-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, O9+aDeppJqSlcYQV3rE7tknBMqNIWAE/QqiW1pHktVm3xbGdcgr4+ojrqfOQsOxE /e0xE5SkUmeuVOGzKSJlBQ== 0000899243-00-001348.txt : 20000516 0000899243-00-001348.hdr.sgml : 20000516 ACCESSION NUMBER: 0000899243-00-001348 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: 3TEC ENERGY CORP CENTRAL INDEX KEY: 0000903267 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 631081013 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 001-14745 FILM NUMBER: 633213 BUSINESS ADDRESS: STREET 1: TWO SHELL PLZ STREET 2: 777 WALKER STE 2400 CITY: HOUSTON STATE: TX ZIP: 77002 BUSINESS PHONE: 7132226275 MAIL ADDRESS: STREET 1: PO BOX 390 CITY: MOBILE STATE: AL ZIP: 36602 FORMER COMPANY: FORMER CONFORMED NAME: MIDDLE BAY OIL CO INC DATE OF NAME CHANGE: 19930504 10QSB 1 FORM 10-QSB 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] 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 3TEC ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
MARCH DECEMBER 31 2000 1999 ------------- ------------- ASSETS (Unaudited) (Audited) 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 ============= =============
See accompanying notes to consolidated financial statements. 3TEC ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, (Unaudited) (Unaudited) 2000 1999 ----------- ----------- 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 =========== ===========
See accompanying notes to consolidated financial statements. 3TEC ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, (Unaudited) (Unaudited) 2000 1999 ----------- ----------- 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 $ - =========== ===========
See accompanying notes to consolidated financial statements. 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 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):
Net Income ------ 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 ======
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 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 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 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 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 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 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 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 12 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 13 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. 14 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. 15 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. 16 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 17 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.) 18 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.) 19 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 (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 EX-4.3 2 CERTIFICATE OF DESIGNATION 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: "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 (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 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 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 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 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 (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 (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 Dated: February 2, 2000. 3TEC ENERGY CORPORATION By: ___________________________________ Name: Floyd C. Wilson Title: President 10 EX-27.1 3 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 3,916,880 0 9,823,915 0 0 14,616,107 193,511,519 42,001,016 167,860,433 8,749,938 96,723,844 0 16,361,152 68,494,435 (25,738,453) 168,139,251 16,914,573 17,252,585 4,581,129 12,488,344 0 0 2,084,499 4,721,841 1,605,424 2,856,327 0 0 0 2,856,327 0.475 0.355
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