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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark one)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1999
Commission file number 000-24971
CONTANGO OIL & GAS COMPANY
(Exact name of small business issuer as specified in its charter)
NEVADA 95-4067606
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
3700 BUFFALO SPEEDWAY, SUITE 960
HOUSTON, TEXAS 77098
(Address of principal executive offices)
(713) 960-1901
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
The total number of shares of common stock, par value $0.04 per share,
outstanding as of February 3, 2000 was 17,434,662.
Traditional Small Business Disclosure Format (check one): Yes X No
--- ---
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CONTANGO OIL & GAS COMPANY
QUARTERLY REPORT ON FORM 10-QSB
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Condensed Balance Sheets as of December 31, 1999 (unaudited)
and June 30, 1998 ................................................................. 3
Condensed Statements of Operations for the three and six months ended December 31,
1999 and 1998 (unaudited).......................................................... 4
Condensed Statement of Shareholders' Equity as of December 31, 1999 (unaudited)........ 5
Condensed Statements of Cash Flows for the six months ended
December 31, 1999 and 1998 (unaudited)............................................. 6
Notes to the Condensed Financial Statements............................................ 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...... 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.......................................................................... 12
Item 2. Changes in Securities and Use of Proceeds.................................................. 12
Item 3. Default Upon Senior Securities............................................................. 12
Item 4. Submission of Matters to Vote of Security Holders.......................................... 12
Item 5. Other Information.......................................................................... 13
Item 6. Exhibits and Reports on Form 8-K........................................................... 13
SIGNATURES........................................................................................... 13
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONTANGO OIL & GAS COMPANY (A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31, JUNE 30,
1999 1999
----------- -----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents .................................................... $ 4,909,693 $ 466,189
Accounts receivable, net ..................................................... 163,447 15,697
Advances to operators and other .............................................. 13,312 8,003
----------- -----------
Total current assets ..................................................... 5,086,452 489,889
----------- -----------
PROPERTY, PLANT AND EQUIPMENT:
Oil and natural gas properties, successful efforts method of accounting:
Proved properties ........................................................ 106,196 --
Unproved properties, not being amortized ................................. 35,000 --
Furniture and equipment ...................................................... 13,726 --
Accumulated depreciation, depletion and amortization ......................... (2,048) --
----------- -----------
Total property, plant and equipment ...................................... 152,874 --
----------- -----------
TOTAL ASSETS ............................................................. $ 5,239,326 $ 489,889
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ............................................................. $ 36,795 $ 800
Preferred stock dividends payable ............................................ -- 75,565
Accrued liabilities .......................................................... 45,112 --
----------- -----------
Total current liabilities ................................................ 81,907 76,365
----------- -----------
SHAREHOLDERS' EQUITY:
Convertible preferred stock, Series B, $0.04 par value, $30 per share
liquidation preference and certain voting rights, 125,000 shares
authorized, 0 issued and outstanding at December 31, 1999 and
16,792 issued and outstanding at June 30, 1999 ........................... -- 672
Common stock, $0.04 par value, 50,000,000 shares authorized,
17,401,328 issued and outstanding at December 31, 1999 and
1,509,865 shares issued and outstanding at June 30, 1999 ................. 696,053 60,395
Additional paid-in capital ................................................... 6,873,263 2,168,399
Accumulated deficit .......................................................... (1,815,942) (1,815,942)
Deficit accumulated during development stage ................................. (595,955) --
----------- -----------
Total shareholders' equity ............................................... 5,157,419 413,524
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............................... $ 5,239,326 $ 489,889
=========== ===========
</TABLE>
See notes to financial statements.
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CONTANGO OIL & GAS COMPANY (A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
CUMULATIVE
THREE MONTHS ENDED SIX MONTHS ENDED TOTAL FROM
DECEMBER 31, DECEMBER 31, INCEPTION OF
---------------------------- ---------------------------- DEVELOPMENT
1999 1998 1999 1998 STAGE
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Oil and natural gas sales .................... $ 6,367 $ -- $ 6,367 $ -- $ 6,367
EXPENSES:
Lease operating expense ................. 1,677 -- 1,677 -- 1,677
Exploration expense ..................... 78,928 -- 88,928 -- 88,928
Depreciation, depletion
and amortization .................... 1,438 -- 2,048 -- 2,048
General and administrative expense ...... 241,401 26,524 531,471 45,818 531,471
------------ ------------ ------------ ------------ ------------
Total expenses ...................... 323,444 26,524 624,124 45,818 624,124
------------ ------------ ------------ ------------ ------------
LOSS FROM OPERATIONS ......................... (317,077) (26,524) (617,757) (45,818) (617,757)
Interest income .............................. 19,502 6,129 21,802 13,194 21,802
------------ ------------ ------------ ------------ ------------
NET LOSS ..................................... (297,575) (20,395) (595,955) (32,624) (595,955)
Preferred stock dividends .................... -- 15,113 -- 15,113 --
------------ ------------ ------------ ------------ ------------
NET LOSS ATTRIBUTABLE TO
COMMON STOCK ............................ $ (297,575) $ (35,508) $ (595,955) $ (47,737) $ (595,955)
============ ============ ============ ============ ============
DEFICIT ACCUMULATED
DURING DEVELOPMENT
STAGE, BEGINNING OF PERIOD .............. (298,380) -- -- -- --
------------ ------------ ------------ ------------ ------------
DEFICIT ACCUMULATED
DURING DEVELOPMENT
STAGE, END OF PERIOD .................... $ (595,955) $ -- $ (595,955) $ -- $ (595,955)
============ ============ ============ ============ ============
BASIC AND DILUTED
NET LOSS PER SHARE ...................... $ (0.02) $ (0.02) $ (0.06) $ (0.03) $ (0.06)
============ ============ ============ ============ ============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING ...................... 13,033,082 1,509,865 9,326,800 1,509,865 9,326,800
============ ============ ============ ============ ============
</TABLE>
See notes to financial statements.
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CONTANGO OIL & GAS COMPANY (A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
-------------------------- ------------------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1999 ......... 16,792 $ 672 1,509,865 $ 60,395 $ 2,168,399 $(1,815,942)
Preferred stock conversion ....... (16,792) (672) 503,760 20,150 (19,478) --
Sale of shares (8/99) ............ -- -- 6,460,000 258,400 387,600 --
Sale of warrants (8/99) .......... -- -- -- -- 24,600 --
Sale of shares (9/99) ............ -- -- 3,780,000 151,200 982,800 --
Net loss ......................... -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Balance at September 30, 1999 .... -- -- 12,253,625 490,145 3,543,921 (1,815,942)
Sale of shares (10/99) ........... -- -- 416,666 16,667 264,583 --
Sale of shares (11/99) ........... -- -- 533,333 21,333 362,167 --
Sale of shares (12/99) ........... -- -- 4,197,704 167,908 2,702,592 --
Net loss ......................... -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1999 ..... -- $ -- 17,401,328 $ 696,053 $ 6,873,263 $(1,815,942)
=========== =========== =========== =========== =========== ===========
<CAPTION>
DEFICIT
ACCUMULATED
DURING TOTAL
DEVELOPMENT SHAREHOLDERS'
STAGE EQUITY
----------- -----------
<S> <C> <C>
Balance at June 30, 1999 ......... $ -- $ 413,524
Preferred stock conversion ....... -- --
Sale of shares (8/99) ............ -- 646,000
Sale of warrants (8/99) .......... -- 24,600
Sale of shares (9/99) ............ -- 1,134,000
Net loss ......................... (298,380) (298,380)
----------- -----------
Balance at September 30, 1999 .... (298,380) 1,919,744
Sale of shares (10/99) ........... -- 281,250
Sale of shares (11/99) ........... -- 383,500
Sale of shares (12/99) ........... -- 2,870,500
Net loss ......................... (297,575) (297,575)
----------- -----------
Balance at December 31, 1999 ..... $ (595,955) $ 5,157,419
=========== ===========
</TABLE>
See notes to financial statements.
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CONTANGO OIL & GAS COMPANY (A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
CUMULATIVE
SIX MONTHS ENDED TOTAL FROM
DECEMBER 31, INCEPTION OF
-------------------------- DEVELOPMENT
1999 1998 STAGE
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ...................................................... $ (595,955) $ (47,737) $ (595,955)
Depreciation, depletion and amortization ...................... 2,048 -- 2,048
Exploration expense ........................................... 88,928 -- 88,928
Changes in operating assets and liabilities:
Increase in accounts receivable ........................... (147,750) -- (147,750)
(Increase) decrease in advances and other ................. (5,309) 2,668 (5,309)
Increase (decrease) in accounts payable ................... 35,995 (900) 35,995
Increase in preferred stock dividends payable ............. -- 15,113 --
Increase in accrued liabilities ........................... 45,112 -- 45,112
----------- ----------- -----------
Net cash used in operating activities ..................... (576,931) (30,856) (576,931)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to proved properties and other exploration costs .... (195,124) -- (195,124)
Additions to unproved properties .............................. (35,000) -- (35,000)
Additions to furniture and equipment .......................... (13,726) -- (13,726)
----------- ----------- -----------
Net cash used in investing activities ..................... (243,850) -- (243,850)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock and warrants ........... 5,339,850 -- 5,339,850
Preferred stock dividends ..................................... (75,565) -- (75,565)
----------- ----------- -----------
Net cash provided by financing activities ................. 5,264,285 -- 5,264,285
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS .......................................... 4,443,504 (30,856) 4,443,504
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ..................... 466,189 559,102 466,189
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD ........................... $ 4,909,693 $ 528,246 $ 4,909,693
=========== =========== ===========
</TABLE>
See notes to financial statements.
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CONTANGO OIL & GAS COMPANY (A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
Contango Oil & Gas Company is a development stage, independent energy
company engaged in the exploration and development of oil and natural gas in the
United States. Contango is required to present its financial statements as a
development stage enterprise starting July 1, 1999 (the inception date of the
development stage).
Contango was incorporated as a Nevada corporation in August 1986 under the
name of Maple Enterprises, Inc. In 1988, Maple acquired and subsequently merged
into Warner Technologies, Inc., a private corporation. Warner provided energy
efficiency products and services including lighting retrofits, electrical
control systems for buildings, and strategic energy planning services. At the
1998 annual stockholders' meeting, Warner stockholders approved an agreement to
sell the operating business and substantially all net operating assets,
effective as of December 31, 1997. Stockholders also voted to change the name of
the company from Warner Technologies, Inc. to MGPX Ventures, Inc.
As a result of the sale of assets, MGPX became a "shell" corporation with
no operations or business plan other than to seek to identify and complete an
acquisition, merger or other transaction that would enhance stockholder value.
After reviewing numerous potential merger and acquisition candidates and
business opportunities, the board unanimously approved a plan for MGPX to hire
new management and to enter the oil and natural gas resources business. At the
annual stockholders' meeting held September 28, 1999, stockholders voted to
change the name of the company from MGPX Ventures, Inc. to Contango Oil & Gas
Company, elected a new board of directors including Kenneth R. Peak, Contango's
president, chief executive officer and chairman of the board, and increased the
authorized number of shares of common stock from 12,375,000 to 50,000,000.
Additionally, Contango changed its trading symbol on the Nasdaq over-the-counter
bulletin board from "MGPX" to "BTUX".
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DEVELOPMENT STAGE ACCOUNTING
Basis of Presentation. The accompanying financial statements have been
prepared in conformity with generally accepted accounting principles for interim
financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all normal,
recurring adjustments considered necessary for a fair presentation have been
included. All such adjustments are of a normal recurring nature. The financial
statements should be read in conjunction with the audited financial statements
and notes thereto included in MGPX's Form 10-KSB, as amended, for the year ended
June 30, 1999. The results of operations for the three and six months ended
December 31, 1999 are not necessarily indicative of the results that may be
expected for the year ending June 30, 2000.
Development Stage Accounting. Contango is a development stage enterprise
engaged in the exploration and development of oil and natural gas in the United
States. Since July 1, 1999, Contango has completed two small producing property
acquisitions and has reported only limited oil and natural gas revenues for the
six months ended December 31, 1999. For the period from July 1, 1999 through
December 31, 1999, Contango incurred cumulative losses of $595,955 and expects
that these losses will continue until it generates sufficient revenues from oil
and natural gas production either through drilling activities or through
acquisition of producing properties to cover operating and general and
administrative costs.
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CONTANGO OIL & GAS COMPANY (A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
As of December 31, 1999, Contango had cash and cash equivalents of
approximately $4.9 million. Based on current available capital resources,
management believes that it will be able to meet its commitments and fund its
operations over the next 12 months.
Contango is subject to several categories of risk associated with its
development stage activities. Oil and gas exploration and development is a
speculative business and involves a high degree of risk. Among the factors that
have a direct bearing on Contango's prospects are uncertainties inherent in
estimating oil and gas reserves and future hydrocarbon production and cash
flows, particularly with respect to wells that have not been fully tested and
with wells having limited production histories; access to additional capital;
changes in the price of oil and natural gas; availability and cost of services
and equipment; and the presence of competitors with greater financial resources
and capacity.
Net Loss per Share. Basic net loss per share is computed by dividing the
net loss attributable to common stock by the weighted-average number of common
shares outstanding. Diluted net loss per share is computed similar to basic net
loss per share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if potential common
shares had been issued and if the additional common shares were dilutive.
Diluted net loss per share does not include potential common shares because such
shares are anti-dilutive for all periods presented.
Income Taxes. Contango accounts for income taxes under the asset and
liability method of accounting. Under this method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. A valuation allowance is required when it is more likely than
not that the company will not be able to realize all or a portion of its
deferred tax assets.
Property, Plant and Equipment. In accounting for oil and gas property,
Contango follows the successful efforts method of accounting, capitalizing costs
of successful exploratory wells and expensing costs of unsuccessful exploratory
wells. Exploratory geological and geophysical costs are expensed as incurred.
All development costs are capitalized. The estimated undiscounted cost, net of
salvage value, of dismantling and removing major oil and gas production
facilities, including necessary site restoration, are accrued using the
unit-of-production method.
Other property and equipment is generally depreciated using the
double-declining balance method over estimated useful lives, which range from 5
to 7 years. Repairs and maintenance are expensed, while renewals and betterments
are generally capitalized.
3. SHAREHOLDERS' EQUITY
In December 1999, Contango completed a private placement of 5,147,703
shares of its common stock and 370,370 warrants to purchase common stock (at
$1.00 per share) at a gross price of $0.75 per share (net price of $0.69 per
share after discounts and commissions) for net proceeds of $3,535,250.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with the financial
statements and the accompanying notes and other information included elsewhere
in this Form 10-QSB and in our Form 10-KSB, previously filed with the Securities
and Exchange Commission.
UNCERTAINTY OF FORWARD-LOOKING STATEMENTS AND INFORMATION
Statements made in this Form 10-QSB about our company may constitute
"forward-looking statements". The words and phrases "should be", "will be",
"believe", "expect", "anticipate" and similar expressions identify
forward-looking statements. We believe the expectations reflected in such
forward-looking statements are accurate. However, we cannot assure you that such
expectations will occur. These forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause our actual
results, performance or achievements to be materially different from actual
future results expressed or implied by the forward-looking statements. You
should not unduly rely on these forward-looking statements in this report, as
they speak only as of the date of this report. Except as required by law, we are
not obligated to publicly release any revisions to these forward-looking
statements to reflect events or circumstances occurring after the date of this
report or to reflect the occurrence of unanticipated events.
GENERAL
We are a development stage, independent energy company engaged in the
exploration and development of oil and natural gas in the United States. We are
required to present our financial statements as a development stage enterprise
starting July 1, 1999 (the inception date of the development stage).
In July 1999, our board of directors approved a new business plan for us to
enter the oil and natural gas resources business. Our goal is to build a
profitable independent oil and natural gas company. Our principal focus will be
on the funding and drilling of exploratory wells. We intend to acquire only
non-operated interests in exploration prospects and producing property
acquisitions. Our strategy is to keep overhead as low as possible by keeping
employee levels low and outsourcing all technical and as much of our
administrative activities as possible. Our new business plan includes the
following three principal objectives:
o Exploration for oil and natural gas reserves with sophisticated
alliance partners;
o Negotiated acquisition of natural gas and crude oil reserves; and
o Investment in a variety of energy industry entrepreneurial
opportunities.
Initially, we will focus primarily on the first two objectives, described
below. As we pursue these objectives, our business will be subject to all of the
risks associated with a start-up company in the competitive and volatile oil and
natural gas resources business.
Oil and Natural Gas Exploration. Oil and natural gas exploration requires
significant outlays of capital and in many situations may offer only a one in
five (or lower) probability of success. We hope to enhance our chances for
success by effectively using available technology, rigorously evaluating
sub-surface and regional data by effective risk analysis and capital allocation
and by managing dry hole, oil and natural gas price and financial risks.
Acquisition of Oil and Natural Gas Reserves. We intend to target negotiated
acquisitions and to avoid more competitive bidding situations. Nonetheless, we
will likely always face some form of competition from firms that in many
instances are well established, successful and frequently willing to pay more
for properties than what we might consider prudent. Thus, our success depends on
the execution of our business model to (i) see deals first, (ii) quickly
identify which deals are most promising and (iii) negotiate a creative
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deal structure that, whenever possible, avoids the payment of more up-front cash
than competitors are willing to pay.
RESULTS OF OPERATIONS
The following is a discussion of the results of operations for the three
and six months ended December 31, 1999, compared to those for the three and six
months ended December 31, 1998. The results of operations for 1999 are not
directly comparable to results for 1998 when the company was essentially a
"shell" corporation without operations. Further, the company incurred start-up
costs in the three and six months ended December 31, 1999 as a result of our
entry into the oil and natural gas business.
THREE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
1998
Oil and Natural Gas Sales. We reported our first oil and natural gas sales
of approximately $6,400 for the three months ended December 31, 1999. This was
attributable to production from our first producing property acquisition,
located in Wharton and Colorado counties in Texas, that closed in November 1999.
Lease Operating Expenses. For the three months ended December 31, 1999, we
reported approximately $1,700 of lease operating expense. This was attributable
to cost associated with production from the producing property acquisition
located in Wharton and Colorado counties in Texas.
Exploration Expense. For the three months ended December 31, 1999, we
reported approximately $78,900 of exploration expense. This was primarily
attributable to $75,000 of overhead reimbursement under an exploration
agreement.
Depreciation, Depletion and Amortization. For the three months ended
December 31, 1999, we reported approximately $1,400 of depreciation, depletion
and amortization. This was attributable almost equally to depletion and
amortization related to our production in Wharton and Colorado counties in Texas
and to depreciation of fixed assets, primarily office equipment.
General and Administrative Expense. General and administrative expense
increased approximately $214,900, from approximately $26,500 for the three
months ended December 31, 1998 to approximately $241,400 for the three months
ended December 31, 1999. This increase was primarily attributable to costs
incurred in opening our corporate office in Houston, Texas. Major components of
general and administrative expense for the three months ended December 31, 1999
include approximately $53,500 in salaries and benefits; approximately $41,300
for insurance; approximately $61,800 in legal fees and costs associated with
recent equity offerings, various leasehold and producing property acquisitions
and the negotiation of an exploration agreement with Juneau Exploration; and
approximately $63,700 in office administrative expense.
Interest Income. Interest income increased approximately $13,400, from
approximately $6,100 for the three months ended December 31, 1998 to
approximately $19,500 for the three months ended December 31, 1999. Interest
income was derived from interest earned on our cash balances during the
reporting periods. The increase in interest income was due to the increase in
cash balances resulting from proceeds of three equity offerings completed in
August, September and December 1999.
SIX MONTHS ENDED DECEMBER 31, 1999 COMPARED TO SIX MONTHS ENDED DECEMBER 31,
1998
Oil and Natural Gas Sales. We reported our first oil and natural gas sales
of approximately $6,400 for the six months ended December 31, 1999. This was
attributable to production from our first producing property acquisition,
located in Wharton and Colorado counties in Texas, that closed in November 1999.
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Lease Operating Expenses. For the six months ended December 31, 1999, we
reported approximately $1,700 of lease operating expense. This was attributable
to cost associated with production from the producing property acquisition
located in Wharton and Colorado counties in Texas.
Exploration Expense. For the six months ended December 31, 1999, we
reported approximately $88,900 of exploration expense. This was primarily
attributable to $75,000 of overhead reimbursement under an exploration
agreement.
Depreciation, Depletion and Amortization. For the six months ended December
31, 1999, we reported approximately $2,000 of depreciation, depletion and
amortization. This was attributable to depletion and amortization related to our
production in the Wharton and Colorado counties in Texas (approximately $800)
and to depreciation fixed assets, primarily office equipment (approximately
$1,200).
General and Administrative Expense. General and administrative expense
increased approximately $485,700, from approximately $45,800 for the six months
ended December 31, 1998 to approximately $531,500 for the six months ended
December 31, 1999. This increase was primarily attributable to costs incurred in
opening our corporate office in Houston, Texas. Major components of general and
administrative expense for the six months ended December 31, 1999 include
$50,000 of overhead reimbursement under an exploration agreement; approximately
$91,000 in salaries and benefits; approximately $81,500 for insurance;
approximately $138,400 in legal fees and costs associated with our June 1999
year end Form 10-KSB and proxy statement filed with the Securities and Exchange
Commission, recent equity offerings, various leasehold and producing property
acquisitions and the negotiation of an exploration agreement with Juneau
Exploration; and approximately $81,000 in office administrative expense.
Interest Income. Interest income increased approximately $8,600, from
approximately $13,200 for the six months ended December 31, 1998 to
approximately $21,800 for the six months ended December 31, 1999. Interest
income was derived from interest earned on our cash balances during the
reporting periods. The increase in interest income was due to the increase in
cash balances resulting from proceeds of three equity offerings completed in
August, September and December 1999.
LIQUIDITY
As a result of the three offerings of common stock completed in August,
September and December 1999, we had approximately $4.9 million in cash and cash
equivalents as of December 31, 1999. In addition to the funds necessary to
fulfill our obligations under our exploration programs, we also will require
financing to meet other working capital costs. We estimate that approximately $1
million will be needed for these costs over the next 12 months. However, this
estimate is subject to change, depending on the number of transactions in which
we ultimately become involved. In addition, funding will be required for
development of working interest obligations on any successful exploration
prospects.
We believe that our overall management of cash on hand will be adequate to
satisfy existing expenditure requirements under our exploration agreement and
general corporate needs over the next 12 months. We anticipate, however, that we
will need to raise additional debt or equity capital during 2000 to fund
anticipated growth in our exploration program and to take advantage of other
opportunities that may become available. The availability of such funds will
depend upon prevailing market conditions and other factors over which we have no
control, as well as our financial condition and results of operations. There can
be no assurance that sufficient funds will be available to finance intended
exploration, development or acquisitions to successfully execute our business
plan.
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RECENT EVENTS
In November 1999, we completed our first producing property acquisition in
Wharton and Colorado counties in Texas for approximately $106,000. The
acquisition included the purchase of working interests that vary from 1/2% to 5%
in 11 producing wells and an approximate 1/2% net overriding royalty interest
and an approximate 5% net backin working interest after payout in up to 20
prospects. In addition, we acquired the right to 3-D seismic covering
approximately 96.5 square miles over the prospect acreage.
During the three months ended December 31, 1999, we acquired approximately
2,000 gross leasehold acres in Shelby County, Texas that we subsequently sold in
February 2000. We retained a 3% net overriding royalty interest in the acreage
and will receive net cash proceeds after our costs of approximately $75,000.
In January 2000, we acquired a 9.5% net working interest in the Needville
Field in Ft. Bend County, Texas for approximately $123,500. The acquisition
included three producing wells (approximately 90 barrels of oil per day gross),
one development well location and one exploratory location. Plans call for the
drilling of these two wells in the near future.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The company is not a party to any legal proceedings.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In December 1999, Contango completed a private placement of 1,443,999
shares of its common stock at a gross price of $0.75 per share (net price of
$0.72 per share after commissions) for net proceeds of $1,035,250. In addition
to the $47,750 paid as cash commissions, 63,667 options to purchase Contango
common stock at $1.00 per share were granted as commissions. All of the
purchasers were "accredited investors" as defined in Rule 501 of Regulation D of
the Securities Act of 1933, and the issuance of the securities was exempt from
registration under Rule 506 of Regulation D.
Also in December 1999, Contango sold in a private placement 3,703,704 share
of common stock and 370,370 warrants to purchase common stock at $1.00 per share
to Trust Company of the West for net proceeds after discounts of $2,500,000, or
$0.68 per share. As part of the securities purchase agreement between Contango
and Trust Company of the West, Trust Company of the West, at its option and so
long as it holds at least 10% of Contango's fully diluted common shares, shall
be entitled to designate a person who shall attend any meetings of the board of
directors for the sole purpose of observing such meeting for and on behalf of
Trust Company of the West. The issuance of the securities to Trust Company of
the West was exempt from registration under Section 4(2) of the Securities Act,
as it did not involve a public offering of securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
12
<PAGE> 13
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
The following is a list of exhibits filed as part of this Form 10-QSB.
Where so indicated by footnote, exhibits, which were previously filed, are
incorporated by reference.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
3.1 Restated Articles of Incorporation of the company, as amended.
(1)
3.2 By-Laws of the company. (1)
4.1 Facsimile of common stock certificate of the company. (1)
10.1 Alcorn/MGPX Oil & Gas Lease Acquisition Agreement. (2)
10.2 Agreement, dated effective as of September 1, 1999, between
Contango and Juneau Exploration, L.L.C. (2)
10.3+ Securities Purchase Agreement between Contango and Trust Company
of the West, dated December 29, 1999.
10.4+ Warrant to Purchase Common Stock between Contango and Trust
Company of the West, dated December 29, 1999.
10.5+ Co-Sale Agreement among Kenneth R. Peak, Contango and Trust
Company of the West, dated December 29, 1999.
27.1+ Financial Data Schedule.
</TABLE>
- ------------------------
+ Filed herewith.
(1) Included as an exhibit to the Company's Form 10-SB Registration
Statement, as filed with the Securities and Exchange Commission on
October 16, 1998.
(2) Filed as an exhibit to the Company's Form 10-QSB for the quarter ended
June 30, 1999, as filed with the Securities and Exchange Commission on
November 11, 1999.
(b) REPORTS ON FORM 8-K:
The Company did not file any reports on Form 8-K during the quarter ended
December 31, 1999.
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, thereto duly authorized.
CONTANGO OIL & GAS COMPANY
Date: February 14, 2000 By: /s/ KENNETH R. PEAK
--------------------------------------------
Kenneth R. Peak
President and Chief Executive Officer
(Principal Executive and Financial Executive
Officer)
13
<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
10.3 Securities Purchase Agreement between Contango and Trust Company
of the West, dated December 29, 1999.
10.4 Warrant to Purchase Common Stock between Contango and Trust
Company of the West, dated December 29, 1999.
10.5 Co-Sale Agreement among Kenneth R. Peak, Contango and Trust
Company of the West, dated December 29, 1999.
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.3
THE SECURITIES TO WHICH THIS AGREEMENT RELATES HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER ANY
STATE SECURITIES LAWS ("STATE LAWS") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED UNLESS THE OFFER AND SALE IS REGISTERED UNDER THE SECURITIES ACT OR
THE ISSUER RECEIVES AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER
THAT THE OFFER AND SALE IS EXEMPT FROM SECURITIES ACT REGISTRATION.
SECURITIES PURCHASE AGREEMENT
This agreement is made and entered into as of the 29th day of December,
1999, by and between Contango Oil & Gas Company (the "Issuer") and Trust Company
of the West, a California trust company, in its capacities as Investment Manager
pursuant to the Investment Management Agreement dated as of June 6, 1988 between
General Mills, Inc. and the Trust Company of the West and as Custodian pursuant
to the Custody Agreement dated as of February 6, 1989 among General Mills, Inc.,
the Trust Company of the West and State Street Bank and Trust Company, as
Trustee (the "Purchaser").
1. AGREEMENT TO PURCHASE SECURITIES. On the terms and subject to the
conditions set forth in this agreement, the Purchaser hereby agrees to purchase
from the Issuer 3,703,704 shares of the Issuer's common stock (the "Shares") and
warrants to purchase an additional 370,370 shares of common stock (the
"Warrant") for an aggregate purchase price of $2,500,000 (the "Purchase Price"),
payable by wire transfer to the account of the Issuer.. The shares of Issuer's
common stock that may be issued upon exercise of the Warrant are referred to
herein as the "Warrant Shares" and the Shares, the Warrant and the Warrant
Shares are collectively referred to herein as the "Securities").
2. WIRE TRANSFER OF PAYMENT FOR AND DELIVERY OF THE SECURITIES.
Promptly after the Purchaser has wired the Purchase Price for the Securities to
the Issuer's account as instructed, the Issuer shall issue and deliver a
certificate representing the Shares, and the Warrant in the form attached hereto
as Exhibit A, in the name and to the address specified by the Purchaser in the
registration and delivery instructions on the signature page of this agreement.
3. PURCHASER'S REPRESENTATIONS AND WARRANTIES. The Purchaser hereby
represents and warrants to the Issuer that:
3.1 Investment Intent. The Purchaser is acquiring the Securities
solely for the Purchaser's own account for investment purposes, and not with a
view to, or for offer or sale in connection with, any distribution of the
Securities in violation of the Securities Act.
3.2 Access to Information. The Purchaser has received a copy of the
Issuer's annual report on Form 10-KSB for the year ended June 30, 1999 (the
"Annual Report") and quarterly report on Form 10-QSB for the quarter ended
September 30, 1999 (the "Quarterly Report") and has reviewed them carefully,
including the risk factors set forth under the heading, "Management's Discussion
and Analysis or Plan of Operation -- Risk Factors." In addition, the Purchaser
has received and reviewed a copy of the Issuer's proxy statement for its annual
meeting of stockholders held on September 28, 1999 (the "Proxy Statement"). If
desired, the
<PAGE> 2
Purchaser has also sought and obtained from management of the Issuer such
additional information concerning the business, management and financial affairs
of the Issuer as the Purchaser has deemed necessary or appropriate in evaluating
an investment in the Issuer and determining whether or not to purchase the
Securities.
3.3 Accredited Investor. By completing the Accredited Investor
Certification attached as Exhibit A, the Purchaser represents and warrants that
it is an accredited investor, as defined by Rule 501(a) of Regulation D under
the Securities Act.
3.4 Preexisting Relationship; Knowledge and Experience. The
Purchaser has a preexisting personal and/or business relationship with the
Issuer and certain of its officers, directors and/or controlling persons, is
experienced in evaluating and investing in the securities of businesses in the
development stage, and has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks of an
investment in the Securities and of protecting its interests in connection with
an acquisition of the Securities.
3.5 Suitability. The Purchaser has carefully considered, and has, to
the extent the Purchaser deems it necessary, discussed with the Purchaser's own
professional legal, tax and financial advisers the suitability of an investment
in the Securities for the Purchaser's particular tax and financial situation,
and the Purchaser has determined that the Securities are a suitable investment
for the Purchaser.
3.6 Illiquidity; Ability to Bear Risk of Loss. The Purchaser has no
need for liquidity in its investment in the Securities, is financially able to
hold the Securities subject to restrictions on transfer for an indefinite period
of time, and is capable of bearing the economic risk of losing up to the entire
amount of its investment in the Securities.
3.7 Private Offering. The offer of the Securities was directly
communicated to the Purchaser by the Issuer. At no time was the Purchaser
presented with or solicited by any leaflet, newspaper or magazine article, radio
or television advertisement, or any other form of general advertising or
solicited or invited to attend a promotional meeting otherwise than in
connection and concurrently with such directly communicated offer.
3.8 Truth and Accuracy. All representations and warranties made by
the Purchaser in this agreement are true and accurate as of the date hereof and
shall be true and accurate as of the date the Issuer issues the Securities. If
at any time prior to the issuance of the Securities any representation or
warranty shall not be true and accurate in any respect, the Purchaser shall so
notify the Issuer.
3.9 Authority. The individual executing and delivering this
agreement on behalf of the Purchaser has been duly authorized to execute and
deliver this agreement on behalf of the Purchaser, the signature of such
individual is binding upon the Purchaser, the Purchaser is duly organized and
subsisting under the laws of the jurisdiction in which is was organized, and the
Purchaser was not formed for the specific purpose of acquiring the Securities.
3.10 No Violation. The execution and delivery of this agreement and
the consummation of the transactions or performance of the obligations
contemplated by this agreement do not and will not violate any term of the
Purchaser's organizational documents and will not result in a breach of any term
of, or constitute a default under, any statute, indenture,
<PAGE> 3
mortgage, other agreement or instrument to which the Purchaser is a party or by
which it is bound, or any order, writ, judgment or decree.
3.11 Enforceability. The Purchaser has duly executed and delivered
this agreement and (subject to its execution by the Issuer) it constitutes a
valid and binding agreement of the Purchaser enforceable in accordance with its
terms against the Purchaser, except as such enforceability may be limited by
principles of public policy, and subject to laws of general application relating
to bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief or other equitable remedies.
3.12 Reliance on Own Advisers. In connection with the Purchaser's
investment in the Securities, the Purchaser has not relied upon the Issuer or
its advisers for legal or tax advice, and has, if desired, in all cases sought
the advice of the Purchaser's own legal counsel and tax advisers.
3.13 Scope of Business. The Purchaser has been advised and
understands that the Issuer will be exposed to numerous investment opportunities
in all areas of the oil and gas industry and may therefore pursue various types
of opportunities, even if they do not fit within the primary focus of the
Issuer's current business plan. For example, such opportunities could include
investments both onshore and offshore the United States and also international
investments. Potential opportunities could also include such things as
downstream investments in oil and gas service companies, pipelines, and gas
processing and gas storage facilities.
4. ISSUER'S REPRESENTATIONS AND WARRANTIES. The Issuer hereby
represents and warrants to the Purchaser that:
4.1 Authority. The individual executing and delivering this
agreement on behalf of the Issuer has been duly authorized to execute and
deliver this agreement on behalf of the Issuer, the signature of such individual
is binding upon the Issuer, and the Issuer is duly organized and subsisting
under the laws of the jurisdiction in which it was organized.
4.2 Enforceability. The Issuer has duly executed and delivered this
agreement and (subject to its execution by the Purchaser) it constitutes a valid
and binding agreement of the Issuer enforceable in accordance with its terms
against the Issuer, except as such enforceability may be limited by principles
of public policy, and subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief or other equitable remedies.
4.3 Capitalization. The Issuer has no outstanding capital stock
other than common stock as of the date of this agreement. The Issuer is
authorized to issue 50,000,000 shares of common stock, of which 12,253,625
shares are issued and outstanding, and 125,000 shares of preferred stock, none
of which are issued and outstanding. All of the outstanding shares of common
stock of the Issuer have been duly and validly issued and are fully paid,
non-assessable and not subject to any preemptive or similar rights. The Shares
have been duly authorized and when issued and delivered to the Purchaser against
payment therefor as provided by this agreement, will be validly issued, fully
paid and non-assessable, and the issuance of such Shares will not be subject to
any preemptive or similar rights. If and when issued, the Warrant Shares will
have been duly authorized and when issued and delivered to the Purchaser against
payment therefor as provided by in the Warrant, will be validly issued, fully
paid and non-assessable,
<PAGE> 4
and the issuance of such Warrant Shares will not be subject to any preemptive or
similar rights.
4.4 No Conflicts. The issuance and sale of the Securities to the
Purchaser as contemplated hereby will not violate or conflict with the Issuer's
Articles of Incorporation or By-laws or any agreements to which the Issuer is a
party or by which it is otherwise bound or, to the Issuer's knowledge, any
statute, rule or regulation (federal, state, local or foreign) to which it is
subject.
4.5 SEC Documents. The Issuer has provided the Annual Report and the
Proxy Statement to the Purchaser. As of the date hereof, the Annual Report and
the Proxy Statement do 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. The financial statements of the Issuer included
in the Annual Report have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto) and fairly present the
financial position of the Issuer as of the dates thereof and the results of its
operations and cash flows for the periods then ended. The Issuer has included in
the Annual Report all material agreements, contracts and other documents that it
reasonably believes are required to be filed as exhibits to the Annual Report.
5. RESTRICTIONS ON TRANSFER.
5.1 Resale Restrictions. The Purchaser understands that the offer
and sale of the Securities to the Purchaser has not been registered under the
Securities Act or under any State Laws. The Purchaser agrees not to offer, sell
or otherwise transfer the Securities, or any interest in the Securities, unless
(i) the offer and sale is registered under the Securities Act, (ii) the
Securities may be sold in accordance with the applicable requirements and
limitations of Rule 144 under the Securities Act and any applicable State Laws
and, if the Issuer so requests, the Purchaser delivers to the Issuer an opinion
of counsel to such effect, or (iii) the Purchaser delivers to the Issuer an
opinion of counsel reasonably satisfactory to the Issuer that the offer and sale
is otherwise exempt from Securities Act registration.
5.2 Restrictive Legend. The Purchaser understands and agrees that a
legend in substantially the following form will be placed on the certificates or
other documents representing the Securities:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
UNDER ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED UNLESS (i) THE OFFER AND SALE IS REGISTERED UNDER
THE SECURITIES ACT, OR (ii) THE OFFER AND SALE IS EXEMPT FROM SECURITIES
ACT REGISTRATION AND THE TERMS OF SECTION 5.2 OF THE SUBSCRIPTION
AGREEMENT PURSUANT TO WHICH THE SECURITIES WERE ORIGINALLY PURCHASED
HAVE BEEN COMPLIED WITH. (A COPY OF THE SUBSCRIPTION AGREEMENT IS ON
FILE AT THE CORPORATE OFFICE OF THE ISSUER.)"
<PAGE> 5
5.3 Illiquid Investment. The Purchaser acknowledges that it must
bear the economic risk of its investment in the Securities for an indefinite
period of time, until such time as the Securities are registered or as an
exemption from registration is available. The Purchaser acknowledges that the
soonest that the Rule 144 exemption from registration could become available
would be after the Purchaser has paid for and held the Securities for one year.
6. RIGHT TO PURCHASE ADDITIONAL SECURITIES
6.1 First Refusal Rights. Subject to the terms and conditions of
this Article 6, the Company hereby grants to the Purchaser a right of first
refusal to purchase its Pro Rata Share (as defined below) of any issue of New
Securities (as defined below) that the Company (or any subsidiary whose capital
stock will not be wholly owned, directly or indirectly, by the Company upon
completion of any such issuance) may from time to time after the date of this
Agreement propose to issue.
6.2 New Securities. "New Securities" shall mean any capital stock,
any rights, options or warrants to purchase or subscribe for capital stock, and
any securities or other instruments of any type whatsoever that are, or may
become, convertible into or exchangeable for capital stock, which are issued for
cash; provided, however, that "New Securities" shall not include: (i) securities
offered and sold by the Company pursuant to a Public Offering (as hereinafter
defined); (ii) shares of the Company's Common Stock (or related options or
rights) issued to the Company's employees and directors pursuant to a plan
adopted by the Board of Directors; and (iii) shares of the Company's capital
stock issued in connection with any existing warrant, option or right, stock
split or stock dividend by the Company.
6.3 Notice and Allocation Periods. If the Company or, when
applicable, its subsidiary, proposes to undertake a bona fide issuance of New
Securities, then it shall give the Purchaser written notice of its intention,
describing the type of New Securities, the price, the number of shares to be
offered, and the general terms upon which such securities are proposed to be
offered. The Purchaser shall be given at least 20 days' prior written notice
within which to agree to purchase all or any part of its Pro Rata Share (as
hereinafter defined) of such issuance of New Securities for the price and upon
the general terms specified in said notice by giving written notice to the
issuer within such period and stating therein the quantity of New Securities to
be purchased by it. "Pro Rata Share" shall mean that portion of the number of
shares of New Securities proposed to be issued that equals the proportion that
(a) the number of shares of common stock held by the Purchaser immediately prior
to the proposed issuance, plus the number of shares of common stock that would
then be issuable to the Purchaser assuming that the Warrant had been fully
exercised, bears to (b) the total number of shares of common stock issued and
outstanding immediately prior to the proposed issuance, assuming that all
securities of the Company convertible into or exchangeable for common stock had
been converted or exchanged.
6.4 Right of Company to Sell New Securities. If the Purchaser fails
to exercise in full its rights of first refusal within the applicable period set
forth above, then the Company or, when applicable, its subsidiary shall have 120
days thereafter to sell the New Securities respecting that the rights set forth
herein were not exercised at a price and upon general terms no more favorable to
the purchaser thereof than specified in the notice to the Purchaser. If such New
Securities have not been sold within such 120-day period, then the
<PAGE> 6
Company or, when applicable, its subsidiary shall not thereafter issue or sell
any New Securities without first offering them to the Purchaser in the manner
provided above.
6.5 Public Offering. Reference to the term "Public Offering" in this
Agreement shall mean a bona fide firm commitment underwritten public offering of
shares of the Company's Common Stock made through a nationally recognized
underwriting firm pursuant to an effective registration statement under the
Securities Act, which results in gross proceeds to the Company of not less than
$15,000,000.
6.6 Termination. This Article 6 shall continue in effect from the
date of this Agreement until the Company has completed a Public Offering.
7. REGISTRATION PROCEDURES.
7.1 Within 90 days after the issuance of the Shares, the Issuer
shall prepare and file or cause to be filed with the SEC a registration
statement (the "Registration Statement") with respect to the Shares. The Issuer
shall thereafter use diligence in attempting to cause the Registration Statement
to be declared effective by the SEC and shall thereafter use diligence to
maintain the effectiveness of the Registration Statement until the earlier to
occur of (i) the date which is one year from the effective date of the
Registration Statement, (ii) the date on which all of the Shares have been sold
by the Purchaser or (iii) the date on which the Shares can be resold pursuant to
SEC Rule 144.
7.2 Following effectiveness of the Registration Statement, the
Issuer shall furnish to the Purchaser a prospectus as well as such other
documents as the Purchaser may reasonably request.
7.3 The Issuer shall use diligent efforts to (i) register or
otherwise qualify the common stock covered by the Registration Statement for
sale under the securities laws of such jurisdictions as the Purchaser may
reasonably request, (ii) prepare and file in those jurisdictions such amendments
(including post-effective amendments) and supplements as may be required, (iii)
take such other actions as may be necessary to maintain such registrations
and/or qualifications in effect at all times while the Registration Statement is
likewise maintained effective and (iv) take all other actions reasonably
necessary or advisable to qualify the Shares for sale in such jurisdictions;
provided, however, that the Issuer shall not be required in connection therewith
or as a condition thereto to (I) qualify to do business in any jurisdiction
where it would not otherwise be required to qualify but for this Section 7.3,
(II) subject itself to general taxation in any such jurisdiction, (III) file a
general consent to service of process in any such jurisdiction, (IV) provide any
undertakings that cause more than nominal expense or burden to the Issuer or (V)
make any change in its certificate of incorporation or bylaws, which in each
case the Board determines to be contrary to the best interests of the Issuer and
its stockholders.
7.4 The Issuer shall, following effectiveness of the Registration
Statement, as promptly as practicable after becoming aware of any such event,
notify the Purchaser of the happening of any event of which the Issuer has
knowledge, as a result of which the prospectus included in the 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, in light of the circumstances under which they were
made, not misleading, and use its best efforts promptly to prepare a supplement
or amendment to the
<PAGE> 7
Registration Statement to correct such untrue statement or omission, and deliver
a number of copies of such supplement or amendment to the Purchaser or as the
Purchaser may reasonably request. The Issuer may voluntarily suspend the
effectiveness of such Registration Statement for a limited time, which in no
event shall be longer than 90 days, if the Issuer has been advised by legal
counsel that the offering of common stock pursuant to the Registration Statement
would adversely affect, or would be improper in view of (or improper without
disclosure in a prospectus), a proposed financing, a reorganization,
recapitalization, merger, consolidation, or similar transaction involving the
Issuer or its subsidiaries, in which event the one year period referred to in
clause (i) of Section 7.1 shall be extended for an additional period of time
beyond such one year period equal to the number of days the effectiveness
thereof has been suspended pursuant to this sentence.
7.5 Following effectiveness of the Registration Statement, the
Issuer, as promptly as practicable after becoming aware of any such event, will
notify the Purchaser of the issuance by the SEC of any stop order or other
suspension of effectiveness of the Registration Statement at the earliest
possible time.
7.6 Following effectiveness of the Registration Statement, the
Issuer will use diligence either to (i) cause all the common stock covered by
the Registration Statement to be listed on each national securities exchange on
which similar securities issued by the Issuer are then listed, if any, if the
listing of such common stock is then permitted under the rules of such exchange,
or (ii) secure the quotation of all the common stock covered by the Registration
Statement on The Nasdaq SmallCap Market, if the listing of such common stock is
then permitted under the rules of such The Nasdaq SmallCap Market, or (iii) if,
despite the Issuer's best efforts to satisfy the preceding clause (i) or (ii),
the Issuer is unsuccessful in satisfying the preceding clause (i) or (ii) and
without limiting the generality of the foregoing, to use its best efforts to
arrange for at least two market makers to register with the National Association
of Securities Dealers, Inc. as such with respect to such common stock.
7.7 Provide a transfer agent and registrar, which may be a single
entity, for the common stock not later than the effective date of the
Registration Statement.
7.8 It shall be a condition precedent to the obligations of the
Issuer to take any action pursuant to this Section 7 that the Purchaser shall
furnish to the Issuer such information regarding itself as the Issuer may
reasonably request to effect the registration of the common stock and shall
execute such documents in connection with such registration as the Issuer may
reasonably request.
7.9 The Purchaser agrees to cooperate with the Issuer in any manner
reasonably requested by the Issuer in connection with the preparation and filing
of the Registration Statement hereunder.
7.10 The Purchaser agrees that, upon receipt of any notice from the
Issuer of the happening of any event of the kind described in Section 7.4 or
7.5, the Purchaser will immediately discontinue disposition of Shares pursuant
to the Registration Statement until the Purchaser's receipt of notice from the
Issuer that sales may resume and copies of the supplemented or amended
prospectus and, if so directed by the Issuer, shall deliver to the Issuer (at
the expense of the Issuer) or destroy (and deliver to the Issuer a certificate
of destruction) all copies in the Purchaser's possession of the prospectus
covering such Common Stock current at the time of receipt of such notice.
<PAGE> 8
7.11 All expenses, other than (i) underwriting discounts and
commissions, (ii) other fees and expenses of investment bankers and (iii)
brokerage commissions, incurred in connection with registrations, filings or
qualifications pursuant to this Section 7, including, without limitation, all
registration, listing and qualification fees, printers and accounting fees and
the fees and disbursements of counsel to the Issuer, shall be borne by the
Issuer.
7.12 To the extent permitted by law, the Issuer will indemnify and
hold harmless the Purchaser, the directors, if any, of the Purchaser, the
officers, if any, of the Purchaser, each person, if any, who controls the
Purchaser within the meaning of the Securities Act or the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), any underwriter (as defined in the
Securities Act) for the Purchaser, the directors, if any, of such underwriter
and the officers, if any, of such underwriter, and each person, if any, who
controls any such underwriter within the meaning of the Securities Act or the
Exchange Act (each, an "Indemnified Person"), against any losses, claims,
damages, expenses or liabilities (joint or several) (collectively, "Claims") to
which any of them may become subject under the Securities Act, the Exchange Act
or otherwise, insofar as such Claims (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations in the Registration
Statement, or any post effective amendment thereof, or any prospectus included
therein: (i) any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or any post effective amendment thereof
or the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
(ii) any untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus if used prior to the effective date of
such Registration Statement, or contained in the final prospectus (as amended or
supplemented, if the Issuer files any amendment thereof or supplement thereto
with the SEC) or the omission or alleged omission to state therein any material
fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading or
(iii) any violation or alleged violation by the Issuer of the Securities Act,
any state securities law or any rule or regulation under the Securities Act, the
Exchange Act or any state securities law (the matters in the foregoing clauses
(i) through (iii) are hereinafter collectively referred to as the "Violations").
Subject to the restrictions set forth in Section 7.14 with respect to the number
of legal counsel, the Issuer shall reimburse the Purchaser and each such
underwriter or controlling person, promptly as such expenses are incurred and
are due and payable, for any reasonable legal fees or other reasonable expenses
incurred by them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnity
contained in this Section 7.12 shall not apply to a Claim arising out of or
based upon a Violation which occurs in reliance upon and in conformity with
information furnished in writing to the Issuer by any Indemnified Person or
underwriter for such Indemnified Person expressly for use in connection with the
preparation of the Registration Statement or any such amendment thereof or
supplement thereto; (II) with respect to any preliminary prospectus shall not
inure to the benefit of any person from whom the person asserting any Claim
purchased the Shares that are the subject thereof (or to the benefit of any
person controlling such person) if the untrue statement or omission of material
fact contained in the preliminary prospectus was corrected in the prospectus, as
then amended or supplemented, if such final prospectus was timely made available
by the Issuer; and (III) shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of the
Issuer, which consent shall not be unreasonably withheld. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of the Indemnified Person and shall survive the transfer of the Shares by
the Purchaser.
<PAGE> 9
7.13 The Purchaser agrees to indemnify and hold harmless, to the
same extent and in the same manner set forth in Section 7.12, the Issuer, each
of its directors, each of its officers who signs the Registration Statement,
each person, if any, who controls the Issuer within the meaning of the
Securities Act or the Exchange Act, any underwriter and any other stockholder
selling securities pursuant to the Registration Statement or any of its
directors or officers or any person who controls such stockholder or underwriter
within the meaning of the Securities Act or the Exchange Act (each such person
and each Indemnified Person, an "Indemnified Party"), against any Claim to which
any of them may become subject, under the Securities Act, the Exchange Act or
otherwise, insofar as such Claim arises out of or is based upon any Violation by
the Purchaser, in each case to the extent (and only to the extent) that (I) such
Violation occurs in reliance upon and in conformity with written information
furnished to the Issuer by the Purchaser expressly for use in connection with
such Registration Statement or such prospectus or (II) is a result of the breach
of federal or state securities laws pertaining to the transfer by the Purchaser
of the Shares or the securities underlying the Shares; and the Purchaser will
reimburse any reasonable legal or other expenses reasonably incurred by any
Indemnified Party in connection with investigating or defending any such Claim;
provided, however, that the indemnity contained in this Section 7.13 shall not
apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of the Purchaser, which consent shall not be
unreasonably withheld; provided, further, that the Purchaser shall be liable
under this Section 7.13 for only that amount of a Claim as does not exceed the
net proceeds to the Purchaser as a result of the sale of Shares pursuant to such
Registration Statement or such prospectus. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of such
Indemnified Party and shall survive the transfer of the Shares (or underlying
securities) by the Purchaser. Notwithstanding anything to the contrary contained
herein the indemnity contained in this Section 7.13 with respect to any
preliminary prospectus shall not inure to the benefit of any Indemnified Party
if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the prospectus, as
then amended or supplemented.
7.14 Promptly after receipt by an Indemnified Person or Indemnified
Party under Section 7.12 or 7.13 of notice of the commencement of any action
(including any governmental action), such Indemnified Person or Indemnified
Party shall, if a Claim in respect thereof is made against any indemnifying
party under this Section 7, deliver to the indemnifying party a written notice
of the commencement thereof, and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, assume control of the
defense thereof with counsel mutually satisfactory to the indemnifying parties;
provided, however, that an Indemnified Person or Indemnified Party shall have
the right to retain its own counsel, with the fees and expenses to be paid by
the indemnifying party, if, in the reasonable opinion of counsel retained by the
indemnifying party, the representation by such counsel of the Indemnified Person
or Indemnified Party and the indemnifying party would be inappropriate due to
actual or potential differing interests between such Indemnified Person or
Indemnified Party and any other party represented by such counsel in such
proceeding. Except as provided in the preceding sentence, the Issuer shall pay
for only one separate legal counsel for the Indemnified Persons. The failure to
deliver written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of any
liability to the Indemnified Person or Indemnified Party under this Section 7,
except to the extent that the indemnifying party is prejudiced in its ability to
defend such action. The indemnity required by this Section 7 shall be
<PAGE> 10
made by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
8. TRANSFER AGENT INSTRUCTIONS. Promptly following the delivery by the
Purchaser of the Purchase Price, the Issuer's transfer agent will be instructed
by the Issuer to issue one or more certificates representing the Shares
purchased, bearing the restrictive legend specified in Section 5.2 of this
Agreement, registered in the name of the Purchaser or its nominee and in such
denominations as shall be specified by the Purchaser. The Issuer warrants that
no instruction other than such instructions referred to in this Section 8 and
stop transfer instructions to give effect to Section 5.1 and 5.2 hereof will be
given by the Issuer to the transfer agent and that the Shares shall otherwise be
freely transferable on the books and records of the Issuer as and to the extent
provided in this Agreement. Nothing in this Section shall affect in any way the
Purchaser's obligations and agreement to comply with all applicable federal and
state securities laws upon resale of the Shares. If the Purchaser provides the
Issuer with an opinion of counsel reasonably satisfactory in form, scope and
substance to the Issuer that registration of a resale by the Purchaser of any of
the Shares in accordance with Section 5.1 is not required under the Securities
Act or applicable state securities laws, the Issuer shall permit the transfer
agent to issue one or more share certificates in such name and in such
denominations as specified by the Purchaser.
9. BOARD OF DIRECTORS. If, at any time it could elect a director based
on the number of shares of common stock it holds, Purchaser chooses not to
designate a candidate for election to the Board, Purchaser shall still be
entitled, at its option, to designate a person (the "Observer") who shall attend
any meeting of the Board for the sole purpose of observing such meeting for and
on behalf of the Purchaser. The Observer shall have no right or obligation to
vote or otherwise to participate in the discussion or consideration of any
matter addressed at any such meeting; provided, however, that notwithstanding
anything else in this Section 9, Purchaser shall have the right to designate an
Observer for as long as Purchaser holds at least 10% of the Issuer's common
stock on a fully diluted basis.
10. RELIANCE. The Purchaser understands and agrees that the Issuer and
its officers, directors, employees and agents may, and will, rely on the
accuracy of the Purchaser's representations and warranties in this agreement to
establish compliance with applicable securities laws. The Purchaser agrees to
indemnify and hold harmless all such parties against all losses, claims, costs,
expenses and damages or liabilities which they may suffer or incur caused or
arising from their reliance on such representations and warranties.
11. MISCELLANEOUS.
11.1 Survival. The representations and warranties made in this
agreement shall survive the closing of the transactions contemplated by this
agreement.
11.2 Assignment. This agreement is not transferable or assignable.
11.3 Execution and Delivery of Agreement. The Issuer shall be
entitled to rely on delivery by facsimile transmission of an executed copy of
this agreement, and acceptance by the Issuer of such facsimile copy shall create
a valid and binding agreement between the Purchaser and the Issuer.
<PAGE> 11
11.4 Titles. The titles of the sections and subsections of this
agreement are for the convenience of reference only and are not to be considered
in construing this agreement.
11.5 Severability. The invalidity or unenforceability of any
particular provision of this agreement shall not affect or limit the validity or
enforceability of the remaining provisions of this agreement.
11.6 Entire Agreement. This agreement constitutes the entire
agreement and understanding between the parties with respect to the subject
matters herein and supersedes and replaces any prior agreements and
understandings, whether oral or written, between them with respect to such
matters.
11.7 Waiver and Amendment. Except as otherwise provided herein, the
provisions of this agreement may be waived, altered, amended or repealed, in
whole or in part, only upon the mutual written agreement of the Purchaser and
the Issuer.
11.8 Counterparts. This agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same instrument.
11.9 Governing Law. This agreement is governed by and shall be
construed in accordance with the laws of the State of Nevada.
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have duly executed this
agreement as of the date first above mentioned.
THE "ISSUER" THE "PURCHASER"
CONTANGO OIL & GAS COMPANY TRUST COMPANY OF THE WEST,
a California trust company, in its
capacities as Investment Manager
pursuant to the Investment
Management Agreement dated as of
June 6, 1988 between General Mills,
Inc. and the Trust Company of the
West and as Custodian pursuant to
the Custody Agreement dated as of
February 6, 1989 among General
Mills, Inc., the Trust Company of
the West and State Street Bank and
Trust Company, as trustee
By: /s/ KENNETH R. PEAK By: /s/ ARTHUR R. CARLSON
------------------------------- -----------------------------
Kenneth R. Peak Arthur R. Carlson
President and Chief Executive Managing Director
Officer
By: /s/ THOMAS F. MEHLBERG
----------------------------
Thomas F. Mehlberg
Senior Vice President
<PAGE> 1
EXHIBIT 10.4
WARRANT
TO PURCHASE COMMON STOCK OF
CONTANGO OIL & GAS COMPANY
A NEVADA CORPORATION
EXPIRING DECEMBER 29, 2004
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR REGISTERED OR
QUALIFIED UNDER ANY STATE SECURITIES LAWS. THE SECURITIES REPRESENTED
BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE
SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED (EXCEPT AS PERMITTED
PURSUANT TO THAT CERTAIN SECURITIES PURCHASE AGREEMENT DATED AS OF
DECEMBER 29,1999 AMONG CONTANGO OIL & GAS COMPANY (THE "COMPANY") AND
THE HOLDER (THE "SECURITIES PURCHASE AGREEMENT"), TO THE EFFECT THAT
THE PROPOSED TRANSACTION DOES NOT REQUIRE REGISTRATION OR QUALIFICATION
UNDER FEDERAL OR STATE SECURITIES LAWS.
THIS IS TO CERTIFY THAT:
Trust Company of the West, a California trust company, in its
capacities as Investment Manager pursuant to the Investment Management Agreement
dated as of June 6, 1988 between General Mills, Inc. and the Trust Company of
the West and as Custodian pursuant to the Custody Agreement dated as of February
6, 1989 among General Mills, Inc., the Trust Company of the West and State
Street Bank and Trust Company, as Trustee ("HOLDER"), or registered assigns, is
entitled to purchase from the Company at any time on and after the date hereof
but not later than 5 p.m., Central Standard Time, on December 29, 2004 (the
"EXPIRATION DATE"), Three Hundred Seventy Thousand Three Hundred Seventy
(370,370) Stock Units, in whole or in part, at a per Stock Unit purchase price
at any date equal to the Purchase Price (as defined below), all on the terms and
conditions hereinbelow provided.
Section 1. Certain Definitions. Initially capitalized terms not
otherwise defined herein shall have the meanings ascribed to such terms in the
Securities Purchase Agreement. As used in this Warrant:
"5-DAY AVERAGE PRICE" per share of Common Stock, for purposes
of any provision herein at the date specified in such provision, shall mean the
average closing price of the Common Stock on the [securities exchange or other
national market system on which the Common Stock is then listed] over the
5-trading day period immediately prior to such date. NOTE: STOCK NOW TRADES ON
OTC-BB
<PAGE> 2
"30-DAY AVERAGE PRICE" per share of Common Stock, for purposes
of any provision herein at the date specified in such provision, shall mean the
average closing price of the Common Stock on the [securities exchange or other
national market system on which the Common Stock is then listed] over the
30-trading day period immediately prior to such date.
"ADDITIONAL SHARES OF COMMON STOCK" shall mean all shares of
Common Stock issued by the Company after the Closing Date other than (i) any
shares of Common Stock issued pursuant to the outstanding warrants listed on
Attachment 1, (ii) any shares of Common Stock issued pursuant to options, rights
or warrants to purchase Common Stock issued pursuant to the Company's 1999 Stock
Incentive Plan, (iii) any shares of Common Stock issued to the Holder pursuant
to the preemptive rights in its favor set forth in Section 6 of the Securities
Purchase Agreement, and (iv) any shares of Common Stock issued pursuant to the
Company's agreement with Juneau Exploration dated as of September 1, 1999.
"AGGREGATE PURCHASE PRICE" shall have the meaning given in
Section 2 below.
"APPRAISED VALUE" shall mean the fair market value of all
outstanding Common Stock, as determined by a written appraisal (the "APPRAISAL")
prepared by a national or major regional investment bank acceptable to the Board
of Directors of the Company and the Holder. "Fair market value" is defined for
this purpose as the price in a single transaction determined on a going-concern
basis that would be agreed upon by the most likely hypothetical buyer for 100%
of the equity capital of the Company. In the event that the Company and Holder
cannot, in good faith, agree upon an investment bank, then the Company, on the
one hand, and Holder, on the other hand, shall each select an investment bank,
the two investment banks so selected shall select a third investment bank who
shall be directed to prepare the Appraisal and the term Appraised Value shall
mean the appraised value set forth in the Appraisal prepared in accordance with
this definition. [The Company shall pay for the cost of any such Appraisal.]
"BOARD OF DIRECTORS" shall mean the duly appointed board of
directors of the Company.
"BUSINESS DAY" shall mean a day, other than a Saturday, Sunday
or legal holiday on which commercial banks are authorized or obligated by law or
executive order to close in the State of Texas.
"COMMISSION" shall mean the Securities and Exchange
Commission.
"COMMON STOCK" shall mean the Company's authorized common
stock, $.04 par value per share, irrespective of class unless otherwise
specified, as constituted on the date of original issuance of this Warrant, and
any stock into which such common stock may thereafter be changed, and shall also
include stock of the Company of any other class, which is not preferred as to
dividends or assets over any other class of stock of the Company and which is
not subject to redemption, issued to the holders of shares of Common Stock upon
any reclassification thereof.
"CONVERTIBLE SECURITIES" shall mean evidences of indebtedness,
shares of stock or other securities which are convertible into or exchangeable
for Additional Shares of Common
2
<PAGE> 3
Stock, either immediately or upon the arrival of a specified date or the
happening of a specified event.
"CURRENT MARKET PRICE" per share of Common Stock for the
purposes of any provision of this Warrant at a date herein specified, shall mean
[the greater of (i) the 30-Day Average Price of the Common Stock or (ii) the
5-Day Average Price of the Common Stock; provided, that if the Current Market
Price per share of Common Stock cannot be ascertained by such methods, then the
Current Market Price per share of Common Stock shall be deemed to be the greater
of (i) the net book value per share of Common Stock, determined in accordance
with generally accepted accounting principles, or (ii) the fair value per share
of Common Stock determined pursuant to the Appraised Value.]
"CURRENT WARRANT PRICE" per share of Common Stock, for the
purpose of any provision of this Warrant at the date herein specified, shall
mean the amount equal to the quotient resulting from dividing the Purchase Price
per Stock Unit in effect on such date by the number of shares (including any
fractional share) of Common Stock comprising a Stock Unit on such date.
"PERSON" shall mean any individual, corporation, partnership,
association, joint stock company, trust or trustee thereof, estate or executor
thereof, unincorporated organization or joint venture, court or governmental
unit or any agency or subdivision thereof, or any other legally recognizable
entity.
"PURCHASE PRICE" shall mean $1.00 per Stock Unit.
"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.
"STOCK UNIT" shall mean one share of Common Stock, as such
Common Stock was constituted on the date of original issue of this Warrant and
thereafter shall mean such number of shares (including any fractional shares) of
Common Stock as shall result from the adjustments specified in Section 4 of this
Warrant.
"WARRANT" shall mean this Warrant, evidencing rights to
purchase shares of Common Stock, and all Warrants issued upon transfer, division
or combination of, or in substitution for, this Warrant. All Warrants shall at
all times be identical as to terms and conditions and date, except as to the
Common Stock for which they may be exercised.
"WARRANT STOCK" shall mean the shares of Common Stock
purchasable by the Holder upon the exercise hereof.
Section 2. Exercise of Warrant. The holder of this Warrant may, at any
time on or after the date hereof but not later than the Expiration Date,
exercise this Warrant in whole or in part for the number of Stock Units which
such holder is then entitled to purchase hereunder. In order to exercise this
Warrant, in whole or in part, the holder hereof shall deliver to the Company at
its office maintained for such purpose pursuant to Section 16: (i) a written
notice of such holder's election to exercise this Warrant, (ii) this Warrant,
and (iii) the total purchase price for the shares
3
<PAGE> 4
being purchased upon such exercise by (a) delivery in cash, by wire transfer or
certified or official bank check of immediately available funds in an amount
equal to the product of the Purchase Price multiplied by the number of Stock
Units being purchased upon such exercise (the "AGGREGATE PURCHASE PRICE"), (b)
by delivery of shares of Common Stock held by the Holder having a Current Market
Price equal to the Aggregate Purchase Price or (c) to the extent permitted by
applicable law, the delivery of a notice to the Company that the Holder is
exercising the Warrant without payment of the Purchase Price by authorizing the
Company to deliver the number of shares of Warrant Stock issuable upon exercise
of the Warrant to be determined based upon the following formula:
((MP - WP) x WS)/MP = the number of shares of Warrant Stock issuable
upon exercise of this Warrant without payment
of the Purchase Price
WHERE:
MP = Current Market Price
WP = Current Warrant Price
WS = The number of shares of Warrant Stock issuable upon
exercise of this Warrant (in whole or in part).
Such notice may be in the form of the Subscription set out at the end of this
Warrant. Upon receipt thereof, the Company shall, as promptly as practicable and
in any event within ten (10) Business Days thereafter, cause to be executed and
delivered to such holder a certificate or certificates representing the
aggregate number of fully paid and nonassessable shares of Warrant Stock
issuable upon such exercise.
The stock certificate or certificates for Warrant Stock so
delivered shall be endorsed with a legend in the form contained in Section 5 of
the Securities Purchase Agreement and shall be in such denominations as may be
specified in said notice and shall be registered in the name of such holder or
such other name or names as shall be designated in said notice. Such certificate
or certificates shall be deemed to have been issued and such holder or any other
Person so designated to be named therein shall be deemed to have become a holder
of record of such shares, including to the extent permitted by law the right to
vote such shares or to consent or to receive notice as a stockholder, as of the
time said notice is received by the Company as aforesaid.
Except as otherwise provided in Section 8 hereof, the Company
shall pay all expenses, transfer taxes and other charges payable in connection
with the preparation, issue and delivery of stock certificates under this
Section 2, except that, in case such stock certificates shall be registered in a
name or names other than the name of the holder of this Warrant, funds
sufficient to pay all stock transfer taxes which shall be payable upon the
issuance of such stock certificate or certificates shall be paid by the holder
hereof at the time of delivering the notice of exercise mentioned above.
4
<PAGE> 5
All shares of Warrant Stock issuable upon the exercise of this
Warrant shall be validly issued, fully paid and nonassessable, and free from all
liens and other encumbrances thereon.
The Company will not close its books against the transfer of
this Warrant or of any share of Warrant Stock in any manner which interferes
with the timely exercise of this Warrant. [With the consent of the holder of
this Warrant, the Company will from time to time take all such action as may be
necessary to assure that the par value per share of the unissued Common Stock
acquirable upon exercise of this Warrant is at all times equal to or less than
the Current Warrant Price per share of Common Stock then in effect.]
No fractional shares or scrip representing fractional shares
shall be issued upon the exercise of this Warrant. If the exercise of this
Warrant results in a required issuance of a fraction of a share, an amount equal
to such fraction multiplied by the Current Market Price per share of Common
Stock on the day of delivery of notice of exercise to the Company shall be paid
to the holder of this Warrant in cash by the Company.
Section 3. Transfer, Division and Combination. Subject to Section 10,
this Warrant and all rights hereunder are transferable, in whole or in part, on
the books of the Company to be maintained for such purpose, upon surrender of
this Warrant at the office of the Company maintained for such purpose pursuant
to Section 16, together with a written assignment of this Warrant duly executed
by the holder hereof or its agent or attorney and payment of funds sufficient to
pay any stock transfer taxes payable upon the making of such transfer. Upon such
surrender and payment the Company shall, subject to Section 10, execute and
deliver a new Warrant or Warrants in the name of the assignee or assignees and
in the denominations specified in such instrument of assignment, and this
Warrant shall promptly be cancelled. If and when this Warrant is assigned in
blank (in case the restrictions on transferability in Section 10 shall have been
terminated), the Company may (but shall not be obliged to) treat the bearer
hereof as the absolute owner of this Warrant for all purposes and the Company
shall not be affected by any notice to the contrary. This Warrant, if properly
assigned in compliance with this Section 3 and Section 10, may be exercised by
an assignee for the purchase of shares of Common Stock without having a new
Warrant issued.
This Warrant may, subject to Section 10, be divided or
combined with other Warrants upon presentation at the aforesaid office of the
Company, together with a written notice specifying the names and denominations
in which new Warrants are to be issued, signed by the holder hereof or its agent
or attorney. Subject to compliance with the preceding paragraph and with Section
10, as to any transfer which may be involved in such division or combination,
the Company shall execute and deliver a new Warrant or Warrants in exchange for
the Warrant or Warrants to be divided or combined in accordance with such
notice.
The Company shall pay all expenses, taxes (other than income
taxes, if any, of the transferee) and other charges incurred by the Company in
the performance of its obligations in connection with the preparation, issue and
delivery of Warrants under this Section 3.
The Company agrees to maintain at its aforesaid office books
for the registration and transfer of the Warrants.
5
<PAGE> 6
Section 4. Adjustment of Stock Unit. The number of shares of Common
Stock comprising a Stock Unit shall be subject to adjustment from time to time
as set forth in this Section 4 with respect to any fact or event described
herein occurring after the date hereof. The Company will not create any class of
Common Stock which carries any rights to dividends or assets differing in any
respect from the rights of the Common Stock on the date hereof. Anything
contained in this Section 4 notwithstanding, any adjustment made pursuant to any
provision of this Section 4 shall be made without duplication of an adjustment
otherwise required by and made pursuant to another provision of this Section 4
on account of the same facts or events.
A. Stock Dividends, Subdivisions and Combinations. In
case at any time or from time to time the Company shall:
(1) take a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend payable
in, or other distribution of, Common Stock, or
(2) subdivide its outstanding shares of Common
Stock into a larger number of shares of Common Stock, or
(3) combine its outstanding shares of Common
Stock into a smaller number of shares of Common Stock,
then the number of shares of Common Stock comprising a Stock Unit immediately
after the happening of any event described in clauses (1) through (3) above
shall be adjusted so as to consist of the number of shares of Common Stock which
a record holder of the number of shares of Common Stock constituting a Stock
Unit immediately prior to the happening of such event would own or be entitled
to receive after the happening of event described in clauses (1) through (3)
above.
B. Certain Other Dividends and Distributions. In case at
any time or from time to time the Company shall take a record of the holders of
its Common Stock for the purpose of entitling them to receive any dividend or
other distribution of:
(1) cash (other than a cash distribution made as
a dividend and payable out of earnings or earned surplus legally
available for the payment of dividends under the laws of the
jurisdiction of incorporation of the Company, to the extent, but only
to the extent, that the aggregate of all such dividends paid or
declared after the date hereof, does not exceed the consolidated net
income of the Company and its consolidated subsidiaries earned
subsequent to the date hereof determined in accordance with generally
accepted accounting principles), or
(2) any evidence of its indebtedness (other than
Convertible Securities), any shares of its stock (other than Additional
Shares of Common Stock) or any other securities or property of any
nature whatsoever (other than cash and other than Convertible
Securities or Additional Shares of Common Stock), or
6
<PAGE> 7
(3) any warrants, options or other rights to
subscribe for or purchase (i) any evidences of its indebtedness (other
than Convertible Securities), (ii) any shares of its stock (other than
Additional Shares of Common Stock) or (iii) any other securities or
property of any nature whatsoever (other than cash and other than
Convertible Securities or Additional Shares of Common Stock),
then the number of shares of Common Stock thereafter comprising a Stock Unit
shall be adjusted to that number determined by multiplying the number of shares
of Common Stock comprising a Stock Unit immediately prior to such adjustment by
a fraction (i) the numerator of which shall be the Current Market Price per
share of Common Stock at the date of taking such record, and (ii) the
denominator of which shall be such Current Market Price per share of Common
Stock minus the portion applicable to one share of Common Stock of any such cash
so distributable (if any) and of the fair value of any and all such evidences of
indebtedness, shares of stock, other securities or property, or warrants,
options or other subscription or purchase rights, so distributable (if any).
Such fair value shall be determined in good faith by the Board of Directors of
the Company, provided that if such determination is objected to by the Holder,
such determination shall be made by an independent appraiser selected by such
Board of Directors and not objected to by the Holder. The fees and expenses of
such appraiser shall be paid by the Company. A reclassification (other than a
change in par value) of the Common Stock into shares of Common Stock and shares
of any other class of stock shall be deemed a distribution by the Company to the
holders of its Common Stock of such shares of such other class of stock within
the meaning of this Subsection and, if the outstanding shares of Common Stock
shall be changed into a larger or smaller number of shares of Common Stock as a
part of such reclassification, shall be deemed a subdivision or combination, as
the case may be, of the outstanding shares of Common Stock within the meaning of
Subsection A of this Section 4.
C. Issuance of Additional Shares of Common Stock. In
case at any time or from time to time the Company shall (except as hereinafter
provided) issue, whether in connection with the merger of a corporation into the
Company or otherwise, any Additional Shares of Common Stock for a consideration
per share less than the Current Market Price per share of Common Stock, then the
number of shares of Common Stock thereafter comprising a Stock Unit shall be
adjusted to be that number determined by multiplying the number of shares of
Common Stock comprising a Stock Unit immediately prior to such adjustment by a
fraction (i) the numerator of which shall be the number of shares of Common
Stock outstanding, plus the number of such Additional Shares of Common Stock so
issued, and (ii) the denominator of which shall be the number of shares of
Common Stock outstanding, plus the number of shares of Common Stock which the
aggregate consideration for the total number of such Additional Shares of Common
Stock would purchase at the Current Market Price per share of Common Stock. For
purposes of this Subsection, the date as of which the Current Market Price per
share of Common Stock shall be computed shall be the earlier of (a) the date on
which the Company shall enter into a firm contract for the issuance of such
Additional Shares of Common Stock, or (b) the date of actual issuance of such
Additional Shares of Common Stock. The provisions of this Subsection shall not
apply to any issuance of Additional Shares of Common Stock for which an
adjustment is provided under Subsection A of this Section 4. No adjustment of
the number of shares of Common Stock comprising a Stock Unit shall be made under
this Subsection upon the issuance of any Additional Shares of Common Stock which
are issued pursuant to the exercise of any warrants, options or other
subscription or purchase rights or pursuant to the exercise of any
7
<PAGE> 8
conversion or exchange rights in any Convertible Securities, if any such
adjustment shall previously have been made upon the issuance of such warrants,
options or other rights or upon the issuance of such Convertible Securities (or
upon the issuance of any warrants, options or other rights therefor) pursuant to
Subsection D or E of this Section 4.
D. Issuance of Warrants, Options or Other Rights. In
case at any time or from time to time the Company shall take a record of the
holders of its Common Stock for the purpose of entitling them to receive a
distribution of, or shall otherwise issue, any warrants, options or other rights
to subscribe for or purchase any Additional Shares of Common Stock or any
Convertible Securities and the consideration per share for which Additional
Shares of Common Stock may at any time thereafter be issuable pursuant to such
warrants, options or other rights or pursuant to the terms of such Convertible
Securities shall be less than the Current Market Price per share of Common
Stock, then the number of shares of Common Stock thereafter comprising a Stock
Unit shall be adjusted to be the number determined pursuant to the first
sentence of Subsection C of this Section 4. All adjustments made pursuant to
this Subsection D shall be made on the basis that (i) the maximum number of
Additional Shares of Common Stock issuable pursuant to all such warrants,
options or other rights or necessary to effect the conversion or exchange of all
such Convertible Securities shall be deemed to have been issued as of the date
specified in the last sentence of this Subsection, (ii) the aggregate
consideration for such maximum number of Additional Shares of Common Stock shall
be deemed to be the minimum consideration received and receivable by the Company
for the issuance of such Additional Shares of Common Stock pursuant to such
warrants, options or other rights or pursuant to the terms of such Convertible
Securities and (iii) the consideration per share received by the Company for
such Additional Shares of Common Stock shall be that number determined by
dividing (x) the aggregate consideration for such maximum number of Additional
Shares of Common Stock (determined as set forth in clause (ii) of this sentence)
by (y) the maximum number of Additional Shares of Common Stock issuable pursuant
to all such warrants, options or other rights or necessary to effect the
conversion or exchange of all such Convertible Securities (determined as set
forth in clause (i) of this sentence). For purposes of this Subsection, the
computation date for subclause (i) above and as of which the Current Market
Price per share of Common Stock shall be computed shall be the earliest of (a)
the date on which the Company shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive any such warrants, options or
other rights, (b) the date on which the Company shall enter into a firm contract
for the issuance of such warrants, options or other rights, and (c) the date of
actual issuance of such warrants, options or other rights.
E. Issuance of Convertible Securities. In case at any
time or from time to time the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a distribution of, or
shall otherwise issue, any Convertible Securities and the consideration per
share for which Additional Shares of Common Stock may at any time thereafter be
issuable pursuant to the terms of such Convertible Securities shall be less than
the Current Market Price per share of Common Stock, then the number of shares of
Common Stock thereafter comprising a Stock Unit shall be adjusted to be the
number determined pursuant to the first sentence of Subsection C of this Section
4. All adjustments made pursuant to this Subsection E shall be made on the basis
that (i) the maximum number of Additional Shares of Common Stock necessary to
effect the conversion or exchange of all such Convertible Securities shall be
deemed to have been issued as of the computation date specified in the
penultimate
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<PAGE> 9
sentence of this Subsection, (ii) the aggregate consideration for such maximum
number of Additional Shares of Common Stock shall be deemed to be the minimum
consideration received and receivable by the Company for the issuance of such
Additional Shares of Common Stock pursuant to the terms of such Convertible
Securities and (iii) the consideration per share received by the Company for
such Additional Shares of Common Stock shall be that number determined by
dividing (x) the aggregate consideration for such maximum number of Additional
Shares of Common Stock (determined as set forth in clause (ii) of this sentence)
by (y) the maximum number of Additional Shares of Common Stock necessary to
effect the conversion or exchange of all such Convertible Securities (determined
as set forth in clause (i) of this sentence). For purposes of this Subsection,
the computation date for clause (i) above and as of which the Current Market
Price per share of Common Stock shall be computed shall be the earliest of (a)
the date on which the Company shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive any such Convertible
Securities, (b) the date on which the Company shall enter into a firm contract
for the issuance of such Convertible Securities, and (c) the date of actual
issuance of such Convertible Securities. No adjustment of the number of shares
of Common Stock comprising a Stock Unit shall be made under this Subsection upon
the issuance of any Convertible Securities which are issued pursuant to the
exercise of any warrants, options or other subscription or purchase rights
therefor, if any such adjustment shall previously have been made upon the
issuance of such warrants, options or other rights pursuant to Subsection D of
this Section 4.
F. Superseding Adjustment of Stock Unit. If, at any time
after any adjustment of the number of shares of Common Stock comprising a Stock
Unit shall have been made pursuant to the foregoing Subsection D or E of this
Section 4 on the basis of the issuance of warrants, options or other rights or
the issuance of other Convertible Securities, or after any new adjustment of the
number of shares of Common Stock comprising a Stock Unit shall have been made
pursuant to this Subsection,
(1) such warrants, options or rights or the
right of conversion or exchange in such other Convertible Securities
shall expire, and a portion or all of such warrants, options or rights,
or the right of conversion or exchange in respect of a portion of such
other Convertible Securities, as the case may be, shall not have been
exercised, or
(2) the consideration per share for which
Additional Shares of Common Stock are issuable pursuant to such
warrants, options or rights or the terms of such other Convertible
Securities, shall be increased solely by virtue of provisions therein
contained for an automatic increase in such consideration per share
upon the arrival of a specified date or the happening of a specified
event,
such previous adjustment shall be rescinded and annulled and the Additional
Shares of Common Stock which were deemed to have been issued by virtue of the
computation made in connection with the adjustment so rescinded and annulled
shall no longer be deemed to have been issued by virtue of such computation.
Thereupon, a recomputation shall be made of the effect of such warrants, options
or rights or other Convertible Securities on the basis of:
(3) treating the number of Additional Shares of
Common Stock, if any, theretofore actually issued or issuable pursuant
to the previous exercise of such warrants,
9
<PAGE> 10
options or rights or such right of conversion or exchange, as having
been issued on the date or dates of such issuance as determined for
purposes of such previous adjustment and for the consideration actually
received and receivable therefor, and
(4) treating any such warrants, options or
rights or any such other Convertible Securities which then remain
outstanding as having been granted or issued immediately after the time
of such expiration or of such increase of the consideration per share
for which such Additional Shares of Common Stock are issuable under
such warrants, options or rights or other Convertible Securities,
and, if and to the extent called for by the foregoing provisions of this Section
4 on the basis aforesaid, a new adjustment of the number of shares of Common
Stock comprising a Stock Unit shall be made, which new adjustment shall
supersede the previous adjustment so rescinded and annulled.
G. Other Provisions Applicable to Adjustments Under this
Section. The following provisions shall be applicable to the making of
adjustments of the number of shares of Common Stock comprising a Stock Unit
hereinbefore provided for in this Section 4:
(1) Treasury Stock. The sale or other
disposition of any issued shares of Common Stock owned or held by or
for the account of the Company shall be deemed an issuance thereof for
purposes of this Section 4.
(2) Computation of Consideration. To the extent
that any Additional Shares of Common Stock or any Convertible
Securities or any warrants, options or other rights to subscribe for or
purchase any Additional Shares of Common Stock or any Convertible
Securities shall be issued solely for cash consideration, the
consideration received by the Company therefor shall be deemed to be
the amount of cash received by the Company therefor, or, if such
Additional Shares of Common Stock or Convertible Securities are offered
by the Company for subscription, the subscription price, or, if such
Additional Shares of Common Stock or Convertible Securities are sold to
underwriters or dealers for public offering without a subscription
offering, the initial public offering price, in any such case excluding
any amounts paid or receivable for accrued interest or accrued
dividends and without deduction of any compensation, discounts or
expenses paid or incurred by the Company for and in the underwriting
of, or otherwise in connection with, the issue thereof. To the extent
that such issuance shall be for a consideration other than solely for
cash, then, except as herein otherwise expressly provided, the amount
of such consideration shall be deemed to be the fair value of such
consideration at the time of such issuance as determined in good faith
by the Board of Directors of the Company, provided that if such
determination is objected to by the Holder, such determination shall be
made by an independent appraiser selected by such Board of Directors
and not objected to by the Holder. The fees and expenses of such
appraiser shall be paid by the Company. The consideration for any
Additional Shares of Common Stock issuable pursuant to any warrants,
options or other rights to subscribe for or purchase the same shall be
the consideration received or receivable by the Company for issuing
such warrant, options or other rights, plus the additional
consideration payable to the Company upon the exercise of such
warrants, options or other rights. The
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<PAGE> 11
consideration for any Additional Shares of Common Stock issuable
pursuant to the terms of any Convertible Securities shall be the
consideration received or receivable by the Company for issuing any
warrants, options or other rights to subscribe for or purchase such
Convertible Securities (if any), plus the consideration paid or payable
to the Company in respect of the subscription for or purchase of such
Convertible Securities, plus the additional consideration, if any,
payable to the Company upon the exercise of the right of conversion or
exchange in such Convertible Securities.
(3) When Adjustments To Be Made. The adjustments
required by the preceding Subsections of this Section 4 shall be made
whenever and as often as any specified event requiring an adjustment
shall occur. For the purpose of any adjustment, any specified event
shall be deemed to have occurred at the close of business on the date
of its occurrence.
(4) Fractional Interests. In computing
adjustments under this Section, fractional interests in Common Stock
shall be taken into account to the nearest 1/100th of a share.
(5) When Adjustment Not Required. If the Company
shall take a record of the holders of its Common Stock for the purpose
of entitling them to receive a dividend or distribution or subscription
or purchase rights and shall, thereafter and before the distribution
thereof to shareholders, legally abandon its plan to pay or deliver
such dividend, distribution, subscription or purchase rights, 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.
H. Merger, Consolidation or Disposition of Assets. In
case the Company shall merge or consolidate into another corporation, or shall
sell, transfer or otherwise dispose of all or substantially all of its property,
assets or business to another corporation and pursuant to the terms of such
merger, consolidation or disposition, shares of common stock of the successor or
acquiring corporation are to be received by or distributed to the holders of
Common Stock of the Company, then the Holder shall have the right thereafter to
receive, upon exercise of this Warrant, Stock Units each comprising the number
of shares of common stock of the successor or acquiring corporation receivable
upon or as a result of such merger, consolidation or disposition of assets by a
holder of the number of shares of Common Stock comprising a Stock Unit
immediately prior to such event. If, pursuant to the terms of such merger,
consolidation or disposition of assets, any cash, shares of stock or other
securities or property of any nature whatsoever (including warrants, options or
other subscription or purchase rights) are to be received by or distributed to
the holders of Common Stock of the Company in addition to common stock of the
successor or acquiring corporation, there shall be either, at the Holder's
option, (i) an adjustment in the number of shares of Common Stock thereafter
comprising a Stock Unit to that number determined by multiplying the number of
shares of Common Stock comprising a Stock Unit immediately prior to such
adjustment by a fraction (x) the numerator of which shall be the Current Market
Price per share of Common Stock at the date of such merger, consolidation or
disposition, and (y) the denominator of which shall be such Current Market Price
per share minus the portion applicable to one share of Common Stock of any cash
so distributed and of the fair value of any and all such shares of stock,
securities or other property or
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<PAGE> 12
(ii) the Holder shall have the right to receive such cash, shares of stock or
other securities or property of any nature as a holder of the number of shares
of Common Stock underlying a Stock Unit would have been entitled to receive upon
the occurrence of such event, for each Stock Unit into which the Holder's
Warrants are exercisable. Such fair value shall be determined in good faith by
the Board of Directors of the Company, provided that if such determination is
objected to by the Holder, such determination shall be made by an independent
appraiser selected by such Board of Directors and not objected to by the Holder.
The fees and expenses of such appraiser shall be paid by the Company. In case of
any such merger, consolidation or disposition of assets, the successor or
acquiring corporation shall expressly assume the due and punctual observance and
performance of each and every covenant and condition of this Warrant and the
Securities Purchase Agreement to be performed and observed by the Company and
all of the obligations and liabilities hereunder and thereunder, subject to such
modification as shall be necessary to provide for adjustments of Stock Units
which shall be as nearly equivalent as practicable to the adjustments provided
for in this Section 4. For the purposes of this Section 4 "common stock of the
successor or acquiring corporation" shall include stock of such corporation of
any class, which is not preferred as to dividends or assets over any other class
of stock of such corporation and which is not subject to redemption, and shall
also include any evidences of indebtedness, shares of stock or other securities
which are convertible into or exchangeable for any such stock, either
immediately or upon the arrival of a specified date or the happening of a
specified event, and any warrants, options or other rights to subscribe for or
purchase any such stock. The foregoing provisions of this Subsection shall
similarly apply to successive mergers, consolidations or dispositions of assets.
I. Other Action Affecting Common Stock. In case at any
time or from time to time the Company shall take any action affecting its Common
Stock, other than an action described in any of the foregoing Subsections A to
H, inclusive, of this Section 4 and the actions described in clauses (i) through
(vii) of the definition of Additional Shares of Common Stock, then, unless in
the reasonable opinion of the Board of Directors of the Company such action will
not have a materially adverse effect upon the rights of the Holder, the number
of shares of Common Stock or other stock comprising a Stock Unit, or the
purchase price thereof, shall be adjusted in such manner and at such time as the
Board of Directors of the Company may in good faith determine to be equitable in
the circumstances.
J. No Adjustments for Certain Transactions. Anything
contained in this Warrant notwithstanding, the number of shares of Common Stock
comprising a Stock Unit and the Purchase Price per Stock Unit shall not be
adjusted, nor be subject to adjustment, on account of the granting of any rights
under a phantom stock plan, stock appreciation rights plan or other deferred
compensation plan to officers, directors or employees of the Company or its
affiliates, if (i) no shares of Common Stock are issued or required to be issued
under any such plan and (ii) the only consideration paid or payable to any
participant in such plan is cash.
Section 5. Notice to Warrant Holders.
A. Notice of Adjustment of Stock Unit or Purchase Price.
Whenever the number of shares of Warrant Stock comprising a Stock Unit or the
Purchase Price per Stock Unit shall be adjusted pursuant to Section 4, the
Company shall forthwith obtain a certificate signed by the president of the
Company and the principal financial officer of the Company, setting
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<PAGE> 13
forth, in reasonable detail, the event requiring the adjustment and the method
by which such adjustment was calculated (including a statement of the fair
value, as determined by the Board of Directors of the Company, of any evidences
of indebtedness, shares of stock, other securities or property or warrants,
options or other subscription or purchase rights referred to in Section 4.B,
Section 4.G(2) or Section 4.H) and specifying the number of shares of Common
Stock comprising a Stock Unit and (if such adjustment was made pursuant to
Section 4.H or Section 4.I) describing the number and kind of any other shares
of stock comprising a Stock Unit, and any change in the Purchase Price thereof
after giving effect to such adjustment or change. The Company shall promptly,
and in any case within 10 days after the making of such adjustment, cause a
signed copy of such certificate to be delivered to the Holder. The Company shall
keep at its office or agency, maintained for the purpose pursuant to Section 16,
copies of all such certificates and cause the same to be available for
inspection at said office during normal business hours by the Holder or any
prospective purchaser of the Warrant designated by the Holder.
B. Notice of Certain Corporate Action. In case the
Company shall propose (a) to pay any dividend payable in cash or in stock of any
class to the holders of its Common Stock or to make any other distribution to
the holders of its Common Stock, or (b) to offer to the holders of its Common
Stock rights to subscribe for or to purchase any Additional Shares of Common
Stock or shares of stock of any class or any other securities, rights or
options, or (c) to effect any reclassification of its Common Stock (other than a
reclassification involving only the subdivision or combination of outstanding
shares of Common Stock), or (d) to effect any capital reorganization, or (e) to
effect any consolidation, merger or sale, change to the Company's charter or
bylaws, transfer or other disposition of all or substantially all of its
property, assets or business, or (f) to effect the liquidation, dissolution or
winding up of the Company, then in each such case, the Company shall give to
each holder of a Warrant, in accordance with Section 17, a notice, certified by
the president of the Company and the principal financial officer of the Company,
of such proposed action, which shall specify the date on which a record is to be
taken for the purposes of such stock dividend, distribution or rights, or the
date on which such reclassification, reorganization, consolidation, merger,
sale, change to the Company's charter or bylaws, transfer, disposition,
liquidation, dissolution, or winding up is to take place and the date of
participation therein by the holders of Common Stock, if any such date is to be
fixed, and shall also set forth such facts with respect thereto as shall be
reasonably necessary to indicate the effect of such action on the Common Stock
and the number and kind of any other shares of stock which will comprise a Stock
Unit, and the purchase price or prices thereof, after giving effect to any
adjustment which will be required as a result of such action. Such notice shall
be so given in the case of any action covered by clause (a) or (b) above at
least twenty days prior to the record date for determining holders of the Common
Stock for purposes of such action, and in the case of any other such action, at
least thirty days prior to the date of the taking of such proposed action or the
date of participation therein by the holders of Common Stock, whichever shall be
the earlier.
Section 6. Reservation and Authorization of Common Stock; Registration
with or Approval of any Governmental Authority. The Company shall at all times
reserve and keep available for issue upon the exercise of Warrants such number
of its authorized but unissued shares of Common Stock as will be sufficient to
permit the exercise in full of all outstanding Warrants. Without the prior
written consent of the Holder, the Company will not amend its
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<PAGE> 14
Certificate of Incorporation in any respect relating to the Common Stock other
than to increase or decrease the number of shares of authorized capital stock
(subject to the provisions of the preceding sentence) or to decrease the par
value of Common Stock.
Before taking any action which would cause an adjustment
reducing the Current Warrant Price per share of Common Stock below the then par
value, if any, of the shares of Common Stock issuable upon exercise of the
Warrants, the Company shall take any corporate action which may, in the opinion
of its counsel, be necessary in order that the Company may validly and legally
issue fully-paid and nonassessable shares of Common Stock at such adjusted
Current Warrant Price.
Before taking any action which would result in an adjustment
in the number of shares of Common Stock comprising a Stock Unit or in the
Current Warrant Price per share of Common Stock, the Company shall obtain all
such authorizations or exemptions thereof, or consents thereto, as may be
necessary from any public regulatory body or bodies having jurisdiction thereof
(except that nothing contained in this Warrant certificate shall require the
Company to register the Warrants under the Securities Act or any similar federal
or state equivalent).
Section 7. Taking of Record; Stock and Warrant Transfer Books. In the
case of all dividends or other distributions by the Company to the holders of
its Common Stock with respect to which any provision of Section 4 refers to the
taking of a record of such holders, the Company will in each such case take such
a record and will take such record as of the close of business on a Business
Day. The Company will not at any time, except (i) upon dissolution, liquidation
or winding up, or (ii) for purposes of declaring and paying a dividend or
matters related to voting by shareholders of the Company, close its stock
transfer books or Warrant transfer books so as to result in preventing or
delaying the exercise or transfer of any Warrant.
Section 8. Transfer Taxes. The Company will pay any and all transfer
taxes that may be payable in respect of the issuance or delivery of shares of
Common Stock on exercise of this Warrant. The Company shall not, however, be
required to pay any tax which may be payable in respect of any transfer involved
in the issue and delivery of shares of Common Stock in a name other than that in
which this Warrant is registered, and no such issue or delivery shall be made
unless and until the person requesting such issue has paid to the Company the
amount of any such tax, or has established, to the satisfaction of the Company,
that such tax has been paid.
Section 9. No Voting Rights. This Warrant shall not entitle the holder
hereof to any voting rights, or to any rights as a stockholder of the Company.
Section 10. Restrictions on Transferability. The Warrants and the
Warrant Stock shall be transferable only (i) in accordance with the provisions
of Section 5 of the Securities Purchase Agreement and (ii) upon compliance with
the conditions specified in this Warrant and in compliance with the provisions
of the Securities Act and applicable state securities laws in respect of the
transfer of any Warrant or any Warrant Stock, and any holder of this Warrant
shall be bound by the provisions of (and entitled to the benefits of) Section 3
hereof.
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<PAGE> 15
Section 11. Limitation of Liability. No provision hereof, in the
absence of affirmative action by the holder hereof to purchase shares of Common
Stock, and no mere enumeration herein of the rights or privileges of the holder
hereof, shall give rise to any liability of such holder for the purchase price
or as a stockholder of the Company, whether such liability is asserted by the
Company or by creditors of the Company.
Section 12. Registration Rights. The Holder shall have registration
rights and benefits with respect to any Warrant Stock issuable upon the exercise
hereof identical to the rights and benefits (and subject to the same terms and
conditions) as those set forth in Section 7 of the Securities Purchase Agreement
as if such provisions were set forth herein in their entirety. Nothing in this
Section 12 shall limit or reduce the rights and benefits of the Purchaser under
the Securities Purchase Agreement.
Section 13. Loss, Destruction of Warrant Certificates. Upon receipt of
evidence satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, in the case of any such loss, theft or
destruction, upon receipt of indemnity or security satisfactory to the Company
(the original Holder's or any other institutional holder's indemnity being
satisfactory indemnity in the event of loss, theft or destruction of any Warrant
owned by such institutional holder), or, in the case of any such mutilation,
upon surrender and cancellation of such Warrant, the Company will make and
deliver, in lieu of such lost, stolen, destroyed or mutilated Warrant, a new
Warrant of like tenor and representing the right to purchase the same aggregate
number of shares of Common Stock.
Section 14. Furnish Information. The Company agrees that it shall
deliver to the holder of record hereof promptly after their becoming available
copies of all financial statements, reports and proxy statements which the
Company shall have sent to its stockholders generally.
Section 15. Amendments. The terms of this Warrant may be amended, and
the observance of any term therein may be waived, only with the written consent
of the Holder.
Section 16. Office of the Company. So long as any of the Warrants
remains outstanding, the Company shall maintain an office in Houston, Texas
where the Warrants may be presented for exercise, transfer, division or
combination as in this Warrant provided. Such office shall be at 3700 Buffalo
Speedway, Suite 960 unless and until the Company shall designate and maintain
some other office for such purposes and give written notice thereof to the
Holder.
Section 17. Notices Generally. All notices, requests and other
communications hereunder must be in writing and will be deemed to have been duly
given only if delivered personally or by facsimile transmission or mailed (first
class postage prepaid) to the parties at the following addresses or facsimile
numbers:
15
<PAGE> 16
If to Company, to:
Contango Oil and Gas Company
3700 Buffalo Speedway, Suite 960
Houston, Texas 77098
Attention: Kenneth R. Peak, President and
Chief Executive Officer
Phone: (713) 960-1901
Fax: (713) 960-1065
with a copy to:
Morgan, Lewis & Bockius LLP
300 South Grand Avenue, 22nd Floor
Los Angeles, California 90071
Attention: Richard A. Shortz, Esq.
Phone: (213) 612-2500
Fax: (213) 612-2554
If to Sellers, to:
with a copy to:
All such notices, requests and other communications will (i)
if delivered personally to the address as provided in this Section, be deemed
given upon delivery, (ii) if delivered by facsimile transmission to the
facsimile number as provided in this Section, be deemed given upon receipt, and
(iii) if delivered by mail in the manner described above to the address as
provided in this Section, be deemed given upon receipt (in each case regardless
of whether such notice, request or other communication is received by any other
Person to whom a copy of such notice is to be delivered pursuant to this
Section). Any party from time to time may change its address, facsimile number
or other information for the purpose of notices to that party by giving notice
specifying such change to the other party hereto.
Section 18. Governing Law. THIS WARRANT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEVADA.
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<PAGE> 17
IN WITNESS WHEREOF, the Company has caused this Certificate to
be signed in its name by its President and Chief Executive Officer, such
signature to be attested to by the Company's Secretary or Assistant Secretary,
and the Company's corporate seal to be impressed hereon.
Dated: December 29, 1999
[SEAL] CONTANGO OIL & GAS COMPANY,
a Nevada corporation
By: /s/ KENNETH R. PEAK
---------------------------------------
Kenneth R. Peak
President and Chief Executive Officer
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<PAGE> 18
SUBSCRIPTION FORM
(to be executed only upon exercise of Warrant)
The undersigned registered owner of this Warrant irrevocably
exercises this Warrant for and purchases ___________ Stock Units of
___________________, a __________ corporation, purchasable with this Warrant,
herewith makes payment therefor on the terms and conditions specified in this
Warrant and requests that certificates for the shares of Common Stock hereby
purchased (and any securities or other property issuable upon such exercise) be
issued in the name of and delivered to ______________________ whose address is
_________________________________.
Dated:
--------------------------------------------------
(Signature of Registered Owner)
--------------------------------------------------
(Street Address)
--------------------------------------------------
(City) (State) (Zip Code)
18
<PAGE> 19
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this
Warrant hereby sells, assigns and transfers unto the assignee named below all of
the rights of the undersigned under this Warrant, with respect to the number of
Stock Units set forth below:
<TABLE>
<CAPTION>
No. of Stock
Name and Address of Assignee Units
---------------------------- ------------
<S> <C>
</TABLE>
and does hereby irrevocably constitute and appoint _____________________
attorney to make sure transfer on the books of ________________, a ___________
corporation, maintained for the purpose, with full power of substitution in the
premises.
Dated:
--------------------------------------------------
Signature
--------------------------------------------------
Witness
NOTICE: The signature to the assignment must correspond with the name
as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatever.
[The signature to this assignment must be guaranteed by an
Eligible Guarantor Institution as defined in Rule 17Ad-15
promulgated under the Securities Exchange Act of 1934, as
amended, or any successor thereto.]
19
<PAGE> 1
EXHIBIT 10.5
CONTANGO OIL & GAS COMPANY
CO-SALE AGREEMENT
THIS CO-SALE AGREEMENT (the "Agreement") is made as of this 29th day of
December, 1999, by and among Contango Oil & Gas Company, a Nevada corporation
(the "Company"), Trust Company of the West, a California trust company, in its
capacities as Investment Manager pursuant to the Investment Management Agreement
dated as of June 6, 1988 between General Mills, Inc. and the Trust Company of
the West and as Custodian pursuant to the Custody Agreement dated as of February
6, 1989 among General Mills, Inc., the Trust Company of the West and State
Street Bank and Trust Company, as Trustee ("TCW"), and Kenneth R. Peak ("Peak").
RECITALS
WHEREAS, TCW is purchasing shares of the Company's Common Stock, and a
warrant to purchase additional shares of Common Stock (the "Warrant" and
together with the Common Stock purchased by TCW, the "Securities"), pursuant to
that certain Securities Purchase Agreement dated as of the date hereof (the
"Securities Purchase Agreement"), between TCW and the Company;
WHEREAS, TCW was induced by the Company to purchase the Securities in
part by the Company's and Peak's agreement to enter into this Agreement; and
WHEREAS, the parties desire to enter into this Agreement in order to
grant rights of co-sale to TCW.
In consideration of the mutual covenants set forth herein, the parties
agree hereto as follows:
1. DEFINITIONS.
(a) "CO-SALE STOCK" shall mean shares of the Company's Common Stock now
owned or subsequently acquired by Peak.
(b) "COMMON STOCK" shall mean the Company's Common Stock and shares of
Common Stock issued or issuable upon exercise of the Warrant.
2. SALES BY PEAK.
(a) If Peak proposes to sell or transfer any shares of Co-Sale Stock,
then Peak shall promptly give written notice (the "Notice") simultaneously to
the Company and to TCW at least thirty (30) days prior to the closing of such
sale or transfer. The Notice shall describe in reasonable detail the proposed
sale or transfer including, without limitation, the number of shares of Co-Sale
Stock to be sold or transferred, the nature of such sale or transfer, the
consideration to be paid, and the name and address of each prospective purchaser
or transferee.
<PAGE> 2
(b) TCW shall have the right, exercisable upon written notice to Peak
within fifteen (15) days after the Notice, to participate in such sale of
Co-Sale Stock on the same terms and conditions. Such notice shall indicate the
number of shares of Common Stock TCW wishes to sell under its right to
participate. To the extent TCW exercises such right of participation in
accordance with the terms and conditions set forth below, the number of shares
of Co-Sale Stock that Peak may sell in the transaction shall be correspondingly
reduced.
(c) TCW may sell all or any part of that number of shares equal to the
product obtained by multiplying (i) the aggregate number of shares of Co-Sale
Stock covered by the Notice by (ii) a fraction the numerator of which is the
number of shares of Common Stock owned by TCW at the time of the sale or
transfer and the denominator of which is the total number of shares of Common
Stock owned by Peak and TCW at the time of the sale or transfer. TCW shall
effect its participation in the sale by promptly delivering to Peak for transfer
to the prospective purchaser one or more certificates, properly endorsed for
transfer, which represent the number of shares of Common Stock which TCW elects
to sell.
(d) The stock certificate or certificates that TCW delivers to Peak
pursuant to Section 2(c) shall be transferred to the prospective purchaser in
consummation of the sale of the Common Stock pursuant to the terms and
conditions specified in the Notice, and Peak shall concurrently therewith remit
to TCW that portion of the sale proceeds to which TCW is entitled by reason of
its participation in such sale. To the extent that any prospective purchaser or
purchasers prohibits such assignment or otherwise refuses to purchase shares or
other securities from TCW exercising its rights of co-sale hereunder, Peak shall
not sell to such prospective purchaser or purchasers any Co-Sale Stock unless
and until, simultaneously with such sale, Peak shall purchase such shares or
other securities from TCW on the same terms and conditions specified in the
Notice.
(e) The exercise or non-exercise of the rights of TCW hereunder to
participate in one or more sales of Co-Sale Stock made by Peak shall not
adversely affect its rights to participate in subsequent sales of Co-Sale Stock
subject to Section 2(a).
(i) If TCW does not elect to participate in the sale of the Co-Sale
Stock subject to the Notice, Peak may, not later than sixty (60) days following
delivery to the Company of the Notice, enter into an agreement providing for the
closing of the transfer of the Co-Sale Stock covered by the Notice within thirty
(30) days of such agreement on terms and conditions not more materially
favorable to the transferor than those described in the Notice. Any proposed
transfer on terms and conditions materially more favorable than those described
in the Notice, as well as any subsequent proposed transfer of any of the Co-Sale
Stock by Peak, shall again be subject to the co-sale rights of TCW and shall
require compliance by Peak with the procedures described in this Section 2.
3. EXEMPT TRANSFERS.
(a) Notwithstanding the foregoing, the co-sale rights of TCW shall not
apply to (i) any pledge of Co-Sale Stock made pursuant to a bona fide loan
transaction with a financial institution that creates a mere security interest,
(ii) any transfer to the ancestors, descendants or spouse of Peak or to trusts
for the benefit of such persons, (iii) any transfer or transfers by Peak to John
2
<PAGE> 3
Jurrius so long as such transfer is made in connection with Jurrius' appointment
to the Company's Board of Directors, or (iv) any bona fide gift; provided that
in the event of any transfer made pursuant to one of the exemptions provided by
clauses (i), (ii) and (iv), (A) Peak shall inform TCW of such pledge, transfer
or gift prior to effecting it and (B) the pledgee, transferee or donee shall
furnish TCW with a written agreement to be bound by and comply with all
provisions of Section 2. Except with respect to Co-Sale Stock transferred under
clause (iii) above (which Co-Sale Stock shall no longer be subject to the
co-sale rights of TCW), such transferred Co-Sale Stock shall remain "Co-Sale
Stock" hereunder, and such pledgee, transferee or donee shall be treated
similarly with Peak for purposes of this Agreement.
(b) Notwithstanding the foregoing, the provisions of Section 2 shall
not apply to the sale of any Co-Sale Stock to (i) the public pursuant to a
registration statement filed with, and declared effective by, the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the
"Securities Act") or (ii) to the Company.
4. LEGEND.
(a) Each certificate representing shares of Co-Sale Stock now or
hereafter owned by Peak or issued to any person in connection with a transfer
pursuant to Section 3(a) hereof shall be endorsed with the following legend:
"THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS OF A
CERTAIN CO-SALE AGREEMENT BY AND BETWEEN TCW, THE COMPANY AND CERTAIN HOLDERS OF
STOCK OF THE COMPANY. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN
REQUEST TO THE SECRETARY OF THE COMPANY."
(b) Peak agrees that the Company may instruct its transfer agent to
impose transfer restrictions on the shares represented by certificates bearing
the legend referred to in Section 4(a) above to enforce the provisions of this
Agreement and the Company agrees to promptly do so. The legend shall be removed
upon termination of this Agreement.
5. MISCELLANEOUS.
(a) CONDITIONS TO EXERCISE OF RIGHTS. Exercise of TCW's rights under
this Agreement shall be subject to and conditioned upon, and Peak and the
Company shall use their best efforts to assist TCW in, compliance with
applicable laws.
(b) GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of Nevada.
(c) AMENDMENT. Any provision of this Agreement may be amended and the
observance thereof may be waived (either generally or in a particular instance
and either retroactively or prospectively), only by the written consent of (i)
as to the Company, only by the Company, (ii) as to TCW, only by TCW and (iii) as
to Peak, only by Peak.
3
<PAGE> 4
(d) TERM. This Agreement shall terminate upon the closing of a firm
commitment underwritten public offering of the Company's Common Stock pursuant
to an effective registration statement under the Securities Act.
(e) NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (i) upon personal delivery to the
party to be notified, (ii) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient; if not, then on the next business
day, (iii) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid, or (iv) one (1) day after deposit
with a nationally recognized overnight courier, specifying next day delivery,
with written verification of receipt. All communications shall be sent to the
party to be notified at the address as set forth on the signature page hereof or
at such other address as such party may designate by ten (10) days advance
written notice to the other parties hereto.
(f) SEVERABILITY. In the event one or more of the provisions of this
Agreement should, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall not affect any other provisions of this Agreement, and this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein.
(f) ATTORNEYS' FEES. In the event that any dispute among the parties to
this Agreement should result in litigation, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and expenses
of enforcing any right of such prevailing party under or with respect to this
Agreement, including without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.
(h) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties relative to the specific subject matter hereof. Any previous
agreement among the parties relative to the specific subject matter hereof is
superseded by this Agreement. This Agreement and the rights and obligations of
the parties hereunder shall inure to the benefit of, and be binding upon, their
respective successors, assigns and legal representatives.
(i) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[THIS SPACE INTENTIONALLY LEFT BLANK]
4
<PAGE> 5
IN WITNESS WHEREOF, the undersigned have executed this CO-SALE
AGREEMENT as of the date set forth above.
Company: CONTANGO OIL & GAS COMPANY
a Nevada corporation
By: /s/ KENNETH R. PEAK
-----------------------------------
Kenneth R. Peak
President and Chief Executive
Officer
Peak: /s/ KENNETH R. PEAK
---------------------------------------
Kenneth R. Peak
TCW: TRUST COMPANY OF THE WEST,
a California trust company, in its
capacities as Investment Manager
pursuant to the Investment Management
Agreement dated as of June 6, 1988
between General Mills, Inc. and the
Trust Company of the West and as
Custodian pursuant to the Custody
Agreement dated as of February 6, 1989
among General Mills, Inc., the Trust
Company of the West and State Street
Bank and Trust Company, as trustee
By: /s/ ARTHUR R. CARLSON
-----------------------------------
Arthur R. Carlson
Managing Director
By: /s/ THOMAS F. MEHLBERG
-----------------------------------
Thomas F. Mehlberg
Senior Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION DERIVED FROM COMPANY'S
FINANCIAL STATEMENTS AND THE NOTES THERETO INCLUDED IN THE COMPANY'S FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 4,909,693
<SECURITIES> 0
<RECEIVABLES> 163,447
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,086,452
<PP&E> 154,922
<DEPRECIATION> 2,048
<TOTAL-ASSETS> 5,239,326
<CURRENT-LIABILITIES> 81,907
<BONDS> 0
0
0
<COMMON> 696,053
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,239,326
<SALES> 6,367
<TOTAL-REVENUES> 6,367
<CGS> 1,677
<TOTAL-COSTS> 624,124
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (595,955)
<INCOME-TAX> 0
<INCOME-CONTINUING> (595,955)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (595,955)
<EPS-BASIC> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
