Exhibit 10.1

 

REVOLVING LINE OF CREDIT FACILITY AGREEMENT

 

October 13, 2016 (the “Effective Date”)

 

This Revolving Line of Credit Facility Agreement (this “Agreement”) sets forth the terms pursuant to which Providence Energy Partners III, LP, whose address is 16400 North Dallas Parkway, Suite 400, Dallas, TX 75248 (“Lender”) is making available to PetroShare Corp., whose address is 7200 S. Alton Way, Suite B-220, Centennial, CO 80112 (“Borrower”), a revolving line of credit (the “Line of Credit”), to be evidenced by a Promissory Note dated of even date herewith and in the form of Exhibit A attached hereto and made a part hereof (the “Note”). In partial consideration of this Line of Credit, Borrower has agreed to sell and assign certain oil and gas interests to Lender, in accordance with that certain Letter Agreement between Borrower and Lender of even date herewith. The terms of the Line of Credit are as follows:

 

	
Borrower:
    	
PetroShare Corp., a   Colorado corporation.
    
	
 
    	
 
    
	
Loan Commitment
    	
 
    
	
Amount/Line of
    	
 
    
	
Credit:
    	
$10,000,000   (“Commitment Amount”).
    
	
 
    	
 
    
	
Maturity Date:
    	
April 13, 2017, on   which date Borrower agrees to repay the remaining unpaid balance of the Line   of Credit in its entirety, including all outstanding principal, interest,   fees, expenses and other amounts due in connection therewith. Any extension   of the Maturity Date shall be at Lender’s sole option and discretion.
    
	
 
    	
 
    
	
Interest:
    	
Interest on the   outstanding principal balance of the Line of Credit shall accrue commencing   on the dates of advancements of principal hereunder at an annual rate equal   to eight percent (8.0%) simple interest per annum. In the event of an Event   of Default (defined below), interest on the Line of Credit shall accrue at a   rate of the lesser of 18.0% simple interest per annum or the maximum rate of   interest allowed by law under the laws of the state of Colorado, until the   unpaid balance of the Line of Credit, including all outstanding principal,   interest, fees, expenses and other amounts due in connection therewith, is   paid in full. Borrower shall pay the interest in accordance with the terms of   the Note.
    
	
 
    	
 
    
	
Advances:
    	
Lender shall make   advances (“Advance(s)”) to Borrower from time to time, by wire   transfer in amounts not to be less than $250,000 per Advance, no later than   ten (10) days after Lender receives proper written notice from Borrower,   to fund or reimburse costs or expenses related to: (i) the acquisition   of oil and gas assets, in the State of Colorado in and around the Wattenberg   field,
    


 











 

	
 
    	
including but not   limited to, acquisitions of acreage, working interests, or royalty interests,   or commercially productive oil and gas wells and oil and gas leases   (collectively, the “Assets”); and/or (ii) drilling, exploration, or   development of oil and gas properties, whether operated or non-operated, in   which Borrower now has or in the future obtains an interest, in the State of   Colorado in and around the Wattenberg field (the “Properties”).   Notwithstanding anything contained in this Agreement to the contrary,   Borrower shall not use any of the Commitment Amount or Advances for the   purposes of general or administrative (“G&A”) costs, expenses or   expenditures, or for purposes of or in connection with the paying down   of any other credit facility, other than the one that is the principal   purpose of this Agreement. Proper written notice shall include the amount of   the requested advance, a breakdown of the use of proceeds, including but not   limited to information for the Assets and Properties or activities sought to   be reimbursed or funded, and any other relevant information or documentation   to reasonably identify the costs and expenses underlying the request. Any   request by Borrower for an Advance shall be deemed a certification by   Borrower that the conditions precedent contained in this Agreement have been   satisfied.
    
	
 
    	
 
    
	
Limitations:
    	
Unless agreed to in   writing by Lender, Lender shall not have any obligation to make an Advance   if, after the making of such Advance, the aggregate amount of all Advances   then outstanding under this Agreement, including all outstanding principal,   interest, fees, expenses and other amounts due in connection therewith, would   exceed the Commitment Amount.
    
	
 
    	
 
    
	
Representations
    	
 
    
	
and Warranties:
    	
Borrower represents and   warrants to Lender that: (a) Borrower is duly organized, validly   existing and in good standing under the laws of the State of Colorado, having   all powers required to carry on its business and to enter into and carry out   the transactions contemplated hereby, and is duly qualified, in good   standing, and authorized to do business in all other jurisdictions where such   qualification is necessary, (b) this Agreement, the Note, and all other   documents executed in connection herewith are legal and binding obligations   of Borrower, enforceable in accordance with their respective terms, except as   may be limited by bankruptcy, insolvency or similar laws of general   application relating to the enforcement of creditors’ rights and as limited   by general equitable principles, (c)   the financial statements of Borrower heretofore provided to Lender by   Borrower fairly present Borrower’s financial positions at the respective   dates thereof, and Borrower is not insolvent or bankrupt as of the Effective   Date of this
    


 

2











 

	
 
    	
Agreement, (d) to   the best of Borrower’s knowledge, there are no actions, suits or other   proceedings pending or threatened against Borrower, (e) all tax returns   required to be filed by Borrower have been filed, and all taxes and other   governmental charges upon Borrower or upon any of its assets or income have   been paid, and (f) Borrower is not engaged principally, or as one of its   important activities, in the business of extending credit for the purpose of   purchasing or carrying margin stock (within the meaning of Regulation U or X   of the Board of Governors of the Federal Reserve System), and no part of the   proceeds of the Line of Credit will be used to purchase or carry any such   margin stock or to extend credit to any person or entity for the purpose of   purchasing or carrying any such margin stock.
    
	
 
    	
 
    
	
Reporting
    	
 
    
	
Requirements:
    	
Borrower agrees to   submit to Lender: (a) within 105 days of each fiscal year-end of   Borrower, audited annual financial statements of Borrower, prepared in   accordance with generally accepted accounting principles, (b) within 50   days of the end of each fiscal quarter of Borrower (except for the last   fiscal quarter in Borrower’s fiscal year), quarterly financial statements of   Borrower, prepared by Borrower in accordance with generally accepted   accounting principles, as the same may be modified by the rules and   regulations of the U.S. Securities and Exchange Commission, (c)   within 30 days after the filing of the same, copies of any and all federal   income tax returns filed by Borrower, and (d) such other information as   Lender may request at any time or from time to time. Lender agrees to keep   all such information confidential, unless required by law, court or for tax   purposes to disclose same.
    
	
 
    	
 
    
	
Affirmative
    	
 
    
	
Covenants:
    	
Borrower will:   (a) operate its Assets and the Properties in a good and workmanlike   manner, (b) maintain insurance with responsible carriers and in amounts   customary in the industry for the types of operations to be conducted by   Borrower in connection with the Assets, (c)   in all material respects conduct its business and affairs in compliance with   all laws, regulations and orders applicable thereto (including those relating   to pollution and other environmental matters), (d) permit   representatives appointed by Lender to visit and inspect, at their sole risk,   the Assets and Properties, and any property, books of account, other books   and records, and any facilities or other business assets of Borrower,   (e) pay all amounts due hereunder or in connection herewith in   accordance with the terms hereof, (f) observe, perform and comply with   every covenant, term and condition, express or implied,
    


 

3











 

	
 
    	
herein or in any other   documents delivered in connection herewith, (g) promptly notify Lender   of: (1) any material adverse change in the financial condition of   Borrower, (2) any material adverse development with respect to the   business, property or assets of Borrower, and (3) the occurrence of any   Event of Default, and (h) maintain and preserve its existence, rights   and franchises in full force and effect and qualify to do business in all   states or jurisdictions where required by applicable law.
    
	
 
    	
 
    
	
Negative
    	
 
    
	
Covenants:
    	
Without Lender’s prior   written consent, Borrower will not: (a) incur any additional   indebtedness other than: (1) the Line of Credit, (2) trade debt   incurred by Borrower in the ordinary course of business, to a degree that   does not make Borrower insolvent, or (3) receive draws under and within   the borrowing limits of that certain Revolving Line of Credit Facility   Agreement by and between Borrower and Providence Energy Operators, LLC, dated   May 15, 2015; (b) make loans or advances to any third party, except   trade debt extended in the ordinary course of business, or (c)   sell, lease or dispose of any Assets or Properties in excess of $100,000   during the term hereof, provided, however, that this provision shall not   apply to the sale, lease, or disposition of assets pursuant to that certain   Participation Agreement, by and between Providence Energy Operators, LLC and   Borrower, dated May 15, 2015.
    
	
 
    	
 
    
	
Events of
    	
 
    
	
Default:
    	
The occurrence of any   of the following shall be deemed an Event of Default hereunder, shall relieve   Lender of any further obligation to make Advances hereunder and shall permit   Lender, at its option, to declare the Line of Credit to be forthwith due and   payable together with all accrued and unpaid interest thereon, as well as all   fees, expenses and other amounts due in connection therewith, without   presentation, demand, protest or other notice of any kind, all of which are   expressly waived by Borrower: (a) Borrower becomes insolvent or fails to   pay any amount due hereunder or in connection herewith when due and payable,   (b) any “default”, “event of default” or “Event of Acceleration” under   the Note, (c) Borrower fails to duly observe, perform or comply with any   covenant, agreement, condition or provision (other than those referred to in   subsections (a) and (b) above) of this Agreement or of any other   document executed in connection herewith and such failure continues beyond 30   days after written notice thereof from Lender to Borrower, unless extended in   writing by Lender, (d) Borrower suffers the commencement of any   voluntary or involuntary bankruptcy proceeding against it, suffers the   appointment of a receiver, liquidator, trustee or similar official for
    


 

4











 

	
 
    	
a substantial part of   its assets, makes a general assignment for the benefit of creditors, fails   generally to pay (or admits in writing its inability to pay) its debts as   such debts become due, suffers the entry of any order issued by any court or   tribunal seizing all or any substantial part of its property, (e) any   default occurs with respect to any indebtedness owed by Borrower to any other   person or entity, and/or (f) the dissolution or termination of existence   of Borrower.
    
	
 
    	
 
    
	
Force Majeure:
    	
Lender shall not be   required to fund any Advance not previously approved, in the event of an act   of “force majeure,” as determined by mutual agreement of the Parties, that   delays, prevents or interrupts the acquisition or maintenance of any of the   Assets or Properties, or other assets sought to be acquired or maintained   pursuant to funds disbursed under the terms of this Agreement. An act of   force majeure is a risk beyond the reasonable control of the Parties, such as   a flood or other act of God, fire, war, rebellion, insurrection, sabotage,   riot, or state or federal order, rule, regulation, or law, any of which have   the effect of prohibiting the Borrower’s actions on the Assets or Properties,   and the leases, wells or other assets sought to be acquired or maintained   pursuant to funds disbursed under the terms of this Agreement, which   prohibition does not arise, directly or indirectly, out of Lender’s action or   inaction, a shortage or materials or labor, or an event that renders the   lease or other assets sought to be acquired to be undesirable, unreasonably   priced or marketed, highly contentious due to the politics or other local   land, legal or other concerns.
    
	
 
    	
 
    
	
Miscellaneous:
    	
This Agreement may be   executed in any number of counterparts, each of which shall be an original,   but all of which together shall constitute one instrument. This Agreement,   the Note, and the other documents executed in connection herewith set forth   the entire understanding between the parties hereto, and no modification or   amendment of or supplement hereto or thereto shall be valid or effective   unless the same is in writing and signed by the party against whom it is   sought to be enforced. In the event of any conflict between the provisions of   this Agreement, and the Note or any of the other documents executed in   connection herewith, the provisions of this Agreement shall control. All   notices shall be in writing and shall be deemed sufficiently given or   furnished if delivered by personal delivery or by expedited delivery service   with proof of delivery, or by registered or certified United States mail,   return receipt requested, postage prepaid, at the addresses of the parties   specified on the letterhead and the inside address hereof (unless changed by   similar notice in writing given by the particular person whose address is to   be changed). The maturity of any
    


 

5











 

	
 
    	
payment which becomes   due and payable hereunder on a day other than a business day, shall be   extended to the next succeeding business day. This Agreement shall be deemed   a contract made under the laws of the State of Colorado.
    


 

Executed as of the date first above written.

 

	
Borrower:
    	
 
    
	
 
    	
 
    
	
PETROSHARE   CORP.
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
By:
    	
/s/ Stephen J. Foley
    	
 
    
	
Name:
    	
Stephen J. Foley
    	
 
    
	
Title:
    	
Chief Executive Officer
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
Lender:
    	
 
    
	
 
    	
 
    
	
PROVIDENCE ENERGY PARTNERS III,   LP
    	
 
    
	
By: Providence Energy   Partners III GP, LLC
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
By:
    	
/s/ Luke Allen
    	
 
    
	
Name:
    	
Luke Allen
    	
 
    
	
Title:
    	
V.P. Business Development
    	
 
    


 

6












 

EXHIBIT A

FORM OF NOTE

 

PROMISSORY NOTE

 

	
Up to   $10,000,000 (US Dollars)
    	
 
    
	
October 13,   2016 (“Effective Date”)
    	
Centennial, Colorado
    


 

FOR VALUE RECEIVED, PetroShare Corp., a Colorado corporation, whose address is 7200 S. Alton Way, Suite B220, Centennial CO 80112 (the “Borrower”), hereby promises to pay to the order of Providence Energy Partners III LP whose address is 16400 North Dallas Parkway, Suite 400, Dallas, TX 75248 (“Lender”), the principal sum of Ten Million and No/100s Dollars ($10,000,000) or so much thereof that may be advanced by Lender prior to Maturity (as defined in the Credit Facility), together with interest pursuant to the terms and conditions set forth in this Promissory Note (the “Note”).

 

PAYMENT OF INTEREST AND PRINCIPAL. Payments of interest only shall accrue and be due and payable in equal monthly installments beginning at the earlier of (i) the advancement of any capital or funds under the Revolving Line of Credit Facility Agreement (the “Credit Facility”), or (ii) production of the first horizontal well drilled pursuant to any acquisitions made with monies advanced under that certain Credit Facility. Payment of principal amounts may be made at any time during the term hereof. All payments under this Note shall be applied first to accrued but unpaid interest, and next to outstanding principal.  If not sooner paid, the entire remaining indebtedness (including accrued interest) shall be due and payable on April 13, 2017. Payments shall be made to:

 

	
 
    	
Providence   Energy Partners III, LP
    	
 
    
	
 
    	
16400   North Dallas Parkway, Suite 400
    	
 
    
	
 
    	
Dallas,   TX 75248
    	
 
    


 

or any alternative location as requested by Lender

 

INTEREST.  This Note shall bear interest at an annual rate of eight percent (8.0%) per annum.  In the event of an Event of Default (defined in the Credit Facility), interest on the Line of Credit shall accrue at a rate of the lesser of 18.0% simple interest per annum or the maximum rate of interest allowed by law under the laws of the state of Colorado, until the unpaid balance of the Line of Credit, including all outstanding principal, interest, fees, expenses and other amounts due in connection therewith, is paid in full.  Borrower shall otherwise pay the interest in accordance with the terms of the Note.

 

PREPAYMENT.  The Borrower shall have the right at any time and from time to time to prepay this Note, including all outstanding principal, interest, fees, expenses and other amounts due in connection therewith, in whole or in part without premium or penalty.

 

1











 

DEED OF TRUST.  The indebtedness evidenced by this Note is secured by a Deed of Trust dated October 12, 2016 (“Deed of Trust”) from Borrower for the benefit of Lender covering all of Borrower’s interest, whether now owned or hereinafter acquired, in and to various leasehold interests and accompanying net revenue interests along with equipment and fixtures located thereon and proceeds derived therefrom located in Colorado and as more particularly described in Exhibit A to the Deed of Trust and, until released, the Deed of Trust contains additional rights of Lender. Such rights may cause Acceleration of the indebtedness evidenced by this Note, as set forth below.

 

REMEDIES.  No delay or omission on part of the Lender of this Note in exercising any right hereunder shall operate as a waiver of any such right or of any other right of such Lender, nor shall any delay, omission or waiver on any one occasion be deemed a bar to or waiver of the same or any other right on any future occasion.  The rights and remedies of the Lender shall be cumulative and may be pursued singly, successively, or together, in the sole discretion of the Lender.

 

EVENTS OF ACCELERATION.  The occurrence of any of the following shall constitute an “Event of Acceleration” by Borrower under this Note:

 

(a)                                 Borrower’s failure to pay any part of the principal or interest or fees as and when due under this Note; or

 

(b)                                 Borrower’s becoming insolvent or not paying its debts as they become due.

 

ACCELERATION.  Upon the occurrence of an Event of Acceleration under this Note, and in addition to any other rights and remedies that Lender may have, Lender shall have the right, at its sole option, to declare this Note immediately due and payable (“Acceleration”), including all outstanding principal, interest, fees, expenses and other amounts due in connection therewith.

 

WAIVERS BY BORROWER.  All parties to this Note, including Borrower and any sureties, endorsers, and guarantors, hereby waive protest, presentment, notice of dishonor, and notice of acceleration of maturity and agree to continue to remain bound for the payment of principal, interest and all other sums due under this Note notwithstanding any change or changes by way of release, surrender, exchange, modification or substitution of any security for this Note or by way of any extension or extensions of time for the payment of principal and interest; and all such parties waive all and every kind of notice of such change or changes and agree that the same may be made without notice or consent of any of them.

 

EXPENSES.  In the event any payment under this Note is not paid when due, the Borrower agrees to pay, in addition to the principal and interest hereunder, reasonable attorneys’ fees not exceeding a sum equal to 15% of the then outstanding balance owing on the Note, plus all other reasonable expenses incurred by Lender in exercising any of its rights and remedies upon default.

 

2











 

GOVERNING LAW.  This Note shall be governed by, and construed in accordance with, the laws of the State of Colorado.

 

SUCCESSORS.  All of the foregoing is the promise of Borrower and shall bind Borrower and Borrower’s successors, heirs and assigns; provided, however, that Borrower may not assign any of its rights or delegate any of its obligations hereunder without the prior written consent of the Lender of this Note.

 

IN WITNESS WHEREOF, Borrower has executed this Note as of the day and year first above written.

 

	
BORROWER:
    
	
 
    
	
PETROSHARE CORP.
    
	
A Colorado Corporation
    
	
 
    	
 
    
	
 
    	
 
    
	
By:
    	
 
    	
 
    
	
Name:
    	
Stephen   J. Foley
    
	
Title:
    	
Chief   Executive Officer
    


 

3