EXHIBIT 99.6
Effective as of February 20, 2002
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 February 20, 2002 (the "SECURITIES PURCHASE AGREEMENT")
among Carrizo Oil & Gas, Inc., a Texas corporation (the "COMPANY"), Xxxxxx X.
Xxxxxxx and Xxxxxx Ventures, L.P. (the "INVESTOR") and pursuant to which the
Investor purchased: (i) 40,000 shares of Series B Convertible Participating
Preferred Stock (the "PREFERRED STOCK"); and (ii) warrants to purchase up to
168,421 shares of Common Stock (the "WARRANTS" and together with the Preferred
Stock, the "SECURITIES").
The 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 Securities 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 under the SIC (Standard Industrial Classification) System for the
industry 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 and Parts A and B of Form 1031 regarding the Company and its
affiliates, when delivered to the Investor, will be accurate and complete and
will be in form and substance
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acceptable to each Investor. Copies of such forms shall be completed and
executed by the Company and delivered to the Investors concurrently with the
execution of this Compliance Sideletter.
(b) The proceeds from the sale of the Securities will
be used by the Company for the purposes described in Section 3.26 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 assets of the business of
the Company and its Subsidiaries (the "BUSINESS") will not be reduced or
consumed, generally without replacement, as the life of the Business progresses,
and the nature of the Business does not require that a stream of cash payments
be made to the Business's financing sources, on a basis associated with the
continuing sale of assets (examples of such businesses would include real estate
development projects and oil and gas xxxxx). (See 13 CFR Section 107.720). The
Company is engaged in the exploration, development, exploitation and production
of natural gas and crude oil. 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.
(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 Investor, 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
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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 as that term
is used in both the Securities Purchase Agreement and the Securities Purchase
Agreement dated December 15, 1999 among the Company and the investors that are a
party thereto.
2. Regulatory Compliance.
(a) Regulatory Compliance Cooperation.
(i) In the event that the 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 the Investor in order (A) to effectuate
and facilitate any transfer by the Investor of any Securities of the Company
then held by the Investor to any Person designated by the 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 the Investor to permit any
Person(s) designated by the Investor to exercise any voting power which is
relinquished by the 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 the Investor in order to effectuate the
intent of the foregoing and (z) using commercially reasonable efforts to cause
shareholders of the Company holding a sufficient number of shares of voting
stock to obtain required approvals to cooperate in all reasonable respects in
complying with this Compliance Sideletter, including without limitation by such
shareholders voting to approve amending the Charter and the Bylaws in order to
remedy a Regulatory Problem (subject in all cases to compliance with applicable
fiduciary duties of the Company's directors); 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
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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 the 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 the 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 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) The 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 the 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 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 under this Compliance
Sideletter.
(vi) The Investor represents to the Company
that it does not, and as a result of its purchase of Securities (including the
Warrant Shares or the Underlying Shares) contemplated by the Securities Purchase
Agreement will not, as of the date hereof have a Regulatory Problem.
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(vii) To the extent the Investor receives
nonvoting securities that have voting rights under state law, the 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.
(viii) The Company will notify the Investor
not later than 5 days prior to the effective date of the material terms of any
proposed amendment of the Charter or the Bylaws. The Investor agrees to notify
the Company as to whether or not it would have a Regulatory Problem promptly
after the Investor has notice of any proposed amendment or waiver.
(b) Information Rights and Related Covenants. The
Company hereby covenants and agrees to take the following actions:
(i) Provide to the Investor 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 Investor and the SBA a
certificate of its chief financial officer (1) verifying the use of such
proceeds and (2) to his knowledge 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 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 the Investor or its
Affiliates, 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 and (B)
furnish to such Person all information reasonably requested by it in order for
it to prepare and file SBA Form 468 and any other 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 ineligible to receive
financial assistance from an
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SBIC under the SBIA and the regulations thereunder (within the meanings of the
13 CFR Sections 107.720 and 107.760(b)).
(vi) The Company will at all times comply
with the non-discrimination requirements of 13 C.F.R., Parts 112, 113 and 117.
3. [Intentionally left blank.]
4. DEFINITIONS.
Unless the context otherwise requires, capitalized terms used
but not defined herein have the meanings given to them in the Securities
Purchase Agreement.
"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 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
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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.
MELLON VENTURES, L.P.
By: MVMA, L.P., its general partner
By: MVMA, Inc., its general partner
By: /s/ XXXX X. XXXX
-------------------------------------
Name: Xxxx X. Xxxx
Title: Associate
Agreed as of the date first set forth above:
CARRIZO OIL & GAS, INC.
By: /s/ XXXXX X. XXXXXX
-------------------------------------------
Name: Xxxxx X. Xxxxxx
Title:
Schedule I
SBIC Securities
---- ----------
XX Xxxxxx Partners formerly (CB Capital Purchased in 1999
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. Purchased in 1999
$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
Purchased in 2002
40,000 shares of Preferred Stock
Warrants to purchase up to 168,421 shares of Common
Stock
