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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
(AMENDMENT NO. 1)
UNDER THE SECURITIES EXCHANGE ACT OF 1934
SOUTH TEXAS DRILLING & EXPLORATION, INC.
(Name of Issuer)
COMMON STOCK, $.10 PAR VALUE PER SHARE
(Title of Class of Securities)
840553
(CUSIP Number)
RICHARD E. BLOHM, JR., 1415 LOUISIANA STREET, SUITE 3000, HOUSTON, TEXAS 77002
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
with a copy to:
DARRYL M. BURMAN, 1900 W. LOOP SOUTH, SUITE 1100, HOUSTON, TEXAS 77027
MAY 11, 2000
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ].
NOTE: Six copies of this statement, including all exhibits, should be filed with
the Commission. See Rule 13d-1(a) for other parties to whom copies are to be
sent.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act.
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CUSIP NO. 840553 13D PAGE 2 OF 9
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1. NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE
PERSON:
WEDGE Energy Services, L.L.C.; Tax I.D. No. 76-0624532
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2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP: (a) [ ] (b) [ ]
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3. SEC USE ONLY:
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4. SOURCE OF FUNDS
AF
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5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e) [ ]
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6. CITIZENSHIP OR PLACE OF ORGANIZATION:
United States
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NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH:
7. SOLE VOTING POWER: -0-
8. SHARED VOTING POWER: 4,832,007*
9. SOLE DISPOSITIVE POWER: -0-
10. SHARED DISPOSITIVE POWER: 4,832,007*
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11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON:
4,832,007*
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12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
[ ]
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13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11):
44.116%**
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14. TYPE OF REPORTING PERSON:
OO: Limited Liability Company
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* Represents shares of common stock, par value $.10 per share ("Common Stock"),
of South Texas Drilling & Exploration, Inc.
** Based on ownership of shares of outstanding Common Stock not including shares
of Common Stock outstanding or issuable upon conversion or exercise of Series A
8% Convertible Preferred Stock, par value $1.00 per share, and Series B 8%
Convertible Preferred Stock, par value $1.00 per share, or outstanding warrants
and outstanding stock options.
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CUSIP NO. 840553 13D PAGE 3 OF 9
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1. NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE
PERSON:
Issam M. Fares
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2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP: (a) [ ] (b) [ ]
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3. SEC USE ONLY:
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4. SOURCE OF FUNDS
AF
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5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e) [ ]
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6. CITIZENSHIP OR PLACE OF ORGANIZATION:
Lebanon
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NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH:
7. SOLE VOTING POWER: -0-
8. SHARED VOTING POWER: 4,832,007*
9. SOLE DISPOSITIVE POWER: -0-
10. SHARED DISPOSITIVE POWER: 4,832,007*
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11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON:
4,832,007*
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12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
[ ]
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13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11):
44.116%**
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14. TYPE OF REPORTING PERSON:
IN
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*Represents shares of common stock, par value $.10 per share ("Common Stock"),
of South Texas Drilling & Exploration, Inc.
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CUSIP NO. 840553 13D PAGE 4 OF 9
** Based on ownership of shares of outstanding Common Stock not including shares
of Common Stock outstanding or issuable upon conversion or exercise of Series A
8% Convertible Preferred Stock, par value $1.00 per share, and Series B 8%
Convertible Preferred Stock, par value $1.00 per share, or outstanding warrants
and outstanding stock options.
STATEMENT ON SCHEDULE 13D
Introductory Note: All information herein with respect to South Texas
Drilling & Exploration, Inc., a Texas corporation, is to the best knowledge and
belief of the Reporting Persons, as defined herein.
ITEM 1. SECURITY AND ISSUER.
This Amended Statement on Schedule 13D relates to the common stock, par
value $.10 per share (the "Common Stock"), of South Texas Drilling &
Exploration, Inc., a Texas corporation ("STDE"). The principal place of business
of STDE is located at 9310 Broadway, Building I, San Antonio, Texas 78217.
ITEM 2. IDENTITY AND BACKGROUND.
This Amended Statement on Schedule 13D is filed by (i) WEDGE Energy
Services, L.L.C., a Delaware limited liability company ("WEDGE"), and (ii) Mr.
Issam M. Fares, an individual ("Fares" and, together with WEDGE, the "Reporting
Persons").
The address of the principal place of business for WEDGE is 1415
Louisiana Street, Suite 3000, Houston, Texas 77002 and the address of Mr. Fares
is Pietermaai 15, Curacao, Netherlands Antilles. Mr. Fares is a citizen of the
country of Lebanon.
WEDGE was formed for the purpose of making investments in the energy
industry. The officers of WEDGE consist of (i) Mr. William H. White, President;
(ii) Mr. Gregory J. Armstrong, Vice President and Treasurer; and (iii) Mr.
Richard E. Blohm, Jr., Secretary. Each of Mr. White, Mr. Armstrong and Mr. Blohm
is also a director of WEDGE. The address of Mr. White, Mr. Armstrong and Mr.
Blohm is 1415 Louisiana Street, Suite 3000, Houston, Texas 77002, and each is a
citizen of the United States. The filing of this Amended Statement on Schedule
13D shall not be construed as an admission that Mr. White, Mr. Armstrong or Mr.
Blohm are, for the purposes of Section 13(d) or Section 13(g) of the Securities
Exchange Act of 1934, as amended (the "Act"), the beneficial owners of any
securities covered by this Statement.
Neither WEDGE nor Mr. Fares, nor to the knowledge of the Reporting
Persons, Mr. White, Mr. Armstrong or Mr. Blohm, has been during the last five
years (i) convicted of any criminal proceeding (excluding traffic violations or
similar misdemeanors) or (ii) a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction, and as a result of such
proceeding, was or is subject to a judgment, decree or final order enjoining
future violations of, or prohibiting or mandating activities subject to, United
States federal or state securities laws or finding any violation
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CUSIP NO. 840553 13D PAGE 5 OF 9
with respect to such laws. Mr. Fares is the ultimate beneficial owner of all of
the outstanding ownership interests of WEDGE.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
On May 11, 2000, WEDGE consummated its purchase of an additional
3,678,161 shares of Common Stock, for the aggregate amount of $8,000,000 (the
"Stock") from STDE and entered into a Common Stock Purchase Agreement (the
"Common Stock Purchase Agreement"), a new Registration Rights Agreement (the
"Registration Rights Agreement") and a Voting Agreement (the "Voting
Agreement"). The Common Stock Purchase Agreement, the Registration Rights
Agreement and the Voting Agreement are described more fully in response to Item
4. The $8,000,000 funds used by WEDGE to purchase the Stock was provided by an
affiliate of the Reporting Persons. This transaction amends the original
acquisition on February 18, 2000, whereby WEDGE acquired 1,153,846 shares of
Common Stock at the per share price of $1.30 for the aggregate amount of
$1,500,000. As of the filing of this Amended Schedule 13D, WEDGE has purchased,
in the aggregate, 4,832,007 shares of Common Stock, for the aggregate amount of
$9,500,000.
ITEM 4. PURPOSE OF TRANSACTION.
Common Stock Purchase Agreement. On May 11, 2000 South Texas Drilling &
Exploration, Inc. sold to WEDGE Energy Services, L.L.C. 3,678,161 shares of its
$0.10 par value Common Stock at a price of $2.175 per share for an aggregate
consideration of $8 million. As additional consideration for the sale of the
Stock, the Company granted to WEDGE the preemptive right, subject to certain
exceptions, to acquire additional capital stock of any class or series, or debt
convertible into capital stock, the Company may issue equal to the percentage of
STDE's outstanding Common Stock (assuming the conversion of all outstanding
convertible preferred stock or debt) held by WEDGE immediately preceding any
such issuance of Common Stock. The preemptive rights shall terminate in the
event WEDGE holds less than 10% of the outstanding Common Stock of the Company
or four years following the date STDE becomes listed on the NASDAQ National
Market List or on a nationally recognized securities exchange; provided,
however, in the event after such listing the Company shall become not so listed
then the preemptive rights shall be reinstated, subject to any other independent
reason for termination. Additionally, the Company agreed to support and cause to
be placed on the ballot at each of election of directors of STDE one name
provided by WEDGE which shall be a nominee to the Board of Directors of STDE
(the "WEDGE Nominee"). Additionally, the WEDGE Nominee shall be appointed to
serve on the Audit Committee and Compensation Committee of the Board of
Directors and such committees must be established within 60 days from the date
WEDGE acquired the Stock. WEDGE agreed that it would not sell, transfer or
otherwise make a disposition of any Common Stock of the Company other than into
the public trading market under Rule 144 or incident to any registration right
granted by STDE to WEDGE without first offering the stock WEDGE desires to
transfer to STDE in writing at the price and other terms under which WEDGE
desires to transfer such stock. STDE shall then have the right to acquire the
stock on such terms as provided to STDE by WEDGE upon notification of WEDGE's
intent to
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CUSIP NO. 840553 13D PAGE 6 OF 9
dispose of its stock. The Common Stock Purchase Agreement also provided for
customary representations and warranties of STDE and WEDGE, as well as
appropriate indemnification provisions in the event a loss exceeds $100,000,
individually or in the aggregate.
Registration Rights Agreement. In connection with the acquisition of
the Stock by WEDGE, WEDGE and STDE entered into an agreement (the "Registration
Rights Agreement"), which supercedes the previous Registration Rights Agreement
originally entered into on February 18, 2000. WEDGE has been granted certain
rights to require STDE, at any time after November 10, 2000, to effect up to
three demand registrations under the Securities Act of 1933, as amended (the
"Act"), of the resale of the Stock. One such demand registration may be for a
shelf registration. STDE shall use its best efforts to file the registration
statement covering the Stock as soon as practicable, and in no event beyond 90
days after written request by WEDGE. STDE shall have the right to defer such
filing for a reasonable period not to exceed 90 days. STDE shall have the right
to include in such registration any of its own equity securities, unless it is
determined by the underwriters that such inclusion will adversely effect such
offering. Notwithstanding the demand registration rights, if STDE proposes to
register any of its securities under the Act, STDE will notify WEDGE of such
intention. Upon written request by WEDGE, STDE will use its best efforts to
cause all such outstanding Stock to be so registered under the Act, such Stock
subject to reduction in the event that the managing underwriter of a
then-proposed public offer of STDE's securities determines that such
registration of such Stock would materially and adversely effect such public
offering. However, the underwriters shall not reduce the number of shares of
Common Stock to be registered to below 25% of WEDGE's total ownership of the
Stock. WEDGE shall have the unlimited right to cause its Stock to be included in
any registrations effected by STDE. All expenses related to STDE's compliance
with the registration rights of WEDGE, excluding certain expenses such as
underwriting discounts, selling commissions and stock transfer taxes and any
filing fees associated with the listing of the Stock, will be paid by STDE. The
Registration Rights Agreement also contains customary indemnification provisions
with respect to the registration rights contained therein. The Registration
Rights Agreement will expire on the fifteenth anniversary of its execution date,
except as elsewhere provided therein.
Voting Agreement. WEDGE, STDE and two shareholders of STDE, Wm. Stacy
Locke and Michael E. Little (collectively, the "Shareholders"), have entered
into a Voting Agreement (the "Voting Agreement") in connection with the purchase
of the Stock by WEDGE. Under the terms of the Voting Agreement, the Shareholders
have agreed to vote their shares in favor of the WEDGE Board Nominee. The Voting
Agreement terminates on the first to occur of (i) WEDGE no longer owning at
least 10% of the total issued and outstanding shares of capital stock of STDE on
a fully diluted basis or (ii) 100 years after its execution. The Shareholders
hold in the aggregate shares of capital stock of STDE representing 8.6% of the
capital stock STDE currently outstanding and entitled to vote, exclusive of any
options or warrants.
The Common Stock Purchase Agreement, the Registration Rights Agreement
and the Voting Agreement are each attached as exhibits to this Amended Statement
on Schedule 13D, are
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CUSIP NO. 840553 13D PAGE 7 OF 9
incorporated herein by reference and the summaries of the terms of such
agreements are qualified by reference to the actual agreement.
The purchase of the Stock by WEDGE was the result of negotiated
transactions with STDE. WEDGE acquired the Stock as an investment which will be
subject to the terms of the Common Stock Purchase Agreement, the Registration
Rights Agreement and the Voting Agreement. Further, the Reporting Persons intend
to monitor their investment in STDE on a continuing basis in the ordinary course
of business and, depending upon the price of, and other market considerations
relating to the Common Stock, subsequent developments affecting STDE, STDE's
business and prospects, other investment and business opportunities available to
the Reporting Persons, general stock market and economic conditions (including
the price of oil and natural gas), tax considerations and other factors deemed
relevant, may decide to increase or decrease the size of their investment in
STDE.
Other than as described in this Statement on Schedule 13D, at the
present time neither of the Reporting Persons has specific plans or proposals
which would relate to or result in:
(a) the acquisition by any person of additional securities of STDE, or
the disposition of securities of STDE;
(b) an extraordinary corporate transaction, such as a merger,
reorganization or liquidation, involving STDE or any of its
subsidiaries;
(c) a sale or transfer of a material amount of assets of STDE or any of
its subsidiaries;
(d) any change in the present Board of Directors or management of STDE,
including any plans or proposals to change the number or term of
directors or to fill any existing vacancies on the Board of Directors;
(e) any material change in the present capitalization or dividend
policy of STDE;
(f) any other material change in STDE's business or corporate
structure;
(g) changes in STDE's charter, bylaws or instruments corresponding
thereto or other actions which may impede the acquisition of control of
STDE by any person;
(h) causing a class of securities of STDE to be delisted from a
national securities exchange or to cease to be authorized to be quoted
in an inter-dealer quotation system of a registered national securities
association;
(i) a class of equity securities of STDE becoming eligible for
termination of registration pursuant to Section 12(g)(4) of the Act; or
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CUSIP NO. 840553 13D PAGE 8 OF 9
(j) any actions similar to those enumerated above.
The Reporting Persons reserve the right to formulate specific plans or
proposals with respect to, or to change their intentions regarding, any or all
of the foregoing, and reserve their rights under the Common Stock Purchase
Agreement, Registration Rights Agreement and Voting Agreement, and all
transactions contemplated thereby.
WEDGE may, from time to time, discuss with management and other
shareholders of STDE and other parties methods by which STDE can best preserve
and increase its value. Such methods may involve expansion or contraction of the
geographic scope of STDE's operations, strategic alliances, business
combinations, cost containment measures and other similar arrangements. If as a
result of such discussions, the Reporting Persons decide to pursue any of the
methods for preserving and increasing the value of STDE described herein, then
the consummation thereof could involve transactions in the nature of those
described in subparagraphs (a) through (j) above.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
(a) As set forth in this Amended Statement on Schedule 13D, WEDGE owns
4,832,007 shares of Common Stock of STDE. The 4,832,007 shares of Common Stock
of STDE represent 44.116% of the outstanding Common Stock (based on the number
of shares of Common Stock outstanding as of May 10, 2000 as represented by STDE.
Based on certain representations made by STDE to WEDGE, on a fully diluted
basis, which assumes conversion of (x) the Series A 8% Convertible Preferred
Stock, (y) the Series B 8% Convertible Preferred Stock, and (z) warrants and
stock options, the 4,832,007 shares of Common Stock of STDE represents 33.49% of
the outstanding Common Stock of STDE.
(b) Mr. Fares may be deemed to beneficially own and thereby share
voting and dispositive power over the Stock issued to WEDGE. See Item 2.
(c) Other than the transactions described in Item 3 and this Item 5,
none of the Reporting Persons has effected any transactions in the Common Stock
during the preceding 60 days.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH
RESPECT TO SECURITIES OF THE ISSUER.
Except for the agreements described in response to Items 3 and 4, to
the best knowledge of the Reporting Persons, there are no contracts, agreements,
arrangements, understandings or relationships (legal or otherwise) between the
persons enumerated in Item 2 and any other person with respect to the securities
of STDE, including, but not limited to, transfer or voting arrangements, puts or
calls, guarantees of profits, division of profits or losses, or the giving or
withholding of proxies.
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CUSIP NO. 840553 13D PAGE 9 OF 9
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
99.1 Common Stock Purchase Agreement
99.2 Registration Rights Agreement
99.3 Voting Agreement
99.4 Power of Attorney from Issam M. Fares.
99.5 Joint Filing Agreement between the Reporting Persons.
SIGNATURES
After reasonable inquiry and to the best of each of the undersigned's
knowledge and belief, each of the undersigned certifies that the information set
forth in this statement is true, complete and correct.
Dated: May 18, 2000 WEDGE ENERGY SERVICES, L.L.C.
By: /s/ RICHARD E. BLOHM, JR.
----------------------------------
Name: Richard E. Blohm, Jr.
Title: Secretary
Dated: May 18, 2000 ISSAM M. FARES
By: /s/ RICHARD E. BLOHM, JR.
----------------------------------
Name: Richard E. Blohm, Jr.
Title: Attorney-In-Fact
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EXHIBIT 99.1
COMMON STOCK PURCHASE AGREEMENT
BETWEEN
SOUTH TEXAS DRILLING & EXPLORATION, INC.,
AS SELLER
AND
WEDGE ENERGY SERVICES, L.L.C.,
AS PURCHASER
DATED AS OF
MAY 11, 2000
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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1. Purchase and Sale...............................................................................1
1.1 Consideration..........................................................................1
1.2 Delivery of Certificates...............................................................1
1.3 Material Adverse Effect................................................................1
1.4 Preemptive Rights......................................................................1
1.5 Board Seat.............................................................................3
1.6 Purchase Price Adjustment..............................................................3
1.7 Registration Rights Agreement..........................................................3
1.8 Company Right of First Offer...........................................................4
2. The Closing.....................................................................................4
3. Representations and Warranties of the Company...................................................4
3.1 Organization and Existence.............................................................4
3.2 Capitalization: Ownership of Stock: Authorization......................................5
3.3 Enforceability.........................................................................5
3.4 Securities and Exchange Commission.....................................................6
3.5 Litigation; Contingencies..............................................................6
3.6 No Subsidiaries........................................................................6
3.7 Title to Assets (Personal Property). .................................................6
3.8 Consents. ............................................................................7
3.9 Proprietary Rights.....................................................................7
3.10 Disclosure.............................................................................8
3.11 Financial Statements...................................................................8
3.12 Compliance with Laws; OSHA.............................................................8
3.13 Labor Matters..........................................................................9
3.14 ERISA..................................................................................9
3.15 Environmental Matters..................................................................9
3.16 Permits and Licenses..................................................................10
3.17 Insurance.............................................................................10
3.18 Taxes.................................................................................10
3.19 Absence of Certain Developments.......................................................11
3.20 Underground Storage Tanks.............................................................11
4. Representations and Warranties of the Purchaser................................................11
4.1 Experience............................................................................11
4.2 Restricted Securities.................................................................11
4.3 Unregistered Stock....................................................................12
</TABLE>
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<TABLE>
<S> <C> <C>
5. Conditions to Obligations of the Purchaser.....................................................12
5.1 Company's Representations and Warranties True at Closing..............................12
5.2 Opinion of Counsel for the Company....................................................12
5.3 Absence of Restraint..................................................................14
5.4 Company Officers' Certificate.........................................................14
5.5 No Material Adverse Effect............................................................14
5.6 Consents and Other Approvals..........................................................14
5.7 Deliveries............................................................................14
6. Nature and Survival of Representations and Warranties..........................................15
6.1 Nature of Statements..................................................................15
6.2 Survival of Representations and Warranties............................................15
6.3 Indemnity by the Company..............................................................15
6.4 Indemnity by the Purchaser............................................................15
6.5 Limitation of Liability...............................................................15
7. Miscellaneous..................................................................................16
7.1 Expenses..............................................................................16
7.2 Notices...............................................................................16
7.3 Post-Closing Actions..................................................................17
7.4 Assignment............................................................................17
7.5 Successors Bound......................................................................17
7.6 Section and Paragraph Headings........................................................17
7.7 Amendment.............................................................................17
7.8 Entire Agreement......................................................................17
7.9 Counterparts..........................................................................17
7.10 Governing Law.........................................................................18
7.11 Arbitration...........................................................................18
7.12 Severability..........................................................................19
</TABLE>
ii
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COMMON STOCK PURCHASE AGREEMENT
THIS COMMON STOCK PURCHASE AGREEMENT, dated effective as of May 11,
2000 ("Agreement"), between WEDGE Energy Services, L.L.C., a Delaware limited
liability company (the "Purchaser"), and South Texas Drilling & Exploration,
Inc., a Texas corporation (the "Company").
W I T N E S S E T H :
WHEREAS, the Purchaser is desirous of acquiring 3,678,161 shares of the
total authorized shares of common stock of the Company (the "Stock"); and
WHEREAS, the Company desires to sell the Stock to Purchaser on the
terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties and covenants herein contained, the parties hereby
agree as follows:
1. Purchase and Sale.
1.1 Consideration. The Company hereby agrees to deliver to the
Purchaser 3,678,161 shares of the Stock at a price of $2.175 per share. In
consideration for receipt of the Stock, and in reliance upon the representations
and warranties of the Company contained herein, the Purchaser agrees to deliver
to the Company on the Closing Date, cash in the aggregate amount of $8,000,000,
payable by wire transfer of immediately available funds.
1.2 Delivery of Certificates. The Company agrees that the
Stock to be delivered to Purchaser shall be duly issued and sealed, and shall be
fully paid, nonassessable and shall not be subject to fees, encumbrances,
pledges or other claims, and upon delivery to Purchaser will vest full, valid
and legal title to the Stock.
1.3 Material Adverse Effect. For purposes of this Agreement,
the term "Material Adverse Effect" shall mean an event, circumstance, loss,
development or effect (individually or in the aggregate) when considered in
light of the total operations of the Company, would prohibit the Company from
engaging in any material aspect of its business or result in a material adverse
change in the business, operations, properties, prospects or assets of the
Company, or if measured monetarily, would exceed $100,000.
1.4 Preemptive Rights. The Company hereby grants to Purchaser
the preemptive right to acquire a percentage of any additional capital stock of
any class or series, or debt convertible into capital stock, ("Preemptive Right
Securities") the Company may issue equal to the percentage of the Company's
outstanding common stock (assuming the conversion of all outstanding convertible
preferred stock or debt) held by the Purchaser immediately preceding any such
issuance of common stock. This preemptive right shall terminate in the event
Purchaser holds less than 10% of the outstanding common stock of the Company.
This preemptive right shall also terminate four
1
<PAGE> 5
(4) years following the date the Company becomes listed on the NASDAQ National
Market List or on a nationally recognized securities exchange; provided,
however, in the event after any such listing the Company shall become not so
listed then the preemptive rights shall be reinstated, subject to any other
independent reason for termination.
(a) Issuances for Cash. Purchaser's preemptive rights
occasioned by the issuance by the Company of Preemptive Right
Securities in exchange for cash shall include the right to purchase
such Preemptive Right Securities at the same purchase price and other
terms as the other purchasers of such Preemptive Right Securities,
except in the case of an underwritten public offering of securities
registered under the Securities Act of 1933, as amended, in which case
Purchaser's purchase price shall be the price at which the Preemptive
Right Securities are offered to the public. Upon receipt of written
notice from the Company of its preemptive right to purchase Preemptive
Right Securities offered for cash Purchaser shall provide notice of its
intent to exercise or not to exercise its rights to the Company in
writing within 10 days of its receipt of such notice from the Company
and failure to provide notice within such 10 days shall be deemed to be
a waiver of such rights. Any issuance of Preemptive Right Securities
for cash not completed within 60 days of the date notice is provided by
the Company to Purchaser as provided in the previous sentence hereof
shall be deemed to be a new issuance of Preemptive Rights Securities to
which this subparagraph applies. This preemptive right shall not apply
to the issuance of capital stock issued pursuant to warrants, options,
or other rights to acquire capital stock currently outstanding or which
may be granted by the Company to any employee, consultant or director
as incentive for any such employee, consultant or director to become or
remain associated with the Company or to provide services to the
Company which has been or will be issued under the Company's 1995 Stock
Option Plan or its 1999 Stock Option Plan for shares of common stock
which may be issued under such 1999 Option Plan up to 1,500,000, or any
other option plan, option, warrant or other rights to acquire capital
stock which is or has been approved by the shareholders of the Company.
(b) Issuances for Other than Cash. Purchaser's preemptive
rights occasioned by the issuance by the Company of Preemptive Right
Securities in exchange for assets other than cash shall include the
right to purchase such Preemptive Right Securities at a cash price per
share (or other security unit) equal to the value per share (or other
security unit) received by the Company as consideration for the
issuance of the Preemptive Right Securities giving rise to Purchaser's
rights as reflected on the regularly prepared financial statements of
the Company. Provided, however, that if such Preemptive Right
Securities are regularly traded, or are convertible into securities
which are regularly traded, then the purchase price per share (or other
security unit) shall be no less than the average of the average daily
trading price of actual trades of such Preemptive Right Securities (or
regularly trading securities into which such Preemptive Right
Securities may be converted) for the 30 trading days preceding the date
on which written notice of Purchaser's preemptive rights is delivered
to Purchaser according to the following sentence. Upon receipt of
written notice from the Company of its preemptive right to purchase
Preemptive Right Securities offered for other than cash
2
<PAGE> 6
Purchaser shall provide notice of its intent to exercise or not to
exercise its rights to the Company in writing within 10 days of its
receipt of such notice from the Company and failure to provide notice
within such 10 days shall be deemed to be a waiver of such rights. Any
issuance of Preemptive Right Securities for other than cash not
completed within 120 days of the date notice is provided by the Company
to Purchaser as provided in the previous sentence hereof shall be
deemed to be a new issuance of Preemptive Rights Securities to which
this subparagraph applies. All else notwithstanding, Purchaser shall
have no preemptive rights incident to a merger, plan of exchange or
other combination involving the Company requiring the approval of the
shareholders of the Company and regarding which such approval is
obtained.
1.5 Board Seat. So long as Purchaser shall own at least 10% of
the capital stock of the Company, the Board of Directors agrees to support and
cause to be placed on the ballot at each election of Directors one name which
shall be a nominee to the Board of Directors of the Company (the "WEDGE Board
Nominee"). Additionally, the WEDGE Board Nominee shall be appointed to serve on
the audit committee and compensation committee of the Board of Directors and
such committees must be established within 60 days from the Closing Date.
1.6 Purchase Price Adjustment. In the event that the book
value of the stockholders' equity of the Company as reflected in the year ended
audited financial statements dated March 31, 2000 is "materially" less than the
book value of the stockholders' equity of the Company as compared to the
Company's unaudited March 31, 2000 financial statements and as represented by
the Company to Purchaser, the number of shares shall be increased in accordance
with the formula set forth hereafter. For purposes of this paragraph 1.6,
"materially" shall mean $50,000 to the extent stockholders' equity is adjusted
as the result of an adjustment to operating revenues or operating expenses and
shall mean $115,000 with regard to any other adjustments to stockholders'
equity. All amounts determined hereunder shall be determined in accordance with
generally accepted accounting principles applied on a consistent basis. The
formula to determine the purchase price adjustment shall be as follows:
X-Y x .33 = Z
-----
2.175
X = Difference between the book value of stockholders'
equity as reflected in the year end audited financial
statements dated March 31, 2000 and the unaudited
book value of stockholders' equity as of March 31,
2000
Y = $50,000 or $115,000 as provided above
Z = Number of additional shares to be issued to Purchaser
1.7 Registration Rights Agreement. Simultaneous with the
execution of this Agreement, the Company shall agree to enter into that certain
Registration Rights Agreement, in the
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<PAGE> 7
form and substance of Exhibit "A" attached hereto and incorporated herein for
all purposes, setting forth the relative rights, duties and obligations of
Purchaser and the Company.
1.8 Company Right of First Offer. Purchaser agrees that it
will not sell, transfer or otherwise make a disposition of any common stock of
the Company other than into the public trading market under Rule 144 or incident
to any registration right granted by the Company to Purchaser without first
offering the stock Purchaser desires to transfer (the "Disposition Stock") to
the Company in writing (the "Disposition Notice") at the price and other terms
(the "Disposition Terms") under which Purchaser desires to transfer the
Disposition Stock. Upon receipt of any Disposition Notice the Company shall have
the assignable right to acquire the Disposition Stock from Purchaser under the
Disposition Terms at any time within 45 days following the Company's receipt of
the Disposition Notice (the "Company Disposition Period") so long as the Company
shall provide Purchaser with an affirmative written acknowledgment of its intent
to acquire the Disposition Stock within 10 days from the Disposition Notice. If
the Company or its assignee does not tender to Purchaser everything required to
purchase the Disposition Stock under the Disposition Terms within the Company
Disposition Period, Purchaser may complete a disposition of the Disposition
Stock to any third party in a matter conforming to applicable securities laws
during the 45 day period following the end of the Company Disposition Period,
but not thereafter unless the procedures of this paragraph are again complied
with. The requirements of this paragraph shall not apply to the pledge or gift
of the Company's common stock by the Purchaser or a disposition to an affiliate
of Purchaser or to a disposition approved by the Board of Directors of the
Company. Provided, however, any affiliate transferee or donee of the common
stock shall first be required to agree in writing to be bound by the terms of
this paragraph. Purchaser agrees that certificates representing the common stock
of the Company subject to this paragraph may be legended in order to provide
notice of the application of this paragraph to third parties.
2. The Closing. The closing of the transactions provided for in Section
1 of this Agreement (herein called the "Closing") shall take place at the
offices of the Company, 9310 Broadway, Building I, San Antonio, Texas, on or
before May 12, 2000 (the "Closing Date").
3. Representations and Warranties of the Company. The Company
represents and warrants to the Purchaser that, as of the date of this Agreement,
and again as of the Closing Date that:
3.1 Organization and Existence. The Company is a corporation
duly organized and validly existing and in good standing under the laws of the
State of Texas and has all requisite corporate power to carry on its business as
now conducted and is qualified to do business in those jurisdictions where such
registration is required; its lease of property nor the conduct of its business
requires such qualification under the laws of any other jurisdiction, except
where the failure to do so would not have a Material Adverse Effect on the
financial condition or results of operations of the Company. The Company has
delivered to the Purchaser complete and correct copies of the Articles of
Incorporation and Bylaws of the Company as in effect on the date hereof.
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<PAGE> 8
3.2 Capitalization: Ownership of Stock: Authorization. The
Company is a corporation duly organized and validly existing and in good
standing under the laws of the state of Texas and has all requisite corporate
power and authority to carry on its business as now conducted and proposed to be
conducted. The Company has 15,000,000 authorized shares of its common stock
$0.10 par value (the "Common Stock") and 584,615 authorized shares of its
preferred stock (the "Preferred Stock"). As of March 31, 2000, the Company had
(a) 7,274,684 issued and outstanding shares Common Stock; (b) 400,000 authorized
shares of Series A Preferred Stock, $200 redemption and liquidation value, of
which 400,000 shares are issued and outstanding; (c) 184,615 shares of Series B
Preferred Stock, $16.25 redemption and liquidation value, of which 184,615
shares are issued and outstanding; and (d) no treasury shares. As of March 31,
2000, the Company had granted stock options which, if all were exercised, would
equal 1,751,000 shares of Common Stock. Other than the registration rights
granted to Purchaser in accordance with the transactions contemplated hereby,
the Company has only incidental registration rights to two (2) of its officers
and directors, Wm. Stacy Locke and Michael E. Little, and no other individual or
entity has any registration rights of any kind or nature (other than rights
under Form S-8), including incidental or demand registration rights. Other than
items referred to herein, there are no other options, warrants, rights,
conversion rights, phantom rights, preemptive rights or any other rights by any
party to receive equity of the Company. Upon issuance of the Stock to Purchaser,
Purchaser will be the record and beneficial owner of the Stock and the Stock
will be duly authorized, validly issued and outstanding, fully paid and
nonassessable and would have been issued in accordance with appropriate federal
and state securities law. By virtue of the consummation of the transactions
contemplated herein, Purchaser shall receive good and valid title to the Stock,
free and clear of all liens, encumbrances, pledges, options, claims, assessments
and adverse charges. Upon issuance of the Stock, Purchaser's ownership will
constitute 44.116% of the Company's issued and outstanding shares of capital
stock as of the Closing Date. As a result of the issuance of the Stock, the
Company is not, nor will it become, obligated to issue any additional shares of
capital stock (preferred or common) to any officer, director, shareholder or
other party.
The execution, delivery and performance of this Agreement and the
Registration Rights Agreement will not result in a violation or breach of any
term or provision of or constitute a default or accelerate the performance
required under the Articles of Incorporation or Bylaws of the Company or any
indenture, mortgage, deed of trust or other contract or agreement to which the
Company is a party or by which its assets are bound, or violate any order, writ,
injunction or decree of any court, administrative agency or governmental body.
3.3 Enforceability. The Company has full right, power, legal
capacity and authority to execute, deliver and perform this Agreement and the
Registration Rights Agreement and to consummate the transactions contemplated
hereby and thereby, and this Agreement and the Registration Rights Agreement are
valid and legally binding obligations enforceable in accordance with their
respective terms, except as enforcement may be limited by bankruptcy,
insolvency, moratorium or similar laws affecting the enforcement of creditors'
rights, by the availability of injunctive relief or specific performance and by
general principles of equity.
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<PAGE> 9
3.4 Securities and Exchange Commission. The Company has filed
all forms, reports and documents required to be filed by the Securities and
Exchange Commission, National Association of Securities Dealers, Inc. and the
state of Texas in order to comply with all applicable laws, rules and
regulations of the Securities Act of 1933, as amended (the "Act"), the
Securities and Exchange Act of 1934, as amended, and the securities laws of the
state of Texas. Notwithstanding the foregoing, Seller has delivered to Purchaser
a copy of that certain "no action" letter dated August 25, 1999 from the
Securities and Exchange Commission regarding Seller's failure to comply with
Regulation S-X of the Act in connection with its acquisition of assets of Howell
Drilling, Inc.
3.5 Litigation; Contingencies. Except as described on Schedule
3.5, there is no action, suit or proceeding pending or, to the knowledge of the
Company, threatened against the Company before any court, agency or arbitrator
which might result in any Material Adverse Effect in the business, properties or
condition (financial or otherwise) of the Company or which question the validity
of any action taken or to be taken pursuant to on in connection with this
Agreement, the Registration Rights Agreement or the Stock.
3.6 No Subsidiaries. Other than subsidiaries that have no
assets, liabilities or operations, the Company has no subsidiaries or any
interests in other corporations, partnerships or joint ventures.
3.7 Title to Assets (Personal Property).
(a) The Company is the owner of, and has marketable title to,
all of its assets, free and clear of all liens except those set forth
on Schedule 3.7(a) hereto and except for those assets leased under
leases specifically identified on Schedule 3.7(a) hereto. The assets
referred to in the preceding sentence include, without limitation, all
assets, properties and rights of the Company shown or reflected on the
March 31, 2000 Balance Sheet or acquired by the Company since March 31,
2000, except only for (i) cash expended and (ii) inventories and other
assets used or sold and receivables collected in the ordinary course of
business since March 31, 2000. The Company has maintained all tangible
assets material to the business in good repair, working order and
operating condition, subject only to ordinary wear and tear, and all
such tangible assets are suitable for the purposes for which they are
presently being used.
(b) With respect to each lease of real or personal property of
the Company: (i) the lease is valid and binding on the Company and in
full force and effect, (ii) no rental payment is in default, (iii) the
Company is in peaceable possession of the real property or personal
property which is subject thereto, and (iv) the Company is not in
default of any material provision thereof, and to the best knowledge of
the Company, no event has occurred that with the giving of notice, the
passage of time or both, would become a material default under any such
lease.
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<PAGE> 10
(c) Except as set forth on Schedule 3.7(c), the Company has
all easements, rights-of-way and similar authorizations required for
the use of the real property leased by the Company and in the conduct
of the business as heretofore conducted, excluding immaterial easements
(the "Easements"). To the best knowledge of the Company, no party
thereto is in default of any material provision of any easement or any
material covenant, restriction or other agreement encumbering any of
the real property, and to the best knowledge of the Company, no event
that with the giving of notice, the passage of time or both would
become a material default, has occurred under any easement or any
material covenant, restriction or other agreement encumbering any of
the real property. Neither the whole nor any portion of any real
property occupied by the Company has been condemned or otherwise taken
by any public authority, and the Company has received no written notice
that any such condemnation or taking is threatened or contemplated.
(d) (i) Neither the properties owned or occupied by the
Company nor the occupancy or operation thereof is in material violation
of any law or any building, zoning or other ordinance, code or
regulation; (ii) no notice from any governmental body has been served
upon the Company or upon any property owned or occupied by the Company
claiming any material violation of any such law, ordinance, code or
regulation or requiring, or calling to the attention of the Company the
need for, any work, repair, construction, alterations or installation
on or in connection with any such properties which has not been
complied with; and (iii) there is no material encroachment of the
improvements located on the real property owned or occupied by the
Company upon any adjoining property, or of improvements located on any
adjoining property upon any property owned or occupied by the Company.
3.8 Consents.
(a) The Company is not required to obtain any consent from or
approval of any court, governmental entity or any other person in
connection with the execution, delivery or performance by it of this
Agreement or the Registration Rights Agreement and the transactions
contemplated hereby. The consummation of the transactions contemplated
by this Agreement will not require the approval of any entity or person
in order to prevent the termination of any material right, privilege,
license or agreement of the Company.
3.9 Proprietary Rights. All patents (pending or issued),
copyrights, trademarks, state, federal and foreign registrations and
applications and trade secrets of the Company are listed in Schedule 3.9 (the
"Proprietary Rights") and are valid and in full force and effect and are not
subject to any taxes, maintenance fees, or extension, renewal or continuation
actions by the Company falling due within 90 days after the date hereof. Except
as disclosed on Schedule 3.9, there have not been any claims, actions or
judicial or other adversary proceedings involving the Company concerning any of
the Proprietary Rights and, no such action or proceeding is threatened. The
Company has the right and authority to use each item of the rights and property
referenced in Schedule 3.9 in connection with the conduct of its business
including all patents, trademarks, computer hardware and software licenses; such
use has not and will not conflict with, infringe upon,
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<PAGE> 11
or violate any patent or other proprietary right of any other person, and the
Company has not infringed and is not now infringing any proprietary right
belonging to any other person. There are no outstanding nor threatened claims
for breach, termination or penalty payment with respect to any licenses or
similar agreements or arrangements identified in Schedule 3.9. In regard to all
issued and pending patents, the Company is unaware of any third party infringing
upon its rights and authority to fully utilize and protect such proprietary
rights.
3.10 Disclosure. The Company represents and warrants that no
representation or warranty by the Company in this Agreement or in any of Exhibit
or Schedules hereto, or certificate furnished to the Purchaser by or on behalf
of the Company in connection with the transactions contemplated hereby, contains
or will contain any materially untrue statement of a material fact; and further,
no Schedule omits or will omit any material item required to be included in such
Schedule. Any indemnification by the Company hereunder for a breach of its
representation and warranty in this Section 3.10 shall be made in the manner
applicable pursuant to Section 9 hereof to such representation and warranty or
to the provision of this Agreement to which such Exhibit, Schedule or
certificate relates.
3.11 Financial Statements. The Company has caused to be
delivered to the Purchaser the Financial Statements for the Company. "Financial
Statements" shall mean the unaudited balance sheet and statements of operations,
changes in equity and cash flows for the Company as of and for the fiscal
quarter ended March 31, 2000. Prior to Closing, the Company shall also deliver
to the Purchaser each monthly financial statement that is produced by the
Company during calendar year 2000 in its ordinary course of business and such
monthly financial statements shall be included in this definition of Financial
Statements. The Financial Statements have been prepared in conformity with
generally accepted accounting principles applied on a basis consistent with
prior periods. Except as disclosed on Schedule 3.11, all of the Financial
Statements present fairly the financial position and the results of operations
of the Company on the dates and for the periods shown therein, and to the best
knowledge of the Company, there has been no Material Adverse Effect in the
financial condition of the Company since March 31, 2000.
Except as disclosed in the Financial Statements or in Schedule
3.11, the Company has no debt, liability or obligation, contingent or otherwise,
which would have a Material Adverse Effect on the business or the assets of the
Company.
3.12 Compliance with Laws; OSHA. To the best of the knowledge
of the Company, the Company is in compliance with all applicable laws,
ordinances, statutes, rules, regulations and orders promulgated by any court or
federal, state or local governmental body or agency relating to its assets and
business the failure to comply with which would cause a Material Adverse Effect.
Except as otherwise disclosed in Schedule 3.12, the Company has not received any
notice, citation, claim, assessment or proposed assessment as to or alleging any
violation of any Federal, state or local Occupational Safety and Health laws and
no violations which materially, presently exist.
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<PAGE> 12
3.13 Labor Matters. There is no labor strike or labor
disturbance pending, or to the knowledge of the Company threatened, against the
Company nor is any arbitration concerning an employee grievance currently
pending against the Company. The Company has experienced no work stoppage or
other material labor disturbance within the past three years. The Company is not
a party to any collective bargaining agreement with respect to its employees
and, to the knowledge of the Company, there are no current attempts to organize
its employees.
3.14 ERISA. Schedule 3.14 contains a list of each pension,
retirement, savings, deferred compensation, and profit-sharing plan and each
stock option, stock appreciation, stock purchase, performance share, bonus or
other incentive plan, severance plan, health, group insurance or other welfare
plan, or other similar plan and any "employee benefit plan" within the meaning
of Section 3(3) of the Employee Retirement Income Security Act of 1974
("ERISA"), under which the Company has any current or future obligation or
liability or under which any employee or former employee (or beneficiary of any
employee or former employee) of the Company has or may have any current or
future right to benefits on account of employment with the Company (the term
"plan" shall include any contract, agreement, policy or understanding, each such
plan being hereinafter referred to individually as a "Plan"). Each Plan intended
to be tax qualified under Sections 401(a) and 501(a) of the Internal Revenue
Code of 1986 (the "Code") is, and has been determined by the IRS to be, tax
qualified under Sections 401(a) and 501(a) of the Code and, since such
determination, no amendments to or failure to amend any such Plan or any other
circumstances adversely affects its tax qualified status. There has been on
prohibited transaction within the meaning of Section 4975 of the Code and
Section 406 of Title I of ERISA with respect to any Plan that is subject to the
prohibited transaction requirements of the Code or ERISA.
3.15 Environmental Matters. Except as set forth on Schedule
3.15 (i) the Company has obtained all Environmental Permits that are required
with respect to its business, operations and properties, either owned or leased,
and (ii) the Company and its properties are in compliance with all terms and
conditions of all applicable Requirements of Environmental Law and Environmental
Permits, the failure to comply with which would cause a Material Adverse Affect.
Except as would not have a Material Adverse Effect or as disclosed on Schedule
3.15, there are no Environmental Claims pending, or, to the knowledge of the
Company, threatened, against the Company. The Company has not received any
notice from any governmental authority of any violation or liability arising
under any Requirements of Environmental Law or Environmental Permit in
connection with the assets, the businesses or operations of the Company.
"Environmental Claim" means any third party (including
governmental agencies and employees) action, lawsuit, claim or
proceeding (including claims or proceedings under the Occupational
Safety and Health Act or similar laws relating to safety of employees)
which seeks to impose liability for (i) pollution or contamination of
the air, surface water, ground water or land; (ii) solid, gaseous or
liquid waste generation, handling, treatment, storage, disposal or
transportation; (iii) exposure to hazardous or toxic substances; (iv)
the safety or health of employees or (v) the transportation,
processing, distribution in commerce, use, or storage of hydrocarbons
or chemical substances. An Environmental Claim includes, but is
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<PAGE> 13
not limited to, a common law action, as well as a proceeding to issue,
modify or terminate an Environmental Permit.
"Environmental Permit" means any permit, license, approval or
other authorization under any applicable law, regulation and other
requirement of the United States or foreign country or of any state,
municipality or other subdivision thereof relating to pollution or
protection of health or the environment, including laws, regulations or
other requirements relating to emissions, discharges, releases or
threatened releases of Pollutants, contaminants or hazardous substances
or toxic materials or wastes into ambient air, surface water, ground
water or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transportation, or
handling of hydrocarbons or chemical substances, pollutants,
contaminants or hazardous or toxic materials or wastes.
"Requirements of Environmental Law" means all requirements in
effect on the Closing Date imposed by any law, rule, regulation, or
order of any federal, foreign, state or local executive, legislative,
judicial, regulatory or administrative agency, board or authority with
jurisdiction over the Company or its properties or assets which relate
to (i) pollution or protection of the air, surface water, ground water
or land; (ii) solid, gaseous or liquid waste generation, treatment,
storage, disposal or transportation; (iii) exposure to hazardous or
toxic substances; (iv) the safety or health of employees or (v)
regulation of the manufacture, processing, distribution in commerce,
use, or storage of chemical substances.
3.16 Permits and Licenses. The Company has all material
licenses, permits and other authorizations necessary for the conduct of its
business as it is currently being conducted. Schedule 3.16 sets forth an
accurate list and summary description of all permits, titles (excluding motor
vehicles, titles and current registrations which have been made available to the
Purchaser), fuel permits, licenses, franchises and certificates (the "Permits")
held by the Company. To the best of the Company's knowledge, all of such Permits
are adequate for the operation of the business of the Company as it is presently
being conducted.
3.17 Insurance. All insurance policies (together with all
riders and amendments) relating to the assets or the business of the Company are
sufficient to protect against any material claim for casualty or property
damage. Such insurance policies are in full force and effect, all premiums due
thereon have been paid or accrued on the books of the Company and will not
terminate as of the Closing or the consummation of the transactions contemplated
hereby. The Company has no reason to believe that such insurance policies will
be terminated or subject to non-renewal.
3.18 Taxes. The Company has filed all tax returns and reports
required by law to be filed, or filed extensions for any period in which a tax
return was due and has paid or accrued on the financial statements provided to
the Purchaser all taxes, assessments and other governmental charges that are due
and payable. The charges, accruals and reserves on the books of the Company in
respect of taxes for all fiscal periods are considered adequate by the Company,
and the Company
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<PAGE> 14
knows of no assessment for additional taxes for any of such fiscal years or any
basis therefor. All tax returns and reports are complete. No claim has ever been
made to the Company's knowledge that the Company is subject to a tax in any
jurisdiction in which the Company has not filed a return which remains unpaid as
of the Closing Date. The Company has withheld and paid all taxes required to
have been withheld or paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder or other third party.
The Company has not since 1990 been the subject of an audit and the Company has
not waived any statute of limitations or agreed to an extension of time with
respect to a tax assessment or deficiency.
3.19 Absence of Certain Developments. Since March 31, 2000,
there has been no change which would have a Material Adverse Effect,
individually or in the aggregate, in the assets, liabilities, condition
(financial or otherwise), operating results, business or prospects of the
Company, except changes in the ordinary course of business. Except as disclosed
on Schedule 3.19, the Company has not, since the date of the Financial
Statements, directly or indirectly, declared or paid any dividend or ordered or
made any other distribution on account of any shares of any class of the capital
stock of the Company. The Company has not, since such date, directly or
indirectly redeemed, purchased or otherwise acquired any such shares or agreed
to do so or set aside any sum or property for any such purpose. Additionally,
except for the previous sale of common stock of the Company to Purchaser on or
about February 18, 2000, there have been no other sales of securities of any
kind or nature by the Company.
3.20 Underground Storage Tanks. There are no underground
storage tanks on any of the Company's owned or leased real property.
4. Representations and Warranties of the Purchaser. The Purchaser
represents and warrants to the Company that:
4.1 Experience. The Purchaser is an "accredited investor"
within the meaning of Regulation D promulgated by the Securities and Exchange
Commission under the Act, and (by virtue of its experience in evaluating and
investing in private placement transactions of securities in companies similar
to the Company) it is capable of evaluating the merits and risks of its
investment in the Company. Purchaser acknowledges that it had the opportunity to
ask questions of the officers of the Company. In reaching the conclusion that it
desires to acquire the Stock, Purchaser has evaluated its financial resources
and investment position and the risks associated with this investment and
acknowledges that it is able to bear the economic risks of this investment.
4.2 Restricted Securities. As of the date hereof, Purchaser
represents, warrants and agrees that it is acquiring the Stock solely for its
own account, for investment, and not with a view to the distribution or resale
thereof. Purchaser further represents that its present financial condition is
such that it is not under any present necessity or constraint to dispose of such
Stock to satisfy any existing or contemplated debt or undertaking and that the
investment is suitable for Purchaser upon the basis of Purchaser's other
security holdings, financial situation and needs. The Purchaser acknowledges and
understands that it must bear the economic risk of this investment for
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<PAGE> 15
an indefinite period of time because the Stock must be held indefinitely unless
subsequently registered under the Act and applicable state and other securities
laws or unless an exemption from such registration is available.
4.3 Unregistered Stock. Purchaser is aware that the Stock has
not been registered under the Act, and that, accordingly, the Stock must be held
unless it is subsequently registered under said Act or unless, in the opinion of
counsel reasonably satisfactory to the Company, a sale or transfer may be made
without registration thereunder. Purchaser agrees that any certificates
evidencing the Stock must bear a standard legend restricting the transfer
thereof consistent with the foregoing and that a notice may be made in the
records of the Company or its transfer agent restricting the transfer of the
Stock in a manner consistent with the foregoing.
5. Conditions to Obligations of the Purchaser. The obligations of the
Purchaser under Section 1 of this Agreement shall, except as may be waived in
writing Purchaser, be subject to the following conditions:
5.1 Company's Representations and Warranties True at Closing.
The Purchaser shall not have discovered any material error, misstatement or
omission in the representations and warranties made by the Company in Section 3
hereof which such error, misstatement or omission remains uncured; and the
Company shall have performed and complied with in all material respects all
agreements and conditions required by this Agreement to be performed or complied
with by it at or prior to the Closing.
5.2 Opinion of Counsel for the Company.
(a) The Purchaser shall have received an opinion of Matthews
and Branscomb, counsel for the Company, dated the Closing Date, to the
effect that, among other things:
(i) The Company is a corporation duly incorporated
and validly existing and in good standing under the laws of
the state of Texas, has all requisite corporate power to own
its properties and assets and to carry on its business as now
conducted;
(ii) The Company is duly qualified to do business and
is in good standing in the state of Texas and is not required
to be qualified in any foreign jurisdictions;
(iii) The authorized capital stock of the Company
consists of: (i) ________ shares of Common Stock, $______ par
value, of which _______shares are issued and outstanding and
______ shares of Preferred Stock, $_____ par value, of which
________shares are issued and outstanding. To the best of such
counsel's knowledge, the Stock has been duly and validly
authorized and issued, is fully paid and non assessable, was
not issued in violation of the preemptive rights, if any, and,
to the best of such counsel's knowledge, the Company has
outstanding no options, warrants, calls or other commitments
of any kind relating to any issued, or authorized
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<PAGE> 16
but unissued, capital stock of the Company, except as
disclosed herein. To the best of counsel's knowledge, (A) the
issuance of the Stock will not cause an obligation of the
Company to issue any additional shares of capital stock
(preferred or common) solely as a result of the transactions
contemplated hereby, and (B) there are no shareholders who may
have any registration rights other than Wm. Stacy Locke and
Michael E. Little;
(iv) The consummation of the transactions
contemplated by this Agreement will not result in the breach
of or constitute a default (including with regard to the
giving of notice or the passing of time or both) under the
Articles of Incorporation or Bylaws of the Company or to the
best of such counsel's knowledge, any statute, rule or
regulation or, to the best of such counsel's knowledge, any
loan, credit or similar agreement or judicial or governmental
decree, order or judgment to which the Company is a party or
by which the Company or its properties are bound;
(v) To the best of such counsel's knowledge, no
authorization, approval or consent of or declaration or filing
with any governmental authority or regulatory body, Federal,
state or local, is necessary or required of the Company in
connection with the execution and delivery of this Agreement
or the performance by the Company of its obligations
hereunder;
(vi) To the best of such counsel's knowledge, except
as described on Schedule 3.5, there is no outstanding
litigation by or against the Company;
(vii) This Agreement has been duly authorized,
executed and delivered by the Company and constitutes valid
and binding obligations of the Company enforceable in
accordance with its terms (except as otherwise limited by
bankruptcy, insolvency, reorganization, moratorium and similar
laws affecting the enforcement of creditors' rights or by
general principles of equity, and except that such counsel
need not express an opinion as to whether any covenant
contained in this Agreement is specifically enforceable);
(viii) To the best of such counsel's knowledge, the
consummation of the transactions contemplated by this
Agreement will not result in the breach of or constitute a
default under any statute, rule or regulation applicable to
the Company or, to the best of such counsel's knowledge, any
loan, credit or similar agreement or judicial or governmental
decree, order or judgment to which the Company is a party;
(ix) No authorization, approval or consent of or
declaration or filing with any governmental authority or
regulatory body, federal, state or local, is necessary or
required of the Company in connection with the execution and
delivery of this Agreement or the performance by the Company
of its obligations hereunder; and
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<PAGE> 17
(x) The certificates representing the Stock have been
delivered to Purchaser, and such delivery is effective to vest
in Purchaser valid, legal and record ownership in the Stock on
the share transfer books and the stock ledger of the Company.
The opinions referred to in this Section may, as to matters of
fact, be given in reliance upon certificates of officers and directors of the
Company, certificates of the Company and certificates of public officials, and
as to matters of law involving the laws of any jurisdiction other than the
United States or the State of Texas, upon opinions of counsel satisfactory to
the Purchaser and its counsel. Such opinions may contain such exceptions,
qualifications and explanations as shall be reasonably acceptable to the
Purchaser and its counsel.
5.3 Absence of Restraint. No order to restrain, enjoin or
otherwise prevent the consummation of this Agreement or the transactions
contemplated hereby shall have been entered; and, on the Closing Date, there
shall not be any pending or threatened litigation in any court, or any
proceeding by or before any governmental commission, board or agency, with a
view to seeking to restrain or prohibit consummation of this Agreement or the
transactions contemplated hereby or in which divestiture, rescission or
significant damages are sought in connection with this Agreement or the
transactions contemplated hereby, and no investigation by any governmental
agency shall be pending or threatened which might result in any such litigation
or other proceeding.
5.4 Company Officers' Certificate. The Purchaser shall have
received a certificate, dated the Closing Date, of the president, executive vice
president and financial officers of the Company (the "Officers' Certificate") to
the effect that the representations and warranties relating to the Company or
its business, financial condition, properties or assets are true in all material
respects at and as of the Closing Date or, to the extent such representations
and warranties are made at and as of a specific date, such representations and
warranties were true in all material respects, and as of such date.
5.5 No Material Adverse Effect. No Material Adverse Effect in
the results of operations, financial condition or business of the Company taken
as a whole shall have occurred, and the Company shall not have suffered any
material loss or damages to any of its properties or assets which change, loss
or damage materially affects or impairs the ability of the Company to conduct
its respective businesses.
5.6 Consents and Other Approvals. Purchaser shall have
received all consents and other approvals which are necessary or required, if
any, to consummate this Agreement.
5.7 Deliveries. Purchaser shall have received (i) stock
certificates reflecting the Stock, (ii) a fully executed Registration Rights
Agreement, and (iii) any other documents which Purchaser may reasonably request
to consummate this Agreement and the transactions contemplated hereby.
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<PAGE> 18
6. Nature and Survival of Representations and Warranties.
6.1 Nature of Statements. All statements contained in any
Exhibit or schedule hereto or in any certificate or other instrument delivered
by or on behalf of the Company pursuant to this Agreement shall be deemed
representations and warranties by the Company.
6.2 Survival of Representations and Warranties. All covenants,
agreements, representations and warranties made hereunder or pursuant hereto or
in connection with the transactions contemplated hereby shall survive the
Closing. Generally, all covenants, representations and warranties shall remain
effective for a period of 24 months from the date of closing. The
representations and warranties of the Company with respect to litigation, ERISA
and environmental matters shall remain effective for a period of 48 months from
the Closing Date. The representations and warranties of the Company with respect
to taxes and title to Stock shall survive for the applicable limitations period
established by law. Notwithstanding the foregoing, any bona fide claim which
shall have been asserted during any such survival period and the obligation to
indemnify for such claim shall continue in effect until such time as such claim
shall have been resolve or settled.
6.3 Indemnity by the Company. The Company shall indemnify and
hold harmless Purchaser and the officers, directors, managers, agents,
affiliates and representatives of Purchaser or any of them (the "Purchaser
Indemnitees") from and against, and shall reimburse the Purchaser Indemnitees
from any loss, liability, damage or expense, including reasonable attorneys'
fees and costs of investigation incurred as a result thereof, that the Purchaser
Indemnitees shall incur or suffer (collectively, the "Purchaser Recoverable
Losses"), arising out of or resulting from (a) any misrepresentation by the
Company, or (b) breach by the Company of any (i) representation or warranty
contained in Article 3 hereof, (ii) agreement or covenant under or pursuant to
this Agreement, including the Registration Rights Agreement, or (iii) document,
certificate, schedule or instrument delivered by or on behalf of the Company
pursuant hereto.
6.4 Indemnity by the Purchaser. Purchaser shall indemnify and
hold harmless the Company and the officers, directors, agents, affiliates and
representatives of the Company or any of them (the "Company Indemnitees") from
and against, and shall reimburse the Company Indemnitees for any loss,
liability, damage or expense, including reasonable attorneys' fees and cost of
investigation incurred as a result thereof, that the Company Indemnitees shall
incur or suffer (collectively, the "Company's Recoverable Losses") resulting
from (a) any misrepresentation by Purchaser, or (b) breach by Purchaser of any
(i) representation or warranty contained in Article 4 hereof, (ii) agreement or
covenant under or pursuant to this Agreement, or (iii) document, certificate,
schedule or instrument delivered by or on behalf of Purchaser in connection
herewith.
6.5 Limitation of Liability. Notwithstanding any liability
which the Company or the Purchaser may incur in Sections 6.3 and 6.4,
respectively, above, the Company shall not be obligated for a Purchaser's
Recoverable Loss, and the Purchaser shall not be obligated for a Company's
Recoverable Loss, unless and until such loss, individually, or in the aggregate,
shall have exceed $100,000, in which case such liability shall be for all
amounts in excess thereof.
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<PAGE> 19
7. Miscellaneous.
7.1 Expenses. Each of the parties will pay their respective
costs and expenses (including legal fees) in connection with this Agreement and
the Registration Rights Agreement and all filing requirements of Purchaser as a
result of the transactions contemplated hereby.
7.2 Notices. All notices, requests and other communications
hereunder shall be in writing and shall be deemed to have been given if
personally delivered or mailed, registered or certified mail, postage prepaid,
or by facsimile with confirmation of sending such communication by the party
giving notice:
(a) if to the Company, to:
South Texas Drilling & Exploration, Inc.
9310 Broadway, Building I
San Antonio, Texas 78217
Attention: Wm. Stacy Locke
Fax No.: 210-828-8228
with copy to:
Matthews and Branscomb
106 South St. Mary's Street
Suite 700
San Antonio, Texas 78205
Attention: John D. Fisch
Fax No.: 210-226-0521
(b) if to the Purchaser, to:
WEDGE Energy Services, L.L.C.
1415 Louisiana, Suite 3000
Houston, Texas 77002
Attention: President
Fax No.: 713-524-3586
with copy to:
WEDGE Group, Inc.
1415 Louisiana, Suite 3000
Houston, Texas 77002
Attention: Richard E. Blohm, Jr.
Fax No.: 713-524-3586
16
<PAGE> 20
with an additional copy to:
DiCecco, Fant & Burman, L.L.P.
1900 West Loop South, Suite 1100
Houston, Texas 77027
Attention: Darryl M. Burman
Fax No.: 713-961-3938
or at such other address as shall be given in writing by either party to the
other.
7.3 Post-Closing Actions. Each party hereto hereby agrees to
deliver or cause to be delivered to the requesting party on the Closing Date,
and at such other subsequent times and places as shall be reasonably agreed on,
such additional instruments as the requesting party may reasonably request for
the purpose of carrying out this Agreement. Prior to the Closing Date, the
Company will cooperate and use its reasonable efforts to have the present
officers, directors and employees of the Company cooperate with the Purchaser in
furnishing information, and other assistance in connection with any actions,
proceedings, arrangements or disputes of any nature with respect to matters
pertaining to all periods prior to the Closing Date.
7.4 Assignment. This Agreement may be assigned at any time, by
Purchaser to an Affiliate, without the prior consent of the other party so long
as the party to whom this Agreement is assigned to agrees to be bound by all
terms and conditions contained herein.
7.5 Successors Bound. Subject to the provisions of Section
7.4, this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective predecessors, successors and assigns.
7.6 Section and Paragraph Headings. The section and paragraph
headings in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.
7.7 Amendment. This Agreement may be amended only by an
instrument in writing executed by the parties hereto.
7.8 Entire Agreement. This Agreement, the exhibits, annexes
and schedules hereto and the documents specifically referred to herein or
executed contemporaneously herewith constitute the entire agreement,
understanding, representations and warranties of the parties hereto.
7.9 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
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<PAGE> 21
7.10 Governing Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of Texas. Any dispute
hereunder shall be resolved through arbitration and may be brought in Houston,
Harris County, Texas.
7.11 Arbitration.
(a) Negotiation Period. Any dispute, controversy or claim
arising out of or relating to this Agreement, or any alleged breach
hereof, will be subject to binding arbitration in accordance with this
Section 7.11. If such a dispute, controversy or claim exists, the
parties shall attempt for a 30-day period (the "Negotiation Period")
from the date any party gives any one or more of the other parties
notice (a "Dispute Notice") pursuant to this Section, to negotiate in
good faith, a resolution of the dispute. The Dispute Notice shall set
forth with specificity the basis of the dispute. During the Negotiation
Period, representatives of each party involved in the dispute who have
authority to settle the dispute shall meet at mutually convenient times
and places and use their best efforts to resolve the dispute.
(b) Commencement of Arbitration. If a resolution is not
reached by the parties prior to the end of the Negotiation Period,
either party may provide a written request to the American Arbitration
Association within ten (10) days from the end of such period requesting
the selection of three (3) arbitrators (the "Panel") to arbitrate the
parties' respective rights and obligations with respect to the matters
set forth in the Dispute Notice. Each arbitrator on the Panel shall be
experienced in the arbitration of complex commercial disputes.
(c) Discovery. Each party to an arbitration shall be entitled
to such discovery as the Panel shall determine is appropriate.
(d) Expenses of Arbitration. The expenses of the Panel shall
be paid by the party that does not substantially prevail on the merits
in the arbitration (as determined by the award of the Panel).
(e) Location of Arbitration. The arbitration shall take place
in Houston, Texas.
(f) AAA Rules. Except as expressly provided in this Section
7.11, the Arbitration shall be conducted in accordance with the
Commercial Rules of the America Arbitration Association as then in
effect.
(g) Attorneys' Fees and Expenses. The party that substantially
prevails on the merits of the arbitration (as defined by the Panel)
shall be entitled to reasonable attorneys' fees, costs, expenses, and
necessary disbursements in addition to any other relief to which such
party may be entitled.
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<PAGE> 22
7.12 Severability. If any term or provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other terms and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
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<PAGE> 23
IN WITNESS WHEREOF, this Agreement has been duly executed by the
Company and by the Purchaser by their respective officers duly authorized
effective as of the date first above written.
THE COMPANY:
SOUTH TEXAS DRILLING & EXPLORATION, INC.
By: /s/ WM. STACY LOCKE
--------------------------------------
Wm. Stacy Locke, President
PURCHASER:
WEDGE ENERGY SERVICES, L.L.C.
By: /s/ WILLIAM H. WHITE
--------------------------------------
William H. White, President
20
<PAGE> 1
EXHIBIT 99.2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered into effective as of the 10th day of May, 2000, by and among SOUTH
TEXAS DRILLING & EXPLORATION, INC., a Texas corporation (the "Company"), and
WEDGE ENERGY SERVICES, L.L.C., a Delaware limited liability company (such
entity being referred to herein as the "Investor").
W I T N E S S E T H:
WHEREAS, Investor is acquiring 3,678,161 of the $0.10 par value common
stock of the Company (the "Common Stock") in accordance with a Common Stock
Purchase Agreement dated May 10, 2000 (the "Stock Purchase Agreement) and has
previously acquired 1,153,846 shares of Common Stock in accordance with a
Subscription Agreement dated February 28, 2000 (the "Subscription Agreement");
and
WHEREAS, the Company has agreed to provide the Investor with certain
registration rights with respect to the Registrable Securities (as defined
herein).
WHEREAS, the parties desire that this Agreement supercede in every way
that certain Registration Rights Agreement between them entered into incident
to the Subscription Agreement, which Registration Rights Agreement is hereby
canceled and rendered a nullity by agreement of the parties.
NOW THEREFORE, in consideration of the mutual covenants herein
contained and for other good and valuable consideration, the parties hereto
hereby agree as follows:
Section 1. Certain Definitions. As used in this Agreement, the
following definitions shall apply:
"Affiliate" means a Person who directly or indirectly
controls, is controlled by, or is under common control with, the Person
referred to. For this purpose, "control" means the ability to direct or cause
the direction of the management or affairs of a Person, whether through the
ownership of voting securities, by contract or otherwise.
"Commission" means the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar successor federal statute, and the rules and
regulations thereunder, all as the same shall be in effect from time to time.
"Holder" means any holder of outstanding Registrable
Securities.
<PAGE> 2
"Person" means any natural Person, any unincorporated
organization or association, and any partnership, limited liability company,
corporation, estate, trust, nominee, custodian or other individual or entity.
The terms "register," "registered" and "registration" refer
to a registration effected by preparing and filing a registration statement in
compliance with the Securities Act (and any post-effective amendments thereto
filed or required to be filed), and the declaration or ordering of the
effectiveness of such registration statement.
"Registrable Securities" means: (i) the Common Stock held by
the Investor issued pursuant to the Subscription Agreement or the Stock
Purchase Agreement, (ii) any Common Stock hereafter acquired by the Investor,
and (ii) any securities of the Company held by the Investor that are or were
issued or issuable, directly or indirectly, in respect of or by way of exchange
for such Common Stock or any capital stock into which such Common Stock may be
converted, together with any other securities which are issued with respect
thereto by way of any stock split, stock dividend, recapitalization,
reorganization, or similar event; provided, however, that Registrable
Securities shall not include any Registrable Securities which have previously
been registered or sold to the public.
"Registration Expenses" means all expenses incurred by the
Company in complying with registration obligations hereunder, including,
without limitation, all registration, qualification and filing fees, printing
expenses, escrow fees, fees and disbursements of counsel for the Company and
the reasonable fees and disbursements of not more than one counsel chosen by
the Holders who are the holders of a majority of Registrable Securities being
registered, blue sky fees and expenses, and the expense of any special audits
incident to or required by any such registration (but excluding the
compensation of regular employees of the Company which shall be paid in any
event by the Company). Registration Expenses shall not include fees of counsel
for the Holders other than of one counsel as set forth above or Selling
Expenses as defined below.
"Requisite Holders" means Holders of not less than 50% of the
Registrable Securities who are also holders of at least 2% of the then
outstanding equity securities of the Company.
"Requisite Securities" means Registrable Securities equal to
no less than 5% of the then outstanding equity securities of the Company.
"Restricted Securities" means the securities of the Company
required to bear the legend set forth in Section 2 hereof.
"Rule 144" means Rule 144 promulgated under the Securities
Act, or any similar successor rule, as the same shall be in effect from time to
time.
"Rule 145" means Rule 145 promulgated under the Securities
Act, or any similar successor rule, as the same shall be in effect from time to
time.
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<PAGE> 3
"Rule 415" means Rule 415 promulgated under the Securities
Act, or any similar successor rule, as the same shall be in effect from time to
time.
"Selling Expenses" shall mean all underwriting discounts,
selling commissions and stock transfer taxes applicable to the sale of
Registrable Securities.
"Securities Act" means the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, as shall be in effect at the time.
"Securities Exchange Act" means the Securities Exchange Act
of 1934, as amended, and the rules, regulations and interpretations promulgated
thereunder.
Section 2. Demand Registrations.
(a) Request for Registration. If, at any time after November
10, 2000, the Company shall receive from the Requisite Holders a written
request that the Company effect the registration under the Securities Act of
the resale of Registrable Securities held by such Requisite Holders (a "Demand
Registration"), then the Company shall:
(i) promptly give written notice of the proposed
registration to all other Holders;
(ii) use its best efforts to effect, as soon as
practicable, the registration under the Securities Act of the Registrable
Securities which the Company has been so requested to register, together with
all or such portion of the Registrable Securities of any Holders joining in
such request as are specified in a written request received by the Company
within 20 days after the Company mails such written notice in accordance with
the registration procedures set forth in Section 6 hereof and to keep effective
for 120 days after the effective date;
provided, however, that the Company shall not be obligated to take any action
to effect any such registration under the Securities Act:
(A) after the Company has effected three
such registrations pursuant to this Section 2 which have been declared or
ordered effective and pursuant to which securities have been sold; or
(B) If less than the Requisite Securities
are requested to be included in the registration.
(iii) the Holder shall be entitled to make a request
for one shelf registration pursuant to Rule 415 of the Securities Act, which
request may be for a shelf registration of not more than 12 month duration.
This shall count as one Demand Registration under Section 2(a)(ii)(A).
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<PAGE> 4
Subject to the foregoing clauses 2(a)(ii)(A), 2(a)(ii)(B) and 2(a)(iii) the
Company shall file a registration statement covering the Registrable Securities
so requested to be registered as soon as practicable, and in any event within
90 days, after receipt of the request or requests of the Requisite Holders;
provided, however, that if the Company shall within five days of such demand
furnish to such Holder a certificate signed by the president of the Company
stating that in the good faith judgment of the board of directors of the
Company, it would be detrimental to the Company or its shareholders for such
registration statement to be filed on or before the date filing would be
required and it is therefore essential to defer the filing of such registration
statement, the Company shall have the right to defer such filing for a
reasonable period not to exceed 90 days from receipt of such Holder's request.
The Company's right to delay such registration as set forth in the previous
sentence may only be exercised one time during any twelve month period.
(b) Underwritten Demand Registrations. The offering of the
Registrable Securities pursuant to such Demand Registration shall be in the
form of an underwritten offering except for one such Demand Registration which
may be for a shelf registration in compliance with the provisions of this
Section 2. In the event the managing underwriter or underwriters of the Demand
Registration advise the Company and the Requisite Holders in writing that the
total amount of Registrable Securities requested to be included in such
offering would exceed the maximum amount of securities which can be marketed at
a price reasonably related to the current fair market value of such securities
without adversely affecting such offering (the "Underwriters Maximum Number"),
the Company will be required to include in such registration to the extent of
the Underwriters Maximum Number: first, all of the Registrable Securities
requested to be included in such registration by the Holders thereof, allocated
pro rata among such Holders on the basis of the number of Registrable
Securities requested to be included therein by each such Holder; and second,
any equity securities requested to be included in such registration by the
Company and any other holders of such securities, allocated as determined by
the Company subject to any agreements between the Company and any such holders.
(c) Selection of Underwriters. The managing underwriter or
underwriters to be used in connection with such registration shall be selected
by the Requisite Holders holding a majority of the Registrable Securities being
registered. The Company shall have the right to approve the selection of any
such underwriters, which approval shall not be unreasonably withheld.
(d) Underwriting Agreements. The Company shall (together with
all Holders selling Registrable Securities) enter into an underwriting
agreement in customary form with the managing underwriter selected for such
underwriting by a majority in interest of the Requisite Holders, and each
Holder selling Registrable Securities shall participate in such underwriting.
(e) Withdrawal from Underwriting. If any Holder of
Registrable Securities disapproves of the terms of the underwriting, such
person may elect to withdraw therefrom by written notice to the Company, the
managing underwriter and the Requisite Holders. The Registrable Securities
and/or other securities so withdrawn shall also be withdrawn from registration,
and such Registrable Securities shall not be transferred in a public
distribution prior to 60 days after the
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<PAGE> 5
effective date of such registration, or such other shorter period of time as
the underwriters may require. If by the withdrawal of such Registrable
Securities a greater number of Registrable Securities held by other Holders may
be included in such registration (up to the maximum of any limitation imposed
by the underwriters), then the Company shall offer to all Holders who have
included Registrable Securities in the registration the right to include
additional Registrable Securities in the same proportion and manner used in
determining the underwriter limitation in this Section 2.
(f) Inclusion as a Demand Registration. For purposes of this
Section 2, a registration will not count as a Demand Registration until it has
become effective; provided, however, if the Requisite Holders withdraw their
Registrable Securities (whether before or after the effectiveness of such
registration) such demand will count as a Demand Registration for purposes of
this Section 2 unless the Requisite Holders pay all of the Registration
Expenses associated with such attempted registration. Notwithstanding the
foregoing, the failure of a Demand Registration to become effective as a direct
or indirect result of wrongful actions by the Company, or if such Demand
Registration does not occur as a result of any action by the managing
underwriters or underwriters, then such registration will not count as a Demand
Registration.
Section 3. Piggyback Registration.
(a) Right to Include Registrable Securities. Whenever the
Company proposes to register the sale of any of its equity securities under the
Securities Act other than on Form S-4 or Form S-8 promulgated under the
Securities Act or any similar form then in effect, the Company shall give
written notice thereof to each Holder as soon as practicable (but in any event
at least 30 days before such filing), offering such Holder the opportunity to
register on such registration statement such number of Registrable Securities
as such Holder may request in writing, subject to the provisions of section
3(b), not later than 20 days after the date of the giving of such notice (a
"Piggyback Registration"). Upon receipt by the Company of any such request, the
Company shall use reasonable efforts to, or in the case of an underwritten
offering, to cause the managing underwriter or underwriters to, include such
Registrable Securities in such registration statement (or in a separate
registration statement concurrently filed) and to cause such registration
statement to become effective with respect to such Registrable Securities in
accordance with the registration procedures set forth in Section 6 hereof. If
the Company's registration is to be effected pursuant to an underwritten
offering, Registrable Securities registered pursuant to this Section 3 shall be
distributed in accordance with such offering. Notwithstanding the foregoing, if
at any time after giving written notice of its intention to register its equity
securities and before the effectiveness of the registration statement filed in
connection with such registration, the Company determines for any reason either
not to effect such registration or to delay such registration, the Company may,
at its election, by delivery of written notice to each Holder (A) in the case
of a determination not to effect registration, relieve itself of its obligation
to register the Registrable Securities in connection with such registration or
(B) in the case of a determination to delay registration, delay the
registration of such Registrable Securities for the same period as the delay in
the registration of such other equity securities. Each Holder requesting
inclusion in a registration pursuant to this Section 3 may, at any
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<PAGE> 6
time before the effective date of the registration statement relating to such
registration, revoke such request by delivering written notice of such
revocation to the Company (which notice shall be effective only upon receipt by
the Company); provided, however, that if the Company, in consultation with its
financial and legal advisors, determines that such revocation would materially
delay the registration or otherwise require a recirculation of the prospectus
contained in the registration statement, then such holder shall have no right
to so revoke its request.
(b) Priority in Piggyback Registration. Notwithstanding the
foregoing, with respect to a Piggyback Registration that is underwritten and
with respect to which the managing underwriter or underwriters advise the
Company of an Underwriters Maximum Number, then the Company will so notify all
Holders requesting inclusion in such registration and will be required to
include in such registration, to the extent of the Underwriters Maximum Number:
first, any equity securities that the Company proposes to sell for its own
account; second, the Registrable Securities requested by Holders to be included
in such registration allocated pro rata with Wm. Stacy Locke and Michael E.
Little, the only other holders of equity securities who may have piggyback
registration rights as of the date hereof on the basis of the number of
securities requested to be included therein by each such holder; provided,
however, in no event will the number of shares to be included by the Holder be
reduced to less than 25% of the total shares available to be requested; and
third, to the extent that the Underwriters Maximum Number has not been filled
by the application of the preceding clauses, any further equity securities that
the Company proposes to sell for its own account and/or any equity securities
requested to be included in such registration by other holders of such
securities, allocated as determined by the Company subject to agreements
between the Company and any such holders.
(c) Selection of Underwriters. If any Piggyback Registration
is in the form of an underwritten offering, the managing underwriter or
underwriters and any additional investment bankers and managers to be used in
connection with such registration shall be selected by the Company (subject to
any separate agreement with the holders on behalf of which a secondary
underwritten offering is being made).
(d) Underwriting Agreements. All Holders proposing to
distribute their securities through such underwriting shall (together with the
Company and the other holders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
managing underwriter selected for such underwriting by the Company, and each
Holder selling Registrable Securities shall participate in such underwriting.
(e) Withdrawal from Underwriting. If any Holder or other
holder disapproves of the terms of any such underwriting, he may elect to
withdraw therefrom by written notice to the Company 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 180 days after the effective date of the registration
statement relating thereto, or such other shorter period of time as the
underwriters may require. Sales under Rule 144 shall not be considered a public
distribution for purposes of this paragraph.
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<PAGE> 7
(f) Right to Terminate Registration. The Company shall have
the right to terminate or withdraw any registration initiated by it under this
Section 3 prior to the effectiveness of such registration whether or not any
Holder has elected to include securities in such registration.
Section 4. Market Standoff. If the Company at any time shall register
the offer and sale of shares of Common Stock to the public under the Securities
Act (including any registration pursuant to Sections 2 or 3), the Holders shall
not sell publicly, make any short sale of, grant any option for the purchase
of, or otherwise dispose publicly of, any Registrable Securities (other than
those shares of Common Stock included in such registration pursuant to Sections
2 or 3) without the prior written consent of the Company for a period
designated by the Company in writing to the Holders, which period shall begin
not more than 10 days prior to the effectiveness of the registration statement
pursuant to which such public offering shall be made and shall not last more
than 120 days after the effective date of such registration statement. The
Company shall obtain the agreement of any person permitted to sell shares of
stock in a registration to be bound by and to comply with this Section 4 as if
such person was a Holder hereunder.
Section 5. Expenses of Registration. All Registration Expenses
incurred in connection with the Demand Registrations and the Piggyback
Registrations shall be borne by the Company. All Selling Expenses relating to
securities so registered as well as all Registration Expenses relating to
Demand Registrations and Piggyback Registrations not required to be borne by
the Company shall be borne by the holders of such securities pro rata on the
basis of the number of shares of securities so registered on their behalf.
Section 6. Registration Procedures. If and whenever the Company is
required by the provisions of Section 2 or 3 hereof to use its best efforts to
effect promptly the registration of Registrable Securities, the Company shall:
(a) Prepare and file with the Commission a registration
statement with respect to such Registrable Securities and use its best efforts
to cause such registration statement to become and remain effective as provided
herein;
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective and current and to comply with the provisions of the Securities Act
with respect to the sale of or other disposition of all Registrable Securities
covered by such registration statement, including such amendments and
supplements as may be necessary to reflect the intended method of disposition
of the prospective seller or sellers of such Registrable Securities, but for no
longer than one hundred twenty (120) days subsequent to the effective date of
such registration; provided, however, that (i) such period shall be extended
for a period of time equal to the period the Holder refrains from selling any
securities included in such registration at the request of an underwriter of
Common Stock (or other securities) of the Company; and (ii) in the case of any
registration of Registrable Securities on Form S-3 which are intended to be
offered on a continuous or delayed basis, such period shall be extended, if
necessary, to keep the registration
-7-
<PAGE> 8
statement effective until all such Registrable Securities are sold, provided
that Rule 415 permits an offering on a continuous or delayed basis, and
provided further that applicable rules under the Securities Act governing the
obligation to file a post-effective amendment permit, in lieu of filing a
post-effective amendment that (I) includes any prospectus required by Section
10(a)(3) of the Securities Act or (II) reflects facts or events representing a
material or fundamental change in the information set forth in the registration
statement. the incorporation by reference of information required to be
included in (I) and (II) above to be contained in periodic reports filed
pursuant to Section 13 or 15(d) of the Exchange Act in the registration
statement;
(c) Furnish to each prospective seller of Registrable
Securities 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 such seller may reasonably request in order to facilitate
the public sale or other disposition of the Registrable Securities of such
seller;
(d) Notify each seller of Registrable Securities 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 fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading or incomplete in the light of the
circumstances then existing, and at the request of any such seller, prepare and
furnish to such seller a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such shares, such prospectus shall not include
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading or incomplete in the light of the circumstances then existing;
(e) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange or approved for quotation on
any inter-dealer quotation system on which similar securities issued by the
Company are then listed or quoted;
(f) Provide a transfer agent and registrar for all
Registrable Securities registered pursuant to such registration statement and a
CUSIP number of all such Registrable Securities, in each case not later than
the effective date of such registration;
(g) Use its best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of such
jurisdictions as any Holder may reasonably request and do any and all other
acts and things which may be reasonably necessary or advisable to enable any
Holder to consummate the disposition in such jurisdictions of the Registrable
Securities owned by such Holder; provided, however, that the Company will not
be required to qualify generally to do business, subject itself to general
taxation or consent to general service of process in any jurisdiction where it
would not otherwise be required to do so but for this paragraph (g);
-8-
<PAGE> 9
(h) Use its best efforts to cause such Registrable Securities
to be registered with or approved by such other governmental agencies or
authorities as may be necessary by virtue of the business and operations of the
Company to enable each Holder holding such Registrable Securities to consummate
the disposition of such Registrable Securities;
(i) Subject to the execution of confidentiality agreements in
form and substance satisfactory to the Company, make available upon reasonable
notice and during normal business hours, for inspection by each Holder holding
such Registrable Securities, any underwriter participating in any disposition
pursuant to such registration statement and any attorney, accountant or other
agent retained by any Holder or underwriter (collectively, the "Inspectors"),
all pertinent financial and other records, pertinent corporate documents and
properties of the Company as shall be reasonably necessary to enable them to
exercise their due diligence responsibility, and cause the Company's officers,
directors and employees to supply all information reasonably requested by any
such Inspector in connection with such registration statement;
(j) Use its best efforts to obtain from its independent
certified public accountants "cold comfort" letters in customary form and at
customary times and covering matters of the type customarily covered by cold
comfort letters;
(k) Use its best efforts to obtain from its counsel an
opinion or opinions in customary form;
(1) Issue to any underwriter to which any Holder holding such
Registrable Securities may sell shares in such offering certificates evidencing
such Registrable Securities;
(m) Otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months, but not more than eighteen
months, beginning with the first month after the effective date of the
Registration Statement, which earnings statement shall satisfy the provisions
of Section 11(a) of the Securities Act;
(n) In connection with any offering pursuant to a
registration statement filed pursuant to Section 2 hereof, enter into an
underwriting agreement reasonably necessary to effect the sale of the Common
Stock, provided such underwriting agreement contains customary underwriting
provisions; and provided further that if the underwriter so requests, the
underwriting agreement will contain a customary contribution provision; and
(o) Use its best efforts to take all other steps necessary to
effect the registration of such Registrable Securities contemplated hereby.
Section 7. Indemnification. In the event any of the Registrable
Securities are included in a registration statement under this Section:
-9-
<PAGE> 10
(a) The Company will indemnify each Holder, each of such
Holder's officers and directors and partners (and each partner's officers,
directors and partners) and such Holder's separate legal counsel and
independent accountants, and each person controlling such Holder within the
meaning of Section 15 of the Securities Act, and each underwriter, if any, and
each person who controls any underwriter within the meaning of Section 15 of
the Securities Act, against all expenses, claims, losses, damages or
liabilities (or actions in respect thereof), including any of the foregoing
incurred in settlement of any litigation, commenced or threatened, arising out
of or based on any untrue statement (or alleged untrue statement) of a material
fact contained, on the effective date thereof; in any registration statement,
any prospectus contained therein, or any amendment or supplement thereto. or
based on any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein (in
the case of a prospectus, in the light of the circumstances under which they
were made) not misleading, or any violation by the Company of any rule or
regulation promulgated under the Securities Act applicable to the Company in
connection with any such registration, qualification or compliance, and the
Company will reimburse each such Holder, each of its officers, directors and
partners (and each partner's officers, directors and partners) and such
Holders' separate legal counsel and independent accountants and each person
controlling such Holder, each such underwriter and each person who controls any
such underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating, preparing or defending any such claim, loss,
damage, liability or action, provided that the Company will not be liable in
any such case to the extent that any such claim, loss, damage, liability or
expense arises out of or is based on any untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in conformity
with written information furnished to the Company by an instrument duly
executed by such Holder or underwriter and stated to be specifically for use
therein.
(b) Each Holder will, if Registrable Securities held by such
Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers and its legal counsel and independent accountants,
each underwriter, if any, of the Company's securities covered by such a
registration statement, each person who controls the Company or such
underwriter within the meaning of Section 15 of the Securities Act, and each
other such Holder, each of its officers and directors and each person
controlling such Holder within the meaning of Section 15 of the Securities Act,
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained, on the effective date thereof, in any
such registration statement, any prospectus contained therein, or any omission
(or alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein (in the case of a
prospectus, in the light of the circumstances under which they were made) not
misleading, and will reimburse the Company, such Holders, such directors,
officers, persons, underwriters or control persons for any legal or any other
expenses reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability or action, in each case to the extent, but
only to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement or
prospectus in reliance upon and in conformity with written information
furnished to the Company by an instrument duly
-10-
<PAGE> 11
executed by such Holder and stated to be specifically for use therein;
provided, however, that the obligations of any such Holder hereunder shall be
limited to an amount equal to the proceeds to each such Holder of Registrable
Securities sold as contemplated herein.
(c) Each party entitled to indemnification under this Section
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") 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 litigation,
shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 7 to the extent such
failure is not prejudicial. 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.
(d) If the indemnification provided for in this Section 7 is
held by a court of competent jurisdiction to be unavailable to an Indemnified
Party with respect to any loss, liability, claim, damage or expense referred to
herein, then the Indemnifying Party, in lieu of indemnifying the Indemnified
Party, shall contribute to the amount paid or payable by such Indemnified Party
with respect to such loss, liability, claim, damage or expense in the
proportion that is appropriate to reflect the relative fault of the
Indemnifying Party and the Indemnified Party in connection with the statements
or omissions that resulted in such loss, liability, claim, damage or expense,
as well as any other relevant equitable considerations. The relative fault of
the Indemnifying Party and the Indemnified Party shall he 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 Indemnifying Party or by
the Indemnified Party, and the parties, relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
Section 8. Information by Holder. The Holder or Holders of Registrable
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders and the distribution proposed by
such Holder or Holders as the Company may request in writing and as shall be
required in connection with any registration, qualification or compliance
referred to in this Section.
Section 9. Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of the Restricted Securities to the public without
registration, after such time as a public market exists for the Common Stock of
the Company, the Company shall use its best efforts to:
-11-
<PAGE> 12
(a) Make and keep public information available, as those
terms are understood and defined in Rule 144 under the Securities Act,
beginning 90 days after (i) the Registration Date, or (ii) the Company issues
an offering circular meeting the requirements of Regulation A under the
Securities Act;
(b) File with the Commission in a timely manner all reports
and other documents required of the Company under the Securities Act and the
Securities Exchange Act (at any time after it has become subject to such
reporting requirements); and
(c) Furnish to any Holder promptly upon request a written
statement as to its compliance with the reporting requirements of Rule 144 and
the Securities Act and the Securities Exchange Act, a copy of the most recent
annual or quarterly report of the Company and such other reports and documents
of the Company and other information in the possession of or reasonably
obtainable by the Company as a Holder may reasonably request in availing itself
of any rule or regulation of the Commission allowing a Holder to sell any such
securities without registration.
Section 10. Assignment of Registration Rights. The rights to cause the
Company to register securities granted under this Agreement may be assigned to
a transferee or assignee in connection with the transfer assignment of shares
of Registrable Securities (i) to Affiliates of the Holder, (ii) to the Company,
(iii) to Persons to whom the Registrable Securities are transferred by reason
of the Holder's death or involuntarily by operation of law, (iv) pursuant to a
transfer approved by the Company in its sole and absolute discretion, or (v) to
Persons to whom the Registrable Securities are transferred in accordance with
the transfer restriction provisions, if any, in the Subscription Agreement,
articles of incorporation, bylaws, any Shareholder's Agreement among the
Holders, the Company and other holders of capital stock of the Company or other
documents or agreements of Holder; provided, however, that the Company is given
written notice thereof.
Section 11. Subsequent Purchasers. Without the affirmative vote of the
Holders of at least 66-2/3% of the Registrable Securities, the Company shall
not grant to any purchaser of the Company's securities any demand registration
rights, or any piggyback registration rights that would provide any rights
greater than those granted to the Investor or that would be inconsistent or in
conflict with the provisions hereof. Moreover, for so long as the Holders of
the Registrable Securities are entitled to exercise the registration rights
described herein, they shall receive the benefit of any and all registration
rights granted by the Company to any other person who is as of the date of this
Agreement securities holder in the Company (or any affiliate of such existing
securities holder) which are more favorable than the registration rights
granted to the Investor herein.
Section 12. Term. This Agreement and all rights granted to the
Investor hereunder shall expire on the fifteenth anniversary of the date
hereof.
Section 13. Miscellaneous.
-12-
<PAGE> 13
(a) Notices. Any notice or other communications required or
permitted hereunder shall be deemed to be sufficient if contained in a written
instrument delivered in person or by nationally-recognized overnight courier or
duly sent by First Class certified mail, postage prepaid, or by telecopy
addressed to such party at the address or telecopy number set forth below or
such other address or telecopy number as may hereafter be designated in writing
by the addressee to the address or listing all parties:
<TABLE>
<S> <C>
If to the Company: South Texas Drilling & Exploration, Inc.
9310 Broadway, Bldg. 1
San Antonio, Texas 78217
ATTN: Wm. Stacy Locke
If to the Investor: WEDGE Energy Services, L.L.C.
1415 Louisiana Street, Suite 3000
Houston, Texas 77002
ATTN: President
</TABLE>
(b) Entire Agreement: Amendments. This Agreement represents
the entire agreement of the parties hereto, and supersedes any other agreements
among the parties with respect to the subject matter hereof. The terms and
provisions of this Agreement may not be modified or amended, or any of the
provisions hereof waived, except pursuant to the written consent of the Company
and holders of a majority of the Registrable Securities.
(c) Assignment. This Agreement may not be assigned by any
party without the prior written consent of the other parties, except by a
Holder in accordance with Section 10 above. Any assignment which contravenes
this Section shall be void ab initio.
(d) Counterparts. 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.
(e) Headings: Interpretations. The headings of the various
sections of this Agreement have been inserted for convenience of reference only
and shall not be deemed to be a part of this Agreement. Whenever the context
requires, references in this Agreement to the singular number shall include the
plural and, likewise, the plural number shall include the singular, and words
denoting gender shall include the masculine, feminine and neuter.
(f) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas without regard to
the principles of conflicts of law thereof.
-13-
<PAGE> 14
(g) Separability. In case any one or more of the provisions
contained in this Agreement or any application thereof shall be invalid,
illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein and other
applications thereof shall not in any way be affected or impaired thereby.
-14-
<PAGE> 15
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be executed the day and date above written.
SOUTH TEXAS DRILLING & EXPLORATION, INC.
By: /s/ WM. STACY LOCKE
--------------------------------------
Name: Wm. Stacy Locke
------------------------------------
Title: President
------------------------------------
WEDGE ENERGY SERVICES, L.L.C.
By: /s/ WILLIAM H. WHITE
--------------------------------------
Name:: William H. White
------------------------------------
Title: President
------------------------------------
-15-
<PAGE> 1
EXHIBIT 99.3
VOTING AGREEMENT
This Voting Agreement (the "Agreement") dated this 11th day of May,
2000 (the "Effective Date"), by and between those certain individuals set forth
on Exhibit A attached hereto and incorporated herein for all purposes
(collectively, the "Shareholders" or individually, a "Shareholder"), South Texas
Drilling & Exploration, Inc., a Texas corporation (the "Corporation"), and WEDGE
Energy Services, L.L.C., a Delaware limited liability company ("WEDGE").
R E C I T A L S :
A. The Shareholders are the beneficial owners of the shares of
common stock of the corporation (the "Shares") set forth opposite their
respective names set forth on Exhibit A hereto, and each are entitled to vote
the Shares in accordance with the terms and conditions provided herein.
B. In order to facilitate a transaction between the
Corporation and WEDGE, the Shareholders are required to enter into this
Agreement evidencing their respective agreement to vote their Shares at each and
every special and or annual shareholders' meeting in accordance with the terms
provided herein for a representatives of WEDGE to be elected to the Board of
Directors of the Corporation (the "WEDGE Nominee").
A G R E E M E N T S :
NOW, THEREFORE, in consideration of the covenants and promises
contained in this Agreement and for other good and valuable consideration
recited above, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
1. Limited Voting Agreement. Upon executing this Agreement, the
Shareholders will agree to vote the Shares in favor of the WEDGE Nominee to
serve on the Board of Directors of the Corporation. The Shareholders agree to
vote in person, or by proxy, for the WEDGE Nominee, and each understands that
without the agreement to do so, WEDGE would not have entered into the agreement
entered into simultaneously herewith.
2. Shareholder Representation. The Shareholders and each Shareholder
hereby represent and warrant to the Corporation and WEDGE that each is the
beneficial holder and owner of the Shares set forth opposite their name on
Exhibit A hereto, and as such, each has the unfettered, absolute and unqualified
right to vote his Shares in the manner prescribed herein.
3. Proxy Statement Disclosure. The Corporation acknowledges to the
Shareholders that it has entered into an agreement with WEDGE whereby it has
agreed to cause a WEDGE Nominee to be placed on the ballot for election by the
Shareholders entitled to vote thereon. Thereafter, the Board of Directors of the
Corporation has also agreed to subsequently cause to be nominated at each
<PAGE> 2
successive election of directors the WEDGE Nominee to serve on the Board of
Directors until a successor shall have been duly elected. Additionally, the
Corporation has also agreed that it will cause to be contained in each proxy
statement filed during the effectiveness of this Agreement a proxy statement and
annual report which will disclose the existence of this Agreement and the
requirement of the Shareholders to vote in favor of the WEDGE Nominee.
4. Filing with Corporation. This Agreement shall be deposited with the
Secretary of the Corporation at its registered office and shall be subject to
examination by any shareholder of the Corporation or by any Shareholder, in
person or by agent or attorney, as are the books and records of the Corporation
at any reasonable time for a proper purpose.
5. Term. The term of this Agreement shall commence on the Effective
Date and shall terminate on the sooner to occur of (i) WEDGE no longer owning at
least ten percent (10%) of the total issued and outstanding Shares of Common
Stock of the Corporation on a fully diluted basis calculated in accordance with
the "treasury method", or (ii) one hundred (100) years from the date hereof.
6. Assignment, Sale or Transfer of Shares of Shareholders. Each of the
Shareholders agree that in the event any of them shall decide to sell, transfer
or convey any or all of its Shares, it shall, prior to doing so, notify WEDGE of
same. In the event there shall be a sale, transfer or assignment to any
affiliate or family member, the Shareholder agrees that such sale, transfer or
conveyance shall not be made unless the transferee shall agree in writing,
approved by WEDGE, to be bound by all terms and conditions contained in this
Agreement. For purposes of this section, the term "affiliate" shall have the
meaning ascribed to it in the Securities Act of 1933, as amended.
7. Remedies for Breach of Agreement. The Shareholders acknowledge that
in the event any one of the Shareholders shall breach, or intend to breach, any
terms or conditions of this Agreement, WEDGE shall have the right to seek any
equitable or legal remedy it may be entitled to, including specific performance.
In the event WEDGE shall file any action seeking an equitable remedy, the
parties acknowledge that if a bond shall be required, WEDGE shall not be
obligated to post greater than $1,000 for such bond. In the addition to the
remedies provided for herein, WEDGE shall be entitled to any and all other
remedies that it may be entitled in accordance with applicable law.
8. Miscellaneous.
8.01. Binding Effect; No Other Agreements or Arrangements. This
Agreement shall be binding upon the parties and their respective heirs,
executors, administrators, successors, assigns and legal
representatives. Each party to this Agreement hereby represents and
warrants to all other parties that, except for this Agreement, such
party has not entered into, or agreed to be bound by, and will not, so
long as the terms of the Agreement remain in effect, enter into, or
agree to be bound by, any other arrangements or agreements of any kind
2
<PAGE> 3
with any other person (including a party) with respect to the Shares,
other than this Agreement.
8.02. Waiver. A party's failure to insist on compliance or enforcement
of any provision of this Agreement, shall not affect the validity or
enforceability or constitute a waiver of future enforcement of that
provision or of any other provision of this Agreement by that party or
any other party.
8.03. Governing Law; Jurisdiction. This Agreement shall in all respect
be subject to, governed by, and interpreted in accordance with, the
laws of the State of Texas. The parties agree that jurisdiction over
any dispute relating to this Agreement shall reside in any court or
other judicial or quasi-judicial body such as an arbiter or mediator)
that is located within the State of Texas, and they hereby consent to
such jurisdiction and agree to appear in the State of Texas with regard
to any such dispute.
8.04. Severability. The invalidity or unenforceability of any provision
of this Agreement shall not effect the validity or enforceability of
any other provision of this Agreement, and this Agreement shall be
construed in all respects as if such invalid or unenforceable provision
has never been in the Agreement.
8.05. Effectiveness of Voting Agreements. To the extent this Agreement
is a "voting agreement" under Article 2.30B of the Texas Business
Corporation Act, it shall be effective, as provided in this Agreement
or any extension of this Agreement in accordance with Article 2.30B.
8.06. Headings; Execution in Counterparts. The headings and captions
contained in this Agreement are for convenience and shall not control
or affect the meaning or construction of any provision of this
Agreement. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and
which, together, shall constitute one and the same instrument.
8.07. Entire Agreement. This Agreement, including all exhibits and
schedules to this Agreement, embodies the entire Agreement and
understanding of the parties to this Agreement with respect to the
subject matter contained in this Agreement, and this Agreement
supersedes and replaces all prior agreements and understandings between
the parties concerning such subject matter.
8.08. Amendments. This Agreement shall not be modified or amended
except by a writing signed by each party.
8.09. Notices. Any and all notices required by this Agreement shall be
deemed to be received (i) when personally delivered to the recipient,
(ii) when sent via facsimile, upon receipt of a confirmation or
acknowledgment of receipt of facsimile transmittal, provided a
3
<PAGE> 4
confirmation copy is sent by first class mail, (iii) on the next
business day after the date of deposit with an overnight courier, or
(iv) five (5) days after postmark when deposited with the United States
or other foreign country mail. The address of the Corporation for
notice purposes is 9310 Broadway, Building I, San Antonio, Texas 78720.
The address for WEDGE for notice purposes is 1415 Louisiana, Suite
3000, Houston, Texas 77002, Attention: President, with a second notice
addressed to 1415 Louisiana, Suite 3000, Houston, Texas 77002,
Attention: General Counsel.
8.10. Attorneys' Fees. In the event that any action, suit or other
proceeding arising from, or based on, this Agreement is brought by any
party against any other party to this Agreement, the prevailing party
shall be entitled to recover from the non-prevailing party reasonable
attorneys' fees and costs in connection with such action, suit or
proceeding.
[SIGNATURES ON NEXT PAGE]
4
<PAGE> 5
IN WITNESS WHEREOF the parties hereto have executed this Agreement as
of the date first above written.
SOUTH TEXAS DRILLING & EXPLORATION, INC.
/s/ WM. STACY LOCKE
-----------------------------------------------
Printed Name: Wm. Stacy Locke
----------------------------------
Title: President
-----------------------------------------
SHAREHOLDERS:
/s/ MICHAEL E. LITTLE
-----------------------------------------------
Michael E. Little
/s/ WM. STACY LOCKE
-----------------------------------------------
Wm. Stacy Locke
WEDGE ENERGY SERVICES, L.L.C.
/s/ WILLIAM H. WHITE
-----------------------------------------------
Printed Name: William H. White
----------------------------------
Title: President
-----------------------------------------
5
<PAGE> 6
EXHIBIT A
SOUTH TEXAS DRILLING & EXPLORATION, INC.
SHAREHOLDERS' OWNERSHIP PERCENTAGE
AS OF DECEMBER 1, 1999
<TABLE>
<CAPTION>
SHAREHOLDERS PREFERRED COMMON
<S> <C> <C>
Wm. Stacy Locke 0 345,093
Michael E. Little 0 280,582
----- -------
TOTAL SHAREHOLDERS' SHARES: 0 625,675
Total Common Stock Outstanding 0 7,274,684
Percent of Ownership 8.6%
</TABLE>
<PAGE> 1
EXHIBIT 99.4
POWER OF ATTORNEY
The undersigned does hereby make, constitute and appoint William H. White
and Richard E. Blohm, Jr., acting jointly or singly, the undersigned's true and
lawful attorney or attorneys (hereinafter referred to individually as "Attorney"
or collectively as "Attorneys") with power to act for the undersigned and in the
undersigned's name, place and stead, with or without the other and with full
power of substitution and resubstitution, for the sole purpose of executing,
making, declaring, certifying and filing on behalf of the undersigned with the
Securities and Exchange Commission, and other appropriate governmental or
private entities, any and all statements, reports and other information required
to be filed by the undersigned under the Securities Exchange Act of 1934, as
amended, or other state or federal statutes, by virtue of or relating to the
undersigned's beneficial ownership of equity securities of South Texas Drilling
and Exploration, Inc. (the "Company"), including without limitation any Schedule
13D, any and all amendments to any such schedule, any Joint Filing Agreement and
any and all amendments thereto, any Form 3, 4 or 5 and any and all amendments
thereto, and all other documents and information incidental or related thereto
required to be executed, made or filed by the undersigned, in the form and
manner in which such Attorneys or any of them deem necessary, appropriate,
convenient or desirable to be done pursuant to and in accordance with the
authorization contained in this Power of Attorney, as fully and to all intents
and purposes as the undersigned might or could do in person, the undersigned
hereby ratifying and approving the acts of the Attorneys and each of them.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney on
February 22, 2000.
/s/ ISSAM M. FARES
---------------------
Issam M. Fares
<PAGE> 1
EXHIBIT 99.5
JOINT FILING AGREEMENT
The undersigned each agree that the Statement on Schedule 13D relating
to the Common Stock, $.10 par value, of South Texas Drilling & Exploration, Inc.
is adopted and filed on behalf of each of them, (ii) all future amendments to
such Statement on Schedule 13D will, unless written notice to the contrary is
delivered as described below, be jointly filed on behalf of each of them, and
(iii) the provisions of Rule 13d-1(k) under the Securities Exchange Act of 1934
apply to each of them. This agreement may be terminated with respect to the
obligation to jointly file future amendments to such Statement on Schedule 13D
as to any of the undersigned upon such person giving written notice thereof to
the other person signatory hereto, at the principal office thereof.
IN WITNESS WHEREOF, the undersigned hereby execute this Joint Filing
Agreement as of the date set forth below.
Dated: February 25, 2000 WEDGE Energy Services, L.L.C.
By: /s/ RICHARD E. BLOHM, JR.
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Name: Richard E. Blohm, Jr.
Title: Secretary
Dated: February 25, 2000 ISSAM M. FARES
By: /s/ RICHARD E. BLOHM, JR.
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Name: Richard E. Blohm, Jr.
Title: Attorney-in-Fact
