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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
OR
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NO. 0-9378
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ENEX RESOURCES CORPORATION
(Exact name of small business issuer as specified in its charter)
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<S> <C>
DELAWARE 93-0747806
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
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1221 LAMAR STREET, SUITE 1020
HOUSTON, TX 77010
(Address of principal executive offices)
(713) 759-6808
(Issuer's telephone number)
N/A
(Former Name, Former Address and Former Fiscal Year,
If Changed Since Last Report)
------------------------
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of Exchange Act during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past
90 days. Yes /X/ No / /
Number of shares outstanding of each of the Registrant's classes of common
stock, as of the latest practicable date:
Common stock, $.05 par value
1,342,672 shares as of November 1, 1999
Transitional Small Business Disclosure Format (check one)
Yes / / No /X/
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ENEX RESOURCES CORPORATION
INDEX
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PAGE
NO.
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PART I. CONSOLIDATED FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets--
September 30, 1999 (Unaudited) and December 31, 1998.... 1
Consolidated Statements of Operations (Unaudited)
Three and nine months ended September 30, 1999 and
1998................................................... 3
Consolidated Statements of Cash Flows (Unaudited)
Nine months ended September 30, 1999 and 1998........... 4
Notes to Consolidated Financial Statements (Unaudited).... 5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations...... 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................... 15
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ENEX RESOURCES CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
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<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
UNAUDITED
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ -- 33,649
Accounts receivable:
Oil and gas sales....................................... 218,578 250,763
Joint owners............................................ 40,666 29,926
Prepaid expenses and other current assets................. -- 20,182
----------- -----------
Total current assets........................................ 259,244 334,520
----------- -----------
PROPERTY:
Oil and gas properties (successful efforts method):....... 3,652,737 3,662,353
Furniture, fixtures and other (at cost)................... 345,919 345,919
----------- -----------
3,998,656 4,008,272
Less accumulated depreciation, depletion and amortization... 3,172,376 3,101,968
----------- -----------
Net property................................................ 826,280 906,304
----------- -----------
OTHER ASSETS:
Preferred Stock--Middle Bay............................... 6,467,610 6,467,610
Note receivable--Middle Bay............................... 5,809,557 5,147,548
Deferred tax asset........................................ 29,813 199,879
----------- -----------
Total other assets.......................................... 12,306,980 11,815,037
----------- -----------
TOTAL ASSETS................................................ $13,392,504 $13,055,861
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
1
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ENEX RESOURCES CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (CONTINUED)
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<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
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UNAUDITED
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 219,029 $ 212,514
----------- -----------
Total current liabilities................................... 219,029 212,514
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value;
5,000,000 shares authorized; none issued................ -- --
Common stock, $.05 par value; 10,000,000 shares
authorized; 1,804,912 shares issued and outstanding at
September 30, 1999 and December 31, 1998................ 90,246 90,246
Additional paid-in capital................................ 10,807,472 10,807,472
Retained earnings......................................... 5,520,704 5,190,576
Less Cost of treasury stock:
462,240 shares at September 30, 1999 and December 31,
1998.................................................. (3,244,947) (3,244,947)
----------- -----------
Total stockholders' equity.................................. 13,173,475 12,843,347
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $13,392,504 $13,055,861
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
2
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ENEX RESOURCES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
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<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------- -------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
REVENUES:
Oil and gas sales......................... $ 330,049 $1,612,787 $ 808,178 $5,594,756
Gas plant sales........................... -- -- -- 17,733
Gain on sale of assets.................... -- 648,555 1,170 1,089,644
Preferred stock dividends................. 161,691 -- 485,071 --
Interest income........................... 99,445 63,702 289,343 67,334
Other income (expense).................... (43,565) 2,623 (32,949) 11,213
---------- ---------- ---------- ----------
Total revenues............................ 547,620 2,327,667 1,550,813 6,780,680
---------- ---------- ---------- ----------
COSTS AND EXPENSES:
General and administrative................ 102,989 295,595 416,330 2,072,919
Lease operating and other................. 105,209 981,365 498,748 2,870,182
Gas purchases and plant operating......... -- 50,666 -- 58,832
Production taxes.......................... 20,303 86,304 48,747 291,246
Depreciation, depletion and
amortization............................ 14,826 497,353 85,408 1,587,690
Interest expense.......................... -- -- 1,386 --
---------- ---------- ---------- ----------
Total costs and expenses.................. 243,327 1,911,283 1,050,619 6,880,869
---------- ---------- ---------- ----------
Income (loss) before minority interest and
income taxes............................ 304,293 416,384 500,194 (100,189)
MINORITY INTEREST......................... -- (161,531) -- (414,888)
---------- ---------- ---------- ----------
Income (loss) before income taxes......... 304,293 254,853 500,194 (515,077)
INCOME TAX EXPENSE (BENEFIT).............. 103,460 -- 170,066 (86,700)
---------- ---------- ---------- ----------
NET INCOME (LOSS)......................... $ 200,833 $ 254,853 $ 330,128 $ (428,377)
========== ========== ========== ==========
NET INCOME (LOSS) PER SHARE
Basic Income (loss) per Share............. $ 0.15 $ 0.19 $ 0.25 $ (0.32)
========== ========== ========== ==========
Diluted Income (loss) per Share........... $ 0.15 $ 0.18 $ 0.25 $ (0.32)
========== ========== ========== ==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic..................................... 1,342,672 1,342,672 1,342,672 1,342,601
========== ========== ========== ==========
Diluted................................... 1,342,672 1,456,289 1,342,672 1,342,601
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
3
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ENEX RESOURCES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30
(UNAUDITED)
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1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss)........................................... $330,128 $ (428,377)
Adjustments to reconcile net income (loss) to net cash used
by operating activities:
Depreciation, depletion and amortization.................. 85,408 1,587,690
Deferred income tax expense (benefit)..................... 170,066 (86,700)
Gain on sale of properties................................ (1,170) (1,089,644)
Minority interest......................................... -- 414,888
Changes in operating assets and liabilities:
Decrease in accounts receivable........................... 21,445 834,889
Decrease (increase) in prepaid expenses and other
assets.................................................. 20,182 (22,665)
Increase (decrease) in accounts payable................... 6,515 (333,197)
-------- -----------
Net cash provided by operating activities................... 632,574 876,884
-------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in note receivable--Middle Bay................... (662,009) (4,263,470)
Proceeds from sale of properties.......................... 1,170 2,440,850
Property additions........................................ (5,384) (314,041)
-------- -----------
Net cash used by investing activities..................... (666,223) (2,136,661)
-------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock................................ -- (45,669)
Proceeds from exercise of stock options................... -- 80,000
Partnership distributions................................. -- (1,277,468)
-------- -----------
Net cash used by financing activities....................... -- (1,243,137)
-------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS................... (33,649) (2,502,914)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 33,649 4,244,470
-------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ -- $ 1,741,556
======== ===========
</TABLE>
See accompanying notes to consolidated financial statements
4
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ENEX RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Enex Resources Corporation (the Company) was incorporated under the laws of
the state of Colorado on August 17, 1979. On June 30, 1992, the Company
reincorporated in Delaware. Effective March 27, 1998, Middle Bay Oil
Company, Inc. ("Middle Bay") acquired 79.2% of the common stock of the Company.
Subsequently, Middle Bay increased its ownership to 80% of the common stock of
the Company. Effective October 1, 1998, the Company sold all of its partnership
units in Enex Consolidated Partners, L.P. (the "Consolidated Partnership"), and
a limited partnership of which the Company owned greater than a 50% interest, to
Middle Bay. The Company is engaged in the acquisition, development and
production of oil and natural gas in the contiguous United States. The Company
considers its business to be a single operating segment.
The Consolidated Partnership was formed from thirty-four managed limited
partnerships effective June 30, 1997 (the "Consolidation"). The Company had a
4.1% carried revenue interest as general partner in addition to its proportional
interest as a limited partner of approximately 56.2%.
BASIS OF PRESENTATION
In management's opinion, the accompanying consolidated financial statements
contain all adjustments (consisting solely of normal recurring adjustments)
necessary to present fairly the consolidated financial position of the Company
as of September 30, 1999 and December 31, 1998 and the consolidated results of
operations and consolidated cash flows for the periods ended September 30, 1999
and 1998.
The consolidated financial statements were prepared pursuant to the rules
and regulations of the Securities and Exchange Commission. An independent
accountant has not audited the accompanying consolidated financial statements.
Certain information and disclosures normally included in annual audited
financial statements prepared in accordance with generally accepted accounting
principles have been omitted, although the Company believes that the disclosures
made are adequate to make the information presented not misleading. These
consolidated financial statements should be read in conjunction with the
Company's financial statements and notes thereto included in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1998.
PRINCIPLES OF CONSOLIDATION
Subsequent to September 30, 1998, the consolidated financial statements
include the accounts of the Company and its wholly owned subsidiary, Enex
Securities Corporation. Prior to October 1, 1998 the consolidated financial
statements of the Company also included the accounts of the Consolidated
Partnership. All significant intercompany balances and transactions have been
eliminated in consolidation.
EARNINGS PER SHARE
Basic earnings per share is based on the weighted average shares outstanding
without any dilutive effects considered. Diluted earnings per share reflects
dilution from all potential common shares, including options, warrants and
convertible preferred stock. For the three-month periods ending September 30,
1999 and 1998 and the nine-month period ending September 30, 1999 there were no
common stock equivalents
5
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ENEX RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
(UNAUDITED)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
outstanding. For the nine-month period ending September 30, 1998 there was a
weighted-average of 15,011 common stock equivalents excluded from the
calculation of basic earnings per share due to the loss recorded for the period.
(2) CONSOLIDATED PARTNERSHIP DIVESTITURE AND RECEIPT OF MIDDLE BAY
PREFERRED STOCK
On December 29, 1998, the Company sold all of its units of the Consolidated
Partnership to Middle Bay. The sale consisted of an exchange offer (the
"Exchange Offer") whereby the Company exchanged each Consolidated Partnership
unit for 2.086 shares of Middle Bay Series C Preferred Stock ("Middle Bay
Preferred Stock"). In connection with the Exchange Offer, a proposal was
submitted to the limited partners in the Consolidated Partnership to amend the
partnership agreement to provide for the transfer of all of the assets and
liabilities of the Consolidated Partnership to Middle Bay as of October 1, 1998
and dissolve the Consolidated Partnership. The Exchange Offer was approved on
December 29, 1998 and 2,177,481 shares of Middle Bay Preferred Stock were issued
for 100% of the outstanding limited partner units.
The Company was issued 1,293,522 shares of Middle Bay Preferred Stock for
its limited partner ownership in the Consolidated Partnership.
As a holder of Middle Bay Preferred Stock the Company is entitled to receive
cumulative cash dividends in an amount per share of $0.50 per year (10% annual
rate), payable semi-annually on March 31 and September 30 of each year. These
dividends are payable in preference to and prior to the payment of any dividend
or distribution to any holder of Middle Bay common stock or other junior
security. Dividends on the Middle Bay Preferred Stock began to accrue on
December 30, 1998. Middle Bay's primary bank has granted Middle Bay a waiver
allowing it to pay the dividends on the Middle Bay Preferred Stock as long as no
default or event of default exists or would exist as a result of any dividend
payment. The Middle Bay Preferred Stock has a liquidation preference of $5.00
per share plus an amount equal to all accumulated, accrued and unpaid dividends.
The liquidation preference of the Middle Bay Preferred Stock ranks on parity
with Middle Bay's Series B Preferred Stock outstanding. As of September 30,
1999, Middle Bay had no other preferred stock outstanding.
All of the preferred dividends attributable to the Company's ownership of
the Middle Bay Preferred Stock are accrued on the financial statement and are
part of the note receivable from Middle Bay (See the "Related Party
Transactions" footnote for further information on the note receivable from
Middle Bay). As of September 30, 1999, the Company had accrued $485,071 in
dividends on the Middle Bay Preferred Stock.
Each share of Middle Bay Preferred Stock is convertible into one share of
Middle Bay common stock. On or after January 1, 2000, Middle Bay may redeem all
or a portion of the Middle Bay Preferred Stock, at its option, at a purchase
price of $5.00 per share, plus an amount equal to all accumulated, accrued and
unpaid dividends.
6
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ENEX RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
(UNAUDITED)
(2) CONSOLIDATED PARTNERSHIP DIVESTITURE AND RECEIPT OF MIDDLE BAY
PREFERRED STOCK (CONTINUED)
The Middle Bay Preferred Stock is generally nonvoting; however, holders are
entitled to vote on any amendment, alteration or appeal of any provision of
Middle Bay's Articles of Incorporation which would adversely affect any holder's
rights and preferences.
The following pro forma data presents the results of the Company for the
nine months ended September 30, 1998 as if the divestiture of the Consolidated
Partnership had occurred on January 1, 1998. The pro forma results are presented
for comparative purposes only and are not necessarily indicative of the results
which would have been obtained had the divestiture been consummated as
presented. Dollars are presented in thousands, except for per share amounts.
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<CAPTION>
PRO FORMA
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30, 1998
-------------------
<S> <C>
Total revenues excluding dividend income................... $1,125
Preferred dividend income.................................. 485
Net loss available to stockholders......................... (575)
Net loss per share to stockholders......................... (0.43)
</TABLE>
(3) MIDDLE BAY TENDER OFFER
On March 27, 1998, Middle Bay purchased 1,064,432 of the outstanding common
shares of the Company for $15,966,480. Middle Bay purchased the common shares
through a cash tender offer that commenced February 19, 1998. Over the
three-week period ended December 23, 1998, Middle Bay acquired an additional
9,747 shares (approximately 0.80%) of the outstanding common shares of the
Company.
(4) RELATED PARTY TRANSACTIONS
The Company has a note receivable from Middle Bay, an owner of 80% of the
outstanding common stock of the Company, as of September 30, 1999 of $5,809,557.
The principal balance of the note accrues interest at the prime rate and is due
on demand. The principal balance of the unsecured note consists of advances to
Middle Bay for general corporate purposes, accrued preferred stock dividends on
the Middle Bay Preferred Stock and accrued interest. Interest of $516,000 was
accrued since inception of the note as of September 30, 1999.
Middle Bay financed its tender offer with cash provided by Compass Bank and
Bank of Oklahoma (the "Banks"). The debt proceeds used to finance the tender
offer, approximately $15.9 million, was shown on the balance sheet of Middle
Bay. Pursuant to the terms of the credit agreement between Middle Bay, the
Company and the Banks, the Banks hold a security interest in certain oil and gas
properties of the Company. If certain properties are sold by the Company an
amount determined by the Banks would have to be paid on the outstanding
principal balance of the debt. The debt payment could be made by Middle Bay or
the Company. Amounts paid to the Banks by the Company would reduce the amount of
sales proceeds the Company would retain. If Middle Bay paid the debt payment to
the Banks, the amount of
7
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ENEX RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
(UNAUDITED)
(4) RELATED PARTY TRANSACTIONS (CONTINUED)
cash available to be paid to the Company by Middle Bay for any outstanding
obligations would be reduced. The principal balance of debt outstanding on
Middle Bay's financial statements at September 30, 1999 was approximately
$28.5 million.
Middle Bay allocates certain general and administrative expenses to the
Company based on the ratio of the Company's total oil and gas revenues to Middle
Bay's total oil and gas revenues. The amount of expenses allocated by Middle Bay
to the Company for the nine months ended September 30, 1999 was approximately
$127,000.
All of the directors of the Company, except David B. Dunton, also serve as
the directors of Middle Bay. Floyd C. Wilson, who is the only officer of the
Company is also an officer of Middle Bay.
(5) COMMITMENTS AND CONTINGENCIES
The Company is a defendant in various legal proceedings which are considered
routine litigation incidental to the Company's business, the disposition of
which management believes will not have a material effect on the financial
position or results of operations of the Company.
(6) SUBSEQUENT EVENTS
On October 7, 1999, Middle Bay announced its intention to purchase
$96 million of oil and gas properties located in Texas and Louisiana. Closing is
expected to be in November 1999 and is contingent on execution of a definitive
agreement between the parties.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1998
Net cash flow provided by operating activities was approximately $633,000
for the current period compared to approximately $877,000 for the comparable
period. The divestiture of the Consolidated Partnership as of October 1, 1998
and the acquisition of the Company by Middle Bay caused the more significant
effects on cash flow comparability between the periods. The divestiture of the
Consolidated Partnership reduced the cash flow from oil and gas properties and
the consolidation of corporate overheads with Middle Bay decreased the general
and administrative expenses for the Company and increased the cash flow from
operations.
Cash additions to oil and gas properties were lower than the comparable
period due primarily to the divestiture of the Consolidated Partnership and
minimal activity by the Company. The Company made no distributions to the
limited partners of the Consolidated Partnership in the current period due to
the divestiture effective October 1, 1998.
The Company had current assets of $259,000 and current liabilities of
$219,000, which resulted in working capital of $40,000 as of September 30, 1999.
This was a decrease in working capital of $82,000 from the working capital of
$122,000 as of December 31, 1998. Working capital decreased primarily due to a
decrease in accounts receivable from oil and gas sales and an increase in
accounts payable.
FUTURE CAPITAL REQUIREMENTS
The Company does not anticipate any capital expenditures for acquisition or
exploration of oil and natural gas reserves in the future. The Company expects
to make expenditures to develop its proved undeveloped reserves, to maintain its
proved developed reserves and to plug and abandon certain wells in Florida. The
Company expects to incur a minimum of $150,000 in capital expenditures over the
next twelve months. The Company expects that cash flows from operations,
proceeds from sales of certain oil and gas properties and advances from Middle
Bay will be sufficient to fund the planned capital expenditures for the next
twelve months.
Because future cash flows are subject to a number of variables, such as the
level of production and prices received for oil and gas and the prices received
on property sales, there can be no assurance that the Company's capital
resources will be sufficient to maintain planned levels of capital expenditures
and accordingly, oil and gas revenues and operating results may be adversely
affected.
YEAR 2000 COMPLIANCE
Readers are cautioned that the forward-looking statements contained in the
following Year 2000 discussion should be read in conjunction with the Company's
disclosures under the heading "Forward-Looking Statements." The disclosures also
constitute a "Year 2000 Readiness Disclosure" and "Year 2000 Statement" within
the meaning of the Year 2000 Information and Readiness Disclosure Act of 1998.
STATEMENT OF READINESS
The Company has undertaken various initiatives to ensure that its hardware,
software and equipment will function properly with respect to dates before and
after January 1, 2000. For this purpose, the phrase "hardware, software and
equipment" includes systems that are commonly thought of as Information
Technology systems ("IT"), as well as those Non-Information Technology systems
("Non-IT") and equipment which include embedded technology. IT systems include
computer hardware and software and other related systems. Non-IT systems include
certain oil and gas production and field equipment, gathering systems, office
equipment, telephone systems, security systems and other miscellaneous systems.
The
9
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Non-IT systems present the greatest readiness challenge since identification of
embedded technology is difficult and because the Company is, to a great extent,
reliant on third parties for Non-IT compliance.
The Company has formed a Year 2000 ("Y2K") Project team, which is chaired by
its Chief Financial Officer, Frank C. Turner, II. The team includes corporate
staff and representatives from the Company's business units. In response to the
possible risks posed to the Company, the team has developed a Y2K Plan (the
"Plan") which includes guidelines for inventory, assessment, remediation,
testing and contingency planning.
The following categories represent the mission-critical operational systems
of the Company. A "mission-critical system" is a system that is vital to the
successful continuation of a core business activity. An application may be
mission critical if it interfaces with a designated mission-critical system.
Each system has been evaluated by the Company as to (a) the risks to the Company
in the event of the most reasonably likely worst case scenario (the "Worst Case
Scenario"); (b) the status of the Company's remediation plan, if any ("Status");
and (c) the Company's contingency plans, if any ("Contingency Plans").
ACCOUNTING SOFTWARE SYSTEMS. The Company relies solely on the software
accounting packages ("Accounting Packages") to provide management with various
reports that allow managers to determine the cash flow and profitability of
individual properties and of the Company as a whole. Management also relies on
the Accounting Packages to provide financial information necessary to prepare
quarterly and annual financial reports that are sent to the Securities and
Exchange Commission, NASDAQ Stock Market, banks and stockholders. In addition,
the Company relies on the Accounting Packages to process and print checks to be
sent to working and royalty interest owners for their share of the monthly oil
and gas sales, to process and print checks for payment to vendors and to process
and print monthly joint-interest statements to be sent to working interest
owners in Company-operated oil and gas properties. Under a Worst Case Scenario,
all accounting functions would have to be completed manually, significantly
hindering the Company's ability to complete the above-described mission-critical
systems.
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Status: The Company has updated its accounting systems. Testing was
completed on June 30, 1999 and all primary functions
utilizing dates functioned properly.
Contingency Plans: Based on the results of the independent testing of the
Accounting Software System, the Y2K Team believes the risk
of the Accounting Software System being adversely affected
by Y2K is remote. If the Accounting Software System is
adversely affected by Y2K, the Company has developed various
contingency plans which include the utilization of support
personnel and the performance of manual tasks.
</TABLE>
CONTROL SYSTEMS AND IMBEDDED TECHNOLOGY. These systems include the
equipment used to produce, monitor, control, sell and record hydrocarbon
production, including all artificial lift equipment, storage, measurement and
control facilities and third-party systems and technology interrelated to the
Company's business. Under a Worst Case Scenario, multiple fields of oil and gas
would lose the ability to account for the amount of hydrocarbon production,
temporarily shutting down the field(s) for an extended period of time until the
malfunctioning part(s) could be repaired or replaced which would adversely
affect the Company.
<TABLE>
<S> <C>
Status: The Company operates the Segundo and Muldoon fields that are
expected to account for approximately 75% of the Company's
cash flow for the year ending December 31, 1999. These
field's production operations are not affected by Y2K
issues.
Contingency Plans: The Company will continue to monitor the operations at its
field locations and develop contingency planning if an
exposure becomes apparent.
</TABLE>
THIRD-PARTY SYSTEMS--OIL AND GAS PURCHASERS. The Company utilizes
third-party purchasers to sell the oil and gas produced from the wells in which
it has a working or royalty interest. The Company also
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depends on third-party purchasers to remit to the Company its share of the
proceeds from the sales of oil and gas. The Company does not directly sell any
oil and gas produced from the wells in which it has a working or royalty
interest and does not take any oil or gas in kind as an alternative to cash
payment. Under a Worst Case Scenario, multiple major purchasers would be
temporarily shut down due to Y2K issues, materially adversely affecting the
Company's revenues.
<TABLE>
<S> <C>
Status: The Company has two purchasers, PG&E and Conoco, which are
expected to account for approximately 75% of its oil and gas
revenues for the year ending December 31, 1999. The Company
has obtained information about these two purchasers and
their Y2K readiness. PG&E has significantly all of their
non-compliant mission-critical systems Y2K compliant as of
October 20, 1999. Conoco expects to have all of their
non-compliant mission-critical systems Y2K compliant by
December 31, 1999.
Contingency Plans: The Company continues to monitor the Y2K status of its major
purchasers. Should a purchaser not become Y2K compliant, the
Company will identify alternative purchasers for its
production and, if necessary, temporarily shut-in
production.
</TABLE>
THIRD-PARTY SYSTEMS--BANKING. The Company relies on its banks to deposit
checks payable to the Company and credit the checks to the appropriate accounts.
The Company also relies on its banks to credit third-party accounts for payment.
A Worst Case Scenario would occur if the Company's principal bank is unable to
provide certain services for an extended period of time due to Y2K, causing the
Company to be materially adversely affected.
<TABLE>
<S> <C>
Status: The Company's principal bank has represented that it
currently has a formal Y2K Plan in effect and has
substantially remediated and tested all of its
non-compliant, in-house and vendor-supported
mission-critical systems as of June 30, 1999.
Contingency Plans: The Company intends to have cash on hand sufficient to cover
short-term emergency payments and payroll. The Company also
plans to open accounts with other institutions in the event
its principal bank is unable to rectify its problems in a
timely manner. The Company has no long-term contingency
plans in the event of a system-wide failure of banking
institutions.
</TABLE>
THIRD-PARTY SYSTEMS--SUPPORT FUNCTIONS. The primary material support
functions provided by third parties are electrical service, communication
service and office space. Under a Worst Case Scenario, all primary support
functions would be hindered in the short term.
<TABLE>
<S> <C>
Status: All vendors of these services have reported that formal Y2K
remediation plans are in effect and will be substantially
complete by September 30, 1999.
Contingency Plans: Short-term (less than two weeks) interruptions of services
will not materially adversely effect the Company. The
Company will be able to conduct business on a reduced scale
using alternative business methods. Longer-term
interruptions may materially adversely effect the Company.
The Company has no plans sufficient to fully offset the
effect of long-term interruptions.
</TABLE>
COMPUTER OPERATING SYSTEMS AND APPLICATION SOFTWARE SYSTEMS. The Company
relies solely on its personal computer systems to access the accounting software
package through the Company's computer network. In addition, certain schedules
and databases that are used for critical functions rely on spreadsheet and
word-processing applications that are run on the Company's personal computer
systems.
<TABLE>
<S> <C>
Status: All systems appear to be Y2K ready.
Contingency Plans: Operations could be performed manually until non-functioning
equipment or software is repaired or replaced.
</TABLE>
11
<PAGE>
COSTS OF Y2K COMPLIANCE
The costs incurred by the Company to implement the Plan were not material to
the Company's financial condition or results of operations. The Company does not
expect any future costs related to the Plan to be material to the Company's
financial condition or results of operations.
THE RISKS OF Y2K ISSUES
The Company presently believes that Y2K issues will not pose significant
operational problems. However, if all significant Y2K issues are not properly
identified or assessed, remediation and testing are not effected timely, the Y2K
issues, either individually or in combination, may materially and adversely
impact the Company's results of operations, liquidity and financial condition or
materially and adversely affect its relationships with its business partners.
Additionally, the misrepresentation of compliance by other entities or the
persistent, universal failure of financial, transportation or other economic
systems will likely have a material and adverse impact on the Company's
operations or financial condition for which it cannot adequately prepare.
MIDDLE BAY OIL COMPANY, INC. SECURITIES PURCHASE AGREEMENT
On August 27, 1999 Middle Bay sold $21.4 million of common stock, warrants
and senior subordinated convertible debt to 3TEC Energy Company, L.L.C
(formerly, 3TEC Energy Corporation) ("3TEC") for $20.5 million in cash and oil
and gas properties valued at approximately $.9 million. 3TEC purchased 4,755,556
shares of newly issued Middle Bay common stock and five-year warrants to
purchase 3,600,000 shares of Middle Bay common stock for $10.7 million, and
10.7 million for newly issued debt.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
For the comparable period, the results of operations included the results of
operations of the Consolidated Partnership. The Company's entire interest in the
Consolidated Partnership was sold to Middle Bay, effective October 1, 1998.
Because of the sale, the results of operations of the Consolidated Partnership
are not included in the accounts of the Company subsequent to October 1, 1998.
For the current period, income before minority interest and taxes of
$304,000 decreased $112,000 from net income before minority interest and taxes
of $416,000 in the comparable period. The income before minority interest and
taxes decreased because of a decrease in a gain on sale of assets and a
reduction in all expense categories and an increase in income from preferred
stock dividends and interest income which were significantly offset by a
decrease in income from oil and gas operations.
The Company's oil and gas revenues, operating expenses, production taxes and
depletion, depreciation and amortization for the current period decreased from
the comparable period because of the divestiture of the Consolidated
Partnership.
During the current period, the Company sold 4,000 barrels of oil at an
average price of $27.51 per barrel and 86,000 Mcf of gas at an average price of
$2.68 per Mcf. During the comparable period, the Company sold 69,999 barrels of
oil at an average price of $11.51 per barrel and 416,046 Mcf of gas at an
average price of $1.92 per Mcf.
The preferred stock dividend income in the current period represents the
dividend accrued on the Middle Bay Preferred Stock owned by the Company. The
interest income in the current period represents interest accrued on the loans
to Middle Bay.
General and administrative expenses ("G&A") decreased because of the
consolidation of the Company's general and administrative functions with those
of Middle Bay. Subsequent to the March 27, 1998 tender offer by Middle Bay, the
Company began to consolidate it operations with Middle Bay. As of
12
<PAGE>
October 1, 1998, substantially all of the employees of the Company had resigned
and the Company headquarters were vacated. As of September 30, 1999, the Company
had no permanent or temporary employees. Substantially all of the general and
administrative functions for the current period were performed by Middle Bay
employees at a cost substantially less than was previously incurred by the
Company. Middle Bay allocates certain general and administrative expenses to the
Company based on the ratio of the Company's total oil and gas revenues to Middle
Bay's total oil and gas revenues. The amount of expenses allocated by Middle Bay
to the Company for the current period was approximately $58,000.
The net income for the current period of $201,000 decreased $54,000 from the
net income of $255,000 in the comparable period. The decrease in net income was
caused primarily by a decrease in net income before minority interest and an
increase in income tax expense. Because of the divestiture of the Consolidated
Partnership, the Company no longer records a minority interest related to the
interest in the Consolidated Partnership that it did not own. In the comparable
period, the Company recorded a minority interest for the 44% of the Consolidated
Partnership that it did not own.
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
For the comparable period, the results of operations included the results of
operations of the Consolidated Partnership. The Company's entire interest in the
Consolidated Partnership was sold to Middle Bay, effective October 1, 1998.
Because of the sale, the results of operations of the Consolidated Partnership
are not included in the accounts of the Company subsequent to October 1, 1998.
For the current period, income before minority interest and taxes of
$500,000 increased $600,000 from a loss before minority interest and taxes of
$100,000 in the comparable period. The income before minority interest and taxes
increased because of a reduction in all expense categories and an increase in
income from preferred stock dividends and interest.
The Company's oil and gas revenues, operating expenses, production taxes and
depletion, depreciation and amortization for the current period decreased from
the comparable period because of the divestiture of the Consolidated
Partnership.
During the current period, the Company sold 15,000 barrels of oil at an
average price of $15.54 per barrel and 271,000 Mcf of gas at an average price of
$2.14 per Mcf. During the comparable period, the Company sold 223,000 barrels at
an average price of $11.93 per barrel and 1,365,492 Mcf of gas at an average
price of $2.15 per Mcf.
The preferred stock dividend income in the current period represents the
dividend accrued on the Middle Bay Preferred Stock owned by the Company. The
interest income in the current period represents interest accrued on the loans
to Middle Bay.
During the current period, the Company incurred approximately $169,000 of
plugging and abandonment expense related to certain wells in Florida. This
expense is included in lease operating and other expenses.
General and administrative expenses ("G&A") decreased because of the
consolidation of the Company's general and administrative functions with those
of Middle Bay. Subsequent to the March 27, 1998 tender offer by Middle Bay, the
Company began to consolidate it operations with Middle Bay. As of October 1,
1998, substantially all of the employees of the Company had resigned and the
Company headquarters were vacated. As of September 30, 1999, the Company had no
permanent or temporary employees. Substantially all of the general and
administrative functions for the current period were performed by Middle Bay
employees at a cost substantially less than was previously incurred by the
Company. Middle Bay allocates certain general and administrative expenses to the
Company based on the ratio of the Company's total oil and gas revenues to Middle
Bay's total oil and gas revenues. The amount of expenses allocated by Middle Bay
to the Company for the current period was approximately $127,000.
13
<PAGE>
The net income for the current period of $330,000 increased $758,000 from
the net loss of $428,000 in the comparable period. The increase in net income
was caused by an increase in net income before minority interest and a decrease
in the minority interest deduction offset partially by a decrease in the
deferred tax benefit. Because of the divestiture of the Consolidated
Partnership, the Company no longer records a minority interest related to the
interest in the Consolidated Partnership that it did not own. In the comparable
period, the Company recorded a minority interest for the 44% of the Consolidated
Partnership that it did not own.
FORWARD LOOKING STATEMENTS
The Company may make forward looking statements, oral or written, including
statements in this report, press releases and other filings with the SEC,
relating to the Company's drilling plans, capital expenditures, the ability of
expected sources of liquidity to support working capital and capital expenditure
requirements, and the Company's financial position, business strategy and other
plans and objectives for future operations. Such statements involve risks and
uncertainties, including those relating to the volatility of oil and gas prices,
capital requirements of the Company's business and other factors detailed in
filings with the SEC. All subsequent oral and written forward looking statements
attributable to the Company are expressly qualified in their entirety by these
factors. The Company assumes no obligation to update these statements.
14
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Certificate of Incorporation of the Company as currently in effect.
(Incorporated by reference to the Company's current report on
Form 8-K dated June 30, 1992 where the same report appeared as
Exhibit 2).
3.2 Bylaws of the Company as currently in effect. (Incorporated by
reference to the Company's current report on Form 8-K dated June 30,
1992 where the same report appeared as Exhibit 3).
(4) (a) Articles Fourth, Sixth, Seventh, Fourteenth, Fifteenth,
Seventeenth and Twentieth of the Company's Certificate of
Incorporation and Article II of the Company's By-Laws.
Incorporated by reference to the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1992, where
the same appeared as part of Exhibits 3(a) and 3(b).
(b) Form of Rights Agreement dated as of September 4, 1990 between
the Company's predecessor-in-interest, Enex Resources
Corporation, a Colorado Corporation (the "Predecessor") and
American Securities Transfer, Incorporated as Rights Agent, which
includes as exhibits thereto the Form of Rights Certificate and
the Summary of Rights to Purchase Common Stock. Incorporated by
reference to the Predecessor's Current Report on Form 8-K, dated
as of September 4, 1990, where the same appeared as Exhibit 4.
10.7 Credit Agreement between Middle Bay Oil Company, Inc. and the
Company, as borrower, and Compass Bank, as agent and lender, Bank of
Oklahoma, N.A., as a lender, and other lenders signatory thereto,
dated March 27, 1998 (Incorporated by reference to Exhibits to
Amendment No. 3 and Final Amendment to Schedule 14D-1 filed
April 13, 1998 by Middle Bay Oil Company, Inc.).
10.8* First Amendment to Credit Agreement, dated August 27, 1999 by and
among the Middle Bay Oil Company, Inc. and the Company, Compass
Bank, and Bank of Oklahoma, National Association.
10.9* Second Amendment to Credit Agreement, dated October 19, 1999, by
and among the Middle Bay Oil Company, Inc. and the Company, Compass
Bank, and Bank of Oklahoma, National Association.
27 Financial Data Schedule.
* Filed herewith
15
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
<TABLE>
<S> <C> <C>
ENEX RESOURCES CORPORATION
(Registrant)
Date: November 13, 1999 By: /s/ FLOYD C. WILSON
-----------------------------------------
Floyd C. Wilson
PRESIDENT
</TABLE>
16
<PAGE>
FIRST AMENDMENT TO
CREDIT AGREEMENT
between
MIDDLE BAY OIL COMPANY, INC.
AND
ENEX RESOURCES CORPORATION
AS BORROWER
AND
COMPASS BANK, AS AGENT AND A LENDER
BANK OF OKLAHOMA, NATIONAL ASSOCIATION,
AS A LENDER
AND
THE OTHER LENDERS SIGNATORY HERETO
Effective as of
August __, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I. DEFINITIONS....................................................1
1.01 Terms Defined Above......................................1
1.02 Terms Defined in Agreement...............................1
1.03 References...............................................1
1.04 Articles and Sections....................................2
1.05 Number and Gender........................................2
ARTICLE II. AMENDMENTS.....................................................2
2.01 Amendment of Section 1.2.................................2
2.02 Amendment of Section 2.2.................................2
2.03 Amendment of Article V...................................3
ARTICLE III. CONDITIONS.....................................................3
3.01 Receipt of Documents.....................................3
3.02 Accuracy of Representations and Warranties...............3
3.03 Matters Satisfactory to Lender...........................4
ARTICLE IV. REPRESENTATIONS AND WARRANTIES.................................4
ARTICLE V. RATIFICATION...................................................4
ARTICLE VI. MISCELLANEOUS..................................................4
6.01 Scope of Amendment.......................................4
6.02 Agreement as Amended.....................................4
6.03 Parties in Interest......................................4
6.04 Rights of Third Parties..................................4
6.05 ENTIRE AGREEMENT.........................................5
6.06 GOVERNING LAW............................................5
6.07 JURISDICTION AND VENUE...................................5
</TABLE>
<PAGE>
FIRST AMENDMENT TO CREDIT AGREEMENT
This FIRST AMENDMENT TO CREDIT AGREEMENT (this "FIRST
AMENDMENT") is made and entered into effective as of August __, 1999, by
and between MIDDLE BAY OIL COMPANY, INC., an Alabama corporation ("MIDDLE BAY"),
and ENEX RESOURCES CORPORATION, a Delaware corporation ("ENEX") (collectively,
the "BORROWER", but with such entities constituting the Borrower being jointly
and severally liable for the Obligations and each reference herein to the
Borrower being applicable to each of such entities) and COMPASS BANK, an Alabama
state chartered banking institution ("COMPASS"), BANK OF OKLAHOMA, NATIONAL
ASSOCIATION, a national banking association ("BOK") and each other lender that
becomes a signatory hereto as provided in Section 9.1 of the Credit Agreement
(Compass and each such other lender, together with its successors and assigns,
individually a "Lender" and collectively, the "Lenders"), and Compass, as agent
for the Lenders pursuant to the terms hereof (in such capacity, together with
its successors in such capacity pursuant to the terms hereof, (the "AGENT").
W I T N E S S E T H:
WHEREAS, the above named parties did execute and exchange
counterparts of that certain Credit Agreement dated March 27, 1998, as amended
by various letter amendments (the "AGREEMENT"), to which reference is here made
for all purposes;
WHEREAS, the parties subject to and bound by the Agreement
are desirous of amending the Agreement in the particulars hereinafter set
forth;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements of the parties to the Agreement, as set forth therein, and the
mutual covenants and agreements of the parties hereto, as set forth in this
First Amendment, the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
1.01 TERMS DEFINED ABOVE. As used herein, each of the terms
"AGENT," "AGREEMENT," "BOK," "BORROWER," "COMPASS," "ENEX," "MIDDLE BAY,"
"LENDERS", and "FIRST AMENDMENT," shall have the meaning assigned to such term
hereinabove.
1.02 TERMS DEFINED IN AGREEMENT. As used herein, each term
defined in the Agreement shall have the meaning assigned thereto in the
Agreement, unless expressly provided herein to the contrary.
<PAGE>
1.03 REFERENCES. References in this First Amendment to
Article or Section numbers shall be to Articles and Sections of this First
Amendment, unless expressly stated herein to the contrary. References in this
First Amendment to "hereby," "herein," "hereinafter," "hereinabove,"
"hereinbelow," "hereof," and "hereunder" shall be to this First Amendment in
its entirety and not only to the particular Article or Section in which such
reference appears.
1.04 ARTICLES AND SECTIONS. This First Amendment, for
convenience only, has been divided into Articles and Sections and it is
understood that the rights, powers, privileges, duties, and other legal
relations of the parties hereto shall be determined from this First Amendment
as an entirety and without regard to such division into Articles and Sections
and without regard to headings prefixed to such Articles and Sections.
1.05 NUMBER AND GENDER. Whenever the context requires,
reference herein made to the single number shall be understood to include the
plural and likewise the plural shall be understood to include the singular.
Words denoting sex shall be construed to include the masculine, feminine, and
neuter, when such construction is appropriate, and specific enumeration shall
not exclude the general, but shall be construed as cumulative. Definitions of
terms defined in the singular and plural shall be equally applicable to the
plural or singular, as the case may be.
ARTICLE II.
AMENDMENTS
The Borrower and the Lenders hereby amend the Agreement in
the following particulars:
2.01 AMENDMENT OF SECTION 1.2. Section 1.2 of the Agreement
is hereby amended as follows:
The following definitions are added and/or amended to read as
follows:
"PERMITTED INDEBTEDNESS" shall mean (a) the Obligations, (b)
Indebtedness arising from endorsing negotiable instruments
for deposit or collection in the ordinary course of business,
(c) current liabilities incurred in the ordinary course of
business, (d) other Indebtedness which does not exceed an
aggregate principal amount of $250,000 during any fiscal
year, (e) Indebtedness existing by virtue of the requirements
of GAAP or any changes in the requirements of GAAP, and (f)
Subordinated Debt.
"SUBORDINATED DEBT" shall mean (i) the Senior Subordinated
Promissory Note dated August __, 1999, from Middle Bay Oil
Company, Inc. payable to 3TEC Energy Corporation in the
principal
2
<PAGE>
amount of $10,700,000, (ii) the Senior Subordinated
Promissory Note dated August __, 1999, from Middle Bay Oil
Company, Inc., payable to Shoemaker Family Partners, LP in
the amount of $50,000, and (iii) the Senior Subordinated
Promissory Note dated August __, 1999, from Middle Bay Oil
Company, Inc., payable to Shoeinvest II, LP in the amount of
$100,000.
ARTICLE III.
CONDITIONS
The obligation of the Lenders to amend the Agreement as
provided herein is subject to the fulfillment of the following conditions
precedent:
3.01 RECEIPT OF DOCUMENTS. The Lenders shall have received,
reviewed, and approved the following documents and other items, appropriately
executed when necessary and in form and substance satisfactory to the Agent:
(a) multiple counterparts of this First Amendment as
requested by the Agent;
(b) Subordination Agreement dated August __, 1999, by and
among 3TEC Energy Corporation, Middle Bay Oil Company, Inc.
and Compass Bank and Bank of Oklahoma, National
Association.; and
(c) Subordination Agreement dated August __, 1999, by and
mong Shoemaker Family Partners, LP, Middle Bay Oil Company,
nc. and Compass Bank and Bank of Oklahoma, National
ssociation.; and
(d) Subordination Agreement dated August __, 1999, by and
among Shoeinvest II, LP, Middle Bay Oil Company, Inc. and
Compass Bank and Bank of Oklahoma, National Association.; and
(e) such other agreements, documents, items, instruments,
opinions, certificates, waivers, consents, and evidence as
the Agent may reasonably request.
3.02 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties contained in Article IV of the Agreement and
this First Amendment shall be true and correct.
3.03 MATTERS SATISFACTORY TO LENDERS. All matters incident
to the consummation of the transactions contemplated hereby shall be
satisfactory to the Lenders.
3
<PAGE>
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
The Borrower hereby expressly re-makes, in favor of the Agent
and the Lenders, all of the representations and warranties set forth in Article
IV of the Agreement, and represents and warrants that all such representations
and warranties remain true and unbreached.
ARTICLE V.
RATIFICATION
Each of the parties hereto does hereby adopt, ratify, and
confirm the Agreement and the other Loan Documents, in all things in accordance
with the terms and provisions thereof, as amended by this First Amendment.
ARTICLE VI.
MISCELLANEOUS
6.01 SCOPE OF AMENDMENT. The scope of this First Amendment
is expressly limited to the matters addressed herein and this First Amendment
shall not operate as a waiver of any past, present, or future breach, Default,
or Event of Default under the Agreement, except to the extent, if any, that any
such breach, Default, or Event of Default is remedied by the effect of this
First Amendment.
6.02 AGREEMENT AS AMENDED. All references to the Agreement
in any document heretofore or hereafter executed in connection with the
transactions contemplated in the Agreement shall be deemed to refer to the
Agreement as amended by this First Amendment.
6.03 PARTIES IN INTEREST. All provisions of this First
Amendment shall be binding upon and shall inure to the benefit of the Borrower,
the Lender and their respective successors and assigns.
6.04 RIGHTS OF THIRD PARTIES. All provisions herein are
imposed solely and exclusively for the benefit of the Agent and the Lenders and
the Borrower, and no other Person shall have standing to require satisfaction
of such provisions in accordance with their terms and any or all of such
provisions may be freely waived in whole or in part by the Lender at any time
if in its sole discretion it deems it advisable to do so.
6.05 ENTIRE AGREEMENT. THIS AGREEMENT AND THE OTHER WRITTEN
LOAN DOCUMENTS CONSTITUTE THE ENTIRE AGREEMENT BETWEEN THE PARTIES HERETO WITH
RESPECT TO THE SUBJECT HEREOF AND SHALL SUPERSEDE ANY PRIOR AGREEMENT BETWEEN
THE PARTIES HERETO,
4
<PAGE>
WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT HEREOF. FURTHERMORE, IN
THIS REGARD, THIS AGREEMENT AND THE OTHER WRITTEN LOAN DOCUMENTS REPRESENT,
COLLECTIVELY, THE FINAL AGREEMENT AMONG THE PARTIES THERETO AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF SUCH PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG SUCH
PARTIES.
6.06 GOVERNING LAW. THIS AGREEMENT AND THE NOTE SHALL BE
DEEMED TO BE CONTRACTS MADE UNDER AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO PRINCIPLES
THEREOF RELATING TO CONFLICTS OF LAW; PROVIDED, HOWEVER, THAT CHAPTER 345 OF THE
TEXAS FINANCE CODE (WHICH REGULATES CERTAIN REVOLVING CREDIT LOAN ACCOUNTS AND
REVOLVING TRIPARTY ACCOUNTS) SHALL NOT APPLY.
6.07 JURISDICTION AND VENUE. ALL ACTIONS OR PROCEEDINGS WITH
RESPECT TO, ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED
TO, OR FROM THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE LITIGATED, AT THE
SOLE DISCRETION AND ELECTION OF THE LENDERS, IN COURTS HAVING SITUS IN HOUSTON,
HARRIS COUNTY, TEXAS. THE BORROWER HEREBY SUBMIT TO THE JURISDICTION OF ANY
LOCAL, STATE, OR FEDERAL COURT LOCATED IN HOUSTON, HARRIS COUNTY, TEXAS, AND
HEREBY WAIVE ANY RIGHTS THEY MAY HAVE TO TRANSFER OR CHANGE THE JURISDICTION OR
VENUE OF ANY LITIGATION BROUGHT AGAINST THEM BY THE LENDERS IN ACCORDANCE WITH
THIS SECTION.
IN WITNESS WHEREOF, this First Amendment to Credit Agreement
is executed effective the date first hereinabove written.
BORROWER:
MIDDLE BAY OIL COMPANY, INC.
By:
-------------------------------
John J. Bassett
President
5
<PAGE>
ENEX RESOURCES CORPORATION
By:
-------------------------------
John J. Bassett
President
LENDER AND AGENT:
COMPASS BANK
By:
-------------------------------
Dorothy Marchand Wilson
Senior Vice President
LENDER:
BANK OF OKLAHOMA, NATIONAL
ASSOCIATION
By:
-------------------------------
Michael M. Coats
Senior Vice President
6
<PAGE>
SECOND AMENDMENT TO
CREDIT AGREEMENT
between
MIDDLE BAY OIL COMPANY, INC.
AND
ENEX RESOURCES CORPORATION
AS BORROWER
AND
COMPASS BANK, AS AGENT AND A LENDER
BANK OF OKLAHOMA, NATIONAL ASSOCIATION,
AS A LENDER
AND
THE OTHER LENDERS SIGNATORY HERETO
Effective as of
October __, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I. DEFINITIONS .................................................... 1
1.01 Terms Defined Above ..................................... 1
1.02 Terms Defined in Agreement .............................. 1
1.03 References .............................................. 1
1.04 Articles and Sections ................................... 2
1.05 Number and Gender ....................................... 2
ARTICLE II. AMENDMENTS ..................................................... 2
2.01 Amendment of Section 1.2 ................................ 2
2.02 Amendment of Section 2.2 ................................ 2
2.03 Amendment of Article V. ................................. 3
ARTICLE III. CONDITIONS ..................................................... 3
3.01 Receipt of Documents .................................... 3
3.02 Accuracy of Representations and Warranties .............. 3
3.03 Matters Satisfactory to Lender .......................... 4
ARTICLE IV. REPRESENTATIONS AND WARRANTIES ................................. 4
ARTICLE V. RATIFICATION ................................................... 4
ARTICLE VI. MISCELLANEOUS .................................................. 4
6.01 Scope of Amendment ...................................... 4
6.02 Agreement as Amended .................................... 4
6.03 Parties in Interest ..................................... 4
6.04 Rights of Third Parties ................................. 4
6.05 ENTIRE AGREEMENT ........................................ 5
6.06 GOVERNING LAW ........................................... 5
6.07 JURISDICTION AND VENUE .................................. 5
</TABLE>
i
<PAGE>
SECOND AMENDMENT TO CREDIT AGREEMENT
------------------------------------
This SECOND AMENDMENT TO CREDIT AGREEMENT (this "SECOND AMENDMENT")
is made and entered into effective as of October __, 1999, by and between MIDDLE
BAY OIL COMPANY, INC., an Alabama corporation ("MIDDLE Bay"), and ENEX RESOURCES
CORPORATION, a Delaware corporation ("ENEX") (collectively, the "BORROWER", but
with such entities constituting the Borrower being jointly and severally liable
for the Obligations and each reference herein to the Borrower being applicable
to each of such entities) and COMPASS BANK, an Alabama state chartered banking
institution ("COMPASS"), BANK OF OKLAHOMA, NATIONAL ASSOCIATION, a national
banking association ("BOK") and each other lender that becomes a signatory
hereto as provided in Section 9.1 of the Credit Agreement (Compass and each such
other lender, together with its successors and assigns, individually a "Lender"
and collectively, the "Lenders"), and Compass, as agent for the Lenders pursuant
to the terms hereof (in such capacity, together with its successors in such
capacity pursuant to the terms hereof, (the "AGENT").
W I T N E S S E T H:
--------------------
WHEREAS, the above named parties did execute and exchange
counterparts of that certain Credit Agreement dated March 27, 1998, as amended
by various letter amendments, and as further amended by First Amendment to
Credit Agreement dated August 27, 1999 (the "AGREEMENT"), to which reference is
here made for all purposes;
WHEREAS, the parties subject to and bound by the Agreement are
desirous of amending the Agreement in the particulars hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements of the parties to the Agreement, as set forth therein, and the mutual
covenants and agreements of the parties hereto, as set forth in this Second
Amendment, the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
-----------
1.01 TERMS DEFINED ABOVE. As used herein, each of the terms
"AGENT," "AGREEMENT," "BOK," "BORROWER," "COMPASS," "ENEX," "MIDDLE BAY,"
"LENDERS", and "SECOND AMENDMENT," shall have the meaning assigned to such term
hereinabove.
1.02 TERMS DEFINED IN AGREEMENT. As used herein, each term
defined in the Agreement shall have the meaning assigned thereto in the
Agreement, unless expressly provided herein to the contrary.
<PAGE>
1.03 REFERENCES. References in this Second Amendment to Article or
Section numbers shall be to Articles and Sections of this Second Amendment,
unless expressly stated herein to the contrary. References in this Second
Amendment to "hereby," "herein," "hereinafter," "hereinabove," "hereinbelow,"
"hereof," and "hereunder" shall be to this Second Amendment in its entirety and
not only to the particular Article or Section in which such reference appears.
1.04 ARTICLES AND SECTIONS. This Second Amendment, for convenience
only, has been divided into Articles and Sections and it is understood that the
rights, powers, privileges, duties, and other legal relations of the parties
hereto shall be determined from this Second Amendment as an entirety and without
regard to such division into Articles and Sections and without regard to
headings prefixed to such Articles and Sections.
1.05 NUMBER AND GENDER. Whenever the context requires, reference
herein made to the single number shall be understood to include the plural and
likewise the plural shall be understood to include the singular. Words denoting
sex shall be construed to include the masculine, feminine, and neuter, when such
construction is appropriate, and specific enumeration shall not exclude the
general, but shall be construed as cumulative. Definitions of terms defined in
the singular and plural shall be equally applicable to the plural or singular,
as the case may be.
ARTICLE II.
AMENDMENTS
----------
The Borrower and the Lenders hereby amend the Agreement in the
following particulars:
2.01 AMENDMENT OF SECTION 1.2. Section 1.2 of the Agreement is
hereby amended as follows:
The following definitions is added and/or amended to read as
follows:
"SUBORDINATED DEBT" shall mean (i) the Senior Subordinated
Promissory Note dated August 27, 1999, from Middle Bay Oil Company,
Inc. payable to 3TEC Energy Corporation in the principal amount of
$10,700,000, (ii) the Senior Subordinated Promissory Note dated
August 27, 1999, from Middle Bay Oil Company, Inc., payable to
Shoemaker Family Partners, LP in the amount of $50,000, (iii) the
Senior Subordinated Promissory Note dated August 27, 1999, from
Middle Bay Oil Company, Inc., payable to Shoeinvest II, LP in the
amount of $100,000, and (iv) the Senior Subordinated Convertible
Promissory Note dated October __, 1999, from Middle Bay Oil Company,
Inc., payable to The Prudential Insurance Company of America in the
principal amount of $2,373,844.
2
<PAGE>
ARTICLE III.
CONDITIONS
------------
The obligation of the Lenders to amend the Agreement as provided
herein is subject to the fulfillment of the following conditions precedent:
3.01 RECEIPT OF DOCUMENTS. The Lenders shall have received,
reviewed, and approved the following documents and other items, appropriately
executed when necessary and in form and substance satisfactory to the Agent:
(a) multiple counterparts of this Second Amendment as requested by
the Agent; and
(b) such other agreements, documents, items, instruments, opinions,
certificates, waivers, consents, and evidence as the Agent may
reasonably request.
3.02 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties contained in Article IV of the Agreement and this Second
Amendment shall be true and correct.
3.03 MATTERS SATISFACTORY TO LENDERS. All matters incident to the
consummation of the transactions contemplated hereby shall be satisfactory to
the Lenders.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
------------------------------
The Borrower hereby expressly re-makes, in favor of the Agent and
the Lenders, all of the representations and warranties set forth in Article IV
of the Agreement, and represents and warrants that all such representations and
warranties remain true and unbreached.
ARTICLE V.
RATIFICATION
------------
Each of the parties hereto does hereby adopt, ratify, and confirm
the Agreement and the other Loan Documents, in all things in accordance with
the terms and provisions thereof, as amended by this Second Amendment.
3
<PAGE>
ARTICLE VI.
MISCELLANEOUS
-------------
6.01 SCOPE OF AMENDMENT. The scope of this Second Amendment is
expressly limited to the matters addressed herein and this Second Amendment
shall not operate as a waiver of any past, present, or future breach, Default,
or Event of Default under the Agreement, except to the extent, if any, that any
such breach, Default, or Event of Default is remedied by the effect of this
Second Amendment.
6.02 AGREEMENT AS AMENDED. All references to the Agreement in any
document heretofore or hereafter executed in connection with the transactions
contemplated in the Agreement shall be deemed to refer to the Agreement as
amended by this Second Amendment.
6.03 PARTIES IN INTEREST. All provisions of this Second Amendment
shall be binding upon and shall inure to the benefit of the Borrower, the Lender
and their respective successors and assigns.
6.04 RIGHTS OF THIRD PARTIES. All provisions herein are imposed
solely and exclusively for the benefit of the Agent and the Lenders and the
Borrower, and no other Person shall have standing to require satisfaction of
such provisions in accordance with their terms and any or all of such provisions
may be freely waived in whole or in part by the Lender at any time if in its
sole discretion it deems it advisable to do so.
6.05 ENTIRE AGREEMENT. THIS AGREEMENT AND THE OTHER WRITTEN LOAN
DOCUMENTS CONSTITUTE THE ENTIRE AGREEMENT BETWEEN THE PARTIES HERETO WITH
RESPECT TO THE SUBJECT HEREOF AND SHALL SUPERSEDE ANY PRIOR AGREEMENT BETWEEN
THE PARTIES HERETO, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT HEREOF.
FURTHERMORE, IN THIS REGARD, THIS AGREEMENT AND THE OTHER WRITTEN LOAN DOCUMENTS
REPRESENT, COLLECTIVELY, THE FINAL AGREEMENT AMONG THE PARTIES THERETO AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF SUCH PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG SUCH
PARTIES.
6.06 GOVERNING LAW. THIS AGREEMENT AND THE NOTE SHALL BE DEEMED TO
BE CONTRACTS MADE UNDER AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED
BY THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO PRINCIPLES THEREOF
RELATING TO CONFLICTS OF LAW; PROVIDED, HOWEVER, THAT CHAPTER 345 OF THE TEXAS
FINANCE CODE (WHICH REGULATES CERTAIN REVOLVING CREDIT LOAN ACCOUNTS AND
REVOLVING TRIPARTY ACCOUNTS) SHALL NOT APPLY.
4
<PAGE>
6.07 JURISDICTION AND VENUE. ALL ACTIONS OR PROCEEDINGS WITH RESPECT
TO, ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED TO, OR
FROM THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE LITIGATED, AT THE SOLE
DISCRETION AND ELECTION OF THE LENDERS, IN COURTS HAVING SITUS IN HOUSTON,
HARRIS COUNTY, TEXAS. THE BORROWER HEREBY SUBMIT TO THE JURISDICTION OF ANY
LOCAL, STATE, OR FEDERAL COURT LOCATED IN HOUSTON, HARRIS COUNTY, TEXAS, AND
HEREBY WAIVE ANY RIGHTS THEY MAY HAVE TO TRANSFER OR CHANGE THE JURISDICTION OR
VENUE OF ANY LITIGATION BROUGHT AGAINST THEM BY THE LENDERS IN ACCORDANCE WITH
THIS SECTION.
IN WITNESS WHEREOF, this Second Amendment to Credit Agreement
is executed effective the date first hereinabove written.
BORROWER:
---------
MIDDLE BAY OIL COMPANY, INC.
By: ______________________________________
Floyd C. Wilson
President and Chief Executive Officer
ENEX RESOURCES CORPORATION
By: ______________________________________
Floyd C. Wilson
President and Chief Executive Officer
LENDER AND AGENT:
COMPASS BANK
By: ______________________________________
Dorothy Marchand Wilson
Senior Vice President
5
<PAGE>
LENDER:
BANK OF OKLAHOMA, NATIONAL
ASSOCIATION
By: ______________________________________
Michael M. Coats
Senior Vice President
6
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 259,244
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 259,244
<PP&E> 3,998,656
<DEPRECIATION> 3,172,376
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<CURRENT-LIABILITIES> 219,029
<BONDS> 0
0
0
<COMMON> 16,418,422
<OTHER-SE> (3,244,947)
<TOTAL-LIABILITY-AND-EQUITY> 13,392,504
<SALES> 808,178
<TOTAL-REVENUES> 1,550,813
<CGS> 547,495
<TOTAL-COSTS> 1,050,619
<OTHER-EXPENSES> 0
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<INCOME-PRETAX> 500,194
<INCOME-TAX> 170,066
<INCOME-CONTINUING> 330,128
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 330,128
<EPS-BASIC> 0.25
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