<PAGE>
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
-------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 1-10662
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Cross Timbers Oil Company
(Exact name of registrant as specified in its charter)
Delaware 75-2347769
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
810 Houston Street, Suite 2000, Fort Worth, Texas 76102
------------------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
(817) 870-2800
----------------------------------------------------
(Registrant's telephone number, including area code)
NONE
------------------------------------------------------------
(Former name, former address and former fiscal year, if change since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class Outstanding as of August 2, 1999
---------------------------- --------------------------------
Common stock, $.01 par value 48,771,962
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<PAGE>
CROSS TIMBERS OIL COMPANY
Form 10-Q for the Quarterly Period Ended June 30, 1999
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
at June 30, 1999 and December 31, 1998..................................3
Consolidated Statements of Operations
for the Three and Six Months Ended June 30, 1999 and 1998...............4
Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1999 and 1998.........................5
Notes to Consolidated Financial Statements................................6
Report of Independent Public Accountants..................................14
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...........................15
Item 3. Quantitative and Qualitative Disclosures about Market Risk................22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.........................................................23
Item 4. Submission of Matters to a Vote of Security Holders.......................23
Item 5. Other Information.........................................................23
Item 6. Exhibits and Reports on Form 8-K..........................................24
Signatures................................................................25
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
CROSS TIMBERS OIL COMPANY
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
(in thousands)
<TABLE>
<CAPTION>
June 30,
1999 December 31,
(Unaudited) 1998
----------- -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents......................................... $ 1,808 $ 12,333
Accounts receivable, net.......................................... 61,973 50,607
Investment in equity securities (Note 2).......................... 36,393 44,386
Deferred income tax benefit....................................... 14,256 24,816
Other current assets.............................................. 9,497 5,436
----------- -------------
Total Current Assets............................................. 123,927 137,578
----------- -------------
Property and Equipment, at cost - successful efforts method:
Producing properties.............................................. 1,185,212 1,335,844
Undeveloped properties............................................ 7,121 6,845
Gas gathering and other........................................... 28,423 27,829
----------- -------------
Total Property and Equipment..................................... 1,220,756 1,370,518
Accumulated depreciation, depletion and amortization.............. (325,453) (319,507)
----------- -------------
Net Property and Equipment..................................... 895,303 1,051,011
----------- -------------
Other Assets....................................................... 13,133 13,210
----------- -------------
Loans to Officers (Note3).......................................... 6,364 5,795
----------- -------------
TOTAL ASSETS....................................................... $ 1,038,727 $ 1,207,594
=========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities.......................... $ 45,365 $ 93,583
Payable to royalty trusts......................................... 2,342 968
Short-term debt................................................... 5,000 4,962
Other current liabilities......................................... 4,002 75
----------- -------------
Total Current Liabilities........................................ 56,709 99,588
----------- -------------
Long-term Debt (Note 4)............................................ 745,000 921,000
----------- -------------
Deferred Income Taxes Payable...................................... 10,498 6,892
----------- -------------
Other Long-term Liabilities........................................ 8,968 2,663
----------- -------------
Commitments and Contingencies (Note 5)
Stockholders' Equity:
Series A Convertible preferred stock ($.01 par value, 25,000,000
shares authorized, 1,138,729 issued at liquidation value
of $25).......................................................... 28,468 28,468
Common stock ($.01 par value, 100,000,000 shares authorized,
54,064,258 and 54,048,227 shares issued)......................... 541 541
Additional paid-in capital........................................ 352,846 338,503
Treasury stock (9,321,691 and 9,320,971 shares)................... (118,564) (118,555)
Retained earnings................................................. (45,739) (71,506)
----------- -------------
Total Stockholders' Equity...................................... 217,552 177,451
----------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY......................... $ 1,038,727 $ 1,207,594
=========== =============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
CROSS TIMBERS OIL COMPANY
Consolidated Statements of Operations (Unaudited)
- --------------------------------------------------------------------------------
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- --------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES
Oil and condensate.................................... $ 19,372 $ 13,674 $ 35,140 $ 28,736
Gas and natural gas liquids........................... 43,248 45,779 95,212 78,771
Gas gathering, processing and marketing............... 1,236 2,134 3,028 3,786
Other................................................. 1,648 65 1,631 327
-------- -------- -------- --------
Total Revenues........................................ 65,504 61,652 135,011 111,620
-------- -------- -------- --------
EXPENSES
Production............................................ 18,307 13,581 36,798 26,089
Exploration........................................... 320 3,721 529 5,089
Taxes, transportation and other....................... 8,129 7,263 15,337 12,367
Depreciation, depletion and amortization.............. 23,154 20,107 49,330 35,689
General and administrative............................ 2,844 4,820 5,760 6,834
Gas gathering and processing.......................... 2,039 2,103 4,216 4,235
Trust development costs............................... - 367 - 634
-------- -------- -------- --------
Total Expenses........................................ 54,793 51,962 111,970 90,937
-------- -------- -------- --------
OPERATING INCOME....................................... 10,711 9,690 23,041 20,683
-------- -------- -------- --------
OTHER INCOME (EXPENSE)
Gain on sale of Hugoton Royalty Trust units (Note 9).. 40,331 - 40,331 -
Gain on investment in equity securities (Note 2)...... 5,742 5,120 6,548 5,689
Interest expense, net................................. (12,817) (12,972) (28,207) (24,139)
-------- -------- -------- --------
Total Other Income (Expense).......................... 33,256 (7,852) 18,672 (18,450)
-------- -------- -------- --------
INCOME BEFORE INCOME TAX............................... 43,967 1,838 41,713 2,233
-------- -------- -------- --------
INCOME TAX
Current............................................... 16 20 (14) 20
Deferred.............................................. 14,937 614 14,175 748
-------- -------- -------- --------
Total Income Tax Expense.............................. 14,953 634 14,161 768
-------- -------- -------- --------
NET INCOME............................................. 29,014 1,204 27,552 1,465
Preferred Stock Dividends............................. 445 445 890 890
-------- -------- -------- --------
EARNINGS AVAILABLE TO COMMON STOCK..................... $ 28,569 $ 759 $ 26,662 $ 575
======== ======== ======== ========
EARNINGS PER COMMON SHARE (Note 7)
Basic................................................. $ 0.64 $0.02 $0.60 $0.01
======== ======== ======== ========
Diluted............................................... $ 0.61 $0.02 $0.58 $0.01
======== ======== ======== ========
DIVIDENDS DECLARED PER COMMON SHARE.................... $ 0.01 $0.04 $0.02 $0.08
======== ======== ======== ========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING.................................... 44,733 43,940 44,730 41,506
======== ======== ======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
4
<PAGE>
CROSS TIMBERS OIL COMPANY
Consolidated Statements of Cash Flows (Unaudited)
- --------------------------------------------------------------------------------
(in thousands)
<TABLE>
<CAPTION>
(Note 8)
Six Months Ended June 30,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income...................................................... $ 27,552 $ 1,465
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization...................... 49,330 35,689
Exploration................................................... 529 5,089
Stock incentive compensation.................................. 96 1,317
Deferred income tax........................................... 14,175 748
Gain on investment in equity securities and
from sale of property........................................ (51,464) (5,687)
Other non-cash items.......................................... 1,813 675
Changes in operating assets and liabilities (a)................. 6,479 (132,668)
----------- -----------
Cash Provided (Used) by Operating Activities.................... 48,510 (93,372)
----------- -----------
INVESTING ACTIVITIES
Proceeds from sale of Hugoton Royalty Trust units (Note 9)...... 148,570 -
Proceeds from sale of other property and equipment.............. 45,504 417
Property acquisitions........................................... (35,742) (235,812)
Loans to officers............................................... (629) -
Loan repayments from officers................................... 60 -
Exploration and development costs............................... (35,392) (25,099)
Gas plant, gathering and other additions........................ (2,338) (4,773)
----------- -----------
Cash Provided (Used) by Investing Activities.................... 120,033 (265,267)
----------- -----------
FINANCING ACTIVITIES
Proceeds from short- and long-term debt......................... 47,000 665,150
Payments on short- and long-term debt........................... (222,962) (399,300)
Common stock offering........................................... - 133,304
Dividends....................................................... (3,125) (3,907)
Net proceeds (disbursements) related to stock option exercises.. 28 (460)
Purchase of treasury stock...................................... (9) (31,497)
----------- -----------
Cash Provided (Used) by Financing Activities.................... (179,068) 363,290
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................. (10,525) 4,651
Cash and Cash Equivalents, Beginning of Period................... 12,333 3,816
----------- -----------
Cash and Cash Equivalents, End of Period......................... $ 1,808 $ 8,467
=========== ===========
(a) Changes in Operating Assets and Liabilities
Accounts receivable.................................................. $ 3,227 $ (4,625)
Investment in equity securities...................................... 17,640 (130,421)
Other current assets................................................. (4,013) (929)
Accounts payable, accrued liabilities and payable to royalty trusts.. (20,682) 3,307
Other current liabilities............................................ 3,832 -
Other long-term liabilities.......................................... 6,475 -
----------- -----------
Increase (Decrease) in Operating Assets and Liabilities............... $ 6,479 $(132,668)
=========== ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
5
<PAGE>
CROSS TIMBERS OIL COMPANY
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
1. Interim Financial Statements
The accompanying consolidated financial statements of Cross Timbers Oil
Company ("the Company"), with the exception of the consolidated balance sheet at
December 31, 1998, have not been audited by independent public accountants. In
the opinion of the Company's management, the accompanying financial statements
reflect all adjustments necessary to present fairly the Company's financial
position at June 30, 1999, its results of operations for the three and six
months ended June 30, 1999 and 1998, and its cash flows for the six months ended
June 30, 1999 and 1998. All such adjustments are of a normal recurring nature.
Certain amounts presented in prior period financial statements have been
reclassified for consistency with current period presentation. The results for
interim periods are not necessarily indicative of annual results.
Certain disclosures have been condensed or omitted from these financial
statements. Accordingly, these financial statements should be read with the
Company's consolidated financial statements included in the Company's 1998
annual report on Form 10-K.
Comprehensive Income
During the six months ended June 30, 1999 and 1998, there were no reportable
elements of comprehensive income other than net income.
Royalty Trusts
The Company makes monthly net profits payments to Cross Timbers Royalty Trust
and Hugoton Royalty Trust (Note 9) based on revenues and costs related to
properties from which net profits interests were carved. Effective January 1,
1999, the Company changed its method of accounting for the trusts from the
royalty interest method to the working interest method. Under the working
interest method, amounts due the trusts are carved from the Company's revenues,
taxes, production expenses and development costs. The Company no longer records
the trusts' portion of development costs as an expense in the consolidated
statements of operations, and reported oil and gas production and revenues,
taxes and production expense are lower than reported under the royalty interest
method. There is no difference in operating income or net income under these
two methods of accounting. The effect of this change on prior year financial
statements was not significant.
2. Investment in Equity Securities
In accordance with Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities, equity
securities acquired since 1997 have been recorded as trading securities since
such securities were principally held for resale in the near future.
Accordingly, such investment has been recorded as a current asset at market
value, unrealized holding gains and losses have been recognized in the
consolidated statements of operations and cash flows from purchases and sales of
equity securities have been included in cash provided (used) by operating
activities in the consolidated statements of cash flows. Gains (losses) on
trading securities and interest related to the cost of these investments have
been classified as other income (expense).
The following are components of gain (loss) on investment in equity
securities (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Realized gains (losses) on sale of securities:
Gains......................................... $ - $ 699 $ - $ 761
Losses........................................ (5) - (23,047) (14)
--------- --------- --------- ---------
Net gains (losses)............................ (5) 699 (23,047) 747
Changes in unrealized gains and losses.......... 7,149 5,183 32,695 5,787
Interest expense related to investment in
equity securities............................. (1,402) (762) (3,100) (845)
--------- --------- --------- ---------
Gain on investment in equity securities......... $ 5,742 $ 5,120 $ 6,548 $ 5,689
========= ========= ========= =========
</TABLE>
6
<PAGE>
As of June 30, 1999, the unrealized holding loss on investment in equity
securities was $39.9 million, as compared with an unrealized holding loss of
$37.7 million on August 6, 1999.
3. Related Party Transactions
Pursuant to margin support agreements with each of six officers, the Company
agreed to use the value of its investments in equity securities (Note 2) to
provide margin support for the officers' broker accounts where they hold Company
common stock. The Company has also agreed to pay each officer's margin debt to
the extent unpaid by the officer. In connection with these agreements, in
December 1998 the Company loaned officers a total of $5,795,000 to reduce their
margin debt. The loans are full recourse and due in five years, with interest
equal to the Company's bank debt rates. In June 1999, the Company terminated its
margin support agreements with two officers. As of July 31, 1999, total margin
debt on broker accounts for the remaining officers was $1.7 million.
4. Long-term Debt
The Company's outstanding debt consists of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
--------- ------------
<S> <C> <C>
Short-term Debt:
Short-term borrowings............... $ 3,000 $ 4,962
Reclassified to long-term debt... (3,000) -
-------- --------
- 4,962
Reclassified from long-term debt.... 5,000 -
-------- --------
Total short-term debt.......... $ 5,000 $ 4,962
======== ========
Long-term Debt:
Senior bank debt.................... $441,000 $615,000
Subordinated notes payable.......... 300,000 300,000
Note payable to Shell............... 6,000 6,000
Reclassified to short-term debt.. (5,000) -
-------- --------
742,000 921,000
Reclassified from short-term debt... 3,000 -
-------- --------
Total long-term debt........... $745,000 $921,000
======== ========
</TABLE>
Senior bank debt was reduced primarily from proceeds from the sale of Hugoton
Royalty Trust units (Note 9) and non-operated producing properties, net of
payments to Shell for the Cook Inlet Acquisition (Note 11) and the cash deposit
for the Spring Holding Company Acquisition (Note 10). Bank debt was further
reduced by approximately $18 million in July related to the sale of common stock
(Note 6). See Note 10 regarding long-term debt of Spring Holding Company and
Note 12 regarding financing of the Arkoma Basin acquisition which is expected to
close in September 1999.
Reclassification of short-term to long-term debt at June 30, 1999 represents
unused capacity under the Company's Revolving Credit Agreement with commercial
banks ("loan agreement"). Based on July 1999 NYMEX crude oil prices, $5 million
of the $6 million note payable to Shell (Note 11) was reclassified to short-term
debt at June 30, 1999.
The Company amended the loan agreement in May and June 1999, resulting in a
borrowing base and commitment of $497 million and unused borrowing capacity of
approximately $56 million at June 30, 1999. Other significant provisions of the
loan agreement remained unchanged.
7
<PAGE>
5. Commitments and Contingencies
Commodity Commitments
The Company has entered into gas futures contracts that effectively fix
prices for the production and periods shown below. These amounts include
futures contracts held by Spring (Note 10). Prices to be realized for hedged
production will be less than these NYMEX prices because of location, quality and
other adjustments. See "Oil and Gas Production and Prices" under Item 2,
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
<TABLE>
<CAPTION>
Production Month Mcf per Day Price per Mcf
---------------- ----------- -------------
<S> <C> <C>
1999 September 210,000 $2.33
October 130,000 2.31
November 120,000 2.39
December 130,000 2.51
2000 January 100,000 2.62
February 90,000 2.47
March 70,000 2.38
April to September 60,000 2.32
October to December 40,000 2.31
2001 January 40,000 2.31
February 45,000 2.36
</TABLE>
The Company has entered into basis swap agreements that effectively fix the
San Juan Basin basis at $0.25 per Mcf for 20,000 Mcf per day for July through
December 1999, and at $0.28 per Mcf for 10,000 Mcf per day from January through
December 2000. The Company also has basis swap agreements that effectively fix
Oklahoma basis at $0.13 per Mcf for 10,000 Mcf per day for July through December
1999.
The Company's termination of futures contracts related to July and August
1999 gas production, net of the effects of basis swap agreements, resulted in a
net loss of $2.1 million. These losses will be recognized as decreases in gas
revenue of approximately $0.08 per Mcf in July 1999 and $0.21 per Mcf in August
1999. Net gas hedging gains for the six months ended June 30, 1999 totaled $2.6
million.
The Company also terminated all of its outstanding futures contracts related
to July through October 1999 oil production with a net loss of $1.3 million.
These losses will be recognized as decreases in oil revenue of approximately
$0.97 per Bbl in July, $0.91 per Bbl in August, $0.70 per Bbl in September and
$0.34 per Bbl in October 1999. Net oil hedging losses totaled $934,000 for the
six months ended June 30, 1999.
The Company has committed to pay a minimum price of $2.00 per Mcf for gas
sales related to Hugoton Royalty Trust distributions through March 2000, which
effectively represents production through January 2000. Underlying volumes
related to the trust units sold to the public (Note 9) are approximately 38,000
Mcf per day. In recording its gain on sale of trust units, the Company accrued
its estimated cost of this commitment which is recorded in other current
liabilities in the accompanying consolidated balance sheet.
Litigation
On April 3, 1998, a class action lawsuit, styled Booth, et al. v. Cross
Timbers Oil Company, was filed against the Company in the District Court of
Dewey County, Oklahoma. The action was filed on behalf of all persons who, at
any time since June 1991, have been paid royalties on gas produced from any gas
well within the State of Oklahoma under which the Company has assumed the
obligation to pay royalties. The plaintiffs allege that the Company has reduced
royalty payments by post-production deductions and has entered into contracts
with subsidiaries that were not arms-length transactions, which actions reduced
the royalties paid to the plaintiffs and those similarly situated, and that such
actions are a breach of the leases under which the royalties are paid. The
plaintiffs are seeking an accounting and payment of the monies allegedly owed to
them. A hearing on the class certification issue has not been scheduled.
Management believes it has strong defenses against this claim and intends to
vigorously defend the action. Management's estimate of the potential liability
from this claim has been accrued in the Company's financial statements.
8
<PAGE>
On October 17, 1997, an action, styled United States of America ex rel.
Grynberg v. Cross Timbers Oil Company, et al., was filed in the U. S. District
Court for the Western District of Oklahoma against the Company and certain of
its subsidiaries by Jack J. Grynberg on behalf of the United States under the
qui tam provisions of the False Claims Act. The Company was not made aware of
the claim until the U.S. Department of Justice contacted the Company in August
1998. The plaintiff alleges that the Company underpaid royalties on gas
produced from federal leases and lands owned by Native Americans by at least 20%
during the past 10 years as a result of mismeasuring the volume of gas and
incorrectly analyzing its heating content. According to the U.S. Department of
Justice, the plaintiff has made similar allegations in actions filed against
over 300 other companies. The plaintiff seeks to recover the amount of
royalties not paid, together with treble damages, a civil penalty of $5,000 to
$10,000 for each violation and attorney fees and expenses. After its review,
the Department of Justice decided in April 1999 not to intervene and asked the
court to unseal the case. The court unsealed the case in May 1999 and the
Company agreed to file an answer without receiving service of the complaint.
The Company believes that the allegations of this lawsuit are without merit and
intends to vigorously defend the action.
The Company is involved in various other lawsuits and certain governmental
proceedings arising in the ordinary course of business. Company management and
legal counsel do not believe that the ultimate resolution of these claims,
including the lawsuits described above, will have a material effect on the
Company's financial position, liquidity or operations.
6. Common Stock
On July 1, 1999, the Company issued 4,000,000 shares of common stock at an
agreed value of $11.425 per share in exchange for its 50% ownership of Spring
Holding Company, Inc. and for cash proceeds of $3.2 million which was used to
reduce bank debt (Note 10).
On July 8, 1999, the Company sold 2,000,000 shares of common stock in an
underwritten public offering for net proceeds of approximately $26.5 million.
The proceeds were used to repurchase 1,921,850 shares of common stock issued to
Shell for the Cook Inlet Acquisition (Note 11). These proceeds exceeded the
amount due Shell by approximately $15 million which was refunded to the Company
and used to reduce bank debt.
7. Common Shares Outstanding and Earnings per Common Share
The following reconciles earnings (numerator) and shares (denominator) used
in the computation of basic and diluted earnings per share (in thousands, except
per share data):
<TABLE>
<CAPTION>
Three Months Ended June 30,
------------------------------------------------------------------
1999 1998
--------------------------------- -------------------------------
Earnings Earnings
Earnings Shares (a) per Share Earnings Shares per Share
---------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic:
Net income....................... $ 29,014 $ 1,204
Preferred stock dividends........ (445) (445)
--------- --------
Earnings available to
common stock - basic......... 28,569 44,733 $ 0.64 759 43,940 $ 0.02
========= =========
Diluted:
Effect of dilutive securities:
Stock options................. - 127 - 641
Preferred stock (a)........... 445 2,460 - -
Warrants...................... - - - 174
--------- --------- --------- ---------
Earnings available to
common stock - diluted...... $ 29,014 47,320 $ 0.61 $ 759 44,755 $ 0.02
========= ========= ========= ======== ========= =========
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------------------------------------------------
1999 1998
---------------------------------- --------------------------------
Earnings Earnings
Earnings Shares (a) per Share Earnings Shares per Share
-------- ---------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic:
Net income....................... $ 27,552 $ 1,465
Preferred stock dividends........ (890) (890)
-------- --------
Earnings available to
common stock - basic......... 26,662 44,730 $ 0.60 575 41,506 $ 0.01
========= =========
Diluted:
Effect of dilutive securities:
Stock options.................. - 58 - 718
Preferred stock (a)............ 890 2,460 - -
Warrants....................... - - - 122
------- ---------- --------- -------- ---------
Earnings available to
common stock - diluted....... $ 27,552 47,248 $ 0.58 $ 575 42,346 $ 0.01
======== ========== ========= ======== ========= =========
</TABLE>
(a) Based on common shares outstanding at August 1, 1999, conversion of Series A
convertible preferred stock becomes dilutive to earnings per share when
annual earnings available to common stock exceeds approximately $35.3
million and when quarterly earnings available to common stock exceeds
approximately $8.8 million.
8. Supplemental Cash Flow Information
The following are total interest and income tax payments (receipts) during
each of the periods (in thousands):
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------
1999 1998
------------ ------------
<S> <C> <C>
Interest.... $32,254 $24,684
Income tax.. (294) (271)
</TABLE>
The accompanying consolidated statements of cash flows exclude the following
non-cash equity transactions during the six-month periods ended June 30, 1999
and 1998:
- Vesting of 81,000 performance shares and issuance of 82,125 performance
shares in 1998
- Receipt of 10,393 shares (valued at $205,000) of common stock for the
option price of exercised stock options in 1998
- Transfer of $14.2 million from accrued liabilities to additional paid-in
capital in 1999 related to the increase in the Company's common stock price
for shares issued to Shell for the Cook Inlet Acquisition (Note 11)
9. Sale of Hugoton Royalty Trust Units
In December 1998, the Company formed the Hugoton Royalty Trust by conveying
80% net profits interests in properties located in the Hugoton area of Kansas
and Oklahoma, the Anadarko Basin of Oklahoma and the Green River Basin of
Wyoming. These net profits interests were conveyed to the trust in exchange for
40,000,000 units of beneficial interest. On April 8, 1999, the Company sold
15,000,000, or 37.5%, of the trust units, in an initial public offering at a
price of $9.50 per unit, less underwriters' discount and expenses. Pursuant to
the underwriters' overallotment option, the Company sold an additional 2,004,000
trust units at $9.50 per unit less discount on May 7, 1999. Total net proceeds
from the sale were $148.6 million, resulting in a gain of $40.3 million before
income tax. Proceeds from the sale were used to reduce bank debt. Proved
reserves related to trust units sold are approximately 183 billion cubic feet of
gas equivalent as of December 31, 1998.
10
<PAGE>
10. Spring Holding Company Acquisition
On July 1, 1999, the Company and Lehman Brothers Holding, Inc. ("Lehman")
acquired the common stock of Spring Holding Company ("Spring"), a private oil
and gas company located in Tulsa, Oklahoma, for cash and Cross Timbers' common
stock, totaling $85 million. The Company and Lehman each own 50% of a limited
liability company that acquired the common stock of Spring and have equal board
representation and control of the limited liability company. The Company issued
4,000,000 shares of common stock, less $3.2 million cash received, for its
ownership interest in Spring (Note 6) and Lehman contributed $42.5 million in
cash. Current assets in the accompanying consolidated balance sheet at June 30,
1999 includes a cash deposit of $6.5 million paid to the sellers of Spring in
June and repaid to the Company by Lehman on July 1.
The Company currently intends to exercise an option to acquire Lehman's 50%
interest in Spring within a year after closing the Ocean Energy Acquisition
(Note 12). If the Company does not exercise its option, on the day prior to the
anniversary of closing the Ocean Energy Acquisition, Lehman has the option to
sell its 50% interest to the Company. The option exercise price is $42.5 million
plus a specified return.
The Company will consolidate its investment in Spring using the purchase
method of accounting, with recognition of Lehman's investment as a minority
interest. As of June 30, 1999, Spring's assets totaled $218 million, long-term
debt totaled $148 million and stockholders' equity totaled $45 million, based on
its unaudited consolidated balance sheet. Spring's debt is non-recourse to the
Company and Lehman. As a result of purchase accounting, consolidating Spring at
July 1 would have increased the Company's consolidated assets by approximately
$275 million and its consolidated equity by approximately $42.5 million, with a
minority interest of approximately $42.5 million. Unaudited summary results of
Spring's operations for the six months ended June 30, 1999 and 1998 and the year
ended December 31, 1998, adjusted for estimated purchase accounting adjustments,
are as follows (in thousands):
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, December 31,
----------------- -------------
1999 1998 1998
------- -------- -------------
<S> <C> <C> <C>
Revenues............................. $23,879 $5,500 $23,224
======= ====== =======
Net income (loss) before minority
interest........................... $ 145 $ 177 $(1,248)
======= ====== =======
Net income (loss) after minority
interest........................... $ 73 $ 88 $ (624)
======= ====== =======
</TABLE>
Spring acquired a significant portion of its producing properties in July
1998. Pro forma results for the six months ended June 30, 1998, as if this
acquisition closed on January 1, 1998, are estimated to be: revenues of $20.4
million, net loss before minority interest of $400,000 and net loss after
minority interest of $200,000. Pro forma results for the year ended
December 31, 1998, as if this acquisition closed on January 1, 1998, are
estimated to be: revenues of $40.6 million, net loss before minority interest
of $1.9 million and net loss after minority interest of $900,000.
11. Acquisitions and Dispositions
On April 24, 1998, the Company acquired producing properties in the East
Texas Basin from EEX Corporation ("EEX Acquisition") for $265 million. After
purchase price adjustments primarily resulting from net revenues from the
January 1, 1998 effective date through April 24,1998, the properties were
purchased for $245 million. In connection with the acquisition, the Company
sold a production payment to EEX Corporation for $30 million. The cost of the
EEX Acquisition (net of the production payment sold) of $215 million was funded
by bank borrowings which were partially repaid by proceeds from the sale of
common stock.
On September 30, 1998, the Company acquired oil-producing properties in the
Middle Ground Shoal Field of Alaska's Cook Inlet ("Cook Inlet Acquisition") from
various Shell Oil Company affiliates ("Shell"). The acquired interests include
a 100% working interest in two State of Alaska leases, two offshore production
platforms and a 50% interest in certain operated production pipelines and
onshore processing facilities. The Company acquired the properties
11
<PAGE>
in exchange for 1,921,850 shares of the Company's common stock, subject to a $20
per share price guarantee. The Company also executed a non-interest bearing
promissory note to Shell for $6 million. Payments under this note of $3 million,
$2 million and $1 million are due when the average NYMEX crude oil price for 60
consecutive days equals or exceeds $18.50, $19.50 and $20.50, respectively (Note
4). As the result of rising prices, the $3 million payment is due to Shell on
August 23, 1999. If NYMEX oil prices remain at current levels, the $2 million
payment will be due to Shell at the end of September 1999 and the remaining
$1 million will be due in October 1999. The total estimated purchase price of
the Cook Inlet Acquisition is $45 million.
On March 1, 1999, the Company and Shell entered into an amended agreement to
postpone Shell's resale of Company common stock to no later than August 16,
1999. During 1999, in anticipation of repurchasing the common stock from Shell,
the Company paid Shell $27.5 million, including gas sales and transportation
contracts that provide Shell with an estimated value of $7.5 million. On July
15, 1999, the Company used the proceeds from a stock offering (Note 6) to
repurchase the 1,921,850 shares of the Company's common stock owned by Shell.
Proceeds from the sale of common stock exceeded the remaining amount due Shell
under the $20 common stock price guarantee by approximately $15 million which
was refunded to the Company and used to reduce bank debt. Based on the common
stock value at the balance sheet dates and amounts paid to Shell, $17.7 million
is recorded in accounts receivable from Shell at June 30, 1999 and $24 million
is recorded in accounts payable to Shell at December 31, 1998.
On November 20, 1998, the Company acquired primarily gas-producing properties
in northwest Oklahoma and the San Juan Basin of New Mexico for $33.4 million
from Seagull Energy Corp. After purchase price adjustments primarily resulting
from net revenues from the October 1, 1998 effective date through November 20,
1998, the properties were purchased for an estimated price of $29.2 million.
Additional purchase price revisions may result from post-closing adjustments.
The Company funded the acquisition with existing lines of credit.
On May 4, 1999, the Company sold non-operated producing properties in the San
Juan Basin of New Mexico to Vastar Resources, Inc. for $29.9 million. The sale
was effective March 1, 1999 and is subject to typical post-closing adjustments.
The Company sold other non-operated producing properties in June 1999 for
approximately $15 million. Proceeds from the sales were used to reduce bank
debt.
Acquisitions have been recorded using the purchase method of accounting. The
following presents unaudited pro forma results of operations for the six months
ended June 30, 1999 and 1998 and the year ended December 31, 1998, as if these
acquisitions and the sale of Hugoton Royalty Trust units (Note 9) and other
properties had been consummated on January 1, 1999 and immediately prior to
January 1, 1998. See also Note 10. These pro forma results are not
necessarily indicative of future results.
<TABLE>
<CAPTION>
Pro Forma (Unaudited)
-----------------------------------------
Six Months Ended
(in thousands, except per share data) June 30, Year Ended
--------------------------- December 31,
1999 1998 1998
----------- ----------- ------------
<S> <C> <C> <C>
Revenues................................... $ 124,798 $ 129,334 $ 256,551
=========== =========== ============
Net income (loss).......................... $ 28,589 $ 6,176 $ (62,945)
=========== =========== ============
Earnings (loss) available to common stock.. $ 27,699 $ 5,286 $ (64,724)
=========== =========== ============
Earnings (loss) per common share
Basic................................... $ 0.62 $ 0.11 $ (1.38)
=========== =========== ============
Diluted................................. $ 0.61 $ 0.11 $ (1.38)
=========== =========== ============
Weighted average shares outstanding........ 44,730 48,045 46,994
=========== =========== ============
</TABLE>
12
<PAGE>
12. Subsequent Events
On August 2, 1999, the Company announced that it has entered into an
agreement with Ocean Energy, Inc. to acquire, with Lehman Brothers Holding, Inc.
("Lehman"), Arkoma Basin properties located in Arkansas and Oklahoma ("Ocean
Energy Acquisition") for $235.3 million, subject to typical purchase price
adjustments. The acquisition has an effective date of July 1, 1999 and is
expected to close in September 1999. The Company and Lehman each own 50% of the
limited liability company that will acquire the Arkoma Basin properties, and
each anticipates contributing approximately $50 million in cash to the limited
liability company. The remainder of the purchase price will be financed by
debt, arranged by affiliates of Lehman, within the limited liability company.
The debt is expected to be non-recourse to the Company and Lehman. The limited
liability company's financial results will be consolidated in the Company's
financial statements, with recognition of Lehman's 50% interest as a minority
interest.
The Company will have the option to acquire Lehman's 50% interest in the
Ocean Energy Acquisition at any time within a year after closing. If the
Company does not exercise its option, on the day prior to the anniversary of
closing, Lehman will have the option to sell its 50% interest to the Company.
The option exercise price will be the amount Lehman invests in the acquisition
plus a specified return.
See also Notes 6 and 10.
13
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Cross Timbers Oil Company:
We have reviewed the accompanying consolidated balance sheet of Cross Timbers
Oil Company (a Delaware Corporation) as of June 30, 1999 and the related
consolidated statements of operations for the three and six-month periods ended
June 30, 1999 and 1998, and the consolidated statements of cash flows for the
six-month periods ended June 30, 1999 and 1998. These financial statements are
the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the consolidated financial statements referred to above for them to
be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Cross Timbers Oil Company as of
December 31, 1998 included in the Company's 1998 annual report on Form 10-K, and
in our report dated March 12, 1999, we expressed an unqualified opinion on that
statement. In our opinion, the information set forth in the accompanying
consolidated balance sheet as of December 31, 1998 is fairly stated, in all
material respects, in relation to the consolidated balance sheet included in the
Company's 1998 annual report on Form 10-K from which it has been derived.
ARTHUR ANDERSEN LLP
Fort Worth, Texas
July 22, 1999
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with management's
discussion and analysis contained in the Company's 1998 annual report on Form
10-K, as well as with the consolidated financial statements and notes thereto
included in this quarterly report on Form 10-Q.
<TABLE>
<CAPTION>
Quarter Ended June 30, Six Months Ended June 30,
------------------------------------------- -------------------------------------
Oil and Gas Production Increase Increase
and Prices 1999 1998 (Decrease) 1999 1998 (Decrease)
- ---------------------- ----------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Total production
Oil (Bbls)................... 1,289,942 1,116,431 16% 2,687,447 2,192,723 23%
Gas (Mcf).................... 21,986,655 20,599,847 7% 47,955,288 36,500,562 31%
Natural gas liquids (Bbls)... 360,240 228,161 58% 579,087 438,037 32%
Mcfe......................... 31,887,747 28,667,399 11% 67,554,492 52,285,122 29%
Average daily production
Oil (Bbls)................... 14,175 12,268 16% 14,848 12,114 23%
Gas (Mcf).................... 241,612 226,372 7% 264,946 201,661 31%
Natural gas liquids (Bbls) 3,959 2,507 58% 3,199 2,420 32%
Mcfe......................... 350,415 315,026 11% 373,229 288,868 29%
Average sales price
Oil per Bbl.................. $ 15.02 $ 12.25 23% $ 13.08 $ 13.10 -
Gas per Mcf.................. $ 1.81 $ 2.11 (14)% $ 1.88 $ 2.05 (8)%
Natural gas liquids per Bbl $ 9.77 $ 10.30 (5)% $ 8.62 $ 9.42 (8)%
</TABLE>
- ------------------------
Bbl - Barrel
Mcf - Thousand cubic feet
Mcfe- Thousand cubic feet of natural gas equivalent (computed on an energy
equivalent basis of one Bbl equals six Mcf)
Total oil production increased primarily because of the Cook Inlet
Acquisition in 1998, partially offset by natural decline. Increased gas
production is primarily attributable to 1998 producing property acquisitions and
development activity, partially offset by the sale of Hugoton Royalty Trust
units and natural decline.
The average posted price for West Texas Intermediate ("WTI"), a benchmark
crude, was $15.10 per barrel for second quarter 1999, compared to $12.24 for
second quarter 1998. The Company's average oil price is generally higher than
the WTI posted price because of quality and location differentials. The WTI
price was slightly above $15.00 at the beginning of 1998, then continued to
slide throughout the year until dropping to $8.00 in December 1998, the lowest
level since 1978. Oil prices increased in second quarter 1999 because of
production cuts by OPEC and other oil producers, reduced inventories and
anticipated increased demand. In late July and early August 1999, prices
climbed above an $18 WTI posted price and a $21 NYMEX price, the highest levels
since the end of 1997.
Gas prices during the first quarter of 1999 were relatively weak because of
abnormally mild winters in the central and eastern U.S. Cooler spring weather
and lower industry production levels strengthened gas prices in the second
quarter, and in early August, the NYMEX price rose above $2.70 per Mcf as a heat
wave in the Midwest and Northeast increased natural gas demand to fuel power
plant electric generators.
The Company uses price-hedging arrangements to reduce price risk on a portion
of its oil and gas production; see Note 5 to Consolidated Financial Statements.
For the second quarter, the Company's average oil and gas prices include hedging
losses of $0.72 per barrel and $0.17 per Mcf. For the first half of 1999, the
Company's net gas hedging gains totaled $2.6 million, or $0.05 per Mcf, and net
oil hedging losses totaled $900,000, or $0.35 per Bbl.
15
<PAGE>
Results of Operations
- ---------------------
Quarter Ended June 30, 1999 Compared with Quarter Ended June 30, 1998
Second quarter 1999 earnings available to common stock were $28.6 million
compared to the second quarter 1998 earnings of $800,000. Earnings for the
quarter include a $40.3 million gain, or $26.6 million after tax, from the sale
of 42.5% of Hugoton Royalty Trust in its initial public offering. Quarter
results also include net after-tax gains on investment in equity securities of
$3.8 million in 1999 and $3.4 million in 1998. Excluding these gains, loss
available to common stock for the quarter was $1.8 million compared with a loss
of $2.6 million for second quarter 1998.
Total revenues for the 1999 quarter were $65.5 million, a 6% increase over
second quarter 1998 revenues of $61.7 million. Oil revenue increased $5.7
million (42%) because of the 23% increase in oil prices and the 16% increase in
oil volumes. Gas and natural gas liquids revenues decreased $2.5 million (6%)
primarily because of the 14% decrease in gas prices, partially offset by the 58%
increase in natural gas liquid volumes. Second quarter gas gathering,
processing and marketing revenues decreased 42% from 1998 to 1999 primarily
because of reduced margins.
Expenses for second quarter 1999 totaled $54.8 million, a 5% increase from
second quarter 1998 expenses of $52 million. Production expense increased $4.7
million (35%) and depreciation, depletion and amortization ("DD&A") increased $3
million (15%) because of increased production related to acquisitions and
development. Taxes, transportation and other increased $900,000 (12%) over the
second quarter of 1998 primarily because of increased gas transportation and
compression charges and higher oil revenue. Exploration expense, which
primarily includes geological and geophysical costs, decreased $3.4 million
(91%) due to decreased exploratory activity. General and administrative expense
("G&A") decreased $2 million (41%) primarily because of decreased stock
incentive compensation related to 1998 performance share grants and increased
overhead allocation to production expense resulting from acquisitions and
development activity.
Gain on investment in equity securities increased $600,000 (12%) because of
the increase in market value of securities during the quarter, partially offset
by related interest expense. Other interest expense decreased $200,000 (1%)
primarily because of a decrease in the weighted average interest rate that was
largely offset by an increase in weighted average debt outstanding.
Six Months Ended June 30, 1999 Compared with Six Months Ended June 30, 1998
Earnings available to common stock for the six months ended June 30, 1999
were $26.7 million, compared to earnings of $600,000 for the same 1998 period.
Excluding the after-tax gain on sale of Hugoton Royalty Trust units of $26.6
million and net after-tax gains on investment in equity securities of $4.4
million in 1999 and $3.8 million in 1998, loss available to common stock for the
first half of 1999 was $4.3 million compared to a loss of $3.2 million for the
first half of 1998.
Total revenues for the first half of 1999 were $135 million, or $23.4 million
(21%) higher than revenues of $111.6 million for the first half of 1998. Oil
revenue increased $6.4 million (22%) because of the 23% increase in production.
Gas and natural gas liquids revenues increased $16.4 million (21%) because of
the 31% increase in production, partially offset by the 8% price decrease. Gas
gathering, processing and marketing revenues decreased $800,000 (20%) primarily
because of lower gas marketing margins.
Expenses for the six months ended June 30, 1999 totaled $112 million, or 23%
above total expenses of $90.9 million for the first half of 1998. Production
expense increased $10.7 million (41%) and DD&A increased $13.6 million (38%)
primarily because of increased production related to acquisitions and
development. Taxes, transportation and other increased $3 million (24%)
primarily because of increased gas transportation and compression charges.
Exploration expense, which primarily includes geological and geophysical costs,
decreased $4.6 million (90%) because of decreased exploration activity in 1999.
G&A decreased $1.1 million (16%) primarily because of decreased stock incentive
compensation related to 1998 performance share grants.
16
<PAGE>
Gain on investment in equity securities increased $900,000 (15%) because of
the increase in market value of securities during the first half of the year,
partially offset by related interest expense. Other interest expense increased
$4.1 million (17%) because of an increase of approximately 28% in weighted
average borrowings partially offset by a decrease in the weighted average
interest rate and increased interest income.
Comparative Expenses per Mcf Equivalent Production
- --------------------------------------------------
The following are expenses on an Mcf equivalent (Mcfe) produced basis:
<TABLE>
<CAPTION>
Quarter Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
Increase Increase
1999 1998 (Decrease) 1999 1998 (Decrease)
-------- ----- ---------- ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Production............................ $0.57 $0.47 21% $0.54 $0.50 8%
Taxes, transportation and other....... 0.25 0.25 - 0.23 0.24 (4)%
Depreciation, depletion and
amortization (DD&A) (a)........... 0.69 0.67 3% 0.70 0.65 8%
General and administrative
(G&A) (b)......................... 0.09 0.12 (25)% 0.08 0.10 (20)%
Interest.............................. 0.40 0.45 (11)% 0.42 0.46 (9)%
</TABLE>
- -----------------------------------
(a) Includes only DD&A directly related to oil and gas production.
(b) Excludes stock incentive compensation.
The following are explanations of significant variances of expenses on an
Mcfe basis:
Production- Increased production expense per Mcfe is primarily because of
higher operating expenses of 1998 acquisitions as compared to operating expenses
of properties sold, as well as the timing of maintenance projects.
DD&A- Increased DD&A per Mcfe is primarily related to increased 1998
producing property acquisition costs and lower proved oil reserve estimates,
related to lower prices, as of December 31, 1998.
G&A- Decreased G&A per Mcfe is primarily the result of production growth
outpacing Company personnel requirements and other administrative expenses.
Interest- Decreased interest per Mcfe is primarily the result of debt
repayment from the sale of Hugoton Royalty Trust units. Also, the weighted
average interest rate declined from 7.9% to 7.4%. These declines were partially
offset by increased debt to fund treasury stock purchases in 1998.
Liquidity and Capital Resources
- -------------------------------
Cash Flow and Working Capital
Cash provided by operating activities was $48.5 million for the first half of
1999 compared to cash used by operating activities of $93.4 million for the
comparable 1998 period. The swing in cash flow from operating activities from
negative to positive was primarily because of equity securities purchased during
the first six months of 1998. Operating cash flow (defined as cash provided by
operating activities before changes in operating assets and liabilities)
increased 7% from $39.3 million for the first six months of 1998 to $42 million
for the same 1999 period, primarily because of increased production from 1998
acquisitions and development activity, partially offset by net reduced cash flow
from the sale of Hugoton Royalty Trust units.
During the six months ended June 30, 1999, proceeds from operating activities
of $48.5 million, bank and short-term borrowings of $47 million and sale of
Hugoton Royalty Trust units and property and equipment of $194.1 million
17
<PAGE>
were used to fund net property acquisitions, development costs and other net
capital additions of $74 million, debt payments of $223 million and dividends of
$3.1 million. The resulting decrease in cash and cash equivalents for the period
was $10.5 million.
Other significant changes in current assets during the first half of 1999
were an $8 million decrease in investment in equity securities and a $10.6
million decrease in current deferred income taxes primarily related to the sale
of securities, partially offset by an increase in the market value of the
remaining portfolio. Accounts receivable increased $11.4 million primarily
because of a $17.7 million receivable at June 30, 1999 related to the Shell
acquisition, and other current assets increased $4.1 million primarily related
to a $6.5 million cash deposit related to the Spring Holding Company
acquisition.
Total current liabilities decreased $42.9 million during the first half of
1999 primarily because of a $46.9 million decrease in accounts payable and
accrued liabilities primarily related to payments to Shell and the timing of
other disbursements. This decrease was partially offset by a $3.9 million
increase in other current liabilities related to deferred revenues on gas
contracts and commitments and interest swap terminations.
Acquisitions and Development
Exploration and development costs incurred by the Company for the first six
months of 1999 were $31.8 million; cash expenditures for exploration and
development for this period totaled $35.4 million. This compares with
exploration and development costs incurred of $21.9 million and cash
expenditures for exploration and development of $25.1 million during the first
six months of 1998. The Company initially budgeted $60 million for 1999
exploration and development expenditures. With increased oil prices, the
Company currently anticipates its 1999 exploration and development expenditures
will be $70 to $90 million. Actual exploration and development expenditures may
vary significantly due to many factors, particularly changes in commodity
prices. Such expenditures are expected to be funded by cash flow from
operations.
Through the first six months of 1999, the Company drilled 20 gas wells and
completed 104 workovers. Results of these development projects have met or
exceeded management expectations.
Drilling activity during the first half of 1999 was focused on East Texas
properties where six wells were drilled and three rigs are currently drilling.
The Company expects to drill an additional 20 wells by year end. In addition,
the Company completed 32 workovers in East Texas and plans 43 additional
workovers for the remainder of 1999.
In the San Juan area, the Company drilled five wells and expects to complete
23 by year end. Workovers have focused on artificial lift, wellhead
compression, and recompletions. Of the total 37 workovers completed to date in
the San Juan area, 16 were wellhead compressor installations. The remainder
were recompletions and artificial lift installations.
Most of the remaining drilling activity in 1999 has been in the Fontenelle
Unit of the Green River Basin of Wyoming, where five wells were drilled, and the
Council Grove interval of Hugoton field in Oklahoma, where three wells were
drilled.
On July 1, 1999, the Company and Lehman Brothers Holding, Inc. ("Lehman")
acquired the common stock of Spring Holding Company ("Spring"), a private oil
and gas company located in Tulsa, Oklahoma, for cash and Cross Timbers' common
stock, totaling $85 million. The Company and Lehman each own 50% of a limited
liability company that acquired the common stock of Spring and have equal board
representation and control of the limited liability company and Spring.
On August 2, 1999, the Company announced that it has entered into an
agreement with Ocean Energy, Inc. to acquire, with Lehman, Arkoma Basin
properties located in Arkansas and Oklahoma for $235.3 million, subject to
typical purchase price adjustments. The purchase has an effective date of July
1, 1999 and is expected to close in September 1999. The Company and Lehman each
own 50% of the limited liability company that will acquire the Arkoma Basin
properties.
18
<PAGE>
Dispositions
In December 1998, the Company formed the Hugoton Royalty Trust by conveying
80% net profits interests in properties located in the Hugoton area of Kansas
and Oklahoma, the Anadarko Basin of Oklahoma and the Green River Basin of
Wyoming. These net profits interests were conveyed to the Trust in exchange for
40,000,000 units of beneficial interest. On April 8, 1999, the Company sold
15,000,000, or 37.5%, of the Trust units, in an initial public offering at a
price of $9.50 per unit, less underwriters' discount and expenses. Pursuant to
the underwriters' overallotment option, the Company sold an additional 2,004,000
units at $9.50 per unit less discount on May 7, 1999. Total net proceeds from
the sale were $148.6 million, resulting in a gain of $40.3 million before income
tax. Proceeds from the sale were used to reduce bank debt. Proved reserves
related to trust units sold are approximately 183 billion cubic feet of gas
equivalent as of December 31, 1998.
On May 4, 1999, the Company sold non-operated producing properties in the San
Juan Basin of New Mexico to Vastar Resources, Inc. for $29.9 million. The sale
was effective March 1, 1999 and is subject to typical post-closing adjustments.
The Company sold other non-operated producing properties in June 1999 for
approximately $15 million. Proceeds were used to reduce bank debt.
Debt and Equity
As of June 30, 1999, the Company has reduced long-term bank debt by $176
million from balances at December 31, 1998. Debt was reduced primarily from
proceeds from the sale of Hugoton Royalty Trust units and non-operated producing
properties, net of payments to Shell for the Cook Inlet Acquisition and a cash
deposit for the Spring Holding Company Acquisition.
The Company amended its Revolving Credit Agreement with commercial banks
("loan agreement") in May and June 1999, resulting in a borrowing base and
commitment of $497 million and unused borrowing capacity of $56 million at June
30, 1999. Other significant provisions of the loan agreement remained
unchanged.
Stockholders' equity at June 30, 1999 increased $40.1 million from year-end
because of earnings of $26.7 million for the six months ended June 30, 1999 and
an increase in additional paid-in capital of $14.3 million primarily related to
an increase in the Company's common stock price for shares issued to Shell for
the Cook Inlet Acquisition. These increases were partially offset by dividends
declared of $900,000.
On July 1, 1999, the Company issued 4,000,000 shares of common stock at an
agreed value of $11.425 per share in exchange for its 50% ownership of Spring
and for cash proceeds of $3.2 million which was used to reduce bank debt. As of
June 30, 1999, Spring's long-term debt totaled $148 million, which is non-
recourse to the Company and Lehman. Spring's financial results will be
consolidated in the Company's financial statements, with recognition of Lehman's
50% interest as a minority interest.
On July 8, 1999, the Company sold 2,000,000 shares of common stock in an
underwritten public offering for net proceeds of approximately $26.5 million.
The proceeds were used to repurchase 1,921,850 shares of common stock issued to
Shell for the Cook Inlet Acquisition. These proceeds exceeded the amount due
Shell by approximately $15 million which was refunded to the Company and used to
reduce bank debt.
The Company and Lehman anticipate contributing approximately $50 million each
in cash to the limited liability company that will acquire the Arkoma Basin
properties from Ocean Energy, Inc. in September 1999. The remainder of the
$235.3 million purchase price will be financed by debt, arranged by affiliates
of Lehman, within the limited liability company. The debt is expected to be
non-recourse to the Company and Lehman. The limited liability company's
financial results will be consolidated in the Company's financial statements,
with recognition of Lehman's 50% interest as a minority interest.
19
<PAGE>
Common Stock Dividends
In May 1999, the Board of Directors of the Company declared a second quarter
common stock dividend of $0.01 per share, or a total of $447,000, paid in July
1999. The quarterly dividend was reduced from $0.04 per common share paid in
1998 because of the Company's current focus on debt reduction.
Accounting Pronouncements
- -------------------------
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities which was required to be adopted for fiscal
years beginning after June 15, 1999. In July 1999, the Financial Accounting
Standards Board issued SFAS No. 137 which delays the effective date of Statement
133 for one year, to fiscal years beginning after June 15, 2000. The Company
does not expect the adoption of SFAS No. 133 to significantly impact reported
earnings, but could materially affect comprehensive income.
Year 2000
- ---------
"Year 2000," or the ability of computer systems to process dates with years
beyond 1999, affects almost all companies and organizations. Computer systems
that are not Year 2000 compliant by January 1, 2000 may cause material adverse
effects to companies and organizations that rely upon those systems. Continuity
of the Company's operations in January 2000 will not only depend upon Year 2000
compliance of the Company's computer systems and computer-controlled equipment,
but also compliance of computer systems and computer-controlled equipment of
third parties. These third parties include oil and natural gas purchasers and
significant service providers such as electric utility companies and natural gas
plant, pipeline and gathering system operators.
The Company is in the process of reviewing its computer systems and computer-
controlled field equipment and making the necessary modifications for Year 2000
compliance. The Company has completed modifications and testing of its primary
accounting and land computer programs. The remaining computer systems have been
inventoried and assessed. Functional solutions and remediation of significant
remaining systems are expected to be complete by the end of August 1999.
Some of the Company's critical field equipment, such as natural gas
compressors, are partially controlled or regulated by embedded computer chips.
As of April 1999, the types of field equipment in all operated areas have been
inventoried. Functional solutions and remediation of significant remaining
systems are expected to be complete by the end of August 1999.
Based on its review, remediation efforts and the results of testing to date,
the Company does not believe that timely modification of its computer systems
and computer-controlled equipment for Year 2000 compliance represents a material
risk to the Company. The Company estimates that total costs related to Year
2000 compliance efforts will be less than $500,000 of which approximately
$100,000 has been incurred and expensed through June 1999.
The Company has identified significant third parties whose Year 2000
compliance could affect the Company and is in the process of formally inquiring
about their Year 2000 status. The Company has received responses to
approximately 56% of its inquiries. Approximately 99% of respondents have
indicated that they will be Year 2000 compliant by January 1, 2000. Despite its
efforts to assure that such third parties are Year 2000 compliant, the Company
cannot provide assurance that all significant third parties will achieve
compliance in a timely manner. A third party's failure to achieve Year 2000
compliance could have a material adverse effect on the Company's operations and
cash flow. The potential effect of Year 2000 non-compliance by third parties is
currently unknown.
The Company is currently identifying appropriate contingency plans in the
event of potential problems resulting from failure of the Company's or
significant third party computer systems on January 1, 2000. The Company has
not completed any contingency plans to date. Specific contingency plans will be
developed in response to the results of
20
<PAGE>
testing scheduled to be complete by the end of August 1999, as well as the
assessed probability and risk of system or equipment failure. These contingency
plans may include installing backup computer systems or equipment, temporarily
replacing systems or equipment with manual processes, and identifying
alternative suppliers, service companies and purchasers. The Company expects
these plans to be complete by October 1999.
Forward-Looking Statements
- --------------------------
Certain information included in this quarterly report and other materials
filed by the Company with the Commission contain forward-looking statements
relating to the Company's operations and the oil and gas industry. Such
forward-looking statements are based on management's current projections and
estimates and are identified by words such as "expects," "intends," "plans,"
"projects," "anticipates," "believes," "estimates" and similar words. These
statements are not guarantees of future performance and involve certain risks,
uncertainties and assumptions that are difficult to predict. Therefore, actual
results may differ materially from what is expressed or forecasted in such
forward-looking statements.
Among the factors that could cause actual results to differ materially are:
- crude oil and natural gas price fluctuations,
- the Company's ability to acquire oil and gas properties that meet its
objectives and to identify prospects for drilling,
- potential delays or failure to achieve expected production from
existing and future exploration and development projects,
- potential disruption of operations because of failure to achieve
timely Year 2000 compliance by the Company or other entities with
which it has material relationships, and
- potential liability resulting from pending or future litigation.
In addition, these forward-looking statements may be affected by general
domestic and international economic and political conditions.
21
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following market risk disclosures should be read in conjunction with the
quantitative and qualitative disclosures about market risk contained in the
Company's 1998 annual report on Form 10-K, as well as with the consolidated
financial statements and notes thereto included in this quarterly report on Form
10-Q.
Hypothetical changes in interest rates and prices chosen for the following
estimated sensitivity effects are considered to be reasonably possible near-term
changes generally based on consideration of past fluctuations for each risk
category. It is not possible to accurately predict future changes in interest
rates, product prices and investment market values. Accordingly, these
hypothetical changes may not necessarily be an indicator of probable future
fluctuations.
Interest Rate Risk
The Company is exposed to interest rate risk on short-term and long-term debt
carrying variable interest rates. At June 30, 1999, the Company's variable rate
debt had a carrying value of $444 million, which approximated its fair value,
and the Company's fixed rate debt had a carrying value of $306 million and an
approximate fair value of $289.3 million. The Company also has an interest rate
swap agreement which effectively converts the interest rate from variable to
fixed on a $50 million notional amount through September 2005. The fair value
of this swap at June 30, 1999 was $1.4 million. Assuming a 100-basis point
change in interest rates at June 30, 1999, the fair value of the Company's fixed
rate debt would change by approximately $17.4 million. The fair value of the
Company's interest rate swap would change by approximately $2.7 million.
Commodity Price Risk
The Company hedges a portion of the market risks associated with its crude
oil and natural gas sales. As of June 30, 1999, outstanding gas futures
contracts had a fair value loss of $4 million and outstanding gas basis swap
agreements had a fair value loss of $140,000. Beginning in March 1999, the
Company entered into crude oil swap agreements, which had a fair value loss of
$900,000 at June 30, 1999. The aggregate effect of a hypothetical 10% change in
oil and gas prices and basis would result in a change of up to $4.2 million in
the fair value of these financial instruments at June 30, 1999. See Note 5 to
Consolidated Financial Statements.
Investment in Equity Securities
The Company is subject to price risk on its unhedged portfolio of publicly
traded investments in equity securities. The fair value of these securities at
June 30, 1999 was $36.4 million. At that time, a 25% appreciation or
depreciation in equity prices would increase or decrease portfolio fair value
and pre-tax earnings by approximately $9.1 million. See Note 2 to Consolidated
Financial Statements.
22
<PAGE>
P A R T I I. OT H E R I N F O R M A T I O N
Item 1. Legal Proceedings
On October 17, 1997, an action, styled United States of America ex rel.
Grynberg v. Cross Timbers Oil Company, et al., was filed in the U. S. District
Court for the Western District of Oklahoma against the Company and certain of
its subsidiaries by Jack J. Grynberg on behalf of the United States under the
qui tam provisions of the False Claims Act. The Company was not made aware of
the claim until the U.S. Department of Justice contacted the Company in August
1998. The plaintiff alleges that the Company underpaid royalties on gas
produced from federal leases and lands owned by Native Americans by at least 20%
during the past 10 years as a result of mismeasuring the volume of gas and
incorrectly analyzing its heating content. According to the U.S. Department of
Justice, the plaintiff has made similar allegations in actions filed against
over 300 other companies. The plaintiff seeks to recover the amount of
royalties not paid, together with treble damages, a civil penalty of $5,000 to
$10,000 for each violation and attorney fees and expenses. After its review,
the Department of Justice decided in April 1999 not to intervene and asked the
court to unseal the case. The court unsealed the case in May 1999 and the
Company agreed to file an answer without receiving service of the complaint.
The Company believes that the allegations of this lawsuit are without merit and
intends to vigorously defend the action.
Items 2. and 3.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Stockholders at the Annual Meeting on May 18, 1999, and by proxy, elected two
incumbent directors, J. Richard Seeds and Jack P. Randall. Of 38,009,473 shares
represented at the meeting, 36,666,224 shares (96.5%) were voted for Mr. Seeds
and 36,661,499 shares (96.5%) were voted for Mr. Randall. Other directors
continuing in office are Bob R. Simpson, Steffen E. Palko, J. Luther King and
Scott G. Sherman. Dr. Lane G. Collins continues to serve as an advisory
director.
Item 5. Other Information
On August 2, 1999, the Company announced that it has entered into an
agreement with Ocean Energy, Inc. to acquire, with Lehman Brothers Holding, Inc.
("Lehman"), Arkoma Basin properties located in Arkansas and Oklahoma ("Ocean
Energy Acquisition") for $235.3 million, subject to typical purchase price
adjustments. The purchase has an effective date of July 1, 1999 and is expected
to close in September 1999. The Company and Lehman each own 50% of the limited
liability company that will acquire the Arkoma Basin properties, and each
anticipates contributing approximately $50 million in cash to the limited
liability company. The remainder of the purchase price will be financed by
debt, arranged by affiliates of Lehman, within the limited liability company.
The debt is expected to be non-recourse to the Company and Lehman. Within one
year, the Company will have the right to purchase, and Lehman will have the
right to sell to the Company, Lehman's 50% interest at its cost plus a specified
return.
23
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
<TABLE>
<CAPTION>
(a) Exhibits
Exhibit Number
and Description Page
--------------- ----
<S> <C>
10.1 First Amendment, dated May 17, 1999, to Amended and Restated
Revolving Credit Agreement dated November 16, 1998
10.2 Second Amendment, dated June 9, 1999, to Amended and Restated
Revolving Credit Agreement dated November 16, 1998
10.3 Third Amendment, dated June 17, 1999, to Amended and Restated
Revolving Credit Agreement dated November 16, 1998
11 Computation of per share earnings
(included in Note 7 to Consolidated Financial Statements)
15 Letter re unaudited interim financial information
15.1 Awareness letter of Arthur Andersen LLP
</TABLE>
(b) Reports on Form 8-K
The Company filed the following reports on Form 8-K during the quarter
ended June 30, 1999 and through August 16, 1999:
On April 23, 1999, the Company filed a report on Form 8-K regarding
its sale of 15,000,000 units of the Hugoton Royalty Trust on April 8,
1999.
On May 24, 1999, the Company filed a report on Form 8-K/A (Amendment
No. 1 to Form 8-K dated April 23, 1999) regarding the sale of an
additional 2,004,000 units of the Hugoton Royalty Trust on May 7,
1999.
On May 27, 1999, the Company filed a report on Form 8-K regarding the
announcement on May 17, 1999 of its agreement to acquire Spring
Holding Company with Lehman Brothers Holding, Inc.
On July 9, 1999, the Company filed a report on Form 8-K regarding the
completion on July 1, 1999 of the previously announced acquisition of
the common stock of Spring Holding Company with Lehman Brothers
Holding, Inc.
On July 12, 1999, the Company filed a report on Form 8-K regarding the
sale of 2 million shares in a public offering on July 8, 1999 and the
planned repurchase of 1.92 million shares of stock owned by Shell Oil
Company.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
CROSS TIMBERS OIL COMPANY
Date: August 16, 1999 By /s/ BENNIE G. KNIFFEN
-------------------------------------
Bennie G. Kniffen
Senior Vice President and Controller
(Principal Accounting Officer and
Duly Authorized Officer)
25
<PAGE>
EXHIBIT 10.1
FIRST AMENDMENT TO
AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
THIS FIRST AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
(the "Amendment") is made and entered into as of the 17th day of May, 1999 (the
"Effective Date"), by and among CROSS TIMBERS OIL COMPANY, a Delaware
corporation ("Company"), the Banks that are signatories hereto (collectively,
the "Banks"), MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent
for Banks, NATIONSBANK, N.A. D/B/A BANK OF AMERICA, N.A., as Syndication Agent
for Banks and CHASE BANK OF TEXAS, N.A., as Documentation Agent for Banks.
W I T N E S S E T H:
WHEREAS, Company, Morgan Guaranty Trust Company of New York, as
Administrative Agent for Banks, NationsBank, N.A. d/b/a Bank of America N.A., as
Syndication Agent for Banks, Chase Bank of Texas, N.A., as Documentation Agent
for Banks, and Banks have entered into that certain Amended and Restated
Revolving Credit Agreement dated as of November 16, 1998, which amends and
restates in its entirety that certain Revolving Credit Agreement dated August
28, 1998, which amends and restates in its entirety that certain Revolving
Credit Agreement dated as of April 17, 1998, as amended (as amended and as in
effect as of the Effective Date, as amended hereby and as amended from time to
time hereafter, the "Loan Agreement").
WHEREAS, the parties hereto desire to amend the Loan Agreement as set forth
herein.
NOW, THEREFORE, in consideration of the premises herein contained and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties, intending to be legally bound, agree as follows:
ARTICLE I
Definitions and References
1.01 Unless otherwise specifically defined herein, each term used herein
which is defined in the Loan Agreement as in effect immediately prior to the
Effective Date shall have the meaning assigned to such term in the Loan
Agreement as so in effect. Each reference to "hereof," "hereunder," "herein"
and "hereby" and each other similar reference and each reference to "this Loan
Agreement" and each other similar reference contained in the Loan Agreement
shall from and after the Effective Date refer to the Loan Agreement as amended
hereby.
<PAGE>
ARTICLE II
Amendments
2.01. Amendments to Article I.
A. Effective as of the Effective Date, the defined term "Applicable
Margin" as set forth in Article I of the Loan Agreement is amended in its
entirety and the following is substituted therefor:
" 'Applicable Margin' shall mean, at such times and from time to time
as the Borrowing Base Percentage then in effect is within one of the
following ranges with respect to any Borrowing, the percentage per annum
set forth below opposite the relevant type of Borrowing and the relevant
range.
Type of Borrowing Applicable Margin
A. Floating Base Borrowing:
Range 1: The Borrowing Base
Percentage is less than or equal to 75% 0.125%
Range 2: The Borrowing Base
Percentage is greater than 75% but less
than or equal to 90% 0.25%
Range 3: The Borrowing Base
Percentage is greater than 90% 0.375%
B. Eurodollar Borrowing:
Range 1: The Borrowing Base
Percentage is less than or equal to 75% 1.125%
Range 2: The Borrowing Base
Percentage is greater than 75% but less
than or equal to 90% 1.25%
Range 3: The Borrowing Base
Percentage is greater than 90% 1.375%
2
<PAGE>
C. CD Borrowing:
Range 1: The Borrowing Base
Percentage is less than or equal to 75% 1.25%
Range 2: The Borrowing Base
Percentage is greater than 75% but less
than or equal to 90% 1.375%
Range 3: The Borrowing Base
Percentage is greater than 90% 1.50%
provided, however, that with respect to any Eurodollar Borrowing or
CD Borrowing and except as provided in Section 2.03(d) below, if the
Applicable Margin for such Borrowing is established while the
Borrowing Base Percentage is within one of the ranges set forth
above, but the Borrowing Base Percentage subsequently should become
within one of the other ranges set forth above during the Interest
Period in effect for such Borrowing, then (i) if, as of the Business
Day (or Eurodollar Business Day) that the Borrowing Base Percentage
changes, 30 days or more remain until the termination of such
Interest Period, then the Applicable Margin for such Borrowing shall
automatically change on such Business Day (or Eurodollar Business
Day) without prior notice to Company to the Applicable Margin for the
actual Borrowing Base Percentage then in effect or (ii) if, as of the
Business Day (or Eurodollar Business Day) that the Borrowing Base
Percentage changes, less than 30 days remain until the termination of
such Interest Period, then the Applicable Margin then in effect shall
not change until the termination of such Interest Period."
B. Effective as of the Effective Date, subclause (i) the defined term
"Cash Flow" as set forth in Article I of the Loan Agreement is amended in
its entirety and the following is substituted therefor:
"(i) the gross cash operating revenues properly allocable to Proved
Reserves attributable to the Mineral Properties (except that at least
eighty-two percent (82%) of such Proved Reserves shall consist of
Proved Developed Producing Reserves) and operations of the Gas
Marketing Subsidiaries which are not subject to any Lien except
Permitted Liens, and"
3
<PAGE>
2.02. Amendment to Section 5.01(a)(i). Effective as of the Effective
Date, Section 5.01(a)(i) of the Loan Agreement is amended in its entirety and
the following is substituted therefor:
"(i) The PV Borrowing Base. The PV Borrowing Base shall be based upon
economic variables which evaluate the discounted present value of
future net income accruing to the Borrowing Base Assets as
established by the Reserve Reports delivered from time to time
hereunder (herein called the "Present Value of Borrowing Base
Reserves") and the Gas Subsidiaries' Loan Value as determined from
time to time. The PV Borrowing Base Test shall equal the sum of (a)
fifty percent (50%) of the Present Value of Borrowing Base Reserves
that are attributable to the Proved Reserves allocable to the
Borrowing Base Assets; provided, however, that at least eighty-two
percent (82%) of such Proved Reserves shall consist of Proved
Developed Producing Reserves, and (b) the loan value assigned to the
operations of the Gas Marketing Subsidiaries as determined according
to Section 5.07 herein (such loan value is herein called the "Gas
Subsidiaries' Loan Value"). The term "Borrowing Base Assets" shall
mean only such Mineral Properties (i) to which Company has good and
indefeasible title and (ii) which are not subject to any liens,
encumbrances or charges, except for Permitted Liens for or against
which Indebtedness is not due and payable."
2.03. Amendment to Section 5.01(a)(ii). Effective as of the Effective
Date, Section 5.01(a)(ii) of the Loan Agreement is amended in its entirety and
the following is substituted therefor:
"(ii) The Adjusted PV Borrowing Base Test. The Adjusted PV Borrowing
Base Test shall equal the remainder of (i) the quotient of (a) the
Present Value of Borrowing Base Reserves that are attributable to the
Proved Reserves allocable to the Borrowing Base Assets (provided that
at least eighty-two percent (82%) of such Proved Reserves shall
consist of Proved Developed Producing Reserves) plus the Gas
Subsidiaries' Loan Value divided by (b) 1.35, less (ii) the unpaid
principal balance of the Subordinated Indebtedness then outstanding."
ARTICLE III
Commitment and Borrowing Base.
3.01. Pursuant to Section 5.05(b) of the Loan Agreement, after giving
effect to Company's public offering of 15,000,000 units of the Proposed Royalty
Trust (also known as the Hugoton Royalty Trust), the Commitment and the
Borrowing Base are $540,000,000.
4
<PAGE>
3.02. Pursuant to Section 5.05(b) of the Loan Agreement, Company will
issue an additional 2,004,000 units of the Proposed Royalty Trust if the
underwriters for the public offering of such units elect to exercise rights of
over-allotment. If such additional units of the Proposed Royalty Trust are
offered to the public pursuant to such over-allotment prior to July 1, 1999, the
Commitment and the Borrowing Base shall be reduced by $10,000,000, effective (i)
as of the Effective Date if such sale is consummated at or prior to the
Effective Date or (ii) the date such sale is consummated if such sale is
consummated after the Effective Date, but not later than July 1, 1999.
3.03. Company has entered into a purchase and sale agreement to sell
certain Mineral Properties located in the San Juan Basin area of New Mexico (the
"Property Sale"). If the Property Sale is consummated by July 1, 1999, the
Commitment and the Borrowing Base shall be reduced by $25,000,000, effective (i)
as of the Effective Date if the Property Sale is consummated at or prior to the
Effective Date or (ii) the date the Property Sale is consummated if the Property
Sale is consummated after the Effective Date, but not later than July 1, 1999.
The Property Sale and all other sales of Mineral Properties made by Company
prior to the Effective Date shall not be considered in determining the
application of Section 9.07 of the Loan Agreement for the remainder of the 1999
calendar year.
ARTICLE IV
Condition Precedent
4.01. Counterparts; Conditions to Effectiveness.
(a) Majority Banks. As to Articles II and III hereof, exclusive of
Section 2.01A hereof, this instrument shall become effective as to such Sections
(and the Loan Agreement shall be amended with the amendments referred to in such
Sections) as of the Effective Date when Administrative Agent shall have received
a duly executed counterpart hereof signed by Company and Majority Banks (or, in
the case of any Bank included within Majority Banks as to which an executed
counterpart shall not have been received, Administrative Agent shall have
received telegraphic, telex or other written confirmation from such party of
execution of a counterpart hereof by such Bank).
(b) All Banks. As to Section 2.01A hereof, this instrument shall become
effective as to such Sections (and the Loan Agreement shall be amended with the
amendments referred to in such Section) as of the Effective Date when
Administrative Agent shall have received a duly executed counterpart hereof
signed by Company and all of the Banks (or, in the case of any Bank as to which
an executed counterpart shall not have been received, Administrative Agent shall
have received telegraphic, telex or other written confirmation from such party
of execution of a counterpart hereof by such Bank).
4.02. Amendment Fee. Upon Administrative Agent's receipt of duly executed
counterparts hereof signed by Company and Majority Banks, Company shall pay to
Administrative Agent a fee in the amount derived by multiplying (i) an amount
that is equal to one tenth of one percent (1/10 of 1.0%) of the Commitment
amount in effect as of the Effective Date (after giving effect to the reduction
to the Commitment as provided in Section 3.02 or 3.03
5
<PAGE>
hereof) by (ii) the cumulative Percentage of all Banks that sign a counterpart
of this Amendment. Administrative Agent shall distribute such fee to only those
Banks that sign a counterpart of this Amendment, with each such Bank's pro rata
share of such fee being its Percentage of the fee as determined according to
this Section 4.02. The fee payable under this Section 4.02 shall be paid by
Company to Administrative Agent within three (3) Business Days after Company's
receipt of Administrative Agent's written request or invoice for same.
ARTICLE V
Ratifications, Representations and Warranties
5.01. Ratifications. The terms and provisions set forth herein shall
modify and supersede all inconsistent terms and provisions set forth in the Loan
Agreement immediately before giving effect hereto and the other Loan Papers,
and, except as expressly modified, amended, and superseded herein, the terms and
provisions of the Loan Agreement and the other Loan Papers are ratified and
confirmed and shall continue in full force and effect. Specifically, the
amendments and modifications of the Loan Agreement as set forth in this
Amendment shall supercede and are in lieu of the amendments and modifications of
the Loan Agreement that are set forth in that certain waiver letter dated April
5, 1999, executed by Company and agreed to by Majority Banks. Company and Banks
agree that the Loan Agreement, as amended hereby, and the other Loan Papers
shall continue to be legal, valid, binding and enforceable in accordance with
their respective terms.
5.02. Representations, Warranties and Agreements. Company hereby
represents and warrants to Banks that (a) the execution, delivery and
performance of the Loan Agreement as amended hereby has been authorized by all
requisite corporate action on the part of Company and will not violate the
Articles/Certificate of Incorporation or Bylaws of Company; (b) the
representations and warranties contained in the Loan Agreement, as amended
hereby, and any other Loan Papers are true and correct on and as of the date
hereof and on and as of the date of execution hereof as though made on and as of
each such date; (c) no Default or Event of Default under the Loan Agreement, as
amended hereby, has occurred and is continuing; and (d) Company is in full
compliance with all covenants and agreements contained in the Loan Agreement and
the other Loan Papers, as amended hereby.
ARTICLE VI
Miscellaneous Provisions
6.01. Reference to Loan Agreement. The other Loan Papers, and any and
all other agreements, documents or instruments now or hereafter executed and
delivered pursuant to the terms hereof or pursuant to the terms of the Loan
Agreement, as amended hereby, are hereby amended so that any reference in the
Loan Agreement and such other Loan Papers to the Loan Agreement shall mean a
reference to the Loan Agreement as amended hereby.
6.02. Expenses of Agents. As provided in the Loan Agreement, Company
agrees to pay on demand all reasonable costs and expenses incurred by Agents in
connection with the preparation, negotiation and execution of this Amendment,
including, without limitation, the costs and fees of Agent's legal counsel, and
all reasonable costs and expenses incurred by Banks
6
<PAGE>
in connection with the enforcement or preservation of any rights under the Loan
Agreement, as amended hereby, or any other Loan Papers, including, without,
limitation, the reasonable costs and fees of Agents' legal counsel. Company
shall not be responsible for the cost or expense of legal counsel of any other
Bank in connection with the preparation, execution and delivery of this
Amendment.
6.03. Counterparts. This instrument may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an original,
but all of which when taken together shall constitute one and the same
instrument.
6.04. Headings. The headings, captions, and arrangements used herein
are for convenience only and shall not affect the interpretation of this
instrument.
6.05. Applicable Law. THE LOAN AGREEMENT AS AMENDED HEREBY AND ALL
OTHER LOAN PAPERS EXECUTED PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND
TO BE PERFORMABLE IN AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF TEXAS UNLESS THE LAWS GOVERNING NATIONAL BANKS SHALL
HAVE APPLICATION.
6.06. Final Agreement. THE LOAN AGREEMENT AS AMENDED HEREBY AND THE
OTHER LOAN PAPERS, EACH AS AMENDED HEREBY, REPRESENT THE ENTIRE EXPRESSION OF
THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF ON THE EFFECTIVE DATE THIS
AMENDMENT IS EXECUTED. THE LOAN AGREEMENT AS AMENDED HEREBY AND THE OTHER LOAN
PAPERS, AS AMENDED HEREBY, MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. NO MODIFICATION, RESCISSION,
WAIVER, RELEASE OR AMENDMENT OF ANY PROVISION OF THE LOAN AGREEMENT OR THE OTHER
LOANS PAPERS SHALL BE MADE, EXCEPT BY A WRITTEN AGREEMENT SIGNED BY COMPANY AND
EITHER BANKS OR MAJORITY BANKS, AS PROVIDED IN THE LOAN AGREEMENT.
IN WITNESS WHEREOF, this Amendment has been executed in multiple
originals and is effective as of the date first above-written.
[SIGNATURE PAGES TO FOLLOW]
7
<PAGE>
COMPANY:
CROSS TIMBERS OIL COMPANY,
a Delaware corporation
By: JOHN O'REAR
------------------------------------
John O'Rear,
Vice President and Treasurer
BANKS:
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By: JOHN KOWALCZUK
------------------------------------
Name: John Kowalczuk
------------------------------------
Title: Vice President
------------------------------------
NATIONSBANK, N.A., dba Bank of America, N.A.
By: J. SCOTT FOWLER
------------------------------------
J. Scott Fowler, Vice President
CHASE BANK OF TEXAS, N.A.
By: DALE S. HURD
------------------------------------
Dale S. Hurd
BANKBOSTON, N.A.
By: GEORGE W. PASSELA
------------------------------------
Name: George W. Passela
------------------------------------
Title:
------------------------------------
8
<PAGE>
WELLS FARGO BANK (TEXAS), N.A.
By: CHARLES D. KIRKHAM
------------------------------------
Charles D. Kirkham, Vice President
FROST NATIONAL BANK, as the surviving
bank by merger of Overton Bank and Trust,
N.A., effective May 29, 1998
By: W.H. (BILL) ADAMS, III
------------------------------------
W.H. (Bill) Adams, III, Senior Vice
President
ABN-AMRO BANK N.V.
By: C.W. RANDALL
------------------------------------
Name: C. W. Randall
------------------------------------
Title: SVP
------------------------------------
By: DEANNA B. BRELAND
------------------------------------
Name: Deanna B. Breland
------------------------------------
Title: Vice President
------------------------------------
9
<PAGE>
BANK OF MONTREAL
By: MELISSA BAUMAN
------------------------------------
Name: Melissa Bauman
------------------------------------
Title: Director
------------------------------------
THE BANK OF NEW YORK
By: RAYMOND J. PALMER
------------------------------------
Name: Raymond J. Palmer
------------------------------------
Title: Vice President
------------------------------------
PARIBAS
By: MIKE FIUZAT
------------------------------------
Mike Fiuzat, Vice President
By: BARTON D. SCHOUEST
------------------------------------
Name: Barton D. Schouest
------------------------------------
Title: Managing Director
------------------------------------
CREDIT LYONNAIS NEW YORK BRANCH
By: PHILLIPPE SOUSTRA
------------------------------------
Name: Phillippe Soustra
------------------------------------
Title: Senior Vice President
------------------------------------
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION
By: J. SCOTT FOWLER
------------------------------------
J. Scott Fowler, Vice President
10
<PAGE>
FIRST UNION NATIONAL BANK
By: ROBERT R. WETTEROFF
------------------------------------
Name: Robert R. Wetteroff
------------------------------------
Title: Senior Vice President
------------------------------------
BANK ONE, TEXAS, N.A.
By: WM. MARK CRANMER
------------------------------------
Name: Wm. Mark Cranmer
------------------------------------
Title: Vice President
------------------------------------
NATEXIS Banque
By: TIMOTHY L. POLVADO
------------------------------------
Timothy L. Polvado, Vice President
By: ERIC DITGES
------------------------------------
Eric Ditges, Assistant Vice President
THE BANK OF NOVA SCOTIA
By: F.C.H. ASHBY
------------------------------------
Name: F.C.H. Ashby
------------------------------------
Title: Senior Manager
------------------------------------
Loan Operations
COMERICA BANK-TEXAS
By: DAVID L. MONTGOMERY
------------------------------------
David L. Montgomery, Vice President
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EXHIBIT 10.2
SECOND AMENDMENT TO
AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
THIS SECOND AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
(the "Amendment") is made and entered into as of the 9th day of June, 1999 (the
"Effective Date"), by and among CROSS TIMBERS OIL COMPANY, a Delaware
corporation ("Company"), the Banks that are signatories hereto (collectively,
the "Banks"), MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent
for Banks, NATIONSBANK, N.A. D/B/A BANK OF AMERICA, N.A., as Syndication Agent
for Banks and CHASE BANK OF TEXAS, N.A., as Documentation Agent for Banks.
W I T N E S S E T H:
WHEREAS, Company, Morgan Guaranty Trust Company of New York, as
Administrative Agent for Banks, NationsBank, N.A. d/b/a Bank of America N.A., as
Syndication Agent for Banks, Chase Bank of Texas, N.A., as Documentation Agent
for Banks, and Banks have entered into that certain Amended and Restated
Revolving Credit Agreement dated as of November 16, 1998, which amends and
restates in its entirety that certain Revolving Credit Agreement dated August
28, 1998, which amends and restates in its entirety that certain Revolving
Credit Agreement dated as of April 17, 1998, as amended (as amended by the
foregoing, as amended by that certain First Amendment to Amended and Restated
Revolving Credit Agreement dated as of May 17, 1999 among Company and Banks and
as in effect as of the Effective Date, as amended hereby and as amended from
time to time hereafter, the "Loan Agreement").
WHEREAS, the parties hereto desire to amend the Loan Agreement as set forth
herein.
NOW, THEREFORE, in consideration of the premises herein contained and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties, intending to be legally bound, agree as follows:
ARTICLE I
Definitions and References
1.01 Unless otherwise specifically defined herein, each term used herein
which is defined in the Loan Agreement as in effect immediately prior to the
Effective Date shall have the meaning assigned to such term in the Loan
Agreement as so in effect. Each reference to "hereof," "hereunder," "herein"
and "hereby" and each other similar reference and each reference to "this Loan
Agreement" and each other similar reference contained in the Loan Agreement
shall from and after the Effective Date refer to the Loan Agreement as amended
hereby.
<PAGE>
ARTICLE II
Amendments
2.01. Amendments to Article I; Additional Defined Terms. Effective as of
the Effective Date, Article I of the Loan Agreement is amended by including the
following defined terms:
(i) "Lehman Agreement" shall mean that certain Commitment Letter dated
May 17, 1999 between Company and Lehman Brothers, Inc. pursuant to
which, among other things, Lehman Brothers, Inc. or an affiliated
entity shall acquire a 50% equity interest in Spring Acquisition
Company and thereby fund 50% of the costs required to acquire the
Capital Stock of Spring Holding pursuant to the terms of the Spring
Holding Acquisition Agreement, together with the definitive
agreement that is to be entered into between Company and Lehman
Brothers, Inc. as set forth in such Commitment Letter.
(ii) "Spring Acquisition Company" shall mean a limited liability company
or corporation to be formed pursuant to the terms of the Lehman
Agreement, the members of which shall be Cross Timbers Trading
Company or the Spring Subsidiary, to the extent of a 50% equity
interest, and Lehman Brothers, Inc. or an affiliated entity, to the
extent of a 50% equity interest. The assets and properties of Spring
Acquisition Company shall consist of all of the Capital Stock of
Spring Holding that is to be acquired pursuant to the Spring Holding
Acquisition Agreement.
(iii) "Spring Companies" shall mean Spring Holding, Spring Resources,
Inc., an Oklahoma corporation, and Mega Natural Gas Company, L.L.C.,
an Oklahoma limited liability company.
(iv) "Spring Holding" shall mean Spring Holding Company, a Delaware
corporation.
(v) "Spring Holding Acquisition Agreement" shall mean that certain Stock
Purchase Agreement dated as of May 17, 1999 among the shareholders
of Spring Holding and Company, pursuant to which Company has agreed
to acquire all of the Capital Stock of Spring Holding. Pursuant to
the terms of the Lehman Agreement, Company's rights and interests in
the Spring Holding Acquisition Agreement shall be assigned and
transferred to Spring Acquisition Company.
(vi) "Spring Subsidiary" shall mean a Subsidiary that may be formed by
Company, which Subsidiary would own a 50% equity interest in Spring
Acquisition Company pursuant to the Lehman Agreement.
2.02. Amendment to Article I; Subsidiary. Effective as of the Effective
Date, the defined term "Subsidiary" or "Subsidiaries" as it appears in Article I
of the Loan Agreement is amended by including the following sentence at the
conclusion of such defined term:
2
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"Notwithstanding the foregoing, so long as none of the assets or
properties of the Spring Companies are included in the Borrowing
Base, Spring Acquisition Company shall not be deemed a Subsidiary,
either at its formation or if Company or any Subsidiary acquires any
additional equity interests in Spring Acquisition Company or Capital
Stock of Spring Holding. If formed, the Spring Subsidiary shall be a
Subsidiary."
2.03. Amendment to Article 6. Effective as of the Effective Date, the
phrase "Company, CT Operating and each Gas Marketing Subsidiary" and the phrase
"Company, CT Operating or any Gas Marketing Subsidiary " wherever such phrases
appear throughout Article 6 of the Loan Agreement are amended in their entirety
and the phrase "Company, CT Operating, Cross Timbers Trading Company, Spring
Subsidiary and each Gas Marketing Subsidiary " or the phrase "Company, CT
Operating, Cross Timbers Trading Company, Spring Subsidiary or any Gas Marketing
Subsidiary " (as the case may be) are substituted therefor.
2.04. Amendment to Sections 8.01(a) and (b). Effective as of the
Effective Date, the phrase "(exclusive of WTW Properties, Inc., CT Operating and
Cross Timbers Trading Company)" wherever such phrase appears throughout Sections
8.01(a) and (b) of the Loan Agreement is amended in its entirety and the phrase
"(exclusive of WTW Properties, Inc. and CT Operating)" is substituted therefor.
2.05. Amendment to Sections 8.01(c). Effective as of the Effective Date,
Section 8.01(c) of the Loan Agreement is amended by including the following
sentence at the conclusion of such Section:
"Contemporaneous with the delivery to the lenders to the Spring Companies,
Company shall deliver to Banks each reserve report evaluating the oil and
gas reserves of the Spring Companies that is required to be delivered to
such lenders pursuant to any credit agreement among the Spring Companies
and such lenders, provided, however, if such credit agreement is no longer
in effect, Company shall deliver to Banks a reserve report evaluating the
oil and gas reserves of the Spring Companies in the same manner and at such
times as a Reserve Report is required to be delivered to Banks according to
Section 5.03 hereof."
2.06. Amendment to Sections 8.01(n). Effective as of the Effective Date,
Section 8.01(n) of the Loan Agreement is amended in its entirety and the
following is substituted therefor:
"(n) Financial Information Concerning the Spring Companies.
Contemporaneous with the delivery to the lenders to the Spring Companies,
Company shall provide to Banks copies of all financial statements of the
Spring Companies that are required to be delivered to such lenders pursuant
to any credit agreement among the Spring Companies and such lenders,
provided, however, if such credit agreement is no longer in effect, Company
shall deliver to Banks such financial statements of the Spring Companies in
the same manner and at such
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times as the financial statements are required to be delivered to Banks
according to Section 8.01(a) and (b) hereof."
2.07. Inclusion of Section 8.01(o). Effective as of the Effective Date,
Section 8.01(o) of the Loan Agreement is amended by including following Section
8.01(o):
"(o) Other Information. All information concerning the April 1997
Indenture, the October 1997 Indenture, the Subordinated Indebtedness and
such other information concerning the business, properties or financial
condition of Company, any Subsidiary, the Proposed Royalty Trust, Spring
Acquisition Company or any of the Spring Companies as Administrative Agent
or any Bank shall reasonably request."
2.08. Amendment to Sections 8.06. Effective as of the Effective Date, the
last sentence of Section 8.06 of the Loan Agreement is amended in its entirety
and the following is substituted therefor:
"Cross Timbers Trading Company, each Gas Marketing Subsidiary and, if
formed, Spring Subsidiary will promptly comply with any and all covenants
and provisions of the Guaranty and all other Loan Papers executed by Cross
Timbers Trading Company, such Gas Marketing Subsidiary or Spring
Subsidiary."
2.09. Amendment to Section 8.19. Effective as of the Effective Date,
Section 8.19 of the Loan Agreement is amended in its entirety and the following
is substituted therefor:
"8.19. Pledge of Properties. In addition to the other rights and
remedies of Banks provided herein, upon the occurrence of a
Borrowing Base Deficiency, Majority Banks may require (i) Company to
grant to Banks as security for the performance by Company of the
Notes and the Obligation of Company hereunder, a valid, enforceable,
perfected, first priority and the only Lien in the Mineral
Properties (subject to Permitted Liens), and in all mineral
production therefrom or attributable thereto and in all related
accounts, wells, pipes, personal property and fixtures, to the
extent of Company's right, title and interest in such Mineral
Properties, (ii) the Gas Marketing Subsidiaries to grant to Banks as
security for the performance by Company of the Notes and Obligation
hereunder, a valid, enforceable, perfected, first priority and only
Lien (subject to Permitted Liens) in the properties, assets,
contracts, contract rights, accounts and accounts receivables of the
Gas Marketing Subsidiaries, (iii) Company and any Subsidiary to
grant to Banks as security for the performance by Company of the
Notes and the Obligation of Company hereunder, a valid, enforceable,
perfected, first priority and the only Lien in the units in the
Proposed Royalty Trust and (iv) Company and any Subsidiary to grant
to Banks as security for the performance by Company of the Notes and
the Obligation of Company hereunder, a valid, enforceable,
perfected, first priority and the only Lien in its equity interests
in Spring Acquisition
4
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Company and/or the Capital Stock of Spring Holding. Such Liens
described in the foregoing sentence shall be granted pursuant to,
and more fully described in, deeds of trust, mortgages, security
agreements, pledge agreements, assignments of production, financing
statements and other documents (herein called the "Collateral
Documents") which are in form and substance satisfactory to Banks
and which will be executed by Company, the Gas Marketing
Subsidiaries and any other applicable Subsidiary and delivered to
Agents within 30 days following Agents' written notice requesting
Company's, the Gas Marketing Subsidiaries' and any other applicable
Subsidiary's execution and delivery of such Collateral Documents."
2.10. Amendment to Section 9.04. Effective as of the Effective Date,
Section 9.04 of the Loan Agreement is amended in its entirety and the following
is substituted therefor:
"9.04. Limitation on Investments. Company will not, and will not permit
any Subsidiary to, make or have outstanding any Investments in any Person,
except for (i) Investments in CRT Units; (ii) Company's ownership of the
Capital Stock of the Subsidiaries, (iii) Company's ownership of units in
the Proposed Royalty Trust, (iv) Cross Timbers Trading Company's and/or
Spring Subsidiary's 50% equity ownership interest in Spring Acquisition
Company to the extent that it is acquired pursuant to the Lehman Agreement,
(v) Investments in Capital Stock of publicly traded companies engaged
primarily in the oil and gas industry and Non-CT Royalty Trust Units that
are owned or held by Company as of June 9, 1999 (for the purpose of this
Section 9.04, the type of Investments referred to in this sub-clause (v)
shall be called "Energy Stocks") (vi) Investments in Non-CT Royalty Trust
Units to the extent that such Non-CT Royalty Trust Units are not included
in the Investments permitted in this sub-clause (v), provided that the
aggregate cost of all Investments which are outstanding pursuant to this
sub-clause (vi) shall not exceed $15,000,000, (vii) Investments in
additional equity interests in Spring Acquisition Company and/or the
Capital Stock of Spring Holding if (1) such Investments (a) are made
pursuant to the terms of the Lehman Agreement and (b) the consideration
paid for such Investments is the Capital Stock of Company and/or proceeds
directly derived from the public offering of the Capital Stock of Company
or (2) Majority Banks consent to such Investments to the extent that such
Investments are not acquired by the manner specified in sub-clause (1)
immediately above, (viii) Temporary Cash Investments, and (ix) such other
"cash equivalent" investments as Majority Banks may from time to time
approve. With respect to the Investments in Energy Stocks that are
permitted under sub-clause (v) above, if Company should sell or dispose of
any such Energy Stocks, no additional Investments in Energy Stocks shall be
permitted until such time that the aggregate cost of all Energy Stocks then
owned or held does not exceed $30,000,000, and at such time that the
aggregate cost of all Energy Stocks then owned or held does not exceed
$30,000,000, additional Investments in Energy Stocks may be made, provided
that the aggregate cost of all Investments in Energy Stocks that are then
outstanding under sub-clause (v) above shall not exceed $30,000,000.
Notwithstanding any of
5
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the foregoing, Company will not, and will not permit any Subsidiary to,
make any Investments otherwise permitted by this Section 9.04 if (i) an
Event of Default exists hereunder or, with the lapse of time and the giving
of notice or both, an Event of Default would exist hereunder, (ii) the
making of such Investment would cause an Event of Default hereunder, or
(iii) a Borrowing Base Deficiency exists hereunder."
2.11. Amendment to Section 9.16. Effective as of the Effective Date,
Section 9.16 of the Loan Agreement is amended in its entirety and the following
is substituted therefor:
"9.16. Restriction on Loans. Without the prior written consent of
Majority Banks, which consent shall not be unreasonably withheld, neither
Company nor any Subsidiary shall make any loans or advances to any Person,
including any Subsidiary or Affiliate of Company, provided, however, that
Company or a Subsidiary (a) may make loans or advances to any Person other
than Spring Acquisition Company, any of the Spring Companies or any Person
who is an officer or director of Company if such loans or advances are in
the ordinary course of Company's business, (b) Company or a Subsidiary may
make loans or advances to officers and directors of Company up to an
aggregate amount of $12,000,000 for all of such loans or advances and (c)
Company or a Subsidiary may make loans or advances to Spring Acquisition
Company and any of the Spring Companies up to an aggregate amount of
$5,000,000 for all of such loans or advances."
2.12. Amendment to Section 10.01(o) Effective as of the Effective Date,
Section 10.01(o) of the Loan Agreement is amended in its entirety and the
following is substituted therefor:
"(o) Company and/or any of the applicable Subsidiaries shall fail to
execute and deliver to Agents the Collateral Documents within 30 days
following Agents' written notice to Company and/or the applicable
Subsidiaries requesting Company to execute and deliver the Collateral
Documents;"
ARTICLE III
Condition Precedent; Guaranty
3.01. Counterparts; Conditions to Effectiveness. Subject to the other
conditions precedent set forth in this Article III, this instrument shall become
effective (and the Loan Agreement shall be amended with the amendments referred
to herein) as of the Effective Date when Administrative Agent shall have
received a duly executed counterpart hereof signed by Company and Majority Banks
(or, in the case of any Bank included within Majority Banks as to which an
executed counterpart shall not have been received, Administrative Agent shall
have received telegraphic, telex or other written confirmation from such party
of execution of a counterpart hereof by such Bank).
6
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3.02. Guaranty. If Spring Subsidiary is formed, the Loan shall be
unconditionally guaranteed by Spring Subsidiary pursuant to the form of Guaranty
previously executed by CT Operating, Cross Timbers Trading Company and each Gas
Marketing Subsidiary, with such Guaranty to be delivered to Agents within 10
days following Agents' written notice requesting such Guaranty.
ARTICLE IV
Ratifications, Representations and Warranties
4.01. Ratifications. The terms and provisions set forth herein shall
modify and supersede all inconsistent terms and provisions set forth in the Loan
Agreement immediately before giving effect hereto and the other Loan Papers,
and, except as expressly modified, amended, and superseded herein, the terms and
provisions of the Loan Agreement and the other Loan Papers are ratified and
confirmed and shall continue in full force and effect. Company and Banks agree
that the Loan Agreement, as amended hereby, and the other Loan Papers shall
continue to be legal, valid, binding and enforceable in accordance with their
respective terms.
4.02. Representations, Warranties and Agreements. Company hereby
represents and warrants to Banks that (a) the execution, delivery and
performance of the Loan Agreement as amended hereby has been authorized by all
requisite corporate action on the part of Company and will not violate the
Articles/Certificate of Incorporation or Bylaws of Company; (b) the
representations and warranties contained in the Loan Agreement, as amended
hereby, and any other Loan Papers are true and correct on and as of the date
hereof and on and as of the date of execution hereof as though made on and as of
each such date; (c) no Default or Event of Default under the Loan Agreement, as
amended hereby, has occurred and is continuing; and (d) Company is in full
compliance with all covenants and agreements contained in the Loan Agreement and
the other Loan Papers, as amended hereby.
4.03. Representations and Warranties Concerning Spring Acquisition Company
and Spring Holding. Company hereby represents and warrants to Banks that
neither Spring Acquisition Company's acquisition of the Capital Stock of Spring
Holding nor Company's nor any Subsidiary's subsequent acquisition of any
additional equity interests in Spring Acquisition Company or the Capital Stock
of Spring Holding will cause Company or any Subsidiary (a) to incur, assume or
otherwise become liable for any Indebtedness of the Spring Companies or any
other Person or (b) to become responsible or liable for any presently existing
breach or violation, in any material respect, of any Environmental Laws
applicable to the assets of any of the Spring Companies.
ARTICLE V
Miscellaneous Provisions
5.01. Reference to Loan Agreement. The other Loan Papers, and any and all
other agreements, documents or instruments now or hereafter executed and
delivered pursuant to the terms hereof or pursuant to the terms of the Loan
Agreement, as amended hereby, are hereby amended so that any reference in the
Loan Agreement and such other Loan Papers to the Loan Agreement shall mean a
reference to the Loan Agreement as amended hereby.
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5.02. Expenses of Agents. As provided in the Loan Agreement, Company
agrees to pay on demand all reasonable costs and expenses incurred by Agents in
connection with the preparation, negotiation and execution of this Amendment,
including, without limitation, the costs and fees of Agent's legal counsel, and
all reasonable costs and expenses incurred by Banks in connection with the
enforcement or preservation of any rights under the Loan Agreement, as amended
hereby, or any other Loan Papers, including, without, limitation, the reasonable
costs and fees of Agents' legal counsel. Company shall not be responsible for
the cost or expense of legal counsel of any other Bank in connection with the
preparation, execution and delivery of this Amendment.
5.03. Counterparts. This instrument may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an original,
but all of which when taken together shall constitute one and the same
instrument.
5.04. Headings. The headings, captions, and arrangements used herein are
for convenience only and shall not affect the interpretation of this instrument.
5.05. Applicable Law. THE LOAN AGREEMENT AS AMENDED HEREBY AND ALL OTHER
LOAN PAPERS EXECUTED PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE
PERFORMABLE IN AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF TEXAS UNLESS THE LAWS GOVERNING NATIONAL BANKS SHALL HAVE
APPLICATION.
5.06. Final Agreement. THE LOAN AGREEMENT AS AMENDED HEREBY AND THE OTHER
LOAN PAPERS, EACH AS AMENDED HEREBY, REPRESENT THE ENTIRE EXPRESSION OF THE
PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF ON THE EFFECTIVE DATE THIS
AMENDMENT IS EXECUTED. THE LOAN AGREEMENT AS AMENDED HEREBY AND THE OTHER LOAN
PAPERS, AS AMENDED HEREBY, MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. NO MODIFICATION, RESCISSION,
WAIVER, RELEASE OR AMENDMENT OF ANY PROVISION OF THE LOAN AGREEMENT OR THE OTHER
LOANS PAPERS SHALL BE MADE, EXCEPT BY A WRITTEN AGREEMENT SIGNED BY COMPANY AND
EITHER BANKS OR MAJORITY BANKS, AS PROVIDED IN THE LOAN AGREEMENT.
IN WITNESS WHEREOF, this Amendment has been executed in multiple originals
and is effective as of the date first above-written.
[SIGNATURE PAGES TO FOLLOW]
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COMPANY:
CROSS TIMBERS OIL COMPANY,
a Delaware corporation
By: JOHN O'REAR
---------------------------------
John O'Rear, Vice President and
Treasurer
BANKS:
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By: JOHN KOWALCZUK
---------------------------------
Name: John Kowalczuk
---------------------------------
Title: Vice President
---------------------------------
NATIONSBANK, N.A., dba Bank of America,
N.A.
By: J. SCOTT FOWLER
---------------------------------
J. Scott Fowler, Vice President
CHASE BANK OF TEXAS, N.A.
By: DALE HURD
---------------------------------
Dale Hurd, Managing Director
9
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BANKBOSTON, N.A.
By: GEORGE W. PASSELA
---------------------------------
Name: George W. Passela
---------------------------------
Title: Managing Director
---------------------------------
WELLS FARGO BANK (TEXAS), N.A.
By: CHARLES D. KIRKHAM
---------------------------------
Charles D. Kirkham,
Vice President
FROST NATIONAL BANK, as the surviving
bank by merger of Overton Bank and
Trust, N.A., effective May 29, 1998
By: W.H. (BILL) ADAMS, III
---------------------------------
W.H. (Bill) Adams, III, Senior
Vice President
ABN-AMRO BANK N.V.
By: JAMIE A. CONN
---------------------------------
Name: Jamie A. Conn
---------------------------------
Title: Vice President
---------------------------------
By: ROBERT J. CUNNINGHAM
---------------------------------
Name: Robert J. Cunningham
Title: Group Vice President
---------------------------------
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BANK OF MONTREAL
By: MELISSA BAUMAN
---------------------------------
Name: Melissa Bauman
---------------------------------
Title: Director
---------------------------------
THE BANK OF NEW YORK
By: RAYMOND J. PALMER
---------------------------------
Name: Raymond J. Palmer
---------------------------------
Title: Vice President
---------------------------------
PARIBAS
By: MIKE FIUZAT
---------------------------------
Mike Fiuzat, Vice President
By: BRIAN M. MALONE
---------------------------------
Name: Brian M. Malone
---------------------------------
Title: Director
---------------------------------
CREDIT LYONNAIS NEW YORK BRANCH
By: PHILLIPPE SOUSTRA
---------------------------------
Name: Phillippe Soustra
---------------------------------
Title: Senior Vice President
---------------------------------
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By: J. SCOTT FOWLER
---------------------------------
J. Scott Fowler, Vice President
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FIRST UNION NATIONAL BANK
By: ROBERT R. WETTEROFF
---------------------------------
Name: Robert R. Wetteroff
---------------------------------
Title: Senior Vice President
---------------------------------
BANK ONE, TEXAS, N.A.
By: WM. MARK CRANMER
---------------------------------
Name: Wm. Mark Cranmer
---------------------------------
Title: Vice President
---------------------------------
NATEXIS Banque
By: TIMOTHY L. POLVADO
---------------------------------
Timothy L. Polvado,
Vice President
By: ERIC DITGES
---------------------------------
Eric Ditges, Assistant Vice
President
THE BANK OF NOVA SCOTIA
By: F.C.H. ASHBY
---------------------------------
Name: F.C.H. Ashby
---------------------------------
Title: Senior Manager
---------------------------------
Loan Operations
COMERICA BANK-TEXAS
By: DAVID L. MONTGOMERY
---------------------------------
David L. Montgomery,
Vice President
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EXHIBIT 10.3
THIRD AMENDMENT TO
AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
--------------------------
THIS THIRD AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
(the "Amendment") is made and entered into as of the 17th day of June, 1999 (the
"Effective Date"), by and among CROSS TIMBERS OIL COMPANY, a Delaware
corporation ("Company"), the Banks that are signatories hereto (collectively,
the "Banks"), MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent
for Banks, NATIONSBANK, N.A. D/B/A BANK OF AMERICA, N.A., as Syndication Agent
for Banks and CHASE BANK OF TEXAS, N.A., as Documentation Agent for Banks.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Company, Morgan Guaranty Trust Company of New York, as
Administrative Agent for Banks, NationsBank, N.A. d/b/a Bank of America N.A., as
Syndication Agent for Banks, Chase Bank of Texas, N.A., as Documentation Agent
for Banks, and Banks have entered into that certain Amended and Restated
Revolving Credit Agreement dated as of November 16, 1998, which amends and
restates in its entirety that certain Revolving Credit Agreement dated August
28, 1998, which amends and restates in its entirety that certain Revolving
Credit Agreement dated as of April 17, 1998, as amended (as amended by the
foregoing, as amended by that certain First Amendment to Amended and Restated
Revolving Credit Agreement dated as of May 17, 1999 among Company and Banks, as
amended by that certain Second Amendment to Amended and Restated Revolving
Credit Agreement dated as of June 7, 1999 among Company and Banks and as in
effect as of the Effective Date, as amended hereby and as amended from time to
time hereafter, the "Loan Agreement").
WHEREAS, the parties hereto desire to amend the Loan Agreement as set
forth herein.
NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties, intending to be legally bound, agree as
follows:
ARTICLE I
Definitions and References
--------------------------
1.01 Unless otherwise specifically defined herein, each term used
herein which is defined in the Loan Agreement as in effect immediately prior to
the Effective Date shall have the meaning assigned to such term in the Loan
Agreement as so in effect. Each reference to "hereof," "hereunder," "herein" and
"hereby" and each other similar reference and each reference to "this Loan
Agreement" and each other similar reference contained in the Loan Agreement
shall from and after the Effective Date refer to the Loan Agreement as amended
hereby.
<PAGE>
ARTICLE II
Amendments
----------
2.01. Amendment to Article I.
----------------------
A. Effective as of the Effective Date, the last sentence of the
definition of "Compressor Lease Agreements" is amended in its entirety and the
---------------------------
following is substituted therefor:
"As used herein and in sub-clause (xiii) of the definition of Permitted
Liens, the term "funding amount" shall mean the lessor's cost of the
compressors and other equipment as set forth in such lease agreement."
B. Effective as of the Effective Date, sub-clause (xiii) of the
definition of "Permitted Liens" is amended in its entirety and the following is
---------------
substituted therefor:
"(xiii) (a) Liens granted under the Compressor Lease Agreements, under
which (i) the total funding amount under the wellhead compressor lease
agreements for Mineral Properties in the San Juan Basin area is
$4,600,000, (ii) the total funding amount under the compressor lease
agreements for Mineral Properties in the East Texas area is $5,000,000,
and (iii) the total funding amount under the compressor lease agreements
for Mineral Properties in the Ozona Texas area is $3,500,000, (b) Liens
granted under aircraft lease agreements and other equipment lease
agreements in which Company or a Subsidiary is the lessee in which the
total funding amount thereunder shall not exceed $6,200,000, and (c)
Liens granted under such other and additional compressor leases in which
Company or a Subsidiary is the lessee in which the total funding amount
thereunder shall not exceed $10,000,000 per calendar year, provided,
however, that all lease and rental payments respecting the leases
permitted under this sub-clause (xiii) shall be included as operating
expenses in the determination of Cash Flow, Net Revenue and, to the
extent such payments are attributable to wellhead compressor leases, the
Present Value of Borrowing Base Reserves as established by each Reserve
Report,"
2.02. Amendment to Section 9.01. Effective as of the Effective Date, sub-
-------------------------
clause (xi) of Section 9.01 of the Loan Agreement is amended in its entirety and
the following is substituted therefor:
"(xi) [INTENTIONALLY OMITTED],"
ARTICLE III
Condition Precedent
-------------------
3.01. Counterparts; Conditions to Effectiveness. This instrument shall
-----------------------------------------
become effective (and the Loan Agreement shall be amended with the amendments
referred to herein) as of the Effective Date when Administrative Agent shall
have received a duly executed counterpart
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hereof signed by Company and Majority Banks (or, in the case of any Bank
included within Majority Banks as to which an executed counterpart shall not
have been received, Administrative Agent shall have received telegraphic, telex
or other written confirmation from such party of execution of a counterpart
hereof by such Bank).
ARTICLE IV
Ratifications, Representations and Warranties
---------------------------------------------
4.01. Ratifications. The terms and provisions set forth herein shall
-------------
modify and supersede all inconsistent terms and provisions set forth in the Loan
Agreement immediately before giving effect hereto and the other Loan Papers,
and, except as expressly modified, amended, and superseded herein, the terms and
provisions of the Loan Agreement and the other Loan Papers are ratified and
confirmed and shall continue in full force and effect. Company and Banks agree
that the Loan Agreement, as amended hereby, and the other Loan Papers shall
continue to be legal, valid, binding and enforceable in accordance with their
respective terms.
4.02. Representations, Warranties and Agreements. Company hereby
------------------------------------------
represents and warrants to Banks that (a) the execution, delivery and
performance of the Loan Agreement as amended hereby has been authorized by all
requisite corporate action on the part of Company and will not violate the
Articles/Certificate of Incorporation or Bylaws of Company; (b) the
representations and warranties contained in the Loan Agreement, as amended
hereby, and any other Loan Papers are true and correct on and as of the date
hereof and on and as of the date of execution hereof as though made on and as of
each such date; (c) no Default or Event of Default under the Loan Agreement, as
amended hereby, has occurred and is continuing; and (d) Company is in full
compliance with all covenants and agreements contained in the Loan Agreement and
the other Loan Papers, as amended hereby.
ARTICLE V
Miscellaneous Provisions
------------------------
5.01. Reference to Loan Agreement. The other Loan Papers, and any
---------------------------
and all other agreements, documents or instruments now or hereafter executed and
delivered pursuant to the terms hereof or pursuant to the terms of the Loan
Agreement, as amended hereby, are hereby amended so that any reference in the
Loan Agreement and such other Loan Papers to the Loan Agreement shall mean a
reference to the Loan Agreement as amended hereby.
5.02. Expenses of Agents. As provided in the Loan Agreement, Company
------------------
agrees to pay on demand all reasonable costs and expenses incurred by Agents in
connection with the preparation, negotiation and execution of this Amendment,
including, without limitation, the costs and fees of Agent's legal counsel, and
all reasonable costs and expenses incurred by Banks in connection with the
enforcement or preservation of any rights under the Loan Agreement, as amended
hereby, or any other Loan Papers, including, without, limitation, the reasonable
costs and fees of Agents' legal counsel. Company shall not be responsible for
the cost or expense of legal counsel of any other Bank in connection with the
preparation, execution and delivery of this Amendment.
3
<PAGE>
5.03. Counterparts. This instrument may be executed in one or more
------------
counterparts, each of which when so executed shall be deemed to be an original,
but all of which when taken together shall constitute one and the same
instrument.
5.04. Headings. The headings, captions, and arrangements used herein
--------
are for convenience only and shall not affect the interpretation of this
instrument.
5.05. Applicable Law. THE LOAN AGREEMENT AS AMENDED HEREBY AND ALL
--------------
OTHER LOAN PAPERS EXECUTED PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND
TO BE PERFORMABLE IN AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF TEXAS UNLESS THE LAWS GOVERNING NATIONAL BANKS SHALL
HAVE APPLICATION.
5.06. Final Agreement. THE LOAN AGREEMENT AS AMENDED HEREBY AND THE
---------------
OTHER LOAN PAPERS, EACH AS AMENDED HEREBY, REPRESENT THE ENTIRE EXPRESSION OF
THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF ON THE EFFECTIVE DATE THIS
AMENDMENT IS EXECUTED. THE LOAN AGREEMENT AS AMENDED HEREBY AND THE OTHER LOAN
PAPERS, AS AMENDED HEREBY, MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. NO MODIFICATION, RESCISSION,
WAIVER, RELEASE OR AMENDMENT OF ANY PROVISION OF THE LOAN AGREEMENT OR THE OTHER
LOANS PAPERS SHALL BE MADE, EXCEPT BY A WRITTEN AGREEMENT SIGNED BY COMPANY AND
EITHER BANKS OR MAJORITY BANKS, AS PROVIDED IN THE LOAN AGREEMENT.
IN WITNESS WHEREOF, this Amendment has been executed in multiple
originals and is effective as of the date first above-written.
[SIGNATURE PAGES TO FOLLOW]
4
<PAGE>
COMPANY:
-------
CROSS TIMBERS OIL COMPANY,
a Delaware corporation
By: JOHN O'REAR
----------------------------------------
John O'Rear, Vice President and Treasurer
BANKS:
-----
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By: JOHN KOWALCZUK
----------------------------------------
Name: John Kowalczuk
----------------------------------------
Title: Vice President
----------------------------------------
NATIONSBANK, N.A., dba Bank of America, N.A.
By: J. SCOTT FOWLER
----------------------------------------
J. Scott Fowler, Managing Director
CHASE BANK OF TEXAS, N.A.
By: DALE HURD
----------------------------------------
Dale Hurd, Managing Director
5
<PAGE>
BANKBOSTON, N.A.
By: GEORGE W. PASSELA
----------------------------------------
Name: George W. Passela
----------------------------------------
Title: Managing Director
----------------------------------------
WELLS FARGO BANK (TEXAS), N.A.
By: CHARLES D. KIRKHAM
----------------------------------------
Charles D. Kirkham, Vice President
FROST NATIONAL BANK, as the surviving
bank by merger of Overton Bank and Trust, N.A.,
effective May 29, 1998
By: W.H. (BILL) ADAMS, III
----------------------------------------
W.H. (Bill) Adams, III, Senior Vice
President
ABN-AMRO BANK N.V.
By: ALLEN V. POOLE
----------------------------------------
Name: Allen V. Poole
----------------------------------------
Title Senior Vice President
----------------------------------------
By: W. BRYAN CHAPMAN
----------------------------------------
Name: W. Bryan Chapman
----------------------------------------
Title: Group Vice President
----------------------------------------
6
<PAGE>
BANK OF MONTREAL
By: MELISSA BAUMAN
----------------------------------------
Name: Melissa Bauman
----------------------------------------
Title: Director
----------------------------------------
THE BANK OF NEW YORK
By: RAYMOND J. PALMER
----------------------------------------
Name: Raymond J. Palmer
----------------------------------------
Title: Vice President
----------------------------------------
PARIBAS
By: MIKE FIUZAT
----------------------------------------
Mike Fiuzat, Vice President
By: MARIAN LIVINGSTON
----------------------------------------
Name: Marian Livingston
----------------------------------------
Title: Vice President
----------------------------------------
CREDIT LYONNAIS NEW YORK BRANCH
By: PHILLIPPE SOUSTRA
----------------------------------------
Name: Phillippe Soustra
----------------------------------------
Title: Senior Vice President
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By: J. SCOTT FOWLER
----------------------------------------
J. Scott Fowler, Managing Director
7
<PAGE>
FIRST UNION NATIONAL BANK
By: ROBERT R. WETTEROFF
----------------------------------------
Name: Robert R. Wetteroff
----------------------------------------
Title:
----------------------------------------
BANK ONE, TEXAS, N.A.
By: WM. MARK CRANMER
----------------------------------------
Name: Wm. Mark Cranmer
----------------------------------------
Title: Vice President
----------------------------------------
NATEXIS Banque
By: TIMOTHY L. POLVADO
----------------------------------------
Timothy L. Polvado, Vice President
By: RENAUD J. D'HERBES
----------------------------------------
Renaud J. d'Herbes
Senior Vice President
and Regional Manager
THE BANK OF NOVA SCOTIA
By: F.C.H. ASHBY
----------------------------------------
Name: F.C.H. Ashby
----------------------------------------
Title: Senior Manager
----------------------------------------
Loan Operations
COMERICA BANK-TEXAS
By: DAVID L. MONTGOMERY
----------------------------------------
David L. Montgomery, Vice President
8
<PAGE>
EXHIBIT 15.1
Cross Timbers Oil Company:
We are aware that Cross Timbers Oil Company has incorporated by reference in its
Registration Statements on Form S-8 (Nos. 33-64274, 33-65238, 33-81766, 333-
35229, 333-36569, 333-68775, 333-69977 and 333-81849) and on Form S-3 (No. 333-
46909) of Cross Timbers Oil Company, Form S-3 (No. 333-56983) of Cross Timbers
Oil Company and Cross Timbers Royalty Trust its Form 10-Q for the quarter ended
June 30, 1999, which includes our report dated July 22, 1999, covering the
unaudited interim financial information contained therein. Pursuant to
Regulation C of the Securities Act of 1933, that report is not considered a part
of the registration statement prepared or certified by our firm or a report
prepared or certified by our firm within the meaning of Sections 7 and 11 of the
Act.
ARTHUR ANDERSEN LLP
Fort Worth, Texas
August 16, 1999
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