Second Amendment to Credit Agreement

Exhibit 10.1

Second Amendment to Credit Agreement

     This Second Amendment to Credit Agreement (this “Second Amendment”), dated as of March 8, 2010, is by and among Eagle Rock Energy Partners, L.P., a Delaware limited partnership (the “Borrower”), the Lenders party hereto, and Wachovia Bank, National Association, as administrative agent for the lenders (together with its successors in such capacity, the “Administrative Agent”), and the Guarantors party hereto.

     WHEREAS, the Borrower, the Lenders and agents party thereto, and the Administrative Agent are party to that certain Credit Agreement, dated as of December 13, 2007, as amended by First Amendment to Credit Agreement dated November 25, 2008 (as such agreement may be amended, supplemented or otherwise modified from time to time, the “Credit Agreement”). Unless otherwise defined herein, capitalized terms used herein shall have the respective meanings assigned to them in the Credit Agreement.

     WHEREAS, the Borrower has requested that the Administrative Agent and the Majority Lenders agree (a) to amend the Credit Agreement to revise the definition of Change in Control, (b) to amend the Senior Secured Leverage Ratio financial covenant and (c) to make the other changes described herein.

     WHEREAS, the Lenders and the Administrative Agent agree to amend the Credit Agreement as described herein upon the satisfaction of the conditions set forth herein.

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

     1. Amendment to Definition of Change in Control. The definition of “Change in Control” in Section 1.01 of the Credit Agreement is hereby amended in its entirety as follows:

     ““Change in Control” means:

     (a) prior to the Borrower’s exercise of the GP Option and consummation thereof:

     (i) the Sponsor and the members of the executive management team of the Ultimate General Partner shall cease to beneficially own and control, directly or indirectly, at least fifty percent (50%) on a fully diluted basis of the economic and voting interests in the Equity Interests of the General Partner,

     (ii) the General Partner shall cease to beneficially own and control, directly or indirectly, all of the general partner interests of the Borrower,

     (iii) the majority of the seats (other than vacant seats) on the board of directors (or similar governing body) of the Ultimate General Partner shall cease to be occupied by Persons who either (A) were members of the board of directors of the Ultimate General Partner as of the Second Amendment Effective Date or (B) were nominated for election by the board of directors of the Ultimate General

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Partner, a majority of whom were directors as of the Second Amendment Effective Date, or whose election or nomination for election was previously approved by a majority of such directors; and

     (b) upon and following Borrower’s exercise of the GP Option and consummation thereof:

     (i) any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, but excluding any employee benefit plan of such person or its subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan), other than the Sponsor, becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, except that a person or group shall be deemed to have “beneficial ownership” of all securities that such person or group has the right to acquire, whether such right is exercisable immediately or only after the passage of time (such right, an “option right”)), directly or indirectly, of 40% or more of the equity securities of the Borrower entitled to vote or direct the voting for members of the board of directors or equivalent governing body of the Borrower on a fully-diluted basis (including both common stock and any preferred stock and taking into account all such securities that such person or group has the right to acquire pursuant to any option right); or

     (ii) the majority of the seats (other than vacant seats) on the board of directors (or similar governing body) of the Ultimate General Partner or other equivalent governing body of the Borrower shall cease to be occupied by Persons who (A) were members of the board of directors of the Ultimate General Partner or equivalent governing body as of the date on which the GP Option is consummated after giving effect thereto, including the two additional members to be appointed by the independent members of the board in connection therewith, (B) is the chief executive officer of the Borrower (or his/her designee), (C) were appointed by the Sponsor, or (D) were nominated for election by the board of directors of the Ultimate General Partner or equivalent governing body (or an authorized committee or subgroup thereof), a majority of whom are directors described in clauses (A), (B) or (C) above, or whose election or nomination for election was previously approved by a majority of such directors;

provided, however, in no event shall the exercise by the Borrower of the GP Option, or the consummation thereof, constitute a Change in Control.”

     2. Amendment to Definition of Consolidated EBITDA. The definition of “Consolidated EBITDA” in Section 1.01 of the Credit Agreement is hereby amended in its entirety as follows:

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          ““Consolidated EBITDA” means, for any period, (a) the sum of (i) Consolidated Net Income for such period (excluding, to the extent included in the calculation of Consolidated Net Income in such period, gains or losses attributable to discontinued operations or asset dispositions not in the ordinary course of business) plus (ii) the following expenses or charges to the extent deducted from Consolidated Net Income in such period: Consolidated Interest Expense, income taxes, depreciation, depletion, amortization, and other similar non-cash charges (excluding any such non-cash charge to the extent that it represents an accrual or reserve for potential cash charges in any future period or amortization of a prepaid cash charge that was paid in a prior period), minus (b) all non-cash income added to Consolidated Net Income (excluding any such non-cash income to the extent it represents the reversal of an accrual or reserve for potential cash charge in any prior period).”

     3. Amendment to Add Definition of GP Option. The definition of “GP Option” is hereby added to Section 1.01 of the Credit Agreement as follows:

     ““GP Option” means the option of the Borrower to purchase all of the membership interests in the Ultimate General Partner and all limited partnership interests in the General Partner from the Sponsor for a purchase price of one million newly-issued common units of Borrower, substantially on the terms set forth in the Amended and Restated Securities Purchase and Global Transaction Agreement dated January 12, 2010, attached as an exhibit to the Borrower’s preliminary proxy statement filed February 25, 2010 with the SEC.”

     4. Amendment to Senior Secured Leverage Ratio Financial Covenant. Section 9.01(c) of the Credit Agreement is hereby amended in its entirety as follows:

     “(c) Senior Secured Leverage Ratio. If the Borrower has Indebtedness of the type described in Section 9.02(h), then the Borrower will not permit the Senior Secured Leverage Ratio to exceed 3.75 to 1.00; provided, that during a Specified Acquisition Period, the Senior Secured Leverage Ratio shall not exceed 4.25 to 1.00.”

     5. Proceeds of Minerals Business Sale. Borrower hereby agrees that in the event Borrower shall consummate the proposed sale of its minerals business as contemplated in that certain Purchase and Sale Agreement, dated as of December 21, 2009, to BSAP II GP, L.L.C., a subsidiary of Black Stone Minerals Company, L.P., Borrower shall, pursuant to Section 3.04(c)(ii) of the Credit Agreement, within one Business Day following receipt by Borrower of the proceeds of such sale, make a mandatory prepayment in an amount not less than $100,000,000, and pursuant to Section 2.07(a)(ii) of the Credit Agreement, the total Commitments shall automatically reduce by the amount of such prepayment; provided:

     (i) Borrower may use any and all Net Cash Proceeds from such sale in excess of $100,000,000 to purchase Property (other than inventory and working capital) used or to be used in Borrower’s and Restricted Subsidiaries’ businesses in the 270-day period following the receipt thereof as permitted by such Section 3.04(c)(ii); provided that any such excess that is not used to make such purchases with the 270-day period shall be applied as a mandatory prepayment on the last day of such period in accordance with

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Section 3.04(c)(ii) and the total Commitments shall automatically reduce by the amount of such prepayment in accordance with Section 2.07(a)(ii); and

     (ii) Administrative Agent and Lenders acknowledge and agree that (A) prior to the expiration of such 270-day period, such remaining Net Cash Proceeds are not required to be applied as a mandatory prepayment pursuant to such Section 3.04(c)(ii), (B) no mandatory automatic Commitment reduction shall occur or be required to occur pursuant to such Section 2.07(a)(ii) with respect to such remaining Net Cash Proceeds prior to the expiration of such 270-day period, and (C) in no event shall any optional prepayment on or following the consummation of such sale and prior to the expiration of such 270-day period, (1) constitute, or be deemed to constitute, a mandatory prepayment pursuant to such Section 3.04(c)(ii), or (2) automatically reduce, or be deemed to automatically reduce, the Commitments pursuant to such Section 2.07(a)(ii), except as expressly specified by Borrower in writing in connection with such prepayment.

     6. Conditions to Effectiveness. This Second Amendment shall become effective on the date (the “Second Amendment Effective Date”), on or before July 31, 2010, on which the Administrative Agent shall have received (a) counterparts of this Second Amendment signed on behalf of the Majority Lenders, the Borrower and the Guarantors (which may be facsimiles or other electronic transmissions of signed signature pages of this Second Amendment) and (b) notice from the Borrower that the Borrower has received the requisite unitholder approval with respect to the transaction generally described in the Borrower’s preliminary proxy statement filed February 25, 2010 with the SEC, as finally set forth in the definitive proxy statement and any amendment or supplement thereto, substantially in accordance with and pursuant to the terms thereof.

     The Administrative Agent shall notify the Borrower in writing of the effectiveness of this Second Amendment, and such notice shall be conclusive and binding.

     7. Representations and Warranties

     Each Loan Party hereby represents and warrants to each Lender that:

     (a) each of the representations and warranties of such Loan Party set forth in the Credit Agreement and in the other Loan Documents is true and correct in all material respects on and as of the Second Amendment Effective Date as if made on and as of the Second Amendment Effective Date, except to the extent any such representations and warranties are expressly limited to an earlier date, in which case, such representations and warranties are true and correct in all material respects as of such specified earlier date;

     (b) no Default or Event of Default has occurred and is continuing;

     (c) the execution, delivery and performance by such Loan Party of this Second Amendment are within its powers and have been duly authorized by all necessary corporate or other action;

     (d) this Second Amendment constitutes the legal, valid and binding obligation of such Loan Party, enforceable against such Loan Party in accordance with its terms;

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     (e) the execution, delivery and performance by such Loan Party of this Second Amendment (i) does not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority or any other third Person (including shareholders or any class of directors, whether interested or disinterested, of the Loan Parties or any other Person), nor is any such consent, approval, registration, filing or other action necessary for the validity or enforceability of this Second Amendment or any other Loan Document or the consummation of the transactions contemplated thereby, except such as have been obtained or made and are in full force and effect other than those third party approvals or consents which, if not made or obtained, would not cause a Default hereunder, could not reasonably be expected to have a Material Adverse Effect or do not have an adverse effect on the enforceability of this Second Amendment or the other Loan Documents, (ii) will not violate any applicable law or regulation or any Organization Document of such Loan Party or any order of any Governmental Authority, (iii) will not violate or result in a default under any indenture, agreement or other instrument binding upon such Loan Party or its Properties, or give rise to a right thereunder to require any payment to be made by such Loan Party and (iv) will not result in the creation or imposition of any Lien on any Property of such Loan Party (other than the Liens created by the Loan Documents).

     8. Miscellaneous

          (a) Payment of Expenses. The Borrower agrees to pay or reimburse the Administrative Agent and the Lenders for all of their reasonable out-of-pocket expenses incurred in connection with this Second Amendment, any other documents prepared in connection herewith and the transactions contemplated hereby, including, without limitation, the reasonable fees and disbursements of counsel to the Lenders, pursuant to Section 12.03(a) of the Credit Agreement. The agreement set forth in this Section 7(a) shall survive the termination of this Second Amendment and the Credit Agreement.

          (b) No Other Amendments; Confirmation. Except as expressly amended, modified and supplemented hereby, the provisions of the Credit Agreement and the other Loan Documents are and shall remain in full force and effect and are hereby ratified and confirmed as so amended. Except as expressly set forth herein, this Second Amendment shall not be deemed to be a waiver, amendment or modification of any provisions of the Credit Agreement or any other Loan Document or any right, power or remedy of the Administrative Agent or the Lenders, or constitute a waiver of any provision of the Credit Agreement or any other Loan Document, or any other document, instrument and/or agreement executed or delivered in connection therewith, or of any Default or Event of Default under any of the foregoing, in each case whether arising before or after the date hereof or as a result of performance hereunder or thereunder. This Second Amendment also shall not preclude the future exercise of any right, remedy, power, or privilege available to the Administrative Agent and/or the Lenders whether under the Credit Agreement, the other Loan Documents, at law or otherwise. All references to the Credit Agreement shall be deemed to mean the Credit Agreement as modified hereby. The parties hereto agree to be bound by the terms and conditions of the Credit Agreement and Loan Documents as amended by this Second Amendment, as though such terms and conditions were set forth herein. Each reference in the Credit Agreement to “this Agreement,” “hereunder,” “hereof,” “herein” or words of similar import shall mean and be a reference to the Credit Agreement as amended by this Second Amendment, and each reference herein or in any other Loan Documents to the “Credit

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Agreement” shall mean and be a reference to the Credit Agreement as amended and modified by this Second Amendment.

          (c) Governing Law. THIS SECOND AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

          (d) Headings. Article and Section headings used herein are for convenience of reference only, are not part of this Second Amendment and shall not affect the construction of, or be taken into consideration in interpreting, this Second Amendment.

          (e) Entire Agreement. This Second Amendment and the documents referred to herein constitute the entire contract among the parties relating to the subject matter hereof and thereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof and thereof. This Second Amendment is a Loan Document executed under the Credit Agreement.

          (f) Counterparts. This Second Amendment may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Delivery of an executed counterpart of a signature page of this Second Amendment by facsimile or other electronic transmission shall be effective as delivery of a manually executed counterpart of this Second Amendment.

          (g) Successors. The execution and delivery of this Second Amendment by any Lender shall be binding upon each of its successors and assigns.

[SIGNATURE PAGES FOLLOW]

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          IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to be duly executed and delivered by their respective officers or other duly authorized representatives as of the date first above written.

BORROWER:	EAGLE ROCK ENERGY PARTNERS, L.P.
	By:	Eagle Rock Energy GP, L.P., General Partner
	By:	Eagle Rock Energy G&P, LLC, General Partner
	By:	/s/ Xxxxxxx X. Xxxx
		Name:
		Title:

Signature Page to
Second Amendment to Credit Agreement

ADMINISTRATIVE AGENT
AND LENDER

	WACHOVIA BANK, NATIONAL ASSOCIATION, as Administrative Agent and Lender
	By:	/s/ Xxxxxx X. Xxxxxxxx
		Name:	Xxxxxx X. Xxxxxxxx
		Title:	Director

Signature Page to
Second Amendment to Credit Agreement

SYNDICATION AGENT
AND LENDER:

	BANK OF AMERICA, N.A. , as Syndication Agent and Lender
	By:	/s/ Xxxxxxxxxxx Xxxxx
		Name:	Xxxxxxxxxxx Xxxxx
		Title:	Vice President

Signature Page to
Second Amendment to Credit Agreement

CO-DOCUMENTATION AGENT
AND LENDER:

	BNP PARIBAS, as Co-Documentation Agent and Lender
	By:	/s/ Xxxx Xxx
		Name:	Xxxx Xxx
		Title:	Managing Director
	By:	/s/ Xxxxx Xxxxxxxx
		Name:	Xxxxx Xxxxxxxx
		Title:	Director

Signature Page to
Second Amendment to Credit Agreement

LENDER:

	BANK OF NOVA SCOTIA
	By:	/s/ Xxxx Xxxxxx
		Name:	Xxxx Xxxxxx
		Title:	Director

Signature Page to
Second Amendment to Credit Agreement

LENDER:

	BARCLAYS BANK PLC
	By:	/s/ Xxx Xxx
		Name:	Xxx Xxx
		Title:	Assistant Vice President

Signature Page to
Second Amendment to Credit Agreement

LENDER:

	Comerica Bank
	By:	/s/ Xxxx Xxxxx
		Name:	Xxxx Xxxxx
		Title:	Senior Vice President

Signature Page to
Second Amendment to Credit Agreement

LENDER:

	COMPASS BANK As Lender
	By:	/s/ Xxxx Xxxxxxxxx
		Name:	Xxxx Xxxxxxxxx
		Title:	Senior Vice President

Signature Page to
Second Amendment to Credit Agreement

LENDER:

	COMPASS BANK, as successor in interest to Guaranty Bank, FSB as Lender
	By:	/s/ Xxxx Xxxxxxxxx
		Name:	Xxxx Xxxxxxxxx
		Title:	Senior Vice President

Signature Page to
Second Amendment to Credit Agreement

LENDER:

	CREDIT AGRICOLE f/k/a Calyon (NEW YORK BRANCH)
	By:	/s/ Xxx Byangeon
		Name:	Xxx Byangeon
		Title:	Managing Director
	By:	/s/ Xxxxxxx Xxxxx
		Name:	Xxxxxxx Xxxxx
		Title:	Director

Signature Page to
Second Amendment to Credit Agreement

LENDER:

	Credit Suisse AG, Cayman Islands Branch (f/k/a Credit Suisse, Cayman Islands Branch)
	By:	/s/ Xxxxxx Xxxx
		Name:	Xxxxxx Xxxx
		Title:	Director
	By:	/s/ Xxxxx-Xxxxx Xxxxxxxx
		Name:	Xxxxx-Xxxxx Xxxxxxxxx
		Title:	Associate

Signature Page to
Second Amendment to Credit Agreement

LENDER:

	XXXXXXX SACHS CREDIT PARTNERS LP
	By:	/s/ Xxxxxx Xxxxxx
		Name:	Xxxxxx Xxxxxx
		Title:	Authorized Signatory

Signature Page to
Second Amendment to Credit Agreement

LENDER:

	UBS LOAN FINANCE LLC
	By:	/s/ Xxxx X. Xxxxx
		Name:	Xxxx X. Xxxxx
		Title:	Associate Director
	By:	/s/ Xxxx X. Xxxx
		Name:	Xxxx X. Xxxx
		Title:	Associate Director

Signature Page to
Second Amendment to Credit Agreement

LENDER:

	Union Bank, N.A.
	By:	/s/ Xxxxx Xxxxxx
		Name:	Xxxxx Xxxxxx
		Title:	Vice President

Signature Page to
Second Amendment to Credit Agreement

LENDER:

	U.S. Bank National Association
	By:	/s/ Xxxxxx X. Xxxxxxxxx
		Name:	Xxxxxx X. Xxxxxxxxx
		Title:	Vice President

Signature Page to
Second Amendment to Credit Agreement

LENDER:

	Xxxxx Fargo Bank, N.A.
	By:	/s/ Xxxxxx X. Xxxxxxxx
		Name:	Xxxxxx X. Xxxxxxxx
		Title:	Sr. Portfolio Manager

Signature Page to
Second Amendment to Credit Agreement

LENDER:

	Woodlands Commercial Bank F/K/A Xxxxxx Brothers Commercial Bank
	By:	/s/ Xxxxx Xxxxxxxxx
		Name:	Xxxxx Xxxxxxxxx
		Title:	Vice President

Signature Page to
Second Amendment to Credit Agreement

RATIFICATION

     Each of the undersigned (each, a “Guarantor”) hereby agrees that its liabilities under the Guaranty and Collateral Agreement dated as of December 13, 2007 (the “Guaranty and Collateral Agreement”) including, without limitation, guaranteeing the indebtedness, obligations and liabilities of Eagle Rock Energy Partners, L.P. under that certain Credit Agreement dated as of December 13, 2007 as amended (the “Credit Agreement”) and under the other Loan Documents (as defined in the Credit Agreement) to which it is a party, shall remain enforceable against such Guarantor in accordance with the terms of the Guaranty and Collateral Agreement and the other Loan Documents and shall not be reduced, altered, limited, lessened or in any way affected by the execution and delivery of the Second Amendment to Credit Amendment to which this Ratification is attached. Each Guarantor hereby confirms and ratifies its liabilities under the Guaranty and Collateral Agreement and the other Loan Documents to which it is a party in all respects. Each Guarantor acknowledges and agrees that this Ratification constitutes a part of the Second Amendment to Credit Agreement to which it is attached.

GUARANTORS:

	EROC MIDSTREAM ENERGY, L.P. EROC QUITMAN GATHERING COMPANY, LP EROC GATHERING COMPANY, LP EAGLE ROCK PRODUCTION, L.P. MIDSTREAM GAS SERVICES, L.P. EAGLE ROCK OPERATING, L.P. EAGLE ROCK FIELD SERVICES, L.P. EAGLE ROCK ENERGY SERVICES, L.P. EAGLE ROCK PIPELINE, L.P. EAGLE ROCK GAS GATHERING & PROCESSING, LTD. EAGLE ROCK UPSTREAM DEVELOPMENT II, L.P. EAGLE ROCK GOM, L.P. EAGLE ROCK MIDSTREAM, L.P. EAGLE ROCK DESOTO PIPELINE, L.P.
	By:	Eagle Rock Pipeline GP, LLC, its general partner
	By:	/s/ Xxxxxxx X. Xxxx
		Name:
		Title:

Signature Page to Ratification under
Second Amendment to Credit Agreement

	HESCO GATHERING COMPANY, LLC HESCO PIPELINE COMPANY, L.L.C. EROC PRODUCTION, LLC EAGLE ROCK DEVELOPMENT COMPANY, L.L.C. EAGLE ROCK PIPELINE GP, LLC EAGLE ROCK ENERGY ACQUISITION CO., INC. EAGLE ROCK UPSTREAM DEVELOPMENT COMPANY, INC. ESCAMBIA ASSET CO. LLC ESCAMBIA OPERATING CO. LLC EAGLE ROCK ENERGY ACQUISITION CO., INC. EAGLE ROCK ENERGY ACQUISITION CO. II, INC. EAGLE ROCK UPSTREAM DEVELOPMENT COMPANY II, INC. GALVESTON BAY GATHERING, LLC CMA PIPELINE PARTNERSHIP, LLC SUPERIOR GAS COMPRESSION, LLC
	By:	/s/ Xxxxxxx X. Xxxx
		Name:
		Title:
	EAGLE ROCK ACQUISITION PARTNERSHIP, L.P.
	By:	Eagle Rock Upstream Development Company, Inc.,
		its general partner
	By:	/s/ Xxxxxxx X. Xxxx
		Name:
		Title:
	EAGLE ROCK ACQUISITION PARTNERSHIP II, L.P.
	By:	Eagle Rock Upstream Development Company II, Inc.,
		its general partner
	By:	/s/ Xxxxxxx X. Xxxx
		Name:
		Title:

Signature Page to Ratification under
Second Amendment to Credit Agreement