1
STOCK PURCHASE AGREEMENT
AMONG
CARRIZO OIL & GAS, INC.,
ENRON CAPITAL & TRADE RESOURCES CORP.
AND
JOINT ENERGY DEVELOPMENT
INVESTMENTS II LIMITED PARTNERSHIP
DATED
JANUARY 8, 1998
2
TABLE OF CONTENTS
ARTICLE I.
DEFINITIONS
1.1 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II.
SALE AND PURCHASE OF SHARES; CLOSING
2.1 SALE AND PURCHASE OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF ISSUER
3.1 CORPORATE EXISTENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.2 CORPORATE POWER AND AUTHORIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.3 BINDING OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.4 NO VIOLATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.5 CONSENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.6 SEC DOCUMENTS AND FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.7 RESERVE REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.8 NO MATERIAL ADVERSE EFFECT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.9 LIABILITIES; INDEBTEDNESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.10 LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.11 SPECIFIED CONTRACTS AND COMMITMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.12 TITLE TO PROPERTIES AND ASSETS; LEASES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.13 COMPLIANCE WITH THE LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.14 TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.15 EMPLOYEE BENEFIT MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.16 INVESTMENT COMPANY ACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.17 PUBLIC UTILITY HOLDING COMPANY ACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.18 NO RESTRICTIONS ON AFFILIATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.19 CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.20 SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.21 ENVIRONMENTAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.22 INTELLECTUAL PROPERTY AND OTHER INTANGIBLE ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.23 NO PUBLIC OFFER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.24 INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.25 CERTAIN TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.26 USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
i
3
3.27 PLUGGING AND ABANDONMENT OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.28 NO MATERIAL MISSTATEMENTS OR OMISSIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.29 FEES AND COMMISSIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.30 DISCLOSURE LETTER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF PURCHASERS
4.1 CORPORATE; PARTNERSHIP EXISTENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.2 CORPORATE; PARTNERSHIP POWER AND AUTHORIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.3 BINDING OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.4 NO VIOLATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.5 PURCHASE FOR INVESTMENT; EXPERIENCE, ILLIQUIDITY; ACCREDITED INVESTOR . . . . . . . . . . . . . . . 19
4.6 FEES AND COMMISSIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.7 INVESTIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.8 SHORT SELLING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.9 INVESTMENT COMPANY ACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.10 PUBLIC UTILITY HOLDING COMPANY ACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE V.
COVENANTS
5.1 OPERATION OF BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.2 ACCESS TO INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.3 USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.4 NO RESTRICTIONS ON AFFILIATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.5 CERTAIN PUBLIC UTILITY MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.6 CORPORATE EXISTENCE AND TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.7 COMPLIANCE WITH LAWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.8 PROVISION OF INFORMATION AND SEC REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.9 QUOTATION ON NASDAQ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.10 RESERVATION OF COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.11 MAJOR SHAREHOLDER RESTRICTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.12 NOTICE OF EVENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE VI.
CLOSING CONDITIONS
6.1 CONDITIONS TO OBLIGATION OF PURCHASERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.2 CONDITIONS TO OBLIGATION OF ISSUER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ii
4
ARTICLE VII.
REGISTRATION RIGHTS
7.1 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.2 PIGGYBACK REGISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.3 DEMAND REGISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.4 DELAY IN REGISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.5 DESIGNATION OF UNDERWRITER; UNDERWRITING AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.6 EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.7 INDEMNITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.8 OBLIGATIONS OF ISSUER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.9 ASSIGNMENT OF REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.10 LOCKUPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.11 SUBSEQUENT GRANTS OF REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.12 CERTAIN AGREEMENTS OF HOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.13 TERMINATION OF REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE VIII.
OTHER PROVISIONS
8.1 FEES AND COMMISSIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.2 BUSINESS OPPORTUNITY MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.3 CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.4 SURVIVAL; FAILURE TO CLOSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.5 RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE IX.
INDEMNIFICATION
9.1 ISSUER INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
9.2 PURCHASERS INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
9.3 PROCEDURES RELATING TO INDEMNIFICATION UNDER ARTICLE IX . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE X.
MISCELLANEOUS
10.1 AMENDMENTS; WAIVERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
10.2 SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
10.3 SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
10.4 DESCRIPTIVE HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
10.5 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
10.6 ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
iii
5
10.7 EXECUTION IN COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
10.8 FURTHER COOPERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
10.9 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
10.10 NO WAIVER; REMEDIES CUMULATIVE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
10.11 EXHIBITS; AMENDMENT OF DISCLOSURE LETTER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
10.12 DISPUTE RESOLUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
EXHIBITS
Exhibit A -Form of Statement of Resolution
Exhibit B -Form of Shareholders' Agreement
Exhibit C -Form of Warrant Certificate
Exhibit D -Disclosure Letter
iv
6
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement") is made as of January 8,
1998, by and between Carrizo Oil & Gas, Inc., a Texas corporation ("Issuer"),
and Enron Capital & Trade Resources Corp., a Delaware corporation ("ECT"), and
Joint Energy Development Investments II Limited Partnership, a Delaware limited
partnership ("JEDI II") (ECT and JEDI II are hereinafter individually referred
to as a "Purchaser" and collectively as "Purchasers").
RECITALS
Issuer desires to issue and sell to Purchasers and Purchasers desire to
purchase, subject to the terms and conditions set forth herein , an aggregate
of (i) 300,000 shares of Preferred Stock (as herein defined) and (ii) 1,000,000
Warrants (as herein defined) exercisable for the purchase of 1,000,000 shares
of Common Stock (as herein defined).
Issuer has agreed to use all of the Proceeds (as hereinafter defined)
for the activities as described in Section 5.3.
AGREEMENTS
In consideration of the recitals and the mutual covenants herein contained
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE I.
DEFINITIONS
1.1 DEFINITIONS. In addition to the capitalized terms defined
elsewhere in this Agreement, the following capitalized terms shall have the
following respective meanings when used in this Agreement:
"AFFILIATE" as applied to any specified Person shall mean any
other Person directly or indirectly controlling, controlled by, or
under direct or indirect common control with, such specified Person.
The term "control" (including, with correlative meanings, the terms
"controlling," "controlled by" and "under common control with"), as
applied to any Person, means the possession, directly or indirectly,
of 10% or more of the voting power (or in the case of a Person which
is not a corporation, 10% or more of the ownership interest,
beneficial or otherwise) of such Person or the power otherwise to
direct or cause the direction of the management and policies of that
Person, whether through voting, by contract or otherwise. For the
purpose of this paragraph, "voting power" of any Person means the
total number of votes which may be cast by the holders of the total
number of outstanding shares of equity of any class or classes of such
Person. For purposes of this Agreement (i) all executive officers and
directors of a Person shall be deemed to be Affiliates of such Person,
1
7
and (ii) for avoidance of doubt, Enron Corp. and its Affiliates shall
be deemed to be Affiliates of Purchasers.
"BASIC DOCUMENTS" shall mean this Agreement, the Statement of
Resolution, the Shareholders' Agreement, the Letter Agreement and the
Warrant Certificate.
"BOARD OF DIRECTORS" shall mean the Board of Directors of
Issuer or any committee thereof duly authorized to act on behalf of
the Board of Directors.
"CAPITALIZED LEASE OBLIGATIONS" shall mean all payment
obligations arising under any lease of property which, in accordance
with GAAP, would be capitalized on Issuer's balance sheet or for which
the amount of the asset and liability thereunder as if so capitalized
should, in accordance with GAAP, be disclosed in a note to such
balance sheet.
"CAPITAL STOCK" of any Person shall mean any and all shares,
interests, participations or other equivalents (however designated)
of, or rights, warrants or options to purchase, corporate stock or any
other equity (however designated) of or in such Person.
"CHARTER" shall mean, for any Person, such Person's
certificate of incorporation, articles of incorporation, limited
partnership agreement or other organizational documents, as the case
may be, as the same may be amended.
"CLAIMS" shall have the meaning assigned to such term in
Section 9.1.
"CLOSING" shall have the meaning assigned to such term in
Section 2.2.
"CLOSING DATE" shall have the meaning assigned to such term in
Section 2.2.
"CODE" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and all rules and regulations promulgated
thereunder, and any successor statute.
"COMMISSION" shall have the meaning assigned to such term in
Section 3.6.
"COMMON STOCK" shall mean the common stock, par value $.01 per
share, of Issuer.
"COMMON STOCK EQUIVALENTS" shall mean rights, warrants, or
options to purchase shares of Capital Stock of Issuer, or any other
security convertible into or exchangeable for Capital Stock of the
Issuer.
"CONSOLIDATED" shall refer to the consolidation of financial
statements in accordance with GAAP.
"DEFENSIBLE TITLE" shall mean, with respect to the assets of
Issuer (i) the title of Issuer to such assets is free and clear of all
Liens of any kind whatsoever, and (ii) as to those wells for which a
"working interest" and a "net revenue interest" are set forth in
Section 3.12
2
8
of the Disclosure Letter, Issuer is entitled to receive the percentage
of all hydrocarbons produced, saved and marketed from such wells in an
amount not less than the net revenue interest set forth therein,
without reduction, suspension or termination throughout the duration
of the productive life of such wells, and Issuer is obligated to bear
the percentage of costs and expenses related to the maintenance,
development and operation of such wells in an amount not greater than
the working interest set forth in such Section, without increase
throughout the productive life of such wells, except increases that
also result in a proportionate increase in net revenue interest and as
set forth in such Section.
"DISCLOSURE LETTER" shall mean that certain disclosure letter
of even date herewith delivered to Purchasers by Issuer relating to
Issuer's disclosures in connection with its representations and
warranties hereunder and attached hereto as Exhibit D.
"ENVIRONMENTAL LAWS" shall mean any and all Governmental
Requirements pertaining to health or the environment in effect in any
and all jurisdictions in which Issuer conducts business or at any time
has conducted business including without limitation, the Clean Air
Act, as amended, the Comprehensive Environmental, Response,
Compensation, and Liability Act of 1980 ("CERCLA"), as amended, the
Federal Water Pollution Control Act, as amended, the Occupational
Safety and Health Act of 1970, as amended, the Resource Conservation
and Recovery Act of 1976 ("RCRA"), as amended, the Safe Drinking Water
Act, as amended, the Toxic Substances Control Act, as amended, the
Superfund Amendments and Reauthorization Act of 1986, as amended, the
Hazardous and Solid Waste Amendments Act of 1984, as amended, the
Hazardous Materials Transportation Act, as amended, the Outer
Continental Shelf Lands Act, as amended, the Coastal Zone Management
Act, as amended, and other environmental conservation or protection
laws. The terms "hazardous substance" and "release" (or "threatened
release") have the meanings specified in CERCLA, and the terms "solid
waste" and "disposal" (or "disposed") have the meanings specified in
RCRA; provided, however, that to the extent the laws of the state in
which any property or operation is located has established a meaning
for "hazardous substance," "release," "solid waste" or "disposal"
which is broader than that specified in either CERCLA or RCRA, such
broader meaning shall apply.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time.
"ERISA AFFILIATE" shall have the meaning assigned to such term
in Section 3.15.
"EXCHANGE ACT" shall have the meaning assigned to such term in
Section 3.6.
"FEE LETTER" shall mean that certain letter agreement of even
date herewith regarding Issuer's agreement to pay a structuring fee to
ECT Securities Corp.
"GAAP" shall mean generally accepted accounting principles
(including principles of consolidation), in the United States in
effect from time to time, consistently applied.
3
9
"GOVERNMENTAL AUTHORITY" shall mean any foreign or domestic
federal, state, county, municipal, or other governmental or regulatory
authority, agency, board, body, commission, instrumentality, court, or
any political subdivision thereof.
"GOVERNMENTAL REQUIREMENT" shall mean any law, statute, code,
ordinance, order, rule, regulation, judgment, decree, injunction,
franchise, permit, certificate, license, authorization, determination
or other direction or requirement (including but not limited to any of
the foregoing which relate to Environmental Laws, energy regulations
and occupational, safety and health standards or controls) of any
Governmental Authority.
"INDEBTEDNESS" shall mean, with respect to any Person, the
principal of, premium, if any, and interest on: (a) indebtedness for
money borrowed from others whether or not evidenced by notes, bonds,
debentures or otherwise; (b) indebtedness of another Person
guaranteed, directly or indirectly, in any manner by such Person,
including, without limitation, through an agreement, contingent or
otherwise, (i) to purchase or pay any such indebtedness, (ii) to
advance or supply funds for the purchase or payment of such
indebtedness, (iii) to purchase and pay for property if not delivered
or pay for services if not performed, primarily for the purpose of
enabling such other Person to make payment of such indebtedness or to
assure the owners of the indebtedness against loss, or (iv) to
maintain working capital, equity capital or other financial condition
of such other Person so as to enable it to pay such indebtedness; (c)
all indebtedness secured by any Lien upon property owned by such
Person, even though such Person has not in any manner become liable
for the payment of such indebtedness; (d) all indebtedness of such
Person created or arising under any conditional sale, lease (intended
primarily as a financing device) or other title retention or security
agreement with respect to property acquired by such Person even though
the rights and remedies of such Persons, lessor or lender under such
agreement or lease in the event of default may be limited to
repossession or sale of such property; (e) all obligations of such
Person issued or assumed for the deferred purchase price of property
or services, including all trade credit; (f) Capitalized Lease
Obligations and the present value of all future lease payments under a
lease other than Capitalized Lease Obligations; (g) all unfunded
post-retirement and post-employment benefits including, without
limitation, unfunded pension liabilities to the extent required to be
reflected on such Person's balance sheet in accordance with GAAP; (h)
mandatory redemption or mandatory dividend rights on ordinary shares
(or other equity); (i) obligations of discontinued businesses that are
subsumed within the single-sum amount of the net assets of the
discontinued operations being held for sale, and (j) all obligations
of such Person under or with respect to letters of credit.
"INTERIM BALANCE SHEET" shall have the meaning assigned to
such term in Section 3.6.
"INTERMEDIARY" shall have the meaning assigned to such term in
Section 8.1.
"LETTER AGREEMENT" shall mean that certain Letter Agreement of
even date herewith between ECT and Issuer.
4
10
"LIEN" shall mean, with respect to any Person, any mortgage,
deed of trust, lien, security interest, pledge, lease, conditional
sale contract, claim, charge, easement, right of way, assessment,
restriction and other encumbrance of every kind.
"MATERIAL ADVERSE EFFECT" shall mean, with respect to a
Person, any change or event that, individually or in the aggregate,
would or could reasonably be expected to have a material adverse
effect on (a) the assets, liabilities, condition (financial or
otherwise), business, results of operations or prospects of such
Person and its Subsidiaries on a Consolidated basis, (b) the ability
of such Person to perform its obligations on a timely basis or to
carry on its business as it exists on the date of this Agreement or
proposed at the date of this Agreement to be conducted or (c) the
consummation of the transactions contemplated hereby; provided,
however, that any change or event resulting from (i) changes in the
price of oil, gas, natural gas liquids or other hydrocarbon products,
or (ii) changes in general economic conditions shall not constitute a
Material Adverse Effect.
"PERMITS" shall mean all licenses, permits, exceptions,
franchises, accreditations, privileges, rights, variances, waivers,
approvals and other authorizations (including, without limitation,
those relating to environmental matters) of, by or from Governmental
Authorities necessary for the conduct of the business of Issuer and
its Subsidiaries as currently conducted and as proposed to be
conducted by Issuer and its Subsidiaries after the Closing.
"PERMITTED ASSIGNS" shall mean any Affiliate of ECT or JEDI II
and any Person to whom any Purchaser has transferred an interest in
the Securities, the Warrant Shares and the Basic Documents pursuant to
Section 10.2 hereof, subject to the limitations upon transfer of the
Warrants set forth in the Warrant Certificate.
"PERSON" shall mean an individual or individuals, a
partnership, a corporation, a company, a limited liability company, an
association, a joint stock company, a trust, a joint venture, an
unincorporated organization, any other form of legal entity, or a
Governmental Authority.
"PLAN" shall have the meaning assigned to such term in Section
3.15(a)(i).
"PREFERRED STOCK" shall mean the 9% Series A Preferred Stock,
par value $0.01, having the relative rights, preferences, privileges
and limitations set forth in the Statement of Resolution.
"PROCEEDS" shall mean $30,000,000.
"RESTRICTED SECURITIES" shall mean the Securities and Warrant
Shares of the Company required to bear the legend set forth in Section
8.5 hereof.
"SEC DOCUMENTS" shall have the meaning assigned to such term
in Section 3.6.
"SECURITIES" shall mean collectively the Shares and the
Warrants.
5
11
"SECURITIES ACT" shall have the meaning assigned to such term
in Section 3.6.
"SHAREHOLDERS' AGREEMENT" shall mean that certain
Shareholders' Agreement attached hereto as Exhibit B.
"SHARES" shall have the meaning assigned to such term in
Section 2.1.
"STATEMENT OF RESOLUTION" shall mean the Statement of
Resolution relating to the Preferred Stock, a form of which is
attached hereto as Exhibit A.
"SUBSIDIARY" shall mean, as to any Person ("Owning Person"),
any Person of which Owning Person or one or more of its Subsidiaries
or Owning Person and one or more of its Subsidiaries owns sufficient
equity or voting interests to enable it or them (as a group)
ordinarily, in the absence of contingencies, to elect a majority of
the directors (or Persons performing similar functions) of such
entity, and any Person if more than a 50% interest in the profits or
capital thereof is owned by Owning Person or one or more of its
Subsidiaries or Owning Person and one or more of its Subsidiaries.
"THIRD PARTY CLAIM" shall mean a Claim that is not a Claim by
Issuer, Purchasers for their own losses.
"WARRANTS" shall mean the warrants which are exercisable into
Common Stock having the relative rights, preferences, privileges and
limitations set forth in the Warrant Certificate attached hereto as
Exhibit C.
"WARRANT CERTIFICATE" shall mean those certain Warrant
Certificates in the form thereof attached hereto as Exhibit C dated of
even date herewith in favor of each of the Purchasers, respectively.
"WARRANT SHARES" shall mean shares of Common Stock or other
securities issuable upon exercise of the Warrants.
ARTICLE II.
SALE AND PURCHASE OF SHARES; CLOSING
2.1 SALE AND PURCHASE OF SHARES. Subject to the satisfaction of
the terms and conditions herein set forth and in reliance upon the respective
representations, warranties, and covenants of the parties set forth herein or
in any document delivered pursuant hereto, at the Closing Issuer agrees to sell
and deliver to Purchasers, and Purchasers respectively agree to purchase and
accept, (a) 75,000 shares of Preferred Stock by ECT, (b) 225,000 shares of
Preferred Stock by JEDI II, (c) one Warrant Certificate to ECT representing
Warrants to purchase 250,000 Warrant Shares and (d) one Warrant Certificate to
JEDI II representing Warrants to purchase 750,000 Warrant Shares. The shares
of Preferred Stock to be acquired by Purchasers hereunder are hereinafter
referred to as the "Shares."
6
12
2.2 CLOSING. The closing of the sale and purchase of the
Securities (the "Closing") will occur at 9:30 p.m. on January 8, 1998, or on
such other date as may be agreed by the parties, at the offices of Vinson &
Elkins L.L.P. (the "Closing Date").
2.3 DELIVERY. Delivery of the Securities pursuant to this
Agreement shall be made at the Closing by Issuer delivering against payment
therefor as provided below, (a) one certificate to ECT representing 75,000
Shares, (b) one certificate to JEDI II representing 225,000 Shares, (c) one
certificate to ECT representing Warrants to purchase 250,000 Warrant Shares and
(d) one certificate to JEDI II representing Warrants to purchase 750,000
Warrant Shares, each registered in the name of the respective Purchaser.
2.4 PAYMENT. Payment in the amount of $30,000,000 for the
Securities shall be made by a wire transfer of $7,500,000 from ECT and a wire
transfer of $22,500,000 from JEDI II, both in immediately available funds to an
account of Issuer at a commercial bank, which account shall have been
designated by Issuer at least two business days prior to the Closing Date.
2.5 WARRANT VALUATION. Issuer shall provide Purchasers with a
resolution of the Board of Directors of Issuer setting forth the value of the
Warrants as determined by the Board of Directors. The Issuer and the
Purchasers hereby agree with such valuation for federal income tax purposes and
further agree not to take a position contrary to such valuation.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF ISSUER
Issuer represents and warrants to Purchasers as follows:
3.1 CORPORATE EXISTENCE. Issuer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Texas.
Issuer has all necessary power and authority to conduct its business as it is
now being conducted and to own, operate and lease the properties and assets it
currently owns, operates and holds under lease. Issuer is duly qualified to do
business and is in good standing in each jurisdiction in which the nature of
its business activities or its ownership or leasing of property makes such
qualification necessary. On or before the date hereof Issuer has delivered or
made available to Purchasers true and complete copies of Issuer's Charter and
bylaws, together with all amendments thereto. Except for the Statement of
Resolution, no other amendment to Issuer's Charter has been approved by the
Board of Directors or shareholders of Issuer or filed with the Secretary of
State of the State of Texas.
3.2 CORPORATE POWER AND AUTHORIZATION. Issuer has all requisite
power and authority to issue the Securities and the Warrant Shares and to
execute, deliver, and perform the Basic Documents, and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of
the Basic Documents and the consummation of the transactions to be performed by
Issuer have been duly and validly authorized by all necessary action on the
part of the Board of Directors, and no other corporate proceedings are
necessary to authorize the execution and delivery
7
13
of this Agreement by Issuer or to consummate the transactions to be performed
by Issuer, other than filing the Statement of Resolution with the Secretary of
State of the State of Texas on or prior to the Closing on the Closing Date.
3.3 BINDING OBLIGATIONS. Each of the Basic Documents when
executed and delivered by Issuer, shall constitute a legal, valid and binding
obligation of Issuer enforceable in accordance with their terms, except insofar
as the enforceability thereof may be limited (i) by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and (ii) by general principles of
equity and public policy (regardless of whether considered at law or in
equity). When issued and delivered to Purchasers at the Closing upon payment
therefor as provided in this Agreement, the Shares will be duly authorized,
validly issued, fully paid and nonassessable and free and clear of any liens.
3.4 NO VIOLATION. The execution and delivery by Issuer of the
Basic Documents, the consummation of the transactions provided for therein and
contemplated thereby, and the fulfillment by Issuer of the terms thereof, will
not (a) conflict with or result in a breach of any provision of the Charter or
bylaws of Issuer, (b) result in any default or in any material modification of
the terms of any Indebtedness, material contract or agreement, of Issuer or the
creation of any Lien upon any of the properties or assets owned by Issuer, or
(c) violate any Governmental Requirement or Permit applicable to Issuer or any
of its Subsidiaries.
3.5 CONSENTS. All consents, approvals, qualifications, orders or
authorizations of, or filings with, any Governmental Authority, and all
consents under any material contracts, agreements, or instruments by which
Issuer is bound or to which it is subject, and required in connection with
Issuer's valid execution, delivery, or performance of this Agreement, and the
consummation of the transactions contemplated hereby, has been obtained or
made except for the filing of the Statement of Resolutions with the Secretary
of State of the State of Texas and the filing of a Form D with the Securities
and Exchange Commission.
3.6 SEC DOCUMENTS AND FINANCIAL STATEMENTS. (a) Issuer has
timely filed with the United States Securities and Exchange Commission (the
"Commission") all forms, reports, schedules, statements and other documents
required to be filed by it since August 5, 1997 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), or the Securities Act of 1933, as
amended (the "Securities Act") (such documents, as supplemented and amended
since the time of filing, collectively, the "SEC Documents"). The SEC
Documents, including, without limitation, any financial statements or schedules
included therein, at the time filed (and, in the case of registration
statements, on the dates of effectiveness) (a) did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading, and (b)
complied in all material respects with the applicable requirements of the
Exchange Act and the Securities Act, as the case may be. The financial
statements of Issuer included in the SEC Documents at the time filed (and, in
the case of registration statements, on the dates of effectiveness) complied as
to form in all material respects with applicable accounting requirements and
with the published rules and regulations of the Commission with respect
thereto, were prepared in accordance with GAAP applied on a consistent basis
during the periods involved (except as may
8
14
be indicated in the notes thereto or, in the case of unaudited statements, as
permitted by Form 10-Q of the Commission), and fairly present (subject in the
case of unaudited statements to normal, recurring audit adjustments) the
combined financial position of Issuer, as of the dates thereof and the combined
results of operations and cash flows for the periods then ended. The combined
balance sheet for Issuer included in its quarterly report on Form 10-Q for the
fiscal quarter ended September 30, 1997 is referred to herein as the "Interim
Balance Sheet".
3.7 RESERVE REPORT. Issuer has delivered to the Purchasers a copy
of the reserve report dated as of March 31, 1997 prepared by Ryder Scott
Company Petroleum Engineers and Fairchild, Ancell & Well, Inc. (the "Petroleum
Engineers"), respectively, (the "Reports"), relating to the oil and gas
reserves attributable to properties owned to which Issuer has rights under
lease or farmout or other written agreement by Issuer. To the knowledge of
Issuer, the estimates of reserves in the Reports were prepared in accordance
with standard geological and engineering methods generally accepted in the oil
and gas industry. The estimates of the lease operating expenses in the
Reports reasonably reflect the historical experience of Issuer and Issuer has
no reason to believe that the estimates will not reflect future lease operating
expenses and the historical factual information supplied by Issuer to the
independent engineering firm in connection with the preparation of the Reports
was, at the time of delivery to such firm, true and complete in all material
respects.
3.8 NO MATERIAL ADVERSE EFFECT. Since September 30, 1997, there
has been no Material Adverse Effect with respect to Issuer nor any acquisition
or disposition of any material asset by Issuer or any contract or arrangement
therefor, otherwise than for fair value in the ordinary course of business.
3.9 LIABILITIES; INDEBTEDNESS. Except for liabilities incurred in
the ordinary course of business and that would not, individually or in the
aggregate, have a Material Adverse Effect, Issuer does not have any
liabilities, direct or contingent (including but not limited to liability with
respect to any Plan or, to Issuer's knowledge, any Environmental Law) other
than those provided for in the Interim Balance Sheet or disclosed in Section
3.9 of the Disclosure Letter. Except as would not have a Material Adverse
Effect or as disclosed on the Interim Balance Sheet or in the audited financial
statements of the Issuer or as incurred in the ordinary course of business,
Issuer has no Indebtedness other than the Indebtedness disclosed in Section 3.9
of the Disclosure Letter.
3.10 LITIGATION. Except as disclosed in Section 3.10 of the
Disclosure Letter, there is no action, suit or proceeding, or any governmental
investigation or any arbitration, in each case pending or, to the knowledge of
Issuer, threatened against Issuer or any material property of Issuer before any
Governmental Authority (i) which challenges the legality, enforceability or
validity of the Basic Documents, or (ii) which, if adversely determined, would
have a Material Adverse Effect or impair the ability or obligation of Issuer to
perform fully on a timely basis any obligations which it has or will have under
the Basic Documents.
3.11 SPECIFIED CONTRACTS AND COMMITMENTS. (a) Except as set forth
in Section 3.11 of the Disclosure Letter and except for the Basic Documents to
be entered into pursuant to or in connection with this Agreement, Issuer has no
(i) employment or consulting contract involving annual payments by Issuer in
excess of $125,000 and not cancelable without liability on sixty days'
9
15
notice or less; (ii) capital redemption or purchase agreements; (iii)
agreements providing for the indemnification of other parties for such parties'
negligence or other fault (except for such obligations incurred in the ordinary
course of business as an owner or operator of oil and gas properties, including
obligations under master service agreements, drilling contracts and similar
agreements) or the sharing of the tax liability of other parties; (iv)
collective bargaining agreements; (v) gas sales or purchase contract, gas
marketing agreement or transportation agreement under which Issuer is the
seller, which agreement is not terminable without penalty on thirty days'
notice or less, and which provides for a price less than fair market value;
(vi) agreement for capital expenditures, the acquisition of commodities,
equipment or material or the construction of fixed assets which individually
are expected to require aggregate future payments by Issuer in excess of
$750,000 and all which in the aggregate would be expected to require future
payments in excess of $2,500,000; (vii) agreement for, or that contemplates,
the sale of any interest in oil or gas leases which involves payment (including
property received in exchange or other non-cash consideration) to Issuer in
excess of $1,000,000 in the aggregate; (viii) agreement which requires future
payments by Issuer in excess of $400,000 (and not included in clauses (vi) or
(vii)) which is not otherwise specifically disclosed herein; (ix) agreements
containing covenants limiting or restricting the freedom of Issuer to compete
in any line of business or territory or with any person or entity; (x) area of
mutual interest agreements binding Issuer; (xi) futures, hedge, swaps, collars,
puts, calls, floors, caps, options or other contracts that are intended to
benefit from or reduce or eliminate the risk of fluctuations in the price of
commodities, including hydrocarbons; (xii) indentures, mortgages, promissory
notes, loan agreements, guaranties or other agreements or commitments for the
borrowing of money or any related security agreements (other than relating to
the Indebtedness described in Section 3.9 of the Disclosure Letter); (xiii)
voting trust or other agreement or understanding with respect to the voting of
its Capital Stock; (xiv) contracts, commitments, agreements, understandings or
arrangements of any kind to which Issuer is a party relating to the issuance of
any Capital Stock of Issuer or any Common Stock Equivalents, other than the
Basic Documents, or (xv) agreement with respect to any of its Securities which
grants registration rights to any Person other than the Basic Documents
(collectively, "Specified Contracts"). None of the Specified Contracts have
been amended or modified except as set forth in Section 3.11 of the Disclosure
Letter.
(b) All of the Specified Contracts are in full force and effect
and constitute legal, valid and binding obligations of Issuer, and, to the
knowledge of Issuer, the other parties thereto, enforceable in all material
respects in accordance with their respective terms, except insofar as the
enforceability thereof may be limited (i) by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and (ii) by general principles of equity and public
policy (regardless of whether considered at law or in equity). Neither Issuer
nor, to the knowledge of Issuer, any other party to any Specified Contract, is
in default in complying with any provisions thereof, and no condition or event
or fact exists which, with notice, lapse of time or both would constitute a
default thereunder on the part of Issuer or, to the knowledge of Issuer, any
other party thereto, except for any such default, condition, event or fact
that, individually or in the aggregate, would not have a Material Adverse
Effect.
(c) Issuer has no contracts or subcontracts whereby Issuer
receives payments from the federal government for the sale of products to, or
the provision of services to the government.
10
16
Issuer has provided Purchasers with a true and complete copy of each contract,
agreement and instrument listed in Section 3.11 of the Disclosure Letter or has
otherwise made such documents available for Purchasers to review.
3.12 TITLE TO PROPERTIES AND ASSETS; LEASES. (a) Except as set
forth in Section 3.12 of the Disclosure Letter, Issuer has Defensible Title to
all of its properties and assets (real and personal, tangible and intangible)
reflected on the Interim Balance Sheet and all of the material assets
thereafter acquired by Issuer (except to the extent that such assets have
thereafter been disposed of in the ordinary course of business consistent with
past practice), and, in each case free and clear of all Liens except (i) Liens
for taxes not yet due and payable or, if payable, that are being contested in
good faith in the ordinary course of business, (ii) statutory Liens (including
materialmen's, mechanic's, repairmen's, landlord's, and other similar liens)
arising in the ordinary course of business to secure payments not yet due and
payable or, if payable, that are being contested in good faith in the ordinary
course of business, (iii) easements, restrictions, reservations or other
encumbrances, as well as such imperfections or irregularities of title, if any,
as are not material, (iv) obligations or duties to any municipality or public
authority with respect to any franchise, grant, license or permit and all
applicable laws, rules, regulations and orders of any governmental authority,
(v) all lessors' royalties, overriding royalties, net profits interests,
production payments, carried interests, reversionary interests and other
burdens on or deductions from the proceeds of production, (vi) the terms and
conditions of joint operating agreements and other oil and gas contracts, (vii)
all rights to consent by, required notices to, and filings with or other
actions by governmental or tribal entities, if any, in connection with the
change of ownership or control of an interest in federal, state, tribal or
other domestic governmental oil and gas leases, if the same are customarily
obtained subsequent to such change of ownership or control, but only insofar as
such consents, notices, filings and other actions relate to the transactions
contemplated by this Agreement, (viii) any preferential purchase rights, (ix)
required third party consents to assignment, (x) conventional rights of
reassignment prior to abandonment and (xi) the terms and provisions of oil and
gas leases, unit agreements, pooling agreements, communication agreements and
other documents creating interests comprising the oil and gas properties;
provided, however, the exceptions described in clauses (iv) through (xi)
inclusive above are qualified to include only those exceptions in each case
which do not operate to (A) reduce the net revenue interest of Issuer below
that set forth in such Section, (B) increase the proportionate share of costs
and expenses of leasehold operations attributable to or to be borne by the
working interest of Issuer above that set forth in such Section without a
proportionate increase in the net revenue interest of Issuer or (C) increase
the working interest of Issuer above that set forth in such Section without a
proportionate increase in the net revenue interest of Issuer, and, provided,
further, however, the foregoing defects, limitations, liens and encumbrances,
whether individually material or not, do not in the aggregate create a Material
Adverse Effect upon the Company. To Issuer's knowledge, all equipment now
owned by Issuer which is necessary to the business of Issuer is in good
condition and repair (ordinary wear and tear excepted), except where the
failure to be in good condition and repair would not have a Material Adverse
Effect.
(b) Except as set forth in Section 3.12 of the Disclosure Letter,
but only to the knowledge of Issuer with respect to oil and gas leases not
operated by any of Issuer the oil and gas leases in
11
17
which Issuer owns an interest (i) have been maintained according to their terms
and in compliance with all material agreements to which such oil and gas leases
are subject, except where the failure to be so maintained or any noncompliance
would not have a Material Adverse Effect, and (ii) are in full force and
effect, except where the failure to be in full force and effect would not have
a Material Adverse Effect.
(c) All royalties, overriding royalties, compensatory royalties
and other payments due with respect to the oil and gas properties of Issuer
have been properly and correctly paid, except where the failure to make such
payment would not have a Material Adverse Effect.
3.13 COMPLIANCE WITH THE LAW. Issuer (i) is not in violation of
any Governmental Requirement and (ii) has not failed to obtain any Permit,
necessary to the ownership of any of its properties or the conduct of its
business, except in either case where a violation or failure would not have a
Material Adverse Effect.
3.14 TAXES. Issuer (i) has filed all tax returns and reports ("Tax
Returns") required to be filed by or with respect to Issuer, (ii) has included
all items of income, gain, loss, deduction and credit or other items required
to be included in each such Tax Return, and (iii) has paid all taxes,
assessments, fees, imposts, duties or other charges, including any interest and
penalties (all collectively referred to herein as "Taxes"), due with respect to
such Tax Returns except for such failures as would not have a Material Adverse
Effect. There is no claim against Issuer for any Taxes, and no assessment,
deficiency or adjustment has been asserted or proposed with respect to any Tax
Return of or with respect to Issuer.
3.15 EMPLOYEE BENEFIT MATTERS.
(a) Definitions. Where the following words and phrases appear in
this Agreement, they shall have the respective meanings set forth below, unless
the context clearly indicates to the contrary:
(i) Plan: Each "employee benefit plan," as such term is
defined in Section 3(3) of ERISA, including, but not limited to, any
employee benefit plan that may be exempt from some or all of the
provisions of ERISA, which is sponsored, maintained, or contributed to
by Issuer or any of ERISA Affiliates for the benefit of the employees,
former employees, independent contractors, or agents of Issuer or any
of its ERISA Affiliates, or has been so sponsored, maintained or
contributed to since September 2, 1974.
(ii) Benefit Program or Agreement: Each personnel policy,
stock option plan, collective bargaining agreement, workers'
compensation agreement or arrangement, bonus plan or arrangement,
incentive award plan or arrangement, vacation policy, severance pay
plan, policy or agreement, deferred compensation agreement or
arrangement, executive compensation or supplemental income
arrangement, consulting agreement, employment agreement, and each
other employee benefit plan, agreement, arrangement, program, practice
or understanding, which is not described in Section 3.15(a)(i) and
which is sponsored, maintained, or contributed to by Issuer for the
benefit of the employees, former employees,
12
18
independent contractors, or agents of Issuer or any of its
Subsidiaries, or has been so sponsored, maintained, or contributed to
since September 2, 1974.
(iii) Benefit Plans: Collectively, the Plans and Benefit
Programs or Agreements.
(b) EMPLOYEE BENEFIT PLAN COMPLIANCE.
(i) Neither Issuer nor any corporation, trade, business,
or entity under common control with Issuer, within the meaning of
Section 414(b), (c), (m), or (o) of the Code or Section 4001 of ERISA,
("ERISA Affiliate") contributes to or has an obligation to contribute
to, nor has Issuer or any ERISA Affiliate at any time within six years
prior to the Closing Date contributed to or had an obligation to
contribute to, a multi-employer plan within the meaning of Section
3(37) of ERISA or any plan subject to Title IV of ERISA; and
(ii) All obligations, whether arising by operation of law
or by contract, required to be performed in connection with the
Benefit Plans have been performed, and there have been no defaults,
omissions, or violations by any party with respect to any Benefit Plan
or law applicable thereto, except as would not have a Material Adverse
Effect; and
(iii) Each Plan that is intended to be qualified under
Section 401(a) of the Code (A) satisfies the requirements of such
Section in all material respects, (B) has received a favorable
determination letter from the Internal Revenue Service ("IRS")
regarding such qualified status and (C) has not, since receipt of the
most recent favorable determination letter, been amended or operated
in a way that would materially and adversely affect such qualified
status and, to the extent such letter does not cover amendments
required by law, both the time for adopting such amendments if not
previously adopted and filing such amendments with the Internal
Revenue Service if not previously filed has not expired.
(c) NO ADDITIONAL RIGHTS OR OBLIGATIONS. Except as set forth in
Section 3.15 of the Disclosure Letter, the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby will not
(i) require Issuer to make a larger contribution to, or pay greater benefits
under, any Benefit Plan than it otherwise would, or (ii) create or give rise to
any additional vested rights or service credits under any Benefit Plan.
(d) NO ADDITIONAL SEVERANCE. Issuer is not a party to any
agreement, nor has Issuer established any policy or practice requiring it to
make a payment or provide any other form of compensation or benefit to any
person performing services for Issuer upon termination of such services that
would not be payable or provided in the absence of the consummation of the
transactions contemplated by this Agreement.
(e) NO EXCESS PARACHUTE PAYMENTS. In connection with the
consummation of the transaction contemplated by this Agreement, no payments
have or will be made under the Benefit Plans.
13
19
(f) NO PARACHUTE PAYMENTS AS RESULT OF CERTAIN EVENTS. The
exercise by holders of the Preferred Stock of the rights and remedies of such
holders provided under the Basic Documents shall not trigger any excess
payments under the Benefit Plans.
3.16 INVESTMENT COMPANY ACT. Issuer is not an "investment company"
or a company "controlled" by an "investment company," within the meaning of the
Investment Company Act of 1940, as amended.
3.17 PUBLIC UTILITY HOLDING COMPANY ACT. Issuer is not a "holding
company," or a "subsidiary company" of a "holding company," or an "affiliate"
of a "holding company" or of a "subsidiary company" of a "holding company," or
a "public utility" within the meaning of the Public Utility Holding Company Act
of 1935, as amended.
3.18 NO RESTRICTIONS ON AFFILIATES. Issuer is not a party to any
agreement that would purport to impose restrictions or limitations on
Purchasers or any of their Affiliates.
3.19 CAPITALIZATION. The authorized capital stock of the Issuer
consists of (i) 40,000,000 shares of Common Stock of which 10,375,000 Shares
are issued and outstanding and an additional 1,000,000 shares are reserved for
issuance under the Incentive Plan of the Issuer and 222,120 shares are reserved
for issuance pursuant to other outstanding options and (ii) 10,000,000 shares
of preferred stock, par value $0.01 per share, none of which have been issued
or are outstanding. Section 3.19 of the Disclosure Letter sets forth the name
and address of each person known to Issuer to be the beneficial owner of 5% or
more of the outstanding shares of Common Stock. Except for up to 1,000,000
shares of Common Stock reserved for issuance upon purchases of shares of Common
Stock under the Incentive Plan of the Issuer or the other outstanding options
set forth in Section 3.19 of the Disclosure Letter, there are no outstanding
subscriptions, warrants, options, calls, commitments or other rights to
purchase or acquire, or Securities convertible into or exchangeable for, any
capital stock of Issuer or its Subsidiaries. All of the outstanding shares of
Common Stock are validly issued, fully paid, and nonassessable. As of the time
of Closing on the Closing Date, the Warrant Shares (assuming the exercise of
all Warrants) would represent approximately 8.44% on a fully diluted basis of
the shares of Common Stock outstanding. There have been reserved for issuance,
and Issuer shall at all times keep reserved, out of the authorized and unissued
shares of Issuer's Common Stock, a number of shares sufficient to provide for
the exercise of the rights of purchase represented by the Warrants, and such
shares, when issued upon receipt of payment therefor or upon a net exercise in
accordance with the terms of the Warrants and of this Agreement, will be
legally and validly issued, fully paid and nonassessable and will be free of
any preemptive rights of shareholders.
3.20 SUBSIDIARIES. Issuer does not own any subsidiaries and does
not own, directly or indirectly, any interest or investment in any Person,
other than interests under any joint operating agreement of oil and gas
property that expressly provides the relationship of the parties created by
such agreement is not intended to render the parties thereto liable as
partners.
14
20
3.21 ENVIRONMENTAL MATTERS. Except as set forth in Section
3.21 of the Disclosure Letter:
(a) the properties and operations of Issuer are not in violation
of any Environmental Laws or any order or requirement of any court or
Governmental Authority to the extent pertaining to health or the
environment, except where a violation would not have a Material Adverse
Effect, nor are there any conditions existing on such property or
resulting from operations thereon that may give rise to any on-site or
off-site remedial obligations under any Environmental Law, except for any
condition that would not have a Material Adverse Effect;
(b) without limitation of Section 3.21(a) above, Issuer are not
subject to any pending or, to the knowledge of Issuer, threatened action,
suit, investigation, inquiry or proceeding by or before any court or
Governmental Authority under any Environmental Law;
(c) except as would not have a Material Adverse Effect, (i) all
notices, Permits, licenses or similar authorizations, if any, required to
be obtained or filed by Issuer under any Environmental Law, including
without limitation those relating to the treatment, storage, disposal or
release of a hazardous substance or solid waste into the environment, have
been duly obtained or filed, and (ii) Issuer is in compliance with the
terms and conditions of all such notices, Permits, licenses and similar
authorizations;
(d) except as would not have a Material Adverse Effect, (i) all
hazardous substances or solid wastes generated by or as a result of
operations on properties owned by Issuer and requiring disposal have been
transported only by carriers maintaining valid authorizations under
applicable Environmental Laws and treated and disposed of only at
treatment, storage and disposal facilities maintaining valid
authorizations under applicable Environmental Laws, and, (ii) such
carriers and facilities have been and are operating in compliance with
such authorizations and are not the subject of any pending or threatened
action, investigation or inquiry by any Governmental Authority in
connection with any Environmental Laws;
(e) except as would not have a Material Adverse Effect, (i) there
are no asbestos-containing materials on or in any property owned or used
by Issuer and (ii) there are no storage tanks or similar containers
exceeding 55 gallons in size on or under any such properties from which
hazardous substances, petroleum products or other contaminants may be
released into the surrounding environment;
(f) without limiting the foregoing, there is no material liability
(accrued or contingent) to any non-governmental third party in tort or
under common law in connection with any release or threatened release of
any hazardous substances, solid wastes, petroleum, petroleum products, and
oil and gas exploration and production wastes into the environment as a
result of operations conducted on its properties; and
(g) Section 3.21 of the Disclosure Letter separately lists for
Issuer any and all existing Claims in which there is a possible uninsured
loss greater than $250,000 or $500,000 in the aggregate against or
affecting it and relating to the release, discharge or emission of any
hazardous substance, or to the generation, treatment, storage or disposal
of
15
21
any wastes, or otherwise relating to the protection of the environment or
to the non-compliance with any notices, Permits, licenses, consent decrees
or other authorization and the disposition of each such Claim. With
respect to each such pending or prior matter, Section 3.21 of the
Disclosure Letter hereto lists the date of the Claim, the claimant or
investigating agency, the nature and a brief description of the matter,
the damages claimed or relief sought, and the status or outcome of the
matter. Except as set forth on Section 3.21 of the Disclosure Letter,
Issuer has not received any written notice that it is a potentially
responsible party under any Environmental Laws.
3.22 INTELLECTUAL PROPERTY AND OTHER INTANGIBLE ASSETS. Issuer
(i) owns or has the right to use, free and clear of all Liens, all patents,
trademarks, service marks, trade names, and copyrights, and all applications,
licenses, and rights with respect to the foregoing, and all trade secrets,
including know-how, inventions, designs, processes, works of authorship,
computer programs, and technical data and information (collectively,
"Intellectual Property") used and sufficient for use in the conduct of its
business as now conducted without infringing upon or violating any right, Lien,
or claim of others, and (ii) except as described in Section 3.22 of the
Disclosure Letter, is not obligated or under any liability whatsoever to make
any payments by way of royalties, fees, or otherwise to any owner or licensee
of, or other claimant to, any patent, trademark, service mark, trade name,
copyright, or other intangible asset, with respect to the use thereof or in
connection with the conduct of its business or otherwise, except for such
failures to have the right to use such obligations and not have a Material
Adverse Effect.
3.23 NO PUBLIC OFFER. Neither Issuer nor anyone acting on its
behalf has offered to any Person securities of Issuer, nor any part thereof,
nor any instruments convertible, exercisable, or exchangeable into such
securities, or has solicited from any Person any offer to acquire the same, in
a manner so as to make the transactions contemplated by this Agreement not
exempt from the registration requirements of Section 5 of the Securities Act.
3.24 INSURANCE. Issuer maintains property, casualty, general
liability and other insurance policies with coverage limits in amounts and with
carriers as in each case are customary in accordance with sound business
practices and which Issuer believes are adequate in the circumstances. Issuer
has previously provided, or made available to Purchasers true and complete
copies of all of Issuer's insurance policies. Issuer has given in a timely
manner to its insurers all notices required to be given under such insurance
policies with respect to all material claims and actions covered by insurance,
and no insurer has denied coverage of any such claims or actions or reserved
its rights in respect of or rejected any of such claims. Issuer has not
received any notice or other communication from any such insurer canceling or
materially amending any of such insurance policies, and no such cancellation is
pending or threatened.
3.25 CERTAIN TRANSACTIONS. Except as set forth on Section 3.25 of
the Disclosure Letter, (a) Issuer is not indebted directly or indirectly to any
of its officers, directors or stockholders or to their respective spouses or
children in any amount whatsoever, (b) none of such officers, directors or
stockholders, or any members of their immediate families, are indebted to
Issuer or have any direct or indirect ownership interest in any Person with
which Issuer has a business relationship (other than ownership interests of
less than 5% in a publicly traded company), or any Person that
16
22
competes with Issuer (other than ownership interests of less than 5% in a
publicly traded competitor), and (c) no officer, director or 10% shareholder,
or any member of his immediate family, has a direct or material indirect
financial interest in any material contract with Issuer other than employment
arrangements and benefit plans.
3.26 USE OF PROCEEDS. All proceeds from the issuance of Securities
will be used by Issuer only in accordance with the provisions of Section 5.3
hereof. No part of the Proceeds from the issuance of Securities or Warrant
Shares will be used by the Issuer to purchase or carry any Margin Stock or to
extend credit to others for the purpose of purchasing or carrying Margin Stock.
Neither the purchase of the Securities nor the use of the proceeds thereof will
violate or be inconsistent with the provisions of Regulations G, T, U or X of
the Federal Reserve Board.
3.27 PLUGGING AND ABANDONMENT OBLIGATIONS. Except as set forth in
Section 3.27 of the Disclosure Letter and as would not have a Material Adverse
Effect, there is no well located upon any property owned by Issuer that Issuer
is currently obligated by law or contract to plug and abandon.
3.28 NO MATERIAL MISSTATEMENTS OR OMISSIONS. The Basic Documents
do not contain any untrue statement of a material fact or omits to state a
material fact necessary to make the statements herein or therein not
misleading, in view of the circumstances in which they were made. To the
knowledge of Issuer, there is no fact or information relating to the business,
prospects, condition (financial or otherwise), affairs, operations, or assets
of Issuer that has not been disclosed to Purchasers in writing by Issuer which
could result in a Material Adverse Effect, including, without limitation,
through disclosure in the SEC Documents. The financial statements and other
related financial data (excluding all projections and proforma financial data)
and reserve reports furnished to the Purchasers by or at the direction of
Issuer in connection with the negotiation of this Agreement do not contain any
material misstatement of fact and, when considered with all other written
statements furnished to the Purchasers in that connection, such financial
statements, related financial data (excluding all projections and proforma
financial data) and reserve reports do not omit to state a material fact or any
fact necessary to make the statement contained therein not misleading. The
circumstances and events that are not required to be identified on the
Disclosure Letter by reason of the materiality qualifications contained in the
representations and warranties in this Article III, or which are otherwise
within such qualifications, in the aggregate do not have, and could not
reasonably be expected to have, a Material Adverse Effect on Issuer when taken
in the context of all of the assets, obligations and operations of the Issuer.
3.29 FEES AND COMMISSIONS. Issuer has not retained, nor are any
fees due from Issuer to, any intermediary retained by such party, any finder,
broker, agent, financial advisor, or other intermediary (collectively, an
"Intermediary") other than in accordance with the Fee Letter, in connection
with the transactions contemplated by this Agreement.
3.30 DISCLOSURE LETTER. The Disclosure Letter is complete and
accurate as of the time of the execution of this Agreement.
17
23
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF PURCHASERS
ECT and JEDI II, as applicable, represent and warrant to Issuer as follows
(each Purchaser's representations and warranties are being made as to that
Purchaser only and not the other):
4.1 CORPORATE; PARTNERSHIP EXISTENCE.
(a) ECT is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware.
(b) JEDI II is a limited partnership duly formed and
validly existing under the laws of the State of Delaware.
4.2 CORPORATE; PARTNERSHIP POWER AND AUTHORIZATION.
(a) ECT has all requisite power and authority to
execute, deliver and perform each of the Basic Documents to which it
is a party and to consummate the transactions contemplated thereby.
All action on the part of ECT requisite for the due execution,
delivery and performance of each of the Basic Documents to which it is
a party has been duly and effectively taken. The execution and
delivery of each of the Basic Documents to which ECT is a party and
the consummation of the transactions to be performed by ECT thereunder
has been duly and validly authorized by all necessary action on the
part of the boards of directors of ECT thereunder, and no other
corporate proceedings are necessary to authorize the execution and
delivery by ECT of each of the Basic Documents to which it is party or
to consummate the transactions to be performed by it thereunder.
(b) JEDI II has all requisite power and authority to
execute, deliver and perform each of the Basic Documents to which it
is a party and to consummate the transactions contemplated thereby.
All action on the part of JEDI II requisite for the due execution,
delivery and performance of each of the Basic Documents to which it is
a party has been duly and effectively taken. The execution and
delivery of each of the Basic Documents to which JEDI II is a party
and the consummation of the transactions to be performed by JEDI II
thereunder has been duly and validly authorized by all necessary
action on the part of JEDI II, its partners and any shareholder of or
partner in any of its partners, and no other partnership or corporate
proceedings, as the case may be, are necessary to authorize the
execution and delivery by JEDI II of each of the Basic Documents to
which it is a party or to consummate the transactions to be performed
by it thereunder.
4.3 BINDING OBLIGATIONS. Each of the Basic Documents to which
Purchaser is a party when executed and delivered by it, shall constitute legal,
valid and binding obligations of Purchaser enforceable in accordance with their
terms, except insofar as the enforceability thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws
18
24
affecting the enforcement of creditors' rights generally and by general
principles of equity (regardless of whether considered at law or in equity).
4.4 NO VIOLATION. The execution and delivery by Purchaser of each
of the Basic Documents to which it is a party, the consummation of the
transactions provided for therein and contemplated thereby, and the fulfillment
by Purchaser of the terms thereof, will not (a) conflict with or result in a
breach of any provision of the Charter or bylaws or other organizational
document of Purchaser, (b) result in any default or in any material
modification of the terms of any Indebtedness, material contract, agreement,
obligation, commitment applicable to Purchaser, (c) require any consent or
approval (which has not been obtained or waived) under any material instrument
or material obligation to which Purchaser is a party or by which Purchaser may
be bound, or (d) violate any Governmental Requirement applicable to Purchaser.
4.5 PURCHASE FOR INVESTMENT; EXPERIENCE, ILLIQUIDITY; ACCREDITED
INVESTOR. Purchaser is acquiring its portion of the Securities and the Warrant
Shares for its own account and not with a view to the public resale of all or
any part thereof in any transaction which would constitute a "distribution"
within the meaning of the Securities Act. Purchaser acknowledges that the
Securities and the Warrant Shares acquired by it have not been registered under
the Securities Act and may be resold only if registered pursuant to the
provisions of the Securities Act or if an exemption from registration is
available.
Each Purchaser acknowledges and understands that it must bear the economic
risk of its investment for an indefinite period of time because the Securities
must be held until subsequently registered under the Securities Act and
applicable state and other securities laws, unless an exemption from
Registration is available. Each Purchaser understands that any transfer agent
of the Issuer will be issued stop-transfer instructions with respect to the
Securities unless such transfer is subsequently registered under the Securities
Act and applicable state and other securities laws or unless an exemption from
such registration is available. Each Purchaser has experience in analyzing and
investing in entities like the Issuer, each Purchaser can bear the economic
risk of its investment, including the full loss of its investment, and by
reason of its business or financial experience or the business or financial
experience of its professional advisors has the capacity to evaluate the merits
and risks of its investment and protect its own interest in connection with the
purchase of the Securities from the Issuer at the Closing. Each Purchaser
represents that it does not have any contract, undertaking, agreement or
arrangements with any person to sell, transfer or grant participation to such
person or to any third person, with respect to any of the Securities.
4.6 FEES AND COMMISSIONS. Purchaser has not retained, nor are any
fees due from Purchaser to, any Intermediary in connection with the
transactions contemplated by this Agreement except pursuant to and as set forth
in the Fee Letter.
4.7 INVESTIGATION. Purchaser has received copies of the SEC
Documents. Purchaser has had a reasonable opportunity to ask questions
relating to and otherwise discuss the terms and conditions of the offering and
the other information set forth in the SEC Documents and the Issuer's business,
management and financial affairs with the Issuer's management, customers and
other parties, and Purchaser has received satisfactory responses to its
inquiries. Purchaser has relied solely
19
25
upon the representations in the Basic Documents and in the SEC documents in
making the decision to invest in the Securities. Purchaser is an "accredited
investor" as such term is defined in SEC Regulation D.
4.8 SHORT SELLING. Neither Purchaser nor any of its Subsidiaries
will create a "short position" in the Common Stock at any time during the two
(2) years following the Closing Date. For purposes hereof, a "short position"
shall be deemed to have been maintained or created by a Person if such Person
(i) enters into a "short sale" (as such term is defined in Rule 3b-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) or sells
"short against the box" (as that term is generally understood), (ii) purchases
a put option to sell shares of Common Stock or (iii) enters into a derivative
or other similar transaction whereby such Person will be compensated (or
receive economic benefit) in the event of a decline in the price of the Common
Stock; provided, however, that such term shall not include any short sales
effected at any time when the Issuer (i) is in breach in any material respect
of any of the representations, warranties or covenants under any Basic
Documents or (ii) has failed to redeem any Series A Preferred Stock as required
within the allowed time period following a request for redemption.
4.9 INVESTMENT COMPANY ACT. Purchaser is not an "investment
company" or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended.
4.10 PUBLIC UTILITY HOLDING COMPANY ACT. Purchaser is not subject
to, or is exempt from, registration as a "holding company," or a "subsidiary
company" of a "holding company," or an "affiliate" of a "holding company" or of
a "subsidiary company" of a "holding company," within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
ARTICLE V.
COVENANTS
5.1 OPERATION OF BUSINESS. Unless otherwise expressly
contemplated by this Agreement or consented to in writing by ECT (which consent
shall not be unreasonably withheld), during the period between the execution of
this Agreement and the Closing (i) Issuer shall:
(a) operate its business only in the usual and ordinary course
consistent with past practices;
(b) preserve its business and properties, including its present
operations, leases, working conditions and relationships with lessors,
licensors, suppliers, customers and employees;
(c) maintain and keep its properties and assets in as good repair
and condition as at present, ordinary wear and tear excepted; and
20
26
(d) keep in full force and effect insurance comparable in amount
and scope of coverage to that currently maintained;
and (ii) Issuer shall not:
(a) make any declaration for setting aside or payment of dividends
or distributions in respect of shares of Common Stock or any redemption,
purchase or other acquisition of any of its Capital Stock;
(b) make any capital expenditures, or commit to make any capital
expenditures, other than in the ordinary course of business;
(c) except for the incurrence of obligations in the ordinary
course of business incur any Indebtedness; and
(d) amend or modify its Charter (except by filing the Statement of
Resolutions).
5.2 ACCESS TO INFORMATION. For so long as the Purchasers and their
respective Affiliates hold more than 51% of the Preferred Stock, ECT (acting on
behalf of itself and JEDI II) shall be entitled to (a) receive prior notice of
any action proposed in advance of a regularly scheduled board meeting to be
taken by the Board of Directors (or any committee thereof) at such meeting, (b)
receive such notices as are given to directors of Issuer (at the same time and
in the same manner as such notices are given to such directors) of any meeting
of the Board of Directors (or any committee thereof), (c) receive, when
distributed to directors of the Issuer, copies of materials evidencing proposed
action of the Board of Directors or any committee thereof (d) designate from
time to time no more than three persons employed by Enron Corp. or a subsidiary
thereof to attend any meeting of the Board of Directors, as observers, and (e)
receive when distributed to directors of the Issuer all written management
reports and written management accounts relating to Issuer, to the extent such
reports and accounts are provided to the Board of Directors (or any committee
thereof). The Issuer reserves the right to withhold any information and to
exclude such ECT's designees from any meeting or portion thereof if, in the
written opinion of Issuer's legal counsel, access to such information or
attendance at such meeting could adversely affect the attorney-client privilege
between the Issuer and its counsel. It is understood that unauthorized
disclosure or use of any of the confidential, non-public Information obtained
as a result of the access contemplated in this Section may be detrimental to
the Issuer. Accordingly, ECT agrees to maintain such information in confidence
in accordance with Section 8.3 hereof. ECT acknowledges that the purchase or
sale of any securities of the Issuer or the agreement to such purchase or sale
of securities that are exercisable, convertible or exchangeable for securities
of the Issuer at such time as it has any material nonpublic information is
prohibited by laws, rules and regulations relating to the trading of
securities, including without limitation Section 10b and Rule 10(b)-5 under the
Exchange Act.
21
27
THE ISSUER COVENANTS AS TO (I) SECTIONS 5.3 AND 5.5 THROUGH 5.12 FOR SO
LONG AS ANY SHARES OF PREFERRED STOCK REMAIN OUTSTANDING, (II) SECTIONS 5.3,
5.5, 5.6, 5.7 AND 5.8 FOR SO LONG AS ANY WARRANTS OR WARRANT SHARES REMAIN
OUTSTANDING BUT NOT LONGER THAN SEVEN (7) YEARS AFTER THE DATE HEREOF AND
PROVIDED, ECT, JEDI II AND THEIR RESPECTIVE AFFILIATES OWN 50% BENEFICIAL
INTEREST IN THE NUMBER OF WARRANTS SHARES ORIGINALLY ISSUED (ASSUMING FULL
EXERCISE OF ALL THE WARRANTS), (III) SECTION 5.4 (FOR THE BENEFIT OF PURCHASERS
AND THEIR AFFILIATES ONLY) FOR SO LONG AS PURCHASERS OR ANY OF THEIR AFFILIATES
OWN ANY WARRANTS OR WARRANT SHARES AND (IV) SECTIONS 5.9 AND 5.10 FOR SO LONG
AS ANY WARRANTS OR WARRANT SHARES REMAIN OUTSTANDING (OR IN EACH CASE, UNTIL
SUCH EARLIER TIME AS IS SPECIFIED WITH RESPECT TO ANY PARTICULAR SECTION):
5.3 USE OF PROCEEDS. All Proceeds from the issuance of the Shares
and purchase of the Warrants shall be used by Issuer for any and all activities
necessary or related to the exploration for or development of oil and natural
gas in Texas and Louisiana, to repay indebtedness incurred for the foregoing
purposes, to pay dividends with respect to the Preferred Stock and for the
repayment of fees and expenses incurred with respect thereto.
5.4 NO RESTRICTIONS ON AFFILIATES. For so long as Purchasers or
their Affiliates own any Preferred Stock, or any Warrants or Warrant Shares
neither Issuer nor any of its future Subsidiaries will enter into any agreement
that would purport to impose restrictions or limitations on the business,
operations or assets of Purchasers or their Affiliates by virtue of Purchasers'
or their Affiliates' ownership in the Issuer immediately after the Closing
(exclusive of the exercise of any rights of Purchasers under Sections 2(b) and
2(c) of the Statement of Resolution) including, without limitation, any "area
of mutual interest" agreement or similar agreement that would have the effect
of binding Purchasers or any of their respective Affiliates or their respective
properties. For purposes of this Section 5.4, the term "Affiliate", when used
to refer to Affiliates of Purchasers, shall exclude Issuer and its Affiliates.
5.5 CERTAIN PUBLIC UTILITY MATTERS. Except as contemplated
herein, Issuer will not take any action that would be inconsistent with the
representations contained in Sections 3.16 and 3.17 hereof so long as the
Purchasers or their Affiliates or the Permitted Assigns hold any shares of
Common Stock or Preferred Stock. For purposes of this Section 5.5, the term
"Affiliate", when used to refer to Affiliates of Purchasers, shall exclude
Issuer and its Affiliates.
5.6 CORPORATE EXISTENCE AND TAXES. Issuer shall maintain its
corporate existence and good standing and shall pay all taxes owed by it when
due except for taxes which the Issuer reasonably disputes or as to which the
failure to pay could not reasonably be expected to have a Material Adverse
Effect on the business or financial condition of the Issuer and the Issuer
shall establish adequate reserves in accordance with GAAP with respect thereto.
5.7 COMPLIANCE WITH LAWS. Except with the consent of the holders
of a majority of the outstanding Preferred Stock, Issuer will comply with all
applicable Governmental Requirements and shall maintain any Permit necessary to
the ownership of any of its properties or the conduct of its business, except
in either case where a violation or failure would not have a Material Adverse
Effect.
22
28
5.8 PROVISION OF INFORMATION AND SEC REQUIREMENTS. Issuer shall
provide Purchasers and their Permitted Assigns with copies of its annual
reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K and proxy statements and other materials sent to stockholders, in each such
case promptly after the filing thereof with the Commission, until the
redemption of all of the Preferred Stock and exercise in full of all of the
Warrants. Issuer shall comply in all material respects with all applicable
rules, regulations and requirements of the Commission and shall make timely
filings of all items required to be filed by the Commission and in connection
with the Securities Act and the Exchange Act.
5.9 QUOTATION ON NASDAQ. Issuer shall have the Warrant Shares
listed for quotation on The Nasdaq National Market on or before the date of the
first anniversary of the Closing, and the Issuer 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 the Warrant Shares on or
before such anniversary date. Issuer shall maintain the designation and
quotation, or listing, of its Common Stock on the Nasdaq National Market (or on
the New York Stock Exchange or the American Stock Exchange) until the
redemption of all the Preferred Stock.
5.10 RESERVATION OF COMMON STOCK. Issuer has reserved for issuance
and shall at all times keep reserved, out of the authorized and unissued shares
of Issuer's Common Stock, a number of shares sufficient to provide for the
exercise of the rights of purchase represented by the Warrants and shall keep
such shares free of any preemptive rights of shareholders.
5.11 MAJOR SHAREHOLDER RESTRICTION. So long as the Shareholders'
Agreement is in effect, the Issuer agrees to:
(a) make appropriate notations in its records concerning
the restrictions contained in Section 2.1 of the Shareholders'
Agreement;
(b) issue stop transfer orders (i.e., an "issuer hold")
and instructions to each transfer agent concerning the Restricted
Shares (as defined in the Shareholder's Agreement);
(c) promptly provide ECT with copies of all Schedule 13Ds
or amendments thereto relating to the Common Stock, filed with the
Securities and Exchange Commission and delivered to Issuer; and
(d) report quarterly in writing to ECT any transfers of
stock made by or on behalf of the Major Shareholders on the books of
the Issuer.
5.12 NOTICE OF EVENTS. Within 5 business days after receipt from a
holder of the Preferred Stock of a request for its Preferred Stock to be
redeemed, Issuer shall send a Dispute Notice to such holder pursuant to Section
10.12(b) in every case in which Issuer intends to dispute anything in
connection with such request for redemption.
23
29
ARTICLE VI.
CLOSING CONDITIONS
6.1 CONDITIONS TO OBLIGATION OF PURCHASERS. The obligation of
Purchasers to consummate the transactions contemplated hereby is subject to
satisfaction of the following conditions at the time of closing:
(a) the representations and warranties contained in Article III,
shall be accurate in all respects, as of the time of Closing on the
Closing Date (provided that this provision shall not require the text of
any representation that refers to a specific date to be changed with
respect to such reference);
(b) Issuer shall have performed and complied with all of the
covenants and agreements contemplated in the Basic Documents required to
be performed or complied with by it at or prior to the time of Closing;
(c) no action, suit, or proceeding shall be pending before any
Governmental Authority wherein an unfavorable injunction, judgment, order,
decree, ruling, charge, penalty or onerous condition would prevent
consummation of any of the transactions contemplated by the Basic
Documents, and no such injunction, judgment, order, decree, ruling,
charge, penalty or onerous condition shall be in effect;
(d) the Statement of Resolution shall have been filed with the
Secretary of State of the State of Texas and Issuer shall have delivered
confirmation of same to Purchasers on or prior to the time of Closing on
the Closing Date;
(e) there shall not have occurred since 9/30/97 any events or
developments, individually or in the aggregate, resulting in a Material
Adverse Effect;
(f) Issuer shall at the Closing pay all amounts payable pursuant
to the Fee Letter;
(g) the Closing shall not be later than 3:00 p.m. CST on January
16, 1998;
(h) all material notices, consents and approvals required for the
consummation of the transactions contemplated hereby shall have been given
or obtained, including, without limitation consent of Compass Bank and
Schroder & Co. Inc.;
(i) Issuer shall have delivered to Purchasers a certificate from
an officer of Issuer to the effect that each of the conditions specified
above in Section 6.1(a)-(h) has been satisfied in all respects;
(j) Purchasers shall have received an opinion of Baker & Botts,
L.L.P. dated as of the Closing Date, that addresses such matters as are
reasonably requested by Purchasers
24
30
and containing such exceptions and assumptions as are customary in such
opinions, all in form and substance reasonably acceptable to Purchasers;
and
(k) Issuer, significant shareholders and Purchasers shall have
entered into a Shareholders' Agreement in the form of Exhibit B attached
hereto.
6.2 CONDITIONS TO OBLIGATION OF ISSUER. The obligations of Issuer
to consummate the transactions contemplated hereby are subject to satisfaction
of the following conditions:
(a) the representations and warranties contained in Article IV shall
be accurate in all respects, and, to the extent not so qualified, shall be
accurate in all respects, as of the time of Closing on the Closing Date
(provided that this provision shall not require the text of any
representation that refers to a specific date to be changed with respect
to such reference);
(b) each of the Purchasers shall have performed and complied with all
of the covenants under the Basic Documents required to be performed or
complied with in all respects at or prior to the time of Closing on the
Closing Date;
(c) no action, suit, or proceeding shall be pending before any
Governmental Authority wherein an unfavorable injunction, judgment, order,
decree, ruling, charge, penalty or onerous condition would prevent
consummation of any of the transactions contemplated by the Basic
Documents and no such injunction, judgment, order, decree, ruling, charge,
penalty or onerous condition shall be in effect; and
(d) each of the Purchasers shall have delivered to Issuer a
certificate from an executive officer of such Purchaser to the effect that
each of the conditions specified above in Section 6.2(a)-(c) is satisfied
in all respects.
(e) Issuer shall have received an opinion of (i) Julia Heintz Murray,
Vice President and General Counsel - Finance of ECT addressing the
matters set forth in Sections 4.1(a) and 4.2(a), (ii) Julia Heintz
Murray, Vice President and General Counsel - Finance of Enron Capital II
Corp., addressing the matters set forth in Sections 4.1(b) and 4.2(b), and
(iii) Vinson & Elkins L.L.P. addressing the matters set forth in Section
4.3, in each case dated as of the time of Closing on the Closing Date and
including such exceptions and assumptions as are customary in such
opinions, in form and substance reasonably acceptable to Issuer.
ARTICLE VII.
REGISTRATION RIGHTS
The following provisions govern the registration of Issuer's securities:
7.1 DEFINITIONS. As used in this Article VII, the following terms
have the following meanings:
25
31
"HOLDERS" means the holders of Registrable Shares (which
initially shall be Purchasers) and shall include transferees to
whom Holders are permitted to assign rights hereunder pursuant to
Section 7.9.
"INITIATING HOLDERS" shall mean Holders holding no less than
333,000 Registrable Shares (subject to adjustment for stock
splits and other similar events).
"REGISTER," "REGISTERED" and "REGISTRATION" refer to a
registration effected by filing a registration statement in
compliance with the Securities Act and the declaration or
ordering by the Commission of effectiveness of such registration
statement.
"REGISTRABLE SHARES" means any of the Warrant Shares received
after the date hereof by the Holders upon exercise of the
Warrants provided, however, that securities shall be treated as
Registrable Shares only if and only for so long as they are held
by a Holder or a permitted transferee pursuant to the terms
hereof, and (i) they have not been disposed of pursuant to a
registration statement declared effective by the Commission, so
that all transfer restrictions and restrictive legends with
respect thereto are removed upon the consummation of such sale,
or (ii) they have not been sold in a transaction exempt from the
registration and prospectus delivery requirements of the
Securities Act, so that all transfer restrictions and restrictive
legends with respect thereto are removed upon the consummation of
such sale, or (iii) the registration rights as to the Holder of
such Registrable Shares have not expired pursuant to Section
7.13. Without limiting the generality of any other provision
hereof, it is expressly understood that the registration rights
granted hereunder are not intended to, and do not extend to the
Warrants or the Preferred Stock.
7.2 PIGGYBACK REGISTRATION. If Issuer at any time proposes to
register any shares of Common Stock (or securities convertible into or
exercisable or exchangeable for Common Stock), other than in a demand
registration pursuant to Section 7.3 of this Agreement and other than in a
registration on Form S-4 or Form S-8 for purposes similar to those permissible
as of the date hereof (provided, however, with respect to Form S-8, Purchasers
are not entitled pursuant to the rules and regulations relating to such Form to
use such Form), it shall give prompt notice to the Holders of such intention.
Upon the written request of any Holder given within 20 days after receipt of
any such notice, Issuer shall include in such registration all of the
Registrable Shares indicated in such request, so as to permit the disposition
of the shares so registered. For all distributions which are underwritten, all
Holders proposing to distribute their securities through such underwriting
shall (together with the Issuer and the other holders distributing their
securities through such underwriting) enter into an underwriting agreement in
customary form (not inconsistent with the terms of this Article 7) with the
managing underwriter selected for such underwriting by the Issuer.
Notwithstanding any other provision of this Section 7.2, if the managing
underwriter determines that marketing factors require a limitation of the
number of shares to be underwritten and the inclusion of Purchasers'
Registrable Shares would materially jeopardize successful marketing of the
shares being registered thereunder, the underwriters may exclude some or all
Registrable Shares from such registration and underwriting (provided that
securities of other security holders are similarly
26
32
excluded). In the event of a limitation (or elimination) on the number of
Registrable Shares and other securities to be included in a registration, the
Issuer shall so advise all Holders and any other holders requesting to
distribute their securities through such underwriting pursuant to piggy-back
registration rights and the number of Registrable Shares and other such
securities that may be included in the registration and underwriting shall be
allocated among all Holders thereof and such other holders in proportion, as
nearly as practicable, to the respective amounts of securities requested to be
included in such registration. To facilitate the allocation of Registrable
Shares in accordance with the above provisions, the Issuer may round the number
of Registrable Shares and other securities allocated to any Holder or other
holder to the nearest 100 shares. If any Holder disapproves of the terms of
any such underwriting, he may elect to withdraw therefrom by written notice to
the Issuer and the managing underwriter. Any securities excluded or withdrawn
from such underwriting shall be withdrawn from such registration, and shall not
be transferred in a public distribution prior to 90 days after the effective
date of the registration statement relating thereto, or such other shorter
period of time as the underwriters may require. The Issuer shall have the
right to terminate or withdraw any registration initiated by it under this
Section 7.2 prior to or after the effectiveness of such registration whether or
not any Holder has elected to include securities in such registration.
Notwithstanding anything to the contrary contained herein, the rights granted
under this Section 7.2, to the extent they are related to (i) registrations
requested pursuant to Section 5.1 or 5.3 of the Registration Rights Agreement
dated as of June 4, 1997 among Issuer and the persons described therein (the
"Founders Registration Rights Agreement"), shall be limited to that portion of
any such registration as remains after inclusion of all securities requested by
holders under the Founders Registration Rights Agreement to be included in such
registration and (ii) registrations initiated by the Issuer, shall be limited
in all cases to sharing pro rata in the available portion of the registration
in question with holders under the Founders Registration Rights Agreement, such
sharing to be based on the number of shares of Common Stock and Warrants held
by such respective holders and held by the holders of such other investors,
plus the number of shares of Common Stock into which other securities held by
the holders under the Founders Registration Rights Agreement and the holders
are convertible, which are entitled to registration rights.
7.3 DEMAND REGISTRATION. At any time, one or more Initiating
Holders may request in writing that all or part of the Registrable Shares held
by such Holder or Holders shall be registered for sale under the Securities Act
in the manner specified in such notice. Within 5 days after receipt of any
such request, Issuer shall give written notice of such request to the other
Holders and shall include in such registration all Registrable Shares held by
all such Holders who wish to participate in such demand registration and
provide Issuer with written requests for inclusion therein within 20 days after
the receipt of Issuer's notice. Thereupon, Issuer shall use its best efforts
to effect the registration of all Registrable Shares as to which it has
received requests for registration specified in the request for registration.
Issuer shall not be required to effect any such registration prior to the first
anniversary date hereof; provided, however, that the Initiating Holders may
request registration hereunder prior to the first anniversary hereof and in
such event Issuer shall undertake to issue the notices referred to herein prior
to such first anniversary so as to permit the filing of registration statement
promptly after such first anniversary. Notwithstanding any other provision of
this Article VII, if the managing underwriter advises the Holders in writing
that marketing factors require
27
33
a limitation of the number of shares to be underwritten and the inclusion of
Purchasers' Registrable Shares would materially jeopardize successful marketing
of the shares being registered thereunder, then there shall be excluded from
such registration and underwriting to the extent necessary to satisfy such
limitation, first shares to be offered by Issuer or by shareholders other than
the Holders, and second, to the extent necessary, and only if all shares to be
offered by Issuer and by shareholders other than Holders have been excluded,
Registrable Shares. Without limiting the generality of any other provision
hereof, it is expressly understood that the registration rights granted
hereunder are not intended to, and do not extend to the Warrants or the
Preferred Stock. Issuer may not cause any other registration of securities for
sale for its own account (other than a registration effected solely to
implement an employee benefit plan or a Rule 145(a) transaction) to be
initiated after a registration requested pursuant to this Section 7.3 and to
become effective less than 90 days after the effective date of any registration
requested pursuant to this Section 7.3. Issuer shall not be required to effect
more than two registrations pursuant to this Section 7.3, one of which may be
for a shelf registration and both of which may be for an underwritten
registration, and, unless all Registrable Shares requested to be included are
included in such registration, then such registration shall not count as one of
such two registrations.
7.4 DELAY IN REGISTRATION. If Issuer shall furnish to the Holders
a certificate signed by the President of Issuer stating that in the reasonable
good faith judgment of the Board of Directors of Issuer it would result in a
Material Adverse Effect upon the Issuer for a registration statement to be
filed at such time or would materially adversely effect a pending public
offering of Issuer's securities or would require the disclosure of a material
transaction in which the Company is then engaged, Issuer shall have the right
to defer the filing of a registration statement requested pursuant to Section
7.3 hereof for a period of not more than 45 days after receipt of the request
of the Holders under Section 7.3; provided, however, that Issuer shall not
utilize this right more than once in any rolling 12-month period.
7.5 DESIGNATION OF UNDERWRITER; UNDERWRITING AGREEMENT. In the
case of any registration effected pursuant to Section 7.3 for an underwritten
public offering, the managing underwriter shall be selected by the Initiating
Holders, but must be reasonably acceptable to the Issuer. In the event that a
registration pursuant to Section 7.2 or 7.3 is for a registered public offering
involving an underwriting, the Issuer shall so advise the Holders as part of
the notice given to them. In such event, the right of any Holder to
registration pursuant to Section 7.2 or 7.3 shall be conditioned upon such
Holder's participation in the underwriting arrangements required by this
Section 7.5, and the inclusion of such Holder's Registrable Shares, as the case
may be, in the underwriting to the extent requested shall be limited to the
extent provided herein; provided, however, in any demand registration pursuant
to Section 7.3 hereof, the underwriting agreement must be mutually agreeable to
the Issuer and the Holder of the Registrable Shares being included.
7.6 EXPENSES. All expenses incurred in connection with any
registration and all listing expenses including without limitation, any
transfer taxes, all fees, reasonable out-of-pocket expenses and expenses of one
counsel for all Holders, under Sections 7.2 or 7.3 shall be borne by Issuer;
provided, however, that each of the Holders participating in such registration
shall pay its pro rata portion of the fees, discounts or commissions payable to
any underwriter and provided that the
28
34
Holder shall use reasonable efforts in any transfer of Securities to effectuate
such transfer in a way to minimize or avoid transfer taxes on such transfer.
7.7 INDEMNITIES. In the event of any registered offering of
Common Stock pursuant to this Article VII:
(a) Issuer will indemnify and hold harmless, to the fullest extent
permitted by law, any Holder, each of its officers and directors, partners
and legal counsel and any underwriter for such Holder, and each person, if
any, who controls the Holder or such underwriter within the meaning of
Section 15 of the Securities Act, from and against any and all losses,
damages, claims, liabilities, joint or several, and expenses (including
any amounts paid in any settlement of litigation, commenced or threatened)
to which the Holder or any such underwriter or controlling person may
become subject under applicable law or otherwise, insofar as such losses,
damages, claims, liabilities (or actions or proceedings in respect
thereof), or expenses arise out of or are based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in the
registration statement or included in the prospectus, as amended or
supplemented, or (ii) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they are
made, not misleading, and Issuer will reimburse the Holder, each of its
officers and directors, partners and legal counsel, such underwriter and
each such controlling person of the Holder or the underwriter, for any
legal or any other expenses reasonably incurred by them in connection with
investigating, preparing to defend or defending against or appearing as a
third party witness in connection with such loss, claim, damage,
liability, action or proceeding; provided, however, that Issuer will not
be liable in any such case to the extent that any such loss, damage,
claim, liability, or expense arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission so
made in conformity with written information furnished by a Holder to
Issuer specifically for inclusion therein; provided, further, that the
indemnity agreement contained in this subsection 7.7(a) shall not apply to
amounts paid in settlement of any such claim, loss, damage, liability or
action if such settlement is effected without the consent of Issuer, which
consent shall not be unreasonably withheld. Such indemnity shall remain
in full force and effect regardless of any investigation made by or on
behalf of the selling Holder, the underwriter or any controlling person of
the selling Holder or the underwriter, and regardless of any sale in
connection with such offering by the selling Holder. Such indemnity shall
survive the transfer of securities by a selling Holder. Notwithstanding
the foregoing, insofar as the foregoing indemnity relates to any such
untrue statement (or alleged untrue statement) or omission (or alleged
omission) made in the preliminary prospectus but eliminated or remedied in
the amended prospectus on file with the Commission at the time the
registration statement becomes effective or in the final prospectus filed
with the Commission pursuant to Rule 424(b) of the Commission, the
indemnity agreement herein shall not inure to the benefit of any
underwriter if a copy of the final prospectus filed pursuant to Rule
424(b) was not furnished to the Person or entity asserting the loss,
liability, claim or damage at or prior to the time such furnishing is
required by the Securities Act.
29
35
(b) Each Holder participating in a registration hereunder will
indemnify and hold harmless, to the fullest extent permitted by law,
Issuer, each of its directors, officers and legal counsel, any underwriter
for Issuer, and each person, if any, who controls Issuer or such
underwriter within the meaning of Section 15 of the Securities Act, from
and against any and all losses, damages, claims, liabilities, or expenses
(including any amounts paid in any settlement) to which Issuer or any such
controlling person and/or any such underwriter may become subject under
applicable law or otherwise and each other such Holder, insofar as such
losses, damages, claims, liabilities (or actions or proceedings in respect
thereof), of litigation, commenced or threatened or expenses arise out of
or are based on (i) any untrue or alleged untrue statement of any material
fact contained in the registration statement or included in the
prospectus, as amended or supplemented, or (ii) the omission or the
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and each such
Holder will reimburse Issuer, each of its directors, officers and legal
counsel, any underwriter and each such controlling person of Issuer or any
underwriter and each other such Holder, promptly upon demand, for any
legal or other expenses reasonably incurred by them in connection with
investigating, preparing to defend or defending against or appearing as a
third party witness in connection with such loss, claim, damage,
liability, action or proceeding; in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was so made in conformity with written
information furnished by such Holder to Issuer specifically for inclusion
therein; provided, however, that the indemnity agreement contained in this
subsection 7.7(b) shall not apply to amounts paid in settlement of any
such claim, loss, damage, liability, or action if such settlement is
effected without the consent of such Holder, which consent shall not be
unreasonably withheld. In no event shall the liability of any Holder
exceed the gross proceeds received by such Holder from the offering. Such
indemnity shall survive the transfer of securities by a selling Holder.
Notwithstanding the foregoing, insofar as the foregoing indemnity relates
to any such untrue statement (or alleged untrue statement) or omission (or
alleged omission) made in the preliminary prospectus but eliminated or
remedied in the amended prospectus on file with the Commission at the time
the registration statement becomes effective or in the final prospectus
filed with the Commission pursuant to Rule 424(b) of the Commission, the
indemnity agreement herein shall not inure to the benefit of any
underwriter if a copy of the final prospectus filed pursuant to Rule
424(b) was not furnished to the Person or entity asserting the loss,
liability, claim or damage at or prior to the time such furnishing is
required by the Securities Act.
(c) Each party entitled to indemnification under this Section 7.7
shall give notice to the party required to provide indemnification
promptly after such indemnified party has actual knowledge of any claim as
to which indemnity may be sought, and shall permit the indemnifying party
to assume the defense of any such claim or any litigation resulting
therefrom, provided that counsel for the indemnifying party, who shall
conduct the defense of such claim or any litigation resulting therefrom,
shall be approved by the indemnified party (whose approval shall not
unreasonably be withheld), and the indemnified party or parties shall have
the right to select one separate counsel to participate in the defense of
such action on behalf of such indemnified party or parties. After notice
from the indemnifying
30
36
party to such indemnified party of its election to assume the defense
thereof, the indemnifying party will not be liable to such indemnified
party pursuant to the provisions of said subsections 7.7(a) or (b) for any
legal or other expense subsequently incurred by such indemnified party in
connection with the defense thereof, unless (i) the indemnified party
shall have employed counsel in accordance with the provision of the
preceding sentence, (ii) the indemnifying party shall not have employed
counsel reasonably satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after the notice of the
commencement of the action and within 15 days after written notice of the
indemnified party's intention to employ separate counsel pursuant to the
previous sentence, or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party. No indemnifying party, in the defense of any such
claim or litigation, shall, except with the consent of each indemnified
party, consent to entry of any judgment or enter into any settlement which
does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party of a release from all
liability in respect to such claim or litigation. No indemnified party
shall consent to entry of any judgment or enter into any settlement
without the consent of each indemnifying party (which consent shall not be
unreasonably withheld). Each indemnified party shall furnish such
information regarding itself or the claim in question as an indemnifying
party may reasonably request in writing and as shall be reasonably
required in connection with defense of such claim and litigation resulting
therefrom.
(d) If the indemnification provided for in this Section 7.7 is
held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any losses, claims, damages, expenses or
liabilities referred to therein, then each indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid
or payable by such indemnified party as a result of such losses, claims,
damages, expenses or liabilities in such proportion as is appropriate to
reflect the relative fault of the Issuer on the one hand and each
shareholder offering securities in the offering (the "Selling
Shareholders") on the other in connection with the statements or omissions
which resulted in such losses, claims, damages, expenses or liabilities,
as well as any other relevant equitable considerations. The relative
fault of the Issuer on the one hand and each Selling Shareholder on the
other shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of material fact or the omission or
alleged omission to state a material fact relates to information supplied
by the Issuer or by such Selling Shareholder and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. It would not be just and equitable if
contribution pursuant to this Section 7.7(d) were based solely upon the
number of entities from whom contribution was requested or by any other
method of allocation which does not take account of the equitable
considerations referred to above in this Section 7.7(d). The amount paid
or payable by an indemnified party as a result of the losses, claims,
damages, expenses and liabilities referred to above in this Section 7.7(d)
shall be deemed to include any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending
any such action or claim, subject to the provisions of Section 7.7(c)
hereof. Notwithstanding the provisions of this Section 7.7(d), no Selling
Shareholder shall be required to contribute any amount or make any other
payments under this Agreement which in the aggregate exceed the proceeds
31
37
received by such Selling Shareholder net of selling expenses. No Person
guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any
Person who was not guilty of such fraudulent misrepresentation.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with an underwritten
public offering are in conflict with the foregoing provisions, the
foregoing provisions shall control.
7.8 OBLIGATIONS OF ISSUER. Whenever required under this Article
VII to effect the registration of any Registrable Shares, Issuer shall, as
expeditiously as possible:
(a) prepare and file with the Commission 45 days after notice (in
the case of a registration under Section 7.3, as soon as practicable) a
registration statement with respect to such Registrable Shares and use its
best efforts to cause such registration statement to become effective,
and, upon the request of the Holders of a majority of the Registrable
Shares registered thereunder, keep such registration statement effective
for a period of up to one year (180 days if a firm commitment underwriting
plus equal time for any delays attributable to the Issuer) or, if sooner,
until the distribution contemplated in the Registration Statement has been
completed;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply
with the provisions of the Securities Act with respect to the disposition
of all Registrable Shares covered by such registration statement;
(c) furnish to each Holder selling Registerable Shares pursuant to
the registration statement such number of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of
the Securities Act, and such other documents as they may reasonably
request in order to facilitate the disposition of Registrable Shares owned
by them;
(d) in the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering; each
Holder participating in such underwriting shall also enter into and
perform its obligations under such an agreement;
(e) immediately notify each Holder of Registrable Shares covered
by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Securities Act of the
happening of any event as a result of which the prospectus included in
such registration statement, as then in effect, includes an untrue
statement of a material act or omits to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing (and Issuer
shall promptly amend such prospectus or take other appropriate corrective
action);
32
38
(f) cause all Registrable Shares registered pursuant hereunder to
be listed on each securities exchange or quoted on a quotation system on
which similar securities issued by Issuer are then listed or quoted;
(g) provide a transfer agent and registrar for all Registrable
Shares registered pursuant hereunder and a CUSIP number for all such
Registrable Shares in each case not later than the effective date of such
registration; and
(h) if requested by Holders of 50% of all of the Registrable
Securities that are being registered in such registration, furnish, at the
request of any Holder requesting registration of Registrable Shares
pursuant to this Section, on the date that such Registrable Shares are
delivered to the underwriters for sale in connection with a registration
pursuant to this Article VII, if such securities are being sold through
underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to
such securities becomes effective, (i) an opinion, dated such date, of the
counsel representing Issuer for the purposes of such registration, in form
and substance as is customarily given to underwriters in an underwritten
public offering, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Shares and (ii) a letter dated such
date, from the independent certified public accountants of Issuer, in form
and substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering, addressed
to the underwriters, if any, and to the Holders requesting registration of
Registrable Shares.
7.9 ASSIGNMENT OF REGISTRATION RIGHTS. The rights granted to a
Holder under this Article 7 may be assigned to a transferee or assignee in
connection with any transfer or assignment of Registrable Shares by a Holder
provided that (i) such transfer may be effected in accordance with applicable
securities laws, (ii) such assignee or transferee acquires at least 100,000
Registrable Shares (subject to appropriate adjustment for any other stock
splits, dividends, subdivisions, combinations, recapitalizations and the like),
and (iii) the Holder notifies the Issuer in writing of the transfer or
assignment, stating the name and the address of the transferee or assignee and
identifying the securities with respect to which such registration rights are
being transferred or assigned and the assignee or transferee agrees in writing
to be bound by the provisions of this Article 7.
7.10 LOCKUPS. Each Holder agrees, so long as such Holder holds 5%
or more of the outstanding shares of Common Stock, that in connection with any
registration of the Issuer's securities (whether pursuant to this Agreement,
for the Issuer's own account or for the account of any other shareholder of the
Issuer) that, at all times prior to the expiration of the registration rights
provided for herein, it will upon request by the managing underwriter in any
underwriting of Common Stock or securities convertible into or exchangeable for
Common Stock or upon the request of the Issuer, it will agree, at all times
with respect to registrations in which Holder's Registrable Shares are included
and no more often than once in any twelve-month period with respect to any
registration in which the Holder's Registrable Shares are not included, not to
sell, make any short sale of, loan, grant any option for the purchase of, or
otherwise dispose of any Registrable Shares (other than those included in the
registration) other than transfers to Affiliates that agree to be bound
33
39
by this restriction, intra-family transfers and transfer to trusts for estate
planning purposes without the prior written consent of the Issuer or
underwriters managing the offering, as the case may be, for such period of time
(which may not exceed 90 days) from the effective date of the registration
statement as may be requested by such underwriters; provided, however, that the
obligations of such Holders pursuant to this Section 7.10 shall be conditioned
upon the receipt by such underwriters or the Issuer of lockup agreements for
the same period of time and on the same terms as the time period and terms
requested of such Holders from each executive officer and director of the
Issuer and each holder of 5% or more of the outstanding shares of Common Stock
(if such holder has been granted registration rights by the Issuer). Any
delays occasioned pursuant to this Section 7.10 shall further extend the time
period referenced in Section 7.8(a) hereof.
7.11 SUBSEQUENT GRANTS OF REGISTRATION RIGHTS. After the date
hereof, Issuer will not prior to the time the registration rights hereunder
have expired enter into any agreement granting any holder or prospective holder
of any securities of Issuer registration rights (i) unless such registration
rights include lockup provisions which are substantially the same as those
provisions set forth in Section 7.10 hereof, and (ii) unless any demand
registration rights granted to such holders or prospective holders give the
Holders the right to participate in registrations requested by such subsequent
holders (but subject to the right of priority of registration for such
subsequent holders), such participation to be on the pro rata basis described
in Section 7.2,
7.12 CERTAIN AGREEMENTS OF HOLDERS.
(a) The Holder(s) included in any registration shall
furnish to the Issuer such information regarding such Holder(s), the
Registrable Shares and the distribution proposed by such Holder(s), as the
Issuer may reasonably request in writing and as shall be reasonably required in
connection with any registration, qualification or compliance referred to in
Section 7.2 and 7.3.
(b) The failure of any Holder(s) to be included in a
registration to furnish the information requested pursuant to Section 7.12(a)
shall not affect the obligation of the Issuer under Section 7.8 to the
remaining Holder(s) who furnish such information.
(c) Each Holder agrees that, upon receipt of any notice
from the Issuer of the happening of any event requiring the preparation of a
supplement or amendment to a prospectus relating to Registrable Shares so that,
as thereafter delivered to such Holder, such prospectus will not contain an
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading, each Holder will forthwith discontinue disposition of Registrable
Shares pursuant to the registration statements contemplated by this Agreement
until its receipt of copies of the supplemented or amended prospectus from the
Issuer and, if so directed by the Issuer, each Holder shall destroy or deliver
to the Issuer all copies, other than permanent file copies then in such
Holder's possession, of the prospectus covering such Registrable Shares that is
current at the time of receipt of such notice provided, however, the Issuer may
not restrict any such sales unless at least five (5) days' prior written notice
is provided to each Holder and provided further the Issuer may not restrict
sales by Holders for a total of more than sixty (60) days during any one year
period. Any delays occasioned pursuant to this Section 7.12(c) shall further
extend the time period referenced in Section 7.8(a) hereof.
34
40
(d) Each Holder acknowledges and agrees that in the event
of sales under a shelf registration statement pursuant to this Agreement, (1)
the Registrable Shares sold pursuant to such registration statement are not
transferable on the books of the Issuer unless the share certificate submitted
to the transfer agent evidencing such Registrable Shares is accompanied by a
certificate to the effect that (A) the Registrable Shares have been sold in
accordance with such registration statement and (B) the requirement of
delivering a current prospectus has been satisfied and (2) such Holder will not
effect any public sale or distribution of Registrable Shares pursuant to such
shelf registration statement pursuant to this Agreement at any time that the
Issuer shall have advised the Holders in writing that the sale by such Holders
pursuant to such shelf registration could reasonably be expected to adversely
affect, or require the premature disclosure of any proposed acquisition,
disposition or other transaction involving the Issuer, provided, however, the
Issuer may not restrict any such sales unless at least five (5) days' prior
written notice is provided to each Holder and provided further the Issuer may
not restrict sales by Holders for a total of more than sixty (60) days during
any one year period. Any delays occasioned pursuant to this Section 7.12(d)
shall further extend the time period referenced in Section 7.8(a) hereof.
7.13 TERMINATION OF REGISTRATION RIGHTS. The registration rights
granted pursuant to this Agreement shall terminate as to any Holder at such
time as such Holder may sell under Rule 144 in a three-month period all
Registrable Shares then held by such Holder (assuming the cashless exercise of
any Common Stock underlying Warrants).
ARTICLE VIII.
OTHER PROVISIONS
8.1 FEES AND COMMISSIONS. Each party agrees to pay, and to
indemnify and hold harmless the other party from and against liability for, any
compensation to any Intermediary retained by such party, any finder, broker,
agent, financial advisor, or other intermediary (collectively, an
"Intermediary") in connection with the transactions contemplated by this
Agreement, and the fees and expenses of defending against such liability or
alleged liability. Issuer further agrees to pay up to an aggregate of $60,000
to ECT promptly following demand and whether or not the transactions
contemplated by this Agreement are consummated for all reasonable outside
legal, professional and other bills and costs incurred by ECT and its
Affiliates in connection with the negotiation and preparation of this Agreement
and the evaluation of, and due diligence investigation with respect to, the
transactions contemplated hereby (including, without limitation, title due
diligence and filing fees and expenses, whether incurred by ECT, its Affiliates
or counsel or other third party professionals), provided in each case that the
expenses are reasonable and properly documented. Issuer shall also pay all the
amounts required to be paid by Issuer in accordance with the Fee Letter. ECT
represents and warrants that ECT Securities Corp. is duly licensed and
registered under and in compliance with all regulations, rules and laws to the
extent necessary to perform its obligations under the Fee Letter and to receive
payment thereunder.
8.2 BUSINESS OPPORTUNITY MATTERS. To the fullest extent permitted
by law, (a) Issuer and Purchasers acknowledge and agree that neither of the
Purchasers nor any of their respective Affiliates shall be expressly or
implicitly restricted or proscribed pursuant to this Agreement, the
35
41
relationship that exists between Purchasers and Issuer or otherwise, from
engaging in any type of business activity or owning an interest in any type of
business entity, regardless of whether such business activity is (or such
business entity engages in businesses that are) in direct or indirect
competition with the businesses or activities of Issuer or any of its
Affiliates. Without limiting the foregoing and to the fullest extent permitted
by law, Purchasers and Issuer acknowledge and agree that (i) neither Issuer nor
its Affiliates nor any other Person shall have any rights, by virtue of the
Basic Documents, the relationship that exists between Purchasers and Issuer or
otherwise, in any business venture or business opportunity of Purchasers or any
of its Affiliates, and neither Purchasers nor their respective Affiliates shall
have any obligation to offer any interest in any such business venture or
business opportunity to Issuer, any Affiliate of Issuer or any other Person, or
otherwise account to any of such Persons in respect of any such business
ventures, (ii) the activities of Purchasers or any of their respective
Affiliates that are in direct or indirect competition with the activities of
Issuer or any of its Affiliates are hereby approved by Issuer, and (iii) by
virtue of the Basic Documents it shall not be deemed a breach of any fiduciary
or other duties, if any and whether express or implied, that may be owed by
Purchasers or their respective Affiliates to the Issuer or its Affiliates for
Purchasers to permit themselves or one of their respective Affiliates to engage
in a business opportunity in preference or to the exclusion of Issuer, its
Affiliates or any other Person.
(b) For purposes of this Section 8.2, the term "Affiliate" when
used to refer to Affiliates of Purchasers, shall exclude Issuer and its
Affiliates.
8.3 CONFIDENTIALITY. In addition to the restrictions contained in
that certain Confidentiality Agreement (the "Confidentiality Agreement") dated
November 24, 1997, by and between ECT and Issuer, which shall remain in effect
according to its term, the Purchasers will hold, and will cause their
respective officers, directors, employees, accountants, counsel, consultants,
advisors, and agents to hold, in confidence, unless compelled to disclose by
judicial or administrative process or by other requirements of law, all
documents and information (including without limitation, the Information)
concerning the Issuer furnished to the ECT (on its behalf and on behalf of JEDI
II) in connection with the right of ECT to have persons attend board of
director meetings pursuant to Section 5.2, except to the extent that such
information (i) can be shown to have been in the public domain through no fault
of the ECT, (ii) was already in the possession of ECT or (iii) was acquired
from a third party which does not have an obligation of confidentiality to
Issuer; provided that the ECT may disclose such information to JEDI II and the
respective officers, directors, employees, accountants, counsel, consultants,
advisors, and agents of ECT and JEDI II in connection with the transactions
contemplated by this Agreement so long as such Persons are informed by the ECT
of the confidential nature of such information and are directed by, and agree
with, the ECT to treat such information confidentially in accordance with this
Section and (without limiting or waiving the obligation of such other Persons)
ECT remains responsible for obligations of such other Persons. The Purchasers
will use all such documents and information solely for the purpose of
monitoring their investment in the Securities and Warrant Shares. The
confidentiality obligations under this Section 8.3 shall terminate two years
from and after the date upon which the ECT elects (irrevocably in writing
delivered to Issuer) to no longer attend the Board of Director's meetings
pursuant to Section 5.2 or to receive information in regards thereto and upon
expiration of said two-year period, the Purchasers will, and will cause its
officers, directors, employees, accountants, counsel, consultants, advisors,
and agents to, destroy or deliver to the Issuer, upon request, all
36
42
documents and other materials, and all copies thereof, obtained by the
Purchasers pursuant to Section 5.2 hereof.
8.4 SURVIVAL; FAILURE TO CLOSE. All representations, warranties,
indemnities, and covenants contained herein or made in writing by any party in
connection herewith will survive the execution and delivery of this Agreement
and any investigation made at any time by or on behalf of Purchasers, except
that any claim for a breach of a representation or warranty must be brought
within three years following the Closing. Notwithstanding anything herein to
the contrary, in the event the funding by Purchasers of their investment has
not occurred on or before January 16, 1998, because one or more conditions set
forth in Article VI has not been satisfied, either party may terminate its
obligations under this Agreement by written notice to the other; provided,
however, that the provisions of Sections 8.1, 8.3 and 8.4 shall survive any
such termination provided further, however that no party may terminate this
Agreement if such funding has failed to occur because such party (or any
Affiliate thereof) willfully or negligently fail to perform or observe its
material agreements and covenants hereunder.
8.5 RESTRICTIONS.
(a) Restrictions on Transferability. The Restricted Securities
shall not be sold, assigned, transferred or pledged except in compliance with
the conditions specified in this Agreement, which conditions are intended to
ensure compliance with the provisions of the Securities Act. The Purchasers
will cause any purchaser, assignee, transferee or pledgee of the Restricted
Securities or any other securities issued in respect of the Restricted
Securities upon any stock split, stock dividend, recapitalization, merger,
consolidation share exchange or similar event held by the Purchasers to agree
to take and hold such securities subject to the provisions and upon the
conditions specified in Section 8.5 of this Agreement.
(b) Restrictive Legend. Each certificate representing the
Securities, the securities issued upon exercise of the Warrants or any other
securities issued in respect of the Securities, the securities issued upon
exercise of the Warrants upon any stock split, stock dividend,
recapitalization, merger, consolidation, share exchange or similar event, all
of the foregoing being referred to herein as the "Restricted Securities" shall
(unless otherwise permitted by the provisions of Section 8.5(c) below) be
stamped or otherwise imprinted with a legend noted conspicuously on the
certificate substantially in the following form (in addition to any legend
required under applicable state securities laws or otherwise):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN
THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE COMPANY RECEIVES AN
OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE
OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SAID ACT. THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO REQUIRED
37
43
APPROVALS FOR TRANSFER AND CERTAIN OTHER RESTRICTIONS ON TRANSFER, ALL
OF WHICH RESTRICTIONS ARE BINDING ON TRANSFEREES. COPIES OF THE
AGREEMENT COVERING THE FOREGOING MATTERS AND RESTRICTING THE TRANSFER
OF SUCH SECURITIES MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE
BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE
COMPANY AT THE PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY.
The Purchasers consent to the Issuer making a notation on its records and
giving instructions to any transfer agent of the Restricted Securities in order
to implement the restrictions on transfer established in this Agreement. The
Issuer agrees to keep a copy of this Agreement (as it may from time to time be
amended) at its place of business and to make such Agreement subject to the
same right of examination by shareholder of the Issuer, in person or by agent,
attorney or accountant, as are the books and records of the Issuer.
(c) Notice of Proposed Transfers. The holder of each certificate
representing Restricted Securities, by acceptance thereof, agrees to comply in
all respects with the provisions of this Section 8.5(c). Prior to any proposed
sale, assignment, transfer or pledge of any Restricted Securities, unless there
is in effect a registration statement under the Securities Act covering the
proposed transfer, the holder thereof shall give written notice to the Issuer
of such holder's intention to effect such transfer, sale, assignment or pledge.
Each such notice shall describe the manner and circumstances of the proposed
transfer, sale, assignment or pledge in sufficient detail, and shall be
accompanied, at such holder's expense by either (i) a written opinion of legal
counsel who shall be reasonably satisfactory to the Issuer, addressed to the
Issuer, to the effect that the proposed transfer of the Restricted Securities
may be effected without registration under the Securities Act or any state or
foreign securities law, or (ii) a "no action" letter from the Commission to the
effect that the transfer of such securities without registration will not
result in a recommendation by the staff of the Commission that action be taken
with respect thereto, whereupon the holder of such Restricted Securities shall
be entitled to transfer such Restricted Securities in accordance with the terms
of the notice delivered by the holder to the Issuer. Each certificate
evidencing the Restricted Securities transferred as above provided shall bear
the appropriate restrictive legend set forth in Section 3 above, except that
the first two sentences shall not be required if such transfer is either (i)
made pursuant to Rule 144, or (ii) if in the opinion of counsel for such holder
and of counsel for the Issuer such legend is not required in order to establish
compliance with any provision of the Securities Act. The Purchasers may not
transfer the Warrants unless the proposed transferee is able to, and does make
for the benefit of the Issuer the representations and agreements that would
apply or relate to the Warrants or the transfer thereof set forth in Section
4.5, 4.7 and 4.8 (if transferred during the two-year period specified therein
and then only for the same two-year period with regard to 4.8). The Purchasers
may not transfer the Warrants or the Preferred Stock, unless the proposed
transferee is notified of the provisions of Section 10.12 and is requested to
agree in writing with the Issuer to be bound by such provisions; provided such
transferee is not obligated to agree.
38
44
(d) Approval of Warrant Transfer. The Warrants shall not be
transferrable (except to an Affiliate) for a period of two years from the date
hereof without the prior written approval of the Issuer.
ARTICLE IX.
INDEMNIFICATION
9.1 ISSUER INDEMNIFICATION. Issuer agrees to indemnify, defend,
and hold harmless Purchasers and each Affiliate of either of the Purchasers (a
"Purchasers' Indemnified Person") from, against, and in respect of any and all
claims, demands, losses, reasonable costs and expenses, obligations,
liabilities, damages, recoveries, and deficiencies, including interest,
penalties and reasonable attorneys' fees (collectively, "Claims"), that such
Purchasers' Indemnified Party shall incur or suffer, which arise, result from,
or relate to (a) any breach of, or failure by Issuer to perform, any of its
representations, warranties, covenants, or agreements in this Agreement or in
any schedule, certificate, exhibit, or other instrument furnished or to be
furnished by Issuer in connection with the transactions contemplated by this
Agreement, or in the Charter of Issuer or (b) any claims of any applicable
Governmental Authority or other Person arising under any Governmental
Requirement (including without limitation any Environmental Law or regulation
under ERISA). WITHOUT LIMITATION, THE FOREGOING INDEMNITY SHALL APPLY TO EACH
PURCHASER INDEMNIFIED PERSON WITH RESPECT TO LOSSES WHICH IN WHOLE OR IN PART
ARE CAUSED BY OR ARISE OUT OF THE CONCURRENT OR COMPARATIVE NEGLIGENCE OR THE
STRICT LIABILITY OF SUCH PURCHASER INDEMNIFIED PERSON; PROVIDED, HOWEVER, NO
PURCHASER INDEMNIFIED PARTY SHALL BE INDEMNIFIED FOR ITS OWN NEGLIGENCE OR
WILFUL MISCONDUCT.
9.2 PURCHASERS INDEMNIFICATION. Purchasers agree to indemnify,
defend, and hold harmless Issuer and each Affiliate of Issuer (an "Issuer
Indemnified Person") from, against, and in respect of any and all Claims, that
such Indemnified Party shall incur or suffer, which arise, result from, or
relate to any breach of, or failure by Purchasers to perform, any of its
representations, warranties, covenants, or agreements in this Agreement or in
any schedule, certificate, exhibit, or other instrument furnished or to be
furnished by Purchasers in connection with the transactions contemplated by
this Agreement. WITHOUT LIMITATION, THE FOREGOING INDEMNITY SHALL APPLY TO
EACH ISSUER INDEMNIFIED PERSON WITH RESPECT TO LOSSES WHICH IN WHOLE OR IN PART
ARE CAUSED BY OR ARISE OUT OF THE CONCURRENT OR COMPARATIVE NEGLIGENCE OR THE
STRICT LIABILITY OF SUCH ISSUER INDEMNIFIED PERSON; PROVIDED, HOWEVER, NO
ISSUER INDEMNIFIED PARTY SHALL BE INDEMNIFIED FOR ITS OWN NEGLIGENCE OR WILFUL
MISCONDUCT.
9.3 PROCEDURES RELATING TO INDEMNIFICATION UNDER ARTICLE IX. (a)
Any Purchasers' Indemnified Person or Issuer Indemnified Person seeking
indemnification under this Article IX (the "Indemnified Party") with respect to
a Claim that is not a Third Party Claim shall commence and resolve such Claim
solely in accordance with the dispute resolution procedures set forth in
Section 10.12.
39
45
(b) If any Third Party Claim is asserted against an Indemnified
Party and such Indemnified Party intends to seek indemnification hereunder from
a party to this Agreement (the "Indemnifying Party"), then such Indemnified
Party shall give notice of the Third Party Claim to the Indemnifying Party as
soon as practicable after the Indemnified Party has reason to believe that the
Indemnifying Party will have an indemnification obligation with respect to such
Third Party Claim and shall provide the Indemnifying Party with all papers
served with respect to such Third Party Claim. Such notice shall describe in
reasonable detail the nature of the Third Party Claim, an estimate of the
amount of damages attributable to the Third Party Claim and the basis of the
Indemnified Party's request for indemnification under this Agreement. The
failure of the Indemnified Party to so notify the Indemnifying Party of the
Third Party Claim shall not relieve the Indemnifying Party from any duty to
indemnify hereunder unless and to the extent that the Indemnifying Party
demonstrates that the failure of the Indemnified Party to promptly notify it of
such Third Party Claim prejudiced its ability to defend such Third Party Claim;
provided, that the failure of the Indemnified Party to notify the Indemnifying
Party shall not relieve the Indemnifying Party from any liability which it may
have to the Indemnified Party otherwise than under this Agreement. Thereafter,
the Indemnified Party shall deliver to the Indemnifying Party, within five
business days after the Indemnified Party's receipt thereof, copies of all
notices and documents (including court papers) received by the Indemnified
Party relating to the Third Party Claim.
(c) The Indemnifying Party shall have the right to participate in,
or assume control of, and the Indemnifying Party's insurance carrier shall
have the right to participate in, the defense of the Third Party Claim at its
own expense by giving prompt written notice to the Indemnified Party, using
counsel of its choice reasonably acceptable to the Indemnified Party. If it
elects to assume control of the defense of such Third Party Claim, the
Indemnifying Party shall defend such Third Party Claim by promptly and
vigorously prosecuting all appropriate proceedings to a final conclusion or
settlement. After notice from the Indemnifying Party to the Indemnified Party
of its election to assume the defense of such Third Party Claim, the
Indemnified Party shall have the right to participate in the defense of the
Third Party Claim using counsel of its choice, but the Indemnifying Party shall
not be liable to the Indemnified Party hereunder for any legal or other
expenses subsequently incurred by the Indemnified Party in connection with its
participation in the defense thereof unless (i) the employment thereof has been
specifically authorized in writing by the Indemnifying Party, (ii) the
Indemnifying Party fails to assume the defense or diligently prosecute the
Third Party Claim or (iii) there shall exist or develop a conflict that would
ethically prohibit counsel to the Indemnifying Party from representing the
Indemnified Party. If requested by the Indemnifying Party, the Indemnified
Party agrees to cooperate with the Indemnifying Party and its counsel in
contesting any Third Party Claim that the Indemnifying Party elects to contest,
including the making of any related counterclaim against the Third Party
asserting the Third Party Claim or any cross-complaint against any Person, in
each case only if and to the extent that any such counterclaim or
cross-complaint arises from the same actions or facts giving rise to the Third
Party Claim. The Indemnifying Party shall have the right, acting in good faith
and with due regard to the interests of the Indemnified Party, to control all
decisions regarding the handling of the defense without the consent of the
Indemnified Party, but shall not have the right to admit liability with respect
to, or compromise, settle or discharge any Third Party Claim or consent to the
entry of any judgment with respect to such Third Party Claim without the
consent of the Indemnified Party, which consent shall not be unreasonably
withheld, unless such settlement, compromise or consent includes
40
46
an unconditional release of the Indemnified Party from all liability and
obligations arising out of such Third Party Claim and which would not otherwise
adversely affect the Indemnified Party.
(d) If the Indemnifying Party fails to assume the defense of a
Third Party Claim within thirty (30) days after receipt of written notice of
the Third Party Claim, then the Indemnified Party shall have the right to
defend the Third Party Claim by promptly and vigorously prosecuting all
appropriate proceedings to a final conclusion or settlement. The Indemnifying
Party shall have the right to participate in the defense of the Third Party
Claim using counsel of its choice, but the Indemnified Party shall not be
liable to the Indemnifying Party hereunder for any legal or other expenses
incurred by the Indemnifying Party in connection with its participation in the
defense thereof. If requested by the Indemnified Party, the Indemnifying Party
agrees to cooperate with the Indemnified Party and its counsel in contesting
any Third Party Claim that the Indemnified Party elects to contest, including
the making of any related counterclaim against the Third Party asserting the
Third Party Claim or any cross-complaint against any Person, in each case only
if and to the extent that any such counterclaim or cross-complaint arises from
the same actions or facts giving rise to the Third Party Claim. The Indemnified
Party shall have the right, acting in good faith and with due regard to the
interests of the Indemnifying Party, to control all decisions regarding the
handling of the defense without the consent of the Indemnifying Party, but
shall not have the right to compromise or settle any Third Party Claim or
consent to the entry of any judgment with respect to such Third Party Claim
without the consent of the Indemnifying Party, which consent shall not be
unreasonably withheld, unless such settlement, compromise or consent includes
an unconditional release of the Indemnifying Party from all liability and
obligations arising out of such Third Party Claim.
ARTICLE X.
MISCELLANEOUS
10.1 AMENDMENTS; WAIVERS. No amendment or waiver of any provision
of this Agreement, nor consent to any departure by Issuer or Purchasers
therefrom, shall in any event be effective unless the same shall be in writing
and signed by Purchasers and Issuer in the case of amendments, and Purchasers
or Issuer, as the case may be, in the case of waivers. The agreement and
signature of Permitted Assigns shall not be required for amendments or waivers.
Waivers involving the rights of Holders may be signed by the Holders of a
majority of the Registrable Shares that are then subject to the registration
rights hereunder, and then such waiver or consent shall be effective only in
the specific instance or for the specific purpose for which given.
10.2 SUCCESSORS AND ASSIGNS. All of the respective rights,
obligations and interests of the parties hereto shall be binding upon and inure
to the benefit of the respective successors of the parties hereto, and to the
extent allowed by the introduction to Section 5.2 in Article V, all covenants
contained in such Article V by or on behalf of any of the parties hereto will
bind and inure to the benefit of the respective Permitted Assigns of the
parties hereto whether so expressed or not and without limitation and without
need of any express assignment. Except as set forth herein, this Agreement and
the rights and obligations of each party thereunder shall not be assigned
without the prior written consent of the other party. Notwithstanding the
preceding sentence, subject to
41
47
compliance with applicable laws and with the terms and conditions hereof and of
the other Basic Documents, a Purchaser may assign or transfer any or all of its
rights and obligations under Article VII of this Agreement (and no other
provision hereof) without the consent of Issuer. Notwithstanding the
foregoing, a Purchaser may at any time assign or transfer any of its rights or
obligations under this Agreement to an Affiliate. In addition, a Purchaser may
transfer the Securities to third persons, subject to the provisions of this
Agreement.
10.3 SEVERABILITY. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the
remainder of this Agreement unless the consummation of the transaction
contemplated hereby is materially and adversely affected thereby.
10.4 DESCRIPTIVE HEADINGS. The descriptive headings of this
Agreement are inserted for convenience of reference only and do not constitute
a part of and shall not be utilized in interpreting this Agreement.
10.5 GOVERNING LAW. This Agreement shall be deemed a contract and
instrument made under the laws of the State of Texas and shall be construed and
enforced in accordance with and governed by the laws of the State of Texas,
without regard to principles of conflicts of law.
10.6 ENTIRE AGREEMENT. Except for the Confidentiality Agreement
defined in Section 8.3 the Basic Documents constitute the entire agreement
among Issuer and Purchasers concerning the matters referred to herein and
therein, and supersede all prior agreements and understandings among Issuer and
Purchasers relating to the subject matter hereof and thereof. There are no
unwritten oral agreements between or among the parties.
10.7 EXECUTION IN COUNTERPARTS. This Agreement may be executed in
any number of counterparts, each of which when so executed and delivered shall
be deemed an original, and such counterparts together shall constitute one
instrument.
10.8 FURTHER COOPERATION. At any time and from time to time, and
at its own expense, each party shall promptly execute and deliver all such
documents and instruments, and do all such acts and things, as the other may
reasonably request in order to further effect the purposes of this Agreement.
10.9 NOTICES. All notices, requests, and other communications to
any party hereunder shall be in writing (including telecopy) and shall be given
to such party at its address or telecopy number set forth on the signature
pages hereof or such other address or telecopy number as such party may
hereafter specify by notice to the other parties.
10.10 NO WAIVER; REMEDIES CUMULATIVE. No failure or delay on the
part of a party in exercising any right or remedy under this Agreement and no
course of dealing among Issuer and either of the Purchasers shall operate as a
waiver thereof, nor shall any single or partial exercise of
42
48
any right or remedy under this Agreement preclude any other or further exercise
thereof or the exercise of any other right or remedy under this Agreement. The
rights and remedies expressly provided are cumulative and not exclusive of any
rights or remedies that a party would otherwise have. No notice to or demand
on a party not otherwise required by this Agreement or shall entitle that party
to any other or further notice or demand in similar or other circumstances or
constitute a waiver of the rights of that Party to any other or further action
in any circumstances without notice or demand.
10.11 EXHIBITS; AMENDMENT OF DISCLOSURE LETTER. The exhibits
attached to this Agreement and the Disclosure Letter are incorporated herein
and shall be considered to be a part of this Agreement for the purposes stated
herein, except that in the event of any conflict between any of the provisions
of such exhibits and the provisions of this Agreement, the provisions of this
Agreement shall prevail.
10.12 DISPUTE RESOLUTION. (a) Any controversy, dispute or claim
arising out of or relating to the Basic Documents, or the transactions
contemplated thereby (a "Dispute") shall be resolved in accordance with this
Section 10.12.
(b) either party may give the other party written notice (a
"Dispute Notice") of any Dispute which has not been resolved in the normal
course of business. Within four (4) business days after delivery of the
Dispute Notice, the receiving party shall submit to the other party a written
response (the "Response"). The Dispute Notice and the Response shall each
include (i) a statement setting forth the position of the party giving such
notice, a summary of the arguments supporting such position and, if applicable,
the relief sought and (ii) the name and title of a senior manager of such party
who has authority to settle the Dispute and will be responsible for the
negotiations related to the settlement of the Dispute (the "Senior Manager").
(c) Within four (4) business days after delivery of the Response
provided for in Section 10.12(b), the Senior Managers of both parties shall
meet or communicate by telephone at a mutually acceptable time and place, and
thereafter as often as they reasonably deem necessary, and shall negotiate in
good faith to attempt to resolve the Dispute that is the subject of such
Dispute Notice. If such Dispute has not been resolved within ten (10) business
days after delivery of the Dispute Notice, then the parties shall attempt to
settle the Dispute pursuant to Section 10.12(d).
(d) If the Dispute has not been resolved by negotiation between
the Senior Managers pursuant to Section 10.12(c), a neutral mediator acceptable
to both parties (the "Mediator") shall be appointed within four (4) business
days. The Mediator shall attempt, through negotiations in any manner deemed
reasonably appropriate by the Mediator, in which the parties shall participate,
to resolve the Dispute. The Mediator shall be compensated at a rate agreeable
to Issuer, Purchasers and the Mediator, and each of Issuer and Purchasers shall
pay its one-half of such compensation and other expenses of the mediation.
(e) In the event that the Dispute has not been resolved within
five (5) business days after the appointment of the Mediator, the Dispute shall
be resolved by arbitration administered by the American Arbitration Association
(the "AAA") in accordance with the terms of this Section 10.12,
43
49
the Commercial Arbitration Rules of the AAA, and, to the maximum extent
applicable, the United States Arbitration Act. Judgment on any matter rendered
by arbitrators may be entered in any court having jurisdiction. Any
arbitration shall be conducted before three arbitrators. The arbitrators shall
be individuals knowledgeable in the subject matter of the Dispute. Each party
shall select one arbitrator who agrees to comply with the provisions of this
Section 10.12 and the two arbitrators so selected shall select the third
arbitrator who agrees to comply with the provisions of this Section 10.12. If
the third arbitrator is not selected within three (3) business days after the
request for an arbitration, then any party may request the AAA to select the
third arbitrator who agrees to comply with the provisions of this Section
10.12. The arbitrators may engage engineers, accountants or other consultants
they deem necessary to render a conclusion in the arbitration proceeding. To
the maximum extent practicable, an arbitration proceeding hereunder shall be
concluded within forty-five (45) days of the filing of the Dispute with the
AAA. Arbitration proceedings shall be conducted in Houston, Texas.
Arbitrators shall be empowered to impose sanctions and to take such other
actions as the arbitrators deem necessary to the same extent a judge could
impose sanctions or take such other actions pursuant to the Federal Rules of
Civil Procedure and applicable law. At the conclusion of any arbitration
proceeding, the arbitrators shall make specific written findings of fact and
conclusions of law. The arbitrators shall have the power to award recovery of
all costs and fees to the prevailing party. All fees of the arbitrators and
any engineer, accountant or other consultant engaged by the arbitrators, shall
be shared equally unless otherwise awarded by the arbitrators.
Nothing in the preceding paragraph, nor in the exercise of any right to
negotiate, mediate or arbitrate thereunder, shall limit the right of any party
hereto to obtain provisional or ancillary remedies such as replevin, injunctive
relief, attachment or appointment of a receiver from a court having
jurisdiction, before, during or after the pendency of any negotiation,
mediation or arbitration proceeding. The institution and maintenance of any
action for such relief, or the pursuit of provisional or ancillary remedies,
shall not constitute a waiver of the right or obligation of any party to submit
any claim or dispute to negotiation, mediation or arbitration, including those
claims or disputes arising from the exercise of any relief or pursuit of
provisional or ancillary remedies.
(f) All negotiations between the Senior Managers pursuant to this
Section 10.12 shall be treated as compromise and settlement negotiations.
Nothing said or disclosed, nor any document produced, in the course of such
negotiations which is not otherwise independently discoverable shall be offered
or received as evidence or used for impeachment or for any other purpose in any
current or future negotiation, mediation, arbitration or litigation.
(g) Nothing in this Section 10.12 shall limit or delay the right
of Purchasers to obtain provisional or ancillary remedies such as injunctive
relief in order to exercise the mandatory redemption provisions and the voting
rights provided to them under the Statement of Resolution.
44
50
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first set forth above.
CARRIZO OIL & GAS, INC.
By: /s/ S.P. Johnson IV
------------------------------------
S.P. Johnson IV, President
Address for Notice:
14811 St. Mary's Lane, Suite 148
Houston, Texas 77079
Attention: S.P. Johnson IV
Telecopy: 281-496-0884
with a copy to:
Baker & Botts, L.L.P.
3000 One Shell Plaza
Houston, TX 77002
Attn: Gene Oshman, Esq.
Telecopy: 713-229-1522
ENRON CAPITAL & TRADE
RESOURCES CORP.
By: /s/ Timothy J. Detmering
------------------------------------
Name: Timothy J. Detmering
Title: Vice President
Address for Notice:
Enron Capital & Trade Resources
Attn:
----------------------------------
1400 Smith Street
Houston, Texas 77002
Phone: (713) 853-1939
Fax: (713) 646-4039 or (713) 646-4946
45
51
JOINT ENERGY DEVELOPMENT INVESTMENTS II
LIMITED PARTNERSHIP
By: ENRON CAPITAL MANAGEMENT II
LIMITED PARTNERSHIP,
its sole general partner
By: ENRON CAPITAL II CORP., its
sole general partner
By: /s/ Timothy J. Detmering
-------------------------------
Name: Timothy J. Detmering
Title: Agent and Attorney-in-Fact
Address for Notice:
1400 Smith Street
Houston, Texas 77002
Attn: Donna W. Lowry
Phone: 713/853-1939
Fax: 713/646-4039 or 713/646-4946
46