EXHIBIT 10.3
PLACEMENT AGENCY AGREEMENT
October 12, 2010
National Securities Corporation
330 Madison Avenue, 18th Floor
New York, New York 10017
Ladies and Gentlemen:
NYTEX Energy Holdings, Inc., a Delaware corporation (the “Company”), hereby
confirms its agreement (the “Agreement”) with National Securities Corporation, a
Washington corporation (the “Placement Agent”) as follows:
     1. Offering, (a) The Company will offer (the “Offering”) for sale to
certain “accredited investors” as described below (each, an “Investor” and,
collectively, the “Investors”) through the Placement Agent, as exclusive agent
for the Company, a minimum (the “Minimum Amount”) of 35 units ($3,500,000) (the
“Units”) and a maximum (the “Maximum Amount”) of 45 Units ($4,500,000). Each
Unit shall be sold at a price of $100,000 per Unit (the “Offering Price”) and
shall consist of (i) 100,000 shares of Company Series A preferred stock, $.001
par value per share (the “Preferred Stock” or the “Shares”) and (ii) warrants
(“Warrants”) to purchase 30,000 shares of common stock of the Company, $.001 par
value (each a “Warrant Share” and collectively the “Warrant Shares”). The
Shares, Warrants and Warrant Shares (sometimes collectively referred to herein
as the “Securities”) shall have the rights and privileges described in the
Memorandum (as defined herein). The Company and the Placement Agent (by mutual
agreement) reserve the right to increase the Maximum Amount by an additional
five (5) Units ($500,000) (the “Overallotment”).
     (b) Placement of the Units by the Placement Agent will be made on a
“reasonable efforts, all- or-none” basis with respect to the Minimum Amount and
on a “reasonable efforts” basis thereafter as to any amounts in excess of the
Minimum Amount. The minimum subscription for Units shall be one Unit ($100,000)
provided, however, that the Company and the Placement Agent may, in their
discretion, accept subscriptions for a lesser number of Units. The Units will be
offered commencing on the date of the Memorandum (as defined below) until
December 31, 2010 unless extended by the Company and the Placement Agent to
February 28, 2011, or terminated earlier as provided herein (the “Offering
Period”). The date on which the Offering Period shall terminate shall be
referred to as the “Termination Date.”
     (c) The Placement Agent shall not tender to the Company and the Company
shall not accept subscriptions for, or sell Units to, any persons or entities
who do not qualify as “accredited investors,” as such term is defined in
Rule 501 of Regulation D promulgated under Section 4(2) of the Securities Act of
1933, as amended (the “Act”).
     (d) The offering of the Units will be made by the Company solely pursuant
to the Memorandum, which at all times will be in form and substance acceptable
to the Placement Agent and its counsel and contain such legends and other
information as the Placement Agent and its counsel may, from time to time, deem
necessary and desirable to be set forth therein. “Memorandum” as used in this
Agreement means the Company’s Confidential Private Placement Memorandum dated
October 12, 2010, inclusive of all exhibits, and all amendments, supplements and
appendices thereto. Unless otherwise defined, each term used in this Agreement
will have the same meaning as set forth in the Memorandum.
     2. Representations, Warranties and Covenants of the Placement Agent. The
Placement Agent hereby represents, warrants and covenants to the Company that:

 

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     (a) The Placement Agent is and will remain during the term of this
Agreement, a duly registered broker-dealer pursuant to the Securities Exchange
Act of 1934, as amended and the rules and regulations promulgated thereunder
(the “1934 Act”) and a member in good standing of the Financial Industry
Regulatory Authority (“FINRA”). Other than compliance with standard internal
operating procedures, the Placement Agent is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court,
governmental agency, regulatory agency, self regulatory organization or stock
market or any third party in order for it to execute, deliver or perform any of
its obligations under this Agreement that it does not possess.
     (b) The Placement Agent shall not engage in any form of general
solicitation or general advertising that is prohibited by Regulation D as
promulgated under Section 4(2) of the Act (“Regulation D”) in connection with
the Offering, or take any action that might reasonably be expected to jeopardize
the availability for the Offering of the exemption from registration provided by
Rule 506 under Regulation D and/or Section 4(6). Neither the Placement Agent,
its affiliates, nor any person acting on its or their behalf has made or will
make any offers or sales of any security or solicitations of any offers to buy
any security through means other than the Memorandum.
     3. Representations, Warranties and Covenants of the Company. Except as set
forth in the Company’s disclosure schedule which is annexed hereto (the
“Disclosure Schedule”), the Company hereby represents and warrants to the
Placement Agent as follows:
     (a) Organization; Execution, Delivery and Performance.
          (i) The Company and each subsidiary of which the Company owns,
directly or indirectly, a controlling interest, if any, (each a “Subsidiary” and
collectively, the “Subsidiaries ) is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction in which it is
incorporated or organized, with full power and authority (corporate and other)
to own, lease, use and operate its properties and to carry on its business as
and where now owned, leased, used, operated and conducted. The Company is duly
qualified as a foreign corporation to do business and is in good standing in
every jurisdiction in which its ownership or use of property or the nature of
the business conducted by it makes such qualification necessary except where the
failure to be so qualified or in good standing would not have a Material Adverse
Effect. For purposes of this Agreement “Material Adverse Effect” shall mean a
material adverse effect on (1) the assets, liabilities, results of operations,
condition (financial or otherwise), business, or prospects of the Company and
the Subsidiaries taken as a whole; or (2) the ability of the Company to perform
its obligations under the Transaction Documents (as defined herein).
          (ii) The Company has no Subsidiaries other than those listed in
Schedule 3(a) of the Disclosure Schedule. Except as disclosed in Schedule 3(a)
of the Disclosure Schedule or in the SEC Documents, the Company owns, directly
or indirectly, all of the capital stock or comparable equity interests of each
Subsidiary free and clear of any and all liens, security interests, charges,
pledges or similar encumbrances (“Liens”) and all of the issued and outstanding
shares of capital stock or comparable equity interest of each Subsidiary are
validly issued and are fully paid, non-assessable and free of preemptive rights
of first refusal and other similar rights. The Company has the unrestricted
right to vote, and (subject to limitations imposed by applicable law) to receive
dividends and distributions on, all capital stock or other equity securities of
its Subsidiaries that are owned by the Company. As used herein, “SEC Documents”
means all of the Company’s reports, schedules, financial statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Exchange Act including, without limitation, the Company’s
quarterly report on Form 10-Q for the quarter ended June 30, 2010, the Company’s
Registration Statement on Form 10-12G/A, as last amended and filed with the SEC
on August 12, 2010 and the Company’s current reports on Form 8-K, and all
exhibits included therein and financial statements and schedules thereto and
documents incorporated by reference therein which is “filed” information (but
excluding all information contained therein that is deemed to be “furnished”
information).

 

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  (iii)  (1)  The Company has all requisite corporate power and authority to
enter into and perform this Agreement, the Subscription Agreements, the
Registration Rights Agreement, the Warrants and the Agent’s Warrants (as
hereinafter defined) (collectively, the “Transaction Documents”) and to
consummate the transactions contemplated hereby and thereby and to issue the
securities comprising the Units and the Agent’s Warrants in accordance with the
terms hereof and thereof;     (2)   the execution and delivery of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby have been duly authorized by the
Company’s Board of Directors and no further consent or authorization of the
Company, its Board of Directors, or its stockholders, is required except as
expressly contemplated by this Agreement;     (3)   each of the Transaction
Documents has been, or will be, duly executed and delivered by the Company by
its authorized representative, and such authorized representative is a true and
official representative with authority to sign each such document and the other
documents or certificates executed in connection herewith and bind the Company
accordingly; and     (4)   each of the Transaction Documents constitutes, and
upon execution and delivery thereof by the Company will constitute, a legal,
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by
general principals of equity, or to applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation and other similar laws relating to, or
affecting generally, the enforcement of applicable creditors’ rights and
remedies.

     (b) Shares, Warrants Shares and Agent Warrant Shares Duly Authorized. The
shares of the Company’s Preferred Stock and/or Common Stock issuable upon
(i) the sale of the Units, (ii) exercise of the Warrants (the “Warrant Shares”)
or (ii) exercise of the Agent’s Warrants (the “Agent Warrant Shares”) will be
duly authorized and reserved for future issuance and, upon sale of the Units,
exercise of the Warrants or exercise of the Agent Warrants, in each case in
accordance with their terms, will be duly and validly issued, fully paid and
non-assessable, and free from all taxes or Liens with respect to the issue
thereof and shall not be subject to preemptive rights, rights of first refusal
and/or other similar rights of stockholders of the Company and/or any other
individual or entity.
     (c) Conflicts.
          (i) The execution, delivery and performance of the Transaction
Documents by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the issuance and
reservation for issuance of the Preferred Stock, Common Stock, Warrant Shares
and the Agent Warrant Shares) will not:

  (1)   conflict with or result in a violation of any provision of the
Certificate of Incorporation or By-laws or similar corporate governance
documents of the Company;     (2)   violate or conflict with, or result in a
breach of any provision of, or constitute a default and/or an event of default
(or an event which with notice or lapse of time or both could become a default
and/or an event of default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture, patent,
patent license or instrument to which the Company is a party, except for
possible violations, conflicts or defaults as would not, individually or in the
aggregate, have a Material Adverse Effect on the Company; or

 

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  (3)   result in a violation of any law, rule, regulation, order, judgment or
decree (including federal and state securities laws and regulations and
regulations of any self-regulatory organizations to which the Company or its
securities are subject) applicable to the Company or by which any property or
asset of the Company is bound or affected.

          (ii) The Company is not in violation of its Certificate of
Incorporation, By-laws or other organizational documents. The Company is not in
default (and no event has occurred which with notice or lapse of time or both
could put the Company in default), under, and the Company has not taken any
action or failed to take any action that would give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company is a party or by which any property
or assets of the Company is bound or affected, except for possible defaults,
terminations, amendments, accelerations or cancellations which would not,
individually or in the aggregate, have a Material Adverse Effect. The businesses
of the Company are not being conducted in violation of any law, rule ordinance
or regulation of any governmental entity, except for possible violations which
would not, individually or in the aggregate, have a Material Adverse Effect.
Except as required under the Act, the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), or any applicable state securities laws, the
Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court, governmental agency, regulatory
agency, self regulatory organization or stock market or any third party in order
for it to execute, deliver or perform any of its obligations under the
Transaction Documents in accordance with the terms hereof or thereof or to issue
and sell the Units in accordance with the terms hereof and to issue the Warrant
Shares upon exercise of the Warrants or the Agent Warrant Shares upon exercise
of the Agent Warrants. All consents, authorizations, orders, filings and
registrations which the Company is required to obtain prior to the First Closing
(as hereinafter defined) as pursuant to the preceding sentence will be obtained
or effected on or prior to the Closing Date (as hereinafter defined).
     (d) Cap it at ization.

  (i)   As of September 30, 2010, the authorized capital stock of the Company
consisted of 200,000,000 shares of Common Stock, $0,001 par value, of which
39,535,396 shares were issued and outstanding, 5,933,102 shares were reserved
for issuance pursuant to outstanding warrants to purchase Common Stock,
2,666,666 shares of Common Stock were reserved for issuance upon conversion of
outstanding convertible debentures, and 800,000 shares of Common Stock were
reserved for issuance upon exercise of outstanding warrants issued in
conjunction with aforementioned convertible debentures. The foregoing numbers do
not give effect to the 1:2 reverse split that was approved by the Board of
Directors on July 26, 2010, by the Company’s shareholders on July 26, 2010 and
which is expected to be effective not later than November 1, 2010. Additionally,
the Company is in the process of amending its Certificate of Incorporation (the
“Amendment”) to authorize a class of preferred stock, par value SO.001 per share
(“Preferred Stock”), to consist of 10,000,000 shares of Preferred Stock. On
September 21, 2010, the Amendment was approved by both the Company’s board of
directors and holders of a majority of the Company’s outstanding Common Stock.
On October 7, 2010, the Company’s board of directors designated 5,200,000 shares
of the Preferred Stock, when and to the extent duly authorized, as Series A
Preferred Stock. The foregoing does not reflect the effect of any securities to
be issued in connection with the Offering.     (ii)   Except as described above
or in the Memorandum, as of September 30, 2010:     (1)   there are no
outstanding options, warrants, scrip, rights to subscribe for, puts, calls,
rights of first refusal, agreements, understandings, claims or other commitments
or

 

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      rights of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for any shares of capital stock of the Company,
or arrangements by which the Company is or may become bound to issue additional
shares of capital stock of the Company;

  (2)   there are no agreements or arrangements under which the Company is
obligated to register the sale of any of its securities under the Act (except
for the registration rights provisions contained in the Transaction Documents
and as set forth in the Company’s Summer 2010 Convertible Debenture Offering
materials); and     (3)   there are no anti-dilution or price adjustment
provisions contained in any security issued by the Company (or in any agreement
providing rights to security holders) that will be triggered by the issuance of
any of the Units, Preferred Stock, Warrants, the Warrant Shares, Agent’s
Warrants and/or the Agent Warrant Shares. All of such outstanding shares of
capital stock are, or upon payment therefor and issuance thereof will be, duly
authorized, validly issued, fully paid and nonassessable. No shares of capital
stock and/or other securities of the Company are subject to preemptive rights,
rights of first refusal and/or any other similar rights of the stockholders of
the Company and/or any other person or entity (a “Person”) or any Lien imposed
through the actions or failure to act of the Company.

     (e) SEC Information.
          (i) Except as set forth in the SEC Documents, since May 24, 2010, the
Company has timely filed (subject to 12b-25 filings with respect to certain
periodic filings) all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements
of the Exchange Act. The SEC Documents have been made available to the Investor
via the SEC’s EDGAR system. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the Exchange Act and
the rules and regulations of the SEC promulgated thereunder applicable to the
SEC Documents, and none of the SEC Documents, at the time they were filed with
the SEC, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. As of the date hereof, the SEC Documents when taken in their
entirety, shall not contain any untrue statements of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the date upon which they were made and
the circumstances under which they were made, not misleading. As of their
respective dates, the financial statements of the Company included in the SEC
Documents (“Company Financial Statements”) complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto as in effect at the time of the
filing. The Company Financial Statements have been prepared in accordance with
United States generally accepted accounting principles (“GAAP”), consistently
applied, during the periods involved except:
          (1) as may be otherwise indicated in such financial statements or the
notes thereto; or
          (2) in the case of unaudited interim statements, to the extent they
may not include footnotes or may be condensed or summary statements.
The Company Financial Statements fairly present in all material respects the
consolidated financial position of the Company and its consolidated
Subsidiaries, if any, as of the dates thereof and the consolidated results of
their operations and cash flows for the periods then ended (subject, in the case
of unaudited statements, to normal year-end audit adjustments).
          (ii) Except as expressly set forth in the Company Financial Statements
or in the SEC Documents, the Company has no liabilities, contingent or
otherwise, other than:

 

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  (1)   liabilities incurred in the ordinary course of business subsequent to
December 31, 2009;and     (2)   obligations under contracts and commitments
incurred in the ordinary course of business and not required under GAAP to be
reflected in such financial statements, which, individually or in the aggregate,
are not material to the financial condition or operating results of the Company.
    (3)   All information relating to or concerning the Company and its
officers, directors, employees, customers or clients (including, without
limitation, all information regarding the Company’s internal financial
accounting controls and procedures) set forth in the Transaction Documents and
the S EC Documents, when taken together as a whole, does not contain an untrue
statement of material fact or omit to state any material fact necessary in order
to make the statements made herein or therein, in light of the circumstances
under which they were made, not misleading.

     (f) Intellectual Property. Except as set forth in the Memorandum, the
Company or its Subsidiaries owns valid title, free and clear of any Liens, or
possesses the requisite valid and current licenses or rights, free and clear of
any Liens, to use all intellectual property in connection with the conduct its
business as now operated except where such failure would not have a Material
Adverse Effect. There is no pending claim or action by any person pertaining to,
or proceeding pending, or to the Company’s knowledge threatened, which
challenges the right of the Company or of a Subsidiary with respect to any
intellectual property necessary to enable it to conduct its business as now
operated. To the best of the Company’s knowledge, the Company’s current
products, services and processes do not infringe on any intellectual property or
other rights held by any person, and the Company is unaware of any facts or
circumstances which might give rise to any of the foregoing. The Company has not
received any written notice of infringement of, or conflict with, the asserted
rights of others with respect to its intellectual property. The Company has
taken reasonable security measures to protect the secrecy, confidentiality and
value of its intellectual property.
     (g) Permits; Compliance. The Company is in possession of all franchises,
grants, authorizations, licenses, permits, easements, variances, exemptions,
consents, certificates, approvals and orders necessary to own, lease and operate
its properties and to carry on its business as it is now being conducted
(collectively, the “Company Permits”), except where such failure to posses would
not have a Material Adverse Effect, and there is no action pending or, to the
knowledge of the Company, threatened regarding suspension or cancellation of any
of the Company Permits. The Company is not in conflict with, or in default or
violation of, any of the Company Permits, except for any such conflicts,
defaults or violations which, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect. The Company has
received no notification with respect to possible conflicts, defaults or
violations of applicable laws, except for notices relating to possible
conflicts, defaults or violations, which conflicts, defaults or violations would
not have a Material Adverse Effect.
     (h) Absence of Litigation. Except as set forth in the Memorandum, there is
no action, suit, claim, proceeding, inquiry or investigation before or by any
court, public board, government agency, self- regulatory organization or body
pending or, to the knowledge of the Company, threatened against or affecting the
Company, or its businesses, properties or assets or its officers or directors in
their capacity as such, that would have a Material Adverse Effect.
     (i) No Materially Adverse Contracts, etc. The Company is not subject to any
charter, corporate or other legal restriction, or any judgment, decree, order,
rule or regulation which in the judgment of the Company’s officers has or is
reasonably expected in the future to have a Material Adverse Effect. The Company
is not a party to any contract or agreement which has or is reasonably expected
to have a Material Adverse Effect.

 

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     (j) No Material Changes. Except as set forth in the Memorandum, since
December 31, 2009, there has not been (i) any material adverse change in the
financial condition, operations or business of the Company from that shown on
the Company Financial Statements, or any material transaction or commitment
effected or entered into by the Company outside of the ordinary course of
business; (ii) to the Company’s knowledge, any effect, change or circumstance
which has had, or could reasonably be expected to have, a Material Adverse
Effect; or (iii) any incurrence of any material liability outside of the
ordinary course of business.
     (k) Labor Matters.
          (i) The Company is not a party to or bound by any collective
bargaining agreements or other agreements with labor organizations. The Company
has not violated in any material respect any laws, regulations, orders or
contract terms, affecting the collective bargaining rights of employees, labor
organizations or any laws, regulations or orders affecting employment
discrimination, equal opportunity employment, or employees’ health, safety,
welfare, wages and hours.
          (ii) The Company is, and at all times has been, in compliance in all
material respects with all applicable laws respecting employment (including laws
relating to classification of employees and independent contractors) and
employment practices, terms and conditions of employment, wages and hours, and
immigration and naturalization.
     (1) Environmental Matters. Except as disclosed in the Memorandum, the
Company and the Subsidiaries are in compliance with all foreign, federal, state
and local statute, law (including the common law), ordinance, rule, regulation,
order, judgment, decree or governmental permit, relating to the use, treatment,
storage and disposal of hazardous or toxic substances, materials or wastes and
the protection of health and safety as such relates to exposure to hazardous or
toxic substances or the environment which are applicable to their businesses
(“Environmental Laws”), except where the failure to comply would not, singly or
in the aggregate, have a Material Adverse Effect. There has been no disposal,
discharge, emission, or other release of any kind of hazardous or toxic
substances, materials or wastes by, due to, or caused by the Company or any of
the Subsidiaries (or, to the Company’s knowledge, any other entity for whose
acts or omissions the Company or any of the Subsidiaries is or may otherwise be
liable) upon any of the property now or previously owned or leased by the
Company or any of the Subsidiaries, or upon any other property, in violation of,
or which would give rise to any liability under, any Environmental Law, except
for any violation or liability which would not have, singly or in the aggregate
with all such violations and liabilities, a Material Adverse Effect; and there
has been no disposal, discharge, emission or other release of any kind onto such
property or into the environment surrounding such property of any hazardous or
toxic substances, materials or wastes with respect to which the Company has
knowledge, except for any such disposal, discharge, emission, or other release
of any kind which would not have, singly or in the aggregate with all such
discharges and other releases, a Material Adverse Effect.
     (m) Tax Matters. The Company and its Subsidiaries have filed all federal,
state and foreign income or any other tax returns, reports and declarations
required by any jurisdiction to which it is subject and each of them has paid
all taxes or other governmental assessments or charges that are material in
amount. Neither the Company nor any Subsidiary is aware of any taxes that have
been assessed or are due that have not been paid. There are no unpaid taxes in
any material amount claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Company know of no basis for any such
claim. Neither the Company nor any of its Subsidiaries have executed a waiver
with respect to the statute of limitations relating to the assessment or
collection of any foreign, federal, state or local tax.
     (n) Certain Transactions. Except as set forth in the Memorandum, there are
no loans, leases, royalty agreements or other transactions between (i) the
Company or any of its customers or suppliers; and (ii) any officer, employee,
consultant or director of the Company or any person owning five (5%) percent or
more of the capital stock of the Company or five (5%) percent or more of the
ownership interests of the Company or any

 

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member of the immediate family of such officer, employee, consultant, director,
stockholder or owner or any corporation or other entity controlled by such
officer, employee, consultant, director, stockholder or owner, or a member of
the immediate family of such officer, employee, consultant, director,
stockholder or owner.
     (o) Form D; Blue Sky Laws. The Company shall file a Form D with respect to
the Securities as required under Regulation D promulgated under the Act and to
provide a copy thereof to the Placement Agent, promptly after such filing. The
Company shall assist the legal counsel of the Placement Agent of the Units on or
before the date of the closing of the sale of the Securities (the “Closing
Date”), in qualifying the Units for sale to the Investors in the applicable
closing pursuant to this Agreement under applicable securities or “blue sky”
laws of the states of the United States (or to obtain an exemption from such
qualification), and shall pay all fees and expenses of such counsel in
connection therewith, including, but not limited to, all state filing fees and
such counsel’s legal fees and expenses as further provided in Section 6(h)
hereto.
     (p) Memorandum. The Memorandum has been diligently prepared by the Company,
and, to the best of Company’s knowledge, is in compliance with Regulation D, the
Act and the requirements of all other rules and regulations (the “Regulations”)
of the Securities and Exchange Commission (the “SEC”) relating to offerings of
the type contemplated by the Offering, and the applicable securities laws and
the rules and regulations of those jurisdictions wherein the Units are to be
offered and sold. With respect to actions taken by the Company, the Units will
be offered and sold pursuant to the registration exemption provided by
Regulation D and Section 4(2) and/or Section 4(6) of the Act as a transaction
not involving a public offering and the requirements of any other applicable
state securities laws and the respective rules and regulations thereunder in
those jurisdictions in which the Placement Agent notifies the Company that the
Units are being offered for sale. The Memorandum describes all material aspects,
including attendant material risks, of an investment in the Company. The Company
has not taken nor will it take any action which conflicts with the conditions
and requirements of, or which would make unavailable with respect to the
Offering, the exemption(s) from registration available pursuant to Regulation D
or Section 4(2) and/or Section 4(6) of the Act, and knows of no reason why any
such exemption would be otherwise unavailable to it. Neither the Company, nor,
to the Company’s knowledge, any person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D) in connection with the offer or sale of the Units. The
Company has not been subject to any order, judgment or decree of any court of
competent jurisdiction temporarily, preliminarily or permanently enjoining it
for failing to comply with Section 503 of Regulation D.
     (q) 10b-5 Representation. The Memorandum does not include any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. None of the
statements, documents, certificates or other items prepared or supplied by the
Company with respect to the transactions contemplated hereby, taken as a whole,
contains an untrue statement of a material fact or omits to state a material
fact necessary to make the statements contained therein not misleading in light
of the circumstances in which they were made. There is no fact which the Company
has not disclosed in the Memorandum and which the Company is aware that is
reasonably likely to have a Material Adverse Effect.
     (r) Property Ownership. Except as set forth in the Memorandum or in the SEC
Documents, the Company owns its property and assets free and clear of all
mortgages, liens, loans, pledges, security interests, claims, equitable
interests, charges, and encumbrances, except such encumbrances and liens which
arise in the ordinary course of business and do not materially impair its
ownership or use of such property or assets. With respect to the property and
assets it leases, if any, the Company is in compliance in all material respects
with such leases and, to its knowledge, holds a valid leasehold interest free of
any liens, claims, or encumbrances except as set forth under the terms of the
lease.
     (s) Insurance. Each of the Company and its Subsidiaries is insured by
recognized, financially sound and reputable institutions with policies in such
amounts and with such deductibles and covering such risks as are customary in
the business in which it is engaged[, including directors’ and officers’
liability insurance].

 

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Neither the Company nor any Subsidiary has any reason to believe that it will
not be able: (i) to renew its existing insurance coverage as and when such
policies expire; or (ii) to obtain comparable coverage from similar institutions
as may be necessary or appropriate to conduct its business as now conducted.
     (t) Illegal Payments. Neither the Company, nor, to the Company’s knowledge,
any director, officer, agent, employee or other Person acting on behalf of the
Company has, in the course of its actions for, or on behalf of, the Company
(i) used any corporate funds for any unlawful contribution, gift, entertainment
or other unlawful expenses relating to political activity; (ii) made any direct
or indirect unlawful payment to any foreign or domestic government official or
employee from corporate funds; (iii) violated or is in violation of any
provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or
(iv) made any unlawful bribe, rebate, payoff, influence payment, kickback or
other unlawful payment to any foreign or domestic government official or
employee.
     (u) PATRIOT Act. To the best knowledge of the Company, neither the sale of
the Units by the Company nor its use of the proceeds thereof will violate the
Trading with the Enemy Act, as amended, or any of the foreign assets control
regulations of the United States Treasury Department (31 CFR, Subtitle B,
Chapter V, as amended) or any enabling legislation or executive order relating
thereto. Without limiting the foregoing, the Company is not (a) a person whose
property or interests in property are blocked pursuant to Section 1 of Executive
Order 13224 of September 23, 2001 Blocking Property and Prohibiting Transactions
with Persons Who Commit, Threaten to Commit, or Support Terrorism (66 Fed. Reg.
49079 (2001)) or (b) a person who engages in any dealings or transactions, or be
otherwise associated, with any such person. To the best knowledge of the
Company, the Company is in compliance, in all material respects, with the USA
Patriot Act of 2001 (signed into law October 26, 2001).
     (v) No Finders. Except for the compensation set forth in this Agreement or
the Memorandum, the Company is not obligated to pay, and has not obligated the
Placement Agent to pay, a finder’s or origination fee in connection with the
Offering, and hereby agrees to indemnify the Placement Agent from any such claim
made by any other person as more fully set forth in Section 9 hereof. The
Company has not offered for sale or solicited offers to purchase the Units
except for negotiations with the Placement Agent. Except as set forth in the
Memorandum, no other person has any right to participate in any offer, sale or
distribution of the Company’s securities to which the Placement Agent’s rights,
described herein, shall apply.
     (w) No Integration. Neither the Company, its affiliates, nor any person
acting on its or their behalf has made any offers or sales of any security or
solicited any offers to buy any security under circumstances that would cause
the offer of the Units pursuant to this Agreement to be integrated with prior
offerings by the Company for purposes of the Act, or any applicable stockholder
approval provisions, which would impair the exemptions relied upon in this
Offering or the Company’s ability to timely comply with its obligations
hereunder. Nor will the Company or its affiliates take any action or steps that
would knowingly cause the offer or issuance of the Units to be integrated with
other offerings which would impair the exemptions relied upon in this Offering
or the Company’s ability to timely comply with its obligations hereunder. The
Company will not conduct any offering other than the transactions contemplated
hereby that will be integrated with the offer or issuance of the Units, which
would impair the exemptions relied upon in this Offering or the Company’s
ability to timely comply with its obligations hereunder.
     4. Placement Agent Appointment and Compensation, (a) The Company hereby
appoints the Placement Agent and its selected dealers, if any, as its exclusive
agent(s) in connection with the Offering. The Company acknowledges that the
Placement Agent may use selected dealers to fulfill its agency hereunder
provided that such dealers are compensated solely by the Placement Agent. The
Company has not and will not make, or permit to be made, any offers or sales of
the Units other than through the Placement Agent without its prior written
consent. The Placement Agent has no obligation to purchase any of the Units. The
agency of the Placement Agent hereunder shall continue until the later of the
Termination Date and the Final Closing.

 

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     (b) The Company will cause to be delivered to the Placement Agent copies of
the Memorandum and has consented, and hereby consents, to the use of such copies
for the purposes permitted by the Act and applicable securities laws, and hereby
authorizes the Placement Agent and its agents, employees and selected dealers to
use the Memorandum in connection with the sale of the Units until the later of
the Final Closing and the Termination Date, and no other person or entity is or
will be authorized to give any information or make any representations other
than those contained in the Memorandum or to use any offering materials other
than those contained in the Memorandum in connection with the sale of the Units.
     (c) The Company will cooperate with the Placement Agent by making available
to its representatives such information as may be requested in making a
reasonable investigation of the Company and its affairs and shall provide access
to such employees as shall be reasonably requested.
     (d) The Company shall pay to the Placement Agent at each Closing a cash
placement fee equal to (i) 10% of the aggregate gross proceeds from the sale of
Units sold at each closing to investors introduced to the Company by the
Placement Agent and (ii) 3.5% of the aggregate gross proceeds from the sale of
Units sold at each closing to all other investors (the “Agent’s Fee”). Payment
of the proportional amounts of the Agent’s Fee will be made out of the proceeds
of subscriptions for the Units sold at each Closing.
     (e) As additional compensation hereunder, at each Closing the Company will
issue to the Placement Agent or its designees, for nominal consideration,
warrants to purchase a number of shares of Preferred Stock equal to 4% of the
number of shares of Preferred Stock sold in the Offering (the “Agent’s
Warrants”) with an initial exercise price of $1.00 per share. The Agent’s
Warrants and the Agent’s Fee are sometimes collectively referred to herein as
the “Agent’s Compensation.” The Agent’s Warrants shall provide the holder
thereof with a cashless exercise right. The Agent’s Warrants shall be
exercisable for a [three] year period from the date of issuance.
     (f) The Company shall reimburse the Placement Agent for all of its actual,
documented, reasonable out-of-pocket expenses, including but not limited to
reasonable and documented coach-class travel, third party background searches
and due diligence expenses, legal fees and other expenses, incurred in
connection with its services hereunder, whether or not any Financing is
commenced or completed; provided the aggregate amount of non-legal expenses to
be reimbursed shall not exceed $15,000. The foregoing reimbursement obligation
is hereinafter referred to as the “Agent’s Expense Reimbursement”). Payment of
the Agent’s Expense Reimbursement will be made at each Closing. The Agent’s
Expense Reimbursement shall not include Blue Sky Expenses (as defined below).
Placement Agent will not bear any of the Company’s legal, accounting, printing
or other expenses in connection with any transaction contemplated hereby.
     (g) The Company shall also pay to the Placement Agent the Agent’s Fee and
Agent’s Warrants, calculated according to the percentage set forth in Sections
4(d) and 4(e), respectively, of this Agreement, in the event that the Company
shall make any sales of its securities for cash at any time prior to the date
that is one (1) year after Termination Date and the Final Closing with respect
to any person or entity to which the Placement Agent transmits the Memorandum
during the Offering Period, irrespective of whether such investors purchased
Units in the Offering (collectively, the “Placement Agent Potential Investors”).
The names of the Placement Agent Potential Investors shall be provided in
writing to Company after the Final Closing (the “Placement Agent Referral
List”). Notwithstanding anything contained herein, names of Company management,
directors and/or affiliates and referrals of such persons (“Company Directed
Investors”) shall not be contained on the Placement Agent Referral List. The
Company acknowledges and agrees that the Placement Agent Referral List is
proprietary to the Placement Agent, shall be maintained in strict confidence by
the Company and those persons/entities on such list shall not be contacted by
the Company without the Placement Agent’s prior written consent. Notwithstanding
the foregoing, the foregoing shall not apply to customary shareholder
communications that the Company can direct to persons on the Placement Agent
Referral List that actually purchase Units in the Offering.

 

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     5. Subscription and Closing Procedures, (a) Each prospective purchaser will
be required to complete and execute original signature pages in the forms
annexed to the Memorandum (collectively, the “Subscription Documents”), which
will be forwarded or delivered to the Placement Agent at the Placement Agent’s
offices at the address set forth in Section 14 hereof, together with the
subscriber’s check or good funds in the full amount of the Offering Price for
the number of Units desired to be purchased.
     (b) All funds for subscriptions received from the Offering will be promptly
forwarded by the Placement Agent or the Company, if received by it, to, and
deposited into, a non-interest bearing escrow account (the “Escrow Account”)
established for such purpose with Signature Bank, New York, New York (the
“Escrow Agent”). All such funds for subscriptions will be held in the Escrow
Account pursuant to the terms of an escrow agreement among the Company, the
Placement Agent and the Escrow Agent. The Company will pay all fees related to
the establishment and maintenance of the Escrow Account. The Company will either
accept or reject, for any or no reason, the Subscription Documents in a timely
fashion and at each Closing will countersign the Subscription Documents and
provide duplicate copies of such documents to the Placement Agent for
distribution to the subscribers. The Company will give notice to the Placement
Agent of its acceptance of each subscription. The Company, or the Placement
Agent on the Company’s behalf, will promptly return to subscribers incomplete,
improperly completed, improperly executed and rejected subscriptions and give
written notice thereof to the Placement Agent or the Company, as the case may
be, upon such return.
     (c) If subscriptions for at least the Minimum Amount have been accepted
prior to the Termination Date, the funds therefore have been collected by the
Escrow Agent and all of the conditions set forth elsewhere in this Agreement are
fulfilled, a closing shall be held promptly with respect to Units sold (the
“First Closing”). Thereafter, the remaining Units will continue to be offered
and sold until the Termination Date. Additional closings (“Closings”) may from
time to time be conducted at times mutually agreed to between the Placement
Agent and the Company with respect to additional Units sold, with the final
closing (“Final Closing”) to occur within 10 days after the earlier of the
Termination Date and the date on which the Maximum Amount has been subscribed
for. Delivery of payment for the accepted subscriptions for Units from the funds
held in the Escrow Account will be made at each Closing at the Placement Agent’s
offices against delivery of the Units by the Company at the address set forth in
Section 14 hereof (or at such other place as may be mutually agreed upon between
the Company and the Placement Agent), net of amounts due to the Placement Agent
and its Blue Sky counsel as of such Closing. Executed instruments/certificates
for the Units and the Agent’s Warrants will be in such authorized denominations
and registered in such names as the Placement Agent may request on or before the
date of each Closing (“Closing Date”), and will be made available to the
Placement Agent for checking and packaging at the Placement Agent’s office at
each Closing.
     (d) If Subscription Documents for the Minimum Amount have not been received
and accepted by the Company on or before the Termination Date (as may be
extended as provided herein) for any reason, the Offering will be terminated, no
Units will be sold, and the Escrow Agent will, at the request of the Placement
Agent or the Company, cause all monies received from subscribers for the Units
to be promptly returned to such subscribers without interest, penalty, expense
or deduction.
     6. Further Covenants of the Company. The Company hereby covenants and
agrees that:
     (a) If, at any time prior to the Final Closing (i) any event shall occur
which does or may materially affect the Company or as a result of which it might
become necessary to amend or supplement the Memorandum so that the
representations, warranties and covenants herein remain true, or (ii) in case it
shall, in the opinion of counsel to the Placement Agent and the Company, be
necessary to amend or supplement the Memorandum to comply with Regulation D or
any other applicable securities laws or regulations, the Company shall, in the
case of (i) above, promptly notify the Placement Agent and, in the event of
either (i) or (ii) above shall, at its sole cost, prepare and furnish to the
Placement Agent copies of appropriate amendments and/or supplements to the
Memorandum in such quantities as the Placement Agent may request. The Company
shall not at any time, whether before or after the Final Closing, prepare or use
any amendment or supplement to the Memorandum of

 

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which the Placement Agent shall not previously have been advised and furnished
with a copy, or to which the Placement Agent or its counsel have reasonably
objected in writing or orally (confirmed in writing within 24 hours), or which
is not in compliance with the Act, the regulations thereunder and other
applicable securities laws. As soon as the Company is advised thereof, the
Company shall advise the Placement Agent and its counsel, and confirm the advice
in writing, of any order preventing or suspending the use of the Memorandum, or
the suspension of the qualification or registration of the Units or the
Securities for offering or the suspension of any exemption for such
qualification or registration of the Units or the Securities for offering in any
jurisdiction, or of the institution or threatened institution of any proceedings
for any of such purposes, and the Company shall use its best efforts to prevent
the issuance of any such order and, if issued, to obtain as soon as reasonably
possible the lifting thereof.
     (b) The Company will use its commercially reasonable efforts to assist
counsel to the Placement Agent in qualifying the Units for sale under the
securities laws of such U.S. jurisdictions as may be mutually agreed to by the
Company and the Placement Agent; provided, that the Company will not be required
or obligated to qualify to do business in any jurisdiction where it is not now
so qualified or to take any action which would subject it to service of process
in suits, other than those arising out of the offering or sale of the Units.
Furthermore, the Company shall file a copy of a Notice of Sale on Form D with
the SEC within the prescribed time period and shall file all amendments with the
SEC as may be required. Copies of the Form D and all amendments thereto shall be
provided to the Placement Agent. The Company or its counsel will provide counsel
for the Placement Agent with copies of all correspondence or other documentation
filed with or received from any jurisdiction where the Units are to be
registered or qualified or offered. The Company will promptly provide to the
Placement Agent for delivery to all offerees and investors and their
representatives any additional information, documents and instruments which the
Placement Agent or the Company reasonably deem necessary to comply with the
rules, regulations and judicial and administrative interpretations respecting
compliance with such exemptions or qualifications and registrations in those
states where the Units are to be offered or sold.
     (c) The Company shall place a legend on the certificates representing the
Shares, Warrants, Warrant Shares, Agent’s Warrants and Agent’s Warrant Shares,
stating that the securities evidenced thereby have not been registered under the
Act or applicable state securities laws, setting forth or referring to the
applicable restrictions on transferability and sale of such securities under the
Act and applicable state laws.
     (d) The Company shall apply the net proceeds from the sale of the Units to
fund its acquisition of Francis Drilling Fluids, Ltd. and for such other
purposes as are specifically described under “Use of Proceeds” in the
Memorandum.
     (e) During the Offering Period, the Company shall make available for review
by prospective Investors during normal business hours at the Company’s offices,
upon their request, copies of such corporate documents, including, but not
limited to, organizational materials and material contracts, as such Investor
shall reasonably request, to the extent that such shall not violate any
obligation on the part of the Company to maintain the confidentiality thereof,
and shall afford each prospective Investor the opportunity to ask questions of
and receive answers from an officer of the Company concerning the terms and
conditions of the Offering and the opportunity to obtain such other additional
information necessary to verify the accuracy of the Memorandum to the extent it
possesses such information or can acquire it without unreasonable expense.
     (f) Until the earlier of (i) completion of the Offering, and (ii) the
Termination Date, neither the Company nor any person or entity acting on its
behalf shall negotiate with any other placement agent or underwriter with
respect to a private or public offering of the Company’s debt or equity
securities except for debt financing facilities that are necessary with respect
to the FDF Acquisition as contemplated in the Memorandum. Except as contemplated
in the Memorandum, neither the Company nor anyone acting on its behalf shall,
until the Termination Date, offer for sale to, or solicit offers to subscribe
for Units or other securities of the Company from, or otherwise approach or
negotiate in respect thereof with, any other person.

 

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     (g) Until the earlier of (i) the Termination Date and (ii) the Final
Closing, neither the Company nor the Placement Agent will issue any press
release, grant any media interview (including without limitation, internet media
outlets), or otherwise communicate with the media in any manner whatsoever
without the other party’s prior written consent, which consent will not
unreasonably be withheld or delayed.
     (h) The Company shall pay all expenses incurred in connection with the
preparation and printing of all necessary offering documents, amendments, and
instruments related to the Offering and the issuance of the securities
comprising the Units and the Agent’s Warrants, and shall also pay its own
expenses for accounting fees, legal fees, bound volumes of closing documents,
and other costs involved with the Offering. The Company shall provide at its own
expense such quantities of the Memorandum and other documents and instruments
relating to the Offering as the Placement Agent may reasonably request. In
addition, the Company will pay all reasonable filing fees, costs and legal fees
for Blue Sky services and related filings and reasonable expenses of counsel (up
to $7,500 of legal fees), which $5,000 of legal fees, plus an additional amount
commensurate with the required filing fees shall be paid on or before the First
Closing with respect to obtaining Blue Sky exemptions (“Blue Sky Expenses”).
Additional amounts, if any, for required filing fees shall be paid at any
subsequent Closing, as applicable. The Blue Sky filings shall be prepared by the
Placement Agent’s counsel for the Company’s account. Further, as promptly as
practicable after the Closing, the Company shall prepare, at its own expense,
“velobound closing binders” relating to the Offering and will distribute such
binders to the individuals designated by counsel to the Placement Agent.
     (i) Effective upon the sale of the Minimum Amount, the Placement Agent
shall have a twelve (12) month right of first refusal from such date to act as a
lead placement agent on any future private placement of the Company’s securities
in which the Company seeks to utilize a third party placement agent or as a lead
managing underwriter on any public offering of the Company’s securities in which
the Company seeks to utilize a third party underwriter. It is understood that if
a third party broker- dealer provides the Company with written terms with
respect to a future securities offering that the Company wishes to accept during
such twelve month period (“Written Offering Terms”), the Company shall promptly
present same to the Placement Agent. The Placement Agent shall have ten
(10) business days from its receipt of the Written Offering Terms in which to
determine whether or not to accept such offer and, if the Placement Agent
refuses, and provided that such financing is consummated (a) with another
placement agent or underwriter upon substantially the same terms and conditions
as the Written Offering Terms and (b) within three months after the end of the
aforesaid ten (10) business day period, this right of first refusal shall
thereafter be forfeited and terminated; provided, however, if the financing is
not consummated under the conditions of clauses (a) and (b) above, then the
right of first refusal shall once again be reinstated under the same terms and
conditions set forth in this Section 6(h) during the remainder of such twelve
(12) month period.
     (j) Effective upon the sale of at least $3 million to investors on the
Placement Agent Referral List (the “PARL Investors”), the Placement Agent shall
have the right to nominate one (1) person to serve on the Board of Directors of
the Company. The Company shall use its best efforts to cause the Board of
Directors to take necessary action to facilitate this appointment at the time of
a closing of the Offering involving an aggregate of $3 million from PARL
Investors.
     7. Conditions of Placement Agent’s Obligations. The obligations of the
Placement Agent hereunder are subject to the fulfillment, at or before each
Closing, of the following additional conditions:
     (a) Each of the representations and warranties of the Company qualified as
to materiality shall be true and correct at all times prior to and on each
Closing Date, except to the extent any such representation or warranty expressly
speaks as of an earlier date, in which case such representation or warranty
shall be true and correct as of such earlier date, and the representations and
warranties of the Company not qualified as to materiality shall be true and
correct in all material respects at all times prior to and on each Closing Date,
except to the extent any such representation or warranty expressly speaks as of
an earlier date, in which case such representation or warranty shall be true and
correct in all material respects as of such earlier date.

 

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     (b) The Company shall have performed and complied in all material respects
with all agreements, covenants and conditions required to be performed by and
complied with it under the Transaction Documents at or before each Closing.
     (c) No order suspending the use of the Memorandum or enjoining the offering
or sale of the Units shall have been issued, and no proceedings for that purpose
or a similar purpose shall have been initiated or pending, or, to the best of
the Company’s knowledge, are contemplated or threatened.
     (d) No judgment, writ, order, injunction, award or decree of or by any
court, or judge, justice or magistrate, including any bankruptcy court or judge,
or any order of or by any governmental authority, shall have been issued, and no
action or proceeding shall have been instituted by any governmental authority,
enjoining or preventing the consummation of the transactions contemplated hereby
or in the other Transaction Documents.
     (e) The Placement Agent shall have received certificates of the Chief
Executive Officer and Chief Financial Officer of the Company, dated as of each
Closing Date, certifying, in such detail as Placement Agent may reasonably
request, as to the fulfillment of the conditions set forth in paragraphs (a),
(b), (c) and (d) above.
     (f) The Company shall have delivered to the Placement Agent: (i) at each
Closing a currently dated good standing certificate from the secretary of state
of its jurisdiction of incorporation and each jurisdiction in which the Company
is qualified to do business as a foreign corporation, and (ii) at the First
Closing, certified resolutions of the Company’s Board of Directors approving
this Agreement and the other Transaction Documents, and the transactions and
agreements contemplated by this Agreement and the other Transaction Documents.
     (g) On or prior to the date hereof and at each Closing, either the Chief
Executive Officer or the Chief Financial Officer of the Company shall have
provided a certificate to the Placement Agent confirming that, to the best of
their knowledge, there have been no material adverse changes in the condition
(financial or otherwise) or prospects of the Company from the date of the
financial statements included in the Memorandum, there are no material
undisclosed liabilities and such other matters relating to the financial
condition and prospects of the Company that the Placement Agent may reasonably
request upon reasonable prior notice hi connection with the transactions
contemplated hereby.
     (h) At each Closing, the Company shall pay and deliver to the Placement
Agent the Agent’s Fee, calculated in accordance with Sections 4(d), the Agent’s
Expense Reimbursement, calculated in accordance with Section 4(f), the Agent’s
Legal Expense and the Blue Sky Expenses in accordance with Section 6(h) hereof.
     (i) At each Closing the Company shall have delivered to the Placement Agent
and/or its designees, the appropriate number of Agent’s Warrants, calculated in
accordance with Section 4(e) hereof.
     (j) There shall have been delivered to the Placement Agent a signed opinion
of Strasburger & Price, LLP, outside counsel to the Company, dated as of each
Closing Date, containing substantially the opinions set forth as Exhibit A
hereto together with customary assumptions, exceptions and limitations, and
there shall have been delivered to the Placement Agent a signed letter of
Strasburger & Price dated as of each Closing Date, containing substantially the
negative assurances set forth as Exhibit B together with customary assumptions,
exceptions and limitations.
     (k) Prior to, or concurrently with, the First Closing, the Company must
have entered into a binding definitive agreement to acquire 100% of the equity
in Francis Drilling Fluids, Ltd. and such acquisition shall have been
consummated.
     (1) All proceedings taken at or prior to each Closing in connection with
the authorization, issuance and sale of the Units and the Agent’s Warrants will
be reasonably satisfactory in form and substance to the Placement Agent and its
counsel, and such counsel shall have been furnished with all such documents,

 

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certificates and opinions as it may reasonably request upon reasonable prior
notice in connection with the transactions contemplated hereby.
     8. Covenants of the Placement Agent. The Placement Agent covenants that:
     (a) The Placement Agent shall limit its offering of the Units to persons
for whom the Placement Agent has reasonable grounds to believe and in fact
believes are “accredited investors”.
     (b) The Placement Agent shall in connection with the offering of the Units
offered pursuant to the Memorandum, provide copies of the executed subscription
documentation to the Company prior to each Closing to enable the Company to
establish and determine that each such subscriber is an “accredited investor”
within the meaning of Rule 501(a) of the Rules and Regulations.
     (c) The Placement Agent shall not sell the Units offered pursuant to the
Memorandum by any means of public solicitation or general advertising,
     (d) To the extent it is determined by the parties hereto and their
respective legal counsel that a supplement or amendment to the Memorandum is
required based on events that may materially affect the Company or otherwise,
the Placement Agent shall distribute copies of any such supplement or amendment
to persons who have previously received a copy of the Memorandum from the
Placement Agent and who continue to be interested in the Offering and include
such supplement or amendment in all further deliveries of the Memorandum.
     9. Indemnification.
     (a) The Company will: (i) indemnify and hold harmless the Placement Agent,
its selected dealers and their respective affiliates, officers, directors,
employees and each person, if any, who controls the Placement Agent within the
meaning of the Act (each an “Indemnitee”) against, and pay or reimburse each
Indemnitee for, any and all losses, claims, damages, liabilities or expenses
whatsoever (or actions or proceedings or investigations in respect thereof),
joint or several (which will, for all purposes of this Agreement, include, but
not be limited to, all reasonable costs of defense and investigation and all
reasonable attorneys’ fees and disbursements, including appeals), to which any
Indemnitee may become subject (x) under the Act or otherwise, in connection with
the offer and sale of the Units, and (y) as a result of the breach of any
representation, warranty or covenant made by the Company herein, regardless
whether such losses, claims, damages, liabilities or expenses shall result from
any claim of any Indemnitee or any third party; and (ii) reimburse each
Indemnitee for any legal or other expenses reasonably incurred in connection
with investigating or defending against any such loss, claim, action, damage or
liability; provided, however, that the Company will not be liable in any such
case to the extent that any such claim, damage or liability is finally
judicially determined to have resulted exclusively from (A) an untrue statement
or alleged untrue statement of a material fact made in the Memorandum, or an
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, made
solely in reliance upon and in conformity with written information furnished to
the Company by the Placement Agent specifically for use in the preparation
thereof, (B) any violation by the Placement Agent of the Act or state securities
laws which does not result from a violation thereof by the Company or any of its
affiliates or (C) the fraud, willful misconduct or gross negligence of the
Placement Agent. In addition to the foregoing agreement to indemnify and
reimburse, the Company will indemnify and hold harmless each Indemnitee from and
against any and all losses, claims, damages, liabilities or expenses whatsoever
(or actions or proceedings or investigations in respect thereof), joint or
several (which shall for all purposes of this Agreement, include, but not be
limited to, all reasonable costs of defense and investigation and all reasonable
attorneys’ fees, including appeals) to which any Indemnitee may become subject
insofar as such costs, expenses, losses, claims, damages or liabilities arise
out of or are based upon the claim of any person or entity that he or it is
entitled to broker’s or finder’s fees from any Indemnitee in connection with the
Offering.

 

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     (b) The Placement Agent will indemnify and hold harmless the Company, its
officers, directors, employees and each person, if any, who controls the Company
and such persons within the meaning of the Act against, and pay or reimburse any
such person for, any and all losses, claims, damages or liabilities or expenses
whatsoever (or actions, proceedings or investigations in respect thereof), joint
or several, to which the Company or any such person may become subject under the
Act or otherwise, in connection with the offer and sale of the Units, whether
such losses, claims, damages, liabilities or expenses (or actions, proceedings
or investigations in respect thereof) shall result from any claim of the
Company, any of its officers, directors, employees, agents, any person who
controls the Company and such persons within the meaning of the Act or any third
party, insofar as such losses, claims, damages or liabilities are based upon (A)
any untrue statement or alleged untrue statement of any material fact contained
in the Memorandum, but only with reference to information contained in the
Memorandum relating to the Placement Agent, or an omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, if made or omitted in reliance upon
and in conformity with information furnished to the Company by the Placement
Agent or any such controlling persons, specifically for use in the preparation
thereof, or (B) fraud, willful misconduct or gross negligence of the Placement
Agent. The Placement Agent will reimburse the Company or any such person for any
legal or other expenses reasonably incurred in connection with investigating or
defending against any such loss, claim, damage, liability or action, proceeding
or investigation to which such indemnity obligation applies, including appeals.
Notwithstanding the foregoing, (i) in no case shall the Placement Agent have any
liability to any person under this Section 9(b) for the gross negligence, fraud
or willful misconduct of the Company or any person entitled to indemnification
hereunder and (ii) in no event shall the Placement Agent’s indemnification
obligation hereunder exceed the fees payable to it hereunder.
     (c) Promptly after receipt by an indemnified party under this Section 9 of
notice of the commencement of any action, claim, proceeding or investigation
(the “Action”), such indemnified party, if a claim in respect thereof is to be
made against the indemnifying party under this Section 9, will notify the
indemnifying party of the commencement thereof, but the omission to so notify
the indemnifying party will not relieve it from any liability which it may have
to any indemnified party under this Section 9 unless the indemnifying party has
been substantially prejudiced by such omission. The indemnifying party will be
entitled to participate in, and, to the extent that it may wish, jointly with
any other indemnifying party, to assume the defense thereof subject to the
provisions herein stated, with counsel reasonably satisfactory to such
indemnified party. The indemnified party will have the right to employ separate
counsel in any such Action and to participate in the defense thereof, but the
fees and expenses of such counsel will not be at the expense of the indemnifying
party if the indemnifying party has assumed the defense of the Action with
counsel reasonably satisfactory to the indemnified party, provided, however,
that if the indemnified party shall be requested by the indemnifying party to
participate in the defense thereof or shall have concluded in good faith and
specifically notified the indemnifying party either that there may be specific
defenses available to it which are different from or additional to those
available to the indemnifying party or that such Action involves or could have a
material adverse effect upon it with respect to matters beyond the scope of the
indemnity agreements contained in this Agreement, then the counsel representing
it, to the extent made necessary by such defenses, shall have the right to
direct such defenses of such Action on its behalf and in such case the
reasonable fees and expenses of such counsel in connection with any such
participation or defenses shall be paid by the indemnifying party. No settlement
of any Action against an indemnified party will be made without the consent of
the indemnifying party and the indemnified party, which consent shall not be
unreasonably withheld or delayed in light of all factors of importance to such
party and no indemnifying party shall be liable to indemnify any person for any
settlement of any such claim effected without such indemnifying party’s consent.
     10. Contribution.
     To provide for just and equitable contribution, if (i) an indemnified party
makes a claim for indemnification pursuant to Section 9 hereof and it is finally
determined, by a judgment, order or decree not subject to further appeal that
such claims for indemnification may not be enforced, even though this Agreement

 

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expressly provides for indemnification in such case; or (ii) any indemnified or
indemnifying party seeks contribution under the Act, the 1934 Act, or otherwise,
then each indemnifying party shall contribute to such amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect not only
such relative benefits but also the relative fault of the Company on the one
hand and the Placement Agent on the other in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
expenses (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Placement Agent on the other shall be deemed to be in the same
proportion as the total net proceeds from the Offering (before deducting
expenses) received by the Company bear to the total commissions and fees
actually received by the Placement Agent. The relative fault, in the case of an
untrue statement, alleged untrue statement, omission or alleged omission will be
determined by, among other things, whether such statement, alleged statement,
omission or alleged omission relates to information supplied by the Company or
by the Placement Agent, and the parties’ relative intent, knowledge, access to
information and opportunity to correct or prevent such statement, alleged
statement, omission or alleged omission. The Company and the Placement Agent
agree that it would be unjust and inequitable if the respective obligations of
the Company and the Placement Agent for contribution were determined by pro rata
allocation of the aggregate losses, liabilities, claims, damages and expenses or
by any other method or allocation that does not reflect the equitable
considerations referred to in this Section 10. No person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) will be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. For purposes of this Section 10, each person, if any, who
controls the Placement Agent within the meaning of the Act will have the same
rights to contribution as the Placement Agent, and each person, if any, who
controls the Company within the meaning of the Act will have the same rights to
contribution as the Company, subject in each case to the provisions of this
Section 10. Anything in this Section 10 to the contrary notwithstanding, no
party will be liable for contribution with respect to the settlement of any
claim or action effected without its written consent. This Section 10 is
intended to supersede, to the extent permitted by law, any right to contribution
under the Act, the 1934 Act or otherwise available.
     11. Termination, (a) The Offering may be terminated by the Placement Agent
at any time prior to the expiration of the Offering Period in the event that:
(i) any of the representations, warranties or covenants of the Company contained
herein, in the Memorandum or in any other Transaction Document shall prove to
have been false or misleading in any material respect when actually made;
(ii) the Company shall have failed to perform any of its material obligations
hereunder or under any other Transaction Document; or (iii) there shall occur
any event, within the control of the Company, which could materially adversely
affect the transactions contemplated hereby or the other Transaction Documents
or the ability of the Company to perform thereunder. In such event, the
Placement Agent shall be entitled to receive from the Company, within thirty
(30) business days of the Termination Date, in addition to other rights and
remedies it may have hereunder, at law or otherwise, an amount equal to the sum
of: (A) any and all Agent’s Fee which would have been earned through the
Termination Date based on amounts in the Escrow Account that, but for the
termination would have been available in normal course for release to the
Company at a Closing and shall retain any Agent’s Fee for any closings
previously consummated; (B) the Agent’s Expense Reimbursement irrespective of
amounts in the Escrow Account [(A) and (B) collectively, the “Termination
Amount”] and (C) all amounts which may become payable with respect to
investments made by Placement Agent Potential Investors pursuant to Section 4(g)
hereof.
     (b) This Offering may be terminated by the Company at any time prior to the
expiration of the Offering Period in the event that the Placement Agent shall
have failed to perform any of its material obligations hereunder (excluding
failing to raise the Minimum Amount hereunder) or has engaged in gross
negligence, fraud or willful misconduct. In the event of any such termination by
the Company, the Placement Agent shall not be entitled to any amounts whatsoever
except for the Expense Reimbursement.
     (c) This Offering may also be terminated by the Company at any time prior
to the expiration of the Offering Period for any reason not covered in Section
11(b) above (the “Company 11(c) Termination”). In such

 

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event, the Placement Agent shall be entitled to receive from the Company (i) the
Termination Amount and (ii) all amounts which may become payable with respect to
investments made by Placement Agent Potential Investors pursuant to Section 4(g)
hereof. In addition, if within twelve (12) months after the Company 11(c)
Termination, the Company conducts a public or private offering of its securities
or enters into a letter of intent with respect to the foregoing, then upon the
closing of any such transaction, the Placement Agent shall be entitled to
receive from the Company an amount equal to five (5%) of the gross proceeds
raised in such transaction (the “Company 11(c) Termination Amount”).
     (d) Upon any such termination, the Placement Agent and the Company will
cause, via written instructions to the Escrow Agent, all monies received with
respect to the subscriptions for Units not accepted by the Company to be
promptly returned to such subscribers without interest, penalty, expense or
deduction.
     (e) Before any termination by the Placement Agent under Section 11(a) or by
the Company under Section 11(b) or Section. 11(c) shall become effective, the
terminating party shall give written notice to the other party of its intention
to terminate the Offering (the “Termination Notice”). The Termination Notice
shall specify the grounds for the proposed termination, except in the case of a
Section 11(c) Termination. If the specified grounds for termination, or their
resulting adverse effect on the Transactions, are curable, then the other party
shall have ten (10) days from the Termination Notice within which to remove such
grounds or to eliminate all of their material adverse effects on the
Transactions contemplated hereby; otherwise, the Offering shall terminate.
     (f) Subject to section 12 below, this Agreement shall terminate upon the
occurrence and satisfactory completion of the Offering and sale of the Units,
unless earlier terminated as provided herein.
     12. Survival. The obligations of the parties to pay any costs and expenses
hereunder and to provide indemnification pursuant to Section 9 and contribution
pursuant to Section 10 shall survive any termination or completion of the
Offering. The respective indemnities, agreements, representations, warranties
and other statements of the Company or the Placement Agent 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, and regardless of any access to
information by, the Company or the Placement Agent, or any of their officers or
directors or any controlling person thereof, and will survive the sale of the
Units. In addition, the provisions of Sections 4(g), 6(d), 6(h), 11 through 20
hereof shall also survive the termination or expiration of this Offering.
     13. Governing Law; Jurisdiction. This Agreement shall be deemed to have
been made and delivered in New York City and shall be governed as to validity,
interpretation, construction, affect and in all other respects by the internal
laws of the State of New York. THE PARTIES HERETO AGREE TO SUBMIT ALL
CONTROVERSIES TO ARBITRATION IN ACCORDANCE WITH THE PROVISIONS SET FORTH BELOW
AND UNDERSTAND AND AGREE THAT (A) ARBITRATION IS FINAL AND BINDING ON THE
PARTIES, (B) THE PARTIES ARE WAIVING THEIR RIGHTS TO SEEK REMEDIES IN COURT,
INCLUDING THE RIGHT TO A JURY TRIAL, (C) PRE-ARBITRATION DISCOVERY IS GENERALLY
MORE LIMITED AND DIFFERENT FROM COURT PROCEEDINGS, (D) THE ARBITRATOR’S AWARD IS
NOT REQUIRED TO INCLUDE FACTUAL FINDINGS OR LEGAL REASONING AND ANY PARTY’S
RIGHT TO APPEAL OR TO SEEK MODIFICATION OF RULINGS BY ARBITRATORS IS STRICTLY
LIMITED, (E) THE PANEL OF FINANCIAL INDUSTRY REGULATORY AUTHORITY (“FINRA”)
ARBITRATORS WILL TYPICALLY INCLUDE A MINORITY OF ARBITRATORS WHO WERE OR ARE
AFFILIATED WITH THE SECURITIES INDUSTRY, AND (F) ALL CONTROVERSIES WHICH MAY
ARISE BETWEEN THE PARTIES CONCERNING THIS AGREEMENT SHALL BE DETERMINED BY
ARBITRATION PURSUANT TO THE RULES THEN PERTAEVING TO FINRA IN THE CITY OF NEW
YORK, STATE OF NEW YORK. JUDGMENT ON ANY AWARD OF ANY SUCH ARBITRATION MAY BE
ENTERED IN THE SUPREME COURT OF THE STATE OF NEW YORK OR IN ANY OTHER COURT
HAVING JURISDICTION OVER THE PERSON OR PERSONS AGAINST WHOM SUCH AWARD IS
RENDERED. THE PARTIES AGREE THAT THE DETERMINATION OF THE

 

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ARBITRATORS SHALL BE BINDING AND CONCLUSIVE UPON THEM. ANY NOTICE OF SUCH
ARBITRATION OR FOR THE CONFIRMATION OF ANY AWARD IN ANY ARBITRATION SHALL BE
SUFFICIENT IF GIVEN IN ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT. THE
PREVAILING PARTY, AS DETERMINED BY SUCH ARBITRATORS IN AN ARBITRATION PROCEEDING
SHALL BE ENTITLED TO COLLECT ANY COSTS, DISBURSEMENTS AND REASONABLE ATTORNEY’S
FEES FROM THE OTHER PARTY.
     14. Notices. All notices and other communications given or made pursuant
hereto shall be in writing and shall be deemed to have been duly given or made
as of the date delivered personally, or the date mailed if mailed by registered
or certified mail (postage prepaid, return receipt requested) to the parties at
the following addresses (or at such other address for a party as shall be
specified by like changes of address which shall be effective upon receipt) or
sent by electronic transmission, with confirmation received, if sent to the
Placement Agent, will be mailed, delivered or telefaxed and confirmed to:
National Securities Corporation, 330 Madison Avenue, 18th Floor, New York, New
York 10017, Attention: Jonathan Rich, telefax number (212) 380-2828, with a copy
to: Littman Krooks LLP, 655 Third Avenue, 20th Floor, New York, New York 10017,
Attention: Steven D. Uslaner, Esq., telefax number (212) 490- 2990, and if sent
to the Company, to: NYTEX Energy Holdings, Inc., 12222 Merit Drive, Suite 1850,
Dallas, Texas 75251, Attention: Kenneth Kase Conte, CFO, telefax number
(972) 770-4701, with a copy to: Strasburger & Price, LLP, 901 Main Street,
Suite 4400, Dallas, Texas 75202, Attn: Kevin Woltjen, Esq., telefax number
(214) 659-4025.
     15. Limitation of Engagement to the Company. The Company acknowledges that
the Placement Agent has been retained only by the Company, that the Placement
Agent is providing services hereunder as an independent contractor (and not in
any fiduciary capacity) and that the Company’s engagement of the Placement Agent
is not deemed to be on behalf of, and is not intended to confer rights upon, any
shareholder, owner or partner of the Company or any other person not a party
hereto as against the Placement Agent or any of its affiliates, or any of its or
their officers, directors, controlling persons (within the meaning of Section 15
of the Act or Section 20 of the 1934 Act), employees or agents, other than the
indemnification and contribution provisions set forth in Sections 9 and 10
hereof. Unless otherwise expressly agreed in writing by the Placement Agent or
as provided in Sections 9 or 10 hereof, no one other than the Company is
authorized to rely upon this Agreement or any other statements or conduct of the
Placement Agent, and no one other than the Company is intended to be a
beneficiary of this Agreement.
     16. Limitation of Liability to the Company. Except as provided in Section 9
(Indemnification) and Section 10 (Contribution), neither the Placement Agent nor
any of its affiliates or any of its or their officers, directors, controlling
persons (within the meaning of Section 15 of the Act or Section 20 of the 1934
Act ), employees or agents shall have any liability to the Company, its security
holders or creditors, or any person asserting claims on behalf of or in the
right of the Company (whether direct or indirect, in contract, tort, for an act
of negligence or otherwise) for any losses, fees, damages, liabilities, costs,
expenses or equitable relief arising out of or relating to this Agreement or the
services rendered hereunder, except for losses, fees, damages, liabilities,
costs or expenses that arise out of or are based on any action of or failure to
act by the Placement Agent and that are finally determined (by a court of
competent jurisdiction and after exhausting all appeals) to have resulted from a
material breach of this Agreement or the fraud, gross negligence, or willful
misconduct of the Placement Agent.
     17. Modification; Performance; Waiver. No provision of this Agreement may
be changed or terminated except by a writing signed by the party or parties to
be charged therewith. Unless expressly so provided, no party to this Agreement
will be liable for the performance of any other party’s obligations hereunder.
Any party hereto may waive compliance by the other with any of the terms,
provisions and conditions set forth herein; provided, however that any such
waiver shall be in writing specifically setting forth those provisions waived
thereby. No such waiver shall be deemed to constitute or imply waiver of any
other term, provision or condition of this Agreement. This Agreement contains
the entire agreement between the parties

 

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hereto and is intended to supersede any and all prior agreements between the
parties relating to the same subject matter.
     18. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original, and all of which taken together shall
constitute one and the same agreement (and all signatures need not appear on any
one counterpart). In the event that any signature is delivered by facsimile
transmission or by e-mail delivery of a “.pdf’ format data file, such signature
shall create a valid and binding obligation of the party executing (or on whose
behalf such signature is executed) with the same force and effect as if such
facsimile or ”.pdf’ signature page were an original thereof. This Agreement
shall become effective when one or more counterparts has been signed and
delivered by each of the parties hereto.
     19. Severability. If any provision of this Agreement is held to be illegal,
invalid or unenforceable under any present or future laws, such provision shall
be fully severable. This Agreement shall be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part of this
Agreement, and the remaining provisions of this Agreement shall remain in full
force and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance from this Agreement. Furthermore, in
lieu of each such illegal, invalid or unenforceable provision there shall be
deemed added automatically as a part of this Agreement a provision as similar in
terms to such illegal, invalid or unenforceable provision as may be possible to
cause such provision to be legal, valid and enforceable.
     20. Headings. The captions and headings used in this Agreement are for
convenience only and do not in any way affect, limit, amplify or modify the
terms and provisions of this Agreement.
     21. Miscellaneous. This Agreement shall inure to the benefit of, and be
binding upon, the successors of the Placement Agent and of the Company. Nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any person, company or corporation, other than the parties hereto and their
successors, any legal or equitable right, remedy or claim under or in respect of
this Agreement or any provision hereof. The term “successors” shall not include
any purchaser of the Units merely by reason of such purchase and shall not
include any assignee of the Placement Agent unless the Company shall consent
thereto in writing.

 

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     If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return this Agreement;, whereupon it will become a binding
agreement between the Company and the Placement Agent m accordance with its
terms.

          Very truly yours,

NYTEX ENERGY HOLDINGS, INC.
      By:   /s/ Kenneth K. Conte         Name:   Kenneth Kase Conte       
Title:   Chief Financial Officer       

Accepted and agreed to this 12th day of October, 2010

          NATIONAL SECURITIES CORPORATION
      BY: /s/ Jonathan C. Rich / Head of Investment Banking                

 

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Disclosure Schedule
General Terms and Conditions:
(a) This Disclosure Schedule has been prepared and delivered in accordance with
the Placement Agency Agreement (the “Agreement”) dated October 12, 2010 by and
between NYTEX Energy Holdings, Inc., a Delaware corporation (the “Company”) and
National Securities Corporation, a Washington corporation (the “Placement
Agent”). Capitalized terms used but not defined in these Disclosure Schedules
shall have the meaning ascribed to such terms in the Agreement.
(b) For purposes of this Disclosure Schedule, any information, item or other
disclosure set forth in any Section of this Disclosure Schedule shall be deemed
to have been set forth in all other applicable Sections of this Disclosure
Schedule and disclosed not only in connection with the representations and
warranties specifically referenced on a given Section of this Disclosure
Schedule, but for all purposes relating to the representations and warranties
set forth in Section

 

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3 of the Agreement, provided the relevance of such disclosure is reasonably
apparent from the terms of such disclosure.

 

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SCHEDULE 3(a)
SUBSIDIARIES

1.   NYTEX Petroleum, Inc., a Delaware corporation — wholly owned by the Company
  2.   Supreme Oilfield Services, Inc., a Delaware corporation — wholly owned by
the Company   3.   Supreme Fluid Service Partners LLC, a Texas limited liability
company — wholly owned by the Company. This entity is currently not in good
standing with the Texas State Comptroller or the Texas Secretary of State for
failure to file a franchise tax report and an annual public report with said
authorities. This entity holds no assets and has never had any activity. The
Company plans to reinstate and then dissolve this entity as soon as practicable.

 

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SCHEDULE 3(a)
1. Reports and Forms Not Timely Filed:

  (a)   . Form 8-K (Item 3.02) filed July 28, 2010 notifying of the conclusion
of the sale of 5,933,102 shares of the Company’s Common Stock.     (b)   . Form
8-K (Item 2.01) filed September 30, 2010 notifying of sale of all shares in
Supreme Vacuum Services, Inc. owned by the Company’s subsidiary Supreme Oilfield
Services, Inc.     (c)   . Form 8-K (Item 8.01) filed October 7, 2010 notifying
of Company’s receipt of service of process in connection with certain property
owned by the Company’s subsidiary NYTEX Petroleum, Inc.     (d)   . Form 8-K
(Item 5.01) filed October 8, 2010 notifying of Georgianna Hane’s resignation as
CFO and the naming of Kenneth Conte as the Company’s Vice President and Chief
Financial Officer.     (e)   . Form D filed September 28, 2010 for Company’s
Debenture Offering with a date of first sale of August 13, 2010.

2. Forms Not Yet Filed:

  (a)   . Form D for private placement of securities disclosed in No. 1(a)
above.     (b)   . Form D for private placement in connection with the Oil
Containment Boom Purchase/Rental Investment Programs that commenced in May 2010,
as disclosed in the Company’s Form 10-Q for the period ended June 30, 2010.

 

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SCHEDULE 3(a)
The assets of NYTEX Petroleum, Inc. are encumbered pursuant to certain six-month
bridge loan agreements, as amended, bearing 12.5% cash interest for the
six-month period, or 25% per annum, with a current maturity date of December 1,
2010.
The Company’s D&O Insurance policy lapsed on or about February 17, 2010. It will
be reinstated as of October 12, 2010.

 

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EXHIBIT A
FORM OF OPINION OF COUNSEL
     1. The Company is a corporation in good standing under the laws of the
State of Delaware and has the requisite corporate power and authority to carry
on its business as now conducted.
     2. The Company has the corporate power and authority and has taken all
requisite corporate action necessary for (i) the authorization, execution and
delivery of the Transaction Documents, (ii) the authorization of the performance
of all obligations of the Company under the Transaction Documents, and (iii) the
authorization, issuance (or reservation for issuance) and delivery of the
Preferred Stock, the Warrants, the Placement Agent Warrants and the Warrant
Shares. The Transaction Documents have been duly authorized, executed and
delivered by the Company and constitute the legal, valid and binding obligations
of the Company, enforceable against the Company in accordance with their terms.
     3. Upon the due exercise of the Warrants and the Placement Agent Warrants,
and payment of the exercise price for the Warrant Shares as provided therein,
the Warrant Shares issuable upon such exercise will be validly issued, fully
paid and non-assessable. The Company has reserved a sufficient number of shares
of (i) Preferred Stock for issuance upon the exercise of the Placement Agent
Warrants and (ii) Common Stock for issuance upon the exercise of the Warrants.
     4. The execution, delivery and performance of the Transaction Documents by
the Company and the offer, issuance and sale of the Preferred Stock and Warrants
requires no consent of, action by or in respect of, or filing with, any
governmental body, agency, or official known to us or under any law, rule or
regulation known to us, other than those that have been made or obtained which
are in full force and effect and those that are post-sale filings pursuant to
applicable state and federal securities laws.
     5. The execution, delivery and performance of the Transaction Documents by
the Company and the issuance and sale of the Units and the securities comprising
the Units does not and will not conflict with or result in a breach or violation
of any of the terms and provisions of, or constitute a default under (i) the
Company’s Certificate of Incorporation or Bylaws, each as in effect on the date
hereof, or (ii) any statute, rule, regulation or order of any governmental
agency or body or any court known to us and having jurisdiction over the Company
or any of its assets or properties.
     6. Assuming (i) the truth and accuracy of the representations and
warranties of the Investors in the Transaction Documents and other
certifications (which facts have not been independently verified by us),
(ii) the truth and accuracy of the representations and warranties of the
Placement Agent in the Agency Agreement (which facts have not been independently
verified by us), (iii) that the Placement Agent complied with the covenants set
forth in Section 2 of the Agency Agreement and (iv) that offers and sales of the
Units by the Company and any other person acting on the Company’s behalf were
not made by means of general solicitation or general advertising (the “Initial
Assumptions”), the initial issuance of the Units and the Placement Agent
Warrants are exempt from registration under the Securities Act of 1933, as
amended. In addition to the Initial Assumptions, assuming that the
representations and warranties of the Investors in the Transaction Documents and
other certifications (which facts have not been independently verified by us)
and of the Placement Agent in the Agency Agreement (which facts have not been
independently verified by us) continue to be true and correct at the time of
exercise of the Warrants and the Placement Agent Warrants, as the case may be,
upon exercise of the Warrants and the Placement Agent Warrants by the Investors
and the Placement Agent in accordance with the Warrants and the Placement Agent
Warrants, respectively, the Warrant Shares and Placement Agent Warrant Shares
will be exempt from registration under the Securities Act of 1933, as amended.
     7. Except as set forth in the Memorandum or in the SEC Reports (as defined
in the Memorandum) incorporated therein by reference, we are not representing
the Company in any pending litigation or in any litigation that is overtly
threatened in writing against it by a potential claimant that challenges the
validity or enforceability of, or seeks to enjoin the performance of, the
Transaction Documents.

 

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EXHIBIT B
FORM OF NEGATIVE ASSURANCE LETTER
     We have participated in conferences with officers and other representatives
of the Company, at which conferences the contents of the Memorandum and related
matters were discussed. Although we are not passing upon, and do not assume any
responsibility for, the accuracy, completeness or fairness of the statements
contained in the Memorandum and have made no independent check or verification
thereof, based upon those conferences and upon our participation in the
preparation of the Memorandum, nothing has come to our attention which would
lead us to believe that the Memorandum (other than the financial statements,
notes and schedules thereto and other financial and statistical date included
therein or derived therefrom, as to which we express no opinion or belief) as of
its date, contained or contains any untrue statement of a material fact or
omitted or omits to state a material fact required to be stated therein or
necessary to make the statements contained therein, in light of the
circumstances under which they were made, not misleading.