Document:

Exhibit 4.2

 

REGISTRATION RIGHTS AGREEMENT

 

This REGISTRATION RIGHTS AGREEMENT dated March 16, 2011 (the “Agreement”) is entered into by and among Clayton Williams Energy, Inc., a Delaware corporation (the “Company”), the guarantors listed in Schedule 1 hereto (the “Guarantors”), and RBS Securities Inc., J.P. Morgan Securities LLC, UBS Securities LLC and BNP Paribas Securities Corp., as representatives (the “Representatives”) of the several initial purchasers (the “Initial Purchasers”) named in Schedule A to the Purchase Agreement (as defined below).

 

The Company, the Guarantors, and the Representatives are parties to the Purchase Agreement dated March 11, 2011 (the “Purchase Agreement”), which provides for the sale by the Company to the Initial Purchasers of $300,000,000 aggregate principal amount of the Company’s 7.75% Senior Notes due 2019 (the “Notes”), which will be guaranteed (collectively, the “Guarantees” and together with the Notes, the “Securities”) on an unsecured senior basis by each of the Guarantors. As an inducement to the Initial Purchasers to enter into the Purchase Agreement, the Company and the Guarantors have agreed to provide to the Initial Purchasers and their direct and indirect transferees the registration rights set forth in this Agreement. The execution and delivery of this Agreement is a condition to the closing under the Purchase Agreement.

 

In consideration of the foregoing, the parties hereto agree as follows:

 

1.                                       Definitions.  As used in this Agreement, the following terms shall have the following meanings:

 

“Business Day” shall mean any day that is not a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to remain closed.

 

“Closing Date” shall mean the Closing Date as defined in the Purchase Agreement.

 

“Company” shall have the meaning set forth in the preamble and shall also include the Company’s successors.

 

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended from time to time.

 

“Exchange Dates” shall have the meaning set forth in Section 2(a)(ii) hereof.

 

“Exchange Offer” shall mean the exchange offer by the Company and the Guarantors of Exchange Securities for Registrable Securities pursuant to Section 2(a) hereof.

 

“Exchange Offer Registration” shall mean a registration under the Securities Act effected pursuant to Section 2(a) hereof.

 

“Exchange Offer Registration Statement” shall mean an exchange offer registration statement on Form S-4 (or, if applicable, on another appropriate form) and all amendments

 

 

and supplements to such registration statement, in each case including the Prospectus contained therein, all exhibits thereto and any document incorporated by reference therein.

 

“Exchange Securities” shall mean senior notes issued by the Company and guaranteed by the Guarantors under the Indenture containing terms identical to the Securities (except that the Exchange Securities will not be subject to restrictions on transfer or to any increase in annual interest rate for failure to comply with this Agreement) and to be offered to Holders of Securities in exchange for Securities pursuant to the Exchange Offer.

 

“Guarantors” shall have the meaning set forth in the preamble and shall also include any Guarantor’s successors.

 

“Holders” shall mean the Initial Purchasers, for so long as they own any Registrable Securities, and each of their respective successors, assigns and direct and indirect transferees who become owners of Registrable Securities under the Indenture; provided that for purposes of Sections 4 and 5 of this Agreement, the term “Holders” shall include Participating Broker-Dealers.

 

“Indenture” shall mean the Indenture relating to the Securities dated as of March 16, 2011 among the Company, the Guarantors and Wells Fargo Bank, National Association, as trustee, and as the same may be amended from time to time in accordance with the terms thereof.

 

“Initial Purchasers” shall have the meaning set forth in the preamble.

 

“Inspector” shall have the meaning set forth in Section 3(a)(xiii) hereof.

 

“Majority Holders” shall mean the Holders of a majority of the aggregate principal amount of the outstanding Registrable Securities; provided that whenever the consent or approval of Holders of a specified percentage of Registrable Securities is required hereunder, any Registrable Securities owned directly or indirectly by the Company or any of its affiliates (within the meaning of Rule 405 under the Securities Act) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage or amount; and provided, further, that if the Company shall issue any additional Securities under the Indenture prior to consummation of the Exchange Offer or, if applicable, the effectiveness of any Shelf Registration Statement, such additional Securities and the Registrable Securities to which this Agreement relates shall be treated together as one class for purposes of determining whether the consent or approval of Holders of a specified percentage of Registrable Securities has been obtained.

 

“Participating Broker-Dealers” shall have the meaning set forth in Section 4(a) hereof.

 

“Person” shall mean an individual, partnership, limited liability company, corporation, trust or unincorporated organization, or a government or agency or political subdivision thereof.

 

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“Prospectus” shall mean the prospectus included in a Registration Statement, including any preliminary prospectus, and any such prospectus as amended or supplemented by any prospectus supplement, including a prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by a Shelf Registration Statement, and by all other amendments and supplements to such prospectus, and in each case including any document incorporated by reference therein.

 

“Purchase Agreement” shall have the meaning set forth in the preamble.

 

“Registrable Securities” shall mean the Securities; provided that the Securities shall cease to be Registrable Securities (i) when a Registration Statement with respect to such Securities has become effective under the Securities Act and such Securities have been exchanged or disposed of pursuant to such Registration Statement or (ii) when such Securities cease to be outstanding.

 

“Registration Expenses” shall mean any and all expenses incident to performance of or compliance by the Company and the Guarantors with this Agreement, including without limitation: (i) all SEC, stock exchange or National Association of Securities Dealers, Inc. registration and filing fees, (ii) all fees and expenses incurred in connection with compliance with state securities or blue sky laws (including reasonable fees and disbursements of counsel for any Underwriters or Holders in connection with blue sky qualification of any Exchange Securities or Registrable Securities), (iii) all expenses of any Persons in preparing or assisting in preparing, word processing, printing and distributing any Registration Statement, any Prospectus and any amendments or supplements thereto, any underwriting agreements, securities sales agreements or other similar agreements and any other documents relating to the performance of and compliance with this Agreement, (iv) all rating agency fees, (v) all fees and disbursements relating to the qualification of the Indenture under the Trust Indenture Act, (vi) the fees and disbursements of the Trustee and its counsel, (vii) the fees and disbursements of counsel for the Company and the Guarantors and, in the case of a Shelf Registration Statement, the fees and disbursements of one counsel for the Holders (which counsel shall be selected by the Majority Holders and which counsel may also be counsel for the Initial Purchasers) and (viii) the fees and disbursements of the independent public accountants of the Company and the Guarantors, including the expenses of any special audits or “comfort” letters required by or incident to the performance of and compliance with this Agreement, but excluding fees and expenses of counsel to the Underwriters (other than fees and expenses set forth in clause (ii) above) or the Holders (other than fees and expenses set forth in clause (vii) above) and underwriting discounts and commissions, brokerage commissions and transfer taxes, if any, relating to the sale or disposition of Registrable Securities by a Holder.

 

“Registration Statement” shall mean any registration statement of the Company and the Guarantors that covers any of the Exchange Securities or Registrable Securities pursuant to the provisions of this Agreement and all amendments and supplements to any such registration statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and any document incorporated by reference therein.

 

“SEC” shall mean the United States Securities and Exchange Commission.

 

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“Securities” shall have the meaning set forth in the preamble.

 

“Securities Act” shall mean the Securities Act of 1933, as amended from time to time.

 

“Shelf Effectiveness Period” shall have the meaning set forth in Section 2(b) hereof.

 

“Shelf Registration” shall mean a registration effected pursuant to Section 2(b) hereof.

 

“Shelf Registration Statement” shall mean a “shelf” registration statement of the Company and the Guarantors that covers all or a portion of the Registrable Securities (but no other securities unless approved by the Holders holding a least a majority in aggregate principal amount of the Registrable Securities to be covered by such Shelf Registration Statement) on an appropriate form under Rule 415 under the Securities Act, or any similar rule that may be adopted by the SEC, and all amendments and supplements to such registration statement, including post—effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and any document incorporated by reference therein.

 

“Staff” shall mean the staff of the SEC.

 

“Trust Indenture Act” shall mean the Trust Indenture Act of 1939, as amended from time to time.

 

“Trustee” shall mean the trustee with respect to the Securities under the Indenture.

 

“Underwriter” shall have the meaning set forth in Section 3(e) hereof.

 

“Underwritten Offering” shall mean an offering in which Registrable Securities are sold to an Underwriter for reoffering to the public.

 

2.                                       Registration Under the Securities Act.  (a) To the extent not prohibited by any applicable law or applicable interpretations of the Staff, the Company and the Guarantors shall use their reasonable best efforts to cause to be filed an Exchange Offer Registration Statement covering an offer to the Holders to exchange all the Registrable Securities for Exchange Securities.  The Company and the Guarantors shall use their reasonable best efforts to commence the Exchange Offer promptly after the Exchange Offer Registration Statement is declared effective by the SEC.

 

The Company and the Guarantors shall commence the Exchange Offer by mailing (or, to the extent permitted by law, making available ) the related Prospectus, appropriate letters of transmittal and other accompanying documents to each Holder stating, in addition to such other disclosures as are required by applicable law, substantially the following:

 

(i)                                     that the Exchange Offer is being made pursuant to this Agreement and that all Registrable Securities validly tendered and not properly withdrawn will be accepted for exchange;

 

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(ii)                                  the dates of acceptance for exchange (which shall be a period of at least 20 Business Days from the date such notice is mailed) (the “Exchange Dates”);

 

(iii)                               that any Registrable Security not tendered will remain outstanding and continue to accrue interest but will not retain any rights under this Agreement;

 

(iv)                              that any Holder electing to have a Registrable Security exchanged pursuant to the Exchange Offer will be required to (A) surrender such Registrable Security, together with the appropriate letters of transmittal, to the institution and at the address and in the manner specified in the notice or (B) effect such exchange otherwise in compliance with the applicable procedures of the depositary for such Registrable Securities, in each case prior to the close of business on the last Exchange Date; and

 

(v)                                 that any Holder will be entitled to withdraw its election, not later than the close of business on the last Exchange Date, by (A) sending to the institution and at the address specified in the notice, a telegram, telex, facsimile transmission or letter setting forth the name of such Holder, the principal amount of Registrable Securities delivered for exchange and a statement that such Holder is withdrawing its election to have such Securities exchanged or (B) effecting such withdrawal in compliance with the applicable procedures of the depositary for the Registrable Securities.

 

As a condition to participating in the Exchange Offer, a Holder will be required to represent to the Company and the Guarantors that (i) any Exchange Securities to be received by it will be acquired in the ordinary course of its business, (ii) at the time of the commencement of the Exchange Offer it has no arrangement or understanding with any Person to participate in the distribution (within the meaning of the Securities Act) of the Exchange Securities in violation of the provisions of the Securities Act, (iii) it is not an “affiliate” (within the meaning of Rule 405 under the Securities Act) of the Company or any Guarantor and (iv) if such Holder is a broker-dealer that will receive Exchange Securities for its own account in exchange for Registrable Securities that were acquired as a result of market-making or other trading activities, then such Holder will deliver a Prospectus (or, to the extent permitted by law, make available a Prospectus to purchasers) in connection with any resale of such Exchange Securities.

 

As soon as practicable after the last Exchange Date, the Company and the Guarantors shall:

 

(i)                                     accept for exchange Registrable Securities or portions thereof validly tendered and not properly withdrawn pursuant to the Exchange Offer; and

 

(ii)                                  deliver, or cause to be delivered, to the Trustee for cancellation all Registrable Securities or portions thereof so accepted for exchange by the Company and issue, and cause the Trustee to promptly authenticate and deliver to each Holder, Exchange Securities equal in principal amount to the principal amount of the Registrable Securities tendered by such Holder.

 

The Company and the Guarantors shall use their reasonable best efforts to complete the Exchange Offer as provided above and shall comply with the applicable requirements of the Securities Act, the Exchange Act and other applicable laws and regulations in connection

 

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with the Exchange Offer.  The Exchange Offer shall not be subject to any conditions, other than that the Exchange Offer does not violate any applicable law or applicable interpretations of the Staff.

 

(b)                                 In the event that (i) the Company and the Guarantors determine that the Exchange Offer Registration provided for in Section 2(a) above is not available or may not be completed as soon as practicable after the last Exchange Date because it would violate any applicable law or applicable interpretations of the Staff, or (ii) any Initial Purchaser holding Registrable Securities that may not be exchanged for Exchange Securities pursuant to an offer covered by the Exchange Offer Registration Statement shall so request, no later than the 90th day after the completion of the Exchange Offer (provided that such date occurs prior to the 365th day from the date of this Agreement), in connection with any offer or sale of Registrable Securities, the Company and the Guarantors shall use their reasonable best efforts to cause to be filed as soon as practicable after such determination, date or request, as the case may be, a Shelf Registration Statement providing for the sale of all the Registrable Securities by the Holders thereof and to have such Shelf Registration Statement become effective.

 

In the event that the Company and the Guarantors are required to file a Shelf Registration Statement pursuant to clause (ii) of this Section 2(b), the Company and the Guarantors shall use their reasonable best efforts to file and have become effective by the SEC both an Exchange Offer Registration Statement pursuant to Section 2(a) with respect to all Registrable Securities and a Shelf Registration Statement (which may be a combined Registration Statement with the Exchange Offer Registration Statement) with respect to offers and sales of Registrable Securities held by the Initial Purchaser after completion of the Exchange Offer.

 

In the event that the Company and the Guarantors are required to file a Shelf Registration Statement pursuant to this Section 2(b), the Company and the Guarantors agree to use their reasonable best efforts to keep the Shelf Registration Statement continuously effective until the date that is one year after the date of this Agreement or such shorter period that will terminate when all the Registrable Securities covered by the Shelf Registration Statement have been sold pursuant to the Shelf Registration Statement (the “Shelf Effectiveness Period”).  The Company and the Guarantors further agree to supplement or amend the Shelf Registration Statement and the related Prospectus if required by the rules, regulations or instructions applicable to the registration form used by the Company for such Shelf Registration Statement or by the Securities Act or by any other rules and regulations thereunder for shelf registration or if reasonably requested by a Holder of Registrable Securities with respect to information relating to such Holder, and to use their reasonable best efforts to cause any such amendment to become effective and such Shelf Registration Statement and Prospectus to become usable as soon as thereafter practicable.  The Company and the Guarantors agree to furnish to the Holders of Registrable Securities copies of any such supplement or amendment promptly after its being used or filed with the SEC.

 

(c)                                  The Company and the Guarantors shall pay all Registration Expenses in connection with any registration pursuant to Section 2(a) or Section 2(b) hereof.  Each Holder shall pay all underwriting discounts and commissions, brokerage commissions and transfer taxes, if any, relating to the sale or disposition of such Holder’s Registrable Securities pursuant to the Shelf Registration Statement.

 

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(d)                                 An Exchange Offer Registration Statement pursuant to Section 2(a) hereof or a Shelf Registration Statement pursuant to Section 2(b) hereof will not be deemed to have become effective unless it has been declared effective by the SEC or is automatically effective upon filing with the SEC as provided by Rule 462 under the Securities Act, if applicable.

 

In the event that either the Exchange Offer is not completed within 365 days after the date hereof or the Shelf Registration Statement, if required hereby, is not declared effective within 60 days after such Shelf Registration Statement is required to be filed pursuant to Section 2(b) hereof, the interest rate on the Registrable Securities will be increased by (i) 0.25% per annum for the first 90—day period that such condition is not satisfied and (ii) an additional 0.25% per annum with respect to each successive 90—day period during which the condition is not satisfied, up to a maximum additional interest of 0.50% per annum of additional interest, in each case until the Exchange Offer is completed or the Shelf Registration Statement, if required hereby, is declared effective by the SEC or is no longer required to be effective.

 

If the Shelf Registration Statement, if required hereby, has been declared effective and thereafter either ceases to be effective or the Prospectus contained therein ceases to be usable at any time during the Shelf Effectiveness Period, and such failure to remain effective or usable exists for more than 30 days (whether or not consecutive) in the Shelf Effectiveness Period, then the interest rate on the Registrable Securities will be increased by (i) 0.25% per annum for the first 90—day period that such condition is not satisfied and (ii) an additional 0.25% per annum with respect to each successive 90-day period during which the condition is not satisfied, up to a maximum additional interest of 0.50% per annum of additional interest, commencing on the 31st day in the Shelf Effectiveness Period and ending on the earlier of (a) such date that the Shelf Registration Statement has again been declared effective or the Prospectus again becomes usable, or (b) the date on which the Shelf Registration Statement is no longer required to be effective.  For the purpose of clarification, any additional interest payable pursuant to this Section 2(d) shall be payable at the same time as interest on the Securities.

 

(e)                                  The remedy set forth in Section 2(d) hereof shall constitute liquidated damages and shall be the sole and exclusive remedy of the Holders for each and any failure by the Company or the Guarantors to comply with their obligations under Section 2(a) and Section 2(b) hereof.

 

3.                                       Registration Procedures.

 

(a)                                  In connection with their obligations pursuant to Section 2(a) and Section 2(b) hereof, the Company and the Guarantors shall as soon as reasonably practicable:

 

(i)                                     prepare and file with the SEC a Registration Statement on the appropriate form under the Securities Act, which form (x) shall be selected by the Company and the Guarantors, (y) shall, in the case of a Shelf Registration, be available for the sale of the Registrable Securities by the Holders thereof and (z) shall comply as to form in all material respects with the requirements of the applicable form and include all financial statements required by the SEC to be filed therewith; and use their reasonable best efforts to cause such Registration Statement to become effective and remain effective for the applicable period in accordance with Section 2 hereof;

 

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(ii)                                  prepare and file with the SEC such amendments and post—effective amendments to each Registration Statement as may be necessary to keep such Registration Statement effective for the applicable period in accordance with Section 2 hereof and cause each Prospectus to be supplemented by any required prospectus supplement and, as so supplemented, to be filed pursuant to Rule 424 under the Securities Act; and keep each Prospectus current during the period described in Section 4(3) of and Rule 174 under the Securities Act that is applicable to transactions by brokers or dealers with respect to the Registrable Securities or Exchange Securities;

 

(iii)                               in the case of a Shelf Registration, furnish to each Holder of Registrable Securities, to counsel for the Initial Purchaser, to counsel for such Holders and to each Underwriter of an Underwritten Offering of Registrable Securities, if any, without charge, as many copies of each Prospectus, including each preliminary Prospectus, and any amendment or supplement thereto, in order to facilitate the sale or other disposition of the Registrable Securities thereunder; and the Company and the Guarantors consent to the use of such Prospectus and any amendment or supplement thereto in accordance with applicable law by each of the Holders of Registrable Securities and any such Underwriters in connection with the offering and sale of the Registrable Securities covered by and in the manner described in such Prospectus or any amendment or supplement thereto in accordance with applicable law;

 

(iv)                              use their reasonable best efforts to register or qualify the Registrable Securities under all applicable state securities or blue sky laws of such jurisdictions as any Holder of Registrable Securities covered by a Registration Statement shall reasonably request in writing by the time the applicable Registration Statement is declared effective by the SEC; cooperate with such Holders in connection with any filings required to be made with the National Association of Securities Dealers, Inc.; and do any and all other acts and things that may be reasonably necessary or advisable to enable each Holder to complete the disposition in each such jurisdiction of the Registrable Securities owned by such Holder; provided that neither the Company nor any Guarantor shall be required to (1) qualify as a foreign corporation or other entity or as a dealer in securities in any such jurisdiction where it would not otherwise be required to so qualify, (2) file any general consent to service of process in any such jurisdiction or (3) subject itself to taxation in any such jurisdiction if it is not so subject;

 

(v)                                 notify counsel for the Initial Purchasers and, in the case of a Shelf Registration, notify each Holder of Registrable Securities and counsel for such Holders promptly and, if requested by any such Holder or counsel, confirm such advice in writing (1) when a Registration Statement has become effective and when any post-effective amendment thereto has been filed and becomes effective, (2) of any request by the SEC or any state securities authority for amendments and supplements to a Registration Statement and Prospectus or for additional information after the Registration Statement has become effective, (3) of the issuance by the SEC or any state securities authority of any stop order suspending the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose, (4) if, between the effective date of a Shelf Registration Statement and the closing of any sale of Registrable Securities covered thereby, the representations and warranties of the Company or any Guarantor contained in any underwriting

 

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agreement, securities sales agreement or other similar agreement, if any, relating to an offering of such Registrable Securities cease to be true and correct in all material respects or if the Company or any Guarantor receives any notification with respect to the suspension of the qualification of the Registrable Securities for sale in any jurisdiction or the initiation of any proceeding for such purpose, (5) of the happening of any event during the period a Shelf Registration Statement is effective that makes any statement made in such Shelf Registration Statement or the related Prospectus untrue in any material respect or that requires the making of any changes in such Shelf Registration Statement or Prospectus in order to make the statements therein not misleading and (6) of any determination by the Company or any Guarantor that a post-effective amendment to a Registration Statement would be appropriate;

 

(vi)                              use their reasonable best efforts to obtain the withdrawal of any order suspending the effectiveness of a Registration Statement at the earliest possible moment and provide immediate notice to each Holder of the withdrawal of any such order;

 

(vii)                           in the case of a Shelf Registration, furnish to each Holder of Registrable Securities, without charge, at least one conformed copy of each Registration Statement and any post-effective amendment thereto (without any documents incorporated therein by reference or exhibits thereto, unless requested);

 

(viii)                        in the case of a Shelf Registration, cooperate with the Holders of Registrable Securities to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold and not bearing any restrictive legends and enable such Registrable Securities to be issued in such denominations and registered in such names (consistent with the provisions of the Indenture) as such Holders may reasonably request at least one Business Day prior to the closing of any sale of Registrable Securities;

 

(ix)                                in the case of a Shelf Registration, upon the occurrence of any event contemplated by Section 3(a)(v)(5) hereof, use their reasonable best efforts to prepare and file with the SEC a supplement or post—effective amendment to such Shelf Registration Statement or the related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to purchasers of the Registrable Securities, such Prospectus will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and the Company and the Guarantors shall notify the Holders of Registrable Securities to suspend use of the Prospectus as promptly as practicable after the occurrence of such an event, and such Holders hereby agree to suspend use of the Prospectus until the Company and the Guarantors have amended or supplemented the Prospectus to correct such misstatement or omission;

 

(x)                                   solely with respect to a Shelf Registration, a reasonable time prior to the filing of any Shelf Registration Statement, any Prospectus, any amendment to a Shelf Registration Statement or amendment or supplement to a Prospectus or of any document that is to be incorporated by reference into a Shelf Registration Statement or a Prospectus after initial filing of a Shelf Registration Statement, provide copies of such document to

 

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the Holders of Registrable Securities and their counsel and make such of the representatives of the Company and the Guarantors as shall be reasonably requested by the Holders of Registrable Securities or their counsel available for discussion of such document; and the Company and the Guarantors shall not, at any time after initial filing of a Shelf Registration Statement, file any Prospectus or any amendment of or supplement to a Shelf Registration Statement or a Prospectus of which the Holders of Registrable Securities and their counsel shall not have previously been advised and furnished a copy or to which the Holders of Registrable Securities or their counsel shall reasonably object;

 

(xi)                                obtain a CUSIP number for all Exchange Securities or Registrable Securities, as the case may be, not later than the effective date of a Registration Statement;

 

(xii)                             cause the Indenture to be qualified under the Trust Indenture Act in connection with the registration of the Exchange Securities or Registrable Securities, as the case may be; cooperate with the Trustee and the Holders to effect such changes to the Indenture as may be required for the Indenture to be so qualified in accordance with the terms of the Trust Indenture Act; and execute, and use their reasonable best efforts to cause the Trustee to execute, all documents as may be required to effect such changes and all other forms and documents required to be filed with the SEC to enable the Indenture to be so qualified in a timely manner;

 

(xiii)                          in the case of a Shelf Registration, make available for inspection by a representative of the Holders of the Registrable Securities (an “Inspector”), any Underwriter participating in any disposition pursuant to such Shelf Registration Statement, any attorneys and accountants designated by Holders of a majority in aggregate principal amount of the Securities held by the Holders of Registrable Securities and any attorneys and accountants designated by such Underwriter, at reasonable times and in a reasonable manner, all pertinent financial and other records, documents and properties of the Company and the Guarantors, and cause the respective officers, directors and employees of the Company and the Guarantors to supply all information reasonably requested by any such Inspector, Underwriter, attorney or accountant in connection with a Shelf Registration Statement; provided that if any such information is identified by the Company or any Guarantor as being confidential or proprietary, each Person receiving such information shall take such actions as are reasonably necessary to protect the confidentiality of such information to the extent such action is otherwise not inconsistent with, an impairment of or in derogation of the rights and interests of any Inspector, Holder or Underwriter);

 

(xiv)                         in the case of a Shelf Registration, use their reasonable best efforts to cause all Registrable Securities to be listed on any securities exchange or any automated quotation system on which similar securities issued or guaranteed by the Company or any Guarantor are then listed if reasonably requested by the Majority Holders, to the extent such Registrable Securities satisfy applicable listing requirements;

 

(xv)                            if reasonably requested by any Holder of Registrable Securities covered by a Shelf Registration Statement, promptly include in a Prospectus supplement or post-effective amendment such information with respect to such Holder as such Holder reasonably requests to be included therein and make all required filings of such Prospectus

 

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supplement or such post-effective amendment as soon as the Company has received notification of the matters to be so included in such filing; and

 

(xvi)                         in the case of a Shelf Registration, enter into such customary agreements and take all such other actions in connection therewith (including those requested by the Holders of a majority in principal amount of the Registrable Securities being sold) in order to expedite or facilitate the disposition of such Registrable Securities including, but not limited to, an Underwritten Offering and in such connection, (1) to the extent possible, make such representations and warranties to the Holders and any Underwriters of such Registrable Securities with respect to the business of the Company and its subsidiaries and the Registration Statement, Prospectus and documents incorporated by reference or deemed incorporated by reference, if any, in each case, in form, substance and scope as are customarily made by issuers to underwriters in underwritten offerings of similar securities and confirm the same if and when requested, (2) obtain opinions of counsel to the Company and the Guarantors (which counsel and opinions, in form, scope and substance, shall be reasonably satisfactory to the Holders and such Underwriters and their respective counsel) addressed to each selling Holder and Underwriter of Registrable Securities, covering the matters customarily covered in opinions requested in underwritten offerings of similar securities, (3) obtain “comfort” letters from the independent certified public accountants of the Company and the Guarantors (and, if necessary, any other certified public accountant of any subsidiary of the Company or any Guarantor, or of any business acquired by the Company or any Guarantor for which financial statements and financial data are or are required to be included in the Registration Statement) addressed to each selling Holder and Underwriter of Registrable Securities, such letters to be in customary form and covering matters of the type customarily covered in “comfort” letters in connection with underwritten offerings of similar securities and (4) deliver such documents and certificates as may be reasonably requested by the Holders of a majority in principal amount of the Registrable Securities being sold or the Underwriters, and which are customarily delivered in underwritten offerings, to evidence the continued validity of the representations and warranties of the Company and the Guarantors made pursuant to clause (1) above and to evidence compliance with any customary conditions contained in an underwriting agreement.

 

(b)                                 In the case of a Shelf Registration Statement, the Company may require each Holder of Registrable Securities to furnish to the Company such information regarding such Holder and the proposed disposition by such Holder of such Registrable Securities as the Company and the Guarantors may from time to time reasonably request in writing.

 

(c)                                  In the case of a Shelf Registration Statement, each Holder of Registrable Securities agrees that, upon receipt of any notice from the Company and the Guarantors of the happening of any event of the kind described in Section 3(a)(v)(3) or 3(a)(v)(5) hereof, such Holder will forthwith discontinue disposition of Registrable Securities pursuant to the Shelf Registration Statement until such Holder’s receipt of the copies of the supplemented or amended Prospectus contemplated by Section 3(a)(ix) hereof and, if so directed by the Company and the Guarantors, such Holder will deliver to the Company and the Guarantors all copies in its possession, other than permanent file copies then in such Holder’s possession, of the Prospectus covering such Registrable Securities that is current at the time of receipt of such notice.

 

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(d)                                 If the Company and the Guarantors shall give any notice pursuant to Section 3(c) hereof to suspend the disposition of Registrable Securities pursuant to a Shelf Registration Statement, the Company and the Guarantors shall extend the period during which such Shelf Registration Statement shall be maintained effective pursuant to this Agreement by the number of days during the period from and including the date of the giving of such notice to and including the date when the Holders of such Registrable Securities shall have received copies of the supplemented or amended Prospectus necessary to resume such dispositions.

 

(e)                                  The Holders of Registrable Securities covered by a Shelf Registration Statement who desire to do so may sell such Registrable Securities in an Underwritten Offering. In any such Underwritten Offering, the investment bank or investment banks and manager or managers (each an “Underwriter”) that will administer the offering will be selected by the Holders of a majority in principal amount of the Registrable Securities included in such offering.

 

4.                                       Participation of Broker-Dealers in Exchange Offer.

 

(a)                                  The Staff has taken the position that any broker-dealer that receives Exchange Securities for its own account in the Exchange Offer in exchange for Securities that were acquired by such broker-dealer as a result of market—making or other trading activities (a “Participating Broker-Dealer”) may be deemed to be an “underwriter” within the meaning of the Securities Act and must deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Securities.

 

The Company and the Guarantors understand that it is the Staff’s position that if the Prospectus contained in the Exchange Offer Registration Statement includes a plan of distribution containing a statement to the above effect and the means by which Participating Broker—Dealers may resell the Exchange Securities, without naming the Participating Broker-Dealers or specifying the amount of Exchange Securities owned by them, such Prospectus may be delivered by Participating Broker-Dealers to satisfy their prospectus delivery obligation under the Securities Act in connection with resales of Exchange Securities for their own accounts, so long as the Prospectus otherwise meets the requirements of the Securities Act.

 

(b)                                 In light of the above, and notwithstanding the other provisions of this Agreement, the Company and the Guarantors agree to amend or supplement the Prospectus contained in the Exchange Offer Registration Statement for a period of up to 180 days after the last Exchange Date (as such period may be extended pursuant to Section 3(d) of this Agreement), if requested by the Initial Purchasers or by one or more Participating Broker-Dealers, in order to expedite or facilitate the disposition of any Exchange Securities by Participating Broker-Dealers consistent with the positions of the Staff recited in Section 4(a) above.  The Company and the Guarantors further agree that Participating Broker-Dealers shall be authorized to deliver such Prospectus during such period in connection with the resales contemplated by this Section 4.

 

(c)                                  The Initial Purchasers shall have no liability to the Company, any Guarantor or any Holder with respect to any request that it may make pursuant to Section 4(b) above.

 

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5.                                       Indemnification and Contribution.

 

(a)                                  The Company and each Guarantor, jointly and severally, agree to indemnify and hold harmless each Initial Purchaser and each Holder, their respective affiliates participating in the distribution, directors and officers and each Person, if any, who controls any Initial Purchaser or any Holder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages and liabilities (including, without limitation, legal fees and other expenses incurred in connection with any suit, action or proceeding or any claim asserted, as such fees and expenses are incurred), that arise out of, or are based upon, any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement or any Prospectus or any omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, except insofar as such losses, claims, damages or liabilities arise out of, or are based upon, any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with any information relating to any Initial Purchaser or information relating to any Holder furnished to the Company in writing through RBS Securities, Inc. or any selling Holder expressly for use therein. In connection with any Underwritten Offering permitted by Section 3, the Company and the Guarantors, jointly and severally, will also indemnify the Underwriters, if any, selling brokers, dealers and similar securities industry professionals participating in the distribution, their respective affiliates participating in the distribution and each Person who controls such Persons (within the meaning of the Securities Act and the Exchange Act) to the same extent as provided above with respect to the indemnification of the Holders, if requested in connection with any Registration Statement.

 

(b)                                 Each Holder agrees, severally and not jointly, to indemnify and hold harmless the Company, the Guarantors, each Initial Purchaser and the other selling Holders, the directors of the Company and the Guarantors, each officer of the Company and the Guarantors who signed the Registration Statement and each Person, if any, who controls the Company, the Guarantors, any Initial Purchaser and any other selling Holder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the indemnity set forth in paragraph (a) above, but only with respect to any losses, claims, damages or liabilities that arise out of, or are based upon, any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with any information relating to such Holder furnished to the Company in writing by such Holder expressly for use in any Registration Statement and any Prospectus.

 

(c)                                  If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against any Person in respect of which indemnification may be sought pursuant to either paragraph (a) or (b) above, such Person (the “Indemnified Person”) shall promptly notify the Person against whom such indemnification may be sought (the “Indemnifying Person”) in writing; provided that the failure to notify the Indemnifying Person shall not relieve it from any liability that it may have under this Section 5 except to the extent that it has been materially prejudiced (through the forfeiture of substantive rights or defenses) by such failure; and provided, further, that the failure to notify the Indemnifying Person shall not relieve it from any liability that it may have to an Indemnified Person otherwise than under this Section 5. If any such proceeding shall be brought or asserted against an Indemnified Person and it shall have notified the Indemnifying Person thereof, the Indemnifying Person shall retain counsel reasonably satisfactory to the Indemnified Person to represent the Indemnified

 

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Person and any others entitled to indemnification pursuant to this Section 5 that the Indemnifying Person may designate in such proceeding and shall pay the fees and expenses of such counsel related to such proceeding, as incurred.  In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless (i) the Indemnifying Person and the Indemnified Person shall have mutually agreed to the contrary; (ii) the Indemnifying Person has failed within a reasonable time to retain counsel reasonably satisfactory to the Indemnified Person; (iii) the Indemnified Person shall have reasonably concluded that there may be legal defenses available to it that are different from or in addition to those available to the Indemnifying Person; or (iv) the named parties in any such proceeding (including any impleaded parties) include both the Indemnifying Person and the Indemnified Person and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood and agreed that the Indemnifying Person shall not, in connection with any proceeding or related proceeding in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all Indemnified Persons, and that all such fees and expenses shall be reimbursed as they are incurred. Any such separate firm (x) for any Initial Purchaser, its affiliates, directors and officers and any control Persons of such Initial Purchaser shall be designated in writing by RBS Securities, Inc., (y) for any Holder, its directors and officers and any control Persons of such Holder shall be designated in writing by the Majority Holders and (z) in all other cases shall be designated in writing by the Company.  The Indemnifying Person shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the Indemnifying Person agrees to indemnify each Indemnified Person from and against any loss or liability by reason of such settlement or judgment.  Notwithstanding the foregoing sentence, if at any time an Indemnified Person shall have requested that an Indemnifying Person reimburse the Indemnified Person for fees and expenses of counsel as contemplated by this paragraph, the Indemnifying Person shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by the Indemnifying Person of such request and (ii) the Indemnifying Person shall not have reimbursed the Indemnified Person in accordance with such request prior to the date of such settlement. No Indemnifying Person shall, without the written consent of the Indemnified Person, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and indemnification could have been sought hereunder by such Indemnified Person, unless such settlement (A) includes an unconditional release of such Indemnified Person, in form and substance reasonably satisfactory to such Indemnified Person, from all liability on claims that are the subject matter of such proceeding and (B) does not include any statement as to or any admission of fault, culpability or a failure to act by or on behalf of any Indemnified Person.

 

(d)                                 If the indemnification provided for in paragraphs (a) and (b) above is unavailable to an Indemnified Person or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then each Indemnifying Person under such paragraph, in lieu of indemnifying such Indemnified Person thereunder, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Guarantors from the offering of the Securities and the Exchange Securities, on the one hand, and by the Holders from receiving Securities or Exchange Securities registered under the Securities Act, 

 

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on the other hand, or (ii) if the allocation provided by clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) but also the relative fault of the Company and the Guarantors on the one hand and the Holders on the other in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative fault of the Company and the Guarantors on the one hand and the Holders on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company and the Guarantors or by the Holders and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.

 

(e)                                  The Company, the Guarantors and the Holders agree that it would not be just and equitable if contribution pursuant to this Section 5 were determined by pro  rata allocation (even if the Holders were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in paragraph (d) above.  The amount paid or payable by an Indemnified Person as a result of the losses, claims, damages and liabilities referred to in paragraph (d) above shall be deemed to include, subject to the limitations set forth above, any legal or other expenses incurred by such Indemnified Person in connection with any such action or claim.  Notwithstanding the provisions of this Section 5, in no event shall a Holder be required to contribute any amount in excess of the amount by which the total price at which the Securities or Exchange Securities sold by such Holder exceeds the amount of any damages that such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.

 

(f)                                    The remedies provided for in this Section 5 are not exclusive and shall not limit any rights or remedies that may otherwise be available to any Indemnified Person at law or in equity.

 

(g)                                 The indemnity and contribution provisions contained in this Section 5 shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of any Initial Purchaser or any Holder or any Person controlling any Initial Purchaser or any Holder, or by or on behalf of the Company or the Guarantors or the officers or directors of or any Person controlling the Company or the Guarantors, (iii) acceptance of any of the Exchange Securities and (iv) any sale of Registrable Securities pursuant to a Shelf Registration Statement.

 

6.                                       General.

 

(a)                                  No Inconsistent Agreements.  The Company and the Guarantors represent, warrant and agree that (i) the rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of any other outstanding securities issued or guaranteed by the Company or any Guarantor under any other agreement and (ii) neither the Company nor any Guarantor has entered into, or on or after the date of this

 

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Agreement will enter into, any agreement that is inconsistent with the rights granted to the Holders of Registrable Securities in this Agreement or otherwise conflicts with the provisions hereof.

 

(b)           Amendments and Waivers.  The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given unless the Company and the Guarantors have obtained the written consent of Holders of at least a majority in aggregate principal amount of the outstanding Registrable Securities affected by such amendment, modification, supplement, waiver or consent; provided that no amendment, modification, supplement, waiver or consent to any departure from the provisions of Section 5 hereof shall be effective as against any Holder of Registrable Securities unless consented to in writing by such Holder. Any amendments, modifications, supplements, waivers or consents pursuant to this Section 6(b) shall be by a writing executed by each of the parties hereto.

 

(c)           Notices.  All notices and other communications provided for or permitted hereunder shall be made in writing by hand delivery, registered first—class mail, telex, telecopier, or any courier guaranteeing overnight delivery (i) if to a Holder, at the most current address given by such Holder to the Company by means of a notice given in accordance with the provisions of this Section 6(c), which address initially is, with respect to the Initial Purchaser, the address set forth in the Purchase Agreement; (ii) if to the Company and the Guarantors, initially at the Company’s address set forth in the Purchase Agreement and thereafter at such other address, notice of which is given in accordance with the provisions of this Section 6(c); and (iii) to such other persons at their respective addresses as provided in the Purchase Agreement and thereafter at such other address, notice of which is given in accordance with the provisions of this Section 6(c).  All such notices and communications shall be deemed to have been duly given:  at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt is acknowledged, if telecopied; and on the next Business Day if timely delivered to an air courier guaranteeing overnight delivery. Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same to the Trustee, at the address specified in the Indenture.

 

(d)           Successors and Assigns.  This Agreement shall inure to the benefit of and be binding upon the successors, assigns and transferees of each of the parties, including, without limitation and without the need for an express assignment, subsequent Holders; provided that nothing herein shall be deemed to permit any assignment, transfer or other disposition of Registrable Securities in violation of the terms of the Purchase Agreement or the Indenture.  If any transferee of any Holder shall acquire Registrable Securities in any manner, whether by operation of law or otherwise, such Registrable Securities shall be held subject to all the terms of this Agreement, and by taking and holding such Registrable Securities such Person shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement and such Person shall be entitled to receive the benefits hereof.  The Initial Purchaser (in its capacity as Initial Purchaser) shall have no liability or obligation to the Company or the Guarantors with respect to any failure by a Holder to comply with, or any breach by any Holder of, any of the obligations of such Holder under this Agreement.

 

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(e)           Third Party Beneficiaries.  Each Holder shall be a third party beneficiary to the agreements made hereunder between the Company and the Guarantors, on the one hand, and the Initial Purchasers, on the other hand, and shall have the right to enforce such agreements directly to the extent it deems such enforcement necessary or advisable to protect its rights or the rights of other Holders hereunder.

 

(f)            Counterparts.  This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.

 

(g)           Headings.  The headings in this Agreement are for convenience of reference only, are not a part of this Agreement and shall not limit or otherwise affect the meaning hereof.

 

(h)           Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of New York.

 

(i)            Miscellaneous.  This Agreement contains the entire agreement between the parties relating to the subject matter hereof and supersedes all oral statements and prior writings with respect thereto.  If any term, provision, covenant or restriction contained in this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable or against public policy, the remainder of the terms, provisions, covenants and restrictions contained herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated. The Company, the Guarantors and the Initial Purchaser shall endeavor in good faith negotiations to replace the invalid, void or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, void or unenforceable provisions.

 

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

 

	
 
    	
CLAYTON WILLIAMS ENERGY, INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    	
By:
    	
/s/ Michael L. Pollard
    
	
 
    	
 
    	
 
    	
Name: Michael L. Pollard
    
	
 
    	
 
    	
 
    	
Title: Senior Vice President
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
SOUTHWEST   ROYALTIES, INC.
    
	
 
    	
WARRIOR GAS CO.
    
	
 
    	
CWEI   ACQUISITIONS, INC.
    
	
 
    	
ROMERE PASS ACQUISITION   L.L.C.
    
	
 
    	
CWEI ROMERE PASS   ACQUISITION CORP.
    
	
 
    	
BLUE HEEL COMPANY
    
	
 
    	
TEX-HAL   PARTNERS, INC.
    
	
 
    	
DESTA DRILLING GP, LLC
    
	
 
    	
DESTA   DRILLING GP, LLC as General Partner of Desta Drilling, L.P.
    
	
 
    	
WEST COAST ENERGY   PROPERTIES GP, LLC
    
	
 
    	
CLAJON INDUSTRIAL   GAS, INC.
    
	
 
    	
CLAYTON WILLIAMS PIPELINE CORPORATION
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    	
By: 
    	
/s/ Michael L. Pollard
    
	
 
    	
 
    	
 
    	
Name: Michael L. Pollard
    
	
 
    	
 
    	
 
    	
Title: Vice President
    

 

18

 

Confirmed and accepted as of the date first above written:

 

RBS SECURITIES INC.

 

Acting on behalf of itself
 and as a Representative of
 the several Initial Purchasers

 

 

	
By:
    	
/s/ Michael F. Newcomb II
    	
 
    
	
 
    	
Name: Michael F. Newcomb II
    	
 
    
	
 
    	
Title: Managing Director
    	
 
    

 

19

 

J.P. Morgan Securities LLC

 

Acting on behalf of itself
 and as a Representative of
 the several Initial Purchasers

 

 

	
By:
    	
/s/   Adam Bernard
    	
 
    
	
 
    	
Name:   Adam Bernard
    	
 
    
	
 
    	
Title:   Executive Director
    	
 
    

 

20

 

BNP PARIBAS SECURITIES CORP.

 

Acting on behalf of itself
 and as a Representative of
 the several Initial Purchasers

 

 

	
By:
    	
/s/   Jim Turner
    	
 
    
	
 
    	
Name:   Jim Turner
    	
 
    
	
 
    	
Title:   Managing Director
    	
 
    

 

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UBS SECURITIES LLC

 

Acting on behalf of itself
 and as a Representative of
 the several Initial Purchasers

 

 

	
By:
    	
/s/   Jonathan Schudmak
    	
 
    
	
 
    	
Name:   Jonathan Schudmak
    	
 
    
	
 
    	
Title:   Director
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By:
    	
/s/   Bimal Amin
    	
 
    
	
 
    	
Name:   Bimal Amin
    	
 
    
	
 
    	
Title:   Director
    	
 
    

 

22

 

Schedule 1

 

	
Guarantors
    	
 
    	
State of
   Incorporation or
   Organization
    
	
Blue   Heel Company
    	
 
    	
Delaware
    
	
Clayton   Williams Pipeline Corporation
    	
 
    	
Delaware
    
	
CWEI   Acquisitions, Inc.
    	
 
    	
Delaware
    
	
CWEI   Romere Pass Acquisition Corp.
    	
 
    	
Delaware
    
	
Romere   Pass Acquisition L.L.C.
    	
 
    	
Delaware
    
	
Southwest   Royalties, Inc.
    	
 
    	
Delaware
    
	
Tex-Hal   Partners, Inc.
    	
 
    	
Delaware
    
	
Clajon   Industrial Gas, Inc.
    	
 
    	
Texas
    
	
Desta   Drilling GP, LLC
    	
 
    	
Texas
    
	
Desta   Drilling, L.P.
    	
 
    	
Texas
    
	
Warrior   Gas Co.
    	
 
    	
Texas
    
	
West   Coast Energy Properties GP, LLC
    	
 
    	
TexasExhibit 10.1

 

CHANGE OF CONTROL AGREEMENT

 

THIS CHANGE OF CONTROL AGREEMENT (this “Agreement”) is entered into effective as of March 15, 2011,  by and between CCA Industries, Inc., a Delaware corporation (together with its subsidiaries, the “Company”), and Ira W. Berman (the “Consultant”).

 

BACKGROUND:

 

A.                                   The Board of Directors of the Company (the “Board”) has determined that the interests of the Company would be advanced by providing the Consultant with certain benefits in connection with a Change of Control (as hereafter defined).

 

B.                                     The Board believes that such benefits enable the Company to continue to retain the services of the Consultant, assure continuity and cooperation of management and encourage the Consultant to diligently perform his duties, thereby enhancing shareholder value.

 

C.                                     The Consultant and the Company are party to an Amended and Restated Employment Agreement, effective as of December 1, 1993, and subsequently amended on March 17, 1994, February 1999, June 1, 2001 and October 16, 2002 (the “Consulting Agreement”), pursuant to the terms of which, as of the date of this Agreement, the Consultant is obligated to perform consulting services for the Company and the Consultant provides such services.

 

AGREEMENTS:

 

NOW, THEREFORE, for good and valuable consideration, including the mutual covenants set forth herein, the parties hereto agree as follows:

 

1.                                       Definitions.  The following terms shall have the following meanings for purposes of this Agreement:

 

“Board”  means the board of directors of the Company.

 

“Change of Control” means the occurrence of any of the following:

 

(i)                                     any “person,” including a “group” (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), but excluding any “group” (as such term is used in Section 13(d)(3) of the Exchange Act) of which the Consultant is a member) is or becomes the “beneficial owner” (as defined in Rule 13(d)(3) under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of either (A) the combined voting power of the Company’s then outstanding securities or (B) the then outstanding Common Stock of the Company (in either such case other than as a result of an acquisition of securities directly from the Company); provided, however, that, in no event shall a Change of Control be deemed to have occurred upon a public offering of the Common Stock registered under the Securities Act of 1933, as amended;

 

 

(ii)                                  any consolidation or merger of the Company where the stockholders of the Company, immediately prior to the consolidation or merger, would not, immediately after the consolidation or merger, beneficially own (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, shares representing in the aggregate 50% or more of the combined voting power of the securities of the entity issuing cash or securities in the consolidation or merger (or of its ultimate parent entity, if any) (excluding from shares beneficially owned by stockholders of the Company for such computation all shares of Common Stock beneficially owned by any person that is the beneficial owner of 5.0% or more of the outstanding shares of any constituent in such consolidation or merger other than the Company);

 

(iii)                               there shall occur (A) any sale, lease, exchange or other transfer (in one transaction or a series of transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets of the Company, other than a sale or disposition by the Company of all or substantially all of the Company’s assets to an entity, at least 50% of the combined voting power of the voting securities of which are owned by “persons” (as defined above) in substantially the same proportion as their ownership of the Company, as applicable, immediately prior to such sale or (B) the approval by stockholders of the Company of any plan or proposal for the liquidation or dissolution of the Company, as applicable;

 

(iv)                              the members of  the Board at the beginning of any consecutive 24-calendar-month period (the “Incumbent Directors”) cease for any reason other than due to death to constitute at least a majority of the members of the Board; provided that any director whose election, or nomination for election as a director was approved by a vote of at least a majority of the members of the Board then still in office who were members of the Board at the beginning of such 24-calendar-month period shall be deemed to be an Incumbent Director; or

 

(v)                                 the holders of the Company’s Class A common stock do not have the right to elect a majority of the Board.

 

“Code”  means the Internal Revenue Code of 1986, as amended.

 

“Confidential Information”  means all information, whether oral or written, previously or hereafter developed, acquired or used by the Company or its subsidiaries and relating to the business of the Company and its subsidiaries that is not generally known to others in the Company’s area of business, including without limitation trade secrets, methods or practices developed by the Company or any of its subsidiaries, financial results or plans, customer or client lists, personnel information, information relating to negotiations with clients or prospective clients, proprietary methods or copyrighted materials (including without limitation, brochures, layouts, letters, art work, copy, photographs or illustrations). It is expressly understood that the foregoing list shall be illustrative only and is not intended to be an exclusive or exhaustive list of “Confidential Information.”

 

“Termination Pay”  means a payment made by the Company to the Consultant pursuant to Section 2(a) hereof.

 

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2.                                      Benefits.

 

(a)                                  Termination Pay Benefits.  In connection with the occurrence of a Change of Control, the Consultant shall be entitled to the following payments and other benefits:

 

(i)                                     The Consultant shall be permitted to cease performing consulting services to the Company pursuant to the Consulting Agreement, effective upon the occurrence of the Change of Control.

 

(ii)                                  The Company shall pay to the Consultant a single-sum cash payment in an amount equal to the sum of (A) the Consultant’s accrued and unpaid consulting fees under the Consulting Agreement as of the date of occurrence of the Change of Control, plus (B) the sum of all future payments of fees contemplated by the Consulting Agreement from the date of occurrence of the Change of Control through the end of the term of the Consulting Agreement, plus (C) reimbursement for all unreimbursed expenses reasonably and necessarily incurred by the Consultant (in accordance with Company policy) in connection with the business of the Company prior to the occurrence of the Change of Control.  This amount shall be paid on or before the occurrence of the Change of Control in accordance with the provisions of Section 2(b) of this Agreement.

 

(iii)                               The Company shall pay to the Consultant a single-sum cash payment in an amount equal to the Consultant’s unvested account balance under the Company’s 401(k) plan, if any.  This amount shall be paid within 60 days after the date of occurrence of the Change of Control.

 

(iv)                              The Consultant and his eligible dependents shall be entitled for a period of two (2) years following the date of occurrence of the Change of Control to continued coverage, on the same basis as active senior executive employees, under the Company’s group health, dental, long-term disability and life insurance plans as in effect from time to time (but not any other welfare benefit plans or any retirement plans); provided that coverage under any particular benefit plan shall expire with respect to the period after the Consultant becomes covered under another employer’s plan providing for a similar type of benefit. In the event the Company is unable to provide such coverage on account of any limitations under the terms of any applicable contract with an insurance carrier or third party administrator, the Company shall pay the Consultant an amount equal to the cost to the Company of providing such coverage within 60 days after the date of occurrence of the Change of Control.  To the extent that Company’s group health or dental benefits are self-insured, then in addition to any other limitation provided here, the period of coverage provided by this Section 2(d) under the self-insured health or dental plan shall not exceed the period of time during which the Consultant would be entitled to receive continuation coverage under a group health plan under Section 4980B of the Code (COBRA) if the Consultant had elected such coverage and paid such premiums.  To the extent that the immediately preceding sentence applies, the Company shall pay the Consultant an amount equal to the cost of such COBRA coverage for a period equal to the excess of (i) 24 months minus (ii) the number of months of COBRA coverage initially available to the Consultant, as determined in good faith by the Company, with such payment to be made within 60 days after the date of occurrence of the Change of Control.

 

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(v)                                 All of the Consultant’s unvested awards under the Company’s equity-based compensation plans shall automatically and immediately vest in full upon the occurrence of a Change of Control.

 

(b)                                 Method and Timing of Payment of Termination Pay.  The Company shall deliver payment of the Termination Pay to the Consultant by wire transfer to an account specified in writing by the Consultant to the Company on or before the occurrence of the Change of Control.  Time is of the essence in delivery of such payment.

 

(c)                                  Release by Consultant After Payment.  Termination Pay shall be subject to a condition subsequent pursuant to which, within 60 (sixty) days after the occurrence of the Change of Control, the Consultant shall release the Company, to the maximum extent permitted by law, from any and all claims the Consultant may have against the Company that relate to or arise out of the consultancy or termination of consultancy of the Consultant, except such claims arising under this Agreement, any employee benefit plan, or any other written plan or agreement.

 

(d)                                 Establishment of Funding Vehicle.  The Company may establish a trust or such other account as it deems necessary or appropriate to fund any benefit obligation under the Consulting Agreement or this Agreement.  Any such trust or account shall comply with the material requirements of the model trust as set forth in IRS Rev. Proc. 92-64.

 

3.                                      Excise Taxes.

 

(a)                                  Gross-Up Payment. Anything in this Agreement to the contrary notwithstanding and except as set forth below, if it is determined that any payment or distribution (a “Payment”) by the Company to or for the benefit of the Consultant (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 3) including, without limitation, vesting of options, would be subject to the excise tax imposed by Section 4999 of the Code, or if any interest or penalties are incurred by the Consultant with respect to such excise tax (such excise tax, together with any such interest and penalties, being hereinafter collectively referred to as the “Excise Tax”), then the Consultant shall be entitled to receive an additional payment (a “Gross-Up Payment”) in an amount sufficient to pay all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment.

 

(b)                                 Calculation of Gross-Up Payment. Subject to the provisions of paragraph (c) of this Section 3, all determinations required to be made under this Section 3, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be used in arriving at such determination, shall be made by a certified public accounting firm selected by the Company and reasonably acceptable to the Consultant (the “Accounting Firm”), which shall be retained to provide detailed supporting calculations both to the Company and the Consultant.  If the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Consultant shall have the right to appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm

 

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hereunder) which determination shall be made within 60 days after the date of occurrence of the Change of Control.  All fees and expenses of the Accounting Firm shall be paid solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 3, shall be paid by the Company to the Consultant within five (5) days after the receipt of the Accounting Firm’s determination provided that in no event shall such payment be made later than March 15 of the calendar year following the calendar year in which the Change of Control occurs.  Any determination by the Accounting Firm shall be binding upon the Company and the Consultant.  As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which should have been made will not have been made by the Company (“Underpayment”), consistent with the calculations required to be made hereunder.  If the Company exhausts its remedies pursuant to paragraph (c) of this Section 3 and the Consultant thereafter is required to pay an Excise Tax in an amount that exceeds the Gross-Up Payment received by the Consultant the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid (and in no event later than the time specified in Section 4(e)) by the Company to or for the benefit of the Consultant.

 

(c)                                  Contested Taxes. The Consultant shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would result in an Underpayment.  Such notification shall be given as soon as practicable but no later than ten (10) business days after the Consultant is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid or appealed.  The Consultant shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due).  If the Company notifies the Consultant in writing prior to the expiration of such period that it desires to contest such claim, the Consultant shall:

 

(i)                                     give the Company any information reasonably requested by the Company relating to such claim;

 

(ii)                                  take such action in connection with contesting such claims as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company;

 

(iii)                               cooperate with the Company in good faith in order to effectively contest such claim; and

 

(iv)                              permit the Company to participate in any proceedings relating to such claim;

 

provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Consultant harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing

 

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provisions of this paragraph (c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Consultant to pay the tax claimed and sue for a refund or to contest the claim in any permissible manner, and the Consultant agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Consultant to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Consultant, on an interest-free basis, and shall indemnify and hold the Consultant harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the calendar year of the Consultant with respect to which such contested amount is claimed to be due is limited solely to such contested amount.  Furthermore, the Company’s control of the contest shall be limited to issues with respect to the amount of the Gross-Up Payment, and the Consultant shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.

 

(d)                                 Refunds.  If, after the receipt by the Consultant of an amount advanced by the Company pursuant to this Section 3, the Consultant becomes entitled to receive any refund with respect to such claim, the Consultant shall pay to the Company within 30 days after receipt thereof the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto).

 

(e)                                  Payment Dates.  Subject to any earlier time limits set forth in Section 3, all payments and reimbursements to which the Consultant is entitled under this Section 3 shall be paid to or on behalf of the Consultant not later than 30 days (or in the case of payment to a third party, 90 days) following the date (i) on which the Consultant (or the Company, on the Consultant’s behalf) remits the related taxes or (ii) in the event of an audit or litigation with respect to such tax liability under Section 3(c), (A) on which the taxes that are the subject of the audit or litigation are remitted to the applicable taxing authority, or (B) where no taxes are required to be remitted as a result of such audit or litigation, in which there is a final resolution of such audit or litigation (whether by reason of completion of the audit, entry of a final and nonappealable judgment, final settlement, or otherwise)).

 

4.                                      Certain Covenants by the Consultant.

 

(a)                                  Covenant Not to Compete or Solicit.  In consideration of the payments made to the Consultant pursuant to this Agreement, the Consultant hereby agrees that, during the term of his consultancy with the Company and for a period of two years thereafter, he will not, directly or indirectly, individually or on behalf of any person or entity other than the Company:

 

(i)                                     Become associated with any company (other than the Company) engaged primarily in the health and beauty aids business;

 

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(ii)                                  Approach, consult, solicit business from, or contact or otherwise communicate, directly or indirectly, in any way with any customer of the Company in an attempt to (A) divert business from, or interfere with any business relationship of the Company, or (B) convince any customer to change or alter any of such customer’s existing or prospective contractual terms and conditions with the Company; or

 

(iii)                               Solicit, induce, recruit or encourage, either directly or indirectly, any employee of the Company to leave his or her employment with the Company, or employ or offer to employ any employee of the Company.

 

(b)                                 Protection of Confidential Information. The Consultant agrees that he will not at any time during or following his consultancy with the Company, without the Company’s prior written consent, divulge any Confidential Information to any other person or entity or use any Confidential Information for his own benefit.  Upon termination of the Consultant’s consultancy, the Consultant will return to the Company all physical Confidential Information in the Consultant’s possession.

 

(e)                                  Extent of Restrictions.  The Consultant acknowledges that the restrictions contained in this Section 4 correctly set forth the understanding of the parties at the time this Agreement is entered into, are reasonable and necessary to protect the legitimate interests of the Company, and that any violation will cause substantial injury to the Company.  In the event of any such violation, the Company shall be entitled, in addition to any other remedy, to preliminary or permanent injunctive relief.  If any court having jurisdiction shall find that any part of the restrictions set forth in this Agreement are unreasonable in any respect, it is the intent of the parties that the restrictions set forth herein shall not be terminated, but that this Agreement shall remain in full force and effect to the extent (as to time periods and other relevant factors) that the court shall find reasonable.

 

5.                                      Tax Withholding. All payments to the Consultant under this Agreement will be subject to the withholding of all applicable taxes.

 

6.                                      Severability. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect.

 

7.                                      Successors. This Agreement shall be binding upon and inure to the benefit of the Company and any successor of the Company.  The Company will require any successor to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no succession had taken place.

 

8.                                      Entire Agreement.  This Agreement shall constitute the entire agreement between the parties hereto with respect to the subject matter hereof. This Agreement may not be modified in any manner except by a written instrument signed by both the Company and the Consultant.

 

9.                                      Application of Section 409A.  The obligations under the terms of the Consulting Agreement are fees for services rendered and are not designed nor intended to constitute a

 

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“deferral of  compensation” as defined under Treas. Reg. 1.409A-1(b).   To the extent that such fees for services are deemed to constitute a deferral of compensation under Code Section 409A, such amounts are provided pursuant to an agreement entered into prior to January 1, 2005.  If the execution of this Agreement is deemed a modification of the Consulting Agreement for purposes of Section 409A, then any such payments hereunder shall be deemed to be made on account of a “separation from service” (as determined under Tres. Reg. Section 1.409A-1(h)) following a change in control event as set forth in Treas. Reg. 1.409A-3(i)(5)(vi).

 

10.                               Notices.  Any notice required under this Agreement shall be in writing and shall be delivered in person or by certified mail return receipt requested to each of the parties as follows:

 

To the Consultant:

 

Ira W. Berman

 

 

Tel.:                                 
 Fax:

 

and

 

 

Tel.:                                 
 Fax:

 

To the Company:

 

CCA Industries, Inc.
 200 Murray Hill Parkway
 East Rutherford, NJ 07073
 Attention: Chief Financial Officer
 Tel.: 201-935-3232
 Fax:

 

11.                               Governing Law. The provisions of this Agreement shall be construed in accordance of the laws of the State of Delaware, except to the extent preempted by ERISA or other federal laws, as applicable, without reference to the conflicts of laws provisions thereof.

 

[Signatures appear on following page]

 

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IN WITNESS WHEREOF, the Consultant and the Company have executed this Agreement as of the date and year first above written.

 

 

	
 
    	
CCA INDUSTRIES, INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
/s/ Robert Lage
    
	
 
    	
Name: 
    	
Robert Lage
    
	
 
    	
Title: 
    	
Director
    
	
 
    	
 
    	
Chairman, Compensation Committee
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
/s/ Stephen A. Heit
    
	
 
    	
Name: 
    	
Stephen A. Heit
    
	
 
    	
Title:
    	
Executive Vice President & Chief Financial   Officer
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
CONSULTANT
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
/s/ Ira W. Berman
    
	
 
    	
Ira W. Berman
    

 

[Signature Page to Ira W. Berman Change of Control Agreement]

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