SHAREHOLDERS AGREEMENT

 

EXECUTION COPY

 

 

 

SHAREHOLDERS AGREEMENT

among

Riata Energy, Inc.

and

Certain Shareholders of Riata Energy, Inc.

 

Dated as of November 21, 2006

 

 

 

TABLE OF CONTENTS

 

	Page
RECITALS	1
ARTICLE I DEFINITIONS	1
SECTION 1.1.   Certain Defined Terms	1
SECTION 1.2.   Other Definitional Provisions	6
ARTICLE II TRANSFERS	6
SECTION 2.1.   Transfer Restrictions	6
SECTION 2.2.   Tag-Along Rights	7
SECTION 2.3.   Rights and Obligations of Transferees.	8
SECTION 2.4.   Number of Securities	9
SECTION 2.5.   Void Transfers	9
ARTICLE III SPECIAL LIMITED PREEMPTIVE RIGHTS	9
SECTION 3.1.   Special Limited Preemptive Rights	9
ARTICLE IV REGISTRATION RIGHTS	11
SECTION 4.1.   Initial Public Offering of the Company	11
SECTION 4.2.   Registration on Request	11
SECTION 4.3.   Incidental Registrations	13
SECTION 4.4.   Registration Procedures	14
SECTION 4.5.   Indemnification	18
SECTION 4.6.   Rules 144 and 144A	20
SECTION 4.7.   Selection of Counsel	21
SECTION 4.8.   Holdback Agreement	21
SECTION 4.9.   Existing 144A Registration Rights Agreement	22
ARTICLE V MISCELLANEOUS	22
SECTION 5.1.   Amendments and Waivers	22
SECTION 5.2.   Successors, Assigns and Transferees	22
SECTION 5.3.   Legend	22
SECTION 5.4.   Notices	23
SECTION 5.5.   Further Assurances	24
SECTION 5.6.   Entire Agreement	24
SECTION 5.7.   Conflicting Agreements	24
SECTION 5.8.   Delays or Omissions	24
SECTION 5.9.   Governing Law; Consent to Jurisdiction; Venue	24
SECTION 5.10.   Severability	25
SECTION 5.11.   Enforcement	25
SECTION 5.12.   Agents for Shareholders	25
SECTION 5.13.   Titles and Subtitles	26
SECTION 5.14.   Counterparts; Facsimile Signatures	26

 

 

THIS SHAREHOLDERS AGREEMENT (this “ Agreement ”) is entered as of November 21, 2006, among Riata Energy, Inc., a Texas corporation (the “ Company ”), and the other parties listed on the signature pages hereto.

RECITALS

WHEREAS, pursuant to the Purchase and Sale Agreement, dated as of November 21, 2006 (the “ Purchase Agreement ”), by and among the Company, SandRidge Holdings, Inc., American Real Estate Partners, L.P., American Real Estate Holdings Limited Partnership, AREP Oil & Gas Holdings LLC, AREP O & G Holdings LLC (“ AREP O&G ”), and NEG Oil & Gas, LLC, AREP O&G received 12,842,000 shares of Common Stock (as defined herein);

WHEREAS, the number of shares of Common Stock and any other Riata Equity Securities (as defined herein) owned by Tom Ward, Malone Mitchell and their respective Permitted Transferees on the date hereof is identified on Schedule A hereto; and

WHEREAS, each of the parties hereto desires to promote the interests of the Company and the mutual interests of the parties hereto by establishing herein certain terms and conditions upon which the shares of Common Stock and any other Riata Equity Securities will be held.

NOW, THEREFORE, in consideration of the foregoing recitals and of the mutual promises hereinafter set forth, the parties hereto hereby agree as follows:

ARTICLE I

 

DEFINITIONS

 

SECTION 1.1.      Certain Defined Terms . As used herein, the following terms shall have the following meanings:

“ Affiliate ” means, with respect to any Person, any Person directly or indirectly controlling, controlled by or under common control with such Person.

“ Agreement ” has the meaning assigned to such term in the Preamble.

“ AREP ” means AREP O&G and its Permitted Transferees.

“ AREP Agent ” has the meaning assigned to such term in Section 5.12(c) .

“ AREP O&G ” has the meaning assigned to such term in the Recitals.

“ AREP Portion ” means for the purposes of Section 2.2 , at any time (a) with respect to any proposed Transfer of Shares prior to the QPO, all Shares beneficially owned at such time by the Tagging Shareholder and its Affiliates which were acquired pursuant to the Purchase Agreement, and (b) with respect to any proposed Transfer of Shares after the QPO, on the applicable Transfer date, the number of Shares equal to the product of (i) the total number of Shares to be Transferred to the proposed Transferee and (ii) the fraction determined by dividing (A) the number of Shares beneficially owned at such time by the Tagging Shareholder and its Permitted Transferees which were acquired pursuant to the Purchase Agreement by (B) the total number of Shares beneficially owned at such time by (1) the Tagging Shareholder and its Permitted Transferees which were acquired pursuant to the Purchase Agreement and (2) the Riata Principals and their Permitted Transferees.

“ beneficial owner ” or “ beneficially own ” has the meaning given such term in Rule 13d-3 under the Exchange Act and a Person’s beneficial ownership of Shares shall be calculated in accordance with the provisions of such Rule; provided , however , that for purposes of determining beneficial ownership, no Person shall be deemed to beneficially own any security solely as a result of such Person’s execution of this Agreement.

“ Block Trade ” means a “block trade” as such term is commonly understood in the securities industry.

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

“ Business Day ” means any day that is not a Saturday, a Sunday or other day on which banks are required or authorized by law to be closed in the City of New York.

“ Chosen Courts ” has the meaning assigned to such term in Section 5.9 .

“ Closing Date ” means November 21, 2006.

“ Common Stock ” means the common stock of the Company.

“ Company ” has the meaning assigned to such term in the Preamble.

“ control ” (including the terms “ controlled by ” and “ under common control with ”), with respect to the relationship between or among two or more Persons, means the possession, directly or indirectly, of the power to direct or cause the direction of the affairs or management of a Person, whether through the ownership of voting securities, as trustee or executor, by contract or otherwise.

“ Demand Party ” means Tom Ward, Malone Mitchell or AREP (including any Transferee of AREP’s rights pursuant to Section 2.3(b) ).

“ Exchange Act ” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

“ Existing 144A Registration Rights Agreement ” means the Resale Registration Rights Agreement dated December 21, 2005 between the Company and Banc of America Securities LLC.

“ Fair Market Value ” means, as of any date, (i) with respect to shares of Common Stock from and after the consummation of an initial public offering of Common Stock, the average closing sale price of shares on the stock exchange (including Nasdaq) on which the shares are principally trading for the twenty trading days immediately prior to such date, or (ii) with respect to shares of Common Stock or any other securities prior to the consummation of an initial public offering of Common Stock or any other securities, the average price of the PORTAL trades for such Common Stock or other securities, as the case may be, during the twenty Business Days immediately prior to such date; provided , that in the case of clause (i) or (ii), if the Company consummates a financing on such date involving third party purchasers of Common Stock or such other securities, (x) Fair Market Value as of such date shall be the purchase price paid by such third parties if the Company has received a fairness opinion or valuation or appraisal report from an independent nationally recognized investment bank or valuation or appraisal firm which provides that such purchase price is fair from a financial point of view or within a range of fair market value or (y) Fair Market Value as of such date shall be the initial public offering price if such financing is an initial public offering or the Qualified Public Offering.

“ Holdback Period " has the meaning assigned to such term in Section 4.8(b) .

“ Holder ” means each of the Shareholders and any other holder of Registrable Securities (including any direct or indirect transferee of a Shareholder who has acquired Registrable Securities from a Shareholder not in violation of this Agreement and agrees in writing to be bound by the provisions of this Agreement).

“ Indemnified Parties " has the meaning assigned such term in Section 4.5(a) .

“ MM Agent " has the meaning assigned to such term in Section 5.12(b) .

“ NASD ” has the meaning assigned to such term in the definition of Registration Expenses in this Section 1.1 .

“ Permitted Transferee ” shall mean (i) with respect to any Riata Principal (and the Permitted Transferees thereof), Tom Ward, Malone Mitchell, their wives, children and grandchildren and any entities, trusts and other Affiliates, whether or not controlled, the sole beneficiaries or beneficial owners of which are such Riata Principals, their wives, children and grandchildren (and such entities, trusts or Affiliates of which such Riata Principals, their wives, children and grandchildren are the sole direct or indirect beneficiaries or beneficial owners), or (ii) with respect to any Shareholder (other than the Riata Principals), an Affiliate of such Shareholder; provided , however , that in each case such Transferee shall agree in a writing in the form attached as Exhibit A hereto to be bound by and to comply with all applicable provisions of this Agreement; provided , further , however , that in no event shall a “Permitted Transferee” be the Company or any of its Subsidiaries.

“ Person ” means any individual, corporation, limited liability company, limited or general partnership, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivisions thereof.

“ Preemptive Notice ” has the meaning assigned to such term in Section 3.1(b) .

“ Preemptive Right Period ” has the meaning assigned to such term in Section 3.1(a) .

“ Preemptive Right Proportionate Number ” has the meaning assigned to such term in Section 3.1(a) .

“ Prescribed Time Period ” has the meaning assigned to such term in Section 2.2(a) .

“ Purchase Agreement ” has the meaning assigned to such term in the Recitals.

“ Qualified Public Offering ” or “ QPO ” means an underwritten, broad based public offering in excess of $100 million of Common Stock (which results in gross proceeds to the sellers of at least $100 million) and results in not less than 20 million shares of Common Stock (including Common Stock covered by the Existing 144A Registration Rights Agreement and any other registration rights agreement and any shares sold pursuant to any previous public offerings) being listed for trading on a national securities exchange (including Nasdaq).

“ Registrable Securities ” means any Common Stock held at any time by the Holders. Any particular Registrable Securities that are issued shall cease to be Registrable Securities when (i) a registration statement with respect to the sale by the Holder of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement, (ii) such securities shall have been distributed to the public pursuant to Rule 144 (or any successor provision) under the Securities Act or (iii) such securities shall have ceased to be outstanding.

“ Registration Expenses ” means any and all expenses incident to performance of or compliance with Article IV of this Agreement, including, without limitation, (i) all SEC and stock exchange or National Association of Securities Dealers, Inc. (the “ NASD ”) registration and filing fees (including, if applicable, the fees and expenses of any “qualified independent underwriter,” as such term is defined in NASD conduct rule 2720, and of its counsel), (ii) all fees and expenses of complying with securities or blue sky laws (including fees and disbursements of counsel for the underwriters in connection with blue sky qualifications of the Registrable Securities), (iii) all printing, messenger and delivery expenses, (iv) all fees and expenses incurred in connection with the listing of the Registrable Securities on any national securities exchange and all rating agency fees, (v) the fees and disbursements of counsel for the Company and of its independent public accountants and independent engineers, including the expenses of any special audits, reserve reports and/or “cold comfort” letters required by or incident to such performance and compliance, (vi) the reasonable fees and disbursements of counsel selected pursuant to Section 4.7 hereof by the Holders of the Registrable Securities being registered to represent such Holders in connection with each such registration, and (vii) any fees and disbursements of underwriters customarily paid by the issuers or sellers of securities, including liability insurance if the Company so desires or if the underwriters so require, and the reasonable fees and expenses of any special experts retained in connection with the requested registration, but, in the cases of clauses (i) through (vii), excluding underwriting discounts and commissions and transfer taxes, if any.

“ Release Event " has the meaning assigned to such term in Section 4.8(a) .

“ Riata Equity Securities ” means (i) Common Stock and (ii) other Equity Interests and Equity Interest Equivalents (in each case as defined in the Purchase Agreement) of the Company; provided , that with respect to any provisions of this Agreement which requires the calculation of the number or percentage of Riata Equity Securities, Riata Equity Securities shall be calculated on a fully diluted basis.

“ Riata Principals ” means Tom Ward, Malone Mitchell and their Permitted Transferees.

“ SEC ” means the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act or the Exchange Act.

“ Sale ” (and “ Sell ” shall have correlative meaning) means, with respect to any Shares, the sale, transfer, assignment or similar disposition (excluding pledge, encumbrance or hypothecation) of such Shares in which cash, securities or other property is received as consideration.

“ Sale Notice ” has the meaning assigned to such term in Section 2.2(a) .

“ Securities Act ” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

“ Selling Shareholder ” has the meaning assigned to such term in Section 2.2(a) .

“ Shares ” means, as of any date, (i) with respect to the Riata Principals and their Permitted Transferees, the shares of Common Stock and any other Riata Equity Securities held by such Persons as of such date, and (ii) with respect to AREP and its Permitted Transferees, the shares of Common Stock which were acquired by AREP pursuant to the Purchase Agreement and held by AREP and its Permitted Transferees as of such date; provided , that with respect to any provisions of this Agreement which requires the calculation of the number or percentage of Shares, any Riata Equity Securities shall be calculated on a fully diluted basis.

“ Shareholder ” means any holder of Common Stock which is a party to this Agreement.

“ Subsidiary ” means (i) any corporation of which a majority of the securities entitled to vote generally in the election of directors thereof, at the time as of which any determination is being made, are owned by another entity, either directly or indirectly, and (ii) any joint venture, general or limited partnership, limited liability company or other legal entity in which an entity is the record or beneficial owner, directly or indirectly, of a majority of the voting interests or the general partner.

“ Substantial Block ” means, with respect to any Transfer, Shares in excess of 3% of the outstanding Common Stock on a fully diluted basis.

“ Taggable Shares ” has the meaning assigned to such term in Section 2.2(a) .

“ Tagging Shareholder ” has the meaning assigned to such term in Section 2.2(a) .

“ Target Date ” means the date which is one year after the Closing Date.

“ Third Party Holder ” has the meaning assigned to such term in Section 4.3(a) .

“ Transfer ” (and “ Transferor ”, “ Transferee ” and “ Transferring ” shall have correlative meanings) means, directly or indirectly, to Sell, transfer, assign, pledge, encumber, hypothecate or similarly dispose of, either voluntarily or involuntarily, or to enter into any contract, option or other arrangement or understanding with respect to the Sale, transfer, assignment, pledge, encumbrance, hypothecation or similar disposition of, any Shares beneficially owned by a Person or any interest in any Shares beneficially owned by a Person.

“ TW Agent " has the meaning assigned to such term in Section 5.12(a) .

SECTION 1.2.      Other Definitional Provisions . (a)  The words “hereof,” “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Article and Section references are to this Agreement unless otherwise specified.

(b)      The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms.

(c)      All references in this Agreement to “Common Stock”, “Riata Equity Securities” and “Shares” shall include any securities of the Company issued in respect thereof, or in substitution therefor, in connection with any stock split, dividend or combination, or any reclassification, recapitalization, merger, consolidation, exchange or other similar reorganization

(d)      For the avoidance of doubt, with respect to the provisions of this Agreement requires the calculation of the number or percentage of Common Stock, Riata Equity Securities or Shares on a fully diluted basis, such calculation shall assume the conversion or exercise of any convertible securities, options, warrants or similar securities.

ARTICLE II

 

TRANSFERS

 

SECTION 2.1.      Transfer Restrictions . (a)  No Shareholder may Transfer its Shares except (i) Transfers to its Permitted Transferees, (ii) Transfers in compliance with Section 2.2 , (iii) Transfers made with the prior written consent of the Company (provided that, if any such consent is given to any Shareholder, all other Shareholders shall be permitted to Transfer the same percentage of their Shares in the same manner of Transfer to any Transferee) and (iv) Transfers permitted by Section 2.1(b) , 2.1(c) or 2.1(d) .

(b)      After the earlier of (i) the 180th day after the consummation of the QPO (or earlier upon the occurrence of a Release Event under Section 4.8 ) and (ii) March 1, 2008, each Shareholder may Transfer its Shares.

(c)      After the Target Date, AREP may make Sales of its Shares pursuant to PORTAL or Rule 144A under the Securities Act.

(d)      (1) Each of AREP and the Riata Principals may make bona fide pledges, hypothecations or encumbrances of their Shares to lenders or other financing sources or other entities generally engaged in the business of making loans or acquiring or investing in debt (which shall include, without limitation, any trustee or other agent acting for the benefit thereof) pursuant to bona fide borrowing arrangements (provided that, if, at the time such pledge or hypothecation is made or encumbrance is incurred, the pledged Shares (including previously pledged Shares) represent more than 25% of the Shares held by AREP or the Riata Principals (as the case may be), with respect to the Shares in excess of such 25%, such financial institution or such other entity shall agree to be bound by the restrictions set forth in this Agreement upon foreclosing on such Shares unless such financial institution would be so bound by operation of law).

(2) In addition, AREP and its Subsidiaries (including any Subsidiaries of Permitted Transferees) may directly or indirectly make pledges, hypothecations or encumbrances of the Equity Interests (as defined in the Purchase Agreement) of any Subsidiary which holds the Shares (or that owns, directly or indirectly, through one or more Subsidiaries, Equity Interests of a Subsidiary that holds the Shares) to lenders or other financing sources or other entities generally engaged in the business of making loans or acquiring or investing in debt (which shall include, without limitation, any trustee or other agent acting for the benefit thereof) pursuant to financing arrangements so long as such Subsidiary which holds the Shares continues to be bound by this Agreement; provided , that in connection with making such pledge, hypothecation or encumbrance, AREP shall provide to the Company a certificate in the form attached hereto as Exhibit B .

(e)      Each Shareholder shall as promptly as practicable provide the Company with written notice of any Transfer of Shares.

(f)      For the avoidance of doubt, a merger or consolidation of the Company with any other Person shall not be deemed a violation of this Section 2.1 .

SECTION 2.2.      Tag-Along Rights . Whereas the Letter of Intent (as defined in the Purchase Agreement) contemplates that, among other matters, prior to the QPO, without AREP’s consent, the Riata Principals shall not sell Shares unless AREP has previously sold all of its Shares or is provided an opportunity to sell all of such Shares in such Sale on the same terms and conditions as the Riata Principals and in order to, among other things, implement the foregoing, the parties agree as follows:

(a)   In the event of a proposed Sale (including Sales permitted under Section 2.1(a)(iii) and 2.1(b) ) of Shares by any of the Riata Principals (a “ Selling Shareholder ”), AREP (the “ Tagging Shareholder ”) shall have the right to participate in such Sale in the manner set forth in this Section 2.2 . Prior to any such Sale, the Selling Shareholder shall deliver to the Tagging Shareholder written notice (the “ Sale Notice ”), which notice shall state (i) the name of the proposed Transferee, (ii) the number of Shares proposed to be sold (the “ Taggable Shares ”), (iii) the proposed purchase price therefor, including a description of any non-cash consideration (along with any report and other material document (and summary of any other material oral information) relevant to the valuation of such non-cash consideration which the Selling Shareholder has, so long as the Tagging Shareholder agrees to keep such reports, documents and information confidential), and (iv) the other material terms and conditions of the proposed Sale, including the proposed closing date (which date may not be less than fifteen (15) Business Days after delivery of the Sale Notice). The Selling Shareholder shall not consummate the Sale unless the Tagging Shareholder has been provided the right from the proposed Transferee to sell to the proposed Transferee identified in the Sale Notice the AREP Portion of the Taggable Shares on the terms and conditions set forth in the Sale Notice by giving written notice to the Selling Shareholder within the fifteen (15) Business Day period (the “ Prescribed Time Period ”) after the delivery of the Sale Notice, which notice shall state that such Tagging Shareholder elects to exercise its tag-along rights under this Section 2.2 and shall state the maximum number of Shares sought to be sold. The Tagging Shareholder shall be deemed to have waived its tag-along rights under this Section 2.2 if it fails to give notice within the Prescribed Time Period.

(b)      The Tagging Shareholder, if it has elected to exercise its tag-along rights provided under this Section 2.2 , shall participate in the Sale by delivering to the Selling Shareholder at the closing of the Sale of the Selling Shareholder’s Shares to the Transferee the Shares to be sold by the Tagging Shareholder, duly endorsed for transfer, against payment of the aggregate purchase price therefor.

(c)      The following Transfers by the Riata Principals shall not be subject to the tag-along rights provided under this Section 2.2 : (i) Transfers at any time to Permitted Transferees of such Shareholder in compliance with the terms of this Agreement, and (ii) following a QPO, (A) any Transfer by the Riata Principals of less than a Substantial Block (in one transaction or a series of related transactions) and (B) Transfers pursuant to (x) Rule 144 under the Securities Act or (y) pursuant to an effective registration statement under the Securities Act (other than a Block Trade (in one transaction or a series of related transactions) of a Substantial Block), in each case in compliance with Article IV hereof.

(d)      Notwithstanding the other provisions of this Section 2.2 , with respect to any Block Trade of a Substantial Block under a registration statement pursuant to Article IV , (i) the fifteen (15) Business Day period referred to in Section 2.2(a) shall be reduced to a three (3) Business Day period and (ii) the Sale Notice may omit the name of the proposed Transferee and may specify the proposed minimum purchase price (in lieu of the purchase price).

(e)      This Section 2.2 and the tag-along rights provided herein shall expire upon the earlier of (i) two (2) years after a Qualified Public Offering and (ii) such time when the remaining Shares acquired by AREP pursuant to the Purchase Agreement and still beneficially owned by AREP and its Affiliates, taken together, represent in the aggregate less than 5% of the outstanding Common Stock on a fully diluted basis (it being understood that in no event shall AREP and its Affiliates be deemed to beneficially own less than 5% of the outstanding Common Stock on a fully diluted basis as a result of the financing of the transactions contemplated by the Purchase Agreement).

SECTION 2.3.      Rights and Obligations of Transferees . (a)   No Transferee of any Shareholder (except a Permitted Transferee) shall be entitled to any rights under this Agreement except as provided in Section 2.3(b) . A Permitted Transferee shall be permitted to exercise all rights of the Transferring Shareholder under this Agreement, and shall be required to assume all of the obligations of the Transferring Shareholder under this Agreement, with respect to the Shares Transferred.

(b)      AREP may assign its registration rights provided in Article IV in connection with one or more Sales of at least 2,000,000 Shares (appropriately adjusted for stock splits, dividends, combinations, recapitalizations and other similar events); provided , that (i) the Transferees (including Transferees of such Transferees) of such registration rights do not exceed two Persons (excluding for this purpose Permitted Transferees), (ii) the aggregate rights of AREP and such Transferees under Article IV after such Transfer do not exceed the rights of AREP under Article IV prior to such Transfer, (iii) such Transferees shall not have any rights under Section 4.1 if the QPO has not occurred and (iv) AREP and such Transferees shall exercise the registration rights acting collectively by a vote of the majority of the Shares held by them.

SECTION 2.4.      Number of Securities . Each Riata Principal hereby represents and warrants as of the date hereof that: (i) set forth on Schedule A is the number of Shares and any other Riata Equity Securities beneficially owned by such Riata Principal and his Permitted Transferees as of the date of this Agreement; (ii) he, she or it has no registration rights with respect to Riata Equity Securities other than as set forth herein and in the Registration Rights Agreement dated November 21, 2006 entered into in connection with the financing of the transactions contemplated in the Purchase Agreement, and (iii) he, she or it has not received any awards or grants under the “Stock Plan” referred to in the Private Placement Memorandum (as defined in the Purchase Agreement). If any provision of this Agreement which requires the calculation of the number of Shares and any other Riata Equity Securities beneficially owned by any Shareholder and its Permitted Transferees becomes applicable after the date hereof, such Shareholder shall provide to the other Shareholders the number of Shares and any other Riata Equity Securities beneficially owned by such Shareholder and its Permitted Transferees.

SECTION 2.5.      Void Transfers . Any Transfer or attempted Transfer of Shares in violation of any provision of this Agreement shall be void.

 

ARTICLE III

 

SPECIAL LIMITED PREEMPTIVE RIGHTS

 

SECTION 3.1.      Special Limited Preemptive Rights . (a)  During the Preemptive Right Period, if the Company proposes to Sell, issue or otherwise Transfer to any of the Riata Principals any Riata Equity Securities and the purchase price therefor is less than Fair Market Value (but, in the event such Sale, issuance or Transfer is pursuant to a public offering or occurs concurrently with a public offering, less the underwriters’ discount or commissions for such public offering), then AREP shall have the right to purchase the Preemptive Right Proportionate Number of Riata Equity Securities at the same price and terms as such Riata Principals; provided , that the preemptive right provided under this Section 3.1 shall not be applicable to Sales, issuances or Transfers of Riata Equity Securities to the Riata Principals in connection with their participation in management or employee compensation arrangements (so long as the aggregate Sales, issuances or Transfers under such arrangements with respect to all management and employees of the Company in any 12 month period commencing the date hereof or any anniversary of the date hereof does not exceed 2% of the outstanding Common Stock on a fully diluted basis). The “ Preemptive Right Proportionate Number ” shall be, at any given time, a number equal to (i) the number of Riata Equity Securities beneficially owned by AREP at such time which were acquired pursuant to the Purchase Agreement multiplied by (ii) a fraction, the numerator of which is the total number of Riata Equity Securities proposed to be issued, sold or otherwise Transferred to the Riata Principals at such time and the denominator of which is the total number of Riata Equity Securities beneficially owned by the Riata Principals at such time. The “ Preemptive Right Period ” shall mean the period between the date hereof and the expiration of the lock-up period applicable to AREP with respect to the Qualified Public Offering under Section 4.8 . The Company hereby represents and warrants that, between September 1, 2006 and the date hereof, the Company has not issued, sold or otherwise Transferred any Riata Equity Securities which would have entitled AREP to acquire Riata Equity Securities pursuant to this Section 3.1 if this Section 3.1 were in effect during such period. For the avoidance of doubt, this Section 3.1 shall not be applicable to (i) the conversion or exercise of any convertible securities, warrants, options or similar securities so long as the Sale, issuance or Transfer of such securities was made in accordance with this Section 3.1 or (ii) the financing of the transactions contemplated by the Purchase Agreement.

(b) In the event the Company proposes to undertake a Sale, issuance or other Transfer of Riata Equity Securities to which this Section 3.1 applies, it shall provide AREP written notice (the “ Preemptive Notice ”) of its intention to do so (attaching copies of the most current drafts of any term sheets, agreements or other documents relating thereto), specifying the proposed price (it being understood that the form of consideration shall be cash or tangible assets only), the identity of the purchaser and the material terms upon which the Company proposes to sell or issue the same. AREP shall have ten (10) Business Days from the delivery date of any Preemptive Notice to agree to purchase (if the form of consideration is tangible assets, at AREP’s option, for cash and/or the same type of tangible assets of equal value), on the same closing date as the Riata Principal(s), an amount of Riata Equity Securities up to the Preemptive Right Proportionate Number (in each case calculated prior to the issuance) for the price and upon the terms specified in the Preemptive Notice by giving written notice to the Company and stating therein the amount of Riata Equity Securities to be purchased. If a definitive agreement for the purchase of such Riata Equity Securities is not provided along with the Preemptive Notice, AREP’s election to purchase Riata Equity Securities pursuant to such Preemptive Notice shall not be binding until a definitive agreement is executed (but, subject to Section 3.1(c) , an election to not purchase shall be binding).

(c) In the event AREP does not purchase all of the Preemptive Right Proportionate Number of Riata Equity Securities pursuant to this Section 3.1 , the Company shall have 180 days after the date of the Preemptive Notice to consummate the Sale of the Riata Equity Securities with respect to which AREP’s preemptive right was not exercised, at or above the price and upon terms not more favorable in any material respect (it being understood and agreed that any increase in the number of Riata Equity Securities or any decrease in the price thereof shall be deemed material for this purpose) to the Riata Principals than the terms specified in the initial Preemptive Notice given in connection with such Sale, issuance or other Transfer.

 

ARTICLE IV

 

REGISTRATION RIGHTS

 

SECTION 4.1.      Initial Public Offering of the Company . The Company shall use its reasonable best efforts to complete a Qualified Public Offering on or before the Target Date.

SECTION 4.2.      Registration on Request . (a)   Request by the Demand Party . Upon the written request of any Demand Party requesting that the Company effect the registration under the Securities Act of all or part of such Demand Party’s Registrable Securities and specifying the amount and intended method of disposition thereof, the Company will promptly give written notice of such requested registration to all other Holders, and thereupon will, as expeditiously as possible, use its reasonable best efforts to effect the registration under the Securities Act of:

all to the extent necessary to permit the disposition (in accordance with the intended method thereof as aforesaid) of the Registrable Securities so to be registered (including by means of a shelf registration under Rule 415 under the Securities Act if so requested by the Demand Party and if the Company is then eligible to use such a registration); provided , that the Company shall not be obligated to file a registration statement relating to any registration request under this Section 4.2(a) within a period of 120 days after the effective date of any other registration statement relating to any registration request under this Section 4.2(a) or relating to any registration effected under Section 4.3 .

(b)      Expenses . The Company will pay all Registration Expenses in connection with registrations of Registrable Securities pursuant to this Section 4.2 .

(c)      Effective Registration Statement . A registration requested pursuant to this Section 4.2 will not be deemed to have been effected unless it has become effective and remains effective for the period provided in Section 4.4(ii) ; provided , that if, within 180 days after it has become effective, the offering of Registrable Securities pursuant to such registration is interfered with by any stop order, injunction or other order or requirement of the SEC or other governmental agency or court, such registration will be deemed not to have been effected.

(d)      Selection of Underwriters . If a requested registration pursuant to this Section 4.2 involves an underwritten offering, the Demand Party shall have the right to select the investment banker or bankers and managers to administer the offering; provided , however , that such investment banker or bankers and managers shall be reasonably satisfactory to the Company.

(e)      Priority in Requested Registrations . If a requested registration pursuant to this Section 4.2 involves an underwritten offering and the managing underwriter advises the Company in writing that, in its opinion, the number of securities requested to be included in such registration (including securities of the Company which are not Registrable Securities) exceeds the number which can be sold in such offering, the Company will include in such registration only the Registrable Securities of the Demand Party and other Holders requested to be included in such registration. In the event that the number of Registrable Securities of the Holders requested to be included in such