698117_3.DOC
3
AGREEMENT
This Agreement is entered into effective as of May 4, 2006
between Southwest Royalties, Inc., a Delaware corporation (the
"Company") and Southwest Royalties Institutional Income Fund VII-
B, L.P., a Delaware partnership (the "Partnership").
Recitals
The Company is the managing general partner of the
Partnership.
The Company currently owns or holds and may in the future
acquire, own or hold limited partnership interests or units as a
limited partner of the Partnership (the "Limited Partner
Interests").
The Company and the Partnership desire to resolve or avoid
any uncertainties regarding the relative voting rights of the
Company, as a holder of Limited Partner Interests, and the
Unaffiliated Holders.
The Company and the Partnership desire to confer upon
holders of limited partnership interests or units in the
Partnership who are Unaffiliated Holders (as defined below) have
voting rights to remove a general partner of the Partnership that
are consistent with the Administrative Guidelines for the
Registration of Oil and Gas Programs set forth in subsections
(f)(1)(C) and (f)(2) of Section 121.8 of the Regulations of the
State Securities Board of Texas.
Accordingly, in consideration of the premises and for other
good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Company and the Partnership
agree as follows:
1. Applicability. This Agreement shall apply to the voting of
all Limited Partner Interests in the Partnership now or hereafter
owned or held by the Company or any affiliate of the Company, as
defined in Rule 405 under the Securities Act of 1933, as amended
("Affiliate"), on any matter submitted to a vote of the holders
of limited partnership interests or units in the Partnership
regarding the removal of the Company as general partner of the
Partnership. This Agreement shall not apply to the voting of (i)
any Limited Partner Interest on any other matter submitted to a
vote of the holders of limited partnership interests or units in
the Partnership or (ii) any interest now or hereafter owned or
held by the Company or any Affiliate as a general partner of the
Partnership on any matter submitted to a vote of the partners or
holders of limited partnership interests or units in the
Partnership.
2. Voting Limited Partner Interests on Certain Matters.
(a) Except as and to the extent expressly provided in
Section 2(b) of this Agreement, the Company shall not vote or
cause or permit any person to vote any Limited Partner Interest
on any matter regarding the removal of the Company as general
partner of the Partnership.
(b) If (i) the law of the state of organization or the
governing agreement of the Partnership requires or permits the
Limited Partner Interests to be included in determining the
requisite percentage in interest of holders of limited partner
interests or units in the Partnership necessary to approve a
matter on which the Limited Partner Interests held by the Company
may not otherwise be voted pursuant to Section 2(a) of this
Agreement (the "Requisite Percentage") and (ii) the holders of
limited partner interests or units in the Partnership, other than
the Company and its Affiliates (the "Unaffiliated Holders"),
voting for or in favor of the removal of a general partner of the
Partnership, (x) do not hold the Requisite Percentage and (y)
would hold the Requisite Percentage if the Limited Partner
Interests were not included in determining the Requisite
Percentage, the Company shall vote or cause the Limited Partner
Interests to be voted for or in favor of the removal of such
general partner of the Partnership.
(c) At any meeting at which holders of limited partnership
interests or units in the Partnership are entitled to vote on a
matter on which the Limited Partner Interests may not be voted
pursuant to Section 2(a) of this Agreement, an authorized
representative of the Company shall attend in person or by proxy
to represent the Limited Partner Interests in order to assist in
establishing a quorum at the meeting, and, except as otherwise
required by Section 2(b) of this Agreement, the Partnership shall
cause the minutes of the meeting to record the Company as present
but not voting the Limited Partner Interests on any matter on
which the Limited Partner Interests may not be voted pursuant to
Section 2(a) of this Agreement.
(d) This Agreement shall apply to any action taken by
written consent of the holders of limited partner interests or
units in the Partnership in the same manner and with the same
effect as if such action were taken or proposed to be taken at a
meeting by the vote of holders of limited partner interests or
units in the Partnership.
(e) During the term of this Agreement, the Company shall
not grant a proxy or power of attorney or enter into any voting
agreement, voting trust or other agreement or arrangement
granting any person the right or authority to vote Limited
Partner Interests or obligating the Company or any Affiliate of
the Company to vote Limited Partner Interests in a manner that is
inconsistent with the provisions of this Agreement.
(f) During the term of this Agreement, the Company shall
not transfer or assign any Limited Partner Interest to any
Affiliate of the Company unless such transferee or assignee
acknowledges and agrees in writing to be bound by and subject to
the terms and conditions of this Agreement. In order to insure
compliance with the restrictions referred to herein, the Company
agrees that the Partnership may issue appropriate "stop transfer"
instructions on the Limited Partner Interests.
(g) During the term of this Agreement, the Company and the
Partnership will cause each certificate or other instrument
evidencing any Limited Partner Interest to bear a legend to the
following effect:
"THE LIMITED PARTNER INTERESTS REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER AND
RESTRICTIONS ON VOTING AS SET FORTH IN AN AGREEMENT BETWEEN
THE HOLDER OF THESE INTERESTS AND THE PARTNERSHIP. A COPY
OF SUCH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICES OF THE
PARTNERSHIP."
3. Term. This Agreement shall be in effect as to any Limited
Partner Interest during the period commencing on the date this
Agreement is executed by the Company and ending on the earlier of
(i) the termination of this Agreement in the manner set forth in
Section 4 of this Agreement and (ii) the date upon which the
Company and its Affiliates cease to own or hold any interest as a
limited partner of the Partnership.
4. Termination; Amendment, Modification and Waiver. Subject to
the rights, if any, of the holders of limited partnership
interests or units in the Partnership to terminate a transaction
or agreement between a general partner and the Partnership in
accordance with the Partnership Agreement, this Agreement may be
terminated and any provision of this Agreement may be modified,
amended or waived as to any Limited Partner Interest only with
the approval of the Company, the Partnership and the holders of a
majority in interest of the limited partner interests or units of
the Partnership held by Unaffiliated Holders.
5. Parties in Interest. The Company and the Partnership intend
to confer a benefit on the Unaffiliated Holders by granting them
the right, enforceable against the Company, to vote to remove the
Company as general partner of the Partnership without the
necessity of the concurrence of the Company. The Company and the
Partnership also intend that this benefit cannot be altered or
revoked without the approval of a majority in interest of the
Unaffiliated Holders as provided in Section 4 of this Agreement.
The Company and the Partnership are entering into this Agreement,
in material part, for the purpose of conferring these benefits on
the Unaffiliated Holders. Accordingly, the Company and the
Partnership agree that the Unaffiliated Holders shall be entitled
to enforce the provisions of this Agreement at law or in equity
as third party beneficiaries of this Agreement.
6. Governing Law; Severability. This Agreement shall be
governed in all respects by the laws of the State of Texas,
without regard to the conflict of laws rules of the State of
Texas. Wherever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement becomes or
is declared by a court of competent jurisdiction to be invalid,
unenforceable or void under such law, portions of such provision,
or such provision in its entirety, to the extent necessary, shall
be severed from this Agreement without invalidating the remainder
of such provision or the remaining provisions of this Agreement.
[Signature pages follow.]
IN WITNESS WHEREOF, the Company and the Partnership have
caused this Agreement to be executed on the dates set forth
below, to be effective as of May 4, 2006.
COMPANY:
SOUTHWEST ROYALTIES, INC.
By: /s/ L. Xxxx Xxxxxx
Name: L. Xxxx Xxxxxx
Title: President
Dated: May 4, 2006
PARTNERSHIP:
Southwest Royalties Institutional
Income Fund
VII-B, L.P.
By: Southwest Royalties, Inc.,
its Managing General Partner
By: /s/ Xxx X. Xxxxx
Name: Xxx X. Xxxxx
Title: Vice-President
Dated: May 4, 2006
