Document:

Exhibit 10.2

 

THIS
AGREEMENT RELATES TO AN OFFERING OF SECURITIES IN AN OFFSHORE TRANSACTION TO
PERSONS WHO ARE NOT U.S. PERSONS (AS DEFINED IN REGULATIONS UNDER THE 1933 ACT)
PURSUANT TO REGULATION S UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS
AMENDED (THE “1933 ACT”), NONE OF THE SECURITIES TO WHICH THIS AGREEMENT
RELATES HAVE BEEN REGISTERED UNDER THE 1933 ACT, OR ANY U.S. STATE SECURITIES
LAWS, AND, UNLESS SO REGISTERED, NONE MAY BE OFFERED OR SOLD, DIRECTLY OR
INDIRECTLY, IN THE UNITED STATES OR TO U.S. PERSONS (AS DEFINED HEREIN) EXCEPT
IN ACCORDANCE WITH THE PROVISIONS OF REGULATION S UNDER THE 1933 ACT, PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT, OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE 1933 ACT AND IN EACH CASE ONLY IN ACCORDANCE WITH ALL
APPLICABLE SECURITIES LAWS, IN ADDITION, HEDGING TRANSACTIONS INVOLVING THE
SECURITIES MAY NOT BE CONDUCTED UNLESS IN ACCORDANCE WITH THE 1933 ACT.

 

NOTE PURCHASE AGREEMENT

 

THIS NOTE PURCHASE AGREEMENT (this “Agreement”)
is made and entered into as of, but not necessarily on, the 1st day of October,
2009, by and between Arkanova Acquisition
Corporation, a Delaware corporation (the “Company”),
and Aton Select Funds Limited (the “Investor”).

 

Background

 

A.            The Company and
the Investor are executing and delivering this Agreement in reliance upon the
exemptions from securities registration afforded by the provisions of
Regulation S (“Regulation S”), as promulgated by
the U.S. Securities and Exchange Commission under the Securities Act of 1933,
as amended; and

 

B.            The Investor
wishes to purchase from the Company, and the Company wishes to sell and issue
to the Investor, upon the terms and conditions stated in this Agreement, a
Secured Promissory Note (the “Note”) in the
aggregate principal amount of Twelve Million and No/100 United States Dollars
(US $12,000,000.00) (the “Principal Amount”),
bearing interest at the rate of six percent (6.0%) per annum, in the form attached
hereto as Annex “A”.

 

C.            The Note is
being issued by the Company in exchange for the loan by the Investor to the
Company of an additional One Million One Hundred Sixty-Eight Thousand Seven
Hundred Twenty-Nine and 17/100 United States Dollars (US $1,168,729.17) (the “Additional Loan Amount”) plus the cancellation of the
following Promissory Notes:

 

(i)            Promissory Note from the
Company to Aton Select Fund Limited dated September 3, 2008, in the
original principal amount of Nine Million and No/100 United States Dollars (US
$9,000,000.00) (the “$9 Million Note”);

 

(ii)           Promissory Note from the
Company to Aton Select Fund Limited dated April 29, 2009 in the original
principal amount of Six Hundred Thousand and No/100 United States Dollars (US
$600,000); and

 

 

(iii)          Promissory Note from the
Company to Aton Select Fund Limited dated April 14, 2009, in the original
principal amount of Four Hundred Twelve Thousand Five Hundred and No/100 United
States Dollars (US $412,500).

 

Terms and Conditions

 

In consideration of the mutual promises made
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

 

1.             Definitions. In addition
to those terms defined above and elsewhere in this Agreement, for the purposes
of this Agreement, the following terms shall have the meanings set forth below:

 

(a)           “Affiliate”
means, with respect to any Person, any other Person which directly or
indirectly through one or more intermediaries Controls, is controlled by, or is
under common control with, such Person;

 

(b)           “Business Day”
means a day, other than a Saturday or Sunday, on which banks in Houston, Texas,
are open for the general transaction of business;

 

(c)           “Company’s
Knowledge” means the actual knowledge of the executive officers (as
defined in Rule 405 under the 1933 Act) of the Company;

 

(d)           “Control”
(including the terms “controlling”, “controlled by” or “under common control with”)
means the possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise;

 

(e)           “Guaranty”
has the meaning set forth in Section 2 hereof;

 

(f)            “Material
Adverse Effect” means a material adverse effect on (i) the
assets, liabilities, results of operations, condition (financial or otherwise),
business, or prospects of the Company and its Subsidiaries taken as a whole, or
(ii) the ability of the Company to perform its obligations under the
Transaction Documents;

 

(g)           “Person”
means an individual, corporation, partnership, limited liability company,
trust, business trust, association, joint stock company, joint venture, sole
proprietorship, unincorporated organization, governmental authority or any
other form of entity not specifically listed herein;

 

(h)           “Pledge
Agreement” has the meaning set forth in Section 2 hereof;

 

(i)            “Purchase
Price” means the Principal Amount payable as set forth in
Subparagraph C of the Background section of this Agreement;

 

(j)            “SEC”
means the United States Securities and Exchange Commission;

 

(k)           “Subsidiaries”
means the wholly-owned or majority owned subsidiaries of the Company;

 

2

 

(l)            “Transaction
Documents” means this Agreement, the Note, the Pledge Agreement and
the Guaranty;

 

(m)          “1933 Act”
means the Securities Act of 1933, as amended, or any successor statute, and the
rules and regulations promulgated thereunder; and

 

(n)           “1934 Act”
means the Securities Exchange Act of 1934, as amended, or any successor
statute, and the rules and regulations promulgated thereunder.

 

2.             Purchase and
Sale of the Note; Security.  Subject to the terms and conditions of this
Agreement, on the Closing Date, the Company shall sell and issue to the
Investor, the Note in the Principal Amount in exchange for the Purchase Price.
The Company shall also pledge to the Investor, pursuant to terms of the form of
Pledge Agreement attached hereto as Annex “C”, all of the membership interests
in the Company’s wholly-owned subsidiary, Provident Energy Associates of
Montana, LLC, a Montana limited liability corporation that owns the Two Medicine
Cut Bank Sand Unit in Pondera and Glacier Counties, Montana, to secure
payment of the indebtedness evidenced by the Note (the “Security
Interest”).  As an indirect
beneficiary of the Investor’s purchase of the Note and as further security for
payment of the indebtedness evidenced by the Note, the Company’s parent
corporation, Arkanova Energy Corporation (“AEC”), has
agreed to guarantee the payment of the Note by the execution and delivery to
the Investor at the Closing of the form of Guaranty attached hereto as Annex
“D”.

 

3.             Additional
Consideration.  As further
inducement to the Investor to purchase the Note, the Company shall (i) deliver
to the Investor as soon as reasonably practical following the execution of this
Agreement by the Investor such number of shares of the unregistered common
stock of AEC as shall be determined by dividing Two Hundred Forty Thousand and
No/100 United States Dollars (US $240,000) by the average stock price for AEC’s
common stock over the fifteen (15) Business Day period immediately preceding
the day on which this Agreement is executed by the Investor, and (ii) deliver
to the Investor on the first anniversary date of the execution of this
Agreement by the Investor such number of shares of the unregistered common
stock of AEC as shall be determined by dividing Two Hundred Forty Thousand and
No/100 United States Dollars (US $240,000) by the average stock price for AEC’s
common stock over the fifteen (15) Business Day period immediately preceding
the first anniversary date of the execution of this Agreement by the
Investor.  The Company shall also cause
to be delivered to the Investor as soon as reasonably practical following the
execution of this Agreement by the Investor an additional 900,000 shares of the
AEC’s common stock in accordance with the Company’s heretofore unfulfilled
obligation under Section 3 of the Note Purchase Agreement relating to the
$9 Million Note.

 

4.             Closing. There shall
be no formal closing ceremony with respect to the transactions contemplated by
this Agreement.   Instead, the parties
shall execute and exchange the Transaction Documents by facsimile and email and
the closing of the transactions contemplated by this Agreement shall be deemed
to have occurred (the “Closing”) on
the date (the “Closing Date”) that the Company
receives the Purchase Price in full.

 

5.             Representations
and Warranties of the Company. The Company hereby
represents and warrants to the Investor that, except as set forth in any
schedules delivered herewith (collectively, the “Disclosure
Schedules”):

 

(a)           Organization, Good Standing
and Qualification. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to carry on
its business as now conducted and to own its properties. The Company is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction in which the conduct of its business or its

 

3

 

ownership or leasing of property makes such qualification or leasing
necessary unless the failure to so qualify has not and could not reasonably be
expected to have a Material Adverse Effect.

 

(b)           Authorization. The Company
has full power and authority and, has taken all requisite action on the part of
the Company, its officers, directors and stockholders necessary for (i) the
authorization, execution and delivery of the Transaction Documents, (ii) authorization
of the performance of ail obligations of the Company hereunder or thereunder,
and (iii) the authorization, issuance and delivery of the Note.  The Transaction Documents constitute the
legal, valid and binding obligations of the Company, enforceable against the
Company in accordance with their terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability,
relating to or affecting creditors’ rights generally.

 

(c)           Valid Issuance. The Note has
been duly and validly authorized and, when issued and paid for pursuant to this
Agreement, shall be free and clear of all encumbrances and restrictions (other
than those created by the Investor), except for restrictions on transfer set
forth in the Transaction Documents or imposed by applicable securities laws.

 

(d)           Consents. The
execution, delivery and performance by the Company of the Transaction
Documents, and the offer, issuance and sale of the Note requires no consent of,
action by or in respect of, or filing with, any Person, governmental body,
agency, or official other than filings that have been made pursuant to applicable
state securities laws, and post-sale filings pursuant to applicable state and
federal securities laws which the Company undertakes to file within the
applicable time periods.

 

(e)           Use of Proceeds. The
Additional Loan Amount shall be primarily used by the Company for the
maintenance and development of the Two Medicine Cut Bank Sand
Unit in Pondera and Glacier Counties, Montana.

 

(f)            No Conflict, Breach,
Violation or Default. The execution, delivery and performance of the
Transaction Documents by the Company and the issuance and sale of the Note will
not conflict with or result in a breach or violation of any of the terms and
provisions of, or constitute a default under (i) the Company’s Certificate
of Incorporation or the Company’s Bylaws, both as in effect on the date hereof,
or (ii)(a) any statute, rule, regulation or order of any governmental
agency or body or any court, domestic or foreign, having jurisdiction over the
Company or any of its assets or properties, or (b) any agreement or
instrument to which the Company is a party or by which the Company is bound or
to which any of its assets or properties is subject.

 

(g)           Litigation. To the
Company’s knowledge, there are no disputes or actions pending or threatened
against the Company or its properties.

 

(h)           No Directed Selling Efforts
or General Solicitation. Neither the Company nor any Person acting
on its behalf has conducted any general solicitation or general advertising (as
those terms are used in Regulation S) in connection with the offer or sale of
the Note.

 

(i)            No Integrated Offering. Neither the
Company nor any of its Affiliates, nor any Person acting on its or their behalf
has, directly or indirectly, made any offers or sales of any Company security
or solicited any offers to buy any security, under circumstances that would
adversely affect reliance by the Company on Regulation S for the exemption from
registration for

 

4

 

the transactions contemplated hereby or would require registration of the
Note under the 1933 Act.

 

(j)            Private Placement. The offer and
sale of the Note to the Investor as contemplated hereby is exempt from the
registration requirements of the 1933 Act.

 

6.             Representations
and Warranties of the Investor. The Investor hereby represents
and warrants to the Company that:

 

(a)           Power.  The Investor has the necessary legal capacity
(in the case of an individual person), or has the power and authority (if other
than an individual person) to execute and deliver this Agreement and to perform
such Investor’s obligations hereunder and to consummate all of the transactions
contemplated hereby, including but not limited to, purchase of the Note.

 

(b)           Binding Obligation.  This Agreement has been duly executed and
delivered by the Investor and constitutes the legal, valid and binding
obligation of such Investor, enforceable against such Investor in accordance
with its terms, except as such enforceability may be limited by the effect of
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the enforcement of creditors’ rights generally.

 

(c)           Absence of Breaches and
Defaults.  The
execution, delivery and performance by the Investor of this Agreement and the
consummation of the transactions contemplated hereby do not breach or
constitute a default under any loan or purchase agreement, indenture, mortgage,
deed of trust, lease, instrument, contract or other agreement binding on or
affecting either such Investor or any of his property or assets, the breach of which,
either individually or in the aggregate, could reasonably be expected to have a
material adverse effect on the Investor.

 

(d)           Purchase Entirely for Own
Account. The Note to be received by the Investor hereunder will be acquired
for such Investor’s own account, not as nominee or agent, and not with a view t
the resale or distribution of any part thereof in violation of the 1933 Act,
and such Investor has no present intention of selling, granting any
participation in, or otherwise distributing the same in violation of the 1933
Act without prejudice, however, to such Investor’s right at all times to sell
or otherwise dispose of all or any part of the Note in compliance with
applicable federal and state securities laws. 
Nothing contained herein shall be deemed a representation or warranty by
the Investor to hold the Note for any period of time. The Investor is not a
broker-dealer registered with the SEC under the 1934 Act or an entity engaged
in a business that would require it to be so registered.

 

(e)           Investment Experience.  The Investor acknowledges that it can bear
the economic risk and complete loss of its investment in the Note and has such
knowledge and experience in financial or business matters that it is capable of
evaluating the merits and risks of the investment contemplated hereby.

 

(f)            Disclosure of Information. The Investor
has had an opportunity to receive all information related to the Company
requested by it and to ask questions of and receive answers from the Company
regarding the Company, its business and the terms and conditions of the
offering of the Note.

 

(g)           No Reliance.  The Investor has not relied upon the Company
or its directors and officers, or the Company’s legal counsel or advisors for
investment, legal or tax advice, including

 

5

 

advice with respect to the hold periods and resale restrictions imposed
upon the Note by the securities legislation in the jurisdiction in which the
Investor resides, and has, if desired, in all cases sought the advice of the
Investor’s own personal investment advisor, legal counsel and tax advisors, and
the Investor is either experienced in or knowledgeable with regard to the
affairs of the Company or, either alone or with its professional advisors, is capable
by reason of knowledge and experience in financial and business matters in
general, and investments in particular, of evaluating the merits and risks of
an investment in the Note, and it is able to bear the economic risk of an
investment in the Note and can otherwise be reasonably assumed to have the
capacity to protect its own interest in connection with the investment.

 

(h)           Further Representations and
Acknowledgements.  The
Investor further represents and acknowledges that:

 

(i)            The Investor is not a “U.S.
Person” as that term is defined in Regulation S.

 

(ii)           The Investor is located
outside the United States.

 

(iii)          The Investor is not aware of
any advertisement of any of the Note to be issued hereunder.

 

(iv)          The Investor will not
acquire the Note as a result of, and will not itself engage in, any “directed selling efforts” (as defined in
Regulation S under the 1933 Act) in the United States in respect of the Note
which would include any activities undertaken for the purpose of, or that could
reasonably be expected to have the effect of, conditioning the market in the
United States for the resale of the Note; provided, however, that the Investor
may sell or otherwise dispose of the Note pursuant to registration under the
1933 Act and any applicable state securities laws or under an exemption from
such registration requirements and as otherwise provided herein.

 

(v)           The Investor agrees that the
Company will refuse to register any transfer of the Note not made in accordance
with the provisions of Regulation S, pursuant to an effective registration
statement under the 1933 Act or pursuant to an available exemption from the
registration requirements of the 1933 Act and in accordance with applicable
state securities laws.

 

(vi)          The Investor understands and
agrees that offers and sales of any Note prior to the expiration of a period of
one year after the date of transfer of the Note (the “Distribution
Compliance Period”), shall only be made in compliance with the safe
harbor provisions set forth in Regulation S, pursuant to the registration
provisions of the 1933 Act or an exemption therefrom, and that all offers and
sales after the Distribution Compliance Period shall be made only in compliance
with the registration provisions of the 1933 Act or an exemption therefrom and
in each case only in accordance with all applicable securities laws.

 

(i)            Restricted Securities. The Investor
understands that the Note is characterized as “restricted securities” under the
U.S. federal securities laws and have not been registered under the 1933 Act or
under any state or “blue sky” laws of the United States, and is being offered
in a transaction not involving any public offering within the meaning of the
1933 Act, and unless so registered, may not be offered or sold in the United
States or to U.S. Persons as defined in

 

6

 

Regulation S promulgated under the 1933 Act, and in each case only in
accordance with applicable securities laws.

 

(j)            No Hedging Transactions.  The Investor understands and agrees not to
engage in any hedging transactions involving the Note prior to the end of the
Distribution Compliance Period unless such transactions are in compliance with
the provisions of the 1933 Act.

 

(k)           Restrictions on Transfer.  The Investor hereby acknowledges and agrees
to the Company making a notation on its records or giving instructions to the
registrar and transfer agent of the Company in order to implement the
restrictions on transfer set forth and described herein.

 

(l)            Legends.  It is understood that, except as provided
below, certificates evidencing the Note will bear the following or any similar
legend, as well as the legend required by any state authority if required in
connection with the issuance of sale of the Note:

 

THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “U.S. SECURITIES ACT”) OR OTHER
APPLICABLE SECURITIES LAWS. THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE AND MAY NOT BE OFFERED,
SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (1) IN ACCORDANCE WITH THE
PROVISIONS OF REGULATIONS S, RULE 901 THROUGH RULE 905, AND PRELIMINARY NOTE
UNDER THE U.S. SECURITIES ACT OR (2) PURSUANT TO AN AVAILABLE EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE U.S. SECURITIES ACT OR (3) PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT. HEDGING TRANSACTIONS INVOLVING THESE
SECURITIES MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE U.S.
SECURITIES ACT.

 

(m)          No General Solicitation.  The Investor did not learn of the investment
in the Note as a result of any public advertising or general solicitation.

 

(n)           Brokers and Finders.  No Person will have, as a result of the
transactions contemplated by the Transaction Documents, any valid right,
interest or claim against or upon the Company or the Investor for any
commission, fee or other compensation pursuant to any agreement, arrangement or
understanding entered into by or on behalf of the Investor.

 

7.             Conditions to
Closing:

 

(a)           Conditions to the Investor’s
Obligations.  The
obligation of the Investor to purchase the Note at the Closing is subject to
the fulfillment to such Investor’s satisfaction, on or prior to the Closing
Date, of the following conditions, any of which may be waived by the Investor:

 

(i)            The representations and
warranties made by the Company in Section 4. hereof qualified as to
materiality shall be true and correct at all times prior to and on the Closing
Date, except to the extent any such representation or warranty expressly speaks
as of an earlier date, in which case such representation or Warranty shall be
true and correct as of such earlier date, and, the representations and
warranties made by the

 

7

 

Company in Section 4 hereof not qualified as to materiality shall
be true and correct in all material respects at all times prior to and on the
Closing Date, except to the extent any such representation or warranty
expressly speaks as of an earlier date, in which case such representation or
warranty shall be true and correct in all material respects as of such earlier
date.  The Company shall have performed
in all material respects all obligations and conditions herein required to be
performed or observed by it on or prior to the Closing Date.

 

(ii)           The Company shall have
obtained any and all consents, permits, approvals, registrations and waivers
necessary or appropriate for consummation of the purchase and sale of the Note,
and the consummation of the other transactions contemplated by the Transaction
Documents, all of which shall be in full force and effect.

 

(iii)          No judgment, writ, order,
injunction, award or decree of or by any court, or judge, justice or
magistrate, including any bankruptcy court or judge, or any order of or by any
governmental authority, shall have been issued, and no action or proceeding
shall have been instituted by any governmental authority, enjoining or
preventing the consummation of the transactions contemplated hereby or in the
other Transaction Documents.

 

(b)           Conditions to Obligations of
the Company.  The
Company’s obligation to sell and issue the Note at the Closing is subject to
the fulfillment to the satisfaction of the Company on or prior to the Closing
Date of the following conditions, any of which may be waived by the Company:

 

(i)            The representations and warranties made by the
Investor in Section 5 hereof shall be true and correct in all respects on
the Closing Date with the same force and effect as if they had been made on and
as of said date.  The Investor shall have
performed in all material respects all obligations and conditions herein
required to be performed or observed by them on or prior to the Closing Date.

 

(ii)           The Investor shall have paid the Purchase Price to
the Company.

 

(c)           Termination of Obligations
to Effect Closing; Effects.

 

(i)            The obligations of the
Company, on the one hand, and the Investor, on the other hand, to effect the
Closing shall terminate as follows:

 

(A)          Upon the mutual written consent
of the Company and the Investor;

 

(B)           By the Company if any of the
conditions set forth in Paragraph 6(b) shall have become incapable of
fulfillment, and shall not have been waived by the Company;

 

(C)           By an Investor (with respect
to itself only) if any of the conditions set forth in Paragraph 6(a) shall
have become incapable of fulfillment, and shall not have been waived by the
Investor; or

 

(D)          By either the Company or the
Investor if the Closing has not occurred on or prior to October 15, 2009;

 

8

 

provided,
however, that, except in the case of clause (i) above, the party seeking
to terminate its obligation to effect the Closing shall not then be in breach
of any of its representations, warranties, covenants or agreements contained in
this Agreement or the other Transaction Documents if such breach has resulted
in the circumstances giving rise to such party’s seeking to terminate its
obligation to effect the Closing.

 

8.             Covenants and
Agreements of the Company:

 

(a)           Reports. The Company
will furnish to the Investor and/or their assignees such information relating
to the Company and its Subsidiaries as from time to time may reasonably be
requested by the Investor and/or their assignees; provided, however, that the
Company shall not disclose material nonpublic information to the Investor, or
to advisors to or representatives of the Investor, unless prior to disclosure
of such information the Company identifies such information as being material
nonpublic information and provides the Investor, such advisors and
representatives with the opportunity to accept or refuse to accept such
material nonpublic information for review and the Investor wishing to obtain
such information enters into an appropriate confidentiality agreement with the
Company with respect thereto.

 

(b)           No Conflicting Agreements. The Company
will not take any action, enter into any agreement or make any commitment that
would conflict or interfere in any material respect with the Company’s obligations
to the Investor under the Transaction Documents.

 

(c)           Compliance with Laws. The Company
will comply in all material respects with all applicable laws, rules,
regulations, orders and decrees of all governmental authorities.

 

(d)           Security Interest. The Company
shall cooperate with the Investor in all reasonable respects in connection with
the establishment and maintenance of the Security Interest.  The Company agrees to execute such further
documents and instruments and to take such further actions as may be reasonably
necessary to carry out the purposes and intent of the  Security
Agreement.  The Company shall be
responsible for the payment of all costs and expenses reasonably incurred by
the Investor in connection with the preparation of any documents, instruments
or agreements required to create or perfect the Security Interest and for all
filing fees related thereto.

 

(e)           Termination of Covenants. The
provisions of Sections 8(a), (b), (c) and (d) above shall terminate
and be of no further force and effect on the date on which the Company’s
obligations under the Note terminate.

 

9.             Survival and
Indemnification:

 

(a)           Survival. The
representations, warranties, covenants and agreements contained in this
Agreement shall survive the Closing of the transactions contemplated by this
Agreement until the repayment in full of the Note.

 

(b)           Indemnification. The Company
agrees to indemnify and hold harmless each Investor and its Affiliates and
their respective directors, officers, employees and agents from and against any
and all losses, claims, damages, liabilities and expenses (including without
limitation reasonable attorney fees and disbursements and other expenses
incurred in connection with investigating, preparing or defending any action,
claim or proceeding, pending or threatened and the costs of enforcement
thereof) (collectively, “Losses”) to
which such Person may become

 

9

 

subject as a result of any breach of representation, warranty, covenant
or agreement made by or to be performed on the part of the Company under the
Transaction Documents, and will reimburse any such Person for all such amounts
as they are incurred by such Person.

 

(c)           Conduct of Indemnification
Proceedings. Promptly after receipt by a Person (the “Indemnified Person”) of notice of any demand, claim or
circumstances which would or might give rise to a claim or the commencement of
any action, proceeding or investigation in respect of which indemnity may be
sought pursuant to Section 8(b), such Indemnified Person shall promptly
notify the Company in writing and the Company shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to such Indemnified
Person, and shall assume the payment of all fees and expenses; provided,
however, that the failure of any Indemnified Person so to notify the Company
shall not relieve the Company of its obligations hereunder except to the extent
that the Company is materially prejudiced by such failure to notify. In any
such proceeding, any Indemnified Person shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Person unless: (i) the Company and the Indemnified Person
shall have mutually agreed to the retention of such counsel; or (ii) in
the reasonable judgment of counsel to such Indemnified Person representation of
both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. 
The Company shall not be liable for any settlement of any proceeding
effected without its written consent, which consent shall not he unreasonably
withheld, but if settled with such consent, or if there be a final judgment for
the plaintiff, the Company shall indemnify and hold harmless such Indemnified
Person from and against any loss or liability (to the extent stated above) by
reason of such settlement or judgment. 
Without the prior written consent of the Indemnified Person, which consent
shall not be unreasonably withheld, the Company shall not effect any settlement
of any pending or threatened proceeding in respect of which any Indemnified
Person is or could have been a party and indemnity could have been sought
hereunder by such Indemnified Party, unless such settlement includes an
unconditional release of such Indemnified Person from all liability arising out
of such proceeding.

 

10.           Miscellaneous.  The following miscellaneous provisions shall
apply to this Agreement:

 

(a)           Successors and Assigns. This
Agreement may not be assigned by a party hereto without the prior written
consent of the Company or the Investor, as applicable, provided, however, that
an investor may assign its rights and delegate its duties hereunder in whole or
in part to an Affiliate or to a third party acquiring the Note in a private
transaction without the prior written consent of the Company, after notice duly
given by such Investor to the Company. 
The provisions of this Agreement shall inure to the benefit of and be
binding upon the respective permitted successors and assigns of the parties.
Nothing in this Agreement, express or implied, is intended to confer upon any
party other than the parties hereto or their respective successors and assigns
any rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.

 

(b)           Counterparts: Faxes. This
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.  This Agreement may also be
executed via facsimile, which shall be deemed an original.

 

(c)           Titles and Subtitles. The titles
and subtitles used in this Agreement are used for convenience only and are not
to be considered in construing or interpreting this Agreement.

 

10

 

(d)           Notices. Unless otherwise provided,
any notice required or permitted under this Agreement shall be given in writing
and shall be deemed effectively given as hereinafter described (i) if given by
personal delivery, then such notice shall be deemed given upon such delivery, (ii)
if given by telex or telecopier, then such notice shall be deemed given upon
receipt of confirmation of complete transmittal, (iii) if given by mail, then
such notice shall be deemed given upon the earlier of (A) receipt of such notice
by the recipient or (B) three days after such notice is deposited in first
class mail, postage prepaid, and (iv) if given by an internationally recognized
overnight air courier, then such notice shall be deemed given one business day
after delivery to such carrier. All notices shall be addressed to the party to
be notified at the address as follows, or at such other address as such party
may designate by ten days’ Loan written notice to the other party:

 

If to the Company:

 

Arkanova Acquisition Corporation

2441 High Timbers Drive

Suite
120

The Woodlands TX 77380

Fax:
281-298-9558

Attention:
Pierre Mulacek, President

 

If to the Investor:

 

To
the Address for Notice as provided on the signature page hereof.

 

(e)           Expenses. The parties hereto shall
pay their own costs and expenses in connection herewith. In the event that
legal proceedings are commenced by any party to this Agreement against another
party to this Agreement in connection with this Agreement or the other
Transaction Documents, the party or parties which do not prevail in such
proceedings shall severally, but not jointly, pay their pro rata share of the
reasonable attorneys’ fees and other reasonable out-of-pocket costs and
expenses incurred by the prevailing party in such proceedings.

 

(f)            Amendments and Waivers. Any term of
this Agreement may be amended and the observance of any term of this Agreement
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and the Investor. Any amendment or waiver effected in accordance with this
Paragraph shall be binding upon each holder of any Note purchased under this
Agreement at the time outstanding, each future holder of all such Note, and the
Company.

 

(g)           Publicity. Except as set forth below,
no public release or announcement concerning the transactions contemplated
hereby shall be issued by the Company or the Investor without the prior consent
of the Company (in the case of a release or announcement by the Investor) or
the Investor (in the case of a release or announcement by the Company) (which
consents shall not be unreasonably withheld), except as such release or
announcement may be required by law or the applicable rules or regulations of
any securities exchange or securities market, in which case the Company or the
Investor, as the case may be, shall allow the Investor or the Company, as
applicable, to the extent reasonably practicable in the circumstances,
reasonable time to comment on such release or announcement in Loan of such
issuance.

 

11

 

(h)           Severability. Any provision of this
Agreement that is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof but shall
be interpreted as if it were written so as to be enforceable to the maximum
extent permitted by applicable law, and any such prohibition or unenforceability
in any jurisdiction shall not invalidate or render unenforceable such provision
in any other jurisdiction. To the extent permitted by applicable law, the
parties hereby waive any provision of law which renders any provision hereof
prohibited or unenforceable in any respect.

 

(i)            Entire Agreement. This
Agreement, including the exhibits and any disclosure schedules, and the other
Transaction Documents constitute the entire agreement among the parties hereof
with respect to the subject matter hereof and thereof and supersede all prior
agreements and understandings, both oral and written, between the parties with
respect to the subject matter hereof and thereof.

 

(j)            Further Assurances. The parties
shall execute and deliver all such further instruments and documents and take
all such other actions as may reasonably be required to carry out the
transactions contemplated hereby and to evidence the fulfillment of the
agreements herein contained.

 

(k)           Governing Law: Consent to Jurisdiction; Waiver of
Jury Trial. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Texas without regard to the choice
of law principles thereof. Each of the parties hereto irrevocably submits to
the exclusive jurisdiction of the Courts of the State of Texas for the purpose
of any suit, action, proceeding or judgment relating to or arising out of this
Agreement and the transactions contemplated hereby. Service of process in
connection with any such suit, action or proceeding may be served on each party
hereto anywhere in the world by the same methods as are specified for the
giving of notices under this Agreement. Each of the parties hereto irrevocably
consents to the jurisdiction of any such court in any such suit, action or
proceeding and to the laying of venue in such court. Each party hereto
irrevocably waives any objection to the laying of venue of any such suit,
action or proceeding brought in such courts and irrevocably waives any claim
that any such suit, action or proceeding brought in any such court has been
brought in an inconvenient forum. EACH OF THE PARTIES HERETO
WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO
THIS AGREEMENT AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS
TO THIS WAIVER.

 

[REMAINDER OF PAGE INTENTIONALLY
LEFT BLANK]

 

12

 

Signatures

 

To
evidence the binding effect of the terms and conditions set forth above, the
parties have executed this Agreement or caused their duly authorized officers
to execute this Agreement as of the date first above written.

 

 

ARKANOVA
ACQUISITION CORPORATION

 

 

	
  By:

  	
  /s/Pierre
  Mulacek

  	
   

  
	
   

  	
  Pierre Mulacek, President

  	
   

  

 

 

ATON
SELECT FUNDS LIMITED

 

 

	
  By:

  	
  /s/David
  Dawes

  	
   

  
	
   

  	
  David Dawes

  	
   

  
	
   

  	
  Director

  	
   

  

 

ADDRESS
FOR NOTICE 

 

C/o:
Aton Select Funds Limited

Street:
Aeulestrasse 5, P.O. Box 470

City/State/Zip:
9490 Vaduz, Liechtenstein

Attention:
Mr. David Dawes

Tel:
00423 237 3438

Fax:
00423 237 3771

 

DELIVERY
INSTRUCTIONS 

(if
different from above) 

 

C/o:
                                                                                                          

Street:
                                                                                                      

City/State/Zip:
                                                                                           

Attention:
                                                                                                

Tel:
                                                                                                          

 

13

 

ANNEX “A”

 

THIS
INSTRUMENT RELATES TO AN OFFERING OF SECURITIES IN AN OFFSHORE TRANSACTION TO
PERSONS WHO ARE NOT U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE 1933
ACT) PURSUANT TO REGULATION S UNDER THE UNITED STATES SECURITIES ACT OF 1933,
AS AMENDED (THE “1933 ACT”). NONE OF THE SECURITIES TO WHICH THIS INSTRUMENT
RELATES HAVE BEEN REGISTERED UNDER THE 1933 ACT, OR ANY U.S. STATE SECURITIES
LAWS, AND, UNLESS SO REGISTERED, NONE MAY BE OFFERED OR SOLD, DIRECTLY OR
INDIRECTLY, IN THE UNITED STATES OR TO U.S. PERSONS (AS DEFINED HEREIN EXCEPT
IN ACCORDANCE WITH THE PROVISIONS OF REGULATION S UNDER THE 1933 ACT, PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT, OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE 1933 ACT AND IN EACH CASE ONLY IN ACCORDANCE WITH ALL
APPLICABLE SECURITIES LAWS. IN ADDITION, HEDGING TRANSACTIONS INVOLVING THE
SECURITIES MAY NOT BE CONDUCTED UNLESS IN ACCORDANCE WITH THE 1933 ACT.

 

	
  USD $ 12, 000,000.00

  	
  October
  1, 2009

  

 

ARKANOVA ACQUISITION CORPORATION

 

SECURED PROMISSORY NOTE

 

FOR VALUE RECEIVED, Arkanova Acquisition Corporation, a corporation organized and
existing under the laws of the State of Delaware (the “Company”),
promises to pay to Aton Select Funds Limited,
the registered holder hereof (the “Holder”), the
principal sum of Twelve Million and No/100 United States Dollars (US
$12,000,000.00) on the Maturity Date (as defined below) and to pay interest on
the principal sum outstanding from time to time in arrears at the rate of six
percent (6.0 %) per annum (computed on the basis of the actual number of days
elapsed and a year of 365 days), accruing from the date of initial issuance of
this Note, until payment in full of the principal sum has been made or duly
provided for (whether before or after the Maturity Date).  This Note is being issued by the Company in
exchange for the loan by the Holder to the Company of an additional One Million
Six Hundred Sixty-Eight Thousand Seven Hundred Twenty-Nine and 17/100 United
States Dollars (US $1,668,729.17) plus the cancellation of the following
Promissory Notes:

 

(iv)          Promissory Note from the Company to Aton Select Fund
Limited dated September 3, 2008, in the original principal amount of Nine
Million and No/100 United States Dollars (US $9,000,000.00) (the “$9 Million Note”);

 

(v)           Promissory Note from the Company to Aton Select Fund
Limited dated April 29, 2009, in the original principal amount of Six Hundred
Thousand and No/100 United States Dollars (US $600,000); and

 

(vi)          Promissory Note from the Company to Aton Select Fund
Limited dated April 14, 2009, in the original principal amount of Four Hundred
Twelve Thousand Five Hundred and No/100 United States Dollars (US $412,500).

 

14

 

This
Note is also being issued pursuant to the terms of a Note Purchase Agreement of
even date herewith (the “NPA”), to which
the Company and the Holder (or the Holder’s predecessor in interest) are
parties.  Capitalized terms not otherwise
defined herein shall have the meanings ascribed to them in the NPA.

 

This
Note is subject to the following additional provisions:

 

1.             Maturity Date.  The term “Maturity Date”
means September 30, 2011.

 

2.             Security.  The payment when due of this Note is secured
by a pledge of all of the membership interests in the Company’s wholly owned
subsidiary, Provident Energy Associates of Montana, LLC, a Montana limited
liability company, in accordance with the terms and conditions of a Pledge
Agreement of even date herewith.

 

3.             Alternative
Interest Payment Option. 
Interest on this Note shall be paid within ten (10) Business Days
following the Maturity Date in shares of common stock of Arkanova Energy
Corporation, the publicly traded parent corporation of the Company (“AEC”).  The number of
shares of common stock of AEC payable as interest on the Note shall be
determined by dividing Seven Hundred Twenty Thousand and No/100 United States
Dollars (US $720,000.00) by the average stock price for AEC’s common stock over
the fifteen (15) Business Day period immediately preceding the Maturity Date.

 

4.             Prepayment
Provisions.  This Note
may be prepaid in whole or in part at any time prior to the Maturity Date,
without penalty, so long as all accrued interest is paid in shares of common
stock AEC as determined in Section 3 above with the date of payment (as such
term is defined in Section 7 hereof) being substituted for the Maturity Date in
making the calculation of the number of shares to be delivered to the Holder by
the Company.

 

5.             Default.  The Company shall be in default hereunder if
payment is not made by the end of the Holder’s close of business on the tenth
(10th) Business Day
following the Maturity Date.

 

6.             Manner of
Payments.  Except as
provided in Section 3 hereof, all payments contemplated hereby to be made “in
cash” shall be made in immediately available good funds of United States of
America currency by wire transfer to an account designated in writing by the
Holder to the Company (which account may be changed by notice similarly
given).  For purposes of this Note, the
phrase “date of payment” means the date good funds are received in the account
designated by the notice which is then currently effective.

 

7.             No Impairment;
Direct Obligation.  Subject to
the terms of the NPA, no provision of this Note shall alter or impair the
obligation of the Company, which is absolute and unconditional, to pay the
principal of, and interest on, this Note at the time, place, and rate, and in
the coin or currency, as herein prescribed. This Note is a direct obligation of
the Company.

 

8.             Limited
Recourse.  No recourse
shall be had for the payment of the principal of, or the interest on, this
Note, or for any claim based hereon, or otherwise in respect hereof, against
any incorporator, shareholder, officer or director, as such, past, present or
future, of the Company or any successor corporation, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment
or penalty or otherwise, all such liability being, by the acceptance hereof and
as part of the consideration for the issue hereof, expressly waived and
released.

 

9.             Restrictions on
Resale.  The Holder of the Note, by
acceptance hereof, agrees that this Note is being acquired for investment and
that such Holder will not offer, sell or otherwise dispose of this 

 

15

 

Note
except under circumstances which will not result in a violation of the
Securities Act of 1933, as amended, or any applicable state blue sky or foreign
laws or similar laws relating to the sale of securities.

 

10.           Notices.  Any notice given by any party to the other
with respect to this Note shall be given in the manner contemplated by the NPA
in the Section entitled “Notices.”

 

11.           Applicable Laws.  This Note shall be governed by and construed
in accordance with the laws of the State of Texas.  Each of the parties consents to the exclusive
jurisdiction of the Courts of the State of Texas in connection with any dispute
arising under this Agreement and hereby waives, to the maximum extent permitted
by law, any objection, including any objection based on forum
non coveniens, to the bringing of any
such proceeding in such jurisdictions. 
To the extent determined by such court, the Company shall reimburse the
Holder for any reasonable legal fees and disbursements incurred by the Holder
in enforcement of or protection of any of its rights under any of this Note.

 

12.           Jury Trial
Waiver. The Company and the Holder hereby waive a trial by jury in any
action, proceeding or counterclaim brought by either of the Parties hereto
against the other in respect of any matter arising out of or in connection with
this Note.

 

13.           Events of
Default.  Each of he following shall
constitute an “Event of Default”:

 

(a)           Default in Payment.  The Company shall default in the payment of
principal or interest on this Note or any other amount due; or

 

(b)           Breach of Representation or Warranty.  Any of the representations or warranties made
by the Company herein, in the NPA or any of the other Transaction Agreements
shall be false or misleading in any material respect at the time made; or

 

(c)           Change of Management.  The occurrence of any event which results in
the current executive officers of the Company no longer serving in their
respective current capacities with the Company; or

 

(d)           Assignment for Creditors.  The Company shall (i) make an assignment for
the benefit of creditors or commence proceedings for its dissolution; or (ii) apply
for or consent to the appointment of a trustee, liquidator or receiver for its
or for a substantial part of its property or business; or

 

(e)           Appointment of Trustee.  A trustee, liquidator or receiver shall be
appointed for the Company or for a substantial part of its property or business
without its consent; or

 

(f)            Court Control.  Any governmental agency or any court of
competent jurisdiction at the instance of any governmental agency shall assume
custody or control of the whole or any substantial portion of the properties or
assets of the Company; or

 

(g)           Bankruptcy Proceedings. Bankruptcy,
reorganization, insolvency or liquidation proceedings or other proceedings for
relief under any bankruptcy law or any law for the relief of debtors shall be
instituted by or against the Company.

 

If
an Event of Default shall have occurred, then, or at any time thereafter, and
in each and every such case, unless such Event of Default shall have been
waived in writing by the Holder (which waiver shall not be deemed to be a
waiver of any subsequent default) at the option of the Holder and in the
Holder’s sole discretion, the Holder may consider this Note immediately due and
payable (and the 

 

16

 

Maturity
Date shall be accelerated accordingly), without presentment, demand, protest or
notice of any kinds, all of which are hereby expressly waived, anything herein
or in any note or other instruments contained to the contrary notwithstanding,
and interest shall accrue on the total amount due (the “Default
Amount”) on the date of the Event of Default (the “Default Date”) at the rate of 12% per annum or the maximum
rate allowed by law, whichever is lower, from the Default Date until the date
payment is made, and the Holder may immediately enforce any and all of the
Holder’s rights and remedies provided herein or any other rights or remedies
afforded by law.

 

14.           Covenants of
the Company.  The Company
covenants and agrees that, so long as any principal of, or interest on, this
Note shall remain unpaid, unless the Holder shall otherwise consent in writing,
it will comply with the following terms:

 

(a)           Reporting Requirements. The Company
will furnish to the Holder or make publicly available:

 

(i)            as soon as possible, and in
any event within ten (10) days after obtaining knowledge of the occurrence of (A)
an Event of Default, (B) an event which, with the giving of notice or the lapse
of time or both, would constitute an Event of Default, or (C) a material
adverse change in the condition or operations, financial or otherwise, of the
Company, taken as whole, the written statement of the Chief Executive Officer
or the Chief Financial Officer of the Company, setting forth the details of
such Event of Default, event or material adverse change; and

 

(ii)           promptly after the
commencement thereof, notice of each action, suit or proceeding before any
court or other governmental authority or other regulatory body or any
arbitrator as to which there is a reasonable possibility of a determination
that would (A) materially impact the ability of the Company to conduct its
business, (B) materially and adversely affect the business, operations or
financial condition of the Company, or (C) impair the validity or
enforceability of the Note or the ability of the Company to perform their
obligations under the Note.

 

(b)           Compliance with Laws. The Company will comply,
in all material respects with all applicable laws, rules, regulations and
orders, except to the extent that noncompliance would not have a Material
Adverse Effect upon the business, operations or financial condition of the
Company taken as a whole.

 

(c)           Preservation of Existence. The Company
will maintain and preserve its existence.

 

(d)           Maintenance of Properties. The Company
will maintain and preserve all of its material properties which are necessary
in the proper conduct of its business in good working order and condition,
ordinary wear and tear excepted, and comply, at all times with the provisions
of all material leases (including oil and gas leases) to which it is a party as
lessee or under which it occupies property, so as to prevent any material
forfeiture or material loss thereof thereunder.

 

(e)           Maintenance of Insurance. The Company
will maintain, with responsible and reputable insurers, insurance with respect
to its properties and business, in such amounts and covering such risks, as is
carried generally in accordance with sound business practice by companies in
similar businesses in the same localities in which the Company is situated.

 

17

 

(f)            Keeping of Records and Books of Account. The Company
will keep adequate records and books of account, with complete entries made in
accordance with generally accepted accounting principles, reflecting all of its
financial and other business transactions.

 

15.           Qualification.  In the event for any reason, any payment by
or act of the Company or the Holder shall result in payment of interest which
would exceed the limit authorized by or be in violation of the law of the
jurisdiction applicable to this Note, then ipso facto the
obligation of the Company to pay interest or perform such act or requirement
shall be reduced to the limit authorized under such law, so that in no event
shall the Company be obligated to pay any such interest, perform any such act
or be bound by any requirement which would result in the payment of interest in
excess of the limit so authorized. In the event any payment by or act of the
Company shall result in the extraction of a rate of interest in excess of a sum
which is lawfully collectible as interest, then such amount (to the extent of
such excess not returned to the Company) shall, without further agreement or
notice between or by the Company or the Holder, be deemed applied to the
payment of principal, if any, hereunder immediately upon receipt of such excess
funds by the Holder, with the same force and effect as though the Company had
specifically designated such sums to be so applied to principal and the Holder
had agreed to accept such sums as an interest-free prepayment of this Note. If
any part of such excess remains after the principal has been paid in full,
whether by the provisions of the preceding sentences of this Section or
otherwise, such excess shall be deemed to be an interest-free loan from the
Company to the Holder, which loan shall be payable immediately upon demand by
the Company. The provisions of this Section shall control every other provision
of this Note.

 

Signature

 

To
evidence the binding effect of the foregoing provisions, the Company has caused
this instrument to be duly executed by an officer thereunto duly authorized as
of, but not necessarily on, the date first above written.

 

 

	
   

  	
  ARKANOVA
  ACQUISITION CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Pierre
  Mulacek, President

  

 

18

 

ANNEX “B”

 

Wire Instructions

 

19

 

ANNEX “C”

 

THIS AGREEMENT RELATES TO AN
OFFERING OF SECURITIES IN AN OFFSHORE TRANSACTION TO PERSONS WHO ARE NOT U.S.
PERSONS (AS DEFINED IN REGULATION S UNDER THE 1933 ACT) PURSUANT TO REGULATION
S UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “1933 ACT”).
NONE OF THE SECURITIES TO WHICH THIS AGREEMENT RELATES HAVE BEEN REGISTERED
UNDER THE 1933 ACT, OR ANY U.S. STATE SECURITIES LAWS, AND, UNLESS SO
REGISTERED, NONE MAY BE OFFERED OR SOLD, DIRECTLY OR INDIRECTLY, IN THE
UNITED STATES OR TO U.S. PERSONS (AS DEFINED HEREIN EXCEPT IN ACCORDANCE WITH
THE PROVISIONS OF REGULATION S UNDER THE 1933 ACT, PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT, OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE 1933 ACT AND IN EACH CASE ONLY IN ACCORDANCE WITH ALL
APPLICABLE SECURITIES LAWS. IN ADDITION, HEDGING TRANSACTIONS INVOLVING THE
SECURITIES MAY NOT BE CONDUCTED UNLESS IN ACCORDANCE WITH THE 1933 ACT.

 

PLEDGE AGREEMENT

 

THIS PLEDGE AGREEMENT (this “Agreement”) is made and entered into as of, but not
necessarily on, the 1st day of October, 2009, by and between Arkanova
Acquisition Corporation, a Delaware corporation, (“Pledgor”), and  Aton Select
Funds Limited (“Secured Party”).

 

Background

 

A.            On even date herewith,
Pledgor and the Secured Party entered into a Note Purchase Agreement (the “NPA”)”) pursuant to which Pledgor issued
to Secured Party a Consolidated Secured Promissory Note (the “Note”) and agreed to pledge Interests of
the membership interests of the Pledgor’s wholly owned subsidiary, Provident
Energy Associates of Montana, LLC, a Montana limited liability company (“Provident”), to secure payment of the indebtedness evidenced
by the Note; and

 

B.            The parties desire to set
forth in writing their agreement as to the terms and conditions of the
administration and disposition of the pledge of the membership interests of
Provident and certain other matters as set forth herein;

 

Terms and Conditions

 

In
consideration of the mutual benefits to be derived from the covenants and
agreements herein contained and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:

 

1.             Pledge.  As collateral security for the payment and
performance of the Obligations (as defined in Section 2 hereof) by
Pledgor, Pledgor hereby pledges to the Secured Party, and grants, transfers,
assigns and hypothecates to the Secured Party a continuing security interest
in, the following property owned by Pledgor (the “Pledged Collateral”):

 

20

 

(a)           Pledged Interests.  All of the issued and outstanding membership
interests in Provident (the “Pledged Interests”).

 

(b)           Dividends and Proceeds.  Except as provided in Section 10(b) hereof,
all dividends, cash, products, proceeds, securities, instruments and other
property from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of the Pledged Interests, including,
but not limited to, all distributions or payments in partial or complete
liquidation or redemption of the Pledged Interests.

 

(c)           Additional Interests.  All additional membership interests in
Provident from time to time hereafter acquired by Pledgor arising from the
Pledged Interests as a result of any reclassification, readjustment, split,
dividend, or reorganization and the certificates representing such additional
Interests, and all dividends, cash, products, proceeds, securities, instruments
and other property from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of such Interests.

 

2.             Obligations Secured.  This Agreement secures the payment and
performance of (i) all obligations of Pledgor to the Secured Party now or
hereafter existing under the Note whether for indebtedness (principal and
interest), fees, damages, expenses or otherwise, and whether evidenced by any
instrument, agreement or book account, (ii) all obligations of Pledgor to
the Secured Party now or hereafter existing under the NPA, and (iii) all
obligations of Pledgor to the Secured Party now or hereafter existing under
this Agreement, regardless of whether the amounts referred to in clause (i), (ii) or
(iii) above are due or to become due, direct or indirect, primary or
secondary, joint, several, or joint and several, or fixed or contingent
obligations of Pledgor.  All of such
obligations are collectively referred to herein as the “Obligations”.

 

3.             Delivery of Pledged
Collateral.  (a) 
Upon the execution of this Agreement, Pledgor shall deliver and deposit with
the Secured Party the certificate or certificates or other instruments
evidencing the Pledged Interests, along with such assignments, financing
statements, endorsements, and transfer powers duly executed by Pledgor in blank
as will enable the Secured Party to register the Pledged Interests in the
Secured Party’s name or in the name of the Secured Party’s nominee in the
appropriate record books of Provident in the Event of Default (as such term is
herein after defined).

 

4.             Return of Pledged Collateral.  Secured Party shall return the Pledged
Collateral or the balance thereof, if any, in its possession to Pledgor upon
payment in full of the Obligations.

 

5.             Further Assurances and
Documentation.  Pledgor
agrees that at any time and from time to time, at the expense of Pledgor,
Pledgor will promptly execute and deliver all further instruments and
documents, and take all further action that the Secured Party may reasonably
request, in order to perfect and protect any security interest granted or
purported to be granted hereby or to enable the Secured Party to exercise and
enforce the Secured Party’s rights and remedies hereunder with respect to any
Pledged Collateral.

 

6.             Responsibility for Pledged
Collateral.  Secured
Party shall exercise reasonable care in the custody and preservation of the
Pledged Collateral.  The Secured Party
shall be deemed to have exercised reasonable care in the custody and
preservation of the Pledged Collateral in the Secured Party’s possession if the
Pledged Collateral is accorded treatment substantially equal to that which the
Secured Party accords the Secured Party’s own property of similar nature.  The Secured Party shall be under no duty or
responsibility to (i) fix or preserve the rights of Pledgor with respect
to the Pledged Collateral against prior parties, (ii) fix or preserve
rights against any parties to any instrument or chattel paper which 

 

21

 

may be a part of the Pledged
Collateral, (iii) sell or otherwise realize upon the Pledged Collateral,
or (iv) seek payment from any particular source.  Without limiting the generality of the
foregoing, the Secured Party shall not have any responsibility or obligation
for any action in connection with any conversion, call, exchange, maturity,
redemption, retirement, tender or any other event relating to any of the
Pledged Collateral whether or not the Secured Party has or is deemed to have
knowledge of such matters.  The Secured
Party shall never be liable for the Secured Party’s failure to use diligence to
collect any amount payable with respect to the Pledged Collateral, but shall be
liable only to account to Pledgor for what the Secured Party may actually
collect or receive thereon.  After
payment of part of the Obligations, the Secured Party may, at the Secured
Party’s option, retain all or any portion of the Pledged Collateral as security
for any remaining Obligations and retain this Agreement as evidence of such
security.

 

7.             Representations and
Warranties.  Pledgor
represents and warrants to Secured Party as follows:

 

(a)           Authorization.  The execution, delivery and performance of
this Agreement are within Pledgor’s powers and are not in contravention of any
applicable law.

 

(b)           Absence of
Conflicts.  Pledgor is
not obligated under any contract or agreement, which materially or adversely
affects Pledgor’s properties or assets, or Pledgor’s financial condition, and
neither the execution nor delivery of this Agreement nor the consummation of
any transaction contemplated hereby will conflict with or result in any breach
of the terms, conditions, or provisions of, or constitute a default under any
agreement or instrument relative thereto to which Pledgor is subject.

 

(c)           Authorized
Interests.  The Pledged
Interests have been duly authorized and validly issued by Provident and are
fully paid and non-assessable.

 

(d)           Unencumbered
Title to Pledged Collateral.  Pledgor is the legal and beneficial owner of
the Pledged Collateral owned by Pledgor, free and clear of any lien, security
interest, option or other charge or encumbrance whatsoever except for the
security interest created by this Agreement. 
Until such time as the Obligations have been paid in full, Pledgor, at
Pledgor’s sole expense, will keep the Pledged Collateral free from other liens,
security interests, encumbrances or claims; and Pledgor will defend the Pledged
Collateral against the claims and demands of all persons claiming the Pledged
Collateral or any part thereof or interest therein.

 

(e)           Perfected
Security Interest.  The pledge
of the Pledged Interests and the delivery thereof to the Secured Party pursuant
to this Agreement creates a valid and perfected first priority security
interest in the Pledged Collateral, securing the payment of the Obligations.

 

(f)            No Approval
Required.  No
authorization, approval, or other action by, and no notice to or filing with,
any governmental authority or regulatory body is required either (i) for
the pledge by Pledgor of the Pledged Collateral pursuant to this Agreement or
for the execution, delivery or performance of the Agreement by Pledgor or (ii) for
the exercise by the Secured Party of the rights provided for in this Agreement
or the remedies in respect of the Pledged Collateral pursuant to this Agreement
(except as may be required in connection with such disposition by laws
affecting the offering and sale of securities generally).

 

(g)           Accurate
Information.  All
information contained in statements furnished or to be furnished to the Secured
Party by or on behalf of Pledgor in connection with the Pledged Collateral or
the Obligations is complete and accurate in all material respects.

 

22

 

8.             Affirmative Covenants of
Pledgor.  For and during such period of
time as any portion of the Obligations shall remain unpaid or Pledgor shall
have any commitment or obligation hereunder, Pledgor shall comply with each of
the following provisions of this Section, unless the Secured Party shall
otherwise consent in writing:

 

(a)           Performance of Obligations.  Pledgor will duly and punctually pay and
perform each of the Obligations to the extent such party is liable therefor,
including, without limitation, its obligations under this Agreement and each of
the other documents securing the Obligations, as the same may at any time be
amended or modified.

 

(b)           Preservation of Existence
and Franchises and Conduct of Business.  Pledgor will do , and will cause Provident to
do, or cause to be done, all things necessary to preserve and keep in full
force and effect its company existence, rights, leases (including oil and gas
leases), agreements, and all other licenses or rights necessary to comply with
all laws, regulations, rules, statutes, or other provisions applicable to the
respective entity in the operation of their respective business, noncompliance
with which would materially and adversely affect either the business or credit
of Provident.

 

(c)           Confidential Information.   Pledgor will, and will cause its
subsidiaries to, furnish to the Secured Party any information which the Secured
Party may from time to time reasonably request concerning any covenant,
provision or condition of the Agreement or any matter in connection with the
business and operations of Pledgor and its subsidiaries.  Secured Party agrees that, until the
occurrence of an Event of Default, it will take all reasonable steps to keep
confidential any proprietary information given to it by Pledgor, provided,
however, that this restriction shall not apply to information which (i) has
at the time in question entered the public domain through no default of this
provision, or (ii) is required to be disclosed by law or by any order, rule or
regulation (whether valid or invalid) of any court or governmental agency, or
authority.

 

(d)           Notice of Material Events
and Defense of Action. 
Pledgor will promptly notify Secured Party of:  (i) any material adverse change in
Pledgor’s or any subsidiary’s financial condition, (ii) the occurrence of
any Event of Default, (iii) the acceleration of the maturity of any debt
owed by Pledgor or subsidiary or of any default by Pledgor or any subsidiary
under any indenture, mortgage, agreement, contract or other instrument to which
Pledgor or any subsidiary is a party or by which any of them or any of the
properties is bound; (iv) any material adverse claim (or any claim of
$25,000 or more) asserted against Pledgor or any subsidiary or with respect to
Pledgor’s or any subsidiary’s properties, or (v) the filing of any suit or
proceeding against Pledgor or any subsidiary. 
Upon the occurrence of any of the foregoing, Pledgor will take, or cause
to be taken, all reasonably necessary or appropriate steps to remedy promptly
any such material adverse change or default, to protect against any such
adverse claim, to appear in and defend any such suit or proceeding, and to
resolve all controversies on account of any of the foregoing at Pledgor’s
expense.

 

(e)           Reporting Requirements.  Within ten (10) days of the end of each
calendar quarter, Pledgor shall furnish Secured Party with a sworn statement of
Pledgor, stating that Pledgor has no knowledge that an Event of Default has
occurred, or such event has occurred and is continuing as of the date of such
statement and a statement as to the nature thereof and the action which Pledgor
proposes to take with respect thereto.

 

23

 

9.             Expenses.  Pledgor will upon demand pay to Secured Party
the amount of any and all reasonable expenses, including the reasonable fees
and expenses of the Secured Party’s counsel and of any experts and agents,
which the Secured Party may incur after the occurrence of an Event of Default
(as hereinafter defined) in connection with (i) the custody or
preservation of, or the sale of, collection from, or other realization upon,
any of the Pledged Collateral, or (ii) the exercise or enforcement of any
of the rights of the Secured Party hereunder.

 

10.           Voting Rights and Dividends.  So long as no Event of Default or event that,
with the giving of notice or the lapse of time, or both, would become an Event
of Default shall have occurred and be continuing:

 

(a)           Pledgor shall
be entitled to exercise any and all voting and other consensual rights
pertaining to the Pledged Collateral or any part thereof for any purpose not
inconsistent with the terms of this Agreement; provided, however, Pledgor may
not exercise such voting rights so as to impair the value of the Pledged
Collateral or to dilute the Secured Party’s ownership percentage represented by
the Pledged Collateral and Secured Party shall not be required to exercise
preemptive rights.

 

(b)           Pledgor shall
be entitled to receive and retain any and all dividends and interest paid in
respect of the Pledged Collateral; provided, however, that any and all (A) dividends
and interest paid or payable other than cash in respect of, and instruments and
other property received, receivable or otherwise distributed in respect of, or
in exchange for, any Pledged Collateral; (B) dividends and other
distributions paid or payable in cash in respect of any Pledged Collateral in
connection with a partial or total liquidation or dissolution or in connection
with a reduction of capital, capital surplus or paid-in-surplus, and (C) cash
paid, payable or otherwise distributed in redemption of, or in exchange for,
any Pledged Collateral, shall be, and shall be forthwith delivered to the
Secured Party to hold as, Pledged Collateral and shall, if received by Pledgor,
be received in trust for the benefit of the Secured Party, be segregated from
the other property or funds of Pledgor, and be forthwith delivered to Secured
Party as Pledged Collateral in the same form as so received (with any necessary
endorsements); and provided further, that Pledgor shall promptly notify the
Secured Party of the occurrence of any of the above matters upon the occurrence
thereof.

 

(c)           Secured Party
shall execute and deliver (or cause to be executed and delivered) to Pledgor
all such proxies and other instruments as Pledgor may reasonably request for
the purpose of enabling Pledgor to exercise the voting and other rights which
Pledgor is entitled to exercise pursuant to paragraph (i) above and to
receive the dividends or interest payments which Pledgor is authorized to
receive and retain pursuant to Subsection (b) above.

 

11.           Events of Default.  The occurrence of any one or more of the
following events shall constitute an Event of Default hereunder:

 

(a)           Default Under
Obligations.  Pledgor
shall be in default under the terms of the Obligations, including the Note, the
NPA and this Agreement.

 

(b)           Defaults Under
Other Instruments.  Pledgor
shall be in default under the terms of any other documents and instruments
relating to the Aggregate Offering, as such term is defined in the NPA.

 

24

 

(c)           Insolvency.   Pledgor or any subsidiary shall admit in
writing Pledgor’s or subsidiary’s inability to pay its debts, or shall make a
general assignment of Pledgor’s or any subsidiary’s assets or property rights
for the benefit of Pledgor’s or any subsidiary’s creditors; or any proceeding
shall be instituted by or against Pledgor or any subsidiary seeking to
adjudicate Pledgor or any subsidiary as a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment or composition of Pledgor or any
subsidiary or Pledgor’s or any subsidiary’s debts under any law relating to
bankruptcy, insolvency or reorganization or release of debtors, or seeking appointment
of a receiver, custodian, trustee, or other similar official for Pledgor or any
subsidiary or for any substantial part of the property of Pledgor or any
subsidiary and in the case of any such proceeding instituted against Pledgor or
any subsidiary shall remain undismissed for a period of ninety (90) days.

 

(d)           Failure to
Perform Obligations.  Pledgor
shall fail to perform any of Pledgor’s covenants or obligations set forth in
this Agreement.

 

(e)           Falsity of
Representation.  Any
warranty, representation or statement made or furnished to Secured Party by
Pledgor pursuant to this Agreement shall prove to have been false in any
material respect when made or furnished.

 

(f)            Levy Against
Collateral.  The levy
against the Pledged Collateral, or any part thereof, of any execution,
attachment, sequestration or other writ.

 

12.           Remedies Upon Default.

 

(a)           Remedies.  Upon the occurrence of an Event of Default,
and in addition to any and all other rights and remedies which Secured Party
may then have hereunder, or under the Texas Business and Commerce Code or any
comparable uniform commercial code applicable to Pledgor (the “Code”), or otherwise, Secured Party may at
Secured Party’s option (i) declare the entire unpaid balance of principal
of, and all accrued interest on, the Obligations immediately due and payable
without demand, presentment, notice of default, notice of intent to accelerate
or notice of acceleration of maturity, all of which are hereby expressly
waived; (ii) notify any person obligated on any of the Pledged Collateral
of the security interest of Secured Party therein and request such person to
make payment directly to the Secured Party, (iii) demand, sue for, collect or
otherwise reduce Secured Party’s claims to judgment, foreclose or otherwise enforce
the Secured Party’s security interest through judicial procedure or make any
settlement or compromise Secured Party deems desirable with respect to any of
the Pledged Collateral; (iv) after notification, expressly provided for
herein, if any, sell or otherwise dispose of, at the office of Secured Party,
or elsewhere, as chosen by Secured Party, all or any part of the Pledged
Collateral, and any such sale or other disposition may be as a unit or in
parcels, by public or private proceedings, and by way of one or more contracts
(it being agreed that the sale of any part of the Pledged Collateral shall not
exhaust the power of sale granted hereunder, but sales may be made from time to
time until all of the Pledged Collateral has been sold or until the Obligations
have been paid in full) and at such sale it shall not be necessary to exhibit
the Pledged Collateral; (v) at Secured Party’s discretion, retain the
Pledged Collateral in satisfaction of the Obligations whenever the
circumstances are such that Secured Party is entitled to do so under the Code; (vi) apply
by appropriate judicial proceedings for appointment of a receiver for the
Pledged Collateral, or any part thereof; (vii) purchase the Pledged
Collateral at any public sale; (viii) purchase the Pledged Collateral at
any private sale; and/or (ix) exercise the rights set forth in Section 13(b) hereof.  The foregoing remedies shall be cumulative
and except for the provisions 

 

25

 

of
Section 13(a)(v) above without prejudice to the Secured Party’s right
to recover any deficiency including reasonable attorneys’ fees and costs
permitted by this Agreement.

 

(b)           Sale of Pledged Collateral.  Secured Party is authorized, at any sale of
the Pledged Collateral, if Secured Party deems it advisable, to restrict the
prospective bidders or purchasers to those persons who will represent and agree
that they are purchasing for their own account, for investment, and not with a
view to distribution or sale of any of the Pledged Collateral.  Upon any such sale, Secured Party shall have
the right to deliver, assign, and transfer to the purchaser thereof the Pledged
Collateral so sold.  Each purchaser at
any such sale shall hold the property sold absolutely, free from any claim or
right of whatsoever kind. Secured Party shall give Pledgor ten (10) days’
written notice of Secured Party’s intention to make any such public or private
sales or sale at broker’s board or on a securities exchange.  Such notice, in case of sale at broker’s
board or a securities exchange, shall state the board or exchange at which such
sale is to be made and the day on which the Pledged Collateral, or that portion
thereof so being sold, will first be offered to sale at such board or exchange.  At any such sale, the Pledged Collateral may
be sold in one lot as an entirety or in separate parcels, as the Secured Party
may determine.  Secured Party shall not
be obligated to make any such sale pursuant to any such notice.  Secured Party may, without notice or publication,
adjourn any public or private sale or cause the same to be adjourned from time
to time by announcement at the time and place fixed for the sale, and such sale
may be made at any time or place to which the same may be so adjourned.  In case of any sale of all or any part of the
Pledged Collateral on credit or for future delivery, the Pledged Collateral so
sold may be retained by the Secured Party until the selling price is paid by
the purchaser thereof, but the Secured Party shall not incur any liability in
case of the failure of such purchaser to take up and pay such selling price,
and such Pledged Collateral may again be sold upon like notice.  Secured Party may also, at Secured Party’s
discretion, proceed by a suit or suits at law, or in equity to foreclose the
pledge and sell the Pledged Collateral, or any portion thereof, under a
judgment or decree of a court or courts of competent jurisdiction.  If any consent, approval or authorization of
any state, municipal or other governmental department, agency or authority
should be necessary to effectuate any sale or other disposition of the Pledged
Collateral, or any part thereof, Pledgor will execute all such applications and
other instruments as may be required in connection with securing any such consent,
approval or authorization, and will otherwise use its best efforts to secure
the same.

 

(c)           Notification.  Reasonable notification of the time and place
of any public sale of the Pledged Collateral, or any reasonable notification of
the time after which any private sale or other intended disposition of the
Pledged Collateral is to be made, shall be sent to Pledgor and to any other
person entitled under the Code to notice; provided, however, that if the
Pledged Collateral threatens to decline quickly in value, Secured Party may
sell or otherwise dispose of the Pledged Collateral without notification,
advertisement or other notice of any kind. 
It is agreed that notice sent or given not less than ten (10) calendar
days prior to the taking of the action to which the notice relates is
reasonable notification and notice for the purpose of this Agreement.  Notice shall be deemed to be sent when it is
deposited in the United States Mail, return receipt requested, bearing the
proper postage and addressed to Pledgor and any other person entitled to
receive notice, at their last known address according to the records of the
Secured Party.

 

(d)           Application of Proceeds.  Upon the occurrence of an Event of Default or
maturity of any instrument evidencing the Obligations or any part thereof,
whether such maturity be by such terms of such instruments or through the
exercise of any power of acceleration, Secured Party is authorized and
empowered to apply any and all funds realized from the sale of the Pledged
Collateral not previously credited against the Obligations first toward the
payment of the 

 

26

 

costs,
charges and expenses, if any, incurred in the collection of such funds
hereunder, and then toward the payment of the Obligations, and shall pay any
balance remaining to Pledgor in accordance with the written instructions
executed by Pledgor or as prescribed by the Code.

 

(e)           Deficiency.  In the event that the proceeds of any sale,
collection or realization upon the Pledged Collateral by Secured Party are
insufficient to pay all amounts to which Secured Party is legally entitled,
Pledgor shall be liable for the deficiency, together with interest thereon at
such rate as shall be fixed by applicable law, together with the costs of
collection and the reasonable fees of any attorneys employed by Secured Party
to collect such deficiency.

 

13.           Secured Party Appointed
Attorney-in-Fact.  Pledgor
hereby irrevocably appoints Secured Party as Pledgor’s attorney-in-fact, with
full authority in the place and stead of Pledgor and in the name of Pledgor or
otherwise, from time to time in the Secured Party’s discretion after the
occurrence of an Event of Default to take any action and to execute any
instrument which the Secured Party may deem necessary or advisable to
accomplish the purpose of this Agreement, including, without limitation, (i) the
right and power to execute and deliver any and all powers and other
instruments, documents, certificates and agreements necessary or appropriate to
transfer ownership of the Pledged Collateral, and (ii) the right and power
to receive, endorse and collect all checks and other instruments made payable
to Pledgor representing any dividend, interest payment or other distribution in
respect of the Pledged Collateral or any part thereof and to give full
acquittance for the same.  The foregoing
appointment of the Secured Party as Pledgor’s attorney-in-fact is irrevocable
and is coupled with an interest.

 

14.           Certain Rights Before and
After a Default.

 

(a)           Secured Party May Perform.  If Pledgor fails to perform any agreement
contained herein, the Secured Party may perform, or cause performance of, such
agreement, and the expenses of the Secured Party incurred in connection
therewith shall be payable by Pledgor pursuant to the provisions of Section 9
hereof.

 

(b)           Notification of Issuer.  Secured Party shall have the right to notify
the issuer of the Pledged Collateral that the Pledged Collateral has been
pledged.

 

15.           Cumulative Rights and
Remedies.  All rights
and remedies of Secured Party hereunder are cumulative of each other and of
every other right or remedy which Secured Party may otherwise have at law or in
equity or under any other contract or other writing for the enforcement of the
security interest herein or the collection of the Obligations, and the exercise
by Secured Party of one or more rights or remedies shall not prejudice or
impair the concurrent or subsequent exercise of other rights or remedies.  Secured Party shall not be required to first endeavor
to collect from Pledgor or any other party obligated for the Obligations or to
proceed against or exhaust other collateral or security for the Obligations
hereby secured before pursuing any of Secured Party’s rights pursuant to this
Agreement against Pledgor.  Should
Pledgor have theretofore executed or hereafter execute any other security
agreement in favor of Secured Party in which a security interest is created as
security for the debts of Pledgor or another or others, in respect of which
Pledgor may not be personally liable, the security interest therein created and
all other rights,  powers and privileges
vested in Secured Party by the terms thereof shall exist concurrently with the
security interest created herein, and, in addition, all property in which
Secured Party holds a security interest under any such other security agreement
shall also be part of the Pledged Collateral hereunder, and all or any part of
the proceeds of the sale or other disposition of such property may, in the
discretion of Secured Party, be applied by it in accordance with the terms
hereof, and of such other security agreement, or agreements, or any of them.

 

27

 

16.           Surrender of Collateral.  Secured Party may surrender, release,
exchange or alter any collateral or security for the Obligations without
affecting the liability of Pledgor under this Agreement, and this Agreement
shall continue effective notwithstanding any legal disability of Pledgor to
incur any indebtedness or obligation incurred to Secured Party.

 

17.           Effect of Other Agreements.  This Agreement shall in no way be construed
as a limitation or extinguishment of any guaranty, security agreement, pledge
agreement, assignment, or any other instrument, document or agreement granting
an interest in collateral for or guaranteeing the payment or performance of the
Obligations executed by any person prior to, or contemporaneously with, the
execution of this Agreement, but all prior or contemporaneous guaranties, security
agreements, pledge agreements, assignments, or any other instruments,
documents, or agreement granting an interest in collateral for or guaranteeing
the payment or performance of the Obligations shall remain in full force and
effect in accordance with their terms.

 

18.           General Provisions.

 

(a)           Amendment.  This Agreement may not be modified, altered,
amended, or terminated except by the written agreement of the Secured Party and
Pledgor.

 

(b)           Severability.  If a court of competent jurisdiction
determines that any provision contained in this Agreement is void, illegal or
unenforceable, the other provisions shall remain in full force and effect and
the provision held to be void, illegal or unenforceable shall be limited so
that it shall remain in effect to the extent permissible by law.

 

(c)           Choice of Law
and Venue.  THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF TEXAS.  ANY LITIGATION, SPECIAL
PROCEEDING OR OTHER PROCEEDING AS BETWEEN THE PARTIES THAT MAY BE BROUGHT,
OR ARISE OUT OF, IN CONNECTION WITH OR BY REASON OF THIS AGREEMENT SHALL BE
BROUGHT IN THE APPLICABLE FEDERAL OR STATE COURT IN AND FOR HARRIS COUNTY,
TEXAS, WHICH COURTS SHALL BE THE EXCLUSIVE COURTS OF JURISDICTION AND VENUE.

 

(d)           Notices. Unless otherwise
provided, any notice required or permitted under this Agreement shall be given
in writing and shall be deemed effectively given as hereinafter described (i) if
given by personal delivery, then such notice shall be deemed given upon such
delivery, (ii) if given by telex or telecopier, then such notice shall be
deemed given upon receipt of confirmation of complete transmittal, (iii) if
given by mail, then such notice shall be deemed given upon the earlier of (A) receipt
of such notice by the recipient or (B) three days after such notice is
deposited in first class mail, postage prepaid, and (iv) if given by an
internationally recognized overnight air courier, then such notice shall be
deemed given one business day after delivery to such carrier. All notices shall
be addressed to the party to be notified at the address as follows, or at such
other address as such party may designate by ten days’ Loan written notice to
the other party:

 

28

 

If to Pledgor:

 

Arkanova Acquisition Corporation

2441
High Timbers Drive

Suite
120

The
Woodlands TX 77380

Fax:
281-298-9558

Attention:
Pierre Mulacek, President

 

If to the Investor:

 

To
the Address for Notice as provided on the signature page of the NPA.

 

(e)           Continuing
Security Interest.  This
Agreement shall create a continuing security interest in the Pledged Collateral
and shall remain in full force and effect until payment in full of the
Obligations.

 

(f)            Preparation of Agreement.  Each party to this Agreement acknowledges
that: (i) the party had the advice of, or sufficient opportunity to obtain the
advice of, legal counsel separate and independent of legal counsel for any
other party hereto; (ii) the terms of the transactions contemplated by this Agreement
are fair and reasonable to such party; and (iii) such party has voluntarily
entered into the transactions contemplated by this Agreement without duress or
coercion.  Each party further
acknowledges that such party was not represented by the legal counsel of any
other party hereto in connection with the transactions contemplated by this
Agreement, nor was he or it under any belief or understanding that such legal
counsel was representing his or its interests. 
Each party agrees that no conflict, omission or ambiguity in this
Agreement, or the interpretation thereof, shall be presumed, implied or
otherwise construed against any other party to this Agreement on the basis that
such party was responsible for drafting this Agreement.

 

(g)           Nonwaiver.  Unless otherwise expressly provided herein,
no waiver by the Secured Party of any provision hereof shall be deemed to have
been made unless expressed in writing and signed by the Secured Party.  No delay or omission in the exercise of any
right or remedy accruing to the Secured Party upon any breach under this
Agreement shall impair such right or remedy or be construed as a waiver of any
such breach theretofore or thereafter occurring.  The waiver by the Secured Party of any breach
of any term, covenant or condition herein stated shall not be deemed to be a
waiver of any other breach, or of a subsequent breach of the same or any other
term, covenant or condition herein contained.

 

(h)           Entire
Agreement.  This
Agreement sets forth the entire understanding of the parties with respect to
the Pledged Collateral and supersedes all prior or contemporaneous
representations, understandings and agreements, oral or written, made between
the parties effecting the subject matter hereof, and all such prior or
contemporaneous representations, understandings and agreements are hereby
terminated.

 

(i)            Parties Bound.  This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors, assigns,
heirs and personal representatives.

 

29

 

(j)            Counterpart
Execution.  This
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute but one and the
same instrument.

 

[REMAINDER OF PAGE INTENTIONALLY
LEFT BLANK]

 

30

 

Signatures

 

To
evidence the binding effect of the foregoing terms and condition, the parties
have executed and delivered this Agreement as of, but not necessarily on, the
date first above written.

 

 

ARKANOVA
ACQUISITION CORPORATION

 

 

	
  By:

  	
   

  	
   

  
	
   

  	
  Pierre Mulacek, President

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  ATON
  SELECT FUNDS LIMITED

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  David Dawes

  	
   

  
	
   

  	
  Director

  	
   

  

 

31

 

ANNEX “D”

 

THIS AGREEMENT RELATES TO AN OFFERING OF SECURITIES IN AN OFFSHORE
TRANSACTION TO PERSONS WHO ARE NOT U.S. PERSONS (AS DEFINED IN REGULATION S
UNDER THE 1933 ACT) PURSUANT TO REGULATION S UNDER THE UNITED STATES SECURITIES
ACT OF 1933, AS AMENDED (THE “1933 ACT”). NONE OF THE SECURITIES TO WHICH THIS
AGREEMENT RELATES HAVE BEEN REGISTERED UNDER THE 1933 ACT, OR ANY U.S. STATE
SECURITIES LAWS, AND, UNLESS SO REGISTERED, NONE MAY BE OFFERED OR SOLD,
DIRECTLY OR INDIRECTLY, IN THE UNITED STATES OR TO U.S. PERSONS (AS DEFINED
HEREIN EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF REGULATION S UNDER THE 1933
ACT, PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT, OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE 1933 ACT AND IN EACH CASE ONLY IN
ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS. IN ADDITION, HEDGING
TRANSACTIONS INVOLVING THE SECURITIES MAY NOT BE CONDUCTED UNLESS IN ACCORDANCE
WITH THE 1933 ACT.

 

GUARANTY
AGREEMENT

 

THIS GUARANTY AGREEMENT (this “Guaranty”) is made and entered into as of,
but not necessarily on, the 1st day of October, 2009, and
between Arkanova Energy Corporation. a Nevada corporation (“Guarantor”),and Aton Select
Funds Limited (the “Investor”)

 

Background

 

A.            On even date herewith
Arkanova Acquisition Corporation, a Delaware corporation and a wholly-owned
subsidiary of Guarantor (“Maker”),
and the Investor (“Payee”),
consummated the sale by Payee and the purchase by Maker of certain secured
indebtedness of Maker (the “Indebtedness”),
and to evidence the obligation of Maker to pay the Indebtedness Maker executed
and delivered to Payee that certain Consolidated Secured Promissory Note (the “Note”) evidencing Maker’s obligation to
pay to Payee the principal and interest set forth therein; and

 

B.            As a material inducement to
Payee purchase the Indebtedness and accept the Note as evidence of Maker’s
obligation to pay for same, Guarantor, being the sole shareholder of Maker, has
agreed to guarantee the payment of the indebtedness evidenced by the Note and
the performance of the obligations of Maker under the Note pursuant to the
terms and conditions set forth herein;

 

Terms and Conditions

 

In consideration of the
mutual benefits to be derived from the covenants and agreements herein
contained and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, hereby agree as follows:

 

32

 

1.             Guarantee of Maker’s
Obligations.  Guarantor, as
primary obligor and not merely as surety and intending to be legally bound
hereby, hereby absolutely, irrevocably, unequivocally and unconditionally,
guarantees to Payee the due, prompt and faithful performance of, compliance
with and execution of all of the terms, provisions, conditions, covenants,
warranties, obligations and agreements of Maker contained in, described in or
pursuant to the Note and this Guaranty, including the prompt and full payment
of all indebtedness of Maker to Payee arising pursuant to the Note and all
renewals and extensions thereof, now existing or hereafter arising pursuant to
the Note (the “Guaranteed Obligations”).  In the event of default by Maker in payment
or performance of the indebtedness evidenced by the Note, or any part thereof,
when such indebtedness or other obligations become due, whether by maturity,
prepayment or by acceleration, Guarantor shall, on demand and without further
notice of dishonor, pay the amount due thereon to Payee.  In the event of such payment is made by
Guarantor, then Guarantor shall be subrogated to the rights then held by Payee
with respect to the Guaranteed Obligations to the extent to which the
Guaranteed Obligations were discharged by Guarantor.  Upon payment by Guarantor of any sums to Payee
hereunder, all rights of Guarantor against Maker arising as a result therefrom
by way of right of subrogation or otherwise, shall in all respects be
subordinate and junior in right of payment to the prior indefeasible payment in
full of all the obligations of Maker to Payee under the Note.  This Guaranty shall be irrevocable by
Guarantor until all of the Guaranteed Obligations have been finally, completely
and indefeasibly paid in full and completely performed.

 

2.             Nondischargeability of
Guaranty.  Guarantor
hereby agrees that Guarantor’s obligations under the terms of this Guaranty
shall not be released, diminished, impaired, modified, affected or limited in
any manner whatsoever by the occurrence of any reason or event, including
without limitation, one or more of the following events: (a) the taking or
accepting of any other security for any or all of the Guaranteed Obligations; (b)
any indulgence, compromise, settlement or release which may be extended by
Payee to Maker, Guarantor or any one or more other parties liable in whole or
in part for the Guaranteed Obligations for such consideration as Payee may deem
proper; (c) the lack of corporate power of Maker, the insolvency or bankruptcy
of Maker, or any party at any time liable for the payment of any or all of the
Guaranteed Obligations, whether now existing or hereafter occurring; (d) any
renewal, extension, and/or rearrangement of the payment of any or all of the
Guaranteed Obligations with or without notice to or consent of Guarantor; (e) any
neglect, delay, omissions, failure, or refusal of Payee to take or prosecute
any action for the collection of any of the Guaranteed Obligations or to
foreclose or take or prosecute any action in connection with any instrument or
agreement evidencing or securing all or any part of the Guaranteed Obligations;
(f) the enforceability of all or any part of the Guaranteed Obligations against
Maker by reason of the fact that the Guaranteed Obligations exceed the amount
permitted by law, the act of creating the Guaranteed Obligations, or any part
thereof, is ultra vires, or the officers creating same acted in excess of their
authority; (g) any payment by Maker to Payee is held to constitute a preference
under the bankruptcy laws or if for any other reason Payee is required to
refund such payment or pay the amount thereof to someone else; or (h) any
impairment, modification, change, release or limitation of the liability of
Maker or Guarantor, or of any remedy for the enforcement thereof, resulting
from the operation of any present or future provision of the Federal Bankruptcy
Code or any similar law or statute of the United States or the State of Texas.

 

3.             No Setoff.  The obligations, guaranties, covenants,
agreements and duties of Guarantor under this Guaranty are primary obligations
of Guarantor and shall not be subject to any counterclaim, setoff, deduction,
diminution, abatement, recoupment, suspension, deferment, reduction or defense
based upon any claim that Maker, Guarantor or any other person or entity may
have against Payee.  The obligations of
Guarantor set forth herein constitute recourse obligations of Guarantor
enforceable against Guarantor to the full extent of Guarantor’s assets and
properties.

 

4.             Continuation of Guaranty.  Guarantor covenants that this Guaranty will
not be discharged except by complete performance of the Guaranteed Obligations
contained in this Guaranty.  This 

 

33

 

Guaranty shall not be
affected by, and shall remain in full force and effect notwithstanding, any
bankruptcy, insolvency, liquidation, or reorganization of Maker or Guarantor.

 

5.             Reliance on Guaranty.  Guarantor recognizes that Payee is relying
upon this Guaranty and the undertakings of Guarantor hereunder in purchasing
the Indebtedness and accepting the Note in connection therewith, and Guarantor
further recognizes that the execution and delivery of this Guaranty is a
material inducement to Payee in purchasing the Indebtedness and accepting the
Note as evidence of Maker’s obligation to pay for same in accordance with the
terms of the Note.

 

6.             Payments under Guaranty.  All amounts to be payable under this Guaranty
shall be payable at the address of Payee set forth in the Note or at such other
address as Payee may from time to time designate in writing.

 

7.             Representations of Guarantor.  Guarantor hereby represents, warrants and
covenants to Payee as follows:

 

(a)           Authorization.  Guarantor has all requisite corporate power
and authority to execute, deliver and perform this Guaranty.  The Guaranty constitutes the valid and
binding obligation of Guarantor, enforceable against Guarantor in accordance
with its terms, except as enforcement may be limited by bankruptcy, insolvency,
moratorium, reorganization or other laws or equitable principles relating to or
affecting creditors’ rights generally.

 

(b)           Benefit to
Guarantor.  Guarantor
has derived, or expects to derive, financial and other advantage and benefit,
directly or indirectly, from the consummation of the transactions contemplated
by the Note and the making of this Guaranty.

 

8.             Waiver.  Guarantor hereby waives notice to Guarantor
of the acceptance of this Guaranty, and of any default on the part of Maker of
Maker’s obligations under the Note to Payee, and all other notices in
connection herewith or in connection with the liabilities, obligations and
duties guaranteed hereby.  Guarantor
further waives diligence, presentment and suit on part of Payee in the
enforcement of any liability, obligation or duty guaranteed by Guarantor
hereunder.

 

9.             Enforcement of Guaranty.  Guarantor agrees that Payee shall not be
first required to enforce against Maker or any other person any liability,
obligation or duty guaranteed hereby before seeking enforcement thereof against
Guarantor.  Suit may be brought and
maintained against Guarantor by Payee to enforce any liability, obligation or
duty guaranteed hereby without joinder of Maker or any other party or without
Payee first exhausting Payee’s remedies against Maker or without Payee first
exhausting Payee’s rights against any security which shall ever have been given
to Payee to secure the payment or performance of the Guaranteed Obligations.

 

10.           Payment of Expenses and
Attorneys’ Fees.  Guarantor
agrees to pay, on demand, and to save Payee harmless against liability for, any
and all costs and expenses (including reasonable fees and disbursements of
counsel) incurred or expended by Payee in connection with the enforcement of or
preservation of any rights under this Guaranty.

 

11.           Governing Law.  THIS GUARANTY IS MADE, ENTERED INTO AND
PERFORMABLE IN HARRIS COUNTY, TEXAS, AND ALL PAYMENTS ARE DUE AND PAYABLE IN
HARRIS COUNTY, TEXAS.  CONSEQUENTLY, THIS
GUARANTY SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
STATE OF TEXAS WITHOUT REGARD TO ITS CONFLICTS OF LAW RULES AND ANY LITIGATION
OR OTHER PROCEEDING AS BETWEEN GUARANTOR AND PAYEE THAT MAY BE BROUGHT, 

 

34

 

OR ARISE OUT OF, IN
CONNECTION WITH OR BY REASON OF THIS GUARANTY SHALL BE BROUGHT IN THE
APPLICABLE FEDERAL OR STATE COURT IN AND FOR HARRIS COUNTY, TEXAS WHICH COURTS
SHALL BE THE EXCLUSIVE COURTS OF JURISDICTION AND VENUE.

 

12.           Termination of Guaranty.  This Guaranty shall terminate and be of no
further force or effect upon the payment of the Guaranteed Obligations in full.

 

13.           Reformation and Severability.  If any provision of this Guaranty is held to
be illegal, invalid or unenforceable under present or future laws effective
during the term hereof (i) in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as a part of this Guaranty a
provision as similar in terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable, and (ii) the
legality, validity and enforceability of the remaining provisions hereof shall
not in any way be affected or impaired thereby.

 

14.           Successors and Assigns.  This Guaranty shall be binding upon Guarantor
and its heirs, personal representatives, successors and permitted assigns.  Guarantor may not assign or transfer any of
Guarantor’s rights or obligations hereunder without the prior written consent
of Payee.  In the event of an assignment by
Payee of its rights or interest in the Guaranteed Obligations including the
Note, or any part thereof, the rights and benefits hereunder, to the extent
applicable to the indebtedness so assigned shall automatically pass with a
transfer or assignment of the Note or any interest therein to any holder
thereof.

 

15.           Entire Agreement.  This Guaranty embodies the final, entire
agreement of Guarantor with respect to the subject matter hereof and supersedes
any and all prior or contemporaneous agreements, representations and
understandings, whether written or oral, relating to this Guaranty.

 

[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]

 

35

 

Guarantor Signature

 

To
evidence the binding effect of the foregoing terms, Guarantor has executed and
delivered this Guaranty as of, but not necessarily on, the date first above
written.

 

 

	
  ARKANOVA
  ENERGY CORPORATION

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Pierre Mulacek, President

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  ACCEPTED:

  	
   

  
	
   

  	
   

  	
   

  
	
  ATON
  SELECT FUNDS LIMITED

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  David Dawes

  	
   

  
	
   

  	
  Director

  	
   

  

 

36Exhibit 10.3

 

THIS
INSTRUMENT RELATES TO AN OFFERING OF SECURITIES IN AN OFFSHORE TRANSACTION TO
PERSONS WHO ARE NOT U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE 1933
ACT) PURSUANT TO REGULATION S UNDER THE UNITED STATES SECURITIES ACT OF 1933,
AS AMENDED (THE “1933 ACT”). NONE OF THE SECURITIES TO WHICH THIS INSTRUMENT
RELATES HAVE BEEN REGISTERED UNDER THE 1933 ACT, OR ANY U.S. STATE SECURITIES
LAWS, AND, UNLESS SO REGISTERED, NONE MAY BE OFFERED OR SOLD, DIRECTLY OR
INDIRECTLY, IN THE UNITED STATES OR TO U.S. PERSONS (AS DEFINED HEREIN EXCEPT
IN ACCORDANCE WITH THE PROVISIONS OF REGULATION S UNDER THE 1933 ACT, PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT, OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE 1933 ACT AND IN EACH CASE ONLY IN ACCORDANCE WITH ALL
APPLICABLE SECURITIES LAWS. IN ADDITION, HEDGING TRANSACTIONS INVOLVING THE
SECURITIES MAY NOT BE CONDUCTED UNLESS IN ACCORDANCE WITH THE 1933 ACT.

 

	
  USD $ 12, 000,000.00

  	
  October
  1, 2009

  

 

ARKANOVA ACQUISITION CORPORATION

 

SECURED PROMISSORY NOTE

 

A.            FOR VALUE RECEIVED, Arkanova
Acquisition Corporation, a corporation organized and existing under
the laws of the State of Delaware (the “Company”),
promises to pay to Aton Select Funds Limited,
the registered holder hereof (the “Holder”), the
principal sum of Twelve Million and No/100 United States Dollars (US $12,000,000.00)
on the Maturity Date (as defined below) and to pay interest on the principal
sum outstanding from time to time in arrears at the rate of six percent (6.0 %)
per annum (computed on the basis of the actual number of days elapsed and a
year of 365 days), accruing from the date of initial issuance of this Note,
until payment in full of the principal sum has been made or duly provided for
(whether before or after the Maturity Date). 
This Note is being issued by the Company in exchange for the loan by the
Holder to the Company of an additional One Million One Hundred Sixty-Eight
Thousand Seven Hundred Twenty-Nine and 17/100 United States Dollars (US
$1,668,729.17) plus the cancellation of the following Promissory Notes:

 

(i)            Promissory Note from the
Company to Aton Select Fund Limited dated September 3, 2008, in the original
principal amount of Nine Million and No/100 United States Dollars (US
$9,000,000.00) (the “$9 Million Note”);

 

(ii)           Promissory Note from the
Company to Aton Select Fund Limited dated April 29, 2009, in the original
principal amount of Six Hundred Thousand and No/100 United States Dollars (US
$600,000); and

 

(iii)          Promissory Note from the
Company to Aton Select Fund Limited dated April 14, 2009, in the original
principal amount of Four Hundred Twelve Thousand Five Hundred and No/100 United
States Dollars (US $412,500).

 

This
Note is also being issued pursuant to the terms of a Note Purchase Agreement of
even date herewith (the “NPA”), to which
the Company and the Holder (or the Holder’s predecessor in interest) are
parties.  Capitalized terms not otherwise
defined herein shall have the meanings ascribed to them in the NPA.

 

 

This
Note is subject to the following additional provisions:

 

1.             Maturity Date.  The term “Maturity Date”
means September 30, 2011.

 

2.             Security.  The payment when due of this Note is secured
by a pledge of all of the membership interests in the Company’s wholly owned
subsidiary, Provident Energy Associates of Montana, LLC, a Montana limited
liability company, in accordance with the terms and conditions of a Pledge
Agreement of even date herewith.

 

3.             Alternative Interest
Payment Option.  Interest on
this Note shall be paid within ten (10) Business Days following the Maturity
Date in shares of common stock of Arkanova Energy Corporation, the publicly
traded parent corporation of the Company (“AEC”).  The number of shares of common stock of AEC
payable as interest on the Note shall be determined by dividing Seven Hundred
Twenty Thousand and No/100 United States Dollars (US $720,000.00) by the
average stock price for AEC’s common stock over the fifteen (15) Business Day
period immediately preceding the Maturity Date.

 

4.             Prepayment
Provisions.  This Note
may be prepaid in whole or in part at any time prior to the Maturity Date,
without penalty, so long as all accrued interest is paid in shares of common
stock AEC as determined in Section 3 above with the date of payment (as such
term is defined in Section 7 hereof) being substituted for the Maturity Date in
making the calculation of the number of shares to be delivered to the Holder by
the Company.

 

5.             Default.  The Company shall be in default hereunder if
payment is not made by the end of the Holder’s close of business on the tenth
(10th) Business Day
following the Maturity Date.

 

6.             Manner of
Payments.  Except as
provided in Section 3 hereof, all payments contemplated hereby to be made “in
cash” shall be made in immediately available good funds of United States of
America currency by wire transfer to an account designated in writing by the
Holder to the Company (which account may be changed by notice similarly given).  For purposes of this Note, the phrase “date
of payment” means the date good funds are received in the account designated by
the notice which is then currently effective.

 

7.             No Impairment;
Direct Obligation.  Subject to
the terms of the NPA, no provision of this Note shall alter or impair the
obligation of the Company, which is absolute and unconditional, to pay the
principal of, and interest on, this Note at the time, place, and rate, and in
the coin or currency, as herein prescribed. This Note is a direct obligation of
the Company.

 

8.             Limited
Recourse.  No recourse
shall be had for the payment of the principal of, or the interest on, this
Note, or for any claim based hereon, or otherwise in respect hereof, against
any incorporator, shareholder, officer or director, as such, past, present or
future, of the Company or any successor corporation, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment
or penalty or otherwise, all such liability being, by the acceptance hereof and
as part of the consideration for the issue hereof, expressly waived and
released.

 

9.             Restrictions on
Resale.  The Holder of the Note, by
acceptance hereof, agrees that this Note is being acquired for investment and
that such Holder will not offer, sell or otherwise dispose of this Note except
under circumstances which will not result in a violation of the Securities Act
of 1933, as amended, or any applicable state blue sky or foreign laws or
similar laws relating to the sale of securities.

 

2

 

10.           Notices.  Any notice given by any party to the other
with respect to this Note shall be given in the manner contemplated by the NPA
in the Section entitled “Notices.”

 

11.           Applicable Laws.  This Note shall be governed by and construed
in accordance with the laws of the State of Texas.  Each of the parties consents to the exclusive
jurisdiction of the Courts of the State of Texas in connection with any dispute
arising under this Agreement and hereby waives, to the maximum extent permitted
by law, any objection, including any objection based on forum
non coveniens, to the bringing of any
such proceeding in such jurisdictions. 
To the extent determined by such court, the Company shall reimburse the
Holder for any reasonable legal fees and disbursements incurred by the Holder
in enforcement of or protection of any of its rights under any of this Note.

 

12.           Jury Trial
Waiver. The Company and the Holder hereby waive a trial by jury in any
action, proceeding or counterclaim brought by either of the Parties hereto
against the other in respect of any matter arising out of or in connection with
this Note.

 

13.           Events of
Default.  Each of he following shall
constitute an “Event of Default”:

 

(a)           Default in Payment.  The Company shall default in the payment of
principal or interest on this Note or any other amount due; or

 

(b)           Breach of Representation or
Warranty.  Any of the
representations or warranties made by the Company herein, in the NPA or any of
the other Transaction Agreements shall be false or misleading in any material
respect at the time made; or

 

(c)           Change of Management.  The occurrence of any event which results in
the current executive officers of the Company no longer serving in their
respective current capacities with the Company; or

 

(d)           Assignment for Creditors.  The Company shall (i) make an assignment for
the benefit of creditors or commence proceedings for its dissolution; or (ii) apply
for or consent to the appointment of a trustee, liquidator or receiver for its
or for a substantial part of its property or business; or

 

(e)           Appointment of Trustee.  A trustee, liquidator or receiver shall be
appointed for the Company or for a substantial part of its property or business
without its consent; or

 

(f)            Court Control.  Any governmental agency or any court of
competent jurisdiction at the instance of any governmental agency shall assume
custody or control of the whole or any substantial portion of the properties or
assets of the Company; or

 

(g)           Bankruptcy Proceedings. Bankruptcy,
reorganization, insolvency or liquidation proceedings or other proceedings for
relief under any bankruptcy law or any law for the relief of debtors shall be
instituted by or against the Company.

 

If
an Event of Default shall have occurred, then, or at any time thereafter, and
in each and every such case, unless such Event of Default shall have been
waived in writing by the Holder (which waiver shall not be deemed to be a
waiver of any subsequent default) at the option of the Holder and in the Holder’s
sole discretion, the Holder may consider this Note immediately due and payable
(and the Maturity Date shall be accelerated accordingly), without presentment,
demand, protest or notice of any kinds, all of which are hereby expressly
waived, anything herein or in any note or other instruments contained to the
contrary notwithstanding, and interest shall accrue on the total amount due
(the “Default 

 

3

 

Amount”) on the date
of the Event of Default (the “Default Date”)
at the rate of 12% per annum or the maximum rate allowed by law, whichever is
lower, from the Default Date until the date payment is made, and the Holder may
immediately enforce any and all of the Holder’s rights and remedies provided
herein or any other rights or remedies afforded by law.

 

14.           Covenants of
the Company.  The Company
covenants and agrees that, so long as any principal of, or interest on, this
Note shall remain unpaid, unless the Holder shall otherwise consent in writing,
it will comply with the following terms:

 

(a)           Reporting Requirements. The Company
will furnish to the Holder or make publicly available:

 

(i)            as soon as possible, and in
any event within ten (10) days after obtaining knowledge of the occurrence of (A)
an Event of Default, (B) an event which, with the giving of notice or the lapse
of time or both, would constitute an Event of Default, or (C) a material
adverse change in the condition or operations, financial or otherwise, of the
Company, taken as whole, the written statement of the Chief Executive Officer
or the Chief Financial Officer of the Company, setting forth the details of
such Event of Default, event or material adverse change; and

 

(ii)           promptly after the
commencement thereof, notice of each action, suit or proceeding before any
court or other governmental authority or other regulatory body or any
arbitrator as to which there is a reasonable possibility of a determination
that would (A) materially impact the ability of the Company to conduct its
business, (B) materially and adversely affect the business, operations or
financial condition of the Company, or (C) impair the validity or
enforceability of the Note or the ability of the Company to perform their
obligations under the Note.

 

(b)           Compliance with Laws. The Company
will comply, in all material respects with all applicable laws, rules,
regulations and orders, except to the extent that noncompliance would not have
a Material Adverse Effect upon the business, operations or financial condition
of the Company taken as a whole.

 

(c)           Preservation of Existence. The Company
will maintain and preserve its existence.

 

(d)           Maintenance of Properties. The Company
will maintain and preserve all of its material properties which are necessary
in the proper conduct of its business in good working order and condition,
ordinary wear and tear excepted, and comply, at all times with the provisions
of all material leases (including oil and gas leases) to which it is a party as
lessee or under which it occupies property, so as to prevent any material
forfeiture or material loss thereof thereunder.

 

(e)           Maintenance of Insurance. The Company
will maintain, with responsible and reputable insurers, insurance with respect
to its properties and business, in such amounts and covering such risks, as is
carried generally in accordance with sound business practice by companies in
similar businesses in the same localities in which the Company is situated.

 

(f)            Keeping of Records and Books
of Account. The Company will keep adequate records and books
of account, with complete entries made in accordance with generally accepted
accounting principles, reflecting all of its financial and other business
transactions.

 

4

 

15.           Qualification.  In the event for any reason, any payment by
or act of the Company or the Holder shall result in payment of interest which
would exceed the limit authorized by or be in violation of the law of the
jurisdiction applicable to this Note, then ipso facto the
obligation of the Company to pay interest or perform such act or requirement
shall be reduced to the limit authorized under such law, so that in no event
shall the Company be obligated to pay any such interest, perform any such act
or be bound by any requirement which would result in the payment of interest in
excess of the limit so authorized. In the event any payment by or act of the
Company shall result in the extraction of a rate of interest in excess of a sum
which is lawfully collectible as interest, then such amount (to the extent of
such excess not returned to the Company) shall, without further agreement or
notice between or by the Company or the Holder, be deemed applied to the
payment of principal, if any, hereunder immediately upon receipt of such excess
funds by the Holder, with the same force and effect as though the Company had
specifically designated such sums to be so applied to principal and the Holder
had agreed to accept such sums as an interest-free prepayment of this Note. If
any part of such excess remains after the principal has been paid in full,
whether by the provisions of the preceding sentences of this Section or
otherwise, such excess shall be deemed to be an interest-free loan from the
Company to the Holder, which loan shall be payable immediately upon demand by
the Company. The provisions of this Section shall control every other provision
of this Note.

 

Signature

 

To
evidence the binding effect of the foregoing provisions, the Company has caused
this instrument to be duly executed by an officer thereunto duly authorized as
of, but not necessarily on, the date first above written.

 

 

	
   

  	
  ARKANOVA
  ACQUISITION CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/Pierre
  Mulacek

  
	
   

  	
   

  	
  Pierre
  Mulacek, President

  

 

5

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00163-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00163-of-00352.parquet"}]]