GMX RESOURCES INC. 5.00% SENIOR CONVERTIBLE NOTES DUE 2013 PURCHASE AGREEMENT
Exhibit 10.1
$105,000,000
5.00% SENIOR CONVERTIBLE NOTES DUE 2013
February 11, 2008
▇▇▇▇▇▇▇▇▇ & Company, Inc.
As Representative of the several Initial Purchasers
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
As Representative of the several Initial Purchasers
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Ladies and Gentlemen:
GMX Resources Inc., an Oklahoma corporation (the “Company”), proposes, subject to the terms
and conditions stated herein, to issue and sell to the Initial Purchasers named in Schedule I
hereto (each an “Initial Purchaser” and collectively, the “Initial Purchasers”), for whom ▇▇▇▇▇▇▇▇▇
& Company, Inc. is acting as representative (in such capacity, the “Representative”), $105,000,000
principal amount of its 5.00% Senior Convertible Notes Due 2013 (the “Initial Securities”). In
addition, the Company has granted to the Initial Purchasers an option to purchase up to an
additional $20,000,000 in aggregate principal amount of its 5.00% Senior Convertible Notes Due 2013
(the “Optional Securities” and, together with the Initial Securities, the “Securities”). To the
extent there are no additional parties listed in Schedule I hereto other than you, the term
Representative as used herein shall mean you as the Initial Purchaser and the terms Representative
and Initial Purchasers shall mean either the singular or plural as the context requires.
The Securities will be convertible on the terms, and subject to the conditions, set forth in
the Indenture (as defined below). As used herein, “Conversion Shares” means the shares of common
stock, par value $0.001 per share, of the Company (the “Common Stock”) to be received by the
holders of the Securities upon conversion of the Securities pursuant to the terms of the Indenture.
The shares of Common Stock also evidence rights (“Rights”) to purchase Series A Junior
Participating Preferred Stock of the Company to the extent provided in the Rights Agreement dated
May 17, 2005 (the “Rights Agreement”) by and between the Company and ComputerShare Limited,
as successor Rights Agent.
The Securities are to be issued pursuant to an indenture (the “Indenture”) dated as of the
Closing Date (as defined in Section 4 hereto), between the Company and The Bank of New York Trust
Company, N.A., as trustee (the “Trustee”).
The holders of the Securities will be entitled to the benefits of a resale registration rights
agreement (the “Registration Rights Agreement”), to be dated as of the Closing Date, between the
Company and the Initial Purchasers, pursuant to which the Company will agree to
register the Securities and the Conversion Shares for resale on a shelf registration statement
pursuant to Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”), subject
to the terms and conditions therein specified.
Concurrently with the offering of the Securities, the Company is offering up to an aggregate
of 2,140,000 shares of Common Stock (the “Equity Offering”) pursuant to a share lending agreement
with an affiliate of the Representative, pursuant to which the Company will lend shares of its
common stock to such affiliate (the “Share Lending Agreement”).
The Company understands that the Initial Purchasers propose to make an offering of the
Securities as soon as the Representative deems advisable after this Agreement has been executed and
delivered.
The sale of the Securities to the Initial Purchasers will be made without registration of the
Securities or the Conversion Shares under the Securities Act in reliance upon exemptions from the
registration requirements of the Securities Act.
1. Offering Documents. The Company has prepared and delivered to the Initial
Purchasers copies of a preliminary offering memorandum dated February 4, 2008 (the “Preliminary
Offering Memorandum”) and promptly after the execution of this Agreement, the Company will prepare
and deliver to the Initial Purchasers, on the date hereof or the next succeeding day, copies of a
final offering memorandum, dated February 11, 2008 (the “Final Offering Memorandum”).
Any reference herein to the Time of Sale Disclosure Package (as defined below), the
Preliminary Offering Memorandum or the Final Offering Memorandum shall be deemed to mean and
include all such financial statements and schedules and other information which are incorporated by
reference in the Time of Sale Disclosure Package, the Preliminary Offering Memorandum or the Final
Offering Memorandum as of the date of such Time of Sale Disclosure Package, Preliminary Offering
Memorandum or Final Offering Memorandum, as the case may be; and any reference to “amend,”
“amendment” or “supplement” with respect to the Preliminary Offering Memorandum or the Final
Offering Memorandum shall be deemed to include any documents filed after such date and prior to the
Closing Date under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are
deemed to be incorporated therein by reference.
At 4:15 P.M. (New York City time) on the date hereof (the “Time of Sale”), the Company had
prepared the following information (collectively, the “Time of Sale Disclosure Package”): (a) the
Preliminary Offering Memorandum as amended and supplemented immediately prior to the Time of Sale,
(b) the Pricing Term Sheet (as defined in Section 7) prepared pursuant to Section 7(b) hereof, and
(c) any Supplemental Offering Materials (as defined in Section 6).
The Company hereby confirms that it has authorized the use of the Time of Sale Disclosure
Package (and any constituent part thereof) and the Final Offering Memorandum in connection with the
offer and sale of the Securities by the Initial Purchasers.
2
2. Representations and Warranties. The Company represents and warrants to, and agrees
with, the Initial Purchasers as set forth below in this Section 2.
(a) As of the date of the Final Offering Memorandum, as of the date of any amendment or
supplement thereto, and as of the Closing Date (as defined below), the Final Offering
Memorandum did not, and will not, contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; except that the foregoing shall
not apply to statements in or omissions from the Final Offering Memorandum made in reliance
upon and in conformity with information relating to the Initial Purchasers furnished to the
Company in writing by any Initial Purchaser through the Representative expressly for use in
the Final Offering Memorandum, it being understood and agreed that the only such information
furnished by any of the Initial Purchasers consists of the information described as such in
Section 10(b) hereof.
(b) At the Time of Sale, the Time of Sale Disclosure Package did not, and at the
Closing Date will not, contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; except that the foregoing shall
not apply to statements in or omissions from the Time of Sale Disclosure Package made in
reliance upon and in conformity with information relating to the Initial Purchasers
furnished to the Company in writing by any Initial Purchaser through the Representative
expressly for use in the Time of Sale Disclosure Package, it being understood and agreed
that the only such information furnished by any of the Initial Purchasers consists of the
information described as such in Section 10(b) hereof. No statement of material fact
included in the Final Offering Memorandum has been omitted from the Time of Sale Disclosure
Package and no statement of material fact included in the Time of Sale Disclosure Package
has been omitted from the Final Offering Memorandum.
(c) Except as set forth in the Time of Sale Disclosure Package and the Final Offering
Memorandum, the documents incorporated by reference in the Time of Sale Disclosure Package
and in the Final Offering Memorandum, when they became effective or were filed with the
Commission, as the case may be, conformed in all material respects to the requirements of
the Securities Act or the Exchange Act, as applicable, and were filed on a timely basis with
the Commission and none of such documents contained an untrue statement of a material fact
or omitted to state a material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading; any further documents so
filed and incorporated by reference in the Time of Sale Disclosure Package or in the Final
Offering Memorandum, when such documents are filed with the Commission, will conform in all
material respects to the requirements of the Exchange Act, and will not contain an 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.
3
(d) The Company and its Subsidiaries have been duly organized and are validly existing
as corporations in good standing under the laws of the states or other jurisdictions in
which they are incorporated, with full power and authority (corporate and other) to own,
lease and operate their properties and conduct their businesses as described in each of the
Time of Sale Disclosure Package and the Final Offering Memorandum and, with respect to the
Company, to execute and deliver, and perform the Company’s obligations under, this
Agreement, the Securities, the Registration Rights Agreement, the Indenture and the Share
Lending Agreement; the Company and its Subsidiaries are duly qualified to do business as
foreign corporations in good standing in each state or other jurisdiction in which their
ownership or leasing of property or conduct of business legally requires such qualification,
except where the failure to be so qualified, individually or in the aggregate, would not
have a Material Adverse Effect. The term “Material Adverse Effect” as used herein means any
material adverse effect on the condition (financial or other), net worth, business, affairs,
management, results of operations or cash flow of the Company and its Subsidiaries, taken as
a whole. The Company has no significant subsidiaries (as such term is defined in Rule
1-20(w) of Registration S-X promulgated by the Commission) other than those Subsidiaries
listed on Exhibit A hereto (the “Subsidiaries”).
(e) All outstanding shares of capital stock of each Subsidiary have been duly and
validly authorized and issued and are fully paid and nonassessable, and, except as otherwise
set forth in the Time of Sale Disclosure Package and the Final Offering Memorandum, all
outstanding shares of capital stock of the Subsidiaries are owned by the Company either
directly or through wholly owned Subsidiaries free and clear of any perfected security
interest or any other security interests, claims, liens or encumbrances.
(f) The Company’s authorized equity capitalization is as set forth in the Time of Sale
Disclosure Package and the Final Offering Memorandum; the capital stock of the Company
conforms in all material respects to the description thereof contained in the Time of Sale
Disclosure Package and the Final Offering Memorandum; the Common Stock (including the
Conversion Shares) conforms in all material respects to the description thereof contained in
the Time of Sale Disclosure Package and the Final Offering Memorandum; the outstanding
shares of Common Stock have been duly and validly authorized and issued and are fully paid
and nonassessable; the holders of outstanding shares of capital stock of the Company are not
entitled to preemptive or other rights to subscribe for the Securities or the Conversion
Shares; and, except as set forth in the Time of Sale Disclosure Package and the Final
Offering Memorandum, no options, warrants or other rights to purchase, agreements or other
obligations to issue, or rights to convert any obligations into or exchange any securities
for, shares of capital stock of or ownership interests in the Company are outstanding. The
Rights Agreement has been duly authorized, executed and delivered by the Company and
constitutes a valid and legally binding obligation of the Company enforceable against the
Company in accordance with its terms, except as enforceability may be limited by the
Enforceability Exceptions.
4
(g) Neither the Company nor any of its Subsidiaries has sustained since the date of the
latest audited financial statements included or incorporated by reference in the
Time of Sale Disclosure Package any material loss or interference with its business
from fire, explosion, flood or other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree other than as set forth
in each of the Time of Sale Disclosure Package and the Final Offering Memorandum and, since
the respective dates as of which information is given in the Time of Sale Disclosure
Package, there has not been any change in the capital stock or long-term debt of the Company
or any of its Subsidiaries or any Material Adverse Change, or any development involving a
prospective Material Adverse Change, otherwise than as set forth in each of the Time of Sale
Disclosure Package and the Final Offering Memorandum.
(h) The Company is not and, after giving effect to the offering and sale of the Shares,
will not be an “investment company” or an entity “controlled” by an “investment company,” as
such terms are defined in the Investment Company Act of 1940, as amended (the “1940 Act”).
(i) This Agreement has been duly authorized, executed and delivered by the Company.
(j) The Registration Rights Agreement has been duly authorized, and when executed and
delivered by the Company and the Initial Purchasers, will constitute a valid and binding
agreement of the Company, enforceable against the Company in accordance with its terms,
except as the enforcement thereof may be limited by bankruptcy, insolvency (including,
without limitation, all laws relating to fraudulent transfers), reorganization, moratorium
or similar laws affecting enforcement of creditors’ rights generally and except as
enforcement thereof is subject to general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law) (the “Enforceability
Exceptions”).
(k) The Indenture has been duly authorized by the Company and, when executed and
delivered by the Company and the Trustee, will constitute a valid and binding agreement of
the Company, enforceable against the Company in accordance with its terms, except as the
enforcement thereof may be limited by the Enforceability Exceptions.
(l) The Securities have been duly authorized and, on the Closing Date, will have been
duly executed by the Company and, when authenticated, issued and delivered in the manner
provided for in the Indenture and delivered against payment of the purchase price therefor
as provided in this Agreement, will constitute valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms, except as the enforcement
thereof may be limited by the Enforceability Exceptions.
(m) The Share Lending Agreement has been duly authorized, executed and delivered by the
Company and is a valid and binding agreement of the Company, enforceable against the Company
in accordance with its terms, except as the enforcement thereof may be limited by the
Enforceability Exceptions.
5
(n) The Conversion Shares have been duly and validly authorized and reserved for
issuance and, when issued and delivered in accordance with the provisions of the Securities
and the Indenture, will be duly and validly issued, fully paid and nonassessable and will
conform to the description of the Common Stock contained in the Time of Sale Disclosure
Package and the Final Offering Memorandum.
(o) None of the Company, its Subsidiaries, its affiliates or any person acting on its
or any of their behalf (other than the Initial Purchasers acting in their capacity as such)
has engaged or will engage, in connection with the offering of Securities, in any form of
general solicitation or general advertising within the meaning of Rule 502(c) under the
Securities Act.
(p) The Securities and the Indenture will conform in all material respects to the
respective statements relating thereto contained in the Time of Sale Disclosure Package and
the Final Offering Memorandum.
(q) Each of the Company and its Subsidiaries is in possession of and is operating in
compliance with all franchises, grants, authorizations, licenses, certificates, permits,
easements, consents, orders and approvals (“Permits”) from all state, federal, foreign and
other regulatory authorities, and has satisfied the requirements imposed by regulatory
bodies, administrative agencies or other governmental bodies, agencies or officials, that
are required for the Company and its Subsidiaries lawfully to own, lease and operate their
properties and conduct their businesses as described in each of the Time of Sale Disclosure
Package and the Final Offering Memorandum, and each of the Company and its Subsidiaries is
conducting its business in compliance with all of the laws, rules and regulations of each
jurisdiction in which it conducts its business, in each case with such exceptions,
individually or in the aggregate, as would not have a Material Adverse Effect; each of the
Company and its Subsidiaries has filed all notices, reports, documents or other information
(“Notices”) required to be filed under applicable laws, rules and regulations, in each case,
with such exceptions, individually or in the aggregate, as would not have a Material Adverse
Effect; and, except as otherwise specifically described in each of the Time of Sale
Disclosure Package and the Final Offering Memorandum, neither the Company nor any of its
Subsidiaries has received any notification from any court or governmental body, authority or
agency, relating to the revocation or modification of any such Permit or to the effect that
any additional authorization, approval, order, consent, license, certificate, permit,
registration or qualification (“Approvals”) from such regulatory authority is needed to be
obtained by any of them, in any case where it is reasonably expected that obtaining such
Approvals or the failure to obtain such Approvals, individually or in the aggregate, would
have a Material Adverse Effect.
(r) The Company and its Subsidiaries have filed all necessary federal, state and
foreign income and franchise tax returns required to be filed prior to the date hereof and
paid all taxes shown as due thereon; all such tax returns are complete and correct in all
material respects; all tax liabilities are adequately provided for on the books of the
Company and its Subsidiaries except to such extent as would not have a Material Adverse
Effect; the Company and its Subsidiaries have made all necessary payroll tax payments;
and the Company and its Subsidiaries have no knowledge of any tax proceeding or action
pending or threatened against the Company or its Subsidiaries that, individually or in the
aggregate, might have a Material Adverse Effect.
6
(s) Except as described in each of the Time of Sale Disclosure Package and the Final
Offering Memorandum, the Company and its Subsidiaries own or possess, or can acquire on
reasonable terms, adequate patents, patent licenses, trademarks, service marks and trade
names necessary to conduct the business now operated by them, and neither the Company nor
any of its Subsidiaries has received any notice of infringement of or conflict with asserted
rights of others with respect to any patents, patent licenses, trademarks, service marks or
trade names that, individually or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would have a Material Adverse Effect.
(t) At the Closing, each of the Company and its Subsidiaries will have (i) good and
Defensible (as defined below) title to all its interests in its producing natural gas and
oil properties (including oil and gas ▇▇▇▇▇, producing leasehold interests and appurtenant
personal property) as described in the Time of Sale Disclosure Package and the Final
Offering Memorandum as owned by it, (ii) investigated title in accordance with customary
industry procedures prior to acquiring any non-producing leasehold properties (including
undeveloped locations or leases held by production, and those leases not held by production
and including exploration prospects) described in the Time of Sale Disclosure Package and
the Final Offering Memorandum as owned by it, (iii) good and indefeasible title to its other
real property as described in the Time of Sale Disclosure Package and the Final Offering
Memorandum as owned by it and (iv) good title to its personal property as described in the
Time of Sale Disclosure Package and the Final Offering Memorandum as owned by it, in each
case free and clear of all liens, claims, security interests, equities, or other
encumbrances except those (i) described in the Time of Sale Disclosure Package and the Final
Offering Memorandum or (ii) that do not materially interfere with the use or value of such
properties taken as a whole as described in the Time of Sale Disclosure Package and the
Final Offering Memorandum. All real property and buildings held under lease or license by
the Company or its Subsidiaries are held under valid and subsisting and enforceable leases
or licenses with such exceptions as do not materially interfere with the use of such
properties taken as a whole as they have been used in the past and are proposed to be used
in the future as described in the Time of Sale Disclosure Package and the Final Offering
Memorandum. As used herein, “Defensible” means, with respect to title to the producing
properties (including oil and gas ▇▇▇▇▇ and producing leasehold interests) described in the
Time of Sale Disclosure Package and the Final Offering Memorandum as being owned by the
Company or its Subsidiaries, that the Company and its Subsidiaries (i) are entitled to
receive not less than the net revenue interests of such properties as set forth in the
reserve report of MHA Petroleum Consultants dated as of January 22, 2008 (the “Reserve
Report”) of all hydrocarbons and minerals produced, saved and marketed from such properties,
and proceeds thereof, all without reduction, suspension or termination of such interests
throughout the productive life of such properties, and (ii) are obligated to bear a share of
the costs and expenses relating to the maintenance, exploration, drilling, completion,
development, operation, plugging and abandonment of such properties not greater than
the working interests of such properties as set forth in the Reserve Report, without
increase throughout the life of such properties.
7
(u) Except as described in each of the Time of Sale Disclosure Package and the Final
Offering Memorandum, there is no pending action, suit or other proceeding involving the
Company or any of its Subsidiaries or any of their material assets for any failure of the
Company or any of its Subsidiaries, or any predecessor thereof, to comply with any
requirements of federal, state or local regulation relating to air, water, solid waste
management, hazardous or toxic substances, or the protection of health, safety or the
environment. Except as described in each of the Time of Sale Disclosure Package and the
Final Offering Memorandum, none of the property owned or leased by the Company or any of its
Subsidiaries is, to the best knowledge of the Company, contaminated with waste or hazardous
or toxic substances in material amounts or in amounts that pose a threat to employees or
visitors, and neither the Company nor any of its Subsidiaries may be deemed an “owner or
operator” of a “facility” or “vessel” that owns, possesses, transports, generates or
disposes of a “hazardous substance” as those terms are defined in §9601 of the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. §9601
et seq.
(v) No labor disturbance exists with the employees of the Company or any of its
Subsidiaries or is imminent that, individually or in the aggregate, would have a Material
Adverse Effect. None of the employees of the Company or any of its Subsidiaries is
represented by a union and, to the best knowledge of the Company and its Subsidiaries, no
union organizing activities are taking place. Neither the Company nor any of its
Subsidiaries has violated any federal, state or local law or foreign law relating to
discrimination in hiring, promotion or pay of employees, nor any applicable wage or hour
laws, or the rules and regulations thereunder, or analogous foreign laws and regulations,
that would, individually or in the aggregate, result in a Material Adverse Effect.
(w) The Company and its Subsidiaries are in compliance in all material respects with
all presently applicable provisions of the Employee Retirement Income Security Act of 1974,
as amended, including the regulations and published interpretations thereunder (“ERISA”); no
“reportable event” (as defined in ERISA) has occurred with respect to any “pension plan” (as
defined in ERISA) for which the Company and its Subsidiaries would have any liability; the
Company and its Subsidiaries have not incurred and do not expect to incur liability under
(i) Title IV of ERISA with respect to termination of, or withdrawal from, any “pension plan”
or (ii) Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended, including the
regulations and published interpretations thereunder (the “Code”); and each “pension plan”
for which the Company or any of its Subsidiaries would have any liability that is intended
to be qualified under Section 401(a) of the Code is so qualified in all material respects,
and nothing has occurred, whether by action or by failure to act, that would cause the loss
of such qualification.
8
(x) The Company and its Subsidiaries maintain insurance of the types and in the amounts
generally deemed adequate for its business, including, but not limited to,
directors’ and officers’ insurance, insurance covering real and personal property owned
or leased by the Company and its Subsidiaries against theft, damage, destruction, acts of
vandalism and all other risks customarily insured against, all of which insurance is in full
force and effect. Neither the Company nor any of its Subsidiaries has been refused any
insurance coverage sought or applied for, and the Company has no reason to believe that it
and its Subsidiaries will not be able to renew their existing insurance coverage as and when
such coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not have a Material Adverse Effect.
(y) Neither the Company nor any of its Subsidiaries is, or with the giving of notice or
lapse of time or both would be, in default or violation with respect to its certificate of
incorporation or by-laws. Neither the Company nor any of its Subsidiaries is, or with the
giving of notice or lapse of time or both would be, in default in the performance or
observance of any material obligation, agreement, covenant or condition contained in any
material indenture, mortgage, deed of trust, loan agreement, lease or other agreement or
instrument to which the Company or any of its Subsidiaries is a party or by which the
Company or any of its Subsidiaries is bound or to which any of the properties or assets
owned by the Company or any of its Subsidiaries is subject, or in violation of any statutes,
laws, ordinances or governmental rules or regulations or any orders or decrees to which it
is subject, including, without limitation, Section 13 of the Exchange Act, which default or
violation, individually or in the aggregate, would have a Material Adverse Effect. Neither
the Company nor any of its Subsidiaries has, at any time during the past five years, (A)
made any unlawful contributions to any candidate for any political office, or failed fully
to disclose any contribution in violation of law, or (B) made any payment to any state,
federal or foreign government official, or other person charged with similar public or
quasi-public duty (other than payment required or permitted by applicable law).
(z) Other than as set forth in each of the Time of Sale Disclosure Package and the
Final Offering Memorandum, there are no legal or governmental proceedings pending to which
the Company or any of its Subsidiaries is a party or of which any property of the Company or
any of its Subsidiaries is the subject that, if determined adversely to the Company or any
of its Subsidiaries, would individually or in the aggregate have a Material Adverse Effect
or that would materially and adversely affect the consummation of the transactions
contemplated hereby or that is required to be disclosed in each of the Time of Sale
Disclosure Package or the Final Offering Memorandum; to the best of the Company’s knowledge,
no such proceedings are threatened or contemplated.
(aa) ▇▇▇▇▇, ▇▇▇▇▇▇ & Co., the accounting firm that has issued an opinion on the
financial statements filed with or incorporated by reference in and as a part of the Final
Offering Memorandum, is an independent registered public accounting firm within the meaning
of the Securities Act and the Securities Act Rules and Regulations and the rules and
regulations of the Public Company Accounting Oversight Board (“PCAOB”) of the United States.
The Company and each of its Subsidiaries maintains a system of internal accounting controls
sufficient to provide reasonable assurance that: (1) transactions are executed in accordance
with management’s general or specific authorization; (2) transactions are recorded as
necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to maintain
accountability for assets; (3) access to assets is permitted only in accordance with
management’s general or specific authorization; and (4) the recorded accounts for assets are
compared with the existing assets at reasonable intervals and appropriate action is taken
with respect thereto.
9
Except as set forth in the Time of Sale Disclosure Package and the
Final Offering Memorandum, the consolidated financial statements and schedules of the
Company, including the notes thereto, filed with (or incorporated by reference) and as a
part of the Time of Sale Disclosure Package or the Final Offering Memorandum, present fairly
the financial condition of the Company and its Subsidiaries as of the respective dates
thereof and the consolidated results of operations and changes in financial position and
consolidated statements of cash flow for the respective periods covered thereby, all in
conformity with generally accepted accounting principles applied on a consistent basis
throughout the periods involved except as otherwise disclosed therein. All adjustments
necessary for a fair presentation of results for such periods have been made. The selected
financial data included or incorporated by reference in the Time of Sale Disclosure Package
and the Final Offering Memorandum present fairly the information shown therein and have been
compiled on a basis consistent with that of the audited financial statements. Any operating
or other statistical data included or incorporated by reference in the Time of Sale
Disclosure Package and the Final Offering Memorandum comply in all material respects with
the Securities Act and the Securities Act Rules and Regulations and present fairly the
information shown therein and are based on or derived from sources that the Company
reasonably and in good faith believes are reliable and accurate, and such data agree with
the sources from which they are derived. All non-GAAP financial information included (or
incorporated by reference) in the Time of Sale Disclosure Package or the Final Offering
Memorandum complies in all material respects with the requirements of Regulation G and Item
10 of Regulation S-K under the Securities Act.
(bb) Each of MHA Petroleum Consultants, Inc. (“MHA”) and ▇▇▇▇▇▇▇ & Associates
(“▇▇▇▇▇▇▇”) is a natural gas engineering firm from whose reserve reports information is
contained or incorporated by reference in the Time of Sale Disclosure Package and the Final
Offering Memorandum, and acts as independent natural gas engineers with respect to the
Company. Other than (i) the production of reserves in the ordinary course of business, (ii)
intervening price fluctuations or (iii) as described in the Time of Sale Disclosure Package,
the Company is not aware of any facts or circumstances that would result in a material
adverse change in its proved reserves in the aggregate, or the aggregate present value of
estimated future net revenues of the Company or the standardized measure of discounted
future net cash flows therefrom, as described in the Time of Sale Disclosure Package and
reflected in the reserve information as of the respective dates such information is given.
Except as set forth in each of the Time of Sale Disclosure Package and the Final Offering
Memorandum, the Time of Sale Disclosure Package and the Final Offering Memorandum, including
the oil and natural gas production and reserve information and estimates of future net
revenues and discounted future net cash flows, in the case of the Time of Sale Disclosure
Package complies and, in the case of the Final Offering Memorandum will comply in all
material respects with the applicable requirements of Regulation S-X of the Securities Act
Rules and Regulations, Industry Guide 2 under the Securities Act and Statement of Financial
Accounting Standards Board No. 69, Disclosures about Oil and Petroleum Producing
Activities, as amended to date (“SFAS 69”).
10
(cc) The Company has not taken and will not take, directly or indirectly, any action
designed to or that might reasonably be expected to cause or result in stabilization or
manipulation of the price of the Company’s Common Stock, and the Company is not aware of any
such action taken or to be taken by affiliates of the Company.
(dd) There is not currently and has not in the past been a failure on the part of the
Company or, to the Company’s knowledge, any of its respective directors or officers, in
their capacities as such, to comply with any applicable provisions of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act
of 2002 (“▇▇▇▇▇▇▇▇-▇▇▇▇▇”) and the rules and regulations promulgated in connection
therewith, including Sections 302, 402 and 906, and the statements contained in any
certification pursuant to such Act and related rules and regulations are complete and
correct.
(ee) The Company has established and maintains disclosure controls and procedures and
internal control over financial reporting as are currently required (as such terms are
defined in Rule 13a-15 and 15d-15 under the Exchange Act); the Company’s disclosure controls
and procedures (i) are designed to ensure that information required to be disclosed by the
Company in the reports that it files or submits under the Exchange Act is accumulated and
communicated to management, including the principal executive and principal financial
officer of the Company, or persons performing similar functions, as appropriate to allow
timely decisions regarding required disclosure, and that such information is recorded,
processed, summarized and reported, within the time periods specified in the Exchange Act
Rules and Regulations; (ii) have been evaluated for effectiveness; and (iii) are effective
in all material respects to perform the functions for which they were established.
(ff) Except as discussed with the Company’s auditors and audit committee and as
disclosed in each of the Time of Sale Disclosure Package and the Final Offering Memorandum,
(i) there are no significant deficiencies or material weaknesses in the design or operation
of internal control over financial reporting that are reasonably likely to adversely affect
the Company’s ability to record, process, summarize, and report financial data and (ii)
there is, and there has been, no fraud, whether or not material, that involves management or
other employees who have a role in the Company’s internal control over financial reporting.
(gg) Since the date of the end of the last fiscal year for which audited financial
statements are included or incorporated by reference in each of the Time of Sale Disclosure
Package and the Final Offering Memorandum, there have been no significant changes in
internal control over financial reporting or in other factors that could significantly
affect internal control over financial reporting, including any corrective actions with
regard to significant deficiencies and material weaknesses.
(hh) The Company has received no written comments from the SEC staff regarding its
periodic or current reports under the Exchange Act that remain unresolved
and have not been disclosed in the Time of Sale Disclosure Package and the Final
Offering Memorandum.
11
(ii) No relationship, direct or indirect, exists between or among the Company and any
director, officer or stockholder of the Company, or any member of his or her immediate
family, or any customers or suppliers that is required to be described in the Time of Sale
Disclosure Package or the Final Offering Memorandum and that is not so described as required
in material compliance with such requirement. There are no outstanding loans, advances
(except normal advances for business expenses in the ordinary course of business) or
guarantees of indebtedness by the Company to or for the benefit of any of the officers or
directors of the Company or any member of their respective immediate families, except as
disclosed in the Time of Sale Disclosure Package and the Final Offering Memorandum. The
Company has not, in violation of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act, directly or indirectly, extended or
maintained credit, arranged for the extension of credit, or renewed an extension of credit,
in the form of a personal loan to or for any director or executive officer of the Company.
(jj) To the best knowledge of the Company, no change in any laws or regulations is
pending that could reasonably be expected to be adopted and if adopted, is reasonably
expected to have, individually or in the aggregate with all such changes, a Material Adverse
Effect, except as set forth in or contemplated in each of the Time of Sale Disclosure
Package and the Final Offering Memorandum.
(kk) The minute books of each of the Company and its Subsidiaries have been made
available to the Representative and contain a complete summary of all meetings and other
actions of the directors and shareholders of each such entity in all material respects, and
reflect all transactions referred to in such minutes accurately in all material respects.
(ll) Neither the Company nor any of its Subsidiaries, nor, to the Company’s knowledge,
any director, officer, agent, employee or other person associated with or acting on behalf
of the Company or any of its Subsidiaries, has, directly or indirectly, used any corporate
funds for any unlawful contribution, gift, entertainment or other unlawful expense relating
to political activity; made any direct or indirect unlawful payment to any foreign or
domestic government official or employee or to foreign or domestic political parties or
campaigns from corporate funds; violated or is in violation of any provision of the Foreign
Corrupt Practices Act of 1977; or made any bribe, rebate, payoff, influence payment,
kickback or other unlawful payment.
(mm) The operations of the Company and its Subsidiaries are and have been conducted at
all times in compliance in all material respects with applicable financial recordkeeping and
reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as
amended, the money laundering statutes of all jurisdictions, the rules and regulations
thereunder and any related or similar rules, regulations or guidelines, issued, administered
or enforced by any governmental agency (collectively, the “Money Laundering Laws”), and no
action, suit or proceeding by or before any court or governmental agency, authority or body
or any arbitrator involving the Company or
any of its Subsidiaries with respect to the Money Laundering Laws is pending, or to the
knowledge of the Company, threatened.
12
(nn) Neither the Company nor any of its Subsidiaries nor, to the knowledge of the
Company, any director, officer, agent, employee or affiliate of the Company or any of its
Subsidiaries is currently subject to any U.S. sanctions administered by the Office of
Foreign Assets Control of the U.S. Treasury Department (“OFAC”); and the Company will not
directly or indirectly use the proceeds of the offering, or lend, contribute or otherwise
make available such proceeds to any Subsidiary, joint venture partner or other person or
entity that, to the Company’s knowledge, will use such proceeds, for the purpose of
financing the activities of any person currently subject to any U.S. sanctions administered
by OFAC.
(oo) No customer of or supplier to the Company or any of its Subsidiaries has ceased
purchases or shipments of merchandise to the Company or indicated, to the Company’s
knowledge, an interest in decreasing or ceasing its purchases from the Company or otherwise
modifying its relationship with the Company, other than in the normal and ordinary course of
business consistent with past practices in a manner which would not, singly or in the
aggregate, result in a Material Adverse Effect.
(pp) The Securities will not be as of the same class (within the meaning of Rule 144A
under the Securities Act (“Rule 144A”)) as securities which are listed on a national
securities exchange registered under Section 6 of the Exchange Act or quoted in a U.S.
automated inter-dealer quotation system.
(qq) Assuming the accuracy of the representations and warranties of the Initial
Purchasers contained in Section 5 and their compliance with the agreements set forth
therein, no registration under the Securities Act of the Securities or the Conversion
Shares, or qualification of the Indenture under the 1939 Act is required for the offer and
sale of the Securities to or by the Initial Purchasers in the manner contemplated herein, in
the Time of Sale Disclosure Package and the Final Offering Memorandum.
(rr) On or prior to the Closing Date, the Initial Purchasers shall have received a
lock-up agreement substantially in the form of Exhibit B hereto signed by the persons listed
in Schedule IV hereto.
Any certificate signed by any officer of the Company and delivered to the Representative or
counsel for the Initial Purchasers in connection with the offering of the Securities shall be
deemed a representation and warranty by the Company, as to matters covered thereby, to the Initial
Purchasers.
3. Purchase and Sale.
(a) Subject to the terms and conditions and in reliance upon the representations and
warranties herein set forth, the Company agrees to sell the Securities to the Initial Purchasers,
and each Initial Purchaser, severally and not jointly, agrees to purchase from the Company the
respective principal amount of the Securities opposite the name of such Initial Purchaser as set
forth in Schedule I hereto, plus any additional number of Initial Securities which
such Initial Purchaser may become obligated to purchase pursuant to the provisions of Section
11 hereof, subject to such adjustments among the Initial Purchasers as the Representative in its
sole discretion shall make to eliminate any sales or purchases of fractional Securities, in each
case at a purchase price equal to 97.00% of the principal amount of the Securities (the “Purchase
Price”).
13
(b) In addition, on the basis of the representations, warranties, agreements and covenants
herein contained and subject to the terms and conditions herein set forth, the Company hereby
grants an option to the Initial Purchasers, severally and not jointly, to purchase up to U.S.
$20,000,000 aggregate principal amount of Optional Securities at the Purchase Price, plus accrued
and unpaid interest from the Closing Date to, but excluding, the applicable Option Closing Date (as
defined below). The option hereby granted will expire at 11:59 P.M. (New York City time) on the
30th day after the date hereof and may be exercised, in whole or in part, from time to
time solely for the purpose of covering over-allotments that may be made in connection with the
offering and distribution of the Initial Securities upon notice by the Representative to the
Company setting forth the number of Optional Securities as to which the several Initial Purchasers
are then exercising the option and the time and date of payment and delivery for such Optional
Securities. Any such time and date of delivery (an “Option Closing Date”) shall be determined by
the Representative, but shall not be later than five full business days after the exercise of said
option, nor in any event prior to the Closing Date.
4. Delivery and Payment. Delivery of and payment for the Initial Securities shall be
made at 10:00 A.M., New York City time, on February 15, 2008, or at such time on such later date
not more than three Business Days after the foregoing date as the Representative shall designate,
which date and time may be postponed by agreement among the Initial Purchasers and the Company
(such date and time of delivery and payment for the Initial Securities being herein called the
“Closing Date”). Delivery of the Securities shall be made to the Representative, registered in
such names and in such denominations as the Representative shall request in writing at least one
full Business Day prior to the Closing Date, against payment by the Initial Purchasers of the
Purchase Price to or upon the order of the Company by wire transfer payable in same-day funds to
the account specified by the Company. Delivery of the Securities shall be made through the
facilities of The Depository Trust Company unless the Representative shall otherwise instruct.
In addition, in the event that any or all of the Optional Securities are purchased by the
Initial Purchasers, payment of the purchase price for, and delivery of certificates for, such
Optional Securities shall be made at 10:00 A.M. (New York City time) at the above-mentioned
offices, or at such other place as shall be agreed upon by the Representative and the Company, on
each Option Closing Date as specified in the notice from the Representative to the Company.
5. Offering by Initial Purchasers and the Initial Purchasers’ Representations and
Warranties. (a) Each Initial Purchaser acknowledges that neither the Securities nor the
Conversion Shares have been, or will be, registered under the Securities Act and may not be offered
or sold within the United States or to, or for the account or benefit of, U.S. persons, except
pursuant to an exemption from, or in a transaction not subject to, the registration requirements of
the Securities Act.
14
(b) Each Initial Purchaser, severally and not jointly, represents and warrants to and agrees
with the Company that:
(i) It is a qualified institutional buyer as defined Rule 144A (a “QIB”).
(ii) It (including any person acting on its behalf) has solicited offers and will
solicit offers for the Securities only from, and will offer the Securities only to
persons that it reasonably believes to be QIBs and such Initial Purchaser has taken
or will take reasonable steps to ensure that each purchaser of the Securities is
aware that the Securities are being offered and sold in reliance upon the
representations and warranties deemed to have been made by such purchaser as
provided in the Preliminary Offering Memorandum and the Final Offering Memorandum
under the caption “Transfer Restrictions” and such Initial Purchaser (and any person
acting on its behalf) has taken or will take reasonable steps to ensure that the
purchaser of such Securities is aware that such sale is being made in reliance upon
Rule 144A. Such Initial Purchaser also agrees that it will not offer, sell or
deliver any of the Securities in any jurisdiction outside of the United States
except under circumstances that will result in compliance with the applicable laws
thereof.
(c) Neither it nor any person acting on its behalf will offer or sell the Securities using any
form of general solicitation or general advertising (within the meaning of Regulation D) or in any
manner involving a public offering within the meaning of Section 4(2) under the Securities Act.
6. Supplemental Offering Materials.
(a) Without the prior written consent of the Representative, the Company has not given
and will not give to any prospective purchaser of the Securities any “written communication”
(within the meaning of the Securities Act Regulations) prepared by or on behalf of the
Company, or used or referred to by the Company, that constitutes an offer to sell or a
solicitation of an offer to buy the Securities, including, without limitation, any road show
relating to the Securities that constitutes such a written communication (“Supplemental
Offering Materials”) other than the documents that constitute the Time of Sale Disclosure
Package or the Final Offering Memorandum (including any amendments or supplements thereto).
Any such Supplemental Offering Material consented to by the Representative is listed on
Schedule II hereto.
(b) The Company represents that as of the Time of Sale, no individual Supplemental
Offering Material, when considered together with the Time of Sale Disclosure Package,
included any untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
(c) The Company represents and agrees that any individual Supplemental Offering
Material, as of its issue date and at all subsequent times through the completion of the
offering and sale of the Securities, did not, does not and will not include any
information that conflicted, conflicts or will conflict with the information contained
in the Preliminary Offering Memorandum or the Final Offering Memorandum.
15
7. Agreements. The Company agrees with the Initial Purchasers that:
(a) During the period referred to in subparagraph (c) below, the Company will not amend
or supplement the Time of Sale Disclosure Package or the Final Offering Memorandum, other
than by filing documents under the Exchange Act that are incorporated by reference therein,
without the prior written consent of the Representative; provided, however, that prior to
the completion of the Offering Period, the Company will not file any document under the
Exchange Act that is incorporated by reference in the Time of Sale Disclosure Package or the
Final Offering Memorandum unless, prior to such proposed filing, the Company has furnished
to the Representative a copy of such document for its review reasonably in advance of such
filing and the Representative has not reasonably objected to the filing of such document.
The Company will promptly advise the Representative when any document filed under the
Exchange Act that is incorporated by reference in the Time of Sale Disclosure Package or the
Final Offering Memorandum shall have been filed with the Commission.
(b) The Company will prepare a final term sheet that contains solely a description of
the Securities and the offering thereof (the “Pricing Term Sheet”), in a form approved by
the Representative and attached as Schedule III hereto.
(c) If, prior to the completion of the sale and distribution of the Securities by the
Initial Purchasers (the “Offering Period”), any event occurs as a result of which the Time
of Sale Disclosure Package would include any untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, the Company will (1) notify the
Initial Purchasers so that any use of the Time of Sale Disclosure Package may cease until it
is amended or supplemented; (2) amend or supplement the Time of Sale Disclosure Package to
correct such statement or omission; and (3) supply any amendment or supplement to the
Initial Purchasers in such quantities as the Initial Purchasers may reasonably request.
(d) If, during the Offering Period, any event occurs as a result of which the Final
Offering Memorandum as then amended or supplemented would contain any untrue statement of a
material fact or omit to state any material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading, or if it shall
be necessary to amend or supplement the Final Offering Memorandum to comply with applicable
law, the Company promptly will (1) notify the Initial Purchasers of any such event,
(2) prepare an amendment or supplement to the Final Offering Memorandum which will correct
such statement or omission or effect such compliance and (3) supply any amended or
supplemented Final Offering Memorandum to the Initial Purchasers in such quantities as the
Initial Purchasers may reasonably request.
16
(e) During the Offering Period, the Company will furnish to the Initial Purchasers and
to counsel for the Initial Purchasers promptly, without charge, as many copies of the Time
of Sale Disclosure Package and the Final Offering Memorandum and any amendments and
supplements thereto as they may reasonably request.
(f) The Company will cause its directors and executive officers to furnish to the
Representative, on or prior to the date of this Agreement, a letter or letters, in form and
substance satisfactory to counsel for the Representative, pursuant to which each such person
shall agree not to, and the Company will not, during the period ending 60 days after the
date of the Final Offering Memorandum, without the prior written consent of the
Representative, directly or indirectly, (1) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock; (2) enter into any swap or other arrangement that transfers
to another, in whole or in part, any of the economic consequences of ownership of the Common
Stock or any securities convertible into or exercisable or exchangeable for Common Stock,
whether any such transaction described in clause (1) or (2) above is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise; (3) file any
registration statement with the SEC relating to the offering of any shares of Common Stock
or any securities convertible into or exercisable or exchangeable for Common Stock or (4)
publicly announce any intention to take any of the actions specified in clauses (1) through
(3) above.
The restrictions contained in the preceding paragraph shall not apply to (a) the issuance by
the Company of shares of Common Stock upon the exercise of an option or warrant or the conversion
of a security outstanding on the date hereof of which the Representative has been advised in
writing or the granting or exercise of options or stock purchase rights pursuant to the Company’s
stock option and stock purchase plans, whenever granted; provided that the underlying shares of
Common Stock issued to any person who has delivered a lock-up agreement pursuant to this Section
7(f) hereto shall continue to be subject to the restrictions contained in the immediately preceding
paragraph or such lock-up agreement, as applicable, except to the extent of any shares sold in
order to raise funds sufficient to pay the exercise price and any tax on exercise of options; (b)
the issuance by the Company of shares of Common Stock or options to purchase shares of Common Stock
to, or the repurchase by the Company of unvested shares of Common Stock upon termination of service
from, an employee, director, consultant other service provider, pursuant to the Company’s stock
option or stock purchase plans in effect on the date hereof or approved by the stockholders before
the date hereof; provided that the shares of Common Stock or options to purchase shares of Common
Stock issued to the Company’s directors and executive officers shall be subject to the restrictions
contained in the lock-up agreements delivered pursuant to this Section 7(f), except to the extent
of any shares sold in order to raise funds sufficient to pay the exercise price and any tax on
exercise of options; (c) the filing by the Company of any registration statement with the
Commission on Form S-8 relating to the offering of securities pursuant to the terms of a stock
option or stock purchase plan of the Company in effect on the date hereof or approved by the
stockholders before the date hereof and (d) the sale of 100,000 shares of Common Stock of ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇., which shall be permitted at any time 45 days after the date of the Final
Offering Memorandum.
17
(g) Notwithstanding the foregoing, if (1) during the last 17 days of the 60-day
restricted period the Company issues an earnings release or material news or a material
event relating to the Company occurs; or (2) prior to the expiration of the 60-day
restricted period, the Company announces that it will release earnings results during the
16-day period beginning on the last day of the 60-day period, the restrictions imposed by
this agreement shall continue to apply until the expiration of the 18-day period beginning
on the issuance of the earnings release or the occurrence of the material news or material
event. The Company shall promptly notify the Representative of any earnings release, news or
event that may give rise to an extension of the initial 60-day restricted period.
(h) The Company will comply in all material respects with all applicable securities and
other applicable laws, rules and regulations, including, without limitation, the
▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act, and will use its best efforts to cause the Company’s directors and
officers, in their capacities as such, to comply with such laws, rules and regulations,
including, without limitation, the provisions of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act.
(i) The Company will reserve and keep available at all times, free of pre-emptive
rights, the full number of shares of Common Stock issuable upon conversion of the
Securities.
(j) None of the Company, its Subsidiaries, or any of its affiliates, nor any person
acting on its or their behalf (other than any Initial Purchaser acting in its capacity as
such) will, directly or indirectly, make offers or sales of any security, or solicit offers
to buy any security, under circumstances that would require the registration of the
Securities or the Conversion Shares under the Securities Act.
(k) None of the Company, its Subsidiaries, or any of its affiliates, nor any person
acting on its or their behalf (other than any Initial Purchaser acting in its capacity as
such) will engage in any form of general solicitation or general advertising (within the
meaning of Regulation D) in connection with any offer or sale of the Securities or the
Conversion Shares.
(l) In the event that it is no longer subject to Sections 13 or 15(d) of the Exchange
Act, the Company shall use its best efforts to provide to each holder of such restricted
securities and to each prospective purchaser (as designated by such holder) of such
restricted securities, upon the request of such holder or prospective purchaser, any
information required to be provided by Rule 144A(d)(4) under the Securities Act. This
covenant is intended to be for the benefit of the holders, and the prospective purchasers
designated by such holders from time to time, of such restricted securities.
(m) The Company will use its best efforts to list, subject to notice of issuance, the
Conversion Shares on the NASDAQ Global Select Market (“NASDAQ”).
18
(n) The Company will cooperate with the Initial Purchasers and use its best efforts to
permit the Securities to be eligible for clearance and settlement through the facilities of
the Depository Trust Company.
(o) The Company will not take, directly or indirectly, any action designed to or that
would constitute or that might reasonably be expected to cause or result in, under the
Exchange Act or otherwise, stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Securities or the Conversion Shares.
(p) The Company will, in cooperation with the Initial Purchasers, qualify the
Securities and the Conversion Shares for offering and sale, or obtain an exemption for the
Securities and the Conversion Shares to be offered and sold under the applicable securities
laws of such states and other jurisdictions as the Representative may designate and will
maintain the effectiveness of such qualifications and exemptions for so long as required for
the distribution of the Securities (but in no event for less than one year from the date of
this Agreement); provided, however, that the Company shall not be obligated to file any
general consent to service of process or to qualify as a foreign corporation or as a dealer
in securities in any jurisdiction in which it is not so qualified or to subject itself to
taxation in respect of doing business in any jurisdiction in which it is not otherwise so
subject. In each jurisdiction in which the Securities have been so qualified or exempt, the
Company will file such statements and reports as may be required by the laws of such
jurisdiction to continue such qualification or exemption, as the case may be, in effect for
so long as required for the distribution of the Securities (but in no event for less than
one year from the date of this Agreement).
(q) The Company agrees to pay the costs and expenses relating to the following matters:
(i) the preparation, printing or reproduction of the Final Offering Memorandum, the Time of
Sale Disclosure Package, any Supplemental Offering Materials and each amendment or
supplement to any of them; (ii) the printing (or reproduction) and delivery (including
postage, air freight charges and charges for counting and packaging) of such copies of the
Final Offering Memorandum, the Time of Sale Disclosure Package, any Supplemental Offering
Materials and all amendments or supplements to any of them, as may, in each case, be
reasonably requested for use in connection with the offering and sale of the Securities;
(iii) the preparation, printing, authentication, issuance and delivery of certificates for
the Securities, including any stamp or transfer taxes in connection with the original
issuance and sale of the Securities; (iv) the printing (or reproduction) and delivery of
this Agreement, any blue sky memorandum and all other agreements or documents printed (or
reproduced) and delivered in connection with the offering of the Securities; (v) the listing
of the Conversion Shares on the Nasdaq Global Select Market; (vi) any registration or
qualification of the Securities or the Conversion Shares for offer and sale under the
securities or blue sky laws (including filing fees and the reasonable fees and expenses of
counsel for the Initial Purchasers relating to such registration and qualification);
(vii) the transportation and other expenses incurred by or on behalf of Company
representatives in connection with presentations to prospective purchasers of the
Securities; (viii) the fees and expenses of the Company’s accountants and the fees and
expenses of counsel (including local and special counsel) for the Company; (ix) the fees and
expenses of the
Trustee, including the fees and disbursements of counsel for the Trustee in connection
with the Indenture and the Securities; (x) all other costs and expenses incident to the
performance by the Company of its obligations hereunder; and (xii) all other reasonable
costs and expenses incident to the performance by the Company of its obligations hereunder.
19
8. Conditions to the Obligations of the Initial Purchasers. The obligation of the
several Initial Purchasers to purchase the Securities shall be subject to the accuracy of the
representations and warranties on the part of the Company contained herein as of the date of this
Agreement and as of the Closing Date, to the accuracy of the statements of the Company made in any
certificates pursuant to the provisions hereof, to the performance by the Company of its
obligations hereunder and to the following additional conditions:
(a) No Initial Purchaser shall have advised the Company that the Time of Sale Disclosure
Package or the Final Offering Memorandum, or any amendment thereof or supplement thereto, or any
Supplemental Offering Materials, contains an untrue statement of fact which, in your opinion, is
material, or omits to state a fact which, in your opinion, is material and is required to be stated
therein or necessary to make the statements therein not misleading.
(b) On the Closing Date, there shall have been furnished to you, the Representative, the
opinion of ▇▇▇▇▇ & ▇▇▇▇▇▇▇, PC, counsel for the Company, dated the Closing Date and addressed to
you, to the effect that:
(i) Each of the Company and the Subsidiaries has been duly formed and is
validly existing in good standing under its jurisdiction of formation with all
necessary power and authority to own or lease its properties and to conduct its
business in all material respects as described in the Time of Sale Disclosure
Package and the Final Offering Memorandum. Each of the Company and the Subsidiaries
is duly registered or qualified as a foreign entity for the transaction of business
under the laws of the jurisdictions set forth on an exhibit thereto.
(ii) The Company directly owns 100% of the issued shares of capital stock in
each of the Subsidiaries and such shares of capital stock have been duly authorized
and validly issued in accordance with the certificate of incorporation governing
such entity and are fully paid and non-assessable; and the Company owns such shares
of capital stock free and clear of all liens, encumbrances, security interests,
equities, charges or claims, other than liens described in the Time of Sale
Disclosure Package and the Final Offering Memorandum.
(iii) Other than as set forth in each of the Time of Sale Disclosure Package
and the Final Offering Memorandum, to the best of such counsel’s knowledge, there
are no legal or governmental proceedings contemplated, threatened or pending to
which the Company or any of its Subsidiaries is a party or of which any property of
the Company or any of its Subsidiaries is the subject that, if determined adversely
to the Company or any of its Subsidiaries, would individually or in the aggregate
have a Material Adverse Effect or that would materially and adversely affect the
consummation of the transactions
contemplated hereby or that is required to be disclosed in each of the Time of
Sale Disclosure Package and the Final Offering Memorandum.
20
(iv) The Company has all requisite power and authority to issue, sell and
deliver the Securities to be sold by it in accordance with and upon the terms and
conditions set forth in this Agreement, the Indenture, the Registration Rights
Agreement, the Share Lending Agreement, the Time of Sale Disclosure Package and the
Final Offering Memorandum.
(v) Neither the execution, delivery and performance by the Company of this
Agreement nor the consummation of the transactions herein contemplated will result
in a breach or violation of any of the terms or provisions of, or constitute a
default under, (A) constitutes or will constitute a violation of its Organizational
Documents, (B) constitutes or will constitute a breach or violation of, or a default
(or an event which, with notice or lapse of time or both, would constitute such a
default) under any material agreements relating to borrowed money (the “Reviewed
Agreements”), or (C) to such counsel’s knowledge, results or will result in the
creation or imposition of any lien, charge or encumbrance upon any property or
assets of the Company or the Subsidiaries, which breaches, violations, defaults or
liens, in the case of clause (B) would, individually or in the aggregate, have a
Material Adverse Effect.
(vi) No permit, consent, approval, authorization, order, registration, filing
or qualification of or with any court, governmental agency or body having
jurisdiction over any of the Company or the Subsidiaries is required for the
offering, issuance and sale by the Company of the Securities, the execution,
delivery and performance of this Agreement by the Company or the consummation by the
Company of the transactions contemplated by this Agreement.
(vii) No registration under the Securities Act of the Securities or the
Conversion Shares, and no qualification of an indenture under the Trust Indenture
Act of 1939, as amended (the “1939 Act”), are required for the sale and delivery of
the Securities by the Company to the Initial Purchasers or the offer and sale by the
Initial Purchasers of the Securities in the manner contemplated herein, in the Time
of Sale Disclosure Package or in the Final Offering Memorandum.
(viii) The Company’s authorized equity capitalization is as set forth in the
Time of Sale Disclosure Package and the Final Offering Memorandum; the capital stock
of the Company conforms in all material respects to the description thereof
contained in the Time of Sale Disclosure Package and the Final Offering Memorandum;
the Securities conform to the description thereof contained in the Time of Sale
Disclosure Package and the Final Offering Memorandum; the outstanding shares of
Common Stock have been duly and validly authorized and issued and are fully paid and
nonassessable; to the knowledge of such counsel, the holders of outstanding shares
of capital stock of the Company are not entitled to preemptive or other rights to
subscribe for the Securities or the Conversion Shares; the Securities have been duly authorized and,
21
when executed and
authenticated in accordance with the provisions of the Indenture and delivered to
and paid for by the Initial Purchasers under this Agreement, will constitute legal,
valid, binding and enforceable obligations of the Company, entitled to the benefits
of the Indenture (subject, as to the enforcement of remedies, to the Enforceability
Exceptions) and will be convertible into Common Stock in accordance with their
terms; the Conversion Shares have been duly authorized and, when issued upon
conversion of the Securities against payment of the conversion price, will be
validly issued, fully paid and nonassessable; the Board of Directors of the Company
has duly and validly adopted resolutions reserving such shares of Common Stock for
issuance upon conversion of the Securities; and, except as set forth in the Time of
Sale Disclosure Package and the Final Offering Memorandum, to the knowledge of such
counsel, no options, warrants or other rights to purchase, agreements or other
obligations to issue, or rights to convert any obligations into or exchange any
securities for, shares of capital stock of or ownership interests in the Company are
outstanding;
(ix) This Agreement has been duly authorized, executed and delivered by the
Company; the Indenture has been duly authorized, executed and delivered, and,
constitutes a legal, valid and binding instrument enforceable against the Company in
accordance with its terms (subject, as to enforcement of remedies, to the
Enforceability Exceptions); the Share Lending Agreement has been duly authorized,
executed and delivered, and, constitutes a legal, valid and binding instrument
enforceable against the Company in accordance with its terms (subject, as to
enforcement of remedies, to the Enforceability Exceptions); the Registration Rights
Agreement has been duly authorized, executed and delivered; and the statements set
forth under the headings “Description of Notes”, “Description of Other
Indebtedness”, “Description of Capital Stock” and “Description of Share Lending
Agreement” in the Preliminary Offering Memorandum and the Final Offering Memorandum,
insofar as such statements purport to summarize certain provisions of the
Securities, the Indenture, the Common Stock and the Registration Rights Agreement,
provide a fair summary of such provisions;
(x) Neither the Company nor any of its Subsidiaries is and, none will be, after
giving effect to the offering and sale of the Securities, an “investment company” or
an entity “controlled” by an “investment company”, as such terms are defined in the
Investment Company Act of 1940, as amended;
(xi) and such counsel has no reason to believe that (i) the Time of Sale
Disclosure Package at the Time of Sale contained untrue statement of a material fact
or omitted or omits to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; or (ii) the Final Offering Memorandum, as of its date or as of the
Closing Date, contained any untrue statement of a material fact or omitted or omits
to state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading (in each case,
other than the financial statements and other financial, oil and gas reserve,
oil and gas property and statistical information contained therein, as to which such
counsel need to express no opinion);
22
In rendering such opinion, such counsel may rely (x) as to matters involving the
application of laws of any jurisdiction other than the State of Oklahoma or the Federal laws
of the United States, to the extent they deem proper and specified in such opinion, upon the
opinion of other counsel of good standing whom they believe to be reliable and who are
satisfactory to counsel for the Initial Purchasers and (y) as to matters of fact, to the
extent they deem proper, on certificates of responsible officers of the Company and public
officials. Further, for agreements governed by New York law, such counsel may opine as to
the validity and enforceability under Oklahoma law as if Oklahoma law governed.
(c) On the Closing Date, the Representative shall have received from ▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇,
counsel for the Initial Purchasers, such opinion or opinions, dated the Closing Date and addressed
to the Representative, with respect to the issuance and sale of the Securities, the Time of Sale
Disclosure Package, the Final Offering Memorandum (together with any supplement thereto) and other
related matters as the Initial Purchasers may reasonably require, and the Company shall have
furnished to such counsel such documents as they request for the purpose of enabling them to pass
upon such matters.
(d) The Company shall have furnished to the Representative a certificate of the Company,
signed by the President and the principal financial or accounting officer of the Company, dated the
Closing Date, to the effect that the signers of such certificate have carefully examined the Time
of Sale Disclosure Package, the Final Offering Memorandum, any supplements to the Final Offering
Memorandum and this Agreement and that:
(i) The representations and warranties of the Company in this Agreement are
true and correct on and as of the Closing Date with the same effect as if made on
the Closing Date and the Company has complied with all the agreements and satisfied
all the conditions on its part to be performed or satisfied at or prior to the
Closing Date;
(ii) Since the date of the most recent financial statements included in the
Time of Sale Disclosure Package and the Final Offering Memorandum (exclusive of any
supplement thereto), there has been no material adverse effect on the condition
(financial or otherwise), prospects, earnings, business or properties of the Company
and its Subsidiaries, taken as a whole, whether or not arising from transactions in
the ordinary course of business, except as set forth in or contemplated in the Time
of Sale Disclosure Package and the Final Offering Memorandum (exclusive of any
supplement thereto).
23
(e) The Representative shall have received, at the time this Agreement is executed and at the
Closing Date, letters dated the date hereof or the Closing Date, as the case may be, in form and
substance satisfactory to the Representative from ▇▇▇▇▇, ▇▇▇▇▇▇ & Co., independent public
accountants, containing statements and information of the type customarily
included in accountants’ comfort letters to underwriters with respect to the financial
statements and certain financial information contained in the Time of Sale Disclosure Package and
the Final Offering Memorandum; provided that, in the case of the comfort letter to be delivered on
the Closing Date, the specified date referred to therein for the carrying out of procedures shall
be no more than three business days prior to the Closing Date.
(f) At the time of execution of this Agreement, the Representative shall have received from
each of MHA and ▇▇▇▇▇▇▇, a letter or letters, in form and substance satisfactory to the, addressed
to the Representative with respect to: (i) the estimated quantities of the Company’s proved net
reserves, (ii) the future net revenues from those reserves, (iii) their present value as set forth
in the Time of Sale Disclosure Package and the Final Offering Memorandum and (iv) such related
matters as the Representative shall reasonably request.
(g) Subsequent to the date of this Agreement, there shall not have been any decrease in the
rating of any of the Company’s debt securities by any “nationally recognized statistical rating
organization” (as defined for purposes of Rule 436(g) under the Securities Act) or any notice given
of any intended or potential decrease in any such rating or of a possible change in any such rating
that does not indicate the direction of the possible change.
(h) On or after the Time of Sale there shall not have occurred any of the following: (i) a
suspension or limitation in trading of the Company’s Common Stock by the Commission or the Nasdaq
Global Select Market; (ii) a general suspension or general limitation in trading or setting of
minimum prices occurs on the New York Stock Exchange or the Nasdaq Global Select Market; (iii) a
banking moratorium declared by either the Federal or New York State authorities; or (iv) an
outbreak or escalation of hostilities, declaration by the United States of a national emergency or
war, or other calamity or crisis the effect of which on the financial markets is such as to make
it, in the sole judgment of the Representative, impractical or inadvisable to proceed with the
offering or delivery of the Securities as contemplated by the Time of Sale Disclosure Package
(exclusive of any supplement thereto).
(i) Equity Offering. At the Closing Date, the Equity Offering shall have been consummated on
the terms and conditions described in the Time of Sale Disclosure Package and the Final Offering
Memorandum.
(j) Conditions to Purchase of Optional Securities. In the event that the Initial
Purchasers exercise their option provided in Section 3(b) hereof to purchase all or any portion of
the Optional Securities on any Option Closing Date that is after the Closing Date, the obligations
of the several Initial Purchasers to purchase the applicable Optional Securities shall be subject
to the conditions specified in the introductory paragraph of this Section 8 and to the further
condition that, at the applicable Option Closing Date, the Representative shall have received:
1. A certificate, dated such Option Closing Date, to the effect set forth in,
and signed by two of the officers specified in, Section 8(d) hereof, except that the
references in such certificate to the Closing Date shall be changed to refer to such
Option Closing Date.
24
2. The favorable opinion of ▇▇▇▇▇ & ▇▇▇▇▇▇▇, PC, counsel for the Company, in
form and substance satisfactory to the Representative and dated such Option Closing
Date, relating to the Optional Securities to be purchased on such Option Closing
Date and otherwise to the same effect as the opinion referred to in Section 8(b)
hereof.
3. The favorable opinion of ▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇, counsel for the Initial
Purchasers, in form and substance satisfactory to the Representative and dated such
Option Closing Date, relating to the Optional Securities to be purchased on such
Option Closing Date and otherwise to the same effect as the opinion required by
Section 8(c) hereof.
4. Letters dated such Option Closing Date in form and substance satisfactory to
the Representative from ▇▇▇▇▇, ▇▇▇▇▇▇ & Co., independent public accountants,
containing statements and information of the type customarily included in
accountants’ comfort letters to underwriters with respect to the financial
statements and certain financial information contained in the Time of Sale
Disclosure Package and the Final Offering Memorandum; provided that the specified
date referred to therein for the carrying out of procedures shall be no more than
three business days prior to the Option Closing Date.
(k) At the Closing Date and at each Option Closing Date, the Representative and counsel for
the Initial Purchasers shall have been furnished with such further information, certificates and
documents as the Representative or counsel for the Initial Purchasers may reasonably request.
If any of the conditions specified in this Section 8 shall not have been fulfilled when and as
provided in this Agreement, or if any of the opinions and certificates mentioned above or elsewhere
in this Agreement shall not be reasonably satisfactory in form and substance to the Representative
and counsel for the Initial Purchasers, this Agreement and all obligations of the Initial
Purchasers hereunder may be canceled at, or at any time prior to, the Closing Date, or any Option
Closing Date, as the case may be, by the Representative. Notice of such cancellation shall be
given to the Company in writing or by telephone or facsimile confirmed in writing.
9. Reimbursement of Initial Purchasers’ Expenses. If the sale of the Securities
provided for herein is not consummated because any condition to the obligations of the Initial
Purchasers set forth in Section 8 hereof is not satisfied, because of any termination pursuant to
Section 8(h) hereof or because of any refusal, inability or failure on the part of the Company to
perform any agreement herein or comply with any provision hereof other than by reason of a default
by any of the Initial Purchasers, the Company will reimburse the Initial Purchasers on demand for
all out-of-pocket expenses (including reasonable fees and disbursements of counsel) that shall have
been incurred by it in connection with the proposed purchase and sale of the Securities.
25
10. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless the Initial Purchasers, the directors,
officers, employees and agents of the Initial Purchasers and each person who controls any of the
Initial Purchasers within the meaning of either the Securities Act or the Exchange Act against any
and all losses, claims, damages or liabilities, joint or several, to which they or any of them may
become subject under the Securities Act, the Exchange Act or other Federal or state statutory law
or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in the Time of Sale Disclosure Package, the Final
Offering Memorandum, or any amendment or supplement thereto (including any documents filed under
the Exchange Act and deemed to be incorporated by reference into the Final Offering Memorandum),
the Pricing Term Sheet, any Supplemental Offering Materials or any other written information used
by or on behalf of the Company in connection with the offer or sale of the Securities (or any
amendment or supplement to the foregoing), or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, and agrees to reimburse each such indemnified party, as
incurred, for any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action; provided, however,
that the Company will not be liable in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon any such untrue statement or alleged untrue
statement or omission or alleged omission made therein in reliance upon and in conformity with
written information furnished to the Company by or on behalf of the Initial Purchasers through the
Representative specifically for inclusion therein. This indemnity agreement will be in addition to
any liability which the Company may otherwise have.
(b) The Initial Purchasers agree, severally and not jointly, to indemnify and hold harmless
the Company, each of its directors, each of its officers, and each person who controls the Company
within the meaning of either the Securities Act or the Exchange Act to the same extent as the
foregoing indemnity from the Company to the Initial Purchasers, but only with reference to
information relating to the Initial Purchasers furnished to the Company in writing by the Initial
Purchasers through the Representative expressly for use in the Time of Sale Disclosure Package, the
Final Offering Memorandum, or any amendment or supplement thereto, the Pricing Term Sheet or any
Supplemental Offering Materials. This indemnity agreement will be in addition to any liability
which any Initial Purchaser may otherwise have. The Company acknowledges that the statements set
forth in the last paragraph of the cover page regarding delivery of the Securities and, under the
heading “Plan of Distribution”, the paragraph related to stabilization and covering transactions in
the Final Offering Memorandum constitute the only information furnished in writing by or on behalf
of the Initial Purchasers.
(c) Promptly after receipt by an indemnified party under this Section 10 of notice of the
commencement of any action, such indemnified party will, if a claim in respect thereof is to be
made against the indemnifying party under this Section 10, notify the indemnifying party in writing
of the commencement thereof; but the failure so to notify the indemnifying party (i) will not
relieve it from liability under paragraphs (a) or (b) of this Section 10, as the case may be,
unless and to the extent it did not otherwise learn of such action and such failure results in the
forfeiture by the indemnifying party of substantial rights and defenses and (ii) will not, in any
event, relieve the indemnifying party from any obligations to any indemnified party other than the
indemnification obligations provided in paragraph (a) or (b)
above, as the case may be.
26
The indemnifying party shall be entitled to appoint counsel of the
indemnifying party’s choice at the indemnifying party’s expense to represent the indemnified party
in any action for which indemnification is sought (in which case the indemnifying party shall not
thereafter be responsible for the fees and expenses of any separate counsel retained by the
indemnified party or parties except as set forth below); provided, however, that such counsel shall
be satisfactory to the indemnified party. Notwithstanding the indemnifying party’s election to
appoint counsel to represent the indemnified party in an action, the indemnified party shall have
the right to employ separate counsel (including local counsel), and the indemnifying party shall
bear the reasonable fees, costs and expenses of such separate counsel if (i) the use of counsel
chosen by the indemnifying party to represent the indemnified party would present such counsel with
a conflict of interest, (ii) the actual or potential defendants in, or targets of, any such action
include both the indemnified party and the indemnifying party and the indemnified party shall have
reasonably concluded that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the indemnifying party, (iii)
the indemnifying party shall not have employed counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of the institution of such
action or (iv) the indemnifying party shall authorize the indemnified party to employ separate
counsel at the expense of the indemnifying party. It is understood that no Indemnifying Person
shall, 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.
An indemnifying party will not, without the prior written consent of the indemnified parties,
settle or compromise or consent to the entry of any judgment with respect to any pending or
threatened claim, action, suit or proceeding in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified parties are actual or potential parties to
such claim or action) unless such settlement, compromise or consent includes an unconditional
release of each indemnified party from all liability arising out of such claim, action, suit or
proceeding and does not include a statement as to or an admission of fault, culpability or failure
to act by or on behalf of the indemnified party.
(d) In the event that the indemnity provided in paragraph (a), (b) or (c) in this Section 10,
as the case may be, is unavailable to or insufficient to hold harmless an indemnified party for any
reason, the Company and each Initial Purchaser, severally and not jointly, agrees to contribute to
the aggregate losses, claims, damages and liabilities (including legal or other expenses reasonably
incurred in connection with investigating or defending same) (collectively “Losses”) to which the
Company and any one or more of the Initial Purchasers may be subject in such proportion as is
appropriate to reflect the relative benefits received by the Company, on the one hand, and by the
Initial Purchasers, on the other hand, from the offering of the Securities. If the allocation
provided by the immediately preceding sentence is unavailable for any reason, the Company and the
Initial Purchasers, severally and not jointly, shall contribute in such proportion as is
appropriate to reflect not only such relative benefits received but also the relative fault of the
Company, on the one hand, and of the Initial Purchasers, on the other hand, in connection with the
statements or omissions which resulted in such Losses as well as any other relevant equitable
considerations. Benefits received by the Company shall be deemed to be equal to the total net
proceeds from the offering (before deducting expenses) received by each of them, and benefits
received by the Initial Purchasers shall be deemed to be equal to the total discounts and
commissions, in each case as set forth on the cover page of the Final Offering Memorandum.
27
Relative fault shall be determined by reference to, among other things, whether any untrue or
any alleged untrue statement of a material fact or the omission or alleged omission to state a
material fact relates to information provided by the Company on the one hand or the Initial
Purchasers on the other, the intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such untrue statement or omission. The Company
and the Initial Purchasers agree that it would not be just and equitable if contribution were
determined by pro rata allocation or any other method of allocation which does not take account of
the equitable considerations referred to above. Notwithstanding the provisions of this
paragraph (d), 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. For purposes of this Section 10, each person who
controls an Initial Purchaser within the meaning of either the Securities Act or the Exchange Act
and each director, officer, employee and agent of an Initial Purchaser shall have the same rights
to contribution as such Initial Purchaser, and each person who controls the Company within the
meaning of either the Securities Act or the Exchange Act, each officer of the Company who shall
have signed the Final Offering Memorandum and each director of the Company shall have the same
rights to contribution as the Company, subject in each case to the applicable terms and conditions
of this paragraph (d). Notwithstanding the provisions of this Section 10, in no event shall the
Initial Purchasers be required to contribute any amount in excess of the discount or commission
applicable to the Securities purchased by the Initial Purchasers hereunder.
11. Default by One or More of the Initial Purchasers. If any one or more of the
several Initial Purchasers shall fail or refuse to purchase Securities that it or they have agreed
to purchase hereunder on the Closing Date, and the aggregate number of Securities that such
defaulting Initial Purchaser or Initial Purchasers agreed but failed or refused to purchase does
not exceed 10% of the aggregate number of the Securities to be purchased on such date, the other
Initial Purchasers shall be obligated, severally, in the proportions that the amount of Securities
set forth opposite their respective names on Schedule I bears to the aggregate number of Securities
set forth opposite the names of all such non-defaulting Initial Purchasers, or in such other
proportions as may be specified by the Initial Purchasers with the consent of the non-defaulting
Initial Purchasers, to purchase the Securities which such defaulting Initial Purchaser or Initial
Purchasers agreed but failed or refused to purchase on such date. If any one or more of the
Initial Purchasers shall fail or refuse to purchase Securities and the aggregate number of
Securities with respect to which such default occurs exceeds 10% of the aggregate number of
Securities to be purchased on the Closing Date, and arrangements satisfactory to the Initial
Purchasers and the Company for the purchase of such Securities are not made within 48 hours after
such default, this Agreement shall terminate without liability of any party to any other party
except that the provisions of Section 5 and Section 7 shall at all times be effective and shall
survive such termination, but only as to such non-defaulting Initial Purchasers. In any such case
either the Initial Purchasers on the one hand or the Company on the other hand shall have the right
to postpone the Closing Date, as the case may be, but in no event for longer than seven days in
order that any changes to the Final Offering Memorandum or any other documents or arrangements
deemed necessary or desirable may be effected.
28
12. Representations and Indemnities to Survive. The respective agreements,
representations, warranties, indemnities and other statements of the Company or its officers and of
the Initial Purchasers set forth in or made pursuant to this Agreement will remain in full force
and effect, regardless of any investigation made by or on behalf of any Initial Purchaser or
the Company or any of the officers, directors, employees, agents or controlling persons referred to
in Section 10 hereof, and will survive delivery of and payment for the Securities. The provisions
of Sections 9 and 10 hereof shall survive the termination or cancellation of this Agreement.
13. Notices. All communications hereunder will be in writing and effective only on
receipt, and, if sent to the Initial Purchasers, will be mailed or delivered to Jefferies &
Company, Inc., ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention:
General Counsel (Fax: ▇▇▇-▇▇▇-▇▇▇▇); or, if sent to the Company, will be mailed, delivered or
telefaxed to it at GMX Resources Inc., ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇
▇▇▇▇▇, Attention: Chief Financial Officer, facsimile number (▇▇▇) ▇▇▇-▇▇▇▇, with a copy (which
shall not constitute notice) to: ▇▇▇▇▇ & ▇▇▇▇▇▇▇ PC, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Esq., facsimile number (▇▇▇) ▇▇▇-▇▇▇▇; or in each case
to such other address as the person to be notified may have requested in writing. Any party to
this Agreement may change such address for notices by sending to the parties to this Agreement
written notice of a new address for such purpose.
14. Successors. This Agreement will inure to the benefit of and be binding upon the
parties hereto and their respective successors and the officers, directors, employees, agents and
controlling persons referred to in Section 10 hereof, and no other person will have any right or
obligation hereunder.
15. No Advisory or Fiduciary Responsibility. The Company acknowledges and agrees
that: (i) the purchase and sale of the Securities pursuant to this Agreement, including the
determination of the public offering price of the Securities and any related discounts and
commissions, is an arm’s-length commercial transaction between the Company, on the one hand, and
the Initial Purchasers, on the other hand, and the Company is capable of evaluating and
understanding and understand and accept the terms, risks and conditions of the transactions
contemplated by this Agreement; (ii) in connection with each transaction contemplated hereby and
the process leading to such transaction the Initial Purchasers are and have been acting solely as
principals and are not the financial advisors, agents or fiduciaries of the Company, its
Subsidiaries, or its affiliates, stockholders, creditors or employees or any other party; (iii) the
Initial Purchasers have not assumed and will not assume an advisory, agency or fiduciary
responsibility in favor of the Company with respect to any of the transactions contemplated hereby
or the process leading thereto (irrespective of whether the Initial Purchasers have advised or are
currently advising the Company on other matters) and the Initial Purchasers do not have any
obligation to the Company with respect to the offering contemplated hereby except the obligations
expressly set forth in this Agreement; (iv) the Initial Purchasers and their affiliates may be
engaged in a broad range of transactions that involve interests that differ from those of the
Company and that the Initial Purchasers have no obligation to disclose any of such interests by
virtue of the transactions contemplated hereby; and (v) the Initial Purchasers have not provided
any legal, accounting, regulatory or tax advice with respect to the offering contemplated hereby
and the Company has consulted its own legal, accounting, regulatory and tax advisors to the extent
it deemed appropriate.
29
16. Applicable Law. This Agreement will be governed by and construed in accordance
with the laws of the State of New York applicable to contracts made and to be performed within the
State of New York.
17. Counterparts. This Agreement may be signed in one or more counterparts, each of
which shall constitute an original and all of which together shall constitute one and the same
agreement.
18. Headings. The section headings used herein are for convenience only and shall not
affect the construction hereof.
30
Please sign and return to the Company the enclosed duplicates of this letter whereupon this letter
will become a binding agreement between the Company and the Initial Purchasers in accordance with
its terms.
| Very truly yours, GMX Resources Inc. |
||||
| By: | /s/ ▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇. | |||
| Name: | ▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇. | |||
| Title: | President and Chief Executive Officer | |||
| Confirmed as of the date first above mentioned. Jefferies & Company, Inc. Acting as Representative of the several Initial Purchasers named in the attached Schedule I. By Jefferies & Company, Inc. |
|||
| By: | /s/ J. ▇▇▇▇▇ ▇▇▇▇▇ | ||
| Name: | J. ▇▇▇▇▇ ▇▇▇▇▇ | ||
| Title: | Managing Director | ||
31
SCHEDULE I
| Aggregate Principal | ||||
| Amount of Initial | ||||
| Initial Purchasers | Securities to be Purchased | |||
Jefferies & Company, Inc. |
$ | 63,000,000 | ||
Wachovia Capital Markets, LLC |
26,250,000 | |||
Capital One Southcoast, Inc. |
3,150,000 | |||
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ Incorporated |
3,150,000 | |||
▇▇▇▇▇▇ ▇▇▇▇ Incorporated |
3,150,000 | |||
▇▇▇▇▇▇▇▇▇ Capital Partners, LLC |
3,150,000 | |||
Tudor, Pickering, ▇▇▇▇ & Co. Securities, Inc. |
3,150,000 | |||
Total |
$ | 105,000,000 | ||
I-1
SCHEDULE II
Supplemental Offering Materials
Pricing term sheet dated February 11, 2008
II-1
SCHEDULE III
III-1
SCHEDULE IV
Directors and Executive Officers to Sign Lock-Up Agreements
▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇.
▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇.
▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇
▇.▇. ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇. ▇▇▇▇▇▇
▇▇-1
EXHIBIT A
List of Covered Domestic Subsidiaries
Diamond Blue Drilling Co.
Endeavor Pipeline Inc.
A-1
EXHIBIT B
FORM OF LOCK-UP LETTER AGREEMENT
February __, 2008
Jefferies & Company, Inc.
As Representative of the several Initial Purchasers
(named in Schedule I of the Purchase Agreement)
As Representative of the several Initial Purchasers
(named in Schedule I of the Purchase Agreement)
Jefferies & Company, Inc.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Dear Sirs:
The undersigned, a shareholder and an officer and/or director of GMX Resources Inc., an
Oklahoma corporation (the “Company”), understands that Jefferies & Company, Inc., as representative
of the several Initial Purchasers named in the Purchase Agreement (in such capacity, the
"Representative”), propose to enter into a Purchase Agreement (the “Purchase Agreement”) with the
Company providing for the offering (the “Offering”), pursuant to Rule 144A under the Securities Act
of 1933, as amended (the “Securities Act”) of Senior Convertible Notes due 2013 of the Company
(the “Firm Securities”) and the grant by the Company to the Initial Purchasers of the option to
purchase additional Senior Convertible Notes due 2013 (the “Optional Securities”). The Firm
Securities, together with the Optional Securities, are collectively referred to as the
"Securities”. Capitalized terms used but not defined herein have the meanings given to them in
the Purchase Agreement.
In recognition of the benefit that such an offering will confer upon the undersigned as a
shareholder and an officer and/or director of the Company, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the undersigned hereby
irrevocably agrees that, without the prior written consent of Wachovia Capital Markets, LLC, the
undersigned will not, and will cause the Company not to, and will not publicly announce any
intention to, during the period ending 60 days after the date of the Purchase Agreement, directly
or indirectly, (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or
otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock; (2) enter into any
swap or other arrangement that transfers to another, in whole or in part, any of the economic
consequences of ownership of the Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock, whether any such transaction described in clause (1) or (2) above is
to be settled by delivery of Common Stock or such other securities, in cash or otherwise; or (3)
file or cause to be filed any registration statement with the SEC relating
to the offering of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock.
B-1
Pursuant to the terms of the Purchase Agreement, the restrictions contained in the preceding
paragraph shall not apply to (a) the issuance by the Company of shares of Common Stock upon the
exercise of an option or warrant or the conversion of a security outstanding on the date hereof of
which the Representative has been advised in writing or the granting or exercise of options or
stock purchase rights pursuant to the Company’s stock option and stock purchase plans, whenever
granted; provided that the underlying shares of Common Stock issued to the undersigned shall
continue to be subject to the restrictions contained in the immediately preceding paragraph, except
to the extent of any shares sold in order to raise funds sufficient to pay the exercise price and
any tax on exercise of options; (b) the issuance by the Company of shares of Common Stock or
options to purchase shares of Common Stock to, or the repurchase by the Company of unvested shares
of Common Stock upon termination of service from, an employee, director, consultant other service
provider, pursuant to the Company’s stock option or stock purchase plans in effect on the date
hereof or approved by the Company’s stockholders before the date hereof; provided that the shares
of Common Stock or options to purchase shares of Common Stock issued to the Company’s directors and
executive officers shall be subject to the restrictions contained herein, except to the extent of
any shares sold in order to raise funds sufficient to pay the exercise price and any tax on
exercise of options; [and] (c) the filing by the Company of any registration statement with the
Commission on Form S-8 relating to the offering of securities pursuant to the terms of a stock
option or stock purchase plan of the Company in effect on the date hereof or approved by the
stockholders before the date hereof.*
Notwithstanding the foregoing, if (1) during the last 17 days of the 60-day restricted period
the Company issues an earnings release or material news or a material event relating to the Company
occurs; or (2) prior to the expiration of the 60-day restricted period, the Company announces that
it will release earnings results during the 16-day period beginning on the last day of the 60-day
period, the restrictions imposed by this agreement shall continue to apply until the expiration of
the 18-day period beginning on the issuance of the earnings release or the occurrence of the
material news or material event.
In furtherance of the foregoing, the Company and its Transfer Agent are hereby authorized to
decline to make any transfer of securities if such transfer would constitute a violation or breach
of this Lock-Up Letter Agreement.
It is understood that, if the Company notifies you that it does not intend to proceed with the
Offering, if the Purchase Agreement does not become effective, or if the Purchase Agreement (other
than the provisions thereof that survive termination) shall terminate or be terminated prior
to payment for and delivery of the Securities, the undersigned will be released from his
obligations under this Lock-Up Letter Agreement.
| * | The letter for ▇▇. ▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇. shall include the
following clause: “and ; (d) the sale of 100,000 shares of Common Stock, which
shall be permitted at any time 45 days after the date of the Final Offering
Memorandum.” |
B-2
The undersigned understands that the Company and the Representative will proceed with the
Offering in reliance on this Lock-Up Letter Agreement.
Whether or not the Offering actually occurs depends on a number of factors, including market
conditions. Any Offering will only be made pursuant to a Purchase Agreement, the terms of which
are subject to negotiation between the Company and the Representative.
The undersigned hereby represents and warrants that the undersigned has full power and
authority to enter into this Lock-Up Letter Agreement and that, upon request, the undersigned will
execute any additional documents necessary in connection with the enforcement hereof. Any
obligations of the undersigned shall be binding upon the heirs and personal representatives of the
undersigned.
Yours very truly,
B-3