Second Restated Credit Agreement

EXHIBIT 10.28


SECOND
RESTATED
CREDIT AGREEMENT


AMONG


3TEC ENERGY CORPORATION,
ENEX RESOURCES CORPORATION,
MIDDLE BAY PRODUCTION COMPANY, INC.,
AND MAGELLAN EXPLORATION, LLC,
AS BORROWERS,


AND


BANK ONE, TEXAS, N.A.
AND THE INSTITUTIONS NAMED HEREIN
AS LENDERS,


BANK ONE, TEXAS, N.A.,
AS ADMINISTRATIVE AGENT


AND


BANK OF MONTREAL
AS SYNDICATION AGENT


AND


BANC ONE CAPITAL MARKETS, INC.
AS ARRANGER


May 31, 2000


$250,000,000 REVOLVING CREDIT


TABLE OF CONTENTS
Page No. 1. Definitions........................................................... 2


2. Commitments of the Lender............................................. 13
(a) Terms of Commitment............................................ 13
(b) Procedure for Borrowing........................................ 14
(c) Letters of Credit.............................................. 14
(d) Procedure for Obtaining Letters of Credit...................... 15
(e) Voluntary Reduction of Commitment.............................. 16
(f) Mandatory Commitment Reductions................................ 16
(g) Several Obligations............................................ 16
(h) Type and Number of Advances.................................... 16
(i) Limited Liability of Enex, Production and Magellan............. 16


3. Notes Evidencing Loans................................................ 17
(a) Form of Notes.................................................. 17
(b) Issuance of Additional Notes................................... 17
(c) Interest Rate.................................................. 17
(d) Payment of Interest............................................ 17
(e) Payment of Principal........................................... 17
(f) Payment to Lenders............................................. 18
(g) Sharing of Payments, Etc....................................... 18
(h) Non-Receipt of Funds by the Agent.............................. 18


4. Interest Rates........................................................ 19
(a) Options........................................................ 19
(b) Interest Rate Determination.................................... 20
(c) Conversion Option.............................................. 20
(d) Recoupment..................................................... 20


5. Special Provisions Relating to Loans.................................. 20
(a) Unavailability of Funds or Inadequacy of Pricing............... 20
(b) Change in Laws................................................. 21
(c) Increased Cost or Reduced Return............................... 21
(d) Discretion of Lender as to Manner of Funding................... 23
(e) Breakage Fees.................................................. 23


6. Collateral Security................................................... 24


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7. Borrowing Base...................................................... 24
(a) Initial Borrowing Base....................................... 24
(b) Subsequent Determinations of Borrowing Base.................. 25


8. Fees................................................................ 26
(a) Unused Commitment Fee........................................ 26
(b) The Letter of Credit Fee..................................... 26


9. Prepayments......................................................... 27
(a) Voluntary Prepayments........................................ 27
(b) Mandatory Prepayment For Borrowing Base Deficiency........... 27
(c) Special Mandatory Prepayment................................. 27


10. Representations and Warranties...................................... 28
(a) Creation and Existence....................................... 28
(b) Power and Authority.......................................... 28
(c) Binding Obligations.......................................... 28
(d) No Legal Bar or Resultant Lien............................... 28
(e) No Consent................................................... 28
(f) Financial Condition.......................................... 28
(g) Liabilities.................................................. 29
(h) Litigation................................................... 29
(i) Taxes; Governmental Charges.................................. 29
(j) Titles, Etc.................................................. 29
(k) Defaults..................................................... 29
(l) Casualties; Taking of Properties............................. 30
(m) Use of Proceeds; Margin Stock................................ 30
(n) Location of Business and Offices............................. 30
(o) Compliance with the Law...................................... 30
(p) No Material Misstatements.................................... 31
(q) Not A Utility................................................ 31
(r) ERISA........................................................ 31
(s) Public Utility Holding Company Act........................... 31
(t) Subsidiaries................................................. 31
(u) Environmental Matters........................................ 31
(v) Liens........................................................ 32


11. Conditions of Lending............................................... 32


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12. Affirmative Covenants............................................... 34
(a) Financial Statements and Reports............................. 34
(b) Certificates of Compliance................................... 35
(c) Accountants' Certificate..................................... 36
(d) Taxes and Other Liens........................................ 36
(e) Compliance with Laws......................................... 36
(f) Further Assurances........................................... 36
(g) Performance of Obligations................................... 37
(h) Insurance.................................................... 37
(i) Accounts and Records......................................... 37
(j) Right of Inspection.......................................... 38
(k) Notice of Certain Events..................................... 38
(l) ERISA Information and Compliance............................. 38
(m) Environmental Reports and Notices............................ 38
(n) Compliance and Maintenance................................... 39
(o) Operation of Properties...................................... 39
(p) Compliance with Leases and Other Instruments................. 40
(q) Certain Additional Assurances Regarding
Maintenance and Operations of Properties..................... 40
(r) Sale of Certain Assets/Prepayment of Proceeds................ 40
(s) Title Matters................................................ 41
(t) Curative Matters............................................. 41
(u) Change of Principal Place of Business........................ 41
(v) Cash Collateral Accounts..................................... 41
(w) Take Down of Exchangeable Preferred Stock.................... 42
(x) Additional Collateral........................................ 42


13. Negative Covenants.................................................. 42
(a) Negative Pledge.............................................. 42
(b) Current Ratio................................................ 43
(c) Minimum Interest Coverage Ratio.............................. 43
(d) Consolidations and Mergers................................... 43
(e) Debts, Guaranties and Other Obligations...................... 43
(f) Dividends.................................................... 44
(g) Loans and Advances........................................... 45
(h) Sale or Discount of Receivables.............................. 45
(i) Nature of Business........................................... 45
(j) Transactions with Affiliates................................. 45
(k) Hedging Transactions......................................... 45
(l) Investments.................................................. 45
(m) Amendment to Articles of Incorporation or Bylaws............. 46


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(n) Proceeds of Production........................................... 46
(o) Issuance of Preferred Stock..................................... 46
(p) Amendments to and Redemption of Preferred Stock or Other Equity.. 46
(q) Payment or Pre-Payment of Other Indebtedness..................... 46
(r) Subordinated Indebtedness........................................ 46


14. Events of Default..................................................... 47


15. The Agent and the Lenders............................................. 49
(a) Appointment and Authorization.................................... 49
(b) Note Holders..................................................... 50
(c) Consultation with Counsel........................................ 50
(d) Documents........................................................ 50
(e) Resignation or Removal of Agent.................................. 51
(f) Responsibility of Agent.......................................... 51
(g) Independent Investigation........................................ 53
(h) Indemnification.................................................. 53
(i) Benefit of Section 15............................................ 53
(j) Pro Rata Treatment............................................... 53
(k) Assumption as to Payments........................................ 54
(l) Other Financings................................................. 54
(m) Interests of Lenders............................................. 54
(n) Investments...................................................... 55


16. Exercise of Rights.................................................... 55


17. Notices............................................................... 55


18. Expenses.............................................................. 55


19. Indemnity............................................................. 56


20. Governing Law......................................................... 57


21. Invalid Provisions.................................................... 57


22. Maximum Interest Rate................................................. 57


23. Amendments............................................................ 58


24. Multiple Counterparts................................................. 58


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25. Conflict............................................................ 58


26. Survival............................................................ 58


27. Parties Bound....................................................... 58


28. Assignments and Participations...................................... 58


29. Choice of Forum: Consent to Service of Process and Jurisdiction..... 60


30. Waiver of Jury Trial................................................ 61


31. Other Agreements.................................................... 61


32. Financial Terms..................................................... 61


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Exhibits - --------


Exhibit "A" - Notice of Borrowing Exhibit "B" - Note Exhibit "C" - Certificate of Compliance Exhibit "D" - Form of Assignment and Acceptance Agreement


Schedules - ---------


Schedule 1 - Liens Schedule 2 - Financial Condition Schedule 3 - Liabilities Schedule 4 - Litigation Schedule 5 - Subsidiaries Schedule 6 - Environmental Matters Schedule 7 - Title Matters Schedule 8 - Curative Matters


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SECOND RESTATED CREDIT AGREEMENT


THIS SECOND RESTATED CREDIT AGREEMENT (hereinafter referred to as the "Agreement") executed as of the 31st day of May, 2000, by and between 3TEC ENERGY CORPORATION, a Delaware corporation ("3TEC") (successor in interest to Middle Bay Oil Company, Inc.), ENEX RESOURCES CORPORATION, a Delaware corporation ("Enex"), MIDDLE BAY PRODUCTION COMPANY, INC., a Kansas corporation ("Production") and MAGELLAN EXPLORATION, LLC, a Delaware limited liability company ("Magellan") (3TEC, Enex, Production and Magellan are hereinafter collectively referred to as "Borrowers", and individually as a "Borrower") and BANK ONE, TEXAS, N.A., a national banking association ("Bank One"), and each of the financial institutions which is a party hereto (as evidenced by the signature pages to this Agreement) or which may from time to time become a party hereto pursuant to the provisions of Section 28 hereof or any successor or assignee thereof (hereinafter collectively referred to as "Lenders", and individually, "Lender") and Bank One, as Administrative Agent (the "Agent") and Bank of Montreal, as Syndication Agent.


W I T N E S S E T H:


WHEREAS, as of March 27, 1998, Middle Bay Oil Company, Inc. ("Middle Bay") entered into a Credit Agreement with Compass Bank, as Agent for itself and Bank of Oklahoma, N.A., pursuant to which the Lenders made available to Middle Bay, a credit facility of up to $100,000,000 (the "Credit Agreement"); and


WHEREAS, as of November 23, 1999, Middle Bay, Enex, Production, the Agent and the Lenders entered into a Restated Credit Agreement pursuant to which the Lenders made available to Middle Bay, a credit facility of up to $250,000,000 (the "Restated Credit Agreement"); and


WHEREAS, as of November 23, 1999 the Lenders have acquired all of the interest of Compass Bank and Bank of Oklahoma in the Credit Agreement and the liens securing the same; and


WHEREAS, as of December 7, 1999, Middle Bay merged with and into 3TEC Energy Corporation; and


WHEREAS, effective February 3, 2000 Magellan was merged with and into 3TM Acquisition L.L.C., a Delaware limited liability company which was a wholly- owned subsidiary of 3TEC and became a wholly-owned subsidiary of 3TEC; and


WHEREAS, the Borrowers have requested that the Lenders restate the Restated Credit Agreement to make certain changes thereto and the Lenders have agreed to restate the Restated Credit Agreement and make the changes requested by the Borrowers.


NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties hereby agree to restate the Credit Agreement as follows:


Definitions. When used herein the terms "Agent", "Agreement", "Bank One", "Borrower", "Borrowers", "Enex", "Lender", "Lenders", "Magellan", "Production" and "3TEC" shall have the meanings indicated above. When used herein the following terms shall have the following meanings:


Advance or Advances means a loan or loans hereunder.
-------------------


Affiliate means any Person which, directly or indirectly, controls, is
--------- controlled by or is under common control with the relevant Person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlled by" and "under common control with"), as used with respect to any Person, shall mean a member of the board of directors, a partner or an officer of such Person, or any other Person with possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, through the ownership (of record, as trustee, or by proxy) of voting shares, partnership interests or voting rights, through a management contract or otherwise. Any Person owning or controlling directly or indirectly ten percent or more of the voting shares, partnership interests or voting rights, or other equity interest of another Person shall be deemed to be an Affiliate of such Person.


Alternate Base Rate shall mean, as of any date, a rate of interest per
------------------- annum equal to the higher of (i) the Prime Rate for such date, and (ii) the sum of the Federal Funds Effective Rate for such date plus one-half of one percent (.50%) per annum.


Assignment and Acceptance means a document substantially in the form of
------------------------- Exhibit "D" hereto.


Base Rate shall mean, as of any date, the sum of the Alternate Base Rate
--------- plus the Base Rate Margin.


Base Rate Loans shall mean any loan during any period which bears interest
--------------- based upon the Alternate Base Rate or which would bear interest based upon the Alternate Base Rate if the Maximum Rate ceiling was not in effect at that particular time.


Base Rate Margin shall be:
----------------


(i) one-half of one percent (.50%) per annum whenever the Borrowing
Base Usage is equal to or greater than 90%; or


(ii) three-eighths of one percent (.375%) per annum whenever the
Borrowing Base Usage is equal to or greater than 75% but less than 90%; or


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(iii) one-quarter of one percent (.25%) per annum whenever the
Borrowing Base Usage is equal to or greater than 50%, but less than 75%; or


(iv) zero percent (0%) per annum whenever the Borrowing Base Usage is
less than 50%.


Borrowing Base shall mean the value assigned by the Lenders from time to
-------------- time to the Oil and Gas Properties pursuant to Section 7 hereof. Until the next determination of the Borrowing Base pursuant to Section 7(b) hereof and subject to Section 9(c) hereof, the Borrowing Base shall be $145,000,000.


Borrowing Base Usage shall mean, as of any date, all amounts outstanding on
-------------------- the Loan plus all outstanding Letters of Credit, divided by the Borrowing Base.


Borrowing Date means the date elected by Borrowers pursuant to Section 2(b)
-------------- hereof for an Advance on the Loan.


Business Day shall mean (i) with respect to any borrowing, payment or note
------------ selection of LIBOR Loans, a day (other than Saturdays or Sundays) on which banks are legally open for business in Dallas, Texas and New York, New York and on which dealings in United States dollars are carried on in the London interbank market, and (ii) for all other purposes a day (other than Saturdays and Sundays) on which banks are legally open for business in Dallas, Texas.


Cash Collateral Accounts is used herein as defined in Section 12(v).
------------------------


Change of Control shall occur if any Person (or syndicate or group of
----------------- Persons which is deemed a Person for the purposes of Sections 13(d) or 14(d)(ii) of the Securities Act of 1934, as amended) shall acquire, directly or indirectly an amount of issued and outstanding voting stock of Borrowers (including the acquisition of newly-issued stock) sufficient to change the control of Borrowers by causing the election or change of a majority of the directors of Borrowers.


Change of Management means a Change of Management shall occur if Floyd C.
-------------------- Wilson ever ceases to act as Chairman and Chief Executive Officer of 3TEC and a replacement for such officer, acceptable to Agent, is not appointed within sixty (60) days thereafter.


Commitment means (A) For all Lenders, the lesser of (i) $250,000,000 or
---------- ------ (ii) the Borrowing Base, as reduced or increased from time to time pursuant to Sections 2 and 7 hereof, and (B) as to any Lender, its obligation to make Advances hereunder on the Loan and


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purchase participations in Letters of Credit issued hereunder by the Agent in amounts not exceeding, in the aggregate, an amount equal to such Lender's Commitment Percentage times the total Commitment as of any date. The Commitment of each Lender hereunder shall be adjusted from time to time to reflect assignments made by such Lender pursuant to Section 28 hereof. Each reduction in the Commitment shall result in a Pro Rata reduction in each Lender's Commitment.


Commitment Percentage means for each Lender the percentage derived by
--------------------- dividing its Commitment at the time of the determination by the Commitments of all Lenders at the time of determination. The Commitment Percentage of each Lender hereunder shall be adjusted from time to time to reflect assignments made by such Lender pursuant to Section 28 hereof.


Consolidated Current Assets means the total of the consolidated current
--------------------------- assets determined in accordance with GAAP, plus, as of any date, the unused availability on the Commitment.


Consolidated Current Liabilities means the total of consolidated current
-------------------------------- obligations as determined in accordance with GAAP, excluding therefrom, as of any date, current maturities due on the Loans.


Consolidated EBITDAX shall mean Consolidated Net Income (excluding gains
-------------------- and losses from asset sales, extraordinary and non-recurring gains and losses) plus the sum of (i) income tax expense (but excluding income tax expense relating to the sales or other disposition of assets, including capital stock, the gains and losses from which are excluded in the determination of Consolidated Net Income), plus (ii) Consolidated Interest Expense, plus (iii) depreciation, depletion and amortization expense, plus (iv) other non-cash expenses, plus (v) dry hole costs and geological and geophysical expenses, all as determined in accordance with GAAP.


Consolidated Interest Expense shall mean the aggregate amount of interest
----------------------------- expense of Borrowers as determined on a consolidated basis in accordance with GAAP.


Consolidated Net Income shall mean Borrowers' consolidated net income after
----------------------- income taxes calculated in accordance with GAAP.


Current Ratio means the ratio of Consolidated Current Assets for the period
------------- being measured to the Consolidated Current Liabilities for such period.


CW Resources Acquisition means the acquisition by Borrowers of oil and gas
------------------------ properties from C.W. Resources, Inc., Westerman Royalty, Inc. and Carl A. Westerman


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("CWR et. al".) pursuant to an Agreement of Sale and Purchase between 3TEC, and CWR et. al dated April 14, 2000.


Default means all the events specified in Section 14 hereof, regardless of
------- whether there shall have occurred any passage of time or giving of notice, or both, that would be necessary in order to constitute such event as an Event of Default.


Defaulting Lender is used herein as defined in Section 3(f) hereof.
-----------------


Effective Date means the date of this Agreement.
--------------


Eligible Assignee means any of (i) a Lender or any Affiliate of a Lender;
----------------- (ii) a commercial bank organized under the laws of the United States, or any state thereof, and having a combined capital and surplus of at least $100,000,000; (iii) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development, or a political subdivision of any such country, and having a combined capital and surplus of at least $100,000,000.00, provided that such bank is acting through a branch or agency located in the United States; (iv) a Person that is primarily engaged in the business of commercial lending and that (A) is a subsidiary of a Lender, (B) a subsidiary of a Person of which a Lender is a subsidiary, or (C) a Person of which a Lender is a subsidiary; (v) any other entity (other than a natural person) which is an "accredited investor" (as defined in Regulation D under the Securities Act) which extends credit or buys loans as one of its businesses, including, but not limited to, insurance companies, mutual funds, investments funds and lease financing companies; and (vi) with respect to any Lender that is a fund that invests in loans, any other fund that invests in loans and is managed by the same investment advisor of such Lender or by an Affiliate of such investment advisor (and treating all such funds so managed as a single Eligible Assignee); provided, however, that no Affiliate of Borrowers shall be an Eligible Assignee.


Engineered Value is used herein as defined in Section 6 hereof.
----------------


Environmental Laws means the Comprehensive Environmental Response,
------------------ Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C.A. (S)9601, et seq., the Resource
-- --- Conservation and Recovery Act, as amended by the Hazardous Solid Waste Amendment of 1984, 42 U.S.C.A. (S)6901, et seq., the Clean Water Act, 33 U.S.C.A. (S)1251,
-- --- et seq., the Clean Air Act, 42 U.S.C.A. (S)1251, et seq., the Toxic Substances - -- --- -- --- Control Act, 15 U.S.C.A. (S)2601, et seq., The Oil Pollution Act of 1990, 33 U.S.G. (S)2701, et seq., and all other laws, statutes, codes, acts, ordinances,
-- --- orders, judgments, decrees, injunctions, rules, regulations, orders, permits and restrictions of any federal, state, county, municipal and other governments, d ...