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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[XAnnual]report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 1997 or
[_Transition]report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to
FORM 10-K
Commission file number 1-12905
----------------
EEX CORPORATION
(Exact name of Registrant as specified in its charter)
----------------
TEXAS 75-2421863
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2500 CITYWEST BLVD. SUITE 1400 77042
HOUSTON, TEXAS (Zip Code)
(Address of principal executive
office)
(713) 243-3100
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to section 12(b) of the Act:
COMMON STOCK ($.01 PAR VALUE) NEW YORK STOCK EXCHANGE
(Title of Each Class) (Name of Each Exchange
on which Registered)
Securities registered pursuant to section 12(g) of the Act:
NONE
Indicate by check mark whether Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding twelve months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Aggregate market value of the outstanding shares of Common Stock of the
Registrant, based upon the closing price of the shares on the New York Stock
Exchange on such date, held by nonaffiliates of the Registrant as of March 12,
1998: $1,132,783,053.
Shares of the Registrant's Common Stock outstanding as of March 12, 1998:
127,067,427 shares.
Documents incorporated by reference and the Part of the Form 10-K into which
the document is incorporated: The information required by Part III (Items 10,
11, 12 and 13) is incorporated by reference to Registrant's definitive proxy
statement filed in connection with the 1998 annual meeting of shareholders.
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FORM 10-K
ANNUAL REPORT
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
TABLE OF CONTENTS
PART I
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PAGE
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ITEM 1. Business.............................................................................. 1
General............................................................................... 1
History of EEX........................................................................ 1
U.S. Exploration and Development...................................................... 1
Offshore.............................................................................. 1
GB 388 (Cooper)....................................................................... 2
Gulf of Mexico Shelf.................................................................. 2
Texas State Waters.................................................................... 2
Onshore............................................................................... 2
International Exploration and Development............................................. 3
Indonesia (Onshore Java) Tuban Block.................................................. 3
Indonesia (Offshore Sumatra) Asahan Block............................................. 3
Turkey................................................................................ 3
Asset Divestitures.................................................................... 3
Sale of East Texas Properties......................................................... 3
Plant Operations Business............................................................. 3
Sales Information..................................................................... 4
Major Customers....................................................................... 4
Competition........................................................................... 4
Government Regulation................................................................. 4
Regulation of Oil and Natural Gas Exploration and Production.......................... 4
Environmental Matters................................................................. 5
Regulation of Offshore Operations..................................................... 6
Natural Gas Marketing and Transportation.............................................. 6
Employees............................................................................. 6
Offices............................................................................... 6
Forward Looking Statements-Uncertainties and Risks.................................... 7
ITEM 2. Properties............................................................................ 8
ITEM 3. Legal Proceedings..................................................................... 10
ITEM 4. Submission of Matters to a Vote of Security Holders................................... 11
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters................. 11
ITEM 6. Selected Financial Data............................................................... 11
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. 11
ITEM 8. Financial Statements and Supplementary Data........................................... 11
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.. 11
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PART III
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ITEM 10. Incorporated by reference....................................... 12
ITEM 11. Incorporated by reference....................................... 12
ITEM 12. Incorporated by reference....................................... 12
ITEM 13. Incorporated by reference....................................... 12
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. 12
APPENDIX A Financial Information......................................... A-1
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PART I
ITEM 1. BUSINESS
GENERAL
EEX Corporation ("EEX" or the "Company") and its predecessors have been
engaged in the exploration for and the development, production and sale of
natural gas and crude oil since 1918. Its activities are currently
concentrated in Texas, the Offshore Gulf of Mexico and International. EEX also
provides operation and maintenance services, under contract, to cogeneration
plants located in Sweetwater, Texas, Buffalo, New York and Bellingham,
Washington ("Plant Operations Business").
HISTORY OF EEX
The oil and gas exploration and production business of EEX Corporation was
conducted, historically, through subsidiary and affiliate entities of ENSERCH
Corporation ("ENSERCH"). From 1985 through December 30, 1994, this business
was conducted primarily through Enserch Exploration Partners, Ltd. ("EP"), a
limited partnership in which a minority interest (less than 1% after 1988) was
held by the public. At year-end 1994, EP and its affiliates were reorganized
into a Texas corporation, Enserch Exploration, Inc. ("Old EEI"), in which
ENSERCH maintained an approximately 99% stock ownership interest, with the
balance held by the public. The public's stock ownership interest increased to
approximately 17% following a public sale by Old EEI of its common stock in
August 1995.
EEX was organized in the State of Texas in 1992 as a wholly owned subsidiary
of ENSERCH. It conducted the Plant Operations Business of ENSERCH under the
name of Lone Star Energy Plant Operations, Inc. ("LSEPO").
In 1996, ENSERCH entered into a merger agreement with Texas Utilities
Company under which ENSERCH agreed to exit the oil and gas business and divest
all of its interests in Old EEI. This divestiture was accomplished in two
steps. First, Old EEI was merged into LSEPO, with LSEPO being the surviving
company ("Merger"). In the Merger, LSEPO changed its name to Enserch
Exploration, Inc. ("EEI"). Second, ENSERCH distributed its entire 83%
ownership interest in EEI pro rata to its shareholders in a tax-free
distribution ("Distribution"). The Merger and the Distribution were each
effective on August 5, 1997.
At a special shareholders's meeting held on December 19, 1997, Enserch
Exploration, Inc. changed its name to EEX Corporation.
(References throughout this Form 10-K to the business conducted by EEX are
meant to include the business of Old EEI and LSEPO conducted before the Merger
and the business of EEX conducted after the Merger, except as otherwise
noted.)
U.S. EXPLORATION AND DEVELOPMENT
OFFSHORE
Deepwater Gulf of Mexico--During early 1997, the EEX focus shifted from the
shallower Pleistocene play to the deeper Pliocene and Miocene plays where
significant economic reserve potential has been confirmed by recent industry
activity. To reduce the financial risk associated with dry holes and to
accelerate the drilling program, a joint venture was formed with Enterprise
Oil PLC ("Enterprise") in which Enterprise funds substantially all early
exploratory well costs and certain appraisal and development costs in return
for one half of EEX's working interest in 78 deep water leases.
The prospect inventory was expanded through participation in two lease sales
that added 18 leases comprising 10 prospects in 1997. At the end of the year,
the deep water prospect inventory totaled in excess of 40 prospects and leads.
The Enterprise agreement covers funding for EEX's share of the first $65
million of exploration drilling costs, $10 million of appraisal costs and $25
million of development costs. The first
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exploratory well (Llano) drilled in this deepwater program at Garden Banks 386
was successful. The well encountered a number of hydrocarbon intervals between
23,000 feet and 25,000 feet until drilling was suspended due to pressure
limitations for the rig on location. The well was temporarily abandoned in
order to obtain a rig with higher pressure capabilities. Such a rig has been
contracted and is expected to begin deepening the well late in the first
quarter 1998 to evaluate the Miocene potential of the prospect.
EEX has two other rigs under long term contract at attractive day rates to
evaluate and appraise the deepwater potential. From time to time EEX intends
to contract for rigs having additional capabilities in order to fully evaluate
the prospect inventory.
GB 388 (Cooper)--The Cooper field was developed in the Pleistocene play.
Reservoir performance in 1997 was disappointing. In addition, the A-3 well was
abandoned after an unsuccessful attempt to drill through unconsolidated sand
in a near salt region. A re-evaluation of reserves in 1997 at Cooper resulted
in a downward revision of 82 billion cubic feet of gas equivalent.
At year-end, EEX owned interests in 85 blocks in the Deepwater Gulf of
Mexico, 9 of which were held by production, and 55 of which were operated by
EEX.
Gulf of Mexico Shelf--During 1997, new geophysical interpretation, new 3-D
seismic and an improved technical approach were employed. This restructured
program resulted in drilling 11 wells of which seven were successful. Five of
the successful wells were operated by EEX, including those drilled in East
Cameron blocks 303 and 349/350 and Matagorda Island 705. Production commenced
in the second half of 1997 with gross producing rates from these East Cameron
blocks of approximately 57 million cubic feet of natural gas and 2,985 barrels
of oil per day. Gross producing rates from the new Matagorda Island 705 well
were approximately 19 million cubic feet of natural gas and 50 barrels of oil
per day.
At year-end, EEX owned interests in 113 blocks in the Gulf of Mexico Shelf,
52 of which were held by production, and 58 of which were operated by EEX.
Texas State Waters--The Trinity Bay program resulted in 5 discoveries in 6
attempts and added approximately 50 million cubic feet of natural gas
equivalent per day ("mmcfe/d") (gross) of production by December, 1997 with
two wells remaining to be completed. Three additional wells remain to be
drilled in the area. At nearby Nassau Bay, one successful well was drilled
producing 10 mmcfe/d and one dry hole was drilled.
At year-end, EEX owned interests in 35 blocks in Texas State waters, 15 of
which were held by production, and all of which were operated by EEX.
ONSHORE
The Onshore program in 1997 focused on three areas, developing the Warwink
field in West Texas and evaluating adjacent exploration opportunities, and
realizing value from the Hardeman basin in North Texas and the Anadarko basin
in Oklahoma. At Warwink, 15 wells were drilled, 14 of which were successful.
Additional acreage was obtained in the area to support further exploratory
drilling.
Two joint ventures were undertaken in 1997 to allow EEX to benefit from
exploration in non-core fields with minimal EEX technical effort and reduce
the financial risk associated with dry holes. These agreements provide for
carried well costs and result in a lower cost of ownership. Lariat Petroleum
purchased 25% of EEX's working interest in the Oklahoma properties and assumed
operations. In addition, Lariat will carry EEX for a 50% working interest in
$7 million of exploratory drilling. Key Production purchased a 20% working
interest in EEX properties in the Hardeman Basin and assumed operations. Key
will carry EEX for a 40% working interest in 20 exploratory wells. These joint
ventures allow local operators, for whom these assets represent a core
business, to exploit EEX's underdeveloped acreage prior to its ultimate
disposition.
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INTERNATIONAL EXPLORATION AND DEVELOPMENT
Indonesia (Onshore Java) Tuban block--During 1997, development drilling
continued and work was completed on the initial production facilities.
Production commenced from the Mudi field on December 30, 1997 and gross
production is projected to be 20,000 barrels per day by the second quarter of
1998. In addition, two exploration prospects were evaluated and are scheduled
to be tested in 1998. On February 10, 1998, EEX announced that it entered into
an agreement with Risjad Salim Petroleum (Tuban) Ltd. ("RSP") to acquire, as
of January 1, 1998, RSP's 25% participation interest in the Tuban Production
Sharing Contract located on the island of Java in Indonesia. This transaction
will increase EEX's interest in the Tuban block to 50%. In addition to several
exploration prospects, the Tuban block contains the Mudi field. EEX will pay
approximately $40 million plus a portion of future net profits for the RSP
interest. The transaction is expected to close before March 31, 1998.
Indonesia (Offshore Sumatra) Asahan block--In April 1997, EEX acquired a 60%
interest in 103,783 acres in the Asahan block. EEX will pay all seismic
acquisition costs and own a 60% participation interest. Upon completion of
geophysical operations, EEX can elect to participate in an exploration
drilling program or withdraw with no further obligation. All block costs
beyond 1998 seismic acquisition will be shared 60% by EEX and 40% by its
partner, Risjad Salim.
Turkey--On February 10, 1998, EEX announced that it had entered into an
agreement to acquire 60% of Aladdin Middle East, Ltd.'s and White Wolf
Exploration's interest in thirteen exploration licenses covering 1.6 million
gross acres located in the South Mardin basin in southeastern Turkey. EEX will
spend $3.0 million to reprocess existing seismic data and acquire new data
over the southeastern portion of the South Mardin Basin. Upon completion of
geophysical operations, EEX can elect to participate in an exploration
drilling program or withdraw with no further obligation. This region has oil
source characteristics similar to recent light oil discoveries in Saudi
Arabia.
On February 25, 1998, EEX entered into a second agreement with Aladdin
Middle East, Ltd. and Transmediterranean Oil Company, Ltd. to acquire a 60%
interest in 8 exploration licenses covering approximately 807,000 gross acres
in central Turkey. EEX will pay 60% of the costs of drilling an exploratory
well in the area and approximately $1.0 million to acquire seismic data to
earn its interest.
ASSET DIVESTITURES
During 1997, proceeds from asset sales totaled approximately $133 million
resulting in a gain of $53 million. These asset sales included oil and natural
gas reserves of approximately 198 billion cubic feet equivalent ("Bcfe"). In
addition, these sales allow EEX to reduce its cost of ownership for its U.S.
operations and focus exploration efforts in those areas where significant
value can be added. Total sales include proved undeveloped reserves of
approximately 91 Bcfe associated with the Green Canyon 254 (Allegheny)
project, which was sold for $20.5 million and additional interest in nearby
exploration acreage on the Sheba prospect.
Sale of East Texas Properties. On February 25, 1998, EEX announced that it
had entered into an agreement to sell substantially all of its properties in
East Texas and North Louisiana, representing proved reserves of approximately
250 Bcfe of natural gas, for $265 million. The effective date of the sale is
January 1, 1998 with the closing expected in the second quarter of 1998. As a
part of the sale, EEX will retain an obligation to deliver approximately 30
billion cubic feet of natural gas under a long-standing agreement with Encogen
One Partners, Ltd. Proceeds from the sale will be used to fund the previously
announced purchase of additional interests in Indonesia and to provide
additional financial flexibility.
PLANT OPERATIONS BUSINESS
EEX provides operation and maintenance services under contract, to three
cogeneration plants: (i) "Encogen One," a 255 megawatt cogeneration facility
located in Sweetwater, Texas, (ii) "Encogen Four," a 62 megawatt cogeneration
facility located in Buffalo, New York and (iii) "Encogen Northwest," a 160
megawatt
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cogeneration facility located in Bellingham, Washington. EEX operates and
maintains the facilities under the terms of operation and maintenance
agreements that provide EEX periodic fees and reimbursement of certain costs.
EEX employs approximately 65 full-time employees in connection with the Plant
Operations Business.
SALES INFORMATION
Sales data are set forth under "Selected Operating Data" included in
Appendix A to this report.
MAJOR CUSTOMERS
EEX sells its gas under both long- and short-term contracts. EEX markets
most of its gas through third-party gas marketing organizations while
maintaining a small core staff to ensure market prices are received.
EEX sells its oil under contracts that are for one year or less. Prices
generally are based upon field posted prices plus negotiated bonuses.
EEX utilizes futures contracts, commodity price swaps and other financial
instruments to reduce exposure of its oil and gas production to price
volatility. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Oil and Gas Market Volatility" and Note 12 of the
Notes to Consolidated Financial Statements included in Appendix A for
additional information on hedging activities.
COMPETITION
All phases of the oil and gas industry are highly competitive. EEX competes
in the acquisition of properties, the search for and development of reserves,
the production and sale of oil and gas and the securing of the labor and
equipment required to conduct operations. EEX's competitors include major oil
and gas companies, other independent oil and gas concerns and individual
producers and operators. Many of these competitors have financial and other
resources that substantially exceed those available to EEX. Oil and gas
producers also compete with other industries that supply energy and fuel.
EEX's success in discovering reserves will depend upon its ability to select
suitable prospects for future exploration in today's competitive environment.
GOVERNMENT REGULATION
The oil and gas industry is extensively regulated by federal, state and
local authorities and by governmental agencies of foreign countries.
Legislation affecting the oil and gas industry is under constant review for
amendment or expansion. Numerous departments and agencies, federal, state and
foreign, have issued rules and regulations binding on the oil and gas industry
and its individual members, some of which carry substantial penalties for the
failure to comply. Inasmuch as such laws and regulations are frequently
amended, reinterpreted or expanded, EEX is unable to predict the future cost
or impact of complying with such laws and regulations.
REGULATION OF OIL AND NATURAL GAS EXPLORATION AND PRODUCTION
The Texas Railroad Commission regulates the production of oil and gas by EEX
in Texas. Similar regulations are in effect in all states in which EEX
explores for and produces oil and gas, and in foreign countries where EEX has
operations. Such regulations include requiring permits for the drilling of
wells, maintaining bonding requirements in order to drill or operate wells,
and regulating the location of wells, the method of drilling and casing wells,
the surface use and restoration of properties upon which wells are drilling
and the plugging and abandonment of wells. EEX's operations are also subject
to various conservation laws and regulations. These include the regulation of
the size of drilling and spacing units or proration units and the density of
wells which may be drilled and unitization or pooling of oil and gas
properties. In this regard, some states allow the forced pooling or
integration of tracts to facilitate exploration while other states rely on
voluntary pooling of lands and leases. In addition, state conservation laws
establish maximum rates of production requirements regarding the ratability of
production.
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ENVIRONMENTAL MATTERS
Oil and gas operations are subject to extensive federal, state and local
laws and regulations dealing with environmental protection, including, but not
limited to, the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"), also known as "Superfund," and similar state
statutes. Foreign countries also have environmental regulations affecting oil
and gas operations.
With respect to federal leases, EEX's operations are subject to interruption
or termination by governmental authorities on account of environmental and
other considerations. Regulations of the Department of the Interior currently
impose absolute liability upon the lessee under a federal lease for the costs
to clean-up pollution resulting from a lessee's operations, and such lessee
may also be subject to possible legal liability for pollution damages. EEX
maintains insurance against costs of clean-up operations, but is not fully
insured against all such risks. A serious incident of pollution may result in
the Department of the Interior requiring lessees under federal leases to
suspend or cease operation in the affected area. With respect to any EEX
operations conducted on offshore federal leases, liability may generally be
imposed under the Outer Continental Shelf Lands Act for costs of clean-up and
damages caused by pollution resulting from such operations, other than damages
caused by acts of war or the negligence of third parties.
EEX's onshore operations are subject to numerous United States federal,
state and local laws and regulations controlling the discharge of materials
into the environment or otherwise relating to the protection of the
environment, including CERCLA. These regulations, among other things, impose
absolute liability on the lessee under a lease for the cost of clean-up of
pollution resulting from a lessee's operations, subject the lessee to
liability for pollution damages, may require suspension or cessation of
operations in affected areas and impose restrictions on the injection of
liquids into subsurface aquifers that may contaminate groundwater. Persons who
are or were responsible for releases of hazardous substances under CERCLA may
be subject to joint and several liability for the remediation and clean-up
costs and for damages to natural resources.
The Texas Natural Resource Conservation Commission has named EEX a
potentially responsible party ("PRP"), under a state-equivalent of CERCLA, for
the cleanup of the McBay State Oil & Gas site, a former waste oil reclamation
plant that operated in Grapeland, Texas from 1959 until 1987. EEX and 21 other
PRPs have entered into an agreement to conduct a waste removal action at the
site. The waste removal is expected to cost less than $500,000. Based upon the
Company's estimated contribution of less than 1% of the waste contained at the
site, EEX's exposure is not expected to exceed $5,000. However, because
liability for cleanup under Superfund statutes is joint and several, it is
possible that EEX would be required to bear the entire costs of cleanup.
Because a number of parties have indicated they will share the costs, the
imposition of the full liability on EEX is deemed remote.
The Oil Pollution Act of 1990 and regulations thereunder impose a variety of
regulations on "responsible parties" (which includes owners and operators of
offshore facilities) related to the prevention of oil spills and liability for
damages resulting from such spills in the United States waters. In addition,
it imposes ongoing requirements on responsible parties, including proof of
financial responsibility to cover at least some costs in a potential spill.
The Coastal Zone Management Act authorizes state implementation and
development of programs containing management measures for the control of
nonpoint source pollution to restore and protect coastal waters.
The operations of EEX are also subject to the Clean Water Act and the Clean
Air Act, as amended, and comparable state statutes. EEX may be required to
incur certain capital expenditures over the next five to ten years for
pollution control equipment. The Company's operations may generate or
transport both hazardous and nonhazardous solid wastes that are subject to the
requirements of the Resource Conservation and Recovery Act and comparable
state statutes and regulations.
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REGULATION OF OFFSHORE OPERATIONS
Lessees must obtain the approval of the Minerals Management Service ("MMS"),
a federal agency, and various other federal and state agencies' approval for
exploration, development and production plans prior to the commencement of
offshore operations. Similarly, the MMS has promulgated other regulations
governing the plugging and abandoning of wells located offshore and the
removal of all production facilities. Under certain circumstances, including
but not limited to, conditions deemed to be a threat or harm to the
environment, the MMS may also require any EEX operation on federal leases to
be suspended or terminated in the affected area.
NATURAL GAS MARKETING AND TRANSPORTATION
Although maximum selling prices of natural gas were formerly regulated, the
Natural Gas Wellhead Decontrol Act of 1989 ("Decontrol Act") terminated
wellhead price controls on all domestic natural gas on January 1, 1993, and
amended the Natural Gas Policy Act of 1978 to remove completely by January 1,
1993 price and nonprice controls for all "first sales" of natural gas, which
will include all sales by EEX of its own production. Consequently, sales of
EEX's natural gas currently may be made at market prices, subject to
applicable contract provisions. The FERC's jurisdiction over natural gas
transportation was unaffected by the Decontrol Act.
The Federal Energy Regulatory Commission (the "FERC") regulates interstate
natural gas transportation rates and service conditions, which affect the
marketing of natural gas produced by EEX, as well as the revenues received by
EEX for sales of such natural gas. Since the latter part of 1985, the FERC has
endeavored to make interstate natural gas transportation more accessible to
gas buyers and sellers on an open and nondiscriminatory basis. The FERC's
efforts have significantly altered the marketing and pricing of natural gas.
Commencing in April 1992, the FERC issued Order Nos. 636, 636-A and 636-B
(collectively, "Order No. 636"), which, among other things, require interstate
pipelines to "restructure" to provide transportation separate or "unbundled"
from the pipelines' sales of gas. Also, Order No. 636 requires pipelines to
provide open-access transportation on a basis that is equal for all gas
supplies.
Additional proposals and proceedings that might affect the natural gas
industry are considered from time to time by Congress, the FERC, state
regulatory bodies and the courts. EEX cannot predict when or if any such
proposals might become effective, or their effect, if any, on EEX's
operations. The natural gas industry historically has been very heavily
regulated; therefore, there is no assurance that the less stringent regulatory
approach recently pursued by the FERC and Congress will continue indefinitely
into the future. State regulation of gathering facilities generally includes
various transportation, safety, environmental, and nondiscriminatory purchase
and nondiscriminatory purchase and transport requirements, but does not
generally entail rate regulation.
In the aggregate, compliance with federal and state rules and regulations is
not expected to have a material adverse effect on EEX's operations.
EMPLOYEES
At January 1, 1998, EEX had 420 full-time employees, 355 of which were
involved principally with oil and gas operations. The remainder were involved
with cogeneration operations.
OFFICES
The principal offices of EEX are located at 2500 CityWest Blvd., Suite 1400,
Houston, Texas 77042, and its telephone number is (713) 243-3100. Production
offices are maintained in Dallas, Houston, and Athens, Texas. Cogeneration
offices are maintained in Sweetwater, Texas, Buffalo, New York and Bellingham,
Washington.
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FORWARD LOOKING STATEMENTS--UNCERTAINTIES AND RISKS
Certain statements in this report, including statements of EEX's and
management's expectations, intentions, plans and beliefs, including those
contained in or implied by "Business," "Properties," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the Notes
to Consolidated Financial Statements, are "forward-looking statements," within
the meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
that are subject to certain events, risks and uncertainties that may be
outside EEX's control. These forward-looking statements include statements of
management's plans and objectives for EEX's future operations and statements
of future economic performance; information regarding drilling schedules,
expected or planned production, future production levels of international and
domestic fields, EEX's capital budget and future capital requirements, EEX's
meeting its future capital needs, the level of future expenditures for
environmental costs and the outcome of regulatory and litigation matters; and
the assumptions described in this report underlying such forward-looking
statements. Actual results and developments could differ materially from those
expressed in or implied by such statements due to a number of factors,
including, without limitation, those described in the context of such forward-
looking statements and the risk factors set forth below and described from
time to time in EEX's other documents and reports filed with the Securities
and Exchange Commission.
Exploration Risk. Exploration for oil and gas in the deepwater Gulf of
Mexico and unexplored frontier areas have inherent and historically high risk.
As described in this report, EEX is selling its onshore producing properties
and will focus on exploration opportunities in offshore and international
areas which will increase associated risk. Future reserve increases and
production will be dependent on EEX's success in these exploration efforts and
no assurances can be given of such success.
Estimating Reserves and Future Net Cash Flows. Uncertainties are inherent in
estimating quantities and values of reserves and in projecting rates of
production, net revenues and the timing of development expenditures. The
reserve data represent estimates only of the recovery of hydrocarbons from
underground accumulations and are often different from the quantities
ultimately recovered. Any downward adjustment in reserve estimates could
adversely affect EEX.
Operational Risks and Hazards. EEX's operations are subject to the risks and
uncertainties associated with finding, acquiring and developing oil and gas
properties, and producing, transporting and selling oil and gas. Operations
may be materially curtailed, delayed or canceled as a result of numerous
factors, such as accidents, weather conditions, compliance with governmental
requirements and shortages or delays in the delivery of equipment. Drilling
may involve unprofitable efforts, not only with respect to dry wells, but also
with respect to wells that are productive but do not produce sufficient net
revenues to return a profit after drilling, operating and other costs. Various
field operating hazards such as fires, explosions, blow-outs, equipment
failures, abnormally pressured formations and environmental accidents may
adversely affect production from successful wells. EEX's ability to sell its
oil and gas production is dependent on the availability and capacity of
gathering systems, pipelines and other forms of transportation.
Offshore Risks. EEX's offshore Gulf of Mexico oil and gas reserves include
properties located in water depths of 20 to in excess of 7,000 feet where
operations are by their nature more difficult than drilling operations
conducted on land in established producing areas. Deepwater drilling and
operations require the application of more advanced technologies that involve
a higher risk of mechanical failure and can result in significantly higher
drilling and operating costs. Furthermore, offshore operations require a
significant amount of time between the time of discovery and the time the gas
or oil is actually marketed, increasing the market risk involved with such
operations.
Volatility of Oil and Gas Markets. EEX's operations are highly dependent
upon the prices of, and demand for, oil and gas. These prices have been, and
are likely to continue to be, volatile. Prices are subject to fluctuations in
response to a variety of factors that are beyond the control of EEX, such as
worldwide economic and political conditions as they affect actions of OPEC and
Middle East and other producing countries, and the
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price and availability of alternative fuels. EEX's hedging activities with
respect to some of its projected oil and gas production, which are designed to
protect against price declines, may prevent EEX from realizing the benefits of
price increases above the levels of the hedges and protect it from incurring
the detriments of price decreases below the level of hedges. Because the
majority of EEX's reserve base is natural gas on an energy equivalent basis,
it is more sensitive to fluctuations in the price of natural gas.
Government Regulation. EEX's business is subject to certain federal, state
and local laws and regulations relating to the drilling for the production of
oil and gas, as well as environmental and safety matters. See "Business--
Government Regulation."
International Operations. EEX's interests in countries outside the United
States are subject to the various risks inherent in foreign operations. These
risks may include, among other things, currency restrictions and exchange rate
fluctuations, loss of revenue, property and equipment as a result of
expropriation, nationalization, war, insurrection and other political risks,
risks of increases in taxes and governmental royalties, renegotiation of
contracts with governmental entities, changes in laws and policies governing
operations of foreign-based companies and other uncertainties arising out of
foreign government sovereignty over the Company's international operations.
The Company's international operations may also be adversely affected by laws
and policies of the United States affecting foreign trade, taxation and
investment. In addition, in the event of a dispute arising from foreign
operations, the Company may be subject to the exclusive jurisdiction of
foreign courts or may not be successful in subjecting foreign persons to the
jurisdiction of the courts of the United States.
ITEM 2. PROPERTIES
EEX's domestic activities were focused in four regions in 1997: the Gulf of
Mexico; East Texas; the Gulf Coast Region of Texas, Louisiana, Mississippi and
Alabama; and other onshore areas. The following table sets forth estimated net
proved reserves of EEX by region, as estimated by Netherland, Sewell &
Associates, Inc., at January 1, 1998:
<TABLE>
<CAPTION>
OIL
NATURAL AND GAS
GAS LIQUIDS TOTAL
REGION (BCF)* (MMBBLS)* BCFE*
------ ------- --------- -----
<S> <C> <C> <C>
Gulf of Mexico.................................... 58.4 4.5 85.2
East Texas........................................ 212.5 1.4 221.0(a)
Gulf Coast........................................ 143.2 3.3 163.1
Other onshore..................................... 46.1 8.9 99.5
----- ---- -----
Total Domestic................................ 460.2 18.1 568.8
International..................................... -- 5.7 34.4
----- ---- -----
Total......................................... 460.2 23.8 603.2
===== ==== =====
</TABLE>
- --------
* Bcf--Billion cubic feet.
MMBbls--Million barrels.
Bcfe--Billion cubic feet of gas equivalent.
(a) Net of approximately 30 Bcf related to obligation to Encogen One Partners,
Ltd.
See Note 17 of the Notes to Consolidated Financial Statements included in
Appendix A to this report for additional information on oil and gas reserves.
During 1997, EEX filed Form EIA-23 with the Department of Energy reflecting
reserve estimates for the year 1996. Such reserve estimates were not
materially different from the 1996 reserve estimates reported in Note 17 of
the Notes to Consolidated Financial Statements included in Appendix A to this
report.
8
<PAGE>
Developed and undeveloped lease acreage as of December 31, 1997, are set
forth below:
<TABLE>
<CAPTION>
DEVELOPED ACRES UNDEVELOPED ACRES
--------------- -------------------
GROSS NET(1) GROSS NET(1)
------- ------- --------- ---------
<S> <C> <C> <C> <C>
Domestic
Offshore............................... 163,814 38,809 892,960 365,144
Onshore................................ 318,950 177,180 519,908 340,276
------- ------- --------- ---------
Total................................ 482,764 215,989 1,412,868 705,420
International............................ 5,000 5,000 3,436,895 1,182,727
------- ------- --------- ---------
Total................................ 487,764 220,989 4,849,763 1,888,147
======= ======= ========= =========
</TABLE>
- --------
(1) Represents the proportionate interest of EEX in the gross acres under
lease.
EEX purchased about 47,000 net acres in 18 blocks in the Gulf of Mexico in
1997. EEX's Gulf of Mexico holdings at year end totaled some 365,000 net
acres, with 201,000 net acres in U.S. Continental Shelf properties and 164,000
net acres in deep water blocks, with a total average gross working interest of
35.44% in leases covering 233 blocks. EEX operates 148 of the leases. EEX also
canceled or allowed to expire 13 Gulf of Mexico leases and sold its interest
in another eight during the year, which were condemned following either
drilling on or near them or after geophysical and geological findings.
EEX plans further drilling on undeveloped acreage but at this time cannot
specify the extent of the drilling or predict how successful it will be in
establishing commercial reserves sufficient to justify retention of the
acreage. The primary terms under which the undeveloped acreage can be retained
by the payment of delay rentals without the establishment of oil and gas
reserves expire as follows:
<TABLE>
<CAPTION>
UNDEVELOPED ACRES EXPIRING
-----------------------------------
DOMESTIC INTERNATIONAL
--------------- -------------------
GROSS NET GROSS NET
------- ------- --------- ---------
<S> <C> <C> <C> <C>
1998..................................... 254,316 126,976 188,014 70,013
1999..................................... 268,445 134,030
2000 and later........................... 890,107 444,414 3,248,881 1,112,714
</TABLE>
Drilling rights with regard to a portion of the undeveloped acreage may be
allowed to expire before the expiration of primary terms specified in this
schedule by non-payment of delay rentals.
At December 31, 1997, EEX owned interests in 1,587 gas wells (923 net) and
1,643 oil wells (348 net) in the United States and 9 oil wells (1.125 net) in
Indonesia. Of these, 72 gas wells (51.7 net) and 2 oil wells (.7 net) were
dual completions in single boreholes.
9
<PAGE>
Drilling activity during the three years ended December 31, 1997, is set
forth below:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
GROSS NET GROSS NET GROSS NET
----- ---- ----- ---- ----- ----
<S> <C> <C> <C> <C> <C> <C>
Exploratory Wells:
Productive................................ 32 11.3 42 30.0 38 24.6
Dry....................................... 19 8.7 32 20.7 47 26.8
--- ---- --- ---- --- ----
Total................................... 51 20.0 74 50.7 85 51.4
=== ==== === ==== === ====
Development Wells:
Productive................................ 75 33.2 82 54.3 41 26.4
Dry....................................... 9 3.8 5 4.0 6 3.5
--- ---- --- ---- --- ----
Total................................... 84 37.0 87 58.3 47 29.9
=== ==== === ==== === ====
</TABLE>
Note: Productive wells are either producing wells or wells capable of
commercial production, although currently shut-in. The term "gross" refers
to the wells in which a working interest is owned, and the term "net"
refers to gross wells multiplied by the percentage of EEX's working
interest owned therein.
At December 31, 1997, EEX was participating in 44 wells (26 net), which were
either being drilled or in some stage of completion.
The number of wells drilled is not a significant measure or indicator of the
relative success or value of a drilling program because the significance of
the reserves and economic potential may vary widely for each project. It is
also important to recognize that reported completions may not necessarily
correspond to capital expenditures, since Securities and Exchange Commission
(SEC) guidelines do not allow a well to be reported as completed until it is
ready for production. In the case of offshore wells, this may be several years
following initial drilling because of the timing of construction of platforms,
pipelines and other necessary facilities.
Additional information relating to the oil and gas activities of EEX is set
forth in Note 17 of the Notes to Consolidated Financial Statements included in
Appendix A to this report.
EEX leases approximately 169,000 square feet of office space for its offices
in Dallas and Houston, Texas, under leases expiring in December 1998 and
September 2002.
ITEM 3. LEGAL PROCEEDINGS
EEX is a party to lawsuits arising in the ordinary course of its business.
EEX believes, based on its current knowledge and the advice of counsel, that
all lawsuits and claims would not have a material adverse effect on its
financial condition.
The Texas Natural Resource Conservation Commission has named EEX a
potentially responsible party ("PRP"), under a state-equivalent of CERCLA, for
the cleanup of the McBay State Oil & Gas site, a former waste oil reclamation
plant that operated in Grapeland, Texas from 1959 until 1987. EEX and 21 other
PRP's have entered into an agreement to conduct a waste removal action at the
site. The waste removal is expected to cost less than $500,000. Based upon the
Company's estimated contribution of less than 1% of the waste contained at the
site, EEX's exposure is not expected to exceed $5,000. However, because
liability for cleanup under Superfund statutes is joint and several, it is
possible that EEX would be required to bear the entire cost of cleanup.
Because a number of parties have indicated they will share the costs, the
imposition of the full liability on EEX is deemed remote.
A lawsuit described in EEX's Form 10-Q for the quarter ended September 30,
1997, concerning a claim of anticipatory breach of a rig contract, was settled
during the fourth quarter of 1997 resulting in a rig sharing arrangement that
continues EEX's use of the rig.
10
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At a special meeting of shareholders held on December 19, 1997, the
shareholders approved changing the name of the Company to "EEX Corporation."
Listed below is the result of the vote.
<TABLE>
<CAPTION>
SHARES SHARES VOTED SHARES
VOTED "FOR" "AGAINST" "ABSTAINING"
----------- ------------ ------------
<S> <C> <C>
110,208,997 2,778,998 357,744
</TABLE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded principally on the New York Stock
Exchange. The following table shows the high and low sales prices per share of
the common stock of the Company reported in the New York Stock Exchange--
Composite Transactions report for the periods shown as quoted in the Wall
Street Journal.
<TABLE>
<CAPTION>
1997 1996
------------- -----------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter................................ $12 1/4 $8 5/8 $12 $ 9
Second Quarter............................... 11 1/4 7 3/4 11 3/8 9 5/8
Third Quarter................................ 11 13/16 7 5/16 11 1/2 8 1/4
Fourth Quarter............................... 9 3/4 8 11 7/8 8 7/8
</TABLE>
At March 12, 1997, EEX had 127,067,427 outstanding shares of Common Stock
held by 15,968 shareholders of record.
There were no dividends declared on the Company's common stock in 1997 or
1996. The declaration of future dividends will be dependent upon business
conditions, earnings, cash requirements and other relevant factors.
ITEM 6. SELECTED FINANCIAL DATA
The information required hereunder is set forth under "Selected Financial
Data" included in Appendix A to this report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required hereunder is set forth under "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in Appendix A to this report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required hereunder is set forth under "Report of Independent
Auditors," "Management Report on Responsibility for Financial Reporting,"
"Statements of Consolidated Operations," "Statements of Consolidated Cash
Flows," "Consolidated Balance Sheets," "Statements of Consolidated
Shareholders' Equity," "Notes to Consolidated Financial Statements" and
"Quarterly Results" included in Appendix A to this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Information concerning Registrant's change of accountants was previously
reported in Current Report on Form 8-K dated September 25, 1997.
11
<PAGE>
PART III
ITEMS 10-13.
Pursuant to Instruction G(3) to Form 10K, the information required in Items
10-13 is incorporated by reference from EEX's definitive proxy statement filed
pursuant to Regulation 14A.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A)-1 FINANCIAL STATEMENTS
The following items appear in the Financial Information section included in
Appendix A to this report:
<TABLE>
<CAPTION>
ITEM PAGE
---- ----
<S> <C>
Selected Financial Data................................................. A-2
Selected Operating Data................................................. A-3
Management's Discussion and Analysis of Finanacial
Condition and Results of Operations.................................... A-4
Report of Independent Auditors.......................................... A-12
Management Report on Responsibility for Financial Reporting............. A-13
Financial Statements:
Statements of Consolidated Operations................................. A-14
Statements of Consolidated Cash Flows................................. A-15
Consolidated Balance Sheets........................................... A-16
Statements of Consolidated Shareholders' Equity....................... A-17
Notes to Consolidated Financial Statements............................ A-18
Quarterly Results....................................................... A-37
</TABLE>
(A)-2 FINANCIAL STATEMENT SCHEDULES
The consolidated financial statement schedules are omitted because of the
absence of the conditions under which they are required or because the
required information is included in the consolidated financial statements or
notes thereto.
(A)-3 EXHIBITS
3.1 Restated Articles of Incorporation of the Registrant as currently in
effect. (1)
3.2 Bylaws of the Registrant as currently in effect. (1)
4.1 Form of Common Stock Certificate incorporated by reference to Exhibit
4.1 to the Registration Statement of Old EEI on Form S-4 (No. 33-
56792). (2)
4.2 Rights Agreement dated as of September 10, 1996, between the
Registrant's (formerly Lone Star Energy Plant Operations) and Harris
Trust Company of New York as Rights Agent, incorporated by reference to
Exhibit 10.21 to the Registrant's Registration Statement on Form S-4
(No. 333-13241). (2)
4.3 Amended and Restricted Preferred Stock Subscription Agreement dated
October 27, 1997 and effective as of September 29, 1997, among EEX
Capital Inc., and UBS Securities LLC, as Placement Agent for the
Holders from time to time of the Preferred Stock and EEI (not an
issuer), incorporated by reference to Exhibit 4.3 to Registrant's Form
10-Q for the Quarter Ended September 30, 1997. (2)
4.4 Amended and Restated Certificate of Designations, Preferences and
Relative, Participating, Optional and Other Special Rights of Preferred
Stock and Qualifications, Limitations and Restrictions thereof of Class
A Cumulative Perpetual Increasing Dividend Preferred Stock of EEX
Capital Inc., incorporated by reference to Exhibit 4.4 to Registrant's
Quarterly Report on Form 10-Q for the Quarter ended September 30,1997.
(2)
12
<PAGE>
4.5 $150,000,000 Subordinated Note made by EEX in favor of EEX Capital,
Inc., incorporated by reference to Exhibit 4.5 to Registrant's Form 10-
Q for the Quarter Ended September 30, 1997. (2)
10.1 PRODUCTION SYSTEM LEASE AGREEMENT (1996-A) dated as of November 15,
1996 among WILMINGTON TRUST COMPANY, not in its individual capacity but
solely as Corporate Grantor Trustee under the Trust Agreement, and
THOMAS P. LASKARIS, not in his individual capacity but solely as
Individual Grantor Trustee under the Trust Agreement, Lessor and
ENSERCH EXPLORATION, INC., Lessee. (1)
10.2 PRODUCTION SYSTEM LEASE AGREEMENT (1996-B) dated as of November 15,
1996 among WILMINGTON TRUST COMPANY, not in its individual capacity but
solely as Corporate Grantor Trustee under the Trust Agreement, and
THOMAS P. LASKARIS, not in his individual capacity but solely as
Individual Grantor Trustee under the Trust Agreement, Lessor and
ENSERCH EXPLORATION, INC., Lessee. (1)
10.3 Participation Agreement between EP Operating Limited Partnership and
Mobil Producing Texas and New Mexico Inc. incorporated by reference to
Exhibit 10.6 to the Registration Statement of Old EEI on Form S-4 (No.
33-56792). (2)
10.4 Stock Purchase Agreement, dated as of April 12, 1995, by and between
PG&E Enterprises, as Seller and Old EEI, as Buyer, incorporated
by reference to Exhibit 10 to ENSERCH's Current Report on Form 8-K dated
May 26, 1995. (2)
10.5 Credit Agreement, dated as of May 1, 1995, among Registrant as
Borrower, Texas Commerce Bank National Association, as Administrative
Agent, The Chase Manhattan Bank, N.A., as Syndication Agent, Chemical
Bank, as Auction Agent, and The Lenders now or hereafter Parties hereto,
amended by First Amendment dated September 16, 1996, Second Amendment
dated June 27, 1997, Third Amendment, dated September 25, 1997, and
Fourth Amendment dated December 15, 1997. (1)
10.6 Tax Sharing Agreement, dated as of January 1, 1995, between ENSERCH and
Old EEI, incorporated by reference to Exhibit 10.21 to the Registration
Statement of Old EEI on Form S-2 (No. 33-60461).(2)
10.7 Tax Allocation Agreement among ENSERCH, the Registrant and Texas
Utilities Company incorporated by reference to Annex A-3 to the
Agreement and Plan of Merger filed as Exhibit 2 to the Registrant's
Registration Statement on Form S-4 (No. 333-13241). (2)
10.8 Tax Assurance Agreement between ENSERCH and the Registrant incorporated
by reference to Annex A-4 to the Agreement and Plan of Merger filed as
Exhibit 2 to the Registrant's Registration Statement on Form S-4 (No.
333-13241). (2)
10.9 Purchase and Sale Agreement, dated February 12, 1998, between EEX
Operating L.P. and Registrant as Seller and Cross Timbers Oil Company,
as Buyer. (1)
10.10 Exploration and Participation Agreement, dated June 20, 1997, by and
between Old EEI and Enterprise Oil Gulf of Mexico, Inc. (1)
EXECUTIVE COMPENSATION
(EXHIBITS 10.11 THROUGH 10.15)
10.11 Enserch Exploration, Inc. Revised and Amended 1996 Stock Incentive Plan
incorporated by reference to Annex A-2 to the Agreement and plan of
Merger filed as Exhibit 2 to the Company's Registration Statement on
Form S-4 (No. 333-13241). (2)
10.12 The Registrant's Deferred Compensation Plan effective as of July 1,
1997, incorporated by reference to Exhibit 10.12 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1997.
(2)
10.13 Deferred Compensation Trust, effective as of July 1, 1997, incorporated
by reference to Exhibit 10.13 to Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1997. (2)
10.14 Form of Change of Control Agreement executed by certain executive
officers of the Company, filed as Exhibit 10.20 to the Annual Report on
Form 10-K for the year ended December 31, 1996 of Old EEX. (2)
13
<PAGE>
10.15 Form of Employment Agreement executed by certain executive officers of
the Registrant, incorporated by reference to Exhibit 10.20 to the
Annual Report on Form 10-K for the year ended December 31, 1996 of Old
EEI. (2)
21 Subsidiaries of the Registrant. (1)
23.1 Consent of Ernst & Young LLP, including consent to incorporation by
reference in Registration Statements on Form S-8 (No. 333-24595 and No.
333-41979). (1)
23.2 Consent of Netherland, Sewell & Associates, Inc. (1)
23.3 Consent of DeGoyler & MacNaughton. (1)
27.1 Financial Data Schedule--December 31, 1997. (1)
27.2 Financial Data Schedules--September 30, 1997; June 30, 1997; March 31,
1997; and December 31, 1996. (1)
27.3 Financial Data Schedules--September 30, 1996; June 30, 1996; March 31,
1996; December 31, 1995; and December 31, 1994. (1)
- --------
Long-term debt is described in the Notes to Consolidated Financial
Statements included in Appendix A to this report. EEX agrees to provide the
Commission, upon request, copies of instruments defining the rights of holders
of such long-term debt, which instruments are not filed herewith pursuant to
Paragraph (b)(4)(iii)(A) of Item 601 of Regulation S-K.
(1) Filed herewith.
(2) Incorporated by reference.
(B) REPORTS ON FORM 8-K
Current Report on Form 8-K dated October 15, 1997, was filed on October 16,
1997 (third quarter 1997 results of operations), Current Report on Form 8-K
dated December 16, 1997, was filed on December 17, 1997 (announcement of
successful deepwater discovery) and Current Report on Form 8-K dated December
19, 1997 was filed on December 22, 1997 (result of vote on proposal at Special
Meeting of Shareholders held on December 19, 1997).
14
<PAGE>
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
on its behalf by the undersigned, thereunto duly authorized:
EEX Corporation
By: /s/ T. M Hamilton
----------------------------------
T. M Hamilton,
Chairman and President
March 17, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE DATE
By: /s/ T. M Hamilton
March 17, 1998
----------------------------------
T. M Hamilton Chairman and
President, Chief Executive Officer
/s/ R. S. Langdon
---------------------------------- March 17, 1998
R. S. Langdon Executive Vice
President, Finance and
Administration, Chief Financial
Officer
/s/ R. E. Schmitz
March 17, 1998
----------------------------------
R. E. Schmitz Vice President and
Controller
/s/ F. S. Addy
---------------------------------- March 17, 1998
F. S. Addy
Director
/s/ B. A. Bridgewater, Jr.
---------------------------------- March 17, 1998
B. A. Bridgewater, Jr. Director
/s/ F. M. Lowther
---------------------------------- March 17, 1998
F. M. Lowther Director
/s/ M. P. Mallardi
---------------------------------- March 17, 1998
M. P. Mallardi Director
15
<PAGE>
APPENDIX A
EEX CORPORATION
INDEX TO FINANCIAL INFORMATION
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Selected Financial Data................................................... A-2
Selected Operating Data................................................... A-3
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... A-4
Report of Independent Auditors............................................ A-12
Management Report on Responsibility for Financial Reporting............... A-13
Financial Statements:
Statements of Consolidated Operations................................... A-14
Statements of Consolidated Cash Flows................................... A-15
Consolidated Balance Sheets............................................. A-16
Statements of Consolidated Shareholders' Equity......................... A-17
Notes to Consolidated Financial Statements.............................. A-18
Quarterly Results......................................................... A-37
</TABLE>
A-1
<PAGE>
EEX CORPORATION
SELECTED FINANCIAL DATA
(RESTATED, SEE NOTE (A) BELOW)
The financial data as of and for the years ended December 31, 1993 through
1997 were derived from the audited consolidated financial statements of the
Company and should be read in connection with the consolidated financial
statements and related notes included elsewhere herein.
<TABLE>
<CAPTION>
AS OF OR FOR YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1997 1996 1995(b) 1994 1993
--------- ---------- ---------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues............... $ 314,213 $ 338,146 $ 237,358 $ 191,866 $ 200,458
========= ========== ========== ========= =========
Net (Loss)............. $(216,103) $ (36,801) $ (42,585) $ (50,733) $ (24,193)
========= ========== ========== ========= =========
Pro forma
information--Change
in tax status(c)
(Loss) before income
taxes................ $ (50,477) $ (26,857)
Income taxes
(benefit)............ (17,591) (9,295)
--------- ---------
Net (Loss)............. $ (32,886) $ (17,562)
========= =========
Basic and Diluted Net
(Loss) per Share (pro
forma for
years prior to
1995)(d).............. $ (1.71) $ (0.29) $ (0.38) $ (0.31) $ (0.16)
========= ========== ========== ========= =========
BALANCE SHEET DATA
Total Assets........... $ 807,789 $1,195,454 $1,180,238 $ 812,871 $ 624,383
========= ========== ========== ========= =========
CAPITAL STRUCTURE
Short term borrowings.. $ 5,000
Capital lease
obligations........... 241,735 $ 244,985 $ 98,043 $ 155,855
Long--term debt........ 25,000 115,000 160,000 $ 298,000
Company--obligated
mandatorily
redeemable preferred
securities of
subsidiary............ 150,000 150,000
Minority interests in
preferred stock of
subsidiary............ 100,000
Owners' equity......... 274,663 490,406 525,992 364,828 311,423
--------- ---------- ---------- --------- ---------
Total................ $ 646,398 $1,000,391 $ 934,035 $ 520,683 $ 609,423
========= ========== ========== ========= =========
</TABLE>
- --------
(a) The consolidated financial statements for periods prior to 1997 have been
restated for a merger with a company under common control and for a change
to the successful efforts method of accounting. See Notes 1 and 3 of Notes
to Consolidated Financial Statements for further information.
(b) 1995 includes results of Dalen Corporation since acquisition on June 8,
1995.
(c) Prior to December 30, 1994, the operations of EEX were conducted through
Enserch Exploration Partners, Ltd., a partnership. Pro forma net (loss)
and per share data for periods prior to 1995 include a pro forma provision
for income taxes on partnership operations based on the applicable federal
statutory rate.
(d) The per share amounts for periods prior to 1997 have been restated as
required to comply with Statement of Financial Standards No. 128 "Earnings
Per Share". See Note 2 of Notes to Consolidated Financial Statements for
further information.
A-2
<PAGE>
EEX CORPORATION
SELECTED OPERATING DATA
<TABLE>
<CAPTION>
AS OF OR FOR YEAR ENDED DECEMBER 31,
-----------------------------------------
1997 1996 1995 1994 1993
------ -------- -------- ------- --------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Sales volume
Natural gas (Bcf).................. 84.5 100.5 90.2 67.1 70.0
Oil and condensate (MMBbls)........ 4.7 5.1 3.4 2.0 2.1
Natural gas liquids (MMBbls)....... .7 .6 .5 .2 .3
Total volumes (Bcfe)(a).......... 116.9 135.0 113.4 80.5 84.9
Average sales price
Natural gas (per Mcf).............. $ 2.36 $ 2.17 $ 1.74 $ 2.15 $ 2.09
Oil and condensate (per Bbl)....... 19.19 19.40 16.86 15.38 17.24
Natural gas liquids (per Bbl)...... 13.80 12.27 9.38 10.85 12.09
Total (per Mcfe)(a).............. 2.57 2.40 1.93 2.21 2.21
Costs and expenses (per Mcfe)(a)(b)
Production and operating(c)........ $ .42 $ .52 $ .44 $ .39 $ .37
Exploration........................ .60 .69 .68 .77 .43
Depreciation and amortization...... 1.24 1.26 .99 .88 .58
General, administrative and other.. .24 .26 .26 .25 .35
Taxes, other than income........... .15 .16 .17 .16 .19
Net Wells
Drilled............................ 57 109 81 74 79
Productive......................... 44 84 51 44 64
Proved Reserve Data (at year end)
Natural Gas (Bcf).................. 460.2 1,216.2 1,362.8 1,041.7 1,086.5
Oil and condensate (MMBbls)(d)..... 23.8 59.2 71.5 50.6 39.3
Total (Bcfe)(a).................. 603.2 1,571.5 1,791.8 1,345.3 1,322.3
Standardized Measure of Discounted
Future Net Cash Flows (in millions). $619.1 $1,715.1 $1,227.4 $ 879.3 $1,102.6
</TABLE>
- --------
(a) Oil and natural gas liquids are converted to Mcf equivalents (Mcfe) on the
basis of one barrel equals 6.0 Mcfe.
(b) Excludes unusual and non-recurring expenses.
(c) Excludes related production, severance and ad valorem taxes.
(d) Reserves include natural gas liquids attributable to leasehold interests.
A-3
<PAGE>
EEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Certain statements in this report, including statements of EEX's and
management's expectations, intentions, plans and beliefs, are "forward-looking
statements", within the meaning of Section 21E of the Securities Exchange Act
of 1934, as amended, that are subject to certain events, risks and
uncertainties that may be outside EEX's control. See Part I, Forward Looking
Statements--Uncertainties and Risks for further information.
OVERVIEW
In 1997, EEX Corporation ("EEX") became a separate company wholly
independent of its former majority owner, ENSERCH Corporation ("ENSERCH"), a
public utility. This transition to independent status coupled with the
engagement of a new senior management team resulted in a significant
restructuring of the Company's assets and operations. Early in the year, EEX's
management team completed a preliminary evaluation of the Company's prior
operations and announced a new business strategy designed to maximize
shareholder value as an independent company. A critical part of the strategy
development process included comparisons of past key operating statistics with
a group of peer independent producers, evaluations of non-core properties for
possible disposal, and reviews of proved non-producing reserves in core areas.
Key elements of the newly adopted strategy include near and long term goals
designed to reduce operating costs, accelerate the development of reserves and
improve the capital investment program through the reduction of finding costs
and enhanced reserve replacements. The more significant impacts of
implementing this strategy in 1997 are included in the discussion below.
REDUCE OPERATING COSTS
Operating costs consisting of production, general and administrative and
taxes other than income, totaled $0.94 per Mcfe in 1996, substantially higher
than EEX's peer companies. Management's long term goal is to reduce operating
costs to $0.55 per Mcfe primarily through staff reductions, production
efficiencies and the sale or trade of high cost, high overhead non-core
assets, primarily onshore U.S. Various initiatives are currently in progress
to achieve these goals. Several packages of properties were sold during 1997
and EEX recorded gains totaling $53 million pre-tax ($34 million after tax).
The Corporate headquarters were relocated to Houston, Texas, in early August,
and a formal plan to reduce the oil and gas employee count from over 500 to
less than 200 was announced. EEX recorded an unusual charge of $27 million in
1997 primarily for severance costs. Operating costs totaled $0.81 per Mcfe in
1997, reflecting property sales and the cost reduction initiatives described
above.
DEVELOP NON-PRODUCING RESERVES
EEX had a large inventory of proved, non-producing reserves at year end
1996. During the second quarter of 1997, several industry specialist companies
were commissioned to assist management in undertaking field studies with the
objective of converting these reserves to a producing status. The results of
the evaluations were disappointing. EEX immediately began an in-depth review
and evaluation of its reserves. As part of this review, EEX also reassessed
the reservoir performance and economic potential of the Cooper project which
indicated a major reduction in proven reserves for the project was required.
On August 5, 1997, based on preliminary results, EEX announced that it
expected a downward revision of 500 to 700 Bcfe in its non-producing reserves,
primarily in East Texas and the Cooper project. At the end of the third
quarter 1997, again based on preliminary results, EEX announced that downward
revisions were expected to be 670 Bcfe.
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of"
(SFAS 121) provides for the recognition of losses when
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events or changes in circumstances indicate that the carrying value of long-
lived assets may not be realized. The Company estimates fair values using the
present value of expected future cash flows for each significant oil and gas
field together with additional information (e.g., ongoing negotiations or
offers for properties offered for sale) where available. Amongst other
factors, the Company looks for an indication of impairment by comparing the
carrying value of its properties to the estimated future net revenues to be
generated by producing or selling these reserves. The book value of properties
held for production (use) for which undiscounted expected future net revenues
are less than book value and properties scheduled for disposal is adjusted to
the lower of cost or fair value. Accordingly, as a result of the third quarter
reserve revisions and the application of SFAS 121, EEX reduced the value of
its oil and gas properties by $210 million in the third quarter 1997 to
reflect the lower of cost or fair value for impaired properties.
EEX subsequently determined that its East Texas properties were no longer
core assets and packaged them for sale. Based on the estimated net realizable
value of these properties, EEX recognized an additional $40 million impairment
in the fourth quarter. Downward revisions in the final year-end reserve report
prepared by Netherland, Sewell and Associates, Inc. (N&S) totaled 712 Bcfe for
the year, requiring an additional $10 million impairment of the carrying value
of certain properties in the fourth quarter 1997, increasing the total
impairment for the year to $260 million. EEX presently expects to continue to
trade or sell existing onshore assets with the intent of exiting the onshore
U.S. Further, EEX expects that the fair value of its remaining onshore
properties is in excess of their book value.
REDUCE FINDING COSTS AND INCREASE RESERVE REPLACEMENT PERCENTAGE
The Company's long-term goal is to significantly reduce finding costs to
less than $4 per barrel and to replace at least 250% of annual production. The
strategies to realize these goals include the following: concentrate
exploration activities in areas with significant reserve potential, primarily
in the offshore deepwater U.S. Gulf of Mexico and selected international
countries; execute an orderly exit strategy from current onshore U.S.
activities and limit onshore exploration activities to selected plays; upgrade
exploration staff; and minimize financial exposure to dry holes. EEX has an
active exploration program in the deepwater Gulf of Mexico and recently
announced a discovery at Llano. Three additional wildcat wells will be spudded
late in the first quarter or early second quarter 1998 and the Llano well will
be reentered for deepening and further evaluation. The Company is actively
pursuing several international opportunities and recently announced
exploration ventures in Turkey. Onshore exploration activities have been
limited primarily to three areas: the Delaware Basin of West Texas, Hardeman
Basin of North Central Texas and Anadarko basin of Oklahoma, with positive
results. In conjunction with limited onshore exploration activity, the
exploration staff has been reduced by over 40% since year end 1996. Seismic
expenditures and costs of acquiring and holding the onshore leasehold
inventory will be further reduced in 1998. The Company executed three
agreements in 1997 which reduce financial exposure to dry holes in the near
term. A joint venture agreement with Enterprise Oil Plc was executed to
evaluate EEX's portfolio of blocks in the deepwater Gulf of Mexico. Under this
agreement Enterprise will pay the first $65 million to fund EEX's exploratory
drilling costs and an additional $35 million is available for evaluation and
development, depending on drilling success. EEX estimates that as many as 10
to 12 exploration wells will be covered by this agreement. In the Hardeman
basin, EEX's share of drilling and completion costs will be paid by Key
Production, who purchased a 20% interest and is the operator on the first 20
exploratory wells drilled in the project. Lariat, who purchased a 25% interest
and is the operator of the Oklahoma properties, will carry EEX for a 50%
working interest in $7 million of exploratory drilling.
REORGANIZATION
EEX is an independently owned energy exploration company involved in both
domestic and international oil and gas exploration and production. EEX also
provides operation and maintenance services, under contract, to three
cogeneration plants. Prior to August 5, 1997, Enserch Exploration, Inc. ("Old
EEI") was approximately 83% owned by ENSERCH.
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On August 5, 1997, the merger of ENSERCH and Texas Utilities Company and the
related merger of Old EEI and Lone Star Energy Plant Operations, Inc.
("LSEPO") were completed. Under the terms of the Old EEI/LSEPO merger, LSEPO
changed its name to "Enserch Exploration, Inc." ("EEI"), shares of Old EEI
were automatically converted into shares of EEI on a one-for-one basis in a
tax-free transaction, EEI issued 691,631 shares of common stock to ENSERCH in
exchange for outstanding LSEPO common stock and ENSERCH distributed to its
shareholders, on a pro rata basis, all of the shares of EEI common stock it
owned. In addition, the merger fixed LSEPO's working capital at $3.5 million.
For financial reporting purposes, the Old EEI/LSEPO merger was treated as a
combination of entities under common control. Accordingly, the operations and
assets and liabilities of Old EEI and LSEPO have been recorded at their
historical amounts in the accompanying consolidated financial statements. The
number of common shares outstanding for all periods has been increased to
reflect the 691,631 additional shares issued in the merger. The Restated
Articles of Incorporation of EEI authorized 400 million shares of common stock
with a par value of $.01. This change has been reflected in the accompanying
consolidated financial statements. On December 19, 1997 a special meeting of
shareholders was held at which the name of EEI was changed to EEX Corporation.
RESULTS OF OPERATIONS
EEX adopted the successful efforts method to account for its oil and gas
operations in the third quarter of 1997 and all prior period financial
statements have been restated. See Note 3 of Notes to Consolidated Financial
Statements for additional information. The following discussions of operating
results are based on those restated amounts.
EEX reported a 1997 net loss of $216 million ($1.71 per share), versus a net
loss of $37 million ($.29 per share) in 1996 and a net loss of $43 million
($.38 per share) in 1995.
As discussed above, 1997 was a year of change for EEX and the results of
operations for 1997 were impacted by the following unusual items:
. A $204 million after-tax ($260 million pre-tax) charge for impairment
of producing oil and gas properties required by SFAS 121. This
impairment will reduce future depreciation and amortization expense.
. A gain on sales of property, plant and equipment of $34 million after-
tax ($53 million pre-tax).
. An unusual charge, primarily severance, of $18 million after-tax ($27
million pre-tax) related to the reorganization and restructuring of
operations and the relocation of corporate headquarters to Houston,
Texas.
In the following comparisons of results of operations, 1997 results have
been adjusted to exclude the unusual items described above. Results of
operations for 1996 and 1995 have also been adjusted to exclude gains on sales
of property, plant and equipment of $20 million and $10 million after-tax ($30
million and $15 million pre-tax), respectively.
1997 RESULTS OF OPERATIONS COMPARED WITH 1996
Revenues for 1997 were $314 million, $24 million (7%) lower than 1996.
Natural gas revenues, 8% lower than 1996, were impacted by a 9% increase in
average prices, offset by a 16% decrease in production due to sales of non-
core properties. The average natural gas sales price per thousand cubic feet
(Mcf) was $2.36 in 1997 compared with $2.17 in 1996. Natural gas production
for 1997 was 84 billion cubic feet (Bcf), compared with 101 Bcf in 1996. Oil
revenues decreased $7 million (8%) due to sales of non-core properties and a
decrease in the average crude oil sales price per barrel to $19.19 in 1997
from $19.40 in 1996. Crude oil production was 4,743 thousand barrels
(MBbls),compared with 5,080 MBbls in 1996.
Costs and expenses, excluding the unusual items described above, were down
20% in 1997 compared to 1996. Production and operating expenses decreased 30%
from 1996 as a result of properties sold, capitalization
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of the Cooper Project operating lease in December 1996, and an ongoing cost
reduction program initiated in 1997. Exploration expenses decreased 25% due
primarily to a change in focus to offshore and international and the
curtailment of the onshore exploration program during 1997. Exploration
expenses are expected to be at lower levels in the future due to reduction of
exploration staff levels, major curtailment of onshore exploration and
reduction of the financial exposure, in the near term, to deep water Gulf of
Mexico dry hole costs resulting from the offshore exploration joint venture.
See Offshore Exploration Joint Venture below. Taxes, other than income
decreased 20% from 1996 primarily due to property sales.
Interest and other financing costs for 1997 were $31 million, a $3.5 million
(13%) increase from 1996 as a result of the impact of capitalization of the
Cooper Project operating lease in December 1996 and refinancing of preferred
securities of subsidiaries. Excluding interest associated with capitalized
Cooper project leases and financing costs for preferred securities of
subsidiaries, interest and other financing costs were unchanged from 1996.
1996 RESULTS OF OPERATIONS COMPARED WITH 1995
EEX reported a 1996 net loss of $37 million ($.29 per share), versus a net
loss of $43 million ($.38 per share) in 1995. Results for 1996 were adversely
impacted by nonrecurring charges of $2.8 million after tax ($4.3 million pre-
tax) related to preparation for the Company's separation from ENSERCH and
associated management changes. The year to year improvement is primarily
attributable to higher commodity prices in 1996 and a full year's contribution
to production volumes from properties acquired in 1995 and the Cooper Project.
Operating loss was $32 million in 1996, compared with an operating loss of $49
million in 1995.
Revenues for 1996 were $338 million, a $101 million (42%) increase from
1995, reflecting a $61 million (39%) increase in natural gas revenues, and a
$42 million (74%) improvement in oil and other revenues. The average natural
gas sales price per Mcf was $2.17 in 1996 compared with $1.74 in 1995. Natural
gas production increased to 101 Bcf in 1996, 11% higher than in 1995. The
higher natural gas volumes primarily resulted from 1996 operations containing
a full year of production from the properties acquired in the acquisition of
DALEN Corporation in June 1995. Higher oil revenues in 1996 reflect a 15%
improvement in the average sales price and a 52% increase in sales volumes due
primarily to the continued development of the Cooper Project and the DALEN
acquisition.
Production and operating expenses for 1996 were $21 million (41%) higher
than in 1995, primarily due to a full year's activity from the Cooper Project
(up $15 million), and the properties acquired in the DALEN acquisition.
Exploration expenses were 22% higher in 1996, reflecting increased abandoned
leasehold and dry hole cost, partially offset by lower seismic expenditures.
General and administrative expenses increased $5.1 million from 1995,
reflecting a full year's impact of the DALEN acquisition and $3.4 million for
costs associated with preparation for the Company's separation from ENSERCH
and related management changes.
Interest and other financing costs for 1996 were $27 million, compared with
$18 million in 1995. Interest in 1996 includes a full year's impact from the
debt incurred to finance the DALEN acquisition in June 1995 and the Cooper
Project capital lease, partially offset by the reduction in debt from proceeds
of property sales. Interest on the Cooper Project capital lease was deferred
through September 1995, the date of first production.
OIL AND GAS MARKET VOLATILITY
Results of operations are largely dependent upon the difference between the
prices received for oil and gas produced and the costs of finding and
producing such resources. On an energy equivalent basis, gas reserves at
January 1, 1998 constituted approximately 76% of total reserves, and gas
production accounted for approximately 72% of total production for 1997.
Accordingly, variations in gas prices have a more significant impact on
operations than variations in oil prices. Gas production as a percentage of
total production is expected to decrease as a result of exiting current
onshore U.S. assets and development of the offshore Gulf of Mexico properties.
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A portion of the risk associated with fluctuations in the price of oil and
natural gas is managed through the use of hedging techniques such as oil and
gas swaps, collars and futures agreements. EEX fixed the price on 1997
production volumes of 70 Bcf of natural gas (83% of production) at an average
price of $2.61 per Mcf and 2,587 MBbls of oil (48% of production) at an
average price of $20.96 per Bbl. In total oil and gas price hedging activities
decreased 1997 and 1996 revenues by $11 million and $20 million, respectively
and increased revenues $.1 million in 1995.
At December 31, 1997 EEX had outstanding swaps, collars and futures
agreements that were entered into as hedges extending through December 31,
1998, to exchange payments on 38 Bcf of natural gas and 720 MBbls of oil. At
December 31, 1997, the weighted average strike price and market price per Mcf
of natural gas was $2.37 and $2.34, respectively, and the weighted average
strike price and market price per barrel of oil was $19.25 and $17.74,
respectively. At December 31, 1997, there were $2.3 million of net unrealized
and unrecognized hedging gains based on the difference between the strike
price and the New York Mercantile Exchange futures price for the applicable
trading months of 1998. In addition, there were $1.9 million of realized gains
on hedging activities that were deferred and will be applied as an increase in
revenues in the applicable month of physical sale of production in 1998.
IMPAIRMENT OF PRODUCING OIL AND GAS PROPERTIES
In the third quarter of 1997, EEX adopted the successful efforts method of
accounting in order to be on a comparable basis with its peer group. Adoption
of the successful efforts method required EEX to comply with the requirements
of SFAS 121. SFAS 121 provides for the recognition of losses when events or
changes in circumstances indicate that the carrying value of long-lived assets
may not be realized. When there is evidence that the cost of such assets may
not be realized based upon periodic evaluation, SFAS 121 requires the carrying
values of long-lived assets be written down to fair values. The Company
estimates fair values using the present value of expected future cash flows
for each significant oil and gas field.
In the fourth quarter of 1997, EEX completed a review and evaluation of the
commercial feasibility of its oil and gas reserves. Based upon this review, a
downward revision of 712 billion cubic feet of gas equivalent was recorded to
EEX's oil and natural gas reserves, primarily in behind pipe and proved
undeveloped reserves in East Texas and the Cooper Project offshore in the
deep-water Gulf of Mexico.
As a result of the downward revision of reserves, the Company reexamined the
carrying value of its properties as a part of the overall process. In order to
determine whether its assets had been impaired, EEX grouped its producing
properties by fields, which it believes is the lowest level for which cash
flows are reasonably and separately identifiable, and determined that
anticipated future cash flows based on the revised reserve estimates and
development plans were insufficient to recover the carrying value of certain
fields. Accordingly, the carrying value of such fields was reduced to fair
value, and EEX recorded a $204 million after-tax, ($260 million pre-tax)
charge for impairment in 1997.
OIL AND GAS RESERVES
EEX's natural gas reserves at January 1, 1998, as estimated by Netherland,
Sewell & Associates, Inc., independent petroleum consultants, were 460 Bcf,
compared with 1.22 trillion cubic feet the year earlier. Oil and condensate
reserves, including natural gas liquids, were 24 MMBbls compared with the year
earlier level of 59 MMBbls. In the fourth quarter of 1997, EEX completed a
review and evaluation of the commercial feasibility of its non-producing oil
and gas reserves. Based upon this review, EEX's reserves were reduced by 623
Bcf of natural gas and 15 MMBbls of oil and condensate, 712 billion cubic feet
of gas equivalent, primarily in behind pipe in East Texas and proved
undeveloped reserves in the Cooper Project. See OVERVIEW Develop Non-producing
Reserves above for further information.
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LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
EEX generated sufficient cash flows from operations and property sales to
fund its capital requirements and reduce financings, including preferred stock
of subsidiaries, by $138 million. Net cash flows from operating activities
were $187 million, an increase of $78 million over 1996 largely due to reduced
costs and expenses in 1997 and changes in current operating assets and
liabilities. Net cash flows used for investing activities in 1997 were $55
million, a $22 million increase from 1996.
EEX intends to utilize substantially all of its internally generated cash
flows for growth of the business and expects to have sufficient cash flow from
operations and the ongoing monetization of non-core assets to fund its
business plans. Borrowings under EEX's credit facilities may be used to
supplement temporary cash flow needs. EEX does not anticipate paying cash
dividends in the foreseeable future.
CAPITAL STRUCTURE
In 1997, EEX redeemed, at the stated value of $150 million, all the
outstanding mandatorily redeemable preferred securities of a subsidiary. The
redemption was funded by private sales of new issues of preferred securities
by EEX subsidiaries. The new preferred securities are redeemable at the option
of the subsidiaries and $50 million was redeemed in late 1997. Debt at
December 31, 1997 represented 50% of total capitalization, as defined,
compared to 51% of total capitalization at December 31, 1996. The reduction in
total capitalization at December 31, 1997 was due to the reduction in
shareholders' equity from non-cash impairment of producing oil and gas
properties, redemption of preferred securities of subsidiaries and reduction
of the funding required from the bank revolving credit agreement.
On February 27, 1998, EEX announced a one-year program to repurchase up to
12.7 million, or 10% of the Company's outstanding common shares, at an
aggregate cost not to exceed $125 million. Stock may be purchased in open
market or negotiated transactions, or any other manner deemed appropriate by
management. The timing and terms of any purchases will be at the discretion of
EEX management.
CAPITAL BUDGET
Planned 1998 capital expenditures will range from $150 million to $170
million, compared with actual expenditures of $180 million in 1997 and $174
million in 1996. Not included in planned 1998 capital expenditures are the
purchase of an additional participation interest in the Tuban block in
Indonesia of $40 million and approximately $40 to $50 million of carried
interest costs resulting from both offshore and onshore exploration
agreements. Capital expenditure amounts also exclude costs of offshore
equipment and facilities financed under operating lease arrangements of $25
million in 1996 and $24 million in 1995.
OFFSHORE EXPLORATION JOINT VENTURE
On July 1, 1997 EEX announced an agreement with Enterprise Oil Plc
("Enterprise") to participate in an exploration venture to evaluate EEX's
portfolio of offshore blocks in the deep water of the Gulf of Mexico.
The agreement, covering approximately 78 blocks primarily in the areas of
Garden Banks, Green Canyon and Mississippi Canyon, was closed on September 15,
1997 and all required governmental approvals have been obtained. Excluded from
the agreement are reserves at Green Canyon 254 (Allegheny Project) and
reserves and production facilities at Mississippi Canyon 441 and Garden Banks
388 (Cooper Project).
Under the agreement, Enterprise will pay $65 million, which will be used to
fund EEX's exploration drilling costs and in return received an immediate
assignment of 50% of EEX's deep water portfolio. A further $35 million to be
funded by Enterprise is contingent on drilling successes and the announcement
of at least two commercial developments. Enterprise became a full partner in
the relevant Joint Operating Agreements.
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The companies intend to conduct a 10 to 12 well drilling program over the
next two and one-half years utilizing two rigs capable of drilling in water
depths of approximately 3,500 feet. The rigs are under long-term contract to
EEX at attractive day rates. The first well was spudded on the Llano prospect
in Garden Banks 386 and EEX announced a discovery in December 1997. The well
encountered a number of hydrocarbon bearing intervals located between depths
of 23,000 and 25,000 feet. Drilling was suspended at a total measured depth of
25,342 feet prior to reaching the primary objective when the well reached
pressure limitations for the semi-submersible rig on location. On January 16,
1998 EEX announced completion of a letter of intent to acquire use of a semi-
submersible rig for purposes of deepening and appraising this discovery. This
rig is expected to begin drilling late in the first quarter of 1998. The next
three wells in this program are expected to be spudded late in the first
quarter or early in the second quarter of 1998.
YEAR 2000 ISSUE
EEX is continuing its efforts towards addressing the Year 2000 issue as it
relates to any potential impact on the Company's operations. Evaluations of
the Company's internal systems, primarily focused on the financial systems,
have been initiated and will be complete by the end of 1998. To date,
preliminary studies have yielded potential problem areas with some
applications. Most of these applications which have potential Year 2000
deficiencies are third party applications provided by outside vendors, and in
each case the deficiencies are being addressed by the software vendor. Any in-
house applications developed by EEX will be modified before the end of 1998
and reviewed by an independent entity with expertise in this area. In all
cases the cost of Year 2000 compliance is considered immaterial.
During 1998 the Company will be conducting an independent review of
operational (field) systems which are the responsibility of third party
companies doing business with EEX. This Year 2000 review will include any
operational system on which any EEX-sanctioned work is performed, and will
include both hardware and software subsystems. Any third party companies doing
business with EEX found not to be adequately addressing the Year 2000 issue
will be identified in the review, along with the potential impact of non-
compliance by the vendor. As such, the Company at this time cannot adequately
assess the extent to which further actions will be required, and cannot at
this time make any statements as to whether or not this issue will have a
material affect upon future operations.
FOURTH QUARTER RESULTS
The fourth quarter 1997 net loss was $19 million ($.15 per share), compared
with a net loss of $11 million ($.08 per share) for the same period of 1996.
Operating income for 1997 was $6.3 million versus an operating loss of $12
million for the same period of 1996. The increased fourth quarter 1997 loss
results from the after-tax impact of a non-cash charge for impairment of
producing oil and gas properties and dividend requirements for the preferred
securities of subsidiary, partially offset by gain on sales of property, plant
and equipment. The impairment results principally from the East Texas
properties which were packaged for sale and were written down to their
estimated net realizable value. See Overview Develop Non-producing Reserves
above and Recent Developments below.
RECENT DEVELOPMENTS
On February 25, 1998, EEX announced that it had entered into an agreement to
sell substantially all of its properties in East Texas and North Louisiana,
representing proved reserves of approximately 250 billion cubic feet
equivalent of natural gas, for $265 million. The effective date of the sale is
January 1, 1998 with the closing expected in the second quarter of 1998. As a
part of the sale, EEX will retain an obligation to deliver approximately 30
Bcf of natural gas under a long-standing agreement with Encogen One Partners,
Ltd. This sale was made pursuant to EEX's previously announced strategy to re-
deploy the value of its onshore U.S. properties into Gulf of Mexico and
International opportunities. Proceeds from the sale will be used to fund the
purchase of additional interests in Indonesia and to provide additional
financial flexibility.
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On February 10, 1998, EEX announced that it entered into an agreement with
Risjad Salim Petroleum (Tuban) Ltd. ("RSP") to acquire, as of January 1, 1998,
RSP's 25% participation interest in the Tuban Production Sharing Contract
located on the island of Java in Indonesia. This transaction will increase
EEX's interest in the Tuban block to 50%. In addition to several exploration
prospects, the Tuban block contains the Mudi field. EEX will pay approximately
$40 million plus a portion of future net profits for the RSP interest. The
transaction is expected to close before April 30, 1998.
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REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders of EEX Corporation
We have audited the accompanying consolidated balance sheets of EEX
Corporation and subsidiaries (the Company), as of December 31, 1997 and 1996,
and the related statements of consolidated operations, owners' equity, and
consolidated cash flows for each of the three years in the period ended
December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of EEX Corporation and subsidiaries at December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
As discussed in Note 3 to the consolidated financial statements, in 1997 the
Company adopted the successful efforts method of accounting for its oil and
gas producing activities.
ERNST & YOUNG LLP
Houston, Texas
February 13, 1997
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MANAGEMENT REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING
The management of EEX Corporation is responsible for the preparation and
integrity of the financial statements and other information contained in this
report. The financial statements have been prepared in conformity with
accounting principles generally accepted in the United States and include
amounts that represent management's best estimates and judgments. Management
has established practices and procedures designed to support the reliability
of the estimates and minimize the possibility of a material misstatement.
Management has established and maintains internal accounting controls that
provide reasonable assurance as to the integrity and reliability of the
financial statements, the protection of assets from unauthorized use or
disposition and the prevention and detection of fraudulent financial
reporting. The system of internal control is supported by written policies and
procedures and the control environment is regularly evaluated by both
EEX Corporation's internal auditors and Ernst & Young, LLP, the Company's
independent auditors. The Board of Directors maintains an Audit Committee
composed of Directors who are not employees. The Audit Committee meets
periodically with management, the independent auditors and the internal
auditors to discuss significant accounting, auditing, internal accounting
control and financial reporting matters related to EEX Corporation. The
independent auditors and the internal auditors have free access to the Audit
Committee.
Management believes that, as of December 31, 1997, the overall system of
internal accounting controls is sufficient to accomplish the objectives
described herein.
Thomas M. Hamilton Richard S. Langdon Ray E. Schmitz
Chairman, President and Executive Vice President, Vice President and
Chief Executive Officer Finance and Administration, Controller
Chief Financial Officer
February 13, 1998
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EEX CORPORATION
STATEMENTS OF CONSOLIDATED OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------
1997 1996 1995
------------- ------------- -------------
(RESTATED)
---------------------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues
Natural gas....................... $ 199,754 $ 217,968 $ 157,308
Oil and condensate................ 91,029 98,529 56,525
Natural gas liquids............... 9,161 8,099 4,859
Cogeneration operations........... 13,297 11,400 16,507
Other............................. 972 2,150 2,159
------------- ------------ ------------
Total.......................... 314,213 338,146 237,358
------------- ------------ ------------
Costs and Expenses
Production and operating.......... 48,960 70,325 49,792
Exploration....................... 70,599 93,544 76,706
Depreciation and amortization..... 144,485 169,864 112,033
Impairment of producing oil and
gas properties................... 260,112
(Gain) on sales of property, plant
and equipment.................... (52,917) (30,175) (15,315)
Unusual charges................... 27,105
Cogeneration operations........... 10,381 9,924 14,258
General, administrative and other. 28,485 34,995 29,937
Taxes, other than income.......... 17,356 21,715 18,813
------------- ------------ ------------
Total........................... 554,566 370,192 286,224
------------- ------------ ------------
Operating (Loss).................... (240,353) (32,046) (48,866)
Other Income--Net................... 301 2,092 161
Interest Income..................... 574 266 1,027
Interest and Other Financing Costs.. (30,645) (27,149) (18,149)
------------- ------------ ------------
(Loss) Before Income Taxes.......... (270,123) (56,837) (65,827)
Income Tax (Benefit)................ (58,945) (20,036) (23,242)
Minority Interest................... (4,925)
------------- ------------ ------------
Net (Loss).......................... $ (216,103) $ (36,801) $ (42,585)
============= ============ ============
Basic and Diluted Net (Loss) Per
Share.............................. $ (1.71) $ (0.29) $ (0.38)
============= ============ ============
Weighted Average Shares Outstanding. 126,641 126,557 111,829
============= ============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
A-14
<PAGE>
EEX CORPORATION
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1997 1996 1995
--------- --------- ---------
(RESTATED)
--------------------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss).................................. $(216,103) $ (36,801) $ (42,585)
Impairment of producing oil and gas
properties................................. 260,112
Impairment of undeveloped leasehold......... 40,866 34,000 15,426
Dry hole cost............................... 8,224 21,345 16,651
Depreciation and amortization............... 144,485 169,864 112,033
Deferred income tax (benefit)............... (55,461) (24,324) (26,456)
Gain on sales of property, plant &
equipment.................................. (52,917) (30,175) (15,315)
Other....................................... 10,332 (10,735) (13,857)
Changes in current operating assets and
liabilities
Accounts receivable....................... 24,550 (6,999) (26,859)
Other current assets...................... 6,721 (3,380) (6,223)
Accounts payable.......................... 18,392 (4,127) 34,767
Other current liabilities................. (1,812) 1,168 (2,223)
--------- --------- ---------
Net cash flows from operating activities.. 187,389 109,836 45,359
--------- --------- ---------
INVESTING ACTIVITIES
Additions of property, plant and equipment.. (180,147) (174,349) (153,195)
Proceeds from dispositions of property,
plant and equipment........................ 133,426 140,863 54,977
Purchase of DALEN, net of cash acquired..... (332,888)
Collection of note receivable from
affiliated company......................... 86,077
Other....................................... (7,859) 507 (6,939)
--------- --------- ---------
Net cash flows used in investing
activities............................... (54,580) (32,979) (351,968)
--------- --------- ---------
FINANCING ACTIVITIES
Borrowings under bank revolving credit
agreement.................................. 170,000 136,000 380,000
Repayment of borrowings under bank revolving
credit agreement........................... (260,000) (181,000) (220,000)
Borrowings under short term financing
agreement.................................. 172,900
Repayment of borrowings under short term
financing agreement........................ (167,900)
Issuance of company-obligated mandatorily
redeemable preferred securities of
subsidiary................................. 150,000
Repayment of borrowings under bridge loan... (150,000)
Redemption of company-obligated mandatorily
redeemable preferred securities of
subsidiary................................. (150,000)
Issuance of minority interests in preferred
securities of subsidiary................... 150,000
Redemption of minority interests in
preferred securities of subsidiary......... (50,000)
Changes in temporary advances with
affiliated companies....................... 13,328 (32,051) (89,085)
Payments of capital lease obligations....... (3,250) (3,832) (4,424)
Increase (Decrease) in advances under
leasing arrangements--net.................. (5,457) 5,457
Borrowings under bridge loan................ 150,000
Repayment of DALEN bank debt assumed at
acquisition................................ (115,000)
Issuance of common stock.................... 2 249 207,940
Other....................................... (1,887) (1,526)
--------- --------- ---------
Net cash flows (used in) from financing
activities............................... (130,377) (77,064) 307,905
--------- --------- ---------
Net Increase (Decrease) in Cash and Cash
Equivalents.................................. 2,432 (207) 1,296
Cash and Cash Equivalents at Beginning of
Year......................................... 1,358 1,565 269
--------- --------- ---------
Cash and Cash Equivalents at End of Year...... $ 3,790 $ 1,358 $ 1,565
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
A-15
<PAGE>
EEX CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1996
---------- ----------
(RESTATED)
----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents.............................. $ 3,790 $ 1,358
Accounts receivable--trade (net of allowance for
possible losses of $1,161 and $1,351)................. 57,925 65,926
Accounts receivable--affiliated companies.............. 16,549
Temporary advances--affiliated companies............... 13,328
Other.................................................. 11,545 18,266
---------- ----------
Total current assets................................. 73,260 115,427
---------- ----------
Property, Plant and Equipment (at cost)
Oil and gas properties (successful efforts method)..... 1,882,097 1,984,341
Other.................................................. 19,581 22,084
---------- ----------
Total................................................ 1,901,678 2,006,425
Less accumulated depreciation and amortization......... 1,192,691 941,052
---------- ----------
Net property, plant and equipment.................... 708,987 1,065,373
---------- ----------
Deferred Income Tax Benefit.............................. 20,238
---------- ----------
Other Assets............................................. 5,304 14,654
---------- ----------
Total................................................ $ 807,789 $1,195,454
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable--trade................................ $ 108,616 $ 91,026
Accounts payable--affiliated companies................. 8,924
Short term borrowings.................................. 5,000
Advances under leasing arrangements.................... 5,457
Current portion of capital lease obligations........... 8,418 3,250
Other.................................................. 10,031 11,843
---------- ----------
Total current liabilities............................ 132,065 120,500
---------- ----------
Bank Revolving Credit Agreement.......................... 25,000 115,000
---------- ----------
Capital Lease Obligations................................ 233,317 241,735
---------- ----------
Other Liabilities
Deferred income taxes.................................. 35,330
Other.................................................. 42,744 42,483
---------- ----------
Total other liabilities.............................. 42,744 77,813
---------- ----------
Company--Obligated Mandatorily Redeemable Preferred
Securities of Subsidiary................................ 150,000
Minority Interests in Preferred Securities of Subsidiary. 100,000
Commitments and Contingent Liabilities (Notes 9 and 16)
Preferred Stock--authorized 10 million shares, none
issued
Shareholders' Equity..................................... 274,663 490,406
---------- ----------
Total................................................ $ 807,789 $1,195,454
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
A-16
<PAGE>
EEX CORPORATION
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------
1997 1996 1995
--------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Common Stock, authorized 400 million shares
Balance at beginning of year................... $ 126,736 $126,575 $ 106,513
Issued for stock plans (323, 161 and 62
shares)...................................... 185 161 62
Cash sale to public (20,000 shares)........... 20,000
Change in par value to $.01 from $1.00........ (125,650)
--------- -------- ---------
Balance at end of year (Outstanding shares:
127,059, 126,736 and 126,575)................. 1,271 126,736 126,575
--------- -------- ---------
Paid in Capital
Balance at beginning of year................... 442,246 440,836 628,772
Adjustment for cumulative effect through
December 31, 1994 for restatement to the
successful efforts method of accounting...... (377,147)
Adjustments for acquisition of international
and SACROC operations........................ (2,798)
Additional deferred income tax benefit from
reorganization............................... 3,480
Excess of proceeds over par value of common
stock issued for:
Stock plans................................... 3,075 1,370 679
Cash sale to public........................... 187,872
Market valuation adjustments of restricted
stock......................................... (478) 40 (22)
Change in par value of common stock............ 125,650
--------- -------- ---------
Balance at end of year......................... 570,493 442,246 440,836
--------- -------- ---------
Retained Earnings (Deficit)
Balance at beginning of year as previously
reported...................................... 2,292 (9,415) 1,717
Adjustment for cumulative effect on prior
years for restatement to the successful
efforts method of accounting................. (79,961) (31,453)
--------- -------- ---------
Balance at beginning of year, as restated...... (77,669) (40,868) 1,717
Net (loss).................................... (216,103) (36,801) (42,585)
--------- -------- ---------
Balance at end of year......................... (293,772) (77,669) (40,868)
--------- -------- ---------
Unamortiized Restricted Stock Compensation
Balance at beginning of year................... (677) (551)
Grants (387, 137 and 56 shares)............... (3,874) (1,190) (673)
Restrictions lifted (98 shares)............... 756
Cancellations (90 and 25 shares).............. 715 230
Amortization.................................. 515 132 100
Market value adjustments...................... 444 (54) 22
--------- -------- ---------
Balance at end of year......................... (2,877) (677) (551)
--------- -------- ---------
Treasury Stock
Balance at beginning of year................... (230)
Issuance of shares for restricted stock awards
(67 shares).................................. 625
Cancellations of restricted stock grants (90
and 25 shares)............................... (847) (230)
--------- -------- ---------
Balance at end of year (47 and 25 shares)...... (452) (230)
--------- -------- ---------
Shareholders' Equity............................ $ 274,663 $490,406 $ 525,992
========= ======== =========
</TABLE>
See Notes to Consolidated Financial Statements
A-17
<PAGE>
EEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All dollar amounts, except per share amounts, in the notes to consolidated
financial statements are stated in thousands unless otherwise indicated.
1. ORGANIZATION AND BASIS OF PRESENTATION
EEX Corporation ("EEX") is an independently owned energy exploration company
involved in both domestic and international oil and gas exploration and
production. EEX also provides operation and maintenance services, under
contract, to three cogeneration plants. Prior to August 5, 1997, Enserch
Exploration, Inc. ("Old EEI") was approximately 83% owned by ENSERCH
Corporation ("ENSERCH").
On August 5, 1997, the merger of ENSERCH Corporation ("ENSERCH") and Texas
Utilities Company and the related merger of Old EEI and Lone Star Energy Plant
Operations, Inc. ("LSEPO") were completed. Under the terms of the Old
EEI/LSEPO merger, LSEPO changed its name to "Enserch Exploration, Inc."
("EEI"), shares of Old EEI were automatically converted into shares of EEI on
a one-for-one basis in a tax-free transaction, EEI issued 691,631 shares of
common stock to ENSERCH in exchange for outstanding LSEPO common stock and
ENSERCH distributed to its shareholders, on a pro rata basis, all of the
shares of EEI common stock it owned. In addition, the merger fixed LSEPO's
working capital at $3.5 million. For financial reporting purposes, the Old
EEI/LSEPO merger was treated as a combination of entities under common
control. Accordingly, the operations and assets and liabilities of Old EEI and
LSEPO have been recorded at their historical amounts in the accompanying
consolidated financial statements. The number of common shares outstanding for
all periods has been increased to reflect the 691,631 additional shares issued
in the merger. The Restated Articles of Incorporation of EEI authorized 400
million shares of common stock with a par value of $.01. This change has been
reflected in the accompanying consolidated financial statements. On December
19, 1997 a special meeting of shareholders was held at which the name of the
Company was changed to EEX Corporation.
In 1995, Old EEI acquired the international oil and gas and SACROC
operations from ENSERCH in exchange for cash and Old EEI Common Stock.
ENSERCH's historical carrying value of the assets acquired and liabilities
assumed was recorded by Old EEI.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of EEX and its
subsidiaries. All intercompany accounts and transactions have been eliminated
in consolidation. The preparation of financial statements requires the use of
significant estimates and assumptions by management; actual results could
differ from those estimates. Certain items in prior periods have been
reclassified to be consistent with the current presentation.
Net Income (Loss) Per Share--In 1997, the Financial Accounting Standards
Board issued Statement No. 128, "Earnings Per Share" (SFAS 128). SFAS 128
requires the calculation and presentation of basic and diluted net income
(loss) per share amounts. Basic net income (loss) per share is based on the
weighted average number of common shares outstanding during the period.
Diluted net income (loss) per common share is based on the weighted average
number of common shares and all dilutive potential common shares outstanding
during the period. All per share amounts presented in the accompanying
financial statements have been calculated in accordance with SFAS 128.
Oil and Gas Properties--The successful efforts method of accounting is used
for oil and gas operations. Under the successful efforts method of accounting,
lease acquisition costs are capitalized when incurred. Significant unproved
properties are reviewed periodically on a property-by-property basis to
determine if there has been an impairment in value, with such impairment
charged to expense. All other unproved properties are
A-18
<PAGE>
aggregated and a portion of the costs estimated to be non-productive, based on
historical experience, is amortized over the average life of the leases.
Geological and geophysical costs and the costs of carrying and retaining
undeveloped properties are expensed as incurred. Exploratory drilling costs
are initially capitalized but charged to current expense if the well is
commercially unsuccessful.
Leasehold costs of producing properties are depleted using the unit of
production method based on estimated proved oil and gas reserves quantified on
the basis of their equivalent energy content. Amortization of drilling and
equipment costs is based on the unit of production method using estimated
proved developed oil and gas reserves quantified on the basis of their
equivalent energy content. Depreciation of other property, plant and equipment
is provided principally by the straight line method over the estimated service
lives of the related assets. The current undiscounted cost of estimated future
site restoration, dismantlement and abandonment, net of salvage, is included
in the cost of productive oil and gas properties and a corresponding liability
recorded. The recorded cost is amortized on the unit of production method.
Actual costs incurred for these activities are charged to the recorded
liability.
Derivative Instruments--The Company enters into swaps, futures, options,
collars and other derivative contracts to hedge the price risks associated
with a portion of anticipated future oil and gas production. Realized gains
and losses on settled derivative contracts are deferred and recognized as
adjustments to oil and gas revenues in the applicable period(s) hedged. If a
derivative contract no longer qualifies for hedge accounting, it is marked to
market. The Company also enters into interest rate swaps to manage risk
associated with interest rates and reduce the Company's exposure to interest
rate fluctuations. Interest rate swaps are valued on a periodic basis, with
resulting differences recognized as an adjustment to interest and other
financing costs over the term of the agreement. The Company does not enter
into derivative contracts for trading purposes.
Stock Based Employee Compensation--Statement of Financial Accounting
Standards No. 123, "Accounting for Stock Based Compensation," (SFAS 123)
encourages, but does not require companies to record compensation cost for
stock based employee compensation plans at fair value. EEX has chosen to
continue to account for stock based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related Interpretations. Accordingly,
compensation cost for stock options is measured as the excess, if any, of the
quoted market price of EEX's stock at the date of the grant over the amount an
employee must pay to acquire the stock. Compensation cost for restricted stock
awards is based on the quoted market price of EEX's stock on the date the
award becomes vested (See Note 11).
Cash and Cash Equivalents Cash and cash equivalents include highly liquid
investments with maturities of three months or less when purchased.
Gas Imbalances--The Company follows the sales method of accounting for gas
imbalances, which recognizes over and under lifts of gas when sold, to the
extent sufficient gas reserves or balancing agreements are in place. Gas
revenues are not significantly different from the Company's share of
production.
3. ACCOUNTING CHANGE
EEX adopted the successful efforts method of accounting in the third quarter
of 1997 resulting in a decrease in 1997 net (loss) for the nine months ended
September 30, 1997 of $39,488 ($0.31 per share for both basic and diluted net
(loss) per share amounts).
A-19
<PAGE>
The effect on previously reported net income (loss) for the years ended
December 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------
1996 1995
----------- -----------
<S> <C> <C>
Net income (loss) as previously reported.......... $ 10,774 $ (12,502)
Effect of LSEPO merger............................ 933 1,370
----------- -----------
Net income (loss) after merger.................... 11,707 (11,132)
Adjustment for effect of change to successful
efforts.......................................... (48,508) (31,453)
----------- -----------
Net (loss) as adjusted............................ $ (36,801) $ (42,585)
=========== ===========
Per share amounts:
Basic and diluted net income (loss) after effect
of LSEPO merger.................................. $ .09 $ (.10)
Adjustment for effect of change to successful
efforts.......................................... (.38) (.28)
----------- -----------
Basic and diluted net (loss) as adjusted.......... $ (.29) $ (.38)
=========== ===========
</TABLE>
The cumulative effect of the accounting change for all periods through
December 31, 1994 totaled $377,147, after a tax benefit of $203,079, and paid
in capital was reduced accordingly.
4. IMPAIRMENT OF PRODUCING OIL AND GAS PROPERTIES
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of",
(SFAS 121) provides for the recognition of losses when events or changes in
circumstances indicate that the carrying value of long-lived assets may not be
realized. When there is evidence that the cost of such assets may not be
realized based upon periodic evaluation, SFAS 121 requires the carrying values
of long-lived assets be written down to fair values. The Company estimates
fair values using the present value of expected future cash flows for each
significant oil and gas field held for use. Assets held for sale are carried
at the lower of cost or estimated net realizable value.
In the fourth quarter of 1997, EEX completed a review and evaluation of the
commercial feasibility of its non-producing oil and gas reserves. Based upon
this review, a material downward revision of 712 billion cubic feet of gas
equivalent was recorded to EEX's oil and natural gas reserves, primarily in
behind pipe and proved undeveloped reserves in East Texas and proved
undeveloped reserves in the Cooper Project.
As a result of the downward revision of reserves, the Company compared the
carrying value of its properties against estimated future net revenues in
accordance with SFAS 121. EEX grouped its producing properties by fields,
which it believes is the lowest level for which cash flows are reasonably and
separately identifiable, and determined that anticipated future cash flows
based on the revised reserve estimations and development plans were
insufficient to recover the carrying value of certain fields. Accordingly, the
carrying value of such fields were reduced to fair value, and EEX recorded a
$204 million after-tax, ($260 million pre-tax) charge for impairment in 1997.
5. UNUSUAL CHARGES
In early 1997, EEX management initiated a plan to sell or trade non core
assets, reduce operating costs and focus exploration activities in the
offshore U.S. Gulf of Mexico and International areas. Unusual charges include
costs incurred in connection with restructuring operations, relocating the
Corporate headquarters and severance. In the third quarter 1997, as an
integral part of this restructure plan, EEX relocated its Corporate
headquarters to Houston, Texas, committed to the severance of approximately
375 Dallas-based employees and authorized the closure of its Dallas, Texas
administrative office by year-end 1998.
A-20
<PAGE>
The Company incurred the following restructure costs in 1997 which are
classified as unusual charges in the Statements of Consolidated Operations:
<TABLE>
<S> <C>
Severance for 420 employees under existing plans.................. $20,341
Office and employee relocation and other.......................... 3,580
Office lease cancellation......................................... 864
Write down of assets to net realizable value...................... 2,320
-------
Total unusual charges............................................. $27,105
=======
</TABLE>
Cash requirements for these charges total $25 million of which $14 million
was paid in 1997 with the remainder to be paid in 1998. Severance benefits
were paid to 172 employees in 1997.
6. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest, net of amounts capitalized, was $25,430 in 1997,
$27,704 in 1996, and $15,422 in 1995. Net cash income taxes were refunds of
$5,621 in 1997, and payments of $1,530 in 1996 and $6,011 in 1995.
The table below summarizes non-cash investing and financing activities:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Capital asset and lease obligations assumed............. $150,775
========
Capital asset and lease obligations assumed by others... $(53,388)
========
Purchase of DALEN
Fair value of assets acquired........................... $474,755
Cash paid for acquisition............................... 332,888
--------
Liabilities assumed..................................... $141,867
========
</TABLE>
7. DALEN ACQUISITION
On June 8, 1995, EEX acquired all the capital stock of DALEN Corporation
(DALEN) for cash of $340 million and assumed DALEN's bank debt of $115
million. The acquisition was accounted for as a purchase. Assuming the DALEN
acquisition had occurred at the beginning of 1995, EEX pro forma 1995 results
of operations would include revenues of $285,682; an operating loss of
$48,459; a net loss of $52,284 and a basic net loss per share of $0.47.
8. BORROWINGS AND CREDIT AGREEMENTS
EEX has a $350 million revolving credit line with a group of banks that
matures on June 27, 2002, of which $320 million was unused at December 31,
1997. The revolving credit agreement limits, at all times, total debt, as
defined, to the lesser of 60% of capitalization, as defined, or $1 billion,
and prohibits liens on property except under certain circumstances. The
interest rate ranges from the London Inter-Bank Offered Rate (LIBOR) (6.0% in
effect at December 31, 1997) plus .21% to .45% per annum, plus a facility fee
of from .09% to .20% per annum, depending upon the consolidated capitalization
ratio. A portion of funds available under the revolving credit line may be
borrowed on a short term basis at current money market rates.
A-21
<PAGE>
EEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following is a summary of interest and other financing costs:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Interest costs incurred............................ $30,645 $29,323 $20,405
Interest capitalized............................... (2,174) (2,256)
------- ------- -------
Interest charged to expense........................ $30,645 $27,149 $18,149
======= ======= =======
</TABLE>
9. LEASE COMMITMENTS
In December 1996, the Cooper Project equipment and facilities were
refinanced through certain financial institutions. EEX simultaneously entered
into two leases of the facilities extending through December 30, 2010, with
the option to renew the leases, with the consent of the lessors, for up to
five years. For accounting purposes, these leases are classified as capital
leases. The Company has the option to purchase the facilities for fair market
value on any renewal date, or for fixed amounts or fair market value at the
end of the initial lease term. The leases also contain two early buy-out
option dates on which the Company may purchase the facilities for fixed
amounts, and other special purchase options. Interest on the leases was fixed
at 6.51%. EEX is required to maintain a $65 million four-year letter of credit
in support of the equity owners of the leased facilities.
The equipment and facilities used in developing and producing reserves in
the Mississippi Canyon Block 441 are leased through certain financial
institutions for a term extending through October 2001. For accounting
purposes, this lease is classified as a capital lease. EEX has an option to
purchase the facilities for a fixed amount at the early buy-out date of July
22, 2000, or for fair market value at the end of the lease term. There are no
renewal options. Interest on the lease was fixed at 6.97%.
EEX also leases buildings and office space under noncancelable operating
leases that expire at various dates through 2002.
Estimated future minimum payments under noncancelable operating and capital
leases with initial or remaining terms of one year or more at December 31,
1997 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- --------
<S> <C> <C>
1998..................................................... $ 1,404 $ 23,346
1999..................................................... 1,404 25,147
2000..................................................... 1,395 30,948
2001..................................................... 1,388 25,998
2002..................................................... 1,023 26,000
Thereafter............................................... 210,705
-------- --------
Total.................................................. $ 6,614 342,144
========
Less interest factor................................... 100,409
--------
Capital lease obligations.............................. $241,735
========
Assets recorded under capital leases are as follows:
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
Property and equipment................................... $249,699 $249,699
Accumulated depreciation and amortization and valuation
allowances.............................................. 123,535 40,054
-------- --------
Net.................................................... $126,164 $209,645
======== ========
</TABLE>
A-22
<PAGE>
EEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Rental expenses incurred under all operating leases totaled $3,553, $21,110,
and $6,468 in 1997, 1996 and 1995, respectively.
10. MINORITY INTERESTS IN PREFERRED SECURITIES OF SUBSIDIARY
On September 29, 1997, EEX concluded a transaction in which all of the
outstanding mandatorily redeemable preferred securities of a subsidiary were
redeemed at the stated value of $150 million. The redemption was funded by a
private sale of new issues of preferred stock of EEX Capital, Inc. (EEXC),
wholly owned by EEX, and Preferred Interests of MIStS Issuer L.L.C. (Issuer),
whose common equity interests are wholly owned by EEXC. Issuer is a special
purpose finance subsidiary, and neither Issuer nor EEXC has operations
independent of EEX. EEXC used the proceeds from the new issue to retire $75
million of a demand note to Issuer under which proceeds from the issuance of
the mandatorily redeemable preferred securities had been loaned to EEXC. On
October 27, 1997, EEXC sold an additional $75 million of preferred stock and
used the proceeds to satisfy the remaining $75 million on the demand note with
Issuer. Issuer used the proceeds from EEXC to redeem all the preferred
interests sold by Issuer on September 29, 1997. The dividend rate for EEXC's
new securities is based on LIBOR (reset quarterly) plus a spread beginning at
3.0% for the period ending December 31, 1997, and increasing by 1.0% quarterly
through December 31, 1998. The new securities are redeemable, in whole or in
part, at the option of EEXC on the quarterly dividend payment dates and $50
million was redeemed in December 1997. Interest payable on a $100 million
demand note from EEX to EEXC will fund the dividends.
11. STOCK PLANS
The Company's Revised and Amended 1996 Stock Incentive Plan (the "Plan"),
provides for awards to officers, directors and key employees of restricted
stock, stock options to purchase shares of common stock of EEX, or a
combination of both. EEX has reserved a total of 4 million shares of its
common stock for issuance under the Plan. Options granted under the Plan have
an exercise price of not less than the fair market value of the common stock
on the grant date. Options become exercisable over three to seven years and
expire after ten years. The terms for the release of restrictions on awards of
restricted stock may be performance based, time based, or a combination of
both, and each award may have different restrictions and conditions.
A-23
<PAGE>
EEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following is a summary of stock option activity under the Plan:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER OF EXERCISE FAIR
SHARES PRICE VALUE
--------- -------- --------
<S> <C> <C> <C>
Options outstanding
December 31, 1994................................
Granted.......................................... 173,000 $10.92
Exercised........................................
Canceled......................................... (3,000) $ 9.75
--------- ------
Options outstanding
December 31, 1995................................ 170,000 $10.94
Granted.......................................... 1,066,500 $ 9.33 $4.28
Exercised........................................ (10,000) $ 9.75
Canceled......................................... (255,000) $ 9.50
--------- ------
Options outstanding
December 31, 1996................................ 971,500 $ 9.56
Granted.......................................... 2,828,250 10.57 $4.28
Exercised........................................
Canceled......................................... (850,500) 9.56
--------- ------
Options outstanding
December 31, 1997................................ 2,949,250 $10.53
========= ======
</TABLE>
The following is a summary of Plan stock options outstanding at December 31,
1997:
<TABLE>
<CAPTION>
RANGE OF EXERCISE PRICES
---------------------------------
$8.81-
$9.88 $11.88-$14.50 TOTAL
--------- ------------- ---------
<S> <C> <C> <C>
Options outstanding....................... 1,555,250 1,394,000 2,949,250
Weighted average remaining contractual
life,
in years................................. 9 9
Weighted average exercise price........... $ 9.25 $ 11.95
Number exercisable........................ 262,500 44,000 306,500
Weighted average exercise price........... $ 9.50 $ 14.34
</TABLE>
A summary of restricted stock award activity follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
------------------------
1997 1996 1995
------- ------- ------
<S> <C> <C> <C>
Outstanding--Beginning of year...................... 70,000 56,000
Awarded........................................... 390,432 137,000 56,000
Restrictions Lifted............................... (98,000)
Canceled.......................................... (90,000) (25,000)
------- ------- ------
Outstanding--End of year............................ 370,432 70,000 56,000
======= ======= ======
</TABLE>
The weighted average grant date fair value of restricted stock awarded during
1997 and 1996 was $10.02 and $9.36, respectively. Fair value is equal to the
common stock fair market value on the grant date.
A-24
<PAGE>
EEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In 1997 the Company adopted the Non-Officer stock option plan for eligible
employees and non-employees. Stock options granted to purchase shares of EEX
common stock have an exercise price of not less than the fair market value of
the common stock on the grant date. EEX has reserved a total of 1.5 million
shares for issuance under this plan. Options become exercisable over three
years and expire after 10 years.
A summary of stock option activity under this plan follows:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
NUMBER AVERAGE AVERAGE
OF EXERCISE FAIR
SHARES PRICE VALUE
------- -------- --------
<S> <C> <C> <C>
Options outstanding
December 31, 1996
Granted......................................... 370,000 $10.17 $3.87
Exercised.......................................
Canceled........................................ (10,000) 10.75
------- ------
Options outstanding
December 31, 1997............................... 360,000 $10.16
======= ======
</TABLE>
At December 31, 1997 exercise prices range from $8.52 to $10.75 and these
options have a weighted average remaining contractual life of 10 years. Five
thousand options with a weighted average exercise price of $10.75 were
exercisable at December 31, 1997.
In 1996 the Company adopted the Employee Stock Option Plan for eligible
employees not covered by the plans described above. Stock options granted to
purchase shares of EEX common stock have an exercise price of not less than
the fair market value of the common stock on the grant date. EEX has reserved
a total of 1.5 million shares for issuance under this plan. Options become
exercisable over three to seven years and expire after ten years.
A summary of stock option activity under this plan follows:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER OF EXERCISE FAIR
SHARES PRICE VALUE
--------- -------- --------
<S> <C> <C> <C>
Options outstanding
December 31, 1995
Granted....................................... 1,102,450 $11.00 $5.14
Exercised.....................................
Canceled......................................
Options outstanding
December 31, 1996............................. 1,102,450 $11.00
Granted....................................... 404,500 $ 8.97 $4.28
Exercised.....................................
Canceled...................................... (497,475) $10.96
--------- ------
Options outstanding December 31, 1997........... 1,009,475 $10.21
========= ======
</TABLE>
A-25
<PAGE>
EEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following is a summary of stock options outstanding under this plan at
December 31, 1997:
<TABLE>
<CAPTION>
RANGE OF EXERCISE PRICES
-----------------------------------
$7.72-$9.88 $10.03-$11.69 TOTAL
----------- ------------- ---------
<S> <C> <C> <C>
Options outstanding..................... 372,800 636,675 1,009,475
Weighted average remaining contractual
life,
in years............................... 10 9
Weighted average exercise price......... $ 8.87 $ 10.99
Number exercisable...................... 500 71,375
Weighted average exercise price......... $ 8.91 $ 11.01
</TABLE>
Total compensation cost recognized in income for 1997, 1996 and 1995 for
stock based employee compensation awards was immaterial. Had compensation cost
for the Company's plans been determined based on the fair value at the grant
dates consistent with the method of SFAS 123, the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- --------
<C> <S> <C> <C> <C>
Net (loss) As reported............. $(216,103) $(36,801) $(42,585)
Pro forma............... $(218,663) $(37,991) $(42,692)
Basic and diluted net (loss) per share As reported............. $ (1.71) $ (.29) $ (.38)
Pro forma............... $ (1.73) $ (.30) $ (.38)
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts as additional awards in future years are
anticipated.
Fair value of options was calculated by using the Black Scholes options
pricing model using the following weighted average assumption:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Risk free interest rate........................................ 6.26% 6.17%
Expected life, in years........................................ 5 6
Expected volatility............................................ 37% 37%
Expected dividend yield........................................ None None
</TABLE>
12. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Company's operations involve managing market risks related to changes in
interest rates and commodity prices. Derivative financial instruments,
specifically swaps, futures, options and other contracts, are used to reduce
and manage those risks.
In December 1996, in connection with the refinancing of the Cooper Project
leasing arrangements (See Note 9), the Company recognized a $1.4 million after
tax ($2.2 million pre-tax) gain on the settlement of the related interest rate
swap which had been in effect since December 1995 on a notional amount of $150
million.
Commodity Hedging Activities--The Company addresses market risk by selecting
instruments whose value fluctuations correlate strongly with the underlying
commodity being hedged. The Company enters into swaps, futures and other
derivative contracts to hedge the price risks associated with a portion of
anticipated future oil and gas production. While the use of hedging
arrangements limits the downside risk of adverse price movements, it may also
limit future gains from favorable movements. Under these agreements, payments
are received or made based on the differential between a fixed and a variable
product price. These agreements are settled in cash
A-26
<PAGE>
EEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
at or prior to expiration or exchanged for physical delivery contracts. The
Company does not obtain collateral to support the agreements but monitors the
financial viability of counter-parties and believes its credit risk is minimal
on these transactions. In the event of nonperformance, the Company would be
exposed to price risk. The Company has some risk of accounting loss since the
price received for the product at the actual physical delivery point may
differ from the prevailing price at the delivery point required for settlement
of the hedging transaction.
Oil and gas hedging activities reduced revenues $11 million and $20 million
in 1997 and 1996, respectively and increased revenues $.1 million in 1995.
At December 31, 1997, EEX had outstanding swaps, collars and futures
agreements that were entered into as hedges extending through December 31,
1998 to exchange payments on 38 Bcf of natural gas and 720 MBbls of oil. At
December 31, 1997, the weighted average strike price and market price per Mcf
of natural gas was $2.37 and $2.34, respectively, and the weighted average
strike price and market price per barrel of oil was $19.25 and $17.74,
respectively. At December 31, 1997 there were $2.3 million of net unrealized
and unrecognized hedging gains based on the difference between the strike
price and the New York Mercantile Exchange futures price for the applicable
trading month. In addition, there were $1.9 million of realized gains on
hedging activities which were deferred and will be applied as an increase in
revenues in 1998 in the month of physical sale of production.
Fair Value of Financial Instruments--At December 31, 1997, the estimated
proceeds the Company would have received to terminate or otherwise settle oil
and gas swaps, collars and futures agreements was $2.3 million, which
represented their fair value. The fair value of all other financial
instruments at December 31, 1997 and 1996 approximated carrying value.
A-27
<PAGE>
EEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. INCOME TAXES
Prior to August 5, 1997 EEX's operations were included in ENSERCH's
consolidated federal income tax return. Pursuant to a tax sharing agreement,
EEX and ENSERCH made or received payments determined as though EEX and its
subsidiaries filed a separate consolidated federal income tax return. On
August 5, 1997 EEX became a separate taxable entity (See Note 1).
PROVISION (BENEFIT) FOR INCOME TAXES:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal........................................ $ (3,945) $ 4,267 $ 3,084
State.......................................... 461 21 130
-------- -------- --------
Total........................................ $ (3,484) $ 4,288 $ 3,214
Deferred--Federal.............................. (55,461) (24,324) (26,456)
-------- -------- --------
Total provision (benefit).................... $(58,945) $(20,036) $(23,242)
======== ======== ========
</TABLE>
RECONCILIATION OF INCOME TAXES (BENEFIT) COMPUTED AT THE FEDERAL STATUTORY
RATE TO PROVISION FOR INCOME TAXES (BENEFIT):
<TABLE>
<S> <C> <C> <C>
(Loss) before income taxes:
Domestic................................... $(269,081) $(54,343) $(61,726)
Foreign.................................... (1,042) ( 2,494) ( 4,101)
--------- -------- --------
Total.................................... $(270,123) $(56,837) $(65,827)
========= ======== ========
Income taxes (benefit) computed at the
federal
statutory rate of 35%....................... $ (94,543) $(19,892) $(23,040)
Percentage depletion....................... (193) (334) (322)
Valuation allowance on deferred tax asset.. 35,254
Other--net................................. 537 190 120
--------- -------- --------
Provision for income taxes (benefit)..... $ (58,945) $(20,036) $(23,242)
========= ======== ========
</TABLE>
A-28
<PAGE>
EEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The deferred tax effect of the difference in financial accounting basis and
income tax basis of EEX's assets and liabilities at December 31, 1997 and 1996
was as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------------ -------------------------------
TOTAL CURRENT NONCURRENT TOTAL CURRENT NONCURRENT
-------- ------- ---------- -------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Deferred Tax Assets:
Property, plant and
equipment............ $ 41,910 $ 41,910
Retirement and other
employee
benefit obligations.. 1,840 $499 1,341 $ 968 $ 625 $ 343
Accruals and
allowances........... 4,378 406 3,972 473 473
Losses of controlled
foreign corporations. 8,262 8,262 8,079 8,079
All other............. 93 86 7 647 647
Valuation allowance... (35,254) (35,254)
-------- ---- -------- -------- ------ --------
Total............... $ 21,229 $991 $ 20,238 $ 10,167 $1,098 $ 9,069
-------- ---- -------- -------- ------ --------
Deferred Tax
Liabilities:
Property, plant and
equipment............ $ 44,399 $ 44,399
-------- ---- -------- -------- ------ --------
Net deferred tax asset
(liability) $ 21,229 $991(a) $ 20,238 $(34,232) $1,098(a) $(35,330)
======== ==== ======== ======== ====== ========
</TABLE>
- --------
(a) Included in other current assets in the balance sheet.
The Company established a $35 million valuation allowance to reduce the
calculated deferred tax asset to net realizable value in accordance with
Statement of Financial Accounting Standards No. 109 (SFAS 109). Although the
Company has incurred net taxable losses for book purposes in recent years,
management believes it is more likely than not that the Company will generate
taxable income sufficient to realize a portion of the tax benefits associated
with assets which have a tax basis in excess of net cost recorded under the
successful efforts method of accounting used for financial reporting purposes.
Such assets are primarily represented by seismic costs capitalized for tax
purposes but expensed under successful efforts accounting and assets impaired
under the provisions of SFAS 121 for which no tax deduction was immediately
available. This belief is based primarily on available tax planning strategies
which include anticipated sales of assets with fair market values in excess of
book and tax cost bases within the next year. While management is optimistic
that future earnings will be significantly enhanced as a result of its ongoing
restructuring program, the anticipated earnings benefit which could be
realized from further realization of the additional tax basis in selected
assets has not been recognized in the valuation of the Company's deferred tax
asset.
A-29
<PAGE>
EEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. EMPLOYEE BENEFIT PLANS
Most of the Company's employees participate in a noncontributory defined
benefit pension plan. Accrued retirement costs are funded based upon
applicable requirements of federal law and deductibility for federal income
tax purposes. Employees hired prior to July 1, 1989 are eligible for medical
benefits when they retire. Medical benefits are not prefunded.
Prior to ENSERCH's August 5, 1997 distribution of EEI stock to ENSERCH
shareholders (see Note 1), EEX's cost for pension and retiree medical benefits
was based on allocations from ENSERCH plans. From August 5 through December
31, 1997, EEX's costs for these benefits were based on EEX's allocated pension
plan assets, employees and retirees. EEX's share of the ENSERCH pension plan
assets and liabilities for accrued benefits have been estimated by ENSERCH and
are disclosed in the 1997 column below. During 1998, EEX's allocated assets
will be transferred to an EEX plan with substantially the same benefits as
provided by the ENSERCH plan.
EMPLOYEE BENEFIT PLAN COSTS:
<TABLE>
<CAPTION>
1997 1996 1995
------ ---- ----
<S> <C> <C> <C>
Allocations from ENSERCH.................................. $ 596 $800 $600
EEX Plan Costs:
Service cost--benefits earned during the period....... 327
Interest cost on projected benefit obligation......... 670
Actual (return) loss on assets........................ 104
Net amortization and deferral......................... (471)
------ ---- ----
Net periodic pension expense.......................... $1,226 $800 $600
====== ==== ====
Post-retirement health care and life insurance:
Allocations from ENSERCH.................................. $ 469 $800 $800
EEX Plan Costs:
Service cost--benefits earned during the period....... 9
Interest cost on projected benefit obligation......... 248
Net amortization and deferral......................... 139
------ ---- ----
Net periodic post-retirement benefit cost............. $ 865 $800 $800
====== ==== ====
</TABLE>
A-30
<PAGE>
EEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
PENSION PLAN INFORMATION:
<TABLE>
<CAPTION>
EEX PLAN ENSERCH PLAN
Valuation Assumptions: -------- ---------------
<S> <C> <C> <C>
Discount rate................................. 7.25% 7.75% 7.65%
Rate of increase in compensation levels....... 4.00% 4.00% 4.00%
Expected long-term rate of return on assets... 9.00% 9.50% 9.50%
Amounts Recognized:
Actuarial present value of pension benefit
obligation:
Vested benefit obligation................... $(18,010) $(302,400)
======== =========
Accumulated benefit obligation.............. $(18,080) $(305,000)
======== =========
Projected pension benefit obligation........ $(23,396) $(333,900)
Plan assets at fair value....................... 11,420 285,800
-------- ---------
Projected benefit obligation in excess of plan
assets......................................... (11,976) (48,100)
Unrecognized net asset at transition............ ( 3,400)
Unrecognized prior service cost (credit)........ ( 3,600)
Unrecognized net actuarial loss................. 1,735 3,400
-------- ---------
ENSERCH accrued pension cost.................... $ (51,700)
=========
EEX accrued pension cost........................ $(10,241) $ ( 4,900)
======== =========
POST-RETIREMENT BENEFIT INFORMATION:
<CAPTION>
EEX PLAN ENSERCH PLAN
Valuation Assumptions: -------- ---------------
<S> <C> <C> <C>
Discount rate................................. 7.25% 7.75% 7.65%
Medical cost trend rate....................... 5.70% 6.50% 7.00%
Amounts Recognized:
Accumulated post-retirement benefit obligation.. $ (8,366) $ (73,200)
Unrecognized obligation at transition........... 4,028 53,000
Unrecognized net actuarial loss................. 2,179 10,700
-------- ---------
ENSERCH accrued post-retirement benefit cost.... $ ( 9,500)
=========
EEX accrued post-retirement benefit cost........ $ (2,159) $ ( 1,000)
======== =========
</TABLE>
The assumed health care cost trend rate is 5.7% for 1997, declining
gradually to 4.3% after 2000, and remaining at that level thereafter. If the
health care cost trend rate were increased by 1%, the accumulated post-
retirement benefit obligation as of December 31, 1997 and the net periodic
post-retirement benefit costs of EEX for 1997 would be increased by $547
thousand and $15 thousand, respectively.
Investment Plan--At December 31, 1997 EEX provided a voluntary contributory
investment plan that was available to substantially all employees of the
Company. The Company's share of costs under the plan was $343, $425, and $304
in 1997, 1996, and 1995, respectively. The Company matches up to 60% of the
first 6% of employees contributions.
15. RELATED PARTY TRANSACTIONS
As described in Note 1, on August 5, 1997 ENSERCH distributed to its
shareholders all the shares of EEI common stock it owned and EEI ceased being
a subsidiary of ENSERCH. In preparation for this distribution, on January 1,
1997 responsibility for all management and administrative functions for oil
and gas activities
A-31
<PAGE>
EEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
previously performed by ENSERCH, along with selected ENSERCH employees, were
transferred to Old EEI and cost allocations from ENSERCH for these functions
were discontinued. ENSERCH charges to Old EEI for all indirect costs amounted
to $5,610 and $3,542 for 1996 and 1995, respectively.
The Company had sales to certain ENSERCH companies (Enserch Energy Services,
Inc., Lone Star Gas Company and Enserch Processing Company) that aggregated
$25,675, $86,235, and $87,002 in 1997 (through August 5), 1996, and 1995,
respectively.
The Company incurred interest costs, including amounts capitalized, of none
in 1997, and $72 and $3,389 in 1996, and 1995, respectively, on borrowings
from ENSERCH Companies.
Interest income on notes receivable from ENSERCH Companies was $88, $66, and
$1,027 in 1997, 1996, and 1995, respectively.
16. CONTINGENT LIABILITIES
Legal Proceedings--On March 23, 1994, a lawsuit was brought in the 299th
District Court of Harris County, Texas against EPO (the Company's predecessor)
and five other defendants by 19 royalty owners under leases contained within
the Corby Gas Unit in Leon County, Texas. Defendants are working interest
owners and lessees under the leases. The plaintiffs allege causes of action
involving breach of express and implied obligations under the leases,
drainage, failure to explore and develop for oil and gas under the leases,
civil conspiracy, tortuous interference with contractual relationships,
specific performance, negligence and conversion. The plaintiffs seek to
recover alleged actual damages in excess of $5.4 million, punitive damages of
at least ten times the actual damages, if any, found by a jury, interest and
attorneys' fees. The Company owned a 7.1% interest in these leases.
A lawsuit was filed against ENSERCH, its utility division, EPO and EPO's
managing general partner in the 348th Judicial District Court of Tarrant
County in May 1989. Plaintiffs seek unspecified actual damages and punitive
damages in the amount of $5 million. Plaintiffs allege royalties were not
fully paid, certain expenses were improperly charged against the amount of
royalties due, negligence in the venting of gas and liquid hydrocarbons into
the air, and breach of duty of good faith and fair dealing by wrongfully
concealing certain material facts concerning sales of gas from the subject
leases to the utility division. On February 12, 1998 the court granted a
summary judgment in the Company's favor thereby dismissing the lawsuit.
A lawsuit was filed on February 24, 1987, in the 112th Judicial District of
Sutton County, Texas, against certain subsidiaries and affiliates of ENSERCH,
including predecessors of EEX. The plaintiffs initially claimed that
defendants failed to make certain production and minimum purchase payments
under a gas purchase contract. In this connection, the plaintiffs have alleged
a conspiracy to violate purchase obligations, improper accounting of amounts
due, fraud, misrepresentation, duress, failure to properly market gas and
failure to act in good faith. Under amended pleadings filed in January, 1997,
plaintiffs have added allegations of negligence and gross negligence in
connection with the measurement of gas, and conversion. Plaintiffs seek actual
damages in excess of $5 million and punitive damages in an amount equal to
0.5% of the consolidated gross revenues of ENSERCH for the years 1982 through
1986 (approximately $85 million), interest, costs and attorneys' fees.
On April 17, 1996, a subsidiary of EEX was made a third party defendant in a
lawsuit filed in the United States District Court for the Central Division of
Utah. The original suit was instituted to quiet title to an oil and gas lease
in Carbon County, Utah, which had been assigned to the plaintiffs by the
subsidiary. The defendants, previous assignees of the lease, are seeking
damages of $10 million from the subsidiary in the event the defendants lose
their rights to the lease.
A-32
<PAGE>
EEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Management believes that the named defendants have meritorious defenses to
the claims made in these and other actions brought in the ordinary course of
business. In the opinion of management, the Company will incur no liability in
excess of amounts provided from these and all other pending claims and suits
that is material for financial reporting purposes.
Environmental Matters--The Company is subject to federal, state and local
environmental laws and regulations that regulate the discharge of materials
into the environment. Environmental expenditures are expensed or capitalized
depending on their future economic benefit. The level of future expenditures
for environmental matters, including costs of obtaining operating permits,
equipment monitoring and modifications under the Clean Air Act and cleanup
obligations, cannot be fully ascertained until the regulations that implement
the applicable laws have been approved and adopted. It is management's opinion
that all such costs, when finally determined, will not have a material adverse
effect on the consolidated financial position or results of operations of the
Company.
17. SUPPLEMENTARY OIL AND GAS INFORMATION
Oil and Gas Producing Activities--The following tables set forth information
relating to oil and gas producing activities of EEX. Reserve data for natural
gas liquids attributable to leasehold interests owned by the Company are
included in oil and condensate.
<TABLE>
<CAPTION>
CAPITALIZED COSTS 1997 1996
----------------- ---------- ----------
<S> <C> <C>
Proved oil and gas properties......................... $1,797,395 $1,868,179
Unproved oil and gas properties....................... 84,702 116,162
---------- ----------
Total............................................... $1,882,097 $1,984,341
========== ==========
Accumulated depreciation and amortization and
valuation allowances................................. $1,178,939 $ 925,921
========== ==========
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
---------------- --------------- -----------------
NON- NON-
U.S. U.S. U.S. U.S. U.S. NON-U.S.
Costs Incurred: -------- ------- -------- ------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
Property acquisition
costs:
Proved.................. $ $ 3,165 $356,326
Unproved................ 24,970 $ 200 23,425 132,744
Exploration costs......... 50,220 1,428 80,321 $2,781 64,894 $9,000
Development costs......... 112,457 12,396 100,395 628 77,601
-------- ------- -------- ------ -------- ------
Total................. $187,647 $14,024 $207,306 $3,409 $631,565 $9,000
======== ======= ======== ====== ======== ======
Amortization (per Mcfe)..... $ 1.21 $ 1.24 $ .96
======== ======== ========
</TABLE>
A-33
<PAGE>
EEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following information is required and defined by the Financial
Accounting Standards Board. The disclosure does not represent the results of
operations based on historical financial statements. In addition to requiring
different determinations of revenues and costs, the disclosure excludes
interest expense and corporate overhead.
<TABLE>
<CAPTION>
1997 1996 1995
------------------- ------------------ ------------------
U.S. NON-U.S. U.S. NON-U.S. U.S. NON-U.S.
--------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Results of Operations:
Revenues.............. $ 310,643 $344,911 $218,565
Less:
Production costs(a).. 65,366 90,477 65,520
Exploration costs.... 69,732 $ 882 91,003 $ 2,559 72,929 $ 3,777
Depreciation and
amortization(b)..... 401,538 167,169 109,043 929
Income tax
effects(c).......... (44,037) (309) (1,643) (895) (10,447) (1,647)
--------- ----- -------- ------- -------- -------
Net producing
activities......... $(181,956) $(573) $ (2,095) $(1,664) $(18,480) $(3,059)
========= ===== ======== ======= ======== =======
</TABLE>
- --------
(a)Includes severance, ad valorem and production taxes.
(b) 1997 amount includes pre-tax property impairment of $260 million.
(c) 1997 U.S. amount includes $35,254 for valuation allowance on deferred tax
asset.
Oil and Gas Reserves (Unaudited)--The following table of estimated proved
and proved developed reserves of oil and gas has been prepared utilizing
estimates of year end reserve quantities provided by Netherland, Sewell &
Associates, Inc., independent petroleum consultants, for December 31, 1997
reserves and DeGolyer and MacNaughton, independent petroleum consultants, for
December 31, 1996 and 1995 reserves. Reserve estimates are inherently
imprecise and estimates of new discoveries are more imprecise than those of
producing oil and gas properties. Accordingly, the reserve estimates are
expected to change as additional performance data becomes available.
A-34
<PAGE>
EEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During the second quarter of 1997, several industry specialist companies
were commissioned to assist management in undertaking field studies with the
objective of converting proven, non-producing reserves to a producing status.
The results were disappointing and EEX immediately began an in-depth review
and evaluation of its reserves. As a result of this review and evaluation, EEX
recognized net downward revisions to its proven reserves of 712 Bcfe in 1997.
<TABLE>
<CAPTION>
GAS (MMCF) OIL (MBBLS)(A)
------------------------------- ------------------------
1997 1996 1995 1997 1996 1995
--------- --------- --------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
U.S. Reserves:
At January 1............ 1,215,624 1,362,763 1,041,736 53,209 66,537 46,486
Changes in reserves
Revisions of previous
estimates............ (622,640) (7,935) 26,802 (15,710) (8,173) 2,312
Extensions,
discoveries and
additions............ 40,254 72,854 62,249 3,062 4,315 21,466
Purchase of minerals
in place............. 12,347 336,668 11,417
Sales of minerals in
place................ (88,611) (123,861) (14,497) (17,054) (3,730) (11,274)
Production............ (84,469) (100,544) (90,195) (5,407) (5,740) (3,870)
--------- --------- --------- ------- ------ -------
At December 31.......... 460,158 1,215,624 1,362,763 18,100 53,209 66,537
========= ========= ========= ======= ====== =======
Proved Developed
Reserves
At January 1.......... 859,094 937,372 698,643 27,938 30,110 14,437
At December 31........ 425,773 859,094 937,372 16,882 27,938 30,110
</TABLE>
- --------
(a) Includes condensate and natural gas liquids of 825 MBbls for 1997, 1,103
MBbls for 1996 and 3,593 MBbls for 1995.
<TABLE>
<CAPTION>
GAS
(MMCF) OIL (MBBLS)
---------- -------------------
1997 1996 1997 1996 1995
---- ---- ------ ----- -----
<S> <C> <C> <C> <C> <C>
Non-U.S. Reserves:
At January 1..................................... 618 6,008 4,963 4,105
Revisions of previous estimates................ 778
Extensions, discoveries and additions.......... 618 1,045 858
Sales of minerals in place..................... (618) (1,045)
---- --- ------ ----- -----
At December 31................................... -- 618 5,741 6,008 4,963
==== === ====== ===== =====
Proved Developed Reserves
At January 1................................... -- -- -- -- --
At December 31................................. -- -- 4,767 -- --
</TABLE>
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved
Oil and Gas Reserve Quantities (Unaudited)--has been prepared using estimated
future production rates and associated production and development costs.
Continuation of economic conditions existing at the balance sheet date was
assumed. Accordingly, estimated future net cash flows were computed by
applying prices and contracts in effect in December to estimated future
production of proved oil and gas reserves, estimating future expenditures to
develop proved reserves and estimating costs to produce the proved reserves
based on average costs for the year. Average prices used in the computations
were: Gas (per Mcf) $2.51 in 1997, $3.37 in 1996 and $2.19 in 1995. Oil (per
barrel) $15.71 in 1997, $23.33 in 1996 and $16.91 in 1995.
A-35
<PAGE>
EEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Because reserve estimates are imprecise and changes in the other variables
are unpredictable, the standardized measure should be interpreted as
indicative of the order of magnitude only and not as precise amounts.
<TABLE>
<CAPTION>
TOTAL UNITED STATES INTERNATIONAL
--------- ------------- -------------
<S> <C> <C> <C>
Standardized Measure (in millions):
1997
Future cash inflows................. $ 1,529.0 $ 1,440.3 $ 88.7
Future production and development
costs.............................. (540.1) (509.7) (30.4)
Future income tax expense........... (26.8) (18.5) (8.3)
--------- --------- -------
Future net cash flows............... 962.1 912.1 50.0
Less 10% annual discount............ 343.0 334.7 8.3
--------- --------- -------
Standardized measure of discounted
future net cash flows.............. $ 619.1 $ 577.4 $ 41.7
========= ========= =======
1996
Future cash inflows................. $ 5,474.3 $ 5,326.2 $ 148.1
Future production and development
costs.............................. (1,552.9) (1,460.3) (92.6)
Future income tax expense........... (1,030.2) (1,014.0) (16.2)
--------- --------- -------
Future net cash flows............... 2,891.2 2,851.9 39.3
Less 10% annual discount............ 1,176.1 1,157.6 18.5
--------- --------- -------
Standardized measure of discounted
future net cash flows.............. $ 1,715.1 $ 1,694.3 $ 20.8
========= ========= =======
1995
Future cash inflows................. $ 4,180.7 $ 4,091.4 $ 89.3
Future production and development
costs.............................. (1,512.7) (1,446.2) (66.5)
Future income tax expense........... (597.1) (592.0) (5.1)
--------- --------- -------
Future net cash flows............... 2,070.9 2,053.2 17.7
Less 10% annual discount............ 843.5 833.7 9.8
--------- --------- -------
Standardized measure of discounted
future net cash flows.............. $ 1,227.4 $ 1,219.5 $ 7.9
========= ========= =======
Change in Standardized Measure (in
millions):
<CAPTION>
1997 1996 1995
--------- ------------- -------------
<S> <C> <C> <C>
Sales and transfers of oil and gas
produced, net of production costs.... $ (245.6) $ (254.4) $(153.1)
Changes in prices, net of production
and future development costs......... (761.8) 1,065.0 50.6
Extensions, discoveries and improved
recovery, less related costs......... 92.5 185.0 175.8
Purchases of minerals in place........ 3.2 367.6
Revisions of previous quantity
estimates............................ (806.8) (238.7) (113.9)
Sales of minerals in place............ (231.6) (125.2) (59.2)
Accretion of discount................. 234.3 144.4 102.3
Net change in income taxes............ 622.3 (329.6) (3.1)
Other................................. .7 38.0 (18.9)
--------- --------- -------
Total............................... $(1,096.0) $ 487.7 $ 348.1
========= ========= =======
</TABLE>
A-36
<PAGE>
EEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
QUARTERLY RESULTS
(UNAUDITED)
The results of operations of the Company by quarters are summarized below.
In the opinion of the Company's management, all adjustments (consisting only
of normal recurring accruals) necessary for a fair presentation have been
made. The 1996 and first three quarters of 1997 per share amounts have been
restated to comply with Statement of Financial Accounting Standards No. 128,
"Earnings Per Share".
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- -------- ------------ -----------
<S> <C> <C> <C> <C>
1997:
Revenues....................... $86,807 $ 75,257 $ 78,230 $ 73,919
Operating Income (Loss)........ 4,208 (11,730) (239,225) 6,394
Net Income (Loss).............. (2,201) (13,529) (181,608) (18,765)
Basic and Diluted Net
(Loss) Per Share.............. $ (.02) $ (.11) $ (1.43) $ (.15)
1996:
Revenues....................... $76,972 $ 86,969 $ 84,539 $ 89,666
Operating Income (Loss)........ (7,443) (12,969) 803 (12,437)
Net Income (Loss).............. (9,192) (13,139) (3,943) (10,527)
Basic and Diluted Net
(Loss) Per Share.............. $ (.07) $ (.11) $ (.03) $ (.08)
</TABLE>
A-37
<PAGE>
EXHIBIT 3.1
RESTATED ARTICLES OF INCORPORATION
OF
EEX CORPORATION
SECTION ONE
EEX Corporation, a Texas corporation (the "Company") formerly named Enserch
Exploration, Inc. and formerly named Lone Star Energy Plant Operations, Inc.,
pursuant to the provisions of Article 4.07 of the Texas Business Corporation
Act, as amended, hereby adopts Restated Articles of Incorporation without
amendments as set forth below.
SECTION TWO
The Restated Articles of Incorporation accurately copy the Articles of
Incorporation and all amendments and supplements thereto that are in effect
immediately prior hereto (collectively, the "Old Articles"), including the
Statement of Resolution filed on September 11, 1996 establishing and designating
the $200 Series A Junior Participating Preferred Stock, but except that the
number of directors currently constituting the Board of Directors and the names
and addresses of the persons now serving as directors is inserted in lieu of
similar information in the Old Articles and the name of each incorporator is
omitted.
SECTION THREE
The Restated Articles of Incorporation were adopted by resolution of the
Board of Directors of the Company on February 24, 1998.
SECTION FOUR
The Old Articles are hereby superseded by the following Restated Articles of
Incorporation, which accurately copy the entire text thereof except as above set
forth:
<PAGE>
RESTATED ARTICLES OF INCORPORATION
OF
EEX CORPORATION
ARTICLE ONE
The name of the corporation (the "Company") is EEX Corporation.
ARTICLE TWO
The period of its duration is perpetual.
ARTICLE THREE
The purposes for which the Company is organized are:
(1) To engage in all phases of the gas and oil business and related activities,
including without limitation engaging in exploration, drilling,
development, and production of gas and oil properties;
(2) To store, transport, buy and sell, gas, oil, salt, brine and other mineral
solutions and liquefied minerals;
(3) To explore for, produce, purchase and sell, store, process and manufacture,
transport and distribute gas, oil and all other minerals;
(4) To manufacture, produce, purchase or otherwise acquire, sell or dispose of,
distribute, mortgage, pledge, lease, repair, install, operate, deal in and
with, whether as principal or agent, products, goods, appliances, wares,
merchandise, fixtures, plants, structures, machinery, and materials of
every kind and description, to lend money for the carrying out of such
purposes, and to take and hold real and personal property for the payment
of such funds so loaned;
(5) To engage in the business of operation and maintenance of cogeneration and
other power production projects; and
(6) To transact any or all lawful business for which corporations may be
incorporated under the Texas Business Corporation Act, as amended and in
effect from time to time (the "TBCA").
ARTICLE FOUR
(A) Authorized Capital Stock. The aggregate number of shares of all classes
of stock the Company shall have authority to issue is 410,000,000
consisting of and divided into:
(i) one class of 400,000,000 shares of Common Stock, par value $0.01 per
share (the "Common Stock"); and
(ii) one class of 10,000,000 shares of Preferred Stock, no par value (the
"Preferred Stock"), which may be divided into and issued in one or more
series, as hereinafter provided.
(B) Series. The Preferred Stock may be divided into and issued in, at any time
and from time to time, one or more series as the Board of Directors shall
determine pursuant to the authority hereby vested in it. The Board of
Directors shall have the authority to establish series of unissued shares
of Preferred Stock, at any time and from time to time, by fixing and
determining the designations, preferences, limitations and
Restated Articles of Incorporation of EEX Corporation
Page 1 of 12
<PAGE>
relative rights of the shares of the series, subject to and within the
limitations of the TBCA and the Articles of Incorporation, including
without limitation the following:
(a) the number of shares constituting the series and the distinctive
designation of that series;
(b) the dividend rate on shares of the series, the dividend payment dates,
whether dividends shall be cumulative (and, if so, from which date or
dates), non-cumulative, or partially cumulative, and the relative rights of
priority, if any, of payment of dividends on the shares of the series;
(c) the amount payable to the holders of shares of the series upon any
voluntary or involuntary liquidation of the Company;
(d) the preference in the assets of the Company over any other class,
classes or series of shares upon the voluntary or involuntary liquidation of
the Company;
(e) whether the shares of the series are redeemable at the option of the
Company, the shareholder or another person or upon occurrence of a
designated event and, if so, the price payable upon redemption of shares of
the series and the terms and conditions on which such shares are redeemable;
(f) the provisions of the sinking fund, if any, for the redemption or
purchase of shares of the series;
(g) the voting rights, if any, of the shares of the series;
(h) the terms and conditions, if any, on which such shares may be converted,
at the option of the Company, the shareholder or another person or upon
occurrence of a designated event, into shares of any other class or series;
(i) the terms and conditions, if any, on which such shares may be exchanged,
at the option of the Company, the shareholder or another person or upon
occurrence of a designated event, for shares, obligations, indebtedness,
evidences of ownership, rights to purchase securities or other securities of
the Company or one or more other domestic or foreign corporations or other
entities or for other property or for any combination of the foregoing; and
(j) any other special rights and qualifications, limitations or restrictions
permitted by the TBCA to be granted to or imposed on the series.
Any of the designations, preferences, limitations and relative rights of the
shares of any series so established may be made dependent upon facts
ascertainable outside the Articles of Incorporation, which facts may include
future acts of the Company, provided that the manner in which such facts shall
operate upon the designations, preferences, limitations and relative rights of
the shares of any series shall be set forth in the resolution or resolutions
establishing the series.
All shares within the same series of Preferred Stock shall be identical
except as to the date of issue and the dates from which dividends on shares of
the series issued on different dates will cumulate, if cumulative. The Board of
Directors shall have the authority to increase or decrease the number of shares
within each series of Preferred Stock; provided, that the Board of Directors may
not decrease the number of shares within a series to less than the number of
shares within such series that are then outstanding.
(C) Preemptive Rights. No shareholder of the Company shall by reason of the
shareholder's holding shares of any class or series have any preemptive or
preferential right to purchase or subscribe to any shares of any class or series
of the Company, now or hereafter to be authorized, or any notes, debentures,
bonds or other securities convertible into or carrying options or warrants to
purchase shares of any class or series, now or hereafter to be authorized,
whether or not the issuance of any such shares, or such notes, debentures, bonds
or other securities, would adversely affect the dividend or voting rights of
such shareholders, other than such rights, if any, as the
Restated Articles of Incorporation of EEX Corporation
Page 2 of 12
<PAGE>
Board of Directors in its discretion may fix; and the Board of Directors may
issue shares of any class or series of the Company, or any notes, debentures,
bonds or other securities convertible into or carrying options or warrants to
purchase shares of any class or series, without offering any such shares of any
class or series, either in whole or in part, to the existing shareholders of any
class or series.
(D) Subordination of Common Stock. The Common Stock shall be subject and
subordinate to the rights, privileges and preferences of any series of Preferred
Stock to the extent set forth in the resolution or resolutions of the Board of
Directors establishing the series.
(E) Other Provisions Applicable to Capital Stock.
(a) Each outstanding share of Common Stock shall be entitled to one vote
on each matter submitted to a vote at a meeting of shareholders,
except as otherwise provided by the TBCA or as set forth in the
resolution or resolutions of the Board of Directors establishing any
series of Preferred Stock.
(b) At each election for directors of the Company ("Directors"), every
shareholder entitled to vote at such election shall have the right to
vote the number of shares owned by such shareholder for as many
persons as there are Directors to be elected and for whose election
such shareholder has a right to vote; provided that cumulative voting
in the election for Directors is prohibited.
(c) In the event of any dissolution, liquidation or winding up of the
Company, but subject to the rights of the holders of any series of
Preferred Stock, holders of Common Stock shall be entitled to receive
pro rata all of the remaining assets of the Company available for
distribution to its shareholders.
(d) Subject to the rights of the holders of Preferred Stock as set forth
in the resolution or resolutions of the Board of Directors
establishing any series of Preferred Stock, dividends may be paid upon
Common Stock to the exclusion of Preferred Stock out of any assets of
the Company available therefor.
- --------------------
As adopted by the Board of Directors of the Company effective September 11,
1996:
"RESOLVED, that pursuant to the authority conferred upon the Board of
Directors of this Company by the provisions of the Restated Articles of
Incorporation of this Company, the Board of Directors hereby creates a new
series of Preferred Stock of the Company which shall consist of 1,000,000
shares of no par value, which shall be designated and known as $200 Series
A Junior Participating Preferred Stock, and that in addition to the
preferences, rights, voting powers and the restrictions or qualifications
of all shares of Preferred Stock regardless of series, described and
expressed in the Restated Articles of Incorporation of the Company, the
Board of Directors hereby declares that the shares of the $200 Series A
Junior Participating Preferred Stock shall have the terms, conditions,
rights and preferences, as follows:
1. Designation. The shares of such series shall be designated "$200
Series A Junior Participating Preferred Stock" (herein called "Series A
Preferred Stock").
2. Number. The number of shares of Series A Preferred Stock shall be
1,000,000, which number may be increased or decreased by resolution adopted by
the Board of Directors: provided, however, that no decrease shall reduce the
number of authorized shares of Series A Preferred Stock to less than the number
of shares then issued and outstanding plus the number of shares issuable upon
the exercise of outstanding rights, options for warrants or upon conversion of
outstanding securities issued by the Company.
Restated Articles of Incorporation of EEX Corporation
Page 3 of 12
<PAGE>
3. Dividends. Subject to the rights of the holders of any shares of any
other series of Preferred Stock (or any similar stock) of the Company with
respect to dividends, but in preference to the holders of shares of the Common
Stock, par value $0.01 per share (the "Common Stock"), the Company or of any
other class or series of stock of the Company ranking junior to the Series A
Preferred Stock, the holders of shares of Series A Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors out of
funds legally available for the purpose, dividends for each Quarterly Dividend
Period (as hereinafter defined) equal (rounded to the nearest cent) to the
greater of (a) $20 or (b) subject to the provision for adjustment hereinafter
set forth, 200 times the aggregate per share amount of all cash dividends, and
200 times the aggregate per share amount (payable in cash, based upon the fair
market value at the time the non-cash dividend or other distribution is declared
as determined in good faith by the Board of Directors) of all non-cash dividends
or other distributions other than a dividend payable in shares of Common Stock
or a subdivision of the outstanding shares of Common Stock (by reclassification
or otherwise), declared (but not withdrawn) on the Common Stock during the
immediately preceding Quarterly Dividend Period, or, with respect to the first
Quarterly Dividend Period, since the first issuance of any share or fraction of
a share of Series A Preferred Stock. In the event the Company shall at any time
after September 10, 1996 (the "Rights Declaration Date") (i) declare any
dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the amount to which holders of
shares of Series A Preferred Stock were entitled immediately prior to such event
under clause (b) of the preceding sentence shall be adjusted by multiplying such
amount by a fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.
As used herein "Quarterly Dividend Period" shall mean a period of three
months which shall commence on February 1, May 1, August 1 and November 1 in
each year (or in the case of original issuance, from the date of original
issuance) and shall end on and include the day next preceding the first date of
the next Quarterly Dividend Period. The first day of each such Quarterly
Dividend Period shall be the dividend payment date for the regular quarterly
dividend payable for the preceding Quarterly Dividend Period, except that the
first dividend on shares of Series A Preferred Stock shall be payable on the
quarterly payment date next succeeding the expiration of 30 days after the date
of initial issue of any shares of the Series A Preferred Stock.
Dividends on the Series A Preferred Stock, if any, shall be cumulative so
that no dividend (other than a dividend payable in Common Stock) or other
distribution shall be paid or declared or made on, and no amounts shall be
applied to the purchase or redemption of, the Common Stock or any other class of
stock ranking junior to the Series A Preferred Stock as to dividends or assets
unless (i) full cumulative dividends for all past Quarterly Dividend Periods
have been paid or declared and set apart for payment, and full cumulative
dividends for then current Quarterly Dividend Period shall have been or
simultaneously therewith shall be paid and declared on outstanding Series A
Preferred Stock, and (ii) after giving effect to such payment of dividend, other
distribution, purchase or redemption, the aggregate capital of the Company
applicable to all capital stock outstanding ranking junior to the Series A
Preferred Stock as the dividends or assets plus the consolidated surplus of the
Company and its subsidiaries shall exceed the aggregate amount payable on
involuntary dissolution, liquidation or winding up of the Company on all shares
of the Series A Preferred Stock and all stock ranking prior to on a parity with
the Series A Preferred Stock as the dividends or assets to be outstanding after
the payment of such dividend, other distribution, purchase or redemption.
Determinations made with respect to the declaration and payment of dividends and
other distributions shall be made in accordance with the provisions of the Texas
Business Corporation Act, as amended and in effect at the time (the "TBCA").
4. Liquidation. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Company, the holders of the Series A Preferred
Stock shall, subject to the prior and superior rights of the holders of any
shares of any other series of Preferred Stock (or any similar stock) of the
Company, be entitled to receive the greater of (a) $200 per share, or (b) an
amount per share, subject to the provision for adjustment hereinafter set forth,
equal to 200 times the aggregate amount to be distributed per share to holders
of Common Stock, plus in either instance accrued dividends to the date of
distribution, whether or not earned or declared. In the event the Company shall
at any time after the Rights Declaration Date (i) declare any dividend on Common
Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common
Stock, or (iii) combine the
Restated Articles of Incorporation of EEX Corporation
Page 4 of 12
<PAGE>
outstanding Common Stock into a smaller number of shares, then in each such case
the amount to which holders of shares of Series A Preferred Stock were entitled
immediately prior to such event pursuant to clause (b) of the preceding sentence
shall be adjusted by multiplying such amount by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
No distribution shall be made to the holders of shares of Common Stock or
any other stock ranking junior to the Series A Preferred Stock upon liquidation,
distribution or winding up, unless, prior thereto, the holders of Shares of
Series A Preferred Stock shall have received the amounts set forth above. If the
assets available for distribution to holders of shares of Series A Preferred
Stock shall not be sufficient to pay in full the amounts so determined to be
payable on all shares of the Series A Preferred Stock in the event of such
voluntary or involuntary dissolution, liquidation or winding up, as the case may
be, then assets available for payment shall be distributed ratably among the
holders of the Series A Preferred Stock of all series in accordance with the
amounts so determined to be payable on the shares of each series in the event of
voluntary or involuntary dissolution, liquidation or winding up, as the case may
be, in proportion to the full preferential amounts to which they are
respectively entitled. After payment to the holders of the Series A Preferred
Stock of the full preferential amounts hereinbefore provided for, the holders of
Series A Preferred Stock will have no other rights or claims to any of the
remaining assets of the Company either upon distribution of such assets or upon
dissolution, liquidation or winding up. The sale of all or substantially all of
the property of the Company to, or the merger or consolidation of the Company
into or with, any other corporation, or the purchase or redemption by the
Company of any shares of its Preferred Stock, or its Series A Preferred Stock or
its Common Stock or any other class of its stock shall not be deemed to be a
distribution of assets or a dissolution, liquidation or winding up for the
purpose of this paragraph.
5. Optional Redemption. So long as full cumulative dividends on all
outstanding shares of Series A Preferred Stock for all dividend periods ending
on or prior to the date fixed for redemption shall have been paid or declared
and set apart for payment and subject to any applicable requirements of Texas
law and the rights of the holders of any shares of any other series of Preferred
Stock (or any similar stock) of the Company, the Company shall have the option
to redeem the whole or any part of the Series A Preferred Stock at any time on
at least 30 days notice in accordance with the provisions of the procedures for
redemptions set forth in the TBCA at a redemption price equal to the greater of
(a) $200 and (b), subject to the provision for adjustment hereinafter set forth,
200 times the "current per share market price" of the Common Stock on the date
of mailing of the notice of redemption, together with unpaid accumulated
dividends to the date of such redemption. In the event the Company shall at any
time after the Rights Declaration Date (i) declare any dividend on Common Stock
payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock
or (iii) combine the outstanding Common Stock into a smaller number of shares,
then in each such case the amount to which holders of shares of Series A
Preferred Stock were otherwise entitled immediately prior to such event under
the preceding sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event. The "current per share market price" on any date shall be deemed to be
the average of the closing price per share of such Common Stock for the 10
consecutive "trading days" (as such term is hereinafter defined) immediately
prior to such date. The closing price for each day shall be the last sale
price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Common Stock is not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting system
with respect to securities listed or admitted to trading on the principal
national securities exchange on which the Common Stock is listed or admitted to
trading or, if the Common Stock is not listed or admitted to trading on any
national securities exchange, the last quoted price or, if not so quoted the
average of the high bid and low asked prices in the over-the-counter market, as
reported by the National Association of Securities Dealers, Inc. Automated
Quotations System ("NASDAQ") or such other system then in use or, if on any such
date the Common Stock is not quoted by any such organization, the average of the
closing bid and asked prices as furnished by a professional market maker making
a market in the Common Stock selected by the Board of Directors of the Company.
If on such date no such market maker is
Restated Articles of Incorporation of EEX Corporation
Page 5 of 12
<PAGE>
making a market in the Common Stock, the fair value of the Common Stock on such
date as determined in good faith by the Board of Directors of the Company shall
be used. The term "trading day" shall mean a day on which the principal national
securities exchange on which the Common Stock is listed or admitted to trading
is open for transaction of business or, if the Common Stock is not listed or
admitted to trading on any national securities exchange, a Monday, Tuesday,
Wednesday, Thursday or Friday on which banking institutions in the State of New
York are not authorized or obligated by law or executive order to close.
6. Treasury Shares. So long as any shares of the Series A Preferred Stock
are outstanding, shares of the Series A Preferred Stock which are purchased,
redeemed or otherwise acquired by the Company shall not be reissued, or
otherwise disposed of, as shares of Series A Preferred Stock.
7. Conversion. Other than as set forth above, the Series A Preferred
Stock shall not have any conversion or exchange rights.
8. Voting Rights.
(A) Each share of Series A Preferred Stock shall entitle the holder thereof
to 200 votes on all matters submitted to a vote of the shareholders of the
Company. In the event the Company shall at any time after the Rights Declaration
Date, (i) declare any dividend on Common Stock payable in shares of Common
Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such as
the number of votes to which holders of shares of Series A Preferred Stock were
entitled immediately prior to such event shall be adjusted by multiplying such
number by a fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.
(B) The Series A Preferred Stock shall have no voting rights other than
the voting rights set forth herein, in the Restated Articles of Incorporation of
the Company or as otherwise provided by Texas law.
9. Consolidation, Merger, etc. In case the Company shall enter into any
consolidation, merger, combination or other transaction in which the shares of
Common Stock are exchanged for or converted or changed into other stock or
securities, cash and/or other property, then in any such case proper provision
shall be made so that each share of Series A Preferred Stock shall at the same
time be similarly exchanged for or converted or changed into an amount per
share, subject to the provision for adjustment hereinafter set forth, equal to
200 times the aggregate amount of stock, securities, cash and/or any other
property (payable in kind), as the case may be, for which or into which each
share of Common Stock is exchanged for or converted or changed. In the event
the Company shall at any time after the Rights Declaration Date (i) declare any
dividend on Common Stock payable in shares of Common Stock (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the amount set forth in the
preceding sentence with respect to the exchange or conversion or change of
shares of Series A Preferred Stock shall be adjusted by multiplying such amount
by a fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
10. Amendment. No change shall be made in any of the rights or
preferences of the Series A Preferred Stock at the time outstanding without the
affirmative vote of at least two-thirds of the votes entitled to be cast with
respect to the shares of the Series A Preferred Stock outstanding on the record
date for such meeting in addition to any other vote, if any, as may be required
for such change under the applicable provisions of the Restated Articles of
Incorporation and the laws of the State of Texas at the time applicable
thereto."
ARTICLE FIVE
The street address of the Company's registered office is 2500 City West
Blvd., Suite 1400, Houston, Texas 77042, and the name of its registered agent at
that address is Janice K. Hartrick.
Restated Articles of Incorporation of EEX Corporation
Page 6 of 12
<PAGE>
ARTICLE SIX
(A) Number. The number of Directors constituting the Board of Directors
of the Company shall be fixed from time to time by the Board of Directors by the
affirmative vote of not less than a majority of the Continuing Directors (as
defined in Article Ten) but shall not be less than three (3), subject to such
rights to elect additional Directors under such specified circumstances as may
be granted to holders of Preferred Stock,
(B) Required Vote to Elect Directors. With respect to the election of
Directors, the act of the shareholders electing the Directors shall be a vote of
the holders of a majority of the outstanding shares entitled to vote in the
election of Directors.
(C) Term. Directors shall hold office until their respective successors
shall have been elected and qualified.
(D) Removal. Directors may be removed from office, with or without cause,
only by the affirmative vote of the holders of not less than a majority of the
outstanding shares entitled to vote in the election of Directors, if notice of
the intention to act upon such matter shall have been given in the notice
calling for the meeting.
(E) Vacancies; Increase in Number of Directors. Subject to such rights to
elect Directors under specified circumstances as may be granted to holders of
Preferred Stock, newly created directorships resulting from any increase in the
number of Directors and any vacancies on the Board of Directors resulting from
death, resignation, disqualification, removal or other reason shall be filled
solely by the affirmative vote of a majority of the Continuing Directors, even
though less than a quorum of the Board of Directors. No decrease in the number
of Directors constituting the Board of Directors shall shorten the term of any
incumbent Director.
(F) Current Directors. The number of Directors constituting the Board of
Directors is five (5), subject to being increased or decreased as set forth
above. The names and addresses of the persons who are to serve as Directors and
their classification are:
<TABLE>
<CAPTION>
Name Address
---- -------
<S> <C>
T. M Hamilton 2500 City West Blvd., Suite 1400, Houston, Texas 77042
F. S. Addy 2500 City West Blvd., Suite 1400, Houston, Texas 77042
B. A. Bridgewater, Jr. 2500 City West Blvd., Suite 1400, Houston, Texas 77042
F. M. Lowther 2500 City West Blvd., Suite 1400, Houston, Texas 77042
M. P. Mallardi 2500 City West Blvd., Suite 1400, Houston, Texas 77042
</TABLE>
ARTICLE SEVEN
To the fullest extent permitted by law, a Director shall not be liable to
the Company or its shareholders for monetary damages for any act or omission in
his capacity as a Director. Any repeal or modification of this Article shall be
prospective only and shall not adversely affect any limitation of the personal
liability of a Director existing at the time of the repeal or modification. The
provisions of this Article shall not be deemed to limit or preclude
indemnification of a Director by the Company for any liability of a Director
that has not been eliminated by the provisions of this Article.
ARTICLE EIGHT
(A) Power to Alter, Amend or Repeal Bylaws. The power to alter, amend,
suspend or repeal the Bylaws or to adopt new Bylaws shall be vested in, and
shall require the affirmative vote of not less than a majority of the Continuing
Directors (as defined in Article Ten); provided that any Bylaw or amendment
thereto as adopted by the Board of Directors may be altered, amended, suspended
or repealed by the affirmative vote of the holders of not less than 66 2/3% of
the outstanding Voting Stock (as defined in Article Ten) or a new Bylaw
Restated Articles of Incorporation of EEX Corporation
Page 7 of 12
<PAGE>
in lieu thereof may be adopted by vote of such shareholders. No Bylaw that has
been altered, amended or adopted by such a vote of the shareholders may be
altered, amended or repealed by vote of the Directors until two years shall have
expired since such action by such vote of shareholders.
(B) Bylaw Stock Ownership Restrictions. The Board of Directors shall have
the power and authority, from time to time, to adopt, alter or amend the Bylaws
to add or amend such provisions as in their judgment may be necessary or
appropriate to ensure that the Company and its shareholders satisfy the
citizenship or other requirements imposed by any federal or state law relating
to the ownership, possession or leasing of gas, oil or other minerals, land,
vessels or any other property, licenses or rights of any nature whatsoever in
which the Company or any of its subsidiaries may have or hereafter have, or seek
to have, any right or interest. Without limiting such general powers, the Board
of Directors shall have the power and authority, from time to time, to adopt,
alter or amend the Bylaws to add or amend provisions that for such purpose
impose restrictions on the transfer or registration of transfer of the shares of
the Company, including without limitation restrictions that:
(1) obligate the holders of the restricted shares to offer to the
Company or to any other holders of shares of the Company or to any other
person or to any combination of the foregoing, a prior opportunity, to be
exercised within a reasonable time, to acquire the restricted shares;
(2) provide that the Company or the holders of any class of shares of
the Company must consent to any proposed transfer of the restricted shares
or approve the proposed transferee of the restricted shares before the
transfer may be effected;
(3) prohibit the transfer of the restricted shares to designated
persons or classes of persons; or
(4) maintain any tax or other status or advantage to the Company.
ARTICLE NINE
(A) No Shareholder Written Consent Action. Any action required or
permitted to be taken by the shareholders of the Company must be effected at a
duly called annual or special meeting of such holders and may not be effected by
any consent in writing by such holders.
(B) Special Meetings of Shareholders. Subject to such rights to call
special meetings of shareholders under specified circumstances as may be granted
to holders of Preferred Stock, special meetings of shareholders may be called
only by the Chairman of the Board or the President of the Company, at the
request in writing or by vote of not less than a majority of the Continuing
Directors (as defined in Article Ten) or at the request of the holders of not
less than 50% of the outstanding shares entitled to vote at the meeting, and not
by any other persons. Any request for a special meeting made by the Board of
Directors shall state the purpose or purposes of the proposed meeting, and
business transacted at the meeting shall be confined to the objects stated in
the notice of the meeting.
ARTICLE TEN
In addition to any other vote of shareholders required by the TBCA, the
Articles of Incorporation or otherwise, the affirmative vote of the holders of
not less than 80% of the outstanding shares of "Voting Stock" (as hereinafter
defined) of the Company, including the affirmative vote of the holders of not
less than 50% of the outstanding shares of Voting Stock not "Beneficially
Owned"(as hereinafter defined), directly or indirectly, by any "Related Person"
(as hereinafter defined), shall be required for the approval or authorization of
any "Business Combination" (as hereinafter defined) in which any Related Person
has an interest (except proportionately as a shareholder of the Company);
provided, that the 50% voting requirement referred to above shall not be
applicable if the Business Combination is approved by the affirmative vote of
the holders of not less than 90% of the
Restated Articles of Incorporation of EEX Corporation
Page 8 of 12
<PAGE>
outstanding shares of Voting Stock; provided further that the 80% requirement
referred to above shall not be applicable if:
(1) The Board of Directors by a vote of not less than a majority of
the "Continuing Directors" (as hereinafter defined) then holding office (a)
expressly approved in advance the acquisition of outstanding shares of
Voting Stock that resulted in the Related Person becoming a Related Person
or (b) approved the Business Combination prior to the Related Person
involved in the Business Combination having become a Related Person;
(2) The Business Combination is solely between the Company and
another corporation, 100% of the Voting Stock of which is owned, directly
or indirectly, by the Company; or
(3) All of the following conditions have been met: (a) the Business
Combination is a merger or consolidation, the consummation of which is
proposed to take place within one (1) year after the date of the
transaction that resulted in the Related Person becoming a Related Person
and the cash or fair market value of the property, securities or other
consideration to be received per share by holders of Common Stock in the
Business Combination is not less than the highest per share price (with
appropriate adjustments for recapitalizations and for stock splits, reverse
stock splits and share dividends, and including any brokerage commissions,
transfer taxes and soliciting dealer fees) paid by the Related Person in
acquiring any of its holdings of Common Stock; (b) the consideration to be
received by such holders is either cash or, if the Related Person shall
have acquired the majority of its holdings of Common Stock with a form of
consideration other than cash, the same form of consideration with which
the Related Person acquired such majority; (c) after such Related Person
has become a Related Person and prior to consummation of such Business
Combination: (i) except as approved by a majority of the "Continuing
Directors" (as hereinafter defined), there shall have been no failure to
declare and pay at the regular date therefor any full quarterly dividends
(whether or not cumulative) on any outstanding shares of Preferred Stock,
(ii) there shall have been no reduction in the annual rate of dividends
paid per share on the Company's Common Stock (adjusted as appropriate for
recapitalizations and for stock splits, reverse stock splits and share
dividends) except as approved by a majority of the Continuing Directors,
(iii) such Related Person shall not have become the Beneficial Owner of any
additional shares of Voting Stock of the Company except as part of the
transaction that resulted in such Related Person becoming a Related Person,
and (iv) such Related Person shall not have received the benefit, directly
or indirectly (except proportionately as a shareholder), of any loans,
advances, guarantees, pledges or other financial assistance or any tax
credits or other tax advantages provided by the Company, whether in
anticipation of or in connection with such Business Combination or
otherwise; and (d) a proxy statement, that complies with the requirements
of the "Exchange Act" (as hereinafter defined) and the rules and
regulations thereunder (or any subsequent provisions replacing the Exchange
Act, rules or regulations), shall be mailed to all shareholders of record
not less than forty (40) days prior to the consummation of the Business
Combination for the purpose of soliciting shareholder approval of the
Business Combination and shall contain at the front thereof, in a prominent
place, any recommendations as to the advisability (or inadvisability) of
the Business Combination that the Continuing Directors, or any of them, may
choose to state and, if deemed advisable by a majority of the Continuing
Directors, an opinion of a reputable investment banking firm as to the
fairness (or unfairness) of the terms of such Business Combination from the
point of view of the remaining shareholders of the Company (such investment
banking firm to be selected by a majority of the Continuing Directors and
to be paid a reasonable fee for its services by the Company upon receipt of
such opinion).
For the purposes of this Article:
"Affiliate," when used to indicate a relationship to a specified
person, shall mean a person that directly, or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common
control with, the specified person.
Restated Articles of Incorporation of EEX Corporation
Page 9 of 12
<PAGE>
"Associate," when used to indicate a relationship with a specified
person, shall mean (a) any corporation, partnership or other organization
of which the specified person is an officer or partner or is, directly or
indirectly, the Beneficial Owner of five percent or more of any class of
equity securities, (b) any trust or other estate in which the specified
person has a substantial beneficial interest or as to which the specified
person serves as trustee or in a similar fiduciary capacity, (c) any
relative or spouse of the specified person, or any relative of that spouse,
who has the same home as the specified person or who is a director or
officer of the Company or any of its parents or Subsidiaries, and (d) any
person who is a director or officer of the specified person or any of its
parents or subsidiaries (other than the Company or any Subsidiary of the
Company).
"Beneficial Owner" and "Beneficially Own," when used with reference to
any Voting Stock, shall mean
(a) that the person or any of its Affiliates or Associates
beneficially owns, directly or indirectly, within the meaning of Rule 13d-3
under the Exchange Act as in effect on September 10, 1996;
(b) that the person or any of its Affiliates or Associates has (i)
the right to acquire (whether that right is exercisable immediately or only
after the passage of time and whether that right is contingent or absolute)
pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights, warrants or options, or
otherwise, or (ii) the right to vote pursuant to any agreement, arrangement
or understanding (but neither that person nor any such Affiliate or
Associate shall be deemed to be the Beneficial Owner of any shares of
Voting Stock solely by reason of a revocable proxy granted with respect to
shares for a particular meeting of shareholders pursuant to a public
solicitation of proxies for that meeting, if neither that person nor any
such Affiliate or Associate is otherwise deemed the Beneficial Owner of
those shares); or
(c) that are beneficially owned, directly or indirectly, within the
meaning of Rule 13d-3 under the Exchange Act as in effect on September 10,
1996 by any other person with which the person or any of its Affiliates or
Associates has any agreement, arrangement or understanding for the purpose
of acquiring, holding, voting (other than solely by reasons of a revocable
proxy given in response to public proxy or consent solicitation made
pursuant to the applicable rules under the Exchange Act) or disposing of
any shares of Voting Stock; provided, however, that in the case of any
employee stock ownership or similar plan of the Company or of any
Subsidiary in which the beneficiaries thereof possess the right to vote any
shares of Voting Stock held by that plan, no such plan and no trustee with
respect thereto (or any Affiliate of that trustee), solely by reason of
that capacity as trustee, shall be deemed for the purposes hereof to
Beneficially Own any shares of Voting Stock held under any such plan.
"Business Combination" shall mean (a) any merger, consolidation or
share exchange involving the Company or a Subsidiary, (b) any sale, lease,
exchange, mortgage, pledge, transfer or other disposition of all or any
"Substantial Part" (as hereinafter defined) of the assets either of the
Company (including without limitation any voting securities of a
Subsidiary) or of a Subsidiary, (c) any sale, lease, exchange, transfer or
other disposition of assets having a fair market value of $5,000,000 or
more to the Company or a Subsidiary, (d) the issuance or transfer by the
Company or a Subsidiary (other than by way of a pro rata distribution to
all shareholders) of any securities of the Company or a Subsidiary, (e) any
reclassification of securities (including any reverse stock split) or
recapitalization by the Company, the effect of which would be to increase
the voting power (whether or not currently exercisable) of a Related
Person, (f) any plan or proposal for the liquidation or dissolution of the
Company, (g) any series or combination of transactions having, directly or
indirectly, the same effect as any of the foregoing, and (h) any agreement,
contract or other arrangement providing, directly or indirectly, for any of
the foregoing.
"Continuing Director" shall mean any member of the Board of Directors
who is not an Affiliate or Associate of a Related Person and who was a
member of the Board of Directors immediately prior to the time that the
Related Person became a Related Person, and any successor to a Continuing
Director
Restated Articles of Incorporation of EEX Corporation
Page 10 of 12
<PAGE>
who is not an Affiliate or Associate of the Related Person and is
recommended to succeed a Continuing Director by a majority of Continuing
Directors then serving as members of the Board of Directors. Provisions
hereof requiring approval by Continuing Directors shall not be deemed
satisfied unless there is at least one Continuing Director.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"other consideration to be received," for purposes of subparagraph (3)
of this Article, shall include without limitation Common Stock retained by
the Company's existing public shareholders in the event of a Business
Combination in which the Company is the surviving corporation.
"person" shall mean any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, association, limited
liability company, corporation, company, institution, entity, party or
governmental authority.
"Related Person" shall mean and include any person or "group" of
persons (as such term is used in Regulation 13D-G under the Exchange Act),
and each Affiliate and Associate of any such person, that individually or
collectively is the Beneficial Owner in the aggregate of not less than 10%
of the outstanding Voting Stock, other than the Company or any employee
benefit plan(s) sponsored by the Company.
"Subsidiary" shall mean, with respect to any person, a person in which
the person directly or indirectly owns at least a majority of the
outstanding voting securities or other equity interests having the power,
under ordinary circumstances, to elect a majority of the directors, or
otherwise to direct the management and policies, of such person, and any
person that is affiliated with such person.
"Substantial Part" shall mean more than 5% of the book value of the
total assets of the person in question as of the end of the most recently
completed fiscal year or, in the case of Voting Stock of a Subsidiary, 10%
or more of the outstanding shares of such Subsidiary's Voting Stock.
"Voting Stock" shall mean all outstanding shares of capital stock of
the Company or other person entitled to vote generally in the election of
Directors, considered for the purposes of this Article as a single class.
If the Company has Voting Stock entitled to more or less than one vote for
any such share, each reference in this Article to a proportion or
percentage of shares of Voting Stock shall be calculated by reference to
the portion or percentage of votes entitled to be cast by the holders of
such shares.
For the purpose of this Article, a majority of the Continuing Directors
shall have the power to determine, on the basis of information known to them,
of: (a) the number of shares of Voting Stock of which any person is the
Beneficial Owner, (b) whether a person is a Related Person, (c) whether a person
is an Affiliate or Associate of another person, (d) whether a person has an
agreement, arrangement or understanding with another as to the matters referred
to in the definition of Beneficial Owner herein, (e) whether the assets subject
to any Business Combination constitute a Substantial Part, (f) whether any
Business Combination is one in which a Related Person has an interest (except
proportionately as a shareholder of the Company), (g) the fair market value of
property other than cash or stock, (h) the highest per share price in accordance
with this Article, (i) whether the applicable conditions set forth in this
Article have been met with respect to any Business Combination, and (j) such
other matters with respect to which a determination is required under this
Article.
A majority of the Continuing Directors then in office shall have the right
to demand that any person who those Directors reasonably believe is a Related
Person (or holds of record shares of Voting Stock Beneficially Owned by any
Related Person) supply the Company with complete information about (a) the
record owner(s) of all shares Beneficially Owned by the persons who those
Directors reasonably believe is a Related Person, (b) the number of, and class
or series of, shares Beneficially Owned by any such person who those Directors
reasonably believe is a Related Person and held of record by each such record
owner and the number(s) of the stock
Restated Articles of Incorporation of EEX Corporation
Page 11 of 12
<PAGE>
certificates(s) evidencing such shares and (c) any other factual matter relating
to the applicability or effect of this Article as may reasonably be requested of
such person, and that person shall furnish that information within ten days
after receipt of the demand.
ARTICLE ELEVEN
The provisions set forth in Articles Six, Eight and Nine hereof may not be
amended, altered, changed, repealed or rescinded in any respect unless such
action is approved by the affirmative vote of the holders of not less than 75%
of all shares of "Voting Stock" (as defined in Article Ten), considered for
purposes of this Article as one class; the amendment, alteration, change, repeal
or recision of this Article and Article Ten hereof shall require both such 75%
vote and the affirmative vote of the holders of not less than 50% of such Voting
Stock, excluding the vote of any shares owned by a "Related Person" (as defined
in Article Ten), if any (such 50% voting requirement shall not be applicable if
such amendment, alteration, change, repeal or recision is approved by the
affirmative vote of the holders of not less than 90% of such Voting Stock). The
voting requirement contained in this Article and in Articles Six, Eight, Nine
and Ten hereof shall be in addition to voting requirements imposed by law, other
provisions of these Articles of Incorporation or any designation of preferences
in favor of certain classes or series of classes of shares of capital stock of
the Company.
EXECUTED as of the 24th day of February, 1998.
EEX CORPORATION
By: /s/ J. K. HARTRICK
----------------------------------
J. K. Hartrick
Senior Vice President,
General Counsel and Secretary
Restated Articles of Incorporation of EEX Corporation
Page 12 of 12
<PAGE>
EXHIBIT 3.2
BYLAWS OF EEX CORPORATION
A CORPORATION INCORPORATED UNDER
THE LAWS OF THE STATE OF TEXAS
PURPOSE AND SCOPE OF BYLAWS
These Bylaws shall constitute the private laws of EEX CORPORATION, a
corporation duly incorporated under the laws of the State of Texas (herein
called the "Company"), for the administration and regulation of the affairs of
the Company.
In the event any provision of these Bylaws is or may be in conflict with
any applicable law of the United States or the State of Texas, or of any order,
rule, regulation, decree or judgment of any governmental body or power or court
having jurisdiction over the Company, or over the subject matter to which such
provision of these Bylaws applies or may apply, such provision of these Bylaws
shall be inoperative to the extent only that the operation thereof unavoidably
conflicts with such law or order, rule, regulation, decree or judgment, and
shall in all other respects be in full force and effect.
ARTICLE I
Offices
Section 1. The registered office of the Company shall be at 4849
Greenville Avenue, in the City of Dallas, County of Dallas, State of Texas, and
the registered agent of the Company at such address shall be C. Clint Adams or
such other person as the Board of Directors may from time to time designate.
Section 2. The Company may also have offices at such other places both
within and without the State of Texas as the Board of Directors may from time to
time determine or the business of the Company may require.
ARTICLE II
Meetings of Shareholders
Section 1. All meetings of the shareholders shall be held at the
registered office of the Company or at such other place either within or without
the State of Texas as shall be designated from time to time by the Board of
Directors.
Section 2. The annual meeting of shareholders shall be held on May 12,
1998, and thereafter on the second Tuesday of May in each year, at 10:00 A.M.,
for the election of a Board of Directors and the transaction of such other
business as may properly be brought before the meeting.
<PAGE>
Section 3. Special meetings of the shareholders may only be called by the
Chairman of the Board or the President, at the request in writing or by vote of
not less than a majority of the Continuing Directors (as defined in Article Ten
of the Restated Articles of Incorporation of the Company) of the Board of
Directors, or the holders of not less than 50% of all the outstanding shares
entitled to vote at the meetings, and not by any other persons. Business
transacted at all special meetings shall be confined to the subjects stated in
the notice of meeting.
Section 4. Written or printed notice stating the place, day and hour of
the meeting, and, in case of a special meeting, the purpose or purposes for
which the meeting is called, shall be delivered not less than ten (10) nor more
than sixty (60) days before the date of the meeting, either personally or by
mail, by or at the direction of the Chairman, the Corporate Secretary, or the
officer or person calling the meeting, to each shareholder of record entitled to
vote at such meeting. If mailed, such notice shall be deemed to be delivered
when deposited in the United States mail addressed to the shareholder at his
address as it appears on the stock transfer books of the Company, with postage
thereon prepaid.
Section 5. The officer or agent having charge of the stock transfer books
for shares of the Company shall make, at least ten (10) days before each meeting
of shareholders, a complete list of the shareholders entitled to vote at such
meeting or any adjournment thereof, arranged in alphabetical order, with the
address of and the number of shares held by each, which list, for a period of
ten (10) days prior to such meeting, shall be kept on file at the registered
office of the Company and shall be subject to inspection by any shareholder at
any time during usual business hours. Such list shall also be produced and kept
open at the time and place of the meeting and shall be subject to the inspection
of any shareholder during the whole time of the meeting. The original stock
transfer books shall be prima-facie evidence as to who are the shareholders
entitled to examine such list or transfer books or to vote at any meeting of
shareholders.
Section 6. The holders of a majority of the shares issued and outstanding
and entitled to vote thereat, present in person or represented by written proxy,
shall constitute a quorum at all meetings of the shareholders for the
transaction of business. If, however, such quorum shall not be present or
represented at any meeting of the shareholders, the shareholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
notified.
Section 7. Each outstanding share, of any class, shall be entitled to as
many votes per share as the Articles of Incorporation shall provide, on each
matter submitted to a vote at a meeting of shareholders, except to the extent
that the voting rights of the shares of any class or classes are limited or
denied by the Articles of Incorporation or these Bylaws. The vote for the
election of Directors and, upon demand by any shareholder, the vote upon any
question before the meeting shall be by ballot. Cumulative voting is expressly
prohibited.
Section 8. At any meeting of the holders, every shareholder having the
right to vote shall be entitled to vote in person or by proxy executed in
writing by such shareholder or by his duly
<PAGE>
authorized attorney-in-fact. No proxy shall be valid after eleven (11) months
from the date of its execution unless otherwise provided in the proxy. All
proxies shall be revocable unless expressly provided therein to be irrevocable
and are coupled with an interest and shall be filed with the Corporate Secretary
of the Company prior to or at the time of the meeting at which they are to be
voted.
Section 9. When a quorum is present at any meeting, matters brought before
the meeting shall be determined by the shareholders in the following manner: (a)
with respect to any matter, other than the election of Directors or a matter for
which the affirmative vote of a specified portion of the shares entitled to vote
is required by the statutes or the Articles of Incorporation, the act of the
shareholders shall be the affirmative vote of the holders of a majority of the
shares entitled to vote on, and voted for or against, that matter at a meeting
of shareholders at which a quorum is present and (b) with respect to the
election of Directors, the act of the shareholders electing the Directors shall
be a majority of all outstanding shares entitled to vote in the election of
Directors, unless in each case the question is one upon which, by express
provision of the statutes or of the Articles of Incorporation or of these
Bylaws, a different vote is required, in which case such express provision shall
govern and control the decision of such question. The shareholders present at a
duly organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum.
Section 10. The Chairman shall preside at all meetings of the
shareholders. In his absence, the President or an officer of the Company
designated by the Board of Directors shall preside and perform the duties of the
Chairman at such meeting. He shall appoint two inspectors of voting to serve at
each such meeting. Before acting at any meeting, the inspectors shall be sworn
faithfully to execute their duties with strict impartiality and according to the
best of their ability. The inspectors shall determine the number of shares
outstanding, the voting power of each, the shares represented at the meeting,
the existence of a quorum, the qualification of the voters, the authenticity,
validity and effect of proxies, receive votes and ballots, hear and determine
all challenges and questions in any way arising in connection with the vote,
count and tabulate all votes and determine and announce the result of the
voting.
Section 11. At an annual meeting of the shareholders, only such business
shall be conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the Board, otherwise properly brought before the meeting by or at the direction
of the Board, or otherwise properly brought before the meeting by a shareholder.
In addition to any other applicable requirements, for business to be properly
brought before an annual meeting by a shareholder, the shareholder must have
given timely notice thereof in writing to the Corporate Secretary. To be timely,
a shareholder's notice must be delivered to or mailed and received at the
principal executive offices of the Company, not less than fifty (50) days nor
more than seventy-five (75) days prior to the meeting; provided, however, that
in the event that less than sixty-five (65) days' notice or prior public
disclosure of the date of the meeting is given or made to shareholders, notice
by the shareholder to be timely must be so received not later than the close of
business on the 15th day following the day on which such notice of the date of
the annual meeting was mailed or such public disclosure was made. A
shareholder's notice to the Corporate Secretary shall set forth
<PAGE>
as to each matter the shareholder proposes to bring before the annual meeting
(i) a brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (ii)
the name and record address of the shareholder proposing such business, (iii)
the class and number of shares of the Company which are beneficially owned by
the shareholder, and (iv) any material interest of the shareholder in such
business.
Notwithstanding anything in these Bylaws to the contrary, no business shall
be conducted at the annual meeting except in accordance with the procedures set
forth in this Section 11; provided, however, that nothing in this Section 11
shall be deemed to preclude discussion by any shareholder of any business
properly brought before the annual meeting in accordance with said procedure.
The chairman of an annual meeting shall, if the facts warrant, determine
and declare to the meeting that business was not properly brought before the
meeting in accordance with the provisions of this Section 11, and if he should
so determine, he shall so declare to the meeting and any such business not
properly brought before the meeting shall not be transacted.
Section 12. Only persons who are nominated in accordance with the
following procedures shall be eligible for election as Directors. Nominations of
persons for election to the Board of Directors of the Company may be made at a
meeting of shareholders by or at the direction of the Board of Directors by any
nominating committee or person appointed by the Board or by any shareholder of
the Company entitled to vote for the election of Directors at the meeting who
complies with the notice procedures set forth in this Section 12. Such
nominations, other than those made by or at the direction of the Board, shall be
made pursuant to timely notice in writing to the Corporate Secretary. To be
timely, a shareholder's notice shall be delivered to or mailed and received at
the principal executive offices of the Company not less than fifty (50) days nor
more than seventy-five (75) days prior to the meeting; provided, however, that
in the event that less than sixty-five (65) days' notice or prior public
disclosure of the date of the meeting is given or made to shareholders, notice
by the shareholder to be timely must be so received not later than the close of
business on the 15th day following the date on which such notice of the date of
the meeting was mailed or such public disclosure was made. Such shareholder's
notice to the Corporate Secretary shall set forth (a) as to each person whom the
shareholder proposes to nominate for election or re-election as a Director, (i)
the name, age, business address and residence address of the person, (ii) the
principal occupation or employment of the person, (iii) the class and number of
shares of capital stock of the Company which are beneficially owned by the
person, and (iv) any other information relating to the person that is required
to be disclosed in solicitations for proxies for election of Directors pursuant
to Regulation 14A under the Securities Exchange Act of 1934 as amended; and (b)
as to the shareholder giving the notice (i) the name and record address of
shareholder and (ii) the class and number of shares of capital stock of the
Company which are beneficially owned by the shareholder. The Company may require
any proposed nominee to furnish such other information as may reasonably be
required by the Company to determine the eligibility of such proposed nominee to
serve as Director of the Company. No person shall be eligible for election as a
Director of the Company unless nominated in accordance with the procedures set
forth herein.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so
<PAGE>
determine, he shall so declare to the meeting and the defective nomination shall
be disregarded.
ARTICLE III
Directors
Section 1. The powers of the Company shall be exercised under the
authority of, and the business and affairs of the Company shall be managed under
the direction of, its Board of Directors who may do all such lawful acts and
things as are not by statute or by the Articles of Incorporation or by these
Bylaws directed or required to be exercised or done by the shareholders.
Section 2. The number of Directors constituting the board of Directors of
the Company shall be fixed from time to time by the Board of Directors by the
affirmative vote of not less than a majority of the Continuing Directors (as
defined in Article Ten of the Restated Articles of Incorporation of the
Company), but shall not be less than three (3), subject to such rights to elect
additional Directors under such specified circumstances as may be granted to
holders of Preferred Stock. Directors need not be shareholders or residents of
the State of Texas. A person shall be ineligible to be a Director of the
Company after the date of the annual meeting of shareholders of the Company that
occurs after such person's seventieth birthday. Unless he shall resign or
become ineligible, each Director shall hold office until his successors shall be
elected and shall qualify.
The Directors shall be classified with respect to the time for which they
shall severally hold office by dividing them into three classes, which classes
shall consist of an equal, or as near to equal as possible, number of Directors.
At the 1998 annual meeting of shareholders, the Director or Directors of the
first class shall be elected for a term expiring at the next annual meeting of
shareholders to be held in 1999; the Director or Directors of the second class
shall be elected for a term expiring at the next annual meeting of shareholders
to be held in 2000; and the Director or Directors of the third class shall be
elected for a term expiring at the next annual meeting of shareholders to be
held in 2001. At each annual meeting, commencing with the annual meeting in
1998, the successor or successors to the class of directors whose term shall
expire in that year shall be elected to hold office for the term of three years,
so that the term of one class of Directors shall expire in each year. Any
increase or decrease in the number of Directors constituting the Board of
Directors shall be apportioned among the classes so as to maintain the number of
directors in each class as near as possible to one-third the whole number of
Directors as so adjusted.
Section 3. Any Director may resign at any time either by oral tender of
resignation at any meeting of the Board of Directors or by giving written notice
thereof to the Corporate Secretary. Resignations shall take effect when tendered
or at the time specified in the tender and, unless otherwise specified, the
acceptance of a resignation shall not be necessary to make it effective.
Section 4. Any Director may be removed only for cause at any special
meeting of the shareholders by the affirmative vote of the holders of record of
not less than 66-2/3% of the shares then entitled to vote at an election of
Directors, if notice of the intention is act upon such matter shall have been
given in the notice calling for such meeting. Any vacancy occurring in the
Board of
<PAGE>
Directors shall be filled by the affirmative vote of a majority of the
remaining Directors even though such remaining Directors shall be less than a
quorum of the Board of Directors; provided that the Board of Directors may not
fill more than two such directorships between annual meetings of shareholders.
A Director elected to fill a vacancy shall hold office for the remaining term of
the class to which such directorship is assigned. Any directorship to be filled
by reason of an increase in the number of Directors as provided in Section 2
hereof shall be filled solely by the affirmative vote of not less than a
majority of the continuing Directors for a term of office continuing until the
next annual meeting of shareholders.
Section 5. The Board of Directors, by resolution adopted by a majority of
the full Board of Directors, may designate from among its members one or more
committees, each of which shall be comprised of one or more of its members, and
may designate one or more of its members as alternate members of any committee,
who may, subject to any limitations imposed by the Board of Directors, replace
absent or disqualified members at any meeting of that committee. Any such
committee, to the extent provided in such resolutions or in the Articles of
Incorporation or the Bylaws, shall have and may exercise all of the authority of
the Board of Directors, provided that no committee of the Board of Directors
shall have the authority of the Board of Directors in reference to: (1) amending
the Articles of Incorporation, except that a committee may, to the extent
provided in the resolution designating that committee or in the Articles of
Incorporation or the Bylaws, exercise the authority of the Board of Directors
vested in it in accordance with Article 2.13 of the Texas Business Corporation
Act ("Act"); (2) proposing a reduction of the stated capital of the Company in
the manner permitted by Article 4.12 of the Act; (3) approving a plan of merger
or share exchange of the Company; (4) recommending to the shareholders the sale,
lease, or exchange of all or substantially all of the property and assets of the
Company otherwise than in the usual and regular course of its business; (5)
recommending to the shareholders a voluntary dissolution of the Company or a
revocation thereof, (6) amending, altering, or repealing the Bylaws of the
Company or adopting new Bylaws of the Company; (7) filling vacancies in the
Board of Directors; (8) filling vacancies in or designating alternate members of
any such committee; (9) filling any directorship to be filled by reason of an
increase in the number of Directors; (10) electing or removing officers of the
Company or members or alternate members of any such committee; (11) fixing the
compensation of any member o alternate members of such committee; or (12)
altering or repealing any resolution of the Board of Directors that by its terms
provides that it shall not be so amendable or repealable; and, unless such
resolution designating a particular committee, the Articles of Incorporation, or
the Bylaws expressly so provide, no committee of the Board of Directors shall
have the authority to authorize a distribution or to authorize the issuance of
shares of the Company.
MEETINGS OF THE BOARD OF DIRECTORS
Section 6. The Directors of the Company may hold their meetings, both
regular and special, either within or without the State of Texas.
Section 7. The first meeting of each newly elected Board of Directors
shall be held without further notice immediately following the annual meeting of
shareholders, and at the same place, unless by unanimous consent of the
Directors then elected and serving such time or place shall be
<PAGE>
changed.
Section 8. Regular meetings of the Board of Directors may be held with or
without notice at such time and place as shall from time to time be determined
by the Board of Directors.
Section 9. Special meetings of the Board of Directors may be called on
twenty-four (24) hours' notice to each Director, or such shorter period of time
as the person calling the meeting deems appropriate in the circumstances, either
personally, or by mail, or by telegram; special meetings shall be called by the
Chairman or, in the event of the inability of the Chairman to act, the President
or the Corporate Secretary in like manner and on like notice on the written
request of two Directors. Neither the business to be transacted at, nor the
purpose of, any special meeting need be specified in a notice or waiver of
notice.
Section 10. At all meetings of the Board of Directors, the presence of a
majority of the number of Directors constituting the Board of Directors shall
constitute a quorum for the transaction of business and the act of a majority of
the Directors present at any meeting at which there is a quorum shall be the act
of the Board of Directors. Any action required or permitted to be taken at a
meeting of the Board of Directors may be taken without a meeting if a consent in
writing, setting forth the action so taken, is signed by all members of the
Board of Directors. If a quorum shall not be present at any meeting of the
Directors, the Directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum is
present.
Section 11. The Board of Directors shall have authority to establish, from
time to time, the amount of compensation which shall be paid to its members for
their services as Directors.
ARTICLE IV
Notices
Section 1. Whenever under the provisions of the statutes or of the
Articles of Incorporation or of these Bylaws, notice is required to be given to
any Director or shareholder, and no provision is made as to how such notice
shall be given, it shall not be construed to mean notice, but any such notice
may be given in writing, by mail, postage prepaid, addressed to such Director or
shareholder at such address as appears on the books of the Company. Any notice
required or permitted to be given by mail shall be deemed to be given at the
time when the same shall be thus deposited in the United States mails as
aforesaid.
Section 2. Whenever any notice is required to be given to any shareholder
or Director of the Company under the provisions of the statutes or of the
Articles of Incorporation, or of these Bylaws, a waiver thereof in writing
signed by the person or persons entitled to such notice, whether before or after
the time stated in such notice, shall be equivalent to the giving of such
notice. Attendance of a Director at a meeting shall constitute a waiver of
notice of such meeting, except when a Director attends a meeting for the express
purpose, in writing filed at the meeting, of objecting to the transaction of any
business on the grounds that the meeting is not lawfully called or
<PAGE>
held.
ARTICLE V
Officers
Section 1. The officers of the Company shall be a Chairman, a President,
one or more Executive Vice Presidents, Senior Vice Presidents or Vice
Presidents, a General Counsel, a Controller, a Corporate Secretary and a
Treasurer, all of whom shall be elected by the Board of Directors. Any two or
more offices may be held by the same person. Each such officer shall have such
authority and perform such duties in the management of the Company as may be
determined by resolution of the Board of Directors.
Section 2. The Board of Directors may elect or appoint such other officers
and agents as it shall deem necessary, who shall hold their offices for such
term and who shall have such authority and perform such duties as may be
prescribed by the Board of Directors or the Chairman. The power to appoint such
other officers and agents may be delegated by the Board of Directors to the
Chairman to the extent the Board may delineate by resolution.
Section 3. Each officer of the Company shall hold office until his
successor is chosen and qualified in his stead or until his death or until his
resignation, retirement or removal from office. Any officer or agent elected or
appointed by the Board of Directors may be removed by the Board of Directors
whenever in its judgment the best interests of the Company will be served
thereby, but such removal shall be without prejudice to the contract rights, if
any, of the person so removed. Election or appointment of an officer or agent
shall not of itself create contract rights.
Section 4. The Chairman shall be the chief executive officer of the
Company. He shall, subject to the direction and control of the Board of
Directors, be their representative and medium of communication. He shall see
that all orders, resolutions and policies adopted by the Board of Directors are
carried into effect. He shall preside at all meetings of shareholders and at all
meetings of the Board of Directors. He shall be in complete charge with
attendant responsibility and accountability of the entire Company and its
affairs.
Section 5. The President shall be the chief operating officer of the
Company. He shall, subject to the direction of the Chairman, have responsibility
for such operations and functions assigned to him; and in the absence of the
Chairman, shall preside at all meetings of the shareholders and at all meetings
of the Board of Directors.
Section 6. Each Executive Vice President shall have such powers and
responsibilities, and shall perform such duties, as delineated by the Board or
by the Chairman. They shall be directly responsible to such officer as the
Chairman may from time to time prescribe.
Section 7. The Senior Vice President, Chief Financial Officer, shall have
such powers and
<PAGE>
responsibilities and shall perform such duties, as delineated by the Board of
Directors or by the Chairman. He shall be responsible to the Chairman in said
performance.
Section 8. Other Senior Vice Presidents shall have such powers and
responsibilities, and shall perform such duties, as delineated by the Board or
by the Chairman. They shall be directly responsible to such officer as the
Chairman may from time to time prescribe.
Section 9. The General Counsel shall have general control over all matters
of a legal nature concerning the Company and shall perform such duties as
delineated by the Board or by the Chairman. He shall be directly responsible to
the Chairman in said performance.
Section 10. Each Vice President shall have such powers and
responsibilities, and shall perform such duties, as may be delineated by the
Board or the Chairman. They shall be directly responsible to such officer as the
Chairman may from time to time prescribe.
Section 11. The Controller shall be in general control of the accounts of
the Company, shall be responsible for the making of adequate audits, shall
prepare and interpret required accounting, financial and statistical statements,
and shall be directly responsible to such officer and perform such other duties
as the Board or Chairman may from time to time prescribe.
Section 12. The Corporate Secretary shall attend all meetings of the Board
of Directors and shareholders and act as secretary thereof and shall record all
votes and the minutes of all proceedings of the Board of Directors and
shareholders in a book for that purpose maintained and kept in his custody. He
shall keep in his custody the seal of the Company and shall in general perform
all the duties incident to the office of Secretary of a Company. He shall act as
Transfer Agent of the Company and/or Registrar of its capital stock and other
securities; provided that the Board of Directors may by resolution appoint one
or more other persons or corporations as Transfer Agents and/or Registrars or as
Co-Transfer Agents and/or Co-Registrars. He shall be directly responsible to
such officer and shall perform such other duties as the Board or Chairman may
from time to time prescribe.
Section 13. The Treasurer shall have custody of all the funds and
securities of the Company and shall keep full and accurate accounts of receipts
and disbursements. He may endorse checks, notes and other obligations on behalf
of the Company for collection and shall deposit the same, together with all
monies and other valuable effects, to the credit of the Company in banks or
depositories as the Board of Directors may designate by resolution or as may be
established in accordance with Article VIII of these Bylaws. He shall be
directly responsible to such officer as the Chairman may from time to time
designate and shall perform all duties incident to the office of Treasurer of a
Company or as the Board or Chairman shall designate.
Section 14. The Board of Directors may appoint one or more Assistant
Corporate Secretaries, Assistant Treasurers and Assistant Controllers and such
other appointive officers as may be appropriate and required. They shall be
directly responsible to such officer and shall perform such duties as the Board
or Chairman may from time to time designate.
<PAGE>
ARTICLE VI
Certificates Representing Shares
Section 1. The shares of stock of the Company shall be deemed personal
estate, and shall be transferable only on the books of the Company in such
manner as these Bylaws prescribe.
Section 2. Every shareholder in the Company shall be entitled to have a
certificate or certificates representing the number of shares owned by him. The
certificates of shares of stock of the Company shall be numbered and shall be
entered in the books of the Company as they are issued. They shall exhibit the
holder's name and number of shares, and shall be signed by the Chairman, the
President or a Vice President, and the Treasurer or an Assistant Treasurer and
bear the corporate seal; but the signatures of such officers and the seal of the
Company upon such certificates may be facsimiles, engraved or printed where such
certificate is signed by a duly authorized Transfer Agent or Co-Transfer Agent
and a Registrar or Co-Registrar.
Section 3. The Board of Directors may make such rules and regulations as
it may deem expedient concerning the issue, transfer, conversion, and
registration of certificates for shares of the capital stock of the Company.
Section 4. The Board of Directors may direct a new certificate
representing shares to be issued in place of any certificate theretofore issued
by the Company alleged to have been lost or destroyed, upon the making of an
affidavit of that fact by the person claiming the certificate to be lost or
destroyed. When authorizing such issue of a new certificate, the Board of
Directors, in its discretion and as a condition precedent to the issuance
thereof, may require the owner of such lost or destroyed certificate, or his
legal representative, to advertise the same in such manner as it shall require
and/or give the Company a bond in such form, in such sum, and with such surety
or sureties as it may direct as indemnity against any claim that may be made
against the Company and its Transfer Agents and Registrars and its Co-Transfer
Agents and Co-Registrars with respect to the certificate alleged to have been
lost or destroyed.
Section 5. Transfers of shares of stock shall be made on the books of the
Company only by the person named in the certificate or by attorney, lawfully
constituted in writing, and upon surrender of the certificate therefor.
Section 6. The Board of Directors may close the stock transfer books of
the Company for a period not to exceed sixty (60) days for the purpose of
determining shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or entitled to receive payment of any
distribution and share dividend, or in order to make a determination of
shareholders for any purpose, provided that if such books shall be closed for
the purpose of determining shareholders entitled to notice of or to vote at a
shareholders' meeting, such books shall be closed for at least ten (10) days
immediately preceding such meeting. In lieu of so closing the stock transfer
books, the Board of Directors may fix a date in advance, not exceeding sixty
(60) days preceding the date of any meeting of shareholders, or the date for the
payment of any distribution and share
<PAGE>
dividend or the date for the allotment of rights, or the date when any change or
conversion or exchange of capital stock shall go into effect, as a record date
for the respective determination of the shareholders entitled to notice of, and
to vote at, any such meeting, or entitled to receive payment of any such
distribution and share dividend, or to any such allotment of rights, or to
exercise rights in respect of any such change, conversion or exchange of capital
stock and in such case such shareholders and only such shareholders as shall be
shareholders of record on the date so fixed shall be entitled to such notice of,
and to vote at, such meeting, or to receive payment of such distribution and
share dividend, or to receive such allotment of rights, or to exercise such
rights, as the case may be, notwithstanding any transfer of any shares of stock
on the books of the Company after any such record date fixed as aforesaid. In
the absence of any designation with respect thereto by the Board of Directors,
the date upon which the notice of a meeting is mailed or resolutions declaring a
distribution and share dividend are adopted shall be the record date for such
determination in regard to meetings of shareholders or declarations of
distributions and share dividends.
Section 7. The Company shall be entitled to treat the holder of record of
any share or of stock as the holder in fact thereof and, accordingly, shall not
be bound to recognize any equitable or other claim to or interest in such share
on the part of any other person, whether or not it shall have express or other
notice thereof, save as expressly provided by the laws of Texas.
Section 8. Bonds, debentures and other evidence of indebtedness of the
Company shall be signed by the Chairman, the President or any Vice President and
the Treasurer or an Assistant Treasurer and shall bear the corporate seal and
when so executed shall be binding upon the Company, but not otherwise. The seal
of the Company thereon may be facsimile, engraved or printed, and where any such
bond, debenture or other evidence of indebtedness is authenticated with the
manual signature of an authorized officer of the Company or trustee appointed or
named by an indenture of trust or other agreement under which such security is
issued, the signature of any of the Company's officers authorized to execute
such security may be facsimile.
Section 9. In case any officer who signed, or whose facsimile signature
has been placed on any certificate representing shares of stock, bond, debenture
or evidence of indebtedness of this Company shall cease to be an officer of the
Company for any reason before the same has been issued or delivered by the
Company, such certificate, bond, debenture or evidence of indebtedness may
nevertheless be issued and delivered as though the person who signed it or whose
facsimile signature had been placed thereon had not ceased to be such officer.
ARTICLE VII
Deeds and Other Instruments of Conveyance
Section 1. Deeds and other instruments of the Company conveying land or
any interest in land shall be signed by the Chairman, the President or a Vice
President or attorney-in-fact of the Company when authorized by appropriate
resolution of the Board of Directors or shareholders, and when required by law,
shall be attested by the Corporate Secretary or an Assistant Corporate Secretary
and shall bear the corporate seal, and when so executed shall be binding upon
the
<PAGE>
Company, but not otherwise.
ARTICLE VIII
Checks, Drafts and Bills of Exchange
Section 1. The Chairman or the President of the Company may from
time to time establish General Bank Accounts, Depository Bank Accounts, and such
Special Bank Accounts as in the judgment of either of them may be needed in
carrying on and dispatching the business of the Company. All checks, drafts and
bills of exchange issued in the name of the Company and calling for the payment
of money out of said General Accounts, Depository Accounts, or Special Accounts
of the Company shall be signed by the Controller or Assistant Controller, or
such agents and employees as the Chairman or the President may from time to time
designate and authorize to sign for the Controller, and countersigned by the
Treasurer or any Assistant Treasurer, or such agents and employees as the
Chairman or the President may from time to time designate and authorize to sign
for the Treasurer; and when so designated by the Chairman or the President, the
signature of the Treasurer or an Assistant Treasurer may be affixed by the use
of a check-signing machine; provided that for the purpose of transferring funds
from any bank or depository at which the Company has funds on deposit to any
other bank or depository of the Company for credit to the Company's account, a
form of check having plainly printed upon its face "DEPOSITORY TRANSFER CHECK,"
and being by its wording payable to a bank or depository for credit to the
account of the Company, is hereby authorized, and such checks shall require no
signature other than the name of the Company printed at the lower right corner;
and further provided that checks, drafts and bills of exchange issued in the
name of the Company in the amount of $25,000.00 or less need bear only one
signature and that being the signature of the Treasurer or an Assistant
Treasurer, affixed either manually or by the use of a check-signing machine, or
the manual signature of such agents and employees as the Chairman or the
President may from time to time designate and authorize to sign for the
Treasurer; and provided further that checks and drafts issued in the name of the
Company and calling for the payment of production revenue or royalties need bear
only one signature and that being the signature of the Treasurer or an Assistant
Treasurer, affixed either manually or by the use of a check-signing machine, or
the manual signature of such agents and employees as the Chairman or the
President may from time to time designate and authorize to sign for the
Treasurer; and provided further that checks and drafts issued in the name of the
Company and calling for payment of money out of Special Bank Accounts
established for the payment of dividends need bear only one signature and that
being the signature of the Treasurer or an Assistant Treasurer, affixed either
manually or by the use of a check-signing machine, or the manual signature of
such agents and employees as the Chairman or the President may from time to time
designate and authorize to sign for the Treasurer; and further provided that no
person authorized to sign checks or drafts may sign a check or draft payable to
himself. When in such applicable manner, but not otherwise, every check, draft
or bill of exchange issued in the name of the Company and calling for the
payment of money out of the General Bank Accounts, Depository Bank Accounts, and
Special Bank Accounts of the Company shall be valid and enforceable according to
its wording, tenor and effect, but not otherwise. Provided, however, that for
the purpose of transferring funds between accounts of the Company, from accounts
of the Company to accounts of subsidiaries and affiliates, from accounts of the
Company for the purpose of investment of corporate funds, and from accounts of
the
<PAGE>
Company for the payment of dividends, the Treasurer or an Assistant
Treasurer, or such agents and employees as the Chairman or the President may
from time to time designate and authorize, may make such transfer of funds by
bank wire transfers through oral or written instructions; and for the purpose of
transferring funds from accounts of the Company to accounts of other third
parties, the Company may make such transfers by electronic funds transfer,
irrespective of amount, when authorized by oral, computer-generated or written
instructions which are given by any two of the Treasurer, an Assistant
Treasurer, the Controller, an Assistant Controller, or such other agents or
employees as the Chairman and President may from time to time authorize to act
for the Treasurer or Controller.
Section 2. The Treasurer of the Company may establish special bank
accounts designated as Agent's Account in such bank or banks as in his judgment
may be needed in carrying on and dispatching the business of the Company,
provided that the Treasurer in establishing and maintaining such accounts shall
keep only such funds therein and in such amount as may be required for the local
needs of such accounts and provided that checks or drafts issued against or
drawn on such accounts shall be valid and binding on the Company according to
their wording, tenor and effect when signed by either the Treasurer of the
Company or by such agent or employee of the Company as may be designated by the
Treasurer in writing to such bank or when signed in such manner and by such
agent or employee of the Company as may be designated by the Chairman or the
President of the Company; and further provided that checks and drafts issued in
the name of the Company against funds in such Agent's Account in the amount of
$1,000.00 or more must be countersigned by two persons authorized to sign such
checks or drafts.
ARTICLE IX
Fiscal Year
Section 1. The fiscal year shall begin on the first day of January in each
year.
ARTICLE X
Distributions and Share Dividends
Section 1. Distributions and share dividends upon the outstanding shares
of the Company, subject to the provisions of the Articles of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting. Distributions may be paid in cash or property, and share dividends may
be paid in shares of the authorized but unissued shares or in treasury shares,
of the Company subject to the provisions of the Articles of Incorporation.
ARTICLE XI
Reserves
<PAGE>
Section 1. There may be created by resolution of the Board of Directors
out of the earned surplus of the Company such reserve or reserves as the
Directors from time to time, in their discretion, think proper to provide for
contingencies, or to equalize dividends, or to repair or maintain any property
of the Company, or for such other purpose as the Directors shall think
beneficial to the Company, and the Directors may modify or abolish any such
reserve in the manner in which it was created.
ARTICLE XII
Seal
Section 1. The Company's seal shall have inscribed thereon the name of
the Company and the words "Corporate Seal, Texas." Said seal may be used by
causing it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise.
ARTICLE XIII
Indemnification
Section 1. The Company shall indemnify, and advance or reimburse
reasonable expenses incurred by, any person who (1) is or was a director or
officer of the Company or (2) while a director or officer of the Company, its
divisions or subsidiaries, is or was serving at the request of the Company,
pursuant to a resolution adopted by the Board of Directors, as a director,
officer, partner, venturer, proprietor, trustee, employee, agent or similar
functionary of another foreign or domestic corporation, partnership, joint
venture, sole proprietorship, trust, employee benefit plan or other enterprise,
to the fullest extent that a Company may or is required to grant indemnification
to, or advance or reimburse reasonable expenses incurred by, a director under
the Act. The Company, pursuant to a resolution adopted by the Board of
Directors, may indemnify any such persons to such further extent as permitted by
law.
Section 2. The Company, pursuant to a resolution adopted by the Board of
Directors, may indemnify, and advance or reimburse reasonable expenses incurred
by, any other person to the fullest extent permitted under the Act.
Section 3. Action by the Board of Directors to amend, modify or terminate
ARTICLE XIII, Section 1 or Section 2, shall be prospective from the effective
date of such action and any rights or obligations resulting from an event or
events occurring prior thereto shall be governed by the provisions of Section 1
or Section 2, as the case may be, of this ARTICLE XIII as of the date of such
event or events.
ARTICLE XIV
<PAGE>
Amendments
Section 1. The power to alter, amend, suspend or repeal the Bylaws or to
adopt new Bylaws shall be vested in, and shall require the approval of, the
majority of Continuing Directors then in office; provided, however, that any
Bylaw or Amendment thereto as adopted by the Board of Directors may be altered,
amended, suspended or repealed by the vote of the holders of 66/2//3% of the
shares entitled to vote for the election of Directors or a new Bylaw in lieu
thereof may be adopted by vote of such shareholders. No Bylaw which has been
altered, amended or adopted by such a vote of the shareholders may be altered,
amended, suspended or repealed by vote of the Directors until two years after
such action by vote of the shareholders.
ARTICLE XV
Restrictions on Foreign Ownership
Section 1. The purpose of this Article XV is to limit ownership and
control of shares of any class of capital stock of the Company by persons who
are not Eligible Citizens in order to permit the Company or any of its
Subsidiaries to conduct its business as a U.S. Mineral Lessee. The Board of
Directors is hereby authorized to adopt such resolutions, and to effect any and
all other measures reasonably necessary or desirable (consistent with applicable
law and the provisions of the Articles of Incorporation) to fulfill the purpose
and implement the restrictions of this Article XV, including without limitation,
requiring, as a condition precedent to the transfer of shares on the records of
the Company, representations and other proof as to the identity of existing or
prospective shareholders and persons on whose behalf of shares of any class of
capital stock of the Company or any interest therein or right thereof are or are
to be held and as to whether or not such persons are Eligible Citizens.
Section 2. Any transfer, or attempted or purported transfer, of any shares
of any class of capital stock issued by the Company or any interest therein or
right thereof, which would result in the ownership or control by one or more
non-Eligible Citizens of the shares of any class of capital stock of the Company
or of any interest or right therein will, until such condition no longer exists,
be void and will be ineffective as against the Company and the Company will not
recognize the purported transferee as a shareholder of the Company for any
purpose other than the transfer of such shares to a person who is an Eligible
Citizen provided, however, that such shares may nevertheless be deemed to be
shares held or owned by non-Eligible Citizens for the purposes of this Article
XV.
Section 3. No shares of the outstanding capital stock of the Company or
any class thereof transferred to, or acquired or held by, a non-Eligible Citizen
shall be entitled to receive or accrue any rights with respect to any dividends
or other distributions of assets declared payable or paid to the holders of such
capital stock during such period. Furthermore, no shares held by or for the
benefit of any non-Eligible Citizen will be entitled to vote with respect to any
matter submitted to stockholders of the Company so long as such condition
exists.
Section 4. If at any time (i) the Company is named, or is threatened to be
named, as a party
<PAGE>
in a judicial or administrative proceeding that seeks the cancellation or
forfeiture of any property, lease, right or license in which the Company has an
interest or (ii) if, in the opinion of the Board of Directors, the Company's
ability to hold any property, lease, right or license would be prohibited or
restricted because of the nationality, citizenship, residence, or other status,
of any shareholder of the Company (or, in the case of a shareholder which is a
Company, partnership or association, of any shareholder, owner, partner or
member of such shareholder), the Company may redeem the shares held by such
shareholder at the then Current Market Price and upon such terms as shall be
determined by the Board of Directors, in their sole discretion.
Section 5. "Current Market Price" per share of capital stock of the
Company on any date is the average of the Quoted Prices of such class of capital
stock during the four trading weeks before the date in question. In the absence
of one or more such quotations, the Board of Directors shall determine the
current market price on the basis of such quotations as it considers
appropriate.
"Eligible Citizen" means any person (including a Company, partnership or
other entity) whose ownership, holding or control of shares in the Company would
not, by reason of such person's citizenship or the citizenship of its members or
owners or otherwise, (1) disqualify the Company or any of its Subsidiaries from
owning, acquiring, holding, possessing, or leasing oil, gas or other minerals,
mineral deposits, land, vessels or any other property, licenses, or rights of
any nature whatsoever in federal lands or leases under federal laws and
regulations in effect from time to time, or (2) violate any other qualifications
as the Board of Directors deems in its reasonable discretion are necessary or
appropriate to permit the Company and its Subsidiaries to engage in any other
business activities for which there may be qualifications or restrictions on
shareholders of the Company or any of its Subsidiaries applicable under federal
or state law. A person is an Eligible Citizen if the applicable following
requirement is met: (1) for an individual, that he is native-born, naturalized
or a derivative Citizen of the United States or otherwise qualifies as a United
States citizen; (2) for a Company, that is organized or existing under the laws
of the United States, a state, the District of Columbia or United States
territory or possession, that at least 75% of the ownership interest in, and the
voting power over, the Company is held by Eligible Citizens, that the Company's
president or other chief executive officer and the chairman of its board of
directors are United States citizens and that no more than a minority of the
number of directors required to constitute a quorum are non-United States
citizens; (3) for a partnership, that all of the interests in the partnership,
are owned by Eligible Citizens; (4) for a trust, that each of its trustees and
each of its beneficiaries is an Eligible Citizen; and (5) for an association,
joint venture, or other entity, that all members, venturers or other equity
participants are Eligible Citizens and that such association, joint venture or
other entity is capable of holding leases or other interest in federal minerals
or lands under the laws of the United States.
"Quoted Price" means, with respect to any class of capital stock of the
Company, the last reported sales price regular way or, in case no such reported
sale takes place on such day, the average of the closing bid and asked prices
regular way for such day, in each case on the principal national securities
exchange on which the shares of such class of capital stock are listed or
admitted to trading or, if not listed or admitted to trading, the last sale
price regular way for such shares as published by
<PAGE>
NASDAQ, or if such last price is not so published by NASDAQ or if no such sale
takes place on such day, the mean between the closing bid and asked prices for
such shares as published by NASDAQ or in the absence of any of the foregoing,
the fair market value as determined by the Board of Directors.
"Subsidiary" means any Company more than 50% of the outstanding capital
stock of which is owned by the Company or any Subsidiary of the Company.
"U.S. Mineral Lessee" means any Company or other entity directly or
indirectly owning, acquiring, holding, possessing, or leasing oil, gas or other
minerals, mineral deposits, lands, vessels or any other property, licenses, or
rights of any nature whatsoever in federal lands or leases under federal laws
and regulations in effect from time to time, including, without limitation, the
Mineral Leasing Act of 1920, as amended, 30 U.S.C.A. (S)181 et seq.
As amended by the Board of
Directors on August 12, 1997
<PAGE>
EX 10.1
EXECUTION COPY
================================================================================
PRODUCTION SYSTEM LEASE AGREEMENT
(1996-A)
dated as of
November 15, 1996
among
WILMINGTON TRUST COMPANY,
not in its individual capacity but solely
as Corporate Grantor Trustee under the Trust Agreement,
and
THOMAS P. LASKARIS,
not in his individual capacity but solely
as Individual Grantor Trustee under the Trust Agreement,
Lessor
and
ENSERCH EXPLORATION, INC.,
Lessee
================================================================================
Lease of an Undivided Interest in an Oil and Gas Production
System.
AS SET FORTH IN SECTION 14.1 OF THIS LEASE, CERTAIN OF THE
RIGHT, TITLE AND INTEREST OF THE LESSOR IN AND TO THIS LEASE
HAS BEEN ASSIGNED TO AND IS SUBJECT TO A SECURITY INTEREST
IN FAVOR OF THE BANK OF NEW YORK, AS INDENTURE TRUSTEE,
UNDER THE TRUST INDENTURE, MORTGAGE, ASSIGNMENT OF LEASE AND
SECURITY AGREEMENT (1996-A) DATED AS OF NOVEMBER 15, 1996
BETWEEN THE LESSOR AND THE INDENTURE TRUSTEE, AS SUCH
INDENTURE MAY BE AMENDED, MODIFIED OR SUPPLEMENTED FROM TIME
TO TIME IN ACCORDANCE WITH THE PROVISIONS THEREOF. THIS
LEASE HAS BEEN EXECUTED IN SEVERAL COUNTERPARTS. TO THE
EXTENT, IF ANY, THAT THIS LEASE CONSTITUTES CHATTEL PAPER
(AS SUCH TERM IS DEFINED IN THE UNIFORM COMMERCIAL CODE AS
IN EFFECT IN ANY APPLICABLE JURISDICTION), NO SECURITY
INTEREST IN THIS LEASE MAY BE CREATED THROUGH THE TRANSFER
OR POSSESSION OF ANY EXECUTED COUNTERPART OTHER THAN THE
ORIGINAL EXECUTED COUNTERPART, WHICH SHALL BE IDENTIFIED AS
THE COUNTERPART THAT CONTAINS THE RECEIPT THEREFOR EXECUTED
BY THE INDENTURE TRUSTEE ON OR IMMEDIATELY FOLLOWING THE
SIGNATURE PAGE THEREOF.
<PAGE>
TABLE OF CONTENTS
Page
----
SECTION 1. DEFINITIONS; INTERPRETATION.................................... 1
SECTION 2. LEASE OF UNDIVIDED INTEREST; ETC............................... 2
2.1. Undivided Interest............................................. 2
2.2. Personal Property.............................................. 2
2.3. Description.................................................... 3
SECTION 3. RENT........................................................... 3
3.1. Basic Rent..................................................... 3
3.2. Supplemental Rent.............................................. 3
3.3. Method of Payment.............................................. 3
3.4. Late Payment................................................... 4
3.5. Minimum Payment................................................ 4
3.6. Net Lease; No Setoff; Etc...................................... 4
3.7. Premium........................................................ 6
3.8. Applicability of Payments from Credit Support.................. 6
SECTION 4. RECOMPUTATION OF BASIC RENT, STIPULATED LOSS VALUE,
TERMINATION VALUE, EARLY BUY-OUT PERCENTAGES AND
FIXED PRICE PURCHASE AMOUNT.................................. 6
4.1. Adjustments to Rent Percentages................................ 6
4.2. Limitations on Adjustments..................................... 8
4.3. Timing of Adjustments.......................................... 9
4.4. Confirmation of Adjustments.................................... 9
4.5. Further Assurances............................................. 10
SECTION 5. RENEWAL........................................................ 10
5.1. Renewal Terms.................................................. 10
5.2. Rent........................................................... 11
5.3. Notice; Determination of Fair Market Sales Value;
Determination of Fair Market Rental Value.................... 11
5.4. Stipulated Loss Value Percentages and Termination
Value Percentages............................................ 12
i
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Page
----
SECTION 6. PURCHASE; OPTIONS.............................................. 13
6.1. Purchase Options............................................... 13
6.2. Notice of Election; Manner of Purchase; Transfer
After Purchase............................................... 14
6.3. Assumption of Secured Notes.................................... 17
SECTION 7. EARLY TERMINATION.............................................. 17
7.1. Decision....................................................... 17
7.2. Notice of Termination.......................................... 18
7.3. Sale of Undivided Interest or Significant Portion;
Termination Payment.......................................... 19
7.4. Retention of Undivided Interest by Lessor...................... 23
7.5. Calculation of Original Cost................................... 24
SECTION 8. RELINQUISHMENT OF POSSESSION AND USE OF
UNDIVIDED INTEREST........................................... 25
8.1. Return of Undivided Interest................................... 25
SECTION 9. QUIET USE AND ENJOYMENT; DISCLAIMER OF WARRANTIES............. 26
9.1. Quiet Use and Enjoyment........................................ 26
9.2. Disclaimer of Warranties....................................... 27
9.3. Enforcement of Warranties...................................... 29
SECTION 10. LIENS.......................................................... 29
SECTION 11. OPERATION AND MAINTENANCE; INSPECTION;
MODIFICATIONS; REPLACEMENTS; PERSONNEL;
SALVAGE; FUEL; IDENTIFICATION................................ 29
11.1. Operation and Maintenance...................................... 29
11.2. Inspection and Reports......................................... 31
11.3. Required Modifications......................................... 31
11.4. Optional Modifications......................................... 31
11.5. Title to Modifications; Purchase Option for
Severable Modifications...................................... 32
11.6. Payment for Modifications and Replacement Components........... 33
11.7. Replacement of Components; Title to Components;
Removal of Property.......................................... 34
ii
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Page
----
11.8. Employment of Personnel........................................ 35
11.9. Salvage........................................................ 35
11.10. Fuel, Oil, Etc................................................. 35
11.11. Identification of Platform..................................... 35
11.12. Reports With Respect to the Production System.................. 36
11.13. Required Filings............................................... 37
11.14. Repair of Production System.................................... 37
SECTION 12. EVENT OF LOSS.................................................. 37
12.1. Notice of Event of Loss........................................ 37
12.2. Payment of Stipulated Loss Value, Etc.......................... 37
12.3. Application of Other Payments upon the Occurrence
of an Event of Loss.......................................... 44
12.4. Allocation of Payments Not Relating to an Event of Loss........ 44
12.5. Other Dispositions............................................. 45
SECTION 13. INSURANCE...................................................... 45
13.1. Coverage....................................................... 45
13.2. Adjustment of Losses........................................... 47
13.3. Application of Insurance Proceeds.............................. 47
13.4. Additional Insurance........................................... 48
13.5. Annual Insurance Report........................................ 48
SECTION 14. RIGHTS TO ASSIGN OR LEASE; LEASEHOLD
MORTGAGE PROVISIONS.......................................... 48
14.1. Assignment by Lessor; Security for Lessor's
Obligations to Indenture Trustee............................. 48
14.2. Assignment and Sublease by Lessee.............................. 49
SECTION 15. LEASE EVENTS OF DEFAULT........................................ 51
SECTION 16. REMEDIES....................................................... 53
16.1. In General..................................................... 53
16.2. Continuing Obligations......................................... 58
16.3. Remedies Cumulative............................................ 58
SECTION 17. NOTICES........................................................ 59
iii
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Page
----
SECTION 18. RIGHT TO PERFORM FOR LESSEE.................................... 59
18.1. Lessor's Right to Perform...................................... 59
SECTION 19. MISCELLANEOUS.................................................. 59
19.1. Amendments in Writing.......................................... 59
19.2. Severability of Provisions..................................... 59
19.3. GOVERNING LAW.................................................. 60
19.4. Headings....................................................... 60
19.5. Counterpart Execution.......................................... 60
19.6. Successors and Assigns......................................... 60
19.7. Investment of Security Funds................................... 60
19.8. Immunities; Satisfaction of Undertakings;
Successor Grantor Trustee.................................... 61
19.9. Performance of Obligations to Indenture Trustee
and Holders.................................................. 62
19.10. True Lease..................................................... 62
19.11. Survival of Agreements......................................... 62
SCHEDULE 1 Basic Rent Percentages
SCHEDULE 1A Fixed Renewal Rent
SCHEDULE 2 Stipulated Loss Value Percentages
SCHEDULE 3 Termination Value Percentages
SCHEDULE 4 Early Buy-Out Percentages
SCHEDULE 5 Special Purchase Option Dates
SCHEDULE 6 Lessor's Cost
EXHIBIT A Description of Production System
EXHIBIT B Description of Undivided Interest in
Production System
EXHIBIT C Description of Federal Leases
EXHIBIT D Form of Lease Supplement No. 1
iv
<PAGE>
PRODUCTION SYSTEM LEASE AGREEMENT
(1996-A)
BE IT KNOWN, that on the date hereinafter set forth, before me, the
undersigned Notary Public, duly commissioned and qualified in and for the State
of New York, and in the presence of the undersigned, competent witnesses,
personally came before me and appeared: WILMINGTON TRUST COMPANY, a Delaware
banking corporation, having a taxpayer identification number of 51-6506274 and
an address at Rodney Square North, 1100 North Market Street, Wilmington,
Delaware 19890-0001, not in its individual capacity but solely as Corporate
Grantor Trustee under the Trust Agreement (together with its successors and
permitted assigns, the "Corporate Grantor Trustee") and THOMAS P. LASKARIS, an
individual having a taxpayer identification number of 221228535 and an address
at Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890-
0001, not in his individual capacity but solely as Individual Grantor Trustee
under the Trust Agreement (together with its successors and permitted assigns,
the "Individual Grantor Trustee" and together with the Corporate Grantor
Trustee, the "Grantor Trustee"), as lessor (together with their respective
successors and permitted assigns, the "Lessor") and ENSERCH EXPLORATION, INC., a
Texas corporation, having a taxpayer identification number of 75-2556978 and an
address at 4849 Greenville Avenue, Suite 1200, Dallas, Texas 75206-4186, as
lessee (together with its successors and permitted assigns, the "Lessee"), who
each being duly sworn, did declare and say as follows:
W I T N E S S E T H :
WHEREAS, pursuant to this Lease, the Lessor desires to lease the Undivided
Interest to the Lessee and the Lessee desires to lease the Undivided Interest
from the Lessor;
NOW, THEREFORE, in consideration of the mutual agreements herein contained
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
SECTION 1. DEFINITIONS: INTERPRETATION.
For the purposes hereof, capitalized terms used herein (including those
used in the preamble and in the foregoing recitals) and not otherwise defined
herein shall have the meanings assigned to them in Appendix A, which
<PAGE>
Appendix A shall for all purposes constitute part of this Agreement and shall be
subject to amendment in accordance with the terms hereof. References in this
Lease to Sections, subsections, Schedules, Appendices and Exhibits are to
Sections and Subsections of, and Schedules, Appendices and Exhibits to, this
Lease unless otherwise indicated.
SECTION 2. LEASE OF UNDIVIDED INTEREST: ETC.
2.1. Undivided Interest. Upon the terms and subject to the conditions of
this Lease, the Lessor agrees to lease and upon delivery of Lease Supplement No.
1 leases the Undivided Interest to the Lessee, and the Lessee agrees to lease
and upon acceptance of Lease Supplement No. 1 leases the Undivided Interest from
the Lessor, for the Interim Lease Term, the Basic Lease Term and, subject to the
exercise by the Lessee or the Lessor of the renewal option or options as
provided in Section 5, the Renewal Term or Renewal Terms.
2.2. Personal Property. The parties hereto stipulate and agree that the
Production System, the Undivided Interest and the Lessor's Share of all
Modifications to the Production System and every portion thereof is severed, and
shall be and remain severed, to the maximum extent permitted by law, from any
real estate underneath the Production System, even if physically attached
thereto. To the maximum extent permitted by law, the parties agree that the
Production System, the Undivided Interest and all such Modifications shall
constitute personal property and shall not be or become fixtures or otherwise
part of the real estate underneath the Production System or of any other real
property. The Lessee will not enter into or be a party to any lease or mortgage
of any real property on which any portion of the Production System is or is to
be located or enter into any other agreement which grants to any other Person
any right to any portion of the Production System by reason of such portion
being an accession to any real property owned by such Person to the extent such
lease or mortgage would constitute a Lien on the Production System that is not a
Permitted Lien.
2
<PAGE>
2.3. Description. The Production System is described in Exhibit A and the
Undivided Interest is described in Exhibit B.
SECTION 3. RENT.
3.1. Basic Rent. The Lessee shall pay to the Lessor, as Basic Rent for
the Undivided Interest, semiannual installments of rent on the Basic Rent
Payment Dates during the Basic Lease Term. Basic Rent with respect to any
Renewal Term shall be payable as provided in Section 5.2. Subject to adjustment
as provided herein, each such installment of Basic Rent during the Basic Lease
Term shall be in an amount equal to the percentage set forth in Schedule 1
opposite the applicable Basic Rent Payment Date multiplied by Lessor's Cost.
Each installment of Basic Rent shall be paid in advance or in arrears and shall
apply to a specific semiannual period as specified in Schedule 1.
3.2. Supplemental Rent. The Lessee shall pay to the Lessor, for its own
account, or to the Person entitled thereto, as provided herein or in any other
Operative Document, any and all Supplemental Rent promptly as the same shall
become due and payable, and in the event of any failure on the part of the
Lessee to pay any Supplemental Rent, the Lessor shall have all rights, powers
and remedies provided for herein in the case of nonpayment of Basic Rent.
3.3. Method of Payment. Subject to Section 14.1, all Rent payable to the
Lessor shall be paid to the Grantor Trustee's account specified in Schedule 1 to
the Participation Agreement or to such other account at such other place as the
Lessor shall specify in writing to the Lessee at least five Business Days prior
to the due date thereof. All Supplemental Rent payable to any Person other than
the Lessor pursuant to any Operative Document shall be paid directly to such
Person as provided in such Operative Document. Each payment of Rent shall be
made by the Lessee in immediately available funds, on or before 12:00 noon,
local time at the place of receipt, on the scheduled date on which such payment
shall be due, unless such scheduled date shall not be a Business Day in which
case such payment shall be due and payable on the next succeeding Business Day
with the same force and effect as if made on such scheduled date and (provided
such payment is made on such next succeeding Business Day) no interest shall
accrue on the amount of such payment from and after such scheduled date.
3
<PAGE>
3.4. Late Payment. If any Rent shall not be paid when due, the Lessee
shall pay to the Lessor (or, in the case of Supplemental Rent, to the Lessor for
its own account or to the Person entitled thereto as provided herein or in any
other Operative Document), as Supplemental Rent, interest (to the extent
permitted by law) on such overdue amount from and including the due date thereof
to but excluding the date of payment thereof (unless payment is made after 12:00
noon, local time at the place of receipt, in which event such date of payment
shall be included) at the Overdue Rate.
3.5. Minimum Payment. Notwithstanding any other provision of this Lease
(including, without limitation, Section 4) or any other Operative Document, (a)
the amount of Basic Rent payable on each Basic Rent Payment Date and on the
Basic Lease Term Commencement Date, as the same may be adjusted pursuant to
Section 4 (excluding, in each case, any portion thereof constituting an Excepted
Payment), shall be at least equal to the aggregate amount of scheduled principal
and accrued interest due and payable on the Secured Notes Outstanding on such
Basic Rent Payment Date and on the Basic Lease Term Commencement Date and (b)
the amount of Stipulated Loss Value and Termination Value as of any date and the
amount of the initial installment of the applicable Early Buy-Out Purchase Price
as of the applicable Early Buy-Out Date, as each such amount may be adjusted
pursuant to Section 4, together with the Rent payable under this Lease on such
date (excluding, in each case, any portion thereof constituting an Excepted
Payment), shall be at least equal to the aggregate amount of principal and
accrued interest which would be due and payable on the Secured Notes Outstanding
on such date assuming such date or the applicable Early Buy-Out Date, as the
case may be, was the date such payment was due on the Secured Notes in respect
of any payment by the Lessee of Stipulated Loss Value, Termination Value or
Early Buy-Out Purchase Price.
3.6. Net Lease; No Setoff: Etc. This Lease is a net lease and,
notwithstanding any other provision of this Lease, the obligation of the Lessee
to pay Rent hereunder shall be absolute and unconditional and shall not be
affected by any circumstance of any character, including, without limitation:
(a) counterclaim, setoff, deduction, defense, abatement, suspension, deferment,
diminution or reduction; (b) any defect in the condition, design, quality or
fitness for use of the Production System, or any part thereof or interest
therein; (c) any damage to, removal, abandonment, salvage, loss, scrapping or
destruction of or
4
<PAGE>
any requisition or taking of, the Undivided Interest, the Production System or
any part thereof or interest therein; (d) any restriction, prevention,
interruption or curtailment of or interference with any use, operation or
possession of the Undivided Interest, the Production System or any part thereof
or interest therein; (e) any defect in, or any Lien on, title to the Undivided
Interest, the Production System or any part thereof or interest therein; (f) any
change, waiver, extension, indulgence or other action or omission in respect of
any obligation or liability of the Lessee or the Lessor; (g) any bankruptcy,
insolvency, reorganization, composition, adjustment, dissolution, liquidation or
other like proceeding relating to the Lessee, the Indenture Trustee, the Lessor,
the Owner Participant, any Loan Participant, any Holder or any other Person, or
any action taken with respect to this Lease by any trustee or receiver of any
Person mentioned above, or by any court; (h) any claim that the Lessee has or
might have against any Person, including, without limitation, the Indenture
Trustee, any Loan Participant, the Lessor, the Owner Participant or any Holder
(but this Section 3.6 shall not constitute a waiver of any such claim); (i) any
failure on the part of the Lessor, the Indenture Trustee, the Owner Participant
or any Loan Participant to perform or comply with any of the terms hereof or of
any other agreement; (j) any invalidity or unenforceability or disaffirmance of
this Lease or any provision hereof or any of the other Operative Documents, the
Federal Leases, the Operating Agreement or any provision of any thereof, whether
against or by the Lessee or otherwise; or (k) any other occurrence whatsoever,
whether similar or dissimilar to the foregoing, whether or not the Lessee shall
have notice or knowledge of any of the foregoing. Except as expressly provided
herein, the Lessee, to the extent permitted by law, waives all rights now or
hereafter conferred by statute or otherwise to quit, terminate or surrender this
Lease, or to any diminution or reduction of Rent payable by the Lessee
hereunder. All payments by the Lessee of Basic Rent or Stipulated Loss Value,
Termination Value, any Early Buy-Out Purchase Price or Fixed Price Purchase
Amount (or amounts payable by reference thereto) made hereunder as required
hereby shall be final absent manifest error, and the Lessee shall not seek to
recover any such payment or any part thereof for any reason whatsoever absent
manifest error. If this Lease shall be terminated in whole or in part for any
reason whatsoever the Lessee shall, except as expressly provided herein,
nonetheless pay to the Lessor (or, in the case of Supplemental Rent, to the
Person entitled to such Supplemental Rent as specified herein or in the
appropriate
5
<PAGE>
Operative Document) an amount equal to each Rent payment at the time and in the
manner that such payment would have become due and payable under the terms of
this Lease if it had not been terminated in whole or in part. Nothing contained
in this Section 3.6 shall be construed as (a) a guaranty of (i) the value of the
Undivided Interest or the Production System upon the expiration or termination
of the Basic Lease Term or any Renewal Term or (ii) the useful life of the
Production System or (iii) payment of any of the Secured Notes or (b) a
prohibition of assertion of any claim against any manufacturer, supplier,
dealer, vendor, contractor, subcontractor or installer with respect to the
Production System or (c) a waiver by the Lessee of its right to assert and sue
upon any claims it may have against any other Person in one or more separate
actions.
3.7. Premium. The Lessee shall also pay on behalf of the Lessor as
Supplemental Rent an amount on an After-Tax Basis equal to any amount payable by
the Lessor as Premium as and when any such Premium shall be due and payable.
3.8. Applicability of Payments from Credit Support. Drawings under any
Letter of Credit and payments received by the Lessor or the Owner Participant in
respect of any Surety Bond, in each case maintained as Credit Support, shall be
applied against unpaid Rent to the extent of such drawing; provided that all
such drawings shall be applied first to reduce the Lessee's obligation to pay
the Equity Portion of Stipulated Loss Value then due, second to reduce the
Lessee's obligation to pay the Equity Portion of Basic Rent then due and third
to pay any other amounts of Supplemental Rent owing to the Lessor or the Owner
Participant.
SECTION 4. RECOMPUTATION OF BASIC RENT, STIPULATED LOSS VALUE, TERMINATION
VALUE, EARLY BUY-OUT PERCENTAGES AND FIXED PRICE PURCHASE
AMOUNT.
4.1. Adjustments to Rent Percentages. (a) If (i) the actual Closing Date
is a date other than as set forth in Schedule 2 to the Participation Agreement,
(ii) the actual amount of Transaction Expenses paid by the Lessor as a
percentage of Lessor's Cost is other than as set forth in Schedule 2 to the
Participation Agreement, (iii) the Owner Participant's Net Economic Return is
affected by any amendment to the Code or the regulations (including proposed
regulations to the extent the Owner Participant advises the
6
<PAGE>
Lessee of such amendment to proposed regulations in writing prior to the time of
closing on the Closing Date) thereunder (other than the alternative minimum tax)
that is enacted, adopted or promulgated (or, in the case of proposed
regulations, proposed to be effective) on or prior to the Closing Date, (iv) the
actual Debt Rate is other than as set forth in Schedule 2 to the Participation
Agreement, (v) any other Pricing Assumption proves to be incorrect, (vi) the
Secured Notes are refinanced or refunded at any time pursuant to Section 15 of
the Participation Agreement, or (vii) Additional Notes are issued by the Lessor
in connection with a Supplemental Financing of a Modification to the Production
System pursuant to Section 14 of the Participation Agreement, then, in each
case, subject to the following provisions of this Section 4 and to the
provisions of Section 3.5, the Basic Rent Percentages shall be appropriately
adjusted (A) in the case of an adjustment pursuant to clause (i), (iii), (iv) or
(v) above, prior to the Closing Date and (B) in the case of an adjustment
pursuant to clause (ii), (vi) or (vii) above, after the Closing Date, in each
case so as to (x) preserve the Owner Participant's Net Economic Return, (y) to
the extent consistent with clause (x), minimize the Net Present Value of Basic
Rent, and (z) minimize the Termination Value Percentages and Stipulated Loss
Value Percentages to the extent possible consistent with clauses (x) and (y)
above.
(b) At the sole request of the Lessee, any adjustment pursuant hereto may
incorporate a revised amortization schedule for the Secured Notes, which
amortization schedule shall be structured to preserve the Owner Participant's
Net Economic Return while, to the extent consistent therewith, minimizing (to
the greatest extent Possible) the Net Present Value of Basic Rent in a manner
consistent with the provisions of this Section 4.1.
(c) In connection with any such adjustment to the Basic Rent Percentages
made pursuant to this Section 4.1, appropriate corresponding adjustments shall
be made to the Stipulated Loss Value Percentages (and a corresponding adjustment
in the required amount of Credit Support), Termination Value Percentages and
Early Buy-Out Percentages; provided that each Early Buy-Out Purchase Price shall
not be reduced below the expected Fair Market Sales Value of the Undivided
Interest as of the applicable Early Buy-Out Date as set forth in the Final
Appraisal, or if the adjustment is more than one year after the Closing Date, in
an appraisal delivered in connection with such adjustment.
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(d) On or prior to the time of closing on the Closing Date, the Basic Rent
Percentages will be adjusted upward or downward to reflect tax law changes
described in clause (iii) of Section 4.1(a), subject to the conditions therein.
If such adjustment results in an increase in the Net Present Value of Basic Rent
of fifty (50) or more basis points, Lessee shall have the option to terminate
this Lease. In the event Lessee elects to terminate this Lease pursuant to this
Section 4.1(d), Lessee shall be obligated to pay all Transaction Expenses and
upon payment of such Transaction Expenses, this Lease and Lessee's obligations
hereunder shall terminate.
4.2. Limitations on Adjustments. (a) Any adjustment of the Basic Rent
Percentages pursuant to this Section 4 shall be computed by the Owner
Participant in a manner so as to satisfy the requirements of (i) Section 3.5
hereof and (ii) Revenue Procedures 75-21 and 75-28 (to the extent then in
effect) and Section 467 of the Code and any regulations effective or proposed
thereunder and shall not cause this Lease to be a "disqualified leaseback or
long-term agreement" within the meaning of Section 467 of the Code and such
regulations; provided that, subject to Section 12.4 of the Participation
Agreement, the requirements of Section 4.08 of Revenue Procedure 75-28 (to the
extent then in effect) shall be applied, in the case of any adjustment pursuant
to Section 4.1, on a prospective basis taking into consideration only Basic Rent
payable by the Lessee from and including the first Basic Rent Payment Date as of
which the adjustment takes effect.
(b) In making any adjustment pursuant to this Section 4, each of the
Pricing Assumptions and the other assumptions and methods of calculation
employed in the calculation of the Basic Rent Percentages, Stipulated Loss Value
Percentages, Termination Value Percentages, Early Buy-Out Percentages and Fixed
Price Purchase Amount as reflected in Schedule 2 to the Participation Agreement,
other than Pricing Assumptions and such other assumptions that have changed or
proven to be incorrect (as such pricing assumptions shall have been modified by
previous adjustments under this Section 4) shall be used consistently in such
adjustment subject to the constraints specifically provided herein.
(c) In the case of any adjustment made pursuant to clause (vii) of Section
4.1(a), Basic Rent shall be increased by an amount at least sufficient to repay
the
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principal of, and interest on, such Additional Notes over the term of such
Additional Notes.
4.3. Timing of Adjustments. All adjustments to be made pursuant to this
Section 4 shall be made as soon as practicable after the event giving rise to
the adjustment and shall in each case be made in respect of installments of
Basic Rent becoming due on and after the date such adjustment is made; provided
that all adjustments to the Stipulated Loss Value Percentages, Termination Value
Percentages and Early Buy-Out Percentages shall be effective immediately.
4.4. Confirmation of Adjustments. (a) The amount of any adjustment
pursuant to this Section 4 shall be determined by the Owner Participant, which
shall provide to the Lessee, the Lessor and the Indenture Trustee notice of such
adjustment accompanied by an Officer's Certificate of the Owner Participant,
which Officer's Certificate shall set forth the amount of and the reason for any
such adjustment and which shall confirm that such adjustment was made in
accordance with the provisions of this Section 4. Such adjustment shall become
effective as of the date therein set forth (determined in accordance with
Section 4.3 (subject to later revision, if any, pursuant to Section 4.4(b)))
upon delivery by the Owner Participant to the Lessee of such notice and
Officer's Certificate.
(b) Within 20 Business Days after receipt of such certificate, the Lessee
may request that such adjustment be verified by a nationally recognized,
independent public accounting firm selected by Owner Participant and reasonably
acceptable to the Lessee. In such verification process pursuant to the preceding
sentence, such accounting firm shall be given access by the Owner Participant to
the assumptions, methods, computations, programs and files utilized by the Owner
Participant in calculating such proposed adjustment and employed in the
calculation of the Basic Rent Percentages, Stipulated Loss Value Percentages,
Termination Value Percentages, Early Buy-out Percentages and Fixed Price
Purchase Amount, subject to the execution of such confidentiality agreements as
the Owner Participant shall reasonably request (which agreements shall prohibit
disclosure of the Owner Participant's assumptions, methodology, programs or
files to any third party, including the Lessee). Such independent accounting
firm shall be entitled only to verify the mathematical calculations made by the
Owner Participant and shall not be entitled to interpret the provisions of this
Lease. Under no
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circumstances shall such independent public accounting firm or any other Person
be entitled to review the tax returns of the Owner Participant. Any revised
adjustment resulting from such verification shall become effective on the next
Basic Rent Payment Date after such verification has been concluded, and shall
take into account any underpayment or overpayment resulting from an earlier
effectiveness of the original adjustment.
(c) Such verification by such accounting firm shall be at the expense of
the Lessee unless such verified adjustment results in a readjustment in favor of
the Lessee that exceeds ten (10) basis points in the Net Present Value of Basic
Rent (as a percentage of Lessor's Cost), in which case such verification shall
be at the expense of the Owner Participant. Such determination by the Owner
Participant, or, if so requested in accordance with Section 4.4(b), such
verified adjustment, as the case may be, shall be conclusive and binding.
4.5. Further Assurances. At the time any adjustment is made pursuant to
this Section 4, the parties hereto shall, at the Lessee's expense, enter into a
supplement to this Lease to reflect such adjustment and shall enter into such
amendments and supplements to the other Operative Documents and do such further
acts as may be reasonably required in order to effectuate such adjustment;
provided that such adjustment shall become effective as provided in Section 4.4
without regard to the date on which such supplement to this Lease is executed
and delivered.
SECTION 5. RENEWAL.
5.1. Renewal Terms. (a) The Lessee shall have the right to renew this
Lease for up to three (3) successive Fair Market Renewal Terms as follows:
(i) at the end of the Basic Lease Term for a Fair Market Renewal Term; and
(ii) at the end of any Renewal Term for an additional Fair Market Renewal
Term;
provided that (x) the term of any Fair Market Renewal Term shall be for a period
of not less than one (1) year each, (y) the aggregate of all Renewal Terms shall
not exceed five (5) years. It shall be a condition to the renewal of this Lease
for any Renewal Term that no Lease Default described in paragraphs (a), (b), (c)
or (g) of the definition of
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Lease Event of Default in Section 15 and no Lease Event of Default shall have
occurred and be continuing at the commencement of such Renewal Term.
(b) The Lessor shall have the right to require the Lessee to renew this
Lease for a Fixed Rate Renewal Term. The exercise of this right by the Lessor
shall override any elections made by the Lessee under this Lease, including
without limitation any "irrevocable" election, other than the Lessee's election
to exercise its purchase option pursuant to Section 6.1(b).
5.2. Rent. All of the terms and provisions of this Lease shall be
applicable during any Renewal Term, except that (1) the Lessee shall pay to the
Lessor as Basic Rent in arrears on each Basic Rent Payment Date during any Fair
Market Renewal Term an amount equal to the Fair Market Rental Value of the
Undivided Interest, as determined in accordance with Section 5.3, (2) the Lessee
shall pay to the Lessor as Basic Rent in arrears on each Basic Rent Payment Date
during the Fixed Rate Renewal Term an amount equal to the percentage set forth
in Schedule 1A opposite the applicable Basic Rent Payment Date multiplied by
Lessor's Cost and (3) Stipulated Loss Values and Termination Values during any
such Renewal Term shall be calculated as set forth in Section 5.4.
5.3. Notice; Determination of Fair Market Sales Value; Determination of
Fair Market Rental Value. (a) At any time at least 365 days (in the case of
the Basic Lease Term) or 210 days (in the case of any Renewal Term) if
applicable, but in each case not more than 590 days prior to the expiration of
the Basic Lease Term or any Renewal Term, the Lessee shall give to the Lessor
irrevocable notice (the "Preliminary Notice") of its election to exercise its
renewal option pursuant to Section 5.1(a) or a purchase option pursuant to
Section 6.1(a) or Section 6.1(b). At any time at least 180 days (in the case of
the Basic Lease Term) or 90 days (in the case of any Renewal Term), if
applicable, the Lessee shall give to the Lessor irrevocable notice (the "Final
Notice") specifying which such option it is exercising. Promptly after receipt
by the Lessor of the Preliminary Notice, the Lessee and the Lessor shall attempt
to agree upon the Fair Market Sales Value of the Undivided Interest as of such
expiration or, if requested by the Lessee, the Fair Market Rental Value of the
Undivided Interest as of such expiration. If the Lessor and the Lessee shall
fail to agree within 30 days after the giving of such Preliminary Notice, such
amounts shall be determined
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pursuant to the Appraisal Procedure. Failure by the Lessee to provide any
Preliminary Notice referred to in this Section 5.3 within the applicable time
periods specified herein shall be deemed to constitute an irrevocable election
by the Lessee not to exercise its renewal option pursuant to Section 5.1(a) or
its purchase options pursuant to Sections 6.1(a) and 6.1(b). If the Lessee fails
to give the Final Notice within the time period specified above, it shall be
deemed to have elected to exercise its purchase option pursuant to Section
6.1(b).
(b) At any time after the latest date upon which the Lessee may elect to
exercise its renewal option for a Fair Market Renewal Term commencing at the end
of the basic Lease Term pursuant to Section 5.1 or its purchase option pursuant
to Section 6.1(a), the Lessor may provide to the Lessee notice of its
irrevocable election to exercise its option to renew this Lease for the Fixed
Rate Renewal Term.
5.4. Stipulated Loss Value Percentages and Termination Value Percentages.
Concurrently with the Lessee's exercise of an option to renew this Lease
pursuant to Section 5.1, Schedules 2 and 3 shall be modified by the Owner
Participant in order to provide for Stipulated Loss Values and Termination
Values for the Undivided Interest applicable during the applicable Renewal Term.
Such Stipulated Loss Values and Termination Values shall be reduced on a
straight line basis for the remaining useful life of the Production System (i)
in the case of a renewal pursuant to Section 5.1(a), from the Fair Market Sales
Value of the Undivided Interest as of beginning of the Renewal Term to the net
salvage value of the Undivided Interest at the end of the estimated useful life
of the Production System (each as determined in accordance with Section 5.3 and,
if applicable, the Appraisal Procedure) and (ii) in the case of a renewal
pursuant to Section 5.1(b), from the greater of (1) the Fair Market Sales Value
of the Undivided Interest as of the beginning of the Renewal Term (as determined
in accordance with Section 5.3 and, if applicable, the Appraisal Procedure) and
(2) the Stipulated Loss Values and Termination Values as of the date of
expiration of the Basic Lease Term to the net salvage value of the Undivided
Interest at the end of the estimated useful life of the Production System (as
determined in accordance with Section 5.3 and, if applicable, the Appraisal
Procedure).
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SECTION 6. PURCHASE; OPTIONS.
6.1. Purchase Options. Subject to Sections 6.2 and 6.3, the Lessee shall
have the right to purchase (or, in the case of Section 6.1(g) shall purchase)
all, but not less than all, of Lessor's right, title and interest in and to the
Undivided Interest:
(a) on the date of expiration of the Basic Lease Term or any Renewal Term,
at a purchase price equal to the Fair Market Sales Value of the Undivided
Interest as of such date;
(b) on the date of expiration of the Basic Lease Term, at a purchase price
equal to the Fixed Price Purchase Amount;
(c) on any Early Buy-Out Date, at a purchase price equal to the applicable
Early Buy-Out Purchase Price;
(d) on any Special Purchase Option Date, at a purchase price equal to the
greater of (i) the Termination Value for the Undivided Interest as of such
Special Purchase Option Date and (ii) the Fair Market Sales Value of the
Undivided Interest as of such Special Purchase Option Date;
(e) if the Lessee shall have notified the Lessor, pursuant to Section
11.6(b), that it intends to make (or cause or allowed to be made) any
Modification or series of related Modifications to the Production System with
an estimated cost applicable to the Undivided Interest in excess of
$15,000,000 (such Modification or series of related Modifications a "Major
Modification") and (x) such Major Modification is not to be financed pursuant
to a Supplemental Financing, or (y) such Major Modification is prohibited by
the terms of this Lease, on any Stipulated Loss Value Determination Date
occurring within one year following the expiration of the 45 day period
following the giving of such notice pursuant to Section 11.6(b), at a
purchase price equal to the greater of (A) the Stipulated Loss Value for the
Undivided Interest as of such date and (B) the Fair Market Sales Value of the
Undivided Interest as of such date (without regard to any such proposed
Modification or Modifications);
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(f) if the Owner Participant becomes a Competitor of the Lessee, on any
Stipulated Loss Value Determination Date occurring within one year following
the occurrence of such event, at a purchase price equal to the greater of (A)
the Stipulated Loss Value for the Undivided Interest as of such Stipulated
Loss Value Determination Date and (B) the Fair Market Sales Value of the
Undivided Interest as of such date; or
(g) if the Owner Participant or the Lessor shall have drawn on the Letter
of Credit (or any other letter of credit naming the Lessor and/or the Owner
Participant as a beneficiary as contemplated by Section 10.14 of the
Participation Agreement) or shall have received payment under the Surety Bond
(or any other surety bond held by the Lessor and/or the Owner Participant as
contemplated by Section 10.14 of the Participation Agreement), on the first
Stipulated Loss Value Determination Date at least 30 days following such
drawing or payment at a purchase price equal to the Stipulated Loss Value for
the Undivided Interest as of such date.
6.2. Notice of Election; Manner of Purchase; Transfer After Purchase. (a)
Notice of an election to exercise a purchase option pursuant to Section 6.1(a)
or (b) shall be given in the manner provided in Section 5.3.
(b) In order to exercise its purchase option pursuant to Section 6.1(c),
the Lessee shall, at least 90 days but not more than 545 days prior to the Early
Buy-Out Date, give irrevocable notice to the Lessor in writing of its election
to exercise its purchase option.
(c) In order to exercise its purchase option pursuant to Section 6.1(d),
the Lessee shall notify the Lessor in writing at least 180 days but not more
than 545 days prior to the applicable Special Purchase Option Date that it
desires to obtain an appraisal of the Fair Market Sales Value of the Undivided
Interest as of such Special Purchase Option Date. Promptly thereafter, the
Lessee and the Lessor shall attempt to agree upon such Fair Market Sales Value.
If the Lessee and the Lessor shall fail to agree within 30 days after the giving
of such notice, such Fair Market Sales Value shall be determined pursuant to the
Appraisal Procedure. At least 90 days prior to the applicable Special Purchase
Option Date, the Lessee shall, provide to the Lessor (i) notice of its
irrevocable election to exercise its purchase option pursuant to Section 6.1(d)
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or (ii) notice of its irrevocable election not to exercise such option.
(d) In order to exercise its purchase option pursuant to Section 6.1(e) or
(f), the Lessee shall notify the Lessor and the Indenture Trustee in writing (i)
in the case of an exercise of its purchase option pursuant to Section 6.1(e), no
earlier than the expiration of the 45 day period following the giving of the
notice referred to in Section 6.1(e) and (ii) in the case of an exercise of its
purchase option pursuant to Section 6.1(f), no later than 90 days following the
earlier of (x) receipt by the Lessee of a written notice from the Owner
Participant that it has become a Competitor of the Lessee and (y) the date
Lessee obtains Actual Knowledge that the Owner Participant has become a
Competitor of the Lessee, that the Lessee desires to obtain an appraisal of the
Fair Market Sales Value of the Undivided Interest as of the applicable
Stipulated Loss Value Determination Date (in the case of an election pursuant to
Section 6.1(e), without regard to the proposed Modification or Modifications).
Promptly after the giving of such notice, the Lessee and the Lessor shall
attempt to agree upon such Fair Market Sales Value. If the Lessee and the Lessor
shall fail to agree within 30 days after the giving of such notice, such Fair
Market Sales Value shall be determined pursuant to the Appraisal Procedure. On
the second Stipulated Loss Value Determination Date following completion of the
Appraisal Procedure, the Lessee shall provide to the Lessor (i) notice of its
irrevocable election to exercise its option to purchase the Undivided Interest
specifying whether such option is being exercised pursuant to Section 6.1(e) or
(f) and the applicable Stipulated Loss Value Date, or (ii) notice of its
irrevocable election not to exercise such option.
(e) The drawing on the Letter of Credit (or letter of credit) or payment
under the Surety Bond (or surety bond) referred to in Section 6.1(g) shall
constitute the irrevocable exercise of the purchase option pursuant to Section
6.1(g) and the drawings under such Letter of Credit (or letter of credit) or
payments in respect of such Surety Bond (or surety bond) shall be applied in
accordance with Section 3.8 on the applicable Stipulated Loss Value
Determination Date.
(f) On the date of purchase of all of Lessor's right, title and interest
in and to the Undivided Interest pursuant to this Section 6, the Lessor shall
transfer all right, title and interest of the Lessor in and to the
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Undivided Interest, as is and where is, to the Lessee, free and clear of
Lessor's Liens and Owner Participant's Liens but otherwise without any
representation or warranty, upon payment to the Lessor of the purchase price
therefor, together with (i) all Basic Rent due and owing on or prior to such
date of purchase (but excluding any Basic Rent payable in advance on such date
of purchase) and (ii) all Supplemental Rent due and owing on or prior to such
date of purchase and any accrued other Supplemental Rent as to which there is no
dispute, and the Lessor shall, at the Lessee's expense, execute and deliver to
the Lessee a bill of sale or assignment and such other instruments, documents
and opinions as the Lessee may reasonably request to evidence the valid
consummation of such transfer and shall, at the Lessee's expense, take such
actions under Section 6.03 of the Indenture as the Lessee may reasonably
request.
(g) Failure by the Lessee to provide any initial notice or subsequent
confirmatory, notice referred to in subsections (c) or (d) of this Section 6.2
within the applicable time periods specified therein shall be deemed to
constitute an irrevocable election by the Lessee not to exercise the applicable
purchase option set forth therein.
6.3. Assumption of Secured Notes. Notwithstanding the provisions of
Sections 6.1 and 6.2 and subject to compliance with Section 3.04 of the
Indenture, if in connection with a purchase by the Lessee of all of Lessor's
right, title and interest in and to the Undivided Interest pursuant to Section
6.1(c), 6.1(d), 6.1(e), 6.1(f) or 6.1(g), as the case may be, the Lessee shall
assume the Secured Notes pursuant to Section 11.6 of the Participation
Agreement, the obligation of the Lessee to pay the purchase price pursuant to
Section 6.1(c), 6.1(d), 6.1(e), 6.1(f) or 6.1(g), as the case may be, shall be
satisfied by such assumption of the Secured Notes to the extent of the principal
amount of and accrued but unpaid interest (other than overdue interest), if any,
on the Secured Notes so assumed and payment of the remaining portion of the
purchase price in cash.
SECTION 7. EARLY TERMINATION.
7.1. Decision. If (i) the President or Chief Financial Officer of the
Lessee shall have determined in good faith that the Undivided Interest or any
Significant Portion thereof is obsolete, uneconomic or surplus to the needs of
the Lessee for any reason (including, without limitation, by reason of
burdensome Governmental Rules) or
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(ii) the Lessee shall have determined to withdraw from or terminate the
Operating Agreement, then the Lessee may elect to terminate this Lease with
respect to the Undivided Interest or such Significant Portion of the Undivided
Interest, as the case may be, in accordance with this Section 7 on any Basic
Rent Payment Date; provided that no such termination shall occur prior to
January 2, 2001; provided, further, that the Lessee shall have no right to
terminate this Lease with respect to a Significant Portion of the Undivided
Interest if (1) that portion of the Production System in which the Lessor will
continue to own an interest after giving effect to such termination (such
portion, together with the interest of the Other Owner and the Other Percentage
Owner corresponding to such portion, the "Remaining Portion") is not capable of
functioning for its intended purpose or (2) the Remaining Portion constitutes
"limited use property" within the meaning of Revenue Procedure 76-30 or (3) the
Fair Market Sales Value of the Remaining Portion as of the Termination Date is
less than the product of (A) a fraction the numerator of which is the excess of
Lessor's Cost over the Original Cost of such Significant Portion and the
denominator of which is Lessor's Cost and (B) the Fair Market Sales Value of the
Production System (without giving effect to such termination) as of the
Termination Date or (4) the Original Cost of such Significant Portion together
with the Original Cost of any other Significant Portion of the Undivided
Interest in respect of which the Lessee has previously paid Termination Value
pursuant to Section 7.3 or Stipulated Loss Value pursuant to Section 12 shall
not exceed 50% of Lessor's Cost or (5) the estimated Fair Market Sales Value of
the Remaining Portion as of the scheduled expiration of the Basic Lease Term is
less than the product of (A) a fraction, the numerator of which is the excess of
Lessor's Cost over the Original Cost of such Significant Portion and the
denominator of which is Lessor's Cost and (B) the estimated Fair Market Sales
Value of the Production System (without giving effect to such termination) as of
the scheduled expiration of the Basic Lease Term or (6) subject to the following
sentence, the Lessee shall have failed to provide the Owner Participant, by the
10th Business Day preceding the Termination Date, with an opinion of tax counsel
selected by the Lessee but reasonably acceptable to the Owner Participant to the
effect that the termination of this Lease with respect to such Significant
Portion will not result in a greater risk of an unindemnified tax liability on
the part of the Owner Participant than it would have had if such termination had
not occurred (other than any tax liability of the Owner Participant with respect
to the
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inclusion in the taxable income of the Owner Participant of the Termination
Value payable with respect to such Significant Portion). The Lessee shall be
deemed to have failed to provide the opinion referred to in clause (6) above if
the Owner Participant provides the Lessee by the later of (x) 10 Business Days
after receipt of the opinion referred to in clause (6) above and the approval by
the Lessee of the Owner Participant's choice of counsel and (y) the 5th Business
Day preceding the Termination Date an opinion of tax counsel selected by the
Owner Participant and reasonably acceptable to the Lessee to the contrary and
describing in reasonable detail the increased risk of unindemnified tax
liability. If the Lessee shall1 at any time after the delivery of a notice of
termination pursuant to Section 7.2 and prior to the Termination Date, be
precluded from terminating this Lease by reason of the second proviso to the
second preceding sentence, the Lessee shall be deemed to have revoked its notice
of termination pursuant to Section 7.2.
7.2. Notice of Termination. In order to exercise its right to terminate
this Lease as provided in this Section 7, the Lessee shall provide the Lessor,
the Owner Participant and the Indenture Trustee with (i) notice in writing at
least 90 days but not more than 545 days prior to the Basic Rent Payment Date as
of which the Lessee is electing to terminate this Lease with respect to the
Undivided Interest or a Significant Portion thereof (the "Termination Date"),
such notice to specify (a) whether the Lessee is electing to terminate this
Lease pursuant to clause (i) (an election pursuant to such clause (i) being
referred to herein as an "Obsolescence Termination Election") or clause (ii) (an
election pursuant to such clause (ii) being referred to herein as a "Special
Termination Election") of Section 7.1, (b) if the Lessee is electing a
termination under clause (i) of Section 7.1, whether the Lessee is electing to
terminate this Lease with respect to the Undivided Interest or a Significant
Portion thereof, (c) if the termination election is with respect to a
Significant Portion of the Undivided Interest, a description of such Significant
Portion, (d) the Termination Date and (e) the Termination Value for the
Undivided Interest or such Significant Portion, as the case may be, as of the
Termination Date and (ii) an Officer's Certificate of the Lessee as to the
determinations referred to in Section 7.1. Unless the Lessor shall have elected
to retain the Undivided Interest pursuant to Section 7.4, the Lessee may, at its
option by written notice to the Lessor at any time prior to the 30th day prior
to the Termination Date, revoke
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any such notice of termination, in which event this Lease shall not terminate
and the reasonable out-of-pocket expenses incurred by the Lessor, the Owner
Participant and the Indenture Trustee in connection therewith shall be borne by
the Lessee; provided, however, that the Lessee shall have no obligation to so
reimburse the Lessor or the Owner Participant if such notice of revocation is
given (or deemed to have been given pursuant to the penultimate sentence of
Section 7.4) as a result of the Lessor's failure to make the payments required
to be made by it under Section 7.4); and, provided, further, that the Lessee may
revoke any such notice of termination on only two occasions.
7.3. Sale of Undivided Interest or Significant Portion; Termination
Payment. (a) (i) Subject to Section 7.4, if the Lessee shall have made an
Obsolescence Termination Election, the Lessee shall, as nonexclusive agent for
the Lessor, use commercially reasonable efforts to solicit bids for the cash
purchase of all of the Lessor's right, title and interest in and to the
Undivided Interest or the Significant Portion thereof, as the case may be, on
the Termination Date. The Lessor may also solicit bids for the cash purchase of
all of Lessor's right, title and interest in and to the Undivided Interest or
the Significant Portion thereof, as the case may be, on the Termination Date
independent of the Lessee. The Lessee shall certify in writing to the Lessor
within ten days after the Lessee's receipt of each bid the amount and terms of
each bid received by it and the name and address of the Person submitting such
bid. Subject to Section 7.4, in the event that the Lessee or the Lessor shall
have obtained any such bids from any Person other than the Lessee or an
Affiliate of the Lessee, the Lessor shall sell all of its right, title and
interest in and to the Undivided Interest or such Significant Portion, as the
case may be, on the Termination Date to such Person which shall have submitted
the highest bona fide cash bid. Upon payment to the Lessor of the purchase price
in immediately available funds (and all other amounts due pursuant to the next
sentence) on the Termination Date, the Lessor shall sell to the highest bona
fide bidder all right, title and interest of the Lessor in and to the Undivided
Interest or such Significant Portion, as the case may be, as is and where is,
free and clear of Lessor's Liens and Owner Participant's Liens but otherwise
without representation, warranty or recourse. In the case of an Obsolescence
Termination Election with respect to the Undivided Interest, this Lease and the
obligations of the Lessee hereunder (other than those obligations which are
expressly stated to survive termination of this Lease) shall
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terminate and, in the case of an Obsolescence Termination Election with respect
to a Significant Portion of the Undivided Interest, the Lessee's obligations
under this Lease (other than those obligations which are expressly stated to
survive termination of this Lease) shall terminate only with respect to such
Significant Portion, in each case, concurrently with such sale and such payment.
As a condition to the sale of the Undivided Interest or a Significant Portion
thereof, as the case may be, pursuant to the second preceding sentence, the
Lessee shall pay on the Termination Date to the Lessor, in immediately available
funds, (i) an amount equal to the excess, if any, of (A) the Termination Value
for the Undivided Interest or such Significant Portion, as the case may be, as
of the Termination Date over (B) the proceeds of such sale net of the reasonable
out-of-pocket expenses incurred by the Lessor and the Owner Participant in
connection with such sale, (ii) all Basic Rent due and owing on or prior to the
Termination Date (but excluding, in the case of an Obsolescence Termination
Election with respect to the Undivided Interest, any Basic Rent payable in
advance on the Termination Date and, in the case of an Obsolescence Termination
Election with respect to a Significant Portion of the Undivided Interest, that
portion of Basic Rent payable in advance on the Termination Date equal to the
product of the Original Cost of such Significant Portion and the percentage set
forth in Column B (Advance Rent) of Schedule 1 opposite such Termination Date),
(iii) all Supplemental Rent due and owing on or prior to the Termination Date
and any other accrued Supplemental Rent as to which there is no dispute. On the
Termination Date, the Lessor shall, at the Lessee's expense, execute and deliver
to such Person a bill of sale or assignment and such other instruments,
documents and opinions as such Person or the Lessee may reasonably request to
evidence the valid consummation of such transfer and shall, at the Lessee's
expense, take such actions under Section 6.03 of the Indenture as the Lessee may
reasonably request. The Lessee shall not enter into any transaction with the
purchaser (or transferee thereof) of the Undivided Interest or a Significant
Portion thereof whereby the Lessee or any Affiliate of the Lessee obtains the
use of the Undivided Interest or such Significant Portion thereafter; provided,
however, that nothing in this Section 7 shall be construed as prohibiting
Enserch Exploration (or any Affiliate thereof) from exercising its rights (other
than its rights to purchase the Undivided Interest or such Significant Portion)
under the Operating Agreement.
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(ii) If the Lessee shall have made a Special Termination Election, the
Lessee shall on the Termination Date pay to the Lessor, in immediately available
funds, (A) an amount equal to the Termination Value for the Undivided Interest
as of the Termination Date, (B) all Basic Rent due and owing on or prior to the
Termination Date (but excluding any Basic Rent payable in advance on the
Termination Date) and (C) all Supplemental Rent due and owing on or prior to the
Termination Date and any other accrued Supplemental Rent as to which there is
no dispute. Upon such payment, the Lessor shall sell to the Lessee or its
designee, for disposition in accordance with the applicable provisions of the
Operating Agreement, all right, title and interest of the Lessor in and to the
Undivided Interest, as is and where is, free and clear of Lessor's Liens and
Owner Participant's Liens but otherwise without representation or warranty or
recourse. This Lease and the obligations of the Lessee hereunder (other than the
obligations of the Lessee set forth in the immediately following sentence or
which are expressly stated to survive the termination of this Lease) shall
terminate concurrently with such sale and such payment. The Lessee hereby agrees
that (1) promptly following the conveyance of all of Lessor's right, title and
interest in and to the Undivided Interest pursuant to the first sentence of this
subparagraph (ii), Enserch Exploration shall use its reasonable efforts as
Operator under the Operating Agreement to cause the disposition of the
Production System in accordance with the terms of the Operating Agreement, (2)
any such disposition shall not result in the Lessee or any Affiliate of the
Lessee obtaining the ownership or use of the Undivided Interest and (3) the
Lessee shall, promptly following the disposition of the Production System pay to
the Lessor an amount equal to the excess, if any, of (x) the proceeds of the
sale of the Production System allocated to Enserch Exploration under Exhibit C
to the Operating Agreement net of expenses incurred in respect of such sale
(including, without limitation, any reasonable commissions or other reasonable
fees payable to any brokers that are not the Lessee, the Operator or any
Affiliates thereof) allocated to Enserch Exploration under Exhibit C to the
Operating Agreement over (y) the Termination Value paid to the Lessor pursuant
to this Section 7.3(a) (ii). In performing its obligation to dispose of the
Undivided Interest pursuant to the preceding sentence, the Lessee shall act in a
commercially reasonable manner as if it were the owner of the Undivided Interest
entitled to retain all proceeds of the disposition. On the Termination Date, the
Lessor shall, at the Lessee's expense, execute and deliver to the Lessee
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(or its designee) a bill of sale or assignment and such other instruments,
documents and opinions as the Lessee may reasonably request to evidence the
valid consummation of the transfers effected pursuant to this Section 7.3(a)
(ii) and shall, at the Lessee's expense, take such actions under Section 6.03 of
the Indenture as the Lessee may reasonably request.
(b) In the event that (i) the Lessee shall have exercised (or shall be
deemed to have exercised pursuant to the last sentence of Section 7.1 or the
penultimate sentence of Section 7.4) its right to revoke its notice of
termination pursuant to Section 7.2 or (ii) the highest bona fide bidder under
Section 7.3(a) shall have failed to purchase all of Lessor's right, title and
interest in and to the Undivided Interest pursuant to Section 7.3(a), then,
unless the Lessor shall have retained the Undivided Interest pursuant to Section
7.4, this Lease shall remain in full force and effect.
7.4. Retention of Undivided Interest by Lessor. If the Lessee shall have
made an Obsolescence Termination Election with respect to the Undivided Interest
or any Significant Portion thereof, the Lessor may elect to retain rather than
sell the Undivided Interest or (to the extent consistent with the Operating
Agreement) such Significant Portion pursuant to Section 7.3(a) (i) by giving
irrevocable notice to the Lessee and the Indenture Trustee no earlier than 45
nor later than 30 days prior to the Termination Date. If the Lessor so elects to
retain the Undivided Interest, on the Termination Date (a) the Lessor shall pay
to the Indenture Trustee an amount equal to the unpaid principal amount of, and
accrued and unpaid interest on, the Secured Notes then Outstanding to the date
of payment, provided that if the Lessee has elected to terminate this Lease with
respect to a Significant Portion of the Undivided Interest, the Lessor shall pay
only a pro rata portion of such amount, which pro rata portion will be
determined in accordance with the provisions of Section 7.5 hereof, and (b) the
Lessee shall pay to the Lessor or the Person entitled thereto as provided in the
Operative Documents (i) all Basic Rent due and owing on or prior to the
Termination Date (but excluding all Basic Rent payable in advance on the
Termination Date) and (ii) all Supplemental Rent due and owing on or prior to
the Termination Date and any other accrued Supplemental Rent as to which there
is no dispute, but the Lessee shall not be required to pay any amounts pursuant
to Section 7.3. Upon payment of the amounts due pursuant to clause (b) of the
preceding sentence, this Lease
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and the obligations of the Lessee hereunder (other than those obligations which
are expressly stated to survive the termination of this Lease) shall terminate,
and the Lessor shall, at the Lessee's expense, execute and deliver to the Lessee
on the Termination Date such instruments as the Lessee shall reasonably request
to evidence the termination of this Lease. In the event the Lessor fails to pay
the amounts specified in clause (a) of the second sentence of this Section 7.4
or the Lessee fails to pay the amounts specified in clause (b) of such sentence,
the Lessee shall be deemed to have revoked its notice of termination pursuant to
Section 7.2. If the Lessor shall fail to perform any of its obligations pursuant
to this Section 7.4 and as a result thereof this Lease shall not be terminated
on a proposed Termination Date, the Lessor shall thereafter no longer be
entitled to exercise its election to retain the Undivided Interest upon any
subsequent Obsolescence Termination Election pursuant to this Section 7 and
Lessee may at its option at any time thereafter submit a new termination notice
pursuant to Section 7.2.
7.5. Calculation of Original Cost. If (x) the Lessee has elected to
terminate this Lease with respect to a Significant Portion of the Undivided
Interest pursuant to this Section 7 or (y) (i) an Event of Loss has occurred
with respect to a Significant Portion of the Undivided Interest and (ii) the
Lessee has elected to pay Stipulated Loss Value in respect of such Significant
Portion, the Original Cost of such Significant Portion shall be determined as
follows:
(a) The Original Cost of that portion of such Significant Portion
consisting solely of the Lessor's Share of any Major Component in its
entirety shall be an amount equal to the sum of the Original Cost (as defined
in clause (i) of the definition of Original Cost) of the Lessor's Share of
each such Major Component; and
(b) The Original Cost of that portion of such Significant Portion
consisting of the Lessor's Share of (i) any Component or (ii) any Replacement
Component which has replaced such Component in accordance with this Lease
(other than, in the case of (i) and (ii), respectively, any Component that is
part of a Major Component to which paragraph (a) above applies and any
Replacement Component which has replaced such Component in accordance with
this Lease) shall be in an amount agreed to by the Lessor and the Lessee;
provided, however, that if the Lessor and the Lessee cannot agree
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as to the Original Cost of the Lessor's Share of any such Component (or
Replacement Component) by the 30th day following (x) the issuance of a notice
of such termination pursuant to Section 7.2 or (y) the receipt by the Lessor
of notice from the Lessee of the occurrence of such Event of Loss, as the
case may be, such Original Cost shall be determined by the Appraisal
Procedure.
The Original Cost of the Significant Portion of the Undivided Interest with
respect to which this Lease is being terminated or which has suffered an Event
of Loss shall be an amount equal to the sum of the amounts obtained in
paragraphs (a) and (b) above.
SECTION 8. RELINQUISHMENT OF POSSESSION AND USE OF UNDIVIDED INTEREST.
8.1. Return of Undivided Interest. Unless the Undivided Interest shall
have been transferred to the Lessee pursuant to this Lease, the Lessee, at its
own expense, shall, subject to the terms and conditions of the Operating
Agreement and the Agency and Support Agreement, relinquish possession and use of
the Undivided Interest to the Lessor or to any transferee or assignee of the
Lessor upon the expiration or termination of the Lease Term by surrendering the
same to the Lessor or such transferee or assignee at the respective locations of
the Major Components thereof. Upon the return of the Undivided Interest pursuant
to this Section 8.1, (x) the Production System shall be (i) if Enserch
Exploration or any of its Affiliates is then the Operator or the operator of the
Production System, in at least as good condition as required by Section 11.1 or
(ii) if neither Enserch Exploration nor any of its Affiliates is then the
Operator or the operator of the Production System, in at least as good condition
as the Production System would be if it were maintained by a prudent operator
which is in the business of maintaining and operating facilities similar to the
Production System (which operator does not discriminate in such maintenance
based on the leased status of the Production System or otherwise (including,
without limitation, any discrimination with respect to the installation of
Modifications required by Governmental Rules that may be phased in over a period
of time that commences prior to and extends beyond the end of the Lease Term)),
in compliance in all material respects with all then applicable Governmental
Rules (including, without limitation, all Environmental Laws) and in such
condition as will entitle the Platform to the same classification and rating
from the
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Classification Society which the Platform had from American Bureau of Shipping
on the Closing Date (subject to any reduction in classification and rating
resulting from the age of the Platform). In addition, upon the return of the
Undivided Interest, the Undivided Interest shall be free and clear of all Liens
other than the Liens described in clauses (a), (b) (other than Indenture
Trustee's Liens), (f), (g), (to the extent removed within 60 days after such
return) (i) and (j) of the definition of Permitted Liens. If the Lessee elects
or is required to return the Undivided Interest, then, subject to the
restrictions set forth in Section 11.5 of the Participation Agreement, not more
than 180 days nor less than 60 days prior to the Lease Termination Date, the
Lessee shall, at its sole cost and expense, provide the Lessor, the Owner
Participant and, if the Lien of the Indenture has not been discharged, the
Indenture Trustee (1) a report of an engineer selected by the Lessee and
reasonably acceptable to the Lessor certifying that the Undivided Interest is in
the condition and state of repair and maintenance required by all then
applicable Governmental Rules, together with such inspection reports, tests, and
other data reasonably adequate to substantiate the conclusion reached in such
report, or, if the Undivided Interest is not in the condition and state of
repair and maintenance required by all then applicable Governmental Rules, such
engineer shall provide a list of any discrepancies in such condition, and the
Lessee, at its sole cost and expense, shall cause any such discrepancies to be
fully corrected prior to the return of the Undivided Interest, (2) an inspection
report by an environmental consulting firm selected by Lessee and satisfactory
to the Lessor certifying that the Production System is in compliance with all
applicable Environmental Laws and that the condition and operation of the
Production System are such that the Lease shall not be subject to any
Environmental Claim, (3) a reserve report with respect to the Unit Reserves
prepared by an independent consulting firm selected by the Lessee and reasonably
acceptable to the Lessor and (4) a list of all of the Lessee's permits necessary
for the use, operation and maintenance of the Production System. The obligations
of the Lessee under this Section 8.1 shall survive the termination of this
Lease.
SECTION 9. QUIET USE AND ENJOYMENT; DISCLAIMER OF WARRANTIES.
9.1. Quiet Use and Enjoyment. Unless a Lease Event of Default shall have
occurred and be continuing and the Lessee shall have been notified of such Event
of
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Default, the Lessee shall be entitled to the quiet use and enjoyment of the
benefits of the Undivided Interest including the right to uninterrupted
possession and use of the Undivided Interest and the Lessor agrees not to take
or permit any Person (other than the Indenture Trustee, the Loan Participants or
any Person claiming by, through or, under the Indenture Trustee or any Loan
Participant) lawfully claiming by, through or under it to take any action which
interferes with such quiet use or enjoyment or such possession or use or the
rights of any sublessee or assignee to such quiet use or enjoyment or such
possession or use under any sublease or assignment permitted hereunder (it being
agreed that, without limiting the liability of any Loan Participant, the
Indenture Trustee or any Person claiming by, through or under the Indenture
Trustee or any Loan Participant for any action taken by it in violation of the
covenant contained in this sentence, neither the Owner Participant nor the
Grantor Trustee shall have any liability for any such action taken by any Loan
Participant, the denture Trustee or any Person claiming by, through or under
the Indenture Trustee or any Loan Participant unless such action was taken at
the direction of the Owner Participant or the Grantor Trustee acting upon the
express written instructions of the Owner Participant acting in violation of the
Operative Documents). Without limiting the foregoing, the Lessor (for itself and
its successors and assigns, it being agreed that the following provisions of
this sentence run with the Undivided Interest and shall be binding on any
transferee or assignee of the whole or any part of the Undivided Interest)
hereby waives the right to bring any action for partition of the Production
System or the Lessor's interest therein and hereby covenants that, for so long
as there are economically producible oil, gas or other hydrocarbon reserves in
the Unit Area ("Unit Reserves"), the Lessor shall not (i) resort to any action
at law or in equity to partition the Production System, (ii) interfere in any
manner with the quiet use and enjoyment by the Other Owner of the Other
Undivided Interest or the Other Percentage Owner of the Other Percentage
Undivided Interest, or (iii) permit the Production System to be sold, removed or
abandoned such that it is made unavailable to produce the Unit Reserves. The
Other Owner, the Other Percentage Owner and their respective successors and
assigns shall be third-party beneficiaries of the Lessor's waiver and covenants
contained in the immediately preceding sentence. The Lessor agrees that any
transferee of the Lessor's interest in the Undivided Interest shall agree in
writing to be bound by the provisions of the second preceding sentence. In
addition, the Lessor (for itself and
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its successors and assigns) agrees that its interest in the Production System
will be bound by the terms of the Operating Agreement.
9.2. Disclaimer of Warranties. Neither the Trust Company in its
individual capacity or as Grantor Trustee nor the Owner Participant makes any
representations or warranties whether written, oral or implied, with respect to
the Undivided Interest, the Production System, or any part thereof, except as
expressly set forth in Section 6 or 8 of the Participation Agreement or in any
Officer's Certificate of the Trust Company, the Grantor Trustee or the Owner
Participant, in each case delivered pursuant to the Participation Agreement. As
between the Lessor and the Lessee, execution by the Lessee of this Lease shall
be conclusive proof of the Lessee's acceptance of the Undivided Interest for all
purposes hereof and of the commencement of this Lease with respect thereto and
that the Undivided Interest is satisfactory to the Lessee in all respects. THE
LESSEE ACKNOWLEDGES THAT THE LESSOR IS NOT A MANUFACTURER OR DEALER IN PROPERTY
OF THE KIND OF THE PRODUCTION SYSTEM OR THE COMPONENTS THEREOF AND THE LESSOR
LEASES AND THE LESSEE TAKES THE UNDIVIDED INTEREST AND EACH PART THEREOF AS IS
AND WHERE IS, WITH ALL FAULTS (WHETHER OR NOT DISCOVERABLE), AND SUBJECT TO ALL
APPLICABLE LAWS (INCLUDING ENVIRONMENTAL LAWS) AND NEITHER THE TRUST COMPANY IN
ITS INDIVIDUAL CAPACITY OR AS GRANTOR TRUSTEE NOR THE OWNER PARTICIPANT SHALL BE
DEEMED TO HAVE MADE, AND THE TRUST COMPANY IN ITS INDIVIDUAL CAPACITY AND AS
GRANTOR TRUSTEE HEREBY DISCLAIMS, ANY REPRESENTATION OR WARRANTY OTHER THAN
THOSE REFERRED TO IN THE SECOND PRECEDING SENTENCE, EITHER EXPRESS OR IMPLIED,
AS TO ANY MATTER WHATSOEVER, INCLUDING, WITHOUT LIMITATION, THE DESIGN OR
CONDITION OF THE PRODUCTION SYSTEM OR ANY PART THEREOF, THE MERCHANTABILITY
THEREOF OR THE FITNESS THEREOF FOR ANY PARTICULAR PURPOSE, THE ABILITY OF THE
PRODUCTION SYSTEM TO PERFORM ANY FUNCTION, TITLE TO THE PRODUCTION SYSTEM OR ANY
PART THEREOF, THE QUALITY OF THE MATERIALS OR WORKMANSHIP THEREOF OR CONFORMITY
THEREOF TO SPECIFICATIONS, OR THE PRESENCE OR ABSENCE OF ANY LATENT OR OTHER
DEFECTS, WHETHER OR NOT DISCOVERABLE. THE LESSEE CONFIRMS THAT IT HAS SELECTED
THE PRODUCTION SYSTEM AND EACH PART THEREOF ON THE BASIS OF ITS OWN JUDGMENT AND
EXPRESSLY DISCLAIMS RELIANCE IN CONNECTION WITH SUCH SELECTION UPON ANY
STATEMENTS, REPRESENTATIONS OR WARRANTIES MADE BY THE LESSOR OR THE OWNER
PARTICIPANT. The provisions of this Section 9.2 have been negotiated and, except
as expressly set forth in Sections 6 and 8 of the Participation Agreement or in
any Officer's Certificate of the Grantor Trustee, the Trust Company or the Owner
Participant, the foregoing provisions
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are intended to be a complete exclusion and negation of any representation or
warranty by the Lessor or the Owner Participant, express or implied, with
respect to this Lease, the Production System, the Undivided Interest or any part
thereof that may arise pursuant to any law now or hereafter in effect or
otherwise. Nothing contained in this Section 9.2 shall be construed as a waiver
of any warranty or other claim against any manufacturer, supplier, dealer,
vendor, contractor, subcontractor or installer.
9.3. Enforcement of Warranties. The Lessor hereby appoints and
constitutes the Lessee its agent and attorney-in-fact during the Lease Term to
assert and enforce, from time to time, in its sole discretion, in the name and
for the account of the Lessor and the Lessee, as their interests may appear, but
in all cases at no cost or expense to the Lessor, whatever claims and rights the
Lessor may have as the lessor of the Undivided Interest against any manufacturer
or vendor of any Component or Replacement Component of the Production System;
provided, however, that if this Lease shall have been declared in default
pursuant to Section 16.1, such power of attorney shall, at the option of the
Lessor, terminate and the Lessor may assert, at the Lessee's expense, such
claims and rights.
SECTION 10. LIENS.
The Lessee will not, directly or indirectly, create, incur, assume or
suffer to exist any Liens on or with respect to all or any part of the Undivided
Interest, title thereto or any interest therein, other than Permitted Liens, and
the Lessee promptly, at its own expense,will take such actions as may be
necessary duly to discharge any such Lien not excepted above.
SECTION 11. OPERATION AND MAINTENANCE; INSPECTION; MODIFICATIONS;
REPLACEMENTS; PERSONNEL; SALVAGE; FUEL; IDENTIFICATION.
11.1. Operation and Maintenance. So long as the Operating Agreement is in
effect, the Lessee will at its own expense maintain and operate the Production
System in accordance with the applicable provisions of the Operating Agreement.
At all other times, the Lessee shall, at its own expense, for the Lease Term,
operate and maintain (or cause the operator thereof to operate and maintain) the
Production System in accordance with the Lessee's established maintenance,
rebuild and repair programs (and without
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discriminating against the Production System based on the leased, rather than
owned, status of the Undivided Interest or otherwise, including, without
limitation, any discrimination with respect to the installation of Modifications
required by Governmental Rules that may be phased in over a period of time that
commences prior to and extends beyond the end of the Lease Term) so as to keep
the Undivided Interest (a) in good working order and condition, ordinary wear
and tear excepted, (b) in compliance in all material respects with all
applicable Governmental Rules and Governmental Actions and the requirements of
any insurance policy required to be maintained pursuant to Section 13 hereof, to
the extent any such insurance policy expressly requires certain maintenance
activities; provided, however, that the Lessee shall not be obligated to comply
with any Governmental Rule or Governmental Action (i) whose application or
validity is being contested diligently and in good faith by appropriate
proceedings, (ii) compliance with which shall have been excused or exempted by a
nonconforming use permit, waiver, extension or forbearance exempting it from
such Governmental Rule or Governmental Action but only to the extent that the
Lessee's noncompliance is in accordance therewith and the Lessee shall
nevertheless be required to comply with such Governmental Rule or Governmental
Action if such nonconforming use permit, waiver, extension or forbearance would
not be effective to exempt the Lessor or its designee from compliance with such
governmental Rule or Governmental Action upon the return of the Undivided
Interest in accordance with Section 8, (iii) if good faith efforts and
appropriate steps are being taken to comply (in which case such compliance shall
be effected prior to the date the Undivided Interest is to be returned to the
Lessor hereunder), or (iv) if failure of compliance (individually and in the
aggregate with all other instances of coninuing noncompliance b the Lessee)
would result in no material adverse consequences to the Lessee, so long as, in
the case of each of clauses (i) through (iv) of this proviso, neither such
failure of compliance nor such contest shall result in any material risk or
danger of (1) the sale, forfeiture or loss of any material part of or interest
in the Production System or the Undivided Interest, the Trust Estate or the
Indenture Estate or title thereto or interest therein, (2) any interference with
the payment of Rent when due, or (3) the imposition of any criminal liability on
the part of, or any other material adverse effect on, the Lessor, the Owner
Participant, the Trust Estate, the Indenture Estate or the Undivided Interest,
(c) with respect to the Platform, in compliance with recognized maintenance
standards for other comparable
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platforms in the Gulf of Mexico, (d) with respect to the Platform, in compliance
with the American Petroleum Institute guidelines for inspection and repair of
platforms and (e) with respect to the Platform, in compliance with the existing
classification for the Platform issued by the Classification Society.
11.2. Inspection and Reports. The Lessor, the Owner Participant and the
Indenture Trustee (and their respective authorized representatives) shall have
the right to inspect the Production System and the books and records of the
Lessee relating thereto to the extent provided in, and subject to the
restrictions set forth in, Sections 10.7 and 11.5 of the Participation
Agreement. The Lessor, the Owner Participant and the Indenture Trustee shall
receive copies of the SEC reports and financial statements of the Lessee as
provided in Section 10.2 of the Participation Agreement.
11.3. Required Modifications. So long as the Operating Agreement is in
effect, the Lessee shall have the right, subject to the last sentence of this
Section 11.3, to propose, or approve all Modifications to the Production System
in accordance with the provisions of the Operating Agreement and the Lessee
shall take all actions thereunder which may be required to make (or cause to be
made) all Severable and Nonseverable Modifications to the Production System as
may be required from time to time to comply in all material respects with the
requirements of all applicable Governmental Rules and Governmental Actions. At
all other times, (i) the Lessee shall make (or cause to be made) all Severable
and Nonseverable Modifications to the Production System as may be required from
time to time to meet the requirements of clause (b) of Section 11.1 or to
maintain any insurance coverage required by Section 13.1 (subject to the
qualifications set forth in such Section) unless the Lessee shall have made an
irrevocable election to terminate this Lease pursuant to Section 7.2; provided,
that if for any reason this Lease is not terminated on the applicable
Termination Date, the provisions of this Section 11.3 shall be automatically
reinstated. The Lessee shall complete (or cause to be completed) all
Modifications in a good and workmanlike manner, with reasonable dispatch and in
a manner which does not decrease the value of the Production System (except to a
de minimis extent) or decrease the remaining useful life or utility of the
Production System or cause the Production System to become "limited use
property" within the meaning of Revenue Procedure 76-30.
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11.4. Optional Modifications. The Lessee may, at no expense to the
Lessor, make (or cause or allow to be made) such other Severable and
Nonseverable Modifications to the Production System not required by Section 11.3
as do not (i) decrease the value (except to a de minimis extent) or utility of
the Production System or decrease the remaining useful life or cause the
Production System to become "limited use property" within the meaning of
Revenue Procedure 76-30 or (ii) alter the primary function of the Production
System (namely to drill and produce oil and gas) taken as a whole, to a function
other than its primary function on the Closing Date.
11.5. Title to Modifications; Purchase Option for Severable Modifications.
(a) Title to the Lessor's Share of all Modifications to the Production System
shall vest in the Head Lessor or any Person designated by the Head Lessor and
shall automatically become part of the Production System and the Undivided
Interest and become subject to the Head Lease (unless the Head Lease has been
terminated) and this Lease; provided, that if the Head Lease shall have been
terminated, title to the Lessor's Share of all Nonseverable Modifications and
all Severable Modifications required by any Governmental Rule or Government
Action, shall vest in the Lessor or any Person designated by the Lessor and
shall automatically become part of the Production System and the Undivided
Interest and become subject to this Lease. The Lessee may remove (or allow to be
removed) any Severable Modification to the Production System not required by any
Governmental Rule or Governmental Action prior to or upon the expiration of the
Lease Term; provided, however, the Lessee shall repair promptly any material
damage to the Production System from such removal.
(b) An undivided interest equal to the Lessor's Share of (i) Severable
Modifications to the Production System required by any Governmental Rule or
Governmental Action and (ii) Nonseverable Modifications to the Production System
shall automatically become part of the Production System and the Undivided
Interest and become subject to the Head Lease (unless the Head Lease has been
terminated) and this Lease.
(c) The Lessee's Share of all Severable Modifications to the Production
System other than those required by any Governmental Rule or Governmental Action
shall automatically vest in the Lessee.
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(d) Provided that the Lessor's right, title and interest in the Undivided
Interest has not been transferred to the Lessee pursuant to this Lease, the
Lessor shall have the option, at the expiration of the Lease Term, to purchase
the Lessor's Share of any Severable Modification to the Production System not
theretofore removed by Lessee pursuant to Section 11.5(a) (i) which was not
required by any Governmental Rule or Governmental Action, (ii) title to the
Lessor's Share of which is in the Lessee or any Affiliate of the Lessee on the
last day of the Lease Term and (iii) which is necessary for the economic
operation of the Production System and (iv) which is not commercially available
for purchase by the Lessor, at a purchase price equal to the Fair Market Sales
Value of such Lessor's Share as of such date. During the final year of the Lease
Term, the Lessee shall not remove any such Severable Modification. On or prior
to the 180th day prior to the expiration of the Lease Term, the Lessee shall
provide the Lessor with a list of the Severable Modifications it intends to
remove. The Lessor may exercise its option to purchase such Severable
Modifications by written notice to such effect delivered to the Lessee at least
30 days prior to expiration of the Lease Term. The Lessor and the Lessee shall
attempt to agree upon the Fair Market Sales Value of such undivided interest in
any such Severable Modification as of the expiration of the Lease Term. If the
Lessor and the Lessee shall fail to agree within 15 days after such written
notice, such Fair Market Sales Value of any such undivided interest shall be
determined by the Appraisal Procedure (except that the time periods set forth in
the definition of Appraisal Procedure shall be accelerated so that the Appraisal
Procedure is complete at least 20 days prior to the expiration of the Lease
Term). If the Lessor shall have exercised its option to purchase an undivided
interest in any Severable Modification to the Production System pursuant to this
Section 11.5(d), the Lessee, if requested by the Lessor, shall furnish (or cause
to be furnished) to the Lessor a bill of sale or assignment, in form and
substance reasonably satisfactory to the Lessor, conveying the right, title and
interest of the Lessee (or its Affiliate) in and to such Severable Modification,
free and clear of all Liens (other than Permitted Liens described in clauses
(a), (b) (other than Indenture Trustee's Liens), (f), (g), (i) and (j) of the
definition thereof), to the Lessor.
11.6. Payment for Modifications and Replacement Components. (a) The
Lessee shall be permitted at any time to finance the cost of any Severable
Modification to the Production System not required by any Governmental Rule or
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Governmental Action, directly or indirectly, including, without limitation, on a
third party ownership basis.
(b) If the Lessee intends to seek financing for the cost of any Severable
Modification to the Production System that is required by any Governmental Rule
or Governmental Action to be made or any Nonseverable Modification to the
Production System, the Lessee shall first provide the Lessor and the Owner
Participant with written notice of such Modification at least 45 days prior to
the date of such proposed financing. The cost of the Lessor's Share of such
Modification may be financed through the issuance of Additional Notes as
provided in Section 14 of the Participation Agreement and subject to the
conditions set forth therein.
11.7. Replacement of Components; Title to Components; Removal of Property.
(a) Any Component or Replacement Component may be removed and replaced with a
Replacement Component and, upon such replacement, the Lessee (or its designee)
shall be entitled to retain the amount of the net proceeds of any sale or
disposition of any such removed Component or Replacement Component. Any such
Replacement Components shall be free and clear of all Liens, except Permitted
Liens, and in as good operating condition as, and with a value and utility (and,
in the case of Major Components, useful life) at least equal to, the Components
or Replacement Components replaced, assuming such replaced Components or
Replacement Components were in at least the condition and repair required to be
maintained hereunder and shall not, individually or in the aggregate, adversely
affect the Production System's useful life. Immediately upon any Replacement
Component becoming incorporated in the Production System, without further act,
(i) title to the Lessor's Share of such Replacement Component thereupon shall
vest in the Head Lessor (or, if the Head Lease is no longer in effect, the
Lessor) or such Person as shall be designated by the Head Lessor (or, if the
Head Lease is no longer in effect, the Lessor), (ii) the Lessor's Share of such
Replacement Component shall become subject to the Head Lease (unless the Head
Lease has been terminated) and the Lien of the Indenture and to this Lease and
shall be deemed a part of the Production System and the Undivided Interest for
all purposes thereof and hereof to the same extent as the Lessor's Share of the
Component or Replacement Component it replaced and (iii) title to the Lessor's
Share of such removed Component or Replacement Component shall remain in the
Head Lessor (or, if the Head Lease shall have been terminated, shall vest in the
Lessee) or such Person as
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shall be designated by the Head Lessor (or, if applicable, the Lessee) and shall
be free and clear of all rights of the Lessor and the Indenture Trustee and
shall no longer be deemed a Component or a Replacement Component hereunder.
(b) If, at any time during the Lease Term, the Lessee shall conclude that
any property included in the Production System is obsolete1 redundant or
unnecessary and can be removed without diminishment of the value or utility of
the Production System or reduction of the remaining useful life of the
Production System and without causing the Production System to become "limited
use property" within the meaning of Revenue Procedure 76-30, the Lessee may
remove (or allow to be removed) such property. In addition, notwithstanding
anything contained in this Lease to the contrary, if an event occurs with
respect to any Component or Components which would constitute an Event of Loss
if such event occurred with respect to the Production System or a Significant
Portion thereof, the Lessee shall have no obligation to pay any Stipulated Loss
Value in respect of, or to otherwise replace or repair, such Component or
Components, so long as, in the Lessee's reasonable judgment (i) such Component
is not a Significant Portion and (ii) such Component or Components are not
material to the overall operation of the Production System.
11.8. Employment of Personnel. Solely as between the Lessor and the
Lessee, the master, officers and crew of the Platform and all other persons at
any time on board the Platform shall be deemed to be engaged and employed
exclusively by the Lessee and shall be deemed to be and remain the Lessee's
servants, navigating and working the Platform solely on behalf of and at the
risk of the Lessee. THIS SECTION 11.8 SHALL NOT BE DEEMED TO CREATE ANY RIGHT
IN, OR TO BE FOR THE BENEFIT OF, ANY THIRD PARTY.
11.9. Salvage. The Lessor shall not have any interest in any salvage
monies earned by the Platform or received by the Lessee or the Operator. The
Lessee assumes and shall satisfy all costs and liabilities incurred in
connection with all salvage services rendered by the Platform.
11.10. Fuel, Oil, Etc. The Lessor acknowledges that such fuel,
lubricating oil and unbroached consumable stores as may be on board the Platform
at the time of its delivery to the Lessee hereunder and allocable to the
Undivided Interest will be the property of the Lessee.
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THUS DONE AND PASSED, on this day of ________ 1996, but effective for
all purposes as of _________ 1996, before me, the undersigned Notary Public,
in and for the County of New York, State of New York, and in the presence of the
undersigned competent witnesses, who have hereunto signed their names with the
Grantor Trustee, Enserch Exploration and me, said Notary Public, after reading
of the whole.
WILMINGTON TRUST COMPANY, not in its individual
capacity but solely as Corporate Grantor
Trustee under the Trust Agreement
By:
--------------------------------------------
Name:
Title:
THOMAS P. LASKARIS, not in his individual
capacity but solely as Individual Grantor
Trustee under the Trust Agreement
By:
--------------------------------------------
Name:
Title:
WITNESSES: ENSERCH EXPLORATION, INC.,
as Lessee
By:
- ----------------------------- --------------------------------------------
Name: Name:
------------------------ Title:
(Please Print)
- -----------------------------
Name:
------------------------
(Please Print)
-----------------------------------
NOTARY PUBLIC
in and for the State of __________
My Commission Expires:
--------------------------
------------------------------------
(PRINTED NAME OF NOTARY PUBLIC)
<PAGE>
11.11. Identification of Platform. At all times until the expiration or
termination of this Lease, the Lessee shall cause to be placed and kept
prominently displayed in the chart room of the Platform a notice, in English,
framed under glass, printed in plain type of such size that the paragraph of
reading matter thereof shall cover a space not less than six inches wide by nine
inches high, reading as follows:
"NOTICE OF MORTGAGE AND CHARTER"
A 40.139265588% undivided interest in this vessel is owned by Enserch
Exploration, Inc., is under demise charter to Wilmington Trust Company,
as the Grantor Trustee under that certain Trust Agreement (1996-A), dated
as of November 15, 1996, pursuant to a Production System Lease Agreement
(1996-A), dated as of November 15, 1996, and is covered by a First
Priority Naval Mortgage (1996-A) dated as of November 15, 1996 in favor
of Wilmington Trust Company, as Grantor Trustee. Said lease and mortgage
provide that no person shall create, incur or permit to be placed or
imposed upon this vessel any lien or encumbrance whatsoever except as
expressly permitted therein. A copy of said lease and mortgage are
carried on this vessel and must be exhibited on demand to any person
having business with this vessel."
Such notice shall be changed to reflect the identity of any successor owner or
mortgagee. Neither the Lessor nor Lessee shall take any action or omit to take
any action that would (i) cause the Platform to cease to be documented as a
vessel pursuant to the laws of the Republic of Panama, (ii) cause the Ship
Mortgage on the Platform to cease to be a first priority naval mortgage under
the laws of the Republic of Panama or (iii) cause the Platform to cease to be
entitled to the same classification that the Platform had from the
Classification Society on the Closing Date (subject to any reduction in
classification and rating resulting from the age of the Platform). Except as
otherwise directed by the Lessor, the Lessee shall prevent the name of any
Person other than that of Enserch Exploration or any Affiliate thereof (and the
other owners and secured parties with respect to the Other Undivided Interest)
from being placed on any part of the Production System as a designation that
reasonably might be interpreted as a claim of ownership or right to possession
or use thereof.
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11.12. Reports With Respect to the Production System. The Lessee shall
provide the Lessor and the Owner Participant with the following reports: (i)
promptly following receipt thereof, all written information provided to the
Lessee pursuant to Section 8.2 of the Operating Agreement; (ii) concurrently
with the delivery of annual financial statements pursuant to Section 10.2 of the
Participation Agreement and upon expiration of the Lease Term, a report stating
the total cost of all Modifications (or related group of Modifications) that
cost in excess of 1% of Lessor's Cost made during such period and describing
separately and in reasonable detail each such Modification made during the
period from the Closing Date to December 31, 1996 in the case of the first such
report and covering the immediately preceding fiscal year in the case of the
remaining reports.
11.13. Required Filings. The Lessee shall prepare and file in a timely
fashion, or where the Lessor shall be required to file, the Lessee shall prepare
or cause to be prepared and deliver to the Lessor within a reasonable time prior
to the date for filing, any reports with respect to the Undivided Interest, or
the condition or operation thereof, that shall be required to be filed with any
Governmental Authority in order to comply with any Governmental Rule or
Governmental Action.
11.14. Repair of Production System. In the event of any damage to the
Production System which does not constitute an Event of Loss, subject to the
last sentence of Section 11.7(b), the Lessee shall, at no expense to the Lessor,
as soon as commercially practicable, repair, restore or rebuild (or shall cause
to be repaired, restored or rebuilt) the damaged or destroyed property so that
upon completion of such repair, restoration or rebuilding, the value, utility
and remaining useful life of such property shall be at least equal to the value,
utility and remaining useful life of such property immediately prior to such
damage or destruction, assuming such property was maintained in accordance with
the terms hereof.
SECTION 12. EVENT OF LOSS.
12.1. Notice of Event of Loss. If there shall occur an Event of Loss, the
Lessee shall promptly notify the Lessor, the Owner Participant and the Indenture
Trustee of the occurrence thereof.
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12.2. Payment of Stipulated Loss Value, Etc. (a) If an Event of Loss
with respect to the Production System shall occur, the Lessee shall within 180
days of the occurrence of such Event of Loss give Lessor, the Owner Participant
and the Indenture Trustee written notice of its election to either:
(i) pay to the Lessor as compensation for such Event of Loss, on the Basic
Rent Payment Date immediately following the date of such election, the
Stipulated Loss Value for the Undivided Interest as of such Stipulated Loss
Value Determination Date; or
(ii) subject to compliance with this Section 12.2, replace (or cause to be
replaced) the Production System with equipment of a similar type, service and
use, and of equal or greater Fair Market Sales Value, residual value,
remaining useful life and utility as the replaced Production System
immediately prior to such Event of Loss (assuming the Production System has
been maintained in accordance with the terms of this Lease).
provided that (x) the Lessee may not elect to replace the Production System if
at the time of the Event of Loss or the time of election a Lease Default of the
type described in Section 15(a), (b), (c) or (g) or Lease Event of Default shall
have occurred and be continuing and (y) if the Lessee fails to give notice of
its election to replace the Production System in the time period specified
above, it shall be deemed to have elected to pay Stipulated Loss Value as
specified in clause (i) above.
If the Lessee shall have elected, or shall be deemed to have elected, the
option set forth in paragraph (i) above, the Lessee shall pay simultaneously
with the payment of Stipulated Loss Value all Basic Rent due and owing prior to
the date of such payment, all Supplemental Rent due and owing on or prior to the
date of such payment and any other accrued Supplemental Rent as to which there
is no dispute and all Basic Rent payable in arrears on such Basic Rent Payment
Date. Upon such payment (1) this Lease and the obligations (other than the
expressly stated to survive the Termination of this Lease, including the
obligations set forth in the next paragraph) of the Lessee hereunder shall
terminate as of the date of such payment and (2) the Lessor shall transfer all
right, title and interest of the Lessor in and to the Undivided Interest as is
and where is, to the Lessee or as the Lessee shall direct, free
37
<PAGE>
and clear of Lessor's Liens and Owner Participant's Liens but otherwise without
representation, warranty or recourse, and the Lessor shall, at the Lessee's
expense, execute and deliver to the Lessee or as the Lessee shall direct a bill
of sale or assignment and such other instruments and documents as the Lessee may
reasonably request to evidence the valid consummation of such transfer and
shall, at the Lessee's expense, take such actions under Section 6.03 of the
Indenture as the Lessee may reasonably request.
The Lessee hereby agrees that, if the Event of Loss with respect to the
Production System in respect of which the Lessee has paid Stipulated Loss Value
pursuant to the preceding sentence is a Special Event of Loss and such Event of
Loss was caused by an act or omission of the Lessee or the Lessee and MPTM
acting in concert, (A) promptly following the conveyance of the Undivided
Interest pursuant to clause (2) of the preceding sentence, the Lessee shall
cause the disposition of the Production System in accordance with the terms of
the Operating Agreement, (B) any such disposition shall not result in the Lessee
or any Affiliate of the Lessee obtaining the ownership or use thereafter of the
Production System and (C) the Lessee shall. promptly following the disposition
of the Production System pay to the Lessor an amount equal to the excess, if
any, of (x) the proceeds of the sale of the Production System allocated to
Enserch Exploration under Exhibit C to the Operating Agreement net of expenses
incurred in respect of such sale (including, without limitation, any commissions
or other fees payable to any brokers that are not the Lessee, the Operator or
any Affiliates thereof) allocated to Enserch Exploration under Exhibit C to the
Operating Agreement over (y) the Stipulated Loss Value paid to the Lessor
pursuant to this Section 12.2(a). In performing its obligation to dispose of the
Production System pursuant to the preceding sentence, the Lessee shall act in a
commercially reasonable manner as if it were the owner of the Production System
entitled to retain all proceeds of the disposition.
(b) If an Event of Loss with respect to a Significant Portion of the
Production System shall occur, the Lessee shall within 180 days of the
occurrence of such Event of Loss give the Lessor, the Owner Participant and the
Indenture Trustee written notice of its election to either:
(i) pay to the Lessor as compensation for such Event of Loss, on the Basic
Rent Payment Date immediately following the date of such election, the
Stipulated Loss Value for the Significant Portion of
38
<PAGE>
the Undivided Interest suffering such Event of Loss as of such Stipulated
Loss Value Determination Date; or
(ii) subject to compliance with this Section 12.2(b) rebuild or cause to be
rebuilt (or replace or cause to be replaced) the Significant Portion of the
Production System suffering such Event of Loss which such rebuilt portion (or
replacement portion) shall have at least the same value, utility and
remaining useful life as such Significant Portion had prior to the Event of
Loss (assuming the Production System has been maintained in accordance with
the terms of this Lease); provided that (w) if (1) the remaining portion of
the Production System not suffering such Event of Loss is not capable of
functioning for its intended purpose or (2) such remaining portion
constitutes "limited use property" within the meaning of Revenue Procedure
76-30 or (3) the Fair Market Sales Value of such remaining portion as of the
end of such 180-day period is less than the product of (A) a fraction the
numerator of which is the Lessor's Cost minus the Original Cost of the
Significant Portion of the Undivided Interest suffering such Event of Loss
and the denominator of which is Lessor's Cost and (B) the Fair Market Sales
Value of the Production System as of the end of such 180-day period (assuming
no such Event of Loss had occurred) or (4) the Original Cost of such
Significant Portion together with the Original Cost of any other Significant
Portion of the Undivided Interest in respect of which the Lessee has
previously paid Stipulated Loss Value pursuant to this Section 12.2 or
Termination Value pursuant to Section 7.3 shall exceed 50% of Lessor's Cost
or (5) the Estimated Fair Market Sales Value of such remaining portion as of
the scheduled expiration of the Basic Term is less than the product of (A) a
fraction the numerator of which is the Lessor's Cost minus the Original Cost
of the Significant Portion of the Undivided Interest suffering such Event of
Loss and the denominator of which is Lessor's Cost and (B) the estimated Fair
Market Sales Value of the Production System as of the scheduled expiration of
the Basic Term (assuming no such Event of Loss had occurred) or (6) subject
to the following sentence, the Lessee shall have failed to provide the Owner
Participant, by the 120th day following the occurrence of such Event of Loss,
with an opinion of tax counsel of recognized national standing selected by
the Lessee and reasonably acceptable to the Owner Participant to the effect
that the termination of this
39
<PAGE>
Lease with respect to such Significant Portion will not result in a greater
risk of unindemnified tax liability on the part of the Owner Participant than
it would have had if such termination had not occurred (other than any tax
liability of the Owner Participant with respect to the inclusion in the
taxable income of the Owner Participant of the Stipulated Loss Value payable
with respect to such Significant Portion), the Lessee shall, subject to
clause (y) below, be deemed to have elected the option set forth in paragraph
(ii) above, (x) if the Lessee shall fail to provide such written notice
within such 180-day period, the Lessee shall, unless clause (w) of this
proviso is applicable, be deemed to have elected the option set forth in
paragraph (i) above, (y) the Lessee may not elect the option set forth in
paragraph (ii) during such time a Lease Default of the type described in
Section 15(a), (b), (c) or (g) or Lease Event of Default shall have occurred
and be continuing and (z) if the Lessee is deemed, pursuant to clause (w)
above, to have elected the option set forth in paragraph (ii) above but is
then prevented from electing such option pursuant to clause (y) above, an
Event of Loss shall be deemed to have occurred with respect to the Undivided
Interest. The Lessee shall be deemed to have failed to provide the opinion
referred to in clause (6) above if the Owner Participant provides the Lessee
by 10 Business Days after receipt of the opinion referred to in clause (6)
above and the approval by the Lessee of the Owner Participant's choice of
counsel an opinion of tax counsel selected by the Owner Participant and
reasonably acceptable to the Lessee to the contrary and describing in
reasonable detail the increased risk of unindemnified tax liability.
Unless the Lessee shall have elected (or shall be deemed to have elected)
the option set forth in paragraph (ii) above, the Lessee shall pay,
simultaneously with the payment of Stipulated Loss Value pursuant to paragraph
(i) above, all Basic Rent due and owing prior to the date of such payment, all
Supplemental Rent due and owing on or prior to the date of such payment and any
other accrued Supplemental Rent as to which there is no dispute, and all Basic
Rent due on such Basic Rent Payment Date (but excluding that portion of Basic
Rent payable in advance on such Basic Rent Payment Date equal to the product of
the Original Cost of the Significant Portion of the Undivided Interest suffering
such Event of Loss and the percentage set forth in Column B (Advance Rent) of
Schedule 1 opposite such
40
<PAGE>
Basic Rent Payment Date), whereupon (1) the obligations of the Lessee under this
Lease (other than the obligations expressly stated to survive termination of
this Lease, including the obligations set forth in the next sentence) shall
terminate with respect to the Significant Portion of the Undivided Interest
suffering such Event of Loss and (2) the Lessor shall transfer all right, title
and interest of the Lessor in and to such Significant Portion, as is and where
is, to the Lessee or as the Lessee shall direct, free and clear of Lessor's
Liens and Owner Participant's Liens but otherwise without representation,
warranty or recourse, and the Lessor shall, at the Lessee's expense, execute and
deliver to the Lessee or as the Lessee shall direct a bill of sale or assignment
and such other instruments and documents as the Lessee may reasonably request to
evidence the valid consummation of such transfer and shall, at the Lessee's
expense, take such actions under Section 6.03 of the Indenture as the Lessee may
reasonably request. The Lessee hereby agrees that, if the Event of Loss with
respect to a Significant Portion of the Production System in respect of which
the Lessee has paid Stipulated Loss Value pursuant to the preceding sentence is
a Special Event of Loss, (A) promptly following the conveyance of the
Significant Portion of the Undivided Interest pursuant to clause (2) of the
preceding sentence, the Lessee shall cause the disposition of the Significant
Portion of the Production System suffering such Special Event of Loss in
accordance with the terms of the Operating Agreement, (2) any such disposition
shall not result in the Lessee or any Affiliate of the Lessee obtaining the
ownership or use thereafter of the Significant Portion of the Undivided Interest
suffering such Event of Loss and (3) the Lessee shall, promptly following the
disposition of the Significant Portion of the Production System suffering such
Event of Loss pay to the Lessor an amount equal to the excess, if any, of (x)
the proceeds of the sale of such Significant Portion allocated to the Lessee
under Exhibit C to the Operating Agreement net of expenses incurred in respect
of such sale (including, without limitation, any commissions or other fees
payable to any brokers that are not Affiliates of the Lessee or the Operator)
allocated to the Lessee under Exhibit C to the~ Operating Agreement over (y) the
Stipulated Loss Value paid to the Lessor pursuant to this Section 12.2(b). In
performing its obligation to dispose of a Significant Portion of the Production
System pursuant to the preceding sentence, the Lessee shall act in a
commercially reasonable manner as if it were the owner of such Significant
Portion
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<PAGE>
of the Production System entitled to retain all proceeds of the disposition.
(c) At the time of or prior to any replacement of the Production System,
any Component or any Significant Portion, the Lessee, at its own expense, will
(i) furnish the Lessor with evidence that the Head Lessor (or, if the Head Lease
has been terminated, the Lessor) has title to an undivided interest equal to the
Undivided Interest Percentage in the replacement Production System, Components
or Significant Portion, as the case may be, free and clear of all Liens other
than Permitted Liens, (ii) cause supplements to the Head Lease (unless the Head
Lease has been terminated) and this Lease to be issued with appropriate
modifications, subjecting such undivided interest in the replacement Production
System, Component or Significant Portion, as the case may be, to the Head Lease
and this Lease, such supplements to be duly authorized, executed and delivered
by the parties thereto, and to be filed for recordation in the same manner as
provided for the Lease and the Head Lease in Section 4.16 of the Participation
Agreement, (iii) if the Platform is being replaced, cause a supplement to the
Ship Mortgage subjecting such undivided interest in the replacement Platform to
the Lien of the Ship Mortgage to be duly authorized, executed and delivered by
the appropriate parties and cause such Ship Mortgage to be filed for recordation
in the same manner as provided for the Ship Mortgage in Section 4.16 of the
Participation Agreement, (iv) so long as the Indenture shall not have been
satisfied and discharged, request the Lessor to execute and deliver to the
Indenture Trustee a supplement to the Indenture subjecting the Lessor's interest
in the replacement Production System, Components or Significant Portion, as the
case may be, to the Lien of the Indenture and requesting that such Indenture
Supplement be filed for recordation in the same manner as provided for the
Indenture in Section 4.16 of the Participation Agreement, (v) upon the request
of the Lessor, furnish the Lessor with an opinion (upon which the Indenture
Trustee shall be entitled to rely) of the Lessee's counsel which counsel shall
be reasonably satisfactory to the Lessor and the Owner Participant, to the
effect that (t) each of the supplements to the Head Lease and the Lease referred
to in clause (i) above constitutes a legal, valid, binding and enforceable
obligation of (u) in the case of the supplement to the Head Lease, the Head
Lessor and (v) in the case of the Lease, the Lessee (subject to customary
qualifications as to bankruptcy and equitable principles), (w) if the Platform
is being replaced, the supplement to the Ship Mortgage referred to in clause
(iii)
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above constitutes a legal, valid, binding and enforceable obligation of the Head
Lessor (subject to, customary qualifications as to bankruptcy and equitable
principles), (x) legal title to such replacement Production System, Component or
Significant Portion, as the case may be, has vested in the Head Lessor (or, if
the Head Lease has been terminated, the Lessor), (y) such replacement Production
System, Components or Significant Portion, as the case may be, is free and clear
of all Liens of record, other than Permitted Liens and (z) all filings,
recordings and other action necessary or appropriate to perfect and protect the
Lessor's and the Indenture Trustee's respective interests in the replacement
Production System, Components or Significant Portion, as the case may be, have
been accomplished, (vi) upon the request of the Lessor, furnish the Lessor with
an Officer's Certificate (upon which the Indenture Trustee shall be entitled to
rely) certifying that as of said date, and upon consummation of the replacement,
no Lease Default of the type described in Section 15(a), (b), (c) or (g) or
Lease Event of Default shall have occurred and be continuing and (vii) furnish
such other documents and evidence as the Lessor or its counsel may reasonably
request in order to establish the consummation of the transactions contemplated
by this Section 12.2, including, without limitation, evidence that the
replacement Production System, Components or Significant Portion, as the case
may be, has a value, utility, remaining useful life and residual value at least
equal to that of the Production System, Component or Significant Portion
replaced.
12.3. Application of Other Payments upon the Occurrence of an Event of
Loss. Any amounts of condemnation or requisition proceeds received at any time
by the Lessor, the Indenture Trustee or the Lessee as a result of the occurrence
of an Event of Loss shall be divided between the Lessee and the Lessor as their
respective interests may appear or, in the case of proceeds of insurance
maintained pursuant to Section 13.1(a) (ii), applied pursuant to Section 13.3,
and the amount paid to the Lessor shall reduce the amount of Stipulated Loss
Value that the Lessee is required to pay to the Lessor (but not below zero)
pursuant to Section 12.2 (or, if the amount of Stipulated Loss Value payable
pursuant to Section 12.2 has already been paid by the Lessee, the Lessee shall
be entitled to retain out of the amounts otherwise payable to the Lessor
pursuant to this Section 12.3, the amount that would have been applied in
reduction of the amount of Stipulated Loss Value payable by the Lessee under
Section 12.2).
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12.4. Allocation of Payments Not Relating to an Event of Loss. Payments
(except for payments under Insurance policies described in Section 13) received
at any time by the Lessor, the Indenture Trustee or the Lessee from any
Governmental Authority or other Person with respect to any destruction, damage,
Loss, condemnation, confiscation, theft or seizure of or requisition of title to
or use of the Undivided Interest or any part thereof not constituting an Event
of Loss shall be paid over to the Lessee or the Lessor as their interests may
appear.
12.5. Other Dispositions. Notwithstanding anything to the contrary under
the Operative Documents, as long as any Lease Default of the type described in
Section 15(a), (b), (c) or (g) or any Lease Event of Default shall have occurred
and be continuing, any amount that otherwise would be payable to or for the
account of, or that otherwise would be retained by, the Lessee pursuant to this
Section 12 or otherwise under the Operative Documents shall be paid to the
Corporate Grantor Trustee (or to the Corporate Indenture Trustee as long as the
Undivided Interest is subject to the Lien of the Indenture) as security for the
obligations of the Lessee under this Lease and, subject to the Indenture,
applied against the Lessee's payment obligations hereunder when and as they
become due and payable and, at such time thereafter as no Lease Default of the
type described in Section 15(a), (b), (c) or (g) or Lease Event of Default shall
be continuing, such amount shall, to the extent not theretofore applied as
provided herein or in the Indenture, be paid promptly to the Lessee or as it may
direct.
SECTION 13. INSURANCE.
13.1. Coverage. (a) The Lessee, at its own cost and expense, shall carry
and maintain or cause to be carried and maintained in full force and effect at
all times during the Lease Term in such amounts and with such terms (including
co-insurance, deductibles, limits of liability and loss payment provisions) as
are customary under the Lessee's risk management programs and customary industry
practices; provided that at all times during the Lease Term, the Lessee shall at
a minimum maintain the following types and amounts of insurance: (i) public
liability insurance against loss or damage for personal injury, death or
property damage and against Claims including, without limitation, Environmental
Claims arising out of or connected with the possession, use, leasing or
condition of any part of the Production System in an amount of $100,000,000 for
100% interest and in such forms as are consistent with the
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Lessee's practice for other properties similar to the Production System owned or
leased by the Lessee; (ii) all risk property insurance for the Undivided
Interest in an amount equal to the lesser of Lessor's Cost and Stipulated Loss
Value for the Undivided Interest; and (iii) Operator's Extra Expense coverage in
such forms as are consistent with the Lessee's practice for other properties
similar to the Production System owned or leased by the Lessee in an amount of
$100,000,000 for 100% interest. The insurance required under clause (i), (ii) or
(iii) of this Section 13.1(a) may be subject to deductible amounts and self-
insured retentions (up to an aggregate amount of $50,000,000) as is consistent
with the Lessee's practice for other properties similar to the Production System
owned or leased by the Lessee. Such insurance may be carried under blanket
policies maintained by or on behalf of the Lessee so long as such policies
otherwise comply with the provisions of this Section 13.
(b) Any insurance carried in accordance with Section 13.1(a) (i) and (ii)
shall provide in the policy or by special endorsement that:
(i) the Lessor, the Trust Company, the Individual Grantor Trustee, the
Owner Participant, the Guarantor, the Indenture Trustee and each Loan
Participant are included as additional insureds and shall provide that no
such Person shall have any obligation or liability for payment of premiums;
(ii) the insurer thereunder waives all rights of subrogation against the
Lessor, the Indenture Trustee, the Owner Participant, the Guarantor, and each
Loan Participant, and waives any right of set-off and counterclaim and any
other right to deduction whether by attachment or otherwise;
(iii) such insurance shall be primary without right of contribution of any
other insurance carried by or on behalf of the Lessor, the Indenture Trustee,
the Owner Participant, the Guarantor, and each Loan Participant;
(iv) the respective interests of the Lessor, the Indenture Trustee, each
Loan Participant, the Owner Participant, and the Guarantor under all
insurance policies required hereunder shall not be invalidated by any action
or inaction of the Lessee or any other Person (other than, with respect to
any such insured, such insured) and such insurance shall insure the
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Lessor, the Indenture Trustee, each Loan Participant, the Owner Participant,
and the Guarantor as their interests may appear, regardless of any breach or
violation of any warranty, declaration or condition contained in such
policies by the Lessee or any other Person other than, with respect to any
such insured, such insured);
(v) if the insurers cancel such insurance for any reason whatsoever or any
materially adverse change is made in policy terms or conditions, or if such
insurance is allowed to lapse for nonpayment of premium, such cancellation,
change or lapse shall not be effective as to the Lessor, the Owner
Participant, the Guarantor, each Loan Participant or the Indenture Trustee
for thirty days after receipt by the Lessor, the Owner Participant, each Loan
Participant or the Indenture Trustee, respectively, of written notice from
such insurers of such cancellation, change or lapse;
(vi) with respect to all liability insurance, in as much as the policies
are written to cover more than one insured, all terms, conditions, insuring
agreements and endorsements, with the exception of the limits of liability
shall operate in the same manner as if there were a separate policy covering
each insured; and
(vii) any payment under any policy of insurance maintained pursuant to
Section 13.1(a) (ii) shall be made to the Indenture Trustee so long as the
Lien of the Trust Indenture shall not have been discharged, and otherwise to
the Lessor as their respective interests may appear except that so long as
any Lease Default of the type described in Section 15(a), (b), (c) or (g) or
any Lease Event of Default shall have occurred and be continuing the first
$25,000,000 of payments made in respect of any single casualty or other
occurrence or in any policy year with respect to the Undivided Interest and
the Other Percentage Undivided Interest shall be paid solely to the Lessee;
13.2. Adjustment of Losses. Losses, if any, with respect to the
Production System under any property damage policies required to be carried
under Section 13.1(a) shall be adjusted with the insurance companies, including
the filing of appropriate proceedings, by the Lessee.
13.3. Application of Insurance Proceeds. All proceeds of insurance
maintained pursuant to Section
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13.1(a) (ii) paid to the Indenture Trustee or the Lessor, other than in
connection with an Event of Loss or Partial Event of Loss as to which the Lessee
has elected (or has been deemed to have elected) to pay Stipulated Loss Value,
shall be paid over to the Lessee or as the Lessee may direct to pay for, or
reimburse the Lessee for, its payment of the cost of repairing or restoring the
Production System; provided, however, that such payments to the Lessee shall be
made only upon (i) delivery by a Responsible Officer of the Lessee to the Lessor
and the Indenture Trustee, if applicable, of a certificate (A) describing in
reasonable detail the nature and cost of such repair or restoration and the
actual expenditures theretofore made in connection therewith (and accompanied by
copies of related invoices) and (B) certifying that the sum requested is a
proper item of such cost, has not been the subject of any previous such request
which has been paid to the Lessee and has been paid, or is then due and payable,
by the Lessee and (ii) receipt by the Lessor and the Indenture Trustee, if
applicable, of evidence satisfactory to each of them, in their reasonable
judgment that such proceeds, together with funds of the Lessee available for the
purpose will be sufficient to complete such repair and restoration of the
Production System or portion thereof.
13.4. Additional Insurance. Nothing in this Section 13 shall prohibit the
Lessee, the Lessor, the Owner Participant or the Indenture Trustee from
acquiring or maintaining, at its own expense, additional insurance for its own
account with respect to loss or damage to the Undivided Interest or any part
thereof provided that any such additional insurance shall not interfere with or
in any way limit insurance maintained under Section 13.1(a) or increase the
amount of any premium payable with respect to any such insurance. The proceeds
of any such additional insurance will be for the account of the party
maintaining such additional insurance.
13.5. Annual Insurance Report. Prior to December 31 of each year
commencing in 1997, the Lessee will provide to the Lessor, the Owner Participant
and the Indenture Trustee an insurance report and certificate, substantially in
the form of the report and the certificate provided by the Lessee pursuant to
Section 4.7 of the Participation Agreement, with respect to the insurance then
required to be maintained by the Lessee pursuant to this Section 13.
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SECTION 14. RIGHTS TO ASSIGN OR LEASE; LEASEHOLD MORTGAGE PROVISIONS.
14.1. Assignment by Lessor; Security for Lessor's Obligations to Indenture
Trustee. (a) Except as set forth in Section 14.1(b) or (c) or in the last two
sentences of Section 19.8, the Lessor may not assign, transfer or encumber this
Lease or all or any part of its interests and rights hereunder except in
connection with the exercise of remedies by the Lessor following a declaration
by the Lessor pursuant to Section 16.1 that this Lease is in default.
(b) (i) In order to secure the indebtedness evidenced by the Secured
Notes and certain other obligations as provided in the Indenture, the Indenture
provides, among other things, for the assignment by the Lessor to the Indenture
Trustee of its right, title and interest in, to and under this Lease to the
extent set forth in the Indenture. The Lessee hereby consents to such assignment
pursuant to the terms and provisions of the Indenture and to any assignment or
other transfer which may occur pursuant to the exercise of any remedy set forth
in the Indenture. The Lessee (i) acknowledges that such assignment provides for
the exercise by the Indenture Trustee of certain rights of the Lessor hereunder
to give any consents, approvals, waivers, notices or the like, to make any
elections, demands or the like or to take any other discretionary action
hereunder, but only in accordance with the Indenture, (ii) acknowledges receipt
of an executed counterpart of the Indenture as in effect on the date hereof and
(iii) agrees that, to the extent provided in the Indenture, the Indenture
Trustee shall have all the rights of the Lessor hereunder and, in exercising any
right or performing any obligation of the Lessor hereunder, shall be subject to
the terms hereof. The Lessee will furnish to the Indenture Trustee counterparts
of all notices, certificates, opinions or other documents of any kind required
to be delivered hereunder by the Lessee to the Lessor. Notwithstanding any other
provision herein, so long as any Secured Notes remain Outstanding, the Lessor
hereby directs, and the Lessee agrees that, all payments of Basic Rent and all
other Rent payable hereunder to the Lessor, other than Excepted Payments, shall
be paid directly to the Corporate Indenture Trustee at its account specified in
Schedule 1 to the Participation Agreement or to such other account as may be
specified in writing by the Corporate Indenture Trustee to the Lessee at least 5
Business Days prior to the due date thereof. The right of the Indenture Trustee
to receive payments of Basic Rent shall not be subject to any defense,
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counterclaim, setoff or other right or claim of any kind which the Lessee may be
able to assert against the Lessor or the Owner Participant in an action brought
by either thereof on this Lease or otherwise.
14.2. Assignment and Sublease by Lessee. The Lessee may, without the
consent of any party to the Participation Agreement, at any time and from time
to time, sublease the Undivided Interest or any portion thereof for any lawful
use to another Person or assign this Lease and its interests and rights
hereunder to any Affiliate of the Lessee; provided that (i) such sublease or
assignment shall be expressly subject and subordinate to this Lease and the
Operating Agreement (and such sublease or assignment shall contain a provision
providing that any sublease or assignment permitted thereunder shall be so
subject and subordinate) and shall in no event continue beyond the Lease Term,
(ii) the Lessee shall remain primarily liable under this Lease and the Other
Operative Documents and all terms and conditions hereof and of the other
Operative Documents shall remain in full force and effect and shall be complied
with as though no such sublease or assignment was in existence (iii) each of the
Owner Participant, the Guarantor, the Lessor, the Indenture Trustee and the Loan
Participant shall have received such opinions (other than any opinion regarding
United States Federal income taxes) as the Owner Participant, the Guarantor, the
Lessor, the Indenture Trustee or the Loan Participant shall reasonably request,
(iv) such sublessee or assignee shall not be subject to any bankruptcy,
insolvency or other similar proceedings affecting creditors' rights on the
commencement date of the sub-sublease and shall have such authorizations and
approvals under Governmental Rules (and all Governmental Actions shall have been
taken) as may be necessary in order for such sublessee or assignee to perform
its obligations under the sublease or assignment, (v) each of the Owner
Participant, the Guarantor, the Lessor, the Indenture Trustee and the Loan
Participant shall bear no unindemnified tax risk associated with such sublease
or assignment, (vi) such sublease shall not permit further subleasing, (vii)
such sublease or assignment, to the extent that the sublessee or assignee
assumes responsibility for maintenance and insurance obligations of the Lessee,
shall have terms with respect to such maintenance and insurance obligations no
less stringent than those contained in Section 11 hereof, (viii) as of the date
of commencement of the sublease or assignment, no Lease Default of the type
described in Section 15(a), (b), (c) or (g) or Lease Event of Default shall have
occurred and be continuing, (ix) the sublessee or
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assignee shall not be a Governmental Authority unless such Governmental
Authority shall have waived its right of sovereign immunity, (x) such sublease
or assignment shall have substantially the same terms with respect to use and
operation as contained in Section 11 hereof, (xi) any such sublease or
assignment shall not impair any right or remedy of the Lessor under the Lease or
any other Operative Document or the Indenture Trustee under any Operative
Document and (xii) the Lessee shall have obtained all consents and taken all
actions necessary to comply with all Governmental Rules and all shall have
obtained all consents and taken all actions as may be required under any
contract or agreement binding on the Lessee or the sublessee or assignee or any
of their respective properties. The Lessee shall give prompt written notice to
the Lessor of any sublease or assignment and shall deliver a certified copy of
any sublease or assignment to the Lessor within 10 days following the execution
and delivery thereof. Any assignment or sublease by the Lessee that is not in
accordance with the terms of this Section 14.2 shall be a violation of this
Lease and shall be null and void.
SECTION 15. LEASE EVENTS OF DEFAULT.
The term "Lease Event of Default", wherever used herein, shall mean any of
the following events (whatever the reason for such Lease Event of Default and
whether it shall be voluntary or involuntary, or come about or be effected by
operation of law, or be pursuant to or in compliance with any judgment, decree
or order of any court or any Governmental Rule or Governmental Action):
(a) the Lessee shall fail to pay Basic Rent within 5 Business Days after
the date the same becomes due; or
(b) the Lessee shall fail to pay Stipulated Loss Value, Termination Value,
any Early Buy Out Purchase Price or Fixed Price Purchase Amount within 10
Business Days after the date the same becomes due; or
(c) the Lessee shall fail to pay Supplemental Rent or make any other
payment (other than Basic Rent, Stipulated Loss Value, Termination Value,
Early Buy Out Purchase Price or Fixed Price Purchase Amount) required to be
made by the Lessee under this Lease or under any other Operative Document for
more than 30 Business Days after the Lessee has received written notice from
the
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Lessor or the Indenture Trustee stating that such payment is due; or
(d) the Lessee, in any capacity under the Operative Documents, shall fail
in any material respect to perform or observe any other covenant or agreement
to be performed or observed by it under this Lease or any other Operative
Document (other than the Tax Indemnity Agreement (except with respect to the
Lessee's obligation to make any payment required by the Tax Indemnity
Agreement)) and such failure shall continue for a period of thirty (30) days
after the earlier of receipt by the Lessee of a written notice from the
Lessor or the Indenture Trustee specifying such failure and requiring it to
be remedied or the date Lessee obtains Actual Knowledge of such failure;
provided1 however, that the continuation of any such failure for such period
of thirty (30) days or such longer period (not to exceed 365 days or 180 days
in the case of a failure to perform or observe the covenants contained in
Section 10.16 or 10.17 of the Participation Agreement; provided that such 180
day period shall not extend beyond the date 1 year prior to the expiration of
the Lease Term) after receipt of such notice shall not constitute a Lease
Event of Default so long as (i) such failure is curable or correctable and
(ii) the Lessee is diligently pursuing the cure or correction of such
failure; or
(e) any representation or warranty made by the Lessee in any Operative
Document (other than the Tax Indemnity Agreement) or in any Officer's
Certificate of the Lessee delivered pursuant to any Operative Document shall
prove to have been inaccurate in any material respect when made and such
representation or warranty shall remain inaccurate in any material respect
thirty (30) days after the earlier of receipt by the Lessee of a written
notice thereof from the Lessor or the Indenture Trustee or the date the
Lessee obtains Actual Knowledge of such inaccuracy; provided, however, that
the continuation of any such inaccuracy for such period of thirty (30) days
or such longer period (not to exceed 180 days) after receipt of such notice
shall not constitute a Lease Event of Default so long as (i) such inaccuracy
is curable or correctable and (ii) the Lessee is diligently pursuing the cure
or correction of such inaccuracy; or
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(f) the Lessee shall commence a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to itself or its
debts under any bankruptcy, insolvency or other similar law now or thereafter
in effect or seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part of its
property, or shall consent to any such relief or to the appointment or taking
possession by any such official or agency in an involuntary case or other
proceeding commenced against it, or shall make a general assignment for the
benefit of creditors, or shall take any corporate action to authorize any of
the foregoing; or
(g) an involuntary case or other proceeding shall be commenced against the
Lessee seeking liquidation, reorganization or other relief with respect to it
or its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official or agency of it or any
substantial part of its property and such involuntary case or other
proceeding shall remain undismissed and unstayed for a period of ninety (90)
days; or
(h) the Lessee shall fail to maintain (or cause to be maintained) the
insurance required by Section 13 (subject to Lessee's right to self-insure);
or
(i) the Lessee shall fail to maintain the Credit Support to the extent
required by Section 10.14 of the Participation Agreement; or
(j) the Lessee shall fail to remove any lien relating to the Master Lease
or the transactions contemplated thereby, including the failure to file any
releases or termination statements necessary to remove any such lien, prior
to 5:00 p.m. New York City time on the second Business Day following the
Closing Date.
provided, however, that notwithstanding anything to the contrary contained in
Section 15 (d), any failure of the Lessee to perform or observe any covenant or
agreement specified in Section 15(d) shall not constitute a Lease Event of
Default if such failure is caused solely by reason of any event that constitutes
an Event of Loss (or any event which with lapse of time would constitute an
Event of Loss)
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as long as the Lessee is continuing to comply with all the applicable terms of
Section 12.
SECTION 16. REMEDIES.
16.1. In General. Upon the occurrence of any Lease Event of Default and
so long as the same shall be continuing, the Lessor, at its option, may declare
this Lease to be in default by written notice to such effect given to the Lessee
(provided that this Lease shall be deemed to have been declared in default
without the necessity of such written notice upon the occurrence of any Lease
Event of Default described in paragraph (f) or (g) of Section 15 and it shall
not be necessary for the Lessor to declare the Lease in default prior to
exercising any remedy described in Section 16.1(g) or prior to making any
demands that are required to be made as a condition to exercising any remedy
described in Section 16.1(g)), and at any time thereafter, provided such Lease
Event of Default shall be continuing, the Lessor may, to the extent permitted by
applicable Governmental Rules, exercise one or more of the following remedies,
as the Lessor in its sole discretion shall elect:
(a) the Lessor, by notice to the Lessee, may rescind or terminate this
Lease;
(b) whether or not this Lease has been terminated, the Lessor may demand
that the Lessee, and upon the written demand of the Lessor, the Lessee shall,
surrender the Undivided Interest promptly to the Lessor in the manner and
condition required by, and otherwise in accordance with the provisions of,
this Lease as if the Undivided Interest were being returned at the end of the
Lease Term and the Lessor shall not be liable for the reimbursement of the
Lessee for any costs and expenses incurred by the Lessee in connection
therewith;
(c) the Lessor may (whether or not the Lessor has taken possession
thereof), subject to the rights of the Operator and the Other Owner under the
Operating Agreement, sell all or any portion of the Undivided Interest at
public or private sale, as the Lessor may determine, free and clear of any
rights of the Lessee with respect thereto (except pursuant to the Agency and
Support Agreement) and without any duty to account to the Lessee with respect
to such sale or any proceeds with respect thereto (except to the extent
required by
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paragraph (e) or (f) of this Section 16.1 if the Lessor shall elect to
exercise its rights thereunder), in which event the Lessee's obligation to
pay Basic Rent with respect to the interest sold accruing after the date of
such sale shall be terminated (except to the extent that Basic Rent is to be
included in computations under paragraph (e) or (f) of this Section 16.1 if
the Lessor shall elect to exercise its rights thereunder);
(d) the Lessor may, subject to the rights of the Operator and the Other
Owner under the Operating Agreement, hold or lease to others all or a portion
of the Undivided Interest, as the Lessor in its sole discretion may
determine, free and clear of any rights of the Lessee with respect thereto
(except pursuant to the Agency and Support Agreement) and without any duty to
account to the Lessee with respect to such action or inaction or for any
proceeds with respect to such action or inaction, except that the Lessee's
obligation to pay Basic Rent after the Lessee shall have been deprived of use
of all or a portion of the Undivided Interest pursuant to this paragraph (d)
shall be reduced by the net proceeds, if any, received by the Lessor from
leasing all or a portion of the Undivided Interest to any Person other than
the Lessee for the same periods or any portion thereof;
(e) whether or not the Lessor shall have exercised or thereafter at any
time shall exercise its rights under paragraph (a), (b), (c) or (d) of this
Section 16.1, the Lessor may demand, by written notice to the Lessee
specifying a payment date which shall be a Stipulated Loss Value
Determination Date not earlier than 10 Business Days after the date of such
notice, that the Lessee pay to the Lessor, and the Lessee shall pay to the
Lessor, on such specified payment date, as liquidated damages for loss of a
bargain and not as a penalty (in lieu of the Basic Rent accruing on or after
such specified payment date), any unpaid Basic Rent due and owing on or prior
to such specified payment date (but excluding any Basic Rent payable in
advance on such payment date) and any unpaid Supplemental Rent (to whomsoever
payable) due and owing on or prior to the date of such payment and any other
accrued Supplemental Rent as to which there is no dispute, plus whichever of
the following amounts the Lessor, in its sole discretion, shall specify in
such notice (together with
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interest on such amount at the Overdue Rate from such specified payment date
to the date of actual payment):
(i) an amount equal to the excess, if any, of Stipulated Loss Value for
the Undivided Interest as of such specified payment date over the Fair
Market Sales Value of the Undivided Interest as of such specified payment
date (or the last day of the Basic Lease Term, if earlier); or
(ii) an amount equal to the excess of (1) the present value as of such
specified payment date of all installments of Basic Rent payable on or
after such specified payment date during the remaining balance of the
Basic Lease Term (or any Renewal Term then in effect), discounted
semiannually at a rate per annum equal to the Debt Rate, over (2) the
present value as of such specified payment date of the Fair Market Rental
Value of the Undivided Interest during the remaining balance of the Basic
Lease Term (or any Renewal Term then in effect), discounted semiannually
at a rate per annum equal to the Debt Rate; or
(iii) an amount equal to the greatest of (A) Stipulated Loss Value for
the Undivided Interest determined as of such specified payment date, (B)
the discounted Fair Market Rental Value of the Undivided Interest for the
remaining useful life thereof determined pursuant to subclause (2) of
clause (ii) of this paragraph (e), and (C) the Fair Market Sales Value
determined pursuant to clause (i) of this paragraph (e), and, in this
event, upon full payment by the Lessee of all sums due hereunder, the
Lessor shall, without recourse, representation or warranty (other than
the absence of Owner Participant's Liens and Lessor's Liens) transfer all
of its right, title and interest in and to the Undivided Interest to the
Lessee, as is and where is, whereupon this Lease and the Lessee's
obligations hereunder shall terminate. The Lessor shall, at the Lessee's
expense, execute and deliver to the Lessee a bill of sale or assignment
and such other instruments, documents and opinions as the Lessee may
reasonably request to evidence the valid consummation of such transfer
and shall, at the Lessee's expense, take such actions under Section 6.03
of the Indenture as the Lessee may reasonably request; or
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(iv) an amount equal to the excess, if any, of Stipulated Loss Value
for the Undivided Interest, computed as of such specified payment date,
over the Fair Market Rental Value of the Undivided Interest during the
remaining Basic Lease Term (or any Renewal Term then in effect), after
discounting such Fair Market Rental Value semiannually to present value
as of such specified payment date at a rate per annum equal to the Debt
Rate;
(f) if the Lessor shall have sold all of the Undivided Interest, as a whole
or by a series of sales of portions thereof pursuant to paragraph (c) of this
Section 16.1 or other right of sale1 the Lessor, in lieu of exercising its
rights under paragraph (e) of this Section 16.1, may, if it shall so elect,
demand that the Lessee pay to the Lessor and the Lessee shall pay to the
Lessor on the date of such sale, as liquidated damages for loss of a bargain
and not as a penalty (in lieu of Basic Rent accruing on or after the next
Basic Rent Payment Date following the date of such sale), any unpaid Basic
Rent due and owing on or prior to such next Basic Rent Payment Date (but
excluding any Basic Rent payable in advance on such Basic Rent Payment Date)
and any other Supplemental Rent due and owing on or prior to such next Basic
Rent Payment Date and any other accrued Supplemental Rent as to which there
is no dispute, plus the amount of any deficiency between Stipulated Loss
Value for the Undivided Interest, computed as of such next Basic Rent Payment
Date, and the proceeds of such sale, together with interest at the Overdue
Rate on the amount of such Rent, from the due date or dates thereof, and on
the amount of such deficiency from the date of such sale, until the date of
actual payment;
(g) If the Lessor has previously exercised its rights under any of the
foregoing remedies to demand Stipulated Loss Value or any amount determined
by reference thereto (or if it is prevented from demanding such amounts
whether by the provisions of the Indenture or by operation of any stay or
similar law or otherwise at a time when a Lease Event of Default has occurred
and is continuing), then, unless all Rent owing to the Owner Participant and
the Lessor under the Operative Documents shall have been paid in full, the
Lessor shall be entitled to draw on the Letter of Credit (or any other letter
of credit naming the Lessor and/or the
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Owner Participant as a beneficiary as contemplated by Section 10.14 of the
Participation Agreement) or demand payment under the Surety Bond (or any
other surety bond held by the Lessor and/or the Owner Participant as
contemplated by Section 10.14 of the Participation Agreement) then in effect,
and upon the receipt of proceeds from the Letter of Credit (or letter of
credit) or Surety Bond (or surety bond), the Lessor shall apply such proceeds
in accordance with Section 3.8 hereof; or
(h) the Lessor may exercise any other right or remedy that may be available
to it under applicable law or proceed by appropriate court action to enforce
the terms hereof or to recover damages for the breach hereof.
16.2. Continuing Obligations. No rescission or termination of this Lease,
in whole or in part, or repossession of the Undivided Interest or exercise of
any remedy under Section 16.1 shall, except as specifically provided herein,
relieve the Lessee of any of its liabilities and obligations hereunder. The
Lessee shall be liable (i) for all reasonable legal fees and other reasonable
costs and expenses incurred by the Lessor, the Owner Participant, each Loan
Participant or the Indenture Trustee by reason of the occurrence of any Lease
Event of Default or the exercise of the Lessor's remedies with respect thereto,
including all costs and expenses reasonably incurred in placing the Undivided
Interest in the condition required by Section 8.1 and (ii) except as otherwise
provided herein, for any and all other accrued and unpaid Rent hereunder before,
after or during the exercise of any of the foregoing remedies. At any sale of
the Undivided Interest or any part thereof pursuant to Section 16.1, the Lessor,
the Owner Participant, each Loan Participant, or the Indenture Trustee may bid
for and purchase such property.
16.3. Remedies Cumulative. To the extent permitted by applicable law and
except as provided herein, no remedy under Section 16.1 is intended to be
exclusive, but each shall be cumulative and in addition to any other remedy
provided under Section 16.1 or otherwise available to the Lessor at law or in
equity. No express or implied waiver by the Lessor of any Lease Default or Lease
Event of Default shall in any way be, or be construed to be, a waiver of any
future or subsequent Lease Default or Lease Event of Default. The failure or
delay of the Lessor in exercising any rights granted it hereunder upon the
occurrence of any
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of the contingencies set forth herein shall not constitute a waiver of any such
right upon the continuation or recurrence of any such contingencies or similar
contingencies and any single or partial exercise of any particular right by the
Lessor shall not exhaust the same or constitute a waiver of any other right
provided herein. To the extent permitted by applicable law, the Lessee hereby
waives any rights now or hereafter conferred by statute or otherwise which may
enable it to cancel, quit or surrender this Lease, except as otherwise provided
herein, or which may require the Lessor to sell, lease or otherwise use the
Undivided Interest in mitigation of the Lessor's damages as set forth in Section
16.1 or which may limit or modify any of the Lessor's rights and remedies
provided in Section 16.1.
SECTION 17. NOTICES.
All communications, notices and consents provided for in this Lease shall
be in writing and given in person or by courier or by means of telecopy or other
wire transmission (with provision for assurance of receipt in a manner typical
with respect to communications of that type), or delivered by a major overnight
delivery service such as Federal Express or United Parcel Service, addressed to
the respective addressee set forth in Schedule 1 to the Participation Agreement,
or in each case at such other address as the Person entitled thereto shall from
time to time designate by notice in writing to the Lessee and the Lessor. All
such communications, notices and consents given in such manner shall be
effective as provided in Section 17.3 of the Participation Agreement.
SECTION 18. RIGHT TO PERFORM FOR LESSEE.
18.1. Lessor's Right to Perform. If the Lessee shall fail to make any
payment to be made by it hereunder or shall fail to perform or comply with any
of its other agreements contained herein or in any other Operative Document
relating to the Undivided Interest or this Lease, following written notice to
the Lessee, the Lessor may, but shall not be obligated to, make such payment or
perform or comply with such agreement, and the amount of such payment and the
amount of all reasonable costs and expenses (including, without limitation,
reasonable attorneys' and other professionals' fees and expenses) incurred in
connection with such payment or the performance of or compliance with such
agreement, as the case may be, together with interest thereon at the Overdue
Rate, shall be deemed
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Supplemental Rent for the Undivided Interest, payable by the Lessee upon demand.
SECTION 19. MISCELLANEOUS.
19.1. Amendments in Writing. Neither this Lease nor any of the terms
hereof may be amended, supplemented, waived or modified orally, but only by an
instrument in writing signed by the party against which enforcement of such
change is sought.
19.2. Severability of Provisions. Any provision of this Lease which may
be determined by competent authority to be invalid or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such invalidity or unenforceability without invalidating or rendering
unenforceable any remaining provisions hereof, and any such invalidity or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the extent permitted
by applicable law, the parties hereto hereby waive any provision of law which
renders any provision hereof invalid or unenforceable in any respect.
19.3. GOVERNING LAW. THIS LEASE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
ITS CONFLICT OF LAWS PRINCIPLES, EXCEPT TO THE EXTENT THAT THE LAWS OF ANY OTHER
JURISDICTION MAY BE MANDATORILY APPLICABLE.
19.4. Headings. The division of this Lease into sections, the provision
of a table of contents and the insertion of headings are for convenience of
reference only and shall not affect the construction or interpretation of this
Lease.
19.5. Counterpart Execution. This Lease may be executed in any number of
counterparts and by each of the parties hereto on separate counterparts, all
such counterparts together constituting but one and the same instrument, with
the counterpart containing the receipt therefor executed by the Indenture
Trustee on or immediately following the signature page thereof being deemed the
"original executed counterpart" and all other counterparts being deemed
duplicates. For purposes of recordation, Lessor and Lessee agree that certain
information set forth on Schedules 1 through 6 may be omitted from the
counterpart presented for filing.
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19.6. Successors and Assigns. This Lease, including the terms and
provisions hereof, shall be binding upon the Lessor and the Lessee and their
respective successors and assigns and inure to the benefit of the Lessor and the
Lessee and their respective successors and permitted assigns.
19.7. Investment of Security Funds. Any amounts held by the Lessor as
security hereunder that would be payable to the Lessee upon satisfaction of any
applicable conditions shall be invested and reinvested by the Lessor (or, so
long as the Undivided Interest shall be subject to the Lien of the Indenture,
the Indenture Trustee), from time to time in Permitted Investments at the
written direction of the Lessee. The Lessor shall have no liability for any loss
resulting from any investment required to be made other than by reason of its
willful misconduct or gross negligence. Any net income or gain realized as a
result of any such investment or reinvestment shall be applied by the Lessor at
the same time, on the same conditions and in the same manner as the amounts in
respect of which such income or gain was realized are required to be distributed
in accordance with the provisions hereof, or of any other Operative Document
pursuant to which such amounts were required to be held. The Lessee shall be
responsible for any net loss realized as a result of any such investment or
reinvestment and shall reimburse the Lessor (or the Indenture Trustee, as the
case may be) therefor on demand. Any Permitted Investment may be sold or
otherwise reduced to cash (without regard to maturity) by the Lessor whenever
necessary to make any application as required by the terms of this Lease or of
any applicable Operative Document.
19.8. Immunities; Satisfaction of Undertakings; Successor Grantor
Trustee. Except as provided in Section 9.2, all and each of the
representations, warranties, undertakings and agreements herein made on the part
of the Lessor are made and intended not as personal representations, warranties,
undertakings and agreements by or for the purpose or with the intention of
binding the Lessor personally but are made and intended for the purpose of
binding only the Trust Estate (including the Louisiana Trust Estate), and this
Lease is executed and delivered by the Lessor solely in the exercise of the
powers expressly conferred upon it as trustee under the Trust Agreement; and no
personal liability or responsibility is assumed hereunder by, or at any time
shall be enforceable against, the Lessor or any successor in trust on account of
any representation, warranty, undertaking or agreement hereunder of the Lessor,
60
<PAGE>
either expressed or implied, all such personal liability, if any, being
expressly waived by the Lessee; provided, however, that (a) the Lessee or any
Person claiming by, through or under it, making claim hereunder, may subject to
the terms and conditions hereof, look to the Trust Estate for satisfaction of
such liability or responsibility and (b) the Lessor or its successor in trust,
as applicable, shall be personally liable for its own gross negligence and
willful misconduct and for the matters described in clauses (i) through (v) of
the last sentence of Section 7.1 of the Trust Agreement. Subject to the terms
and conditions hereof, each time a successor Grantor Trustee is appointed in
accordance with the terms of the Trust Agreement, such successor Grantor Trustee
shall, without further act, succeed to all the rights, duties, immunities and
obligations of its predecessor Grantor Trustee hereunder and under the other
Operative Documents, and the predecessor Grantor Trustee shall be released from
all further duties and obligations hereunder and under the other Operative
Documents, all without the necessity of any consent or approval by the Lessee
and without in any way altering the terms of this Lease or such other Operative
Documents or the obligations of the Lessee hereunder or thereunder. The Lessee,
at its expense, upon receipt of written notice of the appointment of a successor
Grantor Trustee in accordance with the Operative Documents, promptly shall make
such modifications and changes to reflect such appointment as reasonably shall
be requested by such successor Grantor Trustee in such insurance policies,
schedules, certificates and other instruments relating to the Undivided Interest
or this Lease or the other Operative Documents, all in form and substance
reasonably satisfactory to such successor Grantor Trustee.
19.9. Performance of Obligations to Indenture Trustee and Holders. After
the Undivided Interest shall no longer be subject to the Lien of the Indenture,
the provisions of this Lease which require or permit any action by, any consent,
approval or authorization of, the furnishing of any document, paper or
information to, or the performance of any other obligation to, the Indenture
Trustee or any Holder shall not be effective, and the Sections hereof containing
such provisions shall be read as though there were no such references to any
such requirements or permissions.
19.10. True Lease. This Lease is intended as and shall constitute an
agreement of lease and nothing herein shall be construed as conveying to the
Lessee any right,
61
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title or interest in or to the Undivided Interest other than as lessee
hereunder, it being expressly understood by the parties hereto that the
foregoing does not constitute a covenant, representation or warranty of the
Lessee. This Lease is intended to be a "Finance Lease" under Article 2A of the
Uniform Commercial Code as in effect in the State of New York and a "true lease"
for federal income tax purposes.
19.11. Survival of Agreements. The representations, warranties, covenants
and indemnities of the parties provided for in the Operative Documents, and the
parties' obligations under any and all thereof, shall survive the execution and
delivery of this Lease, the Investment by the Owner Participant and the purchase
of the Secured Notes by the Loan Participant, any disposition of any interest of
the Owner Participant or the Lessor in the Production System, and shall be and
continue in effect notwithstanding any investigation made by any of such parties
and the fact that compliance with any of the other terms, provisions or
conditions of any of the Operative Documents shall have been waived. Except as
expressly provided in Section 12 of the Participation Agreement, all indemnities
(and the Lessee's obligation to pay Supplemental Rent with respect thereto)
shall survive termination of the Lease.
62
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THUS DONE AND PASSED, on this 22nd day of November, 1996, but
effective for all purposes as of November 15, 1996, before me, the undersigned
Notary Public, in and for the County of New York, State of New York, and in the
presence of the undersigned competent witnesses, who have hereunto signed their
names with the Grantor Trustee, Enserch Exploration and me, said Notary Public,
after reading of the whole.
WILMINGTON TRUST COMPANY,
not in its individual capacity
but solely as Corporate Grantor
Trustee under the Trust
Agreement
By: [ILLEGIBLE]
------------------------------------
Its:
THOMAS P. LASKARIS,
not in his individual capacity
but solely as Individual Grantor
Trustee under the Trust
Agreement
/s/ THOMAS P. LASKARIS
---------------------------------------
WITNESSES: ENSERCH EXPLORATION, INC.
/s/ CHRIS R. BECKER BY: /s/ J.T. LERRY
- ------------------------------------ -------------------------------------
Name: Chris R. Becker Its: VP-Finance & Treasurer
-------------------------------
(Please Print)
/s/ DEENAN GHOSH
- ------------------------------------
Name: Deenan Ghosh
-------------------------------
(Please Print)
/s/ THOMAS A. SCOTT
--------------------------------
NOTARY PUBLIC
in and for the State of N.Y.
My Commission Expires:
8/31/97
THOMAS A. SCOTT
-------------------------------
(PRINTED NAME OF NOTARY PUBLIC)
THOMAS A. SCOTT
Notary Public, State of New York
No. 31-4792491
Qualified in New York County
Commission Expires August 31, 1997
<PAGE>
EXECUTION COPY
EXHIBIT 10.2
================================================================================
PRODUCTION SYSTEM LEASE AGREEMENT
(1996-B)
dated as of
November 15, 1996
among
WILMINGTON TRUST COMPANY,
not in its individual capacity but solely
as Corporate Grantor Trustee under the Trust Agreement,
and
THOMAS P. LASKARIS,
not in his individual capacity but solely
as Individual Grantor Trustee under the Trust Agreement,
Lessor
and
ENSERCH EXPLORATION, INC.,
Lessee
================================================================================
Lease of an Undivided Interest in an Oil and Gas Production System.
AS SET FORTH IN SECTION 14.1 OF THIS LEASE, CERTAIN OF THE RIGHT, TITLE AND
INTEREST OF THE LESSOR IN AND TO THIS LEASE HAS BEEN ASSIGNED TO AND IS SUBJECT
TO A SECURITY INTEREST IN FAVOR OF THE BANK OF NEW YORK, AS INDENTURE TRUSTEE,
UNDER THE TRUST INDENTURE, MORTGAGE, ASSIGNMENT OF LEASE AND SECURITY AGREEMENT
(1996-B) DATED AS OF NOVEMBER 15, 1996 BETWEEN THE LESSOR AND THE INDENTURE
TRUSTEE, AS SUCH INDENTURE MAY BE AMENDED, MODIFIED OR SUPPLEMENTED FROM TIME TO
TIME IN ACCORDANCE WITH THE PROVISIONS THEREOF. THIS LEASE HAS BEEN EXECUTED IN
SEVERAL COUNTERPARTS. TO THE EXTENT, IF ANY, THAT THIS LEASE CONSTITUTES
CHATTEL PAPER (AS SUCH TERM IS DEFINED IN THE UNIFORM COMMERCIAL CODE AS IN
EFFECT IN ANY APPLICABLE JURISDICTION), NO SECURITY INTEREST IN THIS LEASE MAY
BE CREATED THROUGH THE TRANSFER OR POSSESSION OF ANY EXECUTED COUNTERPART OTHER
THAN THE ORIGINAL EXECUTED COUNTERPART, WHICH SHALL BE IDENTIFIED AS THE
COUNTERPART THAT CONTAINS THE RECEIPT THEREFOR EXECUTED BY THE INDENTURE TRUSTEE
ON OR IMMEDIATELY FOLLOWING THE SIGNATURE PAGE THEREOF.
<PAGE>
TABLE OF CONTENTS
Page
----
SECTION 1. DEFINITIONS; INTERPRETATION...................................... 1
SECTION 2. LEASE OF UNDIVIDED INTEREST; ETC................................. 2
2.1. Undivided Interest................................................ 2
2.2. Personal Property................................................. 2
2.3. Description....................................................... 3
SECTION 3. RENT............................................................. 3
3.1. Basic Rent........................................................ 3
3.2. Supplemental Rent................................................. 3
3.3. Method of Payment................................................. 3
3.4 Late Payment...................................................... 4
3.5 Minimum Payment................................................... 4
3.6. Net Lease; No Setoff; Etc......................................... 4
3.7. Premium........................................................... 6
3.8. Applicability of Payments from Credit Support..................... 6
SECTION 4. RECOMPUTATION OF BASIC RENT, STIPULATED
LOSS VALUE, TERMINATION VALUE, EARLY
BUY-OUT PERCENTAGES AND FIXED PRICE
PURCHASE AMOUNT................................................ 6
4.1. Adjustments to Rent Percentages................................... 6
4.2. Limitations on Adjustments........................................ 8
4.3. Timing of Adjustments............................................. 9
4.4. Confirmation of Adjustments....................................... 9
4.5. Further Assurances............................................... 10
SECTION 5. RENEWAL......................................................... 10
5.1. Renewal Terms.................................................... 10
5.2. Rent............................................................. 11
5.3. Notice; Determination of Fair Market
Sales Value; Determination of Fair
Market Rental Value........................................... 11
5.4. Stipulated Loss Value Percentages and
Termination Value Percentages................................. 12
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Page
----
SECTION 6. PURCHASE; OPTIONS............................................... 13
6.1 Purchase Options................................................. 13
6.2. Notice of Election; Manner of Purchase;
Transfer After Purchase....................................... 14
6.3. Assumption of Secured Notes...................................... 16
SECTION 7. EARLY TERMINATION............................................... 17
7.1. Decision......................................................... 17
7.2. Notice of Termination............................................ 18
7.3. Sale of Undivided Interest or Significant
Portion; Termination Payment.................................. 19
7.4. Retention of Undivided Interest by Lessor........................ 22
7.5. Calculation of Original Cost..................................... 23
SECTION 8. RELINQUISHMENT OF POSSESSION AND USE OF UNDIVIDED INTEREST...... 25
8.1. Return of Undivided Interest..................................... 25
SECTION 9. QUIET USE AND ENJOYMENT; DISCLAIMER OF WARRANTIES.............. 26
9.1. Quiet Use and Enjoyment.......................................... 26
9.2. Disclaimer of Warranties......................................... 27
9.3. Enforcement of Warranties........................................ 29
SECTION 10. LIENS.......................................................... 29
SECTION 11. OPERATION AND MAINTENANCE; INSPECTION;
MODIFICATIONS; REPLACEMENTS;
PERSONNEL; SALVAGE; FUEL;
IDENTIFICATION................................................ 29
11.1. Operation and Maintenance....................................... 29
11.2. Inspection and Reports.......................................... 31
11.3. Required Modifications.......................................... 31
11.4. Optional Modifications.......................................... 31
11.5. Title to Modifications; Purchase Option
for Severable Modifications................................... 32
11.6. Payment for Modifications and
Replacement Components........................................ 33
11.7. Replacement of Components; Title to
Components; Removal of Property............................... 34
ii
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Page
----
11.8. Employment of Personnel......................................... 35
11.9. Salvage........................................................ 35
11.10. Fuel, Oil, Etc................................................. 35
11.11. Identification of Platform..................................... 35
11.12. Reports With Respect to the Production System.................. 36
11.13. Required Filings............................................... 37
11.14. Repair of Production System.................................... 37
SECTION 12. EVENT OF LOSS.................................................. 37
12.1. Notice of Event of Loss......................................... 37
12.2. Payment of Stipulated Loss Value, Etc........................... 37
12.3. Application of Other Payments upon the
Occurrence of an Event of Loss................................ 44
12.4. Allocation of Payments Not Relating to
an Event of Loss.............................................. 44
12.5. Other Dispositions.............................................. 45
SECTION 13. INSURANCE...................................................... 45
13.1. Coverage........................................................ 45
13.2. Adjustment of Losses............................................ 47
13.3. Application of Insurance Proceeds............................... 47
13.4. Additional Insurance............................................ 48
13.5. Annual Insurance Report......................................... 48
SECTION 14. RIGHTS TO ASSIGN OR LEASE; LEASEHOLD
MORTGAGE PROVISIONS........................................... 48
14.1. Assignment by Lessor; Security for
Lessor's Obligations to Indenture Trustee..................... 48
14.2. Assignment and Sublease by Lessee............................... 49
SECTION 15. LEASE EVENTS OF DEFAULT........................................ 51
SECTION 16. REMEDIES....................................................... 53
16.1. In General...................................................... 53
16.2. Continuing Obligations.......................................... 58
16.3. Remedies Cumulative............................................. 58
SECTION 17. NOTICES........................................................ 59
iii
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Page
----
SECTION 18. RIGHT TO PERFORM FOR LESSEE.................................... 59
18.1. Lessor's Right to Perform....................................... 59
SECTION 19. MISCELLANEOUS.................................................. 59
19.1. Amendments in Writing........................................... 59
19.2. Severability of Provisions...................................... 59
19.3. GOVERNING LAW................................................... 60
19.4. Headings........................................................ 60
19.5. Counterpart Execution........................................... 60
19.6. Successors and Assigns.......................................... 60
19.7. Investment of Security Funds.................................... 60
19.8. Immunities; Satisfaction of
Undertakings; Successor Grantor
Trustee....................................................... 61
19.9. Performance of Obligations to Indenture
Trustee and Holders........................................... 62
19.10. True Lease..................................................... 62
19.11. Survival of Agreements......................................... 62
SCHEDULE 1 Basic Rent Percentages
SCHEDULE 1A Fixed Renewal Rent
SCHEDULE 2 Stipulated Loss Value Percentages
SCHEDULE 3 Termination Value Percentages
SCHEDULE 4 Early Buy-Out Percentages
SCHEDULE 5 Special Purchase Option Dates
SCHEDULE 6 Lessor's Cost
EXHIBIT A Description of Production System
EXHIBIT B Description of Undivided Interest in Production System
EXHIBIT C Description of Federal Leases
EXHIBIT D Form of Lease Supplement No. 1
iv
<PAGE>
PRODUCTION SYSTEM LEASE AGREEMENT
(1996-B)
BE IT KNOWN, that on the date hereinafter set forth, before me, the
undersigned Notary Public, duly commissioned and qualified in and for the State
of New York, and in the presence of the undersigned, competent witnesses,
personally came before me and appeared: WILMINGTON TRUST COMPANY, a Delaware
banking corporation, having a taxpayer identification number of 51-6506274 and
an address at Rodney Square North, 1100 North Market Street, Wilmington,
Delaware 19890-0001, not in its individual capacity but solely as Corporate
Grantor Trustee under the Trust Agreement (together with its successors and
permitted assigns, the "Corporate Grantor Trustee") and THOMAS P. LASKARIS, an
individual having a taxpayer identification number of 221-228535 and an address
at Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890-
0001, not in his individual capacity but solely as Individual Grantor Trustee
under the Trust Agreement (together with its successors and permitted assigns,
the "Individual Grantor Trustee" and together with the Corporate Grantor
Trustee, the "Grantor Trustee"), as lessor (together with their respective
successors and permitted assigns, the "Lessor") and ENSERCH EXPLORATION, INC., a
Texas corporation, having a taxpayer identification number of 75-2556978 and an
address at 4849 Greenville Avenue, Suite 1200, Dallas, Texas 75206-4186, as
lessee (together with its successors and permitted assigns, the "Lessee"), who
each being duly sworn, did declare and say as follows:
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, pursuant to this Lease, the Lessor desires to lease the
Undivided Interest to the Lessee and the Lessee desires to lease the Undivided
Interest from the Lessor;
NOW, THEREFORE, in consideration of the mutual agreements herein
contained and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
SECTION 1. DEFINITIONS; INTERPRETATION.
For the purposes hereof, capitalized terms used herein (including
those used in the preamble and in the foregoing recitals) and not otherwise
defined herein shall have the meanings assigned to them in Appendix A, which
<PAGE>
Appendix A shall for all purposes constitute part of this Agreement and shall be
subject to amendment in accordance with the terms hereof. References in this
Lease to Sections, subsections, Schedules, Appendices and Exhibits are to
Sections and subsections of, and Schedules, Appendices and Exhibits to, this
Lease unless otherwise indicated.
SECTION 2. LEASE OF UNDIVIDED INTEREST; ETC.
2.1. Undivided Interest. Upon the terms and subject to the
conditions of this Lease, the Lessor agrees to lease and upon delivery of Lease
Supplement No. 1 leases the Undivided Interest to the Lessee, and the Lessee
agrees to lease and upon acceptance of Lease Supplement No. 1 leases the
Undivided Interest from the Lessor, for the Interim Lease Term, the Basic Lease
Term and, subject to the exercise by the Lessee or the Lessor of the renewal
option or options as provided in Section 5, the Renewal Term or Renewal Terms.
2.2. Personal Property. The parties hereto stipulate and agree that
the Production System, the Undivided Interest and the Lessor's Share of all
Modifications to the Production System and every portion thereof is severed, and
shall be and remain severed, to the maximum extent permitted by law, from any
real estate underneath the Production System, even if physically attached
thereto. To the maximum extent permitted by law, the parties agree that the
Production System, the Undivided Interest and all such Modifications shall
constitute personal property and shall not be or become fixtures or otherwise
part of the real estate underneath the Production System or of any other real
property. The Lessee will not enter into or be a party to any lease or mortgage
of any real property on which any portion of the Production System is or is to
be located or enter into any other agreement which grants to any other Person
any right to any portion of the Production System by reason of such portion
being an accession to any real property owned by such Person to the extent such
lease or mortgage would constitute a Lien on the Production System that is not a
Permitted Lien.
2
<PAGE>
2.3. Description. The Production System is described in Exhibit A
and the Undivided Interest is described in Exhibit B.
SECTION 3. RENT.
3.1. Basic Rent. The Lessee shall pay to the Lessor, as Basic Rent
for the Undivided Interest, semiannual installments of rent on the Basic Rent
Payment Dates during the Basic Lease Term. Basic Rent with respect to any
Renewal Term shall be payable as provided in Section 5.2. Subject to adjustment
as provided herein, each such installment of Basic Rent during the Basic Lease
Term shall be in an amount equal to the percentage set forth in Schedule 1
opposite the applicable Basic Rent Payment Date multiplied by Lessor's Cost.
Each installment of Basic Rent shall be paid in advance or in arrears and shall
apply to a specific semiannual period as specified in Schedule 1.
3.2. Supplemental Rent. The Lessee shall pay to the Lessor, for its
own account, or to the Person entitled thereto, as provided herein or in any
other Operative Document, any and all Supplemental Rent promptly as the same
shall become due and payable, and in the event of any failure on the part of the
Lessee to pay any Supplemental Rent, the Lessor shall have all rights, powers
and remedies provided for herein in the case of nonpayment of Basic Rent.
3.3. Method of Payment. Subject to Section 14.1, all Rent payable to
the Lessor shall be paid to the Grantor Trustee's account specified in Schedule
1 to the Participation Agreement or to such other account at such other place as
the Lessor shall specify in writing to the Lessee at least five Business Days
prior to the due date thereof. All Supplemental Rent payable to any Person
other than the Lessor pursuant to any Operative Document shall be paid directly
to such Person as provided in such Operative Document. Each payment of Rent
shall be made by the Lessee in immediately available funds, on or before 12:00
noon, local time at the place of receipt, on the scheduled date on which such
payment shall be due, unless such scheduled date shall not be a Business Day in
which case such payment shall be due and payable on the next succeeding Business
Day with the same force and effect as if made on such scheduled date and
(provided such payment is made on such next succeeding Business Day) no interest
shall accrue on the amount of such payment from and after such scheduled date.
3
<PAGE>
3.4. Late Payment. If any Rent shall not be paid when due, the
Lessee shall pay to the Lessor (or, in the case of Supplemental Rent, to the
Lessor for its own account or to the Person entitled thereto as provided herein
or in any other Operative Document), as Supplemental Rent, interest (to the
extent permitted by law) on such overdue amount from and including the due date
thereof to but excluding the date of payment thereof (unless payment is made
after 12:00 noon, local time at the place of receipt, in which event such date
of payment shall be included) at the Overdue Rate.
3.5. Minimum Payment. Notwithstanding any other provision of this
Lease (including, without limitation, Section 4) or any other Operative
Document, (a) the amount of Basic Rent payable on each Basic Rent Payment Date
and on the Basic Lease Term Commencement Date, as the same may be adjusted
pursuant to Section 4 (excluding, in each case, any portion thereof constituting
an Excepted Payment), shall be at least equal to the aggregate amount of
scheduled principal and accrued interest due and payable on the Secured Notes
Outstanding on such Basic Rent Payment Date and on the Basic Lease Term
Commencement Date and (b) the amount of Stipulated Loss Value and Termination
Value as of any date and the amount of the initial installment of the applicable
Early Buy-Out Purchase Price as of the applicable Early Buy-Out Date, as each
such amount may be adjusted pursuant to Section 4, together with the Rent
payable under this Lease on such date (excluding, in each case, any portion
thereof constituting an Excepted Payment), shall be at least equal to the
aggregate amount of principal and accrued interest which would be due and
payable on the Secured Notes Outstanding on such date assuming such date or the
applicable Early Buy-Out Date, as the case may be, was the date such payment was
due on the Secured Notes in respect of any payment by the Lessee of Stipulated
Loss Value, Termination Value or Early Buy-Out Purchase Price.
3.6. Net Lease; No Setoff; Etc. This Lease is a net lease and,
notwithstanding any other provision of this Lease, the obligation of the Lessee
to pay Rent hereunder shall be absolute and unconditional and shall not be
affected by any circumstance of any character, including, without limitation:
(a) counterclaim, setoff, deduction, defense, abatement, suspension, deferment,
diminution or reduction; (b) any defect in the condition, design, quality or
fitness for use of the Production System, or any part thereof or interest
therein; (c) any damage to, removal, abandonment, salvage, loss, scrapping or
destruction of or
4
<PAGE>
any requisition or taking of, the Undivided Interest, the Production System or
any part thereof or interest therein; (d) any restriction, prevention,
interruption or curtailment of or interference with any use, operation or
possession of the Undivided Interest, the Production System or any part thereof
or interest therein; (e) any defect in, or any Lien on, title to the Undivided
Interest, the Production System or any part thereof or interest therein; (f) any
change, waiver, extension, indulgence or other action or omission in respect of
any obligation or liability of the Lessee or the Lessor; (g) any bankruptcy,
insolvency, reorganization, composition, adjustment, dissolution, liquidation or
other like proceeding relating to the Lessee, the Indenture Trustee, the Lessor,
the Owner Participant, any Loan Participant, any Holder or any other Person, or
any action taken with respect to this Lease by any trustee or receiver of any
Person mentioned above, or by any court; (h) any claim that the Lessee has or
might have against any Person, including, without limitation, the Indenture
Trustee, any Loan Participant, the Lessor, the Owner Participant or any Holder
(but this Section 3.6 shall not constitute a waiver of any such claim); (i) any
failure on the part of the Lessor, the Indenture Trustee, the Owner Participant
or any Loan Participant to perform or comply with any of the terms hereof or of
any other agreement; (j) any invalidity or unenforceability or disaffirmance of
this Lease or any provision hereof or any of the other Operative Documents, the
Federal Leases, the Operating Agreement or any provision of any thereof, whether
against or by the Lessee or otherwise; or (k) any other occurrence whatsoever,
whether similar or dissimilar to the foregoing, whether or not the Lessee shall
have notice or knowledge of any of the foregoing. Except as expressly provided
herein, the Lessee, to the extent permitted by law, waives all rights now or
hereafter conferred by statute or otherwise to quit, terminate or surrender this
Lease, or to any diminution or reduction of Rent payable by the Lessee
hereunder. All payments by the Lessee of Basic Rent or Stipulated Loss Value,
Termination Value, any Early Buy-Out Purchase Price or Fixed Price Purchase
Amount (or amounts payable by reference thereto) made hereunder as required
hereby shall be final absent manifest error, and the Lessee shall not seek to
recover any such payment or any part thereof for any reason whatsoever absent
manifest error. If this Lease shall be terminated in whole or in part for any
reason whatsoever the Lessee shall, except as expressly provided herein,
nonetheless pay to the Lessor (or, in the case of Supplemental Rent, to the
Person entitled to such Supplemental Rent as specified herein or in the
appropriate
5
<PAGE>
Operative Document) an amount equal to each Rent payment at the time and in the
manner that such payment would have become due and payable under the terms of
this Lease if it had not been terminated in whole or in part. Nothing contained
in this Section 3.6 shall be construed as (a) a guaranty of (i) the value of the
Undivided Interest or the Production System upon the expiration or termination
of the Basic Lease Term or any Renewal Term or (ii) the useful life of the
Production System or (iii) payment of any of the Secured Notes or (b) a
prohibition of assertion of any claim against any manufacturer, supplier,
dealer, vendor, contractor, subcontractor or installer with respect to the
Production System or (c) a waiver by the Lessee of its right to assert and sue
upon any claims it may have against any other Person in one or more separate
actions.
3.7. Premium. The Lessee shall also pay on behalf of the Lessor as
Supplemental Rent an amount on an After-Tax Basis equal to any amount payable by
the Lessor as Premium as and when any such Premium shall be due and payable.
3.8. Applicability of Payments from Credit Support. Drawings under
any Letter of Credit and payments received by the Lessor or the Owner
Participant in respect of any Surety Bond, in each case maintained as Credit
Support, shall be applied against unpaid Rent to the extent of such drawing;
provided that all such drawings shall be applied first to reduce the Lessee's
obligation to pay the Equity Portion of Stipulated Loss Value then due, second
to reduce the Lessee's obligation to pay the Equity Portion of Basic Rent then
due and third to pay any other amounts of Supplemental Rent owing to the Lessor
or the Owner Participant.
SECTION 4. RECOMPUTATION OF BASIC RENT,
STIPULATED LOSS VALUE, TERMINATION
VALUE, EARLY BUY-OUT PERCENTAGES AND
FIXED PRICE PURCHASE AMOUNT.
4.1. Adjustments to Rent Percentages. (a) If (i) the actual Closing
Date is a date other than as set forth in Schedule 2 to the Participation
Agreement, (ii) the actual amount of Transaction Expenses paid by the Lessor as
a percentage of Lessor's Cost is other than as set forth in Schedule 2 to the
Participation Agreement, (iii) the Owner Participant's Net Economic Return is
affected by any amendment to the Code or the regulations (including proposed
regulations to the extent the Owner Participant advises the
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Lessee of such amendment to proposed regulations in writing prior to the time of
closing on the Closing Date) thereunder (other than the alternative minimum tax)
that is enacted, adopted or promulgated (or, in the case of proposed
regulations, proposed to be effective) on or prior to the Closing Date, (iv) the
actual Debt Rate is other than as set forth in Schedule 2 to the Participation
Agreement, (v) any other Pricing Assumption proves to be incorrect, (vi) the
Secured Notes are refinanced or refunded at any time pursuant to Section 15 of
the Participation Agreement, or (vii) Additional Notes are issued by the Lessor
in connection with a Supplemental Financing of a Modification to the Production
System pursuant to Section 14 of the Participation Agreement, then, in each
case, subject to the following provisions of this Section 4 and to the
provisions of Section 3.5, the Basic Rent Percentages shall be appropriately
adjusted (A) in the case of an adjustment pursuant to clause (i), (iii), (iv) or
(v) above, prior to the Closing Date and (B) in the case of an adjustment
pursuant to clause (ii), (vi) or (vii) above, after the Closing Date, in each
case so as to (x) preserve the Owner Participant's Net Economic Return, (y) to
the extent consistent with clause (x), minimize the Net Present Value of Basic
Rent, and (z) minimize the Termination Value Percentages and Stipulated Loss
Value Percentages to the extent possible consistent with clauses (x) and (y)
above.
(b) At the sole request of the Lessee, any adjustment pursuant hereto
may incorporate a revised amortization schedule for the Secured Notes, which
amortization schedule shall be structured to preserve the Owner Participant's
Net Economic Return while, to the extent consistent therewith, minimizing (to
the greatest extent possible) the Net Present Value of Basic Rent in a manner
consistent with the provisions of this Section 4.1.
(c) In connection with any such adjustment to the Basic Rent
Percentages made pursuant to this Section 4.1, appropriate corresponding
adjustments shall be made to the Stipulated Loss Value Percentages (and a
corresponding adjustment in the required amount of Credit Support), Termination
Value Percentages and Early Buy-Out Percentages; provided that each Early Buy-
Out Purchase Price shall not be reduced below the expected Fair Market Sales
Value of the Undivided Interest as of the applicable Early Buy-Out Date as set
forth in the Final Appraisal, or if the adjustment is more than one year after
the Closing Date, in an appraisal delivered in connection with such adjustment.
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(d) On or prior to the time of closing on the Closing Date, the Basic
Rent Percentages will be adjusted upward or downward to reflect tax law changes
described in clause (iii) of Section 4.1(a), subject to the conditions therein.
If such adjustment results in an increase in the Net Present Value of Basic Rent
of fifty (50) or more basis points, Lessee shall have the option to terminate
this Lease. In the event Lessee elects to terminate this Lease pursuant to this
Section 4.1(d), Lessee shall be obligated to pay all Transaction Expenses and
upon payment of such Transaction Expenses, this Lease and Lessee's obligations
hereunder shall terminate.
4.2. Limitations on Adjustments. (a) Any adjustment of the Basic
Rent Percentages pursuant to this Section 4 shall be computed by the Owner
Participant in a manner so as to satisfy the requirements of (i) Section 3.5
hereof and (ii) Revenue Procedures 75-21 and 75-28 (to the extent then in
effect) and Section 467 of the Code and any regulations effective or proposed
thereunder and shall not cause this Lease to be a "disqualified leaseback or
long-term agreement" within the meaning of Section 467 of the Code and such
regulations; provided that, subject to Section 12.4 of the Participation
Agreement, the requirements of Section 4.08 of Revenue Procedure 75-28 (to the
extent then in effect) shall be applied, in the case of any adjustment pursuant
to Section 4.1, on a prospective basis taking into consideration only Basic Rent
payable by the Lessee from and including the first Basic Rent Payment Date as of
which the adjustment takes effect.
(b) In making any adjustment pursuant to this Section 4, each of the
Pricing Assumptions and the other assumptions and methods of calculation
employed in the calculation of the Basic Rent Percentages, Stipulated Loss Value
Percentages, Termination Value Percentages, Early Buy-Out Percentages and Fixed
Price Purchase Amount as reflected in Schedule 2 to the Participation Agreement,
other than Pricing Assumptions and such other assumptions that have changed or
proven to be incorrect (as such pricing assumptions shall have been modified by
previous adjustments under this Section 4) shall be used consistently in such
adjustment subject to the constraints specifically provided herein.
(c) In the case of any adjustment made pursuant to clause (vii) of
Section 4.1(a), Basic Rent shall be increased by an amount at least sufficient
to repay the
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principal of, and interest on, such Additional Notes over the term
of such Additional Notes.
4.3. Timing of Adjustments. All adjustments to be made pursuant to
this Section 4 shall be made as soon as practicable after the event giving rise
to the adjustment and shall in each case be made in respect of installments of
Basic Rent becoming due on and after the date such adjustment is made; provided
that all adjustments to the Stipulated Loss Value Percentages, Termination Value
Percentages and Early Buy-Out Percentages shall be effective immediately.
4.4. Confirmation of Adjustments. (a) The amount of any adjustment
pursuant to this Section 4 shall be determined by the Owner Participant, which
shall provide to the Lessee, the Lessor and the Indenture Trustee notice of such
adjustment accompanied by an Officer's Certificate of the Owner Participant,
which Officer's Certificate shall set forth the amount of and the reason for any
such adjustment and which shall confirm that such adjustment was made in
accordance with the provisions of this Section 4. Such adjustment shall become
effective as of the date therein set forth (determined in accordance with
Section 4.3 (subject to later revision, if any, pursuant to Section 4.4(b)))
upon delivery by the Owner Participant to the Lessee of such notice and
Officer's Certificate.
(b) Within 20 Business Days after receipt of such certificate, the
Lessee may request that such adjustment be verified by a nationally recognized,
independent public accounting firm selected by Owner Participant and reasonably
acceptable to the Lessee. In such verification process pursuant to the
preceding sentence, such accounting firm shall be given access by the Owner
Participant to the assumptions, methods, computations, programs and files
utilized by the Owner Participant in calculating such proposed adjustment and
employed in the calculation of the Basic Rent Percentages, Stipulated Loss Value
Percentages, Termination Value Percentages, Early Buy-out Percentages and Fixed
Price Purchase Amount, subject to the execution of such confidentiality
agreements as the Owner Participant shall reasonably request (which agreements
shall prohibit disclosure of the Owner Participant's assumptions, methodology,
programs or files to any third party, including the Lessee). Such independent
accounting firm shall be entitled only to verify the mathematical calculations
made by the Owner Participant and shall not be entitled to interpret the
provisions of this Lease. Under no
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circumstances shall such independent public accounting firm or any other Person
be entitled to review the tax returns of the Owner Participant. Any revised
adjustment resulting from such verification shall become effective on the next
Basic Rent Payment Date after such verification has been concluded, and shall
take into account any underpayment or overpayment resulting from an earlier
effectiveness of the original adjustment.
(c) Such verification by such accounting firm shall be at the expense
of the Lessee unless such verified adjustment results in a readjustment in favor
of the Lessee that exceeds ten (10) basis points in the Net Present Value of
Basic Rent (as a percentage of Lessor's Cost), in which case such verification
shall be at the expense of the Owner Participant. Such determination by the
Owner Participant, or, if so requested in accordance with Section 4.4(b), such
verified adjustment, as the case may be, shall be conclusive and binding.
4.5. Further Assurances. At the time any adjustment is made pursuant
to this Section 4, the parties hereto shall, at the Lessee's expense, enter into
a supplement to this Lease to reflect such adjustment and shall enter into such
amendments and supplements to the other Operative Documents and do such further
acts as may be reasonably required in order to effectuate such adjustment;
provided that such adjustment shall become effective as provided in Section 4.4
without regard to the date on which such supplement to this Lease is executed
and delivered.
SECTION 5. RENEWAL.
5.1. Renewal Terms. (a) The Lessee shall have the right to renew
this Lease for up to three (3) successive Fair Market Renewal Terms as follows:
(i) at the end of the Basic Lease Term for a Fair Market Renewal
Term; and
(ii) at the end of any Renewal Term for an additional Fair Market
Renewal Term;
provided that (x) the term of any Fair Market Renewal Term shall be for a period
of not less than one (1) year each, (y) the aggregate of all Renewal Terms shall
not exceed five (5) years. It shall be a condition to the renewal of this Lease
for any Renewal Term that no Lease Default described in paragraphs (a), (b), (c)
or (g) of the definition of
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Lease Event of Default in Section 15 and no Lease Event of Default shall have
occurred and be continuing at the commencement of such Renewal Term.
(b) The Lessor shall have the right to require the Lessee to renew
this Lease for a Fixed Rate Renewal Term. The exercise of this right by the
Lessor shall override any elections made by the Lessee under this Lease,
including without limitation any "irrevocable" election, other than the Lessee's
election to exercise its purchase option pursuant to Section 6.1(b).
5.2. Rent. All of the terms and provisions of this Lease shall be
applicable during any Renewal Term, except that (1) the Lessee shall pay to the
Lessor as Basic Rent in arrears on each Basic Rent Payment Date during any Fair
Market Renewal Term an amount equal to the Fair Market Rental Value of the
Undivided Interest, as determined in accordance with Section 5.3, (2) the Lessee
shall pay to the Lessor as Basic Rent in arrears on each Basic Rent Payment Date
during the Fixed Rate Renewal Term an amount equal to the percentage set forth
in Schedule 1A opposite the applicable Basic Rent Payment Date multiplied by
Lessor's Cost and (3) Stipulated Loss Values and Termination Values during any
such Renewal Term shall be calculated as set forth in Section 5.4.
5.3. Notice; Determination of Fair Market Sales Value; Determination
of Fair Market Rental Value. (a) At any time at least 365 days (in the case of
the Basic Lease Term) or 210 days (in the case of any Renewal Term) if
applicable, but in each case not more than 590 days prior to the expiration of
the Basic Lease Term or any Renewal Term, the Lessee shall give to the Lessor
irrevocable notice (the "Preliminary Notice") of its election to exercise its
renewal option pursuant to Section 5.1(a) or a purchase option pursuant to
Section 6.1(a) or Section 6.1(b). At any time at least 180 days (in the case of
the Basic Lease Term) or 90 days (in the case of any Renewal Term), if
applicable, the Lessee shall give to the Lessor irrevocable notice (the "Final
Notice") specifying which such option it is exercising. Promptly after receipt
by the Lessor of the Preliminary Notice, the Lessee and the Lessor shall attempt
to agree upon the Fair Market Sales Value of the Undivided Interest as of such
expiration or, if requested by the Lessee, the Fair Market Rental Value of the
Undivided Interest as of such expiration. If the Lessor and the Lessee shall
fail to agree within 30 days after the giving of such Preliminary Notice, such
amounts shall be determined
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pursuant to the Appraisal Procedure. Failure by the Lessee to provide any
Preliminary Notice referred to in this Section 5.3 within the applicable time
periods specified herein shall be deemed to constitute an irrevocable election
by the Lessee not to exercise its renewal option pursuant to Section 5.1(a) or
its purchase options pursuant to Sections 6.1(a) and 6.1(b). If the Lessee fails
to give the Final Notice within the time period specified above, it shall be
deemed to have elected to exercise its purchase option pursuant to Section
6.1(b).
(b) At any time after the latest date upon which the Lessee may elect
to exercise its renewal option for a Fair Market Renewal Term commencing at the
end of the Basic Lease Term pursuant to Section 5.1 or its purchase option
pursuant to Section 6.1(a), the Lessor may provide to the Lessee notice of its
irrevocable election to exercise its option to renew this Lease for the Fixed
Rate Renewal Term.
5.4. Stipulated Loss Value Percentages and Termination Value
Percentages. Concurrently with the Lessee's exercise of an option to renew this
Lease pursuant to Section 5.1, Schedules 2 and 3 shall be modified by the Owner
Participant in order to provide for Stipulated Loss Values and Termination
Values for the Undivided Interest applicable during the applicable Renewal Term.
Such Stipulated Loss Values and Termination Values shall be reduced on a
straight line basis for the remaining useful life of the Production System (i)
in the case of a renewal pursuant to Section 5.1(a), from the Fair Market Sales
Value of the Undivided Interest as of beginning of the Renewal Term to the net
salvage value of the Undivided Interest at the end of the estimated useful life
of the Production System (each as determined in accordance with Section 5.3 and,
if applicable, the Appraisal Procedure) and (ii) in the case of a renewal
pursuant to Section 5.1(b), from the greater of (1) the Fair Market Sales Value
of the Undivided Interest as of the beginning of the Renewal Term (as determined
in accordance with Section 5.3 and, if applicable, the Appraisal Procedure) and
(2) the Stipulated Loss Values and Termination Values as of the date of
expiration of the Basic Lease Term to the net salvage value of the Undivided
Interest at the end of the estimated useful life of the Production System (as
determined in accordance with Section 5.3 and, if applicable, the Appraisal
Procedure).
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SECTION 6. PURCHASE; OPTIONS.
6.1. Purchase Options. Subject to Sections 6.2 and 6.3, the Lessee
shall have the right to purchase (or, in the case of Section 6.1(g) shall
purchase) all, but not less than all, of Lessor's right, title and interest in
and to the Undivided Interest:
(a) on the date of expiration of the Basic Lease Term or any Renewal
Term, at a purchase price equal to the Fair Market Sales Value of the
Undivided Interest as of such date;
(b) on the date of expiration of the Basic Lease Term, at a purchase
price equal to the Fixed Price Purchase Amount;
(c) on any Early Buy-Out Date, at a purchase price equal to the
applicable Early Buy-Out Purchase Price;
(d) on any Special Purchase Option Date, at a purchase price equal to
the greater of (i) the Termination Value for the Undivided Interest as of
such Special Purchase Option Date and (ii) the Fair Market Sales Value of
the Undivided Interest as of such Special Purchase Option Date;
(e) if the Lessee shall have notified the Lessor, pursuant to Section
11.6(b), that it intends to make (or cause or allowed to be made) any
Modification or series of related Modifications to the Production System
with an estimated cost applicable to the Undivided Interest in excess of
$15,000,000 (such Modification or series of related Modifications a "Major
Modification") and (x) such Major Modification is not to be financed
pursuant to a Supplemental Financing, or (y) such Major Modification is
prohibited by the terms of this Lease, on any Stipulated Loss Value
Determination Date occurring within one year following the expiration of
the 45 day period following the giving of such notice pursuant to Section
11.6(b), at a purchase price equal to the greater of (A) the Stipulated
Loss Value for the Undivided Interest as of such date and (B) the Fair
Market Sales Value of the Undivided Interest as of such date (without
regard to any such proposed Modification or Modifications);
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(f) if the Owner Participant becomes a Competitor of the Lessee, on
any Stipulated Loss Value Determination Date occurring within one year
following the occurrence of such event, at a purchase price equal to the
greater of (A) the Stipulated Loss Value for the Undivided Interest as of
such Stipulated Loss Value Determination Date and (B) the Fair Market Sales
Value of the Undivided Interest as of such date; or
(g) if the Owner Participant or the Lessor shall have drawn on the
Letter of Credit (or any other letter of credit naming the Lessor and/or
the Owner Participant as a beneficiary as contemplated by Section 10.14 of
the Participation Agreement) or shall have received payment under the
Surety Bond (or any other surety bond held by the Lessor and/or the Owner
Participant as contemplated by Section 10.14 of the Participation
Agreement), on the first Stipulated Loss Value Determination Date at least
30 days following such drawing or payment at a purchase price equal to the
Stipulated Loss Value for the Undivided Interest as of such date.
6.2. Notice of Election; Manner of Purchase; Transfer After Purchase.
(a) Notice of an election to exercise a purchase option pursuant to Section
6.1(a) or (b) shall be given in the manner provided in Section 5.3.
(b) In order to exercise its purchase option pursuant to Section
6.1(c), the Lessee shall, at least 90 days but not more than 545 days prior to
the Early Buy-Out Date, give irrevocable notice to the Lessor in writing of its
election to exercise its purchase option.
(c) In order to exercise its purchase option pursuant to Section
6.1(d), the Lessee shall notify the Lessor in writing at least 180 days but not
more than 545 days prior to the applicable Special Purchase Option Date that it
desires to obtain an appraisal of the Fair Market Sales Value of the Undivided
Interest as of such Special Purchase Option Date. Promptly thereafter, the
Lessee and the Lessor shall attempt to agree upon such Fair Market Sales Value.
If the Lessee and the Lessor shall fail to agree within 30 days after the giving
of such notice, such Fair Market Sales Value shall be determined pursuant to the
Appraisal Procedure. At least 90 days prior to the applicable Special Purchase
Option Date, the Lessee shall, provide to the Lessor (i) notice of its
irrevocable election to exercise its purchase option pursuant to Section 6.1(d)
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or (ii) notice of its irrevocable election not to exercise such option.
(d) In order to exercise its purchase option pursuant to Section
6.1(e) or (f), the Lessee shall notify the Lessor and the Indenture Trustee in
writing (i) in the case of an exercise of its purchase option pursuant to
Section 6.1(e), no earlier than the expiration of the 45 day period following
the giving of the notice referred to in Section 6.1(e) and (ii) in the case of
an exercise of its purchase option pursuant to Section 6.1(f), no later than 90
days following the earlier of (x) receipt by the Lessee of a written notice from
the Owner Participant that it has become a Competitor of the Lessee and (y) the
date Lessee obtains Actual Knowledge that the Owner Participant has become a
Competitor of the Lessee, that the Lessee desires to obtain an appraisal of the
Fair Market Sales Value of the Undivided Interest as of the applicable
Stipulated Loss Value Determination Date (in the case of an election pursuant to
Section 6.1(e), without regard to the proposed Modification or Modifications).
Promptly after the giving of such notice, the Lessee and the Lessor shall
attempt to agree upon such Fair Market Sales Value. If the Lessee and the
Lessor shall fail to agree within 30 days after the giving of such notice, such
Fair Market Sales Value shall be determined pursuant to the Appraisal Procedure.
On the second Stipulated Loss Value Determination Date following completion of
the Appraisal Procedure, the Lessee shall provide to the Lessor (i) notice of
its irrevocable election to exercise its option to purchase the Undivided
Interest specifying whether such option is being exercised pursuant to Section
6.1(e) or (f) and the applicable Stipulated Loss Value Date, or (ii) notice of
its irrevocable election not to exercise such option.
(e) The drawing on the Letter of Credit (or letter of credit) or
payment under the Surety Bond (or surety bond) referred to in Section 6.1(g)
shall constitute the irrevocable exercise of the purchase option pursuant to
Section 6.1(g) and the drawings under such Letter of Credit (or letter of
credit) or payments in respect of such Surety Bond (or surety bond) shall be
applied in accordance with Section 3.8 on the applicable Stipulated Loss Value
Determination Date.
(f) On the date of purchase of all of Lessor's right, title and
interest in and to the Undivided Interest pursuant to this Section 6, the Lessor
shall transfer all right, title and interest of the Lessor in and to the
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Undivided Interest, as is and where is, to the Lessee, free and clear of
Lessor's Liens and Owner Participant's Liens but otherwise without any
representation or warranty, upon payment to the Lessor of the purchase price
therefor, together with (i) all Basic Rent due and owing on or prior to such
date of purchase (but excluding any Basic Rent payable in advance on such date
of purchase) and (ii) all Supplemental Rent due and owing on or prior to such
date of purchase and any accrued other Supplemental Rent as to which there is no
dispute, and the Lessor shall, at the Lessee's expense, execute and deliver to
the Lessee a bill of sale or assignment and such other instruments, documents
and opinions as the Lessee may reasonably request to evidence the valid
consummation of such transfer and shall, at the Lessee's expense, take such
actions under Section 6.03 of the Indenture as the Lessee may reasonably
request.
(g) Failure by the Lessee to provide any initial notice or subsequent
confirmatory, notice referred to in subsections (c) or (d) of this Section 6.2
within the applicable time periods specified therein shall be deemed to
constitute an irrevocable election by the Lessee not to exercise the applicable
purchase option set forth therein.
6.3. Assumption of Secured Notes. Notwithstanding the provisions of
Sections 6.1 and 6.2 and subject to compliance with Section 3.04 of the
Indenture, if in connection with a purchase by the Lessee of all of Lessor's
right, title and interest in and to the Undivided Interest pursuant to Section
6.1(c), 6.1(d), 6.1(e), 6.1(f) or 6.1(g), as the case may be, the Lessee shall
assume the Secured Notes pursuant to Section 11.6 of the Participation
Agreement, the obligation of the Lessee to pay the purchase price pursuant to
Section 6.1(c), 6.1(d), 6.1(e), 6.1(f) or 6.1(g), as the case may be, shall be
satisfied by such assumption of the Secured Notes to the extent of the principal
amount of and accrued but unpaid interest (other than overdue interest), if any,
on the Secured Notes so assumed and payment of the remaining portion of the
purchase price in cash.
SECTION 7. EARLY TERMINATION.
7.1. Decision. If (i) the President or Chief Financial Officer of
the Lessee shall have determined in good faith that the Undivided Interest or
any Significant Portion thereof is obsolete, uneconomic or surplus to the needs
of the Lessee for any reason (including, without limitation, by reason of
burdensome Governmental Rules) or
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(ii) the Lessee shall have determined to withdraw from or terminate the
Operating Agreement, then the Lessee may elect to terminate this Lease with
respect to the Undivided Interest or such Significant Portion of the Undivided
Interest, as the case may be, in accordance with this Section 7 on any Basic
Rent Payment Date; provided that no such termination shall occur prior to
January 2, 2001; provided, further, that the Lessee shall have no right to
terminate this Lease with respect to a Significant Portion of the Undivided
Interest if (1) that portion of the Production System in which the Lessor will
continue to own an interest after giving effect to such termination (such
portion, together with the interest of the Other Owner and the Other Percentage
Owner corresponding to such portion, the "Remaining Portion") is not capable of
functioning for its intended purpose or (2) the Remaining Portion constitutes
"limited use property" within the meaning of Revenue Procedure 76-30 or (3) the
Fair Market Sales Value of the Remaining Portion as of the Termination Date is
less than the product of (A) a fraction the numerator of which is the excess of
Lessor's Cost over the Original Cost of such Significant Portion and the
denominator of which is Lessor's Cost and (B) the Fair Market Sales Value of the
Production System (without giving effect to such termination) as of the
Termination Date or (4) the Original Cost of such Significant Portion together
with the Original Cost of any other Significant Portion of the Undivided
Interest in respect of which the Lessee has previously paid Termination Value
pursuant to Section 7.3 or Stipulated Loss Value pursuant to Section 12 shall
not exceed 50% of Lessor's Cost or (5) the estimated Fair Market Sales Value of
the Remaining Portion as of the scheduled expiration of the Basic Lease Term is
less than the product of (A) a fraction, the numerator of which is the excess of
Lessor's Cost over the Original Cost of such Significant Portion and the
denominator of which is Lessor's Cost and (B) the estimated Fair Market Sales
Value of the Production System (without giving effect to such termination) as of
the scheduled expiration of the Basic Lease Term or (6) subject to the following
sentence, the Lessee shall have failed to provide the Owner Participant, by the
10th Business Day preceding the Termination Date, with an opinion of tax counsel
selected by the Lessee but reasonably acceptable to the Owner Participant to the
effect that the termination of this Lease with respect to such Significant
Portion will not result in a greater risk of an unindemnified tax liability on
the part of the Owner Participant than it would have had if such termination had
not occurred (other than any tax liability of the Owner Participant with respect
to the
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inclusion in the taxable income of the Owner Participant of the Termination
Value payable with respect to such Significant Portion). The Lessee shall be
deemed to have failed to provide the opinion referred to in clause (6) above if
the Owner Participant provides the Lessee by the later of (x) 10 Business Days
after receipt of the opinion referred to in clause (6) above and the approval by
the Lessee of the Owner Participant's choice of counsel and (y) the 5th Business
Day preceding the Termination Date an opinion of tax counsel selected by the
Owner Participant and reasonably acceptable to the Lessee to the contrary and
describing in reasonable detail the increased risk of unindemnified tax
liability. If the Lessee shall, at any time after the delivery of a notice of
termination pursuant to Section 7.2 and prior to the Termination Date, be
precluded from terminating this Lease by reason of the second proviso to the
second preceding sentence, the Lessee shall be deemed to have revoked its notice
of termination pursuant to Section 7.2.
7.2. Notice of Termination. In order to exercise its right to
terminate this Lease as provided in this Section 7, the Lessee shall provide the
Lessor, the Owner Participant and the Indenture Trustee with (i) notice in
writing at least 90 days but not more than 545 days prior to the Basic Rent
Payment Date as of which the Lessee is electing to terminate this Lease with
respect to the Undivided Interest or a Significant Portion thereof (the
"Termination Date"), such notice to specify (a) whether the Lessee is electing
to terminate this Lease pursuant to clause (i) (an election pursuant to such
clause (i) being referred to herein as an "Obsolescence Termination Election")
or clause (ii) (an election pursuant to such clause (ii) being referred to
herein as a "Special Termination Election") of Section 7.1, (b) if the Lessee is
electing a termination under clause (i) of Section 7.1, whether the Lessee is
electing to terminate this Lease with respect to the Undivided Interest or a
Significant Portion thereof, (c) if the termination election is with respect to
a Significant Portion of the Undivided Interest, a description of such
Significant Portion, (d) the Termination Date and (e) the Termination Value for
the Undivided Interest or such Significant Portion, as the case may be, as of
the Termination Date and (ii) an Officer's Certificate of the Lessee as to the
determinations referred to in Section 7.1. Unless the Lessor shall have elected
to retain the Undivided Interest pursuant to Section 7.4, the Lessee may, at its
option by written notice to the Lessor at any time prior to the 30th day prior
to the Termination Date, revoke
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any such notice of termination, in which event this Lease shall not terminate
and the reasonable out-of-pocket expenses incurred by the Lessor, the Owner
Participant and the Indenture Trustee in connection therewith shall be borne by
the Lessee; provided, however, that the Lessee shall have no obligation to so
reimburse the Lessor or the Owner Participant if such notice of revocation is
given (or deemed to have been given pursuant to the penultimate sentence of
Section 7.4) as a result of the Lessor's failure to make the payments required
to be made by it under Section 7.4); and, provided, further, that the Lessee may
revoke any such notice of termination on only two occasions.
7.3. Sale of Undivided Interest or Significant Portion; Termination
Payment. (a) (i) Subject to Section 7.4, if the Lessee shall have made an
Obsolescence Termination Election, the Lessee shall, as nonexclusive agent for
the Lessor, use commercially reasonable efforts to solicit bids for the cash
purchase of all of the Lessor's right, title and interest in and to the
Undivided Interest or the Significant Portion thereof, as the case may be, on
the Termination Date. The Lessor may also solicit bids for the cash purchase of
all of Lessor's right, title and interest in and to the Undivided Interest or
the Significant Portion thereof, as the case may be, on the Termination Date
independent of the Lessee. The Lessee shall certify in writing to the Lessor
within ten days after the Lessee's receipt of each bid the amount and terms of
each bid received by it and the name and address of the Person submitting such
bid. Subject to Section 7.4, in the event that the Lessee or the Lessor shall
have obtained any such bids from any Person other than the Lessee or an
Affiliate of the Lessee, the Lessor shall sell all of its right, title and
interest in and to the Undivided Interest or such Significant Portion, as the
case may be, on the Termination Date to such Person which shall have submitted
the highest bona fide cash bid. Upon payment to the Lessor of the purchase
price in immediately available funds (and all other amounts due pursuant to the
next sentence) on the Termination Date, the Lessor shall sell to the highest
bona fide bidder all right, title and interest of the Lessor in and to the
Undivided Interest or such Significant Portion, as the case may be, as is and
where is, free and clear of Lessor's Liens and Owner Participant's Liens but
otherwise without representation, warranty or recourse. In the case of an
Obsolescence Termination Election with respect to the Undivided Interest, this
Lease and the obligations of the Lessee hereunder (other than those obligations
which are expressly stated to survive termination of this Lease) shall
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terminate and, in the case of an Obsolescence Termination Election with respect
to a Significant Portion of the Undivided Interest, the Lessee's obligations
under this Lease (other than those obligations which are expressly stated to
survive termination of this Lease) shall terminate only with respect to such
Significant Portion, in each case, concurrently with such sale and such payment.
As a condition to the sale of the Undivided Interest or a Significant Portion
thereof, as the case may be, pursuant to the second preceding sentence, the
Lessee shall pay on the Termination Date to the Lessor, in immediately available
funds, (i) an amount equal to the excess, if any, of (A) the Termination Value
for the Undivided Interest or such Significant Portion, as the case may be, as
of the Termination Date over (B) the proceeds of such sale net of the reasonable
out-of-pocket expenses incurred by the Lessor and the Owner Participant in
connection with such sale, (ii) all Basic Rent due and owing on or prior to the
Termination Date (but excluding, in the case of an Obsolescence Termination
Election with respect to the Undivided Interest, any Basic Rent payable in
advance on the Termination Date and, in the case of an Obsolescence Termination
Election with respect to a Significant Portion of the Undivided Interest, that
portion of Basic Rent payable in advance on the Termination Date equal to the
product of the Original Cost of such Significant Portion and the percentage set
forth in Column B (Advance Rent) of Schedule 1 opposite such Termination Date),
(iii) all Supplemental Rent due and owing on or prior to the Termination Date
and any other accrued Supplemental Rent as to which there is no dispute. On the
Termination Date, the Lessor shall, at the Lessee's expense, execute and deliver
to such Person a bill of sale or assignment and such other instruments,
documents and opinions as such Person or the Lessee may reasonably request to
evidence the valid consummation of such transfer and shall, at the Lessee's
expense, take such actions under Section 6.03 of the Indenture as the Lessee may
reasonably request. The Lessee shall not enter into any transaction with the
purchaser (or transferee thereof) of the Undivided Interest or a Significant
Portion thereof whereby the Lessee or any Affiliate of the Lessee obtains the
use of the Undivided Interest or such Significant Portion thereafter; provided,
however, that nothing in this Section 7 shall be construed as prohibiting
Enserch Exploration (or any Affiliate thereof) from exercising its rights (other
than its rights to purchase the Undivided Interest or such Significant Portion)
under the Operating Agreement.
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(ii) If the Lessee shall have made a Special Termination Election, the
Lessee shall on the Termination Date pay to the Lessor, in immediately available
funds, (A) an amount equal to the Termination Value for the Undivided Interest
as of the Termination Date, (B) all Basic Rent due and owing on or prior to the
Termination Date (but excluding any Basic Rent payable in advance on the
Termination Date) and (C) all Supplemental Rent due and owing on or prior to the
Termination Date and any other accrued Supplemental Rent as to which there is no
dispute. Upon such payment, the Lessor shall sell to the Lessee or its
designee, for disposition in accordance with the applicable provisions of the
Operating Agreement, all right, title and interest of the Lessor in and to the
Undivided Interest, as is and where is, free and clear of Lessor's Liens and
Owner Participant's Liens but otherwise without representation or warranty or
recourse. This Lease and the obligations of the Lessee hereunder (other than
the obligations of the Lessee set forth in the immediately following sentence or
which are expressly stated to survive the termination of this Lease) shall
terminate concurrently with such sale and such payment. The Lessee hereby
agrees that (1) promptly following the conveyance of all of Lessor's right,
title and interest in and to the Undivided Interest pursuant to the first
sentence of this subparagraph (ii), Enserch Exploration shall use its reasonable
efforts as Operator under the Operating Agreement to cause the disposition of
the Production System in accordance with the terms of the Operating Agreement,
(2) any such disposition shall not result in the Lessee or any Affiliate of the
Lessee obtaining the ownership or use of the Undivided Interest and (3) the
Lessee shall, promptly following the disposition of the Production System pay to
the Lessor an amount equal to the excess, if any, of (x) the proceeds of the
sale of the Production System allocated to Enserch Exploration under Exhibit C
to the Operating Agreement net of expenses incurred in respect of such sale
(including, without limitation, any reasonable commissions or other reasonable
fees payable to any brokers that are not the Lessee, the Operator or any
Affiliates thereof) allocated to Enserch Exploration under Exhibit C to the
Operating Agreement over (y) the Termination Value paid to the Lessor pursuant
to this Section 7.3(a)(ii). In performing its obligation to dispose of the
Undivided Interest pursuant to the preceding sentence, the Lessee shall act in a
commercially reasonable manner as if it were the owner of the Undivided Interest
entitled to retain all proceeds of the disposition. On the Termination Date,
the Lessor shall, at the Lessee's expense, execute and deliver to the Lessee
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(or its designee) a bill of sale or assignment and such other instruments,
documents and opinions as the Lessee may reasonably request to evidence the
valid consummation of the transfers effected pursuant to this Section 7.3(a)
(ii) and shall, at the Lessee's expense, take such actions under Section 6.03 of
the Indenture as the Lessee may reasonably request.
(b) In the event that (i) the Lessee shall have exercised (or shall be
deemed to have exercised pursuant to the last sentence of Section 7.1 or the
penultimate sentence of Section 7.4) its right to revoke its notice of
termination pursuant to Section 7.2 or (ii) the highest bona fide bidder under
Section 7.3(a) shall have failed to purchase all of Lessor's right, title and
interest in and to the Undivided Interest pursuant to Section 7.3(a), then,
unless the Lessor shall have retained the Undivided Interest pursuant to Section
7.4, this Lease shall remain in full force and effect.
7.4. Retention of Undivided Interest by Lessor. If the Lessee shall
have made an Obsolescence Termination Election with respect to the Undivided
Interest or any Significant Portion thereof, the Lessor may elect to retain
rather than sell the Undivided Interest or (to the extent consistent with the
Operating Agreement) such Significant Portion pursuant to Section 7.3(a)(i) by
giving irrevocable notice to the Lessee and the Indenture Trustee no earlier
than 45 nor later than 30 days prior to the Termination Date. If the Lessor so
elects to retain the Undivided Interest, on the Termination Date (a) the Lessor
shall pay to the Indenture Trustee an amount equal to the unpaid principal
amount of, and accrued and unpaid interest on, the Secured Notes then
Outstanding to the date of payment, provided that if the Lessee has elected to
terminate this Lease with respect to a Significant Portion of the Undivided
Interest, the Lessor shall pay only a pro rata portion of such amount, which pro
rata portion will be determined in accordance with the provisions of Section 7.5
hereof, and (b) the Lessee shall pay to the Lessor or the Person entitled
thereto as provided in the Operative Documents (i) all Basic Rent due and owing
on or prior to the Termination Date (but excluding all Basic Rent payable in
advance on the Termination Date) and (ii) all Supplemental Rent due and owing on
or prior to the Termination Date and any other accrued Supplemental Rent as to
which there is no dispute, but the Lessee shall not be required to pay any
amounts pursuant to Section 7.3. Upon payment of the amounts due pursuant to
clause (b) of the preceding sentence, this Lease
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and the obligations of the Lessee hereunder (other than those obligations which
are expressly stated to survive the termination of this Lease) shall terminate,
and the Lessor shall, at the Lessee's expense, execute and deliver to the Lessee
on the Termination Date such instruments as the Lessee shall reasonably request
to evidence the termination of this Lease. In the event the Lessor fails to pay
the amounts specified in clause (a) of the second sentence of this Section 7.4
or the Lessee fails to pay the amounts specified in clause (b) of such sentence,
the Lessee shall be deemed to have revoked its notice of termination pursuant to
Section 7.2. If the Lessor shall fail to perform any of its obligations pursuant
to this Section 7.4 and as a result thereof this Lease shall not be terminated
on a proposed Termination Date, the Lessor shall thereafter no longer be
entitled to exercise its election to retain the Undivided Interest upon any
subsequent Obsolescence Termination Election pursuant to this Section 7 and
Lessee may at its option at any time thereafter submit a new termination notice
pursuant to Section 7.2.
7.5. Calculation of Original Cost. If (x) the Lessee has elected to
terminate this Lease with respect to a Significant Portion of the Undivided
Interest pursuant to this Section 7 or (y) (i) an Event of Loss has occurred
with respect to a Significant Portion of the Undivided Interest and (ii) the
Lessee has elected to pay Stipulated Loss Value in respect of such Significant
Portion, the Original Cost of such Significant Portion shall be determined as
follows:
(a) The Original Cost of that portion of such Significant Portion
consisting solely of the Lessor's Share of any Major Component in its
entirety shall be an amount equal to the sum of the Original Cost (as
defined in clause (i) of the definition of Original Cost) of the Lessor's
Share of each such Major Component; and
(b) The Original Cost of that portion of such Significant Portion
consisting of the Lessor's Share of (i) any Component or (ii) any
Replacement Component which has replaced such Component in accordance with
this Lease (other than, in the case of (i) and (ii), respectively, any
Component that is part of a Major Component to which paragraph (a) above
applies and any Replacement Component which has replaced such Component in
accordance with this Lease) shall be in an amount agreed to by the Lessor
and the Lessee; provided, however, that if the Lessor and the Lessee cannot
agree
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as to the Original Cost of the Lessor's Share of any such Component
(or Replacement Component) by the 30th day following (x) the issuance of a
notice of such termination pursuant to Section 7.2 or (y) the receipt by
the Lessor of notice from the Lessee of the occurrence of such Event of
Loss, as the case may be, such Original Cost shall be determined by the
Appraisal Procedure.
The Original Cost of the Significant Portion of the Undivided Interest with
respect to which this Lease is being terminated or which has suffered an Event
of Loss shall be an amount equal to the sum of the amounts obtained in
paragraphs (a) and (b) above.
SECTION 8. RELINQUISHMENT OF POSSESSION
AND USE OF UNDIVIDED INTEREST.
8.1. Return of Undivided Interest. Unless the Undivided Interest
shall have been transferred to the Lessee pursuant to this Lease, the Lessee, at
its own expense, shall, subject to the terms and conditions of the Operating
Agreement and the Agency and Support Agreement, relinquish possession and use of
the Undivided Interest to the Lessor or to any transferee or assignee of the
Lessor upon the expiration or termination of the Lease Term by surrendering the
same to the Lessor or such transferee or assignee at the respective locations of
the Major Components thereof. Upon the return of the Undivided Interest
pursuant to this Section 8.1, (x) the Production System shall be (i) if Enserch
Exploration or any of its Affiliates is then the Operator or the operator of the
Production System, in at least as good condition as required by Section 11.1 or
(ii) if neither Enserch Exploration nor any of its Affiliates is then the
Operator or the operator of the Production System, in at least as good condition
as the Production System would be if it were maintained by a prudent operator
which is in the business of maintaining and operating facilities similar to the
Production System (which operator does not discriminate in such maintenance
based on the leased status of the Production System or otherwise (including,
without limitation, any discrimination with respect to the installation of
Modifications required by Governmental Rules that may be phased in over a period
of time that commences prior to and extends beyond the end of the Lease Term)),
in compliance in all material respects with all then applicable Governmental
Rules (including, without limitation, all Environmental Laws) and in such
condition as will entitle the Platform to the same classification and rating
from the
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Classification Society which the Platform had from American Bureau of
Shipping on the Closing Date (subject to any reduction in classification and
rating resulting from the age of the Platform). In addition, upon the return of
the Undivided Interest, the Undivided Interest shall be free and clear of all
Liens other than the Liens described in clauses (a), (b) (other than Indenture
Trustee's Liens), (f), (g), (to the extent removed within 60 days after such
return) (i) and (j) of the definition of Permitted Liens. If the Lessee elects
or is required to return the Undivided Interest, then, subject to the
restrictions set forth in Section 11.5 of the Participation Agreement, not more
than 180 days nor less than 60 days prior to the Lease Termination Date, the
Lessee shall, at its sole cost and expense, provide the Lessor, the Owner
Participant and, if the Lien of the Indenture has not been discharged, the
Indenture Trustee (1) a report of an engineer selected by the Lessee and
reasonably acceptable to the Lessor certifying that the Undivided Interest is in
the condition and state of repair and maintenance required by all then
applicable Governmental Rules, together with such inspection reports, tests, and
other data reasonably adequate to substantiate the conclusion reached in such
report, or, if the Undivided Interest is not in the condition and state of
repair and maintenance required by all then applicable Governmental Rules, such
engineer shall provide a list of any discrepancies in such condition, and the
Lessee, at its sole cost and expense, shall cause any such discrepancies to be
fully corrected prior to the return of the Undivided Interest, (2) an inspection
report by an environmental consulting firm selected by Lessee and satisfactory
to the Lessor certifying that the Production System is in compliance with all
applicable Environmental Laws and that the condition and operation of the
Production System are such that the Lease shall not be subject to any
Environmental Claim, (3) a reserve report with respect to the Unit Reserves
prepared by an independent consulting firm selected by the Lessee and reasonably
acceptable to the Lessor and (4) a list of all of the Lessee's permits necessary
for the use, operation and maintenance of the Production System. The
obligations of the Lessee under this Section 8.1 shall survive the termination
of this Lease.
SECTION 9. QUIET USE AND ENJOYMENT;
DISCLAIMER OF WARRANTIES.
9.1. Quiet Use and Enjoyment. Unless a Lease Event of Default shall
have occurred and be continuing and the Lessee shall have been notified of such
Event of
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Default, the Lessee shall be entitled to the quiet use and enjoyment of
the benefits of the Undivided Interest including the right to uninterrupted
possession and use of the Undivided Interest and the Lessor agrees not to take
or permit any Person (other than the Indenture Trustee, the Loan Participants or
any Person claiming by, through or under the Indenture Trustee or any Loan
Participant) lawfully claiming by, through or under it to take any action which
interferes with such quiet use or enjoyment or such possession or use or the
rights of any sublessee or assignee to such quiet use or enjoyment or such
possession or use under any sublease or assignment permitted hereunder (it being
agreed that, without limiting the liability of any Loan Participant, the
Indenture Trustee or any Person claiming by, through or under the Indenture
Trustee or any Loan Participant for any action taken by it in violation of the
covenant contained in this sentence, neither the Owner Participant nor the
Grantor Trustee shall have any liability for any such action taken by any Loan
Participant, the Indenture Trustee or any Person claiming by, through or under
the Indenture Trustee or any Loan Participant unless such action was taken at
the direction of the Owner Participant or the Grantor Trustee acting upon the
express written instructions of the Owner Participant acting in violation of the
Operative Documents). Without limiting the foregoing, the Lessor (for itself
and its successors and assigns, it being agreed that the following provisions of
this sentence run with the Undivided Interest and shall be binding on any
transferee or assignee of the whole or any part of the Undivided Interest)
hereby waives the right to bring any action for partition of the Production
System or the Lessor's interest therein and hereby covenants that, for so long
as there are economically producible oil, gas or other hydrocarbon reserves in
the Unit Area ("Unit Reserves"), the Lessor shall not (i) resort to any action
at law or in equity to partition the Production System, (ii) interfere in any
manner with the quiet use and enjoyment by the Other Owner of the Other
Undivided Interest or the Other Percentage Owner of the Other Percentage
Undivided Interest, or (iii) permit the Production System to be sold, removed or
abandoned such that it is made unavailable to produce the Unit Reserves. The
Other Owner, the Other Percentage Owner and their respective successors and
assigns shall be third-party beneficiaries of the Lessor's waiver and covenants
contained in the immediately preceding sentence. The Lessor agrees that any
transferee of the Lessor's interest in the Undivided Interest shall agree in
writing to be bound by the provisions of the second preceding sentence. In
addition, the Lessor (for itself and
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its successors and assigns) agrees that its interest in the Production System
will be bound by the terms of the Operating Agreement.
9.2. Disclaimer of Warranties. Neither the Trust Company in its
individual capacity or as Grantor Trustee nor the Owner Participant makes any
representations or warranties whether written, oral or implied, with respect to
the Undivided Interest, the Production System, or any part thereof, except as
expressly set forth in Section 6 or 8 of the Participation Agreement or in any
Officer's Certificate of the Trust Company, the Grantor Trustee or the Owner
Participant, in each case delivered pursuant to the Participation Agreement. As
between the Lessor and the Lessee, execution by the Lessee of this Lease shall
be conclusive proof of the Lessee's acceptance of the Undivided Interest for all
purposes hereof and of the commencement of this Lease with respect thereto and
that the Undivided Interest is satisfactory to the Lessee in all respects. THE
LESSEE ACKNOWLEDGES THAT THE LESSOR IS NOT A MANUFACTURER OR DEALER IN PROPERTY
OF THE KIND OF THE PRODUCTION SYSTEM OR THE COMPONENTS THEREOF AND THE LESSOR
LEASES AND THE LESSEE TAKES THE UNDIVIDED INTEREST AND EACH PART THEREOF AS IS
AND WHERE IS, WITH ALL FAULTS (WHETHER OR NOT DISCOVERABLE), AND SUBJECT TO ALL
APPLICABLE LAWS (INCLUDING ENVIRONMENTAL LAWS) AND NEITHER THE TRUST COMPANY IN
ITS INDIVIDUAL CAPACITY OR AS GRANTOR TRUSTEE NOR THE OWNER PARTICIPANT SHALL BE
DEEMED TO HAVE MADE, AND THE TRUST COMPANY IN ITS INDIVIDUAL CAPACITY AND AS
GRANTOR TRUSTEE HEREBY DISCLAIMS, ANY REPRESENTATION OR WARRANTY OTHER THAN
THOSE REFERRED TO IN THE SECOND PRECEDING SENTENCE, EITHER EXPRESS OR IMPLIED,
AS TO ANY MATTER WHATSOEVER, INCLUDING, WITHOUT LIMITATION, THE DESIGN OR
CONDITION OF THE PRODUCTION SYSTEM OR ANY PART THEREOF, THE MERCHANTABILITY
THEREOF OR THE FITNESS THEREOF FOR ANY PARTICULAR PURPOSE, THE ABILITY OF THE
PRODUCTION SYSTEM TO PERFORM ANY FUNCTION, TITLE TO THE PRODUCTION SYSTEM OR ANY
PART THEREOF, THE QUALITY OF THE MATERIALS OR WORKMANSHIP THEREOF OR CONFORMITY
THEREOF TO SPECIFICATIONS, OR THE PRESENCE OR ABSENCE OF ANY LATENT OR OTHER
DEFECTS, WHETHER OR NOT DISCOVERABLE. THE LESSEE CONFIRMS THAT IT HAS SELECTED
THE PRODUCTION SYSTEM AND EACH PART THEREOF ON THE BASIS OF ITS OWN JUDGMENT AND
EXPRESSLY DISCLAIMS RELIANCE IN CONNECTION WITH SUCH SELECTION UPON ANY
STATEMENTS, REPRESENTATIONS OR WARRANTIES MADE BY THE LESSOR OR THE OWNER
PARTICIPANT. The provisions of this Section 9.2 have been negotiated and,
except as expressly set forth in Sections 6 and 8 of the Participation Agreement
or in any Officer's Certificate of the Grantor Trustee, the Trust Company or the
Owner Participant, the foregoing provisions
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are intended to be a complete exclusion and negation of any representation or
warranty by the Lessor or the Owner Participant, express or implied, with
respect to this Lease, the Production System, the Undivided Interest or any part
thereof that may arise pursuant to any law now or hereafter in effect or
otherwise. Nothing contained in this Section 9.2 shall be construed as a waiver
of any warranty or other claim against any manufacturer, supplier, dealer,
vendor, contractor, subcontractor or installer.
9.3. Enforcement of Warranties. The Lessor hereby appoints and
constitutes the Lessee its agent and attorney-in-fact during the Lease Term to
assert and enforce, from time to time, in its sole discretion, in the name and
for the account of the Lessor and the Lessee, as their interests may appear, but
in all cases at no cost or expense to the Lessor, whatever claims and rights the
Lessor may have as the lessor of the Undivided Interest against any manufacturer
or vendor of any Component or Replacement Component of the Production System;
provided, however, that if this Lease shall have been declared in default
pursuant to Section 16.1, such power of attorney shall, at the option of the
Lessor, terminate and the Lessor may assert, at the Lessee's expense, such
claims and rights.
SECTION 10. LIENS.
The Lessee will not, directly or indirectly, create, incur, assume or
suffer to exist any Liens on or with respect to all or any part of the Undivided
Interest, title thereto or any interest therein, other than Permitted Liens, and
the Lessee promptly, at its own expense, will take such actions as may be
necessary duly to discharge any such Lien not excepted above.
SECTION 11. OPERATION AND MAINTENANCE;
INSPECTION; MODIFICATIONS;
REPLACEMENTS; PERSONNEL;
SALVAGE; FUEL; IDENTIFICATION.
11.1. Operation and Maintenance. So long as the Operating Agreement
is in effect, the Lessee will at its own expense maintain and operate the
Production System in accordance with the applicable provisions of the Operating
Agreement. At all other times, the Lessee shall, at its own expense, for the
Lease Term, operate and maintain (or cause the operator thereof to operate and
maintain) the Production System in accordance with the Lessee's established
maintenance, rebuild and repair programs (and without
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discriminating against the Production System based on the leased, rather than
owned, status of the Undivided Interest or otherwise, including, without
limitation, any discrimination with respect to the installation of Modifications
required by Governmental Rules that may be phased in over a period of time that
commences prior to and extends beyond the end of the Lease Term) so as to keep
the Undivided Interest (a) in good working order and condition, ordinary wear
and tear excepted, (b) in compliance in all material respects with all
applicable Governmental Rules and Governmental Actions and the requirements of
any insurance policy required to be maintained pursuant to Section 13 hereof, to
the extent any such insurance policy expressly requires certain maintenance
activities; provided, however, that the Lessee shall not be obligated to comply
with any Governmental Rule or Governmental Action (i) whose application or
validity is being contested diligently and in good faith by appropriate
proceedings, (ii) compliance with which shall have been excused or exempted by a
nonconforming use permit, waiver, extension or forbearance exempting it from
such Governmental Rule or Governmental Action but only to the extent that the
Lessee's noncompliance is in accordance therewith and the Lessee shall
nevertheless be required to comply with such Governmental Rule or Governmental
Action if such nonconforming use permit, waiver, extension or forbearance would
not be effective to exempt the Lessor or its designee from compliance with such
Governmental Rule or Governmental Action upon the return of the Undivided
Interest in accordance with Section 8, (iii) if good faith efforts and
appropriate steps are being taken to comply (in which case such compliance shall
be effected prior to the date the Undivided Interest is to be returned to the
Lessor hereunder), or (iv) if failure of compliance (individually and in the
aggregate with all other instances of continuing noncompliance by the Lessee)
would result in no material adverse consequences to the Lessee, so long as, in
the case of each of clauses (i) through (iv) of this proviso, neither such
failure of compliance nor such contest shall result in any material risk or
danger of (1) the sale, forfeiture or loss of any material part of or interest
in the Production System or the Undivided Interest, the Trust Estate or the
Indenture Estate or title thereto or interest therein, (2) any interference with
the payment of Rent when due, or (3) the imposition of any criminal liability on
the part of, or any other material adverse effect on, the Lessor, the Owner
Participant, the Trust Estate, the Indenture Estate or the Undivided Interest,
(c) with respect to the Platform, in compliance with recognized maintenance
standards for other comparable
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platforms in the Gulf of Mexico, (d) with respect to the Platform, in compliance
with the American Petroleum Institute guidelines for inspection and repair of
platforms and (e) with respect to the Platform, in compliance with the existing
classification for the Platform issued by the Classification Society.
11.2. Inspection and Reports. The Lessor, the Owner Participant and
the Indenture Trustee (and their respective authorized representatives) shall
have the right to inspect the Production System and the books and records of the
Lessee relating thereto to the extent provided in, and subject to the
restrictions set forth in, Sections 10.7 and 11.5 of the Participation
Agreement. The Lessor, the Owner Participant and the Indenture Trustee shall
receive copies of the SEC reports and financial statements of the Lessee as
provided in Section 10.2 of the Participation Agreement.
11.3. Required Modifications. So long as the Operating Agreement is
in effect, the Lessee shall have the right, subject to the last sentence of this
Section 11.3, to propose, or approve all Modifications to the Production System
in accordance with the provisions of the Operating Agreement and the Lessee
shall take all actions thereunder which may be required to make (or cause to be
made) all Severable and Nonseverable Modifications to the Production System as
may be required from time to time to comply in all material respects with the
requirements of all applicable Governmental Rules and Governmental Actions. At
all other times, (i) the Lessee shall make (or cause to be made) all Severable
and Nonseverable Modifications to the Production System as may be required from
time to time to meet the requirements of clause (b) of Section 11.1 or to
maintain any insurance coverage required by Section 13.1 (subject to the
qualifications set forth in such Section) unless the Lessee shall have made an
irrevocable election to terminate this Lease pursuant to Section 7.2; provided,
that if for any reason this Lease is not terminated on the applicable
Termination Date, the provisions of this Section 11.3 shall be automatically
reinstated. The Lessee shall complete (or cause to be completed) all
Modifications in a good and workmanlike manner, with reasonable dispatch and in
a manner which does not decrease the value of the Production System (except to a
de minimis extent) or decrease the remaining useful life or utility of the
Production System or cause the Production System to become "limited use
property" within the meaning of Revenue Procedure 76-30.
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11.4. Optional Modifications. The Lessee may, at no expense to the
Lessor, make (or cause or allow to be made) such other Severable and
Nonseverable Modifications to the Production System not required by Section 11.3
as do not (i) decrease the value (except to a de minimis extent) or utility of
the Production System or decrease the remaining useful life or cause the
Production System to become "limited use property" within the meaning of Revenue
Procedure 76-30 or (ii) alter the primary function of the Production System
(namely to drill and produce oil and gas), taken as a whole, to a function other
than its primary function on the Closing Date.
11.5. Title to Modifications; Purchase Option for Severable
Modifications. (a) Title to the Lessor's Share of all Modifications to the
Production System shall vest in the Head Lessor or any Person designated by the
Head Lessor and shall automatically become part of the Production System and the
Undivided Interest and become subject to the Head Lease (unless the Head Lease
has been terminated) and this Lease; provided, that if the Head Lease shall have
been terminated, title to the Lessor's Share of all Nonseverable Modifications
and all Severable Modifications required by any Governmental Rule or Government
Action, shall vest in the Lessor or any Person designated by the Lessor and
shall automatically become part of the Production System and the Undivided
Interest and become subject to this Lease. The Lessee may remove (or allow to
be removed) any Severable Modification to the Production System not required by
any Governmental Rule or Governmental Action prior to or upon the expiration of
the Lease Term; provided, however, the Lessee shall repair promptly any material
damage to the Production System from such removal.
(b) An undivided interest equal to the Lessor's Share of (i) Severable
Modifications to the Production System required by any Governmental Rule or
Governmental Action and (ii) Nonseverable Modifications to the Production System
shall automatically become part of the Production System and the Undivided
Interest and become subject to the Head Lease (unless the Head Lease has been
terminated) and this Lease.
(c) The Lessee's Share of all Severable Modifications to the
Production System other than those required by any Governmental Rule or
Governmental Action shall automatically vest in the Lessee.
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(d) Provided that the Lessor's right, title and interest in the
Undivided Interest has not been transferred to the Lessee pursuant to this
Lease, the Lessor shall have the option, at the expiration of the Lease Term, to
purchase the Lessor's Share of any Severable Modification to the Production
System not theretofore removed by Lessee pursuant to Section 11.5(a) (i) which
was not required by any Governmental Rule or Governmental Action, (ii) title to
the Lessor's Share of which is in the Lessee or any Affiliate of the Lessee on
the last day of the Lease Term and (iii) which is necessary for the economic
operation of the Production System and (iv) which is not commercially available
for purchase by the Lessor, at a purchase price equal to the Fair Market Sales
Value of such Lessor's Share as of such date. During the final year of the
Lease Term, the Lessee shall not remove any such Severable Modification. On or
prior to the 180th day prior to the expiration of the Lease Term, the Lessee
shall provide the Lessor with a list of the Severable Modifications it intends
to remove. The Lessor may exercise its option to purchase such Severable
Modifications by written notice to such effect delivered to the Lessee at least
30 days prior to expiration of the Lease Term. The Lessor and the Lessee shall
attempt to agree upon the Fair Market Sales Value of such undivided interest in
any such Severable Modification as of the expiration of the Lease Term. If the
Lessor and the Lessee shall fail to agree within 15 days after such written
notice, such Fair Market Sales Value of any such undivided interest shall be
determined by the Appraisal Procedure (except that the time periods set forth in
the definition of Appraisal Procedure shall be accelerated so that the Appraisal
Procedure is complete at least 20 days prior to the expiration of the Lease
Term). If the Lessor shall have exercised its option to purchase an undivided
interest in any Severable Modification to the Production System pursuant to this
Section 11.5(d), the Lessee, if requested by the Lessor, shall furnish (or cause
to be furnished) to the Lessor a bill of sale or assignment, in form and
substance reasonably satisfactory to the Lessor, conveying the right, title and
interest of the Lessee (or its Affiliate) in and to such Severable Modification,
free and clear of all Liens (other than Permitted Liens described in clauses
(a), (b) (other than Indenture Trustee's Liens), (f), (g), (i) and (j) of the
definition thereof), to the Lessor.
11.6. Payment for Modifications and Replacement Components. (a) The
Lessee shall be permitted at any time to finance the cost of any Severable
Modification to the Production System not required by any Governmental Rule or
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Governmental Action, directly or indirectly, including, without limitation, on a
third party ownership basis.
(b) If the Lessee intends to seek financing for the cost of any
Severable Modification to the Production System that is required by any
Governmental Rule or Governmental Action to be made or any Nonseverable
Modification to the Production System, the Lessee shall first provide the Lessor
and the Owner Participant with written notice of such Modification at least 45
days prior to the date of such proposed financing. The cost of the Lessor's
Share of such Modification may be financed through the issuance of Additional
Notes as provided in Section 14 of the Participation Agreement and subject to
the conditions set forth therein.
11.7. Replacement of Components; Title to Components; Removal of
Property. (a) Any Component or Replacement Component may be removed and
replaced with a Replacement Component and, upon such replacement, the Lessee (or
its designee) shall be entitled to retain the amount of the net proceeds of any
sale or disposition of any such removed Component or Replacement Component. Any
such Replacement Components shall be free and clear of all Liens, except
Permitted Liens, and in as good operating condition as, and with a value and
utility (and, in the case of Major Components, useful life) at least equal to,
the Components or Replacement Components replaced, assuming such replaced
Components or Replacement Components were in at least the condition and repair
required to be maintained hereunder and shall not, individually or in the
aggregate, adversely affect the Production System's useful life. Immediately
upon any Replacement Component becoming incorporated in the Production System,
without further act, (i) title to the Lessor's Share of such Replacement
Component thereupon shall vest in the Head Lessor (or, if the Head Lease is no
longer in effect, the Lessor) or such Person as shall be designated by the Head
Lessor (or, if the Head Lease is no longer in effect, the Lessor), (ii) the
Lessor's Share of such Replacement Component shall become subject to the Head
Lease (unless the Head Lease has been terminated) and the Lien of the Indenture
and to this Lease and shall be deemed a part of the Production System and the
Undivided Interest for all purposes thereof and hereof to the same extent as the
Lessor's Share of the Component or Replacement Component it replaced and (iii)
title to the Lessor's Share of such removed Component or Replacement Component
shall remain in the Head Lessor (or, if the Head Lease shall have been
terminated, shall vest in the Lessee) or such Person as
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shall be designated by the Head Lessor (or, if applicable, the Lessee) and shall
be free and clear of all rights of the Lessor and the Indenture Trustee and
shall no longer be deemed a Component or a Replacement Component hereunder.
(b) If, at any time during the Lease Term, the Lessee shall conclude
that any property included in the Production System is obsolete, redundant or
unnecessary and can be removed without diminishment of the value or utility of
the Production System or reduction of the remaining useful life of the
Production System and without causing the Production System to become "limited
use property" within the meaning of Revenue Procedure 76-30, the Lessee may
remove (or allow to be removed) such property. In addition, notwithstanding
anything contained in this Lease to the contrary, if an event occurs with
respect to any Component or Components which would constitute an Event of Loss
if such event occurred with respect to the Production System or a Significant
Portion thereof, the Lessee shall have no obligation to pay any Stipulated Loss
Value in respect of, or to otherwise replace or repair, such Component or
Components, so long as, in the Lessee's reasonable judgment (i) such Component
is not a Significant Portion and (ii) such Component or Components are not
material to the overall operation of the Production System.
11.8. Employment of Personnel. Solely as between the Lessor and the
Lessee, the master, officers and crew of the Platform and all other persons at
any time on board the Platform shall be deemed to be engaged and employed
exclusively by the Lessee and shall be deemed to be and remain the Lessee's
servants, navigating and working the Platform solely on behalf of and at the
risk of the Lessee. THIS SECTION 11.8 SHALL NOT BE DEEMED TO CREATE ANY RIGHT
IN, OR TO BE FOR THE BENEFIT OF, ANY THIRD PARTY.
11.9. Salvage. The Lessor shall not have any interest in any salvage
monies earned by the Platform or received by the Lessee or the Operator. The
Lessee assumes and shall satisfy all costs and liabilities incurred in
connection with all salvage services rendered by the Platform.
11.10. Fuel, Oil, Etc. The Lessor acknowledges that such fuel,
lubricating oil and unbroached consumable stores as may be on board the Platform
at the time of its delivery to the Lessee hereunder and allocable to the
Undivided Interest will be the property of the Lessee.
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11.11. Identification of Platform. At all times until the expiration
or termination of this Lease, the Lessee shall cause to be placed and kept
prominently displayed in the chart room of the Platform a notice, in English,
framed under glass, printed in plain type of such size that the paragraph of
reading matter thereof shall cover a space not less than six inches wide by nine
inches high, reading as follows:
"NOTICE OF MORTGAGE AND CHARTER"
A 19.860734412% undivided interest in this vessel is owned by Enserch
Exploration, Inc., is under demise charter to Wilmington Trust Company, as
the Grantor Trustee under that certain Trust Agreement (1996-B), dated as
of November 15, 1996, pursuant to a Production System Lease Agreement
(1996-B), dated as of November 15, 1996, and is covered by a First Priority
Naval Mortgage (1996-B) dated as of November 15, 1996 in favor of
Wilmington Trust Company, as Grantor Trustee. Said lease and mortgage
provide that no person shall create, incur or permit to be placed or
imposed upon this vessel any lien or encumbrance whatsoever except as
expressly permitted therein. A copy of said lease and mortgage are carried
on this vessel and must be exhibited on demand to any person having
business with this vessel."
Such notice shall be changed to reflect the identity of any successor owner or
mortgagee. Neither the Lessor nor Lessee shall take any action or omit to take
any action that would (i) cause the Platform to cease to be documented as a
vessel pursuant to the laws of the Republic of Panama, (ii) cause the Ship
Mortgage on the Platform to cease to be a first priority naval mortgage under
the laws of the Republic of Panama or (iii) cause the Platform to cease to be
entitled to the same classification that the Platform had from the
Classification Society on the Closing Date (subject to any reduction in
classification and rating resulting from the age of the Platform). Except as
otherwise directed by the Lessor, the Lessee shall prevent the name of any
Person other than that of Enserch Exploration or any Affiliate thereof (and the
other owners and secured parties with respect to the Other Undivided Interest)
from being placed on any part of the Production System as a designation that
reasonably might be interpreted as a claim of ownership or right to possession
or use thereof.
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11.12. Reports With Respect to the Production System. The Lessee
shall provide the Lessor and the Owner Participant with the following reports:
(i) promptly following receipt thereof, all written information provided to the
Lessee pursuant to Section 8.2 of the Operating Agreement; (ii) concurrently
with the delivery of annual financial statements pursuant to Section 10.2 of the
Participation Agreement and upon expiration of the Lease Term, a report stating
the total cost of all Modifications (or related group of Modifications) that
cost in excess of 1% of Lessor's Cost made during such period and describing
separately and in reasonable detail each such Modification made during the
period from the Closing Date to December 31, 1996 in the case of the first such
report and covering the immediately preceding fiscal year in the case of the
remaining reports.
11.13. Required Filings. The Lessee shall prepare and file in a
timely fashion, or where the Lessor shall be required to file, the Lessee shall
prepare or cause to be prepared and deliver to the Lessor within a reasonable
time prior to the date for filing, any reports with respect to the Undivided
Interest, or the condition or operation thereof, that shall be required to be
filed with any Governmental Authority in order to comply with any Governmental
Rule or Governmental Action.
11.14. Repair of Production System. In the event of any damage to
the Production System which does not constitute an Event of Loss, subject to the
last sentence of Section 11.7(b), the Lessee shall, at no expense to the Lessor,
as soon as commercially practicable, repair, restore or rebuild (or shall cause
to be repaired, restored or rebuilt) the damaged or destroyed property so that
upon completion of such repair, restoration or rebuilding, the value, utility
and remaining useful life of such property shall be at least equal to the value,
utility and remaining useful life of such property immediately prior to such
damage or destruction, assuming such property was maintained in accordance with
the terms hereof.
SECTION 12. EVENT OF LOSS.
12.1. Notice of Event of Loss. If there shall occur an Event of
Loss, the Lessee shall promptly notify the Lessor, the Owner Participant and the
Indenture Trustee of the occurrence thereof.
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12.2. Payment of Stipulated Loss Value, Etc. (a) If an Event of
Loss with respect to the Production System shall occur, the Lessee shall within
180 days of the occurrence of such Event of Loss give Lessor, the Owner
Participant and the Indenture Trustee written notice of its election to either:
(i) pay to the Lessor as compensation for such Event of Loss, on
the Basic Rent Payment Date immediately following the date of such
election, the Stipulated Loss Value for the Undivided Interest as of such
Stipulated Loss Value Determination Date; or
(ii) subject to compliance with this Section 12.2, replace (or
cause to be replaced) the Production System with equipment of a similar
type, service and use, and of equal or greater Fair Market Sales Value,
residual value, remaining useful life and utility as the replaced
Production System immediately prior to such Event of Loss (assuming the
Production System has been maintained in accordance with the terms of this
Lease).
provided that (x) the Lessee may not elect to replace the Production System if
at the time of the Event of Loss or the time of election a Lease Default of the
type described in Section l5(a), (b), (c) or (g) or Lease Event of Default shall
have occurred and be continuing and (y) if the Lessee fails to give notice of
its election to replace the Production System in the time period specified
above, it shall be deemed to have elected to pay Stipulated Loss Value as
specified in clause (i) above.
If the Lessee shall have elected, or shall be deemed to have elected,
the option set forth in paragraph (i) above, the Lessee shall pay simultaneously
with the payment of Stipulated Loss Value all Basic Rent due and owing prior to
the date of such payment, all Supplemental Rent due and owing on or prior to the
date of such payment and any other accrued Supplemental Rent as to which there
is no dispute and all Basic Rent payable in arrears on such Basic Rent Payment
Date. Upon such payment (1) this Lease and the obligations (other than the
expressly stated to survive the Termination of this Lease, including the
obligations set forth in the next paragraph) of the Lessee hereunder shall
terminate as of the date of such payment and (2) the Lessor shall transfer all
right, title and interest of the Lessor in and to the Undivided Interest as is
and where is, to the Lessee or as the Lessee shall direct, free
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and clear of Lessor's Liens and Owner Participant's Liens but otherwise without
representation, warranty or recourse, and the Lessor shall, at the Lessee's
expense, execute and deliver to the Lessee or as the Lessee shall direct a bill
of sale or assignment and such other instruments and documents as the Lessee may
reasonably request to evidence the valid consummation of such transfer and
shall, at the Lessee's expense, take such actions under Section 6.03 of the
Indenture as the Lessee may reasonably request.
The Lessee hereby agrees that, if the Event of Loss with respect to
the Production System in respect of which the Lessee has paid Stipulated Loss
Value pursuant to the preceding sentence is a Special Event of Loss and such
Event of Loss was caused by an act or omission of the Lessee or the Lessee and
MPTM acting in concert, (A) promptly following the conveyance of the Undivided
Interest pursuant to clause (2) of the preceding sentence, the Lessee shall
cause the disposition of the Production System in accordance with the terms of
the Operating Agreement, (B) any such disposition shall not result in the Lessee
or any Affiliate of the Lessee obtaining the ownership or use thereafter of the
Production System and (C) the Lessee shall, promptly following the disposition
of the Production System pay to the Lessor an amount equal to the excess, if
any, of (x) the proceeds of the sale of the Production System allocated to
Enserch Exploration under Exhibit C to the Operating Agreement net of expenses
incurred in respect of such sale (including, without limitation, any commissions
or other fees payable to any brokers that are not the Lessee, the Operator or
any Affiliates thereof) allocated to Enserch Exploration under Exhibit C to the
Operating Agreement over (y) the Stipulated Loss Value paid to the Lessor
pursuant to this Section 12.2(a). In performing its obligation to dispose of
the Production System pursuant to the preceding sentence, the Lessee shall act
in a commercially reasonable manner as if it were the owner of the Production
System entitled to retain all proceeds of the disposition.
(b) If an Event of Loss with respect to a Significant Portion of the
Production System shall occur, the Lessee shall within 180 days of the
occurrence of such Event of Loss give the Lessor, the Owner Participant and the
Indenture Trustee written notice of its election to either:
(i) pay to the Lessor as compensation for such Event of Loss, on
the Basic Rent Payment Date immediately following the date of such
election, the Stipulated Loss Value for the Significant Portion of
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the Undivided Interest suffering such Event of Loss as of such Stipulated
Loss Value Determination Date; or
(ii) subject to compliance with this Section 12.2(b) rebuild or
cause to be rebuilt (or replace or cause to be replaced) the Significant
Portion of the Production System suffering such Event of Loss which such
rebuilt portion (or replacement portion) shall have at least the same
value, utility and remaining useful life as such Significant Portion had
prior to the Event of Loss (assuming the Production System has been
maintained in accordance with the terms of this Lease); provided that (w)
if (1) the remaining portion of the Production System not suffering such
Event of Loss is not capable of functioning for its intended purpose or (2)
such remaining portion constitutes "limited use property" within the
meaning of Revenue Procedure 76-30 or (3) the Fair Market Sales Value of
such remaining portion as of the end of such 180-day period is less than
the product of (A) a fraction the numerator of which is the Lessor's Cost
minus the Original Cost of the Significant Portion of the Undivided
Interest suffering such Event of Loss and the denominator of which is
Lessor's Cost and (B) the Fair Market Sales Value of the Production System
as of the end of such 180-day period (assuming no such Event of Loss had
occurred) or (4) the Original Cost of such Significant Portion together
with the Original Cost of any other Significant Portion of the Undivided
Interest in respect of which the Lessee has previously paid Stipulated Loss
Value pursuant to this Section 12.2 or Termination Value pursuant to
Section 7.3 shall exceed 50% of Lessor's Cost or (5) the Estimated Fair
Market Sales Value of such remaining portion as of the scheduled expiration
of the Basic Term is less than the product of (A) a fraction the numerator
of which is the Lessor's Cost minus the Original Cost of the Significant
Portion of the Undivided Interest suffering such Event of Loss and the
denominator of which is Lessor's Cost and (B) the estimated Fair Market
Sales Value of the Production System as of the scheduled expiration of the
Basic Term (assuming no such Event of Loss had occurred) or (6) subject to
the following sentence, the Lessee shall have failed to provide the Owner
Participant, by the 120th day following the occurrence of such Event of
Loss, with an opinion of tax counsel of recognized national standing
selected by the Lessee and reasonably acceptable to the Owner Participant
to the effect that the termination of this
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Lease with respect to such Significant Portion will not result in a greater
risk of unindemnified tax liability on the part of the Owner Participant
than it would have had if such termination had not occurred (other than any
tax liability of the Owner Participant with respect to the inclusion in the
taxable income of the Owner Participant of the Stipulated Loss Value
payable with respect to such Significant Portion), the Lessee shall,
subject to clause (y) below, be deemed to have elected the option set forth
in paragraph (ii) above, (x) if the Lessee shall fail to provide such
written notice within such 180-day period, the Lessee shall, unless clause
(w) of this proviso is applicable, be deemed to have elected the option set
forth in paragraph (i) above, (y) the Lessee may not elect the option set
forth in paragraph (ii) during such time a Lease Default of the type
described in Section 15(a), (b), (c) or (g) or Lease Event of Default shall
have occurred and be continuing and (z) if the Lessee is deemed, pursuant
to clause (w) above, to have elected the option set forth in paragraph (ii)
above but is then prevented from electing such option pursuant to clause
(y) above, an Event of Loss shall be deemed to have occurred with respect
to the Undivided Interest. The Lessee shall be deemed to have failed to
provide the opinion referred to in clause (6) above if the Owner
Participant provides the Lessee by 10 Business Days after receipt of the
opinion referred to in clause (6) above and the approval by the Lessee of
the Owner Participant's choice of counsel an opinion of tax counsel
selected by the Owner Participant and reasonably acceptable to the Lessee
to the contrary and describing in reasonable detail the increased risk of
unindemnified tax liability.
Unless the Lessee shall have elected (or shall be deemed to have
elected) the option set forth in paragraph (ii) above, the Lessee shall pay,
simultaneously with the payment of Stipulated Loss Value pursuant to paragraph
(i) above, all Basic Rent due and owing prior to the date of such payment, all
Supplemental Rent due and owing on or prior to the date of such payment and any
other accrued Supplemental Rent as to which there is no dispute, and all Basic
Rent due on such Basic Rent Payment Date (but excluding that portion of Basic
Rent payable in advance on such Basic Rent Payment Date equal to the product of
the Original Cost of the Significant Portion of the Undivided Interest suffering
such Event of Loss and the percentage set forth in Column B (Advance Rent) of
Schedule 1 opposite such
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Basic Rent Payment Date), whereupon (1) the obligations of the Lessee under this
Lease (other than the obligations expressly stated to survive termination of
this Lease, including the obligations set forth in the next sentence) shall
terminate with respect to the Significant Portion of the Undivided Interest
suffering such Event of Loss and (2) the Lessor shall transfer all right, title
and interest of the Lessor in and to such Significant Portion, as is and where
is, to the Lessee or as the Lessee shall direct, free and clear of Lessor's
Liens and Owner Participant's Liens but otherwise without representation,
warranty or recourse, and the Lessor shall, at the Lessee's expense, execute and
deliver to the Lessee or as the Lessee shall direct a bill of sale or assignment
and such other instruments and documents as the Lessee may reasonably request to
evidence the valid consummation of such transfer and shall, at the Lessee's
expense, take such actions under Section 6.03 of the Indenture as the Lessee may
reasonably request. The Lessee hereby agrees that, if the Event of Loss with
respect to a Significant Portion of the Production System in respect of which
the Lessee has paid Stipulated Loss Value pursuant to the preceding sentence is
a Special Event of Loss, (A) promptly following the conveyance of the
Significant Portion of the Undivided Interest pursuant to clause (2) of the
preceding sentence, the Lessee shall cause the disposition of the Significant
Portion of the Production System suffering such Special Event of Loss in
accordance with the terms of the Operating Agreement, (2) any such disposition
shall not result in the Lessee or any Affiliate of the Lessee obtaining the
ownership or use thereafter of the Significant Portion of the Undivided Interest
suffering such Event of Loss and (3) the Lessee shall, promptly following the
disposition of the Significant Portion of the Production System suffering such
Event of Loss pay to the Lessor an amount equal to the excess, if any, of (x)
the proceeds of the sale of such Significant Portion allocated to the Lessee
under Exhibit C to the Operating Agreement net of expenses incurred in respect
of such sale (including, without limitation, any commissions or other fees
payable to any brokers that are not Affiliates of the Lessee or the Operator)
allocated to the Lessee under Exhibit C to the Operating Agreement over (y) the
Stipulated Loss Value paid to the Lessor pursuant to this Section 12.2(b). In
performing its obligation to dispose of a Significant Portion of the Production
System pursuant to the preceding sentence, the Lessee shall act in a
commercially reasonable manner as if it were the owner of such Significant
Portion of the Production System entitled to retain all proceeds of the
disposition.
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(c) At the time of or prior to any replacement of the Production
System, any Component or any Significant Portion, the Lessee, at its own
expense, will (i) furnish the Lessor with evidence that the Head Lessor (or, if
the Head Lease has been terminated, the Lessor) has title to an undivided
interest equal to the Undivided Interest Percentage in the replacement
Production System, Components or Significant Portion, as the case may be, free
and clear of all Liens other than Permitted Liens, (ii) cause supplements to the
Head Lease (unless the Head Lease has been terminated) and this Lease to be
issued with appropriate modifications, subjecting such undivided interest in the
replacement Production System, Component or Significant Portion, as the case may
be, to the Head Lease and this Lease, such supplements to be duly authorized,
executed and delivered by the parties thereto, and to be filed for recordation
in the same manner as provided for the Lease and the Head Lease in Section 4.16
of the Participation Agreement, (iii) if the Platform is being replaced, cause a
supplement to the Ship Mortgage subjecting such undivided interest in the
replacement Platform to the Lien of the Ship Mortgage to be duly authorized,
executed and delivered by the appropriate parties and cause such Ship Mortgage
to be filed for recordation in the same manner as provided for the Ship Mortgage
in Section 4.16 of the Participation Agreement, (iv) so long as the Indenture
shall not have been satisfied and discharged, request the Lessor to execute and
deliver to the Indenture Trustee a supplement to the Indenture subjecting the
Lessor's interest in the replacement Production System, Components or
Significant Portion, as the case may be, to the Lien of the Indenture and
requesting that such Indenture Supplement be filed for recordation in the same
manner as provided for the Indenture in Section 4.16 of the Participation
Agreement, (v) upon the request of the Lessor, furnish the Lessor with an
opinion (upon which the Indenture Trustee shall be entitled to rely) of the
Lessee's counsel which counsel shall be reasonably satisfactory to the Lessor
and the Owner Participant, to the effect that (t) each of the supplements to the
Head Lease and the Lease referred to in clause (i) above constitutes a legal,
valid, binding and enforceable obligation of (u) in the case of the supplement
to the Head Lease, the Head Lessor and (v) in the case of the Lease, the Lessee
(subject to customary qualifications as to bankruptcy and equitable principles),
(w) if the Platform is being replaced, the supplement to the Ship Mortgage
referred to in clause (iii) above constitutes a legal, valid, binding and
enforceable obligation of the Head Lessor (subject to, customary qualifications
as to bankruptcy and equitable principles),
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(x) legal title to such replacement Production System, Component or Significant
Portion, as the case may be, has vested in the Head Lessor (or, if the Head
Lease has been terminated, the Lessor), (y) such replacement Production System,
Components or Significant Portion, as the case may be, is free and clear of all
Liens of record, other than Permitted Liens and (z) all filings, recordings and
other action necessary or appropriate to perfect and protect the Lessor's and
the Indenture Trustee's respective interests in the replacement Production
System, Components or Significant Portion, as the case may be, have been
accomplished, (vi) upon the request of the Lessor, furnish the Lessor with an
Officer's Certificate (upon which the Indenture Trustee shall be entitled to
rely) certifying that as of said date, and upon consummation of the replacement,
no Lease Default of the type described in Section 15(a), (b), (c) or (g) or
Lease Event of Default shall have occurred and be continuing and (vii) furnish
such other documents and evidence as the Lessor or its counsel may reasonably
request in order to establish the consummation of the transactions contemplated
by this Section 12.2, including, without limitation, evidence that the
replacement Production System, Components or Significant Portion, as the case
may be, has a value, utility, remaining useful life and residual value at least
equal to that of the Production System, Component or Significant Portion
replaced.
12.3. Application of Other Payments upon the Occurrence of an Event
of Loss. Any amounts of condemnation or requisition proceeds received at any
time by the Lessor, the Indenture Trustee or the Lessee as a result of the
occurrence of an Event of Loss shall be divided between the Lessee and the
Lessor as their respective interests may appear or, in the case of proceeds of
insurance maintained pursuant to Section 13.1(a)(ii), applied pursuant to
Section 13.3, and the amount paid to the Lessor shall reduce the amount of
Stipulated Loss Value that the Lessee is required to pay to the Lessor (but not
below zero) pursuant to Section 12.2 (or, if the amount of Stipulated Loss Value
payable pursuant to Section 12.2 has already been paid by the Lessee, the Lessee
shall be entitled to retain out of the amounts otherwise payable to the Lessor
pursuant to this Section 12.3, the amount that would have been applied in
reduction of the amount of Stipulated Loss Value payable by the Lessee under
Section 12.2).
12.4. Allocation of Payments Not Relating to an Event of Loss.
Payments (except for payments under Insurance policies described in Section 13)
received at any
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time by the Lessor, the Indenture Trustee or the Lessee from any Governmental
Authority or other Person with respect to any destruction, damage, Loss,
condemnation, confiscation, theft or seizure of or requisition of title to or
use of the Undivided Interest or any part thereof not constituting an Event of
Loss shall be paid over to the Lessee or the Lessor as their interests may
appear.
12.5. Other Dispositions. Notwithstanding anything to the contrary
under the Operative Documents, as long as any Lease Default of the type
described in Section 15(a), (b), (c) or (g) or any Lease Event of Default shall
have occurred and be continuing, any amount that otherwise would be payable to
or for the account of, or that otherwise would be retained by, the Lessee
pursuant to this Section 12 or otherwise under the Operative Documents shall be
paid to the Corporate Grantor Trustee (or to the Corporate Indenture Trustee as
long as the Undivided Interest is subject to the Lien of the Indenture) as
security for the obligations of the Lessee under this Lease and, subject to the
Indenture, applied against the Lessee's payment obligations hereunder when and
as they become due and payable and, at such time thereafter as no Lease Default
of the type described in Section 15(a), (b), (c) or (g) or Lease Event of
Default shall be continuing, such amount shall, to the extent not theretofore
applied as provided herein or in the Indenture, be paid promptly to the Lessee
or as it may direct.
SECTION 13. INSURANCE.
13.1. Coverage. (a) The Lessee, at its own cost and expense, shall
carry and maintain or cause to be carried and maintained in full force and
effect at all times during the Lease Term in such amounts and with such terms
(including co-insurance, deductibles, limits of liability and loss payment
provisions) as are customary under the Lessee's risk management programs and
customary industry practices; provided that at all times during the Lease Term,
the Lessee shall at a minimum maintain the following types and amounts of
insurance: (i) public liability insurance against loss or damage for personal
injury, death or property damage and against Claims including, without
limitation, Environmental Claims arising out of or connected with the
possession, use, leasing or condition of any part of the Production System in an
amount of $100,000,000 for 100% interest and in such forms as are consistent
with the Lessee's practice for other properties similar to the Production System
owned or leased by the Lessee; (ii) all risk property insurance for the
Undivided Interest in an
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amount equal to the lesser of Lessor's Cost and Stipulated Loss Value for the
Undivided Interest; and (iii) Operator's Extra Expense coverage in such forms as
are consistent with the Lessee's practice for other properties similar to the
Production System owned or leased by the Lessee in an amount of $100,000,000 for
100% interest. The insurance required under clause (i), (ii) or (iii) of this
Section 13.1(a) may be subject to deductible amounts and self-insured retentions
(up to an aggregate amount of $50,000,000) as is consistent with the Lessee's
practice for other properties similar to the Production System owned or leased
by the Lessee. Such insurance may be carried under blanket policies maintained
by or on behalf of the Lessee so long as such policies otherwise comply with the
provisions of this Section 13.
(b) Any insurance carried in accordance with Section 13.1(a)(i) and
(ii) shall provide in the policy or by special endorsement that:
(i) the Lessor, the Trust Company, the Individual Grantor Trustee,
the Owner Participant, the Guarantor, the Indenture Trustee and each Loan
Participant are included as additional insureds and shall provide that no
such Person shall have any obligation or liability for payment of premiums;
(ii) the insurer thereunder waives all rights of subrogation
against the Lessor, the Indenture Trustee, the Owner Participant, the
Guarantor, and each Loan Participant, and waives any right of set-off and
counterclaim and any other right to deduction whether by attachment or
otherwise;
(iii) such insurance shall be primary without right of
contribution of any other insurance carried by or on behalf of the Lessor,
the Indenture Trustee, the Owner Participant, the Guarantor, and each Loan
Participant;
(iv) the respective interests of the Lessor, the Indenture
Trustee, each Loan Participant, the Owner Participant, and the Guarantor
under all insurance policies required hereunder shall not be invalidated by
any action or inaction of the Lessee or any other Person (other than, with
respect to any such insured, such insured) and such insurance shall insure
the Lessor, the Indenture Trustee, each Loan Participant, the Owner
Participant, and the Guarantor as their interests may appear, regardless of
any breach or
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violation of any warranty, declaration or condition contained in such
policies by the Lessee or any other Person other than, with respect to any
such insured, such insured);
(v) if the insurers cancel such insurance for any reason
whatsoever or any materially adverse change is made in policy terms or
conditions, or if such insurance is allowed to lapse for nonpayment of
premium, such cancellation, change or lapse shall not be effective as to
the Lessor, the Owner Participant, the Guarantor, each Loan Participant or
the Indenture Trustee for thirty days after receipt by the Lessor, the
Owner Participant, each Loan Participant or the Indenture Trustee,
respectively, of written notice from such insurers of such cancellation,
change or lapse;
(vi) with respect to all liability insurance, in as much as the
policies are written to cover more than one insured, all terms, conditions,
insuring agreements and endorsements, with the exception of the limits of
liability shall operate in the same manner as if there were a separate
policy covering each insured; and
(vii) any payment under any policy of insurance maintained
pursuant to Section 13.1(a)(ii) shall be made to the Indenture Trustee so
long as the Lien of the Trust Indenture shall not have been discharged, and
otherwise to the Lessor as their respective interests may appear except
that so long as any Lease Default of the type described in Section 15(a),
(b), (c) or (g) or any Lease Event of Default shall have occurred and be
continuing the first $25,000,000 of payments made in respect of any single
casualty or other occurrence or in any policy year with respect to the
Undivided Interest and the Other Percentage Undivided Interest shall be
paid solely to the Lessee;
13.2. Adjustment of Losses. Losses, if any, with respect to the
Production System under any property damage policies required to be carried
under Section 13.1(a) shall be adjusted with the insurance companies, including
the filing of appropriate proceedings, by the Lessee.
13.3. Application of Insurance Proceeds. All proceeds of insurance
maintained pursuant to Section 13.1(a)(ii) paid to the Indenture Trustee or the
Lessor, other than in connection with an Event of Loss or Partial Event of Loss
as to which the Lessee has elected (or has
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been deemed to have elected) to pay Stipulated Loss Value, shall be paid over to
the Lessee or as the Lessee may direct to pay for, or reimburse the Lessee for,
its payment of the cost of repairing or restoring the Production System;
provided, however, that such payments to the Lessee shall be made only upon (i)
delivery by a Responsible Officer of the Lessee to the Lessor and the Indenture
Trustee, if applicable, of a certificate (A) describing in reasonable detail the
nature and cost of such repair or restoration and the actual expenditures
theretofore made in connection therewith (and accompanied by copies of related
invoices) and (B) certifying that the sum requested is a proper item of such
cost, has not been the subject of any previous such request which has been paid
to the Lessee and has been paid, or is then due and payable, by the Lessee and
(ii) receipt by the Lessor and the Indenture Trustee, if applicable, of evidence
satisfactory to each of them, in their reasonable judgment that such proceeds,
together with funds of the Lessee available for the purpose will be sufficient
to complete such repair and restoration of the Production System or portion
thereof.
13.4. Additional Insurance. Nothing in this Section 13 shall
prohibit the Lessee, the Lessor, the Owner Participant or the Indenture Trustee
from acquiring or maintaining, at its own expense, additional insurance for its
own account with respect to loss or damage to the Undivided Interest or any part
thereof provided that any such additional insurance shall not interfere with or
in any way limit insurance maintained under Section 13.1(a) or increase the
amount of any premium payable with respect to any such insurance. The proceeds
of any such additional insurance will be for the account of the party
maintaining such additional insurance.
13.5. Annual Insurance Report. Prior to December 31 of each year
commencing in 1997, the Lessee will provide to the Lessor, the Owner Participant
and the Indenture Trustee an insurance report and certificate, substantially in
the form of the report and the certificate provided by the Lessee pursuant to
Section 4.7 of the Participation Agreement, with respect to the insurance then
required to be maintained by the Lessee pursuant to this Section 13.
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SECTION 14. RIGHTS TO ASSIGN OR LEASE;
LEASEHOLD MORTGAGE PROVISIONS.
14.1. Assignment by Lessor; Security for Lessor's Obligations to
Indenture Trustee. (a) Except as set forth in Section 14.l(b) or (c) or in the
last two sentences of Section 19.8, the Lessor may not assign, transfer or
encumber this Lease or all or any part of its interests and rights hereunder
except in connection with the exercise of remedies by the Lessor following a
declaration by the Lessor pursuant to Section 16.1 that this Lease is in
default.
(b) (i) In order to secure the indebtedness evidenced by the Secured
Notes and certain other obligations as provided in the Indenture, the Indenture
provides, among other things, for the assignment by the Lessor to the Indenture
Trustee of its right, title and interest in, to and under this Lease to the
extent set forth in the Indenture. The Lessee hereby consents to such
assignment pursuant to the terms and provisions of the Indenture and to any
assignment or other transfer which may occur pursuant to the exercise of any
remedy set forth in the Indenture. The Lessee (i) acknowledges that such
assignment provides for the exercise by the Indenture Trustee of certain rights
of the Lessor hereunder to give any consents, approvals, waivers, notices or the
like, to make any elections, demands or the like or to take any other
discretionary action hereunder, but only in accordance with the Indenture, (ii)
acknowledges receipt of an executed counterpart of the Indenture as in effect on
the date hereof and (iii) agrees that, to the extent provided in the Indenture,
the Indenture Trustee shall have all the rights of the Lessor hereunder and, in
exercising any right or performing any obligation of the Lessor hereunder, shall
be subject to the terms hereof. The Lessee will furnish to the Indenture
Trustee counterparts of all notices, certificates, opinions or other documents
of any kind required to be delivered hereunder by the Lessee to the Lessor.
Notwithstanding any other provision herein, so long as any Secured Notes remain
Outstanding, the Lessor hereby directs, and the Lessee agrees that, all payments
of Basic Rent and all other Rent payable hereunder to the Lessor, other than
Excepted Payments, shall be paid directly to the Corporate Indenture Trustee at
its account specified in Schedule 1 to the Participation Agreement or to such
other account as may be specified in writing by the Corporate Indenture Trustee
to the Lessee at least 5 Business Days prior to the due date thereof. The right
of the Indenture Trustee to receive payments of Basic Rent shall not be subject
to any defense,
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counterclaim, setoff or other right or claim of any kind which the Lessee may be
able to assert against the Lessor or the Owner Participant in an action brought
by either thereof on this Lease or otherwise.
14.2. Assignment and Sublease by Lessee. The Lessee may, without the
consent of any party to the Participation Agreement, at any time and from time
to time, sublease the Undivided Interest or any portion thereof for any lawful
use to another Person or assign this Lease and its interests and rights
hereunder to any Affiliate of the Lessee; provided that (i) such sublease or
assignment shall be expressly subject and subordinate to this Lease and the
Operating Agreement (and such sublease or assignment shall contain a provision
providing that any sublease or assignment permitted thereunder shall be so
subject and subordinate) and shall in no event continue beyond the Lease Term,
(ii) the Lessee shall remain primarily liable under this Lease and the Other
Operative Documents and all terms and conditions hereof and of the other
Operative Documents shall remain in full force and effect and shall be complied
with as though no such sublease or assignment was in existence (iii) each of the
Owner Participant, the Guarantor, the Lessor, the Indenture Trustee and the Loan
Participant shall have received such opinions (other than any opinion regarding
United States Federal income taxes) as the Owner Participant, the Guarantor, the
Lessor, the Indenture Trustee or the Loan Participant shall reasonably request,
(iv) such sublessee or assignee shall not be subject to any bankruptcy,
insolvency or other similar proceedings affecting creditors' rights on the
commencement date of the sub-sublease and shall have such authorizations and
approvals under Governmental Rules (and all Governmental Actions shall have been
taken) as may be necessary in order for such sublessee or assignee to perform
its obligations under the sublease or assignment, (v) each of the Owner
Participant, the Guarantor, the Lessor, the Indenture Trustee and the Loan
Participant shall bear no unindemnified tax risk associated with such sublease
or assignment, (vi) such sublease shall not permit further subleasing, (vii)
such sublease or assignment, to the extent that the sublessee or assignee
assumes responsibility for maintenance and insurance obligations of the Lessee,
shall have terms with respect to such maintenance and insurance obligations no
less stringent than those contained in Section 11 hereof, (viii) as of the date
of commencement of the sublease or assignment, no Lease Default of the type
described in Section 15(a), (b), (c) or (g) or Lease Event of Default shall have
occurred and be continuing, (ix) the sublessee or
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assignee shall not be a Governmental Authority unless such Governmental
Authority shall have waived its right of sovereign immunity, (x) such sublease
or assignment shall have substantially the same terms with respect to use and
operation as contained in Section 11 hereof, (xi) any such sublease or
assignment shall not impair any right or remedy of the Lessor under the Lease or
any other Operative Document or the Indenture Trustee under any Operative
Document and (xii) the Lessee shall have obtained all consents and taken all
actions necessary to comply with all Governmental Rules and all shall have
obtained all consents and taken all actions as may be required under any
contract or agreement binding on the Lessee or the sublessee or assignee or any
of their respective properties. The Lessee shall give prompt written notice to
the Lessor of any sublease or assignment and shall deliver a certified copy of
any sublease or assignment to the Lessor within 10 days following the execution
and delivery thereof. Any assignment or sublease by the Lessee that is not in
accordance with the terms of this Section 14.2 shall be a violation of this
Lease and shall be null and void.
SECTION 15. LEASE EVENTS OF DEFAULT.
The term "Lease Event of Default", wherever used herein, shall mean
any of the following events (whatever the reason for such Lease Event of Default
and whether it shall be voluntary or involuntary, or come about or be effected
by operation of law, or be pursuant to or in compliance with any judgment,
decree or order of any court or any Governmental Rule or Governmental Action):
(a) the Lessee shall fail to pay Basic Rent within 5 Business Days
after the date the same becomes due; or
(b) the Lessee shall fail to pay Stipulated Loss Value, Termination
Value, any Early Buy Out Purchase Price or Fixed Price Purchase Amount
within 10 Business Days after the date the same becomes due; or
(c) the Lessee shall fail to pay Supplemental Rent or make any other
payment (other than Basic Rent, Stipulated Loss Value, Termination Value,
Early Buy Out Purchase Price or Fixed Price Purchase Amount) required to be
made by the Lessee under this Lease or under any other Operative Document
for more than 30 Business Days after the Lessee has received written notice
from the
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Lessor or the Indenture Trustee stating that such payment is due; or
(d) the Lessee, in any capacity under the Operative Documents, shall
fail in any material respect to perform or observe any other covenant or
agreement to be performed or observed by it under this Lease or any other
Operative Document (other than the Tax Indemnity Agreement (except with
respect to the Lessee's obligation to make any payment required by the Tax
Indemnity Agreement)) and such failure shall continue for a period of
thirty (30) days after the earlier of receipt by the Lessee of a written
notice from the Lessor or the Indenture Trustee specifying such failure and
requiring it to be remedied or the date Lessee obtains Actual Knowledge of
such failure; provided, however, that the continuation of any such failure
for such period of thirty (30) days or such longer period (not to exceed
365 days or 180 days in the case of a failure to perform or observe the
covenants contained in Section 10.16 or 10.17 of the Participation
Agreement; provided that such 180 day period shall not extend beyond the
date 1 year prior to the expiration of the Lease Term) after receipt of
such notice shall not constitute a Lease Event of Default so long as (i)
such failure is curable or correctable and (ii) the Lessee is diligently
pursuing the cure or correction of such failure; or
(e) any representation or warranty made by the Lessee in any Operative
Document (other than the Tax Indemnity Agreement) or in any Officer's
Certificate of the Lessee delivered pursuant to any Operative Document
shall prove to have been inaccurate in any material respect when made and
such representation or warranty shall remain inaccurate in any material
respect thirty (30) days after the earlier of receipt by the Lessee of a
written notice thereof from the Lessor or the Indenture Trustee or the date
the Lessee obtains Actual Knowledge of such inaccuracy; provided, however,
that the continuation of any such inaccuracy for such period of thirty (30)
days or such longer period (not to exceed 180 days) after receipt of such
notice shall not constitute a Lease Event of Default so long as (i) such
inaccuracy is curable or correctable and (ii) the Lessee is diligently
pursuing the cure or correction of such inaccuracy; or
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(f) the Lessee shall commence a voluntary case or other proceeding
seeking liquidation, reorganization or other relief with respect to itself
or its debts under any bankruptcy, insolvency or other similar law now or
thereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial
part of its property, or shall consent to any such relief or to the
appointment or taking possession by any such official or agency in an
involuntary case or other proceeding commenced against it, or shall make a
general assignment for the benefit of creditors, or shall take any
corporate action to authorize any of the foregoing; or
(g) an involuntary case or other proceeding shall be commenced against
the Lessee seeking liquidation, reorganization or other relief with respect
to it or its debts under any bankruptcy, insolvency or other similar law
now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official or agency of it
or any substantial part of its property and such involuntary case or other
proceeding shall remain undismissed and unstayed for a period of ninety
(90) days; or
(h) the Lessee shall fail to maintain (or cause to be maintained) the
insurance required by Section 13 (subject to Lessee's right to self-
insure); or
(i) the Lessee shall fail to maintain the Credit Support to the extent
required by Section 10.14 of the Participation Agreement; or
(j) the Lessee shall fail to remove any lien relating to the Master
Lease or the transactions contemplated thereby, including the failure to
file any releases or termination statements necessary to remove any such
lien, prior to 5:00 p.m. New York City time on the second Business Day
following the Closing Date.
provided, however, that notwithstanding anything to the contrary contained in
Section 15(d), any failure of the Lessee to perform or observe any covenant or
agreement specified in Section 15(d) shall not constitute a Lease Event of
Default if such failure is caused solely by reason of any event that constitutes
an Event of Loss (or any event which with lapse of time would constitute an
Event of Loss)
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as long as the Lessee is continuing to comply with all the applicable terms of
Section 12.
SECTION 16. REMEDIES.
16.1. In General. Upon the occurrence of any Lease Event of Default
and so long as the same shall be continuing, the Lessor, at its option, may
declare this Lease to be in default by written notice to such effect given to
the Lessee (provided that this Lease shall be deemed to have been declared in
default without the necessity of such written notice upon the occurrence of any
Lease Event of Default described in paragraph (f) or (g) of Section 15 and it
shall not be necessary for the Lessor to declare the Lease in default prior to
exercising any remedy described in Section 16.1(g) or prior to making any
demands that are required to be made as a condition to exercising any remedy
described in Section 16.1(g)), and at any time thereafter, provided such Lease
Event of Default shall be continuing, the Lessor may, to the extent permitted by
applicable Governmental Rules, exercise one or more of the following remedies,
as the Lessor in its sole discretion shall elect:
(a) the Lessor, by notice to the Lessee, may rescind or terminate this
Lease;
(b) whether or not this Lease has been terminated, the Lessor may
demand that the Lessee, and upon the written demand of the Lessor, the
Lessee shall, surrender the Undivided Interest promptly to the Lessor in
the manner and condition required by, and otherwise in accordance with the
provisions of, this Lease as if the Undivided Interest were being returned
at the end of the Lease Term and the Lessor shall not be liable for the
reimbursement of the Lessee for any costs and expenses incurred by the
Lessee in connection therewith;
(c) the Lessor may (whether or not the Lessor has taken possession
thereof), subject to the rights of the Operator and the Other Owner under
the Operating Agreement, sell all or any portion of the Undivided Interest
at public or private sale, as the Lessor may determine, free and clear of
any rights of the Lessee with respect thereto (except pursuant to the
Agency and Support Agreement) and without any duty to account to the Lessee
with respect to such sale or any proceeds with respect thereto (except to
the extent required by
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paragraph (e) or (f) of this Section 16.1 if the Lessor shall elect to
exercise its rights thereunder), in which event the Lessee's obligation to
pay Basic Rent with respect to the interest sold accruing after the date of
such sale shall be terminated (except to the extent that Basic Rent is to
be included in computations under paragraph (e) or (f) of this Section 16.1
if the Lessor shall elect to exercise its rights thereunder);
(d) the Lessor may, subject to the rights of the Operator and the
Other Owner under the Operating Agreement, hold or lease to others all or a
portion of the Undivided Interest, as the Lessor in its sole discretion may
determine, free and clear of any rights of the Lessee with respect thereto
(except pursuant to the Agency and Support Agreement) and without any duty
to account to the Lessee with respect to such action or inaction or for any
proceeds with respect to such action or inaction, except that the Lessee's
obligation to pay Basic Rent after the Lessee shall have been deprived of
use of all or a portion of the Undivided Interest pursuant to this
paragraph (d) shall be reduced by the net proceeds, if any, received by the
Lessor from leasing all or a portion of the Undivided Interest to any
Person other than the Lessee for the same periods or any portion thereof;
(e) whether or not the Lessor shall have exercised or thereafter at
any time shall exercise its rights under paragraph (a), (b), (c) or (d) of
this Section 16.1, the Lessor may demand, by written notice to the Lessee
specifying a payment date which shall be a Stipulated Loss Value
Determination Date not earlier than 10 Business Days after the date of such
notice, that the Lessee pay to the Lessor, and the Lessee shall pay to the
Lessor, on such specified payment date, as liquidated damages for loss of a
bargain and not as a penalty (in lieu of the Basic Rent accruing on or
after such specified payment date), any unpaid Basic Rent due and owing on
or prior to such specified payment date (but excluding any Basic Rent
payable in advance on such payment date) and any unpaid Supplemental Rent
(to whomsoever payable) due and owing on or prior to the date of such
payment and any other accrued Supplemental Rent as to which there is no
dispute, plus whichever of the following amounts the Lessor, in its sole
discretion, shall specify in such notice (together with
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interest on such amount at the Overdue Rate from such specified payment
date to the date of actual payment):
(i) an amount equal to the excess, if any, of Stipulated Loss
Value for the Undivided Interest as of such specified payment date
over the Fair Market Sales Value of the Undivided Interest as of such
specified payment date (or the last day of the Basic Lease Term, if
earlier); or
(ii) an amount equal to the excess of (1) the present value as
of such specified payment date of all installments of Basic Rent
payable on or after such specified payment date during the remaining
balance of the Basic Lease Term (or any Renewal Term then in effect),
discounted semiannually at a rate per annum equal to the Debt Rate,
over (2) the present value as of such specified payment date of the
Fair Market Rental Value of the Undivided Interest during the
remaining balance of the Basic Lease Term (or any Renewal Term then in
effect), discounted semiannually at a rate per annum equal to the Debt
Rate; or
(iii) an amount equal to the greatest of (A) Stipulated Loss
Value for the Undivided Interest determined as of such specified
payment date, (B) the discounted Fair Market Rental Value of the
Undivided Interest for the remaining useful life thereof determined
pursuant to subclause (2) of clause (ii) of this paragraph (e), and
(C) the Fair Market Sales Value determined pursuant to clause (i) of
this paragraph (e), and, in this event, upon full payment by the
Lessee of all sums due hereunder, the Lessor shall, without recourse,
representation or warranty (other than the absence of Owner
Participant's Liens and Lessor's Liens) transfer all of its right,
title and interest in and to the Undivided Interest to the Lessee, as
is and where is, whereupon this Lease and the Lessee's obligations
hereunder shall terminate. The Lessor shall, at the Lessee's expense,
execute and deliver to the Lessee a bill of sale or assignment and
such other instruments, documents and opinions as the Lessee may
reasonably request to evidence the valid consummation of such transfer
and shall, at the Lessee's expense, take such actions under Section
6.03 of the Indenture as the Lessee may reasonably request; or
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(iv) an amount equal to the excess, if any, of Stipulated Loss
Value for the Undivided Interest, computed as of such specified
payment date, over the Fair Market Rental Value of the Undivided
Interest during the remaining Basic Lease Term (or any Renewal Term
then in effect), after discounting such Fair Market Rental Value
semiannually to present value as of such specified payment date at a
rate per annum equal to the Debt Rate;
(f) if the Lessor shall have sold all of the Undivided Interest, as a
whole or by a series of sales of portions thereof pursuant to paragraph (c)
of this Section 16.1 or other right of sale, the Lessor, in lieu of
exercising its rights under paragraph (e) of this Section 16.1, may, if it
shall so elect, demand that the Lessee pay to the Lessor and the Lessee
shall pay to the Lessor on the date of such sale, as liquidated damages for
loss of a bargain and not as a penalty (in lieu of Basic Rent accruing on
or after the next Basic Rent Payment Date following the date of such sale),
any unpaid Basic Rent due and owing on or prior to such next Basic Rent
Payment Date (but excluding any Basic Rent payable in advance on such Basic
Rent Payment Date) and any other Supplemental Rent due and owing on or
prior to such next Basic Rent Payment Date and any other accrued
Supplemental Rent as to which there is no dispute, plus the amount of any
deficiency between Stipulated Loss Value for the Undivided Interest,
computed as of such next Basic Rent Payment Date, and the proceeds of such
sale, together with interest at the Overdue Rate on the amount of such
Rent, from the due date or dates thereof, and on the amount of such
deficiency from the date of such sale, until the date of actual payment;
(g) If the Lessor has previously exercised its rights under any of the
foregoing remedies to demand Stipulated Loss Value or any amount determined
by reference thereto (or if it is prevented from demanding such amounts
whether by the provisions of the Indenture or by operation of any stay or
similar law or otherwise at a time when a Lease Event of Default has
occurred and is continuing), then, unless all Rent owing to the Owner
Participant and the Lessor under the Operative Documents shall have been
paid in full, the Lessor shall be entitled to draw on the Letter of Credit
(or any other letter of credit naming the Lessor and/or the
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Owner Participant as a beneficiary as contemplated by Section 10.14 of the
Participation Agreement) or demand payment under the Surety Bond (or any
other surety bond held by the Lessor and/or the Owner Participant as
contemplated by Section 10.14 of the Participation Agreement) then in
effect, and upon the receipt of proceeds from the Letter of Credit (or
letter of credit) or Surety Bond (or surety bond), the Lessor shall apply
such proceeds in accordance with Section 3.8 hereof; or
(h) the Lessor may exercise any other right or remedy that may be
available to it under applicable law or proceed by appropriate court action
to enforce the terms hereof or to recover damages for the breach hereof.
16.2. Continuing Obligations. No rescission or termination of this
Lease, in whole or in part, or repossession of the Undivided Interest or
exercise of any remedy under Section 16.1 shall, except as specifically provided
herein, relieve the Lessee of any of its liabilities and obligations hereunder.
The Lessee shall be liable (i) for all reasonable legal fees and other
reasonable costs and expenses incurred by the Lessor, the Owner Participant,
each Loan Participant or the Indenture Trustee by reason of the occurrence of
any Lease Event of Default or the exercise of the Lessor's remedies with respect
thereto, including all costs and expenses reasonably incurred in placing the
Undivided Interest in the condition required by Section 8.1 and (ii) except as
otherwise provided herein, for any and all other accrued and unpaid Rent
hereunder before, after or during the exercise of any of the foregoing remedies.
At any sale of the Undivided Interest or any part thereof pursuant to Section
16.1, the Lessor, the Owner Participant, each Loan Participant, or the Indenture
Trustee may bid for and purchase such property.
16.3. Remedies Cumulative. To the extent permitted by applicable law
and except as provided herein, no remedy under Section 16.1 is intended to be
exclusive, but each shall be cumulative and in addition to any other remedy
provided under Section 16.1 or otherwise available to the Lessor at law or in
equity. No express or implied waiver by the Lessor of any Lease Default or
Lease Event of Default shall in any way be, or be construed to be, a waiver of
any future or subsequent Lease Default or Lease Event of Default. The failure
or delay of the Lessor in exercising any rights granted it hereunder upon the
occurrence of any
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of the contingencies set forth herein shall not constitute a waiver of any such
right upon the continuation or recurrence of any such contingencies or similar
contingencies and any single or partial exercise of any particular right by the
Lessor shall not exhaust the same or constitute a waiver of any other right
provided herein. To the extent permitted by applicable law, the Lessee hereby
waives any rights now or hereafter conferred by statute or otherwise which may
enable it to cancel, quit or surrender this Lease, except as otherwise provided
herein, or which may require the Lessor to sell, lease or otherwise use the
Undivided Interest in mitigation of the Lessor's damages as set forth in Section
16.1 or which may limit or modify any of the Lessor's rights and remedies
provided in Section 16.1.
SECTION 17. NOTICES.
All communications, notices and consents provided for in this Lease
shall be in writing and given in person or by courier or by means of telecopy or
other wire transmission (with provision for assurance of receipt in a manner
typical with respect to communications of that type), or delivered by a major
overnight delivery service such as Federal Express or United Parcel Service,
addressed to the respective addressee set forth in Schedule 1 to the
Participation Agreement, or in each case at such other address as the Person
entitled thereto shall from time to time designate by notice in writing to the
Lessee and the Lessor. All such communications, notices and consents given in
such manner shall be effective as provided in Section 17.3 of the Participation
Agreement.
SECTION 18. RIGHT TO PERFORM FOR LESSEE.
18.1. Lessor's Right to Perform. If the Lessee shall fail to make
any payment to be made by it hereunder or shall fail to perform or comply with
any of its other agreements contained herein or in any other Operative Document
relating to the Undivided Interest or this Lease, following written notice to
the Lessee, the Lessor may, but shall not be obligated to, make such payment or
perform or comply with such agreement, and the amount of such payment and the
amount of all reasonable costs and expenses (including, without limitation,
reasonable attorneys' and other professionals' fees and expenses) incurred in
connection with such payment or the performance of or compliance with such
agreement, as the case may be, together with interest thereon at the Overdue
Rate, shall be deemed
58
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Supplemental Rent for the Undivided Interest, payable by the Lessee upon demand.
SECTION 19. MISCELLANEOUS.
19.1. Amendments in Writing. Neither this Lease nor any of the terms
hereof may be amended, supplemented, waived or modified orally, but only by an
instrument in writing signed by the party against which enforcement of such
change is sought.
19.2. Severability of Provisions. Any provision of this Lease which
may be determined by competent authority to be invalid or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such invalidity or unenforceability without invalidating or rendering
unenforceable any remaining provisions hereof, and any such invalidity or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the extent permitted
by applicable law, the parties hereto hereby waive any provision of law which
renders any provision hereof invalid or unenforceable in any respect.
19.3. GOVERNING LAW. THIS LEASE SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO ITS CONFLICT OF LAWS PRINCIPLES, EXCEPT TO THE EXTENT THAT THE LAWS OF ANY
OTHER JURISDICTION MAY BE MANDATORILY APPLICABLE.
19.4. Headings. The division of this Lease into sections, the
provision of a table of contents and the insertion of headings are for
convenience of reference only and shall not affect the construction or
interpretation of this Lease.
19.5. Counterpart Execution. This Lease may be executed in any
number of counterparts and by each of the parties hereto on separate
counterparts, all such counterparts together constituting but one and the same
instrument, with the counterpart containing the receipt therefor executed by the
Indenture Trustee on or immediately following the signature page thereof being
deemed the "original executed counterpart" and all other counterparts being
deemed duplicates. For purposes of recordation, Lessor and Lessee agree that
certain information set forth
59
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on Schedules 1 through 6 may be omitted from the counterpart presented for
filing.
19.6. Successors and Assigns. This Lease, including the terms and
provisions hereof, shall be binding upon the Lessor and the Lessee and their
respective successors and assigns and inure to the benefit of the Lessor and the
Lessee and their respective successors and permitted assigns.
19.7. Investment of Security Funds. Any amounts held by the Lessor
as security hereunder that would be payable to the Lessee upon satisfaction of
any applicable conditions shall be invested and reinvested by the Lessor (or, so
long as the Undivided Interest shall be subject to the Lien of the Indenture,
the Indenture Trustee), from time to time in Permitted Investments at the
written direction of the Lessee. The Lessor shall have no liability for any
loss resulting from any investment required to be made other than by reason of
its willful misconduct or gross negligence. Any net income or gain realized as
a result of any such investment or reinvestment shall be applied by the Lessor
at the same time, on the same conditions and in the same manner as the amounts
in respect of which such income or gain was realized are required to be
distributed in accordance with the provisions hereof, or of any other Operative
Document pursuant to which such amounts were required to be held. The Lessee
shall be responsible for any net loss realized as a result of any such
investment or reinvestment and shall reimburse the Lessor (or the Indenture
Trustee, as the case may be) therefor on demand. Any Permitted Investment may
be sold or otherwise reduced to cash (without regard to maturity) by the Lessor
whenever necessary to make any application as required by the terms of this
Lease or of any applicable Operative Document.
19.8. Immunities; Satisfaction of Undertakings; Successor Grantor
Trustee. Except as provided in Section 9.2, all and each of the
representations, warranties, undertakings and agreements herein made on the part
of the Lessor are made and intended not as personal representations, warranties,
undertakings and agreements by or for the purpose or with the intention of
binding the Lessor personally but are made and intended for the purpose of
binding only the Trust Estate (including the Louisiana Trust Estate), and this
Lease is executed and delivered by the Lessor solely in the exercise of the
powers expressly conferred upon it as trustee under the Trust Agreement; and no
personal liability or responsibility is assumed hereunder
60
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by, or at any time shall be enforceable against, the Lessor or any successor in
trust on account of any representation, warranty, undertaking or agreement
hereunder of the Lessor, either expressed or implied, all such personal
liability, if any, being expressly waived by the Lessee; provided, however, that
(a) the Lessee or any Person claiming by, through or under it, making claim
hereunder, may subject to the terms and conditions hereof, look to the Trust
Estate for satisfaction of such liability or responsibility and (b) the Lessor
or its successor in trust, as applicable, shall be personally liable for its own
gross negligence and willful misconduct and for the matters described in clauses
(i) through (v) of the last sentence of Section 7.1 of the Trust Agreement.
Subject to the terms and conditions hereof, each time a successor Grantor
Trustee is appointed in accordance with the terms of the Trust Agreement, such
successor Grantor Trustee shall, without further act, succeed to all the rights,
duties, immunities and obligations of its predecessor Grantor Trustee hereunder
and under the other Operative Documents, and the predecessor Grantor Trustee
shall be released from all further duties and obligations hereunder and under
the other Operative Documents, all without the necessity of any consent or
approval by the Lessee and without in any way altering the terms of this Lease
or such other Operative Documents or the obligations of the Lessee hereunder or
thereunder. The Lessee, at its expense, upon receipt of written notice of the
appointment of a successor Grantor Trustee in accordance with the Operative
Documents, promptly shall make such modifications and changes to reflect such
appointment as reasonably shall be requested by such successor Grantor Trustee
in such insurance policies, schedules, certificates and other instruments
relating to the Undivided Interest or this Lease or the other Operative
Documents, all in form and substance reasonably satisfactory to such successor
Grantor Trustee.
19.9. Performance of Obligations to Indenture Trustee and Holders.
After the Undivided Interest shall no longer be subject to the Lien of the
Indenture, the provisions of this Lease which require or permit any action by,
any consent, approval or authorization of, the furnishing of any document, paper
or information to, or the performance of any other obligation to, the Indenture
Trustee or any Holder shall not be effective, and the Sections hereof containing
such provisions shall be read as though there were no such references to any
such requirements or permissions.
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19.10. True Lease. This Lease is intended as and shall constitute an
agreement of lease and nothing herein shall be construed as conveying to the
Lessee any right, title or interest in or to the Undivided Interest other than
as lessee hereunder, it being expressly understood by the parties hereto that
the foregoing does not constitute a covenant, representation or warranty of the
Lessee. This Lease is intended to be a "Finance Lease" under Article 2A of the
Uniform Commercial Code as in effect in the State of New York and a "true lease"
for federal income tax purposes.
19.11. Survival of Agreements. The representations, warranties,
covenants and indemnities of the parties provided for in the Operative
Documents, and the parties' obligations under any and all thereof, shall survive
the execution and delivery of this Lease, the Investment by the Owner
Participant and the purchase of the Secured Notes by the Loan Participant, any
disposition of any interest of the Owner Participant or the Lessor in the
Production System, and shall be and continue in effect notwithstanding any
investigation made by any of such parties and the fact that compliance with any
of the other terms, provisions or conditions of any of the Operative Documents
shall have been waived. Except as expressly provided in Section 12 of the
Participation Agreement, all indemnities (and the Lessee's obligation to pay
Supplemental Rent with respect thereto) shall survive termination of the Lease.
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THUS DONE AND PASSED, on this day of November, 1996, but effective
for all purposes as of November , 1996, before me, the undersigned Notary
Public, in and for the County of New York, State of New York, and in the
presence of the undersigned competent witnesses, who have hereunto signed their
names with the Grantor Trustee, Enserch Exploration and me, said Notary Public,
after reading of the whole.
WILMINGTON TRUST COMPANY,
not in its individual capacity
but solely as Corporate Grantor
Trustee under the Trust Agreement
By:
--------------------------------------
Its:
THOMAS P. LASKARIS,
not in his individual capacity
but solely as Individual Grantor
Trustee under the Trust Agreement
-----------------------------------------
WITNESSES: ENSERCH EXPLORATION, INC.
By:
- ------------------------------------ --------------------------------------
Name: Its:
-------------------------------
(Please Print)
- ------------------------------------
Name:
-------------------------------
(Please Print)
---------------------------------------
NOTARY PUBLIC
in and for the State of __________
My Commission Expires:
------------
---------------------------------------
(PRINTED NAME OF NOTARY PUBLIC)
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EXHIBIT 10.5
CREDIT AGREEMENT
AMONG
ENSERCH EXPLORATION, INC.
AS BORROWER,
TEXAS COMMERCE BANK NATIONAL ASSOCIATION,
AS ADMINISTRATIVE AGENT,
THE CHASE MANHATTAN BANK, N.A.,
AS SYNDICATION AGENT
CHEMICAL BANK,
AS AUCTION AGENT
AND
THE LENDERS NOW OR HEREAFTER PARTIES HERETO
DATED AS OF MAY 1, 1995
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS AND ACCOUNTING MATTERS
Section 1.01 Terms Defined Above.................. 1
Section 1.02 Certain Defined Terms................ 1
Section 1.03 Accounting Terms and Determinations.. 14
ARTICLE II
BORROWINGS
Section 2.01 Committed Loans...................... 14
Section 2.02 Borrowings, Continuations and
Conversions of Committed Loans.................... 15
Section 2.03 Changes of Commitments............... 17
Section 2.04 Fees................................. 17
Section 2.05 Several Obligations.................. 17
Section 2.06 Notes................................ 17
Section 2.07 Prepayments.......................... 18
Section 2.08 Lending Offices...................... 19
Section 2.09 Competitive Loans.................... 19
Section 2.10 Designated Subsidiaries.............. 23
ARTICLE III
PAYMENTS OF PRINCIPAL AND INTEREST
Section 3.01 Repayment of Loans................... 23
Section 3.02 Interest............................. 24
ARTICLE IV
PAYMENTS; PRO RATA TREATMENT; COMPUTATIONS; ETC.
Section 4.01 Payments............................. 25
Section 4.02 Pro Rata Treatment................... 25
Section 4.03 Computations......................... 26
Section 4.04 Non-receipt of Funds by the
Administrative Agent.............................. 26
Section 4.05 Sharing of Payments, Etc............. 26
Section 4.06 Taxes................................ 27
i
<PAGE>
ARTICLE V
CAPITAL ADEQUACY, ADDITIONAL COSTS, ETC.
Section 5.01 Additional Costs..................... 30
Section 5.02 Limitation on Eurodollar Loans....... 31
Section 5.03 Illegality........................... 31
Section 5.04 Base Rate Loans Pursuant to Sections
5.02 and 5.03...................................... 31
Section 5.05 Compensation......................... 32
ARTICLE VI
CONDITIONS PRECEDENT
Section 6.01 Initial Funding...................... 32
Section 6.02 Initial and Subsequent Loans......... 33
Section 6.03 Loans to Designated Subsidiaries..... 33
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
Section 7.01 Corporate Existence.................. 34
Section 7.02 Financial Condition.................. 35
Section 7.03 Litigation........................... 35
Section 7.04 No Breach............................ 35
Section 7.05 Authority............................ 35
Section 7.06 Approvals............................ 36
Section 7.07 Use of Loans......................... 36
Section 7.08 ERISA................................ 36
Section 7.09 Taxes................................ 37
Section 7.10 Titles, etc.......................... 37
Section 7.11 No Material Misstatements............ 38
Section 7.12 Investment Company Act............... 38
Section 7.13 Public Utility Holding Company Act... 38
Section 7.14 Subsidiaries and Partnerships........ 38
Section 7.15 Location of Business and Offices..... 38
Section 7.16 Defaults............................. 38
Section 7.17 Environmental Matters................ 39
Section 7.18 Compliance with Laws................. 40
Section 7.19 Pari Passu........................... 40
ii
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ARTICLE VIII
AFFIRMATIVE COVENANTS
Section 8.01 Financial Statements................. 40
Section 8.02 Litigation........................... 42
Section 8.03 Maintenance, Etc..................... 42
Section 8.04 Environmental Matters................ 43
Section 8.05 Further Assurances................... 43
Section 8.06 ERISA Information and Compliance..... 43
Section 8.07 Lease Payments....................... 44
Section 8.08 Subsidiary Guaranty Agreements....... 44
ARTICLE IX
NEGATIVE COVENANTS
Section 9.01 Debt to Capital Ratio................ 45
Section 9.02 Liens................................ 45
Section 9.03 Investments, Loans and Advances...... 47
Section 9.04 Dividends, Distributions and
Redemptions....................................... 47
Section 9.05 Nature of Business................... 47
Section 9.06 Mergers, Etc......................... 47
Section 9.07 Proceeds of Notes.................... 48
Section 9.08 ERISA Compliance..................... 48
Section 9.09 Environmental Matters................ 49
Section 9.10 Transactions with Affiliates......... 49
Section 9.11 Restrictive Dividend Agreements...... 49
ARTICLE X
EVENTS OF DEFAULT; REMEDIES
Section 10.01 Events of Default................... 49
Section 10.02 Remedies............................ 51
ARTICLE XI
THE ADMINISTRATIVE AGENT
Section 11.01 Appointment, Powers and Immunities.. 52
Section 11.02 Reliance by Agent................... 53
Section 11.03 Defaults............................ 53
Section 11.04 Rights as a Lender.................. 53
Section 11.05 INDEMNIFICATION..................... 53
Section 11.06 Non-Reliance on the Agents and other
Lenders........................................... 54
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Section 11.07 Action by Agent....................... 54
Section 11.08 Resignation or Removal of the Agents.. 55
ARTICLE XII
MISCELLANEOUS
Section 12.01 Waiver................................ 55
Section 12.02 Notices............................... 56
Section 12.03 Payment of Expenses, Indemnities, etc. 56
Section 12.04 Amendments, Etc....................... 58
Section 12.05 Successors and Assigns................ 59
Section 12.06 Assignments and Participations........ 59
Section 12.07 Invalidity............................ 60
Section 12.08 Counterparts.......................... 60
Section 12.09 References............................ 60
Section 12.10 Survival.............................. 61
Section 12.11 Captions.............................. 61
Section 12.12 NO ORAL AGREEMENTS.................... 61
Section 12.13 GOVERNING LAW; SUBMISSION TO
JURISDICTION........................................ 61
Section 12.14 Interest.............................. 62
Section 12.15 Confidentiality....................... 63
Section 12.16 Effectiveness......................... 64
Section 12.17 EXCULPATION PROVISIONS................ 64
Annex 1 - List of Commitments
Exhibit A - Form of Committed Note
Exhibit B - Form of Competitive Note
Exhibit C - Form of Competitive Bid Request
Exhibit D - Form of Notice to Lenders of Competitive Bid Request
Exhibit E - Form of Competitive Bid
Exhibit F - Form of Competitive Bid Administration Questionnaire
Exhibit G - Form of Borrowing, Continuation and Conversion Request
Exhibit H - Form of Compliance Certificate
Exhibit I - Form of Legal Opinion of Counsel for the Company
Exhibit J - Form of Legal Opinion of Counsel for the Designated Subsidiary
Exhibit K - Form of Assignment Agreement
Exhibit L - Form of Notice of Designation of Designated Subsidiaries
Exhibit M - Form of Permitted Subordinated Debt Subordination Provisions
Exhibit N - Form of Legal Opinion of Counsel for the Subsidiary Guarantor
Schedule 1.02 - Capital and Operating Lease Obligations
Schedule 7.02 - Liabilities
Schedule 7.03 - Litigation
Schedule 7.09 - Taxes
iv
<PAGE>
Schedule 7.10 - Titles, etc.
Schedule 7.14 - Subsidiaries and Partnerships
Schedule 7.17 - Environmental Matters
v
<PAGE>
THIS CREDIT AGREEMENT dated as of May 1, 1995 is among: ENSERCH
EXPLORATION, INC., a corporation formed under the laws of the State of
Texas (the "Company"); each of the lenders that is a signatory hereto or
which becomes a signatory hereto as provided in Section 12.06
(individually, together with its successors and assigns, a "Lender" and,
collectively, the "Lenders"); TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a
national banking association (in its individual capacity, "TCB"), as
administrative agent for the Lenders (in such capacity, together with its
successors in such capacity, the "Administrative Agent"); CHEMICAL BANK,
a New York banking corporation (in its individual capacity, "Chemical"),
as auction agent for the Lenders (in such capacity, together with its
successors in such capacity, the "Auction Agent"); and THE CHASE MANHATTAN
BANK, N.A., a national association (in its individual capacity, "Chase"),
as syndication agent for the Lenders (in such capacity, together with its
successors in such capacity, the "Syndication Agent").
R E C I T A L S
A. The Company has requested that the Lenders provide certain loans to
the Company and to certain of its subsidiaries; and
B. The Lenders have agreed to make such loans subject to the terms and
conditions of this Agreement.
C. In consideration of the mutual covenants and agreements herein
contained and of the loans and commitments hereinafter referred to, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING MATTERS
Section 1.01 Terms Defined Above. As used in this Agreement, the
terms "Administrative Agent," "Auction Agent," "Company," "Chase,"
"Chemical," "Lender," "Lenders," "Syndication Agent," and "TCB" shall have
the meanings indicated above.
Section 1.02 Certain Defined Terms. As used herein, the following
terms shall have the following meanings (all terms defined in this Article
I or in other provisions of this Agreement in the singular to have the
same meanings when used in the plural and vice versa):
"Additional Costs" shall have the meaning assigned such term in
Section 5.01(a).
"Affected Loans" shall have the meaning assigned such term in Section
5.04.
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"Affiliate" shall mean with respect to any Person, any other Person
that, directly or indirectly, through one or more intermediaries,
controls, or is controlled by, or is under common control with, such
Person. For purposes of the foregoing definition, "control" means the
direct or indirect ownership of more than 50% of the outstanding capital
stock or other equity interests having ordinary voting power.
"Agents" shall mean the Administrative Agent, the Syndication Agent
and/or the Auction Agent.
"Agreement" shall mean this Credit Agreement, as the same may from
time to time be amended or supplemented.
"Aggregate Commitments" at any time shall equal the sum of the
Commitments of the Lenders ($350,000,000), as the same may be reduced
pursuant to Section 2.03(a).
"Applicable Lending Office" shall mean, for each Lender, the lending
office of such Lender (or an Affiliate of such Lender) designated for each
Type of Loan on the signature pages hereof or such other offices of such
Lender (or of an Affiliate of such Lender) as such Lender may from time to
time specify to the Administrative Agent and the Company as the office by
which its Loans of such Type are to be made and maintained.
"Applicable Margin" shall mean the following rates per annum as are
applicable based upon the Debt to Capital Ratio calculated as of the last
day of a fiscal quarter of the Company to be effective for any Committed
Loan outstanding or for the facility fee during the period from the
Financial Statement Delivery Date following such fiscal quarter to but not
including the next succeeding Financial Statement Delivery Date:
DEBT TO CAPITAL RATIO
- ---------------------
40% 45% 50%
BUT BUT BUT
40% 45% 50% 55% 55%
- --- --- --- ---
Facility Fee .150% .175% .200% .225% .250%
Eurodollar Loans .350% .425% .500% .575% .750%
Base Rate Loans 0% 0% 0% 0% 0%
"Assignment" shall have the meaning assigned such term in Section
12.06(b).
"Base Rate" shall mean, with respect to any Base Rate Loan, for any
day, the higher of (i) the Federal Funds Rate for any such day plus 1/2 of
1%
2
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or (ii) the Prime Rate for such day. Each change in any interest rate
provided for herein based upon the Base Rate resulting from a change in
the Base Rate shall take effect at the time of such change in the Base
Rate.
"Base Rate Loans" shall mean Loans that bear interest at rates based
upon the Base Rate.
"Benefit Plan" shall mean any employee pension benefit plan, as
defined in section 3(2) of ERISA (other than a Multiemployer Plan), which
(a) is currently or hereafter sponsored, maintained or contributed to by
the Company, a Subsidiary or an ERISA Affiliate or (b) was at any time
during the six preceding years, sponsored, maintained or contributed to by
the Company, a Subsidiary or an ERISA Affiliate.
"Borrowing" shall mean a borrowing pursuant to a Borrowing Request or
a Competitive Bid Request or a continuation or a conversion pursuant to
Section 2.02 consisting, in each case, of the same Type of Loans having,
in the case of Eurodollar Loans and Fixed Rate Loans, the same Interest
Period.
"Borrowing Request" shall mean a request for a Borrowing of Committed
Loans pursuant to Section 2.02, substantially in the form attached as
Exhibit G.
"Business Day" shall mean any day other than a day on which commercial
banks are authorized or required to close in New York, New York, Dallas,
Texas, or at the location of the Principal Office and, where such term is
used in the definition of "Quarterly Date" or if such day relates to a
Borrowing or continuation of, a payment or prepayment of principal of or
interest on, or a conversion of or into, or the Interest Period for, a
Eurodollar Loan or a notice by the Company with respect to any such
Borrowing or continuation, payment, prepayment, conversion or Interest
Period, any day which is also a day on which dealings in Dollar deposits
are carried out in the London interbank market.
"Capital Lease Obligations" shall mean, as to the Company or any
Subsidiary, the obligations of such person to pay rent or other amounts
under a lease of (or other agreement conveying the right to use) real
and/or personal property which obligations are required to be classified
and accounted for as a liability for a capital lease on a balance sheet of
such Person in accordance with GAAP and, for purposes of this Agreement,
the amount of such obligations shall be the capitalized amount thereof.
"Closing Date" shall mean the as of date of this Agreement set forth
in the first paragraph hereof.
3
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"Code" shall mean the Internal Revenue Code of 1986, as amended, and
any successor statute.
"Commitment" shall mean, for any Lender, its obligation to make
Committed Loans up to the amount set forth opposite such Lender's name on
Annex 1 under the caption "Commitments" (as the same may be reduced
pursuant to Section 2.03(a) pro rata to each Lender based on its
Percentage Share) as modified from time to time to reflect any assignments
permitted by Section 12.06(b).
"Committed Loan" shall mean a Loan made pursuant to Section 2.01.
"Committed Note" shall mean for each Obligor a promissory note of such
Obligor described in Section 2.06(a) payable to any Lender and being
substantially in the form of Exhibit A, evidencing the aggregate
Indebtedness of such Obligor to such Lender resulting from Committed Loans
made by such Lender, together with all renewals, extensions, modifications
and replacements thereof and substitutions therefor.
"Competitive Bid" shall mean an offer by a Lender to make a
Competitive Loan pursuant to Section 2.09.
"Competitive Bid Administrative Questionnaire" shall mean a
questionnaire in the form of Exhibit F.
"Competitive Bid Rate" shall mean, as to any Competitive Bid made by
a Lender pursuant to Section 2.09, (a) in the case of a Eurodollar Loan,
the Margin (which will be added to or subtracted from the Eurodollar Rate)
and (b) in the case of a Fixed Rate Loan, the fixed rate of interest, in
each case, offered by the Lender making such Competitive Bid.
"Competitive Bid Request" shall have the meaning assigned such term in
Section 2.09.
"Competitive Loans" shall mean the loans provided for in Section 2.09.
"Competitive Note" shall mean for each Obligor a promissory note of
such Obligor described in Section 2.06(b) payable to any Lender and being
substantially in the form of Exhibit B, evidencing the aggregate
Indebtedness of such Obligor to such Lender resulting from Competitive
Loans made by such Lender, together with all renewals, extensions,
modifications and replacements thereof and substitutions therefor.
"Consolidated Subsidiaries" shall mean each Subsidiary (whether now
existing or hereafter created or acquired) the financial statements of
which
4
<PAGE>
shall be (or should have been) consolidated with the financial statements
of the Company in accordance with GAAP.
"Debt" shall mean, for the Company or any Subsidiary the sum of the
following (without duplication): (i) all obligations for borrowed money or
evidenced by bonds, debentures, mandatorily redeemable preferred stock
with maturities before the Revolving Credit Termination Date, notes or
other similar instruments (excluding interest, fees and charges); (ii) all
obligations in respect of bankers' acceptances, unreimbursed drawings on
letters of credit, surety or other bonds; (iii) all Capital Lease
Obligations, but excluding such Capital Lease Obligations in existence as
of the Closing Date and set forth on Schedule 1.02 and any renewals and
rearrangements, but not increases in the amount thereof; (iv) all
Operating Lease Obligations, but excluding such Operating Lease
Obligations in existence as of the Closing Date and set forth on Schedule
1.02 and any renewals and rearrangements and increases up to an additional
15% in the amount thereof; (v) all financial guaranties in respect of Debt
of unconsolidated Affiliates and unrelated Persons; (vi) all obligations
secured by a Lien on any asset, whether or not such Debt is assumed, but
excluding obligations secured by Liens permitted by Sections 9.02(c), (e),
(f), (h), (i), (j), (k) and (l); (vii) all production payments in
connection with oil and gas properties; and (viii) all Debt of Special
Entities to the extent the Company or any Subsidiary is liable for such
Debt under GAAP or such Debt is reflected on the consolidated balance
sheet of the Company or any Subsidiary. "Debt" shall not include
Permitted Subordinated Debt.
"Debt to Capital Ratio" shall have the meaning assigned such term in
Section 9.01.
"Default" shall mean an Event of Default or an event which with notice
or lapse of time or both would become an Event of Default.
"Designated Subsidiary" shall mean a Subsidiary during the period that
it has been designated by the Company pursuant to Section 2.10 to have the
right to borrow hereunder.
"Dollars" and "$" shall mean lawful money of the United States of
America.
"Effective Date" shall mean the date on which (i) each of the
conditions precedent set forth in Article VI has been satisfied or waived
by each of the Lenders and (ii) the conditions to effectiveness set forth
in Section 12.16 have been satisfied. Subject to Section 6.01, the
Effective Date and Closing Date may be the same date.
5
<PAGE>
"Environmental Laws" shall mean any and all Governmental Requirements
pertaining to health or the environment in effect in any and all
jurisdictions in which the Company or any Subsidiary is conducting or at
any time has conducted business, or where any Property of the Company or
any Subsidiary is located, including without limitation, the Oil Pollution
Act of 1990, as amended, ("OPA"), the Clean Air Act, as amended, the
Comprehensive Environmental, Response, Compensation, and Liability Act of
1980, as amended, ("CERCLA"), the Federal Water Pollution Control Act, as
amended, the Occupational Safety and Health Act of 1970, as amended, the
Resource Conservation and Recovery Act of 1976, as amended, ("RCRA"), the
Safe Drinking Water Act, as amended, the Toxic Substances Control Act, as
amended, the Superfund Amendments and Reauthorization Act of 1986, as
amended, the Hazardous Materials Transportation Act, as amended, and other
environmental conservation or protection laws. The term "oil" shall have
the meaning specified in OPA, the terms "hazardous substance" and
"release" (or "threatened release") shall have the meanings specified in
CERCLA, and the terms "solid waste" and "disposal" (or "disposed") shall
have the meanings specified in RCRA; provided, however, that (i) in the
event either OPA, CERCLA or RCRA is amended so as to broaden the meaning
of any term defined thereby, such broader meaning shall apply subsequent
to the effective date of such amendment and (ii) to the extent the laws of
the state in which any Property of the Company or any Subsidiary is
located establish a meaning for "oil," "hazardous substance," "release,"
"solid waste" or "disposal" which is broader than that specified in either
OPA, CERCLA or RCRA, such broader meaning shall apply.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended, and any successor statute.
"ERISA Affiliate" shall mean each trade or business (whether or not
incorporated) which together with the Company or a Subsidiary would be
deemed to be a "single employer" within the meaning of section 4001(b)(1)
of ERISA or subsections (b), (c), (m) or (o) of section 414 of the Code.
"ERISA Event" shall mean (i) a "Reportable Event" described in section
4043 of ERISA and the regulations issued thereunder (other than a
"Reportable Event" not subject to the provision for 30-day notice to the
PBGC), (ii) the withdrawal of the Company, a Subsidiary or any ERISA
Affiliate from a Plan during a plan year in which it was a "substantial
employer" as defined in section 4001(a)(2) of ERISA, (iii) the filing of
a notice of intent to terminate a Plan or the treatment of a Plan
amendment as a termination under section 4041 of ERISA, (iv) the
institution of proceedings to terminate a Plan by the PBGC, (v) any other
event or condition which might constitute grounds under section 4042 of
ERISA for the termination of, or the appointment of a trustee to
administer, any Plan
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or (vi) the partial or complete withdrawal of the Company, a Subsidiary
or any ERISA Affiliate from a Multiemployer Plan.
"Eurodollar Loans" shall mean Loans the interest rates on which are
determined on the basis of rates referred to in the definition of
"Eurodollar Rate".
"Eurodollar Rate" shall mean, with respect to any Eurodollar Loan, the
rate per annum (rounded upwards, if necessary, to the nearest 1/16 of 1%)
quoted by the Administrative Agent at approximately 11:00 a.m. London time
(or as soon thereafter as practicable) two (2) Business Days prior to the
first day of the Interest Period for such Loan for the offering by the
Administrative Agent to leading banks in the London interbank market of
Dollar deposits having a term comparable to such Interest Period and in an
amount comparable to the principal amount of the Eurodollar Loan, if a
Committed Loan, to be made by the Administrative Agent for such Interest
Period, or, if a Competitive Loan, requested for such Interest Period.
"Event of Default" shall have the meaning assigned such term in
Section 10.01.
"Federal Funds Rate" shall mean, for any day, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the
weighted average of the rates on overnight federal funds transactions with
a member of the Federal Reserve System arranged by federal funds brokers
on such day, as published by the Federal Reserve Bank of New York on the
Business Day next succeeding such day, provided that (i) if the date for
which such rate is to be determined is not a Business Day, the Federal
Funds Rate for such day shall be such rate on such transactions on the
next preceding Business Day as so published on the next succeeding
Business Day, and (ii) if such rate is not so published for any day, the
Federal Funds Rate for such day shall be the average rate charged to the
Administrative Agent on such day on such transactions as determined by the
Administrative Agent.
"Fee Letter" shall mean collectively that certain letter agreement
from the Company to the Administrative Agent and the Syndication Agent
dated April 4, 1995 and that certain letter agreement from the Company to
the Auction Agent, both letters concerning certain fees in connection with
this Agreement and any agreements or instruments executed in connection
therewith, as the same may be amended or replaced from time to time.
"Financial Statement Delivery Date" means the date on which the
quarterly or annual financial statements of the Company are delivered
pursuant to Section 8.01(a) or (b), as the case may be.
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"Financial Statements" shall mean the financial statement or
statements of the Company and its Consolidated Subsidiaries described or
referred to in Section 7.02.
"Fixed Rate Loan" shall mean any Competitive Loan made by a Lender
pursuant to Section 2.09 bearing interest based upon an actual percentage
rate per annum offered by such Lender (as opposed to a Margin over the
Eurodollar Rate) and accepted by the Company.
"GAAP" shall mean generally accepted accounting principles in the
United States of America in effect from time to time.
"Governmental Authority" shall mean any nation or government, any
state or other political subdivision thereof and any Person exercising
executive, legislative, judicial, regulatory or administrative functions
of or pertaining to government.
"Governmental Requirement" shall mean any law, statute, code,
ordinance, order, determination, rule, regulation, judgment, decree,
injunction, franchise, permit, certificate, license, authorization or
other directive or requirement (whether or not having the force of law),
including, without limitation, Environmental Laws, energy regulations and
occupational, safety and health standards or controls, of any Governmental
Authority.
"Guarantors" shall mean the Company and the Subsidiary Guarantors.
"Guaranty Agreements" shall mean the Parent Guaranty Agreement and the
Subsidiary Guaranty Agreements.
"Highest Lawful Rate" shall mean, with respect to each Lender, the
maximum nonusurious interest rate, if any, that at any time or from time
to time may be contracted for, taken, reserved, charged or received on the
Notes or on other Indebtedness under laws applicable to such Lender which
are presently in effect or, to the extent allowed by law, under such
applicable laws which may hereafter be in effect and which allow a higher
maximum nonusurious interest rate than applicable laws now allow.
"Indebtedness" shall mean any and all amounts owing or to be owing by
the Obligors to the Administrative Agent and/or Lenders in connection with
the Loan Documents and all renewals, extensions and/or rearrangements of
any of the above.
"Indemnified Parties" shall have the meaning assigned such term in
Section 12.03(b).
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"Indemnity Matters" shall mean any and all actions, suits, proceedings
(including any investigations, litigation or inquiries), claims, demands
and causes of action made or threatened against a Person and, in
connection therewith, all losses, liabilities, damages (including, without
limitation, punitive damages except those arising from the gross
negligence or wilful misconduct of such Indemnified Party) or reasonable
costs and expenses of any kind or nature whatsoever incurred by such
Person whether caused by the negligent acts or omissions of such Person
seeking indemnification.
"Initial Funding" shall mean the funding of the initial Loans pursuant
to Section 6.01.
"Interest Period" shall mean, (a) with respect to any Eurodollar Loan,
the period commencing on the date such Eurodollar Loan is made and ending
on the numerically corresponding day in the first, second, third or sixth
calendar month thereafter, as the Company may select as provided in
Section 2.02 (or such longer period as may be requested by the Company and
agreed to by the Majority Lenders), except that each Interest Period which
commences on the last Business Day of a calendar month (or on any day for
which there is no numerically corresponding day in the appropriate
subsequent calendar month) shall end on the last Business Day of the
appropriate subsequent calendar month; and (b) with respect to any Fixed
Rate Loan, the period commencing on the date such Fixed Rate Loan is made
and ending on the date set forth in the Competitive Bid in which the offer
to make such Fixed Rate Loan was extended.
Notwithstanding the foregoing: (i) no Interest Period may commence
before and end after the Revolving Credit Termination Date; (ii) each
Interest Period which would otherwise end on a day which is not a Business
Day shall end on the next succeeding Business Day (or, for Eurodollar
Loans, if such next succeeding Business Day falls in the next succeeding
calendar month, on the next preceding Business Day); (iii) no Interest
Period for Eurodollar Loans shall have a duration of less than one month
and, if the Interest Period for any Eurodollar Loans would otherwise be
for a shorter period, such Loans shall not be available hereunder; and
(iv) no Interest Period for Fixed Rate Loans shall have a duration of less
than one (1) day nor more than 365 days.
"Lien" shall mean any interest in Property securing an obligation owed
to, or a claim by, a Person other than the owner of the Property, whether
such interest is based on the common law, statute or contract, and whether
such obligation or claim is fixed or contingent, and including but not
limited to (i) the lien or security interest arising from a mortgage,
encumbrance, pledge, security agreement, conditional sale or trust receipt
or a lease, consignment or bailment for security purposes or (ii)
production payments
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and the like payable out of Properties. For the purposes of this
Agreement, the Company or any Subsidiary shall be deemed to be the owner
of any Property which it has acquired or holds subject to a conditional
sale agreement, or leases under a financing lease or other arrangement
pursuant to which title to the Property has been retained by or vested in
some other Person in a transaction intended to create a financing.
"Loan Documents" shall mean this Agreement, the Notes, the Borrowing
Requests, the Competitive Bid Requests, the Fee Letter, the Guaranty
Agreements and the Notices of Designation of Designated Subsidiaries.
"Loans" shall mean Committed Loans or Competitive Loans.
"Majority Lenders" shall mean, at any time while no Committed Loans
are outstanding, Lenders having at least fifty-one percent (51%) of the
Aggregate Commitments and, at any time while Committed Loans are
outstanding, Lenders holding at least fifty-one percent (51%) of the
outstanding aggregate principal amount of the Committed Loans (without
regard to any sale by a Lender of a participation in any Loan under
Section 12.06(c)).
"Margin" shall mean, as to any Competitive Bid relating to a
Eurodollar Loan, the margin (expressed as a percentage rate per annum) to
be added to or subtracted from the Eurodollar Rate in order to determine
the interest rate payable to such Lender with respect to such Eurodollar
Loan.
"Material Adverse Effect" shall mean any material and adverse change
in the financial condition, business or results of operations of the
Company and its Subsidiaries taken as a whole which makes them unable to
perform their obligations under the Loan Documents.
"Multiemployer Plan" shall mean a multiemployer plan as defined in
section 3(37) or 4001(a)(3) of ERISA which is, or within the six preceding
years was, contributed to by the Company, a Subsidiary or an ERISA
Affiliate.
"Net Worth" shall mean, as at any date, the sum of the following for
the Company and its Consolidated Subsidiaries determined (without
duplication) in accordance with GAAP:
(i) the amount of preferred stock (excluding mandatorily redeemable
preferred stock) and common stock at par plus the amount of paid in
capital of the Company, plus
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(ii) the amount of retained earnings (or, in the case of a retained
earnings deficit, minus the amount of such deficit), minus
(iii) the cost of treasury shares, minus
(iv) unamortized restricted stock compensation, plus
(v) foreign currency translation adjustment gains (or minus losses),
plus
(vi) any other additions (or minus any other deductions) to the net
worth of the Company required by GAAP.
"Notes" shall mean the Committed Notes and the Competitive Notes.
"Notice of Designation of Designated Subsidiaries" shall be
substantially in the form of Exhibit L and delivered pursuant to Section
6.03.
"Obligor" shall mean either the Company or any Designated Subsidiary.
"Operating Lease Obligations" shall mean, as to the Company or any
Subsidiary, the obligations of such person to pay rent or other amounts
under a lease of (or other agreement conveying the right to use) real
and/or personal property which obligations are not required to be
classified and accounted for as a liability for a capital lease on a
balance sheet of such Person and, for purposes of this Agreement, the
amount of such obligations shall be the discounted present value of the
lease payments, discounted in the same manner a capital lease would be
discounted according to GAAP.
"Other Taxes" shall have the meaning assigned such term in Section
4.06(b).
"Parent Guaranty Agreement" shall mean the Guaranty Agreement of even
date with this Agreement executed by the Company guaranteeing the
Indebtedness of the Designated Subsidiaries as such agreement may be
amended, supplemented or restated from time to time.
"PBGC" shall mean the Pension Benefit Guaranty Corporation, or any
successor thereto.
"Percentage Share" shall mean the percentage of the Aggregate
Commitments to be provided by a Lender under this Agreement as indicated
on Annex 1 hereto, as modified from time to time to reflect any
assignments permitted by Section 12.06(b).
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"Permitted Subordinated Debt" shall mean Debt of the Company or a
Subsidiary owing to the Company, ENSERCH Corporation or another Subsidiary
subordinated to the Indebtedness on terms substantially similar to the
terms set forth in Exhibit M or on terms and pursuant to documentation
acceptable to the Administrative Agent and the Syndication Agent.
"Person" shall mean any individual, corporation, company, limited
liability company, voluntary association, partnership, joint venture,
trust, unincorporated organization or government or any agency,
instrumentality or political subdivision thereof, or any other form of
entity.
"Plan" shall mean each Benefit Plan and Multiemployer Plan.
"Post-Default Rate" shall mean, in respect of any principal of any
Loan which is not paid when due (whether at stated maturity, by
acceleration or otherwise), a rate per annum during the period commencing
on the due date until such amount is paid in full or the default is cured
or waived equal to 2% per annum plus the Base Rate as in effect from time
to time plus the Applicable Margin (if any), but in no event to exceed the
Highest Lawful Rate provided that, if such amount in default is principal
of a Eurodollar Loan or a Fixed Rate Loan, the "Post-Default Rate" for
such principal shall be, for the period commencing on the due date and
ending on the last day of the Interest Period therefor, 2% per annum plus
the applicable interest rate for such Loan as provided in Section 3.02(b),
(c) or (d), but in no event to exceed the Highest Lawful Rate.
"Prime Rate" shall mean the rate of interest from time to time
announced publicly by the Administrative Agent at the Principal Office as
its prime rate. Such rate is set by the Administrative Agent as a general
reference rate of interest, taking into account such factors as the
Administrative Agent may deem appropriate, it being understood that many
of the Administrative Agent's commercial or other loans are priced in
relation to such rate, that it is not necessarily the lowest or best rate
actually charged to any customer and that the Administrative Agent may
make various commercial or other loans at rates of interest having no
relationship to such rate.
"Principal Office" shall mean the principal office of the
Administrative Agent, presently located at 2200 Ross Avenue, Dallas, Texas
75201, Attention: Energy Group.
"Property" shall mean any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
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"Quarterly Dates" shall mean the last day of each March, June,
September, and December, in each year, the first of which shall be June
30, 1995; provided, however, that if any such day is not a Business Day,
such Quarterly Date shall be the next succeeding Business Day.
"Regulation D" shall mean Regulation D of the Board of Governors of
the Federal Reserve System (or any successor), as the same may be amended
or supplemented from time to time.
"Regulatory Change" shall mean, with respect to any Lender, any change
after the Closing Date in any Governmental Requirement (including
Regulation D) or the adoption or making after such date of any
interpretations, directives or requests applying to a class of lenders
(including such Lender or its Applicable Lending Office) of or under any
Governmental Requirement (whether or not having the force of law) by any
Governmental Authority charged with the interpretation or administration
thereof.
"Required Payment" shall have the meaning assigned such term in
Section 4.04.
"Responsible Officer" shall mean, as to the Company or any Subsidiary,
the Chief Executive Officer, the President or any Vice President of such
Person and, with respect to financial matters, the term "Responsible
Officer" shall include the Chief Financial Officer, Controller, Treasurer
or Treasury Officer of such Person. Unless otherwise specified, all
references to a Responsible Officer herein shall mean a Responsible
Officer of the Company.
"Revolving Credit Termination Date" shall mean, unless the Commitments
are sooner terminated pursuant to Sections 2.03(a) or 10.02, May 1, 1999.
"SEC" shall mean the Securities and Exchange Commission or any
successor Governmental Authority.
"Special Entity" shall mean any joint venture, limited liability
company, general or limited partnership or any other type of partnership
or company in which the Company or one or more of its other Subsidiaries
is a member, owner, partner or joint venturer and owns at least a majority
of the equity of such entity.
"Subsidiary" shall mean any corporation of which at least a majority
of the outstanding shares of stock having by the terms thereof ordinary
voting power to elect a majority of the board of directors of such
corporation (irrespective of whether or not at the time stock of any other
class or classes
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of such corporation shall have or might have voting power by reason of
the happening of any contingency) is at the time directly or indirectly
owned or controlled by the Company or one or more of its Subsidiaries or
by the Company and one or more of its Subsidiaries.
"Subsidiary Guarantor" shall mean any Subsidiary or Special Entity
that has executed a Subsidiary Guaranty Agreement.
"Subsidiary Guaranty Agreement" shall mean any Guaranty Agreement
executed by a Subsidiary or a Special Entity as required by Section 8.08
as such agreement may be amended, supplemented or restated from time to
time.
"Taxes" shall have the meaning assigned such term in Section 4.06(a).
"Type" shall mean, with respect to any Loan, a Base Rate Loan,
Eurodollar Loan or Fixed Rate Loan.
"Withdrawal Liability" shall have the meaning given such term under
Part I of Subtitle E of Title IV of ERISA.
Section 1.03 Accounting Terms and Determinations. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted,
all determinations with respect to accounting matters hereunder shall be
made, and all financial statements and certificates and reports as to
financial matters required to be furnished to the Administrative Agent or
the Lenders hereunder shall be prepared, in accordance with GAAP, applied
on a basis consistent with the audited financial statements of the Company
referred to in Section 7.02 (except for changes concurred with by the
Company's independent public accountants).
ARTICLE II
BORROWINGS
Section 2.01 Committed Loans.
(a) Loans. Each Lender severally agrees, on the terms of this
Agreement, to make Committed Loans to any Obligor during the period from
and including (i) the Effective Date or (ii) such later date that such
Lender becomes a party to this Agreement as provided in Section 12.06(b),
to and up to, but excluding, the Revolving Credit Termination Date in an
aggregate principal amount at any one time outstanding and owing by all
Obligors up to but not exceeding the amount of such Lender's Commitment as
then in effect; provided, however, that the aggregate principal amount of
all Committed Loans and Competitive Loans by all Lenders to any or all
Obligors at any one time outstanding shall not exceed the Aggregate
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Commitments. Subject to the terms of this Agreement, during the period
from the Effective Date to and up to, but excluding, the Revolving Credit
Termination Date, any Obligor may borrow, repay and reborrow the amount
described in this Section 2.01.
(b) Limitation on Types of Loans. Subject to the other terms and
provisions of this Agreement, at the option of the Company, the Committed
Loans may be Base Rate Loans or Eurodollar Loans; provided that, without
the prior written consent of the Majority Lenders, no more than seven (7)
Eurodollar Loans which are Committed Loans to any or all Obligors by any
Lender may be outstanding at any time.
Section 2.02 Borrowings, Continuations and Conversions of Committed
Loans.
(a) Borrowings. An Obligor shall cause the Company to give the
Administrative Agent (which shall promptly notify the Lenders) advance
notice as hereinafter provided of each Borrowing of a Committed Loan
hereunder, which shall specify the name of the Obligor making such
Borrowing; the aggregate amount of such Borrowing, the Type and the date
(which shall be a Business Day) of the Committed Loans to be borrowed and
(in the case of Eurodollar Loans) the duration of the Interest Period
therefor.
(b) Minimum Amounts. All Borrowings of Base Rate Loans shall be in
amounts of at least $10,000,000 or the remaining balance of the Aggregate
Commitments, if less, or any whole multiple of $1,000,000 in excess
thereof, and all Borrowings in the form of Eurodollar Loans shall be in
amounts of at least $10,000,000 or any whole multiple of $1,000,000 in
excess thereof.
(c) Notices. All Borrowings, continuations and conversions of
Committed Loans shall require advance written notice to the Administrative
Agent (which shall promptly notify the Lenders) in the form of Exhibit G
(or telephonic notice promptly confirmed by such a written notice), which
in each case shall be irrevocable, from the Company on behalf of an
Obligor to be received by the Administrative Agent not later than 10:00
a.m. Central time on the Business Day of each Base Rate Loan borrowing and
three Business Days prior to the date of each Eurodollar Loan borrowing,
continuation or conversion. Without in any way limiting the Company's
obligation to confirm in writing any telephonic notice, the Administrative
Agent may act without liability upon the basis of telephonic notice
believed by the Administrative Agent in good faith to be from the Company
prior to receipt of written confirmation. In each such case, each Obligor
hereby waives the right to dispute the Administrative Agent's record of
the terms of such telephonic notice except in the case of gross negligence
or willful misconduct by the Administrative Agent.
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(d) Continuation Options. With respect to Committed Loans and subject
to the provisions made in this Section 2.02(d), the Company on behalf of
an Obligor may elect to continue all or any part of any Borrowing of
Eurodollar Loans beyond the expiration of the then current Interest Period
relating thereto by giving advance notice as provided in Section 2.02(c)
to the Administrative Agent (which shall promptly notify the Lenders) of
such election, specifying the amount of such Loan to be continued and the
Interest Period therefor. In the absence of such a timely and proper
election, the Company on behalf of an Obligor shall be deemed to have
elected to convert such Eurodollar Loan to a Base Rate Loan pursuant to
Section 2.02(e). All or any part of any Eurodollar Loan may be continued
as provided herein, provided that (i) any continuation of any such Loan
shall be (as to each Borrowing as continued for an applicable Interest
Period) in amounts of at least $10,000,000 or any whole multiple of
$1,000,000 in excess thereof and (ii) no Default shall have occurred and
be continuing. If a Default shall have occurred and be continuing, each
Eurodollar Loan shall be converted to a Base Rate Loan on the last day of
the Interest Period applicable thereto.
(e) Conversion Options. With respect to Committed Loans, the Company
on behalf of an Obligor may elect to convert all or any part of any
Eurodollar Loan on the last day of the then current Interest Period
relating thereto to a Base Rate Loan by giving notice as provided in
Section 2.02(c) to the Administrative Agent (which shall promptly notify
the Lenders) of such election. Subject to the provisions made in this
Section 2.02(e), the Company on behalf of an Obligor may elect to convert
all or any part of any Base Rate Loan at any time and from time to time to
a Eurodollar Loan by giving advance notice as provided in Section 2.02(c)
to the Administrative Agent (which shall promptly notify the Lenders) of
such election. All or any part of any outstanding Base Rate Loan may be
converted as provided herein, provided that (i) any conversion of any Base
Rate Loan into a Eurodollar Loan shall be (as to each such Borrowing into
which there is a conversion for an applicable Interest Period) in amounts
of at least $10,000,000 or any whole multiple of $1,000,000 in excess
thereof and (ii) no Default shall have occurred and be continuing. If a
Default shall have occurred and be continuing, no Base Rate Loan may be
converted into a Eurodollar Loan.
(f) Advances. Not later than 1:00 p.m. (Central time) on the date
specified for each Borrowing hereunder, each Lender shall make available
the amount of the Committed Loan to be made by it on such date to the
Administrative Agent, to an account which the Administrative Agent shall
specify, in immediately available funds, for the account of the Company.
The amounts so received by the Administrative Agent shall, subject to the
terms and conditions of this Agreement, be made available to the Company
on behalf of an Obligor by depositing the same, in immediately available
funds, in an account of the Company, designated by the Company on behalf
of an Obligor and maintained at the Principal Office, or to be deposited
at the direction of the Company on behalf of an Obligor.
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Section 2.03 Changes of Commitments.
(a) The Company on behalf of an Obligor shall have the right to
terminate or to reduce the amount of the Aggregate Commitments at any time
or from time to time upon not less than two (2) Business Days' prior
notice to the Administrative Agent (which shall promptly notify the
Lenders) of each such termination or reduction, which notice shall specify
the effective date thereof and the amount of any such reduction (which
shall not be less than $10,000,000 or any whole multiple of $1,000,000 in
excess thereof) and shall be irrevocable and effective only upon receipt
by the Administrative Agent.
(b) The Aggregate Commitments once terminated or reduced may not be
reinstated.
Section 2.04 Fees.
(a) The Company shall pay to the Administrative Agent for the account
of each Lender a facility fee on the daily average amount of the Aggregate
Commitments (regardless of usage) for the period from and including the
Closing Date up to but excluding the earlier of the date the Aggregate
Commitments are terminated or the Revolving Credit Termination Date at a
rate per annum equal to the amount set forth in the definition of
Applicable Margin for the period designated therein. Accrued facility
fees shall be payable quarterly in arrears on each Quarterly Date and on
the earlier of the date the Aggregate Commitments are terminated or the
Revolving Credit Termination Date.
(b) The Company shall pay to the Administrative Agent for its own
account an administration fee of $25,000.00 per annum payable on the
Closing Date and each anniversary of the Closing Date during the term of
this Agreement.
Section 2.05 Several Obligations. The failure of any Lender to make
any Loan to be made by it on the date specified therefor shall not relieve
any other Lender of its obligation to make its Loan on such date, but no
Lender shall be responsible for the failure of any other Lender to make a
Loan to be made by such other Lender.
Section 2.06 Notes.
(a) The Committed Loans made by each Lender to an Obligor shall be
evidenced by a single promissory note of such Obligor in substantially the
form of Exhibit A, dated (i) the Closing Date or (ii) the effective date
of an Assignment pursuant to Section 12.06(b) or (iii) the date that the
Company designates a Designated Subsidiary pursuant to Section 2.10,
payable to the order of such Lender in a principal amount equal to its
Commitment and otherwise duly completed. The date, amount, Type, interest
rate and Interest Period, if any, of each Committed Loan made by each
Lender, and all payments made on account of the principal
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thereof, shall be recorded by such Lender on its books for its Committed
Note, and, prior to any transfer, endorsed by such Lender on the schedule
attached to such Committed Note or any continuation thereof. Failure to
make any such notation shall not affect the Obligor's obligations in
respect of such Loans, or affect the validity of such transfer by any
Lender of such Note.
(b) The Competitive Loans made by each Lender to an Obligor shall be
evidenced by a single promissory note of such Obligor in substantially the
form of Exhibit B, dated (i) the Closing Date or (ii) the effective date
of an Assignment pursuant to Section 12.06(b) or (iii) the date that the
Company designates a Designated Subsidiary pursuant to Section 2.10,
payable to the order of such Lender in a principal amount equal to the
Aggregate Commitments and otherwise duly completed. The date, amount,
Type, interest rate and Interest Period of each Competitive Loan made by
each Lender, and all payments made on account of the principal thereof,
shall be recorded by such Lender on its books for its Competitive Note,
and, prior to any transfer, endorsed by such Lender on the schedule
attached to such Competitive Note or any continuation thereof. Failure to
make any such notation shall not affect the Obligor's obligations in
respect of such Loans, or affect the validity of such transfer by any
Lender of such Note.
Section 2.07 Prepayments.
(a) Any Obligor may prepay its Base Rate Loans upon prior notice to
the Administrative Agent (which shall promptly notify the Lenders), which
notice shall specify the prepayment date (which shall be a Business Day)
and the amount of the prepayment (which shall be at least $5,000,000 or
any whole multiple of $1,000,000 in excess thereof or the remaining
aggregate principal balance outstanding on the Notes) and shall be
irrevocable and effective only upon receipt by the Administrative Agent,
provided that interest on the principal prepaid, accrued to the prepayment
date, shall be paid on the prepayment date. Any Obligor may prepay its
Eurodollar Loans and Fixed Rate Loans on the same condition as for Base
Rate Loans and in addition such prepayments of Eurodollar Loans and Fixed
Rate Loans shall be subject to the terms of Section 5.05 and shall be in
an amount equal to all of the Eurodollar Loans and Fixed Rate Loans for
such Obligor for the Interest Period prepaid.
(b) If, after giving effect to any termination or reduction of the
Aggregate Commitments pursuant to Section 2.03, the outstanding aggregate
principal amount of the Loans exceeds the Aggregate Commitments, the
Obligors shall prepay the Loans on the date of such termination or
reduction in an aggregate principal amount equal to the excess, together
with interest on the principal amount paid accrued to the date of such
prepayment.
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(c) Prepayments permitted or required under this Section 2.07 shall be
without premium or penalty, except as required under Section 5.05 for
prepayment of Eurodollar Loans or Fixed Rate Loans.
Section 2.08 Lending Offices. The Loans of each Type made by each
Lender shall be made and maintained at such Lender's Applicable Lending
Office for Loans of such Type.
Section 2.09 Competitive Loans.
(a) In accordance with the terms, conditions and procedures set forth
in this Section 2.09, the Company on behalf of any Obligor may on any
Business Day prior to the Revolving Credit Termination Date request
Competitive Bids.
(i) Provided, however, no Lender shall be obligated to make
Competitive Loans to an Obligor unless such Lender has irrevocably offered
to make such a Competitive Loan pursuant to Section 2.09(c); and,
provided, further, the aggregate principal amount of all Competitive Loans
to any or all Obligors at any one time outstanding shall not, at any date,
exceed an amount equal to (A) the Aggregate Commitments as of such date,
less (B) the aggregate principal amount of the Committed Loans to any or
all Obligors outstanding as of such date. For purposes of determining the
amount to be calculated pursuant to the foregoing sentence, any Committed
Loans that the Company on behalf of an Obligor has requested be made,
which have not yet been made, shall be given effect as if made in the full
requested amount with respect thereto.
(ii) Notwithstanding the limitations on the aggregate amount of
Competitive Loans that the Obligors may borrow under this Agreement set
forth in clause (i) of this Section 2.09(a), the making of any Competitive
Loan to an Obligor by any Lender shall not be deemed to be a utilization
of such Lender's Commitment (although it shall be deemed to be a
utilization of the Aggregate Commitments for all purposes of this
Agreement).
(b) In order to request Competitive Bids, the Company on behalf of an
Obligor shall hand deliver, telex or telecopy to the Administrative Agent
and the Auction Agent a duly completed request substantially in the form
of Exhibit C, with the blanks appropriately completed (a "Competitive Bid
Request"), to be received by such Agents (i) in the case of Eurodollar
Loans, not later than 9:00 a.m. (Central time) four (4) Business Days
before the date specified for a proposed Competitive Loan, and (ii) in the
case of Fixed Rate Loans, not later than 9:00 a.m. (Central time) one (1)
Business Day before the date specified for a proposed Competitive Loan.
No Base Rate Loan shall be requested in, or made pursuant to, a
Competitive Bid Request. A Competitive Bid Request that does not conform
substantially to the format of Exhibit C may be rejected at the Auction
Agent's sole
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discretion, and the Auction Agent shall promptly notify the Company of
such rejection by telex or telecopier. Each Competitive Bid Request shall
in each case refer to this Agreement and specify (A) whether the
Competitive Loans then being requested are to be Eurodollar Loans or Fixed
Rate Loans, (B) the date of such Competitive Loans (which shall be a
Business Day), (C) the aggregate principal amount thereof (which shall not
be less than $10,000,000 and shall be an integral multiple of $1,000,000),
and (D) the Interest Period with respect thereto. Promptly after its
receipt of a Competitive Bid Request that is not rejected as aforesaid,
the Auction Agent shall invite by telex or telecopier (in substantially
the form set forth in Exhibit D) the Lenders to bid, on the terms and
conditions of this Agreement, to make Competitive Loans pursuant to such
Competitive Bid Request. Notwithstanding the foregoing, the Auction Agent
shall have no obligation to invite any Lender to make a Competitive Bid
pursuant to this Section 2.09(b) until such Lender has delivered a
properly completed Competitive Bid Administrative Questionnaire to the
Auction Agent.
(c) Each Lender may, in its sole discretion, make one or more
Competitive Bids to an Obligor responsive to each Competitive Bid Request.
Each Competitive Bid by a Lender must be received by the Auction Agent via
telex or telecopier, in the form of Exhibit E, (i) in the case of
Eurodollar Loans, not later than 8:30 a.m. (Central time) three (3)
Business Days before the date specified for a proposed Competitive Loan
and (ii) in the case of Fixed Rate Loans, not later than 8:30 a.m.
(Central time) on the date specified for a proposed Competitive Loan.
Competitive Bids that do not conform substantially to the format of
Exhibit E may be rejected by the Auction Agent after conferring with, and
upon the instruction of, the Company on behalf of an Obligor, and the
Auction Agent shall notify the applicable Lender of such rejection as soon
as practicable. Each Competitive Bid shall refer to this Agreement and
(A) specify the principal amount (which shall be in a minimum principal
amount of $10,000,000 and in an integral multiple of $1,000,000 and which
may equal the entire aggregate principal amount of the Competitive Loan
requested by the Company on behalf of an Obligor) of the Competitive Loan
that the applicable Lender is willing to make to such Obligor, (B) specify
the Competitive Bid Rate at which such Lender is prepared to make such
Competitive Loan and (C) confirm the Interest Period with respect thereto
specified by the Company on behalf of an Obligor in its Competitive Bid
Request. If any Lender shall elect not to make a Competitive Bid, such
Lender shall so notify the Auction Agent via telex or telecopier in the
case of Fixed Rate Loans, not later than 8:30 a.m. (Central time) on the
date of the proposed Competitive Loan and in the case of Eurodollar Loans,
not later than 8:30 a.m. (Central time) three (3) Business Days before the
date specified for a proposed Competitive Loan; provided, however, that
failure by any Lender to give such notice shall not cause such Lender to
be obligated to make any Competitive Loan. A Competitive Bid submitted by
a Lender pursuant to this Subsection 2.09(c) shall be irrevocable.
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(d) The Auction Agent shall promptly notify the Company by telex or
telecopier of all the Competitive Bids made, the Competitive Bid Rate and
the maximum principal amount of each Competitive Loan in respect of which
a Competitive Bid was made and the identity of the Lender that made each
Competitive Bid. The Auction Agent shall send a copy of all Competitive
Bids to the Company for its records as soon as practicable after
completion of the bidding process set forth in this Section 2.09.
(e) The Company on behalf of an Obligor may in the sole and absolute
discretion of the applicable Obligor, subject only to the provisions of
this Section 2.09(e), accept or reject any Competitive Bid referred to in
Section 2.09(d); provided, however, that the aggregate amount of the
Competitive Bids so accepted by the Company on behalf of an Obligor may
not exceed the principal amount of the Competitive Loan requested by the
Company on behalf of an Obligor. The Company on behalf of an Obligor
shall notify the Auction Agent by telex or telecopier whether and to what
extent the Obligor has decided to accept or reject any or all of the
Competitive Bids referred to in Section 2.09(d), (i) in the case of
Eurodollar Loans, not later than 9:30 a.m. (Central time) three (3)
Business Days before the date specified for a proposed Competitive Loan,
and (ii) in the case of Fixed Rate Loans, not later than 9:30 a.m.
(Central time) on the date specified for a proposed Competitive Loan;
provided, however, that (A) the failure by the Company on behalf of an
Obligor to give such notice shall be deemed to be a rejection of all the
Competitive Bids referred to in Section 2.03(c), (B) the Company on behalf
of an Obligor shall not accept a Competitive Bid made at a particular
Competitive Bid Rate if the Company on behalf of an Obligor has decided to
reject a Competitive Bid made at a lower Competitive Bid Rate, (C) if the
Company on behalf of an Obligor shall accept Competitive Bids made at a
particular Competitive Bid Rate but shall be restricted by other
conditions hereof from borrowing the maximum principal amount of
Competitive Loans in respect of which Competitive Bids at such Competitive
Bid Rate have been made, then the Company on behalf of an Obligor shall
accept a pro rata portion of each Competitive Bid made at such Competitive
Bid Rate based as nearly as possible on the respective maximum principal
amounts of Competitive Loans for which such Competitive Bids were made and
(D) no Competitive Bid shall be accepted for a Competitive Loan unless
such Competitive Loan is in a minimum principal amount of $10,000,000 and
an integral multiple of $1,000,000. Notwithstanding the foregoing, if it
is necessary for the Company on behalf of an Obligor to accept a pro rata
allocation of the Competitive Bids made in response to a Competitive Bid
Request (whether pursuant to the events specified in clause (C) above or
otherwise) and the available principal amount of Competitive Loans to be
allocated among the Lenders is not sufficient to enable Competitive Loans
to be allocated to each Lender in a minimum principal amount of
$10,000,000 and in integral multiples of $1,000,000, then the Company on
behalf of an Obligor shall select the Lenders to be allocated such
Competitive Loans and shall round allocations up or down to the next
higher or lower multiple of $1,000,000 as it shall deem appropriate. In
addition, the Company on behalf of an Obligor shall
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be permitted under the foregoing procedures to accept a Competitive Bid
or Competitive Bids in a principal amount of less than $10,000,000 (i) in
order to enable the Company on behalf of an Obligor to accept Competitive
Bids equal to (but not in excess of) the principal amount of the
Competitive Loan requested by the Company on behalf of an Obligor or (ii)
in order to enable the Company on behalf of an Obligor to accept all
remaining Competitive Bids, or all remaining Competitive Bids at a
particular Competitive Bid Rate. A notice given by the Company on behalf
of an Obligor pursuant to this Subsection (e) shall be irrevocable.
(f) The Auction Agent shall promptly notify each bidding Lender by
telex or telecopy whether or not its Competitive Bid has been accepted
(and if so, in what amount and at what Competitive Bid Rate). Each
successful bidder will thereupon become bound, subject to the other
applicable conditions hereof, to make the Competitive Loan in respect of
which its Competitive Bid has been accepted. After completing the
notifications referred to in the immediately preceding sentence, the
Auction Agent shall notify each Lender and the Administrative Agent of the
aggregate principal amount of all Competitive Bids accepted.
(g) Upon receipt from the Administrative Agent of the notice of
Eurodollar Rate applicable to any Eurodollar Loan to be made by any Lender
pursuant to a Competitive Bid that has been accepted by the Company on
behalf of an Obligor pursuant to Section 2.03(e), the Auction Agent shall
notify such Lender of (i) the applicable Eurodollar Rate and (ii) the sum
of the applicable Eurodollar Rate plus the Margin bid by such Lender.
(h) No Competitive Loan shall be made within five (5) Business Days of
the date of any other Competitive Loan, unless the Company and the Auction
Agent shall mutually agree otherwise.
(i) If the Auction Agent shall at any time have a Commitment hereunder
and shall elect to submit a Competitive Bid in its capacity as a Lender,
it shall submit such Competitive Bid directly to the Company on behalf of
an Obligor one quarter of an hour earlier than the time at which the other
Lenders are required to submit their Competitive Bids to the Auction Agent
pursuant to Section 2.09(c).
(j) All notices required by this Section 2.09 shall be made in
accordance with Section 12.02 and the Competitive Bid Administrative
Questionnaire most recently placed on file by each Lender with the Auction
Agent.
(k) No Competitive Loan may be continued or converted, except to the
extent converted to a Base Rate Loan pursuant to Section 5.04; provided,
however, a Competitive Loan may be repaid with the proceeds of a Borrowing
of Competitive Loans or Committed Loans made pursuant to the terms of this
Agreement, and the Administrative Agent is authorized to net the Borrowing
and repayments for convenience.
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(l) Not later than 12:00 noon (Central time) on the date specified for
each Borrowing hereunder, each Lender that is a successful bidder shall
make available the amount of the Competitive Loan to be made by it on such
date to the Administrative Agent, to an account which the Administrative
Agent shall specify, in immediately available funds, for the account of
the Company on behalf of an Obligor. The amounts so received by the
Administrative Agent shall, subject to the terms and conditions of this
Agreement, be made available to the Company on behalf of an Obligor by
depositing the same, in immediately available funds, in an account of the
Company on behalf of an Obligor, designated by the Company on behalf of an
Obligor and maintained at the Principal Office.
Section 2.10 Designated Subsidiaries. The Company may from time to
time designate one or more of its Subsidiaries to have the right to borrow
both Committed Loans and Competitive Loans by sending to the
Administrative Agent a Notice of Designation of a Designated Subsidiary
and otherwise complying with Section 6.03. Each Designated Subsidiary
shall be liable for (i) the principal and interest on Loans made to it as
requested in any Borrowing Request or Competitive Bid Requests signed by
it or the Company on its behalf, (ii) all fees, indemnities and
reimbursement obligations as set forth in this Agreement and (iii) to the
extent the Designated Subsidiary is a Guarantor pursuant to Section 8.08,
the obligations set forth in its Subsidiary Guaranty Agreement. No
Designated Subsidiary shall be liable for any principal or interest on any
Loan to another Obligor except to the extent that such Designated
Subsidiary is a Guarantor pursuant to Section 8.08. The Company shall be
liable for all Indebtedness of all Obligors as set forth either in this
Agreement or the Parent Guaranty Agreement. As agreed to in each Notice
of Designation of Designated Subsidiary executed and delivered by the
Company and each Designated Subsidiary, each Designated Subsidiary
appoints the Company as its agent to execute all Borrowing Requests and
Competitive Bid Requests, give and receive all notices on its behalf and
take whatever other action is required of it under the Loan Documents, and
the Agents and Lenders are entitled to fully rely on all action taken and
notices given by the Company on behalf of any Designated Subsidiary.
ARTICLE III
PAYMENTS OF PRINCIPAL AND INTEREST
Section 3.01 Repayment of Loans. Each Obligor will pay to the
Administrative Agent, for the account of each applicable Lender, the
principal payments required by this Section 3.01. On the last day of the
Interest Period for each Competitive Loan to an Obligor, such Obligor
shall repay the outstanding aggregate principal and accrued and unpaid
interest on such Loan. On the Revolving Credit Termination Date each
Obligor shall repay the outstanding aggregate principal and accrued and
unpaid interest under its Notes.
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Section 3.02 Interest. Each Obligor will pay to the Administrative
Agent, for the account of each Lender, interest on the unpaid principal
amount of each Loan made by such Lender to such Obligor for the period
commencing on the date such Loan is made to but excluding the date such
Loan shall be paid in full, at the following rates per annum:
(a) if such Loan is a Committed Loan and a Base Rate Loan, the Base
Rate (as in effect from time to time), but in no event to exceed the
Highest Lawful Rate;
(b) if such Loan is a Committed Loan and a Eurodollar Loan, for each
Interest Period relating thereto, the Eurodollar Rate for such Loan plus
the Applicable Margin, but in no event to exceed the Highest Lawful Rate;
(c) if such Loan is a Competitive Loan and a Eurodollar Loan, for each
Interest Period relating thereto, the Eurodollar Rate for such Loan plus
or minus the Margin as accepted by the Company on behalf of an Obligor,
but in no event to exceed the Highest Lawful Rate; and
(d) if such Loan is a Competitive Loan and a Fixed Rate Loan, for each
Interest Period relating thereto, the fixed rate per annum offered by the
respective Lender in its Competitive Bid and accepted by the Company on
behalf of an Obligor pursuant to Section 2.09, but in no event to exceed
the Highest Lawful Rate.
Notwithstanding the foregoing, each Obligor will pay to the Administrative
Agent, for the account of each applicable Lender interest at the
applicable Post-Default Rate on any principal of any Loan made by such
Lender to such Obligor, which shall not be paid in full when due (whether
at stated maturity, by acceleration or otherwise), for the period
commencing on the due date thereof until the same is paid in full. To the
fullest extent permitted by law, each Obligor will pay to the
Administrative Agent for the account of each applicable Lender interest at
the Base Rate on interest and any other amount payable by such Obligor
hereunder other than principal on the Loans, under any other Loan Document
or under any Note held by such Lender to or for the account of such
Lender, which shall not be paid in full when due (whether at stated
maturity, by acceleration or otherwise), for the period commencing on the
due date thereof until the same is paid in full.
Accrued interest on Base Rate Loans shall be payable on each Quarterly
Date commencing on June 30, 1995, and accrued interest on each Eurodollar
Loan and Fixed Rate Loan shall be payable on the last day of the Interest
Period therefor and, if such Interest Period is longer than three months
at three-month intervals following the first day of such Interest Period,
except that interest payable at the Post-Default Rate or otherwise
accruing on past due amounts shall be payable from time to time on demand
and interest on any Eurodollar Loan or Fixed Rate Loan that is converted
into a Base Rate Loan (pursuant to Section 5.04) shall be payable on the
date of conversion (but only to the extent so converted).
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Promptly after the determination of any interest rate provided for herein
or any change therein, the Administrative Agent or the Auction Agent shall
notify the Lenders to which such interest is payable and the Company
thereof. Each determination by the Administrative Agent or the Auction
Agent of an interest rate or fee hereunder shall, except in cases of
manifest error, be final, conclusive and binding on the parties.
ARTICLE IV
PAYMENTS; PRO RATA TREATMENT; COMPUTATIONS; ETC.
Section 4.01 Payments. Except to the extent otherwise provided
herein, all payments of principal, interest and other amounts to be made
by each Obligor under this Agreement and the Notes shall be made in
Dollars, in immediately available funds, to the Administrative Agent at
such account as the Administrative Agent shall specify by notice to the
Company on behalf of each Obligor from time to time, not later than 1:00
p.m. (Central time) on the date on which such payments shall become due
(each such payment made after such time on such due date to be deemed to
have been made on the next succeeding Business Day). Such payments shall
be made without (to the fullest extent permitted by applicable law)
defense, set-off or counterclaim. Each payment received by the
Administrative Agent under this Agreement or any Note for the account of
a Lender shall be paid promptly to such Lender in immediately available
funds. If the due date of any payment under this Agreement or any Note
would otherwise fall on a day which is not a Business Day such date shall
be extended to the next succeeding Business Day and interest shall be
payable for any principal so extended for the period of such extension.
At the time of each payment to the Administrative Agent of any principal
of or interest on any Borrowing, the Company on behalf of the Obligors
shall notify the Administrative Agent of the Loans to which such payment
shall apply. In the absence of such notice the Administrative Agent may
specify the Loans to which such payment shall apply, but to the extent
possible such payment or prepayment will be applied first to the Loans
comprised of Base Rate Loans.
Section 4.02 Pro Rata Treatment. Except to the extent otherwise
provided herein each Lender agrees that: (i) each Borrowing from the
Lenders under Section 2.01 shall be made from the Lenders pro rata in
accordance with their Percentage Share, each payment of facility fees
under Section 2.04(a) shall be made for the account of the Lenders pro
rata in accordance with their Percentage Share, and each termination or
reduction of the amount of the Aggregate Commitments under Section 2.03(a)
shall be applied to the Commitment of each Lender, pro rata according to
the amounts of its respective Commitment; (ii) each payment of principal
of Loans by the Company on behalf of an Obligor shall be made for the
account of the Lenders pro rata in accordance with the respective unpaid
principal amount of the Loans held by the Lenders due or past due on such
date or intended to be prepaid by the Company on behalf of such Obligor;
and (iii) each payment of interest on Loans by the Company on behalf of an
Obligor shall be
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made for the account of the Lenders pro rata in accordance with the
amounts of interest due and payable to the respective Lenders.
Section 4.03 Computations. Interest on Eurodollar Loans and Fixed
Rate Loans shall be computed on the basis of a year of 360 days and actual
days elapsed (including the first day but excluding the last day)
occurring in the period for which such interest is payable, unless such
calculation would exceed the Highest Lawful Rate, in which case interest
shall be calculated on the per annum basis of a year of 365 or 366 days,
as the case may be. Interest on Base Rate Loans and fees shall be
computed on the basis of a year of 365 or 366 days, as the case may be,
and actual days elapsed (including the first day but excluding the last
day) occurring in the period for which such interest or fee is payable.
Section 4.04 Non-receipt of Funds by the Administrative Agent. Unless
the Administrative Agent shall have been notified by a Lender or the
Company on behalf of an Obligor prior to the date on which such notifying
party is scheduled to make payment to the Administrative Agent (in the
case of a Lender) of the proceeds of a Loan to be made by it hereunder or
(in the case of an Obligor) a payment to the Administrative Agent for the
account of one or more of the Lenders hereunder (such payment being herein
called the "Required Payment"), which notice shall be effective upon
receipt, that it does not intend to make the Required Payment to the
Administrative Agent, the Administrative Agent may assume that the
Required Payment has been made and may, in reliance upon such assumption
(but shall not be required to), make the amount thereof available to the
intended recipient(s) on such date and, if such Lender or the Company on
behalf of an Obligor (as the case may be) has not in fact made the
Required Payment to the Administrative Agent, the recipient(s) of such
payment shall, on demand, repay to the Administrative Agent the amount so
made available together with interest thereon in respect of each day
during the period commencing on the date such amount was so made available
by the Administrative Agent until but excluding the date the
Administrative Agent recovers such amount at a rate per annum which, for
any Lender as recipient, will be equal to the Federal Funds Rate, and for
an Obligor as recipient, will be equal to the Post-Default Rate.
Section 4.05 Sharing of Payments, Etc. If after an Event of Default
and during its continuance any Lender shall obtain payment of any
principal of or interest on any Loan made by it to an Obligor under this
Agreement through whatever means other than an assignment pursuant to
Section 12.06(b), and, as a result of such payment, such Lender shall have
received a greater percentage of the principal or interest then due
hereunder by such Obligor to such Lender than the percentage received by
any other Lenders, it shall promptly (i) notify the Administrative Agent
and each other Lender thereof and (ii) purchase from such other Lenders
participations in (or, if and to the extent specified by such Lender,
direct interests in) the Loans made by such other Lenders (or in interest
due thereon, as the case may be) in such amounts, and make such other
adjustments from time to time as shall be equitable, to the end that all
the Lenders shall share the benefit of such excess payment (net of any
expenses which may be incurred by such Lender in obtaining or preserving
such excess payment) pro rata in accordance with
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the unpaid principal and/or interest on the Loans to such Obligor held by
each of the Lenders. To such end all the Lenders shall make appropriate
adjustments among themselves (by the resale of participations sold or
otherwise) if such payment is rescinded or must otherwise be restored.
Section 4.06 Taxes.
(a) Payments Free and Clear. Any and all payments by an Obligor
hereunder shall be made, in accordance with Section 4.01, free and clear
of and without deduction for any and all present or future taxes, levies,
imposts, deductions, charges or withholdings, and all liabilities with
respect thereto, excluding, in the case of each Lender and the
Administrative Agent, taxes imposed on its income, and franchise or
similar taxes imposed on it, by (i) any jurisdiction (or political
subdivision thereof) of which the Administrative Agent or such Lender, as
the case may be, is a citizen or resident or in which such Lender has an
Applicable Lending Office, (ii) the jurisdiction (or any political
subdivision thereof) in which the Administrative Agent or such Lender is
organized, or (iii) any jurisdiction (or political subdivision thereof) in
which such Lender or the Administrative Agent is presently doing business
which taxes are imposed solely as a result of doing business in such
jurisdiction (all such non-excluded taxes, levies, imposts, deductions,
charges, withholdings and liabilities being hereinafter referred to as
"Taxes"). If an Obligor shall be required by law to deduct any Taxes from
or in respect of any sum payable hereunder to the Lenders or the
Administrative Agent (i) the sum payable shall be increased by the amount
necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section 4.06)
such Lender or the Administrative Agent (as the case may be) shall receive
an amount equal to the sum it would have received had no such deductions
been made, (ii) such Obligor shall make such deductions and (iii) such
Obligor shall pay the full amount deducted to the relevant taxing
authority or other Governmental Authority in accordance with applicable
law.
(b) Other Taxes. In addition, to the fullest extent permitted by
applicable law, each Obligor agrees to pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or
similar levies that arise from any payment made hereunder or from the
execution, delivery or registration of, or otherwise with respect to, this
Agreement, any Assignment or any other Loan Document (hereinafter referred
to as "Other Taxes").
(c) INDEMNIFICATION. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE
LAW, EACH OBLIGOR WILL INDEMNIFY EACH LENDER AND THE AGENTS FOR THE FULL
AMOUNT OF TAXES AND OTHER TAXES (INCLUDING, BUT NOT LIMITED TO, ANY TAXES
OR OTHER TAXES IMPOSED BY ANY GOVERNMENTAL AUTHORITY ON AMOUNTS PAYABLE
UNDER THIS SECTION 4.06) PAID BY SUCH LENDER OR ANY AGENT (ON THEIR BEHALF
OR ON BEHALF OF ANY LENDER), AS THE CASE MAY BE, AND ANY LIABILITY
(INCLUDING PENALTIES, INTEREST AND EXPENSES) ARISING THEREFROM OR WITH
RESPECT
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THERETO, WHETHER OR NOT SUCH TAXES OR OTHER TAXES WERE CORRECTLY OR
LEGALLY ASSERTED UNLESS THE PAYMENT OF SUCH TAXES WAS NOT CORRECTLY OR
LEGALLY ASSERTED AND SUCH LENDER'S PAYMENT OF SUCH TAXES OR OTHER TAXES
WAS THE RESULT OF ITS GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. ANY PAYMENT
PURSUANT TO SUCH INDEMNIFICATION SHALL BE MADE WITHIN THIRTY (30) DAYS
AFTER THE DATE ANY LENDER OR ANY AGENT, AS THE CASE MAY BE, MAKES WRITTEN
DEMAND THEREFOR. IF ANY LENDER OR ANY AGENT RECEIVES A REFUND OR CREDIT
IN RESPECT OF ANY TAXES OR OTHER TAXES FOR WHICH SUCH LENDER OR SUCH AGENT
HAS RECEIVED PAYMENT FROM AN OBLIGOR IT SHALL PROMPTLY NOTIFY THE COMPANY
ON BEHALF OF SUCH OBLIGOR OF SUCH REFUND OR CREDIT AND SHALL, IF NO
DEFAULT HAS OCCURRED AND IS CONTINUING, WITHIN THIRTY (30) DAYS AFTER
RECEIPT OF A REQUEST BY THE COMPANY ON BEHALF OF SUCH OBLIGOR (OR PROMPTLY
UPON RECEIPT, IF THE COMPANY ON BEHALF OF SUCH OBLIGOR HAS REQUESTED
APPLICATION FOR SUCH REFUND OR CREDIT PURSUANT HERETO), PAY AN AMOUNT
EQUAL TO SUCH REFUND OR CREDIT TO THE COMPANY ON BEHALF OF SUCH OBLIGOR
WITHOUT INTEREST (BUT WITH ANY INTEREST SO REFUNDED OR CREDITED), PROVIDED
THAT SUCH OBLIGOR, UPON THE REQUEST OF SUCH LENDER OR SUCH AGENT, AGREES
TO RETURN SUCH REFUND OR CREDIT (PLUS PENALTIES, INTEREST OR OTHER
CHARGES) TO SUCH LENDER OR SUCH AGENT IN THE EVENT SUCH LENDER OR SUCH
AGENT IS REQUIRED TO REPAY SUCH REFUND OR CREDIT.
(d) Lender Representations.
(i) Each Lender represents that it is either (i) a corporation
organized under the laws of the United States of America or any state
thereof or (ii) it is entitled to complete exemption from United States
withholding tax imposed on or with respect to any payments, including
fees, to be made to it pursuant to this Agreement (A) under an applicable
provision of a tax convention to which the United States of America is a
party or (B) because it is acting through a branch, agency or office in
the United States of America and any payment to be received by it
hereunder is effectively connected with a trade or business in the United
States of America. Each Lender that is not a corporation organized under
the laws of the United States of America or any state thereof agrees to
provide to the Company and the Administrative Agent on the Closing Date,
or on the date of its delivery of the Assignment pursuant to which it
becomes a Lender, and at such other times as required by United States law
or as the Company or the Administrative Agent shall reasonably request,
two accurate and complete original signed copies of either (A) Internal
Revenue Service Form 4224 (or successor form) certifying that all payments
to be made to it hereunder will be effectively connected to a United
States trade or business (the "Form 4224 Certification") or (B) Internal
Revenue Service Form 1001 (or successor form) certifying that it is
entitled to the benefit of a provision of a tax convention to which the
United States of America is a party which completely exempts from United
States withholding tax all payments to be made to it hereunder (the "Form
1001
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Certification"). In addition, each Lender agrees that if it
previously filed a Form 4224 Certification, it will deliver to the Company
and the Administrative Agent a new Form 4224 Certification prior to the
first payment date occurring in each of its subsequent taxable years; and
if it previously filed a Form 1001 Certification, it will deliver to the
Company and the Administrative Agent a new certification prior to the
first payment date falling in the third year following the previous filing
of such certification. Each Lender also agrees to deliver to the Company
and the Administrative Agent such other or supplemental forms as may at
any time be required as a result of changes in applicable law or
regulation in order to confirm or maintain in effect its entitlement to
exemption from United States withholding tax on any payments hereunder,
provided that the circumstances of such Lender at the relevant time and
applicable laws permit it to do so. If a Lender determines, as a result
of any change in either (i) a Governmental Requirement or (ii) its
circumstances, that it is unable to submit any form or certificate that it
is obligated to submit pursuant to this Section 4.06, or that it is
required to withdraw or cancel any such form or certificate previously
submitted, it shall promptly notify the Company and the Administrative
Agent of such fact. If a Lender is organized under the laws of a
jurisdiction outside the United States of America, unless the Company and
the Administrative Agent have received a Form 1001 Certification or Form
4224 Certification satisfactory to them indicating that all payments to be
made to such Lender hereunder are not subject to United States withholding
tax, the Company on behalf of each Obligor shall withhold taxes from such
payments at the applicable statutory rate. Each Lender agrees to indemnify
and hold harmless from any United States taxes, penalties, interest and
other expenses, costs and losses incurred or payable by (i) the
Administrative Agent as a result of such Lender's failure to submit any
form or certificate that it is required to provide pursuant to this
Section 4.06 or (ii) the Company or the Administrative Agent as a result
of their reliance on any such form or certificate which such Lender has
provided to them pursuant to this Section 4.06.
(ii) For any period with respect to which a Lender required to do so
has failed to provide the Company with the form required pursuant to this
Section 4.06, if any (other than if such failure is due to a change in a
Governmental Requirement occurring subsequent to the date on which a form
originally was required to be provided), such Lender shall not be entitled
to indemnification under Section 4.06 with respect to taxes imposed by the
United States which taxes would not have been imposed but for such failure
to provide such forms; provided, however, that should a Lender, which is
otherwise exempt from or subject to a reduced rate of withholding tax,
becomes subject to taxes because of its failure to deliver a form required
hereunder, the Company on behalf of each Obligor shall take such steps as
such Lender shall reasonably request to assist such Lender to recover such
taxes.
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(iii) Any Lender claiming any additional amounts payable pursuant to this
Section 4.06 shall use reasonable efforts (consistent with legal and
regulatory restrictions) to file any certificate or document requested by
the Company or the Administrative Agent or to change the jurisdiction of
its Applicable Lending Office or to contest any tax imposed if the making
of such a filing or change or contesting such tax would avoid the need for
or reduce the amount of any such additional amounts that may thereafter
accrue and would not, in the sole determination of such Lender, be
otherwise disadvantageous to such Lender.
ARTICLE V
CAPITAL ADEQUACY, ADDITIONAL COSTS, ETC.
Section 5.01 Additional Costs.
(a) Regulatory Changes. In the event of any introduction of and/or
any change in any applicable law, rule, regulation (including Regulation
D), official interpretation thereof or official directive after the date
of this Agreement (whether or not having the force of law) which will
result in an increase in the cost to any Lender of making or maintaining
the Loans by reason of reserve or similar requirements, or which will
result in a reduction of amounts otherwise receivable by any Lender from
any Obligor of principal, interest or other fees and charges thereunder by
reason of a tax, levy, impost, fee, charge, withholding or similar
requirements of any kind, or modifies any capital adequacy or similar
requirement (including, without limitation, a requirement which affects
any Lender's or its parent's or its holding company's allocation of
capital resources to its obligations or commitments) and, as a result, the
cost to such Lender or its parent or holding company of making or
maintaining amounts available under this Agreement is increased or the
Lender's or its parent's or holding company's return under this Agreement
or on all or any of its capital is reduced, the Obligors will pay to the
Administrative Agent for such Lender upon notice as provided in Section
5.01(b) an amount equal to such actual increased cost or reduction of
yield allocable to this facility.
(b) Compensation Procedure. Any Lender notifying the Company of the
incurrence of additional costs under this Section 5.01 shall in such
notice to the Company and the Administrative Agent set forth in reasonable
detail the basis and amount of its request for compensation.
Determinations and allocations by each Lender for purposes of this Section
5.01 of the effect of any Regulatory Change pursuant to Section 5.01(a) on
its costs or rate of return of maintaining Loans or its obligation to make
Loans, or on amounts receivable by it in respect of Loans, and of the
amounts required to compensate such Lender under this Section 5.01, shall
be conclusive and binding for all purposes, provided that such
determinations and
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allocations are made on a reasonable basis. Any request for additional
compensation under this Section 5.01 shall be paid by each Obligor to the
Administrative Agent for the applicable Lender within thirty (30) days of
the receipt by the Company of the notice described in this Section
5.01(b).
Section 5.02 Limitation on Eurodollar Loans. Anything herein to the
contrary notwithstanding, if, on or prior to the determination of any
Eurodollar Rate for any Interest Period:
(i) the Administrative Agent determines (which determination shall be
conclusive, absent manifest error) that quotations of interest rates for
the relevant deposits referred to in the definition of "Eurodollar Rate"
in Section 1.02 are not being provided in the relevant amounts or for the
relevant maturities for purposes of determining rates of interest for
Eurodollar Loans as provided herein; or
(ii) the Administrative Agent determines (which determination shall be
conclusive, absent manifest error) that the relevant rates of interest
referred to in the definition of "Eurodollar Rate" in Section 1.02 upon
the basis of which the rate of interest for Eurodollar Loans for such
Interest Period is to be determined are not sufficient to adequately cover
the cost to the Lenders of making or maintaining Eurodollar Loans;
then the Administrative Agent shall give the Company prompt notice
thereof, and so long as such condition remains in effect, the Lenders
shall be under no obligation to make additional Eurodollar Loans or
continue or convert into Eurodollar Loans.
Section 5.03 Illegality. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful or legally restricted for
any Lender or its Applicable Lending Office to honor its obligation to
make or maintain, continue or convert into Eurodollar Loans or Fixed Rate
Loans hereunder, then such Lender shall promptly notify the Company
thereof and such Lender's obligation to make, continue or convert into
Eurodollar Loans or Fixed Rate Loans shall be suspended until such time as
such Lender may again make and maintain, continue or convert into
Eurodollar Loans or Fixed Rate Loans (in which case the provisions of
Section 5.04 shall be applicable).
Section 5.04 Base Rate Loans Pursuant to Sections 5.02 and 5.03. If
the obligation of any Lender to make, continue or convert into Eurodollar
Loans or Fixed Rate Loans shall be suspended pursuant to Sections 5.02 or
5.03 ("Affected Loans"), all Affected Loans which would otherwise be made
by such Lender shall be made instead as Base Rate Loans (and, if an event
referred to in Section 5.03 has occurred and such Lender so requests by
notice to the Administrative Agent and the Company, all Affected Loans of
such Lender then outstanding shall be automatically converted into Base
Rate Loans on the date specified by such Lender in such notice) and, to
the extent that Affected Loans are so made as (or converted into) Base
Rate Loans, all payments of principal which would
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otherwise be applied to such Lender's Affected Loans shall be applied
instead to its Base Rate Loans.
Section 5.05 Compensation. Each Obligor shall pay to the
Administrative Agent for each Lender within thirty (30) days of receipt of
written request of such Lender to the Administrative Agent and the Company
(which request shall set forth, in reasonable detail, the basis for
requesting such amounts and which shall be conclusive and binding for all
purposes provided that such determinations are made on a reasonable
basis), such amount or amounts as shall compensate it for any loss, cost,
expense or liability which such Lender determines are attributable to:
(i) any payment, prepayment or conversion of a Eurodollar Loan or
Fixed Rate Loan properly made by such Lender or such Obligor for any
reason (including, without limitation, the acceleration of the Loans
pursuant to Section 10.01) on a date other than the last day of the
Interest Period for such Loan; or
(ii) any failure by such Obligor for any reason (including but not
limited to, the failure of any of the conditions precedent specified in
Article VI to be satisfied) to borrow, continue or convert into a
Eurodollar Loan that is a Committed Loan or to borrow a Competitive Loan
from such Lender on the date for such Borrowing, continuation or
conversion specified in the relevant notice given pursuant to Section 2.02
or Section 2.09.
ARTICLE VI
CONDITIONS PRECEDENT
Section 6.01 Initial Funding.
The obligation of the Lenders to make the Initial Funding is subject
to the receipt by the Administrative Agent and the Lenders of all fees
payable pursuant to Section 2.04 on or before the Closing Date and the
receipt by the Administrative Agent of the following documents and
satisfaction of the other conditions provided in this Section 6.01:
(a) A certificate of the Secretary or an Assistant Secretary of the
Company setting forth (i) resolutions of its board of directors with
respect to the authorization of the Company to execute and deliver the
Loan Documents to which it is a party and to enter into the transactions
contemplated in those documents, (ii) the officers of the Company (y) who
are authorized to sign the Loan Documents to which the Company is a party
and (z) who will, until replaced by another officer or officers duly
authorized for that purpose, act as its representative for the purposes of
signing documents and giving notices and other communications in
connection with this Agreement and the transactions contemplated hereby,
(iii) specimen signatures of
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the authorized officers, and (iv) the articles or certificate of
incorporation and bylaws of the Company, certified as being true and
complete. The Administrative Agent and the Lenders may conclusively rely
on such certificate until the Administrative Agent receives notice in
writing from the Company to the contrary.
(b) Certificates of the appropriate state agencies with respect to the
existence, qualification and good standing of the Company in the State of
Texas.
(c) A compliance certificate which shall be substantially in the form
of Exhibit H, duly and properly executed by a Responsible Officer and
dated as of the date of the Initial Funding.
(d) The Notes of the Company, duly completed and executed.
(e) The Parent Guaranty Agreement, duly completed and executed.
(f) An opinion of W. T. Satterwhite, counsel to the Company,
substantially in the form of Exhibit I hereto.
(g) A certificate of insurance for the Company and its Subsidiaries.
Section 6.02 Initial and Subsequent Loans. The obligation of the
Lenders to make Loans to any Obligor upon the occasion of each Borrowing
hereunder (including the Initial Funding) is subject to the further
conditions precedent that, as of the date of such Borrowing and after
giving effect thereto: (i) no Default shall have occurred and be
continuing and (ii) the representations and warranties made by the Company
in Article VII and by each Designated Subsidiary in its respective Notice
of Designation of a Designated Subsidiary shall be true on and as of the
date of the making of such Borrowing with the same force and effect as if
made on and as of such date and following such new Borrowing, except to
the extent such representations and warranties are expressly limited to an
earlier date or the Majority Lenders have expressly consented in writing
to the contrary. Each request for a borrowing by the Company hereunder
shall constitute a certification by the Company to the effect set forth in
the preceding sentence (both as of the date of such notice and, unless the
Company otherwise notifies the Administrative Agent prior to the date of
and immediately following such Borrowing as of the date thereof).
Section 6.03 Loans to Designated Subsidiaries. The obligation of the
Lenders to make Loans to a Designated Subsidiary is subject to receipt by
the Administrative Agent of the following documents and satisfaction of
the conditions set forth in this Section 6.03 as well as the conditions
set forth in Sections 6.01 and 6.02, each of which shall be satisfactory
to the Administrative Agent in form and substance:
(a) A Notice of Designation of Designated Subsidiary executed by the
Company and such Designated Subsidiary.
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(b) A certificate of the Secretary or an Assistant Secretary of such
Designated Subsidiary setting forth (i) resolutions of its board of
directors with respect to the authorization of such Subsidiary to execute
and deliver the Loan Documents to which it is a party and to enter into
the transactions contemplated in those documents, (ii) the officers of
such Subsidiary (y) who are authorized to sign the Loan Documents to which
such Subsidiary is a party and (z) who will, until replaced by another
officer or officers duly authorized for that purpose, act as its
representative for the purposes of signing documents and giving notices
and other communications in connection with this Agreement and the
transactions contemplated hereby, (iii) specimen signatures of the
authorized officers, and (iv) the articles or certificate of incorporation
and bylaws of such Subsidiary, certified as being true and complete. The
Agents and the Lenders may conclusively rely on such certificate until the
Administrative Agent receives notice in writing from the Company to the
contrary.
(c) The Notes of such Designated Subsidiary, duly completed and
executed.
(d) An opinion of counsel to such Designated Subsidiary, substantially
in the form of Exhibit J.
(e) Such Designated Subsidiary shall be a Subsidiary.
(f) The most recent unaudited balance sheet of such Designated
Subsidiary certified by a Responsible Officer.
(g) Such other documents as the Administrative Agent may reasonably
request.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to the Administrative Agent and the
Lenders that (each representation and warranty herein is given as of the
Closing Date and shall be deemed repeated and reaffirmed on the dates of
each Borrowing as provided in Section 6.02):
Section 7.01 Corporate Existence. Each of the Company and each
Designated Subsidiary and each Subsidiary Guarantor: (i) is a corporation
duly organized, legally existing and in good standing under the laws of
the jurisdiction of its incorporation; (ii) has all requisite corporate
power, and has all material governmental licenses, authorizations,
consents and approvals necessary to own its assets and carry on its
business as now being or as proposed to be conducted; and (iii) is
qualified to do business in all
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jurisdictions in which the nature of the business conducted by it makes
such qualification necessary and where failure so to qualify would have a
Material Adverse Effect.
Section 7.02 Financial Condition. The audited balance sheet of the
Company as at December 31, 1994 and the related statements of operations,
cash flows and changes in partners' capital and common shareholders'
equity of the Company and its predecessor for each of the three years in
the period ended on said date, with the opinion thereon of Deloitte &
Touche LLP heretofore furnished to each of the Lenders, are complete and
correct and fairly present the financial condition of the Company as at
said date and the results of operations and cash flows of the Company and
its predecessor for the stated periods then ended, all in accordance with
GAAP. Neither the Company nor any Subsidiary has on the Closing Date any
material Debt, contingent liabilities, liabilities for taxes, unusual
forward or long-term commitments or unrealized or anticipated losses from
any unfavorable commitments, except as referred to or reflected or
provided for in the Financial Statements or in Schedule 7.02. Since
December 31, 1994 to the Closing Date, there has been no change or event
having a Material Adverse Effect. Since the date of the Financial
Statements to the Closing Date, neither the business nor the Properties of
the Company or any Subsidiary have been materially and adversely affected
as a result of any fire, explosion, earthquake, flood, drought, windstorm,
accident, strike or other labor disturbance, embargo, requisition or
taking of Property or cancellation of contracts, permits or concessions by
any Governmental Authority, riot, activities of armed forces or acts of
God or of any public enemy.
Section 7.03 Litigation. As of the Closing Date, except as disclosed
to the Lenders in Schedule 7.03, there is no litigation, legal,
administrative or arbitral proceeding, investigation or other action of
any nature pending or, to the knowledge of the Company threatened against
or affecting the Company or any Subsidiary which involves the possibility
of any judgment or liability against the Company or any Subsidiary not
fully covered by insurance (except for normal deductibles), and which
would have a Material Adverse Effect.
Section 7.04 No Breach. Neither the execution and delivery of the
Loan Documents, nor compliance with the terms and provisions hereof will
conflict with or result in a breach of, or require any consent which has
not been obtained as of the Closing Date under, the respective charter or
by-laws of the Company or any Subsidiary, or any Governmental Requirement
or any agreement or instrument for borrowed money to which the Company or
any Subsidiary is a party or by which it is bound or to which it or its
Properties are subject, or constitute a default under any such agreement
or instrument, or result in the creation or imposition of any Lien upon
any of the revenues or assets of the Company or any Subsidiary pursuant to
the terms of any such agreement or instrument other than the Liens created
by the Loan Documents.
Section 7.05 Authority. The Company and each Subsidiary have all
necessary corporate power and authority to execute, deliver and perform
its obligations under the Loan Documents to which it is a party; and the
execution, delivery and performance by the
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Company and each Subsidiary of the Loan Documents to which it is a party,
have been duly authorized by all necessary corporate action on its part;
and the Loan Documents constitute the legal, valid and binding obligations
of the Company and each Subsidiary, enforceable in accordance with their
terms, except to the extent that enforcement may be limited by bankruptcy,
insolvency or similar laws affecting the enforcement of creditor's rights
generally.
Section 7.06 Approvals. No authorizations, approvals or consents of,
and no filings or registrations with, any Governmental Authority are
necessary for the execution, delivery or performance by the Company or any
Subsidiary of the Loan Documents or for the validity or enforceability
thereof.
Section 7.07 Use of Loans. The proceeds of the Loans shall be used
for acquisition funding, working capital or general corporate purposes of
the Company. Neither the Company nor any Designated Subsidiary is engaged
principally, or as one of its important activities, in the business of
extending credit for the purpose, whether immediate, incidental or
ultimate, of buying or carrying margin stock (within the meaning of
Regulation G, U or X of the Board of Governors of the Federal Reserve
System). Following application of the proceeds of each Borrowing, not
more than 25 percent of the value of the assets (either of each Obligor
only or of the Company and its Subsidiaries on a consolidated basis),
which are subject to any arrangement with the Administrative Agent or any
Lender (herein or otherwise) whereby the Company's or any Subsidiary's
right or ability to sell, pledge or otherwise dispose of assets is in any
way restricted, will be margin stock (within the meaning of Regulation U
of the Board of Governors of the Federal Reserve System).
Section 7.08 ERISA. As of the Closing Date, except as would not have
a Material Adverse Effect:
(a) The Company, the Subsidiaries and each ERISA Affiliate have
complied in all material respects with ERISA and, where applicable, the
Code regarding each Plan.
(b) No act, omission or transaction has occurred which could result in
imposition on the Company, any Subsidiary or any ERISA Affiliate (whether
directly or indirectly) of (i) either a material civil penalty assessed
pursuant to subsections (c), (i) or (l) of section 502 of ERISA or a tax
imposed pursuant to Chapter 43 of Subtitle D of the Code or (ii) breach of
fiduciary duty liability damages under section 409 of ERISA.
(c) No liability to the PBGC (other than for the payment of current
premiums which are not past due) by the Company, any Subsidiary or any
ERISA Affiliate has been or is expected by the Company, any Subsidiary or
any ERISA Affiliate to be incurred with respect to any Plan. No ERISA
Event with respect to any Plan has occurred which could result in a
liability of the Company, any Subsidiary or any ERISA Affiliate.
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(d) Full payment when due has been made of all amounts which the
Company, the Subsidiaries or any ERISA Affiliate is required under the
terms of each Plan or applicable law to have paid as contributions to such
Plan as of the date hereof, and no accumulated funding deficiency (as
defined in section 302 of ERISA and section 412 of the Code), whether or
not waived, exists with respect to any Benefit Plan.
(e) The actuarial present value of the benefit liabilities under each
Benefit Plan which is subject to Title IV of ERISA does not, as of the end
of the Company's most recently ended fiscal year, exceed the current value
of the assets (computed on a plan termination basis in accordance with
Title IV of ERISA) of such Benefit Plan allocable to such benefit
liabilities. The term "actuarial present value of the benefit
liabilities" shall have the meaning specified in section 4041 of ERISA.
(f) Neither the Company, the Subsidiaries nor any ERISA Affiliate has
received any notification (or has knowledge of any reason to expect) that
any Multiemployer Plan is in reorganization, is insolvent or has been
received any notification (or has knowledge of any reason to expect) that
any Multiemployer Plan is in reorganization, is insolvent or has been
terminated, within the meaning of Title IV of ERISA.
(g) Neither the Company, the Subsidiaries nor any ERISA Affiliate is
required to provide security under section 401(a)(29) of the Code due to
a Plan amendment that results in an increase in current liability for the
Plan.
Section 7.09 Taxes. Except as set out in Schedule 7.09, each of the
Company and its Subsidiaries has filed all United States Federal income
tax returns and all other tax returns which are required to be filed by
them and has paid all material taxes due pursuant to such returns or
pursuant to any assessment received by the Company or any Subsidiary
except for any such tax, assessment, charge or levy the payment of which
is being contested in good faith and by proper proceedings and against
which adequate reserves are being maintained. The charges, accruals and
reserves on the books of the Company and its Subsidiaries in respect of
taxes and other governmental charges are, in the opinion of the Company,
adequate. No tax lien has been filed and, to the knowledge of the
Company, no claim is being asserted with respect to any such tax, fee or
other charge.
Section 7.10 Titles, etc. To the best of the Company's knowledge:
(a) Except as set out in Schedule 7.10, each of the Company and the
Designated Subsidiaries and Subsidiary Guarantors has good and defensible
title to its material (individually or in the aggregate) Properties in all
material respects, free and clear of all Liens except Liens permitted by
Section 9.02.
(b) All leases and agreements necessary for the conduct of the
business of the Company and the Designated Subsidiaries and Subsidiary
Guarantors are valid and subsisting, in full force and effect and there
exists no default or event or circumstance which with the giving of notice
or the passage of time or both would
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give rise to a default under any such lease or leases, which would affect
in any material respect the conduct of the business of the Company and the
Designated Subsidiaries and Subsidiary Guarantors.
(c) The rights, properties and other assets presently owned, leased or
licensed by the Company and the Designated Subsidiaries and Subsidiary
Guarantors including, without limitation, all easements and rights of way,
include all rights, Properties and other assets necessary to permit the
Company and the Designated Subsidiaries and Subsidiary Guarantors to
conduct their business in all material respects in the same manner as its
business has been conducted prior to the Closing Date.
Section 7.11 No Material Misstatements. No information, exhibit or
report furnished to the Agents or the Lenders by or on behalf of the
Company or any Subsidiary in connection with the negotiation and
administration of this Agreement contains any material misstatement of
fact or omits to state a material fact necessary in order to make the
statements contained therein not misleading.
Section 7.12 Investment Company Act. Neither the Company nor any
Subsidiary is an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of
1940, as amended.
Section 7.13 Public Utility Holding Company Act. Neither the Company
nor any Subsidiary is a "holding company," or a "subsidiary company" of a
"holding company," or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company," or a "public utility" within
the meaning of the Public Utility Holding Company Act of 1935, as amended.
Section 7.14 Subsidiaries and Partnerships. On the Closing Date,
except as set forth on Schedule 7.14, the Company has no Subsidiaries and
neither the Company nor any Subsidiary has any interest in any general or
limited partnerships, but excluding solely tax partnerships and oil and
gas joint ventures under joint operating agreements.
Section 7.15 Location of Business and Offices. On the Closing Date,
the Company's chief executive offices are located at the address stated on
the signature page of this Agreement. On the Closing Date, the chief
executive office of each Subsidiary is located at the addresses stated on
Schedule 7.14.
Section 7.16 Defaults.
(a) As of the Closing Date, neither the Company nor any Subsidiary is
in default nor has any event or circumstance occurred which, but for the
expiration of any applicable grace period or the giving of notice, or
both, would constitute a default under any agreement or instrument for
borrowed money to which the
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Company or any Subsidiary is a party or by which the Company or any
Subsidiary is bound.
(b) No Default has occurred and is continuing.
Section 7.17 Environmental Matters. As of the Closing Date except
(i) as provided in Schedule 7.17 or (ii) as would not have a Material
Adverse Effect (or with respect to (c), (d) and (e) below, where the
failure to take such actions would not have a Material Adverse Effect):
(a) Neither any Property of the Company or any Subsidiary nor the
operations conducted thereon violate any order or requirement of any court
or Governmental Authority or any Environmental Laws;
(b) Without limitation of clause (a) above, no Property of the Company
or any Subsidiary nor the operations currently conducted thereon or, to
the best knowledge of the Company, by any prior owner or operator of such
Property or operation, are in violation of or subject to any existing,
pending or threatened action, suit, investigation, inquiry or proceeding
by or before any court or Governmental Authority or to any remedial
obligations under Environmental Laws;
(c) All notices, permits, licenses or similar authorizations, if any,
required to be obtained or filed in connection with the operation or use
of any and all Property of the Company and each Subsidiary, including
without limitation past or present treatment, storage, disposal or release
of a hazardous substance or solid waste into the environment, have been
duly obtained or filed, and the Company and each Subsidiary are in
compliance with the terms and conditions of all such notices, permits,
licenses and similar authorizations;
(d) All hazardous substances, solid waste, and oil and gas exploration
and production wastes, if any, generated at any and all Property of the
Company or any Subsidiary have in the past been transported, treated and
disposed of in accordance with Environmental Laws and so as not to pose an
imminent and substantial endangerment to public health or welfare or the
environment, and, to the best knowledge of the Company, all such transport
carriers and treatment and disposal facilities have been and are operating
in compliance with Environmental Laws and so as not to pose an imminent
and substantial endangerment to public health or welfare or the
environment, and are not the subject of any existing, pending or
threatened action, investigation or inquiry by any Governmental Authority
in connection with any Environmental Laws;
(e) The Company has taken all steps reasonably necessary to determine
and has determined that no hazardous substances, solid waste, or oil and
gas exploration and production wastes, have been disposed of or otherwise
released and there has been no threatened release of any hazardous
substances on or to any
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Property of the Company or any Subsidiary except in compliance with
Environmental Laws and so as not to pose an imminent and substantial
endangerment to public health or welfare or the environment;
(f) To the extent applicable, all Property of the Company and each
Subsidiary currently satisfies all design, operation, and equipment
requirements imposed by the OPA or scheduled as of the Closing Date to be
imposed by OPA during the term of this Agreement, and the Company does not
have any reason to believe that such Property, to the extent subject to
OPA, will not be able to maintain compliance with the OPA requirements
during the term of this Agreement; and
(g) Neither the Company nor any Subsidiary has any known contingent
liability in connection with any release or threatened release of any oil,
hazardous substance or solid waste into the environment.
Section 7.18 Compliance with Laws. As of the Closing Date, neither
the Company nor any Subsidiary has violated any Governmental Requirement
or failed to obtain any license, permit, franchise or other governmental
authorization necessary for the ownership of any of its Properties or the
conduct of its business, which violation or failure would have (in the
event such violation or failure were asserted by any Person through
appropriate action) a Material Adverse Effect.
Section 7.19 Pari Passu. The Indebtedness ranks and will rank at
least pari passu in priority with all other senior debt of each Obligor,
except for secured debt permitted by Section 9.02.
ARTICLE VIII
AFFIRMATIVE COVENANTS
The Company covenants and agrees that, so long as any of the Commitments
are in effect and until payment in full of all Loans hereunder, all
interest thereon and all other amounts payable by the Obligors hereunder:
Section 8.01 Financial Statements. The Company shall deliver, or
shall cause to be delivered, to the Administrative Agent with sufficient
copies of each for the Lenders:
(a) As soon as available and in any event within one hundred twenty
(120) days after the end of each fiscal year of the Company, (i) the
Company's Form 10-K filed with the SEC or (ii) the audited consolidated
statements of income, shareholders' equity, and cash flows of the Company
and its Consolidated Subsidiaries for such fiscal year, and the related
consolidated balance sheet of the Company and its Consolidated
Subsidiaries as at the end of such fiscal year, and setting forth in each
case in comparative form the corresponding figures as of the
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end of and for the preceding fiscal year, and accompanied by the related
opinion of independent public accountants of recognized national standing
acceptable to the Administrative Agent which opinion shall state that said
financial statements fairly present the consolidated financial condition,
results of operations and cash flows of the Company and its Consolidated
Subsidiaries as at the end of, and for, such fiscal year and that such
financial statements have been prepared in accordance with GAAP except for
such changes in such principles with which the independent public
accountants shall have concurred and such opinion shall not contain a
"going concern" or like qualification or exception, and a certificate of
such accountants stating that, in making the examination necessary for
their opinion, they obtained no knowledge, except as specifically stated,
of any Default.
(b) As soon as available and in any event within sixty (60) days after
the end of each of the first three fiscal quarterly periods of each fiscal
year of the Company, (i) the Company's Form 10-Q filed with the SEC or
(ii) unaudited consolidated statements of income, shareholders' equity,
and cash flows of the Company and its Consolidated Subsidiaries for such
period and for the period from the beginning of the respective fiscal year
to the end of such period, and the related consolidated balance sheets as
at the end of such period, and setting forth in each case in comparative
form the corresponding figures as of the end of and for the corresponding
period in the preceding fiscal year, accompanied by the certificate of a
Responsible Officer, which certificate shall state that said financial
statements fairly present the consolidated financial condition, results of
operations and cash flows of the Company and its Consolidated Subsidiaries
in accordance with GAAP, as at the end of, and for, such period (subject
to normal year-end adjustments).
(c) Promptly after a Responsible Officer of the Company knows that any
Default has occurred, a notice of such Default, describing the same in
reasonable detail and the action the Company proposes to take with respect
thereto.
(d) Promptly upon its becoming available, each financial statement,
report, notice or proxy statement sent by the Company to stockholders
generally and each regular or periodic report and any registration
statement or prospectus in respect thereof filed by the Company with or
received by the Company in connection therewith from any securities
exchange or the SEC or any successor agency, including without limitation,
Form 10-K's and Form 10-Q's.
(e) As soon as available and in any event within one hundred twenty
(120) days after the end of the fiscal year of the Company, the unaudited
balance sheet of each Designated Subsidiary as at the end of the Company's
fiscal year, certified by a Responsible Officer, which certificate shall
state that said balance sheet fairly presents the financial condition of
the respective Designated Subsidiary.
The Company will furnish to the Administrative Agent, with sufficient
copies for the Lenders, at the time it furnishes each set of financial
statements pursuant to paragraph (a)
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or (b) above, a certificate substantially in the form of Exhibit H
executed by a Responsible Officer (i) certifying as to the matters set
forth therein and stating that no Default has occurred and is continuing
(or, if any Default has occurred and is continuing, describing the same in
reasonable detail), (ii) setting forth in reasonable detail the
computations necessary to determine whether the Company is in compliance
with Section 9.01 as of the end of the respective fiscal quarter or fiscal
year and (iii) certifying that the Company is in compliance with Section
8.08 or will be in compliance within the next 30 days and listing the
Subsidiaries and Special Entities, if any, that will be executing Guaranty
Agreements.
Section 8.02 Litigation. The Company shall promptly give to the
Administrative Agent, with sufficient copies for the Lenders, notice of
all legal or arbitral proceedings, and of all proceedings before any
Governmental Authority affecting the Company or any Subsidiary, except
proceedings which, if adversely determined, would not have a Material
Adverse Effect.
Section 8.03 Maintenance, Etc.
(a) The Company shall and shall cause each Subsidiary Guarantor and
Designated Subsidiary to: preserve and maintain the Company's corporate
existence and all of its material rights, privileges and franchises; keep
books of record and account in which full, true and correct entries will
be made of all dealings or transactions in relation to its business and
activities; comply with all Governmental Requirements if failure to comply
with such requirements will have a Material Adverse Effect; pay and
discharge all taxes, assessments and governmental charges or levies
imposed on it or on its income or profits or on any of its Property prior
to the date on which penalties attach thereto, except for any such tax,
assessment, charge or levy the payment of which is being contested in good
faith and by proper proceedings and against which adequate reserves are
being maintained; during the continuance of an Event of Default and upon
reasonable notice, permit representatives of the Administrative Agent,
during normal business hours, to examine its books and records, to inspect
its Properties, and to discuss its business and affairs with its financial
officers, all to the extent reasonably requested by the Administrative
Agent and to the extent requested by the President of the Administrative
Agent, copy and make extracts of its books and records; and keep, or cause
to be kept, insured by financially sound and reputable insurers all
Property of a character usually insured by Persons engaged in the same or
similar business similarly situated against loss or damage of the kinds
and in the amounts customarily insured against by such Persons and carry
such other insurance as is usually carried by such Persons including,
without limitation, pollution liability insurance to the extent reasonably
available.
(b) Contemporaneously with the delivery of the financial statements
required by Section 8.01(a) to be delivered for each year, the Company
will furnish or cause to be furnished to the Administrative Agent a
certificate of insurance coverage from the insurer in substantially the
form provided at the closing of this
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Agreement and, if requested, will furnish the Administrative Agent copies
of the applicable policies.
Section 8.04 Environmental Matters.
(a) The Company will and will cause each Subsidiary to establish and
implement such procedures as may be reasonably necessary to continuously
determine and assure that any failure of the following does not have a
Material Adverse Effect: (i) all Property of the Company and its
Subsidiaries and the operations conducted thereon and other activities of
the Company and its Subsidiaries are in compliance with and do not violate
the requirements of any Environmental Laws, (ii) no oil, hazardous
substances or solid wastes are disposed of or otherwise released on or to
any Property owned by any such party except in compliance with
Environmental Laws, (iii) no hazardous substance will be released on or to
any such Property in a quantity equal to or exceeding that quantity which
requires reporting pursuant to Section 103 of CERCLA, and (iv) no oil, oil
and gas exploration and production wastes or hazardous substance is
released on or to any such Property so as to pose an imminent and
substantial endangerment to public health or welfare or the environment.
(b) The Company will promptly notify the Administrative Agent and the
Lenders in writing of any threatened action, investigation or inquiry by
any Governmental Authority of which the Company has knowledge in
connection with any Environmental Laws which may have a Material Adverse
Effect.
Section 8.05 Further Assurances. The Company will and will cause
each Subsidiary to cure promptly any defects in the creation and issuance
of the Notes and the execution and delivery of the other Loan Documents
and this Agreement. The Company at its expense will and will cause each
Subsidiary to promptly execute and deliver to the Administrative Agent
upon request all such other documents, agreements and instruments to
comply with or accomplish the covenants and agreements of the Company or
any Subsidiary, as the case may be, in the other Loan Documents and this
Agreement, or to further evidence and more fully describe the collateral
intended as security for the Notes, or to correct any omissions in the
other Loan Documents, or to perfect, protect or preserve any Liens created
pursuant to any of the other Loan Documents, or to make any recordings, to
file any notices or obtain any consents, all as may be necessary or
appropriate in connection therewith.
Section 8.06 ERISA Information and Compliance. The Company will
promptly furnish and will cause the Subsidiaries and any ERISA Affiliate
to promptly furnish to the Administrative Agent (i) immediately upon
becoming aware of the occurrence of any ERISA Event which could result in
a liability of the Company, any Subsidiary or any ERISA Affiliate having
a Material Adverse Effect (individually or in the aggregate with respect
to all ERISA Events), a written notice signed by the President or the
principal financial officer of the Company, the Subsidiary or the ERISA
Affiliate, as the case may be,
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specifying the nature thereof, what action the Company, the Subsidiary or
the ERISA Affiliate is taking or proposes to take with respect thereto,
and, when known, any action taken or proposed by the Internal Revenue
Service, the Department of Labor or the PBGC with respect thereto, (ii)
promptly after request by the Administrative Agent, a true and correct
copy of each actuarial report for any Plan and each annual report for any
Multiemployer Plan, (iii) immediately upon receipt of a notice from a
Multiemployer Plan regarding the imposition of Withdrawal Liability having
a Material Adverse Effect, a true and complete copy of such notice, (iv)
immediately upon becoming aware that a Multiemployer Plan has been
terminated, that the administrator or plan sponsor of a Multiemployer Plan
intends to terminate a Multiemployer Plan, or that the PBGC has instituted
or intends to institute proceedings under section 4042 of ERISA to
terminate a Multiemployer Plan which occurrence would have a Material
Adverse Effect, a written notice signed by the President or the principal
financial officer of the Company, the Subsidiary or the ERISA Affiliate,
as the case may be, specifying the nature of such occurrence and any other
information relating thereto requested by the Administrative Agent, and
(v) immediately upon receipt thereof, copies of any notice of the PBGC's
intention to terminate or to have a trustee appointed to administer any
Benefit Plan which occurrence would have a Material Adverse Effect.
Section 8.07 Lease Payments. The Company will cause its obligations
to Enserch Exploration Holdings, Inc. to be subordinated to the
Indebtedness on terms substantially similar to the terms set forth on
Exhibit M or on terms and subject to documentation satisfactory to the
Administrative Agent.
Section 8.08 Subsidiary Guaranty Agreements. The Company will cause
each of its Subsidiaries and Special Entities to execute a Subsidiary
Guaranty Agreement, except for such Subsidiaries and Special Entities that
in the aggregate do not have assets at book value in excess of 15% of the
total consolidated assets at book value of the Company. The Company shall
have 30 days from the date of delivery of each Compliance Certificate to
comply with this covenant. At the time that a Subsidiary or Special
Entity executes and delivers a Subsidiary Guaranty Agreement to the
Administrative Agent it shall also deliver to the Administrative Agent the
following in form and substance acceptable to the Administrative Agent:
(a) A certificate of the Secretary or an Assistant Secretary of each
Subsidiary Guarantor setting forth (i) resolutions of its board of
directors or appropriate Persons with respect to the authorization of such
Subsidiary Guarantor to execute and deliver the Loan Documents to which it
is a party and to enter into the transactions contemplated in those
documents, (ii) the officers of such Subsidiary Guarantor (y) who are
authorized to sign the Loan Documents to which such Subsidiary Guarantor
is a party and (z) who will, until replaced by another officer or officers
duly authorized for that purpose, act as its representative for the
purposes of signing documents and giving notices and other communications
in connection with this Agreement and the transactions contemplated
hereby, (iii) specimen signatures of the authorized officers, and (iv) the
articles or certificate of
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incorporation and bylaws or appropriate document of governance of such
Subsidiary Guarantor, certified as being true and complete. The Agents
and the Lenders may conclusively rely on such certificate until they
receive notice in writing from the Company to the contrary.
(b) An opinion of counsel to the Subsidiary Guarantor, substantially
in the form of Exhibit N.
ARTICLE IX
NEGATIVE COVENANTS
The Company covenants and agrees that, so long as any of the Commitments
are in effect and until payment in full of Loans hereunder and all
interest thereon without the prior written consent of the Majority
Lenders:
Section 9.01 Debt to Capital Ratio. The Company will not permit its
ratio ("Debt to Capital Ratio") expressed as a percentage of (i) Debt of
the Company and its Consolidated Subsidiaries on a consolidated basis
("Consolidated Debt") to (ii) the sum of Consolidated Debt plus Net Worth
to exceed 60% at any time; provided that in no event will Consolidated
Debt ever exceed $750,000,000.
Section 9.02 Liens. Except as expressly permitted in this Section
9.02, the Company will not at any time, directly or indirectly, create,
assume or suffer to exist, and will not cause, suffer or permit any
Designated Subsidiary or Subsidiary Guarantor as long as it remains a
Designated Subsidiary or Subsidiary Guarantor, directly or indirectly, to
create, assume or suffer to exist, except in favor of the Company, any
Lien upon any of its Properties (now owned or hereafter acquired), without
making effective provision (and the Company covenants that in any such
case it will make or cause to be made effective provision) whereby the
Indebtedness and any other Debt of the Company or any Designated
Subsidiary or Subsidiary Guarantor then entitled thereto shall be secured
by such Lien equally and ratably with any and all other obligations and
indebtedness thereby secured, so long as any such other obligations or
indebtedness shall be so secured. Nothing in this Agreement shall be
construed to prevent the Company or any Designated Subsidiary or
Subsidiary Guarantor without so securing the amounts outstanding
hereunder, from creating, assuming or suffering to exist the following
Liens, to which the provisions of this paragraph shall not be applicable:
(a) Liens upon any Property presently owned or hereafter acquired,
created at the time of acquisition to secure a portion of the purchase
price thereof, or existing thereon at the date of acquisition, whether or
not assumed by the Company or one of its Designated Subsidiaries or
Subsidiary Guarantors, provided that every such Lien shall apply only to
the Property so acquired and fixed improvements thereon;
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(b) any extension, renewal, or refunding of any Lien permitted by
Section 9.02(a), if limited to the same Property subject to, and securing
not more than the amount secured by, the Lien extended, renewed or
refunded;
(c) the pledge of current assets in the ordinary course of business,
to secure current liabilities;
(d) Liens upon (i) Property, to secure obligations to pay all or a
part of the purchase price of such Property only out of or measured by the
production, or the proceeds of such production, from such Property of oil
or gas or products or by-products thereof, or (ii) the production from
Property of oil or gas or products or by-products thereof, or the proceeds
of such production, to secure obligations to pay all or a part of the
expenses of exploration, drilling or development of such Property only out
of such production or the proceeds of such production;
(e) mechanics' or materialmen's liens, good faith deposits in
connection with tenders, leases of real estate, bids or contracts (other
than contracts for the payment of money), deposits to secure public or
statutory obligations, deposits to secure, or in lieu of, surety, stay or
appeal bonds, and deposits as security for the payment of taxes or
assessments or similar charges, Liens given in connection with bid or
completion bonds; provided that such obligations secured are not yet due
or are being contested in good faith by appropriate action and against
which an adequate reserve has been established;
(f) any Lien arising by reason of deposits with, or the giving of any
form of security to, any governmental agency or any body created or
approved by law or governmental regulation for any purposes at any time as
required by law or governmental regulation as a condition to the
transaction of any business or the exercise of any privilege or license,
or to enable the Company or a Subsidiary to maintain self-insurance or to
participate in any funds established to cover any insurance risks or in
connection with workmen's compensation, unemployment insurance, old age
pensions or other social security, or to share in the privileges or
benefits required for companies participating in such arrangements;
provided that such obligations secured are not yet due or are being
contested in good faith by appropriate action and against which an
adequate reserve has been established;
(g) the pledge or assignment of accounts receivable, including
customers' installment paper, to banks or others made in the ordinary
course of business (including to or by a Subsidiary which is principally
engaged in the business of financing the business of the Company and its
Subsidiaries);
(h) the Liens of taxes or assessments for the then current year or not
at the time due, or the Liens of taxes or assessments already due but the
validity of which is being contested in good faith by appropriate action
and against which an adequate reserve has been established;
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(i) any judgment or Lien against the Company or a Designated
Subsidiary or Subsidiary Guarantor, so long as the finality of such
judgment is being contested in good faith by appropriate action and the
execution thereon is stayed;
(j) assessments or similar encumbrances, the existence of which does
not impair the value or the use of the Property subject thereto for the
purposes for which it was acquired;
(k) landlords' liens on fixtures and movable Property located on
premises leased by the Company or a Designated Subsidiary or Subsidiary
Guarantor in the ordinary course of business so long as the rent secured
thereby is not in default;
(l) Liens on the assets of any limited liability company organized
under a limited liability company act of any state in which a limited
liability company is treated as a partnership for federal income tax
purposes; provided that neither the Company nor any Designated Subsidiary
or Subsidiary Guarantor is liable for the Debt of such limited liability
company; and
(m) other Liens on any Properties of the Company or any Subsidiary
with an aggregate value not exceeding 1% of the book value of the total
assets of the Company on a consolidated basis.
Section 9.03 Investments, Loans and Advances. So long as any Loans
are outstanding, neither the Company nor any Subsidiary will make any
loans or advances to ENSERCH Corporation or any of its subsidiaries (but
excluding the Company and its Subsidiaries) after the occurrence and
during the continuance of an Event of Default or in excess of $50,000,000
in the aggregate outstanding at any one time for greater than a 90 day
period.
Section 9.04 Dividends, Distributions and Redemptions. The Company
will not declare or pay any dividend, purchase, redeem or otherwise
acquire for value any of its stock now or hereafter outstanding, return
any capital to its stockholders or make any distribution of its assets to
its stockholders after the occurrence and during the continuance of an
Event of Default.
Section 9.05 Nature of Business. The Company will not allow any
material change to be made in the character of its business as an
independent oil and gas exploration and production company.
Section 9.06 Mergers, Etc. Neither the Company nor any Subsidiary
will merge into or with or consolidate with any other Person, or sell,
lease or otherwise dispose of (whether in one transaction or in a series
of transactions) all or substantially all of its Property or assets to any
other Person ("Disposition") unless (i) no Default exists or would result
from such merger or Disposition and (ii) for any merger the Company is the
survivor, or for any merger or Disposition, if the surviving Person or
acquiring Person is not the Company, such surviving Person or acquiring
Person assumes the Indebtedness and all other
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obligations of the Company under the Loan Documents and is approved by the
Majority Lenders.
Section 9.07 Proceeds of Notes. The Company will not permit the
proceeds of the Notes to be used for any purpose other than those
permitted by Section 7.07. Neither the Company nor any Person acting on
behalf of the Company has taken or will take any action which might cause
any of the Loan Documents to violate Regulation G, U or X or any other
regulation of the Board of Governors of the Federal Reserve System or to
violate Section 7 of the Securities Exchange Act of 1934, as amended, or
any rule or regulation thereunder, in each case as now in effect or as the
same may hereafter be in effect.
Section 9.08 ERISA Compliance. The Company and the Subsidiaries will
not at any time:
(a) Engage in, or permit any ERISA Affiliate to engage in, any
transaction in connection with which the Company, a Subsidiary or any
ERISA Affiliate could be subjected to either a civil penalty assessed
pursuant to subsections (c), (i) or (l) of section 502 of ERISA or a tax
imposed by Chapter 43 of Subtitle D of the Code;
(b) Terminate, or permit any ERISA Affiliate to terminate, any Benefit
Plan in a manner, or take any other action with respect to any Benefit
Plan, which could result in any liability of the Company, a Subsidiary or
any ERISA Affiliate to the PBGC;
(c) Fail to make, or permit any ERISA Affiliate to fail to make, full
payment when due of all amounts which, under the provisions of any Plan,
agreement relating thereto or applicable law, the Company, a Subsidiary or
any ERISA Affiliate is required to pay as contributions thereto;
(d) Permit to exist, or allow any ERISA Affiliate to permit to exist,
any accumulated funding deficiency within the meaning of section 302 of
ERISA or section 412 of the Code, whether or not waived, with respect to
any Benefit Plan;
(e) Permit, or allow any ERISA Affiliate to permit, the actuarial
present value of the benefit liabilities under any Benefit Plan maintained
by the Company, a Subsidiary or any ERISA Affiliate which is regulated
under Title IV of ERISA to exceed the current value of the assets
(computed on a plan termination basis in accordance with Title IV of
ERISA) of such Benefit Plan allocable to such benefit liabilities. The
term "actuarial present value of the benefit liabilities" shall have the
meaning specified in section 4041 of ERISA;
(f) Incur, or permit any ERISA Affiliate to incur, a liability to or
on account of a Plan under sections 4062, 4063, or 4064 of ERISA;
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(g) Amend, or permit any ERISA Affiliate to amend, a Plan resulting in
an increase in current liability such that the Company, a Subsidiary or
any ERISA Affiliate is required to provide security to such Plan under
section 401(a)(29) of the Code; or
(h) Incur or permit Withdrawal Liability and liability in connection
with a reorganization or termination of a Multiemployer Plan of the
Company, the Subsidiaries and the ERISA Affiliates;
provided, however, that the transactions, events and occurrences described
in this Section 9.08 shall be permitted so long as such transactions,
events and occurrences (individually and in the aggregate) will not result
in a Material Adverse Effect.
Section 9.09 Environmental Matters. Neither the Company nor any
Subsidiary will cause or permit any of its Property to be in violation of,
or do anything or permit anything to be done which will subject any such
Property to any remedial obligations under, any Environmental Laws,
assuming disclosure to the applicable Governmental Authority of all
relevant facts, conditions and circumstances, if any, pertaining to such
Property where such violations or remedial obligations would have a
Material Adverse Effect.
Section 9.10 Transactions with Affiliates. Neither the Company nor
any Designated Subsidiary nor any Subsidiary Guarantor will enter into
any material transaction, including, without limitation, any purchase,
sale, lease or exchange of Property including the purchase or sale of oil
and gas properties and hydrocarbons or the rendering of any service, with
any Affiliate unless such transactions are in the ordinary course of its
business and are upon fair and reasonable terms no less favorable to it
than it would obtain in a comparable arm's length transaction with a
Person not an Affiliate.
Section 9.11 Restrictive Dividend Agreements. Neither the Company
nor any Designated Subsidiary nor any Subsidiary Guarantor will create,
incur, assume or suffer to exist any financing agreement (other than this
Agreement and the other Loan Documents) which in any way restricts any
Designated Subsidiary or Subsidiary Guarantor from paying dividends to the
Company.
ARTICLE X
EVENTS OF DEFAULT; REMEDIES
Section 10.01 Events of Default. One or more of the following events
shall constitute an "Event of Default":
(a) (i) any Obligor shall default in the payment or prepayment of any
principal on any Loan when due or (ii) any Obligor shall default in the
payment of any interest on any Loan or any facility fees payable by it
hereunder and such default, other than a default of a payment or
prepayment of principal, shall continue
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unremedied for a period of five (5) days or (iii) any Obligor shall
default in the payment of any other amount payable by it hereunder or
under any other Loan Document and such default shall continue unremedied
for a period of thirty (30) days after notice of such default by the
Administrative Agent to the Company; or
(b) the Company or any Subsidiary shall default in the payment when
due of any principal of or interest on any of its other Debt of
$25,000,000 or more, or any event specified in any note, agreement,
indenture or other document evidencing or relating to any Debt of
$25,000,000 or more shall occur if the effect of such event causes, or
after the giving of any notice or the lapse of time or both, if
applicable, permits the holder or holders of such Debt (or a trustee or
agent on behalf of such holder or holders) to cause, such Debt to become
due prior to its stated maturity; or
(c) any representation, warranty or certification made or deemed made
herein or in any other Loan Documents by the Company, any Designated
Subsidiary or any Subsidiary Guarantor, or any certificate furnished to
any Lender or the Administrative Agent pursuant to the provisions hereof
or any other Loan Documents, shall prove to have been false or misleading
as of the time made, deemed made or furnished in any material adverse
respect; or
(d) the Company shall default in the performance of any of its
obligations under Article IX; or
(e) the Company shall default in the performance of any of its
obligations under Article VIII or any other Loan Document or any other
Article of this Agreement other than under Article IX (other than the
payment of amounts due which shall be governed by Section 10.01(a)) and
such default shall continue unremedied for a period of thirty (30) days
after the earlier to occur of (i) notice thereof to the Company by the
Administrative Agent or any Lender (through the Administrative Agent), or
(ii) a Responsible Officer of the Company otherwise becoming aware of such
default; or
(f) the Company, any Designated Subsidiary or any Subsidiary Guarantor
shall admit in writing its inability to, or be generally unable to, pay
its debts as such debts become due; or
(g) the Company, any Designated Subsidiary or any Subsidiary Guarantor
shall (i) apply for or consent to the appointment of, or the taking of
possession by, a receiver, custodian, trustee or liquidator of itself or
of all or a substantial part of its Property, (ii) make a general
assignment for the benefit of its creditors, (iii) commence a voluntary
case under the Federal Bankruptcy Code (as now or hereafter in effect),
(iv) file a petition seeking to take advantage of any other law relating
to bankruptcy, insolvency, reorganization, winding-up, or composition or
readjustment of debts, (v) fail to controvert in a timely and appropriate
manner, or
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acquiesce in writing to, any petition filed against it in an involuntary
case under the Federal Bankruptcy Code, or (vi) take any corporate or
partnership action for the purpose of effecting any of the foregoing; or
(h) a proceeding or case shall be commenced, without the application
or consent of the Company, any Designated Subsidiary or any Subsidiary
Guarantor, in any court of competent jurisdiction, seeking (i) its
liquidation, reorganization, dissolution or winding-up, or the composition
or readjustment of its debts, (ii) the appointment of a trustee, receiver,
custodian, liquidator or the like of the Company, any Designated
Subsidiary or any Subsidiary Guarantor of all or any substantial part of
its Property, or (iii) similar relief in respect of the Company, any
Designated Subsidiary or any Subsidiary Guarantor under any law relating
to bankruptcy, insolvency, reorganization, winding-up, or composition or
adjustment of debts, and such proceeding or case shall continue
undismissed, or an order, judgment or decree approving or ordering any of
the foregoing shall be entered and continue unstayed and in effect, for a
period of 90 days; or (iv) an order for relief against the Company, any
Designated Subsidiary or any Subsidiary Guarantor shall be entered in an
involuntary case under the Federal Bankruptcy Code; or
(i) a judgment or judgments for the payment of money in excess of
$25,000,000 in the aggregate shall be rendered by a court against the
Company or any Subsidiary Guarantor or Designated Subsidiaries and the
same shall not be discharged (or provision shall not be made for such
discharge), or a stay of execution thereof shall not be procured, within
thirty (30) days from the date of entry thereof and the Company or such
Subsidiary shall not, within said period of 30 days, or such longer period
during which execution of the same shall have been stayed, appeal
therefrom and cause the execution thereof to be stayed during such appeal;
or
(j) the Guaranty Agreements after delivery thereof shall for any
reason, except to the extent permitted by the terms thereof, cease to be
in full force and effect and valid, binding and enforceable in accordance
with their terms, except to the extent permitted by the terms of this
Agreement, or the Company or any Subsidiary Guarantor shall so state in
writing; or
(k) ENSERCH Corporation shall cease to own, directly or indirectly, at
least 50% of the outstanding voting stock of the Company.
Section 10.02 Remedies.
(a) In the case of an Event of Default other than one referred to in
clauses (f), (g), or (h) of Section 10.01, the Administrative Agent may
and, upon request of the Majority Lenders, shall, by notice to the
Company, cancel the Commitments and/or declare the principal amount then
outstanding of, and the accrued interest on, the Loans and all other
amounts payable by the Company hereunder and under the Notes to be
forthwith due and payable, whereupon such amounts shall be
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immediately due and payable without presentment, demand, protest, notice
of intent to accelerate, notice of acceleration or other formalities of
any kind, all of which are hereby expressly waived by the Company.
(b) In the case of the occurrence of an Event of Default referred to
in clauses (f), (g), or (h) of Section 10.01, the Commitments shall be
automatically cancelled and the principal amount then outstanding of, and
the accrued interest on, the Loans and all other amounts payable by the
Company hereunder and under the Notes shall become automatically
immediately due and payable without presentment, demand, protest, notice
of intent to accelerate, notice of acceleration or other formalities of
any kind, all of which are hereby expressly waived by the Company.
(c) All proceeds received after maturity of the Notes, whether by
acceleration or otherwise shall be applied first to reimbursement of
expenses and indemnities provided for in this Agreement and the other Loan
Documents; second to accrued interest on the Notes; third to fees; fourth
pro rata to principal outstanding on the Notes and other Indebtedness; and
any excess shall be paid to the Company or as otherwise required by any
Governmental Requirement.
ARTICLE XI
THE ADMINISTRATIVE AGENT
Section 11.01 Appointment, Powers and Immunities. Each Lender hereby
irrevocably appoints and authorizes Texas Commerce Bank National
Association, as the Administrative Agent, and Chemical Bank, as the
Auction Agent, each to act as its agent hereunder and under the other Loan
Documents with such powers as are specifically delegated to the
Administrative Agent and Auction Agent respectively by the terms of this
Agreement and the other Loan Documents, together with such other powers as
are reasonably incidental thereto. The Syndication Agent, in such
capacity, shall have no duties or responsibilities and shall incur no
liabilities under the Loan Documents. Each Agent (which term as used in
this sentence and in Section 11.05 and the first sentence of Section 11.06
shall include reference to its Affiliates and its and its Affiliates'
officers, directors, employees, attorneys, accountants, experts and
agents): (i) shall have no duties or responsibilities except those
expressly set forth in this Agreement, and shall not by reason of this
Agreement be a trustee or fiduciary for any Lender; (ii) makes no
representation or warranty to any Lender and shall not be responsible to
the Lenders for any recitals, statements, representations or warranties
contained in this Agreement, or in any certificate or other document
referred to or provided for in, or received by any of them under, this
Agreement, or for the value, validity, effectiveness, genuineness,
execution, effectiveness, legality, enforceability or sufficiency of this
Agreement, any Note or any other document referred to or provided for
herein or for any failure by the Company or any other Person (other than
such Agent) to perform any of its obligations hereunder or thereunder or
for the existence, value, perfection or priority of any collateral
security or the financial or other
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condition of the Company, its Subsidiaries or any other obligor or
guarantor; (iii) except pursuant to Section 11.07 shall not be required to
initiate or conduct any litigation or collection proceedings hereunder;
and (iv) shall not be responsible for any action taken or omitted to be
taken by it hereunder or under any other document or instrument referred
to or provided for herein or in connection herewith including its own
ordinary negligence, except for its own gross negligence or willful
misconduct. The Administrative Agent may employ agents, accountants,
attorneys and experts and shall not be responsible for the negligence or
misconduct of any such agents, accountants, attorneys or experts selected
by it in good faith or any action taken or omitted to be taken in good
faith by it in accordance with the advice of such agents, accountants,
attorneys or experts. Each Agent may deem and treat the payee of any Note
as the holder thereof for all purposes hereof unless and until a written
notice of the assignment or transfer thereof permitted hereunder shall
have been filed with the Administrative Agent.
Section 11.02 Reliance by Agent. Each Agent shall be entitled to
rely upon any certification, notice or other communication (including any
thereof by telephone, telex, telecopier, telegram or cable) believed by it
to be genuine and correct and to have been signed or sent by or on behalf
of the proper Person or Persons, and upon advice and statements of legal
counsel, independent accountants and other experts selected by such Agent.
Section 11.03 Defaults. No Agent shall be deemed to have knowledge
of the occurrence of a Default (other than the Administrative Agent's
notice of the non-payment of principal of or interest on Loans or of
fees). In the event that the Administrative Agent receives a notice of
the occurrence of a Default specifying such Default and stating that such
notice is a "Notice of Default", the Administrative Agent shall give
prompt notice thereof to the Lenders. In the event of a payment Default,
the Administrative Agent shall give each Lender prompt notice of each such
payment Default.
Section 11.04 Rights as a Lender. With respect to its Commitments
and the Loans made by it, each Agent (and any successor acting as an
Agent) in its capacity as a Lender hereunder shall have the same rights
and powers hereunder as any other Lender and may exercise the same as
though it were not acting as an Agent, and the term "Lender" or "Lenders"
shall, unless the context otherwise indicates, include each Agent in its
individual capacity. Each Agent (and any successor acting as an Agent)
and its Affiliates may (without having to account therefor to any Lender)
accept deposits from, lend money to and generally engage in any kind of
banking, trust or other business with the Company (any and of its
Affiliates) as if it were not acting as an Agent, and each Agent and its
Affiliates may accept fees and other consideration from the Company for
services in connection with this Agreement or otherwise without having to
account for the same to the Lenders.
Section 11.05 INDEMNIFICATION. THE LENDERS AGREE TO INDEMNIFY EACH
AGENT RATABLY IN ACCORDANCE WITH ITS PERCENTAGE SHARES FOR THE INDEMNITY
MATTERS AS DESCRIBED IN SECTION 12.03 TO THE EXTENT NOT INDEMNIFIED OR
REIMBURSED
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BY THE COMPANY UNDER SECTION 12.03, BUT WITHOUT LIMITING THE OBLIGATIONS
OF THE COMPANY UNDER SAID SECTION 12.03 AND FOR ANY AND ALL OTHER
LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS,
SUITS, COSTS, EXPENSES OR DISBURSEMENTS OF ANY KIND AND NATURE WHATSOEVER
WHICH MAY BE IMPOSED ON, INCURRED BY OR ASSERTED AGAINST SUCH AGENT IN ANY
WAY RELATING TO OR ARISING OUT OF: (I) THIS AGREEMENT, THE OTHER LOAN
DOCUMENTS OR ANY OTHER DOCUMENTS CONTEMPLATED BY OR REFERRED TO HEREIN OR
THE TRANSACTIONS CONTEMPLATED HEREBY, BUT EXCLUDING, UNLESS A DEFAULT HAS
OCCURRED AND IS CONTINUING, NORMAL ADMINISTRATIVE COSTS AND EXPENSES
INCIDENT TO THE PERFORMANCE OF ITS AGENCY DUTIES HEREUNDER OR (II) THE
ENFORCEMENT OF ANY OF THE TERMS OF THIS AGREEMENT, OTHER LOAN DOCUMENTS OR
OF ANY SUCH OTHER DOCUMENTS; WHETHER OR NOT ANY OF THE FOREGOING SPECIFIED
IN THIS SECTION 11.05 ARISES FROM THE SOLE OR CONCURRENT NEGLIGENCE OF
SUCH AGENT, PROVIDED THAT NO LENDER SHALL BE LIABLE FOR ANY OF THE
FOREGOING TO THE EXTENT THEY ARISE FROM THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT OF SUCH AGENT.
Section 11.06 Non-Reliance on the Agents and other Lenders. Each
Lender acknowledges and agrees that it has, independently and without
reliance on any Agent or any other Lender, and based on such documents and
information as it has deemed appropriate, made its own credit analysis of
the Company and its decision to enter into this Agreement, and that it
will, independently and without reliance upon any Agent or any other
Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own analysis and decisions
in taking or not taking action under this Agreement. The Agents shall not
be required to keep themselves informed as to the performance or
observance by the Company of this Agreement, the Notes, the other Loan
Documents or any other document referred to or provided for herein or to
inspect the properties or books of the Company. Except for notices,
reports and other documents and information expressly required to be
furnished to the Lenders by the Administrative Agent or Auction Agent
hereunder, the Agents shall not have any duty or responsibility to provide
any Lender with any credit or other information concerning the affairs,
financial condition or business of the Company (or any of its Affiliates)
which may come into the possession of any Agent, or any of its Affiliates.
Section 11.07 Action by Agent. Except for action or other matters
expressly required of the Administrative Agent or Auction Agent hereunder,
the Administrative Agent or Auction Agent shall in all cases be fully
justified in failing or refusing to act hereunder unless it shall (i)
receive written instructions from the Majority Lenders (or if this
Agreement requires, all of the Lenders) specifying the action to be taken,
and (ii) be indemnified to its satisfaction by the Lenders against any and
all liability and expenses which may be incurred by it by reason of taking
or continuing to take any such action except for gross negligence or
wilful misconduct. The instructions of the Majority Lenders (or if this
Agreement requires, all of the Lenders) and any action taken or failure to
act pursuant thereto by the Administrative Agent or Auction Agent shall be
binding on all of the Lenders. If a Default has occurred and is
continuing, the Administrative Agent or Auction Agent shall take such
action with respect to such Default as shall be directed by the
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Majority Lenders (or if this Agreement requires, all of the Lenders) in
the written instructions (with indemnities) described in this Section
11.07, provided that, unless and until the Administrative Agent or Auction
Agent shall have received such directions, the Administrative Agent or
Auction Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default as it shall
deem advisable in the best interests of the Lenders. In no event,
however, shall any Agent be required to take any action which exposes such
Agent to personal liability or which is contrary to this Agreement and the
other Loan Documents or applicable law.
Section 11.08 Resignation or Removal of the Agents. Subject to the
appointment and acceptance of a successor as provided below, the
Administrative Agent or Auction Agent may resign at any time by giving
notice thereof to the Lenders and the Company, and the Administrative
Agent or Auction Agent may be removed at any time with or without cause by
the Majority Lenders. Upon any such resignation or removal, the Majority
Lenders shall have the right to appoint a successor Administrative Agent
or Auction Agent as the case may be. If no successor Administrative Agent
or Auction Agent shall have been so appointed by the Majority Lenders and
shall have accepted such appointment within thirty (30) days after the
retiring Administrative Agent's or Auction Agent's giving of notice of
resignation or the Majority Lenders' removal of the retiring
Administrative Agent or Auction Agent, then the retiring Administrative
Agent or Auction Agent, as the case may be, may, on behalf of the Lenders,
appoint a respective successor Administrative Agent or Auction Agent.
Upon the acceptance of such appointment hereunder by a successor
Administrative Agent or Auction Agent, such successor Administrative Agent
or Auction Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Administrative Agent
or Auction Agent, as the case may be, and the retiring Administrative
Agent or Auction Agent shall be discharged from its duties and obligations
hereunder. After any retiring Administrative Agent's or Auction Agent's
resignation or removal hereunder as Administrative Agent or Auction Agent,
the provisions of this Article XI and Section 12.03 shall continue in
effect for its benefit in respect of any actions taken or omitted to be
taken by it while it was acting as the Administrative Agent or Auction
Agent.
ARTICLE XII
MISCELLANEOUS
Section 12.01 Waiver. No failure on the part of any Agent or any
Lender to exercise and no delay in exercising, and no course of dealing
with respect to, any right, power or privilege under any of the Loan
Documents shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or privilege under any of the Loan
Documents preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The remedies provided herein are
cumulative and not exclusive of any remedies provided by law.
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Section 12.02 Notices. All notices and other communications provided
for herein and in the other Loan Documents (including, without limitation,
any modifications of, or waivers or consents under, this Agreement or the
other Loan Documents) shall be given or made by telex, telecopy,
telegraph, cable, courier or U.S. Mail or in writing and telexed,
telecopied, telegraphed, cabled, mailed or delivered to the intended
recipient at the "Address for Notices" specified below its name on the
signature pages hereof or in the other Loan Documents or, as to any party,
at such other address as shall be designated by such party in a notice to
each other party. Except as otherwise provided in this Agreement or in
the other Loan Documents, all such communications shall be deemed to have
been duly given when transmitted by telex or telecopier, delivered to the
telegraph or cable office or personally delivered or, in the case of a
mailed notice, three (3) Business Days after the date deposited in the
mails, postage prepaid, in each case given or addressed as aforesaid. The
Company shall be the agent of each Designated Subsidiary for the receiving
and giving of any notices or other communications under the Loan
Documents.
Section 12.03 Payment of Expenses, Indemnities, etc. Each Obligor
agrees:
(a) whether or not the transactions hereby contemplated are
consummated, to pay all reasonable expenses of the Agents in the
administration (both before and after the execution hereof and including
advice of counsel as to the rights and duties of the Agents and the
Lenders with respect thereto) of, and in connection with the negotiation,
syndication, investigation, preparation, execution and delivery of,
recording or filing of, preservation of rights under, enforcement of, and
refinancing, renegotiation or restructuring of, the Loan Documents and any
amendment, waiver or consent relating thereto (including, without
limitation, travel, photocopy, mailing, courier, telephone and other
similar expenses of the Agents, the cost of environmental audits, surveys
and appraisals at reasonable intervals, the reasonable fees and
disbursements of counsel for the Agents and in the case of enforcement for
any of the Lenders); and promptly reimburse the Agents for the account of
the Agents and the Lenders for all amounts expended, advanced or incurred
by the Agents or the Lenders to satisfy any obligation of the Company
under this Agreement or any other Loan Document;
(b) TO INDEMNIFY EACH AGENT AND EACH LENDER AND EACH OF THEIR
AFFILIATES AND EACH OF THEIR OFFICERS, DIRECTORS, EMPLOYEES,
REPRESENTATIVES, AGENTS, ATTORNEYS, ACCOUNTANTS AND EXPERTS ("INDEMNIFIED
PARTIES") FROM, HOLD EACH OF THEM HARMLESS AGAINST AND PROMPTLY UPON
DEMAND PAY OR REIMBURSE EACH OF THEM FOR, THE INDEMNITY MATTERS WHICH MAY
BE INCURRED BY OR ASSERTED AGAINST OR INVOLVE ANY OF THEM (WHETHER OR NOT
ANY OF THEM IS DESIGNATED A PARTY THERETO) AS A RESULT OF, ARISING OUT OF
OR IN ANY WAY RELATED TO (I) ANY ACTUAL OR PROPOSED USE BY ANY OBLIGOR OF
THE PROCEEDS OF ANY OF THE LOANS, (II) THE EXECUTION, DELIVERY AND
PERFORMANCE OF THE LOAN DOCUMENTS, (III) THE OPERATIONS OF THE BUSINESS OF
THE COMPANY AND ITS SUBSIDIARIES, (IV) THE FAILURE OF THE COMPANY OR ANY
SUBSIDIARY TO COMPLY WITH THE TERMS OF ANY LOAN DOCUMENT, OR WITH ANY
GOVERNMENTAL
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REQUIREMENT, (V) ANY INACCURACY OF ANY REPRESENTATION OR ANY BREACH OF
ANY WARRANTY OF THE COMPANY SET FORTH IN ANY OF THE LOAN DOCUMENTS, (VI)
ANY ASSERTION THAT THE LENDERS WERE NOT ENTITLED TO RECEIVE THE PROCEEDS
RECEIVED PURSUANT TO THE LOAN DOCUMENTS OR (VII) ANY OTHER ASPECT OF THE
LOAN DOCUMENTS, INCLUDING, WITHOUT LIMITATION, THE REASONABLE FEES AND
DISBURSEMENTS OF COUNSEL AND ALL OTHER EXPENSES INCURRED IN CONNECTION
WITH INVESTIGATING, DEFENDING OR PREPARING TO DEFEND ANY SUCH ACTION,
SUIT, PROCEEDING (INCLUDING ANY INVESTIGATIONS, LITIGATION OR INQUIRIES)
OR CLAIM AND INCLUDING ALL INDEMNITY MATTERS ARISING BY REASON OF THE
ORDINARY NEGLIGENCE OF ANY INDEMNIFIED PARTY, BUT EXCLUDING ALL INDEMNITY
MATTERS ARISING SOLELY BY REASON OF CLAIMS BETWEEN THE LENDERS OR ANY
LENDER AND ANY AGENT OR A LENDER'S SHAREHOLDERS AGAINST ANY AGENT OR
LENDER OR BY REASON OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT ON THE
PART OF SUCH INDEMNIFIED PARTY; AND
(c) TO INDEMNIFY AND HOLD HARMLESS FROM TIME TO TIME EACH INDEMNIFIED
PARTY FROM AND AGAINST ANY AND ALL LOSSES, CLAIMS, COST RECOVERY ACTIONS,
ADMINISTRATIVE ORDERS OR PROCEEDINGS, DAMAGES AND LIABILITIES TO WHICH ANY
SUCH PERSON MAY BECOME SUBJECT (I) UNDER ANY ENVIRONMENTAL LAW APPLICABLE
TO THE COMPANY OR ANY SUBSIDIARY OR ANY OF THEIR PROPERTIES, INCLUDING
WITHOUT LIMITATION THE TREATMENT OR DISPOSAL OF HAZARDOUS SUBSTANCES ON
ANY OF THEIR PROPERTIES AND RESULTING FROM THE FACT THAT THE AGENTS OR
LENDERS ARE A PARTY TO ANY LOAN DOCUMENT, (II) AS A RESULT OF THE BREACH
OR NON- COMPLIANCE BY THE COMPANY OR ANY SUBSIDIARY WITH ANY ENVIRONMENTAL
LAW APPLICABLE TO THE COMPANY OR ANY SUBSIDIARY, (III) DUE TO PAST
OWNERSHIP BY THE COMPANY OR ANY SUBSIDIARY OF ANY OF THEIR PROPERTIES OR
PAST ACTIVITY ON ANY OF THEIR PROPERTIES WHICH, THOUGH LAWFUL AND FULLY
PERMISSIBLE AT THE TIME, COULD RESULT IN PRESENT LIABILITY, (IV) THE
PRESENCE, USE, RELEASE, STORAGE, TREATMENT OR DISPOSAL OF HAZARDOUS
SUBSTANCES ON OR AT ANY OF THE PROPERTIES OWNED OR OPERATED BY THE COMPANY
OR ANY SUBSIDIARY, OR (V) ANY OTHER ENVIRONMENTAL, HEALTH OR SAFETY
CONDITION IN CONNECTION WITH THE LOAN DOCUMENTS, PROVIDED, HOWEVER, NO
INDEMNITY SHALL BE AFFORDED UNDER THIS SECTION 12.03(C) IN RESPECT OF ANY
PROPERTY FOR ANY OCCURRENCE ARISING FROM THE ACTS OR OMISSIONS OF ANY
AGENT OR ANY LENDER DURING THE PERIOD AFTER WHICH SUCH PERSON, ITS
SUCCESSORS OR ASSIGNS SHALL HAVE OBTAINED POSSESSION OF SUCH PROPERTY
(WHETHER BY FORECLOSURE OR DEED IN LIEU OF FORECLOSURE, AS
MORTGAGEE-IN-POSSESSION OR OTHERWISE).
(d) No Indemnified Party may settle any claim to be indemnified
without the consent of the indemnitor, such consent not to be unreasonably
withheld; provided, that the indemnitor may not reasonably withhold
consent to any settlement that an Indemnified Party proposes, if the
indemnitor does not have the financial ability to pay all its obligations
outstanding and asserted against the indemnitor at
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that time, including the maximum potential claims against the Indemnified
Party to be indemnified pursuant to this Section 12.03.
(e) In the case of any indemnification hereunder, the Administrative
Agent or a Lender, as appropriate shall give notice to the Company of any
such claim or demand being made against such Indemnified Party and the
Company shall have the non-exclusive right to join in the defense against
any such claim or demand provided that if the Company provides a defense,
such Indemnified Party shall bear its own cost of defense unless there is
a conflict between the Company and such Indemnified Party.
(f) THE FOREGOING INDEMNITIES SHALL EXTEND TO THE INDEMNIFIED PARTIES
NOTWITHSTANDING THE NEGLIGENCE OF EVERY KIND OR CHARACTER WHATSOEVER,
WHETHER ACTIVE OR PASSIVE, WHETHER AN AFFIRMATIVE ACT OR AN OMISSION,
INCLUDING WITHOUT LIMITATION, ALL TYPES OF NEGLIGENT CONDUCT IDENTIFIED IN
THE RESTATEMENT (SECOND) OF TORTS OF ONE OR MORE OF THE INDEMNIFIED
PARTIES OR BY REASON OF STRICT LIABILITY IMPOSED WITHOUT FAULT ON ANY ONE
OR MORE OF THE INDEMNIFIED PARTIES. TO THE EXTENT THAT AN INDEMNIFIED
PARTY IS FOUND TO HAVE COMMITTED AN ACT OF GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT, THIS CONTRACTUAL OBLIGATION OF INDEMNIFICATION SHALL CONTINUE
BUT SHALL ONLY EXTEND TO THE PORTION OF THE CLAIM THAT IS DEEMED TO HAVE
OCCURRED BY REASON OF EVENTS OTHER THAN THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT OF THE INDEMNIFIED PARTY.
(g) Each Obligor's obligation under this Section 12.03 shall survive
any termination of this Agreement and the payment of the Notes and shall
continue thereafter in full force and effect.
(h) The Obligors shall pay any amounts due under this Section 12.03
within thirty (30) days of the receipt by the Company of notice of the
amount due.
Section 12.04 Amendments, Etc. Any provision of this Agreement or
any other Loan Document may be amended, modified or waived with the
Company's and the Majority Lenders' prior written consent; provided that
(i) no amendment, modification or waiver which extends the maturity of the
Loans, or the interest or fee payment dates, increases the Aggregate
Commitments, forgives the principal amount of any Indebtedness outstanding
under this Agreement, reduces the interest rate applicable to the Loans or
the fees payable to the Lenders generally, affects this Section 12.04 or
Section 12.06(a) or modifies the definition of "Majority Lenders" or any
provision which by its terms requires the consent or approval of all of
the Lenders shall be effective without consent of all Lenders; (ii) no
amendment, modification or waiver which increases or extends the
Commitment of any Lender shall be effective without the consent of such
Lender; and (iii) no amendment, modification or waiver which modifies the
rights, duties or obligations of the Administrative Agent, Auction Agent
or the Syndication Agent shall be effective without the consent of such
Agent.
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Section 12.05 Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
Section 12.06 Assignments and Participations.
(a) No Obligor may assign its rights or obligations hereunder or under
the Notes without the prior consent of all of the Lenders and the Agents.
(b) Any Lender may, upon the written consent of the Company (which
consent shall not be unreasonably withheld) assign to one or more
assignees all or a portion of its rights and obligations under this
Agreement and the other Loan Documents pursuant to an Assignment Agreement
substantially in the form of Exhibit K (an "Assignment") provided,
however, that (i) any such assignment shall be in the amount of at least
$10,000,000 or such lesser amount to which the Company has consented and
(ii) the assignor or assignee shall pay to the Administrative Agent a
processing and recordation fee of $2500 for each assignment. Any such
assignment will become effective upon the execution and delivery to the
Administrative Agent of the Assignment and the written consent of the
Company. Promptly after receipt of an executed Assignment, the
Administrative Agent shall send to the Company a copy of such executed
Assignment. Upon receipt of such executed Assignment, the Company, will,
at its own expense, execute and deliver new Notes to the assignor and/or
assignee, as appropriate, in accordance with their respective interests as
they appear. Upon the effectiveness of any assignment pursuant to this
Section 12.06(b), the assignee will become a "Lender," if not already a
"Lender," for all purposes of this Agreement and the other Loan Documents.
The assignor shall be relieved of its obligations hereunder to the extent
of such assignment (and if the assigning Lender no longer holds any rights
or obligations under this Agreement, such assigning Lender shall cease to
be a "Lender" hereunder except that its rights under Sections 4.06, 5.01,
5.05 and 12.03 shall not be affected). The Administrative Agent will
prepare on the last Business Day of each month during which an assignment
has become effective pursuant to this Section 12.06(b), a new Annex 1
giving effect to all such assignments effected during such month, and will
promptly provide the same to the Company and each of the Lenders.
(c) Each Lender may transfer, grant or assign participations in all or
any part of such Lender's interests, rights and obligations hereunder
pursuant to this Section 12.06(c) to any Person, provided that: (i) such
Lender shall remain a "Lender" for all purposes of this Agreement and the
transferee of such participation shall not constitute a "Lender"
hereunder; and (ii) no participant under any such participation shall have
rights to approve any amendment to or waiver of any of the Loan Documents
except to the extent such amendment or waiver would (x) extend the
Revolving Credit Termination Date, (y) reduce the interest rate (other
than as a result of waiving the applicability of any post-default
increases in interest rates) or fees applicable to any of the Commitments
or Loans in which such participant is
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participating, or postpone the payment of any thereof, or (z) release all
or substantially all of the collateral (except as expressly provided in
the other Loan Documents) supporting any of the Commitments or Loans in
which such participant is participating. In the case of any such
participation, the participant shall not have any rights under this
Agreement or any of the other Loan Documents (the participant's rights
against the granting Lender in respect of such participation to be those
set forth in the agreement with such Lender creating such participation),
and all amounts payable by the Company hereunder shall be determined as if
such Lender had not sold such participation, provided that such
participant shall be entitled to receive additional amounts under Article
V on the same basis as if it were a Lender and be indemnified under
Section 12.03 as if it were a Lender. In addition, each agreement
creating any participation must include an agreement by the participant to
be bound by the provisions of Section 12.15.
(d) The Lenders may furnish any information concerning the Company in
the possession of the Lenders from time to time to assignees and
participants (including prospective assignees and participants); provided
such Persons agree in writing to be bound by the provisions of Section
12.15.
(e) Notwithstanding anything in this Section 12.06 to the contrary,
any Lender may assign and pledge its Note to any Federal Reserve Bank or
the United States Treasury as collateral security pursuant to Regulation
A of the Board of Governors of the Federal Reserve System and any
operating circular issued by such Federal Reserve System and/or such
Federal Reserve Bank. No such assignment and/or pledge shall release the
assigning and/or pledging Lender from its obligations hereunder.
(f) Notwithstanding any other provisions of this Section 12.06, no
transfer or assignment of the interests or obligations of any Lender or
any grant of participations therein shall be permitted if such transfer,
assignment or grant would require the Company to file a registration
statement with the SEC or to qualify the Loans under the "Blue Sky" laws
of any state.
Section 12.07 Invalidity. In the event that any one or more of the
provisions contained in any of the Loan Documents shall, for any reason,
be held invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision of the
Notes, this Agreement or any other Loan Document.
Section 12.08 Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one
and the same instrument and any of the parties hereto may execute this
Agreement by signing any such counterpart.
Section 12.09 References. The words "herein," "hereof," "hereunder"
and other words of similar import when used in this Agreement refer to
this Agreement as a whole, and not to any particular article, section or
subsection. Any reference herein to a
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Section shall be deemed to refer to the applicable Section of this
Agreement unless otherwise stated herein. Any reference herein to an
exhibit or schedule shall be deemed to refer to the applicable exhibit or
schedule attached hereto unless otherwise stated herein.
Section 12.10 Survival. The obligations of the parties under Section
4.06, Article V, and Sections 11.05 and 12.03 shall survive the repayment
of the Loans and the termination of the Commitments. To the extent that
any payments on the Indebtedness or proceeds of any collateral are
subsequently invalidated, declared to be fraudulent or preferential, set
aside or required to be repaid to a trustee, debtor in possession,
receiver or other Person under any bankruptcy law, common law or equitable
cause, then to such extent, the Indebtedness so satisfied shall be revived
and continue as if such payment or proceeds had not been received and the
Administrative Agent's and the Lenders' Liens, security interests, rights,
powers and remedies under this Agreement and each other Loan Document
shall continue in full force and effect. In such event, each Loan
Document shall be automatically reinstated and the Company shall take such
action as may be reasonably requested by the Administrative Agent and the
Lenders to effect such reinstatement.
Section 12.11 Captions. Captions and section headings appearing
herein and the table of contents hereto are included solely for
convenience of reference and are not intended to affect the interpretation
of any provision of this Agreement.
Section 12.12 NO ORAL AGREEMENTS. THE LOAN DOCUMENTS EMBODY THE
ENTIRE AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES AND SUPERSEDE ALL
OTHER AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING TO THE
SUBJECT MATTER HEREOF AND THEREOF. THE LOAN DOCUMENTS REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Section 12.13 GOVERNING LAW; SUBMISSION TO JURISDICTION.
(A) THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS EXCEPT TO THE EXTENT
THAT UNITED STATES FEDERAL LAW PERMITS ANY LENDER TO CHARGE INTEREST AT
THE RATE ALLOWED BY THE LAWS OF THE STATE WHERE SUCH LENDER IS LOCATED.
TEX. REV. CIV. STAT. ANN. ART. 5069, CH. 15 (WHICH REGULATES CERTAIN
REVOLVING CREDIT LOAN ACCOUNTS AND REVOLVING TRI-PARTY ACCOUNTS) SHALL NOT
APPLY TO THIS AGREEMENT OR THE NOTES.
(B) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THE LOAN DOCUMENTS
MAY BE BROUGHT IN THE COURTS OF THE STATE OF TEXAS OR OF THE UNITED STATES
OF AMERICA FOR THE SOUTHERN DISTRICT OF TEXAS, AND, BY EXECUTION AND
DELIVERY OF THIS AGREEMENT, THE COMPANY HEREBY ACCEPTS FOR ITSELF AND (TO
THE EXTENT PERMITTED BY LAW) IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS.
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THE COMPANY HEREBY IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT
LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS
OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE
JURISDICTIONS. THIS SUBMISSION TO JURISDICTION IS NON-EXCLUSIVE AND DOES
NOT PRECLUDE THE ADMINISTRATIVE AGENT OR ANY LENDER FROM OBTAINING
JURISDICTION OVER THE COMPANY IN ANY COURT OTHERWISE HAVING JURISDICTION.
(C) NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE ADMINISTRATIVE AGENT
OR ANY LENDER OR ANY HOLDER OF A NOTE TO SERVE PROCESS IN ANY MANNER
PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED
AGAINST THE COMPANY IN ANY OTHER JURISDICTION.
(D) EACH OF THE COMPANY AND EACH LENDER HEREBY (I) IRREVOCABLY AND
UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, TRIAL BY
JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN; (II) IRREVOCABLY
WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE
TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY SPECIAL, EXEMPLARY,
PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER THAN, OR IN ADDITION
TO, ACTUAL DAMAGES; (III) CERTIFIES THAT NO PARTY HERETO NOR ANY
REPRESENTATIVE OR AGENT OF COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT
OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (IV)
ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE
OTHER LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY
BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN
THIS SECTION 12.13.
Section 12.14 Interest. It is the intention of the parties hereto
that each Lender shall conform strictly to usury laws applicable to it.
Accordingly, if the transactions contemplated hereby would be usurious as
to any Lender under laws applicable to it (including the laws of the
United States of America and the State of Texas or any other jurisdiction
whose laws may be mandatorily applicable to such Lender notwithstanding
the other provisions of this Agreement), then, in that event,
notwithstanding anything to the contrary in any of the Loan Documents or
any agreement entered into in connection with or as security for the
Notes, it is agreed as follows: (i) the aggregate of all consideration
which constitutes interest under law applicable to any Lender that is
contracted for, taken, reserved, charged or received by such Lender under
any of the Loan Documents or agreements or otherwise in connection with
the Notes shall under no circumstances exceed the maximum amount allowed
by such applicable law, and any excess shall be cancelled automatically
and if theretofore paid shall be credited by such Lender on the principal
amount of the Indebtedness (or, to the extent that the principal amount of
the Indebtedness shall have been or would thereby be paid in full,
refunded by such Lender to the Company);
62
<PAGE>
and (ii) in the event that the maturity of the Notes is accelerated by
reason of an election of the holder thereof resulting from any Event of
Default or otherwise, or in the event of any required or permitted
prepayment, then such consideration that constitutes interest under law
applicable to any Lender may never include more than the maximum amount
allowed by such applicable law, and excess interest, if any, provided for
in this Agreement or otherwise shall be cancelled automatically by such
Lender as of the date of such acceleration or prepayment and, if
theretofore paid, shall be credited by such Lender on the principal amount
of the Indebtedness (or, to the extent that the principal amount of the
Indebtedness shall have been or would thereby be paid in full, refunded by
such Lender to the Company). All sums paid or agreed to be paid to any
Lender for the use, forbearance or detention of sums due hereunder shall,
to the extent permitted by law applicable to such Lender, be amortized,
prorated, allocated and spread throughout the full term of the Loans
evidenced by the Notes until payment in full so that the rate or amount of
interest on account of any Loans hereunder does not exceed the maximum
amount allowed by such applicable law. If at any time and from time to
time (i) the amount of interest payable to any Lender on any date shall be
computed at the Highest Lawful Rate applicable to such Lender pursuant to
this Section 12.14 and (ii) in respect of any subsequent interest
computation period the amount of interest otherwise payable to such Lender
would be less than the amount of interest payable to such Lender computed
at the Highest Lawful Rate applicable to such Lender, then the amount of
interest payable to such Lender in respect of such subsequent interest
computation period shall continue to be computed at the Highest Lawful
Rate applicable to such Lender until the total amount of interest payable
to such Lender shall equal the total amount of interest which would have
been payable to such Lender if the total amount of interest had been
computed without giving effect to this Section 12.14. To the extent that
Article 5069-1.04 of the Texas Revised Civil Statutes is relevant for the
purpose of determining the Highest Lawful Rate, such Lender elects to
determine the applicable rate ceiling under such Article by the indicated
weekly rate ceiling from time to time in effect.
Section 12.15 Confidentiality. In the event that the Company
provides to the Agents or the Lenders written confidential information
belonging to the Company, if the Company shall denominate such information
in writing as "confidential", the Agents and the Lenders shall thereafter
maintain such information in confidence in accordance with the standards
of care and diligence that each utilizes in maintaining its own
confidential information. This obligation of confidence shall not apply
to such portions of the information which (i) are in the public domain,
(ii) hereafter become part of the public domain without the Agents or the
Lenders breaching their obligation of confidence to the Company, (iii) are
previously known by the Agents or the Lenders from some source other than
the Company, (iv) are hereafter developed by the Agents or the Lenders
without using the Company's information, (v) are hereafter obtained by or
available to the Agents or the Lenders from a third party who owes no
obligation of confidence to the Company with respect to such information
or through any other means other than through disclosure by the Company,
(vi) are disclosed with the Company's consent, (vii) must be disclosed
either pursuant to any Governmental Requirement or to Persons regulating
the activities of the Agents or the Lenders, or (viii) as may be required
by law or regulation or order of any
63
<PAGE>
Governmental Authority in any judicial, arbitration or governmental
proceeding. Further, an Agent or a Lender may disclose any such
information to any other Lender, any Affiliate of such Agent or Lender,
any independent petroleum engineers or consultants, any independent
certified public accountants, any legal counsel employed by such Person in
connection with this Agreement or any other Loan Document, including
without limitation, the enforcement or exercise of all rights and remedies
thereunder, or any assignee or participant (including prospective
assignees and participants) in the Loans; provided, however, that such
Agent or Lender imposes on the Person to whom such information is
disclosed the same obligation to maintain the confidentiality of such
information as is imposed upon it hereunder. Notwithstanding anything to
the contrary provided herein, this obligation of confidence shall cease
three (3) years from the date the information was furnished, unless the
Company requests in writing at least thirty (30) days prior to the
expiration of such three year period, to maintain the confidentiality of
such information for an additional three year period. The Company waives
any and all other rights it may have to confidentiality as against the
Agents and the Lenders arising by contract, agreement, statute or law
except as expressly stated in this Section 12.15.
Section 12.16 Effectiveness. This Agreement shall not be effective
until executed by all parties hereto and delivered to and accepted by the
Administrative Agent, and the other conditions listed in the definition of
"Effective Date" have occurred.
Section 12.17 EXCULPATION PROVISIONS. EACH OF THE PARTIES HERETO
SPECIFICALLY AGREES THAT IT HAS A DUTY TO READ THIS AGREEMENT AND THE
OTHER LOAN DOCUMENTS AND AGREES THAT IT IS CHARGED WITH NOTICE AND
KNOWLEDGE OF THE TERMS OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS;
THAT IT HAS IN FACT READ THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND
IS FULLY INFORMED AND HAS FULL NOTICE AND KNOWLEDGE OF THE TERMS,
CONDITIONS AND EFFECTS OF THIS AGREEMENT; THAT IT HAS BEEN REPRESENTED BY
INDEPENDENT LEGAL COUNSEL OF ITS CHOICE THROUGHOUT THE NEGOTIATIONS
PRECEDING ITS EXECUTION OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS;
AND HAS RECEIVED THE ADVICE OF ITS ATTORNEY IN ENTERING INTO THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS; AND THAT IT RECOGNIZES THAT
CERTAIN OF THE TERMS OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS RESULT
IN ONE PARTY ASSUMING THE LIABILITY INHERENT IN SOME ASPECTS OF THE
TRANSACTION AND RELIEVING THE OTHER PARTY OF ITS RESPONSIBILITY FOR SUCH
LIABILITY. EACH PARTY HERETO AGREES AND COVENANTS THAT IT WILL NOT
CONTEST THE VALIDITY OR ENFORCEABILITY OF ANY EXCULPATORY PROVISION OF
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS ON THE BASIS THAT THE PARTY
HAD NO NOTICE OR KNOWLEDGE OF SUCH PROVISION OR THAT SUCH PROVISION IS NOT
"CONSPICUOUS."
The parties hereto have caused this Agreement to be duly executed as
of the day and year first above written.
64
<PAGE>
ENSERCH EXPLORATION, INC.
ATTEST:
/s/ By: /s/ A. E. Gallatin
------------------------------ --------------------------------
Assistant Corporate Secretary Name: A. E. Gallatin
Title: Vice President and Treasurer
<PAGE>
LENDER AND TEXAS COMMERCE BANK NATIONAL ADMINISTRATIVE AGENT:
ASSOCIATION
By: /s/ Dale S. Hurd
------------------------------ Name: Dale S. Hurd
Title: Senior Vice President
Lending Office for Base Rate Loans:
2200 Ross Avenue
Dallas, TX 75201
Lending Office for Eurodollar Loans:
2200 Ross Avenue
Dallas, TX 75201
Address for Notices:
2200 Ross Avenue
Dallas, TX 75201
Telecopier No.: (214) 922-2389 Telephone No.: (214) 922-2583
Attention: Dale Hurd
<PAGE>
SYNDICATION AGENT
AND LENDER: THE CHASE MANHATTAN BANK, N.A.
By: /s/ Bettylou J. Robert
--------------------------------- Name: Bettylou J.Robert
Title: Vice President
Lending Office for Base Rate Loans:
The Chase Manhattan Bank, N.A. 1 Chase Manhattan Plaza
New York, New York 10005
Lending Office for Eurodollar Loans:
The Chase Manhattan Bank, N.A. 1 Chase Manhattan Plaza
New York, New York 10005
Address for Notices:
The Chase Manhattan Bank, N.A. 2 Chase Manhattan Plaza, 5th Floor New
York, New York 10005
Telecopier No.: (212) 552-4455 Telephone No.: (212) 552-3017
Attention: Joselin Fernandes
[With copy to:]
Chase National Corporate Services, Inc. One Houston Center
1221 McKinney, Suite 3000
Houston, Texas 77010
Telecopier No.: (713) 751-9122 Telephone No.: (713) 751-5657
Attention: Scott Porter
<PAGE>
LENDER: CITIBANK, N.A.
By: /s/ Mark J. Lyons
-------------------------------- Name: Mark. J. Lyons
Title: Vice President
Lending Office for Base Rate Loans:
Citibank, N.A.
399 Park Avenue
New York, NY 10043
Lending Office for Eurodollar Loans:
Same as above
Address for Notices:
One Court Square -- 7th Floor
Long Island City, NY 11120
Telecopier No.: (718) 248-4844 Telephone No.: (718) 248-5762
Attention: Leena Hiranandani
<PAGE>
LENDER: THE LONG-TERM CREDIT BANK OF JAPAN, LTD.
By: /s/ Satoru Otsubo
-------------------------------- Name: Satoru Otsubo
Title: Joint General Manager
Lending Office for Base Rate Loans:
The Long-Term Credit Bank of Japan, Ltd. 165 Broadway, 48th Floor
New York, NY 10006
Lending Office for Eurodollar Loans:
The Long-Term Credit Bank of Japan, Ltd. 165 Broadway, 48th Floor
New York, NY 10006
Addresses for Notices:
The Long-Term Credit Bank of Japan, Ltd. 165 Broadway, 48th Floor
New York, NY 10006
Telecopier No.: (212) 608-3452 Telephone No.: (212) 335-4801
Attention: Bob Pacifici
[With copy to:]
<PAGE>
LENDER: BANKERS TRUST COMPANY
By: /s/ Mary Jo Jolly
-------------------------------- Name: Mary Jo Jolly
Title: Assistant Vice President
Lending Office for Base Rate Loans:
130 Liberty Street
New York, NY 10006
Lending Office for Eurodollar Loans:
130 Liberty Street
New York, NY 10006
Addresses for Notices:
130 Liberty Street
Loan Division, 14th Floor
New York, NY 10006
Telecopier No.: (212) 250-6029 Telephone No.: (212) 250-7561
Attention: Stephen Snizek
[With copy to:]
Roberta K. Bohn
Bankers Trust Company
909 Fannin, Suite 3000
Houston, Texas 77010
Telecopier No.: (713) 759-6708 Telephone No.: (713) 759-6731
<PAGE>
LENDER: THE BANK OF NOVA SCOTIA
By: /s/ F.C.H. ASHBY
-------------------------------- Name: F.C.H. ASHBY
Title: SENIOR MANAGER LOAN OPERATIONS
Lending Office for Base Rate Loans:
600 PEACHTREE STREET N.E.
SUITE 2700
ATLANTA, GA 30308
Lending Office for Eurodollar Loans:
600 PEACHTREE STREET N.E.
SUITE 2700
ATLANTA, GA 30308
Addresses for Notices:
600 PEACHTREE STREET N.E.
SUITE 2700
ATLANTA, GA 30308
Telecopier No.: 404-888-8998 Telephone No.: 404-877-1549 Attention:
JEFREY JONES
[With copy to:] (DOCUMENTS)
1100 LOUISIANA STREET
SUITE 3000
HOUSTON, TX 77002
ATTN: D. MATT HARRIS
<PAGE>
LENDER: CANADIAN IMPERIAL BANK OF COMMERCE
By: /s/ GARY C. GASKILL
-------------------------------- Name: GARY C. GASKILL
Title: AUTHORIZED SIGNATORY
Lending Office for Base Rate Loans:
TWO PACES WEST
2727 PACES FERRY ROAD, SUITE 1200 ATLANTA, GA 30339
Lending Office for Eurodollar Loans:
TWO PACES WEST
2727 PACES FERRY ROAD, SUITE 1200 ATLANTA, GA 30339
Addresses for Notices:
TWO PACES WEST
2727 PACES FERRY ROAD, SUITE 1200 ATLANTA, GA 30339
Telecopier No.: (404) 319-4950 Telephone No.: (404) 319-4835
Attention: MS. ADRIENNE BURCH
[With copy to:]
<PAGE>
National Westminster Bank Plc
New York Branch By: /s/ Stephen R. Parker
-------------------------------- Name: Stephen R. Parker
Title: Vice President
National Westminster Bank Plc
Nassau Branch By: /s/ Stephen R. Parker
-------------------------------- Name: Stephen R. Parker
Title: Vice President
Lending Office for Base Rate Loans:
National Westminister Bank Plc New York Branch
Lending Office for Eurodollar Loans:
National Westminster Bank Plc
Nassau Branch
Addresses for Notices:
National Westminster Bank Plc
175 Water Street
New York, New York 10038
Telecopier No.: (212) 602-4118 Telephone No.: (212) 602-4180
Attention: Nadira Fauder
<PAGE>
LENDER: The First National Bank of Chicago
By: /s/ Dixon P. Schultz
-------------------------------- Name: Dixon P. Schultz
Title: Vice President
Lending Office for Base Rate Loans:
The First National Bank of Chicago 1 First National Plaza, Suite 0634,
Floor Chicago, Illinois 60670
Lending Office for Eurodollar Loans:
The First National Bank of Chicago 1 First National Plaza, Suite 0634,
Floor Chicago, Illinois 60670
Addresses for Notices:
The First National Bank of Chicago 1 First National Plaza, Suite 0634,
Floor Chicago, Illinois 60670
Telecopier No.: (312) 732-4840 Telephone No.: (312) 732-8705
Attention: Lynn Pozsgay
[With copy to:]
<PAGE>
LENDER: THE BANK OF NEW YORK
By: /s/ Raymond J. Palmer
-------------------------------- Name: Raymond J. Palmer
Title: Vice President
Lending Office for Base Rate Loans:
The Bank of New York
One Wall Street, 19th Fl.
New York, New York 10286
Lending Office for Eurodollar Loans:
The Bank of New York
One Wall Street, 19th Fl.
New York, New York 10286
Addresses for Notices:
The Bank of New York
One Wall Street, 19th Fl.
New York, New York 10286
Telecopier No.: (212) 635-7923 Telephone No.: (212) 635-7921
Attention: Nina Russo-Valdes
[With copy to:]
<PAGE>
LENDER: NationsBank of Texas, N.A.
By: /s/ Denise Ashford Smith
-------------------------------- Name: Denise Ashford Smith
Title: Senior Vice President
Lending Office for Base Rate Loans:
901 Main Street, 64th Floor
Dallas, TX 75202
Attn: Denise Ashford Smith
Lending Office for Eurodollar Loans:
901 Main Street, 64th Floor
Dallas, TX 75202
Attn: Denise Ashford Smith
Addresses for Notices:
Corporate Credit Services
901 Main Street, 14th Floor
Dallas, TX 75202
Telecopier No.: 214/508-1215 Telephone No.: 214/508-1225 Attention:
Betty Canales
[With copy to:]
<PAGE>
LENDER: THE BANK OF TOKYO, LTD.
DALLAS AGENCY
By: /s/ John M. McIntyre
-------------------------------- Name: John M. McIntyre
Title: Vice President
Lending Office for Base Rate Loans:
The Bank of Tokyo, Ltd.
2001 Ross Avenue, Suite 3150
Dallas, Texas 75201
Lending Office for Eurodollar Loans:
The Bank of Tokyo, Ltd.
2001 Ross Avenue, Suite 3150
Dallas, Texas 75201
Addresses for Notices:
The Bank of Tokyo, Ltd.
909 Fannin, 2 Houston Center, Ste. 1104 Dallas, Texas 77010
Telecopier No.: (713) 658-8341 Telephone No.: (713) 658-1021
Attention: Nadra H. Breir
<PAGE>
LENDER: The Fuji Bank, Ltd.
By: /s/ Soichi Yoshida
-------------------------------- Name: Soichi Yoshida
Title: Vice President and Senior Manager
Lending Office for Base Rate Loans:
The Fuji Bank, Ltd.
Houston Agency
1221 McKinney St. Suite 4100
Houston, TX 77010
Lending Office for Eurodollar Loans:
The Fuji Bank, Ltd.
Houston Agency
1221 McKinney St. Suite 4100
Houston, TX 77010
Addresses for Notices:
The Fuji Bank, Ltd.
Houston Agency
1221 McKinney St. Suite 4100
Houston, TX 77010
Telecopier No.: (713) 759-0048 Telephone No.: (713) 650-7826
Attention: Teri McPherson
<PAGE>
LENDER: Union Bank of Switzerland
Houston Agency
By: /s/ Evans Swann
-------------------------------- Name: Evans Swann
Title: Managing Director
By: /s/ Alfred Imholz
-------------------------------- Name: Alfred Imholz
Title: Managing Director
Lending Office for Base Rate Loans:
1100 Louisiana, Suite 4500
Houston, TX 77002
Lending Office for Eurodollar Loans:
1100 Louisiana, Suite 4500
Houston, TX 77002
Addresses for Notices:
1100 Louisiana, Suite 4500
Houston, TX 77002
Telecopier No.: (713) 655-6555 Telephone No.: (713) 655-6500
Attention: Alfred Imholz Managing Director
With copy to: James Broadus
Telecopier No.: (212) 821-3269 Telephone No.: (212) 821-3227 <PAGE>
LENDER: Dresdner Bank AG New York
and Grand Cayman Branches
By: /s/ J. Curtin Beaudouin
-------------------------------- Name: J. Curtin Beaudouin
Title: Vice President
By: /s/ Ernest C. Fung
-------------------------------- Name: Ernest C. Fung
Title: Vice President
Lending Office for Base Rate Loans:
Dresdner Bank AG, Grand Cayman Branch 75 Wall Street
New York, New York 10005-2889
Lending Office for Eurodollar Loans:
Dresdner Bank AG, Grand Cayman Branch 75 Wall Street
New York, New York 10005-2889
Addresses for Notices:
Dresdner Bank AG, Grand Cayman Branch 75 Wall Street
New York, New York 10005-2889
Telecopier No.: (212) 898-0524 Telephone No.: (212) 574-0183
Attention: Craig Erickson
With copy to:
Credit Department
Dresdner Bank AG, New York
Attn: Ms. Yunie Shin-Thomas
75 Wall Street
New York, NY 10005-2889
<PAGE>
CREDIT LYONNAIS CAYMAN ISLAND BRANCH
By: /s/ Xavier Ratouis
-------------------------------- Name: Xavier Ratouis
Title: Authorized Signature
Lending Office for Base Rate Loans:
Credit Lyonnais Cayman Island Branch 1301 Avenue of the Americas
New York, New York 10019
Attention: Loan Servicing
Lending Office for Eurodollar Loans:
Credit Lyonnais Cayman Island Branch 1301 Avenue of the Americas
New York, New York 10019
Attention: Loan Servicing
Addresses for Notices:
c/o Credit Lyonnais Representative Office 1000 Louisiana, Suite 5360
Houston, TX 77002
Telecopier No.: (713) 751-0307 Telephone No.: (713) 751-0500
Attention: Mr. A. David Dodd
<PAGE>
LENDER: The Industrial Bank of Japan Trust Company
By: /s/ Robert W. Ramage, Jr.
-------------------------------- Name: Robert W. Ramage, Jr.
Title: Senior Vice President
Lending Office for Base Rate Loans:
The Industrial Bank of Japan Trust Company 245 Park Avenue
New York, NY 10167
Lending Office for Eurodollar Loans:
The Industrial Bank of Japan Trust Company 245 Park Avenue
New York, NY 10167
Addresses for Notices:
The Industrial Bank of Japan Trust Company 245 Park Avenue
New York, NY 10167
Telecopier No.: (212) 949-0134 Telephone No.: (212) 309-6521
Attention: Credit Administration
[With copy to:]
<PAGE>
LENDER: Royal Bank of Canada
By: /s/ Gil J. Benard
-------------------------------- Name: Gil J. Benard
Title: Senior Manager
Lending Office for Base Rate Loans:
Royal Bank of Canada
1 Financial Square, 24th Floor
New York, New York 10005-3531
Lending Office for Eurodollar Loans:
Royal Bank of Canada
1 Financial Square, 24th Floor
New York, New York 10005-3531
Addresses for Notices:
Royal Bank of Canada
600 Wilshire Blvd., Suite 800
Los Angeles, CA 90017
Telecopier No.: (213) 955-5350 Telephone No.: (213) 955-5321
Attention: Gil J. Benard
[With copy to:]
<PAGE>
LENDER: Westdeutsche Landesbank Girozentrale
By: /s/ Richard R. Newman
-------------------------------- Name: Richard R. Newman
Title: Vice President
By: /s/ Sal Battinelli
-------------------------------- Name: Sal Battinelli
Title: Vice President
Lending Office for Base Rate Loans:
Westdeutsche Landesbank Girozentrale 1211 Avenue of the Americas
New York, New York 10036
Lending Office for Eurodollar Loans:
Westdeutsche Landesbank Girozentrale 1211 Avenue of the Americas
New York, New York 10036
Addresses for Notices:
Westdeutsche Landesbank Girozentrale 1211 Avenue of the Americas
New York, New York 10036
Telecopier No.: (212) 852-6307 Telephone No.: (212) 852-6120
Attention: Richard R. Newman
<PAGE>
LENDER: Caisse Nationale de Credit Agricole
By: /s/ David Bouhl
-------------------------------- Name: David Bouhl
Title: First Vice President and Head of Corporate Banking -- Chicago
Lending Office for Base Rate Loans:
Caisse Nationale de Credit Agricole 55 East Monroe Street
Chicago, Illinois 60603-5702
Lending Office for Eurodollar Loans:
Caisse Nationale de Credit Agricole 55 East Monroe Street
Chicago, Illinois 60603-5702
Addresses for Notices:
Caisse Nationale de Credit Agricole 55 East Monroe Street
Chicago, Illinois 60603-5702
Telecopier No.: 312/372-3724 Telephone No.: 312/917-7560 Attention:
Stacey Mannion
[With copy to:] Brian D. Knezeak Telephone: 312/917-7546
<PAGE>
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is
among: ENSERCH EXPLORATION, INC., a corporation formed under the laws of
the State of Texas (the "Company"); each of the Lenders (as defined in the
Credit Agreement as hereafter defined) that is a signatory hereto; THE
CHASE MANHATTAN BANK, a New York banking corporation (in its individual
capacity, "Chase"), as administrative agent for the Lenders (in such
capacity, together with its successors in such capacity, the
"Administrative Agent"); as auction agent for the Lenders (in such
capacity, together with its successors in such capacity, the "Auction
Agent"); and as syndication agent for the Lenders (in such capacity,
together with its successors in such capacity, the "Syndication Agent")
and Citibank, N.A. a national banking association (in its individual
capacity, "Citibank") and as documentation agent for the Lenders (in such
capacity, together with its successors in such capacity, the
"Documentation Agent") .
R E C I T A L S
A. The Company, the Agents, and the Lenders have entered into that
certain Credit Agreement dated as of May 1, 1995 (the "Credit Agreement"),
pursuant to which the Lenders have agreed to make certain loans and
extensions of credit to the Company upon the terms and conditions as
provided therein; and
B. The Company, the Agents, and the Lenders now desire to make
certain amendments to the Credit Agreement.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration and the mutual benefits, covenants and agreements
herein expressed, the parties hereto now agree as follows:
1. All capitalized terms used in this Amendment and not otherwise
defined herein shall have the meanings ascribed to such terms in the
Credit Agreement.
2. As used in the Agreement, the terms "Administrative Agent,"
"Auction Agent," "Citibank," "Documentation Agent" and Syndication Agent"
shall have the meaning indicated above.
3. The definitions of "Agents", "Debt" and "Principal Office" in
Section 1.02 of the Credit Agreement are hereby amended to read as
follows:
"Agents" shall mean the Administrative Agent, the
Auction Agent, the Documentation Agent and the
Syndication Agent.
"Debt" shall mean, for the Company or any Subsidiary
the sum of the following (without duplication): (i)
all obligations for borrowed money or evidenced by
bonds, debentures, mandatorily redeemable preferred
stock (including such stock of Affiliates) with
maturities before the Revolving Credit Termination
Date, notes or other similar instruments (excluding
interest, fees and charges); (ii) all obligations in
respect of bankers' acceptances, unreimbursed
drawings on letters of credit, surety or other
<PAGE>
bonds; (iii) all Capital Lease Obligations; (iv) all
Operating Lease Obligations; (v) all financial
guaranties in respect of Debt of unconsolidated
Affiliates and unrelated Persons; (vi) all
obligations secured by a Lien on any asset, whether
or not such Debt is assumed, but excluding
obligations secured by Liens permitted by Sections
9.02(c), (e), (f), (h), (i), (j), (k) and (l); (vii)
all production payments in connection with oil and
gas properties; and (viii) all Debt of Special
Entities to the extent the Company or any Subsidiary
is liable for such Debt under GAAP or such Debt is
reflected on the consolidated balance sheet of the
Company or any Subsidiary. "Debt" shall not include
Permitted Subordinated Debt."
"Principal Office" shall mean 270 Park Avenue, New
York, New York 10017.
4. The definition "Revolving Credit Termination Date" in Section
1.02 of the Credit Agreement is hereby amended to read as follows:
"Revolving Credit Termination Date" shall mean, unless the
Commitments are sooner terminated pursuant to Sections 2.03(a)
or 10.02, August 1, 2001".
5. Section 1.02 of the Credit Agreement is hereby supplemented,
where alphabetically appropriate, with the addition of the following
definition:
"First Amendment" shall mean that certain First Amendment
to Credit Agreement dated as of September 16, 1996, among the
Company, the Lenders and the Agents."
6. Section 8.07 of the Credit Agreement is hereby amended to read
as follows:
"Section 8.07 Lease Payments. The Company, at its
option, may cause its obligations to Enserch Exploration
Holdings, Inc. to be subordinated to the Indebtedness on terms
substantially similar to the terms set forth on Exhibit M or on
terms and subject to documentation satisfactory to the
Administrative Agent.
7. Section 9.01 of the Credit Agreement is hereby amended to read
as follows:
"Section 9.01 Debt to Capital Ratio. The Company will
not permit its ratio ("Debt to Capital Ratio") expressed as a
percentage of (i) Debt of the Company and its Consolidated
Subsidiaries on a consolidated basis ("Consolidated Debt") to
(ii) the sum of Consolidated Debt plus Net Worth to exceed 60%
at any time; provided that in no event will Consolidated Debt
ever exceed $900,000,000."
<PAGE>
8. Section 9.03 of the Credit Agreement is hereby amended by adding
the following sentence at the end of such Section:
"From and after the date that the Company ceases to be an
Affiliate of ENSERCH Corporation, neither the Company nor any
Subsidiary may make loans or advances to ENSERCH Corporation or
any of its subsidiaries, and any outstanding loans and advances
to ENSERCH Corporation and its subsidiaries from the Company and
its Subsidiaries on such date of disaffiliation shall be
immediately repaid."
9. Section 10.01(k) of the Credit Agreement is hereby amended to
read as follows:
"(k) any Change of Control shall occur. For purposes of
this Section 10.01(k), "Change of Control" shall mean other than
Enserch Corporation's ownership, the acquisition by any Person,
or two or more Persons acting in concert, of beneficial
ownership (within the meaning of the Securities Exchange Act of
1934) of 35% or more of the outstanding share of voting stock of
the Company."
10. The first two sentences of Section 11.01 of the Credit Agreement
are hereby amended to read as follows:
"Each Lender hereby irrevocably appoints and authorizes Chase as
the Administrative Agent and the Auction Agent to act as its
agents hereunder and under the other Loan Documents with such
powers as are specifically delegated to the Administrative Agent
and the Auction Agent respectively by the terms of this
Agreement and the other Loan Documents, together with such
powers as reasonably incidental thereto. The Syndication Agent
and Documentation Agent, in such capacities, shall have no
duties or responsibilities and shall incur no liabilities under
the Loan Documents."
11. Attached to this Amendment is a new Annex 1 to the Credit
Agreement.
12. This Amendment shall become binding on the Lenders when, and only
when, the Administrative Agent shall have received each of the following
in form and substance satisfactory to the Administrative Agent or its
counsel:
(a) counterparts of this Amendment executed by the Company, the
Agents and the Lenders;
(b) prepayment by the Company of all outstanding Loans, accrued
interest, accrued fees and other expenses due under the Credit
Agreement to September 16, 1996, including without
limitation, payment of breakage costs under Section 5.05
of the Credit Agreement in connection with this prepayment
of the Loans within 10 days of presentation of a bill by
<PAGE>
each Lender;
(c) refunding of the Loans prepaid in clause (b) above by the
Lenders set forth on Annex 1 attached hereto in proportion to their
respective Percentage Shares, with the Administrative Agent netting
such prepayments and fundings to the extent administratively
convenient;
(d) issuance of new Notes to the Lenders on Annex 1 attached
hereto, duly completed and executed;
(e) a certificate of the Secretary or an Assistant Secretary
of the Company setting forth resolutions of its board of directors with
respect to the authorization of the Company to execute, deliver and
perform this Amendment; and
(f) such other documents as it or its counsel may reasonably
request.
13. The parties hereto hereby acknowledge and agree that, except as
specifically supplemented and amended, changed or modified hereby, the
Credit Agreement shall remain in full force and effect in accordance with
its terms.
14. The Company hereby reaffirms that as of the date of this
Amendment, the representations and warranties contained in Article VII of
the Credit Agreement are true and correct on the date hereof as though
made on and as of the date of this Amendment, except as such
representations and warranties are expressly limited to an earlier date.
15. THIS AMENDMENT (INCLUDING, BUT NOT LIMITED TO, THE VALIDITY AND
ENFORCEABILITY HEREOF) SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF TEXAS, OTHER THAN THE CONFLICT OF LAWS
RULES THEREOF.
16. This Amendment may be executed in two or more counterparts, and
it shall not be necessary that the signatures of all parties hereto be
contained on any one counterpart hereof; each counterpart shall be deemed
an original, but all of which together shall constitute one and the same
instrument.
17. The Lenders listed on Annex 1 attached hereto are for all
purposes Lenders under the Loan Documents.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed as of September 16, 1996.
COMPANY: ENSERCH EXPLORATION, INC.
By:_____________________________
Name:
Title:
<PAGE>
LENDER AND ADMINISTRATIVE AGENT, THE CHASE MANHATTAN BANK
SYNDICATION AGENT AND
AUCTION AGENT:
By:_____________________________
Name:
Title:
LENDER AND DOCUMENTATION CITIBANK, N.A.
AGENT:
By:_____________________________
Name:
Title:
LENDERS: THE BANK OF NOVA SCOTIA
By:_____________________________
Name:
Title:
NATIONSBANK OF TEXAS, N.A.
By:_____________________________
Name:
Title:
ROYAL BANK OF CANADA
By:_____________________________
Name:
Title:
BANKERS TRUST COMPANY
By:_____________________________
Name:
Title:
CANADIAN IMPERIAL BANK OF
COMMERCE
<PAGE>
By:_____________________________
Name:
Title:
THE FIRST NATIONAL BANK OF
CHICAGO
By:_____________________________
Name:
Title:
THE BANK OF NEW YORK
By:_____________________________
Name:
Title:
THE LONG-TERM CREDIT BANK OF
JAPAN, LTD.
By:_____________________________
Name:
Title:
THE BANK OF TOKYO-MITSUBISHI, LTD.
By:_____________________________
Name:
Title:
CREDIT LYONNAIS NEW YORK BRANCH
By:_____________________________
Name:
Title:
THE INDUSTRIAL BANK OF JAPAN
TRUST COMPANY
By:_____________________________
Name:
Title:
<PAGE>
THE SANWA BANK, LIMITED
By:_____________________________
Name:
Title:
CAISSE NATIONALE DE CREDIT
AGRICOLE
By:_____________________________
Name:
Title:
THE FUJI BANK, LTD.
By:_____________________________
Name:
Title:
TORONTO DOMINION (TEXAS), INC.
By:_____________________________
Name:
Title:
UNION BANK OF SWITZERLAND
HOUSTON AGENCY
By:_____________________________
Name:
Title:
By:_____________________________
Name:
Title:
DRESDNER BANK AG NEW YORK
AND GRAND CAYMAN BRANCHES
By:_____________________________
Name:
<PAGE>
Title:
By:_____________________________
Name:
Title:
<PAGE>
BANKS THAT WILL NO LONGER BE LENDERS AS OF SEPTEMBER 16, 1996.
NATIONAL WESTMINSTER BANK PLC
NEW YORK BRANCH
By:_____________________________
Name:
Title:
NATIONAL WESTMINSTER BANK PLC
NASSAU BRANCH
By:_____________________________
Name:
Title:
WESTDEUTSCHE LANDESBANK
GIROZENTRALE
By:_____________________________
Name:
Title:
By:_____________________________
Name:
Title:
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION
By:_____________________________
Name:
Title:
<PAGE>
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is
among: ENSERCH EXPLORATION, INC., a corporation formed under the laws of
the State of Texas (the "Company"); each of the Lenders (as defined in the
Credit Agreement as hereafter defined) that is a signatory hereto; THE
CHASE MANHATTAN BANK, a New York banking corporation (in its individual
capacity, "Chase"), as administrative agent for the Lenders (in such
capacity, together with its successors in such capacity, the
"Administrative Agent"); as auction agent for the Lenders (in such
capacity, together with its successors in such capacity, the "Auction
Agent"); and as syndication agent for the Lenders (in such capacity,
together with its successors in such capacity, the "Syndication Agent");
Citibank, N.A. a national banking association (in its individual
capacity, "Citibank") and as documentation agent for the Lenders (in such
capacity, together with its successors in such capacity, the
"Documentation Agent") and The Bank of New York, The Bank of Nova Scotia,
Bankers Trust Company, Canadian Imperial Bank of Commerce, The First
National Bank of Chicago, NationsBank of Texas, N.A. and Royal Bank of
Canada as co-agents (in such capacity, together with their successors in
such capacity, the Co-Agents").
R E C I T A L S
A. The Company, the Agents, and the Lenders have entered into that
certain Credit Agreement dated as of May 1, 1995 as amended by First
Amendment to Credit Agreement dated as of September 16, 1996
(collectively, the "Credit Agreement"), pursuant to which the Lenders have
agreed to make certain loans and extensions of credit to the Company upon
the terms and conditions as provided therein; and
B. The Company, the Agents, and the Lenders now desire to make
certain amendments to the Credit Agreement.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration and the mutual benefits, covenants and agreements
herein expressed, the parties hereto now agree as follows:
1. All capitalized terms used in this Amendment and not otherwise
defined herein shall have the meanings ascribed to such terms in the
Credit Agreement.
2. As used in the Agreement, the terms "Administrative Agent,"
"Auction Agent," "Citibank," "Co-Agents," "Documentation Agent" and
Syndication Agent" shall have the meaning indicated above.
3. The definitions of "Agent", "Agreement", "Applicable Margin" and
"Revolving Credit Termination Date" in Section 1.02 of the Credit
Agreement are hereby amended to read as follows:
"Agents" shall mean the Administrative Agent, the
Syndication Agent and/or the Auction Agent and the Co-Agents.
"Agreement" shall mean this Credit Agreement as amended by
First Amendment and Second Amendment, as the same may from time
<PAGE>
to time be amended or supplemented.
"Applicable Margin" shall mean the following rates per
annum as are applicable based upon the Debt to Capital Ratio
calculated as of the last day of a fiscal quarter of the Company
to be effective for any Committed Loan outstanding or for the
facility fee during the period from the Financial Statement
Delivery Date following such fiscal quarter to but not including
the next succeeding Financial Statement Delivery Date:
Debt to Capital Ratio
Greater than
or equal to 25% 35% 45% Over
but less than 25% 35% 45% 55% 55%
Facility Fee .090% .110% .125% .150% .200%
Eurodollar Loans .210% .240% .275% .325% .450%
Base Rate Loans 0% 0% 0% 0% 0%
"Revolving Credit Termination Date" shall mean, unless the
Commitments are sooner terminated pursuant to Sections 2.03(a)
or 10.02, June 27, 2002.
4. Section 1.02 of the Credit Agreement is hereby supplemented,
where alphabetically appropriate, with the addition of the following
definitions:
"First Amendment" shall mean that certain First Amendment
to Credit Agreement dated as of September 16, 1996, among the
Company, the Lenders and the Agents."
"Second Amendment" shall mean that certain Second
Amendment to Credit Agreement dated as of June 27, 1997, among
the Company, the Lenders and the Agents."
5. Section 2.02(b) of the Credit Agreement is hereby amended to read
as follows:
"(b) Minimum Amounts. All Borrowings of Base Rate Loans
shall be in amounts of at least $5,000,000 or the remaining
balance of the Aggregate Commitments, if less, or any whole
multiple of $1,000,000 in excess thereof, and all Borrowings in
the form of Eurodollar Loans shall be in amounts of at least
$5,000,000 or any whole multiple of $1,000,000 in excess
<PAGE>
thereof."
6. Section 2.09(h) of the Credit Agreement is hereby deleted in its
entirety.
7. Section 8.08 of the Credit Agreement is hereby amended by
substituting "25%" for "15%" in the first sentence of such section.
8. Section 9.01 of the Credit Agreement is hereby amended to read
as follows:
"Section 9.01 Debt to Capital Ratio. The Company will
not permit its ratio ("Debt to Capital Ratio") expressed as a
percentage of (i) Debt of the Company and its Consolidated
Subsidiaries on a consolidated basis ("Consolidated Debt") to
(ii) the sum of Consolidated Debt plus Net Worth to exceed 60%
at any time; provided that in no event will Consolidated Debt
ever exceed $1,000,000,000."
9. The second sentence of Section 11.01 of the Credit Agreement is
hereby amended to read as follows:
"The Syndication Agent, Documentation Agent and Co-Agents,
in such capacities, shall have no duties or responsibilities and
shall incur no liabilities under the Loan Documents."
10. Attached to this Amendment is a new Annex 1 to the Credit
Agreement.
11. This Amendment shall become binding on the Lenders when, and only
when, the Administrative Agent shall have received each of the following
in form and substance satisfactory to the Administrative Agent or its
counsel:
(a) counterparts of this Amendment executed by the Company, the
Agents and the Lenders;
(b) prepayment by the Company of all outstanding Loans and
accrued interest, and the Company will pay accrued fees on June 30,
1997 and, within 30 days of presentation of a bill by each Lender,
other expenses due under the Credit Agreement, including without
limitation, payment of breakage costs under Section 5.05 of the Credit
Agreement in connection with this prepayment of the Loans;
(c) refunding of the Loans prepaid in clause (b) above by the
Lenders set forth on Annex 1 attached hereto in proportion to their
respective Percentage Shares, with the Administrative Agent netting
such prepayments and fundings to the extent administratively
convenient;
(d) issuance of new Notes to the extent necessary to the
Lenders on Annex 1 attached hereto, duly completed and executed;
(e) a certificate of the Secretary or an Assistant Secretary
<PAGE>
of the Company setting forth resolutions of its board of directors with
respect to the authorization of the Company to execute, deliver and
perform this Amendment; and
(f) such other documents as it or its counsel may reasonably
request.
12. The parties hereto hereby acknowledge and agree that, except as
specifically supplemented and amended, changed or modified hereby, the
Credit Agreement shall remain in full force and effect in accordance with
its terms.
13. The Company hereby reaffirms that as of the date of this
Amendment, the representations and warranties contained in Article VII of
the Credit Agreement are true and correct on the date hereof as though
made on and as of the date of this Amendment, except as such
representations and warranties are expressly limited to an earlier date.
14. THIS AMENDMENT (INCLUDING, BUT NOT LIMITED TO, THE VALIDITY AND
ENFORCEABILITY HEREOF) SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF TEXAS, OTHER THAN THE CONFLICT OF LAWS
RULES THEREOF.
15. This Amendment may be executed in two or more counterparts, and
it shall not be necessary that the signatures of all parties hereto be
contained on any one counterpart hereof; each counterpart shall be deemed
an original, but all of which together shall constitute one and the same
instrument.
16. The Lenders listed on Annex 1 attached hereto are for all
purposes Lenders under the Loan Documents.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed as of June 27, 1997.
COMPANY: ENSERCH EXPLORATION, INC.
By:_____________________________
Name:
Title:
LENDER AND ADMINISTRATIVE AGENT, THE CHASE MANHATTAN BANK
SYNDICATION AGENT AND
AUCTION AGENT:
By:_____________________________
Name:
Title:
LENDER AND DOCUMENTATION CITIBANK, N.A.
AGENT:
By:_____________________________
Name:
Title:
LENDERS: THE BANK OF NEW YORK
By:_____________________________
Name:
Title:
THE BANK OF NOVA SCOTIA
By:_____________________________
Name:
Title:
BANKERS TRUST COMPANY
By:_____________________________
Name:
Title:
<PAGE>
CANADIAN IMPERIAL BANK OF
COMMERCE
By:_____________________________
Name:
Title:
THE FIRST NATIONAL BANK OF
CHICAGO
By:_____________________________
Name:
Title:
NATIONSBANK OF TEXAS, N.A.
By:_____________________________
Name:
Title:
ROYAL BANK OF CANADA
By:_____________________________
Name:
Title:
CAISSE NATIONALE DE CREDIT
AGRICOLE
By:_____________________________
Name:
Title:
THE FUJI BANK, LTD.
By:_____________________________
Name:
Title:
THE INDUSTRIAL BANK OF JAPAN
TRUST COMPANY
<PAGE>
By:_____________________________
Name:
Title:
THE LONG-TERM CREDIT BANK OF
JAPAN, LTD.
By:_____________________________
Name:
Title:
MELLON BANK, N.A.
By:_____________________________
Name:
Title:
THE SANWA BANK, LIMITED
By:_____________________________
Name:
Title:
TORONTO DOMINION (TEXAS), INC.
By:_____________________________
Name:
Title:
UNION BANK OF SWITZERLAND
HOUSTON AGENCY
By:_____________________________
Name:
Title:
By:_____________________________
Name:
Title:
THE BANK OF TOKYO-MITSUBISHI, LTD.
<PAGE>
By:_____________________________
Name:
Title:
DRESDNER BANK AG NEW YORK
AND GRAND CAYMAN BRANCHES
By:_____________________________
Name:
Title:
By:_____________________________
Name:
Title:
CREDIT LYONNAIS NEW YORK BRANCH
By:_____________________________
Name:
Title:
<PAGE>
THIRD AMENDMENT TO CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT (this
"Amendment") is among: ENSERCH EXPLORATION, INC., a
corporation formed under the laws of the State of Texas (the
"Company"); each of the Lenders (as defined in the Credit
Agreement as hereafter defined) that is a signatory hereto;
THE CHASE MANHATTAN BANK, a New York banking corporation (in
its individual capacity, "Chase"), as administrative agent
for the Lenders (in such capacity, together with its
successors in such capacity, the "Administrative Agent"); as
auction agent for the Lenders (in such capacity, together
with its successors in such capacity, the "Auction Agent");
and as syndication agent for the Lenders (in such capacity,
together with its successors in such capacity, the
"Syndication Agent"); CITIBANK, N.A., a national banking
<PAGE>
association (in its individual capacity, "Citibank") and
as documentation agent for the Lenders (in such capacity,
together with its successors in such capacity, the
"Documentation Agent"); and the Bank of New York, The Bank
of Nova Scotia, Bankers Trust Company, Canadian Imperial
Bank of Commerce, The First National Bank of Chicago,
NationsBank of Texas, N.A. and Royal Bank of Canada as
co-agents (in such capacity, together with their
successors in such capacity, the "Co-Agents").
RECITALS
A. The Company, the Agents, and the Lenders have
entered into the certain Credit Agreement dated as of May 1,
1995 (the "Original Credit Agreement"), as amended by the
First Amendment to the Credit Agreement dated as of
September 16, 1996 (the "First Amendment") and further
amended by the Second Amendment to Credit Agreement dated as
of June 27, 1997 (the "Second Amendment"), pursuant to which
the Lenders have agreed to make certain loans and extensions
of credit to the Company upon the terms and conditions as
provided therein (the Original Credit Agreement, the First
Amendment and the Second Amendment are collectively
hereinafter referred to as the "Credit Agreement"); and
B. The Company, the Agents, and the Lenders now
desire to make certain amendments to the Credit Agreement.
NOW, THREFORE, in consideration of the premises and
other good and valuable consideration and the mutual
benefits, covenants and agreements herein expressed, the
parties hereto now agree as follows:
1. All capitalized terms used in this Amendment and
not otherwise defined herein shall have the meaning ascribed
to such terms in the Credit Agreement.
2. Section 9.06 of the Credit Agreement is deleted in
its entirety and replaced with the following:
Section 9.06 Mergers, Etc. Neither the Company
nor any Subsidiary will merge into or with or consolidate
with any other Person, or sell, lease or otherwise dispose
of (whether in one transaction or in a series of
transactions) all or substantially all of its Property or
assets to any other Person ("Disposition") unless (i) no
Default exists or would result from such merger or
Disposition and (ii) for any merger, the Company (if a party
to such merger) or a Subsidiary (if the Company is not a
party to such merger) is the survivor, or for any merger or
Disposition, if the surviving Person or acquiring Person is
not the Company or a Subsidiary, such surviving Person or
acquiring Person assumes the Indebtedness and all other
obligations of the Company or such Subsidiary under the Loan
<PAGE>
Documents and is approved by the Majority Lenders.
3. Section 1.02 of the Credit Agreement is
hereby supplemented, where alphabetically
appropriate, with the addition of the following:
"Third Amendment" shall mean that certain Third
Amendment to Credit Agreement as of September 25, 1997,
among the Company, the Lenders, and the Agents.
4. This Amendment shall become binding on
the Lenders when , and only when, the
Administrative Agent shall have received each of
the following in form and substance satisfactory
to the Administrative Agent or its counsel:
(a) counterparts of this Amendment executed by
the Company, the Agents and the Majority Lenders;
(b) a certificate of the Secretary or an
Assistant Secretary of the Company setting forth
resolutions of its board of directors with respect
to the authorization of the Company to execute, deliver
and perform this Amendment; and
(c) such other documents as it or its
counsel may reasonably request.
5. The parties hereto hereby acknowledge
and agree that, except as specifically supplemented and
amended, changed or modified hereby, the Credit
Agreement shall remain in full force and effect in
accordance with its terms.
6. THIS AMENDMENT (INCLUDING, BUT NOT LIMITED
TO, THE VALIDITY AND ENFORCEABILITY HEREOF) SHALL
GOVERNED BY , AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF TEXAS, OTHER THAN THE CONFLICT OF LAWS RULES
THEREOF.
7. This Amendment may be executed in two or more
counterparts, and it shall not be necessary that the
signatures of all parties hereto be contained on any one
counterpart hereof; each counterpart shall be deemed an
original, but all of which together shall constitute one and
the same instrument.
[SIGNATURES BEGIN ON NEXT PAGE]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed as of September 25, 1997.
COMPANY: ENSERCH EXPLORATION, INC.
By:___________________________
Name: ________________________
Title: _________________________
LENDER ADN ADMINISTRATIVE AGENT, THE CHASE MANHATAN BANK
SYNDICATION AGENT AND
AUCTION AGENT:
By:___________________________
Name: ________________________
Title:_________________________
LENDER AND DOCUMENTATION CITIBANK, N.A.
AGENT:
By:___________________________
Name: ________________________
Title:_________________________
LENDERS: THE BANK OF NEW YORK
By:___________________________
Name: ________________________
Title:_________________________
THE BANK OF NOVA SCOTIA
By:___________________________
Name: ________________________
Title:_________________________
<PAGE>
BANKERS TRUST COMPANY
By:___________________________
Name: ________________________
Title:_________________________
CANADIAN IMPERIAL BANK OF
COMMERCE
By:___________________________
Name: ________________________
Title:_________________________
THE FIRST NATIONAL BANK OF
CHICAGO
By:___________________________
Name: ________________________
Title:_________________________
NATIONSBANK OF TEXAS, N.A.
By:___________________________
Name: ________________________
Title:_________________________
ROYAL BANK OF CANADA
By:___________________________
Name: ________________________
Title:_________________________
CAISSE NATIONALE DE CREDIT
AGRICOLE
By:___________________________
Name: ________________________
Title:_________________________
<PAGE>
THE FUJI BANK, LTD.
By:___________________________
Name: ________________________
Title:_________________________
THE INDUSTRIAL BANK OF JAPAN
TRUST COMPANY
By:___________________________
Name: ________________________
Title:_________________________
THE LONG-TERM CREDIT BANK OF
JAPAN, LTD.
By:___________________________
Name: ________________________
Title:_________________________
MELLON BANK, N.A.
By:___________________________
Name: ________________________
Title:_________________________
THE SANWA BANK, LIMITED
By:___________________________
Name: ________________________
Title:_________________________
TORONTO DOMINION (TEXAS), INC.
By:___________________________
Name: ________________________
Title:_________________________
<PAGE>
UNION BANK OF SWITZERLAND
HOUSTON AGENCY
By:___________________________
Name: ________________________
Title:_________________________
By:___________________________
Name: ________________________
Title:_________________________
THE BANK OF TOKYO-MITSUBISHI, LTD.
<PAGE>
FOURTH AMENDMENT TO CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is among:
ENSERCH EXPLORATION, INC., a corporation formed under the laws of the State of
Texas (the "Company"); each of the Lenders (as defined in the Credit Agreement
as hereafter defined) that is a signatory hereto; THE CHASE MANHATTAN BANK, a
New York banking corporation (in its individual capacity, "Chase"), as
administrative agent for the Lenders (in such capacity, together with its
successors in such capacity, the "Administrative Agent"); as auction agent for
the Lenders (in such capacity, together with its successors in such capacity,
the "Auction Agent"); and as syndication agent for the Lenders (in such
capacity, together with its successors in such capacity, the "Syndication
Agent"); CITIBANK, N.A., a national banking association (in its individual
capacity, "Citibank") and as documentation agent for the Lenders (in such
capacity, together with its successors in such capacity, the "Documentation
Agent"); and the Bank of New York, The Bank of Nova Scotia, Bankers Trust
Company, Canadian Imperial Bank of Commerce, The First National Bank of
Chicago, NationsBank of Texas, N.A. and Royal Bank of Canada as co-agents (in
such capacity, together with their successors in such capacity, the
"Co-Agents").
RECITALS
--------
A. The Company, the Agents, and the Lenders have entered into the certain
Credit Agreement dated as of May 1, 1995 (the "Original Credit Agreement"), as
amended by the First Amendment to the Credit Agreement dated as of September 16,
1996 (the "First Amendment") further amended by the Second Amendment to Credit
Agreement dated as of June 27, 1997 (the "Second Amendment") and further amended
by the Third Amendment to Credit Agreement dated as of September 25, 1997 (the
"Third Amendment"), pursuant to which the Lenders have agreed to make certain
loans and extensions of credit to the Company upon the terms and conditions as
provided therein (the Original Credit Agreement, the First Amendment, the Second
Amendment and the Third Amendment are collectively hereinafter referred to as
the "Credit Agreement"); and
B. The Company, the Agents, and the Lenders now desire to make certain
amendments to the Credit Agreement.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration and the mutual benefits, covenants and agreements herein
expressed, the parties hereto now agree as follows:
1. All capitalized terms used in this Amendment and not otherwise defined
herein shall have the meaning ascribed to such terms in the Credit Agreement.
2. The following definitions in Section 1.02 of the Credit Agreement are
amended and restated in their entirety to read as follows:
"Special Entity" shall mean any joint venture, limited liability company,
general or limited partnership or any other type of partnership or company in
which the Company one or more of its other Subsidiaries is a member, owner,
partner or joint venturer and owns, directly or indirectly, at least a majority
of the equity of such entity.
<PAGE>
"Consolidated Subsidiaries" shall mean each Subsidiary and Special Entity
(whether now existing or hereafter created or acquired) the financial statements
of which shall be (or should have been) consolidated with the financial
statements of the Company in accordance with GAAP.
3. Section 7.01 of the Credit Agreement is deleted in its entirety and
replaced with the following:
Section 7.01 Existence. Each of the Company and each Designated
Subsidiary and each Subsidiary Guarantor: (i) is a corporation, association
or other business entity duly organized, legally existing and in good
standing under the laws of the jurisdiction of its incorporation or
formation; (ii) has all requisite power, and has all material governmental
licenses, authorizations, consents and approvals necessary to own its
assets and carry on its business as now being or proposed to be conducted;
and (iii) is qualified to do business in all jurisdictions in which the
nature of the business conducted by it makes such qualification necessary
and where failure so to qualify would have a Material Adverse Effect.
4. Section 1.02 of the Credit Agreement is hereby supplemented, where
alphabetically appropriate, with the addition of the following:
"Fourth Amendment" shall mean that certain Fourth Amendment to Credit
Agreement and dated as of December 15, 1997, among the Company, the
Administrative Agent, the Auction Agent, the Syndication Agent, the
Documentation Agent and the Lenders.
"December 1997 Transaction" shall mean the transaction, effected in
December 1997, pursuant to which (i) the Company formed a wholly-owned
limited liability company (the "LLC") and contributed certain assets of the
Company (the "LLC Assets") in exchange for membership interest of the LLC,
(ii) a limited partnership (the "LP") was formed by the contribution of (a)
the LLC Assets to the LP in exchange for all of the limited partnership
interests (constituting 99% of the voting power of the LP) and (b) certain
assets of the Company in exchange for all of the general partnership
interests in the LP (constituting 1% of the voting power of the LP).
5. For purposes of Section 9.10 of the Credit Agreement, the December
1997 Transaction shall be deemed to be in the ordinary course of business of all
relevant parties.
6. This Amendment shall become binding on the Lenders when, and only when,
the Administrative Agent shall have received each of the following in form and
substance satisfactory to the Administrative Agent or its counsel:
(a) counterparts of this Amendment executed by the Company, the Agent
and the Majority Lenders;
2
<PAGE>
(b) the Amended and Restated Guaranty Agreement executed by the
Company;
(c) the Subsidiary Guaranty Agreement executed by each Subsidiary
Guarantor that is a party thereto;
(d) a certificate of the Secretary or an Assistant Secretary of the
Company and the Manager/General Partner of each Subsidiary Guarantor in
accordance with Section 8.08(a) of the Credit Agreement;
(e) an opinion of counsel to each Subsidiary Guarantor that is a party
to a Subsidiary Guaranty Agreement, substantially in the form of Exhibit N
to the Credit Agreement; and
(f) such other documents as it or its counsel may reasonably request.
7. The parties hereto hereby acknowledge and agree that, except as
specifically supplemented and amended, changed or modified hereby, the Credit
Agreement shall remain in full force and effect in accordance with its terms.
8. THIS AMENDMENT (INCLUDING, BUT NOT LIMITED TO, THE VALIDITY AND
ENFORCEABILITY HEREOF) SHALL BE GOVERNED BY , AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF TEXAS, OTHER THAN THE CONFLICT OF LAWS RULES THEREOF.
9. This Amendment may be executed in two or more counterparts. and it
shall not be necessary that the signatures of all parties hereto be contained on
any one counterpart hereof; each counterpart shall be deemed an original, but
all of which together shall constitute one and the same instrument.
[SIGNATURES BEGIN ON NEXT PAGE]
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of December 15, 1997.
COMPANY: ENSERCH EXPLORATION, INC.
By: /s/ J. T. LERRY
----------------------------------
Name: J. T Lerry
--------------------------------
Title: V.P.-Finance & Treasurer
-------------------------------
LENDER AND ADMINISTRATIVE AGENT, THE CHASE MANHATAN BANK
SYNDICATION AGENT AND
AUCTION AGENT:
By: /s/ PETER M. LING
----------------------------------
Name: Peter M. Ling
--------------------------------
Title: Vice President
-------------------------------
LENDER AND DOCUMENTATION AGENT: CITIBANK, N.A.
By: /s/ MARK PACKARD
----------------------------------
Name: Mark Stanfield Packard
--------------------------------
Title: Assistant Vice President
-------------------------------
LENDERS: THE BANK OF NEW YORK
By: /s/ RAYMOND J. PALMER
----------------------------------
Name: Raymond J. Palmer
--------------------------------
Title: Vice President
-------------------------------
THE BANK OF NOVA SCOTIA
By: /s/ W.C.H. ASHBY
----------------------------------
Name: W.C.H. Ashby
--------------------------------
Title: Senior Manager Loan Operations
-------------------------------
4
<PAGE>
BANKERS TRUST COMPANY
By: /s/ MARCUS M. TARKINGTON
----------------------------------
Name: Marcus M. Tarkington
--------------------------------
Title: Vice President
-------------------------------
CANADIAN IMPERIAL BANK OF COMMERCE
By: /s/ [ILLEGIBLE]
----------------------------------
Name: ILLEGIBLE
--------------------------------
Title: Authorized Signatory
-------------------------------
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ GAIL [?] SCANNELL
----------------------------------
Name: Gail [?] Scannell
--------------------------------
Title: Assistant Vice President
-------------------------------
NATIONSBANK OF TEXAS, N.A.
By: /s/ DALE T. WILSON
----------------------------------
Name: Dale T. Wilson
--------------------------------
Title: Vice President
-------------------------------
ROYAL BANK OF CANADA
By: /s/ [?] J. BENARD
----------------------------------
Name: [?] J. Benard
--------------------------------
Title: Senior Manager
-------------------------------
CAISSE NATIONALE DE CREDIT AGRICOLE
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
CREDIT AGRICOLE INDOSUEZ
By: /s/ DAVID [???????]
----------------------------------
Name: David [???????]
--------------------------------
Title: Head of Corporate Banking
Chicago
-------------------------------
By: /s/ W. LEROY STARTZ
----------------------------------
Name: W. Leroy Startz
--------------------------------
Title: First Vice President
-------------------------------
5
<PAGE>
THE FUJI BANK, LTD.
By: /s/ YOSHIAKI INOUE
----------------------------------
Name: Yoshiaki Inoue
--------------------------------
Title: Vice President & Manager
-------------------------------
THE INDUSTRIAL BANK OF JAPAN TRUST
COMPANY
By: /s/ KAZUTOSHI KUWAHARA
----------------------------------
Name: Kazutoshi Kuwahara
--------------------------------
Title: Executive Vice President
The Industrial Bank of Japan,
Limited, Houston Office
(Authorized Representative)
-------------------------------
THE LONG-TERM CREDIT BANK OF JAPAN
By: /s/ SADAO MURAOKA
----------------------------------
Name: Sadao Muraoka
--------------------------------
Title: Head of Southwest Region
-------------------------------
MELLON BANK, N.A.
By: /s/ BRAD S. MILLER
----------------------------------
Name: Brad S. Miller
--------------------------------
Title: Assistant Vice President
-------------------------------
THE SANWA BANK, LIMITED
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
TORONTO DOMINION (TEXAS), INC.
By: /s/ JIMMY SIMIEN
----------------------------------
Name: Jimmy Simien
--------------------------------
Title: V.P.
-------------------------------
6
<PAGE>
UNION BANK OF SWITZERLAND
HOUSTON AGENCY
By: /s/ DAN O. BOYLE
----------------------------------
Name: Dan O. Boyle
--------------------------------
Title: Managing Director
-------------------------------
By: /s/ J. FINLEY BIGGERSTAFF
----------------------------------
Name: J. Finley Biggerstaff
--------------------------------
Title: Assistant Vice President
-------------------------------
THE BANK OF TOKYO-MITSUBISHI, LTD.
By: /s/ MICHAEL G. WEISS
----------------------------------
Name: Michael G. Weiss
--------------------------------
Title: Vice President
-------------------------------
DRESDNER BANK AG NEW YORK AND
GRAND CAYMAN BRANCHES
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ PHILIPPE SOUSTRA
----------------------------------
Name: Philippe Soustra
--------------------------------
Title: Senior Vice President
-------------------------------
7
<PAGE>
EXHIBIT 10.9
PURCHASE AND SALE AGREEMENT
BETWEEN
EEX OPERATING L.P.
AND
EEX CORPORATION
AS SELLER
AND
CROSS TIMBERS OIL COMPANY
AS BUYER
DATED
FEBRUARY 12, 1998
<PAGE>
TABLE OF CONTENTS
1. Assets to be Sold and Purchased........................................1
2. Purchase Price.........................................................2
3. Representations of Seller..............................................2
4. Representations of Buyer...............................................3
5. Certain Covenants of Seller Pending Closing............................4
6. Due Diligence Reviews..................................................5
7. Certain Purchase Price Adjustments.....................................9
8. Certain Covenants of Buyer Pending Closing............................10
9. Conditions Precedent to the Obligations of Buyer......................10
10. Conditions Precedent to the Obligations of Seller.....................11
11. Termination of Agreement..............................................11
12. The Closing...........................................................12
13. Certain Accounting Adjustments........................................13
14. Assumption and Indemnification........................................14
15. Disclaimer of Warranties..............................................15
16. Commissions...........................................................15
17. Casualty Loss.........................................................16
18. Notices...............................................................16
19. Survival of Provisions................................................16
20. Operations............................................................17
21. Miscellaneous Matters.................................................17
<PAGE>
PURCHASE AND SALE AGREEMENT
---------------------------
This Purchase and Sale Agreement ("AGREEMENT") is entered into this 12 day of
FEBRUARY, 1998, by and between EEX CORPORATION ("EEX") and EEX OPERATING L.P.
("EOP") (collectively "SELLER"), whose mailing address is 4849 Greenville
Avenue, Suite 1200, Dallas, Texas 75206 and CROSS TIMBERS OIL COMPANY ("BUYER"),
whose mailing address is 810 Houston, Ste 2000, FORT WORTH, TX 76102. In
consideration of the mutual covenants and conditions contained in this Agreement
and other good and valuable consideration, the adequacy and sufficiency of which
are hereby acknowledged, the parties agree as follows:
W I T N E S S E T H:
1. ASSETS TO BE SOLD AND PURCHASED. Seller agrees to sell and Buyer agrees
to purchase, for the consideration hereinafter set forth, and subject to the
terms and provisions herein contained, the following described properties,
rights and interests:
(a) All of Seller's right, title and interest in and to the oil, gas
and/or mineral leases described in Exhibit "A", EXHIBIT "A-1," and EXHIBIT
"A-2" (collectively called "Exhibit A") hereto, any ratifications and/or
amendments to such leases (whether or not such ratifications or amendments are
described in Exhibit A), subject to the exceptions and reservations contained
in Exhibit A; and
(b) Without limitation of the foregoing, all of Seller's right, title and
interest (of whatever kind or character, whether legal or equitable, and
whether vested or contingent) in and to the oil, gas and other minerals in and
under or that may be produced from the lands or leases described in Exhibit A
hereto, including, without limitation, interests in all oil, gas and/or
mineral leases covering such lands, overriding royalties, production payments
and net profits interests, fee mineral interests, fee royalty interests and
all other interests in such oil, gas and other minerals, even though Seller's
interest in such oil, gas and other minerals may be incorrectly described in,
or omitted from, such Exhibit A, but subject in each case to the exceptions
and reservations contained in such Exhibit A; and
(c) All of Seller's rights, titles and interests in and to, or otherwise
derived from, all presently existing and valid oil, gas and/or mineral
unitization, pooling, and/or communitization agreements, declarations and/or
orders and in and to the properties covered and the units created thereby
(including, without limitation, all units formed under orders, rules,
regulations, or other official acts of any federal, state, or other authority
having jurisdiction, and voluntary unitization agreements, designations and/or
declarations) relating to the properties described in subsections (a) and (b)
above; and
(d) All of Seller's rights, titles and interests in and to all presently
existing and valid rights-of-way and easements, production sales contracts,
operating agreements, unit agreements, and other agreements and contracts
which relate to any of the properties described in subsections (a), (b) and
(c) above, provided that Seller will retain all obligations and liabilities
under any agreements entered into with ENCOGEN ONE PARTNERS, LTD, and Seller
will indemnify and hold Buyer (and the said properties) harmless from any
claims, liability or obligations related to the said agreements with ENCOGEN;
or on the lands identified on Exhibit "E" attached hereto being the Field
Offices of Seller (which lands, to the extent of the Fee or leasehold interest
of Seller, are included in the properties conveyed); and
(e) All of Seller's rights, titles and interests in and to all materials,
supplies, machinery, equipment, improvements and other personal property and
fixtures (including, but not by way of limitation, all wells, wellhead
equipment, pumping units, flowlines, tanks, buildings, injection facilities,
saltwater disposal facilities, compression facilities, gathering
<PAGE>
systems, and other equipment) located on the properties described in
subsections (a), (b) and (c) above and used in connection with the
exploration, development, operation or maintenance thereof; and
(f) All of Seller's lease files, abstracts and title opinions, production
records, well files, accounting records (but not including general financial
accounting or tax accounting records), electric logs, geological data and
records (subject to any contractual or other restrictions relating to the
transfer of such data and records), and other files, documents and records
which directly relate to the properties described above, but nothing contained
herein shall preclude Seller from retaining copies of the same.
The interests of the Seller in the properties and interests specified in the
foregoing subsections (a), (b) and (c) are herein sometimes collectively called
the "OIL AND GAS PROPERTIES," and the interests of the Seller in the properties
and interests specified in the foregoing subsections (a), (b), (c), (d), (e) and
(f) are herein sometimes collectively called the "ASSETS".
2. PURCHASE PRICE. The purchase price for the Assets shall be Two hundred
and Sixty Five Million ($265,000,000.00) (herein called the "BASE PURCHASE
PRICE"). Such Base Purchase Price may be adjusted as provided herein (herein
called the Base Purchase Price, as so adjusted, and as the same may otherwise be
adjusted by mutual agreement of the parties, being herein called the "PURCHASE
PRICE"). The Purchase Price shall be paid in cash at the Closing as hereinafter
provided. Buyer has previously paid to Seller the sum of $26,500,000.00 which
shall hereinafter be referred to as the "DEPOSIT". If Buyer and Seller
consummate the transaction contemplated by this Agreement, the Deposit shall be
applied to the Purchase Price. If Buyer and Seller do not consummate the
transaction contemplated by this Agreement because of a refusal by Seller, in
the absence of a default by Buyer, Seller shall return the Deposit to Buyer.
Except as provided in the preceding sentences, if Buyer fails or refuses to
consummate the transaction contemplated by this Agreement, or if the transaction
contemplated by this Agreement otherwise fails to close on the Closing Date,
Seller shall retain the Deposit as liquidated damages. The parties agree that
damages in such an event would be extremely difficult to determine, that the
Deposit represents a fair and reasonable estimate of such damages under the
circumstances, and that such a retention of the Deposit does not constitute a
penalty.
3. REPRESENTATIONS OF SELLER. Seller represents to Buyer that:
(a) EEX is a corporation and EOP is a limited partnership both duly
organized, and legally existing under the laws of the State of Texas. Seller
is qualified to do business and is in good standing in each state in which the
Assets are located where the laws of such state require a corporation and a
limited partnership owning the Assets located in such state to qualify to do
business.
(b) Seller has full power to enter into and perform its obligations under
this Agreement and has taken all proper action to authorize entering into this
Agreement and performance of its obligations hereunder, upon obtaining Board
approval pursuant to Section 10(c) below.
(c) Other than requirements (if any) that consents to assignment, or
waivers of preferential rights to purchase, be obtained from third parties,
and except for approvals ("Routine Governmental Approvals") required to be
obtained from governmental entities who are lessors under leases forming a
part of the Oil and Gas Properties, or who administer such leases on
2
<PAGE>
behalf of such lessors, which are customarily obtained post-closing, or as
otherwise set forth on Schedule 3(c), neither the execution and delivery of
this Agreement, nor the consummation of the transactions contemplated hereby,
nor the compliance with the terms hereof, will result in any default under any
agreement or instrument to which Seller is a party or by which the Assets are
bound, or violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Seller or to the Assets.
(d) This Agreement and the Conveyance provided for herein to be delivered
at Closing will, when executed and delivered, constitute the legal, valid and
binding obligation of Seller, enforceable in accordance with its terms, except
as limited by bankruptcy or other laws applicable generally to creditor's
rights and as limited by general equitable principles.
(e) Except as set forth on Schedule 3(e) hereto, there are no pending
suits, actions, or other proceedings in which Seller is a party which affect
the Assets (including, without limitation, any actions challenging or
pertaining to Seller's title to any of the Assets), or affecting the execution
and delivery of this Agreement or the consummation of the transactions
contemplated hereby.
4. REPRESENTATIONS OF BUYER. Buyer represents to Seller that:
(a) Buyer is a corporation duly organized and legally existing under the
laws of the State of Delaware, and is qualified to do business and is in good
standing in each of the states in which the Assets are located where the laws
of such state would require a corporation owning the Assets located in such
state to qualify to do business.
(b) Buyer has full power to enter into and perform its obligations under
this Agreement and has taken all proper action to authorize entering into this
Agreement and performance of its obligations hereunder, upon obtaining Board
approval pursuant to Section 9(c) below.
(c) Neither the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, nor the compliance with
the terms hereof, will result in any default under any agreement or instrument
to which Buyer is a party or by which the Assets are bound, or violate any
order, writ, injunction, decree, statute, rule or regulation applicable to
Buyer or to the Assets.
(d) This Agreement and the Conveyance provided for herein to be delivered
at Closing will, when executed and delivered, constitute the legal, valid and
binding obligation of Buyer, enforceable in accordance with its terms, except
as limited by bankruptcy or other laws applicable generally to creditor's
rights and as limited by general equitable principles.
(e) There are no pending suits, actions, or other proceedings in which
Buyer is a party which affect the execution and delivery of this Agreement or
the consummation of the transactions contemplated hereby.
(f) Buyer is a knowledgeable purchaser, owner and operator of oil and gas
properties, has the ability to evaluate oil and gas properties, and in fact
has evaluated the Assets for purchase, and is acquiring the Assets based upon
its own evaluation, and for its own account and not with the intent to make a
distribution within the meaning of the Securities Act of 1933
3
<PAGE>
(and the rules and regulations pertaining thereto) or a distribution thereof
in violation of any other applicable securities laws.
(g) With regard to those Assets which Buyer seeks to operate, Buyer is
qualified to operate such Assets under the applicable laws, rules and
regulations of the jurisdiction in which such Assets are located, or will
become so qualified before operating such Assets.
5. CERTAIN COVENANTS OF SELLER PENDING CLOSING. Between the date of this
Agreement and the Closing Date:
(a) Seller will give Buyer and its attorneys and other representatives
access at all reasonable times to the Assets and, at Seller's office, to
Seller's records (including, without limitation, title files, division order
files, well files, production records, accounting records, marketing files,
equipment inventories, and production, severance and ad valorem tax records)
pertaining to the ownership and/or operation of the Assets. Seller shall not
be obligated to provide Buyer with access to any records or data which Seller
considers to be proprietary or confidential to it or which Seller cannot
legally provide to Buyer without, in its opinion, breaching, or risking a
breach of, confidentiality agreements with other parties. Buyer recognizes and
agrees that all materials made available to it (whether pursuant to this
Section or otherwise) in connection with the transaction contemplated hereby
are made available to it as an accommodation, and without representation or
warranty of any kind as to the accuracy and completeness of such materials.
Buyer waives and releases all claims against Seller, its parent or subsidiary
companies or other affiliates, and its and their directors, officers,
employees and agents, for injury to, or death of, persons or for damage to
property arising in any way from the conduct of the investigations and
examinations contemplated by this Section or the conduct of its employees,
agents or contractors in connection with such investigations and examinations
(or the exercise of such rights of access). BUYER SHALL RELEASE, INDEMNIFY,
DEFEND, AND HOLD HARMLESS SELLER, AND ITS PARENT OR SUBSIDIARY COMPANIES AND
OTHER AFFILIATES, AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES,
ATTORNEYS, CONTRACTORS, AND AGENTS (HEREINAFTER COLLECTIVELY REFERRED TO AS
THE "SELLER GROUP"), FROM ANY AND ALL CLAIMS, ACTIONS, CAUSES OF ACTION,
LIABILITIES, DAMAGES, LOSSES, COSTS, OR EXPENSES (INCLUDING, WITHOUT
LIMITATION, COURT COSTS AND ATTORNEYS' FEES), OR LIENS OR ENCUMBRANCES FOR
LABOR OR MATERIALS ARISING OUT OF OR IN ANY WAY CONNECTED WITH SUCH ACCESS,
EXAMINATIONS, OR INSPECTIONS. THE FOREGOING RELEASE AND INDEMNIFICATION SHALL
APPLY WHETHER OR NOT SUCH CLAIMS, ACTIONS, CAUSES OF ACTION, LIABILITIES,
DAMAGES, LOSSES, COSTS, OR EXPENSES ARISE OUT OF (i) NEGLIGENCE (INCLUDING
CONCURRENT NEGLIGENCE, ACTIVE NEGLIGENCE, OR PASSIVE NEGLIGENCE, BUT EXPRESSLY
NOT INCLUDING SOLE NEGLIGENCE, GROSS NEGLIGENCE OR WILLFUL MISCONDUCT) OF
SELLER OR ANY OTHER INDEMNIFIED PARTY, OR (ii) STRICT LIABILITY.
(b) Seller will continue the operation of the Assets in the ordinary
course of its business; where Seller is not the operator of an Asset, Seller
will continue its actions as a non-operator in the ordinary course of its
business. Seller will not sell or dispose of any portion of the leases, wells,
or property or equipment used in the operation of the wells, without the prior
consent of Buyer.
4
<PAGE>
(c) Seller will use reasonable efforts, consistent with industry
practices in transactions of this type, to identify (i) all preferential
rights to purchase and all rights to require that consents to assignment be
obtained which would be applicable to the transactions contemplated hereby and
(ii) the parties holding such rights; in attempting to identify the same,
Seller shall in no event be obligated to go beyond its own records. Seller
will request, from the parties so identified (and in accordance with the
documents creating such rights), waivers of the preferential rights to
purchase and requirements that consents to assignment be obtained which were
so identified. Seller shall have no obligation hereunder other than to so
attempt to identify such preferential rights and requirements for consents to
assignment and to so request such waivers, and shall in no event be under any
obligation to obtain such waivers. Except to the extent that Seller failed to
fulfill the obligations set forth above in this subsection, Buyer shall
indemnify and hold Seller harmless from and against all claims, actions,
liabilities, damages, losses, costs or expenses, including, without
limitation, court costs and attorney's fees, whatsoever that arise out of the
failure to obtain waivers of preferential rights to purchase or requirements
for consents to assignment with respect to any transfer by Seller to Buyer of
any part of the Assets and with respect to any subsequent transfers. If a
party from whom a waiver of a preferential right to purchase is requested
fails or refuses to give such waiver, Seller will tender (at a price equal to
the amount specified in Exhibit B hereto for the wells located on such Asset
and for the units in which such Asset participates, reduced appropriately, as
determined by Seller, if less than the entire Asset should be tendered) the
required interest in the Asset affected by such unwaived preferential right to
the holder, or holders, of such right who have elected not to waive such
preferential right to purchase and if, and to the extent that, such
preferential right to purchase is exercised by such party or parties, and such
interest in such Asset is actually sold to such party or parties so exercising
such right, such interest in such Asset will be excluded from the transaction
contemplated hereby and the Base Purchase Price will be reduced by the amount
paid to Seller by the party or parties exercising such right.
(d) Notwithstanding any other provision in this Section, (i) Seller may
take any action prohibited by this Section if reasonably necessary under
emergency conditions provided that Buyer is notified as soon as practicable
thereafter; (ii) except to the extent that a "Defect" (as hereinafter defined)
may result therefrom, Seller shall have no liability to Buyer for any
incorrect payment of delay rentals, royalties, shut-in royalties or similar
payments or for any failure to make such payments; (iii) Seller's failure to
comply with any of the requirements of this Section 5 shall not be deemed to
be a default by Seller hereunder or grant to Buyer the right not to close the
transaction contemplated hereby, unless such failure has a materially adverse
impact on the value of the Assets taken as a whole.
6. DUE DILIGENCE REVIEWS.
(a) Immediately upon execution of this Agreement, Buyer shall, to the
extent it deems appropriate, conduct, at its sole cost, such title examination
or investigation, and other examinations and investigations, as it may choose
to conduct with respect to the Assets. Should, as a result of such
examinations and investigations, or otherwise, matters come to Buyer's
attention which would constitute "Defects" (as defined below), and should
there be one or more of such Defects which Buyer is unwilling to waive and
close the transaction contemplated hereby notwithstanding the fact that such
Defects exist, Buyer shall notify Seller in writing of such Defects as soon as
practicable, but in no event later than April 17, 1998 (herein called the
Seller agrees that it shall promptly (within ten days of execution hereof)
provide Buyer copies of historical financial data for the Properties for the
years 1995, 1996 and 1997, and year-to-date information (including monthly and
calendar quarter summaries within those periods), including but not limited to,
lease operating statements and lease operating costs reports (detailed by
property with related summaries), and shall allow Buyer's employees and
representatives reasonable access upon prior written notice to supporting
records, invoices and other source documents insofar as required to complete
necessary audits and due diligence procedures, and shall reasonably cooperate
with Buyer to enable Buyer to complete audits and due diligence on a timely
basis, provided, however, that Seller shall provide only such data as it has in
its possession and shall not be obligated to generate such data in any
particular form or format.
5
<PAGE>
"DEFECT DATE"). Buyer's notice of Defects (herein called a "DEFECT NOTICE")
must include (i) a brief description of the matter constituting the Defect so
asserted, (ii) the title opinion, other reports of experts, or other
documentation on which Buyer's assertion of a Defect is based, (iii) such
supporting documents reasonably necessary for Seller (or a title attorney
retained by Seller, if applicable,) to verify the existence of any such
Defect, and (iv) Buyer's estimate of the diminution in the sum to be paid at
Closing resulting from such alleged Defect. Such Defects of which Buyer so
provides a Defect Notice prior to the Defect Date are herein called "ASSERTED
DEFECTS". All matters which might constitute a Defect other than Asserted
Defects will be deemed waived for all purposes under this Agreement. In the
event that Buyer notifies Seller of Asserted Defects, Seller (i) shall have
the right (but not the obligation) to attempt to cure, prior to Closing, such
Asserted Defects; (ii) shall have the right (which may be exercised at any
time before the Closing Date) to require that the Closing take place, deposit
the Purchase Price paid by Buyer and attributable to the Assets having the
Asserted Defects in an escrow account and attempt to cure one or more Asserted
Defects after the Closing; (iii) shall have the right to elect not to cure the
Asserted Defect and adjust the Purchase Price as set forth in Section 7 below;
and (iv) shall have the right in lieu of curing or attempting to cure an
Asserted Defect, to elect, at any time prior to Closing, to indemnify and hold
Buyer harmless from and against any actual damages or loss (but specifically
excluding consequential, special, punitive, or similar damages) Buyer may
suffer as a result of a third party claim based on such Asserted Defect. Each
such Asserted Defect shall be treated under this Agreement as cured. Should
the title opinion or other materials reviewed by Buyer indicate that Seller
has a higher "NET REVENUE INTEREST" (as hereinafter defined) than that
specified on Exhibit B, then Buyer shall inform Seller of the same as soon as
possible, but in any event not later than five (5) days prior to the Closing.
(b) Buyer shall have the right to make an environmental assessment of the
Assets during the period beginning on the date this Agreement is fully
executed and ending on April 17, 1998 at 5:00 P.M. local time, Dallas, Texas.
Buyer and its agents shall have the right to enter upon the Assets and all
buildings and improvements thereon, inspect the same, conduct soil and water
tests and borings, and generally conduct such tests, examinations,
investigations, and studies as may be necessary or appropriate for the
preparation of appropriate engineering and other reports in relation to the
Assets, their condition, and the presence of Hazardous Substances (as the term
"HAZARDOUS SUBSTANCE" is defined in the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Sec. 9601, et seq). Buyer agrees to
provide Seller with a copy of the environmental assessment promptly upon
Buyer's completion thereof, including any reports, data, and conclusions.
Buyer shall keep any data or information acquired by such examinations and the
results of all analyses of such data and information strictly confidential and
shall not disclose same to any person or agency without the prior written
approval of Seller. BUYER SHALL RELEASE, INDEMNIFY, DEFEND, AND HOLD HARMLESS
THE SELLER GROUP FROM AND AGAINST ANY AND ALL LOSS, COST, DAMAGE, EXPENSE, OR
LIABILITY WHATSOEVER, INCLUDING ATTORNEYS' FEES, ARISING OUT OF ANY INJURY TO
OR DEATH OF PERSONS OR DAMAGE TO PROPERTY OCCURRING IN, ON, OR ABOUT THE
ASSETS AS A RESULT OF SUCH ENVIRONMENTAL ASSESSMENT (EXCEPT ANY SUCH INJURIES
OR DAMAGES CAUSED SOLELY BY THE GROSS NEGLIGENCE OR WILLFULL MISCONDUCT OF ANY
MEMBER OF THE SELLER GROUP). After March 18, 1998, Buyer shall be deemed to
have inspected the properties or waived its right to inspect the Assets for
all purposes and satisfied itself as to their physical and environmental
condition, both surface and subsurface, including, but not limited to,
conditions specifically related to the presence, release, or disposal of
Hazardous Substances.
6
<PAGE>
(c) Buyer shall assume full responsibility for, and agrees to indemnify,
hold harmless and defend Seller from and against all loss, liability, claims,
fines, expenses, costs (including attorney's fees and expenses) and causes of
action caused by or arising out of any violation of any environmental law,
rule or regulation (including common law), relating to the protection of
health or the environment of any kind or character ("APPLICABLE ENVIRONMENTAL
LAW(S)") or the presence, disposal, release or threatened release of any
hazardous substance ("Hazardous Substance") (as the terms "release" and
"hazardous substance" are defined in the Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA), 42 U.S.C. (S)(S)9601, et seq.) from
the Assets into the atmosphere or into or upon land or any water course or
body of water, including groundwater, whether or not attributable to the
Seller's activities or the activities of third parties (regardless of whether
or not the Seller was or is aware of such activities) after the period of
Seller's ownership of the Assets. This indemnification and assumption shall
apply, but is not limited to, liability for response actions undertaken
pursuant to CERCLA or any other environmental law or regulation.
(d) As used in this Agreement, the term "DEFECT" shall mean any matter,
other than a "Permitted Encumbrance" (as hereinafter defined), which causes
one or more of the following to be a correct statement:
(i) Seller's ownership of the Assets is such that, with respect to
a well or unit listed on Exhibit "B" attached hereto, such ownership shall
(a) not be sufficient to entitle it to receive its decimal share of the
oil, gas and other hydrocarbons produced from, or allocated to, such well
or unit which is at least that decimal share set forth on Exhibit B in
connection with such well or unit in the column headed "Net Revenue
Interest" or (b) obligate it to bear its decimal share of the cost of
operation of such well or unit (herein called the "OPERATING INTEREST")
greater than the decimal share set forth on Exhibit B in connection with
such well or unit in the column headed "Operating Interest" (without a
proportionate increase in Net Revenue Interest above that set forth on
such exhibits); or
(ii) Seller's ownership of an Oil and Gas Property shall be subject
to an outstanding mortgage, deed of trust, or other enforceable lien or
encumbrance, or other adverse claim or imperfection in title, which if
asserted would cause the statement contained in Paragraph (d)(i) to be a
correct statement; or
(iii) An Oil and Gas Property is in violation of Applicable
Environmental Laws in any material respect; or
(iv) To the extent Seller has inaccurately represented the amount of
any gas imbalances as set forth on Exhibit "B".
(v) The Net Lease Operating Statements presented with the Core East
Texas Package do not accurately reflect net operating income to Seller.
(e) As used herein, the term "PERMITTED ENCUMBRANCE" shall mean any and
all of the following:
(i) The terms, conditions, restriction, exceptions, reservations
limitations and other matters contained in the agreements, instruments and
other documents which create or reserve to Seller its interest in any
Asset, provided that the same do not reduce the Net Revenue Interest of
Seller in the Asset affected thereby to less than that set forth on
Exhibit B hereto;
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(ii) Royalties, overriding royalties (including, without
limitation, those specifically described on Exhibit A hereto), division
orders, reversionary interests, production payments, net profits interests
and similar burdens affecting any Oil and Gas Property if the net
cumulative effect of such burdens does not operate to reduce the Net
Revenue Interest in the Asset affected thereby to less than the Net
Revenue Interest set forth beside the same on Exhibit B hereto;
(iii) Preferential rights to purchase and required third party
consents to assignment and similar agreements with respect to which
waivers or consents shall have been obtained from the appropriate parties,
or the appropriate time period for asserting such rights shall have
expired without an exercise of such rights;
(iv) Liens for taxes and assessments which are not yet delinquent
or which are being contested by Seller in good faith;
(v) Rights existing under applicable laws (including without
limitation statutory liens) or operating agreements or similar contracts
to assert liens against the Assets, but not including liens and other
rights which have actually been asserted, unless Seller disputes the
validity of such liens or the amount claimed to be owed in connection
therewith, or such lien or other right is not enforceable against the
interest of Seller;
(vi) Conventional rights of reassignment requiring 90 days or less
notice to the holder of such rights;
(vii) Easements, rights-of-way, servitudes, permits, surface leases
and other rights in respect to surface operations, pipelines, logging,
canals, ditches, reservoirs or the like; conditions, covenants or other
restrictions; easements of streets, alleys, highways, pipelines, telephone
lines, power lines, railways and other easements or rights-of-way on, over
or with respect of any Asset which does not materially and adversely
affect the Asset affected thereby or its current use;
(viii) Any obligations or duties affecting an Asset to any
municipality or public authority with respect to any franchise, grant,
license or permit and all applicable laws, rules and order of any
governmental authority;
(ix) All rights to consent by, required notices to, filings with or
other action by governmental entities in connection with the sale or
conveyance of oil and gas leases, permits, or interests therein, if the
same are customarily obtained contemporaneously with or subsequent to such
sale or conveyance;
(x) Existing operating agreements, unit agreements, gas purchase
contracts and any and all other agreements which are customary in the oil
and gas exploration, development, production or extraction business or in
the business of processing of gas and gas condensate or production for the
extraction of proper products therefrom, to the extent that the same do
not reduce the Net Revenue Interest of Seller in the Asset affected
thereby below that set forth on Exhibit B hereto;
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(xii) Any other matter waived or deemed to be waived by Buyer
pursuant to the provisions of paragraph (a) of this section.
(f) Should either Seller or Buyer determine that Seller is entitled to a
Net Revenue Interest in any Asset in excess of that set forth on Exhibit B
(herein called an "NRI INCREASE"), notice shall promptly be given to the other
party, and the adjustments to be made under Section 7 below shall include
adjustments which are the subject of such notice.
7. CERTAIN PURCHASE PRICE ADJUSTMENTS. In the event that, as a part of the
due diligence reviews provided for in Section 6 above, (i) Asserted Defects are
presented to Seller and Seller is unable (or unwilling) to cure such Asserted
Defects prior to the Defect Cure Date, (ii) in the event that Buyer has elected
to treat an Oil and Gas Property affected by a casualty loss as if it was an Oil
and Gas Property affected by an Asserted Defect, or (iii) should there be a NRI
Increase, then:
(a) Buyer and Seller shall, with respect to each Oil and Gas Property
affected by such matters, attempt to agree upon an appropriate adjustment to
the Purchase Price to account for such matters; and
(b) with respect to each Oil and Gas Property as to which Buyer and
Seller are unable to agree upon appropriate adjustment with respect to all
such matters affecting such Oil and Gas Property, then:
(i) If the Asserted Defect is a mortgage, lien, encumbrance or
other charge which is undisputed and liquidated in amount, then (subject
to the provisions of paragraph (iv) below) the adjustment shall be the
amount necessary to be paid to remove the Asserted Defect from the
affected Asset;
(ii) If there shall be an Asserted Defect or NRI Increase which (a)
represents a discrepancy between (1) the Net Revenue Interest to which
Seller is entitled to receive from any Asset and (2) the Net Revenue
Interest stated on Exhibit B, and (b) there is a Operating Interest change
proportionate to the change in the Net Revenue Interest resulting from the
Asserted Defect or NRI Increase, then the amount of the adjustment shall
be the product of the value allocated to such Asset as set forth on
Exhibit B (herein called the "ALLOCATED VALUE") multiplied by a fraction,
the numerator shall be the change in the Net Revenue Interest and the
denominator of which shall be the Net Revenue Interest set forth on
Exhibit B;
(iii) If the Asserted Defect represents an obligation, encumbrance,
burden, discrepancy or charge upon or other defect in title to the
affected Asset of a type not described in paragraphs (i) or (ii) above,
the adjustment amount shall be determined by taking into account the
Allocated Value of the Asset so affected, the portion of the Asset
affected by the Asserted Defect, the legal effect of the Asserted Defect,
the potential economic effect of the Asserted Defect over the life of the
affected Asset and such other factors as are necessary to make a proper
evaluation of the value of the Asserted Defect;
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(iv) Notwithstanding any other provision contained herein, (a) the
aggregate adjustment attributable to the effect of all Asserted Defects
related to a given Asset shall not exceed the Allocated Value of such
Property, provided that if the Asserted Defects exceed the Allocated Value
of such Property, the Buyer may elect to exclude such Property and the
Purchase Price will be reduced by the Allocated Value of the wells on such
Property; and (b) no adjustment shall be made with respect to an Asserted
Defect if the diminution in the Allocated Value resulting therefrom will
not exceed $1,000.00.
(v) Should the parties be unable to agree upon an appropriate
adjustment in light of the factors set forth above, then, subject to the
final two sentences of this Section 7, Seller may elect to either (a)
exclude such Oil and Gas Property from the transaction contemplated
hereby, and the Purchase Price will be reduced by the Allocated Value of
the wells located on such Oil and Gas Property and the units in which such
Oil and Gas Property participates; or (b) employ for the purpose of
Closing, an average of the Seller's and Buyer's estimates of the value of
the Asserted Defect, subject to final resolution in the context of the
final accounting under the provisions of Section 13 hereof; or (c)
indemnify and hold Buyer harmless from and against any actual damages or
loss (but specifically excluding consequential, special or similar
damages) Buyer may suffer as a result of a third-party claim based on such
Asserted Defect.
If the Purchase Price reduction which would result from the above provided for
procedure does not exceed five percent (5%) of the Base Purchase Price, then the
Purchase Price shall not be adjusted, and none of the Oil and Gas Properties
which would be excluded by such procedure (except for those properties which
Buyer, may, nevertheless, elect to have excluded notwithstanding the fact that
no Purchase Price adjustment occurs) shall be excluded. If the Purchase Price
increase which would result from the above provided for procedure exceeds five
percent (5%) of the Base Purchase Price, the Purchase Price shall be adjusted by
the amount by which such increase exceeds five percent (5%) of the Base Purchase
Price.
8. CERTAIN COVENANTS OF BUYER PENDING CLOSING. From and after the date of
this Agreement, Buyer will give Seller and its attorneys and other
representatives access at all reasonable times and upon reasonable notice for a
period of seven (7) years from and after the Closing, to all files and records
(including all computer records) delivered by or on behalf of Seller in
connection with the transaction contemplated hereby, and shall permit Seller to
make copies of any such files and records. Should the Assets be subsequently
transferred by Buyer, Buyer agrees to take all action in its contractual
arrangements relating to such transfer necessary to allow Seller to have
continued access to all such files and records.
9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER. The obligations of
Buyer under this Agreement are subject to each of the following conditions being
met:
(a) Each and every representation of Seller under this Agreement shall be
true and accurate in all material respects as of Closing except as to changes
specifically contemplated by this Agreement or consented to by Buyer.
(b) Seller shall have performed and complied in all material respects
with (or compliance therewith shall have been waived by Buyer) each and every
covenant, agreement and condition required by this Agreement to be performed
or complied with by Seller prior to or at the Closing.
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(c) On or before February 24, 1998, Buyer shall have obtained the
approval of its Board of Directors to enter into this Agreement and to
consummate the transactions contemplated by this Agreement.
(d) No suit, action or other proceedings shall, on the date of Closing,
be pending or threatened before any court or governmental agency seeking to
restrain, prohibit, or obtain damages or other relief in connection with the
consummation of the transactions contemplated by this Agreement.
10. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER. The obligations of
Seller under this Agreement are subject to each of the following conditions
being met:
(a) Each and every representation of Buyer under this Agreement shall be
true and accurate in all material respects as of Closing except as to changes
specifically contemplated by this Agreement or consented to by Seller.
(b) Buyer shall have performed and complied in all material respects with
(or compliance therewith shall have been waived by Seller) each and every
covenant, agreement and condition required by this Agreement to be performed
or complied with by Buyer prior to or at the Closing.
(c) On or before February 24, 1998, Seller shall each have obtained the
approval of their respective Board of Directors to enter into this Agreement
and to consummate the transactions contemplated by this Agreement.
(d) No suit, action or other proceedings shall, on the date of Closing,
be pending or threatened before any court or governmental agency seeking to
restrain, prohibit, or obtain damages or other relief in connection with the
consummation of the transactions contemplated by this Agreement.
11. TERMINATION OF AGREEMENT.
(a) If any condition on the obligations of Buyer as set forth in Section
9 above is not met as of the Closing Date, or in the event the Closing does
not occur on or before May 1, 1998, the "TERMINATION DATE", and in either case
Buyer is not in breach of its obligations hereunder, this Agreement may, at
the option of Buyer, be terminated. Upon such termination, the parties shall
have no further obligations to one another hereunder (other than the
obligations under Section 16 hereof and under Section 5(a) hereof, which will
survive such termination).
(b) If any condition to the obligations of Seller as set forth in Section
10 is not met as of the Closing Date, or in the event the Closing does not
occur on or before the Termination Date, and in either case Seller is not in
breach of its obligations hereunder (unless Buyer shall also be in breach of
its Obligations hereunder), this Agreement may, at the option of Seller, be
terminated. Thereafter, the parties shall have no further obligations to one
another hereunder (other than the obligations under Section 16 hereof and
under Section 5(a) hereof, which will survive such termination).
(c) Upon the termination of this Agreement, whether pursuant to paragraph
(a) or (b) above, Seller shall be free to sell the Assets (or any portion
thereof) to any other party without any limitation under or by reason of this
Agreement, unless at such time a condition of Seller Default shall exist.
Buyer shall cooperate with Seller in effectuating any such sale and shall
promptly execute any instrument evidencing the termination of Buyer's right to
acquire the Assets as may be reasonably requested by Seller. Buyer shall also
immediately return to Seller all data and other information (and all copies
thereof) furnished to Buyer by or on behalf of Seller in connection with this
transaction
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12. THE CLOSING. The closing (herein called the "CLOSING") of the transaction
contemplated hereby shall take place in the offices of Seller, in Dallas, Texas,
on April 24, 1998, at 10:00 a.m. Central Time, or at such other date and time as
the Buyer and Seller may mutually agree upon, being herein called the "CLOSING
DATE"). At the Closing:
(a) Seller shall:
(i) execute, acknowledge and deliver to Buyer a conveyance of the
Assets, (herein called the "CONVEYANCE"), in the form attached hereto as
Exhibit C (and with Exhibit A hereto being attached thereto), effective as
to runs of oil and deliveries of gas as of 7 o'clock a.m., Central
Standard Time on January 1, 1998 (herein called the "EFFECTIVE DATE"); and
(ii) execute and deliver to Buyer letters in lieu of transfer
orders (or similar documentation), in form acceptable to both parties; and
(iii) deliver to Buyer an affidavit or other certification (as
permitted by such code) that Seller is not a "foreign person" within the
meaning of Section 1445 (or similar provisions) of the Internal Revenue
Code of 1986 as amended; and
(iv) turn over possession of the Assets; and
(v) provide Buyer with Seller's Officer Certificate having the
form and language of Exhibit "D-1", which is attached hereto and made a
part hereof for all purposes. Such certificate shall certify that Seller
has complied with and performed or waived all provisions and conditions
pertaining to Seller, to be performed prior to the Closing.
(b) Buyer shall:
(i) deliver to the Seller, by wire transfer to an account
designated by Seller in a bank located in the United States, an amount
equal to (a) the Purchase Price, less (b) the Deposit, less (or plus, as
the case may be) (c) any adjustments made at Closing under Section 13
hereof; and
(ii) with respect to the Assets operated by Seller, execute and
deliver to Seller appropriate evidence reflecting change of operator as
required by applicable authorities (including, without limitation, Form P-
4 for filing with the Railroad Commission of Texas), and such evidence as
Seller may require that Buyer is qualified with such authorities to
succeed Seller as operator; and
(iii) provide Seller with Buyer's Officer Certificate having the
form and language of Exhibit "D-2" which is attached hereto and made a
part hereof for all purposes. Such Certificate shall certify that Buyer
has complied with and performed or waived all provisions and conditions
pertaining to Buyer, to be performed prior to the Closing.
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Within twenty (20) days after Closing, Seller will deliver to Buyer the
records and other materials described in Section 1(f) above. With respect to
each Asset with respect to which Seller is disbursing proceeds of production
attributable to other parties entitled thereto, (i) Seller shall continue to
collect proceeds of production during the month in which Closing occurs and
shall be responsible for making disbursements, in accordance with its normal
procedures (and at normal times), of such proceeds of production so collected
to the parties entitled to same, with any proceeds of production thereafter
collected by Seller to be promptly forwarded to Buyer (who shall thereafter
account for same to the parties entitled thereto), (ii) Seller shall, as
promptly as possible after Closing, deliver to Buyer (a) a copy of its
"proceeds distribution list" for each such Asset (which proceeds distribution
list shall include the name, address, social security number and applicable
share of proceeds of production for each party to whom Seller is disbursing
proceeds of production with respect to such Asset), (b) a list of all parties
for whom it is holding in suspense proceeds of production, (c) a list of all
parties for whom it is holding any advance payments made by other working
interest owners for operations to be conducted on the Assets, and (d) a check
(which shall be delivered within 30 days after the end of the month in which
Closing occurs) in an amount equal to all suspended funds and advance
payments. Following delivery of the materials referred to in clause (ii),
Buyer shall become responsible for all disbursements of proceeds of production
(including suspense and other disbursements attributable to periods prior to
the Effective Date) and such disbursement activities shall be included in the
matters which Buyer assumes, and indemnifies Seller with respect to, under
Section 14 below. It is understood and agreed that Seller does not represent
or warrant to Buyer the accuracy of the "proceeds distribution lists" so
delivered.
13. CERTAIN ACCOUNTING ADJUSTMENTS.
(a) Appropriate adjustments shall be made between Buyer and Seller so
that (i) all expenses which are incurred in the operation of the Assets before
the Effective Date will be borne by Seller and all proceeds (net of applicable
production, severance, and similar taxes) from sale of oil, gas and/or other
minerals produced therefrom before the Effective Date will be received by
Seller, and (ii) all expenses which are incurred in the ownership and/or
operation of the Assets after the Effective Date will be borne by Buyer and
all proceeds (net of applicable production, severance, and similar taxes) from
the sale of oil, gas and/or other minerals produced therefrom after the
Effective Date will be received by Buyer. It is agreed that, in making such
adjustments: (i) oil which was produced from the Oil and Gas Properties and
which was, on the Effective Date, stored in tanks located on the Oil and Gas
Properties (or located elsewhere but used by Seller to store oil produced from
the Oil and Gas Properties prior to delivery to oil purchasers) and above
pipeline connections shall be deemed to have been produced before the
Effective Date, (ii) ad valorem taxes assessed with respect to a period which
the Effective Date splits, regardless of the basis on which such taxes are
computed, shall be prorated based on the number of days in such period which
fall on each side of the Effective Date (with the day on which the Effective
Date falls being counted in the period after the Effective Date), and shall,
where the current year's taxes are not yet known, be based on the previous
year's taxes, and (iii) no consideration shall be given to the local, state or
federal income tax liabilities of any party.
(b) On or before five (5) days before Closing, Seller shall prepare and
submit to Buyer, in accordance with this Agreement a proposed statement
(herein called the "CLOSING STATEMENT") setting forth the amount by which the
Purchase Price shall be adjusted (either upward or downward) based upon the
adjustments provided in paragraph (a) above and
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otherwise in this Agreement. Not later than two days prior to the Closing
Date, Buyer shall deliver to Seller a written report containing such changes,
if any, which Buyer proposes be made to the Purchase Price Adjustment
Statement. Seller and Buyer shall make every reasonable effort to agree upon a
mutually acceptable Purchase Price prior to Closing, but if the parties fail
to reach such Agreement, Seller's estimation of the adjustments shall be
employed for the purpose of Closing.
(c) As soon as practicable after Closing, but in any event within sixty
(60) days thereafter, Seller shall prepare and submit to Buyer, in accordance
with this Agreement a proposed statement (herein called the "FINAL
STATEMENT"), which shall show the final calculation of the Purchase Price
(herein called the "FINAL SETTLEMENT PRICE"). As soon as possible after
receipt of the Final Statement, but in any event within sixty (60) days after
receipt thereof, Buyer shall deliver to Seller a written report containing the
changes, if any, which Buyer proposes being made to the Final Statement. In
the event no response is made by Buyer within such sixty (60) day period, it
shall be conclusively presumed that Buyer concurs with the Final Statement,
and such Final Statement shall be the basis for the Final Settlement Price. In
the event that Buyer submits a response, the parties shall exercise all
reasonable efforts to agree with respect to the amounts due not later than one
hundred twenty (120) days after the Closing, but in any event prior to August
15, 1998. After agreement upon a Final Settlement Price setting forth the
amount by which the Purchase Price shall be adjusted (either upward or
downward), the amount due shall be paid within five (5) business days
thereafter by the party owing the same in immediately available funds.
14. ASSUMPTION AND INDEMNIFICATION. Buyer shall, on the date of Closing,
agree (and, upon the delivery to Buyer of the Conveyance shall be deemed to have
agreed) (a) to assume, and to timely pay and perform, all duties, obligations
and liabilities relating to the ownership and/or operation of the Assets after
the Effective Date (including, without limitation, those arising under the
contracts and agreements described in Section 1(d) above), and (b) to release,
indemnify and hold the Seller Group harmless from and against any and all
claims, actions, liabilities, losses, damages, costs or expenses (including
court costs and attorneys' fees) of any kind or character arising out of or
otherwise relating to the ownership and/or operation of the Assets after the
Effective Date. In connection with (but not in limitation of) the foregoing, it
is specifically understood and agreed that matters arising out of or otherwise
relating to the ownership and/or operation of the Assets after the Effective
Date shall be deemed to include all matters arising out of the condition of the
Assets on the Effective Date (including, without limitation, within such matters
all obligations to properly plug and abandon, or replug and re-abandon, wells
located on the Assets, to restore the surface of the Assets and to comply with,
or to bring the Assets into compliance with, Applicable Environmental Laws
including all liability and expense for any restoration, clean-up, disposal, or
removal that may be incurred as a result of the existence or discovery of
Hazardous Substances or other deleterious substances in, on, or under the
Assets, regardless of when the events occurred that give rise to such condition,
and the assumptions, and indemnifications by Buyer set forth in this Section
shall expressly cover and include such matters. THE ASSUMPTIONS AND
INDEMNIFICATIONS SET FORTH IN THIS SECTION SHALL APPLY WHETHER OR NOT SUCH
DUTIES, OBLIGATIONS, OR LIABILITIES, OR SUCH CLAIMS, ACTIONS, CAUSES OF ACTION,
LIABILITIES, DAMAGES, LOSSES, COSTS, OR EXPENSES ARISE OUT OF (i) NEGLIGENCE
(INCLUDING CONCURRENT NEGLIGENCE, ACTIVE OR PASSIVE NEGLIGENCE, BUT EXPRESSLY
NOT INCLUDING SOLE NEGLIGENCE, GROSS NEGLIGENCE OR WILLFUL MISCONDUCT) OF SELLER
OR ANY OTHER INDEMNIFIED PARTY, OR (ii) STRICT LIABILITY.
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15. DISCLAIMER OF WARRANTIES. THE EXPRESS REPRESENTATIONS AND WARRANTIES OF
SELLER CONTAINED IN SECTION 3. (OR IN THE CONVEYANCE EXECUTED PURSUANT TO THIS
AGREEMENT) ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER REPRESENTATIONS AND
WARRANTIES, EXPRESS, IMPLIED, STATUTORY, OR OTHERWISE, AND SELLER EXPRESSLY
DISCLAIMS ANY AND ALL SUCH OTHER REPRESENTATIONS AND WARRANTIES. WITHOUT
LIMITATION OF THE FOREGOING, THE ASSETS SHALL BE CONVEYED PURSUANT HERETO
WITHOUT ANY WARRANTY OR REPRESENTATION, WHETHER EXPRESS, IMPLIED, STATUTORY, OR
OTHERWISE RELATING TO THE CONDITION, QUANTITY, QUALITY, FITNESS FOR A PARTICULAR
PURPOSE, CONFORMITY TO THE MODELS OR SAMPLES OF MATERIALS, OR MERCHANTABILITY OF
ANY EQUIPMENT OR ITS FITNESS FOR ANY PURPOSE, AND, EXCEPT AS PROVIDED OTHERWISE
IN THE FIRST SENTENCE OF THIS PARAGRAPH, WITHOUT ANY OTHER EXPRESS, IMPLIED,
STATUTORY, OR OTHER WARRANTY OR REPRESENTATION WHATSOEVER. BUYER SHALL HAVE
INSPECTED, OR WAIVED (AND UPON CLOSING SHALL BE DEEMED TO HAVE WAIVED) ITS RIGHT
TO INSPECT THE ASSETS FOR ALL PURPOSES AND SATISFIED ITSELF AS TO THEIR PHYSICAL
AND ENVIRONMENTAL CONDITION, BOTH SURFACE AND SUBSURFACE, INCLUDING, BUT NOT
LIMITED TO, CONDITIONS SPECIFICALLY RELATED TO THE PRESENCE, RELEASE, OR
DISPOSAL OF HAZARDOUS SUBSTANCES, SOLID WASTES, ASBESTOS OR OTHER MANMADE FIBERS
OR NATURALLY OCCURRING RADIOACTIVE MATERIALS ("NORM") IN, ON, OR UNDER THE
ASSETS. BUYER IS RELYING SOLELY UPON ITS OWN INSPECTION OF THE ASSETS, AND
BUYER SHALL, EXCEPT AS PROVIDED OTHERWISE HEREIN, ACCEPT ALL OF THE SAME "AS IS,
WHERE IS". WITHOUT LIMITATION OF THE FOREGOING, SELLER MAKES NO WARRANTY OR
REPRESENTATION, EXPRESS, IMPLIED, STATUTORY, OR OTHERWISE, AS TO THE ACCURACY OR
COMPLETENESS OF ANY DATA REPORTS, RECORDS, PROJECTIONS, INFORMATION, OR
MATERIALS NOW HERETOFORE, OR HEREAFTER FURNISHED OR MADE AVAILABLE TO BUYER IN
CONNECTION WITH THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION PRICING
ASSUMPTIONS OR QUALITY OR QUANTITY OF HYDROCARBON RESERVES (IF ANY) ATTRIBUTABLE
TO THE ASSETS OR THE ABILITY OR POTENTIAL OF THE ASSETS TO PRODUCE HYDROCARBONS
OR THE ENVIRONMENTAL CONDITION OF THE ASSETS OR ANY OTHER MATERIALS FURNISHED OR
MADE AVAILABLE TO BUYER BY SELLER OR BY SELLER'S AGENTS OR REPRESENTATIVES. ANY
AND ALL SUCH DATA, RECORDS, REPORTS, PROJECTIONS, INFORMATION, AND OTHER
MATERIALS (WRITTEN OR ORAL) FURNISHED BY SELLER OR OTHERWISE MADE AVAILABLE OR
DISCLOSED TO BUYER ARE PROVIDED TO BUYER AS A CONVENIENCE AND SHALL NOT CREATE
OR GIVE RISE TO ANY LIABILITY OF OR AGAINST SELLER, AND ANY RELIANCE ON OR USE
OF THE SAME SHALL BE AT BUYER'S SOLE RISK TO THE MAXIMUM EXTENT PERMITTED BY
LAW.
16. COMMISSIONS. Seller agrees to indemnify and hold harmless Buyer from and
against any and all claims, obligations, actions, liabilities, losses, damages,
costs or expenses (including court costs and attorneys fees) of any kind or
character arising out of or resulting from any agreement, arrangement or
understanding alleged to have been made by, or on behalf of, Seller with any
broker or finder in connection with this Agreement or the transaction
contemplated hereby. Buyer agrees to indemnify and hold harmless Seller from
and against any and all claims, obligations, actions, liabilities, losses,
damages, costs or expenses (including court costs and attorneys fees) of any
kind or character arising out of or resulting from any agreement, arrangement or
understanding alleged to have been made
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by, or on behalf of, Buyer with any broker or finder in connection with this
Agreement or the transaction contemplated hereby.
17. CASUALTY LOSS. In the event of damage by fire or other casualty to the
Assets prior to the Closing, then this Agreement shall remain in full force and
effect, and (unless Buyer and Seller shall otherwise agree) in such event:
(a) as to each such Asset so damaged which is an Oil and Gas Property,
then, at Buyer's election, either (i) such Asset shall be treated as if it had
an Asserted Defect associated with it and the procedure provided for in
Section 6 shall be applicable thereto, or (ii) the Purchase Price will not be
adjusted, and if Seller should be entitled to make any claims under any
insurance policy with respect to such damage, Seller shall, at Seller's
election, either collect (and when collected pay over to Buyer), or assign to
Buyer, such claims; and
(b) as to each such Asset which is other than an Oil and Gas Property,
Seller shall, at Seller's election, either collect for (and when collected pay
over to Buyer), or assign to Buyer, any and all insurance claims relating to
such loss, and Buyer shall take title to the Asset affected by such loss
without reduction of the Purchase Price.
18. NOTICES. All notices and other communications required under this
Agreement shall (unless otherwise specifically provided herein) be in writing
and be delivered personally, by recognized commercial courier or delivery
service (which provides a receipt), by telex or telecopier (with receipt
acknowledged), during normal business hours or by registered or certified mail
(postage prepaid), at the following addresses:
If to Seller: EEX Corporation
EEX Operating L.P.
4849 Greenville Avenue
Suite 1200
Dallas, Texas 75206
Attention: Ms. Leslie Wylie
Fax: (214) 987-6682
If to Buyer: Cross Timbers Oil Company
810 Houston St.
Suite 2000
Fort Worth, Texas 76102
Attention: Mr. Vaughn O. Vennerberg, II
Fax: (817) 882-7224
and shall be considered delivered on the date of receipt. Either Buyer or
Seller may specify as its proper address any other post office address within
the continental limits of the United States by giving notice to the other party,
in the manner provided in this Section, at least ten (10) days prior to the
effective date of such change of address.
19. SURVIVAL OF PROVISIONS. The obligations covered by the representations
made herein by Seller in Section 3 and by Buyer in Section 4 shall be true and
correct on the Closing Date and shall thereafter terminate two (2) years after
the Closing Date. The obligations of the parties under Section 6
16
<PAGE>
(to the extent the same are, by mutual agreement, not performed at Closing), and
Sections 13, 14, 15, 16, 18, and 21 shall survive the Closing and the delivery
of the Conveyance.
20. OPERATIONS. Subject to the terms and provisions of any existing
agreements covering the Assets, Seller agrees to turn over to Buyer, at Closing,
the operations of those Assets for which it is currently serving as operator.
Seller shall take all reasonable actions necessary to cause Buyer to become
operator as contemplated herein.
21. MISCELLANEOUS MATTERS.
(a) After the Closing, Seller and Buyer shall execute and deliver, and
shall otherwise cause to be executed and delivered, from time to time, such
further instruments, notices, division orders, transfer orders and other
documents, and do such other and further acts as reasonably may be necessary
to more fully and effectively grant, convey and assign the Assets to Buyer.
(b) Except as provided in the following sentence, neither party shall
have the right to assign its rights under this Agreement and any such
assignment in violation of this provision shall be void. Without Buyer's
consent, Seller may assign its rights under this Agreement to a direct or
indirect parent of Seller, to a direct or indirect subsidiary of Seller, or to
an entity that is a direct or indirect subsidiary of a direct or indirect
parent of Seller.
(c) No waiver of any provision of this Agreement shall be deemed or shall
constitute a waiver of any provision of this Agreement (whether or not
similar), nor shall such waiver constitute a continuing waiver unless
otherwise expressly provided.
(d) To the extent applicable to the transaction contemplated hereby, or
any portion thereof, Buyer waives the provisions of the Texas Deceptive Trade
Practices Act, Chapter 17, Subchapter E, Sections 17.41 through 17.63,
inclusive (other than Section 17.555 which is not waived), Texas Business and
Commerce Code. In connection with such waiver, Buyer hereby represents and
warrants to Seller that Buyer (a) is in the business of seeking or acquiring,
by purchase or lease, goods, or services, for commercial or business use, (b)
has assets of Five Million and No/100 Dollars ($5,000,000.00) or more
according to its most recent financial statement, (c) has knowledge and
experience in financial and business matters that enable it to evaluate the
merits and risks of the transaction contemplated hereby and (d) is not in a
significantly disparate bargaining position.
(e) In connection with Buyer's evaluation of the Assets, Seller shall
disclose to Buyer certain confidential information, which is proprietary, and
includes, but is not necessarily limited to, geological and geophysical data;
maps, models, and interpretations; and commercial, contractual, and financial
information. All such data disclosed by Seller to Buyer shall hereinafter be
referred to as the "CONFIDENTIAL INFORMATION". If, for any reason the Closing
does not occur, Buyer agrees that the Confidential Information shall be kept
strictly confidential and shall not be sold, traded, published, or otherwise
disclosed to anyone in any manner whatsoever, including by means of photocopy
or reproduction, without Seller's prior written consent, except as provided in
Sections 21.e(i), 21.e(ii), and 21.e.(iii) below.
(i) Buyer may disclose the Confidential Information without
Seller's prior written consent only to the extent such information:
17
<PAGE>
(a) is already known to Buyer as of the date of disclosure
hereunder;
(b) is already in possession of the public or becomes
available to the public other than through the act or omission of
Buyer;
(c) is required to be disclosed under applicable law or by a
governmental order, decree, regulation, or rule (provided that Buyer
shall give written notice to Seller prior to such disclosure); or
(d) is acquired independently from a third party that has the
right to disseminate such information at the time it is acquired by
Buyer.
(ii) Buyer may disclose the Confidential Information without
Seller's prior written consent to an Affiliated Company (as hereinafter
defined), provided that Buyer guarantees the adherence of such Affiliated
Company to the terms of this Agreement. "AFFILIATED COMPANY" shall mean
any company or legal entity that (a) controls either directly or
indirectly a party, or (b) that is controlled directly or indirectly by
such party, or (c) is directly or indirectly controlled by a company or
entity that directly or indirectly controls such party. "CONTROL" means
the right to exercise fifty percent (50%) or more of the voting rights in
the appointment of the directors of such company.
(iii) Buyer shall be entitled to disclose the Confidential
Information without Seller's prior written consent to such of the
following persons who have a clear need to know in order to evaluate
Seller's petroleum exploration and production rights:
(a) employees, officers, and directors of Buyer;
(b) employees, officers, and directors of an Affiliated
Company;
(c) any professional consultant or agent retained by Buyer
for the purpose of evaluating the Confidential Information.
(iv) Prior to making any such disclosures to persons under
subparagraph 21.e.(iii)(c) above, however, Buyer shall obtain an
undertaking of confidentiality, in the same form and content as this
Agreement, from each such person.
(v) Buyer and its Affiliated Companies, if any, shall use, or
permit the use of the Confidential Information disclosed under Section
21.(e)(ii) or 21.(e)(iii) above, only to evaluate petroleum exploration
and production rights held by Seller.
(vi) Buyer shall be responsible for ensuring that all persons to
whom the Confidential Information is disclosed under this Agreement shall
keep such information confidential and shall not disclose or divulge the
same to any unauthorized person. Neither party shall be liable in an
action initiated by one against the other for special, indirect, or
consequential damages resulting from or arising out of this Agreement,
including, without limitation, loss of profit or business interruptions,
however same may be caused.
18
<PAGE>
(vii) The Confidential Information shall remain the property of
Seller, and Seller may demand the return thereof at any time upon giving
written notice to Buyer. Within ten (10) days of receipt of such notice,
Buyer shall return all of the original Confidential Information and shall
destroy all copies and reproductions (both written and electronic) in its
possession and in the possession of persons to whom it was disclosed
pursuant to Sections 21.(e)(ii) and 21.(e)(iii) hereof.
(viii) The term of this Section 21.(e) and the rights and obligations
created hereunder shall commence upon the date hereof and shall continue
for a period of two (2) years thereafter.
(ix) Seller makes no representations or warranties, express or
implied, as to the quality, accuracy, and completeness of the Confidential
Information disclosed hereunder. Seller and its Affiliated Companies, and
their officers, directors, employees, shall have no liability whatsoever
with respect to the use of or reliance upon the Confidential Information
by Buyer.
(f) This Agreement and that certain Confidentiality Agreement dated
February 10, 1998 between Seller and Buyer contain the entire understanding of
the parties hereto with respect to the subject matter hereof and supersede all
prior agreements, understandings, negotiations, and discussions among the
parties with respect to such subject matter between Seller and Buyer. The
headings contained in this Agreement are for convenience only and shall not
control or affect the meaning or construction of any provision of this
Agreement. Within this Agreement, words of any gender shall be held and
construed to cover any other gender, and words in the singular shall be held
and construed to cover the plural, unless the context otherwise requires. Time
is of the essence in this Agreement.
(g) This Agreement may be amended, modified, supplemented, restated, or
discharged (and provisions hereof may be waived) only by an instrument in
writing signed by the party against whom enforcement of the amendment,
modification, supplement, restatement, or discharge (or waiver) is sought.
(h) Each party shall bear and pay all expenses it incurred in connection
with the transaction contemplated by this Agreement.
(i) This Agreement shall be binding on the parties hereto and their
respective successors and assigns.
(j) This Agreement shall not confer any rights or remedies upon any
person other than Seller and Buyer and their respective successors and
permitted assigns.
(k) All production from oil and gas wells, and all proceeds from the sale
thereof, including proceeds from the sale of any oil in storage above the
pipeline connection, and any accounts receivable balances, funds held in
suspense or escrow, any of which are attributable to production prior to the
Effective Date, shall be the property of Seller. All production from oil and
gas wells, and all proceeds from the sale thereof attributable to production
after the Effective Date shall be the property of Buyer.
19
<PAGE>
(l) This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which shall constitute one and
the same instrument. It shall not be necessary for both parties to sign the
same counterpart.
(m) Buyer shall properly execute, acknowledge and file the Conveyance for
record immediately upon receipt thereof and will furnish to Seller a copy of
the recorded document promptly after Buyer's receipt of such recorded
instrument from the clerk in the county or parish in which the Conveyance is
recorded. In addition, where applicable, Buyer shall execute any forms
required to effect a change of operator for all wells conveyed herein.
(n) Pursuant to the Federal Arbitration Act, the parties hereby agree
that any controversy, claim, or alleged breach, including but not limited to
torts and statutory claims, arising out of or related to this Agreement shall
be settled by binding arbitration administered by the American Arbitration
Association ("AAA") in accordance with its Commercial Arbitration Rules.
Demand for arbitration may be made no later than the time that such action
would be permitted under the applicable Texas statute of limitation. Any
disputes regarding the timeliness of the demand for arbitration shall be
decided by the arbitrator(s). Judgment upon the award rendered by the
arbitrator(s) may be entered in any Court having jurisdiction thereof in order
to obtain compliance therewith. Any case in which any claim, or combination of
claims, exceeds $500,000.00 shall be subject to the AAA's Large, Complex Case
Procedures and decided by the majority of a panel of three (3) neutral
arbitrators. In rendering the award, the arbitrator's shall determine the
rights and obligations of the parties according to the laws of the State of
Texas. The arbitration proceedings and hearings shall be conducted at the
Houston Regional Office of the AAA or at such other place as may be selected
by mutual agreement. No party nor the arbitrator(s) may disclose the
existence, content, or results of any arbitration hereunder without the prior
written consent of all parties.
(o) Prior to and subsequent to Closing, Buyer shall not issue any
publicity or press release concerning this Agreement or the transaction
contemplated hereby without the prior written consent of Seller, unless, in
the written opinion of legal counsel acceptable to Seller, such disclosure is
required by applicable law or other applicable rules or regulations of any
governmental authority or stock exchange and such publicity or press release
contains no more than the minimum information necessary to comply therewith.
This provision shall not replace or restrict any provision in any prior
agreement between the parties affecting confidentiality or the disclosure of
information about the Assets.
IN WITNESS WHEREOF, this Agreement is executed by the parties hereto on the
date set forth above.
SELLER: BUYER:
EEX CORPORATION CROSS TIMBERS OIL COMPANY
By: /s/ C. L. ELSEY By: /s/ BOB R. SIMPSON
------------------------------------- -----------------------------------
Name: C. L. Elsey Name: Bob R. Simpson
Title: Attorney-In-Fact Title: Chairman
20
<PAGE>
EEX OPERATING L.P.
By: EEX CORPORATION
GENERAL PARTNER
By: /s/ C. L. ELSEY
-------------------------------------
Name: C. L. Elsey
Title: Attorney-In-Fact
21
<PAGE>
ACKNOWLEDGEMENTS
----------------
STATE OF TEXAS (S)
(S)
COUNTY OF TARRANT (S)
This instrument was acknowledged before me, Notary Public, this 16th day of
February, 1998, by C. L. Elsey, Attorney-In-Fact of EEX CORPORATION, GENERAL
PARTNER FOR EEX OPERATING L.P., a Texas limited liability partnership, on behalf
of the partnership.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
[NOTARY KIM FIELDS RHOADS /s/ KIM FIELDS RHOADS
SEAL NOTARY PUBLIC -----------------------------------------------
APPEARS STATE OF TEXAS Notary Public
HERE]
My commission expires:
11/13/99
- --------------------
STATE OF TEXAS (S)
(S)
COUNTY OF TARRANT (S)
This instrument was acknowledged before me, Notary Public, this 16th day of
February, 1998, by C. L. Elsey, Attorney-In-Fact of EEX CORPORATION, a Texas
corporation, on behalf of the corporation.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
[NOTARY KIM FIELDS RHOADS /s/ KIM FIELDS RHOADS
SEAL NOTARY PUBLIC -----------------------------------------------
APPEARS STATE OF TEXAS Notary Public
HERE]
My commission expires:
11/13/99
- --------------------
22
<PAGE>
STATE OF TEXAS (S)
(S)
COUNTY OF TARRANT (S)
This instrument was acknowledged before me, Notary Public, this 16 day of
February, 1998, by Bob R. Simpson, Chairman of Cross Timbers Oil Company, a
Delaware corporation, on behalf of the corporation.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
[NOTARY KIM FIELDS RHOADS /s/ KIM FIELDS RHOADS
SEAL NOTARY PUBLIC -----------------------------------------------
APPEARS STATE OF TEXAS Notary Public
HERE]
My commission expires:
11/13/99
- --------------------
23
<PAGE>
EXHIBIT 10.10
EXPLORATION AND PARTICIPATION AGREEMENT
BY AND BETWEEN
ENSERCH EXPLORATION, INC.
AND
ENTERPRISE OIL GULF OF MEXICO INC.
Dated June 30, 1997
<PAGE>
EXPLORATION AND PARTICIPATION AGREEMENT
This Exploration and Participation Agreement (this "Agreement") dated as of
June 30, 1997, by and between ENSERCH EXPLORATION, INC., a Texas corporation and
ENTERPRISE OIL GULF OF MEXICO INC., a Delaware corporation ("Enterprise").
Enserch and Enterprise are sometimes hereinafter referred to individually as a
"Party" and collectively as the "Parties".
WHEREAS, Enserch owns the Leases (as defined below) and related rights and
interests; and
WHEREAS, Enserch desires to convey to Enterprise, and Enterprise desires to
acquire from Ensercb, an undivided fifty percent (50%) of Enserch's entire
interests in and to such Leases and related rights and interests on the terms
and conditions set forth herein; and
WHEREAS, Enterprise desires to participate with Enserch in the drilling of
certain wells on the Leases on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
made herein, the Parties, intending to be legally bound, hereby agree as
follows:
ARTICLE I
DEFINED TERMS
Section 1.1 DEFINITIONS. The defined terms used in this Agreement shall,
unless the context otherwise requires, have the meanings specified in this
Article I, with each such definition being equally applicable both to the
singular and the plural forms of the terms so defined.
(a) "Acquisition Costs" means, with respect to any Lease, all costs
associated with the acquisition of such Lease, including costs of title
examination associated with such acquisition.
(b) "Action" means any action, claim, suit, arbitration, inquiry,
proceeding, investigation or audit by or before any court or any
Governmental Authority.
(c) "Affiliate" means, when used with respect to any party, any other
Person (a) which directly or indirectly through one or more intermediaries
controls, or is controlled by, or is under common control with, such party,
or (1)) which beneficially owns or holds more than 50% of any class of
voting stock (or in the case of a Person which is not a corporation, more
than 50% of any class of equity interest) of such party, or (c) more than
50% of any class of whose voting stock (or in the case of a Person which is
not a corporation, more than 50% of any class of whose equity interest) is
beneficially owned or held by such party and its Affiliates. The term
"control" (including the terms "controlled by" and "under common control
with") means the possession, directly or indirectly, of the power to direct
or cause the direction of the management or policies of a
<PAGE>
Person, whether through the ownership of voting stock or any equity
interest, by contract or otherwise.
(d) "Agreed Rate" means a per annum interest rate equal to the lesser
of (i) the U.S. Treasury three month discount rate plus 2% in effect on the
first day of the month for each month during which interest is accruing or
(il) the maximum rate of interest allowed by applicable Law.
(e) "Agreement" means this Exploration and Participation Agreement,
as the same may from time to time be amended in writing by Enserch and
Enterprise.
(f) "Appraisal Drilling" means the drilling of one or more wells
whose purpose at the time of commencement of drilling such well or wells is
the determination of the extent or the volume of Hydrocarbon reserves
contained in an existing Discovery. For the avoidance of doubt, the term
"Appraisal Drilling" shall not include the drilling of Development Wells.
(g) "Appraisal Drilling Costs" means Drilling Costs associated with
Appraisal Drilling.
(h) "Assignments" shall be as defined in Section 6.3.
(i) "Business Day" means any day which is not a Saturday, Sunday or
legal holiday recognized by the United States of America or England.
(j) "Casing Point" means that point in time at which a well has
reached its objective depth, all originally planned and authorized open
hole evaluations have been performed, and the next course of action is
decided pursuant to the priority of operations provisions contained in the
applicable Operating Agreement.
(k) "Closing" means the consummation of the transactions contemplated
by Article VIII.
(l) "Closing Date" means August 11, 1997, or such other date as may
be mutually agreed to by Enserch and Enterprise.
(m) "Code" shall be as defined in Section 4.1(b).
(n) "Covered Liabilities" means any and all debts, losses,
liabilities, duties, claims, damages, obligations, payments (including,
without limitation, those arising out of any demand, assessment,
settlement, judgment or compromise relating to any actual or threatened
Action), taxes, costs and expenses (including, without limitation, any
attorneys' fees and any and all expenses whatsoever incurred in
investigating, preparing or defending any Action), matured or unmatured,
absolute or contingent3 accrued or unaccrued, liquidated or unliquidated,
known or unknown, including, without limitation, any of the foregoing
arising under, out of or in connection with any Action, any order or
consent decree of any Governmental Authority, any award of any arbitrator,
or any Law, contract, commitment or undertaking.
<PAGE>
(o) "Development" means the development of a Discovery for the
production of Hydrocarbons pursuant to an applicable Operating Agreement.
(p) "Development Costs" means, when used with respect to any
Development, all costs associated with such Development, including the
costs associated with the drilling, testing, completing and equipping of
one or more Development Wells and constructing and installing production
systems and facilities for the production of Hydrocarbons from the relevant
Discovery. "Development Costs" shall not include (i) the costs of drilling
Exploratory Wells or any Appraisal Drilling, (ii) any Acquisition Costs,
G&G Costs or Lease Maintenance Costs or (iii) any claims or liabilities
attributable to any casualty, injury, death or other damage arising from or
attributable to any drilling or other activities giving rise to Development
Costs. Liability for any claims or liabilities referred to in clause (jii)
of the preceding sentence shall be shared by the Parties in accordance with
their interests in such wells and governed by the provisions of the
applicable Operating Agreement, except in the case of sole risk wells which
shall be borne by the Party and any third parties who participate in such
well as provided in the applicable Operating Agreement.
(q) "Development Well" means a well drilled pursuant to an applicable
Operating Agreement to develop an existing Discovery for the production of
Hydrocarbons. For the avoidance of doubt, the term "Development Well" shall
not include an Exploratory Well or a well drilled for the purpose (at the
time of commencement of drilling) of determining the extent or the volume
of Hydrocarbon reserves contained in an existing Discovery.
(r) "Discovery" means the discovery after Closing of an accumulation
of Hydrocarbons in the Subject Lands, which is separated from and not in
oil or gas pressure communication with any other such accumulation, whose
existence until that moment was unknown and into which a well capable of
producing Hydrocarbons in paying quantities (as determined by applicable
order issued by appropriate Governmental Authority) has been drilled.
(s) "Drilling Costs" means all costs associated with the examination
of title to any drillsite or any proration unit formed in connection
therewith, settlement of surface damages, construction of location,
platform slot rental fees, permitting a well, drilling and logging such
well prior to Casing Point and the plugging and abandonment costs in the
event of a dry hole. "Drilling Costs" shall not include (i) the costs of
testing any well or attempting to complete any well as a producer or
equipping any well, (ii) any Acquisition Costs, G&G Costs or Lease
Maintenance Costs, or (iii) any claims or liabilities attributable to any
casualty, injury, death or other damage arising from or attributable to any
drilling or other operations or activities giving rise to Drilling Costs.
Liability for any claims or liabilities referred to in clause (iii) of the
preceding sentence shall be shared by the Parties in accordance with their
interests in such wells and governed by the provisions of the applicable
Operating Agreement, except in the case of sole risk wells which shall be
borne by the Party and any third parties who participate in such well as
provided in the applicable Operating Agreement.
<PAGE>
(t) "Drilling Rig Contracts" means (i) that certain Domestic Daywork
Drilling Contract-Offshore dated December 12, 1994, by and between EP
Operating Limited Partnership and Diamond Offshore Company, as amended by
agreements dated May23, 1996, December 6, 1998, March 17, 1997 and March27,
1996, and (ii) that certain Offshore Drilling Contract dated February 13
1998, by and between Enserch and Reading & Bates Drilling Co., as amended
by agreements dated July 16, 1995, January 31, 1996, August 14, 1996, and
August 26, 1996.
(u) "Drilling Rigs" means the Diamond Ocean Voyager and the Reading &
Bates Rig 41, as more particularly described in the Drilling Rig Contracts.
(v) "Enserch's Interest" means, when used with respect to any Lease
or Unit Area, the following:
(i) A Working Interest and a Net Revenue Interest in such Lease
or Unit Area which are equal to the respective Working Interest and
Net Revenue Interest in such Lease or Unit Area as set forth in
Exhibit "A" hereto; and
(ii) the above stipulated Working Interest and Net Revenue
Interest in such Lease or Unit Area, free and clear of all Liens other
than the Liens disclosed in Exhibit "A" hereto and any Permitted
Defects.
(w) "Enserch's Participating Interest" means, when used with respect
to any Lease or Unit Area, the undivided fifty percent (50%) interest in
Enserch's Interest in such Lease or Unit Area that is retained by Enserch
and is not included in the conveyance provided for in Article II of this
Agreement. For the avoidance of doubt, the term "Enserch's Participating
Interest" as used in this Agreement shall not include any interest in such
Lease or Unit Area acquired by Enserch as a result of a non-consent
election by a non-participating party in respect of a non-consent operation
on such Lease or Unit Area under an applicable Operating Agreement.
(x) "Exploratory Well" means a well drilled pursuant to an applicable
Operating Agreement for the purpose (at the time of commencement of
drilling) of making a Discovery. For the avoidance of doubt, the term
"Exploratory Well" shall not include a Development Well or a well drilled
for the purpose (at the time of commencement of drilling) of determining
the extent or the volume of Hydrocarbon reserves contained in an existing
Discovery.
(y) "First Development" means the Development of the first Discovery
following the Closing Date.
(z) "G&G Costs" means all costs of licensing or acquiring (including
seismic permitting) and processing and modelling of geological and
geophysical data and information.
(aa) "Governmental Authority" means:
(i) the United States of America,
<PAGE>
(ii) any state, county, municipality or other governmental
subdivision within the United States of America, and
(iii) any court or any governmental department, commission,
board, bureau, agency or other instrumentality of the United States of
America or of any state, county, parish, municipality or other
governmental subdivision within the United States of America.
(bb) "Hydrocarbons" means (a) crude oil, natural gas and other liquid
or gaseous hydrocarbons and (b) all minerals and substances produced with
or extracted, separated, processed or produced from crude oil, natural gas
or other liquid or gaseous hydrocarbons.
(cc) "Hydrocarbon Interest" means any right, title or interest in, to
or under any oil, gas and/or Hydrocarbon lease, leasehold interest, mineral
fee interest, mineral servitude, royalty interest, overriding royalty
interest, production payment, net profits interest and any other right,
title or interest evidencing or creating a right or interest in, or any
right to produce or receive the proceeds of production of; any Hydrocarbons
in place and located in the Outer Continental Shelf; Gulf of Mexico,
including interests therein pursuant to any participation, joint venture,
farm-in, farm-out, operating or other agreement and all rights and
interests attributable or allocable thereto by virtue of any pooling,
unitization, communitization, production sharing or similar agreement,
order or declaration.
(dd) "Indemnified Parties" shall be as defined in Section 11.5.
(ee) "Law" means all applicable statutes, laws, ordinances,
regulations, rules, rulings, orders, decrees or other official acts of any
Governmental Authority.
(ff) "Lease Maintenance Costs" means royalties, minimum royalties,
lease rental payments, shut-in payments or other similar payments necessary
to maintain any Lease in full force and effect.
(gg) "Leases" means the oil and gas leases described in Exhibit "A"
attached hereto and made a part hereof, insofar and only insofar as such
leases cover areas and depths which are not expressly excluded in Exhibit
"A".
(hh) "Lien" means any lien, mortgage, charge, penalty, restriction,
security interest, collateral assignment, pledge, sale or purchase
contract, option, call or dedication, right of first refusal or other
preferential purchase right, reservation, condition, sublease, license,
area of mutual interest agreement, operating agreement, processing
contract, farmout or development agreement, drilling or service contract,
easement or right-of-way, pooling or unitization order or agreement, or
other encumbrance or agreement.
(ii) "MMS" means the United States Minerals Management Service.
(jj) "Net Revenue Interest" means, with respect to any Lease or Unit
Area, an interest (expressed as a percentage or decimal fraction) in and to
all Hydrocarbons
<PAGE>
produced and saved from or attributable to the Subject Lands covered by
such Lease or including in such Unit Area, after giving effect to all
royalties, overriding royalties and other burdens upon, measured by, or
payable out of production therefrom.
(kk) "Operating Agreement" means either (i) an Offshore Joint
Operating Agreement between Enserch and Enterprise covering Subject Lands
situated in the Outer Continental Shelf, Gulf of Mexico, substantially in
the form attached hereto as Exhibit "C", covering, as may be agreed to by
the Parties, an individual block or multiple blocks, or (ii) an existing
third party operating agreement as provided in Section 9.1.
(ll) "Party" shall be as defined in the preamble of this Agreement.
(mm) "Payment Amount" shall be as defined in Section 3.1.
(nn) "Permits" means all permits, licenses, consents, approvals and
filings which the lessee under the Leases is required to obtain, have or
make pursuant to any Law or with or from any Governmental Authority to
permit or allow such lessee to conduct any exploration, development,
production, processing, abandonment or other operations or activities with
respect to the Leases or the Subject Lands.
(oo) "Permitted Defect" means, when used with respect to any Lease, a
Lien or title defect (i) which was not created by, through or under Enserch
or an Affiliate of Enserch, (ii) which does not inure to the benefit of
Enserch or an Affiliate of Enserch, and (iii) the existence of which does
not impair the value of Enterprise's interest in such Lease in any material
respect, or interfere materially or have a material adverse economic effect
on the exploration, development, operation or use thereof, or otherwise
have any material adverse effect thereon.
(pp) "Person" means any individual, firm, corporation, partnership,
joint venture, trust, unincorporated organization, Governmental Authority,
or other entity or organization.
(qq) "Preference Property" shall be as defined in Section 5.1(a).
(rr) "Preference Right" shall mean any right or agreement that enables
or may enable any Person to purchase or acquire any Subject Interest or any
interest therein or portion thereof as a result of or in connection with
(i) the sale, assignment, encumbrance or other transfer of any Subject
Interest or any interest therein or portion thereof or (ii) the execution
or delivery of this Agreement or any Assignment or the consummation or
performance of the terms and conditions contemplated by this Agreement or
any Assignment.
(ss) "Second Development" means the Development of the second
Discovery following the Closing Date.
(tt) "Subject Interests" means an undivided fifty percent (50%)
interest in and to (i) Enserch's Interest in the Leases and (ii) Enserch's
right, title and interest in and to those certain easements, rights-of-way,
licenses, permits and other contracts and agreements described in Exhibit
"A" hereto.
<PAGE>
(uu) "Subject Lands" means (i) the lands covered by the Leases to the
extent such lands (or portion thereof) are not expressly excluded in
Exhibit "A" attached hereto and (ii) all lands now or hereafter pooled or
unitized with the lands described in clause (i) above or with portions
thereof.
(vv) "Third Party Liabilities" means any Covered Liabilities to the
extent the same arise out of or result from any claim, demand or cause of
action (or threatened cause of action) which is at any time made, asserted
or threatened against an Indemnified Party by a Person which is not
Enterprise or an Affiliate of Enterprise.
(ww) "Unit Areas" means the unit areas known as Cooper (Garden Banks
388), Allegheny (Green Canyon 254) and Mississippi Canyon 441, and being
the unit areas covered, respectively, by (i) Offshore Unit Operating
Agreement (Garden Banks 388 Unit) dated effective April 12, 1995, by and
between Enserch, as Operator, and Mobil Producing Texas & New Mexico Inc.,
as Non-Operator, as amended, (ii) Operating Agreement (Allegheny Area,
Green Canyon 254 et al) dated effective May 1, 1995, by and among Enserch,
Reading and Bates Development Co., Mobil Oil Corporation and Mobil Oil
Exploration & Producing Southeast Inc., as amended, and (iii) Offshore Unit
Operating Agreement (Lentic Reservoir Unit - Mississippi Canyon 441, 485)
dated October 1, 1989, by and among EP Operating Limited Partnership,
Petrofina Delaware, Incorporated and Agip Petroleum Co. Inc., as such
Agreements are more particularly described in Exhibit "A" hereto.
(xx) "Working Interest" means, with respect to any Lease or Unit Area,
an interest (expressed as a percentage or decimal fraction) in and to such
Lease or Unit Area and all rights and obligations of every kind and
character appurtenant thereto, or arising therefrom, without regard to any
royalties, overriding royalties or other encumbrances or charges against
production therefrom, insofar as such interest is burdened with the
obligations to bear and pay costs and expenses attributable to the
maintenance, development and operation of the Subject Lands covered by such
Lease or included in such Unit Area.
Section 1.2 REFERENCES, GENDER, NUMBER. All references in this Agreement
to an "Article," "Section," or "subsection" shall be to an Article, Section or
subsection of this Agreement, unless the context requires otherwise. Unless the
context otherwise requires, the words "this Agreement," "hereof," "hereunder,"
"herein," "hereby," or words of similar import shall refer to this Agreement as
a whole and not to a particular Article, Section, subsection, clause or other
subdivision hereof. Whenever the context requires, the words used herein shall
include the masculine, feminine and neuter gender, and the singular and the
plural. The word "including" means "including without limitation.
ARTICLE II
AGREEMENT TO CONVEY
Subject to the terms and conditions of this Agreement, Enserch agrees to
assign and convey to Enterprise3 and Enterprise agrees to acquire from Enserch,
the Subject Interests.
<PAGE>
ARTICLE III
CONSIDERATION AND PAYMENT
Section 3.1 CONSIDERATION. The consideration for the assignment and
conveyance of the Subject Interests is $65,000,000.00 (the "Payment Amount"),
which shall be satisfied by Enterprise paying for certain Drilling Costs
attributable to Enserch's Participating Interest in Leases and Unit Areas as
provided in Section 3.2.
Section 3.2 PAYMENT. If the Closing occurs, Enterprise shall pay the
Payment Amount to Enserch in installments, without any interest thereon, as
follows:
(a) Following each billing by the operator to the participating
parties under each applicable Operating Agreement for such parties'
respective shares of the aggregate Drilling Costs associated with drilling
any Exploratory Well thereunder in which Enserch elects to participate,
Enserch shall deliver to Enterprise an invoice for a portion of the Payment
Amount equal to the lesser of (i) the product obtained by multiplying (x)
Ensercli's Participating Interest in the Lease3 Unit Area or portion
thereof on which such Exploratory Well is drilled or to be drilled times &)
such aggregate Drilling Costs, and (ji) the balance of the Payment Amount
then remaining unpaid. Enterprise shall pay such invoiced amount to Enserch
within thirty (30) days following Enterprise's receipt of such invoice with
reasonable supporting documentation.
(b) On December 31, 2000, the balance of the Payment Amount, if any,
then remaining unpaid shall be due and payable, and shall be used
exclusively for the exploration and development of the Subject Lands.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1 REPRESENTATIONS AND WARRANTIES OF ENSERCH. Enserch represents
and warrants to Enterprise as of the date hereof and as of the Closing Date as
follows:
(a) ORGANIZATION AND QUALIFICATION. Enserch is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Texas and has the requisite corporate power to carry on its
business as it is now being conducted. Enserch is duly qualified or
licensed to do business3 and is in good standing, in each jurisdiction in
which the character of the property or assets owned, leased or operated by
it, or the nature of the business conducted by it, makes such qualification
or licensing necessary and the failure so to qualify or be licensed would
have a material adverse effect on the transactions or performance
contemplated under this Agreement. Without limiting the foregoing, Enserch
is duly qualified with the MMS and other Governmental Authorities with
jurisdiction over the Subject Lands to carry on its business in the Outer
Continental Shelf, Gulf of Mexico.
(b) NON-FOREIGN STATUS. Enserch is not a "foreign person" within the
<PAGE>
meaning of the Internal Revenue Code of 1986, as amended (the "Code"),
Sections 1445 and 7701 (i.e., Enserch is not a nonresident alien, foreign
corporation, foreign partnership, foreign trust or foreign estate as those
terms are defined in the Code and any regulations promulgated thereunder).
(c) MMS. Enserch has no knowledge of any matter or circumstance which
would preclude or inhibit unconditional MMS approval of the assignment of
any interest in the Subject Lands from Enserch to Enterprise, including,
without limitation, any unsatisfied bond or supplemental bond obligations
owed to the MMS.
(d) AUTHORITY. Enserch has all requisite corporate power and
authority to execute and deliver this Agreement and to perform its
obligations under this Agreement. The execution, delivery and performance
of this Agreement and the transactions contemplated hereby have been duly
and validly authorized by all requisite corporate action on the part of
Enserch.
(e) ENFORCEABILITY. This Agreement constitutes a valid and binding
agreement of Enserch enforceable against it in accordance with its terms3
subject to:
(i) applicable bankruptcy, insolvency, reorganization,
moratorium and other similar laws of general application with respect
to creditors,
(ii) general principles of equity, and
(iii) the power of a court to deny enforcement of remedies
generally based upon public policy.
(f) NO CONFLICT OR VIOLATION. Neither the execution and delivery of
this Agreement nor the consummation of the transactions and performance of
the terms and conditions contemplated hereby by Enserch will:
(i) conflict with or result in any breach of any provision of
the certificate of incorporation or bylaws (or other similar governing
documents) of Enserch; or
(ii) be rendered void or ineffective by or under the terms,
conditions or provisions of any agreement, instrument or obligation to
which Enserch is a party or is subject or by which any of its
properties or assets are bound;
provided that, the consents and waivers of third Persons expressly
described and set forth in Section 7.2(f) are obtained as provided therein.
(g) CONSENTS. Except for the consents expressly described and set
forth in Section 7.2(f) and the notifications expressly described and set
forth in Schedule 4.1(g) attached hereto, and subject to obtaining,
satisfying or complying with any Permits and approval by the MMS of
assignments of Leases between the Parties, no consent, approval,
authorization or permit of, or filing with or notification to, any Person
is required for or in connection with the execution and delivery of this
Agreement by Enserch or for or in connection with the consummation of the
transactions and
<PAGE>
performance of the terms and conditions contemplated hereby by Enserch.
(h) ACTIONS; ORDERS.
(i) There are no Actions pending or, to the knowledge of
Enserch, threatened against Enserch or any Affiliate of Enserch which
relate to the Leases or the transactions contemplated by this
Agreement.
(ii) Except for orders of general applicability to oil and gas
operators in the Outer Continental Shelf in the Gulf of Mexico, and
except for Permits, there is no judgment or outstanding order,
injunction, decree or award rendered by any Governmental Authority by
which Enserch or any Affiliate of Enserch is bound and which relates
to the Leases or the transactions contemplated by this Agreement.
(i) BROKERAGE FEES AND COMMISSIONS. Enserch has not incurred any
obligation or entered into any agreement for any investment banking,
brokerage or finder's fee or commission in respect of the transactions
contemplated by this Agreement for which Enterprise shall incur any
liability.
(j) TITLE TO THE LEASES. Except for Permitted Defects, to the best of
Enserch's knowledge and belief, Enserch owns the respective Working
Interests and Net Revenue Interests in the Leases and Unit Areas set forth
in Exhibit "A" hereto. To the best of Enserch's knowledge and belief,
Enserch's Interest in the Leases and Unit Areas is free and clear of all
liens other than the liens disclosed in Exhibit "A" hereto and Permitted
Defects.
(k) NO POOLING OR UNITIZATION. Except as set forth in Exhibit "A"
hereto, the Leases are not subject to any pooling or unitization agreement
or order.
(l) COMPLIANCE WITH LAWS.
(i) To the best of Enserch's knowledge and belief, the Leases
and all past operations with respect to the Leases are in compliance
with all Laws and all Permits relating thereto,
(ii) Enserch has not received any notice of any violation or
alleged violation (or of any fact or circumstance which with notice or
the passage of time or both would constitute a violation) of any Law
or Permit with respect to the Leases, and
(iii) Enserch has not entered into any compliance or
remediation agreements with any Governmental Authority or filed any
compliance or remediation plans with any Governmental Authority which
in any way relate to the Leases.
(m) COMPLIANCE WITH LEASES. Except for Permitted Defects,
<PAGE>
(i) the Leases are in full force and effect and have not been
amended or modified;
(ii) there are no violations or breaches thereof or existing
facts or circumstances which upon notice or the passage of time or
both will constitute a violation or breach thereof;
(iii) no notice of any alleged default or non-compliance by
Enserch with respect to the Leases or operations with respect thereto
has been received by Enserch or any Affiliate of Enserch; and
(iv) Enserch is not participating in any discussions or
negotiations regarding amendment or modification thereof.
(n) PREFERENCE RIGHTS. Except as set forth in Exhibit "A" hereto, the
Leases are not subject to and Enserch is not bound by any Preference
Rights.
(o) CONTRACTS AND LEASES. Set forth on Exhibit "A" hereto is a true
and correct description of each contract, agreement, or similar arrangement
to which any of the Leases is subject and which:
(i) is a contract for the sale, purchase, processing or
transportation of; or creates a purchase option, right of first
refusal or call on, any Hydrocarbons produced from or attributable to
the Subject Lands or Leases;
(ii) creates any area of mutual interest with respect to the
acquisition by Enserch or its assigns of any interest in any
Hydrocarbons, lands or assets;
(iii) creates or evidences any Preference Right affecting any
Lease or any interest therein, whether or not applicable to the
transactions contemplated by this Agreement; or
(iv) creates or evidences a joint operating agreement,
unitization agreement, pooling agreement, farmout agreement, farmin
agreement, participation agreement, joint venture agreement,
partnership agreement or similar agreement.
(p) DRILLING RIG CONTRACTS. The Drilling Rig Contracts are in full
force and effect and have not been modified or amended except as set forth
in Exhibit "A" hereto.
(q) NO TAX PARTNERSHIPS. The Leases are not subject to any tax
partnership agreement or provisions requiring a partnership income tax
return to be filed under Subchapter K of Chapter 1 of Subtitle A of the
Code.
(r) BANKRUPTCY. There are no bankruptcy, reorganization or
arrangement proceedings pending against, being contemplated by, or, to the
knowledge of Enserch, threatened against Enserch.
<PAGE>
Section 4.2 REPRESENTATIONS AND WARRANTIES OF ENTERPRISE. Enterprise
represents and warrants to Enserch as of the date hereof and as of the Closing
Date as follows:
(a) ORGANIZATION AND QUALIFICATION. Enterprise is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Delaware, and has the requisite corporate power to carry on its
business as it is now being conducted. Enterprise is duly qualified or
licensed to do business, and is in good standing, in each jurisdiction in
which the character of the property or assets owned, leased or operated by
it, or the nature of the business conducted by it, makes such qualification
or licensing necessary and the failure so to qualify or be licensed would
have a material adverse effect on the transactions or performance
contemplated under this Agreement.
(b) MMS. Enterprise has no knowledge of any matter or circumstance
which would preclude or inhibit unconditional MMS approval of the
assignment of any interest in the Subject Lands from Enserch to Enterprise,
including, without limitation, any unsatisfied bond or supplemental bond
obligations owed to the MMS.
(c) AUTHORITY. Enterprise has all requisite corporate power and
authority to execute and deliver this Agreement and to perform its
obligations under this Agreement. The execution, delivery and performance
of this Agreement and the transactions contemplated hereby have been duly
and validly authorized by all requisite corporate action on the part of
Enterprise.
(d) ENFORCEABILITY. This Agreement constitutes a valid and binding
agreement of Enterprise enforceable against it in accordance with its
terms, subject to:
(i) applicable bankruptcy, insolvency, reorganization,
moratorium and other similar laws of general application with respect
to creditors,
(iii) general principles of equity, and
(iii) the power of a court to deny enforcement of remedies
generally based upon public policy.
(e) No Conflict or Violation. Neither the execution and delivery of
this Agreement nor the consummation of the transactions and performance of
the terms and conditions contemplated hereby by Enterprise will:
(i) conflict with or result in any breach of any provision of
the certificate of incorporation or bylaws (or other similar governing
documents) of Enterprise; or
(ii) be rendered void or ineffective by or under the terms,
conditions or provisions of any agreement, instrument or obligation to
which Enterprise is a party or is subject or by which any of its
properties or assets are bound.
<PAGE>
(f) CONSENTS. Subject to obtaining, satisfying or complying with any
Permits and approval by the MMS of assignments of Leases between the
Parties, no consent, approval, authorization or permit of, or filing with
or notification to, any Person is required for or in connection with the
execution and delivery of this Agreement by Enterprise or for or in
connection with the consummation of the transactions and performance of the
terms and conditions contemplated hereby by Enterprise.
(g) ACTIONS; ORDERS.
(i) There are no Actions pending or, to the knowledge of
Enterprise, threatened against Enterprise or any Affiliate of
Enterprise which relate to the transactions contemplated by this
Agreement.
(ii) Except for orders of general applicability to oil and gas
operators in the Outer Continental Shelf in the Gulf of Mexico, and
except for Permits, there is no judgment or outstanding order,
injunction, decree or award rendered by any Governmental Authority by
which Enterprise or any Affiliate of Enterprise is bound and which
relates to the transactions contemplated by this Agreement.
(h) BROKERAGE FEES AND COMMISSIONS. Enterprise has not incurred any
obligation or entered into any agreement for any investment banking,
brokerage or finder's fee or commission in respect of the transactions
contemplated by this Agreement for which Enserch shall incur any liability.
(i) BANKRUPTCY. There are no bankruptcy, reorganization or
arrangement proceedings pending against, being contemplated by, or, to the
knowledge of Enterprise, threatened against Enterprise.
ARTICLE V
PREFERENCE RIGHTS AND CONSENTS
Section 5.1 PREFERENCE RIGHTS.
(a) COMPLIANCE. Promptly after the execution hereof Enserch shall
initiate all procedures required to comply with or obtain the waiver of all
Preference Rights set forth on Exhibit "A" hereto with respect to the
transactions contemplated by this Agreement prior to the Closing Date.
Enserch shall provide Enterprise with copies of all correspondence sent or
received by Enserch in connection with such efforts contemporaneously with
the receipt or sending thereof. The portion of the Payment Amount to be
allocated to any Subject Interest or portion thereof affected by a
Preference Right (a "Preference Property") shall be the portion of the
Payment Amount allocated thereto in Exhibit "A" hereto. The notices sent by
Enserch to holders of Preference Rights shall be in forms reasonably
satisfactory to Enterprise.
(b) EFFECT OF PREFERENCE RIGHTS. If a third party who has been
offered a Preference Property pursuant to Section 5.1(a) elects prior to
Closing to purchase such
<PAGE>
Preference Property in accordance with the terms of such Preference Right,
such Preference Property will be eliminated from the Subject Interests and
the Payment Amount shall be reduced by the portion of the Payment Amount
allocated to such Preference Property pursuant to Section 5.1(a).
(c) EXPRESS CONDITIONS ON CONVEYANCE. Enterprise acknowledges that
Enserch desires to convey all of the Subject Interests as contemplated by
Section 7.2(e) and would not have entered into this Agreement but for
Enterprise's agreement to acquire all of the Subject Interests as
contemplated by Section 7.2(e). Accordingly, it is expressly understood and
agreed that Enserch does not desire to convey any Preference Property
unless the conveyance of all of the Subject Interests is consummated by the
Closing Date in accordance with the terms of this Agreement (including,
without limitation, Section 7.2(e)). In furtherance of the foregoing,
Enserch's obligation hereunder to convey the Preference Properties to
Enterprise is expressly conditioned upon the consummation by the Closing
Date of the conveyance of all of the Subject Interests in accordance with
the terms of this Agreement (including, without limitation, Section
7.2(e)), either by conveyance to Enterprise or conveyance pursuant to an
applicable Preference Right; provided that, nothing herein is intended or
shall operate to extend or apply any Preference Right to any portion of the
Subject Interests which is not otherwise burdened thereby. Time is of the
essence with respect to the Parties' agreement to consummate the conveyance
of the Subject Interests by the Closing Date.
Section 5.2 CERTAIN GOVERNMENTAL CONSENTS. Enserch and Enterprise will use
their best efforts after Closing to obtain all approvals and consents from the
United States Department of Interior that may be required under the terms of (or
regulations specifically applicable to) the Leases in connection with the
assignment of the Subject Interests therein from Enserch to Enterprise. To the
extent applicable Law prevents complete legal and equitable title to such
Subject Interests from being conveyed from Enserch to Enterprise until such
approvals and consents are obtained, Enserch shall continue to hold bare legal
title to such Subject Interests as nominee for Enterprise. As nominee, Enserch
shall not be authorized to take and shall not take any action with respect to
such Subject Interests except to the extent expressly authorized and directed in
writing by Enterprise. Enserch shall not be obligated to incur any expenses in
Enserch's capacity as nominee.
ARTICLE VI
COVENANTS OF ENSERCH AND ENTERPRISE
Section 6.1 CONDUCT OF BUSINESS PENDING CLOSING. Subject to Section 6.2
and the constraints of applicable existing operating agreements listed in
Exhibit "A" hereto, from the date hereof through the Closing, except as
otherwise consented to or approved by Enterprise in writing, Enserch covenants
and agrees that:
(a) SALES. Enserch shall not Bell, transfer, assign, convey, farmout,
release, abandon or otherwise dispose of any Lease or any interest therein,
or enter into any transaction the effect of which would be to cause
Enserch's Interest in any of the Leases
<PAGE>
or Unit Areas to be altered from Enserch's Interest therein as of the date
of this Agreement.
(b) ENCUMBRANCES. Enserch shall not create or permit the creation of
any lien on Enserch's Interest in any Lease or Unit Area.
(c) OPERATION OF LEASES. Enserch agrees to:
(i) not commit to participate in the drilling of any new well
or other new operations on the Leases without the advance written consent
of Enterprise, which consent or non-consent must be given by Enterprise
within the lesser of (x) fifteen (15) days of Enterprise's receipt of the
notice from Enserch or (y) one-half (1/2) of the applicable notice period
within which Enserch is contractually obligated to respond to third parties
to avoid a deemed election by Enserch regarding such operation, as
specified in Enserch's notice to Enterprise requesting such consent;
(ii) maintain and keep the Leases in full force and effect,
except where such failure is due to the failure to pay a delay rental, shut
in royalty or other payment by mistake or oversight or the failure to
participate in an operation which Enterprise does not approve; and
(iii) maintain and keep in full force and effect and perform and
comply with all of Enserch's obligations under contracts and agreements
included in, relating to or affecting the Subject Interests.
(d) CONTRACTS AND AGREEMENTS. Enserch will not:
(i) grant or create any Preference Right or other restriction
on transferability with respect to the Subject Interests;
(ii) enter into any Hydrocarbon sales, supply, exchange,
processing on transportation contract with respect to the Subject
Interests;
(iii) enter into any contract which, if it existed now, should
be listed in any exhibit or schedule to this Agreement;
(iv) enter into any settlement of any pending or threatened
Action relating to the Leases or the contracts and agreements included in,
relating to or affecting the Subject Interests or consent to the entry of
any decree or order by a Governmental Authority with respect to the Leases
or such contracts and agreements; or
(v) voluntarily relinquish Enserch's position as operator with
respect to any of the Leases or Unit Areas.
(e) NOTICE OF DEFAULTS. Enserch shall give prompt written notice to
Enterprise of any notice of default (or threat of default, whether disputed
or denied) received or given by Enserch under any Lease or instrument or
agreement affecting the Subject
<PAGE>
Interests to which Enserch is a party or by which Enserch or any of the
Subject Interests are bound.
Section 6.2 QUALIFICATIONS ON ENSERCH'S CONDUCT If Enserch is not the
operator of a particular portion of the Leases, the obligations of Enserch in
Section 6.1 above with respect to such portion of the Leases, which have
reference to operations or activities which pursuant to existing contracts are
carried out or performed by the operator, shall be construed to require only
that Enserch use its best efforts to cause the operator of such portion of the
Leases to take such actions or render such performance within the constraints of
the applicable existing operating agreements.
Section 6.3 ASSIGNMENTS. Upon the terms and subject to the conditions of
this Agreement, at or prior to the Closing, Enserch and Enterprise shall execute
and deliver Assignments of the Subject Interests each in substantially the form
attached hereto as Exhibit "B" (the "Assignment"). With respect to Assignments
of Subject Interests m the Unit Areas which are limited to specified depths, the
form of Assignment attached hereto as Exhibit "B" shall be modified to convey
operating rights in such Leases. The Assignments delivered to Enterprise
pursuant to this Agreement shall not include any interest in any platforms,
equipment or facilities located or installed on the Leases on the effective date
of such Assignment as more fully provided in the attached form of Assignment.
The Assignments delivered to Enterprise pursuant to this Agreement shall include
a pro rata share (based on the percentage interest assigned) of Enserch's
interest in and future obligations under all agreements affecting such Lease
which are described in Exhibit "A" hereto insofar as the same are attributable
to the period after the effective date of such assignment as more fully provided
in the attached form of Assignment.
Section 6.4 DATA AND INFORMATION.
(a) LEASE AND LAND INFORMATION. Immediately following the execution
of this Agreement, Enterprise shall have the right from time to time,
without charge, to examine and copy the Leases and any and all lease and
land information, summaries and plats describing the Leases, unit
designations, assignments, operating agreements, farmout agreements,
participation agreements, and other third party agreements affecting or
relating to any of the Leases, and all title opinions and reports and other
title information relating to the Leases, in Enserch's possession or
control.
(b) GEOLOGICAL AND GEOPHYSICAL DATA. Immediately following the
execution of this Agreement, Enterprise shall have the right from time to
time, without charge, to review and analyze all of Enserch's proprietary
geological and geophysical data and information, and evaluations and
interpretations thereof, and all well logs and information, relating to the
Subject Lands or to lands adjacent to any of the Subject Lands insofar as
any such data or information relating to such adjacent lands also relates
to the Subject Lands, to the full extent that Enserch has the right to make
such data and information available to Enterprise under the provisions of
any relevant license or agreement through which Enserch acquired possession
of such data or information. ENTERPRISE UNDERSTANDS AND AGREES THAT
ENSERCH MAKES NO WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, AS
TO THE
<PAGE>
ACCURACY, COMPLETENESS, MERCHANTABILITY, FITNESS FOR ANY PARTICULAR PURPOSE
OR CONDITION OF THE INFORMATION MADE AVAILABLE TO ENTERPRISE PURSUANT TO
THIS SUBSECTION OR OF ANY GEOLOGICAL, GEOPHYSICAL, ENGINEERING, ECONOMIC OR
OTHER INTERPRETIVE DATA OTHERWISE MADE AVAILABLE BY ENSERCH TO ENTERPRISE
PURSUANT TO THIS AGREEMENT.
Section 6.5 CONFIDENTIALITY. All data, information and reports furnished
or acquired by either Party under this Agreement shall be kept confidential, and
each Party agrees to exercise reasonable care and precautions to prevent the
publication, dissemination or disclosure of any such data, information and
reports or copies thereof, to any third Person whomsoever; provided, however,
that each Party shall have the right to make such data, information and reports
or copies thereof available to Governmental Authorities, prospective purchasers
of leasehold or other interests in Subject Lands or institutional lenders
providing financing to such Party, to such Party's consultants for evaluation
purposes, to such Party's Affiliates and to such Party's successor by merger or
reorganization, provided that permitted disclosures shall be made in such a way
as to prevent further disclosure to the greatest extent reasonably possible.
Section 6.6 COMPLIANCE WITH SECURITIES LAWS.
(a) ENTERPRISE EXPERIENCE AND RELIANCE. Enterprise represents that by
reason of the knowledge and experience made available to it by its
Affiliates and advisors in the evaluation, acquisition and operation of oil
and gas properties, it has evaluated the merits and risks of acquiring the
Subject Interests to be acquired by IT from Enserch pursuant to this
Agreement and has formed an opinion based solely on its knowledge and
experience (and that of its advisors) and not on any representations and
warranties by Enserch or its Affiliates, other than the express
representations, warranties and covenants of Enserch in this Agreement.
Enterprise represents that in entering into this Agreement, it has relied
solely on the express representations, warranties and covenants of Enserch
in this Agreement, its independent investigation of; and judgment with
respect to, the Leases and, to the extent it has deemed necessary, the
advice of its own legal, tax, economic, environmental, engineering,
geological and geophysical advisors, and not on any comments or statements
of any representatives of; or consultants or advisors engaged by, Enserch
or its Affiliates. Without limiting the express provisions of this
Agreement, Enterprise further represents that it has not relied and will
not rely on any statements by Enserch, Enserch's Affiliates or their
respective representatives in making its decision to enter into this
Agreement or to close this transaction. Enterprise acknowledges and agrees
that Enserch is not an advisor of or to Enterprise.
(b) ENSERCH RELIANCE. Enserch represents that in entering into this
Agreement, it has relied solely on the express representations, warranties
and covenants of Enterprise in this Agreement, its independent
investigation of, and judgment with respect to, the Leases and, to the
extent it has deemed necessary, the advice of its own legal, tax, economic,
environmental, engineering, geological and geophysical advisors, and not on
any comments or statements of any representatives of, or consultants or
advisors engaged by, Enterprise or its Affiliates. Without limiting the
express provisions of this Agreement, Enserch further represents that it
has not relied and will not rely on
<PAGE>
any statements by Enterprise, its Affiliates or their respective
representatives in making its decision to enter into this Agreement or to
close this transaction.
(c) INVESTMENT INTENT. The Parties understand and agree that the
solicitation of offers and the sale or assignment of the Subject Interests
by Enserch pursuant to this Agreement have not been registered under any
securities laws. Enterprise represents that at no time has it been
presented with or solicited by or through any public promotion or any form
of advertising in connection with its entering into this Agreement.
Enterprise represents that it intends to acquire the Subject Interests for
its own benefit and account and that it is not acquiring such interests
with the intent of distributing fractional, undivided interests that would
be subject to registration by federal or state securities laws, and that if
it sells, transfers, or otherwise disposes of such interests or fractional,
undivided interests, it will do so in compliance with applicable federal
and state securities laws.
Section 6.7 RIGHT TO USE ENSERCH'S FACILITIES AND PIPELINE ULLAGE.
(a) PLATFORMS AND STRUCTURES. In connection with operations on or in
connection with the Leases or any lands pooled or unitized therewith, if
requested by Enterprise and if the Closing occurs, Enserch (without being
obligated to make payments to such third parties) shall use its best
efforts to obtain or assist Enterprise in obtaining from third parties the
right for Enterprise to use, at fair and reasonable charges prevailing in
the area, any platform slots or other space on any platforms and other
structures which are located on or adjacent to the Leases and are owned by
Enserch or its Affiliates with third parties. Enterprise's use of Enserch's
(or its Affiliate's) undivided interest in a platform slot or other space
on a platform or other structure owned by Enserch or its Affiliates with
third parties shall be free of cost to Enterprise to the fullest extent
permitted by Enserch's (or its Affiliate's) existing agreements with such
third parties.
(b) PROCESSING AND OTHER FACILITIES. If requested by Enterprise and
if the Closing occurs, Enserch (without being obligated to make payments to
such third parties) shall use its best efforts to obtain or assist
Enterprise in obtaining from third parties the right for Enterprise to have
its production from or attributable to the Leases or any lands pooled or
unitized therewith separated, processed, treated, dehydrated, compressed or
otherwise handled, at fair and reasonable charges prevailing in the area,
in any facilities capable of performing such service which are located on
or adjacent to the Leases and are owned by Enserch or its Affiliates with
third parties. The charges made or received by Enserch or its Affiliates
for the separating, processing, treating, dehydrating, compressing or
otherwise handling of Enterprise's production in facilities owned by
Enserch or its Affiliates with third parties3 however, shall be limited (to
the fullest extent permitted by Enserch's (or its Affiliate's) existing
agreements with such third parties) to the actual operating or incremental
costs of such services which are attributable to Enserch's (or its
Affiliate's) interest in such facilities.
(c) PIPELINES. If the Closing occurs, Enserch and Enterprise shall
cooperate with each other in obtaining access to pipelines for their
respective production from the Leases or lands pooled or unitized
therewith.
<PAGE>
Section 6.8 DIAMOND HEAD PROSPECT. Reference is here made to that certain
agreement dated February 5, 1997, by and between Enserch and BP Exploration &
Oil Inc. (as disclosed in Exhibit "A" hereto) relating to the Diamond Head
Prospect (Green Canyon 290, 333, 334, 335 and 379) as more particularly
described therein, under which BP Exploration & Oil Inc. has an option to
acquire from Enserch an undivided fifty percent (50%) of Enserch's Working
Interest (being fifty percent (50%)) in such prospect, subject to the obligation
of BP Exploration & Oil Inc. to reimburse Enserch for certain costs attributable
to the remaining fifty percent (50%) of Enserch's Working Interest in such
prospect, all as more particularly described in such agreement. In the event
such option is exercised by BP Exploration & Oil Inc., and if Closing occurs3
(a) Enterprise shall own and be entitled to receive (i) an undivided twenty-five
percent (25%) of Enserch's Interest in such prospect and (ii) the benefit of BP
Exploration & Oil Inc.'s obligation to reimburse such costs that are
attributable to such undivided twenty-five percent (25%) of Enserch's Interest
in such prospect as referred to above, and (b) Enserch's Participating Interest
in such prospect, for all purposes of this Agreement, shall be the remaining
twenty-five percent (25%) of Enserch's Interest in such prospect.
Section 6.9 DEVIL'S ISLAND PROSPECT AND GREEN CANYON BLOCK 252 PROSPECT.
Reference is here made to that certain agreement, dated June 26, 1997, by and
between Enserch and Mobil Exploration & Producing U.S. Inc., as agent for Mobil
Oil Exploration & Producing Southeast Inc., Mobil Oil Corporation, and Mobil
Producing Texas & New Mexico Inc. (collectively referred to in this paragraph as
"Mobil"), relating to the Devil's Island Prospect and the Green Canyon Block 252
Prospect, as more particularly described therein, under which Mobil has an
option to acquire from Enserch an undivided fifty percent (50%) of Enserch's
Working Interest (being sixty percent (60%)) in the Devil's Island Prospect and
an undivided fifty percent (50%) of Enserch's Working Interest (being forty
percent (40%)) in such Green Canyon Block 252 Prospect, subject to the
obligation of Mobil (x) to pay one hundred percent (100%) of the costs
attributable to Enserch's drilling the subject wells and (y) to provide Enserch
with copies of all drilling and well information. In the event Mobil exercises
such option in respect of the Devil's Island Prospect, and if Closing occurs,
(a) Enterprise shall ownand be entitled to receive (i) an undivided twenty-five
percent (25%) of Enserch's Interest in such prospect and (ii) the benefit of
Mobil's obligation to pay such costs that are attributable to such undivided
twenty-five percent (25%) of Enserch's Interest in such prospect, and (b)
Enserch's Participating Interest in such prospect, for all purposes of this
Agreement, shall be the remaining twenty-five percent (25%) of Enserch's
Interest in such prospect. In the event Mobil exercises such option in respect
of the Green Canyon Block 252 Prospect, and if Closing occurs, (a) Enterprise
shall own and be entitled to receive (i) an undivided twenty-five percent (25%)
of Enserch's Interest in such prospect and (ii) the benefit of Mobil's
obligation to pay such costs that are attributable to such undivided twenty-five
percent (25%) of Enserch's Interest in such prospect and (b) Enserch's
Participating Interest in such prospect for all purposes of this Agreement shall
be the remaining twenty-five percent (25%) of Enserch's Interest in such
prospect.
Section 6.10 BEST EFFORTS. Subject to the other terms and conditions of
this Agreement, Enserch and Enterprise each agrees to use its best efforts to
take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable to consummate and make
<PAGE>
effective as promptly as practicable the transactions contemplated by this
Agreement and to cooperate with the other in connection with the foregoing,
including using its best efforts (a) to obtain, comply with or otherwise satis&
all third party Preference Rights applicable to the transactions contemplated by
this Agreement, (b) to obtain all necessary waivers, consents and approvals from
other parties to agreements, leases and other contracts, (c) to obtain all
consents, approvals and authorizations that are required to be obtained under
any applicable Law, (d) to lift or rescind any injunction or restraining order
or other order adversely affecting the ability of the Parties to consummate the
transactions contemplated hereby, (e) to make or effect all necessary
registrations, notifications and filings, including, but not limited to,
submissions of information requested by Governmental Authorities, and (f) to
fulfill all conditions to this Agreement. The Patties' respective obligations to
use best efforts shall not require or obligate any Party (1) to pay any penalty,
premium or consideration to obtain any waiver, consent, approval or election,
(2) to modify its rights or obligations under any existing agreement, lease or
other contract, or (3) to violate any applicable Law.
Section 6.11 NON-SOLICITATION. Enserch agrees that it shall not itself or
through any investment banker, broker, agent, representative or Affiliate,
directly or indirectly, (i) offer to sell, or solicit, negotiate or seek in any
other way offers or proposals to purchase, all or any portion of the Subject
Interests, or (ii) provide any third parties, other than Enterprise and its
representatives, with access to data concerning the purchase of all or any
portion of the Subject Interests. Enserch will notify Enterprise if any written
offer or proposal is received by, or any negotiation is sought in writing to be
initiated or continued with, Enserch or any of its investment bankers, brokers,
agents, representatives or Affiliates with respect to any of the foregoing.
ARTICLE VII
CLOSING CONDITIONS
Section 7.1 ENSERCH'S CLOSING CONDITIONS. The obligation of Enserch to
consummate the transactions contemplated hereby is subject, at the option of
Enserch, to the satisfaction on or prior to the Closing Date of all of the
following conditions:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. The (1)
representations and warranties of Enterprise contained in this Agreement
shall be true and correct in all material respects on and as of the Closing
Date, and (2) covenants and agreements of Enterprise to be performed on or
before the Closing Date in accordance with this Agreement shall have been
duly performed in all material respects.
(b) OFFICER'S CERTIFICATE. Enserch shall have received a certificate
dated as of the Closing Date, executed by a duly authorized officer of
Enterprise, to the effect that to such officer9s knowledge the conditions
set forth in paragraph (a) of this Section 7.1 have been satisfied.
(c) ASSIGNMENTS. Enterprise shall have executed and delivered the
Assignments prior to or on the Closing Date.
<PAGE>
(d) NO ACTION. On the Closing Date, no suit, action or other
proceeding (excluding any such matter initiated by Enserch or any of its
Affiliates) shall be pending or threatened before any court or governmental
agency or body of competent jurisdiction seeking to enjoin or restrain the
consummation of this Agreement or recover damages from Enserch resulting
therefrom.
Section 7.2 ENTERPRISE'S CLOSING CONDITIONS. The obligation of Enterprise
to consummate the transactions contemplated hereby is subject, at the option of
Enterprise, to the satisfaction on or prior to the Closing Date of all of the
following conditions:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. The (1)
representations and warranties of Enserch contained in this Agreement shall
be true and correct in all material respects on and as of the Closing Date,
and (2) covenants and agreements of Enserch to be performed on or before
the Closing Date in accordance with this Agreement shall have been duly
performed in all material respects.
(b) OFFICER'S CERTIFICATE. Enterprise shall have received a
certificate dated as of the Closing Date, executed by a duly authorized
officer of Enserch, to the effect that to such officer's knowledge the
conditions set forth in paragraph (a) of this Section 7.2 have been
satisfied.
(c) ASSIGNMENTS. Enserch shall have executed and delivered the
Assignments prior to or on the Closing Date.
(d) NO ACTION. On the Closing Date, no suit, action or other
proceeding (excluding any such matter initiated by Enterprise or any of its
Affiliates) shall be pending or threatened before any court or governmental
agency or body of competent jurisdiction seeking to enjoin or restrain the
consummation of this Agreement or recover damages from Enterprise resulting
therefrom.
(e) ELIMINATED PREFERENCE PROPERTIES. The aggregate reductions in the
Payment Amount pursuant to Section 5.1(b) shall not exceed $5,000,000.00
and the Preference Properties eliminated from the Subject Interests
pursuant to Section 5.1(b), if any, shall consist of Subject Interests in
no more than five (5) Leases in the aggregate.
(f) CONSENTS AND WAIVERS. Enserch shall have received and furnished
to Enterprise:
(i) (A) written waivers (in form and substance reasonably
satisfactory to Enterprise) executed by all third patty owners of interests
in the Unit Areas of any and all claims or causes of action that might
otherwise arise under the Unit Operating Agreements covering the Unit Areas
as described in Exhibit "A" hereto for breach of the covenants contained
therein to maintain uniform interests in the units covered thereby, on
account of the execution and delivery of this Agreement or the Assignments,
and (B) the written agreements (in form and substance reasonably
satisfactory to Enterprise) of such third party owners to the creation of
the relevant sub-units contemplated to be created as
<PAGE>
a result of the Assignments, and
(ii) the written consent (in form and substance reasonably
satisfactory to Enterprise) executed by BP Exploration & Oil Inc.
consenting to the assignment by Enserch to Enterprise of the rights and
benefits as provided for in Section 6.8.
(g) AFFIDAVIT OF NON-FOREIGN STATUS. Enterprise shall have received
an Affidavit of Non-foreign Status, substantially in the form attached as
Exhibit "D" hereto, which has been properly executed by or on behalf of
Enserch.
ARTICLE VIII
CLOSING
Section 8.1 CLOSING. The Closing shall be held on the Closing Date at
10:00 a.m., Houston time, at the offices of Fulbright & Jaworski L.L.P. at 1301
McKinney, Houston, Texas, or at such other time or place as Enserch and
Enterprise may otherwise agree in writing.
Section 8.2 ENSERCH'S CLOSING OBLIGATIONS. At Closing, Enserch shall
execute and deliver, or cause to be executed and delivered, to Enterprise the
following:
(a) The Assignments;
(b) The officer's certificate referred to in Section 7.2(b);
(c) The Affidavit of Non-foreign Status referred to in Section
7.2(g); and
(d) Such other documents as may be reasonably necessary to convey all
the Subject Interests to Enterprise in accordance with the terms and
provisions of this Agreement.
Section 8.3 ENTERPRISE'S CLOSING OBLIGATIONS. At Closing, Enterprise shall
execute and deliver, or cause to be executed and delivered, to Enserch the
following:
(a) The Assignments;
(b) The officer's certificate referred to in Section 7.1(b); and
(c) Designations of operator, on forms prescribed or approved by the
MMS, designating as operator of the respective Leases the operator under
the applicable Operating Agreement.
Section 8.4 SURVIVAL. The terms and provisions of Articles III, IV, VI, IX
and XI and Section 5.2 of this Agreement, together with the defined terms and
exhibits applicable to such Sections and Articles, shall survive the Closing.
<PAGE>
ARTICLE IX
OPERATIONS
Section 9.1 OPERATING AGREEMENT. If the Closing occurs, the terms of the
applicable Operating Agreement shall govern and control all operations conducted
upon the Subject Lands covered thereby and such other matters as are expressly
provided for in this Agreement. Except as provided in Section 11.10, in the
event of any conflict between the terms of this Agreement and the applicable
Operating Agreement, the terms of this Agreement shall prevail. Each existing
third party operating agreement listed on Exhibit "A" hereto shall be the
applicable Operating Agreement with respect to the particular Lease or Leases
subject thereto, except where otherwise expressly provided in this Agreement.
Section 9.2 APPRAISAL DRILLING COSTS.
(a) CARRY. Subject to the provisions of paragraphs (b) and (c) of
this Section, and if the Closing occurs, Enterprise shall be obligated to
pay for all Appraisal Drilling Costs incurred by Enserch and attributable
to Enserch's Participating Interest in the Leases or Unit Areas on which
the Appraisal Drilling for which such costs are incurred is performed.
(b) CONDITIONS. Subject to the following provisions of this
paragraph, Enterprise's obligation under paragraph (a) of this Section
shall not apply with respect to any Appraisal Drilling unless (i) both
Enserch and Enterprise elect under the applicable Operating Agreement to
participate in such Appraisal Drilling and (ii) Enterprise determines, in
its sole discretion, by written notice delivered to Enserch in writing,
that such Appraisal Drilling is sufficiently commercial to justify
Enterprise's incurring of the costs provided for in paragraph (a) of this
Section in addition to the Appraisal Drilling Costs attributable to
Enterprise's Working Interest in such Leases. Notwithstanding the
foregoing, and subject to the provisions of paragraph (c) of this Section,
in the event that the conditions set forth in clauses (i) and (ii) of the
preceding sentence are not satisfied in respect of any particular Appraisal
Drilling that is performed under an applicable Operating Agreement, but
Enterprise subsequently elects under such Operating Agreement to
participate in Development operations with respect to the Discovery
appraised by such Appraisal Drilling, then Enterprise shall be obligated to
pay for all Appraisal Drilling Costs incurred by Enserch with respect to
such Appraisal Drilling and attributable to Enserch's Participating
Interest in the Leases or Unit Areas on which such Appraisal Drilling was
performed, together with interest thereon at the Agreed Rate from the date
on which such Appraisal Drilling Costs were expended by Enserch until
repaid by Enterprise.
(c) LIMITATION. In no event shall Enterprise ever be obligated to
bear or pay for any Appraisal Drilling Costs pursuant to paragraphs (a) and
(b) of this Section in excess of $10,000,000.00 in the aggregate (excluding
any interest payable pursuant to paragraph (b) of this Section).
(d) PAYMENT. Any payment required under this Section shall be made by
<PAGE>
Enterprise to Enserch within thirty (30) days following Enterprise's
receipt from Enserch of an invoice therefor with reasonable supporting
documentation.
Section 9.3 DEVELOPMENT COSTS OF FIRST DEVELOPMENT.
(a) CARRY. Subject to the provisions of paragraphs (1)) and (c) of
this Section, and if the Closing occurs, Enterprise shall be obligated to
pay for all Development Costs of the First Development incurred by Enserch
and attributable to Enserch's Participating Interest in the Leases or Unit
Area on which such First Development is performed.
(b) CONDITIONS. Enterprise's obligation under paragraph (a) of this
Section shall not apply with respect to the First Development unless both
Enserch and Enterprise elect under the applicable Operating Agreement to
participate in such First Development.
(c) LIMITATION. In no event shall Enterprise ever be obligated to
bear or pay for any Development Costs pursuant to paragraph (a) of this
Section in excess of $10,000,000.00 in the aggregate.
(d) PAYMENT. Any payment required under this Section shall be made by
Enterprise to Enserch within thirty (30) days following Enterprise's
receipt from Enserch of an invoice therefor with reasonable supporting
documentation.
Section 9.4 DEVELOPMENT COSTS OF SECOND DEVELOPMENT.
(a) CARRY. Subject to the provisions of paragraph (1)) and (c) of
this Section, and if the Closing occurs, Enterprise shall be obligated to
pay for all Development Costs of the Second Development incurred by Enserch
and attributable to Enserch's Participating Interest in the Leases or Unit
Area on which such Second Development is performed.
(b) CONDITIONS. Enterprise's obligation under paragraph (a) of this
Section shall not apply with respect to the Second Development unless both
Enserch and Enterprise elect under the applicable Operating Agreement to
participate in such Second Development.
(c) LIMITATION. In no event shall Enterprise ever be obligated to
bear or pay for any Development Costs pursuant to paragraph (a) of this
Section in excess of $15,000,000.00 in the aggregate.
(d) PAYMENT. Any payment required under this Section shall be made by
Enterprise to Enserch within thirty (30) days following Enterprise's
receipt from Enserch of an invoice therefor with reasonable supporting
documentation.
Section 9.5 DRILLING RIGS. If the Closing occurs,
(a) Enserch will use reasonable endeavors to assign or procure the
assignment
<PAGE>
to Enterprise of one-half interest in its rights and obligations under the
Drilling Rig Contracts and both Enserch and Enterprise agree to execute all
documentation reasonably required to effect the assignment;
(b) Pending the assignment referred to in paragraph (a) of this
Section, Enserch will ensure that the Drilling Rig Contracts are maintained
and kept in full force and will perform or procure the performance of all
of Enserch's or its Affiliates' obligations under the Drilling Rig
Contracts and will hold one-half of its rights and obligations under the
Drilling Rig Contracts for the benefit of Enterprise and, in particular,
but without limitation, will not without the prior written consent of
Enterprise;
(i) exercise or omit to exercise or agree to any exercise by
third parties of any right under the Drilling Rig Contracts;
(ii) agree to any amendment or assignment of the Drilling Rig
Contracts; and
(iii) take any action to enforce, settle or compromise any right
or any breach or alleged breach of the Drilling Rig Contracts.
(c) Pending the assignment referred to in paragraph (a) of this
Section and subject to Enserch complying with its obligations under
paragraph (b) of this Section, Enterprise shall reimburse Enserch for one
half of all charges incurred by Enserch under the Drilling Rig Contracts.
(d) Upon the assignment referred to in paragraph (a) of this Section,
Enterprise and Enserch agree that:
(i) any use or omission to use by either Party or use by a
third party of any right under the Drilling Rig Contracts;
(ii) any amendment or assignment of the Drilling Rig Contracts;
and
(iii) any enforcement, settlement or compromise of any right or
obligation under the Drilling Rig Contracts shall require the written
agreement of Enterprise and Enserch.
ARTICLE X
TERMINATION; REMEDIES
Section 10.1 TERMINATION. This Agreement and the transactions contemplated
hereby may be terminated at any time prior to the Closing:
(a) By the mutual consent of Enserch and Enterprise; or
<PAGE>
(b) If the Closing has not occurred by the close of business on the
Closing Date, then (i) by Enserch if any condition specified in Section 7.1
has not been satisfied on or before such close of business, and shall not
theretofore have been waived by Enserch, or (ii) by Enterprise if any
condition specified in Section 7.2 has not been satisfied on or before such
close of business, and shall not theretofore have been waived by
Enterprise; provided, in each case, that the failure to consummate the
transactions contemplated hereby on or before such date did not result from
the failure by the Party seeking termination of this Agreement to fulfill
any undertaking or commitment provided for herein on the part of such Party
that is required to be fulfilled on or prior to Closing.
Section 10.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement by Enserch, on the one hand, or Enterprise, on the other hand,
pursuant to Section 10.1, written notice thereof shall forthwith be given by the
terminating Party to the other Party, and this Agreement shall thereupon
terminate; provided, however, that in any such event, no such termination shall
relieve any Party of any liability for any breach of this Agreement. If this
Agreement is terminated as provided herein all filings, applications and other
submissions made to any Governmental Authority shall, to the extent practicable,
be withdrawn from the Governmental Authority to which they were made and any
notices or offers made pursuant to Section 5.1 shall become void.
Section 10.3 REMEDIES.
(a) ENSERCH'S REMEDIES. Notwithstanding anything herein provided to
the contrary, upon the failure by Enterprise to fulfill any undertaking or
commitment provided for herein on the part of Enterprise that is required
to be fulfilled on or prior to the Closing Date, Enserch, at its sole
option, may (i) enforce specific performance of this Agreement or (ii)
terminate this Agreement whereupon Enterprise shall pay to Enserch the
amount of $25,000,000.00 (the as liquidated damages, as Enserch's sole and
exclusive remedies for such default, all other remedies being expressly
waived by Enserch. Enserch and Enterprise agree upon the Amount as
liquidated damages due to the difficulty and inconvenience of measuring
actual damages and the uncertainty thereof, and Enserch and Enterprise
agree that the Amount is a reasonable estimate of Ens erch9s loss in the
event of any such default by Enterprise.
(b) ENTERPRISE'S REMEDIES. Notwithstanding anything herein provided
to the contrary, upon the failure by Enserch to fulfill any undertaking or
commitment provided for herein on the part of Enserch that is required to
be fulfilled on or prior to the Closing Date, Enterprise, at its sole
option, may (i) enforce specific performance of this Agreement or (ii)
terminate this Agreement whereupon Enserch shall pay to Enterprise a sum of
money equal to the Amount as liquidated damages, as Enterprise's sole and
exclusive remedies for such default, all other remedies (except as provided
for below in this paragraph) being expressly waived by Enterprise. Enserch
and Enterprise agree upon the Amount as liquidated damages due to the
difficulty and inconvenience of measuring actual damages and the
uncertainty thereof, and Enserch and Enterprise agree that the Amount is a
reasonable estimate of Enterprise's loss in the event of any such default
by Enserch. Enserch hereby acknowledges and agrees that the Subject
Interests constitute
<PAGE>
unique properties, that damages for Enserch's breach of contract would be
difficult or impossible to ascertain, that Enterprise has no clear and
adequate remedy at law and that as a remedy for Enserch's breach Enterprise
has the right, exercisable in its sole discretion, to demand and obtain
specific performance of this Agreement and of Enserch's obligation to
consummate the Closing in accordance with the terms of this Agreement and
as part of pursuing such remedy of specific performance may pursue such
other remedies as Enterprise may have under the terms of this Agreement or
at law or in equity.
ARTICLE XI
MISCELLANEOUS PROVISIONS
Section 11.1 RELATIONSHIP OF THE PARTIES. It is not the purpose or
intention of the Parties to create, and this Agreement shall never be construed
as creating, a joint venture, mining partnership or other relationship whereby
any Party shall be held liable for the acts, either of omission or commission,
of any other Party hereto. However, for income tax purposes only, and if the
Closing occurs, no Party will elect to be excluded from the application of the
provisions of Subchapter "K" of the Code or any comparable provisions of any
state income tax statutes which may be applicable, and the results of operations
under this Agreement and under the applicable Operating Agreement shall be
reported as a partnership for federal and state income tax purposes only, which
tax partnership shall be on the basis of Exhibit "J" attached to the form of
Offshore Joint Operating Agreement attached hereto as Exhibit "C".
Section 11.2 CHOICE OF LAW. THIS AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED HEREBY SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO PRINCIPLES THEREOF RELATING
TO CONFLICTS OF LAW RULES THAT WOULD DIRECT THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION, EXCEPT TO THE EXTENT THAT IT IS MANDATORY THAT THE LAW OF
ANOTHER JURISDICTION, WHEREIN OR ADJACENT TO WHICH THE SUBJECT LANDS ARE
LOCATED, SHALL APPLY.
Section 11.3 LAWS. This Agreement is made subject to all valid applicable
federal, state and local laws, rules, orders, and regulations of any duly
constituted federal, state or local regulatory body or authority having
jurisdiction thereof, and all operations hereunder shall be conducted in
conformity therewith, including the MMS.
Section 11.4 STATEMENTS AND ACCOUNTS.
(a) BOOKS AND RECORDS. If the Closing occurs, Enserch shall at all
times maintain true, correct and complete records and books of account in
accordance with standard industry practices into which shall be entered
filly and accurately all transactions and other matters relative to all
operations and other activities under or in connection with this Agreement.
<PAGE>
(b) INSPECTIONS. Upon reasonable advance notice to Enserch, the books
and records referred to in Section 11.4(a) shall be open for inspection,
copying and audit (at Enterprise's sole cost and expense) by Enterprise
and/or Enterprise's accountants or representatives, at the offices of
Enserch during normal business hours.
Section 11.5 INDEMNITY.
(a) Without limiting either Party's indemnity obligations with regard
to joint or sole risk operations conducted after Closing as provided in the
applicable Operating Agreement, if the Closing occurs, Enserch shall
indemnify and hold harmless Enterprise and its Affiliates, each of their
directors, officers, employees and agents, and each of the heirs1
executors, successors and assigns of any of the foregoing (collectively,
the "Indemnified Parties") from and against any and all Third Party
Liabilities to the extent resulting from or attributable to the ownership,
use, maintenance or operation of the Leases prior to the Closing Date.
FOR AVOIDANCE OF DOUBT, THE PARTIES EXPRESSLY UNDERSTAND AND AGREE THAT THE
FOREGOING INDEMNITY AND HOLD HARMLESS AGREEMENT APPLIES TO AND IS INTENDED
TO COVER ALL THIRD PARTY LIABILITIES DESCRIBED ABOVE, INCLUDING THOSE FOR
WHICH ANY INDEMNIFIED PARTY HAS OR MIGHT HAVE STRICT LIABILITY OR BE LIABLE
FOR NEGLIGENCE OR UNDER ANY OTHER THEORY OF LIABILITY OR FAULT.
(b) If a claim by a third party is made against an Indemnified Party,
and if such party intends to seek indemnity with respect thereto under this
Section 11.5 such Indemnified Party shall promptly notify Enserch of such
claims. Enserch shall have thirty (30) days after receipt of such notice to
undertake, conduct and control, through counsel of its own choosing and at
its own expense, the settlement or defense thereof, and the Indemnified
Party shall cooperate with it in connection therewith; provided that
Enserch shall permit the Indemnified Party to participate in such
settlement or defense through counsel chosen by such Indemnified Party,
however, the fees and expenses of such counsel shall be borne by such
Indemnified Party. So long as Enserch, at Enserch's cost and expense,
(i) has undertaken the defense of, and assumed fill
responsibility for all Third Party Liabilities with respect to, such
claim,
(ii) is reasonably contesting such claim in good faith, by
appropriate proceedings, and
(iii) has taken such action (including the posting of a bond,
deposit or other security) as may be necessary to prevent any action
to foreclose a lien against or attachment of the property of the
Indemnified Party for payment of such claim,
<PAGE>
the Indemnified Party shall not pay or settle any such claim. Notwithstanding
compliance by Enserch with the preceding sentence, the Indemnified Party shall
have the right to pay or settle any such claim, provided that in such event it
shall waive any right to indemnity theref6r by Enserch for such claim. If,
within thirty (30) days after the receipt of the Indemnified Party's notice of a
claim of indemnity hereunder, Enserch does not notify the Indemnified Party that
it elects, at Enserch's cost and expense, to undertake the defense thereof and
assume fill responsibility for all Third Party Liabilities with respect thereto,
or gives such notice and thereafter fails to contest such claim in good faith or
to prevent action to foreclose a lien against or attachment of the Indemnified
Party's property as contemplated above, the Indemnified Party shall have the
right to contest, settle or compromise the claim and, to the extent the actions
taken by the Indemnified Party in contesting, settling or compromising the claim
are reasonable and in good faith, the Indemnified Party shall not thereby waive
any right to indemnity therefor pursuant to this Agreement.
Section 11.6 ENTIRE AGREEMENT. This Agreement, together with the
instruments referenced herein and the exhibits and attachments hereto, embodies
the entire agreement between the Parties with regard to the Subject Lands and
the Leases, and supersedes all other agreements, arrangements, understandings,
negotiations and discussions, whether oral or written, of the Parties relating
to the subject matter hereof and may be supplemented, altered, amended,
modified, waived or terminated by writing only, signed by the Parties.
Section 11.7 TIME OF THE ESSENCE. This is of the essence with respect to
matters covered by this Agreement in all respects.
Section 11.8 SUCCESSORS. Subject to the restrictions on assignment herein
contained, the terms and provisions of this Agreement shall inure to the benefit
of and shall be binding upon the Parties hereto and their respective legal
representatives, successors and assigns.
Section 11.9 ASSIGNMENT. Neither Party shall assign this Agreement, in
whole part, save to an Affiliate of such Party, without the prior written
consent of the other Party, and any purported assignment in violation hereof
shall be null and void. In the event such other Party consents to a proposed
assignment or in the case of an assignment to an Affiliate, such assignee must
agree to be expressly bound hereby and the assigning Party shall remain liable
for its obligations hereunder.
Section 11.10 NOTICE. The parties agree that any notices, communications
or documents that either of them desire or that may be required to be delivered
to any other shall be sent via telecopy, delivered in person, delivered by
recognized courier service (such as Federal Express) or sent certified mail,
postage prep aid, return receipt requested, received during normal business
hours for the receiving Party and addressed to the Parties at the following
respective addresses stated for each:
Enserch: Enserch Exploration, Inc.
4849 Greenville Ave., Suite 1200
Dallas, Texas 75206-4186
Attn: Mr. John C. Farris
<PAGE>
Telephone: (214) 987-7800
Telecopy: (214) 987-7815
Enterprise: Enterprise Oil Gulf of Mexico Inc.
1111 Bagby, Suite 1800
Texas Heritage Plaza
Houston, Texas 77002
Attn: Mr. A-R. Thompson
Telephone: (281) 863-2800
Telecopy: (713) 651-1012
Notices or other communications shall be effective upon receipt by the Party to
be notified, except that, for purposes hereof, if telecopy or personal delivery
is not possible, refusal by any Party to accept correspondence sent by certified
mail or two unsuccessful attempts by the U.S. Postal Service to serve any
communication sent by certified mail shall be deemed receipt of such
correspondence. Any Party may change its address for notices by written notice
to the other. The notice provisions hereof shall not supersede the notice
provisions of any applicable Operating Agreement for the matters covered
thereby.
Section 11.11 SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic and legal
substance of the transaction contemplated hereby is not affected in any adverse
manner to any Party.
Section 11.12 PUBLICITY. Enserch and Enterprise shall not, and shall cause
their respective Affiliates not to, issue or make any publicity statements, news
releases or other public statements concerning this Agreement or the operations
contemplated by this Agreement, without the prior written consent of the other
Patty with respect to the form and substance thereof, except that either Party
may make any such news release or other public statement where the releasing
party is advised by its legal counsel that such news release or other public
statement is required by applicable laws or regulations of any governmental body
or the rules of any stock exchange on which such Party or any Affiliate of such
Party is listed, but in such event the Parties shall use their reasonable good
faith efforts to agree as to the form and substance of such news release or
other public statement.
Section 11.13 NO THIRD PARTY BENEFICIARIES. Except as specified in Section
11.5, which is also intended to benefit and to be enforceable by any of the
Indemnified Parties, nothing in this Agreement shall entitle any party other
than the Parties to this Agreement to any claim, cause of action, remedy or
right of any kind.
Section 11.14 EXHIBITS. All exhibits referred to in this Agreement are
incorporated into and made a part of this Agreement.
<PAGE>
Section 11.15 CAPTIONS. All titles or headings to Articles, Sections,
subsections, or other divisions of this Agreement or the exhibits hereto are
only for the convenience of the Patties and shall not be construed to have any
effect or meaning with respect to the other content of such Articles, Sections,
subsections, or other divisions, such other content being controlling as to the
agreement between the Patties.
Section 11.16 DRAFTING OF AGREEMENT. Enserch and Enterprise each declare
that they have contributed to the drafting of this Agreement or have had it
reviewed by their counsel before signing it. It is expressly agreed that this
Agreement shall not be construed against any Party on the basis of who drafted
this Agreement or who supplied the form of Agreement. Each Party agrees that it
has been purposefully drawn and correctly reflects their understanding of the
transaction that it contemplates.
Section 11.17 SIGNATURES. The persons signing below, by their execution,
represent and warrant that they have full and lawful authority to bind the
respective entities on whose behalf they execute this Agreement.
Section 11.18 ARBITRATION. If the Parties or their respective successors,
assigns or legal representatives are unable to amicably resolve any dispute or
difference arising under or out of, in relation to or in any way connected with
(i) this Agreement, any Operating Agreement or any Lease or any Hydrocarbon
Interest subject to or acquired pursuant to this Agreement or any Operating
Agreement, or (ii) any operations, transactions, actions or inactions conducted,
arising under or out of, in relation to or in any way connected with this
Agreement, any Operating Agreement or any such Lease or Hydrocarbon Interest
(whether contractual, tortious, equitable, statutory or otherwise); including,
without limitation, the negotiation, execution, existence, amendment, validity,
enforceability, performance, non-performance, breach, termination,
interpretation or construction thereof, such matter shall be finally and
exclusively referred to and settled by arbitration under the Commercial
Arbitration Rules of the American Arbitration Association pursuant and subject
to the arbitration procedures set forth in Exhibit "E" attached hereto; provided
that, to the extent permitted by the law of arbitration the scope of application
of the Commercial Arbitration Rules of the American Arbitration Association
shall be modified as may be necessary to include all of the above referenced
matters within the scope of application of such rules. In the event of any
conflict between the Commercial Arbitration Rules of the American Arbitration
Association and the arbitration procedures set forth in Exhibit "E", the
arbitration procedures set forth in Exhibit "E" shall govern and control.
Section 11.19 FURTHER ASSURANCES. From time to time (whether before, at or
after the Closing Date), and without farther consideration, the Patties, as
appropriate, shall, and shall cause their appropriate Affiliates to, execute and
deliver or cause to be delivered such further instruments of conveyance,
assignment and transfer, or any other documents and take such other action as
may be necessary, advisable or appropriate to more effectively or completely
accomplish the transactions contemplated by this Agreement, including such
memorandums of rights or interests and other documents in recordable form as any
Party may reasonably deem necessary to protect or give notice of its rights and
interests hereunder or with respect to the Leases.
<PAGE>
Section 11.20 COSTS AND EXPENSES. Each Patty shall bear its own costs and
expenses in connection with the negotiation, preparation and execution of this
Agreement.
Section 11.21 COUNTERPARTS. Upon its execution by both Parties, this
Agreement shall become effective as of the date hereof and shall be binding upon
the Parties, their respective legal representatives, successors and assigns.
This Agreement may be executed by signing the original or a counterpart thereof,
or, if this Agreement is executed in counterparts, all counterparts taken
together shall have the same effect as if both the Parties had signed the same
instrument.
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
executed as of the date shown above, in multiple originals, to be effective as
of the date hereof.
ENSERCH EXPLORATION, INC.
By: /s/ Tom M Hamilton
Tom M. Hamilton, Chief Executive Officer
ENTERPRISE OIL GULF OF MEXICO INC.
By: /s/ Tom M Hamilton
A.R. Thompson, President
<PAGE>
FIRST AMENDMENT
TO
EXPLORATION AND PARTICIPATION AGREEMENT
This First Amendment to Exploration and Participation Agreement (this
"Amendment') dated as of August 11, 1997, by and between ENSERCH EXPLORATION,
INC., a Texas corporation ("Enserch"), and ENTERPRISE OIL GULF OF MEXICO
INC., a Delaware corporation ("Enterprise'). Enserch and Enterprise are
sometimes hereinafter referred to individually as a "Party" and collectively
as the "Parties".
WHEREAS, under date of June 30, 1997, Enserch and Enterprise made and
entered into that certain Exploration and Participation Agreement (the
"Agreement") wherein Enterprise agreed to participate with Enserch in the
drilling of certain wells on certain oil and gas leases described therein on
the terms and conditions therein set forth; and
WHEREAS, the Parties mutually desire to amend the Agreement as
hereinafter set forth;
NOW, THEREFORE, for and in consideration of the premises, Enserch and
Enterprise hereby covenant and agree as follows:
(1) Paragraph (1) of Section 1.1 of the Agreement is hereby amended to
read as follows:
"(1) "Closing Date" means September 19, 1997, or such other date
as may be mutually aged to by Enserch and Enterprise."
(2) Except as amended hereby, the Agreement shall continue in full force
and effect and Enserch and Enterprise ratify and confirm the Agreement as
amended hereby.
IN WITNESS WHEREOF, each of the Parties has caused this Amendment to be
executed as of the date shown above, in multiple originals, to be effective
as of the date hereof.
ENSERCH EXPLORATION, INC.
By: /s/ David R. Henderson
David R. Henderson, Chief Operating Officer
ENTERPRISE OIL GULF OF MEXICO INC.
By: /s/ A. R. Thompson
A.R. Thompson, President
<PAGE>
SECOND AMENDMENT
TO
EXPLORATION AND PARTICIPATION AGREEMENT
This Second Amendment to Exploration and Participation Agreement (this
"Amendment") dated as of September 15, 1997, by and between ENSERCH EXPLORATION,
INC., a Texas corporation ("Enserch"), and ENTERPRISE OIL GULF OF MEXICO INC., a
Delaware corporation ("Enterprise"). Enserch and Enterprise are sometimes
hereinafter referred to individually as a "Party" and collectively as the
"Parties". Capitalized terms used in this Amendment but not otherwise defined
herein shall have the meanings ascribed to them in the "Agreement" (as
hereinafter defined).
WHEREAS, under date of June 30, 1997, Enserch and Enterprise made and
entered into that certain Exploration and Participation Agreement wherein
Enterprise agreed to participate with Enserch in the drilling of certain wells
on certain oil and gas leases described therein on the terms and conditions
therein set forth; and
WHEREAS, said Exploration and Participation Agreement was amended by First
Amendment dated as of August 11, 1997, by and between Enserch and Enterprise
(said Exploration and Participation Agreement, as so amended, being hereinafter
referred to as the "Agreement"); and
WHEREAS, Section 5.1(b) of the Agreement provides, in effect, that if a
third party who has been offered a Preference Property pursuant to Section
5.1(a) of the Agreement elects prior to Closing to purchase such Preference
Property in accordance with the terms of such Preference Right, such Preference
Property will be eliminated from the Subject Interests and the Payment Amount
shall be reduced by the portion of the Payment Amount allocated to such
Preference Property pursuant to Section 5.1(a) of the Agreement; and
WHEREAS, certain Preference Properties were offered by Enserch to Reading &
Bates Development Co. ("Reading & Bates") pursuant to Section 5.1(a) of the
Agreement, being an undivided fifty percent (50%) of Enserch's interests in
Blocks 252, 299 and 301 in the Green Canyon Area, OCS Official Protraction
Diagram NG 15-3 (hereinafter referred to as the "Reading & Bates Preference
Properties"); and
WHEREAS, pursuant to an agreement reached between Enserch and Reading &
Bates, Enserch conveyed to Reading & Bates all of Enserch's interests in the
Leases covering such Blocks, including the Reading & Bates Preference
Properties; and
WHEREAS, as part of such transaction, Enserch acquired from Reading & Bates
an undivided twenty percent (20%) interest in and to the Leases described in
Exhibit "A-1" attached hereto and made a part hereof, insofar and only insofar
as such Leases cover areas and depths which are not expressly excluded in
Exhibit "A-1" (said undivided twenty percent (20%) interest in and to said
Leases, insofar only as said Leases cover such areas and depths, is herein
called "Enserch's Additional Interest"), and said Leases, insofar as they cover
such areas and depths, are herein called the "Exhibit "A-1" Leases"); and
WHEREAS, Enserch and Enterprise desire (a) to amend the Agreement to
reflect the
<PAGE>
elimination of the Reading & Bates Preference Properties from the Subject
Interests and the reduction of the Payment Amount provided for in Section 3.1 of
the Agreement by an amount equal to the portion of the Payment Amount allocated
to the Reading & Bates Preference Properties under Section 5.1(a) of the
Agreement, (13) to amend the Agreement to include an option for Enterprise to
acquire from Enserch an undivided fifty percent (50%) interest in and to
Enserch's Additional Interest, and (c) to amend Exhibit "A" to the Agreement,
all as hereinafter set forth;
NOW, THEREFORE, for and in consideration of the premises, Enserch and
Enterprise hereby covenant and agree as follows:
(1) The Reading & Bates Preference Properties are hereby eliminated from
the Subject Interests, and the Payment Amount is hereby reduced by an amount
equal to $3,450,000.00, being the aggregate amount allocated to the Reading &
Bates Preference Properties under Section 5.1(a) of the Agreement. Accordingly,
the Payment Amount, as so reduced, is $61,550,000.00.
(2) Exhibit "A" to the Agreement is hereby deleted in its entirety and the
Exhibit "A" attached to this Amendment is hereby substituted therefor as fully
as if and with the same effect as though the Exhibit "A" attached hereto were
attached to the Agreement in lieu of the Exhibit "A" first mentioned above.
(3) For the same consideration hereinabove provided, Enserch hereby grants
to Enterprise the exclusive right and option to acquire an undivided fifty
percent (50%) interest in and to Enserch's Additional Interest (said undivided
fifty percent (50%) interest in and to Enserch's Additional Interest being
hereinafter referred to as the "Additional Subject Interest"), upon the
following terms and conditions. Such option must be exercised, if at all, by
Enterprise's delivery to Enserch of written notice of the exercise thereof prior
to 5:00 o'clock p.m., Houston time, on October 3, 1997. In the event Enterprise
fails to exercise such option within the time and in the manner herein
specified, then the option granted herein shall automatically cease and
terminate, and there shall be no further obligation under this Paragraph on
either Party hereto, but all of the other terms and provisions of this Amendment
shall remain in full force and effect. In such event, at the request of Enserch,
Enterprise shall promptly execute and deliver to Enserch an appropriate release
evidencing such termination. In the event and only in the event that Enterprise
exercises the option herein granted within the time and in the manner herein
specified, then Enserch agrees to assign and convey to Enterprise, and
Enterprise agrees to acquire from Enserch, the Additional Subject Interest for
the consideration and upon the terms and provisions set forth below:
(a) The consideration for the assignment and conveyance of the
Additional Subject Interest shall be the increase of the Payment Amount by
an amount equal to $3,450,000.00, which increased Payment Amount shall be
satisfied by Enterprise paying for certain Drilling Costs attributable to
Enserch's Participating Interest in Leases and/or Unit Areas as provided
for in Section 3.2 of the Agreement. Upon such exercise of Enterprise's
option, for purposes of the Agreement, Exhibit "A" to the Agreement, as
hereby amended, shall be deemed supplemented by Exhibit "A-1" hereto.
(b) The closing of such acquisition shall be held within thirty (30)
days
<PAGE>
following Enterprise's exercise of such option, at the offices of Fulbright
& Jaworski L.L.P. at 1301 McKinney, Houston, Texas, or at such other time
or place as Enserch and Enterprise may otherwise agree in writing. At
closing, Enserch shall execute and deliver to Enterprise an assignment of
the Additional Subject Interest in substantially the form attached to the
Agreement as Exhibit "B" (modified to convey operating rights in the
applicable Exhibit "A-1" Lease, as appropriate, where Enserch's Additional
Interest is limited to specific depths), together with such other documents
as may be reasonably necessary to convey the Additional Subject Interest to
Enterprise in accordance with this Amendment, and Enterprise shall execute
and deliver designations of operator, on forms prescribed or approved by
the MMS, designating as operator of the Exhibit "A-1" Leases the operator
under the applicable Operating Agreement.
(4) The terms and provisions of this Amendment shall survive the Closing.
(5) Except as amended hereby, the Agreement shall continue in full force
and and effect and Enserch and Enterprise ratify and confirm the Agreement
as amended hereby.
IN WITNESS WHEREOF, each of the Parties has caused this Amendment to be
executed as of the date shown above, in multiple originals, to be effective as
of the date hereof.
ENSERCH EXPLORATION, INC.
By: /s/ John C. Farris
John C. Farris, Regional Director
ENTERPRISE OIL GULF OF MEXICO INC.
By: /s/ A.R. Thompson
A.R. Thompson, President
<PAGE>
EXHIBIT 21
SUBSIDIARIES AND AFFILIATES OF EEX CORPORATION
----------------------------------------------
EEX Operating LLC
EEX Operating L.P.
EEX Capital Inc.
Enserch Offshore, Inc.
Enserch International Oil & Gas, Inc.
EEX International, Inc.
DALEN Resources California Co.
Corpus Christi Energy Co.
Corpus Christi Hydrocarbons Co.
Enserch (UK) Oil & Gas Limited
Enserch Far East Ltd.
Enserch India, Inc.
Enserch Malaysia Ltd.
Enserch Middle East Ltd.
EEX Asahan Ltd.
Enserch International Exploration Ltd.
<PAGE>
EXHIBT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 333-24595 registering 6,313,432 shares of common stock pursuant to
the Employee Stock Purchase and Savings Plan, Employee Stock Option Plan,
Revised and Amended 1996 Stock Incentive Plan, Non-Qualified Stock Option
Agreement and Restricted Stock Agreement and Form S-8 No. 333-41979 registering
1,500,000 shares of common stock pursuant to the 1997 Non-Officer Stock Option
Plan) of EEX Corporation of our report dated February 13, 1998, with respect to
the consolidated financial statements of EEX Corporation included in this Annual
Report (Form 10-K) for the year ended December 31, 1997.
ERNST & YOUNG LLP
Houston, Texas
March 17, 1998
<PAGE>
EXHIBIT 23.2
EEX Corporation
2500 City West Blvd #1400
Houston, TX 77042
We hereby consent to the filing of the Annual Report on Form 10-K, for
the year ended December 31, 1997, for EEX Corporation in accordance with the
requirements of the Securities Act of 1933, with the inclusion in such Annual
Report of our reserve report incorporated therein, and references to our name in
the form and context in which they appear, and the incorporation by reference
thereof into the Company's Registration Statements on Form S-8, No. 333-24595
and No. 333-41979.
NETHERLAND, SEWELL & ASSOCIATES, INC.
By: /s/ CLARENCE M. NETHERLAND
-----------------------------
Clarence M. Netherland
Chairman
Houston, Texas
March 17, 1998
<PAGE>
EXHIBIT 23.3
[LETTERHEAD OF DEGOLYER AND MACNAUGHTON]
February 6, 1998
EEX Corporation
4849 Greenville Avenue
Dallas, Texas 75206
Gentlemen:
We hereby consent to the references to our firm and to our reserves
estimates for the years ended December 31, 1994, 1995, and 1996 as set forth in
the Annual Report on Form 10-K (the Annual Report) of Enserch Exploration, Inc.
for the year ended December 31, 1997. Our estimates of the oil, condensate,
natural gas liquids, and natural gas reserves of certain properties owned by the
Company are contained in our reports entitled "Report as of January 1, 1995 on
Proved and Probable Reserves of Certain Properties owned by Enserch Exploration,
Inc.," "Report as of January 1, 1996 on Reserves in Certain Properties owned by
Enserch Exploration, Inc.," and "Report as of January 1, 1997 on Reserves of
Certain Properties owned by Enserch Exploration, Inc." References to us and to
our estimates are included in Note 17 of the "Notes to Financial Statements" in
the Annual Report. Additionally, we hereby consent to the incorporation by
reference in the Company's Registration Statements Nos. 333-24595 and 333-41979
on Form S-8 of such references made in the Annual Report.
Very truly yours,
/s/ DEGOLYER AND MACNAUGHTON
DeGOLYER and MacNAUGHTON
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM APPLICABLE
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,790
<SECURITIES> 0
<RECEIVABLES> 57,925
<ALLOWANCES> 1,161
<INVENTORY> 0
<CURRENT-ASSETS> 73,260
<PP&E> 1,901,678
<DEPRECIATION> (1,192,691)
<TOTAL-ASSETS> 807,789
<CURRENT-LIABILITIES> 132,065
<BONDS> 258,317
0
0
<COMMON> 1,271
<OTHER-SE> 273,392
<TOTAL-LIABILITY-AND-EQUITY> 807,789
<SALES> 0
<TOTAL-REVENUES> 314,213
<CGS> 0
<TOTAL-COSTS> 554,566
<OTHER-EXPENSES> (301)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,645
<INCOME-PRETAX> (270,123)
<INCOME-TAX> (58,945)
<INCOME-CONTINUING> (216,103)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (216,103)
<EPS-PRIMARY> (1.71)
<EPS-DILUTED> (1.71)
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM APPLICABLE
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997 DEC-31-1996
<PERIOD-END> SEP-30-1997 JUN-30-1997 MAR-31-1997 DEC-31-1996
<CASH> 1,551 3,591 6,706 1,358
<SECURITIES> 0 0 0 0
<RECEIVABLES> 65,407 52,340 60,466 95,803
<ALLOWANCES> 0 0 0 1,351
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<CURRENT-ASSETS> 87,701 62,979 75,868 115,427
<PP&E> 1,987,752 2,044,133 2,017,947 2,006,425
<DEPRECIATION> (1,221,234) (1,008,883) (970,761) (941,052)
<TOTAL-ASSETS> 895,728 1,113,688 1,133,980 1,195,454
<CURRENT-LIABILITIES> 136,201 99,117 110,920 120,500
<BONDS> 268,694 322,826 312,204 356,735
0 150,000 150,000 150,000
0 0 0 0
<COMMON> 1,269 126,920 126,870 126,736
<OTHER-SE> 292,083 348,084 361,459 363,670
<TOTAL-LIABILITY-AND-EQUITY> 895,278 1,113,688 1,133,980 1,195,454
<SALES> 0 0 0 0
<TOTAL-REVENUES> 240,294 162,064 86,807 338,146
<CGS> 0 0 0 0
<TOTAL-COSTS> 487,041 169,586 82,599 370,192
<OTHER-EXPENSES> 150 71 21 (2,092)
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 25,502 16,698 7,744 27,149
<INCOME-PRETAX> (271,930) (24,205) (3,505) (56,837)
<INCOME-TAX> (74,665) (8,475) (1,304) (20,306)
<INCOME-CONTINUING> (197,338) (15,730) (2,201) (36,801)
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> (197,338) (15,730) (2,201) (36,801)
<EPS-PRIMARY> (1.56) (.12) (.02) (.29)
<EPS-DILUTED> (1.56) (.12) (.02) (.29)
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<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM APPLICABLE
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS YEAR YEAR
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<PERIOD-END> SEP-30-1996 JUN-30-1996 MAR-31-1996 DEC-31-1995 DEC-31-1994
<CASH> 1,485 1,873 7,064 1,565 269
<SECURITIES> 0 0 0 0 0
<RECEIVABLES> 60,201 88,234 92,539 75,476 118,532
<ALLOWANCES> 0 0 0 1,814 670
<INVENTORY> 0 0 0 0 0
<CURRENT-ASSETS> 76,508 104,589 117,634 91,927 124,060
<PP&E> 1,878,188 1,907,317 1,853,119 1,855,408 1,368,695
<DEPRECIATION> (911,230) (860,796) (819,975) (791,459) (687,172)
<TOTAL-ASSETS> 1,070,109 1,177,173 1,179,523 1,180,238 812,171
<CURRENT-LIABILITIES> 109,201 114,070 109,430 136,827 180,604
<BONDS> 220,771 313,935 288,084 254,184 151,095
150,000 150,000 150,000 150,000 0
0 0 0 0 0
<COMMON> 126,714 126,625 126,620 126,575 106,513
<OTHER-SE> 373,945 377,390 390,447 399,417 258,315
<TOTAL-LIABILITY-AND-EQUITY> 1,070,109 1,177,173 1,179,523 1,180,238 812,871
<SALES> 0 0 0 0 0
<TOTAL-REVENUES> 248,480 163,941 76,972 237,358 191,866
<CGS> 0 0 0 0 0
<TOTAL-COSTS> 268,090 184,353 84,415 286,224 219,576
<OTHER-EXPENSES> (42) (84) (57) (161) 314
<LOSS-PROVISION> 0 0 0 0 0
<INTEREST-EXPENSE> 21,015 14,098 6,793 18,149 23,124
<INCOME-PRETAX> (40,583) (34,426) (14,179) (65,827) (50,477)
<INCOME-TAX> (14,309) (12,094) (4,986) (23,242) 256
<INCOME-CONTINUING> (26,274) (22,331) (9,192) (42,585) (50,733)
<DISCONTINUED> 0 0 0 0 0
<EXTRAORDINARY> 0 0 0 0 0
<CHANGES> 0 0 0 0 0
<NET-INCOME> (26,274) (22,331) (9,192) (42,585) (50,733)
<EPS-PRIMARY> (.21) (.18) (.07) (.38) (.31)
<EPS-DILUTED> (.21) (.18) (.07) (.38) (.31)
</TABLE>
