$300,000,000
 
CREDIT AGREEMENT
 
Between
 
AMERICAN STANDARD ENERGY, CORP.,
a Nevada corporation,
 
as Borrower,
 
and
 
MACQUARIE BANK LIMITED,
a bank incorporated under the laws of Australia,
in its individual capacity and as Administrative Agent,
 
And
 
the Lenders Party Hereto
 
 

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Dated as of September 21, 2011
 
 
 

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TABLE OF CONTENTS
 

 
Page
   
ARTICLE I THE LOAN FACILITY
1
     
Section 1.1
Maximum Commitment
1
Section 1.2
The Revolving Loan
2
Section 1.3
The Term Loan
5
Section 1.4
G&A Budget
5
Section 1.5
Development Plan
6
Section 1.6
Advance Procedure.
6
Section 1.7
Promissory Note
8
Section 1.8
Interest.
8
Section 1.9
Repayment of the Loan.
9
Section 1.10
Time and Place of Payments.
10
Section 1.11
Borrower Sub-Account; Disbursements.
10
Section 1.12
Optional Prepayment of the Loan
11
Section 1.13
Mandatory Prepayment of the Loan
11
Section 1.14
Application of Insurance Proceeds
12
Section 1.15
Fees.
12
Section 1.16
Return of Funds Following Payment of Obligations
13
Section 1.17
Taxes.
13
   
ARTICLE II SECURITY; ETC.
16
     
Section 2.1
Grant of Liens and Security Interests
16
Section 2.2
Notice of Assignment of Proceeds
16
Section 2.3
Further Assurances
16
Section 2.4
Release of Liens; Financing Statements; Release
17
Section 2.5
Guaranty
17
Section 2.6
Pledged Interests
17
Section 2.7
Subordination Agreements
17
Section 2.8
All Obligations are Pari Passu
17
Section 2.9
Swap Obligations Beyond Maturity
17
   
ARTICLE III REPRESENTATIONS AND WARRANTIES
17
     
Section 3.1
Formation and Existence
17
Section 3.2
Name; Executive Offices
17
Section 3.3
Capitalization; Ownership; Subsidiaries
18
Section 3.4
Authorization; Non-Contravention
18
Section 3.5
Solvency
18
Section 3.6
Omissions and Misstatements
19
Section 3.7
Joint Venture
19
Section 3.8
Commissions; Expenses
19
Section 3.9
Tax Returns; Taxes
19
Section 3.10
Litigation; Governmental Proceedings
19
Section 3.11
Ownership of Collateral; Interests.
20
Section 3.12
Debt
20

 
 
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Section 3.13
Intellectual Property
20
Section 3.14
No Other Leases
21
Section 3.15
Investments
21
Section 3.16
No Unusual Restrictions
21
Section 3.17
No Take or Pay Agreements
21
Section 3.18
Gas Imbalances
21
Section 3.19
Environmental Matters
21
Section 3.20
Permits and Licenses
22
Section 3.21
Operation of the Properties
22
Section 3.22
USA PATRIOT Act Representation
23
Section 3.23
Contingent Liabilities
23
Section 3.24
Equipment
23
Section 3.25
Unpaid Bills
23
Section 3.26
Taxpayer Identification
24
Section 3.27
Investment Company
24
Section 3.28
Borrower is Not a Public Company
24
Section 3.29
No Margin Trading
24
Section 3.30
No Pending Sale or Financing
24
Section 3.31
No Calls on Production
24
Section 3.32
Basic Documents
24
Section 3.33
Farmout Agreements and Subject Contracts, Etc
25
Section 3.34
Operating Agreements
25
Section 3.35
No Unusual Agreements
25
Section 3.36
Suspense of Proceeds
25
Section 3.37
Employee Plans
26
Section 3.38
Insurance
26
Section 3.39
No Material Adverse Effect
26
Section 3.40
Restriction on Liens
26
Section 3.41
Hedging Agreements
26
Section 3.42
Marketing of Production
26
Section 3.43
Deposit Accounts
26
Section 3.44
Labor Matters
27
Section 3.45
Eligible Contract Participant
27
Section 3.46
Character of Pledged Interests
27
Section 3.47
No Default
27
Section 3.48
Financial Statements
27
Section 3.49
Priority
27
Section 3.50
Affiliate Interests in Properties
27
   
ARTICLE IV FINANCIAL STATEMENTS AND INFORMATION; CERTAIN NOTICES TO
ADMINISTRATIVE AGENT
27
     
Section 4.1
Monthly Reporting Package
28
Section 4.2
Financial Reporting
28
Section 4.3
Compliance Certificate
28
Section 4.4
Notices of Default and Other Significant Events
28
Section 4.5
Reserve Reports
29

Section 4.6
Additional Information
31

 
 
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Section 4.7
Monthly Field Activity Reports
31
Section 4.8
Test Results; Core Analyses; Surveys and Logs
31
Section 4.9
Reserved
31
Section 4.10
Reports Made to a Governmental Authority
31
Section 4.11
Charter Documents
31
Section 4.12
Certificate of Authorized Officer—Hedging Agreements
32
Section 4.13
Certificate of Insurer—Insurance Coverage
32
Section 4.14
Anticipated Cost Overruns
32
Section 4.15
Updated Development Plan
32
Section 4.16
Updated G&A Budget
32
   
ARTICLE V AFFIRMATIVE COVENANTS
32
     
Section 5.1
Preservation of Existence
33
Section 5.2
Compliance with Law
33
Section 5.3
Environmental Matters
34
Section 5.4
Records
34
Section 5.5
Litigation
34
Section 5.6
Damage to Collateral
35
Section 5.7
Solvency
35
Section 5.8
Insurance
35
Section 5.9
Delivery of Invoices, Receipts, Etc
36
Section 5.10
Access to Books and Records; Inspections; Consultants
36
Section 5.11
Creditors
37
Section 5.12
Operators
37
Section 5.13
Purchasers of Hydrocarbons
38
Section 5.14
Use of Proceeds
38
Section 5.15
Bonds
38
Section 5.16
Hydrocarbon Price Risk Management Program
39
Section 5.17
Evidence of Title
39
Section 5.18
Continuing Enterprise
39
Section 5.19
Access to Technical Data
39
Section 5.20
Financial Ratios.
40
Section 5.21
Maintenance of Liens
41
Section 5.22
Payment of Taxes, Etc
41
Section 5.23
Equipment.
41
Section 5.24
Maintenance of Leases
42
Section 5.25
Operator
42
Section 5.26
Release of Community Bank Lien
42
   
ARTICLE VI NEGATIVE COVENANTS
42
     
Section 6.1
Debt
42
Section 6.2
Accounts
43
Section 6.3
Guaranties
43
Section 6.4
Ownership and Business Operations.
44
Section 6.5
Liens and Encumbrances
45
Section 6.6
Affiliate and XOG Group Transactions
46

Section 6.7
Investments
46

 
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Section 6.8
Subsidiaries; Structure
46
Section 6.9
Joint Ventures
46
Section 6.10
Dividends and Distributions
46
Section 6.11
Modifications to Documents
46
Section 6.12
Other.
47
Section 6.13
Use of Loan Proceeds
47
Section 6.14
Limitation on Leases
47
Section 6.15
Nature of Business
47
Section 6.16
Deposit Accounts
48
Section 6.17
No Severance Agreements
48
Section 6.18
Commodity Deliveries
48
Section 6.19
G&A Expenses
48
   
ARTICLE VII FURTHER RIGHTS OF LENDERS
48
     
Section 7.1
Further Assurances; Delivery of Additional Documents
48
Section 7.2
Payments by Lenders
49
Section 7.3
Possession and Preservation of Collateral
49
Section 7.4
Indemnification.
49
   
ARTICLE VIII CLOSING; CONDITIONS PRECEDENT
51
     
Section 8.1
Closing
51
Section 8.2
Conditions to Closing
51
Section 8.3
Post-Closing Conditions
53
Section 8.4
Conditions to the Making of Each Advance
53
   
ARTICLE IX EVENTS OF DEFAULT
56
     
Section 9.1
Events of Default
56
   
ARTICLE X REMEDIES OF LENDERS
58
     
Section 10.1
Remedies Generally.
58
Section 10.2
No Marshalling; Use of Collateral Pending Foreclosure; Etc
59
Section 10.3
Set-Off Rights
59
Section 10.4
Rights Under Operating Agreements
59
Section 10.5
Netting of Claims
59
Section 10.6
All Rights and Remedies are Cumulative
60
   
ARTICLE XI ADMINISTRATIVE AGENT
60
     
Section 11.1
Appointment and Authorization of Administrative Agent
60
Section 11.2
Delegation of Duties
60
Section 11.3
Liability of Administrative Agent
60
Section 11.4
Reliance by Administrative Agent.
61
Section 11.5
Notice of Default
61
Section 11.6
Credit Decision; Disclosure of Information by Administrative Agent
62
Section 11.7
Indemnification of Administrative Agent
62
Section 11.8
Administrative Agent in its Individual Capacity
62
Section 11.9
Successor Administrative Agent
63
Section 11.10
Administrative Agent May File Proofs of Claim
63

 
 
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Section 11.11
Collateral Matters.
64
Section 11.12
Advance Procedure
65
Section 11.13
Payments
66
Section 11.14
Application of Payments
66
Section 11.15
Liens
66
Section 11.16
Payment Priority
66
Section 11.17
Sharing of Payments by Lenders
67
Section 11.18
Relationship of Lenders
67
Section 11.19
Actions by Administrative Agent
67
Section 11.20
Replacement of Lenders
68
   
ARTICLE XII MISCELLANEOUS
69
     
Section 12.1
Assignment.
69
Section 12.2
Notices.
69
Section 12.3
Waivers; Amendments; Schedules.
71
Section 12.4
Confidentiality; Permitted Disclosures.
72
Section 12.5
Form of Documents
73
Section 12.6
Third-Party Beneficiaries
73
Section 12.7
Governing Law; Venue.
74
Section 12.8
Waiver of Jury Trial, Punitive Damages, Etc
74
Section 12.9
Fees, Costs and Expenses
75
Section 12.10
Compliance with Usury Laws.
75
Section 12.11
Limited Power of Attorney
75
Section 12.12
Severability
76
Section 12.13
Defined Terms; Interpretation, Etc
76
Section 12.14
This Agreement Controls if Terms Conflict
77
Section 12.15
Counterpart Execution
77
Section 12.16
Acknowledgment of Exculpatory Provisions
77
Section 12.17
Final Agreement
77

 
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EXHIBITS, APPENDICES AND SCHEDULES
 
Exhibits:

Exhibit A
Description of Properties; Interests
Exhibit B
Form of Promissory Note
Exhibit C
Form of Advance Request
Exhibit D
Existing and Approved Purchasers
Exhibit E
Form of Security Agreement
Exhibit F
Form of Subordination Agreement
Exhibit G
Form of Notice of Assignment of Proceeds
Exhibit H
[Reserved]
Exhibit I
Form of Mortgage
Exhibit J
Form of Guaranty
Exhibit K
Form of Pledge Agreement
Exhibit L
Form of Compliance Certificate

Appendices:

Appendix A
Definitions
Appendix B
Lenders

Schedules:

Schedule 1.4
G&A Budget
Schedule 1.5
Development Plan
Schedule 1.6(c)
Authorized Signatories on Advance Requests
Schedule 3.3(a)
Equity Interests of Borrower
Schedule 3.3(b)
Subsidiaries
Schedule 3.4(d)
Consents
Schedule 3.7
Joint Ventures
Schedule 3.8
Brokerage Fees
Schedule 3.10
Litigation
Schedule 3.19
Environmental Matters
Schedule 3.23
Contingent Liabilities
Schedule 3.25
Unpaid Bills/Vendor List
Schedule 3.33
Farmout Agreements and Subject Contracts
Schedule 3.34
Operators/Operating Agreements
Schedule 3.40
Restrictions on Liens
Schedule 3.41
Hedging Agreements
Schedule 3.42
Marketing Contracts
Schedule 3.43
Deposit Accounts
Schedule 3.50
Affiliate Interests in Properties
Schedule 5.15
Bonds and Qualifications
Schedule 5.16
Initial Hydrocarbon Price Risk Management Program
Schedule 6.1(b)
Existing Debt
Schedule 6.5
Liens and Encumbrances
Schedule 6.7
Permitted Investments

 
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CREDIT AGREEMENT
 
This $300,000,000 Credit Agreement is dated September 21, 2011 between AMERICAN
STANDARD ENERGY, CORP., a Nevada corporation, (“Borrower”) and MACQUARIE BANK
LIMITED, a bank incorporated under the laws of Australia, (in its individual
capacity, “MBL”) as administrative agent for the Lenders (in such capacity,
together with its successors in such capacity, “Administrative Agent”) and the
other Lenders party to this Agreement.
 
Background
 
A.           Borrower has requested that Lenders make available to Borrower a
revolving and a term loan facility, and Lenders are willing to make that
revolving and term loan facility available to Borrower pursuant to the terms and
conditions of this Agreement and the other Loan Documents.
 
B.           To secure all of Borrower’s obligations to Lenders under the Loan
Documents, Borrower will grant to Administrative Agent, for the ratable benefit
of each of the Lenders and Swap Counterparty as swap provider under the Swap
Agreement, a first-priority mortgage lien and security interest in all of the
real and personal property of Borrower.
 
C.           To further induce Lenders to enter into this Agreement, Borrower’s
Parent, American Standard Energy Corp., a Delaware corporation, will provide a
guaranty in favor of Administrative Agent for the ratable benefit of Lenders,
and further Parent will grant to MBL or its designee certain Warrants (defined
below) to acquire Equity Interests in Parent.
 
Agreements
 
For good and valuable consideration, the receipt and sufficiency of which are
acknowledged by each of the parties, Borrower, Administrative Agent and Lenders
agree as follows:
 
ARTICLE I
 
THE LOAN FACILITY
 
Section 1.1        Maximum Commitment.
 
(a)       Maximum Commitment.  Each Lender severally agrees to make available to
Borrower, at any time prior to the Availability Termination Date, such Lender’s
Percentage Share of (i) a senior secured revolving loan (the “Revolving Loan”)
not to exceed $100,000,000 (the “Revolving Loan Maximum Commitment”) and (ii) a
senior secured term loan (the “Term Loan”) not to exceed $200,000,000 (the “Term
Loan Maximum Commitment”), subject to the terms and conditions of this
Agreement.  Lenders do not intend to advance Borrower any amount in excess of
the Maximum Commitment.  If, however, the obligations of Borrower under the Loan
at any time exceed the Maximum Commitment, all amounts owing by Borrower to
Lenders under this Agreement will nevertheless constitute Obligations and will
be entitled to the benefit of Administrative Agent’s Liens on the Collateral.
 
 
 

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(b)         All Amounts Due at Maturity.  All monetary Obligations (other than
Obligations under the Swap Agreement that are intended to continue past the
Maturity Date) will be fully due and payable on the Maturity Date.
 
Section 1.2          The Revolving Loan.
 
(a)         Availability and Purpose of Revolving Loan Advances.  Borrower must
use Advances under the Revolving Loan exclusively to:
 
(i)           pay Related Costs;
 
(ii)          fund development activities of Properties, whether or not set
forth in the current Development Plan and included in an AFE Approved by
Administrative Agent;
 
(iii)         repay amounts outstanding under the Term Loan;
 
(iv)         fund, with the Approval of Administrative Agent, the acquisition of
additional Properties;
 
(v)          pay other expenses Approved by Administrative Agent in its
reasonable discretion;
 
(vi)         pay Borrower’s legal fees and expenses not to exceed $250,000
incurred in connection with the closing of this Agreement and the Loan
Documents; and
 
(vii)        if there are no Term Loan Obligations outstanding, for Borrower’s
general corporate purposes.
 
(b)         Borrowing Base.
 
(i)           The initial Borrowing Base available under the Revolving Loan is
$12,000,000.  Thereafter, Administrative Agent will re-determine the Borrowing
Base pursuant to this Section 1.2(b).
 
(ii)           Subject to Section 1.2(e) below, the Administrative Agent will
re-determine the Borrowing Base pursuant to this Section 1.2(b) not less than
every six months based upon the most recent Reserve Report.  However, if
Borrower changes its fiscal year, then the next re-determination date shall be
no later than 75 days following Borrower’s new fiscal year end date.  On or
before each, February 15 and August 15 until the Maturity Date, Borrower shall
furnish to Administrative Agent a Reserve Report (with “effective dates” of
December 31, and June 30, respectively), which shall set forth, as of the
applicable effective date, the Proved Reserves attributable to the
Properties.  Each Reserve Report delivered each calendar year shall be a
complete report prepared by Engineers.  Each Reserve Report shall relate to the
Proved Reserves attributable to the Properties in accordance with Section
4.5.  For the avoidance of doubt, within 30 days following receipt of each such
Reserve Report, Administrative Agent shall, in its sole discretion, make a
determination of the Borrowing Base which shall become effective upon written
notification from Administrative Agent to Borrower until the effective date of
the next redetermination as set forth in this Section 1.2(b).
 
 
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(iii)           Administrative Agent is not required to consider any Proved
Reserves attributable to the Properties for inclusion in the Borrowing Base if,
in Administrative Agent’s reasonable opinion, Administrative Agent does not have
a first priority security interest or mortgage Lien on such Properties.  In no
event will the Borrowing Base exceed the Revolving Loan Maximum Commitment.
 
(iv)           Subject to Section 1.2(e) below, Administrative Agent shall
determine the Borrowing Base in accordance with its customary lending practices
based on the maximum Revolving Loan amount that may be supported by the
Properties and Borrower acknowledges, for purposes of this Agreement, such
determination by Administrative Agent as being the maximum Revolving Loan amount
that may be supported by the Properties as of such date of determination.  In
making any redetermination of the Borrowing Base, Administrative Agent shall
apply consistently the parameters and other credit factors then generally being
utilized by Administrative Agent for Borrowing Base redeterminations for
Administrative Agent’s similarly situated borrowers.  Borrower and
Administrative Agent acknowledge that (a) due to the uncertainties of the
Hydrocarbon extraction process, the Properties are not subject to evaluation
with a high degree of accuracy and are subject to potential rapid deterioration
in value, and (b) for this reason and the difficulties and expenses involved in
liquidating and collecting against the Properties, Administrative Agent’s
determination of the maximum Revolving Loan amount that may be supported by the
Properties contains an equity cushion, which equity cushion is essential for the
adequate protection of Lenders.
 
(c)         Unscheduled Re-determinations.  In addition to the redetermination
of the Borrowing Base described in Section 1.2(b)(ii),
 
(i)           Borrower may initiate a redetermination of the Borrowing Base at
any other time by specifying in writing to Administrative Agent the date by
which Borrower will furnish to Administrative Agent an updated Reserve Report in
accordance with Section 4.5 and the date by which such redetermination is
requested to occur (but not less than 30 days after Administrative Agent
receives the updated Reserve Report);
 
(ii)           Administrative Agent may initiate such a redetermination in its
sole discretion;
 
but, Borrower and Administrative Agent may each initiate only one such
unscheduled redetermination each between scheduled redetermination dates.
 
 
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(d)         Reduction of Commitment.
 
(i)           Upon at least five Business Days prior written notice to
Administrative Agent, Borrower may at any time permanently reduce the Revolving
Loan Maximum Commitment, but:
 
(A)           each reduction must be in an amount equal to an integral multiple
of One Hundred Thousand Dollars ($100,000);
 
(B)           if, after giving effect to the reduction, the Obligations
outstanding under the Revolving Loan would exceed the Revolving Loan Maximum
Commitment, Borrower must, as a condition to the effectiveness of the reduction,
prepay the Obligations outstanding under the Revolving Loan by an amount equal
to that excess;
 
(C)           as a condition to the effectiveness of the reduction, Borrower
must pay to Administrative Agent, for the ratable benefit of Lenders, any fee
accrued to the date of such reduction and unpaid under Section 1.15(a); and
 
(D)           once it has become effective, no reduction in the Revolving Loan
Maximum Commitment can be withdrawn or restored.
 
(ii)           In the event of a Defaulting Lender, and as long as no Event of
Default exists, Borrower, at Borrower’s election may elect to terminate such
Defaulting Lender’s Percentage Share of the Borrowing Base hereunder; provided
that (A) such termination must be of the Defaulting Lender’s entire Percentage
Share of the Borrowing Base, (B) Borrower shall pay all amounts owed by Borrower
to such Defaulting Lender under this Agreement and under the other Loan
Documents (including principal of and interest on the Advances owed to such
Defaulting Lender and accrued Commitment Fees but specifically excluding any
Breakage Costs as result of such payment of Advances), and (C) unless otherwise
consented to by Administrative Agent, a Defaulting Lender’s Percentage Share of
the Borrowing Base may be terminated by Borrower under this Section 1.2(d)(ii)
if and only if at such time, Borrower has elected, or is then electing, to
terminate the Percentage Share of the Borrowing Base of all then existing
Defaulting Lenders.  Upon written notice to the Defaulting Lender and
Administrative Agent of Borrower’s election to terminate a Defaulting Lender’s
Percentage Share of the Borrowing Base pursuant to this Section 1.2(d)(ii) and
the payment of amounts required to be made by Borrower under clause (B) above,
(x) such Defaulting Lender shall cease to be a “Lender” hereunder for all
purposes except that such Lender’s rights under Sections 1.17 and 7.4 shall
continue with respect to events and occurrences occurring before or concurrently
with its ceasing to be a “Lender” hereunder, (y) such Defaulting Lender’s
Percentage Share of the Borrowing Base shall be deemed terminated, and (z) such
Defaulting Lender shall be relieved of its obligations hereunder other than its
obligations under Section 7.4 with respect to events and occurrences occurring
before or concurrently with its ceasing to be a “Lender” hereunder; provided
that, any such termination will not be deemed to be a waiver or release of any
claim by Borrower, Administrative Agent or any Lender may have against such
Defaulting Lender.  Notwithstanding anything herein to the contrary, an election
by Borrower to terminate a Defaulting Lender’s Percentage Share of the Borrowing
Base pursuant to this Section 1.2(d)(ii) shall permanently decrease the
Borrowing Base unless and until an increase is made pursuant to this Section
1.2(b).
 
 
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(e)         Borrowing Base Increases are Discretionary.  Notwithstanding
anything in this Section 1.2 or elsewhere in this Agreement to the contrary, the
Borrowing Base will be increased to an amount in excess of the initial Borrowing
Base set forth in Section 1.2(a) above only in the sole and absolute discretion
of Administrative Agent.
 
(f)         Revolving Credit.  Subject to the satisfaction of the conditions in
Article VIII, amounts repaid in respect of the Revolving Loan may be re-borrowed
up to the Borrowing Base on a revolving basis until the Availability Termination
Date.
 
Section 1.3          The Term Loan.
 
(a)         Committed Portion of the Term Loan.  At Closing and through the
Availability Termination Date, $45,000,000 of the Term Loan is committed and
subject to the satisfaction of the conditions in Article VIII, available to
Borrower to be used for the purposes set forth in Section 1.3(b) below.  The
remainder of the Term Loan is uncommitted.
 
(b)         Purpose of Term Loan Advances.  Borrower must use Advances under the
Term Loan exclusively to:
 
(i)           fund development activities set forth in the Development Plan and
included in an AFE Approved by Administrative Agent;
 
(ii)           fund, with the Approval of Administrative Agent, the acquisition
of additional Properties; and
 
(iii)           eliminate a Borrowing Base Deficiency in accordance with Section
1.13(b)(iii).
 
(c)         No Revolving Credit.  Amounts repaid in respect of the Term Loan
cannot be reborrowed.
 
Section 1.4         G&A Budget.  The initial G&A Budget is attached as
Schedule 1.4.  Administrative Agent Approves the initial G&A Budget.  Borrower
can propose modifications to the G&A Budget from time to time, and those
modifications will become effective when Approved by Administrative Agent in its
reasonable discretion.
  
 
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Section 1.5            Development Plan.
 
(a)           The form of Development Plan is attached as Schedule
1.5.  Borrower can propose the initial Development Plan and any subsequent
modifications to the Development Plan from time to time, and each Development
Plan will become effective when Approved by Administrative Agent.
 
(b)           Administrative Agent will not unreasonably withhold or delay its
Approval of a modification to the Development Plan proposed by Borrower, but
Administrative Agent may make its Approval subject to such conditions as
Administrative Agent deems appropriate in its reasonable
discretion.  Administrative Agent’s evaluation of any Development Plan proposed
by Borrower requires Administrative Agent to form, in its reasonable discretion,
opinions regarding both the technical feasibility of the projects included on
each proposed Development Plan and the suitability of funding those projects
with debt.  Administrative Agent’s views on those issues may, on occasion,
differ with Borrower’s views.  A difference in opinion does not, by itself,
suggest that the views of either Administrative Agent or Borrower were not
arrived at in the exercise of any party’s reasonable discretion.
 
(c)           In support of each Development Plan, Borrower will prepare and
submit to Administrative Agent for Approval an AFE (including all Supporting
Documentation) at least 15 days before Borrower incurs any costs that it intends
to fund out of an Advance.  To the extent an AFE conforms to a Development Plan
previously Approved by Administrative Agent, however, Administrative Agent’s
Approval of that AFE will not be unreasonably withheld or delayed.
 
(d)           Notwithstanding the Administrative Agent’s Approval of a
Development Plan:
 
(i)           Borrower must nevertheless satisfy the conditions described in
this Article I and Article VIII prior to the making of each Advance; and
 
(ii)           Lenders will have no obligation to make an Advance to fund
projects included on the Development Plan:
 
(A)           unless the requested Advance relates to an AFE Approved by
Administrative Agent; or
 
(B)           if the requested Advance (together with all amounts previously
Advanced in respect of the applicable AFE) exceeds (1) the cost set forth in the
Development Plan for that project, or (2) the Loan availability remaining under
the Revolving Loan or the Term Loan, as applicable.
  
 
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Section 1.6          Advance Procedure.
 
(a)         Advance Requests.  Subject to the satisfaction of the conditions in
Article VIII, Borrower can request Advances through the Availability Termination
Date.  To request an Advance, Borrower will deliver an Advance Request to
Administrative Agent by 12:00 p.m. Houston, Texas time, at least three Business
Days prior to the date on which the Advance, if Approved, is to be made.  Each
Advance Request will include invoices or other Supporting Documentation
reasonably requested by Administrative Agent to support the amounts to be paid
out of the requested Advance.  Unless Administrative Agent notifies Borrower in
writing within that three Business Day period that it objects or requires
additional information with respect to the requested Advance (in which case,
Administrative Agent will describe the objection or requested information in
reasonable detail), then Administrative Agent will process the Advance Request
on or before the end of the third Business Day of such three Business Day
period.  All Advances to Borrower will be made to an account or accounts
specified in Schedule 3.43.
 
(b)         Minimum Advance.  The minimum amount of any Advance will be $100,000
unless a lesser amount remains available under the Term Loan or Revolving Loan,
as applicable.
 
(c)         Authorized Signatories.  Schedule 1.6(c) identifies and contains a
specimen signature of each Person authorized to request an Advance on behalf of
Borrower, which schedule may be updated by Borrower upon written notice to
Administrative Agent delivered in accordance with Section 12.2.  Unless
otherwise noted on Schedule 1.6(c), only a single signatory is required on an
Advance Request.
 
(d)         Unavailability of USD.  If any non-U.S. Lender notifies
Administrative Agent that deposits in USD will not be readily available to such
Lender in the relevant interbank market to enable such Lender to fund a
requested Advance, then (i) Administrative Agent will give prompt notice of that
fact to Borrower, and (ii) the Advance Request will be deemed to have been
reduced by an amount equal to such Lender’s Percentage Share of the requested
Advance and such Lender will have no obligation to make its Percentage Share of
the requested Advance; but each other Lender shall remain obligated to fund its
pro rata share of such Advance (calculated as if all Lenders were participating
in the funding of the Advance).  At such time as the non-funding Lender
determines that deposits in USD are readily available in the interbank market to
enable such Lender to fund the Advance, then the Lender will notify the
Administrative Agent and Administrative Agent will give prompt notice of that
fact to Borrower, and (iii) such Lender shall then fund its Percentage Share of
such Advance so that each Lender will have Advances outstanding in an amount
equal to its pro rata share of the aggregate Advances outstanding.
  
 
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Section 1.7         Promissory Note.  Borrower’s obligation to repay the Loan
will be evidenced by Promissory Notes in favor of each Lender.  The Advances
made by each Lender shall be evidenced by a single Promissory Note, dated, in
the case of (i) any Lender party hereto as of the Closing Date, or (ii) any
Lender that becomes a party hereto pursuant to an assignment, as of the
effective date of the assignment, payable to the order of such Lender in a
principal amount equal to its commitment as in effect on such date, and
otherwise duly completed.  In the event that any Lender’s commitment increases
or decreases for any reason, Borrower shall deliver on the effective date of
such increase or decrease (and upon the surrender of any then existing
Promissory Note evidencing the same obligation), a new Promissory Note payable
to the order of such Lender in a principal amount equal to its commitment after
giving effect to such increase or decrease, and otherwise duly completed.  Each
Lender will record on its books the date, amount and interest rate of each
Advance made by such Lender, as well as a record of all principal payments made
by Borrower in respect of such Promissory Note.  If such Promissory Note is
transferred to another holder, the applicable Lender may prepare a schedule of
that information and attach it to such Promissory Note.  However, neither an
error in the recordation of that information on such Lender’s books nor the
failure to prepare and attach a schedule of that information to such Promissory
Note when it is transferred to another holder will affect such Lender’s or
Borrower’s rights and obligations in respect of such Promissory Note or the
validity of any transfer of such Promissory Note to another holder.
 
Section 1.8          Interest.
 
(a)         Each Advance under the Loan will bear interest at the applicable
Contract Rate beginning on the date of such Advance and continuing until such
Advance is paid in full in accordance with this Agreement.  If an Event of
Default exists, all amounts outstanding under the Loan will bear interest at a
rate per annum (the “Default Rate”) equal to the lesser of (i) the Highest
Lawful Rate and (ii) the Contract Rate plus 3%.  In addition, any amount owing
by Borrower or another Obligor under this Agreement or the other Loan Documents
that is not paid when due, whether at stated maturity, upon acceleration or
otherwise, will bear interest (both before and after judgment) at the Default
Rate.
 
(b)         All interest will be computed on the actual number of days elapsed
over a year composed of 360 days with respect to LIBOR Loans and 365/366 days
with respect to Base Rate Loans.  Interest is due and payable under this
Agreement in arrears and in immediately available funds (i) on the last Business
Day of each month prior to the Facility Termination Date, (ii) on the last
Business Day of any Interest Period, and (iii) in full on the Facility
Termination Date.
 
(c)         Borrower must select the Contract Rate for each Advance by
delivering a selection notice substantially in accordance with this Section
1.8(c) (the “Selection Notice”) to the Administrative Agent at least three (3)
Business Days prior to the end of the current Interest Period.  If Borrower
elects the LIBOR Rate, then such Advance will be a “LIBOR Loan;” if Borrower
elects the Prime Rate then such Advance will be a “Base Rate Loan.”  If Borrower
fails to timely deliver a Selection Notice, then such Advance will bear interest
at the Prime Rate and will be a Base Rate Loan.
 
(d)         There can be no more than six LIBOR Loans outstanding at any one
time.
 
(e)         Subject to the provisions of this Section 1.8(e), Borrower can elect
to continue all or any part of any LIBOR Loan beyond the expiration of the then
current Interest Period relating to that LIBOR Loan by giving at least three
Business Days notice (the “Continuation Notice”) to Administrative Agent prior
to the end of the Interest Period. The Continuation Notice must specify the
amount of the LIBOR Loan to be continued (in integer multiples of $100,000) and
the length of the continuation Interest Period. If Borrower fails to timely
deliver a Continuation Notice, then the expiring LIBOR Loan will be converted to
a Base Rate Loan.
 
 
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(f)         Administrative Agent’s determination of the LIBOR Rate as provided
in this Agreement will, absent manifest error, be conclusive and binding on all
parties.
 
(g)         If, on or before any date on which Administrative Agent is to
determine the LIBOR Rate:
 
(i)           Administrative Agent determines that adequate and fair means do
not or will not exist for determining the LIBOR Rate applicable to an Interest
Period or, for any reason, Administrative Agent will not be able to determine
the LIBOR Rate for the applicable Interest Period; or
 
(ii)           Administrative Agent determines that the LIBOR Rate determined in
accordance with this Agreement does not accurately reflect any Lender’s cost of
funding, making or maintaining that Advance for the applicable Interest Period;
 
then Administrative Agent can give notice of that circumstance to Borrower (a
“Market Disruption Notice”), whereupon Lenders’ obligations to make the
requested Advance on the basis of the LIBOR Rate will be suspended until such
time as Administrative Agent notifies Borrower that the circumstances described
in the Market Disruption Notice no longer exist.  If Administrative Agent has
issued a Market Disruption Notice, all subsequent Advances will bear interest at
the Prime Rate plus (x) the Applicable Margin then in effect and (y) if an Event
of Default exists, 3%, but in no event shall the interest rate ever exceed the
Highest Lawful Rate.
 
Section 1.9          Repayment of the Loan.
 
(a)         Repayment of the Revolving Loan.  Principal on the Revolving Loan
shall be due and payable on the Maturity Date.  On the Maturity Date, Borrower
will pay to Administrative Agent, for the ratable benefit of each Lender, all of
the monetary Obligations outstanding on that date (other than Obligations that
may continue past the Maturity Date under the terms of the Swap Agreement) and
perform or otherwise satisfy all other Obligations then outstanding.
 
(b)         Repayment of the Term Loan.  Commencing on [insert date that is
exactly 18 months from Closing], Borrower will amortize the outstanding
principal amount under the Term Loan by paying to the Administrative Agent on
the last Business Day of each month, for the ratable benefit of each Lender, an
amount equal to the total outstanding principal amount under the Term Loan on
that date divided by eighteen.  Repayment of the Term Loan from Advances under
the Revolving Loan and prepayments of the Term Loan pursuant to Section 1.13(a)
after amortization payments have commenced shall be accrued toward subsequent
amortization payments due pursuant to this Section 1.9(b) in order of maturity.
 
 
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(c)         Application of Funds.  All payments under the Loan will be applied
(i) first to unpaid fees, LIBOR Breakage Costs and Related Costs which Borrower
is obligated to pay under the Loan Documents, (ii) second to accrued interest on
the Term Loan, (iii) third to accrued interest on the Revolving Loan, (iv)
fourth to principal on the Term Loan until the amount outstanding under the Term
Loan is reduced to zero, and (v) fifth to principal on the Revolving Loan.  But,
if no Event of Default exists, Borrower can direct Administrative Agent to apply
prepayments (but not scheduled payments) of principal (after payment under
subclauses (i), (ii) and (iii) above) first to the Revolving Loan until the
amount of outstanding under the Revolving Loan is reduced to zero, and then to
principal on the Term Loan.
 
Section 1.10        Time and Place of Payments.
 
(a)         Project Account.  To the extent not satisfied by debits to the
Borrower Sub-Account pursuant to Section 1.11(a), all payments to be made by
Borrower to Administrative Agent under this Agreement will be made to the
following account (the “Project Account”) by wire transfer in immediately
available funds not later than 11:00 a.m., Houston, Texas, time on the date due:
 
 
Account:
The Bank of New York Mellon

 
New York, New York 10004

 
 
ABA # 021000018

 
 
Favour:
Macquarie Bank Limited

 
Sydney

 
A/C No.:  8900055375

 
Chips UID:  236386

 
Reference:  American Standard Energy, Corp.

 
or to any other account that Administrative Agent may designate in writing to
Borrower from time to time.
 
(b)         Business Days.  If any payment to be made under this Agreement falls
due on a day that is not a Business Day, the payment will be payable on the next
succeeding Business Day.
 
Section 1.11        Borrower Sub-Account; Disbursements.
 
(a)         Borrower Sub-Account.  Following an Event of Default and until all
monetary Obligations have been Indefeasibly paid in full in cash, Borrower will
direct and Cause Operator, all Purchasers of Hydrocarbons and all other
customers and obligors of Borrower (including all payors of Royalty Interests,
net profit interests, and production payment interests) to deposit directly into
the Project Account all payments of any nature due and owing to Borrower.  If
Borrower nonetheless receives any such funds, it will promptly (but, in any
event, by the end of the following Business Day) deposit all such funds in the
Project Account.  This Section 1.11 will not prohibit Operator or Purchasers
from making payments directly to Royalty Interest owners and other third party
payees who are not Affiliates of Borrower.  Administrative Agent will establish
a sub account (the “Borrower Sub-Account”) on its internal books and records and
credit to the Borrower Sub-Account all funds collected in the Project Account
and attributable to Borrower’s Net Revenue Interest in the Properties at the
time the amount to be credited has been identified to Administrative Agent’s
reasonable satisfaction.  Borrower hereby irrevocably authorizes Administrative
Agent to debit the Borrower Sub-Account for the payment of all Obligations when
due.  Except as provided in Section 1.11(b), Administrative Agent may, if an
Event of Default exists, apply all funds credited to the Borrower Sub-Account
against any Obligations then outstanding.
 
 
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(b)           Amounts Owed to Third Parties; Taxes.  Amounts deposited into the
Project Account and owing to (i) Working Interest and Royalty Interest owners
that are not Affiliates of Borrower, or (ii) Governmental Authorities for Taxes
or payments measured by production will be released by Administrative Agent to
Borrower upon receipt of a certificate from Borrower detailing the amounts and
the party to be paid.  If an Event of Default exists, however, Administrative
Agent will, at its option and upon prior written notice to Borrower, have the
right (but not the obligation) to make payments directly to the Persons
identified on Borrower’s certificate.  Schedule 1.6(c) identifies and contains a
specimen signature of each Person authorized to deliver the certificate
contemplated by this Section 1.11(b) on behalf of Borrower.  Unless otherwise
noted on Schedule 1.6(c), only a single signatory is required on a certificate.
 
(c)           Administrative Agent’s Right to Audit.  Administrative Agent will
have the right to undertake audit procedures during normal business hours and
upon reasonable prior notice to periodically confirm that the payments described
in Section 1.11(b) have been made by Borrower.
 
Section 1.12           Optional Prepayment of the Loan.  Borrower can prepay the
Loan in whole or in part at any time without penalty or premium, except for
Breakage Costs resulting from such prepayment. All prepayments received by
Administrative Agent under this Section 1.12 will be immediately applied as a
prepayment of the Loan pursuant to Section 1.9(c).
 
Section 1.13           Mandatory Prepayment of the Loan.
 
(a)           Borrower will promptly pay to Administrative Agent, for the
ratable benefit of each Lender, 100% of all net proceeds from the sale of any
Collateral (excluding sales of Hydrocarbons in the ordinary course of business
and sale of Equipment authorized by the Security Agreement).  The preceding
sentence will not, however, be deemed to be a consent by Administrative Agent to
any sale.  All prepayments received by Administrative Agent under this Section
1.13 will be immediately applied as a prepayment of the Loan pursuant to Section
1.9(c).
 
(b)           Within ten Business Days after Borrower receives written notice
from Administrative Agent that a Borrowing Base Deficiency exists, Borrower must
deliver to Administrative Agent a written response indicating which of the
following actions Borrower will take to remedy the Borrowing Base Deficiency
(and the failure of Borrower to timely deliver such election notice or to timely
perform the actions chosen to remedy such Borrowing Base Deficiency will
constitute an Event of Default):
 
(i)           within 30 days of receipt by Borrower of written notice of the
Borrowing Base Deficiency, prepay the Loan in cash in an aggregate principal
amount sufficient to eliminate such Borrowing Base Deficiency;
 
 
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(ii)           prepay the Loan in four equal monthly installments in an
aggregate principal amount sufficient to eliminate the Borrowing Base
Deficiency, with the first such installment due 30 days after the date such
Borrowing Base Deficiency notice is received by Borrowers and the remaining
installments due on the same date in the three successive months;
 
(iii)           with the Approval of Administrative Agent, prepay Advances from
an Advance under the Term Loan in an aggregate principal amount sufficient to
eliminate such Borrowing Base Deficiency;
 
(iv)           grant to Administrative Agent a first priority Lien in additional
collateral which, in Administrative Agent’s reasonable determination, has
sufficient loan value to eliminate such Borrowing Base Deficiency, or
 
(v)           eliminate the Borrowing Base Deficiency through a combination of
the actions described in subclauses (i), (ii), (iii) and (iv) above.
 
Section 1.14           Application of Insurance Proceeds.  Borrower will
promptly pay to Administrative Agent, for the ratable benefit of each Lender,
100% of all cash amounts received as insurance proceeds under any property or
casualty insurance related to the Collateral unless Administrative Agent
Consents to Borrower’s expenditure of those insurance proceeds to repair or
replace the affected Collateral; but, if no Event of Default exists, Borrower
may apply the first $250,000 in insurance proceeds received during any calendar
year to repair or replace the affected Collateral without having to first obtain
Administrative Agent’s Consent.  All prepayments received by Administrative
Agent under this Section 1.14 will be immediately applied as a prepayment of the
Loan pursuant to Section 1.9(c).
 
Section 1.15           Fees.
 
(a)           Commitment Fees.  Borrower agrees to pay to Administrative Agent,
for the ratable benefit of each Lender, a commitment fee at a per annum rate
equal to one-half of one percent (.50%) of the daily unused Borrowing Base (the
Borrowing Base then in effect less the aggregate principal amount of the
Revolving Loan then outstanding) from the date of this Agreement until the
Commitment Termination Date, but if any Lender is unable to fund an Advance
pursuant to Section 1.6(d) then such Lender shall not be entitled to receive a
Commitment Fee unless and until such Lender is once again able to fund the
Advance and the per annum rate of any Commitment Fee applicable to such Lender
shall be adjusted on a pro rata basis to exclude those days for which such
Lender was unable to fund the requested Advance.  Further, no Commitment Fee
shall accrue to a Defaulting Lender during the period such Lender remains a
Defaulting Lender.  The commitment fees shall be due and payable quarterly in
arrears on the last day of each March, June, September and December commencing
on September 30, 2011 and continuing thereafter through and including the
Commitment Termination Date.
 
(b)           Advance Fee.  Contemporaneously with the making of any Advance,
Borrower will pay to Administrative Agent, for the ratable benefit of each
Lender, a non-refundable fee (the “Advance Fee”) equal to
 
 
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(i)           with respect to Advances under the Revolving Loan, one percent
(1.0%) of the amount of any incremental increase above the highest principal
amount previously outstanding under the Revolving Loan; and
 
(ii)           with respect to Advances under the Term Loan, one and on-half
percent (1.5%) of the Advance.
 
Borrower will not, however, be required to pay Lender an Advance Fee on Advances
(or portions of Advances) made to pay an Advance Fee.
 
(c)           All fees will be computed on the actual number of days elapsed
over a year composed of 360 days.
 
Section 1.16          Return of Funds Following Payment of
Obligations.  Following the Indefeasible payment of all monetary Obligations in
full in cash, Administrative Agent will promptly deliver to Borrower any funds
remaining in the Borrower Sub-Account.
 
Section 1.17           Taxes.
 
(a)           Taxes Not Deducted from Payments to Lender.  All payments made by
Borrower under this Agreement will be made free and clear of and without
deduction for Taxes (other than Excluded Taxes).  If Borrower is required by law
to deduct any Taxes (other than Excluded Taxes) from any sum payable to any
Lender, (i) the sum payable will be increased by an amount that would be
required to be paid so that, after making all required deductions (including
deductions applicable to additional sums payable under this Section 1.17(a))
such Lender will receive an amount equal to the sum it would have received had
no deductions been made, (ii) Borrower will deduct from the sum payable to such
Lender an amount sufficient to pay such Taxes and pay the balance to such
Lender, and (iii) Borrower will promptly pay the full amount deducted to the
relevant Taxing Authority or other Governmental Authority in accordance with
Law, provided, however, that Borrower shall not be required to increase any such
amounts payable to any Lender with respect to such Taxes:  (i) that are
attributable to such Lender’s failure to comply with the requirements of Section
1.17(d), (ii) that are United States withholding Taxes imposed on amounts
payable to such Lender at the time such Lender becomes a party to this
Agreement, except to the extent that such Lender’s assignor (if any) was
entitled, at the time of assignment, to receive additional amounts from Borrower
with respect to such Taxes pursuant to this Section 1.17(a), or (iii) any
amounts paid under FATCA.
 
(b)           Other Taxes.  In addition, and to the fullest extent permitted by
Law, Borrower agrees to pay any present or future stamp, documentary, mortgage
registration or similar Taxes or any other excise or property Taxes, charges or
similar levies that arise from any payment made or from the execution, delivery
or registration of, or otherwise with respect to, any Loan Document
(collectively, the “Other Taxes”).
 
 
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(c)           Indemnification.  To the fullest extent permitted by Law, except
as specifically provided in Section 1.17(a), and unless there exists a material
breach of Administrative Agent’s or Lenders’ representations in this Agreement,
Borrower will forever indemnify Administrative Agent and Lenders from and
against (i) all Taxes (other than Excluded Taxes) and Other Taxes imposed by any
Taxing Authority on amounts payable under this Section 1.17(c) and paid by
Administrative Agent or Lenders on behalf of Borrower and (ii) all liabilities
(including penalties, interest and reasonable attorneys fees, expenses and
disbursements) arising from or related to those Taxes (other than Excluded
Taxes)  and Other Taxes.  Borrower will make any payments required under this
Section 1.17(c) within 30 days after Administrative Agent or Lenders delivers a
written notice to Borrower that (x) identifies the relevant Taxing Authority and
the amount of the Tax (other than an Excluded Tax) or Other Tax imposed, (y)
states with reasonable specificity the basis for that Tax (other than an
Excluded Tax) or Other Tax, and (z) certifies that Administrative Agent or
Lenders have paid the Tax (other than an Excluded Tax) or Other Tax
imposed.  The indemnification obligations of Borrower under this Section 1.17(c)
will survive the repayment of the Obligations and the termination of this
Agreement.
 
(d)           Certification of Tax Status By Lender.
 
(i)           Each Lender will promptly and prior to the time any payments are
made:  (A) execute and deliver to Borrower a duly completed copy of United
States Internal Revenue Service Form W-8BEN, W-8IMY or W-8ECI (as applicable),
claiming complete exemption from, or a reduced rate of, United States federal
withholding Tax on all payments by Borrower under this Agreement and the other
Loan Documents, and (B) deliver to Borrower a United States Internal Revenue
Service Form W-8 or W-9 (as applicable) and certify that such Lender is entitled
to an exemption from United States backup withholding Tax.  Each Lender further
agrees to deliver to Borrower (x) renewals or additional copies of such forms
(or any successor forms) on or before the date that such forms expire or become
obsolete, (y) after the occurrence of any event requiring a change in the most
recent forms delivered by it, additional forms or amendments to those forms as
may be reasonably requested by Borrower, and (z) form time to time as reasonably
requested by Borrower.  All forms or amendments described in the preceding
sentence will include a certification by such Lender that it is entitled to
receive payments under this Agreement without deduction or withholding of any
United States federal income Taxes, unless an event (including a change in Law)
has occurred prior to the date on which any such delivery would otherwise be
required which renders all such forms inapplicable or which would prevent such
Lender from duly completing and delivering any such form or amendment with
respect to it and such Lender advises Borrower in writing that such Lender is
not capable of receiving payments without any deduction or withholding of United
States federal income Tax.  Notwithstanding any other provision of this
paragraph, a non-U.S. Lender shall not be required to deliver any form pursuant
to this paragraph that such non-U.S. Lender is not legally able to deliver.
 
 
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(ii)           If a payment made to any Lender or Administrative Agent under any
Loan Document would be subject to U.S. federal withholding Tax imposed by FATCA
if such Lender or Administrative Agent were to fail to comply with the
applicable reporting requirements of FATCA (including those contained in Section
1471(b) or 1472(b) of the Internal Revenue Code of 1986, as amended, as
applicable), such Lender or Administrative Agent shall deliver to Borrower, at
the time or times prescribed by Law and at such time or times reasonably
requested by Borrower, such documentation prescribed by applicable law
(including as prescribed by Section 1471(b)(3)(C)(i) of the Internal Revenue
Code of 1986, as amended) and such additional documentation reasonably requested
by Borrower as may be necessary for Borrower to comply with its obligations
under FATCA, to determine that such Lender or Administrative Agent 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 1.17(d), “FATCA” shall include any amendments made to FATCA after
the date of this Agreement.
 
(e)           Certain Recoveries.  If a Lender becomes subject to Taxes because
of its failure to deliver a form required under Section 1.17(d), Borrower shall
take such steps as such Lender may reasonably request to assist such Lender in
recovering those Taxes.
 
(f)           Documentation of Exemptions.  If any Lender is entitled to an
exemption from or reduction of withholding Tax with respect to payments under
any Loan Document pursuant to the Law of any relevant jurisdiction, such Lender
will deliver to Borrower, at the time or times prescribed by Law, properly
completed and executed documentation required by Law so as to permit those
payments to be made without withholding or at a reduced rate of withholding.
 
(g)           Designation of Substitute Lending Office.  Each Lender will, at
Borrower’s request following the occurrence of any event giving rise to the
operation of this Section 1.17, use commercially reasonable efforts (subject to
overall policy considerations of such Lender) to designate a substitute lending
office, but provided that such designation is made on such terms that such
Lender and its lending office suffer no economic, legal or regulatory
disadvantage, with the object of avoiding the consequence of the event giving
rise to the operation of this Section 1.17.  Nothing in this Section 1.17(g)
will affect or postpone any of the obligations of Borrower or the rights of such
Lender provided in this section.
 
(h)           Effect of Tax Refund.  Each Lender will use its commercially
reasonable efforts to obtain in a timely fashion any refund, deduction or credit
of any Taxes or Other Taxes paid or reimbursed by Borrower pursuant to this
Section 1.17.  If any Lender 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 or Other Taxes that are otherwise payable by such Lender) of any Taxes or
Other Taxes with respect to which Borrower has made a payment under this Section
1.17, such Lender will notify and reimburse Borrower (promptly after such Lender
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 Taxing Authority, net of all out-of-pocket
expenses of such Lender; provided, that Borrower, upon the request of such
Lender, agrees to repay the amount paid over to Borrower (plus any penalties,
interest or other charges imposed by the relevant Governmental Authority) to
such Lender in the event such Lender is required to repay such refund to such
Governmental Authority.  Nothing in this Section 1.17 will, however, require
such Lender to make available its Tax returns (or any other information relating
to its Taxes which it deems to be confidential) or to attempt to obtain any
refund, deduction or credit (including any interest paid by the relevant Taxing
Authority and received by such Lender), if such Lender determines that doing so
could be inconsistent with any reporting position otherwise taken by such Lender
on its Tax returns.
 
 
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ARTICLE II
SECURITY; ETC.
 
Section 2.1             Grant of Liens and Security Interests.  As security for
all of the Obligations owed to Administrative Agent, Lenders and any Swap
Counterparty under this Agreement, the Swap Agreement and the other Loan
Documents, Borrower grants, assigns, transfers and conveys to Administrative
Agent, for the ratable benefit of each Lender and any Swap Counterparty, a first
priority mortgage Lien on and first priority and perfected security interest in
the Collateral owned by Borrower subject only to the Permitted Encumbrances.
 
Section 2.2             Notice of Assignment of Proceeds.  Following an Event of
Default, Borrower shall cooperate with Administrative Agent to deliver to each
Operator, Purchaser and other Person that is an account debtor to Borrower,
written notice (substantially in the form of Exhibit G) from Administrative
Agent (as assignee) and Borrower that all amounts owing to Borrower by that
Person—including all proceeds from the sale of Hydrocarbons from or allocable to
Borrower’s Net Revenue Interest in the Properties—have been assigned to
Administrative Agent and are to be paid into the Project Account.  Borrower
shall Cause all recipients of the notices to remit all amounts owing to Borrower
directly to the Project Account.  Subject to any then existing contractual
obligations that are not cancelable without penalty and subject to Borrower’s
legal right to direct to whom its Hydrocarbons are sold, Borrower shall not sell
Hydrocarbons to any Purchaser or through an Operator that refuses to timely
acknowledge the notice of assignment of proceeds and pay amounts directly into
the Project Account as required by this Section 2.2.
 
Section 2.3             Further Assurances.  Borrower shall, at the request of
Administrative Agent, execute and deliver to Administrative Agent, for the
benefit of Lenders and any Swap Counterparty, any additional documents
necessary, in the reasonable opinion of Administrative Agent, to create, perfect
and maintain Administrative Agent’s Liens on the Collateral in a first-priority
position subject only to the Permitted Encumbrances.  Borrower irrevocably
authorizes Administrative Agent to prepare and file, at any time and in any
filing office, all financings statements and amendments to them necessary to the
perfection or continuation of the security interests granted to Administrative
Agent by Borrower.
 

 
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Section 2.4             Release of Liens; Financing Statements;
Release.  Following the Indefeasible repayment of all monetary Obligations in
full and in cash and the complete performance of all other Obligations (other
than inchoate indemnity obligations and similar obligations that survive the
termination of this Agreement), (a) Administrative Agent will deliver to
Borrower, at Borrower’s expense, releases of all Liens arising under the
Security Documents with an acknowledgment that the same have been terminated,
and (b) Borrower shall deliver to Administrative Agent, Lenders and any Swap
Counterparty a general release of all liabilities and obligations of each of
them under this Agreement and the other Loan Documents (other than the
Warrants).  The obligations of  Parent under the Warrants will survive the
termination of this Agreement and the release of the security interests.
 
Section 2.5             Guaranty.  Borrower shall Cause American Standard Energy
Corp., a Delaware corporation, to execute and deliver the Guaranty to
Administrative Agent to further secure the payment and performance of the
Obligations.
 
Section 2.6             Pledged Interests.  Borrower will Cause the Pledgor(s)
to execute and deliver a Pledge Agreement on or before the Closing Date so as to
grant to Administrative Agent, as additional security for the Obligations, a
first-priority security interest in all of the issued and outstanding Equity
Interests of Borrower (collectively, the “Pledged Interests”).
 
Section 2.7             Subordination Agreements.  Borrower shall Cause all of
its Affiliates and any other Person designated by Administrative Agent to
execute a Subordination Agreement.
 
Section 2.8             All Obligations are Pari Passu.  All Obligations owed to
Administrative Agent and Lenders under the Loan Documents shall be pari passu
with all Obligations owed to any Swap Counterparty under a Swap Agreement, and
all Obligations shall be secured ratably, for the benefit of Administrative
Agent, each of the Lenders and any Swap Counterparty, by the Liens granted
pursuant to the Security Documents.
 
Section 2.9             Swap Obligations Beyond Maturity.  To the extent
Borrower enters into any transactions under the Swap Agreement that extend
beyond the Maturity Date, the Obligations under the Swap Agreement will continue
to be secured by the Security Documents even if Borrower has fully repaid the
Loan unless, after the full payment and performance of all Obligations other
than Obligations under the Swap Agreement, Borrower posts cash margin, a letter
of credit or other collateral approved in writing by the Swap Counterparty under
a standard ISDA credit support annex.
 
ARTICLE III
REPRESENTATIONS AND WARRANTIES
 
To induce each Lender to make the Loan, Borrower makes the following
representations and warranties, each and all of which will survive the execution
and delivery of this Agreement and continue until all Obligations have been
satisfied and no Lender has any further commitment to make any Advance under
this Agreement.
 
Section 3.1             Formation and Existence.  Borrower is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Nevada.  Borrower is qualified to do business in every other jurisdiction where
the nature of its business or the ownership of its property requires it to be so
qualified and where failure to so qualify could reasonably be expected to have a
Material Adverse Effect.
 
 
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Section 3.2             Name; Executive Offices.  The name of Borrower, as
listed in its Charter Documents on file in the public records of its
jurisdiction of organization, is American Standard Energy, Corp.  Borrower’s
principal place of business and chief executive offices are located at the
address specified in Section 12.2 (or as set forth in a notice delivered
pursuant to Section 12.2).
 
Section 3.3             Capitalization; Ownership; Subsidiaries.  Except for the
Warrants, and those agreements set forth on Schedule 3.3(a), there are no
agreements in force which provide for the issue or allotment of, or grant any
Person the right to call for the issue or allotment of, any Equity Interest in
Parent or Borrower (including any option or right of pre-emption or
conversion).  All of the outstanding Equity Interests of Borrower are covered by
Pledge Agreements in favor of Administrative Agent. Each of Borrower’s
Subsidiaries is set forth on  Schedule 3.3(b).
 
Section 3.4             Authorization; Non-Contravention.  Borrower’s execution,
delivery and performance under the Loan Documents and the creation of all Liens
provided for in the Security Agreements:
 
(a)           are within the corporate power and authority of Borrower;
 
(b)           have been duly authorized by all necessary corporate action of
Borrower;
 
(c)           are not in contravention of (i) any agreement to which Borrower is
a party or by which it or its property is bound, (ii) the Charter Documents of
Borrower, or (iii) any provision of law applicable to Borrower or its
properties, and in the case of each of clauses (i) and (iii), where its
contravention could reasonably be expected to have a Material Adverse Effect;
 
(d)           do not require the consent or approval of any Governmental
Authority or any other Person except for (i) those previously delivered to
Administrative Agent, (ii) those third party approvals or consents which, if not
made or obtained, could not reasonably be expected to have a Material Adverse
Effect or (iii) those that are both (A) identified on Schedule 3.4(d), and (B)
routinely granted by the relevant Governmental Authority and expected to be
obtained in the ordinary course (the consents and approvals described in the
preceding clause (ii) being the “Post-Closing Governmental Consents”); and
 
(e)           are legal, valid and binding obligations of Borrower, enforceable
against it in accordance with their respective terms, except as enforceability
may be limited by applicable Debtor Relief Laws and by general equitable
principles.
 
Section 3.5             Solvency.  Borrower is Solvent and will continue to be
Solvent after giving effect to the transactions contemplated by this Agreement.
 
 
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Section 3.6             Omissions and Misstatements.  Borrower has disclosed to
Administrative Agent all agreements, and all other matters known to Borrower,
that could, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.  All financial and other information furnished in
writing by or on behalf of Borrower to Administrative Agent in connection with
the negotiation or performance of this Agreement or any other Loan Document,
when taken as a whole, do not contain any material misstatement of fact or omit
to state any material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading; but, with
respect to financial projections, Borrower represents only that such information
was prepared in good faith based upon assumptions believed to be reasonable at
the time.  To Borrower’s knowledge, after due inquiry, there is no fact peculiar
to Borrower which could reasonably be expected to have a Material Adverse Effect
or in the future is reasonably likely to have a Material Adverse Effect and
which has not been set forth in this Agreement or the Loan Documents or
disclosed in writing to Administrative Agent by Borrower on or before the date
of this Agreement. To Borrower’s knowledge, after due inquiry, there are no
statements or conclusions in any Reserve Report which are based upon or include
misleading information or fail to take into account material information
regarding the matters reported therein.
 
Section 3.7             Joint Venture.  Except as set forth on Schedule 3.7,
Borrower is not engaged in any joint venture or partnership with any other
Person.
 
Section 3.8             Commissions; Expenses.  Except for commissions for which
Borrower is solely responsible and that are identified on Schedule 3.8, no
broker’s or finder’s fees or commissions have been paid or will be payable by
Borrower or any of its Affiliates to any Person in connection with the
transactions contemplated by this Agreement.
 
Section 3.9             Tax Returns; Taxes.  Borrower has timely filed (after
giving effect to any applicable extensions) all material Tax returns (foreign,
federal, state and local) required to be filed and has paid all Taxes due
(including interest and penalties) except for (a) amounts contested in good
faith by Borrower through appropriate proceedings timely filed and against which
Borrower maintains adequate reserves in accordance with GAAP and (b) to the
extent the failure to do so could not reasonably be expected to result in a
Material Adverse Effect..  No assessments have been made by any Governmental
Authority against Borrower or any of the Collateral that have not been paid
(except for assessments protested in good faith by Borrower through appropriate
proceedings timely filed and against which Borrower maintains adequate reserves
in accordance with GAAP) nor has any penalty or deficiency been assessed by any
Governmental Authority.  No Governmental Authority has notified Borrower that
any material Tax return is under examination, nor is the result of any prior
examination being contested by Borrower.  Except with respect to taxes being
contested in good faith by Borrower through appropriate proceedings timely filed
and against which Borrower maintains adequate reserves in accordance with GAAP,
no material Tax Liens have been filed against Borrower or any of the Collateral.
 
Section 3.10           Litigation; Governmental Proceedings.  Except as set
forth on Schedule 3.10, no claim, action, suit or other proceeding
(collectively, an “Action”) by any Governmental Authority or any other Person is
pending or, to Borrower’s knowledge, threatened against Borrower or that relates
to any of the Collateral.  With respect to the Actions set forth on
Schedule 3.10, Borrower has not accepted liability in connection with any Action
except in the specific instances described on Schedule 3.10, none of which could
reasonably be expected to have a Material Adverse Effect.
 
 
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Section 3.11           Ownership of Collateral; Interests.
 
(a)           Subject to Borrower’s compliance with Section 5.26, all Collateral
is owned of record by Borrower, free and clear of any Lien other than the
Permitted Encumbrances.  Except for the Permitted Encumbrances, Borrower has
Defensible Title to each of the Properties.  Except for Permitted Encumbrances
or as Approved by Administrative Agent, Borrower’s interest in the Properties is
not subject to any mineral reservations or top leases of record.  Borrower has
the exclusive right to sell and grant Liens over the Collateral.  There are no
unrecorded documents or agreements that could limit or impair (i) Borrower’s
ability to grant the Liens contemplated by the Security Documents or (ii)
Administrative Agent’s ability to enforce those Liens pursuant to the Security
Documents.  Subject to the Permitted Encumbrances, Borrower has all beneficial
right, title and interest in and to the Net Revenue Interest in all production
from or allocable to Borrower’s interest in the Properties (including each
Lease).
 
(b)           All Basic Documents to which Borrower is a party and, to
Borrower’s knowledge, all Leases and material agreements comprising the
Properties and referenced in the title opinions and/or reports or other title
materials delivered to Administrative Agent are valid, existing and in full
force and effect.  No material default by Borrower or, to the knowledge of
Borrower, any other party to any Basic Document (or event or circumstance which
with the giving of notice or the passage of time or both would give rise to a
material default) exists under any such Basic Document.
 
(c)           All of the assets of Borrower that are reasonably necessary for
the conduct of its current business are in good working condition (ordinary wear
and tear excepted) and are regularly maintained in accordance with customary
industry standards.
 
(d)           Except for the Properties identified on Exhibit A, (i) Borrower
does not own any other direct or indirect interest of any kind in Hydrocarbons,
including any Equity Interests, Equity Equivalents, or calls or options to
purchase, and (ii) Borrower does not have any right to acquire any interest of
the type described in the preceding clause (i).
 
(e)           Borrower’s Working Interest is not more than, and its Net Revenue
Interest is not less than, the percentages set forth on Exhibit A for each of
the Properties.
 
Section 3.12           Debt.  Upon consummation of the transactions contemplated
by this Agreement, Borrower will not have any Debt for borrowed money
outstanding other than the Obligations.
 
Section 3.13           Intellectual Property.  Borrower possesses all
trademarks, trade names, trade styles, copyrights, patents and other
intellectual property necessary to conduct its current business without any
infringement or conflict with the rights of any other Person, except as
otherwise could not reasonably be expected to result in a Material Adverse
Effect.
 
 
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Section 3.14           No Other Leases.  Borrower is neither the lessor or
lessee under any material leases (including real property leases, equipment
leases, capital leases, etc.) other than the Leases included in the Properties
and leases entered into in the ordinary course of business which are not
considered Leases as defined herein.
 
Section 3.15           Investments. Other than deposits made from time to time
in connection with the purchase of Properties and prepayments made from time to
time in connection with cash calls under the Operating Agreements consistent
with the terms and conditions of this Agreement, Borrower has not made or
committed to make any Investment.
 
Section 3.16           No Unusual Restrictions.  Borrower is not a party to,
bound by or subject to any indenture, agreement, contract, instrument, lease,
Charter Document, injunction, order, restriction or decree, which could
reasonably be expected to have a Material Adverse Effect.
 
Section 3.17           No Take or Pay Agreements.  Borrower is not a party to or
bound by, and neither Borrower nor any of the Properties are subject to, any
“take or pay” contract or settlement or any other agreement or arrangement that
(a) allows any Natural Gas purchasers to take Natural Gas previously paid for
out of future Natural Gas production, or (b) provides for a cash refund or
rebate to any Natural Gas purchaser if reimbursement of take or pay monies is
not made through Natural Gas production.
 
Section 3.18           Gas Imbalances.  To Borrower’s knowledge, Borrower’s
share of Hydrocarbons produced from the Wells in which Borrower has an interest
are not being utilized to settle balancing rights of third parties or balancing
duties under Laws.  For purposes of this Section 3.18 Borrower’s share of
Hydrocarbons is equal to its Net Revenue Interest for that Well.
 
Section 3.19           Environmental Matters.  Except as disclosed on Schedule
3.19 and as could not reasonably be expected to have a Material Adverse Effect:
 
(a)           No Property, no operations currently conducted on any Property,
and, to Borrower’s knowledge, no operations conducted on any Property by any
other prior owner or operator of any Property are (i) in violation of any
Environmental Law or any order or requirement of any Governmental Authority in
respect of any Environmental Law, (ii) the subject of any existing, pending or,
to Borrower’s knowledge, threatened action, suit, investigation, inquiry or
proceeding by or before any Governmental Authority, or (iii) currently subject
to any unsatisfied remedial obligations under any Environmental Law;
 
(b)           Borrower has duly filed and maintained all Permits and notices, if
any, required by any Environmental Law to be maintained or filed in connection
with the operation or use of any Property by Borrower or, if Borrower is not the
Operator, to Borrower’s knowledge the Operator has duly filed and maintained all
such Permits and notices, and Borrower and, to Borrower’s knowledge, Operator
are in compliance with the terms and conditions of those Permits and notices;
 
 
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(c)           To Borrower’s knowledge, (i) all Hazardous Materials, solid waste,
and Hydrocarbon exploration and production wastes, if any, previously generated
at any Property have been transported or treated or disposed of in accordance
with Environmental Laws, (ii) all transport carriers and treatment and disposal
facilities have been and are operating in compliance with Environmental Laws,
and (iii) no such transport carriers or treatment or disposal facilities are the
subject of any existing, pending or threatened action, investigation or inquiry
by any Governmental Authority in connection with any Environmental Laws; and
 
(d)           Neither Borrower nor any of its Affiliates nor, to Borrower’s
knowledge, Operator has any unsatisfied or known contingent liabilities in
connection with any release or threatened release of any Hazardous Materials,
solid waste, and Hydrocarbon exploration and production wastes on or from any
Property, except as in compliance with Environmental Laws and so as not to pose
an imminent and substantial endangerment to public health or welfare or the
environment.
 
Section 3.20           Permits and Licenses.
 
(a)           Borrower, if Borrower is the Operator, or to Borrower’s knowledge,
Operator, if Borrower is not the Operator, as applicable, (i) maintains all
Permits necessary to conduct Hydrocarbon exploration and production operations
on the Properties, and (ii) maintains all other Permits necessary to conduct its
business, except, in either case, where the failure to maintain a Permit could
not reasonably be expected to have Material Adverse Effect.
 
(b)           Borrower, if Borrower is the Operator, or to Borrower’s knowledge,
Operator, if Borrower is not the Operator, as applicable, is not liable for any
material pending fees, assessments or penalties relating to any Permit other
than those payable in the ordinary course of business and not yet delinquent.
 
(c)           The continuation, validity and effectiveness of each Permit
maintained by Borrower (or, if Borrower is not the Operator, to Borrower’s
knowledge the Permits maintained by Operator) are not and will in no way be
adversely affected by the transactions contemplated by this Agreement or the
Security Documents.
 
(d)           Neither Borrower nor, to Borrower’s knowledge, Operator, is in
breach of or in default under the terms of any Permit, nor has Borrower or, to
Borrower’s knowledge, Operator, engaged in any activity which could result in
the revocation or suspension of any Permit.  No action or proceeding is pending
or, to Borrower’s knowledge, threatened by the issuer of any Permit that could
result in the revocation or suspension of any Permit.  No suspension of
production on the Properties is in effect.
 
Section 3.21           Operation of the Properties.
 
(a)           Except where the failure to do so could not reasonably be expected
to have a Material Adverse Effect, the Properties (together with any other
properties unitized with any of the Properties) have, since the acquisition of
the Properties, been maintained, operated and developed (i) in conformity with
all Laws, (ii) in conformity with the terms and conditions of all Basic
Documents, and (iii) in a manner consistent with the conduct of a Prudent
Operator, but with respect to any Properties for which Borrower is not the
Operator, then the foregoing representation shall be based upon Borrower’s
knowledge;
 
 
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(b)           To Borrower’s knowledge and except where its occurrence could not
reasonably be expected to have a Material Adverse Effect (i) no Property is
subject to having allowable production reduced below the full and regular
allowable (including the maximum permissible tolerance) because of any
overproduction (whether or not that overproduction was permissible at the time),
(ii) none of the vertical Wells comprising the Properties (or properties
unitized with any of the Properties) deviates from the vertical more than the
maximum permitted by Laws, (iii)  each of the Wells comprising the Properties
(or properties unitized with any of the Properties) are bottomed under and are
producing from, and the well bores are situated wholly within, the Properties or
unitized properties, as applicable.
 
(c)           Neither Borrower nor, to Borrower’s knowledge, Operator or any
other Person is in breach of or in default under the terms of any Basic Document
to which any of them are bound or to which any of the Properties are subject,
except to the extent such breach or default could not reasonably be expected to
have a Material Adverse Effect.
 
Section 3.22           USA PATRIOT Act Representation.  Neither Borrower nor any
Obligor is a country, individual or entity named on the Specifically Designated
National and Blocked Persons list issued by the Office of Foreign Asset Control
of the Department of the Treasury of the United States of America.
 
Section 3.23           Contingent Liabilities.  Except for (a) obligations
arising under bonds required by Law and identified on Schedule 3.23, (b)
indemnity, cleanup and other obligations of a customary nature assumed or
incurred (excluding Debt for borrowed money) in favor of any Person from whom
Borrower acquired any of the Collateral, and (c) Debt permitted by Section 6.1,
Borrower has not assumed, guaranteed, endorsed or otherwise become directly,
indirectly or contingently liable for any liability of any other Person, except
for the endorsement of checks and other negotiable instruments for collection in
the ordinary course of business.
 
Section 3.24           Equipment.  Except for the Permitted Encumbrances, there
is no restriction or other limitation on Administrative Agent’s ability to
obtain or exercise its Lien over the Equipment, including the right to foreclose
on and sell the Equipment or to exercise, subject to Debtor Relief Laws, all
other rights and remedies of a secured party under the Laws of each jurisdiction
applicable to the Equipment.
 
Section 3.25           Unpaid Bills.
 
(a)           Schedule 3.25 identifies all vendors that have provided goods or
services to Borrower in connection with the development of the Properties during
the six calendar months preceding this Agreement.
 
(b)           Borrower does not have any past due bills for improvements to the
Collateral that could give rise to mechanics’ or materialmen’s Liens or other
similar Liens arising by operation of law that could rank in priority ahead of
any of the Liens arising under the Security Documents, except for bills being
diligently contested in good faith by Borrower and against which Borrower
maintains adequate reserves in accordance with GAAP.
 
 
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Section 3.26           Taxpayer Identification.  Borrower’s federal taxpayer
identification number is 20-2791397.
 
Section 3.27           Investment Company.  Borrower is not an “investment
company” within the meaning of the Investment Company Act of 1940, as amended.
 
Section 3.28           Borrower is Not a Public Company.  Borrower’s Equity
Interests are neither registered nor required to be registered under federal
securities laws.
 
Section 3.29           No Margin Trading.  Borrower is not engaged principally,
or as one of its important activities, in the business of extending credit for
the purpose, whether immediate, incidental or ultimate, of buying or carrying
margin stock (within the meaning of Regulation T, U or X of the Board of
Governors of the Federal Reserve System (the “Board”)).  No part of the proceeds
of any Advance will be used for any purpose that violates Regulations T, U or X
of the Board.
 
Section 3.30           No Pending Sale or Financing.  No agreement, whether
written or oral, exists between Borrower and any other Person regarding the
purchase, sale or financing of any of the Collateral.
 
Section 3.31           No Calls on Production.  No agreement, whether written or
oral, exists pursuant to which any Person has a call upon, option to purchase or
similar right with respect to future production from or allocable to the
Properties other than pursuant to Approved Marketing Contracts.
 
Section 3.32           Basic Documents.
 
(a)           Each of the Basic Documents to which Borrower is a party is in
full force and effect in accordance with its terms and constitutes the valid and
binding obligations of each of the parties to them, except as limited by Debtor
Relief Laws and by general equitable principles.
 
(b)           Neither Borrower nor, to Borrower’s knowledge, any other party to
any Basic Document is in breach of or in default under the terms and conditions
of the applicable Basic Document(s) where that breach or default could
reasonably be expected to have a Material Adverse Effect.
 
(c)           To Borrower’s knowledge, no party to any Basic Document has given
or threatened to give notice of any action to terminate, cancel, rescind or
procure a judicial reformation of any Basic Document where an action of that
type could reasonably be expected to have a Material Adverse Effect.
 
(d)           Neither the execution and delivery of the Loan Documents by
Borrower, nor the performance of any of its obligations under the Loan
Documents—including Borrower granting Liens to Administrative Agent in
accordance with the Security Documents—will result in a breach of or a default
under any Basic Document.
 
 
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Section 3.33           Farmout Agreements and Subject Contracts, Etc.  With
respect to the Properties and the Basic Documents creating the interests that
comprise Properties, and except as set forth on Schedule 3.33, Borrower has not
created and, to Borrower’s knowledge, there exist no:
 
(a)           farmout agreements under which (i) Borrower has any remaining
obligations or (ii) any other Person has any remaining rights to acquire an
interest of any kind in the Properties;
 
(b)           outstanding obligations of Borrower in connection with the
drilling of Wells or engaging in other development operations, except for (i)
obligations under a Lease to drill an offset Well and (ii) obligations under an
Operating Agreement to participate in development activities to which Borrower
has consented and that are, in either case, included in the Development Plan;
 
(c)           no limitations as to the depths covered or substances to which
such interests relate other than as specified in the Leases and other Basic
Documents; and
 
(d)           royalty provisions requiring the payment of royalties on any basis
other than as specified in the Leases and other Basic Documents.
 
Section 3.34           Operating Agreements.  With respect to the Operating
Agreements relating to Borrower’s Working Interest and Net Revenue Interest in
the Properties:
 
(a)           Schedule 3.34 identifies all Operating Agreements to which the
Properties are subject;
 
(b)           Schedule 3.34 identifies all outstanding calls for payment by
Borrower, all of which are, unless otherwise noted on Schedule 3.34, being paid
within the term required;
 
(c)           neither Borrower nor, to Borrower’s knowledge, any of its
predecessors in title has consented to any operation that is not included in the
Development Plan; and
 
(d)           there are no operations with respect to which Borrower or any
predecessor in title has become a non-consenting party nor are there any
non-consent penalties binding or that will become binding upon Borrower that are
not reflected in the Net Revenue Interest or Working Interest as set forth on
Exhibit A.
 
Section 3.35           No Unusual Agreements.  All agreements applicable to
Borrower’s Working Interest and Net Revenue Interest in the Properties are of
the type generally found in the oil and gas industry and the gathering and
transmission industry, as applicable, and do not (individually or in the
aggregate) contain any unusual provisions which could reasonably be expected to
have a Material Adverse Effect.
 
Section 3.36           Suspense of Proceeds.  No proceeds from the sale of
Hydrocarbons attributable to Borrower’s interests in the Properties are being
held in suspense for any reason.
 
 
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Section 3.37           Employee Plans.  Borrower has no Employee Plans.
 
Section 3.38           Insurance.  The insurance policies that Borrower is
required to maintain under Section 5.8 provide insurance coverage, in both type
and amount, that is (a) sufficient to allow Borrower to comply with all Laws and
to satisfy the requirements of the Basic Documents and any other material
agreement by which Borrower is bound or which the Properties are subject, and
(b) with respect to the Properties for which Borrower is the Operator, are
consistent with the insurance coverage, in both type and amount, that would be
maintained by a Prudent Operator.  With respect to those Properties for which
Borrower is not the Operator, to Borrower’s knowledge, the Operator maintains
insurance coverage of a type and in an amount that would be maintained by a
Prudent Operator and is consistent with the requirements of the relevant
Operating Agreement.  Administrative Agent, for the ratable benefit of Lenders
and Swap Counterparty, has been named as an additional insured under all
liability insurance policies maintained by Borrower and has been named as a loss
payee under all property casualty insurance maintained with respect to the
Collateral.
 
Section 3.39           No Material Adverse Effect.  Since the date of the most
recent audited financial statements delivered to Administrative Agent, no
Material Adverse Effect has occurred.
 
Section 3.40           Restriction on Liens.  Except for (a) the Post-Closing
Governmental Consents, and (b) restrictions, if any, arising under the Basic
Documents and identified on Schedule 3.40, no restriction or limitation exists
with respect to Borrower’s ability to grant to Administrative Agent the Liens
arising under the Security Documents.
 
Section 3.41           Hedging Agreements.  Schedule 3.41 identifies all Hedging
Agreements that are not Swap Agreements and includes the name of the
counterparty to and the material terms of all transactions under those Hedging
Agreements (including the type, term, effective date, termination date and
notional amounts or volumes), and all credit support agreements relating to
those Hedging Agreements (including any margin required or supplied and the name
of any Person providing credit support).
 
Section 3.42           Marketing of Production.  Borrower does not sell or
otherwise dispose of any material portion of the Hydrocarbon production
allocable to the Properties except pursuant to Hydrocarbon marketing and sale
contracts that are (a) identified on Schedule 3.42 and in effect on the date of
this Agreement, (b) Approved by Administrative Agent in its reasonable
discretion, (c) between Borrower 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 Borrower exercises no
direct control and to which it is subject pursuant to an Operating Agreement
(each an “Approved Marketing Contract”).  Borrower 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 Property’s delivery capacity.
 
Section 3.43           Deposit Accounts.  Except as set forth on Schedule 3.43,
Borrower does not maintain any deposit accounts (as defined in the UCC).
 
 
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Section 3.44           Labor Matters.  Neither Borrower nor any of its
Subsidiaries are in violation of any Law relating to labor matters, and all
payments due from Borrower or any Subsidiary of Borrower for employee health and
welfare insurance have been paid or accrued as a liability on its books, except
where the failure to do so could not reasonably be expected to have a Material
Adverse Effect.
 
Section 3.45           Eligible Contract Participant.  Borrower is an “eligible
participant” as defined in the Commodities Futures Modernization Act of 2000 17
C.F.R. § 35.1(b)(2)(2006), as amended, and the rules and regulations promulgated
under that act.
 
Section 3.46           Character of Pledged Interests.  The Pledged Interests
are not (a) certificated, (b) dealt in or traded on securities exchanges or in
securities markets, (c) “investment company securities” as that term is defined
in the UCC or (d) held in a “securities account” as that term is defined in the
UCC.  The Charter Documents of Borrower do not provide that the Pledged
Interests are securities governed by Chapter 8 of the UCC.
 
Section 3.47           No Default.  No Default exists or is reasonably likely to
result from Borrower’s entry into or performance under any Loan Document or the
making of any Advance under this Agreement.  No event or circumstance exists
which, with the expiry of a grace period, the giving of notice or the making of
any determination by any other Person would constitute a default under any other
agreement, whether written or oral, by which Borrower is bound or to which any
of the Collateral is subject, except where such default could not reasonably be
expected to have a Material Adverse Effect.
 
Section 3.48           Financial Statements.  The most recent financial
statements of Borrower delivered to Administrative Agent (a) have been prepared
in accordance with GAAP, and (b) give a true and fair view (if audited) or
fairly present (if unaudited) of its consolidated financial condition as at the
end of, and consolidated results of operations for, the period to which they
relate.
 
Section 3.49           Priority.  Subject to Permitted Encumbrances, the
Security Documents have or will have first ranking priority and none is subject
to any prior ranking or pari passu ranking Lien.
 
Section 3.50           Affiliate Interests in Properties.  Except as set forth
on Schedule 3.50, no Affiliate of Borrower holds, either directly or indirectly,
an ownership or economic interest in the Properties, other than through their
ownership of Equity Interests in Borrower.
 
ARTICLE IV
FINANCIAL STATEMENTS AND INFORMATION;
CERTAIN NOTICES TO ADMINISTRATIVE AGENT
 
For as long as this Agreement remains in effect, Borrower shall deliver the
following to Administrative Agent:
 
 
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Section 4.1             Monthly Reporting Package.  Within 15 days after the end
of each calendar month (such month being the “Reported Month”), an operations
report summarizing the Reported Month’s workover and drilling activity and for
each Lease or Well (i) gross and net Crude Oil and Natural Gas products
production and sales, (ii) lease operating expenses, (iii) production Taxes, and
(iv) any other relevant operations data Administrative Agent may request (the
“Monthly Reporting Package”).  But, if there are no Obligations outstanding
under the Term Loan, Borrower shall not be required to provide the Monthly
Reporting Package .
 
Section 4.2             Financial Reporting.
 
(a)           Quarterly Financial Reports.  Within 45 days after the end of
calendar quarter (other than the calendar quarter ending December 31)(such
quarter being the “Reported Quarter”) beginning with the Reported Quarter ending
September 30, 2011, a balance sheet, income statement and statement of cash
flows of Parent and its consolidated Subsidiaries (including any notes),
prepared by Parent for (i) the Reported Quarter and (ii) cumulatively, all
Reported Quarters since the end of the prior fiscal year.
 
(b)           Annual Financial Statements.  Within 120 days after the end of
each fiscal year beginning with the fiscal year ending December 31, 2011, a copy
of the annual consolidated financial statements (including all notes) of Parent
and its consolidated Subsidiaries, consisting of a balance sheet, income
statement and statement of cash flows, all audited by independent certified
public accountants retained by Parent.
 
Section 4.3            Compliance Certificate.  With the delivery of each set of
financial statements under Section 4.2, a certificate executed by the Chief
Executive Officer, the President, the Chief Financial Officer, the treasurer or
any vice president of Borrower (an “Authorized Officer”) and in the form of
Exhibit L (a) certifying whether, to the Authorized Officer’s knowledge, a
Default has occurred and, if so, describing in reasonable detail the
circumstances of the Default and any actions taken or proposed to be taken to
cure the Default, (b) setting forth in reasonable detail calculations
demonstrating Borrower’s compliance with Section 5.20, (c) stating whether any
material change in GAAP or its application to Borrower has occurred since the
date of the last audited financial statements received by Administrative Agent
and, if so, specifying the effect of that change on the financial statements
accompanying the certificate, and (d) in connection with financial statements
delivered under Section 4.2(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 Borrower in accordance with
GAAP and absent any footnotes (other than those required to explain financial
data).
 
Section 4.4             Notices of Default and Other Significant
Events.  Written notice to Administrative Agent promptly (but, in any event,
within three Business Days) after Borrower becomes aware that a Default has
occurred or that any event has occurred or that any circumstance exists that
could reasonably be expected have a Material Adverse Effect, including:
 
(a)           any material dispute arises between Borrower and any Governmental
Authority;
 
(b)           the making of a demand or the commencement of any proceeding
against Borrower or related to the Properties with an amount in controversy in
excess of $100,000;
 
 
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(c)           a proposal by any Governmental Authority to acquire any of the
Collateral by condemnation or eminent domain that could reasonably be expected
to have a Material Adverse Effect;
 
(d)           any change in (i) Borrower’s company name (including the creation
or change of any trade name); (ii) the location of Borrower’s principal office;
(iii) Borrower’s company structure or the jurisdiction in which Borrower is
organized; (iv) Borrower’s organizational identification number; or (v)
Borrower’s federal taxpayer identification number;
 
(e)           the revocation, suspension, forfeiture, expiration or material
modification of any Permit that could reasonably be expected to have a Material
Adverse Effect;
 
(f)           any material loss of or damage to any Collateral, or any material
change in Borrower’s business or operations;
 
(g)           the failure or refusal to make any payment when due in respect of
any Debt; and
 
(h)           the occurrence of any event of circumstance that could, if it
continues, constitute a default by any Person under any of the Basic Documents.
 
Each notice will describe, in reasonable detail, the nature of the Default,
event or circumstance, it’s anticipated effect on Borrower and the Collateral,
and what responsive action(s) Borrower proposes to take.
 
Section 4.5             Reserve Reports.
 
(a)           Timing of Reports.  Borrower shall, at its sole expense, Cause an
engineering reserve report relating to the Properties (the “Reserve Report”) to
be prepared and delivered to Administrative Agent semi-annually beginning on the
First Reserve Report Date.  Each Reserve Report will evaluate the projected
recoverable reserves attributable to Borrower’s Working Interests and Net
Revenue Interests in the Properties.  The effective dates of the Reserve Reports
will be June 30 and December 31 of each year, and Borrower shall deliver each
Reserve Report to Administrative Agent as set forth in Section 1.2(b).  All
Reserve Reports shall be prepared by the Engineers.
 
(b)           Preparation of Reports.  The Reserve Report will separately report
on PDP Reserves, PDNP Reserves and PUD Reserves, and will be prepared in
accordance with the following requirements and assumptions:
 
(i)           reserves shall be adjusted for cumulative production and revisions
to reserve volume estimates since the effective date of the prior Reserve
Report;
 
(ii)           Hydrocarbon pricing assumptions—
 
 
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(A)           for all Natural Gas to be sold by Borrower other than Natural Gas
described in Section 4.5(b)(ii)(B), the purchase price for each calendar year
will be the average of the monthly prices provided to Borrower by Administrative
Agent for that year for Natural Gas as reflected in NYMEX as of the settlement
of the last trading day for the contract month ending immediately prior to the
effective date of the Reserve Report, using price escalators or de-escalators
existing in the market as reasonably determined by Administrative Agent and
notified to Borrower at the time the Reserve Report is being prepared, for the
remaining life of the Properties;
 
(B)           for all Natural Gas to be sold by Borrower on a fixed price basis
pursuant to any Approved Marketing Contract or with respect to which the price
has been hedged pursuant to any NYMEX contract or a Hedging Agreement, the
purchase price will be the fixed price for the volumes indicated in the
contract, agreement or arrangement;
 
(C)           for Crude Oil to be sold by Borrower other than Crude Oil
described in Section 4.5(b)(ii)(D), the purchase price for each calendar year
will be the average of the monthly prices provided to Borrower by Administrative
Agent for that year for Crude Oil as reflected in the NYMEX as of the settlement
on the last trading day for the contract month ending immediately prior to the
effective date of the Reserve Report, using price escalators or de-escalators
existing in the market as reasonably determined by Administrative Agent and
notified to Borrower at the time the Reserve Report is being prepared, for the
remaining life of the Properties;
 
(D)           for Crude Oil to be sold by Borrower on a fixed price basis
pursuant to any Approved Marketing Contract or with respect to which the price
has been hedged pursuant to any NYMEX contract or a Hedging Agreement, the
purchase price will be the fixed price for the volumes indicated in the
contract, agreement or arrangement; and
 
(E)           all Hydrocarbon pricing assumptions will be further adjusted by
appropriate quality, transportation and location differentials Approved by
Administrative Agent.
 
(iii)           projected operating expenses and capital expenditures will be
adjusted to reflect (A) actual expense levels incurred since the effective date
of the prior Reserve Report and (B) reasonable projections as to anticipated
increases or decreases in operating expenses and capital expenditure levels;
 
(iv)           the Reserve Report will utilize any other assumptions that
Administrative Agent may reasonably request from time to time; and
 
(v)           each Reserve Report will, if necessary, be accompanied by a
proposed revision to the Development Plan that includes all development projects
included in the Reserve Report.
 
 
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Section 4.6             Additional Information.  Borrower shall deliver to
Administrative Agent (a) true, complete and contemporaneous copies of any
financial statement, report or notice prepared for or furnished to any Person
pursuant to the terms of any preferred stock designation, indenture, loan or
credit or other similar agreement that Borrower is not otherwise required to
deliver to Administrative Agent pursuant to this Agreement, (b) true, complete
and contemporaneous copies of all periodic and other reports, proxy statements
and other materials distributed by Borrower to its member(s) generally, and (c)
additional information as Administrative Agent may reasonably request concerning
Borrower, its financial condition or the ownership or operation of any of the
Collateral.
 
Section 4.7             Monthly Field Activity Reports.  Borrower shall compile
and maintain a record of all current and historical monthly Natural Gas and
Crude Oil production volumes for all existing and future Well completions by
Borrower.  Borrower shall report monthly production data with respect to the
Properties within 21 days following the end of each production month in a form
acceptable to Administrative Agent and deliver reports by e-mail to recipients
designated and employed by Administrative Agent.  In the case of Natural Gas,
the monthly production volumes will be based on the integration of the charts
recorded by the lease “check” meter located downstream of the processing
equipment and immediately upstream of the sales delivery point.  Where
production from multiple completions is combined upstream of measurement
equipment, Borrower will estimate production volumes for the individual
completions based on allocations Approved by Administrative Agent in its
reasonable discretion, and the report will include the raw metered data,
explanatory notes and formulas related to the allocation methodology along with
the resulting allocated volumes.  The monthly production report will also
include a reconciliation of the Hydrocarbon Production Volumes (as measured by
the lease equipment) to sales volumes (reported by the Purchasers) for each of
Borrower’s existing and future Wells or Leases.
 
Section 4.8             Test Results; Core Analyses; Surveys and Logs.  Borrower
shall deliver to Administrative Agent, to the extent that they are available
from the Operator, true and complete copies of (a) all test results, fluid
analyses, pressure surveys and core analyses related to the Properties as
reasonably requested by Administrative Agent, (b) each electrical survey,
radioactivity log, temperature survey, deviation or directional survey, caliper
log and other log or survey obtained during the drilling of any Well upon
Administrative Agent’s reasonable request, and (c) a composite of all
electrical-type logs, to the extent reasonable and customary, promptly following
the completion of each Well.
 
Section 4.9             Reserved.
 
Section 4.10           Reports Made to a Governmental Authority.  Concurrently
with the delivery of any such report or application to the applicable
Governmental Authority, Borrower shall deliver to Administrative Agent a true
and complete copy of each material report made and application submitted to a
Governmental Authority having jurisdiction over any of the Leases or Wells.
 
Section 4.11           Charter Documents.  Borrower shall deliver to
Administrative Agent true and complete copies of all amendments to any of its
Charter Documents; but this Section 4.11 does not constitute Administrative
Agent’s Consent to any such amendment.
 
 
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Section 4.12           Certificate of Authorized Officer—Hedging
Agreements.  Concurrently with the delivery of each Reserve Report, a
certificate of an Authorized Officer setting forth, as of the effective date of
the Reserve Report, a true and complete list of all Hedging Agreements (other
than the Swap Agreement), their material terms (including the counterparty,
type, term, effective date, termination date and notional amounts or volumes),
credit support agreements not previously disclosed to Administrative Agent in
writing, and any margin required or supplied under any credit support agreement.
 
Section 4.13           Certificate of Insurer—Insurance Coverage.  Concurrently
with Borrower’s delivery of any financial statements under Section 4.2(a) (and
to the extent not previously delivered to Administrative Agent) (a) a
certificate of insurance coverage from each insurer (or from Borrower’s
insurance broker) with respect to the insurance required by Administrative
Agent, and (b) true and complete copies of the applicable insurance policies.
 
Section 4.14           Anticipated Cost Overruns.  Whenever Borrower anticipates
that the actual cost of any project that is the subject of an Approved AFE will
exceed the AFE amount Approved by Administrative Agent, Borrower will promptly
notify Administrative Agent in writing and (a) describe in reasonable detail the
cause(s) of the anticipated cost overrun and (b) identify to Administrative
Agent the source of funds that Borrower proposes to use to pay those excess
costs.  Any such cost overruns are the sole responsibility of Borrower.
 
Section 4.15           Updated Development Plan.  Contemporaneous with the
delivery of each Reserve Report bearing an effective date as of December 31st of
any year, Borrower will prepare and deliver to Administrative Agent a revised,
proposed Development Plan covering at least the next 6 months and setting forth
all capital expenditure development projects proposed for that period, the
anticipated timing of those projects, the net cost of each of those projects to
Borrower and any other information that Administrative Agent may reasonably
request.  But, if there are no Obligations outstanding under the Term Loan,
Borrower will not be required to provide a Development Plan.  Each proposed
modification to the Development Plan will be subject to the Approval of
Administrative Agent, which Approval shall not be unreasonably withheld.  Until
Administrative Agent has Approved a revised Development Plan, the most recent
Approved Development Plan (and all AFEs Approved in connection with that most
recently Approved Development Plan) will remain in effect.
 
Section 4.16           Updated G&A Budget.  Contemporaneous with the delivery of
each Reserve Report bearing an effective date as of December 31st of any year,
Borrower will prepare and deliver to Administrative Agent a revised, proposed
G&A Budget covering the next 12 months and setting forth all general and
administrative expenses (which shall not include COPAS overhead charges) of
Borrower (or of Parent directly attributable to the operations and business of
Borrower) for that period and any other information that Administrative Agent
may reasonably request (the “G&A Budget”).  Each annual G&A Budget will be
subject to the Approval of Administrative Agent in its reasonable discretion.
 
 
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ARTICLE V
AFFIRMATIVE COVENANTS
 
For as long as this Agreement remains in effect, Borrower shall, unless
Administrative Agent otherwise Consents:
 
Section 5.1            Preservation of Existence.  Maintain its existence and
current form of organization under the laws of the State of Nevada and all
related rights, privileges and franchises.
 
Section 5.2             Compliance with Law.
 
(a)           Comply (and Cause it Affiliates to comply) with all Laws regarding
the collection, payment and deposit of employees’ income, unemployment and
Social Security Taxes except to the extent that its noncompliance could not
reasonably be expected to have a Material Adverse Effect.
 
(b)           Where Borrower is the Operator, make (and, where Borrower is not
the Operator, Cause the Operators to make) properly and timely, all royalty or
overriding royalty payments and payments to all other interest owners in the
Properties.
 
(c)           Where Borrower is the Operator, comply (and, where Borrower is not
the Operator, Cause the Operators to comply) with all Laws affecting the
ownership and operation of any of the Properties, including, all EHS Regulations
except to the extent that its noncompliance could not reasonably be expected to
have a Material Adverse Effect.
 
(d)           Where Borrower is the Operator, operate (and, where Borrower is
not the Operator, Cause the Operators to operate) all Properties (whether or not
such Property constitutes a “facility” under CERCLA) so that no cleanup or other
obligation is imposed under CERCLA or any other Law (including Hazardous
Substance Laws) intended to protect the environment or relating to the
generation, transportation or disposal of hazardous waste which could allow any
Person to assert a Lien to secure that obligation that is senior in priority to
Administrative Agent’s Liens on the Collateral, but excluding Liens being
protested in good faith by Borrower through appropriate proceedings timely filed
and against which Borrower maintains adequate reserves in accordance with GAAP.
 
(e)           Where Borrower is the Operator, comply (and, where Borrower is not
the Operator, Cause the Operators and all agent and invitees to comply), in all
material respects, with all EHS Regulations and other Laws with respect to
Hazardous Materials, and keep all of the Properties free and clear of any Liens
imposed by those Laws.  If Borrower receives any notice from any Person relating
to an alleged Release of Hazardous Materials on or from the Properties, Borrower
shall immediately (and, in any event, prior to the expiration of any period
specified in the notice during which Borrower is to respond) deliver a true and
complete a copy of the notice to Administrative Agent along with a description,
in reasonable detail, of the proposed response to the notice by Borrower or
Operator, as applicable.
 
 
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Section 5.3             Environmental Matters.
 
(a)           Where Borrower is the Operator, comply (and, where Borrower is not
the Operator, Cause the Operators to comply) with all Environmental Laws,
including with respect to (i) disposing of or releasing Hazardous Materials,
solid wastes or Hydrocarbons on, under, about or from the Properties, (ii)
timely obtaining all Permits and filing all notices required to be obtained or
filed in connection with the ownership and operation of the Properties, (iii)
promptly commencing and diligently prosecuting to completion any assessment,
investigation, monitoring, containment, cleanup, restoration or other remedial
obligation (collectively, the “Remedial Work”) required in connection with any
actual or suspected past, present or future disposal or other release of any
Hazardous Materials, solid wastes or Hydrocarbons on, under, about or from the
Properties, and (iv) implementing and maintaining procedures as necessary to
continuously determine and ensure Borrower’s compliance with all Environmental
Laws.
 
(b)           Notify Administrative Agent in writing within ten days after
receiving written notice of (i) the commencement of any action, investigation or
inquiry by any Governmental Authority, or (ii) any threatened demand or action
by any landowner or other Person against Borrower or affecting the Properties in
connection with an alleged violation of any Environmental Law (but excluding
routine testing and routine corrective action) in which the amount in
controversy exceeds $50,000 and is not fully covered by insurance, subject to
normal deductibles.
 
(c)           Borrower (if it is the Operator) will provide (and, where Borrower
is not the Operator, will Cause the Operator to provide) environmental audits
and tests in accordance with American Society of Testing Materials standards as
reasonably requested by Administrative Agent.  Borrower (if it is the Operator)
will provide (and where Borrower is not the Operator, will Cause the Operator to
provide) any requested audit or test not more than once each year at its
expense; the cost of any updated audits or tests reasonably requested by
Administrative Agent within the same year will be borne by Administrative Agent
unless an Event of Default exists at the time of Administrative Agent’s request,
in which case the cost will be borne by Borrower.
 
Section 5.4             Records.  Keep adequate records and books of account in
accordance with GAAP to reflect all transactions conducted with respect to its
business and the Properties.  Borrower shall conduct its business and keep its
books and records separate from those of its Affiliates.
 
Section 5.5            Litigation.  Notify Administrative Agent in writing
within ten days after (i) the commencement of any action, investigation or
inquiry by any Governmental Authority, or (ii) receiving written notice of any
threatened demand or action by any other Person that seeks to:
 
(a)           prohibit or impose any material restriction on Borrower’s business
as it presently conducts it or the Properties; or
 
(b)           declare any substance used, sold or distributed by Borrower to be
a Hazardous Material in violation of any Hazardous Substance Law.
 
 
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Section 5.6             Damage to Collateral.  Notify Administrative Agent in
writing promptly upon Borrower becoming aware of:
 
(a)           damage to any of the Collateral causing a loss in excess of
$250,000 that is not fully covered by insurance, subject to normal deductibles;
and
 
(b)           the occurrence or existence of any condition or event that could
reasonably be expected to cause a loss or depreciation of any Collateral in
excess of $250,000, excluding changes in the economy generally, e.g.,
fluctuations in the market price of Hydrocarbons.
 
Section 5.7             Solvency.  Conduct its business in a manner as is
necessary to remain Solvent.
 
Section 5.8             Insurance.
 
(a)           Continuously keep all Personal Property insured for replacement
value of like kind and quality (i) with insurance companies licensed to do
business in the jurisdiction(s) in which the property is located and having a
Best’s rating of A or better, and (ii) against loss or damage by theft,
burglary, pilferage, fire and other risks customarily insured against by other
prudent owners and operators similarly situated.
 
(b)           Continuously maintain (or Cause Operator(s) to maintain), with
insurance companies licensed to do business in the applicable jurisdiction(s)
and having a Best’s rating of A or better, liability insurance coverage against
risks incident to the ownership and operation of the Properties of a type and in
an amount as is customarily maintained by other prudent owners and operators
similarly situated.
 
(c)           Cause all insurance policies to contain endorsements in form
satisfactory to Administrative Agent showing Administrative Agent as loss payee
or additional insured, as applicable, and containing waivers of subrogation by
the respective insurers and non-contributory standard mortgagee clauses or their
equivalent or a satisfactory mortgagee loss payable endorsement in favor of
Administrative Agent.  Borrower shall notify Administrative Agent in writing
promptly after becoming aware of the occurrence or existence of any event or
circumstance that could be the subject of a claim in excess of $250,000 under
any insurance coverage maintained by or for the benefit of Borrower.  Borrower
shall Cause all casualty insurance proceeds to be deposited directly into the
Project Account by the insurer and, Borrower authorizes and directs
Administrative Agent to (i) retain and, subject to Section 1.13, apply all
insurance proceeds as a prepayment of the Obligations or, (ii) if no Event of
Default then exists,  disburse any or all of those insurance proceeds to
Borrower (subject to such terms and conditions as Administrative Agent may
reasonably deem appropriate) to pay the cost of repairing, replacing or
restoring the Collateral or purchasing replacement Collateral.
 
(d)           Deliver to Administrative Agent all certificates of insurance and,
if requested by Administrative Agent, true and complete copies of all insurance
policies and endorsements, that Borrower is required to maintain under this
Agreement.  Borrower shall Cause all certificates to show that (i) the relevant
insurance is in full force and effect, and (ii) the insurer has agreed to give
Administrative Agent at least 15 days prior written notice of the cancellation
or non-renewal any of the insurance coverages identified on the certificate.
 
 
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(e)           Deliver to Administrative Agent, at least 15 days prior to the
expiration date of each policy maintained under this Section 5.8, an acceptable
certificate of insurance with respect to the renewal or replacement policy.
 
(f)           Notwithstanding the specific requirements of this Section 5.8,
employ (or Cause Operator(s) to employ) industry standard practices at all times
with respect to its insurance coverages to include, but not limited to,
drilling, workovers, flowline repairs, rig work and facilities work, and
Borrower shall exercise commercially reasonable efforts to ensure that all
Operators also carry such insurance coverages.  If Administrative Agent notifies
Borrower that its insurance program is, in the reasonable opinion of
Administrative Agent, not in compliance with this Section 5.8, then Borrower
shall promptly act to bring its insurance program into compliance to the extent
such insurance is available on commercially reasonable terms.
 
Section 5.9             Delivery of Invoices, Receipts, Etc.  Deliver to
Administrative Agent promptly upon request (a) true and complete copies of all
contracts, statements, invoices, notices, receipts and vouchers under which
Borrower has incurred or will incur costs in excess of $250,000, and (b) such
other supporting documentation as Administrative Agent may reasonably request.
 
Section 5.10           Access to Books and Records; Inspections; Consultants.
 
(a)           Provide Administrative Agent with all reasonable access to
appropriate officers, employees and agents of Borrower to discuss the business
and accounts of Borrower during normal business hours and upon reasonable prior
notice from Administrative Agent.
 
(b)           Provide Administrative Agent with all reasonable access (at
Administrative Agent’s risk and subject to Borrower’s reasonable safety
policies) to the books and records maintained by Borrower in connection with the
conduct of its business.  So as to not unreasonably disrupt the business of
Borrower, Borrower shall arrange access during its normal business hours on at
least two Business Days notice from Administrative Agent.
 
(c)           Provide Administrative Agent with all reasonable access (at
Administrative Agent’s risk and subject to Borrower’s reasonable safety
policies) to the Properties and all other facilities owned, operated, used or
maintained by Borrower in connection with the conduct of its business to, among
other things, witness all drilling, workover and other field activities.  To
provide Administrative Agent with a reasonable opportunity to exercise its
rights under this Section 5.10(c), Borrower shall give Administrative Agent as
much notice as practical of all field activities.  The access granted to
Administrative Agent under this Section 5.10(c) will not unreasonably disrupt
the operation of the Properties or the conduct of field activities.
 
 
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(d)           Provide Administrative Agent’s consulting engineers, geologists,
accountants and other professionals with all reasonable access (at such
consultant’s risk and subject to Borrower’s reasonable safety policies) to the
Properties and all other facilities, books and records owned, operated, used or
maintained by Borrower in connection with the conduct of its business.  So as to
not unreasonably disrupt the business of Borrower, Borrower shall arrange access
during its normal business hours on at least two Business Days notice from
Administrative Agent.  Administrative Agent may from time to time, upon prior
written notice to Borrower (except if an Event of Default exists, in which case
Administrative Agent is not require to provide such notice), select and retain
such consultants as Administrative Agent reasonably determines are necessary to
advise it with respect to technical and financial matters related to each of
Borrower’s business and its ownership and operation of the Properties.  Borrower
shall promptly pay all reasonable fees and expenses related to Administrative
Agent’s consultants retained under this Section 5.10(c) upon receipt of an
invoice from Administrative Agent.
 
Section 5.11           Creditors.  Provide Administrative Agent upon request a
true and complete schedule of Borrower’s creditors, including the amount due to
each and the date each payment is due.  Borrower shall notify Administrative
Agent immediately if Borrower fails to make any payment (except for payments
contested in good faith by Borrower and against which Borrower maintains
adequate reserves in accordance with GAAP) to any Person in accordance with
required terms where such non-payment could result in the imposition of a Lien
on any of the Collateral or could reasonably be expected to have a Material
Adverse Effect.  If Administrative Agent receives notice that Borrower has
failed to make any required payment when due, Administrative Agent may, but will
have no obligation to, make payment directly to the creditor if necessary, in
the opinion of Administrative Agent, to protect Administrative Agent’s interest
in the Collateral.  If Administrative Agent makes payments to any creditor under
this Section 5.11, Borrower shall reimburse Administrative Agent upon demand
and, if not promptly reimbursed, those amounts will become part of the
Obligations and will be secured by Administrative Agent’s Liens on the
Collateral.
 
Section 5.12           Operators.  To the extent Borrower has the legal right to
do so (or the legal right to Cause or require any other Person to do so), and if
Borrower has knowledge that a material breach by the Operator occurred under any
Operating Agreement that is not timely cured:
 
(a)           At the request of Administrative Agent, vote to remove the
Operator or commence any proceedings necessary under the applicable Operating
Agreement to remove the Operator;
 
(b)           Promptly demand and diligently pursue indemnification or damages,
as applicable, from the Operator for any loss or liability incurred by Borrower;
 
(c)           Pay the owners of Royalty Interests directly;
 
 
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(d)           Cause the Operator to deliver to any successor Operator all books
and records related to the outgoing Operator’s operation of the Properties,
including all royalty payment records, joint interest billings, severance tax
records, division orders, farm-in and farmout agreements and title opinions;
 
(e)           Use all commercially reasonable efforts to ensure that the value
of the Properties is not diminished by virtue of the Operator’s resignation or
removal; and
 
(f)           Use all commercially reasonable efforts to ensure an orderly
transition of operations to the successor Operator.
 
Section 5.13           Purchasers of Hydrocarbons.
 
(a)           If Administrative Agent notifies Borrower that any Purchaser of
Hydrocarbons is, in Administrative Agent’s reasonable judgment, not
creditworthy, Borrower shall, to the extent that Borrower is the Operator, or to
the extent Borrower is not the Operator Cause any Operator to, require the
Purchaser to secure, to the satisfaction of Administrative Agent, the
Purchaser’s obligations in respect of its purchase of Hydrocarbons attributable
to the Properties.  If the Purchaser refuses to secure its obligations, then
Borrower shall, subject to any existing marketing arrangement with that
Purchaser that is binding on Borrower and that is not terminable without
penalty, (i) immediately cease selling Hydrocarbons to that Purchaser, or (ii)
exercise its right to take the Hydrocarbons in kind and sell those Hydrocarbons
to Purchasers Approved by Administrative Agent unless Borrower owns less than a
10% Working Interest in the subject Property and the Operator has acknowledged a
notice of assignment of proceeds, then Borrower need not take the actions set
forth in this Section 5.13(a).
 
(b)           Borrower shall give Administrative Agent at least 30 days prior
written notice if Borrower proposes to sell, or, if Borrower is not the
Operator, within 5 Business Days of receiving notice that the Operator proposes
to sell or has sold, any Hydrocarbons to any additional or replacement
Purchaser.  The notice must (i) contain the proposed Purchaser’s complete name,
address, telephone number, facsimile number and contact person, and (ii)
identify the Properties to which the purchases relate.
 
Section 5.14           Use of Proceeds.  Use the proceeds of each Advance
exclusively for the purpose for which it is made and consistent with the AFEs
and other Supporting Documentation provided to Administrative Agent as part of
the Advance Request.
 
Section 5.15           Bonds.  Continuously maintain bonds required by any
Governmental Authority in connection with the ownership and operation of the
Properties, and deliver to Administrative Agent true and complete copies of all
bonds in place (including renewals).  Schedule 5.15 identifies (a) each bond
that Borrower is required by any Governmental Authority to maintain in
connection with the ownership and operation of the Properties, and (b) all
payment obligations of Borrower to any Person who has issued a bond on behalf of
Borrower.
 
 
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Section 5.16           Hydrocarbon Price Risk Management Program.  At the
request of Administrative Agent, dedicate, under the one or more Hedging
Agreements, a percentage of the volume of PDP Reserves volumes (not to exceed
85% of those volumes) projected to be produced prior to the earlier of (a) three
years after the Closing Date or (b) the Maturity Date to a Hydrocarbon price
risk management program Approved by Administrative Agent in its reasonable
discretion.  Any gain or loss for volume adjustments will be for Borrower’s
account.  Administrative Agent may review Borrower’s Hydrocarbon price risk
management program from time to time to determine if it is in compliance with
this Section 5.16.  If Administrative Agent notifies Borrower that its
Hydrocarbon price risk management program is, in the reasonable opinion of
Administrative Agent, not in compliance with this Section 5.16, then Borrower
shall promptly act to bring its program into compliance on commercially
reasonable terms.  Each Reserve Report delivered by Borrower pursuant to Section
4.5 will be deemed to supplement Schedule 3.41 when delivered to Administrative
Agent.  Within five Business Days after Closing, Borrower must implement the
initial Hydrocarbon price risk management program described on Schedule 5.16.
 
Section 5.17           Evidence of Title.
 
(a)           Within thirty (30) days after Closing, Borrower will deliver to
Administrative Agent updated title opinions and title information satisfactory
to Administrative Agent covering the Properties in accordance with Section
5.17(b) below.  Notwithstanding the previous sentence, however, no Advance will
be made by Lenders with respect to any Well or proposed Well that is not the
subject of an updated title opinion reasonably satisfactory to Administrative
Agent.
 
(b)           The opinions to be delivered under this Section 5.17 will show
Defensible Title in the Properties vested in the Borrower subject only to (i)
the Permitted Encumbrances and (ii) the Mortgages in favor of Administrative
Agent as first and prior mortgage Liens subject only to the Permitted
Encumbrances and will otherwise be reasonable satisfactory to Administrative
Agent and its counsel.
 
(c)           Deliver to Administrative Agent, within 30 days after
Administrative Agent’s request, updated run sheets or other documentation
acceptable to Administrative Agent reflecting (i) the recordation of
Administrative Agent’s Lien related to the Mortgage over all Properties for
which Borrower has not previously delivered a title opinion, and (ii) the
absence of any Lien that is not a Permitted Encumbrance.
 
Section 5.18           Continuing Enterprise.  Conduct its business at all times
in a manner necessary to (a) perform all of its obligations under the Basic
Documents and its Obligations under the Loan Documents, and (b) preserve its
rights in and to the Properties and under the Basic Documents unless a Prudent
Operator would not do so.
 
Section 5.19           Access to Technical Data.  Provide Administrative Agent
and its consultants with access to all engineering, geological, geophysical and
(to the maximum extent allowed under Borrower’s seismic licenses) seismic data,
studies and evaluations made or possessed by Borrower or to which it has
access.  So as to not unreasonably disrupt the business of Borrower, Borrower
shall arrange access during its normal business hours on at least two Business
Days notice from Administrative Agent.  If the seismic information to be
provided to Administrative Agent is subject to a confidentiality agreement
between Borrower and any other Person who is not an Affiliate, Borrower may
require Administrative Agent to execute a substantially similar confidentiality
agreement before receiving the confidential information.
 
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Section 5.20           Financial Ratios.
 
(a)           Current Ratio.  Commencing December 31, 2011, Borrower will
maintain a Current Ratio of at least 1.00 to 1.00.
 
(b)           Debt Coverage Ratio.  Commencing on the last day of the fiscal
quarter following any fiscal quarter in which there are, on any day that fiscal
quarter, no outstanding Advances under the Term Loan, Borrower shall maintain a
Debt Coverage Ratio of no more than 3.50 to 1.00.
 
(c)           Interest Coverage Ratio.  Commencing December 31, 2011, Borrower
will maintain an Interest Coverage Ratio of at least 2.50 to 1.00.
 
(d)           Borrower’s Right to Cure Certain Breaches with New
Equity.  Borrower may cure (and shall be deemed to have cured) an Event of
Default arising out of a breach of any financial covenant set forth in Section
5.20 (the “Specified Financial Covenant”) if it receives the cash proceeds of an
investment of additional equity or other common equity contributions made in
immediately available funds (“Curative Equity”) within the applicable cure
period under Section 9.1.  Any Curative Equity shall be deemed to be additional
EBITDA or, in the case of the Current Ratio, additional Current Assets, for the
fiscal quarter in which the Specified Financial Covenant is breached.  Borrower
shall promptly (but in any event no later than 14 days after the receipt
thereof) notify Administrative Agent of its receipt of any proceeds of Curative
Equity and such notification shall constitute a designation by Borrower that
such proceeds constitute Curative Equity.  In the compliance certificate
delivered pursuant to Section 4.3 in respect of the fiscal quarter end on which
Curative Equity is used to cure any breach of the Specified Financial Covenant,
Borrower shall (i) include evidence satisfactory to Administrative Agent of its
receipt of Curative Equity and (ii) set forth a calculation of the financial
results and balance sheet of Borrower as at such fiscal quarter end (including
for such purposes the proceeds of such Curative Equity (broken out separately)
as deemed EBITDA or as additional Current Assets, as applicable, as if received
on such date), which shall confirm, with respect to any fiscal quarter end on
which Curative Equity is used to cure any breach of the Specified Financial
Covenant, that on a pro forma basis after taking into account the receipt of the
Curative Equity, Borrower would have been in compliance with the Specified
Financial Covenant as of such date.  Upon delivery of a compliance certificate
pursuant to Section 4.3 conforming to the requirements of this Section 5.20(d)
and accurately reflecting Borrower’s compliance with the applicable financial
covenant as of the applicable measuring date, any Event of Default that is
continuing from a breach of any of the Specified Financial Covenant shall be
deemed cured with no further action required by Administrative Agent or any
Lender.  In the event Borrower does not cure the Specified Financial Covenant
violation as provided in this Section 5.20(d), the existing Event(s) of Default
shall continue unless waived in writing by Administrative Agent or the requisite
Lenders in accordance with this Agreement.  To the extent that Curative Equity
is received and included in the calculation of the Specified Financial Covenant
as deemed EBITDA or additional Current Assets, as applicable, for any fiscal
quarter pursuant to this Section 5.20(d), such Curative Equity shall be deemed
to be EBITDA or additional Current Assets, as applicable, for purposes of
determining compliance with the Specified Financial Covenant for subsequent
periods that include such fiscal quarter.
 
 
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(e)           Calculating Financial Ratios.
 
(i)           Administrative Agent will determine Borrower’s compliance with the
required Current Ratio and Debt Coverage Ratio, as applicable, as of the end of
each Reported Quarter using the financial statements delivered to Administrative
Agent by Borrower under Section 4.2(a) and Section 4.2(b) for that same Reported
Quarter.
 
(ii)           Administrative Agent’s determination as to Borrower’s compliance
with this Section 5.20 will be conclusive absent manifest error.  Except through
the timely investment of new equity into Borrower as contemplated by Section
5.20(d) to cure a breach of the required financial covenant, a breach of this
Section 5.20 is not otherwise capable of being cured and, as such, no cure
period under Section 9.1 will apply.
 
Section 5.21           Maintenance of Liens.  Cause all Collateral to be subject
at all times to a first-priority perfected Lien (subject only to Permitted
Encumbrances) in favor of Administrative Agent.  If Borrower acquires additional
Property after the Closing Date, Borrower shall promptly notify Administrative
Agent of the acquisition and execute and deliver amendments to the Security
Documents as requested by Administrative Agent to grant to Administrative Agent
a first-priority perfected Lien (subject only to the Permitted Encumbrances)
over that additional Property.
 
Section 5.22           Payment of Taxes, Etc.  Pay when due all material Taxes,
assessments and governmental charges levied, assessed, imposed or payable in
connection with any of the Collateral except for Taxes, assessments, charges or
encumbrances being protested in good faith by Borrower through appropriate
proceedings timely filed and diligently prosecuted and against which Borrower
maintains adequate reserves in accordance with GAAP.
 
Section 5.23           Equipment.
 
(a)           Maintenance of Equipment.  Continuously maintain (and Cause
Operators to maintain) all Equipment in good working condition (ordinary wear
and tear excepted) and in accordance with customary industry standards.
 
(b)           Location of Equipment.  Keep all Equipment at the location(s)
within the State of Arizona where it is used by Borrower in the conduct of its
business, unless Borrower has advised Administrative Agent in writing that it
has acquired Equipment in other states.
 
(c)           Equipment Records.  Maintain (and Cause the Operator to maintain)
accurate and complete records of the Equipment (including its description,
location, age, condition, cost and accumulated depreciation) used in connection
with the conduct of Borrower’s business or the operation of the Properties.
 
 
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(d)           Sale or Disposal of Equipment.  When Borrower is permitted to
dispose of any Equipment under the Security Documents, it shall do so in good
faith, in an arm’s length transaction with a non-Affiliate and obtain an amount
of recovery consistent with the conduct of a Prudent Operator and customary
industry standards.
 
Section 5.24          Maintenance of Leases.  Promptly perform, pay and
discharge (or Cause Operator to perform, pay and discharge) (a) all delay
rentals, royalties, expenses, severance Taxes and other Taxes and indebtedness
accruing under the Leases or the other Basic Documents, and (b) all other
obligations imposed by the Leases and the other Basic Documents, in each
instance, unless the failure to do so could not reasonably be expected to have a
Material Adverse Effect.  Borrower shall also act as a Prudent Operator in
preventing the expiration, forfeiture or abandonment of any of the Properties
except for Properties that are known to be incapable of producing in paying
quantities.
 
Section 5.25           Operator.  Notwithstanding anything in any other document
to the contrary, Borrower will resign, or, to the effect it has the legal right
to do so, Cause the resignation or removal of Borrower or any Affiliate under
any applicable Operating Agreement as the Operator of any of the Properties upon
the written request of Administrative Agent if an Event of Default has occurred
and is continuing under the Credit Agreement or any other Loan
Document.  Subject to the terms of the applicable Operating Agreement,
Administrative Agent will have the right to Approve any action taken by Borrower
to appoint or replace the Operator of any of the Properties.
 
Section 5.26           Release of Community Bank Lien.  Borrower shall within 5
Business Days of Closing, deliver to Administrative Agent evidence of the full
release of all Community Bank Liens on the Properties and recordation of said
release of liens in the real property records of the appropriate counties in the
State of Arkansas, such that Administrative Agent shall have a first priority
mortgage Lien on and first priority and perfected security interest in the
Properties owned by Borrower subject only to the Permitted Encumbrances.
 
ARTICLE VI
NEGATIVE COVENANTS
 
For as long as this Agreement remains in effect, Borrower shall not, unless
Administrative Agent otherwise Consents:
 
Section 6.1             Debt.  Incur, assume or allow to exist any Debt, except:
 
(a)           the Obligations;
 
(b)           Debt existing on the date hereof which is identified on Schedule
6.1(b);
 
(c)           Debt under the Basic Documents;
 
(d)           Capital Leases that do not exceed $250,000 in the aggregate
 
(e)           Debt secured by a Permitted Encumbrance;
 
 
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(f)           Debt under a Hedging Agreement permitted under this Agreement;
 
(g)           accounts payable, accrued expenses, and obligations to pay the
deferred purchase price of property or services that (i) are incurred in the
ordinary course of business, (ii) are not more than 90 days past due or
otherwise delinquent, and (iii) do not exceed $250,000 in the aggregate
(excluding amounts being diligently contested in good faith and by appropriate
action by Borrower and against which Borrower maintains adequate reserves in
accordance with GAAP);
 
(h)           letters of credit, worker’s compensation claims, surety bonds and
performance bonds incurred in the ordinary course of business, and, with respect
to each such instrument or claim that exceeds $250,000, Approved by
Administrative Agent in its reasonable discretion;
 
(i)           guaranties permitted to exist pursuant to Section 6.3;
 
(j)           endorsements of negotiable instruments for collection in the
ordinary course of business;
 
(k)           Debt Approved by Administrative Agent in its reasonable discretion
and fully subordinated to the Obligations pursuant to a Subordination Agreement;
and
 
(l)           Debt which represents an extension, refinancing or renewal of any
of the Debt described in Sections 6.1(b)-(j) (such Debt being so extended,
refinanced or renewed being referred to herein as the “Refinanced Debt”);
provided that (i) such Refinancing Debt does not increase the principal amount
of the Refinanced Debt, except in the amount of reasonable and customary fees,
cost and expenses incurred in connection with the extension, renewal or
replacement, (ii) any Liens securing such Refinanced Debt are not extended to
any additional property of Borrower, (iii) such Refinancing Debt does not result
in a shortening of the average weighted maturity of such Refinanced Debt, (iv)
if such Refinanced Debt was subordinated in right of payment to the Obligations,
then the terms and conditions of such Refinancing Debt must include
subordination terms and conditions that are at least as favorable to the
Administrative Agent and the Lenders as those that were applicable to such
Refinanced Debt, (v) no Event of Default exists; (vi) Borrower has provided
three days prior written notice to Administrative Agent of its intention to
incur Refinanced Debt, and (vii) Borrower has provided Administrative Agent with
all information reasonably requested by Administrative Agent in order to confirm
that the Refinanced Debt complies with this Section 6.1(l).
 
Section 6.2             Accounts.  Sell, discount or factor its accounts or its
negotiable instruments except for accounts settled or discounted in the ordinary
course of business while no Default exists.
 
 
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Section 6.3             Guaranties.  Guaranty the payment of any other Person’s
Debt or the performance of any other Person’s obligation except for (a) Debt
permitted by Section 6.1, (b) indemnity obligations customarily assumed or
incurred (but excluding Debt for borrowed money) in favor of the seller of Wells
or Leases that become part of the Collateral following their acquisition by
Borrower; but this Section 6.3 will not prohibit Borrower’s endorsement of
negotiable instruments for deposit or collection in the ordinary course of
business.  For purposes of this Section 6.3, “guaranty” means any agreement
(contingent, conditional or otherwise) to (x) pay, perform, purchase, repurchase
or otherwise acquire any obligation or liability of any other Person, or (y)
purchase, sell or lease (as either lessee or lessor) any property or services,
in either case primarily for the purpose of (I) paying or enabling another
Person to pay any Debt, (II) performing or enabling another Person to perform
any other obligation.
 
Section 6.4             Ownership and Business Operations.
 
(a)           Merge with or into any other Person;
 
(b)           acquire or agree to acquire any material portion of the assets of
or the Equity Interests in another Person;
 
(c)           transfer (or grant any Person an option to acquire) any of its
assets (as that term is defined under GAAP) with a fair market value,
individually or in the aggregate, of more than $250,000 in any three month
period except for (i) the sale of Hydrocarbons under Approved Marketing
Contracts and (ii) the sale of worn, surplus or obsolete Equipment in accordance
with this Agreement and the Security Documents;
 
(d)           cancel or compromise any Debt owed to Borrower except for
consideration and in the ordinary course of Borrower’s business;
 
(e)           prepay any Debt other than the Obligations and prepayments made
from time to time in connection with cash calls under the Operating Agreements,
but, as long as no Event of Default exists Borrower may prepay any Debt other
than Debt for borrowed money;
 
(f)           extend credit or agree to extend credit to any Person except in
the ordinary course of Borrower’s business and in accordance with the Basic
Documents;
 
(g)           move its executive offices, change its company name, change its
corporate form to another type of entity, or move its jurisdiction of
organization to a jurisdiction other than that in which Borrower is organized on
the date of this Agreement without 30 days prior written notice to
Administrative Agent;
 
(h)           change its fiscal year;
 
(i)           Cause or allow (to the extent Borrower has the ability to prevent
such action through the exercise of all commercially reasonable efforts) (i) the
release or abandonment of (A) any Well capable of commercial production, or (B)
any of Borrower’s Working Interest or Net Revenue Interest in any of the
Properties capable of commercial production, or (C) any of the Properties where
a Prudent Operator would not cause or allow the same to occur; (ii) the
Properties to be developed, maintained or operated in a manner less favorable
than the actions of a Prudent Operator; and (iii) waive or agree to make any
material alterations to the material terms of any Basic Documents to which
Borrower is a party to the extent such waiver or alteration could reasonably be
expected to have a Material Adverse Effect, except as made on behalf of Borrower
by an Operator who is not an Affiliate pursuant to the terms of an Operating
Agreement;
 
 
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(j)           except in the ordinary course of business or as otherwise
permitted under this Agreement, enter into any new agreement relating to or
affecting any of the Properties that could reasonably be expected to have a
Material Adverse Effect;
 
(k)           enter into any new farmout agreement or a material amendment to
any existing farmout agreement relating to the Properties;
 
(l)           allow the purchase and sale of production from or allocable to the
Properties except pursuant to Approved Marketing Contracts;
 
(m)          cause or allow (to the extent Borrower has the ability to prevent
such action through the exercise of all commercially reasonable efforts) the
commencement of any operation that is not the subject of an AFE Approved by
Administrative Agent excluding emergency operations, operations required under
contractual obligations that exist on the date of this Agreement, operations
necessary to ensure compliance with any EHS Regulation or any other Law; or
 
(n)           cause or allow (to the extent Borrower has the ability to prevent
such action through the exercise of all commercially reasonable efforts),
subject to Section 5.12, the replacement of any Operator.
 
Section 6.5             Liens and Encumbrances.  Except as set forth on Schedule
6.5:
 
(a)           allow any Lien to exist or consent to the filing of any financing
statement on any Collateral except:
 
(i)           Liens in favor of Administrative Agent;
 
(ii)           the Permitted Encumbrances;
 
(iii)           Liens being protested in good faith by Borrower through
appropriate proceedings timely filed and diligently prosecuted and against which
Borrower maintains adequate reserves in accordance with GAAP; and
 
(iv)           Liens securing Capital Leases permitted by Section 6.1(b) and
identified on Schedule 6.1(b).
 
(b)           sever from or reserve out of any Property a right or power to take
any action which affects the exploration or development of the Hydrocarbons
related to that Property.
  
 
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Section 6.6             Affiliate and XOG Group Transactions.
 
(a)           Subject to compliance with the other provisions of this Agreement,
enter into a transaction with any Affiliate unless (a) the Affiliate has
executed a Subordination Agreement and (b) Borrower has provided satisfactory
evidence to the Administrative Agent that the terms of the proposed transaction
are at least as favorable as those that Borrower could obtain in an arm’s length
transaction with a Person that is not an Affiliate.
 
(b)           Subject to compliance with the other provisions of this Agreement,
enter into a transaction with any member of the XOG Group unless Borrower has
provided satisfactory evidence to the Administrative Agent that the terms of the
proposed transaction are at least as favorable as those that Borrower could
obtain in an arm’s length transaction with a Person that is not a member of the
XOG Group.
 
Section 6.7             Investments.  Make any Investment except Investments in
(a) Cash Equivalents, (b) obligations of the United States government or any of
its agencies, (c) guaranties permitted under Section 6.3, (d) Investments in
connection with the purchase of Properties Approved by Administrative Agent, and
(e) Investments existing on the date of this Agreement and identified on
Schedule 6.7.
 
Section 6.8             Subsidiaries; Structure.  Create any direct or indirect
Subsidiary or make any other material change in the corporate or capital
structure of Borrower.  Borrower shall not enter into any arrangement by which
any Person other than Borrower has the authority to exercise management over
Borrower’s and its Subsidiaries’ business or the Properties.
 
Section 6.9             Joint Ventures.  Enter into, agree to enter into or
commit any of the Collateral in connection with the organization of any
partnership, joint venture or similar arrangement.
 
Section 6.10           Dividends and Distributions.  Do any of the following or
take an action that has substantially the same effect:
 
(a)           declare or pay any cash dividends or distributions, provided that
Borrower shall be permitted to declare and pay cash dividends or distributions
to Parent for G&A Expenses set forth on an Approved G&A Budget and consistent
with the terms of Section 6.19;
 
(b)           declare or make any non-cash distribution;
 
(c)           purchase or redeem any of its Equity Interests or other
securities; or
 
(d)           issue additional Equity Interests to any Person unless the holder
of those additional Equity Interests has entered into a Pledge Agreement
pledging to Administrative Agent such Person’s right, title and interest in and
to such Equity Interests.
 
Section 6.11           Modifications to Documents.  Waive or modify (or agree to
waive or modify) the terms of any Operating Agreement, any Hedging Agreement or
any material Basic Document, if such waiver or amendment could reasonably be
expected to have a Material Adverse Effect.
 
 
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Section 6.12          Other.
 
(a)           fail to observe all of the provisions of Articles IV and V after
the Closing, to the extent not already subsumed in this Article VI;
 
(b)           declare an “Early Termination Date” (as that term may be defined
in the Swap Agreement) or any similar action pursuant to any Hedging Agreement
without the Consent of Administrative Agent; but Borrower may declare an Early
Termination Date or any similar action under and in accordance with the terms of
any Hedging Agreement (i) in respect of any “Event of Default” (as defined in
such Hedging Agreement) by the counterparty to such Hedging Agreement or (ii) in
order to close out any transactions then outstanding under such Hedging
Agreement and pay all amounts due in connection with the close out of such
transactions coincident with the full and final repayment or prepayment of all
of the Obligations;
 
(c)           enter into any Hedging Agreement not Approved by Administrative
Agent, such approval not to be unreasonably withheld or delayed, but Borrower
agrees that it will not be unreasonable for Administrative Agent to withhold its
Approval of any Hedging Agreement if Borrower’s counterparty under the proposed
Hedging Agreement, is not a Swap Counterparty and could have the right to
require Borrower to post any margin or other security to secure amounts owing
under the Hedging Agreement;
 
(d)           enter into a unit operating agreement relating to the Properties
outside the ordinary course of business; or
 
(e)           adopt any Employee Plan without the Consent of Administrative
Agent which shall not be unreasonably withheld or delayed.
 
Section 6.13          Use of Loan Proceeds.  Permit the proceeds of any Advance
to be used for any purpose other than the purposes permitted by this Agreement
and in a manner consistent with the supporting documentation provided to
Administrative Agent in connection with each Advance Request.  Neither Borrower
nor any Person acting on behalf of Borrower has taken or will take any action
which might cause any of the Loan Documents to violate Regulations T, U or X or
any other regulation of the Board or to violate Section 7 of the Securities
Exchange Act of 1934 or any rule or regulation thereunder, in each case as now
in effect or as the same may hereinafter be in effect.
 
Section 6.14           Limitation on Leases.  Create, incur, assume or suffer to
exist any obligation for the payment of rent or hire of property of any kind
whatsoever (real or personal but excluding Capital Leases and Leases), under
leases or lease agreements which would cause the aggregate amount of all
payments made by Borrower pursuant to all such leases or lease agreements,
including any residual payments at the end of any lease, to exceed $250,000 in
any period of twelve consecutive calendar months during the life of such leases.
 
Section 6.15           Nature of Business.  Allow any material change to be made
in the character of Borrower’s business as an independent Hydrocarbon
exploration and production company.  Borrower will not acquire or make any other
expenditure (whether such expenditure is capital, operating or otherwise) in or
related to, any oil and gas properties not located within the geographical
boundaries of the United States.

 
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Section 6.16       Deposit Accounts.  Except for those identified on Schedule
3.43, maintain any additional deposit accounts (as defined in the UCC) unless
simultaneously therewith, Borrower, Administrative Agent and the related
depositary bank enter into a Deposit Account Control Agreement with respect to
such deposit account.
 
Section 6.17       No Severance Agreements.  Without the Approval of
Administrative Agent, enter into or become bound by or cause or allow any of the
Collateral to become subject to any agreement under which Borrower could become
obligated to pay any amounts or make the accommodations to any Person, in
connection with that Person’s resignation, termination or any similar
occurrence.
 
Section 6.18       Commodity Deliveries.  Enter into obligations to deliver
commodities, goods or services, including Hydrocarbons, in consideration of one
or more advance payments, other than gas balancing arrangements in the ordinary
course of business.
 
Section 6.19       G&A Expenses.  Allow the G&A Expenses of Borrower to exceed
the amounts set forth on the G&A Budget for the relevant time period and as long
as there are outstanding unpaid Advances under the Term Loan, allow the G&A
Expenses to exceed an aggregate of $700,000 per calendar quarter.
 
ARTICLE VII
FURTHER RIGHTS OF LENDERS
 
Section 7.1       Further Assurances; Delivery of Additional Documents.  Until
all Obligations are Indefeasibly repaid in full (other than indemnity and
reimbursement obligations that survive the termination of this Agreement):
 
(a)       Borrower shall, at Borrower’s expense, take all actions and execute
all additional documents reasonably requested by Administrative Agent and
necessary to (i) effect the creation, perfection, maintenance or continuation of
a first-priority Lien in favor of Administrative Agent over all of the
Collateral, or (ii) assist Administrative Agent’s exercise of its rights under
this Agreement and the other Loan Documents (collectively, “Implementation
Documents”).
 
(b)       Borrower appoints Administrative Agent and each of its designees as
Borrower’s attorney in fact to whenever an Event of Default exists (i) execute,
on behalf of Borrower , any Implementation Documents requested by Administrative
Agent, and (ii) endorse for deposit into the Project Account any checks or other
negotiable instruments payable to Borrower and that come into the possession of
Administrative Agent.  This appointment is coupled with an interest and is
irrevocable.
 
(c)       In exercising the appointment described in Section 7.1(b), neither
Administrative Agent nor its designees will be liable to any Person for any act,
omission, error in judgment or mistake of law that is not intentional, willful
or grossly negligent.

 
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Section 7.2       Payments by Lenders.  If Borrower fails to (a) continuously
maintain insurance as required by this Agreement or (b) pay any amount owed to
any Person when due if Borrower’s failure to pay could reasonably be expected to
have a Material Adverse Effect, Administrative Agent or Lenders can, but will
not have any obligation to, (x) obtain insurance on behalf of Borrower as
required by this Agreement if such coverage is available on commercially
reasonable terms or (y) pay the unpaid amount(s) on behalf of
Borrower.  Administrative Agent or any Lender will give Borrower at least three
Business Days notice prior to exercising its rights under the preceding sentence
unless an Event of Default exists, in which case no prior notice will be
necessary.  Borrower will reimburse Administrative Agent or such Lender upon
demand for all amounts (including reasonable attorneys fees) paid by
Administrative Agent or such Lender to any Person under this Section 7.2.  If
Borrower fails to reimburse those amounts upon demand, the unreimbursed amounts
will become part of the Obligations.
 
Section 7.3       Possession and Preservation of Collateral.  If any Event of
Default exists, Administrative Agent can, in addition to any of remedies
available to Administrative Agent, (a) exercise the rights of a secured creditor
under the UCC to enter Borrower’s premises, (b) take possession of the
Collateral to preserve and prepare the Collateral for sale, and (c) take
possession or place custodians in control of Borrower’s premises without charge,
rent or payment, remain on and use the premises to preserve and prepare the
Collateral for sale.
 
Section 7.4       Indemnification.
 
(a)       Borrower will, to the fullest extent permitted by Law, indemnify and
hold harmless Administrative Agent, Lenders and their respective Related Parties
(collectively, the “Indemnified Parties”) from and against all claims, injuries,
damages, judgments, liabilities, costs and expenses (including the reasonable
fees and expenses of counsel), charges and encumbrances (collectively, “Claims”)
arising from or related to:
 
(i)       asserting, enforcing or defending the rights of any Indemnified Party
under this Agreement or any of the other Loan Documents;
 
(ii)      creating, perfecting, maintaining, or enforcing any Lien;
 
(iii)     taking possession of, protecting, preserving and preparing for sale
any of the Collateral when an Event of Default exists;
 
(iv)     the acquisition, ownership or operation of any of the Collateral by
Borrower or any other Person;
 
(v)     Borrower’s proposed acquisition of any real or personal property;
 
(vi)     the failure of Borrower or any other Person to comply with any Law
(including any Environmental Law) or with the terms and conditions of any Loan
Document;

 
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(vii)    the inaccuracy of any representation or warranty made by Borrower or
any other Person (other than any Indemnified Party) in any Loan Document;
 
(viii)   the failure of Borrower or any Operator to comply with any EHS
Regulation or other Environmental Law, including with respect to the presence,
generation, storage, release, threatened release, use, transportation, disposal
or arranging for the disposal or treatment of any Hydrocarbons, Hydrocarbon
waste, solid waste or Hazardous Substance on, under or from any of the
Properties;
 
(ix)      any finder’s, brokerage, financing or similar fees arising in
connection with the transactions contemplated by this Agreement; and
 
(x)       any actual, threatened or prospective litigation, investigation or
other proceeding relating to any of the foregoing, whether based on contract,
tort or any other legal or equitable theory and regardless of whether an
Indemnified Party is a named party to the proceeding.
 
(b)       The indemnity obligation owing by Borrower to the Indemnified Parties
under this Section 7.4:
 
(i)       will be not be limited, modified or excused by (A) any sole or
concurrent negligence of any Indemnified Party, whether through act or omission,
or (B) any strict liability imposed on any Indemnified Party; but
 
(ii)       will not be available to an Indemnified Party to the extent that the
Claim is determined by the final and non-appealable judgment of a court of
competent jurisdiction to have resulted from the gross negligence or willful
misconduct of that Indemnified Party.
 
(c)       Borrower shall pay any amounts owing to an Indemnified Party under
this Section 7.4 within 10 Business Days after Indemnified Party makes a written
demand for payment.  If Borrower fails to timely pay the amounts owning under
this Section 7.4:
 
(i)       if the unpaid amount is owed to an Indemnified Party other than
Administrative Agent or any Lender, Administrative Agent or such Lender may (but
will not be obligated to) remit the unpaid amount to that Indemnified Party on
behalf of Borrower, in which case Borrower shall reimburse Administrative Agent
or such Lender upon demand; and
 
(ii)       if Administrative Agent or any Lender is the Indemnified Party to
whom the unpaid amount is owed (or if Borrower has failed to reimburse
Administrative Agent or such Lender for amounts due under Section 7.4(c)(i)),
then Administrative Agent can, at its election, (A) debit and apply funds from
the Project Account (and Borrower authorizes and directs Administrative Agent to
do so) to pay the amount then owing to Administrative Agent or such Lender under
this Section 7.4, or (B) capitalize the amount then owing and add them to the
Obligations.

 
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(d)       Notwithstanding anything to the contrary, any indemnified Taxes shall
be covered exclusively by Section 1.17(c).
 
ARTICLE VIII
CLOSING; CONDITIONS PRECEDENT
 
Section 8.1       Closing.  The “Closing” of this Agreement will occur when all
of the conditions set forth in Article II and in Section 8.2 are either
satisfied or waived in writing by Administrative Agent; and the “Closing Date”
will be the date on which the Closing occurs.
 
Section 8.2       Conditions to Closing.  As conditions to Closing:
 
(a)       Borrower will execute and deliver to Administrative Agent each of the
Loan Documents to which Borrower is a party;
 
(b)       Borrower will Cause each other party (other than Administrative Agent
and Lenders) to execute and deliver to Administrative Agent each of the Loan
Documents to which it is a party;
 
(c)       Borrower will execute and deliver to Administrative Agent the first
Advance Request;
 
(d)       Administrative Agent will be satisfied, in its sole and absolute
discretion, with the results of its business, financial, legal, title,
engineering and environmental due diligence of Borrower and the Properties;
 
(e)       Borrower will deliver to Administrative Agent true and complete copies
of each Permit required to be obtained by Borrower in connection with the
acquisition, ownership and operation of the Properties;
 
(f)       Borrower will deliver to Administrative Agent its pro forma financial
statements prepared in accordance with GAAP, except for the omission of the
notes required by GAAP, and subject to the assumptions stated and normal “year
end adjustments” and certified as of the Closing Date by Borrower’s Authorized
Officer as fairly presenting in all material respects the financial position of
Borrower after giving effect to this Agreement (including the payment of all
fees and expenses payable in connection with this Agreement and the initial
Advance to be requested by Borrower under the Loan, if such an Advance is to be
requested at Closing); in addition, Borrower will have no contingent
liabilities, liabilities for Taxes, unusual forward or long term commitments or
unrealized or unanticipated losses from any unfavorable commitments that are not
disclosed in the financial statements;
 
(g)       Borrower will deliver to Administrative Agent legal opinions
satisfactory to Administrative Agent and its counsel;

 
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(h)       Borrower will deliver to Administrative Agent evidence of title
reasonably satisfactory to Administrative Agent confirming that Borrower holds
Defensible Title to the Properties pursuant to Section 5.17;
 
(i)        Borrower will deliver to Administrative Agent a G&A Budget covering
the 12 month period following the Closing Date;
 
(j)        Borrower will deliver to Administrative Agent:
 
(i)       a true and complete copy of resolutions satisfactory to Administrative
Agent (A) authorizing Borrower’s execution and delivery of the Loan Documents,
the payment and performance of the Obligations, and the granting of the Liens
contemplated by the Security Documents, and (B) accompanied by the certification
of an Authorized Officer that the resolutions have not been amended, repealed or
revoked as of the Closing Date;
 
(ii)       the certification of an Authorized Officer as to the name, title and
signatures of Persons authorized to execute Loan Documents on behalf of
Borrower; and
 
(iii)       true and complete copies of Borrower’s Charter Documents and an
original certificate of existence and/or good standing issued by the Secretary
of State of the jurisdictions in which Borrower is organized and conducts
operations (in each instance, dated as of a date acceptable to Administrative
Agent), along with the certificate of an Authorized Officer that those Charter
Documents and certificates have not been amended, repealed or revoked and remain
in effect on the Closing Date.
 
(k)       Borrower will deliver to Administrative Agent for each Guarantor who
is not an individual:
 
(i)       a true and complete copy of resolutions, or other similar
documentation, satisfactory to Administrative Agent (A) authorizing the entity’s
execution and delivery of the Loan Documents to which it is a party and (B)
accompanied by the certification of an authorized representative of such entity
that the resolutions, or other document, have not been amended, repealed or
revoked as of the Closing Date;
 
(ii)       the certification of an authorized representative of the entity as to
the name, title and signatures of Persons authorized to execute Loan Documents
to which such entity is a party on behalf of such entity; and
 
(iii)       true and complete copies of the entity’s Charter Documents and, if
applicable to such entity, an original certificate of existence and/or good
standing issued by the Secretary of State of the jurisdictions in which such
entity is organized and conducts operations (in each instance, dated as of a
date acceptable to Administrative Agent), along with the certificate of an
authorized representative of such entity that those Charter Documents and
certificates have not been amended, repealed or revoked and remain in effect on
the Closing Date.

 
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(l)         Administrative Agent will be satisfied with its review of Borrower’s
management and its back-office, accounting, business and administrative systems
and functions;
 
(m)       Borrower will provide any information required by Section 326 of the
USA PATRIOT Act or deemed necessary in the reasonable opinion of Administrative
Agent to verify the identity of Borrower as required by Section 326 of the USA
PATRIOT Act;
 
(n)        no Material Adverse Effect has occurred;
 
(o)        the representations of each party to the Loan Documents are true,
complete and correct;
 
(p)        no suit or other proceeding is pending or threatened seeking to
restrain, enjoin, declare illegal, recover damages from any Party or seek any
other relief in connection with the transactions contemplated in this Agreement;
 
(q)        Borrower shall have reimbursed Administrative Agent for all Related
Costs incurred by Administrative Agent for which invoices have been presented to
Borrower at least one Business Day prior to the Closing Date;
 
(r)         none of the transactions contemplated by this Agreement are
prohibited by Law;
 
(s)        an environmental consultant Approved by Administrative Agent will
inspect the Properties and deliver to Administrative Agent a satisfactory
environmental site assessment of the Properties;
 
(t)        Borrower shall enter into an agreement with Macquarie Capital (USA)
Inc., or its designee, granting Macquarie Capital (USA) Inc., or its designee,
an option to provide certain financial advisory services to Borrower; and
 
(u)       Administrative Agent will be satisfied with the terms of the Operating
Agreements.
 
Section 8.3        Post-Closing Conditions.  Borrower shall deliver within 5
Business Days of Closing, the evidence of the release of the Community Bank Lien
as required by Section 5.26.
 
Section 8.4       Conditions to the Making of Each Advance.  The following
conditions must be either satisfied or waived in writing by Administrative Agent
prior to the making of each Advance:

 
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(a)        The conditions described in Section 8.2 will continue to be satisfied
with respect to the Properties owned by Borrower at Closing or acquired by
Borrower with the proceeds of an Advance;
 
(b)        Borrower will prepare, execute and deliver an Advance Request to
Administrative Agent and satisfy the conditions set forth in Article I that
relate to the requested Advance;
 
(c)        With respect to any development activity to be funded with the
proceeds of the requested Advance, the development activity is included on the
Development Plan and is the subject of an AFE Approved by Administrative Agent;
 
(d)        With respect to any Properties acquired since the Closing Date or,
with respect to any other Properties, to the extent not previously delivered to
Administrative Agent, Borrower will deliver to Administrative Agent
documentation as Administrative Agent may reasonably request to satisfy the
conditions described in Section 8.2 with respect to those additional Properties
as if Borrower had owned them on the Closing Date (except that the
representations and warranties of Borrower with respect to those additional
Properties will be made as of the date of the requested Advance);
 
(e)        Borrower will obtain and deliver to Administrative Agent any
additional Implementation Documents that Administrative Agent may reasonably
request;
 
(f)        Borrower will deliver to Administrative Agent a true and complete
copy of the Operating Agreement(s) for each Well to which the Advance Request
relates to the extent not previously delivered to Administrative Agent, all of
which will be satisfactory to Administrative Agent;
 
(g)        No Default exists or would result from the making of the requested
Advance;
 
(h)        No Material Adverse Effect exists or would result from the making of
the requested Advance;
 
(i)        The representations of each party to the Loan Documents are true,
complete and correct on the date of which the requested Advance is to be made
except to the extent any of those representations and warranties were made as of
and limited to an earlier date, in which case those representations and
warranties continue to be true as of that earlier date;
 
(j)        The making of the requested Advance will not cause any Lender to
violate any Law;
 
(k)        No suit or other proceeding is pending or threatened seeking to
restrain, enjoin, declare illegal, recover damages from any Party or seek any
other relief in connection with the transactions contemplated in this Agreement;

 
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(l)        Borrower maintains a commodity price risk management program as
required by Section 5.16;
 
(m)       Borrower will deliver to Administrative Agent all insurance
certificates required under this Agreement to the extent not previously
delivered pursuant to Section 5.8 and, if requested by Administrative Agent,
true and complete copies of any insurance policy maintained by Borrower;
 
(n)        There will exist no past due bills for improvements or services to
the Properties that could give rise to any Lien, including that of a mechanic or
materialman;
 
(o)       Administrative Agent is satisfied, in its sole and absolute
discretion, with the results of its due diligence examination of Borrower and
the Properties, including Borrower’s proposed development of the Properties,
satisfactory information regarding existing Crude Oil and Natural Gas sales, and
all aspects of Borrower’s existing and contemplated Crude Oil and Natural Gas
marketing activities;
 
(p)       Borrower will deliver to Administrative Agent satisfactory releases of
all Liens relating to the Properties that are not Permitted Encumbrances;
 
(q)       Borrower will reimburse Administrative Agent for all Related Costs
incurred by Administrative Agent for which invoices have been presented pursuant
to Section 12.9;
 
(r)        Each depositary bank at which Borrower maintains a deposit account
will execute and deliver a Deposit Account Control Agreement to Administrative
Agent pursuant to Section 6.16 herein and Section 4.18 of the Security
Agreement;
 
(s)        Borrower will pay all fees due to Administrative Agent pursuant to
Section 1.15;
 
(t)        Borrower will deliver to Administrative Agent, no later than 15 days
prior to Borrower’s submission of an Advance Request for the funding of
development activities related to a Well, a drill site title opinion or other
evidence of title acceptable to Administrative Agent covering such new Well and
showing Defensible Title to those Properties on which the such new Well is
located vested in Borrower subject only to the Permitted Encumbrances and the
Liens in favor of Administrative Agent pursuant to Section 5.17;
 
(u)       The mathematical average of the daily settlement prices for the next
six months after the date of the Advance Request for futures contracts for Crude
Oil as reflected in the NYMEX must be equal to or greater than $65.00 per
barrel; and
 
(v)       Borrower will provide documentary evidence satisfactory to
Administrative Agent that all seismic and other geological, geophysical,
engineering and well data, interpretations and analyses relating to the
Properties to which the Advance Request relates is owned by Borrower, free of
any encumbrance, subject only to the Permitted Encumbrances and the Liens in
favor of Administrative Agent.

 
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ARTICLE IX
EVENTS OF DEFAULT
 
Section 9.1        Events of Default.  An “Event of Default” will exist under
this Agreement if:
 
(a)       Borrower fails to pay when due any amount payable by Borrower to any
Lender under the Promissory Note, this Agreement or any other Loan Document, and
that failure to pay continues for two Business Days after the date due;
 
(b)       Borrower fails to comply with any material term of any Loan Document
(except for a payment default described under Section 9.1(a)), and that
noncompliance continues for 20 days after the earlier of (i) the first date that
Borrower becomes aware of its noncompliance or (ii) the first date that
Administrative Agent notifies Borrower of its noncompliance;
 
(c)       a Termination Event, Additional Termination Event or Event of Default
occurs under (i) the Swap Agreement or (ii) any other Hedging Agreement if such
default could reasonably be expected to have a Material Adverse Effect;
 
(d)       any Obligor (other than Borrower) fails to comply with any material
term of any Loan Document, and that noncompliance continues for 30 days after
the earlier of (i) the first date that the Obligor becomes aware of its
noncompliance or (ii) the first date that Administrative Agent notifies the
Obligor of its noncompliance;
 
(e)       Borrower (i) executes an assignment for the benefit of its creditors,
(ii) becomes or is adjudicated bankrupt or insolvent, (iii) admits in writing
its inability to pay its debts generally as they become due, (iv) applies for or
consents to the appointment of a conservator, receiver, trustee, or liquidator
of Borrower or of all or any substantial part of its assets, (v) files a
voluntary petition seeking reorganization or an arrangement with creditors or to
seek any other relief under any Debtor Relief Laws, (vi) files an answer
admitting the material allegations of or consenting to, or defaults in, a
petition filed against it in any proceeding under any Debtor Relief Laws, or
(vii) institutes or voluntarily becomes a party to any other judicial
proceedings intended to effect a discharge of its debts, in whole or in part, or
seeking to postpone the maturity or the collection of any of its debts or to
suspend any of the rights of Administrative Agent or any of its Affiliates under
any of the Loan Documents;
 
(f)       any Person files a petition seeking reorganization of Borrower or
appointing a conservator, receiver, trustee or liquidator of Borrower or of a
substantial part of its assets and the petition is not discharged within 90 days
after its filing;
 
(g)       a court of competent jurisdiction enters an order, judgment or decree
approving the reorganization of Borrower or appointing a conservator, receiver,
trustee or liquidator of Borrower, or of a substantial part of its assets, and
the order, judgment or decree is not permanently stayed or reversed within 60
days after its entry;

 
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(h)       any certification or representation of Borrower or any other party
(other than Administrative Agent or any Lender) in any Loan Document is
determined by Administrative Agent to have been materially false when made or
deemed made;
 
(i)        any federal Tax Lien or any other Liens totaling $250,000 or more
arise of record against Borrower or the Properties, or if Borrower or one of its
Affiliates is the Operator, the Operator and are not fully bonded or discharged
within 30 days after Borrower receives actual or constructive notice of their
filing unless (i) Borrower is contesting the Lien(s) in good faith through
appropriate proceedings timely filed and diligently prosecuted and against which
Borrower maintains adequate reserves in accordance with GAAP and (ii) all such
Liens are fully bonded or discharged within 60 days after Borrower receives
actual or constructive notice of their filing;
 
(j)        a judgment for more than $250,000 (or for any amount if the execution
and enforcement of that judgment could reasonably be expected to have a Material
Adverse Effect) is entered against Borrower, or if Borrower or one of its
Affiliates is the Operator, or the Operator and not appealed and bonded or fully
stayed, vacated, paid or discharged within 30 days of its entry unless the
judgment relates to a claim (i) that is fully covered by insurance and for which
the insurance company has unconditionally accepted liability or (ii) for which
Borrower maintains adequate reserves in accordance with GAAP;
 
(k)        Borrower fails to pay any Debt (other than the Obligations) in excess
of $250,000 when due (whether at scheduled maturity or by acceleration, demand
or otherwise) and the failure to pay continues past the expiration of any
applicable cure period unless (i) Borrower has previously documented to the
reasonable satisfaction of Administrative Agent the basis upon which Borrower
intends to dispute the Debt and (ii) Borrower maintains adequate reserves for
the Debt in accordance with GAAP;
 
(l)        Borrower, any other Obligor or any of their respective Affiliates,
officers, directors or members assert or allege that (i) any Loan Document is
void, voidable, unenforceable or has otherwise ceased to be in full force and
effect (except in accordance with its terms), (ii) Borrower or any other Obligor
is not bound by the Loan Documents in accordance with their terms, or (iii) any
Lien contemplated by any of the Security Documents is void,  voidable,
unenforceable or has ceased to be perfected and/or to have the priority required
by this Agreement;
 
(m)       Borrower fails to document to the satisfaction of Administrative
Agent, within ten days of Closing, that any Lien on the Collateral (other than
Permitted Encumbrances and Liens in favor of Administrative Agent) have been
released or fully subordinated to Administrative Agent;
 
(n)        if Borrower has the legal right to Cause any Operator to comply with
Laws applicable to the Properties, any Operator fails to comply with any Laws
applicable to the Properties and its noncompliance could reasonably be expected
to have a Material Adverse Effect;

 
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(o)       if Borrower has the legal right to Cause or effect the choice of
replacement Operator, any Operator is removed or withdraws and the replacement
Operator is not Approved by Administrative Agent;
 
(p)       Borrower’s Working Interest is increased or Net Revenue Interest is
decreased from those set forth in Exhibit A except in connection with Borrower’s
acquisition of an additional Working Interest in the Properties in connection
with which Borrower contemporaneously realizes a proportionately higher Net
Revenue Interest in the Properties that is not subject to reduction at any time
following the closing of the acquisition;
 
(q)       a Change of Control occurs;
 
(r)        a Material Adverse Effect occurs; or
 
(s)       Borrower defaults under any of the Basic Documents and such default
could reasonably be expected to have a Material Adverse Effect;
 
but the events described in Sections 9.1(h), (k), (n) and (o)-(s) will
constitute an Event of Default only if the event described is not remedied by
Borrower within 30 days after the earlier of (i) the first date that Borrower or
any other Obligor, as applicable, becomes aware of the occurrence of the event
or (ii) Administrative Agent notifies Borrower or any other Obligor, as
applicable, of the occurrence of the event.
 
ARTICLE X
REMEDIES OF LENDERS
 
Section 10.1       Remedies Generally.
 
(a)       Upon an Insolvency.  If an Event of Default exists under any of
Sections 9.1(e)-(g), then (i) Lenders’ commitments to make any additional
Advances will automatically terminate and (ii) all amounts then outstanding
under the Promissory Note together with all other Obligations outstanding under
this Agreement and the other Loan Documents (excluding the Swap Agreement) will
automatically become immediately due and payable, without presentment, demand,
protest or other notice of any kind, all of which are waived by Borrower.
 
(b)       Following an Event of Default.  If an Event of Default exists under
Article IX other than under Sections 9.1(e)-(g), Administrative Agent may, by
notice to Borrower, take either or both of the following actions, at the same or
different times: (i) terminate Lenders’ commitments to make any additional
Advances and (ii) declare all amounts then outstanding under the Promissory Note
together with all other Obligations outstanding under this Agreement and the
other Loan Documents (excluding the Swap Agreement) immediately due and payable,
without presentment, demand, protest, notice of intent to accelerate, notice of
acceleration or other notice of any kind, all of which are waived by Borrower.

 
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(c)       Rights of Administrative Agent.  Following a termination of Lenders’
commitments under Section 10.1(a) or (b), Administrative Agent may at any time
exercise any or all of its rights arising under any of the Loan Documents, by
operation of Law or otherwise (all of which will be cumulative), including the
right of a secured party under the UCC to peacefully enter upon any premises
where the Collateral is kept and take possession pending foreclosure.
 
Section 10.2       No Marshalling; Use of Collateral Pending Foreclosure;
Etc.  Administrative Agent will have no obligation to preserve the rights of any
other Person in or to any Collateral or to proceed against the Collateral in any
particular order or to marshal any Collateral of any kind for the benefit of any
other creditor of Borrower or any other Person.  Borrower grants to
Administrative Agent a royalty-free license or other right to use, at any time
that an Event of Default exists, Borrower’s labels, rights of use of any name,
trade secrets, trade names, trademarks and advertising matter, seismic data,
reserve reports, databases or any property of a similar nature related to the
Collateral and necessary in connection with Administrative Agent preparing the
Collateral for sale and advertising for and conducting one or more foreclosure
sales, and Borrower’s rights under all licenses and any franchise, sales or
distribution agreements will inure to Administrative Agent’s benefit.
 
Section 10.3       Set-Off Rights.  If an Event of Default exists, Lenders or
Administrative Agent, on behalf of Lenders, may, at any time and from time to
time, set off and apply against the Obligations any and all deposits (general or
special, time or demand, provisional or final) or other amounts at any time
credited by or owing from Lender or Administrative Agent, on behalf of Lenders,
or any depositary to Borrower, whether or not the Obligations are then due; but
this Section 10.3 will not apply to any amounts previously identified in writing
to Lender or Administrative Agent as belonging to third party Working Interest
and Royalty Interest owners.  Lender or Administrative Agent, as applicable,
will provide notice to Borrower within ten days following the application of any
funds under this Section 10.3.
 
Section 10.4       Rights Under Operating Agreements.  If an Event of Default
exists, Administrative Agent or its designee may, upon Administrative Agent’s
notice to Borrower, exercise any of Borrower’s rights under any Operating
Agreement or any other Basic Document.
 
Section 10.5       Netting of Claims.  If an Event of Default exists,
Administrative Agent, Lenders and Swap Counterparty, or any of them, may,
without further notice to Borrower, setoff (a) any amount then due and owing by
Borrower to Swap Counterparty under the Swap Agreement or to Administrative
Agent or Lenders under any other Loan Document, as applicable, against (b) any
amounts due and owing to Borrower or any other Obligor by Swap Counterparty
under or in respect of the Swap Agreement or by Administrative Agent or Lenders
under or in respect of any other Loan Document, as applicable, without regard
(in the case of the preceding clause (b)) to whether such amounts arise by set
off, offset, combination of accounts, deduction, retention, counterclaim or
withholding.  If an amount is unascertainable, Administrative Agent, Lenders and
Swap Counterparty, or any of them, may, acting in a commercially reasonable
matter, setoff an estimated amount and account to Borrower when the amount is
ascertained.

 
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Section 10.6       All Rights and Remedies are Cumulative.  Each of the rights
and remedies of Administrative Agent and Lenders under this Agreement and the
other Loan Documents is cumulative and non-exclusive of any other rights or
remedies it may have under any other agreement, by operation of Law, at equity
or otherwise.
 
ARTICLE XI
ADMINISTRATIVE AGENT
 
Section 11.1       Appointment and Authorization of Administrative
Agent.  Subject to Section 11.19 below, each Lender hereby irrevocably appoints,
designates and authorizes the Administrative Agent to act as its agent under the
Loan Documents, and to take such action on its behalf under the provisions of
each Loan Document and to exercise such powers and perform such duties as are
expressly delegated to it by the terms of any Loan Document, together with such
powers as are reasonably incidental thereto.  Notwithstanding any provision to
the contrary contained in any Loan Document, Administrative Agent shall not have
any duties or responsibilities, except those expressly set out herein, nor shall
the Administrative Agent have or be deemed to have any fiduciary relationship
with any Lender or participant, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into any Loan
Document or otherwise exist against Administrative Agent.  Without limiting the
generality of the foregoing, the use of the term “Administrative Agent” in the
Loan Documents with reference to Administrative Agent is not intended to connote
any fiduciary or other implied (or express) obligations arising under agency
doctrine of any applicable law.  Instead, such term is used merely as a matter
of market custom, and is intended to create or reflect only an administrative
relationship between independent contracting parties.
 
Section 11.2       Delegation of Duties.  Administrative Agent may execute any
of its duties under any Loan Document by or through agents, employees or
attorneys-in-fact and shall be entitled to advice of counsel and other
consultants or experts concerning all matters pertaining to such duties.
Administrative Agent shall not be responsible for the negligence or misconduct
of any agent or attorney-in-fact that it selects in the absence of gross
negligence or willful misconduct on the part of Administrative Agent.
 
Section 11.3       Liability of Administrative Agent.  No Related Party of
Administrative Agent shall (a) be liable for any action taken or omitted to be
taken by any of them under or in connection with any Loan Document or the
transactions contemplated hereby and thereby (except for its own gross
negligence or willful misconduct in connection with its duties expressly set out
herein), or (b) be responsible in any manner to any Lender or participant for
any recital, statement, representation or warranty made by Borrower or any
officer thereof, contained in any Loan Document, or in any certificate, report,
statement or other document referred to or provided for in, or received by
Administrative Agent under or in connection with any Loan Document, or the
validity, effectiveness, genuineness, enforceability or sufficiency of any Loan
Document, or for any failure of Borrower or any other party to any Loan Document
to perform its obligations hereunder or thereunder.  No Related Party of
Administrative Agent shall be under any obligation to any Lender or participant
to ascertain or to inquire as to the performance of any of the agreements
contained in, or conditions of, any Loan Document, or to inspect the Properties,
books or records of Borrower or any Affiliate thereof.

 
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Section 11.4       Reliance by Administrative Agent.
 
(a)       Administrative Agent shall be entitled to rely, and shall be fully
protected in relying, upon any writing, communication, signature, resolution,
representation, notice, consent, certificate, affidavit, letter, telegram,
facsimile, telex or telephone message, electronic mail message, statement or
other document or conversation believed by it to be genuine and correct and to
have been signed, sent or made by the proper Person or Persons, and upon advice
and statements of legal counsel (including counsel to Borrower), independent
accountants and other experts selected by the Administrative
Agent.  Administrative Agent shall be fully justified in failing or refusing to
take any action under any Loan Document unless it shall first receive such
advice or concurrence of the Required Lenders as it deems appropriate and, if it
so requests, it shall first be indemnified to its satisfaction by Lenders
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action.  Administrative Agent shall in
all cases be fully protected in acting, or in refraining from acting, under any
Loan Document in accordance with a request or consent of the Required Lenders
(or such greater number of Lenders as may be expressly required hereby in any
instance) and such request and any action taken or failure to act pursuant
thereto shall be binding upon all Lenders.
 
(b)       For purposes of determining compliance with the conditions specified
in Article VIII, each Lender shall, where applicable, be deemed to have
consented to, approved or accepted or to be satisfied with, each document or
other matter required thereunder to be consented to or approved by or acceptable
or satisfactory to a Lender unless Administrative Agent shall have received
notice from such Lender prior to the Closing Date or Advance date, as
applicable, specifying its objection thereto.
 
Section 11.5       Notice of Default.  Administrative Agent shall not be deemed
to have knowledge or notice of the occurrence of any Default or Event of
Default, except with respect to defaults in the payment of principal, interest
and fees required to be paid to Administrative Agent for the account of Lenders,
unless Administrative Agent shall have received written notice from a Lender or
Borrower referring to the Agreement, describing such Default or Event of Default
and stating that such notice is a “notice of default.” Administrative Agent will
notify Lenders of its receipt of any such notice. Administrative Agent shall
take such action, or refrain from taking such action, with respect to such
Default or Event of Default as it shall deem advisable or in the best interest
of Lenders.

 
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Section 11.6       Credit Decision; Disclosure of Information by Administrative
Agent.  Each Lender acknowledges that no Related Party of Administrative Agent
has made any representation or warranty to it, and that no act by Administrative
Agent hereafter taken, including any consent to and acceptance of any assignment
or review of the affairs of Borrower or any Affiliate thereof, shall be deemed
to constitute any representation or warranty by any Related Party of
Administrative Agent to any Lender as to any matter, including whether such
Related Party of Administrative Agent have disclosed material information in
their possession.  Each Lender represents to Administrative Agent that it has,
independently and without reliance upon any Related Party of Administrative
Agent and based on such documents and information as it has deemed appropriate,
made its own appraisal of and investigation into the business, prospects,
operations, property, financial and other condition and creditworthiness of
Borrower and its Affiliates, and all applicable bank or other regulatory laws
relating to the transactions contemplated hereby, and made its own decision to
enter into this Agreement and to extend credit to Borrower under this
Agreement.  Each Lender also represents that it will, independently and without
reliance upon any Related Party of Administrative Agent and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit analysis, appraisals and decisions in taking or not taking
action under this Agreement and the other Loan Documents, and to make such
investigations as it deems necessary to inform itself as to the business,
prospects, operations, property, financial and other condition and
creditworthiness of Borrower.  Except for notices, reports and other documents
expressly required to be furnished to Lenders by Administrative Agent herein,
Administrative Agent shall not have any duty or responsibility to provide any
Lender with any credit or other information concerning the business, prospects,
operations, property, financial and other condition or creditworthiness of any
of Borrower or any of its Affiliates which may come into the possession of any
Related Party of Administrative Agent.
 
Section 11.7       Indemnification of Administrative Agent.  Whether or not the
transactions contemplated hereby are consummated, Lenders shall indemnify upon
demand each Related Party of Administrative Agent (to the extent not reimbursed
by or on behalf of Borrower and without limiting the obligation of Borrower to
do so), pro rata, and hold harmless each Related Party of Administrative Agent
from and against any and all liabilities and costs incurred by it; provided that
no Lender shall be liable for the payment to any Related Party of Administrative
Agent of any portion of such liabilities and costs to the extent determined in a
final, non-appealable judgment by a court of competent jurisdiction to have
resulted from such Related Party’s of Administrative Agent own gross negligence
or willful misconduct; provided further that no action taken in accordance with
the directions of the Required Lenders shall be deemed to constitute gross
negligence or willful misconduct for purposes of this Section 11.7.  Without
limitation of the foregoing, each Lender shall reimburse Administrative Agent
upon demand for its ratable share of any costs or out-of-pocket expenses
(including attorneys’ fees and expenses) incurred by Administrative Agent in
connection with the preparation, execution, delivery, administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement, any other Loan Document, or any document
contemplated by or referred to herein, to the extent that Administrative Agent
is not reimbursed for such expenses by or on behalf of Borrower. The undertaking
in this Section 11.7 shall survive termination of the Maximum Commitment, the
payment of all other obligations and the resignation of Administrative Agent.

 
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Section 11.8       Administrative Agent in its Individual Capacity.  MBL and its
Affiliates may make loans to, acquire Equity Interests in and generally engage
in any kind of financial advisory, underwriting or other business with Borrower
and its Affiliates as though MBL were not Administrative Agent hereunder and
without notice to or consent of Lenders.  Lenders acknowledge that, pursuant to
such activities, MBL or its Affiliates may receive information regarding
Borrower or its Affiliates (including information that may be subject to
confidentiality obligations in favor of Borrower or such Affiliate), and Lenders
further acknowledge that Administrative Agent shall be under no obligation to
provide such information to any of them.  With respect to its Advances, MBL, in
its individual capacity as a Lender, shall have the same rights and powers under
this Agreement as any other Lender and may exercise such rights and powers as
though it were not Administrative Agent and the terms “Lender” and “Lenders”
include MBL in its individual capacity.
 
Section 11.9       Successor Administrative Agent.  Subject to the appointment
and acceptance of a successor Administrative Agent as provided in this Section
11.9, Administrative Agent may resign as Administrative Agent upon 30 days
notice to Lenders and Administrative Agent may be removed at any time with or
without cause by the Required Lenders.  If Administrative Agent resigns or is
removed under this Agreement, the Required Lenders shall appoint from among
Lenders a successor Administrative Agent for Lenders.  Such appointment will be
made with the consent of Borrower (such consent not to be unreasonably withheld,
conditioned or delayed) unless an Event of Default exists, in which case
Borrower’s consent will not be required.  If no successor Administrative Agent
is appointed prior to the effective date of the resignation or retirement of
Administrative Agent, Administrative Agent may appoint, after consulting with
Lenders and Borrower, a successor Administrative Agent from among Lenders. Upon
the acceptance of its appointment as successor Administrative Agent hereunder,
the Person acting as such successor Administrative Agent shall succeed to all
the rights, powers and duties of the retiring or removed Administrative Agent
and the term “Administrative Agent” shall mean such successor Administrative
Agent and the retiring or removed Administrative Agent’s appointment, powers and
duties as Administrative Agent shall be terminated.  After any retiring
Administrative Agent’s resignation or removal hereunder as Administrative Agent,
the provisions of this Article XI shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Administrative Agent under this
Agreement.  If no successor Administrative Agent has accepted appointment as
Administrative Agent by the date which is 30 days following a retiring
Administrative Agent’s notice of resignation, the retiring or removed
Administrative Agent’s resignation or removal shall nevertheless thereupon
become effective and Lenders shall perform all of the duties of Administrative
Agent hereunder until such time, if any, as the Required Lenders appoint a
successor Administrative Agent as provided for above.
 
Section 11.10     Administrative Agent May File Proofs of Claim.  In case of the
pendency of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other judicial
proceeding relative to Borrower, Administrative Agent (irrespective of whether
the principal of Loan shall then be due and payable as herein expressed or by
declaration or otherwise and irrespective of whether the Administrative Agent
shall have made any demand on Borrower) shall be entitled and empowered, by
intervention in such proceeding or otherwise:
 
(a)        to file and prove a claim for the whole amount of the principal and
interest owing and unpaid in respect of the Loan, and all other Obligations that
are owing and unpaid and to file such other documents as may be necessary or
advisable in order to have the claims of Lenders and Administrative Agent
(including any claim for the reasonable compensation, expenses, disbursements
and advances of Lenders and Administrative Agent and their respective Related
Parties and counsel and all other amounts due Lenders and Administrative Agent
under Section 1.13 and Section 12.9 allowed in such judicial proceeding; and

 
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(b)       to collect and receive any monies or other property payable or
deliverable in respect of any such claims and to distribute the same; and any
custodian, receiver, assignee, trustee, liquidator, sequestrator or other
similar official in any such judicial proceeding is hereby authorized by each
Lender to make such payments to Administrative Agent and, in the event that
Administrative Agent shall consent to the making of such payments directly to
Lenders, to pay to Administrative Agent any amount due for the reasonable
compensation, expenses, disbursements and advances of Administrative Agent and
its Related Parties and counsel, and any other amounts due Administrative Agent
under Section 1.13 and Section 12.9.
 
Nothing contained herein shall be deemed to authorize Administrative Agent to
authorize or consent to or accept or adopt on behalf of any Lender any plan of
reorganization, arrangement, adjustment or composition affecting the Obligations
or the rights of any Lender or to authorize Administrative Agent to vote in
respect of the claim of any Lender in any such proceeding.
 
Section 11.11     Collateral Matters.
 
(a)        Collateral Matters.
 
(i)       Each Lender authorizes and directs Administrative Agent to enter into
the Security Documents for the ratable benefit of Lenders.  Each Lender agrees
that (A) any action taken by Administrative Agent in respect of any Collateral
in accordance with the provisions of this Agreement or the Security Documents
and (B) the exercise by the Administrative Agent of powers in respect of the
Collateral set out in any Security Documents, together with other reasonably
incidental powers, shall be authorized by and binding upon all Lenders.
 
(ii)      In the event any Lien under any Security Document is, on its face,
granted to a Lender rather than to Administrative Agent (for the ratable benefit
of all Lenders), the Administrative Agent, Lenders, and Borrower confirm that it
is their intent that all such Liens shall be granted (or deemed granted) to
Administrative Agent for the ratable benefit of all Lenders.  All such Security
Documents are hereby amended to the extent necessary to reflect that the Liens
granted under those Security Documents are granted to Administrative Agent (for
the ratable benefit of all Lenders), and Borrower hereby grant all Liens under
all Security Documents to Administrative Agent, for the ratable benefit of
Lenders.
 
(iii)     Administrative Agent is authorized on behalf of all Lenders, without
the necessity of any notice to or further consent from any Lender, from time to
time while no Default or Event of Default exists, to take any action with
respect to any Collateral or Security Documents that may be necessary to perfect
and maintain the perfection of the Liens upon the Collateral granted by the
Security Documents.

 
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(iv)     Administrative Agent has no obligation whatsoever to any Lender or to
any other Person to assure that the Collateral exists or is owned by the party
pledging the Collateral or is cared for, protected or insured or has been
encumbered or that the Liens granted to Administrative Agent for the benefit of
Lenders under the Security Documents have been properly or sufficiently or
lawfully created, perfected, protected or enforced, or are entitled to any
particular priority.
 
(v)      Administrative Agent shall exercise the same care and prudent judgment
with respect to the Collateral and the Security Documents as it normally and
customarily exercises in respect of similar collateral and security documents.
 
(b)       Release Collateral.  Lenders irrevocably authorize Administrative
Agent, at its option and in its discretion, to release any Lien or encumbrance
on any property granted to or held by Administrative Agent under any Loan
Document or Security Document (i) upon termination of the Maximum Commitment and
payment in full of all Obligations (other than contingent indemnification
obligations), (ii) that is sold or to be sold as part of or in connection with
any sale permitted under the Agreement or under any other Loan Document, or
(iii) if approved, authorized or ratified in writing by the Required Lenders.
 
(c)       Subordinate Liens.  Lenders irrevocably authorize Administrative
Agent, at its option and in its discretion, to subordinate any Lien or
encumbrance on any property granted to or held by Administrative Agent under any
Loan Document or Security Document to the holder of any Lien or encumbrance on
such property that constitutes a purchase money lien or a capital lease.
 
(d)       Confirm Authority.  Upon request by Administrative Agent at any time,
the Required Lenders will confirm in writing Administrative Agent’s authority to
release or subordinate its interest in particular types or items of property.
 
Section 11.12    Advance Procedure.
 
(a)       Subject to compliance with Section 1.5 and Article VIII, Borrower may
request the Advance of the Loan by submitting an Advance Request to
Administrative Agent, and Administrative Agent shall promptly notify each Lender
of the Advance Request and its contents.  An Advance Request is irrevocable and
binding on Borrower.  Each Advance Request must be received by Administrative
Agent no later than 12:00 p.m. Houston, Texas, Time on the third (3rd) Business
Day preceding the proposed Advance date.
 
(b)       By 11:00 a.m. Houston, Texas, time on the Advance date, each Lender
shall remit its Percentage Share of each requested Advance by wire transfer to
Administrative Agent pursuant to Administrative Agent’s wire transfer
instructions on Appendix B (or as otherwise directed by Administrative Agent) in
funds that are available for immediate use by Administrative Agent. Subject to
receipt of such funds, Administrative Agent shall make such funds available to
Borrower as directed in the Advance Request (unless it has actual knowledge that
any applicable condition precedent has not been satisfied by Borrower).

 
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(c)       Absent contrary written notice from a Lender, Administrative Agent may
assume that each Lender has made its Percentage Share of the requested Advance
available to Administrative Agent on the applicable Advance date, and
Administrative Agent may, in reliance upon such assumption (but is not required
to), make available to Borrower a corresponding amount.  If a Lender fails to
make its Percentage Share of any requested Advance available to Administrative
Agent on the applicable Advance date, Administrative Agent may (to the extent
such amount was actually advanced to Borrower) recover the applicable amount on
demand from that Lender, together with interest at the Prime Rate for the period
commencing on the date the amount was made available to Borrower by
Administrative Agent and ending on (but excluding) the date Administrative Agent
recovers the amount from that Lender.
 
Section 11.13     Payments.  Borrower shall make each payment on the Obligations
as provided in this Agreement, provided that all such payments shall be paid to
Administrative Agent and shall be without offset, counterclaim or
deduction.  Any payment of the Obligations from Borrower or any of its
Affiliates which is received by any Lender (including under Section 10.4), shall
be promptly forwarded to Administrative Agent.  Payments received after the
designated time will be deemed received on the next Business
Day.  Administrative Agent shall pay each Lender any payment to which that
Lender is entitled on the Business Day following the day Administrative Agent
receives the funds from Borrower. If and to the extent that Administrative Agent
does not make a payment to Lenders when due, the unpaid amounts shall accrue
interest at the Prime Rate from the due date until (but not including) the date
paid and such interest shall be paid by Administrative Agent to that Lender.
 
Section 11.14     Application of Payments.
 
(a)       If no Default or Event of Default then exists, all scheduled payments
shall be applied ratably in accordance with Section 1.9(c) above.
 
(b)       If no Default or Event of Default then exists, all prepayments shall
be applied ratably in accordance with Section 1.9(c) above.
 
(c)       All proceeds realized from the liquidation or other disposition of
Collateral or otherwise received after maturity of the Promissory Notes, whether
by acceleration or otherwise, shall be applied: first, to reimbursement of
expenses and indemnities provided for in this Agreement and the Security
Documents; second, to accrued interest on the Promissory Notes; third, to fees;
fourth, pro rata to principal outstanding on the Promissory Notes and
Obligations in respect of the Swap Agreement; fifth, to any other Obligations;
and any excess shall be paid to the Borrower or as otherwise required by any
Governmental Authority.
 
Section 11.15     Liens.  The Liens granted by Borrower under the Loan Documents
are granted to Administrative Agent for the ratable benefit of Lenders and Swap
Counterparty.

 
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Section 11.16     Payment Priority.  The right of each Lender to receive any
payments or prepayments under or in respect of the Agreement, any Loan Document,
or any Collateral shall be pari passu with the payment rights of all other
Lenders acting in their capacity as a Lender pursuant to this Agreement,
provided that payments of principal and interest will be allocated to each
Lender in accordance with its Percentage Share of such payment or prepayment.
 
Section 11.17     Sharing of Payments by Lenders.  If any Lender shall, by
exercising any right of set-off or counterclaim or otherwise, obtain payment in
respect of any principal of or interest on any of its Advances or fees resulting
in such Lender receiving payment of a greater proportion of the aggregate amount
of its Advances or fees and accrued interest thereon than the proportion
received by any other Lender, then the Lender receiving such greater proportion
shall purchase (for cash at face value) participations in the Advances or fees
of other Lenders to the extent necessary so that the benefit of all such
payments shall be shared by Lenders ratably in accordance with the aggregate
amount of principal of and accrued interest on their respective Advances;
provided that (a) if any such participations are purchased and all or any
portion of the payment giving rise thereto is recovered, such participations
shall be rescinded and the purchase price restored to the extent of such
recovery, without interest, and (b) the provisions of this Section 11.17 shall
not be construed to apply to any payment made by Borrower pursuant to and in
accordance with the express terms of this Agreement or any payment obtained by a
Lender as consideration for the assignment of or sale of a participation in any
of its Advances to any assignee or participant, other than to Borrower or any
Affiliate thereof (as to which the provisions of this Section 11.17 shall
apply).  Borrower consents to the foregoing and agrees, to the extent it may
effectively do so under applicable law, that any Lender acquiring a
participation pursuant to the foregoing arrangements may exercise against
Borrower rights of set-off and counterclaim with respect to such participation
as fully as if such Lender were a direct creditor of Borrower in the amount of
such participation.
 
Section 11.18     Relationship of Lenders.  This Agreement, and the documents
delivered in connection herewith, does not create a partnership or joint venture
among Administrative Agent and Lenders or among Lenders.
 
Section 11.19    Actions by Administrative Agent.  Notwithstanding Section 11.1
above, Administrative Agent shall not take any of the following actions
(collectively, the “Material Changes”):
 
(a)       increase the Commitment of any Lender without the written consent of
such Lender;
 
(b)       reduce the principal amount of any Advance or reduce the rate of
interest thereon, or reduce any fees payable hereunder, or reduce any other
Obligations hereunder or under any other Loan Document, without the written
consent of each Lender affected thereby;
 
(c)       postpone the scheduled date of payment of the principal amount of any
Advance, or any interest thereon, or any fees payable hereunder, or any other
Obligations hereunder or under any other Loan Document, or reduce the amount of,
waive or excuse any such payment, or postpone or extend the Availability
Termination Date without the written consent of each Lender affected thereby;

 
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(d)       change this Agreement in a manner that would alter the pro rata
sharing of payments required thereby, without the written consent of each
Lender;
 
(e)       release any of the Collateral (except as expressly provided in Section
11.11(b));
 
(f)       change Section 5.20, without the written consent of each Lender; or
 
(g)       change (i) any of the provisions of this Section 11.19, (ii) the
definition of “Required Lenders” or (iii) any other provision hereof specifying
the number or percentage of Lenders required to (A) waive, amend or modify any
rights hereunder or under any other Loan Documents or (B) make any determination
or grant any consent hereunder or any other Loan Documents, without the written
consent of each Lender.
 
Section 11.20     Replacement of Lenders.
 
(a)       If any Lender becomes a Defaulting Lender, then (i) Administrative
Agent may, upon notice to the Defaulting Lender and Borrower, require such
Defaulting Lender to assign and delegate, without recourse (in accordance with
and subject to the restrictions contained in, and consents required by, Section
12.1), all of its interests, rights and obligations under this Agreement and the
related Loan Documents to an assignee, pursuant to the terms and conditions of
Section 12.1, that shall assume such obligations (which assignee may be another
Lender, if a Lender accepts such assignment) and (ii) Borrower may, as long as
no Event of Default exists and upon notice to the Defaulting Lender and
Administrative Agent and at Borrower’s sole cost and expense, require such
Defaulting Lender to assign, without recourse (in accordance with and subject to
the restrictions contained in, and consents required by, Section 12.1), all of
its interests, rights and obligations under this Agreement and the related Loan
Documents to an assignee that shall assume such obligations (which assignee may
be another Lender, if a Lender accepts such assignment), provided that:
 
(A)       as to assignments required by Borrower, Borrower shall have paid to
Administrative Agent the expenses specified in Section 12.1;
 
(B)       such Defaulting Lender shall have received payment of an amount equal
to the outstanding principal of its Advances, accrued interest thereon, accrued
fees and all other amounts payable to it hereunder and under the other Loan
Documents (including any Breakage Costs) from the assignee (to the extent of
such outstanding principal and accrued interest and fees) or Borrower (in the
case of all other amounts);
 
(C)       any such assignment is consistent with the requirements of Section
12.1;
 
(D)       such assignment does not conflict with applicable Law; and

 
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(E)       the proposed agreement, amendment, waiver, consent or release with
respect to this Agreement or any other Loan Document has been Approved by the
Administrative Agent and such agreement, amendment, waiver, consent or release
can be effected as a result of the assignment contemplated by this Section.
 
(b)       A Lender shall not be required to make any such assignment or
delegation if, prior thereto, as a result of a waiver by Borrower or otherwise,
the circumstances entitling Borrower to require such assignment and delegation
cease to apply.  Solely for purposes of effecting the assignment required for a
Defaulting Lender under this Section 11.20(a)(ii) and to the extent permitted
under applicable Law, each Lender hereby designates and appoints Administrative
Agent as true and lawful agent and attorney-in-fact, with full power and
authority, for and on behalf of and in the name of such Lender to execute,
acknowledge and deliver the assignment required hereunder if such Lender was a
Defaulting Lender and such Lender shall be bound thereby as fully and
effectively as if such Lender had personally executed, acknowledged and
delivered the same.  In lieu of Borrower or Administrative Agent replacing a
Defaulting Lender as provided in this Section 11.20, Borrower may terminate such
Defaulting Lender’s Percentage Share as provided herein.
 
ARTICLE XII
MISCELLANEOUS
 
Section 12.1       Assignment.
 
(a)        This Agreement is entered into for the benefit of Borrower and
Lenders and their respective successors and permitted assignees; it will be
binding upon and inure to the benefit of those parties and their respective
successors and permitted assignees.  Neither the rights nor the obligations of
Borrower or any other Obligor under any of the Loan Documents may be assigned
without the Consent of Administrative Agent.  Each Lender may, upon notice to
Borrower, assign any of such Lender’s rights and obligations under any of the
Loan Documents (i) to any Affiliate of such Lender at any time, or (ii) to any
other Person if an Event of Default exists.  If no Event of Default exists, each
Lender may assign any of its rights and obligations to any Person that is not an
Affiliate upon the prior written consent of Borrower, such consent not to be
unreasonably withheld, delayed or conditioned.
 
(b)       If any Lender makes an assignment pursuant to Section 12.1(a),
Borrower shall, at its expense, execute and deliver to such Lender and the
assignee such documents as such Lender may reasonably request in connection with
that transaction, including the issuance of one or more replacement Promissory
Notes.  In addition, any Person that owns or acquires an interest in the Loan
can (as long as Borrower’s rights and obligations hereunder are not adversely
affected) grant a Lien over that interest to its own lender(s) to secure any
Debt.

 
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Section 12.2       Notices.

(a)       Addresses for Notices.  Any notice, demand or document which either
party is required or may desire to give to the other will be in writing and,
except as otherwise provided in this Agreement, given by messenger, nationally
recognized courier, overnight delivery, facsimile or other electronic
transmission, or United States certified mail, postage prepaid, return receipt
requested, addressed to the recipient at the location shown below, or at any
other address as either party may furnish to the other by notice given in
accordance with this provision.
 
If to Administrative Agent, to:
 
Macquarie Bank Limited
Level 15, No. 1 Martin Place
Metals and Energy Capital
Sydney
New South Wales 2000
Australia
 
Attention:
Executive Director

 
Telephone:
+61 2 8232 3333

 
Facsimile:
+61 2 8232 3590

 
E-Mail:
katie.choi@macquarie.com

 
with a copy to:
 
Macquarie Bank Limited
Houston Representative Office
500 Dallas Street, Suite 3250
Houston, Texas  77002
 
Attention:
Michael Sextro

 
Telephone:
(713) 275-6207

 
Facsimile:
(713) 275-6222

 
E-Mail:
MECLoansHouston@macquarie.com

 
If to Borrower, to its principal place of business at:
 
American Standard Energy, Corp.
4800 N. Scottsdale Rd., Ste. 1400
Scottsdale, Arizona  85251
 
Attention:
Scott Mahoney

 
Telephone:
(480) 371-1929

 
Facsimile:
(480) 990-2732

 
E-Mail:
sm@asenergycorp.com

 
If a notice is to be sent to any other Obligor, it will be sent to Borrower and
to the address set forth in Loan Document to which that Obligor is a party.
 
(b)       Notice is Effective Upon Receipt.  Any notice delivered or made by
messenger, facsimile, electronic mail or United States mail will be deemed to be
given on the date of actual delivery as shown by messenger receipt, the sender’s
facsimile machine confirmation or other verifiable electronic receipt, or the
registry or certification receipt.
 
 
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(c)       Unintelligible E-Mail Messages.  Notwithstanding Section 12.2(b), if
either party receives from the other any message via electronic mail that
purports to be a notice under this Agreement but that contains information that
is syntactically incorrect, garbled or otherwise unintelligible, the recipient
will promptly (and in any event within one Business Day) notify the sender.  If
the recipient so notifies the sender, then the notice will not be deemed to be
given until it is successfully delivered (including redelivery by electronic
mail) pursuant to this Section 12.2.
 
(d)       When Oral Notice is Effective.  If Administrative Agent receives oral
notice from an Authorized Officer that an event or circumstance has occurred
that would constitute a Default under this Agreement, Administrative Agent is
conclusively entitled to rely on that notice from the date that it is received
and as if it had been given in writing pursuant to this Section 12.2.  If a
discrepancy exists or arises between that oral notice and any written
confirmation received by Administrative Agent from Borrower (or in the absence
of a written confirmation), the oral notice, as reasonably understood by
Administrative Agent, will be deemed the controlling notice for all purposes.
 
Section 12.3       Waivers; Amendments; Schedules.
 
(a)       No (i) restraint or delay by Administrative Agent in exercising any of
its rights or remedies under the Loan Documents (regardless of the length of
that delay), (ii) abandonment or suspension by Administrative Agent of any
efforts to assert or enforce any of those rights or remedies, or (iii) alleged
course of conduct or course of dealing between Administrative Agent, Lenders and
any other Person, will operate as a waiver or limitation of any of the rights
and remedies of Administrative Agent or Lenders under the Loan Documents.
 
(b)       No single or partial exercise by Administrative Agent or Lenders of
any right or remedy under the Loan Documents will preclude any other or further
exercise of the same—or any other—right or remedy of Administrative Agent or
Lenders under the Loan Documents.
 
(c)       No waiver by Administrative Agent or Lenders of any right or remedy
under the Loan Documents—nor any consent by Administrative Agent or Lenders to
Borrower’s non-compliance with any provision of the Loan Documents—will be
effective unless it is in writing and signed by Administrative Agent or Lenders,
as applicable.  Any written waiver or consent given by Administrative Agent or
Lenders will be effective only in the specific instance and for the specific
purpose for which it is given.  The making of an Advance will not constitute a
waiver of any Default, even if the Administrative Agent or Lenders had notice of
the Default at the time the Advance was made.

 
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(d)       Should any of the information or disclosures provided on any of the
Schedules originally attached hereto become outdated or incorrect in any
material respect, Borrower shall deliver to Administrative Agent within thirty
(30) days after the end of the month in which such change occurs, along with the
compliance certificate required under Section 4.3, such revisions or updates to
such Schedule(s) as may be necessary or appropriate to update or correct such
Schedule(s); provided that no such revisions or updates to any Schedule(s) shall
be deemed to have amended, modified or superseded such Schedule(s) as originally
attached hereto, or to have cured any breach of warranty or representation
resulting from the inaccuracy or incompleteness of any such Schedule(s), unless
and until Administrative Agent shall have Approved in writing such proposed
revisions or updates to such Schedule(s).  Without limiting the generality of
the foregoing or of Section 4.3, each representation and warranty contained in
this Agreement and the other Loan Documents shall be continuous in nature and
shall remain accurate, complete and not misleading in all material respects at
all times during the term of this Agreement, except for revisions or updates to
any Schedule(s) approved by Administrative Agent pursuant to the preceding
sentence and such changes in the circumstances of Borrower that are expressly
permitted under this Agreement.
 
Section 12.4       Confidentiality; Permitted Disclosures.
 
(a)       For as long as this Agreement is in effect and for twelve months
thereafter, unless disclosure is authorized under Section 12.4(b) or (c),
 
(i)       Borrower will keep confidential the Loan Documents and the terms and
conditions of the Loan extended to it by Lenders under this Agreement,
 
(ii)       Administrative Agent and Lenders will keep confidential all
agreements, documents, certificates, reports, and other information delivered to
it by Borrower under this Agreement.
 
(b)       Notwithstanding that Section 12.4(a) would otherwise require it to
maintain such information in confidence, either party may disclose confidential
information described in Section 12.4(a):
 
(i)       where the disclosure is required by Law but, to the extent practicable
and if the disclosing party can lawfully do so, it first gives prompt written
notice of the planned disclosure to the other party;
 
(ii)       if the information becomes known to the disclosing party through a
source that is not subject to a confidentiality obligation with respect to that
same information;
 
(iii)      in connection with any court or arbitration proceeding to enforce or
interpret any of the Loan Documents;
 
(iv)     to its attorneys, accountants, engineers and other advisors and
consultants if (A) the disclosure of the confidential information is reasonably
necessary to facilitate their representation of Borrower and (B) prior to
disclosure, the disclosing party makes the recipient aware of (and obtains, for
the express benefit of the party to whom the confidentiality obligation is owed,
the recipient’s agreement to comply with) the confidentiality obligations
imposed by this Section 12.4.

 
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(c)       In addition, and notwithstanding that Section 12.4(a) would otherwise
require it to maintain such information in confidence, Administrative Agent and
Lenders may disclose confidential information described in Section 12.4(a):
 
(i)       to create, perfect, maintain or continue any Lien in favor of
Administrative Agent, for the ratable benefit of each Lender or the Swap
Counterparty;
 
(ii)       in connection with the exercise of any right or remedy of
Administrative Agent under the Loan Documents or under any Law, including the
publication of notices related to any public or private foreclosure sale; or
 
(iii)     to potential lenders, participants, assignees and investment bankers
and their respective attorneys, accountants, engineers and other advisors and
consultants if (A) disclosure of the confidential information is reasonably
necessary to facilitate their representation of the disclosing party and (B)
prior to disclosure, the disclosing party makes the recipient aware of (and
obtains, for the express benefit of the party to whom the confidentiality
obligation is owed, the recipient’s agreement to comply with) the
confidentiality obligations imposed by this Section 12.4.
 
(d)       Neither party will issue (or allow the issuance of) any press release
or other public announcement relating to the Loan without the prior written
consent of the other party; but each of them may each publish a customary
“tombstone” announcement regarding the Loan.
 
(e)       This Section 12.4 supersedes any prior agreement between
Administrative Agent, Lenders and Borrower or any of its Affiliates regarding
the confidentiality of information described in Section 12.4(a)(ii).
 
Section 12.5       Form of Documents.  In all instances where this Agreement or
any other Loan Document requires Borrower to (or to Cause another Person to)
prepare, execute or deliver any document to Administrative Agent, the document
will be in form and substance satisfactory to Administrative Agent
 
Section 12.6       Third-Party Beneficiaries.  Except for the benefits expressly
transferred to a permitted assignee under Section 12.1, the benefits of this
Agreement will not inure to any Person other than Borrower, Administrative Agent
and Lenders.  None of the Loan Documents will be construed to create any rights,
claims or causes of action against Administrative Agent or Lenders or any of
their respective Related Parties by any Person other than Borrower,
notwithstanding anything contained in any Loan Document or any course of dealing
or course of conduct by any party or its representatives before or after signing
this Agreement.

 
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Section 12.7       Governing Law; Venue.

(a)       The Loan Documents (except to the extent any of the Security Documents
are deemed to be performable in another jurisdiction) and the transactions
contemplated by them are to be performed in the State of New York.  Except to
the extent the Laws of another jurisdiction are mandatorily applicable, all of
the Loan Documents and the transactions contemplated by them are to be governed
by, interpreted and construed under and enforced pursuant to the Laws of the
State of New York, regardless of that jurisdiction’s conflicts of laws
provisions.
 
(b)       The parties agree that any proceeding arising from or related to the
Loan Documents or the transactions contemplated by them will be brought
exclusively in the State and Federal courts located in New York County, New
York.  This choice of venue is intended by the parties to be (a) mandatory and
not permissive in nature and (b) preclude any party from commencing or
maintaining any proceeding against another party in any jurisdiction other than
the State and Federal courts located in New York County, New York if that
proceeding arises from or is related to the Loan Documents or the transactions
contemplated by them.  Each party irrevocably waives any right it may have to
assert the doctrine of forum non conveniens or similar doctrine or to object to
venue with respect to any proceeding commenced or maintained in accordance with
this Section 12.7(b).  Each party stipulates that the State and Federal courts
located in New York County, New York shall have in personam jurisdiction and
venue over each of them in connection with any proceeding arising out of or
related to the Loan Documents or the transactions contemplated by them.  Any
final judgment rendered against a party in any proceeding will be conclusive
with respect to the subject matter of that final judgment and may be enforced in
any jurisdiction in any manner provided by Law.
 
Section 12.8       Waiver of Jury Trial, Punitive Damages, Etc.  Borrower,
Administrative Agent and Lenders each:
 
(a)       knowingly, voluntarily, intentionally and irrevocably waive, to the
maximum extent not prohibited by Law, any right it may have to (i) a trial by
jury in any connection with any litigation arising from or related to the Loan,
the Loan Documents or any transaction contemplated by any of the Loan Documents,
whether before or after the Maturity Date, or (ii) claim or recover in any such
litigation any Special Damages;
 
(b)       represent and warrant to the other that the party making the
representation is not relying on any representation, understanding or suggestion
(whether express or implied) by the other party that the other party would not,
in the event of litigation, seek to enforce the waivers in Section 12.8(a); and
 
(c)       acknowledge that its waivers, representations and warranties in this
Section 12.8 constitute a material inducement to the other party to enter into
the transactions contemplated by this Agreement and the other Loan Documents.

 
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Section 12.9       Fees, Costs and Expenses.  Borrower will promptly (and, in
any event, within 30 days after the presentation of any invoice by
Administrative Agent) pay (a) all Related Costs, (b) all transfer, stamp,
mortgage, documentary or other similar Taxes, assessments or charges levied by
any Taxing Authority in connection with the Loan Documents or the transactions
contemplated by them, (c) all reasonable costs and expenses incurred by or on
behalf of Administrative Agent (including the reasonable fees, expenses and
disbursements of its attorneys and consultants) in connection with (i) preparing
the Loan Documents and any modifications to them, (ii) filing, recording and
registering any Security Documents, (iii) making Advances, (iv) administering
the Loan and monitoring Borrower’s compliance with the Loan Documents, (v)
enforcing Administrative Agent’s rights and remedies under the Loan Documents,
and (vi) investigating, prosecuting or defending any claim or alleged claim
arising under or in connection with the Loan Documents and the transactions
contemplated by them.
 
Section 12.10       Compliance with Usury Laws.
 
(a)       Administrative Agent, Lenders, Borrower and the other Obligors intend
to comply with all applicable usury Laws, whether existing on the date of this
Agreement or to be enacted in the future.  As such, and notwithstanding any
provision of any Loan Document, no Loan Document will be construed to require
the payment or permit the collection of interest in excess of the maximum amount
permitted by Law.
 
(b)       If ever the performance of any provision of any Loan Document will
resulting in the charging or collection of interest in excess of the maximum
amount permitted by Law, then the obligation to be fulfilled will, ipso facto,
be reduced to the allowable limit.  In addition, if Administrative Agent or
Lenders ever receive under any Loan Document anything of value as interest or
that is deemed to be interest under Law such the amount of interest received by
Administrative Agent or Lender would exceed the Highest Lawful Rate, then (i)
the amount that would otherwise constitute excessive interest will instead be
applied by Administrative Agent as a prepayment of the principal outstanding
under the Promissory Note or on account of any other Obligations, and (ii) if no
such principal amount or Obligations exists, then Administrative Agent or such
Lender will refund the excess amount to Borrower.
 
(c)       In determining whether or not the interest paid or payable under the
Loan Documents exceeds the Highest Lawful Rate, Borrower, Administrative Agent
and Lenders will, to the maximum extent permitted by Law, (i) characterize any
non principal payment as an expense, fee or premium rather than as interest,
(ii) exclude voluntary prepayments and the effects of them, (iii) amortize,
prorate, allocate and spread the total amount of interest actually paid
throughout the full term of the indebtedness so that the actual rate of interest
does not exceed the Highest Lawful Rate, and (iv) allocate interest between
portions of the Obligations so that no portion will bear interest at a rate
greater than that permitted by Law.
 
Section 12.11     Limited Power of Attorney.  Borrower grants to Administrative
Agent a power of attorney for the purpose of executing on behalf of Borrower,
whenever an Event of Default exists, documents related to the enforcement of
Administrative Agent’s rights and remedies under the Loan Documents, including
to the execution of any document to be filed with or approved by any
Governmental Authority in connection with a foreclosure on any of the
Collateral.  This power of attorney is a right coupled with an interest and will
be irrevocable for as long as any of the Obligations remain outstanding.

 
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Section 12.12     Severability.  If any provision of this Agreement is
determined by the final, non-appealable judgment of a court of competent
jurisdiction to be invalid, illegal or unenforceable, it will not impair,
invalidate or nullify the remainder of this Agreement.
 
Section 12.13     Defined Terms; Interpretation, Etc.
 
(a)        Defined Terms.  Capitalized terms used but not defined elsewhere in
this Agreement are defined in Appendix A.
 
(b)        Exhibits and Schedules.  All exhibits, appendices and schedules
attached to this Agreement are part of this Agreement for all purposes.
 
(c)        References to Documents.  Unless the context otherwise requires or
unless this Agreement otherwise provides, references in this Agreement to a
particular document also refer to and include all amendments and restatements of
that document.  The previous sentence will not, however, be construed to
authorize any amendment or restatement.
 
(d)        Exhibits and Schedules.  References in this Agreement to exhibits,
appendices, schedules, articles, sections, subsections and other subdivisions
refer to the exhibits, appendices, schedules, articles, sections, subsections
and other subdivisions of this Agreement unless this Agreement provides
otherwise.
 
(e)        Headings and Titles.  Headings and titles appearing throughout this
Agreement are for convenience only, do not constitute any part of the provisions
of this Agreement, and are to be disregarded when construing the terms and
conditions of this Agreement.
 
(f)        Interpretation.  The words “this Agreement,” “herein” and words of
similar import refer to this Agreement as a whole and not to any particular
subdivision unless the context otherwise requires; “this section,” “this
subsection” and similar phrases refer only to the sections or subsections of
this Agreement in which those phrases occur; the word “or” is not exclusive; the
word “including” (in its various forms) means “including without limitation;”
and the word “will” has the same meaning and effect as “shall.”  In determining
any time period, the word “from” means “from and including;” and the word “to”
means “to and including.”  Pronouns in masculine, feminine and neuter genders
include any other gender; words in the singular form include the plural and vice
versa.  Unless the context requires otherwise, references to any Person include
that Person’s successors and permitted assigns.
 
(g)        Knowledge.  Where any statement is made “to Borrower’s knowledge,” it
is made to the best of Borrower’s knowledge, after making due inquiry to those
Persons within Borrower’s organization and among Borrower’s consultants and
contractors who are best situated to have information bearing on the statement
made.

 
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(h)       Joint Drafting.  Borrower acknowledges that it and its legal counsel
have actively participated in the drafting and negotiation of the Loan Documents
and, as such, each of the Loan Documents will be construed as having been
jointly drafted by Borrower, Administrative Agent and Lenders.
 
(i)       Accounting Terms.  All accounting terms used herein shall be
interpreted, and all financial statements and certificates and reports as to
financial matters required to be delivered to Administrative Agent hereunder
shall be prepared, in accordance with GAAP applied on a basis consistent with
those used in the preparation of the latest financial statements furnished to
Administrative Agent hereunder.  All calculations made for the purposes of
determining compliance with this Agreement shall be made by application of GAAP
applied on a basis consistent with those used in the preparation of the annual
or quarterly financial statements furnished to Administrative Agent pursuant to
Section 4.2 most recently delivered prior to or concurrently with such
calculations (or, prior to the delivery of the first financial statements under
Section 4.2, used in the preparation of the financial statements delivered to
Administrative Agent prior to Closing).
 
Section 12.14     This Agreement Controls if Terms Conflict.  In the event of a
conflict between the terms of this Agreement and any other Loan Document, the
terms of this Agreement will control.
 
Section 12.15     Counterpart Execution.  This Agreement may be executed
simultaneously in one or more counterparts, each of which will be deemed an
original, but all of which together will constitute one and the same
instrument..  Delivery of an executed counterpart signature page of this
Agreement by facsimile or electronic transmission is as effective as executing
and delivering this Agreement in the presence of the other parties to this
Agreement.
 
Section 12.16     Acknowledgment of Exculpatory Provisions.  Borrower
acknowledges that it (a) has had the benefit of independent legal counsel of its
choosing in connection with the drafting and negotiation of the Loan Documents,
(b) has consulted (or had ample opportunity to consult) with its legal counsel
with respect to all of the Loan Documents prior to Closing, (c) has a duty to
read—and has in fact read—each of the Loan Documents prior to executing them at
Closing, (d) is fully informed and has notice of all of the terms and conditions
of the Loan Documents.  Borrower further acknowledges that the Loan Documents
obligate Borrower to assume liability for and indemnify Administrative Agent,
Lenders and other Persons against certain liabilities—including, in some
instances, liabilities that arise from the negligence of Administrative Agent,
Lenders and/or those other Persons.  Borrower agrees that it will not contest
the validity or enforceability of any exculpatory provision in this Agreement or
the other Loan Documents on the basis that it had no notice or knowledge of the
provision or that the provision is not “conspicuous.”
 
Section 12.17    Final Agreement.  The Loan Documents and the exhibits,
schedules and annexes attached to them constitute the final, entire agreement
among the parties and supersede all prior or contemporaneous proposals,
commitments, promises, agreements and understandings (in each instance, whether
oral or written) between the parties with respect to the subject matter of this
Agreement and the other Loan Documents, all of which are merged into and
replaced by the Loan Documents.

 
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The Loan Documents cannot be contradicted by evidence of any prior,
contemporaneous or subsequent oral agreement between the parties.
 
There are no unwritten oral agreements between the parties.
 
• Signatures Begin on the Following Page •
 
 
 

--------------------------------------------------------------------------------

 
 
IN WITNESS WHEREOF, the undersigned has caused this Agreement to be executed by
its duly authorized undersigned officer effective as of the date first written
above.
 
Borrower:
   
American Standard Energy, Corp.,
a Nevada corporation
   
By: 
/s/ Scott Feldhacker  
Scott Feldhacker, Chief Executive Officer
   
By: 
/s/ Scott Mahoney  
Scott Mahoney, Chief Financial Officer

Signature Page to Credit Agreement
 
 
 

--------------------------------------------------------------------------------

 
 
IN WITNESS WHEREOF, the undersigned has caused this Agreement to be executed by
its duly authorized undersigned representatives effective as of the date first
written above.
 
Administrative Agent and a Lender:
   
Macquarie Bank Limited,
a bank incorporated under the laws of Australia
   
By:
/s/ Katie Choi
Name:
Katie Choi 
Title:
Division Director     
By:
/s/ Robert McRobbie
Name:
Robert McRobbie 
Title:
Division Director, Legal Risk Management 

 
Signature Page to Credit Agreement
 
 
 

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Appendix A
 
Definitions
 
“Acceptable Bank” means:
 
(a)       a financial institution that has a rating for its long-term unsecured
and non credit-enhanced debt obligations of A or higher by Standard & Poor’s
Rating Services, A or higher by Fitch Ratings Ltd., or A-2 or higher by Moody’s
Investor Services Limited (an “’A’ Equivalent Rating”); or
 
(b)       any other financial institution Approved by Administrative Agent in
its reasonable discretion.
 
“Action” is defined in Section 3.10.
 
“Advance” means an advance of funds under the Loan.
 
“Advance Fee” is defined in Section 1.15(b).
 
“Advance Request” means a written request for an Advance substantially in the
form of Exhibit C together with all supporting documentation required by this
Agreement.
 
“AFE” means an authorization for expenditure representing an estimate of work to
be performed for a specific drilling, completion or other operation.
 
“Affiliate” means as to any Person (a) any other Person who directly or
indirectly controls, is under common control with, or is controlled by that
Person; (b) any director or officer of that Person or of any Person referred to
in clause (a); or (c) if any Person in clause (a) is an individual, any member
of her immediate family (including parents, spouse and children), any trust
whose principal beneficiary is the individual or one or more members of his
immediate family, and any Person who is controlled by any such family member or
trust.  As used in this definition, “control” (including, with its correlative
meanings, “controlled by” and “under common control with”) means possession,
directly or indirectly, of power to direct or cause the direction of management
or policies (whether through ownership of Equity Interests, by contract or
otherwise); but any Subsidiary of Borrower is an Affiliate of Borrower.  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 Loan Documents only, neither (x) MBL nor any of its Affiliates,
nor (y) any member of the XOG Group (nor any of their respective Affiliates if
the only connection to Borrower is through its affiliation with the XOG Group)
will be deemed to be an Affiliate of Borrower.
 
“Agreement” means this Credit Agreement and includes any amendment,
modification, supplement or restatement.
 
“Applicable Margin” means (a) with respect to a Revolving Loan, the margin set
forth at the appropriate intersection in the table below, based upon the
Borrowing Base Utilization and the type of Loan:

 
Appendix A - 1

--------------------------------------------------------------------------------

 
 
Borrowing Base
Utilization
 
LIBOR Loan
   
Base Rate Loan
 
≥.75
    3.25 %     2.25 %
≥.50 and <.75
    3.00 %     2.00 %
<.50
    2.75 %     1.75 %

 
and (b) with respect to a Term Loan seven and one-half percent (7.5%).
 
“Approval” and “Consent” mean, with respect to any consent or approval sought by
Borrower and given by Administrative Agent, the writings executed by
Administrative Agent that (a) authorize Borrower to take the action for which
the consent or approval is sought and (b) set forth the conditions, if any, upon
which the consent or approval is given by Administrative Agent.  “Approve” and
“Approved” have the correlative meaning.
 
“Approved Marketing Contract” is defined in Section 3.42.
 
“Authorized Officer” is defined in Section 4.3.
 
“Availability Termination Date” means (a) with respect to the Revolving Loan,
the Maturity Date and (b) with respect to the Term Loan [insert date that is
exactly 18 months after Closing].
 
“Bankruptcy Code” means Title 11 of the United States Code as amended from time
to time, and any successor statute and all rules and regulations promulgated
thereunder.
 
“Base Rate Loan” is defined in Section 1.8(c).
 
“Basic Documents” includes all agreements necessary or convenient to the
ownership and operation of the Properties, including all Leases; Operating
Agreements; Hydrocarbon purchase, sales, exchange, processing, gathering,
treatment, compression and transportation agreements; farm-out or farm-in
agreements; pooling or unitization agreements; joint venture, exploration,
limited or general partnership, dry hole, bottom hole, acreage contribution,
purchase and acquisition agreements; area of mutual interest agreements; salt
water disposal agreements; servicing contracts; and easements, surface leases,
permits, licenses, rights-of-way, servitudes, or other similar interests; in
each instance, to the extent it relates to the Properties or the Hydrocarbons
produced from the Properties.
 
“Board” is defined in Section 3.29 of this Agreement.
 
 
Appendix A - 2

--------------------------------------------------------------------------------

 
 
“Borrowing Base” means, subject to the Revolving Loan Maximum Commitment, the
loan amount for the Revolving Loan, as determined by Administrative Agent from
time to time in accordance with Section 1.2(b).
 
“Borrowing Base Deficiency” means, and occurs when, the amount by which the
outstanding principal amount of the Revolving Loan, together with accrued and
unpaid interest, exceeds the Borrowing Base in effect at such time, whether as
the result of a redetermination, a scheduled reduction, or otherwise.
 
“Borrowing Base Utilization” means at any time, an amount equal to the quotient
of (a) the aggregate principal amount of the Revolving Loan then outstanding,
divided by (b) the Borrowing Base then in effect.
 
“Borrower” is defined in the first paragraph of this Agreement.
 
“Borrower Sub-Account” is defined in Section 1.11(a).
 
“Breakage Costs” includes all costs, expenses and losses incurred by any Lender
that result from any prepayment of a LIBOR Loan on a day prior to the day on
which the applicable Interest Period ends (whether voluntary, mandatory,
automatic, by reason of acceleration, or otherwise), including any cost, expense
or loss arising from the liquidation or reemployment of funds obtained by such
Lender to maintain that Loan or from fees payable to terminate the deposits from
which those funds were obtained.
 
“Business Day” means (a) any day other than a day on which commercial banks are
authorized or required to close in New York, New York, or Sydney, Australia, and
(b) if such day relates to the making of any Advance by Lenders, the making of
any payment or prepayment by Borrower or the continuation of any Interest
Period, in each case with respect to a LIBOR Loan any day that is both (i) a
“Business Day” under the preceding clause (a) and (ii) a day on which dealings
in Dollar deposits are carried out in the London interbank market.
 
“Capital Leases” means all leases that have been, or should have been, in
accordance with GAAP, recorded as capital leases on the balance sheet of the
Person that is liable (whether contingent or otherwise) for the payment of rent
under those leases.
 
“Cash Equivalents” means at any time:
 
(a)       certificates of deposit, time deposits, Eurodollar time deposits or
overnight bank deposits maturing within one year after the relevant date of
calculation and issued by an Acceptable Bank;
 
(b)       any investment in marketable debt obligations issued or guaranteed by
the government of the United States of America (or any of its instrumentalities
or agencies having an equivalent credit rating) maturing within one year after
the relevant date of calculation and not convertible into or exchangeable for
any other security;

 
Appendix A - 3

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(c)       commercial paper that is not convertible into or exchangeable for any
other security and that (i) trades on a recognized market, (ii) matures within
one year after the relevant date of calculation, and (iii) has a credit rating
of either A-1 or higher by Standard & Poor’s Rating Services or F-1 or higher by
Fitch Ratings Ltd or P-1 or higher by Moody’s Investor Services Limited (an
“’A-1’ Equivalent Rating”), or, if no rating is available in respect of the
commercial paper, the issuer of which has, in respect of its long-term unsecured
and non-credit enhanced debt obligations, an equivalent rating;
 
(d)       any investment in money market funds that (i) have an ‘A-1’ Equivalent
Rating, (ii) invest substantially all of their assets in securities of the types
described in paragraphs (a)–(c), and (iii) can be converted into cash on not
more than 30 days notice.
 
“Cause” means, when any Person is obligated to cause another Person to take or
refrain from taking any action, (a) that such Person in fact causes its
Affiliates to take or refrain from taking the specified action, or (b) that such
Person uses all commercially reasonable efforts to cause any non-Affiliate to
take or refrain from taking the specified action, as applicable.
 
“CERCLA” means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended.
 
“Change of Control” means the occurrence of any event pursuant to which:
 
(a)       any Person who is not an Affiliate (either alone or jointly with any
other Person) acquires control of Borrower, or Borrower becomes a Subsidiary of
any such Person, or any such Person or group of Persons acting in concert to
gain direct or indirect control of Borrower succeeds in gaining direct or
indirect control of Borrower, in a transaction not approved by the Continuing
Directors or members, as applicable; for purposes of this definition, control
means:
 
(i)        the power (whether by way of ownership of shares, proxy, contract,
agency or otherwise) to:
 
(A)       cast, or control the casting of, more than thirty-five percent (35%)
of the maximum number of votes that might be cast at a general meeting of
Borrower, as applicable; or
 
(B)       appoint or remove all, or the majority, of the directors or other
equivalent officers of Borrower; or
 
(C)       give directions with respect to the operating and financial policies
of Borrower with which the directors or other equivalent officers of Borrower
are obliged to comply.
 
(ii)        the holding beneficially of more than thirty-five percent (35%) of
the issued share capital of; and
 
(iii)        “acting in concert” means, a group of Persons who, pursuant to an
agreement or understanding (whether formal or informal), actively co-operate,
through the acquisition of shares directly or indirectly in Borrower by any of
them, either directly or indirectly, to obtain or consolidate control of
Borrower;

 
Appendix A - 4

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(b)       Either Scott Feldhacker, Richard MacQueen or Scott Mahoney cease to be
materially involved in the management of the Borrower and the development of the
Properties or either resign or are removed as Chief Executive Officer,
President, and Chief Financial Officer, respectively, of Borrower and a
replacement reasonably acceptable to the Administrative Agent is not identified
to Administrative Agent within ninety (90) days of such removal or resignation
and is not employed by Borrower within an additional thirty (30) days after such
identification.
 
“Charter Documents” means, as applicable for any Person that is not an
individual, the articles or certificate of incorporation or formation, company
agreement, certificate of limited partnership, regulations, bylaws, partnership
or limited partnership agreement, and all similar documents related to the
formation and governance of that Person, together with all amendments to any of
those documents.
 
“Claims” is defined in Section 7.4.
 
“Closing” is defined in Section 8.1.
 
“Closing Date” is defined in Section 8.1.
 
“Collateral” means (a) the Pledged Interests and (b) all of the Properties.
 
“Commitment Fee” is defined in Section 1.15(a).
 
“Commitment Termination Date” means the earlier of (a) the Maturity Date and (b)
the termination in whole of Lenders’ commitments to provide the Loan hereunder
pursuant to Section 1.2(d).
 
“Community Bank Lien” means those Lien(s) in favor of Community National Bank,
as the successor in interest to BOKF, NA, doing business as Bank of Texas,
formerly known as Bank of Texas, N.A. (“Bank of Texas”), pursuant to an
Assignment of Notes, Liens and Security Interest dated January 31, 2011, and
that certain Deed of Trust, Mortgage, Security Agreement, Assignment of
Production and Financing Statement, executed by XOG Operating, LLC and Geronimo
Holding Corporation as grantors and arising out of the debt evidenced by that
certain Promissory Note dated January 31, 2011 having an original commitment
amount of $7,500,000.00 executed by XOG Operating, LLC and Geronimo Holding
Corporation.
 
“Continuation Notice” is defined in Section 1.8(e).
 
“Continuing Directors” means (a) any member of the board of directors who was a
director (or comparable manager) of Borrower on the Closing Date, and (b) any
individual who becomes a member of the board of directors after the Closing Date
if such individual was recommended, appointed or nominated for election to the
board of directors by a majority of the continuing directors, but excluding any
such individual originally proposed for election in opposition to the board of
directors in office at the Closing Date in an actual or threatened election
contest relating to the election of the directors (or comparable managers) of
Borrower and whose initial assumption of office resulted from such contest or
the settlement thereof.

 
Appendix A - 5

--------------------------------------------------------------------------------

 
 
“Contract Rate” means (a) with respect to a Term Loan, a rate per annum equal to
the lesser of (i) the LIBOR Rate plus the Applicable Margin, and (ii) the
Highest Lawful Rate, and (b) with respect to a Revolving Loan, a rate per annum
equal to (i) the lesser of (A) Prime Rate plus the Applicable Margin and (B) the
Highest Lawful Rate or (ii) the lesser of (A) the LIBOR Rate plus the Applicable
Margin, and (B) the Highest Lawful Rate, as selected by Borrower in the Advance
Request or in accordance with Section 1.8(c).
 
“COPAS” means the Accounting Procedures for Joint Operations Recommended by the
Council of Petroleum Accountants Societies, then in effect, with respect to
onshore or offshore operations, as applicable, and as applied to properties
located in the same geographical area as the Leases.
 
“Crude Oil” means all crude oil, condensate and other liquid hydrocarbon
substances.
 
“Curative Equity” is defined in Section 5.20(d).
 
“Current Assets” means on any date of determination, the consolidated current
assets that would, in accordance with GAAP, be classified as of that date as
current assets, including any amounts under the Loan which are committed
hereunder, but not yet funded by Lenders, less any non-cash amount required to
be included in current assets as the result of the application of GAAP,
including non-cash commodity and interest rate hedges assets and liabilities.
 
“Current Liabilities” means, on any date of determination, the consolidated
obligations that would, in accordance with GAAP, be classified as of that date
as current liabilities, excluding (a) non-cash obligations under GAAP including
non-cash commodity and interest rate hedges assets and liabilities, and (b) the
current portion of long-term Debt (including the long-term Debt arising under
this Agreement).
 
“Current Ratio” means, as of any date, the ratio of (i) Borrower’s Current
Assets to (ii) Borrower’s Current Liabilities on that date.
 
“Debt” means, for any Person, the sum of all of the following (without
duplication):
 
(a)       obligations for borrowed money or evidenced by bonds, bankers’
acceptances, debentures, notes or other similar instruments;
 
(b)       obligations (whether contingent or otherwise) in respect of letters of
credit, surety or other bonds and similar instruments;
 
(c)       obligations to pay for goods or services and other accounts payable,
including all accrued expenses, liabilities or other obligations to pay the
deferred purchase price of goods or services;
 
(d)       Capital Lease obligations that are required to be recorded as a
balance sheet liability under GAAP;
 
(e)       Synthetic Lease obligations;

 
Appendix A - 6

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(f)        obligations or undertakings to maintain (or cause another Person to
maintain) the financial position or covenants of another Person or to purchase
the Debt or property of another Person;
 
(g)       obligations to deliver any commodities, goods, or services in
consideration of one or more advance payments except for Natural Gas balancing
arrangements in the ordinary course of business;
 
(h)       Disqualified Capital Stock;
 
(i)        the undischarged balance of any production payment created by that
Person or pursuant to which that Person received any direct or indirect payment;
 
(j)       other obligations (including obligations of another Person) for which
that Person is or becomes directly or indirectly liable or that are or become
secured by any of the Collateral, even if that obligation is not considered to
be a liability of that Person under GAAP.
 
“Debt Coverage Ratio” means, as of the last day of any fiscal quarter, the ratio
of (i) Borrower’s Debt to (ii) Borrower’s EBITDA for the four (4) most recent
fiscal quarters occurring in whole or in part after Closing; provided that (x)
for the first fiscal quarter after the Closing Date, the Debt Coverage Ratio
will be calculated using Borrowers’ EBITDA for that first fiscal quarter
multiplied by four; (y) for the second fiscal quarter after the Closing Date,
the Debt Coverage Ratio will be calculated using Borrowers’ aggregate EBITDA for
those first two fiscal quarters multiplied by two; and (z) for the third fiscal
quarter after the Closing Date, the Debt Coverage Ratio will be calculated using
Borrowers’ aggregate EBITDA for those first three fiscal quarters multiplied by
one and one-third (1.33).
 
“Debtor Relief Laws” means the Bankruptcy Code and all other applicable
liquidation, conservatorship, bankruptcy, insolvency, rearrangement, moratorium,
reorganization, fraudulent transfer or conveyance or similar debtor relief laws
affecting the rights of creditors generally from time to time in effect.
 
“Default” means the occurrence of any event which, with the passing of time or
the giving of notice or both, will become an Event of Default.
 
“Default Rate” is defined in Section 1.8(a).
 
“Defaulting Lender” means any Lender that (a) has failed to fund any portion of
the Loan it is required to fund under this Agreement within one Business Day of
the date such funding is required, (b) has otherwise failed or notified Borrower
or Administrative Agent in writing or has made a public statement to the effect
that it does not intend or expect to pay over to Administrative Agent or any
other Lender any other amount required to be paid by it under this Agreement or
any other Loan Document within one Business Day of the date when due, or (c) has
become insolvent or become the subject of a bankruptcy or insolvency proceeding
under any Debtor Relief Law.
 

 
Appendix A - 7

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“Defensible Title” means, with respect to each Property, title that:
 
(a)       entitles the owner to receive (free and clear of all royalties,
overriding royalties and net profits interests or other burdens on or measured
by the production of Hydrocarbons, without regard to whether such interest
appears of record) not less than the Net Revenue Interest set forth on Exhibit A
(or in such other certificate or writing provided to Administrative Agent
representing the interests in the Properties, including any Mortgage) in all
Hydrocarbons produced, saved and marketed from the Property for the productive
life of the Property, free and clear of all Liens except (i) the Permitted
Encumbrances, and (ii) Liens in favor of Administrative Agent to secure the
Obligations; and
 
(b)       obligates the owner to bear costs and expenses relating to the
maintenance, development and operation of such Property in an amount not greater
than the Working Interest set forth on Exhibit A for the productive life of such
Property.
 
“Deposit Account Control Agreement” means Deposit Account Control Agreement(s)
among Borrower, Administrative Agent and the depository bank(s) in form and
substance reasonably acceptable to Administrative Agent and covering the deposit
accounts set forth in Schedule 3.43.
 
“Development Plan” means the comprehensive plan or plans in effect from time to
time with respect to the development of the Properties and any other
expenditures that have been Approved by Administrative Agent.  A Development
Plan shall provide for, among other things, the location, timing and estimated
costs of Wells to be drilled or recompleted as well as names of key personnel
known to Borrower to be required to undertake those operations and their
associated responsibilities.
 
“Disqualified Capital Stock” means any Equity Interest that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable) or upon the happening of any event (a) requires the issuer to make
any payments to the holder, (b) is redeemable for cash or other consideration,
or (c) is convertible or exchangeable into any other instrument except other
Equity Interests that are not also Disqualified Capital Stock, prior to the
first anniversary of the Maturity Date.
 
“EBITDA” means for Borrower for any period, the consolidated (a) net income, in
accordance with GAAP for such period plus (b) to the extent deducted in
determining net income for such period, interest expense, income Taxes, non-cash
stock-based compensation expense and non-cash depreciation and amortization
expense for such period, minus (c) non-cash mark-to-market unrealized income and
plus (d) non-cash mark-to-market unrealized expense added to net income for such
period.  EBITDA shall be calculated without including non-cash market-to-market
adjustments arising from the application of FASB Statement 133 or FASB Statement
143 (or any successor GAAP which serves to amend, supplement or replace FASB
Statements 133 and 143).
 
“Employee Plan” means an employee pension benefit plan covered by Title IV of
ERISA.

 
Appendix A - 8

--------------------------------------------------------------------------------

 
 
“Engineers” means an independent reservoir petroleum engineering firm selected
by Borrower and Approved by Administrative Agent, such approval not to be
unreasonably withheld or delayed.
 
“EHS Regulations” means all applicable federal, state or local Laws with respect
to any environmental, pollution, toxic or hazardous waste or health and safety
law, including those promulgated by the United States Environmental Protection
Agency, the Federal Energy Regulatory Commission, the Department of Energy, the
Occupational Safety and Health Administration, the Department of the Interior,
or any other Governmental Authority, or any of their predecessor or successor
agencies.
 
“Environmental Laws” shall mean any and all Laws and EHS Regulations pertaining
to health or the environment in effect in any and all jurisdictions in which
Borrower is conducting or at any time has conducted business, or where any
Property is located, including, the OPA, CERCLA, RCRA, 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 Act, as amended, and other environmental conservation or
protection laws.  The term “oil” shall have the meaning specified in OPA, the
terms “hazardous substance” and “release” (or “threatened release”) have the
meanings specified in CERCLA, and the terms “solid waste” and “disposal” (or
“disposed”) have the meanings specified in RCRA; but (a) in the event either
OPA, CERCLA or RCRA is amended so as to broaden the meaning of any term defined
thereby, such broader meaning shall apply subsequent to the effective date of
such amendment and (b) to the extent the laws of the state in which any Property
is located establish a meaning for “oil,” “hazardous substance,” “release,”
“solid waste” or “disposal” which is broader than that specified in either OPA,
CERCLA or RCRA, such broader meaning shall apply to those issues covered by the
applicable state laws.
 
“Equipment” has the meaning given to it in the UCC and includes all surface or
subsurface machinery, goods, equipment, fixtures, facilities, supplies or other
personal or moveable property of any kind (excluding property rented by Borrower
or taken to the premises for temporary uses) now owned or later acquired by
Borrower that are at any time located on or under any of the lands attributable
to the Properties and that are used in connection with the production,
gathering, treatment, processing, storage or transportation of Hydrocarbons and
whether or not attributable to the Properties, including (a) all Wells, casing,
tubing, tubular goods, rods, pumping units and engines, Christmas trees,
platforms, derricks, separators, compressors, gun barrels, flow lines, water
injection lines, tanks, gas systems (for gathering, treating and compression),
pipelines (including gathering lines, laterals and trunklines), chemicals,
solutions, water systems (for treating, disposal and injection), power plants,
poles, lines, transformers, starters and controllers, machine shops, tools,
storage yards and equipment stored therein, telegraph, telephone and other
communication systems, loading docks, loading racks, shipping facilities,
platforms, well equipment, wellhead valves, meters, motors, pumps, tankage,
regulators, furniture, fixtures, automotive equipment, forklifts, storage and
handling equipment, (b) all accessions, additions, attachments, replacements,
accessories and parts, (c) all manuals, blueprints, documentation, warranties
and other similar rights against suppliers, manufacturers and other Persons, and
(d) to the extent not prohibited by written agreement between Borrower and any
other Person, all seismic data, geological data and geophysical data and all
analyses and interpretations of any of them.

 
Appendix A - 9

--------------------------------------------------------------------------------

 
 
“Equity Equivalents” means any rights, warrants, options, convertible
securities, exchangeable securities, indebtedness or other rights issued by a
Person that are exercisable for or convertible or exchangeable into, directly or
indirectly, Equity Interests of that Person, even if the right to exercise,
convert or exchange is conditioned upon the passage of time or the occurrence of
some future event.
 
“Equity Interests” means shares of capital stock, partnership interests,
membership interests in a limited liability company, beneficial interests in a
trust or other equity ownership interests in a Person, and any Equity
Equivalents of that Person.
 
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended,
and related rules and regulations.
 
“Event of Default” is defined in Section 9.1.
 
“Excluded Taxes” means, with respect to Administrative Agent or any Lender:
(a)  income, branch profits or franchise Taxes imposed on (or measured by) net
income and any similar Tax imposed on it in lieu of net income, net worth Taxes,
capital Taxes, Taxes on Loans or liabilities or any similar Taxes, in each case
by any jurisdiction, or as a result of a present or former connection between
such Borrower and the jurisdiction imposing such Tax or any political
subdivision or taxing authority thereof (other than any such connection arising
solely from such recipient having executed, delivered or performed its
obligations or received any payment under, or enforced, this Agreement or any
other Loan Document), (b) any U.S. Federal withholding Taxes resulting from any
law in effect on the date such Lender or Administrative Agent becomes a party to
this Agreement (or designates a new lending office) or is attributable to such
Lender or Administrative Agent’s failure to comply with Section 1.17(d), except
to the extent that such Lender or Administrative agent (or its assignor, if any)
was entitled, at the time of designation of a new lending office (or
assignment), to receive additional amounts from the Borrower with respect to
such withholding Taxes pursuant to Section 1.17(d), (c) any Taxes payable under
FATCA, and (d) all related interest, penalties, fines and additions to tax now
or hereafter imposed under clauses (a) and (b).
 
“Facility Termination Date” means the earliest of (i) the Maturity Date, (ii)
the date on which all of Obligations under the Loan Documents are Indefeasibly
paid in full in cash (other than indemnity obligations and similar obligations
that survive the termination of this Agreement) and Lenders have no further
obligation to make any Advance, or (iii) the date on which Administrative Agent
notifies Borrower of the acceleration of Obligations under this Agreement
following an Event of Default.
 
“FATCA” means Sections 1471 through 1474 of the Internal Revenue Code of 1986,
as amended, as of the date of this Agreement and any regulations or official
interpretations thereof.
 
“Financial Accounting Standards Board” or “FASB” means the board by this name
(or its successor) recognized by the United States Securities and Exchange
Commission.
 
“First Reserve Report Date” means December 31, 2011.
 
“G&A Budget” is defined in Section 4.16.

 
Appendix A - 10

--------------------------------------------------------------------------------

 
 
“G&A Expenses” means the actual general and administrative expenses of Borrower
(or of Parent if attributable directly to Borrower) including capitalized
general and administrative expenses, calculated in accordance with GAAP,
(excluding all non-cash charges and performance-based compensation pursuant to a
plan Approved by Administrative Agent).
 
“GAAP” means generally accepted accounting principles recognized as such by the
FASB consistently applied and maintained throughout the period indicated and
consistent with all Laws, except for changes mandated by the FASB or any similar
accounting authority of comparable standing.  If a change in any accounting
principle or practice is required by FASB in order for that principle or
practice to continue as a generally accepted principle or practice, all
financial reports or statements required under this Agreement may be prepared in
accordance with that change, but all calculations and determinations to be made
under this Agreement may be made in accordance with that change only if Borrower
and Administrative Agent agree to do so.  Accounting terms used but not defined
in this Agreement have the meanings given to them by GAAP.
 
“Governmental Authority” means the government of the United States of America,
any other nation or any political subdivision thereof, whether state, local or
tribal, and any agency, authority, instrumentality, regulatory body, court,
central bank or other entity exercising executive, legislative, judicial,
taxing, regulatory or administrative powers, jurisdiction or functions of or
pertaining to government over Borrower or any other Obligor, the Properties,
Administrative Agent, Lenders or any of their respective Affiliates.
 
“Guaranty” means an unconditional guaranty from Parent in favor of
Administrative Agent and substantially in the form of Exhibit J.
 
“Hazardous Materials” means and include (i) all elements or compounds that are
contained in the list of hazardous substances adopted by the United States
Environmental Protection Agency and the list of toxic pollutants designated by
the United States Congress or the Environmental Protection Agency or under any
Hazardous Substance Laws (as hereinafter defined), and (ii) any “hazardous
waste,” “hazardous substance,” “toxic substance,” “regulated substance,”
“pollutant” or “contaminant” as defined under any Hazardous Substance Laws.
 
“Hazardous Substance Laws” means CERCLA, RCRA, the Federal Water Pollution
Control Act, as amended, 33 U.S.C. 1251 et seq., the Toxic Substances Control
Act, 15 U.S.C. 2601 et seq., the Hazardous Liquid Pipeline Safety Act of 1979,
as amended, 40 U.S.C. 2001 et seq., the Federal Insecticide, Fungicide, and
Rodenticide Act, 7 U.S.C. 136 et seq., the Federal Clean Air Act, 42 U.S.C. 7401
et seq., any so called federal, state or local “superfund” or “super lien”
statute, and any other applicable federal, state or local law, rule, regulation
or ordinance related to the remediation, clean up or reporting of environmental
pollution or contamination or imposing liability (including strict liability) or
standards of conduct concerning any Hazardous Materials.

 
Appendix A - 11

--------------------------------------------------------------------------------

 
 
“Hedging Agreement” means:

(a)       all rate swap transactions, basis swaps, credit derivative
transactions, forward rate transactions, commodity swaps, commodity options,
forward commodity contracts, equity or equity index options, swaps or options,
bond or bond price or bond index swaps or options or forward bond or forward
bond price or forward bond index transactions, interest rate options, forward
foreign exchange transactions, cap transactions, floor transactions, collar
transactions, currency swap transactions, cross-currency rate swap transactions,
currency options, spot contracts or any other similar transactions (including
any option to enter into any of the foregoing), whether or not the transaction
is governed by a Master Agreement (as defined in paragraph (b)), and including
the Swap Agreement; and
 
(b)       all transactions and related confirmations that are governed by or are
subject to the terms and conditions of any form of master agreement published by
the International Swaps and Derivatives Association, Inc. or any International
Foreign Exchange Master Agreement (each, with its schedules, being a “Master
Agreement”).
 
“Highest Lawful Rate” means the maximum non-usurious interest rate, if any, that
any Lender is allowed by any current or future Law to contract for, take,
reserve, charge or receive in respect of the Obligations.
 
“Hydrocarbons” means all Crude Oil and Natural Gas.
 
“Implementation Documents” is defined in Section 7.1(a)
 
“Indefeasibly” means, with respect to the repayment of Borrower’s monetary
Obligations, receipt by Administrative Agent of immediately available funds
equal to the total monetary Obligations then outstanding, without prejudice to
any right that Administrative Agent or any Lender may at any time have to seek
to reassert or reinstate any Lien following the defeasance, disgorgement or
forfeiture of any amount received by Administrative Agent or any Lender in
respect of the Obligations.
 
“Indemnified Party” is defined in Section 7.4(a).
 
“Indemnitee” is defined in Section 7.4.
 
“Interest Coverage Ratio” means, as of any date, the ratio of (a) Borrower’s
EBITDA for the period which is the lesser of (i) the actual number of fiscal
quarters which has or have elapsed since the Closing Date and (ii) the four (4)
most recent fiscal quarters to (b) Borrower’s aggregate interest expense for all
Debt (including Debt under this Agreement) for the same period.
 
“Interest Period” means:
 
(a)       with respect to a Base Rate Loan, the period commencing on the date of
the Advance and ending on the last Business Day of the month in which the
Advance is made; and
 
(b)       with respect to a LIBOR Loan, the period commencing on the date of the
Advance and ending on the date that is 30, 60, or 90 days thereafter, as
selected by Borrower in a Selection Notice; provided, that

 
Appendix A - 12

--------------------------------------------------------------------------------

 
 
(x)       any Interest Period that would otherwise expire on a day that is not a
Business Day will be extended to the next succeeding Business Day unless that
next Business Day falls in another calendar month, in which case the expiring
Interest Period will end on the last Business Day of the month of expiry;

(y)       any Interest Period that begins on the last Business Day of a calendar
month (or on a day for which there is no numerically corresponding day in the
expiry month) will end on the last Business Day of the month of expiry; and

(z)        no Interest Period will extend beyond the Maturity Date.

“Investment” means, with respect to any Person: (a) the acquisition of (or
agreement to acquire) any Equity Interests in another Person (including any
“short sale” or sale of any securities when those securities are not owned by
the Person entering into the short sale); (b) the making of any deposit with
another Person (but excluding amounts collected in the Project Account); (c) the
making of any advance, loan or other extension of credit to another Person
(including the purchase of property from that other Person with an understanding
or agreement, contingent or otherwise, to resell the property to that Person
(but excluding any advance, loan or extension of credit with a term not
exceeding 90 days and arising in connection with the sale of Hydrocarbons,
inventory or supplies in the ordinary course of business); or (d) agreeing to
guaranty, provide collateral or incur any other contingent obligation in respect
of a Debt of another Person.
 
“Law” means any current or future law, statute, code, ordinance, order,
determination, rule, regulation, judgment, decree, injunction, franchise,
permit, certificate, license, authorization or other directive or requirement
enacted, promulgated, adopted or imposed by any Governmental Authority.
 
“Lease” or “Leases” means, whether one or more, (i) the oil and gas leases,
mineral estates and other mineral rights and interests described on Exhibit A,
and any other interests in the Leases or any other lease of real property,
whether now owned or later acquired, and (ii) all other oil, gas and/or mineral
leases or other interests pertaining to the Properties, whether now owned or
later acquired, and that are at any time made subject to a Lien in favor of
Administrative Agent, together with all extensions, renewals, replacements,
corrections, modifications, elections or amendments to any of them.
 
“Lenders” means the Persons listed on Appendix B, any Person that shall have
become a party hereto pursuant to Section 12.1, other than any such Person that
ceases to be a party hereto pursuant to Section 12.1.
 
“LIBOR Loan” is defined in Section 1.8(c).

 
Appendix A - 13

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“LIBOR Rate” means, in respect of an Interest Period and the Advance related
thereto:
 
(a)       if not less than two rates are displayed on Reuters page “LIBO” at or
around 11:00 a.m. (London time) on the second Business Day before the first day
of the period for USD loans over the period which is closest to that period, the
arithmetic mean (expressed as a rate per cent per annum and rounded up to five
decimal places) of not less than two of those rates selected by Administrative
Agent; or
 
(b)       if less than two (2) rates for USD loans over that period are
displayed on Reuters page “LIBO” at or around that time, the arithmetic mean
(expressed as a rate per cent per annum and rounded up to five decimal places)
of the offer rates quoted to Administrative Agent by not less than two banks
which ordinarily display rates on Reuters page “LIBO” on application by
Administrative Agent for USD loans equal to that amount over the period equal to
that period; or
 
(c)       if Administrative Agent is unable to determine a rate under paragraph
(a) or (b) because an insufficient number of rates are displayed (in the case of
paragraph (a)) or Administrative Agent is unable to obtain the necessary number
of quotes (in the case of paragraph (b)), the rate (expressed as a rate per cent
per annum and rounded up to five decimal places) specified in good faith by
Administrative Agent at or around that time having regard, to the extent
possible, to the offer rates otherwise quoted to Administrative Agent for USD
loans equal to that amount over the period equal to that period at or around
that time.
 
“Lien” means any interest in real or personal property to secure an obligation
owed to, or a claim by, a Person other than the owner of the property, whether
that interest is based on the common law, statute or contract, and whether that
obligation or claim is fixed or contingent, including (a) a lien or security
interest arising from a mortgage, encumbrance, pledge, security agreement,
conditional sale or trust receipt, or a lease, consignment or bailment for
security purposes, (b) production payments and the like payable out of
Hydrocarbons produced from any oil and gas properties, and (c) easements,
servitudes, restrictions, permits, conditions, covenants, exceptions or
reservations. For purposes of this Agreement, Borrower shall be deemed to be the
owner (to the extent of its interest therein) of any real or personal property
that it has acquired or holds subject to a conditional sale agreement, or leases
under a financing lease or other arrangement pursuant to which title to the
property has been retained by or vested in some other Person in a transaction
intended to create a financing.
 
“Loan” means the Revolving Loan and the Term Loan, each as applicable.
 
“Loan Documents” means this Agreement, the Promissory Note, the Security
Documents, the Guaranty, the Swap Agreement, the Warrants and all other
agreements, certificates, documents, instruments and writings delivered at any
time under or in connection any of those documents (but excluding all term
sheets, commitment letters, correspondence and similar documents used in the
negotiation of the Loan facility except to the extent those documents contain
information about Borrower or its Affiliates, properties, business or
prospects).
 
“Market Disruption Notice” is defined in Section 1.8(g).

 
Appendix A - 14

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“Material Adverse Effect” means any event or circumstance:
 
(a)       that has a materially adverse effect on:
 
(i)       the business, assets, liabilities or condition (financial or
otherwise) of Borrower; or
 
(ii)       the ability of Borrower to pay and perform its obligations as
required under the Loan Documents; or
 
(b)       that could reasonably be expected to result in any Security Document
not providing to Administrative Agent the Liens and/or security interests in the
assets expressed to be secured under that Security Document.
 
“Material Changes” is defined in Section 11.19.
 
“Maturity Date” means (a) with respect to the Term Loan, September 21, 2014, and
(b) with respect to the Revolving Loan, September 21, 2015.
 
“Maximum Commitment” means the sum of the Term Loan Maximum Commitment and the
Revolving Loan Maximum Commitment.
 
“MBL” is defined in the first paragraph of this Agreement.
 
“Monthly Reporting Package” is defined in Section 4.1.
 
“Mortgage” means a mortgage, deed of trust, assignment of production, security
agreement and financing statement substantially in the form of Exhibit I and
granting a first and prior Lien in a Property to Administrative Agent subject
only to the Permitted Encumbrances.
 
“Natural Gas” means all natural gas, and any natural gas liquids and all
products recovered in the processing of natural gas (other than condensate)
including natural gasoline, casinghead gas, iso butane, normal butane, propane
and ethane (including such methane allowable in commercial ethane) produced from
or attributable to the Properties.
 
“Net Revenue Interest” means, with respect to any Property, the decimal or
percentage share of Hydrocarbons produced and saved from or allocable to that
Property, after deduction of Royalty Interests and other burdens on or paid out
of such production.
 
“NYMEX” means the New York Mercantile Exchange.
 
“Obligations” include all loans and advances (including the Loan), debts,
liabilities, obligations, covenants, duties and amounts owing or to be owing by
Borrower or any other Obligor to Administrative Agent, Lenders or their
respective Affiliates, including any Swap Counterparty, of any kind or nature,
present or future, whether or not evidenced by any note, guaranty, letter of
credit or other instrument, arising directly or indirectly, under the Loan
Documents (including the Swap Agreement), and all renewals, extensions and/or
rearrangements of any of the foregoing.  The term “Obligations” also includes
all interest, reasonable and documented charges, expenses, fees of attorneys and
consultants and other sums payable by Borrower, or any other Obligor under the
Loan Documents and all Related Costs.  But, for purposes of the definition of
“Obligations” only, Loan Documents do not include the Warrants

 
Appendix A - 15

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“Obligor” means Borrower and any other Person who is or becomes an obligor with
respect to any portion of the Obligations.
 
“OPA” means the Oil Pollution Act of 1990, as amended.
 
“Operating Agreement” means (a) any joint operating agreements covering or
relating to any one or more of the Properties and set forth on Schedule 3.34,
(b) any other joint operating agreement covering or relating to any one or more
of the Properties executed or adopted by Borrower with Administrative Agent’s
Consent after the date of this Agreement, and (c) any joint operating agreements
covering or relating to any Properties acquired by Borrower after the date
of  this Agreement and which exist before Borrower’s acquisition of the
Property.
 
“Operator” means, with respect to the Properties, Borrower and any other
operators, including contract operators, of the Properties, in each case
Approved by Administrative Agent but such Approval is required only for those
Properties where Borrower or any of its Affiliates is the operator or has the
legal right to control the selection of the operator..  The Operators of each of
the Properties as of the date of this Agreement are identified on Schedule 3.34.
 
“Other Taxes” is defined in Section 1.17(b).
 
“Parent” means American Standard Energy Corp., a Delaware corporation.
 
“Percentage Share” means, with respect to any Lender, the percentage of the
total commitments represented by such Lender’s commitment as such percentage is
set forth on Appendix B, as modified from time to time to reflect assignments
permitted by Section 12.1.
 
“Permit” means any permit, license, approval and similar authorization given by
or required from any Governmental Authority or other Person.
 
“Permitted Encumbrances” means (a) Liens for property Taxes and assessments or
governmental charges or levies that are either not yet due or, if past due, are
being contested in good faith by appropriate action promptly initiated and
diligently conducted and for which adequate reserves are maintained in
accordance with GAAP; (b) Liens on cash and Cash Equivalents securing the
performance of bids, tenders, trade or government contracts, leases (other than
Capital Leases) or licenses or to secure statutory obligations, surety,
performance or appeal bonds, letters of credit or other similar Liens incurred
in the ordinary course of business and not in connection with the borrowing of
money or the acquisition of property other than oil and gas properties or as
permitted by clause (e) herein; (c) Liens arising as a matter of Law (other than
a Lien imposed by ERISA) in the ordinary course of business or incidental to the
ownership of Properties (including Liens under worker’s compensation, social
security, unemployment insurance and other similar Laws, Liens in favor of
carriers, mechanics, builders, suppliers, materialmen, repairmen, vendors,
warehousemen, architects, attorneys, and Liens arising under an Operating
Agreement in favor of operators and non-operators) to secure for sums that are
either not yet due or, if past due, are being contested in good faith by
appropriate action promptly initiated and diligently conducted and for which
adequate reserves are maintained in accordance with GAAP; (d) survey exceptions,
encroachments, easements, reservations, rights of others for rights-of-way,
servitudes, utilities and other similar purposes, zoning or other restrictions
as to the use of real properties, and other issues relating to the
merchantability of title or any statement of fact that an accurate survey would
disclose that could not reasonably be expected to have a Material Adverse
Effect; (e) purchase money Liens against specific Equipment securing Debt
expressly authorized by this Agreement or incurred with the Consent of
Administrative Agent; (f) judgment and attachment liens not giving rise to an
Event of Default (g) Liens arising under any Lease to secure the payment of
royalties due under that agreement or related to the right of a Royalty Interest
owner to take in kind; (h) Liens arising in favor of Administrative Agent under
any Loan Document; and (i) liens granted with the Consent of Administrative
Agent.

 
Appendix A - 16

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“Person” means an individual, corporation, partnership, limited liability
company, joint venture, trust or unincorporated organization, joint stock
company or other similar organization, Governmental Authority or any other legal
entity, whether acting in an individual, fiduciary or other capacity.
 
“Personal Property” means all personal property of every kind, whether now owned
or later acquired, including all goods (including Equipment), documents,
accounts, chattel paper (whether tangible or electronic), money, deposit
accounts, letters of credit and letter-of-credit rights (without regard to
whether the letter of credit is evidenced by a writing), documents, securities
and all other investment property, supporting obligations, any other contract
rights (including all rights in transportation agreements, processing
agreements, delivery agreements and seismic agreements) or rights to the payment
of money, insurance claims and proceeds, all general intangibles (including all
payment intangibles and rights to seismic and other geophysical data) and all
permits, licenses, books and records.
 
“Pledge Agreement” means a pledge agreement substantially in the form of Exhibit
K pursuant to which Pledgors, whether one or more, grant to Administrative
Agent, for the ratable benefit of Lenders, a first-priority security interest in
100% of the Equity Interests in Borrower.
 
“Pledged Interests” is defined in Section 2.6.
 
“Pledgor” means any Person that executes a Pledge Agreement.
 
“Post-Closing Governmental Consents” is defined in Section 3.4(d).
 
“Prime Rate” with respect to any Interest Period, the greater of (i) the prime
rate of interest specified by the Wall Street Journal and (ii) the Federal Funds
Rate plus 0.055 per annum, in each case, from time to time as and when that rate
changes.  The Prime Rate is a reference rate and does not necessarily represent
the lowest or best rate actually available.
 
“Production Volumes” means, with respect to any or all of the Properties, the
product of Borrower’s Net Revenue Interest multiplied by the gross volume of
Hydrocarbons produced and saved from those Properties.

 
Appendix A - 17

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“Project Account” is defined in Section 1.10(a).
 
“Promissory Note” means a promissory note substantially in the form of Exhibit B
executed by Borrower and payable to each Lender (including its successors its
permitted assignees), together with all renewals, extensions, increases and
rearrangements.
 
“Property” or “Properties” means all real property and Personal Property of
Borrower, including the Leases and Wells described on Exhibit A.  For the
purposes of this Agreement, Borrower will be deemed to be the owner of any
Property which it has acquired or holds subject to a conditional sale agreement,
or leases under a financing lease or other arrangement pursuant to which title
to the Property has been retained by or vested in some other Person in a
transaction intended to create a financing.
 
“Proved Developed Non-Producing Present Value” or “PDNP Present Value” means the
present value (discounted at ten percent (10%)) of future net revenues
attributable to all PDNP Reserves from the Properties calculated based on a
Reserve Report.
 
“Proved Developed Producing Present Value” or “PDP Present Value” means the
present value (discounted at ten percent (10%)) of future net revenues
attributable to all PDP Reserves from the Properties calculated based on a
Reserve Report.  A percentage (as determined by Administrative Agent in its sole
and absolute discretion) of the PDNP Present Value for drilled Wells that have
not yet been connected to enable sales will be added to PDP Present Value.
 
“Proved Reserves” has the meaning given to that term in the definitions
promulgated by the Society of Petroleum Evaluation Engineers and the World
Petroleum Congress (the “SPE/WPC Definitions”) in effect from time to time;
“Proved Developed Producing Reserves” or “PDP Reserves” means Proved Reserves
which are categorized as both “Developed” and “Producing” in the SPE/WPC
Definitions; “Proved Developed Non Producing Reserves” or “PDNP Reserves” means
Proved Reserves which are categorized as both “Developed” and “Non Producing” in
the SPE/WPC Definitions; and “Proved Undeveloped Reserves” or “PUD Reserves”
means Proved Reserves which are categorized as “Undeveloped” in the SPE/WPC
Definitions.
 
“Proved Undeveloped Present Value” or “PUD Present Value” means the present
value (discounted at ten percent (10%)) of future net revenues attributable to
all PUD Reserves from the Properties calculated based on a Reserve Report.
 
“Prudent Operator” means, with respect to the Operator, a reasonable, prudent
operator experienced in the exploration and production of Hydrocarbons and who
is, at the time of any specific determination, situated similarly to Borrower or
Operator, as applicable, in all material respects, and with respect to Borrower
where it is not the Operator of the Property at issue, a reasonably prudent
owner of a working interest using commercially reasonable judgment who is, at
the time, situated similarly to Borrower in all material respects.
 
“Purchasers” means all Persons, including those parties listed on Exhibit D or
otherwise Approved by Administrative Agent (such approval or disapproval not to
be unreasonably delayed), who purchase Hydrocarbons attributable or allocable to
Borrower’s Net Revenue Interest in the Properties.

 
Appendix A - 18

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“RCRA” means the Resource Conservation and Recovery Act of 1976, as amended.
 
“Refinanced Debt” is defined in Section 6.1(l).
 
“Related Costs” means the reasonable and documented fees and out-of-pocket
expenses of counsel for Administrative Agent, Lenders and consultants for
Administrative Agent and Lenders and such other reasonable and documented out of
pocket, third-party expenses incurred by Administrative Agent and Lenders in
connection with the due diligence, negotiation and preparation of documents
relating to the Loan and execution, delivery and filing and/or recording of the
Loan Documents together with any amendments, supplements or modifications
thereto or administration or enforcement thereof.
 
“Related Parties” means, with respect to any Person, each of its Affiliates and
their respective directors, officers, employees, agents and advisors (including
attorneys, accountants and other consultants and advisors) of that Person and
its Affiliates.
 
“Release” means Hazardous Materials that are pumped, spilled, leaked, disposed
of, emptied, discharged or otherwise released into the environment in violation
of any Law.
 
“Remedial Work” is defined in Section 5.3.
 
“Reported Month” is defined in Section 4.1.
 
“Reported Quarter” is defined in Section 4.2(a).
 
“Required Lenders” means, when determined, Lenders holding at least a majority
of the Total Committed Obligations; provided that the holdings of any Defaulting
Lender shall be excluded in the determination of Required Lenders for purposes
of this definition.
 
“Reserve Report” is defined in Section 4.5.
 
“Revolving Loan” is defined in Section 1.1(a).
 
“Revolving Loan Maximum Commitment” is defined in Section 1.1(a).
 
“Royalty Interest” means (a) an expense-free interest in any Property retained
by a mineral lessor in a Lease, (b) an overriding royalty in any Property
reserved by or conveyed to a Person, or (c) any other expense-free right to
receive production or revenues from any Property.
 
“Security Agreements” means collectively, the Security Agreements, the Pledge
Agreement(s) and any other security agreement substantially in the form of
Exhibit E and pursuant to which any Person, as debtor, grants to Administrative
Agent, as secured party, a first-priority security interest in the collateral
described in that agreement.
 
“Security Documents” means this Agreement, the Mortgages, the Security
Agreements, the Subordination Agreements, the Deposit Account Control Agreements
and any other agreement pursuant to which any Person grants to Administrative
Agent a Lien in, on or over any collateral to secure the Obligations, but
“Security Documents” shall not include the Warrants.

 
Appendix A - 19

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“Selection Notice” is defined in Section 1.8(c).
 
“Solvent” means, as to any Person on any date, (a) the fair saleable value of
that Person’s assets exceed the total amount of its liabilities (including
income Tax liabilities) as they become absolute and matured; and (b) that Person
is able to meet its debts as they mature.
 
“Special Damages” means any and all damages in the nature of special,
consequential, indirect, exemplary or punitive damages (regardless of their name
or description), but it does not include any payments or funds that any Person
has expressly promised to pay or deliver to any other Person.
 
“Specified Financial Covenant” is defined in Section 5.20(d).
 
“Subordination Agreement” means a subordination agreement substantially in the
form of Exhibit F.
 
“Subsidiary” means, with respect to any Person that is not a natural person,
each other Person (i) in which that Person owns, directly or indirectly, at
least 50% of the Equity Interests having ordinary voting power for the election
of directors, members or general partners or (ii)that is required by GAAP to be
included in a consolidated financial statement of that Person.
 
“Supporting Documentation” means a package containing data that is available to
Borrower sufficient to support the cost estimate and the justification for the
proposed Development Plan project, including but not limited to: (a) detailed
work procedure, (b) before and after wellbore schematic, (c) detailed cost
estimate plus bids on major items and other backup as appropriate, (d) reservoir
structure and isopach maps, (e) log sections, core data, and directional survey
for any well being worked on plus key offset wells, (f) notes showing Borrower’s
or Engineer’s reserves calculation, if available, and (g) economic forecast.
 
“Swap Agreement” means any ISDA Master Agreement (as defined in paragraph b) of
the definition of “Hedging Agreement”) executed between Borrower and any Swap
Counterparty, together with any confirmation of trade under that agreement.
 
“Swap Counterparty” means MBL, any Lender or any Affiliate of MBL or any Lender
that is a counterparty to a Swap Agreement with Borrower or any of its
Affiliates.
 
“Synthetic Leases” means, in respect of any Person, all leases that have been,
or should have been, in accordance with GAAP, treated as operating leases on the
financial statements of the Person liable (whether contingently or otherwise)
for the payment of rent under those leases, and which were properly treated as
indebtedness for borrowed money for purposes of U.S. federal income Taxes, if
the lessee is obligated upon expiration or early termination of the lease to
either purchase for an amount in excess of, or pay upon early termination an
amount in excess of, 80% of the residual value of the property subject to the
operating lease.

 
Appendix A - 20

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“Taxes” means any and all present or future taxes, levies, imposts, deductions,
charges or withholdings, and all similar liabilities, plus all related interest,
penalties, fines and additions to tax, now or hereafter imposed by any federal,
state, local or foreign government or other taxing authority.
 
“Term Loan” is defined in Section 1.1(a).
 
“Term Loan Maximum Commitment” is defined in Section 1.1(a).
 
“Taxing Authorities” means any Governmental Authority that has the power to
impose Taxes upon Borrower or any of the Collateral.
 
“Total Committed Obligations” means, as of any date, the total monetary
Obligations owing to Administrative Agent and Lenders under this Agreement and
Swap Counterparty under the Swap Agreement, including any Advances that Lenders
are unconditionally committed to make but have not yet funded).
 
“UCC” means the Uniform Commercial Code presently in effect in the State of New
York or other applicable jurisdiction.
 
“USA PATRIOT Act” means the Uniting and Strengthening America by Producing
Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act
of 2001, Pub. L. 707-56, as amended, and regulations promulgated under that act
as in effect from time to time.
 
“USD” or “$” or “Dollars” shall mean currency of the United States of America.
 
“Warrants” mean that certain Warrant 1A dated September 21, 2011 granting MBL
(or its designee) the right to acquire Equity Interest in the Borrower in form
and substance satisfactory to MBL.
 
“Well” means any existing or future oil or gas well, salt water disposal well,
injection well, water supply well or any other well located on or related to the
Properties, and any facility or equipment in addition to or replacement of any
well.
 
“Working Interest” means the property interest which entitles its owner to
explore and develop certain land for oil and gas production purposes, whether
under an oil and gas lease or unit, a compulsory pooling order or otherwise.
 
“XOG Group” means any one or more of the following Persons:  XOG Operating, LLC,
Geronimo Holding Corporation, CLW South Texas 2008 LP.

 
Appendix A - 21

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