Forbes Energy Services Announces Execution of Subscription Agreement for
Private Placement of Convertible Preferred Stock

    



    
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<p>ALICE, Texas, <span class="xn-chron">May 17</span> /CNW/ -- Forbes Energy Services Ltd. ("Forbes" or the "Corporation") (TSX: FRB) is pleased to announce that it has entered into a subscription agreement today with certain private investment funds (the "Purchasers") pursuant to which the Purchasers have agreed to purchase 580,800 shares of Series B Senior Convertible Preferred Stock (the "Series B Preferred Shares") of the Corporation at a price of <span class="xn-money">$25.00</span> per Series B Preferred Share for total gross proceeds to the Corporation of <span class="xn-money">$14,520,000</span> (the "Offering").  The Offering will be pursuant to applicable exemptions from registration and prospectus requirements in the <span class="xn-location">United States</span>, <span class="xn-location">Canada</span> and other jurisdictions.</p>
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<p>Proceeds of the Offering will be used to repurchase, in cash, at least <span class="xn-money">$6.6 million</span> of the outstanding 11% senior secured notes (the "Notes") guaranteed by the Corporation pursuant to the terms of the amended indenture governing such Notes and for general corporate purposes, including, without limitation, debt service payments.  Closing of the Offering is subject to customary conditions, including approval by the <span class="xn-location">Toronto</span> Stock Exchange (the "TSX"), and is expected to occur on or about <span class="xn-chron">May 20, 2010</span>.  The TSX has conditionally approved the listing of the Common Shares issuable upon conversion of the Series B Preferred Shares, subject to compliance by the Company with the listing requirements of the TSX.</p>
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<p>The Offering is conditioned upon the conversion of the Corporation's Class B Shares into Common Shares prior to closing.  The Corporation expects to receive notice from holders of Class B Shares of their election to convert more than 66 2/3% of the outstanding Class B Shares, upon the occurrence of which all Class B Shares will automatically convert into Common Shares.</p>
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<p>The Series B Preferred Shares are convertible into the Corporation's Common Shares ("Common Shares") at an initial rate of 36 Common Shares per Series B Preferred Share; subject to adjustment in the case of any future subdivision, or consolidation of the Common Shares, any dividend to holders of the Common Shares in Common Shares in which the holders of Series B Preferred Shares do not otherwise receive an equivalent distribution, any dividend to holders of the Common Shares payable in cash, which is greater in value than five percent (5%) of the then current Common Share fair market value, or certain reorganizations, recapitalizations, reclassification, consolidations or mergers involving the Corporation.  If all such Series B Preferred Shares are converted, at the initial conversion rate, 20,908,800 Common Shares will be issued to the holders of the Series B Preferred Shares.  No holder of the Series B Preferred Shares is entitled to effect a conversion of Series B Preferred Shares if such conversion would result in the holder (and affiliates) beneficially owning 20% or more of the Corporation's Common Shares.  After conversion, the holders of the Common Shares into which the Series B Preferred Shares have converted will have certain demand and "piggyback" registration rights.</p>
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    Other terms of the Series B Preferred Shares are summarized below:

    
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<p>Rank:  The Series B Preferred Shares will rank senior in right of payment to the Common Shares and any class or series of capital stock that is junior to the Series B Preferred Shares, and pari passu with any series of the Corporation's preferred stock that by its terms ranks pari passu in right of payment as to dividends and liquidation with the Series B Preferred Shares.</p>
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<p>Dividends:  The Series B Preferred Shares shall be entitled to receive preferential dividends in an amount per share equal to five percent (5%) per annum of the original issue price per share, payable quarterly in February, May, August and November of each year.  Such dividends may be paid by the Corporation in cash or in kind (in the form of additional Series B Preferred Shares).  In the event that the payment in cash or in kind of any such dividend would cause the Corporation to violate a covenant under its debt agreements, the obligation to pay, in cash or in kind, will be suspended until the earlier to occur of (i) any restrictions under the debt agreements lapse or are no longer applicable (and only to the extent thereof) or (ii) <span class="xn-chron">February 16, 2015</span>.  During any such suspension period, the preferential dividends shall continue to accrue and accumulate.</p>
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<p>Liquidation Preference:  Upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, no distribution shall be made (i) to the holders of shares ranking junior to the Series B Preferred Shares unless the holders of Series B Preferred Shares shall have received, subject to adjustment as provided above, an amount equal to the original issue price per share of the Series B Preferred Shares plus an amount equal to accumulated and unpaid dividends and distributions thereon to the date of such payment, and (ii) to the holders of shares ranking on a parity with the Series B Preferred Shares, unless simultaneously therewith distributions are made ratably on the Series B Preferred Shares and all other such parity stock in proportion to the total amounts to which the holders of Series B Preferred Shares are entitled.</p>
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<p>Voting Rights:  The holders of Series B Preferred Shares shall not be entitled to any voting rights except as provided in the following sentence, in the Corporation's bye-laws or otherwise under the Company Act 1981 of <span class="xn-location">Bermuda</span>.  If the preferential dividends on the Series B Preferred Shares have not been declared and paid in full in cash or in kind for eight or more quarterly dividend periods (whether or not consecutive), the holders of the Series B Preferred Shares shall be entitled to vote at any meeting of shareholders with the holders of Common Shares and to cast the number of votes equal to the number of whole Common Shares into which the Series B Preferred Shares held by such holders are then convertible.</p>
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<p>Optional Redemption:  The Series B Preferred Shares may be redeemed by the Corporation at any time after the third anniversary of the issue date provided that at such time the fair market value of the Common Shares is greater than 120% of the issue price of the Series B Preferred Shares per share divided by the number of Common Shares then issuable upon conversion of the Series B Preferred Shares.  The redemption price, payable in cash will be the original issue price per Series B Preferred Share plus the related accumulated but unpaid dividends through the redemption date (the "Redemption Price").</p>
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<p>Mandatory Redemption:  On the seventh anniversary of the date of issuance of the Series B Preferred Shares, the Corporation shall redeem any Series B Preferred Shares then outstanding at the then applicable Redemption Price.  Such Redemption Price for mandatory redemption may, at the Corporation's election, be paid in cash or in Common Shares valued for such purpose at 95% of the then fair market value of the Common Shares.</p>
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<p>The foregoing description is a summary and is qualified in its entirety by reference to the subscription agreement and certificate of designation filed today as exhibits to our Form 10-Q for the Quarter Ended <span class="xn-chron">March 31, 2010</span>.</p>
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    Forward-Looking Information Advisory

    
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<p>This report contains "forward-looking statements," as contemplated by the Private Securities Litigation Reform Act of 1995, including statements regarding the anticipated closing of the announced transaction. The Corporation gives no assurance that the forward-looking statements will prove to be correct and does not undertake any duty to update them. The closing of the sale of the Series B Preferred Shares is dependent on a variety of factors, including whether the Corporation will be able to satisfy the closing conditions. Additional factors that you should consider are set forth in detail in the Risk Factors section of the Corporation's Annual Report on Form 10-K for the year ended <span class="xn-chron">December 31, 2009</span> (the "Form 10-K") as well as other filings the Corporation has made with the Securities and Exchange Commission.</p>
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    About Forbes Energy
    
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<p>Forbes Energy Services Ltd. is an independent oilfield services contractor that provides a broad range of drilling-related and production-related services to oil and natural gas companies, primarily onshore in Texas, Mississippi, Pennsylvania and <span class="xn-location">Mexico</span>.</p>
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<p>These securities have not been and will not be registered under the <span class="xn-location">United States</span> Securities Act of 1933, as amended, or the securities laws of any state, and may not be offered or sold in the <span class="xn-location">United States</span> unless an exemption from registration is available.  This press release does not constitute an offer to sell or the solicitation of an offer to buy these securities in the <span class="xn-location">United States</span>.</p>
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    Contacts: Forbes Energy Services Ltd.
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    L. Melvin Cooper, SVP & CFO
    361-664-0549





    

For further information: L. Melvin Cooper, SVP & CFO of Forbes Energy Services Ltd., [phone]