EX-10.2 3 h19182exv10w2.txt 3RD AMEND. TO SECOND LIEN SECURED CREDIT AGREEMENT EXHIBIT 10.2 THIRD AMENDMENT TO SECOND LIEN SECURED CREDIT AGREEMENT THIS THIRD AMENDMENT TO SECOND LIEN SECURED CREDIT AGREEMENT (this "Amendment") is entered into as of October 14, 2004, among PetroQuest Energy, L.L.C., a Louisiana limited liability company ("Borrower"); PetroQuest Energy, Inc., a Delaware corporation ("Guarantor"); each of the Lenders from time to time party hereto; and Macquarie Bank Limited, a bank incorporated in accordance with the laws of Australia (in its individual capacity, "MBL"), as administrative agent for the Lenders (in such capacity, together with its successors in such capacity, the "Administrative Agent"). Capitalized terms used but not defined in this Amendment have the meaning given them in the Credit Agreement (defined below). Except as noted in this Amendment, all references to sections, exhibits and schedules refer to sections in and exhibits and schedules to the Credit Agreement. BACKGROUND A. Borrower and the Lenders have previously entered into a Second Lien Secured Credit Agreement dated November 6, 2003 (as amended, the "Credit Agreement") for the purpose of making available to Borrower a second lien, secured term loan on a non-revolving basis. B. The Borrower has requested that the Lenders amend the Credit Agreement pursuant to the terms and conditions of this Amendment to make certain modifications to the Credit Agreement in connection with Borrower's acquisition of the SJM Property (defined below). AGREEMENTS In consideration of the mutual covenants of Borrower and the Lenders set forth in this Amendment and other good and valuable consideration, the receipt and sufficiency of which are acknowledged by each of the parties, Borrower and the Lenders agree as follows: 1. Amendments to Credit Agreement. (a) Additional Definitions. The Credit Agreement is amended to include each of the following additional definitions in alphabetical order: "SJM Property" means the Leases and all other Real Property described on Exhibit A-2 to the Third Amendment. "SJM Purchase Agreement" means the Purchase and Sale Agreement dated August 27, 2004 between Borrower, as buyer, and SJM Inc., as seller, as supplemented and amended by the Supplement and Amendment to Purchase and Sale Agreement dated October 14, 2004, together with all documents executed and delivered in connection with the transaction contemplated by that agreement. "Third Amendment" means the Third Amendment to Credit Agreement dated October 14, 2004 among Borrrower, Guarantor, Administrative Agent and the Lenders party to the Credit Agreement." (b) Modifications to Credit Agreement. Section 7.11 of the Credit Agreement is deleted in its entirety and replaced with the following: Section 7.11 Debt Threshold. Borrower shall not permit the total Outstanding Debt to exceed sixty million dollars ($60,000,000). 2. Exhibits and Schedules. The following new exhibit attached to this Amendment is made a part of the Credit Agreement for all purposes: Exhibit A-2 - SJM Property 3. Conditions to Effectiveness. This Amendment will become effective upon the satisfaction of each of the following conditions: (a) Borrower and Guarantor, as applicable, will execute and deliver to the Administrative Agent the following documents: (i) this Amendment; (ii) a Mortgage covering the SJM Property; and (iii) a Pledge Agreement covering all of the outstanding capital stock of Pittrans, Inc.; (iv) all other agreements, instruments, certificates, financing statements and other documents necessary or convenient, in the sole and absolute discretion of the Lenders, to give effect to the transaction contemplated by this Amendment; (b) to the extent not previously received, Lenders have obtained a report prepared by a consultant acceptable to Lenders confirming (i) Borrower's and Operator's compliance, in all material respects, with all applicable Laws and regulatory requirements and (ii) that Borrower or Operator have all necessary material permits and licenses; (c) to the extent not previously determined, an environmental consultant satisfactory to Lenders will investigate Borrower's compliance with all Environmental Laws, the results of which shall be satisfactory to Lenders in their sole discretion; (d) Borrower will deliver to Lenders title opinions or other evidence of title relating to the SJM Properties showing Defensible Title to the SJM Properties vested in Borrower subject only to the Permitted Encumbrances and otherwise satisfactory in form and substance to Lenders, together with a letter from the issuer or issuers of such opinions, if the opinions are not addressed to the Lenders, to the effect that Lenders are authorized to rely on the title opinions; 2 (e) to the extent not previously delivered, Borrower will deliver to Lenders copies of the Basic Documents and all other documents and instruments as Lenders may reasonably request, all of which will be satisfactory, in form and substance, to Lenders; (f) to the extent not previously delivered, Borrower will deliver to Lenders a certificate of insurance evidencing the coverages required under this Agreement and the Administrative Agent and the Lenders have been named as additional insureds in respect of such liability insurance policies and the Administrative Agent has been named as loss payee with respect to property loss insurance; (g) no Material Adverse Effect has occurred; (h) except for the obligations listed (or, with the consent of Lenders, summarized) on Schedule 9.2(n), there are no unpaid bills for improvements or services to the Properties that could give rise to mechanic's or materialmen's liens or any other similar encumbrance arising by operation of applicable law; (i) the representations in each of the Loan Documents of Borrower and each other Person are true, complete and correct in all material respects; (j) Lenders are satisfied, in their sole discretion, with the results of its due diligence examination of Borrower, and the SJM Properties, including, Borrower's proposed development of the SJM Properties, satisfactory information regarding existing Hydrocarbon sales, and all aspects of Borrower's existing and contemplated Hydrocarbon marketing activities; (k) no suit or other proceeding is pending or threatened before any court or governmental agency seeking to restrain, enjoin or prohibit or declare illegal, or seeking damages from Borrower in connection with the transactions contemplated in this Agreement (or the operations contemplated as part of those transactions) or alleging the breach of any material contract; (l) to the extent it has not done so previously, Borrower has reimbursed Lenders for all Related Costs for which invoices have been presented; (m) each of the Operating Agreements affecting the SJM Properties will be satisfactory in form and substance to Lenders in their sole and absolute discretion; (n) each of the documents executed and delivered by Borrower or Guarantor in connection with any amendments or supplements to the Senior Credit Facility will be satisfactory in form and substance to Lenders in their sole and absolute discretion; (o) Borrower shall have prepared and submitted to Lenders a fifteen (15) month Annual Operating Budget for the further development of the Properties, and the budget is satisfactory in form and substance to Lenders in their sole and absolute discretion; and 3 (p) Lenders will be satisfied in their sole and absolute discretion with Borrower's Hydrocarbon hedging program with respect to the SJM Properties. 4. Conditions Precedent to Making of Advances. In addition to the conditions set forth in Section 3 above, the making of any additional Advance under the Term Loan shall be subject to the following conditions: (a) no Material Adverse Change has occurred and is continuing; (b) all representations and warranties of Borrower and Guarantor set forth in this Agreement and the other Loan Documents shall be true and correct in all material respects as of the date of the Advance except to the extent such representations and warranties are expressly limited to an earlier date, in which case the representations and warranties shall be true and correct as of such specified earlier date; (c) Borrower shall have delivered an Advance Request to the Administrative Agent in accordance with Section 2.2. Such Advance Request must be accompanied by copies of all approved AFEs included in the Annual Operating Budget as well as other supporting documentation satisfactory to Lenders evidencing the amount to be Advanced. Each AFE previously approved by Lenders in writing or other project description from the Annual Operating Budget delivered to Lender in conjunction with an Advance Request will detail all amounts Advanced to date by Lenders under that AFE or project description and the amount requested under the Advance Request. Notwithstanding anything to the contrary herein, Lenders shall not Advance any amount with respect to any specific activity included in the Annual Operating Budget that exceeds the amount included for such Well or project in the Annual Operating Budget inclusive of any amount included in the "Cost-Overrun" line-item of that Annual Operating Budget. (d) the hedging requirements required by Section 6.17 shall be in full force and effect; (e) no Event of Default has occurred or is continuing and no circumstance exists which but for the lapse of time or notice from the Lenders or both would become an Event of Default; and (f) the SJM Purchase Agreement will be in form and substance satisfactory to Lenders in their sole and absolute discretion, and the transactions contemplated by that agreement will have closed (conditioned only on the payment of the purchase price specified in that agreement) on terms satisfactory to Lenders in their sole and absolute discretion. 5. Reaffirmation of Representations and Warranties. To induce the Lenders to enter into this Amendment, Borrower and Guarantor each hereby reaffirms, as of the date hereof, its respective representations and warranties contained in Article IV of the Credit Agreement and in all other documents executed pursuant thereto, and additionally represents and warrants as follows: 4 (a) the execution and delivery of this Amendment and the performance by Borrower and Guarantor of their respective obligations under this Amendment are within such company's power, have been duly authorized by all necessary company action, have received all necessary governmental approval (if any shall be required), and do not and will not contravene or conflict with any provision of law or of the Charter Documents of Borrower or Guarantor or of any agreement binding upon either of them; and (b) this Amendment represents the legal, valid and binding obligations of each of Borrower and Guarantor enforceable against each of them in accordance with its terms and subject only to bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally. 6. Ratification of Liens and Security Interests. Borrower hereby acknowledges and ratifies the existence and priority of the Liens granted by Borrower in favor of any of the Lenders or the Administrative Agent for the benefit of the Lenders in and to the Collateral and represents, warrants and covenants that such liens and security interests are valid, existing and in full force and effect. 7. Miscellaneous. This Amendment supersedes all prior agreements (written or oral) between Borrower and the Lenders with regard to the subject matters hereof. This Amendment is a Loan Document. Except as affected by this Amendment, the Loan Documents are unchanged and continue in full force and effect. However, in the event of any inconsistency between the terms of the Credit Agreement as amended by this Agreement and any other Loan Document, the terms of the Credit Agreement will control and the other document will be deemed to be amended to conform to the terms of the Credit Agreement. All references to the Credit Agreement will refer to the Credit Agreement as amended by this Amendment. All references to the Collateral will include, without limitation, the Collateral acquired or to be acquired pursuant to the SJM Purchase Agreement. Borrower agrees that all Loan Documents to which it is a party (whether as an original signatory or by assumption of the Obligations) remain in full force and effect and continue to evidence its legal, valid and binding obligations enforceable in accordance with their terms (as the same are affected by this Amendment or are amended in connection with this Amendment). Borrower releases Administrative Agent and each of the Lenders from any liability for actions or failures to act in connection with the Loan Documents prior to the date of this Amendment. Any course of dealing among Borrower, Administrative Agent, any of the Lenders or any other Person will not be deemed to have altered or amended the Credit Agreement or affected either Borrower's or the Lenders' right to enforce the Credit Agreement as written. This Amendment will be binding upon and inure to the benefit of each of the undersigned and their respective successors and permitted assigns. 8. Form. Each agreement, document, instrument or other writing to be furnished to Administrative Agent or the Lenders under any provision of this Amendment must be in form and substance satisfactory to the Lenders and their respective counsel. 9. Multiple Counterparts. This Amendment may be executed in more than one counterpart, each of which shall be deemed an original, and all of which constitute, collectively, one instrument; but, in making proof of this instrument, it shall not be necessary to produce or account for more than one such counterpart. It shall not be necessary for each of the parties to 5 execute the same counterpart of this Amendment so long as each of them executes a counterpart of this Amendment. 10. Governing Law. This Amendment and all transactions provided for in this Amendment will be governed by, interpreted and construed under and enforced pursuant to the laws of the State of Texas, without regard to its conflicts of laws provisions. 11. Final Agreement. THE LOAN DOCUMENTS, AS AMENDED BY OR IN CONNECTION WITH THIS AMENDMENT, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO ORAL AGREEMENTS BETWEEN THE PARTIES. [SIGNATURES BEGIN ON THE FOLLOWING PAGE] 6 This Amendment is executed as of the date set forth in the preamble to this Amendment. BORROWER: PETROQUEST ENERGY, L.L.C., a Louisiana limited liability company By: /s/ Michael O. Aldridge ---------------------------------------- Michael O. Aldridge Treasurer GUARANTOR: PETROQUEST ENERGY, INC., a Delaware corporation By: /s/ Michael O. Aldridge ---------------------------------------- Michael O. Aldridge Treasurer LENDERS: MACQUARIE BANK LIMITED, a bank incorporated in accordance with the laws of Australia By: /s/ Nicholas O'Kane ----------------------------------------- Printed Name: Nicholas O'Kane ------------------------------- Title: Executive Director -------------------------------------- By: /s/ Thomas Cullinan ----------------------------------------- Printed Name: Thomas Cullinan ------------------------------- Title: Attorney --------------------------------------