- Proxy Soliciting Materials (revised) (PRER14A)

Share Name	Share Symbol	Market	Type
Pinnacle Gas Resources (MM)	NASDAQ:PINN	NASDAQ	Common Stock

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PINNACLE GAS RESOURCES, INC. Index to Form 10-K

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. 2)


Filed by the Registrant ý
Filed by a Party other than the Registrant o
Check the appropriate box:
ý		Preliminary Proxy Statement
o		Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
o		Definitive Proxy Statement
o		Definitive Additional Materials
o		Soliciting Material under §240.14a-12


Pinnacle Gas Resources, Inc.
(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
o	No fee required.
ý	Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
	(1)	Title of each class of securities to which transaction applies: Common stock, par value $0.01 per share, of Pinnacle Gas Resources, Inc. ("Common Stock")
	(2)	Aggregate number of securities to which transaction applies: 30,320,525 shares of common stock, including 340,493 shares of unvested restricted stock.
	(3)	Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): The filing fee was determined by multiplying 0.0000713 by the sum of: (i) the product of 20,228,770 shares of common stock multiplied by $0.34 per share, plus; (ii) the product of 340,493 shares of unvested restricted common stock multiplied by $0.34 per share, which represents the amount to be received upon the cancellation of such restricted common stock and the payment of merger consideration for such shares, plus (iii) the product of 9,751,262 shares of common stock multiplied by $0.34 per share, representing shares of common stock to be contributed to the acquiring entity in the transactions described on this schedule.
	(4)	Proposed maximum aggregate value of transaction: $10,308,979
	(5)	Total fee paid: $735.03
ý	Fee paid previously with preliminary materials.
o	Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
	(1)	Amount Previously Paid:
	(2)	Form, Schedule or Registration Statement No.:
	(3)	Filing Party:
	(4)	Date Filed:

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PRELIMINARY COPY—SUBJECT TO COMPLETION, DATED JUNE 10, 2010

PINNACLE GAS RESOURCES, INC.
1 East Alger Street
Sheridan, Wyoming 82801

PROPOSED CASH MERGER—YOUR VOTE IS VERY IMPORTANT

, 2010

To our Stockholders:

After careful consideration, the Board of Directors of Pinnacle Gas Resources, Inc., a Delaware corporation ("Pinnacle"), has unanimously approved an Agreement and Plan of Merger ("Merger Agreement") providing for Pinnacle's acquisition by Powder Holdings, LLC, a Delaware limited liability company ("Powder").

If the merger is completed, each share of our Common Stock issued and outstanding immediately prior to the effective time of the merger (other than shares owned by Powder, Powder Acquisition Co. or any other subsidiary of Powder or held in treasury by us and other than shares held by stockholders, if any, who have properly exercised and perfected statutory appraisal rights) will be converted into the right to receive $0.34 in cash, without interest and less any applicable withholding tax.

At a special meeting of our stockholders, you will be asked to vote on a proposal to adopt the Merger Agreement, as it may be amended from time to time. The special meeting will be held on , 2010, at 10:00 a.m. Mountain Time, at the offices of Moye White LLP, 1400 16 ^th Street, Sixth Floor, Denver, Colorado 80202. Notice of the special meeting and the related proxy statement are enclosed.

Our Board of Directors established a special committee of three independent directors who negotiated, reviewed and considered the terms of the Merger Agreement and alternative transactions (the "Special Committee"). The Special Committee determined that the merger, as contemplated by the Merger Agreement, is fair to, and in the best interest of, our stockholders, and the Special Committee unanimously recommended that the Board of Directors approve the merger and the Merger Agreement and recommend its adoption by our stockholders. Our Board of Directors then unanimously determined that the merger and Merger Agreement and the other transactions contemplated thereby are advisable, fair and in the best interest of Pinnacle and its stockholders and recommends that our stockholders vote to approve the merger and adopt the Merger Agreement.

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL OF THE MERGER AND ADOPTION OF THE MERGER AGREEMENT AND, IF NECESSARY, TO ADJOURN THE SPECIAL MEETING FOR THE PURPOSE OF SOLICITING ADDITIONAL PROXIES TO VOTE IN FAVOR OF APPROVING THE MERGER AND ADOPTING THE MERGER AGREEMENT.

If the merger is completed, Pinnacle will no longer be a publicly traded company, our Common Stock will not be quoted on the NASDAQ Global Market and you will not participate in our future earnings or growth.

The accompanying proxy statement provides detailed information about the special meeting, the Merger Agreement and the merger. A copy of the Merger Agreement is attached as Exhibit A to the accompanying proxy statement. We encourage you to read the entire proxy statement and the Merger Agreement carefully. You may also obtain more information about us from documents we have filed with the Securities and Exchange Commission.

Concurrently with the execution of the Merger Agreement, Pinnacle and certain Pinnacle stockholders comprised of certain of our directors and executive officers, DLJ Merchant Banking Partners III, L.P. and affiliated investment funds ("DLJ"), and CCBM, Inc., entered into a voting agreement with Powder pursuant to which they have agreed to vote all shares of Common Stock held by them in favor of the adoption of the Merger Agreement (the "Voting Agreement"). An aggregate of 43.8% of the shares of our outstanding Common Stock entitled to vote at the special meeting are subject to the Voting Agreement and will vote in favor of the Merger and adoption of the Merger Agreement.

Your vote is very important. We cannot complete the merger without the affirmative vote in favor of the adoption of the Merger Agreement of the holders of (i) at least a majority of the outstanding shares of Common Stock entitled to vote, and (ii) at least a majority of the outstanding shares of Common Stock held by persons who are unaffiliated with DLJ, our chief executive officer and our chief financial officer. The failure of any stockholder to vote on the proposal to adopt the Merger Agreement, as it may be amended from time to time, will have the same effect as a vote against the adoption of the Merger Agreement.

Whether or not you plan to attend the special meeting, please complete, date, sign and return, as promptly as possible, the enclosed proxy in the accompanying reply envelope. If you attend the special meeting and vote in person, your vote by ballot will revoke any proxy previously submitted.

On behalf of your Board of Directors, thank you for your continued support.

Sincerely,


/s/ Peter G. Schoonmaker President and Chief Executive Officer , 2010

Neither the Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved the merger, passed upon the merits or fairness of the merger or passed upon the adequacy or accuracy of the disclosure in this document. Any representation to the contrary is a criminal offense.

This proxy statement is dated , 2010 and is first being mailed to stockholders of Pinnacle on or about , 2010.

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PINNACLE GAS RESOURCES, INC.
1 East Alger Street
Sheridan, Wyoming 82801

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held On , 2010

To our Stockholders:

We will hold a special meeting of stockholders of Pinnacle Gas Resources, Inc. ("Pinnacle") at the offices of Moye White LLP, 1400 16 ^th Street, Sixth Floor, Denver, Colorado 80202, on , 2010 at 10:00 a.m. Mountain Time, for the following purposes:

•: Adoption of the Merger Agreement. To consider and vote on a proposal to adopt the Agreement and Plan of Merger (the "Merger Agreement") dated as of February 23, 2010, by and among Pinnacle, Powder Holdings, LLC, a Delaware limited liability company ("Powder") and Powder Acquisition Co., a Delaware corporation and a wholly owned subsidiary of Powder ("Merger Sub"), as it may be amended from time to time. A copy of the Merger Agreement is attached as Exhibit A to the accompanying proxy statement. Pursuant to the terms of the Merger Agreement, Merger Sub will merge with and into Pinnacle and Pinnacle will continue as the surviving corporation (the "Merger"). Upon completion of the Merger, each share of our Common Stock, par value $.01 per share (the "Common Stock"), issued and outstanding immediately prior to the effective time of the Merger (other than shares owned by Powder, Merger Sub or held in treasury by us and other than shares held by stockholders, if any, who have properly exercised and perfected statutory appraisal rights) will be converted into the right to receive $0.34 in cash, without interest and less any applicable withholding tax.
•: Postponement or Adjournment of Special Meeting. To grant to the proxyholders the authority to vote in their discretion with respect to the approval of any proposal to postpone or adjourn the special meeting to a later date to solicit additional proxies in favor of the adoption of the Merger Agreement if there are not sufficient votes for adoption of the Merger Agreement at the special meeting or any postponement or adjournment thereof.
•: Other Matters. To consider and vote upon any other matter that may properly come before the special meeting or any postponement or adjournment thereof.

These items of business are described in the attached proxy statement. Only our stockholders of record at the close of business on , 2010, the record date for the special meeting, are entitled to notice of and to vote at the special meeting and any adjournments or postponements of the special meeting.

Our Board of Directors established a Special Committee of three independent directors who negotiated, reviewed and considered the terms of the Merger Agreement and alternative transactions (the "Special Committee"). The Special Committee determined that the Merger is fair to, and in the best interest of, our stockholders, and recommended that the Board of Directors approve the Merger and the Merger Agreement and recommend its approval by our stockholders. Our Board of Directors then unanimously determined that the Merger and Merger Agreement and the other transactions contemplated thereby are advisable, fair and in the best interest of Pinnacle and its stockholders and recommends that our stockholders vote to approve the Merger and adopt the Merger Agreement.

The adoption of the Merger Agreement requires the affirmative vote of the holders of (i) at least a majority of the outstanding shares of Common Stock entitled to vote; and (ii) at least a majority of the outstanding shares of Common Stock held by persons who are unaffiliated with DLJ Merchant Banking Partners III, L.P. and affiliated investment funds, our chief executive officer and chief financial officer.

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THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL OF
THE MERGER AND ADOPTION OF THE MERGER AGREEMENT AND, IF NECESSARY,
TO ADJOURN THE SPECIAL MEETING FOR THE PURPOSE OF SOLICITING
ADDITIONAL PROXIES TO VOTE IN FAVOR OF APPROVING THE MERGER
AND ADOPTING THE MERGER AGREEMENT.

It is important that your shares be represented and voted whether or not you plan to attend the special meeting in person. Even if you plan to attend the special meeting in person, we request that you complete, sign, date and return the enclosed proxy prior to the special meeting. If you are a stockholder of record, voting in person at the meeting will revoke any proxy previously submitted. If your shares are held in "street name," which means shares held of record by a broker, bank or other nominee, you should check the voting form used by that firm to be sure such firm votes those shares in accordance with your instructions. Submitting a proxy by mailing the enclosed proxy card in a timely manner will ensure your shares are represented at the special meeting. Please review the instructions in the accompanying proxy statement and the enclosed proxy card or the information forwarded by your broker, bank or other nominee regarding the voting of your shares.

Stockholders who do not vote in favor of the proposal to adopt the Merger Agreement will have the right to seek appraisal of the fair value of their shares of Common Stock if the Merger is completed, but only if they deliver a written demand for appraisal before the vote is taken on the Merger Agreement and comply with all applicable requirements of Delaware law, which are summarized in the accompanying proxy statement.


By Order of the Board of Directors,
/s/ Peter G. Schoonmaker President and Chief Executive Officer
Sheridan, Wyoming , 2010

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SUMMARY TERM SHEET		1
QUESTIONS AND ANSWERS ABOUT THE MERGER AND SPECIAL MEETING		11
SPECIAL FACTORS		17
	The Parties Involved in the Merger	17
	Contribution Agreement	18
	Background of the Merger	18
	Waivers and Amendments to Credit Facility	32
	Purpose of the Merger	35
	Recommendation of the Special Committee and Pinnacle's Board of Directors	36
	Fairness of the Merger, Reasons for the Recommendation of the Special Committee and Our Board of Directors	36
	Position of DLJ as to the Fairness of the Merger	40
	Opinion of Financial Advisor to the Special Committee	42
	Effects of the Merger	51
	Effects on Pinnacle if the Merger is Not Completed	52
	Financing of the Merger	53
	Material United States Federal Income Tax Consequences	53
	Interests of Pinnacle's Directors and Executive Officers in the Merger	55
	Litigation Related to the Merger	57
FORWARD-LOOKING STATEMENTS		59
THE SPECIAL MEETING		60
	Date, Time and Place	60
	Purpose	60
	Record Date and Quorum	60
	Vote Required to Adopt of the Merger Agreement	60
	Voting Agreement	60
	Voting and Proxies	61
	Revocability of Proxy	62
	Adjournments and Postponements	62
	Rights of Dissent and Appraisal	62
	Solicitation of Proxies	62
	Other Matters	63
	Questions and Additional Information	63

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THE MERGER AGREEMENT		64
	The Merger and Effective Time	64
	Merger Consideration	64
	Payment Procedures	65
	Treatment of Stock Options and Stock-Based Awards	65
	Certificate of Incorporation; Directors and Officers of the Surviving Corporation	66
	Representations and Warranties	66
	Company Material Adverse Effect Definition	68
	Conduct of Business Pending the Merger	68
	No Solicitation of Transactions	70
	Additional Agreements	72
	Conditions to the Completion of the Merger	73
	Termination of the Merger Agreement	74
	Expenses and Fees	76
	Amendment	76
RIGHTS OF DISSENT AND APPRAISAL		77
INFORMATION REGARDING PINNACLE GAS RESOURCES, INC .		81
	Description of Business	81
	Description of Property	81
	Legal Proceedings	81
	Financial Statements and Supplementary Financial Information	81
	Management's Discussion and Analysis of Financial Condition and Results of Operations	81
	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	81
	Historical Selected Financial Data	81
	Book Value Per Share	81
	Quantitative and Qualitative Disclosures about Market Risk	81
MARKET PRICE AND DIVIDEND DATA		82
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT		83
DIRECTORS AND EXECUTIVE OFFICERS AND CONTROLLING PERSONS OF PINNACLE AND DLJ		86
	Pinnacle	86
	DLJ	88
FUTURE STOCKHOLDER PROPOSALS		90
HOUSEHOLDING OF SPECIAL MEETING MATERIALS		91

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WHERE YOU CAN FIND MORE INFORMATION		92
Exhibit A Merger Agreement		A-1
Exhibit B Voting Agreement		B-1
Exhibit C Fairness Opinion		C-1
Exhibit D Dissenters' Rights Provisions		D-1
Exhibit E Contribution Agreement		E-1
Exhibit F Pinnacle's Annual Report on Form 10-K for year ending December 31, 2009		F-1
Exhibit G Summary of Management's Projections (filed as Exhibit (c)(2) to Schedule 13e-3 Amendment 1 filed on May 25, 2010)
Exhibit H Form of Amended and Restated Limited Liability Company Agreement of Powder Holdings, LLC (filed as Exhibit (d)(3) of Amendment No. 2 to Schedule 13E-3 filed on June 10, 2010)

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SUMMARY TERM SHEET

The following summary highlights selected information in this proxy statement and may not contain all the information that may be important to you. Accordingly, we encourage you to read carefully this entire proxy statement, its exhibits and the documents referred to or incorporated by reference in this proxy statement. Each item in this summary includes a page reference directing you to a more complete description of that topic. See "Where You Can Find More Information."

Except as otherwise specifically noted in this proxy statement, "Pinnacle," "we," "our," "us" and similar words in this proxy statement refer to Pinnacle Gas Resources, Inc. References to the "surviving corporation" are to Pinnacle, as the surviving corporation in the merger and a direct, wholly owned subsidiary of Powder Holdings, LLC.

The Parties Involved in the Merger (page )

Pinnacle Gas Resources, Inc. , a Delaware corporation, is an independent energy company engaged in the acquisition, exploration and development of domestic on-shore natural gas reserves. It focuses on the development of coal bed methane ("CBM") properties located in the Rocky Mountain Region. Pinnacle holds its CBM acreage primarily in the Powder River Basin in northeastern Wyoming and southern Montana, as well as in the Green River Basin in southern Wyoming.

Powder Holdings, LLC , which we refer to as "Powder," is a privately held Delaware limited liability company that has been formed to acquire Pinnacle. Upon completion of the Merger, Pinnacle will be a direct, wholly owned subsidiary of Powder. Currently Powder is wholly-owned by Scotia Waterous (USA), Inc., which we refer to as "Scotia." Under the terms of the Contribution Agreement, discussed below, Powder is anticipated to hold 9,751,262 shares, or approximately 32.5%, of our outstanding Common Stock immediately prior to the effective time of the Merger, and will be primarily owned by Scotia and DLJ. Pinnacle's chief executive officer and chief financial officer are anticipated to retain their executive positions with Pinnacle and will be issued profits interests with limited voting rights in Powder.

Powder Acquisition Co ., which we refer to as "Merger Sub," is a direct, wholly owned subsidiary of Powder and is a Delaware corporation. It was formed solely for the purpose of effecting the Merger, has no assets or liabilities, other than its rights and obligations under the Merger Agreement and the related documents, and has not generated any revenues or incurred material expenses. Merger Sub has no employees and has conducted no business operations.

DLJ Merchant Banking Partners III, L.P. and affiliated investment funds (collectively, "DLJ") is a stockholder of Pinnacle that, as of March , 2010, beneficially owned 9,751,262 shares, or approximately 32.5% of our outstanding Common Stock. Pursuant to the terms of the Contribution Agreement, discussed below, immediately prior to the effective time of the Merger, DLJ will contribute its shares of Common Stock to Powder in exchange for ownership interests in Powder, after which Powder is expected to be primarily owned by Scotia and DLJ. Pinnacle's chief executive officer and chief financial officer are anticipated to retain their executive positions with Pinnacle and will be issued profits interests with limited voting rights in Powder.

DLJ and Powder are parties to the voting agreement, discussed below, and have agreed to vote these shares in favor of the Merger.

Contribution Agreement (page )

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is currently in the process of raising an emerging manager fund (the "SW Fund"). Pursuant to the terms of the Contribution Agreement, if and when the SW Fund is formed, Scotia will cause the SW Fund to agree that, upon the satisfaction or waiver of the conditions in the Merger Agreement and the Contribution Agreement, the SW Fund will contribute cash to Powder in an amount sufficient to enable Merger Sub to complete the Merger. If the SW Fund is not formed, Scotia will have the right but not the obligation to contribute cash to Powder in an amount sufficient to enable Merger Sub to complete the Merger.

The Special Meeting (page )

Date, Time and Place (page )

The special meeting of our stockholders will be held on , 2010 at the offices Moye White LLP, 1400 16 ^th Street, Sixth Floor, Denver, Colorado 80202, at 10:00 a.m., Mountain Time.

Purpose (page )

At the special meeting you will be asked to approve a proposal to adopt the Merger Agreement, as it may be amended from time to time. You may also be asked to vote to postpone or adjourn the special meeting to a later date to solicit additional proxies in favor of the adoption of the Merger Agreement if there are not sufficient votes for adoption of the Merger Agreement and to consider and vote upon any other matter that may properly come before the special meeting or any postponement or adjournment thereof.

Record Date and Quorum (page )

You are entitled to vote at the special meeting if you owned shares of Common Stock at the close of business on , 2010, the record date for the special meeting. You will have one vote for each share of Common Stock that you owned on the record date. As of March , 2010, there were 29,980,032 shares of Common Stock entitled to be voted.

A majority of the outstanding shares of our Common Stock entitled to vote, represented in person or by proxy, will constitute a quorum for purposes of the special meeting.

Vote Required to Adopt the Merger Agreement (page )

The adoption of the Merger Agreement requires: (i) the affirmative vote of the holders of at least a majority of the outstanding shares of Common Stock entitled to vote; and (ii) the affirmative vote of at least a majority of the outstanding shares of Common Stock held by persons who are unaffiliated with DLJ, our chief executive officer and chief financial officer. A failure to vote your shares of Common Stock, an abstention or a broker non-vote will have the same effect as voting "AGAINST" the adoption of the Merger Agreement.

Under the terms of the Voting Agreement discussed below: (i) holders of an aggregate of 43.8% of the outstanding shares of Common Stock entitled to vote (of which the affirmative vote of the holders of at least a majority of such shares is required to adopt the Merger Agreement) have agreed to vote in favor of the Merger and adopt the Merger Agreement; and (ii) holders of 16.4% of the shares of outstanding Common Stock entitled to vote who are unaffiliated with DLJ, our chief executive officer and chief financial officer (of which the affirmative vote of the holders of a majority of such shares is required to adopt the Merger Agreement) have agreed to vote in favor of the Merger and adopt the Merger Agreement.

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Voting Agreement (page )

Concurrently with the execution of the Merger Agreement, Pinnacle, and certain Pinnacle stockholders comprised of certain of Pinnacle's directors and executive officers, DLJ and CCBM, Inc. entered into a Voting Agreement with Powder pursuant to which they have agreed to vote all shares of Common Stock held by them in favor of the adoption of the Merger Agreement. A copy of the Voting Agreement is attached as Exhibit B .

An aggregate of 13,131,680 shares of Common Stock are subject to the Voting Agreement, representing 43.8% of the shares of Common Stock entitled to vote. Of these shares, 3,301,014 shares of Common Stock are held by persons who are not affiliated with DLJ, our chief executive officer or chief financial officer, representing 16.4% of the shares of Common Stock held by such persons.

Voting and Proxies (page )

Any stockholder of record entitled to vote at the special meeting may submit a proxy by returning the enclosed proxy card by mail, by telephone, by the Internet or by voting in person by appearing at the special meeting. If your shares of Common Stock are held in "street name" by your broker, bank or other nominee, you should instruct your broker, bank or other nominee on how to vote your shares of Common Stock using the instructions provided by your broker, bank or other nominee. If you do not provide your broker, bank or other nominee with instructions, your shares of Common Stock will not be voted and that will have the same effect as a vote "AGAINST" the adoption of the Merger Agreement.

Revocability of Proxy (page )

You have the right to change or revoke your proxy at any time before the vote taken at the special meeting:

•: by delivering to our Corporate Secretary, at Pinnacle Gas Resources, Inc., 1 East Alger Street, Sheridan, Wyoming 82801 a signed written notice of revocation, bearing a date later than the date of the proxy, stating that the proxy is revoked;
•: by attending the special meeting and voting in person (your attendance at the meeting will not, by itself, revoke your proxy—you must vote in person at the meeting to revoke a prior proxy);
•: by submitting a later-dated proxy card; or
•: if you have instructed a broker, bank or other nominee to vote your shares, by following the directions received from your broker, bank or other nominee to change those instructions.

The Merger (page )

You are being asked to consider and vote upon the adoption of the Merger Agreement. If the Merger Agreement is adopted by our stockholders, the other conditions to closing are satisfied or waived and the Merger Agreement is not terminated prior to the effective time of the Merger, Merger Sub will merge with and into Pinnacle and Pinnacle will continue as the surviving corporation as a direct, wholly-owned subsidiary of Powder (the "Merger").

Upon completion of the Merger, each share of our Common Stock issued and outstanding immediately prior to the effective time of the Merger (other than shares owned by Powder, Merger Sub or any other subsidiary of Powder or held in treasury by us and other than shares held by stockholders, if any, who have properly exercised and perfected statutory appraisal rights) will be converted into the right to receive $0.34 in cash, without interest and less any applicable withholding tax. In this proxy statement, we refer to the consideration to be paid per share of Common Stock in the Merger as the

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"Merger Consideration." Because DLJ will contribute its shares of Common Stock to Powder immediately prior to the effective time of the Merger, DLJ will not receive any Merger Consideration.

The Merger is a "going-private" transaction. If the Merger is completed, we will no longer be a publicly traded company, we will not be required to file reports with the Securities and Exchange Commission, or the "SEC," our stock will not be quoted on the NASDAQ Global Market and you will not participate in our future earnings or growth.

Each restricted stock award that is outstanding (collectively, the " Restricted Stock Awards "), granted under any equity based compensation plan of Pinnacle will, immediately prior to the effective time of the Merger, be automatically cancelled. Under the Merger Agreement, the holder of any such Restricted Stock Award will receive an amount in cash equal to (i) $0.34, multiplied by (ii) the total number of shares of our Common Stock subject to such Restricted Stock Award. There are an aggregate of 980,089 Restricted Stock Awards outstanding, the holders of which will receive approximately $333,230 upon consummation of the Merger.

The Merger Agreement provides that the parties will close the Merger on the second business day after the satisfaction or waiver of the conditions described under "The Merger Agreement—Conditions to the Completion of the Merger" or at such other time as agreed between Powder, Merger Sub and us.

We currently anticipate that the Merger will be completed during the second quarter of 2010. However, there can be no assurances that the Merger will be completed at all, or if completed, that it will be completed during the second quarter of 2010. Pursuant to the terms of the seventh amendment to our credit facility with our lender, we are required to complete the Merger on or before June 15, 2010. If we are unable to complete the Merger on or before that date, we will be in default under the terms of our credit facility and all outstanding amounts thereunder will be immediately due and payable. If the Merger is not completed, you will remain subject to all of the risks you are currently subject to as a holder of our Common Stock, including the risk that our lender would then take action to enforce its rights with respect to the outstanding obligations owed to it and that we may be forced to liquidate or to otherwise seek protection under federal bankruptcy laws. We can give you no assurance that in a bankruptcy proceeding you would receive any value for your shares. See "The Merger—Effects on Pinnacle if the Merger is Not Completed."

Aside from compliance with applicable SEC disclosure requirements, Pinnacle does not believe that any federal or state regulatory requirements must be complied with or approvals obtained in connection with the contemplated Merger.

Powder or Pinnacle may terminate the Merger Agreement under certain circumstances. See "The Merger—Termination of the Merger Agreement."

Purpose of the Merger (page )

For Pinnacle —the primary purpose of the Merger is to enable our unaffiliated stockholders to receive cash for their shares of Common Stock at a premium over the market price of our Common Stock on the date we announced the Merger.

For DLJ —Scotia advised DLJ that it would be unwilling to proceed with the transaction unless DLJ agreed to "roll over" its investment by contributing all of its shares of Common Stock to Powder. Accordingly, the primary purpose for DLJ to engage in the transactions relating to the Merger is to retain an indirect equity interest in Pinnacle, as required by Scotia. DLJ has not purchased any Common Stock in the past two years, other than pursuant to assignments, for no consideration, by Ms. Schnabel to DLJ Merchant Banking III, Inc. of the shares of Common Stock awarded to her pursuant to her role as a Pinnacle director.

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Recommendation of the Special Committee and our Board of Directors (page )

The Special Committee and our Board unanimously approved the Merger Agreement, including the Merger and the other transactions contemplated by the Merger Agreement, and declared the Merger Agreement fair, advisable and in the best interests of Pinnacle and its stockholders and unanimously recommended that the stockholders adopt the Merger Agreement. For a discussion of the material factors considered by the Special Committee and our Board in reaching their conclusions, see "The Merger—Fairness of the Merger; Reasons for the Recommendation of the Special Committee and our Board of Directors."

Our Board unanimously recommends that you vote "FOR" the proposal to adopt the Merger Agreement, as it may be amended from time to time, and "FOR" the approval of any proposal to adjourn or postpone the special meeting to a later date to solicit additional proxies in favor of the adoption of the Merger Agreement if there are not sufficient votes for adoption of the Merger Agreement at the special meeting.

Fairness of the Merger; Reasons for the Recommendation of the Special Committee and the Board of Directors (page )

The Special Committee and our Board each determined that the Merger and Merger Agreement are substantively and procedurally fair, advisable and in the best interests of our unaffiliated stockholders. In reaching this conclusion, the Special Committee and our Board of Directors considered, among other factors, the following:

•: The fact that Pinnacle had explored a significant number of strategic and financial alternatives over an extended period of time and the thoroughness of the process for exploring and reviewing these alternatives, including consideration of alternative transactions with other third parties.
•: The current and historical prices of our Common Stock and the fact that the Merger Consideration of $0.34 in cash per share of our Common Stock represented a premium of approximately 28% over the market price of our Common Stock immediately prior to the execution of the Merger Agreement.
•: If the Merger is not completed, we may be forced to liquidate or to otherwise seek protection under federal bankruptcy laws, and we can give you no assurance that in a bankruptcy proceeding you would receive any value for your shares.
•: The financial analysis and opinion of FBR Capital Markets & Co. ("FBR") delivered to the Special Committee as to the fairness, from a financial point of view as of the date of the opinion, of the $0.34 per share cash Merger Consideration to be received by holders of our Common Stock pursuant to the Merger. See Exhibit C to this proxy statement and "—Opinion of Our Financial Advisor" for more information on the analyses and opinion, including the assumptions made, matters considered and limits of review.
•: The fact that Pinnacle's operations have been constrained by a severe lack of liquidity, which has been exacerbated by the significant amortization payments required from our lender.
•: The fact that Pinnacle has been unable to comply with various covenants contained in the credit agreement with our lender, requiring waivers from our lender and creating the risk that the lender would be unwilling to continue to extend its waivers and could seek to enforce its rights and liens in response to the resulting defaults.
•: The substantial level of our trade payables outstanding for over 90 days and the resulting pressure from trade vendors, including the risk that key vendors could cease providing services to us which would significantly impair our operations.

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•: That although the Merger Agreement includes limitations on soliciting alternative proposals for the acquisition of Pinnacle or our assets, the Board believes these provisions will not, and have not, significantly deterred interested parties from submitting alternative proposals.

Position of DLJ as to the Fairness of the Merger (page )

Under the SEC rules, DLJ is required to provide certain information in this proxy statement regarding its position as to the substantive and procedural fairness of the Merger to the unaffiliated stockholders of Pinnacle. DLJ did not undertake a formal evaluation of the fairness of the Merger and is making the statements in this section solely for purposes of complying with the SEC rules. The views of DLJ with respect to the fairness of the Merger are not, and should not be construed as, a recommendation to any stockholder as to how that stockholder should vote on the proposal to adopt the Merger Agreement. DLJ believes the Merger and the terms of the Merger to be fair to Pinnacle's unaffiliated stockholders. This belief is based upon DLJ's knowledge and analysis of Pinnacle, its financial condition and alternative transactions that have been presented to the Board, as well as the other factors discussed under the section "The Merger—Position of DLJ as to the Fairness of the Merger."

Opinion of the Financial Advisor to the Special Committee (page )

FBR delivered its opinion to the Special Committee that, as of February 23, 2010, and based upon and subject to the factors and assumptions set forth therein, the $0.34 per share in cash to be received by the holders of the outstanding shares of our Common Stock pursuant to the Merger Agreement was fair from a financial point of view to such stockholders.

The full text of the written opinion of FBR, dated February 23, 2010, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Exhibit C. FBR provided its opinion for the information and assistance of the Special Committee in connection with its consideration of the transaction. The FBR opinion is not a recommendation as to how any holder of our Common Stock should vote with respect to the transaction.

Financing of the Merger (page )

Powder's obligation to complete the Merger is not contingent on its obtaining financing. The amount of funds necessary to pay the aggregate merger consideration to our stockholders and holders of Restricted Stock Awards is anticipated to be approximately $6,993,549, assuming:

•: a purchase price of $0.34 per share; and
•: none of our stockholders validly exercises and perfects its appraisal rights.

In addition, if the Merger is completed, Powder intends to contribute funds to Pinnacle to pay down our past due trade payables and to pay off or refinance our outstanding indebtedness comprised of the balance owed on our credit facility of $6.1 million, the balance owed on the mortgage of our corporate building of approximately $0.8 million, past due trade payables of approximately $6.1 million, ad valorem taxes due of approximately $1.9 million and estimated transaction expenses of approximately $1.0 million, which totals approximately $15.9 million as of December 31, 2009.

Powder has informed us that it intends to pay for the acquisition through a cash contribution from the SW Fund. Pursuant to the terms of the Contribution Agreement, and subject to the satisfaction of the conditions set forth in the Merger Agreement and Contribution Agreement, if and when the SW Fund is formed, Scotia will cause the SW Fund to agree that, upon the satisfaction or waiver of the conditions in the Merger Agreement and the Contribution Agreement, the SW Fund will contribute cash to Powder in an amount sufficient to enable Merger Sub to complete the Merger. If the SW Fund

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is not formed, Scotia will have the right but not the obligation to contribute cash to Powder in an amount sufficient to enable Merger Sub to complete the Merger. If this cash contribution does not occur and Powder is unable to perform its obligations under the Merger Agreement, Pinnacle does not have any direct recourse to pursue remedies against Scotia.

Material United States Federal Income Tax Consequences (page )

The exchange of shares of Common Stock for cash in the Merger will be a taxable transaction for United States federal income tax purposes, and possibly for state, local and foreign tax purposes as well. See "The Merger—Material U.S. Federal Income Tax Consequences of the Merger to Our Stockholders." You should consult your tax advisor for a complete analysis of the effect of the Merger on your federal, state, local and/or foreign taxes.

Interests of Pinnacle's Directors and Officers in the Merger (page )

In considering the recommendation of our Board with respect to the Merger Agreement, you should be aware that our directors and executive officers have interests in the Merger that are different from, or in addition to, your interests as a stockholder. These interests include:

•: certain indemnification provisions in the Merger Agreement in favor of our directors and officers, including the maintenance of a six-year "tail" directors' and officers' liability insurance policy to cover directors and officers currently covered by our directors' and officers' liability insurance policy;
•: the payment of cash in exchange for Common Stock and Restricted Stock Awards as a result of the completion of the Merger, resulting in an aggregate payment of $333,230 to our directors and executive officers;
•: the Contribution Agreement among Powder and DLJ (of which one of our directors is affiliated), which will provide DLJ with an equity interest in Powder in return for its share contribution after completion of the Merger;
•: the issuance of profits interests with limited voting rights in Powder to our Chief Executive Officer and Chief Financial Officer if they retain their executive positions with Pinnacle after completion of the Merger. These profits interests would be eligible for distributions only after the SW Fund and DLJ have received distributions equal to the amount of their capital contributed to Powder. Thereafter, distributions will be allocated as follows: (i) 98% to SW Fund and DLJ and 2% to the profits interests until the aggregate distributions to SW Fund and DLJ result in an 8% internal rate of return on the capital contributions of SW Fund and DLJ; (ii) 90% to SW Fund and DLJ and 10% to the profits interests until the aggregate distributions to SW Fund and DLJ results in the greater of a 25% internal rate of return on the capital contributions of SW Fund and DLJ or three times the amount of the capital contributions made by SW Fund and DLJ; and, then (iii) 87.5% to SW Fund and DLJ and 12.5% to the profits interests. The profits interests are anticipated to be allocated 52% to our Chief Executive Officer and 48% to our Chief Financial Officer.
•: the existing change of control arrangements between us and our Chief Executive Officer and Chief Financial Officer providing for, among other things, severance benefits if their employment is terminated under certain circumstances following a change in control of Pinnacle, such as the Merger, including: (i) a lump sum payment equal to 1.5 times the executive's annual base salary, plus payment of a pro-rated bonus; and (ii) immediate vesting of certain options, restricted stock or other compensation; and
•: potential employment arrangements between Powder or any of its affiliates, on the one hand, and one or more executive officers of Pinnacle, on the other hand, although there are no such

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arrangements as of the date of this proxy statement. If these arrangements are executed, the severance benefits noted above will not be paid.

Litigation Related to the Merger (page )

Two putative stockholder class action lawsuits related to the Merger have been filed in the Delaware Court of Chancery since the announcement of the execution of the Merger Agreement. On March 24, 2010, the Delaware Court of Chancery entered an order consolidating the two actions.

The consolidated complaint generally alleges that our directors breached their fiduciary duties by, among other things, taking actions designed to deter higher offers from other potential acquirers and failing to maximize the value of Pinnacle to its stockholders. In addition, the lawsuit alleges that DLJ, as a controlling stockholder of Pinnacle, along with Powder and Merger Sub violated fiduciary duties to Pinnacle stockholders and that Powder and Merger Sub abetted the alleged breaches of fiduciary duties by the other defendants.

The lawsuit seeks, among other relief, injunctive relief prohibiting the Merger, and costs of the action including reasonable attorneys' fees.

On May 24, 2010, Pinnacle and its directors entered into a Memorandum of Understanding in anticipation of settling the shareholder lawsuit. Under the terms of the Memorandum of Understanding, we agreed to make additional proxy disclosures regarding the interests of our executive officers in the surviving entity and furnish additional information regarding FBR's analysis and fairness opinion. In return the shareholders will provide a release of their claims against us, our directors, Powder and DLJ. Pinnacle and its directors, Powder and DLJ do not admit any wrongdoing and will enter into the proposed settlement solely because it would eliminate the distraction, burden and expenses of further litigation. The settlement is subject to confirmatory discovery, negotiation of a definitive settlement agreement, and approval by the Delaware Chancery Court. Powder and DLJ have agreed to the terms of the Memorandum of Understanding.

Conditions to the Completion of the Merger (page )

The obligations of Pinnacle, Powder and Merger Sub to consummate the Merger are dependent on the satisfaction or waiver of the following conditions:

•: approval of the adoption of the Merger Agreement by the holders of at least a majority of the outstanding shares of our Common Stock (excluding the shares of our Common Stock held by DLJ, any of their affiliates, or by our chief executive officer and chief financial officer), which cannot be waived by any party; and
•: no governmental authority having enacted, promulgated, issued, enforced or entered any law, regulation, order or injunction, that makes illegal, enjoins, restrains or otherwise prohibits consummation of the Merger or the other material transactions contemplated by the Merger Agreement.

In addition, the obligations of Powder and Merger Sub to consummate the Merger are further subject to the satisfaction or waiver of each of the following additional conditions:

•: the representations and warranties of Pinnacle shall be true and correct as of the effective time of the Merger, except where the failure of any such representations and warranties to be true and correct has not had, and would not have, a material adverse effect on us;
•: we shall have performed or complied with in all material respects our obligations, covenants and agreements in the Merger Agreement at or prior to the effective time of the Merger;
•: no material adverse effect on us shall have occurred since the date of the Merger Agreement;

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•: we shall deliver to Powder a certificate, signed on behalf of Pinnacle by the chief executive officer and chief financial officer of Pinnacle (solely in his capacity as an officer of Pinnacle without personal liability), to the effect that the conditions listed above with respect to our representations and warranties, our performance or compliance of obligations, covenants and agreements and no material adverse effect have been satisfied;
•: we shall have received, on or prior to the effective time of the Merger, an agreement acceptable to Powder which waives, for a period of not less than sixty days from the effective time of the Merger, any rights the lender under the credit agreement may have (whether of acceleration or otherwise) as a result of a Change of Control Event (as defined in the credit agreement) being deemed to have occurred as a result of the transactions contemplated by the Merger Agreement; and
•: DLJ shall have contributed their shares to Powder and shall have otherwise complied with each of its obligations under the Contribution Agreement.

Our obligations to consummate the Merger and the other transactions contemplated by the Merger Agreement are further subject to the satisfaction or waiver of each of the following additional conditions:

•: the representations and warranties of Powder and Merger Sub shall be true and correct as of the effective time of the Merger, except where the failure of any such representations and warranties to be true and correct has not had, and would not have, a material adverse effect on Powder's ability to consummate the transactions;
•: each of Powder and Merger Sub shall have performed or complied with in all material respects its obligations, covenants and agreements in the Merger Agreement at or prior to the effective time of the Merger; and
•: Powder shall have delivered to us a certificate, signed on behalf of Powder by the chief executive officer and chief financial officer of Powder (solely in his or her capacity as an officer of Powder without personal liability), to the effect that the conditions listed above with respect to Powder's and Merger Sub's representations and warranties and Powder's and Merger Sub's performance or compliance of obligations, covenants and agreements have been satisfied.

We can provide no assurance as to when or if all of the conditions to the Merger can or will be satisfied or waived by the party permitted to do so.

No Solicitation of Transactions (page )

The Merger Agreement provides that we will not, directly or indirectly: (a) solicit, initiate, endorse or take any action to encourage or facilitate (including by way of furnishing information) the submission of any inquiries, proposals or offers or afford access to our employees, business, properties, assets, books or records with respect to the making or completion of any acquisition proposal; (b) engage in any discussions or negotiations with respect to any acquisition proposal; or (c) resolve, propose or agree to do any of the foregoing.

Notwithstanding these restrictions, under certain circumstances, our Board, acting through the Special Committee, if such committee still exists, may respond to a third party acquisition proposal or terminate the Merger Agreement and enter into an acquisition agreement with respect to a superior proposal, so long as we comply with certain terms of the Merger Agreement described under "The Merger Agreement—Covenants—No Solicitation."

See "The Merger Agreement—Covenants—No Solicitation" for the definitions of the terms "acquisition proposal" and "superior proposal" as used above.

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Termination of the Merger Agreement (page )

The Merger Agreement may be terminated at any time prior to the effective time of the Merger, whether before or after approval by our stockholders under several other circumstances including, without limitation:

•: by the mutual written consent of us, Merger Sub and Powder;
•: by either us or Powder, if the Merger is not closed on or before August 23, 2010, a special meeting of our stockholders was held but the required stockholder approval was not obtained on or before August 23, 2010, or there has been issued any order, decree or ruling which has become final and nonappealable enjoining or otherwise prohibiting the Merger;
•: by Powder if our Board changes its recommendation that the Merger Agreement be adopted by the stockholders, our Board shall not have rejected and recommended that the stockholders reject any tender or exchange offer, or we shall have violated or breached in any material respect any of the non-solicitation covenants discussed above;
•: by Powder if there shall have occurred any material adverse affect on us or we have breached any of our representations or warranties or failed to perform any of our covenants under the terms of the Merger Agreement;
•: by us if Powder or Merger Sub has failed to perform its obligations under the Merger Agreement or breached its representations or warranties which could be expected to have a material adverse affect on Powder or Merger Sub's ability to consummate the Merger; and
•: by us prior to obtaining the required stockholder approval of the Merger, in connection with entering into a written definitive agreement for a superior proposal in full compliance with the Merger Agreement.

If the Merger Agreement is terminated, we will be obligated to pay to Powder up to a $1.0 million termination fee, depending on the circumstances, and up to $600,000 of Powder's expenses incurred by it in connection with the transactions contemplated by the Merger Agreement.

Rights of Dissent and Appraisal (page )

If you do not vote in favor of adopting the Merger Agreement, the Merger is completed and you otherwise comply with the applicable statutory procedures and requirements of Delaware law, summarized elsewhere in this proxy statement, you will be entitled to seek appraisal of the fair value of your shares as set forth in Section 262 of the Delaware General Corporation Law. You must precisely follow these specific procedures to exercise and perfect your rights of dissent and appraisal, or you may lose your appraisal rights.

Security Ownership of Certain Beneficial Owners and Management (page )

Exclusive of stock option awards, our directors and executive officers beneficially owned, and had the right to vote an aggregate of 824,593 shares of Common Stock, or approximately 2.8% of our outstanding shares of Common Stock on the record date.

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QUESTIONS AND ANSWERS ABOUT THE MERGER AND SPECIAL MEETING

The following questions and answers are intended to address briefly some commonly asked questions regarding the Merger, the Merger Agreement and the special meeting. These questions and answers may not address all questions that may be important to you as a Pinnacle stockholder. Please refer to the "Summary Term Sheet" and the more detailed information contained elsewhere in this proxy statement, the exhibits to this proxy statement and the documents referred to or incorporated by reference in this proxy statement, which you should read carefully. See "Where You Can Find More Information."

Q. What is the proposed transaction?

A.: The proposed transaction is the acquisition of Pinnacle by Powder Holdings, LLC, a Delaware limited liability company (which we refer to as "Powder") pursuant to the Agreement and Plan of Merger (which we refer to as the "Merger Agreement") dated as of February 23, 2010, by and between Powder, Powder Acquisition Co., a Delaware corporation and a direct, wholly owned subsidiary of Powder (which we refer to as "Merger Sub"), and Pinnacle, as it may be amended from time to time.

Q. Why am I receiving this proxy statement and proxy card?

A.: Our Board of Directors is soliciting proxies to vote on the adoption of the Merger Agreement at a special meeting of our stockholders. When we ask for your proxy, we must provide you with a proxy statement that contains certain information specified by law. This proxy statement contains information for you to consider in deciding how to vote your shares at the special meeting with respect to the Merger.

Q. What matters will be voted on at the special meeting?

A.: At the special meeting you will be asked to vote on a proposal to adopt the Merger Agreement, as it may be amended from time to time, pursuant to which Merger Sub will merge with and into Pinnacle, and Pinnacle will continue as the surviving corporation and will become a direct, wholly owned subsidiary of Powder. You may also be asked to vote on a proposal to postpone or adjourn the special meeting to a later date to solicit additional proxies if there are not sufficient votes to adopt the Merger Agreement at the special meeting and to consider and vote upon any other matter that may properly come before the special meeting or any postponement or adjournment thereof.

Q. What will I receive in the Merger?

A.: If the Merger is completed, each share of our Common Stock issued and outstanding immediately prior to the effective time of the Merger (other than shares owned by Powder, Merger Sub or held in treasury by us and other than shares held by stockholders, if any, who have properly exercised and perfected statutory appraisal rights) will be converted into the right to receive $0.34 in cash (the "Merger Consideration"), without interest and less any applicable withholding tax. The closing sale price of our Common Stock as quoted on the NASDAQ Global Market on February 23, 2010, the last trading day prior to announcement of the execution of the Merger Agreement, was $0.265 per share. The $0.34 per share to be paid for each share of Common Stock in the Merger represents a premium of approximately 28% to the closing sale price on February 23, 2010.

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Q. What happens if the Merger is not consummated?

A.: If the Merger Agreement is not adopted by our stockholders or if the Merger is not completed for any other reason, stockholders will not receive any payment for their shares in connection with the Merger. Instead, we will remain an independent public company and the value of shares of our Common Stock will continue to be subject to the risks and uncertainties identified in our Annual Report on Form 10-K for the year ended December 31, 2009, as amended, and any updates to those risks and uncertainties set forth in our subsequent Quarterly Reports on Form 10-Q, including risks and uncertainties associated with our default under our credit facility and other lending arrangements. If we remain an independent public company, we cannot assure you that our shares would continue to be quoted on the NASDAQ Global Market. See "The Merger—Effects on Pinnacle if the Merger is Not Completed." Under specified circumstances, we may be required to pay Powder a termination fee and expenses as described under the caption "The Merger Agreement—Termination of Merger Agreement."

Additionally, under the current terms of the seventh amendment to our credit facility with our lender, if the Merger is not completed on or before June 15, 2010, we will be in default under our credit facility, all amounts then outstanding under the credit facility will be due and payable, and our lender may take action to enforce its rights and liens with respect to the outstanding obligations owed to it. Because substantially all of our assets are pledged as collateral under our credit facility, if our lender declares an event of default, it would be entitled to foreclose on and take possession of our assets. If the Merger is not completed, we may be forced to liquidate or to otherwise seek protection under federal bankruptcy laws, and we can give you no assurance that in a bankruptcy proceeding you would receive any value for your shares.

Q. Why is my vote important?

A.: If you fail to vote or fail to instruct your broker or other nominee how to vote on the Merger, your failure to vote will have the same effect as voting "AGAINST" the proposal to adopt the Merger Agreement, as it may be amended from time to time. If you respond with an "ABSTAIN" vote, your proxy will have the same effect as voting "AGAINST" such proposal.

Q. Will the proceeds I receive for my shares in the Merger be taxable to me?

A.: The exchange of shares of Common Stock for cash in the Merger will be a taxable transaction for United States federal income tax purposes, and possibly for state, local and foreign tax purposes as well. See "The Merger—Material U.S. Federal Income Tax Consequences." You should consult your tax advisor for a complete analysis of the effect of the Merger on your federal, state, local and/or foreign taxes.

Q. When and where is the special meeting?

A.: The special meeting of our stockholders will be held on , 2010 at the offices of Moye White LLP, 1400 16 ^th Street, Sixth Floor, Denver, Colorado 80202 at 10:00 a.m. Mountain Time.

Q. Who is entitled to vote at the special meeting?

A.: Holders of our Common Stock at the close of business on , 2010, the record date for the special meeting, are entitled to vote.

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Q. What constitutes a quorum?

A.: Stockholders who hold a majority of the outstanding shares of our Common Stock as of the close of business on the record date and who are entitled to vote must be present or represented by proxy in order to constitute a quorum to conduct business at the special meeting.

Q. What vote is required for Pinnacle stockholders to adopt the Merger Agreement?

A.: The adoption of the Merger Agreement requires the affirmative vote of the holders of (i) at least a majority of the outstanding shares of Common Stock entitled to vote; and, (ii) at least a majority of the outstanding shares of Common Stock held by persons who are unaffiliated with DLJ, our chief executive officer and chief financial officer.

Q. What vote is required to adjourn the Special Meeting?

The affirmative vote of the holders of the majority of the shares entitled to vote on, and who voted for, against, or expressly abstained with respect to, the adjournment proposal at the special meeting is required to approve the adjournment proposal.

Q. How many votes do I have?

A.: You have one vote for each share of Common Stock that you owned at the close of business on , 2010, the record date for the special meeting.

Q. How does Pinnacle's Board of Directors recommend that I vote?

A.: Our Board unanimously recommends that you vote "FOR" the proposal to adopt the Merger Agreement, as it may be amended from time to time and "FOR" the approval of any proposal to adjourn or postpone the special meeting to a later date to solicit additional proxies in favor of the adoption of the Merger Agreement if there are not sufficient votes for adoption of the Merger Agreement at the special meeting. You should read "The Merger—Purpose of the Merger; Recommendation of the Special Committee and Board of Directors" for a discussion of the factors that the Special Committee and our Board considered in deciding to recommend the adoption of the Merger Agreement.

Q. How do Pinnacle's executive officers and directors intend to vote?

Each of our directors and certain executive officers who own shares of our Common Stock, as well as our stockholders DLJ and CCBM, Inc. have entered into a voting agreement (which we refer to as the "Voting Agreement") with Powder to vote all shares of our Common Stock owned or controlled by them in favor of the adoption of the Merger Agreement.

Q. Will Pinnacle's executive officers and directors participate in the Merger?

A.: Under the terms of the Merger Agreement, all of Pinnacle's executive officers and directors who own shares of Common Stock will be treated like all other stockholders, receiving the Merger Consideration for each of their shares. Each restricted stock award that is outstanding (collectively, the " Restricted Stock Awards "), granted under any equity based compensation plan of Pinnacle will, immediately prior to the effective time of the Merger, be automatically cancelled. Under the Merger Agreement, the holder of any such Restricted Stock Award will receive an amount in cash equal to (i) $0.34, multiplied by (ii) the total number of shares of our Common Stock subject to such Restricted Stock Award. There are an aggregate of 980,089 shares of Common Stock and Restricted Stock Awards outstanding and held by our directors and executive officers. As a result,

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they will receive approximately $333,230 upon consummation of the Merger in exchange for such Restricted Stock Awards.

While certain of our executive officers and directors hold stock options and/or stock appreciation rights in Pinnacle, because there are no such options or rights with an exercise price less that $0.34 per share of Common Stock, none of them will receive any payment for their stock options or stock appreciation rights as a result of the Merger.

Q. What effects will the Merger have on Pinnacle?

A.: As a result of the Merger, if completed, we will become a direct, wholly-owned subsidiary of Powder and our Common Stock will cease to be publicly traded. You will no longer have any interest in our future earnings or growth.

Following consummation of the Merger, the registration of our Common Stock under the Securities Exchange Act of 1934, or the "Exchange Act," will be terminated upon application to the SEC, we will no longer be required to file reports with the SEC, we will no longer be a publicly traded company and you will not participate in our earnings or growth. In addition, upon completion of the Merger, shares of our Common Stock will no longer be quoted on the NASDAQ Global Market.

Q. What do I need to do now?

A.: After carefully reading and considering the information contained in this proxy statement, including the exhibits hereto and the other documents referred to or incorporated by reference in this proxy statement, please vote your shares by completing, signing, dating and returning the enclosed proxy card. If you hold your shares in "street name," please follow the instructions on the voting form provided by your broker, bank or other nominee. You can also attend the special meeting and vote. Do not send your stock certificate(s) with your proxy.

Q. How do I vote?

A.

You may vote:

•: by completing, signing and dating each proxy card you receive and returning it in the enclosed prepaid envelope;
•: in person by attending and voting at the special meeting; or
•: if you hold your shares in "street name," by following the procedures provided by your broker, bank or other nominee.

If you return your signed proxy card, but do not mark the boxes showing how you wish to vote, your shares will be voted "FOR" the proposal to adopt the Merger Agreement, as it may be amended from time to time, and "FOR" the approval of any proposal to adjourn or postpone the special meeting to a later date to solicit additional proxies in favor of the adoption of the Merger Agreement if there are not sufficient votes for adoption of the Merger Agreement at the special meeting, and in accordance with the recommendations of our Board on any other matters properly brought before the special meeting for a vote.

Q. If my shares are held in "street name" by my broker, bank or other nominee, will my broker, bank or other nominee vote my shares for me?

A.: Your broker, bank or other nominee will only be permitted to vote your shares if you instruct your broker, bank or other nominee how to vote. You should follow the procedures provided by your broker, bank or other nominee regarding the voting of your shares. If you do not instruct your

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broker, bank or other nominee to vote your shares, your shares will not be voted and the effect will be the same as a vote "AGAINST" the adoption of the Merger Agreement.

Q. What do I do if I receive more than one proxy or set of voting instructions?

A.: If you hold shares in "street name," directly as a record holder or in multiple accounts, you may receive more than one proxy and/or set of voting instructions relating to the special meeting. These should each be voted and returned separately as described elsewhere in this proxy statement in order to ensure that all of your shares are voted.

Q. How can I change or revoke my vote?

A.

You have the right to change or revoke your proxy at any time before the vote is taken at the special meeting by taking any of the following actions:

•: by delivering to our Corporate Secretary, Ronald T. Barnes, at Pinnacle Gas Resources, Inc., 1 East Alger Street, Sheridan, Wyoming 82801 a signed written notice of revocation, bearing a date later than the date of your proxy, stating that your proxy is revoked;
•: by attending the special meeting and voting in person (your attendance at the meeting will not, by itself, revoke your proxy—you must vote in person at the meeting to revoke a prior proxy);
•: by submitting a later-dated proxy card; or
•: if you have instructed a broker, bank or other nominee to vote your shares, by following the directions received from your broker, bank or other nominee to change those instructions.

Q. Will any other business be conducted at the meeting?

A.: Our Board does not know of any other business that will be presented at the meeting. If any other proposal properly comes up for a vote at the meeting in which a proxy has provided discretionary authority, the proxy holders will vote your shares in accordance with their best judgment.

Q. What happens if I sell my shares before the special meeting?

A.: The record date of the special meeting is earlier than the special meeting and the date when the Merger, if approved, is expected to be completed. If you transfer your shares of Common Stock after the record date but before the special meeting, you will retain your right to vote at the special meeting, but will transfer the right to receive the Merger Consideration. In order to receive the Merger Consideration, you must hold shares upon completion of the Merger.

Q. Am I entitled to exercise appraisal rights instead of receiving the Merger Consideration for my shares?

A.: Yes. As a holder of our Common Stock, you are entitled to appraisal rights under Delaware law in connection with the Merger if you meet certain conditions and follow certain required procedures. See "Rights of Dissent and Appraisal."

Q. When is the Merger expected to be completed if approved by Pinnacle stockholders?

A.: We currently anticipate that the Merger will be completed during the second quarter of 2010. In addition to obtaining stockholder approval, all of the other closing conditions in the Merger Agreement must be satisfied or waived. We hope to complete the Merger within two business days after the special meeting. See "The Merger Agreement—The Merger and Effective Time" and "The Merger Agreement—Conditions to the Completion of the Merger."

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Q: How long after the effective date of the Merger will I receive the Merger Consideration?

A:: We expect the Paying Agent to distribute letters of transmittal within five business days after the effective date of the Merger. Assuming you do not properly exercise your appraisal rights, you should expect payment for your shares approximately 30 days after the Paying Agent receives your properly completed letter of transmittal and stock certificates.

Q. Should I send in my stock certificates now?

A.: No. Please do not send your certificates in now. After the Merger is completed, you will be sent a letter of transmittal with detailed written instructions for exchanging your Common Stock certificates for the Merger Consideration. If your shares are held in "street name" by your broker, bank or other nominee you will receive instructions from your broker, bank or other nominee as to how to effect the surrender of your "street name" shares after completion of the Merger in exchange for the Merger Consideration.

Q. What if I have lost a stock certificate?

A.: If any certificate is lost, stolen or destroyed, upon making an affidavit of that fact and posting a bond in the form required by Pinnacle, as the surviving corporation, as indemnity against any claim that may be made against Pinnacle with respect to such certificate, the Paying Agent will pay you the Merger Consideration in exchange for such lost, stolen or destroyed certificate.

Q. Who is soliciting my vote?

A.: Pinnacle's Board of Directors is soliciting your vote.

Q. Who can help answer my other questions?

A.: If you have any questions about the Merger, the special meeting or this proxy statement, or if you need additional copies of this proxy statement or the enclosed proxy, you should contact our Corporate Secretary at Pinnacle Gas Resources, Inc., 1 East Alger Street, Sheridan, Wyoming 82801, Attention: Corporate Secretary, (307) 673-9710 or Georgeson Inc., 199 Water Street, 26th Floor, New York, NY 10038, (212) 440-9800 (banks and brokers), (866) 821-2550 (stockholders) (toll free).

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SPECIAL FACTORS

The Parties Involved in the Merger.

Pinnacle

Pinnacle Gas Resources, Inc.
1 East Alger Street
Sheridan, Wyoming 82801
(307) 673-9711

Pinnacle Gas Resources, Inc., a Delaware corporation, is an independent energy company engaged in the acquisition, exploration and development of domestic on-shore natural gas reserves. It focuses on the development of CBM properties located in the Rocky Mountain Region. Pinnacle holds its CBM acreage primarily in the Powder River Basin in northeastern Wyoming and southern Montana, as well as in the Green River Basin in southern Wyoming.

For more information about us, please visit our website at www.pinnaclegas.com. The information provided on our website is not part of this proxy statement, and therefore is not incorporated by reference. See also "Where You Can Find More Information." Our Common Stock is quoted on the NASDAQ Global Market under the symbol "PINN."

Powder

Powder Holdings, LLC
c/o Scotia Waterous
711 Louisiana Street, Suite 1400
Pennzoil Place, South Tower
Houston, Texas 77002

Powder Holdings, LLC is a privately held Delaware limited liability company that has been formed by Scotia solely for the purpose of acquiring Pinnacle. Powder currently is 100% owned by Scotia, has no assets or liabilities, other than its rights and obligations under the Merger Agreement and the related documents, and has not generated any revenues or incurred material expenses. Upon completion of the Merger, Pinnacle will be a direct, wholly owned subsidiary of Powder. Currently Powder is wholly-owned by Scotia. Pursuant to the terms of the Contribution Agreement, discussed below, immediately prior to the effective time of the Merger, DLJ will contribute its shares of common stock to Powder in exchange for ownership interests in Powder, after which Powder is expected to be primarily owned by Scotia and DLJ. Pinnacle's Chief Executive Officer and Chief Financial Officer are anticipated to retain their executive positions with Pinnacle and will be issued profits interests with limited voting rights in Powder. Collectively, under the terms of the Contribution Agreement, Powder is anticipated to hold 9,751,262 shares of our outstanding Common Stock immediately prior to the effective time of the Merger. These contributed shares will comprise approximately 32.5% of the outstanding shares of the Common Stock eligible to vote at the special meeting and, under the terms of the Voting Agreement, will vote in favor of the adoption of the Merger Agreement.

Merger Sub

Powder Acquisition Co.
c/o Scotia Waterous
711 Louisiana Street, Suite 1400
Pennzoil Place, South Tower
Houston, Texas 77002

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Powder Acquisition Co. is a direct, wholly owned subsidiary of Powder and is a Delaware corporation. It was formed solely for the purpose of effecting the Merger, has no assets or liabilities, other than its rights and obligations under the Merger Agreement and the related documents, and has not generated any revenues or incurred material expenses. Merger Sub has no employees and has conducted no business operations.

DLJ

DLJ is comprised of DLJ Merchant Banking Partners III, L.P., a Delaware limited partnership, DLJ Offshore Partners III, C.V., a Netherlands Antilles limited partnership, DLJ Offshore Partners III-1, C.V., a Netherlands limited partnership, DLJ Offshore Partners III-2, C.V., a Netherlands limited partnership, DLJ MB Partners III GmbH & Co. KG, a German limited partnership, Millennium Partners II, L.P., a Delaware limited partnership, MBP III Plan Investors, L.P., a Delaware limited partnership, and DLJ Merchant Banking III, Inc., a Delaware corporation, ("MB III Inc."). MB III Inc. is an indirect, wholly-owned subsidiary of Credit Suisse Group AG and is also the managing general partner of the partnerships, which constitute a group of private equity investment funds. DLJ currently owns 9,751,262 shares of Common Stock but has agreed, pursuant to the Contribution Agreement, that immediately prior to the effective time of the Merger, subject to the satisfaction of certain conditions, it will contribute all of its shares of Common Stock to Powder, in exchange for ownership interests in Powder. Accordingly, DLJ will not receive any Merger Consideration for these shares.

Contribution Agreement

Concurrently with the execution of the Merger Agreement, DLJ, Powder and Scotia entered into a contribution agreement (the "Contribution Agreement"), pursuant to which, subject to the satisfaction of certain conditions, immediately prior to the effective time of the Merger, DLJ will contribute all shares of Pinnacle Common Stock owned by it to Powder, in exchange for ownership interests in Powder. Pursuant to the terms of the Contribution Agreement, if and when the SW Fund is formed, Scotia will cause the SW Fund to agree that, upon the satisfaction or waiver of the conditions in the Merger Agreement and the Contribution Agreement, the SW Fund will contribute cash to Powder in an amount sufficient to enable Merger Sub to complete the Merger. The SW Fund may not be formed prior to the shareholder meeting. If the SW Fund is not formed, Scotia will have the right but not the obligation to contribute cash to Powder in an amount sufficient to enable Merger Sub to complete the Merger. Further, if Scotia does not contribute sufficient funds to Powder to complete the Merger by the effective time, our counterparties are only Powder and Merger Sub, which have no assets or operations. Powder and Merger Sub may seek alternative funding, but no alternative funding arrangements have been made to date. Pinnacle has no recourse to pursue remedies against Scotia if Scotia does not comply with its obligations under the Contribution Agreement.

Background of the Merger

During 2008 and continuing into 2009, the market for Rocky Mountain natural gas suffered from severe pricing declines. The market for exploration and production properties quickly changed from a "seller's" to a "buyer's" market. In response to these adverse conditions and market uncertainties, our Board and management considered our long-term strategic alternatives and prospects for continued operations. The Board recognized that there were many uncertainties to consider, including volatile commodity prices, which had resulted in a lack of liquidity and cash flow.

By early 2009, continuing low gas prices resulted in a significant lack of liquidity. To address the liquidity issues, our Board and management determined it was necessary to implement a strategy to:

•: achieve a strategic transaction by a merger, sale of assets or an infusion of capital;
•: work with our lender to gain time to achieve a strategic transaction;

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•: reduce both general and administrative costs and field operations costs;
•: focus on production optimization;
•: reduce our outstanding debt;
•: replace our existing credit facility;
•: attempt to reduce obligations in order to strengthen our balance sheet and improve Pinnacle's attractiveness to a potential strategic partner;
•: re-prioritize existing drilling and exploration opportunities; and
•: preserve cash.

Pursuant to this strategy, and as discussed further below, we have initiated, reviewed and/or completed the following proposals and transactions:

•: six separate proposals for a merger with us;
•: four proposals regarding a potential sale of our high and low pressure gas gathering systems;
•: four potential sales of certain producing or nonproducing properties;
•: eight approaches for replacement of our credit facilities;
•: completion of the sale of our high pressure gas gathering system; and
•: completion of the sale of a producing or nonproducing property.

Material discussions and negotiations relating to each of these alternatives are described below.

History of the Merger and Alternative Transactions

On October 10, 2007, CFO for Pinnacle, Ronald T. Barnes, received a phone call from M. Grant Farn of Scotia inquiring about investment opportunities with Pinnacle. The call was referred to Peter G. Schoonmaker, CEO for Pinnacle, who set up a meeting on October 30, 2007 to discuss the companies, possible opportunities and introductions. Pinnacle and Scotia had no prior relationship before this initial contact.

On October 30, 2007, Mr. Barnes and Mr. Schoonmaker met with Tym Tombar, M. Grant Farn, and Jay Brown of Scotia in Houston.

On November 14, 2007, Mr. Schoonmaker met with representatives of Scotia in Denver to discuss potential strategic alliances, such as direct investments in Pinnacle, potential mergers and potential buyouts.

On December 18, 2007, Mr. Tombar, Mr. Brown and Don Hansen of Scotia visited Pinnacle's offices and toured Pinnacle's field operations.

On February 7, 2008, Mr. Schoonmaker met with Mr. Tombar, Mr. Brown, and Mr. Hansen of Scotia in Denver to discuss potential strategic alliances.

In October and November 2008, Mr. Tombar contacted Mr. Cabes, Mr. McGonagle, and Mr. Gunst of our Board initially by conference call on October 9, 2008 and subsequently through a meeting in Houston on November 4, 2008. At each time, Scotia indicated that it was interested in establishing a portfolio company in the Powder River Basin area, and inquired as to whether Pinnacle might have an interest in pursuing this objective with Scotia. Pinnacle's representatives, in each instance, indicated that as a result of several factors including excessive volatility in the oil and gas and financial markets, and a significant decline in Pinnacle's stock price, Pinnacle first needed to fully evaluate its position before it could pursue a particular strategic path.

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On November 11, 2008, Mr. Tombar provided Mr. Cabes, Mr. McGonagle, Mr. Gunst, and Ms. Schnabel of our Board with background materials on Scotia's fund and objectives. The parties did not discuss at that time any terms of a possible transaction. No further contact occurred between Scotia and non-executive officers of our Board until May 2009.

On December 31, 2008, Pinnacle entered into a confidentiality agreement with Company "A" to explore potential divestitures of certain of Pinnacle's producing properties. Company "A" had purchased property in the Powder River Basin and was looking to expand its position. Company "A" contacted Pinnacle through legal counsel that was used by both Company "A" and Pinnacle.

On January 8, 2009, Pinnacle entered into a confidentiality agreement with Company "B" to explore a potential merger.

On January 14, 2009, Mr. Schoonmaker and Mr. McGonagle met with Company "B" to discuss potential terms and timing of a potential merger.

On January 22, 2009, Pinnacle entered into a confidentiality agreement with Company "C" to explore a potential merger or buyout. Company "C" was referred to Pinnacle by Company "C's" financial advisor.

On January 29, 2009, Pinnacle sent to the financial advisor for Company "C" data on Pinnacle to help with the evaluation of a potential merger or buyout.

On January 30, 2009, Mr. Schoonmaker and Mr. Barnes of Pinnacle met with Mr. Tombar and Mr. Farn of Scotia in Houston to discuss Pinnacle's liquidity concerns, assets, pricing and possible strategic alliances.

On February 4, 2009, Mr. Schoonmaker met with Mr. Tombar, Mr. Brown and Mr. Hansen of Scotia in Houston to discuss industry outlook, financing alternatives and possible strategic alliances.

On February 12, 2009, Mr. Tombar, Mr. Brown and Mr. Hansen visited Pinnacle's offices and toured Pinnacle's field operations and engaged in discussions regarding Pinnacle's operations and reserves.

After reviewing the information exchanged with Company "B," in March 2009, Pinnacle terminated further discussions with Company "B" until Company "B" could resolve its own issues related to Company "B's" debt levels and its inability to raise additional capital. Pinnacle had no further discussions with Company "B".

On March 24, 2009, a Board meeting was held at which, in part, the possible divestiture of high and low pressure pipelines owned by Pinnacle along with nonstrategic wells or acreage were reviewed. The Board also reviewed potential equity and rights offering transactions presented by various investment banks. The Board recommended moving forward on possible transactions as part of our continuing efforts to address our lack of liquidity caused by continuing low gas prices.

In April 2009, and again in August and September 2009, Mr. Schoonmaker and Mr. Barnes met and reviewed our low pressure gas gathering assets with two separate entities who owned gas gathering assets in the Powder River Basin. Due to Pinnacle's lack of liquidity and development plans in the future, both entities declined to move forward and terminated discussions.

On April 6, 2009, Pinnacle entered into a confidentiality agreement with Company "D" to explore a potential merger.

On April 7, 2009, Company "C" met with Pinnacle's third party reserve engineering firm, Netherland, Sewell & Associates, Inc. ("NSAI") to discuss asset valuation.

On April 8, 2009, we sold our high-pressure gas gathering assets in the Cabin Creek area of Wyoming and undeveloped acres in our Arvada gas project in Wyoming for approximately $3.2 million

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of net proceeds. We used a portion of the proceeds to reduce the amount borrowed under our credit facility from $10.5 million to $9.0 million, as required under the terms of the Fourth Amendment to Credit Agreement, discussed below. Additionally, in order to address continuing liquidity concerns and to remain in compliance with the terms of our amended credit facility, Pinnacle focused on divesting certain other assets and reducing general and administrative expenses by 40%.

On April 16, 2009, Mr. Schoonmaker and Mr. McGonagle, Pinnacle's Chairman, met in Denver with Company "C" and its financial advisor to discuss valuation, terms and timing of a potential transaction.

On April 30, 2009, Pinnacle was advised that Company "C" was deferring any decisions regarding a potential transaction with Pinnacle until the end of 2009, electing to concentrate on its core business while monitoring the weak Rocky Mountain Index pricing attributable to our assets.

On May 12, 2009, Mr. Schoonmaker and Mr. Barnes presented a reserve valuation of Company "D" to the Board. The valuation was performed by an independent investment banking firm. The Board recommended that management explore a potential merger with Company "D."

On May 15, 2009, Mr. Schoonmaker, Mr. Barnes, and J.L. Griffin, Production Supervisor for Pinnacle, and Company "D" met in Pinnacle's office to review their respective asset valuations and discuss the terms of a potential merger.

On May 28, 2009, Mr. Schoonmaker and Mr. McGonagle met with Mr. Tombar, Mr. Brown and Mr. Hansen in Denver to discuss Scotia's interest in a potential transaction with Pinnacle and to provide additional clarification on Scotia's objectives and historical diligence process.

On May 29, 2009, Pinnacle signed a confidentiality agreement with Scotia and sent data for Scotia's review and evaluation.

In June 2009, Company "D" advised Pinnacle that some internal requirements needed to be handled before a potential merger involving Pinnacle could move forward, effectively deferring our discussions with Company "D" until 2010. Pinnacle resumed discussions concerning a potential proposal with Company "D" on February 12, 2010 when such discussions were terminated as a result of Company "D's" inability to move forward with a proposal.

During June and July 2009, Mr. Schoonmaker and Mr. Barnes and Mr. Farn and Mr. Tombar of Scotia had numerous calls on the evaluation of Pinnacle's current operations and current financial status.

In July, August and September 2009, additional and updated data regarding Pinnacle was requested by and sent to the financial advisor for Company "C."

On July 1, 2009, Mr. Schoonmaker and Mr. Barnes met with Company "A" to review valuation data for the Recluse field.

On August 6, 2009, Company "A" presented Pinnacle with the terms of a proposal to acquire Pinnacle's interests in the Recluse field. The offer was discussed with Board members on August 13, 2009. The Board recommended to counter Company "A's" offer at a higher price that would equate to current market value.

On August 7, 2009, Pinnacle entered into a confidentiality agreement with Company "E" to consider a potential buyout or merger. Company "E" solicited Pinnacle as they had properties in the same area.

On August 11, 2009, Company "E" visited Pinnacle's office and toured Pinnacle's field operations and reviewed financial and operating data.

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On August 11, 2009, Pinnacle received a proposal for equity financing from Scotia which was discussed at the August 13, 2009 Board meeting.

On August 13, 2009, Mr. Barnes and Mr. Schoonmaker met with the financial advisors for Company "E" for further evaluation of a possible combination of the two companies.

On August 13, 2009, the Board met to review our operating plan, budget, liquidity and cash flow. The Board determined that it was likely that our lender would reduce the borrowing base at the next redetermination in October 2009. The Board discussed the significant restrictions that the lender's reduction was likely to place on our liquidity and the ramifications on our operations. At that time, our trade payables greater than 90 days exceeded $5.0 million and vendor liens in place exceeded $1.5 million, while our working capital deficiency was widening to approximately $14.0 million. The Board also discussed alternative measures we might take to address our liquidity needs, including asset divestitures, equity offerings, a new debt facility and merger combinations, directing management to follow through with a number of alternatives.

On August 17, 2009, Company "A" rejected the counter offer from Pinnacle and commenced to reevaluate the terms of their offer to acquire Pinnacle's interests in the Recluse field.

On September 2, 10, 17, and 23, 2009, Mr. McGonagle, Mr. Cabes, and Ms. Schnabel, Pinnacle board members, and Mr. Schoonmaker and Mr. Barnes held meetings and conference calls with Scotia regarding a possible equity investment transaction as contained in their August 11, 2009 proposal.

On September 8, 2009, Mr. Schoonmaker and Mr. McGonagle met with Company "E" and were advised that Company "E" would not move forward with a possible transaction. Company "E" did discuss moving forward with a proposal to purchase specific Pinnacle assets or a merger with us at a valuation below the then current market price of Pinnacle's Common Stock.

On September 10, 2009, Pinnacle entered into a confidentiality agreement with Company "F" who had expressed interest in a possible purchase of our assets or stock. Company "F" has assets in the same area as Pinnacle and has inquired about asset divestitures in prior years. Mr. Schoonmaker met with Company "F" to discuss a possible transaction.

On September 14, 2009, Pinnacle and Company "F" held a conference call to go over Pinnacle's data with Mr. Schoonmaker and Mr. Barnes.

On September 15, 2009, Pinnacle received notification from NASDAQ that it had fallen below certain continued listing criteria that require a minimum bid price of $1.00 over 30 consecutive days.

On September 17, 2009, Company "E" made a verbal offer for Pinnacle's interest in the Recluse field which was rejected by us because the purchase price was too low. Company "E" declined to raise their offer. To date, Pinnacle has had no further discussions with Company "E".

On September 28, 2009, Company "F" indicated it was not interested in pursuing an acquisition of Pinnacle because it did not want to be involved in a public company acquisition process. Company "F," however, did indicate that it would make an offer to purchase certain Pinnacle assets.

On October 2, 2009, Pinnacle received a letter from Scotia in which Scotia expressed interest in providing financing for a management-led going-private transaction. The letter did not constitute an offer for any transaction nor did it identify any members of the Pinnacle management team contemplated to be involved with such proposed transaction. Instead, it solely provided a brief overview of a potential transaction that Scotia was interested in pursuing with us, provided Scotia received management participation.

In the period between October 2, 2009 and October 12, 2009, Mr. McGonagle, had several discussions with Mr. Tombar of Scotia in order to clarify the terms and conditions of the Scotia proposal.

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On October 6, 2009, Pinnacle received a letter of intent containing a new offer to purchase Pinnacle's interest in the Recluse field from Company "A." The letter of intent was reviewed by the Board at its October 13, 2010 meeting and was determined to be insufficient. Pinnacle contacted Company "A" regarding additional terms that would be required for the Board to reconsider the offer.

On October 13, 2009, the Board held a meeting to discuss Scotia's proposal, including the interest of significant stockholders and management in potentially participating in the transaction. After discussing the Scotia proposal, the Board discussed the advisability of forming a Special Committee to evaluate the proposal. The Board unanimously resolved to establish a Special Committee of three of the Board's independent directors and delegated to the Special Committee the exclusive power and authority to, among other things, (a) negotiate the Scotia proposal or any other alternative proposals or strategic alternatives with the applicable parties on our behalf and on behalf of our stockholders unaffiliated with DLJ, our chief executive officer and chief financial officer, (b) accept or reject any proposals or the terms of any proposed transaction, and (c) conduct its own investigation and due diligence with respect to any proposed transaction and to provide a recommendation to the Board and our stockholders as to the Scotia proposal or any other alternative proposal or strategic alternative. The resolutions also empowered the Special Committee to retain independent legal and financial advisors to assist the Special Committee in the fulfillment of its duties. After discussion, the Board appointed Thomas McGonagle, Robert Cabes, and Jeffrey Gunst to serve on the Special Committee, with Mr. McGonagle to serve as Chairman. The Special Committee has sole responsibility for negotiating the Scotia proposal or any other alternative proposals and Pinnacle's management has no role with respect to such negotiations other than preparing and providing certain due diligence materials regarding Pinnacle as requested by the Special Committee.

On November 4, 2009, Mr. Farn, Mr. Tombar, Mr. Brown, and Mr. Hansen and DLJ representatives William Bishop and Ann Kim attended a due diligence session with Mr. Schoonmaker and Mr. Barnes in Denver.

On November 11, 2009, the Board held a meeting to discuss, among other things, certain potential defaults under our credit facility and our ability to receive a waiver under, and extend the terms and conditions of, our credit facility by November 16, 2009. The Board reviewed our liquidity, trade payables greater than 90 days which then exceeded $5.5 million, vendor liens of approximately $1.0 million and a working capital deficiency of approximately $15.0 million. The Board further discussed possible strategic transactions and the possibility of obtaining short term financing from a number of alternative sources.

On November 16, 2009, Pinnacle received a revised letter of intent from Company "A" to purchase Pinnacle's interest in the Recluse field, at a purchase price below the then current market valuation, resulting in net proceeds that would not be sufficient to resolve Pinnacle's liquidity issues going forward.

On November 19, 2009, we received a letter from Scotia that confirmed Scotia's intent to provide financial support to the management buyout as described in the October 2, 2009 letter from Scotia. An initial draft of a merger agreement was also provided by Scotia, with the transaction constructed as a two-step tender offer followed by a merger.

On November 19, 2009, the Special Committee retained Locke Lord Bissell & Liddell LLP (" Locke Lord ") as its independent counsel.

On November 20, 2009, the Board held a meeting to discuss: (i) the current status of discussions with our lender under the credit facility, (ii) the November 19, 2009 letter from Scotia, (iii) the letter of intent from Company "A" to purchase Pinnacle's interest in the Recluse field, (iv) capital raising and other potential transactions, and (v) other potential strategic alternatives.

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On November 20, 2009, Pinnacle received a preliminary term sheet from DLJ for a $2 million senior secured mezzanine loan facility.

On November 20, 2009, the Special Committee held a telephonic meeting to review certain strategic proposals, including the proposals from Company "A" and DLJ, and the Scotia proposal. Upon discussion and review, the Special Committee agreed to move forward with the Scotia proposal, to review the DLJ proposal, to decline the Company "A" proposal due to the size of the transaction, and to discuss obtaining additional waivers under the credit facility with our lender. To date, Pinnacle has had no further discussions with Company "A".

On November 23, 2009, the Special Committee held a telephonic meeting to discuss our then existing alternatives. The Special Committee also discussed several options for an independent financial advisor and then reviewed a summary of the material terms contained in the initial draft of the Scotia merger agreement. The Special Committee engaged in extensive discussions regarding the material terms of the merger agreement, including the $0.34 price per share, the top-up option, the conditions to closing, the material adverse effect definition, the no solicitation provisions, termination rights, the termination fee and directors and officers insurance issues. The Special Committee discussed, among other things, negotiating an increase in the price per share, reducing the amount of the termination fee, requiring a vote of a majority of the stockholders unaffiliated with DLJ, Pinnacle's chief executive officer and chief financial officer and eliminating certain items that would be considered a material adverse effect, including net production requirements and a violation of Pinnacle's existing credit agreement. The meeting concluded with the Special Committee instructing Locke Lord to revise the draft merger agreement based on such discussions.

On November 24, 2009, Locke Lord sent a revised draft of the merger agreement to the Special Committee, Scotia, and Scotia's outside counsel, Vinson & Elkins, LLP ("V&E"), based on the prior day's discussions.

On November 28, 2009, the Special Committee participated in a teleconference with representatives of Scotia, V&E and Locke Lord. During the teleconference, the parties engaged in discussions and negotiations regarding the material open issues from Locke Lord's revised draft of the merger agreement provided on November 24, 2009. The key issues discussed were the merger consideration, the requirement that a majority of the stockholders unaffiliated with DLJ, Pinnacle's chief executive officer and chief financial officer approve the merger, the material adverse effect definition, the acquisition proposal definition, waivers under Pinnacle's credit agreement, conditions to closing and right to terminate provisions, the termination fee and expense reimbursement provisions, and specific performance in the event of breach. At the conclusion of the negotiation, the Special Committee instructed Locke Lord to further negotiate the draft merger agreement based on such discussions.

On November 30, 2009, Mr. McGonagle updated Scotia on the discussions with our lender. Scotia indicated that it might not proceed with the proposed transaction without a longer extension of the waiver.

On December 1, 2009, Mr. Tombar of Scotia informed Mr. McGonagle that it was discontinuing negotiations pending a longer extension of the waiver period by our lender than that provided under the November 16, 2009 Waiver and Agreement, discussed below.

On December 1, 2009, Pinnacle received a letter from Company "F" expressing interest in buying certain properties of Pinnacle located in the Powder River Basin of Wyoming and Montana.

On December 2, 2009, the Special Committee held a telephonic meeting to discuss hiring an independent financial advisor and the material open items in the latest draft of the Scotia merger agreement. The Special Committee determined that, after discussing various candidates, it intended to hire FBR as its independent financial advisor for purposes of reviewing strategic alternatives and

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determining whether the financial consideration to be received in the Scotia proposal is fair, from a financial point of view, to our stockholders. Thereafter, the Special Committee engaged in discussions regarding the list of remaining open items in the Scotia merger agreement based on the November 28, 2009, teleconference with representatives of Scotia and V&E. The meeting concluded with the Special Committee instructing Locke Lord to begin revising the draft merger agreement based on such discussions but to not send the revised draft to V&E pending an extension of the waiver period by our lender. The Special Committee subsequently retained FBR as its independent financial advisor.

On December 3, 2009, the Special Committee provided DLJ with comments to its term sheet indicating that the proposal was insufficient to address Pinnacle's ongoing liquidity issues and coordinated a response to Company "F." DLJ responded by confirming the terms of their offer and stating they would not negotiate on terms.

On December 8, 2009, Mr. Schoonmaker and Mr. Barnes engaged in discussions regarding the sale of our low pressure gas gathering assets with Company "H." Company "H" was introduced to Pinnacle by Mr. Cabes.

On December 10, 2009, the Special Committee held a telephonic meeting with representatives of Locke Lord and FBR during which FBR provided an update to the Special Committee on the status of its analysis as to whether the financial consideration to be received in the Scotia proposal is fair, from a financial point of view, to our stockholders. FBR explained the valuation methodologies it would employ for determining if the financial consideration is fair. The Special Committee and FBR also discussed the timetable for FBR's delivery of drafts of a fairness opinion.

On December 15, 2009, Mr. Schoonmaker contacted Company "F" to review and counter the offer it had made for certain or our properties. Company "F's" offer terminated on this date.

On January 12, 2010, Pinnacle entered into a confidentiality agreement with Company "H" which wanted to evaluate a potential acquisition of our low pressure gas gathering assets.

On January 14, 2010, Mr. Schoonmaker and Mr. McGonagle met with Company "F" to discuss a possible transaction and discuss the then current operational and financial status of Pinnacle, including alternative structures and valuations. Company "F" declined to move forward. To date, Pinnacle has had no further discussions with Company "F".

On January 14, 2010, Mr. Schoonmaker and Mr. Barnes and Company "H" conducted a conference call to discuss timing and terms of a potential transaction.

On January 15, 2010, after being advised that Pinnacle had obtained a longer-term waiver under the terms of its credit facility, Mr. Tombar contacted Mr. McGonagle to resume negotiations on the proposed transaction.

On January 15, 2010, the Special Committee held a telephonic meeting to discuss the waiver of the credit facility with our lender and material open items in the most recent draft of the merger agreement, which included the merger consideration offered, the requirement that a majority of the stockholders unaffiliated with DLJ, Pinnacle's chief executive officer and chief financial officer approve the merger, the top-up option, the material adverse effect definition, conditions to closing and right to terminate provisions, the termination fee and expense reimbursement provisions, and specific performance in the event of breach. The Special Committee engaged in extensive discussions regarding the material open items, including agreeing to the top-up option, capping the amount of expenses that Pinnacle would reimburse Powder in the event a termination fee was required to be paid at $250,000, and limiting the events requiring Pinnacle to pay a termination fee. The meeting concluded with the Special Committee instructing Locke Lord to revise the draft merger agreement based on such discussions.

On January 20, 2010, Locke Lord sent an updated draft of the merger agreement to the Special Committee, Scotia, and V&E based on the January 15, 2010 meeting.

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On January 27, 2010, Scotia provided the Special Committee with a list of remaining open issues on the draft of the merger agreement provided by Locke Lord on January 20, 2010, which included the merger consideration offered, the requirement that a majority of the stockholders unaffiliated with DLJ, Pinnacle's chief executive officer and chief financial officer approve the merger, the material adverse effect definition, the acquisition proposal definition, waivers of Pinnacle's credit agreement, conditions to closing and right to terminate provisions, the termination fee and expense reimbursement provisions, and specific performance in the event of breach.

On January 28, 2010, the Special Committee and representatives of Scotia negotiated the open issues on the merger agreement identified by Scotia on January 27, 2010.

On February 5, 2010, V&E provided an updated draft of the merger agreement to the Special Committee, which included Scotia's rejection of the requirement that a majority of the stockholders unaffiliated with DLJ, Pinnacle's chief executive officer and chief financial officer approve the merger, the inclusion of specific material adverse effect items related to production, reserves and reduction in net mineral acres, a proposed increase in the amount of Powder's reimbursable expenses in the event of termination to $600,000, and additional events requiring Pinnacle to pay a termination fee.

On February 8, 2010, the Special Committee held a telephonic meeting with representatives of Locke Lord to discuss material open items in the draft merger agreement provided by Scotia on February 5, 2010, which included the merger consideration offered, the material adverse effect definition, the right to terminate provisions, and the termination fee and expense reimbursement provisions. The chairman of the Special Committee stated that, in the negotiation process, Scotia indicated it was contemplating reducing the proposed merger consideration to between $0.30 to $0.32 per share of Common Stock based on, among other things, increased liabilities to be assumed and updated reserve reports of Pinnacle. The Special Committee determined it would reject any lowering of the merger consideration and would accept no less than $0.34 per share. The Special Committee then reviewed the remaining material open items of the draft merger agreement and engaged in extensive discussions regarding the open items, including lowering the benchmark of proved reserves of natural gas from 27.3 BcF to 23.0 BcF in, and excluding a borrowing base redetermination under Pinnacle's existing credit agreement from, the material adverse effect definition, and reducing the termination fee from $1 million to $500,000 if the merger agreement is terminated due to a material adverse effect on Pinnacle or a breach of Pinnacle's representations and warranties that remains uncured prior to the closing. The Special Committee instructed Locke Lord to revise the draft merger agreement and the chairman of the Special Committee to continue negotiating the merger agreement with Scotia based on such discussions.

On February 8, 2010, Locke Lord provided an updated draft of the merger agreement to Scotia's counsel reflecting the discussions of the February 8, 2010 meeting of the Special Committee.

On February 9, 2010, V&E sent an updated draft of the merger agreement to the Special Committee and Locke Lord, which included Scotia's agreement to the revised termination fee provisions and material adverse effect definition.

On February 9, 2010, Company "D" provided a presentation to Pinnacle's management regarding a possible merger transaction.

On or about February 9, 2010, Jay Wilkins of DLJ contacted Mr. Tombar of Scotia to explain that DLJ would prefer to structure the transaction so that DLJ would receive the same cash per share that the Pinnacle public stockholders would receive, rather than "rolling over" its investment by contributing shares to Powder. Mr. Tombar, however, advised Mr. Wilkins that it would be unwilling to proceed with the transaction unless DLJ agreed to contribute its shares of Common Stock to Powder prior to the merger.

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On February 9, 2010, based on discussions between Locke Lord, V&E, and DLJ's outside legal counsel, Davis Polk & Wardwell LLP (" Davis Polk "), it was determined that the transaction would be constructed as a one-step merger (the " Merger ") instead of a two-step tender offer followed by a Merger.

On February 10, 2010, Mr. Schoonmaker and Ryan Gregory, Pinnacle's Procurement Manager, met with executive officers from Company "H" to discuss the next step in the process. A meeting and field tour was scheduled for a later date. Due to the pending merger with Scotia, Company "H" informed Pinnacle that it was no longer interested in purchasing certain Pinnacle assets. To date, Pinnacle has had no further discussions with Company "H".

On February 10, 2010, Locke Lord sent an updated draft of the merger agreement to the Special Committee, Scotia, V&E, and Davis Polk reflecting the revised one-step merger structure.

On February 11, 2010, Mr. Schoonmaker and Mr. Gregory met with the executive officers of Company "I" and their equity provider in Houston. Company "I" was introduced to Pinnacle through Company "I's" equity provider who had ongoing business relationships with certain directors of Pinnacle.

On February 12, 2010, Pinnacle provided additional data to Company "D" for further evaluation of a merger transaction. To date, Pinnacle has had no further discussions with Company "D".

On February 12, 2010, the Special Committee held a telephonic meeting with representatives of Locke Lord and FBR during which FBR provided an update to the Special Committee on the status of its analysis of the Scotia proposal based upon the current terms of the draft merger agreement. The Special Committee and FBR also discussed the timetable for FBR's delivery of the fairness opinion letter and the timing of a Board meeting to discuss and possibly approve the Merger.

On February 12, 2010, V&E sent an updated draft of the merger agreement to the Special Committee, Locke Lord, Scotia and Davis Polk. In this draft, Powder agreed to the requirement that a majority of the stockholders unaffiliated with DLJ, Pinnacle's chief executive officer and chief financial officer approve the merger.

On February 12, 2010, Scotia indicated to the Special Committee that it needed an additional week to obtain the internal approvals required to execute the transaction documents.

On February 16, 2010, V&E sent an updated draft of the merger agreement to the Special Committee, Locke Lord, Scotia, and Davis Polk, which included Powder's acceptance of the requirement that a majority of the stockholders unaffiliated with DLJ, Pinnacle's chief executive officer and chief financial officer approve the merger, as a non-waivable condition to the Merger.

On February 17 and 18, 2010, Mr. Schoonmaker and Mr. Barnes met with Company "I" at our Sheridan office and provided a field tour. Discussions of a potential merger ensued.

On February 19, 2010, Pinnacle entered into a mutual confidentiality agreement with Company "I" to further discuss and exchange information regarding a potential merger transaction. Confidentiality agreements with Company "I's" equity provider and affiliated lender had been entered into on July 23, 2009 and September 10, 2009, respectively.

On February 22 and 23, 2010, Mr. Barnes and Mr. Schoonmaker and Company "I" held several calls, including a conference call with Pinnacle's third party reserve engineers to discuss valuation of Pinnacle's assets.

On February 22, 2010, the Special Committee held a telephonic meeting with representatives of Locke Lord and FBR during which FBR provided its preliminary opinion to the Special Committee as to whether the financial consideration to be received in the Merger is fair, from a financial point of view, to Pinnacle's stockholders and the Special Committee discussed and approved resolutions to

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recommend the Board approve the Merger. FBR confirmed its finding that the proposed financial consideration of $0.34 per share to be received in the Merger is fair to the stockholders of Pinnacle. However, since the $0.34 per share consideration was still bracketed in the latest draft of the merger agreement as of the time of the special meeting, the Special Committee requested that FBR delay providing its signed fairness opinion until the merger agreement was final. The Special Committee determined that the merger was fair and in the best interests of Pinnacle and its stockholders and unanimously approved the resolutions recommending that the Board approve the Merger conditioned upon (i) receipt of the final draft of the merger agreement in substantially the same form as provided to the Special Committee, with no change to the $0.34 per share consideration, and (ii) receipt of the signed fairness opinion from FBR.

On February 22, 2010, the Board held a telephonic meeting with all members of the Board and representatives of Locke Lord to discuss the documents related to the Merger and to discuss and approve resolutions of the Board to approve the Merger Agreement, declare the advisability of the Merger, and recommend that Pinnacle's stockholders adopt the Merger Agreement. The chairman of the Special Committee then provided the Board with an overview of the timing issues of the proposed transaction. The chairman explained that the Special Committee met prior to the meeting of the Board with representatives of FBR. The chairman then explained that Scotia would not be able to approve the proposed transaction until February 23, 2010, though all relevant documents were generally in final form and had been agreed upon by all relevant parties. The chairman then informed the Board that FBR was prepared to deliver its fairness opinion provided Scotia confirms the $0.34 price per share. The chairman also informed the Board that pending (i) the delivery of the final draft of the merger agreement in substantially the same form as provided to the Special Committee, with no change to the $0.34 per share consideration and (ii) receipt of the fairness opinion of FBR, the Special Committee unanimously recommended that the Board approve the resolutions. The Board discussed the terms and conditions of the proposed transaction and voted to approve the resolutions pending (i) the delivery of the final draft of the merger agreement in substantially the same form as provided to the Special Committee, with no change to the $0.34 per share consideration, and (ii) the receipt of the signed fairness opinion of FBR. All members of the Board also determined that the Merger was fair and in the best interests of Pinnacle and its stockholders and voted in favor of the resolutions, except for Messrs. Johnson and Parker who abstained pending consultation with CCBM, Inc.'s counsel regarding their counsel's final review of the documents. Subsequent to the Board meeting, Messrs. Johnson and Parker approved the resolutions, as they had also determined the Merger was fair and in the best interests of Pinnacle and its stockholders. Ultimately, there was no change to the $0.34 per share consideration and the final merger agreement was identical to that approved by the Board.

On February 23, 2010, the Special Committee held a telephonic meeting with representatives of Locke Lord to discuss the receipt of a non-binding letter of interest from Company "I" regarding a potential merger transaction with Pinnacle (the "Company "I" Proposal"). The chairman of the Special Committee and certain members of management received the Company "I" Proposal and forwarded it to the remaining members of the Special Committee and Locke Lord prior to the execution of the Merger Agreement. Notwithstanding the fact that the Merger Agreement and related transaction documents were in essentially final form, the Special Committee reviewed the Company "I" Proposal and discussed its terms. Since the form of consideration contemplated by the Company "I" Proposal was not all cash and would result in significant dilution to Pinnacle's stockholders, the Special Committee's evaluation and negotiation of the Company "I" Proposal would require additional time, including extensive consultation with its advisors. The chairman advised the Special Committee that the waiver of certain provisions of Pinnacle's credit facility would expire as of February 23, 2010. The chairman further stated that the lender had already granted significant extensions of the waiver and the lender previously indicated that they were not obligated and were very reluctant to provide any additional extensions, in particular for the extended period required for (i) Pinnacle to complete its due diligence of Company "I," (ii) Company "I" to complete its due diligence of Pinnacle, and

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(iii) Pinnacle and Company "I" to negotiate the terms of a definitive agreement. The chairman further explained that if the current waiver of the credit facility expired, Pinnacle would be at risk of the lender declaring Pinnacle in default of certain provisions of the credit facility. After a review and full discussion of the foregoing facts and circumstances, the Special Committee decided it would be in the best interests of Pinnacle and its stockholders to proceed with the execution of the Merger Agreement and related transaction documents.

Shortly after the Special Committee meeting to discuss the Company "I" Proposal, we entered into the Merger Agreement with Powder and Merger Sub.

On February 24, 2010, we issued a press release announcing the Merger.

On March 5, 2010, the chairman of the Special Committee and Pinnacle's management received a revised acquisition proposal from Company "I" (the "New Company "I" Proposal"). The chairman forwarded the New Company "I" Proposal to the remaining members of the Special Committee, Locke Lord and FBR. Locke Lord provided oral and written notice of the acquisition proposal to Powder and its counsel in accordance with the terms of the Merger Agreement.

The Special Committee then engaged FBR to assist the Special Committee in its analysis of the New Company "I" Proposal as well as any other proposals received subsequent to the execution of the Merger Agreement

Between March 5 and March 11, 2010, the Special Committee, FBR and Locke Lord evaluated the New Company "I" Proposal in order to determine if it constituted a "superior proposal" or was reasonably expected to lead to a "superior proposal." Upon the completion of the evaluation, the Special Committee (with consultation from FBR and Locke Lord) determined, based on its analysis of the limited information received to date on Company "I" and its assets, that the implied Company "I" valuation was overstated, the Pinnacle valuation was not done on a comparable basis, and that the exchange ratio was not at an appropriate premium to enable Pinnacle to move forward. As such, the New Company "I" Proposal was determined to not be a "superior proposal."

On March 5, 2010, Pinnacle discussed the Merger with NASDAQ.

On March 12, 2010, the Special Committee notified Company "I" that the New Company "I" Proposal was rejected as it was determined to not be a "superior proposal."

On March 16, 2010, Pinnacle received an additional delisting notice from NASDAQ. Pinnacle appealed this delisting notice.

On March 24, 2010, the chairman of the Special Committee received a revised acquisition proposal from Company "I" (the "Revised Company "I" Proposal"). The chairman forwarded the Revised Company "I" Proposal to the remaining members of the Special Committee, Locke Lord and FBR. Locke Lord provided oral and written notice of the Revised Company "I" Proposal to Powder and its counsel in accordance with the terms of the Merger Agreement.

The Special Committee then engaged FBR to assist the Special Committee in determining whether the Revised Company "I" Proposal constituted a "superior proposal" or was reasonably expected to lead to a "superior proposal," as such term is defined in the Merger Agreement.

On March 25, 2010, the Special Committee received an acquisition proposal from Company "J" (the "Company "J" Proposal"). The Special Committee forwarded the Company "J" Proposal to Locke Lord. Locke Lord provided oral and written notice of the Company "J" Proposal to Powder and its counsel in accordance with the terms of the Merger Agreement.

Between March 26 and March 29, 2010, the Special Committee (with consultation from Locke Lord) evaluated the Company "J" Proposal in order to determine if it constituted a "superior proposal" or was reasonably expected to lead to a "superior proposal." Upon the completion of the

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evaluation, the Special Committee determined that, as presented, the Company "J" Proposal was not a "superior proposal." The reasons for this determination included: (i) the indicated price of $0.41 per share of Common Stock, in cash, was subject to a detailed and definitive due diligence review of Pinnacle and the negotiation and approval of a definitive agreement, either of which could, in the sole discretion of Company "J," lead to price erosion prior to the execution of a definitive agreement, and (ii) the proposal was conditional on a significant number of events, consents, and agreements outside the control of Pinnacle, resulting in significant risk that the transaction might never close. The Special Committee's view was that, notwithstanding the fact that the Company "J" Proposal referred to a higher potential price for Pinnacle's stockholders, the value of the potential consideration must be significantly discounted to reflect the uncertainty and closing risks associated with the Company "J" Proposal. In the Special Committee's view, the risk and uncertainty more than offset the indicated increase in the face value of the offer price.

On March 29, 2010, the Special Committee notified Company "J" that the Company "J" Proposal was rejected as it was determined not to be a "superior proposal" as a result of it being conditioned on a significant number of events that made consummation of the transaction highly unlikely.

Between March 24 and April 1, 2010, the Special Committee, FBR and Locke Lord evaluated the Revised Company "I" Proposal in order to determine if it constituted a "superior proposal" or was reasonably expected to lead to a "superior proposal." Upon the completion of the evaluation, the Special Committee (with consultation from FBR and Locke Lord) determined, based on its analysis of the Revised Company "I" Proposal and related information received to date on Company "I" and its assets, that the Revised Company "I" Proposal was reasonably likely to lead to a "superior proposal." Consequently, the Special Committee determined it in the best interests of the stockholders, from a financial point of view, to further investigate the Revised Company "I" Proposal. In accordance with the terms of the Merger Agreement, the Special Committee provided Powder and its counsel written notice of its intention to enter into an approved confidentiality agreement and further investigate the Revised Company "I" Proposal on April 1, 2010.

In accordance with the terms of the Merger Agreement, Pinnacle and Company "I" entered into an approved confidentiality agreement effective as of April 2, 2010. Since April 2, 2010, Pinnacle and Company "I" have engaged in due diligence with respect to the other party.

Between April 2, 2010 and April 5, 2010 Pinnacle received due diligence materials from Company "I" regarding Company I's financial condition, reserves, properties, and corporate documents.

On April 5, 2010, the Special Committee received an acquisition proposal from Company "K" (the "Company "K" Proposal"). The Special Committee forwarded the Company "K" Proposal to Locke Lord and FBR. Locke Lord provided oral and written notice of the Company "K" Proposal to Powder and its counsel in accordance with the terms of the Merger Agreement.

Between April 5 and April 6, 2010, the Special Committee (with consultation from Locke Lord) evaluated the Company "K" Proposal in order to determine if it constituted a "superior proposal" or was reasonably expected to lead to a "superior proposal." Upon the completion of the evaluation, the Special Committee determined that, as presented, the Company "K" Proposal was not a "superior proposal." The reason for this determination was, in part, that the proposed consideration was based on intellectual property rights, which were speculative.

On April 6, 2010, the Special Committee notified Company "K" that the Company "K" Proposal was rejected as it was determined not to be a "superior proposal."

On April 7, 2010 and April 8, 2010, Mr. Schoonmaker, Mr. Barnes and financial advisors from FBR met with Company "I" to go over due diligence data received from Company "I".

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On April 12, 2010, Locke Lord sent updated drafts of the merger agreement and related transaction documents that were included in the Revised Company "I" Proposal to the Special Committee and Company "I's" outside counsel, Thompson & Knight LLP ("T&K").

On April 13, 2010, T&K sent updated drafts of the Company "I" merger agreement and related transactional documents to the Special Committee and Locke Lord.

On April 14, 2010, the Special Committee held a telephonic meeting with representatives of Locke Lord to discuss open items in the most recent drafts of the merger agreement and related transactional documents, which included the material adverse effect definition, Company "I's" condition to closing that Pinnacle not be delisted from the Nasdaq Global Market or that Company "I" have no reasonable basis to believe that Pinnacle will be delisted within twelve months following the merger, timing of payment and amount of fees under the bridge loan and the preferred stock investment contemplated to be part of the Company "I" transaction, the conversion price of the preferred stock, and the condition under the bridge loan that Pinnacle enter into hedging contracts. The Special Committee instructed Mr. McGonagle to continue negotiating with Company "I" and for Locke Lord to revise the various agreements.

On April 14, 2010, Locke Lord sent updated drafts of the Revised Company "I" Proposal's merger agreement and related transaction documents to the Special Committee and T&K, which reflected the April 14, 2010 meeting of the Special Committee.

On April 15, 2010, the parties negotiated the terms of the Revised Company "I" Proposal's merger agreement and related transaction documents. The negotiation topics included the inclusion of specific material adverse effect items related to production, reserves and reduction in net mineral acres, the delisting closing condition, timing of payment and amount of fees under the bridge loan and preferred stock investment and the conversion price of the preferred stock. The parties agreed to continue negotiations and due diligence pending the results of the Company's April 29, 2010 listing hearing with Nasdaq.

On April 20, 2010, Company "I" representatives visited Pinnacle's office in Sheridan, Wyoming to review due diligence pertaining to Pinnacle's acreage and properties.

On April 29, 2010, Pinnacle presented a compliance plan to regain compliance with the minimum bid requirement to the NASDAQ Hearings Panel.

On April 29, 2010, T&K sent updated drafts of the merger agreement and related transactional documents to the Special Committee and Locke Lord. The updated merger agreement included provisions requiring Pinnacle to register the equity consideration issued as part of the transaction, modified the material adverse effect item related to daily production, and added covenants regarding amending Pinnacle's charter and Pinnacle's continued listing on Nasdaq.

On May 4, 2010, the Special Committee held a telephonic meeting with representatives of Locke Lord and FBR to discuss the Revised Company "I" Proposal. After discussing the revised items, the Special Committee instructed Mr. McGonagle to continue negotiating with Company "I" and for Locke Lord to revise the various agreements.

On May 6, 2010, Company "I" representatives attended and observed a work session with NSAI in Pinnacle's office. The meeting with NSAI was to review reserve data and organize data inputs for Pinnacle properties.

On May 10, 2010, the NASDAQ Hearings Panel issued its determination, granting our request for continued listing subject to the following agreed upon conditions: (i) filing of a preliminary proxy for an annual meeting including a proposal for a reverse stock split on or before the earlier of (a) the termination of the Merger, or (b) July 1, 2010; and (ii) on or before September 13, 2010, evidencing a closing bid price of $1.00 or more for ten consecutive trading days.

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On May 11, 2010, Locke Lord sent updated drafts of the Revised Company "I" Proposal's merger agreement and related transaction documents to the Special Committee and T&K, which reflected Mr. McGonangle's further negotiations with Company "I" regarding the terms of the Revised Company "I" Proposal, including a reduction in the aggregate amount of shares to be issued by Pinnacle, the inclusion of a warrant as part of the merger consideration, an increase in the amount of the bridge loan and a warrant to be issued to the lenders to purchase a portion of the shares of Common Stock of Pinnacle as part of the bridge loan.

From May 11, 2010, to May 14, 2010, the Special Committee and Company "I" continued to negotiate the remaining material open issues.

On May 14, 2010, T&K sent updated drafts of the Revised Company "I" Proposal's merger agreement and related transaction documents to the Special Committee and Locke Lord. The documents reflected further negotiated terms, including additional covenants in the agreement related to the preferred stock investment.

On May 17, 2010, the Special Committee held a telephonic meeting with representatives of Locke Lord to discuss the revised drafts, specifically the voting rights and adjustments to the conversion price of the preferred stock. The Special Committee instructed Locke Lord to continue negotiating with Company "I."

On May 19, 2010, representatives of Company "I," T&K, Messrs. Schoonmaker and Barnes, and Pinnacle's legal counsel, Moye White LLP, held a telephonic discussion with Nasdaq representatives regarding the proposed voting rights, board designation rights and conversion terms of the preferred stock investment.

On May 19, 2010, T&K sent updated drafts of the Revised Company "I" Proposal's bridge loan agreement and related transaction documents to the Special Committee and Locke Lord. The documents reflected further negotiated terms, including an increase in the amount of the bridge loan.

On May 20, 2010, the Board held a telephonic meeting with all members of the Board and representatives of Locke Lord and FBR to discuss the current status of the Merger and the Revised Company "I" proposal. FBR reviewed the status of its analysis of the Revised Company "I" proposal based upon the current terms of the Revised Company "I" Proposal's merger agreement and related transaction documents.

On May 25, 2010, Company "I" terminated negotiations with Pinnacle. Pinnacle has had no further discussions with Company "I" since this date.

Waivers and Amendments to Credit Facility

With the significant decline in gas prices and resulting lack of liquidity, in 2008 we began to experience difficulties in complying with certain covenants within our credit facility. These difficulties caused our lender to reduce our borrowing base, thereby requiring significant monthly principal repayments and also to place additional conditions on our ability to borrow additional amounts. We also ceased to be in compliance with certain covenants contained in our credit agreement and thus required waivers from our lender to protect against the risk that the lender would seek to enforce its rights and liens in response to the resulting defaults. Our efforts to obtain such waivers are summarized below:

Commencing in July 2008, we began drawing on availability under our credit facility, borrowing an aggregate of $12.5 million by October 2008.

On August 4, 2008, Pinnacle and its lender entered into the Second Amendment to Credit Agreement which relaxed certain covenants for the quarter ended September 30, 2008 and thereafter,

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including an increase to 3.0x of the Total Senior Debt to Annualized EBITDA covenant, and increased our borrowing base interest by 25 basis points.

On September 30, 2008, Pinnacle and its lender entered into the Third Amendment to Credit Agreement which waived the non compliance of certain covenants for the quarter ended September 30, 2008, including the current ratio covenant, and increased our borrowing base interest by 50 basis points.

On November 12, 2008, our lender lowered our borrowing base from $16.5 million to $14.5 million, effective October 2008. The lender also required us to reduce our borrowing base to $10.5 million by April 2009 through monthly principal reductions of $670,000.

On April 14, 2009, Pinnacle and its lender entered into the Fourth Amendment to Credit Agreement to waive the non compliance with certain covenants for quarters ended December 31, 2008 and March 31, 2009 (including the current ratio covenant), limit as of September 30, 2009 vendor payables greater than ninety days past due to less than $6.0 million and to limit liens to less than $2.5 million, as our actual vendor trade payables greater than 90 days past due exceeded $5.0 million and vendor liens exceeded $1.5 million. The amendment also consented to the sale of our high-pressure gas gathering assets, provided we use a portion of the proceeds to reduce the amount borrowed under the credit facility. This amendment set our borrowing base at $9.0 million, reducing to $6.5 million by October 1, 2009, our next borrowing base redetermination. The $500,000 required monthly principal reductions to comply with the reduced borrowing base put further pressure on our resources and severely limited cash flow to support operations and development.

On August 19, 2009, Pinnacle and its lender entered into a Waiver and Agreement to waive the noncompliance of certain covenants under our credit facility through August 26, 2009, including the current ratio covenant for the quarter ended June 30, 2009.

On August 26, 2009, Pinnacle and its lender entered into the Fifth Amendment to Credit Agreement providing for the waiver of the noncompliance of certain covenants for the quarter ended June 30, 2009 (including the current ratio covenant), amend the consent provisions by the lender for divestiture of properties and equity transactions and to impose a $150,000 fee if we did not have a commitment for additional equity financing by October 26, 2009. The lender required this commitment of equity financing to provide for payment of the monthly amortization.

On October 8, 2009, our lender advised us of its redetermination of borrowing base effective October 20, 2009, reducing our borrowing base from $6.5 million to $6.3 million. In addition, we were advised by our lender that the day-to-day management of our credit facility would now be handled by representatives of the lender's workout group.

On October 20, 2009, Pinnacle and its lender entered into the Sixth Amendment to Credit Agreement which revised the borrowing base under the credit facility to $6.3 million effective December 1, 2009, along with ongoing monthly principal reductions of $200,000 until another borrowing base redetermination.

On October 26, 2009, Pinnacle and its lender entered into a Waiver and Agreement waiving our obligation to comply with certain provisions of the credit facility through November 16, 2009, including the waiver of the current ratio covenant for the quarter ended June 30, 2009, and modifying certain references in the Fifth Amendment to the Credit Agreement.

On November 16, 2009, Pinnacle and its lender entered into a Waiver and Agreement waiving our obligation to comply with certain provisions of the credit facility through November 23, 2009, including the waiver of the current ratio covenant for the quarter ended June 30, 2009, and modifying declined consent without certain references in the Fifth Amendment to Credit Agreement and the October 26, 2009 Waiver and Agreement.

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On November 23, 2009, Pinnacle and its lender entered into a Waiver and Agreement waiving our obligation to comply with certain provisions of the credit facility through December 1, 2009, including the waiver of the current ratio covenant for the quarters ended June 30, 2009 and September 30, 2009, and modifying certain references in the Fifth Amendment to the Credit Agreement and the October 26, 2009 and November 16, 2009 Waiver and Agreement. The lender indicated that Pinnacle must make "significant progress" with respect to a transaction with Scotia by December 1, 2009 in order for the lender to consider extending the waivers further.

On November 30, 2009, the Special Committee participated in a telephonic meeting with representatives of the lender under the credit facility to review the status of the negotiations with Scotia and to discuss a further extension of the existing waiver. The lender's representatives verbally indicated they could agree to an extension of our bank covenant waivers through January 4, 2010. The lender's representatives also informed the Special Committee that they would hire a financial advisor, at our expense, to review the Scotia proposal and to evaluate the probability of the transaction being completed.

On December 1, 2009, Pinnacle and its lender entered into a Waiver and Agreement waiving our obligation to comply with certain provisions of the credit facility through January 5, 2010, including the waiver of the current ratio covenant for the quarters ended June 30, 2009 and September 30, 2009, and modifying certain references in the Fifth Amendment and the October 26, 2009, November 16, 2009 and November 23, 2009 Waiver and Agreement.

On December 4, 2009, the Special Committee convened to discuss the lender's reticence to extend additional waivers of the credit agreement and grant time for a potential merger to take place, based upon the lender's stated disbelief of the validity of the Scotia proposal. The Special Committee discussed prior and new proposals, and alternative courses of action in light of the lender's stated position.

On December 14, 2009, our lender retained a financial advisor (at our cost) to do an on site visit for valuation of assets to get comfort with further extension of the waivers and amended terms in our credit agreement, taking into account our current credit facility balance of $6.3 million, along with a working capital deficiency of approximately $15.0 million.

On December 22, 2009 we were informed by our lender that they had received an unsolicited offer to purchase our credit facility with an anticipated closing date of year end of 2009. Our lender requested our consent to the sale as required under the terms of credit facility. Pinnacle declined to consent without additional information on the potential purchaser and its financial capabilities.

On December 23, 2009, a meeting of the Board members was held to determine our rights under the credit facility, possible alternatives if the facility was sold and our response to our lender. A letter was sent to the lender to address our concerns in light of the potential Scotia transaction and further extensions needed to accomplish this transaction.

On January 5, 2010, Pinnacle and its lender entered into a Waiver and Agreement waiving our obligation to comply with certain provisions of the credit facility through January 12, 2010, including the waiver of the current ratio covenant for the quarters ended June 30, 2009, September 30, 2009 and December 31, 2009, and modifying certain references in the Fifth Amendment, and the October 26, 2009, November 16, 2009, November 23, 2009 and December 1, 2009 Waiver and Agreement.

Effective January 13, 2010, Pinnacle and its lender entered into the Seventh Amendment and Waiver to the credit agreement which: (i) extended the waiver period under the prior waiver and agreements to June 15, 2010; and (ii) defined the "Final Maturity Date" in the Credit Agreement to mean the earlier of (A) June 15, 2010; or (B) the date that is thirty (30) days following the date which is the earliest of: (x) unless the Merger shall have commenced on or before February 15, 2010, (y) the date when the Merger is withdrawn or terminated in whole or in part or (z) the date the lender have

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been advised that the Scotia transaction will not proceed. The amendment also provided for a continued reduction in the borrowing base by making principal payments of $200,000 per month through maturity.

On February 12, 2010, the Special Committee initiated discussions with the lender to extend the Final Maturity Date beyond February 15, 2010 with respect to commencement of the Merger.

On February 15, 2010, Scotia provided the lender with a letter confirming that Scotia had completed its initial due diligence on Pinnacle and providing a qualified funding commitment, subject to the execution of certain transaction documents and confirmation of Scotia investment committee approval which was anticipated on or prior to February 23, 2010.

On February 17, 2010, the lender agreed to extend the first trigger for final maturity from February 15, 2010 to February 23, 2010.

Terminated Transaction with Quest Resource Corporation

On October 15, 2007, we entered into an agreement and plan of merger with Quest Resource Corporation ("Quest") pursuant to which Quest would have acquired all of our issued and outstanding Common Stock in exchange for 19.1 million shares of Quest common stock, having an aggregate valuation at that time of approximately $207.0 million. The merger agreement was amended on February 6, 2008 to, among other items, reduce the number of shares of Quest common stock to be issued to 15.5 million shares, having an aggregate market value at that time of approximately $127.4 million. Quest terminated the Merger Agreement on May 16, 2008. On August 23, 2008, Quest announced the resignation of its chairman, president and chief executive officer. The resignation followed the discovery, in connection with an inquiry from the Oklahoma Department of Securities, of questionable transfers of company funds to an entity controlled by the chairman, president and chief executive officer.

Purpose of the Merger

For Pinnacle, the purpose of the Merger is to enable our unaffiliated stockholders to immediately realize the value of their investment in our Common Stock through their receipt of the Merger Consideration of $0.34 in cash, without interest, representing a premium of approximately 28% over the market price of our Common Stock on the date immediately preceding announcement of the Merger. The Merger Consideration represents a greater amount for our stockholders than they could be expected to realize from a bankruptcy filing, which was the most likely alternative to the Merger available to us.

For DLJ, it has understood that Pinnacle has been operating under severe liquidity constraints, and that without a strategic transaction that offers some prospects for Pinnacle to refinance its debt and trade payables, a bankruptcy filing for Pinnacle may become necessary. Pinnacle management informed DLJ from time to time of its efforts to obtain alternative financing, sell assets and pursue other merger and sale transactions, and DLJ delivered a preliminary term sheet to Pinnacle on November 20, 2009 for a $2 million senior secured mezzanine loan facility. However, DLJ's term sheet was declined by the Board as insufficient to address Pinnacle's ongoing liquidity issues because it did not provide enough funds to satisfy obligations to Pinnacle's secured creditor and vendors, nor would it provide sufficient operating capital. During the negotiation of the terms of the Merger and related transactions, DLJ was informed that Scotia would require DLJ to "roll over" its investment by contributing all of its shares of Common Stock to Powder. Because DLJ preferred to receive the same cash consideration per share of Common Stock that the other Pinnacle shareholders would receive, DLJ contacted Scotia to request the same treatment. However, Scotia advised DLJ that it would be unwilling to proceed on this basis. Accordingly, DLJ has agreed, pursuant to the Contribution Agreement, to contribute its shares of Common Stock to Powder in exchange for ownership interests in Powder, after which Powder is

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expected to be primarily owned by Scotia and DLJ. Pinnacle's Chief Executive Officer and Chief Financial Officer are anticipated to retain their executive positions with Pinnacle and will be issued profits interests with limited voting rights in Powder. The purpose for DLJ to engage in the transactions relating to the Merger, therefore, is to retain an indirect equity interest in Pinnacle as required by Scotia.

Recommendation of the Special Committee and Pinnacle's Board of Directors

Based on the factors discussed below under "—Fairness of the Merger; Reasons for Recommendation of the Special Committee and our Board of Directors," both the Special Committee and our Board of Directors determined that the Merger and the Merger Agreement are fair to and in the best interest of Pinnacle and our unaffiliated stockholders.

The Special Committee unanimously recommended that our Board of Directors:

•: approve the Merger and Merger Agreement; and
•: recommend that our stockholders vote for the adoption of the Merger Agreement.

After considering the recommendation of the Special Committee, our Board of Directors unanimously approved the Merger Agreement, declared the Merger Agreement was fair, advisable and in the best interests of Pinnacle and its unaffiliated stockholders and resolved to recommend to Pinnacle's stockholders that they adopt the Merger Agreement.

The Merger Agreement, including Merger and other transactions contemplated by the Merger Agreement, was unanimously approved by our full Board of Directors at a meeting called for that purpose. As a result, the Merger and Merger Agreement were unanimously approved by the independent directors of Pinnacle, which excludes Mr. Peter G. Schoonmaker, our chief executive officer and Susan C. Schnabel, who serves on our Board of Directors as the designee of DLJ.

Our Board of Directors unanimously recommends that you vote "FOR" the adoption of the
Merger Agreement, as it may be amended from time to time.

Fairness of the Merger; Reasons for the Recommendation of the Special Committee and our Board of Directors

The Special Committee and our Board of Directors consulted with financial and legal advisors, reviewed a significant amount of information and considered the following material factors in support of their determinations regarding the fairness of the Merger Agreement to our unaffiliated stockholders and the decision of the Special Committee to recommend that our Board of Directors approve the Merger Agreement, and the Board of Directors' decision to approve the Merger Agreement and to recommend that our stockholders vote to adopt the Merger Agreement. These factors are not listed in order of importance:

•: the belief of our Board that we would be unable to continue operations as an independent, stand-alone company because of our lack of liquidity and our inability to obtain additional financing from other sources. We have experienced sustained decreases in cash flow during the past five quarters due in part to the volatility of natural gas prices and declining gas production volumes. Such volatility has also resulted in significant reductions in our borrowing base under our current credit facility and our current lender has indicated it is not willing to provide any further extensions of credit or waivers of defaults which would allow our lender to exercise certain remedies. As a result, in the absence of a transaction, such as the Merger, we would likely have to seek protection under the federal bankruptcy laws;

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•: management reported that our independent auditors were most likely going to issue their audit report on our 2009 financial statements with a going concern modification, which would constitute an additional covenant default under our credit facility. The going concern modification was expected to provide that the financial covenant defaults under our credit facility and other debt agreements raised substantial doubt about our ability to continue as a going concern;
•: the fact that Pinnacle had explored a significant number of strategic and financial alternatives over an extended period of time and the thoroughness of the process for exploring and reviewing these alternatives, including consideration of alternative transactions with other third parties;
•: the current and historical prices of our Common Stock and the fact that the Merger Consideration of $0.34 in cash per share of our Common Stock represented a premium of approximately 28% over the market price of our Common Stock on February 23, 2010, the date immediately prior to the announcement of the Merger Agreement;
•: the financial analysis and opinion of FBR dated February 23, 2010 delivered to the Special Committee as to the fairness, from a financial point of view as of the date of the opinion, of the $0.34 per share cash Merger Consideration to be received by holders of our Common Stock pursuant to the Merger. The Special Committee and Board of Directors have specifically adopted the analysis of FBR set forth in its opinion. See Exhibit C to this proxy statement and "—Opinion of the Financial Advisor to the Special Committee" for more information on the analyses and opinion, including the assumptions made, matters considered and limits of review;
•: the fact that Pinnacle's operations have been constrained by a severe lack of liquidity, which has been exacerbated by the significant amortization payments required from our lender;
•: the substantial increase in the amount of our trade payables outstanding for over 90 days and vendor liens, and the resulting pressure from trade vendors, including the risk that key vendors would cease providing services to us or seek to enforce the vendor liens, any of which would significantly impair our operations;
•: the continuing weakness in natural gas prices and market conditions which limited our ability to generate positive cash flow from operations;
•: the risk that we may not be able to comply with the conditions and covenants set forth in the seventh amendment to our credit facility. If we are unable to comply with the terms of the seventh amendment or if our lender is unwilling to grant further modifications or extensions, we would be subject to the exercise of remedies by the lender. The exercise of such remedies would likely result in us seeking protection under federal bankruptcy laws;
•: the risk that we may not be able to comply with the listing standards of The NASDAQ Global Market ("NASDAQ") due to the fact that the price of our Common Stock has fallen below the minimum bid price of $1.00 per share for a period greater than 30 consecutive trading days. On April 29, 2010 a hearing before the NASDAQ was held at which we presented a compliance plan to regain compliance with the minimum bid price requirement. On May 10, 2010, the NASDAQ Hearings Panel issued its determination, granting our request for continued listing subject to the following agreed upon conditions: (i) filing a preliminary proxy for an annual meeting including a proposal for a reverse split on or before the earlier of (a) the termination of the Scotia transaction, or (b) July 1, 2010; and (ii) on or before September 13, 2010, evidencing a closing bid price of $1.00 or more for ten consecutive trading days;
•: the efforts made by our senior management and its advisors to obtain greater value than the $0.34 per share Merger Consideration provided for in the Merger, and the recognition that the

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$0.34 per share in value for stockholders was likely a greater amount for the stockholders than they could be expected to realize from a bankruptcy filing, which was the most likely alternative available to us;

•: subject to certain conditions, including the payment of a termination fee under certain circumstances, the terms of the Merger Agreement allow our Board to exercise its fiduciary duties to consider potential alternative transactions and to withdraw its recommendation to our stockholders to adopt the Merger Agreement and to terminate the Merger Agreement to accept a superior proposal;
•: the proposed Merger is for all cash, which provides a specific value to our stockholders compared to a transaction pursuant to which stockholders receive stock or other non-cash consideration that could fluctuate in value, or the alternative of trying to continue to operate as a stand-alone company, which might result in a bankruptcy filing and likely destruction of value for our stockholders; and
•: under Delaware law, stockholders who do not vote in favor of the Merger and satisfy certain conditions have the right to demand appraisal of their shares, which rights are described below under "Rights of Dissent and Appraisal" and Exhibit D.

The Special Committee and our Board also considered a number of countervailing risks and factors concerning the proposed Merger. These countervailing risks and factors included the following:

•: the fact that we will no longer exist as an independent company and our unaffiliated stockholders will be unable to participate in any future earnings, if any, or receive any benefit from any future increase in value of Pinnacle;
•: the fact that an all cash transaction would be taxable to stockholders of Pinnacle for U.S. federal income tax purposes;
•: the low price per share of Common Stock reflected by the Merger Consideration compared to the historical prices of our Common Stock;
•: the risks and costs to Pinnacle if the Merger does not close, including the diversion of management and employee attention, potential employee attrition and the potential effect on business and customer relationships.
•: the risk that Scotia may not be able to obtain sufficient financing to make the necessary cash contribution to Powder to consummate the Merger;
•: the lack of recourse against Powder if it should breach its obligations under the Merger.
•: the fact that our officers and employees will have to focus extensively on actions required to complete the Merger, as well as the substantial transaction costs that we will incur for the Merger, even if it is not consummated;
•: the fact that, pursuant to the Merger Agreement, we must generally conduct our business in the ordinary course and are subject to certain restrictions on the conduct of our business prior to the closing of the Merger or termination of the Merger Agreement, which may delay or prevent us from pursuing business opportunities that may arise or preclude actions that would be advisable if we were to remain an independent company;
•: the restrictions on Pinnacle's ability to solicit or engage in discussions or negotiations with a third party regarding specific transactions involving Pinnacle, and the up to $1,000,000 termination fee and up to $600,000 in expenses payable to Powder upon the occurrence of certain events, and the possible deterrent effect that paying such fee might have on the desire of

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other potential acquirors to propose an alternative transaction that may be more advantageous to our stockholders; and

•: the potential effects of our limitations on soliciting alternative proposals for the acquisition of Pinnacle or our assets, including prohibitions on soliciting alternative transactions and a requirement to hold a stockholder meeting on the Merger whether or not the Board continues to believe at the time of the stockholder meeting that the Merger is fair to, and in the best interests of, Pinnacle's stockholders.

In addition, the Special Committee and the Board believed that sufficient procedural safeguards were and are present to ensure the fairness of the Merger to our unaffiliated stockholders and to permit the Special Committee to represent effectively the interests of our unaffiliated stockholders. These procedural safeguards include the following, which are not listed in any relative order of importance:

•: the fact that the Special Committee is comprised of three directors who are not affiliated with Powder or DLJ and who are not employees of Pinnacle or any of its subsidiaries and the fact that the Special Committee represented solely the interests of our unaffiliated stockholders and negotiated with Powder on behalf of such stockholders;
•: the fact that no member of the Special Committee has an interest in the proposed Merger different from that of our unaffiliated stockholders, other than unvested restricted stock held by members of the Special Committee that will become vested in connection with the Merger and the customary indemnification and director and officer liability insurance coverage to which the members of the Special Committee will be entitled under the terms of the Merger Agreement;
•: the process undertaken by the Special Committee and our advisors in connection with evaluating third party interest in acquiring Pinnacle, as described above in "—Background of the Merger," including the fact that the Special Committee was free to explore a transaction with any other bidder, until the execution of the Merger Agreement on February 23, 2010;
•: the fact that the Special Committee consulted with FBR, with respect to financial issues and received legal advice from independent legal counsel, each of which has extensive experience in transactions similar to the proposed Merger;
•: the fact that the Special Committee, with the assistance of its independent legal and financial advisors, conducted extensive negotiations with Powder over several months and had the authority to reject the terms of the Merger Agreement;
•: the fact that the terms and conditions of the Merger Agreement enable the Special Committee to consider and recommend a superior proposal and terminate the Merger Agreement upon the payment of a $1.0 million termination fee and expenses of Powder;
•: the fact that the Merger requires the adoption of the Merger Agreement by the affirmative vote of the holders of at least a majority of the issued and outstanding shares of Pinnacle common stock entitled to vote at a meeting of stockholders and a majority of the outstanding shares of Pinnacle common stock held by persons other that DLJ, Pinnacle's chief executive officer and Pinnacle's chief financial officer; and
•: the availability of appraisal rights to the holders of our Common Stock who comply with all of the required procedures under Delaware law.

The board considered the net book value of Pinnacle, but determined that book value is an inappropriate measure for valuing Pinnacle, because it is unable to sell its assets for book value as a result of depressed prices in the coal bed methane industry. Pinnacle further considered the going concern value, but determined that it is an inappropriate measure of Pinnacle's value due to Pinnacle's

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current capital and liquidity needs because it will be unable to continue as a going concern without an immediate capital infusion. Likewise, in considering the liquidation value, the board determined that in the event Pinnacle does not receive an immediate infusion of capital, it will liquidate through bankruptcy and it is unlikely that its shareholders will receive any value. Pinnacle currently has certain net operating loss carryforwards; however, since the availability of such carryforwards will likely be significantly restricted pursuant to Internal Revenue Code Section 382, this was not a significant factor in the board's consideration of the Merger and Merger structure.

The discussion of the information, risks and factors that the Special Committee and our Board considered in arriving at its decision to approve the Merger Agreement and recommend that our stockholders vote to adopt the Merger Agreement is not intended to be exhaustive, but includes all material factors considered by the Special Committee and Board. In view of the wide variety of factors and risks considered in connection with its evaluation of the Merger, neither the Special Committee nor the Board believed it necessary to, and did not attempt to, rank or quantify the risks and factors although individual members of the Special Committee and Board may have assigned different weights to the factors and risks in their individual assessments of the Merger. The overall analysis of the factors described above included multiple discussions with and questioning of our Special Committee, management, financial advisors and legal counsel. Our Board carefully considered the risks and uncertainties associated with our remaining an independent publicly-traded company. Many of those risks and uncertainties are described in our Annual Report on Form 10-K, any updates to those risks and uncertainties set forth in our subsequent Quarterly Reports on Form 10-Q and the factors described below under "—Effects on Pinnacle if the Merger is Not Completed."

Position of DLJ as to the Fairness of the Merger

Under applicable SEC rules, DLJ is engaged in a "going private" transaction and therefore is required to express its belief as to the fairness of the Merger to Pinnacle's unaffiliated stockholders. DLJ is making the statements included in this section solely for the purposes of complying with the requirements of Rule 13e-3 and related rules under the Exchange Act. DLJ's view as to the fairness of the proposed Merger should not be construed as a recommendation to any stockholder of Pinnacle as to how such stockholder should vote on the proposal to adopt the Merger Agreement.

DLJ believes that the Merger is both substantively and procedurally fair to Pinnacle's unaffiliated stockholders. However, DLJ has not undertaken any formal evaluation of the fairness of the Merger to Pinnacle's unaffiliated stockholders or engaged a financial advisor for such purpose. DLJ did not consider Pinnacle's historic market prices, net book value, going concern value or liquidation value in determining the fairness of the transaction to Pinnacle's unaffiliated stockholders. DLJ did not consider historic market prices because DLJ believes that these prices are not indicative of the current value of the Common Stock due to adverse developments to Pinnacle's business as a result of the depressed prices in the coal bed methane industry and the downturn in the overall economy. DLJ did not consider net book value because DLJ considers book value to be an accounting concept that is indicative of historical costs expended by Pinnacle but not a material indicator of the value of the Common Stock. DLJ did not consider going concern value due to Pinnacle's current capital and liquidity needs, as DLJ expects that Pinnacle will be unable to continue as a going concern without an immediate capital infusion. Likewise, if Pinnacle does not receive an immediate infusion of capital, DLJ believes that Pinnacle may be required to liquidate and/or file bankruptcy, in which case it is unlikely that its shareholders will receive any value.

Moreover, DLJ did not participate in the deliberations of the Special Committee or receive advice from Pinnacle's legal or financial advisors in connection with the Merger and was not involved in any negotiations regarding the per share Merger Consideration. DLJ has not been given access to any of the analyses undertaken by Powder, the Special Committee or the Pinnacle Board of Directors in valuing Pinnacle. Ms. Schnabel currently serves as DLJ's designee to Pinnacle's Board of Directors.

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Ms. Schnabel, in her capacity as a member of Pinnacle's Board of Directors, participated in the deliberations of the Board of Directors in approving the Merger Agreement and the Merger, although she was not a member of, and did not participate in the deliberations of, the Special Committee. Following the unanimous approval of the Merger Agreement by all of Pinnacle's independent directors, the Merger Agreement was unanimously approved by Pinnacle's full Board of Directors.

The belief of DLJ that the Merger is substantively and procedurally fair to the unaffiliated stockholders of Pinnacle is based on the following factors, among others:

•: the fact that the $0.34 per share Merger consideration and other terms and conditions of the Merger Agreement resulted from extensive negotiations between the Special Committee and its advisors, on the one hand, and Powder and its advisors, on the other hand, and represents a premium of 28% over the market price of our Common Stock on the date immediately preceding announcement of the Merger, and was not reduced as a result of the deterioration of Pinnacle's financial condition during the negotiation of the Merger Agreement;
•: the fact that the Special Committee unanimously determined that the Merger is fair to and in the best interest of Pinnacle and its stockholders;
•: the fact that the Merger Agreement, including the Merger and other transactions contemplated by the Merger Agreement, was unanimously approved by Pinnacle's full Board of Directors, including each of Pinnacle's independent directors, present at the meeting called for that purpose;
•: the fact that neither the Special Committee nor Pinnacle's Board of Directors had any obligation to recommend approval of the Merger or adoption of the Merger Agreement or any other transaction;
•: the fact that the Merger requires the adoption of the Merger Agreement by the affirmative vote of the holders of at least a majority of the issued and outstanding shares of Common Stock entitled to vote at a meeting of stockholders and a majority of the outstanding shares of Common Stock held by persons other that DLJ, Pinnacle's chief executive officer and Pinnacle's chief financial officer;
•: the fact that, although DLJ is not entitled to rely on it, Pinnacle's Special Committee received an opinion from FBR as to the fairness, from a financial point of view, as of the date of the Merger Agreement, of the Merger Consideration to be received by Pinnacle's stockholders;
•: the fact that the Special Committee consulted with its own independent legal and financial advisors, who are experienced in transactions similar to the proposed Merger;
•: the fact that the Merger will provide consideration to the unaffiliated stockholders of Pinnacle entirely in cash, which provides certainty of value;
•: the fact that the Merger will provide liquidity, without the brokerage and other costs typically associated with market sales, for Pinnacle's public stockholders, whose ability, absent the Merger, to sell their shares of Common Stock is adversely affected by the low trading volume of the shares;
•: the fact that because DLJ has agreed to contribute its shares of Common Stock to Powder in exchange for equity interests in Powder, subject to the satisfaction of certain conditions, immediately prior to the effective time of the Merger, Powder was able to pay a higher price per share to Pinnacle's unaffiliated stockholders under the Merger Agreement or to satisfy Pinnacle's debt or trade payable as necessary to allow Pinnacle to continue to conduct its business;
•: the fact that any Pinnacle stockholders who do not vote in favor of the Merger will have the opportunity to seek appraisal of the fair value of their shares under Delaware law;

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•: DLJ's understanding that the Special Committee believes that Pinnacle's efforts to market itself to potentially interested parties constituted a thorough, fair and full process to ensure that the $0.34 per share consideration was the highest offer that could be obtained for Pinnacle;
•: the fact that the Pinnacle director designated by DLJ did not participate in the Special Committee's deliberative process or conclusions; and
•: the fact that Pinnacle may terminate the Merger Agreement prior to the adoption of the Merger Agreement by Pinnacle's stockholders in order to accept a superior third party proposal, subject to certain conditions, including payment of a termination fee.

DLJ considered each of the foregoing factors in determining the fairness of the Merger to Pinnacle's unaffiliated stockholders. In light of the factors described above, the fact that the use of a Special Committee of independent directors is a mechanism well recognized to ensure fairness in transactions of this type, and the requirement that a majority of the shares of Common Stock held by persons other than DLJ, Pinnacle's chief executive officer and Pinnacle's chief financial officer is required to approve the adoption of the Merger Agreement. DLJ believes that the Merger is procedurally fair to Pinnacle's unaffiliated stockholders despite the fact that Ms. Schnabel, in her capacity as a member of Pinnacle's Board of Directors, participated in the deliberations of the Board of Directors in approving the Merger Agreement and the Merger. In this regard, DLJ notes that all of the members of the Board of Directors voted on the transaction based on the unanimous recommendation of the Special Committee approved the Merger Agreement.

In making its determination as to the fairness of the proposed Merger to Pinnacle's unaffiliated stockholders, other than the terminated transaction with Quest Resource Corporation, DLJ was not aware of any firm offers during the prior two years by any person for the merger or consolidation of Pinnacle with another company, the sale or transfer of all or substantially all of Pinnacle's assets or a purchase of Pinnacle's common stock that would enable the purchaser to exercise control of Pinnacle.

DLJ's view as to the fairness of the Merger to Pinnacle's unaffiliated stockholders is not a recommendation as to how any such stockholder should vote on the Merger. The foregoing discussion of the information and factors considered by DLJ, while not exhaustive, includes all material factors considered by DLJ. DLJ did not find it practicable to assign, nor did it assign, relative weights to the individual factors considered in reaching its conclusion as to the fairness of the Merger to Pinnacle's unaffiliated stockholders. Rather, the fairness determinations were made after consideration of the totality of the information presented to it.

Opinion of Financial Advisor to the Special Committee

On February 22, 2010, FBR rendered its oral opinion (which was subsequently confirmed in writing by delivery of FBR's written opinion) to the Special Committee, to the effect that, as of February 23, 2010, the Merger Consideration to be received by the holders of Common Stock in the Merger pursuant to the Merger Agreement was fair to such holders from a financial point of view.

FBR's opinion was for the information of the Special Committee in connection with its consideration of the Merger. FBR's opinion does not constitute a recommendation to the Special Committee, the Board or any other person with respect to the Merger. FBR's opinion does not constitute advice or a recommendation to any investor or security holder of Pinnacle or any other person as to how such security holder should vote or act on any matter relating to the Merger or otherwise. FBR's opinion was only one of many factors considered by the Special Committee in its evaluation of the Merger and should not be viewed as determinative of the views of the Special Committee, the Board or management of Pinnacle with respect to the Merger or the Merger Consideration. The terms of the Merger, including the Merger Consideration, were determined through negotiations between Pinnacle and Powder and were not determined or recommended by FBR. FBR's

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opinion did not address the merits of the underlying decision of Pinnacle to engage in the Merger. Additionally, FBR expressed no opinion as to the prices at which the shares of Common Stock will trade following the announcement of the Merger. FBR's opinion only addressed the fairness, from a financial point of view, to the holders of Common Stock of the Merger Consideration to be received by such holders in the Merger and did not address any other aspect or implication of the Merger or any agreement, arrangement or understanding entered into in connection with the Merger or otherwise. The summary of FBR's opinion in this proxy statement is qualified in its entirety by reference to the full text of its written opinion, which is included as Exhibit C to this proxy statement, and which sets forth the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by FBR in preparing its opinion.

In arriving at its opinion, FBR, among other things:

•: reviewed a draft, dated February 23, 2010, of the Merger Agreement;
•: reviewed certain publicly available business and financial information relating to Pinnacle, including Pinnacle's Annual Reports on Form 10-K for each of the years in the two year period ended December 31, 2008 and Pinnacle's Quarterly Reports on Form 10-Q for the quarters ended March 31, 2009, June 30, 2009 and September 30, 2009;
•: reviewed certain financial statements of Pinnacle and other business, financial and operating information relating to Pinnacle provided to FBR by management of Pinnacle, including draft financial information for the quarter ended December 31, 2009;
•: reviewed certain economic, reserve and production reports provided to FBR by NSAI, Pinnacle's third party reservoir engineering consultants, including a draft reserve report for the year ended 2009;
•: reviewed certain publicly available business and financial information relating to the industry in which Pinnacle operates;
•: reviewed the stock price and trading history of the Common Stock;
•: discussed the business and prospects of Pinnacle with certain members of Pinnacle's management;
•: reviewed certain business, financial and other information relating to Pinnacle, including financial and engineering forecasts, estimates and projections for Pinnacle provided to or discussed with FBR by the management of Pinnacle (Exhibit G), ⁽¹⁾ which we refer to as the "management case," and NSAI;

(1)

The amount per mcf shown in the management projections is based on the NSAI reserve report, and takes the Nymex strip on February 2, 2010 less the price differential in place between the Nymex strip on February 2, 2010 and the Colorado Interstate Gas (CIG) Rocky Mountain Index price. After deducting the price differential from the Nymex strip on February 2, 2010, the price is adjusted for the BTU content of the gas, the fuel, loss and unaccounted for gas prior to the sale of the gas, the compression, gathering, and transportation fees charged by third-party service providers, and the premium paid above the CIG Rocky Mountain gas price by third-party gas purchasers.

•: reviewed certain financial and stock trading data and information for Pinnacle and compared that data and information with corresponding data and information, including estimates, for companies with publicly traded securities that FBR deemed relevant;
•: reviewed certain financial terms of the proposed Merger and compared those terms with the financial terms of certain other business combinations and other transactions which have recently been effected or announced;

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•: performed a discounted cash flow analysis, which relied on the management case and reserve and production reports provided to FBR by NSAI;
•: performed a net asset value analysis, based upon reserve report forecasts provided by NSAI; and
•: considered such other information, financial studies, analyses and investigations and financial, economic and market criteria that FBR deemed relevant.

In connection with its review, FBR did not independently verify any of the engineering, financial, accounting, legal, tax and other information FBR reviewed and FBR assumed and relied upon such information being complete and accurate in all material respects. With respect to the financial and engineering forecasts, estimates and projections provided to or discussed with FBR by Pinnacle and Pinnacle's independent reservoir engineers that FBR used in its analyses, management of Pinnacle and Pinnacle's independent reservoir engineers advised FBR, and FBR assumed, that such forecasts, estimates and projections were reasonably prepared in good faith on bases reflecting the best currently available estimates and judgments of the management of Pinnacle and Pinnacle's independent reservoir engineers (or, with respect to the forecasts, estimates and projections obtained from public sources, represent reasonable estimates) as to the future financial performance of Pinnacle and FBR expressed no view and assumed no responsibility for the assumptions, estimates and judgments on which such forecasts, estimates and projections were based. Further, without limiting the foregoing, FBR assumed, with the Special Committee's consent and without independent verification, that the historical and projected financial information provided to FBR by Pinnacle accurately reflected the historical and projected operations of Pinnacle, and that there had been no material change in the assets, financial condition, business or prospects of Pinnacle since the respective dates of the most recent financial statements made available to FBR. FBR also assumed that the Merger Agreement, when executed by the parties thereto, conformed to the draft reviewed by FBR in all respects material to its analyses. In addition, the Special Committee advised FBR, and for purposes of FBR's analyses and its opinion, FBR assumed, that (i) Pinnacle was in violation of the current ratio covenant of its revolving credit facility, (ii) Pinnacle was delinquent with respect to amounts owed on accounts payable, revenue distribution payable and ad valorem taxes and (iii) if the Merger was not consummated, Pinnacle's ability to function as a going concern would be severely impaired which might lead to a voluntary or involuntary bankruptcy, restructuring or liquidation of Pinnacle, in which holders of Common Stock would likely receive little or no value. FBR did not evaluate the solvency or fair value of any party to the Merger Agreement under any state or federal laws relating to bankruptcy, insolvency or similar matters and did not express an opinion as to the value of any assets of Pinnacle, whether at current market prices or in the future. As part of FBR's analysis, the firm treated the delinquent amounts owed on accounts payable, revenue distribution payable and ad valorem taxes as funded debt obligations.

FBR's opinion addressed only the fairness, from a financial point of view, to the holders of Common Stock of the Merger Consideration to be received by such holders in the Merger pursuant to the Merger Agreement and did not address any other aspect or implication of the Merger or any agreement, arrangement or understanding entered into in connection with the Merger or otherwise, including, without limitation, any tax implications of the Merger or the fairness of the amount or nature of, or any other aspect relating to, any compensation to any officers, directors or employees of any party to the Merger, or class of such persons, relative to the consideration to be received in the Merger by the holders of Common Stock or otherwise. The issuance of FBR's opinion was approved by an authorized internal committee of FBR.

FBR made no independent investigation of any legal matters involving Pinnacle, Merger Sub or Powder, and FBR assumed the correctness of all statements with respect to legal matters made or otherwise provided to Pinnacle and FBR by Pinnacle's counsel.

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FBR's opinion was necessarily based upon information made available to FBR as of the date of its opinion and financial, economic, market and other conditions as they existed and could be evaluated on the date of the opinion. FBR assumed no responsibility to update or revise its opinion based upon events or circumstances occurring after the date of the opinion. FBR's opinion did not address the relative merits of the Merger as compared to alternative transactions or strategies that might be available to Pinnacle or any other party to the Merger, nor did it address the underlying business decision of the Board, the Special Committee, Pinnacle or any other party to the Merger to proceed with the Merger.

Furthermore, in connection with its opinion, FBR was not requested to make, and did not make, any physical inspection or independent appraisal or evaluation of any of the assets, properties or liabilities (contingent or otherwise) of Pinnacle or any other party, nor was FBR provided with any such appraisal or evaluation. FBR did not estimate, and expressed no opinion regarding, the liquidation value of any entity.

The preparation of a fairness opinion is a complex process involving various quantitative and qualitative judgments and determinations with respect to the financial, comparative and other analytic methods employed and the adaptation and application of these methods to the unique facts and circumstances presented. As a consequence, neither a fairness opinion nor its underlying analyses are readily susceptible to partial analysis or summary description.

The following is a summary of the material financial analyses used by FBR in connection with its presentation to the Special Committee, and the preparation of its opinion delivered to the Special Committee. The following summary, however, does not purport to be a complete description of the financial analyses performed by FBR, nor does the order of presentation of the analyses described represent relative importance or weight given to those analyses by FBR. Some of the summaries of the financial analyses include information presented in tabular format. The tables must be read together with the full text of each summary and are alone not a complete description of FBR's financial analyses. Considering the data set forth in the tables below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the financial analyses performed by FBR. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before February 23, 2010, and is not necessarily indicative of current market conditions. The preparation of a fairness opinion involves various determinations as to the most appropriate and relevant methods of financial analysis and the application of these methods to the particular circumstances and, therefore, such an opinion is not readily susceptible to summary description. Each of the analyses conducted by FBR was carried out in order to provide a different perspective on the Merger and add to the total mix of information supporting the opinion. FBR did not form a conclusion as to whether any individual analysis, considered in isolation, supported or failed to support its opinion. Rather, in reaching its conclusions and delivering its opinion, FBR considered the results of the analyses in light of each other and did not place particular reliance or weight on any individual analysis, but instead concluded that its analyses, taken as a whole, supported its determination. Accordingly, notwithstanding the separate factors summarized above, FBR believes that its analyses must be considered as a whole and that selecting portions of its analyses and the factors considered by it, without considering all analyses and factors, could create an incomplete or misleading view of the evaluation process underlying its opinion. In performing its analyses, FBR made numerous assumptions with respect to industry performance, business and economic conditions and other matters. The analyses performed by FBR are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than suggested by such analyses.

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Key Valuation Assumptions. In conducting its analyses, FBR utilized the following assumptions based on guidance from Pinnacle management and the NSAI report:

•

Three gas pricing scenarios were selected for the purposes of this presentation (see Exhibit G):

•: Management case with assumed Colorado Interstate Gas ("CIG") prices of $5.41/MMBtu in 2010, $5.93/MMBtu in 2011, $6.03/MMBtu in 2012, $6.12/MMBtu in 2013, and $6.24/ MMBtu in 2014 and thereafter
•: NSAI year-end 2009 reserve report at a CIG price of $5.00/MMBtu held constant ("CIG $5.00 Case")
•: NSAI year-end 2009 reserve report at a CIG price of $4.00/MMBtu held constant ("CIG $4.00 Case")

•

Pinnacle's current hedge position was incorporated into all projections

•

A fundamental assumption was that Pinnacle must address payables and working capital deficiency to maintain going concern value and the ability to deploy capital to maintain and develop its assets; these items were treated as debt for the purposes of the analyses

•: As of December 31, 2009, Pinnacle had $5.4 million of accounts payable greater than 120 days past due, $2.3 million of ad valorem taxes due at year-end 2009 and $1.3 million of revenue distribution payable on or before June 30, 2010
•: Analysis assumed that Pinnacle had $5.9 million outstanding on its revolving credit facility on February 1, 2010 and total debt of $6.7 million (excluding accounts receivable, ad valorem taxes and revenue distribution payable)

•

Discounted Cash Flow and EBITDA projections assumed no additional capital expenditures and the following reserve riskings by category:

•: Proved developed producing ("PDP"): 95%
•: Proved developed non-producing ("PDNP"): 85%
•: No contribution from proved undeveloped ("PUD"), probable ("PROB") or possible ("POSS") reserves

Selected Publicly Traded Companies Analysis. FBR analyzed certain publicly traded companies in the oil and natural gas exploration and production industry that were deemed comparable to Pinnacle with respect to asset profiles, geographic dispersion of reserves and firm size (the "Peer Group"). FBR compared Pinnacle's financial performance with the performance of the Peer Group for the latest publicly available data and certain Bloomberg consensus projections. FBR derived base valuation multiples as detailed below by analyzing the specific Peer Group's financial information. FBR used the management case and NSAI estimates for Pinnacle and publicly available analyst estimates for the Peer Group in conducting the analysis. The Peer Group consisted of:

•: Admiral Bay Resources, Inc.
•: Double Eagle Petroleum Co.
•: Ember Resources Inc.
•: Geomet, Inc.
•: Petroleum Development Corporation

For each of the companies identified above, FBR calculated various valuation multiples, including:

•: the ratio of enterprise value to proved reserves, current daily production and the present value of future cash flows attributable to proved reserves discounted at 10% as calculated in accordance with FASB guidance ("SEC PV-10"); and

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•: the ratio of enterprise value to estimated earnings before interest, taxes, depreciation and amortization ("EBITDA") for the calendar years 2010 (referred to below as "CY 2010P") and 2011 (referred to below as "CY 2011P").

The following table summarizes the derived relevant ranges of multiples for the companies identified above:

				Multiples

Ratio of Enterprise Value to:	Pinnacle			High		Mean		Median		Low
Year-end 2009 Proved Reserves ($ / Mcfe)		25.0	Bcf	$	1.31	$	0.95	$	0.80	$	0.76
Current Daily Production ($ / Mcfe/d)		7.5	Mmcf/d	$	12,310	$	7,208	$	7,173	$	3,161
Year-End 2009 SEC PV10 ratio	$	17.6	million		1.1x		0.7x		0.6x		0.5x
CY 2010P	$	2.4	million		4.9x		3.8x		4.5x		2.0x
CY 2011P	$	1.3	million		4.1x		4.0x		4.0x		3.9x

Based upon the peer valuation multiples and various gas price scenarios, FBR then applied these valuation multiples to Pinnacle's year-end 2009 proved reserves, current daily production and year-end 2009 SEC PV-10 ratio and to its estimated EBITDA for CY 2010P and CY 2011P. This analysis indicated an implied per share equity value reference range for Pinnacle between $0.00 and $2.52 as compared to the $0.34 per share cash consideration that would be paid in the proposed Merger.

No company analyzed in the Peer Group has operations or reserves that are identical to those of Pinnacle. Trading multiples for the Peer Group as a whole were deemed more meaningful than multiples of any particular company. Mathematical analysis, such as determining the mean and median, is not in itself a meaningful method of using comparable company data. A complete analysis involves complex considerations and judgments concerning differences in financial and operating characteristics of the comparable companies and other factors that could affect the public trading values of the companies to which Pinnacle was compared.

Precedent Transactions Analysis. Using publicly available information, including SEC filings and press releases, FBR compared various valuation metrics from recent corporate and asset sale transactions with available reserve and production information that FBR deemed to be relevant (herein referred to in the aggregate as "Precedent Transactions"). FBR selected Precedent Transactions with primary operations in the Rocky Mountains region in which Pinnacle operates that were announced on or after September 2008 (to reflect changes in market conditions following the Lehman Brothers Holdings, Inc. bankruptcy). The comparable corporate transactions that FBR deemed to be relevant were:

Announcement Date	Buyer	Seller	Total Transaction Value ($MM)

12/18/09	J.M Huber	St. Mary Land & Exploration	$	40
11/09/09	Rise Energy Ltd.	Teton Energy	$	19
08/10/09	Williams Companies	Undisclosed	$	258
06/12/09	Bill Barrett Corporation	Undisclosed	$	60
04/02/09	Noble Energy	Teton Energy	$	4
03/03/09	Undisclosed	Berry Petroleum	$	154

Table of Contents

Reference Range ($MM)	Net Asset Value

CIG $4.00 Case
Low	$	15.1
High	$	21.4
CIG $5.00 Case
Low	$	22.0
High	$	38.0
Management Case (NYMEX Strip on February 2, 2010)
Low	$	30.9
High	$	62.0



Approval by Majority of Outstanding Shares
Total Shares outstanding and eligible to vote at special meeting	29,980,032	100.0%
Number of shares required to vote in favor of Merger Agreement for its adoption (majority)	14,990,017	50.0% +1
Number of shares subject to the voting agreement that have agreed to vote in favor of the adoption of the Merger Agreement	13,131,680	43.8%



Approval by Majority of Shares Held by Persons Other Than DLJ, Our Chief Executive Officer and Chief Financial Officer
Number of outstanding shares that are held by persons other than DLJ, our chief executive officer and chief financial officer	20,149,366	100.0%
Number of outstanding shares that are held by persons other than DLJ, our chief executive officer and chief financial officer required to vote in favor of Merger Agreement for its adoption (majority)	10,074,683	50.0% +1
Number of outstanding shares subject to the Voting Agreement that are held by persons other than DLJ, our chief executive officer and chief financial that have agreed to vote in favor of the adoption of the Merger Agreement	3,301,014	16.4%

		Sales Price Range per Share of Common Stock

		High		Low
Year ended December 31, 2009
	Fourth quarter	$	0.45	$	0.30
	Third quarter		0.44		0.29
	Second quarter		0.53		0.20
	First quarter		0.43		0.13
Year ended December 31, 2008
	Fourth quarter	$	1.22	$	0.24
	Third quarter		3.40		1.19
	Second quarter		4.01		2.22
	First quarter		5.10		2.55

Name and Address of Beneficial Owner

DLJ Merchant Banking Partners III, L.P. and affiliated entities(1)	9,751,262	32.3	%
CCBM, Inc.(2)	2,555,825	8.4
Highview Capital Management, LLC(3)	1,875,503	6.2
Peter G. Schoonmaker(4)	405,900	1.3
Ronald T. Barnes(5)	326,500	1.1
Robert L. Cabes, Jr.	157,442	*
Thomas G. McGonagle(6)	284,281	*
Jeffrey P. Gunst	109,629	*
Sylvester P. Johnson, IV(7)	—	*
F. Gardner Parker	195,337	*
Susan C. Schnabel(8)	—	*
All directors and executive officers as a group (8 persons)	1,479,089	4.9	%

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PINN Pinnacle Gas Resources (MM)