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EXHIBIT 99.2
EXECUTION COPY
CARRIZO OIL & GAS, INC.
(A TEXAS CORPORATION)
SHAREHOLDERS AGREEMENT
DECEMBER 15, 1999
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TABLE OF CONTENTS
Article I DEFINITIONS; RULES OF CONSTRUCTION......................................................................1
1.1 Definitions.............................................................................................1
1.2 Rules of Construction...................................................................................9
Article II BOARD OF DIRECTORS; SHAREHOLDER ACTION.................................................................10
2.1 Election of Directors Generally........................................................................10
2.2 Election of Additional CB Capital Directors............................................................10
2.3 Committees of the Board................................................................................11
2.4 Expenses...............................................................................................11
2.5 Vacancies..............................................................................................11
2.6 Board and Committee Observer...........................................................................11
2.7 Boards of Subsidiaries.................................................................................12
2.8 Number of Directors....................................................................................13
2.9 Issuance of Purchased Securities.......................................................................13
2.10 Covenant to Vote.......................................................................................13
2.11 Expiration of this Article.............................................................................13
Article III ISSUANCES AND TRANSFERS OF STOCK.......................................................................14
3.1 Joinder Agreement; Certain Transfers...................................................................14
3.2 Tag-Along Rights.......................................................................................15
Article IV RIGHTS TO SUBSCRIBE FOR SECURITIES.....................................................................15
4.1 General................................................................................................15
4.2 Excluded Securities....................................................................................17
Article V COVENANTS..............................................................................................17
5.1 Equity Incentive Plans.................................................................................17
5.2 Other Covenants........................................................................................17
Article VI AMENDMENT AND WAIVER...................................................................................18
6.1 Amendment..............................................................................................18
6.2 Waiver.................................................................................................18
Article VII DURATION; TERMINATION..................................................................................18
Article VIII MISCELLANEOUS..........................................................................................19
8.1 Severability...........................................................................................19
8.2 Entire Agreement.......................................................................................19
8.3 Certain Shareholders...................................................................................19
8.4 Successors and Assigns.................................................................................19
8.5 Remedies...............................................................................................20
8.6 Notices................................................................................................20
8.7 GOVERNING LAW..........................................................................................21
8.8 Further Assurances.....................................................................................22
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8.9 Representation and Warranties of the Shareholders......................................................22
8.10 Legends; Stop Transfer Instructions....................................................................23
8.11 Conflicting Agreements.................................................................................23
8.12 Counterparts; Validity.................................................................................23
8.13 Regulatory Matters.....................................................................................24
8.14 Consent of Spouses.....................................................................................24
8.15 Fiduciary Duties.......................................................................................24
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SCHEDULES AND EXHIBITS
Schedule I - Shareholders
Exhibit A - Form of Joinder Agreement
Exhibit B - Spousal Consent
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EXECUTION COPY
SHAREHOLDERS AGREEMENT
dated as of December 15, 1999, among
CARRIZO OIL & GAS, INC., a Texas
corporation (the "COMPANY"), and the
Shareholders (as hereinafter defined).
PREAMBLE
The Company and the Investors (as hereinafter defined) who are
initially parties to this Agreement have entered into a Securities Purchase
Agreement, dated as of the date hereof (the "PURCHASE AGREEMENT"), pursuant to
which such Investors acquired from the Company shares of Common Stock and
Warrants. The execution and delivery of this Agreement is a condition to the
completion of the transactions contemplated by the Purchase Agreement.
ACCORDINGLY, in consideration of the mutual covenants and
agreements contained in this Agreement, the sufficiency of which is hereby
acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION
1.1 DEFINITIONS.
Capitalized terms used in this Agreement have the meanings ascribed to
them below:
"ADDITIONAL CB CAPITAL DIRECTOR" and "ADDITIONAL CB CAPITAL
DIRECTORS" have the meanings given to such terms in Section 2.2.
"AFFILIATE" means, with respect to any specified Person, any
other Person that directly or indirectly through one or more intermediaries
Controls, is Controlled by or is under common Control with such Person.
"APPLICABLE LAW" means all provisions of laws, statutes,
ordinances, rules, regulations, permits, certificates or orders of any
Governmental Authority applicable to the Person in question or any of its assets
or property, and all judgments, injunctions, orders and decrees of all courts
and arbitrators in proceedings or actions in which the Person in question is a
party or by which any of its assets or properties are bound.
"BOARD" and "BOARD OF DIRECTORS," unless otherwise specified,
means the Board of Directors of the Company.
"BUSINESS" means the exploration, development, exploitation
and production of natural gas and crude oil.
"BUSINESS DAY" means any day other than a Saturday, Sunday or
a day on which banks are authorized or required to be closed in New York, New
York or Houston, Texas;
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provided, however, that any determination of a Business Day relating to a
securities exchange or other securities market means a Business Day on which
such exchange or market is open for trading.
"BY-LAWS" means the By-laws of the Company, as amended,
modified, supplemented or restated and in effect from time to time.
"CB CAPITAL" means CB Capital Investors, L.P., a Delaware
limited partnership, and any successor thereto.
"CB CAPITAL DIRECTOR" and "CB CAPITAL DIRECTORS" have the
meanings given to such terms in Section 2.2.
"CHARTER" means the Articles of Incorporation of the Company
as amended and restated and filed with the Secretary of State of the State of
Texas and all amendments thereto in effect on the date hereof.
"COMMITTEE" has the meaning given to such term in Section 2.3.
"COMMON STOCK" means (i) the Common Stock, $.01 par value, of
the Company and (ii) any other class of capital stock of the Company hereafter
authorized that is not limited to a fixed sum or percentage of par or stated
value with respect to the rights of the holders thereof to participate in
dividends or in the distribution of assets upon any liquidation, dissolution or
winding up of the Company.
"COMMON STOCK EQUIVALENTS" means all shares of Common Stock
outstanding, all shares of Common Stock issuable (without regard to any present
restrictions on such issuance) upon the conversion, exchange or exercise of all
securities of the Company that are convertible, exchangeable or exercisable for
Common Stock and all Common Stock appreciation rights, phantom Common Stock
rights and other rights to acquire, or to receive or be paid an amount based on
the Market Price (less any exercise, conversion or purchase price) of, the
Common Stock.
"COMPANY" has the meaning given to such term in the caption on
the first page of this Agreement.
"COMPETITOR" has the meaning given such term in Section
3.1(c).
"COMPLIANCE SIDELETTER" has the meaning given to such term in
the Purchase Agreement.
"CONTROL" means, with respect to any Person, the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of such Person, whether through the ownership of voting
securities, by contract or otherwise.
"CONVERTIBLE SECURITIES" means any capital stock, evidence of
indebtedness or other securities or rights convertible into or exchangeable for
Common Stock
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"EQUITY INCENTIVE PLANS" means any stock option, issuance,
appreciation rights, restricted stock, phantom stock, stock purchase plan or
other equity incentive plan for the directors, officers, and employees of, and
consultants to, the Company and its Subsidiaries.
"EXCLUDED SECURITIES" has the meaning given to such term in
Section 4.2.
"EXISTING SHARES" means the shares owned by the Original
Founder Shareholders as of the Closing Date other than any shares issued to such
Original Founder Shareholder pursuant to the Purchase Agreement.
"FOUNDER SHAREHOLDERS" shall mean, collectively, (i) the
Original Founder Shareholders and (ii) any Transferee of the Securities held by
an Original Founder Shareholder who hereafter becomes a party to this Agreement
as a "Founder Shareholder" pursuant to a Joinder Agreement executed and
delivered pursuant to Section 3.1(a).
"FULLY DILUTED COMMON STOCK" means, with respect to the Common
Stock at any time of determination, the number of shares of Common Stock that
would be issued and outstanding at such time, assuming full conversion, exercise
and exchange of all issued and outstanding Convertible Securities and Options
that shall be (or may become) exchangeable for, or exercisable or convertible
into, Common Stock, including the Warrants, except that the number of shares of
Fully Diluted Common Stock shall not include the number of shares of Common
Stock issuable upon exercise, conversion or exchange of Options or Convertible
Securities that, at the time of determination, are Out of the Money. For
purposes of determining the percentage of the Fully Diluted Common Stock, any
Investor shall be deemed to hold shares of Common Stock issuable upon any such
exercise, conversion or exchange of Convertible Securities and Options held by
such Investor.
"GOVERNMENTAL AUTHORITY" means any federal, state, municipal
or other government, governmental department, commission, board, bureau, agency
or instrumentality, or any court, in each case whether of the United States of
America or any political subdivision thereof, or of any other country.
"INITIAL CB CAPITAL DIRECTOR" and "INITIAL CB CAPITAL
DIRECTORS" have the meanings given to such terms in Section 2.1.
"INVESTORS" means, collectively, those persons listed on
Schedule I attached hereto under the heading "Investors," and every other Person
who hereafter becomes a party to this Agreement as an "Investor" pursuant to a
Joinder Agreement executed and delivered pursuant to Section 3.1(a).
"JOINDER AGREEMENT" has the meaning given to such term in
Section 3.1.
"LIQUIDITY OPPORTUNITY" means (i) a Sale of the Company, (ii)
a proposed Sale of the Company which would include the sale of the Shares held
by CB Capital and which would have been consummated but for the failure of CB
Capital to vote in favor of, or elect to participate in, such proposed Sale of
the Company or (ii) the occurrence of a Minimum Public Float.
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"MARKET PRICE" means, for any security as of any date of
determination:
(a) if such security is Publicly Traded as of the date of
determination, the price determined by computing the average, over a period
consisting of the most recent four (4) Business Days occurring on or prior to
the date of determination, of the applicable price set forth below (but
excluding any trades or quotations that are not bona fide, arm's length
transactions):
(i) the average of the closing prices for such
security on such Business Day on all domestic national
securities exchanges on which such security may be listed if
such exchanges are the primary securities markets for such
security, or
(ii) if there have been no sales on any such exchange
on such Business Day, the average of the highest bid and
lowest asked prices on all such exchanges at the end of such
Business Day if such exchanges are the primary securities
markets for such security, or
(iii) if on any Business Day such security is not so
listed, the closing sales price on such Business Day quoted on
the Nasdaq National Market or the Nasdaq Small-Cap Market, as
applicable, or if there have been no sales on the Nasdaq
National Market or the Nasdaq Small-Cap Market, as the case
may be, on such business day, the average of the highest bid
and lowest asked prices quoted on the Nasdaq National Market
or the Nasdaq Small-Cap Market, as the case may be, or
(iv) if on any Business Day such security is not
quoted in the Nasdaq National Market or Nasdaq Small-Cap
Market, the average of the highest bid and lowest asked prices
on such Business Day in the domestic over-the-counter market
as reported by the National Quotation Bureau, Incorporated, or
any similar successor organization;
provided, that (1) for the purposes of any determination of the "Market Price"
of any share of a security on any day after the "ex" date or any similar date
for any dividend or distribution paid or to be paid with respect to such
security, any price of such security on a day prior to such "ex" date or similar
date shall be reduced by the fair market value of the per share amount of such
dividend or distribution as determined in good faith by the Board of Directors
of the Company and (2) for the purposes of any determination of the "Market
Price" of any security on any day after (i) the effective day of any subdivision
(by stock split or otherwise) or combination (by reverse stock split or
otherwise) of outstanding securities or (ii) the "ex" date or any similar date
for any dividend or distribution with respect to such securities in shares of
that security, any price of such security on a day prior to such effective date
or "ex" date or similar date shall be appropriately adjusted to reflect such
subdivision, combination, dividend or distribution; and
(b) if such security is not Publicly Traded as of the date of
determination, (i) in the case of the Common Stock, the Market Value Per Share,
determined in accordance with the Valuation Procedure, and (ii) in the case of
any other security, the fair market value of one share or other applicable unit
of such security, determined in accordance with the Valuation Procedure.
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"MARKET VALUE" means the highest price that would be paid for
the entire common equity interest in the Company on a going-concern basis in a
single arm's-length transaction between a willing buyer and a willing seller
(neither acting under compulsion), using valuation techniques then prevailing in
the securities industry and assuming full disclosure of all relevant information
and a reasonable period of time for effectuating such sale. For the purposes of
determining the Market Value, (i) the exercise price of Options to acquire
Common Stock that are not Out of the Money shall be deemed to have been received
by the Company and (ii) the liquidation preference or indebtedness, as the case
may be, represented by Convertible Securities that are not Out of the Money
shall be deemed to have been eliminated or cancelled.
"MARKET VALUE PER SHARE" means the price per share of Common
Stock obtained by dividing (A) the Market Value by (B) the number of shares of
Fully Diluted Common Stock at the time of determination.
"MELLON" means Mellon Ventures, L.P.
"MINIMUM PUBLIC FLOAT" means an aggregate value determined
using the then Market Price of all shares of Common Stock held by Persons other
than Affiliates of the Company of not less than $40,000,000 and a minimum
trading volume of 250,000 shares (the level of trading volume to be determined
in accordance with clause (ii) and (iii) of subsection (e)(1) of Rule 144 under
the Securities Act.
"NONVOTING SECURITIES" has the meaning given to such term in
Section 4.1(d).
"OBSERVER" has the meaning given to such term in Section 2.6.
"OFFERED SECURITIES" has the meaning given to such term in
Section 4.1(a).
"OPTIONS" means any warrants, options or other rights to
subscribe for or to purchase (i) Common Stock or (ii) Convertible Securities.
"ORIGINAL FOUNDER SHAREHOLDERS" means S.P. Johnson IV, Frank
A. Wojtek, Steven A. Webster, Douglas A. P. Hamilton, Paul B. Loyd, Jr. and
DAPHAM Partnership L.P. (and each, individually, an "ORIGINAL FOUNDER
SHAREHOLDER"). With respect to each Founder Shareholder, the Original Founder
Shareholder is the Original Founder Shareholder from whom such Founder
Shareholder acquired, whether directly or indirectly, its Shares.
"OUT OF THE MONEY" means, at any date of determination (a) in
the case of an Option, that the aggregate fair market value as of such date of
the shares of Common Stock issuable upon the exercise of such Option is less
than the aggregate exercise price payable upon such exercise and (b) in the case
of a Convertible Security, that the quotient resulting from dividing the fair
market value as of such date of such Convertible Security by the number of
shares issuable as of such date upon conversion or exchange of such Convertible
Security is greater than the fair market value of a share of Common Stock.
"PERMITTED TRANSFER" shall mean any Transfer by a Founder
Shareholder (i) to the spouse, parent, sibling or any lineal descendant of the
Original Founder Shareholder of such Founder Shareholder, (ii) to any trust for
the benefit of any person specified in clause (i) above
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or to any family partnership or other estate planning vehicle, the interests of
which are held by such Founder Shareholder and/or the persons specified in
clause (i) above, (iii) by gift to a charitable organization qualified under
Section 501(c) of the Internal Revenue Code, (iv) to the estate of such Founder
Shareholder, (v) of up to $3 million in aggregate Market Price of shares of
Common Stock to one or more other Founder Shareholders, or (vi) to any Person in
a Public Sale; provided, however, that in each case (other than clauses (v) and
(vi)) such Permitted Transfer is made in accordance with Section 3.1(b).
"PERSON" shall be construed as broadly as possible and shall
include an individual or natural person, a partnership (including a limited
liability partnership), a corporation, an association, joint stock company, a
limited liability company, a trust, a joint venture, an unincorporated
organization and a Governmental Authority.
"PREEMPTIVE OFFER" has the meaning given to such term in
Section 4.1(a).
"PREEMPTIVE OFFER ACCEPTANCE NOTICE" has the meaning given to
such term in Section 4.1(b).
"PREEMPTIVE OFFER PERIOD" has the meaning given to such term
in Section 4.1(a).
"PROPORTIONATE PERCENTAGE" means, with respect to any
Shareholder, the fraction, expressed as a percentage, (i) the numerator of which
is the total number of shares of Common Stock and Warrant Shares (including any
Warrant Shares to be issued to such Shareholder upon exercise of the Warrants)
held by such Shareholder and (ii) the denominator of which is the total number
of shares of Fully Diluted Common Stock at the time of determination.
"PUBLIC OFFERING" means a public offering of Common Stock
pursuant to a registration statement declared effective under the Securities
Act, except that a Public Offering shall not include an offering made in
connection with a business acquisition or an employee benefit plan.
"PUBLIC SALE" means any sale of Securities to the public
pursuant to an offering registered under the Securities Act or to the public
through a broker, dealer or market maker (pursuant to the provisions of Rule 144
or otherwise or pursuant to a tender offer made to all shareholders of the
Company pursuant to Regulation 14D (or successor regulations) under the
Securities Exchange Act of 1934).
"PUBLICLY TRADED" means, with respect to any security, that
such security is (a) listed on a domestic securities exchange, (b) quoted on the
Nasdaq National Market or the Nasdaq Small-Cap Market or (c) traded in the
domestic over-the-counter market, which trades are reported by the National
Quotation Bureau, Incorporated.
"PURCHASE AGREEMENT" has the meaning given to such term in the
Preamble.
"REFUSED SECURITIES" has the meaning given to such term
Section 4.1(c).
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"REGULATED HOLDER" has the meaning given to such term in the
Compliance Sideletter.
"REGULATORY PROBLEM" has the meaning given to such term in the
Compliance Sideletter.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement dated as of the date hereof entered into simultaneously with the
execution and delivery of this Agreement between the Company and the Investors
named therein.
"REQUISITE INVESTORS" means those Investors who hold in the
aggregate in excess of 50% of the outstanding shares of Common Stock and the
Warrant Shares (including any Warrant Shares to be issued to such Shareholder
upon exercise of the Warrants) held by all Investors at the time in question.
"REQUISITE FOUNDER SHAREHOLDERS" means those Founder
Shareholders who hold in excess of 50% of the outstanding shares of Common Stock
held by all Founder Shareholders at the time in question.
"SALE OF THE COMPANY" means (i) the sale (in one or a series
of related transactions) of all or substantially all of the Company's assets to
a Person or a group of Persons acting in concert, (ii) the sale or transfer (in
one or a series of related transactions) of all or substantially all of the
outstanding capital stock of the Company, to one Person or a group of Persons
acting in concert, or (iii) the merger or consolidation of the Company with or
into another Person who is not an Affiliate of the Company, in each case in
clauses (ii) and (iii) above under circumstances in which the holders of a
majority in voting power of the outstanding capital stock of the Company,
immediately prior to such transaction, own less than a majority in voting power
of the outstanding capital stock of the Company, or the surviving or resulting
corporation or acquirer, as the case may be, immediately following such
transaction. A sale (or multiple related sales) of one or more subsidiaries of
the Company (whether by way of merger, consolidation, reorganization or sale of
all or substantially all assets or Securities) which constitutes all or
substantially all of the consolidated assets of the Company shall be deemed a
Sale of the Company.
"SALE NOTICE" has the meaning given to such term in Section
3.2(a).
"SECURITIES" means, with respect to any Person, such Person's
"securities" as defined in Section 2(1) of the Securities Act of 1933, as
amended, and includes such Person's capital stock or other equity interests or
any options, warrants or other securities that are directly or indirectly
convertible into, or exercisable or exchangeable for, such Person's capital
stock or other equity or equity-linked interests, including phantom stock and
stock appreciation rights.
"SECURITIES ACT" means the Securities Act of 1933, as amended,
or any successor federal statute, and the rules and regulations of the
Securities and Exchange Commission thereunder, all as the same shall be in
effect from time to time.
"SECURITIES AND EXCHANGE COMMISSION" means the Securities and
Exchange Commission or any Governmental Authority succeeding to the functions
thereof.
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"SHAREHOLDERS" means the holders of Common Stock and the
holders of Common Stock Equivalents (including, without limitation, the
Warrants), in each case, who are parties hereto, and shall include any other
Person who hereafter becomes a party to this Agreement as a Shareholder pursuant
to a Joinder Agreement executed and delivered pursuant to Section 3.1 or 3.2(b).
"SHARES" means any shares or other units of Stock issued by
the Company and purchased or otherwise acquired by any Shareholder. As to any
particular Securities constituting Shares, such Securities will cease to be
Shares for all purposes of this Agreement when they have (a) been Transferred in
a Public Sale or (b) ceased to be outstanding.
"SIGNIFICANT SHAREHOLDER" means (i) Mellon or (ii) a
Shareholder who at the time in question holds at least 10% of the Fully Diluted
Common Stock in the aggregate and who is not a Founder Shareholder. No
Transferee of Mellon shall be deemed to be a Significant Shareholder unless such
Transferee satisfies the criteria set forth in clause (ii) above by virtue of
ownership of Purchased Securities issued under the Purchase Agreement.
"SPOUSAL CONSENT" has the meaning given to such term in
Section 8.14.
"STOCK" means the Common Stock and the Warrants and any and
all other capital stock or equity Securities (including derivative Securities
therefor) of the Company, excluding Options but including, to the extent
applicable, the Stock received upon exercise of the Options.
"SUBSIDIARY" means, with respect to any Person, any other
Person of which more than fifty percent (50%) of the shares of stock or other
interests entitled to vote in the election of directors or comparable Persons
performing similar functions (excluding shares or other interests entitled to
vote only upon the failure to pay dividends thereon or other contingencies) are
at the time owned or controlled, directly or indirectly through one or more
Subsidiaries, by such Person.
"TAG-ALONG NOTICE" has the meaning given to such term in
Section 3.2(b).
"TRANSFER" of Securities shall be construed broadly and shall
include any issuance, sale, assignment, transfer, participation, gift, bequest,
distribution, or other disposition thereof (but not any pledge or hypothecation
thereof, placement of a lien thereon or grant of a security interest therein or
other encumbrance thereon until the execution and foreclosure with respect to
the foregoing), in each case whether voluntary or involuntary or by operation of
law or otherwise. "TRANSFEROR" means a Person Transferring Securities, and
"TRANSFEREE" means a Person acquiring Securities through a Transfer.
"TRANSFERRING SHAREHOLDER" has the meaning given such term in
Section 3.2(a).
"VALUATION PROCEDURE" means, with respect to the determination
of any amount or value required to be determined in accordance with such
procedure (the "VALUATION AMOUNT"), a determination (which shall be final and
binding on the Company and the Shareholder) made (i) by agreement among the
Company and the Requisite Investors within thirty (30) days following the event
requiring such determination or (ii) in the absence of such an agreement, by a
nationally recognized investment banking firm (an "APPRAISER") (as defined
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below) selected in accordance with the further provisions of this definition. If
the Board and the Requisite Investors are unable to agree upon an acceptable
Appraiser within ten (10) days after the date either party proposed that one be
selected, the Appraiser will be selected by an arbitrator located in New York
City, New York, selected by the American Arbitration Association (or if such
organization ceases to exist, the arbitrator shall be chosen by a court of
competent jurisdiction). The arbitrator shall select the Appraiser (within ten
(10) days of his appointment) from a list, jointly prepared by the Board and the
Requisite Investors, of not more than six Appraisers of national standing in the
United States, of which no more than three may be named by the Board and no more
than three may be named by the Requisite Investors. The arbitrator may consider,
within the ten-day period allotted, arguments from the parties regarding which
Appraiser to choose, but the selection by the arbitrator shall be made in its
sole discretion from the list of six. The Board and the Requisite Investors
shall submit to the Appraiser their respective determinations of the valuation
amount, and any supporting arguments and other data as they may desire, within
ten (10) days of the appointment of the Appraiser, and the Appraiser shall as
soon as practicable thereafter make its own determination of the valuation
amount. The final valuation amount for purposes hereof shall be the average of
the two valuation amounts closest together, as determined by the Appraiser, from
among the valuation amounts submitted by the Board (the "COMPANY'S VALUATION")
and the Requisite Holders (the "HOLDERS' VALUATION") and the valuation amount
calculated by the Appraiser. The fees and expenses of the Appraiser and
arbitrator (if any) used to determine the valuation amount shall be (i) paid by
the Company if the Company's Valuation is not used to determine the average in
the preceding sentence, (ii) paid by the Holders if the Holders' Valuation is
not used to determine the average in the preceding sentence or (iii) borne
equally by the Company and the Holders if the Company's Valuation and the
Holders' Valuation are both used to determine the average in the preceding
sentence. If required by any Appraiser or arbitrator, the Company shall execute
a retainer and engagement letter containing reasonable terms and conditions,
including, without limitation, customary provisions concerning the rights of
indemnification and contribution by the Company in favor of such Company or
arbitrator and its officers, directors, partners, employees, agents and
Affiliates.
"WARRANT AGREEMENT" means the Warrant Agreement dated as of
the date hereof entered into simultaneously with the execution and delivery of
this Agreement between the Company and the Investors named therein.
"WARRANTS" has the meaning given to such term in the Warrant
Agreement.
"WARRANT SHARES" has the meaning given to such term in the
Warrant Agreement.
1.2 RULES OF CONSTRUCTION.
The use in this Agreement of the term "including" means "including,
without limitation." The words "herein," "hereof," "hereunder" and other words
of similar import refer to this Agreement as a whole, including the schedules
and exhibits, as the same may from time to time be amended, modified,
supplemented or restated, and not to any particular section, subsection,
paragraph, subparagraph or clause contained in this Agreement. All references to
sections, schedules and exhibits mean the sections of this Agreement and the
schedules and exhibits
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attached to this Agreement, except where otherwise stated. The title of and the
section and paragraph headings in this Agreement are for convenience of
reference only and shall not govern or affect the interpretation of any of the
terms or provisions of this Agreement. The use herein of the masculine, feminine
or neuter forms shall also denote the other forms, as in each case the context
may require. Where specific language is used to clarify by example a general
statement contained herein, such specific language shall not be deemed to
modify, limit or restrict in any manner the construction of the general
statement to which it relates. The language used in this Agreement has been
chosen by the parties to express their mutual intent, and no rule of strict
construction shall be applied against any party.
ARTICLE II
BOARD OF DIRECTORS; SHAREHOLDER ACTION
2.1 ELECTION OF DIRECTORS GENERALLY.
(a) Subject to Section 2.8, for so long as CB Capital owns at
least 15 % of the Fully Diluted Common Stock, each Shareholder shall from time
to time take such action, in his capacity as a shareholder of the Company,
including the voting of all Securities owned or controlled by such Shareholder,
as may be necessary to cause the number of directors constituting the Company's
entire Board to be fixed at seven and to cause the election of two directors
nominated by CB Capital (each an "INITIAL CB CAPITAL DIRECTOR" and together the
"INITIAL CB CAPITAL DIRECTORS").
(b) Subject to Section 2.8, for so long as CB Capital owns at
least 7 1/2% of the Fully Diluted Common Stock but less than 15% of the Fully
Diluted Common Stock, each Shareholder shall from time to time take such action,
in his capacity as a shareholder of the Company, including the voting of all
Securities owned or controlled by such Shareholder, as may be necessary to cause
the number of directors constituting the Company's entire Board to be fixed at
seven and to cause the election of one Initial CB Capital Director.
2.2 ELECTION OF ADDITIONAL CB CAPITAL DIRECTORS.
(a) Subject to Section 2.8, in addition to the Initial CB
Capital Directors designated pursuant to Section 2.1, if at any time after the
fifth anniversary of the date hereof and for so long as (i) CB Capital owns at
least 15% of the Fully Diluted Common Stock and (ii) a Liquidity Opportunity has
not occurred, CB Capital shall have the right to designate two additional
members of the Board (each an "ADDITIONAL CB CAPITAL DIRECTOR" and together the
"ADDITIONAL CB CAPITAL DIRECTORS"). The Initial CB Capital Directors and the
Additional CB Capital Directors are referred to herein collectively as the "CB
CAPITAL DIRECTORS" and each, individually, a "CB CAPITAL DIRECTOR". Each
Shareholder shall, at such times as CB Capital is entitled to designate the
Additional CB Capital Directors and upon written notice from the Company or CB
Capital, take such action, in his capacity as a Shareholder of the Company,
including the voting of all Securities owned or controlled by such shareholder,
as may be necessary to cause the number of directors constituting the Company's
entire Board to be fixed at nine and to cause the Additional CB Capital
Directors to be elected to the Board.
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(b) Notwithstanding anything to the contrary contained herein,
no Stockholder shall be required to vote or otherwise take action to cause the
election of any Person under Article II or otherwise who has been removed from
the Board for "cause" (as defined in Article 7, Section 2 of the Charter) or who
the Board has determined could, if elected, be removed for cause as a result of
prior actions or omissions. With respect to any determination of cause hereunder
for which a determination is otherwise to be made by the Board, such
determination shall require the affirmative vote of all CB Capital Directors
other than those CB Capital Directors that the Company has alleged may be
removed for cause.
2.3 COMMITTEES OF THE BOARD.
For so long as CB Capital is entitled to designate a CB Capital
Director, (i) the Company shall have at least three committees established by
the Board (any committee established by the Board, a "COMMITTEE"), including
without limitation, an Audit Committee, a Compensation Committee and a Budget
Committee, (ii) at least one CB Capital Director shall be a member of each
Committee, (iii) all actions taken by any Committee shall be taken at a meeting
or shall be approved by unanimous written consent of the members of the
Committee and (iv) if no CB Capital Director is a member of any Committee, any
action proposed to be taken by such Committee shall be approved by the Board
before such action becomes effective.
The Budget Committee shall consider matters relating to the Company's
drilling program and the Company's budget and related matters; provided,
however, that such committee's actions shall be advisory only and not binding on
the Company or the Board except to the extent otherwise decided by the Board.
2.4 EXPENSES.
The Company shall pay the reasonable out-of-pocket expenses incurred by
each Board member designated pursuant to Section 2.1 or 2.2 in connection with
attending the meetings of the Board and any Committee.
2.5 VACANCIES.
If a vacancy is created on the Board by reason of the death, removal or
resignation of any CB Capital Director, then (i) such vacancy may be filled by
the remaining directors in accordance with Sections 2.1 or 2.2, as applicable,
and (ii) if not so filled, each of the Shareholders shall, as promptly as
practicable upon the request of CB Capital, take such action, in his capacity as
a shareholder of the Company, including the voting of all Securities owned or
controlled by such Shareholder, as may be necessary to elect a director to fill
such vacancy in accordance with the selection procedures set forth in Sections
2.1 and 2.2 as applicable.
2.6 BOARD AND COMMITTEE OBSERVER.
(a) If, at any time CB Capital is entitled to (i) nominate and
have elected a CB Capital Director , such directorship shall be vacant and CB
Capital has acted with reasonable promptness to propose a nominee to be elected
to the Board or (ii) have a CB Capital Director designated as a member of any
Committee and CB Capital has acted with reasonable promptness to propose a CB
Capital Director to be appointed to such Committee and such designation shall
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not have been made, then CB Capital shall have the right to have one or more
representatives (each such representative, an "OBSERVER") present at all
meetings of the Board of Directors and all such Committees, as the case may be.
The number of Observers shall at all times and from time to time be equal to
that number of CB Capital Directors that CB Capital is then entitled to elect
pursuant to Sections 2.1 and 2.2 above but whose directorships on the Board or
membership on such Committee, as the case may be, are at the time vacant.
(b) Each Observer, to the fullest extent permitted by law, shall
be entitled to participate in any meeting of the Board or any Committee, as the
case may be, as if such Observer were a director or member of such Committee,
but shall not be entitled to vote on any actions proposed to be taken by the
Board or such Committee. The Company will give each Observer reasonable prior
notice (it being agreed that the same prior notice given to the members of the
Board shall be deemed reasonable prior notice) of the time and place of any
proposed meeting of the Board, such notice in all cases to include, subject to
the terms hereof, true and complete copies of all documents furnished to any
director in connection with such meeting. The Company will deliver to each
Observer copies of all papers which may be distributed from time to time to the
members of the Board or any applicable Committee at such time as such papers are
so distributed to them, including copies of any written consent. In addition,
from time to time upon the request of each Observer, the Company will furnish to
such Observer such information regarding the business, affairs, prospects and
financial condition of the Company which a member of the Board or any applicable
Committee would be entitled to receive.
(c) The Company reserves the right to withhold any information
and to exclude an Observer from any meeting or portion thereof if (i) access to
such information or attendance at such meeting could reasonably be expected,
based on advice of counsel, to adversely affect the attorney-client privilege
between the Company and its counsel or (ii) such disclosure is prohibited by an
agreement with a third party; provided that, in the case of clause (ii), the
Company will use commercially reasonable efforts to provide such information or
allow the Observer to attend such meeting, which requirement shall be satisfied
if the Observer is offered the opportunity to obtain such information or attend
such meeting by executing or otherwise becoming a party to the confidentiality
restrictions on substantially the same terms (including any standstill
provisions) as are applicable to the Company. CB Capital acknowledges that any
information provided to an Observer shall be subject to the confidentiality
provisions contained in Section 12.15 of the Purchase Agreement and each
Observer will be deemed to have agreed to be bound by and entitled to the
benefits of Section 12.15 of the Purchase Agreement. Notwithstanding anything to
the contrary contained in this Agreement or the Purchase Agreement, no person
serving as an Observer may use or disclose any information received by such
Observer as such, unless and except to the extent that such use or disclosure
could have been made by a director of the Company in compliance with all laws
and duties applicable to a director as such under such circumstances.
2.7 BOARDS OF SUBSIDIARIES.
The Company shall use its reasonable best efforts, in its capacity as a
shareholder, partner or member of each of its Subsidiaries with net assets of at
least $3,000,000, to cause the composition of the board of directors or
equivalent governing body of such Subsidiary and any committees thereof to be
identical, or as nearly identical as possible, to the composition of the
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Board of the Company (including the CB Capital Directors) and any Committees
thereof and shall cause such Subsidiary to provide to CB Capital, observation
and information rights identical, or as nearly as identical as possible, to
those provided by the Company in Section 2.6.
2.8 NUMBER OF DIRECTORS.
(a) The Company may increase the size of the Board by one
additional member at any time at or after the time of the first shareholders'
meeting following the Closing Date provided such increase has been approved by
the Board.
(b) If the Company at any time increases the size of the Board
beyond that set forth herein (specifically excluding increases pursuant to
Sections 2.1, 2.2 and 2.8(a)), then the size of the Board shall be further
increased, if necessary, and CB Capital shall be entitled to nominate, and each
Shareholder shall from time to time take such action, in his capacity as a
shareholder of the Company, including the voting of all Securities owned or
controlled by such Shareholder, as may be necessary to cause to be elected, that
number of directors such that (i) the proportion of the number of CB Capital
Directors (excluding any directors to be elected pursuant to Section 2.2) to the
total number of members of the whole Board is at least as great as the
proportion of CB Capital's ownership of the Fully Diluted Common Stock at the
time in question and (ii) to the extent applicable, the Additional CB Capital
Directors are elected pursuant to Section 2.2.
2.9 ISSUANCE OF PURCHASED SECURITIES.
The Company shall submit the issuance of the Warrants, the Warrant
Shares and the Common Stock included in the Purchased Securities (as defined in
the Purchase Agreement) as a matter to be approved by the shareholders at the
Company's first shareholders' meeting following the Closing Date in accordance
with Section 5.7(i) of the Warrant Agreement. The Shareholders shall take such
action, in their capacity as a shareholders of the Company, including the voting
of all Securities owned or controlled by such Shareholder, as may be necessary
to approve such issuance.
2.10 COVENANT TO VOTE.
If any Shareholder is required to take any action pursuant to this
Article II, then, without limiting the generality of the foregoing provisions,
such Shareholder shall, in his capacity as a shareholder of the Company, act,
together with CB Capital and the other Shareholders, to call, and otherwise use
reasonable efforts to assist CB Capital to cause the Company to promptly hold, a
special meeting of shareholders, and each of the Shareholders hereby agrees to
vote all of the Securities owned by such Shareholder and entitled to vote at
such meeting, in person or by proxy in favor of such action.
2.11 EXPIRATION OF THIS ARTICLE.
Notwithstanding anything to the contrary contained herein, the
provisions of this Article (other than Section 2.9) shall expire at such time
that CB Capital no longer owns at least 7 1/2% of the Fully Diluted Common
Stock.
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ARTICLE III
ISSUANCES AND TRANSFERS OF STOCK
3.1 JOINDER AGREEMENT; CERTAIN TRANSFERS.
(a) The provisions regarding Transfers of Stock contained in
this Article III shall apply to all shares of Stock now owned or hereafter
acquired by a Shareholder, including shares of Stock acquired by reason of
original issuance, dividend, distribution, exchange, conversion and acquisition
of outstanding shares of Stock from another Person, and such provisions shall
apply to any shares of Stock obtained by a Shareholder upon the exercise,
exchange or conversion of any option, warrant or other derivative Security.
(b) Except for transfers that constitute Public Sales, no
Shareholder shall Transfer any shares to a Person (other than the Company or a
Subsidiary of the Company) not already a party to this Agreement as a
Shareholder unless and until such Person executes and delivers to the Company a
joinder agreement in substantially the form attached hereto as Exhibit A and
otherwise in form and substance reasonably acceptable to the Company and the
Requisite Investors (a "JOINDER AGREEMENT"), pursuant to which such Person will
thereupon become a party to, and be bound by and obligated to comply with the
terms and provisions of, this Agreement, as a Shareholder hereunder. Any Person
who executes a Joinder Agreement shall be designated an Investor if the
Transferor was an Investor and the Transferee was not a Founder Shareholder or
an Affiliate of a Founder Shareholder. No Person who is not a Shareholder who
acquires Stock in a Public Sale shall be permitted or required to execute a
Joinder Agreement. No Person who acquires less than 7 1/2% of the Fully Diluted
Common Stock pursuant to a Transfer shall be permitted or required to execute a
Joinder Agreement. Any Transferor shall notify the Company at least five days
prior to any Transfer that requires the execution of a Joinder Agreement.
(c) No Shareholder shall, without the prior written consent of
the Company, Transfer any Stock, or any interest therein, to any Competitor. A
Shareholder may rely in good faith on a representation from the Company for a
period of three months that a potential Transferee is not a Competitor, and
unless such Shareholder has actual knowledge that such representation has become
untrue, such Transfer shall be valid; provided, however, that if a Shareholder
requests but does not receive a representation from the Company that a potential
Transferee is not a Competitor, such Shareholder shall be entitled to rely on a
representation from the potential Transferee that such potential Transferee is
not a Competitor. As used herein, the term "COMPETITOR" means (i) any Person who
is actively engaged in the Business and (ii) any Affiliate of a Person
identified in clause (i) above (it being agreed that an investment firm shall
not be deemed to control a Person described in clause (i) above merely as a
result of owning a minority interest in such Person if it does not otherwise
control such Person).
(d) The Company shall provide (and upon written request by any
Shareholder, authorize such Shareholder to provide) any readily-available
financial and other information concerning the Company to any prospective
transferee of Stock owned by such Shareholder as such purchaser may reasonably
request; provided that, the provision of any such information shall be subject
to the confidentiality provisions set forth in Section 12.15 of the Purchase
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Agreement and any such prospective transferee of Stock shall be deemed to have
agreed to be bound by and entitled to the benefits of Section 12.15 of the
Purchase Agreement.
3.2 TAG-ALONG RIGHTS.
(a) If at any time any Founder Shareholder (the "TRANSFERRING
SHAREHOLDER") proposes to Transfer any shares of Common Stock (other than
Permitted Transfers), then at least twenty five (25) days prior to the expected
closing of such Transfer, such Transferring Shareholder shall deliver a written
notice (the "SALE NOTICE") to the Significant Shareholders offering the
Significant Shareholders the option to participate in such proposed Transfer.
Such Sale Notice shall specify in reasonable detail the identity of the
prospective Transferee and, to the extent known, the terms and conditions of the
Transfer.
(b) Any Significant Shareholder may, within 15 days of the
receipt of a Sale Notice, give written notice (each, a "TAG-ALONG NOTICE") to
the Transferring Shareholder stating that such Significant Shareholder wishes to
participate in such proposed Transfer and stating that such notice is binding
and irrevocable and specifying the amount of Common Stock such Significant
Shareholder desires to include in such proposed Transfer.
(c) If none of the Significant Shareholders gives the
Transferring Shareholder a timely Tag-Along Notice with respect to the Transfer
proposed in the Sale Notice, the Transferring Shareholder may thereafter
transfer the shares specified in the Sale Notice on substantially the same terms
and conditions set forth in the Sale Notice. If one or more Significant
Shareholders give the Transferring Shareholder a timely Tag-Along Notice, then
the Transferring Shareholder shall use all reasonable efforts to cause the
prospective Transferee(s) to agree to acquire all shares identified in all
Tag-Along Notices that are timely given to the Transferring Shareholder, upon
the same terms and conditions as applicable to the Transferring Shareholder's
shares. If such prospective Transferee(s) are unwilling or unable to acquire all
shares proposed to be included in such sale upon such terms, then the
Transferring Shareholder may elect either to cancel such proposed Transfer or to
allocate the maximum number of shares that each prospective Transferee is
willing to purchase among the Transferring Shareholder or Transferring
Shareholders, as the case may be, and the Significant Shareholders giving timely
Tag-Along Notices in proportion to such Shareholders' (including the
Transferring Shareholder's or Transferring Shareholders', as the case may be)
Proportionate Percentages.
ARTICLE IV
RIGHTS TO SUBSCRIBE FOR SECURITIES
4.1 GENERAL.
(a) Except in the case of Excluded Securities (as hereinafter
defined), the Company shall not issue, sell or exchange, agree to issue, sell or
exchange, or reserve or set aside for issuance, sale or exchange (i) any equity
Security of such Company, (ii) any debt Security of such Company which by its
terms is convertible into or exchangeable for any equity Security of such
Company, (iii) any option, warrant or other right to subscribe for, purchase or
otherwise acquire any equity Security or any debt Security referred to in clause
(i) or (ii) or (iv) any other
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Common Stock Equivalent, unless in each case the Company shall have first
offered or caused such Subsidiary to offer (the "PREEMPTIVE OFFER") to sell such
Securities to the Significant Shareholders (the "OFFERED SECURITIES") by
delivery to such Significant Shareholders of written notice of such offer
stating that such Company proposes to sell such Offered Securities, and to the
extent then known, the number or amount of the Offered Securities proposed to be
sold, the proposed purchase price therefor and any other terms and conditions of
such offer (such notice shall be deemed to be satisfactory if such terms and
conditions are set out in the same general level of detail as the term sheet
used in connection with the offering contemplated by the Purchase Agreement).
Without limiting the generality of any other provisions hereof, the final terms
and conditions of the Offered Securities (and the drafts of any purchase or
ancillary documents) need not be set prior to the mailing of the Preemptive
Offer. The Preemptive Offer shall by its terms remain open and irrevocable for a
period of 10 Business Days from the date it is delivered by such Company (the
"PREEMPTIVE OFFER PERIOD").
(b) Each Significant Shareholder shall have the option,
exercisable at any time during the Preemptive Offer Period by delivering a
binding and irrevocable written notice to the Company (a "PREEMPTIVE OFFER
ACCEPTANCE NOTICE"), to subscribe for the number or amount of such Offered
Securities up to its Proportionate Percentage of the total number or amount of
Offered Securities proposed to be issued.
(c) If Preemptive Offer Acceptance Notices are not given by the
Significant Shareholders for all the Offered Securities, the Company shall have
90 days from the expiration of the Preemptive Offer Period to sell all or any
part of such Offered Securities as to which Preemptive Offer Acceptances Notices
have not been given by the Significant Shareholders (the "REFUSED SECURITIES")
to any other Persons, but only upon terms and conditions in all material
respects, including unit price and interest rates, which are no more favorable,
in the aggregate, to such other Persons or less favorable, in the aggregate, to
the Company than those set forth in the Preemptive Offer. Upon the closing,
which shall include full payment to the Company, of the sale to such other
Persons of all the Refused Securities, the Significant Shareholders shall
purchase from the Company, and the Company shall sell to the Significant
Shareholders, the Offered Securities with respect to which Preemptive Offer
Acceptance Notices were delivered by the Significant Shareholders, at the terms
specified in the Preemptive Offer. The Significant Shareholders purchasing the
Offered Securities under this Section must execute all documents and agreements
no later than the time of the Closing to the extent reasonably requested by the
Company. In each case, any Offered Securities not purchased by the Significant
Shareholders or any other Persons in accordance with this Section 4.1 may not be
sold or otherwise disposed of until they are again offered to the Significant
Shareholders under the procedures specified in this Section 4.1.
(d) To the extent, pursuant to a Preemptive Offer, a Significant
Shareholder is issued nonvoting Securities or other Securities (the "Nonvoting
Securities") due to a Regulatory Problem (as provided in the Compliance
Sideletter), such nonvoting Securities shall be deemed to be part of the same
Preemptive Offer and such Significant Shareholder shall not be entitled to
additional Offered Securities and the issuance of such Nonvoting Securities
shall not be treated as a new issuance for purposes of this Article IV.
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4.2 EXCLUDED SECURITIES.
The rights of the Significant Shareholders under Section 4.1 shall not
apply to the following Securities (the "EXCLUDED SECURITIES"):
(a) Securities issued or granted to eligible officers, employees
or directors of, or consultants to, the Company and its Subsidiaries pursuant to
an Equity Incentive Plan;
(b) any Securities issued by the Company in any Public Offering;
(c) any Securities issued by the Company as consideration in a
merger, business combination or acquisition of property or assets;
(d) Securities issued upon the exercise or conversion of
outstanding Common Stock Equivalents and other derivative Securities and Common
Stock Equivalents and other derivative Securities issued in compliance with (or
not otherwise in violation of) this Article IV;
(e) the Warrant Shares; and
(f) Securities issued in a distribution from the Company, stock
split, reverse stock split, subdivision, stock dividend, reclassification,
combination or capital reorganization.
ARTICLE V
COVENANTS
5.1 EQUITY INCENTIVE PLANS.
The maximum number of Common Stock Equivalents issuable under the
Equity Incentive Plans shall not exceed 2,500,000 shares and equivalents
(including any shares and equivalents issued or issuable as of the Closing Date)
(subject to pro rata adjustment in the event of any stock dividend or
distribution paid in shares of Common Stock or any stock split or subdivision,
reverse stock split or combination or other similar pro rata recapitalization
event affecting the Common Stock).
5.2 OTHER COVENANTS.
The Company shall comply with, and (i) each Investor for so long as
such Investor owns at least 7 1/2 % of the Fully Diluted Common Stock and (ii)
Mellon (but not its Transferee unless such Transferee satisfies the criteria in
clause (i) above by virtue of ownership of Purchased Securities issued under the
Purchase Agreement) shall be entitled to the benefit of, the provisions of
Sections 7.4, 7.7 and 8.6 of the Purchase Agreement, as in effect on the date
hereof or as amended with the consent of the Requisite Investors, whether or not
any Notes remain outstanding.
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ARTICLE VI
AMENDMENT AND WAIVER
6.1 AMENDMENT.
Except as expressly set forth herein, the provisions of this Agreement
may only be amended or waived with the prior written consent of (i) the Company,
(ii) the Requisite Founder Shareholders and (iii) the Requisite Investors;
provided, however, that (A) any such amendment, modification, or waiver that
would adversely affect in any material respect the rights hereunder of any
Investor or any Founder Shareholder, in their capacities as such, without
similarly affecting the rights hereunder of all the Investors or Founder
Shareholders, as the case may be, may not be made without the prior written
consent of such adversely affected Investor or Founder Shareholder, (B) no
amendment to Section 8.15 or this clause may be made without the prior written
consent of CB Capital, for so long as it or any of its Affiliates holds 7 1/2%
of the Fully Diluted Common Stock any Securities of the Company, and (C)
Schedule I to this Agreement shall be deemed to be automatically amended from
time to time to reflect Transfers of Stock made in accordance with Section
3.1(a) without requiring the consent of any party, and the Company will, from
time to time, distribute to the Shareholders a revised Schedule I to reflect any
such changes.
6.2 WAIVER.
No course of dealing between the Company, its Subsidiaries and the
Shareholders (or any of them) or any delay in exercising any rights hereunder
will operate as a waiver of any rights of any party to this Agreement. The
failure of any party to enforce any of the provisions of this Agreement will in
no way be construed as a waiver of such provisions and will not affect the right
of such party thereafter to enforce each and every provision of this Agreement
in accordance with its terms.
ARTICLE VII
DURATION; TERMINATION
The provisions of this Agreement, other than Section 2.6(c), shall
terminate upon the first to occur of (A) notice of termination by the Requisite
Investors , (B) a Sale of the Company which has been consented to by the
Requisite Investors and the consideration received by the Shareholders in
connection with such sale consists solely of cash and (C) no Investor owns more
than 7 1/2% of the Fully Diluted Common Stock; provided, however that the
provisions of Section 3.1(c) shall survive until terminated by agreement of the
Company, the Requisite Investors and the Requisite Founder Shareholders.
Anything contained herein to the contrary notwithstanding, as to any particular
Shareholder, this Agreement shall no longer be binding or of further force or
effect as to such Shareholder, except as otherwise expressly provided herein, as
of the date such Shareholder has Transferred all of such Shareholder's interest
in the Company's Securities and the Transferees of such Securities have, if
required by Section 3.2(b) hereof, executed Joinder Agreements but such
Shareholder shall remain responsible for all actions or omissions during such
time that the Agreement was applicable to such Shareholder.
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ARTICLE VIII
MISCELLANEOUS
8.1 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 invalid, illegal or unenforceable in
any respect under any Applicable Law in any jurisdiction, such invalidity,
illegality or unenforceability will not affect any other provision or any other
jurisdiction, and such invalid, void or otherwise unenforceable provisions shall
be null and void. It is the intent of the parties, however, that any invalid,
void or otherwise unenforceable provisions be automatically replaced by other
provisions which are as similar as possible in terms to such invalid, void or
otherwise unenforceable provisions but are valid and enforceable to the fullest
extent permitted by Applicable Law.
8.2 ENTIRE AGREEMENT.
This Agreement and the agreements and documents referred to herein
contain the entire agreement among the parties hereto with respect to the
subject matter hereof and thereof and supersede and preempt any and all prior
and contemporaneous understandings, agreements, arrangements, or representations
by or among the parties, written or oral, which may related to the subject
matter hereof or thereof in any way. Other than this Agreement and the other
agreements referred to herein and to be executed and delivered in connection
herewith, there are no other agreements to which the parties hereto are bound
continuing in effect following the termination of the arrangements with
affiliates of Enron Corp. relating to pre-emptive or similar rights, voting of
capital stock of the Company or election of members of the Board of Directors.
8.3 CERTAIN SHAREHOLDERS.
Any Shareholder that is a party to this Agreement and is an entity that
was formed for the sole purpose of acquiring Stock or that has no substantial
assets other than Stock or interests in Stock shall agree that (a) shares of its
common stock or other instruments reflecting equity interests in such entity
(and the shares of common stock or other equity interests in any similar
entities controlling such entity) will note the restrictions contained in this
Agreement on the transfer of Stock as if such common stock or other equity
interests were Stock and (b) no shares of such common stock or other equity
interests may be transferred to any Person other than in accordance with the
terms and provisions of this Agreement as if such common stock or other equity
interests were Stock.
8.4 SUCCESSORS AND ASSIGNS.
Except as otherwise provided herein, this Agreement will bind and inure
to the benefit of and be enforceable by the Company and its successors and
assigns and the Shareholders and any subsequent permitted holders of Shares and
the respective successors and permitted assigns of each of them, so long as they
hold Shares. None of the provisions hereof shall create, or be construed or
deemed to create, any right to employment in favor of any Person by the Company
or any of its Subsidiaries. This Agreement is not intended to create any third
party beneficiaries.
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8.5 REMEDIES.
(a) Each Shareholder shall have all rights and remedies reserved
for such Shareholder pursuant to this Agreement and all rights and remedies
which such holder has been granted at any time under any other agreement or
contract and all of the rights which such holder has under any law or equity.
Any Person having any rights under any provision of this Agreement will be
entitled to enforce such rights specifically, to recover damages by reason of
any breach of any provision of this Agreement and to exercise all other rights
granted by law or equity.
(b) The parties hereto agree that if any parties seek to resolve
any dispute arising under this Agreement pursuant to a legal proceeding, the
prevailing parties to such proceeding shall be entitled to receive reasonable
fees and expenses (including reasonable attorneys' fees and expenses) incurred
in connection with such proceedings.
(c) It is acknowledged that it will be impossible to measure in
money the damages that would be suffered by any party hereto if any Person also
party hereto fails to comply with any of the obligations imposed on it upon them
in this Agreement or in the Charter or By-laws and that in the event of any such
failure, the aggrieved party will be irreparably damaged and will not have an
adequate remedy at law. Any such aggrieved party shall, therefore, be entitled
to injunctive relief, including specific performance, to enforce such
obligations, and if any action should be brought in equity to enforce any of the
provisions of this Agreement, none of the parties hereto shall raise the defense
that there is an adequate remedy at law.
8.6 NOTICES.
All notices, demands and requests of any kind to be delivered to any
party hereto in connection with this Agreement shall be in writing (i) delivered
personally, (ii) sent by nationally-recognized overnight courier, (iii) sent by
first class, registered or certified mail, return receipt requested or (iv) sent
by facsimile, in each case to such party at its address as follows:
(a) if to the Company, to:
Carrizo Oil & Gas, Inc.
14811 St. Mary's Lane, Suite 148
Houston, Texas 77079
Attention:
Telephone No.: (281) 496-1352
Telecopier No.: (281) 496-1251
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with a copy to:
Baker & Botts, L.L.P.
3000 One Shell Plaza
910 Louisiana
Houston, Texas 77002-4915
Attention: Gene Oshman, Esq.
Telephone No.: (713) 229-1178
Telecopier No.: (713) 229-1522
(b) if to a Shareholder, to such Shareholder's address as set
forth on Schedule I hereto.
Any notice, demand or request so delivered shall constitute valid notice under
this Agreement and shall be deemed to have been received (i) on the day of
actual delivery in the case of personal delivery, if delivered on a Business Day
(otherwise on the next Business Day), (ii) on the next Business Day after the
date when sent in the case of delivery by nationally-recognized overnight
courier, (iii) on the fifth Business Day after the date of deposit in the U.S.
mail in the case of mailing or (iv) upon receipt in the case of a facsimile
transmission. Any party hereto may from time to time by notice in writing served
upon the other as aforesaid designate a different mailing address or a different
Person to which all such notices, demands or requests thereafter are to be
addressed.
8.7 GOVERNING LAW.
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT
TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE (WHETHER IN THE STATE OF NEW
YORK OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF
ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK EXCEPT TO THE EXTENT OF
INTERNAL CORPORATE MATTERS, WHICH SHALL BE GOVERNED BY THE PROVISIONS OF THE
APPLICABLE LAW OF THE STATE OF TEXAS.
(b) THE PARTIES TO THIS AGREEMENT AGREE THAT JURISDICTION AND
VENUE IN ANY ACTION BROUGHT BY ANY PARTY HERETO PURSUANT TO THIS AGREEMENT SHALL
LIE IN ANY FEDERAL OR STATE COURT LOCATED IN THE STATE OF NEW YORK OR THE STATE
OF TEXAS. BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE PARTIES HERETO
IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF SUCH COURTS FOR
THEMSELVES AND IN RESPECT OF THEIR PROPERTY WITH RESPECT TO SUCH ACTION. THE
PARTIES HERETO IRREVOCABLY AGREE THAT VENUE WOULD BE PROPER IN SUCH COURT, AND
HEREBY WAIVE ANY OBJECTION THAT SUCH COURT IS AN IMPROPER OR INCONVENIENT FORUM
FOR THE RESOLUTION OF SUCH ACTION.
(c) THE COMPANY HEREBY AGREES THAT SERVICE UPON THEM BY
REGISTERED OR CERTIFIED MAIL (RETURN RECEIPT REQUESTED) SHALL
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CONSTITUTE SUFFICIENT NOTICE. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE
INVESTORS TO BRING PROCEEDINGS AGAINST THE COMPANY OR THE SHAREHOLDERS IN THE
COURTS OF ANY OTHER JURISDICTION.
(d) BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX
FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN
EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL
LAWS TO APPLY, THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE
APPLYING SUCH APPLICABLE LAWS. THEREFORE, THE PARTIES HERETO WAIVE ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY
RIGHTS OR REMEDIES UNDER THIS AGREEMENT, THE TRANSACTION DOCUMENTS OR ANY
DOCUMENTS RELATED HERETO.
8.8 FURTHER ASSURANCES.
Each party hereto shall do and perform or cause to be done and
performed all such further acts and things and shall execute and deliver all
such other agreements, certificates, instruments, and documents as any other
party hereto reasonably may request in order to carry out the provisions of this
Agreement and the consummation of the transactions contemplated hereby.
8.9 REPRESENTATION AND WARRANTIES OF THE SHAREHOLDERS.
Each Shareholder (as to himself or itself only) represents and warrants
to the Company and the other Shareholders that, as of the time such Shareholder
becomes a party to this Agreement:
(a) this Agreement (or the separate joinder agreement executed
by such Shareholder) has been duly and validly executed and delivered by such
Shareholder and this Agreement constitutes a legal and binding obligation of
such Shareholder, enforceable against such Shareholder in accordance with its
terms; and
(b) the execution, delivery and performance by such Shareholder
of this Agreement and the consummation by such Shareholder of the transactions
contemplated hereby will not, with or without the giving of notice or lapse of
time, or both (A) violate any Applicable Law, or (B) conflict with, or result in
a breach or default under, any term or condition of any agreement or other
instrument to which such Shareholder is a party or by which such Shareholder is
bound, except for such violations, conflicts, breaches or defaults that would
not, in the aggregate, materially affect the Shareholder's ability to perform
its obligations hereunder.
(c) Such Shareholder owns beneficially and of record the number
of shares of Common Stock and Warrants as set forth on Schedule I.
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8.10 LEGENDS; STOP TRANSFER INSTRUCTIONS.
(a) Each certificate evidencing Shares (other than Existing
Shares) and each certificate issued in exchange for or upon the Transfer of any
Shares (other than Existing Shares) shall be stamped or otherwise imprinted with
a legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
SHAREHOLDERs AGREEMENT DATED AS OF DECEMBER , 1999, AMONG THE ISSUER OF SUCH
SECURITIES (THE "COMPANY") AND CERTAIN OF THE COMPANY'S SHAREholders. THE TERMS
OF SUCH SHAREholders AGREEMENT INCLUDE, AMONG OTHER THINGS, VOTING AGREEMENTS
AND RESTRICTIONS ON TRANSFERS. A COPY OF SUCH SHAREholders AGREEMENT WILL BE
FURNISHED WITHOUT CHARGE BY THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN
REQUEST."
The legend set forth above shall be removed from the certificates
evidencing any shares which cease to be Shares in accordance with the terms of
this Agreement.
(b) The Company agrees to give effect to the transfer
restrictions imposed by this Agreement by placing an "issuer hold" on the
Existing Shares owned by the Original Founder Shareholders and it will not
release such issuer hold except in respect of a transfer in compliance with this
Agreement. Each Original Founder Shareholder consents to the Company making a
notation on its records and giving instructions to any transfer agent of the
Existing Shares in order to implement the restrictions on transfer established
in this Agreement. The Company 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 this
Agreement subject to the same right of examination by shareholders of the
Company, in person or by agent, attorney or accountant, as are the books and
records of the Company. If any Original Founder Shareholder Transfers any
Existing Shares (other than in a Permitted Transfer) such Existing Shares will
be legended in accordance with Section 8.10(a) and this Section 8.10(b) shall no
longer apply to such transferred Existing Shares.
8.11 CONFLICTING AGREEMENTS.
No Shareholder shall enter into any agreements or arrangements of any
kind with any Person with respect to any Securities on terms inconsistent with
the provisions of this Agreement (whether or not such agreements or arrangements
are with other Shareholders or with Persons that are not parties to this
Agreement), including agreements or arrangements with respect to the acquisition
or disposition of Securities of the Company in a manner which is inconsistent
with this Agreement.
8.12 COUNTERPARTS; VALIDITY.
This Agreement may be executed in any number of counterparts, and each
such counterpart hereof shall be deemed to be an original instrument, but all
such counterparts together shall constitute but one agreement. The failure of
any Shareholder to execute this Agreement does not make it invalid as against
any other Shareholder.
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8.13 REGULATORY MATTERS.
(a) Each Shareholder agrees to cooperate with the Company in all
reasonable respects in complying with the terms and provisions of the Compliance
Sideletter, including without limitation, voting to approve amending the
Charter, By-laws or this Agreement in a manner reasonably acceptable to the
Shareholders and CB Capital or any Regulated Holder entitled to make such
request pursuant to the Compliance Sideletter in order to remedy a Regulatory
Problem. Anything contained in this Section 8.13 to the contrary
notwithstanding, no Shareholder shall be required under this Section 8.13 to
take any action that would adversely affect in any material respect such
Shareholder's rights under this Agreement, the Charter or the By-laws or as a
shareholder of the Company.
(b) The Company will notify each Shareholder not later than 5
Business Days prior to the effective date thereof of all of the material terms
of any proposed amendment of the Charter or the By-laws. CB Capital agrees to
notify the Company as to whether or not it would have a Regulatory Problem
promptly after CB Capital has notice of any proposed amendment or waiver.
8.14 CONSENT OF SPOUSES.
If requested by the Company or Requisite Investors, each Shareholder
who is an individual shall cause his or her spouse, as applicable to execute and
deliver a separate consent and agreement substantially in the form attached
hereto as Exhibit B and otherwise in form and substance reasonably acceptable to
the Company and the Requisite Investors (a "SPOUSAL CONSENT"). The signature of
a spouse on a Spousal Consent shall not be construed as making such spouse a
shareholder of the Company or a party to this Agreement except as may otherwise
be set forth in such consent. Each Shareholder who is an individual will certify
his or her marital status to the Company at the Company's request. The Company
or Requisite Investors will request Spousal Consents as contemplated by this
Section 8.14 whenever such action may be advantageous in enforcing (or assuring
the enforceability of in the future) the terms of this Agreement.
8.15 FIDUCIARY DUTIES.
Without limiting the generality of any other provision hereof, no
Original Founder Shareholder, while serving as a director of the Company, shall
be restricted from taking or omitting to take any action as a director to the
extent such action or omission is required to satisfy any fiduciary duty imposed
upon him as a director by applicable law in respect of his relationship to the
Company and its shareholders.
* * * * *
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IN WITNESS WHEREOF, the undersigned have duly executed this
Shareholders Agreement as of the date first written above.
COMPANY:
CARRIZO OIL & GAS, INC.
By: /s/ S. P. JOHNSON IV
---------------------------------------
Name: S. P. Johnson IV
Title:
INVESTORS:
CB CAPITAL INVESTORS, L.P.
By: /s/ CHRISTOPHER BEHRENS
---------------------------------------
Name: Christopher Behrens
Title: General Partner
MELLON VENTURES, L.P.
By: MVMA, L.P., its general partner
By: MVMA, Inc., its general partner
By: /s/ JOHN P. SHOEMAKER
-----------------------------
Name: John P. Shoemaker
Title: Managing Director
ORIGINAL FOUNDER SHAREHOLDERS:
/s/ S. P. JOHNSON IV
--------------------------------------
S. P. Johnson IV
/s/ FRANK A. WOJTEK
--------------------------------------
Frank A. Wojtek
30
/s/ Steven A. Webster
--------------------------------------
Steven A. Webster
/s/ Douglas A.P. Hamilton
--------------------------------------
Douglas A.P. Hamilton
/s/ Paul B. Loyd, Jr.
--------------------------------------
Paul B. Loyd, Jr.
DAPHAM PARTNERSHIP, L.P.
By: /s/ Kenneth C. Huff
--------------------------------------
Name: Kenneth C. Huff
Title: General Partner
31
SCHEDULE I
SHAREHOLDERS
SHARES OF COMMON
NAME AND ADDRESS STOCK WARRANT SHARES
INVESTORS
CB Capital Investors, L.P. 2,909,092 2,208,152
c/o Chase Capital Partners
380 Madison Avenue, 12th Floor
New York, New York 10017
Telephone: (212) 622-3100
Telecopy: (212) 622-3101
Attn: Christopher C. Behrens
Dorian Faust
with a copy of notices to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
24th Floor
New York, New York 10112
Telephone: (212) 408-2400
Telecopy: (212) 728-5950
Attn: Frederick M. Bachman, Esq.
Mellon Ventures, L.P. 363,636 276,019
5 Radnor Corporate Center
100 Matsonford Road, Suite 170
Radnor, PA 19087
Attention: Marc A. Cole
Telephone: (610) 688-4758
Telecopier: (610) 688-3930
with a copy to:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103-2793
Telephone (215) 994-4000
Telecopier (215) 994-2222
Attention: David S. Denious
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ORIGINAL FOUNDER SHAREHOLDERS
S. P. Johnson IV 783,085 0
14811 St. Mary's Lane, Suite 148
Houston, TX 77079
Frank A. Wojtek 1,273,721 0
14811 St. Mary's Lane, Suite 148
Houston, TX 77079
Steven A. Webster 1,669,094 92,006
14811 St. Mary's Lane, Suite 148
Houston, TX 77079
Douglas A. P. Hamilton 922,010 92,006
14811 St. Mary's Lane, Suite 148
Houston, TX 77079
Paul B. Loyd, Jr. 1,550,468 92,006
14811 St. Mary's Lane, Suite 148
Houston, TX 77079
DAPHAM Partnership L.P. 610,432 0
7501 East Thompson Peak
Scottsdale, AZ 85255
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EXHIBIT A
JOINDER AGREEMENT
The undersigned is executing and delivering this Joinder
Agreement pursuant to the Shareholders Agreement dated on or about December ,
1999 (the "Shareholders Agreement"), among Carrizo Oil & Gas, Inc., a Texas
corporation (the "Company"), and the Shareholders named therein.
By executing and delivering this Joinder Agreement to the
Company, the undersigned hereby agrees to become a party to, to be bound by, and
to comply with the provisions of [(i)] the Shareholders Agreements [and (ii) the
Registration Rights Agreement dated on or about December , 1999, among the
Company and the Investors named therein, in each case] in the same manner as if
the undersigned were an original signatory to [each of] such agreement[s]. In
connection therewith, effective as of the date hereof the undersigned hereby
makes the representations and warranties contained in Section 8.11 of the
Shareholders Agreement.
The undersigned agrees that he shall be a [Founder
Shareholder] [Investor], as such term is defined in the Shareholders Agreement.
Accordingly, the undersigned has executed and delivered this
Joinder Agreement as of the __ day of ____________, 199__.
------------------------------------------------
Signature of [Investor][Founder Shareholder]
------------------------------------------------
Print Name of [Investor][Founder Shareholder]
[Bracketed provisions applicable to Investors only.]
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EXHIBIT B
CONSENT AND AGREEMENT OF SPOUSE
I, ____________________________________________, am the spouse
of ________________________________________, one of the shareholders in Carrizo
Oil & Gas, Inc., a Texas corporation (the "Company"). I understand that my
spouse is a party to that certain Shareholders Agreement dated on or about
December , 1999 (as the same may hereafter be amended, the "Agreement"), among
the Company and certain of its shareholders, and that I have reviewed the
Agreement.
The Agreement contains certain provisions regarding my acquiring
or retaining any equity securities, or rights to received equity securities (the
"Securities") issued by the Company. I agree that I may not acquire any
Securities (whether by gift, purchase, will, intestate succession, operation of
law or decree, order or injunction of any court, division of community or
marital property, or otherwise), except in compliance with the terms of the
Agreement. I acknowledge and understand that if I ever propose to acquire any
Securities in compliance with the Agreement, I must first agree to become a
party to the Shareholders Agreement.
Executed this ____ day of ___________, 199_.
------------------------------------------------
Signature
------------------------------------------------
Print Name of Consenting Spouse