EXHIBIT 99.1
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SECURITIES PURCHASE AGREEMENT
AMONG
CARRIZO OIL & GAS, INC.
AS ISSUER,
AND
THE INVESTORS LISTED ON SCHEDULE 1.1 HERETO
FEBRUARY 20, 2002
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TABLE OF CONTENTS
Page
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ARTICLE I DEFINITIONS........................................................1
1.1 Defined Terms.....................................................1
1.2 Terms Generally...................................................7
1.3 Use of Defined Terms..............................................8
1.4 Cross-References..................................................8
1.5 Currency..........................................................8
1.6 Accounting Terms; GAAP............................................8
ARTICLE II PURCHASE AND SALE OF THE SHARES...................................8
2.1 Authorization and Issuance of the Shares..........................8
2.2 Delivery of the Shares............................................8
2.3 Closing...........................................................9
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY....................9
3.1 Corporate Existence...............................................9
3.2 Corporate Power and Authorization.................................9
3.3 Binding Obligations..............................................10
3.4 No Violation.....................................................10
3.5 Consents.........................................................10
3.6 SEC Documents and Financial Statements...........................10
3.7 Reserve Report...................................................11
3.8 No Material Adverse Effect.......................................11
3.9 Liabilities; Indebtedness........................................11
3.10 Litigation.......................................................11
3.11 Specified Contract and Commitments...............................12
3.12 Title to Properties and Assets; Leases...........................13
3.13 Compliance with the Law..........................................14
3.14 Taxes............................................................14
3.15 Employee Benefit Matters.........................................15
3.16 Investment Company Act...........................................16
3.17 Public Utility Holding Company Act...............................16
3.18 No Restrictions on Affiliates....................................16
3.19 Capitalization...................................................17
3.20 Subsidiaries.....................................................17
3.21 Environmental Matters............................................17
3.22 Intellectual Property and Other Intangible Assets................19
3.23 No Public Offer..................................................19
3.24 Insurance........................................................19
3.25 Certain Transactions.............................................19
3.26 Use of Proceeds..................................................20
3.27 Plugging and Abandonment Obligations.............................20
3.28 No Material Misstatements or Omissions...........................20
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3.29 Fees and Commissions...........................................20
3.30 Projections....................................................21
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF INVESTORS....................21
4.1 Representations and Warranties of Each Investor................21
ARTICLE V CONDITIONS TO PURCHASE..........................................22
5.1 Conditions to Obligations of Investors on the Closing Date.....22
ARTICLE VI TRANSFER OF SECURITIES.........................................23
6.1 Restriction on Transfer........................................23
6.2 Restrictive Legends............................................23
6.3 Notice of Transfer.............................................24
ARTICLE VII MISCELLANEOUS.................................................25
7.1 Notices........................................................25
7.2 Survival of Agreement..........................................25
7.3 Successors and Assigns.........................................26
7.4 Expenses of the Investors......................................26
7.5 Indemnification................................................27
7.6 Third Party Claims.............................................28
7.7 GOVERNING LAW..................................................30
7.8 Waivers; Amendments............................................30
7.9 No Fiduciary Relationship......................................31
7.10 No Duty........................................................31
7.11 Construction...................................................31
7.12 Severability...................................................31
7.13 Counterparts...................................................32
7.14 Confidentiality................................................32
7.15 Headings.......................................................32
7.16 Entire Agreement...............................................33
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EXHIBITS
ANNEXES
ANNEX A - Schedule of Documents
SCHEDULES
SCHEDULE 1.1 - Investors
SCHEDULE 1.2 - Projections
SCHEDULE 3.4 - No Violation
SCHEDULE 3.9 - Liabilities
SCHEDULE 3.10 - Litigation
SCHEDULE 3.11 - Specified Contracts
SCHEDULE 3.12 - Exceptions to Title
SCHEDULE 3.15 - Employee Benefit Matters
SCHEDULE 3.19 - Ownership; Capital Stock
SCHEDULE 3.20 - Subsidiaries
SCHEDULE 3.21 - Environmental Matters
SCHEDULE 3.22 - Liens
SCHEDULE 3.25 - Certain Transactions
SCHEDULE 3.27 - Plugging and Abandonment Obligations
SCHEDULE 3.29 - Fees and Commissions
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SECURITIES PURCHASE AGREEMENT dated as of February 20, 2002 by
and among CARRIZO OIL & GAS, INC., a corporation organized under the laws of the
State of Texas (the "Company"), and the Persons listed on Schedule 1.1 hereto
(together with successors and permitted assignees thereof, individually, an
"Investor" and collectively, the "Investors").
RECITALS
WHEREAS, the Company is engaged in the exploration,
development, exploitation and production of natural gas and crude oil (the
"SUBJECT BUSINESS");
WHEREAS, the Company desires to issue to the Investors and the
Investors, severally and not jointly, desire to purchase from the Company (i)
60,000 shares (the "SHARES") of Series B Convertible Participating Preferred
Stock (the "SERIES B CONVERTIBLE PREFERRED STOCK") and (ii) warrants to purchase
252,632 shares of Common Stock (as hereinafter defined) on the terms and for the
consideration provided herein;
WHEREAS, the proceeds of the Purchased Securities (as defined
herein) shall be used (i) to fund the Company's ongoing drilling and development
program, (ii) to fund working capital and (iii) for general corporate purposes;
NOW THEREFORE, the parties to this Agreement hereby agree as
follows:
ARTICLE I
DEFINITIONS
1.1 DEFINED TERMS.
As used in this Agreement, the following terms shall have the following
respective meanings:
"2002 SHAREHOLDERS AGREEMENT" means the Shareholders Agreement
dated as of February 20, 2002 among the Company and the shareholders of the
Company party thereto as amended from time to time.
"AFFILIATE" means, with respect to any specified Person, (i)
any other Person that directly or indirectly through one or more intermediaries
Controls, is Controlled by or is under common Control with such Person, (ii) any
Person owning, beneficially or of record, five percent or more of the voting
stock of the Company (on a fully diluted basis) and (iii) any director or
executive officer of such Person.
"AGREEMENT" means this Agreement, together with all Schedules,
Exhibits and Annexes attached hereto, as amended, supplemented or otherwise
modified from time to time in accordance with the terms hereof.
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"APPLICABLE LAW" means all provisions of laws, statutes,
ordinances, rules, regulations, permits, certificates or orders of any
Governmental Authority applicable to the Person in question or any of its assets
or property, and all judgments, injunctions, orders and decrees of all courts
and arbitrators in proceedings or actions in which the Person in question is a
party or by which any of its assets or properties are bound.
"BENEFIT PLANS" has the meaning given to such term in Section
3.15(a).
"BENEFIT PROGRAM OR AGREEMENT" has the meaning given to such
term in Section 3.15(a).
"BOARD" means the board of directors of the Company.
"BUSINESS DAY" means any day other than a Saturday, Sunday or
a day on which banks are authorized or required to be closed in
New York,
New
York or Houston, Texas; provided, however, that any determination of a Business
Day relating to a securities exchange or other securities market means a
Business Day on which such exchange or market is open for trading.
"CAPITAL LEASE OBLIGATIONS" means any Indebtedness represented
by obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP.
"CAPITAL STOCK" of any Person means any and all shares,
interests, rights to purchase, warrants, options, participations or other
equivalents of or interests in (however designated) equity of such Person, but
excluding any debt securities convertible into such equity.
"CLOSING" means the issuance and purchase of the Purchased
Securities on the Closing Date.
"CLOSING DATE" has the meaning given to such term in Section
2.3.
"CODE" means the Internal Revenue Code of 1986, as amended,
and the rules and regulations issued thereunder, as from time to time in effect,
or any successor thereto.
"COMMISSION" means the Securities and Exchange Commission (or
a successor thereto).
"COMMON STOCK" means the common stock, $.01 par value per
share, of the Company.
"COMPANY" has the meaning given to such term in the Preamble
to this Agreement.
"CONFIDENTIAL INFORMATION" has the meaning given to such term
in Section 7.14.
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"CONTROL" means, with respect to any Person, the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
"DEFENSIBLE TITLE" shall mean, with respect to the assets of
the Company (i) the title of the Company to such assets is free and clear of all
Liens of any kind whatsoever, and (ii) as to those xxxxx for which a "working
interest" and a "net revenue interest" are set forth on Schedule 3.12, the
Company is entitled to receive the percentage of all hydrocarbons produced,
saved and marketed from such xxxxx in an amount not less than the net revenue
interest set forth therein, without reduction, suspension or termination
throughout the duration of the productive life of such xxxxx, and the Company is
obligated to bear the percentage of costs and expenses related to the
maintenance, development and operation of such xxxxx in an amount not greater
than the working interest set forth on such Schedule, without increase
throughout the productive life of such xxxxx, except increases that also result
in a proportionate increase in net revenue interest and as set forth on such
Schedule.
"DESIGNATED TITLE EXCEPTIONS" has the meaning given to such
term in Section 3.12(a).
"ENVIRONMENTAL LAWS" means all federal, state, local and
foreign statutes, regulations, ordinances and other provisions having the force
or effect of law, all judicial and administrative orders and determinations, all
contractual obligations and all common law concerning public health and safety,
worker health and safety, pipeline safety and pollution or protection of the
environment, including without limitation all those relating to the presence,
use, production, generation, handling, transportation, treatment, storage,
disposal, distribution, labeling, testing, processing, discharge, release,
threatened release, control, or cleanup of any hazardous materials, substances
or wastes, chemical substances or mixtures, pesticides, pollutants,
contaminants, toxic chemicals, petroleum products, distillates or byproducts,
drilling fluids, produced waters, other wastes from the exploitation,
development or production of crude oil or natural gas, asbestos, polychlorinated
biphenyls, noise or radiation, each as amended and as now or hereafter in
effect.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and all rules and regulations from time to time promulgated
thereunder.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"FINANCIAL OFFICER" of any Person means its chief financial
officer or principal accounting officer.
"GAAP" means generally accepted accounting principles in the
United States of America in effect from time to time.
"GOVERNMENTAL AUTHORITY" means any federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality, or any court, in each case whether of the United States or any
political subdivision thereof, or of any other country.
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"GUARANTY" of or by any Person shall mean any obligation,
contingent or otherwise, of such Person guarantying or having the economic
effect of guarantying any Indebtedness or other obligation of any other Person
(the "PRIMARY OBLIGOR") in any manner, whether directly or indirectly, and
including any obligation of such Person, direct or indirect, (a) to purchase or
pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation or to purchase (or to advance or supply funds
for the purchase of) any security for the payment of such Indebtedness or other
obligation, (b) to purchase or lease property, securities or services for the
purpose of assuring the owner of such Indebtedness or other obligation of the
payment of such Indebtedness or other obligation or (c) to maintain working
capital, equity capital or any other financial statement condition or liquidity
of the primary obligor so as to enable the primary obligor to pay such
Indebtedness or other obligation; provided, however, that the term "Guaranty"
shall not include endorsements for collection or deposit in the ordinary course
of business.
"HAZARDOUS MATERIALS" shall mean all explosive or radioactive
substances or wastes, hazardous or toxic substances or wastes, pollutants,
solid, liquid or gaseous wastes, including petroleum or petroleum distillates,
byproducts, drilling fluids, produced waters, other wastes from the
exploitation, development or production of crude oil or natural gas, asbestos or
asbestos containing materials, polychlorinated biphenyls ("PCBs") or
PCB-containing materials or equipment, radon gas, infectious or medical wastes
and all other substances or wastes of any nature regulated pursuant to any
Environmental Law.
"INDEBTEDNESS" of any Person shall mean, without duplication,
(a) all obligations of such person for borrowed money or with respect to
deposits or advances of any kind, including the undischarged balance of any
production payments created by such Person or for the creation of which such
Person directly or indirectly received payment and obligations to deliver goods
or services including hydrocarbons in consideration of advance payments other
than (i) obligations to sell or purchase hydrocarbons, (ii) obligations with
pipelines for firm transportation of natural gas of such Person, and (iii) oil
and gas balancing agreements, take or pay agreements or other prepayment
obligations in respect of hydrocarbons, in each case, incurred in the ordinary
course of business and which are customary in the oil and gas industry, (b) all
obligations of such Person evidenced by bonds, debentures, notes or similar
instruments, (c) all obligations of such Person upon which interest charges are
customarily paid, (d) all obligations of such Person under conditional sale or
other title retention agreements relating to property or assets purchased by
such Person, (e) all obligations of such Person issued or assumed as the
deferred purchase price of property or services (excluding trade accounts
payable, accrued obligations (including management fees) incurred in the
ordinary course of business and the amount of any deferred rent obligations),
(f) all Indebtedness of others secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien on property owned or acquired by such Person, whether or not the
obligations secured thereby have been assumed, (g) all Guarantees given by such
Person of Indebtedness of others, (h) all Capital Lease Obligations of such
Person, (i) all obligations of such Person in respect of commodity price hedging
agreements or arrangements, interest rate protection agreements, foreign
currency exchange agreements or other interest or exchange rate hedging
arrangements and (j) all obligations and exposures of such Person as an account
party in respect of letters of credit and bankers' acceptances. The Indebtedness
of any Person shall include the Indebtedness of any other entity (including any
partnership in which such Person is a
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general partner) to the extent such Person is liable therefor as a result of
such Person's ownership interest in or relationship with such entity, except to
the extent the terms of such Indebtedness provide that such Person is not liable
therefor.
"INDEMNIFIED PERSON" has the meaning given to such term in
Section 7.5(a).
"INDEMNIFYING PERSON" has the meaning given to such term in
Section 7.6(a).
"INTERIM BALANCE SHEET" has the meaning given to such term in
Section 3.6.
"IRS" has the meaning given to such term in Section 3.15(b).
"LIEN" means any interest in Property securing an obligation
owed to, or a claim by, a Person other than the owner of the Property, whether
such interest is based on common law, statute or contract. The term "Lien" shall
also include reservations, exceptions, encroachments, easements, rights-of-way,
covenants, conditions, restrictions, leases and other title exceptions and
encumbrances affecting Property. For the purpose of the Agreement, the Company
shall be deemed to be the owner of any Property which it has acquired or holds
subject to a conditional sale agreement or other arrangement pursuant to which
title to the Property has been retained by or vested in some other Person for
security purposes; provided, however, that for purposes of Section 3.12, the
term "Lien" shall not include a trust or similar arrangement established for the
purpose of defeasing any Indebtedness pursuant to the terms evidencing or
providing for the issuance of such Indebtedness.
"LOSSES" has the meaning given to such term in Section 7.5(a).
"MATERIAL ADVERSE EFFECT" means (a) a material adverse effect
on the business, assets, liabilities (actual or contingent), operations, results
of operations, condition (financial or other) or prospects of the Company and
its Subsidiaries, taken as a whole, (b) any material impairment of the ability
of the Company or any of its Subsidiaries to perform any of its material
obligations under any Transaction Document or (c) any material impairment of any
material rights of or benefits available to the Investors under any Transaction
Document.
"PERMITS" shall mean all licenses, permits, exceptions,
franchises, accreditations, privileges, rights, variances, waivers, approvals
and other authorizations (including, without limitation, those relating to
environmental matters) of, by or from Governmental Authorities necessary for the
conduct of the business of the Company.
"PERSON" shall be construed as broadly as possible and
includes natural person, corporation, limited liability company, partnership,
joint venture, trust, unincorporated association or other organization and a
Governmental Authority.
"PLAN" has the meaning given to such term in Section 3.15(a).
"PROJECTIONS" means the Company's forecasted (a) quarterly
cash flow statements, (b) drilling plan and (c) balance sheet, working capital
and capitalization all attached hereto as Schedule 1.2.
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"PROPERTY" means any interest in any kind of property or
asset, whether real, personal or mixed, or tangible or intangible.
"PURCHASED SECURITIES" means the Series B Convertible
Preferred Stock and the Warrants.
"REGISTRATION RIGHTS AGREEMENT" has the meaning given to such
term in the Warrant Agreement.
"REPORTS" has the meaning given to such term in Section 3.7.
"REQUIRED INVESTORS" means Investors holding a majority of the
shares of Common Stock of the Company issuable (for the purposes of clarity,
"issuable" includes the shares of Common Stock of the Company that are issuable
upon the date hereof and are issued subsequent to the date hereof) upon (a) the
conversion of the Series B Convertible Preferred Stock and (b) the exercise of
the Warrants.
"RESTRICTED SECURITIES" means the Purchased Securities, the
Underlying Shares, the Warrants and the Warrant Shares, to the extent the
Purchased Securities, the Underlying Shares, the Warrants and the Warrant Shares
have not then been sold to the public pursuant to (a) registration under the
Securities Act or (b) Rule 144 (or similar or successor rule) promulgated under
the Securities Act.
"SEC DOCUMENTS" has the meaning given to such term in Section
3.6.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SERIES B CONVERTIBLE PREFERRED STOCK" means the Series B
Convertible Participating Preferred Stock, par value $0.01 per share, of the
Company.
"SERIES B DOCUMENTS" means this Agreement, the Statement of
Resolution Establishing Series of Shares designated Series B Convertible
Preferred Stock and any other document or instrument executed and delivered by
the Company in connection with the Series B Convertible Preferred Stock or this
Agreement.
"SHARES" means the 60,000 shares of Series B Convertible
Preferred Stock purchased at the Closing.
"SPECIFIED CONTRACTS" has the meaning given to such term in
Section 3.11.
"STATEMENT OF RESOLUTIONS" means that certain Statement of
Resolutions dated February 20, 2002 establishing a series of shares designated
Series B Convertible Preferred Stock.
"SUBJECT BUSINESS" has the meaning given to such term in the
recitals to this Agreement.
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"SUBSIDIARY" means, with respect to any Person, any other
Person of which more than fifty percent (50%) of the shares of stock or other
interests entitled to vote in the election of directors or comparable Persons
performing similar functions (excluding shares or other interests entitled to
vote only upon the failure to pay dividends thereon or other contingencies) are
at the time owned or controlled, directly or indirectly through one or more
Subsidiaries, by such Person. Unless the context otherwise requires, the term
"Subsidiary" means a Subsidiary of the Company.
"SURVIVAL DATE" has the meaning given to such term in Section
7.2.
"TAXES" has the meaning given to such term in Section 3.14
"TAX RETURNS" has the meaning given to such term in Section
3.14.
"THIRD PARTY CLAIM" has the meaning given to such term in
Section 7.6(a).
"TRANSACTION DOCUMENTS" means the Warrants, the Warrant
Agreement, the Registration Rights Agreement, the 2002 Shareholders Agreement
and the Series B Documents.
"TRANSFER" means any sale, transfer, assignment, or other
disposition of any interest in, with or without consideration, any security,
including any disposition of any security or of any interest therein which would
constitute a sale thereof within the meaning of the Securities Act.
"UNDERLYING SHARES" means the Common Stock and other
securities issuable upon conversion of the Shares.
"US$" and "UNITED STATES DOLLARS" shall each mean lawful
currency of the United States.
"UNITED STATES" means the United States of America.
"WARRANT AGREEMENT" means the Warrant Agreement dated the date
hereof among the Company and the other signatories thereto, as such Agreement
may be amended, supplemented or otherwise modified from time to time.
"WARRANTS" has the meaning given to such term in the Warrant
Agreement.
"WARRANT SHARES" has the meaning given to such term in the
Warrant Agreement.
1.2 TERMS GENERALLY.
The definitions in Section 1.1 shall apply equally to the singular and
plural forms of the terms defined. Whenever the context may require, any pronoun
shall include the corresponding masculine, feminine and neuter forms. The words
"INCLUDE", "INCLUDES" and "INCLUDING" shall be deemed to be followed by the
phrase "WITHOUT LIMITATION".
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1.3 USE OF DEFINED TERMS.
Terms defined in this Agreement and used in any Exhibit, Schedule,
Certificate, Annex or any Transaction Document or other document delivered in
connection with this Agreement, shall have the meanings assigned herein unless
otherwise defined or the context otherwise requires.
1.4 CROSS-REFERENCES.
Unless otherwise specified, references in this Agreement or any
Transaction Document to any Article or Section are references to such Article or
Section of this Agreement or such Transaction Document, as the case may be, and
references in any Article, Section or definition to any clause are references to
such clause of such Section, Article or definition.
1.5 CURRENCY.
Unless otherwise specified herein, all statements or references to
dollar amounts or $ set forth herein or in any other Transaction Document shall
refer to United States Dollars.
1.6 ACCOUNTING TERMS; GAAP.
Any accounting term used in this Agreement shall have, unless otherwise
specifically provided herein, the meaning customarily given such term in
accordance with GAAP, and all financial computations hereunder shall be
computed, unless otherwise specifically provided herein, in accordance with GAAP
consistently applied. That certain terms or computations are explicitly modified
by the phrase "in accordance with GAAP" shall in no way be construed to limit
the foregoing.
ARTICLE II
PURCHASE AND SALE OF THE SHARES
2.1 AUTHORIZATION AND ISSUANCE OF THE SHARES.
(a) The Company has authorized the issuance of the Purchased
Securities.
(b) On the Closing Date, the Company shall sell to each
Investor, and each Investor shall severally purchase from the Company, upon
satisfaction of the conditions set forth in Section 5.1 hereof (or waiver in
writing of such conditions by such Investor), (i) the number of shares of Series
B Convertible Preferred Stock set forth opposite such Investor's name on
Schedule 1.1 for the purchase price set forth opposite its name and (ii)
Warrants to purchase the number of shares of Common Stock set forth opposite
such Investor's name on Schedule 1.1 for the purchase price set forth opposite
its name.
2.2 DELIVERY OF THE SHARES.
On the Closing Date, the Company shall deliver to each Investor (i) a
certificate, registered in such Investor's name, representing the Shares of
Series B Convertible Preferred
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Stock purchased by such Investor at the Closing and (ii) the Warrants registered
in such Investor's name representing the right to purchase the number of shares
of Common Stock set forth opposite such Investor's name on Schedule 1.1.
Delivery shall be made against receipt by the Company of the aggregate purchase
price for the Purchased Securities being purchased by such Investor by wire
transfer of immediately available funds to an account designated by the Company.
2.3 CLOSING.
Subject to the satisfaction of the conditions precedent set forth in
Section 5.1 hereof (or the waiver in writing of such conditions by the
Investors), the delivery of the Purchased Securities shall take place at the
offices of Xxxxx Xxxxx L.L.P., Xxx Xxxxx Xxxxx, 000 Xxxxxxxxx, Xxxxxxx, Xxxxx
00000-0000 on the date of execution of the Transaction Documents and the closing
of the transactions contemplated thereby (the "CLOSING DATE").
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Investors that, after
the issuance and sale of the Purchased Securities, as of the Closing Date:
3.1 CORPORATE EXISTENCE.
The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Texas. The Company has all
necessary power and authority to conduct its business as it is now being
conducted and to own, operate and lease the properties and assets it currently
owns, operates and holds under lease. The Company is duly qualified to do
business and is in good standing in each jurisdiction in which the nature of its
business activities or its ownership or leasing of property makes such
qualification necessary. On or before the date hereof the Company has delivered
or made available to the Investors true and complete copies of the Company's
Articles of Incorporation and By-laws, together with all amendments thereto.
3.2 CORPORATE POWER AND AUTHORIZATION.
The Company has all requisite power and authority to issue the
Purchased Securities and to execute, deliver, and perform the Transaction
Documents and to consummate the transactions contemplated thereby. The
execution, delivery and performance of the Transaction Documents and the
consummation of the transactions to be performed by the Company thereunder have
been duly and validly authorized by all necessary action on the part of the
Board of Directors, and no other corporate proceedings on the part of the
Company are necessary to authorize the execution, delivery and performance of
the Transaction Documents by the Company or to consummate the transactions to be
performed by the Company thereunder.
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3.3 BINDING OBLIGATIONS.
Each of the Transaction Documents when executed and delivered by the
Company shall constitute a legal, valid and binding obligation of the Company
enforceable in accordance with its terms, except insofar as the enforceability
thereof may be limited (i) by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and (ii) by general principles of equity and public policy (regardless
of whether considered at law or in equity). When issued and delivered to the
Investors at the Closing upon payment therefor as provided in this Agreement,
the Shares will be duly authorized, validly issued, fully paid and nonassessable
and free and clear of any Liens created by the Company.
3.4 NO VIOLATION.
Except as disclosed on Schedule 3.4, the execution, delivery and
performance by the Company of the Transaction Documents, the consummation of the
transactions provided for therein and contemplated thereby, and the fulfillment
by the Company of the terms thereof, will not (a) conflict with or result in a
breach of any provision of the Articles of Incorporation or By-laws of the
Company, (b) result in any default or in any material modification of the terms
of any Indebtedness, material instrument or agreement, of the Company or the
creation of any Lien upon any of the properties or assets owned by the Company,
or (c) result in a violation by the Company of any Applicable Law or Permit
applicable to the Company.
3.5 CONSENTS.
All consents, approvals, qualifications, orders or authorizations of,
or filings with, any Governmental Authority required to be obtained by the
Company, and all consents under any material contracts, agreements, or
instruments by which the Company is bound or to which it is subject, and
required in connection with the Company's valid execution, delivery, or
performance of the Transaction Documents, and the consummation of the
transactions contemplated thereby, has been obtained or made other than the
filing of a Form D with the Commission and the filing of the Statement of
Resolutions with the Secretary of State of the State of Texas.
3.6 SEC DOCUMENTS AND FINANCIAL STATEMENTS.
The Company has timely filed with the Commission all forms, reports,
schedules, statements and other documents required to be filed by it since
January 1, 2000 under the Exchange or the Securities Act (such documents, as
supplemented and amended since the time of filing, collectively, the "SEC
DOCUMENTS"). The SEC Documents, including, without limitation, any financial
statements or schedules included therein, at the time filed (and, in the case of
registration statements, on the dates of effectiveness) (i) did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading, and (ii)
complied in all material respects with the applicable requirements of the
Exchange Act and the Securities Act, as the case may be. The financial
statements of the Company included in the SEC Documents at the time filed (and,
in the case of registration
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statements, on the dates of effectiveness) complied as to form in all material
respects with applicable accounting requirements and with the published rules
and regulations of the Commission with respect thereto, were prepared in
accordance with GAAP applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto or, in the case of unaudited
statements, as permitted by Form 10-Q of the Commission), and fairly present
(subject in the case of unaudited statements to normal, recurring audit
adjustments) the combined financial position of the Company, as of the dates
thereof and the combined results of operations and cash flows for the periods
then ended. The condensed balance sheet for the Company included in its
quarterly report on Form 10-Q for the fiscal quarter ended September 30, 2001 is
referred to herein as the "INTERIM BALANCE SHEET".
3.7 RESERVE REPORT.
The Company has delivered to the Investors a copy of the reserve report
dated as of February 23, 2001 prepared by Xxxxx Xxxxx Company Petroleum
Engineers and the reserve report dated as of February 20, 2001 prepared by
Xxxxxxxxx, Xxxxxx & Well, Inc., respectively, (the "Reports"), relating to the
oil and gas reserves attributable to properties owned to which the Company has
rights under lease or farm out or other written agreement by the Company. To the
knowledge of the Company, the estimates of reserves in the Reports were prepared
in accordance with standard geological and engineering methods generally
accepted in the oil and gas industry. The estimates of the lease operating
expenses in the Reports reasonably reflect the historical experience of the
Company and the Company has no reason to believe that the estimates will not
reflect future lease operating expenses and the historical factual information
supplied by the Company to the independent engineering firm in connection with
the preparation of the Reports was, at the time of delivery to such firm, true
and complete in all material respects.
3.8 NO MATERIAL ADVERSE EFFECT.
Except as disclosed on Schedule 3.8, since December 31, 2000 there has
been no Material Adverse Effect with respect to the Company nor any acquisition
or disposition of any material asset by the Company or any contract or
arrangement therefor, otherwise than for fair value in the ordinary course of
business.
3.9 LIABILITIES; INDEBTEDNESS.
Except for liabilities incurred in the ordinary course of business and
that would not, individually or in the aggregate, have a Material Adverse
Effect, the Company does not have any liabilities, direct or contingent
(including but not limited to liability with respect to any Plan or, to the
Company's knowledge, any Environmental Law) other than those provided for in the
Interim Balance Sheet or disclosed on Schedule 3.9. Except as would not have a
Material Adverse Effect or as disclosed on the Interim Balance Sheet or in the
audited financial statements of the Company or as incurred in the ordinary
course of business, the Company has no Indebtedness other than the Indebtedness
disclosed on Schedule 3.9.
3.10 LITIGATION.
Except as disclosed on Schedule 3.10, there is no action, suit or
proceeding, or any governmental investigation or any arbitration, in each case
pending or, to the knowledge of the
11
Company, threatened against the Company or any material property of the Company
before any Governmental Authority (i) which challenges the legality,
enforceability or validity of this Agreement or the Transaction Documents, or
(ii) which, if adversely determined, would have a Material Adverse Effect or
impair the ability or obligation of the Company to perform fully on a timely
basis any obligations which it has or will have under the Transaction Documents.
3.11 SPECIFIED CONTRACT AND COMMITMENTS.
(a) Except as set forth on Schedule 3.11 and except for the
Transaction Documents to be entered into pursuant to or in connection with this
Agreement, the Company has no (i) employment or consulting contract involving
annual payments by the Company in excess of $150,000 and not cancelable without
liability on sixty days' notice or less; (ii) capital redemption or purchase
agreements; (iii) agreements providing for the indemnification of other parties
for such parties' negligence or other fault (except for such obligations
incurred in the ordinary course of business as an owner or operator of oil and
gas properties, including obligations under master service agreements, drilling
contracts, indemnification of Company directors and similar agreements) or the
sharing of the tax liability of other parties; (iv) collective bargaining
agreements; (v) gas sales or purchase contract, gas marketing agreement or
transportation agreement under which the Company is the seller, which agreement
is not terminable without penalty on thirty days' notice or less, and which
provides for a price less than fair market value; (vi) agreement for capital
expenditures, the acquisition of commodities, equipment or material or the
construction of fixed assets which individually are expected to require
aggregate future payments by the Company in excess of $1,000,000 and all which
in the aggregate would be expected to require future payments in excess of
$2,500,000 (excluding future expenditures for drilling and/or completion of oil
and gas xxxxx for which specific expenditures are not yet committed); (vii)
agreement for, or that contemplates, the sale of any interest in oil or gas
leases which involves payment (including property received in exchange or other
non-cash consideration) to the Company in excess of $1,000,000 in the aggregate;
(viii) agreement which requires future payments by the Company in excess of
$400,000 (and not covered by clauses (vi) or (vii) or the exceptions thereto)
which is not otherwise specifically disclosed herein; (ix) agreements containing
covenants limiting or restricting the freedom of the Company to compete in any
line of business or territory or with any person or entity; (x) area of mutual
interest agreements binding the Company other than areas of mutual interest
established pursuant to standard form joint operating agreements, or the
exhibits or attachments thereto; (xi) futures, hedge, swaps, collars, puts,
calls, floors, caps, options or other contracts that are intended to benefit
from or reduce or eliminate the risk of fluctuations in the price of
commodities, including hydrocarbons; (xii) indentures, mortgages, promissory
notes, loan agreements, guaranties or other agreements or commitments relating
to the borrowing of money or the incurrence of any other Indebtedness, or any
related security agreements; (xiii) voting trust or other agreement or
understanding with respect to the voting of its Capital Stock; (xiv) contracts,
commitments, agreements, understandings or arrangements of any kind to which the
Company is a party relating to the issuance of any Capital Stock of the Company,
other than the Transaction Documents, (xv) agreements with respect to any of its
Capital Stock which grant registration rights to any Person other than the
Transaction Documents, (xvi) confidentiality agreements that would prohibit or
restrict the disclosure of any information to the Investors (other than
agreements that impose confidentiality restrictions involving seismic,
geological or geophysical data or similar technical and business matters
relating to the exploration for oil and gas and
12
agreements that impose confidentiality restrictions relating to discussions with
potential investors or potential parties to business combinations with the
Company, provided that such discussions are no longer ongoing) or (xvii) any
other material agreement or instrument (collectively, "SPECIFIED CONTRACTS").
None of the Specified Contracts have been amended or modified except as set
forth on Schedule 3.11.
(b) All of the Specified Contracts are in full force and
effect and constitute legal, valid and binding obligations of the Company, and,
to the knowledge of the Company, the other parties thereto, enforceable in all
material respects in accordance with their respective terms, except insofar as
the enforceability thereof may be limited (i) by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and (ii) by general principles of
equity and public policy (regardless of whether considered at law or in equity).
Neither the Company nor, to the knowledge of the Company, any other party to any
Specified Contract, is in default in complying with any provisions thereof, and
no condition or event or fact exists which, with notice, lapse of time or both
would constitute a default thereunder on the part of the Company or, to the
knowledge of the Company, any other party thereto, except for any such default,
condition, event or fact that, individually or in the aggregate, would not have
a Material Adverse Effect.
(c) The Company has no contracts or subcontracts whereby the
Company receives payments from the federal government for the sale of products
to, or the provision of services to the government. The Company has provided the
Investors with a true and complete copy of each contract, agreement and
instrument listed on Schedule 3.11 or has otherwise made such documents
available for the Investors to review.
3.12 TITLE TO PROPERTIES AND ASSETS; LEASES.
(a) Except as set forth on Schedule 3.12, the Company has
Defensible Title to all of its properties and assets (real and personal,
tangible and intangible) reflected on the Interim Balance Sheet at a book cost
in excess of $200,000 and all of the material assets thereafter acquired by the
Company (except to the extent that (a) such assets have thereafter been disposed
of in the ordinary course of business consistent with past practice or (b)
leases for such property have expired pursuant to their terms), and, in each
case free and clear of all Liens except (i) Liens for taxes not yet due and
payable or, if payable, that are being contested in good faith in the ordinary
course of business, (ii) statutory Liens (including materialmen's, mechanic's,
repairmen's, landlord's and other similar liens) arising in the ordinary course
of business to secure payments not yet due and payable or, if payable, that are
being contested in good faith in the ordinary course of business, (iii)
easements, restrictions, reservations or other encumbrances, as well as such
imperfections or irregularities of title, if any, as are not material, (iv)
obligations or duties to any municipality or public authority with respect to
any franchise, grant, license or permit and all applicable laws, rules,
regulations and orders of any Governmental Authority, (v) all lessors'
royalties, overriding royalties, net profits interests, production payments,
carried interests, reversionary interests and other burdens on or deductions
from the proceeds of production, (vi) the terms and conditions of joint
operating agreements and other oil and gas contracts, (vii) all rights to
consent by, required notices to, and filings with or other actions by
governmental or tribal entities, if any, in connection with the change of
ownership or control of an interest in federal, state, tribal or other domestic
governmental oil and gas leases, if the same
13
are customarily obtained subsequent to such change of ownership or control, but
only insofar as such consents, notices, filings and other actions relate to the
transactions contemplated by this Agreement, (viii) any preferential purchase
rights, (ix) required third party consents to assignment, (x) conventional
rights of reassignment prior to abandonment and (xi) the terms and provisions of
oil and gas leases, unit agreements, pooling agreements, communication
agreements and other documents creating interests comprising the oil and gas
properties; provided, however, the exceptions described in clauses (iv) through
(xi) inclusive above are qualified to include only those exceptions in each case
which do not operate to (A) reduce the net revenue interest of the Company below
that set forth on Schedule 3.12, (B) increase the proportionate share of costs
and expenses of leasehold operations attributable to or to be borne by the
working interest of the Company above that set forth on Schedule 3.12 without a
proportionate increase in the net revenue interest of the Company or (C)
increase the working interest of the Company above that set forth on Schedule
3.12 without a proportionate increase in the net revenue interest of the
Company, and, provided, further, that the foregoing defects, limitations, liens
and encumbrances, whether individually material or not, do not in the aggregate
create a Material Adverse Effect upon the Company (the categories of exceptions
in clauses (iv) through (xi), as so qualified and as any such exceptions may
exist from time to time, being referred to as the "DESIGNATED TITLE
EXCEPTIONS"). To the Company's knowledge, all equipment now owned by the Company
which is necessary to the business of the Company is in good condition and
repair (ordinary wear and tear excepted), except where the failure to be in good
condition and repair would not have a Material Adverse Effect.
(b) Except as set forth on Schedule 3.12, but only to the
knowledge of the Company with respect to oil and gas leases not operated by the
Company, the oil and gas leases in which the Company owns an interest (i) have
been maintained according to their terms and in compliance with all material
agreements to which such oil and gas leases are subject, except where the
failure to be so maintained or any noncompliance would not have a Material
Adverse Effect, and (ii) are in full force and effect, except where the failure
to be in full force and effect would not have a Material Adverse Effect.
(c) All royalties, overriding royalties, compensatory
royalties and other payments due with respect to the oil and gas properties of
the Company have been properly and correctly paid, except where the failure to
make such payment would not have a Material Adverse Effect.
3.13 COMPLIANCE WITH THE LAW.
The Company (i) is not in violation of any Applicable Law and (ii) has
not failed to obtain any Permit, necessary to the ownership of any of its
properties or the conduct of its business, except in either case where a
violation or failure would not have a Material Adverse Effect.
3.14 TAXES.
The Company (i) has filed all tax returns and reports ("TAX RETURNS")
required to be filed by or with respect to the Company, (ii) has included all
items of income, gain, loss, deduction and credit or other items required to be
included in each such Tax Return, and (iii) has
14
paid all taxes, assessments, fees, imposts, duties or other charges, including
any interest and penalties (all collectively referred to herein as "TAXES"), due
with respect to such Tax Returns except for such failures as would not have a
Material Adverse Effect. There is no claim against the Company for any Taxes,
and no assessment, deficiency or adjustment has been asserted or proposed with
respect to any Tax Return of or with respect to the Company.
3.15 EMPLOYEE BENEFIT MATTERS.
(a) Definitions. Where the following words and phrases appear
in this Agreement, they shall have the respective meanings set forth below,
unless the context clearly indicates to the contrary:
(i) PLAN: Each "employee benefit plan," as such term
is defined in Section 3(3) of ERISA, including, but not limited to, any
employee benefit plan that may be exempt from some or all of the
provisions of its ERISA, which is sponsored, maintained, or contributed
to by the Company or any of its ERISA Affiliates (as hereinafter
defined) for the benefit of the employees, former employees,
independent contractors, or agents of the Company or any of its ERISA
Affiliates, or has been so sponsored, maintained or contributed to
since September 2, 1974.
(ii) BENEFIT PROGRAM OR AGREEMENT: Each personnel
policy, stock option plan, collective bargaining agreement, workers'
compensation agreement or arrangement, bonus plan or arrangement,
incentive award plan or arrangement, vacation policy, severance pay
plan, policy or agreement, deferred compensation agreement or
arrangement, executive compensation or supplemental income arrangement,
consulting agreement, employment agreement, and each other employee
benefit plan, agreement, arrangement, program, practice or
understanding, which is not described in Section 3.15(a)(i) and which
is sponsored, maintained, or contributed to by the Company for the
benefit of the employees, former employees, independent contractors, or
agents of the Company or any of its Subsidiaries, or has been so
sponsored, maintained, or contributed to since September 2, 1974.
(iii) BENEFIT PLANS: Collectively, the Plans and
Benefit Programs or Agreements.
(b) Employee Benefit Plan Compliance.
(i) Neither the Company nor any corporation, trade,
business, or entity under common control with the Company, within the
meaning of Section 414(b), (c), (m), or (o) of the Code or Section 4001
of ERISA, ("ERISA Affiliate") contributes to or has an obligation to
contribute to, nor has the Company or any ERISA Affiliate at any time
within six years prior to the Closing Date contributed to or had an
obligation to contribute to, a multi-employer plan within the meaning
of Section 3(37) of ERISA or any plan subject to Title IV of ERISA; and
(ii) All obligations, whether arising by operation of
law or by contract, required to be performed in connection with the
Benefit Plans have been performed, and there have been no defaults,
omissions, or violations by any party with respect to any
15
Benefit Plan or law applicable thereto, except as would not have a
Material Adverse Effect; and
(iii) Each Plan that is intended to be qualified
under Section 401(a) of the Code (A) satisfies the requirements of such
Section in all material respects, (B) has received a favorable
determination letter from the Internal Revenue Service ("IRS")
regarding such qualified status and (C) has not, since receipt of the
most recent favorable determination letter, been amended or operated in
a way that would materially and adversely affect such qualified status
and, to the extent such letter does not cover amendments required by
law, both the time for adopting such amendments if not previously
adopted and filing such amendments with the IRS if not previously filed
has not expired.
(c) No Additional Rights or Obligations. Except as set forth
on Schedule 3.15, the execution, delivery and performance of the Transaction
Documents and the consummation of the transactions contemplated thereby will not
(i) require the Company to make a larger contribution to, or pay greater
benefits under, any Benefit Plan than it otherwise would, or (ii) create or give
rise to any additional vested rights or service credits under any Benefit Plan.
(d) No Additional Severance. The Company is not a party to any
agreement, nor has the Company established any policy or practice requiring it
to make a payment or provide any other form of compensation or benefit to any
person performing services for the Company upon termination of such services
that would not be payable or provided in the absence of the consummation of the
transactions contemplated by the Transaction Documents.
(e) No Excess Parachute Payments. In connection with the
consummation of the transaction contemplated by the Transaction Documents, no
payments have or will be made under the Benefit Plans.
3.16 INVESTMENT COMPANY ACT.
The Company is not an "investment company" or a company "controlled" by
an "investment company," within the meaning of the Investment Company Act of
1940, as amended.
3.17 PUBLIC UTILITY HOLDING COMPANY ACT.
The Company is not a "holding company," or a "subsidiary company" of a
"holding company," or an "affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company," or a "public utility" within the meaning of the
Public Utility Holding Company Act of 1935, as amended.
3.18 NO RESTRICTIONS ON AFFILIATES.
The Company is not a party to any agreement that would purport to
impose restrictions or limitations on the Investors or any of their Affiliates.
16
3.19 CAPITALIZATION.
The authorized capital stock of the Company consists of (i) 40,000,000
shares of Common Stock of which 14,064,077 shares are issued and outstanding as
of the date hereof and an additional 1,456,037 shares are reserved for issuance
under the Incentive Plan of the Company, 216,120 shares are reserved for
issuance pursuant to other outstanding options and 3,010,189 shares are reserved
for issuance upon exercise of rights of purchase represented by the warrants
listed on Schedule 3.19, 1,052,632 shares are reserved for issuance upon
conversion of the Shares and 252,632 shares are reserved for issuance upon
conversion of the Warrants and (ii) 10,000,000 shares of Preferred Stock, par
value $0.01, of which 60,000 shares of Series B Convertible Preferred Stock are
authorized for issuance and of which the Shares will be issued and outstanding
at the Closing and no other shares of Preferred Stock will be issued and
outstanding as of the Closing Date (after giving effect to the transactions
contemplated by the Transaction Documents). Schedule 3.19 sets forth the name
and address of each person known to the Company to be the beneficial owner of 5%
or more of the outstanding shares of Common Stock. Except as set forth on
Schedule 3.19, there are no outstanding subscriptions, warrants, options, calls,
commitments or other rights to purchase or acquire, or securities convertible
into or exchangeable for, any Capital Stock of the Company. All of the
outstanding shares of Common Stock are validly issued, fully paid and
nonassessable. There have been reserved for issuance, and the Company shall at
all times keep reserved, out of the authorized and unissued shares of the
Company's Common Stock, a number of shares sufficient to provide for the
conversion of the Shares and the exercise of the rights of purchase represented
by the Warrants, and such shares, when issued upon conversion in accordance with
the terms of the Series B Convertible Preferred Stock or upon receipt of payment
therefor or upon a net exercise in accordance with the terms of the Warrants and
the Warrant Agreement, will be legally and validly issued, fully paid and
nonassessable and will be free of any preemptive rights of shareholders.
3.20 SUBSIDIARIES.
Except as set forth in Schedule 3.20, the Company does not own any
subsidiaries and does not own, directly or indirectly, any interest or
investment in any Person, other than interests under any joint operating
agreement of oil and gas property that expressly provides the relationship of
the parties created by such agreement is not intended to render the parties
thereto liable as partners.
3.21 ENVIRONMENTAL MATTERS.
Except as set forth on Schedule 3.21:
(a) the properties and operations of the Company have not
violated and are not in violation of any Environmental Laws or any order or
requirement of any court or Governmental Authority to the extent pertaining to
health or the environment, except where a violation would not have a Material
Adverse Effect, nor are there any conditions existing on such property or
resulting from operations thereon that may give rise to any on-site or off-site
remedial obligations under any Environmental Law, except for any condition that
would not have a Material Adverse Effect;
17
(b) without limitation of Section 3.21(a) above, the Company
is not subject to any pending or, to the knowledge of the Company, threatened
action, suit, investigation, inquiry or proceeding by or before any court or
Governmental Authority under any Environmental Law;
(c) except as would not have a Material Adverse Effect, (i)
all notices, Permits, licenses or similar authorizations, if any, required to be
obtained or filed by the Company under any Environmental Law, including without
limitation those relating to the treatment, storage, disposal or release of any
Hazardous Material into the environment, have been duly obtained or filed, and
(ii) the Company has complied and is in compliance with the terms and conditions
of all such notices, Permits, licenses and similar authorizations;
(d) except as would not have a Material Adverse Effect, (i)
all Hazardous Materials generated by or as a result of operations on properties
owned by the Company and requiring disposal have been transported only by
carriers maintaining valid authorizations under applicable Environmental Laws
and treated and disposed of only at treatment, storage and disposal facilities
maintaining valid authorizations under applicable Environmental Laws and (ii)
such carriers and facilities have been and are operating in compliance with such
authorizations and are not the subject of any pending or threatened action
investigation or inquiry by any Governmental Authority in connection with any
Environmental Laws;
(e) except as would not have a Material Adverse Effect, (i)
there are no asbestos-containing materials on or in any property owned or used
by the Company and (ii) there are no storage tanks or similar containers on or
under any such properties from which Hazardous Materials may be released into
the surrounding environment;
(f) without limiting the foregoing, there is no material
liability of the Company (accrued or contingent) to any non-governmental third
party in tort or under common law or under Environmental Laws in connection with
any release or threatened release of any Hazardous Material into the environment
as a result of operations conducted on its properties; and
(g) Schedule 3.21 separately lists for the Company any and all
existing liabilities (whether accrued, absolute, contingent, unliquidated or
otherwise), including any investigatory, remedial or corrective obligations in
which there is a possible uninsured loss greater than $250,000 or $500,000 in
the aggregate against or affecting it and relating to the release, discharge or
emission of any Hazardous Material, or to the generation, treatment, storage or
disposal of any wastes, or otherwise relating to the protection of the
environment or to the non-compliance with any notices, Permits, licenses,
consent decrees or other authorizations and the disposition of each such
liability. With respect to each such pending or prior matter, Schedule 3.21
hereto lists the date of such liability, the claimant or investigating agency,
the nature and a brief description of the matter, the damages claimed or relief
sought, and the status or outcome of the matter. Except as set forth on Schedule
3.21, the Company has not received any written notice that it is a potentially
responsible party under any Environmental Laws.
18
3.22 INTELLECTUAL PROPERTY AND OTHER INTANGIBLE ASSETS.
The Company (i) owns or has the right to use, free and clear of all
Liens, all patents, trademarks, service marks, trade names and copyrights, and
all applications, licenses and rights with respect to the foregoing, and all
trade secrets, including know-how, inventions, designs, processes, works of
authorship, computer programs, and technical data and information (collectively,
"Intellectual Property") used and sufficient for use in the conduct of its
business as now conducted without infringing upon or violating any right, Lien,
or claim of others, and (ii) except as described on Schedule 3.22, is not
obligated or under any liability whatsoever to make any payments by way of
royalties, fees, or otherwise to any owner or licensee of, or other claimant to,
any patent, trademark, service xxxx, trade name, copyright, or other intangible
asset, with respect to the use thereof or in connection with the conduct of its
business or otherwise, except for such failures to have the right to use such
obligations and not have a Material Adverse Effect.
3.23 NO PUBLIC OFFER.
Neither the Company nor anyone acting on its behalf has offered to any
Person securities of the Company, or any part thereof, or any instruments
convertible, exercisable or exchangeable into such securities, or has solicited
from, or otherwise approached or negotiated in respect thereof with, any Person
other than the Investors and not more than 25 institutional investors any offer
to acquire the same, in a manner, or taken or failed to take any other action,
so as to make the transactions contemplated by this Agreement subject to the
registration requirements of Section 5 of the Securities Act.
3.24 INSURANCE.
The Company maintains property, casualty, general liability and other
insurance policies with coverage limits in amounts and with carriers as in each
case are customary in accordance with sound business practices and which the
Company believes are adequate in the circumstances. The Company has previously
provided, or made available to the Investors true and complete copies of all of
the Company's insurance policies. The Company has given in a timely manner to
its insurers all notices required to be given under such insurance policies with
respect to all material claims and actions covered by insurance, and no insurer
has denied coverage of any such claims or actions or reserved its rights in
respect of or rejected any of such claims. The Company has not received any
notice or other communication from any such insurer canceling or materially
amending any of such insurance policies, and no such cancellation is pending or
threatened.
3.25 CERTAIN TRANSACTIONS.
Except as set forth on Schedule 3.25, (a) the Company is not indebted
directly or indirectly to any of its officers, directors or shareholders or to
their respective spouses or children in any amount whatsoever, (b) none of such
officers, directors or shareholders, or any members of their immediate families,
are indebted to the Company or have any direct or indirect ownership interest in
any Person with which the Company has a business relationship (other than
ownership interests of less than 5% in a publicly traded company), or any Person
that competes
19
with the Company (other than ownership interests of less than 5% in a publicly
traded competitor), and (c) no officer, director or 10% shareholder, or any
member of his immediate family, has a direct or material indirect financial
interest in any material contract with the Company other than employment
arrangements and benefit plans.
3.26 USE OF PROCEEDS.
All proceeds from the issuance of the Purchased Securities will be used
by the Company only in accordance with the recitals of this Agreement.
3.27 PLUGGING AND ABANDONMENT OBLIGATIONS.
Except as set forth on Schedule 3.27 and as would not have a Material
Adverse Effect, there is no well located upon any property owned by the Company
that the Company is currently in default on an obligation imposed by law or
contract to plug and abandon.
3.28 NO MATERIAL MISSTATEMENTS OR OMISSIONS.
None of the Transaction Documents contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
herein or therein not misleading, in view of the circumstances in which they
were made (provided that the Company makes no representation or warranty as to
any representations or warranties made by any Person other than the Company or
its Subsidiaries in any Transaction Document). To the knowledge of the Company,
there is no fact or information relating to the business, prospects, condition
(financial or otherwise), affairs, operations or assets of the Company that has
not been disclosed to the Investors in writing by the Company which could result
in a Material Adverse Effect, including, without limitation, through disclosure
in the SEC Documents. The financial statements and other related financial data
(excluding all projections and pro forma financial data) and reserve reports
furnished to the Investors by or at the direction of the Company in connection
with the negotiation of this Agreement do not contain any material misstatement
of fact and, when considered with all other written statements furnished to the
Investors in that connection, such financial statements, related financial data
(excluding all projections and pro forma financial data) and reserve reports do
not omit to state a material fact or any fact necessary to make the statement
contained therein not misleading. The circumstances and events that are not
required to be identified on the Schedules hereto by reason of the materiality
qualifications contained in the representations and warranties in this Article
III, or which are otherwise within such qualifications, in the aggregate do not
have, and could not reasonably be expected to have, a Material Adverse Effect on
the Company when taken in the context of all of the assets, obligations and
operations of the Company.
3.29 FEES AND COMMISSIONS.
Except as set forth on Schedule 3.29, the Company has not retained, nor
are any fees due from the Company to, any intermediary retained by such party,
any finder, broker, agent, financial advisor, or other intermediary, in
connection with the transactions contemplated by the Transaction Documents.
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3.30 PROJECTIONS.
The Projections have been prepared in good faith based upon material
assumptions that were reasonable at the time the Projections were prepared and
as of the Closing Date; provided that, notwithstanding any other provisions
hereof, it is recognized by the Investors that the Projections and any reserve
report delivered in connection with this Agreement as they relate to future
events are not to be viewed as fact and that the actual results during the
period or periods covered by the Projections or reserve reports may differ from
the projected results set forth therein by a material amount; and, without
limiting the generality of the foregoing, no representation or warranty is made
as to future prices of hydrocarbons or as to the timing or results of future
exploration or production operations, other than the representation that the
assumptions relating thereto were reasonable.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF INVESTORS
4.1 REPRESENTATIONS AND WARRANTIES OF EACH INVESTOR.
Each Investor represents and warrants to the Company, severally and not
jointly, as of the date hereof as follows:
(a) Purchase for its Own Account. Such Investor is purchasing
the Purchased Securities for its own account, without a view to the distribution
thereof in violation of the Securities Act, all without prejudice, however, to
the right of such Investor at any time, in accordance with this Agreement or the
Transaction Documents, lawfully to sell or otherwise to dispose of all or any of
the Purchased Securities, Underlying Shares and Warrant Shares held by it.
(b) Accredited Investor. Such Investor is an "accredited
investor" within the meaning of Regulation D under the Securities Act.
(c) Authority, Etc. Such Investor has the power and authority
to enter into and perform this Agreement and the execution and performance
hereof have been duly authorized by all proper and necessary action; this
Agreement constitutes the valid and legally binding obligation of such Investor,
enforceable against it in accordance with its terms, except as limited by
bankruptcy, insolvency or other similar laws now or hereafter in effect
affecting the enforcement of creditors' rights and the application of equitable
principles.
(d) Securities Act Compliance. Such Investor understands that
the Company has not registered the Restricted Securities under the Securities
Act, and each Investor agrees that the Restricted Securities, may not be sold or
transferred or offered for sale or transfer by it without registration under the
Securities Act or the availability of an exemption therefrom, all as more fully
provided in Article VI hereof. Such Investor understands that any transfer agent
of the Company will be issued stop-transfer restrictions with respect to the
Restricted Securities unless such transfer is subsequently registered under the
Securities Act and applicable state and other securities laws or unless an
exemption from such registration is available. Such Investor has experience in
analyzing and investing in entities like the Company, such Investor can bear
21
the economic risk of its investment, including the full loss of its investment,
and by reason of its business or financial experience or the business or
financial experience of its professional advisors has the capacity to evaluate
the merits and risks of its investment and protect its own interest in
connection with the purchase of the Restricted Securities from the Company at
the Closing. Such Investor has received copies of the SEC Documents. Such
Investor has had a reasonable opportunity to ask questions relating to and
otherwise discuss the terms and conditions of the offering and the other
information set forth in the SEC Documents and the Company's business,
management and financial affairs with the Company's management, customers and
other parties, and such Investor has received satisfactory responses to its
inquiries. Such Investor does not have any contract, undertaking, agreement or
arrangements with any Person to sell, transfer or grant a participation to such
Person or to any third Person, with respect to any of the Restricted Securities
in violation of the Federal or any state securities laws.
ARTICLE V
CONDITIONS TO PURCHASE
5.1 CONDITIONS TO OBLIGATIONS OF INVESTORS ON THE CLOSING DATE.
The obligations of the Investors to purchase the Purchased Securities
hereunder are subject to the satisfaction of the following conditions:
(a) Transaction Documents. The Investors shall have received,
in form and substance satisfactory to them and their counsel, a duly executed
copy of each of the Transaction Documents, together with such additional
documents, instruments, certificates as the Investors and their counsel shall
reasonably require in connection therewith, including those listed in the
Schedule of Documents attached hereto as Annex A and incorporated herein, each
in form and substance satisfactory to the Investors and their counsel.
(b) No Litigation. There shall exist no actions, suits or
proceedings at law or in equity by or before any Governmental Authority now
pending or threatened against or affecting the Company or its business, assets
or rights which involve any of the transactions contemplated by the Transaction
Documents.
(c) Payment of Fees and Expenses. All fees and expenses owing
by the Company to the Investors under the terms of any Transaction Document or
any other document executed in connection herewith or therewith shall have been
paid to the Investors or other party to which owed on the Closing Date. The
counsel for the Investors shall have received payment in full to the extent
invoiced for all reasonable legal fees, and all costs and expenses incurred, by
such counsel through the Closing Date in connection with the transactions
contemplated under the Transaction Documents and instruments in connection
therewith.
(d) Requisite Approvals. The Company shall have obtained
copies of all required governmental and other consents, licenses, Permits and
approvals relating to the transactions contemplated by the Transaction
Documents, which consents, licenses, Permits and approvals shall be in form and
substance acceptable to Investors and its counsel.
22
(e) Representations and Warranties; Performance of Covenants.
The representations and warranties of the Company contained in each Transaction
Document and in any certificate or other instrument delivered pursuant to any of
the foregoing shall be correct in all material respects as though made on and as
of the Closing Date. The Company shall have satisfied each of the conditions
precedent set forth therein on and as of the Closing Date.
(f) Legal Matters. All matters relating to the Transaction
Documents and the transactions contemplated thereby shall be reasonably
satisfactory to the Investors and their counsel.
ARTICLE VI
TRANSFER OF SECURITIES
6.1 RESTRICTION ON TRANSFER.
The Restricted Securities shall not be transferable except a holder of
Restricted Securities may transfer such Restricted Securities upon the
conditions specified in this Article VI, which conditions are intended to ensure
compliance with the provisions of the Securities Act in respect of the transfer
thereof; provided, however, that any such transfer shall be subject to the
restrictions contained in the Warrant Agreement and the 2002 Shareholders
Agreement and any transferee, by acceptance of the Restricted Securities, will
be deemed to have agreed to be bound by and entitled to the benefits of Section
7.14.
6.2 RESTRICTIVE LEGENDS.
Each certificate for the Restricted Securities, and each certificate
for any such securities issued to subsequent transferees of any such certificate
shall (unless otherwise permitted by the provisions of Section 6.3 hereof) be
stamped or otherwise imprinted with a legend in substantially the following
form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES OR BLUE SKY LAWS.
THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED
IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM UNDER SAID ACT OR
APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
ADDITIONALLY, THE TRANSFER OF THESE SECURITIES
IS SUBJECT TO THE CONDITIONS SPECIFIED IN THE
SECURITIES PURCHASE AGREEMENT DATED AS OF
FEBRUARY 20, 2002, AMONG THE ISSUER HEREOF AND
CERTAIN OTHER SIGNATORIES THERETO, AND NO
TRANSFER OF THESE SECURITIES SHALL BE VALID OR
EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN
FULFILLED. UPON THE FULFILLMENT OF CERTAIN OF
23
SUCH CONDITIONS, THE ISSUER HEREOF HAS AGREED
TO DELIVER TO THE HOLDER HEREOF A NEW
CERTIFICATE, NOT BEARING THIS LEGEND, FOR THE
SECURITIES REPRESENTED HEREBY REGISTERED IN THE
NAME OF THE HOLDER HEREOF. COPIES OF SUCH
AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN
REQUEST MADE BY THE HOLDER OF RECORD OF THE
CERTIFICATE TO THE SECRETARY OF THE ISSUER
HEREOF."
6.3 NOTICE OF TRANSFER.
(a) Each holder shall, prior to any Transfer of any Restricted
Securities, give five Business Days prior written notice (or, if such five
Business Day notice period is not reasonably practicable, such notice as is
reasonably practicable), to the Company of such holder's intention to effect
such Transfer and to comply in all other respects with the provisions of this
Section 6.3 in making such proposed Transfer. Each such notice shall describe
the manner and circumstances of the proposed Transfer. Upon request by the
Company, the holder delivering such notice shall deliver a written opinion,
addressed to the Company, of counsel for such holder (which may be one of its
internal counsels), stating that in the opinion of such counsel (which opinion
must be reasonably satisfactory to the Company) such proposed Transfer does not
involve a transaction requiring registration of such Restricted Securities under
the Securities Act. Such holder shall thereupon be entitled to Transfer the
Restricted Securities in accordance with the terms of the notice delivered to
the Company, if the Company does not reasonably object to such Transfer and
request such opinion, within five days after delivery of such notice or, if the
Company does request such opinion, upon its receipt thereof. Each certificate or
other instrument evidencing the securities issued upon the Transfer of any
Restricted Securities (and each certificate or other instrument evidencing any
untransferred balance of such Restricted Securities) shall bear the legend set
forth in Section 6.2 above unless (i) such opinion of counsel is to the effect
that registration of any future Transfer is not required by the applicable
provisions of the Securities Act or (ii) the Company shall have waived the
requirement of such legend.
(b) Notwithstanding the foregoing provisions of this Section
6.3, the restrictions imposed by Section 6.3(a) upon the transferability of any
Restricted Securities shall cease and terminate when (i) such Restricted
Securities are sold or otherwise disposed of pursuant to an effective
registration statement under the Securities Act or as otherwise contemplated by
paragraph (a) above in a manner that does not require that the Restricted
Securities so transferred continue to bear the legend set forth in Section 6.2
above or (ii) the holder of such Restricted Securities has met the requirements
for Transfer of such Restricted Securities under Rule 144(k). Whenever the
restrictions imposed by this Section shall terminate, upon the written request
of the holder of any Restricted Securities as to which such restrictions have
terminated, as promptly as practicable but in any event within ten Business Days
of receipt of such request, the Company shall, without charge, issue, register
and deliver a new instrument not bearing the restrictive legend set forth in
Section 6.2 above and not containing any other reference to the restrictions
imposed by this Section.
24
ARTICLE VII
MISCELLANEOUS
7.1 NOTICES.
All notices, demands and requests of any kind to be delivered to any
party hereto in connection with this Agreement shall be (a) delivered
personally, (b) sent by nationally-recognized overnight courier, (c) sent by
first class, registered or certified mail, return receipt requested or (d) sent
by facsimile, in each case to such party at its address as follows:
(i) if to the Company, to:
Carrizo Oil & Gas, Inc.
00000 Xx. Xxxx'x Xxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
Attention: Chief Financial Officer
Telephone No.: (000) 000-0000
Telecopier No.: (000) 000-0000
with a copy to:
Xxxxx Xxxxx L.L.P.
Xxx Xxxxx Xxxxx
000 Xxxxxxxxx
Xxxxxxx, Xxxxx 00000-0000
Attention: Xxxx Xxxxxx, Esq.
Telephone No.: (000) 000-0000
Telecopier No.: (000) 000-0000
(ii) if to any Investor, to such Investor's address set
forth in Schedule 1.1 hereto.
Any notice, demand or request so delivered shall constitute valid
notice under this Agreement and shall be deemed to have been received (A) on the
day of actual delivery in the case of personal delivery, (B) on the next
Business Day after the date when sent in the case of delivery by
nationally-recognized overnight courier, (C) on the fifth Business Day after the
date of deposit in the U.S. mail in the case of mailing or (D) upon receipt in
the case of a facsimile transmission or the next Business Day if such day is not
a Business Day. Any party hereto may from time to time by notice in writing
served upon the other as aforesaid designate a different mailing address or a
different person to which all such notices, demands or requests thereafter are
to be addressed.
7.2 SURVIVAL OF AGREEMENT.
All agreements, representations and warranties contained herein or made
in writing by or on behalf of the Company in connection with the transactions
contemplated hereby shall survive
25
the execution and delivery of this Agreement and the other Transaction Documents
without limit; provided, however, that for purposes of the indemnification
contained in Section 7.5, the representations and warranties set forth in
Article III (other than Sections 3.2, 3.3 and 3.19) shall survive until the
third anniversary of the Closing Date (the "SURVIVAL DATE"). No termination or
cancellation (regardless of cause or procedure) of this Agreement shall in any
way affect or impair the powers, obligations, duties, rights and liabilities of
the parties hereto in any way with respect to any transaction or event occurring
prior to such termination or cancellation, or any of the representations
contained in this Agreement and the other Transaction Documents and all such
undertakings, agreements, covenants, warranties and representations shall
survive such termination or cancellation as provided above. To the fullest
extent allowed by law, the Investors shall be entitled to rely upon, and shall
be deemed to have relied upon, all representations, warranties and covenants to
be performed prior to the Closing Date contained in any Transaction Document,
notwithstanding any knowledge of the Investors to the contrary, or any contrary
information delivered to the Investors by the Company or any other Person.
7.3 SUCCESSORS AND ASSIGNS.
Whenever in this Agreement any of the parties hereto is referred to,
such reference shall be deemed to include the successors and permitted assigns
of such party, and all covenants, promises and agreements by or on behalf of the
Company or the Investors that are contained in the Transaction Document shall
bind and inure to the benefit of their respective successors and permitted
assigns except that the Company shall not assign its rights or obligations
hereunder without the consent of the Required Investors. Each Investor shall
have the right, subject to the provisions of Article VI hereof, to assign or
otherwise transfer its rights under this Agreement (in connection with the
transfer of Restricted Securities) or any Purchased Securities, Underlying
Shares and Warrant Shares held by it.
7.4 EXPENSES OF THE INVESTORS.
The Company shall pay (a) all out-of-pocket expenses reasonably
incurred by the Investors (including, without limitation, the reasonable fees,
charges and disbursements of counsel for the Investors and any auditors,
accountants, appraisers, consultants, advisors and agents employed or retained
by the Investors) in connection with (i) the preparation, execution and delivery
of this Agreement and the other Transaction Documents, (ii) the purchase of the
Purchased Securities hereunder (including the Investors' due diligence
investigation in connection therewith) and (iii) all filings by any Investor
required to be made by the Commission in connection with the transactions
contemplated by the Transaction Documents and (b) all out-of-pocket expenses
incurred by the Investors, including the fees, charges and disbursements of
counsel for the Investors, in connection with the enforcement or protection of
the Investors' rights under the provisions of any Transaction Document provided
that the Investors prevail in any such enforcement proceedings; provided,
however, that the Company shall not be obligated to pay in excess of $75,000 to
by Mellon Ventures, L.P. for expenses incurred by Mellon Ventures, L.P. arising
under subsection (a) above.
26
7.5 INDEMNIFICATION.
(a) In addition to all rights and remedies available to the
Investors at law or in equity, the Company shall indemnify the Investors and
their affiliates, stockholders, officers, directors, employees, agents,
representatives, counsel, successors and permitted assigns (collectively, the
"INDEMNIFIED PERSONS") and save and hold each of them harmless against and pay
on behalf of or reimburse such party as and when incurred for any loss,
liability, demand, claim, action, cause of action, cost, damage, deficiency,
penalty, fine or expense, whether or not arising out of any claims by or on
behalf of the Company or any third party, including interest, penalties,
reasonable attorneys' fees and expenses and all amounts paid in investigation,
defense or settlement of any of the foregoing (collectively, "LOSSES") which any
such party may suffer, sustain or become subject to, to the extent arising out
of or as a result of:
(i) any misrepresentation or breach of a
representation or warranty on the part of the Company under Article III
of this Agreement;
(ii) any nonfulfillment or breach of any covenant or
agreement on the part of the Company under this Agreement or any other
Transaction Document;
(iii) any action, demand, proceeding, investigation
or claim by any third party (including, without limitation,
governmental agencies) against any Indemnified Person that, if
successful, would give rise to or evidence the existence of or relate
to a breach of any of the representations, warranties or covenants of
the Company; and
(iv) any action, demand, proceeding, investigation or
claim by any third party (including, without limitation, governmental
agencies) against any Indemnified Person relating to or arising from
Environmental Laws relating to the Company (including without
limitation relating to or arising from any Hazardous Material regarding
the Company or its Subsidiaries and relating to the Company and its
Subsidiaries or any predecessor thereto or any of the operators,
properties or assets of any of them).
(b) Notwithstanding the foregoing, and subject to the
following part of this sentence, upon judicial determination, which is final and
no longer appealable, that the act or omission giving rise to the
indemnification hereinabove provided resulted primarily out of or was based
primarily upon the Indemnified Person's gross negligence, fraud or willful
misconduct (unless such action was based upon the Indemnified Person's reliance
in good faith upon any of the representations, warranties, covenants or promises
made by the Company in the Transaction Documents) by the Indemnified Person, the
Company shall not be responsible for any Losses sought to be indemnified in
connection therewith, and the Company shall be entitled to recover from the
Indemnified Person all amounts previously paid in full or partial satisfaction
of such indemnity with interest thereon at the rate of 8% per annum, together
with all costs and expenses of the Company reasonably incurred in effecting such
recovery, if any.
(c) All indemnification rights hereunder shall survive the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby
27
without limit, regardless of any investigation, inquiry or examination made for
or on behalf of, or any knowledge of the Investors and/or any of the Indemnified
Persons or the acceptance by the Investors of any certificate or opinion;
provided, however that any Indemnified Person shall be required to assert any
claim for indemnification in respect of Losses to the extent arising out of or
as a result of any representation or warranty referred to in clause (i) or (iii)
of Section 7.5(a) on or prior to the Survival Date, if any, applicable to such
representation or warranty.
(d) The indemnity obligations that the Company has under this
Section 7.5 shall be in addition to any liability that the Company may otherwise
have. The Company further agrees that the indemnification commitment set forth
in this Agreement shall apply whether or not the Indemnified Person is a formal
party to any such lawsuits, claims or other proceedings.
(e) Any indemnification of the Investors or any other
Indemnified Person by the Company pursuant to this Section 7.5 shall be effected
by wire transfer of immediately available funds from the Company to an account
designated by the Investors or any other Indemnified Person within fifteen days
after the determination thereof.
7.6 THIRD PARTY CLAIMS.
(a) If any claim (a "THIRD PARTY CLAIM") is asserted against
an Indemnified Person and such Indemnified Person intends to seek
indemnification hereunder from the Company (the "INDEMNIFYING PERSON"), then
such Indemnified Person shall give notice of the Third Party Claim to the
Indemnifying Person as soon as practicable after the Indemnified Person has
reason to believe that the Indemnifying Person will have an indemnification
obligation with respect to such Third Party Claim and shall provide the
Indemnifying Person with all papers served with respect to such Third Party
Claim. Such notice shall describe in reasonable detail, to the extent known, the
nature of the Third Party Claim, an estimate of the amount of damages
attributable to the Third Party Claim and the basis of the Indemnified Person's
request for indemnification under this Agreement. The failure of the Indemnified
Person to so notify the Indemnifying Person of the Third Party Claim shall not
relieve the Indemnifying Person from any duty to indemnify hereunder unless and
to the extent that the Indemnifying Person demonstrates that the failure of the
Indemnified Person to promptly notify it of such Third Party Claim prejudiced
its ability to defend such Third Party Claim; provided, that the failure of the
Indemnified Person to notify the Indemnifying Person shall not relieve the
Indemnifying Person from any liability which it may have to the Indemnified
Person otherwise than under this Agreement. Thereafter, the Indemnified Person
shall deliver to the Indemnifying Person, within five Business Days after the
Indemnified Person's receipt thereof, copies of all notices and documents
(including court papers) received by the Indemnified Person relating to the
Third Party Claim.
(b) The Indemnifying Person shall have the right to
participate in, or assume control of, and the Indemnifying Person's insurance
carrier shall have the right to participate in, the defense of the Third Party
Claim at its own expense by giving prompt written notice to the Indemnified
Person, using counsel of its choice reasonably acceptable to the Indemnified
Person. If it elects to assume control of the defense of such Third Party Claim,
the Indemnifying Person shall defend such Third Party Claim by promptly and
vigorously prosecuting all appropriate proceedings to a final conclusion or
settlement. After notice from the Indemnifying Person to
28
the Indemnified Person of its election to assume the defense of such Third Party
Claim, the Indemnified Person shall have the right to participate in the defense
of the Third Party Claim using counsel of its choice, but the Indemnifying
Person shall not be liable to the Indemnified Person hereunder for any legal or
other expenses subsequently incurred by the Indemnified Person in connection
with its participation in the defense thereof unless (i) the employment thereof
has been specifically authorized in writing by the Indemnifying Person, (ii) the
Indemnifying Person fails to assume the defense or diligently prosecute the
Third Party Claim or (iii) there shall exist or develop a conflict that would
ethically prohibit counsel to the Indemnifying Person from representing the
Indemnified Person. If requested by the Indemnifying Person, the Indemnified
Person agrees to cooperate with the Indemnifying Person and its counsel in
contesting any Third Party Claim that the Indemnifying Person elects to contest,
including the making of any related counterclaim against the Third Party
asserting the Third Party Claim or any cross-complaint against any Person, in
each case only if and to the extent that any such counterclaim or
cross-complaint arises from the same actions or facts giving rise to the Third
Party Claim. The Indemnifying Person shall have the right, acting in good faith
and with due regard to the interests of the Indemnified Person, to control all
decisions regarding the handling of the defense without the consent of the
Indemnified Person, but shall not have the right to admit liability with respect
to, or compromise, settle or discharge any Third Party Claim or consent to the
entry of any judgment with respect to such Third Party Claim without the consent
of the Indemnified Person, which consent shall not be unreasonably withheld,
unless such settlement, compromise or consent includes an unconditional release
of the Indemnified Person from all liability and obligations arising out of such
Third Party Claim and which would not otherwise adversely affect the Indemnified
Person.
(c) If the Indemnifying Person fails to assume the defense of
a Third Party Claim within thirty (30) days after receipt of written notice of
the Third Party Claim, then the Indemnified Person shall have the right to
defend the Third Party Claim by promptly and vigorously prosecuting all
appropriate proceedings to a final conclusion or settlement. The Indemnifying
Person shall have the right to participate in the defense of the Third Party
Claim using counsel of its choice, but the Indemnified Person shall not be
liable to the Indemnifying Person hereunder for any legal or other expenses
incurred by the Indemnifying Person in connection with its participation in the
defense thereof. If requested by the Indemnified Person, the Indemnifying Person
agrees to cooperate with the Indemnified Person and its counsel in contesting
any Third Party Claim that the Indemnified Person elects to contest, including
the making of any related counterclaim against the Third Party asserting the
Third Party Claim or any cross-complaint against any Person, in each case only
if and to the extent that any such counterclaim or cross-complaint arises from
the same actions or facts giving rise to the Third Party Claim. The Indemnified
Person shall have the right, acting in good faith and with due regard to the
interests of the Indemnifying Person, to control all decisions regarding the
handling of the defense without the consent of the Indemnifying Person, but
shall not have the right to compromise or settle any Third Party Claim or
consent to the entry of any judgment with respect to such Third Party Claim
without the consent of the Indemnifying Person, which consent shall not be
unreasonably withheld, unless such settlement, compromise or consent includes an
unconditional release of the Indemnifying Person from all liability and
obligations arising out of such Third Party Claim.
29
7.7 GOVERNING LAW.
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF
NEW YORK WITHOUT GIVING EFFECT
TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE (WHETHER IN THE STATE OF
NEW
YORK OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF
ANY JURISDICTION OTHER THAN THE STATE OF
NEW YORK.
(b) THE PARTIES TO THIS AGREEMENT AGREE THAT JURISDICTION AND
VENUE IN ANY ACTION BROUGHT BY ANY PARTY HERETO PURSUANT TO THIS AGREEMENT SHALL
LIE IN ANY FEDERAL OR STATE COURT LOCATED IN THE STATE OF
NEW YORK. BY EXECUTION
AND DELIVERY OF THIS AGREEMENT, THE PARTIES HERETO IRREVOCABLY SUBMIT TO THE
NON-EXCLUSIVE JURISDICTION OF SUCH COURTS FOR THEMSELVES AND IN RESPECT OF THEIR
PROPERTY WITH RESPECT TO SUCH ACTION. THE PARTIES HERETO IRREVOCABLY AGREE THAT
VENUE WOULD BE PROPER IN SUCH COURT, AND HEREBY WAIVE ANY OBJECTION THAT SUCH
COURT IS AN IMPROPER OR INCONVENIENT FORUM FOR THE RESOLUTION OF SUCH ACTION.
(c) THE COMPANY HEREBY AGREES THAT SERVICE UPON THEM BY
REGISTERED OR CERTIFIED MAIL (RETURN RECEIPT REQUESTED) SHALL CONSTITUTE
SUFFICIENT NOTICE. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE INVESTORS TO BRING
PROCEEDINGS AGAINST THE COMPANY IN THE COURTS OF ANY OTHER JURISDICTION.
(d) BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX
FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN
EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL
LAWS TO APPLY, THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE
APPLYING SUCH APPLICABLE LAWS. THEREFORE, THE PARTIES HERETO WAIVE ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY
RIGHTS OR REMEDIES UNDER THIS AGREEMENT, THE TRANSACTION DOCUMENTS OR ANY
DOCUMENTS RELATED HERETO.
7.8 WAIVERS; AMENDMENTS.
(a) No failure or delay of the Investors in exercising any
power or right hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. The rights
and remedies of the Investors hereunder are cumulative and not exclusive of any
rights or remedies which they would otherwise have. No waiver of any provision
of this Agreement or any other Transaction Document or consent to any departure
by the Company therefrom shall in any event be effective unless the same shall
be authorized as provided in paragraph (b) below,
30
and then such waiver or consent shall be effective only in the specific instance
and for the purpose for which given. No notice or demand on the Company in any
case shall entitle the Company to any other or further notice or demand in
similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be
waived, amended or modified except pursuant to an agreement or agreements in
writing entered into by the Company and the Required Investors; provided that no
such amendment, waiver or modification shall (i) change any of the provisions of
this Section 7.8 or the definition of "Required Investors" or any other
provision hereof specifying the number or percentage of Investors required to
waive, amend or modify any rights hereunder or make any determination or grant
any consent hereunder, without the written consent of each Investor or (ii)
increase the obligations of any Investor or otherwise disproportionately
adversely affect any of the rights of any Investor under this Agreement, without
the written consent of each Investor affected thereby.
7.9 NO FIDUCIARY RELATIONSHIP.
No provision in this Agreement or in any of the other Transaction
Documents and no course of dealing between the parties shall be deemed to create
any fiduciary duty by the Investors to the Company other than any fiduciary duty
any Investor may have as a member of the Board of Directors of the Company.
7.10 NO DUTY.
All attorneys, accountants, appraisers, and other professional Persons
and consultants retained by the Investors shall have the right to act
exclusively in the interest of the Investors and shall have no duty of
disclosure, duty of loyalty, duty of care, or other duty or obligation of any
type or nature whatsoever to the Company or any of its shareholders or any other
Person.
7.11 CONSTRUCTION.
The Company and the Investors acknowledge that each of them has had the
benefit of legal counsel of its own choice and has been afforded an opportunity
to review this Agreement and the other Transaction Documents with its legal
counsel and that this Agreement and the other Transaction Documents shall be
construed as if jointly drafted by the Investors and the Company.
7.12 SEVERABILITY.
Whenever possible, each provision of this Agreement will be interpreted
in such manner as to be effective and valid under Applicable Law, but if any
provision of this Agreement is to be invalid, illegal or unenforceable in any
respect under any Applicable Law in any jurisdiction, such invalidity,
illegality or unenforceability will not affect any other provision or any other
jurisdiction, and such invalid, void or otherwise unenforceable provisions shall
be void. It is the intent of the parties, however, that any invalid, void or
otherwise unenforceable provisions be automatically replaced by other provisions
which are as similar as possible in terms to such invalid, void or otherwise
unenforceable provisions but are valid and enforceable to the fullest extent
permitted by Applicable Law.
31
7.13 COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of
which shall constitute an original but all of which when taken together shall
constitute but one contract.
7.14 CONFIDENTIALITY.
For the purposes of this Section 7.14, "CONFIDENTIAL INFORMATION" means
information delivered to any Investor by or on behalf of the Company or any
Subsidiary in connection with the transactions contemplated by or otherwise
pursuant to this Agreement (including, without limitation, any information
regarding the transactions contemplated hereby provided prior to the Closing
Date), provided that such term does not include information that (a) was
publicly known or otherwise known to such Investor prior to the time of such
disclosure, (b) subsequently becomes publicly known through no act or omission
by any Investor or any Person acting on its behalf, or (c) otherwise becomes
known to any Investor other than through disclosure by the Company or any
Subsidiary. Each Investor will maintain the confidentiality of such Confidential
Information in accordance with procedures adopted by such Investor in good faith
to protect confidential information of third parties delivered to such Investor,
provided that such Investor may deliver or disclose Confidential Information to
(i) its directors, officers, employees, agents, attorneys and affiliates (to the
extent such disclosure reasonably relates to the administration of the
investment represented by the Purchased Securities), (ii) its financial advisors
and other professional advisors who are made aware of the confidential nature of
such information, (iii) any other holder of the Purchased Securities, (iv) any
institutional investor to which any Investor sells or offers to sell the
Purchased Securities or any part thereof or any participation therein (if such
Person has agreed in writing prior to its receipt of such Confidential
Information to be bound by the provisions of this Section 7.14), (v) any Person
from which such Investor offers to purchase any security of the Company (if such
Person has agreed in writing prior to its receipt of such Confidential
Information to be bound by the provisions of this Section 7.14), (vi) any
federal or state regulatory authority having jurisdiction over such Investor,
(vii) the National Association of Insurance Commissioners or any similar
organization, or any nationally recognized rating agency that requires access to
information about its investment portfolio, or (viii) any other Person to which
such delivery or disclosure may be necessary or appropriate (w) to effect
compliance with any law, rule, regulation or order applicable to such Investor,
(x) in response to any subpoena or other legal process or (y) in connection with
any litigation to which such Investor is a party. Each holder of the Purchased
Securities, by its acceptance of the Purchased Securities, will be deemed to
have agreed to be bound by and to be entitled to the benefits of this Section
7.14 as though it were a party to this Agreement. On reasonable request by the
Company in connection with the delivery to any holder of the Purchased
Securities of information required to be delivered to such holder under this
Agreement or requested by such holder (other than a holder that is a party to
this Agreement or its nominee, such holder will enter into an agreement with the
Company embodying the provisions of this Section 7.14.
7.15 HEADINGS.
Article and Section headings and the Table of Contents used herein are
for convenience of reference only and are not to affect the construction of, or
to be taken into consideration in interpreting, this Agreement.
32
7.16 ENTIRE AGREEMENT.
This Agreement and the agreements and documents referred to herein
contain the entire agreement of the parties and supersede any and all prior
agreements among the parties with respect to the subject matter hereof
(including, without limitation, the Term Sheet dated January 29, 2002 between
the Company, Mellon Ventures Inc. and Xxxxxx X. Xxxxxxx.
* * * *
33
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their authorized officers, all as of the day and year first
above written.
COMPANY
CARRIZO OIL & GAS, INC.
By: /s/ XXXXX X. XXXXXX
-----------------------------------
Name: Xxxxx X. Xxxxxx
Title: Chief Financial Officer and
Vice President
INVESTORS
MELLON VENTURES, L.P.
By: MVMA, L.P.,
its General Partner
By: /s/ XXXX X. XXXX
-----------------------------------
Name: Xxxx X. Xxxx
Title: Associate
/s/ XXXXXX X. XXXXXXX
--------------------------------------
Xxxxxx X. Xxxxxxx
34
SCHEDULE 1.1
INVESTORS AND ADDRESSES FOR NOTICES
NUMBER OF SHARES OF SERIES B CONVERTIBLE PURCHASE PRICE OF SERIES B NUMBER OF PURCHASE PRICE
INVESTOR PREFERRED STOCK PURCHASED CONVERTIBLE PREFERRED STOCK WARRANT SHARES OF WARRANTS
-------- ---------------------------------------- --------------------------- -------------- -------------
Mellon Ventures, L.P. 40,000 $3,990,000 168,421 $10,000
Xxxxxx X. Xxxxxxx 20,000 $1,995,000 84,211 $ 5,000
35
