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EXECUTION COPY
EXHIBIT 99.6
COMPLIANCE SIDELETTER
Carrizo Oil & Gas, Inc.
00000 Xx. Xxxx'x Xxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
Ladies and Gentlemen:
Reference is made to that certain Securities Purchase Agreement dated as of the
date hereof (the "SECURITIES PURCHASE AGREEMENT") among Carrizo Oil & Gas, Inc.,
a Texas corporation (the "COMPANY"), CB Capital Investors, L.P. and Mellon
Ventures, L.P. (each, an "INVESTOR", and collectively, the "INVESTORS") and the
other parties identified therein, pursuant to which the Investors purchased: (i)
$19,800,000 aggregate principal amount of the Company's 9% Senior Subordinated
Notes due 2007 (the "NOTES"); (ii) 3,272,728 shares (the "SHARES") of the
Company's common stock, $0.01 par value (the "COMMON STOCK"); and (iii) warrants
to purchase up to 2,484,170 shares of Common Stock (the "WARRANTS" and together
with the Notes and Shares, the "SECURITIES"). Each Investor is a Small Business
Investment Company ("SBIC") licensed by the United States Small Business
Administration ("SBA"). In order for Investors to acquire and hold the
Securities, they must obtain from the Company certain representations and rights
as set forth below. As a material inducement to the Investors to enter into the
Purchase Agreement and to purchase the Securities, the Company hereby makes the
following representations and warranties and agrees to comply with the following
covenants:
1. SMALL BUSINESS MATTERS.
(a) The Company, together with its "affiliates" (as that term is
defined in Title 13, Code of Federal Regulations, Section 121.103):
CHECK ONE
[ ] (i) has a tangible net worth not in excess of $18 million, and
average net income after Federal income taxes (excluding any carry-over losses)
for the preceding 2 completed fiscal years not in excess of $6 million; or
[X] (ii) does not exceed the size standard in number of employees or
millions of dollars (fewer than 500 employees; less than $500 million in annual
receipts) under the SIC (Standard Industrial Classification) System for the
industry (SIC Code No. 1311) in which it combined with its affiliates is
primarily engaged and in which it alone is primarily engaged.
The information set forth in the Small Business Administration Forms 480, 652
and Parts A and B of Form 1031 regarding the Company and its affiliates, when
delivered to the Investors, will be accurate and complete and will be in form
and substance acceptable to each Investor. Copies of such forms shall be
completed and executed by the Company
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and delivered to the Investors at the closing of the sale of the Securities
under the Purchase Agreement (the "CLOSING").
(b) The proceeds from the sale of the Securities will be used by the
Company for the purposes described in Section 4.26 of the Securities Purchase
Agreement. No portion of such proceeds (i) will be used to provide capital to a
corporation licensed under the Small Business Investment Act of 1958, as amended
("SBIA"), (ii) will be used to acquire farm land, (iii) will be used to fund
production of a single item or defined limited number of items, generally over a
defined production period, and such production will constitute the majority of
the activities of the Company and its Subsidiaries (examples include motion
pictures and electric generating plants), or (iv) will be used for any purpose
contrary to the public interest (including, but not limited to, activities which
are in violation of law) or inconsistent with free competitive enterprise, in
each case, within the meaning of 13 C.F.R. Section 107.720.
(c) Neither the Company's nor any of its Subsidiaries' primary
business activity involves, directly or indirectly, providing funds to others,
the purchase or discounting of debt obligations, factoring or long-term leasing
of equipment with no provision for maintenance or repair, and neither the
Company nor any of its Subsidiaries is classified under Major Group 65 (Real
Estate) of the SIC Manual. The Company is engaged in the exploration,
development, exploitation and production of natural gas and crude oil (the
"BUSINESS"). The Company is engaged in a regular and continuous business
operation and was not formed for the purpose of a single project or limited
series of projects. (See 13 CFR Section 107.720.)
(d) The proceeds from the sale of the Securities will not be used
substantially for a foreign operation; and at Closing or within one year
thereafter, no more than 49 percent of the employees or tangible assets of the
Company and its Subsidiaries will be located outside the United States (unless
the Company can show, to SBA's satisfaction, that the proceeds from the sale of
the Securities will be used for a specific domestic purpose). This subsection
(d) does not prohibit such proceeds from being used to acquire foreign materials
and equipment or foreign property rights for use or sale in the United States.
(e) To the best actual knowledge of the Company, each SBIC that owns
any Securities issued by the Company, together with a description of the kinds
and amounts of Securities held, are listed on Schedule I hereto. Without the
consent of the Investors, the Company will use commercially reasonable efforts
not to issue Securities to any SBIC in the future unless such issuance is part
of a public offering, merger, business combination, transfer, exchange or
distribution to security holders if such issuance would cause an Investor to be
deemed to be a member of an "Investor Group" in "Control" of the Company (as
such terms are defined in 13 CFR Section 107.865) except as required by any
Transaction Document.
2. Regulatory Compliance.
(a) Regulatory Compliance Cooperation.
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(i) In the event that an Investor reasonably determines and
notifies the Company that it has a Regulatory Problem, the Company agrees to use
all commercially reasonable efforts to take all such actions as are reasonably
requested by such Investor in order (A) to effectuate and facilitate any
transfer by the Investor of any Securities of the Company then held by such
Investor to any Person designated by such Investor, (B) to permit the Investor
(or any of its Affiliates) to exchange all or any portion of the voting
Securities then held by such Person on a share-for-share basis for shares of a
class of non-voting Securities of the Company, which non-voting Securities shall
be identical in all respects to such voting Securities, except that such new
Securities shall be non-voting to the extent permitted by law and shall be
convertible into voting Securities on such terms as are requested by the
Investor and reasonably acceptable to the Company in light of regulatory
considerations then prevailing, and (C) to continue and preserve the respective
allocation of the voting interests with respect to the Company arising out of
the Investor's ownership of voting Securities before the transfers and
amendments referred to above but only to the extent that the Investor enters
into any agreement reasonably requested by the Company to ensure that the
Company will not be put in a materially worse position as a result of any of the
foregoing requested actions than it would have been without such change
occurring. Such actions may include, without limitation: (x) entering into such
additional agreements as are reasonably requested by such Investor to permit any
Person(s) designated by such Investor to exercise any voting power which is
relinquished by such Investor upon any exchange of voting Securities for
nonvoting Securities of the Company; and (y) entering into such additional
agreements, seeking to adopt such amendments to this Compliance Sideletter, the
Company's Amended and Restated Articles of Incorporation (the "Charter") and the
Company's Amended and Restated Bylaws (the "Bylaws") and taking such additional
actions as are reasonably requested by such Investor in order to effectuate the
intent of the foregoing; provided, however, that, without limiting the
generality of which actions are not deemed to be reasonably requested, such
actions may not change in a manner that is materially adverse to any Investor or
the Company, any of the agreements, rights or obligations of the parties
reflected herein or in the Charter, Bylaws or Shareholders Agreement and shall
not result in material liability to the Company or any officer or director
thereof, nor require the Company to breach any law, contract, agreement, permit
or regulation nor accelerate or change any obligation of the Company. Subject to
the foregoing, if an Investor elects to transfer Securities of the Company to a
Regulated Holder in order to avoid a Regulatory Problem, the Company and such
Regulated Holder shall enter into such mutually acceptable agreements as such
Regulated Holder may reasonably request in order to assist such Regulated Holder
in complying with applicable laws and regulations to which it is subject. Such
agreements may include restrictions on the redemption, repurchase or retirement
of Securities of the Company that would result or be reasonably expected to
result in such Regulated Holder holding more voting Securities or total
Securities (equity and debt) than it is permitted to hold under such laws and
regulations.
(ii) In the event an Investor has the right to acquire any of
the Company's Securities from the Company (as the result of a preemptive offer,
pro rata offer or otherwise), and the Investor reasonably determines that it has
a Regulatory Problem, at the Investor's request, the Company will use
commercially reasonable efforts
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to offer to sell to the Investor non-voting Securities on the same terms as
would have existed had the Investor acquired the Securities so offered and
immediately requested their exchange for non-voting Securities pursuant to
subsection (i) above.
(iii) Each Investor agrees to use commercially reasonable
efforts to cooperate with the Company in complying with this Compliance
Sideletter, including, without limitation, voting to approve amending this
Compliance Sideletter, the Shareholders Agreement, the Charter or Bylaws in a
manner reasonably requested by the Investor requesting such amendment.
(iv) In the event that any Subsidiary of the Company ever offers
to issue any of its Securities to an Investor, then the Company will use
commercially reasonable efforts to cause such Subsidiary to enter into
agreements with the Investor substantially similar to this Section 2(a) and
Section 2(b) below.
(v) Any actions taken by the Company under this Compliance
Sideletter shall be at the sole cost and expense of the Investor that has
required that the Company assist it in connection with such Regulatory Problem.
Such Investor agrees to indemnify and hold harmless the Company and each other
Investor and its officers, directors, agents and employees to the fullest extent
permitted by law from and against any and all losses, claims, damages,
reasonable expenses (including reasonable fees, disbursements and other charges
of counsel) or other liabilities resulting from or arising out of the actions
(other than gross negligence or willful misconduct) taken by the Company and the
other Investors under this Compliance Sideletter.
(vi) Each Investor represents to the Company that it does not,
and as a result of its purchase of Securities (including the Warrant Shares)
contemplated by the Securities Purchase Agreement will not, as of the date
hereof have a Regulatory Problem.
(vii) To the extent an Investor receives nonvoting securities
that have voting rights under state law, each Investor must vote all of such
nonvoting Securities in a manner which is proportional to the related voting
Securities (for which such nonvoting Securities were obtained or exchanged) and
otherwise take any action reasonably required by the Company so that the
issuance of any nonvoting Securities does not result in an Investor having a
veto or blocking right that it would not have had in the absence of such
issuance of nonvoting Securities.
(b) Information Rights and Related Covenants.
(i) Provide to the Investors and the SBA reasonable access to
its books and records for the purpose of confirming the use of the proceeds of
such financing and for all other purposes reasonably required by the SBA.
(ii) Provide to the Investors and the SBA a certificate of its
chief financial officer (1) verifying the use of such proceeds and (2) to his
knowledge
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certifying compliance by the Company with the provisions of this Agreement
(provided that such certificate may be truthfully given).
(iii) Promptly after the end of each fiscal year (but in any
event prior to March 31 of each year), the Company shall provide to Investors
such information as shall have been reasonably requested by them to enable them
to prepare a written assessment, in form and substance reasonably satisfactory
to Investors, of the economic impact of Investors' financing hereunder,
specifying the full-time equivalent jobs created or retained, the impact of the
financing on the consolidated revenues and profits of the Business and on taxes
paid by the Business and its employees (See 13 CFR Section 107.630(e)).
(iv) Upon the request of either Investor or the Affiliates of
either Investor, the Company will (A) provide to such Person such financial
statements and other information as such Person may from time to time reasonably
request for the purpose of assessing the Company's financial condition to the
extent the Investor is otherwise entitled to such information under the
Shareholders Agreement or Purchase Agreement and (B) furnish to such Person all
readily available information reasonably requested by it in order for it to
prepare and file SBA Form 468 and any other readily available information
reasonably requested or required by any governmental agency asserting
jurisdiction over such Person.
(v) For a period of one year following the date hereof, neither
the Company nor any of its Subsidiaries will change its business activity if
such change would render the Company's representations in Sections 1(b), (c) and
(d) untrue during such period.
3. SHAREHOLDER COOPERATION.
The Company shall use its commercially reasonable efforts to cause the
provisions attached hereto as Exhibit A to be included in the Shareholders
Agreement.
4. DEFINITIONS.
"Affiliate" means, with respect to any Person, (i) a director, officer or
shareholder of such Person, (ii) a spouse, parent, sibling or descendant of such
Person (or spouse, parent, sibling or descendant of any director or executive
officer of such Person), and (iii) any other Person that, directly or indirectly
through one or more intermediaries, Controls, or is Controlled by, or is under
common Control with, such Person.
"Control" means, with respect to any Person, the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.
"Person" shall be construed broadly and shall include an individual, a
partnership, a corporation, a limited liability company, an association, a joint
stock company, a trust, a joint venture, an unincorporated organization or a
governmental entity (or any department, agency or political subdivision
thereof).
"Regulated Holder" means any holder of the Company's Securities that is (or that
is a subsidiary of a bank holding company that is) subject to the various
provisions of
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Regulation Y of the Board of Governors of the Federal Reserve Systems, 12
C.F.R., Part 225 (or any successor to Regulation Y).
"Regulatory Problem" means (i) any set of facts or circumstances wherein it has
been asserted by the Small Business Administration, the Federal Reserve Board,
the Controller of the Currency or any other governmental regulatory agency
hereafter charged with the regulation of banks or financial service institutions
(or Investor believes and notifies the Company that there is a significant risk
of such assertion) that such Person (or any bank holding company that controls
such Person) is not entitled to hold, or exercise any material right with
respect to, all or any portion of the Securities of the Company which such
Person holds or (ii) when such Person and its Affiliates would own, control or
have power (including voting rights) over a greater quantity of Securities of
the Company than is permitted under any requirement of the Small Business
Administration, the Federal Reserve Board, the Controller of the Currency or any
other governmental regulatory agency hereafter charged with the regulation of
banks or financial service institutions applicable to such Person or to which
such Person is subject. "Securities" means, with respect to any Person, such
Person's capital stock or any options, warrants or other Securities which are
directly or indirectly convertible into, or exercisable or exchangeable for,
such Person's capital stock (whether or not such derivative Securities are
issued by the Company). Whenever a reference herein to Securities refers to any
derivative Securities, the rights of Investor shall apply to such derivative
Securities and all underlying Securities directly or indirectly issuable upon
conversion, exchange or exercise of such derivative Securities.
"Shareholders Agreement" means the Shareholders Agreement to be entered into on
the date of the Closing among the Company and certain shareholders of the
Company.
"Subsidiary" means, with respect to any Person, any other Person of which the
securities having a majority of the ordinary voting power in electing the board
of directors (or other governing body), at the time as of which any
determination is being made, are owned by such first Person either directly or
through one or more of its Subsidiaries.
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Please indicate your acceptance of the terms of this letter agreement by
returning a signed copy to the undersigned.
CB CAPITAL INVESTORS, L.P.
By: CB Capital Investors, Inc.,
its General Partner
By: /s/ XXXXXXXXXXX XXXXXXX
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Name: Xxxxxxxxxxx Xxxxxxx
Title: General Partner
MELLON VENTURES, L.P.
By: MVMA, L.P., its general partner
By: MVMA, Inc., its general partner
By: /s/ XXXX X. XXXXXXXXX
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Name: Xxxx X. Xxxxxxxxx
Title: Managing Director
Agreed as of the date first set forth above:
CARRIZO OIL & GAS, INC.
By: /s/ X. X. XXXXXXX XX
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Name: X. X. Xxxxxxx XX
Title: President
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Schedule I
SBIC Securities
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CB Capital Investors, L.P. $17,600,001 Senior Subordinated Notes, due
2007
Warrants to purchase up to 2,208,152
shares of Common Stock
2,909,092 shares of Common Stock
Mellon Ventures, L.P. $2,200,000 Senior Subordinated Notes, due
2007
Warrants to purchase up to 276,019 shares
of Common Stock
363,636 shares of Common Stock
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EXHIBIT A
INSERT INTO SHAREHOLDERS AGREEMENT
SECTION __. REGULATORY MATTERS.
(a) Each Shareholder agrees to cooperate with the Company in all
reasonable respects in complying with the terms and provisions of the letter
agreement between the Company and Investor, a copy of which is attached hereto
as EXHIBIT __, regarding small business matters (the "Compliance Sideletter"),
including without limitation, voting to approve amending the Charter, the
By-laws or this Agreement in a manner reasonably acceptable to the Shareholders
and the Investor or any Regulated Holder (as defined in the Compliance
Sideletter) entitled to make such request pursuant to the Compliance Sideletter
in order to remedy a Regulatory Problem (as defined in the Compliance
Sideletter). Anything contained in this Section __ to the contrary
notwithstanding, no Shareholder shall be required under this Section __ to take
any action that would adversely affect in any material respect such
Shareholder's rights under this Agreement or as a shareholder of the Company.
(b) The Company will notify each Shareholder of all material terms
of any proposed amendment of the Charter or Bylaws not later than ___ Business
Days prior to the effective date thereof. Each of CB Capital and Mellon agrees
to notify the Company as to whether or not it would have a Regulatory Problem
promptly after CB Capital or Mellon, as the case may be, has notice of any
proposed amendment or waiver.
