<PAGE>
EXHIBIT 10.3
October 31, 2000
Mr. Ken L. Kenworthy, Jr.
Chief Executive Officer
GMX Resources Inc.
9400 N. Broadway, Suite 600
Oklahoma City, Oklahoma 73114
LETTER AGREEMENT
Dear Ken:
Local Oklahoma Bank, N.A. ("Lender") has committed to a credit
facility in favor of GMX Resources Inc., Endeavor Pipeline Inc. and Expedition
Natural Resources Inc. (collectively, the "Borrowers") in the amount of up to
$15,000,000.00.
To effectuate this commitment, Lender will attempt to purchase GMX
Resources Inc.'s ("GMX") current facility with Bank One, Oklahoma, N.A.
consisting of a credit agreement, guaranty agreements, mortgages and other
security documents and as evidenced by that certain Amended and Restated
Promissory Note dated effective May 19, 1999 in the original principal amount
of $20,000,000.00 (the "Bank One Loan"). In the event that Lender is
successful in purchasing the Bank One Loan, (a) Borrowers shall execute (i)
any amendments to the current loan documents necessary to make the current
facility consistent with the Commitment Letter (defined below) and (ii) such
additional documentation necessary to maintain compliance with all terms and
conditions of the Bank One Loan as Lender may reasonably request, all as soon
as reasonably possible after the purchase of the Bank One Loan; and (b) Lender
will return the Promissory Note by Borrowers to the order of Lender in the
principal amount of $15,000,000.00 executed in connection with this Letter
Agreement.
In the event that Lender is unsuccessful in purchasing the Bank One
Loan, Borrowers and Lender shall execute new loan documents substantially
similar to the loan documents evidencing the Bank One Loan, except as noted in
the letter dated October 25, 2000 (the "Commitment Letter") by Lender and
agreed to and accepted by GMX on the same date. In the event of any conflict
between this Letter Agreement and the Commitment Letter, the Commitment Letter
shall control. Borrowers shall execute the loan documents along with such
additional mortgages, deeds of trust or similar instruments as Lender may
require and shall provide such other agreements, opinions, certificates,
waivers, consents and evidence as Lender may reasonably request, all as soon
as reasonably possible
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Mr. Ken L. Kenworthy, Jr.
October 31, 2000
Page 2
after Lender is notified that Bank One, Oklahoma, N.A. has declined Lenders
offer to purchase the Bank One Loan.
The terms of that certain Credit Agreement dated February 18, 1998 by
and between GMX and Bank One, Oklahoma, N.A., as amended from time to time,
most recently by that certain Third Amendment to Credit Agreement dated April
14, 2000 are incorporated into this Letter Agreement by reference. However, in
the event of any conflict between the terms of the Commitment Letter and the
Bank One, Oklahoma, N.A. Credit Agreement, the terms of the Commitment Letter
shall control.
If you are in agreement with the terms outlined herein, please so
indicate with your signature below and return to me at your earliest
convenience.
Sincerely,
/s/ John K. Slay, Jr.
John K. Slay, Jr.
Senior Vice President
Agreed and accepted this 31st day of October, 2000
BORROWERS:
By: /s/ Ken L. Kenworthy, Jr.
----------------------------------------
Ken L. Kenworthy, Jr.
Chief Executive Officer
GMX Resources Inc.
By: /s/ Ken L. Kenworthy, Jr.
----------------------------------------
Printed Name: Ken L. Kenworthy, Jr.
Title: President
Endeavor Pipeline Inc.
<PAGE>
Mr. Ken L. Kenworthy, Jr.
October 31, 2000
Page 3
By: /s/ Ken L. Kenworthy, Jr.
----------------------------------------
Printed Name: Ken L. Kenworthy, Jr.
Title: President
Expedition Natural Resources Inc.
GUARANTORS:
By: /s/ Ken L. Kenworthy, Jr.
----------------------------------------
Ken L. Kenworthy, Jr., Individually
By: /s/ Ken L. Kenworthy, Sr.
----------------------------------------
Ken L. Kenworthy, Sr., Individually
By: /s/ Ken L. Kenworthy, Jr.
----------------------------------------
Ken L. Kenworthy, Jr., Trustee
Ken L. Kenworthy, Jr. Trust u/a/d 3/29/96
PLEDGOR:
By: /s/ Karen M. Kenworthy
----------------------------------------
Karen M. Kenworthy, Trustee
Karen M. Kenworthy Trust u/a/d 3/29/96
<PAGE>
PROMISSORY NOTE
(REDUCING REVOLVING NOTE)
$15,000,000.00 Oklahoma City, Oklahoma
October 31, 2000
FOR VALUE RECEIVED, the undersigned, GMX Resources Inc., an Oklahoma
corporation, Endeavor Pipeline Inc., an Oklahoma corporation, and Expedition
Natural Resources Inc., an Oklahoma corporation (jointly and severally, the
"Borrower"), hereby jointly and severally promise to pay to the order of
LOCAL OKLAHOMA BANK, N.A. ("Bank"), on or before May 1, 2003 (the "Maturity
Date"), the principal sum of Fifteen Million and No/100 Dollars
($15,000,000.00), or as much thereof as is disbursed and remains outstanding
hereunder, together with interest on the unpaid balance from time to time
outstanding at the rates hereinafter provided.
Prior to the occurrence of any Event of Default (as defined in the
Commitment Letter referred to below), the unpaid principal balance from time
to time outstanding hereunder shall bear interest at a fluctuating rate per
annum equal to the Base Rate (defined below) plus one half of one percent
(.5%). Upon notice from Bank to Borrower of the occurrence of any Event of
Default, the unpaid principal amount from time to time outstanding under this
Note shall bear interest at a fluctuating rate per annum equal to the default
rate as set forth below (but not less than the Base Rate in effect on the
date of the occurrence of the Event of Default). The interest rate applicable
to this Note shall change as of the effective date of any change in the Base
Rate. The interest rate will be calculated on the basis of actual number of
days elapsed, but computed as if each calendar year consisted of a 360-day
year. As used herein, "Base Rate" means, at any time, that rate of interest
equal to the interest rate then most recently announced or published in the
"Money Rates" section of THE WALL STREET JOURNAL (Southwest Edition), as the
"Prime Rate" which such rate may not be the lowest interest rate charged by
the Bank, and which Prime Rate shall change upon any change in such announced
or published Prime Rate of the Bank, all without notice to the Borrower.
If any Event of Default occurs and is not cured within the
applicable cure period, if any, described in the Commitment Letter, in lieu
of the interest rate provided in this Note, all sums owing by Borrower to
Bank shall bear interest at the rate equal to five percent (5%) per annum in
excess of the Base Rate, accrued from the date after the applicable grace
period to cure the Event of Default, to the date on which such Event of
Default is cured to the reasonable satisfaction of the Bank.
Beginning on the first (1st) day of December, 2000 and continuing on
the first (1st) day of each month thereafter, Borrower shall, at a minimum,
make a payment of all accrued but unpaid interest on this Note. If the Loan
Balance exceeds the Commitment Amount as a result of a Monthly Commitment
Reduction with respect to the Loan on the first (1st) day of any month, the
Borrower shall immediately make such principal payments as may be necessary
to reduce the Loan Balance to an amount at or below the Commitment Amount.
The entire outstanding principal balance of this Note and all unpaid interest
accrued thereon shall be due and payable on the Maturity Date.
1
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All payments, including prepayments, made by Borrower, shall be made
to Bank at any one of its offices in the State of Oklahoma, on or before 2:00
p.m., local time, on the date due, in lawful money of the United States of
America and in immediately available funds. If any payment is due on a day
other than a business day, the due date thereof shall be extended to the next
succeeding business day.
This Note is executed and delivered by Borrower pursuant to, and is
entitled to the benefits of, that certain letter dated October 25, 2000 and
accepted on the same date (the "Commitment Letter"), between Borrower and
Bank. It is contemplated that the Commitment Letter will be consolidated into
a Credit Agreement based upon the terms set forth in the Commitment Letter.
Reference is hereby made to the Commitment Letter for the terms and
provisions regarding the availability of credit, the collateral security for
payment of this Note, the prepayment rights and obligations of Borrower, the
right of the holder of this Note to accelerate the maturity hereof on the
occurrence of certain Events of Default specified therein, and for all other
pertinent purposes. This Note is the "Note" referred to in the Commitment
Letter. All capitalized terms not otherwise defined herein shall be defined
as set forth in the Commitment Letter.
Upon the occurrence and during the continuation of any Event of
Default, the holder of this Note may apply payments received on any amount
due hereunder or under the terms of any instrument now or hereafter
evidencing or securing any said indebtedness as said holder may determine.
It is the intent of Bank and Borrower to conform strictly to all
applicable usury laws, and any interest on the principal balance hereof in
excess of that allowed by said usury laws shall be subject to reduction to
the maximum amount of interest allowed under said laws. If any interest in
excess of the maximum amount of interest allowable by said usury laws is
inadvertently paid to the holder hereof, at any time, any such excess
interest shall be refunded by the holder to the party or parties entitled to
the same after receiving notice of payment of such excess interest.
The records of the holder of this Note shall be prima facie evidence
of the amount owing on this Note.
If, and as often as, this Note is placed in the hands of an attorney
for collection or to defend or enforce any of the holder's rights hereunder,
Borrower will pay to the holder hereof its reasonable attorneys' fees,
together with all court costs and other expenses paid by such holder.
Borrower, endorsers, sureties, guarantors and all other parties who
may become liable for all or any part of this Note severally waive demand,
presentment, notice of dishonor, protest, notice of protest, and notice of
non-payment, and consent to: (a) any and all extensions of time for any term
or terms regarding any payment due under this Note, including partial
payments or renewals before or after maturity; (b) changes in interest rates;
(c) any substitutions or release of collateral; and (d) the addition,
substitution or release of any party liable for payment of this Note.
2
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No waiver of any payment or other right under this Note or any
related agreement shall operate as a waiver of any other payment or right.
All of the holder's rights hereunder are cumulative and not alternative. This
Note shall inure to the benefit of the successors and assigns of Bank or
other holder and shall be binding upon the successors and assigns of Borrower.
This Note has been delivered to and accepted by Bank in the State of
Oklahoma, is to be performed in the State of Oklahoma and shall be deemed a
contract made under the laws of the State of Oklahoma.
IN WITNESS WHEREOF, the undersigned has executed this instrument
effective for all purposes as of October 31, 2000.
"BORROWER"
GMX RESOURCES INC.,
an Oklahoma corporation
/s/ Ken L. Kenworthy, Jr.
--------------------------------------
By: Ken L. Kenworthy, Jr.
Title: Chief Executive Officer
ENDEAVOR PIPELINE INC.,
an Oklahoma corporation
/s/ Ken L. Kenworthy, Jr.
--------------------------------------
By: Ken L. Kenworthy, Jr.
Title: President
EXPEDITION NATURAL RESOURCES INC.,
an Oklahoma corporation
/s/ Ken L. Kenworthy, Jr.
--------------------------------------
By: Ken L. Kenworthy, Jr.
Title: President
3
<PAGE>
October 25, 2000
Mr. Ken L. Kenworthy
Chief Financial Officer
GMX Resources Inc.
9400 N. Broadway, Suite 600
Oklahoma City, Oklahoma
Re: Proposed Terms
Dear Ken:
Local Oklahoma Bank, N.A. appreciates the opportunity to propose the
following terms for your review and our mutual consideration for further
discussion. These terms are subject to the Lender's underwriting and credit
approval process and do not constitute or imply a commitment by Local
Oklahoma Bank, N.A.
LENDER: Local Oklahoma Bank, N.A.
BORROWER: GMX Resources Inc. and Subsidiaries
GUARANTOR: Ken Kenworthy, Jr. and Ken Kenworthy, Sr. shall each provide
their personal guarantees, each limited to $1,000,000;
however, said guarantees shall be in addition to any value
derived from the pledge of their stock ownership in the
Borrower.
FACILITY TYPE: Reducing Revolving Line of Credit
AMOUNT: An amount which shall not exceed at any one time outstanding
the lesser of (i) $15,000,000.00; or (ii) the Borrowing Base
(hereafter defined) minus the sum of all Monthly Commitment
Reductions (hereafter defined); (the lesser of i and ii is
hereinafter referred to as the "Commitment Amount". The
outstanding principal balance of the promissory note plus any
outstanding letters of credit issued under the facility is
hereinafter referred to as the "Loan Balance". The Commitment
Amount minus the Loan Balance is referred to herein as the
"Available Credit") which such obligation shall be evidenced
by a promissory note (the "Note").
PURPOSE: Loan proceeds shall be used to (i) refinance existing
indebtedness of Borrower at Bank One, Oklahoma, N.A.; (ii)
repay indebtness to shareholders originally incurred to fund
retirement all issues of Series B preferred stock (iii)
acquire interest in the Bosh #1 and Hancock #1 from Tara
Energy Partnership (iv) finance future acquisition and
development of oil and gas properties; (v) issue letters of
credit to meet governmental bonding requirements and; (vi)
temporary working
<PAGE>
Mr. Ken L. Kenworthy
October 25, 2000
Page 2
capital, subject to a $250,000 sub-limit; (vii) other
corporate purposes as may be authorized by the Lender in its
sole discretion.
BORROWING
BASE: The "Borrowing Base" in effect at any time shall be that
amount as established by Lender, in its sole and absolute
discretion and consistent with its general lending policies
then in effect, and based upon its evaluation of the
Borrower's Collateral and such other credit factors
consistently applied (including, without limitation, the
assets, liabilities, cash flow, business, properties,
prospects, management and ownership of the Borrower) as Lender
customarily considers in evaluating similar oil and gas
credits. Borrower recognizes that decreases in the Borrowing
Base may be caused by such factors as declines in production
volumes, other adverse changes in operating conditions, price
decreases, other adverse market or economic conditions, and
increases in interest rates. Lender may, in its sole
discretion, require additional Borrowing Base determinations
at any time.
The Borrowing Base and the amount of any scheduled monthly
reductions to the Commitment Amount (a "Monthly Commitment
Reduction") shall be redetermined by Lender, in its sole and
absolute discretion, each January 1st and July 1st during the
term hereof following Lender's review and evaluation of
Borrower's oil and gas properties. The initial Borrowing Base
is anticipated to be $7,250,000.00 and the Half Life of the
Borrower's Oil and Gas properties is 69 months. The initial
Monthly Commitment Reduction shall be $105,000.00 per month
beginning December 1st and continuing on the first (1st) day
of each month thereafter until Borrower is notified of a
change to either the Borrowing Base and/or the Monthly
Commitment Reduction.
If after any redetermination of the Borrowing Base, the Loan
Balance should exceed the redetermined Borrowing Base, one or
more of the following remedies may be required by Lender in
its discretion.
(a) The Borrowing Base may be adjusted
to an amount consistent with the
redetermined availability.
(b) A reduction of the Loan Balance may
be required by virtue of principal
prepayment to an amount sufficient
to reduce the Loan Balance to an
amount less than or equal to the
redetermined availability.
(c) The pledge of additional collateral
of sufficient value and acceptable
to Lender may be required to raise
the Borrowing Base level above the
outstanding Loan Balance.
<PAGE>
Mr. Ken L. Kenworthy
October 25, 2000
Page 3
COLLATERAL: The Loan Agreement, the Note and all advances thereunder
together with all obligations pursuant to all loan documents
executed in conjunction with any of the above (the
"Obligations") shall be secured by (i) all oil and gas
properties now owned or hereafter developed or acquired by
Borrower and (ii) all of Guarantors' stock ownership in the
Borrower. In conjunction with the execution of the Loan
Agreement and Note, Borrower shall execute (i) a mortgage,
deed of trust or similar instrument on oil and gas properties
representing, at least, eighty five percent (85%) of the total
value of all oil and gas properties owned by Borrower, as
determined by Lender. Any properties not mortgaged to Lender
shall not be pledged or encumbered by Borrower and shall be
available to Lender to be mortgaged at its discretion.
RATE: Amounts outstanding under the facility shall accrue interest
at the floating Prime Rate of interest, adjusted on the day of
each change, plus 1/2%. Prime Rate shall be as quoted in the
Wall Street Journal (Southwest Edition).
FEES: (A) COMMITMENT FEE. A $10,000 Commitment Fee shall apply
to the initial Commitment Amount. A one-half of one
percent (1/2%) Commitment Fee shall apply to any
subsequent increases to the Commitment Amount made in
accordance with scheduled redeterminations of the
Borrowing Base. Additional fees may be negotiated
between Lender and Borrower if Lender is requested to
complete an unscheduled redetermination of the
Borrowing Base.
(B) NON-USE FEE. Borrower shall pay a one-half of one
percent (1/2%) per annum non-use fee on the unused
balance of the Commitment Amount quarterly in
arrears.
(C) ENGINEERING FEE. Borrower shall pay Lender an initial
Engineering Fee of $5,000 upon the closing of the
proposed facility. Subsequent engineering fees of
$2,500 shall be paid upon each scheduled semi-annual
redetermination of the Borrowing Base and/or each
unscheduled redetermination requested by the
Borrower.
(D) LETTER OF CREDIT FEE. A fee equal to the greater of
(i) 2.00% per annum of the face amount of any letter
of credit issued under the facility; or (ii) $250.00
shall be due and payable on or before the issuance of
any Letter of Credit.
(E) PREPAYMENT FEE. A fee equal to 1/2% of the average
Loan Balance over the immediately preceding 12 months
(if less than 12 months, then the average Loan
Balance since inception) shall be due in the event
the Borrower prepays all or any substantial part of
the Loan Balance directly or indirectly with any
funds provided by or obtained from a lender other
<PAGE>
Mr. Ken L. Kenworthy
October 25, 2000
Page 4
than Lender herein or from the sale or offering of
any equity interest whatsoever in Borrower or any
affiliate. Lender agrees that said pre-payment fee
shall be credited towards any new commitment fee
required by Lender as a condition of refinancing.
MATURITY: May 1, 2003
REPAYMENT
PROGRAM: Beginning November 1, 2000 and continuing on the first (1st)
day of each month thereafter during the term hereof, Borrower
shall make a payment of all accrued but unpaid interest on the
Note. In the event the Loan Balance exceeds the Commitment
Amount, Borrower shall prepay, without premium or penalty, a
principal amount sufficient to reduce the Loan Balance to an
amount at or below the Available Credit. All unpaid principal
together with any accrued but unpaid interest shall be due and
payable in full at Maturity.
CONDITIONS: The obligations of Lender to enter into this agreement and to
make any advances under the Note is subject to the
satisfaction of the following conditions precedent, unless
waived in writing by Lender:
1. Lender shall have received an executed version of a
Loan Agreement, Note, Guaranty Agreements, any oil
and gas mortgages or other instruments, UCC financing
statements, and any other loan documents required by
Lender;
2. Lender shall have received copies of the Articles of
Incorporation and all amendments thereto and the
Bylaws and all amendments thereto of Borrower
accompanied by a certificate issued by the secretary
of Borrower to the effect that such copy is correct
and complete;
3. Certificates of Incumbency and signatures or other
evidence of all officers of Borrower who are
authorized to execute the loan documents on behalf of
Borrower;
4. Copies of resolutions approving the loan documents
and authorizing the transactions contemplated herein
and therein duly adopted by the Borrower's board of
directors accompanied by a certificate of the
Borrower's Secretary to the effect that such copies
are true and correct copies of such consents, duly
adopted at meetings or by unanimous consent of the
Borrower's board of directors;
5. Lender shall have received a certificate dated as of
a recent date from the Secretary of State or other
appropriate governmental authority evidencing the
existence or qualification and good standing of
Borrower in all
<PAGE>
Mr. Ken L. Kenworthy
October 25, 2000
Page 5
jurisdictions wherein its failure to be so qualified
would constitute a material adverse effect upon
Borrower's ability to repay the Note;
6. Lender shall have received undated "Letters in Lieu
of Transfer" in form and substance satisfactory to
Lender from the Borrower to each purchaser of
production and distributor of the proceeds of
production from or attributable to the properties
pledged to the Lender authorizing and directing the
addresses to make further payments attributable to
production from said properties directly to Lender.
Lender agrees that none of such letters provided by
Borrower pursuant to this Section 6 will be sent to
the addressees prior to the occurrence of an Event of
Default, at which time the Lender may, at its option
and in addition to the exercise of any of its other
rights and remedies, send any or all of such letters.
7. Lender shall have received such other agreements,
documents, items, instruments, opinions,
certificates, waivers, consents, and evidence as the
Lender may reasonably request.
8. Lender shall have reviewed and approved of Borrower's
title ownership to the oil and gas properties to be
pledged as collateral.
9. Borrower shall have disclosed any and all pending or
threatened litigation matters to Lender and Lender
shall be satisfied that such litigation matters are
not expected to result in any material impairment of
the ownership of the Borrower in any Collateral or to
have a Material Adverse Effect on the Borrower.
Lender shall have no obligation to advance any funds under this loan upon the
occurrence of and during the continuance of any Event of Default, until such
event has been waived and/or cured to the satisfaction of Lender.
AFFIRMATIVE
COVENANTS: 1. Within 90 days following the conclusion of each
fiscal year of the Borrower, Borrower shall furnish
to the Lender a consolidated financial statement
prepared in accordance with GAAP and audited by and
issued with an "unqualified opinion" from an
independent firm of certified public accountants
acceptable to Lender. Concurrent with the financial
statements, Borrower shall provide a Compliance
Certificate executed by a responsible officer of
Borrower ("Responsible Officer") stating that such
Officer, after due inquiry, has no knowledge of a
Default or Event of Default and containing a
computation of, and demonstrating compliance with,
the financial covenants set forth herein.
2. Within 60 days of the end of each calendar quarter,
Borrower shall provide Lender a consolidating/
consolidated financial statement prepared by the
Borrower in a manner consistent with the annual
audited financial
<PAGE>
Mr. Ken L. Kenworthy
October 25, 2000
Page 6
statements. Concurrent with the financial
statements, Borrower shall provide a Compliance
Certificate executed by Borrower's Responsible
Officer stating that such Officer, after due inquiry,
has no knowledge of a Default or Event of Default
and containing a computation of, and demonstrating
compliance with, the financial covenants set forth
herein.
3. Within 30 days of the annual anniversary date of the
last financial statement provided, each of the
Guarantor's shall provide to Lender a current and
complete financial statement, signed by the
Guarantor. A complete financial statement shall
include a (i) balance sheet (ii) statement of
income and debt service obligations (iii) most
recent tax return (iv) statement of contingent
liabilities.
4. Beginning December 15, 2001 and annually, thereafter,
Borrower will provide Lender with an engineering
report in form and substance acceptable to Lender,
prepared by an independent petroleum engineering
firm acceptable to Lender, covering the Borrower's
oil and gas properties, (together with such other
appropriate information as may be requested by
Lender). Said report shall have been prepared with
an effective date of January 1, of the proceeding
year and shall include reporting of any material
gas balancing liabilities.
5. Beginning June 15, 2001 and annually thereafter,
Borrower shall provide Lender with an in-house
petroleum reserve report (and/or such other
appropriate information as may be required and/or
acceptable to Lender in lieu of an in-house
petroleum reserve report) on all of the Borrower's
oil and gas properties. Said report and/or
information shall have been prepared so as to
allow Lender to update the last provided
independent engineering report and complete its
semi-annual redetermination of the Borrowing Base.
6. Within 60 days of the end of each calendar quarter,
Borrower shall provide Lender with quarterly
report, in form and substance satisfactory to the
Lender, indicating the immediately preceding
quarter's sales volume, sales revenues, production
taxes, operating expense and net operating income
from or attributable to the oil and gas properties
pledged to secure the Note hereunder, with
detailed calculations and worksheets, and, in the
case of take or pay or prepayment agreements
during such quarter, provide copies of same.
7. The Borrower will at all times remain in compliance
with all federal and state laws, including
environmental laws and ERISA, except where such
noncompliance will not have a material adverse
effect upon Borrowers' ability to repay the
obligations set forth herein.
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Mr. Ken L. Kenworthy
October 25, 2000
Page 7
8. The Borrower will pay all reasonable legal and other
reasonable customary out-of-pocket expenses
incurred by the Lender in connection with this
transaction to include all mortgage filing, title
due diligence and legal fees.
9. Borrower will maintain its depository
accounts with Local Oklahoma Bank, N.A.
10. Borrower will promptly cure any defects in the
execution and delivery of any of the documents
executed in conjunction herewith and contemplated
hereby and will execute, acknowledge, and deliver
any such other documents, assurances, instruments and
information as shall be necessary to fulfill the
terms hereof.
11. Borrower and shall maintain its current line of
business, as engaged in as of the date hereof, unless
otherwise consented to in writing by Lender.
FINANCIAL
COVENANTS: 1. Beginning with the period ending 12/31/00, the
Borrower shall maintain a minimum "Adjusted Current
Ratio". The "Adjusted Current Ratio" is for all
purposes herein defined as current assets (as defined
by GAAP) plus any unfunded availability under the
credit facility divided by current liabilities (as
defined by GAAP) exclusive of any balances
outstanding the proposed credit facilities from
Lender that would otherwise be accounted for as a
current liability. The minimum Adjusted Current
Ratio shall be .80:1.00 for the quarterly reporting
period ended 09/30/00 and 1.00:1.00 for the quarterly
reporting period ending 12/31/00 and each quarterly
reporting period thereafter.
2. Beginning with the quarter ending 12/31/00, Borrower
shall maintain a "Debt Service Coverage Ratio" of
at least 1.10:1.00. The "Debt Service Coverage
Ratio" shall be calculated as the quotient of the
sum of Net Income as defined by GAAP, minus
dividends, plus depreciation, depletion and
amortization expense, plus interest expense (for
the quarter ended), DIVIDED BY the sum of the
quarterly principal reductions required to
amortize the Loan Balance (as of quarter end) over
the Half Life the Borrower's Oil and Gas
Properties (not to exceed 84 months), plus
interest expense for the quarter then ended, plus
any other current maturities of long term debt
(including Capital Lease Obligations) realized
during the quarter then ended.
3. Beginning with the quarterly reporting period ending
12/31/00, the Borrower shall maintain a minimum
Tangible Net Worth of not less than 100% of the
Tangible Net Worth reported in the 09/30/00
financial
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Mr. Ken L. Kenworthy
October 25, 2000
Page 8
statement, plus (i) 75% of Net Income realized for
each quarter thereafter and (ii) 75% of any increase
in Tangible Net Worth resulting from any infusion of
equity subsequent to 09/30/00.
NEGATIVE
COVENANTS: 1. Borrower will not further create, assume, or suffer
to exist any mortgage, pledge, lien, charge or
encumbrance on any of the property of the
Borrower, personal or real, tangible or
intangible, referenced without the prior written
agreement of the Lender.
2. Borrower will not, during any fiscal year sell,
transfer, or otherwise dispose of any substantial
portion (defined as amounts exceeding $100,000 in
the aggregate) of their assets, now owned or
hereafter acquired, whether pursuant to a single
transaction or a series of transactions without
the prior written agreement of the Lender.
3. Borrower will not enter into any merger or
consolidation with any person or entity or permit
any such merger or consolidation of the Borrower
without the prior written Agreement of the Lender.
4. Borrower will not make any other loans, advances, or
other extensions of credit, direct or indirect, to
or for the benefit of any person or entity or
Affiliate aggregating in excess of $100,000 in the
aggregate and will not enter into any other
transactions, including without limitation, the
purchase, sale, or exchange of property, or the
rendering of services, with any person or entity
or Affiliate without the prior written agreement
of the Lender. For the purposes of this Letter
Agreement, the term "Affiliate" shall mean any
Person which, directly or indirectly, controls, is
controlled by or is under common control with the
relevant Person. For the purposes of this
definition, "control" (including, with correlative
meanings, the terms "controlled by" and "under
common control with"), as used with respect to any
Person, shall mean a member of the board of
directors, a partner or an officer of such Person,
or any other Person with possession, directly or
indirectly, of the power to direct or cause the
direction of the management and policies of such
Person, through the ownership (of record, as
trustee, or by proxy) of voting shares,
partnership interests or voting rights, through a
management contract or otherwise. Any Person
owning or controlling directly or indirectly ten
percent or more of the voting shares, partnership
interests or voting rights, or other equity
interest of another Person shall be deemed to be
an Affiliate of such Person.
<PAGE>
Mr. Ken L. Kenworthy
October 25, 2000
Page 9
5. Borrower will not, directly or indirectly purchase,
redeem, or otherwise, retire any shares, pay any
dividends, or apply or set apart any sum of money
for same, without the written agreement of the
Lender.
6. Borrower will not further create or incur any
indebtedness which aggregately exceeds $100,000
except (i) advances under this current facility;
(ii) current accounts payable arising in the
ordinary course of business.
7. Borrower will not directly or indirectly, guarantee,
agree to purchase or repurchase, or become liable
or remain liable with respect to the indebtedness
of any person or entity in excess of $100,000
without the written agreement of the Lender.
8. Borrower will not enter into any transaction
providing (i) for the hedging, forward sale, swap
or any derivation thereof of crude oil or natural
gas or other commodities; or (ii) for a swap,
collar, floor, cap, option, corridor, or other
contract which is intended to reduce or eliminate
the risk of fluctuation in interest rates, as such
terms are referred to in the capital markets,
except the foregoing prohibitions shall not apply
to transactions consented to in writing by the
Lender.
9. Borrower will not make any principal reductions to
its shareholders on any existing indebtedness to
such shareholders without the prior written
consent of Lender. Interest payments may be made
on existing shareholder debt so long as (i) the
annual rate of interest paid on such shareholder
debt is not in excess of that paid to the Lender
and (ii) the Borrower is not in default of its
Loan Agreement with Lender.
EVENTS OF DEFAULT: Each of the following shall constitute an Event of Default
hereunder:
1. Non-payment of principal and/or interest.
2. Violation of any of the terms, conditions or
covenants contained herein.
3. Any adverse change in the Borrower's financial
condition.
4. Substantial change in the management of the Borrower.
5. Insolvency or bankruptcy of the Borrower
6. Any false representation or warranty by the Borrower.
7. Guarantor's failure to comply with the terms of its
Guaranty Agreement.
8. Any "Event of Default" under the Note.
REMEDIES: Upon the occurrence of Events of Default No. 5 or No. 6,
immediately and without notice, (i) all obligations shall
automatically become immediately due and payable, without
presentment, demand, protest, notice of protest, default or
dishonor, notice of intent to accelerate maturity, notice of
acceleration of maturity or other notice of any kind, except
as may be provided to the contrary elsewhere herein, all of
which
<PAGE>
Mr. Ken L. Kenworthy
October 25, 2000
Page 10
are hereby expressly waived by the Borrower, and (ii) the
commitment to advance shall immediately cease and terminate
unless and until reinstated by the Lender in writing, and in
such event, the Lender is hereby authorized at any time and
from time to time, without notice to the Borrower (any such
notice being expressly waived by the Borrower), to set-off and
apply any and all deposits of the Borrower (general or
special, time or demand, provisional or final) held by the
Lender, except to the extent any such deposits contain funds
of persons other than Borrower to any and all other
indebtedness at any time owing by the Lender to or for the
credit or account of the Borrower against any and all of the
obligations.
Upon the occurrence of any Event of Default other than Event
of Default No. 5 or No. 6, Borrower shall have thirty (30)
days after receiving written notification of the Event of
Default (Notwithstanding the aforementioned sentence, Borrower
shall have 10 days after receiving written notification of the
occurrence of Event of Default No. 1 herein to cure such a
Default) to cure such Default but, during such cure period,
the Lender will not, as a result of such Default, accelerate
the Note or exercise any of its rights pursuant to the Loan
Documents, and such Default will not constitute an "Event of
Default", unless such Default is not remedied to the
reasonable satisfaction of Lender within 30 days (or 10 days
as the case may be) after Borrowers' receipt of such written
notification. In the event Borrower shall fail to effectuate
such a cure Lender may declare all obligations immediately due
and payable, without presentment, demand, protest, notice of
protest, default or dishonor, notice of intent to accelerate
maturity, notice of acceleration of maturity or other notice
of any kind, except as may be provided to the contrary
elsewhere herein, all of which are hereby expressly waived by
the Borrower, and the Lender's commitment shall immediately
cease and terminate unless and until reinstated by the Lender
in writing, and in such event, the Lender is hereby authorized
at any time and from time to time, without notice to the
Borrower (any such notice being expressly waived by the
Borrower), to set-off and apply any and all deposits
containing funds of the Borrower (general or special, time or
demand, provisional or final) held by the Lender, and any and
all other indebtedness at any time owing by the Lender to or
for the credit or account of the Borrower against any and all
of the obligations although such Obligations may be unmatured.
Subject to the provisions of this Agreement, upon the
occurrence of any Event of Default the Lender may, in addition
to the foregoing, exercise any or all of its rights and
remedies provided by law or pursuant to any other loan
documents executed in conjunction herewith
The proposed terms are not intended to be exhaustive or complete; however,
should be representative of the most substantial of those that would survive
to a final comprehensive loan agreement.
<PAGE>
Mr. Ken L. Kenworthy
October 25, 2000
Page 11
If you are agreeable to the proposed terms contained herein, please so
indicate with your signature below upon the receipt of which, we shall
proceed with submitting the same for approval. Thank you for the opportunity
to provide this proposal and we look forward to working with you.
Sincerely,
/s/ John K. Slay, Jr.
John K. Slay, Jr.
Senior Vice President
Agreed and accepted this 25th day of October, 2000.
/s/ Ken L. Kenworthy, Jr. /s/ Ken L. Kenworthy
-------------------------------- -----------------------------
Ken L. Kenworthy, Jr. Ken L. Kenworthy
Chief Executive Officer Chief Financial Officer
GMX Resources Inc. GMX Resources Inc.
<PAGE>
CREDIT AGREEMENT
THIS AGREEMENT is made effective as of February 18, 1998, by
and GMX RESOURCES INC., an Oklahoma corporation (hereinafter referred to as
"Borrower") and BANK ONE, OKLAHOMA, N.A., a national banking association
(hereinafter referred to as "Bank").
WITNESSETH:
WHEREAS, the Borrower desires to borrow up to a maximum
principal amount of $20,000,000.00 from the Bank in the form of a reducing
revolving line of credit, the proceeds of which shall be used by the Borrower
for the purpose of acquisition, exploration, development and operation of oil
and gas interests and to provide for general working capital needs of the
Borrower; and
WHEREAS, the Borrower desires to secure its obligations to
the Bank as described herein with the oil and gas properties and other assets
as described herein, all pursuant to the terms and conditions of this
Agreement and other loan and security documents described herein.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties hereto agree as follows:
1. DEFINITIONS. As used in this Agreement, the
following terms with their initial letter capitalized shall have the following
meanings, except where the context otherwise requires:
1.1 AGREEMENT. The term "Agreement" shall mean
this Credit Agreement, as the same may from time to time be amended,
supplemented or modified.
1.2 BASE RATE. The term "Base Rate"shall mean
that fluctuating annual rate of interest adopted by the Bank, from time
to time (whether or not charged or published), as its "Base Rate."
1.3 BORROWING BASE. The term "Borrowing Base"
shall mean, with respect to the Borrower at all times during the term
of the Loan, the loan value of the Oil and Gas Properties securing the
Loan. For purposes of determining the Borrowing Base, the loan value of
the Oil and Gas Properties shall be determined by the Bank in
accordance with the Bank's lending policies as may be in effect from
time to time, other credit factors consistently applied from time to
time, and such other guidelines as may be determined by the Bank in its
sole discretion. The determination of the loan values, the properties
constituting the Borrowing Base and the value of such properties shall
be at the Bank's sole discretion acting in good faith and using
assumptions regarding pricing, discount rate and other credit factors
consistent with those used by the Bank at the time of determination
with other similar credits, and for purposes of this Agreement such
<PAGE>
determination may be made semi-annually throughout the term of the Loan
as of January 1 and July 1 of each year, beginning July 1, 1998. On
each Evaluation Date, the Bank shall make two determinations of the
Borrowing Base as follows: (1) the loan value of the Oil and Gas
Properties as of said Evaluation Date together with the applicable
amount of the Monthly Commitment Reductions for the period ending with
the next succeeding Evaluation Date, and (2) an amount determined by
the Bank to be the anticipated loan value of the Oil and Gas Properties
on the next succeeding Evaluation Date, such amount not being subject
to any Monthly Commitment Reductions. The Borrowing Base for the period
beginning with said Evaluation Date and ending on the next succeeding
Evaluation Date shall be the amount of (1) or (2) above which is
elected by the Borrower pursuant to Section 2.4 hereof. Any of the Oil
and Gas Properties which are not subject to the Loan Documents or are
not supported by title evidence satisfactory to the Bank and its
counsel, will not be included in the calculation of the Borrowing Base.
The initial Borrowing Base for the loan shall be $5,500,000.00 from
closing to July 1, 1998, subject to the initial Monthly Commitment
Reductions of $55,000.00 as described herein, at which time the
Borrowing Base shall be redetermined as provided above.
1.4 BUSINESS DAY. The term "Business Day"
shall mean any day other than a Saturday or Sunday or other holiday on
which commercial banks are open for business with the public in
Oklahoma City, Oklahoma.
1.5 CASH FLOW. The term "Cash Flow" means (i)
Net Income of the Borrower, PLUS (ii) all depreciation, depletion,
gains, losses and other noncash items of the Borrower, LESS (iii) all
cash dividends paid, all as determined in accordance with GAAP.
1.6 COLLATERAL. The term "Collateral" shall
have the meaning ascribed to such term as in provided in Section 6
hereof.
1.7 CURRENT ASSETS. The term "Current Assets"
shall mean all of the current assets of the Borrower, as determined in
accordance with GAAP.
1.8 CURRENT LIABILITIES. The term "Current
Liabilities" shall mean all. of the current liabilities of the
Borrower, as determined in accordance with GAAP.
1.9 DEBT. The term "Debt" means, as to any
person, all indebtedness, liabilities and obligations of such person,
determined in accordance with GAAP, including all contingent and
indirect obligations and liabilities.
1.10 DEBT COVERAGE RATIO. The term "Debt
Coverage Ratio" means the quotient of (i) Cash Flow for the previous
calendar quarter, divided by (ii) the amount of the Monthly Commitment
Reductions for that calendar quarter, whether Borrower elects
determination (1) or (2) under Section 1.3 above.
1.11 ENVIRONMENTAL LAWS. The term
"Environmental Laws" means all federal, state and local laws, rules,
regulations, ordinances, and consent decrees relating to health,
safety, hazardous substances, and environmental matters applicable to
Borrower's
2
<PAGE>
business and facilities. Such laws and regulations include, but are not
limited to, the Resource Conservation and Recovery Act, Comprehensive
Environmental Response; Compensation and Liability Act; Toxic
Substances Control Act; Clean Water Act; Clean Air Act; Comprehensive
Environmental Response, Compensation and Liability Information System;
all state and federal superlien and environmental cleanup programs; and
all other applicable environmental laws and regulations of all
applicable jurisdictions.
1.12 ERISA. The term "ERISA" means the Employee
Retirement Income Security Act of 1974, as amended, together with all
regulations issued pursuant thereto.
1.13 EVALUATION DATE. The term "Evaluation
Date" shall mean each January 1 and July 1 throughout the term of the
Loan, beginning July 1, 1998.
1.14 EVENTS OF DEFAULT. The term "Events of
Default" shall have the meaning ascribed to such term as in provided in
Section 10 hereof.
1.15 GAAP. The term "GAAP" shall mean the
generally accepted accounting principles, practices and procedures, set
forth by the Accounting Principles Board and the American Institute of
Certified Public Accountants and the Financial Accounting Standards
Board, which are applicable as of the date of the end of the fiscal
quarter immediately preceding such date of determination.
1.16 LETTERS OF CREDIT. The term "Letters of
Credit" shall mean all letters of credit issued by the Bank for the
benefit of the Borrower, and any affiliate of the Borrower, during the
term of the Loan.
1.17 LIBOR INTEREST PERIOD. The term "LIBOR
Interest Period" means, with respect to each particular LIBOR Portion
of the Loan, a period of 1 month, as specified in the Rate Election
applicable thereto, beginning on and including the date specified in a
Rate Election (which must be a Business Day), and ending on but not
including the same day of the month as the day on which it began or the
last day of the month if shorter, provided that each LIBOR Interest
Period which would otherwise end on a day which is not a Business Day
shall end on the next succeeding Business Day (unless such next
succeeding Business Day is the first Business Day of a calendar month,
in which case such LIBOR Interest Period shall end on the immediately
preceding Business Day). No LIBOR Interest Period may be elected which
would extend past the date on which the Loan is due and payable.
1.18 LIBOR PORTION. The term "LIBOR Portion"
means any portion of the unpaid principal balance of the Loan which
Borrower designates as such in a Rate Election. The Loan shall have no
more than three LIBOR Portions outstanding at any time.
1.19 LIBOR RATE. The term "LIBOR Rate" means,
with respect to each particular LIBOR Portion within either of the
Loans and with respect to the LIBOR
3
<PAGE>
Interest Period, the rate of interest per annum determined by Bank in
accordance with its customary general practices to be representative of
the rates at which deposits of dollars are offered to Bank at
approximately 9:00 a.m. Oklahoma City, Oklahoma time two Business Days
prior to the first day of such LIBOR Interest Period (by prime banks in
the London interbank market which have been selected by Bank in
accordance with its customary general practices) for delivery on the
first day of such LIBOR Interest Period in an amount equal or
comparable to the amount of the Bank's LIBOR Portion within such Loan
and for a period of time equal or comparable to the length of the LIBOR
Interest Period. The LIBOR Rate determined by Bank with respect to a
particular LIBOR Portion shall be fixed at such rate for the duration
of the associated LIBOR Interest Period.
1.20 LIEN. The term "Lien" shall mean any lien,
mortgage, security interest, tax lien, pledge, encumbrance, conditional
sale or title retention arrangement, or any other interest in property
designed to secure the repayment of Debt, whether arising by agreement
or under any statute or law, or otherwise.
1.21 LOAN. The term "Loan" shall mean the loan
contemplated by this Agreement and evidenced by the Note and the
Letters of Credit, and as evidenced and secured by the Loan Documents,
and any and all other loans and extensions of credit made by the Bank
to the Borrower, whether now existing or hereafter incurred.
1.22 LOAN DOCUMENTS. The term "Loan Documents"
shall collectively mean this Agreement, the Note, the Letters of
Credit, all mortgages, security agreements, financing statements,
assignments, transfer orders and all other loan or security documents
and instruments executed and delivered in connection with the Loan, and
all renewals, extensions, amendments, modifications, replacements and
supplements thereof and thereto.
1.23 MATERIAL ADVERSE EFFECT. The term
"Material Adverse Effect" means any set of circumstances or events
which (i) could have a material adverse effect upon the validity,
performance or enforceability of this Agreement or any other Loan
Documents, (ii) could be material and adverse to the financial
condition or business operations of the Borrower, (iii) could
materially impair the ability of the Borrower to perform its
obligations under this Agreement or any other Loan Documents, or (iv)
constitutes an Event of Default.
1.24 MAXIMUM COMMITMENT AMOUNT. The term
"Maximum Commitment Amount" shall mean the lesser of the amount of: (A)
$20,000,000.00; or (B) the amount of (i) the Borrowing Base, less (ii)
the aggregate amount of the Monthly Commitment Reductions with respect
to the Loan. The initial Maximum Commitment Amount shall be
$5,500,000.00.
1.25 MONTHLY COMMITMENT REDUCTION. The term
"Monthly Commitment Reduction" shall mean the monthly amount as
designated by the Bank, which shall reduce the maximum principal amount
available for advances on the Note, on a monthly basis
4
<PAGE>
from each Evaluation Date until the next occurring Evaluation Date.
The initial Monthly Commitment Reduction shall be $55,000.00 per month.
1.26 MORTGAGED PROPERTY. The term "Mortgaged
Property" shall mean all of the Oil and Gas Properties initially listed
in Exhibit "A" attached hereto and all additional Oil and Gas
Properties which may hereafter be subject to a valid first and prior
mortgage in favor of the Bank.
1.27 NET INCOME. The term "Net Income" shall
mean all net profit or loss after taxes of the Borrower, as determined
in accordance with GAAP.
1.28 NOTE. The term "Note" shall mean that
certain Promissory Note dated even date herewith in the principal face
amount of $20,000,000.00 made by Borrower and payable to the order of
the Bank, together with all renewals, extensions, modifications and
substitutions thereto and therefor.
1.29 OIL AND GAS PROPERTIES. The term "Oil and
Gas Properties" shall mean all of the Borrower's rights, title and
interests in and to all oil and gas properties and other mineral
interests of whatsoever kind or character, whether now owned or
hereafter acquired by the Borrower.
1.30 PBGC. The term "PBGC" means the Pension
Benefit Guaranty Corporation and any successor to all or any of its
functions under ERISA.
1.31 PERMITTED DEBT. The term "Permitted Debt"
means (i) any accounts payable, taxes, insurance, operating expenses
and all other general and administrative expenses and other obligations
of the Borrower incurred in the normal course of Borrower's business
operations, such obligations being in amounts and of the types as are
consistent with those identified in the latest financial statements of
the Borrower, and (ii) any existing indebtedness secured by any
Permitted Lien.
1.32 PERMITTED LIENS. The term "Permitted
Liens" means: (i) pledges or deposits made to secure payment of
workers' compensation insurance (or to participate in any fund in
connection with workers' compensation insurance), unemployment
insurance, pensions or social security programs, (ii) Liens imposed by
mandatory provisions of law such as for materialmen's, mechanics',
warehousemen's and other like Liens arising in the ordinary course of
business, securing Debt whose payment is not yet due or if the same is
due, it is being contested in good faith by appropriate proceedings and
the imposition of which would not have a Material Adverse Effect on the
Borrower, (iii) Liens for taxes, assessments and governmental charges
or levies imposed upon a person or upon such person's income or profits
or property, if the same are not yet due and payable or if the same are
being contested in good faith by appropriate proceedings and the
imposition of which would not have a Material Adverse Effect on the
Borrower, and (iv) pledges or deposits to secure public or statutory
obligations and deposits to secure (or in lieu of) surety, stay, appeal
or customs bonds and deposits to secure the payment of taxes,
assessments, customs duties or other similar charges.
5
<PAGE>
1.33 RATE ELECTION. The term "Rate Election"
means a completed rate election in the form of Exhibit "B" hereto.
1.34 REGULATION D. The term "Regulation D"
means Regulation D of the Board of Governors of the Federal Reserve
System, as in effect from time to time.
1.35 REGULATION U. The term "Regulation U"
means Regulation U of the Board of Governors of the Federal Reserve
System, as in effect from time to time.
1.36 REGULATION X. The term "Regulation X"
means Regulation X promulgated by the Board of Governors of the Federal
Reserve System, as in effect from time to time.
1.37 REQUEST FOR ADVANCE. The term "Request for
Advance" means a completed request for cash advances in the form of
Exhibit "C" hereto.
1.38 TANGIBLE NET WORTH. The term "Tangible Net
Worth" means the difference between the Borrower's (i) Total Assets,
excluding any intangibles, and (ii) Total Liabilities, all as set forth
in the financial statements of the Borrower and as determined under
GAAP.
1.39 TOTAL ASSETS. The term "Total Assets"
shall mean the Total Assets of Borrower as reflected on Borrower's
financial statements and as accounted for under GAAP.
1.40 TOTAL LIABILITIES. The term "Total
Liabilities" shall mean the Total Liabilities of Borrower as reflected
on Borrower's financial statements and as accounted for under GAAP.
1.41 UNIFORM COMMERCIAL CODE. The term "Uniform
Commercial Code" means the Uniform Commercial Code of the State of
Oklahoma (12A O.S. Section 9-101 et. seq.), as amended from time to
time.
1.42 OTHER DEFINITIONAL PROVISIONS.
(a) All terms defined in this Agreement
shall have the above-defined meanings when used in the Note or any Loan
Document, certificate, report or other document made or delivered
pursuant to this Agreement, unless the context shall otherwise require.
(b) Unless otherwise specified herein,
all accounting terms shall be interpreted in accordance with GAAP.
(c) Defined terms used herein in the
singular shall include the plural and VICE VERSA.
6
<PAGE>
(d) The words "hereof", "herein",
"hereunder" and similar terms when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of
this Agreement.
2. LOAN TERMS. Subject to the terms and conditions
hereof and the terms and conditions of the Loan Documents, the Bank agrees to
extend credit to the Borrower, and the Borrower agrees to such extensions of
credit from the Bank, in the amount of the Maximum Commitment Amount, subject
to the limitations on advances contained herein, together with interest
thereon as described herein, which extensions of credit will be evidenced by
the Note and the Letters of Credit. These extensions of credits will be in the
form of a reducing revolving line of credit which shall be advanced, repaid
and readvanced from time to time in accordance with the terms and conditions
of this Agreement. All issued and outstanding Letters of Credit shall be
deemed advances made on the Note and shall be subject to the restrictions on
advances contained in Section 2.6 hereof. The Borrower shall use the proceeds
of the Note for the acquisition, exploration, development and operation of Oil
and Gas Properties and for working capital needs of the Borrower.
2.1 PRINCIPAL. On each Evaluation Date,
beginning July 1, 1998, the Bank shall establish the amount of the
Borrowing Base and the Monthly Commitment Reductions with respect to
the Loan for the period between said Evaluation Date and the next
Evaluation Date. The Borrowing Base and Monthly Commitment Reductions
shall be determined by Bank as provided in Sections 1.3 and 2.4 hereof.
The Borrowing Base and Monthly Commitment Reductions, if any, as
elected by the Borrower pursuant to Section 2.4 hereof shall be
effective on each Evaluation Date and shall continue until the next
succeeding Evaluation Date. The Bank will deliver to the Borrower
written notice of the amount of the applicable Borrowing Base amounts
and the proposed Monthly Commitment Reductions on each Evaluation Date.
Within five (5) days after an Evaluation Date, the Borrower will
deliver to the Bank written notice of Borrower's election of the
applicable Borrowing Base and Monthly Commitment Reductions, as
applicable, pursuant to Section 2.4 hereof. The outstanding principal
amount of the Note and all outstanding Letters of Credit shall not
exceed the Maximum Commitment Amount for the Loan during each such
period. Advances on the Note shall be made only in accordance with
Section 2.7 hereof and not in excess of the Maximum Commitment Amount.
2.2 INTEREST. With respect to any part of the
outstanding principal amount of the Note which is not a LIBOR Portion
as elected by the Borrower under Section 2.3 hereof, such outstanding
principal amount shall bear interest at a rate equal to the following
percentages in excess of the Base Rate as determined by the Bank based
upon the following Pricing Levels and the applicable ratio of the
average daily outstanding principal balance under the Note for the
preceding calendar quarter divided by the Maximum Commitment Amount as
of the last day of said preceding calendar quarter. The principal
amount outstanding under the Note which is accruing interest at the
Base Rate, plus applicable margin, shall bear interest per annum,
accrued from the date of disbursement, at the Base Rate, plus
applicable margin, in effect from day to day, with
7
<PAGE>
such floating interest rate to change on the effective date of any
change in the Base Rate without notice. With respect to any part of the
outstanding principal amount of the Note which is a LIBOR Portion, such
LIBOR Portion shall bear interest at a rate equal to the following
percentages in excess of the LIBOR Rate as determined by the Bank based
upon the following Pricing Levels and the applicable ratio of the
average daily outstanding principal balance under the Note for the
preceding calendar quarter divided by the Maximum Commitment Amount as
of the last day of said preceding calendar quarter. During any period
in which the Borrower has made such a LIBOR Rate election, the
principal amount of the LIBOR Portion shall bear interest per annum,
accrued from the date of any disbursement thereunder or accrued during
any LIBOR Interest Period as applicable, at a rate equal to the LIBOR
Rate, plus the applicable margin as described below. The interest rate
will be calculated on the basis of actual number of days elapsed, but
computed as if each calendar year consisted of a 365-day year.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
Average Outstanding
Principal
Pricing Balance/Maximum
Level Commitment Amount Base Rate LIBOR Rate
------- ----------------- --------- ----------
-----------------------------------------------------------------------------
<S> <C> <C> <C>
1 Equal to or greater than 75% Plus 0.50% Plus 3.25%
-----------------------------------------------------------------------------
2 Equal to or greater than 50%, but Plus 0.25% Plus 3.00%
less than 75%
-----------------------------------------------------------------------------
3 Less than 50% Plus 0.0% Plus 2.75%
-----------------------------------------------------------------------------
</TABLE>
Each election by the Borrower of the applicable interest rate
on the Note shall be made in accordance with Section 2.3 hereof.
2.3 RATE ELECTIONS. With respect to any part
of the outstanding principal amount of the Maximum Commitment Amount
not to exceed three separate LIBOR Portions, Borrower may elect a LIBOR
Rate, plus applicable margin, for such LIBOR Portion for a LIBOR
Interest Period. Borrower may make no such election during the
continuance of an Event of Default. Each election by Borrower shall:
(i) Be made by written notice to Bank
or by telephonic notice to Bank promptly confirmed in writing,
in the form and substance of the Rate Election, completed and
signed by an authorized representative of Borrower; and
(ii) Specify the election of the LIBOR
Rate, the amount of the LIBOR Portion and the first and last
days of the LIBOR Interest Period which is to apply thereto;
and
8
<PAGE>
(iii) Be received by Bank not later than
1:00 p.m., Oklahoma City, Oklahoma time, on the second
Business Day preceding the first day of the specified LIBOR
Interest Period.
Each Rate Election shall be irrevocable. Borrower may
make no Rate Election which does not specify the LIBOR Interest Period
complying with the definition of "LIBOR Interest Period" in Section 1.
Upon the termination of each LIBOR Interest Period, the LIBOR Portion
shall, unless the subject of a new Rate Election then taking effect,
automatically accrue interest at the Base Rate plus applicable margin.
2.4 NOTICE AND ELECTION OF BORROWING BASE AND
MONTHLY COMMITMENT REDUCTION ELECTIONS. On each Evaluation Date, the
Bank shall provide written notice to the Borrower of the amounts of the
proposed Borrowing Bases and Monthly Commitment Reductions as described
in Section 1.3 hereof. Borrower shall then elect the amount of the
Borrowing Base and associated Monthly Commitment Reductions which will
be applicable to the Loan. Such elections shall be made concurrently
with the signing of this Agreement and thereafter within five (5) days
of each Evaluation Date. After such election, the Maximum Commitment
Amount shall be reduced by the amount of the Monthly Commitment
Reduction, if any, as of the last day of each month throughout the
period beginning with said Evaluation Date and ending on the next
subsequent Evaluation Date.
Each notice by the Bank and election by Borrower
shall:
(i) Be made in the form and substance
of the "Borrowing Base and Monthly Commitment Reduction
Election" attached hereto as Exhibit "D", completed and signed
by an authorized representative of both the Bank and Borrower;
and
(ii) Specify the applicable Borrowing
Base and Monthly Commitment Reduction elected for the Loan for
the period.
Each Borrowing Base and Monthly Commitment Reduction
Election shall be irrevocable. If Borrower fails to make any such
election for the Loan, the Monthly Commitment Reduction shall continue
to be the monthly amount of the prior elected Monthly Commitment
Reduction. Such Monthly Commitment Reduction amount shall continue to
be used to calculate the Maximum Commitment Amount for the Loan until
Borrower provides another Monthly Commitment Reduction Election in the
manner stated above changing the amount of the Monthly Commitment
Reduction.
2.5 REPAYMENT. Payments of accrued interest on
the outstanding principal balance of the Note shall be due and payable
monthly, beginning on March 31, 1998, and continuing thereafter on the
last day of each and every month and at maturity. If the principal
amount outstanding on the Note and the amount of all outstanding
Letters of Credit exceed the Maximum Commitment Amount with respect to
the Loan on the last day of any month, the Borrower shall, within ten
(10) days of written notice from the
9
<PAGE>
Bank (i) make such principal payments as may be necessary to reduce
the outstanding principal amount the Note to the Maximum Commitment
Amount, or (ii) pledge additional collateral as security for the Loan
in amounts and condition as satisfactory to the Bank.
2.6 MATURITY DATE. The Note shall mature on
January 31, 2001, at which time all outstanding and unpaid principal
and all accrued and unpaid interest on the Note shall be immediately
due and payable.
2.7 ADVANCES. Advances under the Note (and
issuing Letters of Credit which shall be deemed advances under the
Note) will be made from time to time prior to the maturity date thereof
upon request of the Borrower, provided, however, the aggregate
principal amount at any one time outstanding on the Note and all
outstanding Letters of Credit shall not exceed the lesser of the (A)
Maximum Commitment Amount, or (B) the principal face amount of the
Note. All advances on the Note (or with respect to a Letter of Credit)
shall be made in accordance with this Agreement and the Bank shall not
be obligated to make any such advance if (i) an Event of Default shall
exist under this Agreement, or (ii) the amount of such advance and all
other such outstanding advances made by the Bank would exceed the
lesser of (A) or (B) above.
Borrower may request a cash advance under the Note
orally, but said oral request will be confirmed in writing. Borrower
must request an advance in the form of a Letter of Credit in writing.
All such requests (or confirmations) for advances in writing shall be
in a form consistent with Exhibit "C" attached hereto. Subject to the
limitations on advances contained above, the Bank shall deposit the
amount of such cash advance in one or more designated accounts
maintained at the Bank on the same business day as any written request
is received by 2:00 p.m. on such date, or on the next business day, if
such written request is received later than 2:00 p.m. Subject to the
limitations on advances contained above, the Bank may issue any Letter
of Credit within two business days of receipt of information relating
to such Letter of Credit that is satisfactory in all reasonable
respects to the Bank.
2.8 NONUSAGE FEES. Within five (5) days after
the end of each calendar quarter, the Borrower shall pay to the Bank a
fee equal to a percentage of the difference between the amount of the
Maximum Commitment Amount in effect during said quarter and the average
daily outstanding principal balance under the Note for said quarter,
with such percentage based upon the applicable ratio of the Borrower's
outstanding principal balance under the Note divided by the last
calculated Borrowing Base, as elected by Borrower.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Maximum Commitment Amount Less the Average
------------------------------------------
Outstanding Principal Balance Borrowing Base Nonusage Fee Percentage
-------------------------------------------- -----------------------
--------------------------------------------------------------------------------
<S> <C>
Equal to or greater than 75% 0.5%
--------------------------------------------------------------------------------
Equal to or greater than 50%, but less than 75% 0.5%
--------------------------------------------------------------------------------
Less than 50% 0.375%
--------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
2.9 LETTER OF CREDIT FEES. Prior to the
issuance of any Letter of Credit hereunder, the Borrower shall pay to
the Bank a fee equal to two percent (2%) per annum on the amount of the
Letter of Credit for the period such Letter of Credit shall be
outstanding, with a minimum fee on each Letter of Credit of $400.00.
Amendments to any outstanding Letter of Credit shall require a fee of
$60.00 per amendment, payable at the time of the amendment.
2.10 LOAN FEE. The Borrower shall pay to the
Bank a loan fee in the amount of $35,000.00, which such loan fee shall
be paid at closing.
3. PAYMENTS. The principal of and interest on the Note
shall be payable in lawful money of the United States of America, in immediately
available funds, at the office of the Bank in Oklahoma City, Oklahoma. All such
payments shall be made not later than the close of business of the Bank on the
date due, and funds received for principal payments on the Note after such time
on any day shall be treated for all purposes of this Agreement as having been
received on the next succeeding business day in Oklahoma City. If any payment
made by the Borrower under this Agreement or the Note is to be made on a
Saturday, Sunday or legal holiday in Oklahoma City, Oklahoma, such payment shall
be made on the next succeeding business day and such extension of time will in
such case be included in computing interest, if any, in connection with such
payment.
4. PREPAYMENT. Subject to Section 4.1 below, the
Borrower may prepay the Note, either in whole or in part on any date, without
premium or penalty, and any such prepayment shall be applied first to accrued
interest and then to principal. Any such prepayment shall not waive or defer any
scheduled monthly payment or the effects of any Monthly Commitment Reduction.
4.1 PREPAYMENT DURING LIBOR INTEREST PERIOD.
The Borrower hereby indemnifies Bank against, and shall reimburse Bank
upon demand for, any loss or expense incurred or sustained by Bank
(including without limitation any loss or expense incurred by reason of
the liquidation or reemployment of deposits or other funds of, or
acquired by, the Bank to fund or maintain any LIBOR Portion of the Loan
during a LIBOR Interest Period) as a result of any prepayment (whether
authorized or otherwise) of all or a portion of a LIBOR Portion of the
Loan on a day other than the day on which the applicable LIBOR Interest
Period ends for said LIBOR Portion.
5. DEFAULT INTEREST. If any Event of Default occurs
and is not cured within the applicable cure period described in the Loan
Documents, in lieu of the interest rate provided in the Note, all sums owing by
Borrower to the Bank in connection with the Loan shall bear interest at the rate
equal to five percent (5%) per annum in excess of the Base Rate, accrued from
the date after the applicable grace period to cure the Event of Default as is
provided for herein, to the date on which such Event of Default is cured to the
reasonable satisfaction of the Bank.
11
<PAGE>
6. COLLATERAL. Payment of the Note will be secured by
the following collateral security which shall be evidenced by the Loan
Documents:
6.1 MORTGAGES. A first and prior lien created
by mortgages, deeds of trust, assignments, security agreements and
financing statements, in form satisfactory to the Bank, covering the
Mortgaged Property, subject only to such encumbrances as might be
approved in writing by the Bank.
6.2 SECURITY INTEREST. A first and prior
security interest covering all of Borrower's respective interests in:
(a) all oil, gas, and other hydrocarbons and other minerals produced
from or allocated to the Mortgaged Property and all products processed
or obtained therefrom, the proceeds thereof, and all accounts,
contracts rights and general intangibles under which such proceeds may
arise; (b) all (whether now owned or hereafter acquired by operation of
law or otherwise) equipment, improvements, materials, supplies,
fixtures, goods and personal property of whatever nature now or
hereafter used, or held for use, in connection with the Mortgaged
Property (or in connection with the operation thereof or the treating,
handling, storing, transporting or marketing of oil, gas or other
minerals produced therefrom or allocated thereto), and all accessions
and appurtenances thereto and all renewals or replacements thereof or
substitutions therefor, (c) all contract rights, contractual rights and
other general intangibles related to the Mortgaged Property or to the
operation thereof or the treating, handling, storing, transporting or
marketing of oil, gas or other minerals produced therefrom or allocated
thereto, (d) all funds, accounts, instruments, documents, notes or
chattel paper of the Borrower arising from or by virtue of any
transactions related to the Borrower's interests in the Mortgaged
Property (all of the properties, rights and interests described in
parts (a), (b), (c) and (d) above being herein sometimes collectively
called the "Collateral"), and (e) all proceeds of the Collateral (the
Collateral, and the proceeds of the Collateral shall constitute a part
of the Mortgaged Property).
7. CONDITIONS PRECEDENT. The Bank shall have no
obligation to make the foregoing Loan until such time as the following
requirements have been satisfied:
7.1 LOAN DOCUMENTS. This Agreement, the Note
and all other Loan Documents shall have been duly executed,
acknowledged (where appropriate) and delivered to the Bank, all in form
and substance reasonably satisfactory to the Bank.
7.2 AUTHORITY. The Bank shall have received
certified copies of the Certificate of Incorporation and Bylaws of
Borrower, complete with all amendments thereto, a Certificate of Good
Standing from the State of Oklahoma, and copies of resolutions,
authorizations and other documents required to authorize the execution,
delivery and performance of this Agreement, the Note and the Loan
Documents by the Borrower, all in form and substance satisfactory to
the Bank.
7.3 TITLE INFORMATION. The Bank shall have
received and reviewed title information on at least ninety percent
(90%) of all of the Mortgaged Property, the results
12
<PAGE>
of which shall be satisfactory to the Bank and its legal counsel. Such
title information shall evidence Borrower's good and indefeasible title
to said Mortgaged Property, free and clear of all liens and
encumbrances except as may otherwise be approved in writing by the
Bank. Any objections to title which may be issued by the Bank shall be
cured prior to closing.
7.4 COLLATERAL REVIEW. The Bank shall have
received and reviewed such well files, title opinions, division orders,
material contracts and agreements and other information concerning the
Collateral that the Bank deems necessary to verify the Borrower's
respective title to and rights in the Collateral and the Bank shall
have determined, in its sole discretion, that such title and the
applicable interests of the Borrower thereto shall not be different
than those interests previously disclosed to the Bank and that the Bank
shall have a first Lien on the Mortgaged Property, except as to title
exceptions previously consented to by the Bank in writing.
7.5 OPINION OF COUNSEL. A favorable opinion of
legal counsel for Borrower, in such form as shall be acceptable to Bank
and Bank's counsel, shall have been delivered to the Bank, covering
such matters as: (i) the Borrower's due incorporation and qualification
under the laws of the State of Oklahoma, and good standing under the
laws of the State of Oklahoma; (ii) Borrower's authorization to enter
into this Agreement and the other Loan Documents, and that such
documents, when executed and delivered, will be the valid and binding
obligations of the Borrower enforceable according to their respective
terms, except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws or equitable principles
relating to or limiting creditor's rights generally; and (iii) that the
Loan Documents and other security documents evidencing the Liens of the
Bank, when recorded, will be valid liens against the Collateral and
that such documents will secure the payment and performance of the
Loans and other obligations of the Borrower to the Bank as described
herein.
7.6 INCUMBENCY CERTIFICATE. The Bank shall
have received a certificate of an officer of Borrower which shall
certify the names of the persons authorized to sign each of the Loan
Documents to be executed by such person and the other documents or
certificates to be delivered by such person pursuant to the Loan
Documents, together with the true signatures of each of such persons.
Bank may conclusively rely on the certificates until Bank shall receive
a further certificate of an officer of Borrower canceling or amending
the prior certificate and submitting the signatures of the persons
named in such further certificate.
7.7 EQUITY. The Bank shall have received
evidence satisfactory to the Bank that the shareholders of the Borrower
have contributed cash equity to the Borrower of an aggregate, minimum
amount of $1,000,000.00, and shall have received copies of all
documentation requested by the Bank evidencing the issuance of all
common and preferred stock (or any other equity instrument) all as
determined by the Bank in the Bank's sole discretion.
13
<PAGE>
7.8 BANKRUPTCY INFORMATION. The Bank shall
have received, reviewed and approved all orders, approvals, consents
and other such information as the Bank might reasonably require from
the United States Bankruptcy Court for the District of Kansas (In
re Petroleum Production Management, Inc. and Overland Resources
Management, Inc., Debtors, Case No. 97-20144 and Case No. 97-20143,
Chapter 11, the "Bankruptcy Case") relating to the acquisition of the
Oil and Gas Properties by the Borrower.
7.9 ASSIGNMENTS TO BORROWER. The Bank shall
have received, reviewed and approved all assignments of the Oil and Gas
Properties to the Borrower by the debtors in the Bankruptcy Case, such
assignments being free of liens and encumbrances of any kind as
described in the Bankruptcy Court approved orders, approvals and
consents in the Bankruptcy Case.
7.10 GAS IMBALANCE. The Bank shall have
received all information regarding material obligations or liabilities
on any contracts or agreements with respect to gas imbalances of the
Borrower with respect to the Oil and Gas Properties.
7.11 INSURANCE. The Borrower shall have
provided to the Bank, endorsements to all insurance policies of the
Borrower described in Sections 8.16 and 9.5 hereof, which endorsements
shall name the Bank as an additional insured.
7.12 EXPENSES. The Borrower shall have paid all
of the Bank's costs and expenses, including reasonable fees of legal
counsel, limited to an amount of $15,000.00, incurred in the
negotiation and preparation of the Loan Documents and in closing and
perfecting the rights of the Bank under the Loan Documents.
7.13 OTHER INFORMATION. The Bank shall have
received current financial statements of the Borrower, including a
balance sheet of the Borrower dated as of the date hereof, and such
other financial information as the Bank might reasonably require.
7.14 NO DEFAULT. No default shall have occurred
and be continuing under this Agreement or the Note.
7.15 REPRESENTATIONS AND WARRANTIES. All
representations and warranties contained herein shall be true and
correct.
8. REPRESENTATIONS AND WARRANTIES. To induce the Bank
to extend the Loan and enter into this Agreement, the Borrower represents and
warrants to the Bank during the term of the Note and any and all renewals and
extensions thereof, as follows:
8.1 EXISTENCE. The Borrower is duly organized,
validly existing, and in good standing under the laws of Oklahoma, and
is authorized to do business in all jurisdictions in which its
ownership of property and transaction of business legally requires such
authorization, and Borrower has full power, authority, and legal right
to own its property and transact business as presently transacted or
proposed to be transacted.
14
<PAGE>
8.2 AUTHORITY. The execution, delivery and
performance of the Loan Documents by the Borrower are within the powers
of the Borrower, have been duly authorized, are not in contravention of
law or the terms of the Borrower's certificate of incorporation or
other organization documents, or of any indenture, agreement or
undertaking to which the Borrower is a party or by which it is bound.
8.3 GOVERNMENTAL AUTHORIZATION. The execution,
delivery, and performance by the Borrower of this Agreement requires no
approval of or filing with any governmental authority.
8.4 BINDING EFFECT. This Agreement and the
Loan Documents, when duly executed and delivered, will constitute
legal, valid, and binding obligations of the Borrower, fully
enforceable in accordance with their respective terms, except as
enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws or equitable principles relating to or
limiting creditor's rights generally.
8.5 FINANCIAL CONDITION. Subject to any
limitations stated therein or in connection therewith, all balance
sheets, earnings statements, and other financial data which have been
or may hereafter be furnished to the Bank to induce the Bank to enter
into this Agreement or otherwise in connection herewith, do or shall
fairly represent the financial condition of the Borrower as of the
dates and the results of operations for the periods for which the same
are furnished, are, or shall be at the time the same are so furnished,
accurate and correct in all material respects and complete insofar as
completeness may be necessary to give the Bank a true and accurate
knowledge of the respective subject matter involved.
8.6 LITIGATION. There is no action, suit,
investigation or proceeding pending, or to the knowledge of the
Borrower threatened against the Borrower or any of the Mortgaged
Property, which would have a Material Adverse Effect on the Borrower or
the Bank's rights in the Mortgaged Property.
8.7 TAXES. The Borrower has filed all tax
returns which are required to be filed and has paid all taxes due
pursuant to such returns or pursuant to any assessment received by the
Borrower. This provision, however, does not preclude the Borrower from
filing proper extensions or protesting by proper procedure any tax,
assessment or penalty.
8.8 PERMITS. The Borrower has or has properly
applied for, or has properly applied for the transfer of, all licenses,
permits, certificates, consents and franchises in order to carry on its
business as now being conducted or as anticipated and to own or lease
and operate its properties as now owned, leased or operated or as
anticipated. All such licenses, permits, certificates, consents, and
franchises are valid and subsistent, and the Borrower is not in
violation thereof to the extent such violation would cause a Material
Adverse Effect.
15
<PAGE>
8.9 TITLE TO MORTGAGED PROPERTY AND NO LIENS.
All of the Mortgaged Property is free and clear of all Liens, other
than Permitted Liens, and Borrower has good and defensible title to
such Mortgaged Property.
8.10 FULL DISCLOSURE. Except as otherwise
disclosed to Bank in writing prior to the execution of this Agreement,
there is no material fact that Borrower has not disclosed to Bank which
could have a Material Adverse Effect on the properties, business,
prospects or condition (financial or otherwise) of Borrower. Neither
the financial statements referenced herein, nor any certificate or
statement delivered herewith or heretofore by Borrower to Bank in
connection with the negotiations of this Agreement, contains any untrue
statement of a material fact or omits to state any material fact
necessary to keep the statements contained herein or therein from being
misleading which would have a Material Adverse Effect.
8.11 USE OF PROCEEDS: MARGIN STOCK. The
proceeds of the Loans will be used by Borrower solely for the purposes
described herein. None of such proceeds will be used for the purpose of
purchasing or carrying any "margin stock" as defined in Regulation U or
Regulation X, or for the purpose of reducing or retiring any Debt which
was originally incurred to purchase or carry a margin stock or for any
other purpose which might constitute this transaction a "purpose
credit" within the meaning of such Regulation U or Regulation X.
Borrower is not engaged in the business of extending credit for the
purpose of purchasing or carrying margin stocks. Borrower has not taken
or will not take any action which might cause the Note or any of the
other Loan Documents, including this Agreement, to violate Regulation U
or Regulation X, or any other regulations of the Board of Governors of
the Federal Reserve System or to violate Section 8 of the Securities
Exchange Act of 1934 or any rule or regulation thereunder, in each case
as now in effect or as the same may hereinafter be in effect. Borrower
does not own margin stock.
8.12 PRINCIPAL OFFICE; ETC. The principal
office, chief executive office and principal place of business of
Borrower is One Benham Place, Suite 600, 9400 N. Broadway, Oklahoma
City, Oklahoma, 73114. Borrower maintains its principal records and
books at such address.
8.13 ERISA. Borrower is in compliance with all
ERISA requirements and interpretations with respect to any employee
benefit plan of the Borrower and have not incurred any liability to
PBGC with respect to any such plan.
8.14 COMPLIANCE WITH LAW. Borrower is not in
violation of any law, rule, regulation, order or decree which is
applicable to Borrower or its properties the result of which could have
a Material Adverse Effect.
8.15 CASUALTIES. Neither the business nor the
properties of Borrower are currently affected by any environmental
hazard, fire, explosion, accident, strike, lockout or other labor
dispute, drought, storm, hail, earthquake, embargo, act of God or
other
16
<PAGE>
casualty (whether or not covered by insurance), which could have a
Material Adverse Effect.
8.16 INSURANCE. The Mortgaged Property is
insured in accordance with the coverage set forth in Exhibit "E"
hereto, with the Bank as an additional insured to the extent of its
interest therein. There has been no receipt of any notice from any
insurer indicating that coverage or premium rates will be materially
changed in the future with respect to the Mortgaged Property or
indicating that the Mortgaged Property may not qualify for continued
coverage with respect to any such insurance. Borrower is in full
compliance with all such insurance contracts and the same are in full
force and effect and are enforceable in accordance with their terms.
8.17 HAZARDOUS SUBSTANCES. To the best of
Borrower's knowledge, all environmental permits, certificates,
licenses, approvals, registrations and authorizations required under
all Environmental Laws in connection with the business of Borrower have
been obtained. No unremedied notice, citation, summons or order has
been issued, no unremedied complaint has been filed, no unremedied
penalty has been assessed and, to the best of Borrower's knowledge, no
investigation or review is pending or threatened by any governmental
entity with respect to any generation, treatment, storage, recycling;
transportation or disposal of any hazardous or toxic or polluting
substance or waste (including petroleum products and radioactive
materials) generated or used ("Hazardous Substances") by Borrower which
would have a Material Adverse Effect.
8.18 GAS IMBALANCE. The Borrower has no
material obligations or liabilities on any contracts or agreements with
respect to gas imbalances or other matters where the Borrower's oil end
gas production will be substantially curtailed from the levels of
production previously experienced.
8.19 NO EVENT OF DEFAULT. No Event of Default
has occurred and is continuing.
8.20 SURVIVAL OF REPRESENTATIONS. All of the
representations and warranties made by the Borrower herein will survive
the delivery of the Loan Documents and any renewal and extension of the
Loan hereunder. All statements contained in any certificate or other
instrument delivered by or on behalf of the Borrower under or pursuant
to this Agreement or in connection with the transactions contemplated
hereby shall constitute representations and warranties made by the
Borrower hereunder as applicable.
9. COVENANTS OF BORROWER. Until the payment in full of
the Note, unless the Bank otherwise consents in writing, the Borrower will
perform, or cause to be performed, the following agreements:
9.1 INFORMATION. The Borrower will furnish to
the Bank all information which the Bank might reasonably
request concerning the assets, properties and liabilities and
the financial status of the Borrower.
17
<PAGE>
9.2 FINANCIAL INFORMATION AND REPORTING.
9.2.1 AUDITED ANNUAL FINANCIAL STATEMENTS.
For the year ending December 31, 1998, and annually
thereafter, Borrower will furnish to Bank, within one
hundred-twenty (120) days after the close of such year,
complete copies of Borrower's audited annual financial
statements, including balance sheet, income statement and
statement of cash flow with accompanying notes and schedules,
as of the close of such year, audited by accountants
acceptable to the Bank and in form satisfactory to the Bank in
accordance with GAAP applied on a consistent basis. All such
audited financial statements shall be unqualified.
9.2.2 QUARTERLY STATEMENTS AND COMPLIANCE
CERTIFICATE. Borrower will furnish to the Bank, within
forty-five (45) days following the end of each calendar
quarter, complete copies of its quarterly financial
statements prepared by Borrower, in accordance with GAAP
(or in another manner acceptable to Bank) consistently
applied and true and correct in all material respects. At
the same time, Borrower will certify to the Bank, in a
written certificate in the form of Exhibit "F" hereto and
signed by the Borrower, that no Event of Default has
occurred and is continuing, and that no event or condition
exists which might become an Event of Default with the
lapse of time. If any certificate describes such an Event
of Default or other condition, the Borrower shall also
describe in detail the steps or actions being taken to cure
or rectify said Event of Default or condition.
9.2.3 SEMI-ANNUAL REPORTS. The Borrower
will furnish to the Bank, within thirty (30) days after the
end of each semi-annual calendar period, beginning with the
period ending June 30, 1998, complete copies of reports of
revenue and expenses from all Borrower's Oil and Gas
Properties, in form reasonably satisfactory to the Bank and
true and correct in all material respects.
9.2.4 SEMI-ANNUAL ENGINEERING REPORT. No
later than June 1 and December 1 of each year throughout the
term of this Agreement, the Borrower will furnish to the Bank
an engineering evaluation report dated effective as of the
first day of the following month and prepared by an
independent petroleum consultant reasonably acceptable to the
Bank covering all of the Mortgaged Property. All engineering
parameters and assumptions, including without limitation
pricing, production and discount assumptions, shall be
acceptable to the Bank and shall be consistent with those used
by Bank at the time of report with respect to other similar
credits. The evaluation reports shall be prepared in form and
substance satisfactory to the Bank. The evaluation reports
shall be used to determine the adequacy of the Mortgaged
Property as collateral. The Bank reserves the right to
prepare, or have prepared, an engineering evaluation of any
additional Oil and Gas Properties which may become Mortgaged
Property and utilize the results to determine collateral
adequacy.
18
<PAGE>
9.2.5 OTHER FINANCIAL INFORMATION. The
Borrower shall also furnish to the Bank such other information
concerning the financial affairs of the Borrower as the Bank
might reasonably request.
9.3 EXISTENCE. The Borrower shall take all
necessary actions to preserve the existence of Borrower and its right
to do business in all applicable jurisdictions; to obtain and maintain
for the Borrower all necessary governmental approvals, consents,
permits, licenses and certificates; to comply with all valid and
applicable statutes, laws, rules and regulations; and to continue to
conduct its business in substantially the same manner as such business
is now conducted.
9.4 TAXES. All taxes, assessments,
governmental charges and levies imposed on the Borrower and its assets,
properties, income and profits will be paid prior to the date on which
penalties attach thereto, except for those being contested in good
faith by appropriate proceedings.
9.5 INSURANCE. The Borrower shall maintain
policies of insurance on all of its assets and operations with
companies, in amounts and against risks as are acceptable to the Bank
and consistent with the coverages described in Exhibit "E" hereto. Upon
request of the Bank, the Bank will be furnished copies of all such
insurance in effect and proof of premium payment. The Borrower shall
add the Bank as an additional named insured to such policies.
9.6 RECORDS. The Borrower shall maintain
accurate books and records of its assets, properties, income, profits,
expenses and liabilities and the Bank shall have the continuing right,
upon reasonable notice, to inspect such books and records and make
copies thereof.
9.7 MANAGEMENT. The Borrower shall not make a
material change in the management of Borrower from that in effect on
the date of this Agreement. For purposes hereof, management shall
consist of Ken L. Kenworthy, Jr. as a director and Chief Executive
Officer, Fred W. Standefer as a director and President, and Ken L.
Kenworthy, Sr., as a director and Chief Financial Officer.
9.8 LITIGATION. The Borrower shall notify the
Bank of any action, suit, investigation or proceeding pending or
threatened against the Borrower, and any other contingent liability of
the Borrower, which may cause a Material Adverse Effect.
9.9 SALE OF ASSETS. The Borrower will not
sell, lease, exchange or transfer title to any or all of the Mortgaged
Property or other material assets of the Borrower, except for any such
sales, leases, exchanges or transfers in an aggregate amount of no more
than $500,000.00, provided (i) the proceeds of such transactions are
paid to the Bank and applied to the Note and (ii) the Borrowing Base is
correspondingly reduced until the next Evaluation Date by an amount
equal to the loan amount of the properties sold, leased exchanged or
transferred as determined by the Bank.
19
<PAGE>
9.10 ENCUMBRANCES. The Borrower will not create
or suffer to exist any mortgage, security interest, security agreement,
pledge, lien, charge, encumbrance, assignment or transfer upon any of
the Mortgaged Property, except for those that may be hereafter granted
in favor of the Bank and the Permitted Liens. No shareholder of the
Borrower shall have any lien, encumbrance, interest or other right with
respect to any of the assets or properties of the Borrower which would
be prior or superior to the rights of the Bank under the Loan
Documents.
9.11 NEGATIVE PLEDGE. The Borrower will not
create or suffer to exist any mortgage, security interest, security
agreement, pledge, lien, charge, encumbrance, assignment or transfer
upon any of the Oil and Gas Properties, whether now owned or hereafter
acquired by the Borrower, other than Permitted Liens. The Borrower
shall provide the Bank with a complete list of all said Oil and Gas
Properties and other assets upon request of the Bank.
9.12 LIQUIDATION, MERGER, CONSOLIDATION.
Borrower will not liquidate, dissolve or discontinue its normal
operations with an intention to liquidate, dissolve or discontinue and
will not merge or consolidate with any corporation, firm or partnership
unless the Borrower is the surviving entity and no Event of Default
would then exist or result therefrom.
9.13 DIVIDENDS. BONUSES AND DISTRIBUTIONS.
Borrower shall not declare or pay any dividends, bonuses, distributions
or payments, either in cash or property to the shareholders of
Borrower, provided, however, the Borrower may pay reasonable and
customary salaries to officers of the Borrower in the ordinary course
of the Borrower's business.
9.14 REDEMPTIONS. Borrower shall not redeem,
retire, purchase or repurchase any shares of stock of the Borrower,
except with respect to any redemption of the Borrower's Series B
Preferred Stock in accordance with the terms and conditions of such
redemption as set forth in the Letter Agreements dated January 26,
1998, among the Borrower, Petroleum Production Management, Inc.,
Overland Resources Management, Inc. and Endowment Energy Partners,
L.P., and only if such redemption occurs at a time when no Event of
Default exists or results therefrom.
9.15 ADDITIONAL DEBT. Borrower shall not
create, incur, contract, waive, assume, have outstanding, guarantee or
otherwise be or become, directly or indirectly, liable in respect of
any Debt, except Permitted Debt.
9.16 INVESTMENTS. Borrower shall not, directly
or indirectly, acquire, purchase, establish or otherwise assume the
ownership or control of any business, company, partnership, entity,
person or subsidiary, or acquire substantially all of the assets or
liabilities of any business, company, partnership, entity, person or
subsidiary, provided, however, the Borrower may make such acquisitions
of businesses conducting the same
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lines of business as the Borrower and if no Event of Default would then
exist or result therefrom.
9.17 ENVIRONMENTAL LAWS. The Borrower will not
knowingly cause any violation of applicable Environmental Laws, nor
permit any environmental lien to be placed on any portion of its
properties.
9.18 OWNERSHIP. The ownership of Borrower shall
not change during the term of this Agreement.
9.19 CURRENT RATIO. Borrower will not permit
its ratio of Current Assets (including for this purpose the unused
portion of the Maximum Commitment Amount) to (ii) Current Liabilities
(excluding the amounts of current maturities of the Maximum Commitment
Amount in the next twelve months) to be less than 1.0 to 1.0 as
determined at the end of each calendar quarter beginning with the
calendar quarter ending June 30, 1998.
9.20 DEBT COVERAGE RATIO. Borrower shall not
permit the Debt Coverage Ratio to be less than (i) 1.0 to 1.0 as
determined at the end of the calendar quarter ending June 30, 1998, and
(ii) 1.1 to 1.0 as determined at the end of each subsequent calendar
quarter.
9.21 TANGIBLE NET WORTH. Borrower shall not
permit its Tangible Net Worth to be less than the sum of (i)
$800,000.00, (ii) seventy-five percent (75%) of the Borrower's Net
Income for each calendar quarter after the date hereof, and (iii) all
proceeds of any additional equity offering of the Borrower after the
date hereof. Borrower's Tangible Net Worth shall be determined as of
the end of each calendar quarter beginning with the calendar quarter
ending June 30, 1998.
9.22 CAPITAL EXPENDITURES. Borrower shall not
incur or expend, directly or indirectly, for any amount or amounts of
capital expenditures (as determined by GAAP) which would be in excess
of $100,000.00 in the aggregate for each fiscal year of the Borrower,
provided, however, such capital expenditure limitation does not apply
to amounts of capital expenditures which are made directly with respect
to the operation and development of the Oil and Gas Properties.
9.23 OPERATING LEASES. Borrower shall not incur
or expend, directly or indirectly, for any amount or amounts of
operating lease expenses (as determined by GAAP) which would be in
excess of $100,000.00 in the aggregate for each fiscal year of the
Borrower, provided, however, such operating lease expense limitation
does not apply to amounts of operating leases expenses which are made
directly with respect to the operation and development of the Oil and
Gas Properties.
9.24 AFFILIATE TRANSACTIONS. Borrower will not,
directly or indirectly, enter into any transaction (including, but not
limited to, the sale or exchange of property or the rendering of
services other than services rendered as an employee or officer of the
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Borrower) with any officer, director, shareholder, subsidiary, parent
corporation or other affiliate, or any entity owned or controlled by
any such officer, director, shareholder, subsidiary, parent corporation
or other affiliate, other than upon fair and reasonable terms no less
favorable than such Borrower could obtain in an arm's-length
transaction with another person not an affiliate and does not involve
the grant or attachment of alien by the Borrower in favor of such
party. Notwithstanding the above, the Borrower shall not pay any
management fees of any kind to any affiliate.
9.25 LOANS. The Borrower will not loan or
advance any funds or other property to any officer, director,
shareholder, subsidiary, parent corporation or any third party, or any
entity owned or controlled by any such officer, director, shareholder,
subsidiary or parent corporation.
9.26 EQUITY OFFERINGS. The Borrower shall cause
all of the net proceeds of any sale of stock or other disposition of
equity interests in the Borrower to be paid to the Bank and applied to
Loan. All such sales and dispositions shall be for cash.
9.27 CHANGE OF BUSINESS. The Borrower shall not
change or otherwise discontinue its primary lines of business from that
existing on the date hereof.
9.28 HEDGING. The Borrower shall not enter
into, or agree to enter into, any hedging transaction involving the Oil
and Gas Properties.
9.29 AUTHORIZATIONS AND APPROVALS. Borrower
shall promptly obtain, from time to time at its own expense, all such
governmental licenses, authorizations, consents, permits and approvals
which may be required or necessary in the Borrower's business or with
respect to its assets and properties if the failure to obtain the same
could have a Material Adverse Effect.
9.30 ERISA COMPLIANCE. Borrower shall (i) at
all times, make prompt payment of all contributions required under all
employee benefit plans and as required to meet the minimum funding
standard set forth in ERISA with respect to its plans, (ii) notify Bank
immediately of any fact, including, but not limited to, any reportable
event arising in connection with any of its plans, which might
constitute grounds for termination thereof by the PBGC or for the
appointment by the appropriate United States District Court of a
trustee to administer such plan, together with a statement, if
requested by Bank, as to the reason therefor and the action, if any,
proposed to be taken with respect thereto, and (iii) furnish to Bank,
upon its request, such additional information concerning any of their
plans as may be reasonably requested.
9.31 BANKING ACCOUNTS. Borrower will establish
and maintain all of its general operating banking accounts with the
Bank and shall establish such control and administrative devices with
respect to such accounts as the Bank may reasonably request.
9.32 MAINTENANCE OF COLLATERAL. Borrower will
do all things necessary to maintain, preserve, protect and keep all the
Mortgaged Property in good condition, and
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make all necessary and proper repairs, renewals and replacements
thereto so that the business anticipated by the Borrower through the
ownership, operation or use of the Mortgaged Property can be performed
and conducted at all times.
9.33 ADDITIONAL COVENANTS. Borrower and Bank
may from time to time hereafter agree to modifications to existing
covenants or additional covenants with respect to the Loan and this
Agreement, which covenants shall be in writing and shall be attached
hereto as Exhibit "G" and form a part of this Agreement for all
purposes.
10. EVENTS OF DEFAULT. The Bank may declare the Note
and all other indebtedness and obligations of the Borrower owing to the Bank
to be due and payable, or exercise any other right or remedy available to the
Bank, if any of the following events ("Events of Default") shall occur and
shall not have been timely cured or waived by the Bank as provided in Section
11 hereof:
10.1 NONPAYMENT OF NOTE. Default in payment of
any interest on or principal of the Note for a period in excess of ten
(10) days after the date such payment is due; or
10.2 OTHER NONPAYMENT. Default in payment of
any other amount payable to the Bank under the terms of this Agreement
or any other Loan Document for a period in excess of ten (10) days
after the date such payment is due; or
10.3 BREACH OF AGREEMENT. Default by the
Borrower in the performance or observance of any agreement contained in
this Agreement, the Loan Documents or under the terms of any other
instrument delivered to the Bank in connection with this Agreement,
provided, however, the Borrower shall have thirty (30) days to cure any
default under Sections 9.19, 9.20 or 9.21 hereof; or
10.4 REPRESENTATIONS AND WARRANTIES. Any
representation, warranty, statement, certificate, schedule or report
made or furnished to the Bank on behalf of the Borrower proves to be
false or erroneous in any material respect at the time of the making
thereof; or
10.5 INSOLVENCY. The Borrower shall: (i) apply
for or consent to the appointment of a receiver, trustee or liquidator
of the Borrower or any of its properties; (ii) admit in writing its
inability to pay debts as they mature; (iii) make a general assignment
for the benefit of creditors; or (iv) any material part of the assets
or property of the Borrower shall be placed in the hands of a receiver,
trustee or other officers or representatives of a court or of
creditors; or
10.6 VOLUNTARY BANKRUPTCY. The Borrower shall be
adjudged bankrupt or any voluntary proceeding shall be instituted by
the Borrower in insolvency or bankruptcy or for readjustment, extension
or composition of debts or for any other relief of debtors; or
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10.7 INVOLUNTARY BANKRUPTCY. Any involuntary
proceeding shall be instituted against the Borrower in insolvency or
for readjustment, extension, or composition of debts; or
10.8 CREDITOR'S PROCEEDINGS. Entry by any court
of a final judgment against the Borrower or the institution of any
levy, attachment, garnishment or charging order against the Borrower
which materially and adversely effects the repayment of the Loan
described herein.
11. REMEDIES. Upon the occurrence of any Event of
Default, which has not been timely cured pursuant to Section 10 above, the
Bank may, at its option:
11.1 ACCELERATION OF NOTE. Declare the Note and
all sums outstanding pursuant to the Loan Documents to be immediately
due and payable, whereupon the same will be forthwith due and payable,
and the Bank will be entitled to proceed to selectively and
successively enforce the Bank's rights under the Loan Documents or any
other instrument delivered to the Bank in connection with this
Agreement.
11.2 ACCELERATE OTHER INDEBTEDNESS. The Bank may
declare all other indebtedness and obligations of the Borrower owing to
the Bank to be immediately due and payable.
11.3 EXERCISE OTHER RIGHTS. The Bank may (i)
terminate any of the Bank's obligations hereunder, including the
obligation to make any advance, (ii) reduce any claim to judgment,
(iii) exercise any right of offset including the Set-Off as provided in
Section 11.4 hereof, (iv) without notice of default or demand except as
otherwise provided herein, pursue and enforce any of the Bank's rights
and remedies under the Loan Documents, or otherwise provided under or
pursuant to any applicable law or agreement, provided, however, that if
any Event of Default specified in Sections 10.6 or 10.7 shall occur,
the Loan shall thereupon become due and payable concurrently therewith,
without any further action by the Bank and without presentment, demand,
protest, notice of default, notice of acceleration or of intention to
accelerate or other notice of any kind, all of which Borrower hereby
expressly waives, or (v) exercise any other remedy at law or in equity.
11.4 RIGHT OF SET-OFF. Borrower hereby grants
to Bank the right of set-off ("Set-Off") without notice or demand to or
upon Borrower, (any such notice and/or demand being hereby waived by
Borrower) to secure repayment of the Loan, regardless of whether Bank
shall have made any demand therefor and whether all or any part of the
Loan is or may be unmatured, upon any and all moneys, securities or
other property of Borrower and the proceeds therefrom, now or hereafter
held or received by or in transit to Bank, or any of its agents, from
or for the account of Borrower, whether for safe keeping, custody,
pledge, transmission, collection or otherwise, and also upon any and
all deposits (general or special) and credits of Borrower, and any and
all claims of
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Borrower against Bank at any time existing. Excluded from Set-Off are
accounts properly designating third parties as beneficial owners of
funds held in the accounts.
11.5 CROSS-DEFAULT. A default by Borrower in
this Agreement, the Note or any of the Loan Documents shall constitute
a default under all such agreements and obligations.
11.6 WAIVER OF DEFAULT. By an instrument in
writing, the Bank may waive any Event of Default which shall have
occurred and any of the consequences of such Event of Default, and, in
such event, the Bank and the Borrower will be restored to their
respective former positions, rights and obligations hereunder. Any
Event of Default so waived will for all purposes of this Agreement be
deemed to have been cured and not to be continuing; but no such waiver
will extend to any subsequent or other Event of Default or impair any
consequence of such subsequent or other Event of Default.
12. GENERAL CONDITIONS. The following conditions shall
be applicable throughout the term of this Agreement:
12.1 STRICT COMPLIANCE. If any action or
failure to act by Borrower violates any covenant or obligation of
Borrower contained herein, then such violation shall not be excused by
the fact that such action or failure to act would otherwise be required
or permitted by any covenant (or exception to any covenant) other than
the covenant violated.
12.2 PARTICIPATIONS IN LOAN AND NOTE. Bank may
sell participations in all or any part of the Loan made by it to one or
more banks or other entities. Bank may furnish any information
concerning Borrower in the possession of Bank from time to time to
participants (including prospective participants). Bank may provide to
its participants on a timely basis copies of all financial statements
and other documents furnished to it under the provisions of Section 9.
Bank shall use reasonable efforts to notify Borrower of the identity of
the purchaser and amount of any participation, but failure to give said
notice shall have no effect on the participation, this Agreement or the
other Loan Documents.
12.3 WAIVER: MODIFICATION. No failure to
exercise, and no delay in exercising, on the part of Bank, any right
hereunder or under any Loan Document shall operate as a waiver thereof,
nor shall any single or partial exercise thereof preclude any other
or further exercise thereof or the exercise of any other right. The
rights of Bank hereunder and under the Loan Documents shall be in
addition to all other rights provided by law. No modification or waiver
of any provision of this Agreement, the Note or any Loan Documents, nor
consent to departure therefrom, shall be effective unless in writing
and no such consent or waiver shall extend beyond the particular case
and purpose involved. No notice or demand given in any case shall
constitute a waiver of the right to take other action in the same,
similar or other instances without such notice or demand.
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12.4 NOTICES. Any notices or other
communications required or permitted to be given by this Agreement or
any other documents and instruments referred to herein must be (i)
given in writing (the references to "in writing" elsewhere in this
Agreement are for emphasis and are not a way of limitation of the
generality of the requirement that notices or other communications
shall be in writing), and (ii) be personally delivered or mailed by
prepaid mail or overnight courier, or by telex or telecopy delivered or
transmitted to the party to whom such notice or communication is
directed, to the address of such party as follows:
To Borrower: GMX RESOURCES INC.
One Benham Place, Suite 600
9400 N. Broadway
Oklahoma. City, Oklahoma 73114
Attn: Ken L. Kenworthy, Jr.
To Bank: BANK ONE, OKLAHOMA, N.A.
100 N. Broadway
Oklahoma City, Oklahoma 73102
Attn: James R. Karcher, Senior Vice President
Any such notice or other communication shall be deemed to have been given on
the day three days after it is mailed by prepaid certified or registered mail,
one working day after sent by over night courier, or on the day it is
personally delivered as aforesaid or, if transmitted by telex or telecopy or
fax machine, on the working day that such notice is transmitted as aforesaid,
and otherwise when actually received. Any party may, for purposes of the Loan
Documents, change its address, telex number, fax number or the person to whom
a notice or other communication is marked to the attention of, by giving
notice of such change to the other parties pursuant hereto.
12.5 GOVERNING LAW. This Agreement has been
prepared, is being executed and delivered in the State of Oklahoma, and
the substantive laws of such state and the applicable federal laws of
the United States of America shall govern the validity, construction,
enforcement and interpretation of this Agreement and all of the Loan
Documents, except as otherwise may be provided for in the respective
Loan Documents.
12.6 CHOICE OF FORUM. Any suit, action or
proceeding against Borrower with respect to this Agreement, the Note or
any Loan Documents or any judgment entered by any court in respect
thereof, may be brought in the courts of the State of Oklahoma,
County of Oklahoma, or in the United States courts located in Oklahoma
County, State of Oklahoma as Bank in its sole discretion may elect and
Borrower hereby submits to the non-exclusive jurisdiction of such
courts for the purpose of any such suit, action or proceeding. Borrower
hereby irrevocably waives any objections which Borrower may now or
hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or any Loan Document
brought in the courts located in the State of Oklahoma, County of
Oklahoma, and hereby further irrevocably waives any
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claim that any such suit, action or proceeding brought in any such
court has been brought in an inconvenient forum.
12.7 INVALID PROVISIONS. If any provision of
any Loan Document is held to be illegal, invalid or unenforceable under
present or future laws during the term of this Agreement, such
provision shall be fully severable; such Loan Document shall be
construed and enforced as if such illegal, invalid or unenforceable
provision had never comprised a part of such Loan Document; and the
remaining provisions of such Loan Document shall remain in full force
and effect and shall not be affected by the illegal, invalid or
unenforceable provisions or by its severance from such Loan Document.
Furthermore, in lieu of each such illegal, invalid or unenforceable
provision there shall be added as part of such Loan Document a
provision mutually agreeable to Borrower and Bank as similar in terms
to such illegal, invalid or unenforceable provisions as may be possible
and still be legal, valid and enforceable.
12.8 NONLIABILITY OF BANK. The relationship
between Borrower and Bank is, and shall at all times remain, solely
that of borrower and lender, and Bank neither undertakes nor assumes
any responsibility or duty to Borrower to review, inspect, supervise,
pass judgment upon, or inform Borrower of any matter in connection with
any phase of Borrower's business, operations, or condition, financial
or otherwise. Borrower shall rely entirely upon their own judgment with
respect to such matters, and any review, inspection, supervision,
exercise of judgment, or information supplied to Borrower by Bank in
connection with any such matter is for the protection of Bank, and
neither Borrower nor any third party are entitled to rely thereon.
12.9 BINDING EFFECT. The Loan Documents shall
be binding upon and inure to the benefit of Borrower and Bank and their
respective successors, assigns and legal representatives; provided,
however, that Borrower may not, without the prior written consent of
Bank, assign any rights, powers, duties or obligations thereunder.
12.10 HEADINGS. Section headings are for
convenience of reference only and shall in no way affect the
interpretation of this Agreement.
12.11 NO THIRD-PARTY BENEFICIARY. The parties do
not intend the benefits of this Agreement to inure to any third party,
nor shall this Agreement be construed to make or render Bank liable to
any materialman, supplier, contractor, subcontractor, purchaser or
lessee of any property owned by Borrower, or for debts or claims
accruing to any such persons against Borrower. Notwithstanding anything
contained herein or in the Note or in any other Loan Document, or any
conduct or course of conduct by any or all of the parties hereto,
before or after signing this Agreement or any other Loan Document,
shall be construed as creating any right, claim or cause of action
against Bank, or any of its officers, directors, agents or employees,
in favor of any materialman, supplier, contractor, subcontractor,
purchaser or lessee of any property owned by Borrower, nor to any other
person or entity.
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12.12 MULTIPLE COUNTERPARTS. This Agreement may
be executed in any number of counterparts, all of which taken together
shall constitute one and the same agreement, and any of the parties
hereto may execute this Agreement by signing any such counterpart.
12.13 CONTRARY PROVISIONS. The terms and
conditions of this Agreement shall govern and control any and all
contrary provisions of the other Loan Documents.
12.14 NO ORAL AGREEMENTS. THIS WRITTEN LOAN
AGREEMENT REPRESENTS 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 UNWRITTEN ORAL
AGREEMENTS OF THE PARTIES.
12.15 USURY. Under no circumstances (and
notwithstanding any other provision of this Agreement, the Note or any
other Loan Document) shall the interest charged, collected, or
contracted for on this Agreement, the Note or any other Loan Document
exceed the maximum rate permitted by applicable law. If any part of
this Agreement or the Note cannot be enforced, this fact will not
affect the rest of this Agreement or the Note, as applicable. In
particular, this section means (among other things) that Borrower does
not agree or intend to pay, and Lender does not agree or intend to
contract for, charge, collect, take, reserve or receive (collectively
referred to herein as "charge or collect"), any amount in the nature of
interest or in the nature of a fee for the Loans, which would in any
way or event (including demand, prepayment, or acceleration) cause Bank
to charge or collect more for the Loans than the maximum Bank would be
permitted to charge or collect by federal law or the law of the State
of Oklahoma. Any such excess interest or unauthorized fee shall,
instead of anything stated to the contrary, be applied first to reduce
the principal balance of the Loans and when the principal has been paid
in full, be refunded to Borrower. The right to accelerate maturity of
sums due under this Agreement or the Note does not include the right to
accelerate any interest which has not otherwise accrued on the date of
such acceleration, and Bank does not intend to charge or collect any
unearned interest in the event of acceleration. All sums paid or agreed
to be paid to Bank for the use, forbearance or detention of sums due
hereunder shall, to the extent permitted by applicable law, be
amortized, prorated, allocated and spread throughout the full term of
the Loans evidenced by this Agreement and the Note until payment in
full so that the rate or amount of interest on account of the Loans
evidenced hereby does not exceed the applicable usury ceiling. Bank may
delay or forgo enforcing any of its rights or remedies under this
Agreement, the Note or any other Loan Document without losing them.
12.16 ENVIRONMENTAL INDEMNIFICATION. Except with
respect to any act or omission of the Bank, the Borrower indemnifies
and agrees to hold the Bank harmless from all claims, demands, costs,
expenses, liabilities and obligations of any kind with respect to any
actual or threatened violation of any environmental law, rule or
regulation, any clean-up or remediation costs or any other such damages
with respect to any of the Oil and Gas Properties.
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IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement effective as of the day and year first above written.
"BORROWER" GMX RESOURCES INC.,
an Oklahoma corporation
By: /s/ Ken L. Kenworthy, Jr.
-----------------------------------------
Ken L. Kenworthy, Jr.
Chief Executive Officer
"BANK" BANK ONE, OKLAHOMA, N.A.,
a national banking association
By: /s/ James R. Karcher
-----------------------------------------
James R. Karcher,
Senior Vice President
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FIRST AMENDMENT TO CREDIT AGREEMENT BY AND
BETWEEN GMX RESOURCES INC.
AND BANK ONE, OKLAHOMA, N.A.
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (the "Amendment") is
executed as of this 19th day of May, 1999 by and between GMX RESOURCES INC.,
an Oklahoma corporation (the "Borrower") and BANK ONE, OKLAHOMA, N.A. (the
"Bank").
W I T N E S S E T H:
WHEREAS, on February 18, 1998 Borrower and Bank entered into that
certain Credit Agreement (the "Agreement") whereby Bank provided Borrower with
a revolving line of credit in an amount governed by a Borrowing Base which
shall not exceed $20,000,000.00, as evidenced by reducing revolving promissory
note with a stated like amount of even date with the Original Agreement (the
"Original Note").
WHEREAS, the obligations described in the Agreement are secured by,
among other things not specifically set forth herein, certain oil and gas
properties and other properties as set forth in the Agreement; and
WHEREAS, all capitalized terms not otherwise defined herein shall
have those meanings assigned to such terms in the Agreement;
WHEREAS, Borrower and Bank desire to amend the Agreement for the
first time in order to document the January 1, 1999 redetermination of the
Borrowing Base, to redetermine the Maximum Commitment Amount at $5,915,000.00,
to add Ken L. Kenworthy, Jr. and Ken L. Kenworthy, Sr. as guarantors, and to
evidence such additional changes to the Agreement as more particularly set
forth herein;
NOW THEREFORE, in consideration of the mutual covenants and
agreements herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Borrower and the
Bank hereby agree to amend the agreement as follows:
A. CHANGES TO THE AGREEMENT
1. Section 1 of the Agreement, Definitions, is here by
amended in order to add the following definitions for the terms "Guarantor"
and "Guaranty Agreement", which such terms shall be defined at the additional
Sections 1.43 and 1.44 as follows (Note: these definitions are not in
alphabetical order):
<PAGE>
1.43 Guarantor. The term "Guarantor" individually and
"Guarantors" collectively shall refer to Ken L. Kenworthy, Jr. and
Ken L. Kenworthy, Sr.
1.44 Guaranty Agreement. The term "Guaranty Agreement"
shall refer to that certain guaranty agreement made by each Guarantor,
together with all renewals, extensions, modifications and substitutions
thereto and therefor.
2. The definition set forth at Section 1.10 of the
Agreement, Debt Coverage Ratio, is hereby amended and restated in its entirety
as follows:
The term "Debt Coverage Ratio" means as of the calendar
quarters ending June 30, 1999, September 30, 1999 and December
31, 1999 Net Income before interest expenses, tax expenses,
depreciation, depletion and amortization expenses: DIVIDED BY
the sum of interest expenses and dividends, which such ratio
shall be calculated for each calendar quarter based upon the
three months ending each calendar quarter-end.
Subsequent to December 31, 1999, the term "Debt Coverage
Ratio" means the sum of Net Income , less dividends, less any
non-cash income, plus depreciation, depletion and amortization
plus interest expenses which shall be calculated for and at
the end of each calendar quarter;
DIVIDED BY
The sum of (i) the greater of (A) the quarterly sum of the
Monthly Commitment Reductions scheduled at the last Evaluation
Date or (B) the quarterly sum of the Monthly Commitment
Reductions which would be required assuming a level
amortization of the outstanding loan balance (as of the
quarter end) over the lesser of (X) 84 months or (Y) the Half
Life of the Borrower's Oil and Gas Properties plus (ii)
interest expense for the quarter plus any principal reductions
made to any other long term debts (including payments made on
capital lease obligations) during the quarter. For the
purposes hereof and for all other purposes herein, "Half Life
of the Borrower's Oil and Gas Properties" shall be defined by
the Bank, in its sole discretion, as that period of time
during which one-half of the undiscounted future income, net
of lease operating expenses, production taxes, and capital
expenditures will be realized from the Borrower's Oil and Gas
Properties. The Bank's calculation of the Half Life of the
Borrower's Oil and Gas
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Properties shall be determined and communicated to Borrower
in conjunction with the periodic redeterminations of the
Borrowing Base and the Monthly Commitment Reduction as set
forth in Section 1.3 hereof.
3. The definition set forth at Section 1.31 of the
Agreement, Permitted Debt, is hereby amended and restated in its entirety in
order to permit up to $575,000.00 of subordinated shareholder notes as follows:
1.31 Permitted Debt. The term "Permitted Debt" means (i)
any accounts payable, taxes, insurance, operating expenses and all
other general and administrative expenses and other obligations of the
Borrower incurred in the normal course of Borrower's business
operations, such obligations being in amounts and of the types as are
consistent with those identified in the latest financial statements of
the Borrower, (ii) up to $575,000.00 of subordinated shareholder notes
based upon terms acceptable to Bank, and (iii) any existing
indebtedness secured by any Permitted Lien.
4. The definition set forth at Section 1.38 of the
Agreement, Tangible Net Worth, is hereby amended and restated in its entirety
in order to exclude Borrower's investment in any of its own shares as follows:
1.38 Tangible Net Worth. The term "Tangible Net Worth"
means the difference between the Borrower's (i) Total Assets, excluding
any intangibles and excluding any stock in the Borrower repurchased by
Borrower and accounted for as an investment asset and not as treasury
stock, and (ii) Total Liabilities, all as set forth in the financial
statements of the Borrower and as determined by GAAP.
5. Borrower and Bank acknowledge that Bank is
extending credit to Borrower over and above the Borrowing Base. Until such
time as the outstanding balance on the Note is less than or equal to the
Borrowing Base, interest on the Note shall accrue at either the Base Rate plus
1.00% or the LIBOR Rate plus 3.75% , at Borrower's election pursuant to
Section 2.3 of the Agreement.
6. An additional subsection shall be added to Section
6 of the Agreement, Collateral, in order to provide for the additional credit
enhancement provided by the Guaranty Agreements and shall be set forth as new
Section 6.3 as follows:
6.3 Guaranty Agreements. In order to further secure the
obligations of Borrower to Bank as described herein, in the Note and in
the Loan Documents, each Guarantor shall provide his Guaranty
Agreement, limited in amount to $750,000.00.
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7. Section 9.2.5 of the Agreement, Other Financial
Information, is hereby amended and restated in its entirety to include
information concerning the Guarantors as follows:
9.2.5 Other Financial Information. The Borrower shall
also promptly furnish to the Bank such other financial information
concerning the financial affairs of the Borrower or the Guarantors as
the Bank might reasonably request.
8. Additional paragraphs shall be added to Section 9.2
of the Agreement, Financial Information and Reporting, as new Section 9.2.6 in
order to require financial information from the Guarantors and Section 9.2.7
in order to require recompletion progress reports as follows:
9.2.6 Guarantor Financial Information. Borrower shall
provide or Borrower shall cause each Guarantor to provide annual
financial statements including a balance sheet, an income statement and
a statement of Contingent Liabilities each year during the term hereof
within thirty (30) days of the anniversary date of the last financial
statement provided to Bank by such Guarantor. In addition to the
financial statement, each Guarantor shall provide Bank with a copy of
his federal income tax return within ten (10) days of its filing for
1998 and each year thereafter during the term hereof.
9.2.7 Recompletion Progress Reports. Borrower shall
furnish Bank with a monthly report of progress on its recompletion
projects indicating a comparison of results to it original forecast and
final costs of each project within thirty (30) days of each month end.
9. Section 9.19 of the Agreement, Current Ratio, is
hereby deleted in its entirety in order to replace said Section 9.19 with a
new covenant pertaining to the Adjusted Current Ratio as follows:
9.19 Adjusted Current Ratio. Borrower will not permit
its ratio of Current Assets plus any unused availability under the
Note, minus any investment in stock of the Borrower to Current
Liabilities less any amounts outstanding under the Note which are
otherwise included as a Current Liability to be less than 1.0 to 1.0,
as determined at the end of each calendar quarter beginning with the
calendar quarter ending March 31, 1999. For the calculation of the
March 31, 1999 Adjusted Current Ratio, the Borrower shall be allowed to
add to "Current Assets" the $250,000.00 increase in availability
documented herein.
10. Section 9.20 of the Agreement, Debt Coverage Ratio,
is hereby amended and restated in its entirety as follows:
4
<PAGE>
9.20 Debt Coverage Ratio. Borrower shall not permit the
Debt Coverage Ratio to be less than (i) 1.0 to 1.0 as of June 30, 1999;
(ii) 1.25 to 1.00 as of September 30, 1999; and (iii) 1.50 to 1.00 as
of December 31, 1999. Subsequent to December 31, 1999, Borrower shall
not permit the Debt Coverage Ratio to be less than 1.1 to 1.0 as
determined at the end of each subsequent calendar quarter.
11. Section 9.21 of the Agreement, Tangible Net Worth,
is hereby amended and restated in its entirety as follows:
9.21 Tangible Net Worth. Borrower shall not permit it
Tangible Net Worth to be less than the sum of (i) $800,000.00, (ii)
seventy-five percent (75%)of the Borrower's Net Income (if positive)
for each calendar quarter subsequent to the quarter ended December 31,
1998, and (iii) all proceeds of any additional equity offering of the
Borrower after December 31, 1998. Borrower's Tangible Net Worth shall
be determined as of the end of each calendar quarter beginning with the
calendar quarter ending March 31, 1999.
12. All references in the Agreement to the term "Note"
are hereby amended to refer to the promissory note in the form of Annex No.
"1" attached hereto (the "Replacement Note").
B. NOTICES AND WAIVERS.
Borrower is hereby notified of the following occurrences and the Bank
hereby provides the following waivers.
1. Borrowing Base. Bank and Borrower acknowledge that
the Borrowing Base is currently $5,000,000.00. Bank and Borrower acknowledge
that the Monthly Commitment Reduction is $0.00 and shall remain at such amount
until September 1, 1999. Bank and Borrower acknowledge that Bank has
temporarily increased the Maximum Commitment Amount to $5,915,000.00 to remain
at such amount until the next Borrowing Base determination on September 1,
1999. On September 1, 1999, the Maximum Commitment Amount shall again be as
such term is otherwise defined in the Agreement, and Borrower shall make any
principal payments required by Section 2.5 of the Agreement.
2. Determinations of Borrowing Base. Borrower and Bank
acknowledge that the Evaluation Dates are January 1 and July 1. The Evaluation
Dates set forth in Section 1.3 of the Agreement notwithstanding, the July 1,
1999 Evaluation Date (and only such date) is hereby extended until September
1, 1999. Accordingly, the requirement set forth at Section 9.2.4 of the
Agreement, Semi-Annual Engineering Report, that Borrower provide an
engineering evaluation report no later than June 1 to be effective as of July
1 is hereby extended until August 1 to be effective as of September 1 for the
year ending December 31, 1999 only.
5
<PAGE>
3. Financial Covenant Non-Compliance. Bank hereby
provides Borrower with a one-time waiver of the defaults created by Borrower's
failure to comply with (i) Section 9.19 of the Agreement, Current Ratio, as of
December 31, 1998 and (ii) Section 9.20 of the Agreement, Debt Coverage Ratio,
as of September 30, 1998, December 31, 1998, and March 31, 1999. Neither of
these waivers shall be deemed to constitute a waiver of any other Event of
Default or a waiver of any future occurrences of any event of default.
4. Undeveloped Leasehold Acreage. Bank hereby
provides its consent to Borrower's assignment or pledge of Undeveloped
Leasehold Acreage (hereafter defined) to Ken L. Kenworthy, Jr. to secure his
subordinated loan to Borrower. For the purposes hereof, the term "Undeveloped
Leasehold Acreage" refers to those Oil and Gas Properties not currently in
the Bank's engineering evaluation or the Mortgage descriptions. Provided,
however, Borrower hereby agrees obtain prior written consent from Bank before
it expends any funds on the Undeveloped Leasehold Acreage.
5. Use of Proceeds. Borrower hereby requests that it
be entitled to use the additional funds for the purposes set forth on Exhibit
A attached to this Amendment. Bank hereby consents to the use of such funds
for, and only for, such purposes. To the extent Borrower desires to utilize
these funds for purposes other than as set forth on Exhibit A attached hereto,
Borrower shall obtain Bank's prior written consent to and such use.
C. REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants to Bank that:
1 Borrower is a corporation, duly organized, legally
existing, and in good standing under the laws of the State of Oklahoma, and is
duly qualified as a foreign corporation and in good standing in all other
states wherein the nature of its business or its assets make such
qualification necessary.
2. Borrower's execution and delivery of this Amendment
and performance of its obligations hereunder: (a) are and will be within its
powers; (b) are duly authorized by its board of directors; (c) are not and
will not be in contravention of any law, statute, rule or regulation, the
terms of its articles or incorporation and bylaws, nor of any agreement or
undertaking to which Borrower or any of its properties are bound; (d) do not
require any consent or approval (including governmental) which has not been
given; and (e) will not result in the imposition of liens, charges or
encumbrances on any of its properties or assets, except those in favor of Bank
hereunder.
3. This Amendment, when duly executed and delivered,
will constitute the legal, valid and binding obligations of Borrower,
enforceable in accordance with its terms.
6
<PAGE>
4. All financial statements, balance sheets, income
statements and other financial data which have been or are hereafter
furnished to Bank by Borrower to induce Bank to make the loans hereunder due,
and as to subsequent financial statements will, fairly represent each
Borrower's financial condition as of the dates for which the same are
furnished. All such financial statements, reports, papers and other data
furnished to Bank are and will be, when furnished: prepared in accordance
with generally accepted accounting principles consistently applied; accurate
and correct in all material respects; and complete insofar as completeness
may be necessary to give Bank a true and accurate knowledge of the subject
matter. Since the date of the last such financial statements, no material
adverse change has occurred in the operations or condition, financial or
otherwise and other financial data provided to Bank; of either Borrower, nor,
to the best of their knowledge, has either Borrower incurred, any material
liabilities or made any material investment or guarantees, direct or
contingent, in any single case or in the aggregate, which has not been
disclosed to Bank.
5. The Borrower is the sole and lawful owner of the
Collateral, pledged, mortgaged or assigned by it, and Borrower has, and as to
after acquired property or new properties will have, good right to cause the
Collateral to be hypothecated to Bank as security for the obligations
described in the Agreement, as amended hereby.
6. All of each Borrower's other representations and
warranties set forth in Section 8 of the Agreement, Representations and
Warranties, are true and correct on and as of the date hereof with the same
effect as though made and repeated by Borrower as of the date hereof.
D. CONDITIONS
Bank's obligations under the Agreement, as hereby amended, are subject
to the following conditions:
1. Bank and Borrower shall have executed and delivered
this Amendment.
2. Borrower shall have executed and delivered the
Replacement Note.
3. Each shareholder of Borrower shall have executed
and delivered an agreement satisfactory to Bank subordinating any indebtedness
of Borrower owed to such shareholders, individually or collectively, to the
indebtedness evidenced by the Note, this Agreement, as amended hereby, and any
other Loan Document.
4. Guarantors shall have executed and delivered the
Guaranty Agreement.
5. Bank shall have received a certified copy of a
"Dismissal With Prejudice" of Borrower's litigation with Fred Standefer or
such other evidence that such litigation has been extinguished to Bank's
satisfaction.
7
<PAGE>
6. Bank shall have received evidence, to its
reasonable satisfaction, that Borrower's shareholders have advanced, at
least, $200,000.00 to Borrower to be used by the Borrower for the express
purpose of (i) funding recompletion costs/expenses, (ii) reducing accounts
payable aged sixty (60) days or greater and/or (iii) making payment of past
due interest owed to Bank.
7. Bank shall have received an executed balance sheet
and contingent liability disclosure from each Guarantor.
8. Bank shall have received certificates dated as of
a recent date from the Secretary of State or other appropriate Governmental
Authority evidencing Borrower's existence or qualification and good standing
in all jurisdictions covered by the oil and gas properties where such
qualification is required and where failure to be qualified or in good
standing could reasonably be expected to have a material adverse effect upon
(i) its ability to repay the indebtedness set forth in the Note or the Loan
Documents or (ii) the Collateral;
9. Bank shall have received results of searches of the
UCC records of the State of Oklahoma and any and all other applicable
jurisdictions from a source acceptable to the Bank and reflecting no Liens,
other than Permitted Liens, against any of its Collateral as to which
perfection of a lien is accomplished by the filing of a financing statement;
10. Borrower's representations and warranties set forth
in Section C hereof shall be true and correct on and as of the date hereof,
and the date of any subsequent advance with the same effect as though such
representation and warranty had been on and as of such date.
11. Borrower shall have executed any and all mortgages,
deeds of trust and/or any other security documents deemed necessary by Bank in
its sole discretion.
12. Borrower shall have satisfied all conditions set
forth in the Agreement.
13. As of the date hereof, and the date of any
subsequent Advance, no Event of Default nor any event which, with the giving of
notice or lapse of time, would constitute an Event of Default shall have
occurred and be continuing.
E. RELEASE
Borrower hereby remises, releases, and forever discharges
Bank, its successors and assigns, its officers, directors, employees, agents
and attorneys (collectively, the "Released Parties") of and from all actions,
causes of action, suits, proceedings, debts, contracts, claims, damages,
liability and demands whatsoever, known or unknown, in law or equity, which
Borrowers, and each of them, ever had or now have, by reason of any matter,
cause, or thing whatsoever arising from the actions or inactions of the
Released Parties in any matter relating to
8
<PAGE>
the Agreement, Note, and other Loan Documents (collectively, the "Released
Matters"); and the Borrower covenants not to sue any of the Released Parties
with respect to the Released Matters. The release and covenant not to sue set
forth herein are intended by the parties to be as broad and comprehensive as
possible.
F. OTHER COVENANTS AND MISCELLANEOUS TERMS
1. As additional consideration and in addition to
interest on the Note, Borrower hereby agrees to pay Bank by August 1, 1999, a
fee for this amendment (the "Amendment Fee") in the amount of $25,000.00.
2. Borrower shall use the funds advanced by Ken L.
Kenworthy, Jr. for the express and exclusive purposes of (i) $375,000.00 to
purchase the ownership interest of Fred Standefer in Borrower; and (ii) at
least $200,000.00 for (A) recompletion costs/expenses, (B) reducing accounts
payable aged sixty (60) days or greater and/or (C) making payment of past due
interest owed to Bank.
3. Except as expressly amended and supplemented
hereby, the Agreement shall remain unchanged and in full force and effect,
and the same is hereby ratified and extended.
4. The obligations described in the Agreement, as
amended hereby, including but not limited to the indebtedness evidenced by the
Note executed in conjunction with the Agreement, shall continue to be secured by
the Collateral, without interruption or impairment of any kind.
5. Borrower agrees to execute such additional
mortgages, deeds of trust and/or amendments to such documents already in place
as Bank deems necessary to adequately secure the loan at any time and from time
to time hereafter.
6. The Borrower hereby agrees to pay all reasonable
attorney fees and legal expenses incurred by Bank in preparation, execution and
implementation of this Amendment, the Replacement Note, and any mortgages,
guaranty agreements, subordination agreements, deeds of trust, security
agreements, pledge agreements or any amendments thereto.
7. This Amendment shall be construed in accordance
with and governed by the laws of the State of Oklahoma, and shall be binding on
and inure to the benefit of the Borrower and Bank, and their respective
successors and assigns. All obligations of the Borrower under the Agreement and
all rights of Bank and any other holder of the Notes, whether expressed herein
or in any Note, shall be in addition to and not in limitation of those provided
by applicable law. Borrower irrevocably agrees that, subject to Bank's sole
election, all suits or proceedings arising from or related to the Agreement, as
amended, or the Notes may be litigated in courts (whether
9
<PAGE>
State or Federal) sitting in Oklahoma City, Oklahoma, and the Borrower hereby
irrevocably waives any objection to such jurisdiction and venue.
8. This Amendment may be executed in as many
counterparts as are deemed necessary or convenient, and it shall not be
necessary for the signature of more than any one party to appear on any
single counterpart. Each counterpart shall be deemed an original, but all
shall be construed together as one and the same instrument. The failure of
any party to sign shall not affect or limit the liability of any party
executing any such counterpart.
BORROWER:
GMX RESOURCES INC.,
an Oklahoma corporation
/s/ Ken L. Kenworthy, Jr.
--------------------------------------
By: Ken L. Kenworthy, Jr.
Title: Chief Executive Officer
BANK:
BANK ONE, OKLAHOMA, N.A.
/s/ John K. Slay, Jr.
--------------------------------------
By: John K. Slay, Jr.
Title: Sr. Vice President
10
<PAGE>
EXHIBIT A
USE OF PROCEEDS
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
WELL CURRENT HORIZON TARGET HORIZON ESTIMATED
NET COSTS
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Blocker-Fultz #1 McKimsey, Burnett & Pettit Glen Rose, Rodessa & Paluxy $40,064.00
Page
-----------------------------------------------------------------------------------------------------------------
Newton #1 Pettit Crane, Page Burnett, Glen Rose & Paluxy $44,737.00
-----------------------------------------------------------------------------------------------------------------
Timmins A-1 Pettit Transition, McJimsey Pettit McKay $29,500.00
-----------------------------------------------------------------------------------------------------------------
Blocker-Ware #2 Roquemore, Upper Burnett Lower Pettit $39,678.00
-----------------------------------------------------------------------------------------------------------------
Furrh-Lewis #1 McJimsey, Burnett Pettit Transition $19,447.00
-----------------------------------------------------------------------------------------------------------------
Furrh #4 Cotton Valley Roquemore, McJimsey, Burnett, $55,548.00
Pettit Crane & Transition
-----------------------------------------------------------------------------------------------------------------
A. Williams #2 Glen Rose $36,942.00
-----------------------------------------------------------------------------------------------------------------
TOTAL $265,916.00
-----------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
SECOND AMENDMENT TO CREDIT AGREEMENT BY AND
BETWEEN GMX RESOURCES INC.
AND BANK ONE, OKLAHOMA, N.A.
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (the "Amendment") is
executed as of this 24th day of November, 1999 by and between GMX RESOURCES
INC., an Oklahoma corporation (the "Borrower") and BANK ONE, OKLAHOMA, N.A.
(the "Bank").
W I T N E S S E T H:
WHEREAS, on February 18, 1998 Borrower and Bank entered into that
certain Credit Agreement (the "Agreement") whereby Bank provided Borrower with
a revolving line of credit in an amount governed by a Borrowing Base which
shall not exceed $20,000,000.00, as evidenced by reducing revolving promissory
note with a stated like amount of even date with the Original Agreement (the
"Original Note").
WHEREAS, on May 19, 1999, Borrower and Bank amended the Agreement for
the first time (the "First Amendment") in order to document the January 1,
1999 redetermination of the Borrowing Base, to redetermine the Maximum
Commitment Amount at $5,915,000.00, to add Ken L. Kenworthy, Jr. and Ken L.
Kenworthy, Sr. as guarantors, and to evidence such additional changes to the
Agreement as more particularly set forth herein (the Original Agreement as
amended by the First Amendment is referred to herein as the "Agreement");
WHEREAS, the obligations described in the Agreement are secured by,
among other things not specifically set forth herein, certain oil and gas
properties and other properties as set forth in the Agreement; and
WHEREAS, all capitalized terms not otherwise defined herein shall
have those meanings assigned to such terms in the Agreement;
WHEREAS, Borrower and Bank desire to amend the Agreement for the
second time in order to document the September 1, 1999 redetermination of the
Borrowing Base, to provide for Unscheduled Redeterminations, to included
commodity rate management language, and to evidence such additional changes to
the Agreement as more particularly set forth herein;
NOW THEREFORE, in consideration of the mutual covenants and
agreements herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Borrower and the
Bank hereby agree to amend the agreement as follows:
1
<PAGE>
A. CHANGES TO THE AGREEMENT
1. Section 1 of the Agreement, Definitions, is here by
amended at Section 1.3, BORROWING BASE, to modify this definition in order to
indicate that Bank or Borrower has the right to make Unscheduled
Redeterminations by inserting the following at the end of said definition:
Nothing contained within this Section 1.3 shall be construed to mean
that Borrower can not request and/or that Bank can not require, at any
time, an Unscheduled Redetermination.
2. Section 1 of the Agreement, Definitions, is here by
amended in order to add the following definition for the term "Rate Management
Transactions", which such term shall be defined at the additional Section 1.33-A
to immediately follow Section 1.33 as follows:
1.33-A RATE MANAGEMENT TRANSACTION" shall mean
any transaction (including an agreement with respect thereto) now
existing or hereafter entered into between Borrower and Lender which is
a rate swap, basis swap, forward transaction, commodity swap, commodity
option, equity or equity index swap, equity or equity index option,
bond option, interest rate option, foreign exchange transaction, cap
transaction, floor transaction, collar transaction, forward
transaction, currency swap transaction, cross-currency rate swap
transaction, currency option or any other similar transaction
(including any option with respect to any of these transactions) or any
combination thereof, whether linked to one or more interest rates,
foreign currencies, commodity prices, equity prices or other financial
measures.
3. Section 1 of the Agreement, Definitions, is here by
amended in order to add the following definition for the term "Unscheduled
Redetermination", which such term shall be defined at the additional Section
1.41-A to immediately follow Section 1.41 as follows:
1.41-A "UNSCHEDULED REDETERMINATION" shall mean a
redetermination of the Maximum Commitment Amount made at any time other
than on the dates set for the regular semi-annual redetermination of
the Borrowing Base which is made (A) at the reasonable request of a
Borrower, (B) at any time it appears to the Lender, in the exercise of
its reasonable discretion, that either (i) there has been a material
decrease in the value of the Oil and Gas Properties, or (ii) an event
has occurred which is reasonably expected to have a Material Adverse
Effect.
4. The introductory phrase of Section 6 of the
Agreement, Collateral, is hereby amended in order to include Rate Management
Transactions as indebtedness secured by the Collateral by inserting the words
"and Rate Management Transactions" immediately after the word "Note" in the
first line of said Section 6.
2
<PAGE>
5. The Event of Default set forth at Section 10.2 of
the Agreement, OTHER NONPAYMENT, is hereby amended and restated in its
entirety in order to include Rate Management Transactions as follows:
10.2 OTHER NONPAYMENT. Default in payment of any other
amount payable to the Bank under the terms of this Agreement, any Rate
Management Transaction, or any other Loan Document for a period in
excess of ten (10) days after the date such payment is due; or
B. NOTICES AND WAIVERS.
Borrower is hereby notified of the following occurrences and the Bank
hereby provides the following waivers.
1. BORROWING BASE. Bank and Borrower acknowledge that
the Borrowing Base is currently $5,000,000.00 and the Monthly Commitment
Reduction is $0.00 and such Borrowing Base and Monthly Commitment Reduction
shall remain at such amounts until January 1, 2000. Bank and Borrower
acknowledge that Bank has agreed to temporarily maintain the Maximum
Commitment Amount at $5,915,000.00 until the earlier to occur of an
Unscheduled Redetermination or the next Borrowing Base determination on
January 1, 2000. On January 1, 2000, the Maximum Commitment Amount shall again
be as such term is otherwise defined in the Agreement, and Borrower shall make
any principal payments required by Section 2.5 of the Agreement.
C. REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants to Bank that:
1. Borrower is a corporation, duly organized, legally
existing, and in good standing under the laws of the State of Oklahoma, and is
duly qualified as a foreign corporation and in good standing in all other
states wherein the nature of its business or its assets make such
qualification necessary.
2. Borrower's execution and delivery of this Amendment
and performance of its obligations hereunder: (a) are and will be within its
powers; (b) are duly authorized by its board of directors; (c) are not and
will not be in contravention of any law, statute, rule or regulation, the
terms of its articles or incorporation and bylaws, nor of any agreement or
undertaking to which Borrower or any of its properties are bound; (d) do not
require any consent or approval (including governmental) which has not been
given; and (e) will not result in the imposition of liens, charges or
encumbrances on any of its properties or assets, except those in favor of Bank
hereunder.
3. This Amendment, when duly executed and delivered,
will constitute the legal, valid and binding obligations of Borrower,
enforceable in accordance with its terms.
3
<PAGE>
4. All financial statements, balance sheets, income
statements and other financial data which have been or are hereafter furnished
to Bank by Borrower to induce Bank to make the loans hereunder due, and as to
subsequent financial statements will, fairly represent each Borrower's
financial condition as of the dates for which the same are furnished. All such
financial statements, reports, papers and other data furnished to Bank are and
will be, when furnished: prepared in accordance with generally accepted
accounting principles consistently applied; accurate and correct in all
material respects; and complete insofar as completeness may be necessary to
give Bank a true and accurate knowledge of the subject matter. Since the date
of the last such financial statements, no material adverse change has occurred
in the operations or condition, financial or otherwise and other financial
data provided to Bank; of either Borrower, nor, to the best of their
knowledge, has either Borrower incurred, any material liabilities or made any
material investment or guarantees, direct or contingent, in any single case or
in the aggregate, which has not been disclosed to Bank.
5. The Borrower is the sole and lawful owner of the
Collateral, pledged, mortgaged or assigned by it, and Borrower has, and as to
after acquired property or new properties will have, good right to cause the
Collateral to be hypothecated to Bank as security for the obligations
described in the Agreement, as amended hereby.
6. All of each Borrower's other representations and
warranties set forth in Section 8 of the Agreement, Representations and
Warranties, are true and correct on and as of the date hereof with the same
effect as though made and repeated by Borrower as of the date hereof.
D. CONDITIONS
Bank's obligations under the Agreement, as hereby amended, are
subject to the following conditions:
1. Bank and Borrower shall have executed and delivered
this Amendment.
2. Guarantors shall have executed and delivered the
Guaranty Agreement.
3. Bank shall have received certificates dated as of a
recent date from the Secretary of State or other appropriate Governmental
Authority evidencing Borrower's existence or qualification and good standing
in all jurisdictions covered by the oil and gas properties where such
qualification is required and where failure to be qualified or in good
standing could reasonably be expected to have a material adverse effect upon
(i) its ability to repay the indebtedness set forth in the Note or the Loan
Documents or (ii) the Collateral;
4. Bank shall have received results of searches of the
UCC records of the State of Oklahoma and any and all other applicable
jurisdictions from a source acceptable to the Bank and reflecting no Liens,
other than Permitted Liens, against any of its Collateral as to which
perfection of a lien is accomplished by the filing of a financing statement;
4
<PAGE>
5. Borrower's representations and warranties set forth
in Section C hereof shall be true and correct on and as of the date hereof,
and the date of any subsequent advance with the same effect as though such
representation and warranty had been on and as of such date.
6. Borrower shall have executed any and all mortgages,
deeds of trust and/or any other security documents deemed necessary by Bank in
its sole discretion.
7. Borrower shall have satisfied all conditions set
forth in the Agreement.
8. As of the date hereof, and the date of any
subsequent Advance, no Event of Default nor any event which, with the giving
of notice or lapse of time, would constitute an Event of Default shall have
occurred and be continuing.
E. RELEASE
Borrower hereby remises, releases, and forever discharges
Bank, its successors and assigns, its officers, directors, employees, agents
and attorneys (collectively, the "Released Parties") of and from all actions,
causes of action, suits, proceedings, debts, contracts, claims, damages,
liability and demands whatsoever, known or unknown, in law or equity, which
Borrowers, and each of them, ever had or now have, by reason of any matter,
cause, or thing whatsoever arising from the actions or inactions of the
Released Parties in any matter relating to the Agreement, Note, and other Loan
Documents (collectively, the "Released Matters"); and the Borrower covenants
not to sue any of the Released Parties with respect to the Released Matters.
The release and covenant not to sue set forth herein are intended by the
parties to be as broad and comprehensive as possible.
F. OTHER COVENANTS AND MISCELLANEOUS TERMS
1. Except as expressly amended and supplemented
hereby, the Agreement shall remain unchanged and in full force and effect, and
the same is hereby ratified and extended.
2. The obligations described in the Agreement, as
amended hereby, including but not limited to the indebtedness evidenced by the
Note executed in conjunction with the Agreement, shall continue to be secured
by the Collateral, without interruption or impairment of any kind.
3. Borrower agrees to execute such additional
mortgages, deeds of trust and/or amendments to such documents already in place
as Bank deems necessary to adequately secure the loan at any time and from
time to time hereafter.
4. The Borrower hereby agrees to pay all reasonable
attorney fees and legal expenses incurred by Bank in preparation, execution
and implementation of this Amendment, the Replacement Note, and any mortgages,
guaranty agreements, subordination agreements, deeds of trust, security
agreements, pledge agreements or any amendments thereto.
5
<PAGE>
5. This Amendment shall be construed in accordance
with and governed by the laws of the State of Oklahoma, and shall be binding
on and inure to the benefit of the Borrower and Bank, and their respective
successors and assigns. All obligations of the Borrower under the Agreement
and all rights of Bank and any other holder of the Notes, whether expressed
herein or in any Note, shall be in addition to and not in limitation of those
provided by applicable law. Borrower irrevocably agrees that, subject to
Bank's sole election, all suits or proceedings arising from or related to the
Agreement, as amended, or the Notes may be litigated in courts (whether State
or Federal) sitting in Oklahoma City, Oklahoma, and the Borrower hereby
irrevocably waives any objection to such jurisdiction and venue.
6. This Amendment may be executed in as many
counterparts as are deemed necessary or convenient, and it shall not be
necessary for the signature of more than any one party to appear on any single
counterpart. Each counterpart shall be deemed an original, but all shall be
construed together as one and the same instrument. The failure of any party to
sign shall not affect or limit the liability of any party executing any such
counterpart.
BORROWER:
GMX RESOURCES INC.,
an Oklahoma corporation
/s/ Ken L. Kenworthy, Jr.
----------------------------------------
By: Ken L. Kenworthy, Jr.
Title: Chief Executive Officer
BANK:
BANK ONE, OKLAHOMA, N.A.
/s/ John K. Slay, Jr.
----------------------------------------
By: John K. Slay, Jr.
Title: Vice President
6
<PAGE>
THIRD AMENDMENT TO CREDIT AGREEMENT BY AND
BETWEEN GMX RESOURCES INC.
AND BANK ONE, OKLAHOMA, N.A.
THIS THIRD AMENDMENT TO CREDIT AGREEMENT (the "Amendment") is
executed as of this 14th day of April, 2000 by and between GMX RESOURCES INC.,
an Oklahoma corporation (the "Borrower") and BANK ONE, OKLAHOMA, N.A. (the
"Bank").
W I T N E S S E T H:
WHEREAS, on February 18, 1998 Borrower and Bank entered into that
certain Credit Agreement (the "Agreement") whereby Bank provided Borrower with
a revolving line of credit in an amount governed by a Borrowing Base which
shall not exceed $20,000,000.00, as evidenced by reducing revolving promissory
note with a stated like amount of even date with the Original Agreement (the
"Original Note").
WHEREAS, on May 19, 1999, Borrower and Bank amended the Agreement for
the first time (the "First Amendment") in order to document the January 1,
1999 redetermination of the Borrowing Base, to redetermine the Maximum
Commitment Amount at $5,915,000.00, to add Ken L. Kenworthy, Jr. and Ken L.
Kenworthy, Sr. as guarantors, and to evidence such additional changes to the
Agreement as more particularly set forth herein;
WHEREAS, on November 24, 1999, Borrower and Bank amended the
Agreement for the second time (the "Second Amendment") in order to document
the September 1, 1999 redetermination of the Borrowing Base, to provide for
Unscheduled Redeterminations, to include commodity rate management language,
and to evidence such additional changes to the Agreement as more particularly
set forth therein (the Original Agreement as amended by the First Amendment
and the Second Amendment is referred to herein as the "Agreement");
WHEREAS, the obligations described in the Agreement are secured by,
among other things not specifically set forth herein, certain oil and gas
properties and other properties as set forth in the Agreement; and
WHEREAS, all capitalized terms not otherwise defined herein shall
have those meanings assigned to such terms in the Agreement;
WHEREAS, Borrower and Bank desire to amend the Agreement for the
third time in order to: (i) document the Unscheduled Redetermination (March 1,
2000) of the Borrowing Base, (ii) document the reversion of the interest rate
to the rate set forth in the Original Agreement, (iii) require that Borrower
have 90% of its Oil and Gas Properties mortgaged to Bank and, of those Oil and
Gas Properties mortgaged, have title coverage of 90%, (iv) delete the
monitoring of monthly recompletion reports, and (v) evidence such additional
changes to the Agreement as more particularly set forth herein;
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NOW THEREFORE, in consideration of the mutual covenants and
agreements herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Borrower and the
Bank hereby agree to amend the agreement as follows:
A. CHANGES TO THE AGREEMENT
1. Bank and Borrower acknowledge that the outstanding
balance on the Note is now less than or equal to the Borrowing Base;
consequently, the interest rates shall revert to and be determined at those
rates set forth in the Original Agreement.
2. Section 9.2.7 of the Agreement, Recompletion
Progress Reports, is hereby deleted from the Agreement in its entirety in
order to evidence that such reports are no longer required.
3. The copy of the document attached hereto as Annex
"1" shall replace and be substituted for Exhibit "G" to the Agreement in order
to add an additional covenant pertaining to Borrower's continuing requirement
to maintain 90% of its Oil and Gas Properties as Mortgaged Properties and to
provide title information which is acceptable to Bank, on an on-going basis,
to at least 90% of its Mortgaged Properties.
B. NOTICES AND WAIVERS.
Borrower is hereby notified of the following occurrences and the Bank
hereby provides the following waivers.
1. BORROWING BASE. Bank and Borrower acknowledge that
the Borrowing Base as of March 1, 2000 (an Unscheduled Redetermination) is
currently $6,500,000.00 and, effective as of April 1, 2000, the Monthly
Commitment Reduction is $0.00 and such Borrowing Base and Monthly Commitment
Reduction shall remain at such amounts until the earlier to occur of an
Unscheduled Redetermination or September 1, 2000. Borrower and Bank
acknowledge that the Evaluation Dates are January 1 and July 1; provided,
however, the July 1, 2000 Evaluation Date is hereby deferred until September
1, 2000. Accordingly, the requirement set forth at Section 9.2.4 of the
Agreement, Semi-Annual Engineering Report, that Borrower provide an
engineering evaluation report by no later that June 1 to be effective as of
July 1 is hereby extended until August 1 to be effective as of September 1 for
the year ending December 31, 2000 only.
2. FINANCIAL COVENANT NON-COMPLIANCE. Bank hereby
provides Borrower with a one-time waiver of the default created by Borrower's
failure to comply with Section 9.19, CURRENT RATIO, as of December 31, 1999.
This waiver shall not be deemed to constitute a waiver of any other Event of
Default or a waiver of any future violations of Section 9.19 or any other
term, covenant or condition of the Agreement.
C. REPRESENTATIONS AND WARRANTIES
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Borrower hereby represents and warrants to Bank that:
1. Borrower is a corporation, duly organized, legally
existing, and in good standing under the laws of the State of Oklahoma, and is
duly qualified as a foreign corporation and in good standing in all other
states wherein the nature of its business or its assets make such
qualification necessary.
2. Borrower's execution and delivery of this Amendment
and performance of its obligations hereunder: (a) are and will be within its
powers; (b) are duly authorized by its board of directors; (c) are not and
will not be in contravention of any law, statute, rule or regulation, the
terms of its articles or incorporation and bylaws, nor of any agreement or
undertaking to which Borrower or any of its properties are bound; (d) do not
require any consent or approval (including governmental) which has not been
given; and (e) will not result in the imposition of liens, charges or
encumbrances on any of its properties or assets, except those in favor of Bank
hereunder.
3. This Amendment, when duly executed and delivered,
will constitute the legal, valid and binding obligations of Borrower,
enforceable in accordance with its terms.
4. All financial statements, balance sheets, income
statements and other financial data which have been or are hereafter furnished
to Bank by Borrower to induce Bank to make the loans hereunder due, and as to
subsequent financial statements will, fairly represent each Borrower's
financial condition as of the dates for which the same are furnished. All such
financial statements, reports, papers and other data furnished to Bank are and
will be, when furnished: prepared in accordance with generally accepted
accounting principles consistently applied; accurate and correct in all
material respects; and complete insofar as completeness may be necessary to
give Bank a true and accurate knowledge of the subject matter. Since the date
of the last such financial statements, no material adverse change has occurred
in the operations or condition, financial or otherwise and other financial
data provided to Bank; of either Borrower, nor, to the best of their
knowledge, has either Borrower incurred, any material liabilities or made any
material investment or guarantees, direct or contingent, in any single case or
in the aggregate, which has not been disclosed to Bank.
5. The Borrower is the sole and lawful owner of the
Collateral, pledged, mortgaged or assigned by it, and Borrower has, and as to
after acquired property or new properties will have, good right to cause the
Collateral to be hypothecated to Bank as security for the obligations
described in the Agreement, as amended hereby.
6. All of each Borrower's other representations and
warranties set forth in Section 8 of the Agreement, Representations and
Warranties, are true and correct on and as of the date hereof with the same
effect as though made and repeated by Borrower as of the date hereof.
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D. CONDITIONS
Bank's obligations under the Agreement, as hereby amended, are
subject to the following conditions:
1. Bank and Borrower shall have executed and delivered
this Amendment.
2. Borrower shall have executed such additional
mortgages, deeds of trust, financing statement and such other documents as are
deemed necessary by Bank in order to perfect a lien in favor of Bank in and to
those Oil and Gas Properties necessary to achieve the percentages required by
the covenants set forth herein.
3. Bank shall have received certificates dated as of a
recent date from the Secretary of State or other appropriate Governmental
Authority evidencing Borrower's existence or qualification and good standing
in all jurisdictions covered by the oil and gas properties where such
qualification is required and where failure to be qualified or in good
standing could reasonably be expected to have a material adverse effect upon
(i) its ability to repay the indebtedness set forth in the Note or the Loan
Documents or (ii) the Collateral;
4. Bank shall have received results of searches of the
UCC records of the State of Oklahoma and any and all other applicable
jurisdictions from a source acceptable to the Bank and reflecting no Liens,
other than Permitted Liens, against any of its Collateral as to which
perfection of a lien is accomplished by the filing of a financing statement;
5. Borrower's representations and warranties set forth
in Section C hereof shall be true and correct on and as of the date hereof,
and the date of any subsequent advance with the same effect as though such
representation and warranty had been on and as of such date.
6. Borrower shall have executed any and all mortgages,
deeds of trust and/or any other security documents deemed necessary by Bank in
its sole discretion.
7. Borrower shall have satisfied all conditions set
forth in the Agreement.
8. As of the date hereof, and the date of any
subsequent Advance, no Event of Default nor any event which, with the giving
of notice or lapse of time, would constitute an Event of Default shall have
occurred and be continuing.
E. RELEASE
Borrower hereby remises, releases, and forever discharges
Bank, its successors and assigns, its officers, directors, employees, agents
and attorneys (collectively, the "Released Parties") of and from all actions,
causes of action, suits, proceedings, debts, contracts, claims, damages,
liability and demands whatsoever, known or unknown, in law or equity, which
Borrowers, and each of them, ever had or now have, by reason of any matter,
cause, or thing whatsoever arising from the
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actions or inactions of the Released Parties in any matter relating to the
Agreement, Note, and other Loan Documents (collectively, the "Released
Matters"); and the Borrower covenants not to sue any of the Released Parties
with respect to the Released Matters. The release and covenant not to sue set
forth herein are intended by the parties to be as broad and comprehensive as
possible.
F. OTHER COVENANTS AND MISCELLANEOUS TERMS
1. Except as expressly amended and supplemented
hereby, the Agreement shall remain unchanged and in full force and effect, and
the same is hereby ratified and extended.
2. The obligations described in the Agreement, as
amended hereby, including but not limited to the indebtedness evidenced by the
Note executed in conjunction with the Agreement, shall continue to be secured
by the Collateral, without interruption or impairment of any kind.
3. Borrower agrees to execute such additional
mortgages, deeds of trust and/or amendments to such documents already in place
as Bank deems necessary to adequately secure the loan at any time and from
time to time hereafter.
4. The Borrower hereby agrees to pay all reasonable
attorney fees and legal expenses incurred by Bank in preparation, execution
and implementation of this Amendment, the Replacement Note, and any mortgages,
guaranty agreements, subordination agreements, deeds of trust, security
agreements, pledge agreements or any amendments thereto.
5. This Amendment shall be construed in accordance
with and governed by the laws of the State of Oklahoma, and shall be binding
on and inure to the benefit of the Borrower and Bank, and their respective
successors and assigns. All obligations of the Borrower under the Agreement
and all rights of Bank and any other holder of the Notes, whether expressed
herein or in any Note, shall be in addition to and not in limitation of those
provided by applicable law. Borrower irrevocably agrees that, subject to
Bank's sole election, all suits or proceedings arising from or related to the
Agreement, as amended, or the Notes may be litigated in courts (whether State
or Federal) sitting in Oklahoma City, Oklahoma, and the Borrower hereby
irrevocably waives any objection to such jurisdiction and venue.
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6. This Amendment may be executed in as many
counterparts as are deemed necessary or convenient, and it shall not be
necessary for the signature of more than any one party to appear on any single
counterpart. Each counterpart shall be deemed an original, but all shall be
construed together as one and the same instrument. The failure of any party to
sign shall not affect or limit the liability of any party executing any such
counterpart.
BORROWER:
GMX RESOURCES INC.,
an Oklahoma corporation
/s/ Ken L. Kenworthy, Jr.
--------------------------------------------
By: Ken L. Kenworthy
Title: Chief Financial Officer
BANK:
BANK ONE, OKLAHOMA, N.A.
/s/ Coy Gallatin
--------------------------------------------
By: Coy Gallatin
Title: Vice President
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ANNEX 1
EXHIBIT "G"
ADDITIONAL COVENANTS
1. Borrower shall execute any and all mortgages, deeds of trust, and
financing statements as are necessary, in Bank's discretion, to maintain
mortgages and/or liens on ninety percent (90%) of its Oil and Gas Properties.
2. Borrower shall provide, on an on-going basis, title information on at
least ninety percent (90%) of all of the Mortgaged Property, the results of
which shall be satisfactory to the Bank and its legal counsel. Such title
information shall evidence Borrower's good and indefeasible title to said
Mortgaged Property, free and clear of all liens and encumbrances except as may
otherwise be approved in writing by the Bank.
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