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EXHIBIT 4.2    
    

 
 

REGISTRATION RIGHTS AGREEMENT    
    

        This Registration Rights Agreement (this "Agreement") is made and entered into as of April 11, 2006, by and
between Pinnacle Gas Resources, Inc., a Delaware corporation (the "Company"), and Friedman, Billings, Ramsey & Co., Inc., a
Delaware corporation ("FBR"), for the benefit of FBR and the purchasers of the Company's common stock, par value $0.01 per share (the
"Common Stock"), as participants ("Participants") in the private placement by the Company of shares of
Common Stock (the "Private Placement"), and the direct and indirect transferees of FBR, and each of the Participants. 

        This
Agreement is made pursuant to the Purchase/Placement Agreement (the "Purchase/Placement Agreement"), dated as of March 31,
2006, by and between the Company and FBR in connection with the purchase and sale or placement of an aggregate of 11,161,070 shares of the Company's Common Stock (plus an additional 1,674,160 shares
to cover additional allotments, if any). In order to induce FBR to enter into the Purchase/Placement Agreement, the Company has agreed to provide the registration rights provided for in this Agreement
to FBR, the Participants, and their respective direct and indirect transferees. The execution of this Agreement is a condition to the closing of the transactions contemplated by the Purchase/Placement
Agreement. 

        The
parties hereby agree as follows: 

1.     DEFINITIONS  

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

        144A/Regulation S Shares:    Shares initially sold to FBR in the Private Placement and resold by FBR to "qualified
institutional buyers" (as such term is defined in Rule 144A) or to "non-U.S.
persons" (in accordance with Regulation S) in an "offshore transaction" (in accordance with Regulation S). 

        Affiliate:    As to any specified Person, (i) any Person directly or indirectly owning, controlling or holding, with
power to vote, ten percent or more of the outstanding voting securities of such other Person, (ii) any Person ten percent or more of whose outstanding voting securities are directly or
indirectly owned, controlled or held, with power to vote, by such other Person, (iii) any Person directly or indirectly controlling, controlled by or under common control with such other
Person, (iv) any executive officer, director, trustee or general partner of such Person and (v) any legal entity for which such Person acts as an executive officer, director, trustee or
general partner. An indirect relationship shall include circumstances in which a Person's spouse, children, parents, siblings or mother-, father-, sister- or brother-in-law is
or has been associated with a Person. 

        Agreement:    As defined in the preamble. 

        Business Day:    With respect to any act to be performed hereunder, each Monday, Tuesday, Wednesday, Thursday and Friday that is
not a day on which banking institutions in New York, New York or other applicable places where such act is to occur are authorized or obligated by applicable law, regulation or executive order to
close. 

        Closing Date:    The date of this Agreement or such other time or such other date as FBR and the Company may agree. 

        Commission:    The Securities and Exchange Commission. 

        Common Stock:    As defined in the preamble. 

        Company:    As defined in the preamble. 

        Controlling Person:    As defined in Section 6(a) hereof. 

        End of Suspension Notice:    As defined in Section 5(b) hereof. 

 

        Exchange Act:    The Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the Commission
pursuant thereto. 

        Existing Stockholders:    (i) DLJ MB Partners III GmbH & Co. KG, a limited company organized under the laws of
Germany, DLJ Offshore Partners III, C.V., a partnership organized under the laws of the Netherland Antilles, DLJ Offshore Partners III-1, C.V., a partnership organized under the laws of
the Netherland Antilles, DLJ Offshore Partners III-2, C.V., a partnership organized under the laws of the Netherland Antilles, Millennium Partners II, L.P., a Delaware limited partnership,
DLJ Merchant Banking Partners III, L.P., a Delaware limited partnership, and MBP III Plan Investors, L.P., a Delaware limited partnership, (ii) CCBM, Inc., a Delaware corporation,
(iii) U.S. Energy Corporation, a Wyoming corporation, and (iv) Crested Corp., a Colorado corporation, and any of their Permitted Transferees (as defined in the Securityholders
Agreement), each of which have registration rights pursuant to the Securityholders Agreement. 

        FBR:    As defined in the preamble. 

        Filing Bonus Plan:    The bonus plan established by the board of directors of the Company pursuant to which certain officers and
employees of the Company shall be awarded an aggregate maximum filing bonus of $500,000 if the Company files a Registration Statement registering the resale of the Private Placement Shares and
144A/Regulation S Shares within sixty (60) days after the Closing Date. 

        Form 8-K:    Current report required to be filed with the Commission pursuant to Section 13 or
Section 15(d) of the Exchange Act, as such form may be amended from time to time, or any similar form, rule or regulation hereafter adopted by the Commission as a replacement thereto having
substantially the same effect as such form. 

        Form 10-K:    Annual report required to be filed with the Commission pursuant to Section 13 or
Section 15(d) of the Exchange Act, as such form may be amended from time to time, or any similar form, rule or regulation hereafter adopted by the Commission as a replacement thereto having
substantially the same effect as such form. 

        Form 10-Q:    Quarterly report required to be filed with the Commission pursuant to Section 13 or
Section 15(d) of the Exchange Act, as such form may be amended from time to time, or any similar form, rule or regulation hereafter adopted by the Commission as a replacement thereto having
substantially the same effect as such form. 

        Holder:    Each record owner of any Registrable Shares from time to time, including FBR and its Affiliates. 

        Indemnified Party:    As defined in Section 6(c) hereof. 

        Indemnifying Party:    As defined in Section 6(c) hereof. 

        IPO Registration Statement:    As defined in Section 2(b) hereof. 

        Liabilities:    As defined in Section 6(a) hereof. 

        NASD:    The National Association of Securities Dealers, Inc. 

        No Objections Letter:    As defined in Section 4(a)(xx) hereof. 

        Offering Memorandum:    The Offering Memorandum of the Company dated March 31, 2006 pursuant to which the
144A/Regulation S Shares and the Private Placement Shares are offered and sold. 

        Participant:    As defined in the preamble. 

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        Person:    An individual, partnership, corporation, trust, unincorporated organization, government or agency or political
subdivision thereof, or any other legal entity. 

        Private Placement:    As defined in the preamble. 

        Private Placement Shares:    Shares initially sold by the Company directly to "accredited investors" (within the meaning of
Rule 501(a) promulgated under the Securities Act) as Participants, with FBR acting as placement agent. 

        Proceeding:    An action, claim, suit or proceeding (including without limitation, an investigation or partial proceeding, such
as a deposition), whether commenced or, to the knowledge of the Person subject thereto, threatened. 

        Prospectus:    The prospectus included in any Registration Statement, including any preliminary prospectus, and all other
amendments and supplements to any such prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference, if any, in
such prospectus. 

        Purchase/Placement Agreement:    As defined in the preamble. 

        Purchaser Indemnitee:    As defined in Section 6(a) hereof. 

        Questionnaire:    As defined in Section 4(b) hereof. 

        Questionnaire Deadline:    As defined in Section 4(b) hereof. 

        Registrable Shares:    The 144A/Regulation S Shares and the Private Placement Shares, upon original issuance thereof, and
at all times subsequent thereto, including upon the transfer thereof by the original holder or any subsequent holder and any shares or other securities issued in respect of such Registrable Shares by
reason of or in connection with any stock dividend, stock distribution, stock split, purchase in any rights offering or in connection with any exchange for or replacement of such Registrable Shares or
any combination of shares, recapitalization, merger or consolidation, or any other equity securities issued pursuant to any other pro rata distribution with respect to the Common Stock, until, in the
case of any such 144A/Regulation S Share or Private Placement Share, the earliest to occur of (i) the date on which it has been first registered effectively pursuant to the Securities
Act and disposed of in accordance with the Registration Statement relating to it, (ii) the date on which either it is distributed to the public pursuant to Rule 144 (or any similar
provision then in effect) or is eligible for sale without registration, pursuant to Rule 144(k) promulgated by the Commission pursuant to the Securities Act or (iii) the date on which it
is sold to the Company or any subsidiary of the Company. 

        Registration Expenses:    Any and all expenses incident to the performance of or compliance with this Agreement, including,
without limitation: (i) all Commission, securities exchange, NASD registration, listing, inclusion and filing fees including, if applicable, the fees and expenses of any "qualified independent
underwriter" and its counsel that is required to be retained by any Holder of Registrable Shares in accordance with the rules and regulations of the NASD, (ii) all fees and expenses incurred in
connection with compliance with international, federal or state securities or blue sky laws (including, without limitation, any registration, listing and filing fees and reasonable fees and
disbursements of counsel in connection with blue sky qualification of any of the Registrable Shares and the preparation of a blue sky memorandum and compliance with the rules of the NASD),
(iii) all expenses in preparing or assisting in preparing, word processing, duplicating, printing, delivering and distributing any Registration Statement, any Prospectus, any amendments or
supplements thereto, any underwriting agreements, securities sales agreements, certificates and any other documents relating to the performance under and compliance with this Agreement,
(iv) all fees and expenses incurred in connection with the listing or inclusion of any of the Registrable Shares on any securities exchange or The Nasdaq Stock Market pursuant to 

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Section 4(a)(xiv) of
this Agreement, (v) the fees and disbursements of counsel for the Company and of the independent public accountants of the Company (including, without
limitation, the expenses of any special audit and "cold comfort" letters required by or incident to such performance), (vi) reasonable fees and disbursements of one counsel, reasonably
acceptable to the Company, for the Holders, which shall be Akin Gump Strauss Hauer & Feld LLP, unless other counsel is selected by the Holders holding a majority of the Registrable Shares
included in the registration (such counsel, "Selling Holders' Counsel") and (vii) any fees and disbursements customarily paid in issues and sales
of securities (including the fees and expenses of any experts retained by the Company in connection with any Registration Statement); provided, however,
that Registration Expenses shall exclude brokers' or underwriters' discounts and commissions, if any, and transfer taxes or transfer fees, if any, relating to the sale or disposition of Registrable
Shares by a Holder. 

        Registration Statement:    The Shelf Registration Statement and/or the IPO Registration Statement of the Company that covers the
resale of Registrable Shares pursuant to the provisions of this Agreement, including the Prospectus, amendments and supplements to such registration statement or Prospectus, including pre-
and post-effective amendments, all exhibits thereto and all material incorporated by reference or deemed to be incorporated by reference, if any, in such registration statement. 

        Regulation S:    Regulation S (Rules 901-904) promulgated by the Commission under the
Securities Act, as such rules may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission as a replacement thereto having substantially the same effect as
such regulation. 

        Rule 144:    Rule 144, and any of its referenced paragraphs, promulgated by the Commission pursuant to the
Securities Act, as such rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission as a replacement thereto having substantially the same effect as such rule. 

        Rule 144A:    Rule 144A promulgated by the Commission pursuant to the Securities Act, as such rule may be amended
from time to time, or any similar rule or regulation hereafter adopted by the Commission as a replacement thereto having substantially the same effect as such rule. 

        Rule 158:    Rule 158 promulgated by the Commission pursuant to the Securities Act, as such rule may be amended
from time to time, or any similar rule or regulation hereafter adopted by the Commission as a replacement thereto having substantially the same effect as such rule. 

        Rule 415:    Rule 415 promulgated by the Commission pursuant to the Securities Act, as such rule may be amended
from time to time, or any similar rule or regulation hereafter adopted by the Commission as a replacement thereto having substantially the same effect as such rule. 

        Rule 424:    Rule 424 promulgated by the Commission pursuant to the Securities Act, as such rule may be amended
from time to time, or any similar rule or regulation hereafter adopted by the Commission as a replacement thereto having substantially the same effect as such rule. 

        Rule 457:    Rule 457 promulgated by the Commission pursuant to the Securities Act, as such rule may be amended
from time to time, or any similar rule or regulation hereafter adopted by the Commission as a replacement thereto having substantially the same effect as such rule. 

        Securities Act:    The Securities Act of 1933, as amended, and the rules and regulations promulgated by the Commission
thereunder. 

        Securityholders Agreement:    The Amended and Restated Securityholders Agreement dated February 16, 2006, by and among
the Company and the stockholders of the Company party thereto, as may be amended from time to time. 

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        Selling Holders' Counsel:    As defined under "Registration Expenses" in Section 1 hereof. 

        Shares:    The shares of Common Stock being offered and sold pursuant to the terms and conditions of the Purchase/Placement
Agreement. 

        Shelf Registration Statement:    As defined in Section 2(a) hereof. 

        Suspension Event:    As defined in Section 5(b) hereof. 

        Suspension Notice:    As defined in Section 5(b) hereof. 

        Underwritten Offering:    A sale of securities of the Company to an underwriter or underwriters for reoffering to the public. 

2.     REGISTRATION RIGHTS  

        (a)    Mandatory Shelf Registration.    As set forth in Section 4 hereof, the Company agrees to file with the
Commission as soon as reasonably practicable following the date of this Agreement (but in no event later than the date that is sixty (60) days after the Closing Date) a shelf Registration
Statement on Form S-1 or such other form under the Securities Act then available to the Company providing for the resale of any Registrable Shares pursuant to Rule 415 from
time to time by the Holders (a "Shelf Registration Statement"). The Company shall use its commercially reasonable efforts to cause such Shelf
Registration Statement to be declared effective by the Commission as soon as practicable following such filing, and for this purpose, the Company shall be entitled to consider the advice of the
managing underwriter or underwriters of an initial public offering of the Common Stock which is then pending as to the effect that the effectiveness of the Shelf Registration Statement could
reasonably be expected to have on the marketing of the initial public offering. The Shelf Registration Statement shall provide for the resale from time to time, and pursuant to any method or
combination of methods legally available (including, without limitation, an Underwritten Offering, a direct sale to purchasers or a sale through brokers or agents, which may include sales over the
internet) by the Holders of any and all Registrable Shares. 

        (b)    IPO Registration.    

        (i)    If
prior to the Shelf Registration Statement being declared effective by the Commission and the Common Stock being listed on a national securities exchange or quoted on
the Nasdaq Stock Market or comparable quotation system, the Company proposes to file a registration statement on Form S-1 or such other form under the Securities Act
providing for the initial public offering of shares of Common Stock (the "IPO Registration Statement"), the Company will use commercially reasonable
best efforts to notify each Holder of the proposed filing and afford each Holder an opportunity to include in the IPO Registration Statement all or any part of the Registrable Shares then held by such
Holder. Each Holder desiring to include in the IPO Registration Statement all or part of the Registrable Shares held by such Holder shall, within ten (10) days after receipt of the
above-described notice from the Company, so notify the Company in writing, and in such notice shall inform the Company of the number of Registrable Shares such Holder wishes to include in the IPO
Registration Statement. Any election by any Holder to include any Registrable Shares in the IPO Registration Statement will not affect the inclusion of such Registrable Shares in the Shelf
Registration Statement until such Registrable Shares have been sold under the IPO Registration Statement; provided, however, that at such time of sale, the Company shall have the right to remove from
any Shelf Registration Statement the Registrable Shares sold pursuant to the IPO Registration Statement. 

        (ii)    Right to Terminate IPO Registration.    The Company shall have the right to terminate or withdraw the IPO
Registration Statement initiated by it referred to in this Section 2(b) whether or not any Holder has elected to include Registrable Shares in such registration. 

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        (iii)    Selection of Underwriter.    The Company shall have the sole right to select the managing underwriter(s) for
its initial public offering, regardless of whether any Registrable Shares are included in the IPO Registration Statement or otherwise. The Company shall advise all Holders of the managing
underwriter(s) for the Underwritten Offering proposed under the IPO Registration Statement. 

        (iv)    Shelf Registration not Impacted by IPO Registration Statement.    The Company's obligation to file the Shelf
Registration Statement pursuant to Section 2(a) hereof shall not be affected by the filing or effectiveness of the IPO Registration Statement, except to the extent Registrable Shares are sold
pursuant to the IPO Registration Statement, in which case the Company shall have the right to remove from any Shelf Registration Statement the Registrable Shares sold pursuant to the IPO Registration
Statement. 

        (c)    Underwriting.    

        (i)    The
right of any such Holder's Registrable Shares to be included in the IPO Registration Statement pursuant to Section 2(b) shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's Registrable Shares in the underwriting to the extent provided herein. All Holders proposing to distribute their
Registrable Shares through such underwriting shall enter into an
underwriting agreement in customary form with the managing underwriter(s) selected for such underwriting and complete and execute any questionnaires, powers of attorney, indemnities, securities escrow
agreements and other documents reasonably required under the terms of such underwriting, and furnish to the Company such information as the Company may reasonably request in writing for inclusion in
the Registration Statement; provided, however, that no Holder shall be required to make any
representations or warranties to or agreements with the Company or the underwriters other than representations, warranties or agreements regarding such Holder, its holdings and such Holder's intended
method of distribution and any other representation required by law, regulation or reasonably requested by the underwriters. Notwithstanding any other provision of this Agreement, if the managing
underwriter(s) determine(s) in good faith that marketing factors require a limitation on the number of shares to be included, then the managing underwriter(s) may exclude shares (including Registrable
Shares) from the IPO Registration Statement and Underwritten Offering, and any shares included in such IPO Registration Statement and Underwritten Offering shall be allocated  first, to the Company, and
second, to (i) each of the Holders requesting inclusion of their
Registrable Shares in such IPO Registration Statement and (ii) each of the Existing Stockholders requesting inclusion of their Common Stock in such IPO Registration Statement pursuant to the
Securityholders Agreement (in the case of (i) and (ii), on a pro rata basis based on the aggregate of (x) the total number of Registrable
Shares then held by each such Holder who is requesting inclusion under this Agreement or the total number of Common Stock then held by each such Existing Stockholder who is requesting inclusion under
this Agreement, as applicable, and (y) the total number of shares of Common Stock held by all of the Holders and Existing Stockholders who are requesting inclusion of shares in the IPO
Registration Statement); provided, however, that the number of Registrable Shares to be included in the
IPO Registration Statement shall not be reduced unless all other securities of the Company held by (i) officers, directors, other employees of the Company and consultants and (ii) other
holders of the Company's capital stock with registration rights that are inferior (with respect to such reduction) to the registration rights of the Holders set forth herein (which shall not include
the Existing Stockholders), are first entirely excluded from the underwriting and registration. 

        (ii)   Regardless
of whether a Holder elects to include Registrable Shares in the IPO Registration Statement, the Holder of such Registrable Shares shall be deemed to have
agreed not to effect any public sale or distribution of securities of the Company of the same or similar class or classes of the securities included in the IPO Registration Statement or any securities
convertible 

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into
or exchangeable or exercisable for such securities, including a sale pursuant to Rule 144 or Rule 144A, during such periods as reasonably requested (but in no event for a period
longer than thirty (30) days prior to and sixty (60) days following the effective date of the IPO Registration Statement) by the representatives of the underwriters, if an Underwritten
Offering, or by the Company in any other registration. 

        (iii)  If
any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by written notice to the Company and the underwriter,
delivered at least ten (10) Business Days prior to the effective date of the Registration Statement covering the Underwritten Offering, provided that the Holder may agree to waive this right to
withdraw with the Company, the underwriters or any custodial agent in any custody agreement and/or power of attorney executed by such Holder in connection with the underwriting. Any Registrable Shares
excluded or withdrawn from such underwriting shall be excluded and withdrawn from the IPO Registration Statement. 

        (d)    Expenses.    The Company shall pay all Registration Expenses in connection with the registration of the
Registrable Shares pursuant to this Agreement. Each Holder participating in a registration pursuant to this Section 2 shall bear such Holder's proportionate share (based on the total number of
Registrable Shares sold in such registration) of all discounts and commissions payable to underwriters or brokers and all transfer taxes and transfer fees in connection with a registration of
Registrable Shares pursuant to this Agreement and any other expense of the Holders not specifically allocated to the Company pursuant to this Agreement relating to the sale or disposition of such
Holder's Registrable Shares pursuant to any Registration Statement. 

        (e)    Executive Bonuses.    If the Company does not file a Registration Statement registering the resale of
the Private Placement Shares and the 144A/Regulation S Shares within sixty (60) days after the Closing Date, other than as a result of the Commission being unable to accept such filings,
then the maximum bonus each participating officer or employee would be entitled to pursuant to the Company's Filing Bonus Plan shall be reduced by 1% for each Business Day that the registration
default continues; provided, however, that such forfeiture shall not apply at any time when the Company
has endeavored in good faith to file the Registration Statement within the time period specified but is unable to make the filing as of the specified date as a result of circumstances beyond the
Company's reasonable control. 

        (f)    Penalty for Failure to File.    If the Company has not filed a Shelf Registration Statement as contemplated by
Section 2(a) within 180 days after the Closing Date (the "First Penalty Date"), it shall pay not later than 185 days after the
Closing Date to each Holder (other than the Current Stockholders) of record as of the close of business on the relevant Penalty Date (as defined below) (the "Record
Date") an amount in cash equal to 10% of the per share offering price of Common Stock sold in the Private Placement multiplied by the number of Registrable Shares held by such
Holder on the Record Date (a "Penalty Payment"). The Company shall make a Penalty Payment within five days after the last day of each
180-day period after the First Payment Date (each such date, together with the First Penalty Date, a "Penalty Date"), until the Company has
filed a Shelf Registration Statement as contemplated by Section 2(a). The Company, at its option, may elect to satisfy up to 65% of any such Penalty Payment by the issuance of a number of
shares of Common Stock at the time such Penalty Payment is made determined by dividing the dollar amount of the portion of the payment to be so satisfied by the per share offering price of the Common
Stock sold in the Private Placement. The parties acknowledge that damages from a failure to file in the time periods required a Shelf Registration Statement are difficult to measure and that the
payments provided for in this Section 2(h) are reasonable liquidated damages and not a penalty; provided, however, that neither this provision
nor any payment made under this provision shall preclude the Holders from seeking to enforce the Company's obligation under this Agreement to file a Shelf Registration Statement, whether by
specific 

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performance
or other action. FBR shall have the right to waive any of these payment obligations on behalf of the Holders at any time. 

3.     RULES 144 AND 144A REPORTING  

        With a view to making available the benefits of certain rules and regulations of the Commission that may at any time permit the sale of the Registrable Shares to
the public without registration, the Company agrees to: 

        (a)   use
commercially reasonable efforts to make and keep available adequate current public information, as those terms are understood and defined in Rule 144(c), at
all times after the effective date of the first registration under the Securities Act filed by the Company for an offering of its securities to the general public; 

        (b)   use
commercially reasonable efforts to file with the Commission in a timely manner all reports and other documents required to be filed by the Company under the
Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements); 

        (c)   so
long as a Holder owns any Registrable Shares, notwithstanding that the Company may not be required to file reports and other documents under the Securities Act and
the Exchange Act, or otherwise report on an annual and quarterly basis on forms provided for such annual and quarterly reporting pursuant to rules and regulations promulgated by the Commission, the
Company shall use commercially reasonable efforts to furnish to the Holders, within fifteen (15) days after it is or would have been required to file such with the Commission as a
non-accelerated filer, all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-K and
10-Q if the Company was required to file such forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual
information only, reports thereon by the certified independent accountants of the Company; provided that the obligation to furnish such information
shall be deemed satisfied by the Company by its filing of annual and quarterly financial statements with the Commission; and provided further that,
notwithstanding the foregoing, such information shall not be required until May 30, 2006 with respect to the quarter ended March 31, 2006; 

        (d)   until
the Shelf Registration Statement has been declared effective, the Company shall hold a quarterly conference call for the Holders to discuss the results of the
prior quarter reported pursuant to Section 3(c)(i); 

        (e)   so
long as a Holder owns any Registrable Shares, if the Company is not required to file reports and other documents under the Securities Act and the Exchange Act, it
will make available other information as required by, and so long as necessary to permit sales of Registrable Shares pursuant to, Rule 144 or Rule 144A; and 

        (f)    so
long as a Holder owns any Registrable Shares, to furnish to the Holder promptly upon request (i) a written statement by the Company as to its compliance with
the reporting requirements of Rule 144 (at any time after ninety (90) days after the effective date of the first registration statement filed by the Company for an offering of its
securities to the general public), and of the Securities Act and the Exchange Act (at any time after it has become subject to the reporting requirements of the Exchange Act), and (ii) such
other reports and documents of the Company, and take such further actions, as a Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing a Holder to sell
any such Registrable Shares without registration. 

4.     REGISTRATION PROCEDURES  

        (a)   In
connection with the obligations of the Company with respect to any registration pursuant to this Agreement, (x) the Company shall use its commercially
reasonable efforts to effect or cause to be 

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effected
the registration of the Registrable Shares under the Securities Act to permit the sale of such Registrable Shares by the Holder or Holders in accordance with the Holder's or Holders' intended
method or methods of distribution, and (y) the Company shall: 

        (i)    notify
FBR and Selling Holders' Counsel, in writing, at least ten (10) Business Days prior to the filing of a Registration Statement, of its intention to
file a Registration Statement with the Commission and, at least five (5) Business Days prior to the filing, provide a copy of any such Registration Statement to FBR, its counsel, and
Selling Holders' Counsel for review and comment; prepare and file with the Commission, as specified in this Agreement, a Shelf Registration Statement; any Registration Statement (x) shall
comply as to form in all material respects with the requirements of the applicable form and include all financial statements required by the Commission to be filed therewith and (y) shall be
reasonably acceptable to FBR, its counsel and Selling Holders' Counsel; notify FBR and Selling Holders' Counsel in writing, at least five (5) Business Days prior to the filing of any amendment
or supplement to any such Registration Statement and, at least three (3) Business Days prior to filing, provide a copy of such amendment or supplement to FBR, its counsel and Selling Holders'
Counsel for review and comment; promptly following receipt from the Commission, provide to FBR, its counsel and Selling Holders' Counsel copies of any comments made by the staff of the Commission
relating to such Registration Statement and of the Company's responses thereto for review and comment; and use its commercially reasonable efforts to cause any such Registration Statement to become
effective as soon as practicable after filing; cause the Shelf Registration Statement to remain effective, subject to Section 5 hereof, until the earliest of (1) such time as all
Registrable Shares covered thereby have been sold pursuant to a Registration Statement or pursuant to Rule 144 under the Securities Act, (2) there are no Registrable Shares outstanding
(including as a result of such Shares having become eligible to be sold pursuant to Rule 144(k)), (3) the Registrable Shares have been sold to the Company or any of its subsidiaries, or
(4) the second anniversary of the initial effective date of the Shelf Registration Statement; provided, that if the Company has an effective
Shelf Registration Statement on
Form S-1 under the Securities Act and becomes eligible to use Form S-3 or such other short-form registration statement form under the Securities Act,
the Company may, upon thirty (30) Business Days prior written notice to all Holders, either (i) amend the Shelf Registration Statement on Form S-1 to convert it into a
Form S-3 Shelf Registration Statement or (ii) register any Registrable Shares registered but not yet distributed under the effective Shelf Registration Statement on such a
short-form Shelf Registration Statement and, once the short-form Shelf Registration Statement is declared effective, de-register such shares under the previous
Registration Statement or transfer the filing fees from the previous Registration Statement (such transfer pursuant to Rule 457, if applicable) unless any Holder with Registrable Shares
registered under the initial Shelf Registration Statement notifies the Company within twenty (20) Business Days of receipt of the Company notice that such a registration under a new
Registration Statement and de-registration of the initial Shelf Registration Statement would interfere with its distribution of Registrable Shares already in progress; 

        (ii)   subject
to Section 4(a)(ix) hereof, (1) prepare and file with the Commission such pre-effective amendments and
post-effective amendments to any Registration Statement and in the case of the Shelf Registration Statement, as may be necessary to keep such Shelf Registration Statement effective for the
period described in Section 4(a)(i) hereof; (2) cause each Prospectus contained in any such Registration Statement to be supplemented by any required Prospectus supplement, and as
so supplemented to be filed pursuant to Rule 424 or any similar rule that may be adopted under the Securities Act; (3) amend or supplement the Shelf Registration Statement to include the
Company's quarterly and annual financial information and other material developments (until the Company is eligible to incorporate such information by reference into the Shelf Registration Statement),
during which time sales of the Registrable Securities under the Shelf Registration Statement will be suspended until such amendment is filed and effective, and 

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(4) comply
with the provisions of the Securities Act with respect to the disposition of all securities covered by the Shelf Registration Statement during the applicable period in accordance
with the intended method or methods of distribution by the selling Holders thereof set forth in the "Plan of Distribution" section of the prospectus; 

        (iii)  furnish
to the Holders, without charge, as many copies of each Prospectus, including each preliminary Prospectus, if any, and any amendment or supplement thereto and
such other documents as such Holder may reasonably request, in order to facilitate the public sale or other disposition of the Registrable Shares; the Company consents, subject to Section 5, to
the lawful use of such Prospectus, including each preliminary Prospectus, by the Holders, if any, in connection with the offering and sale of the Registrable Shares covered by any such Prospectus; 

        (iv)  use
its commercially reasonable efforts to register or qualify, or obtain exemption from registration or qualification for, all Registrable Shares by the time any
Registration Statement is declared effective by the Commission under all applicable state securities or "blue sky" laws of such jurisdictions as FBR or any Holder of Registrable Shares covered by a
Registration Statement shall reasonably request in writing; keep each such registration or qualification or exemption effective during the period such Shelf Registration Statement is required to be
kept effective pursuant to Section 4(a)(i) and do any and all
other acts and things that may be reasonably necessary or advisable to enable such Holder to consummate the disposition in each such jurisdiction of such Registrable Shares owned by such Holder;  provided, however,
 that the Company shall not be required to (1) qualify generally to do business in any jurisdiction or to register as a broker
or dealer in such jurisdiction where it would not otherwise be required to qualify but for this Section 4(a)(iv) and except as may be required by the Securities Act, (2) subject
itself to taxation in any such jurisdiction, or (3) submit to the general service of process in any such jurisdiction; 

        (v)   use
its commercially reasonable efforts to cause all Registrable Shares covered by any Registration Statement to be registered and approved by such other governmental
agencies or authorities as may be necessary to enable the Holders thereof to consummate the disposition of such Registrable Shares; 

        (vi)  notify
FBR and each Holder with Registrable Shares covered by any Registration Statement promptly and, if requested by FBR or any Holder, confirm such advice in writing
(1) when a Registration Statement has become effective and when any post-effective amendments and supplements thereto are filed, (2) of the issuance by the Commission or any
state securities authority of any stop order suspending the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose, (3) of any request by the Commission
or any other federal, state or foreign governmental authority for amendments or supplements to a Registration Statement or related Prospectus or for additional information, (4) of the happening
of any event during the period a Registration Statement is effective as a result of which such Registration Statement or the related Prospectus or any document incorporated by reference therein
contains any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading (which notice may be in
the form of a Suspension Notice under Section 5(b) hereof) and (5) at the request of any such Holder, promptly to furnish to such Holder a reasonable number of copies of a supplement to
or an amendment of such Prospectus prepared in accordance with Section 4(a)(ix); 

        (vii) except
as provided in Section 5 and during the period of time referred to in Section 4(a)(i) above with regard to a Shelf Registration Statement,
use its commercially reasonable efforts to avoid the issuance of, or if issued, to obtain the withdrawal of, any order enjoining or suspending the use or effectiveness of a Registration Statement or
suspending of the 

10

 

qualification
(or exemption from qualification) of any of the Registrable Shares for sale in any jurisdiction, as promptly as practicable; 

        (viii) upon
request, furnish to each requesting Holder of Registrable Shares, without charge, at least one conformed copy of each Registration Statement and any
post-effective amendment or supplement thereto (without documents incorporated therein by reference or exhibits thereto, unless requested); 

        (ix)  except
as provided in Section 5, upon the occurrence of any event contemplated by Section 4(a)(vi)(4) hereof, use its commercially reasonable efforts to
promptly prepare a supplement or post-effective amendment to any Registration Statement or the related Prospectus or any document incorporated therein by reference or file any other
required document so that, as thereafter delivered to the purchasers of the Registrable Shares, such Prospectus will not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; 

        (x)   if
requested by the representative of the underwriters, if any, or any Holders of Registrable Shares being sold in connection with such offering, (1) as promptly
as practicable incorporate in a Prospectus supplement or post-effective amendment such information as the representative of the underwriters, if any, or such Holders indicate in writing
relates to them or that they reasonably request be included therein and (2) make all required filings of such Prospectus supplement or such post-effective amendment as soon as
practicable after the Company has received written notification of the matters to be incorporated in such Prospectus supplement or post-effective amendment; 

        (xi)  in
the case of an Underwritten Offering, use its commercially reasonable efforts to furnish or cause to be furnished to the underwriters a signed counterpart, addressed
to each such Holder and the underwriters, of: (1) an opinion of counsel for the Company, dated the date of each closing under the underwriting agreement, reasonably satisfactory to such Holder
and the underwriters; and (2) a "comfort" letter, dated the effective date of such Registration Statement and the date of each closing under the underwriting agreement, signed by the
independent public accountants who have certified the Company's financial statements included in such Registration Statement, covering substantially the same matters with respect to such Registration
Statement (and the Prospectus included therein) and with respect to events subsequent to the date of such financial statements, as are customarily covered in accountants' letters delivered to
underwriters in underwritten public offerings of securities and such other financial matters as the underwriters may reasonably request; 

        (xii) enter
into customary agreements (including in the case of an Underwritten Offering, an underwriting agreement in customary form) and take all other reasonable action
in connection therewith in order to expedite or facilitate the distribution of the Registrable Shares included in such Registration Statement and, in the case of an Underwritten Offering, make
representations and warranties to the underwriters in such form and scope as are customarily made by issuers to underwriters in such underwritten offerings and confirm the same to the extent customary
if and when requested; 

        (xiii) in
the case of an Underwritten Offering, use commercially reasonable efforts to make available for inspection by Selling Holders' Counsel and the representatives of
any underwriters participating in any disposition pursuant to a Registration Statement and one accounting firm retained by such Holders or underwriters, during normal business hours and upon
reasonable notice, all financial and other records, pertinent corporate documents and properties of the Company and cause the respective officers, directors and employees of the Company to supply all
information reasonably requested by such parties in connection with a Registration Statement; 

11

 

 provided, however, that such records, documents or information that the Company determines, in good faith, to be confidential and notifies such parties are confidential shall
not be disclosed by such parties unless (1) the disclosure of such records, documents or information is necessary to avoid or correct a misstatement or omission in a Registration Statement or
Prospectus, (2) the release of such records, documents or information is ordered pursuant to a subpoena or other order from a court of competent jurisdiction, or (3) such records,
documents or information have been generally made available to the public; and provided further, that to the extent practicable, the foregoing inspection and information gathering shall be coordinated
on behalf of the Holders by Selling Holders' Counsel; 

        (xiv) use
its commercially reasonable efforts (including, without limitation, seeking to cure any deficiencies cited by the exchange, market or quotation system in the
Company's listing or inclusion application) to list or include for quotation all Registrable Shares on The New York Stock Exchange, the American Stock Exchange or The Nasdaq Stock Market and
thereafter maintain the listing or inclusion on such exchange, market or quotation system; 

        (xv) prepare
and file in a timely manner all documents and reports required by the Exchange Act and, to the extent the Company's obligation to file such reports pursuant to
Section 15(d) of the Exchange Act expires prior to the expiration of the effectiveness period of the Registration Statement as required by Section 4(a)(i) hereof, the Company
shall register the Registrable Shares under the Exchange Act and maintain such registration through the effectiveness period required by Section 4(a)(i) hereof; 

        (xvi) provide
a CUSIP number for all Registrable Shares, not later than the effective date of the Registration Statement; 

        (xvii) (1)
otherwise use its commercially reasonable efforts to comply with all applicable rules and regulations of the Commission, (2) make generally available to
its stockholders, as soon as reasonably practicable, earnings statements covering at least 12 months that satisfy the provisions of Section 11(a) of the Securities Act and
Rule 158 (or any similar rule promulgated under the Securities Act) thereunder, but in no event later than the date required for the filing of an annual report on Form 10-K
as would be applicable to the Company and (3) after advice of counsel, not file any Registration Statement or Prospectus to which any Holder of Registrable Shares covered by any Registration
Statement shall have reasonably objected on the grounds that such Registration Statement or Prospectus or amendment or supplement does not comply in all material respects with
the requirements of the Securities Act, such Holder having been furnished with a copy thereof at least two (2) Business Days prior to the filing thereof; 

        (xviii) provide
and cause to be maintained a registrar and transfer agent for all Registrable Shares covered by any Registration Statement from and after a date not later
than the effective date of such Registration Statement; 

        (xix) in
connection with any sale or transfer of the Registrable Shares (whether or not pursuant to a Registration Statement) that will result in the security being
delivered no longer being Registrable Shares, cooperate with the Holders and the representative of the underwriters, if any, to the extent reasonably necessary to facilitate the timely preparation and
delivery of any certificates representing the Registrable Shares to be sold, which certificates shall not bear any transfer restrictive legends (other than as required by the Company's certificate of
incorporation or bylaws) and to enable such Registrable Shares to be in such denominations and registered in such names as the representative of the underwriters, if any, or the Holders may request at
least two (2) Business Days prior to any sale of the Registrable Shares; 

        (xx) if
required by the NASD, in connection with the initial filing of a Shelf Registration Statement and each amendment thereto with the Commission pursuant to
Section 2(a) hereof, 

12

 

prepare
or cause to be prepared and, within one Business Day of such filing with the Commission, file with the NASD all forms and information required or requested by the NASD in order to obtain
written confirmation from the NASD that the NASD does not object to the fairness and reasonableness of the underwriting terms and arrangements (or any deemed underwriting terms and arrangements) (each
such written confirmation, a "No Objections Letter") relating to the resale of Registrable Shares pursuant to the Shelf Registration Statement,
including, without limitation, information provided to the NASD through its COBRADesk system, and pay all costs, fees and expenses incident to the NASD's review of the Shelf Registration Statement and
the related underwriting terms and arrangements, including, without limitation, all filing fees associated with any filings or submissions to the NASD and the legal expenses, filing fees and other
disbursements of FBR and any other NASD member that is the holder of, or is affiliated or associated with an owner of, Registrable Shares included in the Shelf Registration Statement (including in
connection with any initial or subsequent member filing); and 

        (xxi) upon
effectiveness of the first Registration Statement filed under this Agreement, the Company will take such actions and make such filings as are necessary to effect
the registration of the Common Stock under the Exchange Act simultaneously with or immediately following the effectiveness of the Registration Statement. 

        (b)   If
required to supply information or documents to FBR and/or its counsel pursuant to this Section 4, such information and/or documents need only be supplied if
the registration to which information and/or documents relate is governed by either Section 2(a) or 2(b) (but in the case of 2(b), only if Registrable Shares are included in such IPO
Registration Statement) of this Agreement. 

        Notwithstanding
anything to the contrary, if the Company files a mandatory Shelf Registration Statement in accordance with Section 2(a) of this Agreement, to the extent not
previously delivered pursuant to the purchaser's letter or subscription agreement attached to the Offering Memorandum, each Holder desiring to include all or any part of its Registrable Shares in the
Shelf Registration Statement pursuant to this Agreement shall, within ten (10) Business Days after the date of the notice including a request therefor (the "Questionnaire Deadline"), provide to
the Company such information as the Company may reasonably request for use in connection with the Shelf Registration Statement or any Prospectus included therein and in any application to be filed
with or under state securities laws (the "Questionnaire"), and which shall cause the Holder to be bound by the terms of this Agreement. Notwithstanding anything to the contrary, from and after the
date that the Shelf Registration Statement is declared effective by the Commission, the Company shall as promptly as is reasonably practicable take all actions as contemplated by Sections 4(a)(i),
(ii), (iii), (vi), (viii), (ix) and (x) so that such Holder delivering the Questionnaire in a timely fashion is named as a selling security holder in the initial Shelf Registration
Statement and the related Prospectus in such a manner so as to permit the Holder to deliver such Prospectus to purchasers of the Registrable Securities in accordance with the Securities Act and
applicable state securities laws. Notwithstanding anything to the contrary, to the extent any Holder desiring to be added to the mandatory Shelf Registration Statement after the effective date of such
registration statement shall be required to deliver the Questionnaire to the Company and upon receipt of such Questionnaire, the Company will, as soon as is practicable, amend such registration
statement or supplement the prospectus contained therein in accordance with Commission rules and guidance. 

        (c)   The
Company may require the Holders to furnish to the Company such information regarding the proposed distribution by such Holder of such Registrable Shares as the
Company may from time to time reasonably request in writing or as shall be required to effect the registration of the Registrable Shares, and no Holder shall be entitled to be named as a selling
stockholder in any Registration Statement or to use the Prospectus forming a part thereof if such Holder does not provide such information to the Company. Each Holder further agrees to furnish
promptly to the Company in 

13

 

writing
all information required from time to time to make the information previously furnished by such Holder not misleading. 

        (d)   Each
Holder agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 4(a)(vi)(3) or 4(a)(vi)(4)
hereof, such Holder will immediately discontinue disposition of Registrable Shares pursuant to a Registration Statement until such Holder's receipt of the copies of the supplemented or amended
Prospectus. If so directed by the Company, such Holder will deliver to the Company (at the expense of the Company) all copies in its possession, other than permanent file copies then in such Holder's
possession, of the Prospectus covering such Registrable Shares current at the time of receipt of such notice. 

5.     BLACK-OUT PERIOD  

        (a)   Subject
to the provisions of this Section 5, following the effectiveness of a Registration Statement (and the filings with any international, federal or state
securities commissions), the Company, by written notice to FBR and the Holders, may direct the Holders, in accordance with Section 5(b), to suspend sales of the Registrable Shares pursuant to a
Registration Statement for such times as the Company reasonably may determine is necessary and advisable (but in no event for more than an aggregate of ninety (90) days in any consecutive
twelve (12)-month period commencing on the Closing Date or more than sixty (60) days in any consecutive ninety (90)-day period, except as a result of a review of any
post-effective amendment by the Commission prior to declaring any post-effective amendment to the Registration Statement effective, provided the Company has used all
commercially reasonable efforts to cause such post-effective amendment to be declared effective, if any of the following events shall occur: (i) the representative of the
underwriters of an Underwritten Offering of primary shares by the Company has advised the Company that the offer or sale of Registrable Shares pursuant to the Registration Statement would have a
material adverse effect on the Company's initial public offering; (ii) the majority of the members of the Board of Directors of the Company shall have determined in good faith that
(1) the offer or sale of any Registrable Shares would materially impede, delay or interfere with any proposed financing, offer or sale of securities, acquisition, merger, tender offer, business
combination, corporate reorganization, consolidation or other significant transaction involving the Company, (2) after the advice of counsel, the sale of Registrable Shares pursuant to the
Registration Statement would require disclosure of non-public material information not otherwise required to be disclosed under applicable law, or (3) either (x) the Company
has a bona fide business purpose for preserving the confidentiality of such transaction, (y) disclosure would have a material adverse effect on the Company or the Company's ability to
consummate such transaction, or (z) the proposed transaction renders the Company unable to comply with Commission requirements, in each case under circumstances that would make it impractical
or inadvisable to cause the Registration Statement (or such filings) to become effective or to promptly amend or supplement the Registration Statement on a post-effective basis, as
applicable; or (iii) the majority of the members of the Board of Directors of the Company shall have determined in good faith, after the advice of counsel, that it is required by law, rule or
regulation to supplement the Registration Statement or file a post-effective amendment to the Registration Statement in order to incorporate information into the Registration
Statement for the purpose of (1) including in the Registration Statement any prospectus required under Section 10(a)(3) of the Securities Act; (2) reflecting in the prospectus
included in the Registration Statement any facts or events arising after the effective date of the Registration Statement (or of the most-recent post-effective amendment) that,
individually or in the aggregate, represents a fundamental change in the information set forth therein; or (3) including in the prospectus included in the Registration Statement any material
information with respect to the plan of distribution or any information required under Item 507 of Regulation S-K not disclosed in the Registration Statement or any material change
to such information. Upon the occurrence of any such suspension, the Company shall use its commercially reasonable efforts to cause the Registration Statement to become effective or to promptly amend
or supplement the Registration Statement on a post-effective basis or to take such 

14

 

action
as is necessary to make resumed use of the Registration Statement compatible with the Company's best interests, as applicable, so as to permit the Holders to resume sales of the Registrable
Shares as soon as possible. 

        (b)   In
the case of an event that causes the Company to suspend the use of a Registration Statement (a "Suspension Event"),
the Company shall give written notice (a "Suspension Notice") to FBR and the Holders to suspend sales of the Registrable Shares and such notice shall
state generally the basis for the notice and that such suspension shall continue only for so long as the Suspension Event or its effect is continuing and the Company is using its best efforts and
taking all reasonable steps to terminate suspension of the use of the Registration Statement as promptly as possible. The Holders agree to hold any Suspension Notice by the Company in confidence. No
Holder shall effect any sales of the Registrable Shares pursuant to such Registration Statement (or such filings) at any time after it has received a Suspension Notice from the Company and prior to
receipt of an End of Suspension Notice (as defined below). If so directed by the Company, each Holder will deliver to the Company (at the expense of the Company) all copies other than permanent file
copies then in such Holder's possession of the Prospectus covering the Registrable Shares at the time of receipt of the Suspension Notice. The Holders may recommence effecting sales of the Registrable
Shares pursuant to the Registration Statement (or such filings) following further notice to such effect (an "End of Suspension Notice") from the
Company, which End of Suspension Notice shall be given by the Company to the Holders and FBR in the manner described above promptly following the conclusion of any Suspension Event and its effect. 

6.     INDEMNIFICATION AND CONTRIBUTION  

        (a)   The
Company agrees to indemnify and hold harmless (i) each Holder of Registrable Shares and any underwriter (as determined in the Securities Act) for such Holder
(including, if applicable, FBR), (ii) each Person, if any, who controls (within the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act), any such
Person described in clause (i) (any of the Persons referred to in this clause (ii) being hereinafter referred to as a "Controlling
Person"), and (iii) the respective officers, directors, partners, members, employees, representatives and agents of any such Person or any Controlling Person (any Person
referred to in clause (i), (ii) or (iii) may hereinafter be referred to as a "Purchaser Indemnitee"), to the fullest extent lawful,
from and against any and all losses, claims, damages, judgments, actions, out-of-pocket expenses, and other liabilities (the
"Liabilities"), including without limitation and as incurred, reimbursement of all reasonable costs of investigating, preparing, pursuing or defending
any claim or action, or any investigation or proceeding by any governmental agency or body, commenced or threatened, including the reasonable fees and expenses of counsel to any Purchaser Indemnitee,
joint or several, directly or indirectly related to, based upon, arising out of or in connection with any untrue statement or alleged untrue statement of a material fact contained in any Registration
Statement or Prospectus (as amended or supplemented if the Company shall have furnished to such Purchaser Indemnitee any amendments or supplements thereto), or any preliminary Prospectus or any other
document used to sell the Shares, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, except insofar as such Liabilities arise out of or are based upon any untrue statement or omission or alleged untrue statement or omission
made in reliance upon and in conformity with information relating to any Purchaser Indemnitee furnished to the Company or any underwriter in writing by such Purchaser Indemnitee expressly for use
therein. The Company shall notify the Holders promptly of the institution, threat or assertion of any claim, proceeding (including any governmental investigation), or litigation of which it shall have
become aware in connection with the matters addressed by this Agreement which involves the Company or a Purchaser Indemnitee. The indemnity provided for herein shall remain in full force and effect
regardless of any investigation made by or on behalf of any Purchaser Indemnitee. 

15

 

        (b)   In
connection with any Registration Statement in which a Holder of Registrable Shares is participating, such Holder agrees, severally and not jointly, to indemnify and
hold harmless (i) the Company, (ii) each Person who controls the Company within the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act and
(iii) the respective officers, directors, partners, members, employees, representatives and agents of such Person or Controlling Person to the same extent as the foregoing indemnity from the
Company to each Purchaser Indemnitee, but only with reference to untrue statements or omissions or alleged untrue statements or omissions made in reliance upon and in conformity with information
relating to such Purchaser Indemnitee furnished to the Company in writing by such Purchaser Indemnitee expressly for use in any Registration Statement or Prospectus, any amendment or supplement
thereto or any preliminary Prospectus. The liability of any Purchaser Indemnitee pursuant to this paragraph shall in no event exceed the net proceeds received by such Purchaser Indemnitee from sales
of Registrable Shares giving rise to such obligations. 

        (c)   If
any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against any Person in respect of
which indemnity may be sought pursuant to paragraph (a) or (b) above, such Person (the "Indemnified Party") shall promptly notify the
Person against whom such indemnity may be sought (the "Indemnifying Party"), in writing of the commencement thereof (but the failure to so notify an
Indemnifying Party shall not relieve it from any liability which it may have under this Section 6, except to the extent the Indemnifying Party is materially prejudiced by the failure to give
notice), and the Indemnifying Party, upon request of the Indemnified Party, shall retain counsel reasonably satisfactory to the Indemnified Party to represent the Indemnified Party and any others the
Indemnifying Party may reasonably designate in such proceeding and shall pay the reasonable fees and expenses actually incurred by such counsel related to such proceeding. Notwithstanding the
foregoing, in any such proceeding, any Indemnified Party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party,
unless (i) the Indemnifying Party and the Indemnified Party shall have mutually agreed in writing to the contrary, (ii) the Indemnifying Party failed within a reasonable time after
notice of commencement of the action to assume the defense and employ counsel reasonably satisfactory to the Indemnified Party, (iii) the Indemnifying Party and its counsel do not actively and
vigorously pursue the defense of such action or (iv) the named parties to any such action (including any impleaded parties), include both such Indemnified Party and the Indemnifying Party, or
any Affiliate of the Indemnifying Party, and such Indemnified Party shall have been reasonably advised by counsel that, either (x) there may be one or more legal defenses available to it which
are different from or additional to those available to the Indemnifying Party or such Affiliate of the Indemnifying Party or (y) a conflict may exist between such Indemnified Party and the
Indemnifying Party or such Affiliate of the Indemnifying Party (in which case the Indemnifying Party shall not have the right to assume nor direct the defense of such action on behalf of such
Indemnified Party, it being understood, however, that the Indemnifying Party shall not, in connection with any one such action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (in addition to any local counsel), for all
such Indemnified Parties, which firm shall be designated in writing by those Indemnified Parties who sold a majority of the Registrable Shares sold by all such Indemnified Parties and any such
separate firm for the Company, the directors, the officers and such control Persons of the Company as shall be designated in writing by the Company). The Indemnifying Party shall not be liable for any
settlement of any proceeding effected without its written consent, which consent shall not be unreasonably withheld, but if settled with such consent or if there is a final judgment for the plaintiff,
the Indemnifying Party agrees to indemnify any Indemnified Party from and against any loss or liability by reason of such settlement or judgment. No Indemnifying Party shall, without the prior written
consent of the Indemnified Party, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Party is or could have been a party and indemnity could have been
sought hereunder by such Indemnified Party, unless such settlement 

16

 

includes
an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such proceeding. 

        (d)   If
the indemnification provided for in paragraphs (a) and (b) of this Section 6 is for any reason held to be unavailable to an Indemnified Party in
respect of any Liabilities referred to therein (other than by reason of the exceptions provided therein) or is insufficient to hold harmless a party indemnified thereunder, then each Indemnifying
Party under such paragraphs, in lieu of indemnifying such Indemnified Party thereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Liabilities
(i) in such proportion as is appropriate to reflect the relative benefits of the Indemnified Party on the one hand and the Indemnifying Party(ies) on the other in connection with the statements
or omissions that resulted in such Liabilities, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the relative fault of the Indemnifying Party(ies) and the Indemnified Party, as well as any other relevant equitable
considerations. The relative fault of the Company on the one hand and any Purchaser Indemnitees on the other shall be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or by such Purchaser Indemnitees and the parties'
relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. 

        (e)   The
parties agree that it would not be just and equitable if contribution pursuant to this Section 6 were determined by pro
rata allocation (even if such Indemnified Parties were treated as one entity for such purpose), or by any other method of allocation that does not take account of the equitable
considerations referred to in paragraph 6(d) above. The amount paid or payable by an Indemnified Party as a result of any Liabilities referred to paragraph 6(d) shall be deemed to
include, subject to the limitations set forth above, any reasonable legal or other expenses actually incurred by such Indemnified Party in connection with investigating or defending any such action or
claim. Notwithstanding the provisions of this Section 6, in no event shall a Purchaser Indemnitee be required to contribute any amount in excess of the amount by which proceeds received by such
Purchaser Indemnitee from sales of Registrable Shares exceeds the amount of any damages that such Purchaser Indemnitee has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. For purposes of this Section 6, each Person, if any, who controls (within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act) FBR or a Holder of Registrable Shares shall have the same rights to contribution as FBR or such Holder, as the case may be, and each Person, if any, who controls (within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act) the Company, and each officer, director, partner, member, employee, representative and agent of the Company shall have the
same rights to contribution as the Company. Any party entitled to contribution will, promptly after receipt of notice of commencement of any action, suit or proceeding against such party in respect of
which a claim for contribution may be made against another party or parties, notify each party or parties from whom contribution may be sought, but the omission to so notify such party or parties
shall not relieve the party or parties from whom contribution may be sought from any obligation it or they may have under this Section 6 or otherwise, except to the extent that any party is
materially prejudiced by the failure to give notice. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act), shall be entitled to
contribution from any Person who was not guilty of such fraudulent misrepresentation. 

        (f)    The
indemnity and contribution agreements contained in this Section 6 will be in addition to any liability which the Indemnifying Parties may otherwise have to
the Indemnified Parties referred to above. The Purchaser Indemnitees' obligations to contribute pursuant to this Section 6 are several in proportion to the respective number of Shares sold by
each of the Purchaser Indemnitees hereunder and not joint. 

17

 

7.     MARKET STAND-OFF AGREEMENT  

        (a)   Each
Holder hereby agrees that it shall not, to the extent requested by the Company or an underwriter of securities of the Company, directly or indirectly sell, offer to
sell (including without limitation any short sale), contract to sell, pledge, grant any option, otherwise transfer or dispose of, enter into any transaction which is designed to, or might reasonably
be expected to, result in the disposition of any Registrable Shares or other shares of Common Stock of the Company or any securities convertible into or exchangeable or exercisable for shares of
Common Stock of the Company then owned by such Holder (other than to donees or partners of the Holder who agree to be similarly bound) for a period of sixty (60) days following the effective
date of an IPO Registration Statement of the Company filed under the Securities Act; provided, however,
that: 

        (i)    the
restrictions above shall not apply to Registrable Shares sold pursuant to the IPO Registration Statement; 

        (ii)   all
executive officers and directors of the Company then holding shares of Common Stock of the Company or securities convertible into or exchangeable or exercisable for
shares of Common Stock of the Company enter into similar agreements; and 

        (iii)  the
Holders shall be allowed any concession or proportionate release allowed to any executive officer or director that entered into similar agreements (with such
proportion being determined by dividing the number of shares being released with respect to such officer or director by the total number of issued and outstanding shares held by such officer or
director); provided, that nothing in this Section 7(a)(iii) shall be construed as a right to proportionate release for the executive
officers and directors of the Company upon the expiration of the 60-day period applicable to all Holders other than the executive officers and directors of the Company. 

        (b)   In
order to enforce the foregoing covenant, the Company shall have the right to place restrictive legends on the certificates representing the securities subject to this
Section 7 and to impose stop transfer instructions with respect to the Registrable Shares and such other securities of each Holder (and the securities of every other Person subject to the
foregoing restriction) until the end of such period. 

8.     TERMINATION OF THE COMPANY'S OBLIGATION  

        The Company shall have no obligations pursuant to this Agreement with respect to any Registrable Shares proposed to be sold by a Holder in a registration pursuant
to this Agreement if, in the opinion of counsel to the Company, all such Registrable Shares proposed to be sold by a Holder may be sold in a three-month period without registration under the
Securities Act pursuant to Rule 144 under the Securities Act. 

9.     LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS  

        From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders beneficially owning not less than a majority of
the then outstanding Registrable Shares, enter into any agreement with any holder or prospective holder of any securities of the Company that would allow such holder or prospective holder
(a) to include such securities in any Registration Statement filed pursuant to the terms hereof, unless under the terms of such agreement, such holder or prospective holder may include such
securities in any such registration only to the extent that the inclusion of his securities will not reduce the amount of Registrable Shares of the Holders that is included, or (b) to have its
securities registered on a registration statement that could be declared effective prior to, or within one hundred eighty (180) days of, the effective date of any Registration Statement filed
pursuant to this Agreement. 

18

 

10.   MISCELLANEOUS  

        (a)    Remedies.    In the event of a breach by the Company of any of its obligations under this Agreement, each
Holder, in addition to being entitled to exercise all rights provided herein or, in the case of FBR,
in the Purchase/Placement Agreement, or granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. Subject to Section 6, the
Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agree that, in
the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate. 

        (b)    Amendments and Waivers.    The provisions of this Agreement, including the provisions of this sentence, may not
be amended, modified or supplemented, and waivers or consents to or departures from the provisions hereof may not be given, without the written consent of the Company and Holders beneficially owning
not less than a majority of the then outstanding Registrable Shares. No amendment shall be deemed effective unless it applies uniformly to all Holders. Notwithstanding the foregoing, a waiver or
consent to or departure from the provisions hereof with respect to a matter that relates exclusively to the rights of a Holder whose securities are being sold pursuant to a Registration Statement and
that does not directly or indirectly affect, impair, limit or compromise the rights of other Holders may be given by such Holder; provided that the
provisions of this sentence may not be amended, modified or supplemented except in accordance with the provisions of the immediately preceding sentence. 

        (c)    Notices.    All notices and other communications, provided for or permitted hereunder shall be made in writing
by delivered by facsimile (with receipt confirmed), overnight courier or registered or certified mail, return receipt requested, or by telegram: 

        (i)    if
to a Holder, at the most current address given by the transfer agent and registrar of the Shares to the Company, with a copy to FBR at: 

Friedman
Billings Ramsey & Co., Inc.

10011 19th Street North

Arlington, VA 22209

facsimile: (703) 312-9698 

        (ii)   if
to the Company at the offices of the Company at: 

Pinnacle
Gas Resources, Inc.

1 E. Alger, Suite 206

Sheridan, WY 82801

facsimile: (307) 673-9711 

with
a copy to:

Andrews Kurth LLP

600 Travis, Suite 4200

Houston, Texas 77002

facsimile: (713) 238-7126

Attn: David C. Buck 

        (d)    Successors and Assigns.    This Agreement shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties hereto, including, without limitation and without the need for an express assignment or assumption, subsequent Holders. The Company agrees that the Holders shall be
third party beneficiaries to the agreements made hereunder by FBR and the Company, and each Holder shall have the right to enforce such agreements directly to the extent it deems such enforcement
necessary or advisable to protect its rights hereunder; provided, however, that 

19

 

no
such Holder shall have the right to enforce such agreements unless such Holder fulfills all of its obligations hereunder. 

        (e)    Share Legend.    In addition to any other legend that may appear on the share certificates evidencing the
Registrable Shares, for so long as any there remain Registrable Shares, each share certificate evidencing such Registrable Shares shall contain a legend to the following effect: "THE SHARES EVIDENCED
BY THIS CERTIFICATE ARE SUBJECT TO AND ENTITLED TO THE OBLIGATIONS AND BENEFITS OF A CERTAIN REGISTRATION RIGHTS AGREEMENT, DATED April [11], 2006. YOUR ACCEPTANCE OF THIS
CERTIFICATE CONSTITUTES YOUR AGREEMENT TO BE BOUND BY THE PROVISIONS OF SUCH REGISTRATION RIGHTS AGREEMENT." 

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

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

        (h)    GOVERNING LAW.    THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE
PARTIES HERETO HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY STATE COURT IN THE STATE OF NEW YORK OR ANY FEDERAL COURT SITTING IN NEW YORK IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING
OUT OF OR RELATING TO THIS AGREEMENT, AND IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. EACH OF THE
PARTIES HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT,
ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

        (i)    Severability.    If any term, provision, covenant or restriction of this Agreement is held by a court of
competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and
shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties hereto that they would have
executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. 

        (j)    Entire Agreement.    This Agreement, together with the Purchase/Placement Agreement, is intended by the parties
hereto as a final expression of their agreement, and is intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter
contained herein and therein. 

        (k)    Adjustment for Stock Splits, etc.    Wherever in this Agreement there is a reference to a specific number of
shares with respect to any Registrable Shares, then upon the occurrence of any subdivision, combination, or stock dividend of such shares, the specific number of shares with respect to any Registrable
Shares so referenced in this Agreement shall automatically be proportionally adjusted 

20

 

to
reflect the effect on the outstanding shares of such class or series of stock by such subdivision, combination, or stock dividend. 

        (l)    Survival.    This Agreement is intended to survive the consummation of the transactions contemplated by the
Purchase/Placement Agreement. The indemnification and contribution obligations under Section 6 of this Agreement shall survive the termination of the Company's obligations under
Section 2 of this Agreement. 

        (m)    Attorneys' Fees.    In any action or proceeding brought to enforce any provision of this Agreement, or where
any provision hereof is validly asserted as a defense, the prevailing party, as determined by the court, shall be entitled to recover its reasonable attorneys' fees in addition to any other available
remedy. 

21

 

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

	 	 	PINNACLE GAS RESOURCES, INC.
	

 	
 	

By:	

/s/  PETER G. SCHOONMAKER      

	 	 	Name:	Peter G. Schoonmaker
	 	 	Title:	Chief Executive Officer and President
	

 	
 	
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
	

 	
 	

By:	

/s/  JAMES R. KLEEBLATT      

	 	 	Name:	James R. Kleeblatt
	 	 	Title:	Senior Managing Director

22

QuickLinks

EXHIBIT 4.2

REGISTRATION RIGHTS AGREEMENTQuickLinks
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EXHIBIT 10.18    
    

          

  

  

  

  

  

  

  

  

PINNACLE GAS RESOURCES, INC.  

 11,161,070 Shares of Common Stock  

 PURCHASE/PLACEMENT AGREEMENT  

 March 31, 2006  

          

  

  

  

  

  

  

  

   

   

   

   

   

 
 

PURCHASE/PLACEMENT AGREEMENT    
    

March 31, 2006 

FRIEDMAN,
BILLINGS, RAMSEY & CO., INC.

1001 19th Street North

Arlington, Virginia 22209 

Dear
Sirs: 

        PINNACLE
GAS RESOURCES, INC., a Delaware corporation (the "Company"), proposes to issue and sell to you, Friedman, Billings,
Ramsey & Co., Inc. ("FBR"), as initial purchaser, a number of shares of the Company's common stock, par value $0.01 per share (the
"Common Stock") equal to 11,161,070 shares of Common Stock less the number of Regulation D Shares sold in the Private Placement (each as defined
herein) (the "144A/Regulation S Shares"). 

        FBR
will also act as the Company's exclusive placement agent in connection with the Company's offer and sale to certain "Accredited Investors" (as such term is defined in
Regulation D ("Regulation D") under the Securities Act of 1933, as amended (the "Securities
Act")), of (a) that number of shares of Common Stock equal to the difference between 11,161,070 shares and the number of 144A/Regulation S Shares (the
"Regulation D Shares" and, together with the 144A/Regulation S Shares, the "Initial
Shares"), and (b) the Placed Option Shares (as defined herein), as set forth in the Final Memorandum (as defined herein) under the headings "Plan
of Distribution" and "Private Placement". The offer and sale of the shares described in the first sentence of this paragraph
(the "Private Placement Shares") is referred to herein as the "Private Placement". The Private
Placement, together with the sale of the 144A/Regulation S Shares by FBR, is referred to herein as the "Offering." 

        In
addition, the Company proposes to grant to you the option described in Section 1(c) hereof (the "Option") to purchase or place
all or any part of 1,674,160 additional shares of Common Stock (the "Option Shares" and, together with the Initial Shares, the
"Shares") to cover additional allotments, if any. 

        The
offer and sale of the Shares to you and to the Accredited Investors, respectively, will be made without registration of the Shares under the Securities Act and the rules and
regulations thereunder (the "Securities Act Regulations"), in reliance upon the exemption from the registration requirements of the Securities Act
provided by Section 4(2) thereof. You have advised the Company that you will make offers and sales ("Exempt Resales") of the
144A/Regulation S Shares and the Purchased Option Shares (as defined herein), if any, purchased by you hereunder (such shares referred to collectively herein as "Resale
Shares") in accordance with Section 3 hereof on the terms set forth in the Final Memorandum (as defined herein), as soon as you deem advisable after this agreement (the
"Agreement") has been executed and delivered. 

        In
connection with the offer and sale of the Shares, the Company has prepared (i) a preliminary offering memorandum, subject to completion, dated March 15, 2006, a
supplement to the preliminary offering memorandum, subject to completion, dated March 31, 2006, and any amendments or supplements thereto (the "Preliminary
Memorandum"), and (ii) a final offering memorandum, dated the date hereof and as it may be amended or supplemented from time to time prior to the Closing Time (the
"Final Memorandum"). Each of the Preliminary Memorandum and the Final Memorandum sets forth certain information concerning the Company and the Shares.
The Company hereby confirms that it has authorized the use of the Preliminary Memorandum and the Final Memorandum in connection with (i) the offering and resale of the Resale Shares by FBR and
by all dealers to whom Resale Shares may be sold and (ii) the Private Placement. Any references to the Preliminary Memorandum or the Final Memorandum shall be deemed to include all exhibits and
annexes thereto. 

        It
is understood and acknowledged that holders (including subsequent transferees) of the Shares will have the registration rights set forth in the registration rights agreement between
the Company and FBR, which shall be in substantially the form attached hereto as Exhibit A and dated as of the Closing 

 

Time
(as defined herein) (the "Registration Rights Agreement"), for so long as such securities constitute "Registrable Shares" (as defined in the
Registration Rights Agreement). 

        Pursuant
to, and subject to the terms of, the Registration Rights Agreement, the Company will agree to file with the Securities and Exchange Commission (the
"Commission"), under the circumstances set
forth therein, a shelf registration statement on Form S-1 or such other appropriate form pursuant to Rule 415 under the Securities Act (the "Shelf
Registration Statement") relating to the resale by holders of the Registrable Shares, and to use its best efforts to cause any such registration statement to be declared
effective. 

        The
Company and FBR agree as follows: 

        1.    Sale and Purchase.    

        (a)    144A/Regulation S Shares.    Upon the basis of the warranties and representations and other terms and
conditions herein set forth, the Company agrees to issue and sell to FBR and FBR agrees to purchase from the Company the 144A/Regulation S Shares at a purchase price of $10.23 per share (the
"144A/Regulation S Purchase Price"), reflecting an initial purchaser's discount of $0.77 per share on the initial offering price of the
144A/Regulation S Shares set forth in the Final Memorandum. 

        (b)    Regulation D Shares.    The Company agrees to issue and sell the Regulation D Shares and, to the
extent that FBR exercises the option described in Section 1(c), the Placed Option Shares, for which the Accredited Investors have subscribed pursuant to the terms and conditions set forth in
the subscription agreements substantially in the forms attached to the Preliminary Memorandum as Annex III and Annex IV, as applicable (each a "Subscription
Agreement"). The Private Placement Shares will be sold by the Company pursuant to this Agreement at a price of $11.00 per share (the
"Regulation D Purchase Price"). As compensation for the services to be provided by FBR in connection with the Private Placement, the Company
shall pay to FBR at each of the Closing Time and any Secondary Closing Time (as defined herein), to the extent applicable, an amount equal to $0.77 per Private Placement Share sold at such time (the
"Placement Fee"). 

        (c)    Option Shares.    Upon the basis of the representations and warranties and subject to the other terms and
conditions herein set forth, the Company hereby grants an option to FBR to (i) purchase from the Company, as initial purchaser, up to an aggregate of 1,674,160 Option Shares at the
144A/Regulation S Purchase Price per share (the "Purchased Option Shares"); and (ii) place, as exclusive placement agent for the Company,
up to that number of Option Shares remaining after subtracting any Purchased Option Shares with respect to which FBR has exercised its option pursuant to clause (i), at the Regulation D
Purchase Price per share (the "Placed Option Shares"). The option granted hereby will expire thirty (30) days after the date hereof and may be
exercised in whole or in part from time to time in one or two installments, including at the Closing Time, only for the purpose of covering additional allotments which may be made in connection with
the offering and distribution of the Initial Shares. The option shall be exercised pursuant to written notice by FBR to the Company setting forth (i) the number of Option Shares as to which FBR
is then exercising the option, (ii) the names and denominations to which the Option Shares are to be delivered in book-entry form through the facilities of The Depository Trust
Company ("DTC"), if available, (iii) the number of Option Shares that will be Purchased Option Shares and the number of Option Shares that will
be Placed Option Shares, and (iv) the time and date of payment for and delivery of such Option Shares in book-entry form. Any such time and date of payment and delivery shall be
determined by FBR, but shall not be later than five (5) full business days nor earlier than two (2) full business day after the exercise of said option, nor in any event prior to the
Closing Time, unless otherwise agreed in writing by FBR and the Company. 

2

 

        (d)   FBR
hereby agrees to reimburse the Company, at the Company's discretion, at each of the Closing Time and any Secondary Closing Time, as applicable, an amount equal to
1.0% of the aggregate gross proceeds from (i) the Offering and (ii) the exercise of the Option, if any, respectively. 

        2.    Payment and Delivery.    

        (a)    144A/Regulation S Shares.    The closing of FBR's purchase of the 144A/Regulation S Shares shall
be held at the Houston office of Andrews Kurth LLP (unless another place shall be agreed upon by FBR and the Company). At the closing, subject to the satisfaction or waiver of the closing conditions
set forth herein, FBR shall pay to the Company the aggregate purchase price for the 144A/Regulation S Shares by wire transfer of immediately available funds to an account previously designated
by the Company in writing against delivery by the Company of the 144A/Regulation S Shares to FBR for FBR's account through the facilities of DTC in such denominations and registered in such
names as FBR shall specify. Such payment and delivery shall be made at or around 9:00 a.m., Central time, on the seventh (7th) business day after the date hereof (unless another
time, not later than ten (10) business days after the date hereof, shall be agreed to by FBR and the Company). The time at which such payment and delivery are actually made is hereinafter
called the "Closing Time". 

        (b)    Regulation D Shares.    At the Closing Time, subject to the satisfaction of the closing conditions set
forth herein, FBR shall cause the escrow agent (the "Escrow Agent") holding funds required to purchase the
Regulation D Shares to pay to the Company the aggregate applicable purchase price for the Regulation D Shares received by FBR prior to the Closing Time (net of any Placement Fee, if the
Placement Fee is withheld as provided in the third paragraph of this Section 2(b)) against the Company's delivery of the Regulation D Shares to FBR, as placement agent in respect of such
shares, in book-entry form through the facilities of DTC for each such Accredited Investor's account. 

        At
FBR's option, it may delay the placement of up to 3% of the Regulation D Shares (the "Extended Regulation D Shares") for
an additional five (5) business days after the Closing Time (the "Extended Regulation D Closing Date") at which time FBR shall cause the
Escrow Agent, to the extent it has available funds transferred to it by Accredited Investors, to pay the Company the aggregate applicable purchase price for the Extended Regulation D Shares
placed by FBR (net of any Placement Fee, if the Placement Fee is withheld as provided herein) against the Company's delivery of the Extended Regulation D Shares to the purchasers thereof, in
book-entry form through the facilities of DTC. Extended Regulation D Shares may only be placed with Accredited Investors who have committed to purchase Regulation D Shares
before the Closing Time. The time at which payment and delivery on an Extended Regulation D Closing Date is actually made is hereinafter sometimes called the "Extended
Closing Time." 

        At
each of the Closing Time or any Extended Closing Time, unless FBR has withheld such amount from the applicable purchase price paid by FBR to the Company with respect to the
Regulation D Shares placed by FBR on such date, the Company shall pay to FBR, by wire transfer of immediately available funds to an account or accounts designated by FBR, any Placement Fee
amount payable with respect to the Regulation D Shares for which the Company shall have received the purchase price. 

        (c)    Option Shares.    The closing of FBR's purchase or placement of the Option Shares shall occur from time to time
at the Houston office of Andrews Kurth LLP (unless another place shall be agreed upon by FBR and the Company). On the applicable Secondary Closing Time (as defined herein), subject to the satisfaction
or waiver of the closing conditions set forth herein, FBR shall pay to the Company the aggregate applicable purchase price for the Option Shares then purchased or placed by FBR (net of any Placement
Fee with respect to any Placed Option Shares) by wire 

3

 

transfer
of immediately available funds against the Company's delivery of the Option Shares. Such payment and delivery shall be made at or around 9:00 a.m., Central time, on each Secondary
Closing Time. The Option Shares shall be delivered in book-entry form through the facilities of DTC, in such names and in such denominations as FBR shall specify. The time at which payment
by FBR for and delivery by the Company of any Option Shares are actually made is referred to herein as a "Secondary Closing Time". 

        3.    Offering of the Shares; Restrictions on Transfer.    

        (a)   FBR
represents and warrants to and agrees with the Company that (i) it has not solicited and will not solicit any offer to buy, and has not and will not make any
offer to sell, the Shares by means of any form of general solicitation or general advertising (within the meaning of Regulation D), including advertisements, articles, notices or other
communications published in any newspaper, magazine or similar medium or broadcast over television or radio or any seminar or meeting whose attendees have been invited by any general solicitation or
general advertising, and, with respect to Resale Shares sold in reliance on Regulation S under the Securities Act ("Regulation S"), by
means of any directed selling efforts (within the meaning of Regulation S) in the United States; and (ii) it has solicited and will solicit offers to buy the Resale Shares only from, and
has offered and will offer, sell and deliver the Resale Shares only to, (A) persons who it reasonably believes to be "qualified institutional buyers" (as defined in Rule 144A under the
Securities Act) ("QIBs") or, if any such person is buying for one or more institutional accounts for which such person is acting as fiduciary or agent,
only when such person has represented to it that each such account is a QIB to whom notice has been given that such sale or delivery is being made in reliance on Rule 144A, and, in each case,
in transactions under Rule 144A and who provide to it a fully completed and executed purchaser's letter substantially in the form of Annex I to the Preliminary Memorandum or Final Memorandum,
and (B) persons (each a "Regulation S Purchaser") to whom, and under which circumstances, it reasonably believes offers and sales of
Resale Shares may be made without registration under the Securities Act in reliance on Regulation S thereunder, and who provide to it a fully completed and executed purchaser's letter
substantially in the form of Annex II to the Preliminary Memorandum or Final Memorandum (such persons specified in clauses (A) and (B) being referred to herein as the
"Eligible Purchasers"). 

        (b)   The
Company represents and warrants to and agrees with FBR that it (together with its respective affiliates) has not solicited and will not solicit any offer to buy, and
it (together with its respective affiliates) has not offered and will not offer to sell, the Shares by means of any form of general solicitation or general advertising (within the meaning of
Regulation D), including advertisements, articles, notices or other communications published in any newspaper, magazine or similar medium or broadcast over television or radio or any seminar or
meeting whose attendees have been invited by any general solicitation or general advertising, and it has solicited and will solicit offers to buy the Private Placement Shares only from, and has
offered and will offer, sell or deliver the Shares only to, Accredited Investors with whom FBR had a pre-existing relationship. The Company also represents and warrants and agrees that it
will sell the Private Placement Shares only to persons that have provided to the Company a fully completed and executed Subscription Agreement. 

        (c)   The
Company represents and warrants to and agrees with FBR that, assuming the accuracy of FBR's representations and warranties and FBR's compliance with its obligations
set forth in this Section 3, (i) none of the Company or any of its respective affiliates or any person acting on behalf of it or its affiliates has engaged in, nor will it engage in, any
directed selling efforts (as that term is defined in Regulation S) with respect to the Shares; and (ii) the Company or any of its respective affiliates, and any person acting on behalf
of it or its affiliates (in each 

4

 

case,
other than FBR as to which no representation is made) have complied, and will comply, with the offering restrictions requirement of Regulation S. 

        (d)   FBR
represents and warrants that it has not offered or sold, nor will it offer or sell, any Resale Shares in a jurisdiction outside of the United States except in
material compliance with all applicable laws, regulations and rules of those countries. 

        (e)   Each
of FBR and the Company severally represents and warrants to the other that no action is being taken by it or is contemplated that would permit an offering or sale
of the Shares or possession or distribution of the Preliminary Memorandum or the Final Memorandum or any other offering material relating to the Shares in any jurisdiction where, or in any other
circumstances in which, action for those purposes is required (other than in jurisdictions where such action has been duly taken by counsel for FBR). 

        (f)    FBR
and the Company agree that FBR may arrange (i) for the private offer and sale of a portion of the Resale Shares to a limited number of Eligible Purchasers
(which may include affiliates of FBR), and (ii) for the private offer and sale of the Private Placement Shares by the Company to Accredited Investors (which may include affiliates of FBR), in
each case under restrictions and other circumstances designed to preclude a distribution of the Shares that would require registration of the Shares under the Securities Act. 

        (g)   FBR
and the Company agree that the Shares may be resold or otherwise transferred by the holders thereof only if the offer and sale of such Shares are registered under
the Securities Act or if an exemption from registration is available. FBR hereby establishes and agrees that it has observed and will observe the following procedures in connection with offers, sales
and subsequent resales or other transfers of any Shares placed by FBR: 

        (i)    Sales only to Eligible Purchasers.    Initial offers and sales of the Resale Shares will be made only in Exempt
Resales by FBR to investors that FBR reasonably believes to be Eligible Purchasers and who have delivered to the Company and FBR a fully completed and executed purchaser's letter substantially in the
form of Annex I or II, as applicable, to the Preliminary Memorandum or Final Memorandum. 

        (ii)   No general solicitation.    The Shares will be offered only by approaching prospective purchasers on an
individual basis with whom FBR has an existing relationship. No general solicitation or general advertising within the meaning of Regulation D will be used in connection with the offering of
the Shares (including advertisements, articles, notices or other communications published in any newspaper, magazine or similar medium or broadcast over television or radio or any seminar or meeting
whose attendees have been invited by any general solicitation or general advertising). 

        (iii)  Restrictions on transfer.    The Preliminary Memorandum and the Final Memorandum shall state that the offer
and sale of the Shares have not been and will not be registered (other than pursuant to the Registration Rights Agreement) under the Securities Act, and that no resale or other transfer of any Shares
or any interest therein prior to the date that is two years (or such shorter period as is prescribed by Rule 144(k) under the Securities Act as then in effect) after the later of the original
issuance of such Shares and the last date on which the Company or any "affiliate" (as defined in Rule 144 under the Securities Act) of the Company was the owner of such Shares may be made by a
purchaser of such Shares except as follows: 

        (A)  to
the Company or any subsidiary thereof, 

        (B)  pursuant
to a registration statement that has been declared effective under the Securities Act, 

5

 

        (C)  for
so long as the Shares are eligible for resale pursuant to Rule 144A under the Securities Act, in a transaction complying with the requirements of
Rule 144A to a person who such purchaser reasonably believes is a QIB that purchases for its own account or for the account of a QIB and to whom notice is given that the offer, resale, pledge
or transfer is being made in reliance on Rule 144A, 

        (D)  pursuant
to offers and sales to non-U.S. persons that occur outside the United States within the meaning of Regulation S, with the consent of the
Company, 

        (E)  to
an Accredited Investor that is acquiring the Shares for his, her or its own account or an investment adviser who is acquiring the Shares for the account of an
Accredited Investor for investment purposes and not with a view to, or for offer or sale in connection with, any distribution thereof, or 

        (F)  pursuant
to any other available exemption from the registration requirements of the Securities Act, 

in
each case in accordance with any applicable federal securities laws and the securities laws of any state of the United States or other jurisdiction. 

        (h)   FBR
and the Company agree that each initial resale of Resale Shares by FBR (and each purchase of Resale Shares from the Company by FBR) in accordance with this
Section 3 shall be deemed to have been made on the basis of and in reliance on the representations, warranties, covenants and agreements (including, without limitation, agreements with respect
to indemnification and contribution) of the Company herein contained. 

        (i)    Upon
original issuance thereof, and until such time as the same is no longer required under the applicable requirements of the Securities Act, the global certificates
representing the Shares (and all securities issued in exchange therefor or in substitution thereof) shall bear the following legend (along with such other legends as FBR and its counsel deem
necessary): 

        "THIS
SECURITY WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THIS SECURITY MAY
NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. 

        THE
HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF PINNACLE GAS RESOURCES, INC. (THE "COMPANY"), AND ITS AGENTS THAT, ABSENT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT: (A) THIS SECURITY MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (I) TO THE COMPANY OR A SUBSIDIARY THEREOF, (II) TO A "QUALIFIED INSTITUTIONAL
BUYER" PURSUANT TO RULE 144A, (III) TO A PERSON WHO IS NOT A UNITED STATES PERSON IN AN "OFFSHORE" TRANSACTION PURSUANT TO REGULATION S OR (IV) PURSUANT TO ANOTHER EXEMPTION FROM
REGISTRATION AS PERMITTED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, AS CONFIRMED TO THE ISSUER BY AN OPINION OF COUNSEL IF REQUESTED, SUBJECT IN EACH OF THE FOREGOING CASES TO
COMPLIANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY JURISDICTION." 

        4.    Representations and Warranties of the Company.    

        The
Company hereby represents and warrants to FBR that, as of the date of this Agreement: 

        (a)   the
Preliminary Memorandum did not, as of its date, contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the
statements therein, in 

6

 

light
of the circumstances under which they were made, not misleading; and the Final Memorandum will not, as of its date, at the Closing Time and at each Secondary Closing Time (if any), contain an
untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading;  provided,
however, that this representation and warranty shall not apply to any statement in or omission from the Preliminary Memorandum or Final
Memorandum made in reliance upon and in conformity with information furnished to the Company in writing by FBR expressly for use therein (that information being limited to that described in the last
sentence of Section 8(b) hereof); 

        (b)   the
Company is a corporation duly organized and validly existing and in good standing under the laws of the State of Delaware, with requisite corporate power and
authority to own, lease or operate its properties and to conduct its business as described in the Final Memorandum and to execute and deliver this Agreement and the Registration Rights Agreement, and
to consummate the transactions contemplated hereby (including the issuance, sale and delivery of the Shares) and thereby; 

        (c)   the
Company does not, and as of the Closing Time will not, own or control, directly or indirectly, any corporation, association or other entity; 

        (d)   the
Company had, at the date indicated and at the Closing Time, the duly authorized capitalization set forth in the Final Memorandum under the caption "Capitalization"
after giving effect to the adjustments set forth thereunder; all of the issued and outstanding shares of capital stock of the Company have been duly and validly authorized and issued and are fully
paid and non-assessable, and have not been issued in violation of or subject to any preemptive right or other similar right of stockholders arising by operation of law, under the Charter
Documents (as defined below) of the Company, under any agreement to which the Company is a party or otherwise; and except as disclosed in or contemplated by the Final Memorandum, there are no
outstanding (i) securities or obligations of the Company convertible into or exchangeable for any capital stock of the Company, (ii) warrants, rights or options to subscribe for or
purchase from the Company any such capital stock or any such convertible or exchangeable securities or obligations or (iii) obligations of the Company to issue or sell any shares of capital
stock, any such convertible or exchangeable securities or obligations, or any such warrants, rights or options; 

        (e)   the
Shares to be issued and sold by the Company hereunder have been duly authorized for issuance, sale and delivery pursuant to this Agreement and, when issued and
delivered by the Company against payment therefor in accordance with the terms of this Agreement, will be duly and validly issued and fully paid and nonassessable, free and clear of any pledge, lien,
encumbrance, security interest or other claim, and the issuance, sale and delivery of the Shares by the Company are not subject to any preemptive right, co-sale right, registration right,
right of first refusal or other similar right of stockholders arising by operation of law, under the Charter Documents of the Company, under any agreement to which the Company is a party or otherwise,
other than as provided for in the Final Memorandum or pursuant to the Registration Rights Agreement; 

        (f)    the
Company is duly qualified, registered or licensed by, and is in good standing in, each jurisdiction in which it conducts its business, or in which it owns or leases
property or maintains an office and in which such qualification, registration or licensing is necessary and in which the failure, individually or in the aggregate, to be so qualified, registered or
licensed could reasonably be expected to have a material adverse effect on the business, condition (financial or otherwise), results of operations or prospects of the Company taken as a whole (a
"Material Adverse Effect"); 

        (g)   the
Company has (i) defensible title to (a) all its interests in the producing gas and oil interests described in the Final Memorandum and (b) all
other material real property reflected as 

7

 

assets
owned by them in the Final Memorandum, and (ii) good title to substantially all personal property reflected as assets owned by them in the Final Memorandum, in each case free and clear
of all liens, security interests, pledges, charges, encumbrances, mortgages, claims or defects (collectively, "Liens"), except such Liens (i) as
are disclosed in the Final Memorandum, (ii) as could not reasonably be expected to have a Material Adverse Effect, (iii) securing taxes and other governmental charges, or claims of
materialmen, mechanics and similar persons, not yet due and payable, (iv) under oil and gas leases, options to lease, operating agreements, utilization and pooling agreements, participation and
drilling concessions agreements and gas sales contracts, securing payment of amounts not yet due and payable and of a scope and nature customary in the oil and gas industry, or (v) arising
under or permitted by the Company's credit facility; any real property or personal property held under lease by the Company is held under enforceable leases, with such exceptions as are disclosed in
the Final Memorandum or as could not reasonably be expected to have a Material Adverse Effect, and the Company has not received any written notice of any material claim that has been asserted by
anyone adverse to the rights of the Company under any such lease or affecting the rights of the Company to the continued possession of the leased premises under such lease; the gas and mineral leases,
options to lease, drilling rights and concessions or other arrangements held by the Company reflect in all material respects the right of the Company to explore, develop or receive production from the
unexplored and undeveloped acreage that the Company owns as described in the Final Memorandum, and the care taken by the Company with respect to acquiring or otherwise procuring such leases, options
to lease, drilling rights and concessions or other arrangements has been generally consistent with standard industry practices in the areas in which the Company operates for acquiring or procuring
leases or interests therein to explore, develop or produce hydrocarbons; and title investigations have been carried out by or on behalf of the Company with respect to all its interests in the
producing gas and oil interests described in the Final Memorandum, in accordance with reasonable practice in the gas industry in the areas in which the Company operate, 

        (h)   the
Company owns or possesses such licenses or other adequate rights to use all patents, trademarks, service marks, trade names, copyrights, software and design
licenses, trade secrets, manufacturing processes, other intangible property rights and know-how (collectively "Intangibles") as are
necessary to entitle the Company to conduct the Company's business described in the Final Memorandum, except where failure to own or possess any of the foregoing would not, singly or in the aggregate,
reasonably be expected to result in a Material Adverse Effect, and the Company has not received written notice of any infringement of or conflict with (and, upon due inquiry, the Company does not know
of any such infringement of or conflict with) asserted rights of others with respect to any Intangibles which individually or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, could reasonably be expected to have a Material Adverse Effect; 

        (i)    the
Company has not violated, or received written notice of any violation with respect to, any law, rule, regulation, order, decree or judgment applicable to it and its
business, including those relating to transactions with affiliates, environmental, safety or similar laws, federal or state laws relating to discrimination in the hiring, promotion or pay of
employees, federal or state wages and hours law, the Employee Retirement Income Security Act or the rules and regulations promulgated thereunder, except
for those violations that would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect; 

        (j)    except
with respect to FBR, the Company has not incurred any liability for any finder's fees or similar payments in excess of 1.0% of the gross proceeds from the
Offering in connection with the transactions contemplated hereby; 

        (k)   except
as disclosed in the Final Memorandum, the Company is (i) not in violation of the second amended and restated certificate of incorporation, the amended and
restated bylaws, or 

8

 

other
organizational documents (collectively, the "Charter Documents") and (ii) not in breach of, or default under, nor has any event occurred
which with notice, lapse of time, or both would constitute a breach of, or default in the performance or observance of any obligation, agreement, covenant or condition contained in any contract,
license, indenture, mortgage, deed of trust, bank loan or credit agreement or other agreement or instrument to which the Company is a party or by which it or any of its properties may be bound or
affected, except for such violations, breaches or defaults which would not have a Material Adverse Effect; 

        (l)    the
execution, delivery and performance by the Company of this Agreement and the Registration Rights Agreement, the issuance, sale and delivery of the Shares by the
Company, the consummation by the Company of the transactions contemplated hereby and, in the case of the Company only, thereby, and the compliance by the Company with the terms and provisions
hereunder and, in the case of the Company only, thereunder will not conflict with, or result in any breach of or constitute a default under (nor constitute any event which with notice, lapse of time,
or both would constitute a breach of, or default under), (i) any provision of the Charter Documents of the Company, (ii) any provision of any contract, license, indenture, mortgage, deed
of trust, bank loan or credit agreement or other agreement or instrument to which the Company is a party or by which it or its properties may be bound or affected, except pursuant to the Company's
credit agreement, which will be resolved prior to the Closing Date, or (iii) any federal, state, local or foreign law, regulation or rule or any decree, judgment, permit or order applicable to
the Company, except in the case of clauses (ii) or (iii) for such conflicts, breaches or defaults which have been validly waived or would not reasonably be expected to have a Material
Adverse Effect or result in the creation or imposition of any material lien, charge, claim or encumbrance upon any property or asset of the Company; 

        (m)  this
Agreement has been duly authorized, executed and delivered by the Company and, assuming the due authorization, execution and delivery hereof by FBR, is enforceable
in accordance with its terms, and the Registration Rights Agreement has been duly authorized by the Company and at the Closing Time will have been duly executed and delivered by the Company and,
assuming the due authorization, execution and delivery thereof by FBR, will constitute a legal, valid and binding agreement of the Company enforceable in accordance with its terms, except in each case
as may be limited by bankruptcy, insolvency, reorganization, receivership, moratorium or similar laws relating to or affecting creditors' rights and remedies generally, and by general principles of
equity, and except to
the extent that the indemnification and contribution provisions hereof or thereof may be limited by applicable laws and public policy considerations in respect thereof; 

        (n)   the
Purchase and Sale Agreement entered into between the Company and Kennedy Oil (the "Kennedy Agreement") is a legal,
valid and binding agreement of the Company, enforceable in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization, receivership, moratorium or similar laws
relating to or affecting creditors' rights and remedies generally, and by general principles of equity, and except to the extent that the indemnification and contribution provisions thereof may be
limited by applicable laws and public policy considerations in respect thereof; and to the knowledge of the Company, no circumstance exists that would reasonably be expected to result in a failure of
the Company to consummate the transaction set forth in the Kennedy Agreement. 

        (o)   the
Shares, this Agreement and the Registration Rights Agreement conform in all material respects to the descriptions thereof contained in the Final Memorandum; 

        (p)   assuming
the accuracy of FBR's representations and warranties and compliance with its agreements set forth in Section 3 of this Agreement and that the purchasers
who buy the Resale Shares in Exempt Resales are Eligible Purchasers, no approval, authorization, consent or order of 

9

 

or
filing with any federal, state, local or foreign governmental or regulatory commission, board, body, authority or agency is required in connection with the execution, delivery and performance by
the Company of this Agreement or the Registration Rights Agreement, or the consummation by the Company of the transactions contemplated hereby and, in the case of the Company, thereby, or the
issuance, sale and delivery of the Shares as contemplated hereby, other than (i) such as have been obtained or made, or will have been obtained or made at the Closing Time, (ii) any
necessary qualification under the securities or blue sky laws of the various jurisdictions in which the Shares are being offered or placed by FBR, (iii) with or by federal or state securities
regulatory authorities in connection with or pursuant to the Registration Rights Agreement, including without limitation the filing of the Shelf Registration Statement required thereby with the
Commission, and (iv) the filing of a Form D with the Commission and with the applicable state regulatory authorities; 

        (q)   except
as described in the Final Memorandum, the Company has (i) all licenses, permits, certificates, authorizations, consents and approvals and (ii) made
all filings under any federal, state, local or foreign law, regulation or rule, in each case, that are required in order to conduct its business as described in the Final Memorandum, except to the
extent that any failure to have any such licenses, permits, certificates, authorizations, consents or approvals or to make any such filings would not, individually or in the aggregate, have a Material
Adverse Effect; and the Company is not in violation of, or in default under, any such license, permit, certificate, authorization, consent or approval or any federal, state, local or foreign law,
regulation or rule or any decree, order or judgment applicable to the Company, the effect of which could reasonably be expected to have a Material Adverse Effect; 

        (r)   the
copies of all such material contracts, agreements, instruments and other documents (including governmental licenses, authorizations, permits, consents and approvals
and all amendments or waivers relating to any of the foregoing) that have been previously furnished to FBR or its counsel are complete and genuine and include all material collateral and supplemental
agreements thereto; 

        (s)   there
are no actions, suits, proceedings, inquiries or investigations (collectively, "proceedings") pending or, to the
knowledge of the Company, threatened against the Company, or any of its properties, directors, officers or affiliates at law or in equity, or before or by any federal, state, local or foreign
governmental or regulatory commission, board, body, authority or agency other than proceedings accurately described in all material respects in the Final Memorandum or proceedings that could not
reasonably be expected to have a Material Adverse Effect; other than FBR, the Company has not authorized anyone to make any representations regarding the offer and sale of the Shares, or regarding the
Company in connection therewith; and the Company has not received notice of any order or decree preventing the use of the Preliminary Memorandum or the Final Memorandum or any amendment or supplement
thereto, nor has any order asserting that the transactions contemplated by this Agreement are subject to the registration requirements of the Securities Act been issued and no proceeding for that
purpose has commenced or is pending or, to its knowledge, is contemplated; 

        (t)    no
securities of the Company are of the same class (within the meaning of Rule 144A under the Securities Act) as the Shares and listed on a national securities
exchange registered under Section 6 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or quoted in a U.S. automated
inter-dealer quotation system; 

        (u)   subsequent
to the date of the Final Memorandum, and except as may be otherwise stated in the Final Memorandum, there has not been (i) any event, circumstance or
change that has, or could reasonably be expected to have, a Material Adverse Effect, (ii) any transaction, other than in the ordinary course of business, which is material to the Company,
contemplated or entered into 

10

 

by
the Company, (iii) any obligation, contingent or otherwise, directly or indirectly incurred by the Company, other than in the ordinary course of business, which is material to the Company,
(iv) any dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock, or any purchase by the Company of any of its outstanding capital stock,
other than dividends accruing with respect to the Company's Series A Redeemable Preferred Stock (the "Preferred Stock") up and until the Closing
Time which, at such time, the Preferred Stock, together with all accrued dividends, shall be redeemed with a portion of the net proceeds from the Offering or (v) other than with respect to the
reorganization of the Company as described in the Final Memorandum and the redemption of the Preferred Stock, any change of the capital stock or indebtedness of the Company; 

        (v)   the
Company is not, nor upon the sale of the Shares as contemplated herein and the application of the net proceeds therefrom as described in the Final Memorandum under
the caption "Use of
Proceeds", will be, an "investment company" (as such term is defined in the Investment Company Act of 1940, as amended); 

        (w)  there
are no persons with registration or other similar rights to have any securities registered by the Company under the Securities Act, except as disclosed in the
Final Memorandum or pursuant to the Registration Rights Agreement; 

        (x)   the
Company has not relied upon FBR or legal counsel for FBR for any legal, tax or accounting advice in connection with the offering and sale of the Shares; 

        (y)   in
connection with the offering of the Shares, neither the Company, nor any of its affiliates (as defined in Section 501(b) of Regulation D) has, whether
directly or through any agent or person acting on its behalf (other than FBR): (i) offered Common Stock of the Company or any other securities convertible into or exchangeable or exercisable
for such Common Stock in a manner in violation of the Securities Act or the rules and regulations thereunder, (ii) solicited offers to buy or sold Shares by any form of general solicitation or
general advertising (within the meaning of Regulation D), including advertisements, articles, notices or other communications published in any newspaper, magazine or similar medium or broadcast
over television or radio or any seminar or meeting whose attendees have been invited by any general solicitation or general advertising, or in any manner involving a public offering within the meaning
of Section 4(2) of the Securities Act, (iii) distributed any other offering material in connection with the offer and sale of the Shares, other than as described in the Preliminary
Memorandum or Final Memorandum, or (iv) sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of any security (as defined in the Securities Act) which is or will be
integrated with the offering and sale of the Shares in a manner that would require the registration of the Shares under the Securities Act; 

        (z)   neither
the Company nor any of its controlled affiliates (i) is required to register as a "broker" or "dealer" in accordance with the provisions of the Exchange
Act or the rules and regulations thereunder, or (ii) directly, or indirectly through one or more intermediaries, controls or has any other association with (within the meaning of
Article 1 of the Bylaws of the National Association of Securities Dealers, Inc. (the "NASD")) any member firm of the NASD; 

        (aa) none
of the Company or any of its directors, officers, representatives or controlled affiliates has taken, directly or indirectly, any action intended, or which might
reasonably be expected, to cause or result, under the Securities Act, the Exchange Act or otherwise, in, or which has constituted, the stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Shares; 

        (bb) except
as described in the Final Memorandum, the Company carries, or is covered by, insurance (issued by insurers of recognized financial responsibility to the best
knowledge of the Company) in such amounts and covering such risks as is appropriate for the conduct of its business 

11

 

and
the value of the assets to be held by it upon the consummation of the transactions contemplated by the Final Memorandum and as is customary for companies engaged in the coalbed methane gas and oil
exploration and development industries, all of which insurance is in full force and effect; 

        (cc) the
financial statements, including the notes thereto, included in the Final Memorandum fairly present the financial condition of the Company as of the respective dates
thereof, and the results of its operations for the periods then ended, correctly reflect and disclose all extraordinary items, and have been prepared in conformity with U.S. generally accepted
accounting principles applied on a consistent basis; 

        (dd) Ehrhardt,
Keefe, Steiner & Hottman LLP, who have certified certain financial statements and supporting schedules, if any, included in the Final Memorandum, whose
reports with respect to such financial statements and supporting schedules, if any, are included in the Final Memorandum and who have delivered the comfort letters referred to in Section 6(b)
hereof, are independent registered public accountants with respect to the Company within the meaning of the Securities Act or the Securities Act Regulations. 

        (ee) neither
the Company nor to the Company's knowledge, any employee or agent of the Company, has made any payment of funds of the Company or received or retained any funds
in violation of any law, rule or regulation, including without limitation the "know your customer" and anti-money laundering laws of any jurisdiction; 

        (ff)  except
where such failure to file or pay an assessment or lien would not in the aggregate reasonably be expected to have a Material Adverse Effect or where such matters
are being contested in good faith with taxing authorities, (i) the Company has accurately prepared and timely filed any and all federal, state and foreign tax returns that are required to be
filed by it, if any, (taking into account any extension of time to file granted or obtained on behalf of the Company) and has paid or made provision for the payment of all taxes, assessments,
governmental or other similar charges, including without limitation, all sales and use taxes and all taxes which the Company is obligated to withhold from amounts owing to employees, creditors and
third parties, shown to be due thereon, with respect to the periods covered by such tax returns (ii) no deficiency assessment with respect to a proposed adjustment of the Company's federal,
state, local or foreign taxes is pending or, to the best of the Company's knowledge, threatened; (iii) since the date of the most recent audited financial statements, the Company has not
incurred any liability for taxes other than in the ordinary course of its business; and (iv) there is no tax lien, whether imposed by any federal, state, foreign or other taxing authority,
outstanding against the assets, properties or business of the Company; 

        (gg) except
as described in the Final Memorandum or as would not in the aggregate reasonably be expected to have a Material Adverse Effect, (i) the Company is not in
violation of any federal, state, local or foreign statute, law, rule, regulation, ordinance, code, policy or rule of common law or any judicial or administrative interpretation thereof, including any
judicial or administrative order, consent, decree or judgment, relating to pollution or the protection of human health, the environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or wildlife, including, without limitation, laws and regulations relating to the release or threatened release of chemicals, pollutants, contaminants,
wastes, toxic substances, hazardous substances, petroleum or petroleum products, asbestos-containing materials or mold (collectively, "Hazardous
Materials") or to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials (collectively,
"Environmental Laws"), (ii) the Company has all permits, authorizations and approvals required under any applicable Environmental Laws and is in
compliance with their requirements, (iii) there are no pending or, to the knowledge of the Company, threatened administrative, regulatory or 

12

 

judicial
actions, suits, demands, demand letters, claims, liens, notices of noncompliance or violation, investigation or proceedings relating to any Environmental Law against the Company, and
(iv) to the knowledge of the Company, there are no events or circumstances that would reasonably be expected to form the basis of an order for clean-up or remediation, or an action,
suit or proceeding by any private party or governmental body or agency, against or affecting the Company relating to Hazardous Materials or any Environmental Laws; 

        (hh) the
information underlying the estimates of the Company's proved reserves that was supplied to Netherland, Sewell & Associates, Inc. (the
"Reserve Engineers") for the purposes of preparing the reserve reports and estimates of the proved reserves of the Company disclosed in the Final
Memorandum, including production and costs of operation, was true and correct in all material respects on the dates such estimates were made, and such information was supplied and was prepared in
accordance with customary industry practices; other than normal production of the reserves, natural gas price fluctuations, and fluctuations in demand for natural gas, and except as disclosed in the
Final Memorandum, the Company is not aware of any facts or circumstances that would result in a materially adverse change in the aggregate net reserves, or the present value of the future net cash
flows therefrom, as described in the Final Memorandum and as reflected in the reports the Reserve Engineers prepared with regard to the reserves that we own; the estimates of such reserves and present
value as described in the Final Memorandum and reflected in the reports referenced therein have been prepared in a manner that complies with the applicable requirements of the rules under the
Securities Act with respect to proved reserves; 

        (ii)   the
Reserve Engineers are independent engineers with respect to the Company; and 

        (jj)   The
Final Memorandum contains all information specified in, and meets the requirements of, Rule 144A(d)(4) under the Securities Act. 

        Any
certificate signed by any officer of the Company delivered to FBR or to counsel for FBR pursuant to or in connection with this Agreement shall be deemed a representation and warranty
by the Company to FBR as to the matters covered thereby. 

        5.    Certain Covenants of the Company.    

        The
Company hereby agrees with FBR: 

        (a)   to
furnish such information as may be required and otherwise to cooperate in qualifying the Shares for offer and sale under, or establishing an exemption from such
qualification under, the securities or blue sky laws of such states and other jurisdictions as FBR may designate or as required for the Private Placement and to maintain such qualifications in effect
as long as required by such laws for the distribution of the Shares and for the Exempt Resales of the Resale Shares; provided,  however, that the Company
shall not be required to qualify as a foreign corporation or to consent to the service of process under the laws of, or
subject itself to taxation as doing business in, any such state or other jurisdiction (except service of process with respect to the offering and sale of the Shares); 

        (b)   to
prepare the Final Memorandum in a form reasonably approved by FBR and to furnish promptly (and with respect to the initial delivery of such Final Memorandum, not
later than 12:00 p.m. (New York City time) on the third business day following the execution and delivery of this Agreement) to FBR or to purchasers upon the direction of FBR as many copies of
the Final Memorandum (and any amendments or supplements thereto) as FBR may reasonably request for the purposes contemplated by this Agreement; 

        (c)   to
advise FBR promptly, confirming the general nature of such advice in writing, of: (i) the happening of any event known to the Company prior to the date on
which all of the Resale Shares have been sold by FBR, which, in the judgment of the Company, would require the making 

13

 

of
any change in the Final Memorandum then being used so that the Final Memorandum would not include an untrue statement of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the circumstances under which they are made, not misleading; and (ii) the receipt of any notification with respect to the
modification, rescission, withdrawal or suspension of the qualification of the Shares, or of any exemption from such qualification or from registration of the Shares, for offering or sale in any
jurisdiction, or of the initiation or threatening of any proceedings for any of such purposes and, if any government agency or authority should issue any such order, to make every reasonable effort to
obtain the lifting or removal of such order as soon as possible; 

        (d)   to
furnish (or, once the Shelf Registration Statement is effective, to make available through electronic filings with the Commission) to FBR for a period of two years
from the Closing Time, (i) copies of all annual, quarterly and current reports supplied to holders of the Shares, (ii) copies of all reports filed by the Company with the Commission, and
(iii) such other information as FBR may reasonably request regarding the Company; 

        (e)   not
to amend or supplement the Final Memorandum prior to the Closing Time or any Secondary Closing Time unless FBR shall previously have been advised thereof and shall
have consented thereto (which consent shall not be unreasonably withheld or delayed) or not have reasonably objected thereto (for legal reasons) in writing within a reasonable time after being
furnished a copy thereof; 

        (f)    during
any period in the two years (or such shorter period as may then be applicable under the Securities Act regarding the holding period for securities under
Rule 144(k) under the Securities Act or any successor rule) after the Closing Time in which the Company is not subject to Section 13 or 15(d) of the Exchange Act to furnish, upon
request, to any holder of such Shares the information ("Rule 144A Information") specified in Rule l44A(d)(4) under the Securities Act and any
additional information ("PORTAL Information") required by the National Association of Securities Dealers, Inc. PortalSM Market
("PORTAL"), and any such Rule l44A Information and Portal Information will not, at the date thereof, contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading; 

        (g)   to
apply the net proceeds from the sale of the Shares in the manner set forth under the caption "Use of Proceeds" in the Final Memorandum; 

        (h)   that
neither the Company nor any of its affiliates (as defined in Section 501(b) of Regulation D) will, whether directly or through any agent or person
acting on its behalf (other than FBR): (i) offer Common Stock of the Company or any other securities convertible into or exchangeable or exercisable for such Common Stock in a manner in
violation of the Securities Act or the rules and regulations thereunder, (ii) distribute any other offering material in connection with the offer and sale of the Shares, other than as described
in the Preliminary Memorandum or Final Memorandum, or (iii) sell, offer for sale, solicit offers to buy or otherwise negotiate in respect of any security (as defined in the Securities Act), any
of which will be integrated with the offering and sale of the Shares in a manner that would require the registration under the Securities Act of the sale to FBR or the Eligible Purchasers of the
Resale Shares or to the Accredited Investors of the Private Placement Shares; 

        (i)    that
neither the Company nor any of its affiliates will take, directly or indirectly, any action designed to, or that might be reasonably expected to, cause or result in
stabilization or manipulation of the price of the Shares; 

        (j)    that,
except as permitted by the Securities Act, neither the Company nor any of its affiliates will distribute any offering materials in connection with Exempt Resales; 

14

  

        (k)   except
as provided in Section 5(a) to pay all expenses, fees and taxes in connection with (i) the preparation of the Preliminary Memorandum and the Final
Memorandum, and any amendments or supplements thereto, and the printing and furnishing of copies of each thereof to FBR (including costs of mailing and shipment), (ii) the preparation,
issuance, sale and delivery of the Shares, including any stock or other transfer taxes or duties payable upon the sale of the Resale Shares to FBR, (iii) the printing of this Agreement and any
dealer agreements, and the reproduction and/or printing and furnishing of copies of each thereof to dealers (including costs of mailing and shipment) (iv) the qualification of the Shares for
offering and sale under state laws and the determination of their eligibility for investment under state law as aforesaid (including any filing fees or legal fees of FBR related to such
qualification), and the printing and furnishing of copies of any blue sky surveys or legal investment surveys to FBR and to dealers, (v) the designation of the Shares as PORTAL-eligible
securities by PORTAL, (vi) all fees and disbursements of counsel and accountants for the Company, (vii) the fees and expenses of any transfer agent or registrar for the Common Stock,
(viii) costs of background investigations, (ix) the costs and expenses of the Company incurred in connection with the marketing of the Shares, including 100% of the cost of any aircraft
chartered in connection with the roadshow and expenses of Company personnel, including but not limited to, all out-of-pocket expenses, hotel accommodations and transportation
of its personnel, and (x) performance of the Company's other obligations hereunder; FBR shall be responsible for all fees and disbursements of its legal counsel, except with regard to
Section 5(k)(iv), and all costs and expenses of FBR incurred in connection with the marketing of the Shares, including but not limited to, all out-of-pocket expenses,
hotel accommodations and transportation (other than chartered aircraft) of its personnel; 

        (l)    to
use reasonable efforts in cooperation with FBR to obtain permission for the Shares (other than Shares offered and sold in accordance with Regulation S) to be
eligible for clearance and settlement through DTC, and for the Shares sold in accordance with Regulation S to be eligible for clearance and settlement through the Euroclear System and
Clearstream Banking, société anonyme, Luxembourg; 

        (m)  in
connection with Resale Shares offered and sold in an offshore transaction (as defined in Regulation S), not to register any transfer of such Resale Shares not
made in accordance with the provisions of Regulation S and not, except in accordance with the provisions of Regulation S, if applicable, to issue any such Resale Shares in the form of
definitive securities; 

        (n)   to
refrain until the earlier of (i) 180 days after the closing of this Offering and 60 days after the effective date of the Shelf Registration
Statement, without the prior written consent of FBR (which will not be unreasonably withheld), from (i) issuing, offering, pledging, selling, contracting to sell, selling any option or contract
to purchase, purchasing any option or contract to sell, granting any option, right or warrant for the sale of, lending or otherwise disposing of or transferring, directly or indirectly, any equity
securities of the Company or any securities convertible into or exercisable or exchangeable for equity securities of the Company, or filing any registration statement under the Securities Act with
respect to any of the foregoing, or (ii) entering into any swap or other arrangement that transfers, in whole or in part, directly or indirectly, any of the economic consequences of ownership
of equity securities of the Company, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or such other securities, in cash or
otherwise. The foregoing sentence shall not apply to (i) the offer and sale of the Shares hereunder, (ii) the registration and sale of the Shares whether on the Shelf Registration
Statement or on a registration statement filed in connection with an underwritten initial public offering, in each case, in accordance with the terms of the Registration Rights Agreement,
(iii) the issuance of any shares of Common Stock upon the exercise of any options or other awards under the Company's incentive plans, or (iv) the grant of options, restricted stock or
other awards under the Company's incentive plans described in the Final Memorandum; 

15

 

        (o)   if
the Resale Shares are not delivered by the Company to FBR for any reason other than the termination of this Agreement pursuant to clauses (ii) through
(v) of the first paragraph of Section 7 hereof or the default by FBR in its obligations hereunder, to reimburse FBR for all of its out-of-pocket expenses relating
to the transactions contemplated hereby, including the reasonable fees and disbursements of its legal counsel; 

        (p)   that,
from and after the Closing Time, the Company shall have in place and maintain a system of internal accounting controls sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with management's general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management's general or
specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any
differences; 

        (q)   that
the Company will conduct its affairs in such a manner so as to ensure that the Company will not be an "investment company" or an entity "controlled" by an
investment company within the meaning of the Investment Company Act; and 

        (r)   that,
as soon as reasonably practicable following completion of the transactions contemplated hereunder, to use commercially reasonable efforts to cause the Company's
board of directors to
approve any changes to the corporate governance policies and procedures that may be required by law prior to filing any registration statement with the Commission. 

        6.    Conditions of FBR's Obligations.    The obligations of FBR hereunder are subject to (i) the accuracy of
the representations and warranties on the part of the Company on the date hereof, at the Closing Time and each Secondary Closing Time (if any) (which representations and warranties (a) if
qualified by materiality. shall be true and correct, and (b) if not qualified by materiality, shall be true and correct in all material respects), (ii) the accuracy of the statements of
the Company's officers made in any certificate pursuant to the provisions hereof as of the date of such certificate, (iii) the performance by the Company of its covenants and other obligations
hereunder and (iv) the following other conditions: 

        (a)   The
Company shall furnish to FBR at the Closing Time an opinion of Andrews Kurth LLP, counsel for the Company, addressed to FBR and dated the Closing Time, in form and
substance reasonably satisfactory to FBR. Such opinion shall indicate that it is being rendered to FBR at the request of the Company. 

        (b)   FBR
shall have received from Ehrhardt, Keefe, Steiner & Hottman LLP, "comfort" letters dated, respectively, as of the date hereof and the Closing Time, addressed
to FBR and the board of directors of the Company and in a form and substance reasonably satisfactory to FBR. 

        (c)   FBR
shall have received at the Closing Time a favorable opinion of Akin Gump Strauss Hauer & Feld LLP, counsel for FBR, dated the Closing Time, in form and
substance reasonably satisfactory to FBR. 

        (d)   FBR
shall have received from the Reserve Engineers letters dated, respectively, as of the date hereof and the Closing Time, addressed to FBR and in form and substance
satisfactory to FBR. 

        (e)   Prior
to the Closing Time or any Secondary Closing Time, (i) no suspension of the qualification of the Shares for offering or sale in any jurisdiction, or of the
initiation or threatening of any proceedings for any of such purposes, shall have occurred and (ii) the Final Memorandum and all amendments or supplements thereto, or modifications thereof, if
any, shall not contain an untrue statement of material fact or omit to state a material fact required to be stated therein or 

16

 

necessary
to make the statements therein, in the light of the circumstances under which they are made, not misleading. 

        (f)    Between
the time of execution of this Agreement and the Closing Time or any Secondary Closing Time, (i) no event, circumstance or change constituting a Material
Adverse Effect shall have occurred or become known, (ii) no transaction which is material to the Company shall have been entered into by the Company that has not been fully and accurately
disclosed in the Final Memorandum, or any amendment or supplement thereto; and (iii) no order or decree preventing the use of the Final Memorandum, or any amendment or supplement thereto, or
any order asserting that any of the transactions contemplated by this Agreement are subject to the registration requirements of the Securities Act shall have been issued. 

        (g)   The
Company shall have delivered to FBR a certificate, executed by the secretary of the Company and dated as of the Closing Time, as to (i) the resolutions
adopted by the Company's board of directors in form and substance reasonably acceptable to FBR, (ii) the Company's certificate of incorporation, as amended and (iii) the Company's
bylaws, as amended, each as in effect at the Closing Time. 

        (h)   The
Company shall have delivered to FBR a certificate, executed by its chief executive officer and chief financial officer to the effect that the representations and
warranties of the Company set forth in this Agreement shall be true and correct as of the Closing Time as though made on and as of such date (except to the extent that such representations and
warranties speak as of another date, in which case such representations and warranties shall be true and correct as of such other date), the conditions set forth in subsections (e) and
(f) of this Section 6 shall have been satisfied and be true and correct as of the Closing Time, and the Company shall have complied with all covenants and agreements and satisfied all
conditions on its part to be performed or satisfied under this Agreement at or prior to the Closing Time. 

        (i)    On
or before the Closing Time, FBR shall have received the Registration Rights Agreement executed by the Company and such agreement shall be in full force and effect. 

        (j)    At
the time of execution and delivery of this Agreement, FBR shall have received from each of the individuals and entities listed on Annex 1 hereto, a written agreement
(a "Lock-up Agreement") in substantially the form attached hereto as Exhibit B. 

        (k)   At
each Secondary Closing Time, FBR shall have received: 

        (i)    a
certificate, dated as of each Secondary Closing Time, of the Company, substantially to the same effect as the certificate delivered at the Closing Time pursuant to
subsection (h) of this Section 6, subject to any exceptions that, in the reasonable judgment of FBR, are not material. 

        (ii)   the
opinion of Andrews Kurth LLP, in form and substance satisfactory to FBR, dated as of each Secondary Closing Time relating to the Option Shares, as applicable, and
otherwise substantially to the same effect as the opinions required by subsection (a) of this Section 6. 

        (iii)  a
"comfort" letter from Ehrhardt, Keefe, Steiner & Hottman LLP, in form and substance satisfactory to FBR, dated as of each Secondary Closing Time,
substantially the same in scope and substance as the letter furnished to FBR and the board of directors of the Company pursuant to subsection (b) of this Section 6, except that the
"specified date" in the letter furnished pursuant to this subsection (k)(iii) shall be a date not more than five days prior to such Secondary Closing Time. 

        In
the event that any "comfort" letter referred to in subsection (b) of this Section 6 or this subsection (k)(iii) sets forth any such changes, decreases or
increases that, in the reasonable discretion of FBR, are likely to result in a Material Adverse Effect, it shall be a 

17

 

further
condition to the obligations of FBR that such letters shall be accompanied by a written explanation of the Company as to the significance thereof, unless FBR deems such explanation
unnecessary. References to the Final Memorandum with respect to any "comfort" letter referred to in this Section 6 shall include any amendment or supplement thereto at the date of such letter. 

        (iv)  the
opinion of Akin Gump Strauss Hauer & Feld LLP, dated as of each Secondary Closing Time, relating to the Option Shares, as applicable, and otherwise to the
same effect as the opinion required by subsection (c) of this Section 6. 

        (l)    The
Company shall have furnished to FBR such other documents and certificates as to the accuracy and completeness of any statement in the Final Memorandum or any
amendment or supplement thereto, and any additional matters as the Closing Time or any Secondary Closing Time, as FBR may reasonably request. 

        (m)  The
Shares to be resold by FBR to QIBs pursuant to Rule 144A under the Securities Act shall have been designated as PORTAL-eligible securities by PORTAL. 

        (n)   Each
Subscription Agreement and purchase letter shall remain in full force and effect and no event shall have occurred giving any party the right to terminate any such
agreement pursuant to the terms thereof, unless, in FBR's sole discretion, in the event that such an agreement is no longer in full force and effect, the Shares covered by such agreement may be
reallocated to purchasers who subscribed for additional Shares under agreements that are in full force and effect. 

        7.    Termination.    The obligations of FBR hereunder shall be subject to termination in the absolute discretion of
FBR, at any time prior to the Closing Time or any Secondary Closing Time, if (i) any of the conditions specified in Section 6 shall not have been fulfilled when and as required by this
Agreement to be fulfilled, (ii) trading in securities in general on any exchange or national quotation system shall have been suspended or minimum prices shall have been established on such
exchange or quotation system, (iii) there has been a material disruption in the securities settlement, payment or clearance services in the United States, (iv) a banking moratorium shall
have been declared either by the United States or New York State authorities, or (v) if the United States shall have declared war in accordance with its constitutional processes or there shall
have occurred any material outbreak or escalation of hostilities or other national or international calamity or crisis or change in economic, political or other conditions of such magnitude in its
effect on the financial markets of the United States as, in the judgment of FBR, to make it impracticable to market the Shares. 

        If
FBR elects to terminate this Agreement as provided in this Section 7, the Company shall be notified promptly by letter or fax. 

        If
the sale to FBR of the Resale Shares, as contemplated by this Agreement, is not carried out by FBR for any reason permitted under this Agreement or if such sale is not carried out
because the Company shall be unable to comply with any of the terms of this Agreement, (i) the Company shall not be under any obligation or liability to FBR under this Agreement (except to the
extent provided in Sections 5(k), 5(p) and 8 hereof), (ii) and FBR shall be under no obligation or liability to the Company under this Agreement (except to the extent provided in
Section 8 hereof). 

        8.    Indemnity.    

        (a)   The
Company agrees to indemnify, defend and hold harmless FBR and its affiliates, and their respective directors, officers, representatives and agents, and any person
who controls FBR within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any loss, expense, liability or claim (including the
reasonable cost of investigation) which, jointly or severally, FBR or any such controlling person may incur under the Securities Act, the Exchange Act or otherwise, insofar as such loss, expense,
liability or claim arises out of or is 

18

 

based
upon (i) any untrue statement or alleged untrue statement made by the Company herein, (ii) any breach by the Company of any covenant set forth herein, or (iii) any untrue
statement or alleged untrue statement of a material fact contained in the Preliminary Memorandum or the Final Memorandum, or arises out of or is based upon any omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading, except insofar as any such
loss, expense, liability or claim arises out of or is based upon any untrue statement or alleged untrue statement of a material fact contained in and made in reliance upon and in conformity with
information furnished in writing by FBR to the Company expressly for use in such Preliminary Memorandum or Final Memorandum (that information being limited to that described in the last sentence of
Section 8(b) hereof). 

        (b)   FBR
agrees to indemnify, defend and hold harmless the Company and its directors and officers and any person who controls the Company within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any loss, expense, liability or claim (including the reasonable cost of investigation) which, jointly
or severally, the Company or any such person may incur under the Securities Act, the Exchange Act or otherwise, insofar as such loss, expense, liability or claim arises out of or is based upon any
untrue statement or alleged untrue statement of a material fact contained in and made in reliance upon and in conformity with information furnished in writing by FBR to the Company expressly for use
in the Preliminary Memorandum or Final Memorandum (or in any amendment or supplement thereof by the Company), such information being limited to the following: the two paragraphs on the cover page
immediately preceding FBR's name, and, under the section heading "Plan of Distribution," the second sentence of the first paragraph, the second paragraph, the fourth sentence of the seventh paragraph
and the eighth paragraph. 

        (c)   If
any action is brought against any person or entity (each an "Indemnified Party"), in respect of which indemnity may be
sought pursuant to Section 8(a) or (b) above, the Indemnified Party shall promptly notify the party(ies) obligated to provide such indemnity (each an
"Indemnifying Party") in writing of the institution of such action and the Indemnifying Party shall assume the defense of such action, including the
employment of counsel and payment of expenses; provided that the failure so to notify the Indemnifying Party will not relieve the Indemnifying Party from any liability which the Indemnifying Party may
have to any Indemnified Party unless and to the extent the Indemnifying Party did not otherwise know of such action and such failure results in the forfeiture by the Indemnifying Party of rights and
defenses that would have had material value in the defense. The Indemnified Party(ies) shall have the right to employ its or their own counsel in any such case, but the fees and expenses of such
counsel shall be at the expense of the Indemnified Party unless the employment of such counsel shall have been authorized in writing by the Indemnifying Party in connection with the defense of such
action or the Indemnifying Party shall not have employed counsel to have charge of the defense of such action within a reasonable time or such Indemnified Party(ies) shall have reasonably concluded
(based on the advice of counsel) that counsel selected by the Indemnifying Party has an actual conflict of interest or there may be defenses available to the Indemnified Party(ies) which are different
from or additional to those available to the Indemnifying Party (in which case the Indemnifying Party shall not have the right to direct the defense of such action on behalf of the Indemnified
Party(ies)), in any of which events such fees and expenses shall be borne by the Indemnifying Party and paid as incurred (it being understood, however, that the Indemnifying Party shall not be liable
for the fees and expenses of more than one separate firm of counsel (in addition to local counsel) for the Indemnified Party in any one action or series of related actions in the same jurisdiction
representing the Indemnified Parties who are parties to such action). Anything in this paragraph to the contrary notwithstanding, the Indemnifying Party shall not be liable for any settlement of any
such claim or action effected without its written consent. The Indemnifying Party shall have the 

19

 

right
to settle any such claim or action for itself and any Indemnified Party so long as the Indemnifying Party pays any settlement payment and such settlement (i) includes a complete and
unconditional release of the Indemnified Party from all losses, expenses, claims, damages, injunctions, liability and other obligations with respect to any claims that are the subject matter of such
action and (ii) does not include a statement as to, or an admission of, fault, culpability or a failure to act by or on behalf of the Indemnified Party. 

        (d)   If
the indemnification provided for in this Section 8 is unavailable to an Indemnified Party under subsections (a) and (b) of this Section 8
in respect of any losses, expenses, liabilities or claims referred to therein, then each applicable Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount
paid or payable by such Indemnified Party as a result of such losses, expenses, liabilities or claims (i) in such proportion as is appropriate to reflect the relative benefits received by the
Company, on the one hand, and FBR, on the other hand, from the offering of the Shares or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the
Company, on the one hand, and of FBR, on the other hand, in connection with the statements or omissions which resulted in such losses, expenses,
liabilities or claims, as well as any other relevant equitable considerations. The relative benefits received by the Company, on the one hand, and FBR, on the other hand, shall be deemed to be in the
same proportion as the total proceeds from the offering (net of initial purchaser discounts and commissions but before deducting expenses) received by the Company bear to the discounts and commissions
received by FBR. The relative fault of the Company, on the one hand, and of FBR, on the other hand, shall be determined by reference to, among other things, whether the untrue statement or alleged
untrue statement of a material fact or omission or alleged omission relates to information supplied by the Company or by FBR and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, claims, damages and liabilities referred to above shall be deemed to
include any legal or other fees or expenses reasonably incurred by such party in connection with investigating or defending any claim or action. 

        (e)   The
parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 8 were determined by pro rata allocation or by any other
method of allocation which does not take account of the equitable considerations referred to in subsection (d) above. Notwithstanding the provisions of this Section 8, FBR shall not be
required to contribute any amount in excess of the amount by which the total price at which the Shares were initially offered (either in the Exempt Resales or to subscribers in the Private Placement)
exceeds the amount of any damages which FBR has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. 

        (f)    The
indemnity and contribution agreements contained in this Section 8 and the covenants, warranties and representations of the Company contained in this Agreement
shall remain in full force and effect regardless of any investigation made by or on behalf of FBR or its affiliates, or their respective directors, officers, representatives and agents, or any person
who controls FBR within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, or by or on behalf of the Company or its directors and officers or any person
who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, and shall survive any termination of this Agreement or the sale and
delivery of the Shares. Each party to this Agreement agrees promptly to notify the other party of the commencement of any litigation or proceeding against it and, in the case of the Company, against
any of their 

20

 

respective
officers and directors, in connection with the sale and delivery of the Shares, or in connection with the Final Memorandum. 

        9.    Notices.    Except as otherwise herein provided, all statements, requests, notices and agreements shall be in
writing delivered by facsimile (with receipt confirmed), overnight courier or registered or certified mail, return receipt requested, or by telegram and: 

        (a)   if
to FBR, shall be sufficient in all respects if delivered or sent to Friedman, Billings, Ramsey & Co., Inc., 1001 Nineteenth Street North, Arlington,
Virginia 22209, Attention: Compliance Department, (facsimile: 703-312-9698); with a copy to Akin Gump Strauss Hauer & Feld, LLP, 590 Madison Avenue, New York, New York
10022, Attention: Mark Zvonkovic (facsimile: 212-872-1002); and 

        (b)   if
to the Company, shall be sufficient in all respects if delivered to the Company at the offices of the Company at 1 E. Alger, Sheridan, WY 82801 Attention: Peter G.
Schoonmaker, Chief Executive Officer (facsimile: 307-673-9711); with a copy to Andrews Kurth LLP, 600 Travis, Suite 4200, Houston, TX 77002, Attention: David Buck (facsimile:
713-238-7126). 

        10.    GOVERNING LAW.    THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE
OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES THAT WOULD REQUIRE THE APPLICATION OF THE LAW OF ANY OTHER STATE. The parties hereto agree to be subject to, and hereby irrevocably submit
to, the nonexclusive jurisdiction of any United States federal or New York state court sitting in New York, New York, in respect of any suit, action or proceeding arising out of or relating to this
Agreement or the transactions contemplated herein, and irrevocably agree that all claims in respect of any such suit, action or proceeding may be heard and determined in any such court. Each of the
parties hereto irrevocably waives, to the fully extent permitted by applicable law, any objection to the laying of the venue of any such suit, action or proceeding brought in any such court and any
claim that any such suit, action or proceeding has been brought in any inconvenient forum. 

        11.    Headings.    The section headings in this Agreement have been inserted as a matter of convenience of reference
and are not a part of this Agreement. 

        12.    Amendments and Waivers.    Neither this Agreement nor any term hereof may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party against whom enforcement of the change, waiver, discharge or termination is sought. 

        13.    Successors.    This Agreement shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties. 

        14.    Severability.    In the event that any one or more of the provisions contained herein is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way
impaired or affected thereby, but only to the extent that giving effect to such provision and the remaining provisions hereof is in accordance with the intent of the parties as reflected in this
Agreement. 

        15.    Entire Agreement.    This Agreement constitutes the entire agreement and understanding of the parties hereto
with respect to the matters and transactions contemplated hereby and thereby and supersede all prior agreements and understandings whatsoever relating to such matters and transactions, including any
engagement letter that may have been executed in connection with the transactions contemplated hereby. 

        16.    Parties at Interest.    The Agreement herein set forth has been and is made solely for the benefit of FBR and
the Company and the controlling persons, directors and officers referred to in Section 8 hereof, and their respective successors, assigns, executors and administrators. No other 

21

 

person,
partnership, association or corporation (including a purchaser, in its capacity as such, from FBR) shall acquire or have any right under or by virtue of this Agreement. 

        17.    Counterparts.    This Agreement may be signed by the parties in counterparts, which together shall constitute
one and the same agreement among the parties. Signatures may be executed by facsimile. 

[SIGNATURE
PAGE FOLLOWS] 

22

        If the foregoing correctly sets forth the understanding among the Company and FBR, please so indicate in the space provided below for the purpose, whereupon this letter shall constitute
a binding agreement between the Company and FBR. 

	 	 	Very truly yours,
	

 	
 	

PINNACLE GAS RESOURCES, INC.
	

 	
 	

By:	

/s/  PETER G. SCHOONMAKER      

	 	 	Name:	Peter G. Schoonmaker
	 	 	Title:	Chief Executive Officer and President

   

   

   

   

   

   

   

   

   

   

   

   

[SIGNATURE PAGE TO PURCHASE/PLACEMENT AGREEMENT]

	Accepted and agreed to as

of the date first above written:	 	 	 
	

FRIEDMAN, BILLINGS, RAMSEY & CO., INC.	
 	

 	

 
	

By:	

/s/  JAMES R. KLEEBLATT      
	
 	

 	

 
	Name:	James R. Kleeblatt	 	 	 
	Title:	Senior Managing Director	 	 	 

   

   

   

   

   

   

   

   

   

   

   

   

[SIGNATURE PAGE TO PURCHASE/PLACEMENT AGREEMENT]

  

 
 

ANNEX I    
    

Steven
A. Webster

Peter G. Schoonmaker

Ronald T. Barnes

Robert L. Cabes, Jr.

Jeffrey P. Gunst

Sylvester P. Johnson, IV

Keith G. Larsen

Mark J. Larsen

F. Gardner Parker

Susan C. Schnabel

U.S. Energy Corporation

Crested Corp.

CCBM, Inc. 

Each
of the following DLJ Entities: 

	1.
	DLJ
Merchant Banking Partners III, L.P.

	2.
	DLJ
Merchant Banking III, Inc., as Advisory General Partner on behalf of DLJ Offshore Partners III, C.V.;

	3.
	DLJ
Merchant Banking III, Inc., as Advisory General Partner on behalf of DLJ Offshore Partners III-1, C.V. and as attorney-in-fact for DLJ
Merchant Banking III, L.P., as Associate General Partner of DLJ Offshore Partners III-1, C.V.;

	4.
	DLJ
Merchant Banking III, Inc., as Advisory General Partner on behalf of DLJ Offshore Partners III-2, C.V. and as attorney-in-fact for DLJ
Merchant Banking III, L.P., as Associate General Partner of DLJ Offshore Partners III-2,C.V.;

	5.
	DLJ
MB Partners III GmbH & Co. KG;

	6.
	Millennium
Partners II, L.P.; and

	7.
	MBP
III Plan Investors, L.P. 

Annex-1

  

 
 

EXHIBIT A    
    
    REGISTRATION RIGHTS AGREEMENT    
    

A-1

  

 
 

EXHIBIT B    
    
    FORM OF LOCK-UP AGREEMENT    
    

March    , 2006 

Friedman,
Billings, Ramsey & Co., Inc.

1001 Nineteenth Street North, 18th Floor

Arlington, Virginia 22209 

Ladies
and Gentlemen: 

        The
undersigned understands and agrees as follows: 

        1.     Friedman,
Billings, Ramsey & Co., Inc. ("FBR") proposes to enter into a Purchase/Placement Agreement (the
"Agreement") with Pinnacle Gas Resources, Inc., a Delaware corporation (the "Company"), providing
for (a) the initial purchase by FBR of shares of the Company's common stock, $0.01 par value per share, and the resale of such shares by FBR to certain eligible purchasers, (b) the
direct sale by the Company of shares of its common stock to certain accredited investors, and (c) an option for FBR to purchase or place additional shares of the Company's common stock either
for resale by FBR to certain eligible purchasers or for direct sale by the Company to certain accredited investors (all of such shares of the Company's common stock are collectively referred to as the
"Shares" and the transactions referred to in (a), (b) and (c) above are collectively referred to as the "Offering"), in each case, in
transactions exempt from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act"). 

        2.     In
connection with the Offering and pursuant to the terms of a Registration Rights Agreement to be entered into in connection with the closing of the Offering, the
Company has agreed to file with the Securities and Exchange Commission a registration statement providing on Form S-1 for the resale of the Shares under the Securities Act (the
"Shelf Registration Statement"). 

        3.     In
recognition of the benefit that the Offering will confer upon the undersigned and for other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged by the undersigned, the undersigned hereby agrees that, without the prior written consent of FBR (which consent may be withheld or delayed in FBR's sole discretion), he, she or it
will refrain until the earlier of (i) 180 days after the closing of the Offering and (ii) 60 days after the initial effective date of the Shelf Registration Statement, from
(i) offering, pledging, selling, contracting to sell, selling any option or contract to purchase, purchasing any option or contract to sell, granting any option, right or warrant for the sale
of, lending or otherwise disposing of or transferring, directly or indirectly, any equity securities of the Company, or any securities convertible into or exercisable or exchangeable for equity
securities of the Company, or (ii) entering into any swap or other arrangement that transfers to another, in whole or in part, directly or indirectly, any of the economic consequences of
ownership of equity securities of the Company, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of common stock of the Company or such
other securities, in cash or otherwise. 

        Notwithstanding
the foregoing, subject to applicable securities laws and the restrictions contained in the Company's second amended and restated certificate of incorporation or amended
and restated bylaws, the undersigned may transfer any securities of the Company (including, without limitation, common stock) as follows: (i) pursuant to the exercise and issuance of options;
(ii) as a bona fide gift or gifts, provided that the donee or donees thereof agree to be bound in writing by the restrictions set forth herein; (iii) to any trust for the direct or
indirect benefit of the undersigned or the immediate family of the undersigned, provided that the trustee of the trust agrees to be bound in writing by the restrictions set forth herein;
(iv) as a distribution to affiliates, stockholders, partners or members of the undersigned, provided that such affiliates, stockholders, partners or members agree to be bound in 

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writing
by the restrictions set forth herein; (v) any transfer required under any benefit plans or the Company's amended and restated bylaws; (vi) as required by participants in the
Company's stock incentive plan in order to reimburse or pay federal income tax and withholding obligations in connection with vesting of stock grants; (vii) as collateral for any loan, provided
that the lender agrees in writing to be bound by the restrictions set forth in herein; or (viii) with respect to sales of securities acquired after the Closing Time in the open market. For
purposes of this agreement, "immediate family" shall mean any relationship by blood, marriage or adoption, not more remote than first cousin. In addition, this Lock-Up Agreement shall not
apply to (1) the registration of shares of common stock beneficially owned by the undersigned immediately after the closing of the Offering on the Shelf Registration Statement filed in
connection with the Offering or (2) the registration of shares of common stock in an underwritten initial public offering of the Company's common stock, in each case, pursuant to the
undersigned's existing piggyback rights, if any, set forth in the Amended and Restated Securityholders Agreement. 

        For
the avoidance of doubt, nothing shall prevent the undersigned from, or restrict the ability of the undersigned to, (i) purchase common stock on the open market or
(ii) exercise any options or other convertible securities granted under any benefit plan of the Company. 

        4.     The
undersigned acknowledges that FBR is relying on the agreements of the undersigned set forth herein in making its decision to enter into the Agreement and to continue
its efforts in connection with the Offering. 

        5.     This
Lock-Up Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflict of
laws. 

        6.     This
Lock-Up Agreement may be executed in one or more counterparts and delivered by facsimile, each of which shall be deemed to be an original but all of
which shall constitute one and the same agreement. 

[SIGNATURE
PAGE FOLLOWS] 

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        IN
WITNESS WHEREOF, the undersigned has executed this Lock-Up Agreement, or caused this Lock-Up Agreement to be executed, as of the date first written above. 

	 	 	Very truly yours,
	

 	
 	

    

	 	 	Name:
	 	 	Title:
	

 	
 	

    

	 	 	    

	 	 	(Address)

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QuickLinks

EXHIBIT 10.18

PURCHASE/PLACEMENT AGREEMENT

ANNEX I

EXHIBIT A REGISTRATION RIGHTS AGREEMENT

EXHIBIT B FORM OF LOCK-UP AGREEMENT

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