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EXHIBIT 99.3
EXECUTION COPY
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WARRANT AGREEMENT
DATED AS OF DECEMBER 15, 1999
AMONG
CARRIZO OIL & GAS, INC.
AND
THE INITIAL WARRANT HOLDERS
LISTED ON SCHEDULE I HERETO
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TABLE OF CONTENTS
PAGE
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ARTICLE I DEFINITIONS.............................................................................................1
1.1 DEFINITIONS.............................................................................................1
1.2 ACCOUNTING TERMS AND DETERMINATIONS.....................................................................6
ARTICLE II AUTHORIZATION AND ISSUANCE OF WARRANTS; RESERVATION OF WARRANT SHARES..................................7
2.1 AUTHORIZATION AND ISSUANCE OF WARRANTS..................................................................7
2.2 RESERVATION OF WARRANT SHARES...........................................................................7
ARTICLE III FORM; REGISTER; EXCHANGE FOR WARRANTS; TRANSFER.......................................................7
3.1 FORM OF WARRANT; REGISTER...............................................................................7
3.2 EXCHANGE OF WARRANTS FOR WARRANTS.......................................................................8
3.3 TRANSFER OF WARRANT.....................................................................................8
3.4 TRANSFER; LEGENDS.......................................................................................9
ARTICLE IV EXERCISE OF WARRANT; EXCHANGE FOR WARRANT SHARES.......................................................9
4.1 EXERCISE OF WARRANTS....................................................................................9
4.2 EXCHANGE FOR WARRANT SHARES.............................................................................9
4.3 ISSUANCE OF COMMON STOCK................................................................................9
ARTICLE V ADJUSTMENT OF EXERCISE PRICE AND SHARES................................................................12
5.1 GENERAL................................................................................................12
5.2 STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS.........................................................12
5.3 ISSUANCE OF COMMON STOCK...............................................................................12
5.4 DISTRIBUTION OF EQUITY SECURITIES......................................................................15
5.5 CAPITAL REORGANIZATION, CAPITAL RECLASSIFICATIONS, MERGER, ETC.........................................16
5.6 OTHER ACTIONS AFFECTING COMMON STOCK...................................................................16
5.7 MISCELLANEOUS..........................................................................................17
ARTICLE VI COVENANTS OF THE COMPANY..............................................................................19
6.1 NOTICES OF CERTAIN ACTIONS.............................................................................19
6.2 MERGER OR CONSOLIDATION OF THE COMPANY.................................................................20
ARTICLE VII MISCELLANEOUS........................................................................................20
7.1 NOTICES................................................................................................20
7.2 NO VOTING RIGHTS; LIMITATIONS OF LIABILITY.............................................................21
7.3 AMENDMENTS AND WAIVERS.................................................................................22
7.4 REMEDIES...............................................................................................22
7.5 BINDING EFFECT.........................................................................................22
7.6 COUNTERPARTS...........................................................................................23
7.7 GOVERNING LAW..........................................................................................23
7.8 BENEFITS OF THIS AGREEMENT.............................................................................23
7.9 HEADINGS...............................................................................................23
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SCHEDULE I - Initial Warrant Holders
EXHIBIT A - Registration Rights Agreement
EXHIBIT B - Form of Warrant
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EXECUTION COPY
WARRANT AGREEMENT dated as of
December 15, 1999, among CARRIZO OIL & GAS,
INC., a Texas corporation (the "COMPANY"),
and the initial warrant holders listed on
Schedule I hereto (the "INITIAL HOLDERS").
PREAMBLE
The Company is entering into a Securities Purchase Agreement
dated as of the date hereof with the Initial Holders (the "SECURITIES PURCHASE
AGREEMENT") pursuant to which the Company is issuing to the Initial Holders (i)
$22.0 million aggregate principal amount of its Senior Subordinated Notes due
2007 (the "NOTES"), (ii) 3,636,364 shares of the Company's common stock and
(iii) Warrants (as defined below) to purchase 2,760,189 shares of the Company's
common stock. In order to induce the Initial Holders to enter into the
Securities Purchase Agreement and to purchase the Notes, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company is willing to issue the Warrants to the Initial
Holders. This Agreement sets forth terms and conditions applicable to the
Warrants.
NOW, THEREFORE, the parties to this Agreement hereby agree as
follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS.
As used in this Agreement, the following terms shall have the following
meanings:
"AFFILIATE" means, with respect to any specified Person, any
other Person that directly or indirectly through one or more intermediaries
Controls, is Controlled by or is under common Control with such Person.
"ALLOCABLE NUMBER" has the meaning given to such term in
Section 4.2.
"APPLICABLE LAW" means all provisions of laws, statutes,
ordinances, rules, regulations, permits, certificates or orders of any
Governmental Authority applicable to the Person in question or any of its assets
or property, and all judgments, injunctions, orders and decrees of all courts
and arbitrators in proceedings or actions in which the Person in question is a
party or by which any of its assets or properties are bound.
"ASSIGNMENT FORM" means the assignment form attached as Annex
C to a Warrant.
"BOARD" means the board of directors of the Company.
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"BUSINESS DAY" means any day other than a Saturday, Sunday or
a day on which banks are authorized or required to be closed in New York, New
York or Houston, Texas; provided, however, that any determination of a Business
Day relating to a securities exchange or other securities market means a
Business Day on which such exchange or market is open for trading.
"CLOSING DATE" has the meaning given to such term in the
Securities Purchase Agreement.
"COMMISSION" means the Securities and Exchange Commission (or
a successor thereto).
"COMMON STOCK" means (i) the Common Stock, $.01 par value, of
the Company, and (ii) any other class of capital stock of the Company hereafter
authorized that is not limited to a fixed sum or percentage of par or stated or
liquidation value with respect to the rights of the holders thereof to
participate in dividends or in the distribution of assets upon any liquidation,
dissolution or winding up of the Company.
"COMPANY" has the meaning given to such term in the Preamble.
"COMPLIANCE SIDELETTER" has the meaning given to such term in
the Securities Purchase Agreement.
"CONTROL" means, with respect to any Person, the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of such Person, whether through the ownership of voting
securities, by contract or otherwise.
"CONVERTIBLE SECURITIES" has the meaning given to such term in
Section 5.3(b)(i).
"DELIVERY DATE" has the meaning given to such term in Section
4.3(a).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXCHANGE FORM" means the exchange form attached as Annex B to
a Warrant.
"EXERCISE FORM" means the exercise form attached as Annex A to
a Warrant.
"EXERCISE PRICE" means $2.20 per Warrant Share, subject to
adjustment from time to time in the manner provided in Article V.
"EXPIRATION TIME" means 5:00 p.m., Eastern time, on December
15, 2007.
"FULLY DILUTED BASIS" means, with respect to the Common Stock
at any time of determination, the number of shares of Common Stock that would be
issued and outstanding at such time, assuming full conversion, exercise and
exchange of all issued and outstanding Convertible Securities and Options that
shall be (or may become) exchangeable for, or exercisable or convertible into,
Common Stock, including the Warrants except that the number
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of shares of Common Stock outstanding on a Fully Diluted Basis shall not include
the number of shares of Common Stock issuable upon exercise, conversion or
exchange of Options or Convertible Securities that, at the time of
determination, are Out of the Money.
"GAAP" means generally accepted accounting principles in the
United States of America in effect from time to time.
"GOVERNMENTAL AUTHORITY" means any federal, state, municipal
or other government, governmental department, commission, board, bureau, agency
or instrumentality, or any court, in each case whether of the United States of
America or any political subdivision thereof, or of any other country.
"HOLDER" means with respect to any Warrant, the holder of such
Warrant as set forth in the Warrant Register.
"IRC" has the meaning given to such term in Section 2.2(b).
"MARKET PRICE" means, for any security as of any date of
determination:
(a) if such security is Publicly Traded as of the date of
determination, the price determined by computing the average, over a period
consisting of the most recent four (4) Business Days occurring on or prior to
the date of determination, of the applicable price set forth below (but
excluding any trades or quotations that are not bona fide, arm's length
transactions):
(i) the average of the closing prices for such security
on such Business Day on all domestic national securities exchanges
on which such security may be listed if such exchanges are the
primary securities markets for such security, or
(ii) if there have been no sales on any such exchange on
such Business Day, the average of the highest bid and lowest asked
prices on all such exchanges at the end of such Business Day if such
exchanges are the primary securities markets for such security, or
(iii) if on any Business Day such security is not so
listed, the closing sales price on such Business Day quoted on the
Nasdaq National Market or the Nasdaq Small-Cap Market, as
applicable, or if there have been no sales on the Nasdaq National
Market or the Nasdaq Small-Cap Market, as the case may be, on such
business day, the average of the highest bid and lowest asked prices
quoted on the Nasdaq National Market or the Nasdaq Small-Cap Market,
as the case may be;
(iv) if on any Business Day such security is not quoted
in the Nasdaq National Market or Nasdaq Small-Cap Market, the
average of the highest bid and lowest asked prices on such Business
Day in the domestic over-the-counter market as reported by the
National Quotation Bureau, Incorporated, or any similar successor
organization;
provided, that (1) for the purposes of any determination of the "Market Price"
of any share of a security on any day after the "ex" date or any similar date
for any dividend or distribution paid or to be paid with respect to such
security, any price of such security on a day prior to such "ex"
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date or similar date shall be reduced by the fair market value of the per share
amount of such dividend or distribution as determined in good faith by the Board
of Directors of the Company and (2) for the purposes of any determination of the
"Market Price" of any security on any day after (i) the effective day of any
subdivision (by stock split or otherwise) or combination (by reverse stock split
or otherwise) of outstanding securities or (ii) the "ex" date or any similar
date for any dividend or distribution with respect to such securities in shares
of that security, any price of such security on a day prior to such effective
date or "ex" date or similar date shall be appropriately adjusted to reflect
such subdivision, combination, dividend or distribution; and
(b) if such security is not Publicly Traded as of the date of
determination, (i) in the case of the Common Stock, the Market Value Per Share,
determined in accordance with the Valuation Procedure, and (ii) in the case of
any other security, the fair market value of one share or other applicable unit
of such security, determined in accordance with the Valuation Procedure, except
that if the Market Price of the Common Stock is being determined for purposes of
Section 4.3(c), such determination shall be made in good faith by the Board
exercising reasonable business judgment.
"MARKET VALUE" means the highest price that would be paid for
the entire common equity interest in the Company on a going-concern basis in a
single arm's-length transaction between a willing buyer and a willing seller
(neither acting under compulsion), using valuation techniques then prevailing in
the securities industry and assuming full disclosure of all relevant information
and a reasonable period of time for effectuating such sale. For the purposes of
determining the Market Value, (i) the exercise price of Options to acquire
Common Stock that are not Out of the Money shall be deemed to have been received
by the Company and (ii) the liquidation preference or indebtedness, as the case
may be, represented by Convertible Securities that are not Out of the Money
shall be deemed to have been eliminated or cancelled.
"MARKET VALUE PER SHARE" means the price per share of Common
Stock obtained by dividing (A) the Market Value by (B) the number of shares of
Common Stock outstanding (on a Fully Diluted Basis) at the time of
determination.
"NOTES" has the meaning given to such term in the Preamble.
"OPTIONS" has the meaning given to such term in Section
5.3(b)(i).
"OUT OF THE MONEY" means, at any date of determination (a) in
the case of an Option, that the aggregate fair market value as of such date of
the shares of Common Stock issuable upon the exercise of such Option is less
than the aggregate exercise price payable upon such exercise and (b) in the case
of a Convertible Security, that the quotient resulting from dividing the fair
market value as of such date of such Convertible Security by the number of
shares issuable as of such date upon conversion or exchange of such Convertible
Security is greater than the fair market value of a share of Common Stock.
"PERSON" shall be construed as broadly as possible and shall
include an individual or natural person, a partnership (including a limited
liability partnership), a corporation, an association, joint stock company, a
limited liability company, a trust, a joint venture, an unincorporated
organization and a Governmental Authority.
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"PUBLICLY TRADED" means, with respect to any security, that
such security is (a) listed on a domestic securities exchange, (b) quoted on the
Nasdaq National Market or the Nasdaq Small-Cap Market or (c) traded in the
domestic over-the-counter market, which trades are reported by the National
Quotation Bureau, Incorporated.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement dated as of the date hereof, substantially in the form of Exhibit A
hereto.
"REQUISITE HOLDERS" means, as of any date of determination,
Holders holding Warrants or Warrant Shares representing at least a majority of
the Warrant Shares (i) previously issued or (ii) issuable upon exercise of
Warrants then outstanding.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITIES PURCHASE AGREEMENT" has the meaning given to such
term in the Preamble.
"SHAREHOLDERS AGREEMENT" means the Shareholders Agreement
dated as of the date hereof among the Company and the shareholders of the
Company party thereto.
"SUBSIDIARY" means, with respect to any Person, any other
Person of which more than fifty percent (50%) of the shares of stock or other
interests entitled to vote in the election of directors or comparable Persons
performing similar functions (excluding shares or other interests entitled to
vote only upon the failure to pay dividends thereon or other contingencies) are
at the time owned or controlled, directly or indirectly through one or more
Subsidiaries, by such Person.
"TRANSFER" means any sale, transfer, assignment, or other
disposition of any interest in, with or without consideration, any security,
including any disposition of any security or of any interest therein which would
constitute a sale thereof within the meaning of the Securities Act.
"VALUATION PROCEDURE" means, with respect to the determination
of any amount or value required to be determined in accordance with such
procedure (the "VALUATION AMOUNT"), a determination (which shall be final and
binding on the Company and the Holders) made (i) by agreement among the Company
and the Requisite Holders within thirty (30) days following the event requiring
such determination or (ii) in the absence of such an agreement, by an Appraiser
(as defined below) selected in accordance with the further provisions of this
definition. If the Board and the Requisite Holders are unable to agree upon an
acceptable Appraiser within ten (10) days after the date either party proposed
that one be selected, the Appraiser will be selected by an arbitrator located in
New York City, New York, selected by the American Arbitration Association (or if
such organization ceases to exist, the arbitrator shall be chosen by a court of
competent jurisdiction). The arbitrator shall select the Appraiser (within ten
(10) days of his appointment) from a list, jointly prepared by the Board and the
Requisite Holders, of not more than six Appraisers of national standing in the
United States, of which no more than three may be named by the Board and no more
than three may be named by the Requisite Holders. The arbitrator may consider,
within the ten-day period allotted, arguments from the parties regarding which
Appraiser to choose, but the selection by the arbitrator shall be
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made in its sole discretion from the list of six. The Board and the Requisite
Holders shall submit to the Appraiser their respective determinations of the
valuation amount, and any supporting arguments and other data as they may
desire, within ten (10) days of the appointment of the Appraiser, and the
Appraiser shall as soon as practicable thereafter make its own determination of
the valuation amount. The final valuation amount for purposes hereof shall be
the average of the two valuation amounts closest together, as determined by the
Appraiser, from among the valuation amounts submitted by the Board (the
"COMPANY'S VALUATION") and the Requisite Holders (the "HOLDERS' VALUATION") and
the valuation amount calculated by the Appraiser. The fees and expenses of the
Appraiser and arbitrator (if any) used to determine the valuation amount shall
be (i) paid by the Company if the Company's Valuation is not used to determine
the average in the preceding sentence, (ii) paid by the Holders if the Holders'
Valuation is not used to determine the average in the preceding sentence or
(iii) borne equally by the Company and the Holders if the Company's Valuation
and the Holders' Valuation are both used to determine the average in the
preceding sentence. If required by any Appraiser or arbitrator, the Company
shall execute a retainer and engagement letter containing reasonable terms and
conditions, including, without limitation, customary provisions concerning the
rights of indemnification and contribution by the Company in favor of such
Company or arbitrator and its officers, directors, partners, employees, agents
and Affiliates. As used herein, "APPRAISER" means (a) with respect to a
determination of Market Value or the fair market value of any security, an
investment banking firm and (b) with respect to a determination of other
valuation required hereunder, a firm of the type generally considered to be
qualified in making determinations of the type required.
"WARRANT" has the meaning given to such term in Section
3.1(a).
"WARRANT REGISTER" has the meaning given to such term in
Section 3.1(b).
"WARRANT SHARES" means (a) the shares of Common Stock issued
or issuable upon exercise of a Warrant in accordance with Section 4.1 or upon
exchange of a Warrant in accordance with Section 4.2, (b) all other securities
or other property issued or issuable upon any such exercise or exchange in
accordance with this Agreement and (c) any securities of the Company distributed
with respect to the securities referred to in the preceding clauses (a) and (b).
As used in this Agreement, the phrase "WARRANT SHARES THEN HELD" by any Holder
or Holders means Warrant Shares held at the time of determination by such Holder
or Holders and Warrant Shares issuable upon exercise of Warrants held at the
time of determination by such Holder or Holders.
1.2 ACCOUNTING TERMS AND DETERMINATIONS.
Except as otherwise may be expressly provided herein, all accounting
terms used herein shall be interpreted, and all financial statements and
certificates and reports as to financial matters required to be delivered to the
Holders hereunder and under the Warrants shall be prepared, in accordance with
GAAP. All calculations made for the purposes of determining compliance with the
terms of this Agreement and the Warrants shall (except as otherwise may be
expressly provided herein) be made by application of GAAP.
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ARTICLE II
AUTHORIZATION AND ISSUANCE OF WARRANTS; RESERVATION OF
WARRANT SHARES
2.1 AUTHORIZATION AND ISSUANCE OF WARRANTS.
The Company has authorized the issuance of the Warrants to the Initial
Holders pursuant to the terms of the Securities Purchase Agreement.
2.2 RESERVATION OF WARRANT SHARES.
The Company has authorized the issuance of such number of shares of
Common Stock as shall be necessary to permit the Company to comply with its
obligations, as of the date hereof, to issue Warrant Shares pursuant to the
Warrants. The Company will at all times have authorized, and reserve and keep
available, free from preemptive or similar rights, for the purpose of enabling
it to satisfy any obligation to issue Warrant Shares upon the exercise or
exchange of each Warrant, the number of authorized but unissued Warrant Shares
issuable upon exercise or exchange of all outstanding Warrants. The Company
shall as promptly as necessary take all actions necessary to ensure that Warrant
Shares shall be duly authorized and, when issued upon exercise or exchange of
any Warrant in accordance with the terms hereof, shall be validly issued, fully
paid and non-assessable, free and clear of all liens, security interests,
charges and other encumbrances or restrictions on sale (except to the extent of
any applicable provisions set forth in this Agreement, the Shareholders'
Agreement and the Registration Rights Agreement) and free and clear of all
preemptive or similar rights.
ARTICLE III
FORM; REGISTER; EXCHANGE FOR WARRANTS; TRANSFER
3.1 FORM OF WARRANT; REGISTER.
(a) Form. Each Warrant issued hereunder shall be in the form of
Exhibit B (each, a "WARRANT") and shall be executed on behalf of the Company by
its Chairman or its Chief Executive Officer and by its Chief Financial Officer,
its Treasurer or its Assistant Treasurer, except that a Warrant need not bear
any legend appearing on the first page of such form from and after such time as
all the restrictions to which such legend relates no longer apply. Upon initial
issuance, each Warrant shall be dated as of the date of signature thereof by the
Company.
(b) Register. Each Warrant issued, exchanged or transferred
hereunder shall be registered in a warrant register (the "WARRANT REGISTER").
The Warrant Register shall set forth the number of each Warrant, the name and
address of the Holder thereof and the original number of Warrant Shares
purchasable upon the exercise thereof. The Warrant Register will be maintained
by the Company and will be available for inspection by any Holder at the
principal office of the Company or such other location as the Company may
designate to the Holders in the manner set forth in Section 8.1. The Company
shall be entitled to treat the Holder of any
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Warrant as the owner in fact thereof for all purposes and shall not be bound to
recognize any equitable or other claim to or interest in such Warrant on the
part of any other Person.
3.2 EXCHANGE OF WARRANTS FOR WARRANTS.
(a) Exchange. The Holder may exchange any Warrant or Warrants
issued hereunder for another Warrant or Warrants of like kind and tenor
representing in the aggregate the right to purchase the same number of Warrant
Shares that could be purchased pursuant to the Warrant or Warrants being so
exchanged. In order to effect an exchange permitted by this Section 3.2, the
Holder shall deliver to the Company such Warrant or Warrants accompanied by a
written request signed by the Holder thereof specifying the number and
denominations of Warrants to be issued in such exchange and the names in which
such Warrants are to be issued. As promptly as practicable but in any event
within ten (10) Business Days of receipt of such a request, the Company shall,
without charge, issue, register and deliver to the Holder thereof each Warrant
to be issued in such exchange.
(b) Replacement. Upon receipt of evidence reasonably
satisfactory to the Company (an affidavit of the Holder being satisfactory) of
the ownership and the loss, theft, destruction or mutilation of any Warrant, and
in the case of any such loss, theft or destruction, upon receipt of an indemnity
reasonably satisfactory to the Company (if the Holder is a financial institution
or other institutional investor, its own agreement being satisfactory) or, in
the case of any such mutilation, upon surrender of such Warrant, the Company
shall, without charge, issue register and deliver in lieu of such Warrant a new
Warrant of like kind representing the same rights represented by and dated the
date of such lost, stolen, destroyed or mutilated Warrant. Any such new Warrant
shall constitute an original contractual obligation of the Company, whether or
not the allegedly lost, stolen, mutilated or destroyed Warrant shall be at any
time enforceable by any Person.
(c) Expenses. The Company shall pay all expenses and taxes
(other than any applicable income or similar taxes payable by a Holder of a
Warrant) attributable to an exchange of a Warrant pursuant to this Section 3.2;
provided, however, that the Company shall not be required to pay any tax that
may be payable in respect of any transfer involved in the issuance of any
Warrant in a name other than that of the Holder of the Warrant being exchanged.
3.3 TRANSFER OF WARRANT.
Subject to the provisions of the Securities Purchase Agreement
(including, without limitation, Section 10 thereof), each Warrant may be
transferred, in whole or in part, to an "accredited investor", as such term is
defined in Rule 501(a) promulgated pursuant to the Securities Act, by the Holder
thereof by delivering to the Company such Warrant accompanied by a properly
completed, duly executed, Assignment Form; provided, however, that no Warrant
may be transferred to a Competitor (as defined in the Shareholders Agreement).
As promptly as practicable but in any event within ten (10) Business Days of
receipt of such Assignment Form, the Company shall, without charge, issue,
register and deliver to the Holder thereof a new Warrant or Warrants of like
kind and tenor representing in the aggregate the right to purchase the same
number of Warrant Shares that could be purchased pursuant to the Warrant being
transferred. In all cases of transfer by an attorney, the original power of
attorney, duly approved,
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or a copy thereof, duly certified, shall be deposited and remain with the
Company. In case of transfer by executors, administrators, guardians or other
legal representatives, duly authenticated evidence of their authority shall be
produced and may be required to be deposited and remain with the Company in its
discretion. The Company shall not be liable for complying with a request by a
fiduciary or nominee of a fiduciary to register a transfer of any Warrant which
is registered in the name of such fiduciary or nominee, unless made with the
actual knowledge that such fiduciary or nominee is committing a breach of trust
in requesting such registration of transfer, or with knowledge of such facts
that the Company's participation therein amounts to bad faith.
3.4 TRANSFER; LEGENDS.
The provisions of Article X of the Purchase Agreement shall apply to
the Warrants and the Warrant Shares.
ARTICLE IV
EXERCISE OF WARRANT; EXCHANGE FOR WARRANT SHARES
4.1 EXERCISE OF WARRANTS.
On any Business Day on or prior to the Expiration Time, a Holder may
exercise a Warrant, in whole or in part, by delivering to the Company such
Warrant accompanied by a properly completed Exercise Form and a certified or
bank check or wire transfer in an aggregate amount equal to the product obtained
by multiplying (a) the Exercise Price times (b) the number of Warrant Shares
being purchased. Any partial exercise of a Warrant shall be for a whole number
of Warrant Shares only.
4.2 EXCHANGE FOR WARRANT SHARES.
On any Business Day on or prior to the Expiration Time, a Holder may
exchange a Warrant, in whole or in part, for Warrant Shares by delivering to the
Company such Warrant accompanied by a properly completed Exchange Form. The
number of shares of Common Stock to be received by a Holder upon such exchange
shall be equal to (a) the number of Warrant Shares allocable to the portion of
the Warrant being exchanged (the "ALLOCABLE NUMBER"), as specified by such
Holder in the Exchange Form less (b) the number of shares equal to the quotient
obtained by dividing (i) the product obtained by multiplying (A) the Exercise
Price times (B) the Allocable Number by (ii) the Market Price as of the Delivery
Date (as defined below). The Allocable Number need not be a whole number, but in
the case of any partial exchange of a Warrant under this Section 4.2, the
Allocable Number shall be determined so that the number of Warrant Shares to be
issued in such exchange shall be a whole number only.
4.3 ISSUANCE OF COMMON STOCK.
(a) Issuance of Common Stock. As promptly as practicable but in
any event within ten (10) Business Days following the delivery date (the
"DELIVERY DATE") of (i) an Exercise Form or Exchange Form in accordance with
Section 4.1 or 4.2, (ii) the related Warrant and (iii) any required payment of
the Exercise Price, the Company shall, without charge, issue,
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register and deliver one or more stock certificates representing the aggregate
number of shares of Common Stock to which the Holder of such Warrant is entitled
and, upon compliance with the applicable provisions of this Warrant Agreement
and the Securities Purchase Agreement, transfer to such Holder appropriate
evidence of ownership of other securities or property (including any cash) to
which such Holder is entitled, in such denominations, and registered or
otherwise placed in, or payable to the order of, such name or names, as may be
directed in writing by such Holder. The Company shall deliver such stock
certificates, evidence of ownership and any other securities or property
(including any cash) to the Person or Persons entitled to receive the same,
together with an amount in cash in lieu of any fraction of a share (or
fractional interest in any other security), as hereinafter provided.
(b) Partial Exercise or Exchange. If a Holder shall exercise or
exchange a Warrant for less than all of the Warrant Shares that could be
purchased or received thereunder, the Company shall issue, register and deliver
to the Holder, as promptly as practicable but in any event within ten (10)
Business Days of the Delivery Date, a new Warrant evidencing the right to
purchase the remaining Warrant Shares. In the case of an exchange pursuant to
Section 4.2, the number of remaining Warrant Shares shall be the original number
of Warrant Shares subject to the Warrant so exchanged reduced by the Allocable
Number. Each Warrant surrendered pursuant to Section 4.1 or 4.2 shall be
canceled.
(c) Fractional Shares. The Company shall not be required to
issue fractional shares of Common Stock or fractional units of any other
security upon the exercise or exchange of a Warrant. If any fraction of a share
of Common Stock or fractional unit of any other security would be issuable on
the exercise or exchange of any Warrant, the Company may, in lieu of issuing
such fractional share or unit, pay to such Holder for any such fraction an
amount in cash equal to the product obtained by multiplying (i) such fraction
times (ii) the Market Price for the Common Stock or for a unit of such other
security, as the case may be, as of the Delivery Date.
(d) Expenses. The Company shall pay all expenses and taxes
(other than any applicable income or similar taxes payable by a Holder of a
Warrant) attributable to the initial issuance of Warrant Shares upon the
exercise or exchange of a Warrant; provided, however, that the Company shall not
be required to pay any tax that may be payable in respect of any transfer
involved in the issuance of any Warrant or any certificate for, or any other
evidence of ownership of, Warrant Shares in a name other than that of the Holder
of the Warrant being exercised or exchanged.
(e) Record Ownership. To the extent permitted by Applicable Law,
the Person in whose name any certificate for shares of Common Stock or other
evidence of ownership of any other security is issued upon exercise or exchange
of a Warrant shall for all purposes be deemed to have become the holder of
record of such shares or other security on the Delivery Date, irrespective of
the date of delivery of such certificate or other evidence of ownership
(subject, in the case of any exercise to which Section 4.3(h) applies, to the
consummation of a transaction upon which such exercise is conditioned),
notwithstanding that the transfer books of the Company shall then be closed or
that such certificates or other evidence of ownership shall not then actually
have been delivered to such Person.
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14
(f) Approvals. If any securities constituting Warrant Shares or
any portion thereof to be issued upon exercise or exchange of a Warrant require
registration or approval under any Applicable Law or require listing on any
national securities exchange or quotation systems before such securities may be
so issued, the Company will as expeditiously as possible cause such securities
to be registered, approved or listed, as applicable. The Company may suspend the
exercise of any Warrant so affected for the period during which such
registration, approval or listing is required but not in effect.
(g) Quotation. The Company shall have the Warrant Shares listed
for quotation on The Nasdaq National Market on or before the Closing Date, and
the Company will file any and all agreements, forms and other documents,
including, without limitation, the Nasdaq National Market Notification Form for
Listing of Additional Shares and take all other action necessary for the listing
of such shares on or before the Closing Date. The Company shall maintain the
designation or quotation, or listing, of its Common Stock on the Nasdaq National
Market (or on the New York Stock Exchange or the American Stock Exchange) or the
Nasdaq Small-Cap Market (if the Common Stock becomes ineligible for quotation on
the Nasdaq National Market) until the date on which none of the Warrants or
Warrant Shares remain outstanding, unless the Company fails to maintain the
criteria or other standards for such designation, listing or quotation;
provided, however, that the Company shall use its reasonable best efforts to
maintain any such designation, listing or quotation.
(h) Conditional Exercise or Exchange. Any Exercise Form or
Exchange Form delivered under Section 4.1 or 4.2 may condition the exercise or
exchange of any Warrant on the consummation of a transaction being undertaken by
the Company or the Holder of such Warrant, and such exercise or exchange shall
not be deemed to have occurred except concurrently with the consummation of such
transaction, except that, for purposes of determining whether such exercise or
exchange is timely it shall be deemed to have occurred on the Delivery Date. If
any exercise of a Warrant is so conditioned, then, subject to delivery of the
items required by Section 4.3(a) and compliance with the other terms hereof, the
Company shall deliver the certificates and other evidence of ownership of other
securities or other property in such manner as such Holder shall direct as
required in connection with the consummation such transaction upon which the
exercise is conditioned. At any time that such Holder shall give notice to the
Company that such transaction has been abandoned or such Holder has withdrawn
from participation in such transaction, the Company shall return the items
delivered pursuant to Section 4.3(a), and such Holder's election to exercise
such Warrant shall be deemed rescinded.
(i) Regulatory Problem. No Holder shall exercise or exchange any
Warrant for shares of Common Stock if, after giving effect to such exercise,
such Holder reasonably determines that such exercise would cause such Holder and
its Affiliates to have a Regulatory Problem (as defined in the Compliance
Sideletter).
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15
ARTICLE V
ADJUSTMENT OF EXERCISE PRICE AND SHARES.
5.1 GENERAL.
The Exercise Price and the number and kind of Warrant Shares issuable
upon exercise of each Warrant shall be subject to adjustment from time to time
in accordance with this Article V.
5.2 STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS.
If, at any time after the Closing Date, the Company shall:
(i) pay a dividend in shares of Common Stock or make a
distribution in shares of Common Stock; or
(ii) subdivide, split or reclassify its outstanding
shares of Common Stock into a larger number of shares of Common Stock;
or
(iii) combine its outstanding shares of Common Stock
into a smaller number of shares of Common Stock;
then (A) the number of Warrant Shares issuable upon exercise of each Warrant
shall be adjusted so as to equal the number of Warrant Shares that the Holder of
such Warrant would have held immediately after the occurrence of such event if
the Holder had exercised such Warrant immediately prior to the occurrence of
such event and (B) the Exercise Price shall be adjusted to be equal to (x) the
Exercise Price immediately prior to the occurrence of such event multiplied by
(y) a fraction (1) the numerator of which is the number of Warrant Shares
issuable upon exercise of this Warrant immediately prior to the adjustment in
clause (A) and (2) the denominator of which is the number of Warrant Shares
issuable upon exercise of this Warrant immediately after the adjustment in
clause (A). An adjustment made pursuant to this Section 5.2 shall become
effective immediately after the occurrence of such event retroactive to the
record date, if any, for such event.
5.3 ISSUANCE OF COMMON STOCK.
(a) General. If, at any time after the Closing Date, the Company
shall issue or sell (or, in accordance with Section 5.3(b), shall be deemed to
have issued or sold) any shares of Common Stock (other than any issuance for
which an adjustment is made pursuant to Section 5.2 or 5.5) without
consideration or for a consideration per share less than the Market Price for
the Common Stock determined as of the date of such issuance or sale, then,
effective immediately upon such issuance or sale, the Exercise Price and the
number Warrant Shares issuable upon exercise of each Warrant shall be adjusted
as follows:
(i) The Exercise Price shall be reduced to an amount
equal to the product obtained by multiplying (A) the Exercise Price in
effect immediately prior to such issuance or sale times (B) a fraction,
(I) the numerator of which shall be the sum of (x) the product of (1)
the number of shares of Common Stock outstanding (on a Fully
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Diluted Basis) immediately prior to such issuance or sale times (2) the
Market Price for the Common Stock as of the date of such issuance or
sale plus (y) the consideration, if any, received by the Company upon
such issuance or sale, and (II) the denominator of which shall be the
product of (x) the number of shares of Common Stock outstanding (on a
Fully Diluted Basis) immediately after such issuance or sale times (y)
such Market Price.
(ii) The number of Warrant Shares issuable upon exercise
of such Warrant shall be increased to the number of shares determined
by multiplying (A) the number of Warrant Shares issuable upon exercise
of such Warrant immediately prior to such issuance or sale by (B) a
fraction, (1) the numerator of which shall be the Exercise Price in
effect immediately prior to the adjustment in clause (i) of this
Section 5.3(a), and (2) the denominator of which shall be the Exercise
Price in effect immediately after such adjustment.
(b) Issuance of Options or Convertible Securities. The issuance
or sale of Options or Convertible Securities shall be deemed, in accordance with
this Section 5.3(b), to be the issuance of Common Stock.
(i) Definitions. For the purposes of this Section
5.3(b), the term "OPTIONS" means any warrants, options or other rights
to subscribe for or to purchase (A) Common Stock or (B) Convertible
Securities, and the term "CONVERTIBLE SECURITIES" means any capital
stock, evidence of indebtedness or other securities or rights
convertible into or exchangeable for Common Stock.
(ii) Issuance of Options. If the Company in any manner
issues or grants any Options, then the total maximum number of shares
of Common Stock issuable upon the exercise of such Options (or upon
conversion or exchange of the total maximum amount of Convertible
Securities issuable upon the exercise of such Options) shall be deemed,
for purposes of Section 5.3(a), to be outstanding and to have been
issued and sold by the Company. For purposes of Section 5.3(a), the
Common Stock issuable upon exercise of Options or upon conversion or
exchange of Convertible Securities issuable upon exercise of Options
for Convertible Securities shall be deemed to have been issued and sold
at a price per share equal to (A) the sum of (x) the total amount, if
any, received or receivable by the Company as consideration for the
issuance or granting of such Options plus (y) the minimum aggregate
amount of additional consideration payable to the Company upon the
exercise of all such Options plus (z) in the case of such Options for
Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable to the Company upon issuance or sale of
such Convertible Securities and the conversion or exchange thereof
divided by (B) the total maximum number of shares of Common Stock
issuable upon exercise of such Options or upon the conversion or
exchange of all such Convertible Securities issuable upon the exercise
of such Options.
(iii) Issuance of Convertible Securities. If the Company
in any manner issues or sells any Convertible Securities, then the
maximum number of shares of Common Stock issuable upon the conversion
or exchange of such Convertible Securities shall be deemed, for
purposes of Section 5.3(a) to be outstanding and to have been issued
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and sold by the Company. For purposes of Section 5.3(a), the Common
Stock issuable upon conversion or exchange of Convertible Securities
shall be deemed to have been issued and sold at a price per share equal
to (A) the sum of (x) the total amount received or receivable by the
Company as consideration for the issuance or sale of such Convertible
Securities plus (y) the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the conversion or
exchange thereof divided by (B) the total maximum number of shares of
Common Stock issuable upon the conversion or exchange of all such
Convertible Securities.
(iv) Superseding Adjustment. To the extent the Warrants
have not been exercised, if, at any time after any adjustment of the
Exercise Price and the number of Warrant Shares issuable upon exercise
of the Warrants shall have been made pursuant to Section 5.3(a) as a
result of the issuance of Options or Convertible Securities, or after
any new adjustment of the Exercise Price and the number of Warrant
Shares shall have been made pursuant to this Section 5.3(b)(iv) (each
of the foregoing, a "PREVIOUS ADJUSTMENT"):
(A) such Options or the right of conversion or
exchange of such Convertible Securities shall expire, or be
terminated or surrendered, and all or a portion of such
Options or the right of conversion or exchange with respect to
all or a portion of such Convertible Securities, as the case
may be, shall not have been exercised or treated as having
been exercised or otherwise canceled or acquired by the
Company in connection with any settlement, including any cash
settlement, of such Options or the rights of conversion or
exchange of such Convertible Securities; or
(B) there has been any change in the number of shares
of Common Stock issuable upon the exercise of such Options or
upon the conversion or exchange of such Convertible Securities
(including as a result of a change in the number of
Convertible Securities issuable upon the exercise of such
Options or the operation of antidilution provisions applicable
thereto); or
(C) the consideration per share for which shares of
Common Stock are issuable upon the exercise of such Options or
upon the conversion or exchange of such Convertible
Securities, or the maturity of such Convertible Securities,
shall be changed;
then the previous adjustment shall be rescinded and annulled
and the shares of Common Stock which were deemed to have been
issued and that gave rise to the previous adjustment shall no
longer be deemed to have been issued. Thereupon, a
recomputation shall be made of the adjustment, if any, of the
Exercise Price and the number of Warrant Shares issuable upon
exercise of the Warrants as a consequence of such Options or
Convertible Securities on the basis of:
(D) treating the number of shares of Common Stock, if
any, theretofore actually issued or issuable pursuant to the
previous exercise of such Options or such right of conversion
or exchange (including Options or rights
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treated as exercised, otherwise cancelled or acquired in
connection with any settlement), as having been issued on the
date or dates of such issuance as determined for purposes of
the previous adjustment and for the total amount of
consideration actually received and receivable therefor
(determined in the manner described in Section 5.3(b)(ii) or
(iii), as the case may be);
(E) treating the maximum number of shares of Common
Stock (1) issuable upon the exercise (or upon the conversion
or exchange of Convertible Securities issuable upon the
exercise) of all Options which then remain outstanding and (2)
issuable upon the conversion or exchange of all Convertible
Securities which then remain outstanding, as having been
issued; and
(F) making the computations called for in Section
5.3(a) hereof on the basis of the revised terms of such
outstanding Options or Convertible Securities, as the case may
be, as if they were newly issued at the time of such revision.
Any adjustment of the Exercise Price and the number of Warrant Shares issuable
upon exercise of the Warrants resulting from such recomputation shall supersede
the previous adjustment.
(v) No Further Adjustments. Any adjustment of the
Exercise Price or the number of Warrant Shares issuable upon the
exercise of Warrants to be made pursuant to this Section 5.3 with
respect to the issuance of (A) any Options (whether for Common Stock or
Convertible Securities), (B) any Convertible Securities issuable upon
the exercise of such Options or (C) any shares of Common Stock issuable
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities shall be made effective upon the issuance of
such Options. Any adjustment of the Exercise Price or the number of
Warrant Shares issuable upon the exercise of Warrants to be made
pursuant to this Section 5.3 with respect to the issuance of (x) any
Convertible Securities (other than Convertible Securities issuable upon
the exercise of Options) or (y) any shares of Common Stock issuable
upon the conversion or exchange of such Convertible Securities shall be
made effective upon the issuance of such Convertible Securities. No
further adjustment of the Exercise Price or the number of Warrant
Shares issuable upon the exercise of Warrants shall be made upon the
actual issuance of Common Stock or of Convertible Securities upon the
exercise of such Options or upon the actual issuance of Common Stock
upon conversion or exchange of Convertible Securities.
5.4 DISTRIBUTION OF EQUITY SECURITIES.
If, at any time after the Closing Date, the Company shall distribute
any of its equity securities or rights to acquire equity securities (other than
Common Stock or Options) to holders of Common Stock on a pro rata basis, then
the Company shall cause effective provision to be made so that, effective as of
the effective date of such event retroactive to the record date, if any, of such
event, each Warrant shall, upon the basis and upon the terms and conditions
specified in this Warrant, in addition to the Warrant Shares immediately
theretofore purchasable and receivable upon the exercise of this Warrant, be
exercisable for the kind and number of shares or other units of equity
securities or rights to acquire equity securities to which a holder of the
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number of Warrant Shares issuable upon exercise of such Warrant would have been
entitled has such Warrant been exercised immediately prior to the record date of
such event. In any such case, if necessary, the provisions of this Agreement and
the Warrants with respect to the rights and interests thereafter of the Holders
of the Warrants shall be appropriately adjusted so as to be applicable, as
nearly as may reasonably be, to any shares or other units of equity securities
or rights to acquire equity securities thereafter deliverable upon the exercise
of the Warrants.
5.5 CAPITAL REORGANIZATION, CAPITAL RECLASSIFICATIONS, MERGER, ETC.
If, at any time after the Closing Date, there shall be (i) any capital
reorganization or any reclassification of the capital stock of the Company
(other than a change in par value or from par value to no par value or from no
par value to par value or as a result of a stock dividend or subdivision,
split-up or combination of shares to which Section 5.2 applies or any
distribution to which Section 5.4 applies), (ii) any consolidation, merger or
business combination of the Company with another Person or (iii) any sale or
conveyance by the Company of all or substantially all of its assets or property
to, another Person, then in each case the transaction shall be effected in such
a way that holders of the shares of Common Stock shall be entitled to receive
stock, securities or assets (including, without limitation, cash) with respect
to or in exchange for the shares of the Common Stock and the Company shall cause
effective provision to be made so that each Warrant shall, upon the basis and
upon the terms and conditions specified in this Warrant in lieu of the Warrant
Shares immediately theretofore purchasable and receivable upon the exercise of
this Warrant, effective as of the effective date of such event retroactive to
the record date, if any, of such event, be exercisable for the kind and number
of shares of stock, other securities, cash or other property to which a holder
of the number of Warrant Shares issuable upon exercise of such Warrant would
have been entitled upon such event. In any such case, if necessary, the
provisions of this Agreement and the Warrants with respect to the rights and
interests thereafter of the Holders of the Warrants shall be appropriately
adjusted so as to be applicable, as nearly as may reasonably be, to any shares
of stock, other securities, cash or other property thereafter deliverable upon
the exercise of the Warrants.
5.6 OTHER ACTIONS AFFECTING COMMON STOCK.
(a) Equitable Equivalent. If at any time or from time to time
the Company shall take any action affecting its Common Stock, other than any
action of a type otherwise described in this Article V (whether or not such
action of a type otherwise described in this Article V results in an adjustment
to the Warrants), then the number of Warrant Shares issuable upon exercise of
each Warrant shall be adjusted to such extent, if any, and in such manner and at
such time, as the Board shall in good faith determine to be equitable in the
circumstances, provided that no such adjustment shall decrease the number of
Warrant Shares issuable upon exercise of such Warrant and provided, further,
that no adjustment shall be required for any cash dividends paid out of retained
earnings.
(b) No Avoidance. The Company will not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company; provided that
the Company shall not be deemed to be avoiding or seeking to avoid
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observance or performance if any action otherwise in compliance with this
Agreement is structured so as to avoid the need for, or to minimize the extent
of, any adjustment under this Article V. The Company shall at all times in good
faith assist in the carrying out of all the provisions of this Article V and in
the taking of all such action as may be necessary or appropriate in order to
protect the exercise rights of the Holders against impairment.
5.7 MISCELLANEOUS.
(a) Calculation of Consideration Received. If any Common Stock,
Options, Convertible Securities or Other Securities are issued or sold or deemed
to have been issued or sold for cash, then the consideration received therefor
shall be deemed to be the net amount received by the Company therefor. If any
Common Stock, Options, Convertible Securities or Other Securities are issued or
sold for consideration other than cash, then the amount of the consideration
other than cash received by the Company shall be the fair market value of such
consideration, as of the date of receipt, determined in accordance with the
Valuation Procedure.
(b) Treasury Shares. The number of shares of Common Stock
outstanding at any given time does not include shares owned or held by or for
the account of the Company or any Subsidiary, and the disposition of any shares
so owned or held shall be considered an issuance of Common Stock.
(c) Record Date. If the Company takes a record of the holders of
Common Stock for the purpose of entitling them (A) to receive a dividend or
other distribution payable in Common Stock, Options or Convertible Securities or
(B) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date shall be deemed to be the date of the issuance
or sale of the shares of Common Stock deemed to have been issued or sold upon
the declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be. If the Company shall take any such record of the holders of its Common Stock
and shall, thereafter and before the taking of the action for which such record
was taken, legally abandon its plan to take much action, then thereafter no
adjustment shall be required by reason of the taking of such record and any such
adjustment previously made in respect thereof shall be rescinded and annulled.
(d) Deferral of Issuance. In any case in which this Article V
shall require that any adjustment in the number of Warrant Shares purchasable
hereunder or in the Exercise Price be made effective as of immediately after a
record date for a specified event, the Company may elect to defer, until the
occurrence of such event, the issuing to the Holder of any Warrant exercised
after such record date of the shares of Common Stock and other capital stock of
the Company, if any, issuable upon such exercise over and above the number of
shares of Common Stock and other capital stock of the Company, if any, that
would have been issuable upon such exercise on the basis of the Exercise Price
in effect prior to such adjustment. In such case, the Company shall deliver to
the Holder a due xxxx or other appropriate instrument evidencing the Holder's
right to receive such additional shares upon the occurrence of the event
requiring such adjustment.
(e) Notice; Adjustment Rules. Whenever the Exercise Price and
the number of Warrant Shares shall be adjusted as provided in this Article V,
the Company shall provide to
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each Holder a statement, signed by the Chairman, the President or the Chief
Financial Officer of the Company, describing in detail the facts requiring such
adjustment and setting forth a calculation of the Exercise Price and the number
of Warrant Shares applicable to each Warrant after giving effect to such
adjustment. All calculations under this Article V shall be made to the nearest
one hundredth of a cent ($.0001) or to the nearest one-tenth of a share, as the
case may be. Adjustments pursuant to this Article V shall apply to successive
events or transactions of the types covered thereby. Notwithstanding any other
provision of this Article V, no adjustment shall be made to the number of shares
of Common Stock or to the Exercise Price if such adjustment represents less than
1% of the number of shares previously required to be so delivered, but any
lesser adjustment shall be carried forward and shall be made at the time and
together with the next subsequent adjustment which together with any adjustments
so carried forward shall amount to 1% or more of the number of shares to be so
delivered.
(f) Certain Adjustments. The Company may make such reductions in
the Exercise Price or increase in the number of Warrant Shares to be received by
any Holder upon the exercise or exchange of a Warrant, in addition to those
adjustments required by this Article V, as it in its sole discretion shall
determine to be advisable in order that any consolidation or subdivision of the
Common Stock, or any issuance wholly for cash of any shares of Common Stock, or
any issuance wholly for cash of shares of Common Stock or Convertible
Securities, or any stock dividend, or any issuance of Options hereinafter made
by the Company to the holders of its Common Stock shall not be taxable to such
holders.
(g) Excluded Issuances. Notwithstanding any other provision of
this Article V, no adjustment shall be made pursuant to Section 5.3 or 5.5 in
respect of (i) the issuance of Common Stock in an underwritten public offering
that is registered with the Commission, (ii) the issuance of Common Stock or
Options to purchase Common Stock issued to employees, officers or directors of
the Company or any Subsidiary, or the issuance of Common Stock upon the exercise
of any such Options, provided, however, that the aggregate amount of all such
Common Stock or Common Stock which may be acquired upon the exercise of such
Options shall not exceed 1,000,000 shares and equivalents (subject to pro rata
adjustment in the event of any stock dividend or distribution paid in shares of
Common Stock or any stock split or subdivision, reverse stock split or
combination or other similar pro rata recapitalization event affecting the
Common Stock)(other than issuances covered by clause (vi) below or by Section
5.3(b) for which the securities of Common Stock shall be deemed to have been
sold for a consideration per share less than the Market Price for the Common
Stock determined as of the date of the grant of such option (provided that any
options issued pursuant to the Company's stock option or Equity Incentive Plans
which are issued at fair market value in accordance with the terms of such Plan
shall also be deemed to be issued at or greater than Market Price for purposes
of this Section), (iii) the issuance from time to time of shares of Common Stock
upon the exercise of any of the Warrants, (iv) any exercise of the Warrants or
the warrants issued to affiliates of Enron Corp. on January 8, 1998, as amended
through the date hereof, (v) the issuance of Common Stock or Options in any
merger, share exchange, consolidation, liquidation or other business combination
required to be approved and actually approved by the requisite vote (being not
less than a majority based on voting power) of the shareholders of the Company
and (vi) securities issued upon exercise of conversion or exchange rights,
options or subscription calls, warrants, commitments or claims, provided that
the foregoing are issued and outstanding on the date hereof and are listed on
Schedule 4.19 of the Purchase Agreement.
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(h) Par Value. The Company shall not increase the par value of
any shares of Common Stock or other securities issuable upon the exercise of the
Warrants to an amount that exceeds the Exercise Price. Before taking any action
that would cause an adjustment pursuant to this Article V that would reduce the
Exercise Price below the par value per share of the Common Stock, the Company
shall be required to take any corporate action which may be necessary in order
that the Company may validly and legally issue fully paid and nonassessable
Warrant Shares at the Exercise Price as so adjusted.
(i) Shareholder Approval. The Company shall not enter into any
transaction which would result in an adjustment under this Article V that would
cause Warrants to become exercisable for a number of shares equal to or greater
than 2,075,000 shares of Common Stock at a price less than $1.73 per share of
Common Stock unless the shareholders of the Company have previously voted to
approve the issuance of the Warrants, the Warrant Shares and the Common Stock
included in the Purchased Securities (as defined in the Securities Purchase
Agreement) upon the terms of the Transaction Documents. The Company shall submit
such issuance as a matter to be approved by the shareholders at the Company's
first shareholders' meeting following the Closing Date.
ARTICLE VI
COVENANTS OF THE COMPANY
6.1 NOTICES OF CERTAIN ACTIONS.
In the event that the Company:
(a) shall authorize issuance to all holders of Common Stock of
rights or warrants to subscribe for or purchase capital stock of the Company or
of any other subscription rights or warrants; or
(b) shall authorize a dividend or other distribution to all
holders of Common Stock of evidences of its indebtedness, cash or other property
or assets; or
(c) becomes a party to any consolidation or merger for which
approval of any shareholders of the Company will be required, or to a conveyance
or transfer of the properties and assets of the Company substantially as an
entirety, or of any capital reorganization or reclassification or change of the
Common Stock (other than a change in par value, or from par value to no par
value, or from no par value to par value, or as a result of a subdivision or
combination); or
(d) commences a voluntary or involuntary dissolution,
liquidation or winding up; or
(e) takes any other action which would require an adjustment
pursuant to Article V;
then the Company shall provide a written notice to each Holder stating (i) the
date as of which the holders of record of Common Stock to be entitled to receive
any such rights, warrants or
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distribution are to be determined, (ii) the material terms of any such
consolidation or merger and the expected effective date thereof, or (iii) the
material terms of any such conveyance, transfer, dissolution, liquidation or
winding up is expected to become effective, and the date as of which it is
expected that holders of record of Common Stock will be entitled to exchange
their shares for securities or other property, if any, deliverable upon such
reclassification, conveyance, transfer, dissolution, liquidation or winding up.
Such notice shall be given not later than seven (7) Business Days prior to the
effective date (or the applicable record date, if earlier) of such event. The
failure to give the notice required by this Section 7.1 or any defect therein
shall not affect the legality or validity of any distribution, right, warrant,
consolidation, merger, conveyance, transfer, dissolution, liquidation or winding
up, or the vote upon any action.
6.2 MERGER OR CONSOLIDATION OF THE COMPANY.
The Company will not merge or consolidate with or into, or sell,
transfer or lease all or substantially all of its property (and such sale or
transfer of property is effected in such a way that holders of the shares of
Common Stock shall be entitled to receive stock, securities or assets
(including, without limitation, cash) with respect to or in exchange for shares
of the Common Stock) to any other entity unless the successor or purchasing
entity expressly assumes, by supplemental agreement reasonably satisfactory in
form and substance to each Holder, the due and punctual performance and
observance of each and every covenant and condition of this Agreement to be
performed and observed by the Company; provided, however, that the initial
obligation of such successor with respect to the exercise or exchange of
Warrants shall be only as set forth in Section 5.5, and provided, further, that
if the successor or purchasing entity, as the case may be (if not the Company),
is not organized under the laws of the United States of America or any state or
political subdivision thereof and the Common Stock in such transaction is
converted into the right to receive securities of such entity, such securities
of such entity shall be marketable and freely tradeable.
ARTICLE VII
MISCELLANEOUS
7.1 NOTICES.
All notices, demands and requests of any kind to be delivered to any
party hereto in connection with this Agreement shall be in writing (i) delivered
personally, (ii) sent by nationally-recognized overnight courier, (iii) sent by
first class, registered or certified mail, return receipt requested or (iv) sent
by facsimile, in each case to such party at its address as follows:
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(a) if to the Company, to:
Carrizo Oil & Gas, Inc.
00000 Xx. Xxxx'x Xxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
Attention:
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
(b) if to any Holder, to such Holder's address as set
forth on Schedule I hereto.
Any notice, demand or request so delivered shall constitute valid notice under
this Agreement and shall be deemed to have been received (i) on the day of
actual delivery in the case of personal delivery, if delivered on a Business Day
(otherwise on the next Business Day), (ii) on the next Business Day after the
date when sent in the case of delivery by nationally-recognized overnight
courier, (iii) on the fifth Business Day after the date of deposit in the U.S.
mail in the case of mailing or (iv) upon receipt in the case of a facsimile
transmission. Any party hereto may from time to time by notice in writing served
upon the other as aforesaid designate a different mailing address or a different
Person to which all such notices, demands or requests thereafter are to be
addressed.
7.2 NO VOTING RIGHTS; LIMITATIONS OF LIABILITY.
No Warrant shall entitle the holder thereof to any rights as a
shareholder of the Company, as such, including, without limitation, voting
rights, the right to call meetings, consent or receive notices as a shareholder
in respect of any meeting or to the benefit of any fiduciary duty owed to a
shareholder of the Company as such, all of which rights and duties are expressly
disclaimed and waived by the Holder. No dividends are payable or will accrue on
the Warrants or the Warrant Shares until, and except to the extent that, the
Warrants are exercised. No provision hereof, in the absence of affirmative
action by the Holder to purchase Warrant Shares, and no enumeration herein of
the rights or privileges of the Holder shall give rise to any liability of such
Holder for the Exercise Price of Warrant Shares acquirable by exercise hereof or
as a shareholder of the Company.
- 21 -
25
7.3 AMENDMENTS AND WAIVERS.
(a) Written Document. Any provision of this Agreement may be
amended or waived, but only pursuant to a written agreement signed by the
Company and the Requisite Holders, provided that no such amendment or
modification shall without the written consent of each Holder affected thereby
(i) shorten the Expiration Date of any Warrant, (ii) increase the Exercise Price
of any Warrant, (iii) change any of the provisions of this Section 7.3(a) or the
definition of "Requisite Holders" or any other provision hereof specifying the
number or percentage of Holders required to waive, amend, or modify any rights
hereunder or make any determination or grant any consent hereunder or otherwise
act with respect to this Agreement or any Warrants or (iv) increase the
obligations of any Holder or otherwise disproportionately adversely affect the
rights and benefits of any Holder under this Agreement.
(b) No Waiver; Cumulative Remedies. No failure on the part of
any Holder to exercise and no delay in exercising, and no course of dealing with
respect to, any right, power or privilege under this Agreement, the Warrants or
the Registration Rights Agreement shall operate as a waiver thereof, nor shall
any single or partial exercise of any right, power or privilege under this
Agreement, the Warrant or the Registration Rights Agreement preclude any other
or further exercise thereof or the exercise of any other right, power or
privilege. The remedies provided herein are cumulative and not exclusive of any
remedies provided by law.
7.4 REMEDIES.
(a) Each Holder shall have all rights and remedies reserved for
such Holder pursuant to this Agreement and all rights and remedies which such
Holder has been granted at any time under any other agreement or contract and
all of the rights which such Holder has under any law or equity. Any Person
having any rights under any provision of this Agreement will be entitled to
enforce such rights specifically, to recover damages by reason of any breach of
any provision of this Agreement and to exercise all other rights granted by law
or equity.
(b) The parties hereto agree that if any parties seek to resolve
any dispute arising under this Agreement pursuant to a legal proceeding, the
prevailing parties to such proceeding shall be entitled to receive reasonable
fees and expenses (including reasonable attorneys' fees and expenses) incurred
in connection with such proceedings.
(c) It is acknowledged that it will be impossible to measure in
money the damages that would be suffered by any party hereto if any Person also
party hereto fails to comply with any of the obligations imposed on it upon them
in this Agreement and that in the event of any such failure, the aggrieved party
will be irreparably damaged and will not have an adequate remedy at law. Any
such aggrieved party shall, therefore, be entitled to injunctive relief,
including specific performance, to enforce such obligations, and if any action
should be brought in equity to enforce any of the provisions of this Agreement,
none of the parties hereto shall raise the defense that there is an adequate
remedy at law.
7.5 BINDING EFFECT.
This Agreement shall be binding upon and inure to the benefit of the
Company, each Holder and their respective successors and permitted assigns.
- 22 -
26
7.6 COUNTERPARTS.
This Agreement may be executed in two or more counterparts each of
which shall constitute an original but all of which when taken together shall
constitute but one agreement.
7.7 GOVERNING LAW.
THIS AGREEMENT AND EACH WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO
PRINCIPLES OF CONFLICTS OF LAWS EXCEPT TO THE EXTENT THAT THE NEW YORK CONFLICTS
OF LAWS PRINCIPLES WOULD APPLY THE APPLICABLE LAWS OF THE STATE OF TEXAS TO
INTERNAL MATTERS RELATING TO CORPORATIONS ORGANIZED THEREUNDER).
7.8 BENEFITS OF THIS AGREEMENT.
Nothing in this Agreement shall be construed to give to any Person
other than the Company and each Holder of a Warrant or a Warrant Share any legal
or equitable right, remedy or claim hereunder.
7.9 HEADINGS.
Section headings in this Agreement have been inserted for convenience
of reference only and shall not affect the construction of, or be taken into
consideration in interpreting, this Agreement.
* * * *
- 23 -
27
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered by their authorized officers, all as
of the date and year first above written.
CARRIZO OIL & GAS, INC.
By: /s/ X. X. Xxxxxxx XX
------------------------------------------
Name: X. X. Xxxxxxx XX
Title: President
CB CAPITAL INVESTORS, L.P.
By: CB Capital Investors, Inc., its general
partner
By: /s/ Xxxxxxxxxxx Xxxxxxx
------------------------------------------
Name: Xxxxxxxxxxx Xxxxxxx
Title: General Partner
/s/ Xxxxxxx X. X. Xxxxxxxx
----------------------------------------------
Xxxxxxx X. X. Xxxxxxxx
/s/ Xxxx X. Xxxx, Xx.
----------------------------------------------
Xxxx X. Xxxx, Xx.
/s/ Xxxxxx X. Xxxxxxx
----------------------------------------------
Xxxxxx X. Xxxxxxx
28
MELLON VENTURES, L.P.
By: MVMA, L.P., its general partner
By: MVMA, Inc., its general partner
By: /s/ Xxxx X. Xxxxxxxxx
-------------------------------
Name: Xxxx X. Xxxxxxxxx
Title: Managing Director
29
SCHEDULE I
INITIAL HOLDERS
INVESTOR NUMBER OF WARRANT SHARES
-------- ------------------------
CB Capital Investors, L.P. 2,208,152
000 Xxxxxxx Xxxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000
Attention:
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
with a copy to:
X'Xxxxxxxx Graev & Karabell, LLP
00 Xxxxxxxxxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxxxx X. Xxxxxxx, Esq.
Telephone No.: (000) 000-0000
Telecopier No.: (000) 000-0000
Mellon Ventures, L.P. 276,019
5 Radnor Corporate Center
000 Xxxxxxxxxx Xxxx, Xxxxx 000
Xxxxxx, XX 00000
Attention: Xxxx X. Xxxx
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
with a copy to:
Dechert Price & Xxxxxx
000 Xxxx Xxxxxxxx Tower
0000 Xxxx Xxxxxx
Xxxxxxxxxxxx, XX 00000-0000
Attention: Xxxxx X. Xxxxxxx
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
Xxxxxxx X.X. Xxxxxxxx 92,006
00000 Xx. Xxxx'x Xxxx
Xxxxx 000
Xxxxxxx, XX 00000
30
INVESTOR NUMBER OF WARRANT SHARES
-------- ------------------------
Xxxx X. Xxxx, Xx. 92,006
00000 Xx. Xxxx'x Xxxx
Xxxxx 000
Xxxxxxx, XX 00000
Xxxxxx X. Xxxxxxx 92,006
00000 Xx. Xxxx'x Xxxx
Xxxxx 000
Xxxxxxx, XX 00000
31
EXHIBIT A
REGISTRATION RIGHTS AGREEMENT
[SEE ATTACHED]
32
EXHIBIT B
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY
STATE SECURITIES OR BLUE SKY LAWS. THESE SECURITIES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER
SAID ACT OR APPLICABLE STATE SECURITIES OR BLUE SKY LAWS. ADDITIONALLY, THE
TRANSFER OF THESE SECURITIES IS SUBJECT TO THE CONDITIONS SPECIFIED IN THE
SECURITIES PURCHASE AGREEMENT DATED AS OF DECEMBER ___, 1999, AMONG THE ISSUER
HEREOF AND CERTAIN OTHER SIGNATORIES THERETO, AND NO TRANSFER OF THESE
SECURITIES SHALL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN
FULFILLED. UPON THE FULFILLMENT OF CERTAIN OF SUCH CONDITIONS, THE ISSUER HEREOF
HAS AGREED TO DELIVER TO THE HOLDER HEREOF A NEW CERTIFICATE, NOT BEARING THIS
LEGEND, FOR THE SECURITIES REPRESENTED HEREBY REGISTERED IN THE NAME OF THE
HOLDER HEREOF. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT
TO A SHAREHOLDERS AGREEMENT DATED AS OF DECEMBER ___ 1999, AMONG THE ISSUER OF
SUCH SECURITIES (THE "COMPANY") AND CERTAIN OF THE COMPANY'S SHAREHOLDERS. THE
TERMS OF SUCH SHAREHOLDERS AGREEMENT INCLUDE, AMONG OTHER THINGS, VOTING
AGREEMENTS AND RESTRICTIONS ON TRANSFERS. COPIES OF THE SECURITIES PURCHASE
AGREEMENT AND THE SHAREHOLDERS AGREEMENT WILL BE FURNISHED WITHOUT CHARGE BY THE
COMPANY TO THE HOLDER HEREOF UPON WRITTEN REQUEST.
CARRIZO OIL & GAS, INC.
NO. W WARRANT TO PURCHASE
____ SHARES
OF COMMON STOCK
---------, -----
COMMON STOCK PURCHASE WARRANT
THIS CERTIFIES that, for value received, [INSERT NAME OF
HOLDER] (the "HOLDER"), or assigns, is entitled to purchase from CARRIZO OIL &
GAS, INC., a Texas corporation (the "COMPANY"), ___ shares of the COMMON STOCK,
$.01 par value (the "COMMON STOCK"), of the Company, at the price (the "EXERCISE
PRICE") of $2.20 per share, at any time or from time to time during the period
commencing on the date hereof and ending at 5:00 P.M. Eastern time, on December
__, 2007 (the "EXPIRATION TIME").
33
This Warrant has been issued pursuant to the Warrant Agreement
(as amended or supplemented from time to time, the "WARRANT AGREEMENT") dated as
of December __, 1999, between the Company and the Initial Holders named therein,
and is subject to the terms and conditions, and the Holder is entitled to the
benefits, thereof, including without limitation provisions (i) for adjusting the
number of Warrant Shares issuable upon the exercise hereof and the Exercise
Price to be paid upon such exercise and (ii) providing certain other rights. A
copy of the Warrant Agreement is on file and may be inspected at the principal
executive office of the Company. The Holder of this certificate, by acceptance
of this certificate, agrees to be bound by the provisions of the Warrant
Agreement. Capitalized terms used but not defined herein shall have the meanings
given to them in the Warrant Agreement.
SECTION 1. EXERCISE OF WARRANT. On any Business Day prior to
the Expiration Time, the Holder may exercise this Warrant, in whole or in part,
by delivering to the Company this Warrant accompanied by a properly completed
Exercise Form in the form of Annex A and a check in an aggregate amount equal to
the product obtained by multiplying (a) the Exercise Price by (b) the number of
Warrant Shares being purchased. Any partial exercise of a Warrant shall be for a
whole number of Warrant Shares only.
SECTION 2. EXERCISE PRICE. The Exercise Price is subject to
adjustment from time to time as provided in the Warrant Agreement.
SECTION 3. EXCHANGE OF WARRANT. On any Business Day prior to
the Expiration Date, the Holder may exchange this Warrant, in whole or in part,
for Warrant Shares by delivering to the Company this Warrant accompanied by a
properly completed Exchange Form in the form of Annex B. The number of shares of
Common Stock to be received by the Holder upon such exchange shall be determined
as provided in Section 4.2 of the Warrant Agreement.
SECTION 4. TRANSFER. Subject to the limitations set forth in
the Warrant Agreement, this Warrant may be transferred by the Holder by delivery
to the Company of this Warrant accompanied by a properly completed Assignment
Form in the form of Annex C.
SECTION 5. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT. If
this Warrant is lost, stolen, mutilated or destroyed, the Company will issue a
new Warrant of like denomination and tenor upon compliance with the provisions
set forth in the Warrant Agreement.
SECTION 6. NO SHAREHOLDER RIGHTS. This Warrant shall not
entitle the holder hereof to any voting rights or, except as otherwise provided
in the Warrant Agreement, other rights of a shareholder of the Company, as such.
SECTION 7. SUCCESSORS. All of the provisions of this Warrant
by or for the benefit of the Company or the Holder shall bind and inure to the
benefit of their respective successors and assigns.
SECTION 8. HEADINGS. Section headings in this Warrant have
been inserted for convenience of reference only and shall not affect the
construction of, or be taken into consideration in interpreting, this Warrant.
34
SECTION 9. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT
GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAWS EXCEPT TO THE EXTENT THAT THE
NEW YORK CONFLICTS OF LAWS PRINCIPLES WOULD APPLY THE APPLICABLE LAWS OF THE
STATE OF TEXAS TO INTERNAL MATTERS RELATING TO CORPORATIONS ORGANIZED
THEREUNDER).
35
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its duly authorized officers and this Warrant to be dated as of the
date first set forth above.
CARRIZO OIL & GAS, INC.
By:
--------------------------------------------
Name:
Title: [Chairman or Chief Executive Officer]
ATTEST:
By:
---------------------------------------
Name:
Title: [Chief Financial Officer, Treasurer or
Assistant Treasurer]
36
ANNEX A
EXERCISE FORM
[TO BE SIGNED UPON EXERCISE OF WARRANT]
TO CARRIZO OIL & GAS, INC.
The undersigned, being the Holder of the within Warrant,
hereby elects to exercise the purchase right represented by such Warrant for,
and to purchase thereunder _________ shares of, the Common Stock of CARRIZO OIL
& GAS, INC. (the "Company") and requests that the certificates for such shares
be issued in the name of, and be delivered to, _______________________, whose
address is __________________________________ ____________________________.
The undersigned warrants to the Company that the undersigned
(a) is not acquiring the Warrant Shares with a view to transfer such Warrant
Shares in violation of the Securities Act of 1933, as amended (the "Securities
Act"), (b) acknowledges that the issuance of the Warrant Shares has not been
registered under the Securities Act and the Warrant Shares may be resold only if
registered pursuant to the provisions of the Securities Act or if an exemption
therefrom is available and (c) is an "accredited investor" within the meaning of
Regulation D under the Securities Act.
The foregoing exercise is (check one):
[ ] irrevocable
[ ] conditioned upon the consummation of the transaction
described briefly below:
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
Dated:
------------------------------
(Signature)
------------------------------
(Address)
37
ANNEX B
EXCHANGE FORM
[TO BE SIGNED UPON EXERCISE OF WARRANT]
TO CARRIZO OIL & GAS, INC.
The undersigned, being the Holder of the within Warrant,
hereby irrevocably elects to exchange, pursuant to Section 4.2 of the Warrant
Agreement referred to in such Warrant, the portion of such Warrant representing
the right to purchase _________ shares of Common Stock of CARRIZO OIL & GAS,
INC. (the "Company"). The undersigned hereby requests that the certificates for
the number of shares of Common Stock issuable in such exchange pursuant to such
Section 4.2 be issued in the name of, and be delivered to, _____________, whose
address is ________________________________________.
The undersigned warrants to the Company that the undersigned
(a) is not acquiring the Warrant Shares with a view to transfer such Warrant
Shares in violation of the Securities Act of 1933, as amended (the "Securities
Act"), (b) acknowledges that the issuance of the Warrant Shares has not been
registered under the Securities Act and the Warrant Shares may be resold only if
registered pursuant to the provisions of the Securities Act or if an exemption
therefrom is available and (c) is an "accredited investor" within the meaning of
Regulation D under the Securities Act.
The foregoing exercise is (check one):
[ ] irrevocable
[ ] conditioned upon the consummation of the transaction
described briefly below:
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
Dated:
------------------------------
(Signature)
------------------------------
(Address)
38
ANNEX C
ASSIGNMENT FORM
[TO BE SIGNED ONLY UPON TRANSFER OF WARRANT]
For value received, the undersigned hereby sells, assigns and
transfers unto _________________________, all of the rights represented by the
within Warrant to purchase shares of Common Stock of CARRIZO OIL & GAS, INC.
(the "COMPANY"), to which such Warrant relates, and appoints
________________________ Attorney to transfer such Warrant on the books of the
Company, with full power of substitution in the premises.
DATED:
----------------------------------
(Signature)
----------------------------------
(Address)
