EXECUTION VERSION

 

NOTE AND WARRANT PURCHASE AGREEMENT

 

Dated as of February 9, 2012

 

by and among

 

ASEN 2, CORP.,

(as the “Company”)

 

and

 

AMERICAN STANDARD ENERGY CORP.,

(as the “Guarantor”)

 

and

 

PENTWATER EQUITY OPPORTUNITIES MASTER FUND LTD.

 

and

 

PWCM MASTER FUND LTD.

(as the “Investor”)

 

 

 

 

TABLE OF CONTENTS

 

    Page       ARTICLE I PURCHASE AND SALE OF NOTE 1 Section 1.1 Purchase and
Sale of Note and Warrants 1 Section 1.2 Closing Date 2 Section 1.3 Warrant
Shares 2       ARTICLE II REPRESENTATIONS AND WARRANTIES 2 Section 2.1
Representations and Warranties of the Company 2 Section 2.2 Representations and
Warranties of the Guarantor 10 Section 2.3 Representations and Warranties and
Covenants of the Investor 15       ARTICLE III COVENANTS 15 Section 3.1
Compliance with Laws 15 Section 3.2 Keeping of Records and Books of Account 16
Section 3.3 Reporting Requirements 16 Section 3.4 Other Agreements 19 Section
3.5 Distributions 19 Section 3.6 Prohibition on Liens 19 Section 3.7 Prohibition
on Indebtedness 20 Section 3.8 Compliance with Transaction Documents 21 Section
3.9 Transactions with Affiliates 21 Section 3.10 No Merger or Sale of Assets; No
Formation of Subsidiaries 21 Section 3.11 Payment of Taxes, Etc. 21 Section 3.12
Corporate Existence 22 Section 3.13 No Investments 22 Section 3.14 Access to
Accountants 22 Section 3.15 Inspection 22 Section 3.16 Insurance 22 Section 3.17
Production Report and Lease Operating Statements 23 Section 3.18 Title
Information 24 Section 3.19 Gas Imbalances, Take-or-Pay or Other Prepayments 24
Section 3.20 Reservation of Shares 24 Section 3.21 Marketing of Production 24
Section 3.22 Environmental Matters 24 Section 3.23 Material Agreements 25
Section 3.24 Swap Agreements 25 Section 3.25 Disclosure of Transactions and
Other Material Information 25       ARTICLE IV CONDITIONS 25 Section 4.1
Conditions Precedent to the Obligation of the Investor to Close on the Closing
Date 25 Section 4.2 Conditions Precedent to the Obligation of the Investor to
Consummate the Subsequent Funding 28

 

-i-

 

 

TABLE OF CONTENTS

(continued)

 

    Page       ARTICLE V CERTIFICATE LEGEND 30 Section 5.1 Legend 30      
ARTICLE VI INDEMNIFICATION 31 Section 6.1 General Indemnity 31       ARTICLE VII
MISCELLANEOUS 31 Section 7.1 Fees and Expenses 31 Section 7.2 Consent to
Jurisdiction; Venue 32 Section 7.3 Entire Agreement; Amendment 32 Section 7.4
Notices 32 Section 7.5 Waivers 33 Section 7.6 Headings 33 Section 7.7 Successors
and Assigns 34 Section 7.8 No Third Party Beneficiaries 34 Section 7.9 Indemnity
34 Section 7.10 Governing Law 35 Section 7.11 Survival 35 Section 7.12 Publicity
35 Section 7.13 Counterparts 36 Section 7.14 Severability 36 Section 7.15 Tax
Matters 36 Section 7.16 Registration 38

 

EXHIBITS

 

Exhibit 1.1A - Form of Note Exhibit 4.1(q) - Form of Registration Rights
Agreement

 

SCHEDULES

 

Schedule 2.1(c)(i) - Authorized Capital Stock Schedule 2.1(c)(ii) - Preemptive
or Other Rights Schedule 2.1(e) - Undisclosed Liabilities Schedule 2.1(f) -
Indebtedness Schedule 2.1(g) - Liens Schedule 2.1(h) - Litigation Schedule
2.1(n) - Transactions with Affiliates Schedule 2.1(p) - Collective Bargaining
and Employment Agreements Schedule 2.1(t) - Material Agreements Schedule 3.17 -
Oil and Gas Properties Schedule 3.21 - Marketing Contracts

 

-ii-

 

 

 

Note and Warrant PURCHASE AGREEMENT

 

This NOTE AND WARRANT PURCHASE AGREEMENT, dated as of February 9, 2012 (this
“Agreement”), is by and among ASEN 2, CORP., a Delaware corporation (the
“Company”), AMERICAN STANDARD ENERGY CORP., a Delaware corporation (the
“Guarantor”), and PENTWATER EQUITY OPPORTUNITIES MASTER FUND LTD., a Cayman
Islands corporation (“Opportunities”) and PWCM MASTER FUND LTD., a Cayman
Islands corporation, (“PWCM” and together with Opportunities, collectively, the
“Investor”).

 

The parties hereto agree as follows:

 

ARTICLE I

 

PURCHASE AND SALE OF NOTE

 

Section 1.1     Purchase and Sale of Note and Warrants.

 

(a)          On the Closing Date (as defined in Section 1.2) (i) the Company
shall issue to the Investor a promissory note, substantially in the form of
Exhibit 1.1A attached hereto (the “Note”), which Note shall evidence the advance
made by the Investor to the Company pursuant to this Agreement and (ii) the
Guarantor shall issue to the Investor warrants (the “Warrants”) granting to the
Investor the right to purchase Three Million Three Hundred Thirty-Three Thousand
Three Hundred Thirty-Three (3,333,333) shares of fully paid and non-assessable
Common Stock (as defined below), at a per share purchase price of Two Dollars
and 50/100 ($2.50) (the “Exercise Price”).

 

(b)          Upon satisfaction of the terms and conditions set forth in ARTICLE
IV and in reliance on the representations and warranties of the Company and the
Guarantor set forth herein and in the other Transaction Documents (as defined in
Section 2.1(b)), the Investor, severally and not jointly, shall advance to the
Company an amount equal to the Investor’s Commitment Percentage of $20,000,000
as described in this Section 1.1, less (i) the original issue discount set forth
below and (ii) the amount of fees and expenses of the Investor the Company is
obligated to pay pursuant to Section 7.1. “Commitment Percentage” of the
Investor shall mean the percentage set forth below the Investor’s names on the
signature page hereof.

 

(c)          The first advance pursuant to the Note (the “Initial Funding”)
shall be made by the Investor, severally and not jointly, to the Company on the
Closing Date in an amount equal to the result of $10,000,000 less (i) an
unconditional non-refundable original issue discount in an amount equal to
$175,000 and (ii) the amount of fees and expenses of the Investor the Company is
obligated to pay pursuant to Section 7.1 on the Closing Date; and the Guarantor
shall issue the Warrants to the Investor.

 

 

 

 

(d)          An additional advance pursuant to the Note (the “Subsequent
Funding”) shall be made by the Investor, severally and not jointly, to the
Company on the first date on which the transactions contemplated pursuant to a
certain purchase and sale agreement (the “Purchase Agreement”) to be entered
into among the Guarantor, XOG Operating LLC, HNL Royalties LLC, Geronimo Holding
Corporation, Randall Capps and such other Persons (as defined in Section 2.1(d))
that may be parties thereto, and each of the conditions set forth in Section 4.2
hereof has been fully satisfied or waived by the Investor, in an amount equal to
the result of $10,000,000 less (i) an unconditional non-refundable original
issue discount in an amount equal to $175,000 and (ii) the amount of fees and
expenses of the Investor the Company is obligated to pay pursuant to Section 7.1
on the date the Subsequent Funding is made.

 

(e)          The aggregate outstanding principal amount of the Note and all
accrued and unpaid interest thereon shall be due and payable on the earlier of
February 9, 2015 and the date on which such principal amount is accelerated
after the occurrence of an Event of Default pursuant to the terms of the Note.
“Business Day” shall mean any day banking transactions can be conducted in New
York City, New York and does not include any day which is a federal or state
holiday in such location.

 

Section 1.2     Closing Date.

 

The closing under this Agreement shall take place immediately upon the execution
of this Agreement by the parties hereto and the satisfaction of the conditions
contained in Section 4.1 or on such other date as may be agreed upon in writing
by the parties hereto (the “Closing Date”). The Closing Date shall take place at
the offices of the Investor, 227 West Monroe Street, Chicago, IL 60606 at 10:00
a.m., New York time, or at such other time and location as may be agreed upon by
the parties hereto.

 

Section 1.3     Warrant Shares.

 

The Guarantor has authorized and has initially reserved and covenants to
continue to reserve, free of preemptive rights and other similar contractual
rights of stockholders, a number of its authorized but unissued shares of Common
Stock necessary to effect the exercise of the Warrants and any conversion
contemplated by the Note in full. Any shares of Common Stock issuable upon
exercise of the Warrants (and such shares when issued) are herein referred to as
the “Warrant Shares”. Any shares of Common Stock issuable upon any Conversion of
the Note (and such shares when issued) are herein referred to as the “Note
Shares”. The Note, the Warrants, Warrant Shares and the Note Shares are
sometimes collectively referred to herein as the “Securities”.

 

ARTICLE II

 

REPRESENTATIONS AND WARRANTIES

 

Section 2.1     Representations and Warranties of the Company.

 

The Company hereby represents and warrants to the Investor, as of the date
hereof, as follows:

 

2

 

 

(a)          Organization, Good Standing and Power. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, and has the requisite corporate power to own,
lease and operate its properties and assets and to conduct its business as it is
now being conducted. The Company does not have any direct or indirect
Subsidiaries or own securities of any kind in any other entity. For the purposes
of this Agreement, “Subsidiary” shall mean any corporation or other entity of
which at least 50% of the securities or other ownership interest having ordinary
voting power (absolutely or contingently) for the election of directors or other
Persons performing similar functions are at the time owned directly or
indirectly by the Company or Guarantor, as applicable. The Company is duly
qualified as a foreign corporation, duly incorporated to do business and is in
good standing in every other jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary, except for
any jurisdiction(s) (alone or in the aggregate) in which the failure to be so
qualified could not reasonably be expected to have a Material Adverse Effect.
For the purposes of this Agreement, “Material Adverse Effect” means any (a)
material adverse effect on (i) the business, operations, properties or financial
condition of the Guarantor and its Subsidiaries (taken as a whole) or (ii)
Investor’s liens in the Collateral or the priority of any such lien and/or (b)
condition, circumstance, or situation that would prohibit or otherwise
materially interfere with the ability of the Company or the Guarantor to perform
any of their respective obligations under this Agreement or any of the other
Transaction Documents.

 

(b)          Authorization; Enforcement. The Company has the requisite corporate
power and authority to enter into and perform (i) this Agreement, (ii) the Note,
(iii) the Security Agreement dated as of the date hereof (as amended, amended
and restated, supplemented or otherwise modified from time to time, the
“Security Agreement”) by and between the Company and the Investor, and (iv)
those certain leasehold and deeds of trust dated as of the date hereof (as
amended, amended and restated, supplemented or otherwise modified from time to
time, collectively, the “Deeds of Trust”; this Agreement, the Note, the
Warrants, the Security Agreement, the Guaranty dated as of the date hereof (as
amended, amended and restated, supplemented or otherwise modified from time to
time, the “Guaranty”) made by the Guarantor in favor of the Investor and the
Deeds of Trust, collectively, the “Transaction Documents” and each individually
a “Transaction Document”) by and between the Company the Investor. The
execution, delivery and performance of the Transaction Documents by the Company
and the consummation of the transactions contemplated thereby have been duly and
validly authorized by all necessary corporate action, and no further consent or
authorization of the Company or its Board of Directors, stockholders or any
other third party is required. When executed and delivered by the Company, each
of the Transaction Documents to which they are a party shall constitute legal,
valid and binding obligations of the Company, enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, reorganization, moratorium, liquidation, conservatorship,
receivership or similar laws relating to, or affecting generally the enforcement
of, creditor’s rights and remedies or by other equitable principles of general
application.

 

(c)          Capitalization. The authorized capital stock and the issued and
outstanding shares of capital stock of the Company (the “Common Stock”) as of
the Closing Date is set forth on Schedule 2.1(c)(i) attached hereto. All of the
outstanding shares of the Common Stock and any other outstanding security of the
Company have been duly and validly authorized. Except as set forth in the SEC
Reports or on Schedule 2.1(c)(ii) attached hereto, there are no outstanding
options, warrants, scrip or call relating to, or securities or rights
convertible into, any shares of capital stock of the Company. The Company is not
a party to, and it has no knowledge of, any agreement or understanding
restricting the voting of any shares of the capital stock of the Company.
“Person” means any individual, sole proprietorship, joint venture, partnership,
corporation, limited liability company, association, joint-stock company,
unincorporated organization, cooperative, trust, estate, governmental entity or
any other entity of any kind or nature whatsoever. “SEC Reports” means all
forms, reports and other documents publicly filed by Guarantor with the
Securities and Exchange Commission via Edgar under the Securities Exchange Act
of 1934, as amended.

 

3

 

 

 

(d)          No Conflicts. The execution and delivery of the Transaction
Documents by the Company, and the performance of its obligations thereunder, do
not and will not (i) violate or conflict with any provision of the Company’s
Certificate of Incorporation or Bylaws, each as amended to date, (collectively,
the “Organizational Documents”), (ii) conflict with, or constitute a default (or
an event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, mortgage, deed of trust, indenture, note, bond,
license, lease agreement, instrument or obligation to which the Company is a
party or by which the Company’s properties or assets are bound, (iii) result in
a violation of any federal, state, local or foreign statute, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations) applicable to the Company or by which any property or asset of the
Company are bound or affected, or (iv) create or impose a lien, mortgage,
security interest, charge or encumbrance of any nature on any property or asset
of the Company under any agreement or any commitment to which the Company is a
party or by which the Company is bound or by which any of its properties or
assets are bound, except, solely in the case of clauses (ii) and (iii), for such
violations as could not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect (other than violations with respect
to federal and state securities laws). The Company is not required under
federal, state, foreign or local law, rule or regulation to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, in order for it to execute, deliver or perform any of its
obligations under the Transaction Documents to which it is a party or issue the
Note in accordance with the terms hereof (other than any filings to perfect
liens or security interests granted to the Investor pursuant to the Transaction
Documents and any filings pursuant to the Guarantor’s disclosure obligations as
a public company with the Securities and Exchange Commission). The business of
the Company is not being conducted in violation of any laws, ordinances or
regulations of any governmental entity, except for such violations that could
not reasonably be expected to have a Material Adverse Effect.

 

(e)          No Undisclosed Liabilities, Events or Circumstances. Except as set
forth in the SEC Reports or on Schedule 2.1(e) attached hereto, since September
30, 2011, the Company has not incurred any liabilities, obligations, claims or
losses (whether liquidated or unliquidated, secured or unsecured, absolute,
accrued, contingent or otherwise), and no event or circumstance has occurred or
exists with respect to the Company or its business, properties, operations or
financial condition, other than those incurred in the ordinary course of the
Company’s business or which, individually or in the aggregate, could reasonably
be expected to have a Material Adverse Effect.

 

4

 

 

(f)          Indebtedness. Schedule 2.1(f) attached hereto sets forth as of the
date hereof all outstanding secured and unsecured Indebtedness of the Company,
or for which the Company has commitments to incur. For the purposes of this
Agreement, “Indebtedness” shall mean, with respect to any Person, (i) all
obligations for borrowed money, (ii) all obligations evidenced by bonds,
debentures, notes, or other similar instruments and all reimbursement or other
obligations in respect of bankers acceptances, currency swap agreements,
interest rate hedging agreements (including, without limitation, interest rate
and commodity hedging agreements), or other similar financial products, (iii)
all capital lease obligations, (iv) all obligations or liabilities secured by a
lien or encumbrance on any asset of such Person, irrespective of whether such
obligation or liability is assumed, (v) all obligations for the deferred
purchase price of assets (other than trade debt and other account payables),
(vi) all synthetic leases, (vii) all obligations with respect to redeemable
stock and redemption or repurchase obligations under any capital stock or other
equity securities issued by such Person, (viii) all reimbursement obligations
and other liabilities of such Person with respect to surety bonds (whether bid,
performance or otherwise), letters of credit, banker’s acceptances, drafts or
similar documents or instruments issued for such Person’s account, (ix)
indebtedness of any partnership or joint venture in which such Person is a
general partner or a joint venturer to the extent such Person is liable therefor
as a result of such Person’s ownership interest in such entity, except to the
extent that the terms of such indebtedness expressly provide that such Person is
not liable therefor or such Person has no liability therefor as a matter of law,
(x) trade debt and other account payables which remain unpaid more than sixty
(60) days past the due date thereof, and (xi) any obligation guaranteeing or
intended to guarantee (whether directly or indirectly guaranteed, endorsed,
co-made, discounted or sold with recourse) any of the foregoing obligations of
any other Person.

 

(g)          Title to Collateral. The Company has good and valid title to all of
the Collateral (as defined in the Security Agreement and Deed of Trust), free
and clear of any mortgages, pledges, charges, liens, security interests or other
encumbrances, except for Permitted Encumbrances (as defined in Section 3.6). The
leases with respect to the Oil and Gas Properties are valid and subsisting and
in full force and effect. Pursuant to, and upon execution, delivery and the
filing of Deeds of Trust in the appropriate jurisdictions, the Investor shall
have a perfected, first-priority security interest in the Collateral. With
respect to the leases of the Oil and Gas Properties, “good and valid title”
means such title that will enable the title holder to receive from each of such
Oil and Gas Properties at least the “Net Revenue Interest” for the wells
associated with each of such Oil and Gas Properties, without reduction,
suspension, or termination throughout the productive life of the wells, except
for any reduction, suspension, or termination: (i) caused by orders of the
appropriate regulatory agency having jurisdiction over an Oil and Gas Property
that are promulgated after the Closing Date and that concern pooling,
unitization, communitization, or spacing matters affecting an Oil and Gas
Property; or (ii) otherwise set out in Schedule 2.1(g). “Good and valid title”
also means title that will obligate the title holder to bear no greater “Working
Interest” than the Working Interest for each of the wells as being associated
with each of such Oil and Gas Properties, without increase throughout the
productive life of the wells, except for any increase: (i) that also results in
the Net Revenue Interest associated with the well being proportionately
increased; (ii) caused by contribution requirements provided for under
provisions similar to those contained in Article VI of the A.A.P.L. Form 610-89
Model Form Operating Agreement; (iii) caused by orders of the appropriate
regulatory agency having jurisdiction over an Oil and Gas Property that are
promulgated after the Closing Date and that concern pooling, unitization,
communitization, or spacing matters affecting a particular Oil and Gas Property;
or (iv) otherwise set forth in Schedule 2.1(g).

 

5

 

 

(h)          Actions Pending. There is no action, suit, claim, investigation,
arbitration, alternate dispute resolution proceeding or other proceeding pending
or, to the knowledge of the Company, threatened against the Company which
questions the validity of this Agreement or any of the other Transaction
Documents or any of the transactions contemplated hereby or thereby or any
action taken or to be taken pursuant hereto or thereto. Except as set forth on
Schedule 2.1(h) attached hereto, there is no action, suit, claim, investigation,
arbitration, alternate dispute resolution proceeding or other proceeding pending
or, to the knowledge of the Company, threatened against or involving the Company
or any of its properties or assets, which individually or in the aggregate,
would reasonably be expected, if adversely determined, to have a Material
Adverse Effect. There are no outstanding orders, judgments, injunctions, awards
or decrees of any court, arbitrator or governmental or regulatory body against
the Company that, individually or in the aggregate, could reasonably be expected
to have a Material Adverse Effect.

 

(i)          Compliance with Law. The business of the Company has been and is
presently being conducted in accordance with all applicable federal, state and
local governmental laws, rules, regulations and ordinances, except such that,
individually or in the aggregate, the noncompliance therewith could not
reasonably be expected to have a Material Adverse Effect. The Company has all
franchises, permits, licenses, consents and other governmental or regulatory
authorizations and approvals necessary for the conduct of its business as now
being conducted by it unless the failure to possess such franchises, permits,
licenses, consents and other governmental or regulatory authorizations and
approvals, individually or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect.

 

(j)          Taxes. The Company has timely and accurately prepared and filed
(taking into account any extensions of time to file) all federal, state and
other tax returns required by law to be filed by (or with respect to) it and all
such tax returns were correct and complete in all material respects, has paid or
made provisions for the payment of all material taxes shown to be due and all
additional assessments, except those which are being contested in good faith by
appropriate proceedings diligently conducted and for which adequate reserves
have been provided in accordance with GAAP, and adequate provisions have been
and are reflected in the financial statements of the Company for all current
taxes and other charges to which the Company is subject and which are not
currently due and payable. None of the federal income tax returns of the Company
have been audited by the Internal Revenue Service. The Company has no knowledge
of any additional assessments, adjustments or contingent tax liability (whether
federal or state) of any nature whatsoever, whether pending or threatened
against the Company for any period, nor of any basis for any such assessment,
adjustment or contingency.

 

(k)          Disclosure. Neither this Agreement (including the Schedules
attached hereto) nor any other documents, certificates or instruments furnished
to the Investor by or on behalf of the Company in connection with the
transactions contemplated by this Agreement and the other Transaction Documents,
taken together as a whole, contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements made
herein or therein, in the light of the circumstances under which they were made
herein or therein, not misleading. There is no material fact known to the
Company that has had or could reasonably be likely to have a Material Adverse
Effect and that has not been fully disclosed herein or in such other documents,
certificates and statements furnished to the Investor for use in connection with
the transactions contemplated hereby and by the other Transaction Documents.

 

6

 

 

(l)          Environmental Compliance. Except as could not reasonably be
expected to have a Material Adverse Effect, the Company has obtained all
approvals, authorization, certificates, consents, licenses, orders and permits
or other similar authorizations of all Governmental Authorities, or from any
other Person, that are required under any Environmental Laws. “Environmental
Laws” shall mean all Governmental Requirements relating to health, safety, the
environment, the preservation or reclamation of natural resources, including,
without limitation, all requirements pertaining to reporting, licensing,
permitting, controlling, investigating or remediating emissions, discharges,
releases or threatened releases of hazardous substances, chemical substances,
pollutants, contaminants or toxic substances, materials or wastes, whether
solid, liquid or gaseous in nature, into the air, surface water, groundwater or
land, or relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of hazardous substances, chemical
substances, pollutants, contaminants or toxic substances, material or wastes,
whether solid, liquid or gaseous in nature, further including without
limitation, the Oil Pollution Act of 1990, as amended, the Clean Air Act, as
amended, the Comprehensive Environmental, Response, Compensation, and Liability
Act of 1980, as amended, the Federal Water Pollution Control Act, as amended,
the Occupational Safety and Health Act of 1970, as amended, the Resource
Conservation and Recovery Act of 1976, as amended, the Safe Drinking Water Act,
as amended, the Toxic Substances Control Act, as amended, the Superfund
Amendments and Reauthorization Act of 1986, as amended, the Hazardous Materials
Transportation Law, as amended, and other environmental conservation or
protection Governmental Requirements. The Company makes no representations or
warranties with respect to Environmental Laws in this Agreement or in any other
Transaction Document other than those representations and warranties contained
in this Section 2.1(l) Except as could not reasonably be expected to have a
Material Adverse Effect, the Company has all necessary governmental approvals
required under all Environmental Laws as necessary for the Company’s business.
The Company is also in compliance with all other limitations, restrictions,
conditions, standards, requirements, schedules and timetables required or
imposed under all Environmental Laws except where noncompliance could not
reasonably be expected to have a Material Adverse Effect. Except for such
instances that could not reasonably be expected to have a Material Adverse
Effect, to the Company’s knowledge, there are no present events, conditions,
circumstances, incidents, actions or omissions relating to or in any way
affecting the Company that violate or could reasonably be expected to violate
any Environmental Law after the Closing Date or that may give rise to any
environmental liability, or otherwise form the basis of any material claim,
action, demand, suit, proceeding, hearing, study or investigation (i) under any
Environmental Law, or (ii) based on or related to the manufacture, processing,
distribution, use, treatment, storage (including without limitation underground
storage tanks), disposal, transport or handling, or the emission, discharge,
release or threatened release of any hazardous substance. Except for such
instances that could reasonably be expected to have a Material Adverse Effect,
the Company has not received any written notice asserting an alleged liability
or obligation under any applicable Environmental Laws with respect to the
investigation, remediation, abatement, removal, or monitoring of any hazardous
materials at, under, or released or threatened to be released from any real
properties offsite the Company’s properties and, to the Company’s knowledge,
there are no conditions or circumstances that could reasonably be expected to
result in the receipt of such written notice. “Governmental Authority” means the
government of the United States of America, any other nation or any political
subdivision thereof, whether state or local, and any agency, authority,
instrumentality, regulatory body, court, central bank or other entity exercising
executive, legislative, judicial, taxing, regulatory or administrative powers or
functions of or pertaining to government.

 

7

 

 

(m)          Books and Records. The records and documents of the Company
accurately reflect in all material respects the information relating to the
business of the Company, the location and collection of its assets, and the
nature of all transactions giving rise to the obligations or accounts receivable
of the Company. The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed in
accordance with management’s general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management’s general or
specific authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.

 

(n)          Transactions with Affiliates. Except as set forth on Schedule
2.1(n) attached hereto, as of the Closing Date there are no loans, leases,
agreements, contracts, royalty agreements, management contracts or arrangements
or other continuing transactions between (a) the Company or any of its customers
or suppliers on the one hand, and (b) on the other hand, any Affiliate.
“Affiliate” means, with respect to a specified Person, another Person that
directly, or indirectly through one or more intermediaries, Controls or is
Controlled by or is under common Control with the Person specified. For the
avoidance of doubt and notwithstanding any characterization in any rule
promulgated in accordance with GAAP or by any Governmental Authority, for
purposes of the Transaction Documents only, neither (x) Macquarie Bank Limited
nor any of its Affiliates, nor (y) the Investor nor any of its Affiliates, nor
(z) any member of the XOG Group (nor any of their respective Affiliates if the
only connection to the Company is through its affiliation with the XOG Group)
will be deemed to be an Affiliate of the Company. “XOG Group” means any one or
more of the following Persons: XOG Operating, LLC; Geronimo Holding Corporation,
Geronimo Holdings LLC, HNL Royalties LLC and CLW South Texas 2008 LP. “Control”
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management or policies of a Person, whether through the
ability to exercise voting power, by contract or otherwise. For the purposes of
this definition, and without limiting the generality of the foregoing, any
Person that owns directly or indirectly 10% or more of the Equity Interests
having ordinary voting power for the election of the directors or other
governing body of a Person (other than as a limited partner of such other
Person) will be deemed to “control” such other Person. “Controlling” and
“Controlled” have meanings correlative thereto.

 

(o)          Securities Act of 1933. The Company has complied and will comply
with all applicable federal and state securities laws in connection with the
offer and issuance of the Note. Neither the Company nor anyone acting on its
behalf, directly or indirectly, has or will sell, offer to sell or solicit
offers to buy the Note or similar securities to, or solicit offers with respect
thereto from, or enter into any negotiations relating thereto with, any Person,
or has taken or will take any action so as to bring the issuance and sale of the
Note under the registration provisions of the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder (collectively, the
“Securities Act”), and applicable state securities laws, and neither the Company
nor any of its Affiliates, nor any Person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D under the Securities Act) in connection with the offer
or sale of the Note.

 

8

 

 

(p)          Employees. The does not have any collective bargaining arrangements
or agreements covering any of its employees. Except as set forth on Schedule
2.1(p) attached hereto, the Company does not have any employment contract,
agreement regarding proprietary information, non-competition agreement,
non-solicitation agreement, confidentiality agreement, or any other similar
contract or restrictive covenant, relating to the right of any officer, employee
or consultant to be employed or engaged by the Company. No officer, consultant
or key employee of the Company whose termination, either individually or in the
aggregate, could be reasonably expected to have a Material Adverse Effect, has
since the Closing Date, terminated or, to the knowledge of the Company, has any
present intention of terminating his or her employment or engagement with the
Company.

 

(q)          Investment Company Act Status. The Company is not an “investment
company” or a company “controlled” by an “investment company,” within the
meaning of the Investment Company Act of 1940, as amended.

 

(r)          No Integrated Offering. Neither the Company, nor any of its
Affiliates, nor any Person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the offering of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the Securities Act which would prevent the Company
from selling the Note pursuant to Regulation D and Rule 506 thereof under the
Securities Act, or any applicable exchange-related stockholder approval
provisions, nor will the Company or any of its Affiliates take any action or
steps that would cause the offering of the Securities to be integrated with
other offerings.

 

(s)          Foreign Asset Control Regulations, etc. The issuance of the Note to
the Investor will not violate the Trading with the Enemy Act, as amended, or any
of the foreign assets control regulations of the United States Treasury
Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling
legislation or executive order relating thereto. The Company (i) is not a Person
described or designated in the Specially Designated Nationals and Blocked
Persons List of the Office of Foreign Assets Control or in Section 1 of the
Anti-Terrorism Order and (ii) does not engage in any dealings or transactions
with any such Person. The Company is in compliance, in all material respects,
with the USA Patriot Act Title III of 107 Public Law 56 (October 26, 2001) and
with other statutes and all orders, rules and regulations of the United States
government and its various executive departments, agencies and 150 offices,
related to the subject matter thereof, including Executive Order 13224 effective
September 24, 2001.

 

9

 

 

(t)          Material Agreements. Set forth on Schedule 2.1(t) hereto is a
complete and correct list of all material agreements (other than the Transaction
Documents and all oil and gas leases with respect to the Oil and Gas Properties)
and other instruments maintained as of the date of this Agreement by the Company
setting forth each counterparty thereto relating to the purchase, transportation
by pipeline, gas processing, marketing, development, sale and supply of
Hydrocarbons, farmout arrangements, joint operating agreements, contract
operating agreements or other material contracts to which the Company is a party
on or after the Closing Date or by which its Properties is bound on or after the
Closing Date, in each case for which breach, nonperformance, cancellation or
failure to renew could reasonably be expected to have a Material Adverse Effect
(together with the oil and gas leases with respect to the Oil and Gas
Properties, collectively, the “Material Agreements”) and copies of such
documents have been provided to Investor. All such agreements are in full force
and effect and the Company is not in default thereunder, nor is there any
uncured default by any Affiliate predecessor in interest to the Company or, to
the Company’s knowledge, by any predecessor in interest to the Company (other
than an Affiliate predecessor) or counterparty thereto, nor has the Company
altered any material item of such agreements since the Closing Date without the
prior written consent of the Investor.

 

(u)          Solvency. The Company has the ability to meet its liabilities as
they mature and does not intend to incur and does not believe that it will incur
debts beyond its ability to pay such debts as they become due.

 

Section 2.2     Representations and Warranties of the Guarantor.

 

The Guarantor hereby represents and warrants to the Investor, as of the date
hereof, as follows:

 

(a)          Organization, Good Standing and Power. The Guarantor is a
corporation, duly incorporated, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has the requisite corporate
power to own, lease and operate its properties and assets and to conduct its
business as it is now being conducted. The Guarantor is duly qualified as a
foreign corporation, duly incorporated to do business and is in good standing in
every other jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary, except for any
jurisdiction(s) (alone or in the aggregate) in which the failure to be so
qualified could not reasonably be expected to have a Material Adverse Effect.

 

(b)          Authorization; Enforcement. The Guarantor has the requisite
corporate power and authority to enter into and perform this Agreement and the
other Transaction Documents to which it is a party. The execution, delivery and
performance by the Guarantor of the Transaction Documents to which it is a party
and the consummation of the transactions contemplated thereby have been duly and
validly authorized by all necessary corporate action, and no further consent or
authorization of the Guarantor or its Board of Directors, stockholders or any
other third party is required. When executed and delivered by the Guarantor,
each of the Transaction Documents to which it is a party shall constitute legal,
valid and binding obligations of the Guarantor, enforceable against the
Guarantor in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, reorganization, moratorium, liquidation,
conservatorship, receivership or similar laws relating to, or affecting
generally the enforcement of, creditor’s rights and remedies or by other
equitable principles of general application.

 

(c)          Capitalization. The authorized Common Stock of the Guarantor as of
the Closing Date is set forth on Schedule 2.1(c)(i) attached hereto. All of the
outstanding shares of the Common Stock and any other outstanding security of the
Guarantor have been duly and validly authorized. Except as disclosed in the SEC
Reports or set forth on Schedule 2.1(c)(ii) attached hereto, there are no
outstanding options, warrants, scrip or call relating to, or securities or
rights convertible into, any shares of capital stock of the Guarantor. The
Guarantor is not a party to, and it has no knowledge of, any agreement or
understanding restricting the voting of any shares of the capital stock of the
Guarantor.

 

10

 

 

(d)          No Conflicts. The execution and delivery by the Guarantor of the
Transaction Documents to which it is a party, and the performance of its
obligations thereunder, do not and will not (i) violate or conflict with any
provision of the Guarantor’s Organizational Documents, (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, mortgage, deed of
trust, indenture, note, bond, license, lease agreement, instrument or obligation
to which the Guarantor is a party or by which the Guarantor’s properties or
assets are bound, (iii) result in a violation of any federal, state, local or
foreign statute, rule, regulation, order, judgment or decree (including federal
and state securities laws and regulations) applicable to the Guarantor or by
which any property or asset of the Guarantor are bound or affected, or (iv)
create or impose a lien, mortgage, security interest, charge or encumbrance of
any nature on any property or asset of the Guarantor under any agreement or any
commitment to which the Guarantor is a party or by which the Guarantor is bound
or by which any of its properties or assets are bound, except, solely in the
case of clauses (ii) and (iii), for such violations as could not reasonably be
expected, individually or in the aggregate, have a Material Adverse Effect
(other than violations with respect to federal and state securities laws). The
Guarantor is not required under federal, state, foreign or local law, rule or
regulation to obtain any consent, authorization or order of, or make any filing
or registration with, any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, in order for it to
execute, deliver or perform any of its obligations under the Transaction
Documents to which it is a party or issue the Warrants in accordance with the
terms hereof. The business of the Guarantor is not being conducted in violation
of any laws, ordinances or regulations of any governmental entity, except for
such violations that could not reasonably be expected to have a Material Adverse
Effect.

 

(e)          Financial Statements. As of their respective dates, the financial
statements of the Guarantor and its consolidated Subsidiaries that have been or
will hereafter be furnished by the Company to the Investor have been or will be
prepared in accordance with generally accepted accounting principles in the
United States (“GAAP”) applied on a consistent basis during the periods involved
(except (i) as may be otherwise indicated in such financial statements or the
notes thereto or (ii) in the case of unaudited interim statements, to the extent
they may not include footnotes or may be condensed or summary statements), and
fairly present in all material respects the financial position of the Guarantor
and its consolidated Subsidiaries as of the dates thereof and the results of
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments).

 

(f)          Solvency. The Guarantor and the Company, taken as a whole, have the
ability to meet their liabilities as they mature and do not intend to incur and
do not believe that they will incur debts beyond their ability to pay such debts
as they become due.

 

11

 

 

(g)          Issuance of Securities. The Warrants have been duly authorized by
all necessary corporate action and, when paid for or issued in accordance with
the terms hereof, the Warrants shall be validly issued and outstanding, free and
clear of all liens, encumbrances and rights of refusal of any kind.  When the
Warrant Shares are issued and paid for in accordance with the terms of the
Warrants and as set forth in the Certificate of Incorporation, such shares will
be duly authorized by all necessary corporate action and validly issued and
outstanding, fully paid and nonassessable, free and clear of all liens,
encumbrances and rights of refusal of any kind and the holders shall be entitled
to all rights accorded to a holder of Common Stock. 

 

(h)          Dilutive Effect. The Guarantor understands and acknowledges that
its obligation to issue the Warrant Shares upon the conversion of any Note in
accordance with this Agreement is absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interest of other
stockholders of the Guarantor.

 

(i)          No Material Adverse Change. Since September 30, 2011, the Guarantor
and its Subsidiaries (taken as a whole) have not experienced or suffered any
Material Adverse Effect.

 

(j)          Securities Act of 1933. The Guarantor has complied and will comply
with all applicable federal and state securities laws in connection with the
offer and issuance of the Warrants and Warrant Shares. Neither the Guarantor nor
anyone acting on its behalf, directly or indirectly, has or will sell, offer to
sell or solicit offers to buy the Warrants or Warrant Shares or similar
securities to, or solicit offers with respect thereto from, or enter into any
negotiations relating thereto with, any Person, or has taken or will take any
action so as to bring the issuance and sale of the Warrants or Warrant Shares
under the registration provisions of the Securities Act and applicable state
securities laws, and neither the Guarantor nor any of its Affiliates, nor any
Person acting on its or their behalf, has engaged in any form of general
solicitation or general advertising (within the meaning of Regulation D under
the Securities Act) in connection with the offer or sale of the Warrants and
Warrant Shares.

 

(k)          No Undisclosed Liabilities, Events or Circumstances. Except as set
forth in the SEC Reports or on Schedule 2.1(e) attached hereto, since September
30, 2011, the Guarantor has not incurred any liabilities, obligations, claims or
losses (whether liquidated or unliquidated, secured or unsecured, absolute,
accrued, contingent or otherwise), and no event or circumstance has occurred or
exists with respect to the Guarantor or its business, properties, operations or
financial condition, other than those incurred in the ordinary course of the
Guarantor’s business or which, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect.

 

(l)          Indebtedness. Schedule 2.1(f) attached hereto sets forth as of the
date hereof all outstanding secured and unsecured Indebtedness of the Guarantor,
or for which the Guarantor has commitments to incur.

 

(m)          Actions Pending. There is no action, suit, claim, investigation,
arbitration, alternate dispute resolution proceeding or other proceeding pending
or, to the knowledge of the Guarantor, threatened against the Guarantor which
questions the validity of this Agreement or any of the other Transaction
Documents or any of the transactions contemplated hereby or thereby or any
action taken or to be taken pursuant hereto or thereto. Except as set forth on
Schedule 2.1(h) attached hereto, there is no action, suit, claim, investigation,
arbitration, alternate dispute resolution proceeding or other proceeding pending
or, to the knowledge of the Guarantor, threatened against or involving the
Guarantor or any of its properties or assets, which individually or in the
aggregate, would reasonably be expected, if adversely determined, to have a
Material Adverse Effect. There are no outstanding orders, judgments,
injunctions, awards or decrees of any court, arbitrator or governmental or
regulatory body against the Guarantor that, individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect.

 

12

 

 

(n)          Compliance with Law. The business of the Guarantor has been and is
presently being conducted in accordance with all applicable federal, state and
local governmental laws, rules, regulations and ordinances, except such that,
individually or in the aggregate, the noncompliance therewith could not
reasonably be expected to have a Material Adverse Effect. The Guarantor has all
franchises, permits, licenses, consents and other governmental or regulatory
authorizations and approvals necessary for the conduct of its business as now
being conducted by it unless the failure to possess such franchises, permits,
licenses, consents and other governmental or regulatory authorizations and
approvals, individually or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect.

 

(o)          Taxes. The Guarantor has timely and accurately prepared and filed
(taking into account any extensions of time to file) all federal, state and
other tax returns required by law to be filed by (or with respect to) it and all
such tax returns were correct and complete in all material respects, has paid or
made provisions for the payment of all material taxes shown to be due and all
additional assessments, except those which are being contested in good faith by
appropriate proceedings diligently conducted and for which adequate reserves
have been provided in accordance with GAAP, and adequate provisions have been
and are reflected in the financial statements of the Guarantor for all current
taxes and other charges to which the Guarantor is subject and which are not
currently due and payable. None of the federal income tax returns of the
Guarantor have been audited by the Internal Revenue Service. The Guarantor has
no knowledge of any additional assessments, adjustments or contingent tax
liability (whether federal or state) of any nature whatsoever, whether pending
or threatened against the Guarantor for any period, nor of any basis for any
such assessment, adjustment or contingency.

 

(p)          Disclosure. Neither this Agreement (including the Schedules
attached hereto) nor any other documents, certificates or instruments furnished
to the Investor by or on behalf of the Guarantor in connection with the
transactions contemplated by this Agreement and the other Transaction Documents,
taken together as a whole, contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements made
herein or therein, in the light of the circumstances under which they were made
herein or therein, not misleading. There is no material fact known to the
Guarantor that has had or could reasonably be likely to have a Material Adverse
Effect and that has not been fully disclosed herein or in such other documents,
certificates and statements furnished to the Investor for use in connection with
the transactions contemplated hereby and by the other Transaction Documents.

 

(q)          Books and Records. The records and documents of the Guarantor
accurately reflect in all material respects the information relating to the
business of the Guarantor, the location and collection of its assets, and the
nature of all transactions giving rise to the obligations or accounts receivable
of the Guarantor. The Guarantor maintains a system of internal accounting
controls sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management’s general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management’s general or
specific authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.

 

13

 

 

(r)          Transactions with Affiliates. Except as set forth on Schedule
2.1(n) attached hereto, as of the Closing Date there are no loans, leases,
agreements, contracts, royalty agreements, management contracts or arrangements
or other continuing transactions between (a) the Guarantor or any of its
customers or suppliers on the one hand, and (b) on the other hand, any
Affiliate. For the avoidance of doubt and notwithstanding any characterization
in any rule promulgated in accordance with GAAP or by any Governmental
Authority, for purposes of the Transaction Documents only, neither (x) Macquarie
Bank Limited nor any of its Affiliates, nor (y) the Investor nor any of its
Affiliates, nor (z) any member of the XOG Group (nor any of their respective
Affiliates if the only connection to the Guarantor is through its affiliation
with the XOG Group) will be deemed to be an Affiliate of the Guarantor.

 

(s)          Employees. The does not have any collective bargaining arrangements
or agreements covering any of its employees. Except as set forth on Schedule
2.1(p) attached hereto, the Guarantor does not have any employment contract,
agreement regarding proprietary information, non-competition agreement,
non-solicitation agreement, confidentiality agreement, or any other similar
contract or restrictive covenant, relating to the right of any officer, employee
or consultant to be employed or engaged by the Guarantor. No officer, consultant
or key employee of the Guarantor whose termination, either individually or in
the aggregate, could be reasonably expected to have a Material Adverse Effect,
has since the Closing Date, terminated or, to the knowledge of the Guarantor,
has any present intention of terminating his or her employment or engagement
with the Guarantor.

 

(t)          Investment Company Act Status. The Guarantor is not an “investment
company” or a company “controlled” by an “investment company,” within the
meaning of the Investment Company Act of 1940, as amended.

 

(u)          No Integrated Offering. Neither the Guarantor, nor any of its
Affiliates, nor any Person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the offering of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Guarantor for purposes of the Securities Act which would prevent the
Guarantor from selling the Note pursuant to Regulation D and Rule 506 thereof
under the Securities Act, or any applicable exchange-related stockholder
approval provisions, nor will the Guarantor or any of its Affiliates take any
action or steps that would cause the offering of the Securities to be integrated
with other offerings.

 

(v)         Foreign Asset Control Regulations, etc. The issuance of the Warrant
to the Investor will not violate the Trading with the Enemy Act, as amended, or
any of the foreign assets control regulations of the United States Treasury
Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling
legislation or executive order relating thereto. Neither the Company nor the
Guarantor (i) is a Person described or designated in the Specially Designated
Nationals and Blocked Persons List of the Office of Foreign Assets Control or in
Section 1 of the Anti-Terrorism Order or (ii) engages in any dealings or
transactions with any such Person. The Company and the Guarantor are in
compliance, in all material respects, with the USA Patriot Act Title III of 107
Public Law 56 (October 26, 2001) and with other statutes and all orders, rules
and regulations of the United States government and its various executive
departments, agencies and 150 offices, related to the subject matter thereof,
including Executive Order 13224 effective September 24, 2001.

 

14

 

 

Section 2.3      Representations and Warranties and Covenants of the Investor.

 

The Investor hereby represents and warrants to the Company and the Guarantor as
of the Closing Date that the Investor is purchasing the Securities solely for
its own account and not with a view to or for sale in connection with
distribution. The Investor does not have a present intention to sell the
Securities, nor a present arrangement (whether or not legally binding) or
intention to effect any distribution of the Securities to or through any Person;
provided, however, that by making the representations herein, the Investor does
not agree to hold the Securities for any minimum or other specific term and
reserves the right to dispose of the Securities at any time in accordance with
federal and state securities laws applicable to such disposition. The Investor
further represents and warrants to the Company and the Guarantor as of the
Closing Date that (i) the Investor has such knowledge and experience in
financial and business matters that the Investor is capable of evaluating the
merits and risks of the proposed investment in the Note; (ii) the Investor
understands that the Securities may not be sold, transferred or otherwise
disposed of by it without registration under the Securities Act and any
applicable state securities laws, or an exemption therefrom, and that in the
absence of an effective registration statement covering the Securities or an
available exemption from registration, the Investor may be required to hold the
Securities indefinitely; and (iii) the Investor is an “accredited investor”
within the meaning of Regulation D promulgated under the Securities Act. The
Investor acknowledges that the Company and the Guarantor are issuing the
Securities in reliance upon the representations and warranties of the Investor
set forth in this Section 2.3.

 

ARTICLE III

 

COVENANTS

 

The Company and the Guarantor covenant with the Investor as set forth in this
ARTICLE III, which covenants are for the benefit of the Investor and its
assignees. Unless otherwise set forth in the covenants in this ARTICLE III, such
covenants shall survive until the Note is paid in full.

 

Section 3.1      Compliance with Laws.

 

The Company and the Guarantor shall comply with all applicable laws, rules,
regulations and orders of any Governmental Authority, including without
limitation, all securities law, rules and regulations and timely make all
filings required by any such laws, rules and regulations, except in such
instances where the failure to comply could not reasonably be expected to have a
Material Adverse Effect.

 

15

 

 

Section 3.2      Keeping of Records and Books of Account.

 

The Company and the Guarantor shall keep adequate records and books of account,
in which complete entries will be made in accordance with GAAP consistently
applied, reflecting all financial transactions of the Company and the Guarantor,
and in which, for each fiscal year, all proper reserves for depreciation,
depletion, obsolescence, amortization, taxes, bad debts and other purposes in
connection with its business shall be made. Upon request of the Investor, the
Company and the Guarantor shall furnish to the Investor any and all books and
records or any other information reasonably requested by the Investor relating
to the business and to the financial condition to the Company and the Guarantor.

 

Section 3.3      Reporting Requirements.

 

The Company shall furnish the following to the Investor until payment in full in
cash of all amounts due under any Transaction Document (other than the Warrants)
and the termination of this Agreement and the other Transaction Documents (other
than the Warrants):

 

(a)          Quarterly Financial Statements. As soon as available and in any
event within fifty (50) days after the end of each quarter of each fiscal year
of the Guarantor, the consolidated and consolidating balance sheet of the
Company and its consolidated Subsidiaries and of the Guarantor and its
consolidated Subsidiaries, in each case, as adjusted in conformity with GAAP, as
at the end of such period and the related consolidated and consolidating
statements of income, shareholder’s or member’s (as applicable), equity and cash
flow for such quarter of such fiscal year of the Guarantor and for the period
from the beginning of the then current fiscal year of the Guarantor to the end
of such quarter of such fiscal year of the Company.

 

(b)          Annual Financial Statements. As soon as available and in any event
within one hundred twenty (120) days after the end of each fiscal year of the
Guarantor:

 

(i)          the audited consolidated and consolidating balance sheet of the
Guarantor and its consolidated Subsidiaries as at the end of such year and the
related consolidated and consolidating statements of income, shareholder’s or
member’s (as applicable) equity and cash flow for such fiscal year of the
Guarantor; and

 

(ii)         a report with respect to the financial statements from a firm of
independent certified public accountants selected by the Guarantor, which report
shall be unqualified as to going concern and scope of audit of the Guarantor and
its consolidated Subsidiaries and shall state that (a) such financial statements
present fairly the financial position of the Guarantor and its consolidated
Subsidiaries as at the dates indicated and the results of its operations and
cash flow for the periods indicated in conformity with GAAP applied on a basis
consistent with prior years, and (b) the examination by such accountants in
connection with such financial statements has been made in accordance with
generally accepted auditing standards;

 

16

 

 

(c)          Compliance Certificate. With the delivery of each set of financial
statements under Section 3.3(a) and Section 3.3(b), a certificate executed by
the chief executive officer or the chief financial officer or controller of the
Guarantor (an “Authorized Officer”) (i) certifying whether, to the Authorized
Officer’s knowledge, a Default or an Event of Default has occurred and, if so,
describing in reasonable detail the circumstances thereof and any actions taken
or proposed to be taken to cure such Default or Event of Default, and (ii) in
connection with financial statements delivered under Section 3.3(a), certifying
that the financial statements present fairly in all material respects, subject
only to normal year-end adjustments, the financial position and results of
operations of the Guarantor and its Subsidiaries in accordance with GAAP and
absent any footnotes (other than those required to explain financial data).

 

(d)          Accountants’ Certification and Reports. In connection with each
annual, interim or special audit or review of the financial statements or
financial controls of the Guarantor or any of its Subsidiaries made by its
independent public accountants (including the audit made in connection with the
financial statements required to be delivered under Section 3.3(b)), promptly
upon receipt thereof copies of all reports submitted to the Guarantor by its
independent public accountants in connection with each such annual, interim or
special audit or review, including the comment letter submitted by such
accountants to management or any member or committee of the board of directors
(or similar body) of the Guarantor or any of its Subsidiaries in connection with
such annual, interim or special audit or review.

 

(e)          Reserve Reports; AFEs. The Company shall, at its sole expense,
cause an engineering reserve report relating to the Oil and Gas Properties (the
“Reserve Report”) to be prepared with respect to each calendar year and
delivered to the Investor on the first Business Day of each April 1, beginning
on April 1, 2012. Each Reserve Report will evaluate the projected recoverable
reserves attributable to the Company’s working interests and net revenue
interests in the Oil and Gas Properties. The Reserve Report will separately
report on PDP Reserves, PDNP Reserves and PUD Reserves, and will be prepared in
accordance with the requirements of Rule 4-10 of Regulation SX of the Securities
and Exchange Commission.

 

(f)          Government Notices. Promptly after receipt, copies of all notices,
requests, subpoenas, inquiries or other writings received from any governmental
agency concerning the violation of any material Environmental Laws, the
violation or alleged violation of the Fair Labor Standards Act or the payment or
non-payment of any taxes including any tax audit, in each case, with respect to
the Company or the Guarantor. “Hazardous Material” means any substance regulated
or as to which liability might arise under any applicable Environmental Law and
including without limitation: (a) any chemical, compound, material, product,
byproduct, substance or waste defined as or included in the definition or
meaning of “hazardous substance,” “hazardous material,” “hazardous waste,”
“solid waste,” “toxic waste,” “extremely hazardous substance,” “toxic
substance,” “contaminant,” “pollutant,” or words of similar meaning or import
found in any applicable Environmental Law; (b) hydrocarbons, petroleum products,
petroleum substances, natural gas, oil, oil and gas waste, crude oil, and any
components, fractions, or derivatives thereof; and (c) radioactive materials,
explosives, asbestos or asbestos containing materials, polychlorinated
biphenyls, radon, infectious or medical wastes.

 

(g)          Notification of Events of Default, etc.

 

(i)          Promptly, but in no event later than the fifth Business Day
following the day any officer of the Company or the Guarantor obtains knowledge
of any of the following events or conditions, a written notice, including a
certificate signed by the chief executive officer or president of the Company or
the Guarantor, specifying the nature and period of existence of such condition
or event and what action the Company or the Guarantor, as applicable, has taken,
is taking, and proposes to take, with respect thereto:

 

17

 

 

 

(a)          any condition, circumstance or event that constitutes an Event of
Default or a Default;

 

(b)          any default or breach by the Company or the Guarantor of the
performance, observance or fulfillment of any of the obligations, duties,
covenants or conditions contained in any contractual obligation of the Company
or the Guarantor, or the occurrence of any condition or event that would allow
the other party to any such contractual obligations to terminate or cancel such
contract, or the receipt by the Company or the Guarantor of any notice from any
such counterparty under any such contractual obligation claiming that any such
default or condition or event has occurred, in any such case with respect to any
contract of the Company or the Guarantor the termination or cancellation of
which, or non-renewal of which on substantially similar terms, could reasonably
be expected to have a Material Adverse Effect;

 

(c)          any condition, circumstance or event which has had or could
reasonably be expected to have a Material Adverse Effect; or

 

(d)          the resignation or termination of the chief financial officer or
the controller of the Company or the Guarantor (or any officer(s) or employee(s)
of the Company or the Guarantor performing the duties and functions commonly
performed by a chief financial officer and a controller) or the head(s) of
operations and sales of the Company, or if any such person shall leave his or
her office for whatever reason or ceases to exercise the rights and duties of
such office.

 

(ii)         With respect to any AFE that the failure of the Company to pay
would result in a material diminution in the value of the related Oil and Gas
Property, promptly, but in no event later than the fifth Business Day prior to
the expiration of any grace period with respect to event of default that would
arise from such failure to pay, a written notice from the Company or the
Guarantor stating the reasons for such failure. The Investor may, but shall not
be obligated to, pay any such AFE if the Company or the Guarantor does not pay
such AFE prior to the expiration of the related grace period and any amount so
paid by the Investor shall be (A) added to the principal amount due and payable
pursuant to the terms of the Note and (B) paid by the Company to the Investor
within five (5) days of the date of payment by the Investor; provided, that the
Investor may not pay any AFE that (A) is being contested by the Company in good
faith by appropriate proceedings diligently conducted or (B) relates to an Oil
and Gas Property that the Company has indicated in such written notice that it
intends to sell, prior to the expiration of such applicable grace period);

 

(h)          Locations. At least ten (10) Business Days advance written notice
of any change in the Company’s or the Guarantor’s addresses or of any new
location for their respective books and records or where any Collateral has been
or purports to be created and/or granted pursuant to any Transaction Documents.

 

18

 

 

(i)          Litigation. Within five (5) Business Days after the Company obtains
knowledge of (i) the institution of any action, suit, proceeding, governmental
investigation or arbitration that seeks to prohibit or impose any material
restriction on the Company’s business as it presently conducts it or the Oil and
Gas Properties not previously disclosed by the Company to the Investor in
writing and in an amount in excess of $1,000,000 or (2) any material development
in any action, suit, proceeding, governmental investigation or arbitration at
any time pending against or affecting the Company or the Guarantor or any
property of the Company that could reasonably be expected to have a Material
Adverse Effect, the Company will give written notice thereof to the Investor and
provide such other information as may be reasonably available to the Company or
the Guarantor to enable the Investor and its counsel to evaluate such matter.

 

Section 3.4           Other Agreements.

 

The Company and the Guarantor shall not enter into any agreement the terms of
which would restrict or impair the right or ability of the Company or the
Guarantor to perform of their respective obligations under any Transaction
Document.

 

Section 3.5           Distributions.

 

Neither the Company nor the Guarantor shall (i) declare or pay any dividends or
make any distributions (by reduction of capital or otherwise) to any holder(s)
of Common Stock or other Equity Interests of the Company or the Guarantor (or
security convertible into or exercisable for Common Stock or other Equity
Interests) or set aside or otherwise deposit or invest any sums for such
purpose; provided, that the Company shall be permitted to declare and pay cash
dividends or distributions to the Guarantor (a) with the proceeds of the Initial
Funding and the Subsequent Funding, (b) for general and administrative expenses
in an amount not to exceed $2,500,000 in any calendar year, (c) in such amounts
to enable the Guarantor to make regularly scheduled payments on account of the
Indebtedness of the Guarantor due and payable under any promissory notes made by
the Guarantor pursuant to the Purchase Agreement, provided, such payments are
expressly permitted under the XOG Subordination Agreement (as defined in Section
4.2(c) ), and (d) in such amount as the Company shall determine, provided that
simultaneously with the payment of such dividend or distribution to the
Guarantor, the Company pays to the Investor a like amount to be applied as a
prepayment of the outstanding principal amount of the Note, or (ii) redeem,
retire, defease, purchase or otherwise acquire for value, directly or
indirectly, any Common Stock or other equity security of the Company or the
Guarantor or set aside or otherwise deposit or invest any sums for such purpose.

 

19

 

 

Section 3.6           Prohibition on Liens.

 

The Company shall not enter into, create, incur, assume, suffer or permit to
exist any lien, security interest, mortgage, pledge, charge, claim or other
encumbrance of any kind (collectively, “Liens”) on or with respect to the
Collateral or any interest therein or any income or profits therefrom, or file
or permit the filing of, or permit to remain in effect any financing statement
or other similar notice of any Lien with respect to such assets, other than
Permitted Encumbrances. “Permitted Encumbrances” means the individual and
collective reference to the following: (i) Liens for taxes, assessments and
other governmental charges or levies not yet due or Liens for taxes, assessments
and other governmental charges or levies being contested in good faith and by
appropriate proceedings for which adequate reserves have been established in
accordance with GAAP; (ii) Liens imposed by law which were incurred in the
ordinary course of the Company’s business, such as carriers’, warehousemen’s and
mechanics’ Liens, statutory landlords’ Liens, operators' Liens, and other
similar Liens arising in the ordinary course of the Company’s business, and
which (x) do not individually or in the aggregate materially detract from the
value of such property or assets or materially impair the use thereof in the
operation of the business of the Company or (y) are being contested in good
faith by appropriate proceedings, which proceedings have the effect of
preventing for the foreseeable future the forfeiture or sale of the property or
asset subject to such Lien; (iii) the Liens set forth in
Schedule 2.1(g) attached hereto in effect on the date hereof and any renewals or
extensions thereof; (iv) pledges or deposits in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
social security legislation, other than any Liens imposed by ERISA; (v) deposits
to secure the performance of bids, trade contracts and leases, statutory
obligations, surety and appeal bonds, performance bonds and other obligations of
a like nature incurred in the ordinary course of business; (vi) easements,
rights of way, servitudes, permits, surface leases, and other rights of third
parties in respect of surface operations on, or development of, the Oil and Gas
Properties, (vii) lessor’s royalties, overriding royalties, reversionary
interests, and similar burdens that do not operate to reduce the Net Revenue
Interest of the Company in any of the Oil and Gas Properties to less than the
amount set forth in the applicable lease with respect to the Oil and Gas
Properties; (viii) the consents and rights described in the leases withinsofar
as such consents and rights do not operate to increase the Working Interest of
the Company or decrease the Net Revenue Interest of the Company, as set forth on
Schedule 2.1(g)  for any of the applicable Properties; (ix) Liens securing
Indebtedness permitted under Section 3.6(iii) so long as (A) such Liens do not
at any time encumber any property other than the property financed by such
Indebtedness and (B) the Indebtedness secured thereby does not exceed the cost
or fair market value, whichever is lower, of the property being acquired on the
date of acquisition; and (x) the Liens of the Investor set forth in the
Transaction Documents.

 

Section 3.7           Prohibition on Indebtedness.

 

The Company shall not enter into, create, incur, assume, suffer, become or be
liable for in any manner with respect to, or permit to exist, any Indebtedness,
or guarantee, assume, endorse or otherwise become responsible for (directly or
indirectly), any Indebtedness, performance, obligations or dividends of any
other Person, other than (i) Indebtedness existing on the date hereof and
disclosed in Schedule 2.1(f) to this Agreement and any refinancings, refundings,
renewals or extensions thereof, (ii) Indebtedness in favor of the Investor
evidenced by the Note, (iii) Indebtedness of the kind described in clause (i),
(ii), (ix) or (xi) of the defined term “Indebtedness”, in an amount not to
exceed $1,000,000 in the aggregate, fully subordinated to the Indebtedness in
favor of the Investor evidenced by the Note pursuant to a subordination
agreement the terms and conditions of which shall be acceptable to the Investor
in its reasonable discretion, (iv) Indebtedness secured by a Permitted
Encumbrance, (v) letters of credit, worker’s compensation claims, surety bonds
and performance bonds incurred in the ordinary course of business, and (vi)
endorsements of negotiable instruments for collection in the ordinary course of
business.

 

Section 3.8           Compliance with Transaction Documents.

 

Each of the Company and the Guarantor shall comply with their respective
obligations under the Transaction Documents to which each is a party.

  

20

 

 

Section 3.9           Transactions with Affiliates.

 

Neither the Company nor the Guarantor shall, directly or indirectly, enter into
or permit to exist any transaction (including the purchase, sale or exchange of
property or the rendering of any service) with any Affiliate or with any
officer, director or employee of the Company or the Guarantor, except for (a)
any sale or contribution by the Guarantor of oil and gas properties to American
Standard Energy, Corp., a Nevada corporation and Subsidiary of the Guarantor
(“American Standard”), (b) any distribution of oil and gas properties by
American Standard to the Guarantor (c) any distribution of oil and gas
properties by the Guarantor to the Company and (d) transactions in the ordinary
course of business and pursuant to the reasonable requirements of the businesses
of the Company or the Guarantor, as applicable, and upon fair and reasonable
terms and which are no less favorable to the Company or the Guarantor, as
applicable, than they would obtain in a comparable arm’s length transaction with
an unaffiliated Person.

 

Section 3.10         No Merger or Sale of Assets; No Formation of Subsidiaries.

 

The Company shall not, directly or indirectly,

 

(a)          merge into or with or consolidate with any other Person or permit
any other Person to merge into or with or consolidate with it other than an
Affiliate, but only so long as the Company shall be the survivor of such
consolidation or merger; provided that the Company and the Guarantor shall not
merge into or with or consolidate with each other.

 

(b)          sell, issue, assign, lease, license, transfer, abandon or otherwise
dispose of any or all of the Collateral, other than (i) inventory in the
ordinary course of business, (ii) dispositions of obsolete or worn out assets
and (iii) dispositions of assets not otherwise permitted under this Section
3.10(b)

so long as the aggregate book value of such assets does not exceed $250,000
during any fiscal year,

 

(c)          alter its organizational structure or effect a change of entity
(except as expressly permitted in this Agreement or in a manner that is not
adverse to the interests of the Investor),

 

(d)          wind up, liquidate or, subject to the proviso in Section 3.12,
dissolve, or

 

(e)          agree to do any of the foregoing.

 

21

 

 

Section 3.11         Payment of Taxes, Etc.

 

The Company and the Guarantor shall promptly pay and discharge, or cause to be
paid and discharged, when due and payable, all lawful taxes, assessments and
governmental charges or levies imposed upon the income, profits, property or
business of the Company; provided, however, that any such tax, assessment,
charge or levy need not be paid if the validity thereof shall currently be
contested in good faith by appropriate proceedings and if the Company shall have
set aside on its books adequate reserves with respect thereto in accordance with
GAAP.

  

Section 3.12         Corporate Existence.

 

Each of the Company and the Guarantor shall maintain in full force and effect
its corporate existence, rights and franchises and all licenses and other rights
to use property owned or possessed by it and reasonably deemed to be necessary
to the conduct of its business.

 

Section 3.13         No Investments.

 

The Company shall not make or suffer to exist any Investments or commitments
therefor, other than Investments made in the ordinary course of business.
“Investment” means, with respect to any Person, (i) all investments (by capital
contribution or otherwise) in any other Person, (ii) any extension of credit,
loan or advance, or (iii) any purchase or repurchase of stock or other ownership
interest, Indebtedness or all or a substantial part of the assets or property of
any Person, bonds, notes, debentures or other securities, or otherwise, and
whether existing on the date of this Agreement or thereafter made.

 

Section 3.14         Access to Accountants.

 

The Guarantor hereby irrevocably authorizes and requests and instructs all
accountants and auditors employed by the Guarantor or any of its Subsidiaries at
any time to exhibit and deliver to the Investor upon the Investor’s request
copies of any of the financial statements, trial balances or other accounting
records or reports of any sort of the Guarantor or any of its Subsidiaries in
the accountant’s or auditor’s possession, and to disclose to the Investor any
information such accountants or auditors may have concerning the financial
status and business operations of the Guarantor or any of its Subsidiaries, in
either case so long as the Guarantor is notified concurrently of the Investor's
request.

 

Section 3.15         Inspection.

 

The Company and the Guarantor, upon reasonable notice, shall permit the Investor
and its duly authorized representatives or agents to visit during normal
business hours the Company’s or the Guarantor’s properties and inspect any of
their respective assets or books and records, to examine and make copies of
their respective books and records and to discuss their respective affairs,
finances, technology and accounts with, and to be advised as to the same by,
their respective officers and employees at such reasonable times and intervals
as Investor may designate, provided that if an Event of Default has not occurred
or is not continuing, neither the Investor nor its representative shall made
more than two (2) such visits or inspections in any calendar year.

 

Section 3.16         Insurance.

 

The Company shall have (i) all insurance policies sufficient for the compliance
by each of them with all material Governmental Requirements applicable to the
Company or its business and (ii) insurance coverage in at least amounts and
against such risk (including, without limitation, public liability) that are
usually insured against by companies similarly situated and engaged in the same
or a similar business for the assets and operations of the Company. The Company
shall deliver (or cause to be delivered) copies of all such policies to the
Investor with an endorsement naming the Investor as a lender loss payee (under a
satisfactory lender loss payable endorsement) or additional insured, as
appropriate. Each policy of insurance or endorsement shall contain a clause
requiring the insurer to give not less than 30 days prior written notice to the
Investor in the event of cancellation of the policy for any reason whatsoever.
“Governmental Requirement” means any law, statute, code, ordinance, order,
determination, rule, regulation, judgment, decree, injunction, franchise,
permit, certificate, license, rules of common law, authorization or other
directive or requirement, whether now or hereinafter in effect, of any
Governmental Authority.

 

22

 

 

Section 3.17         Production Report and Lease Operating Statements.

 

On the date that is the later of (x) thirty (30) days after the end of each
fiscal quarter (unless for gas, then within sixty (60) days after the end of
each fiscal quarter) and (y) two (2) days after the Guarantor’s filing thereof
with the SEC, unless the Investor shall have notified the Company that it does
not wish to receive the following, the Company shall deliver to Investor (i) a
report setting forth, for each calendar month during the then current fiscal
year to date, the volume of production and sales attributable to production (and
the prices at which such sales were made and the revenues derived from such
sales) for each such calendar month from the Company’s Oil and Gas Properties,
and setting forth the related ad valorem, severance and production taxes and
lease operating expenses attributable thereto and incurred for each such
calendar month, and internet access to the Company’s real time reports of sales
of production, and (ii) a statement from the “first purchaser” setting forth the
volumes of hydrocarbons sold, the price received and Company’s share of the
proceeds. For the purposes of this Agreement, “Oil and Gas Properties” means (a)
all rights, titles, interests and estates now or hereafter acquired directly or
indirectly through ownership in other entities or otherwise in and to oil and
gas leases, oil, gas and mineral leases, or other liquid or gaseous hydrocarbon
leases, mineral fee interests, overriding royalty and royalty interests, net
profit interests and production payment interests, including any reserved or
residual interests of whatever nature (the “Hydrocarbon Interests”); (b) any
interest in any kind of property or asset, whether real, personal or mixed, or
tangible or intangible, including, without limitation, cash, securities,
accounts and contract rights (the “Properties”) now or hereafter pooled or
unitized with Hydrocarbon Interests; (c) all presently existing or future
unitization, pooling agreements and declarations of pooled units and the units
created thereby (including without limitation all units created under orders,
regulations and rules of any Governmental Authority) which may affect all or any
portion of the Hydrocarbon Interests; (d) all operating agreements, contracts
and other agreements, including production sharing contracts and agreements,
which relate to any of the Hydrocarbon Interests or the production, sale,
purchase, exchange or processing of oil, gas, casing head gas, drip gasoline,
natural gasoline, condensate, distillate, liquid hydrocarbons, gaseous
hydrocarbons and all products refined or separated therefrom (“Hydrocarbons”)
from or attributable to such Hydrocarbon Interests; (e) all Hydrocarbons in and
under and which may be produced and saved or attributable to the Hydrocarbon
Interests, including all oil in tanks, and all rents, issues, profits, proceeds,
products, revenues and other incomes from or attributable to the Hydrocarbon
Interests; (f) all tenements, hereditaments, appurtenances and Properties in any
manner appertaining, belonging, affixed or incidental to the Hydrocarbon
Interests and (g) all Properties, rights, titles, interests and estates
described or referred to above, including any and all Property, real or
personal, now owned or hereinafter acquired and situated upon, used, held for
use or useful in connection with the operating, working or development of any of
such Hydrocarbon Interests or Property and including any and all oil wells, gas
wells, injection wells, disposal wells or other wells, buildings, structures,
fuel separators, liquid extraction plants, plant compressors, pumps, pumping
units, field gathering systems, tanks and tank batteries, fixtures, valves,
fittings, machinery and parts, engines, boilers, meters, apparatus, equipment,
appliances, tools, implements, cables, wires, towers, casing, tubing and rods,
surface leases, rights-of-way, easements and servitudes together with all
additions, substitutions, replacements, accessions and attachments to any and
all of the foregoing; provided, however, that all of the foregoing shall relate
only to the properties described on Schedule 3.17 of this Agreement to the
extent of the Company’s interest therein after giving effect to that certain
Assignment of Oil and Gas Leases and Bill of Sale dated as of the Closing Date
between the Guarantor, as assignor, and the Company, as assignee.

  

23

 

 

Section 3.18         Title Information.

 

Upon request of the Investor (at its sole discretion), the Company will deliver
or caused to be delivered title information in form and substance reasonably
acceptable to the Investor covering Oil and Gas Properties now owned or
hereafter acquired.

 

Section 3.19         Gas Imbalances, Take-or-Pay or Other Prepayments.

 

The Company shall not allow gas imbalances, take-or-pay or other prepayments
with respect to the Oil and Gas Properties of the Company that would require the
Company to deliver Hydrocarbons at some future time without then or thereafter
receiving full payment therefor.

 

Section 3.20         Reservation of Shares.

 

So long as the Warrants remain outstanding, the Guarantor shall take all action
necessary to at all times have authorized and reserved for the purpose of
issuance, the aggregate number of shares of Common Stock needed to provide for
the issuance of the Warrant Shares.

 

Section 3.21         Marketing of Production.

 

The Company shall not sell or otherwise dispose of any material portion of the
Hydrocarbon production allocable to the Oil and Gas Properties except pursuant
to Hydrocarbon marketing and sale contracts that are (a) identified on Schedule
3.21 and in effect on the date of this Agreement, (b) approved by the Investor
in its reasonable discretion, (c) between the Company and any Person that is not
an Affiliate (whether or not in writing) that are cancelable, without penalty,
on 30 days notice or less, or (d) marketing arrangements over which the Company
exercises no direct control and to which it is subject pursuant to an operating
agreement. The Company is receiving a price for all Hydrocarbon production sold
that is computed substantially in accordance with the terms of the relevant
contract, and deliveries are not being curtailed substantially below the subject
Oil and Gas Property’s delivery capacity.

 

Section 3.22         Environmental Matters.

 

To the extent the Company has the contractual or legal right, the Company will
not cause or permit any of its Oil and Gas Properties to be in violation of, or
do anything or permit anything to be done which will subject any such Oil and
Gas Properties to a release or threatened release of Hazardous Materials,
assuming disclosure to the applicable Governmental Authority of all relevant
facts, conditions and circumstances, if any, pertaining to such Property where
such violations, release or threatened release, exposure, or remedial work could
reasonably be expected to have a Material Adverse Effect.

 

24

 

 

Section 3.23         Material Agreements.

 

The Company will not enter into or amend or otherwise modify any Material
Agreement (a) that involves an individual commitment from such Person of more
than $100,000 in the aggregate in any twelve (12) month period and (b) the
subject of which is an Oil and Gas Property in which the Company has a majority
interest.

 

Section 3.24         Swap Agreements.

 

The Company will not enter into any agreement with respect to any swap, forward,
future or derivative transaction, option or similar agreement or physical
delivery contract, whether exchange traded, “over-the-counter” or otherwise,
involving, or settled by reference to, one or more rates, currencies,
commodities, equity or debt instruments or securities, or economic, financial or
pricing indices or measures of economic, financial or pricing risk or value or
any similar transaction or any combination of these transactions with any
Person, except in the ordinary course of business and not for speculative
purposes.

 

Section 3.25         Disclosure of Transactions and Other Material Information.

 

The Guarantor shall file a Current Report on Form 8-K within the time required
by the 1934 Act describing all the material terms of the transactions
contemplated by the Transaction Documents in the form required by the 1934 Act
and attaching all the material Transaction Documents (including, without
limitation, this Agreement, the form of the Warrants and the form of the
Registration Rights Agreement) (including all attachments, the “8-K Filing”).
With the filing of the 8-K Filing, the Company shall have disclosed all
material, non-public information (if any) provided to the Investor by the
Company or the Guarantor or any of their respective officers, directors or
employees in connection with the transactions contemplated by the Transaction
Documents.

 

ARTICLE IV

CONDITIONS

 

Section 4.1           Conditions Precedent to the Obligation of the Investor to
Close on the Closing Date.

 

The obligation hereunder of the Investor to consummate the transactions
contemplated by this Agreement is subject to the satisfaction or waiver, on or
before the Closing Date, of each of the conditions set forth below.

 

(a)          Notes and Transaction Documents. The Company shall have delivered
to the Investor the Note, and the Company and the Guarantor shall have duly
executed and delivered the other Transaction Documents to the Investor, and the
Investor shall have received such title information as the Investor may require,
reasonably satisfactory to the Investor, setting forth the status of title to
the Company’s’ interest in any Oil and Gas Property owned by Company.

 

25

 

 

(b)          Secretary’s Certificate. The Company and the Guarantor shall have
delivered to the Investor secretary’s certificates, dated as of the Closing
Date, as to (i) the resolutions approving the transactions contemplated hereby
and by the Transaction Documents, (ii) the Organizational Documents of the
Company and the Guarantor, each as in effect at the Closing Date, (iii) the
authority and incumbency of the officers of the Company and the Guarantor
executing the Transaction Documents and any other documents required to be
executed or delivered in connection therewith and (iv) certificates of the
appropriate governmental agencies with respect to the existence, qualification
and good standing of the Company and the Guarantor.

 

(c)          Officer’s Certificate. The Company and the Guarantor shall have
delivered to the Investor a certificate signed by an executive officer on behalf
of the Company and the Guarantor, respectively, dated the Closing Date,
confirming the accuracy of the Company’s and the Guarantor’s representations and
warranties as of such date and no Default or Event of Default has occurred or
will occur on the Closing Date after giving effect to the transactions
contemplated by the Transaction Documents.

 

(d)          Due Diligence. The Company and the Guarantor shall have permitted
the Investor to make such inspections as the Investor deems reasonably
appropriate and the Investor is satisfied, in its reasonable discretion, with
the results thereof.

 

(e)          Payment of Investor’s Expenses. The Company shall have paid the
fees and expenses described in Section 7.1 of this Agreement to the extent
invoiced prior to or on the Closing Date.

 

(f)          Searches. The Investor shall have received UCC, real estate tax,
judgment and litigation searches against the Company and the Guarantor in those
offices and jurisdictions as the Investor shall reasonably request which shall
show that no financing statement, liens, mortgages, deeds of trust or
assignments or other filings have been filed or remain in effect against the
Company and the Guarantor or any Collateral except for Permitted Encumbrances
and financing statements, assignments or other filings with respect to which the
secured party or existing lender (other than Macquarie Bank Limited with respect
to any assets not constituting Collateral) (i) has delivered to the Investor
termination statements or other documentation evidencing the termination of its
Liens and security interests in the Collateral, or (ii) has agreed in writing to
release or terminate its Lien and security interest in the Collateral upon
receipt of proceeds of the advance on the Closing Date.

 

(g)          UCC Financing Statements; Deeds of Trust. On or prior to the
Closing Date, the Company shall have authorized the filing by the Investor of
all UCC financing statements and all Deeds of Trust, each in form and substance
reasonably satisfactory to the Investor, at the appropriate offices to create a
valid and perfected security interest in the Collateral and in the Oil and Gas
Properties.

 

26

 

 

(h)          Consents. The Company and the Guarantor shall have obtained all
consents, approvals, or waivers from all Governmental Authorities, third parties
and their respective security holders necessary (i) for the execution, delivery
and performance of this Agreement and the Transaction Documents and the
transactions contemplated hereby and thereby and (ii) to not trigger any
preemptive rights, rights of first refusal, put or call rights or obligations,
anti-dilution rights or similar rights that any holder of the Company’s or the
Guarantor’s securities may have with respect to the execution, delivery and
performance of this Agreement and each of the Transaction Documents and all
transactions contemplated hereby and thereby.

 

(i)          Insurance. The Investor shall have received a certificate of
insurance coverage for the Company (or other evidence of insurance coverage
acceptable to the Investor) showing that the Company is carrying insurance in
accordance with Section 3.16.

 

(j)          Operating Agreements. The Investor shall have received copies of
the operating agreements for the Oil and Gas Properties that are part of the
Collateral.

 

(k)          Environmental Condition. The Investor shall have received all
available reports in the Company’s possession and written notices concerning the
environmental condition of the Oil and Gas Properties that are part of the
Collateral available to the Company and shall be satisfied with the
environmental condition thereof (it being understood that the Company is not
being required to deliver any new or updated environmental reports as a
condition to close on the Closing Date).

 

(l)          Subordination Agreement. The Investor shall have received a
subordination agreement dated as of the Closing Date among the Investor, the
Company and Macquarie Bank Limited, in form and substance reasonably
satisfactory to the Investor.

 

(m)          Opinions of Counsel. The Investor shall have received opinions of
counsel to the Company and the Guarantor, dated the Closing Date, reasonably
acceptable to counsel to the Investor.

 

(n)          No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or Governmental Authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement or the other Transaction Documents.

 

(o)          No Proceedings or Litigation. No action, suit or proceeding before
any arbitrator or any Governmental Authority shall have been commenced, and no
investigation by any Governmental Authority shall have been threatened in
writing, against the Company or that are part of the Collateral, or any of the
officers, directors or Affiliates of the Company or that are part of the
Collateral seeking to restrain, prevent or change the transactions contemplated
by this Agreement or the other Transaction Documents, or seeking damages in
connection with such transactions.

 

(p)          Material Adverse Effect. No Material Adverse Effect shall have
occurred since December 31, 2011.

 

27

 

 

(q)          Registration Rights Agreement. At the Closing, the Investor and the
Guarantor shall execute and deliver a Registration Rights Agreement, in the form
attached hereto as Exhibit 4.1(q) (the “Registration Rights Agreement”),
pursuant to which the Guarantor has agreed to provide certain registration
rights with respect to the Registrable Securities (as defined in the
Registration Rights Agreement), under the 1933 Act and the rules and regulations
promulgated thereunder, and applicable state securities laws.

 

(r)          Title. The Company will deliver or cause to be delivered title
information in form and substance acceptable to the Investor, in the Investor’s
sole discretion, covering Oil and Gas Properties located in La Salle County,
Texas and Frio County, Texas.

 

(s)          Warrant Documents. The Guarantor will deliver to the Investor (i) a
Modification Agreement, dated as of February 9, 2012 among the Guarantor and the
parties identified as “Holders” on the signature page thereto, (ii) the Warrant
to Purchase Common Stock dated February 9, 2012 issued by the Guarantor to the
Investor and (iii) the Series C Warrant to Purchase Common Stock dated February
9, 2012 issued by the Guarantor to the Investor, each of which shall be in form
and substance reasonably satisfactory to the Investor.

 

(t)          Miscellaneous. All corporate and other proceedings, and all
documents, instruments and other legal matters in connection with the Note and
the other Transaction Documents shall be satisfactory in form and substance to
the Investor and its counsel.

 

Section 4.2           Conditions Precedent to the Obligation of the Investor to
Consummate the Subsequent Funding.

 

The obligation hereunder of the Investor to make the Subsequent Funding is
subject to the satisfaction or waiver, on or before the date of such Subsequent
Funding, of (i) each of the conditions set forthbelow on the date of the
proposed Subsequent Funding.

 

(a)          Payment of Investor’s Expenses. The Company shall have paid the
fees and expenses described in Section 7.1 of this Agreement to the extent
invoiced prior to the date on which the Subsequent Funding is requested.

 

(b)          No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or Governmental Authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement or the other Transaction Documents.

 

(c)          XOG Subordination Agreement. The Investor shall have received a
subordination agreement dated as of the date of the Subsequent Funding among the
Investor, the Company and Geronimo Holdings Corporation, in form and substance
reasonably satisfactory to the Investor (the “XOG Subordination Agreement”).

 

(d)          No Proceedings or Litigation. No action, suit or proceeding before
any arbitrator or any Governmental Authority shall have been commenced, and no
investigation by any Governmental Authority shall have been threatened in
writing, against the Company or that are part of the Collateral, or any of the
officers, directors or Affiliates of the Company or that are part of the
Collateral seeking to restrain, prevent or change the transactions contemplated
by this Agreement or the other Transaction Documents, or seeking damages in
connection with such transactions.

 

28

 

 

(e)          Material Adverse Effect. No Material Adverse Effect shall have
occurred since December 31, 2011.

 

(f)          Searches. The Investor shall have received UCC, real estate, tax,
judgment and litigation searches against the Company in those offices and
jurisdictions as the Investor shall reasonably request which shall show that no
financing statement, liens, mortgages, deeds of trust or assignments or other
filings have been filed or remain in effect against the Company or any
Collateral except for Permitted Encumbrances and financing statements,
assignments or other filings with respect to which the secured party or existing
lender (other than Macquarie Bank Limited with respect to any assets not
constituting Collateral) (i) has delivered to the Investor termination
statements or other documentation evidencing the termination of its Liens and
security interests in the Collateral, or (ii) has agreed in writing to release
or terminate its Lien and security interest in the Collateral upon receipt of
proceeds of the Subsequent Funding.

 

(g)          Consents. The Company and the Guarantor shall have obtained all
consents, approvals, or waivers from all Governmental Authorities, third parties
and their respective security holders necessary for the execution, delivery and
performance of any additional Transactions Documents required to be delivered in
connection with the Subsequent Funding.

 

(h)          UCC Financing Statements; Deeds of Trust. The Company shall have
authorized the filing by the Investor of all UCC financing statements and all
Deeds of Trust, each in form and substance reasonably satisfactory to the
Investor, at the appropriate offices to create a valid and perfected security
interest in the Collateral and in the Oil and Gas Properties that were not a
part of the Collateral on the date of the Initial Funding.

 

(i)          Operating Agreements. The Investor shall have received copies of
the operating agreements for the Oil and Gas Properties which were not a part of
the Collateral on the date of the Initial Funding.

 

(j)          Environmental Condition. The Investor shall have received all
available reports in the Company’s possession and written notices concerning the
environmental condition of the Oil and Gas Properties that were not a part of
the Collateral on the date of the Initial Funding available to the Company and
shall be satisfied with the environmental condition thereof (it being understood
that the Company is not being required to deliver any new or updated
environmental reports as a condition to the Subsequent Funding).

 

(k)          Opinions of Counsel. The Investor shall have received opinions of
counsel to the Company as to the form of Deed of Trust for each jurisdiction
other than Texas.

 

(l)          Title. The Company will deliver or cause to be delivered title
information in form and substance acceptable to Investor, in Investor’s sole
discretion, covering all Oil and Gas Properties other than those located in La
Salle County, Texas and Frio County, Texas.

 

(m)          Miscellaneous. All corporate and other proceedings, and all
documents, instruments and other legal matters in connection with the Note and
the other Transaction Documents shall be satisfactory in form and substance to
the Investor and its counsel.

 

29

 

 

ARTICLE V

CERTIFICATE LEGEND

 

Section 5.1           Legend.

 

The Note shall be stamped or otherwise imprinted with a legend substantially in
the following form (in addition to any legend required by applicable state
securities or “blue sky” laws):

 

THIS PROMISSORY NOTE (THE “NOTE”) HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) OR ANY STATE SECURITIES LAWS AND
MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER
THE SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR UNLESS ASEN 2,
CORP. SHALL HAVE RECEIVED AN OPINION OF COUNSEL THAT REGISTRATION OF THE NOTE
UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES
LAWS IS NOT REQUIRED.

 

THIS PROMISSORY NOTE WAS ISSUED WITH ORIGINAL ISSUE DISCOUNT (“OID”). BEGINNING
NO LATER THAN 10 DAYS AFTER THE FUNDING DATE, AN INVESTOR MAY, UPON REQUEST,
OBTAIN FROM THE COMPANY THE PROMISSORY NOTE’S ISSUE PRICE, ISSUE DATE, AMOUNT OF
OID AND YIELD TO MATURITY BY CONTACTING THE CHIEF FINANCIAL OFFICER OF THE
COMPANY, AT 4800 N. SCOTTSDALE ROAD, STE. 1400, SCOTTSDALE, ARIZONA 85251.

 

The Warrant shall be stamped or otherwise imprinted with a legend substantially
in the following form (in addition to any legend required by applicable state
securities or “blue sky” laws):

 

THIS WARRANT (THE “WARRANT”) HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE “SECURITIES ACT”) OR ANY STATE SECURITIES LAWS AND MAY NOT
BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE
SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR UNLESS ASEN 2,
CORP. SHALL HAVE RECEIVED AN OPINION OF COUNSEL THAT REGISTRATION OF THE WARRANT
UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES
LAWS IS NOT REQUIRED.

 

30

 

 

ARTICLE VI

INDEMNIFICATION

 

Section 6.1           General Indemnity.

 

In addition to the payment of expenses pursuant to Section 7.1 , whether or not
the transactions contemplated hereby shall be consummated, the Company and the
Guarantor jointly and severally agree to indemnify, pay and hold the Investor,
and its assignees and Affiliates and their respective officers, directors,
employees, agents, consultants, auditors, Persons engaged by it to evaluate or
monitor the Collateral, and attorneys of any of them (collectively called the
“Indemnities”) harmless from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, claims, costs, expenses
and disbursements of any kind or nature whatsoever (including the reasonable
fees and disbursements of counsel for such Indemnitees in connection with any
investigative, administrative or judicial proceeding commenced or threatened,
whether or not such Indemnitee shall be designated a party thereto) that may be
imposed on, incurred by, or asserted against that Indemnitee, in any manner
relating to or arising out of this Agreement or the other Transaction Documents,
the consummation of the transactions contemplated by this Agreement and the
other Transaction Documents, the statements contained in any term sheet
delivered by the Investor, the Investor’s agreement to make any advance
hereunder, the use or intended use of the proceeds of any advance or the
exercise of any right or remedy hereunder or under the other Transaction
Documents (the “Indemnified Liabilities”); provided that the Company shall have
no obligation to an Indemnitee hereunder with respect to Indemnified Liabilities
directly arising from the gross negligence or willful misconduct of that
Indemnitee, as determined by a court of competent jurisdiction by a final and
nonappealable judgment.

 

ARTICLE VII

MISCELLANEOUS

 

Section 7.1           Fees and Expenses.

 

All invoiced costs and expenses including reasonable attorneys’ fees (including
the allocated costs of in house counsel), advisor fees, investment banker fees
and other disbursements incurred by Investor, (a) in all efforts made to enforce
payment or effect collection owing under this Agreement or any other Transaction
Document, or (b) in connection with the entering into, modification, amendment,
administration and enforcement of this Agreement or any consents or waivers
hereunder and all related agreements, documents and instruments, or (c) in
instituting, maintaining, preserving, enforcing and foreclosing on Investor’s
security interest in or Lien on any of the Collateral, or maintaining,
preserving or enforcing any of Investor’s rights hereunder and under all related
agreements, documents and instruments, whether through judicial proceedings or
otherwise, or (d) in defending or prosecuting any actions or proceedings arising
out of or relating to Investor’s transactions with the Company or the Guarantor;
provided, that advisor fees and investment banker fees shall be payable only in
connection with the entering into this Agreement and shall not exceed $90,000 in
the aggregate.

 

31

 

 

Section 7.2           Consent to Jurisdiction; Venue.

 

Subject to the last sentence of this Section 7.10 , any judicial proceeding
brought by or against any party with respect to this Agreement, the other
Transaction Documents or any related agreement may be brought in any court of
competent jurisdiction in the State of New York, and, by execution and delivery
of this Agreement, each party to this Agreement accepts for itself and in
connection with its properties, generally and unconditionally, the non-exclusive
jurisdiction of the aforesaid courts, and irrevocably agrees to be bound by any
judgment rendered thereby in connection with this Agreement. Each party to this
Agreement waives personal service of any and all process upon it and consents
that all such service of process may be made by registered mail (return receipt
requested) at its address set forth in Section 7.4 and service so made shall be
deemed completed five (5) days after the same shall have been so deposited in
the mails of the United States of America. Nothing herein shall affect the right
to serve process in any manner permitted by law or shall limit the right of the
Investor to bring proceedings against the Company or the Guarantor in the courts
of any other jurisdiction. Each party to this Agreement hereby waives any
objection to jurisdiction and venue of any action instituted hereunder and shall
not assert any defense based on lack of jurisdiction or venue or based upon
forum non conveniens. Each party to this Agreement hereby waives the right to
remove any judicial proceeding brought against it in any state court to any
federal court. Any judicial proceeding by any party to this Agreement involving,
directly or indirectly, any matter or claim in any way arising out of, related
to or connected with this Agreement or any related agreement, shall be brought
only in a federal or state court located in the County of New York, State of New
York.

 

Section 7.3           Entire Agreement; Amendment.

 

This Agreement and the Transaction Documents contain the entire understanding
and agreement of the parties with respect to the matters covered hereby and,
except as specifically set forth herein or in the other Transaction Documents,
neither the Company nor the Investor makes any representation, warranty,
covenant or undertaking with respect to such matters, and they supersede all
prior understandings and agreements with respect to said subject matter, all of
which are merged herein. No provision of this Agreement may be waived or amended
other than by a written instrument signed by the Company and the Investor. Any
amendment or waiver effected in accordance with this Section 7.3 shall be
binding upon the Investor (and its successors and assigns) and the Company (and
its successors and assigns).

 

Section 7.4           Notices.

 

Any notice, demand, request, waiver or other communication required or permitted
to be given hereunder shall be in writing and shall be effective (a) upon hand
delivery by telecopy or facsimile at the address or number designated below (if
delivered on a Business Day during normal business hours where such notice is to
be received), or the first Business Day following such delivery (if delivered
other than on a Business Day during normal business hours where such notice is
to be received) or (b) on the second Business Day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:

 

32

 

 

If to the Company or the Guarantor:

ASEN 2, Corp.

4800 N. Scottsdale Road, Ste. 1400

Scottsdale, Arizona 85251

Tel: (480) 371-1929

Fax: (480) 990-2732

Attention: Scott Mahoney

    with copies to:

Blank Rome LLP

The Chrysler Building

405 Lexington Avenue
New York, New York 10174
Tel: (212) 885-5000
Fax: (212) 885-5001

Attention: Kristina L. Trauger

    If to the Investor:

Pentwater Equity Opportunities Master Fund Ltd.
PWCM Master Fund Ltd.

c/o Pentwater Capital Management, LP

227 West Monroe Street

Chicago, IL 60606

Tel: (312) 589-6410

Fax: (312) 589-6497

Attention: Aaron Switz

    with copies to:

Patton Boggs LLP

2000 McKinney Avenue, Suite 1700

Dallas, TX 75201

Tel: (214) 758-3505

Fax: (214) 758-1550

Attention: Anthony J. Herrera

 

Any party hereto may from time to time change its address for notices by giving
written notice of such changed address to the other party hereto.

 

Section 7.5           Waivers.

 

No waiver by either party of any default with respect to any provision,
condition or requirement of this Agreement shall be deemed to be a continuing
waiver in the future or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of any party to exercise any
right hereunder in any manner impair the exercise of any such right accruing to
it thereafter.

 

Section 7.6           Headings.

 

The article, section and subsection headings in this Agreement are for
convenience only and shall not constitute a part of this Agreement for any other
purpose and shall not be deemed to limit or affect any of the provisions hereof.

 

33

 

 

Section 7.7           Successors and Assigns.

 

This Agreement shall be binding upon and inure to the benefit of the parties and
their successors and assigns. After the Closing Date, the assignment by a party
to this Agreement of any rights hereunder shall not affect the obligations of
such party under this Agreement. The Investor may assign the Note and its rights
under this Agreement and the other Transaction Documents and any other rights
hereto and thereto with the prior consent of the Company; provided that the
consent of the Company shall not be required if (a) an Event of Default has
occurred and is continuing or (b) the assignee in connection with such proposed
assignment is an Affiliate of the Investor. Neither the Company nor the
Guarantor may assign its rights and obligations under this Agreement or any
other Transaction Document without the prior written consent of the Investor,
which consent may be withheld by the Investor in its sole discretion.

 

Section 7.8           No Third Party Beneficiaries.

 

This Agreement is intended for the benefit of the parties hereto and their
respective permitted successors and assigns and is not for the benefit of, nor
may any provision hereof be enforced by, any other Person.

 

Section 7.9           Indemnity.

 

(a)          The Company and the Guarantor shall indemnify Investor and each of
its respective officers, directors, Affiliates, attorneys, employees and agents
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses and disbursements of any
kind or nature whatsoever (including fees and disbursements of counsel) which
may be imposed on, incurred by, or asserted against Investor in any claim,
litigation, proceeding or investigation instituted or conducted by any Person
with respect to any aspect of, or any transaction contemplated by, or referred
to in, or any matter related to, this Agreement or the other Transaction
Documents, whether or not Investor is a party thereto, except to the extent that
any of the foregoing arises out of the willful misconduct or gross negligence of
the party being indemnified (as determined by a court of competent jurisdiction
in a final and non-appealable judgment). Without limiting the generality of the
foregoing, this indemnity shall extend to any liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses and disbursements
of any kind or nature whatsoever (including the fees described in Section 7.1)
asserted against or incurred by any of the indemnitees described above in this
Section 7.9 by any Person under any Environmental Laws or similar laws by reason
of Company’s, Guarantor’s or any other Person’s failure to comply with laws
applicable to solid or hazardous waste materials. Additionally, if any taxes
(other than Excluded Taxes) shall be payable by the Investor, the Company or the
Guarantor on account of the execution or delivery of this Agreement, or the
execution, delivery, issuance or recording of any of the other Transaction
Documents, by reason of any applicable law now or hereafter in effect, the
Company or the Guarantor will pay (or will promptly reimburse Investor for
payment of) all such taxes, including interest and penalties thereon, and will
indemnify and hold the indemnitees described above in this Section 7.9 harmless
from and against all liability in connection therewith

 

34

 

 

(b)          “Excluded Taxes” shall mean, with respect to any Investor: (i)
Taxes (as defined below) measured by net or gross income (including branch
profits taxes), back-up withholding taxes and franchise or similar taxes imposed
in lieu of income taxes, in each case imposed on any Investor as a result of a
present or former connection between such Investor and the jurisdiction of the
governmental body imposing such Tax or any political subdivision or taxing
authority thereof or therein (other than any such connection arising solely from
any Investor having executed, delivered or performed its obligations or received
a payment under, or enforced any of this Agreement or any related documents);
(ii) Taxes to the extent that the Investor was subject to such Taxes on the date
that such Investor became a party to this Agreement or designates a new lending
office; (iii) Taxes that are attributable to the failure (other than as a result
of a change in any legal requirement) by any Investor to deliver the
documentation required to be delivered pursuant to Section 7.15 hereof; and (iv)
any Taxes imposed on amounts payable to an Investor as a result of such
Investor’s failure to comply with FATCA (as defined below) so as to establish a
complete exemption from withholding thereunder.

 

(c)          “Code” shall mean the Internal Revenue Code of 1986, as amended.

 

(d)          “FATCA” shall mean Sections 1471 through 1474 of the Code, as of
the date of this Agreement and any current or future regulations or official
interpretations thereof.

 

(e)          “Taxes” shall mean all present or future taxes, (including, without
limitation, any intangibles taxes, stamp taxes, recording taxes and franchises
taxes, except to the extent measured in whole or part by net income), levies,
imposts, deductions, charges or withholdings and all liabilities (including
interest and penalties) with respect thereto.

 

Section 7.10         Governing Law.

 

THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY OF THE
CONFLICTS OF LAW PRINCIPLES WHICH WOULD RESULT IN THE APPLICATION OF THE
SUBSTANTIVE LAW OF ANOTHER JURISDICTION. THIS AGREEMENT SHALL NOT BE INTERPRETED
OR CONSTRUED WITH ANY PRESUMPTION AGAINST THE PARTY CAUSING THIS AGREEMENT TO BE
DRAFTED.

 

Section 7.11         Survival.

 

The representations, and warranties of the Company and the Investor shall
survive the execution and delivery hereof and the Closing Date; the agreements
and covenants set forth in ARTICLE I, ARTICLE III, ARTICLE V, ARTICLE VIand
ARTICLE VIIof this Agreement shall survive the execution and delivery hereof and
Closing Date.

 

Section 7.12         Publicity.

 

The Company agrees that it will not disclose, and will not include in any public
announcement, the name of the Investor without the consent of the Investor,
which consent shall not be unreasonably withheld or delayed, or unless and until
such disclosure is required by law, rule or applicable regulation and then only
to the extent of such requirement.

 

35

 

 

Section 7.13         Counterparts.

 

This Agreement may be executed in any number of counterparts, all of which taken
together shall constitute one and the same instrument and shall become effective
when counterparts have been signed by each party and delivered to the other
parties hereto, it being understood that all parties need not sign the same
counterpart. Delivery of an executed counterpart of a signature page to this
Agreement, any amendments, waivers, consents or supplements, or to any other
Transaction Document by facsimile or by email delivery of a copy of such an
executed counterpart in PDF format shall be as effective as delivery of a
manually executed counterpart thereof.

 

Section 7.14         Severability.

 

The provisions of this Agreement are severable and, in the event that any court
of competent jurisdiction shall determine that any one or more of the provisions
or part of the provisions contained in this Agreement shall, for any reason, be
held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision or part of a
provision of this Agreement and this Agreement shall be reformed and construed
as if such invalid or illegal or unenforceable provision, or part of such
provision, had never been contained herein, so that such provisions would be
valid, legal and enforceable to the maximum extent possible.

 

Section 7.15         Tax Matters.

 

(a)          Except as provided herein or otherwise required by law, any and all
payments by the Company or Guarantor (each a Transaction Party and collectively,
the “Transaction Parties”) hereunder or under any other Transaction Document
shall be made free and clear of and without deduction for any and all present or
future Taxes (other than Excluded Taxes, including Excluded Taxes with respect
to any transferee or assignee thereof (each a “Transferee”)). If any Transaction
Party shall be required to deduct any such Taxes from or in respect of any sum
payable hereunder to any Investor or any Transferee, (i) the sum payable shall
be increased by the amount (an "additional amount") necessary so that after
making all required deductions (including deductions applicable to additional
sums payable under this Section 7.15) such Investor or such Transferee shall
receive an amount equal to the sum it would have received had no such deductions
been made, (ii) such Transaction Party shall make such deductions, (iii) such
Transaction Party shall pay the full amount deducted to the relevant
Governmental Authority in accordance with applicable law and (iv) such
Transaction Party shall send such Investor or such Transferee an official
receipt (or, if an official receipt is not available, such other evidence of
payment as shall be satisfactory to such Investor or such Transferee) evidencing
payment of the amount so deducted or withheld.

 

(b)          Each Investor shall deliver to the Company two (2) duly completed
appropriate valid Withholding Certificates (as defined under §1.1441-1(c)(16) of
the Income Tax Regulations and any successor provisions thereto (“Regulations”))
certifying its status (i.e., United States person or foreign person) and, if
appropriate, making a claim of reduced, or exemption from, United States
withholding tax on the basis of an income tax treaty or an exemption provided by
the Code. The term “Withholding Certificate” means a Form W-9; a Form W-8BEN; a
Form W-8ECI; a Form W-8IMY and the related statements and certifications as
required under §1.1441-1(e)(2) and/or (3) of the Regulations; a statement
described in Section 1.871-14(c)(2)(v) of the Regulations; or any other
certificates under the Code or Regulations that certify or establish the status
of a payee or beneficial owner as a United States or foreign person and/or as
eligible for reductions in, or exemptions from, any applicable withholding tax.

 

36

 

 

(c)          Each Investor required to deliver to Company a valid Withholding
Certificate pursuant to Section 7.15(a) shall deliver such valid Withholding
Certificate as follows: (i) each Investor which is a party hereto on the Closing
Date shall deliver such valid Withholding Certificate at least five (5) Business
Days prior to the first date on which any interest or fees are payable by
Company hereunder for the account of such Investor; and (ii) each Investor shall
deliver such valid Withholding Certificate at least five (5) Business Days
before the effective date of such assignment or participation. Each Investor
which so delivers a valid Withholding Certificate further undertakes to deliver
to Company two (2) additional copies of such Withholding Certificate (or a
successor form) on or before the date that such Withholding Certificate expires
or becomes obsolete or after the occurrence of any event requiring a change in
the most recent Withholding Certificate so delivered by it, and such amendments
thereto or extensions or renewals thereof as may be reasonably requested by
Company.

 

Notwithstanding any other provision of this Section 7.15, an Investor shall not
be required to deliver any form pursuant to this Section 7.15 that such Investor
is not legally able to deliver.

 

(d)          Notwithstanding the submission of a Withholding Certificate
claiming a reduced rate of or exemption from U.S. withholding tax required under
Section 7.15(b), Company shall be entitled to withhold United States federal
income taxes at the full 30% withholding rate under Section 871 or 881 of the
Code, as applicable (or any other rate set forth in any successor provision
thereto which may apply to such payment), if in its reasonable judgment it is
required to do so under the due diligence requirements imposed upon a
withholding agent under Section 1.1441-7(b) of the Regulations.

 

(e)          If a payment made to an Investor under this Agreement would be
subject to United States federal withholding tax imposed by FATCA if Investor
were to fail to comply with the applicable reporting requirements of FATCA
(including those contained in Section 1471(b) or 1472(b) of the Code, as
applicable), Investor shall deliver to Company at the time or times prescribed
by law and at such time or times reasonably requested by Company, such
documentation prescribed by applicable law (including as prescribed by Section
1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably
requested by Company as may be necessary for Company to comply with its
obligations under FATCA, to determine that Investor has or has not complied with
its obligations under FATCA and, as necessary, to determine the amount to deduct
and withhold from such payment. Solely for purposes of this Section 7.15(d),
“FATCA” shall include any amendments made to FATCA after the date of this
Agreement.

 

37

 

 

(f)          The Investor or Transferee will use its commercially reasonable
efforts to obtain in a timely fashion any refund, deduction or credit of any
Taxes paid or reimbursed by any Transaction Party pursuant to this Section
7.15.  If any Investor or Transferee determines in its sole discretion,
exercised in good faith, that it has received a benefit in the nature of a
refund, deduction or credit (including a refund in the form of a deduction from
or credit against Taxes that are otherwise payable by such Investor or
Transferee) of any Taxes with respect to which the Transaction Party has made a
payment under this Section 7.15, such Investor or Transferee will notify and
reimburse the Transaction Party (promptly after such Investor or Transferee
reasonably determines that such refund, deduction or credit has become final) to
the extent of the benefit of such refund, deduction or credit, including any
interest paid by the relevant Governmental Authority, net of all out-of-pocket
expenses of such Investor or Transferee; provided, that any Transaction Party,
upon the request of such Investor or Transferee agrees to repay the amount paid
over to the Transaction Party (plus any penalties, interest or other charges
imposed by the relevant Governmental Authority) to such Investor or Transferee
in the event such Investor or Transferee is required to repay such refund to
such Governmental Authority. Nothing in this Section 7.15 shall require any
Investor or Transferee to disclose any confidential information to a Transaction
Party (including, without limitation, its Tax returns).

 

Section 7.16         Registration

 

The Company shall maintain, or cause to be maintained, at its payment office, a
copy of each Assignment and Acceptance delivered to and accepted by it and a
register (the "Register") for the recordation of the names and addresses of the
Investors and the principal amount of the advances (and stated interest thereon)
(the "Registered Advances"). The entries in the Register shall be conclusive and
binding for all purposes, absent manifest error. The Company and the Investor
shall treat each Person whose name is recorded in the Register as an Investor
hereunder for all purposes of this Agreement, including, without limitation, the
right to receive payments of principal and interest hereunder, notwithstanding
notice to the contrary. A Registered Advance (and the registered note, if any,
evidencing the same) may be assigned or sold in whole or in part only by
registration of such assignment or sale on the Register (and each registered
note shall expressly so provide). Any assignment or sale of all or part of such
Registered Advance (and the registered note, if any, evidencing the same) may be
effected only by registration of such assignment or sale on the Register.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

  

38

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the date first above
written.

 

  COMPANY:       ASEN 2, CORP.       By: /s/ Scott Feldhacker     Scott
Feldhacker     Chief Executive Officer       GUARANTOR:       AMERICAN STANDARD
ENERGY CORP.       By: /s/ Scott Feldhacker     Scott Feldhacker     Chief
Executive Officer       INVESTOR:       PENTWATER EQUITY OPPORTUNITES MASTER
FUND LTD.       By: /s/ David Zirin     David Zirin     Director      
Commitment Percentage: 45%       PWCM MASTER FUND LTD.       By: /s/ David Zirin
    David Zirin     Director       Commitment Percentage: 55%

 

[SIGNATURE PAGE TO NOTE AND WARRANT PURCHASE AGREEMENT]