- - ----------------------------------------------------------------------------
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 March 31, 1994
--------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-9041
------
MESA INC.
=========
(Exact name of registrant as specified in its charter)
Texas 75-2394500
----- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2600 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
- - ------------------------- -----
(Address of Principal (Zip Code)
Executive Offices)
(214) 969-2200
--------------
(Registrant's telephone number, including area code)
(no change)
-----------
(Former name, former address, and former
fiscal year, if changed 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
-------- -------
Number of shares outstanding as of the close of business on May 13,
1994: 64,050,009.
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<PAGE>
PART I - FINANCIAL INFORMATION
==============================
Item 1. Financial Statements
- - -----------------------------
MESA INC.
=========
Consolidated Statements of Operations
-------------------------------------
(in thousands, except per share data)
(unaudited)
Three Months Ended
March 31
-------------------
1994 1993
-------- --------
REVENUES:
Natural gas...................................... $ 40,706 $ 40,987
Natural gas liquids.............................. 16,272 17,840
Oil and condensate............................... 1,611 3,934
Other............................................ 2,495 1,065
-------- --------
61,084 63,826
-------- --------
COSTS AND EXPENSES:
Lease operating.................................. 13,648 13,767
Production and other taxes....................... 5,222 5,415
Exploration charges.............................. 772 573
General and administrative....................... 5,954 5,780
Depreciation, depletion and amortization......... 25,312 28,259
-------- --------
50,908 53,794
-------- --------
OPERATING INCOME...................................... 10,176 10,032
-------- --------
OTHER INCOME (EXPENSE):
Interest income.................................. 2,422 2,693
Interest expense................................. (36,166) (34,952)
Other............................................ 5,802 5,139
-------- --------
(27,942) (27,120)
-------- --------
NET LOSS.............................................. $(17,766) $(17,088)
======== ========
NET LOSS PER COMMON SHARE............................. $ (.37) $ (.44)
======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING............ 47,449 38,571
======== ========
(See accompanying notes to consolidated financial statements.)
<PAGE>
MESA INC.
=========
Consolidated Balance Sheets
---------------------------
(in thousands, except share data)
March 31, December 31,
ASSETS 1994 1993
----------- ------------
CURRENT ASSETS: (unaudited)
Cash and cash investments................... $ 125,353 $ 138,709
Marketable securities....................... 7,270 11,319
Accounts receivable......................... 36,288 43,442
Other....................................... 3,251 2,732
---------- ----------
Total current assets................... 172,162 196,202
---------- ----------
PROPERTY, PLANT AND EQUIPMENT:
Oil and gas properties, wells and
equipment, using the successful
efforts method of accounting.............. 1,848,411 1,846,237
Office and other............................ 41,432 41,064
Accumulated depreciation, depletion
and amortization.......................... (720,661) (695,455)
---------- ----------
1,169,182 1,191,846
---------- ----------
OTHER ASSETS:
Restricted cash of subsidiary partnership... 61,107 62,649
Gas balancing receivable.................... 47,718 47,101
Other....................................... 34,811 35,584
---------- ----------
143,636 145,334
---------- ----------
$1,484,980 $1,533,382
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt........ $ 55,122 $ 67,657
Accounts payable and accrued liabilities.... 25,263 33,375
Interest payable............................ 5,200 19,012
---------- ----------
Total current liabilities.............. 85,585 120,044
---------- ----------
LONG-TERM DEBT................................... 1,221,341 1,173,637
---------- ----------
DEFERRED REVENUE................................. 22,278 22,707
---------- ----------
OTHER LIABILITIES................................ 58,684 102,133
---------- ----------
CONTINGENCIES
MINORITY INTEREST................................ -- 2,732
---------- ----------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, authorized
10,000,000 shares; no shares issued and
outstanding............................... -- --
Common stock, $.01 par value, authorized
100,000,000 shares; outstanding 47,762,109
and 46,511,439 shares, respectively....... 478 465
Additional paid-in capital.................. 306,060 303,344
Accumulated deficit......................... (209,446) (191,680)
---------- ----------
97,092 112,129
---------- ----------
$1,484,980 $1,533,382
========== ==========
(See accompanying notes to consolidated financial statements.)
<PAGE>
MESA INC.
=========
Consolidated Statements of Cash Flows
-------------------------------------
(in thousands)
(unaudited)
Three Months Ended
March 31
-------------------
1994 1993
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.......................................... $(17,766) $(17,088)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation, depletion and amortization..... 25,312 28,259
Accreted interest on discount notes.......... 20,174 --
Litigation settlement........................ (42,750) --
Securities (gains) losses.................... 919 (5,509)
Changes in operating receivables and payables (14,141) (4,599)
Changes in marketable securities, net........ 3,129 (3,185)
Other........................................ 1,214 1,284
-------- --------
Cash used in operating activities............ (23,909) (838)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.............................. (2,635) (9,245)
Other............................................. (3,308) 365
-------- --------
Cash used in investing activities............ (5,943) (8,880)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term borrowings.............................. 42,750 --
Repayments of long-term debt...................... (27,755) (19,500)
Other............................................. 1,501 469
-------- --------
Cash provided by (used in)
financing activities....................... 16,496 (19,031)
-------- --------
NET DECREASE IN CASH AND CASH INVESTMENTS.............. (13,356) (28,749)
CASH AND CASH INVESTMENTS AT BEGINNING OF PERIOD....... 138,709 157,197
-------- --------
CASH AND CASH INVESTMENTS AT END OF PERIOD............. $125,353 $128,448
======== ========
(See accompanying notes to consolidated financial statements.)
<PAGE>
MESA INC.
=========
Consolidated Statement of Changes in Stockholders' Equity
---------------------------------------------------------
(in thousands)
(unaudited)
Common Stock Additional
--------------- Paid-in Accumulated
Shares Amount Capital Deficit
------ ------ ---------- -----------
BALANCE, December 31, 1993..... 46,511 $465 $303,344 $(191,680)
Net loss.................. -- -- -- (17,766)
Common stock issued for
conversion of the
General Partner
minority interest....... 1,251 13 2,716 --
------ ---- -------- ---------
BALANCE, March 31, 1994........ 47,762 $478 $306,060 $(209,446)
====== ==== ======== =========
(See accompanying notes to consolidated financial statements.)
<PAGE>
MESA INC.
=========
Notes to Consolidated Financial Statements
------------------------------------------
March 31, 1994
(unaudited)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
===========================================================
MESA Inc., a Texas corporation, was formed in 1991 in connection with a
transaction (the Corporate Conversion) which reorganized the business of
Mesa Limited Partnership (the Partnership). The Partnership was formed in
1985 to succeed to the business of Mesa Petroleum Co. Unless the context
otherwise requires, as used herein the term "Company" refers to MESA Inc.
and its subsidiaries taken as a whole and includes its predecessors.
The consolidated financial statements of the Company for the three-
month periods ended March 31, 1994 and 1993 are unaudited but reflect, in
the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to fairly present the results for such
periods. The accompanying financial statements should be read in
conjunction with the audited consolidated financial statements and notes
thereto contained in the Company's Annual Report on Form 10-K for the year
ended December 31, 1993.
Principles of Consolidation
- - ---------------------------
The Company owns and operates its oil and gas properties and other
assets through various direct and indirect subsidiaries. Pursuant to the
Corporate Conversion, the Company obtained a 95.86% limited partnership
interest and Boone Pickens (the General Partner) obtained a 4.14% general
partner interest in three direct subsidiary partnerships. On December 31,
1993, the General Partner converted approximately one-fourth of his general
partner interests into 416,890 shares of common stock. In early 1994, the
Company effected a series of merger transactions which resulted in the
conversion of each of its direct subsidiary partnerships to corporate form
(see note 7). Pursuant to these mergers, the remaining general partner
interests in the Company's subsidiary partnerships held directly or
indirectly by the General Partner were converted into 1,250,670 shares of
common stock, thereby eliminating the minority interest.
The accompanying consolidated financial statements reflect the
consolidated accounts of the Company and its subsidiaries after elimination
of intercompany transactions. The General Partner's interest, prior to the
conversion into common stock discussed above, is reflected as a minority
interest in the consolidated financial statements.
Certain reclassifications have been made to amounts reported in previous
years to conform to 1994 presentation.
Statements of Cash Flows
- - ------------------------
For purposes of the statements of cash flows, the Company classifies
all cash investments with original maturities of three months or less as
cash and cash investments.
Investments
- - -----------
On January 1, 1994, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," which addresses the accounting and reporting
for investments in equity securities that have readily determinable fair
values and for all investments in debt securities. The Company's portfolio
of securities is classified as "trading securities" under the provisions of
SFAS No. 115 and is reported at fair value, with unrealized gains and losses
included in the net income (loss) for the current period. The cost of
securities sold is determined on the first-in, first-out basis. Prior to
January 1, 1994, investments in marketable securities were stated at the
lower of cost or market. The adoption of SFAS No. 115 on January 1, 1994,
did not have a material effect on the financial position or results of
operations of the Company.
The Company also enters into various futures contracts which are not
intended to be hedges of future natural gas or crude oil production and are
periodically adjusted to market prices. Gains and losses from such
contracts are included in securities gains (losses) in the statements of
operations. Prior to January 1, 1994, investments in marketable securities
are stated at the lower of cost or market.
Oil and Gas Properties
- - ----------------------
Under the successful efforts method of accounting, all costs of
acquiring unproved oil and gas properties and drilling and equipping
exploratory wells are capitalized pending determination of whether the
properties have proved reserves. If an exploratory well is determined to be
nonproductive, the drilling and equipment costs of the well are expensed at
that time. All development drilling and equipment costs are capitalized.
Capitalized costs of proved properties and estimated future dismantlement
and abandonment costs are amortized on a property-by-property basis using
the unit-of-production method. Geological and geophysical costs and delay
rentals are expensed as incurred.
Unproved properties are periodically assessed for impairment of value
and a loss is recognized at the time of impairment. The aggregate carrying
value of proved properties is periodically compared with the undiscounted
future net cash flows from proved reserves, determined in accordance with
Securities and Exchange Commission (SEC) regulations, and a loss is
recognized if permanent impairment of value is determined to exist. A loss
is recognized on proved properties expected to be sold in the event that
carrying value exceeds expected sales proceeds.
Net Loss Per Common Share
- - -------------------------
The computations of net loss per common share are based on the weighted
average number of common shares outstanding during each period.
Fair Value of Financial Instruments
- - -----------------------------------
The Company's financial instruments consist of cash, marketable
securities, short-term trade receivables and payables, restricted cash and
long-term debt. The carrying values of cash, short-term trade receivables
and payables, notes receivable and restricted cash approximate fair value.
Marketable securities are stated at fair value. The fair value of long-term
debt is estimated based on the market prices for the Company's publicly
traded debt and on current rates available for similar debt with similar
maturities and security for the Company's remaining debt.
Gas Revenues
- - ------------
The Company recognizes its ownership interest in natural gas sales as
revenue. Actual production quantities sold by the Company may be different
than its ownership share of production in a given period. If the Company's
natural gas sales exceed its ownership share of production, the excess is
recorded as deferred revenue. Gas balancing receivables are recorded when
the Company's ownership share of production exceeds its natural gas sales.
The Company also accrues production expenses related to its ownership share
of production. At March 31, 1994, the Company had produced and sold a net
13.9 billion cubic feet (Bcf) of natural gas less than its ownership share
of production and had recorded gas balancing receivables, net of deferred
revenues, of approximately $28.6 million. Substantially all of the
Company's gas balancing receivables and deferred revenue is classified as
long-term.
Taxes
- - -----
The Company provides for income taxes using the asset and liability
method under which deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying enacted statutory tax
rates applicable to future years to differences between the financial
statement carrying amounts and the tax bases of existing assets and
liabilities. The effect on deferred taxes of a change in tax laws or tax
rates is recognized in income in the period that includes the enactment
date.
(2) RESOURCES AND LIQUIDITY
=======================
At March 31, 1994, the Company's long-term debt, net of current
maturities, totaled approximately $1.2 billion (see note 4). The Company
also had approximately $86.6 million of working capital; cash and securities
totaled approximately $132.6 million. Included in the $132.6 million of
cash and securities is $29.4 million of cash held by Hugoton Capital Limited
Partnership (HCLP), an indirect subsidiary partnership. The assets of HCLP
(which include substantially all of the Company's Hugoton field natural gas
properties and approximately $61 million of restricted cash) are dedicated
to service HCLP's $520 million of secured debt (the HCLP Secured Notes) and
are not available to pay creditors of the Company or its other subsidiaries.
See note 4 for additional discussion. The Company's cash flows from
operating activities are substantially dependent on the amount of oil and
gas produced and the prices received for such production. Production and
prices received from HCLP properties, together with cash held by HCLP, are
expected, under the Company's current operating plan, to generate sufficient
cash flow to meet HCLP's required principal, interest and capital
expenditure obligations. However, HCLP's cash flows are not expected to be
sufficient to permit HCLP to distribute any excess cash to Company
subsidiaries until at least 1995. The Company contributed $5.8 million to
HCLP in the first quarter of 1994 to make scheduled principal payments and,
depending upon capital requirements and natural gas and liquids prices, may
advance as much as $10 million to HCLP in 1994 to cover HCLP capital
expenditures in excess of scheduled capital expenditures.
In recent years, the Company has repaid or refinanced a substantial
amount of its debt, including debt refinanced pursuant to a debt exchange
(the Debt Exchange) completed in August 1993 in which almost $600 million of
12% and 13-1/2% subordinated notes (together, the Subordinated Notes) and
$100 million of bank debt were restructured (see note 4). The Debt Exchange
resulted in the issuance of new debt securities in exchange for
substantially all of the Subordinated Notes. The primary benefit to the
Company of the Debt Exchange was to defer beyond June 30, 1995 the payment
of over $150 million of interest payments which would have otherwise been
required from mid-1993 through mid-1995. In the second quarter of 1994, the
Company completed a public offering of 16.3 million shares of common stock
(including 1.3 million shares sold pursuant to the underwriters' over-
allotment option) at a public offering price of $6.00 per share (the Equity
Offering). The Equity Offering resulted in net proceeds to the Company of
$93.7 million which will be used to redeem long-term debt. The debt to be
repaid includes the $6.3 million of 12% subordinated notes outstanding, plus
accrued interest, and $87.3 million of the 12-3/4% unsecured discount notes
which were scheduled to mature in 1996.
The Company expects to service its debt obligations and meet capital
expenditure requirements through 1995 with cash flows from operating
activities and available cash and securities balances. On December 31,
1995, the Company will begin making interest payments on the 12-3/4% secured
discount notes due June 30, 1998 and the remaining 12-3/4% unsecured
discount notes due June 30, 1996 (together, the Discount Notes) issued in
the Debt Exchange. Assuming no additional changes in the Company's capital
structure prior to such date, the Company will be required to make cash
interest payments related to the Discount Notes totaling approximately $44.4
million on December 31, 1995 and approximately $83.8 million during 1996.
In addition, 12-3/4% unsecured discount notes in the amount of $79.0 million
become due in mid-1996. The Company's current financial forecasts indicate
that the Company may be unable to fund its debt service and capital
expenditure requirements in 1996 with cash flows from operating activities
and available cash and securities balances. Depending on industry and
market conditions, the Company may generate cash by issuing additional
equity or debt securities or selling assets. However, the Company has a
limited ability to sell assets since its two largest assets, its interests
in the Hugoton and West Panhandle fields, are pledged under long-term debt
agreements. The Company has filed a shelf registration statement for the
issuance and sale of up to $300 million of debt securities. If and when
such debt securities are issued, the net proceeds will be used to retire
existing debt. There can be no assurances that the Company will be able to
issue any such debt securities, raise additional equity capital or otherwise
refinance its debt.
(3) MARKETABLE SECURITIES
=====================
The fair value of marketable securities is as follows (in thousands):
March 31, December 31,
1994 1993
--------- ------------
Cost........................................ $ 8,365 $11,788
Unrealized loss............................. (1,095) (469)
------- -------
Fair value............................. $ 7,270 $11,319
======= =======
For the three months ended March 31, 1994, the Company recognized a net
loss of $.9 million from its investments in securities and futures contracts
compared with a net gain for the same period in 1993 of $5.5 million. The
net securities gains do not include gains or losses from natural gas futures
contracts accounted for as hedges of natural gas production. Hedge gains or
losses are included in natural gas revenue in the period in which the hedged
production occurs (see note 1).
The net securities gains and losses recognized during a period include
both realized and unrealized gains and losses. During the three month
period ended March 31, 1994, the Company realized net gains of $.6 million
from securities transactions and futures contracts. The Company realized
net losses from securities transactions and futures contracts of $2.0
million during the three month period ended March 31, 1993.
<PAGE>
(4) LONG-TERM DEBT
==============
Long-term debt and current maturities are as follows (in thousands):
March 31, December 31,
1994 1993
---------- ------------
HCLP Secured Notes.......................... $ 520,180 $ 541,600
Credit Agreement............................ 52,813 59,148
12-3/4% secured discount notes.............. 531,127 472,939
12-3/4% unsecured discount notes............ 153,312 148,576
12% subordinated notes...................... 6,336 6,336
13-1/2% subordinated notes.................. 7,390 7,390
Other....................................... 5,305 5,305
---------- ----------
1,276,463 1,241,294
Current maturities.......................... (55,122) (67,657)
---------- ----------
Long-term debt.............................. $1,221,341 $1,173,637
========== ==========
HCLP Secured Notes
- - ------------------
HCLP holds substantially all of the Company's Hugoton field natural gas
properties. In 1991, HCLP issued $616 million of secured notes in a private
placement with a group of institutional lenders. The issuance replaced $550
million of bank debt and funded a $66 million restricted cash balance within
HCLP. The restricted cash balance is available to supplement cash flows
from the HCLP properties in the event such cash flows are not sufficient to
fund principal and interest payments on the HCLP Secured Notes when due. As
the HCLP Secured Notes are repaid, the required restricted cash balance is
reduced.
The HCLP Secured Notes were issued in 15 series and have final stated
maturities extending through 2012 but can be retired earlier. In February
1994, $21.4 million of principal was repaid as scheduled. As of March 31,
1994, approximately $96.4 million of principal has been repaid as scheduled.
The HCLP Secured Notes outstanding at March 31, 1994 bear interest at fixed
rates ranging from 8.80% to 11.30% (weighted average 10.27%). Principal and
interest payments are made semiannually. Provisions in the HCLP Secured
Note agreements require interest rate premiums to be paid to the noteholders
in the event that the HCLP Secured Notes are repaid more rapidly or slowly
than scheduled in the agreements. Such premiums, if required, would
increase the effective interest rate of the HCLP Secured Notes.
The HCLP Secured Note agreements contain various covenants which, among
other things, limit HCLP's ability to sell or acquire oil and gas property
interests, incur additional indebtedness, make unscheduled capital
expenditures, make distributions of property or funds subject to the
mortgage, or enter into certain types of long-term contracts or forward
sales of production. The agreements also require HCLP to maintain separate
existence from the Company and its other subsidiaries. The assets of HCLP
are dedicated to service HCLP's debt and are not available to pay creditors
of the Company or its subsidiaries other than HCLP.
Revenues received from production from HCLP's Hugoton properties are
deposited in a collection account maintained by a collateral agent
(Collateral Agent). The Collateral Agent releases or reserves funds, as
appropriate, for the payment of royalties, taxes, operating costs, capital
expenditures and principal and interest on the HCLP Secured Notes. Only
after all required payments have been made may any remaining funds held by
the Collateral Agent be released from the mortgage. However, HCLP's cash
flows are not expected to be sufficient to permit HCLP to distribute any
excess cash to other Company subsidiaries until at least 1995.
<PAGE>
The restricted cash balance and cash held by the Collateral Agent for
payment of interest and principal on the HCLP Secured Notes are invested by
the Collateral Agent under the terms of a guaranteed investment contract
(GIC) with Morgan Guaranty Trust Co. of New York (Morgan). Morgan was paid
$13.9 million at the date of issuance of the HCLP Secured Notes to guarantee
that funds invested under the GIC would earn an interest rate equivalent to
the weighted average coupon rate on the outstanding principal balance of the
HCLP Secured Notes (10.27% at March 31, 1994). A portion of this amount may
be refunded if the HCLP Secured Notes are repaid earlier than if HCLP had
produced according to its scheduled production, depending primarily on
prevailing interest rates at that time.
In the first quarter of 1992, the Company contributed $32 million in
cash to HCLP, which funds were previously not subject to the mortgage. A
portion of such funds has been used to supplement HCLP's cash flows in order
to make scheduled principal payments on the HCLP Secured Notes. In February
1994, the Company contributed an additional $5.8 million to HCLP which,
along with $10.3 million of HCLP cash not subject to the mortgage, was used
to supplement HCLP's cash flows in order to make the February 1994 scheduled
principal payment. At March 31, 1994, approximately $14.5 million of
HCLP's cash was not subject to the mortgage. The Company may also advance
up to $10 million to HCLP in 1994 to fund expected capital expenditures in
excess of scheduled capital expenditures.
HCLP cash balances were as follows (in thousands):
March 31, December 31,
1994 1993
--------- ------------
Cash included in current assets............... $29,380 $40,446
======= =======
Restricted cash included in noncurrent assets. $61,107 $62,649
======= =======
In connection with the formation of HCLP and the issuance of the HCLP
Secured Notes, Mesa Operating Co. (MOC), the successor to Mesa Operating
Limited Partnership, a Company subsidiary which owns substantially all of
the limited partnership interests of HCLP, entered into a services agreement
with HCLP. MOC provides services necessary to operate the Hugoton field
properties and market production therefrom, process remittances of
production revenues and perform certain other administrative functions in
exchange for a services fee. The fee totaled approximately $4.8 million for
the first quarter of 1994 and $4.4 million for the same period in 1993.
Credit Agreement
- - ----------------
The Company's previous $150 million bank credit agreement was amended
in conjunction with the completion of the Debt Exchange in August 1993. The
amended bank credit agreement (the Credit Agreement) initially provided for
$80 million of initial borrowings and $10 million in letter of credit
obligations and required scheduled principal payments of $10 million in the
fourth quarter of 1993, $30 million in the first half of 1994, and the
remaining balance at final maturity in the second quarter of 1995 (including
an obligation to cash collateralize any remaining letter of credit
obligations outstanding at that time). As of March 31, 1994, the Company
had borrowed approximately $52.8 million under the Credit Agreement and had
outstanding $10.4 million in letter of credit obligations secured under the
Credit Agreement.
The terms of the Credit Agreement require prepayment of the next
scheduled principal payment in the amount of one-half of any proceeds from
certain asset sales or collections from Bicoastal Corporation (Bicoastal)
pursuant to its bankruptcy reorganization plan. As a result of the proceeds
from asset sales and collections from Bicoastal during 1993 and 1994,
approximately $10.5 million of the $30 million due under the Credit
Agreement in the first half of 1994 was prepaid in 1993 and $6.3 million was
prepaid in the first quarter of 1994.
The rate of interest payable on borrowings under the Credit Agreement
is the prime rate plus 1/2% or the Eurodollar rate plus 2-1/2% until
borrowings are reduced to $50 million, and thereafter, subject to certain
conditions, a rate equal to the Eurodollar rate plus 1-1/2% or the prime
rate. Obligations under the Credit Agreement are secured by a first lien on
the Company's West Panhandle field properties, by the Company's equity
interest in MOC and by 76% of MOC's equity interest in HCLP.
The Credit Agreement requires the Company to maintain tangible adjusted
equity, as defined, of $50 million. At March 31, 1994, the Company's
tangible adjusted equity, as defined, was $97.1 million. As a result of the
completion of the Equity Offering in the second quarter of 1994, the
Company's tangible adjusted equity, as defined, will initially increase by
approximately $93 million.
The Credit Agreement also requires the Company to maintain a ratio of
cash flow and available cash to debt service, as each is defined, of 1.50 to
1 as of the end of each fiscal quarter. During the first quarter of 1994,
the Company settled its litigation with Unocal Corporation (Unocal) (see
note 6). Under the terms of the Credit Agreement, the Company was required
to repay intercompany debt (see note 7) prior to issuing additional 12-3/4%
secured discount notes to fund the Unocal settlement. Based on the
definitions of available cash and debt service, the repayment of the
intercompany obligation caused the ratio as calculated at March 31, 1994, to
be 1.29 to 1, and is expected to cause the ratio to be below the requirement
at June 30, 1994. The Company requested and received a waiver from the
banks for this requirement as of March 31 and June 30, 1994.
The provisions of the Credit Agreement prohibit the Company from paying
any dividends to equity holders, other than those paid in the form of equity
securities.
Discount Notes
- - --------------
The Debt Exchange was consummated on August 26, 1993. Under the terms
of the Debt Exchange, holders of approximately $293.7 million aggregate
principal amount of 12% subordinated notes and $292.6 million aggregate
principal amount of 13-1/2% subordinated notes (together with approximately
$28.6 million of accrued interest claims thereon) received approximately
$435.5 million initial accreted value, as defined, of 12-3/4% secured
discount notes due June 30, 1998; $136.9 million initial accreted value, as
defined, of 12-3/4% unsecured discount notes due June 30, 1996; $29.3
million principal amount of 0% convertible notes due June 30, 1998; and, in
the case of 13-1/2% subordinated noteholders, $13.2 million in cash. The
new notes, which rank pari passu with each other, are senior in right of
payment to the remaining Subordinated Notes and subordinate to all permitted
first lien debt, as defined, including the Credit Agreement.
The Discount Notes will bear no interest through June 30, 1995;
however, the accreted value, as defined, of both series will increase from
May 1, 1993 through June 30, 1995 at 12-3/4% per year, compounded
semiannually, with the first compounding date being June 30, 1993. After
June 30, 1995, each series will accrue interest at an annual rate of 12-
3/4%, payable in cash semiannually in arrears, with the first payment due
December 31, 1995. The 0% convertible notes were converted into
approximately 7.5 million shares of common stock in December 1993.
In the second quarter of 1994, the Company completed the Equity
Offering (see note 2). The Company will use $87.3 million of the $93.7
million of proceeds from the Equity Offering to redeem $99.8 million face
amount at maturity of 12-3/4% unsecured discount notes due in 1996. The
notes will be redeemed on May 31, 1994.
The 12-3/4% secured discount notes are secured by second liens on the
Company's West Panhandle field properties and on 76% of MOC's equity
interest in HCLP, both of which currently secure obligations under the
Credit Agreement. The Company's right to maintain first lien debt, as
defined, is limited by the terms of the Discount Notes to $82.5 million.
The indentures governing the Discount Notes restrict, among other
things, the Company's ability to incur additional indebtedness, pay
dividends, acquire stock or make investments, loans and advances.
On March 2, 1994, the Company issued $48.2 million face amount of
additional 12-3/4% secured discount notes due June 30, 1998. The proceeds
of $42.8 million were used to pay the settlement amount arising from the
early 1994 settlement of a lawsuit with Unocal. The additional indebtedness
incurred to settle the Unocal lawsuit is specifically permitted under the
terms of the indentures governing the Discount Notes and under the Credit
Agreement. See note 6 for additional discussion of the Unocal litigation.
Subordinated Notes
- - ------------------
The 12% subordinated notes are unsecured and mature in 1996. Interest
on these notes is payable quarterly and, at the option of the Company, may
be paid in common stock of the Company. Proceeds from the Equity Offering
(see note 2) will be used to redeem the 12% subordinated notes on May 31,
1994. The 13-1/2% subordinated notes are unsecured and mature in 1999.
Interest on these notes is payable semiannually in cash.
Interest and Maturities
- - -----------------------
The aggregate interest payments made during the three months ended
March 31, 1994 and 1993 were $28.8 million and $39.5 million, respectively.
Payment of approximately $20.2 million of interest incurred during the three
months ended March 31, 1994 has been deferred under the terms of the Debt
Exchange until the repayment dates of the Discount Notes. Such interest is
included in interest expense in the consolidated statement of operations.
The scheduled principal repayments on long-term debt for the remainder
of 1994 and for the four succeeding years are as follows (in millions):
1994 1995 1996 1997 1998
------ ------ ------ ------ ------
HCLP Secured Notes............. $ 21.4 $ 39.3 $ 45.4 $ 46.7 $ 47.5
Credit Agreement(a)............ 13.2 39.6 -- -- --
12-3/4% secured
discount notes............... -- -- -- -- 617.4
12-3/4% unsecured
discount notes............... 87.3(b) -- 79.0 -- --
12% subordinated notes......... 6.3(b) -- -- -- --
Other.......................... 5.3 -- -- -- --
------ ------ ------ ------ ------
Total..................... $133.5 $ 78.9 $124.4 $ 46.7 $664.9
====== ====== ====== ====== ======
(a) Excludes approximately $10 million in letter of credit obligations
currently outstanding and required to be cash collateralized in 1995.
(b) Reflects optional debt repayments in 1994 with proceeds from the
Equity Offering.
Fair Value of Long-Term Debt
- - ----------------------------
Based on borrowing rates currently available for secured debt with
similar maturities and credit rating, the fair value of the HCLP Secured
Notes at March 31, 1994 is estimated to be approximately $567 million.
Based on borrowing rates currently available for bank loans with
similar collateral, the fair value of the borrowings under the Credit
Agreement at March 31, 1994, is estimated to be their carrying value.
The Discount Notes are publicly traded but not listed on a national
trading exchange. Based on trading prices available at March 31, 1994, the
fair value of the 12-3/4% secured discount notes is estimated to be
approximately $501 million and the fair value of the 12-3/4% unsecured
discount notes is estimated to be approximately $149 million.
The Subordinated Notes are publicly traded but have not experienced
significant activity since consummation of the Debt Exchange. Based on
recent trades, the fair values of the Subordinated Notes are not materially
different from their carrying value.
Based on the current financial condition of the Company, there is no
assurance that the Company could obtain borrowings under long-term debt
agreements with terms similar to those described above and receive proceeds
approximating the estimated fair values.
(5) STOCKHOLDERS' EQUITY
====================
At December, 31, 1993, the Company had outstanding 46.5 million shares
of common stock and the Company owned a 97.38% interest in its direct
subsidiaries; the General Partner owned a 2.62% interest. In January 1994,
the remaining 2.62% general partner interest was converted into
approximately 1.25 million shares of common stock, increasing the number of
shares outstanding at March 31, 1994 to 47.8 million shares. See note 1 for
further discussion of the conversion in 1994 of the remaining general
partner interest into common stock of the Company.
In the second quarter of 1994, the Company completed the Equity
Offering which resulted in the issuance of an additional 16.3 million shares
of common stock, which increased the number of shares of common stock
outstanding to 64.1 million, and an increase in stockholders' equity of
approximately $93 million. Proceeds from the Equity Offering will be used
to reduce long-term debt.
The Company has authorized 10 million shares of preferred stock. No
shares of preferred stock have been issued as of March 31, 1994.
(6) CONTINGENCIES
=============
Unocal
- - ------
The Company was subject to a lawsuit relating to a 1985 investment in
Unocal which asserted that certain profits allegedly realized by the Company
and other defendants upon the disposition of Unocal common stock in 1985
were recoverable by Unocal pursuant to Section 16(b) of the Securities
Exchange Act of 1934. On January 11, 1994, the Company and the other
defendants entered into a settlement agreement (the Settlement Agreement)
whereby they agreed to pay Unocal an aggregate of $47.5 million, of which
$42.75 million was to be paid by the Company and $4.75 million by the other
defendants. The Settlement Agreement was approved by the court on February
28, 1994. The Company funded its share of the settlement amount with
proceeds from issuance of additional long-term debt. See note 4 for
discussion of the issuance of the additional long-term debt.
As a result of the settlement, the Company recognized a $42.8 million
loss in the fourth quarter of 1993.
Masterson
- - ---------
In February 1992, the current lessors of an oil and gas lease (the Gas
Lease) dated April 30, 1955, between R. B. Masterson, et al., as lessor, and
Colorado Interstate Gas Company (CIG), as lessee, sued CIG in Federal
District Court in Amarillo, Texas, claiming that CIG had underpaid royalties
due under the Gas Lease. The Company owns an interest in the Gas Lease.
The plaintiffs, in their Second Amended Complaint, included the Company as a
defendant. The plaintiffs allege that the underpayment was the result of
CIG's use of an improper gas sales price upon which to calculate royalties
and that the proper price should have been determined pursuant to a pricing
clause in a July 1, 1967 amendment to the Gas Lease. The plaintiffs also
sought a declaration by the court as to the proper price to be used for
calculating future royalties.
In August 1992, CIG filed a third-party complaint against the Company
for any such royalty underpayments which may be allocable to the Company's
interest in the Gas Lease.
The plaintiffs subsequently dismissed their claims against the Company
for reasons relating to the jurisdiction of the federal court; however, the
third-party complaint by CIG against the Company is not affected by the
dismissal.
The plaintiffs allege royalty underpayments of approximately $450
million (including interest at 10%) covering the period July 1, 1967 to the
present. In addition, the plaintiffs seek exemplary damages. Management
believes that the Company has several defenses to plaintiffs' claims,
including (i) that the royalties for all periods were properly computed and
paid and (ii) that plaintiffs' claims with respect to all periods prior to
October 1, 1988 (which appear to account for the substantial portion of the
claims) were explicitly released by a 1988 written agreement among
plaintiffs, CIG and the Company and are further barred by the statute of
limitations. If the plaintiffs were to prevail, the manner in which any
resulting liability would be shared between the Company and CIG would depend
on the resolution of issues relating to the contractual agreements and the
relationship between the Company, CIG and the lessors during the period in
question. This lawsuit was set for trial on May 9, 1994, but has been
continued by the court to, at the earliest, June 13, 1994.
The Company does not expect the resolution of this lawsuit to have a
material adverse effect on its financial position or results of operations,
however, no determination can be made at this time as to the ultimate
outcome of the litigation.
Preference Unitholders
- - ----------------------
The Company is a defendant in lawsuits related to the Corporate
Conversion pending in the U.S. District Court for the Northern District of
Texas--Dallas Division. Plaintiffs allege, among other things, that (i) the
proxy materials delivered to unitholders in connection with the Corporate
Conversion contained material misstatements and omissions, (ii) the general
partner of the Partnership breached fiduciary duties to the preference
unitholders in structuring the transaction and allocating the common stock
of the Company and (iii) the Corporate Conversion was implemented in breach
of the partnership agreement of the Partnership because defendants allegedly
did not obtain the requisite opinion of independent counsel regarding
certain tax effects of the transaction. The Company and the other
defendants have denied the allegations and believe they are without merit.
Plaintiffs seek a declaration declaring the Corporate Conversion void and
rescinding it, an order requiring payment of $164 million to the former
preference unitholders in respect of the preferential distribution rights of
their units, unspecified compensatory and punitive damages and other relief.
Discovery has been completed and the parties have filed motions for summary
judgment on certain issues. The Court has set an August 1, 1994 trial date.
Other
- - -----
The Company is also a defendant in other lawsuits and has assumed
liabilities relating to Mesa Petroleum Co. and the Partnership. The Company
does not expect the resolution of these other matters to have a material
adverse effect on its financial position or results of operations.
<PAGE>
(7) CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
============================================
The Company conducts its operations through various direct and indirect
subsidiaries. On March 31, 1994, the Company's direct subsidiaries were
Mesa Operating Co. (MOC) and Mesa Holding Co. (MHC). MOC owns all of the
Company's interest in the West Panhandle field of Texas, the Gulf Coast and
the Rocky Mountain areas, as well as an approximate 99% limited partnership
interest in HCLP. MHC owns cash and securities, an approximate 1% limited
partnership interest in HCLP and 100% of MESA Environmental Ventures Co., a
company established to compete in the natural gas vehicle market. See
discussion below for 1994 changes in subsidiaries and HCLP ownership. HCLP
owns substantially all of the Company's Hugoton field natural gas properties
and is liable for the HCLP Secured Notes (see note 4). The assets and cash
flows of HCLP are dedicated to service the HCLP Secured Notes and are not
available to pay creditors of the Company or its subsidiaries other than
HCLP. MOC and the Company are liable for the Credit Agreement, the
Subordinated Notes and the Discount Notes. Mesa Capital Corp. (Mesa
Capital), a wholly owned financing subsidiary of MOC, is also an obligor
under the Subordinated Notes and the Discount Notes. Mesa Capital, which
has insignificant assets and results of operations, is included with MOC in
the condensed consolidating financial statements. MESA Environmental
Ventures Co. is included with MHC in the condensed consolidating financial
statements.
In early 1994, the Company effected a series of merger transactions
which resulted in the conversion of the predecessors of MOC, MHC and its
other subsidiary partnerships, other than HCLP, to corporate form and
eliminated all of the General Partner's minority interests in the
subsidiaries.
As of December 31, 1993, MHC had intercompany payables to MOC of
approximately $123 million. In January 1994, MHC repaid approximately $5
million of its intercompany payable to MOC. On February 28, 1994, MHC
assigned an 18% limited partnership interest in HCLP (out of its total
interest of approximately 19%) to MOC as consideration for $90 million of
intercompany payables. Provisions of the Discount Note indentures required
the repayment of intercompany indebtedness to specified levels and provided
that any HCLP limited partnership interests transferred in satisfaction of
intercompany debt would be valued at $5 million for each percent of interest
assigned. MHC also repaid an additional $24 million of intercompany debt to
MOC in cash. As a result of these transactions, MOC now owns 99% of the
limited partnership interest in HCLP, and substantially all of the Company's
intercompany debt has been eliminated.
<PAGE>
The following are condensed consolidating financial statements of MESA
Inc., HCLP, MOC and the Company's other direct and indirect subsidiaries
combined (in millions):
Condensed Consolidating Balance Sheets
- - --------------------------------------
Consol. The
MESA and Company
March 31, 1994 Inc. HCLP MOC MHC Elimin. Consol'd
- - -------------- ---- ---- ---- ---- ------- --------
Assets:
Cash and cash investments... $ - $ 29 $ 28 $ 68 $ - $ 125
Other current assets........ - 19 24 4 - 47
---- ---- ---- ---- ------ ------
Total current assets...... - 48 52 72 - 172
---- ---- ---- ---- ------ ------
Property, plant and
and equipment, net......... - 647 521 1 - 1,169
Investment in subsidiaries.. 106 - 138 9 (253) -
Intercompany receivables.... - - 14 - (14) -
Other noncurrent assets..... - 85 56 3 - 144
---- ---- ---- ---- ------ ------
$106 $780 $781 $ 85 $ (267) $1,485
==== ==== ==== ==== ====== ======
Liabilities and Equity:
Current liabilities......... $ - $ 55 $ 30 $ 1 $ - $ 86
Long-term debt.............. - 483 738 - - 1,221
Intercompany payables....... 9 - - 5 (14) -
Other noncurrent liabilities - 1 76 4 - 81
Partners'/Stockholders'
equity (deficit)........... 97 241 (63) 75 (253) 97
---- ---- ---- ---- ------ ------
$106 $780 $781 $ 85 $ (267) $1,485
==== ==== ==== ==== ====== ======
December 31, 1993
- - -----------------
Assets:
Cash and cash investments... $ - $ 40 $ 16 $ 83 $ - $ 139
Other current assets........ - 23 22 12 - 57
---- ---- ---- ---- ------ ------
Total current assets...... - 63 38 95 - 196
---- ---- ---- ---- ------ ------
Property, plant and
and equipment, net......... - 656 535 1 - 1,192
Investment in subsidiaries.. 121 - 44 189 (354) -
Intercompany receivables.... - - 113 - (113) -
Other noncurrent assets..... - 87 55 3 - 145
---- ---- ---- ---- ------ ------
$121 $806 $785 $288 $ (467) $1,533
==== ==== ==== ==== ====== ======
Liabilities and Equity:
Current liabilities......... $ - $ 73 $ 46 $ 1 $ - $ 120
Long-term debt.............. - 499 675 - - 1,174
Intercompany payables....... 9 - - 123 (132) -
Other noncurrent liabilities - - 120 4 - 124
Minority interest........... - - - - 3 3
Partners'/Stockholders'
equity (deficit)........... 112 234 (56) 160 (338) 112
---- ---- ---- ---- ------ ------
$121 $806 $785 $288 $ (467) $1,533
==== ==== ==== ==== ====== ======
<PAGE>
Condensed Consolidating Statements of Operations
- - ------------------------------------------------
Three Months Ended:
- - -------------------
Consol. The
MESA and Company
March 31, 1994 Inc. HCLP MOC MHC Elimin. Consol'd
- - -------------- ---- ---- ---- ---- ------- --------
Revenues...................... $ - $ 33 $ 28 $ - $ - $ 61
---- ---- ---- ---- ------ ------
Costs and Expenses:
Operating, exploration
and taxes.................. - 10 10 - - 20
General and administrative.. - - 6 - - 6
Depreciation, depletion and
amortization............... - 10 15 - - 25
---- ---- ---- ---- ------ ------
- 20 31 - - 51
---- ---- ---- ---- ------ ------
Operating Income (Loss)....... - 13 (3) - - 10
---- ---- ---- ---- ------ ------
Interest Expense, Net of
Interest Income.............. - (12) (22) - - (34)
Securities Losses............. - - - (1) - (1)
Loss on Repayment of
Intercompany Debt............ - - - (91)(d) 91 -
Equity in Income (Loss) of
Subsidiaries................. (18) - 1 - 17 -
Other......................... - - 18 7 (18) 7
---- ---- ---- ---- ------ ------
Net Income (Loss)............. $(18) $ 1 $ (6) $(85) $ 90 $ (18)
==== ==== ==== ==== ====== ======
March 31, 1993
- - --------------
Revenues...................... $ - $ 29 $ 35 $ - $ - $ 64
---- ---- ---- ---- ------ ------
Costs and Expenses:
Operating, exploration
and taxes.................. - 8 12 - - 20
General and administrative.. - - 5 1 - 6
Depreciation, depletion and
amortization............... - 10 18 - - 28
---- ---- ---- ---- ------ ------
- 18 35 1 - 54
---- ---- ---- ---- ------ ------
Operating Income (Loss)....... - 11 - (1) - 10
---- ---- ---- ---- ------ ------
Interest Expense, Net of
Interest Income.............. - (13) (19) - - (32)
Intercompany Interest
Income (Expense)............. - - 4 (4) - -
Securities Gains.............. - - 7 (2) - 5
Equity in Loss of Subsidiaries (17) - (2) - 19 -
Minority Interest............. - - - - 1 1
Other......................... - - (7) 3 3 (1)
---- ---- ---- ---- ------ ------
Net Loss...................... $(17) $ (2) $(17) $ (4) $ 23 $ (17)
==== ==== ==== ==== ====== ======
<PAGE>
Condensed Consolidating Statements of Cash Flows
- - ------------------------------------------------
Three Months Ended:
- - -------------------
Consol. The
MESA and Company
March 31, 1994 Inc. HCLP MOC MHC Elimin. Consol'd
- - -------------- ---- ---- ---- ---- ------- --------
Cash Flows from
Operating Activities........ $ - $ 4 $(43) $ 15 $ - $ (24)
---- ---- ---- ---- ------ ------
Cash Flows from
Investing Activities:
Capital expenditures....... - (1) (2) - - (3)
Contributions to
subsidiaries.............. - - (5) (1) 6 -
Other...................... - - 25 - (28) (3)
---- ---- ---- ---- ------ ------
- (1) 18 (1) (22) (6)
---- ---- ---- ---- ------ ------
Cash Flows from
Financing Activities:
Repayments of long-term
debt...................... - (22) (6) - - (28)
Long-term borrowings....... - - 43 - - 43
Contributions from equity
holders................... - 6 - - (6) -
Other...................... - 2 - (28) 28 2
---- ---- ---- ---- ------ ------
- (14) 37 (28) 22 17
---- ---- ---- ---- ------ ------
Net Increase (Decrease) in
Cash and Cash Investments... $ - $(11) $ 12 $(14) $ - $ (13)
==== ==== ==== ==== ====== ======
March 31, 1993
- - --------------
Cash Flows from
Operating Activities....... $ - $ - $ 5 $ (6) $ - $ (1)
---- ---- ---- ---- ------ ------
Cash Flows from
Investing Activities:
Capital expenditures....... - (2) (7) - - (9)
---- ---- ---- ---- ------ ------
- (2) (7) - - (9)
---- ---- ---- ---- ------ ------
Cash Flows from
Financing Activities:
Repayments of long-term
debt...................... - (20) - - - (20)
Other...................... - 2 (1) - - 1
---- ---- ---- ---- ------ ------
- (18) (1) - - (19)
---- ---- ---- ---- ------ ------
Net Decrease in Cash and
Cash Investments............ $ - $(20) $ (3) $ (6) $ - $ (29)
==== ==== ==== ==== ====== ======
Notes to Condensed Consolidating Financial Statements
- - -----------------------------------------------------
(a) These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes
thereto of the Company of which this note is an integral part.
(b) As of March 31, 1994, MESA Inc. owns 100% interest in each of MOC and
MHC. These condensed consolidating financial statements present MESA
Inc.'s investment in its subsidiaries and MOC's and MHC's investments
in HCLP using the equity method. Under this method, investments are
recorded at cost and adjusted for the parent company's ownership share
of the subsidiary's cumulative results of operations. In addition,
investments increase in the amount of contributions to subsidiaries and
decrease in the amount of distributions from subsidiaries.
(c) The consolidation and elimination entries (i) eliminate the equity
method investment in subsidiaries and equity in income (loss) of
subsidiaries, (ii) eliminate the intercompany payables and receivables,
(iii) eliminate other transactions between subsidiaries including
contributions and distributions and (iv) establish the General
Partner's minority interest in the consolidated results of operations
and financial position of the Company.
(d) The condensed consolidating statement of operations of MHC for the
three months ended March 31, 1994 reflects a $91 million loss from its
disposition of an 18% equity interest in HCLP. The HCLP interest was
used to repay a portion of MHC's intercompany payable to MOC and was
valued, in accordance with the provisions of the Discount Notes, at $5
million for each percent of interest assigned. A loss was recognized
for the difference between the carrying value of the HCLP interests
assigned to MOC and the $90 million value attributed to such interests
which reduced the intercompany payable. The loss recognized by MHC is
eliminated in consolidation.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
- - ------------------------------------------------------------------------
RESULTS OF OPERATIONS
=====================
MESA Inc. (Mesa) incurred a net loss of $17.8 million in the first
quarter of 1994 compared with a net loss of $17.1 million in the first
quarter of 1993.
Revenues
- - --------
The following table presents the reported revenues, production and
average prices from sales of natural gas, natural gas liquids and oil and
condensate for the three months ended March 31, 1994 and 1993.
1994 1993
-------- --------
Revenues (in thousands):
Natural gas.............................. $40,706 $40,987
Natural gas liquids...................... 16,272 17,840
Oil and condensate....................... 1,611 3,934
Production:
Natural gas equivalents (MMcfe)*......... 31,001 32,758
Natural gas (MMcf).................. 19,859 23,812
Natural gas liquids (MBbls)......... 1,721 1,270
Oil and condensate (MBbls).......... 136 221
Average Prices:
Natural gas (per Mcf).................... $ 2.08 $ 1.76
Natural gas liquids (per Bbl)............ 9.55 14.05
Oil and condensate (per Bbl)............. 12.39 17.78
* Quantities stated as equivalent natural gas are based on a factor of 6
thousand cubic feet of natural gas per barrel of liquids.
Total equivalent natural gas production declined by 5 percent in the
first quarter of 1994 compared with the same period in 1993. Equivalent
production from Mesa's properties in the Hugoton field increased by 7
percent in 1994. Higher field allowables and increased natural gas liquids
recoveries each contributed to the increase. Recently enacted Hugoton field
rule changes, which became effective on April 1, 1994, will further benefit
Mesa's Hugoton production for the balance of 1994 over 1993 levels. Mesa's
West Panhandle production decreased due to a contractual provision which is
expected to lower Mesa's 1994 annual net equivalent production from the
field by approximately 10 percent compared with 1993. The Gulf Coast is
continuing to experience natural production declines.
The increase in natural gas liquids production from 1993 to 1994 is a
result of expanded processing capabilities at Mesa's new natural gas
processing plant near Satanta, Kansas. The Satanta plant, which began
processing Hugoton production in late 1993, extracts a higher volume of
liquids from natural gas than Mesa's previous processing facilities. The
increase in natural gas liquids recoveries at the Satanta plant results in a
corresponding decrease in natural gas volumes.
Natural gas prices increased by $.32 per Mcf, or more than 18 percent,
in the first quarter of 1994 compared with the same period in 1993. The
increase is attributable to higher spot market prices during the first
quarter of 1994 compared with the first quarter of 1993.
Natural gas liquids and oil and condensate prices decreased in the
first quarter of 1994 compared with the same period in 1993 primarily due to
lower world market prices for crude oil. In addition, the Satanta plant
extracts a much higher volume of ethane than Mesa's previous processing
facilities. Although the value of ethane extracted is higher than the value
of natural gas consumed in extraction, the per-barrel price is lower than
other natural gas liquids prices and, as a result, lowers the average price
received for liquids sales.
Costs and Expenses
- - ------------------
Mesa's costs and expenses decreased from $53.8 million in the first
quarter of 1993 to $50.9 million for the same period in 1994 primarily due
to lower depreciation, depletion and amortization expense. Depreciation,
depletion and amortization expense decreased from $28.3 million for the
first quarter of 1993 to $25.3 million for the first quarter of 1994
primarily due to lower production. Lease operating expense, production and
other taxes and general and administrative expense did not change
significantly in the first quarter of 1994 compared with the first quarter
of 1993.
Other Income (Expense)
- - ----------------------
Other income for the three months ended March 31, 1994 includes a gain
of $7.3 million from the collection of additional interest from Bicoastal
Corporation.
The results of operations of Mesa for the three months ended March 31,
1994 and 1993 were significantly affected by gains and losses from
securities transactions. Mesa recognized net losses of $.9 million in the
first quarter of 1994 from its transactions in marketable securities and
futures contracts compared to net gains of $5.5 million for the same period
in 1993.
CAPITAL RESOURCES AND LIQUIDITY
===============================
Financial Condition and Cash Requirements
- - -----------------------------------------
Mesa owns and operates its oil and gas properties through direct and
indirect subsidiaries. Hugoton Capital Limited Partnership (HCLP) owns
substantially all of Mesa's Hugoton field natural gas properties. HCLP was
established in 1991 to own these properties and to issue secured long-term
debt (the HCLP Secured Notes). The assets and cash flows of HCLP are
dedicated to service HCLP's debt and are not available to pay creditors of
Mesa or its subsidiaries other than HCLP. Mesa Operating Co. (MOC) owns all
of Mesa's interest in the West Panhandle field of Texas and the Gulf Coast
and the Rocky Mountain areas. At March 31, 1994, MOC owned an approximate
99% limited partnership interest in HCLP. Mesa Holding Co. (MHC) owns cash
and securities, a 1% interest in HCLP and 100% of MESA Environmental
Ventures Co., a company established to compete in the natural gas vehicle
market.
<PAGE>
The following table summarizes certain components of Mesa's financial
position and cash flows as of and for the three months ended March 31, 1994
(in thousands):
MOC HCLP MHC Total
-------- -------- ------- ----------
Debt:
HCLP Secured Notes....... $ -- $520,180 $ -- $ 520,180
Credit Agreement
and other.............. 58,118 -- -- 58,118
12-3/4% secured
discount notes......... 531,127 -- -- 531,127
12-3/4% unsecured
discount notes......... 153,312 -- -- 153,312
12% subordinated notes... 6,336 -- -- 6,336
13-1/2% subordinated
notes.................. 7,390 -- -- 7,390
-------- -------- ------- ----------
$756,283 $520,180 $ -- $1,276,463
======== ======== ======= ==========
Cash and securities(a)..... $ 32,910 $ 29,380 $70,333 $ 132,623
======== ======== ======= ==========
Working capital (deficit).. $ 21,532 $ (6,724) $71,769 $ 86,577
======== ======== ======= ==========
Restricted cash (in
noncurrent assets)....... $ -- $ 61,107 $ -- $ 61,107
======== ======== ======= ==========
Operating cash flows
before interest.......... $(41,455) $29,688 $14,260 $ 2,493
Interest payments, net(b).. (1,008) (25,949) 555 (26,402)
-------- -------- ------- ----------
Cash flows from
operating activities..... $(42,463) $ 3,739 $14,815 $ (23,909)
======== ======== ======= ==========
(a) Included in working capital (deficit).
(b) Cash interest payments, net of interest income.
The HCLP Secured Notes, for which HCLP is the sole obligor, are secured
by its Hugoton field properties and are due in semiannual installments
through August 2012, but may be repaid earlier. Mesa's bank credit
agreement, as amended (the Credit Agreement), is a facility under which
approximately $53 million of borrowings and $10 million of letter of credit
obligations were outstanding at March 31, 1994. Obligations under the
Credit Agreement are secured by a first lien on MOC's West Panhandle
properties, Mesa's equity interest in MOC and a 76% equity interest in HCLP.
Borrowings under the Credit Agreement are due in various installments
through June 1995. Mesa and MOC are obligors under the Credit Agreement.
The 12-3/4% secured discount notes are due in 1998 and are secured by second
liens on MOC's West Panhandle properties and a 76% equity interest in HCLP.
The 12-3/4% unsecured discount notes are due in 1996. The 12% subordinated
notes are unsecured and have a stated maturity of August 1996 and the 13-
1/2% subordinated notes (also unsecured) have a stated maturity of May 1999.
The 12-3/4% secured discount notes, 12-3/4% unsecured notes (together, the
Discount Notes) and both issues of subordinated notes are obligations of
MOC, Mesa and Mesa Capital Corporation, a financing subsidiary of MOC.
In recent years, Mesa has repaid or refinanced a substantial amount of
its debt, including debt refinanced pursuant to a debt exchange (the Debt
Exchange) completed in August 1993 in which almost $600 million of 12% and
13-1/2% subordinated notes (together, the Subordinated Notes) and $100
million of bank debt were restructured (see note 4). The Debt Exchange
resulted in the issuance of new debt securities in exchange for
substantially all of the Subordinated Notes. The primary benefit to Mesa of
the Debt Exchange was to defer beyond June 30, 1995 the payment of over $150
million of interest payments which would have otherwise been required from
mid-1993 through mid-1995. In the second quarter of 1994, Mesa completed a
public offering of 16.3 million shares of common stock (including 1.3
million shares sold pursuant to the underwriters' over-allotment option) at
a public offering price of $6.00 per share (the Equity Offering). The
Equity Offering resulted in net proceeds to Mesa of $93.7 million which will
be used to redeem long-term debt. The debt to be repaid includes the $6.3
million of 12% subordinated notes outstanding, plus accrued interest, and
$87.3 million of the 12-3/4% unsecured discount notes which were scheduled
to mature in 1996.
The following tables summarize Mesa's 1993 actual and 1994 through 1997
forecast cash requirements, assuming no additional changes in capital
structure, for interest, debt principal and capital expenditures (in
thousands):
Actual Forecast
-------- -----------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
HCLP:
Interest payments,
net(a)................ $ 50,185 $ 48,000 $ 43,000 $ 38,000 $ 33,000
Principal repayments.... 39,250 42,900 39,300 45,400 46,700
Capital expenditures(b). 8,090 9,700 9,200 3,900 --
-------- -------- -------- -------- --------
$ 97,525 $100,600 $ 91,500 $ 87,300 $ 79,700
======== ======== ======== ======== ========
MOC:
Interest payments,
net(a)................ $ 30,547 $ 1,700 $ 45,200 $ 91,400 $ 92,400
Principal repayments(c). 40,852 118,500 39,600 79,000 --
Capital expenditures(b). 20,622 17,800 19,200 20,400 8,700
-------- -------- -------- -------- --------
$ 92,021 $138,000 $104,000 $190,800 $101,100
======== ======== ======== ======== ========
(a) Cash interest payments, net of interest income.
(b) Forecast capital expenditures represent Mesa's best estimate of
drilling and facilities expenditures required to attain projected
levels of production from its existing properties during the
forecast period. Contractual commitments with a major gas
purchaser in the Hugoton field require expenditures, primarily for
compression, of approximately $7.1 million by HCLP during 1994
through 1995, which amounts are included in amounts set forth in
the table for such years. Mesa may incur capital expenditures in
addition to those reflected in the table.
(c) Includes $93.6 million of principal repayments in 1994 with
proceeds from the Equity Offering. Such principal was scheduled
to be repaid in 1996.
Debt Covenants
- - --------------
The Credit Agreement requires Mesa to maintain tangible adjusted
equity, as defined, of $50 million. At March 31, 1994, Mesa's tangible
adjusted equity, as defined, was $97.1 million. As a result of the
completion of the Equity Offering in the second quarter of 1994, Mesa's
tangible adjusted equity, as defined, will initially increase by
approximately $93 million.
The Credit Agreement also requires Mesa to maintain a ratio of cash
flow and available cash to debt service, as each is defined, of 1.50 to 1 as
of the end of each fiscal quarter. During the first quarter of 1994, Mesa
settled its litigation with Unocal Corporation (Unocal) (see note 6). Under
the terms of the Credit Agreement, Mesa was required to repay intercompany
debt (see note 7) prior to issuing additional 12-3/4% secured discount notes
to fund the Unocal settlement. Based on the definitions of available cash
and debt service, the repayment of the intercompany obligation caused the
ratio as calculated at March 31, 1994, to be 1.29 to 1, and is expected to
cause the ratio to be below the requirement at June 30, 1994. Mesa
requested and received a waiver from the banks for this requirement as of
March 31 and June 30, 1994.
The indentures governing the Discount Notes restrict, among other
things, Mesa's ability to incur additional indebtedness, pay dividends,
acquire stock or make investments, loans and advances. The Credit Agreement
also restricts, among other things, Mesa's ability to incur additional
indebtedness, create liens, pay dividends, acquire stock or make
investments, loans and advances.
Company Resources and Alternatives
- - ----------------------------------
Mesa's cash flows from operating activities are substantially dependent
on the amount of oil and gas produced and the price received for such
production. Production and prices received from HCLP properties, together
with cash held within HCLP, are expected, under Mesa's current operating
plan, to generate sufficient cash flow to meet HCLP's required principal,
interest and capital expenditure obligations. However, HCLP cash flows are
not expected to be sufficient to permit HCLP to distribute any excess cash
until at least 1995. Mesa contributed $5.8 million to HCLP in the first
quarter of 1994 to make scheduled principal payments and, depending upon
capital requirements and natural gas and liquids prices, may advance as much
as $10 million to HCLP in 1994 to cover HCLP capital expenditures in excess
of scheduled capital expenditures.
Mesa expects to service its debt obligations and meet capital
expenditure requirements through 1995 with cash flows from operating
activities and available cash and securities balances. On December 31,
1995, Mesa will begin making interest payments on the 12-3/4% secured
discount notes due June 30, 1998 and the remaining 12-3/4% unsecured
discount notes due June 30, 1996 (together, the Discount Notes) issued in
the Debt Exchange. Assuming no additional changes in its capital structure
prior to such date, Mesa will be required to make cash interest payments
related to the Discount Notes totaling approximately $44.4 million on
December 31, 1995 and approximately $83.8 million during 1996. In addition,
12-3/4% unsecured discount notes in the amount of $79.0 million become due
in mid-1996. Mesa's current financial forecasts indicate that Mesa may be
unable to fund its debt service and capital expenditure requirements in 1996
with cash flows from operating activities and available cash and securities
balances. Depending on industry and market conditions, Mesa may generate
cash by issuing additional equity or debt securities or selling assets.
However, Mesa has a limited ability to sell assets since its two largest
assets, its interests in the Hugoton and West Panhandle fields, are pledged
under long-term debt agreements. Mesa has filed a shelf registration
statement for the issuance and sale of up to $300 million of debt
securities. If and when such debt securities are issued, the net proceeds
will be used to retire existing debt. There can be no assurances that Mesa
will be able to issue any such debt securities, raise additional equity
capital or otherwise refinance its debt.
OTHER
=====
Mesa recognizes its ownership interest in natural gas production as
revenue. Actual production quantities sold may be different from Mesa's
ownership share of production in a given period. Mesa records these
differences as gas balancing receivables or as deferred revenue. Net gas
balancing underproduction represented approximately 1% of total equivalent
production in the three months ended March 31, 1994 compared with 1% during
the same period in 1993. The gas balancing receivable or deferred revenue
component of natural gas and natural gas liquids revenues in future periods
is dependent on future rates of production, field allowables and the amount
of production taken by Mesa or by its joint interest partners.
Mesa invests from time to time in marketable equity and other
securities and in commodity and futures contracts, primarily related to
crude oil and natural gas. Mesa also enters into natural gas futures
contracts as a hedge against natural gas price fluctuations.
Management does not anticipate that inflation will have a significant
effect on Mesa's operations.
<PAGE>
PART II - OTHER INFORMATION
===========================
Item 1. Legal Proceedings
- - --------------------------
Reference is made to Part I, Item 1, Note 6 of this Form 10-Q for
information regarding legal proceedings.
Item 6. Exhibits and Reports on Form 8-K
- - -----------------------------------------
(a) Exhibits (Asterisk indicates incorporated by reference herein)
*2.1 - Transaction Agreement among the Partnership, the Company,
Pickens Operating Co., and Boone Pickens, dated as of October
9, 1991, together with (i) the Form of Amendment to the
Partnership Agreement of the Partnership, (ii) the Form of
Conversion Agreement among the Partnership, Pickens Operating
Co. and Boone Pickens, (iii) the Form of Amendment to
Partnership Agreements of the Subsidiary Partnerships and
(iv) the Form of Amendment to the Articles of Incorporation
of the Company with respect to the reverse stock split, and
exhibits thereto (Exhibit 2[a] to the Company's Registration
Statement on Form S-4 [Registration No. 33-42102]).
*2.2 - Second Amendment to Transaction Agreement among Mesa Limited
Partnership, MESA Inc., Pickens Operating Co., and Boone
Pickens dated November 7, 1991, and exhibits thereto (Exhibit
2[b] to the Company's Registration Statement on Form S-4
[Registration No. 33-43833]).
*2.3 - Supplement to Transaction and Related Agreements dated as of
May 18, 1993 by and among Mesa Limited Partnership, MESA
Inc., Pickens Operating Co., and Boone Pickens (Exhibit 2[c]
to the Company's Form 10-Q/A dated June 30, 1993). (Note:
This exhibit was previously filed inadvertently by EDGAR as
Exhibit Document Type EX-99.)
*4.1 - Collateral Trust Indenture dated August 14, 1986 among Mesa
Capital Corporation, Mesa Limited Partnership, Mesa Operating
Limited Partnership, and Mellon Bank, N.A., as Trustee
(Exhibit 1 to the Partnership's Form 8-K dated August 14,
1986).
*4.2 - Supplemental Collateral Trust Indenture dated July 31, 1987
among Mesa Capital Corporation, Mesa Limited Partnership,
Mesa Operating Limited Partnership, and Mellon Bank, N.A., as
Trustee (Exhibit 4[e] to the Partnership's Form 10-Q dated
September 30, 1987).
*4.3 - Second Supplemental Collateral Trust Indenture dated as of
December 31, 1991 among Mesa Capital Corporation, MESA Inc.,
Mesa Operating Limited Partnership, as Guarantors, and Texas
Commerce Bank National Association, as Trustee (Exhibit 4[c]
to the Company's Form 10-K dated December 31, 1991).
*4.4 - Third Supplemental Collateral Trust Indenture dated as of
April 30, 1992 among Mesa Capital Corporation, as Issuer,
MESA Inc. and Mesa Operating Limited Partnership and Texas
Commerce Bank National Association, as Successor Trustee
(Exhibit 4[j] to the Company's Form 10-Q dated June 30,
1992).
*4.5 - Fourth Supplemental Collateral Trust Indenture dated as of
August 26, 1993 among Mesa Capital Corporation, as Issuer,
MESA Inc. and Mesa Operating Limited Partnership and Texas
Commerce Bank National Association, as Successor Trustee
(Exhibit 4[e] to the Company's Form 10-Q/A dated June 30,
1993).
*4.6 - Indenture dated as of May 1, 1993 among MESA Inc., Mesa
Operating Limited Partnership, Mesa Capital Corporation and
Harris Trust and Savings Bank, as Trustee, including (a) a
form of Secured Notes, (b) a form of Deed of Trust,
Assignment of Production, Security Agreement and Financing
Statement, dated as of May 1, 1993, between MOLP and Harris
Trust and Savings Bank, as trustee, securing the Secured
Notes, and (c) a form of Security Agreement, Pledge and
Financing Statement dated as of May 1, 1993 between MOLP and
Harris Trust and Savings Bank, as trustee, securing the
Secured Notes) (Exhibit 4[f] to the Company's Form 10-Q/A
dated June 30, 1993).
*4.7 - First Supplemental Indenture dated as of January 5, 1994,
among MESA Inc., Mesa Operating Co., Mesa Capital Corporation
and Harris Trust and Savings Bank, as Trustee (Exhibit 4.2 to
the Company's Registration Statement on Form S-1,
Registration No. 33-51909).
4.8 - First Supplement to Deed of Trust, Assignment of Production,
Security Agreement and Financing Statement dated as of March
2, 1994 between MOC, as Mortgagor and Debtor, and Harris
Trust and Savings Bank, as mortgagee and Secured Party.
4.9 - First Supplement to Security Agreement, Pledge and Financing
Statement dated as of March 2, 1994 by MOC, in favor of
Harris Trust and Savings Bank, as Trustee for the pro rata
benefit of the Noteholders under the Indenture.
*4.10 - Indenture dated as of May 1, 1993 among MESA Inc., Mesa
Operating Limited Partnership, Mesa Capital Corporation and
American Stock Transfer & Trust Company, as Trustee, relating
to the unsecured discount notes (Exhibit 4[g] to the
Company's Form 10-Q/A dated June 30, 1993).
*4.11 - First Supplemental Indenture dated as of January 5, 1994
among MESA Inc., Mesa Operating Co., Mesa Capital Corporation
and American Stock Transfer & Trust Company, as Trustee
(Exhibit 4.4 to the Company's Registration Statement on Form
S-1, Registration No. 33-51909).
*4.12 - Indenture dated as of May 1, 1993 among MESA Inc., Mesa
Operating Limited Partnership, Mesa Capital Corporation and
American Stock Transfer & Trust Company, as Trustee, relating
to the convertible notes (Exhibit 4[h] to the Company's Form
10-Q/A dated June 30, 1993).
*4.13 - Indenture dated August 14, 1986, among Mesa Capital
Corporation, Mesa Limited Partnership, Mesa Operating Limited
Partnership and Mellon Bank, N.A., as trustee (subsequently
replaced by Texas Commerce Bank, National Association, as
successor trustee) (Exhibit 4[d] to the Partnership's Form
10-Q dated September 30, 1986).
*4.14 - Supplemental Indenture dated July 31, 1987, among Mesa
Capital Corporation, Mesa Limited Partnership, Mesa Operating
Limited Partnership and Mellon Bank, N.A., as trustee
(subsequently replaced by Texas Commerce Bank, National
Association, as successor trustee) (Exhibit 4[e] to the
Partnership's Form 10-Q dated September 30, 1986).
*4.15 - Second Supplemental Collateral Trust Indenture dated as of
December 31, 1991, among Mesa Capital Corporation, MESA Inc.,
Mesa Operating Limited Partnership and Texas Commerce Bank,
National Association, as successor trustee (Exhibit 4[e] to
the Company's Form 10-K dated December 31, 1991).
<PAGE>
*4.16 - Third Supplemental Collateral Trust Indenture dated as of
April 30, 1992, among Mesa Capital Corporation, as issuer,
MESA Inc. and Mesa Operating Limited Partnership and Texas
Commerce Bank National Association, as successor trustee
(Exhibit 4[j] to the Company's Form 10-Q dated June 30,
1992).
*4.17 - Fourth Supplemental Collateral Trust Indenture dated as of
August 26, 1993, among Mesa Capital Corporation, MESA Inc.,
Mesa Operating Limited Partnership and Texas Commerce Bank,
National Association, as successor trustee (Exhibit 4[e] to
the Company's Form 10-Q/A dated June 30, 1993).
*4.18 - Fifth Supplemental Collateral Trust Indenture dated as of
January 5, 1994, among MESA Inc., Mesa Operating Co., Mesa
Capital Corporation and Texas Commerce Bank, National
Association, as successor trustee (Exhibit 4.11 to
the Company's Registration Statement on Form S-1,
Registration No. 33-51909).
*4.19 - Indenture dated May 1, 1989 among Mesa Capital Corporation,
Mesa Limited Partnership, Mesa Operating Limited Partnership,
and Texas Commerce Bank National Association, as Trustee
(Exhibit 4[c] to the Partnership's Form 10-Q dated March 31,
1989).
*4.20 - First Supplemental Indenture dated as of December 31, 1991
among Mesa Capital Corporation, MESA Inc., Mesa Operating
Limited Partnership, as Issuers, and Texas Commerce Bank
National Association, as Trustee (Exhibit 4[e] to the
Company's Form 10-K dated December 31, 1991).
*4.21 - Second Supplemental Indenture dated as of April 30, 1992
among Mesa Capital Corporation, MESA Inc., Mesa Operating
Limited Partnership and Texas Commerce Bank National
Association, as Trustee (Exhibit 4[k] to the Company's Form
10-Q dated June 30, 1992).
*4.22 - Third Supplemental Indenture dated as of August 26, 1993
among Mesa Capital Corporation, MESA Inc., Mesa Operating
Limited Partnership and Texas Commerce Bank National
Association, as Trustee (Exhibit 4[l] to the Company's Form
10-Q/A dated June 30, 1993).
*4.23 - Fourth Supplemental Indenture dated as of January 5, 1994,
among MESA Inc., Mesa Operating Co., Mesa Capital Corporation
and Texas Commerce Bank National Association, as Trustee
(Exhibit 4.16 to the Company's Registration Statement on Form
S-1, Registration No. 33-51909).
*4.24 - Indenture dated as of May 30, 1991 among Hugoton Capital
Limited Partnership, Hugoton Capital Corporation and Bankers
Trust Company (Exhibit 4[e] to the Partnership's Form 10-Q
dated June 30, 1991).
*4.25 - First Supplemental Indenture dated September 1, 1991, among
Hugoton Capital Limited Partnership, Hugoton Capital
Corporation and Bankers Trust Company, as Trustee (Exhibit
4[h] to the Company's Registration Statement on Form S-4,
Registration No. 33-42102).
*4.26 - Amended and Restated Mortgage, Assignment, Security Agreement
and Financing Statement dated June 12, 1991 from Hugoton
Capital Limited Partnership to Bankers Trust Company, as
Collateral Agent (Exhibit 4[f] to the Partnership's Form 10-Q
dated June 30, 1991).
<PAGE>
*4.27 - Second Amended and Restated Credit Agreement dated as of May
1, 1993 among the Company, Mesa Operating Limited
Partnership, the Banks, and Societe Generale, Southwest
Agency, as Agent (Exhibit 4.17 to the Company's Registration
Statement on Form S-4, Registration No. 33-53706).
*4.28 - Amended and Restated Credit Agreement dated as of May 1,
1993, among MESA Inc., Mesa Operating Limited Partnership,
the Banks party thereto and Societe Generale, Southwest
Agency, as Agent (Exhibit 4.17 to the Company's Registration
Statement on Form S-4, Registration No. 33-53706).
*4.29 - Assignment and Assumption Agreement dated as of January 5,
1994, among Mesa Inc., Mesa Operating Co., Mesa Operating
Limited Partnership, Pickens Operating Co., the Banks party
to the Credit Agreement and the Agent with respect to the
Credit Agreement (Exhibit 4.21 to the Company's Registration
Statement on Form S-4, Registration No. 33-53706).
*4.30 - Intercreditor Agreement dated as of August 26, 1993, among
Societe Generale, Southwest Agency, as agent for the Banks
under the Company's Credit Agreement, Harris Trust and
Savings Bank, as trustee with respect to the Secured Notes,
and American Stock Transfer & Trust Company, as trustee with
respect to the Unsecured Notes and the Convertible Notes
(Exhibit 4.18 to the Company's Registration Statement on Form
S-4, Registration No. 33-53706).
4.31 - Amended and Restated Pledge Agreement dated as of March 2,
1994 by MOC, in favor of Societe Generale, Southwest Agency,
as Agent for the pro rata benefit of the banks parties to the
Credit Agreement.
The Company agrees to furnish to the Commission, upon
request, any instruments defining the rights of holders of
long-term debt with respect to which the total amount
outstanding does not exceed 10% of total assets of the
Company and its subsidiaries on a consolidated basis.
*10.1 - Form of First Agreement to Deferred Compensation Agreement
and Life Insurance Agreement between Mesa Petroleum Co. and
certain officers and key employees (Exhibit 10[i] to the
Company's Form 10-K dated December 31, 1980).
*10.2 - Hugoton (MTR) Gas Purchase Contract between The Kansas Power
and Light Company, buyer, and Mesa Operating Limited
Partnership, seller, dated effective January 1, 1990 (Exhibit
19[a] to the Partnership's Form 10-Q dated June 30, 1989).
*10.3 - Supplemental Gas Purchase Contract between The Kansas Power
and Light Company, buyer, and Mesa Operating Limited
Partnership, seller, dated effective January 1, 1990 (Exhibit
19[b] to the Partnership's Form 10-Q dated June 30, 1989).
*10.4 - Second Amended and Restated Consulting Agreement between Mesa
Limited Partnership, Mesa Operating Limited Partnership, Mesa
Holding Limited Partnership, Mesa Acquisition Limited
Partnership and BTC Partners, Inc. dated December 1, 1988
(Exhibit 10[i] to the Partnership's Form 10-K dated December
31, 1988).
*10.5 - Contract dated January 3, 1928 between Colorado Interstate
Gas Company and Amarillo Oil Company (the "B" Contract)
(Exhibit 10.1 to Pioneer Corporation's Form 10-K dated
December 31, 1985).
*10.6 - Amendments to the "B" Contract (Exhibit 10.2 to Pioneer
Corporation's Form 10-K dated December 31, 1985).
*10.7 - Gathering Charge Agreement dated January 20, 1985 as
amended, with respect to the "B" Contract (Exhibit 10.3 to
Pioneer Corporation's Form 10-K dated December 31, 1985).
*10.8 - Agreement of Compromise and Settlement dated May 29, 1987
between the Partnership and Colorado Interstate Gas Company
(Confidential Treatment Requested) (Exhibit 10[s] to the
Partnership's Form 10-K dated December 31, 1987).
*10.9 - Agreement of Sale between Pioneer Corporation and Cabot
Corporation dated August 29, 1984 (Exhibit 10.5 to Pioneer
Corporation's Form 10-K dated December 31, 1985).
*10.10 - Gas Purchase Contract dated June 27, 1949 as amended through
October 3, 1985 between Amarillo Oil Company and Energas
Company (Exhibit 10.6 to Pioneer Corporation's Form 10-K
dated December 31, 1985).
*10.11 - Settlement Agreement dated March 15, 1989 by and among Mesa
Operating Limited Partnership and Mesa Limited Partnership,
et al, Energas Company and the City of Amarillo (Exhibit
10[k] to the Partnership's Form 10-K dated December 31,
1990).
*10.12 - Copy of the Partnership's Restricted MLP Unit Plan dated
August 27, 1987 (Exhibit 10[w] to the Partnership's Form
10-K dated December 31, 1987).
*10.13 - Gas Purchase Agreement dated December 1, 1989 between
Williams Natural Gas Company and Mesa Operating Limited
Partnership acting on behalf of itself and as agent for Mesa
Midcontinent Limited Partnership (Exhibit 10.1 to the
Partnership's Registration Statement on Form S-3,
Registration No. 33-32978).
*10.14 - Form of 1991 Common Stock Option Plan of MESA Inc. (Exhibit
10[n] to the Company's Registration Statement on Form S-4,
Registration No. 33-42104).
*10.15 - Supplemental Stipulation and Agreement to replace the
Uncontested Settlement Agreement between Mesa Operating
Limited Partnership and Colorado Interstate Gas Company with
respect to deliveries of gas to Amarillo Oil Company (now
Mesa Operating Limited Partnership) by Colorado Interstate
Gas Company under the "B" Contract (Exhibit 10[o] to the
Partnership's Form 10-K dated December 31, 1990).
*10.16 - Purchase and Sale Agreement dated February 6, 1991, by and
among Mesa Limited Partnership, Mesa Operating Limited
Partnership and Mesa Midcontinent Limited Partnership and
Seagull Energy Corporation, as amended by a first amendment
dated February 22, 1991, a second amendment dated March 8,
1991, and a third amendment dated March 11, 1991 (Exhibit 1
to the Partnership's Form 8-K dated March 8, 1991).
*10.17 - Purchase and Sale Agreement dated February 6, 1991, by and
among Mesa Limited Partnership, Mesa Operating Limited
Partnership and Mesa Midcontinent Limited Partnership and
an independent oil and gas producer (Exhibit 3 to the
Partnership's Form 8-K dated March 8, 1991).
*10.18 - Purchase and Sale Agreement dated March 25, 1991, by and
among Mesa Limited Partnership and Mesa Operating Limited
Partnership and Conoco, Inc. (Exhibit 5 to the Partnership's
Form 8-K dated March 8, 1991).
*10.19 - Incentive Bonus Plan of Mesa Operating Limited Partnership,
as amended, dated effective January 1, 1986 (Exhibit 10[s]
to the Partnership's Form 10-K dated December 31, 1990).
*10.20 - Performance Bonus Plan of Mesa Operating Limited Partnership
dated effective January 1, 1990 (Exhibit 10[t] to the
Partnership's Form 10-K dated December 31, 1990).
*10.21 - Engagement Agreement dated as of July 1, 1991 between Mesa
Limited Partnership, Mesa Operating Limited Partnership, Mesa
Holding Limited Partnership, Mesa Midcontinent Limited
Partnership and Mesa Acquisition Limited Partnership, on the
one hand, and BTC Partners, Inc., on the other hand (Exhibit
10[v] to the Company's Registration Statement on Form S-4,
Registration No. 33-42104.)
*10.22 - Third Amendment dated December 19, 1991, to the Hugoton
(MTR) Gas Purchase Contract between The Kansas Power and
Light Company, buyer, and Mesa Operating Limited
Partnership, seller, dated effective January 1, 1990
(Exhibit 10[q] to the Company's Form 10-K dated December 31,
1991).
*10.23 - Amended Supplemental Stipulation and Agreement between
Colorado Interstate Gas Company and Mesa Operating Limited
Partnership dated June 19, 1991 (Exhibit 10[w] to the
Company's Registration Statement on Form S-4, Registration
No. 33-42102).
*10.24 - "B" Contract Production Allocation Agreement dated July 29,
1991 and effective as of January 1, 1991 between Colorado
Interstate Gas Company and Mesa Operating Limited
Partnership (Exhibit 10[r] to the Company's Form 10-K dated
December 31, 1991).
*10.25 - Amendment to "B" Contract Production Allocation Agreement
effective as of January 1, 1993 between Colorado Interstate
Gas Company and Mesa Operating Limited Partnership (Exhibit
10.24 to the Company's Registration Statement on Form S-1,
Registration No. 033-51909).
*10.26 - Amended Peak Day Gas Purchase Agreement dated effective June
19, 1991 between Colorado Interstate Gas Company and Mesa
Operating Limited Partnership (Exhibit 10[t] to the
Company's Form 10-K dated December 31, 1991).
*10.27 - Omnibus Amendment to Collateral Instruments to Supplemental
Stipulation and Agreement dated June 19, 1991 between
Colorado Interstate Gas Company and Mesa Operating Limited
Partnership (Exhibit 10[u] to the Company's Form 10-K dated
December 31, 1991).
*10.28 - 1991 Stock Option Plan of the Company (Exhibit 10[v] to the
Company's Form 10-K dated December 31, 1991).
*10.29 - First Amendment to Settlement and Interim Release Agreement
between Hugoton Capital Limited Partnership, Mesa Operating
Limited Partnership and The Kansas Power and Light Company
dated December 19, 1991 (Exhibit 10[w] to the Company's Form
10-K dated December 31, 1991).
*10.30 - Conversion Agreement dated as of December 31, 1991 between
the Company, Boone Pickens and Pickens Operating Co.
(Exhibit 10[y] to the Company's Form 10-K dated December 31,
1991).
*10.31 - Amendment to the Gas Purchase Contract dated June 27, 1949,
as amended, between Amarillo Oil Company and Energas Company
dated June 4, 1992 (Exhibit 10[z] to the Company's Form 10-K
dated December 31, 1992).
<PAGE>
*10.32 - Split-Dollar Insurance Agreements dated June 29, 1992 by and
between Mesa Operating Limited Partnership and Boone Pickens
and Paul Cain, respectively, and Collateral Assignments
dated as of June 29, 1992 by Boone Pickens and Paul Cain,
respectively (Exhibit 10[aa] to the Company's Form 10-K
dated December 31, 1992).
*10.33 - Agreement of Compromise and Settlement dated January 11,
1994 among Unocal Corporation, David Colan, MESA Inc. and
certain other parties (Exhibit 10.25 to the Company's
Registration Statement on Form S-1, Registration No.
033-51909).
*10.34 - Agreement of Merger, dated as of January 5, 1994, entered
into by and among MESA Inc., Boone Pickens and certain other
parties (Exhibit 10.27 to the Company's Form 10-K dated
December 31, 1993).
(b) Reports on Form 8-K
1. Current Report on Form 8-K dated March 18, 1994 regarding notice of
the Annual Meeting of Stockholders of MESA Inc. will be held May 17, 1994.
<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.
MESA INC.
(Registrant)
/s/ William D. Ballew
---------------------
William D. Ballew
Controller
(Principal accounting
officer duly
authorized to sign on
behalf of the Registrant)
Date: May 16, 1994
------------
EXHIBIT 4.8
FIRST SUPPLEMENT TO
DEED OF TRUST, ASSIGNMENT OF PRODUCTION,
SECURITY AGREEMENT AND FINANCING STATEMENT
EXECUTED AS OF MARCH 2, 1994
BETWEEN
MESA OPERATING CO.
(MORTGAGOR AND DEBTOR)
AS SUCCESSOR TO
MESA OPERATING LIMITED PARTNERSHIP
TO
E. KAY LIEDERMAN, TRUSTEE
FOR THE BENEFIT OF
HARRIS TRUST AND SAVINGS BANK, AS INDENTURE TRUSTEE
(MORTGAGEE AND SECURED PARTY)
The mailing address of the above-named Mortgagee and Secured Party is
311 West Monroe Street, 12th Floor, Chicago, Illinois 60606, Attn: Indenture
Trust Division; the mailing address of Mortgagor and Debtor is 2600 Trammell
Crow Center, 2001 Ross Avenue, Dallas, Texas 75201; and the mailing address
of the Trustee is 311 West Monroe Street, 12th Floor, Chicago, Illinois
60606.
This instrument contains after-acquired property provisions and covers
future advances.
ATTENTION OF RECORDING OFFICERS: This instrument is a Mortgage of both
real and personal property and is, among other things, a Security Agreement
and Financing Statement under the Uniform Commercial Code. This instrument
creates a lien on rights in or relating to lands of Mortgagor which are
described in Exhibit A attached hereto.
Recorded counterparts should be returned to:
Harris Trust and Savings Bank
E. Kay Liederman
311 West Monroe Street
12th Floor
Chicago, Illinois 60606
<PAGE>
FIRST SUPPLEMENT TO DEED OF TRUST, ASSIGNMENT OF
PRODUCTION, SECURITY AGREEMENT AND FINANCING STATEMENT
This First Supplement to Deed of Trust, Assignment of Production,
Security Agreement and Financing Statement (this "Supplement") is from MESA
OPERATING CO., a Delaware corporation, as successor to Mesa Operating
Limited Partnership, a Delaware limited partnership ("MOLP") (herein called
"Mortgagor"), to E. Kay Liederman, as Trustee (herein called the "Trustee"),
for the benefit of HARRIS TRUST AND SAVINGS BANK, an Illinois banking
corporation organized and existing under the laws of the State of Illinois,
as Trustee under the Indenture (hereinafter defined) (herein in such
capacity, together with any successor(s) in such capacity, called
"Mortgagee").
RECITALS
MOLP, MESA Inc., a Texas Corporation ("MESA Inc."), and Mesa Capital
Corporation, a Delaware corporation ("Capital"), entered into an Indenture
dated as of May 1, 1993 with the Mortgagee, which indenture has been amended
and supplemented by that certain First Supplemental Indenture dated as of
January 5, 1994 among MESA Inc., Capital and MOC (collectively, "Mesa")
(such indenture as amended and supplemented by such first supplemental
indenture and as may from time to time be further amended or modified and in
effect, being referenced herein as the "Indenture"). As of May 1, 1993,
Mesa issued 12.75% Secured Discount Notes due June 30, 1998 in the aggregate
principal amount at maturity of $569,564,000 (the "Original Notes") pursuant
to the Indenture.
In order to secure Mesa's obligations under the Original Notes and the
Indenture, MOLP executed and delivered to the Trustee the Deed of Trust,
Assignment of Production, Security Agreement, Pledge and Financing Statement
dated as of May 1, 1993 (the "Original Mortgage"), which Original Mortgage
granted to the Trustee a lien upon, and security interest in, the interests
described therein and located on the property described therein and was
recorded in the recording offices under the filing references listed on
Exhibit A attached hereto.
Pursuant to the Merger Agreement dated as of January 5, 1994, by and
among Mesa Inc., MOLP, Mesa Merger Sub 1, Inc. (the name of MOC prior to the
merger of MOLP with and into MOC) and certain other parties (the "Merger
Agreement"), MOC assumed all rights and obligations of MOLP, including
without limitation all rights and obligations pursuant to the Indenture, the
Original Notes and the Original Mortgage.
Contemporaneously with the delivery of this Supplement Mesa is issuing
Additional 12.75% Secured Discount Notes in the aggregate principal amount
at maturity of $48,169,000 (the "Additional Securities") pursuant to and in
accordance with Section 2.15 of the Indenture;
Mortgagor is entering into this Supplement pursuant to its obligations
under the Indenture and for the purpose, among other things, of securing and
providing for the repayment of the Additional Securities.
ARTICLE I.
Definitions
1.1 Certain Defined Terms.
---------------------
(a) Unless otherwise defined herein, all terms used herein have the
meanings assigned to such terms in the Original Mortgage.
(b) The definitions of the terms "Notes" and "Note" are hereby amended
in their entirety to read as follows:
"Notes" and "Note" shall mean, respectively, (i) the 12.75% Secured
Discount Notes issued pursuant to the Indenture, bearing interest at
the rates provided for in the Indenture and providing for the payment
of attorneys' fees and acceleration of maturity as set forth in the
Indenture, with a present maturity date of June 30, 1998 or as
otherwise provided in the Indenture, all as more particularly described
therein or in the Indenture, including without limitation, such 12.75%
Secured Discount Notes dated as of May 1, 1993 in the aggregate
principal amount of $567,564,000 and such 12.75% Secured Discount Notes
dated as of March 1, 1994 in the aggregate principal amount of
$48,169,000, and (ii) any single such Note, including, in each case,
any extension, renewal, refunding, increase, substitution, replacement,
consolidation, modification or rearrangement thereof or thereto.
ARTICLE II.
Supplemental Deed of Trust and Security Agreement
Mortgagor, for and in consideration of the premises and of the debts
and trusts hereinafter mentioned, has granted, bargained, sold, warranted,
mortgaged, assigned, transferred, conveyed and granted a security interest,
and by these presents does grant, bargain, sell, warrant, mortgage, assign,
transfer, convey and grant a security interest, unto the Trustee, for the
use and benefit of Mortgagee for the ratable benefit of the Noteholders,
with power of sale, all of Mortgagor's rights, titles, interests and estates
in, to, under, derived from or with respect to all of the following
described real and personal property, whether now owned or hereafter
acquired, namely:
(a) the Subject Interests;
(b) the Subject Minerals;
(c) the Production Sale Contracts;
(d) the Operating Equipment;
(e) the B Contract;
(f) all unitization, communitization, operating agreements, pooling
agreements and declarations of pooled units and the properties covered and
the units created thereby (including all units formed under orders,
regulations, rules or other official acts of any federal, state or other
governmental agency providing for pooling or unitization, spacing orders or
other well permits and other instruments) which relate to or affect all or
any portion of the Subject Interests;
(g) all accounts receivable and other accounts, contract rights,
operating rights, general intangibles, chattel paper, documents and
instruments arising under any of the foregoing, including, without
limitation, the B Contract and/or the Production Sale Contracts;
(h) all subleases, farmout agreements, assignments of interests,
assignments of operating rights, contracts, operating agreements, bidding
agreements, advance payment agreements, rights-of-way, surface leases,
franchises, servitudes, privileges, permits, licenses, easements, tenements,
hereditaments, improvements, appurtenances and benefits now existing or in
the future obtained and incident and appurtenant to any of the foregoing;
(i) all lease records, well records and production records which
relate to any of the foregoing;
(j) any liens and security interests in the Subject Interests securing
payment of proceeds from the sale of the Subject Minerals including, but not
limited to, those liens and security interests provided for in Tex. Bus. &
Com. Code Ann. Sec. 9.319 (Tex. UCC) (Vernon 1968), as amended;
(k) all other rights, titles and interests of Mortgagor in, to and
under or derived from the Lands, the Leases, the B Contract, the Production
Sale Contracts and/or other properties described in Exhibit A to the
Original Mortgage;
(l) any property that may from time to time hereafter, by delivery or
by writing of any kind, be subjected to the lien and security interest
hereof by Mortgagor or by anyone on Mortgagor's behalf, and Mortgagee and
Trustee are hereby authorized to receive the same as additional security for
the ratable benefit of the Noteholders; and
(m) any and all proceeds, returns, rents, royalties, issues, profits,
products, revenues and other income arising from or by virtue of the sale,
lease or other disposition of, or from any insurance payable with respect to
damage, loss or destruction of, the items described in subparagraphs (a)
through (l) above;
together with any and all proceeds, products, increases, profits,
substitutions, replacements, renewals, additions, amendments and accessions
of, to and for all of the foregoing property. All the aforesaid properties,
rights and interests which are hereby subjected to the lien and/or security
interest of this instrument, together with any additions thereto which may
be subjected to the lien and/or security interest of this instrument by
means of supplements hereto, shall hereinafter be referred to as the
"Mortgaged Property;" subject, however, to (i) Permitted Encumbrances, (ii)
the assignment of production contained in Article V hereof and (iii) the
condition that neither the Trustee nor Mortgagee shall be liable in any
respect for the performance of any covenant or obligation of Mortgagor in
respect of the Mortgaged Property.
TO HAVE AND TO HOLD the Mortgaged Property unto the Trustee and to its
successor and assigns forever to secure the payment of the Indebtedness and
to secure the performance of the covenants, agreements and obligations of
Mortgagor contained herein.
Without limiting any of the provisions of this Supplement, to secure
the Indebtedness, Mortgagor, as Debtor (referred to in this paragraph as
"Debtor"), hereby expressly GRANTS, ASSIGNS, TRANSFERS and SETS OVER unto
Mortgagee, as Secured Party for the ratable benefit of the Noteholders
(referred to in this paragraph as "Secured Party," whether one or more), a
lien upon and a security interest in all the Mortgaged Property, together
with any and all proceeds, products, increases, profits, substitutions,
replacements, renewals, additions, amendments and accessions of, to and for
the Mortgaged Property, insofar as such property consists of equipment,
accounts, contract rights, instruments, general intangibles, inventory,
Hydrocarbons, helium and/or other minerals, fixtures and any and all other
personal property of any kind or character (including both those now and
those hereafter existing) to the full extent that such property may be
subject to the Uniform Commercial Code of the state or states where such
property is located, subject only to the Permitted Encumbrances (said
Mortgaged Property, fixtures, contract rights, instruments, general
intangibles, accounts, inventory, Hydrocarbons, helium and/or other
minerals, and equipment, together with any and all proceeds, products,
increases, profits, substitutions, replacements, renewals, additions,
amendments and accessions of, to and for the foregoing property, being
hereinafter collectively referred to as the "Collateral" for the purposes of
this paragraph). The lien and security interest created by this Supplement
attaches upon the delivery hereof.
<PAGE>
The grant and conveyance described in this Article II is made to secure
the Additional Securities and the Indebtedness as supplemented hereby.
ARTICLE III.
Miscellaneous
3.1 Second Lien.
-----------
The liens, security interests, assignments and pledges provided for in
this Supplement are junior and inferior to the liens, security interests,
assignments and pledges granted in any First Mortgage in all respects and
pursuant to the terms and provisions of the Intercreditor Agreement.
Further, the Trustee, Mortgagee and/or Secured Party hereby acknowledge that
all of the rights, remedies, benefits and obligations provided herein for
the benefit of the Trustee, Mortgagee and/or Secured Party are in all
respects subject to the terms of the Intercreditor Agreement. Until the
First Mortgage is no longer outstanding, the parties hereto will not
supplement, amend or modify, directly or indirectly, the provisions of this
Section 3.1.
3.2 No Usury Intended.
-----------------
Any provision contained herein or in any other instrument evidencing or
relating to any Indebtedness to the contrary notwithstanding, neither
Mortgagee nor any Bank nor the holder of any Indebtedness shall be entitled
to receive or collect, nor shall Mortgagor be obligated to pay, interest on
any of the Indebtedness in excess of the maximum nonusurious rate of
interest permitted by applicable law from time to time in effect, and, if
any provision of any such instrument shall ever be construed or held to
permit the collection or to require the payment of any amount of interest in
excess of the maximum amount from time to time permitted by applicable law,
the provisions of this section shall control and shall override any contrary
or inconsistent provision of such instrument.
3.3 Relation to Original Mortgage.
-----------------------------
Notwithstanding anything contained in the Original Mortgage to the
contrary, the term "Indebtedness" as used herein and in the Original
Mortgage shall include the indebtedness of Mesa to the Mortgagee and
Noteholders described in the Original Mortgage, the indebtedness of Mesa
owed to the Mortgagee and Noteholders evidenced by the Additional
Securities, and the obligations of Mesa owed to the Mortgagee and
Noteholders under the Indenture, this Supplement and the other Security
Documents. All rights, powers and remedies available to the Trustee under
the Original Pledge Agreement shall be exerciseable by the Trustee under the
Original Pledge Agreement as supplemented hereby and the Original Pledge
Agreement as supplemented hereby shall remain in full force and effect.
Each reference in such agreement, this Supplement or any other instrument to
the Original Mortgage shall mean and be a reference to the Original Mortgage
as supplemented hereby.
3.4 Ratification of Liens.
---------------------
The liens and security interests granted by the Original Mortgage are
hereby continued, modified, ratified, and confirmed in accordance with the
terms hereof. Except as expressly supplemented, modified and amended
hereby, the Original Mortgage shall remain in full force and effect.
<PAGE>
3.5 Separability.
------------
If any provision hereof or of the Notes is invalid or unenforceable in
any jurisdiction, the other provisions hereof or of the Notes shall remain
in full force and effect in such jurisdiction, and the remaining provisions
hereof shall be liberally construed in favor of the Trustee and Mortgagee in
order to effectuate the provisions hereof, and the invalidity of any
provision hereof in any jurisdiction shall not affect the validity or
enforceability of any such provision in any other jurisdiction. Any
reference herein contained to a statute or law of a state in which no part
of the Mortgaged Property is situated shall be deemed inapplicable to, and
not used in, the interpretation hereof.
3.6 Rights Cumulative.
-----------------
Each and every right, power and remedy herein given to the Trustee or
Mortgagee shall be cumulative and not exclusive, and every right, power and
remedy whether specifically herein given or otherwise existing may be
exercised from time to time and so often and in such order as may be deemed
expedient by the Trustee or Mortgagee, as the case may be, and the exercise,
or the beginning of the exercise, of any such right, power or remedy shall
not be deemed a waiver of the right to exercise, at the same time or
thereafter, any other right, power or remedy. No delay or omission by the
Trustee or Mortgagee in the exercise of any right, power or remedy shall
impair any such right, power or remedy or operate as a waiver thereof or of
any other right, power or remedy then or thereafter existing.
3.7 Binding Effect.
--------------
This instrument is binding upon Mortgagor, Mortgagor's successors and
assigns, and shall inure to the benefit of the Trustee, his successors and
assigns and Mortgagee and its successors and assigns, and the provisions
hereof shall likewise constitute covenants running with the land.
3.8 Article and Section Headings.
----------------------------
The article and section headings in this instrument are inserted for
convenience and shall not be considered a part of this instrument or used in
its interpretation.
3.9 Counterparts.
------------
This instrument may be executed in any number of counterparts, each of
which shall for all purposes be deemed to be an original and all of which
are identical.
3.10 Notices.
-------
Except as otherwise provided herein, any notice, request, demand or
other instrument which may be required or permitted to be given or served
upon Mortgagor shall be sufficiently given when mailed by First Class Mail
and addressed to Mortgagor at the address shown below the signatures at the
end of this Supplement or to such different address as Mortgagor shall have
designated by written notice received by Mortgagee or the Trustee.
<PAGE>
3.11 Amendments, Modifications and Waivers, Etc.
------------------------------------------
This instrument may be amended, modified, revised, discharged, released
or terminated only by a written instrument or instruments executed by
Mortgagor and Mortgagee. Any alleged amendment, revision, discharge,
release or termination which is not so documented shall not be effective as
to any party. No waiver of any provision of this Supplement nor consent to
any departure by Mortgagor therefrom shall in any event be effective unless
the same shall be in writing, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given.
3.12 Survival of Agreements.
----------------------
All representations and warranties of Mortgagor herein and all
covenants and agreements herein not fully and finally performed before the
effective date or dates of this Supplement shall survive such date or dates.
All covenants and obligations in this Supplement are intended by the parties
to be, and shall be construed as, covenants running with the Lands.
IN WITNESS WHEREOF, Mortgagor has executed or caused to be executed
this Deed of Trust, Assignment of Production, Security Agreement and
Financing Statement in multiple originals as of the 1st day of March, 1994.
The address of the MORTGAGOR:
Mortgagor/Debtor is:
MESA OPERATING CO.
2600 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
By: /s/ William D. Ballew
--------------------------------
William D. Ballew
Controller
MORTGAGEE:
HARRIS TRUST AND SAVINGS BANK,
AS MORTGAGEE
The address of the
Mortgagee is:
311 West Monroe Street By: /s/ E. Kay Liederman
12th Floor --------------------------------
Chicago, Illinois 60606 E. Kay Liederman
Vice President
<PAGE>
STATE OF TEXAS
COUNTY OF DALLAS
This instrument was acknowledged before me on February 26, 1994, by
William D. Ballew, the Controller of Mesa Operating Co., a Delaware
corporation, on behalf of said corporation.
/s/ Lucia G. Solano
-------------------------------------
Notary Public, State of Texas
Lucia G. Solano
-------------------------------------
Printed Name of Notary:
My Commission Expires:
8-8-95
-------------------------------------
<PAGE>
STATE OF ILLINOIS
COUNTY OF COOK
This instrument was acknowledged before me on February 25, 1994, by E.
Kay Liederman, Vice President of Harris Trust and Savings Bank on behalf of
said bank.
/s/ Marianne Cody
-------------------------------------
Notary Public, State of Texas
Marianne Cody
-------------------------------------
Printed Name of Notary:
My Commission Expires:
5-29-97
-------------------------------------
<PAGE>
EXHIBIT A
Recording Information
Recording Schedule
------------------
As used herein the following terms have the following meanings:
DTR means Deed of Trust Records.
OPR means Official Public records.
OPRRE means Official Public Records of Real Estate.
OPRRP means Official Public Records of Real Property.
ORPR means Official Real Property Records.
The Deed of Trust, Assignment of Production, security Agreement and
financing statement has been filed in the following counties:
County Recording Info.
- - ------ ---------------
Carson Co., TX Clerk's File #1314
Vol. 113, Page 453, DTR
Gray Co., TX Clerk's File #119514
Vol. 661, Page 819, OPRRE
Hartley Co., TX Clerk's File #76410
Vol. 22 Page 011, ORPR
Hutchinson Co., TX Clerk's File #264607
Vol. 661, Page 108, DTR
Moore Co., TX Clerk's File #112649
Vol. 437, Page 707, OPRRP
Oldham Co., TX Clerk's File #93-369
Vol. 110, Page 139, DTR
Potter Co., TX Clerk's File #776321
Vol. 2354, Page 87, OPR
EXHIBIT 4.9
FIRST SUPPLEMENT TO SECURITY AGREEMENT,
PLEDGE AND FINANCING STATEMENT
This First Supplement to Security Agreement, Pledge and Financing
Statement (this "Supplement") is made and entered into as of March 2, 1994
by Mesa Operating Co., a Delaware corporation ("MOC") and the successor to
Mesa Operating Limited Partnership, formerly a Delaware limited partnership
("MOLP), in favor of Harris Trust and Savings Bank, as Trustee ("Trustee"),
for the pro rata benefit of the Noteholders under the Indenture described
herein.
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, MOLP, MESA Inc., a Texas Corporation ("MESA Inc."), and Mesa
Capital Corporation, a Delaware corporation ("Capital"), entered into an
Indenture dated as of May 1, 1993 with the Trustee, which indenture has been
amended and supplemented by that certain First Supplemental Indenture dated
as of January 5, 1994 among MESA Inc., Capital and MOC (collectively,
"Mesa") (such indenture as amended and supplemented by such first
supplemental indenture and as may from time to time be further amended or
modified and in effect, being referenced herein as the "Indenture"); and
WHEREAS, as of May 1, 1993, MESA Inc., Capital and MOLP issued 12-3/4%
Secured Discount Notes due June 30, 1998 in the aggregate principal amount
of $569,564,000 (the "Original Notes") pursuant to the Indenture; and
WHEREAS, pursuant to the Indenture, MOLP entered into that certain
Security Agreement, Pledge and Financing Statement dated as of May 1, 1993
in favor of the Trustee, granting the Trustee a lien and security interest
to secure, among other things, the Original Notes (the "Original Pledge
Agreement"); and
WHEREAS, pursuant to the Merger Agreement dated as of January 5, 1994,
by and among Mesa Inc., MOLP, Mesa Merger Sub 1, Inc. (MOC's name prior to
the merger of MOLP with and into MOC) and certain other parties (the "Merger
Agreement"), MOC assumed all rights and obligations of MOLP, including
without limitation all rights and obligations pursuant to the Indenture, the
Original Notes and the Original Pledge Agreement; and
WHEREAS, pursuant to and in accordance with Section 2.15 of the
Indenture, contemporaneously with MOC's delivery of this Supplement, Mesa is
issuing additional 12-3/4% Secured Discount Notes due June 30, 1998 in the
aggregate principal amount of $48,169,000 (the "Additional Securities"); and
WHEREAS, it is a condition precedent to the effectiveness of the
Additional Securities that MOC execute and deliver this Supplement to
secure, among other things, the obligations of Mesa under the Indenture, the
Original Notes and Additional Securities;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are acknowledged hereby, MOC and the Trustee hereby
agree as follows:
1. Capitalized Terms.
-----------------
Capitalized terms used but not defined herein have the respective
meanings assigned to such terms in the Original Pledge Agreement.
<PAGE>
2. Amendment of Original Pledge Agreement.
--------------------------------------
(a) The definition of "Collateral" is hereby amended by deleting each
reference to "MOLP" in such definition and substituting in lieu thereof
"MOC."
(b) The following definition is added to Section 1.1:
"MOC" shall mean Mesa Operating Co., a Delaware corporation.
(c) The definition of "Limited Partnership Interest" in Section 1.1 of
the Pledge Agreement is hereby amended in its entirety to read as follows:
"Limited Partnership Interest" shall mean a seventy-six and 34/100
percent (76.34%) limited partnership interest in HCLP, being part of
the limited partnership interest in HCLP owned by MOC.
(d) The second recital in the Original Pledge Agreement is hereby
amended and restated in its entirety as follows:
WHEREAS, pursuant to the Indenture, Mesa has issued $569,564,000
aggregate principal amount at maturity ($435,750,000 Accreted Value (as
defined in the Indenture) at May 1, 1993) of 12.75% Secured Discount Notes
due June 30, 1998; and
(e) The following definition of the term "Notes" is hereby added to
Section 1.1 of the Original Pledge Agreement:
"Notes" shall mean the 12.75% Secured Discount Notes issued pursuant to
the Indenture, bearing interest at the rates provided for in the
Indenture and providing for the payment of attorneys' fees and
acceleration of maturity as set forth in the Indenture, with a present
maturity date of June 30, 1998 or as otherwise provided in the
Indenture, all as more particularly described therein or in the
Indenture, including without limitation, the 12.75% Secured Discount
Notes dated as of May 1, 1993 in the aggregate principal amount of
$567,564,000 and such 12.75% Secured Discount Notes dated as of
March 1, 1994 in the aggregate principal amount of $48,169,000, and any
extension, renewal, refunding, increase, substitution, replacement,
consolidation, modification or rearrangement thereof or thereto.
(f) Exhibit A to the Original Pledge Agreement is hereby deleted and a
new Exhibit A in the form of Exhibit A attached hereto is substituted in
lieu thereof.
3. Grant of Security Interest.
--------------------------
In order to secure the full and prompt payment, performance and
observance of the Indebtedness when due (whether at maturity, by
acceleration, upon redemption or otherwise), MOC (i) hereby grants, conveys,
assigns, transfers and sets over to the Trustee for the pro rata benefit of
the Noteholders and to each Noteholder a lien upon and security interest in
the Collateral, and (ii) pledges to Trustee for the pro rata benefit of the
Noteholders and each Noteholder the Certificate of Subordinated Partial
Interest, all upon and subject to the terms and provisions of this
Agreement. Such lien and security interest and pledge are made as security
only and shall not subject the Trustee or any Noteholder to, or transfer or
in any way affect or modify, any obligation of MOC with respect to HCLP, any
of the Collateral or any transaction involving or giving rise thereto.
4. Miscellaneous.
-------------
4.1 Second Lien.
-----------
The liens, security interests, assignments and pledges provided
for in this Supplement are junior and inferior to the liens, security
interests, assignments and pledges of the First Pledge. Further, the
Trustee hereby acknowledges that all of the rights, remedies, benefits and
obligations provided herein for the benefit of the Trustee are in all
respects subject to the terms of the Intercreditor Agreement. Until the
First Pledge is no longer outstanding, the parties hereto will not
supplement, amend or modify, directly or indirectly, the provisions of this
Section 4.1.
4.2 Relation to Original Pledge Agreement.
-------------------------------------
Notwithstanding anything contained in the Original Pledge
Agreement to the contrary, the term "Indebtedness" as used herein and in the
Original Pledge Agreement shall include the indebtedness of Mesa to the
Noteholders described in the Original Pledge Agreement, the indebtedness of
Mesa owed to the Noteholders evidenced by the Additional Securities, and the
obligation of Mesa owed to the Noteholders under the Indenture, this
Supplement and the other Security Documents. All rights, powers and
remedies available to the Trustee under the Original Pledge Agreement shall
be exercisable by the Trustee under the Original Pledge Agreement as
supplemented hereby and the Original Pledge Agreement as supplemented hereby
shall remain in full force and effect. Each reference in such agreement,
this Supplement or any other instrument to the Original Pledge Agreement
shall mean and be a reference to the Original Pledge Agreement as
supplemented hereby.
4.3 Ratification of Liens.
---------------------
The liens and security interests granted by the Original Pledge
Agreement are hereby continued, modified, ratified, and confirmed in
accordance with the terms hereof. Except as expressly supplemented,
modified and amended hereby, the Original Pledge Agreement shall remain in
full force and effect.
4.4 Rights Cumulative.
-----------------
Each and every right, power and remedy herein given to the Trustee
shall be cumulative and not exclusive, and every right, power and remedy
whether specifically herein given or otherwise existing may be exercised
from time to time and so often and in such order as may be deemed expedient
by the Trustee and the exercise, or the beginning of the exercise, of any
such right, power or remedy shall not be deemed a waiver of the right to
exercise, at the same time or thereafter, any other right, power or remedy.
No delay or omission by the Trustee in the exercise of any right, power or
remedy shall impair any such right, power or remedy or operate as a waiver
thereof or of any other right, power or remedy then or thereafter existing.
4.5 Article and Section Headings.
----------------------------
The article and section headings in this instrument are inserted
for convenience and shall not be considered a part of this instrument or
used in its interpretation.
<PAGE>
4.6 Notices.
-------
The manner and place of service of all notices, requests, demands
or other communications to be sent hereunder shall be sent as set forth in
Section 12.02 of the Indenture.
4.7 Survival of Agreements.
----------------------
All representations and warranties of MOC herein and all covenants
and agreements herein not fully and finally performed before the effective
date or dates of this Supplement shall survive such date or dates. All
covenants and obligations in this Supplement are intended by the parties to
be, and shall be construed as, covenants running with the Lands.
4.8 Counterparts.
------------
This Supplement may be executed in any number of counterparts and
by different parties in separate counterparts, each of which when so
executed and delivered shall be deemed to be an original, but all of which
when taken together shall constitute one and the same instrument.
4.9 Governing Law.
-------------
Insofar as this Supplement relates to the creation, perfection or
foreclosure of liens and the enforcement of rights and remedies against the
Collateral, it shall be governed by the laws of the State of Texas. With
respect to all other matters, including without limitation the duties,
rights and obligations of the trustee, this Supplement shall be governed by
and construed in accordance with the laws of the State of New York. If any
provision hereof is invalid or unenforceable in any jurisdiction, the other
provisions hereof shall remain in full force and effect in such
jurisdiction, and the invalidity of any provision hereof in any jurisdiction
shall not affect the validity or enforceability of any such provision in any
other jurisdiction.
MESA OPERATING CO.
By: /s/ William D. Ballew
----------------------------------
William D. Ballew
Controller
HARRIS TRUST AND SAVINGS BANK,
as Trustee
By: /s/ E. Kay Liederman
----------------------------------
E. Kay Liederman
Vice President
<PAGE>
Exhibit A
HUGOTON CAPITAL LIMITED PARTNERSHIP
Certificate of Subordinate Partial Interest
-------------------------------------------
Dated as of March 2, 1994
Pickens Hugoton Company, a Texas corporation and a general partner of
Hugoton Capital Limited Partnership, a Delaware limited partnership
("HCLP"), hereby certifies that Harris Trust and Savings Bank, as Trustee
(the "Trustee") for the pro rata benefit of the Noteholders (as defined in
that certain Indenture dated as of May 1, 1993 among Mesa Inc., a Texas
corporation ("Mesa Inc."), Mesa Capital Corporation, a Delaware corporation
("Capital"), and Mesa Operating Limited Partnership, formerly a Delaware
limited partnership ("MOLP"), as issuers, and the Trustee, as amended and
supplemented by that certain First Supplemental Indenture dated as of
January 5, 1994 among Mesa Inc., Capital and Mesa Operating Co., a Delaware
corporation and the successor to MOLP ("MOC")) is registered on the books
and records of HCLP as the holder of an interest in all rights to money
and/or property (and such money and/or property that MOC now has or
acquires) in respect of a eleven and 34/100 percent (11.34%) limited
partnership interest in HCLP, being part of the limited partnership interest
in HCLP owned by MOC (and being in addition to the sixty-five percent (65%)
limited partnership interest in HCLP referenced in that certain Certificate
of Subordinate Partial Interest dated as of January 5, 1994 and executed by
the undersigned), including, without limitation, any proceeds of sale by or
on behalf of MOC of such interest, and distributions by HCLP in respect of
such interest, whether regular, special or made in connection with the
partial or total liquidation of HCLP and whether attributable to profits,
the return of any contribution or investment or otherwise attributable to
such interest or the ownership thereof, and proceeds of all of the foregoing
(the "Collateral").
This Certificate is subject to the terms and conditions of the security
Agreement, Pledge and Financing Statement dated as of May 1, 1993 between
MOLP and the Trustee acting for the pro rata benefit of the Noteholders, as
amended and supplemented by the First Supplement to Security Agreement,
Pledge and Financing Statement dated as of March 1, 1994 between MOC and the
Trustee acting for the pro rata benefit of the Noteholders (such Security
Agreement, Pledge and Financing Statement as so amended and supplemented
being referenced herein as the "Agreement").
The interests evidenced by this Certificate are subordinate to the
prior liens on and security interest in the Collateral created by the First
Pledge as defined in the Agreement and are transferable only to the extent
the Collateral or any part thereof is transferred in accordance with the
Agreement.
Neither the Trustee nor any of the Noteholders shall become a
substituted limited partner of HCLP by virtue of the Agreement or this
Certificate.
PICKENS HUGOTON COMPANY
By: /s/ William D. Ballew
----------------------------------
William D. Ballew
Controller
EXHIBIT 4.31
AMENDED AND RESTATED PLEDGE AGREEMENT
This Amended and Restated Pledge Agreement ("Agreement") is made and
entered into as of March 2, 1994 by Mesa Operating Co., a Delaware
corporation ("MOC") and successor to Mesa Operating Limited Partnership,
formerly a Delaware limited partnership of which Boone Pickens and Pickens
Operating Co., a Texas corporation, were the sole general partners ("MOLP"),
in favor of Societe Generale, Southwest Agency, as Agent ("Agent") for the
pro rata benefit of the banks parties to the Credit Agreement described
herein (herein called the "Banks").
WHEREAS, MOLP and Mesa Inc., a Texas corporation ("MI"), entered into a
Second Amended and Restated Credit Agreement dated as of May 1, 1993 with
the Banks and the Agent, pursuant to which the Banks agreed to lend MOLP
amounts not to exceed $90,000,000 and MI is jointly and severally liable for
such amount (as the same may be amended from time to time and in effect, the
"Credit Agreement"); and
WHEREAS, pursuant to the Credit Agreement, MOLP entered into that
certain Pledge Agreement dated as of May 1, 1993 (the "Original Pledge
Agreement") in favor of the Agent for the pro rata benefit of the Banks,
granting to the Agent a lien and security interest to secure MOLP's
obligations to the Agent and the Banks under the Credit Agreement and the
other Credit Documents (as defined in the Credit Agreement); and
WHEREAS, pursuant to that certain Assignment and Assumption Agreement
dated as of January 5, 1994, among MOLP, MOC, MI, the Agent and the Banks,
MOLP assigned to MOC, and MOC assumed in full all of the obligations of MOLP
under the Credit Agreement, the Original Pledge Agreement and the other
Credit Documents previously executed by MOLP, and the Agent and the Banks
agreed to treat MOC as a substitute party for MOLP under each of such Credit
Documents; and
WHEREAS, it is a condition precedent to securing the Additional
Securities (as defined in the Credit Agreement) that MOC execute and deliver
this Agreement in order to amend the Original Pledge Agreement as herein
provided and, for the purpose of clarity only, to restate the Original
Pledge Agreement in its entirety (this Agreement constituting for all
purposes an amendment of the Original Pledge Agreement and not a new or
substitute pledge agreement);
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, MOC and the Agent hereby agree
as follows:
1. DEFINITIONS.
-----------
1.1 Specified Terms.
---------------
As used in this Agreement, capitalized terms not otherwise defined
herein have the meanings set forth in the Credit Agreement, and the
following terms shall have the respective meanings set forth below (such
meanings to be equally applicable to both the singular and plural forms of
the terms defined):
"Certificate of Partial Interest" means the certificate to be
issued by HCLP to the Agent substantially in the form of Annex A hereto.
<PAGE>
"Collateral" shall mean all rights to money and/or property (and
such money and/or property that MOC now has or hereafter acquires in respect
of the Limited Partnership Interest and that is evidenced by the Certificate
of Partial Interest), including, without limitation, any proceeds of sale by
or on behalf of MOC of any of the Limited Partnership Interest, any
distributions by HCLP in respect of the Limited Partnership Interest,
whether regular, special or made in connection with the partial or total
liquidation of HCLP and whether attributable to profits, the return of any
contribution or investment or otherwise attributable to the Limited
Partnership Interest or the ownership thereof, and proceeds of all of the
foregoing.
"Event of Default" shall have the meaning assigned to that term of
Section 6.1 of this Agreement.
"HCLP" means Hugoton Capitol Limited Partnership, a Delaware
limited partnership of which MOC and Mesa Midcontinent Limited Partnership
are the limited partners and Pickens Hugoton Company is the general partner.
"Limited Partnership Interest" shall mean a seventy-six and 34/100
percent (76.34%) limited partnership interest in HCLP, being part of the
limited partnership interest in HCLP owned by MOC.
"Subordinate Pledge" means the liens on and security interest in
the Collateral securing the obligations of MOC, MI and/or Mesa Capital under
the Secured Indenture.
"UCC" shall mean the Uniform Commercial Code as in effect in the
State of Texas.
1.2 Other Terms and Determinations.
------------------------------
All terms used in this Agreement which are defined in the UCC,
other than those which are defined in the Credit Agreement or specifically
defined in Section 1.1 above, shall have the same meaning herein as in the
UCC.
2. Grant of Security Interest.
--------------------------
In order to secure the full and prompt payment, performance and
observance of the Obligations when due (whether by acceleration or
otherwise), MOC (i) hereby grants, conveys, assigns, transfers and sets over
to the Agent for the pro rata benefit of the Banks and to each Bank a first
lien upon and security interest in the Collateral, and (ii) pledges to the
Agent for the pro rata benefit of the Banks and each Bank the Certificate of
Partial Interest, all upon and subject to the terms and provisions of this
Agreement. Such first lien and security interest and pledge are made as
security only and shall not subject the Agent or any Bank to, or transfer or
in any way affect or modify, any obligation of MOC with respect to HCLP, any
of the Collateral or any transaction involving or giving rise thereto.
3. Representations and Warranties.
------------------------------
MOC represents and warrants to the Agent and each Bank as follows:
3.1 The chief executive office and principal place of business of
MOC is located at 2600 Trammell Crow Center, 2001 Ross Avenue, Dallas,
Texas, 75201.
<PAGE>
3.2 MOC is the owner of all of the presently existing Collateral
and all the presently existing Limited Partnership Interest free and clear
of any lien, security interest or encumbrance of any kind or nature, except
for the lien of the Subordinate Pledge and the security interest created
hereby and except as permitted by Section 4.1 hereof. Except for the lien
of the Subordinate Pledge and the lien and security interest created hereby,
all of the Collateral is and will be free from any material credit,
deduction, allowance, defense, dispute, setoff, or counterclaim and there is
no extension or indulgence with respect thereto.
3.3 The lien and security interest intended to be created under
this Agreement constitutes as to the Collateral existing on the date hereof,
and will constitute as to all Collateral existing after the date hereof, a
valid first lien upon and prior perfected security interest in the
Collateral, subject to no equal or prior lien, security interest or
encumbrance of any kind or nature.
4. Covenants.
---------
During the term of this Agreement and until all of the Obligations have
been fully and finally paid and discharged in full, MOC covenants and agrees
with the Agent and each Bank that:
4.1 MOC shall not sell, pledge, assign, hypothecate or grant a
security interest in or create or permit to exist any lien or encumbrance on
any of the Collateral or any of the Limited Partnership Interest except as
permitted by the Credit Agreement.
4.2 MOC shall promptly pay when due all taxes, fees, assessments
and other charges now or hereafter imposed or levied upon any of the
Collateral, except when such taxes are being contested in good faith by
appropriate proceedings and adequate reserves have been provided therefor.
4.3 From time to time, MOC shall, at its own expense, promptly
give, execute, deliver, file and/or otherwise formalize any such notice,
statement, instrument, documents, agreement or other papers, and do all such
other acts and things, as may be necessary or desirable, or as the Agent may
reasonably request, in order to create, evidence, preserve, perfect,
validate or continue any lien or security interest created pursuant to this
Agreement or to enable the Agent to exercise or enforce its rights hereunder
with respect to such lien or security interest, or otherwise further to
effect the purposes of this Agreement. Without limiting the generality of
the foregoing, MOC shall, at any time or from time to time upon the request
of the Agent and at MOC's own expense, execute, acknowledge, witness,
deliver, file and/or record such financing and continuation statements,
notices, additional assignments and other documents or instruments (all of
which shall be in form and substance satisfactory to the Agent and its
counsel) as the Agent may from time to time reasonably request for the
perfection of the liens and security interests created hereby, and for the
continuance and protection thereof, and promptly furnish to the Agent
evidence thereof satisfactory to the Agent. MOC hereby authorizes the
Agent, and appoints the Agent as its attorney-in-fact, to effect any filing
or recording of any such documents of instruments without the signature of
MOC, which appointment as attorney-in-fact is effective upon the occurrence
of an Event of Default (for purposes hereof, the determination of the
occurrence of an Event of Default by the Agent shall as to all parties be
conclusive).
<PAGE>
4.4 MOC shall promptly notify the Agent (i) of any material
changes in any fact or circumstance represented or warranted by MOC with
respect to any material portion of the Collateral, (ii) of any material
impairment of the Collateral and (iii) of any claim, action or proceeding
affecting title to all or any of the Collateral and/or of the Limited
Partnership Interest.
4.5 Except for the lien and security interest created by this
Agreement and the Subordinate Pledge, MOC shall at its own expense defend
the Collateral and the Limited Partnership Interest against any and all
liens, claims, security interest and other encumbrances, howsoever arising.
4.6 MOC shall at all times keep accurate and complete records
with respect to the Collateral, including, without limitation, records of
all payments made, credit granted and proceeds received in connection
therewith.
4.7 MOC shall not relocate its principal place of business or
chief executive office to a county or state other than specified in Section
3.1 of this Agreement unless MOC gives 30 days' prior written notice to the
Agent, which notice shall specify the county and state into which such
relocation is to be made.
5. Powers of the Secured Party.
---------------------------
5.1 MOC hereby irrevocably designates and appoints the Agent as
its attorney-in-fact, with full power of substitution, for the purposes of
carrying out the provisions of this Agreement and taking any action and
executing any instrument that the Agent may reasonably request pursuant to
this Agreement, which appointment as attorney-in-fact is irrevocable and
coupled with an interest.
5.2 Without limiting the generality of Section 5.1 hereof, MOC
hereby irrevocably authorizes and empowers the Agent for the ratable benefit
of the Banks,upon the occurrence and during the continuation of any Event of
Default, at the expense of MOC, either in the Agent's own name or in the
name of MOC, at any time and from time to time:
(a) to ask, demand, receive, issue a receipt for, give
acquittance for, settle and compromise any and all monies which may be
or become due or payable or remain unpaid at any time or times to MOC,
and any and all other property which may be or become deliverable at
any time or times to MOC, under or with respect to the Collateral;
(b) to endorse any drafts, checks, orders or other instruments
for the payment of money payable to MOC on account of the Collateral
(including any such draft, check, order or instrument issued by any
insurance company payable jointly to MOC and the Agent);
(c) in the discretion of the Agent, to settle, compromise,
prosecute or defend any action, claim or proceeding, or take any other
action, all either in its own name or in the name of MOC or otherwise,
which the Agent may deem to be necessary or advisable for the purpose
of exercising and enforcing its powers and rights under this Agreement
or in furtherance of the purposes hereof, including any action which by
the terms of this Agreement is to be taken by MOC; and
(d) prior to the exercise of any remedies specified in Section
6.2 hereof, to notify HCLP of the existence of any Event of Default,
whereupon the Agent shall be entitled to receive from HCLP of any
distributions, profits or income in respect of or attributable to the
Limited Partnership Interest, including any distribution in respect of
a dissolution of HCLP, to which, but for this Agreement, MOC would be
entitled, to be applied toward payment of the Obligations in such order
or manner as the Agent may elect.
5.3 Nothing in this Agreement shall be construed as requiring or
obligating the Agent to make any demand or to make any inquiry as to the
nature or sufficiency of any payment received by it or to present or file
any claim or notice, or to take any other action with respect to any of the
Collateral or the amounts due or to become due under any thereof, or to
collect or enforce the payment of any amounts assigned to it or to which it
may otherwise be entitled hereunder at any time or times.
5.4 The Agent shall be entitled at any time to file this
Agreement, or a carbon, photographic, or any other reproduction of this
Agreement, as a financing statement, but the failure of the Agent to do so
shall not impair the validity or enforceability of this Agreement.
6. Default.
-------
6.1 Events of Default.
-----------------
The following events, acts or occurrences shall constitute Events
of Default:
(a) An "Event of Default" shall occur under the Credit
Agreement; or
(b) Any representation or warranty made, or deemed to have
been made, by MOC in this Agreement or in connection with the
Obligations shall prove to have been incorrect in any material respect
when made; or
(c) MOC shall fail to observe, comply with or perform the
covenant contained in Section 4.1 hereof; or
(d) MOC shall fail to observe, comply with or perform any
other covenant, condition or agreement on the part of MOC contained in
this Agreement and such default is not remedied within thirty (30)
days; or
(e) Any substantial part of the Collateral or any of the
Limited Partnership Interest shall be attached or shall be placed in
the hands of a receiver or receivers, or trustee or trustees, or other
officer or officers, or representative or representatives of a court or
of creditors; or
(f) The title of MOC to the Collateral or any substantial
part thereof or to the Limited Partnership Interest shall become the
subject matter of litigation which would or might, in the Agent's
opinion, upon final determination result in substantial impairment of
loss of the security provided by this Agreement and upon notice by the
Agent such litigation is not dismissed or resolved in a manner
satisfactory to the Agent for a period of thirty (30) days.
6.2 Remedies on Default.
-------------------
<PAGE>
(a) If an Event of Default shall have occurred and is
continuing and if the maturity of the Obligations is accelerated under
the provisions of the Credit Agreement, in addition to any other rights
and remedies that may be available to the Agent under UCC or under
Section 5.1 or 5.2 of this Agreement or otherwise under this Agreement
or at law, the Agent for the ratable benefit of the Banks, shall also
have the following rights and powers:
(i) The Agent may, without being required to give any notice
except as hereinafter provided, sell the Collateral, or any part
thereof, at public or private sale, for cash, upon credit or for
future delivery and at such price or prices as the Agent deems
satisfactory, and the Agent may be the purchaser for the ratable
benefit of the Banks of any or all of the Collateral so sold and
thereafter hold the same absolutely free from any right or claim
of whatsoever kind, and the Obligations or any portion of the
Obligations may be applied as a credit against the purchase price.
(ii) Upon any such sale, the Agent shall have the right to
deliver, assign and transfer to the purchaser thereof the
Collateral so sold. Each purchaser at any such sale shall hold
the property sold absolutely free from any claim or right of
whatsoever kind by or on behalf of MOC, including any equity or
rights of redemption of MOC, and MOC hereby specifically waives,
to the extent permitted by applicable law, all rights of
redemption, stay or appraisal which it has or may have under any
rule or law or statute now existing or hereafter adopted.
(iii) The Agent shall give MOC five (5) days' written notice
(which MOC agrees is reasonable notification within the meaning of
Sec. 9.504 of the UCC) of its intention to make any such public or
private sale. Such notice, in case of public sale, shall state
the time and place fixed for such sale and, in case of a private
sale, shall state the date after which such sale is to be made.
(iv) Any such public sale shall be held at such time or times
within ordinary business hours and as such places as the Agent may
fix in the notices of such sale. At any such sale the Collateral
may be sold in one lot as an entirety or in separate parcels, as
Agent may determine.
(v) The Agent shall not be obligated to make any sale pursuant to
any such notice. The Agent may, without notice or publication,
adjourn any public or private sale or cause the same to be
adjourned from time to time by announcement at the time and place
fixed for the sale, and such sale may be made at any time or place
to which the same shall be so adjourned.
(vi) In case of any sale of all or any part of the Collateral on
credit or for future delivery, the Collateral so sold may be
retained by the Agent until the selling price is paid by the
purchaser thereof, but the Agent shall not incur any liability in
case of the failure of such purchaser to take up and pay for the
Collateral so sold and, in case of any such failure, such
Collateral may again be sold upon like notice.
(vii) The Agent, instead of exercising the power of sale herein
conferred upon it, may proceed by a suit or suits at law or in
equity to foreclose the liens and security interests granted in
this Agreement and sell the Collateral, or any portion thereof,
under a judgment or decree of a court or courts of competent
jurisdiction.
<PAGE>
(b) The Agent shall incur no liability as a result of the
sale of the Collateral, or any part thereof, at any private sale. MOC
hereby waives, to the extent permitted by applicable law, any claims
against the Agent and each Bank arising by reason of the fact that the
price at which the Collateral may have been sold at such a private sale
was less than the price which might have been obtained at a public sale
or was less than the aggregate amount of the Obligations, even if the
Agent accepts the first offer received and does not offer such
Collateral to more than one offeree.
(c) The Agent shall not be obligated to pursue or exhaust
its rights and remedies against any particular Collateral before
pursuing or enforcing its rights and remedies against any other
Collateral.
(d) To the extent permitted by law, MOC hereby waives (i)
any rights to require the Agent to proceed first against any other
Person, to exhaust its rights in the Collateral or to pursue any other
right that the Agent might have, (ii) with respect to the Obligations,
presentment and demand for payment, protest, notice of protest and
nonpayment, notice of the intention to accelerate and notice of
acceleration (except as otherwise set forth in the Credit Agreement),
and (iii) all rights of marshalling in respect of any and all of the
Collateral.
(e) Without precluding any other methods of sale, MOC
acknowledges that the sale of the Collateral shall have been made in a
commercially reasonable manner if conducted in conformity with
reasonable commercial practices of banks disposing of similar property.
The Agent shall not be liable for any depreciation in the value of the
Collateral.
6.3 Application of Proceeds.
-----------------------
If an Event of Default shall have occurred and be continuing, the
proceeds of any sale of or other realization upon all or any part of the
Collateral and any other amounts held by the Agent under this Agreement
shall be applied by the Agent as follows:
First: to the payment of all costs and expenses paid or incurred
by the Agent in connection herewith, including, without
limitation, all court costs and the reasonable fees and
disbursements of counsel for the Agent in connection herewith or
in connection with the exercise of any right or remedy hereunder
or thereunder;
Second: to the payment of all unpaid principal and/or accrued and
unpaid interest on the Notes and/or the LC Obligations in such
order and manner as set forth in the Credit Agreement; and
Third: to the payment in full of the Obligations at the time due
and payable to the extent not previously paid by MOC;
Any amounts remaining after such applications and the payment in full
of the Obligations shall be remitted to MOC, its successors or assigns, or
as a court of competent jurisdiction may otherwise direct.
7. General Provisions.
------------------
<PAGE>
7.1 Term.
----
This Agreement shall remain in full force and effect until all of
the Obligations shall have been satisfied in full.
7.2 Actions Not Released.
--------------------
The security interest created hereunder and MOC's obligations
hereunder and the Agent's rights hereunder shall not be released,
diminished, impaired or adversely affected by the occurrence of any one or
more of the following events:
(a) the taking or accepting of any other security or
assurance for any or all of the Obligations;
(b) any release, surrender, exchange, subordination, or loss
of any security or assurance at any time existing in connection
with any or all of the Obligations;
(c) the modification of, amendment to, or waiver of
compliance with any terms of the Credit Agreement or the other
Credit Documents;
(d) any renewal, extension and/or rearrangement of the
payment of any or all of the Obligations or any statement,
indulgence, forbearance or compromise that may be granted or given
by the Agent or the Banks to MOC, MI, HCLP or any other Person;
(e) any neglect, delay, omission, failure or refusal of the
Agent to take or prosecute any action in connection with any
agreement, document or other instrument evidencing, securing or
assuring the payment of any or all of the Obligations; or
(f) the illegality, invalidity or unenforceablilty of all or
any part of the Obligations.
7.3 Not a Substituted Limited Partner, Survival of Security
Interest Notwithstanding Sale.
-------------------------------------------------------
Neither the Agent nor any of the Banks shall become a substituted
limited partner of HCLP by virtue hereof. Notwithstanding that the Limited
Partnership Interest is not part of the Collateral and that the Collateral
includes proceeds of sale of any of the Limited Partnership Interest, no
sale of the Limited Partnership Interest, whether consensual or forced,
shall impair or affect in any way the security interest in the Collateral
granted hereby and any purchaser of the Limited Partnership Interest shall
acquire the same subject to the security interest in the Collateral granted
hereby, whether or not such purchaser thereby or thereafter becomes a
substituted limited partner of HCLP.
7.4 Distributions.
-------------
So long as no Default shall have occurred and be continuing, MOC
shall be entitled to receive and retain any and all distributions paid in
respect of the Limited Partnership Interest. Nothing contained herein shall
prevent MOC from making use of distributions received by MOC in respect of
the Limited Partnership Interest as otherwise permitted by the Credit
Agreement and, to the extent so permitted, any distributions received by MOC
and transferred to other Persons shall pass free and clear of the lien and
security interest hereof.
7.5 Amendments.
----------
This Agreement or any term hereof may be amended or changed only
by an instrument in writing executed jointly by MOC and the Agent.
7.6 Cumulative Remedies, No Waiver.
------------------------------
Each right, power and remedy herein specifically granted to the
Agent or otherwise available to it shall be cumulative, and shall be in
addition to every other right, power and remedy herein specifically given or
now or hereafter existing at law, in equity, or otherwise (including,
without limitation, all rights, powers and remedies granted to a secured
party under the UCC), and each such right, power and remedy, whether
specifically granted herein or otherwise existing, may be exercised at any
time and from time to time as often and in such order as may be deemed
expedient by the Agent in its sole and complete discretion. The provisions
of this Agreement may only be waived by an instrument in writing signed by
the Agent, and no failure on the part of the Agent to exercise, and no delay
in exercising, and no course of dealing with respect to, any such right,
power or remedy, shall operate as a waiver thereof, nor shall any single or
partial exercise of any such rights, power or remedy preclude any other or
further exercise thereof or the exercise of any other right.
7.7 Notices.
-------
The manner and place of service of All notices, requests, demands
or other communications to be sent hereunder shall be sent as set forth in
Section 9.02 of the Credit Agreement.
7.8 Binding Effect, Assignment.
--------------------------
This Agreement shall be binding upon MOC and its successors and
assigns and shall inure to the benefit of the Agent and its successors and
assigns. MOC may not, without the prior written consent of the Agent, assign
any of its rights, duties or obligations hereunder.
7.9 Governing Law.
-------------
This Agreement shall be governed by and construed in accordance
with the laws of the State of Texas.
7.10 Descriptive Headings.
--------------------
The descriptive headings of the several sections of this Agreement
are inserted for convenience only and shall not control or affect the
meaning or construction of any of the provisions hereof.
7.11 Severability.
------------
Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity of
enforceability of such provision in any other jurisdiction.
<PAGE>
7.12 Non-Recourse to General Partners.
--------------------------------
Notwithstanding any statutory or common law liability of a general
partner for the debts and obligations of a partnership, no general or
limited partner of MOLP, as such, nor his or its assets (other than any
interest any such partner may be deemed to have in MOLP's assets), shall be
liable for any obligations or agreements of MOLP in this Agreement, and no
person shall have any recourse under or upon any obligations or agreement of
MOLP in this Agreement against any partner of MOLP or any successors
thereto, or any assets of any partner of MOLP other than any interest any
such partner may be deemed to have in MOLP's assets), either directly or
through MOLP or any successor thereto, under any rule of law, statute or
constitutional provision or by the enforcement of any assessment or by any
legal or equitable proceeding or otherwise. The Agent hereby expressly
waives and releases all such liability as part of the consideration for the
execution of this Agreement.
7.13 Survival of Representation and Warranties.
-----------------------------------------
All representations and warranties contained herein, in the Credit
Agreement or in any other Credit Document, or made in writing by MOLP or MOC
in connection herewith or therewith, shall survive the execution and
delivery of this Agreement, the Credit Agreement, the other Credit Documents
and any documents executed in connection herewith or therewith.
7.14 Execution in Counterparts.
-------------------------
This Agreement may be executed in any number of counterparts and
by different parties in separate counterparts, each of which when so
executed and delivered shall be deemed to be an original, but all of which
when taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the MOC and the Agent have executed this Agreement
as of the date first above written.
MESA OPERATING CO.
By: /s/ William D. Ballew
----------------------------------
William D. Ballew
Controller
SOCIETE GENERALE,
SOUTHWEST AGENCY, as Agent
By: /s/ Louis P. Laville
----------------------------------
Louis P. Laville
Vice President
<PAGE>
Annex A
-------
HUGOTON CAPITAL LIMITED PARTNERSHIP
Certificate of Partial Interest
-------------------------------
Dated as of March 2, 1994
Pickens Hugoton Company, a Texas corporation and a General Partner of
Hugoton Capital Limited Partnership, a Delaware limited partnership
("HCLP"), hereby certifies that Societe Generale, Southwest Agency, as Agent
(the "Agent") for the pro rata benefit of the Banks as defined in that
certain Second Amended and Restated Credit Agreement dated as of May 1, 1993
(the "Credit Agreement") among Mesa Inc., a Texas corporation, and Mesa
Operating Co., a Delaware corporation ("MOC") and successor to Mesa
Operating Limited Partnership, formerly a Delaware limited partnership, the
banks party thereto, and the Agent, is registered on the books and records
of HCLP as the holder of an interest in all rights to money and/or property
(and such money and/or property that MOC now has or acquires) in respect of
a seventy-six and 34/100 percent (76.34%) limited partnership interest in
HCLP, being part of the limited partnership interest in HCLP owned by MOC,
including, without limitation, any proceeds of sale by or on behalf of MOC
of such interest, and distributions by HCLP in respect of such interest,
whether regular, special or made in connection with the partial or total
liquidation of HCLP and whether attributable to profits, the return of any
contribution or investment or otherwise attributable to such interest or the
ownership thereof, and proceeds of all of the foregoing (the "Collateral").
This Certificate is subject to the terms and conditions of the Amended
and Restated Pledge Agreement of even date (the "Agreement") between MOC and
the Agent acting for the pro rata benefit of the Banks.
The interests evidenced by this Certificate are senior to the
subordinate and junior liens on and security interest in the Collateral
created by the Subordinate Pledge as defined in the Agreement and are
transferrable only to the extent the Collateral or any part thereof is
transferred in accordance with the Agreement.
Neither the Agent nor any of the Banks shall become a substituted
limited partner of HCLP by virtue of the Agreement or this Certificate.
PICKENS HUGOTON COMPANY
By: /s/ William D. Ballew
----------------------------------
William D. Ballew
Controller
