PLEDGE AND SECURITY AGREEMENT (PostRock Energy Services Corporation)
Exhibit 10.13
EXECUTION
(PostRock Energy Services Corporation)
THIS PLEDGE AND SECURITY AGREEMENT (herein referred to as this “Security
Agreement”) is executed as of September 21, 2010, by POSTROCK ENERGY SERVICES CORPORATION, a
Delaware corporation, formerly known as Quest Resource Corporation and successor by merger to Quest
Resource Acquisition Corp., PostRock Midstream, LLC (the successor by merger to Quest Midstream
Partners, L.P. and Quest Midstream GP, LLC), Quest Cherokee Oilfield Services, LLC, Quest
Mergersub, Inc., Quest Midstream Holdings Corp., Quest Energy Service, LLC and Energy & Midstream
Partners JV, LLC (“Debtor”), whose address is 000 Xxxx Xxxxxx, Xxxxx 0000, Xxxxxxxx Xxxx, Xxxxxxxx
00000, in favor of ROYAL BANK OF CANADA as Collateral Agent (hereafter defined) for the benefit of
the Beneficiaries (hereafter defined) (the Collateral Agent, in such capacity, the “Secured Party”)
whose address is Xxxxx Xxxx Xxxxx, X.X. Xxx 00, 200 Bay Street, 00xx Xxxxx, Xxxxx Xxxxx, Xxxxxxx,
Xxxxxxx X0X 0X0.
RECITALS
A. Quest Midstream Partners, L.P., a Delaware master limited partnership (which merged into
and became Quest Acquisition Partners, LLC, which changed its name to PostRock Midstream, LLC,
which merged into PostRock Energy Services Corporation) and Bluestem Pipeline, LLC, as borrowers,
and Royal Bank of Canada as administrative and collateral agent, and the lenders party thereto,
entered into a Credit Agreement, dated as of January 31, 2007, providing for a $75,000,000 Senior
Credit Facility (as amended from time to time, the “Original Midstream Credit Agreement”).
B. The Original Midstream Credit Agreement was amended and restated by an Amended and Restated
Credit Agreement dated as of November 1, 2007 among Quest Midstream Partners, L.P. and Bluestem
Pipeline, LLC, as borrowers, Royal Bank of Canada, as administrative and collateral agent, and the
lenders party thereto (the “Midstream Lenders”) providing for a $135,000,000 Senior Credit Facility
(as amended from time to time, the “First Amended and Restated Midstream Credit Agreement”).
C. In connection with the First Amended and Restated Midstream Credit Agreement, Quest
Midstream Partners, L.P. financed its acquisition of (i) 100% of the limited liability company
membership interest in each of (a) Midcoast Kansas Pipeline, L.L.C., a Delaware limited liability
company (whose name after its acquisition was changed to Quest Kansas Pipeline, L.L.C.), and (b)
Midcoast Kansas General Partner, L.L.C., a Delaware limited liability company (whose name after its
acquisition was changed to Quest Kansas General Partner, L.L.C.), each of whom collectively owned
100% of the general partner interest in Enbridge Pipelines (KPC), a Kansas general partnership
(whose name after its acquisition was changed to Quest Pipelines (KPC)) which owned an approximate
1,120 mile interstate natural gas pipeline, gathering systems, processing facilities and related
assets located in the States of Kansas, Oklahoma and Missouri.
D. The First Amended and Restated Midstream Credit Agreement was amended by a First Amendment
to Amended and Restated Credit Agreement, dated November 1, 2007, Second Amendment to Amended and
Restated Credit Agreement, dated October 28, 2008, and Third Amendment to Amended and Restated
Credit Agreement, dated December 17, 2009 (the First Amended and Restated Midstream Credit
Agreement as so amended the “Prior Midstream Credit Agreement”).
E. The Prior Midstream Credit Agreement is being amended and restated in its entirety pursuant
to that certain Second Amended and Restated Credit Agreement of even date herewith (the
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“Pipeline Credit Agreement”), among Debtor and PostRock KPC Pipeline, LLC, a Delaware limited
liability company (“KPC Pipeline LLC”; collectively KPC Pipeline LLC and Debtor, the “Pipeline
Facility Borrowers”), each lender from time to time party thereto (collectively, the “Pipeline
Facility Lenders”), and Royal Bank of Canada, as administrative agent and collateral agent.
Pursuant to the Pipeline Credit Agreement, the Pipeline Facility Lenders have agreed to make a
$15,000,000 term loan to the Pipeline Facility Borrowers.
F. Pursuant to that certain Second Amended and Restated Credit Agreement dated of even date
herewith (the “Borrowing Base Facility Credit Agreement”; the Pipeline Credit Agreement, together
with the Borrowing Base Facility Credit Agreement collectively, the “Credit Agreements” and
individually a “Credit Agreement”), among Debtor and MidContinent (hereinafter
defined)(collectively Debtor and MidContinent, the “Borrowing Base Facility Borrowers”), each
lender from time to time party thereto (collectively, the “Borrowing Base Facility Lenders”), and
Royal Bank of Canada, as administrative agent and collateral agent, the Borrowing Base Facility
Lenders have agreed to make loans and issue letters of credit to or for the Borrowing Base Facility
Borrowers.
G. Pursuant to an Intercreditor and Collateral Agency Agreement dated of even date herewith
(the “Intercreditor Agreement”) among Royal Bank of Canada, as First Lien Agent (hereafter defined)
for the First Lien Secured Parties (hereafter defined), the First Lien Secured Parties, Royal Bank
of Canada, as Second Lien Agent (hereafter defined) for the Second Lien Secured Parties (hereafter
defined), the Second Lien Secured Parties and each of the Debtor and MidContinent, Royal Bank of
Canada, as collateral agent for the First Lien Secured Parties and Second Lien Secured Parties, and
KPC Pipeline LLC, the Collateral Agent agreed to act as collateral agent for the First Lien Secured
Parties and Second Lien Secured Parties for purposes of dealing with the Collateral, including for
purposes of this Security Agreement, apportioning payments among First Lien Secured Parties and the
Second Lien Secured Parties with respect to proceeds thereof.
H. The Debtor has agreed to enter into this Security Agreement, and (i) in connection with the
Pipeline Credit Agreement, Debtor desires to secure all indebtedness owing under the Pipeline
Credit Agreement with a first priority lien on the Collateral, and (ii) in connection with the
Borrowing Base Facility Credit Agreement, Debtor desires to secure all indebtedness owing under the
Borrowing Base Facility Credit Agreement with a lien on the Collateral which is junior, subject and
subordinated to the lien on the Collateral securing indebtedness owing under the Pipeline Credit
Agreement.
I. Debtor has duly authorized the execution, delivery and performance of this Security
Agreement.
J. This Security Agreement is integral to the transactions contemplated by the Intercreditor
Agreement and Credit Agreements, and the execution and delivery of this Security Agreement is
required under the terms of the Credit Agreements.
ACCORDINGLY, for valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Debtor and Secured Party hereby agree as follows:
ARTICLE I
Definitions and References
Section 1.1. References to Pipeline Credit Agreement. The terms, conditions, and provisions of the Pipeline Credit Agreement are incorporated
herein by reference, the same as if set forth herein verbatim, which terms, conditions, and
provisions shall continue to be in full force and effect hereunder so long as the Pipeline Facility
Lenders are obligated to lend under the Pipeline Credit Agreement and
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thereafter until the Obligations (hereafter defined) are paid and performed in full (except as
provided in Sections 10.01(d) and 10.01(e) of the Pipeline Credit Agreement).
Section 1.2. Certain Definitions. Unless otherwise defined herein, or the context
hereof otherwise requires, each term defined in the Pipeline Credit Agreement or in the UCC is used
in this Security Agreement with the same meaning; provided that, if the definition given to such
term in the Pipeline Credit Agreement conflicts with the definition given to such term in the UCC,
the definition in the Pipeline Credit Agreement shall control to the extent legally allowable; and
if any definition given to such term in Chapter 9 of the UCC conflicts with the definition given to
such term in any other chapter of the UCC, the Chapter 9 definition shall prevail. As used herein,
the following terms have the meanings indicated:
Section 1.3. Certain Definitions. Definitions in this Security Agreement
The following terms have the following meanings unless otherwise indicated:
Beneficiaries means collectively all of the Intercreditor Secured Parties and Beneficiary
means any one of the Beneficiaries.
Borrowing Base Facility Borrowers has the meaning set forth in Recital F hereto.
Borrowing Base Facility Credit Agreement has the meaning set forth in Recital F hereto.
Borrowing Base Facility Lenders has the meaning set forth in Recital F hereto.
Collateral means, with respect to Debtor, all property described in Section 2.1 in which
Debtor has any right, title or interest.
Collateral Agent means Royal Bank of Canada in its capacity as “Collateral Agent” for the
Intercreditor Secured Parties pursuant to the Intercreditor Agreement.
Credit Agreement and Credit Agreements have the meanings specified in Recital F.
Debtor has the meaning specified in the preamble.
First Amended and Restated Midstream Credit Agreement has the meaning set forth in Recital B
hereto.
First Lien Agent has the meaning set forth in the Intercreditor Agreement.
| First Lien Document has the meaning set forth in the Intercreditor Agreement. |
| First Lien Notes has the meaning set forth in the definition of “Obligations”. |
| First Lien Obligations has the meaning set forth in the Intercreditor Agreement. |
| First Lien Secured Parties has the meaning set forth in the Intercreditor Agreement. |
| Intercreditor Agreement has the meaning set forth in Recital G hereto. |
Intercreditor Secured Parties means the “Secured Parties” as defined in the Intercreditor
Agreement.
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Issuer has the meaning specified in Section 2.1.
KPC Pipeline LLC has the meaning set forth in Recital E hereto.
MidContinent means PostRock MidContinent Production, LLC, a Delaware limited liability
company.
Midstream Lenders has the meaning set forth in Recital B hereto.
Notes has the meaning set forth in the definition of “Obligations”.
Obligations means, collectively
(a) all indebtedness, liabilities, and obligations of Debtor arising under this Security
Agreement,
(b) all First Lien Obligations including without limitation, all indebtedness, obligations and
liabilities, whether now in existence or hereafter arising, whether by acceleration or otherwise,
of a Pipeline Facility Borrower arising out of or under the Pipeline Credit Agreement and each
other First Lien Document to which a Pipeline Facility Borrower is a party, and all indebtedness,
obligations and liabilities, whether now in existence or hereafter arising, whether by acceleration
or otherwise, and evidenced by those certain promissory notes in the aggregate principal amount of
Fifteen Million and 00/100 United States Dollars (US $15,000,000.00) executed jointly and severally
by the Pipeline Facility Borrowers and payable to the order of the Pipeline Facility Lenders on or
before February 28, 2012 and all other notes given in substitution for the foregoing promissory
notes, or in modification, renewal, rearrangement or extension thereof, in whole or in part (such
promissory notes, as from time to time supplemented, amended or modified and all other notes given
in substitution therefor or in modification, renewal, rearrangement or extension thereof, in whole
or in part, being hereafter collectively called the “First Lien Notes”), and with interest,
collection and attorneys’ fees, all as provided therein,
(c) all Second Lien Obligations including including without limitation, (i) all indebtedness,
obligations and liabilities, whether now in existence or hereafter arising, whether by acceleration
or otherwise, of Midcontinent and Debtor arising out of or under the Borrowing Base Facility Credit
Agreement and each other Second Lien Document, and all indebtedness, obligations and liabilities,
whether now in existence or hereafter arising, whether by acceleration or otherwise, and evidenced
by those certain promissory notes in the initial aggregate principal amount of Two Hundred
Twenty-Five Million and 00/100 United States Dollars (US $225,000,000.00) executed jointly and
severally by Midcontinent and Debtor and payable to the order of the Borrowing Base Facility
Lenders on or before June 30, 2013 and all other notes given in substitution for the foregoing
promissory notes, or in modification, renewal, rearrangement or extension thereof, in whole or in
part (such promissory notes, as from time to time supplemented, amended or modified and all other
notes given in substitution therefor or in modification, renewal, rearrangement or extension
thereof, in whole or in part, being hereafter collectively called the “Second Lien Notes;”
the First Lien Notes and the Second Lien Notes collectively called the “Notes”), and with interest,
collection and attorneys’ fees, all as provided therein and (ii) all indebtedness, obligations and
liabilities, whether now in existence or hereafter arising, whether by acceleration or otherwise,
in respect to letters of credit issued pursuant to the Borrowing Base Facility Credit Agreement and
all reimbursement obligations in respect thereof. It being understood and agreed that the liens
and security interests granted in this Security Agreement to secure the indebtedness described in
(c) above is junior, subject and subordinated to the liens and security interests granted in this
Security Agreement to secure the indebtedness described in (b) above and this Security Agreement is
a Security Document (as defined in the Intercreditor Agreement) and is subject to the agreements
set forth in the Intercreditor Agreement,
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(d) all additional loans or advances made by the Beneficiaries to or for the benefit of the
Pipeline Facility Borrowers or Borrowing Base Facility Borrowers pursuant to the Pipeline Credit
Agreement, Borrowing Base Facility Credit Agreement or any other First Lien Document or Second Lien
Document,
(e) payment of and performance of any and all present or future obligations of any Pipeline
Facility Borrower or any Borrowing Base Facility Borrower according to the terms of any Lender
Hedging Agreement,
(f) any sums which may be advanced or paid by Secured Party or any Beneficiary under the terms
hereof on account of the failure of Debtor to comply with the covenants of Debtor contained herein,
or the failure of Debtor to comply with the covenants of Debtor contained in the Pipeline Credit
Agreement, Borrowing Base Facility Credit Agreement or any other First Lien Document or Second Lien
Document; and all other indebtedness of Debtor arising pursuant to the provisions of this Security
Agreement, including penalties, indemnities, legal and other fees, charges and expenses, and
amounts advanced by and expenses incurred in order to preserve any collateral or security interest,
whether due after acceleration or otherwise; and
(g) all interest (including, without limitation, interest accruing at any post-default rate
and interest accruing after the filing of any petition in bankruptcy, or the commencement of any
insolvency, reorganization or like proceeding, whether or not a claim for post-filing or
post-petition interest is allowed in such proceeding) in respect of all of the indebtedness
described herein and all costs of collection and attorneys’ fees, all as provided herein and in the
Pipeline Credit Agreement and Borrowing Base Facility Credit Agreement.
Original Midstream Credit Agreement has the meaning set forth in Recital A hereto.
Pipeline Credit Agreement has the meaning set forth in Recital E hereto.
Pipeline Facility Borrowers and Pipeline Facility Borrower have the meanings set forth in
Recital E hereto.
Pipeline Facility Lenders and Pipeline Facility Lender have the meanings set forth in Recital
E hereto.
Pledged Equity has the meaning specified in Section 2.1.
Prior Midstream Credit Agreement has the meaning set forth in Recital D hereto.
Second Lien Agent has the meaning set forth in the Intercreditor Agreement.
Second Lien Document has the meaning set forth in the Intercreditor Agreement.
Second Lien Notes has the meaning set forth in the definition of “Obligations”.
Second Lien Obligations has the meaning set forth in the Intercreditor Agreement.
Second Lien Secured Parties has the meaning set forth in the Intercreditor Agreement.
Secured Party has the meaning specified in the preamble.
Securities Act means the Securities Act of 1933.
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Security Agreement has the meaning specified in the preamble.
UCC means the Uniform Commercial Code in effect in the State of New York from time to time;
provided that, if perfection or the effect of perfection or non-perfection or the priority of any
security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than the State of New York, “UCC” means the Uniform Commercial Code as in effect
from time to time in such other jurisdiction for purposes of the provisions hereof relating to such
perfection, effect of perfection or non-perfection or priority.
ARTICLE II
Security Interest
Section 2.1. Grant of Security Interest. As collateral security for the payment and performance of all Obligations,
Debtor pledges, collaterally assigns and grants to Secured Party a continuing security interest in
all right, title and interest of Debtor in and to Debtor’s 100% limited liability company interest
in KPC Pipeline, LLC (in its capacity as issuer of the Pledged Equity (hereafter defined), the
“Issuer”), whether such equity interest is now owned or existing or hereafter acquired or arising,
whether such equity is a General Intangible or a security, and all equity that Debtor may acquire
in the future that is issued by Issuer and all proceeds of the foregoing (collectively, the
“Pledged Equity”).
Section 2.2. Obligations Secured.
(a) The security interest created hereby in the Collateral secures the payment and
performance of all Obligations.
(b) Without limiting the generality of the foregoing, this Security Agreement
secures, as to Debtor, the payment of all amounts that constitute part of the Obligations and would
be owed by the Pipeline Facility Borrowers and Borrowing Base Facility Borrowers to any Beneficiary
but for the fact that they are unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving any such Borrower.
ARTICLE III
Representations and Warranties
Section 3.1. Representations and Warranties. Debtor represents and warrants to Secured Party as follows:
(a) Debtor has and will have at all times the right, power and authority to grant to
Secured Party as provided herein a security interest in the Collateral, free and clear of any Lien,
except for Permitted Liens. This Security Agreement creates a valid and binding security interest
in favor of Secured Party in the Collateral, securing the Obligations.
(b) With respect to Pledged Equity:
(i) All units constituting Pledged Equity have been duly authorized and validly issued,
and, as applicable, are fully paid and non-assessable, and were not issued in violation of
the preemptive rights of any Person or of any agreement by which Debtor or the Issuer is
bound.
(ii) All documentary, stamp or other taxes or fees owing in connection with the
issuance, transfer or pledge of any Pledged Equity (or rights in respect thereof) have been
paid.
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(iii) Other than as set forth herein, in the Pipeline Credit Agreement, or under
applicable federal or state securities Laws, no restriction or condition exists with respect
to the transfer, voting or capital of any Pledged Equity.
(iv) Issuer has no outstanding subscription agreement, option, warrant or convertible
security outstanding or any other right outstanding pursuant to which any Person would be
entitled to have issued to it units of ownership interest in Issuer.
(v) Debtor has taken or concurrently herewith is taking all actions necessary to
perfect Secured Party’s security interest in Pledged Equity, including making any
registration, filing or notice that may be necessary or advisable under Articles 8 or 9 of
the Uniform Commercial Code as in effect in the jurisdiction in which the Issuer of such
Pledged Equity was organized, and no other Person has any such registration, filing or
notice in effect with respect to the Pledged Equity.
(vi) Debtor has delivered a correct and complete copy of the Issuer’s limited liability
company agreement to Secured Party.
(vii) Neither the execution, delivery or performance of this Security Agreement nor the
exercise of any right or remedy of Secured Party hereunder will cause a default under any
agreement in respect of Pledged Equity to which Debtor or Issuer is a party or otherwise
adversely affect or diminish any Pledged Equity.
(viii) Debtor’s rights under any agreement in respect of Pledged Equity are enforceable
in accordance with their terms, except as such enforcement may be limited by bankruptcy,
insolvency or similar laws of general application relating to the enforcement of creditors’
rights.
(ix) Debtor has delivered to Secured Party to the extent such Pledged Equity is
uncertificated, an executed Acknowledgment of Pledge in the form of Annex A with respect to
such Pledged Equity.
(c) The Pledged Equity constitutes all equity interests in the Issuer owned by
Debtor as of the date hereof. Debtor has delivered to Secured Party all certificates evidencing
such Pledged Equity, duly indorsed, or accompanied by unit powers duly indorsed, in blank for
transfer.
(d) Debtor is a corporation and is organized under the laws of the State of
Delaware, which is Debtor’s location pursuant to the UCC. Debtor does not presently conduct
business under any name except the name in which it has executed this Security Agreement, which is
the exact name that appears in Debtor’s organizational documents. Debtor’s only other names during
the five year period prior to the date of this Security Agreement are the names listed in the
preamble.
(e) Debtor has good and marketable title to the Collateral, free and clear of all
Liens, except (i) for the security interest created by this Security Agreement, and (ii) Permitted
Liens. No effective financing statement or other registration or instrument similar in effect
covering any Collateral is on file in any recording office except any that have been filed in favor
of Secured Party relating to this Security Agreement.
(f) Neither the ownership or intended use of the Collateral by Debtor, nor the grant
of the security interest by Debtor to Secured Party hereunder:
(i) conflicts with:
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(A) any applicable domestic or foreign Law,
(B) any organizational document of Debtor or the Issuer; or
(C) any agreement, judgment, license, order or permit applicable to or binding
upon Debtor or the Issuer, or
(ii) results in or requires the creation of any Lien, charge or encumbrance upon any
asset of Debtor except for the security interest granted by Debtor to Secured Party
hereunder.
(g) There is no condition precedent to the effectiveness of this Security Agreement
that has not been satisfied or waived.
ARTICLE IV
Covenants
Section 4.1. General Covenants. Debtor will, so long as this Security Agreement shall be in effect, perform and observe the
following:
(a) Without limitation of any other covenant herein, Debtor shall not cause or
permit any change in its name, identity or organizational structure, or any change to its
jurisdiction of organization, unless Debtor shall have first:
(i) notified Secured Party of such change at least 30 days prior to the effective date
of such change (or such shorter notice as Secured Party may approve),
(ii) taken all action requested by Secured Party (under the following subsection (b) or
otherwise) for the purpose of further confirming and protecting Secured Party’s security
interest and rights under this Security Agreement and the perfection and priority thereof,
and
(iii) if reasonably requested by Secured Party, provided to Secured Party a legal
opinion to Secured Party’s satisfaction confirming that such change shall not adversely
affect Secured Party’s security interest and rights under this Security Agreement or the
perfection or priority of such security interest.
In any notice delivered pursuant to this subsection, Debtor will expressly state that the notice is
required by this Security Agreement and contains facts that may require additional filings of
financing statements or other notices for the purposes of continuing perfection of Secured Party’s
security interest in the Collateral.
(b) Debtor will, at its expense and as from time to time reasonably requested by
Secured Party, promptly execute and deliver all further instruments, agreements, filings and
registrations, and take all further action, in order:
(i) to confirm and validate this Security Agreement and Secured Party’s rights and
remedies hereunder,
(ii) to correct any error or omission in the description herein of the Obligations or
the Collateral or in any other provision hereof,
(iii) to perfect, register and protect the security interest and rights created or
purported to be created hereby or to maintain the required priority of such security
interests and rights,
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(iv) to enable Secured Party to exercise and enforce its rights and remedies hereunder,
or
(v) otherwise to give Secured Party the full benefits of the rights and remedies
described in or granted under this Security Agreement.
As part of the foregoing, Debtor will, whenever requested by Secured Party:
(A) execute (as applicable) and file any financing statement, continuation
statement or other filing or registration relating to Secured Party’s security
interest and rights hereunder, and any amendment thereto, and
(B) xxxx its books and records relating to any Collateral to reflect that such
Collateral is subject to this Security Agreement and the security interests
hereunder.
(c) Debtor will:
(i) Maintain good and marketable title to all Collateral, free and clear of all Liens
and not grant or allow any such Lien to exist except for the security interest created by
this Security Agreement, and (ii) Permitted Liens.
(ii) Not allow to remain in effect, and cause to be terminated, any financing statement
or other registration or instrument similar in effect covering any Collateral, except (i)
any that has been filed in favor of Secured Party relating to this Security Agreement, and
(ii) Permitted Liens.
(iii) Defend Secured Party’s right, title and security interest in and to the
Collateral against the claims of any Person.
(d) Debtor shall not take any action that would, or fail to take any action if such
failure would, impair the enforceability, perfection or priority of Secured Party’s security
interest in any Collateral.
Section 4.2. Covenants Relating Specifically to the Nature of the Collateral. Debtor will, for so long as the Obligations relating to the First Lien Documents are
outstanding, perform and observe the following:
(a) If Debtor shall at any time hold or acquire any certificated security evidencing
Collateral, Debtor will forthwith endorse, assign, and deliver the same to Secured Party,
accompanied by such instruments of transfer or assignment duly executed in blank as Secured Party
may from time to time specify.
(i) If any security evidencing Collateral now or hereafter acquired by Debtor is
uncertificated and is issued to Debtor or its nominee directly by the issuer thereof, Debtor
shall immediately notify Secured Party of such issuance and, pursuant to an agreement in
form and substance satisfactory to Secured Party, cause the issuer thereof to agree to
comply with instructions from Secured Party as to such security, without further consent of
Debtor or such nominee, or take such other action as Secured Party may approve in order to
perfect Secured Party’s security interest in such security.
(ii) If any security, whether certificated or uncertificated, or other Investment
Property now or hereafter acquired by Debtor and evidencing Collateral, is held by Debtor or
its nominee through a securities intermediary, Debtor shall immediately notify Secured Party
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thereof, and, at Secured Party’s request and option, pursuant to an agreement in form
and substance satisfactory to Secured Party, either:
(A) cause such securities intermediary to agree to comply with entitlement
orders or other instructions from Secured Party to such securities intermediary as
to such securities or other Investment Property, in each case without further
consent of Debtor or such nominee, or
(B) in the case of financial assets or other Investment Property held through a
securities intermediary, arrange for Secured Party to become the entitlement holder
with respect to such Investment Property, with Debtor being permitted to exercise
rights to withdraw or otherwise deal with such Investment Property.
Subsections (A) and (B) above shall not apply to any financial asset credited to a
Securities Account for which Secured Party is the securities intermediary or commodity
intermediary.
(iii) Debtor shall not permit any Pledged Equity that is an equity interest in a
limited liability company or a limited partnership and that is a General Intangible to
become Investment Property unless it shall have given Secured Party at least 30-days’ prior
notice (or such shorter notice as Secured Party may approve) and shall have taken such steps
as Secured Party shall request in connection with the perfection or priority of Secured
Party’s security interest therein as provided in subsections (i) and (ii) above.
(iv) Debtor shall not:
(A) adjust, settle, compromise, amend or modify any right in respect of any
Pledged Equity or any agreement relating thereto except for any adjustment,
settlement, modification, compromise or amendment that would not materially
adversely affect Secured Party’s rights hereunder;
(B) permit the creation of any additional equity interest in the Issuer, unless
immediately upon creation the same is pledged to Secured Party pursuant hereto to
the extent necessary to give Secured Party a first-priority security interest in
such Pledged Equity after such creation that is in the aggregate at least the same
percentage of such Pledged Equity as was subject hereto before such issue, whether
such additional interest is presently vested or will vest upon the payment of money
or the occurrence or non-occurrence of any other condition; or
(C) enter into any agreement, other than the First Lien Documents and Second
Lien Documents, creating, or otherwise permit to exist, any restriction or condition
upon the transfer or exercise of any rights in respect of any Pledged Equity,
including any restriction or condition upon the transfer, voting or control of any
Pledged Equity.
ARTICLE V
Voting and Distribution Rights in Respect Of Pledged Equity
Section 5.1. Voting Rights. Debtor shall be entitled to exercise all voting and other consensual rights pertaining to the
Pledged Equity or any part thereof for any purpose; provided that Debtor shall not exercise or
refrain from exercising any such right if such action would have a material adverse effect on the
value of any Pledged Equity or on Secured Party’s security interest or the value thereof; and
provided further that, upon the occurrence and during the continuance of an Event of Default,
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upon notice from Secured Party to Debtor, all rights to exercise or refrain from exercising the
voting and other consensual rights that Debtor would otherwise be entitled to exercise shall cease
and all such rights shall thereupon become vested in Secured Party, which thereupon shall have the
sole right to exercise or refrain from exercising such voting and other consensual rights.
Section 5.2. Dividend Rights While No Event of Default Exists. Debtor shall be entitled to receive and retain all dividends, interest and other distributions
paid in respect of the Pledged Equity until the occurrence and continuance of an Event of Default.
Section 5.3. Actions by Secured Party. Secured Party will execute and deliver (or cause to be executed and delivered) to Debtor all
such proxies and other instruments as Debtor may reasonably request for the purpose of enabling
Debtor to exercise the voting and other rights that it is entitled to exercise pursuant to Section
5.1 above and to receive the dividends or interest payments that it is authorized to receive and
retain pursuant to Section 5.2 above.
Section 5.4. Rights While an Event of Default Exists. Upon the occurrence and during the continuance of an Event of Default:
(a) All rights of Debtor to receive the dividends, interest and other distributions
that it would otherwise be authorized to receive and retain pursuant to Section 5.2 shall
automatically cease, and all such rights shall thereupon become vested in Secured Party, which
shall thereupon have the sole right to exercise or refrain from exercising such voting and other
consensual rights and to receive and hold as Pledged Equity such dividends, interest and other
distributions.
(b) All dividends, interest and other distributions that are received by Debtor
contrary to subsection (a) above shall be received in trust for the benefit of Secured Party, shall
be segregated from other funds of Debtor and shall be forthwith paid over to Secured Party as
Pledged Equity in the same form as so received (with any necessary indorsement).
ARTICLE VI
Remedies, Powers and Authorizations
Section 6.1. Normal Provisions Concerning the Collateral.
(a) Debtor irrevocably authorizes Secured Party at any time and from time to time to
file, without the signature of Debtor, in any jurisdiction any amendments to existing financing
statements and any initial financing statements and amendments thereto that:
(i) indicate the nature of the Collateral;
(ii) contain any other information required for the sufficiency or filing office
acceptance of any financing statement or amendment, including whether Debtor is an
organization, the type of organization and any organization identification number issued to
Debtor; and
(iii) properly effectuate the transactions described in the First Lien Documents, as
determined by Secured Party in its discretion.
Debtor will furnish any information described in items (i) — (iii) above to Secured Party promptly
upon request. A carbon, photographic or other reproduction of this Security Agreement or any
financing statement describing any Collateral is sufficient as a financing statement and may be
filed in any
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jurisdiction by Secured Party. Debtor ratifies and approves all financing statements heretofore
filed by or on behalf of Secured Party in any jurisdiction in connection with the transactions
contemplated hereby.
(b) Effective upon and during the continuance of an Event of Default, Debtor
appoints Secured Party as Debtor’s attorney in fact and proxy, with full authority in the place and
stead of Debtor and in the name of Debtor or otherwise, from time to time in Secured Party’s
discretion, to take any action and to execute any instrument that Secured Party may deem necessary
or advisable to accomplish the purposes of this Security Agreement including any action or
instrument:
(i) to ask for, demand, collect, xxx for, recover, compound, receive and give
acquittance and receipts for moneys due and to become due under or in respect of any
Collateral;
(ii) to receive, indorse and collect any drafts or other Instruments or Documents with
respect to any Collateral;
(iii) to enforce any obligations included in the Collateral; and
(iv) to file any claims or take any action or institute any proceedings that Secured
Party may deem necessary or desirable for the collection of any Collateral or otherwise to
enforce the rights of Debtor or Secured Party with respect to any Collateral.
Such power of attorney and proxy are coupled with an interest, are irrevocable, and are to be used
by Secured Party for the sole benefit of the Beneficiaries.
(c) If Debtor fails to perform any agreement or obligation contained herein, Secured
Party may, but shall have no obligation to, itself perform, or cause performance of, such agreement
or obligation, and the expenses of Secured Party incurred in connection therewith shall be payable
by Debtor under Section 6.6.
(d) Secured Party shall have the right upon and during the continuance of an Event
of Default, at any time in its discretion and without notice to Debtor, to transfer to or to
register in the name of Secured Party or any of its nominees any Pledged Equity, subject only to
the revocable rights specified in Section 5.1. Debtor shall forthwith, upon and during the
continuance of an Event of Default, cause all Pledged Equity in which it has an interest on the
date hereof to be registered in the name of Secured Party or such of Secured Party’s nominees as
Secured Party shall direct, and, upon Debtor’s acquisition of any interest in any Pledged Equity in
the future, forthwith cause the same to be so registered.
(e) Anything herein to the contrary notwithstanding prior to such time as Secured
Party succeeds to Debtor’s rights as owner of he Collateral, whether pursuant to foreclosure or
otherwise:
(i) Debtor shall remain liable to perform all duties and obligations under the
agreements included in the Collateral to the same extent as if this Security Agreement had
not been executed.
(ii) The exercise by Secured Party of any right hereunder shall not release Debtor from
any duty or obligation under any agreement included in the Collateral.
(iii) Secured Party shall not have any obligation or liability under the agreements in
respect of the Collateral by reason of this Security Agreement or any other First Lien
Document, nor shall Secured Party be obligated to perform any duty or obligation of Debtor
thereunder or take any action to collect or enforce any claim for payment assigned
hereunder.
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Section 6.2. Event of Default Remedies. If an Event of Default shall have occurred and be continuing, Secured Party may from time to
time in its discretion (but subject to the terms and conditions of the Intercreditor Agreement and
Pipeline Credit Agreement), without limitation and without notice except as expressly provided
below:
(a) Exercise in respect of the Collateral, in addition to any other right and remedy
provided for herein, under the other First Lien Documents, or otherwise available to it, all the
rights and remedies of a secured party on default under the UCC (whether or not the UCC applies to
the affected Collateral) and any other applicable Law.
(b) Require Debtor to, and Debtor will at its expense and upon request of Secured
Party forthwith, assemble all or part of the Collateral as directed by Secured Party and make it
(together with all books, records and information of Debtor relating thereto) available to Secured
Party at a place to be designated by Secured Party that is reasonably convenient to both parties.
(c) Prior to the disposition of any Collateral:
(i) to the extent permitted by applicable Law, enter, with or without process of law
and without breach of the peace, any premises where any Collateral is or may be located, and
without charge or liability to Secured Party seize and remove such Collateral from such
premises, and
(ii) have access to and use the Company’s books, records, and information relating to
the Collateral.
(d) Reduce its claim to judgment or foreclose or otherwise enforce, in whole or in
part, the security interest created hereby by any available judicial procedure.
(e) Dispose of, at its office, on the premises of Debtor or elsewhere, any
Collateral, as a unit or in parcels, by public or private proceedings, and by way of one or more
contracts (but the sale of any Collateral shall not exhaust Secured Party’s power of sale, and
sales may be made from time to time, and at any time, until all of the Collateral has been sold or
until the Obligations have been paid and performed in full), and at any such sale it shall not be
necessary to exhibit any Collateral.
(f) Buy (or allow Secured Party to buy) Collateral, or any part thereof, at any
public sale.
(g) Buy (or allow Secured Party to buy) Collateral, or any part thereof, at any
private sale if any Collateral is of a type customarily sold in a recognized market or is of a type
that is the subject of widely distributed standard price quotations.
(h) Apply by appropriate judicial proceedings for appointment of a receiver for the
Collateral, or any part thereof, and Debtor consents to any such appointment.
(i) Comply with any applicable state or federal Law requirement in connection with a
disposition of Collateral and such compliance shall not be considered to affect adversely the
commercial reasonableness of any sale of Collateral.
(j) Sell Collateral without giving any warranty, with respect to title or any other
matter.
(k) To the extent notice of sale shall be required by law with respect to
Collateral, at least ten (10) Business Days’ notice to Debtor of the time and place of any public
sale or the time after which any private sale is to be made shall constitute reasonable
notification; provided that, if Secured Party fails in
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any respect to give such notice, its liability for such failure shall be limited to the
liability (if any) imposed on it by law under the UCC. Secured Party shall not be obligated to
make any sale of Collateral regardless of notice of sale having been given. Secured Party may
adjourn any public or private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time and place to which it was
so adjourned.
Section 6.3. Application of Proceeds. If an Event of Default shall have occurred and be continuing, any cash held by or on behalf of
Secured Party and all cash proceeds received by or on behalf of Secured Party in respect of any
sale of, collection from, or other realization upon any Collateral may, in the discretion of
Secured Party, be held by Secured Party as collateral for, and/or then or at any time thereafter
applied in whole or in part by Secured Party against, the Obligations, in the following manner:
(a) First, subject to the terms of the Intercreditor Agreement and Pipeline
Credit Agreement, to Secured Party for any amounts then owing to Secured Party for costs or
expenses incurred by Secured Party in connection therewith.
(b) Second, subject to the terms of the Intercreditor Agreement and Pipeline
Credit Agreement paid to Secured Party, as agent for the Beneficiaries, in repayment of the
Obligations.
(c) Third, any surplus of such cash or cash proceeds held by or on the
behalf of Secured Party and remaining after payment in full of all the Obligations shall be paid
over to the Debtor or to whatever Person may be lawfully entitled to receive such surplus.
Section 6.4. Deficiency. If the proceeds of any sale, collection or realization of or
upon the Collateral of Debtor by Secured Party are insufficient to pay all Obligations and all
other amounts to which Secured Party is entitled, Debtor shall be liable for the deficiency,
together with interest thereon as provided in the First Lien Documents or (if no interest is so
provided) at such other rate as shall be fixed by applicable law, together with the costs of
collection and the reasonable fees of any attorneys employed by Secured Party to collect such
deficiency. Subject to the provisions hereof and applicable Law, Collateral may be sold at a loss
to Debtor, and Secured Party shall have no liability or responsibility to Debtor for such loss.
Debtor acknowledges that a private sale may result in less proceeds than a public sale.
Section 6.5. Private Sales of Pledged Equity. Secured Party may deem it impracticable to effect a public sale of any Pledged Equity and may
determine to make one or more private sales of such Pledged Equity to a restricted group of
purchasers that will be obligated to agree, among other things, to acquire the same for their own
account, for investment and not with a view to the distribution or resale thereof. Any such
private sale may be at a price and on other terms less favorable to the seller than the price and
other terms that might have been obtained at a public sale. Any such private sale nevertheless
shall be deemed to have been made in a commercially reasonable manner, and Secured Party shall not
have any obligation to delay sale of any such Pledged Equity for the period of time necessary to
permit its registration for public sale under the Securities Act. Any offer to sell any such
Collateral that has been:
(i) publicly advertised on a bona-fide basis in a newspaper or other publication of
general circulation in the financial communities of New York, New York, Houston, Texas and
Oklahoma City, Oklahoma (to the extent that such an offer may be so advertised without prior
registration under the Securities Act), or
(ii) made privately in the manner described above to not less than 15 bona-fide
offerees,
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shall be deemed to involve a “public disposition” under Chapter 9.610(c) of the UCC,
notwithstanding that such sale may not constitute a “public offering” under the Securities Act, and
Secured Party may credit bid for such Collateral, i.e., bid in all or a portion of the Obligations.
Section 6.6. Non-Judicial Remedies. In granting to Secured Party the power to enforce its rights hereunder without prior judicial
process or judicial hearing, to the extent permitted by applicable Law, Debtor waives, renounces
and knowingly relinquishes any legal right that might otherwise require Secured Party to enforce
its rights by judicial process and confirms that such remedies are consistent with the usage of
trade, are responsive to commercial necessity and are the result of a bargain at arm’s length.
Secured Party may, however, in its discretion, resort to judicial process.
Section 6.7. Limitation on Duty of Secured Party in Respect of Collateral. Beyond the exercise of reasonable care in the custody thereof, Secured Party shall have no duty
as to any Collateral in its possession or control or in the possession or control of any agent or
bailee or as to the preservation of rights against prior parties or any other rights pertaining
thereto. Secured Party shall be deemed to have exercised reasonable care in the custody of
Collateral in its possession if such Collateral is accorded treatment substantially equal to that
which it accords its own property, and Secured Party shall not be liable or responsible for any
loss or damage to any Collateral, or for any diminution in the value thereof, by reason of the act
or omission of any warehouseman, carrier, forwarding agency, consignee or other agent or bailee
selected by Secured Party in good faith.
ARTICLE VII
Miscellaneous
Section 7.1. Notices. Any notice or communication required or permitted hereunder shall be given in writing or by
electronic transmission, sent in the manner provided in the Pipeline Credit Agreement, if to
Secured Party, to the address set forth in the Intercreditor Agreement and for Debtor, to the
address specified in the preamble to this Security Agreement, or to such other address or to the
attention of such other individual as hereafter shall be designated in writing by the applicable
party sent in accordance herewith. Any such notice or communication shall be deemed to have been
given as provided in the Pipeline Credit Agreement for notices given thereunder.
Section 7.2. Amendments and Waivers. Except as provided in Section 7.3, no amendment of this Security Agreement shall be effective
unless it is in writing and signed by Debtor and Secured Party, and no waiver of this Security
Agreement or consent to any departure by Debtor herefrom shall be effective unless it is in writing
and signed by Secured Party, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for that given and to the extent specified in such
writing. In addition, all such amendments and waivers shall be effective only if given with the
necessary approvals required in the Pipeline Credit Agreement.
Section 7.3. Preservation of Rights. No failure on the part of Secured Party to exercise, and no delay in exercising, any right
hereunder or under any other First Lien Document shall operate as a waiver thereof; nor shall any
single or partial exercise of any such right preclude any other or further exercise thereof or the
exercise of any other right. The rights and remedies of Secured Party provided herein and in the
other First Lien Documents are cumulative and are in addition to, and not exclusive of, any rights
or remedies provided by Law or otherwise.
Section 7.4. Severability. Any provision of this Security Agreement that is prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such prohibition or invalidity
without invalidating the remaining portions hereof or thereof or affecting the validity or
enforceability of such provision in any other jurisdiction.
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Section 7.5. Survival. Each representation and warranty, covenant and other obligation of Debtor herein shall survive
the execution and delivery of this Security Agreement, the execution and delivery of any other
First Lien Document and the creation of the Obligations.
Section 7.6. Parties Bound, Assignment. This Security Agreement shall be binding on Debtor and Debtor’s legal representatives,
successors, and assigns and shall inure to the benefit of Secured Party and Secured Party’s
successors and permitted assigns.
(i) Secured Party is the agent for each Beneficiary under the Intercreditor
Agreement. The Security Interest and all Rights granted to Secured Party hereunder
or in connection herewith are for the ratable benefit of each Beneficiary, and
Secured Party may, without the joinder of any Beneficiary, exercise any and all
Rights in favor of Secured Party or any Beneficiary hereunder, including, without
limitation, conducting any foreclosure sales hereunder, and executing full or
partial releases hereof, amendments or modifications hereto, or consents or waivers
hereunder. The Rights of each Beneficiary vis-à-vis Secured Party and each other
Beneficiary may be subject to one or more separate agreements between or among such
parties, but Debtor need not inquire about any such agreement or be subject to any
terms thereof unless Debtor specifically joins therein; and consequently, neither
Debtor nor Debtor’s legal representatives, successors, and assigns shall be entitled
to any benefits or provisions of any such separate agreements or be entitled to rely
upon or raise as a defense, in any manner whatsoever, the failure or refusal of any
party thereto to comply with the provisions thereof.
(ii) Except for this Security Agreement and assignments made in furtherance
hereof, Debtor may not, without the prior written consent of Secured Party, assign
any Rights, duties, or obligations hereunder.
Section 7.7. Release of Collateral; Termination.
(a) Upon any sale, lease, transfer or other disposition of any Collateral of Debtor
in accordance with the First Lien Documents, Secured Party will, at Debtor’s expense, execute and
deliver to Debtor such documents as Debtor shall reasonably request to evidence the release of such
Collateral from the assignment and security interest granted hereby; provided that:
(i) at the time of such request and such release no Default shall have occurred and be
continuing,
(ii) Debtor shall have delivered to Secured Party, at least 10 Business Days prior to
the date of the proposed release (or by such lesser notice as Secured Party may approve), a
written request for release describing the item of Collateral and the terms of the sale,
lease, transfer or other disposition in reasonable detail, including the price thereof and
any expenses in connection therewith, together with a form of release for execution by
Secured Party and a certificate of Debtor to the effect that the transaction is in
compliance with the First Lien Documents and such other matters as Secured Party may
request, and
(iii) if any First Lien Document provides for any application of the proceeds of any
such sale, lease, transfer or other disposition, or any payment to be made, in connection
therewith, such proceeds shall have been applied or payment made as provided therein.
(b) Upon, and only upon, the indefeasible payment and satisfaction in full in cash
of the Obligations that relate to the First Lien Credit Agreement and in accordance with Section
10.21 of the
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Second Lien Document, this Security Agreement and the security interest created hereby shall
terminate, all rights in the Collateral shall revert to Debtor and Secured Party, at a Debtor’s
request and at its expense, will:
(i) return to Debtor such of Debtor’s Collateral in Secured Party’s possession as shall
not have been sold or otherwise disposed of or applied pursuant to the terms hereof, and
(ii) execute and deliver to Debtor such documents as Debtor shall reasonably request to
evidence such termination.
(c) Debtor is not authorized to file any financing statement or amendment or
termination statement with respect to any financing statement originally filed in connection with
this Security Agreement without the prior written consent of Secured Party, subject to Debtors’
rights under Chapters 9.509(d)(2) and 9.518 of the UCC.
Section 7.8. Governing Law. This Security Agreement shall be governed by and construed in accordance with the laws of the
State of New York.
Section 7.9. Final Agreement. This Security Agreement and the other First Lien Documents represent the final agreement between
the parties hereto and may not be contradicted by evidence of prior, contemporaneous, or subsequent
oral agreements of the parties hereto. There are no unwritten oral agreements between the parties
hereto.
Section 7.10. Counterparts; Facsimile. This Security Agreement may be executed in any number of counterparts (and by different parties
hereto in different counterparts), each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute one and the same agreement. Delivery of an
executed counterpart of a signature page of this Security Agreement by telecopy, facsimile,
photocopy or by sending a scanned copy by electronic mail shall be effective as delivery of a
manually executed counterpart of this Security Agreement.
Section 7.11. Acceptance by Secured Party. By its acceptance of the benefits hereof, Secured Party shall be deemed to have agreed to be
bound hereby and to perform any obligation on its part set forth herein.
Remainder of this page intentionally left blank.
Signature page follows.
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IN WITNESS WHEREOF, Debtor has executed and delivered this Security Agreement as of the date
first-above written.
| DEBTOR: | POSTROCK ENERGY SERVICES CORPORATION, | |||||
| a Delaware corporation | ||||||
| By: | /s/ Xxxxx X. Xxxxxx | |||||
| President and Chief Executive Officer | ||||||
Signature Page
PESC KPC Pipeline Equity Pledge
ANNEX A TO PLEDGE AND SECURITY AGREEMENT
ACKNOWLEDGMENT OF PLEDGE
LIMITED LIABILITY COMPANY: POSTROCK KPC PIPELINE, LLC
INTEREST OWNER: POSTROCK ENERGY SERVICES CORPORATION
INTEREST OWNER: POSTROCK ENERGY SERVICES CORPORATION
BY THIS ACKNOWLEDGMENT OF PLEDGE, dated as of September 21, 2010, POSTROCK KPC PIPELINE, LLC
(the “Limited Liability Company”) hereby acknowledges the pledge in favor of Royal Bank of Canada
(“Pledgee”), in its capacity as Collateral Agent for certain beneficiaries under that certain
Pledge and Security Agreement dated as of September 21, 2010 (as amended, modified, supplemented,
or restated from time to time, the “Security Agreement”), against, and a security interest in favor
of Pledgee in, all of POSTROCK ENERGY SERVICES CORPORATION’s (the “Interest Owner”) Rights in
connection with any membership interest in the Limited Liability Company now and hereafter owned by
the Interest Owner (“Limited Liability Company Interest”).
A. Pledge Records. The Limited Liability Company has identified Pledgee’s interest in
all of the Interest Owner’s Right, title, and interest in and to all of the Interest Owner’s
Limited Liability Company Interest as subject to a pledge and security interest in favor of Pledgee
in the Limited Liability Company records.
B. Limited Liability Company Distributions, Accounts, and Correspondence. The Limited
Liability Company hereby acknowledges that (i) all proceeds, distributions, and other amounts
payable to the Interest Owner, including, without limitation, upon the termination, liquidation,
and dissolution of the Limited Liability Company shall be paid and remitted to the Pledgee upon
demand, (ii) all funds in deposit accounts shall be held for the benefit of Pledgee, and (iii) all
future correspondence, accountings of distributions, and tax returns of the Limited Liability
Company shall be provided to the Pledgee. The Limited Liability Company acknowledges and accepts
such direction and hereby agrees that it shall, upon the written demand by the Administrative
Agent, pay directly to the Administrative Agent at its offices at Xxxxx Xxxx Xxxxx, X.X. Xxx 00,
200 Bay Street, 00xx Xxxxx, Xxxxx Xxxxx, Xxxxxxx, Xxxxxxx X0X 0X0 any and all
distributions, income, and cash flow arising from the Limited Liability Company Interests whether
payable in cash, property or otherwise, subject to and in accordance with the terms and conditions
of the Limited Liability Company Agreement. The Pledgee may from time to time notify the Limited
Liability Company of any change of address to which such amounts are to be paid.
Remainder of Page Intentionally Blank.
Signature Page to Follow.
Signature Page to Follow.
PESC KPC Pipeline Equity Pledge
Annex A
Page 1
EXECUTED as of the date first stated in this Acknowledgment of Pledge.
| POSTROCK KPC PIPELINE, LLC, | ||||||||
| a Delaware limited liability company | ||||||||
| By: | POSTROCK ENERGY SERVICES CORPORATION, | |||||||
| its sole member | ||||||||
| By: | ||||||||
| President and Chief Executive Officer | ||||||||
PESC KPC Pipeline Equity Pledge
Annex A
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