Exhibit 10.1

 

AGREEMENT REGARDING PAYOFF AND RELEASE OR AMENDMENT OF NOTES

 

This AGREEMENT REGARDING PAYOFF AND RELEASE OR AMENDMENT OF NOTES (this
“Agreement”) is entered into this 25th day of May, 2020, by and among Carbon
Energy Corporation, a Delaware corporation (“Issuer”), Old Ironsides Fund II-A
Portfolio Holding Company, LLC, a Delaware limited liability company (“Holder
Fund II-A”) and Old Ironsides Fund II-B Portfolio Holding Company, LLC, a
Delaware limited liability company (“Holder Fund II-B” and together with Holder
Fund II-A, the “Holders”). Holders and Issuer are referred herein as the
“Parties” and individually, a “Party.” Any capitalized term used herein but not
otherwise defined shall have the meaning given to such term in the Purchase
Agreement (as defined below) or the Notes (as defined below), as applicable.

 

Recitals:

 

A.On December 31, 2018, Issuer issued to Holder Fund II-A that certain
Promissory Note (the “Fund II-A Note”) in the original principal amount of
Twenty Million Eight Hundred Forty-Two Thousand Six Hundred Sixty-Five and
51/100s Dollars ($20,842,665.51), as adjusted in accordance with the terms and
conditions of the Fund II-A Note. As of March 31, 2020, the outstanding
principal amount of the Fund II-A Note was $19,287,310.00 and the accrued but
unpaid interest under the Fund II-A Note was $2,612,849.73, which interest is
accruing at the rate of $6,228.54 per day.

 

B.On December 31, 2018, Issuer issued to Holder Fund II-B that certain
Promissory Note (the “Fund II-B Note”) in the original principal amount of Four
Million Two Hundred Twenty-Two Thousand Five Hundred Eighteen and 49/100s
Dollars ($4,222,518.49), as adjusted in accordance with the terms and conditions
of the Fund II-B Note. As of March 31, 2020, the outstanding principal amount of
the Fund II-B Note was $3,907,010.00 and the accrued but unpaid interest under
the Fund II-B Note was $529,282.57, which interest is accruing at the rate of
$1,261.71 per day.

 

C.The terms of the Fund II-A Note and the Fund II-B Note (each, a “Note” and
collectively, the “Notes”) require that, among other things, Issuer make
mandatory prepayments of the Notes in an amount equal to the lesser of (i) the
then-outstanding Obligations (as such term is defined in each Note) and (ii) the
Net Cash Proceeds (as such term is defined in each Note) received by Issuer from
the sale of its assets.

 

D.Issuer is party to that certain Membership Interest Purchase and Sale
Agreement dated April 7, 2020, by and among Issuer, Nytis Exploration (USA) Inc.
and Diversified Gas & Oil Corporation (the “Purchase Agreement”) pursuant to
which Issuer will sell substantially all of its assets and, at the closing
thereof and at later dates, will receive Net Cash Proceeds.

 

E.Holders and Issuer genuinely disagree on the amount of Net Cash Proceeds and
the proper application thereof to the repayment of the Notes pursuant to the
terms of the Notes, but the Parties all agree that the expected Net Cash
Proceeds at the Closing of the Purchase Agreement are less than the amount of
the then-outstanding Obligations under the Notes.

 

F.Issuer has requested that Holders (i) terminate the Notes in exchange for the
payment to Holders of an aggregate amount of $20,000,000 (the “Payoff
Discount”), which is an amount less than the amount of the outstanding
Obligations under the Notes or (ii) if the Net Cash Proceeds paid to Holders
exceed $18,000,000 (the “Minimum Payoff Amount”) but are less than the full
amount of the Payoff Discount, write down the current outstanding balance
(principal and accrued interest) due under the Notes in accordance with this
Agreement (the “Notes Amendment”).

 

 

 

 

G.Holders are willing to agree to (i) the Payoff Discount or (ii) the Notes
Amendment, in each case subject to the terms of this Agreement.

 

H.The Parties agree that any payment made to Holders pursuant to this Agreement
shall be made in cash and in proportion to the principal outstanding amount of
each respective Note (i.e., 83.15% to the Fund II-A Note and 16.85% to the Fund
II-B Note) (the “Notes Allocation Ratio”).

 

I.The Parties wish to resolve the entire controversy and dispute between them,
and enter into this Agreement solely due to the vagaries of litigation, neither
admitting the facts relied on by the other nor conceding the legal positions
respectively asserted by them. Neither the execution of this Agreement nor any
specific provision hereof will be construed as any admission by either Party
that the other would have prevailed, in whole or in part, in a judicial
proceeding on the matters set forth herein.

 

NOW, THEREFORE, in consideration of the promises and covenants set forth herein,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Parties agree as follows:

 

l. Payoff Discount. Except for as set forth expressly herein, Issuer hereby
acknowledges and reiterates its obligation pursuant to Article 3.4(a)(i) of the
Notes to pay any Net Cash Proceeds under the Purchase Agreement to the Holders
no later than the third business day following the date of receipt by Issuer of
any such Net Cash Proceeds. For the avoidance of doubt, the Net Cash Proceeds
required to be paid to Holders include, but not limited to, any amount of the
Deposit released to (or due and releasable to) Issuer or for Issuer’s account,
any amounts in the Indemnity Escrow Fund returned to (or due and returnable to)
Issuer or for Issuer’s account, any amounts paid to (or due and payable to) the
Issuer or for Issuer’s account under Article 13.2 of the Purchase Agreement and
any amounts paid to (or due and payable to) Issuer or for Issuer’s account with
respect to the conveyance to Purchaser of any Purchase Agreement Assets which
were initially excluded from the transaction for failure to obtain a Material
Required Consent (each such term as defined in the Purchase Agreement).

 

Notwithstanding the above and in settlement of a dispute among the Parties
regarding the appropriate calculation of Net Cash Proceeds with respect to the
Purchase Agreement, Holders agree to terminate the Notes and release all
outstanding Obligations of Issuer in consideration for the timely payment in
cash of the Payoff Discount so long as the Payoff Discount shall be made with
Net Cash Proceeds under the Notes and is to be paid to Holders in cash, in two
tranches. The first tranche shall be in an amount of at least $10,500,000 (the
“Closing Payoff Amount”) and shall be paid, solely with respect thereto, within
three business days of the Closing, the second tranche shall be in an amount
equal to any other Net Cash Proceeds payable to the Holders pursuant to the
preceding paragraph (the “Final Settlement Statement Payoff Amount”) and shall
be paid within three business days of the settlement and payment of the Final
Base Purchase Price. Each of the Closing Payoff Amount, the Final Settlement
Statement Payoff Amount and any other amounts paid to the Holders hereunder
shall be allocated between the Holders in accordance with the Notes Allocation
Ratio.

 

Issuer shall give notice to Holders in accordance with paragraph 8 hereof of the
Closing and the Final Determination Date as soon as the same are known to
Issuer.

 

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2. Release of Issuer. Upon Holders’ receipt of the Payoff Discount, solely in
accordance with the timing set forth in the second paragraph of paragraph 1
above, the Notes shall be deemed paid in full and Holders will be deemed to have
released and discharged Issuer from any liability it might have to repay the
Notes and from any of the other Obligations under the Notes and the other Note
Documents (as such term is defined in the Notes) and Holders shall redeliver to
Issuer the original Notes within two business days of the Holders’ receipt of
their respective portions of the Payoff Discount, which Issuer may mark “paid in
full.”

 

3. Notes Amendment.

 

If and only if the Closing Payoff Amount plus the Final Settlement Statement
Payoff Amount plus the other payment(s) received by the Holders pursuant to the
second paragraph in paragraph 1 hereof by the date that the Final Settlement
Statement Payoff Amount is due under paragraph 1 is more than the Minimum Payoff
Amount but less than the full amount of the Payoff Discount, (i) Holder Fund
II-A and Issuer shall amend the Fund II-A Note in writing to reflect that,
immediately after the payments on the date that the Final Settlement Statement
Payoff Amount is due, the outstanding principal balance plus all accrued but
unpaid interest on the Fund II-A Note shall be written down to an amount equal
to $17,878,077.75 minus the amount of the aggregate payments received by Holder
Fund II-A from Issuer pursuant to paragraph 1 hereof, (ii) Holder Fund II-B and
Issuer shall amend the Fund II-B Note in writing to reflect that, immediately
after the payment on the date that the Final Settlement Statement Payoff Amount
is due, the outstanding principal balance plus all accrued but unpaid interest
on the Fund II-B Note shall be written down to an amount equal to $3,621,922.25
minus the amount of the aggregate payments received by Holder Fund II-B from
Issuer pursuant to paragraph 1 hereof and (iii) the amended principal balance of
each Note shall constitute the new Tranche A Adjusted Principal Balance.

 

If the Closing Payoff Amount plus the Final Settlement Statement Payoff Amount
plus the other payment(s) received by the Holders pursuant to the second
paragraph in paragraph 1 hereof by the date that the Final Settlement Statement
Payoff Amount is due under paragraph 1 is less than the Minimum Payoff Amount,
then if and only if the Closing Payoff Amount plus the Final Settlement
Statement Payoff Amount plus any Net Cash Proceeds from the first Contingent
Payment under the Purchase Agreement (which shall be paid to Holders within
three business days of when such amount is due and payable to Issuer, such date
“First Contingent Payment Date”) plus the other payment(s) received by the
Holders pursuant to the second paragraph in paragraph 1 hereof by the First
Contingent Payment Date is more than the Minimum Payoff Amount, (i) Holder Fund
II-A and Issuer shall amend the Fund II-A Note in writing to reflect that,
immediately after the payments on the First Contingent Payment Date, the
outstanding principal balance plus all accrued but unpaid interest on the Fund
II-A Note shall be written down to an amount equal to $19,124,500.00 minus the
amount of the aggregate payments received by Holder Fund II-A from Issuer in
accordance with this Agreement, (ii) Holder Fund II-B and Issuer shall amend the
Fund II-B Note in writing to reflect that, immediately after the payment on the
First Contingent Payment Date, the outstanding principal balance plus all
accrued but unpaid interest on the Fund II-B Note shall be written down to an
amount equal to $3,875,500.00 minus the amount of the aggregate payments
received by Holder Fund II-B from Issuer in accordance with this Agreement and
(iii) the amended principal balance of each Note shall constitute the new
Tranche A Adjusted Principal Balance.

 

Each amendment described in this paragraph 3 above, as applicable, is
hereinafter referred to as a “Note Amendment” and collectively, the “Notes
Amendments”.

 

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4. Survival of the Notes.

 

(A) If the Closing Payoff Amount has not been delivered in full to Holders by
Issuer on or prior to July 31, 2020 due to the closing of the Purchase Agreement
fails to occur on or prior to July 30, 2020, this Agreement shall be deemed
automatically terminated and of no further force or effect, and the Notes (as in
effect on the date hereof) shall remain binding on the Parties.

 

(B) If the Closing Payoff Amount plus the Final Settlement Statement Payoff
Amount plus any Net Cash Proceeds from the first Contingent Payment under the
Purchase Agreement received by Holders plus the other payment(s) received by the
Holders pursuant to the second paragraph in paragraph 1 hereof by the First
Contingent Payment Date is less than the Minimum Payoff Amount, (i) the Closing
Payoff Amount, the Final Settlement Statement Payoff Amount, any Net Cash
Proceeds from the first Contingent Payment under the Purchase Agreement received
by Holders, and the other payment(s) received by the Holders pursuant to
paragraph 1 hereof by the date that the Final Payoff Amount is due shall be
deemed to constitute a Mandatory Prepayment under Article 3.4(a)(i) of the
Notes, (ii) the Notes (as in effect on the date hereof) shall remain binding on
the Parties, and (iii) paragraph 3 hereof shall be deemed automatically deleted
and of no further force or effect.

 

(C) Except as expressly amended in accordance with the terms of this Agreement
upon fulfilling the conditions set forth herein, all other terms and conditions
of the Notes remain in full force and effect and Holders are not waiving any of
its rights under the Notes by entering into this Agreement. Issuer hereby
adopts, ratifies and confirms the Notes as maybe expressly amended hereby.

 

5. Holders’ Representations and Warranties.

 

(A) Holder Fund II-A hereby expressly represents and warrants to Issuer that it
has not assigned, sold, transferred or otherwise conveyed or purported to
assign, sell, transfer or otherwise convey all or any portion of the Fund II-A
Note or any of the Obligations thereunder.

 

(B) Holder Fund II-B hereby expressly represents and warrants to Issuer that it
has not assigned, sold, transferred or otherwise conveyed or purported to
assign, sell, transfer or otherwise convey all or any portion of the Fund II-B
Note or any of the Obligations thereunder.

 

6. Mutual Representations and Warranties. Each of the Parties acknowledges,
agrees, represents and warrants that:

 

(A) It has duly executed and delivered this Agreement and is fully authorized to
enter into and perform this Agreement and every term hereof;

 

(B) It has been represented by legal counsel in the negotiation and joint
preparation of this Agreement, has received advice from legal counsel in
connection with this Agreement and is fully aware of this Agreement’s provisions
and legal effect; and

 

(C) It enters into this Agreement freely, without coercion, and based on its own
judgment and not in reliance upon any representations or promises made by the
other Parties, apart from those set forth in this Agreement.

 

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7. Severability. If any term, provision, covenant, agreement or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants, agreements
and restrictions of this Agreement will continue in full force and effect and
will in no way be affected, impaired or invalidated.

 

8. Notices. Unless otherwise provided herein, any notice, request, consent,
instruction or other document to be given hereunder by any party hereto to the
other party hereto shall be in writing and will be deemed given (a) when
received if delivered personally or by courier; or (b) on the date receipt is
acknowledged if delivered by certified mail, postage prepaid, return receipt
requested; as follows:

 

If to a Holder, addressed to:

 

Old Ironsides Energy

Attention: Scott Carson

10 St. James Avenue, 19th Floor

Boston, Massachusetts 02116

scarson@oldironsidesenergy.com

 

With a copy to:

 

White & Case LLP

Attention: Mingda Zhao

609 Main Street

Suite 2900

Houston, Texas 77002

mingda.zhao@whitecase.com

 

If to Issuer, addressed to:

 

Carbon Energy Corporation

Attention: Patrick R. McDonald

1700 Broadway, Suite 1170

Denver, Colorado 80290

pmcdonald@carbonenergycorp.com

 

With a copy to:

 

Welborn Sullivan Meck & Tooley, P.C.

Attention: Jeffrey J. Peterson

1125 17th Street, Suite 2200

jpeterson@wsmtlaw.com

 

or to such other place and with such other copies as either party may designate
as to itself by written notice to the others in accordance with this paragraph
8.

 

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9. Release and Indemnification of Holders. Issuer agrees to indemnify and hold
Holders harmless from any and all claims, causes of action, and liabilities, of
any kind or character, whether known or unknown, arising from and against any
and all Indemnified Liabilities (as such term is defined in the Notes, provided
that this Agreement shall be deemed to be a “Note Document” as defined therein)
provided, the Issuer shall have no obligation to any Indemnitee hereunder with
respect to any Indemnified Liabilities to the extent such Indemnified
Liabilities arise from the gross negligence or willful misconduct of that
Indemnitee as determined by a court of competent jurisdiction in a final,
nonappealable order. Upon Holders’ receipt of the Payoff Discount, Issuer hereby
forever releases, discharges and acquits Holders, and each of their successors,
assigns, and Related Parties, from any and all obligations to Issuer (and its
successors, assigns, and Related Parties) through the date hereof, and hereby
further waives, releases and discharges, any and all claims (including, without
limitation, crossclaims, counterclaims, rights of set-off and recoupment),
demands, debts, accounts, contracts, liabilities, damages, actions and causes of
actions, whether in law or in equity, of whatsoever nature and kind, whether
known or unknown, whether now or hereafter existing, that Issuer at any time had
or has, or that its successors, assigns, affiliates, shareholders and
controlling persons hereafter can or may have against Holders, or any of their
successors, assigns, or Related Parties through such date of payment, in each
case, solely in connection with this Agreement, the Notes, all other documents
executed in connection therewith, and the transactions contemplated thereby. As
used herein, the term “Related Parties” means, with respect to any specified
Person, such Person’s affiliates and the respective partners, directors,
managers, officers, employees, agents, trustees, administrators, representatives
and advisors (including attorneys, accountants and experts) of such Person and
of such Person’s Affiliates.

 

10. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED AND INTERPRETED AND THE
RIGHTS OF THE PARTIES GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK.

 

11. Jurisdiction, Consent to Service of Process, Waiver of Jury Trial.

 

(a) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT SHALL BE
BROUGHT IN A DELAWARE STATE OR FEDERAL COURT LOCATED IN WILMINGTON, DELAWARE,
AND NOT IN ANY OTHER STATE OR FEDERAL COURT IN THE UNITED STATES OF AMERICA OR
ANY COURT IN ANY OTHER COUNTRY, AND, BY EXECUTION AND DELIVERY OF THIS
AGREEMENT, EACH PARTY HERETO HEREBY ACCEPTS FOR ITSELF AND (TO THE EXTENT
PERMITTED BY LAW) IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE
EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS. EACH PARTY HERETO HEREBY
IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION
TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVIENENS, WHICH IT
MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN
SUCH RESPECTIVE JURISDICTIONS.

 

(b) EACH PARTY HERETO IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF
THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF
COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO IT AT THE
ADDRESS SPECIFIED IN PARAGRAPH 8 OR SUCH OTHER ADDRESS AS IS SPECIFIED PURSUANT
TO PARAGRAPH 8 (OR ITS ASSIGNMENT AND ASSUMPTION), SUCH SERVICE TO BECOME
EFFECTIVE THIRTY (30) DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE
RIGHT OF ANY PARTY HERETO IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE
LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANY OTHER PARTY IN ANY OTHER
JURISDICTION.

 

(c) EACH PARTY HERETO HEREBY (i) IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING
RELATING TO THIS AGREEMENT AND FOR ANY COUNTERCLAIM THEREIN; (ii) IRREVOCABLY
WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO
CLAIM OR RECOVER INANY SUCH LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR
CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES
RELATING TO THIS AGREEMENT; (iii) CERTIFIES THAT NO PARTY HERETO NOR ANY
REPRESENTATIVE OF HOLDERS OR OF COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS AND (iv) ACKNOWLEDGES THAT IT
HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS
CONTAINED IN THIS PARAGRAPH 11.

 

12. Entire Agreement. Subject to paragraph 4 hereof, this Agreement, together
with its exhibits, contains all the agreements between the parties with respect
to the matters described herein and supersede all prior and contemporaneous
agreements, understandings, negotiations and discussions, whether oral or
written, of the parties, and may not be contradicted by evidence of prior,
contemporaneous or subsequent oral agreement of the parties. There are no other
warranties, representations or other agreements between the parties in
connection with the subject matter and there are no unwritten oral agreements
between the parties.

 

13. Counterpart Execution and Use of Photocopies. This Agreement may be executed
in counterparts by signature of each of the Parties hereto, or their authorized
representatives, on multiple copies of this Agreement, including copies
transmitted by facsimile machine or electronically, and upon being so executed
by all Parties hereto, shall be effective as if all signatures appeared on the
original of this Agreement.

 

14. Recitals, Acknowledgement & Consent to Terms. The Parties acknowledge that
the recitals contained hereinabove are true and correct to the best of their
knowledge, and are made a part of this Agreement and incorporated by reference.
The Parties acknowledge that they have read this Agreement, understand the
promises, recitals, mutual covenants, terms and conditions contained herein, and
voluntarily consent to the terms hereof.

 

15. Successors and Assigns. This Agreement, specifically including but not
limited to the waiver and release provisions hereof, shall be binding upon and
inure to the benefit of the Parties and their respective successors and assigns.

 

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IN WITNESS WHEREOF, the parties hereto have caused this Note to be duly executed
by their respective authorized officers on the date and year first above
written.

 

  ISSUER:       CARBON ENERGY CORPORATION         By: /s/ Patrick R. McDonald  
Name:  Patrick R. McDonald   Title: Chief Executive Officer

 

Signature Page to Agreement Regarding Payoff and Release

 

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  HOLDER FUND II-A:       OLD IRONSIDES FUND II-A PORTFOLIO HOLDING COMPANY, LLC
      By: /s/ Scott Carson   Name: Scott Carson   Title:   Managing Partner    
  HOLDER FUND II-B:       OLD IRONSIDES FUND II-B PORTFOLIO HOLDING COMPANY, LLC
      By: /s/ Scott Carson   Name: Scott Carson   Title:   Managing Partner

 

Signature Page to Agreement Regarding Payoff and Release

 

 

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