<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from ______ to _______
Commission File No. ___________
3TEC ENERGY CORPORATION
(Exact name of small business issuer as specified in its charter)
DELAWARE 76-0624573
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
777 WALKER STREET
TWO SHELL PLAZA, SUITE 2400
HOUSTON, TX 77002
(Address of principal executive offices)
(713) 821-7100
(Issuer's telephone number)
N/A
(Former Name, Former Address and Former Fiscal Year,
If Changed Since Last Report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past
90 days. Yes [X] No [_]
Number of shares outstanding of each of the Registrant's classes of common
stock, as of the latest practicable date:
Common stock, $0.02 par value
6,428,642 shares as of May 9, 2000
Transitional Small Business Disclosure Format (check one)
Yes [_] No [X]
<PAGE>
3TEC ENERGY CORPORATION AND SUBSIDIARIES
INDEX
Page
No.
---
PART I. CONSOLIDATED FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets-
March 31, 2000 (Unaudited) and December 31, 1999...................... 1
Consolidated Statements of Operations (Unaudited)-
Three months ended March 31, 2000 and 1999............................ 2
Consolidated Statements of Cash Flows (Unaudited)-
Three Months ended March 31, 2000 and 1999............................ 3
Notes to Consolidated Financial Statements (Unaudited).................. 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations....................... 12
PART II. OTHER INFORMATION
Item 2. Changes in Securities.............................................. 17
Item 4. Submission of Matters to a Vote of Security Holders................ 17
Item 6. Exhibits and Reports on Form 8-K................................... 18
<PAGE>
3TEC ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH DECEMBER 31
2000 1999
------------- -------------
ASSETS (Unaudited) (Audited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 3,916,880 $ 6,141,153
Accounts receivable 9,823,915 9,453,551
Other current assets 875,312 176,226
------------- -------------
Total current assets 14,616,107 15,770,930
PROPERTY (AT COST)
Oil and gas-successful efforts method 191,944,745 168,840,499
Other 1,566,774 1,141,879
------------- -------------
193,511,519 169,982,378
Accumulated depreciation, depletion and amortization (42,001,016) (38,208,298)
------------- -------------
151,510,503 131,774,080
OTHER ASSETS 1,733,823 1,698,496
------------- -------------
TOTAL ASSETS $ 167,860,433 $ 149,243,506
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable-trade $ 5,403,704 $ 5,726,569
Revenue payable 1,431,138 1,576,731
Accounts payable-Stockholder Dissenters 1,118,678 1,118,678
Other current liabilities 796,417 347,733
------------- -------------
Total current liabilities 8,749,937 8,769,711
LONG-TERM DEBT 83,500,000 87,500,000
SENIOR SUBORDINATED CONVERTIBLE NOTES 13,223,844 13,223,844
DEFERRED INCOME TAXES 1,896,066 290,643
OTHER LIABILITIES 209,670 257,627
MINORITY INTEREST 1,163,782 1,089,044
STOCKHOLDERS' EQUITY
Preferred stock, $0.02 par, 20,000,000 shares authorized,
266,667 designated Series B, 2,300,000 shares designated
Series C and 725,167 designated Series D, none other designated - -
Convertible preferred stock Series B, $7.50 stated value,
266,667 shares issued and outstanding. $2,000,000 aggregate
liquidation preference 3,627,000 3,627,000
Convertible preferred stock Series C, $5.00 stated value,
1,132,338 and 1,139,506 shares issued and outstanding at
March 31, 2000 and December 31, 1999, respectively. $5,661,690
aggregate liquidation preference 5,162,600 5,198,440
Convertible preferred stock Series D, $24.00 stated value,
621,930 shares issued and outstanding at March 31, 2000.
$14,926,320 aggregate liquidation preference 7,571,552 -
Common stock, $.02 par value, 60,000,000 shares authorized,
6,429,439 and 5,338,771 shares issued at March 31, 2000
and December 31, 1999, respectively 128,588 106,778
Additional paid-in capital 68,365,847 57,775,199
Accumulated deficit (24,551,735) (27,408,062)
Treasury stock; 7,258 shares (1,186,718) (1,186,718)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 59,117,134 38,112,637
COMMITMENTS AND CONTINGENCIES
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 167,860,433 $ 149,243,506
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
3TEC ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(Unaudited) (Unaudited)
2000 1999
----------- -----------
<S> <C> <C>
REVENUE
Oil and gas sales and plant income $16,914,573 $ 3,072,064
Gain on sale of properties 8,893 74,298
Other 329,119 102,777
----------- -----------
TOTAL REVENUE 17,252,585 3,249,139
----------- -----------
COSTS AND EXPENSES
Lease operating, production taxes and plant costs 4,581,129 1,559,121
Geological and geophysical 125,261 69,557
Dry hole costs 12,243 62,189
Depreciation, depletion and amortization 3,920,436 1,349,630
Interest 2,084,499 511,756
General and administrative 1,697,053 1,021,737
Other 67,723 -
----------- -----------
TOTAL COSTS AND EXPENSES 12,488,344 4,573,990
INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT), MINIORITY INTEREST
AND DIVIDENDS TO PREFERRED STOCKHOLDERS 4,764,241 (1,324,851)
Minority interest 42,400 (9,770)
Income tax expense (benefit) 1,605,424 (409,494)
----------- -----------
NET INCOME (LOSS) 3,116,417 (905,587)
Dividends to preferred stockholders 260,090 142,833
----------- -----------
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS $ 2,856,327 $(1,048,420)
=========== ===========
NET INCOME (LOSS) PER COMMON SHARE
BASIC $ 0.48 $ (0.37)
=========== ===========
DILUTED $ 0.35 $ (0.37)
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
BASIC 6,013,109 2,843,531
=========== ===========
DILUTED 9,342,722 2,843,531
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
3TEC ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(Unaudited) (Unaudited)
2000 1999
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income (loss) $ 3,116,417 $ (905,587)
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Depreciation, depletion and amortization 3,920,436 1,349,630
Dry hole costs 12,243 62,189
Gain on sale of properties (8,893) (74,298)
Deferred income taxes 1,605,424 (422,127)
Minority interest 42,400 (9,770)
Other charges - 60,000
----------- -----------
Cash flow from operations before changes in current assets and liabilities 8,688,027 60,037
Changes in current assets and liabilities net of acquisition effects:
Increase in accounts receivable and other current assets (278,269) 754,736
Decrease in accounts payable, revenue payable and other current liabilities (1,384,253) (703,183)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 7,025,505 111,590
INVESTING ACTIVITIES
Proceeds from sales of properties 148,519 73,321
Acquisition of Magellan Exploration, LLC, net of cash acquired (269,937) -
Additions to oil and gas assets (4,165,381) (468,037)
Additions to other assets (486,532) (2,486)
Advances to stockholder - (1,738)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (4,773,331) (398,940)
FINANCING ACTIVITIES
Proceeds from issuance of debt - 516,000
Proceeds from issuance of common stock 12,000 -
Principal payments on debt (4,000,000) -
Preferred stock dividends (219,313) -
Debt, common stock and preferred stock issue and registration costs (269,134) (48,518)
----------- -----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (4,476,447) 467,482
Net increase (decrease) in cash and cash equivalents (2,224,273) 180,132
Cash and cash equivalents - Beginning 6,141,153 1,040,096
----------- -----------
Cash and cash equivalents - Ending $ 3,916,880 $ 1,220,228
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 2,054,620 $ 678,097
=========== ===========
Income taxes $ - $ -
=========== ===========
Non-cash investing and financing activities:
Preferred dividends incurred but not paid $ 150,434 $ 142,833
=========== ===========
Common stock and warrants issued in acquisition of Magellan Exploration, LLC $10,572,935 $ -
=========== ===========
Preferred stock issued in acquisition of Magellan Exploration, LLC $ 7,453,457 $ -
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
3TEC ENERGY CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
March 31, 2000
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
3TEC Energy Corporation (the Company), was incorporated under the laws of
the state of Alabama on November 20, 1992. The Company was reincorporated in
Delaware on December 7, 1999 and changed its name to 3TEC Energy Corporation.
The reincorporation and name change were part of a series of transactions
related to a securities purchase agreement that closed on August 27, 1999
between the Company and W/E Energy Company LLC ("W/E LLC"), whereby the Company
received $21.4 million in cash and oil and natural gas properties for the sale
of common stock, warrants and debt securities (See Note 3). Effective November
23, 1999, the Company acquired oil and natural gas properties and interests
managed by Floyd Oil Company ("Floyd Oil Company") from a group of private
sellers.
The Company is engaged in the acquisition, development, production and
exploration of oil and natural gas in the contiguous United States. The Company
considers its business to be a single operating segment.
Basis of Presentation
In management's opinion, the accompanying consolidated financial statements
contain all adjustments (consisting solely of normal recurring adjustments)
necessary to present fairly the consolidated financial position of the Company
as of March 31, 2000 and December 31, 1999 and the consolidated results of
operations and consolidated cash flows for the periods ended March 31, 2000 and
1999.
The consolidated financial statements were prepared pursuant to the rules
and regulations of the Securities and Exchange Commission. An independent
accountant has not audited the accompanying consolidated financial statements.
Certain information and disclosures normally included in annual audited
financial statements prepared in accordance with generally accepted accounting
principles have been omitted, although the Company believes that the disclosures
made are adequate to make the information presented not misleading. These
consolidated financial statements should be read in conjunction with the
Company's financial statements and notes thereto included in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1999.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company,
its wholly-owned subsidiaries and Enex, an 80% owned subsidiary. The equity of
the minority interests in Enex is shown in the consolidated financial statements
as "minority interest." All significant intercompany balances and transactions
have been eliminated in consolidation.
4
<PAGE>
3TEC ENERGY CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
March 31, 2000
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Earnings Per Share
Basic earnings and loss per common share are based on the weighted average
shares outstanding without any dilutive effects considered. Diluted earnings
and loss per share reflect dilution from all potential common shares, including
options, warrants and convertible preferred stock and convertible notes.
Diluted loss per share does not include the effect of any potential common
shares if the effect would be to decrease the loss per share.
At March 31, 1999, the Company had a weighted average of 472,570 combined
stock options, warrants and convertible preferred stock and notes outstanding,
respectively, which were not included in the computation of diluted earnings per
share, because the effect of the assumed exercise of these stock options,
warrants and convertible securities would have an antidilutive effect on the
computation of diluted loss per share. At March 31, 1999, the Company had
outstanding convertible preferred stock that was convertible into 380,888 shares
of common stock. The convertible preferred stock and dividends of $142,833, were
not reflected in the computation of diluted earnings per share, because the
effect of the assumed conversion and dividends of these preferred shares would
have an antidilutive effect on the computation of diluted loss per share.
Basic and diluted earnings per share for the three month period ended March
31, 2000 was determined as follows (in thousands):
<TABLE>
<CAPTION>
Net
Income
------
<S> <C>
Basic net income attributable to common stockholders $2,856
Plus preferred stock dividends 260
Plus interest expense (net of tax) on subordinated convertible notes 196
------
Fully diluted net income attributable to common stockholders $3,312
======
Outstanding
Shares
------
Basic shares outstanding (weighted average shares) 6,013
Plus potentially dilutive securities:
Dilutive options and warrants applying treasury stock method 1,004
Shares from conversion of subordinated convertible notes 1,469
Shares from conversion of Series B preferred stock 91
Shares from conversion of Series C preferred stock 379
Shares from conversion of Series D preferred stock 387
------
Fully diluted shares outstanding (weighted average shares) 9,343
======
</TABLE>
All share and per share amounts have been retroactively adjusted for a
one-for-three reverse split that was approved on January 14, 2000.
5
<PAGE>
3TEC ENERGY CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
March 31, 2000
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Reclassifications
Certain reclassifications of prior period amounts have been made to conform
to the current presentation.
(2) ACQUISITIONS
On February 3, 2000, we completed the acquisition of Magellan Exploration
LLC ("the Magellan Acquisition"), from certain affiliates of EnCap and other
third parties for consideration consisting of (a) 1,085,934 shares of common
stock, (b) four year warrants to purchase up to 333,333 shares of common stock
at $30.00 per share, (c) 617,009 shares of 5% Series D Convertible Preferred
Stock with a redemption value of $24.00 per share and (d) the assignment of a
performance based "back-in" working interest of 5% of Magellan's interest in 12
exploration prospects. The total purchase price of approximately $18.7 million
was allocated principally to oil and natural gas properties.
On November 23, 1999, the Company completed the acquisition of oil and
natural gas properties and interests, managed by Floyd Oil Company, owned by a
group of private sellers (the "Floyd Oil Acquisition") for $86.8 million in cash
and 503,426 shares of Company common stock. Floyd Oil Company is not affiliated
with Floyd C. Wilson, Chief Executive Officer of the Company. The effective
date of the acquisition was January 1, 1999 and the cost was allocated using the
purchase method of accounting. The total purchase price of $90.2 million,
considering post-closing adjustments and transaction costs, was allocated
principally to oil and natural gas properties.
The following pro forma data presents the results of the Company for the
three months ended March 31, 1999, as if the Floyd Oil Acquisition had occurred
on January 1, 1999. The pro forma results are presented for comparative
purposes only and are not necessarily indicative of the results which would have
been obtained had the acquisitions been consummated as presented. The pro forma
financial data does not include the financial information for Magellan, which is
not significant with respect to the operations of the Company for the period
presented. The following data reflects pro forma adjustments for oil and gas
revenues, production costs, depreciation and depletion related to the properties
acquired, preferred stock dividends on preferred stock issued, interest expense
on debt issued and the related income tax effects (in thousands, except per
share amounts):
Pro Forma
Three Months Ended
March 31, 1999
(Unaudited)
-----------
Total revenues $10,170
Net loss attributable to common stockholders (907)
Net loss per share attributable to common stockholders (0.17)
6
<PAGE>
3TEC ENERGY CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
March 31, 2000
(3) COMMON STOCK, WARRANT AND SENIOR SUBORDINATED CONVERTIBLE NOTE SALE TO W/E
ENERGY COMPANY, LLC ("W/E LLC")
On August 27, 1999, the Company closed a Securities Purchase Agreement (the
"Agreement') for a total of $21.4 million with W/E LLC. The Securities Purchase
Agreement and contemplated transactions were approved by the stockholders at the
Company's annual meeting on August 10, 1999.
The controlling person of W/E LLC is EnCap Investments L.L.C., a Delaware
limited liability company ("EnCap Investments"). The sole member of EnCap
Investments is El Paso Field Services Company, a Delaware corporation ("El Paso
Field Services"). The controlling person of El Paso Field Services is El Paso
Energy Corporation, a Delaware corporation. The Company received $9.8 million in
cash and properties valued at $875,000 in exchange for 1,585,185 shares of
common stock and 1,200,000 warrants (the "Warrants") and $10.7 million for a 5-
year senior subordinated convertible note with a face value of $10.7 million
(See Note 6).
W/E LLC is currently the Company's largest shareholder.
(4) RELATED PARTY TRANSACTIONS
David B. Miller and D. Martin Phillips, directors of the Company, are
managing directors of EnCap Investments, which is the controlling person of W/E
LLC. W/E LLC is a significant shareholder of the Company. Gary R. Christopher,
a shareholder and director of the Company, is employed by Kaiser-Francis Oil
Co., which is a significant shareholder of the Company.
(5) LONG-TERM DEBT
Long-term debt at March 31, 2000 and December 31, 1999, consisted of the
following (in thousands):
March 31, December 31,
2000 1999
------- -------
$250 million Credit Facility $83,500 $87,500
Less current maturities -- --
------- -------
Long term debt excluding current maturities $83,500 $87,500
======= =======
7
<PAGE>
3TEC ENERGY CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
March 31, 2000
(5) LONG-TERM DEBT (continued)
Concurrent with the Floyd Oil Acquisition, the Company entered into a $250
million credit facility (the "Facility") with Bank One, Texas, NA as agent and
four other banks. The Company's borrowing base has been initially set at $95
million, with $83.5 million outstanding at March 31, 2000. The borrowing base
will be redetermined semi-annually on May 1 and November 1. Interest under the
Facility accrues at a rate calculated at the Company's option as either the
bank's prime rate plus 25 basis points or LIBOR plus basis points increasing
from a low of 125 to a high of 187.5 as loans outstanding increase as a
percentage of the borrowing base. As of March 31, 2000, the Company was paying
7.87% per annum interest on $82.5 million and 7.88% per annum interest on $1
million of the principal balance of the Facility. The loan matures on November
30, 2002. Prior to maturity, no payments of principal are required so long as
the borrowing base exceeds the loan balance. The borrowings under the Facility
are secured by substantially all of the Company's oil and natural gas
properties.
As defined, the Facility requires an interest coverage ratio of two and a
half to one (2.5:1), determined on a quarterly basis prior to the quarter ending
September 30, 2000 and each four quarter period thereafter, and a current ratio,
excluding current maturities of the Facility, of one to one (1:1), determined on
a quarterly basis.
The Facility also contains certain other affirmative and negative covenants
including, but not limited to:
. Use of all proceeds from sales of oil and natural gas properties for the
repayment of the outstanding debt.
. Prohibits the declaration or payment of any cash dividend; purchase,
redeem or otherwise acquire for value any outstanding stock; return
capital to stockholders; or make any distribution of assets to
stockholders, except for dividends on Series C Preferred Stock and
redemption of Series C Preferred Stock under certain circumstances.
. Agree not to enter into any hedge transactions except with the bank's
consent and for certain pre-approved hedging activities in connection
with oil and natural gas properties.
Events of default under the Facility include a final judgement or order in
excess of $1 million, a change of control of the Company or Floyd C. Wilson
ceasing to act as Chief Executive Officer.
8
<PAGE>
3TEC ENERGY CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
March 31, 2000
(6) SENIOR SUBORDINATED CONVERTIBLE NOTES
On August 27, 1999, senior subordinated convertible promissory notes (the
"Senior Notes") were sold to W/E LLC and affiliates of Alvin V. Shoemaker
("Shoemaker"), a former director and significant shareholder, for $10.7 million
and $150,000, respectively. On October 19, 1999, $2.4 million of Senior Notes
were sold to The Prudential Insurance Company of America ("Prudential"). The
Senior Notes bear interest at an annual rate of 9%. Interest is payable
beginning on December 31, 1999, every March 31, June 30, September 30 and
December 31, until maturity on August 27, 2004. The Company may defer payment of
fifty percent (50%) of the first eight quarterly interest payments. The Senior
Notes may be prepaid by the Company, without premium or penalty, in whole or in
part, at any time after August 27, 2001. The holders of the Senior Notes may
convert all or any portion of outstanding principal and accrued interest at any
time into a total of 1,469,316 common shares of Company common stock at a
conversion price of $9.00 per share. The conversion price may be adjusted from
time to time based on the occurrence of certain events. In the event of a change
in control, the entire outstanding principal balance and all accrued, but
unpaid, interest is immediately due and payable.
The Senior Notes rank senior in right of payment to all Company notes and
indebtedness other than the Facility.
(7) STOCKHOLDERS' EQUITY
Series D Preferred Stock
In connection with the acquisition of Magellan, the Company issued 617,009
shares of Series D Preferred Stock, par value $0.02 per share, with a redemption
value of $24.00 per share. While the per share redemption and dividend amounts
vary, the rights as to dividends and liquidation payments of all outstanding
issues of Preferred Stock are equal. Shares of Series D Preferred Stock earn
dividends at 5% per annum cumulative, payable semi-annually on March 31 and
September 30 of each year, when, as and if authorized and declared by the board
of directors. For a period of three years from the closing date of the Magellan
transaction, the Company may pay the dividends at its option in cash or in
additional shares of Series D Preferred Stock.
Holders of Series D Preferred Stock have the right to convert one share of
Series D Preferred Stock into one share of common stock. Upon thirty days
written notice, the Company has the right to redeem any or all shares of Series
D Preferred Stock for $24.00 per share plus any accrued and unpaid dividends.
Holders of the Series D Preferred Stock have no right to require the Company to
redeem the Series D Preferred Stock.
In the event of liquidation, dissolution, winding-up or merger of the
Company, the holders of Series D Preferred Stock are entitled to receive
distributions of $24.00 per share of Series D Preferred Stock plus any accrued
but unpaid dividends before any holders of common stock or junior preferred
stock receive any distributions.
A majority of the holders of Series D Preferred Stock must consent to
certain actions by the Company, which would adversely affect any holder's rights
and preferences.
9
<PAGE>
3TEC ENERGY CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
March 31, 2000
(8) COMMITMENTS AND CONTINGENCIES
On November 18, 1999, the Company's shareholders approved a reincorporation
of the Company from Alabama to Delaware (See Note 1). The Alabama Code has a
shareholder dissent provision that allows a shareholder to dissent from the
reincorporation and demand cash payment equal to the fair value of the common
stock owned at the date of the reincorporation. Before the November 18
shareholders meeting, the Company received shareholder dissents representing
ownership of 99,438 shares of common stock. Over the period December 15, 1999
to January 25, 2000, the Company received formal demands for payment from the
dissenting shareholders (the "dissenters"). The Company made an offer to the
dissenters on March 14, 2000 and the dissenters made a counteroffer in late
March. If the Company and the dissenters cannot reach agreement on the fair
value of the common shares within 60 days of the dissenters' counteroffer, if
any, the matter is then moved to the Circuit Court of Washington County, Alabama
for resolution. The exact amount to be paid to the dissenters for their common
shares cannot be determined at this time. Based on the Company's closing stock
price on November 23, 1999 of $11.25 per share and accrued interest from
November 23, 1999, the Company accrued the estimated cash payment to the
dissenters of approximately $1.1 million.
As of March 31, 2000, the Company had $55,000 of irrevocable standby
letters of credit outstanding.
The Company is a defendant in various legal proceedings which are considered
routine litigation incidental to the Company's business, the disposition of
which management believes will not have a material effect on the financial
position or results of operations of the Company.
(9) HEDGING ACTIVITIES
In February, 2000, the Company entered into fixed price swap agreements
covering 2,000 barrels of oil per day for the period March through October 2000
at a weighted average NYMEX West Texas Intermediate price of $25.96 per barrel.
During the period ending March 31, 2000, the Company incurred a hedging loss of
$101,000. The fair market value of the open position at March 31, 2000 was
approximately $(47,480).
10
<PAGE>
3TEC ENERGY CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
March 31, 2000
(10) SUBSEQUENT EVENTS
In April, the Company entered into a forward sale agreement for 3,750 Mcf
of gas per day from May through August 2000, at an average price of $3.05 per
Mcf.
On April 14, 2000, the Company executed a definitive agreement to acquire
natural gas and oil properties in East Texas operated by C.W. Resources, Inc.
(the "CWR Acquisition") for cash consideration of approximately $52 million.
The Company paid a deposit of $5.2 million at the time it executed the
definitive agreement. The CWR Acquisition is expected to be financed under our
existing credit facility, which the Company proposes to expand prior to closing.
The closing is expected on or before May 31, 2000 and is contingent upon
satisfaction of customary closing conditions. The effective date of this
transaction will be January 1, 2000.
On April 28, 2000, the Company filed a registration statement with the
Securities and Exchange Commission relating to a public offering of 6,250,000
shares of common stock, plus up to an additional 937,500 shares that will be
subject to an option granted to the underwriters to cover any overallotments.
Pending use of the proceeds for acquisitions, development and exploration, the
Company intends to repay a portion of its outstanding debt under its credit
facility.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This quarterly report on Form 10-QSB contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. Such forward-looking statements involve
risks and uncertainties and other factors beyond the control of the Company.
Readers are cautioned that any such forward-looking statements are not
guarantees of future performance and that actual results or developments may
differ materially from those projected in the forward-looking statements.
OVERVIEW
We are engaged in the acquisition, development, production and exploration
of oil and natural gas reserves. Our properties are concentrated in East Texas
and the Gulf Coast region, both onshore and in the shallow waters of the Gulf of
Mexico. We also own significant properties in the Permian and San Juan basins
and in the Mid-Continent region. Our management and technical staff have
substantial experience in each of these areas. As of December 31, 1999, not
including the recent acquisition of Magellan Exploration LLC ("Magellan") or the
pending acquisition of properties in East Texas operated by C.W. Resources, Inc.
(the "CWR Properties"), we had estimated total net proved reserves of 218.7
Bcfe, of which approximately 73% were natural gas and approximately 82% were
proved developed, with an estimated PV-10 value of $198.6 million.
We have increased our reserves and production principally through
acquisitions. We focus on properties that have a substantial proved reserve
component and which management believes to have additional exploitation
opportunities. In early 2000, through the acquisition of Magellan, we acquired
a number of drilling prospects, covered by an extensive 3-D seismic database,
that we believe have exploration potential. We have assembled an experienced
management team and technical staff with expertise in property acquisitions and
development, reservoir engineering, exploration and financial management.
We underwent a change of control in August 1999, in a transaction in which
W/E Energy Company LLC invested $21.4 million in cash and oil and natural gas
properties for common stock, warrants and subordinated notes representing at
that time approximately 36% of our then outstanding common stock.
Since our formation in 1992, we have grown principally through several
acquisitions of proved properties in the Gulf Coast and Mid-Continent regions.
Acquisitions made in 1997 and 1998 significantly increased our reserves and
production but were primarily nonoperated properties with high per Mcfe lease
operating costs. Following the change in control discussed above, during the
second half of 1999 and the first quarter of 2000, we closed several
transactions that changed our senior management team, capital structure and our
property base. In addition, we added several experienced professionals to our
technical staff. Because of these recent transactions, the historical results of
operations and cash flows will differ materially from, and will not be
representative of, our future results.
We increased our asset base substantially and decreased our operating cost
per Mcfe on a pro forma basis with the acquisition of properties and interests
managed by Floyd Oil Company (the "Floyd Oil Properties") in November 1999. The
Floyd Oil Properties had estimated net proved reserves at December 31, 1999 of
165.5 Bcfe with a PV-10 value of $146.1 million. On a pro forma basis, the
Floyd Oil Properties resulted in additional EBITDAX of $17.9 million and $20.6
million and additional pro forma revenues of $34.1 million and $33.8 million for
the years ended 1998 and 1999, respectively. EBITDAX represents earnings before
interest expense, income taxes, depreciation, depletion and amortization,
impairment expense, dry hole expense, geological and geophysical expense, gains
(losses) on property sales, minority interest, other non-recurring items, and
other non-cash charges. Also, on a pro forma basis, after giving effect to the
acquisition of the Floyd Oil Properties, our total operating cost per Mcfe for
the years ended 1998 and 1999 declined 10% and 1% to $0.95 and $0.84,
respectively. Pro forma general and
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administrative cost per Mcfe for the same periods declined 45% and 50% to $0.32
and $0.30, respectively. Revenues and expenses from the Floyd Oil Properties are
included in our historical operating results only for the period from
November 23, 1999, the date of acquisition, through December 31, 1999.
Additionally, in February 2000 we closed the acquisition of Magellan
Exploration LLC ("Magellan"), which owns primarily proved undeveloped reserves,
with significant 3-D seismic data. We plan to fund a development program of
Magellan's undeveloped properties, which we believe could increase future
reserves and production. We expect our acquisition program to continue to be a
significant source of growth for us, depending on the market for oil and natural
gas properties, and industry conditions generally.
On April 14, 2000, we entered into a definitive agreement to acquire the
CWR Properties for cash consideration of approximately $52 million. The
acquisition is subject to satisfaction of customary closing conditions and is
expected to close on or before May 31, 2000. The CWR Properties are located in
Upshur and Gregg Counties in East Texas and consist of 178 gross wells (46 net
wells) and cover 35,706 gross acres (8,926 net acres). At December 31, 1999,
the CWR Properties had net proved reserves of 63.9 Bcfe with an associated PV-10
value of $54.9 million. These proved reserves are approximately 92% natural gas
and 50% of the volumes are classified as proved developed.
CERTAIN ACCOUNTING PRACTICES
We use the successful efforts method of accounting for our investments in
oil and natural gas properties. Under this method, we capitalize all direct
costs incurred in connection with the acquisition, drilling and development of
productive oil and natural gas properties. Costs associated with unsuccessful
exploration are expensed as incurred. Geological and geophysical costs and costs
of carrying and retaining unevaluated properties are expensed as incurred.
Depreciation, depletion and amortization of capitalized costs are computed
separately for each field based on the unit of production method using only
proved oil and natural gas reserves.
We review our oil and natural gas properties on a field level for
impairment when circumstances indicate that the capitalized costs less
accumulated depreciation, depletion and amortization (the "Carrying Value") of
the property may not be recoverable. If the Carrying Value of the property
exceeds the expected future undiscounted cash flows, an amount equal to the
excess of the Carrying Value over the fair value of the property is charged to
operations. An impairment results in a non-cash charge to earnings but does not
affect cash flows unless our borrowing base was significantly reduced as a
result of the impairment.
LIQUIDITY AND CAPITAL RESOURCES
We believe that our cash flows from operations are adequate to meet the
requirements of operating our business. However, future cash flows are subject
to a number of variables, including our level of production and prices, and we
cannot assure you that operations and other capital resources will provide cash
in sufficient amounts to maintain planned levels of capital expenditures. Our
principal operating sources of cash include sales of natural gas and oil
production.
Our pro forma EBITDAX, including the Floyd Oil Properties, for the year
ended December 31, 1999, was $36.4 million. For the year 2000, we have budgeted
approximately $20 million for capital expenditures, including an estimated $3.4
million with respect to the CWR Properties. We are obligated to pay dividends of
approximately $570,000 per year on the Series C Preferred Stock in cash and
dividends of $740,000 per year on the Series D Preferred Stock, which we may pay
in either cash or in additional shares of Series D Preferred Stock during the
three years ending February 1, 2003. We are obligated to pay interest on the
convertible subordinated notes of approximately $1.2 million per year.
Our primary source of financing for acquisitions has been borrowings under
our credit facility, discussed below. We have also recently utilized private
equity financing to supplement our capital requirements. We believe we will
have sufficient cash flow from operations and borrowings under our credit
facility to meet our obligations and operating needs for the coming year. We
also believe that we
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have the ability to raise additional private equity or debt financing and
otherwise access the capital markets should such sources of capital prove
insufficient to execute our strategic objectives. However, future cash flows are
subject to a number of variables, including our level of production and prices,
and we cannot assure you that operations and other capital resources will
provide cash in sufficient amounts to maintain planned levels of capital
expenditures.
In connection with our acquisition of the Floyd Oil Properties on
November 23, 1999, we entered into a $250 million credit facility with Bank One,
Texas, N.A. and certain other financial institutions. Our then existing bank
debt of $26.6 million was paid in full with proceeds from the new facility. The
credit facility provides for a borrowing base which is adjusted periodically on
the basis of the discounted present value attributable to our proved producing
oil and natural gas reserves, as determined by our lenders. The credit facility
currently provides for a $95 million borrowing base. The borrowing base will be
redetermined semi-annually on May 1 and November 1 of each year. Interest under
the facility accrues at our option at a rate calculated as either the bank's
prime rate plus 25 basis points or LIBOR plus basis points increasing from a low
of 125 to a high of 187.5 as loans outstanding increase as a percentage of the
borrowing base. At March 31, 2000, we were paying approximately 7.9% per annum
interest on the entire principal balance of the facility of $83.5 million. The
loan matures on November 30, 2002. Prior to maturity, no payments of principal
are required so long as the borrowing base exceeds the loan balance. The
borrowings under the facility are secured by substantially all of our
properties. At March 31, 2000, the amount available to be borrowed under the
credit facility was approximately $11.5 million.
In connection with this credit facility, we are required to adhere to
certain affirmative and negative covenants. The loan agreement contains a
number of dividend restrictions and restrictive covenants which, among other
things, require the maintenance of a minimum current ratio and interest coverage
ratio.
In connection with our pending acquisition of the CWR Properties, we have
begun negotiations with the lenders participating in our credit facility to
increase the amount of availability under the borrowing base by an amount that
would enable us to borrow substantially all of the purchase price of the CWR
Properties. These negotiations are ongoing, and the lenders have indicated a
preliminary willingness to increase our borrowing capacity by an amount that
would enable us to borrow substantially all of the purchase price of the CWR
Properties.
On April 28, 2000, the Company filed a registration statement with the
Securities and Exchange Commission relating to a public offering of 6,250,000
shares of common stock, plus an additional 937,500 shares that will be subject
to an option granted to the underwriters to cover any overallotments. Pending
use of the proceeds for acquisitions, development and exploration, the Company
intends to repay a portion of its outstanding debt under its credit facility.
We generally sell our oil at local field prices paid by the principal
purchasers of oil. The majority of our natural gas production is sold at spot
prices. Accordingly, we are generally subject to the commodity prices for these
resources as they vary from time to time. Prices since mid-1999 have generally
followed an increasing trend, but the market continues to have considerable
volatility. We have entered into fixed price swap agreements covering 2,000
barrels per day of our oil production for the period March through October 2000
at an average price of $25.96 per barrel. The price used to determine the
settlement amount is the average of the near month contract on the NYMEX.
Settlement is on the 23rd of each month for the preceding month. The hedging
agreements are with financial institutions that participate in our credit
facility.
We have entered into a forward sale agreement for 3,750 Mcf of gas per day
for the period May through August 2000 at an average price of $3.05 per Mcf.
Our revenues and the value of our oil and gas properties have been and will
be affected by changes in natural gas and oil prices. Our ability to maintain
current borrowing capacity and to obtain additional capital on attractive terms
is also substantially dependent on natural gas and oil prices. These prices are
subject to significant seasonal and other fluctuations that are beyond our
ability to control or predict. During the first quarter 2000, we received an
average of $24.94 per barrel of oil and $2.56 per Mcf of gas.
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Although the level of inflation affects some costs and expenses, inflation has
not had a significant effect in recent years. Should conditions in the industry
continue to improve, causing an increase in competition resulting in a relative
shortage of oilfield supplies and/or services, inflationary cost pressures may
resume.
RESULTS OF OPERATIONS
Our revenue, profitability, and future rate of growth are dependent upon
prevailing prices for oil and natural gas, which, in turn, depend upon numerous
factors such as economic, political, and regulatory developments, as well as
competition from other sources of energy. The energy markets historically have
been highly volatile, and future decreases in prices could have an adverse
effect on our financial position, results of operations, quantities of reserves
that may be economically produced, and access to capital.
Due to our significant property and corporate acquisitions in 1999 and
2000, our 1999 change of control and our current capital structure, comparisons
of our results of operations for interim periods in 2000 may not be meaningful.
You should read the following discussion and analysis together with our audited
consolidated financial statements and the related notes for the fiscal year
ended December 31, 1999, filed in our 1999 Form 10-KSB.
THREE MONTHS ENDED MARCH 31, 2000, COMPARED WITH THREE MONTHS ENDED
MARCH 31, 1999
The following table reflects certain summary operating data for the periods
presented:
Three Months Ended
March 31,
----------
2000 1999
---- ----
Net Production Data :
Oil and Liquids (MBbls) 308 144
Natural Gas (MMcf) 3,578 930
Equivalent Production (MMcfe) 5,426 1,794
Average Sales Price: (1)
Oil and Liquids (per Bbl) $ 24.94 $ 9.87
Natural Gas (per Mcf) 2.56 1.61
Equivalent price (per Mcfe) 3.11 1.63
Expenses ($ per Mcfe):
Oil and gas operating (2) $ 0.84 $ 0.87
General and administrative 0.31 0.57
Depreciation and depletion (3) 0.72 0.75
Cash margin ($ per Mcfe) (4) 1.96 0.19
- -------------
(1) Excludes effect of our hedging activities.
(2) Includes lease operating costs, production taxes and ad valorem taxes.
(3) Represents depreciation, depletion and amortization, excluding impairments.
(4) Represents average equivalent price per Mcfe less oil and gas operating
expenses per Mcfe and general and administrative expenses per Mcfe.
REVENUE. Total revenue for the three months ended March 31, 2000, was $17.2
million, an increase of $14.0 million (431%) over total revenue for the three
months ended March 31, 1999. Natural gas revenues for the three months ended
March 31, 2000 were $9.2 million, approximately 512% higher than the natural gas
revenues of $1.5 million for the three months ended March 31, 1999. Natural gas
production volumes increased 285% in the three months ended March 31, 2000. Oil
production volumes increased by approximately 114%, principally as a result of
the additional volumes from the Floyd Oil Properties during the period. Oil
revenues for the three months ended March 31, 2000 were $7.7 million,
approximately 438% higher than the oil revenues of $1.4 million for the three
months ended March 31, 1999. Other oil and gas revenue increased 12%, from
$147,000 to $165,000 for the three months ended March 31, 2000.
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The Company incurred a hedging loss of approximately $101,000 during the current
period on our oil production hedge. Average natural gas sale prices increased
59% for the three months ended March 31, 2000 compared with the three months
ended March 31, 1999, while oil prices, excluding the effects of hedging,
increased 153% during the same period. For the three months ended March 31,
2000, approximately 54% of the dollar amount of our product sales were natural
gas. Production from Magellan from the date of acquisition (February 3, 2000) to
the end of the period contributed less than 1% to the Company's total revenues
in the three months ended March 31, 2000.
GAIN ON PROPERTY SALES, INTEREST AND OTHER INCOME. The Company did not sell a
significant number of oil and natural gas properties during the periods ended
March 31, 2000 and March 31, 1999. Other income for the three months ended
March 31, 2000 of $329,000, consisted principally of interest income, lease
bonus and delay rentals and approximately $147,000 from a lawsuit settlement.
EXPENSES. Total expenses for the three months ended March 31, 2000 were $12.5
million, a $7.9 million increase over the $4.6 million for the three months
ended March 31, 1999. Comparability of total expenses was affected by additional
expenses of approximately $5.9 million attributable to the acquisition of the
Floyd Oil Properties and Magellan. Lease operating expense of $4.6 million, or
approximately $0.84 per Mcfe, increased by approximately $3.0 million from the
three months ended March 31, 1999, when it was approximately $0.87 Mcfe.
Depreciation and depletion expense for the three months ended March 31, 2000 was
$3.9 million, or approximately $0.72 per Mcfe, compared to $1.3 million or
approximately $0.75 per Mcfe for the three months ended March 31, 1999. The
increase in depletion due to the acquisition of the Floyd Oil Properties was
offset to a slight degree by lower depletion due to impairments, property sales
and lower production on properties owned the entire period of 1999. General and
administrative expense was $1.7 million, or approximately $0.31 per Mcfe,
compared to $1.0 million or approximately $0.57 per Mcfe for the three months
ended March 31, 1999. The general and administrative expense increase was
primarily the result of increases in salary, insurance and rent expenses
associated with the Company's growth. Interest expense of $2.1 million,
increased $1.6 million (307%) for the three months ended March 31, 2000, the
increase reflecting increased borrowings under our credit facility for
acquisitions.
NET INCOME. The net income for the three months ended March 31, 2000 was
approximately $3.1 million compared to a loss of approximately $900,000 in the
three months ended March 31, 1999. The primary reason for the increased
profitability was increased income from the sale of oil and natural gas.
DIVIDENDS TO PREFERRED STOCKHOLDERS. Dividends to preferred stockholders of
approximately $260,000 in the three months ended March 31, 2000 increased 82%
over the three months ended March 31, 1999. The increase of dividends was due to
the issuance of the shares Series D Convertible Preferred Stock in connection
with the acquisition of Magellan, which began accruing dividends on
February 3, 2000.
CURRENT ACTIVITIES
As of May 10, 2000, there were two wells drilling in Louisiana and one
drilling in Texas. The two Louisiana wells are operated by us and are
developmental wells in the Garden City and Breton Sound Fields, located in St.
Mary Parish and offshore state waters, respectively.
ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 standardizes the accounting
for and disclosures of derivative instruments, including certain derivative
instruments embedded in other contracts. The statement is effective for
financial statements for fiscal years beginning after June 15, 2000. We have
not yet determined the impact of the statement on our consolidated financial
condition or consolidated results of operations.
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PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
On February 3, 2000, the Company completed the acquisition of Magellan for
consideration of approximately $18.0 million, excluding transaction costs,
consisting of (a) 1,085,934 shares of common stock, (b) four year warrants to
purchase up to 333,333 shares of common stock at $30.00 per share, (c) 617,009
shares of 5% Series D Convertible Preferred Stock, par value $0.02 per share
("Series D Preferred Stock"), which have a redemption value of $24.00 per share
and are each convertible into one share of common stock, and (d) the assignment
of a performance based "back-in" working interest of 5% of Magellan's interest
in twelve exploration prospects. The Series D Preferred Stock have preferential
rights as to the Company's common stock in the receipt of dividends or as to
distribution of assets upon the liquidation, dissolution or winding up of the
Company, but rank in parity with the Series B Preferred Stock and the Series C
Preferred Stock with regard to preferences in receiving dividends and
distribution of Company assets upon the liquidation, dissolution or winding up
of the Company.
The Company did not use an underwriter to complete this acquisition of
Magellan. Each of the individuals that received securities of the Company in
the transaction was an "accredited investor" within the meaning of Rule 501(a)
of Regulation D as promulgated under the Securities Act of 1933, as amended (the
"Securities Act"). The Company relied on the exemption from registration
provided by Rule 506 of Regulation D and Section 4(2) under the Securities Act.
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
(a) A Special Meeting of Shareholders of the Company was held at the principal
office of the Company, Two Shell Plaza, 777 Walker Street, Suite 2400, Houston,
Texas, 77002 on Friday, January 14, 2000 at 10:00 a.m. The purpose of the
Special Meeting was to consider the approval of a proposed amendment to the
Company's Certificate of Incorporation to effect a one-for-three reverse stock
split of the Company's issued and outstanding shares of common stock, $.02 par
value. As of December 9, 1999, the record date, 5,331,031 shares of Common Stock
were outstanding and entitled to vote. Shareholders of the Company who were
holders of 3,854,621 shares of Common Stock were present at the Special Meeting
in person or by proxy, constituting a quorum. The proposal for the one-for-three
reverse stock split received the following votes:
For Against Abstain
3,853,938 100 552
(b) A Special Meeting of Shareholders of the Company was held at the principal
office of the Company, Two Shell Plaza, 777 Walker Street, Suite 2400, Houston
Texas, 77002 on Monday, January 31, 2000 at 10:00 am. The purpose of the Special
Meeting was to consider the approval of the issuance of 1,100,000 shares of the
Company's common stock, $.02 par value, warrants to purchase up to 333,333
shares of the Company's common stock, $.02 par value, and 625,000 shares of a
new series of the Company's preferred stock, $.02 par value, to be designated as
Series D Preferred Stock, in connection with the merger of Magellan Exploration,
LLC ("Magellan") with a wholly owned subsidiary of the Company. As of December
9, 1999, the record date, 5,331,031 shares of Common Stock were outstanding and
entitled to vote. Shareholders of the Company who were holders of 4,341,307
shares of Common Stock were present at the Special Meeting in person or by
proxy, constituting a quorum. The proposal for the issuance of the securities of
the Company in connection with the merger of Magellan with a wholly owned
subsidiary of the Company received the following votes:
For Against Abstain
4,331,902 8,004 1,401
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: The following documents are filed as exhibits to this report:
2.1 Agreement and Plan of Merger, dated December 21, 1999, by and between 3TEC
Energy Corporation 3TM Acquisition L.L.C., Magellan Exploration, LLC and ECIC
Corporation, EnCap Energy Capital Fund III, L.P., EnCap Energy Acquisition III-
B, Inc., BOCP Energy Partners, L.P., and Pel-Tex Partners, L.L.C. (Incorporated
by reference to Exhibit C to Form DEF14A, filed January 11, 2000.)
2.2 Agreement and Plan of Merger, dated November 24, 1999, by and between 3TEC
Energy Corporation, a Delaware corporation, and Middle Bay Oil Company, Inc., an
Alabama corporation. (Incorporated by reference to Exhibit A to Form DEF14A,
filed October 25, 1999.)
2.3 Form of Purchase Agreement between and among Middle Bay Oil Company, Inc.
and private sellers of the properties managed by Floyd Oil Company.
(Incorporated by reference to Exhibit 2.1 to Form 8-K filed December 7, 1999.)
2.4 Real Estate Exchange Agreement by and between Middle Bay Oil Company, Inc.
and Floyd Oil Company. (Incorporated by reference to Exhibit 2.1 to Form 8-K/A
filed December 17, 1999.)
2.5 First Amendment to Agreement and Plan of Merger, effective as of
January 14, 2000, by and among 3TEC Energy Corporation, 3TM Acquisition L.L.C.,
Magellan Exploration, LLC, ECIC Corporation, EnCap Energy Capital Fund III,
L.P., EnCap Energy Acquisition III-B, Inc., BOCP Energy Partners, L.P., and Pel-
Tex Partners, L.L.C. (Incorporated by reference to Exhibit 2.1 to Form 8-K filed
February 4, 2000.)
2.6 Second Amendment to Agreement and Plan of Merger, effective as of
February 2, 2000, by and among 3TEC Energy Corporation, 3TM Acquisition L.L.C.,
Magellan Exploration, LLC, ECIC Corporation, EnCap Energy Capital Fund III,
L.P., EnCap Energy Acquisition III-B, Inc., BOCP Energy Partners, L.P., and Pel-
Tex Partners, L.L.C. (Incorporated by reference to Exhibit 2.2 to Form 8-K filed
February 4, 2000.)
3.1 Certificate of Incorporation of 3TEC Energy Corporation. (Incorporated by
reference to Exhibit 3.1 Form 8-K/A filed December 6, 1999.)
3.2 Certificate of Amendment to the Certificate of Incorporation of 3TEC Energy
Corporation. (Incorporated by reference to Form 3.3 10-KSB filed March 30,
2000.)
3.3 Certificate of Merger of Middle Bay Oil Company, Inc. into 3TEC Energy
Corporation. (Incorporated by reference to Exhibit 3.3 Form 8-K/A filed
December 16, 1999.)
3.4 Bylaws of the Company. (Incorporated by reference to Exhibit C of the
Company's definitive proxy statement filed October 25, 1999.)
4.1 Certificate of Designation of Series B Preferred Stock of 3TEC Energy
Corporation. (Incorporated by reference to Exhibit 3.1 to Form 8-K/A filed
December 16, 1999.)
4.2 Certificate of Designation of Series C Preferred Stock of 3TEC Energy
Corporation. (Incorporated by reference to Exhibit 3.2 Form 8-K/A filed
December 16, 1999.)
4.3 Certificate of Designation of Series D Preferred Stock of 3TEC Energy
Corporation.*
10.1 Securities Purchase Agreement, dated July 1, 1999 by and between the
Company and 3TEC Energy Corporation. (Incorporated by reference to Exhibit C to
the definitive Proxy Statement filed July 19, 1999.)
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10.2 Securities Purchase Agreement, dated August 27, 1999 by and between the
Company and Shoemaker Family Partners, LP. (Incorporated by reference to Exhibit
10.2 to Form 10-QSB filed November 15, 1999.)
10.3 Securities Purchase Agreement, dated August 27, 1999 by and between the
Company and Shoeinvest II, LP. (Incorporated by reference to Exhibits to Exhibit
10.3 to Form 10-QSB filed November 15, 1999.)
10.4 Securities Purchase Agreement, dated October 19, 1999 between The
Prudential Insurance Company of America and the Company. (Incorporated by
reference to Exhibit 10.1 to Form 8-K filed November 2, 1999.)
10.5 Shareholders Agreement, dated August 27, 1999 by and among the Company,
3TEC Energy Corporation and the Major Shareholders. (Incorporated by reference
to Exhibit 10.5 to Form 10-QSB filed November 15, 1999.)
10.6 Registration Rights Agreement, dated August 27, 1999 by and among the
Company, 3TEC Energy Corporation, the Major Shareholders, Shoemaker Family
Partners, LP and Shoeinvest II, LP. (Incorporated by reference to Exhibit 10.6
to Form 10-QSB filed November 15, 1999.)
10.7 Amendment to Registration Rights Agreement, dated October 19, 1999 by
and among the Company, W/E Energy Company, L.L.C. f/k/a 3TEC Energy Company
L.L.C., f/k/a 3TEC Energy Corporation, Shoemaker Family Partners, LP, Shoeinvest
II, LP, and The Prudential Insurance Company of America. (Incorporated by
reference to Exhibit 10.2 to Form 8-K filed November 2, 1999.)
10.8 Participation Rights Agreement, dated October 19, 1999 by and among the
Company, The Prudential Insurance Company of America and W/E Energy Company
L.L.C. (Incorporated by reference to Exhibit 10.3 to Form 8-K filed November 2,
1999.)
10.9 Employment Agreement, dated April 15, 2000 by and between Floyd C.
Wilson and the Company. (Incorporated by reference to Exhibit 10.9 to Form S-2
filed April 28, 2000.)
10.10 Employment Agreement, dated May 1, 2000, by and between R.A. Walker and
the Company. (Incorporated by reference to Exhibit 10.9 to Form S-2 filed April
28, 2000.)
10.11 Restated Credit Agreement by and among Middle Bay Oil Company, Inc., Enex
Resources Corporation and Middle Bay Production Company, Inc. as borrowers, and
Bank One, Texas, N.A. and other institutions as lenders. (Incorporated by
reference to Exhibit 10.1 to Form 8-K/A filed December 17, 1999.)
10.12 Credit Agreement, dated March 27, 1998 by and among the Company, Compass
Bank, and Bank of Oklahoma, National Association. (Incorporated by reference to
Exhibit 10.11 to Form 10-QSB filed November 15, 1999.)
10.13 First Amendment to Credit Agreement, dated August 27, 1999 by and among
the Company, Compass Bank, and Bank of Oklahoma, National Association.
(Incorporated by reference to Exhibit 10.12 to Form 10-QSB filed November 15,
1999.)
10.14 Second Amendment to Credit Agreement, dated October 19, 1999 by and
among the Company, Compass Bank, and Bank of Oklahoma, National Association.
(Incorporated by reference to Exhibit 10.13 to Form 10-QSB filed November 15,
1999.)
10.15 Subordination Agreement, dated August 27, 1999 by and between 3TEC
Energy Corporation, Compass Bank, and Bank of Oklahoma, National Association.
(Incorporated by reference to Exhibit 10.14 to Form 10-QSB filed November 15,
1999.)
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10.16 Subordination Agreement, dated August 27, 1999 by and among Shoemaker
Family Partners, LP, Compass Bank, and Bank of Oklahoma, National Association.
(Incorporated by reference to Exhibit 10.15 to Form 10-QSB filed November 15,
1999.)
10.17 Subordination Agreement, dated August 27, 1999 by and among Shoeinvest
II, LP, Compass Bank, and Bank of Oklahoma, National Association. (Incorporated
by reference to Exhibit 10.16 to Form 10-QSB filed November 15, 1999.)
10.18 Letter Amendment No. 1 to Middle Bay Oil Company, Inc. Securities
Purchase Agreement, dated November 23, 1999, by and between Middle Bay Oil
Company, Inc. (n/k/a 3TEC Energy Corporation) and The Prudential Insurance
Company of America (Incorporated by reference to Exhibit 10.21 to Form S-2 filed
April 28, 2000 and replacing the unexecuted Exhibit 10.17 of Form 10-QSB filed
November 15, 1999.)
10.19 Intercreditor Agreement, dated as of November 23, 1999, among Middle Bay
Oil Company, Inc., Bank One Texas, N.A. and 3TEC Energy Company L.L.C.
(Incorporated by reference to Exhibit 10.18 to Form S-2 filed April 28, 2000.)
10.20 Intercreditor Agreement, dated as of November 23, 1999, among Middle Bay
Oil Company, Inc., Bank One Texas, N.A. and Shoemaker Family Partners, LP.
(Incorporated by reference to Exhibit 10.18 to Form S-2 filed April 28, 2000.)
10.21 Intercreditor Agreement, dated as of November 23, 1999, among Middle Bay
Oil Company, Inc., Bank One Texas, N.A. and Shoeinvest II, LP. (Incorporated by
reference to Exhibit 10.20 to Form S-2 filed April 28, 2000.)
10.22 Amendment to Securities Purchase Agreement, dated as of November 23,
1999, among Middle Bay Oil Company, Inc. and 3TEC Energy Company L.L.C.
(Incorporated by reference to Exhibit 10.22 to Form S-2 filed April 28, 2000.)
10.23 Amendment to Securities Purchase Agreement, dated as of November 23,
1999, among Middle Bay Oil Company, Inc. and Shoemaker Family Partners, LP.
(Incorporated by reference to Exhibit 10.23 to Form S-2 filed April 28, 2000.)
10.24 Amendment to Securities Purchase Agreement, dated as of November 23,
1999, among Middle Bay Oil Company, Inc. and Shoeinvest II, LP. (Incorporated by
reference to Exhibit 10.24 to Form S-2 filed April 28, 2000.)
10.25 Amended and Restated 1995 Stock Option and Stock Appreciation Rights
Plan. (Incorporated by reference to Exhibit B to Form DEF 14A filed May 5,
1997.)
10.26 Amendment No. 1 to the Amended and Restated 1995 Stock Option and Stock
Appreciation Rights Plan. (Incorporated by reference to Exhibit B to Form DEF
14A filed May 5, 1998.)
10.27 1999 Stock Option Plan. (Incorporated by reference to Exhibit E to Form
DEF 14A filed October 25, 1999.)
10.28 Form of Agreement of Sale and Purchase by and between C.W. Resources,
Inc., Westerman Royalty, Inc., and Carl A. Westerman and 3TEC Energy
Corporation. (Incorporated by reference to Exhibit 10.32 to Form S-2 filed April
28, 2000.)
27.1 Financial Data Schedule *
* Filed herewith
20
<PAGE>
(b) The following reports were filed on Form 8-K during the first quarter of
2000:
On January 13, 2000, the Company filed a Form 8-K/A under Items 2 and 7
describing the acquisition of oil and gas properties and interests, managed by
Floyd Oil Company, from a group of private sellers and presenting historical and
proforma financial information on the properties acquired.
On February 4, 2000, the Company filed a Form 8-K under Item 5 describing
the one for three reverse stock split.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed by
the undersigned, thereunto duly authorized, as of May 14, 2000.
3TEC ENERGY CORPORATION
(Registrant)
By: /s/ FLOYD C. WILSON
--------------------------------
Floyd C. Wilson
Chief Executive Officer and Chairman
By: /s/ R.A. WALKER
--------------------------------
R.A. Walker
President and
Chief Financial Officer
By: /s/ STEPHEN W. HEROD
--------------------------------
Stephen W. Herod
Executive Vice- President
21
<PAGE>
EXHIBIT 4.3
CERTIFICATE OF DESIGNATION
OF
SERIES D PREFERRED STOCK
OF
3TEC ENERGY CORPORATION
____________________________
PURSUANT TO SECTION 151
OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
____________________________
3TEC ENERGY CORPORATION, a corporation existing under the laws of the State
of Delaware (the "Corporation"), DOES HEREBY CERTIFY that, pursuant to the
authority conferred on the Board of Directors of the Corporation by the
Certificate of Incorporation of the Corporation (the "Certificate of
Incorporation") and in accordance with Section 151 of the General Corporation
Law of the State of Delaware ("DGCL"), the Board of Directors of the Corporation
on December 20, 1999, duly adopted the following resolution establishing and
creating an additional series of its Preferred Stock, par value $.02 per share,
designated "Series D Preferred Stock":
RESOLVED, that pursuant to the authority vested in the Board of
Directors of the Corporation (the "Board of Directors") in accordance with
the provisions of its Certificate of Incorporation (the "Certificate of
Incorporation"), an additional series of Preferred Stock, par value $0.02
per share, of the Corporation is hereby created, and the designation and
number of shares thereof and the preferences, limitations and relative
rights thereof are as follows:
SECTION 1. DESIGNATION, NUMBER OF SHARES AND STATED VALUE OF SERIES D
PREFERRED STOCK. There is hereby authorized and established a series of
Preferred Stock that shall be designated as "Series D Preferred Stock"
(hereinafter referred to as "Series D Preferred Stock"), and the number of
shares constituting such series shall be 725,167. Such number of shares may be
increased or decreased, but not to a number less than the number of shares of
Series D Preferred Stock then issued and outstanding, by resolution adopted by
the full Board of Directors. The initial "Stated Value" per share of the Series
D Preferred Stock shall be $24.00 per share.
SECTION 2. DEFINITIONS. In addition to the definitions set forth
elsewhere herein, the following terms shall have the meanings indicated:
<PAGE>
"BUSINESS DAY" shall mean any day other than a Saturday or Sunday, on which
commercial banks are open for business with the public in Houston, Texas.
"BYLAWS" shall mean the bylaws of the Corporation, certified by the
secretary of the Corporation.
"COMMON STOCK" shall mean the common stock, $0.02 par value per share, of
the Corporation.
"JUNIOR SECURITIES" shall mean the Common Stock or any other series of
stock issued by the Corporation ranking junior as to the Series D Preferred
Stock upon liquidation, dissolution or winding up of the Corporation.
"PARITY STOCK" shall mean the Corporation's Series B Preferred Stock and
Series C Preferred Stock.
"PERSON" shall mean any individual, corporation, association, partnership,
joint venture, limited liability company, trust, estate, or other entity or
organization, other than the Corporation, any subsidiary of the Corporation, any
employee benefit plan of the Corporation or any subsidiary of the Corporation,
or any entity holding shares of Common Stock for or pursuant to the terms of any
such plan.
"SERIES B PREFERRED STOCK" shall mean that preferred stock designated as
such by the Corporation pursuant to a Certificate of Designation of Series B
Preferred Stock filed with the Secretary of State of Delaware on November 24,
1999, and having a stated value of $7.50 per share.
"SERIES C PREFERRED STOCK" shall mean that preferred stock designated as
such by the Corporation pursuant to a Certificate of Designation of Series C
Preferred Stock filed with the Secretary of State of Delaware on November 24,
1999, and having a stated value of $5.00 per share.
SECTION 3. CONVERSION AND ANTI-DILUTION.
(a) Conversion
(i) Any holder of Series D Preferred Stock may convert all or any
portion of shares of Series D Preferred Stock held by such holder into Common
Stock at any time at its sole option at a ratio of one share of Common Stock for
each share of Series D Preferred Stock. Any conversion will be deemed effective
at the close of business on the date which the certificate or certificates
representing the shares of Series D Preferred Stock to be converted have been
delivered by the holder to the Corporation at its principal office, together
with a request for conversion of such shares of Series D Preferred Stock.
2
<PAGE>
(ii) As soon as possible after a conversion has been effected, the
Corporation will deliver to the holder of shares of Series D Preferred Stock
being converted a certificate or certificates representing the number of shares
of Common Stock issuable by reason of such conversion in such name or names and
such denomination or denominations as the converting holder has specified, and a
certificate representing any shares of Series D Preferred Stock which were
represented by the certificates or certificates delivered to the Corporation in
connection with such conversion but which were not converted.
(b) Anti-Dilution Provisions
(i) In the event that the Common Stock hereafter is changed into or
exchanged for or entitled to receive a different number or kind of shares or
other securities of the Corporation or of another corporation by reason of
merger, consolidation, other reorganization, recapitalization, reclassification,
combination of shares, stock split-up or stock dividend:
(1) the aggregate number and kind of shares subject to conversion
rights hereunder shall be adjusted appropriately;
(2) conversion rights granted hereunder, both as to the number of
subject shares of Series D Preferred Stock and the Conversion
Price, shall be adjusted appropriately;
(3) where dissolution or liquidation of the Corporation or any
merger or combination in which the Corporation is not a
surviving corporation is involved, each outstanding conversion
right granted hereunder shall terminate, but the holder shall
have the right, immediately prior to such dissolution,
liquidation, merger or combination, to exercise such holder's
conversion right, in whole or in part, to the extent it shall
not have been exercised;
(4) such new or additional or different shares or securities which
are distributed to a holder, in its capacity as the owner of
Common Stock issued pursuant to the conversion rights granted
hereunder shall be subject to all of the conditions and
restrictions applicable to Common Stock issuable hereunder.
(5) The foregoing adjustments and the manner of application of the
foregoing provisions shall be determined solely by the
Corporation. No fractional share of Common Stock shall be
issued upon conversion of the shares of Series D Preferred
Stock, and any such adjustment may provide for the elimination
of fractional shares. Instead of a fractional interest in a
share of Common Stock that would otherwise be deliverable upon
the conversion of shares of
3
<PAGE>
Series D Preferred Stock, the Corporation shall pay to the
holder of such shares an amount in cash based upon the current
market price of the Common Stock on the trading day
immediately preceding the date of conversion. If more than one
share shall be surrendered for conversion at one time by the
same holder, the number of full shares of Common Stock
issuable upon conversion thereof shall be computed on the
basis of the aggregate number of full shares of Common Stock
issuable upon conversion thereof.
SECTION 4. DIVIDENDS AND DISTRIBUTIONS.
(a) The holders of Series D Preferred Stock will be entitled to
receive, as and when declared by the Corporation, out of funds legally
available for the payment of dividends, dividends at the time and at the
rates provided for in this Section 4. Dividends on shares of the Series D
Preferred Stock shall be cumulative and shall accrue from and including the
date of issuance of such shares and to and including the date on which such
shares shall have been redeemed pursuant to Section 7 hereof. Such
dividends shall accrue whether or not there shall be (at the time such
dividend becomes payable or at any other time) profits, surplus or other
funds of the Corporation legally available for the payment of dividends.
Except as provided below, the dividends shall be payable in cash.
(b) Dividends shall accrue on each outstanding share of Series D
Preferred Stock at the rate of five percent (5%) per annum of the Stated
Value (the "Dividend Rate") of such share. Dividends shall be payable
semi-annually, in arrears, on September 30 and March 31 of each year (each,
a "Dividend Payment Date"), commencing on March 31, 2000, except that if
such Dividend Payment Date is not a Business Day, then such dividend shall
be payable on the first Business Day immediately thereafter to the holders
of the Series D Preferred Stock. Dividends payable on the Series D
Preferred for each full semi-annual period shall be computed by dividing
the Dividend Rate by two (2). Dividends payable on the Series D Preferred
Stock for any period that is shorter or longer than a full semi-annual
period shall be computed on the basis of a 360-day year comprised of two
semi-annual 180-day periods.
(c) With respect to the first six (6) semi-annual dividends payable
under this Section 4 commencing with the first Dividend Payment Date, the
Corporation may, at least 30 days prior to the subject Dividend Payment
Date, elect to pay the cash dividend payable on such Dividend Payment Date
to the holders of Series D Preferred Stock in shares of Series D Preferred
Stock (a "Payment in Kind"). If such an election is made, the Corporation
shall promptly notify the holders of the Series D Preferred Stock of (i)
the election to make a Payment in Kind in lieu of a payment in cash for the
subject Dividend Payment Date. An election for any particular Dividend
Payment Date shall operate only for such Dividend Payment Date. Each
Payment in Kind shall be payable as of the Dividend Payment Date for which
the election to make such Payment in Kind was made, except that if such
Dividend
4
<PAGE>
Payment Date is not a Business Day, then such Payment in Kind shall be on
the first Business Day immediately thereafter to the holders of the Series
D Preferred Stock.
(d) Each Payment in Kind shall be equal to that number of additional
shares of Series D Preferred Stock that is equal to A divided by B where:
"A" = 100% of the aggregate dollar amount of the cash dividends
payable on any such Dividend Payment Date; and
"B" = the Stated Value.
Certificates representing the shares of Series D Preferred Stock
issuable on payment of any Payment in Kind shall be delivered to each
holder entitled to receive such Payment in Kind (in appropriate
denominations) on or before the forty-fifth (45/th/) day following the
Dividend Payment Date for which such Payment in Kind is elected to be paid
hereunder. Shares of Series D Preferred Stock issued on payment of any
Payment in Kind shall be duly authorized, validly issued and nonassessable
and, upon issuance, shall have rights (including without limitation,
dividend, voting and redemption rights) and a Stated Value identical to the
outstanding shares of Series D Preferred Stock in respect of which they are
issued.
(e) To the extent dividends are not paid in cash or in kind on a
Dividend Payment Date, all dividends which shall have accrued on each share
of Series D Preferred Stock outstanding as of such Dividend Payment Date
shall be added to the Stated Value of each such share of Series D Preferred
Stock and shall remain a part thereof until paid, and dividends shall
accrue at the Dividend Rate and be paid on such share of Series D Preferred
Stock on the basis of the Stated Value, as so adjusted.
(f) Dividends payable on each Dividend Payment Date shall be paid to
record holders of the shares of Series D Preferred Stock as they appear on
the books of the Corporation at the close of business on the tenth Business
Day immediately preceding the respective Dividend Payment Date or on such
other record date as may be fixed by the Board of Directors of the
Corporation in advance of a Dividend Payment Date, provided that no such
record date shall be less than ten nor more than sixty calendar days
preceding such Dividend Payment Date.
SECTION 5. CERTAIN COVENANTS AND RESTRICTIONS. So long as any shares
of Series D Preferred Stock are outstanding, the Corporation shall not, without
the affirmative consent or approval of the holders of a majority of the issued
and outstanding shares of the Series D Preferred Stock:
(i) in any manner authorize, create, designate or issue any class or
series of capital stock of the Corporation (including any shares of
treasury stock) or rights, options,
5
<PAGE>
warrants or other securities convertible into or exercisable or
exchangeable for capital stock or any debt security which by its terms is
convertible into or exchangeable for any equity security or has any other
equity participation feature or any security that is a combination of debt
and equity, which, in each case as to the equity or convertible component
thereof, as to the payment of dividends, distribution of assets or
redemptions, including, without limitation, distributions to be made upon
the liquidation, dissolution or winding up of the Corporation or a merger,
consolidation or sale of the assets thereof, is senior to the Series D
Preferred Stock;
(ii) reclassify any securities of the Corporation into shares of any
class or series of capital stock of the Corporation (A) ranking, either as
to payment of dividends, distributions of assets or redemptions, including,
without limitation, distributions to be made upon the liquidation,
dissolution or winding up of the Corporation or a merger, consolidation or
sale of the assets thereof, senior to the Series D Preferred Stock or (B)
which in any manner adversely affects the rights of the holders of Series D
Preferred Stock in their capacity as such;
(iii) increase the authorized number of shares of Series D Preferred
Stock;
(iv) issue any additional shares of Series D Preferred Stock other
than as contemplated by Section 4 of this Certificate of Designation;
(v) reclassify, cancel or in any manner alter or change the terms,
designations, powers, preferences or relative, optional or other special
rights, or the qualifications, limitations or restrictions thereof, of the
Series D Preferred Stock; or
(vi) amend, repeal or modify (whether by merger, consolidation, or
otherwise) any provision of this Certificate of Designation or the
Certificate of Incorporation or Bylaws in a manner that adversely affects
the powers, preferences or rights of the Series D Preferred Stock.
SECTION 6. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution, or winding-up of the
Corporation (in connection with the bankruptcy or insolvency of the
Corporation or otherwise), whether voluntary or involuntary, before any
payment or distribution of the assets of the Corporation (whether capital
or surplus) shall be made to or set apart for the holders of shares of any
Junior Securities, the holders of the shares of Series D Preferred Stock
shall be entitled to receive an amount per share equal to the Stated Value
per share held by them plus an amount equal to the aggregate dollar amount
of all accrued and unpaid dividends that have not been added to the Stated
Value of such shares. If, upon the occurrence of a liquidation,
dissolution, or winding up, the assets and funds thus distributed among the
holders of the Series D Preferred Stock and the Parity Stock shall be
insufficient to permit the payment to
6
<PAGE>
such holders of their full liquidation preferences, then the entire assets
and funds of the Corporation legally available for distribution to the
holders of capital stock shall be distributed, ratably to the holders of
the shares of Series D Preferred Stock and the Parity Stock on a pro rata
basis in the proportion that the amount each holder is entitled to receive
pursuant to its liquidation rights bears to the total amount available for
payment to the holders of Series D Preferred Stock and Parity Stock upon
liquidation.
(b) If assets are remaining after payment of the full liquidation
preference with respect to the Series D Preferred Stock and the Parity
Stock set forth in subsection (a) above, then the holders of any other
class or series of preferred stock, if any, shall be entitled to their
respective preferential amounts on liquidation, and thereafter the holders
of the Common Stock shall be entitled to share ratably in all such
remaining assets and surplus funds in the proportion that each holder's
shares bears to the total number of shares of Common Stock outstanding.
(c) For purposes of this Section 6, the holders of a majority of the
Series D Preferred Stock then outstanding, voting together as a class may
elect to have treated as a liquidation, dissolution or winding up of the
Corporation, the consolidation or merger of the Corporation with or into
any other corporation or the sale or other transfer in a single transaction
or a series of related transactions of all or substantially all of the
assets of the Corporation, or any other reorganization of the Corporation.
(d) Written notice of any liquidation, dissolution or winding-up of
the Corporation, stating the payment date or dates when and the place or
places where the amounts distributable in such circumstances shall be
payable, shall be given by first class mail, postage prepaid, not less than
15 days prior to any payment date stated therein, to the holders of record
of the shares of Series D Preferred Stock and the Parity Stock at their
respective addresses as the same shall appear in the records of the
Corporation.
SECTION 7. REDEMPTION.
(a) The outstanding shares of Series D Preferred Stock are subject
to redemption in accordance with the following provisions:
(i) At any time, the Corporation may redeem all of the shares
of Series D Preferred Stock outstanding on such date (the "Series D
Redemption Date") with a thirty-day prior written notice.
(ii) The redemption price per share for Series D Preferred Stock
redeemed on the Series D Redemption Date (the "Series D Redemption Price")
shall be equal to the Stated Value per share of the shares to be redeemed
plus an amount equal to the aggregate dollar amount of all accrued and
unpaid dividends through the Series D Redemption Date that have not been
added to the Stated Value of such shares. The Series D Redemption Price
shall be paid in cash from any source of funds legally available therefor.
7
<PAGE>
(iii) On or after the Series D Redemption Date, each holder of
shares of Series D Preferred Stock shall surrender his certificate or
certificates for such shares to the Corporation at the place designated in
the redemption notice and shall thereupon be entitled to receive payment of
the Series D Redemption Price.
(iv) If pursuant to Paragraph 7(a)(i), the Corporation shall
redeem any shares of Series D Preferred Stock, the Corporation shall give
written notice of such redemption to each holder of record of Series D
Preferred Stock to be redeemed not less than thirty (30) days prior to the
date fixed for redemption, by certified mail enclosed in a postage-paid
envelope addressed to such holder at such holder's address as the same
shall appear on the books of the Corporation. Such notice shall (i) state
that the Corporation has elected to redeem such shares of Series D
Preferred Stock, (ii) state the date fixed for redemption, (iii) state the
Series D Redemption Price and (iv) call upon such holder to surrender to
the Corporation on or after said date at its principal place of business
designated in such notice a certificate or certificates representing the
number of Series D Preferred Stock to be redeemed in accordance with such
notice. On or after the date fixed in such notice for redemption, each
holder of shares of Series D Preferred Stock to be so redeemed shall
present and surrender the certificate or certificates for such shares of
Series D Preferred Stock to the Corporation at the place designated in said
notice, and thereupon the Series D Redemption Price shall be paid to, or to
the order of, the Person whose name appears on such certificate or
certificates as the owner thereof. From and after the date fixed in any
such notice as the date for redemption, unless default shall be made by the
Corporation in providing for the payment of the Series D Redemption Price
pursuant to such notice, all rights of the holders of the shares of Series
D Preferred Stock so redeemed, except the right to receive the Series D
Redemption Price (but without interest thereon), shall cease and terminate.
If less than all of the outstanding shares of Series D Preferred Stock are
to be redeemed, the shares of Series D Preferred Stock to be redeemed shall
be allocated among the holders thereof in proportion to the respective
number of shares of Series D Preferred Stock held by them.
SECTION 8. REACQUIRED SHARES. Subject to the terms of this Certificate
of Designation, any shares of Series D Preferred Stock repurchased, redeemed or
otherwise acquired by the Corporation shall be retired and canceled promptly
after the acquisition thereof. All such shares shall upon their cancellation
become authorized but unissued shares of Preferred Stock, without designation as
to series, and may thereafter be reissued (but may not be reissued as additional
shares of Series D Preferred Stock).
SECTION 9. VOTING RIGHTS.
(a) Except as otherwise provided in this Section 9 or required by
law or any provision of the Certificate of Incorporation, the holders of
the shares of Series D Preferred Stock shall not have any voting rights.
8
<PAGE>
(b) Pursuant to Section 228 of the DGCL, any action of the holders of
the Series D Preferred Stock, voting as a separate class, which is required
by the DGCL to be taken at any annual or special meeting of the holders of
the Series D Preferred Stock, or is otherwise permitted to be taken by the
holders of the Series D Preferred Stock at any annual or special meeting
pursuant to the DGCL, the Certificate of Incorporation (including this
Certificate of Designation) or the Bylaws, may be taken without a meeting,
without prior notice, and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall be signed by the holder
or holders of shares of the Series D Preferred Stock, having not less than
the minimum number of votes that would be necessary to take such action at
a meeting at which the holders of all shares of the Series D Preferred
Stock were present and voted.
SECTION 10. RANKING. The Series D Preferred Stock and the Parity Stock
shall rank senior to the Common Stock upon liquidation, dissolution or winding
up of the Corporation. Without limiting the definition of Junior Securities,
the shares of Common Stock shall rank junior to the Series D Preferred Stock and
the Parity Stock with respect to the payments required or permitted to be made
to the holders thereof and payments required to be made to the holders of the
Series D Preferred Stock and the Parity Stock pursuant hereto.
SECTION 11. RECORD HOLDERS. The Corporation may deem and treat the
record holder of any shares of Series D Preferred Stock as the true and lawful
owner thereof for all purposes, and the Corporation shall not be affected by any
notice to the contrary.
SECTION 12. NOTICE. Except as may otherwise be provided by law or
provided for herein, all notices referred to herein shall be in writing, and all
notices hereunder shall be deemed to have been given upon the earlier of receipt
of such notice or three (3) Business Days after the mailing of such notices sent
by Registered Mail (unless first-class mail shall be specifically permitted for
such notice under the terms hereof) with postage prepaid, addressed: If to the
Corporation, to its principal executive offices (Attention: Corporate Secretary)
or to any agent of the Corporation designated as permitted hereby; or if to a
holder of the Series D Preferred Stock, to such holder at the address of such
holder of the Series D Preferred Stock as listed in the stock record books of
the Corporation, or to such other address as the Corporation or holder, as the
case may be, shall have designated by notice similarly given.
SECTION 13. SUCCESSORS AND TRANSFEREES. The provisions applicable to
shares of Series D Preferred Stock shall bind and inure to the benefit of and be
enforceable by the Corporation, the respective successors to the Corporation,
and by any record holder of shares of Series D Preferred Stock.
RESOLVED FURTHER, that the appropriate officers of the Corporation be,
and they are hereby, authorized and directed from time to time to execute
such certificates, instruments or other documents and do all such things as
may be necessary or advisable in their discretion in order to carry out the
terms hereof, including the filing with the Secretary of State for the
State of Delaware of a copy of the foregoing resolution executed by an
officer of the Corporation.
9
<PAGE>
Dated: February 2, 2000.
3TEC ENERGY CORPORATION
By: ___________________________________
Name: Floyd C. Wilson
Title: President
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 3,916,880
<SECURITIES> 0
<RECEIVABLES> 9,823,915
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 14,616,107
<PP&E> 193,511,519
<DEPRECIATION> 42,001,016
<TOTAL-ASSETS> 167,860,433
<CURRENT-LIABILITIES> 8,749,938
<BONDS> 96,723,844
0
16,361,152
<COMMON> 68,494,435
<OTHER-SE> (25,738,453)
<TOTAL-LIABILITY-AND-EQUITY> 168,139,251
<SALES> 16,914,573
<TOTAL-REVENUES> 17,252,585
<CGS> 4,581,129
<TOTAL-COSTS> 12,488,344
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,084,499
<INCOME-PRETAX> 4,721,841
<INCOME-TAX> 1,605,424
<INCOME-CONTINUING> 2,856,327
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 2,856,327
<EPS-BASIC> 0.475
<EPS-DILUTED> 0.355
</TABLE>
