20,503,347 Shares Abraxas Petroleum Corporation Common Stock UNDERWRITING AGREEMENT

 

 

 

 

 

 January 26, 2011

JOHNSON RICE & COMPANY L.L.C.    

As representative of the several underwriters

639 Loyola Avenue, Suite 2775

New Orleans, Louisiana 70113

 

Ladies and Gentlemen:

 

Introductory.  Abraxas Petroleum Corporation, a Nevada corporation (the “Company”), proposes to issue and sell to the several underwriters named in Schedule A (together, the “Underwriters”), an aggregate of 12,000,000 shares of its common stock, par value $0.01 per share (the “Common Stock”), and the stockholders of the Company named in Schedule B (collectively, the “Selling Stockhol ders”) propose to sell to the Underwriters an aggregate of 8,503,347 shares of the Common Stock.  The 12,000,000 shares of Common Stock to be sold by the Company and the 8,503,347 shares of Common Stock to be sold by the Selling Stockholders are collectively called the “Firm Shares.”  In addition, the Company has granted to the Underwriters an option to purchase up to 3,075,502 shares of Common Stock (the “Optional Shares”), as provided in Section 3.  The Firm Shares and, if and to the extent such option is exercised, the Optional Shares are collectively called the “Offered Shares.”  Johnson Rice & Company L.L.C. has agreed to act as representative of the several Underwriters (in such capacity is hereinafter referred to as the “Representative”) in connection with the offering and sale of the Offered Shares.

 

The Company has prepared and filed with the Securities and Exchange Commission (the “Commission”) shelf registration statements on Form S-3 (File Nos. 333-162573 and 333-163763), each including a base prospectus (together, the “Base Prospectus”), to be used in connection with the public offering and sale of the Offered Shares.  Such registration statements, in the form in which they were declared effective by the Commission under the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder (collectively, the “Securities Act”), including all documents incorporated or deemed to be inco rporated by reference therein and any information deemed to be a part thereof at the time of effectiveness pursuant to Rule 430B or Rule 430C (the “Rule 430 Information”) under the Securities Act or the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (collectively, the “Exchange Act”), are together referred to as the “Registration Statements.”  The prospectus supplement used in connection with the offering of the Offered Shares that omitted Rule 430 Information, together with the Base Prospectus, is herein called a “Preliminary Prospectus.” As used herein, the term “Prospectus” means the Base Prospectus, as sup plemented by a prospectus supplement containing Rule 430 Information in the form first made available to the Underwriters by the Company to confirm sales of the Offered Shares or in the form first made available to the Underwriters by the Company to meet requests of purchasers pursuant to Rule 173

 

under the Securities Act.  As used herein, “Applicable Time” is 6:00 PM (New York City time) on January 26, 2011. As used herein, “free writing prospectus” has the meaning set forth in Rule 405 under the Securities Act, and “Time of Sale Prospectus” means the Base Prospectus, as amended or supplemented immediately prior to the Applicable Time, together with the Preliminary Prospectus and the free writing prospectuses, including each “road show” (as defined in Rule 433 under the Securities Act), related to the offering of the Securities contemplated hereby that is a “written communication” (as defined i n Rule 405 under the Securities Act), identified on Schedule C. As used herein, the terms “Registration Statements,” “Base Prospectus,” “Time of Sale Prospectus,” “Preliminary Prospectus” and “Prospectus” shall include the documents incorporated and deemed to be incorporated by reference therein. All references in this Agreement to amendments or supplements to the Registration Statements, the Base Prospectus, the Time of Sale Prospectus, the Preliminary Prospectus or the Prospectus shall be deemed to mean and include the filing of any document under the Exchange Act which is or is deemed to be incorporated by r eference in the Registration Statements, the Base Prospectus, the Time of Sale Prospectus, the Preliminary Prospectus or the Prospectus, as the case may be. All references in this Agreement to (i) the Registration Statements, the Base Prospectus, the Time of Sale Prospectus, the Preliminary Prospectus or the Prospectus, or any amendments or supplements to any of the foregoing, shall include any copy thereof filed with the Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval System, or any successor system including the Next-Generation EDGAR System (collectively, “EDGAR”) and (ii) the Prospectus shall be deemed to include the “electronic Prospectus” provided for use in connection with the offering of the Offered Shares as contemplated by Section 4(M) of this Agreement.  All references in this Agreement to financial statements and schedul es and other information that are “contained,” “included” or “stated” in the Registration Statements, the Base Prospectus, the Time of Sale Prospectus, the Preliminary Prospectus or the Prospectus (and all other references of like import) shall be deemed to mean and include all such financial statements and schedules and other information that are or are deemed to be incorporated by reference in the Registration Statements, the Base Prospectus, the Time of Sale Prospectus, the Preliminary Prospectus or the Prospectus, as the case may be.

 

The Company and the Selling Stockholders hereby confirm their agreements with the Underwriters as follows:

 

Section 1. Representations and Warranties of the Company.  The Company hereby represents, warrants and covenants to the Underwriters as follows:

 

A. Compliance with Registration Requirements .  Each of the Registration Statements is a shelf registration statement that has been declared effective by the Commission.  No notice of objection of the Commission to the use of each such Registration Statement or any post-effective amendment thereto pursuant to Rule 401(g)(2) under the Securities Act has been received by the Company.  No stop order suspending the effectiveness of the Registration Statements is in effect and no proceedings for such purpose have been instituted or are pending or, to the best knowledge of the Company, are contemplated or threatened by the Commission.

 

The Preliminary Prospectus and the Prospectus when filed complied in all material respects with the Securities Act and, if filed by electronic transmission pursuant to EDGAR (except as may be permitted by Regulation S-T under the Securities Act), was identical to the copy thereof delivered to the Underwriters for use in connection with the offer and sale of the Offered Shares.  Each of the Registration Statements and any post-effective amendments thereto, at the time it became effective and at the First Closing Date (as defined in Section 3) and, if applicable, as of each Option Closing Date (as defined in Section 3), complied and, as amended or supplemented, if applicable, will, as of the date of such amendment or supplement, as applicable, comply in all material respects with the Securities Act and did not and, as amended or supplemented, if applicable, will not, as of the date of such amendment or

 

supplement, as applicable, 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 not misleading.  The Time of Sale Prospectus does not, and at the time of each sale of the Offered Shares in connection with the offering and at the First Closing Date and, if applicable, as of each Option Closing Date, the Time of Sale Prospectus, as then amended or supplemented by the Company, if applicable, will not, contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, provided that the Underwriters will notify the Company within a reasonable time prior to any sale occurring other than at the Applic able Time.  The Base Prospectus, as of its date, did not, and at the First Closing Date and, if applicable, as of each Option Closing Date, will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.  The representations and warranties set forth in the four immediately preceding sentences do not apply to statements in or omissions from the Registration Statements, or any post-effective amendments thereto, or the Preliminary Prospectus, the Prospectus or the Time of Sale Prospectus, or any amendments or supplements thereto, made in reliance upon and in conformity with information provided by the Selling Stockholders or relating to the Underwriters furnished to the Company in writing by the Selling Stockholders or the Representative, as the case may be, expressly for use therein, it being understood and agreed that the only such infor mation furnished by the (i) Selling Stockholders consists of the information described in Section 10(B) below and (ii) Underwriters to the Company consists of the information described in Section 10(C) below.  There are no contracts or other documents required to be described in the Time of Sale Prospectus, the Preliminary Prospectus or the Prospectus or to be filed as exhibits to the Registration Statements which have not been described or filed as required.

 

The Company meets, and at the time the Registration Statements were originally declared effective the Company met, the applicable requirements for use of Form S-3 under the Securities Act.  The Company also meets the requirements for use of Form S-3 under the Securities Act referenced in Rule 5110(b)(7)(C)(i) of the Financial Industry Regulatory Authority (“FINRA”) Manual.

 

The documents incorporated or deemed to be incorporated by reference in the Preliminary Prospectus and the Prospectus, at the time they were or hereafter are filed with the Commission, complied and will comply in all material respects with the applicable requirements of the Exchange Act, and, when read together with the other information in the Preliminary Prospectus and the Prospectus, at the time the Registration Statements and any amendments thereto become effective, at the First Closing Date and, if applicable, at each Option Closing Date will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the facts required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not mislea ding.

 

The Company is not an “ineligible issuer” (as defined in Rule 405 under the Securities Act) in connection with the offering of the Offered Shares pursuant to Rules 164, 405 and 433 under the Securities Act.  Any free writing prospectus that the Company is required to file pursuant to Rule 433(d) under the Securities Act has been, or will be, filed with the Commission in accordance with the requirements of the Securities Act.  The Time of Sale Prospectus complies in all material respects with the requirements of the Securities Act, as of its date and at the First Closing Date and, if applicable, as of each Option Closing Date. Each free writing prospectus that the Company has filed, or is required to file, pursuant to Rule 433(d) under the Securities Act or that was prepared by or on behalf of or used or referred to by the Company complies or will comply in all material respects with the requirements of the Securities Act.  Except for the free writing prospectuses, if any, identified on Schedule C furnished to the Underwriters before first use, the Company has not prepared, used or referred to, and will not, without the prior consent of the Representative, prepare, use or refer to, any free writing prospectus.

 

 

B. Offering Materials Furnished to the Underwriters.  The Company has delivered to the Representative conformed copies of the Registration Statements (without exhibits), the Time of Sale Prospectus, the Preliminary Prospectus, the Prospectus, as amended or supplemented, and any free writing prospectuses reviewed and consented to by the Representative, in such quantities and at such places as the Representative has reasonably requested.

 

C. Distribution of Offering Material By the Company.  The Company has not distributed and will not distribute, prior to the later of (i) the expiration or termination of the option granted to the Underwriters in Section 3 and (ii) the completion of the Underwriters’ distribution of the Offered Shares, any offering material in connection with the offering and sale of the Offered Shares other than the Time of Sale Prospectus, the Preliminary Prospectus, the Prospectus, any free writing prospectus reviewed and consented to by the Representative, or the Regi stration Statements or any other document not constituting a prospectus pursuant to Section 2(a)(10)(a) or Rule 134 under the Securities Act.

 

D. Independent Accountants.  BDO Seidman, LLP are (i) independent public or certified public accountants as required by the Securities Act, (ii) in compliance with the applicable requirements relating to the qualification of accountants under Rule 2-01 of Regulation S-X of the Commission (“Regulation S-X”) and the other applicable requirements of Section 10A of the Exchange Act and (iii) a registered public accounting firm as defined by the Public Company Accounting Oversight Board (the “PCAOB”) whose registration, to the knowledge of the Company, has not been suspended or revoked and who has not requested such registration to be withdrawn.

 

E. Independent Petroleum Engineers.  DeGolyer & MacNaughton, who has certified certain of the reserve information of the Company, has represented to the Company that they are, and to the knowledge of the Company are, independent petroleum engineers in accordance with guidelines established by the Commission.

 

F. Financial Statements.  The consolidated financial statements of the Company filed with the Commission and included or incorporated by reference into the Registration Statements, the Preliminary Prospectus, the Prospectus and the Time of Sale Prospectus, present fairly in all material respects the financial condition of the Company and each subsidiary (as such term is defined in Rule 1-02 of Regulation S-X) of the Company (each, a “Subsidiary,” and together, the “Subsidiaries”) as of and at the dates indicated, and the consolidated statements of operation, stockholders’ equity and cash flows of the Company and the Subsidiaries for the periods specified; such financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”) applied on a consistent basis throughout the periods involved except to the extent disclosed in the notes thereto.  There are no financial statements (historical or pro forma) that are required to be included or incorporated by reference in the Registration Statements, the Preliminary Prospectus, the Prospectus or the Time of Sale Prospectus that are not included or incorporated by reference as required.  Any non-GAAP financial measures (as defined in Regulation G of the Commission) which are included or incorporated by reference in the Regist ration Statements, the Preliminary Prospectus, the Prospectus or the Time of Sale Prospectus have been presented in compliance with Regulation S-K of the Commission.  Except as disclosed in the Preliminary Prospectus, the Prospectus and the Time of Sale Prospectus, the Company is not party to any off-balance sheet transactions, arrangements, obligations (including contingent obligations) or other relationships with unconsolidated entities or other persons that may have a material current or future effect on the Company’s financial condition, changes in financial condition, results of operations, liquidity, capital expenditures, capital resources or significant components of revenues or expenses.  To the knowledge of the Company, no person who has been suspended or barred from being associated with a registered public accounting firm, or who has failed to comply with any

 

sanction pursuant to Rule 5300 promulgated by the PCAOB, has participated in or otherwise aided the preparation of, or audited, the financial statements or other financial data filed with the Commission as a part of the Registration Statements and included in the Preliminary Prospectus, the Prospectus and Time of Sale Prospectus.

 

G. Disclosure Controls and Procedures and Internal Accounting.  Except as disclosed in the Preliminary Prospectus, the Prospectus and the Time of Sale Prospectus, the Company has established and maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, which (i) are designed to ensure that material information relating to the Company is made known to the Company’s principal executive officer and its principal financial officer by others within the Company, particularly during the periods in which the period ic reports required under the Exchange Act are being prepared; (ii) have been evaluated for effectiveness as of a date within 90 days prior to the earlier of the date that the Company filed its most recent annual or quarterly report with the Commission and the date of the Time of Sale Prospectus; and (iii) are effective in all material respects to perform the functions for which they were established.  Except as disclosed in the Registrations Statements, Preliminary Prospectus, the Prospectus and the Time of Sale Prospectus, the Company and each of its Subsidiaries also maintain a system of “internal control over financial reporting” (as defined in Rule 13a-15(f) of the Exchange Act) that complies with the requirements of the Exchange Act and has been designed by, or under the supervision of its principal executive and principal financial officers, or persons performing similar functions, to provide reasonable assurance regarding the reliability of financial reporting and the prepa ration of financial statements for external purposes in accordance with GAAP. Except as disclosed in the Preliminary Prospectus, the Prospectus and the Time of Sale Prospectus, based on the most recent evaluation of its disclosure controls and procedures, to the knowledge of the Company, there has been no (i) significant deficiencies or material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information or (ii) fraud, whether or not material, that involves executive officers or other employees who have a significant role in the Company’s internal control over financial reporting.  Except as disclosed in the Preliminary Prospectus, the Prospectus and the Time of Sale Prospectus, the Company and each of its Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transaction s 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 GAAP as applied in the United States 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.  There has been no change in the Company’s internal control over financial reporting that has occurred during its most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

H. No Material Adverse Change in Business.  Except as disclosed in the Preliminary Prospectus, Prospectus or the Time of Sale Prospectus, subsequent to the respective dates as of which information is given in the Time of Sale Prospectus, there has been no (i) material adverse change in the condition, financial or otherwise, or in the earnings, business, results of operations or prospects of the Company and its Subsidiaries, taken as a whole (the “Enterprise”), whether or not arising in the ordinary course of business, but excluding any changes in the oil and gas industry or the national or world economy generally (a “Material Adverse Change”), (ii) transaction which is material to the Enterprise and which is required to be disclosed under the Securities Act, the Exchange Act or other applicable rules and regulations of the Commission, (iii) change in the capital stock of the Company or any Subsidiary, (iv) material change in the outstanding indebtedness of the Company or any Subsidiary or (v) dividend or distribution of any kind declared, paid or made on the capital stock of the Company.

 

 

I. Good Standing of the Company.  The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Nevada and has the requisite corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statements, Preliminary Prospectus, Prospectus or Time of Sale Prospectus and to enter into and perform its obligations under this Agreement.  The Company is duly qualified as a foreign corporation to transact business and is in good stan ding in each other jurisdiction in which such qualification is required, except where the failure to so qualify or to be in good standing would not result in a Material Adverse Change.

 

J. Good Standing of Subsidiaries.  Each of the Subsidiaries is identified in Schedule D to this Agreement.  Each Subsidiary has been duly formed and is validly existing as a business entity in good standing under the laws of the jurisdiction of its formation has all requisite power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statements, Preliminary Prospectus, Prospectus or Time of Sale Prospectus, and is duly qualified as a foreign business entity (corporate or otherwise) to transact business and is in good standing in each jurisdiction in which such qualification is required, except where the failure to so qualify or to be in good standing would not result in a Material Adverse Change.  All of the issued and outstanding equity interests of each Subsidiary has been duly authorized and validly issued, and are fully paid and non-assessable; except as otherwise disclosed in the Registration Statements, Preliminary Prospectus, Prospectus or Time of Sale Prospectus, all such equity interests are wholly owned by the Company, directly or through its Subsidiaries, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity, and none of the outstanding equity interests of any Subsidiary was issued in violation of the preemptive or similar rights of any security holder of such Subsidiary.

 

K. Capitalization.  The authorized capital stock of the Company and the issued and outstanding capital stock of the Company, as of January 24, 2011, are as set forth on Schedule E.  The shares of issued and outstanding capital stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable and none of the outstanding shares of capital stock of the Company were issued in violation of the preemptive or similar rights of any security holder of the Company .  The capital stock of the Company conforms in all material respects to the description contained in the Registration Statements, the Preliminary Prospectus, the Prospectus or Time of Sale Prospectus, and such description conforms in all material respects to the rights set forth in the instruments defining the same. The description of the Company’s stock option, stock bonus and other stock plans or arrangements, and the options or other rights granted thereunder, as described in the Registration Statements, the Preliminary Prospectus, the Prospectus or the Time of Sale Prospectus accurately and fairly present in all material respects the information required to be shown with respect to such plans, arrangements, options and rights.

L. Other Securities.  Except as disclosed in the Registration Statements, the Preliminary Prospectus, the Prospectus or the Time of Sale Prospectus, there are no outstanding (i) securities or obligations of the Company or any Subsidiary convertible into or exchangeable for any equity interests of the Company or any Subsidiary, (ii) warrants, rights or options to subscribe for or purchase from the Company or any Subsidiary any equity interests or any such convertible or exchangeable securities or obligations, or (iii) obligations of the Company or any Subsidiary to issue a ny equity interests, any such convertible or exchangeable securities or obligations, or any such warrants, rights or options.

 

M. Stock Exchange Listing and Reporting Requirements.  The Common Stock is registered pursuant to Section 12(b) of the Exchange Act and is listed on The NASDAQ Stock Market (“NASDAQ”) and, except as disclosed in the Registration Statements, the Preliminary Prospectus, the

 

Prospectus or Time of Sale Prospectus, the Company has taken no action designed to, or reasonably likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act or delisting the Common Stock from the NASDAQ, and except as disclosed in the Registration Statements, the Preliminary Prospectus, the Prospectus or Time of Sale Prospectus, the Company has not received any notification that the Commission, the NASDAQ is contemplating terminating such registration or listing.

 

N. Authorization of Agreement and Binding Effect.  This Agreement has been duly authorized, executed and delivered by or on behalf of the Company and constitutes a valid and binding obligation of the Company enforceable in accordance with its terms except as enforcement may be limited by bankruptcy, insolvency or other laws or court decisions relating to or affecting creditor’s rights generally and by general equitable principles (whether considered in a proceeding of law or in equity), and except to the extent that enforcement of the indemnification and cont ribution obligations provided for herein may be limited by federal or state securities laws or the public policies underlying such laws.

 

O. Compliance with Laws.  The Company and each Subsidiary is in compliance with all laws as in effect on the date hereof applicable to the conduct of their business or operations, or applicable to their employees, except where the failure to be in compliance would not cause a Material Adverse Change.  None of the Company or any Subsidiary has received notice of any violation of any law, or any potential liability under any law, applicable to the Company or any Subsidiary relating to the operation of its business or to its employees or to any of the assets, operations, pro cesses, employees or products of the Company or any Subsidiary, except where any such violation, individually or in the aggregate, would not cause a Material Adverse Change.

 

P. Authorization and Description of Offered Shares. The Offered Shares to be sold by the Company have been duly authorized for issuance and sale to the Underwriters pursuant to this Agreement.  When the Company issues and delivers the Offered Shares to be sold by it pursuant to this Agreement against payment of the consideration set forth herein, such Offered Shares will be validly issued, fully paid and non-assessable.  The issuance by the Company of the Offered Shares to be sold by it is not subject to preemptive or other similar rights of any secu rity holder of the Company.  The capital stock of the Company conforms in all material respects to the description thereof contained in the Time of Sale Prospectus, and such descriptions conform in all material respects to the rights set forth in the instruments defining the same.  The Company has authorized and available a sufficient number of shares of Common Stock for issuance of the Offered Shares pursuant to this Agreement.

 

Q. Absence of Defaults and Conflicts.   Neither the Company nor any Subsidiary is (i) in violation of its charter or by-laws, limited partnership agreement or limited liability company agreement, as applicable, or (ii) in default in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or other agreement or instrument to which it is a party or by which it may be bound, or to which any of the property or assets of the Company or any S ubsidiary is subject (collectively, “Agreements and Instruments”) except, in the case of clause (ii), for any defaults which, singularly or in the aggregate, would not result in a Material Adverse Change; and the execution, delivery and performance of this Agreement, the consummation of the transactions contemplated by, and the compliance by the Company with its obligations under, this Agreement, including the sale of the Offered Shares and the use of the proceeds from the sale of the Offered Shares as described in the Time of Sale Prospectus under “Use of Proceeds,” does not and will not, whether with or without the giving of notice or passage of time or both, conflict with or constitute a breach of, or default or Repayment Event (as defined below) under, or result in the creation or imposition of any lien, charge or encumbrance upon any of the properties or assets of the Company or any Subsidiary pursuant to the Agreements and Instruments except for such conflicts, breaches, defaults, liens, charges or encumbrances which, singularly or in the aggregate, would not result in a Material Adverse Change, nor will such action result in any violation of the provisions of the articles of incorporation, as amended, or bylaws, as amended, of the Company or any related constituent

 

document of any Subsidiary or any applicable law, statute, rule, regulation, judgment, order, writ or decree of any government, government instrumentality or court, domestic or foreign, having jurisdiction over the Company or any Subsidiary or any of their assets, properties or operations, except where such violation of any applicable law, statute, rule, regulation, judgment, order, writ, or decree of any government, government instrumentality or court, domestic or foreign would not result in a Material Adverse Change.  As used herein, a “Repayment Event” means any event or condition which gives the holder of any note, debenture or other evidence of indebtedness (or any person acting on such holder’s behalf) the right to require the repurchase, redempti on or repayment of all or a portion of such indebtedness by the Company or any Subsidiary.

 

R. Absence of Labor Disputes.  No labor dispute with the employees of the Company or any Subsidiary exists or, to the knowledge of the Company, is imminent, and the Company is not aware of any existing or imminent labor disturbance by the employees of any of its Subsidiaries, principal operators, contractors, suppliers or customers, which, in any such case, would result in a Material Adverse Change.  The Company is not aware that any key employee or significant group of employees of the Company or any Subsidiary plans to terminate employment with the Comp any or such Subsidiary.

 

S. Absence of Proceedings. .  Except as disclosed in the Registration Statements, the Preliminary Prospectus, the Prospectus or the Time of Sale Prospectus, there are no actions, suits, proceedings, inquiries or investigations before or brought by any court or governmental agency or body, domestic or foreign, now pending, or, to the knowledge of the Company, threatened, against or affecting the Company or any Subsidiary, which is required to be disclosed in the Registration Statements, or which may reasonably be expected to result, individually or in the aggregate, in a Material Adverse Change, or which may reasonably be  expected to result, individually or in the aggregate, in a Material Adverse Change or the consummation of the transactions contemplated in this Agreement or the performance by the Company of its obligations hereunder.

 

T. Possession of Intellectual Property.  The Company and the Subsidiaries own or possess, or can acquire on reasonable terms, adequate patents, patent rights, licenses, inventions, copyrights, know how, confidential information, trademarks, service marks, trade names or other intellectual property (collectively, “Intellectual Property”) necessary to carry on the business now operated by them, except where the failure to own or possess, or have the ability to acquire on reasonable terms such Intelle ctual Property would not, singularly or in the aggregate, cause a Material Adverse Change.  Neither the Company nor any Subsidiary has received any notice, and is not otherwise aware, of any infringement of or conflict with asserted rights of others with respect to any Intellectual Property or of any facts or circumstances which would render any Intellectual Property invalid or inadequate to protect the interest of the Company or any Subsidiary therein, and which infringement or conflict (if the subject of any unfavorable decision, ruling or finding) or invalidity or inadequacy, singly or in the aggregate, would result in a Material Adverse Change.

 

U. Absence of Further Requirements. No filing with, or authorization, approval, consent, license, order, registration, qualification or decree of, any court or governmental authority or agency is necessary or required for the performance by the Company of its obligations hereunder, or in connection with the performance by the Company of its obligations with respect to the offering, issuance or sale of the Offered Shares under this Agreement or the consummation of the transactions contemplated by this Agreement except such as have been already obtained or as may be requi red under the Securities Act or the regulations promulgated thereunder or state securities laws or by NASDAQ or the Financial Industry Regulatory Authority (“FINRA”).

 

V. No Price Stabilization or Manipulation; Compliance with Regulation M.  Neither the Company nor any Subsidiary has taken, directly or indirectly, any action designed to or that would be

 

reasonably expected to cause or result in stabilization or manipulation of the price of the Common Stock or any other “reference security” (as defined in Rule 100 of Regulation M under the Exchange Act (“Regulation M”)) whether to facilitate the sale or resale of the Offered Shares or otherwise, and has taken no action which would directly or indirectly violate Regulation M. The Company acknowledges that the Underwriters may engage in passive market making transactions in the Common Stock on the NASDAQ in accordance with Regulation M.

 

W. Possession of Licenses and Permits.  The Company and each Subsidiary possess such permits, licenses, certificates, approvals, consents and other authorizations (collectively, “Governmental Licenses”) issued by appropriate federal, state, local or foreign regulatory bodies necessary for the ownership of their respective assets and to conduct the business now operated by them, except where the failure to have obtained the same would not cause a Material Adverse Change.  The Company and e ach Subsidiary are in compliance with the terms and conditions of all such Governmental Licenses, except where the failure to so comply would not singly or in the aggregate cause a Material Adverse Change.  All of the Governmental Licenses are valid and in full force and effect, except where the invalidity or the failure to be in full force and effect would not singly or in the aggregate cause a Material Adverse Change.  Neither Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any such Governmental Licenses which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding would result in a Material Adverse Change.

 

X. Reserve Report Data.  The oil and gas reserve estimates of the Company included or incorporated by reference into the Registration Statements, the Preliminary Prospectus, the Prospectus and the Time of Sale Prospectus have been prepared by independent reserve engineers in accordance with Commission guidelines applied on a consistent basis throughout the periods involved, and the Company has no reason to believe that such estimates do not fairly reflect the oil and gas reserves of the Company as of the dates indicated.  Other than production of the rese rves in the ordinary course of business, intervening product price fluctuations and as described in the Registration Statements, the Preliminary Prospectus, the Prospectus and the Time of Sale Prospectus, the Company is not aware of any facts or circumstances that would cause a Material Adverse Change in the reserves or the present value of future net cash flows therefrom as described in the Registration Statements, the Preliminary Prospectus, the Prospectus and the Time of Sale Prospectus.

 

Y. Properties.  Except as otherwise set forth in the Preliminary Prospectus, the Prospectus and the Time of Sale Prospectus or such as in the aggregate does not now cause or will in the future be reasonably likely to cause a Material Adverse Change, the Company and each Subsidiary have title to their respective properties as follows: (i) with respect to wells (including leasehold interests and appurtenant personal property) and non-producing oil and gas properties (including undeveloped locations on leases held by production and those leases not held by production) , such title is defensible and clear of all liens, security interests, pledges, charges, encumbrances, mortgages and restrictions, (ii) with respect to non-producing properties in exploration prospects, such title was investigated in accordance with customary industry procedures prior to the  acquisition  thereof by the Company or any Subsidiary; (iii) with respect to real property other than oil and gas interests, such title is defensible and clear of all liens, security interests, pledges, charges, encumbrances, mortgages and restrictions; and (iv) with respect to personal property other than that appurtenant to oil and gas interests, such title is defensible and clear of all liens, security interests, pledges, charges, encumbrances, mortgages and restrictions. No real property owned, leased, licensed, or used by the Company or any Subsidiary lies in an area which is, or to the knowledge of the Company will be, subject to restrictions which would prohibit, and no statements of facts rel ating to the actions or inaction of another person or entity or his or its ownership, leasing, licensing, or use of any real or personal property exists or will exist which would prevent, the continued effective ownership, leasing, licensing, exploration, development or production or use of such real property in the business of the Company or any Subsidiary as presently conducted or as

 

the Registration Statements, the Preliminary Prospectus, the Prospectus or the Time of Sale Prospectus indicates they contemplate conducting, except as may be properly described in the Registration Statements, the Preliminary Prospectus, the Prospectus or the Time of Sale Prospectus or such as in the aggregate do not now cause and will not in the future cause a Material Adverse Change.

Z. Insurance.  Except as otherwise set forth in the Registration Statements, the Preliminary Prospectus, the Prospectus or the Time of Sale Prospectus, the Company and each Subsidiary, are insured by insurers or are self-insured against such losses and risks and in such amounts as are adequate for the conduct of their businesses and are customary for the business in which they are engaged; all such policies of insurance insuring the Company and each Subsidiary are in full force and effect and neither the Company nor any of its Subsidiaries has any reason to believe that any of them will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business.  Except as otherwise set forth in the Registration Statements, the Preliminary Prospectus, the Prospectus or the Time of Sale Prospectus, there are no material claims by the Company or any Subsidiary under any such policy or instrument as to which any insurance company is denying liability or defending under a reservation of rights clause.

 

AA. Taxes.  The Company and each of the Subsidiaries has filed on a timely basis all foreign, federal, state and local tax returns that are required to be filed or have requested extensions thereof (except in any case in which the failure so to file would not cause a Material Adverse Change) and has paid all taxes required to be paid by it and any other assessment, fine or penalty levied against it to the extent due and payable, except for any such assessment, fine or penalty that is currently being contested in good faith or would not cause a Material Adverse Chan ge.

 

BB. Investment Company Act.  Neither the Company nor any Subsidiary is required, and upon the sale of the Offered Shares as herein contemplated and the application of the net proceeds therefrom as described in the Time of Sale Prospectus will not be required, to register as an “investment company” within the meaning of such term under the Investment Company Act of 1940, as amended, and the rules and regulations of the Commission promulgated thereunder.

 

CC. Environmental Laws.  There has been no storage, disposal, generation, manufacture, refinement, transportation, handling or treatment of hazardous substances or hazardous wastes by the Company or any Subsidiary (or, to the knowledge of the Company, any of its predecessors in interest), at, upon or from any of the property now or previously owned, leased or operated by the Company or any Subsidiary in violation of any applicable law, ordinance, rule, regulation, order, judgment, decree or permit that would require the Company or any Subsidiary to undertake any re medial action under any applicable law, ordinance, rule, regulation, order, judgment, decree or permit, except for any violation or remedial action that would not, individually or in the aggregate with all such violations and remedial actions, cause a Material Adverse Change.  Except for abandonment and similar costs incurred or to be incurred in the ordinary course of business of the Company or any Subsidiary, there has been no material spill, discharge, leak, emission, injection, escape, dumping or release of any kind onto any property now or previously owned, leased or operated by the Company or any Subsidiary or into the environment surrounding such property of any hazardous substances or hazardous wastes due to or caused by the Company or any Subsidiary (or, to the knowledge of the Company, any of its predecessors in interest), except for any such spill, discharge, leak, emission, injection, escape, dumping or release that would not, singularly or in the aggregate with all such spills, dischar ges, leaks, emissions, injections, escapes, dumpings and releases, result in a Material Adverse Change; and the terms “hazardous substances,” and “hazardous wastes” shall be construed broadly to include such terms and similar terms, all of which shall have the meanings specified in any applicable local, state and federal laws or regulations with respect to environmental protection.  Except as set forth in the Time of Sale Prospectus, neither the Company nor any Subsidiary has been named as a “potentially responsible party” under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended.

 

 

DD. Registration Rights.  There are no persons with registration rights or other similar rights to have any securities of the Company registered pursuant to the Registration Statements or sold in the offering contemplated by this Agreement except as have been waived or expired.

 

EE. Certain Relationships and Related Transactions.  No relationship, direct or indirect, exists between or among the Company or any Subsidiary on the one hand, and the directors, officers, stockholders, customers or suppliers of the Company or any Subsidiary on the other hand, which is required to be described or incorporated by reference into the Registration Statements, the Preliminary Prospectus, the Prospectus and the Time of Sale Prospectus and which is not so described or incorporated.

 

FF. Brokers.  Neither the Company nor any Subsidiary is a party to any contract, agreement or understanding with any person that would give rise to a valid claim against the Company or the Underwriters for a brokerage commission, finder’s fee or like payment in connection with the offering and sale of the Offered Shares other than this Agreement.

 

GG. ERISA.  The minimum funding standard under Section 302 of the Employee Retirement Income Security Act of 1974, as amended, and the regulations and published interpretations thereunder (“ERISA”), has been satisfied by each “pension plan” (as defined in Section 3(2) of ERISA) which has been established or maintained by the Company, and the trust forming part of each such plan which is intended to be qualified under Section 401 of the Internal Revenue Code of 1986, as amended, is so qu alified; each of the Company and the Subsidiaries has fulfilled its obligations, if any, under Section 515 of ERISA; neither the Company nor any Subsidiary maintains and is required to contribute to a “welfare plan” (as defined in Section 3(1) of ERISA), which provides retiree or other post-employment welfare benefits or insurance coverage (other than “continuation coverage” (as defined in Section 602 of ERISA)); each pension plan and welfare plan established or maintained by the Company and/or one of the Subsidiaries is in compliance with the currently applicable provisions of ERISA, except where the failure to comply would not cause a Material Adverse Change; and neither the Company nor any Subsidiary has incurred or could reasonably be expected to incur any withdrawal liability under Section 4201 of ERISA, any liability under Sections 4062, 4063 or 4064 of ERISA, or any other liability under Title IV of ERISA.

 

HH. Corporate Records.  The minute books of the Company and each Subsidiary have been made available to the Underwriters and counsel for the Underwriters, and such books (i) reflect all meetings and actions of the board of directors (including each board committee) and stockholders (or analogous governing bodies or interest holders) of the Company and each Subsidiary since the time of its respective organization through the date of the latest meeting and action, and (ii) accurately in all material respects reflect all transactions referred to in such minutes.

 

II. Margin Securities.  Neither the Company nor any Subsidiary owns any “margin securities” as that term is defined in Regulation U of the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) and none of the proceeds of the sale of the Offered Shares will be used, directly or indirectly, for the purpose of purchasing or carrying any margin security, for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry any m argin security or for any other purpose which might cause any of the Offered Shares to be considered a “purpose credit” within the meanings of Regulation T, U or X of the Federal Reserve Board.

 

JJ. Transfer Taxes.  There are no transfer taxes or other similar fees or charges under federal law or laws of any state or any political subdivision thereof, required to be paid by the Company in connection with the execution and delivery of this Agreement.

 

 

KK.  Illegal Payments.  Neither the Company nor any of its Subsidiaries, nor, to the knowledge of the Company, any director, officer, agent, employee or other person associated with or acting on behalf of the Company or any of its Subsidiaries, has (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity; (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; (iii) violated or is in violation of any provision of the U.S. Foreign Corrupt Practi ces Act of 1977; or (iv) made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment.

 

Any certificate signed by any officer of the Company or any Subsidiary that is delivered to the Representative or to counsel for the Underwriters pursuant to this Agreement shall be deemed a representation and warranty by the Company to the Underwriters as to the matters covered thereby.

Section 2.         Representations and Warranties of the Selling Stockholders.  Each Selling Stockholder severally, and not jointly, represents and warrants, with respect to itself, as follows:

 

A.Authorization and Binding Effect.  Each Selling Stockholder has the requisite right, power and authority to execute and deliver this Agreement and the Custody Agreement between such Selling Stockholder and the Company’s transfer agent, as custodian (the “Custodian”), relating to the deposit of the Offered Shares to be sold by such Selling Stockholder (the “Custody Agreement”) and to perform its obligations hereunder and thereunder, except as enforcement may be limited by bankrup tcy, insolvency or other laws or court decisions relating to or affecting creditor’s rights generally and by general equitable principles (whether considered in a proceeding of law or in equity), and except to the extent that enforcement of the indemnification and contribution obligations provided for herein may be limited by federal or state securities laws or the public policies underlying such laws.  All action required to be taken for the due and proper authorization, execution and delivery by it of this Agreement and the Custody Agreement and the consummation by it of the transactions contemplated hereby and thereby have been duly and validly taken.

 

D.No Price Stabilization or Manipulation; Compliance with Regulation M.  The Selling Stockholder has not taken, directly or indirectly, any action designed to or that would be reasonably expected to cause or result in stabilization or manipulation of the price of the Common Stock or any other reference security, whether to facilitate the sale or resale of the Offered Shares or otherwise, and has taken no action which would directly or indirectly violate any provision of Regulation M.

E.Absence of Further Requirements.  No filing with, or authorization, approval, consent, license, order, registration, qualification or decree of, any court or governmental authority or agency is necessary or required by the Selling Stockholder for the performance by the Selling Stockholder of its obligations hereunder, or in connection with the performance by the Selling Stockholder of its obligations with respect to the offering or sale of the Offered Shares under this Agreement or the consummation of the transactions contemplated by this Agreement except such as have been already obtained or as may be required under the Securities Act or the regulations promulgated thereunder, state securities laws or by FINRA or the NASDAQ.  The sale of the Offered Shares to be sold by the Selling Stockholder does not, to the knowledge of the Selling Stockholder, violate any of the Company’s internal policies regarding the sale of shares of Common Stock by affiliates.

 

F.Absence of Defaults or Conflicts.  Neither the sale of the Offered Shares nor the consummation of any other of the transactions herein contemplated by the Selling Stockholder nor the fulfillment of the terms hereof by the Selling Stockholder will conflict with, result in a breach or violation of, or constitute a default under the charter, by-laws or similar organizational documents of the Selling Stockholder, if the Selling Stockholder is not a natural person, or the terms of any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or other agreement or instrument to which the Selling St ockholder is a party or bound, or result in the violation of any applicable law, statute, rule, regulation, judgment, order, writ or decree applicable to the Selling Stockholder of any court, regulatory body, administrative agency, governmental body or arbitrator having jurisdiction over the Selling Stockholder.

 

G.Selling Stockholder Information.  In respect of any statements in or omissions from the Registration Statements, the Preliminary Prospectus, the Prospectus or the Time of Sale Prospectus or any supplements thereto made in reliance upon and in conformity with information furnished in writing to the Company by the Selling Stockholder specifically for use in connection with the preparation thereof, such information does not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make such statements not misleading.

 

H.No Registration or Other Similar Rights.  The Selling Stockholder (i) does not have any registration or other similar rights to have any equity or debt securities registered for sale by the Company under the Registration Statements or included in the offering contemplated by this Agreement except to the extent exercised and so included or hereby waived or to the extent disclosed in the Company’s public filings under the Securities Act or the Exchange Act, (ii) does not have any preemptive right, co-sale right or right of first refusal or other similar right to purchase any of the Offered Shares that are to be so ld by the Company to the Underwriters pursuant to this Agreement, except for such rights as the Selling Stockholder has waived prior to the date hereof and as have been described in the Registration Statements and Time of Sale Prospectus and (iii) does not own any warrants, options or similar rights to acquire, and does not have any right or arrangement to acquire, any capital stock, right, warrants, options or other securities from the Company, other than those, in each instance, described in the Registration Statements, the Preliminary Prospectus, the Prospectus and the Time of Sale Prospectus.

 

I.No Transfer Taxes or Other Fees.  There are no transfer taxes or other similar fees or charges under Federal law or the laws of any state, or any political subdivision thereof, required to be paid by the Selling Stockholder in connection with the execution and delivery of this Agreement or the sale by the Selling Stockholder of the Offered Shares.  There are no contracts, agreements or understandings between the Selling Stockholder and any person that could give rise to a claim against the Selling Stockholder or the Underwriters for a brokerage commission, finder’s fee or other like payment.