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EXHIBIT 10.9
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
Page
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........................................................................3
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...................................................4
3.3 Enforceability......................................................................................5
3.4 Securities and Exchange Commission..................................................................5
3.5 Litigation; Contingencies...........................................................................5
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..........................................................................................7
3.11 Financial Statements................................................................................8
3.12 Compliance with Laws; OSHA..........................................................................8
3.13 Labor Matters.......................................................................................8
3.14 ERISA...............................................................................................8
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....................................................................10
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.................................................................................11
5. Conditions to Obligations of the Purchaser.................................................................11
5.1 Company's Representations and Warranties True at Closing...........................................11
5.2 Opinion of Counsel for the Company.................................................................11
5.3 Absence of Restraint...............................................................................13
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5.4 Company Officers' Certificate......................................................................13
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......................................................14
6.1 Nature of Statements...............................................................................14
6.2 Survival of Representations and Warranties.........................................................14
6.3 Indemnity by the Company...........................................................................14
6.4 Indemnity by the Purchaser.........................................................................15
6.5 Limitation of Liability............................................................................15
7. Miscellaneous..............................................................................................15
7.1 Expenses...........................................................................................15
7.2 Notices............................................................................................15
7.3 Post-Closing Actions...............................................................................16
7.4 Assignment.........................................................................................16
7.5 Successors Bound...................................................................................16
7.6 Section and Paragraph Headings.....................................................................16
7.7 Amendment..........................................................................................16
7.8 Entire Agreement...................................................................................17
7.9 Counterparts.......................................................................................17
7.10 Governing Law......................................................................................17
7.11 Arbitration........................................................................................17
7.12 Severability.......................................................................................18
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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").
WITNESSETH:
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 (4) years following the date the
Company becomes listed on the NASDAQ National Market List or on a nationally
recognized securities exchange;
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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 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
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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 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
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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, ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇, 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.
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
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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. ▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, 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 3.9% 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.
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 ▇▇▇▇▇▇
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
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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.
(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
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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, 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.
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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.
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
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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 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
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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 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.
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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 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.
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5.2 Opinion of Counsel for the Company.
(a) The Purchaser shall have received an opinion of ▇▇▇▇▇▇▇▇
and ▇▇▇▇▇▇▇▇▇, 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 nonassessable, 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 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. ▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇;
(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;
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(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
(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
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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.
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.
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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.
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.
▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: Wm. ▇▇▇▇▇ ▇▇▇▇▇
Fax No.: ▇▇▇-▇▇▇-▇▇▇▇
with copy to:
▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇. Mary's Street
Suite 700
San Antonio, Texas 78205
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇
Fax No.: ▇▇▇-▇▇▇-▇▇▇▇
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(b) if to the Purchaser, to:
WEDGE Energy Services, L.L.C.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: President
Fax No.: ▇▇▇-▇▇▇-▇▇▇▇
with copy to:
WEDGE Group, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇.
Fax No.: ▇▇▇-▇▇▇-▇▇▇▇
with an additional copy to:
▇▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇, L.L.P.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Fax No.: ▇▇▇-▇▇▇-▇▇▇▇
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.
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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.
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,
▇▇▇▇▇▇ 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.
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(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.
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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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. ▇▇▇▇▇ ▇▇▇▇▇
-------------------------------------
Wm. ▇▇▇▇▇ ▇▇▇▇▇, President
PURCHASER:
WEDGE ENERGY SERVICES, L.L.C.
By: /s/ ▇▇▇▇ ▇▇▇▇▇
-------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, President
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