|
8. COMMITMENTS AND CONTINGENCIES
From time to time, the Company is party
to certain legal actions and claims
arising in the ordinary course of business.
While the outcome of these events cannot
be predicted with certainty, management
does not expect these matters to have
a materially adverse effect on the financial
position or results of operations of
the Company.
Settlement of Litigation. The Company,
as one of three plaintiffs, filed a
lawsuit against BNP Petroleum Corporation
("BNP"), Seiskin Interests,
LTD, Pagenergy Company, LLC and Gap
Marketing Company, LLC, as defendants,
in the 229th Judicial District Court
of Duval County, Texas, for fraud and
breach of contract in connection with
an agreement between plaintiffs and
defendants whereby the defendants were
obligated to drill a test well in an
area known as the Slick Prospect in
Duval County, Texas. The allegations
of the Company in this litigation were
that BNP gave the Company inaccurate
and incomplete information on which
the Company relied in making its decision
not to participate in the test well
and the prospect, resulting in the loss
of the Company's interest in the lease,
the test well and four subsequent wells
drilled in the prospect. The Company
has sought to enforce its approximate
23.68% interest in the prospect and
sought damages or rescission, as well
as costs and attorneys' fees. The case
was originally filed in Duval County,
Texas on February 25, 2000.
In mid March 2000, the defendants filed
an original answer and certain counterclaims
against plaintiffs, seeking unspecified
damages for slander of title, tortious
interference with business relations,
and exemplary damages. The case proceeded
to trial before the Court (without a
jury) on June 19, 2000 after the plaintiffs'
were found by the court to have failed
to comply with procedural requirements
regarding the request for a jury. After
several days of trial the case was recessed
and later resumed on September 5, 2000.
The court at that time denied the plaintiffs'
motion for mistrial based on the court's
denial of a jury trial. The court also
ordered that the defendants' counterclaims
would be the subject of a separate trial
that would commence on December 11,
2000. The parties proceeded to try issues
related to the plaintiffs' claims on
September 5, 2000. All parties rested
on the plaintiffs' claims on September
13, 2000. The court took the matter
under advisement. Defendants filed a
second amended answer and counterclaim
and certain supplemental responses to
request for disclosure in which they
stated that they were seeking damages
in the amount of $33.5 million by virtue
of an alleged lost sale of the subject
properties, $17 million in alleged lost
profits from other prospective contracts,
and unspecified incidental and consequential
damages from the alleged wrongful suspension
of funds under their gas sales contract
with the gas purchaser on the properties,
alleged damage to relationships with
trade creditors and financial institutions,
including the inability to leverage
the Slick Prospect, and attorneys' fees
at prevailing hourly rates in Duval
County, Texas incurred in defending
against plaintiffs' claims and for 40
percent of any aggregate recovery in
prosecuting their counterclaims. In
subsequent testimony, the defendants
verbally alleged $26 million of damages
by virtue of the alleged lost sale of
the properties (as opposed to the $33.5
million previously sought), $7.5 million
of damages by virtue of loss of a lease
development opportunity and $100 million
of damages by virtue of the loss of
a business opportunity related to BNP's
alleged inability to participate in
a 3-D seismic project.
On December 8, 2000 the Company entered
into a Compromise and Settlement Agreement
("Settlement Agreement") with
the defendants with regard to the above
described litigation. Under the terms
of the Settlement Agreement, the Company
and the defendants agreed to enter into
an Agreed Order of Dismissal with Prejudice
of the litigation and, among other things,
agreed as follows:
| 1. |
Should a co-plaintiff
to the Duval County
litigation secure
a final judgment (without
regard to appeals,
new trials or other
such actions) in the
trial court in Duval
County that results
in such plaintiff
being entitled to
recover a five percent
or greater undivided
interest in the Slick
Prospect, BNP will
pay to Carrizo, at
BNP's option, either
$500,000 or an amount
equal to the judgment
rendered in favor
of such plaintiff.
|
|
2.
|
Should
the defendants secure a
final judgment (without
regard to appeals, new trials
or other such actions) in
the trial court in Duval
County against a co-plaintiff,
the Company will be obligated
to pay BNP an amount equal
to five percent of any percentage
of the total judgment apportioned
to the Company in the case,
such payment being limited
however to no more than
five percent of 47.2% of
the total judgment entered
in the case.
|
| 3. |
In
the event the defendants
and such co-plaintiff reach
a full and final settlement
prior to the entry of a
written final judgment in
the trial court in Duval
County (including but not
limited to any type of agreed
judgment or any agreement
that such co-plaintiff will
not be ultimately liable
to BNP for the full amount
of any judgment rendered
in favor of the defendants),
the obligations described
in (1) and (2) above will
be null and void. Also,
in the event BNP and such
co-plaintiff both only obtain
take nothing judgments in
the case, such obligations
will be null and void.
|
| 4. |
Both
the Company and the defendants
released each other from
any and all claims, demands,
actions or causes of action
relating to or arising out
of the litigation.
|
|
