EXHIBIT 10.2
[Execution Version]
SECURITIES PURCHASE AGREEMENT
BETWEEN
SOUTHWEST ROYALTIES HOLDINGS, INC.
AND
JOINT ENERGY DEVELOPMENT
INVESTMENTS LIMITED PARTNERSHIP
DATED AS OF OCTOBER 14, 1997
WARRANTS TO PURCHASE 45,628 SHARES OF COMMON STOCK
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
Section 1.01 Definitions 1
Section 1.02 Accounting Procedures and Interpretation 8
ARTICLE II
ISSUANCE OF WARRANTS; RIGHTS OF PURCHASER
Section 2.01 Issuance of Warrants 9
Section 2.02 The Closing 9
Section 2.03 Delivery 9
Section 2.04 Rights of Purchaser 9
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.01 Corporate Existence 10
Section 3.02 Corporate Power and Authorization 10
Section 3.03 Binding Obligations 10
Section 3.04 No Legal Bar Or Resultant Lien 10
Section 3.05 No Consent 10
Section 3.06 Financial Condition 10
Section 3.07 Liabilities 11
Section 3.08 Litigation 11
Section 3.09 Taxes; Governmental Charges 11
Section 3.10 Titles, Etc 11
Section 3.11 Defaults 11
Section 3.12 Casualties; Taking of Properties 12
Section 3.13 Location of Business and Offices 12
Section 3.14 Compliance with the Law 12
Section 3.15 No Material Misstatements 12
Section 3.16 ERISA 13
Section 3.17 Environmental Matters 13
Section 3.18 Capitalization 15
Section 3.19 Subsidiaries; Partnerships 15
Section 3.20 Warrant Shares 15
Section 3.21 Certain Fees 15
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
Section 4.01 Investment 16
Section 4.02 Nature of Purchaser 16
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Section 4.03 Receipt of Information; Authorization 16
ARTICLE V
CONDITIONS PRECEDENT TO CLOSING
Section 5.01 Conditions Precedent to Obligations of the Purchaser 17
Section 5.02 Conditions Precedent to Obligations of the Company 18
ARTICLE VI
COVENANTS
Section 6.01 Financial Statements and Reports 19
Section 6.02 Compliance with Laws 20
Section 6.03 Further Assurances 20
Section 6.04 Accounts and Records 20
Section 6.05 Right of Inspection 20
Section 6.06 Transactions with Affiliates 20
ARTICLE VII
MISCELLANEOUS
Section 7.01 Interpretation and Survival of Provisions 21
Section 7.02 Costs, Expenses and Taxes 21
Section 7.03 No Waiver; Modifications in Writing 22
Section 7.04 Binding Effect; Assignment 22
Section 7.05 Replacement Securities 22
Section 7.06 Communications 23
Section 7.07 Governing Law 23
Section 7.08 Arbitration 23
Section 7.09 Execution in Counterparts 24
Exhibits:
Exhibit 6.01(a) - Consolidating Requirements
Schedules:
Schedule 3.07 - Liabilities
Schedule 3.08 - Litigation
Schedule 3.21(a) - Subsidiaries
Schedule 3.21(b) - Partnerships
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SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT, dated as of October 14, 1997 (this
"Agreement"), between SOUTHWEST ROYALTIES HOLDINGS, INC., a Delaware corporation
(the "Company"), and JOINT ENERGY DEVELOPMENT INVESTMENTS LIMITED PARTNERSHIP, a
Delaware limited partnership (the "Purchaser").
On November 5, 1996, the Company's wholly-owned Subsidiary, Southwest
Royalties, Inc. ("Southwest"), and the Purchaser entered into a Securities
Purchase Agreement for the issuance of warrants in connection with a loan from
the Purchaser to Southwest. In order to reflect the reorganization of
Southwest, the formation of the Company, and the repayment of the loan, the
Company will cause and the Purchaser will agree to the cancellation of the
existing warrants and issuance by Company of warants for Company common stock in
favor of the Purchaser as herein described.
In consideration of the mutual covenants and agreements set forth herein
and for good and valuable consideration, the receipt of which is hereby
acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
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Section 1.01 Definitions. As used in this Agreement, and unless the
context requires a different meaning, the following terms have the meanings
indicated:
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control," when used with respect to any Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Average Gas Basis Differential" means the average of the Gas Basis
Differentials for the 12 months prior to the reserve report "as of" date.
"Average Oil Basis Differential" means the average of the Oil Basis
Differentials for the 12 months prior to the reserve report "as of" date.
"Basic Documents" means, collectively, this Agreement and the Equity
Documents.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of the Board of Directors.
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"Business Day" means any day other than Saturday, Sunday, or a day on which
banking institutions in Houston, Texas, are not required to be open for
business.
"Capitalized Lease Obligation" means the amount of the liability under any
capital lease that, in accordance with GAAP, is required to be capitalized and
reflected as a liability on the balance sheet.
"Capital Stock" of any Person means any and all shares, interests,
participations, or other equivalents (however designated) of, or rights,
warrants, or options to purchase, corporate stock or any other equity interest
(however designated) of or in such Person.
"Closing" has the meaning provided therefor in Section 2.02 of this
Agreement.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and the rules and regulations thereunder.
"Commission" means the United States Securities and Exchange Commission.
"Common Stock" means the common stock par value $.10 per share of the
Company or such other Capital Stock or other securities as shall, after the date
of this Agreement, constitute the common equity of the Company.
"EBITDA" means, for any Person or group of Persons and for any period of
its determination, the net income of such Person for such period, exclusive of
extraordinary items (and to the extent any gains from the sale of oil and gas
properties are not considered extraordinary items, any gains resulting from such
sales), plus the interest expense, income tax expense, deprecation expense, and
amortization expense deducted from the net income of such Person for such
period, less any dividends, distributions, or payments made by such Person
during such period on or for the repurchase, redemption, or acquisition of any
Capital Stock of such Person, all determined in accordance with GAAP.
"Environmental Laws" means any and all laws, statutes, ordinances, rules,
regulations, orders, or determinations of any Governmental Authority pertaining
to health or the environment in effect in any and all jurisdictions in which the
Company or its Subsidiaries are conducting or at any time have conducted
business, or where any property of the Company or its Subsidiaries is located,
or where any hazardous substances generated by or disposed of by the Company or
its Subsidiaries are located, including but not limited to the Oil Pollution Act
of 1990 ("OPA"), as amended, the Clean Air Act, as amended, the Comprehensive
Environmental, Response, Compensation, and Liability Act of 1980 ("CERCLA"), as
amended, the Federal Water Pollution Control Act, as amended, the Occupational
Safety and Health Act of 1970, as amended, the Resource Conservation and
Recovery Act of 1976 ("RCRA"), as amended, the Safe Drinking Water Act, as
amended, the Toxic Substances Control Act, as amended, the Superfund Amendments
and Reauthorization Act of 1986, as amended, and other environmental
conservation or protection laws. The term "oil" has the
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meaning specified in OPA; the terms "hazardous substance," "release" and
"threatened release" have the meanings specified in CERCLA, and the terms "solid
waste," "disposal" and "disposed" have the meanings specified in RCRA; provided,
however, if either CERCLA, RCRA or OPA is amended so as to broaden the meaning
of any term defined thereby, such broader meaning shall apply subsequent to the
effective date of such amendment, and provided, further, that, to the extent the
laws of the state in which any property of the Company or its Subsidiaries is
located establish a meaning for "oil," "hazardous substance," "release," "solid
waste" or "disposal" which is broader than that specified in either OPA, CERCLA
or RCRA, such broader meaning shall apply with respect to such property.
"Equity Documents" means the Warrants, the Warrant Shares, the Registration
Rights Agreement, and the Stockholders Agreement.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time and the rules and regulations thereunder.
"Estimated Private Market Equity Value" means at any time:
the sum of
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(a) For the oil and gas properties of the Company and any Subsidiary of the
Company, (i) the product of (A) the discounted future net cash flows from
each proved reserve category of such Persons calculated on a pre-tax basis
in accordance with Commission guidelines (except that with respect to
pricing, the oil price shall be equal to the sum of the Nymex Oil Strip
Price and the Average Oil Basis Differential, and the gas price shall be
equal to the sum of the Nymex Gas Strip Price and the Average Gas Basis
Differential), as estimated by independent petroleum engineers approved by
the Purchaser in the most recent report delivered pursuant to Section 6.01,
and (B) an ongoing concern multiplier equal to 1.10, plus (ii) the cost
basis of the Oil and Gas Properties of such Persons to which no proved
reserves are attributable less (iii) any gas balancing liabilities of such
Persons to the extent not deducted in the calculation above less (iv) the
outstanding Indebtedness of such Persons attributable to the oil and gas
properties of such Person; plus
(b) for any assets of the Company and any Subsidiary of the Company used in
the lines of business of Sierra Well Service, Inc., (i) the product of (A)
the EBITDA of such Persons attributable to such assets for the preceding
four fiscal quarters most recently ended multiplied by (B) 6.0, less (ii)
the outstanding Indebtedness of such Persons attributable to such assets;
plus
(c) for any real property owned by the Company and any Subsidiary of the
Company the sum of (i) the value of the income producing commercial real
estate properties of such Persons determined by using a 11% capitalization
rate on the net operating cash flow from such properties for the fiscal
quarter most recently ended plus (ii) 100% of the appraised value of
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non income producing real estate properties of such Persons for which
appraisals approved by the Purchaser are available and not to more than 12
months old less (iii) the outstanding Indebtedness of such Persons
attributable to the real property of such Persons; plus
(d) for Threading Products International, LLC, and any Subsidiary of the
Company engaged in the lines of business of Threading Products
International, LLC, the sum of (i) 75% of the net book value of the
property, plant, and equipment of such Persons plus (ii) the cash and cash
equivalent investments of such Persons plus (iii) the long-term certificate
of deposit reflected on the June 30, 1996, balance sheet of Threading
Products International, LLC; plus
(e) the combined Net Working Capital of the Company and its Subsidiaries;
plus
(f) the xxxx to market valuation of all hedging transactions of the Company
and its Subsidiaries; plus
(g) the appraised value of any other assets of the Company and any
Subsidiary of the Company (such appraisal to be conducted by an independent
appraiser appointed by the Purchaser and approved by the Company, which
approval shall not be unreasonably withheld, and based upon a going concern
market value, not a liquidation value, and without discount for any asset
being a limited interest, a minority interests, or a non liquid
investment).
To the extent that any assets and liabilities in the foregoing computation are
owned by a Subsidiary that is not wholly owned by the Company, the value
attributed to such assets and liabilities in the foregoing computation shall be
adjusted to reflect the percentage ownership of the Company in such Subsidiary.
Notwithstanding any of the foregoing, (a) in the event that the stock of any
Subsidiary of the Company becomes publicly traded, the value of the assets and
liabilities of such Subsidiary and the Company's ownership thereof shall be
determined based upon the average Price of the stock of such Subsidiary during
the 30 day period immediately preceding the applicable determination date and
(b) in the event that the stock of the Company becomes publicly traded, the
Estimated Private Market Equity Value of the Company shall be determined based
upon the average Price of the stock of the Company during the 30 day period
immediately preceding the applicable determination date.
"Financial Statements" means consolidated balance sheets, statements of
operations, and statements of cash flow, the consolidating schedules used to
prepare the same, and, on an annual basis, appropriate footnotes prepared in
accordance with GAAP.
"Gas Basis Differential" means, with respect to any month, the average unit
gas price received (Company revenues from gas sales divided by net MMBtu's sold
for such month) minus the average of the daily settlement prices on an MMBtu
basis for the last three (3) scheduled trading days of the Nymex Xxxxx Hub
Natural Gas Futures Contract for the month of production.
"GAAP" means generally accepted accounting principles, consistently
applied.
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"Governmental Authority" means any (domestic or foreign) federal, native
American Indian, state, province, county, city, municipal, or other political
subdivision or government, department, commission, board, bureau, court, agency,
or any other instrumentality of any of them, which exercises jurisdiction over
the Company, any of its Subsidiaries, or any of their respective property.
"Guaranteed Debt" of any Person means, without duplication, all
Indebtedness of any other Person guaranteed directly or indirectly in any manner
by such Person, or in effect guaranteed directly or indirectly by such Person
through an agreement (i) to pay or purchase such Indebtedness or to advance or
supply funds for the payment or purchase of such Indebtedness, (ii) to purchase,
sell or lease (as lessee or lessor) property, or to purchase or sell services,
primarily for the purpose of enabling the debtor to make payment of such
Indebtedness or to assure the holder of such Indebtedness against loss, (iii) to
supply funds to, or in any other manner invest in, the debtor (including any
agreement to pay for property or services to be acquired by such debtor
irrespective of whether such property is received or such services are
rendered), (iv) to maintain working capital or equity capital of the debtor, or
otherwise to maintain the net worth, solvency or other financial condition of
the debtor, or (v) otherwise to assure a creditor against loss; provided that
the term "guarantee" shall not include endorsements for collection or deposit,
in either case in the ordinary course of business, or any obligation or
liability of such Person in respect of leasehold interests assigned by such
Person to any other Person.
"Indebtedness" means, with respect to any Person, without duplication, (i)
all indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services, excluding any trade accounts payable and other
accrued current liabilities incurred in the ordinary course of business other
than payables or liabilities 60 days or more past due, (ii) all obligations of
such Person evidenced by bonds, notes, debentures, or other similar instruments,
(iii) all indebtedness created or arising under any conditional sale or other
title retention agreement with respect to property acquired by such Person (even
if the rights and remedies of the seller or lender under such agreement in the
event of default are limited to repossession or sale of such property), but
excluding trade accounts payable arising in the ordinary course of business,
(iv) all Capitalized Lease Obligations of such Person, (v) all indebtedness
referred to in (but not excluded from) clause (i), (ii), (iii), or (iv) above of
other Persons, the payment of which is secured by (or for which the holder of
such indebtedness has an existing right, contingent or otherwise, to be secured
by) any Lien upon or in property (including, without limitation, accounts and
contract rights) owned by such Person, even though such Person has not assumed
or become liable for the payment of such indebtedness, (vi) all Guaranteed Debt
of such Person, (vii) all Redeemable Capital Stock issued by such Person valued
at the maximum redemption price plus all accrued and unpaid dividends thereon
plus the maximum value of any other obligations thereunder and (viii) any
amendment, supplement, modification, deferral, renewal, extension or refunding
of any liability of the types referred to in clauses (i) through (vii) above.
For purposes hereof, the "maximum fixed repurchase price" of any Redeemable
Capital Stock that does not have a fixed repurchase price shall be calculated in
accordance with the terms of such Redeemable Capital Stock as if such Redeemable
Capital Stock were purchased on any date on which Indebtedness shall be required
to be determined pursuant to this Agreement, and if such price is based upon, or
measured by, the fair market value of such
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Redeemable Capital Stock, such fair market value to be determined in good faith
by the Board of Directors of the issuer of such Redeemable Capital Stock based
on the Estimated Private Market Equity Value.
"Investment Unit" has the meaning provided therefor in Section 2.05 of this
Agreement.
"Lien" means any lien, mortgage, security interest, tax lien, pledge,
encumbrance, conditional sale or title retention arrangement or other interest
in property designed to secure repayment of a liability whether arising by
agreement or under law, or otherwise means any mortgage, charge, pledge, lien,
security interest, or encumbrance of any kind.
"Material Adverse Effect" means any circumstances or events which could (i)
have a material adverse effect on the assets or properties, liabilities,
financial condition, business, operations, affairs, or circumstances of the
Company from the facts represented or warranted in any Basic Document (other
than any representation or warranty related solely to a different point in
time), or (ii) materially impair the ability of the Company to carry out its
business as it exists on the date of this Agreement or proposed at the date of
this Agreement to be conducted or to meet its obligations under the Basic
Documents on a timely basis.
"Net Working Capital" means, for any Person or group of Persons and as of
any date of its determination, the difference (shown on the balance sheets of
such Person or group as of the end of the most recent fiscal quarter of such
Person or group for which internal financial statements are available) between
(i) all current assets of such Person or group and (ii) all current liabilities
of such Person or group, except the current portion of long-term Indebtedness.
"Nymex Gas Strip Price" means the average of the first 12 contract months
settlement prices for the NYMEX Xxxxx Hub Natural Gas Futures Contract
calculated at the close of business on the reserve report "as of" date, or the
first trading day prior to the "as of" date if the "as of" date is not a trading
day.
"Nymex Oil Strip Price" means the average of the first 12 contract months
settlement prices for the NYMEX Light Sweet Crude Oil Futures Contract
calculated at the close of business on the reserve report "as of" date, or the
first trading day prior to the "as of" date if the "as of" date is not a trading
day.
"Oil Basis Differential" means, with respect to any month, the average unit
oil price received (Company revenues from oil sales divided by net oil barrels
sold for such month) minus the average of the daily settlement prices on a per
barrel basis for the prompt month NYMEX Light Sweet Crude Oil Futures Contract
for each NYMEX trading day during the month of production.
"Partnerships" means partnerships with the Company or any of its
Subsidiaries as general partner, including those formed by the Company to
acquire producing and non-producing oil, gas and mineral properties.
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"Person" means any individual, corporation, limited liability company,
limited or general partnership, joint venture, association, joint-stock company,
trust, unincorporated organization, or government or any agency or political
subdivision thereof.
"Plan" means any plan subject to Title IV of ERISA and maintained by the
Company, any Subsidiary, or any Partnership, or any such plan to which the
Company, any Subsidiary, or any Partnership is required to contribute on behalf
of their employees.
"Price" means the average of the "high" and "low" prices as reported in The
Wall Street Journal's listing for such day (corrected for obvious typographical
errors) or if such shares are not reported in such listing, the average of the
reported "high" and "low" sales prices on the largest national securities
exchange (based on the aggregate dollar value of securities listed) on which
such shares are listed or traded, or if such shares are not listed or traded on
any national securities exchange, then the average of the reported "high" and
"low" sales prices for such shares in the over-the-counter market, as reported
on the National Association of Securities Dealers Automated Quotations System,
or, if such prices shall not be reported thereon, the average of the closing bid
and asked prices so reported, or, if such prices shall not be reported, then the
average of the closing bid and asked prices reported by the National Quotations
Bureau Incorporated, or, in all other cases, the Estimated Private Market Equity
Value divided by the number of outstanding shares (on a fully diluted basis
using the treasury stock method). The "average" Price per share for any period
shall be determined by dividing the sum of the Prices determined for the
individual trading days in such period by the number of trading days in such
period.
"Redeemable Capital Stock" of any Person means any Capital Stock of such
Person or any Subsidiary of such Person that, either by its terms, by the terms
of any security into which it is convertible or exchangeable or otherwise, (i),
is, or upon the happening of an event or passage of time would be, required to
be redeemed, or (ii) is redeemable at the option of the holder thereof, or (iii)
is convertible into or exchangeable for debt securities.
"Registration Rights Agreement" means the Registration Rights Agreement
dated as of October 14, 1997, made by the Company in favor of the Purchaser
relating to the Warrants and the Warrant Shares.
"Securities" means the Warrants and Warrant Shares.
"Securities Act" means the Securities Act of 1933, as amended from time to
time, and the rules and regulations of the Commission promulgated thereunder.
"Stockholders Agreement" means the Stockholders Agreement dated as of
October 14, 1997, made by the Company in favor of the Purchaser relating to the
Warrants and the Warrant Shares.
"Subsidiary" of any specified Person means (a) any other Person of which,
at the time of determination, such specified Person, directly and/or indirectly
through one or more other Persons,
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owns more than 50% of the voting interests, (b) any other Person of which, at
the time of determination, such specified Person, directly and/or indirectly
through one or more other Persons, holds the power to elect a majority of the
board of directors or other managers or holds the power to control, and (c) with
respect to the Company, in addition to (a) and (b) above, Southwest Royalties,
Inc., Sierra Well Service, Inc., and Midland Red Oak Realty, Inc., and each of
their respective Subsidiaries.
"Time of Purchase" has the meaning provided therefor in Section 2.02 of
this Agreement.
"Warrant Shares" means the shares of Common Stock and other securities,
property, or cash receivable upon exercise of the Warrants.
"Warrants" means the Warrant Certificate dated as of October 14, 1997, made
by the Company in favor of the Purchaser issued pursuant to Section 2.01 of this
Agreement, and any Warrants issued upon the transfer thereof or in substitution
therefor.
Section 1.02 Accounting Procedures and Interpretation.
(a) The Company shall not, and shall not permit any of its
Subsidiaries to, materially change any method of accounting employed in the
preparation of their financial statements from the methods employed in the
preparation of the audited consolidated Financial Statements of the Company
dated as of December 31, 1996, unless required to conform to GAAP or approved in
writing by the Purchaser.
(b) Except as expressly provided for in this Agreement, all
accounting terms, definitions, ratios, and other tests described herein shall be
construed in accordance with GAAP with the same basis applied in the Financial
Statements described in paragraph (a) above.
(c) When the financial statements or financial results of any group
of Persons are described as "combined," that reference is to the financial
statements or financial results of such Persons, but not their Subsidiaries,
taken together on a combined basis after eliminating significant interentity
balances and transactions.
(d) Whenever any Basic Document refers to a determination of the
number of outstanding shares using the "treasury stock method," such
determination shall be based upon (1) the number of common shares outstanding,
(2) plus the assumed conversion of all convertible securities into common stock,
(3) plus the net additional shares outstanding assuming the exercise of all
warrants and options. The net additional shares outstanding assuming the
exercise of all warrants and options shall be the total new shares resulting
from such exercise of the warrants and options, reduced by the number of shares
that could be repurchased by the Company with the proceeds from the exercise
thereof at a share price that is equal to a current market value. The current
market value shall be (a) the Price or (b) if the Common Stock is not listed for
trading on a national securities
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exchange or quoted by NASDAQ, the price per share as determined using the
Estimated Private Market Equity Value.
ARTICLE II
ISSUANCE OF WARRANTS; RIGHTS OF PURCHASER
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Section 2.01 Issuance of Warrants. The Company agrees that it will issue
the Warrants to the Purchaser at the Time of Purchase in accordance with the
terms and conditions set forth herein for good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged.
Section 2.02 The Closing. The purchase and sale of the Warrants will
take place at a closing (the "Closing") to be held at the offices of Xxxxxxxxx &
Xxxxxxxxx, L.L.P., 000 Xxxxxxxxx, Xxxxx 0000, Xxxxxxx, Xxxxx 00000 at 11:00
A.M. Houston, Texas time, on October 14, 1997 or on such other date on or before
the date specified in Section 5.01(a) to which the Company and the Purchaser
shall agree. The date and time at which the Closing is to be concluded is the
"Time of Purchase."
Section 2.03 Delivery. Delivery of the Warrants pursuant to this
Agreement shall be made at the Closing by the Company delivering to the
Purchaser one certificate representing the Warrants, registered in the name of
the Purchaser (or such other Person as the Purchaser may have designated in
writing to the Company at least three Business Days prior to the Time of
Purchase).
Section 2.04 Rights of Purchaser. The Purchaser shall have such rights
with respect to the registration of the Warrants or the Warrant Shares under the
Securities Act and state securities laws as are set forth in the Registration
Rights Agreement, which shall be executed by the Company and the Purchaser at
the Closing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
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The Company represents and warrants to the Purchaser, which representations and
warranties shall survive the execution of any document or agreement, that as of
the date of this Agreement:
Section 3.01 Corporate Existence. The Company and each of its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it was incorporated and is
duly qualified as a foreign corporation in all jurisdictions wherein the failure
to qualify could result in Material Adverse Effect.
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Section 3.02 Corporate Power and Authorization. The Company is duly
authorized and empowered to create and issue the Warrants; and the Company is
duly authorized and empowered to execute, deliver, and perform the Basic
Documents, and all corporate and other action on the Company's part requisite
for the due execution, delivery, and performance of the Basic Documents has been
duly and effectively taken.
Section 3.03 Binding Obligations. The Basic Documents constitute
valid and binding obligations of Company, enforceable in accordance with their
respective terms (except that enforcement may be subject to any applicable
bankruptcy, insolvency, or similar debtor relief laws now or hereafter in effect
and relating to or affecting the enforcement of creditors rights generally).
Section 3.04 No Legal Bar Or Resultant Lien. The Basic Documents do
not and will not, to the best of Company's knowledge, violate any provisions of
any contract, agreement, law, regulation, order, injunction, judgment, decree,
or writ to which the Company, any of its Subsidiaries, or any Partnership is
subject, or result in the creation or imposition of any lien or other
encumbrance upon any assets or properties of the Company, any of its
Subsidiaries, or any Partnership other than those contemplated by this
Agreement.
Section 3.05 No Consent. The execution, delivery, and performance by
the Company of the Basic Documents does not require the consent or approval of
any other person or entity, including without limitation any Governmental
Authority except for consents required for federal, state, and, in some
instances, private leases, right of ways and other conveyances or encumbrances
of oil and gas leases (all of which consents have been obtained by the Company)
and other than those the failure to obtain could cause a Material Adverse
Effect.
Section 3.06 Financial Condition. The consolidated Financial
Statements of the Company, dated December 31, 1996, which have been delivered to
Purchaser are complete and correct in all material respects, and fully and
accurately reflect in all material respects the financial condition and results
of the operations of the Company, as of the date or dates and for the period or
periods stated, and such Financial Statements have been prepared in accordance
with GAAP. The unaudited pro forma combined and consolidated Financial
Statements of the Company, dated June 30, 1997, which have been delivered to
Purchaser are complete and correct in all material respects, and fully and
accurately reflect in all material respects the financial condition and results
of the operations of the Company, as of the date or dates and for the period or
periods stated, and such Financial Statements have been prepared in accordance
with GAAP. Since the date of such June 30, 1997, Financial Statements, no change
has since occurred in the condition, financial or otherwise, of the Company
which could have a Material Adverse Effect.
Section 3.07 Liabilities. Neither the Company nor any of its
Subsidiaries nor any Partnerships have any material (individually or in the
aggregate) liability, direct or contingent, except as disclosed to the Purchaser
in the Financial Statements described in Section 3.06 and on Schedule 3.07
attached hereto. No unusual or unduly burdensome restrictions, restraint, or
hazard exists by
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contract, law or governmental regulation, or otherwise relative to the business,
assets, or properties of the Company or any of its Subsidiaries which could have
a Material Adverse Effect.
Section 3.08 Litigation. Except as described in the consolidated
Financial Statements of the Company described in Section 3.06, or as otherwise
disclosed to the Purchaser in Schedule 3.08 attached hereto, there is no
litigation, legal or administrative proceeding, investigation, or other action
of any nature pending or, to the knowledge of the officers of the Company,
threatened against or affecting the Company, any of its Subsidiaries, or the
Partnerships which involves the possibility of any judgment or liability not
fully covered by insurance, and which could have a Material Adverse Effect.
Section 3.09 Taxes; Governmental Charges. The Company, each of its
Subsidiaries, and the Partnerships have filed all tax returns and reports
required to be filed and has paid all taxes, assessments, fees, and other
governmental charges levied upon it or its assets, properties, or income which
are due and payable, including interest and penalties, the failure of which to
pay could have a Material Adverse Effect, or has provided adequate reserves, if
required, in accordance with GAAP for the payment thereof, except such as are
being contested in good faith by appropriate proceedings and for which adequate
reserves for the payment thereof as required by GAAP has been provided and levy
and execution thereon have been stayed and continue to be stayed.
Section 3.10 Titles, Etc. The Company, each of its Subsidiaries, and
the Partnerships have good and defensible title to all of their assets,
including without limitation, the Oil and Gas Properties reflected as being
owned by the Company, each of its Subsidiaries and the Partnerships in the
Financial Statements of the Company described in Section 3.06, free and clear of
all liens or other encumbrances.
Section 3.11 Defaults. Neither the Company, any of its Subsidiaries
nor any of the Partnerships are in default and no event or circumstance has
occurred which, but for the passage of time or the giving of notice, or both,
would constitute a default under any loan or credit agreement, indenture,
mortgage, deed of trust, security agreement, or other agreement or instrument to
which the Company, any of its Subsidiaries, or any Partnership is a party in any
respect that could have a Material Adverse Effect. No Event of Default hereunder
has occurred and is continuing.
Section 3.12 Casualties; Taking of Properties. Since the date of the
Financial Statements described in Section 3.06, neither the business nor the
assets or properties of the Company, any of its Subsidiaries, or any Partnership
have been affected (to the extent it could have a Material Adverse Effect), as a
result of any fire, explosion, earthquake, flood, drought, windstorm, accident,
strike, or other labor disturbance, embargo, requisition, or taking of property
or cancellation of contracts, permits, or concessions by any domestic or foreign
government or any agency thereof, riot, activities of armed forces, or acts of
God or of any public enemy.
Section 3.13 Location of Business and Offices. The principal place
of business of the Company is located at 000 X. Xxx Xxxxxx, Xxxxxxx, Xxxxx
00000-0000.
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Section 3.14 Compliance with the Law. To the best of the Company's
knowledge, neither the Company, any of its Subsidiaries nor any Partnership:
(a) is in violation of any law, judgment, decree, order, ordinance, or
governmental rule or regulation to which the Company, any of its
Subsidiaries, or any Partnership, or any of their assets or properties are
subject; and
(b) has failed to obtain any license, permit, franchise or other
governmental authorization necessary to the ownership of any of its assets
or properties or the conduct of their business;
which violation or failure is reasonably expected to have a Material Adverse
Effect.
Section 3.15 No Material Misstatements.
(a) There are no material facts or conditions relating to the Basic
Documents or the financial condition, assets, or business prospects of the
Company, any of its Subsidiaries, or any Partnership that could, collectively or
individually, have a Material Adverse Effect
(b) The Financial Statements and other related financial data
(excluding all projections and pro forma financial data) and reserve reports
furnished to the Purchaser by or at the direction of the Company, any of its
Subsidiaries, or any Partnership in connection with the negotiation of this
Agreement do not contain any material misstatement of fact and, when considered
with all other written statements furnished to the Purchaser in that connection,
such Financial Statements, related financial data (excluding all projections and
pro forma financial data) and reserve reports do not omit to state a material
fact or any fact necessary to make the statement contained therein not
misleading.
Section 3.16 ERISA. The Company, each of its Subsidiaries and the
Partnerships are in compliance in all material respects with the applicable
provisions of ERISA, and no "reportable event", as such term is defined in
Section 4043 of ERISA, has occurred with respect to any Plan of the Company, any
of its Subsidiaries, or any Partnership that is reasonably likely to cause a
Material Adverse Effect.
Section 3.17 Environmental Matters.
(a) Environmental Laws, etc. Neither any property of the Company, any
of its Subsidiaries, or the Partnerships nor the operations conducted
thereon violate any applicable order of any court or Governmental Authority
or Environmental Laws, which violation could reasonably be expected to have
a Material Adverse Effect or which could reasonably be expected to result
in remedial obligations having a Material Adverse Effect assuming
disclosure to the applicable Governmental Authority of all relevant facts,
conditions, and circumstances, if any, pertaining to the relevant property.
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(b) No Litigation. Without limitation of paragraph (a) above, no
property of the Company, any of its Subsidiaries, or any Partnership nor
the operations currently conducted thereon or by any prior owner or
operator of such property or operation, are in violation of or subject to
any existing, pending, or threatened action, suit, investigation, inquiry,
or proceeding by or before any Governmental Authority or to any remedial
obligations under Environmental Laws, which violation, action, suit,
investigation, inquiry, or proceeding could reasonably be expected to have
a Material Averse Effect or which could reasonably be expected to result in
remedial obligations having a Material Adverse Effect assuming disclosure
to the applicable Governmental Authority of all relevant facts, conditions,
and circumstances, if any, pertaining to the relevant property.
(c) Notices, Permits, etc. All notices, permits, licenses, or similar
authorizations, if any, required to be obtained or filed by the Company,
any of its Subsidiaries, or any Partnership in connection with the
operation or use of any and all property of the Company, any of its
Subsidiaries, or any Partnership, including but not limited to past or
present treatment, storage, disposal, or release of a hazardous substance
or solid waste into the environment, have been duly obtained or filed
except to the extent the failure to obtain or file such notices, permits,
licenses, or similar authorizations could not reasonably be expected to
have a Material Adverse Effect or which could reasonably be expected to
result in remedial obligations having a Material Adverse Effect assuming
disclosure to the applicable Governmental Authority of all relevant facts,
conditions, and circumstances, if any, pertaining to the relevant property.
(d) Hazardous Substances Carriers. All hazardous substances or solid
waste generated at any and all property of the Company, any of its
Subsidiaries, or any Partnership have in the past been transported,
treated, and disposed of only by carriers maintaining valid permits under
any Environmental Law, except to the extent the failure to have such
substances or waste transported, treated, or disposed by such carriers
could not reasonably be expected to have a Material Adverse Effect, and
only at treatment, storage, and disposal facilities maintaining valid
permits under any Environmental Law, which carriers and facilities have
been and are operating in compliance with such permits, except to the
extent the failure to have such substances or waste treated, stored, or
disposed at such facilities, or the failure of such carriers or facilities
to so operate, could not reasonably be expected to have a Material Adverse
Effect or which could reasonably be expected to result in remedial
obligations having a Material Adverse Effect assuming disclosure to the
applicable Governmental Authority of all relevant facts, conditions, and
circumstances, if any, pertaining to the relevant property.
(e) Hazardous Substances Disposal. The Company, its Subsidiaries, and
the Partnerships have taken all reasonable steps necessary to determine and
have determined that no hazardous substances or solid waste have been
disposed of or otherwise released and there has been no threatened release
of any hazardous substances on or to any property of the Company, any of
its Subsidiaries, or the Partnerships, except in compliance with
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Environmental Laws, except to the extent the failure to do so could not
reasonably be expected to have a Material Adverse Effect or which could
reasonably be expected to result in remedial obligations having a Material
Adverse Effect assuming disclosure to the applicable Governmental Authority
of all relevant facts, conditions, and circumstances, if any, pertaining to
the relevant property.
(f) OPA Requirements. Except to the extent the failure to so comply
would not have a Material Adverse Effect, to the extent applicable, the
Company, each of its Subsidiaries, and the Partnerships have complied with
all design, operation, and equipment requirements imposed by OPA or
scheduled to be imposed by OPA, and the Company does not have reason to
believe that either it or its Subsidiaries will not be able to maintain
such compliance with OPA requirements through the expiration of the
Warrants.
(g) No Contingent Liability. Neither the Company, any of its
Subsidiaries nor the Partnerships have any material contingent liabilities
in connection with any release or threatened release of any hazardous
substance or solid waste into the environment other than such contingent
liabilities at any one time and from time to time which could reasonably be
expected to exceed an aggregate of $500,000 in excess of applicable
insurance coverage and for which adequate reserves for the payment thereof
as required by GAAP have not been provided, or which could reasonably be
expected to result in remedial obligations having a Material Adverse Effect
assuming disclosure to the applicable Governmental Authority of all
relevant facts, conditions, and circumstances, if any, pertaining to such
release or threatened release.
Section 3.18 Capitalization. The authorized Capital Stock of the Company
consists of : (a) 5,000,000 shares of Common Stock, par value $.10 per share
and (b) 5,000,000 shares of Preferred Stock, par value $1.00 per share (the
"Preferred Stock"). As of the close of business on October 14, 1997, there were
issued and outstanding 1,075,868 shares of Common Stock and no other shares of
Capital Stock. The Warrants constitute, as of the date of their issuance
hereunder, at least 4.00% of the outstanding Common Stock on a fully diluted
basis using the treasury stock method. All outstanding shares of Common Stock
are validly issued, fully paid and nonassessable and were issued free of
preemptive rights. The Company is not a party to any voting trust or other
agreement or understanding with respect to the voting of its Capital Stock.
Except for the Warrants there are no (1) outstanding securities convertible or
exchangeable into Capital Stock of the Company or (2) contracts, commitments,
agreements, understandings, or arrangements of any kind to which the Company is
a party relating to the issuance of any Capital Stock of the Company. The
Company is not a party to or bound by any agreement with respect to any of its
securities which grants registration rights to any Person except pursuant to the
Registration Rights Agreement.
Section 3.19 Subsidiaries; Partnerships.
(a) There are no Subsidiaries of the Company other than as set forth
on Schedule 3.21(a). All of the issued and outstanding shares of Capital Stock
of the Subsidiaries of
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the Company have been duly and validly authorized and issued and are fully paid
and nonassessable and free of preemptive rights, and, such shares are owned by
the Company or one of its Subsidiaries free and clear of any Lien. Except as set
forth on Schedule 3.21(a), there are no outstanding warrants, options, or other
rights to purchase or acquire any of the shares of Capital Stock of any
Subsidiary of the Company, nor any outstanding securities convertible into such
shares or outstanding warrants, options, or other rights to acquire any such
convertible securities.
(b) There are no Partnerships involving the Company or any of its
Subsidiaries other than as set forth on Schedule 3.21(b). Except as set forth
on Schedule 3.21(b), all of the partnership interests of the Company and the
Subsidiaries in the Partnerships have been fully paid for and are not subject to
any capital calls or other requirements for investment therein.
Section 3.20 Warrant Shares. When issued and delivered against payment
therefor in accordance with the terms of the Warrants, any and all shares of
Warrant Shares initially issuable upon exercise of the Warrants will be duly and
validly issued, fully paid, nonassessable, free of preemptive rights and free
from all taxes payable by the Company and Liens (except any Liens created or
suffered to be created by the Purchaser) and will not be subject to any
restriction on the voting or transfer thereof created by the Company other than
in the Basic Documents.
Section 3.21 Certain Fees. The Company agrees that it will indemnify and
hold harmless the Purchaser from and against any and all claims, demands, or
liabilities for broker's, finders, placement Purchaser's, or other similar fees
or commissions incurred by the Company or alleged to have been incurred by the
Company in connection with the issuance or sale of the Securities or the
consummation of the transaction contemplated by this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
-----------------------------------------------
The Purchaser represents and warrants to the Company, which representations and
warranties shall survive the execution of any document or agreement, that as of
the date of this Agreement:
Section 4.01 Investment. The Purchaser represents and warrants to, and
covenants and agrees with, the Company that the Securities are being acquired
for its own account and with no intention of distributing or reselling the
Warrants or the Warrant Shares in any transaction which would be in violation of
the securities laws of the United States of America or any State, without
prejudice, however, to Purchaser's right at all times to sell or otherwise
dispose of all or any part of the Warrants or the Warrant Shares under a
registration statement under the Securities Act and applicable state securities
laws or under an exemption from such registration available thereunder
(including, without limitation, if available, Rule 144A promulgated thereunder).
If the Purchaser should in the future decide to dispose of any of the Warrants
or the Warrant Shares, the Purchaser understands and agrees (i) that it may do
so only (A) in compliance with the Securities Act and
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applicable state securities law, as then in effect, and (B) in the manner
contemplated by any registration statement pursuant to which such securities are
being offered, and (ii) that stop-transfer instructions to that effect will be
in effect with respect to such securities. The Purchaser agrees to the
imprinting, so long as appropriate, of a legend on each certificate representing
Warrants or Warrant Shares, to the effect as set forth above.
Section 4.02 Nature of Purchaser. The Purchaser represents and warrants
to, and covenants and agrees with, the Company that, (i) it is an "accredited
investor" within the meaning of paragraphs (a)(3) or (8) of Rule 501 under the
Securities Act and (ii) by reason of its business and financial experience it
has such knowledge, sophistication and experience in business and financial
matters so as to be capable of evaluating the merits and risks of the
prospective investment in the Securities, is able to bear the economic risk of
such investment and, at the present time, would be able to afford a complete
loss of such investment.
Section 4.03 Receipt of Information; Authorization. The Purchaser
acknowledges that it has had an opportunity to ask questions of and receive
satisfactory answers from designated representatives of the Company concerning
the terms and conditions pursuant to which the purchase of the Securities are
made. The Purchaser acknowledges that it has been afforded an opportunity to
examine such documents and other information which it has requested for the
purpose of verifying the information provided to it and for the purpose of
answering any questions it may have concerning the business affairs and
financial condition of the Company, including drilling records, geologic and
engineering reports and surveys, and reserve reports. The Purchaser represents
that it alone or with its advisors has knowledge and experience in the oil and
gas business so as to be capable of evaluating the merits and risks of an
investment in the Company based upon the information furnished to it, its
knowledge of the business and affairs of the Company, the records, files, and
plans of the Company (which have been made available to it), such additional
information as it has requested and has received from the Company, and the
independent inquiries and investigations undertaken by it. The Purchaser
represents and warrants that the Purchaser of the Securities by it has been duly
and properly authorized and this Agreement has been duly executed and delivered
by it or on its behalf.
ARTICLE V
CONDITIONS PRECEDENT TO CLOSING
-------------------------------
Section 5.01 Conditions Precedent to Obligations of the Purchaser. The
obligation of Purchaser to acquire the Warrants is subject, at the Time of
Purchase, to the prior or simultaneous satisfaction or waiver of the following
conditions:
(a) The representations and warranties made by the Company herein
shall be true and correct in all material respects (except for changes
expressly provided for by this Agreement) on and as of the Time of Purchase
with the same effect as though such
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representations and warranties had been made on and as of the Time of
Purchase, the Company shall have performed and complied with all agreements
and conditions set forth in or contemplated hereunder or in the Basic
Documents required to be performed or complied with by it at or prior to
the Time of Purchase, and the Basic Documents shall have been executed and
delivered by all the respective parties thereto and shall be in full force
and effect.
(b) The Purchaser shall have received duly executed and delivered
copies of this Agreement and the Equity Documents together with all other
documents reasonably requested by the Purchaser in connection with the
issuance of the Securities and the transactions contemplated by the Basic
Documents shall be reasonably satisfactory to the Purchaser and its
counsel.
(c) The Purchaser shall have received an opinion of counsel to the
Company acceptable to the Purchaser addressing the existence and good
standing of the Company, the authorization of the Basic Documents, the
enforceability of the Basic Documents and the perfection of the liens
thereunder, the absence of conflicts with law, other material agreements,
and court orders, the absence of litigation, and such other matters as the
Purchaser may request.
(d) The Purchaser shall have received a certificate, dated the Time of
Purchase, of the Secretary or an Assistant Secretary of the Company, (i)
certifying as true, complete and correct the charter and by-laws of the
Company and resolutions of the Board of Directors attached thereto, (ii) as
to the absence of proceedings or other action for dissolution, liquidation
or reorganization of the Company, (iii) as to the incumbency of the
officers of the Company and the Subsidiaries who shall have executed
instruments, agreements, and other documents in connection with the
transactions contemplated hereby or by the Basic Documents, and (iv)
covering such other matters, and with such other attachments thereto, as
the Purchaser may request, and such certificate and the attachments thereto
shall be satisfactory in form and substance to the Purchaser.
(e) The Purchaser shall have received or be satisfied with the
completion of all other items described on the current listing of closing
documents distributed by the Purchaser to the Company in connection with
the execution of this Agreement.
Section 5.02 Conditions Precedent to Obligations of the Company. The
obligations of the Company to issue and sell Warrants hereunder is subject, at
the Time of Purchase, to the prior or simultaneous satisfaction or waiver of the
following conditions:
(a) The Warrant Certificate, Registration Rights Agreement, and
Shareholders Agreement each dated November 5, 1996, between Southwest
Royalties, Inc., and the Purchaser shall have been terminated.
-17-
(b) The representations and warranties made by the Purchaser herein
shall be true and correct in all material respects on and as of the Time of
Purchase with the same effect as though such representations and warranties
had been made on and as of the Time of Purchase.
(c) The issuance of the Warrants by the Company shall not at the Time
of Purchase be enjoined (temporarily or permanently) under the laws of any
jurisdiction to which the Company is subject.
(d) The Purchaser shall have accepted delivery of the Warrants.
(e) Each of the Basic Documents shall have been executed and delivered
by all the respective parties thereto and shall be in full force and
effect.
ARTICLE VI
COVENANTS
---------
The Company covenants to the Purchaser that so long as any Warrants are
outstanding:
Section 6.01 Financial Statements and Reports. The Company shall
promptly furnish to the Purchaser from time to time upon request such
information regarding the business and affairs and financial condition of the
Company, as the Purchaser may reasonably request, and will furnish to the
Purchaser:
(a) Annual Audited Financial Statements - as soon as available, and in
any event within ninety (90) days after the close of each fiscal year, the
annual audited Financial Statements (consolidated and consolidating) of the
Company, certified, without any qualification or limit of the scope of the
examination of matters relevant to the financial statements, by Xxxxxx
Xxxxxxxx & Company, any nationally recognized public accounting firm, or
any other accounting firm approved by the Purchaser, such consolidating
schedules being prepared in accordance with Exhibit 6.01(a).
(b) Quarterly Financial Statements - as soon as available, and in any
event within sixty (60) days after the end of each calendar quarter of each
year (except the last calendar quarter in any fiscal year), the quarterly
unaudited Financial Statements (consolidated and consolidating) of the
Company.
(c) Lease Operating Reports - as soon as available and in any event on
or before the date when required to be provided to the lenders to Southwest
Royalties, Inc., consolidated lease operating statements for the Company
and the Subsidiaries of the Company in form and substance satisfactory to
the Purchaser.
-18-
(d) Reserve Reports -as soon as available and in any event on or
before the date when required to be provided to the lenders to Southwest
Royalties, Inc., an annual reserve report prepared by Xxxxx Xxxxx Company
or other independent petroleum engineers approved by the Purchaser and as
soon as available and in any event on or before the date when required to
be provided to the lenders to Southwest Royalties, Inc., a second mid year
reserve report prepared by the Company, in each case reflecting the
consolidated oil and gas reserves attributable to properties owned by the
Company, the Subsidiaries of the Company, and the Company's interests in
the Partnerships prepared in accordance with standard geological and
engineering methods for proved reserves as set forth by the Society of
Petroleum Engineers and otherwise acceptable to the Purchaser.
(e) Additional Information - promptly upon request of the Purchaser
from time to time any additional financial information or other information
that the Purchaser may reasonably request, including information of the
type required by paragraphs (c) and (d) above and including such
information prepared at the request of the Purchaser and reflecting the
pricing characteristics used by the Purchaser in the determination of the
Estimated Private Market Equity Value.
All such information, reports, and Financial Statements referred to in this
Section 6.01 shall be in such detail as the Purchaser may reasonably request and
shall be prepared in a manner consistent with the requirements set forth above
and in Section 1.02.
Section 6.02 Compliance with Laws. The Company shall, and shall cause
each Subsidiary of the Company and the Partnerships to, observe and comply, in
all material respects, with all applicable laws, statutes, codes, acts,
ordinances, orders, judgments, deuces, injunctions, rules, regulations, orders,
and restrictions of applicable Governmental Authorities, including those
relating to Environmental Laws and energy regulations.
Section 6.03 Further Assurances. The Company shall, and shall cause the
Subsidiaries of the Company to, cure promptly any defects in the creation and
issuance of the Basic Documents. The Company shall, and shall cause the
Subsidiaries of the Company to at their sole expense to, promptly execute and
deliver to the Purchaser upon its reasonable request all such other and further
documents, agreements, and instruments in compliance with or accomplishment of
the covenants and agreements in the Basic Documents.
Section 6.04 Accounts and Records. The Company shall, and shall cause
each of its Subsidiaries and the Partnerships to, keep books, records, and
accounts in which full, true, and correct entries will be made of all dealings
or transactions in relation to its business and activities, prepared in a manner
consistent with the requirements of Section 1.02.
Section 6.05 Right of Inspection. The Company shall, and shall cause
each of its Subsidiaries and the Partnerships to, permit any officer, employee,
or agent of the Purchaser to examine their books, records, and accounts, and
take copies and extracts therefrom, all at such
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reasonable times and as often as the Purchaser may reasonably request. The
Purchaser will keep all such information confidential and will not without prior
written consent disclose or reveal the information or any part thereof to any
person other than the Purchaser's officers, employees, legal counsel, regulatory
authorities, or advisors to whom it is necessary to reveal such information for
the purpose of effectuating the agreements and undertakings specified herein or
as otherwise required by law or in connection with the enforcement of the
Purchaser' rights and remedies under the Basic Documents.
Section 6.06 Transactions with Affiliates. The Company shall not, and
shall not permit any of its Subsidiaries or the Partnerships to, enter into any
transaction with any of its Affiliates, except transactions upon terms no less
favorable to it than would be obtained in a transaction negotiated at arm's
length with a unrelated third party.
ARTICLE VII
MISCELLANEOUS
-------------
Section 7.01 Interpretation and Survival of Provisions. Article,
Section, Schedule, and Exhibit references are to this Agreement, unless
otherwise specified. All references to instruments, documents, contracts, and
agreements are references to such instruments, documents, contracts, and
agreements as the same may be amended, supplemented, and otherwise modified from
time to time, unless otherwise specified. The word "including" shall mean
"including but not limited to." Whenever the Company has an obligation under the
Basic Documents, the expense of complying with that obligation shall be an
expense of the Company unless otherwise specified. Whenever any determination,
consent, or approval is to be made or given by the Purchaser, such action shall
be in the Purchaser's sole discretion unless otherwise specified in this
Agreement. If any provision in the Basic Documents is held to be illegal,
invalid, not binding, or unenforceable, such provision shall be fully severable
and the Basic Documents shall be construed and enforced as if such illegal,
invalid, not binding, or unenforceable provision had never comprised a part of
the Basic Documents, and the remaining provisions shall remain in full force and
effect. The Basic Documents have been reviewed and negotiated by sophisticated
parties with access to legal counsel and shall not be construed against the
drafter. The representations, warranties, and covenants made in this Agreement
shall remain operative and in full force and effect regardless of (a) any
investigation made by or on behalf of the Company or the Purchaser or (b)
acceptance of any of the Securities and payment therefor and repayment or
repurchase thereof. The provisions of Sections 3.21 and 7.02 shall remain
operative and in full force and effect unless such Sections are expressly
terminated in a writing referencing those individual Sections, regardless of any
purported general termination of this Agreement.
Section 7.02 Costs, Expenses and Taxes. The Company agrees to pay all
costs and expenses (including reasonable, properly documented fees and expenses
of counsel to the Purchaser) reasonably incurred by the Purchaser in connection
with negotiation, preparation, printing, execution
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and delivery of the Basic Documents and the transactions contemplated hereby and
thereby. The Company shall also pay any expenses of the Purchaser reasonably
incurred in connection with any amendment or supplement to or modification of
any of the foregoing and any and all other documents furnished pursuant hereto
or thereto or in connection herewith or therewith. In addition, the Company
shall pay any and all taxes payable or determined to be payable in connection
with (a) the termination of the Warrant Certificate, Registration Rights
Agreement, and Shareholders Agreement dated as of November 5, 1996, between
Southwest Royalties, Inc., and the Purchaser and replacement of such documents
with this Agreement and the related Equity Documents and (b) the execution and
delivery of this Agreement or the original issuance of the Securities, and shall
save and hold the Purchaser harmless from and against any and all liabilities
with respect to or resulting from any delay in paying, or omission to pay, such
taxes.
Section 7.03 No Waiver; Modifications in Writing.
(a) No failure or delay on the part of the Company or the Purchaser in
exercising any right, power, or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power, or
remedy preclude any other or further exercise thereof or the exercise of any
right, power, or remedy. The remedies provided for herein are cumulative and
are not exclusive of any remedies that may be available to the Company or the
Purchaser at law or in equity or otherwise.
(b) Except as otherwise provided herein, no amendment, waiver,
consent, modification, or termination of any provision of this Agreement shall
be effective unless signed by the Company and the holder of the majority of the
Warrants. Any amendment, supplement or modification of or to any provision of
this Agreement, any waiver of any provision of this Agreement, and any consent
to any departure by the Company from the terms of any provision of this
Agreement, shall be effective only in the specific instance and for the specific
purpose for which made or given. Except where notice is specifically required
by this Agreement, no notice to or demand on the Company in any case shall
entitle the Company to any other or further notice or demand in similar or other
circumstances.
Section 7.04 Binding Effect; Assignment. This Agreement shall be binding
upon the Company and the Purchaser, and their respective successors and
permitted assigns. Except as expressly provided in this Agreement, this
Agreement shall not be construed so as to confer any right or benefit upon any
Person other than the parties to this Agreement, and their respective successors
and permitted assigns. Prior to the Time of Purchase, the rights and
obligations of the Purchaser under this Agreement may not be assigned to any
other Person except with the prior consent of the Company, which shall not be
unreasonably withheld. After the Time of Purchase, the rights and obligations
of the Purchaser under this Agreement with respect to the Warrants may be
assigned by the Purchaser by assignment of the Warrants, and upon any such
assignment, the holder of the Warrants shall succeed to all of the Purchaser's
rights and obligations under this Agreement with respect to the Warrants and the
Purchaser shall be automatically released from any obligations thereunder with
respect to the Warrants. Upon request of the Purchaser in connection with the
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transfer of any Warrants, the Company shall execute and deliver any amendment to
this Agreement, the Warrants, and the other Basic Documents reasonably requested
by the Purchaser to reflect the transfer.
Section 7.05 Replacement Securities. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction, or mutilation of
any Warrants or Warrant Shares and, in the case of any such loss, theft, or
destruction, upon delivery of any unsecured letter of indemnity to the Company
or, in the case of any such mutilation, upon surrender or cancellation thereof,
the Company will issue new Warrants or Warrant Shares, as applicable.
Section 7.06 Communications. All notices and demands provided for
hereunder shall be in writing, and if to the Purchaser, shall be given by
registered or certified mail, return receipt requested, telex, telegram,
telecopy, air courier guaranteeing overnight delivery or personal delivery, to
the Purchaser, to the following address:
Joint Energy Development Investments Limited Partnership
c/o Enron Corp.
0000 Xxxxx Xxxxxx
Xxxxxxx, Xxxxx 00000
Attention: Xxxxx Xxxxx, Director - 28th Floor
Telecopier: (000) 000-0000
and, if to the Company:
Southwest Royalties Holdings, Inc.
000 X. Xxx Xxxxxx,
Xxxxx 000
Xxxxxxx, Xxxxx 00000
Attention: X.X. Xxxxxxx III
Telecopier: (000)-000-0000
or to such other address as the Company or Purchaser may designate in writing.
All other communications may be by regular mail. All such notices and
communications and all notices and communications shall be deemed to have been
duly given: at the time delivered by hand, if personally delivered; four days
after being sent by certified mail, return receipt requested, if mailed; when
answered back, if telexed; when receipt acknowledged, if telecopied; and on the
next Business Day if timely delivered to an air courier guaranteeing overnight
delivery.
Section 7.07 Governing Law. The laws of the State of Delaware will
govern this Agreement without regard to principles of conflicts of laws.
Section 7.08 Arbitration.
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(a) Binding Arbitration. On the request of either Company or
Purchaser, (whether made before or after the institution of any legal
proceeding), any action, dispute, claim or controversy of any kind now existing
or hereafter arising between any of the parties hereto in any way arising out
of, pertaining to or in connection with this Agreement (a "Dispute") shall be
resolved by binding arbitration in accordance with the terms hereof. Either
Company or Purchaser may, by summary proceedings, bring an action in court to
compel arbitration of any Dispute.
(b) Governing Rules. Any arbitration shall be administered by the
American Arbitration Association (the "AAA") in accordance with the terms of
this Section, the Commercial Arbitration Rules of the AAA, and, to the maximum
extent applicable, the Federal Arbitration Act. Judgment on any award rendered
by an arbitrator may be entered in any court having jurisdiction.
(c) Arbitrators. Arbitration hereunder shall be before a three-person
panel of neutral arbitrators, consisting of one person from each of the
following categories: (1) an attorney who has practiced in the area of
commercial law for at least 10 years or a retired judge at the Texas or United
States District Court or an appellate court level: (2) a person with at least 10
years experience in commercial lending: and (3) a person with at least 10 years
experience in the petroleum industry. The AAA shall submit a list of persons
meeting the criteria outlined above for each category of arbitrator, and the
parties shall select one person from each category in the manner established by
the AAA. If the parties cannot agree on an arbitrator within 30 days after the
request for an arbitration, then any party may request the AAA to select an
arbitrator. The arbitrators may engage engineers, accountants or other
consultants that the arbitrator deems necessary to render a conclusion in the
arbitration proceeding.
(d) Conduct of Arbitration. To the maximum extent practicable, an
arbitration proceeding hereunder shall be concluded within 180 days of the
filing of the Dispute with the AAA. Arbitration proceedings shall be conducted
in Houston, Texas. Arbitrators shall be empowered to impose sanctions and to
take such other actions as the arbitrators deem necessary to the same extent a
judge could impose sanctions or take such other actions pursuant to the Federal
Rules of Civil Procedure and applicable law. At the conclusion of any
arbitration proceeding, the arbitrator shall make specific written findings of
fact and conclusions of law. The arbitrators shall have the power to award
recovery of all costs and fees to the prevailing party. Company and Purchaser
each agrees to keep all Disputes and arbitration proceedings strictly
confidential except for disclosure of information required by applicable law.
(e) Costs of Arbitration. All fees of the arbitrators and any
engineer, accountant or other consultant engaged by the arbitrators, shall be
paid by Company and Purchaser equally unless otherwise awarded by the
arbitrators.
Section 7.09 Execution in Counterparts. This Agreement may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which counterparts, when so executed and delivered, shall
be deemed to be an original and all of which counterparts, taken together, shall
constitute but one and the same Agreement.
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IN WITNESS WHEREOF, the parties hereto execute this Agreement,
effective as of the date first above written.
SOUTHWEST ROYALTIES HOLDINGS, INC.
By:
-----------------------------------------------
Name:
---------------------------------------------
Title:
--------------------------------------------
JOINT ENERGY DEVELOPMENT
INVESTMENTS LIMITED
PARTNERSHIP
By: Enron Capital Management Limited
Partnership, its General Partner
By: Enron Capital Corp., its General
Partner
By:
-----------------------------------
Xxxxx X. Xxxxxx, Xx.
Agent and Attorney-in-Fact
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