Exhibit
10.3


 


Execution Copy


 


THIRD
AMENDMENT TO CREDIT AGREEMENT


 


This THIRD AMENDMENT
TO CREDIT AGREEMENT (“Amendment”), dated as of September 30, 2008,
is by and among PINNACLE GAS RESOURCES, INC., a
Delaware  corporation, the Lenders
from time to time party hereto, and THE ROYAL BANK OF SCOTLAND
plc, as Administrative Agent and as Issuer.


 


WHEREAS, the
Borrower, the Lenders and the Administrative Agent are parties to that certain
Credit Agreement (as amended by that certain Letter Regarding Waiver and Amendment
to Credit Agreement dated March 9, 2007 and the Second Amendment to Credit
Agreement dated as of July 29, 2008 and as further amended and
supplemented from time to time, the “Credit Agreement); and


 


WHEREAS, the
parties hereto desire to amend the Credit Agreement in certain respects as set
forth herein;


 


NOW THEREFORE,
in consideration of the premises and the mutual covenants, representations and
warranties contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:


 


AGREEMENT


 


Section 1.                                           Definitions. 
Capitalized terms used herein but not defined herein shall have the
meanings as given them in the Credit Agreement, unless the context otherwise
requires.


 


Section 2.                                           Amendments.


 


(a)                                 Section 1.1.  Section 1.1
of the Credit Agreement is hereby amended as follows:


 


(i)                                    The definition of “Alternate Base Rate”
is hereby amended and restated in its entirety as follows:


 


“Alternate Base Rate”
means, on any date and with respect to all ABR Loans, a fluctuating rate of
interest per annum (rounded upward, if necessary, to the next highest 1/16 of
1%) equal to the highest of the then determinable of


 


(a)                                 the Base Rate in effect on such day;


 


(b)                                the Federal Funds Effective Date in
effect on such day plus 1⁄2 of 1%; and


 


(c)                                 the sum of 1.00% plus the one-month LIBO
Rate as of 11:00 a.m. (London time) on such day.


 

















 


Changes in the rate of interest on that
portion of any Loans maintained as ABR Loans will take effect simultaneously
with each change in the Alternate Base Rate. 
The Administrative Agent will give notice promptly to the Borrower and
the Lenders of changes in the Alternate Base Rate; provided that, the failure
to give such notice shall not affect the Alternate Base Rate in effect after
such change.”


 


(ii)                                 the definition of “Applicable Margin” is
hereby amended and restated in its entirety as follows:


 


“Applicable Margin” means, for any day and with respect to
all Loans maintained as Eurodollar Loans or ABR Loans, the applicable
percentage set forth below corresponding to the Utilization Percentage Share:


 


	
  If the Utilization

  Percentage Share is:

  	
   

  	
  Then the Applicable

  Margin for

  Eurodollar Loans is:

  	
   

  	
  Then the Applicable

  Margin for ABR

  Loans is:

  	
   

  	
  Commitment

  Fee is:

  
	
  Greater than
  or equal to 90%

  	
   

  	
  3.0%

  	
   

  	
  1.75%

  	
   

  	
  0.50%

  
	
  Greater than
  or equal to 75% but less than 90%

  	
   

  	
  2.75%

  	
   

  	
  1.50%

  	
   

  	
  0.50%

  
	
  Greater than
  or equal to 50% but less than 75%

  	
   

  	
  2.50%

  	
   

  	
  1.25%

  	
   

  	
  0.50%

  
	
  Greater than
  or equal to 25% but less than 50%

  	
   

  	
  2.25%

  	
   

  	
  1.00%

  	
   

  	
  0.50%

  
	
  Less than 25%

  	
   

  	
  2.00%

  	
   

  	
  0.75%

  	
   

  	
  0.50%

  



 


If at any time the Borrower fails to deliver
a Reserve Report or Probable and Possible Report pursuant to Section 2.8.2
or 2.8.3, then the “Applicable Margin” means the rate per annum set
forth on the grid when the Utilization Percentage Share is at its highest level
until such time as such Reserve Report and such Probable and Possible Report
have been delivered.


 


(iii)                              The definition of Current Assets is hereby amended and
restated in its entirety as follows:


 


“Current Assets”
means, at any date, the current assets of the Borrower and its Consolidated
Subsidiaries plus the aggregate Unused Commitments which would be available
pursuant to Section 5.1, exclusive of the current portion of the
mark-to-market value of assets constituting commodity derivative instruments as
reflected on the Borrower’s consolidated balance sheet.


 


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(iv)                             The definition of Current Liabilities is
hereby amended and restated in its entirety as follows:


 


“Current Liabilities”
means, at any date, the current liabilities of the Borrower and its
Consolidated Subsidiaries, exclusive of the current portion of the Loans and
Letters of Credit hereunder and exclusive of the current portion of the
mark-to-market value of liabilities constituting commodity derivative
instruments as reflected on the Borrower’s consolidated balance sheet.


 


(b)                                Section 5.1.2.  Section 5.1.2
of the Credit Agreement is hereby amended and restated in its entirety as follows:


 


5.1.2                       the fact
that, immediately before such requested Credit Extension, no Default shall have
occurred and be continuing and that the making of any such Credit Extension
will not cause a Default, including, for clarification, the fact that the making
of such Credit Extension shall not cause, nor with the passage of time be
expected to cause, a breach of the financial covenants included in 7.15.3,
7.15.4, or 7.15.5 as of the time of such Credit Extension and the fact that
immediately before the making of such requested Credit Extension, ratio of the
Borrower’s Current Assets to its Current Liabilities (as of the time of the
request for such Credit Extension) is no less than 1.00 to 1.00.


 


Section 3.                                           Waiver.  The
Administrative Agent and the Lenders hereby waive the requirement in Section 7.15.2
of the Credit Agreement that the Borrower not permit the ratio of its Current
Assets to its Current Liabilities to be less than 1.00 to 1.00 for the fiscal
quarter ending September 30, 2008. 
The waiver in this Section 3 is effective only for the
fiscal quarter ending September 30, 2008 and not any other fiscal quarter.


 


Section 4.                                           Conditions to Effectiveness. 
This Amendment shall be deemed effective as of the date hereof following
the satisfaction of the following conditions:


 


(a)                                 the Administrative Agent shall have
received counterparts hereof duly executed by the Borrower, the Administrative
Agent, and the Required Lenders; and


 


(b)                                the Administrative Agent shall have
received an amendment fee in an amount equal to Thirty-Six Thousand Two Hundred
Fifty Dollars ($36,250) for the account of the Administrative Agent.


 


Section 5.                                           Representations and Warranties. 
The Borrower hereby represents and warrants that after giving effect
hereto:


 


(a)                                 the representations and warranties of the
Borrower and each Subsidiary contained in the Loan Documents are true and
correct in all material respects on and as of the date hereof, other than those
representations and warranties that expressly relate solely to a specific earlier
date, which shall remain correct in all material respects as of such earlier
date;


 


(b)                                the execution, delivery and performance
by the Borrower and each Subsidiary of this Amendment has been duly authorized
by all necessary corporate action


 


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required on their part
and this Amendment, along with the Credit Agreement as amended hereby and other
Loan Documents, constitutes the legal, valid and binding obligation of each
Obligor party thereto enforceable against them in accordance with its terms,
except as its enforceability may be affected by the effect of bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter
in effect relating to or affecting the rights or remedies of creditors
generally;


 


(c)                                 neither the execution, delivery and
performance of this Amendment by the Borrower and each Subsidiary, the
performance by them of the Credit Agreement nor the consummation of the
transactions contemplated hereby does or shall contravene, result in a breach
of, or violate (i) any provision of the Borrower or any Subsidiary’s
certificate or articles of incorporation or bylaws or other similar documents,
or agreements, (ii) any law or regulation, or any order or decree of any
court or government instrumentality, or (iii) any indenture, mortgage,
deed of trust, lease, agreement or other instrument to which the Borrower or
any of its Subsidiaries is a party or by which the Borrower or any of its
Subsidiaries or any of their property is bound, except in any such case to the
extent such conflict or breach has been waived herein or by a written waiver
document, a copy of which has been delivered to Administrative Agent on or
before the date hereof;


 


(d)                                no Material Adverse Effect has occurred and
is continuing; and


 


(e)                                 no Default or Event of Default has
occurred and is continuing.


 


Section 6.                                           Ratification.


 


(a)                                 This Amendment shall be deemed to be an
amendment to the Credit Agreement, and the Credit Agreement, as hereby amended,
and all Obligations in connection therewith, are hereby ratified, approved and
confirmed in each and every respect.  On
and after the effectiveness of this Amendment in accordance with Section 4
above, each reference in the Credit Agreement to “this
Agreement”, “hereunder”, “hereof” or words of like import, referring to
the Credit Agreement, and each reference in each other Loan Document to “the Credit Agreement”, “thereunder”, “thereof”
or words of like import referring to the Credit Agreement, shall mean and be a
reference to the Credit Agreement as amended or otherwise modified by this
Amendment.  This Amendment is a Loan
Document.


 


(b)                                The Borrower and each of its Subsidiaries
hereby ratifies, approves and confirms in every respect all the terms,
provisions, conditions and obligations of each of the Security Documents,
including without limitation all Mortgages, Pledge and Security Agreements, and
Guaranties, to which it is a party.


 


Section 7.                                           Costs and Expenses. 
As provided in Section 9.4 of the Credit Agreement, the Borrower
agrees to reimburse Administrative Agent for all fees, costs, and expenses,
including the reasonable fees, costs, and expenses of counsel or other advisors
for advice, assistance, or other representation in connection with this
Amendment.


 


Section 8.                                           GOVERNING LAW. THIS AGREEMENT HAS
BEEN NEGOTIATED, IS BEING EXECUTED AND DELIVERED, AND WILL BE PERFORMED IN
WHOLE OR IN PART, IN THE STATE OF NEW YORK, AND THE


 


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SUBSTANTIVE
LAWS OF SUCH STATE AND THE APPLICABLE FEDERAL LAWS OF THE UNITED STATES OF
AMERICA SHALL GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND INTERPRETATION
OF THE LOAN DOCUMENTS, EXCEPT TO THE EXTENT THE LAWS OF ANY JURISDICTION WHERE
COLLATERAL IS LOCATED REQUIRE APPLICATION OF SUCH LAWS WITH RESPECT TO SUCH
COLLATERAL.


 


Section 9.                                           Severability. 
Any provision of this Amendment that is prohibited or unenforceable in
any jurisdiction shall, as to such provision and such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions of this Amendment or affecting the
validity or enforceability of such provision in any other jurisdiction.


 


Section 10.                                     Counterparts. 
This Amendment may be executed in any number of counterparts, all of
which taken together shall constitute one and the same instrument, and any
party hereto may execute this Amendment by signing one or more
counterparts.  Any signature hereto
delivered by a party by facsimile transmission shall be deemed to be an
original signature hereto.


 


Section 11.                                     No Waiver.  Except as
expressly set forth in this Amendment, the execution, delivery and
effectiveness of this Amendment shall not operate as a waiver of any default of
the Borrower or any other Obligor or any right, power or remedy of the
Administrative Agent or the other Secured Parties under any of the Loan
Documents, nor constitute a waiver of any provision of any of the Loan
Documents.


 


Section 12.                                     Successors
and Assigns.  This Amendment shall be binding upon the
Borrower and its successors and permitted assigns and shall inure, together
with all rights and remedies of each Lender hereunder, to the benefit of each
Lender and the respective successors, transferees and assigns.


 


Section 13.                                     Entire Agreement. 
THIS AMENDMENT, THE CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS
CONSTITUTE THE ENTIRE AGREEMENT BETWEEN THE PARTIES HERETO WITH RESPECT TO THE
SUBJECT HEREOF AND SHALL SUPERSEDE ANY PRIOR AGREEMENT BETWEEN THE PARTIES
HERETO, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT HEREOF.  FURTHERMORE, IN THIS REGARD, THIS AGREEMENT REPRESENTS
THE FINAL AGREEMENT AMONG THE PARTIES THERETO AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF SUCH
PARTIES.


 


THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG SUCH
PARTIES.


 


[Signature Pages Follow]


 


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IN WITNESS
WHEREOF, the parties hereto have caused this Amendment to be duly executed and
delivered by their respective duly authorized officers as of the date hereof.


 


	
   

  	
  BORROWER:

  
	
   

  	
   

  
	
   

  	
  PINNACLE GAS RESOURCES, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
      /s/
  Peter G. Schoonmaker

  
	
   

  	
  Name:

  	
  Peter G. Schoonmaker

  
	
   

  	
  Title:

  	
  Chief Executive Officer and President

  
				



 

















 


	
   

  	
  ADMINISTRATIVE AGENT:

  
	
   

  	
   

  
	
   

  	
  THE ROYAL BANK OF SCOTLAND plc,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
      /s/
  Robert L. Roberts

  
	
   

  	
  Name:

  	
  Robert L. Roberts

  
	
   

  	
  Title:

  	
  Managing Director

  
				



 

















 


	
   

  	
  LENDER:

  
	
   

  	
   

  
	
   

  	
  THE ROYAL BANK OF SCOTLAND plc,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
      /s/
  Robert L. Roberts

  
	
   

  	
  Name:

  	
  Robert L. Roberts

  
	
   

  	
  Title:

  	
  Managing Director