Exhibit 10.1

 

Picture 2 [prhr20170930ex10180fbd9001.jpg]

 

September 22, 2017

 

Via Email to dbissmeyer@providence-energy.com

 

Providence Energy Operators, LLC

Attn: David Bissmeyer, Chief Operating Officer

16400 North Dallas Parkway, Suite 400

Dallas, TX 75248

 

Re:Consent to Incur Additional Indebtedness

 

Dear David:

Reference is made to that certain Revolving Line of Credit Facility Agreement
dated May 15, 2015 (“Original Line of Credit Agreement”), as same may be amended
from time to time, by and between PetroShare Corp. (“Company”) and Providence
Energy Operators, LLC (“PEO”); the Promissory Note between Company and PEO of
even date and related thereto, as same may be amended from time to time (the
“PEO Note”); and any Deed of Trust, Mortgage, Assignment of Production, Security
Agreement and Financing Statement from Company to PEO of even date related
thereto, as same may be amended from time to time (“Mortgage”; and, collectively
with the Original Line of Credit Agreement and the PEO Note, the “PEO Credit
Documents”).

The Company has prepared a confidential offering memorandum (“COM”) for an
offering (the “Offering”) of up to $7.5 million (including an over-allotment) of
unsecured convertible promissory notes (the “Series B Notes”). The Series B
Notes will bear interest at 15% per year, require that interest be paid
quarterly beginning December 31, 2017, and that all accrued interest and
principal be paid on or before December 31, 2018. The principal amount of the
Series B Notes is convertible into common stock of the Company at $1.50 per
share. The forms of the COM and Series B Notes (collectively, the “New Credit
Documents”) are attached hereto as Exhibits A and B, respectively.  If this
consent agreement is executed, it is agreed that the Company shall execute and
enter into the Documents with no changes from the forms attached hereto.

The Company shall only use the funds raised by and from the Offering to pay
accrued drilling costs for wells that underlie and securitize, and that are
otherwise subject to and secured by, the PEO Credit Documents and to pay capital
and operating expenses for the improvement and

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

 

Providence Energy Operators, LLC

September 22, 2017

Page 2

maintenance of the wells and oil and gas leases that underlie and securitize,
and that are otherwise subject to and secured by, the PEO Credit Documents (the
“Purposes”).  The Company shall not provide any security in connection with the
Offering or the Series B Notes.  For the sake of clarity, no Offering proceeds
shall be used to repay or prepay any Company debt obligations; provided that
Company shall be able to use such proceeds to repay or prepay amounts owed under
the PEO Credit Documents.

In order to allow the Company to pursue the Offering and issue the Series B
Notes as contemplated in the COM, and in consideration of the covenants of the
Company in the immediately succeeding sentence, please confirm by execution of
this letter that (i) PEO consents to the Company conducting the Offering and
issuing the Series B Notes, including the incurrence of debt relating thereto
(the “Series B Debt”); provided that any such additional debt shall not have any
priority position over or equal to any debt subject to the PEO Credit Documents,
whether currently outstanding or later incurred (the “PEO Debt”) and provided
further for the avoidance of doubt, the Series B Debt shall in all instances be
secondary to, paid later than, and have lesser priority than, the PEO Debt;  and
provided further, that the foregoing shall not preclude the payments of interest
on a quarterly basis to holders of the Series B Notes so long as the Series B
Debt is outstanding and, (ii) solely with respect to the Company conducting the
Offering and issuing the Series B Notes in accordance with this consent
agreement, but not as to any other matter, and subject to the Company only using
the Offering for the Purposes and the debt priority set forth in item (i) above,
PEO waives such actions as an event of default under the PEO Credit Documents. 
In exchange for PEO’s covenants in this consent agreement,  and other valuable
consideration, the Company hereby agrees (i) within 10 business days of the date
hereof to issue to PEO an additional 250,000 shares of the Company’s common
stock, which PEO understands will be issued pursuant to an exemption from the
registration requirements of the Securities Act of 1933, as amended (“Securities
Act”),  and applicable state securities law, and which shares will be
“restricted securities” within the meaning of Rule 144 under the Securities Act
and will bear a restrictive legend, (ii) the interest rate on the PEO Note shall
be increased from 8% per year to 10% per year effective September 1, 2017, (iii)
the Company will begin making interest payments on the PEO Note beginning in the
fourth quarter of 2017; and (iv) the Company, through appropriate officers, will
meet in person or by phone with representatives of PEO not less frequently than
semi-monthly beginning November 1, 2017 to discuss the Company’s working
capital.

No waiver by PEO under this consent agreement shall operate as a waiver of any
prior, other or subsequent default, whether of a like or a different character,
under any of the PEO Credit Documents.  Notwithstanding any other provision in
this consent, and except as expressly set forth herein under items (i) and (ii)
in the paragraph above, PEO does not by executing this consent agreement agree
or consent to, or provide any waiver with respect to, the Credit Documents or
any provisions contained therein, and in no event does PEO hereby provide any
opinion as to whether the Credit Documents or the Offering contemplated thereby
comply with applicable laws.

In the event that the Company uses the Offering, and/or the funds that are
raised in connection therewith, for any use or purpose other than the Purposes,
it shall be a material breach

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

 

Providence Energy Operators, LLC

September 22, 2017

Page 3

of and an event of default under the each of the PEO Credit Documents. Further,
except as set forth herein, if the Company attempts to or does in any way cause
or allow the new debt to have a priority position or preference over or ahead or
equal to that of any of the PEO Credit Documents, it shall be deemed to be a
material breach of and event of default under each of the PEO Credit Documents.

The Company hereby represents and warrants that it is not currently in default
under any of the PEO Credit Documents and that the transactions contemplated by
the Offering and the Series B Notes, and the Company’s execution of and
performance under the Documents will not put Company into default or otherwise
conflict with any of the PEO Credit Documents, subject to the limited waiver set
forth herein.  The Company further represents and warrants that the issuance of
the 250,000 shares of stock to PEO is not and shall not be deemed or considered
to be “interest” or violate any state or federal securities or other laws.

The Company hereby agrees to all of provisions contained in this consent
agreement.  The undersigned hereby confirms that he is duly authorized by
Company to provide this consent agreement and understands that PEO is relying on
the Company’s representations and covenants in this consent agreement when
providing the consent requested herein.

We appreciate your attention to this matter and the support that PEO has
provided the Company. Please feel free to contact me if you have any questions.

 

 

Sincerely,

 

 

 

PETROSHARE CORP.

 

 

 

 

 

 

 

By:

/s/ Stephen J. Foley

 

 

Stephen J. Foley, Chief Executive Officer

 

Agreed and accepted this 23rd day of September 2017.

 

PROVIDENCE ENERGY OPERATORS, LLC

 

 

 

 

 

 

 

By:

/s/ Mark L. Nastri

 

 

Mark L. Nastri, Exec. VP and General Counsel

 

 

 

 

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

 

 

EXHIBIT A

 

Form of COM

 

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

 

 

EXHIBIT B

 

Form of Series B Note

 

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