Document:

Exhibit 10.5

 

FOURTH AMENDMENT TO CREDIT AGREEMENT

 

This FOURTH AMENDMENT TO CREDIT AGREEMENT (this “Amendment”) is entered into as of August 4, 2017 (the “Fourth Amendment Execution Date”), among EPSILON ENERGY USA INC (“Borrower”), the LENDERS (as hereinafter defined), and TEXAS CAPITAL BANK, NATIONAL ASSOCIATION, as administrative agent for the Lenders (in such capacity, “Administrative Agent”).

 

WHEREAS, Borrower, the financial institutions party thereto (collectively, together with their respective successors and assigns, the “Lenders”), and Administrative Agent are parties to that certain Credit Agreement dated as of July 29, 2013, as amended by First Amendment to Credit Agreement dated as of December 10, 2015, Second Amendment to Credit Agreement dated as of October 11, 2016, and Third Amendment to Credit Agreement dated as of February 21, 2017 (as so amended, the “Credit Agreement”);

 

WHEREAS, Borrower has requested that Administrative Agent and the Lenders amend the Credit Agreement as hereinafter provided;

 

WHEREAS, subject to the terms and conditions set forth herein, Administrative Agent and the Lenders are willing to agree to such amendments; and

 

WHEREAS, Borrower, the Lenders and Administrative Agent acknowledge that the terms of this Amendment constitute an amendment and modification of, and not a novation of, the Credit Agreement.

 

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

 

SECTION 1.         Definitions.  Unless otherwise defined in this Amendment, terms used in this Amendment that are defined in the Credit Agreement shall have the meanings assigned to such terms in the Credit Agreement.  As used herein, “Third Amendment” means that certain Third Amendment to Credit Agreement dated as of February 21, 2017, among Borrower, the Lenders and Administrative Agent.

 

SECTION 2.         Amendments to the Credit Agreement.  Subject to satisfaction of the conditions of effectiveness set forth in Section 3 of this Amendment, the parties hereto agree that:

 

(a)           Section 1.1 of the Credit Agreement is hereby amended to amend and restate the following definition in its entirety to read as follows:

 

“Required Reserve Value” means Proved Oil and Gas Properties that have a Recognized Value of not less than the lesser of (a) ninety percent (90%) of the Recognized Value of all Proved Oil and Gas Properties owned by Borrower and its Subsidiaries and the Affiliated Operators and (b) one hundred fifty percent (150%) of the portion of the Borrowing Base allocable to Oil and Gas Properties in effect from time to time, as determined by Administrative Agent.

 

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(b)           Section 8.5(g) of the Credit Agreement is hereby amended and restated in its entirety to read as follows:

 

(g)           Investments consisting of direct ownership interests in Oil and Gas Properties or wells, gas gathering systems or other field facilities, seismic data and surveys, in each case related to such Oil and Gas Properties, or related to Farmouts, participation agreements, joint operating agreements, joint venture or area of mutual interest agreements or other similar arrangements which are usual and customary in the oil and gas industry located within the geographic boundaries of the United States of America; provided that (i) no such investment includes an investment in any equity interest in a Person, (ii) any Debt incurred or assumed or Lien granted or permitted to exist pursuant to such investments is otherwise permitted under Section 8.1 and Section 8.2, respectively, and (iii) such investments are taken into account in computing the working interests and net revenue interests set forth in the most recent WI/NRI Schedule and

 

SECTION 3.         Conditions of Effectiveness.  The amendments set forth in Section 2 of this Amendment, as well as any other terms and conditions set forth herein, shall be effective as of date Administrative Agent shall have received each of the following:

 

(a)           a counterpart of this Amendment executed by Borrower, Guarantors, the Lenders and Administrative Agent;

 

(b)           all fees and expenses required to be paid pursuant to the Loan Documents, including, without limitation, the fees and expenses of Winstead PC invoiced on or prior to the Fourth Amendment Execution Date; and

 

(c)           such other certificates, documents, consents or opinions as the Administrative Agent reasonably may require.

 

SECTION 4.         Increase of Borrowing Base; Decrease of Monthly Reduction Amount.  Effective as of the Fourth Amendment Execution Date, the Borrowing Base is hereby increased from $14,080,000 to $15,000,000, and, effective as of July 1, 2017, the Monthly Reduction Amount is hereby decreased from $230,000 to $0.  The foregoing redetermination of the Borrowing Base and Monthly Reduction Amount is a periodic redetermination of the Borrowing Base and Monthly Reduction Amount under Section 2.10(b) of the Credit Agreement. The Borrowing Base and Monthly Reduction Amount as so adjusted shall remain in effect until the next periodic redetermination of the Borrowing Base and Monthly Reduction Amount under Section 2.10(b) of the Credit Agreement, unless otherwise adjusted pursuant to the other provisions of Section 2.10 of the Credit Agreement.

 

SECTION 5.         Post-Closing Covenants.

 

(a)           Notwithstanding anything to the contrary contained in the Third Amendment, on or before August 31, 2017, Borrower shall have entered into, and shall thereafter maintain, Acceptable Commodity Hedging Agreements at prices acceptable to Administrative Agent covering at least 50% of Projected Production of natural gas for calendar year 2018 from the Oil

 

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and Gas Properties of Borrower and its Subsidiaries used in determining the Borrowing Base (as set forth above).

 

(b)           Within sixty (60) days of the Fourth Amendment Execution Date (or such later date as Administrative Agent may determine), Borrower shall be in compliance with Section 4.1 of the Credit Agreement (as amended hereby with respect to the amendment of the definition of “Required Reserve Value”).

 

(c)           If at any time any Obligated Party owns deposit accounts not located at Texas Capital Bank after December 31, 2017, within ninety (90) days of such occurrence (or such later date as Administrative Agent may determine), such Obligated Party shall (i) grant a Lien on such deposit accounts to Administrative Agent for the benefit of the Secured Parties pursuant to documentation in form and substance satisfactory to Administrative Agent and (ii) cause such deposit accounts to be subject to control agreements in form and substance satisfactory to Administrative Agent.

 

SECTION 6.         Acknowledgment and Ratification.  As a material inducement to Administrative Agent and the Lenders to execute and deliver this Amendment, each Obligated Party acknowledges and agrees that the execution, delivery, and performance of this Amendment shall, except as expressly provided herein, in no way release, diminish, impair, reduce, or otherwise affect the obligations of any Obligated Party under the Loan Documents, which Loan Documents shall remain in full force and effect.

 

SECTION 7.         Borrower’s Representations and Warranties.  As a material inducement to Administrative Agent and the Lenders to execute and deliver this Amendment, each Obligated Party represents and warrants to Administrative Agent and the Lenders (with the knowledge and intent that Administrative Agent and the Lenders are relying upon the same in entering into this Amendment) that, as of the Fourth Amendment Execution Date:

 

(a)           This Amendment, the Credit Agreement and each of the other Loan Documents to which such Obligated Party is a party, have each been duly executed and delivered by such Obligated Party’s duly authorized officers and constitute the valid and binding obligations of such Obligated Party, enforceable against such Obligated Party in accordance with their respective terms, except as enforcement thereof may be limited by applicable Debtor Relief Laws and by general principles of equity (regardless of whether enforcement is considered in a proceeding at law or in equity).

 

(b)           The representations and warranties set forth in Article 6 of the Credit Agreement are true and correct in all material respects, after giving effect to this Amendment, as if made on and as of the date of this Amendment (except to the extent such representations and warranties relate solely to an earlier date, in which case, they are true and correct in all material respects as of such date).

 

(c)           At the time of and after giving effect to this Amendment, no Default exists.

 

(d)           The execution, delivery and performance of this Amendment are within such Obligated Party’s corporate, partnership or company power, as the case may be, have been duly authorized, are not in contravention of any law applicable to such Obligated Party or the terms of

 

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such Obligated Party’s Constituent Documents and, except as have been previously obtained, do not require the consent or approval of any Governmental Authority or any other Person except to the extent that such consent or approval is not material to the transactions contemplated by this Amendment.

 

SECTION 8.         Administrative Agent and the Lenders Make No Representations or Warranties.  By execution of this Amendment, neither Administrative Agent nor any Lender (a) makes any representation or warranty or assumes any responsibility with respect to any statements, warranties, or representations made in or in connection with the Loan Documents or the execution, legality, validity, enforceability, genuineness, sufficiency, or value of this Amendment, the Credit Agreement, the Loan Documents or any other instrument or document furnished pursuant thereto, or (b) makes any representation or warranty or assumes any responsibility with respect to the financial condition of Borrower or any other Person or the performance or observance by such Persons of any of their obligations under the Loan Documents, or any other instrument or document furnished pursuant thereto.

 

SECTION 9.         Effect of Amendment.  This Amendment, except as expressly provided herein, (a) shall not be deemed to be a consent to the modification or a waiver of any other term or condition of the Credit Agreement, any Security Document or any other Loan Document, (b) shall not prejudice any right or rights which Administrative Agent or the Lenders may now or hereafter have under or in connection with the Credit Agreement, any Security Document or any other Loan Document, and (c) shall not be deemed to be a waiver of any existing or future Default under the Credit Agreement, any Security Document or any other Loan Document.

 

SECTION 10.       Miscellaneous.  This Amendment shall be governed by, and construed in accordance with, the law of the State of Texas.  The captions in this Amendment are for convenience of reference only and shall not define or limit the provisions hereof.  This Amendment may be executed in separate counterparts, each of which when so executed and delivered shall be an original, but all of which together shall constitute one instrument.  In evidencing this Amendment, it shall not be necessary to produce or account for more than one such counterpart.  This Amendment, and any documents required or requested to be delivered pursuant to Section 3 hereof, may be delivered by facsimile or pdf transmission of the relevant signature pages hereof and thereof, as applicable.

 

SECTION 11.       Ratification.  Each Obligated Party ratifies and acknowledges that the Loan Documents to which it is a party are valid, subsisting and enforceable.

 

SECTION 12.       NOTICE OF FINAL AGREEMENT.  THIS AMENDMENT, THE OTHER LOAN DOCUMENTS AND THE INTERCREDITOR AGREEMENT REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.  THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.

 

[Remainder of page intentionally left blank.  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 proper and duly authorized officers as of the Fourth Amendment Execution Date.

 

	
 
    	
EPSILON   ENERGY USA INC,
    
	
 
    	
as   Borrower  
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:   
    	
/s/   B. Lane Bond 
    
	
 
    	
Name:   
    	
B.   Lane Bond 
    
	
 
    	
Title:   
    	
CFO
    
	
 
    	
 
    
	
 
    	
ACKNOWLEDGED   AND AGREED:  
    
	
 
    	
 
    
	
 
    	
EPSILON   ENERGY LTD., 
    
	
 
    	
as   a Guarantor  
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:   
    	
/s/   B. Lane Bond 
    
	
 
    	
Name:   
    	
B.   Lane Bond 
    
	
 
    	
Title:   
    	
CFO
    
	
 
    	
 
    
	
 
    	
EPSILON   MIDSTREAM, LLC,  
    
	
 
    	
as   a Guarantor  
    
	
 
    	
 
    
	
 
    	
By:   
    	
Epsilon   Energy USA Inc, 
    
	
 
    	
 
    	
its   Managing Member  
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:   
    	
/s/   B. Lane Bond
    
	
 
    	
Name:   
    	
B.   Lane Bond 
    
	
 
    	
Title:   
    	
CFO
    

 

Fourth Amendment to Credit Agreement- Signature Page

 

 

	
 
    	
TEXAS   CAPITAL BANK, NATIONAL ASSOCIATION,
    
	
 
    	
as   Administrative Agent and a Lender  
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:   
    	
/s/   James E. Hibbert Jr. 
    
	
 
    	
Name:   
    	
James   E. Hibbert Jr. 
    
	
 
    	
Title:   
    	
Assistance   Vice President
    

 

Fourth Amendment to Credit Agreement- Signature PageExhibit 10.6

 

 

STRICTLY PRIVATE AND CONFIDENTIAL

 

1 September 2013

 

Mr. B. Lane Bond
 7831 Glenn Cliff Dr
 Houston, Texas 77064

 

Dear Mr. Bond:

 

Further to our recent discussions, we are pleased to confirm the following employment arrangements in connection with the terms of your employment with Epsilon Energy USA, Inc., that replaces your employment contract dated October 15, 2012, and is effective immediately.

 

	
Position:
    	
Chief   Financial Officer of Epsilon Energy USA, Inc. and Epsilon Energy Ltd.   (“Epsilon”)
    
	
 
    	
 
    
	
Responsibilities:
    	
You   will be generally responsible for all matters typical of those for a Chief   Financial Officer and shall report to the Chief Executive Officer and Board   of Directors. In addition, you shall generally undertake and perform the   following duties and responsibilities on behalf of Epsilon and Epsilon Energy   Ltd.:
    
	
 
    	
 
    
	
 
    	
·    Responsible for overseeing, processing, reviewing and corresponding   with all transactions;
    
	
 
    	
 
    
	
 
    	
·      Maintaining the integrity of the General   Ledgers of all Epsilon companies, and responsible for implementing accounting   control systems and processes, proper recording and reporting of financial   information and compliance with internal controls;
    
	
 
    	
 
    
	
 
    	
·             Responsible for reviewing and ensuring   accurate and timely processing of all accounting procedures and transactions,   including but not limited to revenue processing, joint interest processing,   and property accounting;
    
	
 
    	
 
    
	
 
    	
·             Direct and ensure monthly close for   Accounting is completed in a timely and accurate manner;
    
	
 
    	
 
    
	
 
    	
·      Analyze and review financial data, prepare   financial statements and reports for both internal and external purposes,   including completing the required financial filings for TSX;
    

 

	

    	
10700 North   Freeway Ste 930

Houston, TX   77037 USA

Phone:  281-670-0002

Fax:  281-668-0985
    	
150 Jardin Drive, Suite #9

Concord, ON, Canada, L4K 3P9

Phone:    905.738-7877

Fax:    905.669.8220
    	

    

 

 

	
 
    	
·      Assist in budgeting and forecasting processes;
    
	
 
    	
 
    
	
 
    	
·      Main correspondent for quarterly reviews   and annual audits;
    
	
 
    	
 
    
	
 
    	
·             Assist in annual tax preparations;
    
	
 
    	
 
    
	
 
    	
·             Payroll / Human Resources review and   administration;
    
	
 
    	
 
    
	
 
    	
·             Financial representative in field, actively   managing operational purchases and assuring compliance with Epsilon’s   purchasing policy;
    
	
 
    	
 
    
	
 
    	
·      And provide other services as may, from   time to time, be required by the Management of the Corporation
    
	
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You   will devote an average of 15 days per month to Epsilon affairs. Giving   consideration to ensuring that all matters of Epsilon business within the   accounting function are properly covered and completed on time.
    
	
 
    	
 
    
	
 
    	
You   will serve at all times with loyalty and honesty in the best interest of   Epsilon and ensure that the fullest of professional standards and ethics are   maintained, and comply with all applicable laws and corporate policies.
    
	
 
    	
 
    
	
Base   Salary:
    	
$150,000.00   per annum (less statutorily required deductions), paid bi-weekly. You shall   receive an annual base salary review.
    
	
 
    	
 
    
	
Options:
    	
You   have been awarded stock options in the past, and they remain outstanding.   Additional stock options, including the terms therein, may be issued to you   in the future entirely at the discretion of Epsilon Energy Ltd.’s Board of   Directors and/or Compensation Committee.
    
	
 
    	
 
    
	
Inconsistency   Between Other Agreements and this Agreement:
    	
In   the event of any inconsistency between other agreements and this agreement   the terms of this Agreement shall prevail.
    
	
 
    	
 
    
	
Benefits
    	
1.             Travel and Entertainment   Budget

You   will be reimbursed for all reasonable documented business expenses incurred   on behalf of Epsilon in carrying out your duties.
    
	
 
    	
 
    
	
 
    	
2.               Statutory Holidays

You   will be entitled to time off for holidays in a manner that is consistent with   the applicable policies of Epsilon energy USA, Inc. as in effect from   time to time.
    

 

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3.             Insurance

You   will be provided with family health insurance through a reputable carrier.   You shall also be provided with a Health Savings Account or Health Flex   Account funded by Epsilon. Any other insurance provided shall be comparable   with the level of insurance provided by Epsilon Energy USA, Inc. to   other employees in accordance with the terms of future plans and any   revisions thereto.
    
	
 
    	
 
    
	
 
    	
4.             Bonus

Epsilon   has available an annual bonus pool which is granted at the sole discretion of   the CEO every December and payable the following year no later than the   first payroll processed in April, provided the individual is still with the   company on the payment date; unless the reason for the individual’s departure   from the company is related to a Change of Control and as such any remaining   bonus will be paid along with the Severance payment as outlined in the   Termination section below.
    
	
 
    	
 
    
	
 
    	
5.             D&O Insurance

You   shall be covered by comprehensive directors’ and officers’ liability   insurance and errors and omissions liability insurance, which shall be   maintained by Epsilon at its expense.
    
	
 
    	
 
    
	
Office   location:
    	
Houston,   Texas
    
	
 
    	
 
    
	
Term   of this Agreement:
    	
Subject   to earlier termination as provided below the term of this agreement shall   commence upon the effective date of this contract being September 1,   2013 and shall expire on the date which is three (3) years from the date   hereof (“Initial term”). This agreement may be renewed pursuant to terms as   mutually agreed upon by the parties unless your employment is terminated by   Epsilon in accordance with the terms of this agreement.
    
	
 
    	
 
    
	
Termination:
    	
If   your employment is terminated by Epsilon for reasons other than for just   cause (defined as unethical, criminal behavior, your death or your   resignation), or if there is a change in control at Epsilon resulting in, the   acquisition by any person. directly or indirectly, of 50% or more of   Epsilon’s outstanding common shares, or any merger, arrangement or similar   event where control is transferred, or any event whereby any party or group,   acting together, elects or causes to be elected to the board of directors of   Epsilon persons who are or may be considered nominees thereof, and such   persons constitute 50% or more of the directors of Epsilon then in office you   shall be entitled to the following:
    

 

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·             A severance payment in an amount equal to   six (6) months of your contract salary amount. The Severance is payable   in a lump sum within 14 days of the termination date or in the case of Change   in Control, payable immediately;
    
	
 
    	
 
    
	
 
    	
·             You may exercise any held and then vested   options as per the provisions of the governing stock option plan; and
    
	
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If   your employment is terminated by death or permanent disability, proved that   in the latter case Epsilon has made legally recognized efforts to accommodate   your disability and such efforts to accommodate have been unsuccessful you   (or your successors) shall not be entitled to the Severance Payment described   herein, but the other severance entitlement terms hereof shall continue to   apply.
    
	
 
    	
 
    
	
Confidentiality:
    	
The   terms of this agreement shall be kept confidential, to the extent permitted   by applicable law.
    
	
 
    	
 
    
	
Resignation:
    	
You   may, by providing 15 days prior notice, in writing, terminate this Agreement   and your employment with Epsilon. If you provide such notice, Epsilon may   request that you cease duties prior to the expiry of this notice period, and   Epsilon shall, in such event, pay you an amount equal to the difference   between the amount you would have received had your employment been continued   throughout the notice period and the amount actually paid by Epsilon to you   during the notice period.
    
	
 
    	
 
    
	
Intellectual   Property, Confidentiality:
    	
You   hereby acknowledge as reasonable and agree that you shall abide by the   following terms and conditions:
    
	
 
    	
 
    
	
 
    	
(i)            Technology,   Know-How, Inventions, Patents: That all designs, devices, improvements,   intentions and ideas made or conceived by you resulting from your access to   the business of Epsilon shall be exclusive property of Epsilon and you and   your estate agree to take all necessary steps to ensure that such property   rights are protected; and
    
	
 
    	
 
    
	
 
    	
(ii)           Confidentiality, You shall keep   confidential, at any time during your employment, and for 1 year after   cessation of employment, any proprietary or confidential information about   the business and affairs of, or belonging to, Epsilon or any affiliate or   associate thereof, including information which, though technically not trade   secrets, the dissemination of knowledge whereof might prove prejudicial to   any of them.
    

 

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Legal   Advice:
    	
You   acknowledge and agree you have had the opportunity to seek independent legal   advice prior to the execution and delivery of this Agreement.
    
	
 
    	
 
    
	
General:
    	
Any   notice or other communication required or permitted to be given hereunder   shall be in writing and shall be delivered in person, transmitted by telecopy   or similar means of recorded electronic communication or sent by registered   mail, charges prepaid, addressed as follows or to such other address as the   relevant party may specify from time to time:
    
	
 
    	
 
    
	
 
    	
(a)     if to   Epsilon Energy USA, Inc.: 
   Attention: Michael Raleigh 
   Ste. 930, 10700 North Freeway 
   Houston, Texas, 77037 USA
    
	
 
    	
 
    
	
 
    	
(b)     if to   B. Lane Bond: 
   7831 Glenn Cliff Dr. 
   Houston, Texas 77064
    
	
 
    	
 
    
	
 
    	
Any   such notice or other communication shall be deemed to have been given and   received on the day on which it was delivered or transmitted (or, if such day   is not a business day, on the next following business day) or, if mailed, on   the third business day following the date of mailing; provided, however, that   if at the time of mailing or within three (3) business days thereafter   there is or occurs a labor dispute or other event which might reasonably be   expected to disrupt the delivery of documents by mail, any notice or other   communication hereunder shall be delivered or transmitted by means of   recorded electronic communications as aforesaid
    
	
 
    	
 
    
	
 
    	
This   Agreement shall inure to the benefit of and shall be binding upon and   enforceable by the parties hereto, and your heirs, executors, administrators   and legal personal representatives and the successors and assigns of Epsilon.   This Agreement is personal to you and may not be assigned by you.
    
	
 
    	
 
    
	
Entire   Agreement:
    	
This   Agreement constitutes the entire agreement between you and Epsilon with   respect to the subject matter hereof and supersedes all prior agreements,   understandings, negotiations and discussions, whether written or oral. There   are no covenants, conditions, agreements, representations, warranties or any   other terms or provisions, express or implied, collateral, statutory or   otherwise, relating to the subject matter hereof, except as herein provided.
    

 

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Governing   Law:
    	
This   Agreement shall be construed, interpreted and enforced in accordance with,   and the respective rights and obligations of you and Epsilon and shall be   governed by, the laws of the State of Texas.
    
	
 
    	
 
    
	
Waiver:
    	
No   amendment or waiver of any provision of this Agreement shall be binding on   you and Epsilon unless consented to in writing by such party. No waiver of   any provision of this Agreement shall constitute a waiver of any other   provision nor shall any waiver constitute a continuing waiver unless   otherwise provided.
    

 

If you are in agreement with the terms of employment as contained in this letter, please confirm your acceptance of same by signing below and returning this letter in confidence to me.

 

Yours very truly,

 

	
EPSILON   ENERGY USA, INC.
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
Per:
    	
/s/   Michael Raleigh
    	
 
    	
 
    
	
Name:
    	
Michael   Raleigh
    	
 
    
	
Office:
    	
Chief   Executive Officer
    	
 
    
	
 
    	
I   hereby accept the terms of this offer.
    
	
 
    	
 
    
	
 
    	
 
    
	
/s/   Deena Williams 
    	
 
    	
/s/   B. Lane Bond 
    
	
Witness:
    	
B.   Lane Bond
    
	
 
    	
 
    
	
 
    	
Date:   
    	
8-21-2013
    

 

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