-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JG7zUfT+v7fnHJ4Q1C4KpZiTlGgab4gvd8oqYZAOmc5n0UOr4mXCUmLlvgQdiVei zcTYdqSvTihDV74rVL2XpQ== 0000950129-01-501025.txt : 20010627 0000950129-01-501025.hdr.sgml : 20010627 ACCESSION NUMBER: 0000950129-01-501025 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 20010524 GROUP MEMBERS: ISSAM M FARES GROUP MEMBERS: WEDGE ENERGY SERVICES LLC SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: SOUTH TEXAS DRILLING & EXPLORATION INC CENTRAL INDEX KEY: 0000320575 STANDARD INDUSTRIAL CLASSIFICATION: DRILLING OIL & GAS WELLS [1381] IRS NUMBER: 742088619 STATE OF INCORPORATION: TX FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: SEC FILE NUMBER: 005-33018 FILM NUMBER: 1647259 BUSINESS ADDRESS: STREET 1: 9310 BROADWAY BLDG I CITY: SAN ANTONIO STATE: TX ZIP: 78217 BUSINESS PHONE: 5128287689 FORMER COMPANY: FORMER CONFORMED NAME: SOUTH TEXAS DRILLING CO DATE OF NAME CHANGE: 19810715 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: WEDGE ENERGY SERVICES LLC CENTRAL INDEX KEY: 0001101563 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 1415 LOUISIANA STREET STREET 2: SUITE 3000 CITY: HOUSTON STATE: TX ZIP: 77002 MAIL ADDRESS: STREET 1: 1415 LOUISIANA STREET STREET 2: SUITE 3000 CITY: HOUSTON STATE: TX ZIP: 77002 SC 13D/A 1 h87858a2sc13da.txt WEDGE ENERGY SERVICES FOR SOUTH TEXAS DRILLING 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 13D (AMENDMENT NO. 2) UNDER THE SECURITIES EXCHANGE ACT OF 1934 SOUTH TEXAS DRILLING & EXPLORATION, INC. (Name of Issuer) COMMON STOCK, $.10 PAR VALUE PER SHARE (Title of Class of Securities) 840553 (CUSIP Number) RICHARD E. BLOHM, JR., 1415 LOUISIANA STREET, SUITE 3000, HOUSTON, TEXAS 77002 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) with a copy to: DARRYL M. BURMAN, 1900 W. LOOP SOUTH, SUITE 1100, HOUSTON, TEXAS 77027 MAY 18, 2001 (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ]. NOTE: Six copies of this statement, including all exhibits, should be filed with the Commission. See Rule 13d-1(a) for other parties to whom copies are to be sent. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act. 2 CUSIP NO. 840553 13D PAGE 2 OF 9 - -------------------------------------------------------------------------------- 1. NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON: WEDGE Energy Services, L.L.C.; Tax I.D. No. 76-0624532 - -------------------------------------------------------------------------------- 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP: (a) [ ] (b) [ ] - -------------------------------------------------------------------------------- 3. SEC USE ONLY: - -------------------------------------------------------------------------------- 4. SOURCE OF FUNDS AF - -------------------------------------------------------------------------------- 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ] - -------------------------------------------------------------------------------- 6. CITIZENSHIP OR PLACE OF ORGANIZATION: United States - -------------------------------------------------------------------------------- NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH: 7. SOLE VOTING POWER: -0- 8. SHARED VOTING POWER: 7,241,007* 9. SOLE DISPOSITIVE POWER: -0- 10. SHARED DISPOSITIVE POWER: 7,241,007* - -------------------------------------------------------------------------------- 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON: 7,241,007* - -------------------------------------------------------------------------------- 12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [ ] - -------------------------------------------------------------------------------- 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11): 49.78%** - -------------------------------------------------------------------------------- 14. TYPE OF REPORTING PERSON: OO: Limited Liability Company - -------------------------------------------------------------------------------- * Represents shares of common stock, par value $.10 per share ("Common Stock"), of South Texas Drilling & Exploration, Inc. ** Based on ownership of shares of outstanding Common Stock not including shares of Common Stock outstanding or issuable upon conversion or exercise of Series B 8% Convertible Preferred Stock, par value $1.00 per share, or certain outstanding warrants and outstanding stock options. 3 CUSIP NO. 840553 13D PAGE 3 OF 9 - -------------------------------------------------------------------------------- 1. NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON: Issam M. Fares - -------------------------------------------------------------------------------- 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP: (a) [ ] (b) [ ] - -------------------------------------------------------------------------------- 3. SEC USE ONLY: - -------------------------------------------------------------------------------- 4. SOURCE OF FUNDS AF - -------------------------------------------------------------------------------- 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ] - -------------------------------------------------------------------------------- 6. CITIZENSHIP OR PLACE OF ORGANIZATION: Lebanon - -------------------------------------------------------------------------------- NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH: 7. SOLE VOTING POWER: -0- 8. SHARED VOTING POWER: 7,241,007* 9. SOLE DISPOSITIVE POWER: -0- 10. SHARED DISPOSITIVE POWER: 7,241,007* - -------------------------------------------------------------------------------- 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON: 7,241,007* - -------------------------------------------------------------------------------- 12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [ ] - -------------------------------------------------------------------------------- 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11): 49.78%** - -------------------------------------------------------------------------------- 14. TYPE OF REPORTING PERSON: IN - -------------------------------------------------------------------------------- *Represents shares of common stock, par value $.10 per share ("Common Stock"), of South Texas Drilling & Exploration, Inc. ** Based on ownership of shares of outstanding Common Stock not including shares of Common Stock outstanding or issuable upon conversion or exercise of Series B 8% Convertible Preferred Stock, par value $1.00 per share, or certain outstanding warrants and outstanding stock options. 4 CUSIP NO. 840553 13D PAGE 4 OF 9 STATEMENT ON SCHEDULE 13D Introductory Note: All information herein with respect to South Texas Drilling & Exploration, Inc., a Texas corporation, is to the best knowledge and belief of the Reporting Persons, as defined herein. ITEM 1. SECURITY AND ISSUER. This Second Amended Statement on Schedule 13D relates to the common stock, par value $.10 per share (the "Common Stock"), of South Texas Drilling & Exploration, Inc., a Texas corporation ("STDE"). The principal place of business of STDE is located at 9310 Broadway, Building I, San Antonio, Texas 78217. ITEM 2. IDENTITY AND BACKGROUND. This Second Amended Statement on Schedule 13D is filed by (i) WEDGE Energy Services, L.L.C., a Delaware limited liability company ("WEDGE"), and (ii) Mr. Issam M. Fares, an individual ("Fares" and, together with WEDGE, the "Reporting Persons"). The address of the principal place of business for WEDGE is 1415 Louisiana Street, Suite 3000, Houston, Texas 77002 and the address of Mr. Fares is Pietermaai 15, Curacao, Netherlands Antilles. Mr. Fares is a citizen of the country of Lebanon. WEDGE was formed for the purpose of making investments in the energy industry. The officers of WEDGE consist of (i) Mr. William H. White, President; (ii) Mr. James M. Tidwell, Vice President and Treasurer; and (iii) Mr. Richard E. Blohm, Jr., Secretary. Each of Mr. White, Mr. Tidwell and Mr. Blohm is also a director of WEDGE. The address of Mr. White, Mr. Tidwell and Mr. Blohm is 1415 Louisiana Street, Suite 3000, Houston, Texas 77002, and each is a citizen of the United States. The filing of this Second Amended Statement on Schedule 13D shall not be construed as an admission that Mr. White, Mr. Tidwell or Mr. Blohm are, for the purposes of Section 13(d) or Section 13(g) of the Securities Exchange Act of 1934, as amended (the "Act"), the beneficial owners of any securities covered by this Statement. Neither WEDGE nor Mr. Fares, nor to the knowledge of the Reporting Persons, Mr. White, Mr. Tidwell or Mr. Blohm, has been during the last five years (i) convicted of any criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) a party to a civil proceeding of a judicial or administrative body of competent jurisdiction, and as a result of such proceeding, was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, United States federal or state securities laws or finding any violation with respect to such laws. Mr. Fares is the ultimate beneficial owner of all of the outstanding ownership interests of WEDGE. 5 CUSIP NO. 840553 13D PAGE 5 OF 9 ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. On May 18, 2001, WEDGE consummated its purchase of an additional 2,400,000 shares of Common Stock, for the aggregate amount of $9,048,000 (the "Stock") from STDE and entered into a Common Stock Purchase Agreement (the "Common Stock Purchase Agreement") and a new Registration Rights Agreement (the "Registration Rights Agreement"). The Common Stock Purchase Agreement and the Registration Rights Agreement are described more fully in response to Item 4. The $9,048,000 funds used by WEDGE to purchase the Stock was provided by an affiliate of the Reporting Persons. This transaction amends the original acquisition on February 18, 2000, whereby WEDGE acquired 1,153,846 shares of Common Stock at the per share price of $1.30, for the aggregate amount of $1,500,000 and the subsequent acquisition on May 11, 2000 of 3,678,161 shares of Common Stock at the per share price of $2.175, for the aggregate amount of $8,000,000. As of the filing of this Second Amended Schedule 13D, WEDGE has purchased, in the aggregate, 7,241,007 shares of Common Stock, for the aggregate amount of $18,548,000. ITEM 4. PURPOSE OF TRANSACTION. Common Stock Purchase Agreement. On May 18, 2001 South Texas Drilling & Exploration, Inc. sold to WEDGE Energy Services, L.L.C. 2,400,000 shares of its $0.10 par value Common Stock at a price of $3.77 per share, for an aggregate consideration of $9,048,000. As additional consideration for the sale of the Stock, the Company granted to WEDGE the preemptive right, subject to certain exceptions, to acquire additional capital stock of any class or series, or debt 6 CUSIP NO. 840553 13D PAGE 6 OF 9 convertible into capital stock, the Company may issue equal to the percentage of STDE's outstanding Common Stock (assuming the conversion of all outstanding convertible preferred stock or debt) held by WEDGE immediately preceding any such issuance of Common Stock. The preemptive rights shall terminate in the event WEDGE holds less than 10% of the outstanding Common Stock of the Company or four years following the date STDE becomes listed on the NASDAQ National Market List or on a nationally recognized securities exchange; provided, however, in the event after such listing the Company shall become not so listed, then the preemptive rights shall be reinstated, subject to any other independent reason for termination. Additionally, so long as WEDGE shall own at least 10% of the capital stock of the Company, the Company has agreed to support and cause to be placed on the ballot at each election of directors of STDE one name provided by WEDGE which shall be a nominee to the Board of Directors of STDE (the "WEDGE Nominee"). So long as WEDGE shall own at least 25% of the capital stock of the Company, the Company has agreed to support and cause to be placed on the ballot at each election of directors of STDE not less than two names provided by WEDGE which shall be nominees to the Board of Directors of the Company. Further, a WEDGE Nominee shall be appointed to serve on the Audit Committee and Compensation Committee of the Board of Directors. WEDGE agreed that it would not sell, transfer or otherwise make a disposition of any Common Stock of the Company other than into the public trading market under Rule 144 or incident to any registration right granted by STDE to WEDGE without first offering the stock WEDGE desires to transfer to STDE in writing at the price and other terms under which WEDGE desires to transfer such stock. STDE shall then have the assignable right to acquire the stock on such terms as provided to STDE by WEDGE upon notification of WEDGE's intent to dispose of its stock. The Common Stock Purchase Agreement also provided for customary representations and warranties of STDE and WEDGE, as well as appropriate indemnification provisions in the event a loss exceeds $100,000, individually or in the aggregate. Registration Rights Agreement. In connection with the acquisition of the Stock by WEDGE, WEDGE and STDE entered into an agreement (the "Registration Rights Agreement"), which supercedes the previous Registration Rights Agreement originally entered into on February 18, 2000, as amended by the Registration Rights Agreement entered into on May 11, 2000. WEDGE has been granted certain rights to require STDE to effect up to four demand registrations under the Securities Act of 1933, as amended (the "Securities Act"), of the resale of the Stock. One such demand registration may be for a shelf registration. STDE shall use its best efforts to file the registration statement covering the Stock as soon as practicable, and in no event beyond 90 days after written request by WEDGE. STDE shall have the right to defer such filing for a reasonable period not to exceed 90 days. STDE shall have the right to include in such registration any of its own equity securities, unless it is determined by the underwriters that such inclusion will adversely effect such offering. Notwithstanding the demand registration rights, if STDE proposes to register any of its securities under the Securities Act, STDE will notify WEDGE of such intention. Upon written request by WEDGE, STDE will use its best efforts to cause all such outstanding Stock to be so registered under the Securities Act, such Stock subject to reduction in the event that the managing underwriter of a then-proposed public offer of STDE's securities determines that such registration of such Stock would materially and adversely effect such public offering. However, the underwriters shall not reduce the number of shares of Common Stock to be registered to below 25% of WEDGE's 7 CUSIP NO. 840553 13D PAGE 7 OF 9 total ownership of the Stock. WEDGE shall have the unlimited right to cause its Stock to be included in any registrations effected by STDE. All expenses related to STDE's compliance with the registration rights of WEDGE, excluding certain expenses such as underwriting discounts, selling commissions and stock transfer taxes and any filing fees associated with the listing of the Stock, will be paid by STDE. The Registration Rights Agreement also contains customary indemnification provisions with respect to the registration rights contained therein. The Registration Rights Agreement will expire on the tenth anniversary of its execution date, except as elsewhere provided therein. The Common Stock Purchase Agreement and the Registration Rights Agreement are each attached as exhibits to this Second Amended Statement on Schedule 13D, are incorporated herein by reference and the summaries of the terms of such agreements are qualified by reference to the actual agreement. The purchase of the Stock by WEDGE was the result of negotiated transactions with STDE. WEDGE acquired the Stock as an investment which will be subject to the terms of the Common Stock Purchase Agreement and the Registration Rights Agreement. Further, the Reporting Persons intend to monitor their investment in STDE on a continuing basis in the ordinary course of business and, depending upon the price of, and other market considerations relating to the Common Stock, subsequent developments affecting STDE, STDE's business and prospects, other investment and business opportunities available to the Reporting Persons, general stock market and economic conditions (including the price of oil and natural gas), tax considerations and other factors deemed relevant, may decide to increase or decrease the size of their investment in STDE. Other than as described in this Second Amended Statement on Schedule 13D, at the present time neither of the Reporting Persons has specific plans or proposals which would relate to or result in: the acquisition by any person of additional securities of STDE, or the disposition of securities of STDE; an extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving STDE or any of its subsidiaries; a sale or transfer of a material amount of assets of STDE or any of its subsidiaries; any change in the present Board of Directors or management of STDE, including any plans or proposals to change the number or term of directors or to fill any existing vacancies on the Board of Directors; any material change in the present capitalization or dividend policy of STDE; any other material change in STDE's business or corporate structure; 8 CUSIP NO. 840553 13D PAGE 8 OF 9 changes in STDE's charter, bylaws or instruments corresponding thereto or other actions which may impede the acquisition of control of STDE by any person; causing a class of securities of STDE to be delisted from a national securities exchange or to cease to be authorized to be quoted in an inter-dealer quotation system of a registered national securities association; a class of equity securities of STDE becoming eligible for termination of registration pursuant to Section 12(g)(4) of the Act; or any actions similar to those enumerated above. The Reporting Persons reserve the right to formulate specific plans or proposals with respect to, or to change their intentions regarding, any or all of the foregoing, and reserve their rights under the Common Stock Purchase Agreement and the Registration Rights Agreement and all transactions contemplated thereby. WEDGE may, from time to time, discuss with management and other shareholders of STDE and other parties methods by which STDE can best preserve and increase its value. Such methods may involve expansion or contraction of the geographic scope of STDE's operations, strategic alliances, business combinations, cost containment measures and other similar arrangements. If as a result of such discussions, the Reporting Persons decide to pursue any of the methods for preserving and increasing the value of STDE described herein, then the consummation thereof could involve transactions in the nature of those described in subparagraphs (a) through (j) above. ITEM 5. INTEREST IN SECURITIES OF THE ISSUER. As set forth in this Second Amended Statement on Schedule 13D, WEDGE owns 7,241,007 shares of Common Stock of STDE. The 7,241,007 shares of Common Stock of STDE represent 49.78% of the outstanding Common Stock (based on the number of shares of Common Stock outstanding as of May 21, 2001 as represented by STDE). Based on certain representations made by STDE to WEDGE, on a fully diluted basis, which assumes conversion of the Series B 8% Convertible Preferred Stock and all warrants and stock options, the 7,241,007 shares of Common Stock of STDE represents 41.03% of the outstanding Common Stock of STDE. Mr. Fares may be deemed to beneficially own and thereby share voting and dispositive power over the Stock issued to WEDGE. See Item 2. Other than the transactions described in Item 3 and this Item 5, none of the Reporting Persons has effected any transactions in the Common Stock during the preceding 60 days. 9 CUSIP NO. 840553 13D PAGE 9 OF 9 ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER. Except for the agreements described in response to Items 3 and 4, to the best knowledge of the Reporting Persons, there are no contracts, agreements, arrangements, understandings or relationships (legal or otherwise) between the persons enumerated in Item 2 and any other person with respect to the securities of STDE, including, but not limited to, transfer or voting arrangements, puts or calls, guarantees of profits, division of profits or losses, or the giving or withholding of proxies. ITEM 7. MATERIAL TO BE FILED AS EXHIBITS. 99.1 Common Stock Purchase Agreement 99.2 Registration Rights Agreement 99.3 Power of Attorney from Issam M. Fares. 99.4 Joint Filing Agreement between the Reporting Persons. SIGNATURES After reasonable inquiry and to the best of each of the undersigned's knowledge and belief, each of the undersigned certifies that the information set forth in this statement is true, complete and correct. Dated: May 24, 2001 WEDGE ENERGY SERVICES, L.L.C. By: /s/ RICHARD E. BLOHM, JR. ---------------------------- Name: Richard E. Blohm, Jr. Title: Secretary Dated: May 24, 2001 ISSAM M. FARES By: /s/ RICHARD E. BLOHM, JR. ---------------------------- Name: Richard E. Blohm, Jr. Title: Attorney-In-Fact 10 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION - ----------- ----------- 99.1 Common Stock Purchase Agreement 99.2 Registration Rights Agreement 99.3 Power of Attorney from Issam M. Fares. 99.4 Joint Filing Agreement between the Reporting Persons.
EX-99.1 2 h87858a2ex99-1.txt COMMON STOCK PURCHASE AGREEMENT 1 EXHIBIT 99.1 COMMON STOCK PURCHASE AGREEMENT BETWEEN SOUTH TEXAS DRILLING & EXPLORATION, INC., AS SELLER AND WEDGE ENERGY SERVICES, L.L.C., AS PURCHASER DATED AS OF MAY 18, 2001 2 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 Board Seat.............................................................................1 2. Registration Rights Agreement...................................................................2 3. Representations and Warranties of the Company...................................................2 3.1 Organization and Existence.............................................................2 3.2 Capitalization: Ownership of Stock: Authorization......................................2 3.3 Enforceability.........................................................................3 3.4 Securities and Exchange Commission.....................................................3 3.5 Litigation; Contingencies..............................................................3 3.6 Subsidiaries...........................................................................3 3.7 Title to Assets (Personal Property). .................................................4 3.8 Consents. ............................................................................5 3.9 Proprietary Rights.....................................................................5 3.10 Disclosure.............................................................................5 3.11 Reports and Financial Statements.......................................................6 3.12 Compliance with Laws; OSHA.............................................................6 3.13 Labor Matters..........................................................................6 3.14 ERISA..................................................................................6 3.15 Environmental Matters..................................................................7 3.16 Permits and Licenses...................................................................8 3.17 Insurance..............................................................................8 3.18 Taxes..................................................................................8 3.19 Absence of Certain Developments........................................................8 3.20 Underground Storage Tanks..............................................................9 4. Representations and Warranties of the Purchaser.................................................9 4.1 Experience.............................................................................9 4.2 Restricted Securities..................................................................9 4.3 Unregistered Stock.....................................................................9
i 3 5. Nature and Survival of Representations and Warranties...........................................9 5.1 Nature of Statements..................................................................10 5.2 Survival of Representations and Warranties............................................10 5.3 Indemnity by the Company..............................................................10 5.4 Indemnity by the Purchaser............................................................10 5.5 Limitation of Liability...............................................................10 6. Miscellaneous..................................................................................10 6.1 Expenses..............................................................................11 6.2 Notices...............................................................................11 6.3 Post-Closing Actions..................................................................12 6.4 Assignment............................................................................12 6.5 Successors Bound......................................................................12 6.6 Section and Paragraph Headings........................................................12 6.7 Amendment.............................................................................12 6.8 Entire Agreement......................................................................12 6.9 Counterparts..........................................................................12 6.10 Governing Law.........................................................................12 6.11 Arbitration...........................................................................12 6.12 Severability..........................................................................13
ii 4 COMMON STOCK PURCHASE AGREEMENT THIS COMMON STOCK PURCHASE AGREEMENT ("Agreement"), dated effective as of May 18, 2001 (the "Effective Date") , 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"). Unless the context clearly indicates otherwise, the term "Company" shall include all of the entities identified in Section 3.6 hereof (Subsidiaries). WITNESSETH: WHEREAS, the Purchaser is desirous of acquiring 2,400,000 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 herewith has delivered to the Purchaser 2,400,000 shares of the Stock at a price of $3.75 per share. In consideration for receipt of the Stock, and in reliance upon the representations and warranties of the Company contained herein, the Purchaser has delivered to the Company, cash in the aggregate amount of $9,000,000, by wire transfer of immediately available funds. 1.2 Delivery of Certificates. The Company agrees that the Stock delivered to Purchaser is duly issued and sealed, and is fully paid, nonassessable and not subject to fees, encumbrances, pledges or other claims, and vests full, valid and legal title to the Stock in the Purchaser. 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 Board Seat. So long as Purchaser owns 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. So long as Purchaser owns 25% 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, two names which shall be nominees to the Board of Directors of the Company (the "WEDGE Board Nominee or Nominees" 5 as the case may be). Additionally, the WEDGE Board Nominee or Nominees, as the case may be, shall be appointed to serve on the audit committee and compensation committee of the Board of Directors. 2. Registration Rights Agreement. The Company and WEDGE agree that the Stock delivered to WEDGE pursuant to this Agreement shall be deemed to be "Registrable Securities" for the purposes of that certain Registration Rights Agreement entered into by the Company and WEDGE dated effective March 30, 2001 (the "Registration Rights Agreement"), and that the rights, duties and obligations of the Company and WEDGE under the Registration Rights Agreement shall in all ways apply to the Stock. 3. Representations and Warranties of the Company. The Company represents and warrants to the Purchaser that, as of the Effective Date of this Agreement 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 30,000,000 authorized shares of its common stock $0.10 par value (the "Common Stock") and 1,000,000 authorized shares of its preferred stock, issuable in series (the "Preferred Stock"). As of December 31, 2001, the Company had (a) 12,111,921 issued and outstanding shares of Common Stock; (b) 184,615 shares of issued and outstanding Series B Preferred Stock, $16.25 redemption and liquidation value; and (c) no treasury shares. As of December 31, 2000, the Company had granted stock options which, if all were exercised, would equal 3,000,000 shares of Common Stock. Other than the registration rights granted to Purchaser in accordance with the Registration Rights Agreement, the Company has only incidental registration rights to two (2) of its officers and directors, Wm. Stacy Locke and Michael E. Little, and no other individual or entity has any registration rights of any kind or nature (other than rights under Form S-8), including incidental or demand registration rights. Other than items referred to herein, there are no other options, warrants, rights, conversion rights, phantom rights, preemptive rights or any other rights by any party to receive equity of the Company. Upon issuance of the Stock to Purchaser, Purchaser will be the record and beneficial owner of the Stock and the Stock will be duly authorized, validly issued and outstanding, fully paid and nonassessable and would have been issued in accordance with appropriate federal and state securities law. By virtue of the consummation of the transactions contemplated herein, Purchaser shall receive good and valid title to the Stock, free and clear of all liens, encumbrances, pledges, options, claims, assessments and PAGE -2- 6 adverse charges. Upon issuance of the Stock, Purchaser's ownership will constitute approximately 49.9% of the Company's issued and outstanding shares of Common 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 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 to consummate the transactions contemplated hereby, and this Agreement is a valid and legally binding obligation enforceable in accordance with its 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 American Stock Exchange and the state of Texas in order to comply with all applicable laws, rules and regulations of the Securities Act of 1933, as amended (the "Act"), the Securities and Exchange Act of 1934, as amended, and the securities laws of the state of Texas. Notwithstanding the foregoing, Seller has delivered to Purchaser a copy of that certain "no action" letter dated August 25, 1999 from the Securities and Exchange Commission regarding Seller's failure to comply with Regulation S-X of the Act in connection with its acquisition of assets of Howell Drilling, Inc. 3.5 Litigation; Contingencies. Except as described in the Reports, there is no action, suit or proceeding pending or, to the knowledge of the Company, threatened against the Company before any court, agency or arbitrator which might result in any Material Adverse Effect in the business, properties or condition (financial or otherwise) of the Company or which question the validity of any action taken or to be taken pursuant to on in connection with this Agreement, the Registration Rights Agreement or the Stock. 3.6 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 except as follows: The Company owns 100% of PDC Investment Corp., a Delaware corporation. PDC Investment Corp. is the sole limited partner with a 99% partnership interest in Pioneer Drilling Co., Ltd., a Texas limited partnership. The Company owns 100% of SOTEX Exploration Company, a Texas corporation. SOTEX Exploration Company is the sole general partner of Pioneer Drilling Co., Ltd. and holds a 1% partnership interest in such limited partnership. PAGE -3- 7 Pioneer Drilling Co., Ltd holds substantially all of the operating assets of the consolidated group consisting of the Company, PDC Investment Corp., Pioneer Drilling Co., Ltd., and SOTEX Exploration Company. 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 December 31, 2000 Balance Sheet or acquired by the Company since December 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 December 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 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 PAGE -4- 8 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. Although not requiring approval of the American Stock Exchange to consummate the transaction contemplated by this Agreement or the Registration Rights Agreement, the Company shall have listed the Stock on the American Stock Exchange prior to Closing. 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. PAGE -5- 9 3.11 Reports and Financial Statements. The Company has caused to be delivered to the Purchaser its Annual Report on Form 10K for the period ended March 31, 2000 and its Quarterly Reports on Form 10Q for the periods ended June 30, 2000, September 30, 2000, and December 31, 2000, a report on Form 8K dated August 21, 2000, and filed September 1, 2000, a report on Form 8K/A filed October 31, 2000, and a report on Form 8K filed on March 22, 2001 (the "Reports"). "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 December 31, 2000 and included in its Report on Form 10Q for the period ended December 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 2001 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 December 31, 2000. Except as disclosed in the Reports, 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 PAGE -6- 10 Company has any current or future obligation or liability or under which any employee or former employee (or beneficiary of any employee or former employee) of the Company has or may have any current or future right to benefits on account of employment with the Company (the term "plan" shall include any contract, agreement, policy or understanding, each such plan being hereinafter referred to individually as a "Plan"). Each Plan intended to be tax qualified under Sections 401(a) and 501(a) of the Internal Revenue Code of 1986 (the "Code") is, and has been determined by the IRS to be, tax qualified under Sections 401(a) and 501(a) of the Code and, since such determination, no amendments to or failure to amend any such Plan or any other circumstances adversely affects its tax qualified status. There has been on prohibited transaction within the meaning of Section 4975 of the Code and Section 406 of Title I of ERISA with respect to any Plan that is subject to the prohibited transaction requirements of the Code or ERISA. 3.15 Environmental Matters. Except as set forth on Schedule 3.15 (i) the Company has obtained all Environmental Permits that are required with respect to its business, operations and properties, either owned or leased, and (ii) the Company and its properties are in compliance with all terms and conditions of all applicable Requirements of Environmental Law and Environmental Permits, the failure to comply with which would cause a Material Adverse Affect. Except as would not have a Material Adverse Effect or as disclosed on Schedule 3.15, there are no Environmental Claims pending, or, to the knowledge of the Company, threatened, against the Company. The Company has not received any notice from any governmental authority of any violation or liability arising under any Requirements of Environmental Law or Environmental Permit in connection with the assets, the businesses or operations of the Company. "Environmental Claim" means any third party (including governmental agencies and employees) action, lawsuit, claim or proceeding (including claims or proceedings under the Occupational Safety and Health Act or similar laws relating to safety of employees) which seeks to impose liability for (i) pollution or contamination of the air, surface water, ground water or land; (ii) solid, gaseous or liquid waste generation, handling, treatment, storage, disposal or transportation; (iii) exposure to hazardous or toxic substances; (iv) the safety or health of employees or (v) the transportation, processing, distribution in commerce, use, or storage of hydrocarbons or chemical substances. An Environmental Claim includes, but is 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. PAGE -7- 11 "Requirements of Environmental Law" means all requirements in effect on the Closing Date imposed by any law, rule, regulation, or order of any federal, foreign, state or local executive, legislative, judicial, regulatory or administrative agency, board or authority with jurisdiction over the Company or its properties or assets which relate to (i) pollution or protection of the air, surface water, ground water or land; (ii) solid, gaseous or liquid waste generation, treatment, storage, disposal or transportation; (iii) exposure to hazardous or toxic substances; (iv) the safety or health of employees or (v) regulation of the manufacture, processing, distribution in commerce, use, or storage of chemical substances. 3.16 Permits and Licenses. The Company has all material licenses, permits and other authorizations necessary for the conduct of its business as it is currently being conducted. Schedule 3.16 sets forth an accurate list and summary description of all permits, titles (excluding motor vehicles, titles and current registrations which have been made available to the Purchaser), fuel permits, licenses, franchises and certificates (the "Permits") held by the Company. To the best of the Company's knowledge, all of such Permits are adequate for the operation of the business of the Company as it is presently being conducted. 3.17 Insurance. All insurance policies (together with all riders and amendments) relating to the assets or the business of the Company are sufficient to protect against any material claim for casualty or property damage. Such insurance policies are in full force and effect, all premiums due thereon have been paid or accrued on the books of the Company and will not terminate as of the Closing or the consummation of the transactions contemplated hereby. The Company has no reason to believe that such insurance policies will be terminated or subject to non-renewal. 3.18 Taxes. The Company has filed all tax returns and reports required by law to be filed, or filed extensions for any period in which a tax return was due and has paid or accrued on the financial statements provided to the Purchaser all taxes, assessments and other governmental charges that are due and payable. The charges, accruals and reserves on the books of the Company in respect of taxes for all fiscal periods are considered adequate by the Company, and the Company 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 December 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 PAGE -8- 12 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 May 11, 2000, and the issuance of 341,575 shares of Common Stock as partial consideration for the purchase of the stock of Pioneer Drilling Co. in August of 2000 there have been no other sales of securities of any kind or nature by the Company. 3.20 Underground Storage Tanks. There are no underground storage tanks on any of the Company's owned or leased real property. 4. Representations and Warranties of the Purchaser. The Purchaser represents and warrants to the Company that: 4.1 Experience. The Purchaser is an "accredited investor" within the meaning of Regulation D promulgated by the Securities and Exchange Commission under the Act, and (by virtue of its experience in evaluating and investing in private placement transactions of securities in companies similar to the Company) it is capable of evaluating the merits and risks of its investment in the Company. Purchaser acknowledges that it had the opportunity to ask questions of the officers of the Company. In reaching the conclusion that it desires to acquire the Stock, Purchaser has evaluated its financial resources and investment position and the risks associated with this investment and acknowledges that it is able to bear the economic risks of this investment. 4.2 Restricted Securities. As of the date hereof, Purchaser represents, warrants and agrees that it is acquiring the Stock solely for its own account, for investment, and not with a view to the distribution or resale thereof. Purchaser further represents that its present financial condition is such that it is not under any present necessity or constraint to dispose of such Stock to satisfy any existing or contemplated debt or undertaking and that the investment is suitable for Purchaser upon the basis of Purchaser's other security holdings, financial situation and needs. The Purchaser acknowledges and understands that it must bear the economic risk of this investment for 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. Nature and Survival of Representations and Warranties. PAGE -9- 13 5.1 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. 5.2 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 Effective Date. Generally, all covenants, representations and warranties shall remain effective for a period of 24 months from the Effective Date. 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 Effective 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. 5.3 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. 5.4 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. 5.5 Limitation of Liability. Notwithstanding any liability which the Company or the Purchaser may incur in Sections 5.3 and 5.4, 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. 6. Miscellaneous. PAGE -10- 14 6.1 Expenses. Each of the parties will pay their respective costs and expenses (including legal fees) in connection with this Agreement and all filing requirements of Purchaser as a result of the transactions contemplated hereby. 6.2 Notices. All notices, requests and other communications hereunder shall be in writing and shall be deemed to have been given if personally delivered or mailed, registered or certified mail, postage prepaid, or by facsimile with confirmation of sending such communication by the party giving notice: (a) if to the Company, to: South Texas Drilling & Exploration, Inc. 9310 Broadway, Building I San Antonio, Texas 78217 Attention: Wm. Stacy Locke Fax No.: 210-828-8228 with copy to: Matthews and Branscomb 112 East Pecan Street Suite 1100 San Antonio, Texas 78205 Attention: John D. Fisch Fax No.: 210-226-0521 (b) if to the Purchaser, to: WEDGE Energy Services, L.L.C. 1415 Louisiana, Suite 3000 Houston, Texas 77002 Attention: President Fax No.: 713-524-3586 with copy to: WEDGE Group, Inc. 1415 Louisiana, Suite 3000 Houston, Texas 77002 Attention: Richard E. Blohm, Jr. Fax No.: 713-524-3586 with an additional copy to: PAGE -11- 15 DiCecco, Fant & Burman 1900 West Loop South, Suite 1100 Houston, Texas 77027 Attention: Darryl M. Burman Fax No.: 713-961-3260 or at such other address as shall be given in writing by either party to the other. 6.3 Post-Closing Actions. Each party hereto hereby agrees to deliver or cause to be delivered to the requesting party 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. 6.4 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. 6.5 Successors Bound. Subject to the provisions of Section 6.4, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective predecessors, successors and assigns. 6.6 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. 6.7 Amendment. This Agreement may be amended only by an instrument in writing executed by the parties hereto. 6.8 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. 6.9 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. 6.10 Governing Law. This Agreement shall be construed in accordance with and governed by the laws of the State of Texas. Any dispute hereunder shall be resolved through arbitration and may be brought in Houston, Harris County, Texas. 6.11 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 6.11. If such a dispute, controversy or claim exists, the PAGE -12- 16 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 6.11, the Arbitration shall be conducted in accordance with the Commercial Rules of the America Arbitration Association as then in effect. (g) Attorneys' Fees and Expenses. The party that substantially prevails on the merits of the arbitration (as defined by the Panel) shall be entitled to reasonable attorneys' fees, costs, expenses, and necessary disbursements in addition to any other relief to which such party may be entitled. 6.12 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. 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 Effective Date. PAGE -13- 17 THE COMPANY: SOUTH TEXAS DRILLING & EXPLORATION, INC. By: /s/ WM. STACY LOCKE -------------------------------------- Wm. Stacy Locke, President PURCHASER: WEDGE ENERGY SERVICES, L.L.C. By: /s/ WILLIAM H. WHITE -------------------------------------- William H. White, President PAGE -14- EX-99.2 3 h87858a2ex99-2.txt REGISTRATION RIGHTS AGREEMENT 1 EXHIBIT 99.2 REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered into effective as of the 18th day of May, 2001, by and among SOUTH TEXAS DRILLING & EXPLORATION, INC., a Texas corporation (the "Company"), and WEDGE ENERGY SERVICES, L.L.C., a Delaware limited liability company and its Affiliates (such entity being referred to herein as the "Investor"). WITNESSETH: WHEREAS, Investor is acquiring 2,400,000 shares of the $0.10 par value common stock of the Company (the "Common Stock") in accordance with the Common Stock Purchase Agreement dated May 16th, 2001 (the "2001 Stock Purchase Agreement") and has previously acquired 3,678,161 shares of Common Stock in accordance with a Common Stock Purchase Agreement dated May 10, 2000 (the "2000 Stock Purchase Agreement") and 1,153,846 shares of Common Stock in accordance with a Subscription Agreement dated February 28, 2000 (the "2000 Subscription Agreement"); and WHEREAS, the Company has agreed to provide the Investor with certain registration rights with respect to the Registrable Securities (as defined herein). WHEREAS, the parties desire that this Agreement supercede in every way that certain Registration Rights Agreement dated March 30, 2001 between them entered into incident to the purchase by WEDGE of the 4.86% Convertible Subordinated Debenture, Series A issued by the Company, which Registration Rights Agreement is hereby canceled and rendered a nullity by agreement of the parties. WHEREAS, the parties also desire that this Agreement supercede in every way that certain Registration Rights Agreement between them entered into incident to the 2000 Subscription Agreement, which Registration Rights Agreement is hereby canceled and rendered a nullity by agreement of the parties. NOW THEREFORE, in consideration of the mutual covenants herein contained and for other good and valuable consideration, the parties hereto hereby agree as follows: Section 1. Certain Definitions. As used in this Agreement, the following definitions shall apply: "Affiliate" means a Person who directly or indirectly controls, is controlled by, or is under common control with, the Person referred to. For this purpose, "control" means the ability to direct or cause the direction of the management or affairs of a Person, whether through the ownership of voting securities, by contract or otherwise. "Commission" means the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. 2 "Exchange Act" means the Securities Exchange Act of 1934, as amended, or any similar successor federal statute, and the rules and regulations thereunder, all as the same shall be in effect from time to time. "Holder" means any holder of outstanding Registrable Securities. "Person" means any natural Person, any unincorporated organization or association, and any partnership, limited liability company, corporation, estate, trust, nominee, custodian or other individual or entity. The terms "register," "registered" and "registration" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act (and any post-effective amendments thereto filed or required to be filed), and the declaration or ordering of the effectiveness of such registration statement. "Registrable Securities" means: (i) the Common Stock held by the Investor or assigns issued pursuant to the 2001 Stock Purchase Agreement (ii) any other Common Stock heretofore or hereafter acquired by the Investor, and (iii) any securities of the Company held by the Investor that are or were issued or issuable, directly or indirectly, in respect of or by way of exchange for such Common Stock or any capital stock into which such Common Stock may be converted, together with any other securities which are issued with respect thereto by way of any stock split, stock dividend, recapitalization, reorganization, or similar event; provided, however, that Registrable Securities shall not include any Registrable Securities which have previously been registered or sold to the public. "Registration Expenses" means all expenses incurred by the Company in complying with registration obligations hereunder, including, without limitation, all registration, qualification and filing fees, printing expenses, escrow fees, fees and disbursements of counsel for the Company and the reasonable fees and disbursements of not more than one counsel chosen by the Holders who are the holders of a majority of Registrable Securities being registered, blue sky fees and expenses, and the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company). Registration Expenses shall not include fees of counsel for the Holders other than of one counsel as set forth above or Selling Expenses as defined below. "Requisite Holders" means Holders of not less than 50% of the Registrable Securities who are also holders of at least 2% of the then outstanding equity securities of the Company. "Requisite Securities" means in connection with Registrable Securities with an aggregate value of at least $10,000,000 in the event of a registration demand which requires a registration using Form S-1 or its substantial equivalent or at least $7,500,000 which requires a registration using Form S-3 or its substantial equivalent. The aggregate value of Registrable PAGE -2- 3 Securities shall be based upon the average closing price (the last price at which a share of Common Stock is sold) of common Stock for the 30 trading days next preceding any date on which "Requisite Securities" is to be determined. "Restricted Securities" means the securities of the Company required to bear the legend set forth in Section 2 hereof. "Rule 144" means Rule 144 promulgated under the Securities Act, or any similar successor rule, as the same shall be in effect from time to time. "Rule 145" means Rule 145 promulgated under the Securities Act, or any similar successor rule, as the same shall be in effect from time to time. "Rule 415" means Rule 415 promulgated under the Securities Act, or any similar successor rule, as the same shall be in effect from time to time. "Selling Expenses" shall mean all underwriting discounts, selling commissions and stock transfer taxes applicable to the sale of Registrable Securities. "Securities Act" means the Securities Act of 1933, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, as shall be in effect at the time. "Securities Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules, regulations and interpretations promulgated thereunder. Section 2. Demand Registrations. (a) Request for Registration. If, at any time after the date hereof, the Company shall receive from the Requisite Holders a written request that the Company effect the registration under the Securities Act of the resale of Registrable Securities held by such Requisite Holders (a "Demand Registration"), then the Company shall: (i) promptly give written notice of the proposed registration to all other Holders; (ii) use its best efforts to effect, as soon as practicable, the registration under the Securities Act of the Registrable Securities which the Company has been so requested to register, together with all or such portion of the Registrable Securities of any Holders joining in such request as are specified in a written request received by the Company within 20 days after the Company mails such written notice in accordance with the registration procedures set forth in Section 6 hereof and to keep effective for 120 days after the effective date; PAGE -3- 4 provided, however, that the Company shall not be obligated to take any action to effect any such registration under the Securities Act: (A) after the Company has effected four such registrations pursuant to this Section 2 which has been declared or ordered effective and pursuant to which securities have been sold; or (B) If less than the Requisite Securities are requested to be included in the registration. (iii) the Holder shall be entitled to make a request for a shelf registration pursuant to Rule 415 of the Securities Act, which request may be for a shelf registration of not more than 12 month duration. This shall count as one demand right under Section 2(a)(ii)(A). Subject to the foregoing clauses 2(a)(ii)(A), 2(a)(ii)(B) and 2(a)(iii) the Company shall file a registration statement covering the Registrable Securities so requested to be registered as soon as practicable, and in any event within 90 days, after receipt of the request or requests of the Requisite Holders; provided, however, that if the Company shall within five days of such demand furnish to such Holder a certificate signed by the president of the Company stating that in the good faith judgment of the board of directors of the Company, it would be detrimental to the Company or its shareholders for such registration statement to be filed on or before the date filing would be required and it is therefore essential to defer the filing of such registration statement, the Company shall have the right to defer such filing for a reasonable period not to exceed 90 days from receipt of such Holder's request. The Company's right to delay such registration as set forth in the previous sentence may only be exercised one time during any twelve month period. (b) Underwritten Demand Registrations. The offering of the Registrable Securities pursuant to such Demand Registration shall be in the form of an underwritten offering except for one such Demand Registration which may be for a shelf registration in compliance with the provisions of this Section 2. In the event the managing underwriter or underwriters of the Demand Registration advise the Company and the Requisite Holders in writing that the total amount of Registrable Securities requested to be included in such offering would exceed the maximum amount of securities which can be marketed at a price reasonably related to the current fair market value of such securities without adversely affecting such offering (the "Underwriters Maximum Number"), the Company will be required to include in such registration to the extent of the Underwriters Maximum Number: first, all of the Registrable Securities requested to be included in such registration by the Holders thereof, allocated pro rata among such Holders on the basis of the number of Registrable Securities requested to be included therein by each such Holder; and second, any equity securities requested to be included in such registration by the Company and any other holders of such securities, allocated as determined by the Company subject to any agreements between the Company and any such holders. (c) Selection of Underwriters. The managing underwriter or underwriters to PAGE -4- 5 be used in connection with such registration shall be selected by the Requisite Holders holding a majority of the Registrable Securities being registered. The Company shall have the right to approve the selection of any such underwriters, which approval shall not be unreasonably withheld. (d) Underwriting Agreements. The Company shall (together with all Holders selling Registrable Securities) enter into an underwriting agreement in customary form with the managing underwriter selected for such underwriting by a majority in interest of the Requisite Holders, and each Holder selling Registrable Securities shall participate in such underwriting. (e) Withdrawal from Underwriting. If any Holder of Registrable Securities disapproves of the terms of the underwriting, such person may elect to withdraw therefrom by written notice to the Company, the managing underwriter and the Requisite Holders. The Registrable Securities and/or other securities so withdrawn shall also be withdrawn from registration, and such Registrable Securities shall not be transferred in a public distribution prior to 60 days after the effective date of such registration, or such other shorter period of time as the underwriters may require. If by the withdrawal of such Registrable Securities a greater number of Registrable Securities held by other Holders may be included in such registration (up to the maximum of any limitation imposed by the underwriters), then the Company shall offer to all Holders who have included Registrable Securities in the registration the right to include additional Registrable Securities in the same proportion and manner used in determining the underwriter limitation in this Section 2. (f) Inclusion as a Demand Registration. For purposes of this Section 2, a registration will not count as a Demand Registration until it has become effective; provided, however, if the Requisite Holders withdraw their Registrable Securities (whether before or after the effectiveness of such registration) and not as a result of any wrong doing by the Company, or if as a result of any action by the managing underwriters or underwriters, such demand will count as a Demand Registration for purposes of this Section 2 unless the Requisite Holders pay all of the Registration Expenses associated with such attempted registration. Section 3. Piggyback Registration. (a) Right to Include Registrable Securities. Whenever the Company proposes to register the sale of any of its equity securities under the Securities Act other than on Form S-4 or Form S-8 promulgated under the Securities Act or any similar form then in effect, the Company shall give written notice thereof to each Holder as soon as practicable (but in any event at least 30 days before such filing), offering such Holder the opportunity to register on such registration statement such number of Registrable Securities as such Holder may request in writing, subject to the provisions of section 3(b), not later than 20 days after the date of the giving of such notice (a "Piggyback Registration"). Upon receipt by the Company of any such request, the Company shall use reasonable efforts to, or in the case of an underwritten offering, to cause the managing underwriter or underwriters to, include such Registrable Securities in such registration statement (or in a separate registration statement concurrently filed) and to cause such registration statement to PAGE -5- 6 become effective with respect to such Registrable Securities in accordance with the registration procedures set forth in Section 6 hereof. If the Company's registration is to be effected pursuant to an underwritten offering, Registrable Securities registered pursuant to this Section 3 shall be distributed in accordance with such offering. Notwithstanding the foregoing, if at any time after giving written notice of its intention to register its equity securities and before the effectiveness of the registration statement filed in connection with such registration, the Company determines for any reason either not to effect such registration or to delay such registration, the Company may, at its election, by delivery of written notice to each Holder (A) in the case of a determination not to effect registration, relieve itself of its obligation to register the Registrable Securities in connection with such registration or (B) in the case of a determination to delay registration, delay the registration of such Registrable Securities for the same period as the delay in the registration of such other equity securities. Each Holder requesting inclusion in a registration pursuant to this Section 3 may, at any time before the effective date of the registration statement relating to such registration, revoke such request by delivering written notice of such revocation to the Company (which notice shall be effective only upon receipt by the Company); provided, however, that if the Company, in consultation with its financial and legal advisors, determines that such revocation would materially delay the registration or otherwise require a recirculation of the prospectus contained in the registration statement, then such holder shall have no right to so revoke its request. (b) Priority in Piggyback Registration. Notwithstanding the foregoing, with respect to a Piggyback Registration that is underwritten and with respect to which the managing underwriter or underwriters advise the Company of an Underwriters Maximum Number, then the Company will so notify all Holders requesting inclusion in such registration and will be required to include in such registration, to the extent of the Underwriters Maximum Number: first, any equity securities that the Company proposes to sell for its own account; second, the Registrable Securities requested by Holders to be included in such registration prior to any other holders of equity securities having piggyback registration rights; provided, however, in no event will the number of shares to be included by the Holder be reduced to less than 25% of the total Registrable Securities; and third, to the extent that the Underwriters Maximum Number has not been filled by the application of the preceding clauses, any further equity securities that the Company proposes to sell for its own account and/or any equity securities requested to be included in such registration by other holders of such securities, allocated as determined by the Company subject to agreements between the Company and any such holders. (c) Selection of Underwriters. If any Piggyback Registration is in the form of an underwritten offering, the managing underwriter or underwriters and any additional investment bankers and managers to be used in connection with such registration shall be selected by the Company (subject to any separate agreement with the holders on behalf of which a secondary underwritten offering is being made). (d) Underwriting Agreements. All Holders proposing to distribute their securities through such underwriting shall (together with the Company and the other holders distributing their securities through such underwriting) enter into an underwriting agreement in PAGE -6- 7 customary form with the managing underwriter selected for such underwriting by the Company, and each Holder selling Registrable Securities shall participate in such underwriting. (e) Withdrawal from Underwriting. If any Holder or other holder disapproves of the terms of any such underwriting, he may elect to withdraw therefrom by written notice to the Company and the managing underwriter. Any securities excluded or withdrawn from such underwriting shall be withdrawn from such registration, and shall not be transferred in a public distribution prior to 180 days after the effective date of the registration statement relating thereto, or such other shorter period of time as the underwriters may require. Sales under Rule 144 shall not be considered a public distribution for purposes of this paragraph. (f) Right to Terminate Registration. The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 3 prior to the effectiveness of such registration whether or not any Holder has elected to include securities in such registration. Section 4. Market Standoff. If the Company at any time shall register the offer and sale of shares of Common Stock to the public under the Securities Act (including any registration pursuant to Sections 2 or 3), the Holders shall not sell publicly, make any short sale of, grant any option for the purchase of, or otherwise dispose publicly of, any Registrable Securities (other than those shares of Common Stock included in such registration pursuant to Sections 2 or 3) without the prior written consent of the Company for a period designated by the Company in writing to the Holders, which period shall begin not more than 10 days prior to the effectiveness of the registration statement pursuant to which such public offering shall be made and shall not last more than 120 days after the effective date of such registration statement. The Company shall obtain the agreement of any person permitted to sell shares of stock in a registration to be bound by and to comply with this Section 4 as if such person was a Holder hereunder. Section 5. Expenses of Registration. All Registration Expenses incurred in connection with the one Demand Registration and the Piggyback Registrations shall be borne by the Company. All Selling Expenses relating to securities so registered as well as all Registration Expenses relating to Demand Registrations and Piggyback Registrations not required to be borne by the Company shall be borne by the holders of such securities pro rata on the basis of the number of shares of securities so registered on their behalf. Section 6. Registration Procedures. If and whenever the Company is required by the provisions of Section 2 or 3 hereof to use its best efforts to effect promptly the registration of Registrable Securities, the Company shall: (a) Prepare and file with the Commission a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become and remain effective as provided herein; (b) Prepare and file with the Commission such amendments and supplements to PAGE -7- 8 such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and current and to comply with the provisions of the Securities Act with respect to the sale of or other disposition of all Registrable Securities covered by such registration statement, including such amendments and supplements as may be necessary to reflect the intended method of disposition of the prospective seller or sellers of such Registrable Securities, but for no longer than one hundred twenty (120) days subsequent to the effective date of such registration; provided, however, that (i) such period shall be extended for a period of time equal to the period the Holder refrains from selling any securities included in such registration at the request of an underwriter of Common Stock (or other securities) of the Company; and (ii) in the case of any registration of Registrable Securities on Form S-3 which are intended to be offered on a continuous or delayed basis, such period shall be extended, if necessary, to keep the registration statement effective until all such Registrable Securities are sold, provided that Rule 415 permits an offering on a continuous or delayed basis, and provided further that applicable rules under the Securities Act governing the obligation to file a post-effective amendment permit, in lieu of filing a post-effective amendment that (I) includes any prospectus required by Section 10(a)(3) of the Securities Act or (II) reflects facts or events representing a material or fundamental change in the information set forth in the registration statement. the incorporation by reference of information required to be included in (I) and (II) above to be contained in periodic reports filed pursuant to Section 13 or 1 5(d) of the Exchange Act in the registration statement; (c) Furnish to each prospective seller of Registrable Securities such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents, as such seller may reasonably request in order to facilitate the public sale or other disposition of the Registrable Securities of such seller; (d) Notify each seller of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading or incomplete in the light of the circumstances then existing, and at the request of any such seller, prepare and furnish to such seller a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such shares, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading or incomplete in the light of the circumstances then existing; (e) Cause all such Registrable Securities registered pursuant hereunder to be listed on each securities exchange or approved for quotation on any inter-dealer quotation system on which similar securities issued by the Company are then listed or quoted; (f) Provide a transfer agent and registrar for all Registrable Securities registered pursuant to such registration statement and a CUSIP number of all such Registrable Securities, in each case not later than the effective date of such registration; PAGE -8- 9 (g) Use its best efforts to register or qualify such Registrable Securities under such other securities or blue sky laws of such jurisdictions as any Holder may reasonably request and do any and all other acts and things which may be reasonably necessary or advisable to enable any Holder to consummate the disposition in such jurisdictions of the Registrable Securities owned by such Holder; provided, however, that the Company will not be required to qualify generally to do business, subject itself to general taxation or consent to general service of process in any jurisdiction where it would not otherwise be required to do so but for this paragraph (g); (h) Use its best efforts to cause such Registrable Securities to be registered with or approved by such other governmental agencies or authorities as may be necessary by virtue of the business and operations of the Company to enable each Holder holding such Registrable Securities to consummate the disposition of such Registrable Securities; (i) Subject to the execution of confidentiality agreements in form and substance satisfactory to the Company, make available upon reasonable notice and during normal business hours, for inspection by each Holder holding such Registrable Securities, any underwriter participating in any disposition pursuant to such registration statement and any attorney, accountant or other agent retained by any Holder or underwriter (collectively, the "Inspectors"), all pertinent financial and other records, pertinent corporate documents and properties of the Company as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause the Company's officers, directors and employees to supply all information reasonably requested by any such Inspector in connection with such registration statement; (j) Use its best efforts to obtain from its independent certified public accountants "cold comfort" letters in customary form and at customary times and covering matters of the type customarily covered by cold comfort letters; (k) Use its best efforts to obtain from its counsel an opinion or opinions in customary form; (1) Issue to any underwriter to which any Holder holding such Registrable Securities may sell shares in such offering certificates evidencing such Registrable Securities; (m) Otherwise use its best efforts to comply with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months, but not more than eighteen months, beginning with the first month after the effective date of the Registration Statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act; (n) In connection with any offering pursuant to a registration statement filed PAGE -9- 10 pursuant to Section 2 hereof, enter into an underwriting agreement reasonably necessary to effect the sale of the Common Stock, provided such underwriting agreement contains customary underwriting provisions; and provided further that if the underwriter so requests, the underwriting agreement will contain a customary contribution provision; and (o) Use its best efforts to take all other steps necessary to effect the registration of such Registrable Securities contemplated hereby. Section 7. Indemnification. In the event any of the Registrable Securities are included in a registration statement under this Section: (a) The Company will indemnify each Holder, each of such Holder's officers and directors and partners (and each partner's officers, directors and partners) and such Holder's separate legal counsel and independent accountants, and each person controlling such Holder within the meaning of Section 15 of the Securities Act, and each underwriter, if any, and each person who controls any underwriter within the meaning of Section 15 of the Securities Act, against all expenses, claims, losses, damages or liabilities (or actions in respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced or threatened, arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained, on the effective date thereof; in any registration statement, any prospectus contained therein, or any amendment or supplement thereto. or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of a prospectus, in the light of the circumstances under which they were made) not misleading, or any violation by the Company of any rule or regulation promulgated under the Securities Act applicable to the Company in connection with any such registration, qualification or compliance, and the Company will reimburse each such Holder, each of its officers, directors and partners (and each partner's officers, directors and partners) and such Holders' separate legal counsel and independent accountants and each person controlling such Holder, each such underwriter and each person who controls any such underwriter, for any legal and any other expenses reasonably incurred in connection with investigating, preparing or defending any such claim, loss, damage, liability or action, provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by such Holder or underwriter and stated to be specifically for use therein. (b) Each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such registration, qualification or compliance is being effected, indemnify the Company, each of its directors and officers and its legal counsel and independent accountants, each underwriter, if any, of the Company's securities covered by such a registration statement, each person who controls the Company or such underwriter within the meaning of Section 15 of the Securities Act, and each other such Holder, each of its officers and directors and each person controlling such Holder within the meaning of Section 15 of the Securities Act, against all PAGE -10- 11 claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained, on the effective date thereof, in any such registration statement, any prospectus contained therein, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of a prospectus, in the light of the circumstances under which they were made) not misleading, and will reimburse the Company, such Holders, such directors, officers, persons, underwriters or control persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement or prospectus in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by such Holder and stated to be specifically for use therein; provided, however, that the obligations of any such Holder hereunder shall be limited to an amount equal to the proceeds to each such Holder of Registrable Securities sold as contemplated herein. (c) Each party entitled to indemnification under this Section (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense at such party's expense, and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 7 to the extent such failure is not prejudicial. No Indemnifying Party, in the defense of any such claim or litigation, shall. except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. (d) If the indemnification provided for in this Section 7 is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any loss, liability, claim, damage or expense referred to herein, then the Indemnifying Party, in lieu of indemnifying the Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party with respect to such loss, liability, claim, damage or expense in the proportion that is appropriate to reflect the relative fault of the Indemnifying Party and the Indemnified Party in connection with the statements or omissions that resulted in such loss, liability, claim, damage or expense, as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and the Indemnified Party shall he determined by reference to, among other things, whether the untrue or alleged untrue statement of material fact or the omission (or alleged omission) to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party, and the parties, relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. PAGE -11- 12 Section 8. Information by Holder. The Holder or Holders of Registrable Securities included in any registration shall furnish to the Company such information regarding such Holder or Holders and the distribution proposed by such Holder or Holders as the Company may request in writing and as shall be required in connection with any registration, qualification or compliance referred to in this Section. Section 9. Rule 144 Reporting. With a view to making available the benefits of certain rules and regulations of the Commission which may at any time permit the sale of the Restricted Securities to the public without registration, after such time as a public market exists for the Common Stock of the Company, the Company shall use its best efforts to: (a) Make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act, beginning 90 days after (i) the Registration Date, or (ii) the Company issues an offering circular meeting the requirements of Regulation A under the Securities Act; (b) File with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Securities Exchange Act (at any time after it has become subject to such reporting requirements); and (c) Furnish to any Holder promptly upon request a written statement as to its compliance with the reporting requirements of Rule 144 and the Securities Act and the Securities Exchange Act, a copy of the most recent annual or quarterly report of the Company and such other reports and documents of the Company and other information in the possession of or reasonably obtainable by the Company as a Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing a Holder to sell any such securities without registration. Section 10. Assignment of Registration Rights. The rights to cause the Company to register securities granted under this Agreement may be assigned to a transferee or assignee in connection with the transfer assignment of shares of Registrable Securities (i) to a Family Affiliate of the Holder, (ii) to Affiliates of the Holder, (iii) to the Company, (iv) to Persons to whom the Registrable Securities are transferred by reason of the Holder's death or involuntarily by operation of law, (v) pursuant to a transfer approved by the Company in its sole and absolute discretion, or (vi) to Persons to whom the Registrable Securities are transferred in accordance with the transfer restriction provisions, if any, in the Subscription Agreement, articles of incorporation, bylaws, any Shareholder's Agreement among the Holders, the Company and other holders of capital stock of the Company or other documents or agreements of Holder; provided, however, that the Company is given written notice thereof. Section 11. Subsequent Purchasers. Without the affirmative vote of the Holders of at least 66-2/3% of the Registrable Securities, the Company shall not grant to any purchaser of the Company's securities any demand registration rights, or any piggyback registration rights that, with respect to underwriters cutbacks, would be inconsistent or in conflict with the provisions hereof. PAGE -12- 13 Moreover, for so long as the holders of the Registrable Securities are entitled to exercise the registration rights described herein, they shall receive the benefit of any and all registration rights granted by the Company to any other person who is as of the date of this Agreement securities holder in the Company (or any affiliate of such existing securities holder) which are more favorable than the registration rights granted to the Investor herein. Section 12. Term. This Agreement and all rights granted to the Investor hereunder shall expire on the tenth anniversary of the date on which the first registration statement by the Company for an offering of its securities to the general public is declared effective by the Commission. Section 13. Miscellaneous. (a) Notices. Any notice or other communications required or permitted hereunder shall be deemed to be sufficient if contained in a written instrument delivered in person or by nationally-recognized overnight courier or duly sent by First Class certified mail, postage prepaid, or by telecopy addressed to such party at the address or telecopy number set forth below or such other address or telecopy number as may hereafter be designated in writing by the addressee to the address or listing all parties: If to the Company: South Texas Drilling & Exploration, Inc. 9310 Broadway, Bldg. 1 San Antonio, Texas 78217 ATTN: Wm. Stacy Locke If to the Investor: WEDGE Energy Services, L.L.C. 1415 Louisiana Street, Suite 3000 Houston, Texas 77002 ATTN: William H. White (b) Entire Agreement: Amendments. This Agreement represents the entire agreement of the parties hereto, and supersedes any other agreements among the parties with respect to the subject matter hereof. The terms and provisions of this Agreement may not be modified or amended, or any of the provisions hereof waived, except pursuant to the written consent of the Company and holders of a majority of the Registrable Securities. (c) Assignment. This Agreement may not be assigned by any party without the prior written consent of the other parties, except by a Holder in accordance with Section 10 above. Any assignment which contravenes this Section shall be void ab initio. (d) Counterparts. This Agreement may be executed in any number of counterparts, and each such counterpart hereof shall be deemed to be an original instrument, but all such counterparts together shall constitute but one agreement. PAGE -13- 14 (e) Headings: Interpretations. The headings of the various sections of this Agreement have been inserted for convenience of reference only and shall not be deemed to be a part of this Agreement. Whenever the context requires, references in this Agreement to the singular number shall include the plural and, likewise, the plural number shall include the singular, and words denoting gender shall include the masculine, feminine and neuter. (f) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas without regard to the principles of conflicts of law thereof. (g) Separability. In case any one or more of the provisions contained in this Agreement or any application thereof shall be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and other applications thereof shall not in any way be affected or impaired thereby. IN WITNESS WHEREOF, the parties have caused this Registration Rights Agreement to be executed the day and date above written. SOUTH TEXAS DRILLING & EXPLORATION, INC. By: /s/ WM. STACY LOCKE -------------------------------------- Name: Wm. Stacy Locke ------------------------------------ Title: President ------------------------------------ WEDGE ENERGY SERVICES, L.L.C. By: /s/ WILLIAM H. WHITE -------------------------------------- Name:: William H. White ------------------------------------ Title: President ------------------------------------ PAGE -14- EX-99.3 4 h87858a2ex99-3.txt POWER OF ATTORNEY FROM ISSAM M FARES 1 EXHIBIT 99.3 POWER OF ATTORNEY The undersigned does hereby make, constitute and appoint William H. White and Richard E. Blohm, Jr., acting jointly or singly, the undersigned's true and lawful attorney or attorneys (hereinafter referred to individually as "Attorney" or collectively as "Attorneys") with power to act for the undersigned and in the undersigned's name, place and stead, with or without the other and with full power of substitution and resubstitution, for the sole purpose of executing, making, declaring, certifying and filing on behalf of the undersigned with the Securities and Exchange Commission, and other appropriate governmental or private entities, any and all statements, reports and other information required to be filed by the undersigned under the Securities Exchange Act of 1934, as amended, or other state or federal statutes, by virtue of or relating to the undersigned's beneficial ownership of equity securities of South Texas Drilling and Exploration, Inc. (the "Company"), including without limitation any Schedule 13D, any and all amendments to any such schedule, any Joint Filing Agreement and any and all amendments thereto, any Form 3, 4 or 5 and any and all amendments thereto, and all other documents and information incidental or related thereto required to be executed, made or filed by the undersigned, in the form and manner in which such Attorneys or any of them deem necessary, appropriate, convenient or desirable to be done pursuant to and in accordance with the authorization contained in this Power of Attorney, as fully and to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of the Attorneys and each of them. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney on February 22, 2000. /s/ ISSAM M. FARES --------------------- Issam M. Fares EX-99.4 5 h87858a2ex99-4.txt JOINT FILING AGREEMENT 1 EXHIBIT 99.4 JOINT FILING AGREEMENT The undersigned each agree that the Statement on Schedule 13D relating to the Common Stock, $.10 par value, of South Texas Drilling & Exploration, Inc. is adopted and filed on behalf of each of them, (ii) all future amendments to such Statement on Schedule 13D will, unless written notice to the contrary is delivered as described below, be jointly filed on behalf of each of them, and (iii) the provisions of Rule 13d-1(k) under the Securities Exchange Act of 1934 apply to each of them. This agreement may be terminated with respect to the obligation to jointly file future amendments to such Statement on Schedule 13D as to any of the undersigned upon such person giving written notice thereof to the other person signatory hereto, at the principal office thereof. IN WITNESS WHEREOF, the undersigned hereby execute this Joint Filing Agreement as of the date set forth below. Dated: February 25, 2000 WEDGE Energy Services, L.L.C. By: /s/ RICHARD E. BLOHM, JR. ----------------------------- Name: Richard E. Blohm, Jr. Title: Secretary Dated: February 25, 2000 ISSAM M. FARES By: /s/ RICHARD E. BLOHM, JR. ----------------------------- Name: Richard E. Blohm, Jr. Title: Attorney-in-Fact -----END PRIVACY-ENHANCED MESSAGE-----