expressly provided herein, as
of the date such Shareholder has Transferred all of such Shareholder's interest
in the Company's Securities and the Transferees of such Securities have, if
required by Section 3.2(b) hereof, executed Joinder Agreements but such
Shareholder shall remain responsible for all actions or omissions during such
time that the Agreement was applicable to such Shareholder.
18
<PAGE> 23
ARTICLE VIII
MISCELLANEOUS
8.1 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 invalid, illegal or unenforceable in
any respect under any Applicable Law in any jurisdiction, such invalidity,
illegality or unenforceability will not affect any other provision or any other
jurisdiction, and such invalid, void or otherwise unenforceable provisions shall
be null and void. It is the intent of the parties, however, that any invalid,
void or otherwise unenforceable provisions be automatically replaced by other
provisions which are as similar as possible in terms to such invalid, void or
otherwise unenforceable provisions but are valid and enforceable to the fullest
extent permitted by Applicable Law.
8.2 ENTIRE AGREEMENT.
This Agreement and the agreements and documents referred to herein
contain the entire agreement among the parties hereto with respect to the
subject matter hereof and thereof and supersede and preempt any and all prior
and contemporaneous understandings, agreements, arrangements, or representations
by or among the parties, written or oral, which may related to the subject
matter hereof or thereof in any way. Other than this Agreement and the other
agreements referred to herein and to be executed and delivered in connection
herewith, there are no other agreements to which the parties hereto are bound
continuing in effect following the termination of the arrangements with
affiliates of Enron Corp. relating to pre-emptive or similar rights, voting of
capital stock of the Company or election of members of the Board of Directors.
8.3 CERTAIN SHAREHOLDERS.
Any Shareholder that is a party to this Agreement and is an entity that
was formed for the sole purpose of acquiring Stock or that has no substantial
assets other than Stock or interests in Stock shall agree that (a) shares of its
common stock or other instruments reflecting equity interests in such entity
(and the shares of common stock or other equity interests in any similar
entities controlling such entity) will note the restrictions contained in this
Agreement on the transfer of Stock as if such common stock or other equity
interests were Stock and (b) no shares of such common stock or other equity
interests may be transferred to any Person other than in accordance with the
terms and provisions of this Agreement as if such common stock or other equity
interests were Stock.
8.4 SUCCESSORS AND ASSIGNS.
Except as otherwise provided herein, this Agreement will bind and inure
to the benefit of and be enforceable by the Company and its successors and
assigns and the Shareholders and any subsequent permitted holders of Shares and
the respective successors and permitted assigns of each of them, so long as they
hold Shares. None of the provisions hereof shall create, or be construed or
deemed to create, any right to employment in favor of any Person by the Company
or any of its Subsidiaries. This Agreement is not intended to create any third
party beneficiaries.
19
<PAGE> 24
8.5 REMEDIES.
(a) Each Shareholder shall have all rights and remedies reserved
for such Shareholder pursuant to this Agreement and all rights and remedies
which such holder has been granted at any time under any other agreement or
contract and all of the rights which such holder has under any law or equity.
Any Person having any rights under any provision of this Agreement will be
entitled to enforce such rights specifically, to recover damages by reason of
any breach of any provision of this Agreement and to exercise all other rights
granted by law or equity.
(b) The parties hereto agree that if any parties seek to resolve
any dispute arising under this Agreement pursuant to a legal proceeding, the
prevailing parties to such proceeding shall be entitled to receive reasonable
fees and expenses (including reasonable attorneys' fees and expenses) incurred
in connection with such proceedings.
(c) It is acknowledged that it will be impossible to measure in
money the damages that would be suffered by any party hereto if any Person also
party hereto fails to comply with any of the obligations imposed on it upon them
in this Agreement or in the Charter or By-laws and that in the event of any such
failure, the aggrieved party will be irreparably damaged and will not have an
adequate remedy at law. Any such aggrieved party shall, therefore, be entitled
to injunctive relief, including specific performance, to enforce such
obligations, and if any action should be brought in equity to enforce any of the
provisions of this Agreement, none of the parties hereto shall raise the defense
that there is an adequate remedy at law.
8.6 NOTICES.
All notices, demands and requests of any kind to be delivered to any
party hereto in connection with this Agreement shall be in writing (i) delivered
personally, (ii) sent by nationally-recognized overnight courier, (iii) sent by
first class, registered or certified mail, return receipt requested or (iv) sent
by facsimile, in each case to such party at its address as follows:
(a) if to the Company, to:
Carrizo Oil & Gas, Inc.
14811 St. Mary's Lane, Suite 148
Houston, Texas 77079
Attention:
Telephone No.: (281) 496-1352
Telecopier No.: (281) 496-1251
20
<PAGE> 25
with a copy to:
Baker & Botts, L.L.P.
3000 One Shell Plaza
910 Louisiana
Houston, Texas 77002-4915
Attention: Gene Oshman, Esq.
Telephone No.: (713) 229-1178
Telecopier No.: (713) 229-1522
(b) if to a Shareholder, to such Shareholder's address as set
forth on Schedule I hereto.
Any notice, demand or request so delivered shall constitute valid notice under
this Agreement and shall be deemed to have been received (i) on the day of
actual delivery in the case of personal delivery, if delivered on a Business Day
(otherwise on the next Business Day), (ii) on the next Business Day after the
date when sent in the case of delivery by nationally-recognized overnight
courier, (iii) on the fifth Business Day after the date of deposit in the U.S.
mail in the case of mailing or (iv) upon receipt in the case of a facsimile
transmission. Any party hereto may from time to time by notice in writing served
upon the other as aforesaid designate a different mailing address or a different
Person to which all such notices, demands or requests thereafter are to be
addressed.
8.7 GOVERNING LAW.
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT
TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE (WHETHER IN THE STATE OF NEW
YORK OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF
ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK EXCEPT TO THE EXTENT OF
INTERNAL CORPORATE MATTERS, WHICH SHALL BE GOVERNED BY THE PROVISIONS OF THE
APPLICABLE LAW OF THE STATE OF TEXAS.
(b) THE PARTIES TO THIS AGREEMENT AGREE THAT JURISDICTION AND
VENUE IN ANY ACTION BROUGHT BY ANY PARTY HERETO PURSUANT TO THIS AGREEMENT SHALL
LIE IN ANY FEDERAL OR STATE COURT LOCATED IN THE STATE OF NEW YORK OR THE STATE
OF TEXAS. BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE PARTIES HERETO
IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF SUCH COURTS FOR
THEMSELVES AND IN RESPECT OF THEIR PROPERTY WITH RESPECT TO SUCH ACTION. THE
PARTIES HERETO IRREVOCABLY AGREE THAT VENUE WOULD BE PROPER IN SUCH COURT, AND
HEREBY WAIVE ANY OBJECTION THAT SUCH COURT IS AN IMPROPER OR INCONVENIENT FORUM
FOR THE RESOLUTION OF SUCH ACTION.
(c) THE COMPANY HEREBY AGREES THAT SERVICE UPON THEM BY
REGISTERED OR CERTIFIED MAIL (RETURN RECEIPT REQUESTED) SHALL
21
<PAGE> 26
CONSTITUTE SUFFICIENT NOTICE. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE
INVESTORS TO BRING PROCEEDINGS AGAINST THE COMPANY OR THE SHAREHOLDERS IN THE
COURTS OF ANY OTHER JURISDICTION.
(d) BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX
FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN
EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL
LAWS TO APPLY, THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE
APPLYING SUCH APPLICABLE LAWS. THEREFORE, THE PARTIES HERETO WAIVE ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY
RIGHTS OR REMEDIES UNDER THIS AGREEMENT, THE TRANSACTION DOCUMENTS OR ANY
DOCUMENTS RELATED HERETO.
8.8 FURTHER ASSURANCES.
Each party hereto shall do and perform or cause to be done and
performed all such further acts and things and shall execute and deliver all
such other agreements, certificates, instruments, and documents as any other
party hereto reasonably may request in order to carry out the provisions of this
Agreement and the consummation of the transactions contemplated hereby.
8.9 REPRESENTATION AND WARRANTIES OF THE SHAREHOLDERS.
Each Shareholder (as to himself or itself only) represents and warrants
to the Company and the other Shareholders that, as of the time such Shareholder
becomes a party to this Agreement:
(a) this Agreement (or the separate joinder agreement executed
by such Shareholder) has been duly and validly executed and delivered by such
Shareholder and this Agreement constitutes a legal and binding obligation of
such Shareholder, enforceable against such Shareholder in accordance with its
terms; and
(b) the execution, delivery and performance by such Shareholder
of this Agreement and the consummation by such Shareholder of the transactions
contemplated hereby will not, with or without the giving of notice or lapse of
time, or both (A) violate any Applicable Law, or (B) conflict with, or result in
a breach or default under, any term or condition of any agreement or other
instrument to which such Shareholder is a party or by which such Shareholder is
bound, except for such violations, conflicts, breaches or defaults that would
not, in the aggregate, materially affect the Shareholder's ability to perform
its obligations hereunder.
(c) Such Shareholder owns beneficially and of record the number
of shares of Common Stock and Warrants as set forth on Schedule I.
22
<PAGE> 27
8.10 LEGENDS; STOP TRANSFER INSTRUCTIONS.
(a) Each certificate evidencing Shares (other than Existing
Shares) and each certificate issued in exchange for or upon the Transfer of any
Shares (other than Existing Shares) shall be stamped or otherwise imprinted with
a legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
SHAREHOLDERs AGREEMENT DATED AS OF DECEMBER , 1999, AMONG THE ISSUER OF SUCH
SECURITIES (THE "COMPANY") AND CERTAIN OF THE COMPANY'S SHAREholders. THE TERMS
OF SUCH SHAREholders AGREEMENT INCLUDE, AMONG OTHER THINGS, VOTING AGREEMENTS
AND RESTRICTIONS ON TRANSFERS. A COPY OF SUCH SHAREholders AGREEMENT WILL BE
FURNISHED WITHOUT CHARGE BY THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN
REQUEST."
The legend set forth above shall be removed from the certificates
evidencing any shares which cease to be Shares in accordance with the terms of
this Agreement.
(b) The Company agrees to give effect to the transfer
restrictions imposed by this Agreement by placing an "issuer hold" on the
Existing Shares owned by the Original Founder Shareholders and it will not
release such issuer hold except in respect of a transfer in compliance with this
Agreement. Each Original Founder Shareholder consents to the Company making a
notation on its records and giving instructions to any transfer agent of the
Existing Shares in order to implement the restrictions on transfer established
in this Agreement. The Company agrees to keep a copy of this Agreement (as it
may from time to time be amended) at its place of business and to make this
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. If any Original Founder Shareholder Transfers any
Existing Shares (other than in a Permitted Transfer) such Existing Shares will
be legended in accordance with Section 8.10(a) and this Section 8.10(b) shall no
longer apply to such transferred Existing Shares.
8.11 CONFLICTING AGREEMENTS.
No Shareholder shall enter into any agreements or arrangements of any
kind with any Person with respect to any Securities on terms inconsistent with
the provisions of this Agreement (whether or not such agreements or arrangements
are with other Shareholders or with Persons that are not parties to this
Agreement), including agreements or arrangements with respect to the acquisition
or disposition of Securities of the Company in a manner which is inconsistent
with this Agreement.
8.12 COUNTERPARTS; VALIDITY.
This Agreement may be executed in any number of counterparts, and each
such counterpart hereof shall be deemed to be an original instrument, but all
such counterparts together shall constitute but one agreement. The failure of
any Shareholder to execute this Agreement does not make it invalid as against
any other Shareholder.
23
<PAGE> 28
8.13 REGULATORY MATTERS.
(a) Each Shareholder agrees to cooperate with the Company in all
reasonable respects in complying with the terms and provisions of the Compliance
Sideletter, including without limitation, voting to approve amending the
Charter, By-laws or this Agreement in a manner reasonably acceptable to the
Shareholders and CB Capital or any Regulated Holder entitled to make such
request pursuant to the Compliance Sideletter in order to remedy a Regulatory
Problem. Anything contained in this Section 8.13 to the contrary
notwithstanding, no Shareholder shall be required under this Section 8.13 to
take any action that would adversely affect in any material respect such
Shareholder's rights under this Agreement, the Charter or the By-laws or as a
shareholder of the Company.
(b) The Company will notify each Shareholder not later than 5
Business Days prior to the effective date thereof of all of the material terms
of any proposed amendment of the Charter or the By-laws. CB Capital agrees to
notify the Company as to whether or not it would have a Regulatory Problem
promptly after CB Capital has notice of any proposed amendment or waiver.
8.14 CONSENT OF SPOUSES.
If requested by the Company or Requisite Investors, each Shareholder
who is an individual shall cause his or her spouse, as applicable to execute and
deliver a separate consent and agreement substantially in the form attached
hereto as Exhibit B and otherwise in form and substance reasonably acceptable to
the Company and the Requisite Investors (a "SPOUSAL CONSENT"). The signature of
a spouse on a Spousal Consent shall not be construed as making such spouse a
shareholder of the Company or a party to this Agreement except as may otherwise
be set forth in such consent. Each Shareholder who is an individual will certify
his or her marital status to the Company at the Company's request. The Company
or Requisite Investors will request Spousal Consents as contemplated by this
Section 8.14 whenever such action may be advantageous in enforcing (or assuring
the enforceability of in the future) the terms of this Agreement.
8.15 FIDUCIARY DUTIES.
Without limiting the generality of any other provision hereof, no
Original Founder Shareholder, while serving as a director of the Company, shall
be restricted from taking or omitting to take any action as a director to the
extent such action or omission is required to satisfy any fiduciary duty imposed
upon him as a director by applicable law in respect of his relationship to the
Company and its shareholders.
* * * * *
24
<PAGE> 29
IN WITNESS WHEREOF, the undersigned have duly executed this
Shareholders Agreement as of the date first written above.
COMPANY:
CARRIZO OIL & GAS, INC.
By: /s/ S. P. JOHNSON IV
---------------------------------------
Name: S. P. Johnson IV
Title:
INVESTORS:
CB CAPITAL INVESTORS, L.P.
By: /s/ CHRISTOPHER BEHRENS
---------------------------------------
Name: Christopher Behrens
Title: General Partner
MELLON VENTURES, L.P.
By: MVMA, L.P., its general partner
By: MVMA, Inc., its general partner
By: /s/ JOHN P. SHOEMAKER
-----------------------------
Name: John P. Shoemaker
Title: Managing Director
ORIGINAL FOUNDER SHAREHOLDERS:
/s/ S. P. JOHNSON IV
--------------------------------------
S. P. Johnson IV
/s/ FRANK A. WOJTEK
--------------------------------------
Frank A. Wojtek
<PAGE> 30
/s/ Steven A. Webster
--------------------------------------
Steven A. Webster
/s/ Douglas A.P. Hamilton
--------------------------------------
Douglas A.P. Hamilton
/s/ Paul B. Loyd, Jr.
--------------------------------------
Paul B. Loyd, Jr.
DAPHAM PARTNERSHIP, L.P.
By: /s/ Kenneth C. Huff
--------------------------------------
Name: Kenneth C. Huff
Title: General Partner
<PAGE> 31
SCHEDULE I
SHAREHOLDERS
<TABLE>
<CAPTION>
SHARES OF COMMON
NAME AND ADDRESS STOCK WARRANT SHARES
<S> <C> <C>
INVESTORS
CB Capital Investors, L.P. 2,909,092 2,208,152
c/o Chase Capital Partners
380 Madison Avenue, 12th Floor
New York, New York 10017
Telephone: (212) 622-3100
Telecopy: (212) 622-3101
Attn: Christopher C. Behrens
Dorian Faust
with a copy of notices to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
24th Floor
New York, New York 10112
Telephone: (212) 408-2400
Telecopy: (212) 728-5950
Attn: Frederick M. Bachman, Esq.
Mellon Ventures, L.P. 363,636 276,019
5 Radnor Corporate Center
100 Matsonford Road, Suite 170
Radnor, PA 19087
Attention: Marc A. Cole
Telephone: (610) 688-4758
Telecopier: (610) 688-3930
with a copy to:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103-2793
Telephone (215) 994-4000
Telecopier (215) 994-2222
Attention: David S. Denious
</TABLE>
<PAGE> 32
<TABLE>
<S> <C> <C>
ORIGINAL FOUNDER SHAREHOLDERS
S. P. Johnson IV 783,085 0
14811 St. Mary's Lane, Suite 148
Houston, TX 77079
Frank A. Wojtek 1,273,721 0
14811 St. Mary's Lane, Suite 148
Houston, TX 77079
Steven A. Webster 1,669,094 92,006
14811 St. Mary's Lane, Suite 148
Houston, TX 77079
Douglas A. P. Hamilton 922,010 92,006
14811 St. Mary's Lane, Suite 148
Houston, TX 77079
Paul B. Loyd, Jr. 1,550,468 92,006
14811 St. Mary's Lane, Suite 148
Houston, TX 77079
DAPHAM Partnership L.P. 610,432 0
7501 East Thompson Peak
Scottsdale, AZ 85255
</TABLE>
<PAGE> 33
EXHIBIT A
JOINDER AGREEMENT
The undersigned is executing and delivering this Joinder
Agreement pursuant to the Shareholders Agreement dated on or about December ,
1999 (the "Shareholders Agreement"), among Carrizo Oil & Gas, Inc., a Texas
corporation (the "Company"), and the Shareholders named therein.
By executing and delivering this Joinder Agreement to the
Company, the undersigned hereby agrees to become a party to, to be bound by, and
to comply with the provisions of [(i)] the Shareholders Agreements [and (ii) the
Registration Rights Agreement dated on or about December , 1999, among the
Company and the Investors named therein, in each case] in the same manner as if
the undersigned were an original signatory to [each of] such agreement[s]. In
connection therewith, effective as of the date hereof the undersigned hereby
makes the representations and warranties contained in Section 8.11 of the
Shareholders Agreement.
The undersigned agrees that he shall be a [Founder
Shareholder] [Investor], as such term is defined in the Shareholders Agreement.
Accordingly, the undersigned has executed and delivered this
Joinder Agreement as of the __ day of ____________, 199__.
------------------------------------------------
Signature of [Investor][Founder Shareholder]
------------------------------------------------
Print Name of [Investor][Founder Shareholder]
[Bracketed provisions applicable to Investors only.]
<PAGE> 34
EXHIBIT B
CONSENT AND AGREEMENT OF SPOUSE
I, ____________________________________________, am the spouse
of ________________________________________, one of the shareholders in Carrizo
Oil & Gas, Inc., a Texas corporation (the "Company"). I understand that my
spouse is a party to that certain Shareholders Agreement dated on or about
December , 1999 (as the same may hereafter be amended, the "Agreement"), among
the Company and certain of its shareholders, and that I have reviewed the
Agreement.
The Agreement contains certain provisions regarding my acquiring
or retaining any equity securities, or rights to received equity securities (the
"Securities") issued by the Company. I agree that I may not acquire any
Securities (whether by gift, purchase, will, intestate succession, operation of
law or decree, order or injunction of any court, division of community or
marital property, or otherwise), except in compliance with the terms of the
Agreement. I acknowledge and understand that if I ever propose to acquire any
Securities in compliance with the Agreement, I must first agree to become a
party to the Shareholders Agreement.
Executed this ____ day of ___________, 199_.
------------------------------------------------
Signature
------------------------------------------------
Print Name of Consenting Spouse
<PAGE> 1
EXHIBIT 99.3
EXECUTION COPY
================================================================================
WARRANT AGREEMENT
DATED AS OF DECEMBER 15, 1999
AMONG
CARRIZO OIL & GAS, INC.
AND
THE INITIAL WARRANT HOLDERS
LISTED ON SCHEDULE I HERETO
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I DEFINITIONS.............................................................................................1
1.1 DEFINITIONS.............................................................................................1
1.2 ACCOUNTING TERMS AND DETERMINATIONS.....................................................................6
ARTICLE II AUTHORIZATION AND ISSUANCE OF WARRANTS; RESERVATION OF WARRANT SHARES..................................7
2.1 AUTHORIZATION AND ISSUANCE OF WARRANTS..................................................................7
2.2 RESERVATION OF WARRANT SHARES...........................................................................7
ARTICLE III FORM; REGISTER; EXCHANGE FOR WARRANTS; TRANSFER.......................................................7
3.1 FORM OF WARRANT; REGISTER...............................................................................7
3.2 EXCHANGE OF WARRANTS FOR WARRANTS.......................................................................8
3.3 TRANSFER OF WARRANT.....................................................................................8
3.4 TRANSFER; LEGENDS.......................................................................................9
ARTICLE IV EXERCISE OF WARRANT; EXCHANGE FOR WARRANT SHARES.......................................................9
4.1 EXERCISE OF WARRANTS....................................................................................9
4.2 EXCHANGE FOR WARRANT SHARES.............................................................................9
4.3 ISSUANCE OF COMMON STOCK................................................................................9
ARTICLE V ADJUSTMENT OF EXERCISE PRICE AND SHARES................................................................12
5.1 GENERAL................................................................................................12
5.2 STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS.........................................................12
5.3 ISSUANCE OF COMMON STOCK...............................................................................12
5.4 DISTRIBUTION OF EQUITY SECURITIES......................................................................15
5.5 CAPITAL REORGANIZATION, CAPITAL RECLASSIFICATIONS, MERGER, ETC.........................................16
5.6 OTHER ACTIONS AFFECTING COMMON STOCK...................................................................16
5.7 MISCELLANEOUS..........................................................................................17
ARTICLE VI COVENANTS OF THE COMPANY..............................................................................19
6.1 NOTICES OF CERTAIN ACTIONS.............................................................................19
6.2 MERGER OR CONSOLIDATION OF THE COMPANY.................................................................20
ARTICLE VII MISCELLANEOUS........................................................................................20
7.1 NOTICES................................................................................................20
7.2 NO VOTING RIGHTS; LIMITATIONS OF LIABILITY.............................................................21
7.3 AMENDMENTS AND WAIVERS.................................................................................22
7.4 REMEDIES...............................................................................................22
7.5 BINDING EFFECT.........................................................................................22
7.6 COUNTERPARTS...........................................................................................23
7.7 GOVERNING LAW..........................................................................................23
7.8 BENEFITS OF THIS AGREEMENT.............................................................................23
7.9 HEADINGS...............................................................................................23
</TABLE>
-i-
<PAGE> 3
SCHEDULE I - Initial Warrant Holders
EXHIBIT A - Registration Rights Agreement
EXHIBIT B - Form of Warrant
-ii-
<PAGE> 4
EXECUTION COPY
WARRANT AGREEMENT dated as of
December 15, 1999, among CARRIZO OIL & GAS,
INC., a Texas corporation (the "COMPANY"),
and the initial warrant holders listed on
Schedule I hereto (the "INITIAL HOLDERS").
PREAMBLE
The Company is entering into a Securities Purchase Agreement
dated as of the date hereof with the Initial Holders (the "SECURITIES PURCHASE
AGREEMENT") pursuant to which the Company is issuing to the Initial Holders (i)
$22.0 million aggregate principal amount of its Senior Subordinated Notes due
2007 (the "NOTES"), (ii) 3,636,364 shares of the Company's common stock and
(iii) Warrants (as defined below) to purchase 2,760,189 shares of the Company's
common stock. In order to induce the Initial Holders to enter into the
Securities Purchase Agreement and to purchase the Notes, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company is willing to issue the Warrants to the Initial
Holders. This Agreement sets forth terms and conditions applicable to the
Warrants.
NOW, THEREFORE, the parties to this Agreement hereby agree as
follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS.
As used in this Agreement, the following terms shall have the following
meanings:
"AFFILIATE" means, with respect to any specified Person, any
other Person that directly or indirectly through one or more intermediaries
Controls, is Controlled by or is under common Control with such Person.
"ALLOCABLE NUMBER" has the meaning given to such term in
Section 4.2.
"APPLICABLE LAW" means all provisions of laws, statutes,
ordinances, rules, regulations, permits, certificates or orders of any
Governmental Authority applicable to the Person in question or any of its assets
or property, and all judgments, injunctions, orders and decrees of all courts
and arbitrators in proceedings or actions in which the Person in question is a
party or by which any of its assets or properties are bound.
"ASSIGNMENT FORM" means the assignment form attached as Annex
C to a Warrant.
"BOARD" means the board of directors of the Company.
<PAGE> 5
"BUSINESS DAY" means any day other than a Saturday, Sunday or
a day on which banks are authorized or required to be closed in New York, New
York or Houston, Texas; provided, however, that any determination of a Business
Day relating to a securities exchange or other securities market means a
Business Day on which such exchange or market is open for trading.
"CLOSING DATE" has the meaning given to such term in the
Securities Purchase Agreement.
"COMMISSION" means the Securities and Exchange Commission (or
a successor thereto).
"COMMON STOCK" means (i) the Common Stock, $.01 par value, of
the Company, and (ii) any other class of capital stock of the Company hereafter
authorized that is not limited to a fixed sum or percentage of par or stated or
liquidation value with respect to the rights of the holders thereof to
participate in dividends or in the distribution of assets upon any liquidation,
dissolution or winding up of the Company.
"COMPANY" has the meaning given to such term in the Preamble.
"COMPLIANCE SIDELETTER" has the meaning given to such term in
the Securities Purchase Agreement.
"CONTROL" means, with respect to any Person, the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of such Person, whether through the ownership of voting
securities, by contract or otherwise.
"CONVERTIBLE SECURITIES" has the meaning given to such term in
Section 5.3(b)(i).
"DELIVERY DATE" has the meaning given to such term in Section
4.3(a).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXCHANGE FORM" means the exchange form attached as Annex B to
a Warrant.
"EXERCISE FORM" means the exercise form attached as Annex A to
a Warrant.
"EXERCISE PRICE" means $2.20 per Warrant Share, subject to
adjustment from time to time in the manner provided in Article V.
"EXPIRATION TIME" means 5:00 p.m., Eastern time, on December
15, 2007.
"FULLY DILUTED BASIS" means, with respect to the Common Stock
at any time of determination, the number of shares of Common Stock that would be
issued and outstanding at such time, assuming full conversion, exercise and
exchange of all issued and outstanding Convertible Securities and Options that
shall be (or may become) exchangeable for, or exercisable or convertible into,
Common Stock, including the Warrants except that the number
- 2 -
<PAGE> 6
of shares of Common Stock outstanding on a Fully Diluted Basis shall not include
the number of shares of Common Stock issuable upon exercise, conversion or
exchange of Options or Convertible Securities that, at the time of
determination, are Out of the Money.
"GAAP" means generally accepted accounting principles in the
United States of America in effect from time to time.
"GOVERNMENTAL AUTHORITY" means any federal, state, municipal
or other government, governmental department, commission, board, bureau, agency
or instrumentality, or any court, in each case whether of the United States of
America or any political subdivision thereof, or of any other country.
"HOLDER" means with respect to any Warrant, the holder of such
Warrant as set forth in the Warrant Register.
"IRC" has the meaning given to such term in Section 2.2(b).
"MARKET PRICE" means, for any security as of any date of
determination:
(a) if such security is Publicly Traded as of the date of
determination, the price determined by computing the average, over a period
consisting of the most recent four (4) Business Days occurring on or prior to
the date of determination, of the applicable price set forth below (but
excluding any trades or quotations that are not bona fide, arm's length
transactions):
(i) the average of the closing prices for such security
on such Business Day on all domestic national securities exchanges
on which such security may be listed if such exchanges are the
primary securities markets for such security, or
(ii) if there have been no sales on any such exchange on
such Business Day, the average of the highest bid and lowest asked
prices on all such exchanges at the end of such Business Day if such
exchanges are the primary securities markets for such security, or
(iii) if on any Business Day such security is not so
listed, the closing sales price on such Business Day quoted on the
Nasdaq National Market or the Nasdaq Small-Cap Market, as
applicable, or if there have been no sales on the Nasdaq National
Market or the Nasdaq Small-Cap Market, as the case may be, on such
business day, the average of the highest bid and lowest asked prices
quoted on the Nasdaq National Market or the Nasdaq Small-Cap Market,
as the case may be;
(iv) if on any Business Day such security is not quoted
in the Nasdaq National Market or Nasdaq Small-Cap Market, the
average of the highest bid and lowest asked prices on such Business
Day in the domestic over-the-counter market as reported by the
National Quotation Bureau, Incorporated, or any similar successor
organization;
provided, that (1) for the purposes of any determination of the "Market Price"
of any share of a security on any day after the "ex" date or any similar date
for any dividend or distribution paid or to be paid with respect to such
security, any price of such security on a day prior to such "ex"
- 3 -
<PAGE> 7
date or similar date 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 (2) for the purposes of any determination of the
"Market Price" of any security on any day after (i) the effective day of any
subdivision (by stock split or otherwise) or combination (by reverse stock split
or otherwise) of outstanding securities or (ii) the "ex" date or any similar
date for any dividend or distribution with respect to such securities in shares
of that security, any price of such security on a day prior to such effective
date or "ex" date or similar date shall be appropriately adjusted to reflect
such subdivision, combination, dividend or distribution; and
(b) if such security is not Publicly Traded as of the date of
determination, (i) in the case of the Common Stock, the Market Value Per Share,
determined in accordance with the Valuation Procedure, and (ii) in the case of
any other security, the fair market value of one share or other applicable unit
of such security, determined in accordance with the Valuation Procedure, except
that if the Market Price of the Common Stock is being determined for purposes of
Section 4.3(c), such determination shall be made in good faith by the Board
exercising reasonable business judgment.
"MARKET VALUE" means the highest price that would be paid for
the entire common equity interest in the Company on a going-concern basis in a
single arm's-length transaction between a willing buyer and a willing seller
(neither acting under compulsion), using valuation techniques then prevailing in
the securities industry and assuming full disclosure of all relevant information
and a reasonable period of time for effectuating such sale. For the purposes of
determining the Market Value, (i) the exercise price of Options to acquire
Common Stock that are not Out of the Money shall be deemed to have been received
by the Company and (ii) the liquidation preference or indebtedness, as the case
may be, represented by Convertible Securities that are not Out of the Money
shall be deemed to have been eliminated or cancelled.
"MARKET VALUE PER SHARE" means the price per share of Common
Stock obtained by dividing (A) the Market Value by (B) the number of shares of
Common Stock outstanding (on a Fully Diluted Basis) at the time of
determination.
"NOTES" has the meaning given to such term in the Preamble.
"OPTIONS" has the meaning given to such term in Section
5.3(b)(i).
"OUT OF THE MONEY" means, at any date of determination (a) in
the case of an Option, that the aggregate fair market value as of such date of
the shares of Common Stock issuable upon the exercise of such Option is less
than the aggregate exercise price payable upon such exercise and (b) in the case
of a Convertible Security, that the quotient resulting from dividing the fair
market value as of such date of such Convertible Security by the number of
shares issuable as of such date upon conversion or exchange of such Convertible
Security is greater than the fair market value of a share of Common Stock.
"PERSON" shall be construed as broadly as possible and shall
include an individual or natural person, a partnership (including a limited
liability partnership), a corporation, an association, joint stock company, a
limited liability company, a trust, a joint venture, an unincorporated
organization and a Governmental Authority.
- 4 -
<PAGE> 8
"PUBLICLY TRADED" means, with respect to any security, that
such security is (a) listed on a domestic securities exchange, (b) quoted on the
Nasdaq National Market or the Nasdaq Small-Cap Market or (c) traded in the
domestic over-the-counter market, which trades are reported by the National
Quotation Bureau, Incorporated.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement dated as of the date hereof, substantially in the form of Exhibit A
hereto.
"REQUISITE HOLDERS" means, as of any date of determination,
Holders holding Warrants or Warrant Shares representing at least a majority of
the Warrant Shares (i) previously issued or (ii) issuable upon exercise of
Warrants then outstanding.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITIES PURCHASE AGREEMENT" has the meaning given to such
term in the Preamble.
"SHAREHOLDERS AGREEMENT" means the Shareholders Agreement
dated as of the date hereof among the Company and the shareholders of the
Company party thereto.
"SUBSIDIARY" means, with respect to any Person, any other
Person of which more than fifty percent (50%) of the shares of stock or other
interests entitled to vote in the election of directors or comparable Persons
performing similar functions (excluding shares or other interests entitled to
vote only upon the failure to pay dividends thereon or other contingencies) are
at the time owned or controlled, directly or indirectly through one or more
Subsidiaries, by such Person.
"TRANSFER" means any sale, transfer, assignment, or other
disposition of any interest in, with or without consideration, any security,
including any disposition of any security or of any interest therein which would
constitute a sale thereof within the meaning of the Securities Act.
"VALUATION PROCEDURE" means, with respect to the determination
of any amount or value required to be determined in accordance with such
procedure (the "VALUATION AMOUNT"), a determination (which shall be final and
binding on the Company and the Holders) made (i) by agreement among the Company
and the Requisite Holders within thirty (30) days following the event requiring
such determination or (ii) in the absence of such an agreement, by an Appraiser
(as defined below) selected in accordance with the further provisions of this
definition. If the Board and the Requisite Holders are unable to agree upon an
acceptable Appraiser within ten (10) days after the date either party proposed
that one be selected, the Appraiser will be selected by an arbitrator located in
New York City, New York, selected by the American Arbitration Association (or if
such organization ceases to exist, the arbitrator shall be chosen by a court of
competent jurisdiction). The arbitrator shall select the Appraiser (within ten
(10) days of his appointment) from a list, jointly prepared by the Board and the
Requisite Holders, of not more than six Appraisers of national standing in the
United States, of which no more than three may be named by the Board and no more
than three may be named by the Requisite Holders. The arbitrator may consider,
within the ten-day period allotted, arguments from the parties regarding which
Appraiser to choose, but the selection by the arbitrator shall be
- 5 -
<PAGE> 9
made in its sole discretion from the list of six. The Board and the Requisite
Holders shall submit to the Appraiser their respective determinations of the
valuation amount, and any supporting arguments and other data as they may
desire, within ten (10) days of the appointment of the Appraiser, and the
Appraiser shall as soon as practicable thereafter make its own determination of
the valuation amount. The final valuation amount for purposes hereof shall be
the average of the two valuation amounts closest together, as determined by the
Appraiser, from among the valuation amounts submitted by the Board (the
"COMPANY'S VALUATION") and the Requisite Holders (the "HOLDERS' VALUATION") and
the valuation amount calculated by the Appraiser. The fees and expenses of the
Appraiser and arbitrator (if any) used to determine the valuation amount shall
be (i) paid by the Company if the Company's Valuation is not used to determine
the average in the preceding sentence, (ii) paid by the Holders if the Holders'
Valuation is not used to determine the average in the preceding sentence or
(iii) borne equally by the Company and the Holders if the Company's Valuation
and the Holders' Valuation are both used to determine the average in the
preceding sentence. If required by any Appraiser or arbitrator, the Company
shall execute a retainer and engagement letter containing reasonable terms and
conditions, including, without limitation, customary provisions concerning the
rights of indemnification and contribution by the Company in favor of such
Company or arbitrator and its officers, directors, partners, employees, agents
and Affiliates. As used herein, "APPRAISER" means (a) with respect to a
determination of Market Value or the fair market value of any security, an
investment banking firm and (b) with respect to a determination of other
valuation required hereunder, a firm of the type generally considered to be
qualified in making determinations of the type required.
"WARRANT" has the meaning given to such term in Section
3.1(a).
"WARRANT REGISTER" has the meaning given to such term in
Section 3.1(b).
"WARRANT SHARES" means (a) the shares of Common Stock issued
or issuable upon exercise of a Warrant in accordance with Section 4.1 or upon
exchange of a Warrant in accordance with Section 4.2, (b) all other securities
or other property issued or issuable upon any such exercise or exchange in
accordance with this Agreement and (c) any securities of the Company distributed
with respect to the securities referred to in the preceding clauses (a) and (b).
As used in this Agreement, the phrase "WARRANT SHARES THEN HELD" by any Holder
or Holders means Warrant Shares held at the time of determination by such Holder
or Holders and Warrant Shares issuable upon exercise of Warrants held at the
time of determination by such Holder or Holders.
1.2 ACCOUNTING TERMS AND DETERMINATIONS.
Except as otherwise may be expressly provided herein, all accounting
terms used herein shall be interpreted, and all financial statements and
certificates and reports as to financial matters required to be delivered to the
Holders hereunder and under the Warrants shall be prepared, in accordance with
GAAP. All calculations made for the purposes of determining compliance with the
terms of this Agreement and the Warrants shall (except as otherwise may be
expressly provided herein) be made by application of GAAP.
- 6 -
<PAGE> 10
ARTICLE II
AUTHORIZATION AND ISSUANCE OF WARRANTS; RESERVATION OF
WARRANT SHARES
2.1 AUTHORIZATION AND ISSUANCE OF WARRANTS.
The Company has authorized the issuance of the Warrants to the Initial
Holders pursuant to the terms of the Securities Purchase Agreement.
2.2 RESERVATION OF WARRANT SHARES.
The Company has authorized the issuance of such number of shares of
Common Stock as shall be necessary to permit the Company to comply with its
obligations, as of the date hereof, to issue Warrant Shares pursuant to the
Warrants. The Company will at all times have authorized, and reserve and keep
available, free from preemptive or similar rights, for the purpose of enabling
it to satisfy any obligation to issue Warrant Shares upon the exercise or
exchange of each Warrant, the number of authorized but unissued Warrant Shares
issuable upon exercise or exchange of all outstanding Warrants. The Company
shall as promptly as necessary take all actions necessary to ensure that Warrant
Shares shall be duly authorized and, when issued upon exercise or exchange of
any Warrant in accordance with the terms hereof, shall be validly issued, fully
paid and non-assessable, free and clear of all liens, security interests,
charges and other encumbrances or restrictions on sale (except to the extent of
any applicable provisions set forth in this Agreement, the Shareholders'
Agreement and the Registration Rights Agreement) and free and clear of all
preemptive or similar rights.
ARTICLE III
FORM; REGISTER; EXCHANGE FOR WARRANTS; TRANSFER
3.1 FORM OF WARRANT; REGISTER.
(a) Form. Each Warrant issued hereunder shall be in the form of
Exhibit B (each, a "WARRANT") and shall be executed on behalf of the Company by
its Chairman or its Chief Executive Officer and by its Chief Financial Officer,
its Treasurer or its Assistant Treasurer, except that a Warrant need not bear
any legend appearing on the first page of such form from and after such time as
all the restrictions to which such legend relates no longer apply. Upon initial
issuance, each Warrant shall be dated as of the date of signature thereof by the
Company.
(b) Register. Each Warrant issued, exchanged or transferred
hereunder shall be registered in a warrant register (the "WARRANT REGISTER").
The Warrant Register shall set forth the number of each Warrant, the name and
address of the Holder thereof and the original number of Warrant Shares
purchasable upon the exercise thereof. The Warrant Register will be maintained
by the Company and will be available for inspection by any Holder at the
principal office of the Company or such other location as the Company may
designate to the Holders in the manner set forth in Section 8.1. The Company
shall be entitled to treat the Holder of any
- 7 -
<PAGE> 11
Warrant as the owner in fact thereof for all purposes and shall not be bound to
recognize any equitable or other claim to or interest in such Warrant on the
part of any other Person.
3.2 EXCHANGE OF WARRANTS FOR WARRANTS.
(a) Exchange. The Holder may exchange any Warrant or Warrants
issued hereunder for another Warrant or Warrants of like kind and tenor
representing in the aggregate the right to purchase the same number of Warrant
Shares that could be purchased pursuant to the Warrant or Warrants being so
exchanged. In order to effect an exchange permitted by this Section 3.2, the
Holder shall deliver to the Company such Warrant or Warrants accompanied by a
written request signed by the Holder thereof specifying the number and
denominations of Warrants to be issued in such exchange and the names in which
such Warrants are to be issued. As promptly as practicable but in any event
within ten (10) Business Days of receipt of such a request, the Company shall,
without charge, issue, register and deliver to the Holder thereof each Warrant
to be issued in such exchange.
(b) Replacement. Upon receipt of evidence reasonably
satisfactory to the Company (an affidavit of the Holder being satisfactory) of
the ownership and the loss, theft, destruction or mutilation of any Warrant, and
in the case of any such loss, theft or destruction, upon receipt of an indemnity
reasonably satisfactory to the Company (if the Holder is a financial institution
or other institutional investor, its own agreement being satisfactory) or, in
the case of any such mutilation, upon surrender of such Warrant, the Company
shall, without charge, issue register and deliver in lieu of such Warrant a new
Warrant of like kind representing the same rights represented by and dated the
date of such lost, stolen, destroyed or mutilated Warrant. Any such new Warrant
shall constitute an original contractual obligation of the Company, whether or
not the allegedly lost, stolen, mutilated or destroyed Warrant shall be at any
time enforceable by any Person.
(c) Expenses. The Company shall pay all expenses and taxes
(other than any applicable income or similar taxes payable by a Holder of a
Warrant) attributable to an exchange of a Warrant pursuant to this Section 3.2;
provided, however, that the Company shall not be required to pay any tax that
may be payable in respect of any transfer involved in the issuance of any
Warrant in a name other than that of the Holder of the Warrant being exchanged.
3.3 TRANSFER OF WARRANT.
Subject to the provisions of the Securities Purchase Agreement
(including, without limitation, Section 10 thereof), each Warrant may be
transferred, in whole or in part, to an "accredited investor", as such term is
defined in Rule 501(a) promulgated pursuant to the Securities Act, by the Holder
thereof by delivering to the Company such Warrant accompanied by a properly
completed, duly executed, Assignment Form; provided, however, that no Warrant
may be transferred to a Competitor (as defined in the Shareholders Agreement).
As promptly as practicable but in any event within ten (10) Business Days of
receipt of such Assignment Form, the Company shall, without charge, issue,
register and deliver to the Holder thereof a new Warrant or Warrants of like
kind and tenor representing in the aggregate the right to purchase the same
number of Warrant Shares that could be purchased pursuant to the Warrant being
transferred. In all cases of transfer by an attorney, the original power of
attorney, duly approved,
- 8 -
<PAGE> 12
or a copy thereof, duly certified, shall be deposited and remain with the
Company. In case of transfer by executors, administrators, guardians or other
legal representatives, duly authenticated evidence of their authority shall be
produced and may be required to be deposited and remain with the Company in its
discretion. The Company shall not be liable for complying with a request by a
fiduciary or nominee of a fiduciary to register a transfer of any Warrant which
is registered in the name of such fiduciary or nominee, unless made with the
actual knowledge that such fiduciary or nominee is committing a breach of trust
in requesting such registration of transfer, or with knowledge of such facts
that the Company's participation therein amounts to bad faith.
3.4 TRANSFER; LEGENDS.
The provisions of Article X of the Purchase Agreement shall apply to
the Warrants and the Warrant Shares.
ARTICLE IV
EXERCISE OF WARRANT; EXCHANGE FOR WARRANT SHARES
4.1 EXERCISE OF WARRANTS.
On any Business Day on or prior to the Expiration Time, a Holder may
exercise a Warrant, in whole or in part, by delivering to the Company such
Warrant accompanied by a properly completed Exercise Form and a certified or
bank check or wire transfer in an aggregate amount equal to the product obtained
by multiplying (a) the Exercise Price times (b) the number of Warrant Shares
being purchased. Any partial exercise of a Warrant shall be for a whole number
of Warrant Shares only.
4.2 EXCHANGE FOR WARRANT SHARES.
On any Business Day on or prior to the Expiration Time, a Holder may
exchange a Warrant, in whole or in part, for Warrant Shares by delivering to the
Company such Warrant accompanied by a properly completed Exchange Form. The
number of shares of Common Stock to be received by a Holder upon such exchange
shall be equal to (a) the number of Warrant Shares allocable to the portion of
the Warrant being exchanged (the "ALLOCABLE NUMBER"), as specified by such
Holder in the Exchange Form less (b) the number of shares equal to the quotient
obtained by dividing (i) the product obtained by multiplying (A) the Exercise
Price times (B) the Allocable Number by (ii) the Market Price as of the Delivery
Date (as defined below). The Allocable Number need not be a whole number, but in
the case of any partial exchange of a Warrant under this Section 4.2, the
Allocable Number shall be determined so that the number of Warrant Shares to be
issued in such exchange shall be a whole number only.
4.3 ISSUANCE OF COMMON STOCK.
(a) Issuance of Common Stock. As promptly as practicable but in
any event within ten (10) Business Days following the delivery date (the
"DELIVERY DATE") of (i) an Exercise Form or Exchange Form in accordance with
Section 4.1 or 4.2, (ii) the related Warrant and (iii) any required payment of
the Exercise Price, the Company shall, without charge, issue,
- 9 -
<PAGE> 13
register and deliver one or more stock certificates representing the aggregate
number of shares of Common Stock to which the Holder of such Warrant is entitled
and, upon compliance with the applicable provisions of this Warrant Agreement
and the Securities Purchase Agreement, transfer to such Holder appropriate
evidence of ownership of other securities or property (including any cash) to
which such Holder is entitled, in such denominations, and registered or
otherwise placed in, or payable to the order of, such name or names, as may be
directed in writing by such Holder. The Company shall deliver such stock
certificates, evidence of ownership and any other securities or property
(including any cash) to the Person or Persons entitled to receive the same,
together with an amount in cash in lieu of any fraction of a share (or
fractional interest in any other security), as hereinafter provided.
(b) Partial Exercise or Exchange. If a Holder shall exercise or
exchange a Warrant for less than all of the Warrant Shares that could be
purchased or received thereunder, the Company shall issue, register and deliver
to the Holder, as promptly as practicable but in any event within ten (10)
Business Days of the Delivery Date, a new Warrant evidencing the right to
purchase the remaining Warrant Shares. In the case of an exchange pursuant to
Section 4.2, the number of remaining Warrant Shares shall be the original number
of Warrant Shares subject to the Warrant so exchanged reduced by the Allocable
Number. Each Warrant surrendered pursuant to Section 4.1 or 4.2 shall be
canceled.
(c) Fractional Shares. The Company shall not be required to
issue fractional shares of Common Stock or fractional units of any other
security upon the exercise or exchange of a Warrant. If any fraction of a share
of Common Stock or fractional unit of any other security would be issuable on
the exercise or exchange of any Warrant, the Company may, in lieu of issuing
such fractional share or unit, pay to such Holder for any such fraction an
amount in cash equal to the product obtained by multiplying (i) such fraction
times (ii) the Market Price for the Common Stock or for a unit of such other
security, as the case may be, as of the Delivery Date.
(d) Expenses. The Company shall pay all expenses and taxes
(other than any applicable income or similar taxes payable by a Holder of a
Warrant) attributable to the initial issuance of Warrant Shares upon the
exercise or exchange of a Warrant; provided, however, that the Company shall not
be required to pay any tax that may be payable in respect of any transfer
involved in the issuance of any Warrant or any certificate for, or any other
evidence of ownership of, Warrant Shares in a name other than that of the Holder
of the Warrant being exercised or exchanged.
(e) Record Ownership. To the extent permitted by Applicable Law,
the Person in whose name any certificate for shares of Common Stock or other
evidence of ownership of any other security is issued upon exercise or exchange
of a Warrant shall for all purposes be deemed to have become the holder of
record of such shares or other security on the Delivery Date, irrespective of
the date of delivery of such certificate or other evidence of ownership
(subject, in the case of any exercise to which Section 4.3(h) applies, to the
consummation of a transaction upon which such exercise is conditioned),
notwithstanding that the transfer books of the Company shall then be closed or
that such certificates or other evidence of ownership shall not then actually
have been delivered to such Person.
- 10 -
<PAGE> 14
(f) Approvals. If any securities constituting Warrant Shares or
any portion thereof to be issued upon exercise or exchange of a Warrant require
registration or approval under any Applicable Law or require listing on any
national securities exchange or quotation systems before such securities may be
so issued, the Company will as expeditiously as possible cause such securities
to be registered, approved or listed, as applicable. The Company may suspend the
exercise of any Warrant so affected for the period during which such
registration, approval or listing is required but not in effect.
(g) Quotation. The Company shall have the Warrant Shares listed
for quotation on The Nasdaq National Market on or before 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 such shares on or before the Closing Date. The Company shall maintain the
designation or quotation, or listing, of its Common Stock on the Nasdaq National
Market (or on the New York Stock Exchange or the American Stock Exchange) or the
Nasdaq Small-Cap Market (if the Common Stock becomes ineligible for quotation on
the Nasdaq National Market) until the date on which none of the Warrants or
Warrant Shares remain outstanding, unless the Company fails to maintain the
criteria or other standards for such designation, listing or quotation;
provided, however, that the Company shall use its reasonable best efforts to
maintain any such designation, listing or quotation.
(h) Conditional Exercise or Exchange. Any Exercise Form or
Exchange Form delivered under Section 4.1 or 4.2 may condition the exercise or
exchange of any Warrant on the consummation of a transaction being undertaken by
the Company or the Holder of such Warrant, and such exercise or exchange shall
not be deemed to have occurred except concurrently with the consummation of such
transaction, except that, for purposes of determining whether such exercise or
exchange is timely it shall be deemed to have occurred on the Delivery Date. If
any exercise of a Warrant is so conditioned, then, subject to delivery of the
items required by Section 4.3(a) and compliance with the other terms hereof, the
Company shall deliver the certificates and other evidence of ownership of other
securities or other property in such manner as such Holder shall direct as
required in connection with the consummation such transaction upon which the
exercise is conditioned. At any time that such Holder shall give notice to the
Company that such transaction has been abandoned or such Holder has withdrawn
from participation in such transaction, the Company shall return the items
delivered pursuant to Section 4.3(a), and such Holder's election to exercise
such Warrant shall be deemed rescinded.
(i) Regulatory Problem. No Holder shall exercise or exchange any
Warrant for shares of Common Stock if, after giving effect to such exercise,
such Holder reasonably determines that such exercise would cause such Holder and
its Affiliates to have a Regulatory Problem (as defined in the Compliance
Sideletter).
- 11 -
<PAGE> 15
ARTICLE V
ADJUSTMENT OF EXERCISE PRICE AND SHARES.
5.1 GENERAL.
The Exercise Price and the number and kind of Warrant Shares issuable
upon exercise of each Warrant shall be subject to adjustment from time to time
in accordance with this Article V.
5.2 STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS.
If, at any time after the Closing Date, the Company shall:
(i) pay a dividend in shares of Common Stock or make a
distribution in shares of Common Stock; or
(ii) subdivide, split or reclassify its outstanding
shares of Common Stock into a larger number of shares of Common Stock;
or
(iii) combine its outstanding shares of Common Stock
into a smaller number of shares of Common Stock;
then (A) the number of Warrant Shares issuable upon exercise of each Warrant
shall be adjusted so as to equal the number of Warrant Shares that the Holder of
such Warrant would have held immediately after the occurrence of such event if
the Holder had exercised such Warrant immediately prior to the occurrence of
such event and (B) the Exercise Price shall be adjusted to be equal to (x) the
Exercise Price immediately prior to the occurrence of such event multiplied by
(y) a fraction (1) the numerator of which is the number of Warrant Shares
issuable upon exercise of this Warrant immediately prior to the adjustment in
clause (A) and (2) the denominator of which is the number of Warrant Shares
issuable upon exercise of this Warrant immediately after the adjustment in
clause (A). An adjustment made pursuant to this Section 5.2 shall become
effective immediately after the occurrence of such event retroactive to the
record date, if any, for such event.
5.3 ISSUANCE OF COMMON STOCK.
(a) General. If, at any time after the Closing Date, the Company
shall issue or sell (or, in accordance with Section 5.3(b), shall be deemed to
have issued or sold) any shares of Common Stock (other than any issuance for
which an adjustment is made pursuant to Section 5.2 or 5.5) without
consideration or for a consideration per share less than the Market Price for
the Common Stock determined as of the date of such issuance or sale, then,
effective immediately upon such issuance or sale, the Exercise Price and the
number Warrant Shares issuable upon exercise of each Warrant shall be adjusted
as follows:
(i) The Exercise Price shall be reduced to an amount
equal to the product obtained by multiplying (A) the Exercise Price in
effect immediately prior to such issuance or sale times (B) a fraction,
(I) the numerator of which shall be the sum of (x) the product of (1)
the number of shares of Common Stock outstanding (on a Fully
- 12 -
<PAGE> 16
Diluted Basis) immediately prior to such issuance or sale times (2) the
Market Price for the Common Stock as of the date of such issuance or
sale plus (y) the consideration, if any, received by the Company upon
such issuance or sale, and (II) the denominator of which shall be the
product of (x) the number of shares of Common Stock outstanding (on a
Fully Diluted Basis) immediately after such issuance or sale times (y)
such Market Price.
(ii) The number of Warrant Shares issuable upon exercise
of such Warrant shall be increased to the number of shares determined
by multiplying (A) the number of Warrant Shares issuable upon exercise
of such Warrant immediately prior to such issuance or sale by (B) a
fraction, (1) the numerator of which shall be the Exercise Price in
effect immediately prior to the adjustment in clause (i) of this
Section 5.3(a), and (2) the denominator of which shall be the Exercise
Price in effect immediately after such adjustment.
(b) Issuance of Options or Convertible Securities. The issuance
or sale of Options or Convertible Securities shall be deemed, in accordance with
this Section 5.3(b), to be the issuance of Common Stock.
(i) Definitions. For the purposes of this Section
5.3(b), the term "OPTIONS" means any warrants, options or other rights
to subscribe for or to purchase (A) Common Stock or (B) Convertible
Securities, and the term "CONVERTIBLE SECURITIES" means any capital
stock, evidence of indebtedness or other securities or rights
convertible into or exchangeable for Common Stock.
(ii) Issuance of Options. If the Company in any manner
issues or grants any Options, then the total maximum number of shares
of Common Stock issuable upon the exercise of such Options (or upon
conversion or exchange of the total maximum amount of Convertible
Securities issuable upon the exercise of such Options) shall be deemed,
for purposes of Section 5.3(a), to be outstanding and to have been
issued and sold by the Company. For purposes of Section 5.3(a), the
Common Stock issuable upon exercise of Options or upon conversion or
exchange of Convertible Securities issuable upon exercise of Options
for Convertible Securities shall be deemed to have been issued and sold
at a price per share equal to (A) the sum of (x) the total amount, if
any, received or receivable by the Company as consideration for the
issuance or granting of such Options plus (y) the minimum aggregate
amount of additional consideration payable to the Company upon the
exercise of all such Options plus (z) in the case of such Options for
Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable to the Company upon issuance or sale of
such Convertible Securities and the conversion or exchange thereof
divided by (B) the total maximum number of shares of Common Stock
issuable upon exercise of such Options or upon the conversion or
exchange of all such Convertible Securities issuable upon the exercise
of such Options.
(iii) Issuance of Convertible Securities. If the Company
in any manner issues or sells any Convertible Securities, then the
maximum number of shares of Common Stock issuable upon the conversion
or exchange of such Convertible Securities shall be deemed, for
purposes of Section 5.3(a) to be outstanding and to have been issued
- 13 -
<PAGE> 17
and sold by the Company. For purposes of Section 5.3(a), the Common
Stock issuable upon conversion or exchange of Convertible Securities
shall be deemed to have been issued and sold at a price per share equal
to (A) the sum of (x) the total amount received or receivable by the
Company as consideration for the issuance or sale of such Convertible
Securities plus (y) the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the conversion or
exchange thereof divided by (B) the total maximum number of shares of
Common Stock issuable upon the conversion or exchange of all such
Convertible Securities.
(iv) Superseding Adjustment. To the extent the Warrants
have not been exercised, if, at any time after any adjustment of the
Exercise Price and the number of Warrant Shares issuable upon exercise
of the Warrants shall have been made pursuant to Section 5.3(a) as a
result of the issuance of Options or Convertible Securities, or after
any new adjustment of the Exercise Price and the number of Warrant
Shares shall have been made pursuant to this Section 5.3(b)(iv) (each
of the foregoing, a "PREVIOUS ADJUSTMENT"):
(A) such Options or the right of conversion or
exchange of such Convertible Securities shall expire, or be
terminated or surrendered, and all or a portion of such
Options or the right of conversion or exchange with respect to
all or a portion of such Convertible Securities, as the case
may be, shall not have been exercised or treated as having
been exercised or otherwise canceled or acquired by the
Company in connection with any settlement, including any cash
settlement, of such Options or the rights of conversion or
exchange of such Convertible Securities; or
(B) there has been any change in the number of shares
of Common Stock issuable upon the exercise of such Options or
upon the conversion or exchange of such Convertible Securities
(including as a result of a change in the number of
Convertible Securities issuable upon the exercise of such
Options or the operation of antidilution provisions applicable
thereto); or
(C) the consideration per share for which shares of
Common Stock are issuable upon the exercise of such Options or
upon the conversion or exchange of such Convertible
Securities, or the maturity of such Convertible Securities,
shall be changed;
then the previous adjustment shall be rescinded and annulled
and the shares of Common Stock which were deemed to have been
issued and that gave rise to the previous adjustment shall no
longer be deemed to have been issued. Thereupon, a
recomputation shall be made of the adjustment, if any, of the
Exercise Price and the number of Warrant Shares issuable upon
exercise of the Warrants as a consequence of such Options or
Convertible Securities on the basis of:
(D) treating the number of shares of Common Stock, if
any, theretofore actually issued or issuable pursuant to the
previous exercise of such Options or such right of conversion
or exchange (including Options or rights
- 14 -
<PAGE> 18
treated as exercised, otherwise cancelled or acquired in
connection with any settlement), as having been issued on the
date or dates of such issuance as determined for purposes of
the previous adjustment and for the total amount of
consideration actually received and receivable therefor
(determined in the manner described in Section 5.3(b)(ii) or
(iii), as the case may be);
(E) treating the maximum number of shares of Common
Stock (1) issuable upon the exercise (or upon the conversion
or exchange of Convertible Securities issuable upon the
exercise) of all Options which then remain outstanding and (2)
issuable upon the conversion or exchange of all Convertible
Securities which then remain outstanding, as having been
issued; and
(F) making the computations called for in Section
5.3(a) hereof on the basis of the revised terms of such
outstanding Options or Convertible Securities, as the case may
be, as if they were newly issued at the time of such revision.
Any adjustment of the Exercise Price and the number of Warrant Shares issuable
upon exercise of the Warrants resulting from such recomputation shall supersede
the previous adjustment.
(v) No Further Adjustments. Any adjustment of the
Exercise Price or the number of Warrant Shares issuable upon the
exercise of Warrants to be made pursuant to this Section 5.3 with
respect to the issuance of (A) any Options (whether for Common Stock or
Convertible Securities), (B) any Convertible Securities issuable upon
the exercise of such Options or (C) any shares of Common Stock issuable
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities shall be made effective upon the issuance of
such Options. Any adjustment of the Exercise Price or the number of
Warrant Shares issuable upon the exercise of Warrants to be made
pursuant to this Section 5.3 with respect to the issuance of (x) any
Convertible Securities (other than Convertible Securities issuable upon
the exercise of Options) or (y) any shares of Common Stock issuable
upon the conversion or exchange of such Convertible Securities shall be
made effective upon the issuance of such Convertible Securities. No
further adjustment of the Exercise Price or the number of Warrant
Shares issuable upon the exercise of Warrants shall be made upon the
actual issuance of Common Stock or of Convertible Securities upon the
exercise of such Options or upon the actual issuance of Common Stock
upon conversion or exchange of Convertible Securities.
5.4 DISTRIBUTION OF EQUITY SECURITIES.
If, at any time after the Closing Date, the Company shall distribute
any of its equity securities or rights to acquire equity securities (other than
Common Stock or Options) to holders of Common Stock on a pro rata basis, then
the Company shall cause effective provision to be made so that, effective as of
the effective date of such event retroactive to the record date, if any, of such
event, each Warrant shall, upon the basis and upon the terms and conditions
specified in this Warrant, in addition to the Warrant Shares immediately
theretofore purchasable and receivable upon the exercise of this Warrant, be
exercisable for the kind and number of shares or other units of equity
securities or rights to acquire equity securities to which a holder of the
- 15 -
<PAGE> 19
number of Warrant Shares issuable upon exercise of such Warrant would have been
entitled has such Warrant been exercised immediately prior to the record date of
such event. In any such case, if necessary, the provisions of this Agreement and
the Warrants with respect to the rights and interests thereafter of the Holders
of the Warrants shall be appropriately adjusted so as to be applicable, as
nearly as may reasonably be, to any shares or other units of equity securities
or rights to acquire equity securities thereafter deliverable upon the exercise
of the Warrants.
5.5 CAPITAL REORGANIZATION, CAPITAL RECLASSIFICATIONS, MERGER, ETC.
If, at any time after the Closing Date, there shall be (i) any capital
reorganization or any reclassification of the capital stock of the Company
(other than a change in par value or from par value to no par value or from no
par value to par value or as a result of a stock dividend or subdivision,
split-up or combination of shares to which Section 5.2 applies or any
distribution to which Section 5.4 applies), (ii) any consolidation, merger or
business combination of the Company with another Person or (iii) any sale or
conveyance by the Company of all or substantially all of its assets or property
to, another Person, then in each case the transaction 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 the shares of the Common Stock and the Company shall cause
effective provision to be made so that each Warrant shall, upon the basis and
upon the terms and conditions specified in this Warrant in lieu of the Warrant
Shares immediately theretofore purchasable and receivable upon the exercise of
this Warrant, effective as of the effective date of such event retroactive to
the record date, if any, of such event, be exercisable for the kind and number
of shares of stock, other securities, cash or other property to which a holder
of the number of Warrant Shares issuable upon exercise of such Warrant would
have been entitled upon such event. In any such case, if necessary, the
provisions of this Agreement and the Warrants with respect to the rights and
interests thereafter of the Holders of the Warrants shall be appropriately
adjusted so as to be applicable, as nearly as may reasonably be, to any shares
of stock, other securities, cash or other property thereafter deliverable upon
the exercise of the Warrants.
5.6 OTHER ACTIONS AFFECTING COMMON STOCK.
(a) Equitable Equivalent. If at any time or from time to time
the Company shall take any action affecting its Common Stock, other than any
action of a type otherwise described in this Article V (whether or not such
action of a type otherwise described in this Article V results in an adjustment
to the Warrants), then the number of Warrant Shares issuable upon exercise of
each Warrant shall be adjusted to such extent, if any, and in such manner and at
such time, as the Board shall in good faith determine to be equitable in the
circumstances, provided that no such adjustment shall decrease the number of
Warrant Shares issuable upon exercise of such Warrant and provided, further,
that no adjustment shall be required for any cash dividends paid out of retained
earnings.
(b) No Avoidance. The Company will not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company; provided that
the Company shall not be deemed to be avoiding or seeking to avoid
- 16 -
<PAGE> 20
observance or performance if any action otherwise in compliance with this
Agreement is structured so as to avoid the need for, or to minimize the extent
of, any adjustment under this Article V. The Company shall at all times in good
faith assist in the carrying out of all the provisions of this Article V and in
the taking of all such action as may be necessary or appropriate in order to
protect the exercise rights of the Holders against impairment.
5.7 MISCELLANEOUS.
(a) Calculation of Consideration Received. If any Common Stock,
Options, Convertible Securities or Other Securities are issued or sold or deemed
to have been issued or sold for cash, then the consideration received therefor
shall be deemed to be the net amount received by the Company therefor. If any
Common Stock, Options, Convertible Securities or Other Securities are issued or
sold for consideration other than cash, then the amount of the consideration
other than cash received by the Company shall be the fair market value of such
consideration, as of the date of receipt, determined in accordance with the
Valuation Procedure.
(b) Treasury Shares. The number of shares of Common Stock
outstanding at any given time does not include shares owned or held by or for
the account of the Company or any Subsidiary, and the disposition of any shares
so owned or held shall be considered an issuance of Common Stock.
(c) Record Date. If the Company takes a record of the holders of
Common Stock for the purpose of entitling them (A) to receive a dividend or
other distribution payable in Common Stock, Options or Convertible Securities or
(B) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date shall be deemed to be the date of the issuance
or sale of the shares of Common Stock deemed to have been issued or sold upon
the declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be. If the Company shall take any such record of the holders of its Common Stock
and shall, thereafter and before the taking of the action for which such record
was taken, legally abandon its plan to take much action, then thereafter no
adjustment shall be required by reason of the taking of such record and any such
adjustment previously made in respect thereof shall be rescinded and annulled.
(d) Deferral of Issuance. In any case in which this Article V
shall require that any adjustment in the number of Warrant Shares purchasable
hereunder or in the Exercise Price be made effective as of immediately after a
record date for a specified event, the Company may elect to defer, until the
occurrence of such event, the issuing to the Holder of any Warrant exercised
after such record date of the shares of Common Stock and other capital stock of
the Company, if any, issuable upon such exercise over and above the number of
shares of Common Stock and other capital stock of the Company, if any, that
would have been issuable upon such exercise on the basis of the Exercise Price
in effect prior to such adjustment. In such case, the Company shall deliver to
the Holder a due bill or other appropriate instrument evidencing the Holder's
right to receive such additional shares upon the occurrence of the event
requiring such adjustment.
(e) Notice; Adjustment Rules. Whenever the Exercise Price and
the number of Warrant Shares shall be adjusted as provided in this Article V,
the Company shall provide to
- 17 -
<PAGE> 21
each Holder a statement, signed by the Chairman, the President or the Chief
Financial Officer of the Company, describing in detail the facts requiring such
adjustment and setting forth a calculation of the Exercise Price and the number
of Warrant Shares applicable to each Warrant after giving effect to such
adjustment. All calculations under this Article V shall be made to the nearest
one hundredth of a cent ($.0001) or to the nearest one-tenth of a share, as the
case may be. Adjustments pursuant to this Article V shall apply to successive
events or transactions of the types covered thereby. Notwithstanding any other
provision of this Article V, no adjustment shall be made to the number of shares
of Common Stock or to the Exercise Price if such adjustment represents less than
1% of the number of shares previously required to be so delivered, but any
lesser adjustment shall be carried forward and shall be made at the time and
together with the next subsequent adjustment which together with any adjustments
so carried forward shall amount to 1% or more of the number of shares to be so
delivered.
(f) Certain Adjustments. The Company may make such reductions in
the Exercise Price or increase in the number of Warrant Shares to be received by
any Holder upon the exercise or exchange of a Warrant, in addition to those
adjustments required by this Article V, as it in its sole discretion shall
determine to be advisable in order that any consolidation or subdivision of the
Common Stock, or any issuance wholly for cash of any shares of Common Stock, or
any issuance wholly for cash of shares of Common Stock or Convertible
Securities, or any stock dividend, or any issuance of Options hereinafter made
by the Company to the holders of its Common Stock shall not be taxable to such
holders.
(g) Excluded Issuances. Notwithstanding any other provision of
this Article V, no adjustment shall be made pursuant to Section 5.3 or 5.5 in
respect of (i) the issuance of Common Stock in an underwritten public offering
that is registered with the Commission, (ii) the issuance of Common Stock or
Options to purchase Common Stock issued to employees, officers or directors of
the Company or any Subsidiary, or the issuance of Common Stock upon the exercise
of any such Options, provided, however, that the aggregate amount of all such
Common Stock or Common Stock which may be acquired upon the exercise of such
Options shall not exceed 1,000,000 shares and equivalents (subject to pro rata
adjustment in the event of any stock dividend or distribution paid in shares of
Common Stock or any stock split or subdivision, reverse stock split or
combination or other similar pro rata recapitalization event affecting the
Common Stock)(other than issuances covered by clause (vi) below or by Section
5.3(b) for which the securities of Common Stock shall be deemed to have been
sold for a consideration per share less than the Market Price for the Common
Stock determined as of the date of the grant of such option (provided that any
options issued pursuant to the Company's stock option or Equity Incentive Plans
which are issued at fair market value in accordance with the terms of such Plan
shall also be deemed to be issued at or greater than Market Price for purposes
of this Section), (iii) the issuance from time to time of shares of Common Stock
upon the exercise of any of the Warrants, (iv) any exercise of the Warrants or
the warrants issued to affiliates of Enron Corp. on January 8, 1998, as amended
through the date hereof, (v) the issuance of Common Stock or Options in any
merger, share exchange, consolidation, liquidation or other business combination
required to be approved and actually approved by the requisite vote (being not
less than a majority based on voting power) of the shareholders of the Company
and (vi) securities issued upon exercise of conversion or exchange rights,
options or subscription calls, warrants, commitments or claims, provided that
the foregoing are issued and outstanding on the date hereof and are listed on
Schedule 4.19 of the Purchase Agreement.
- 18 -
<PAGE> 22
(h) Par Value. The Company shall not increase the par value of
any shares of Common Stock or other securities issuable upon the exercise of the
Warrants to an amount that exceeds the Exercise Price. Before taking any action
that would cause an adjustment pursuant to this Article V that would reduce the
Exercise Price below the par value per share of the Common Stock, the Company
shall be required to take any corporate action which may be necessary in order
that the Company may validly and legally issue fully paid and nonassessable
Warrant Shares at the Exercise Price as so adjusted.
(i) Shareholder Approval. The Company shall not enter into any
transaction which would result in an adjustment under this Article V that would
cause Warrants to become exercisable for a number of shares equal to or greater
than 2,075,000 shares of Common Stock at a price less than $1.73 per share of
Common Stock unless the shareholders of the Company have previously voted to
approve the issuance of the Warrants, the Warrant Shares and the Common Stock
included in the Purchased Securities (as defined in the Securities Purchase
Agreement) upon the terms of the Transaction Documents. The Company shall submit
such issuance as a matter to be approved by the shareholders at the Company's
first shareholders' meeting following the Closing Date.
ARTICLE VI
COVENANTS OF THE COMPANY
6.1 NOTICES OF CERTAIN ACTIONS.
In the event that the Company:
(a) shall authorize issuance to all holders of Common Stock of
rights or warrants to subscribe for or purchase capital stock of the Company or
of any other subscription rights or warrants; or
(b) shall authorize a dividend or other distribution to all
holders of Common Stock of evidences of its indebtedness, cash or other property
or assets; or
(c) becomes a party to any consolidation or merger for which
approval of any shareholders of the Company will be required, or to a conveyance
or transfer of the properties and assets of the Company substantially as an
entirety, or of any capital reorganization or reclassification or change of the
Common Stock (other than a change in par value, or from par value to no par
value, or from no par value to par value, or as a result of a subdivision or
combination); or
(d) commences a voluntary or involuntary dissolution,
liquidation or winding up; or
(e) takes any other action which would require an adjustment
pursuant to Article V;
then the Company shall provide a written notice to each Holder stating (i) the
date as of which the holders of record of Common Stock to be entitled to receive
any such rights, warrants or
- 19 -
<PAGE> 23
distribution are to be determined, (ii) the material terms of any such
consolidation or merger and the expected effective date thereof, or (iii) the
material terms of any such conveyance, transfer, dissolution, liquidation or
winding up is expected to become effective, and the date as of which it is
expected that holders of record of Common Stock will be entitled to exchange
their shares for securities or other property, if any, deliverable upon such
reclassification, conveyance, transfer, dissolution, liquidation or winding up.
Such notice shall be given not later than seven (7) Business Days prior to the
effective date (or the applicable record date, if earlier) of such event. The
failure to give the notice required by this Section 7.1 or any defect therein
shall not affect the legality or validity of any distribution, right, warrant,
consolidation, merger, conveyance, transfer, dissolution, liquidation or winding
up, or the vote upon any action.
6.2 MERGER OR CONSOLIDATION OF THE COMPANY.
The Company will not merge or consolidate with or into, or sell,
transfer or lease all or substantially all of its property (and such sale or
transfer of property is 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) to any other entity unless the successor or purchasing
entity expressly assumes, by supplemental agreement reasonably satisfactory in
form and substance to each Holder, the due and punctual performance and
observance of each and every covenant and condition of this Agreement to be
performed and observed by the Company; provided, however, that the initial
obligation of such successor with respect to the exercise or exchange of
Warrants shall be only as set forth in Section 5.5, and provided, further, that
if the successor or purchasing entity, as the case may be (if not the Company),
is not organized under the laws of the United States of America or any state or
political subdivision thereof and the Common Stock in such transaction is
converted into the right to receive securities of such entity, such securities
of such entity shall be marketable and freely tradeable.
ARTICLE VII
MISCELLANEOUS
7.1 NOTICES.
All notices, demands and requests of any kind to be delivered to any
party hereto in connection with this Agreement shall be in writing (i) delivered
personally, (ii) sent by nationally-recognized overnight courier, (iii) sent by
first class, registered or certified mail, return receipt requested or (iv) sent
by facsimile, in each case to such party at its address as follows:
- 20 -
<PAGE> 24
(a) if to the Company, to:
Carrizo Oil & Gas, Inc.
14811 St. Mary's Lane, Suite 148
Houston, Texas 77079
Attention:
Telephone No.: (281) 496-1352
Telecopier No.: (281) 496-1251
with a copy to:
Baker & Botts, L.L.P.
One Shell Plaza
910 Louisiana
Houston, Texas 77002-4915
Attention: Gene Oshman, Esq.
Telephone No.: (713) 229-1178
Telecopier No.: (713) 229-1522
(b) if to any Holder, to such Holder's address as set
forth on Schedule I hereto.
Any notice, demand or request so delivered shall constitute valid notice under
this Agreement and shall be deemed to have been received (i) on the day of
actual delivery in the case of personal delivery, if delivered on a Business Day
(otherwise on the next Business Day), (ii) on the next Business Day after the
date when sent in the case of delivery by nationally-recognized overnight
courier, (iii) on the fifth Business Day after the date of deposit in the U.S.
mail in the case of mailing or (iv) upon receipt in the case of a facsimile
transmission. Any party hereto may from time to time by notice in writing served
upon the other as aforesaid designate a different mailing address or a different
Person to which all such notices, demands or requests thereafter are to be
addressed.
7.2 NO VOTING RIGHTS; LIMITATIONS OF LIABILITY.
No Warrant shall entitle the holder thereof to any rights as a
shareholder of the Company, as such, including, without limitation, voting
rights, the right to call meetings, consent or receive notices as a shareholder
in respect of any meeting or to the benefit of any fiduciary duty owed to a
shareholder of the Company as such, all of which rights and duties are expressly
disclaimed and waived by the Holder. No dividends are payable or will accrue on
the Warrants or the Warrant Shares until, and except to the extent that, the
Warrants are exercised. No provision hereof, in the absence of affirmative
action by the Holder to purchase Warrant Shares, and no enumeration herein of
the rights or privileges of the Holder shall give rise to any liability of such
Holder for the Exercise Price of Warrant Shares acquirable by exercise hereof or
as a shareholder of the Company.
- 21 -
<PAGE> 25
7.3 AMENDMENTS AND WAIVERS.
(a) Written Document. Any provision of this Agreement may be
amended or waived, but only pursuant to a written agreement signed by the
Company and the Requisite Holders, provided that no such amendment or
modification shall without the written consent of each Holder affected thereby
(i) shorten the Expiration Date of any Warrant, (ii) increase the Exercise Price
of any Warrant, (iii) change any of the provisions of this Section 7.3(a) or the
definition of "Requisite Holders" or any other provision hereof specifying the
number or percentage of Holders required to waive, amend, or modify any rights
hereunder or make any determination or grant any consent hereunder or otherwise
act with respect to this Agreement or any Warrants or (iv) increase the
obligations of any Holder or otherwise disproportionately adversely affect the
rights and benefits of any Holder under this Agreement.
(b) No Waiver; Cumulative Remedies. No failure on the part of
any Holder to exercise and no delay in exercising, and no course of dealing with
respect to, any right, power or privilege under this Agreement, the Warrants or
the Registration Rights Agreement shall operate as a waiver thereof, nor shall
any single or partial exercise of any right, power or privilege under this
Agreement, the Warrant or the Registration Rights Agreement preclude any other
or further exercise thereof or the exercise of any other right, power or
privilege. The remedies provided herein are cumulative and not exclusive of any
remedies provided by law.
7.4 REMEDIES.
(a) Each Holder shall have all rights and remedies reserved for
such Holder pursuant to this Agreement and all rights and remedies which such
Holder has been granted at any time under any other agreement or contract and
all of the rights which such Holder has under any law or equity. Any Person
having any rights under any provision of this Agreement will be entitled to
enforce such rights specifically, to recover damages by reason of any breach of
any provision of this Agreement and to exercise all other rights granted by law
or equity.
(b) The parties hereto agree that if any parties seek to resolve
any dispute arising under this Agreement pursuant to a legal proceeding, the
prevailing parties to such proceeding shall be entitled to receive reasonable
fees and expenses (including reasonable attorneys' fees and expenses) incurred
in connection with such proceedings.
(c) It is acknowledged that it will be impossible to measure in
money the damages that would be suffered by any party hereto if any Person also
party hereto fails to comply with any of the obligations imposed on it upon them
in this Agreement and that in the event of any such failure, the aggrieved party
will be irreparably damaged and will not have an adequate remedy at law. Any
such aggrieved party shall, therefore, be entitled to injunctive relief,
including specific performance, to enforce such obligations, and if any action
should be brought in equity to enforce any of the provisions of this Agreement,
none of the parties hereto shall raise the defense that there is an adequate
remedy at law.
7.5 BINDING EFFECT.
This Agreement shall be binding upon and inure to the benefit of the
Company, each Holder and their respective successors and permitted assigns.
- 22 -
<PAGE> 26
7.6 COUNTERPARTS.
This Agreement may be executed in two or more counterparts each of
which shall constitute an original but all of which when taken together shall
constitute but one agreement.
7.7 GOVERNING LAW.
THIS AGREEMENT AND EACH WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO
PRINCIPLES OF CONFLICTS OF LAWS EXCEPT TO THE EXTENT THAT THE NEW YORK CONFLICTS
OF LAWS PRINCIPLES WOULD APPLY THE APPLICABLE LAWS OF THE STATE OF TEXAS TO
INTERNAL MATTERS RELATING TO CORPORATIONS ORGANIZED THEREUNDER).
7.8 BENEFITS OF THIS AGREEMENT.
Nothing in this Agreement shall be construed to give to any Person
other than the Company and each Holder of a Warrant or a Warrant Share any legal
or equitable right, remedy or claim hereunder.
7.9 HEADINGS.
Section headings in this Agreement have been inserted for convenience
of reference only and shall not affect the construction of, or be taken into
consideration in interpreting, this Agreement.
* * * *
- 23 -
<PAGE> 27
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered by their authorized officers, all as
of the date and year first above written.
CARRIZO OIL & GAS, INC.
By: /s/ S. P. Johnson IV
------------------------------------------
Name: S. P. Johnson IV
Title: President
CB CAPITAL INVESTORS, L.P.
By: CB Capital Investors, Inc., its general
partner
By: /s/ Christopher Behrens
------------------------------------------
Name: Christopher Behrens
Title: General Partner
/s/ Douglas A. P. Hamilton
----------------------------------------------
Douglas A. P. Hamilton
/s/ Paul B. Loyd, Jr.
----------------------------------------------
Paul B. Loyd, Jr.
/s/ Steven A. Webster
----------------------------------------------
Steven A. Webster
<PAGE> 28
MELLON VENTURES, L.P.
By: MVMA, L.P., its general partner
By: MVMA, Inc., its general partner
By: /s/ John P. Shoemaker
-------------------------------
Name: John P. Shoemaker
Title: Managing Director
<PAGE> 29
SCHEDULE I
INITIAL HOLDERS
<TABLE>
<CAPTION>
INVESTOR NUMBER OF WARRANT SHARES
-------- ------------------------
<S> <C>
CB Capital Investors, L.P. 2,208,152
380 Madison Avenue
12th Floor
New York, NY 10017
Attention:
Telephone: (212) 622-3100
Telecopier: (212) 622-3101
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: Frederick M. Bachman, Esq.
Telephone No.: (212) 408-2400
Telecopier No.: (212) 728-5950
Mellon Ventures, L.P. 276,019
5 Radnor Corporate Center
100 Matsonford Road, Suite 170
Radnor, PA 19087
Attention: Marc A. Cole
Telephone: (610) 688-4758
Telecopier: (610) 688-3930
with a copy to:
Dechert Price & Rhoads
400 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103-2793
Attention: David S. Denious
Telephone: (215) 994-4000
Telecopier: (215) 994-2222
Douglas A.P. Hamilton 92,006
14811 St. Mary's Lane
Suite 148
Houston, TX 77079
</TABLE>
<PAGE> 30
<TABLE>
<CAPTION>
INVESTOR NUMBER OF WARRANT SHARES
-------- ------------------------
<S> <C>
Paul B. Loyd, Jr. 92,006
14811 St. Mary's Lane
Suite 148
Houston, TX 77079
Steven A. Webster 92,006
14811 St. Mary's Lane
Suite 148
Houston, TX 77079
</TABLE>
<PAGE> 31
EXHIBIT A
REGISTRATION RIGHTS AGREEMENT
[SEE ATTACHED]
<PAGE> 32
EXHIBIT B
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY
STATE SECURITIES OR BLUE SKY LAWS. THESE SECURITIES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER
SAID ACT OR APPLICABLE STATE SECURITIES OR BLUE SKY LAWS. ADDITIONALLY, THE
TRANSFER OF THESE SECURITIES IS SUBJECT TO THE CONDITIONS SPECIFIED IN THE
SECURITIES PURCHASE AGREEMENT DATED AS OF DECEMBER ___, 1999, AMONG THE ISSUER
HEREOF AND CERTAIN OTHER SIGNATORIES THERETO, AND NO TRANSFER OF THESE
SECURITIES SHALL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN
FULFILLED. UPON THE FULFILLMENT OF CERTAIN OF SUCH CONDITIONS, THE ISSUER HEREOF
HAS AGREED TO DELIVER TO THE HOLDER HEREOF A NEW CERTIFICATE, NOT BEARING THIS
LEGEND, FOR THE SECURITIES REPRESENTED HEREBY REGISTERED IN THE NAME OF THE
HOLDER HEREOF. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT
TO A SHAREHOLDERS AGREEMENT DATED AS OF DECEMBER ___ 1999, AMONG THE ISSUER OF
SUCH SECURITIES (THE "COMPANY") AND CERTAIN OF THE COMPANY'S SHAREHOLDERS. THE
TERMS OF SUCH SHAREHOLDERS AGREEMENT INCLUDE, AMONG OTHER THINGS, VOTING
AGREEMENTS AND RESTRICTIONS ON TRANSFERS. COPIES OF THE SECURITIES PURCHASE
AGREEMENT AND THE SHAREHOLDERS AGREEMENT WILL BE FURNISHED WITHOUT CHARGE BY THE
COMPANY TO THE HOLDER HEREOF UPON WRITTEN REQUEST.
CARRIZO OIL & GAS, INC.
NO. W WARRANT TO PURCHASE
____ SHARES
OF COMMON STOCK
---------, -----
COMMON STOCK PURCHASE WARRANT
THIS CERTIFIES that, for value received, [INSERT NAME OF
HOLDER] (the "HOLDER"), or assigns, is entitled to purchase from CARRIZO OIL &
GAS, INC., a Texas corporation (the "COMPANY"), ___ shares of the COMMON STOCK,
$.01 par value (the "COMMON STOCK"), of the Company, at the price (the "EXERCISE
PRICE") of $2.20 per share, at any time or from time to time during the period
commencing on the date hereof and ending at 5:00 P.M. Eastern time, on December
__, 2007 (the "EXPIRATION TIME").
<PAGE> 33
This Warrant has been issued pursuant to the Warrant Agreement
(as amended or supplemented from time to time, the "WARRANT AGREEMENT") dated as
of December __, 1999, between the Company and the Initial Holders named therein,
and is subject to the terms and conditions, and the Holder is entitled to the
benefits, thereof, including without limitation provisions (i) for adjusting the
number of Warrant Shares issuable upon the exercise hereof and the Exercise
Price to be paid upon such exercise and (ii) providing certain other rights. A
copy of the Warrant Agreement is on file and may be inspected at the principal
executive office of the Company. The Holder of this certificate, by acceptance
of this certificate, agrees to be bound by the provisions of the Warrant
Agreement. Capitalized terms used but not defined herein shall have the meanings
given to them in the Warrant Agreement.
SECTION 1. EXERCISE OF WARRANT. On any Business Day prior to
the Expiration Time, the Holder may exercise this Warrant, in whole or in part,
by delivering to the Company this Warrant accompanied by a properly completed
Exercise Form in the form of Annex A and a check in an aggregate amount equal to
the product obtained by multiplying (a) the Exercise Price by (b) the number of
Warrant Shares being purchased. Any partial exercise of a Warrant shall be for a
whole number of Warrant Shares only.
SECTION 2. EXERCISE PRICE. The Exercise Price is subject to
adjustment from time to time as provided in the Warrant Agreement.
SECTION 3. EXCHANGE OF WARRANT. On any Business Day prior to
the Expiration Date, the Holder may exchange this Warrant, in whole or in part,
for Warrant Shares by delivering to the Company this Warrant accompanied by a
properly completed Exchange Form in the form of Annex B. The number of shares of
Common Stock to be received by the Holder upon such exchange shall be determined
as provided in Section 4.2 of the Warrant Agreement.
SECTION 4. TRANSFER. Subject to the limitations set forth in
the Warrant Agreement, this Warrant may be transferred by the Holder by delivery
to the Company of this Warrant accompanied by a properly completed Assignment
Form in the form of Annex C.
SECTION 5. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT. If
this Warrant is lost, stolen, mutilated or destroyed, the Company will issue a
new Warrant of like denomination and tenor upon compliance with the provisions
set forth in the Warrant Agreement.
SECTION 6. NO SHAREHOLDER RIGHTS. This Warrant shall not
entitle the holder hereof to any voting rights or, except as otherwise provided
in the Warrant Agreement, other rights of a shareholder of the Company, as such.
SECTION 7. SUCCESSORS. All of the provisions of this Warrant
by or for the benefit of the Company or the Holder shall bind and inure to the
benefit of their respective successors and assigns.
SECTION 8. HEADINGS. Section headings in this Warrant have
been inserted for convenience of reference only and shall not affect the
construction of, or be taken into consideration in interpreting, this Warrant.
<PAGE> 34
SECTION 9. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT
GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAWS EXCEPT TO THE EXTENT THAT THE
NEW YORK CONFLICTS OF LAWS PRINCIPLES WOULD APPLY THE APPLICABLE LAWS OF THE
STATE OF TEXAS TO INTERNAL MATTERS RELATING TO CORPORATIONS ORGANIZED
THEREUNDER).
<PAGE> 35
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its duly authorized officers and this Warrant to be dated as of the
date first set forth above.
CARRIZO OIL & GAS, INC.
By:
--------------------------------------------
Name:
Title: [Chairman or Chief Executive Officer]
ATTEST:
By:
---------------------------------------
Name:
Title: [Chief Financial Officer, Treasurer or
Assistant Treasurer]
<PAGE> 36
ANNEX A
EXERCISE FORM
[TO BE SIGNED UPON EXERCISE OF WARRANT]
TO CARRIZO OIL & GAS, INC.
The undersigned, being the Holder of the within Warrant,
hereby elects to exercise the purchase right represented by such Warrant for,
and to purchase thereunder _________ shares of, the Common Stock of CARRIZO OIL
& GAS, INC. (the "Company") and requests that the certificates for such shares
be issued in the name of, and be delivered to, _______________________, whose
address is __________________________________ ____________________________.
The undersigned warrants to the Company that the undersigned
(a) is not acquiring the Warrant Shares with a view to transfer such Warrant
Shares in violation of the Securities Act of 1933, as amended (the "Securities
Act"), (b) acknowledges that the issuance of the Warrant Shares has not been
registered under the Securities Act and the Warrant Shares may be resold only if
registered pursuant to the provisions of the Securities Act or if an exemption
therefrom is available and (c) is an "accredited investor" within the meaning of
Regulation D under the Securities Act.
The foregoing exercise is (check one):
[ ] irrevocable
[ ] conditioned upon the consummation of the transaction
described briefly below:
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
Dated:
------------------------------
(Signature)
------------------------------
(Address)
<PAGE> 37
ANNEX B
EXCHANGE FORM
[TO BE SIGNED UPON EXERCISE OF WARRANT]
TO CARRIZO OIL & GAS, INC.
The undersigned, being the Holder of the within Warrant,
hereby irrevocably elects to exchange, pursuant to Section 4.2 of the Warrant
Agreement referred to in such Warrant, the portion of such Warrant representing
the right to purchase _________ shares of Common Stock of CARRIZO OIL & GAS,
INC. (the "Company"). The undersigned hereby requests that the certificates for
the number of shares of Common Stock issuable in such exchange pursuant to such
Section 4.2 be issued in the name of, and be delivered to, _____________, whose
address is ________________________________________.
The undersigned warrants to the Company that the undersigned
(a) is not acquiring the Warrant Shares with a view to transfer such Warrant
Shares in violation of the Securities Act of 1933, as amended (the "Securities
Act"), (b) acknowledges that the issuance of the Warrant Shares has not been
registered under the Securities Act and the Warrant Shares may be resold only if
registered pursuant to the provisions of the Securities Act or if an exemption
therefrom is available and (c) is an "accredited investor" within the meaning of
Regulation D under the Securities Act.
The foregoing exercise is (check one):
[ ] irrevocable
[ ] conditioned upon the consummation of the transaction
described briefly below:
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
Dated:
------------------------------
(Signature)
------------------------------
(Address)
<PAGE> 38
ANNEX C
ASSIGNMENT FORM
[TO BE SIGNED ONLY UPON TRANSFER OF WARRANT]
For value received, the undersigned hereby sells, assigns and
transfers unto _________________________, all of the rights represented by the
within Warrant to purchase shares of Common Stock of CARRIZO OIL & GAS, INC.
(the "COMPANY"), to which such Warrant relates, and appoints
________________________ Attorney to transfer such Warrant on the books of the
Company, with full power of substitution in the premises.
DATED:
----------------------------------
(Signature)
----------------------------------
(Address)
<PAGE> 1
EXHIBIT 99.4
EXECUTION COPY
================================================================================
CARRIZO OIL & GAS, INC.,
A TEXAS CORPORATION
----------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
December 15, 1999
----------------------------------------------------
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 1. CERTAIN DEFINITIONS..........................................1
SECTION 2. [INTENTIONALLY OMITTED]......................................3
SECTION 3. [INTENTIONALLY OMITTED]......................................3
SECTION 4. [INTENTIONALLY OMITTED]......................................3
SECTION 5. REGISTRATION RIGHTS..........................................3
5.1. REQUESTED REGISTRATION.......................................3
5.2. COMPANY REGISTRATION.........................................5
5.3. REGISTRATION ON FORM S-3.....................................6
5.4. FOUNDER AGREEMENT............................................8
5.5. LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS................9
5.6. EXPENSES OF REGISTRATION.....................................9
5.7. REGISTRATION PROCEDURES.....................................10
5.8. INDEMNIFICATION.............................................11
5.9. CERTAIN AGREEMENTS OF HOLDERS...............................14
5.10. RULE 144 REPORTING..........................................15
5.11. TRANSFER OF REGISTRATION RIGHTS.............................15
5.12. LOCKUP AGREEMENT............................................16
5.13. TERMINATION OF REGISTRATION RIGHTS..........................16
SECTION 6. MISCELLANEOUS...............................................16
6.1. GOVERNING LAW...............................................16
6.2. SUCCESSOR AND ASSIGNS.......................................17
6.3. EFFECTIVENESS...............................................17
6.4. ENTIRE AGREEMENT; AMENDMENT.................................17
6.5. NOTICES, ETC................................................17
6.6. DELAYS OR OMISSIONS.........................................17
6.7. SEVERABILITY................................................18
6.8. TITLES AND SUBTITLES........................................18
6.9. GENDER......................................................18
6.10. COUNTERPARTS................................................18
</TABLE>
<PAGE> 3
EXECUTION COPY
THIS REGISTRATION RIGHTS
AGREEMENT is entered into as of the
15th day of December, 1999 by and
among CARRIZO OIL & GAS, INC., a
Texas corporation (the "Company"),
and the shareholders of the Company
listed on Annex A attached hereto
(the "Purchasers").
Recitals
The Company is entering into a Securities Purchase Agreement
(the "Securities Purchase Agreement") dated as of the date hereof, with, among
others, the Purchasers pursuant to which the Company is issuing to the
Purchasers (i) $19,800,001 million aggregate principal amount of its Senior
Subordinated Notes due 2007, (ii) Warrants (as defined below) to purchase
2,484,171 shares of Common Stock and (iii) 3,272,728 shares of Common Stock. In
order to induce the Purchasers to enter into the Securities Purchase Agreement,
the Company wishes to grant registration rights to the Purchasers as more fully
set forth herein.
NOW, THEREFORE, in consideration of the mutual promises and
covenants hereinafter set forth, the parties hereby agree as follows:
Section 1. Certain Definitions.
As used in this Agreement, the following terms shall have the
following respective meanings:
"Combined Registrable Securities" has the meaning given to
such term in Section 5.4.
"Commission" shall mean the Securities and Exchange Commission
or any other federal agency at the time administering the Securities Act.
"Common Stock" shall mean the common stock of the Company, par
value $.01 per share, and any other securities issued in respect of Common Stock
upon any stock split, stock dividend, recapitalization, merger, consolidation,
share exchange or similar event.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any similar federal statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Founder Registration Notice" has the meaning given to such
term in Section 5.4.
"Founders" means the Original Founders and any Persons to whom
Registrable Securities are transferred in accordance with the Founders
Agreement.
"Founders Agreement" means the Registration Rights Agreements
dated as of June 4, 1997, as amended by Amendment No. 1 dated as of the date
hereof and as may be amended in accordance with this Agreement, among the
Company and the Original Founders.
<PAGE> 4
"Holder" shall mean any Purchaser holding Registrable
Securities and any Person holding Registrable Securities to whom the rights
under this Agreement have been transferred in accordance with Section 5.11
hereof.
"Holder Registration Notice" has the meaning given to such
term in Section 5.4.
"Initiating Holders" shall mean any Holder(s) who in the
aggregate are Holders of not less than 51% of the then outstanding Registrable
Securities.
"Original Founders" shall mean S. P. Johnson IV, Frank A.
Wojtek, Steven A. Webster, Douglas A.P. Hamilton, Paul B. Loyd, Jr. and DAPHAM
Partnership L.P.
"Person" means any individual, any foreign or domestic
corporation, general partnership, limited partnership, limited liability
company, firm, joint venture, association, individual retirement account, joint
stock company, trust, estate, unincorporated organization, governmental or
regulatory body or other entity.
"Registrable Securities" shall mean (i) the shares of Common
Stock of the Company held by the Purchasers on the date hereof and (ii) all
shares of Common Stock of the Company issuable upon the conversion, exchange or
exercise of all securities of the Company that are convertible, exchangeable or
exercisable for Common Stock hereafter acquired (including without limitation,
any Common Stock issued to the Purchasers pursuant to the exercise of the
Warrants); provided, however, that securities shall be treated as Registrable
Securities only if and only for so long as they are held by a Holder or a
permitted transferee pursuant to the terms hereof, and (i) they have not been
disposed of pursuant to a registration statement declared effective by the
Commission, so that all transfer restrictions and restrictive legends with
respect thereto are removed upon the consummation of such sale, or (ii) they
have not been sold in a transaction exempt from the registration and prospectus
delivery requirements of the Securities Act, so that all transfer restrictions
and restrictive legends with respect thereto are removed upon the consummation
of such sale, or (iii) the registration rights as to the Holder of such
Registrable Securities have not expired pursuant to Section 5.13.
The terms "register," "registered" and "registration" refer to
a registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses, other than
Selling Expenses (as defined below), incurred by the Company in complying with
Section 5.1, 5.2 or 5.3 hereof, including, without limitation, all registration,
qualification and filing fees, printing expenses, escrow fees, fees and
disbursements of counsel for the Company, blue sky fees and expenses, the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company which shall
be paid in any event by the Company) and the reasonable fees and disbursements
of one counsel for all Holders.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
2
<PAGE> 5
"Selling Expenses" shall mean all underwriting discounts,
selling commissions and stock transfer taxes applicable to the securities
registered by the Holders and, except as set forth above, all fees and
disbursements of counsel for any Holder.
"Warrant Agreement" shall mean the Warrant Agreement dated as
of the date hereof among the Company and the parties named therein.
"Warrants" has the meaning given to such term in the Warrant
Agreement.
Section 2. [Intentionally Omitted]
Section 3. [Intentionally Omitted]
Section 4. [Intentionally Omitted]
Section 5. Registration Rights.
5.1. Requested Registration.
(a) Request for Registration. In case the Company shall receive
from Initiating Holders a written request that the Company effect any
registration, qualification or compliance with respect to not less than 5% of
the shares of Registrable Securities then outstanding, the Company will:
(i) promptly give written notice of the proposed
registration, qualification or compliance to all other Holders; and
(ii) as soon as practicable, use its reasonable best lawful
efforts to effect such registration, qualification or compliance
(including, without limitation, appropriate qualification under
applicable blue sky or other state securities laws and appropriate
compliance with applicable regulations issued under the Securities Act
and any other governmental requirements or regulations) as may be so
requested and as would permit or facilitate the sale and distribution
of all or such portion of such Registrable Securities as are specified
in such request, together with all or such portion of the Registrable
Securities of any Holders joining in such request as are specified in
a written request received by the Company within 20 days after receipt
of such written notice from the Company; provided, however, that the
Company shall not be obligated to take any action to effect any such
registration, qualification or compliance pursuant to this Section
5.1:
(A) In any particular jurisdiction in which the Company
would be required to execute a general consent to service of
process in effecting such registration, qualification or
compliance unless the Company is already subject to service in
such jurisdiction and except as may be required by the Securities
Act;
(B) During the period starting with the date sixty (60)
days prior to the Company's estimated date of filing of, and
ending on the date three (3) months immediately following the
effective date of, a Company-initiated registration statement
pertaining to securities of the Company (other than a
3
<PAGE> 6
registration of securities in a Rule 145 transaction or with
respect to an employee benefit plan), provided that the Company
is actively employing in good faith all reasonable efforts to
cause such registration statement to become effective (and
provided, further, that the Company cannot pursuant to this
Section 5.1(a)(ii)(B) or pursuant to Section 5.3(a)(ii)(B) delay
implementation of a demand for registration more than once in any
24-month period);
(C) After the Company has effected an aggregate of four
such registrations which may be effected at the option of the
Holders pursuant to either this Section 5.1(a) or Section 5.3(a),
and such registrations have been declared or ordered effective;
or
(D) If the Company shall furnish to such Holders a
certificate signed by the President of the Company stating that
in the good faith judgment of the Board of Directors it would be
seriously detrimental to the Company or its shareholders for a
registration statement to be filed in the near future, then the
Company's obligation to use its reasonable best lawful efforts to
register, qualify or comply under this Section 5.1 shall be
deferred once (with respect to any demand for registration
hereunder) for a period not to exceed ninety (90) days from the
date of receipt of written request from the Initiating Holders,
provided that the Company cannot pursuant to this Section
5.1(a)(ii)(D) or pursuant to Section 5.3(a)(ii)(D) delay
implementation of a demand for registration more than once in any
12-month period.
Subject to the foregoing clauses (A) through (D), the Company
shall file a registration statement covering the Registrable Securities so
requested to be registered as soon as practicable, after receipt of the request
or requests of the Initiating Holders.
(b) Underwriting. In the event that a registration pursuant to
Section 5.1 is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as part of the notice given pursuant to
Section 5.1(a)(i). In such event, the right of any Holder to registration
pursuant to Section 5.1 shall be conditioned upon such Holder's participation in
the underwriting arrangements required by this Section 5.1, and the inclusion of
such Holder's Registrable Securities, as the case may be, in the underwriting to
the extent requested shall be limited to the extent provided herein.
The Company shall (together with all Holders and other holders
proposing to distribute their securities through such underwriting) enter into
an underwriting agreement in customary form with the managing underwriter
selected for such underwriting by a majority in interest of the Initiating
Holders, but subject to the Company's reasonable approval. Notwithstanding any
other provision of this Section 5.1, if the managing underwriter determines that
marketing factors require a limitation of the number of shares to be
underwritten, the underwriter may limit the Registrable Securities to be
included in such registration and underwriting (provided that securities of
other securityholders are not included therein). In the event of a limitation on
the number of Registrable Securities to be included in a registration, then the
Company shall so advise all Holders and the number of Registrable Securities
that may be included in the registration and underwriting shall be allocated
among all Holders thereof in
4
<PAGE> 7
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities held by such Holders. No Registrable Securities excluded from the
underwriting by reason of the underwriter's marketing limitation shall be
included in such registration. To facilitate the allocation of Registrable
Securities in accordance with the above provisions, the Company or the
underwriters may round the number of Registrable Securities allocated to any
Holder to the nearest 100 shares.
If any Holder of Registrable Securities disapproves of the
terms of the underwriting, such Person may elect to withdraw therefrom by
written notice to the Company, the managing underwriter and the Initiating
Holders. The Registrable Securities so withdrawn shall also be withdrawn from
registration, and such Registrable Securities shall not be transferred in a
public distribution prior to 180 days after the effective date of such
registration, or such other shorter period of time as the underwriters may
require.
(c) The Company shall not register securities for sale for its
own account in any registration requested pursuant to this Section 5.1 unless
permitted to do so by the written consent of Holders who hold at least 2/3 of
the Registrable Securities as to which registration has been requested or unless
the underwriter shall indicate in writing to the Initiating Holders that the
inclusion of the shares to be sold for the account of the Company will not
adversely affect the registration, the price of the shares to be sold and the
number of shares to be sold for the account of the Holders. The Company may not
cause any other registration of securities for sale for its own account (other
than a registration effected solely to implement an employee benefit plan or
stock option plan or a transaction contemplated by Rule 145 of the Commission)
to be initiated after a registration requested pursuant to Section 5.1 and to
become effective less than 90 days after the effective date of any registration
requested pursuant to Section 5.1.
5.2. Company Registration.
(a) Notice of Registration. If at any time or from time to
time the Company shall determine to register any of its securities, either for
its own account or the account of a security holder or holders, other than (x) a
registration relating solely to employee benefit plans, or (y) a registration
relating solely to a Commission Rule 145 transaction, the Company will:
(i) promptly give to each Holder written notice
thereof; and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any
underwriting involved therein, all the Registrable Securities specified
in a written request or requests, made within 20 days after receipt of
such written notice from the Company, by any Holder.
(b) Underwriting. If the registration of which the Company
gives notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 5.2(a)(i). In such event the right of any Holder to
registration pursuant to Section 5.2 shall be conditioned upon such Holder's
participation in such underwriting, and the inclusion of Registrable Securities
in the underwriting shall be limited to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company and the other holders distributing
5
<PAGE> 8
their securities through such underwriting) enter into an underwriting agreement
in customary form with the managing underwriter selected for such underwriting
by the Company. Notwithstanding any other provision of this Section 5.2, if the
managing underwriter determines that marketing factors require a limitation of
the number of shares to be underwritten, the underwriters may exclude some or
all Registrable Securities from such registration and underwriting (provided
that securities of other securityholders are similarly excluded). In the event
of a limitation (or elimination) on the number of Registrable Securities and
other securities to be included in a registration, the Company shall so advise
all Holders and any other holders requesting to distribute their securities
through such underwriting pursuant to piggy-back registration rights and the
number of Registrable Securities and other such securities that may be included
in the registration and underwriting shall be allocated among all Holders
thereof and such other holders in proportion, as nearly as practicable, to the
respective amounts of securities requested to be included in such registration.
To facilitate the allocation of Registrable Securities in accordance with the
above provisions, the Company may round the number of Registrable Securities and
other securities allocated to any Holder or other holder to the nearest 100
shares. If any Holder disapproves of the terms of any such underwriting, it may
elect to withdraw therefrom by written notice to the Company and the managing
underwriter. Any securities excluded or withdrawn from such underwriting shall
be withdrawn from such registration, and shall not be transferred in a public
distribution prior to 180 days after the effective date of the registration
statement relating thereto, or such other shorter period of time as the
underwriters may require.
(c) Right to Terminate Registration. The Company shall have
the right to terminate or withdraw any registration initiated by it under this
Section 5.2 prior to or after the effectiveness of such registration whether or
not any Holder has elected to include securities in such registration.
5.3. Registration on Form S-3.
(a) In addition to the registration rights provided in
Sections 5.1 and 5.2, if the Company shall receive from Initiating Holders a
written request that the Company file a registration statement on Form S-3 (or
any successor form to Form S-3) for a public offering of shares of the
Registrable Securities and the Company is a registrant entitled to use Form S-3
to register the Registrable Securities for such an offering by selling Holders
the Company will:
(i) promptly give written notice of the proposed
registration, qualification or compliance to all other Holders; and
(ii) as soon as practicable, use its best lawful
efforts to effect such registration, qualification or compliance
(including, without limitation, appropriate qualification under
applicable blue sky or other state securities laws and appropriate
compliance with applicable regulations issued under the Securities Act
and any other governmental requirements or regulations) as may be so
requested and as would permit or facilitate the sale and distribution
of all or such portion of such Registrable Securities as are specified
in such request, together with all or such portion of the Registrable
Securities and of any Holders joining in such request as are specified
in a written request received by the Company within 20 days after
receipt of such written notice from the
6
<PAGE> 9
Company; provided, however, that the Company shall not be obligated to
take any action to effect any such registration, qualification or
compliance pursuant to this Section 5.3:
(A) In any particular jurisdiction in which the
Company would be required to execute a general consent to service of
process in effecting such registration, qualification or compliance
unless the Company is already subject to service in such jurisdiction
and except as may be required by the Securities Act;
(B) During the period starting with the date sixty
(60) days prior to the Company's estimated date of filing of, and
ending on the date three (3) months immediately following the effective
date of, any registration statement pertaining to securities of the
Company (other than a registration of securities in a Rule 145
transaction or with respect to an employee benefit plan), provided that
the Company is actively employing in good faith all reasonable efforts
to cause such registration statement to become effective (and provided,
further, that the Company cannot pursuant to this Section 5.3(a)(ii)(B)
or pursuant to Section 5.1(a)(ii)(B) delay implementation of a demand
for registration more than once in any 24-month period);
(C) After the Company has effected an aggregate of
four such registrations which may be effected at the option of the
Holders pursuant to either this Section 5.3(a) or Section 5.1(a), and
such registrations have been declared or ordered effective; or
(D) If the Company shall furnish to such Holders a
certificate signed by the President of the Company stating that in the
good faith judgment of the Board of Directors it would be seriously
detrimental to the Company or its shareholders for a registration
statement to be filed in the near future, then the Company's obligation
to use its reasonable best lawful efforts to register, qualify or
comply under this Section 5.3 shall be deferred once (with respect to
any demand for registration hereunder) for a period not to exceed
ninety (90) days from the date of receipt of written request for
registration; provided, however, that the Company cannot pursuant to
this Section 5.3(a)(ii)(D) or pursuant to Section 5.1(a)(ii)(D) delay
implementation of a demand for registration more than once in any
12-month period.
Subject to the foregoing clauses (A) through (D), the Company shall
file a registration statement covering the Registrable Securities so requested
to be registered as soon as reasonably practicable, after receipt of the request
or requests for registration.
(b) Underwriting. In the event that a registration pursuant to Section
5.3 is for a registered public offering involving an underwriting, the Company
shall so advise the Holders as part of the notice given pursuant to Section
5.3(a)(i). In such event, the right of any Holder to registration pursuant to
Section 5.3 shall be conditioned upon such Holder's participation in the
underwriting arrangements required by this Section 5.3, and the inclusion of
such Holder's Registrable Securities, as the case may be, in the underwriting to
the extent requested shall be limited to the extent provided herein.
7
<PAGE> 10
The Company shall (together with all Holders and other holders
proposing to distribute their securities through such underwriting) enter into
an underwriting agreement in customary form with the managing underwriter
selected for such underwriting by a majority in interest of the Initiating
Holders, but subject to the Company's reasonable approval. Notwithstanding any
other provision of this Section 5.3, if the managing underwriter determines that
marketing factors require a limitation of the number of Registrable Securities
to be underwritten, the underwriters may limit the Registrable Securities to be
included in such registration and underwriting (provided that securities of
other securityholders are not included therein). In the event of a limitation on
the number of Registrable Securities to be included in a registration, the
Company shall so advise all Holders, and the number of shares of Registrable
Securities that may be included in the registration and underwriting shall be
allocated among all Holders thereof in proportion, as nearly as practicable, to
the respective amounts of Registrable Securities held by such Holders at the
time of filing the registration statement. No Registrable Securities excluded
from the underwriting by reason of the underwriter's marketing limitation shall
be included in such registration. To facilitate the allocation of Registrable
Securities in accordance with the above provisions, the Company or the
underwriters may round the number of Registrable Securities allocated to any
Holder to the nearest 100 shares.
If any Holder disapproves of the terms of the underwriting, such Person
may elect to withdraw therefrom by written notice to the Company, the managing
underwriter and the Initiating Holders. The Registrable Securities so withdrawn
shall also be withdrawn from registration, and such securities shall not be
transferred in a public distribution prior to 180 days after the effective date
of such registration, or such other shorter period of time as the underwriters
may require.
(c) The Company shall not register securities for sale for its own
account in any registration requested pursuant to this Section 5.3 unless
permitted to do so by the written consent of Holders who hold at least 2/3 of
the Registrable Securities as to which registration has been requested or unless
the underwriter shall indicate in writing to the Initiating Holders that the
inclusion of the shares to be sold for the account of the Company will not
adversely affect the registration, the price of the shares to be sold and the
number of shares to be sold for the account of the Holders. The Company may not
cause any other registration of securities for sale for its own account (other
than a registration effected solely to implement an employee benefit plan or
stock option plan or a transaction contemplated by Rule 145 of the Commission)
to be initiated after a registration requested pursuant to Section 5.3 and to
become effective less than 90 days after the effective date of any registration
requested pursuant to Section 5.3.
5.4. Founder Agreement.
If the Company receives notice from the Founders of a request for
registration pursuant to Sections 5.1(a) or 5.3(a) of the Founders Agreement (a
"Founder Registration Notice"), the Company shall promptly notify the Holders
after receipt of the Founder Registration Notice, and the Holders may thereafter
give notice, within 20 days after the date of the Founder Registration Notice,
of a registration request pursuant to Sections 5.1(a) or 5.3(a), as the case may
be, of this Agreement. If the Company receives notice from the Initiating
Holders of a request for registration pursuant to Sections 5.1(a) or 5.3(a) of
this Agreement (a "Holder Registration Notice"), the Company shall promptly
notify the Founders after receipt of the
8
<PAGE> 11
Holder Registration Notice, and the Founders may thereafter give notice, within
20 days after receipt of the Holder Registration Notice, of a registration
request pursuant to Sections 5.1(a) or 5.3(a), as the case may be, of the
Founders Agreement. In either such event, the Registrable Securities of the
Holders requesting registration and of the Founders requesting registration
(collectively, the "Combined Registrable Securities") (whether or not such
Holders or Founders, as the case may be, initiated such request) shall be
included in such registration with priority over any securities of other
securityholders who may be entitled to exercise piggyback registration rights.
The registration shall be governed by the registration rights agreement to which
the Person initiating the request for registration is a party (e.g., if the
request for registration is initiated by the Founders, the Founders Agreement
shall govern and if the request for registration is initiated by the Holders,
this Agreement shall govern) and for purposes of such registration, the term
"Registrable Securities" as used in the Founders Agreement or this Agreement, as
the case may be, shall mean the Combined Registrable Securities and the term
"Holders" as used in the Founders Agreement or this Agreement, as the case may
be, shall include the Holders as defined under the Founders Agreement and the
Holders as defined under this Agreement.
5.5. Limitations on Subsequent Registration Rights.
(a) The Company represents and warrants to the Purchasers that
the registration rights granted to the Purchasers hereby do not conflict with
any other registration rights granted by the Company. The Company shall not,
after the date hereof, grant any registration rights which conflict with or
impair, or have any priority over, the registration rights granted hereby. If
the Company grants to other investors any registration rights which are not
prohibited by the foregoing sentence, such registration rights shall be issued
under registration rights agreements which contain sharing provisions similar to
Section 5.4 above. Without limiting the generality of the foregoing,
registration rights which contain such sharing provisions and which otherwise
contain the same provisions as this Agreement shall not be deemed to have
priority or impair the Purchasers' registration rights.
(b) Within the limitations prescribed by this Section 5.5(b),
but not otherwise, the Company may grant to subsequent investors in the Company
registration rights such as those provided in Section 5.2. Such rights may only
pertain to shares of Common Stock, including shares of Common Stock into which
any other securities may be converted. Such rights may be granted with respect
to (i) registrations requested pursuant to Section 5.1 or 5.3, but only in
respect of that portion of any such registration as remains after inclusion of
all Registrable Securities requested by Holders to be included in such
registration and (ii) registrations initiated by the Company, provided that such
rights shall be limited in all cases to sharing pro rata in the available
portion of the registration in question with Holders, such sharing to be based
on the number of shares of Common Stock held by the respective Holders and held
by such other investors, plus the number of shares of Common Stock into which
other securities held by the Holders and such other investors are convertible,
which are entitled to registration rights.
5.6. Expenses of Registration.
All Registration Expenses incurred in connection with the
registrations pursuant to Section 5.1, Section 5.2 and Section 5.3 shall be
borne by the Company. Unless otherwise
9
<PAGE> 12
stated, all Selling Expenses relating to securities registered on behalf of the
Holders or other holders registering securities shall be borne by the Holders or
holders of such securities pro rata on the basis of the number of shares so
registered.
5.7. Registration Procedures.
In the case of each registration, qualification or compliance
effected by the Company pursuant to this Agreement, the Company will keep each
Holder advised in writing as to the initiation of each registration,
qualification and compliance and as to the completion thereof. At its expense
the Company will:
(a) Prepare and file with the Commission a registration
statement with respect to such securities and use its best lawful efforts to
cause such registration statement to become and remain effective for a period of
one hundred twenty (120) days or until the Holder or Holders have completed the
distribution described in the registration statement relating thereto, whichever
first occurs; provided, however, that (i) such 120-day period shall be extended
for a period of time equal to the period the Holder refrains from selling any
securities included in such registration at the request of an underwriter of
Common Stock (or other securities) of the Company; and (ii) in the case of any
registration of Registrable Securities on Form S-3 which are intended to be
offered on a continuous or delayed basis, such 120-day period shall be extended,
if necessary, to keep the registration statement effective until all such
Registrable Securities are sold, provided that Rule 415, or any successor rule
under the Securities Act, permits an offering on a continuous or delayed basis,
and provided further that applicable rules under the Securities Act governing
the obligation to file a post-effective amendment permit, in lieu of filing a
post-effective amendment that (I) includes any prospectus required by Section
10(a)(3) of the Securities Act or (II) reflects facts or events representing a
material or fundamental change in the information set forth in the registration
statement, the incorporation by reference of information required to be included
in (I) and (II) above to be contained in periodic reports filed pursuant to
Section 13 or 15(d) of the Exchange Act in the registration statement;
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement;
(c) Furnish such number of prospectuses and other documents
incident thereto, including any amendment of or supplement to the prospectus, as
a Holder from time to time may reasonably request;
(d) Notify each seller of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading or incomplete in the light of the
circumstances then existing, and at the request of any such seller, prepare and
furnish to such seller a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the
10
<PAGE> 13
purchasers of such shares, such prospectus shall not include an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or incomplete
in the light of the circumstances then existing;
(e) Cause all such Registrable Securities registered pursuant
hereto to be listed on each securities exchange or quoted on a quotation system
on which similar securities issued by the Company are then listed or quoted;
(f) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant to such registration statement and a CUSIP number
for all such Registrable Securities, in each case not later than the effective
date of such registration;
(g) Otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
securities holders, as soon as reasonably practicable, an earnings statement
covering the period of at least 12 months, but not more than 18 months,
beginning with the first month after the effective date of the Registration
Statement, which earnings statement shall satisfy the provisions of Section
11(a) of the Securities Act; and
(h) If requested by Holders of 50% of all of the Registrable
Securities that are being registered in such registration, furnish to each
prospective seller a signed counterpart, a "comfort" letter signed by the
independent public accountants who have certified the Company's financial
statements included in the registration statement, covering substantially the
same matters with respect to the registration statement (and the prospectus
included therein) and with respect to events subsequent to the date of the
financial statements, as are customarily covered (at the time of such
registration and closing) in "comfort" letters delivered to the underwriters in
underwritten public offerings of securities.
5.8. Indemnification.
(a) To the extent permitted by law, the Company will indemnify
each Holder, each of its officers and directors, partners and legal counsel and
each Person controlling such Holder within the meaning of Section 15 of the
Securities Act, with respect to which registration, qualification or compliance
has been effected pursuant to this Agreement, and each underwriter, if any, and
each Person who controls any underwriter within the meaning of Section 15 of the
Securities Act, against all expenses, claims, losses, damages or liabilities (or
actions or proceedings in respect thereof), including any of the foregoing
incurred in settlement of any litigation, commenced or threatened, arising out
of or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any registration statement, prospectus, offering circular or
other document, or any amendment or supplement thereto, incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein, not misleading, or any violation by
the Company of the Securities Act or any rule or regulation promulgated under
the Securities Act applicable to the Company in connection with any such
registration, qualification or compliance, and the Company will reimburse each
such Holder, each of its officers and directors, partners and legal counsel and
each Person controlling such Holder, each such underwriter and each Person who
controls any such underwriter, for any legal
11
<PAGE> 14
and any other expenses reasonably incurred in connection with investigating,
preparing, settling or defending any such claim, loss, damage, liability or
action, provided that the Company will not be liable in any such case to the
extent that any such claim, loss, damage, liability or expense arises out of or
is based on any untrue statement or omission or alleged untrue statement or
omission, made in reliance upon and in conformity with written information
furnished to the Company by such Holder, controlling Person or underwriter and
stated to be specifically for use therein. Notwithstanding the foregoing,
insofar as the foregoing indemnity relates to any such untrue statement (or
alleged untrue statement) or omission (or alleged omission) made in the
preliminary prospectus but eliminated or remedied in the amended prospectus on
file with the Commission at the time the registration statement becomes
effective or in the final prospectus filed with the Commission pursuant to Rule
424(b) of the Commission, the indemnity agreement herein shall not inure to the
benefit of any underwriter if a copy of the final prospectus filed pursuant to
Rule 424(b) was not furnished to the Person or entity asserting the loss,
liability, claim or damage at or prior to the time such furnishing is required
by the Securities Act.
(b) To the extent permitted by law, each Holder will, if
Registrable Securities held by such Holder are included in the securities as to
which such registration, qualification or compliance is being effected,
indemnify the Company, each of its directors, officers and legal counsel, each
underwriter, if any, of the Company's securities covered by such a registration
statement, each Person who controls the Company or such underwriter within the
meaning of Section 15 of the Securities Act, and each other such Holder, each of
its officers and directors and each Person controlling such Holder within the
meaning of Section 15 of the Securities Act, against all claims, losses, damages
and liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company, such Holders, such directors,
officers, legal counsel, Persons, underwriters or control persons for any legal
or any other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action, in each case to the
extent, but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information furnished to the Company by such Holder
and stated to be specifically for use therein. Notwithstanding the foregoing,
the liability of each Holder under this subsection (b) shall be limited in an
amount equal to the net proceeds from the sale of the Registrable Securities
sold by such Holder. In addition, insofar as the foregoing indemnity relates to
any such untrue statement (or alleged untrue statement) or omission (or alleged
omission) made in the preliminary prospectus but eliminated or remedied in the
amended prospectus on file with the Commission at the time the registration
statement becomes effective or in the final prospectus filed pursuant to Rule
424(b) of the Commission, the indemnity agreement herein shall not inure to the
benefit of the Company, any underwriter or (if there is no underwriter) any
Holder if a copy of the final prospectus filed pursuant to Rule 424(b) was not
furnished to the Person or entity asserting the loss, liability, claim or damage
at or prior to the time such furnishing is required by the Securities Act.
(c) Each party entitled to indemnification under this Section
5.7 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying
12
<PAGE> 15
Party") promptly after such Indemnified Party has actual knowledge of any claim
as to which indemnity may be sought, and shall permit the Indemnifying Party to
assume the defense of any such claim or any litigation resulting therefrom,
provided that counsel for the Indemnifying Party, who shall conduct the defense
of such claim or any litigation resulting therefrom, shall be approved by the
Indemnified Party (whose approval shall not unreasonably be withheld), and the
Indemnified Party may participate in such defense at such party's expense, and
provided further that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this Agreement unless the failure to give such notice is materially
prejudicial to an Indemnifying Party's ability to defend such action and
provided further, that the Indemnifying Party shall not assume the defense for
matters as to which there is a conflict of interest or separate and different
defenses. No Indemnifying Party, in the defense of any such claim or litigation,
shall, except with the consent of each Indemnified Party, consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. No Indemnified Party shall consent to entry of any judgment or enter
into any settlement without the consent of each Indemnifying Party (which
consent shall not be unreasonably withheld). Each Indemnified Party shall
furnish such information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as shall be reasonably
required in connection with defense of such claim and litigation resulting
therefrom.
(d) If the indemnification provided for in this Section 5.7 is
held by a court of competent jurisdiction to be unavailable to an Indemnified
Party with respect to any losses, claims, damages, expenses or liabilities
referred to therein, then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damages, expenses or
liabilities in such proportion as is appropriate to reflect the relative fault
of the Company on the one hand and all shareholders offering securities in the
offering (the "Selling Shareholders") on the other in connection with the
statements or omissions which resulted in such losses, claims, damages, expenses
or liabilities, as well as any other relevant equitable considerations. The
relative fault of the Company on the one hand and the Selling Shareholders on
the other shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
or by the Selling Shareholders and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company and the Selling Shareholders agree that it would not be
just and equitable if contribution pursuant to this Section 5.7(d) were based
solely upon the number of entities from whom contribution was requested or by
any other method of allocation which does not take account of the equitable
considerations referred to above in this Section 5.7(d). The amount paid or
payable by an Indemnified Party as a result of the losses, claims, damages,
expenses and liabilities referred to above in this Section 5.7(d) shall be
deemed to include any legal or other expenses reasonably incurred by such
Indemnified Party in connection with investigating or defending any such action
or claim, subject to the provisions of Section 5.7(c) hereof. Notwithstanding
the provisions of this Section 5.7(d), no Selling Shareholder shall be required
to contribute any amount or make any other payments under this Agreement which
in the aggregate exceed the proceeds received by such Selling Shareholder. No
Person guilty of fraudulent
13
<PAGE> 16
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with an underwritten public offering are in
conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
5.9. Certain Agreements of Holders.
(a) The Holder(s) included in any registration shall furnish
to the Company such information regarding such Holder(s), the Registrable
Securities and the distribution proposed by such Holder(s), as the Company may
reasonably request in writing and as shall be reasonably required in connection
with any registration, qualification or compliance referred to in Section 5.
(b) The failure of any Holder(s) to be included in a
registration to furnish the information requested pursuant to Section 5.8(a)
shall not affect the obligation of the Company under Section 5 to the remaining
Holder(s) who furnish such information unless, in the reasonable opinion of
counsel to the Company or the underwriters, such failure impairs or may impair
the legality of the registration statement or the underlying offering.
(c) Each Holder agrees that, upon receipt of any notice from
the Company of the happening of any event requiring the preparation of a
supplement or amendment to a prospectus relating to Registrable Securities so
that, as thereafter delivered to such Holder, such prospectus will not contain
an untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading, each Holder will forthwith discontinue disposition of Registrable
Securities pursuant to the registration statements contemplated by this
Agreement until its receipt of copies of the supplemented or amended prospectus
from the Company and, if so directed by the Company, each Holder shall deliver
to the Company all copies, other than permanent file copies then in such
Holder's possession, of the prospectus covering such Registrable Securities that
is current at the time of receipt of such notice.
(d) Each Holder agrees to notify the Company, at any time when
a prospectus relating to the registration statement contemplated by this
Agreement is required to be delivered by it under the Act, of the occurrence of
any event relating to such Holder which requires the preparation of a supplement
or amendment to such prospectus so that, as thereafter delivered to the
purchasers of Registrable Securities, such prospectus will not contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading
relating to such Holder, and such Holder shall promptly make available to the
Company information necessary to enable the Company to prepare any such
supplement or amendment. Each Holder agrees not to take any action with respect
to any distribution deemed to be made pursuant to such registration statement
that constitutes a violation of Rule 10(b)6 under the Exchange Act or any other
applicable rule, regulation or law.
14
<PAGE> 17
(e) Each Holder acknowledges and agrees that in the event of
sales under a shelf registration statement pursuant to this Agreement, (1) the
Registrable Securities sold pursuant to such registration statement are not
transferable on the books of the Company unless the share certificate submitted
to the transfer agent evidencing such Registrable Securities is accompanied by a
certificate reasonably satisfactory to the Company to the effect that (A) the
Registrable Securities have been sold in accordance with such registration
statement and (B) the requirement of delivering a current prospectus has been
satisfied and (2) such Holder will not effect any public sale or distribution of
Registrable Securities pursuant to such shelf registration statement pursuant to
this Agreement at any time that the Company shall have advised the Holders in
writing that the sale by such Holders pursuant to such shelf registration could
reasonably be expected to adversely affect, or require the premature disclosure
of any proposed acquisition, disposition or other transaction involving the
Company; provided, however, the Company may not restrict any such sales unless
at least five (5) days' prior written notice is provided to each Holder and
provided further the Company may not restrict sales by Holders for a total of
more than 60 (sixty) days during any one year period.
5.10. Rule 144 Reporting.
With a view to making available the benefits of certain rules
and regulations of the Commission which may at any time permit the sale of the
Restricted Securities to the public without registration, after such time as a
public market exists for the Common Stock of the Company, the Company agrees to
use its best lawful efforts to:
(a) Make and keep public information regarding the Company
available, as those terms are understood and defined in Rule 144 under the
Securities Act, at all times from and after 90 days following the effective date
of the first registration under the Securities Act filed by the Company for an
offering of its securities to the general public.
(b) File with the Commission in a timely manner all reports
and other documents required of the Company under the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements);
(c) So long as a Holder owns any Restricted Securities,
furnish to such Holder forthwith upon request a written statement by the Company
as to its compliance with the reporting requirements of said Rule 144 (at any
time from and after 90 days following the effective date of the first
registration statement filed by the Company for an offering of its securities to
the general public), and of the Securities Act and the Exchange Act (at any time
after it has become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents of the Company and other information in the possession of or
reasonably obtainable by the Company as a Holder may reasonably request in
availing itself of any rule or regulation of the Commission allowing such Holder
to sell any such securities without registration.
5.11. Transfer of Registration Rights.
The rights granted to a Holder under Section 5 may be assigned
to a transferee or assignee in connection with any transfer or assignment of
Registrable Securities by a Holder
15
<PAGE> 18
provided that: (i) such transfer may otherwise be effected in accordance with
applicable securities laws, (ii) such assignee or transferee acquires at least
the lesser of (a) one-half of the number of Registrable Securities originally
held by the Holder that owned such Registrable Securities on the date hereof and
(b) Registrable Securities consisting of 150,000 shares of Common Stock (subject
to appropriate adjustment for any stock splits, dividends, subdivisions,
combinations, recapitalizations and the like) and (iii) the Holder notifies the
Company in writing of the transfer or assignment, stating the name and the
address of the transferee or assignee and identifying the securities with
respect to which such registration rights are being transferred or assigned and
the assignee or transferee agrees in writing to be bound by the provisions of
this Agreement.
5.12. Lockup Agreement.
In consideration for the Company's agreeing to its obligations
under this Agreement, each Holder hereby agrees in connection with any
registration of the Company's securities other than (x) a registration relating
solely to employee benefit plans, or (y) a registration relating solely to a
transaction contemplated by Rule 145 of the Commission (whether or not the
Holder's Registrable Securities are included in a registration statement
pursuant thereto) not to sell, make any short sale of, loan, grant any option
for the purchase of, or otherwise dispose of any Registrable Securities (other
than those included in the registration) other than intra-family transfers and
transfer to trusts for estate planning purposes without the prior written
consent of the Company or underwriters managing the offering, as the case may
be, during the 90-day period beginning on the effective date of a registration
statement filed pursuant hereto; provided, however, that such Holder shall be
relieved of its obligations under this Section 5.12 unless all executive
officers and directors of the Company enter into similar agreements. Each Holder
hereby agrees that, upon the request of the Company or the underwriters, it will
confirm in writing the provisions of this Section 5.12. The Company may impose
stock-transfer instructions with respect to securities subject to the foregoing
restriction until the end of said restriction.
5.13. 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(k) all Registrable Securities then held by such Holder.
Section 6. Miscellaneous.
6.1. GOVERNING LAW.
THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS BY THE LAWS
OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF
LAWS EXCEPT TO THE EXTENT THAT THE NEW YORK CONFLICTS OF LAWS PRINCIPLES WOULD
APPLY THE APPLICABLE LAWS OF THE STATE OF TEXAS TO INTERNAL MATTERS RELATING TO
CORPORATIONS THEREUNDER).
16
<PAGE> 19
6.2. Successor and Assigns.
Except as otherwise provided herein, the provisions hereof
shall inure to the benefit of, and be binding upon, the successors, assigns,
heirs, executors and administrators of the parties hereto.
6.3. Effectiveness.
This Agreement shall become effective upon its execution by
each Purchaser.
6.4. Entire Agreement; Amendment.
This Agreement constitutes the full and entire understanding
and agreement between the parties with regard to the subject hereof. Except as
expressly provided herein, neither this Agreement nor any term hereof may be
amended, waived, discharged or terminated other than by a written instrument
signed by the party against whom enforcement of any such amendment, waiver,
discharge or termination is sought; provided, however, that any provisions
hereof may be amended, waived, discharged or terminated upon the written consent
of the Company and the holders of a majority in interest of the aggregate of the
then outstanding Registrable Securities; and provided further, that any such
amendment, waiver, discharge or termination that would adversely affect in any
material respect the material rights hereunder of any Holder, in its capacity as
such, without similarly affecting the rights hereunder of all of the Holders may
not be made without the prior written consent of such adversely affected Holder.
6.5. Notices, Etc.
All notices and other communications required or permitted
hereunder shall be in writing and shall be mailed by registered or certified
mail, postage prepaid, or otherwise delivered by hand or by messenger, including
Federal Express or similar courier service, or by facsimile transmission
addressed (a) if to a Purchaser, at such Purchaser's address and/or telefax
number set forth in Annex A attached hereto, or at such other address as such
Purchaser shall have furnished to the Company in writing, or (b) if to the
Company, to Carrizo Oil & Gas, Inc., 14811 St. Mary's Lane, Suite 148, Houston,
Texas 77079, Attn: President; telefax number (281) 496-0884, or at such other
address as the Company shall have furnished to the Holders.
Each such notice or other communication shall for all purposes
of this Agreement be treated as effective or having been given when delivered if
delivered personally, or, if sent by mail, at the earlier of its receipt or five
days after the same has been deposited in a regularly maintained receptacle for
the deposit of the United States mail, addressed and mailed as aforesaid, or, if
sent by courier, on the next business day following the day of dispatch or sent
by facsimile transmission, on the date of such transmission if confirmation of
such transmission is received.
6.6. Delays or Omissions.
Except as expressly provided herein, no delay or omission to
exercise any right, power or remedy accruing to any party upon any breach or
default of another party the Company under this Agreement shall impair any such
right, power or remedy of such party that is not in
17
<PAGE> 20
breach or default nor shall it be construed to be a waiver of any such breach or
default, or an acquiescence therein, or of or in any similar breach or default
thereafter occurring; nor shall any waiver of any single breach or default be
deemed a waiver of any other breach or default theretofore or thereafter
occurring. Any waiver, permit, consent or approval of any kind or character on
the part of any party of any breach or default under this Agreement, or any
waiver on the part of any party of any provisions or conditions of this
Agreement, must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement or by law or otherwise afforded to any party, shall be cumulative and
not alternative.
6.7. Severability.
In the event that any provision of this Agreement becomes or
is declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision; provided that no such severability shall be effective if it
materially changes the economic benefit of this Agreement to any party.
6.8. Titles and Subtitles.
The titles and subtitles used in this Agreement are used for
convenience only and are not considered in construing or interpreting this
Agreement.
6.9. Gender.
As used herein, masculine pronouns shall include the feminine
and neuter, neuter pronouns shall include the masculine and the feminine.
6.10. Counterparts.
This Agreement may be executed in any number of counterparts,
each of which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
18
<PAGE> 21
IN WITNESS WHEREOF, the undersigned or each of their
respective duly authorized officers or representatives have executed this
agreement effective upon the date first set forth above.
"COMPANY"
CARRIZO OIL & GAS, INC.
By: /s/ S. P. Johnson IV
-----------------------------------------
Name: S. P. Johnson IV
Title: President
"PURCHASERS"
CB CAPITAL INVESTORS, L.P.
By: /s/ Christopher Behrens
-----------------------------------------
Name: Christopher Behrens
Title: General Partner
MELLON VENTURES, L.P.
By: MVMA, L.P., its general partner
By: MVMA, Inc., its general partner
By: /s/ John P. Shoemaker
------------------------------
Name: John P. Shoemaker
Title: Managing Director
<PAGE> 22
ANNEX A
PURCHASERS
CB Capital Investors, L.P.
380 Madison Avenue
12th Floor
New York, NY 10017
Attention: Christopher C. Behrens
Dorian Faust
Telephone: (212) 622-3100
Telecopier: (212) 622-3101
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: Frederick M. Bachman, Esq.
Telephone No.: (212) 408-2400
Telecopier No.: (212) 728-5950
Mellon Ventures, L.P.
5 Radnor Corporate Center
100 Matsonford Road, Suite 170
Radnor, PA 19087
Attention: Marc A. Cole
Telephone: (610) 688-4758
Telecopier: (610) 688-3930
with a copy to:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103-2793
Attention: David S. Denious
Telephone (215) 994-4000
Telecopier (215) 994-2222
<PAGE> 1
EXHIBIT 99.5
CARRIZO OIL & GAS, INC.,
a Texas corporation
------------------------------------------------
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
December 15, 1999
------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Certain Definitions..............................................1
2. [Intentionally omitted] .........................................3
3. [Intentionally omitted] .........................................3
4. [Intentionally omitted] .........................................3
5. Registration Rights..............................................3
5.1 Requested Registration..................................3
5.2 Company Registration....................................5
5.3 Registration on Form S-3................................6
5.4 Chase Agreement.........................................9
5.5 Limitations on Subsequent Registration Rights...........9
5.6 Expenses of Registration...............................10
5.7 Registration Procedures................................10
5.8 Indemnification........................................12
5.9 Certain Agreements of Holders..........................14
5.10 Rule 144 Reporting.....................................16
5.11 Transfer of Registration Rights........................16
5.12 Lockup Agreement.......................................16
5.13 Termination of Registration Rights.....................17
6. Miscellaneous...................................................17
6.1 GOVERNING LAW..........................................17
6.2 Successors and Assigns.................................17
6.3 Effectiveness..........................................17
6.4 Entire Agreement; Amendment............................17
6.5 Notices, Etc...........................................17
6.6 Delays or Omissions....................................18
6.7 Severability...........................................18
6.8 Titles and Subtitles...................................18
6.9 Gender.................................................18
6.10 Counterparts...........................................18
</TABLE>
-i-
<PAGE> 3
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
THIS AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT is entered into
as of the 15th day of December, 1999 by and among Carrizo Oil & Gas, Inc., a
Texas corporation (the "Company"), and certain shareholders of the company whose
names are set forth on Annex A attached hereto (the "Purchasers") and amends and
restates the Registration Rights Agreement dated as of June 4, 1997.
Recitals
The Company is entering into a Registration Rights Agreement
dated December 15, 1999 with, among others, CB Capital Investors, L.P. The
Company now wishes to amend this Agreement in accordance with the Chase
Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties hereby agree as follows:
1. Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
"Chase Agreement" means the Registration Rights Agreement dated as of
December 15, 1999 among the Company and the Shareholders of the Company listed
on Annex A attached thereto.
"Chase Holders" means the Purchasers under the Chase Agreement and any
Persons to whom Registrable Securities are transferred in accordance with the
Chase Agreement.
"Chase Registration Notice" has the meaning given to such term in
Section 5.4.
"Combined Registrable Securities" has the meaning given to such term in
Section 5.4.
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"Common Stock" shall mean the common stock of the Company, par value
$.01 per share, and any other securities issued in respect of Common Stock upon
any stock split, stock dividend, recapitalization, merger, consolidation, share
exchange or similar event.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
<PAGE> 4
"Holder" shall mean any Purchaser holding Registrable Securities and
any person holding Registrable Securities to whom the rights under this
Agreement have been transferred in accordance with Section 5.11 hereof.
"Holder Registration Notice" has the meaning given to such term in
Section 5.4.
"Initiating Holders" shall mean any Holder(s) who in the aggregate are
Holders of not less than 51% of the then outstanding Registrable Securities.
"Purchased Shares" shall mean the Common Stock purchased by the
Purchasers pursuant to the Purchase Authorizations.
"Person" means any individual, any foreign or domestic corporation,
general partnership, limited partnership, limited liability company, firm, joint
venture, association, individual retirement account, joint stock company, trust,
estate, unincorporated organization, governmental or regulatory body or other
entity.
"Registrable Securities" shall mean (i) the shares of Common Stock of
the Company held by the Purchasers on the date hereof and (ii) all shares of
Common Stock of the Company issuable upon the conversion, exchange or exercise
of all securities of the Company that are convertible, exchangeable or
exercisable for Common Stock hereafter acquired (including without limitation,
any Common Stock issued to the Purchasers pursuant to the exercise of the
Warrants); provided, however, that securities shall be treated as Registrable
Securities only if and only for so long as they are held by a Holder or a
permitted transferee pursuant to the terms hereof, and (i) they have not been
disposed of pursuant to a registration statement declared effective by the
Commission, so that all transfer restrictions and restrictive legends with
respect thereto are removed upon the consummation of such sale, or (ii) they
have not been sold in a transaction exempt from the registration and prospectus
delivery requirements of the Securities Act, so that all transfer restrictions
and restrictive legends with respect thereto are removed upon the consummation
of such sale, or (iii) the registration rights as to the Holder of such
Registrable Securities have not expired pursuant to Section 5.13.
The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses, other than Selling
Expenses (as defined below), incurred by the Company in complying with Section
5.1, 5.2 or 5.3 hereof, including, without limitation, all registration,
qualification and filing fees, printing expenses, escrow fees, fees and
disbursements of counsel for the Company, blue sky fees and expenses, the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company which shall
be paid in any event by the Company) and the reasonable fees and disbursements
of one counsel for all Holders.
-2-
<PAGE> 5
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
the Holders and, except as set forth above, all fees and disbursements of
counsel for any Holder.
"Warrants" has the meaning given to such term in the Warrant Agreement.
"Warrant Agreement" shall mean the Warrant Agreement dated as of the
date hereof among the Company and the parties named therein.
2. [Intentionally omitted]
3. [Intentionally omitted]
4. [Intentionally omitted]
5. Registration Rights.
5.1 Requested Registration.
(a) Request for Registration. In case the Company shall receive
from Initiating Holders a written request that the Company effect any
registration, qualification or compliance with respect to not less than 5% of
the shares of Registrable Securities then outstanding, the Company will:
(i) promptly give written notice of the proposed
registration, qualification or compliance to all other Holders; and
(ii) as soon as practicable, use its reasonable best lawful
efforts to effect such registration, qualification or compliance (including,
without limitation, appropriate qualification under applicable blue sky or other
state securities laws and appropriate compliance with applicable regulations
issued under the Securities Act and any other governmental requirements or
regulations) as may be so requested and as would permit or facilitate the sale
and distribution of all or such portion of such Registrable Securities as are
specified in such request, together with all or such portion of the Registrable
Securities of any Holders joining in such request as are specified in a written
request received by the Company within 20 days after receipt of such written
notice from the Company; provided, however, that the Company shall not be
obligated to take any action to effect any such registration, qualification or
compliance pursuant to this Section 5.1:
-3-
<PAGE> 6
(A) In any particular jurisdiction in which the Company
would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;
(B) During the period starting with the date sixty (60)
days prior to the Company's estimated date of filing of, and ending on the date
three (3) months immediately following the effective date of, a
Company-initiated registration statement pertaining to securities of the Company
(other than a registration of securities in a Rule 145 transaction or with
respect to an employee benefit plan), provided that the Company is actively
employing in good faith all reasonable efforts to cause such registration
statement to become effective (and provided, further, that the Company cannot
pursuant to this Section 5.1(a)(ii)(B) or pursuant to Section 5.3(a)(ii)(B)
delay implementation of a demand for registration more than once in any 24-month
period);
(C) After the Company has effected an aggregate of four
such registrations which may be effected at the option of the Holders pursuant
to either this Section 5.1(a) or Section 5.3(a), and such registrations have
been declared or ordered effective; or
(D) If the Company shall furnish to such Holders a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors it would be seriously detrimental to
the Company or its shareholders for a registration statement to be filed in the
near future, then the Company's obligation to use its reasonable best lawful
efforts to register, qualify or comply under this Section 5.1 shall be deferred
once (with respect to any demand for registration hereunder) for a period not to
exceed ninety (90) days from the date of receipt of written request from the
Initiating Holders, provided that the Company cannot pursuant to this Section
5.1(a)(ii)(D) or pursuant to Section 5.3(a)(ii)(D) delay implementation of a
demand for registration more than once in any 12-month period.
Subject to the foregoing clauses (A) through (D), the Company shall
file a registration statement covering the Registrable Securities so requested
to be registered as soon as practicable, after receipt of the request or
requests of the Initiating Holders.
(b) Underwriting. In the event that a registration pursuant to
Section 5.1 is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as part of the notice given pursuant to
Section 5.1(a)(i). In such event, the right of any Holder to registration
pursuant to Section 5.1 shall be conditioned upon such Holder's participation in
the underwriting arrangements required by this Section 5.1, and the inclusion of
such Holder's Registrable Securities, as the case may be, in the underwriting to
the extent requested shall be limited to the extent provided herein.
The Company shall (together with all Holders and other holders
proposing to distribute their securities through such underwriting) enter into
an underwriting agreement in customary form with the managing underwriter
selected for such underwriting by a majority in interest of the Initiating
-4-
<PAGE> 7
Holders, but subject to the Company's reasonable approval. Notwithstanding any
other provision of this Section 5.1, if the managing underwriter determines that
marketing factors require a limitation of the number of shares to be
underwritten, the underwriter may limit the Registrable Securities to be
included in such registration and underwriting (provided that securities of
other securityholders are not included therein). In the event of a limitation on
the number of Registrable Securities to be included in a registration, then the
Company shall so advise all Holders and the number of Registrable Securities
that may be included in the registration and underwriting shall be allocated
among all Holders thereof in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities held by such Holders. No
Registrable Securities excluded from the underwriting by reason of the
underwriter's marketing limitation shall be included in such registration. To
facilitate the allocation of Registrable Securities in accordance with the above
provisions, the Company or the underwriters may round the number of Registrable
Securities allocated to any Holder to the nearest 100 shares.
If any Holder of Registrable Securities disapproves of the terms of the
underwriting, such Person may elect to withdraw therefrom by written notice to
the Company, the managing underwriter and the Initiating Holders. The
Registrable Securities so withdrawn shall also be withdrawn from registration,
and such Registrable Securities shall not be transferred in a public
distribution prior to 180 days after the effective date of such registration, or
such other shorter period of time as the underwriters may require.
(c) The Company shall not register securities for sale for its
own account in any registration requested pursuant to this Section 5.1 unless
permitted to do so by the written consent of Holders who hold at least 2/3 of
the Registrable Securities as to which registration has been requested or unless
the underwriter shall indicate in writing to the Initiating Holders that the
inclusion of the shares to be sold for the account of the Company will not
adversely affect the registration, the price of the shares to be sold and the
number of shares to be sold for the account of the Holders. The Company may not
cause any other registration of securities for sale for its own account (other
than a registration effected solely to implement an employee benefit plan or
stock option plan or a transaction contemplated by Rule 145 of the Commission)
to be initiated after a registration requested pursuant to Section 5.1 and to
become effective less than 90 days after the effective date of any registration
requested pursuant to Section 5.1.
5.2 Company Registration.
(a) Notice of Registration. If at any time or from time to time
the Company shall determine to register any of its securities, either for its
own account or the account of a security holder or holders, other than (x) a
registration relating solely to employee benefit plans, or (y) a registration
relating solely to a Commission Rule 145 transaction, the Company will:
(i) promptly give to each Holder written notice thereof;
and
-5-
<PAGE> 8
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
or requests, made within 20 days after receipt of such written notice from the
Company, by any Holder.
(b) Underwriting. If the registration of which the Company
gives notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 5.2(a)(i). In such event the right of any Holder to
registration pursuant to Section 5.2 shall be conditioned upon such Holder's
participation in such underwriting, and the inclusion of Registrable Securities
in the underwriting shall be limited to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company and the other holders distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the managing underwriter selected for such underwriting by the
Company. Notwithstanding any other provision of this Section 5.2, if the
managing underwriter determines that marketing factors require a limitation of
the number of shares to be underwritten, the underwriters may exclude some or
all Registrable Securities from such registration and underwriting (provided
that securities of other securityholders are similarly excluded. In the event of
a limitation (or elimination) on the number of Registrable Securities and other
securities to be included in a registration, the Company shall so advise all
Holders and any other holders requesting to distribute their securities through
such underwriting pursuant to piggy-back registration rights and the number of
Registrable Securities and other such securities that may be included in the
registration and underwriting shall be allocated among all Holders thereof and
such other holders in proportion, as nearly as practicable, to the respective
amounts of securities requested to be included in such registration. To
facilitate the allocation of Registrable Securities in accordance with the above
provisions, the Company may round the number of Registrable Securities and other
securities allocated to any Holder or other holder to the nearest 100 shares. If
any Holder disapproves of the terms of any such underwriting, he may elect to
withdraw therefrom by written notice to the Company and the managing
underwriter. Any securities excluded or withdrawn from such underwriting shall
be withdrawn from such registration, and shall not be transferred in a public
distribution prior to 180 days after the effective date of the registration
statement relating thereto, or such other shorter period of time as the
underwriters may require.
(c) Right to Terminate Registration. The Company shall have the
right to terminate or withdraw any registration initiated by it under this
Section 5.2 prior to or after the effectiveness of such registration whether or
not any Holder has elected to include securities in such registration.
5.3 Registration on Form S-3.
(a) In addition to the registration rights provided in Sections
5.1 and 5.2, if the Company shall receive from Initiating Holders a written
request that the Company file a registration statement on Form S-3 (or any
successor form to Form S-3) for a public offering of
-6-
<PAGE> 9
shares of the Registrable Securities and the Company is a registrant entitled to
use Form S-3 to register the Registrable Securities for such an offering by
selling Holders the Company will:
(i) promptly give written notice of the proposed
registration, qualification or compliance to all other Holders; and
(ii) as soon as practicable, use its best lawful efforts to
effect such registration, qualification or compliance (including, without
limitation, appropriate qualification under applicable blue sky or other state
securities laws and appropriate compliance with applicable regulations issued
under the Securities Act and any other governmental requirements or regulations)
as may be so requested and as would permit or facilitate the sale and
distribution of all or such portion of such Registrable Securities as are
specified in such request, together with all or such portion of the Registrable
Securities and of any Holders joining in such request as are specified in a
written request received by the Company within 20 days after receipt of such
written notice from the Company; provided, however, that the Company shall not
be obligated to take any action to effect any such registration, qualification
or compliance pursuant to this Section 5.3:
(A) In any particular jurisdiction in which the
Company would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;
(B) During the period starting with the date sixty
(60) days prior to the Company's estimated date of filing of, and ending on the
date three (3) months immediately following the effective date of, any
registration statement pertaining to securities of the Company (other than a
registration of securities in a Rule 145 transaction or with respect to an
employee benefit plan), provided that the Company is actively employing in good
faith all reasonable efforts to cause such registration statement to become
effective (and provided, further, that the Company cannot pursuant to this
Section 5.3(a)(ii)(B) or pursuant to Section 5.1(a)(ii)(B) delay implementation
of a demand for registration more than once in any 24-month period);
(C) After the Company has effected an aggregate of
four such registrations which may be effected at the option of the Holders
pursuant to either this Section 5.3(a) or Section 5.1(a), and such registrations
have been declared or ordered effective; or
(D) If the Company shall furnish to such Holders a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors it would be seriously detrimental to
the Company or its shareholders for a registration statement to be filed in the
near future, then the Company's obligation to use its reasonable best lawful
efforts to register, qualify or comply under this Section 5.3 shall be deferred
once (with respect to any demand for registration hereunder) for a period not to
exceed ninety (90) days from the date of receipt of written request for
registration; provided, however, that the
-7-
<PAGE> 10
Company cannot pursuant to this Section 5.3(a)(ii)(D) or pursuant to Section
5.1(a)(ii)(D) delay implementation of a demand for registration more than once
in any 12-month period.
Subject to the foregoing clauses (A) through (D), the Company shall
file a registration statement covering the Registrable Securities so requested
to be registered as soon as reasonably practicable, after receipt of the request
or requests for registration.
(b) Underwriting. In the event that a registration pursuant to
Section 5.3 is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as part of the notice given pursuant to
Section 5.3(a)(i). In such event, the right of any Holder to registration
pursuant to Section 5.3 shall be conditioned upon such Holder's participation in
the underwriting arrangements required by this Section 5.3, and the inclusion of
such Holder's Registrable Securities, as the case may be, in the underwriting to
the extent requested shall be limited to the extent provided herein.
The Company shall (together with all Holders and other holders
proposing to distribute their securities through such underwriting) enter into
an underwriting agreement in customary form with the managing underwriter
selected for such underwriting by a majority in interest of the Initiating
Holders, but subject to the Company's reasonable approval. Notwithstanding any
other provision of this Section 5.3, if the managing underwriter determines that
marketing factors require a limitation of the number of Registrable Securities
to be underwritten, the underwriters may limit the Registrable Securities to be
included in such registration and underwriting (provided that securities of
other securityholders are not included therein). In the event of a limitation on
the number of Registrable Securities to be included in a registration, the
Company shall so advise all Holders, and the number of shares of Registrable
Securities that may be included in the registration and underwriting shall be
allocated among all Holders thereof in proportion, as nearly as practicable, to
the respective amounts of Registrable Securities held by such Holders at the
time of filing the registration statement. No Registrable Securities excluded
from the underwriting by reason of the underwriter's marketing limitation shall
be included in such registration. To facilitate the allocation of Registrable
Securities in accordance with the above provisions, the Company or the
underwriters may round the number of Registrable Securities allocated to any
Holder to the nearest 100 shares.
If any Holder disapproves of the terms of the underwriting, such Person
may elect to withdraw therefrom by written notice to the Company, the managing
underwriter and the Initiating Holders. The Registrable Securities so withdrawn
shall also be withdrawn from registration, and such securities shall not be
transferred in a public distribution prior to 180 days after the effective date
of such registration, or such other shorter period of time as the underwriters
may require.
(c) The Company shall not register securities for sale for its
own account in any registration requested pursuant to this Section 5.3 unless
permitted to do so by the written consent of Holders who hold at least 2/3 of
the Registrable Securities as to which registration has been requested or unless
the underwriter shall indicate in writing to the Initiating Holders that the
inclusion of the shares to be sold for the account of the Company will not
adversely affect the
-8-
<PAGE> 11
registration, the price of the shares to be sold and the number of shares to be
sold for the account of the Holders. The Company may not cause any other
registration of securities for sale for its own account (other than a
registration effected solely to implement an employee benefit plan or stock
option plan or a transaction contemplated by Rule 145 of the Commission) to be
initiated after a registration requested pursuant to Section 5.3 and to become
effective less than 90 days after the effective date of any registration
requested pursuant to Section 5.3
5.4 Chase Agreement.
If the Company receives notice from the Chase Holders of a request for
registration pursuant to Sections 5.1(a) or 5.3(a) of the Chase Agreement (a
"Chase Registration Notice"), the Company shall promptly notify the Holders
after receipt of the Chase Registration Notice, and the Holders may thereafter
give notice, within 20 days after the date of the Chase Registration Notice, of
a registration request pursuant to Sections 5.1(a) or 5.3(a), as the case may
be, of this Agreement. If the Company receives notice from the Initiating
Holders of a request for registration pursuant to Sections 5.1(a) or 5.3(a) of
this Agreement (a "Holder Registration Notice"), the Company shall promptly
notify the Chase Holders after receipt of the Holder Registration Notice, and
the Chase Holders may thereafter give notice, within 20 days after receipt of
the Holder Registration Notice, of a registration request pursuant to Sections
5.1(a) or 5.3(a), as the case may be, of the Chase Agreement. In either such
event, the Registrable Securities of the Holders requesting registration and of
the Chase Holders requesting registration (collectively, the "Combined
Registrable Securities") (whether or not such Holders or Chase Holders, as the
case may be, initiated such request) shall be included in such registration with
priority over any securities of other securityholders who may be entitled to
exercise piggyback registration rights. The registration shall be governed by
the registration rights agreement to which the Person initiating the request for
registration is a party (e.g., if the request for registration is initiated by
the Chase Holders, the Chase Agreement shall govern and if the request for
registration is initiated by the Holders, this Agreement shall govern) and for
purposes of such registration, the term "Registrable Securities" as used in the
Chase Agreement or this Agreement, as the case may be, shall mean the Combined
Registrable Securities and the term "Holders" as used in the Chase Agreement or
this Agreement, as the case may be, shall include the Holders as defined under
the Chase Agreement and the Holders as defined under this Agreement.
5.5 Limitations on Subsequent Registration Rights.
(a) The Company represents and warrants to the Purchasers that
the registration rights granted to the Purchasers hereby do not conflict with
any other registration rights granted by the Company. The Company shall not,
after the date hereof, grant any registration rights which conflict with or
impair, or have any priority over, the registration rights granted hereby. If
the Company grants to other investors any registration rights which are not
prohibited by the foregoing sentence, such registration rights shall be issued
under registration rights agreements which contain sharing provisions similar to
Section 5.4 above. Without limiting the generality of the foregoing,
registration rights which contain such sharing provisions and which otherwise
contain
-9-
<PAGE> 12
the same provisions as this Agreement shall not be deemed to have priority or
impair the Purchasers' registration rights.
(b) Within the limitations prescribed by this Section 5.5(b),
but not otherwise, the Company may grant to subsequent investors in the Company
registration rights such as those provided in Section 5.2. Such rights may only
pertain to shares of Common Stock, including shares of Common Stock into which
any other securities may be converted. Such rights may be granted with respect
to (i) registrations requested pursuant to Section 5.1 or 5.3, but only in
respect of that portion of any such registration as remains after inclusion of
all Registrable Securities requested by Holders to be included in such
registration and (ii) registrations initiated by the Company, provided that such
rights shall be limited in all cases to sharing pro rata in the available
portion of the registration in question with Holders, such sharing to be based
on the number of shares of Common Stock held by the respective Holders and held
by such other investors, plus the number of shares of Common Stock into which
other securities held by the Holders and such other investors are convertible,
which are entitled to registration rights.
5.6 Expenses of Registration. All Registration Expenses incurred in
connection with the registrations pursuant to Section 5.1, Section 5.2 and
Section 5.3 shall be borne by the Company. Unless otherwise stated, all Selling
Expenses relating to securities registered on behalf of the Holders or other
holders registering securities shall be borne by the Holders or holders of such
securities pro rata on the basis of the number of shares so registered.
5.7 Registration Procedures. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Agreement,
the Company will keep each Holder advised in writing as to the initiation of
each registration, qualification and compliance and as to the completion
thereof. At its expense the Company will:
(a) Prepare and file with the Commission a registration
statement with respect to such securities and use its best lawful efforts to
cause such registration statement to become and remain effective for a period of
one hundred twenty (120) days or until the Holder or Holders have completed the
distribution described in the registration statement relating thereto, whichever
first occurs; provided, however, that (i) such 120-day period shall be extended
for a period of time equal to the period the Holder refrains from selling any
securities included in such registration at the request of an underwriter of
Common Stock (or other securities) of the Company; and (ii) in the case of any
registration of Registrable Securities on Form S-3 which are intended to be
offered on a continuous or delayed basis, such 120-day period shall be extended,
if necessary, to keep the registration statement effective until all such
Registrable Securities are sold, provided that Rule 415, or any successor rule
under the Securities Act, permits an offering on a continuous or delayed basis,
and provided further that applicable rules under the Securities Act governing
the obligation to file a post-effective amendment permit, in lieu of filing a
post-effective amendment that (I) includes any prospectus required by Section
10(a)(3) of the Securities Act or (II) reflects facts or events representing a
material or fundamental change in the information set forth in the registration
statement, the incorporation by reference of information required to be included
in (I) and (II) above
-10-
<PAGE> 13
to be contained in periodic reports filed pursuant to Section 13 or 15(d) of the
Exchange Act in the registration statement;
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement;
(c) Furnish such number of prospectuses and other documents
incident thereto, including any amendment of or supplement to the prospectus, as
a Holder from time to time may reasonably request;
(d) Notify each seller of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading or incomplete in the light of the
circumstances then existing, and at the request of any such seller, prepare and
furnish to such seller a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such shares, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading or
incomplete in the light of the circumstances then existing;
(e) Cause all such Registrable Securities registered pursuant
hereto to be listed on each securities exchange or quoted on a quotation system
on which similar securities issued by the Company are then listed or quoted;
(f) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant to such registration statement and a CUSIP number
for all such Registrable Securities, in each case not later than the effective
date of such registration;
(g) Otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
securities holders, as soon as reasonably practicable, an earnings statement
covering the period of at least 12 months, but not more than 18 months,
beginning with the first month after the effective date of the Registration
Statement, which earnings statement shall satisfy the provisions of Section
11(a) of the Securities Act; and
(h) If requested by Holders of 50% of all of the Registrable
Securities that are being registered in such registration, furnish to each
prospective seller a signed counterpart, a "comfort" letter signed by the
independent public accountants who have certified the Company's financial
statements included in the registration statement, covering substantially the
same matters with respect to the registration statement (and the prospectus
included therein) and with respect to
-11-
<PAGE> 14
events subsequent to the date of the financial statements, as are customarily
covered (at the time of such registration and closing) in "comfort" letters
delivered to the underwriters in underwritten public offerings of securities.
5.8 Indemnification.
(a) To the extent permitted by law, the Company will indemnify
each Holder, each of its officers and directors, partners and legal counsel and
each Person controlling such Holder within the meaning of Section 15 of the
Securities Act, with respect to which registration, qualification or compliance
has been effected pursuant to this Agreement, and each underwriter, if any, and
each Person who controls any underwriter within the meaning of Section 15 of the
Securities Act, against all expenses, claims, losses, damages or liabilities (or
actions or proceedings in respect thereof), including any of the foregoing
incurred in settlement of any litigation, commenced or threatened, arising out
of or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any registration statement, prospectus, offering circular or
other document, or any amendment or supplement thereto, incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein, not misleading, or any violation by
the Company of the Securities Act or any rule or regulation promulgated under
the Securities Act applicable to the Company in connection with any such
registration, qualification or compliance, and the Company will reimburse each
such Holder, each of its officers and directors, partners and legal counsel and
each Person controlling such Holder, each such underwriter and each Person who
controls any such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating, preparing, settling or defending any
such claim, loss, damage, liability or action, provided that the Company will
not be liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission or alleged untrue statement or omission, made in reliance upon and in
conformity with written information furnished to the Company by such Holder,
controlling Person or underwriter and stated to be specifically for use therein.
Notwithstanding the foregoing, insofar as the foregoing indemnity relates to any
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) made in the preliminary prospectus but eliminated or remedied in the
amended prospectus on file with the Commission at the time the registration
statement becomes effective or in the final prospectus filed with the Commission
pursuant to Rule 424(b) of the Commission, the indemnity agreement herein shall
not inure to the benefit of any underwriter if a copy of the final prospectus
filed pursuant to Rule 424(b) was not furnished to the Person or entity
asserting the loss, liability, claim or damage at or prior to the time such
furnishing is required by the Securities Act.
(b) To the extent permitted by law, each Holder will, if
Registrable Securities held by such Holder are included in the securities as to
which such registration, qualification or compliance is being effected,
indemnify the Company, each of its directors, officers and legal counsel, each
underwriter, if any, of the Company's securities covered by such a registration
statement, each Person who controls the Company or such underwriter within the
-12-
<PAGE> 15
meaning of Section 15 of the Securities Act, and each other such Holder, each of
its officers and directors and each Person controlling such Holder within the
meaning of Section 15 of the Securities Act, against all claims, losses, damages
and liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company, such Holders, such directors,
officers, legal counsel, Persons, underwriters or control persons for any legal
or any other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action, in each case to the
extent, but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information furnished to the Company by such Holder
and stated to be specifically for use therein. Notwithstanding the foregoing,
the liability of each Holder under this subsection (b) shall be limited in an
amount equal to the net proceeds from the sale of the Registrable Securities
sold by such Holder. In addition, insofar as the foregoing indemnity relates to
any such untrue statement (or alleged untrue statement) or omission (or alleged
omission) made in the preliminary prospectus but eliminated or remedied in the
amended prospectus on file with the Commission at the time the registration
statement becomes effective or in the final prospectus filed pursuant to Rule
424(b) of the Commission, the indemnity agreement herein shall not inure to the
benefit of the Company, any underwriter or (if there is no underwriter) any
Holder if a copy of the final prospectus filed pursuant to Rule 424(b) was not
furnished to the Person or entity asserting the loss, liability, claim or damage
at or prior to the time such furnishing is required by the Securities Act.
(c) Each party entitled to indemnification under this Section
5.8 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Agreement unless the failure to
give such notice is materially prejudicial to an Indemnifying Party's ability to
defend such action and provided further, that the Indemnifying Party shall not
assume the defense for matters as to which there is a conflict of interest or
separate and different defenses. No Indemnifying Party, in the defense of any
such claim or litigation, shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
to such claim or litigation. No Indemnified Party shall consent to entry of any
judgment or enter into any settlement without the consent of each Indemnifying
Party (which consent shall not be unreasonably withheld). Each Indemnified Party
shall furnish such information regarding itself or
-13-
<PAGE> 16
the claim in question as an Indemnifying Party may reasonably request in writing
and as shall be reasonably required in connection with defense of such claim and
litigation resulting therefrom.
(d) If the indemnification provided for in this Section 5.8 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 Company on the one hand and all shareholders offering securities in the
offering (the "Selling Shareholders") on the other in connection with the
statements or omissions which resulted in such losses, claims, damages, expenses
or liabilities, as well as any other relevant equitable considerations. The
relative fault of the Company on the one hand and the Selling Shareholders on
the other shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
or by the Selling Shareholders and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company and the Selling Shareholders agree that it would not be
just and equitable if contribution pursuant to this Section 5.8(d) were based
solely upon the number of entities from whom contribution was requested or by
any other method of allocation which does not take account of the equitable
considerations referred to above in this Section 5.8(d). The amount paid or
payable by an Indemnified Party as a result of the losses, claims, damages,
expenses and liabilities referred to above in this Section 5.8(d) shall be
deemed to include any legal or other expenses reasonably incurred by such
Indemnified Party in connection with investigating or defending any such action
or claim, subject to the provisions of Section 5.8(c) hereof. Notwithstanding
the provisions of this Section 5.8(d), no Selling Shareholder shall be required
to contribute any amount or make any other payments under this Agreement which
in the aggregate exceed the proceeds received by such Selling Shareholder. No
Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with an underwritten public offering are in
conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
5.9 Certain Agreements of Holders.
(a) The Holder(s) included in any registration shall furnish to
the Company such information regarding such Holder(s), the Registrable
Securities and the distribution proposed by such Holder(s), as the Company may
reasonably request in writing and as shall be reasonably required in connection
with any registration, qualification or compliance referred to in Section 5.
-14-
<PAGE> 17
(b) The failure of any Holder(s) to be included in a
registration to furnish the information requested pursuant to Section 5.9(a)
shall not affect the obligation of the Company under Section 5 to the remaining
Holder(s) who furnish such information unless, in the reasonable opinion of
counsel to the Company or the underwriters, such failure impairs or may impair
the legality of the registration statement or the underlying offering.
(c) Each Holder agrees that, upon receipt of any notice from
the Company of the happening of any event requiring the preparation of a
supplement or amendment to a prospectus relating to Registrable Securities so
that, as thereafter delivered to such Holder, such prospectus will not contain
an untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading, each Holder will forthwith discontinue disposition of Registrable
Securities pursuant to the registration statements contemplated by this
Agreement until its receipt of copies of the supplemented or amended prospectus
from the Company and, if so directed by the Company, each Holder shall deliver
to the Company all copies, other than permanent file copies then in such
Holder's possession, of the prospectus covering such Registrable Securities that
is current at the time of receipt of such notice.
(d) Each Holder agrees to notify the Company, at any time when
a prospectus relating to the registration statement contemplated by this
Agreement is required to be delivered by it under the Act, of the occurrence of
any event relating to such Holder which requires the preparation of a supplement
or amendment to such prospectus so that, as thereafter delivered to the
purchasers of Registrable Securities, such prospectus will not contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading
relating to such Holder, and such Holder shall promptly make available to the
Company information necessary to enable the Company to prepare any such
supplement or amendment. Each Holder agrees not to take any action with respect
to any distribution deemed to be made pursuant to such registration statement
that constitutes a violation of Rule 10(b)6 under the Exchange Act or any other
applicable rule, regulation or law.
(c) Each Holder acknowledges and agrees that in the event of
sales under a shelf registration statement pursuant to this Agreement, (1) the
Registrable Securities sold pursuant to such registration statement are not
transferable on the books of the Company unless the share certificate submitted
to the transfer agent evidencing such Registrable Securities is accompanied by a
certificate reasonably satisfactory to the Company to the effect that (A) the
Registrable Securities have been sold in accordance with such registration
statement and (B) the requirement of delivering a current prospectus has been
satisfied and (2) such Holder will not effect any public sale or distribution of
Registrable Securities pursuant to such shelf registration statement pursuant to
this Agreement at any time that the Company shall have advised the Holders in
writing that the sale by such Holders pursuant to such shelf registration could
reasonably be expected to adversely affect, or require the premature disclosure
of any proposed acquisition, disposition or other transaction involving the
Company; provided, however, the Company may not restrict any such sales unless
at
-15-
<PAGE> 18
least five (5) days' prior written notice is provided to each Holder and
provided further the Company may not restrict sales by Holders for a total of
more than 60 (sixty) days during any one year period.
5.10 Rule 144 Reporting. With a view to making available the benefits
of certain rules and regulations of the Commission which may at any time permit
the sale of the Restricted Securities to the public without registration, after
such time as a public market exists for the Common Stock of the Company, the
Company agrees to use its best lawful efforts to:
(a) Make and keep public information regarding the Company
available, as those terms are understood and defined in Rule 144 under the
Securities Act, at all times from and after 90 days following the effective date
of the first registration under the Securities Act filed by the Company for an
offering of its securities to the general public.
(b) File with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements);
(c) So long as a Holder owns any Restricted Securities, furnish
to such Holder forthwith upon request a written statement by the Company as to
its compliance with the reporting requirements of said Rule 144 (at any time
from and after 90 days following the effective date of the first registration
statement filed by the Company for an offering of its securities to the general
public), and of the Securities Act and the Exchange Act (at any time after it
has become subject to such reporting requirements), a copy of the most recent
annual or quarterly report of the Company, and such other reports and documents
of the Company and other information in the possession of or reasonably
obtainable by the Company as a Holder may reasonably request in availing itself
of any rule or regulation of the Commission allowing such Holder to sell any
such securities without registration.
5.11 Transfer of Registration Rights. The rights granted to a Holder
under Section 5 may be assigned to a transferee or assignee in connection with
any transfer or assignment of Registrable Securities by a Holder provided that:
(i) such transfer may otherwise be effected in accordance with applicable
securities laws, (ii) such assignee or transferee acquires at least the lesser
of (a) one-half of the number of Registrable Securities originally held by the
Holder that owned such Registrable Securities on the date hereof and (b)
Registrable Securities consisting of 150,000 (subject to appropriate adjustment
for any other stock splits, dividends, subdivisions, combinations,
recapitalizations and the like) and (iii) the Holder notifies the Company in
writing of the transfer or assignment, stating the name and the address of the
transferee or assignee and identifying the securities with respect to which such
registration rights are being transferred or assigned and the assignee or
transferee agrees in writing to be bound by the provisions of this Agreement.
5.12 Lockup Agreement. In consideration for the Company's agreeing to
its obligations under this Agreement, each Holder hereby agrees in connection
with any registration of the Company's securities other than (x) a registration
relating solely to employee benefit plans, or
-16-
<PAGE> 19
(y) a registration relating solely to a transaction contemplated by Rule 145 of
the Commission (whether or not the Holder's Registrable Securities are included
in a registration statement pursuant thereto, not to sell, make any short sale
of, loan, grant any option for the purchase of, or otherwise dispose of any
Registrable Securities (other than those included in the registration) other
than intra-family transfers and transfer to trusts for estate planning purposes
without the prior written consent of the Company or underwriters managing the
offering, as the case may be, during the 90-day period beginning on the
effective date of a registration statement filed pursuant hereto; provided,
however, that such Holder shall be relieved of its obligations under this
Section 5.12 unless all executive officers and directors of the Company enter
into similar agreements. Each Holder hereby agrees that, upon the request of the
Company or the underwriters, it will confirm in writing the provisions of this
Section 5.12. The Company may impose stock-transfer instructions with respect to
securities subject to the foregoing restriction until the end of said
restriction.
5.13 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 all Registrable Securities then
held by such Holder.
6. Miscellaneous.
6.1 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED IN ALL
RESPECTS BY THE INTERNAL LAWS OF THE STATE OF TEXAS.
6.2 Successors and Assigns. Except as otherwise provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
6.3 Effectiveness. This Agreement shall become effective upon
its execution by each Purchaser.
6.4 Entire Agreement; Amendment. This Agreement constitutes
the full and entire understanding and agreement between the parties with regard
to the subject hereof. Except as expressly provided herein, neither this
Agreement nor any term hereof may be amended, waived, discharged or terminated
other than by a written instrument signed by the party against whom enforcement
of any such amendment, waiver, discharge or termination is sought; provided
further, however, that any provisions hereof may be amended, waived, discharged
or terminated upon the written consent of the Company and the holders of a
majority in interest of the aggregate of the then outstanding Registrable
Securities.
6.5 Notices, Etc. All notices and other communications
required or permitted hereunder shall be in writing and shall be mailed by
registered or certified mail, postage prepaid, or otherwise delivered by hand or
by messenger, including Federal Express or similar courier service, or by
facsimile transmission addressed (a) if to a Purchaser, at such Purchaser's
address and/or telefax number set forth in Annex A attached hereto, or at such
other address as such Purchaser shall
-17-
<PAGE> 20
have furnished to the Company in writing, or (b) if to the Company, to Carrizo
Oil & Gas, Inc., 14811 St. Mary's Lane, Suite 148, Houston, Texas 77079, Attn:
President; telefax number (281) 496-0884, or at such other address as the
Company shall have furnished to the Holders.
Each such notice or other communication shall for all purposes
of this Agreement be treated as effective or having been given when delivered if
delivered personally, or, if sent by mail, at the earlier of its receipt or five
days after the same has been deposited in a regularly maintained receptacle for
the deposit of the United States mail, addressed and mailed as aforesaid, or, if
sent by courier, on the next business day following the day of dispatch or sent
by facsimile transmission, on the date of such transmission if confirmation of
such transmission is received.
6.6 Delays or Omissions. Except as expressly provided herein,
no delay or omission to exercise any right, power or remedy accruing to any
party upon any breach or default of another party the Company under this
Agreement shall impair any such right, power or remedy of such party that is not
in breach or default nor shall it be construed to be a waiver of any such breach
or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any party of any breach or default under this
Agreement, or any waiver on the part of any party of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to any party, shall be cumulative
and not alternative.
6.7 Severability. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that no such severability shall be
effective if it materially changes the economic benefit of this Agreement to any
party.
6.8 Titles and Subtitles. The titles and subtitles used in
this Agreement are used for convenience only and are not considered in
construing or interpreting this Agreement.
6.9 Gender. As used herein, masculine pronouns shall include
the feminine and neuter, neuter pronouns shall include the masculine and the
feminine.
6.10 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be enforceable against the parties
actually executing such counterparts, and all of which together shall constitute
one instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-18-
<PAGE> 21
IN WITNESS WHEREOF, the undersigned or each of their respective duly
authorized officers or representatives have executed this agreement effective
upon the date first set forth above.
"COMPANY"
CARRIZO OIL & GAS, INC.
By: /s/ S. P. Johnson IV
-------------------------------------
Name: S. P. Johnson IV
--------------------------------
Title: President
--------------------------------
"PURCHASERS"
/s/ Douglas A.P. Hamilton
------------------------------------------
Douglas A.P. Hamilton
/s/ Paul B. Loyd, Jr.
------------------------------------------
Paul B. Loyd, Jr.
/s/ Steven A. Webster
------------------------------------------
Steven A. Webster
/s/ Frank A. Wojtek
------------------------------------------
Frank A. Wojtek
/s/ S. P. Johnson IV
------------------------------------------
S. P. Johnson IV
DAPHAM PARTNERSHIP L.P.
By: /s/ Kenneth Huff
-------------------------------------
Kenneth Huff
General Partner
<PAGE> 22
ANNEX A
PURCHASERS
Douglas A.P. Hamilton
14811 St. Mary's Lane
Suite 148
Houston, Texas 77079
Paul B. Loyd, Jr.
14811 St. Mary's Lane
Suite 148
Houston, Texas 77079
Steven A. Webster
14811 St. Mary's Lane
Suite 148
Houston, Texas 77079
Frank A. Wojtek
14811 St. Mary's Lane
Suite 148
Houston, Texas 77079
Sylvester P. Johnson IV
14811 St. Mary's Lane
Suite 148
Houston, Texas 77079
DAPHAM Partnership L.P.
14811 St. Mary's Lane
Suite 148
Houston, Texas 77079
<PAGE> 1
EXECUTION COPY
EXHIBIT 99.6
COMPLIANCE SIDELETTER
Carrizo Oil & Gas, Inc.
14811 St. Mary's Lane, Suite 148
Houston, Texas 77079
Ladies and Gentlemen:
Reference is made to that certain Securities Purchase Agreement dated as of the
date hereof (the "SECURITIES PURCHASE AGREEMENT") among Carrizo Oil & Gas, Inc.,
a Texas corporation (the "COMPANY"), CB Capital Investors, L.P. and Mellon
Ventures, L.P. (each, an "INVESTOR", and collectively, the "INVESTORS") and the
other parties identified therein, pursuant to which the Investors purchased: (i)
$19,800,000 aggregate principal amount of the Company's 9% Senior Subordinated
Notes due 2007 (the "NOTES"); (ii) 3,272,728 shares (the "SHARES") of the
Company's common stock, $0.01 par value (the "COMMON STOCK"); and (iii) warrants
to purchase up to 2,484,170 shares of Common Stock (the "WARRANTS" and together
with the Notes and Shares, the "SECURITIES"). Each Investor is a Small Business
Investment Company ("SBIC") licensed by the United States Small Business
Administration ("SBA"). In order for Investors to acquire and hold the
Securities, they must obtain from the Company certain representations and rights
as set forth below. As a material inducement to the Investors to enter into the
Purchase Agreement and to purchase the Securities, the Company hereby makes the
following representations and warranties and agrees to comply with the following
covenants:
1. SMALL BUSINESS MATTERS.
(a) The Company, together with its "affiliates" (as that term is
defined in Title 13, Code of Federal Regulations, Section 121.103):
CHECK ONE
[ ] (i) has a tangible net worth not in excess of $18 million, and
average net income after Federal income taxes (excluding any carry-over losses)
for the preceding 2 completed fiscal years not in excess of $6 million; or
[X] (ii) does not exceed the size standard in number of employees or
millions of dollars (fewer than 500 employees; less than $500 million in annual
receipts) under the SIC (Standard Industrial Classification) System for the
industry (SIC Code No. 1311) in which it combined with its affiliates is
primarily engaged and in which it alone is primarily engaged.
The information set forth in the Small Business Administration Forms 480, 652
and Parts A and B of Form 1031 regarding the Company and its affiliates, when
delivered to the Investors, will be accurate and complete and will be in form
and substance acceptable to each Investor. Copies of such forms shall be
completed and executed by the Company
<PAGE> 2
and delivered to the Investors at the closing of the sale of the Securities
under the Purchase Agreement (the "CLOSING").
(b) The proceeds from the sale of the Securities will be used by the
Company for the purposes described in Section 4.26 of the Securities Purchase
Agreement. No portion of such proceeds (i) will be used to provide capital to a
corporation licensed under the Small Business Investment Act of 1958, as amended
("SBIA"), (ii) will be used to acquire farm land, (iii) will be used to fund
production of a single item or defined limited number of items, generally over a
defined production period, and such production will constitute the majority of
the activities of the Company and its Subsidiaries (examples include motion
pictures and electric generating plants), or (iv) will be used for any purpose
contrary to the public interest (including, but not limited to, activities which
are in violation of law) or inconsistent with free competitive enterprise, in
each case, within the meaning of 13 C.F.R. Section 107.720.
(c) Neither the Company's nor any of its Subsidiaries' primary
business activity involves, directly or indirectly, providing funds to others,
the purchase or discounting of debt obligations, factoring or long-term leasing
of equipment with no provision for maintenance or repair, and neither the
Company nor any of its Subsidiaries is classified under Major Group 65 (Real
Estate) of the SIC Manual. The Company is engaged in the exploration,
development, exploitation and production of natural gas and crude oil (the
"BUSINESS"). The Company is engaged in a regular and continuous business
operation and was not formed for the purpose of a single project or limited
series of projects. (See 13 CFR Section 107.720.)
(d) The proceeds from the sale of the Securities will not be used
substantially for a foreign operation; and at Closing or within one year
thereafter, no more than 49 percent of the employees or tangible assets of the
Company and its Subsidiaries will be located outside the United States (unless
the Company can show, to SBA's satisfaction, that the proceeds from the sale of
the Securities will be used for a specific domestic purpose). This subsection
(d) does not prohibit such proceeds from being used to acquire foreign materials
and equipment or foreign property rights for use or sale in the United States.
(e) To the best actual knowledge of the Company, each SBIC that owns
any Securities issued by the Company, together with a description of the kinds
and amounts of Securities held, are listed on Schedule I hereto. Without the
consent of the Investors, the Company will use commercially reasonable efforts
not to issue Securities to any SBIC in the future unless such issuance is part
of a public offering, merger, business combination, transfer, exchange or
distribution to security holders if such issuance would cause an Investor to be
deemed to be a member of an "Investor Group" in "Control" of the Company (as
such terms are defined in 13 CFR Section 107.865) except as required by any
Transaction Document.
2. Regulatory Compliance.
(a) Regulatory Compliance Cooperation.
2
<PAGE> 3
(i) In the event that an Investor reasonably determines and
notifies the Company that it has a Regulatory Problem, the Company agrees to use
all commercially reasonable efforts to take all such actions as are reasonably
requested by such Investor in order (A) to effectuate and facilitate any
transfer by the Investor of any Securities of the Company then held by such
Investor to any Person designated by such Investor, (B) to permit the Investor
(or any of its Affiliates) to exchange all or any portion of the voting
Securities then held by such Person on a share-for-share basis for shares of a
class of non-voting Securities of the Company, which non-voting Securities shall
be identical in all respects to such voting Securities, except that such new
Securities shall be non-voting to the extent permitted by law and shall be
convertible into voting Securities on such terms as are requested by the
Investor and reasonably acceptable to the Company in light of regulatory
considerations then prevailing, and (C) to continue and preserve the respective
allocation of the voting interests with respect to the Company arising out of
the Investor's ownership of voting Securities before the transfers and
amendments referred to above but only to the extent that the Investor enters
into any agreement reasonably requested by the Company to ensure that the
Company will not be put in a materially worse position as a result of any of the
foregoing requested actions than it would have been without such change
occurring. Such actions may include, without limitation: (x) entering into such
additional agreements as are reasonably requested by such Investor to permit any
Person(s) designated by such Investor to exercise any voting power which is
relinquished by such Investor upon any exchange of voting Securities for
nonvoting Securities of the Company; and (y) entering into such additional
agreements, seeking to adopt such amendments to this Compliance Sideletter, the
Company's Amended and Restated Articles of Incorporation (the "Charter") and the
Company's Amended and Restated Bylaws (the "Bylaws") and taking such additional
actions as are reasonably requested by such Investor in order to effectuate the
intent of the foregoing; provided, however, that, without limiting the
generality of which actions are not deemed to be reasonably requested, such
actions may not change in a manner that is materially adverse to any Investor or
the Company, any of the agreements, rights or obligations of the parties
reflected herein or in the Charter, Bylaws or Shareholders Agreement and shall
not result in material liability to the Company or any officer or director
thereof, nor require the Company to breach any law, contract, agreement, permit
or regulation nor accelerate or change any obligation of the Company. Subject to
the foregoing, if an Investor elects to transfer Securities of the Company to a
Regulated Holder in order to avoid a Regulatory Problem, the Company and such
Regulated Holder shall enter into such mutually acceptable agreements as such
Regulated Holder may reasonably request in order to assist such Regulated Holder
in complying with applicable laws and regulations to which it is subject. Such
agreements may include restrictions on the redemption, repurchase or retirement
of Securities of the Company that would result or be reasonably expected to
result in such Regulated Holder holding more voting Securities or total
Securities (equity and debt) than it is permitted to hold under such laws and
regulations.
(ii) In the event an Investor has the right to acquire any of
the Company's Securities from the Company (as the result of a preemptive offer,
pro rata offer or otherwise), and the Investor reasonably determines that it has
a Regulatory Problem, at the Investor's request, the Company will use
commercially reasonable efforts
3
<PAGE> 4
to offer to sell to the Investor non-voting Securities on the same terms as
would have existed had the Investor acquired the Securities so offered and
immediately requested their exchange for non-voting Securities pursuant to
subsection (i) above.
(iii) Each Investor agrees to use commercially reasonable
efforts to cooperate with the Company in complying with this Compliance
Sideletter, including, without limitation, voting to approve amending this
Compliance Sideletter, the Shareholders Agreement, the Charter or Bylaws in a
manner reasonably requested by the Investor requesting such amendment.
(iv) In the event that any Subsidiary of the Company ever offers
to issue any of its Securities to an Investor, then the Company will use
commercially reasonable efforts to cause such Subsidiary to enter into
agreements with the Investor substantially similar to this Section 2(a) and
Section 2(b) below.
(v) Any actions taken by the Company under this Compliance
Sideletter shall be at the sole cost and expense of the Investor that has
required that the Company assist it in connection with such Regulatory Problem.
Such Investor agrees to indemnify and hold harmless the Company and each other
Investor and its officers, directors, agents and employees to the fullest extent
permitted by law from and against any and all losses, claims, damages,
reasonable expenses (including reasonable fees, disbursements and other charges
of counsel) or other liabilities resulting from or arising out of the actions
(other than gross negligence or willful misconduct) taken by the Company and the
other Investors under this Compliance Sideletter.
(vi) Each Investor represents to the Company that it does not,
and as a result of its purchase of Securities (including the Warrant Shares)
contemplated by the Securities Purchase Agreement will not, as of the date
hereof have a Regulatory Problem.
(vii) To the extent an Investor receives nonvoting securities
that have voting rights under state law, each Investor must vote all of such
nonvoting Securities in a manner which is proportional to the related voting
Securities (for which such nonvoting Securities were obtained or exchanged) and
otherwise take any action reasonably required by the Company so that the
issuance of any nonvoting Securities does not result in an Investor having a
veto or blocking right that it would not have had in the absence of such
issuance of nonvoting Securities.
(b) Information Rights and Related Covenants.
(i) Provide to the Investors and the SBA reasonable access to
its books and records for the purpose of confirming the use of the proceeds of
such financing and for all other purposes reasonably required by the SBA.
(ii) Provide to the Investors and the SBA a certificate of its
chief financial officer (1) verifying the use of such proceeds and (2) to his
knowledge
4
<PAGE> 5
certifying compliance by the Company with the provisions of this Agreement
(provided that such certificate may be truthfully given).
(iii) Promptly after the end of each fiscal year (but in any
event prior to March 31 of each year), the Company shall provide to Investors
such information as shall have been reasonably requested by them to enable them
to prepare a written assessment, in form and substance reasonably satisfactory
to Investors, of the economic impact of Investors' financing hereunder,
specifying the full-time equivalent jobs created or retained, the impact of the
financing on the consolidated revenues and profits of the Business and on taxes
paid by the Business and its employees (See 13 CFR Section 107.630(e)).
(iv) Upon the request of either Investor or the Affiliates of
either Investor, the Company will (A) provide to such Person such financial
statements and other information as such Person may from time to time reasonably
request for the purpose of assessing the Company's financial condition to the
extent the Investor is otherwise entitled to such information under the
Shareholders Agreement or Purchase Agreement and (B) furnish to such Person all
readily available information reasonably requested by it in order for it to
prepare and file SBA Form 468 and any other readily available information
reasonably requested or required by any governmental agency asserting
jurisdiction over such Person.
(v) For a period of one year following the date hereof, neither
the Company nor any of its Subsidiaries will change its business activity if
such change would render the Company's representations in Sections 1(b), (c) and
(d) untrue during such period.
3. SHAREHOLDER COOPERATION.
The Company shall use its commercially reasonable efforts to cause the
provisions attached hereto as Exhibit A to be included in the Shareholders
Agreement.
4. DEFINITIONS.
"Affiliate" means, with respect to any Person, (i) a director, officer or
shareholder of such Person, (ii) a spouse, parent, sibling or descendant of such
Person (or spouse, parent, sibling or descendant of any director or executive
officer of such Person), and (iii) any other Person that, directly or indirectly
through one or more intermediaries, Controls, or is Controlled by, or is under
common Control with, such Person.
"Control" means, with respect to any Person, the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.
"Person" shall be construed broadly and shall include an individual, a
partnership, a corporation, a limited liability company, an association, a joint
stock company, a trust, a joint venture, an unincorporated organization or a
governmental entity (or any department, agency or political subdivision
thereof).
"Regulated Holder" means any holder of the Company's Securities that is (or that
is a subsidiary of a bank holding company that is) subject to the various
provisions of
5
<PAGE> 6
Regulation Y of the Board of Governors of the Federal Reserve Systems, 12
C.F.R., Part 225 (or any successor to Regulation Y).
"Regulatory Problem" means (i) any set of facts or circumstances wherein it has
been asserted by the Small Business Administration, the Federal Reserve Board,
the Controller of the Currency or any other governmental regulatory agency
hereafter charged with the regulation of banks or financial service institutions
(or Investor believes and notifies the Company that there is a significant risk
of such assertion) that such Person (or any bank holding company that controls
such Person) is not entitled to hold, or exercise any material right with
respect to, all or any portion of the Securities of the Company which such
Person holds or (ii) when such Person and its Affiliates would own, control or
have power (including voting rights) over a greater quantity of Securities of
the Company than is permitted under any requirement of the Small Business
Administration, the Federal Reserve Board, the Controller of the Currency or any
other governmental regulatory agency hereafter charged with the regulation of
banks or financial service institutions applicable to such Person or to which
such Person is subject. "Securities" means, with respect to any Person, such
Person's capital stock or any options, warrants or other Securities which are
directly or indirectly convertible into, or exercisable or exchangeable for,
such Person's capital stock (whether or not such derivative Securities are
issued by the Company). Whenever a reference herein to Securities refers to any
derivative Securities, the rights of Investor shall apply to such derivative
Securities and all underlying Securities directly or indirectly issuable upon
conversion, exchange or exercise of such derivative Securities.
"Shareholders Agreement" means the Shareholders Agreement to be entered into on
the date of the Closing among the Company and certain shareholders of the
Company.
"Subsidiary" means, with respect to any Person, any other Person of which the
securities having a majority of the ordinary voting power in electing the board
of directors (or other governing body), at the time as of which any
determination is being made, are owned by such first Person either directly or
through one or more of its Subsidiaries.
* * * * *
6
<PAGE> 7
Please indicate your acceptance of the terms of this letter agreement by
returning a signed copy to the undersigned.
CB CAPITAL INVESTORS, L.P.
By: CB Capital Investors, Inc.,
its General Partner
By: /s/ CHRISTOPHER BEHRENS
----------------------------------------
Name: Christopher Behrens
Title: General Partner
MELLON VENTURES, L.P.
By: MVMA, L.P., its general partner
By: MVMA, Inc., its general partner
By: /s/ JOHN P. SHOEMAKER
----------------------------------------
Name: John P. Shoemaker
Title: Managing Director
Agreed as of the date first set forth above:
CARRIZO OIL & GAS, INC.
By: /s/ S. P. JOHNSON IV
----------------------------
Name: S. P. Johnson IV
Title: President
<PAGE> 8
Schedule I
SBIC Securities
- ---- ----------
CB Capital Investors, L.P. $17,600,001 Senior Subordinated Notes, due
2007
Warrants to purchase up to 2,208,152
shares of Common Stock
2,909,092 shares of Common Stock
Mellon Ventures, L.P. $2,200,000 Senior Subordinated Notes, due
2007
Warrants to purchase up to 276,019 shares
of Common Stock
363,636 shares of Common Stock
<PAGE> 9
EXHIBIT A
INSERT INTO SHAREHOLDERS AGREEMENT
SECTION __. REGULATORY MATTERS.
(a) Each Shareholder agrees to cooperate with the Company in all
reasonable respects in complying with the terms and provisions of the letter
agreement between the Company and Investor, a copy of which is attached hereto
as EXHIBIT __, regarding small business matters (the "Compliance Sideletter"),
including without limitation, voting to approve amending the Charter, the
By-laws or this Agreement in a manner reasonably acceptable to the Shareholders
and the Investor or any Regulated Holder (as defined in the Compliance
Sideletter) entitled to make such request pursuant to the Compliance Sideletter
in order to remedy a Regulatory Problem (as defined in the Compliance
Sideletter). Anything contained in this Section __ to the contrary
notwithstanding, no Shareholder shall be required under this Section __ to take
any action that would adversely affect in any material respect such
Shareholder's rights under this Agreement or as a shareholder of the Company.
(b) The Company will notify each Shareholder of all material terms
of any proposed amendment of the Charter or Bylaws not later than ___ Business
Days prior to the effective date thereof. Each of CB Capital and Mellon agrees
to notify the Company as to whether or not it would have a Regulatory Problem
promptly after CB Capital or Mellon, as the case may be, has notice of any
proposed amendment or waiver.
<PAGE> 1
EXHIBIT 99.7
AMENDMENT TO EMPLOYMENT AGREEMENT
Carrizo Oil & Gas, Inc., a Texas corporation ("Company"), and
_____ ("Executive") have previously entered into an Employment Agreement dated
as of _____ ("Employment Agreement"), and by this agreement hereby amend the
Employment Agreement effective as of December ___, 1999 as follows:
Nothing in the Shareholders Agreement dated December __, 1999
among S.P. Johnson IV, Frank A. Wojtek, Paul B. Loyd, Jr., Douglas A.P.
Hamilton, Steven A. Webster, CB Capital Investors, L.P. ("Chase") and certain
other shareholders (the "Shareholders Agreement") or in the transactions
contemplated by the Securities Purchase Agreement dated December __, 1999 among
Paul B. Loyd, Jr., Douglas A.P. Hamilton, Steven A. Webster, Chase and certain
other investors (including the addition of any new parties thereto), shall
constitute a "Change of Control" within the meaning of Section 9 of the
Employment Agreement. Without limiting the generality of the foregoing, no
"Change of Control" shall result from the attribution of beneficial ownership
directly or indirectly through the Shareholders Agreement such that a
shareholder is deemed to beneficially own 40% or more of the shares of the
Company's common stock then outstanding (a "40% Holder"), unless such
shareholder would be deemed to be a 40% Holder in the absence of the
Shareholders Agreement.
In witness whereof, the parties have caused these presents to
be executed this ___ day of December, 1999, effective as of the day and year
first above written.
CARRIZO OIL & GAS, INC.
By:
--------------------------------------
Name:
Title:
--------------------------------------
Executive Officer
<PAGE> 1
EXHIBIT 99.8
AMENDMENT TO INDEMNIFICATION AGREEMENT
Carrizo Oil & Gas, Inc., a Texas corporation ("Company") and
_____ previously entered into an Indemnification Agreement dated as of _____
("Indemnification Agreement"), and by this agreement hereby amend the
Indemnification Agreement effective as of December 15, 1999 as follows:
Nothing in the Shareholders Agreement dated December 15, 1999
among S.P. Johnson IV, Frank A. Wojtek, Paul B. Loyd, Jr., Douglas A.P.
Hamilton, Steven A. Webster, CB Capital Investors, L.P. ("Chase") and certain
other investors (the "Shareholders Agreement") or in the transactions
contemplated by the Securities Purchase Agreement dated December 15, 1999 among
Paul B. Loyd, Jr., Douglas A.P. Hamilton, Steven A. Webster, Chase and certain
other investors, as it may be amended from time to time (including the addition
of any new parties thereto), shall constitute a "Change of Control" within the
meaning of the definition in the Indemnification Agreement. Without limiting the
generality of the foregoing, no "Change of Control" shall result from the
attribution of beneficial ownership directly or indirectly through the
Shareholders Agreement such that a shareholder is deemed to beneficially own 40%
or more of the shares of the Company's common stock then outstanding (a "40%
Holder"), unless such shareholder would be deemed to be a 40% Holder in the
absence of the Shareholders Agreement.
In witness whereof, the parties have caused these presents to
be executed this 15th day of December, 1999, effective as of the day and year
first above written.
CARRIZO OIL & GAS, INC.
By:
-------------------------------------
Name:
Title:
INDEMNITEE
----------------------------------------
Name:
<PAGE> 1
EXHIBIT 99.10
NINTH AMENDMENT
TO
FIRST AMENDED, RESTATED, AND COMBINED LOAN AGREEMENT
DATED AUGUST 28, 1997
BY AND BETWEEN CARRIZO OIL & GAS, INC.
AND COMPASS BANK
This Ninth Amendment to the Loan Agreement (this "Ninth Amendment") by
and between CARRIZO OIL & GAS, INC., a Texas corporation (the "Borrower"), and
COMPASS BANK, an Alabama state chartered bank, formerly a Texas chartered bank
(the "Bank"), is entered into on this 15th day of December 1999, and shall be
effective as of that date for all purposes.
W I T N E S S E T H:
Borrower and Bank entered into a First Amended, Restated, and Combined
Loan Agreement dated August 28, 1997, as amended by the First Amendment thereto
dated December 23, 1997, the Second Amendment thereto dated December 30, 1997,
the Third Amendment thereto dated July 30, 1998, the Fourth Amendment thereto
dated September 24, 1998, the Fifth Amendment thereto dated March 22, 1999, the
Sixth Amendment thereto dated April 23, 1999, the Seventh Amendment thereto
dated August 27, 1999 and the Eighth Amendment thereto dated November 11, 1999
(collectively, the "Loan Agreement"). Capitalized terms used, but not defined
herein, shall have the meanings prescribed therefor in the Loan Agreement.
Borrower has requested that the Loan Agreement be further amended and
that the Bank consent to Borrower entering into a certain subordinated loan
transaction otherwise disallowed under certain covenants in the Loan Agreement,
and the Bank has agreed to such requests, subject to the terms and conditions
set forth in this Ninth Amendment.
NOW, THEREFORE, in consideration of the mutual promises herein
contained, and for other good and valuable consideration, the receipt and
sufficiency of which are acknowledged by Borrower and Bank, and each intending
to be legally bound hereby, the parties agree as follows:
<PAGE> 2
I. Specific Amendments to Loan Agreement.
Article I, Definitions, is hereby amended by adding the following definitions
thereto:
"Borrower Certificate" means the certificate from an
authorized officer of Borrower certifying that attached
thereto as Exhibits A, B, C and D are true and complete copies
of the Chase Documents and the Enron Documents.
"Chase" means, collectively, CB Capital Investors,
L.P. and its affiliates, together with its permitted
successors and assigns.
"Chase Documents" means the Securities Purchase
Agreement, the Warrant Agreement, the Shareholders' Agreement
and the Registration Rights Agreement comprising the Chase
Transaction, each as amended, modified, rearranged and/or
restated from time to time in compliance with the Chase
Subordination Agreement and the Chase Purchase Agreement.
"Chase Purchase Agreement" means the Securities
Purchase Agreement between Borrower and the Investors dated
December 15, 1999 in the form of Exhibit "A" attached to the
Chase Certificate.
"Chase Subordinated Promissory Notes" means those
certain promissory notes dated December 15, 1999 executed by
Borrower payable to the Investors in the form attached as
Exhibit "B" to the Chase Purchase Agreement.
"Chase Subordination Agreement" means the Memorandum
of Subordination Agreement between the Bank, Borrower and the
Investors dated December 15, 1999 in the form of Exhibit "A"
attached to the Ninth Amendment.
"Chase Transaction" means that certain transaction
between Borrower and the Investors as evidenced by the Chase
Documents.
"Current Assets" and "Current Liabilities" means at
any time, all assets or liabilities, respectively, that
should, in accordance with GAAP, be classified as current
assets or current liabilities on the balance sheet of
Borrower; provided that Current Assets shall include the
available but unadvanced portion of the Revolving Commitment
and Current Liabilities shall not include the current
scheduled payments under the Second Term Loan.
"Enron Documents" means that certain Stock and
Warrant Purchase Agreement dated December 1, 1999 among
Borrower, Enron North America Corp., Sundance Assets, L.P. and
Joint Energy Development Investments II Limited Partnership
and the amended warrants contemplated thereby.
2
<PAGE> 3
"Enron Transaction" means the transaction evidenced
by the Enron Documents.
"Investors" means those Persons listed on Schedule
1.1 of the Chase Purchase Agreement, together with their
permitted successors and assigns.
"Ninth Amendment" means the Ninth Amendment to this
Agreement executed by Borrower and Bank on December 15, 1999.
"Working Capital" means Current Assets minus Current
Liabilities.
Article I, Definitions, is hereby amended by revising the definition of
"Loan Documents" by adding the clause "and the Chase Subordination Agreement"
immediately after the term "including the Subordination Agreement" in that
definition.
Article I, Definitions, is hereby further amended by revising the
following defined terms in their entirety to read as follows:
"Maturity Date" means January 1, 2002.
"Second Term Loan Maturity Date" means the earlier
of: (1) the date of closing of the issuance of additional
equity of Borrower, other than with regard to the Chase
Transaction, if the net proceeds of such issuance are
sufficient to repay in full the Second Term Loan; (2) the date
of closing of the issuance of convertible subordinated debt of
Borrower, other than with regard to the Chase Transaction, if
the proceeds of such issuance are sufficient to repay in full
the Second Term Loan; (3) the date of repayment of the
Revolving Loan and the termination of the Revolving
Commitment; and (4) July 1, 2001.
"Second Term Loan Note" means the Second Amended and
Restated Term Note in the original face amount of
$9,000,000.00 executed December 15, 1999, but dated effective
March 22, 1999, made by Borrower payable to the order of Bank,
in substantially the form attached to the Ninth Amendment as
Exhibit "B," together with all deferrals, renewals,
extensions, amendments, modifications or rearrangements
thereof, which promissory note shall evidence the advances to
Borrower by Bank pursuant to Section 2.22 hereof.
Subsection 2.10(a), Borrowing Base Oil and Gas Properties, is
hereby amended by replacing the first two sentences of that section
with the following text:
3
<PAGE> 4
The Borrowing Base attributable to the Borrowing Base Oil and
Gas Properties is established at $3,750,000.00 effective as of
November 22, 1999; provided, however, that the Borrowing Base
value attributable to the Borrowing Base Oil and Gas
Properties shall be reduced to $2,750,000.00 at the earlier
of: (i) the consummation of the Chase Transaction by Borrower
and the Investors or (ii) December 15, 1999; and such latter
Borrowing Base shall then continue in effect until
redetermined on the next Borrowing Base review currently
scheduled for March 1, 2000.
Section 2.24, Repayment of Second Term Loan, as amended by the
Fifth Amendment, is hereby further amended by replacing the text of
that section with the following:
Interest on the Second Term Note, calculated as aforesaid in
Section 2.04, shall be repaid by Borrower in monthly
installments on the first day of each month following the
advance from Bank to Borrower pursuant to Section 2.22,
through and including the Second Term Loan Maturity Date. For
the period beginning on the date of the Ninth Amendment until
June 1, 2000, principal payments on the Second Term Loan
evidenced by Second Term Note shall not be due, unless
preceded by the Second Term Loan Maturity Date, when the
entire unpaid balance of the Second Term Note, inclusive of
principal and interest, shall be paid in full. Except as
provided for in the preceding sentence, principal under the
Second Term Loan evidenced by the Second Term Note will be
repaid in consecutive monthly installments in the amount of
$290,000.00 each, beginning on July 1, 2000 through and
including December 1, 2000, and thereafter in consecutive
monthly installments in the amount of $440,000.00 each,
beginning on January 1, 2001, and continuing on the first day
of each successive calendar month until the Second Term Loan
Maturity Date, when the entire unpaid balance of the Second
Term Note, inclusive of principal and interest, shall be paid
in full.
Article III, Conditions, is hereby amended by adding the following
Section 3.23.
3.23 Conditions Precedent in Connection with the Ninth
Amendment. The Ninth Amendment shall not be binding on the Bank until
satisfaction of the following conditions precedent:
(a) Receipt of Ninth Amendment, Second Amended and Restated
Term Note and Compliance Certificate. Bank shall have received multiple
fully executed counterparts of the Ninth Amendment, as requested by
Bank, the Second Amended and Restated Term Note and the Compliance
Certificate duly executed by an authorized officer for Borrower.
(b) Additional Loan Documents. Bank shall have received
multiple fully executed counterparts of the (i) Chase Subordination
Agreement, (ii) the Borrower Certificate to which the instruments
evidencing the Chase Transaction are attached as Exhibits A, B, C, and
D and (iii) the Enron Documents, all in form and substance satisfactory
to Bank.
4
<PAGE> 5
(c) Accuracy of Representations and Warranties and No Event of
Default. After giving effect to the Ninth Amendment, the
representations and warranties contained in Article IV of the Loan
Agreement shall be true and correct in all material respects on the
date of the Ninth Amendment with the same effect as though such
representations and warranties had been made on such date; and after
giving effect to the Ninth Amendment, no Event of Default shall have
occurred and be continuing or will have occurred upon the execution of
the Ninth Amendment.
(d) Legal Matters Satisfactory to Special Counsel to Bank. All
legal matters incident to the consummation of the transactions
contemplated by the Ninth Amendment shall be satisfactory to the firm
of Porter & Hedges, L.L.P., special counsel for Bank.
(e) Legal Fees. All reasonable legal fees and expenses owed by
Bank to Porter & Hedges, L.L.P. in connection with the Loan Agreement
shall have been paid by Borrower including the legal fees and expenses
incurred by Bank to such counsel in connection with the Ninth Amendment
through December 15, 1999 in the amount of $14,423.21 for which an
invoice will be delivered to Borrower at least twenty-four (24) hours
prior to its signing of the Ninth Amendment.
(f) No Material Adverse Change. No material adverse change
shall have occurred since the date of this Agreement in the condition,
financial or otherwise, of Borrower.
(g) Restructuring Fee. Bank shall have received a
restructuring fee in the amount of $85,000.00, $60,000.00 of which
shall represent the fee due from Borrower to Bank for Bank's continued
commitment pursuant to the Second Term Loan.
(h) Principal Payment. Bank shall have received a principal
payment of $2,000,000.00 to be applied against the Second Term Note.
(i) Payment of Subordinated Promissory Note. Bank shall have
received satisfactory evidence of the full and final payment of the
Subordinated Promissory Note by Borrower.
(j) Principal Payment on Note. Bank shall have received a
principal payment of $1,000,000.00 to be applied against the Note
pursuant to the reduction of the Borrowing Base pursuant to Section
2.10(a), as amended by the Ninth Amendment.
Article V, Affirmative Covenants, is hereby amended by adding the
following new Section 5.38:
5
<PAGE> 6
5.38 Working Capital. Borrower shall maintain a minimum
Working Capital balance at all times of $2,000,000.00.
Article V, Affirmative Covenants, is hereby further amended by revising
the following sections to read as follows:
Section 5.19 Tangible Net Worth Requirement, as amended by the
First and Sixth Amendments, is hereby further amended by revising that
section in its entirety to read as follows:
Effective on the date of the Ninth Amendment, Borrower shall
maintain a total Tangible Net Worth of not less than
$34,000,000.00, increasing by: (x) fifty percent (50%) of net
income (excluding losses) of Borrower subsequent to December
31, 1999, and (y) one hundred percent (100%) of any increases
in shareholders' equity resulting from the sale or issuance of
stock in Borrower subsequent to December 31, 1999.
Section 5.20 Cash Flow to Debt Service Ratio, is amended by
revising that section in its entirety to read as follows:
5.20 EBITDA to Debt Service Ratio. Borrower will
maintain (calculated in accordance with GAAP) a ratio of
quarterly EBITDA to quarterly Debt Service of not less than
1.25 to 1.0. For the purposes of calculating this ratio:
(a) "EBITDA" shall be defined as the sum of net
income plus interest (net of interest income), taxes,
depletion, depreciation, amortization, any other non-cash
charges, and capitalized (cash) income not reflected in
Borrower's income statement, less non-cash income items of
Borrower, and all capitalized general and administrative
expenses, including capitalized expenses relating to full-time
staff salaries allocated to capital projects.
(b) "Debt Service" shall be defined as the sum of (i)
actual cash principal and interest amounts (including any
capitalized interest payments) that Borrower is obligated to
pay during such quarter on Indebtedness other than in
connection with this Agreement and (ii) cash principal and
interest amounts (including any capitalized interest payments)
required to be paid by Borrower during such quarter in
connection with this Agreement (excluding payments made
pursuant to the Chase Transaction and the repayment of the
Subordinated Promissory Note); provided that the interest
payments under (i) and (ii) above shall be net of interest
income.
6
<PAGE> 7
For purposes of calculating the Cash Flow to Debt Service Ratio, Debt
Service shall not include required payments (i) pursuant to the Ninth
Amendment, (ii) the scheduled balloon payment on the Term Loan due July
1, 2001 and (iii) the scheduled balloon payment due August 31, 2001 to
be applied against the Seitel Data promissory note listed on Schedule A
to the Seventh Amendment.
Section 6.01, Other Indebtedness, as amended by the Seventh
and Eighth Amendments, is hereby further amended by deleting the word
"and" immediately preceding clause (f) and adding the following clause
(g) at the end of that Section:
and (g) the Indebtedness evidenced by the Chase Subordinated
Promissory Notes and guaranties executed by any Subsidiary of
Borrower guarantying payment thereof.
Exhibit "B" (Form of Note) attached to the Fifth Amendment is
hereby replaced with Exhibit "B" attached to this Ninth Amendment.
II. Certain Consents. Bank consents to Borrower:
A. Entering into and the consummating the Chase Transaction and
executing the Chase Subordinated Promissory Notes evidencing
Borrower's obligations to the Investors pursuant to the Chase
Purchase Agreement, the terms of such notes thereby limited and
restricted by the Chase Subordination Agreement; provided,
however, that, notwithstanding anything to the contrary in the
Chase Purchase Agreement, Bank consents to (i) the optional
prepayments of the Chase Subordinated Promissory Notes as
provided in Section 3.6 of the Chase Purchase Agreement, if and
only if, (x) no Event of Default shall have occurred or be
continuing, (y) any such prepayment would not cause the
occurrence of an Event of Default, and (z) the Second Term Loan
shall have been paid in full and (ii) the mandatory prepayments
of the Chase Subordinated Promissory Notes as provided in Section
3.5 of the Chase Purchase Agreement but only to the extent as
provided therein and in the Chase Subordination Agreement;
B. Paying in full the Subordinated Promissory Notes.
C. Entering into and the consummation of the transaction evidenced
by the Enron Documents.
D. Issuing of stock of Borrower pursuant to the Chase Transaction,
the dividends and distribution terms of such stock thereby
limited and restricted by the Loan Agreement; and
7
<PAGE> 8
E. Issuing of certain stock warrants of Borrower pursuant to the
Chase Transaction, provided that such stock warrants shall be
limited and restricted by the Loan Agreement.
III. Certain Waivers. Bank hereby waives compliance with the negative
covenants of the Loan Agreement, including the provisions of Section 6.01 and
6.07 of the Loan Agreement, solely to the extent that any such covenants would
be breached by the execution, delivery and performance of the Chase Transaction
and the Enron Transaction to the extent, but only to the extent, that such
transaction is described in the Chase Transaction and the Enron Transaction.
IV. Reaffirmation of Representations and Warranties. To induce Bank to enter
into this Ninth Amendment, Borrower hereby reaffirms, as of the date hereof,
after giving effect to the Ninth Amendment, its representations and warranties
contained in Article IV of the Loan Agreement and in all other documents
executed pursuant thereto, and additionally represents and warrants as follows:
A. The execution and delivery of this Ninth Amendment and the
performance by Borrower of its obligations under this Ninth Amendment
are within Borrower's power, have been duly authorized by all necessary
corporate action, have received all necessary governmental approval (if
any shall be required), and do not and will not contravene or conflict
with any provision of law or of the articles of incorporation, charter
or bylaws of Borrower or of any agreement binding upon Borrower.
B. The Loan Agreement as amended by this Ninth Amendment,
represents the legal, valid and binding obligations of Borrower,
enforceable against Borrower in accordance with its terms, subject as
to enforcement only to bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of
creditors' rights generally.
C. No Event of Default or Unmatured Event of Default has
occurred and is continuing as of the date hereof.
V. Defined Terms. Except as amended hereby, terms used herein that are defined
in the Loan Agreement shall have the same meanings in this Ninth Amendment.
VI. Reaffirmation of Loan Agreement. This Ninth Amendment shall be deemed to
be an amendment to the Loan Agreement, and the Loan Agreement, as further
amended hereby, is hereby ratified, approved and confirmed in each and every
respect. All references to the Loan Agreement herein and in any other document,
instrument, agreement or writing shall hereafter be deemed to refer to the Loan
Agreement as amended hereby.
8
<PAGE> 9
VII. Entire Agreement. The Loan Agreement, as hereby further amended, embodies
the entire agreement between Borrower and Bank and supersedes all prior
proposals, agreements and understandings relating to the subject matter hereof.
Borrower certifies that it is relying on no representation, warranty, covenant
or agreement except for those set forth in the Loan Agreement as hereby further
amended and the other documents previously executed or executed of even date
herewith.
VIII. Governing Law. THIS NINTH AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE APPLICABLE LAWS OF THE
UNITED STATES OF AMERICA. This Ninth Amendment has been entered into in Harris
County, Texas, and it shall be performable for all purposes in Harris County,
Texas. Courts within the State of Texas shall have jurisdiction over any and all
disputes between Borrower and Bank, whether in law or equity, including, but not
limited to, any and all disputes arising out of or relating to this Ninth
Amendment or any other Loan Document; and venue in any such dispute whether in
federal or state court shall be laid in Harris County, Texas.
IX. Severability. Whenever possible each provision of this Ninth Amendment
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Ninth Amendment shall be prohibited
by or invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Ninth Amendment.
X. Execution in Counterparts. Each party hereto acknowledges that this
Agreement may be executed in several counterparts by each party at different
times and in different locations; that each separate counterpart bearing the
signature of any party may be effectively delivered to the other parties by the
delivery of an electronic facsimile sent via telecopier; that each party so
delivering any such counterpart shall be bound by its facsimile signature
thereon; and that the signature pages from counterparts signed by each party may
be collated into one or more copies of this agreement, which shall constitute
one and the same agreement among all parties hereto.
XI. Section Captions. Section captions used in this Ninth Amendment are for
convenience of reference only, and shall not affect the construction of this
Ninth Amendment.
XII. Successors and Assigns. This Ninth Amendment shall be binding upon
Borrower and Bank and their respective successors and assigns, and shall inure
to the benefit of Borrower and Bank, and the respective successors and assigns
of Bank.
XIII. Non-Application of Chapter 346 of Texas Finance Codes. In no event shall
Chapter 346 of the Texas Finance Code (which regulates certain revolving loan
accounts and revolving tri-party accounts) apply to this Loan Agreement as
hereby further amended or any other Loan Documents or the transactions
contemplated hereby.
9
<PAGE> 10
XIV. Notice. THIS NINTH AMENDMENT TOGETHER WITH THE LOAN AGREEMENT, AND THE
OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
10
<PAGE> 11
[SIGNATURE PAGE FOLLOWS]
11
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have caused this Ninth Amendment
to be duly executed as of the day and year first above written.
BANK BORROWER
COMPASS BANK CARRIZO OIL & GAS, INC.
By: /s/ Murray E. Brasseux By: /s/ Frank A. Wojtek
------------------------- ---------------------
Murray E. Brasseux Frank A. Wojtek
Executive Vice President Vice President
12
<PAGE> 13
EXHIBIT "A"
FORM OF CHASE SUBORDINATION AGREEMENT
<PAGE> 14
EXHIBIT "B"
SECOND AMENDED AND RESTATED TERM NOTE
$9,000,000.00 Houston, Texas March 22, 1999
On the dates hereinafter prescribed, for value received, CARRIZO OIL &
GAS, INC., a Texas corporation (the "Borrower"), having an address at 14811 St.
Mary's Lane, Suite 148, Houston, Texas 77079, promises to pay to the order of
COMPASS BANK (herein called "Bank"), at its principal offices at 24 Greenway
Plaza, Fourteenth Floor, Houston, Harris County, Texas 77046, (i) the principal
amount of NINE MILLION AND NO/100 DOLLARS ($9,000,000.00), and (ii) interest on
the principal balance remaining unpaid from the date of the advance until
maturity at a rate of interest equal to lesser of (a) the "Floating Rate" (as
hereinafter defined), calculated on the basis of a year of 365 or 366 days, as
the case may be, and for the actual number of days elapsed (including the first
day but excluding the last day), or (b) the "Maximum Rate" (as hereinafter
defined). Any increase or decrease in interest rate resulting from a change in
the Maximum Rate shall be effective immediately when such change becomes
effective, without notice to Borrower, unless Applicable Law (as defined below)
requires that such increase or decrease not be effective until a later time, in
which event such increase or decrease shall be effective at the earliest time
permitted under the provisions of such law.
Notwithstanding the foregoing, if during any period the Floating Rate
exceeds the Maximum Rate, the rate of interest in effect on this Note shall be
limited to the Maximum Rate during each such period, but at all times thereafter
the rate of interest in effect on this Note shall be the Maximum Rate until the
total amount of interest accrued on this Note equals the total amount of
interest which would have accrued hereon if the Floating Rate had at all times
been in effect.
All payments on this Note shall be applied first to accrued interest
and the balance, if any, to principal.
"Floating Rate" means a per annum interest rate equal to the Index Rate
(as defined below) in effect from time to time plus two percent (2.0%), provided
that at such time no Event of Default or Unmatured Event of Default (as defined
in the First Amended, Restated, and Combined Loan Agreement dated August 28,
1997, as amended by the First Amendment thereto dated December 23, 1997, the
Second Amendment thereto dated December 30, 1997, the Third Amendment dated July
30, 1998, the Fourth Amendment dated September 24, 1998 and the Fifth Amendment
thereto dated March 22, 1999, the Sixth Amendment thereto dated April 23, 1999,
the Seventh Amendment thereto dated August 27, 1999, the Eighth Amendment
thereto dated November 11, 1999 and the Ninth Amendment thereto dated of even
date herewith, between Borrower and Bank (the "Loan Agreement")) has occurred
and is continuing; then thereafter, "Floating Rate" shall mean a per annum
interest rate equal to the Index Rate in effect from time to time plus five
percent (5%).
<PAGE> 15
"Index Rate" means at any time, the prime rate established in The Wall
Street Journal's "Money Rates" or similar table. If multiple prime rates are
quoted in the table, then the highest prime rate will be the Index Rate. In the
event that the prime rate is no longer published by The Wall Street Journal in
the "Money Rates" or similar table, then Bank may select an alternative
published index based upon comparable information as a substitute Index Rate.
Upon the selection of a substitute Index Rate, the applicable interest rate
shall thereafter vary in relation to the substitute index. Such substitute index
shall be the same index that is generally used as a substitute by Bank on all
Index Rate loans.
"Maximum Rate" means the Maximum Rate of non-usurious interest
permitted from day to day by Applicable Law.
"Applicable Law" means that law in effect from time to time and
applicable to this Note which lawfully permits the charging and collection of
the highest permissible lawful, non-usurious rate of interest on this Note. To
the extent federal law permits Lender to contract for, charge or receive a
greater amount of interest, Lender will rely on federal law instead of the Texas
Finance Code for the purpose of determining the Maximum Rate. Additionally, to
the maximum extent permitted by applicable law now or hereafter in effect,
Lender may, at its option and from time to time, implement any other method of
computing the Maximum Rate under the Texas Finance Code or under other
applicable law, by giving notice, if required, to Borrower as provided by
applicable law now or hereafter in effect. Notwithstanding anything to the
contrary contained herein or in any of the other Loan Documents, it is not the
intention of Lender to accelerate the maturity of any interest that has not
accrued at the time of such acceleration or to collect unearned interest at the
time of such acceleration.
"Business Day" shall mean any day on which banks are open for general
banking business in the State of Texas, other than a Saturday, a Sunday, a legal
holiday or any other day on which banks in the State of Texas are required or
authorized by law or executive order to close.
Principal and interest, calculated pursuant to Section 2.04 of the Loan
Agreement, on this Note shall be repaid by Borrower as set forth in Section 2.24
of the Loan Agreement.
When the first (1st) day of a calendar month falls upon a Saturday,
Sunday or legal holiday, the payment of interest and principal, if any, due upon
such date shall be due and payable upon the next succeeding Business Day.
In no event shall the aggregate of the interest on this Note, plus any
other amounts paid in connection with the loan evidenced by this Note which
would under Applicable Law be deemed "interest," ever exceed the maximum amount
of interest which, under Applicable Law, could be lawfully charged on this Note.
Bank and Borrower specifically intend and agree to limit contractually the
interest payable on this Note to not more than an amount determined at the
Maximum Rate. Therefore, none of the terms of this Note or any other instruments
pertaining to or securing this Note shall ever be construed to create a contract
to pay interest at a rate in excess of the Maximum Rate,
2
<PAGE> 16
and neither Borrower nor any other party liable herefor shall ever be liable for
interest in excess of that determined at the Maximum Rate, and the provisions of
this paragraph shall control over all provisions of this Note or of any other
instruments pertaining to or securing this Note. If any amount of interest taken
or received by Bank shall be in excess of the maximum amount of interest which,
under Applicable Law, could lawfully have been collected on this Note, then the
excess shall be deemed to have been the result of a mathematical error by the
parties hereto and shall be refunded promptly to Borrower. All amounts paid or
agreed to be paid in connection with the indebtedness evidenced by this Note
which would under Applicable Law be deemed "Interest" shall, to the extent
permitted by Applicable Law, be amortized, prorated, allocated and spread
throughout the full term of this Note.
This Note is secured by all security agreements, collateral
assignments, mortgages and lien instruments executed by Borrower (or by any
other party) in favor of Bank, including those executed simultaneously herewith,
those executed heretofore and those hereafter executed, and including
specifically and without limitation the "Security Instruments" described and
defined in the Loan Agreement.
This Note is the Second Amended and Restated Term Note issued pursuant
to the Ninth Amendment to the Loan Agreement and it amends and restates, but
does not extinguish, the Term Note dated September 24, 1998 in the face amount
of $7,000,000.00, and the Amended and Restated Term Note dated March 22, 1999 in
the face amount of $9,000,000.00, both executed by Borrower and made payable to
Bank. Reference is hereby made to the Loan Agreement for a statement of the
rights and obligations of the holder of this Note and the duties and obligations
of Borrower in relation thereto; but neither this reference to the Loan
Agreement nor any provisions thereof shall affect or impair the absolute and
unconditional obligation of Borrower to pay any outstanding and unpaid principal
of and interest on this Note when due, in accordance with the terms of the Loan
Agreement.
In the event of default in the payment when due of any of the principal
of or any interest on this Note, or in the event of default under the terms of
the Loan Agreement or any of the Security Instruments, or if any event occurs or
condition exists which authorizes the acceleration of the maturity of this Note
under any agreement made by Borrower, Bank (or other holder of this Note) may,
at its option, without presentment or demand or any notice to Borrower or any
other person liable herefor, declare the unpaid principal balance of and accrued
interest on this Note to be immediately due and payable.
If this Note is collected by suit or through the Probate or Bankruptcy
Court, or any judicial proceeding, or if this Note is not paid at maturity,
however such maturity may be brought about, and is placed in the hands of an
attorney for collection, then Borrower agrees to pay reasonable attorneys' fees,
not to exceed 10% of the full amount of principal and interest owing hereon at
the time this Note is placed in the hands of an attorney.
Borrower and all sureties, endorsers and guarantors of this Note waive
demand, presentment for payment, notice of nonpayment, protest, notice of
protest, notice of intent to accelerate maturity,
3
<PAGE> 17
notice of acceleration of maturity, and all other notices, filing of suit and
diligence in collecting this Note or enforcing any of the security herefor, and
agree to any substitution, exchange or release of any such security or the
release of any party primarily or secondarily liable hereon and further agrees
that it will not be necessary for Bank, in order to enforce payment of this Note
by them, to first institute suit or exhaust its remedies against any Borrower or
others liable herefor, or to enforce its rights against any security herefor,
and consent to any one or more extensions or postponements of time of payment of
this Note on any terms or any other indulgences with respect hereto, without
notice thereof to any of them. Bank may transfer this Note, and the rights and
privileges of Bank under this Note shall inure to the benefit of Bank's
representatives, successors or assigns.
Executed December 15, 1999 but effective the 22nd day of March 1999.
CARRIZO OIL & GAS, INC.
By:
-------------------------------
Frank A. Wojtek
Vice President
4
<PAGE> 18
COMPLIANCE CERTIFICATE
I, Frank A. Wojtek, Vice President of CARRIZO OIL & GAS, INC.
(the "Company"), pursuant to Section 3.23(a) of the First Amended, Restated, and
Combined Loan Agreement dated as of August 28, 1997, as amended, by and among
COMPASS BANK ("Bank") and the Company (the "Agreement") do hereby certify, as of
the date hereof, that to my knowledge:
1. After giving effect to the Ninth Amendment, no Event of
Default (as defined in the Agreement) has occurred and is
continuing, and no Unmatured Event of Default (as defined in
the Agreement) has occurred and is continuing;
2. No material adverse change has occurred in the business
prospects, financial condition, or the results of operations
of the Company since the date of the previous Financial
Statements (as defined in the Agreement) provided to Bank;
3. After giving effect to the Ninth Amendment, each of the
representations and warranties of the Company contained in
Article IV of the Agreement is true and correct in all
respects.
This certificate is executed this 15th day of December 1999.
-------------------
Frank A. Wojtek
<PAGE> 1
EXHIBIT 99.11
THURSDAY DECEMBER 16, 8:15 AM EASTERN TIME
COMPANY PRESS RELEASE
SOURCE: CARRIZO OIL AND GAS, INC.
CARRIZO OIL & GAS, INC. ANNOUNCES
CLOSING OF FINANCING AND BUYBACK OF PREFERRED STOCK
HOUSTON. Dec. 16/PRNewswire/-- Carrizo Oil & Gas, Inc. (Nasdaq: CRZO - news)
today announced the closing and funding of its previously announced $30 million
Financing with an investor group led by Chase Capital Partners, and the
completion of the previously announced buyback, from affiliates of Enron Corp.,
of all of the Company's 9% Series A Preferred Stock.
Pursuant to the Financing, the Company sold $22 million aggregate principal
amount of 9% Senior Subordinated Notes due 2007, 3,636,364 shares of Common
Stock at a price of $2.20 per share and issued new warrants to purchase up to an
additional 2,760,189 shares of Carrizo's Common Stock at a price of $2.20 per
share. The Company also completed the previously announced amendment of its bank
facility.
The proceeds of the Financing were used to fund the $12 million buyback of the
Preferred Stock and repay a total of approximately $5 million of the Company's
senior debt, with the remaining proceeds being available primarily to fund the
Company's ongoing exploration and development program.
In the Enron transaction, all of the Company's $34 million of preferred stock
obligation to Enron was eliminated in exchange for the $12 million purchase
price. In addition, 750,000 previously outstanding warrants held by Enron
affiliates were eliminated while the exercise price of the remaining 250,000
warrants held by the Enron affiliates was reduced to $4.00 per share.
In connection with the Financing, Arnold Chavkin and Christopher Behrens joined
Carrizo's Board of Directors. Both are General Partners of Chase Capital
Partners and serve on the boards of several public and private companies, many
of which are in the energy industry.
<PAGE> 2
The investor group, which originally included Chase Capital Partners, and the
Company's three outside directors, was expanded to include Mellon Ventures, L.P.
Carrizo Oil & Gas, Inc. is a Houston-based energy company engaged in the
exploration, development, exploitation and production of oil and natural gas in
proved onshore trends along the Texas and Louisiana Gulf Coast regions. Carrizo
controls significant prospective acreage blocks and utilizes advanced 3-D
seismic techniques to identify potential oil and gas reserves and drilling
opportunities.
Statements in this news release, including but not limited to those relating to
the use of proceeds 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
facts 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, operating risks, regulatory and environmental matters,
capital requirements and availability, dependence on key personnel, oil and gas
price levels, availability of drilling rigs, weather, land issues, matters
outside the Company's control and other risks described in the Company's
filings with the Securities and Exchange Commission.
