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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (fee required) for the fiscal year ended December 31, 1998 or
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (no fee required) for the transition period from
to
Commission file number 1-12905
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EEX CORPORATION
(Exact name of Registrant as specified in its charter)
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<TABLE>
<CAPTION>
Texas 75-2421863
<S> <C>
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
<CAPTION>
2500 CityWest Blvd. 77042
Suite 1400 (Zip Code)
Houston, Texas
<S> <C>
(Address of principal executive
office)
</TABLE>
(713) 243-3100
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Common Stock ($.01 Par Value) New York Stock Exchange
<S> <C>
(Title of Each Class) (Name of Each Exchange
on Which Registered)
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 1,
1999: $242,579,367.
Shares of the Registrant's Common Stock outstanding as of March 1, 1999:
42,382,058 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 the Registrant's definitive
proxy statement for the 1999 annual meeting of shareholders.
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FORM 10-K
ANNUAL REPORT
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
TABLE OF CONTENTS
<TABLE>
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Page
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<C> <S> <C>
PART I
ITEM 1. Business...................................................... 3
General..................................................... 3
History..................................................... 3
Strategy.................................................... 3
U.S. Exploration and Development--Offshore.................. 4
U.S. Exploration and Development--Onshore................... 5
International Exploration and Development................... 6
Plant Operations Business................................... 6
Sales of Natural Gas and Crude Oil.......................... 7
Competition................................................. 7
Government Regulation....................................... 7
Employees................................................... 9
Offices..................................................... 9
Forward-Looking Statements--Uncertainties and Risks......... 10
ITEM 2. Properties.................................................... 11
ITEM 3. Legal Proceedings............................................. 13
ITEM 4. Submission of Matters to a Vote of Security Holders........... 14
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder
Matters...................................................... 14
ITEM 6. Selected Financial and Operating Data......................... 15
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 17
Results of Operation........................................ 17
Liquidity and Capital Resources............................. 20
Other Matters............................................... 21
ITEM 7A. Quantitative and Qualitative Disclosure About Market Risk..... 22
ITEM 8. Financial Statements and Supplementary Data................... 23
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure..................................... 48
PART III
ITEM 10. Directors and Executive Officers of Registrant................ 48
ITEM 11. Executive Compensation........................................ 48
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management................................................... 48
ITEM 13. Certain Relationships and Related Transactions................ 48
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-
K............................................................ 48
</TABLE>
2
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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 Gulf of Mexico and Indonesia. EEX also provides
operation and maintenance services, under contract, to two cogeneration plants
("Plant Operations Business").
History
The oil and gas exploration and production business of EEX was conducted,
historically, through subsidiary and affiliate entities of ENSERCH Corporation
("ENSERCH"). From 1985 through December 30, 1994, the 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 ownership interest of approximately 99%, with the balance held
by the public. The public's ownership interest increased to approximately 17%
following a public sale of common stock by Old EEI in September 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. Old EEI was first merged into LSEPO, with
LSEPO being the surviving company ("Merger"). In the Merger, LSEPO changed its
name to Enserch Exploration, Inc. ("EEI"). ENSERCH then 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. On December 19, 1997, EEI changed its name to EEX
Corporation.
Strategy
The transition to independent status in 1997, coupled with the engagement of
a new senior management team, resulted in a significant restructuring of the
Company's assets, operations and strategy. The resultant strategy is intended
to provide reserve and production growth and improved investment and operating
efficiency. EEX separates its Gulf of Mexico activities into two major areas:
the Continental Shelf ("Shelf") for water depths up to 600 feet and the
deepwater Gulf of Mexico ("Deepwater") for water depths in excess of 600 feet
(a majority of the Deepwater blocks held by EEX fall in water depths between
1,500 and 3,500 feet). Areas where water depths are in excess of 5,000 feet
are often referred to as "Ultra-deep." The major elements of this strategy
are:
Explore EEX's Deepwater Gulf of Mexico Lease Portfolio--During early 1997,
the EEX focus in the Deepwater Gulf of Mexico shifted from the shallower
Pleistocene play to the deeper Pliocene and Miocene plays where significant
reserve potential has been confirmed by recent industry activity. Through
application of geologic and geophysical models, the Company believes that
potential reserves under its current leasehold interests may provide the basis
for significant long-term production growth. The Company believes that the
rigs it has under contract (supplemented as necessary by rigs available in the
global market) are sufficient to execute its Deepwater exploration program. 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 1997. This joint venture provides that Enterprise will fund
a portion of EEX's share of exploratory well costs and certain appraisal and
development costs in return for one-half of EEX's working interest in 78
Deepwater leases. EEX plans to pursue additional joint venture arrangements in
the future to reduce its financial risk. The Company plans to continue to
acquire additional leases as part of its Deepwater strategy.
3
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Realize Value from the Cooper Floating Production System ("FPS") and
Pipelines--The Company owns a 60% interest in the FPS and associated pipelines
and other supporting facilities. The FPS is a combination Deepwater drilling
rig and processing facility capable of simultaneous operations. The facility
is capable of processing approximately 40,000 barrels of oil and 100 million
cubic feet of gas daily for transport into a pipeline system. The two
associated pipelines are each approximately 53 miles long and have estimated
daily throughput capacity of 100,000 barrels of oil and 200 million cubic feet
of gas. A processing facility located at the terminus of the pipelines in
shallow water is also 60% owned by EEX. The Company believes that these assets
are significantly underutilized in their present capacity as support for the
Cooper Field. The FPS and pipelines are located approximately six miles from
the Llano discovery well and may have utility as support infrastructure for
anticipated development at Llano and the greater Llano area. In addition, the
Company is evaluating other options to realize the value of the FPS, including
its potential use in support of other drilling and/or processing operations.
Explore and Exploit EEX's Gulf of Mexico Shelf Lease Portfolio--Production
from EEX's Shelf properties represents approximately 50% of total Company
production. In late 1998, the Company began geologic and geophysical studies
to identify reserve potential in formations deeper than conventionally pursued
in the Gulf of Mexico Shelf. The Company believes it may be economically more
attractive to explore this potential than to continue a large-scale
exploitation program in and around existing mature fields. The Company intends
to limit its investment in conventional Shelf exploitation and focus technical
resources on the deeper exploration reserve potential. The Company may change
the composition and size of its leasehold position in the Shelf through
participation in lease sales, asset trades or sales to other operators,
acquisition of producing properties, and/or permitting some leases to expire.
Exit Onshore U.S. Operations--During 1998, the Company sold substantially
all of its assets in East Texas, Oklahoma and North Texas. In addition, the
Company traded its West Texas assets and most of its producing properties in
Louisiana for Gulf of Mexico Shelf producing properties. The Company's
remaining onshore U.S. assets, located along the Texas and Louisiana Gulf
Coast, are generally of higher quality than the assets divested. The Company
has allocated a limited capital investment program to pursue the additional
exploration reserve potential in this area prior to eventual sale or trade.
Expand International--EEX believes that exploration outside of the U.S can
be economically attractive and plans to continue exploration and development
activities in Indonesia. The Company ended all evaluation and exploration
activity under agreements previously signed in Turkey. Additional exploration
opportunities may be acquired, primarily those requiring limited near-term
investment and providing options to expand operations if prospectivity and
economic conditions warrant.
U.S. Exploration and Development--Offshore
Deepwater Gulf of Mexico Exploration--In 1997, the first exploratory well
(Llano, EEX 30% interest) drilled in the Deepwater program, at Garden Banks
Block 386, encountered hydrocarbon intervals between 23,000 and 25,000 feet.
During 1998, EEX deepened the Llano discovery well, drilled two exploration
wells in untested areas of the Deepwater and participated in a third
exploration well that tested a prospect in Ultra-deep waters. The Llano well
was deepened to 27,864 feet into Miocene age sands and encountered
hydrocarbons. Well logs indicated the presence of approximately 200 feet of
net pay. An initial exploration well in Green Canyon Block 341 (Sheba, EEX
36.25% interest) was drilled into the eastern edge of a large untested
structure. This well encountered sand development in the primary target sand
but did not appear to be connected to a migration pathway from the hydrocarbon
source and, consequently, was not successful. Additional seismic
interpretation work has identified other prospects in this structure. The
second Deepwater exploratory well in 1998 was drilled at Mississippi Canyon
Block 580 (Elvis, EEX 23% interest) and was unsuccessful due to the absence of
sufficient sand development. EEX participated in a third exploratory well
drilled by another operator (Gamera, EEX 12.5% interest) in a water depth in
excess of 7,700 feet on Atwater Valley Blocks 118/119. This well was also
unsuccessful.
4
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EEX also participated in an exploration well located on Viosca Knoll Block
737 (EEX 12.5% interest) operated by another company to test a shallower
Miocene-aged structure on the Flex Trend in the Gulf of Mexico. The well
encountered gas sands; however, the reserve size was insufficient to justify
commercial development at this time. The well was plugged and abandoned.
As a result of the Enterprise joint venture agreement and agreements with
other working interest owners entered into to reduce the financial risk
associated with Deepwater exploration, EEX's total dry hole expense in 1998
associated with its Deepwater exploration wells was $5 million. In the absence
of these agreements, EEX's dry hole expense in 1998 would have increased by
$27 million.
EEX participated in the Minerals Management Service sponsored Outer
Continental Shelf lease sales numbers 169 and 171, adding 12 Deepwater blocks
to the leasehold inventory at a net cost of $9 million. As a result of these
new leases, four new prospects were added to EEX's Deepwater prospect
inventory while solidifying leasehold positions around several existing
prospects. At year-end, EEX held interests in 98 blocks in the Deepwater Gulf
of Mexico, nine of which were held by unit production, and 57 of which were
operated by EEX.
In October 1998, EEX entered into a three-year contract for the use of the
Global Marine semi-submersible rig, Arctic I, at an average rate over the life
of the contract of $130,000 per day commencing upon delivery of the rig in
mid-1999. At the end of 1998, EEX had two Deepwater rigs under contract. The
first is the Diamond Offshore Ocean Voyager, whose rig contract will expire in
early 1999 with the conclusion of drilling the first appraisal well at the
Llano prospect. The second rig contract, for the R&B Falcon C. Kirk Rhein, Jr.
rig, has approximately one year of drilling time remaining over the next two
calendar years at a cost of approximately $95,000 per day. In early 1999, this
rig completed drilling at the Elvis prospect and began drilling the George
Prospect on Mississippi Canyon Block 442.
Deepwater Gulf of Mexico Appraisal and Development--In the third quarter of
1998, the first appraisal well began to drill on Garden Banks Block 386 to
follow-up on the Llano discovery. EEX expects to incur no net capital
expenditure for the cost of this well as it is covered under the Enterprise
joint venture agreement. During 1998, EEX also undertook feasibility studies
to explore early production options for the Llano field. The working interest
owners on the lease elected to defer additional studies or procurement of
facilities until the results of the appraisal well are obtained and evaluated.
EEX reported no proved reserves at year-end 1998 attributable to the Llano
discovery.
Deepwater Gulf of Mexico, Cooper Field--The Cooper Field (Garden Banks Block
388), developed in the shallower depths of Pleistocene sands, began to produce
oil and gas in 1995 and has declined rapidly. During 1998, the field began to
approach the end of its economic life. EEX is assessing alternative uses for
the FPS and the oil and gas pipelines serving the Cooper Field. The Company is
studying the possible use of these facilities and pipelines as part of an
early production option for production anticipated from the discovery at
Llano. The Cooper Field had four wells on production at year-end 1998.
Gulf of Mexico Shelf (Including Texas State Waters)--During 1998, EEX
participated in the drilling of 13 wells on the Continental Shelf: nine of
which were completed, three were unsuccessful and one well on Vermillion Block
37 (EEX 75% interest) was temporarily abandoned for possible sidetracking
following additional evaluation of seismic data. Approximately $5 million in
net well costs for Vermillion Block 37 has been suspended pending the outcome
of this technical review. Shelf operating costs on an equivalent operating
basis were reduced from $3.20 per barrel of oil in 1997 to $2.71 per barrel of
oil in 1998. This reduction was achieved through the restructuring of shore
base operations in Cameron and Fourchon in Louisiana, consolidations and
improvement in helicopter and supply boat logistics and maintenance operations
and decreased facility downtimes.
U.S. Exploration and Development--Onshore
During 1998, the Company aggressively pursued its strategy to exit U.S.
onshore.
5
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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.
This sale was closed in April 1998 with an effective date of January 1, 1998.
EEX received $235 million and retained an approximate 30 billion cubic feet
production payment (net of royalty) from the purchaser. EEX retained this
production payment to support a long-standing volumetric gas supply obligation
to Encogen One Partners, Ltd.
In October 1998, EEX closed a property trade that exchanged substantially
all of its properties located in West Texas for properties in the Gulf of
Mexico Shelf plus $9 million in cash consideration. The effective date for
this exchange was January 1, 1998.
In December 1998, EEX agreed to sell substantially all of its oil and gas
properties in the Oklahoma and the Hardeman basin in North Central Texas, for
an aggregate consideration of approximately $32 million in cash. The two
transactions were closed in December 1998.
In December 1998, EEX agreed to exchange its operated oil and gas producing
properties in Louisiana plus cash compensation for interests in the East
Cameron Block 349/350 field. This exchange was completed on January 21, 1999.
EEX's remaining onshore producing properties are concentrated primarily
along the Texas Gulf Coast.
International Exploration and Development
Indonesia (Onshore Java) Tuban Block--EEX acquired an additional 25%
interest in the Tuban block during the first quarter of 1998 for approximately
$40 million plus a portion of the future net profits. As a result of this
acquisition, EEX now owns a 50% interest in the production sharing contract
relating to the Tuban block, which includes the Mudi Field. During the second
quarter of 1998, initial production facilities at the Mudi Field were
completed by the operator and production was increased to approximately 20,000
barrels of oil per day (gross). Well productivity has exceeded expectations
and contributed to an increase in reported gross recoverable reserves. EEX
also participated in the drilling of an unsuccessful exploration well on the
Karang Anyar prospect located southeast of the Mudi Field. The well
encountered a non-commercial gas accumulation and was plugged.
Indonesia (Offshore Sumatra) Asahan Block--In 1997, EEX acquired a 60%
interest in 4,200 square kilometers in the Asahan block. During 1998, seismic
data over the block was acquired and processed. During 1999, EEX plans to seek
a partner to contribute all or a portion of exploratory well costs to earn an
interest in the block.
Turkey--During 1998, EEX pursued two exploration opportunities in Turkey. An
exploratory well was drilled in the Salt Lake Prospect, the Sultanhani #2, for
a net cost to EEX of approximately $4 million. The well was unsuccessful.
Additionally, EEX had the opportunity to participate in exploratory licenses
covering 1.6 million gross acres located on the southeastern portion of the
South Mardin Basin. EEX elected not to fund these additional investments and
the agreement was cancelled. Both concessions in Turkey were returned to the
operator, concluding EEX's activities in Turkey.
Plant Operations Business
EEX Power Systems Company ("EEXPS"), a division of EEX, provides operation
and maintenance services under contract to two cogeneration plants: (i)
"Encogen One," a 255 MW cogeneration facility located in Sweetwater, Texas and
(ii) "Encogen Northwest," a 160 MW cogeneration facility located in
Bellingham, Washington. EEXPS operates and maintains the facilities under
terms of operation and maintenance agreements that provide EEXPS periodic fees
and reimbursement of certain costs. Until November 1998, EEXPS also operated a
third cogeneration facility in Buffalo, New York. However, as a result of the
termination of the facility's power purchase agreement, the owners exercised
buy-out provisions and terminated the operation and maintenance agreement.
6
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Sales of Natural Gas and Crude Oil
EEX sells its natural gas under both long- and short-term contracts. EEX
markets most of its gas through third-party marketing organizations. EEX sells
its crude oil under contracts that are for periods of one year or less. Prices
generally are based upon field posted prices plus negotiated bonuses. EEX
makes no sales of natural gas and/or crude oil that are in the aggregate equal
to ten percent or more of its revenues to a customer where the loss of such
customer would have a material adverse effect on EEX.
Sales data are set forth under "Selected Operating Data" included as part of
Item 6.
EEX utilizes financial instruments to reduce exposure of its oil and gas
production to price volatility. See Item 7A, "Quantitative and Qualitative
Disclosures about Market Risk"; Item 7, "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Oil and Gas Marketing"; and
Note 12 to Consolidated Financial Statements in Item 8 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,
equipment, and capital required to conduct operations. EEX's competitors
include major oil and gas companies, as well as numerous 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. The Company believes that it has a large
inventory of exploratory prospects, relative to its size; however, large
capital investments will be required to explore, appraise and develop these
prospects. The Company's success in discovering reserves will depend on its
ability to select and exploit suitable prospects in today's competitive market
and on its ability to find appropriate partners to reduce the financial risk
of exploration and development.
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. Because these 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 Onshore Operations--The Texas Railroad Commission regulates
the production of oil and gas by EEX in Texas. Similar types of regulations
are in effect in Indonesia and other foreign countries. 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
addition, conservation laws establish maximum rates of production requirements
regarding the ratability of production.
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 for exploration, development and production plans
prior to the commencement of offshore operations. Similarly, the MMS has
promulgated regulations governing the plugging and abandoning of wells located
offshore and the removal of all production facilities. The MMS also issues
rules on calculation of royalty payments and valuation of production for
royalty purposes. 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.
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Environmental Matters--EEX's U.S. 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. Failure to comply with these laws
and regulations may result in the assessment of administrative, civil, or
criminal penalties.
With respect to offshore leases in U.S. waters, EEX's operations are subject
to interruption or termination by governmental authorities on account of
environmental contamination and other considerations. The Outer Continental
Shelf Lands Act ("OCSLA") provides the federal government with broad
discretion in regulating the release or continued use of offshore resources
for oil and gas production. If the government were to exercise its authority
under OCSLA to restrict the availability of offshore oil and gas leases (for
example, due to a serious incident of pollution), such an action could have a
material adverse effect on EEX's operations.
The Oil Pollution Act of 1990 ("OPA") and regulations thereunder impose a
variety of regulations on "responsible parties" (which includes owners and
operators of onshore facilities, pipelines, and vessels, or lessees or
permittees of areas where offshore facilities are located) related to the
prevention of oil spills and liability for damages resulting from such spills
in the United States waters. The OPA assigns liability to each responsible
party for oil removal and cleanup costs, and a variety of public and private
damages including natural resource damages. In addition, OPA imposes ongoing
requirements on responsible parties, including preparation of spill response
plans and proof of financial responsibility to cover at least some costs in a
potential spill. EEX maintains insurance against costs of cleanup operations,
but is not fully insured against all such risks. 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.
EEX's U.S. onshore operations are subject to numerous laws and regulations
controlling the discharge of materials into the environment or otherwise
relating to the protection of the environment. These laws and regulations,
among other things, may 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, 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 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 ("RCRA") and
comparable state laws and regulations. In addition, EEX currently owns or
leases, and has in the past owned or leased, properties that have been used
for oil and gas operations for many years. Although EEX has utilized operating
and disposal practices that were standard in the industry at the time,
hydrocarbons or other wastes may have been disposed of or released on or under
the properties owned or leased by EEX or on or under other locations where
such wastes have been taken for disposal. Many of these properties have been
operated by third parties whose operations were not under EEX's control. These
properties and the wastes disposed thereon may be subject to CERCLA, RCRA, and
analogous state laws, and EEX could be required to remove or remediate
previously disposed wastes or property contamination or perform remedial
plugging operations to prevent future contamination.
EEX's foreign operations are potentially subject to similar governmental
controls and restrictions relating to the environment. Requirements of these
foreign governmental bodies may include, among other things, controls over the
discharge of materials in the environment, standards for removal and cleanup
of spills, and restrictions on the handling and disposal of waste materials.
8
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Regulation of 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 includes 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 jurisdiction of the Federal Energy Regulatory Commission
("FERC") over natural gas transportation was unaffected by the Decontrol Act.
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.
The courts have largely affirmed the significant features of Order No. 636
and numerous related orders pertaining to the individual pipelines, although
certain appeals remain pending and the FERC continues to review and modify its
open access regulations. In particular, the FERC has recently begun a broad
review of its transportation regulations, including how they operate in
conjunction with state proposals for retail gas market restructuring, whether
to eliminate cost-of-service rates for short-term transportation, whether to
allocate all short-term capacity on the basis of competitive auctions, and
whether changes to its long-term transportation policies may also be
appropriate to avoid a market bias toward short-term contracts. While any
resulting FERC action would affect EEX only indirectly, these inquiries are
intended to further enhance competition in natural gas markets, while
maintaining adequate consumer protections.
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, nondiscriminatory purchase and
transport requirements, but does not currently entail rate regulation. Growing
competitive pressures in marketing natural gas may cause states to regulate
gathering facilities more stringently in the future.
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, 1999, EEX had 243 full-time employees, 192 of which were
involved principally with oil and gas operations. The remaining employees were
involved with Plant Operations Business.
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. Plant
operation offices are maintained in Sweetwater, Texas and Bellingham,
Washington.
9
<PAGE>
Forward-Looking Statements--Uncertainties and Risks
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, and 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 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 focusing on exploration opportunities in
offshore and international areas which will increase associated exploration
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. Exploration 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.
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. Operating
hazards such as fires, explosions, blow-outs, equipment failures, abnormally
pressured formations and environmental accidents may have a material adverse
effect on EEX's operations or financial condition. 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 Gulf of Mexico oil and gas reserves include properties
located in water depths of 20 to greater than 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 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 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.
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. Downward adjustment in reserve estimates could adversely
affect EEX. Also, any substantial decline in projected net revenues resulting
from production of reserves could have a material adverse effect on the
Company's financial position and results of operations.
10
<PAGE>
Capital Funding--EEX's access to public or private equity or debt markets
may be limited by general conditions in or volatility of the markets or
conditions affecting the oil and gas industry. No assurances can be given that
the Company will be able to secure funds in these markets, or that such funds
will be obtained on terms favorable to the Company.
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" and "Environmental Matters," above. Enforcement of or
changes to these regulations could have a material impact on the Company's
operations, financial condition and results of operations.
International Operations--EEX's interests in properties 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,
renegotiations 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
In 1998, EEX's domestic properties were located in two regions: the Gulf of
Mexico (including state waters) and Onshore (Texas and Louisiana);
international properties were located primarily in Indonesia. The following
table sets forth estimated net proved reserves of EEX by region, as estimated
by Netherland, Sewell & Associates, Inc., at December 31, 1998:
<TABLE>
<CAPTION>
Proved Reserves at
December 31, 1998
------------------------------
Oil and
Natural Gas
Gas Liquids Total
(MMcf)(1) (MBbls)(2) (MBoe)(3)
--------- ---------- ---------
<S> <C> <C> <C>
Gulf of Mexico................................ 99,792 4,036 20,668
Onshore....................................... 103,759 2,395 19,688
------- ------ ------
Total Domestic............................... 203,551 6,431 40,356
International................................. -- 19,728 19,728
------- ------ ------
Total........................................ 203,551 26,159 60,084
======= ====== ======
</TABLE>
- --------
(1) Million cubic feet.
(2) Thousand barrels.
(3) Thousand barrels of oil equivalent with six Mcf of gas converted to one
barrel of liquid.
See Note 18 to Consolidated Financial Statements in Item 8 for additional
information on oil and gas reserves.
During 1998, EEX filed Form EIA-23 with the Department of Energy reflecting
reserve estimates for the year 1997. Such reserve estimates were not
materially different from the 1997 reserve estimates reported in Note 18 to
Consolidated Financial Statements in Item 8.
11
<PAGE>
Developed and undeveloped lease acreage as of December 31, 1998 is set forth
below:
<TABLE>
<CAPTION>
Developed Acres Undeveloped Acres
--------------- -------------------
Gross Net (1) Gross Net (1)
------- ------- --------- ---------
<S> <C> <C> <C> <C>
Gulf of Mexico........................... 324,365 91,444 1,024,785 349,093
Onshore.................................. 72,132 35,156 76,648 38,542
------- ------- --------- ---------
Total Domestic......................... 396,497 126,600 1,101,433 387,635
International............................ 5,000 5,000 2,950,589 1,194,202
------- ------- --------- ---------
Total.................................. 401,497 131,600 4,052,022 1,581,837
======= ======= ========= =========
</TABLE>
- --------
(1)Represents the proportionate interest of EEX in the gross acres under
lease.
EEX purchased approximately 28,000 net acres in 13 offshore blocks (12
Deepwater and one shelf) at the two 1998 Federal OCS Lease Sales.
Additionally, EEX acquired 66,192 net acres in 1998 through a like-kind
exchange transaction completed in the third quarter.
At year-end, EEX's Gulf of Mexico holdings totaled some 440,537 net acres,
with 248,121 net acres located on the Shelf and 192,416 net acres located in
the Deepwater. The total number of blocks in which EEX had an interest at
year-end was 328, with an average working interest of 35.04%. EEX operates 129
of these blocks.
During 1998, EEX cancelled or allowed to expire nine Gulf of Mexico blocks
and sold its interest in another 37 blocks that had already been condemned
through either geological or geophysical findings or by drilling.
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>
1999................................... 200,568 79,561 2,594,323 1,105,135
2000................................... 243,741 82,288 -- --
2001 and later......................... 657,124 225,786 356,266 89,067
--------- ------- --------- ---------
Total.................................. 1,101,433 387,635 2,950,589 1,194,202
========= ======= ========= =========
</TABLE>
The Company may determine to permit drilling rights with regard to a portion
of the undeveloped acreage to expire before the expiration of primary terms
specified in this schedule by non-payment of delay rentals.
Drilling activity during the three years ended December 31, 1998 is set
forth below:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
Gross Net Gross Net Gross Net
----- ---- ----- ---- ----- ----
<S> <C> <C> <C> <C> <C> <C>
Exploratory Wells:
Productive................................. 5.0 2.3 32 11.3 42 30.0
Dry........................................ 9.0 3.4 19 8.7 32 20.7
---- ---- --- ---- --- ----
Total..................................... 14.0 5.7 51 20.0 74 50.7
==== ==== === ==== === ====
Development Wells:
Productive................................. 35.0 17.1 75 33.2 82 54.3
Dry........................................ 3.0 1.2 9 3.8 5 4.0
---- ---- --- ---- --- ----
Total..................................... 38.0 18.3 84 37.0 87 58.3
==== ==== === ==== === ====
</TABLE>
12
<PAGE>
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, 1998, EEX was participating in 6 wells (2.5 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
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.
At December 31, 1998, EEX owned interests in 443 gas wells (196 net) and 71
oil wells (23 net) in the United States and 20 oil wells (10 net) in
Indonesia. Of these, 73 gas wells (41 net) and 4 oil wells (3 net) were dual
completions in single boreholes.
Additional information relating to the oil and gas activities of EEX is set
forth in Note 18 to Consolidated Financial Statements in Item 8 and in
"Selected Operating Data" in Item 6.
EEX leases approximately 78,000 square feet of office space for its office
in Houston, Texas, under leases expiring in September 2002.
Item 3. Legal Proceedings
EEX is involved in a number of legal and administrative proceedings incident
to the ordinary course of its business. In the opinion of management, based on
the advice of counsel and current assessment, any liability to EEX relative to
these ordinary course proceedings will not have a material adverse effect on
EEX's operations or financial condition.
In addition, on August 3, 1998, EEX, several of its current and/or former
officers and directors, Texas Utilities Company ("TUC") and TUC's Chief
Executive Officer were named in a class action lawsuit filed in the Northern
District of Texas that was designated as Gracy Fund L.P. v. EEX Corporation,
et al., ("Gracy Fund"). The Gracy Fund complaint alleged violations of the
Securities Act of 1933 ("33 Act") and the Securities Exchange Act of 1934 ("34
Act") against various defendants.
Additionally, on August 3, 1998, EEX, several of its current and/or former
officers and directors, and two additional companies (ENSERCH Corporation and
DeGolyer & MacNaughton) were named in a class action lawsuit filed in the
Southern District of Texas that was designated as Stan C. Thorne v. EEX Corp.,
et al ("Thorne"). The Thorne complaint alleged violations of the 34 Act and
common law-based negligent misrepresentations and fraud claims.
On October 5, 1998, the Thorne defendants filed a motion to transfer the
Thorne action to the Northern District of Texas. On November 20, 1998, the
Thorne action was transferred to the Northern District of Texas and
consolidated with the Gracy Fund action.
On January 22, 1999, plaintiffs filed an amended class action complaint in
the consolidated Gracy Fund action against EEX, several of its current and/or
former officers and directors and another company, ENSERCH Corporation
("Consolidated Complaint"). The Consolidated Complaint alleges violations of
Sections 11, 12(a)(2) and 15 of the 33 Act and violations of Sections 10(b),
14(a) and 20(a) of the 34 Act against various defendants. The Consolidated
Complaint alleges the Sections 10(b), 15 and 20(a) claims on behalf of a class
of plaintiffs who acquired EEX's stock pursuant to an October 1996
Registration Statement and Proxy/Prospectus ("EEX Subclass").
13
<PAGE>
Plaintiffs allege that during the class period, defendants made materially
false and misleading statements, and failed to disclose material facts,
regarding the value and volume of EEX's proved reserves from its East Texas
operations. According to plaintiffs, these purported misrepresentations
artificially inflated the price of EEX's common stock throughout the class
period, induced the EEX Subclass to approve the merger that spun EEX off from
ENSERCH and induced the EEX Subclass to acquire stock pursuant to the
Registration Statement and Proxy/Prospectus issued regarding this merger.
While the Company intends to contest this action vigorously, and filed a
motion to dismiss the Consolidated Complaint on March 8, 1999, the Company
cannot predict the outcome of this matter at this time. All discovery is
stayed pending the determination of the motion to dismiss.
Item 4. Submission of Matters to a Vote of Security Holders
At a special meeting of shareholders held on December 8, 1998, the
shareholders approved a one-for-three reverse split of the Company's issued
and outstanding common stock and a decrease in the number of authorized shares
of the Company's outstanding common stock from 400,000,000 shares to
150,000,000 shares. Listed below is the result of the vote.
<TABLE>
<CAPTION>
Shares Shares Voted Shares
Voted "For" "Against" "Abstaining"
----------- ------------ ------------
<S> <C> <C>
97,771,506 19,490,902 281,146
</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 under the ticker symbol "EEX." The following table shows the high and
low sales prices per share of the common stock as reported in the New York
Stock Exchange--Composite Transactions report for the periods shown. Prices
prior to the one-for-three reverse stock split described in Item 4 above have
been adjusted for the stock split.
<TABLE>
<CAPTION>
1998 1997
-------------- -------------
High Low High Low
---- ---- ---- ----
<S> <C> <C> <C> <C>
First Quarter...................... $30 3/8 $22 11/16 $36 3/4 $25 7/8
Second Quarter..................... 31 7/8 24 9/16 33 3/4 23 1/4
Third Quarter...................... 28 11/16 11 5/8 35 7/16 21 15/16
Fourth Quarter..................... 15 5 1/16 29 1/4 24
</TABLE>
At March 1, 1999, EEX had 42,382,058 outstanding shares of common stock held
by 12,426 shareholders of record.
There were no dividends declared on the Company's common stock in 1998 or
1997. The declaration of future dividends will be dependent upon business
conditions, earnings, cash requirements and other relevant factors as
determined by the Company's Board of Directors. Under the terms of the
Company's Series B 8% Cumulative Perpetual Preferred Stock (the "Series B
Preferred Stock") issued on January 8, 1999, the Company may not declare or
pay any dividend or make any other distribution on its common stock, unless
all dividends due upon the Series B Preferred Stock have been paid or provided
for.
14
<PAGE>
Item 6. Selected Financial and Operating Data
EEX CORPORATION
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
As of or for Year Ended December 31
-----------------------------------------------------
1998 1997 1996 1995 1994
-------- --------- ---------- ---------- --------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues............... $219,052 $ 314,213 $ 338,146 $ 237,358 $191,866
======== ========= ========== ========== ========
Net (Loss)............. $(40,926) $(216,103) $ (36,801) $ (42,585) $(50,733)
======== ========= ========== ========== ========
Pro forma information--
Change in tax status
(a)
(Loss) before income
taxes............... $(50,477)
Income taxes
(benefit)........... (17,591)
--------
Net (Loss).......... $(32,886)
========
Basic and Diluted Net
(Loss) per Share (pro
forma for years prior
to 1995)(b)........... $ (0.97) $ (5.12) $ (0.87) $ (1.14) $ (0.93)
======== ========= ========== ========== ========
BALANCE SHEET DATA
Total Assets........... $565,070 $ 807,789 $1,195,454 $1,180,238 $812,871
======== ========= ========== ========== ========
<CAPTION>
CAPITAL STRUCTURE
<S> <C> <C> <C> <C> <C>
Short-term borrowings.. -- $ 5,000 -- -- --
Capital lease
obligations........... $233,318 241,735 $ 244,985 $ 98,043 $155,855
Long-term debt......... -- 25,000 115,000 160,000 --
Company-obligated
mandatorily redeemable
preferred securities
of subsidiary......... -- -- 150,000 150,000 --
Minority interests in
preferred stock of
subsidiary............ -- 100,000 -- -- --
Shareholders' equity... 234,300 274,663 490,406 525,992 364,828
-------- --------- ---------- ---------- --------
Total.................. $467,618 $ 646,398 $1,000,391 $ 934,035 $520,683
======== ========= ========== ========== ========
</TABLE>
- --------
(a) 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.
(b) The per share amounts for periods prior to 1998 have been restated to
reflect the reduction in weighted average shares outstanding due to the
one-for-three reverse stock split effective on December 8, 1998.
15
<PAGE>
EEX CORPORATION
SELECTED OPERATING DATA
<TABLE>
<CAPTION>
As of or for Year Ended December 31
---------------------------------------
1998 1997 1996 1995 1994
------ ------ -------- -------- -------
<S> <C> <C> <C> <C> <C>
Sales volume
Natural gas (Bcf).................... 57.9 84.5 100.5 90.2 67.1
Oil and condensate (MMBbls).......... 5.6 4.7 5.1 3.4 2.0
Natural gas liquids (MMBbls)......... 0.2 0.7 0.6 0.5 0.2
Total volumes (MMBoe) (a)........... 15.5 19.5 22.5 18.9 13.4
Average sales price(b)
Natural gas (per Mcf)................ $ 2.21 $ 2.36 $ 2.17 $ 1.74 $ 2.15
Oil and condensate (per Bbl)......... 13.24 19.19 19.40 16.86 15.38
Natural gas liquids (per Bbl)........ 10.47 13.80 12.27 9.38 10.85
Total (per Boe)(a).................. 13.22 15.39 14.43 11.57 13.26
Average costs and expenses (per
Boe)(a)(c)
Production and operating(b).......... $ 3.03 $ 2.51 $ 3.13 $ 2.63 $ 2.36
Exploration.......................... 2.92 3.62 4.16 4.06 4.61
Depreciation and amortization........ 6.54 7.42 7.55 5.93 5.27
General, administrative and other.... 1.56 1.46 1.56 1.58 1.48
Taxes, other than income............. 0.71 0.89 0.97 1.00 0.99
Net Wells Drilled
Total................................ 24 57 109 81 74
Productive........................... 19 44 84 51 44
Proved Reserve Data (at year end)
Natural Gas (Bcf).................... 203.6 460.2 1,216.2 1,362.8 1,041.7
Oil and condensate (MMBbls) (d)...... 26.2 23.8 59.2 71.5 50.6
Total (MMBoe) (a)................... 60.1 100.5 261.9 298.6 224.2
Standardized Measure of Discounted
Future Net Cash Flows (in millions).. $275.9 $619.1 $1,715.1 $1,227.4 $ 879.3
</TABLE>
- --------
(a) Natural gas is converted to barrels of oil equivalents (Boe) on the basis
of six Mcf equals one Boe.
(b) Before related production, severance and ad valorem taxes.
(c) Excludes unusual and non-recurring expenses.
(d) Reserves include natural gas liquids attributable to leasehold interests.
The above table includes the operating data from the Company's International
activities. In 1998, oil sales volumes were 2.4 MMBbls at an average price of
$12.38 per barrel with production and operating expense of $4.72 per Boe. In
prior years, the Company had no International production.
16
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with EEX's
Consolidated Financial Statements and notes thereto included under Item 8.
In 1997, EEX became a separate company, wholly independent of its former
majority owner, ENSERCH Corporation, a public utility. This transition to
independent status, coupled with the engagement of a new management team,
resulted in a restructuring of the Company's assets, operations and strategy.
Refer to Item 1 for a discussion of the development of EEX's business and
strategy.
Certain statements in this report, including statements of EEX Corporation's
("EEX" or the "Company") 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
"Forward-Looking Statements--Uncertainties and Risks" in Item 1.
Results of Operations
On December 8, 1998, the shareholders approved a one-for-three reverse split
of EEX common stock. All references to the number of common shares and per
share amounts for prior period financial statements have been restated to
reflect this event. See "Capital Structure" below.
EEX reported a 1998 net loss of $41 million ($0.97 per share), versus a net
loss of $216 million ($5.12 per share) in 1997 and a net loss of $37 million
($0.87 per share) in 1996.
In 1998, results of operations were impacted by two major unusual items. The
first item was a $10 million pre-tax charge for impairment of producing oil
and gas properties required by Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." The second major unusual item was a gain on sales
of property, plant and equipment of $9 million pre-tax.
In the following comparisons of results of operations, 1998 results have
been adjusted to exclude the unusual items described above. Results for 1997
were adjusted to exclude gains on sale of assets of $53 million pre-tax, FAS
121 impairment of $260 million pre-tax and reorganization expense of $27
million pre-tax. Results for 1996 have been adjusted to exclude gains on sales
of assets of $30 million pre-tax.
The reorganization expense in 1997 was classified as general, administrative
and other expense in the Consolidated Statement of Operations. Cash
requirements for these charges total $25 million, of which $11 million was
paid in 1998 and $14 million in 1997.
1998 Results of Operations Compared With 1997
Revenues for 1998 were $219 million, $95 million (30%) lower than 1997.
Natural gas revenues, 36% lower than 1997, were impacted by a 6% decrease in
average prices, and a 31% decrease in production, primarily due to property
sales. The average natural gas sales price per thousand cubic feet (Mcf) was
$2.21 in 1998 compared with $2.36 in 1997. Natural gas production for 1998 was
58 billion cubic feet (Bcf), compared with 84 Bcf in 1997. Oil revenues
decreased $17 million (18%), reflecting a 31% decrease in the average sales
price per barrel to $13.24, which was partially offset by an 18% increase in
production primarily attributable to start up of the Mudi Field in Indonesia.
Crude oil production was 5,612 thousand barrels (MBbls), compared with 4,743
MBbls in 1997. Production from the Mudi Field was 2,364 MBbls.
Costs and expenses, excluding the unusual items described above, were $239
million in 1998, compared to $320 million in 1997, a 25% decrease. Operating
expenses (production and operating, general and administrative and taxes other
than income) were $82 million in 1998, 14% lower than 1997, resulting from
property sales and the favorable impact from restructuring measures
implemented over the last year. Production and operating costs for 1998
includes $11 million for oil production from the Mudi Field. Exploration
expenses for 1998 decreased 36% from 1997 due to curtailment of the onshore
exploration program and the impact of the offshore exploration joint ventures
with Enterprise and others. Exploration expense for 1998 includes $18 million
for dry holes in
17
<PAGE>
both domestic and international drilling activities. Depreciation and
amortization was $101 million in 1998, $43 million lower than 1997 due to
lower production volumes resulting from asset sales and the impairment to
producing oil and gas properties recognized in 1997, which was partially
offset by amortization recorded from oil production from the Mudi Field.
Taxes, other than income, decreased 37% from 1997, primarily due to property
sales and lower commodity prices.
Total interest and other financing costs, including minority interest, were
$26 million, a $10 million reduction from 1997, resulting from a lower overall
debt level in 1998 and redemption of the minority interest in the second
quarter of 1998.
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 Mcf was $2.36 in
1997, compared with $2.17 in 1996. Natural gas production for 1997 was 84 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 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 of the Cooper Project
operating lease in December 1996, and an ongoing cost reduction program
initiated in 1997. Exploration expenses decreased 25%, primarily due to a
change in focus to offshore and international and the curtailment of the
onshore exploration program during 1997. Exploration expenses were 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 exposure, in the
near term, to Deepwater Gulf of Mexico dry hole costs resulting from an
offshore exploration joint venture. 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.
Oil and Gas Marketing
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 a barrel of oil equivalent basis, gas reserves at
January 1, 1999 constituted approximately 56% of total reserves, and gas
production accounted for approximately 62% of total production for 1998.
Accordingly, variations in gas prices have a more significant impact on
operations than variations in oil prices.
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 and collars. EEX fixed the price on 1998 production volumes of 26.5
Bcf of natural gas (46% of production) at an average price of $2.32 per Mcf
and 3,249 MBbls of oil (58% of production) at an average price of $15.78 per
Bbl. In total, oil and gas price hedging activities increased 1998 revenues by
$7.5 million and decreased 1997 and 1996 revenues by $11 million and $20
million, respectively.
At December 31, 1998, EEX had outstanding swaps and collars that were
entered into as hedges extending through December 31, 1999, to exchange
payments on 17.2 Bcf of natural gas and 31 MBbls of oil. At December 31, 1998,
there were $0.7 million of net unrealized and unrecognized hedging losses
based on the difference
18
<PAGE>
between the strike price and the New York Mercantile Exchange futures price
for the applicable trading months of 1999. In addition, there were $0.5
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 1999.
Impairment of Assets
EEX accounts for oil and gas properties using the successful efforts method
which requires EEX to comply with the requirements of 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"). See Note 5
to Consolidated Financial Statements in Item 8. In the fourth quarter of 1998,
the Company's independent petroleum consultant completed its annual review and
evaluation of Company's proved oil and gas reserves and their commercial
feasibility. EEX recorded a $10 million pre-tax charge for impairment in 1998.
The Company reviewed the estimated value of the production payment due EEX
as a result of the sale of its East Texas properties together with the
estimated future gas delivery obligation to Encogen One Partners, Ltd.
("Encogen") and determined that a provision for possible future losses was not
appropriate. The production payment is recorded as oil and gas properties, net
of a provision for future gas deliveries arising from past gas "overtakes."
This review included estimates of the cost of EEX's future gas delivery
obligations to Encogen and estimated receipts from the production payment on
an undiscounted cash flow basis. The analysis also included assumptions about
future gas delivery schedules, gas prices and the likelihood that the obligor
will exercise annual options to repurchase portions of the production payment.
The obligor did not exercise its option in 1998. As of December 31, 1998, the
Company had a future volumetric delivery obligation of approximately 30 Bcf of
natural gas to Encogen; the production payment covers a similar volume.
The Company again reviewed the estimated future value of the Cooper Floating
Production System, pipelines and other related facilities. In 1997, the
Company impaired the assets by approximately $83 million, reducing the net
carrying value to approximately $145 million. The Company determined that, if
placed in service as an early production and pipeline system for future oil
and gas developments in the area adjacent to the Cooper Field, the estimated
future cash flows from the assets would exceed the current carrying value.
Further, the Company continues to evaluate other potential uses for these
facilities. Based on these analyses and the Company's assessment of the
probable uses of the facilities, no additional impairment was considered
appropriate in 1998.
As of December 31, 1998, the Company had a deferred tax asset of
approximately $98 million. A valuation allowance of $67 million has been
applied to result in a net realizable value of $31 million. The plan to
realize the value of the net deferred tax asset is based on expected future
earnings and tax planning strategies which include, primarily, planned sales
of assets with fair market values in excess of book basis. The Company does
not expect to tax-effect any future operating losses until the value of the
net deferred tax asset has been realized.
Although management believes that the estimates and assumptions underlying
the analyses described above are appropriate, no assurances can be given that
events in the future will be consistent with those estimates and assumptions.
Reserves
EEX's natural gas reserves, as estimated by Netherland, Sewell & Associates,
Inc., independent petroleum consultants, at January 1, 1999 were 204 Bcf,
compared with 460 Bcf the year earlier. Oil and condensate reserves, including
natural gas liquids, were 26 MMBbls, compared with the year-earlier level of
24 MMBbls. EEX's proved reserve estimates do not include any volumes
attributable to the Llano discovery well in the Deepwater Gulf of Mexico.
19
<PAGE>
Liquidity and Capital Resources
Cash Flows
During 1998, EEX generated sufficient cash flows from operations and
property sales to fund its capital requirements and reduce financings,
including minority interests in preferred securities of subsidiaries, by $138
million. Net cash flows from operating activities were $24 million, a decrease
of $164 million over 1997 largely due to lower commodity prices and production
levels and changes in current operating assets and liabilities. Net cash flows
from investing activities in 1998 were $127 million, a $181 million increase
from cash flows of $55 million used for investing activities in 1997.
The Company intends to continue to make substantial capital expenditures in
1999 for the exploration and development of its properties primarily in the
Gulf of Mexico and/or the acquisition of producing properties. These capital
expenditures may be funded by operating cash flows, proceeds from property
sales, proceeds from recent equity sales (see Capital Structure below), and
investment costs carried by joint venture arrangements. EEX does not
anticipate paying cash dividends on its common stock in the foreseeable
future.
Capital Structure
In January 1999, EEX recorded $150 million of equity from the issuance of
1.5 million of shares of Series B 8% Cumulative Perpetual Preferred Stock
("Preferred Stock") and Warrants to acquire 21 million shares of common stock
to Warburg Pincus Equity Partners, L.P. and its affiliates. At December 31,
1998, the closing and funding of the transaction was awaiting clearance under
the Hart Scott Rodino Act. On January 8, 1999, the transaction was closed and
EEX issued the Preferred Stock and Warrants in exchange for $150 million. Each
share of Preferred Stock has a stated value of $100 and a current dividend
rate of 8% per year, payable quarterly. The 8% dividend rate will be adjusted
to a market rate, not to exceed 18%, after seven years or the earlier
occurrence of certain events including a change of control as defined in the
agreements. Prior to any adjustment of the dividend rate, the Company may, at
its option, accrue dividends or pay them in cash, shares of Preferred Stock or
shares of common stock. After any adjustment of the dividend rate, dividends
must be paid in cash. Prior to any adjustment in the dividend rate, holders of
the Preferred Stock will be entitled to cast an aggregate of eight million
votes on matters voted on by the holders of common stock and to a separate
class vote on certain matters affecting the Preferred Stock. The purchasers
have agreed to standstill provisions for ten years that restrict their
purchases of additional shares of common stock, prohibit sales by the
purchasers of common stock or Warrants to any person or group that would
beneficially own more than 10% (5% in the case of a competitor of the Company)
of the outstanding common stock after the sale, prohibits the purchasers from
proposing business combinations involving the Company or soliciting proxies,
and limits the purchasers' aggregate voting rights to one vote less than 20%
of the aggregate number of votes entitled to be cast on any matter by holders
of common stock or any other class of capital stock. In the event of a change
of control occurring prior to the sixth anniversary of the closing of issuance
of the Preferred Stock, the purchasers of the Preferred Stock will have the
right to exchange all or part of their Preferred Stock and Warrants
proportionately for shares of common stock at the rate of 18.6047 shares of
common stock for each share of Preferred Stock (and proportionate number of
Warrants), subject to adjustment under certain circumstances and to the
Company's right under certain circumstances to pay a portion of the exchange
in cash. For additional information, see Note 4 to Consolidated Financial
Statements in Item 8.
In the second quarter of 1998, EEX redeemed, at par value, all the
outstanding preferred securities of a subsidiary. The dividend rate on these
preferred securities was based on LIBOR plus a spread of 4% for the quarter
ended March 31, 1998, 5% for the quarter ended June 30, 1998 and was to
increase by 1% quarterly through December 31, 1998.
At December 31, 1998, debt, including both capital and operating leases as
defined in loan agreements, represented 51% of total capitalization, compared
to 50% at December 31, 1997.
At a special meeting held on December 8, 1998, the Company's shareholders
approved a one-for-three reverse split of the Company's issued and outstanding
common stock and a reduction of the Company's authorized common stock from 400
million shares to 150 million shares.
20
<PAGE>
Capital Budget
Planned 1999 capital expenditures range from $100 million to $140 million,
compared with actual expenditures of $166 million in 1998 and $180 million in
1997. Planned 1999 capital expenditures exclude approximately $30 million of
carried working interest expenses resulting from joint venture arrangements
and any significant costs which may be incurred for the acquisition of
producing properties.
Other Matters
Year 2000 Issue
EEX initiated its Year 2000 Readiness Program in 1998 by engaging a
consultant to perform a preliminary analysis of the Company's asset inventory
and provide strategic guidelines to ensure EEX's operations are not
interrupted by the potential failure of computer programs to recognize and
interpret date codes correctly in the Year 2000 ("Year 2000 Issue"). A project
team reviewed the consultant's conclusions and developed a business plan to
address the Year 2000 Issue.
This plan entails inventory, assessment, implementation, testing and
contingency phases applied to three major program areas: Information
Technology ("IT") systems, Non-IT systems, and External Agents.
For purposes of the EEX Year 2000 Readiness Program, IT systems include the
Company's business and financial software applications, geological and
geophysical software applications, operating systems, hardware, and the
interfaces and interdependencies between these components. A consultant is
providing technical assistance in addressing the Year 2000 Readiness of
Company IT systems.
Non-IT systems include those systems that employ embedded chip technology
and are associated with onshore and offshore production operations. Other
embedded system applications not associated with production operations are
addressed through either the IT System or External Agents programs. The
Company has employed an engineering consulting firm to assist in Non-IT
systems Year 2000 readiness efforts.
External Agents are those non-EEX parties upon whom the Company relies for
goods and services in order to conduct its day to day activities. Included in
this group are vendors and suppliers, service providers, customers, partners,
financial institutions, utilities and other third parties. The Company has
requested assurances in writing of the External Agent's Year 2000 readiness.
External Agents not able to provide a satisfactory level of assurance
regarding Year 2000 readiness will be evaluated to determine the feasibility
of an alternate relationship.
The Company intends to complete all Year 2000 Readiness Program phases prior
to the fourth quarter of 1999. However, some contingency plans are not
complete and readiness activities may continue into the fourth quarter of
1999. Contingency plans will address what the Company identifies as its most
reasonably likely worst case scenario or scenarios. To date, EEX has spent
$0.2 million of a budgeted $1.5 million in addressing the Year 2000 Issue.
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third-party suppliers and customers,
no assurances can be given that business interruptions arising from the Year
2000 Issue will not occur. However, the Company believes that implementation
of its Year 2000 Readiness Program can reduce the potential for material
adverse consequences to occur.
New Accounting Standard
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which is
effective for fiscal years beginning after June 15, 1999, with earlier
adoption encouraged. This Statement requires companies to record derivatives
on the balance sheet as assets and liabilities, measured at fair value. Gains
or losses resulting from changes in the values of those derivatives would be
accounted for depending on the use of the derivative and whether it qualifies
for hedge
21
<PAGE>
accounting. EEX has not yet determined what the effect, if any, of SFAS No.
133 will be on results of operations and financial position. EEX will adopt
this accounting standard as required by January 1, 2000.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
EEX is exposed to market risk, including adverse change in commodity prices
and interest rates as discussed below.
Commodity Price Risk--The Company produces, purchases and sells natural gas,
crude oil, and NGLs. As a result, the Company's financial results can be
significantly affected as these commodity prices fluctuate widely in response
to changing market forces. The Company made use of a variety of derivative
financial instruments only for non-trading purposes as a hedging strategy to
manage commodity prices associated with oil (58% of 1998 production) and
natural gas (46% of 1998 production) sales and to reduce the impact of
commodity price fluctuations. The Company used the hedge or deferral method of
accounting for these instruments and, as a result, gains and losses on
commodity derivative financial instruments were generally offset by similar
changes in the realized prices of the commodities.
The table below provides information about EEX's hedging techniques for oil
and natural gas as of December 31, 1998. The Notional Amount is equal to the
net volumetric hedge position of EEX during the periods. The fair values of
the hedging techniques are based on the difference between the strike price
and the New York Mercantile Exchange future prices for the applicable trading
months of 1999. No hedging contracts for periods beyond December 31, 1999
existed as of December 31, 1998.
<TABLE>
<CAPTION>
Fair Value at
Average December 31,
Notional Strike 1998
Period Amount Price(a) (in thousands)
------ -------- -------- --------------
<S> <C> <C> <C>
Gas (million cubic feet)
January 1999-March 1999................ 9,200 2.05 $ 539
April 1999-June 1999................... 6,200 1.98 (109)
July 1999-September 1999............... 900 1.86 (163)
October 1999-December 1999............. 900 1.71 (499)
------ -----
Total................................ 17,200 2.00 (232)(b)
====== =====
Crude Oil (thousand barrels)............. 31 11.96 $ 8
</TABLE>
- --------
(a) For gas, $ per Mcf; for oil, $ per barrel.
(b) This figure includes $0.5 million of realized gains on hedging activities
that were deferred until 1999.
Interest Rate Risk--The Company has no open interest rate swap or interest
rate lock agreements. At December 31, 1998, the Company's only outstanding
debt consisted of capital leases with fixed interest rates. The following
table presents principal amounts and related average interest rates by year of
maturity for the Company's capital leases at December 31, 1998:
<TABLE>
<CAPTION>
Average
Interest
Year Principal Rate
---- -------------- --------
(In thousands)
<S> <C> <C>
1999.............................................. $ 10,874 6.46%
2000.............................................. 16,810 6.46%
2001.............................................. 13,351 6.46%
2002.............................................. 15,419 6.46%
2003.............................................. 15,573 6.46%
Thereafter........................................ 161,291 6.46%
--------
Total............................................. $233,318
========
Fair Value........................................ $233,318
========
</TABLE>
The Company's exposure to interest rate risk is primarily related to future
use of its revolving credit facility and to market conditions, as they may
exist, should new financings be undertaken. These exposures will be managed
through the use of swap or other derivatives as appropriate.
22
<PAGE>
Item. 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders of
EEX Corporation
We have audited the accompanying consolidated balance sheet of EEX
Corporation and subsidiaries (the "Company"), as of December 31, 1998 and
1997, and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the three years in the period ended
December 31, 1998. 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of EEX
Corporation and subsidiaries at December 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Houston, Texas
February 19, 1999
23
<PAGE>
EEX CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------
1998 1997 1996
------------- ------------- -------------
(In thousands except per share amounts)
<S> <C> <C> <C>
Revenues:
Natural gas....................... $ 128,061 $ 199,754 $ 217,968
Oil and condensate................ 74,329 91,029 98,529
Natural gas liquids............... 1,999 9,161 8,099
Cogeneration operations........... 13,794 13,297 11,400
Other............................. 869 972 2,150
------------ ------------- ------------
Total........................... 219,052 314,213 338,146
------------ ------------- ------------
Costs and Expenses:
Production and operating.......... 46,861 48,960 70,325
Exploration....................... 45,144 70,599 93,544
Depreciation and amortization..... 101,051 144,485 169,864
Impairment of producing oil and
gas properties................... 10,439 260,112 --
(Gain) on sales of property, plant
and equipment.................... (9,085) (52,917) (30,175)
Cogeneration operations........... 10,564 10,381 9,924
General, administrative and
other............................ 24,058 55,590 34,995
Taxes, other than income.......... 11,017 17,356 21,715
------------ ------------- ------------
Total........................... 240,049 554,566 370,192
------------ ------------- ------------
Operating (Loss).................... (20,997) (240,353) (32,046)
Other Income--Net................... 81 301 2,092
Interest Income..................... 512 574 266
Interest and Other Financing Costs.. (18,987) (30,645) (27,149)
------------ ------------- ------------
(Loss) Before Income Taxes.......... (39,391) (270,123) (56,837)
Income Tax (Benefit)................ (4,997) (58,945) (20,036)
Minority Interest................... (6,532) (4,925) --
------------ ------------- ------------
Net (Loss).......................... $ (40,926) $ (216,103) $ (36,801)
============ ============= ============
Basic and Diluted Net (Loss) Per
Share.............................. $ (0.97) $ (5.12) $ (0.87)
============ ============= ============
Weighted Average Shares
Outstanding........................ 42,208 42,214 42,186
============ ============= ============
</TABLE>
See Notes to Consolidated Financial Statements.
24
<PAGE>
EEX CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1998 1997 1996
--------- --------- --------
(In thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net (Loss)................................... $ (40,926) $(216,103) $(36,801)
Impairment of producing oil and gas
properties.................................. 10,439 260,112 --
Impairment of undeveloped leasehold.......... 1,936 40,866 34,000
Dry hole cost................................ 18,326 8,224 21,345
Depreciation and amortization................ 101,051 144,485 169,864
Deferred income tax (benefit)................ (9,397) (55,461) (24,324)
(Gain) on sales of property, plant and
equipment................................... (9,085) (52,917) (30,175)
Other........................................ 547 10,332 (10,735)
Changes in current operating assets and
liabilities
Accounts receivable........................ 15,395 24,550 (6,999)
Other current assets....................... (2,695) 6,721 (3,380)
Accounts payable........................... (57,187) 18,392 (4,127)
Other current liabilities.................. (4,841) (1,812) 1,168
--------- --------- --------
Net cash flows from operating
activities.............................. 23,563 187,389 109,836
--------- --------- --------
INVESTING ACTIVITIES
Additions of property, plant and equipment... (165,820) (180,147) (174,349)
Proceeds from dispositions of property, plant
and equipment............................... 298,373 133,426 140,863
Other (changes in accruals).................. (5,901) (7,859) 507
--------- --------- --------
Net cash flows from (used in) investing
activities.............................. 126,652 (54,580) (32,979)
--------- --------- --------
FINANCING ACTIVITIES
Borrowings under bank revolving credit
agreement................................... 175,000 170,000 136,000
Repayment of borrowings under bank revolving
credit agreement............................ (200,000) (260,000) (181,000)
Borrowings under short-term financing
agreement................................... 171,264 172,900 --
Repayment of borrowings under short-term
financing agreement......................... (176,264) (167,900) --
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.................... (100,000) (50,000) --
Changes in temporary advances with affiliated
companies................................... -- 13,328 (32,051)
Payments of capital lease obligations........ (8,417) (3,250) (3,832)
Change in advances under leasing
arrangements--net........................... -- (5,457) 5,457
Issuance of common stock..................... -- 2 249
Other........................................ -- -- (1,887)
--------- --------- --------
Net cash flows used in financing
activities.............................. (138,417) (130,377) (77,064)
--------- --------- --------
Net Increase (Decrease) in Cash and Cash
Equivalents................................... 11,798 2,432 (207)
Cash and Cash Equivalents at Beginning of
Year.......................................... 3,790 1,358 1,565
--------- --------- --------
Cash and Cash Equivalents at End of Year....... $ 15,588 $ 3,790 $ 1,358
========= ========= ========
</TABLE>
See Notes to Consolidated Financial Statements.
25
<PAGE>
EEX CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31
---------------------
1998 1997
---------- ----------
ASSETS (In thousands)
<S> <C> <C>
Current Assets:
Cash and cash equivalents............................. $ 15,588 $ 3,790
Accounts receivable--trade (net of allowance of $2,504
and $1,161).......................................... 42,530 57,925
Other................................................. 14,240 11,545
---------- ----------
Total current assets................................ 72,358 73,260
---------- ----------
Property, Plant and Equipment (at cost):
Oil and gas properties (successful efforts method).... 1,106,274 1,882,097
Other................................................. 19,998 19,581
---------- ----------
Total............................................... 1,126,272 1,901,678
Less accumulated depletion, depreciation and
amortization......................................... 674,887 1,192,691
---------- ----------
Net property, plant and equipment................... 451,385 708,987
---------- ----------
Deferred Income Tax Assets.............................. 28,826 20,238
---------- ----------
Other Assets............................................ 12,501 5,304
---------- ----------
Total............................................... $ 565,070 $ 807,789
========== ==========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current Liabilities:
Accounts payable--trade............................... $ 45,528 $ 108,616
Short-term borrowings................................. -- 5,000
Current portion of capital lease obligations.......... 10,874 8,418
Other................................................. 5,190 10,031
---------- ----------
Total current liabilities........................... 61,592 132,065
---------- ----------
Bank Revolving Credit Agreement......................... -- 25,000
---------- ----------
Capital Lease Obligations............................... 222,444 233,317
---------- ----------
Other Liabilities....................................... 46,734 42,744
---------- ----------
Minority Interests in Preferred Securities of
Subsidiary............................................. -- 100,000
Commitments and Contingencies........................... -- --
Shareholders' Equity (Consolidated Statement of
Shareholders' Equity).................................. 234,300 274,663
---------- ----------
Total............................................... $ 565,070 $ 807,789
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
26
<PAGE>
EEX CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Common Stock, authorized 150 million shares:
Balance at beginning of year................... $ 1,271 $126,736 $126,575
Issued for stock plans (103, 323 and 161
shares)..................................... 1 185 161
Change in par value to $0.01 from $1.00........ -- (125,650) --
One-for-three reverse split at par value
(84,775 shares reduction)..................... (848) -- --
-------- -------- --------
Balance at end of year (Outstanding shares:
42,387, 127,059 and 126,736).................. 424 1,271 126,736
-------- -------- --------
Preferred Stock, authorized 10 million shares,
none issued:
Pro forma effect of January 8, 1999 stock
issue, 1.5 million shares, $0.01 par value.... 15 -- --
Less amount outstanding on January 8, 1999
issue......................................... (15) -- --
-------- -------- --------
Balance at end of year......................... -- -- --
Paid in Capital:
Balance at beginning of year................... 570,493 442,246 440,836
Excess of proceeds over par value of common
stock issued for stock plans.................. 871 3,075 1,370
Market valuation adjustments of restricted
stock......................................... (2,944) (478) 40
Change in par value of common stock............ -- 125,650 --
One-for-three reverse common stock split....... 848 -- --
Pro forma effect of January 8, 1999 issue of
Preferred
Stock and Warrants:
Warrants................................... 24,000 -- --
Excess of proceeds over par value of
preferred stock issue..................... 125,985 -- --
Less amount outstanding on January 8, 1999
preferred stock issue..................... (149,985) -- --
-------- -------- --------
Balance at end of year......................... 569,268 570,493 442,246
-------- -------- --------
Retained Earnings (Deficit):
Balance at beginning of year................... (293,772) (77,669) (40,868)
Net (loss)................................... (40,926) (216,103) (36,801)
-------- -------- --------
Balance at end of year......................... (334,698) (293,772) (77,669)
-------- -------- --------
Unamortized Restricted Stock Compensation:
Balance at beginning of year................... (2,877) (677) (551)
Grants (151, 387 and 137 shares)............. (1,195) (3,874) (1,190)
Restrictions lifted (98 shares).............. -- -- 756
Cancellations (10, 90 and 25 shares)......... 4 715 230
Amortization................................. 1,032 515 132
Market value adjustments..................... 2,830 444 (54)
-------- -------- --------
Balance at end of year......................... (206) (2,877) (677)
-------- -------- --------
Treasury Stock:
Balance at beginning of year................... (452) (230) --
Issuance of shares for restricted stock
awards (47 and 67 shares)................... 452 625 --
Cancellations of restricted stock grants (10,
90 and 25 shares)........................... (90) (847) (230)
Repurchase of outstanding shares (55
shares)..................................... (398) -- --
-------- -------- --------
Balance at end of year (22, 47 and 25 shares).. (488) (452) (230)
-------- -------- --------
Shareholders' Equity............................. $234,300 $274,663 $490,406
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
27
<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 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 two
cogeneration plants. Prior to August 5, 1997, Enserch Exploration, Inc. ("Old
EEI"), EEX's predecessor, 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.
On December 19, 1997, a special meeting of shareholders was held at which
time the name of the Company was changed to EEX Corporation.
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
estimates and assumptions by management, many of which may significantly
affect financial results. Future outcomes could differ from those estimates
and assumptions and materially affect reported financial results. Certain
items in prior periods have been reclassified to be consistent with the
current presentation.
Net Income (Loss) Per Share--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.
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 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 later deemed 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.
28
<PAGE>
EEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Derivative Instruments--The Company enters into swaps, 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. In applying hedge
accounting, the Company periodically monitors the correlation of changes in
the value of its derivative contracts with that of the prices the Company
realizes for its production. In the event of a lack of significant
correlation, as might occur in the event of a major market disturbance,
certain of the Company's derivative contracts no longer may qualify for hedge
accounting, and would be marked to market accordingly. The Company may also
enter 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. In accordance with the
SFAS 123, EEX has elected 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 sales
volumes are not significantly different from the Company's share of
production.
3. COMMON STOCK TRANSACTIONS
At a special meeting held on December 8, 1998, the Company's shareholders
approved a one-for-three reverse split of the issued and outstanding common
stock and a decrease in the number of authorized shares of common stock from
400,000,000 shares to 150,000,000 shares. The effect of the reverse stock
split is reflected as of December 31, 1998 in the Consolidated Statement of
Shareholders' Equity, but all activity prior to December 8, 1998 has not been
restated. All references to the number of common shares and per share amounts
elsewhere in the consolidated financial statements and related footnotes have
been restated as appropriate to reflect the effect of the split for all
periods presented.
Early in 1998, EEX entered into two forward purchase facilities to
repurchase shares of its common stock. During the third and fourth quarters of
1998, EEX initiated several transactions under these facilities. These
facilities allow for settlement, at EEX's option, by physical delivery of the
shares to EEX in exchange for cash or on a net basis in either shares of EEX
common stock or in cash. For a net basis settlement, to the extent that the
market price of EEX's common stock on a settlement date is higher (lower) than
the forward purchase price, the net differential is received (paid) by EEX. As
of December 31, 1998, transactions under these facilities covered
approximately $5.6 million or 335,633 shares of EEX's stock, with an average
forward purchase price of $16.63 per share. If the agreements were settled on
a net basis on the December 31, 1998 market price of EEX's common stock ($7.00
per share), EEX would be obligated to pay approximately $3.2 million in cash
or deliver approximately 461,806 shares.
29
<PAGE>
EEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. PREFERRED STOCK TRANSACTION
On December 22, 1998, EEX entered into a Purchase Agreement ("Agreement")
which provides that the Company would receive $150 million and issue to the
Purchaser 1,500,000 shares of Series B 8% Cumulative Perpetual Preferred Stock
and Warrants to acquire 21 million shares of the Company's Common Stock. At
December 31, 1998, the closing and funding of the transaction was awaiting
clearance under the Hart Scott Rodino Act. On January 8, 1999, clearance was
obtained, the transaction was closed and EEX issued the Preferred Stock and
Warrants in exchange for $150 million. The Consolidated Statement of
Shareholders' Equity as of December 31, 1998 shows pro forma amounts in
Preferred Stock and Paid In Capital accounts reflecting the additional equity
created at closing of the transaction, offset by the amount outstanding from
the transaction at December 31, 1998. Below is the pro forma effect on
Consolidated Shareholders' Equity when EEX issued the Preferred Stock and
Warrants in exchange for $150 million on January 8, 1999:
<TABLE>
<CAPTION>
Pro Forma
Effect of
Preferred Pro Forma
Balance Stock and Balance
12/31/98 Warrants Issue After Issue
-------- -------------- -----------
(In thousands)
<S> <C> <C> <C>
Consolidated Shareholders' Equity
Common Stock............................ $ 424 $ -- $ 424
Preferred Stock, 1,500 shares, par value
of $0.01............................... -- 15 15
Paid in Capital......................... 569,268 149,985(a) 719,253
Unamortized Restricted Stock
Compensation........................... (206) -- (206)
Treasury Stock.......................... (488) -- (488)
Retained Earnings (Deficit)............. (334,698) -- (334,698)
-------- -------- --------
Total Shareholders' Equity............ $234,300 $150,000 $384,300
======== ======== ========
(a) Warrants issued................. $ 24,000
Excess of proceeds over par
value of preferred stock
issued........................ 125,985
--------
TOTAL............................ $149,985
========
</TABLE>
Each share of Preferred Stock has a stated value of $100 and a current
dividend rate of 8% per year, payable quarterly. The 8% dividend rate will be
adjusted to a market rate, not to exceed 18%, after seven years or earlier
occurrence of certain events including a change of control (as defined). Prior
to any adjustment of the dividend rate, the Company may, at the Company's
option, accrue dividends or pay them in cash, shares of Preferred Stock or
shares of Common Stock. After any adjustment of the dividend rate, dividends
must be paid in cash. The Preferred Stock is entitled to a liquidation
preference of $100 per share plus accrued and unpaid dividends. The Preferred
Stock may be redeemed, in whole but not in part, by the Company at any time
for cash at the stated value plus accrued and unpaid dividends. Until any
adjustment of the dividend rate, holders of the Preferred Stock will be
entitled to cast an aggregate of eight million votes on matters voted upon by
the Common Stock holders, and to a separate class vote on certain matters
affecting the Preferred Stock. EEX has entered into a Registration Rights
Agreement to register under the Securities Act of 1933, and maintain the
effectiveness of such registration of, the resale of the Preferred Shares, the
Warrants and any Common Stock acquired by Purchaser pursuant to the Warrants.
Under the terms of the Agreement, the Purchaser has the right to add a member
to the Company's Board of Directors and did so in January 1999. The Purchaser
may continue the membership on the Company's Board of Directors if certain
conditions are maintained. In the event of a Change of Control, as defined in
the Agreement, occurring prior to the sixth anniversary of the closing of the
transaction, the Purchaser has the right to exchange all or part of the
Preferred Stock and Warrants proportionally for EEX Common Stock at the rate
of 18.6047 shares of Common Stock for each share of Preferred Stock (and
30
<PAGE>
EEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
proportionate number of Warrants), provided that the Company may, under
certain circumstances, pay a portion of the exchange in cash. The exercise
price of the Warrants and the exchange formula related to a Change in Control
may be adjusted upon the occurrence of certain events described in the anti-
dilution provisions of the Warrants.
The Warrants were issued in three series, each exercisable at any time
beginning 9 months after issuance for $12 per share of Common Stock: (a)
Series A Warrants to acquire 10.5 million shares, exercisable for 10 years;
(b) Series B Warrants to acquire 2.5 million shares, exercisable for 7 years,
and (c) Series C Warrants to acquire 8 million shares, exercisable for 7
years. Until approved by the shareholders of the Company at the 1999 annual
meeting, the Warrants will be exercisable only in the form of a stock
appreciation right (entitled to receive the cash difference between the
exercise price and the market price of the Common Stock on the trading day
prior to the date of exercise). If the shareholders approve, the Series A and
Series B Warrants will be exercisable for cash or by utilizing shares of
Preferred Stock at the stated value on a gross or net basis. The Series C
Warrants will be exercisable only as a stock appreciation right unless the
Company, prior to July 30, 2002, elects to allow the Series C Warrants to be
exercised for cash or by utilizing shares of Preferred Stock at the stated
value on a gross or net basis.
The purchasers have agreed to standstill provisions for 10 years that
restrict their purchases of additional shares of Common Stock, prohibit sales
by the purchasers of Common Stock or Warrants to any person or group that
would beneficially own more than 10% (5% in the case of a competitor of the
Company) of the outstanding Common Stock after the sale, prohibits the
purchasers from proposing business combinations involving the Company or
soliciting proxies, and limits the purchasers' aggregate voting rights to one
vote less than 20% of the aggregate number of votes entitled to be cast on any
matter by holders of Common Stock or any other class of capital stock.
5. 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 such events, changed circumstances or periodic evaluation,
SFAS 121 requires the carrying value of the subject long-lived asset to be
reduced to its fair value.
The process by which the Company assesses its assets under SFAS 121 starts
with a comparison of the carrying value of an asset to its estimated future
undiscounted net cash flow ("Future Value"). These net cash flows are prepared
by the Company's independent petroleum consultant, Netherland, Sewell &
Associates, Inc., as part of the year-end report of proved reserves. This
analysis uses a multi-year market based commodity price forecast in effect at
year-end 1998. The base prices used in this analysis for 1999 annual cash
flows were $13.13 per barrel of oil and $2.05 per million British Thermal
Units of gas. This analysis is generally prepared at a field level or field-
group level. The fields or groups reflect the lowest level for which cash
flows are reasonably and separately identifiable and for which the assets
possess common operational infrastructure and geographic proximity. In some
cases, additions to the Future Value were made by the Company to reflect the
estimated fair value of an identified exploratory prospect on the asset.
Where insufficient Future Value is projected to recover the carrying value
of an asset, a determination of fair value is made. Fair value is estimated by
discounting the annual net cash flows at a rate of 10% per annum. The carrying
value of the asset is reduced to its estimated fair value.
Assets held for sale are carried at the lower of cost or estimated net
realizable value.
31
<PAGE>
EEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Based upon the resulting fair values at December 31, 1998, the carrying
value of long-lived assets was reduced and a charge of $10 million for
impairment was recorded for oil and gas properties located in the Gulf of
Mexico and Texas, primarily due to lower commodity prices and downward reserve
revisions.
6. 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 of 1997, as an
integral part of this restructuring 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.
The Company incurred approximately $27 million of restructure costs in 1997
which are classified as general, administrative and other expense in the
Consolidated Statement of Operations. Cash requirements for these charges
total $25 million, of which $11 million was paid in 1998 and $14 million in
1997. Severance benefits were paid to 210 and 172 employees in 1998 and 1997,
respectively.
7. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest, net of amounts capitalized, was $18,976 in 1998,
$25,430 in 1997, and $27,704 in 1996. Net cash income taxes were $2,432 in
1998, refunds of $5,621 in 1997, and payments of $1,530 in 1996. Non-cash
investing and financing activities include the assumption of $151 million in
capital asset and lease obligations in 1996.
In October 1998, EEX closed a property trade that exchanged substantially
all of its properties located in West Texas for properties in the Gulf of
Mexico Shelf plus $9 million in cash consideration. The effective date for
this exchange was January 1, 1998. The Company accounted for the exchange of
interests as a nonmonetary transaction whereby the basis in the exchanged
properties became the new basis in the properties received as reduced by the
cash consideration. No gain or loss was recognized as a result of the exchange
of interests in accordance with Statement of Financial Accounting Standards
No. 19, "Financial Accounting and Reporting by Oil and Gas Producing
Companies."
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 none was used at December 31, 1998. 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) plus 0.21% to 0.45% per annum,
plus a facility fee of 0.09% to 0.20% per annum, depending upon the
capitalization ratio. A portion of the funds available under the revolving
credit line may be borrowed on a short-term basis at current money market
rates.
The following is a summary of interest and other financing costs:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Interest costs incurred.......................... $18,987 $30,645 $29,323
Interest capitalized............................. -- -- (2,174)
------- ------- -------
Interest charged to expense...................... $18,987 $30,645 $27,149
======= ======= =======
</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,
32
<PAGE>
EEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 6.43%. 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 may not be removed from U.S. waters under the lease provisions.
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 7.06%.
EEX also leases buildings and office space under noncancellable operating
leases that expire at various dates through 2002.
Estimated future minimum payments under noncancellable operating and capital
leases with initial or remaining terms of one year or more at December 31,
1998 are as follows:
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
--------- --------
<S> <C> <C>
1999.................................................. $2,147 $ 25,147
2000.................................................. 2,173 30,948
2001.................................................. 2,201 25,998
2002.................................................. 1,993 26,000
2003.................................................. 423 25,999
Thereafter............................................ -- 184,706
------ --------
Total............................................... $8,937 318,798
======
Less interest factor................................ 85,480
--------
Capital lease obligations........................... $233,318
========
</TABLE>
Assets recorded under capital leases are as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Property and equipment............................... $249,699 $249,699
Accumulated depreciation............................. (106,399) (98,535)
-------- --------
Net................................................ $143,300 $151,164
======== ========
</TABLE>
Rental expenses incurred under all operating leases totaled $2.4 million,
$3.6 million, and $21 million in 1998, 1997 and 1996, respectively.
10. MINORITY INTERESTS IN PREFERRED SECURITIES OF SUBSIDIARY
In late 1997, EEX concluded several transactions which resulted in
redemption of all of the outstanding mandatorily redeemable preferred
securities of a subsidiary at the stated value of $150 million, funded by
private sales of new issues of preferred stock by EEX Capital, Inc. ("EEXC"),
wholly-owned by EEX. EEXC has no operations independent of EEX. The dividend
rate for EEXC's new securities was 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. The new securities were redeemable, in whole or
in part, at the option of EEXC on the quarterly dividend payment dates and $50
million was redeemed in the fourth quarter of 1997 and the remaining $100
million in the second quarter of 1998.
33
<PAGE>
EEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
11. STOCK PLANS
The Company's Revised and Amended 1996 Stock Incentive Plan (the "1996
SIP"), 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 1.3 million shares of its
common stock for issuance under the 1996 SIP. Options granted under the 1996
SIP have an exercise price of not less than the fair market value of the
common stock on the grant date. Options granted under the 1996 SIP 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.
The following is a summary of stock option activity under the 1996 SIP:
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Number of Exercise Fair
Shares Price Value
--------- -------- --------
<S> <C> <C> <C>
Options outstanding
December 31, 1995........................... 56,667 $32.82
Granted..................................... 355,500 $27.99 $12.84
Exercised................................... (3,333) $29.25
Canceled.................................... (88,333) $28.50
--------- ------
Options outstanding
December 31, 1996........................... 320,500 $28.68
Granted..................................... 942,750 $31.71 $12.84
Exercised................................... -- --
Canceled.................................... (312,917) $28.68
--------- ------
Options outstanding
December 31, 1997........................... 950,333 $31.59
Granted..................................... 130,000 $25.14 $10.02
Exercised................................... -- --
Canceled.................................... (59,667) $28.50
--------- ------
Options outstanding
December 31, 1998........................... 1,020,667 $31.02
========= ======
</TABLE>
The following is a summary of 1996 SIP stock options outstanding at December
31, 1998:
<TABLE>
<CAPTION>
Range of Exercise Prices
-------------------------------------
$23.16-$29.64 $35.64-$43.50 Total
------------- ------------- ---------
<S> <C> <C> <C>
Options outstanding.................. 556,000 464,667 1,020,667
Weighted average remaining
contractual life, in years.......... 8 8 8
Weighted average exercise price...... $ 27.00 $ 35.86 $ 31.03
Number exercisable................... 84,750 14,667 99,417
Weighted average exercise price...... $ 28.27 $ 42.97 $ 30.44
</TABLE>
34
<PAGE>
EEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A summary of restricted stock award activity follows:
<TABLE>
<CAPTION>
Number of Shares
-------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Outstanding--Beginning of year................. 123,477 23,333 18,667
Awarded...................................... 53,000 130,144 45,667
Restrictions Lifted.......................... (4,477) -- (32,667)
Canceled..................................... (3,333) (30,000) (8,333)
------- ------- -------
Outstanding--End of year....................... 168,667 123,477 23,333
======= ======= =======
</TABLE>
The weighted average grant date fair value per share of restricted stock
awarded during 1998, 1997 and 1996 was $23.76, $30.06 and $28.08,
respectively. Fair value is equal to the common stock fair market value on the
grant date.
In 1998, the Company adopted the 1998 Stock Incentive Plan ("1998 SIP") for
directors, officers and eligible full-time employees. The 1998 SIP provides
for awards to directors, officers and employees of restricted stock, stock
options and stock appreciation rights. The 1998 SIP is subject to the approval
of shareholders at the 1999 annual meeting. Subject to that approval, 2.5
million shares of common stock are reserved for issuance under the 1998 SIP.
Option terms and restrictions on restricted stock may be set by the
Compensation Committee of the Board of Directors (the "Committee"), but the
exercise price may be no less than the fair market value on the date of grant.
In September and October 1998, the Committee made grants of options under the
"Performance Option Program." These are subject to approval of the 1998 SIP by
the shareholders, and consist of a basic grant option award that becomes
exercisable over three years and a performance grant option award determined
by EEX common stock price performance as measured over a three-year period. If
EEX stock achieves a designated performance goal, the performance grant
becomes exercisable over three years. All options granted under the 1998 SIP
have an exercise price of not less than the fair market value of the common
stock on the grant date.
The following is a summary of basic stock option activity under the 1998
SIP:
<TABLE>
<CAPTION>
Weighted Weighted
Number Average Average
of Exercise Fair
Shares Price Value
------- -------- --------
<S> <C> <C> <C>
Options outstanding
December 31, 1997............................ -- --
Granted...................................... 329,850 $12.24 $4.83
Canceled..................................... (4,117) $11.16
------- ------
Options outstanding
December 31, 1998............................ 325,733 $12.27
======= ======
</TABLE>
At December 31, 1998, exercise prices range from $11.16 to $15.48 and these
options have a weighted average remaining contractual life of ten years. No
options were exercisable as of December 31, 1998.
In 1997, the Company adopted the 1997 Non-Officer Stock Option Plan ("1997
SOP") 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 0.5 million shares for issuance under the 1997 SOP. Options become
exercisable over three years and expire after ten years.
35
<PAGE>
EEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A summary of stock option activity under the 1997 SOP follows:
<TABLE>
<CAPTION>
Weighted Weighted
Number Average Average
of Exercise Fair
Shares Price Value
------- -------- --------
<S> <C> <C> <C>
Options outstanding
December 31, 1996.................................. -- --
Granted............................................ 126,667 $30.51 $11.61
Exercised.......................................... -- --
Canceled........................................... (5,000) $32.25
------- ------
Options outstanding
December 31, 1997.................................. 121,667 $30.48
Granted............................................ 25,333 $11.37 $ 4.44
Canceled........................................... (1,667) $32.25
------- ------
Options outstanding
December 31, 1998.................................. 145,333 $27.15
======= ======
</TABLE>
The following is a summary of 1997 SOP stock options outstanding at December
31, 1998:
<TABLE>
<CAPTION>
Range of Exercise Prices
----------------------------------
$7.71-$20.91 $25.56-$32.25 Total
------------ ------------- -------
<S> <C> <C> <C>
Options outstanding........................ 25,333 120,000 145,333
Weighted average remaining contractual
life, in years............................ 10 8 8
Weighted average exercise price............ $11.17 $ 30.47 $ 27.11
Number exercisable......................... -- 39,998 39,998
Weighted average exercise price............ -- $ 30.47 $ 30.47
</TABLE>
In 1996, the Company adopted the 1996 Employee Stock Option Plan ("1996
SOP"). 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 reserved a total of 0.5 million shares for issuance under
this plan. Options become exercisable over three to seven years and expire
after ten years. The ability to grant new options under the 1996 SOP expired
December 31, 1998.
36
<PAGE>
EEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A summary of stock option activity under the 1996 SOP follows:
<TABLE>
<CAPTION>
Weighted Weighted
Number Average Average
of Exercise Fair
Shares Price Value
-------- -------- --------
<S> <C> <C> <C>
Options outstanding
December 31, 1995................................. -- --
Granted........................................... 367,487 $33.00 $15.42
Exercised......................................... -- --
Canceled.......................................... (4,170) $33.00
-------- ------
Options outstanding
December 31, 1996................................. 363,317 $33.00
Granted........................................... 137,733 $26.91 $12.84
Exercised......................................... -- --
Canceled.......................................... (176,457) $32.88
-------- ------
Options outstanding
December 31, 1997................................. 324,593 $30.48
Granted........................................... 207,033 $25.62 $10.20
Exercised......................................... -- --
Canceled.......................................... (110,650) $32.19
-------- ------
Options outstanding
December 31, 1998................................. 420,977 $27.63
======== ======
</TABLE>
The following is a summary of stock options outstanding under the 1996 SOP
at December 31, 1998:
<TABLE>
<CAPTION>
Range of Exercise Prices
------------------------------------------------
$5.88-$20.91 $23.16-$29.64 $30.09-$35.07 Total
------------ ------------- ------------- -------
<S> <C> <C> <C> <C>
Options outstanding.......... 25,250 293,643 102,083 420,977
Weighted average remaining
contractual life, in years.. 10 9 8 9
Weighted average exercise
price....................... $18.69 $ 26.54 $ 32.94 27.62
Number exercisable........... -- 2,215 13,211 15,426
Weighted average exercise
price....................... -- $ 23.53 $ 33.00 31.64
</TABLE>
Total compensation cost recognized in income for 1998, 1997 and 1996 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>
1998 1997 1996
-------- --------- --------
<S> <C> <C> <C>
Net (loss)
As reported................................... $(40,926) $(216,103) $(36,801)
Pro forma..................................... $(44,252) $(218,663) $(37,991)
Basic and diluted net (loss) per share
As reported................................... $ (0.97) $ (5.12) $ (0.87)
Pro forma..................................... $ (1.05) $ (5.18) $ (0.90)
</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.
37
<PAGE>
EEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Fair value of options was calculated by using the Black Scholes options
pricing model using the following weighted average assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Risk free interest rate................................. 5.36% 6.26% 6.17%
Expected life, in years................................. 5 5 6
Expected volatility..................................... 42% 37% 37%
Expected dividend yield................................. None 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 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 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 increased revenues by $7.5 million in 1998
and reduced revenues by $11 million and $20 million in 1997 and 1996,
respectively.
At December 31, 1998, EEX had outstanding swaps, collars and futures
agreements that were entered into as hedges extending through December 31,
1999 to exchange payments on 17.2 Bcf of natural gas and 31 MBbls of oil. At
December 31, 1998, the weighted average strike price and market price per Mcf
of natural gas was $2.00 and $2.07, respectively. At December 31, 1998 there
were $0.7 million of net unrealized and unrecognized hedging losses 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 $0.5
million of realized gains on hedging activities which were deferred and will
be applied as an increase in revenues in 1999 in the month of physical sale of
production.
Fair Value of Financial Instruments--At December 31, 1998, the estimated
proceeds the Company would have paid to terminate or otherwise settle all open
oil and gas swaps and collars was $0.7 million, which represented their fair
value. The fair value of all other financial instruments at December 31, 1998
and 1997 approximated their carrying value.
38
<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>
1998 1997 1996
------- -------- --------
<S> <C> <C> <C>
Current:
Federal......................................... $ 741 $ (3,945) $ 4,267
Foreign......................................... 2,432 -- --
State........................................... 1,227 461 21
------- -------- --------
Total......................................... 4,400 (3,484) 4,288
Deferred--Federal................................. (9,397) (55,461) (24,324)
------- -------- --------
Total provision (benefit)..................... $(4,997) $(58,945) $(20,036)
======= ======== ========
</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..................................... $(35,135) $(269,081) $(54,343)
Foreign...................................... (4,256) (1,042) ( 2,494)
-------- --------- --------
Total...................................... $(39,391) $(270,123) $(56,837)
======== ========= ========
Income taxes (benefit) computed at the federal
statutory rate of 35%......................... $(13,787) $ (94,543) $(19,892)
Percentage depletion......................... -- (193) (334)
Foreign Taxes................................ 2,432 -- --
State Taxes.................................. 1,227 -- --
Valuation allowance on deferred tax asset.... 5,410 35,254 --
Other--net................................... (279) 537 190
-------- --------- --------
Provision for income taxes (benefit)....... $ (4,997) $ (58,945) $(20,036)
======== ========= ========
</TABLE>
The deferred tax effect of the difference in financial accounting basis and
income tax basis of EEX's assets and liabilities at December 31, 1998 and 1997
was as follows:
<TABLE>
<CAPTION>
1998 1997
---------------------------- ----------------------------
Total Current Noncurrent Total Current Noncurrent
-------- ------- ---------- -------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Deferred Tax Assets:
Property, plant and
equipment............ $ 64,498 -- $ 64,498 $ 57,085 -- $ 57,085
Employee benefit
obligations.......... 2,824 -- 2,824 1,651 -- 1,651
Accruals and
allowances........... 3,246 $1,800 1,446 6,923 $991 5,932
Losses of controlled
foreign
corporations......... 9,230 -- 9,230 9,882 -- 9,882
Net operating loss.... 17,708 -- 17,708 7,158 -- 7,158
Valuation allowance... (66,880) -- (66,880) (61,470) -- (61,470)
-------- ------ -------- -------- ---- --------
Net deferred tax
asset................ $ 30,626 $1,800 $ 28,826 $ 21,229 $991 $ 20,238
======== ====== ======== ======== ==== ========
</TABLE>
Note: The current portion is included in other current assets in the
consolidated balance sheets.
39
<PAGE>
EEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company maintains a 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). In 1998, EEX increased the
deferred tax asset by $9.4 million based upon several factors, one of which is
the taxable income from producing properties in Indonesia which will be
sheltered by past foreign net operating losses. The realization of the
remaining deferred tax asset is based on expected future earnings and tax
planning strategies which include planned sales of assets with fair market
values in excess of book and tax cost bases, utilization of excess capacity or
sale of the Cooper floating production facility and pipeline, acceleration of
income from shallow water Gulf of Mexico producing properties received as part
of a property swap completed during the third quarter of 1998, the favorable
impact from restructuring measures over the last year, the curtailment of the
onshore exploration program and reduction of dry hole exposure in the
Company's Gulf of Mexico exploration program. 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, assets impaired
under the provisions of SFAS 121 for which no tax deduction is immediately
available and past operating losses of controlled foreign corporations. Due to
the uncertainty of future income estimates, the additional anticipated
earnings benefit from further realization of the additional tax basis has not
been fully recognized at this time and is included in the valuation allowance
of $67 million at December 31, 1998 for the Company's deferred tax asset.
As of December 31, 1998, the Company had approximately $50 million of U.S.
net operating loss carryforwards ("NOLs"). The NOLs have expiration dates
ranging from 2003 through 2018. Due to the uncertainty of the realization of
this tax carryforward, EEX has included in its valuation allowance the full
carryforward benefit of $18 million.
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.
In 1998, the Company recognized a curtailment gain of approximately $2.5
million in connection with the termination of a significant number of
employees announced in 1997 pursuant to the provisions of Statement of
Financial Accounting Standards No. 88, "Employers' Accounting for Settlements
and Curtailments of Defined Benefit Pension Plans and for Termination
Benefits" (SFAS 88).
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, 1997 through
December 31, 1998, EEX's costs for these benefits were based on EEX's
allocated pension plan assets, employees and retirees based upon information
provided by ENSERCH. EEX's share of the ENSERCH pension plan assets and
liabilities for accrued benefits have been estimated by EEX based upon
information supplied by ENSERCH. After resolving the definition of those
employees and retirees who are included in the EEX plan, it is expected that,
during 1999, these assets will be transferred to EEX's plan providing
substantially the same benefits as provided by the ENSERCH plan. For pension
benefits, the "benefit obligation" is the projected benefit obligation. For
post-retirement benefits, the "benefit obligation" is the accumulated post-
retirement benefit obligation.
40
<PAGE>
EEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Employee Benefit Plan Disclosures:
<TABLE>
<CAPTION>
Post-retirement
Pension Benefits Benefits
------------------ ----------------
1998 1997 1998 1997
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Assumptions as of December 31:
Discount rate used in determining
benefit obligation.................... 7.00% 7.25% 7.00% 7.25%
Expected return on Plan assets......... 9.00% 9.00%
Rate of compensation increases......... 4.00% 4.00%
Changes in Benefit Obligation:
Benefit obligation as of beginning of
period................................ $(23,396) $(21,331) $(8,366) $(7,993)
Service cost........................... (720) (327) (22) (9)
Interest cost.......................... (1,411) (670) (584) (248)
Actuarial liability gain (loss)........ 3,179 (1,264) (117) (303)
Effect of curtailment.................. 2,378 -- 98 --
Participants contribution.............. -- -- (151) --
Benefits paid.......................... 797 196 193 187
-------- -------- ------- -------
Benefit obligation as of December
31.................................. $(19,173) $(23,396) $(8,949) $(8,366)
======== ======== ======= =======
Change in Plan Assets:
Fair value of Plan assets as of
beginning of period................... $ 11,420 $ 11,587
Actual return on assets................ 1,065 (104)
Employer contributions................. -- 93
Benefits paid.......................... (665) (156)
======== ========
Fair value of Plan assets as of
December 31......................... $ 11,820 $ 11,420
======== ========
Reconciliation of Funded Status:
Funded status.......................... $ (7,353) $(11,976) $(8,949) $(8,366)
Unrecognized net obligation (asset).... -- -- 3,755 4,028
Unrecognized actuarial (gain) loss..... (1,516) 1,735 2,117 2,179
-------- -------- ------- -------
Accrued benefit cost as of December
31.................................. $ (8,869) $(10,241) $(3,077) $(2,159)
======== ======== ======= =======
Components of Net Periodic Benefit Cost:
Allocations from ENSERCH............... $ -- $ 596 $ -- $ 469
Service cost--benefits earned during
the period............................ 720 327 22 9
Interest cost on projected benefit
obligation............................ 1,411 670 584 248
Expected return on assets.............. (993) (367) -- --
Effect of curtailment.................. (2,378) -- (98) --
Amortization--net obligation........... -- -- 273 114
Amortization--unrecognized (gain)
loss.................................. (1) -- 80 25
-------- -------- ------- -------
Net periodic benefit cost............ $ (1,241) $ 1,226 $ 861 $ 865
======== ======== ======= =======
</TABLE>
For measurement purposes, a 5.3% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 1998. The rate was assumed
to decrease gradually to 4.3% for 2000 and remain at that level thereafter.
41
<PAGE>
EEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one-percentage point change in
assumed health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
1-Percentage 1-Percentage
Point Increase Point Decrease
-------------- --------------
<S> <C> <C>
Effect on total of service and interest cost for
1998........................................... $ 38 $ (34)
Effect on year end 1998 post-retirement benefit
obligation..................................... $550 $(486)
</TABLE>
Investment Plan--At December 31, 1998, EEX provided a defined contribution
pension plan which permits pre-tax employee contributions and was available to
substantially all employees of the Company. The Company's share of costs under
the plan was $276, $343, and $425 in 1998, 1997, and 1996, 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 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 for 1996.
The Company had sales to certain ENSERCH companies (Enserch Energy Services,
Inc., Lone Star Gas Company and Enserch Processing Company) that aggregated
$25,675 and $86,235 in 1997, and 1996, respectively.
16. COMMITMENTS AND CONTINGENCIES
EEX is involved in a number of legal and administrative proceedings incident
to the ordinary course of its business. In the opinion of management, based on
the advice of counsel and current assessment, any liability to EEX relative to
these ordinary course proceedings will not have a material adverse effect on
EEX's operations or financial condition.
In addition, on August 3, 1998, EEX, several of its current and/or former
officers and directors, Texas Utilities Company ("TUC") and TUC's Chief
Executive Officer were named in a class action lawsuit filed in the Northern
District of Texas that was designated as Gracy Fund L.P. v. EEX Corporation,
et al., ("Gracy Fund"). The Gracy Fund complaint alleged violations of the
Securities Act of 1933 ("33 Act") and the Securities Exchange Act of 1934 ("34
Act") against various defendants.
Additionally, on August 3, 1998, EEX, several of its current and/or former
officers and directors, and two additional companies (ENSERCH Corporation and
DeGolyer & MacNaughton) were named in a class action lawsuit filed in the
Southern District of Texas that was designated as Stan C. Thorne v. EEX Corp.,
et al ("Thorne"). The Thorne complaint alleged violations of the 34 Act and
common law-based negligent misrepresentations and fraud claims.
On October 5, 1998, the Thorne defendants filed a motion to transfer the
Thorne action to the Northern District of Texas. On November 20, 1998, the
Thorne action was transferred to the Northern District of Texas and
consolidated with the Gracy Fund action.
On January 22, 1999, plaintiffs filed an amended class action complaint in
the consolidated Gracy Fund action against EEX, several of its current and/or
former officers and directors and another company, ENSERCH
42
<PAGE>
EEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Corporation ("Consolidated Complaint"). The Consolidated Complaint alleges
violations of Sections 11, 12(a)(2) and 15 of the 33 Act and violations of
Sections 10(b), 14(a) and 20(a) of the 34 Act against various defendants. The
Consolidated Complaint alleges the Sections 10(b), 15 and 20(a) claims on
behalf of a class of plaintiffs who acquired EEX's stock pursuant to an
October 1996 Registration Statement and Proxy/Prospectus ("EEX Subclass").
Plaintiffs allege that during the class period, defendants made materially
false and misleading statements, and failed to disclose material facts,
regarding the value and volume of EEX's proved reserves from its East Texas
operations. According to plaintiffs, these purported misrepresentations
artificially inflated the price of EEX's common stock throughout the class
period, induced the EEX Subclass to approve the merger that spun EEX off from
ENSERCH and induced the EEX Subclass to acquire stock pursuant to the
Registration Statement and Proxy/Prospectus issued regarding this merger.
While the Company intends to contest this action vigorously, the Company
cannot predict the outcome of this matter at this time. All discovery is
stayed pending the determination of the motion to dismiss.
The operations and financial position of EEX continue to be affected from
time to time in varying degrees by domestic and foreign political developments
as well as legislation and regulations pertaining to restrictions on oil and
gas production, imports and exports, natural gas regulation, tax increases,
environmental regulations and cancellation of contract rights. Both the
likelihood of such occurrences and their overall effect on the Company vary
greatly and are not predictable. These uncertainties are part of a number of
items that EEX has taken and will continue to take into account in
periodically establishing accounting reserves.
In the fourth quarter of 1998, EEX signed a contract with a major drilling
company to provide and operate an offshore drilling rig for use in Deepwater
drilling activities. The contract covers a basic period of three years at an
average day rate of $130 which is expected to commence in the summer of 1999
upon delivery of the rig.
As of December 31, 1998, the Company has a future volumetric delivery
obligation of approximately 30 billion cubic feet of natural gas to Encogen
One Partners, Ltd. The Company has a production payment of a similar volume
due from the purchaser of its East Texas properties.
17. OTHER INFORMATION
Major accounts in certain line items of the Consolidated Balance Sheets are:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Other current assets Prepaid costs related to Mudi Field....... $ 5,784 $ 1,612
======= =======
Other non-current liabilities
Accrued liabilities for restoration, dismantlement and
abandonment costs........................................... $25,157 $14,234
======= =======
</TABLE>
43
<PAGE>
EEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
18. SUPPLEMENTARY OIL AND GAS INFORMATION (UNAUDITED)
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>
1998 1997
-------- ----------
<S> <C> <C>
Capitalized Costs:
Proved oil and gas properties........................... $799,948 $1,568,551
Floating Production System and other service assets..... 228,844 228,844
Unproved oil and gas properties......................... 77,482 84,702
Accumulated depletion, depreciation and amortization.... (668,512) (1,178,939)
-------- ----------
Total net capitalized cost............................ $437,762 $ 703,158
======== ==========
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
---------------- ----------------- -----------------
Non-
U.S. U.S. U.S. Non-U.S. U.S. Non-U.S.
-------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Costs Incurred:
Property acquisition
costs:
Proved.................. $ 7,990 $35,555 -- -- $ 3,165 --
Unproved................ 14,168 473 $ 24,970 $ 200 23,425 --
Exploration costs......... 59,729 6,501 50,220 1,428 80,321 $2,781
Development costs......... 44,845 8,142 112,457 12,396 100,395 628
-------- ------- -------- ------- -------- ------
Total................. $126,732 $50,671 $187,647 $14,024 $207,306 $3,409
======== ======= ======== ======= ======== ======
</TABLE>
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. The disclosure excludes
interest expense, corporate overhead and gains and losses from hedging.
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ------------------- ------------------
Non-
U.S. U.S. U.S. Non-U.S. U.S. Non-U.S.
-------- ------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Results of Operations:
Revenues............... $167,668 $29,270 $ 310,643 -- $344,911 --
Less:
Production costs (a).. 46,117 10,859 65,366 -- 90,477 --
Exploration costs..... 33,129 12,021 69,732 $ 882 91,003 $ 2,559
Depletion,
depreciation and
amortization (b)..... 101,925 8,421 401,538 -- 167,169 --
Income tax effects
(c).................. 477 -- (44,037) (309) (1,643) (895)
-------- ------- --------- ----- -------- -------
Net producing
activities......... $(13,980) $(2,031) $(181,956) $(573) $ (2,095) $(1,664)
======== ======= ========= ===== ======== =======
</TABLE>
- --------
(a) Includes severance, ad valorem and production taxes.
(b) Includes pre-tax property impairment of $10 million and $260 million in
1998 and 1997, respectively.
(c) Amount includes $5.4 million and $61.5 million for valuation allowance on
deferred tax asset for 1998 and 1997, respectively.
Oil and Gas Reserves--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, 1998 and 1997 reserves and
DeGolyer
44
<PAGE>
EEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
and MacNaughton, independent petroleum consultants, for December 31, 1996.
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.
<TABLE>
<CAPTION>
Gas (MMcf) Oil (MBbls) (a)
------------------------------ ------------------------
1998 1997 1996 1998 1997 1996
-------- --------- --------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
U.S. Reserves:
At January 1.......... 460,158 1,215,624 1,362,763 18,100 53,209 66,537
Revisions of previous
estimates............ (13,129) (622,640) (7,935) 847 (15,710) (8,173)
Extensions,
discoveries and
additions............ 38,458 40,254 72,854 1,145 3,062 4,315
Purchase of minerals
in place(b).......... 33,143 -- 12,347 1,118 -- --
Sales of minerals in
place(c)............. (257,169) (88,611) (123,861) (11,340) (17,054) (3,730)
Production............ (57,910) (84,469) (100,544) (3,439) (5,407) (5,740)
-------- --------- --------- ------- ------- ------
At December 31.......... 203,551 460,158 1,215,624 6,431 18,100 53,209
======== ========= ========= ======= ======= ======
Proved Developed
Reserves:
At January 1.......... 425,773 859,094 937,372 16,882 27,938 30,110
At December 31........ 191,985 425,773 859,094 6,299 16,882 27,938
</TABLE>
- --------
(a) Includes condensate and natural gas liquids of 561 MBbls for 1998, 825
MBbls for 1997 and 1,103 MBbls for 1996.
(b) Includes reserves acquired through property exchanges of 1,118 MBbls and
33,143 MMcf for 1998.
(c) Includes reserves disposed of through property exchanges of 6,497 MBbls
and 24,102 MMcf for 1998.
<TABLE>
<CAPTION>
Gas
(MMcf) Oil (MBbls)
---------- ---------------------
1997 1996 1998 1997 1996
---- ---- ------ ------ -----
<S> <C> <C> <C> <C> <C>
Non-U.S. Reserves:
At January 1................................. 618 -- 5,741 6,008 4,963
Revisions of previous estimates.............. -- -- 5,878 778 --
Extensions, discoveries and additions........ -- 618 4,733 -- 1,045
Purchases of minerals in place............... -- -- 5,741 -- --
Sales of minerals in place................... (618) -- -- (1,045) --
Production................................... -- -- (2,364) -- --
---- --- ------ ------ -----
At December 31................................. -- 618 19,728 5,741 6,008
==== === ====== ====== =====
Proved Developed Reserves:
At January 1................................. -- -- 4,767 -- --
At December 31............................... -- -- 15,831 4,767 --
</TABLE>
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved
Oil and Gas Reserve Quantities--The following table 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) $2.19 in 1998, $2.51 in 1997 and $3.37 in 1996. Oil (per
barrel) $9.50 in 1998, $15.71 in 1997 and $23.33 in 1996.
45
<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>
United
Total States International
--------- --------- -------------
<S> <C> <C> <C>
Standardized Measure (in millions):
1998
Future cash inflows.................... $ 706.1 $ 498.0 $ 208.1
Future production and development
costs................................. (325.1) (191.3) (133.8)
Future income tax expense.............. -- -- --
--------- --------- --------
Future net cash flows.................. 381.0 306.7 74.3
10% annual discount.................... (105.1) (88.4) (16.7)
--------- --------- --------
Standardized measure of discounted
future net cash flows................. $ 275.9 $ 218.3 $ 57.6
========= ========= ========
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
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
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
========= ========= ========
Changes in Standardized Measure (in
millions):
<CAPTION>
1998 1997 1996
--------- --------- -------------
<S> <C> <C> <C>
Sales and transfers of oil and gas
produced, net of production costs....... $ (139.9) $ (245.6) $ (254.4)
Changes in prices, net of production and
future development costs................ (149.3) (761.8) 1,065.0
Extensions, discoveries and improved
recovery, less related costs............ 58.3 92.5 185.0
Purchases of minerals in place........... 70.2 -- 3.2
Revisions of previous quantity
estimates............................... (4.9) (806.8) (238.7)
Sales of minerals in place............... (258.7) (231.6) (125.2)
Accretion of discount.................... 61.9 234.3 144.4
Net change in income taxes............... 26.9 622.3 (329.6)
Other.................................... (7.6) 0.7 38.0
--------- --------- --------
Total.................................. $ (343.2) $(1,096.0) $ 487.7
========= ========= ========
</TABLE>
46
<PAGE>
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 1997 and first three quarters of 1998 per share amounts have been
restated to reflect the reduction in weighted average shares outstanding due
to the one-for-three reverse stock split approved by shareholders on December
8, 1998.
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------
March 31 June 30 September 30 December 31
-------- -------- ------------ -----------
<S> <C> <C> <C> <C>
1998:
Revenues........................ $ 64,513 $ 58,561 $ 46,323 $ 49,655
Gains (Losses) on Property
Sales.......................... (6,027) 1,761 3,000 10,351
Impairment of Assets............ -- -- -- (10,439)
Operating Income (Loss)(a)...... (9,169) (2,484) (7,098) (2,246)
Net Income (Loss)............... (19,027) (10,406) (5,452) (6,041)
Basic and Diluted Net (Loss) Per
Share.......................... $ (0.45) $ (0.25) $ (0.13) $ (0.14)
1997:
Revenues........................ $ 86,807 $ 75,257 $ 78,230 $ 73,919
Gains (Losses) on Property
Sales.......................... -- -- 8,003 44,914
Impairment of Assets............ -- -- (210,202) (49,910)
Operating Income (Loss)(a)...... 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.......................... $ (0.05) $ (0.32) $ (4.30) $ (0.44)
</TABLE>
- --------
(a) Net Income excluding interest and taxes.
47
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None in 1998 and information concerning Registrant's change of accountants
in 1997 was previously reported in Current Report on Form 8-K dated September
25, 1997.
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
Pursuant to Instruction G(3) to Form 10-K, the information required in Items
10-13 is incorporated by reference from EEX's definitive proxy statement to be
filed pursuant to Regulation 14A within 120 days after year-end.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)-1 Financial Statements
The information required hereunder is set forth under "Report of Independent
Auditors," "Consolidated Statement of Operations," "Consolidated Statement of
Cash Flows," "Consolidated Balance Sheet," "Consolidated Statement of
Shareholders' Equity," "Notes to Consolidated Financial Statements" and
"Quarterly Results" included in Item 8.
(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
<TABLE>
<C> <S>
3.1 Restated Articles of Incorporation of the Registrant, as amended. (1)
3.2 Bylaws of the Registrant, as amended. (1)
4.1 Form of Common Stock Certificate. (1)
4.2 Form of Preferred Stock Certificate. (1)
4.3 Rights Agreement dated as of September 10, 1996, between the Registrant
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)
4.4 First Amendment to Rights Agreement dated December 21, 1998, the
Registrant and Harris Trust Company of New York, as Rights Agent. (1)
4.5 Statement of Resolution of Series B 8% Cumulative Perpetual Preferred
Stock of the Registrant filed with the Secretary of State of Texas on
January 7, 1999. (1)
4.6 Form of Series A Warrant issued to Warburg, Pincus Equity Partners, L.P.,
and affiliates on January 7, 1999. (1)
</TABLE>
48
<PAGE>
<TABLE>
<C> <S>
4.7 Form of Series B Warrant issued to Warburg, Pincus Equity Partners,
L.P., and affiliates on January 7, 1999. (1)
4.8 Form of Series C Warrant issued to Warburg, Pincus Equity Partners,
L.P., and affiliates on January 7, 1999. (1)
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. Incorporated by reference to Exhibit 10.1 to
Registrant's Form 10-K for the year ended December 31, 1997. (2)
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. Incorporated by reference to Exhibit 10.2 to
Registrant's Form 10-K for the year ended December 31, 1997. (2)
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 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. Incorporated by reference to Exhibit
10.5 to Registrant's Form 10-K for the year ended December 31, 1997. (2)
10.5 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)
10.6 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)
10.7 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)
10.8 Exploration and Participation Agreement, dated June 20, 1997, by and
between Old EEI and Enterprise Oil Gulf of Mexico, Inc. Incorporated by
reference to Exhibit 10.10 to Registrant's Form 10-K for the year ended
December 31, 1997. (2)
10.9 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)
10.10 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)
10.11 First Amendment to Registrant's Deferred Compensation Plan dated as of
November 1, 1998. (1)
10.12 Second Amendment Registrant's Deferred Compensation Plan dated December
8, 1998. (1)
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)
</TABLE>
49
<PAGE>
<TABLE>
<C> <S>
10.14 Deferred Compensation Plan for Directors, effective January 1, 1996, as
amended February 11, 1997. (1)
10.15 Form of Change of Control Agreement executed by certain executive
officers of the Registrant, filed as Exhibit 10.20 to the Annual Report
on Form 10-K for the year ended December 31, 1996 of Old EEX. (2)
10.16 Form of Amendment to Change of Control Agreement executed by certain
executive officers of the Company. (1)
10.17 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)
10.18 Form of Amendment to Employment Agreement effective July 27, 1998
between Registrant and certain executive officers. (1)
10.19 Second Amendment to Employment Agreement effective July 27, 1998,
between Registrant and Thomas M Hamilton. (1)
10.20 Form of Amendment to Restricted Stock Agreement effective July 27, 1998,
between Registrant and certain executive officers. (1)
10.21 Floating Drilling Rig Requirement Offshore Drilling Contract dated
October 15, 1998, between the Registrant and Global Marine Drilling
Company for the "Glomar Arctic I" floating drilling unit, without
appendices. (1)
10.22 Purchase Agreement, dated as of December 22, 1998, by and among
Registrant and Warburg, Pincus Equity Partners, L.P., a Delaware limited
partnership, Warburg, Pincus Netherlands Equity Partners I, C.V., a
Dutch limited partnership, Warburg, Pincus Netherlands Equity Partners
II, C.V. a Dutch limited partnership and Warburg, Pincus Netherlands
Equity Partners III, C.V., a Dutch limited partnership, incorporated by
reference to Exhibit 99.1 to Registrant's Form 8-K dated December 22,
1998. (2)
10.23 Registration Rights Agreement dated January 8, 1999, by and among
Registrant and Warburg, Pincus Equity Partners, L.P., and affiliates.
(1)
21 Subsidiaries of the Registrant. (1)
23.1 Consent of Ernst & Young LLP. (1)
23.2 Consent of Netherland, Sewell & Associates, Inc. (1)
23.3 Consent of DeGolyer & MacNaughton. (1)
27 Financial Data Schedule--December 31, 1998. (1)
</TABLE>
- --------
Long-term debt is described in the Notes to Consolidated Financial Statements
in Item 8. 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.
50
<PAGE>
(b) Reports on Form 8-K
Current Report on Form 8-K dated October 19, 1998. (News release dated
October 19, 1998: Update on planned spud of appraisal well at Llano.)
Current Report on Form 8-K dated December 8, 1998. (EEX shareholders
approved one-for-three reverse split of EEX common stock.)
Current Report on Form 8-K dated December 14, 1998. (News release dated
December 14, 1998: Update on EEX sale of properties in Oklahoma and Texas.)
Current Report on Form 8-K dated December 22, 1998. (EEX announced signed
purchase agreement to issue preferred stock and warrants for $150 million when
final approval under the Hart Scott Rodino Act is obtained.)
51
<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,
Chief Executive Officer
March 12, 1999
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.
<TABLE>
<S> <C> <C>
Signature Title Date
/s/ T. M Hamilton Chairman and March 12, 1999
- ----------------------------------- President, Chief
T. M Hamilton Executive Officer
/s/ R. S. Langdon Executive Vice March 12, 1999
- ----------------------------------- President,
R. S. Langdon Finance and Administration,
Chief Financial
Officer
/s/ T. E. Coats Vice President, March 12, 1999
- ----------------------------------- Planning and
T. E. Coats Controller
/s/ F. S. Addy Director March 12, 1999
- -----------------------------------
F. S. Addy
/s/ B. A. Bridgewater, Jr. Director March 12, 1999
- -----------------------------------
B. A. Bridgewater, Jr.
/s/ F. M. Lowther Director March 12, 1999
- -----------------------------------
F. M. Lowther
/s/ M. P. Mallardi Director March 12, 1999
- -----------------------------------
M. P. Mallardi
/s/ H. H. Newman Director March 12, 1999
- -----------------------------------
H. H. Newman
</TABLE>
52
<PAGE>
EXHIBIT 3.1
ARTICLES OF AMENDMENT TO THE
RESTATED ARTICLES OF INCORPORATION
OF
EEX CORPORATION
Pursuant to the provisions of Article 4.04 of the Texas Business
Corporation Act, the undersigned corporation adopts the following Articles of
Amendment to its Restated Articles of Incorporation:
FIRST: The name of the corporation is EEX Corporation.
SECOND: Article Four (A) of the Restated Articles of Incorporation of the
corporation is hereby deleted and replaced in its entirety with the following:
"(A) Authorized Capital Stock.
(i) The aggregate number of shares of all classes of stock the
Company shall have authority to issue is 160,000,000 consisting of and
divided into:
(a) one class of 150,000,000 shares of Common Stock, par value $0.01
per share (the "Common Stock"); and
(b) 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.
(ii) Reverse Stock Split. Effective as of the close of business on
the date of filing this amendment to the Restated Articles of Incorporation
(the "Effective Time"), the filing of this amendment shall effect a reverse
stock split (the "Reverse Stock Split") pursuant to which each three (3)
shares of Common Stock of the corporation issued and outstanding, shall be
combined into one (1) validly issued, fully paid and nonassessable share of
Common Stock of the corporation. The number of authorized shares, the
number of shares of treasury stock and the par value of the Common Stock
shall not be affected by the Reverse Stock Split. Each stock certificate
that prior to the Effective Time represented shares of Common Stock shall,
following the Effective Time, represent the number of shares into which the
shares of Common Stock represented by such certificate shall be combined.
Fractional shares that occur as a result of the foregoing shall be
purchased by the corporation based upon the closing price reported for the
Common Stock on the New York Stock Exchange on the date of filing this
amendment."
THIRD: This amendment to the Restated Articles of Incorporation was
adopted by the shareholders of the corporation on December 8, 1998.
<PAGE>
FOURTH: The number of shares of the corporation outstanding at the
time of such adoption was 127,150,427; and the number of shares entitled to vote
thereon was 127,150,427.
FIFTH: The number of shares voted for such amendment was 97,771,506;
and the number of shares voted against such amendment was 19,490,902.
Dated December 8, 1998.
EEX CORPORATION
By: /s/ J. K. Hartrick
--------------------------------------
J. K. Hartrick
Senior Vice President, General Counsel
and Corporate Secretary
<PAGE>
RESTATED ARTICLES OF INCORPORATION
OF
EEX CORPORATION
ARTICLE 1 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").
<PAGE>
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 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;
<PAGE>
(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 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.
<PAGE>
(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:
<PAGE>
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.
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
<PAGE>
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 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
<PAGE>
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
<PAGE>
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 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
<PAGE>
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.
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,
<PAGE>
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 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
<PAGE>
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.
<PAGE>
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 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
<PAGE>
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.
"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
<PAGE>
(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.
<PAGE>
"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 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
<PAGE>
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 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.
<PAGE>
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
<PAGE>
EXHIBIT 3.2
BYLAWS OF EEX CORPORATION
A TEXAS CORPORATION
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 such place in
the State of Texas, and the registered agent of the Company at the registered
office shall be such person or corporation 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 at such hour
and on such date in May of each year as the Board of Directors may from time to
time designate for the purpose of the election of Directors and the transaction
of such other business as may properly be brought before the meeting.
Section 3. Special meetings of the shareholders may only be called by the
Chairman of the
<PAGE>
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
Bylaws of EEX Corporation
As amended October 28, 1998
Page 2 of 17
<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
Bylaws of EEX Corporation
As amended October 28, 1998
Page 3 of 17
<PAGE>
was mailed or such public disclosure was made. A shareholder's notice to the
Corporate Secretary shall set forth 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.
Bylaws of EEX Corporation
As amended October 28, 1998
Page 4 of 17
<PAGE>
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 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.
Bylaws of EEX Corporation
As amended October 28, 1998
Page 5 of 17
<PAGE>
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 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.
Bylaws of EEX Corporation
As amended October 28, 1998
Page 6 of 17
<PAGE>
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 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
Bylaws of EEX Corporation
As amended October 28, 1998
Page 7 of 17
<PAGE>
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 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.
Bylaws of EEX Corporation
As amended October 28, 1998
Page 8 of 17
<PAGE>
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 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,
Bylaws of EEX Corporation
As amended October 28, 1998
Page 9 of 17
<PAGE>
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.
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
Bylaws of EEX Corporation
As amended October 28, 1998
Page 10 of 17
<PAGE>
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 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
Bylaws of EEX Corporation
As amended October 28, 1998
Page 11 of 17
<PAGE>
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 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
Bylaws of EEX Corporation
As amended October 28, 1998
Page 12 of 17
<PAGE>
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 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.
Bylaws of EEX Corporation
As amended October 28, 1998
Page 13 of 17
<PAGE>
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
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,
Bylaws of EEX Corporation
As amended October 28, 1998
Page 14 of 17
<PAGE>
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
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.
Bylaws of EEX Corporation
As amended October 28, 1998
Page 15 of 17
<PAGE>
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 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,
Bylaws of EEX Corporation
As amended October 28, 1998
Page 16 of 17
<PAGE>
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 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.
Bylaws of EEX Corporation
As amended October 28, 1998
Page 17 of 17
<PAGE>
EXHIBIT 4.1
<TABLE>
<S> <C>
INCORPORATED UNDER THE LAWS COMMON STOCK
OF THE STATE OF TEXAS
PAR VALUE $.01 EACH
NUMBER SHARES
D
CUSIP 26842V 20 7
THIS CERTIFICATE IS TRANFERABLE IN SEE REVERSE FOR CERTAIN RESTRICTIONS ON
NEW YORK, NEW YORK AND CHICAGO, ILLINOIS PREEMPTIVE, TRANSFER AND OTHER RIGHTS.
EEX CORPORATION
This is to certify that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
EEX Corporation, transferable on the books of the Corporation by the holder hereof, in person or by duly authorized
attorney, upon surrender of this Certificate properly endorsed.
This Certificate is not valid until countersigned by the Transfer Agent and registered by the Registrar.
Witness, the seal of the Corporation and the signatures of its duly authorized officers.
/s/ T. M Hamilton DATED
CHAIRMAN AND PRESIDENT
COUNTERSIGNED AND REGISTERED:
HARRIS TRUST AND SAVINGS BANK
/s/ J. T. Leary TRANSFER AGENT AND REGISTRAR
TREASURER
BY
AUTHORIZED SIGNATURE
</TABLE>
<PAGE>
EEX CORPORATION
Article Four of the Restated Articles of Incorporation of the Corporation
sets forth (a) the authorized amounts, designations, preferences, limitations
and relative rights of each class of capital stock authorized to be issued, (b)
a denial to shareholders of preemptive rights to acquire unissued or treasury
shares of the Corporation and (c) a denial to shareholders of the right of
cumulative voting. In addition, under Article Eight (B) of the Restated
Articles of Incorporation and Article XV of the Bylaws, stock transfer, voting,
distribution and ownership rights of certain non-United States citizens are
restricted and stock may be redeemed by the Corporation in order to satisfy the
citizenship or other requirements imposed by laws relating to the oil and gas
business of the Corporation. The Corporation will furnish to any shareholder
without charge upon written request to the Corporation at its principal place of
business or registered office, and there is on file in the office of the
Secretary of State of Texas, (i) a full statement of all of the designations,
preferences, limitations and relative rights of the shares of each class of
stock authorized to be issued, (ii) the variations in the relative rights and
preferences of the shares of any preferred or special class in series of stock
which the Corporation is authorized to issue so far as the same have been fixed
and determined and the authority of the Board of Directors to fix and determine
the relative rights and preferences of any subsequent series, (iii) a full
statement of the denial of preemptive rights contained in the Articles of
Incorporation and (iv) a full statement of the provisions of the Restated
Articles of Incorporation, the Bylaws and any resolutions adopted by the
Corporation that restrict stock ownership.
This certificate also evidences and entitles the holder hereof to certain
Rights as set forth in the Rights Agreement between EEX Corporation and Harris
Trust Company of New York (the "Rights Agent") dated as of August 29, 1996 (the
"Rights Agreement"), the terms of which are hereby incorporated herein by
reference and a cop of which is on file at the principal offices of the Rights
Agent. Under certain circumstances, as set forth in the Rights Agreement, such
Rights will be evidenced by separate certificates and will no longer be
evidenced by this certificate. The Rights Agent will mail to the holder of this
certificate a cop of the Rights Agreement, as in effect on the date of mailing,
without charge, promptly after receipt of a written request therefor. Under
certain circumstances set forth in the Rights Agreement, Rights issued to, or
held by, any Person who is, was or becomes an Acquiring Person or any Affiliate
or Associate thereof (as such terms are defined in the Rights Agreement),
whether currently held by or on behalf of such Person or by any subsequent
holder, may become null and void.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entities
JT TEN - as joint tenants with right of survivorship
and not as tenants in common
UNIF GIFT MIN ACT - ________ (Cust) Custodian ________ (Minor)
under Uniform Gifts to Minors Act __________(State)
Additional abbreviations may also be used though not in the above list.
For value received, ______________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
______________________________________________________________________________
________________________________________________________________ shares of the
capital stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint ___________________________ Attorney to transfer the said
stock on the books of the within named Corporation with full power of
substitution in the premises.
Dated________________
X____________________________________
NOTICE: (SIGNATURE)
THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE CERTI-
FICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR ENLARGE-
MENT OR ANY CHANGE WHATEVER.
X____________________________________
(SIGNATURE)
_____________________________________
STREET OR P.O. BOX
_____________________________________
CITY STATE ZIP CODE
THE SIGNATURE(S) SHOULD BE GUARANTEED
BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
SIGNATURE(S) GUARANTEED BY:
<PAGE>
EXHIBIT 4.2
ORGANIZED UNDER THE LAWS OF THE STATE OF TEXAS
NUMBER SHARES
EEX CORPORATION
SERIES B 8% CUMULATIVE PERPETUAL PREFERRED STOCK
The Corporation is Authorized to Issue 3,000,000 Shares Series B 8% Cumulative
Perpetual Preferred Stock--No Par Value
This Certifies that _______________ is the owner of ______________ fully
paid and non-assessable Shares of the Series B 8% Cumulative Perpetual Preferred
Stock of EEX CORPORATION transferable only on the books of the Corporation by
the holder hereof in person or by duly authorized Attorney upon surrender of
this Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and to be sealed with the Seal of the
Corporation.
Dated ____________________
___________________________________ __________________________________
Treasurer President
<PAGE>
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations. Additional abbreviations may also
be used though not in the list.
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship
and not as tenants in common
UNIF GIFT MIN ACT -. . . . . Custodian . . . . . (Minor)
under Uniform Gifts to Minors Act . . . . . . . (State)
For value received, the undersigned hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
____________________________________ __________________________________
PLEASE PRINT OR TYPEWRITE NAME
AND ADDRESS OF ADDRESSEE
______________________________________________________________________
_______________________________________________________________ Shares
represented by the within Certificate, and hereby irrevocably constitutes and
appoints ____________________________________ Attorney to transfer the said
Shares on the books of the within-named Corporation with full power of
substitution in the premises.
Dated, _________________
In the presence of ___________________________________
__________________________________
NOTICE: The signature to this assignment
must correspond with the name as written
upon the face of the certificate in every
particular without alteration or enlargement,
or any change whatever.
<PAGE>
EXHIBIT 4.4
FIRST AMENDMENT TO RIGHTS AGREEMENT
-----------------------------
THIS FIRST AMENDMENT TO RIGHTS AGREEMENT (this "Amendment"), dated December
21, 1998, is by and between EEX Corporation, a Texas corporation (the
"Company"), as the successor to Lone Star Energy Plant Operations, Inc.
("LSEPO"), and Harris Trust Company of New York (the "Rights Agent").
R E C I T A L S
---------------
A. The Company and the Rights Agent are parties to that certain Rights
Agreement (the "Rights Agreement"), dated September 10, 1996.
B. The Company and the Rights Agent now desire to make certain amendments
to the Rights Agreement.
NOW, THEREFORE, in consideration of the premises contained herein and for
other good and valuable consideration, the sufficiency of which is hereby
acknowledged, the Rights Agreement is hereby modified, adjusted and amended 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 Rights Agreement.
2. The following definitions in Section 1 of the Rights Agreement are
amended and restated in their entirety to read as follows:
"Acquiring Person" shall mean any Person who or which, together with all
Affiliates and Associates of such Person, shall be the Beneficial Owner of
eighteen percent (18%) or more of the shares of Common Stock then outstanding,
but shall not include (i) the Company, (ii) any Subsidiary of the Company, (iii)
any employee benefit plan of the Company or of any Subsidiary of the Company,
(iv) any Person or entity organized, appointed or established by the Company for
or pursuant to the terms of any such plan, (v) any such Person who has reported
or is required to report such ownership (but less than 20%) on Schedule 13G
under the Exchange Act (or any comparable or successor statement) or on Schedule
13D under Exchange Act (or any comparable or successor statement) which Schedule
13D does not state any intention to or reserve the right to control or influence
the management or policies of the Company or engage in any of the actions
specified in Item 4 of such Schedule (other than the disposition of the Common
Stock) and, within 10 Business Days of being requested by the Company to advise
it regarding the same, certifies to the Company that such Person acquired shares
of common Stock in excess of 17.9% inadvertently or without knowledge of the
terms of the Rights and who, together with all Affiliates and Associates,
thereafter does not acquire additional shares of Common Stock while the
Beneficial Owner of eighteen percent (18%) or more of the Common Stock then
outstanding or (vii) any of Warburg, Pincus Equity Partners, L.P., Warburg,
Pincus Netherlands Equity Partners I, C.V., Warburg, Pincus Netherlands Equity
Partners II, C.V., and Warburg, Pincus Netherlands Equity Partners III, C.V.,
and their respective Affiliates.
3. The term "Continuing Director" in Section 1 of the Rights Agreement is
deleted in its entirety.
4. Section 23(a) is amended and restated in its entirety to read as
follows:
<PAGE>
(a) The Board may, at its option, at any time prior to the earlier of (i)
the close of business on the fifteenth day following the Stock Acquisition date
(or, if the Stock Acquisition Date shall have occurred prior to the Record Date,
the close of business on the fifteenth day following the Record Date), as such
date may be extended from time to time (but in to event more than a year from
the Stock Acquisition Date) by the Board while the Rights are redeemable in
accordance with the terms of this Agreement, or (ii) the Final Expiration Date,
redeem all but not less than all the them outstanding Rights at a redemption
price of $.01 per Rights, as such amount may be appropriately adjusted to
reflect any stock split, stock dividend or similar transaction occurring after
the date hereof (such redemption price being hereinafter referred to as the
"Redemption Price").
5. The parties hereto hereby acknowledge and agree that, except as
specifically supplemented and amended, changed or modified hereby, the Rights
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 BE 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 signature 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.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS HEREOF, the parties hereto have caused this Amendment to be
executed as of the date first written above.
EEX Corporation
/s/ J. T. Leary
--------------------------------------
J. T. Leary
Vice President - Finance and Treasurer
Harris Trust Company of New York
By: /s/ Joseph McFadden
----------------------------------
Name: Joseph McFadden
--------------------------------
Title: Vice President
-------------------------------
CERTIFICATION:
I, J. T. Leary, Vice President - Finance and Treasurer of the Company, hereby
certify that this Amendment complies with Section 26 of the Rights Agreement.
/s/ J. T. Leary
_____________________________________
J. T. Leary
3
<PAGE>
EXHIBIT 4.5
STATEMENT OF RESOLUTION
OF
SERIES B 8% CUMULATIVE PERPETUAL PREFERRED STOCK
OF
EEX CORPORATION
PURSUANT to the provisions of Article 2.13 of the Texas Business
Corporation Act, the undersigned corporation (the "Company") makes the following
statement:
I. The name of the Company is EEX Corporation.
II. Set forth below is a copy of the resolution of the Board of Directors
of the Company (the "Resolution") establishing and designating, and determining
the preferences, limitations and relative rights of, the Company's Series B 8%
Cumulative Perpetual Preferred Stock, no par value per share. This resolution
was adopted by all necessary action on the part of the corporation. Date of
adoption was 12/18/98:
"RESOLVED, that pursuant to the authority vested in the Board of Directors
of the Company by Article IV of the Restated Articles of Incorporation, a series
of Preferred Stock of the Company be, and it hereby is, created out of the
authorized but unissued shares of the Preferred Stock of the Company, such
series to be designated "Series B 8% Cumulative Perpetual Preferred Stock" (the
"Series B Preferred Stock"), to consist of 3,000,000 shares, no par value per
share, of which the preferences and relative and other rights, and the
qualifications, limitations or restrictions thereof, shall be (in addition to
those set forth in the Restated Articles of Incorporation) as follows:
1. Number. The number of shares constituting the Series B Preferred Stock
shall be 3,000,000; provided, however, 1,500,000 of such 3,000,000 shares may
only be issued from time to time as dividends on the Series B Preferred Stock
pursuant to Section 3 of this Statement of Resolution.
2. Definitions. Unless the context otherwise requires, when used herein
the following terms shall have the meaning indicated.
"Affiliate" means with respect to any Person, any other Person directly, or
indirectly through one or more intermediaries, controlling, controlled by or
under common control with such Person. For purposes of this definition, the
term "control" (and correlative terms "controlling," "controlled by" and "under
common control with") means possession of the power, whether by contract, equity
ownership or otherwise, to direct the policies or management of a Person.
"Articles" means the Restated Articles of Incorporation of the Company.
"Beneficially Own" or "Beneficial Ownership" is defined in Rules 13d-3 and
13d-5 of the Exchange Act, but without taking into account any contractual
restrictions or limitations on voting or other rights.
<PAGE>
"Board" means the Board of Directors of the Company.
"Business Combination" means (i) any consolidation, merger, share exchange
or similar business combination transaction involving the Company with any
Person or (ii) the sale, assignment conveyance, transfer, lease or other
disposition by the Company of all or substantially all of its assets.
"Business Day" means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in Houston,
Texas or New York City, New York generally are authorized or required by law or
other governmental actions to close.
"Capital Stock" means (i) with respect to any Person that is a corporation
or company, any and all shares, interests, participations or other equivalents
(however designated) of capital or capital stock of such Person and (ii) with
respect to any Person that is not a corporation or company, any and all
partnership or other equity interests of such Person.
"Change of Control" shall mean any event constituting (a) the consummation
of any Business Combination except where (i) the shareholders of the Company
immediately prior to such Business Combination own (in substantially the same
proportion relative to each other as such shareholders owned the Common Stock
immediately prior to such consummation) (x) forty percent (40%) or more of the
Voting Stock of the surviving entity on both a Modified Non Diluted Basis and a
Modified Fully Diluted Basis immediately after such Business Combination, and
(y) forty percent (40%) or more of the outstanding common stock of the surviving
entity on both a Modified Non Diluted Basis and a Modified Fully Diluted Basis
immediately after such Business Combination, (ii) the members of the Board
immediately prior to the entering into the agreement relating to such Business
Combination constitute at least a majority of the Board or the board of
directors of the surviving entity immediately after such Business Combination,
with no agreements or arrangements in place immediately after such consummation
that would result in the members of the Board immediately prior to the entering
into the agreement relating to such Business Combination ceasing to constitute
at least a majority of the Board or the board of directors of the surviving
entity and (iii) no Non-Financial Person or Group of Non-Financial Persons is
the Beneficial Owner of 20% or more of the total outstanding Voting Stock or
common stock of the surviving entity and no Financial Person or Group of
Financial Persons is the Beneficial Owner of 35% or more of the total
outstanding Voting Stock or common stock of the surviving entity or (b) any Non-
Financial Person or Group of Non-Financial Persons acquiring Beneficial
Ownership of 20% or more of the total outstanding Voting Stock or Common Stock
of the Company or any Financial Person or Group of Financial Persons acquiring
Beneficial Ownership of 35% or more of the total outstanding Voting Stock or
Common Stock of the Company.
"Code" means the Internal Revenue Code of 1986, as amended, and the rules
and regulations thereunder.
"Common Stock" means the Company's common stock, par value $.01 per share,
and any Capital Stock for or into which such Common Stock hereafter is
exchanged, converted, reclassified or recapitalized by the Company or pursuant
to an agreement or Business Combination to which the Company is a party.
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<PAGE>
"Common Stock Equivalents" means (without duplication with any other Common
Stock or common stock, as the case may be, or Common Stock Equivalents) rights,
warrants, options, convertible securities or exchangeable securities,
exercisable for or convertible or exchangeable into, directly or indirectly,
Common Stock, or common stock, as the case may be, whether at the time of
issuance or upon the passage of time or the occurrence of some future event,
including the Warrants.
"Company" means EEX Corporation, a Texas corporation.
"Dividend Payment Date" is defined in Section 3(A).
"Dividend Period" is defined in Section 3(A).
"Dividend Rate" means a rate of interest equal to (i) prior to the Dividend
Reset Date, eight percent (8%) per annum and (ii) on or after the Dividend Reset
Date, the Dividend Reset Rate determined pursuant to Section 4.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any successor statute, and the rules and regulations promulgated thereunder.
"Financial Person" means any Person that (i) is, or holds itself out as
being, engaged primarily in the business of investing, reinvesting, owning,
holding or trading in securities, and (ii) together with its Affiliates is not
engaged in (x) any significant activities other than financial services,
insurance or investment activities or (y) directly or indirectly through
Affiliates, in any industrial activities, including the oil and gas and energy
industry.
"Group" means a group as contemplated by Section 13(d)(3) of the Exchange
Act.
"Holder" means a holder of record of the Series B Preferred Stock.
"Issue Date" means with respect to any shares of Series B Preferred Stock
the original date of issuance of such shares of Series B Preferred Stock.
"Junior Securities" means Capital Stock that, with respect to dividends and
distributions upon Liquidation, ranks junior to the Series B Preferred Stock.
"Liquidation" means the voluntary or involuntary liquidation, dissolution
or winding up of the Company; provided, however, that a merger or share exchange
shall not be deemed a Liquidation nor shall the sale of assets not requiring
shareholder approval be deemed to be a Liquidation.
"Liquidation Preference" is defined in Section 6.
"Majority of the Series B Preferred Stock" means more than 50% of the
outstanding shares of Series B Preferred Stock.
"Market Price" means, with respect to a particular security, on any given
day, the last reported sale price regular way or, in case no such reported sale
takes place on such day, the
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<PAGE>
average of the last closing bid and asked prices regular way, in either case on
the principal national securities exchange on which the applicable securities is
listed or admitted to trading, or if not listed or admitted to trading on any
national securities exchange, (i) the closing sale price for such day reported
by the NASDAQ Stock Market if such security is traded over-the-counter and
quoted in the NASDAQ Stock Market, or (ii) if such security is so traded, but
not so quoted, the average of the closing reported bid and asked prices of such
security as reported by the NASDAQ Stock Market or any comparable system, or
(iii) if such security is not listed on the NASDAQ Stock Market or any
comparable system, the average of the closing bid and asked prices as furnished
by two members of the National Association of Securities Dealers, Inc. selected
from time to time by the Company for that purpose. If such security is not
listed and traded in a manner that the quotations referred to above are
available for the period required hereunder, the Market Price per share of
Common Stock shall be deemed to be the fair value per share of such security as
determined in good faith by the Board of Directors of the Company.
"Modified Fully-Diluted Basis" shall mean a calculation based on the then
outstanding shares of Voting Stock or common stock, as the case may be, plus all
shares of Voting Stock or common stock acquirable pursuant to, or constituting,
Common Stock Equivalents, but excluding 50% of the Voting Stock or common stock
acquirable pursuant to the then outstanding Warrants.
"Modified Non-Diluted Basis" shall mean a calculation based on the then
outstanding shares of Voting Stock or common stock, as the case may be, and
without giving effect to outstanding Common Stock Equivalents, but including (i)
50% of the shares of Common Stock then acquirable upon exercise of the then
outstanding Warrants and (ii) the number of shares of common stock equal to (a)
the aggregate Market Price as of the date of such Business Combination of all
shares of common stock acquirable upon exercise of all outstanding employee
stock options of the relevant entity that have an exercise price of less than
the Market Price of common stock as of the date of such Business Combination
less the aggregate exercises price of all such options divided by (b) the Market
Price of common stock as of the date of such Business Combination.
"Non-Financial Person" means any Person that is not a Financial Person.
"Notice of Redemption" is defined in Section 7(B)(i).
"Parity Securities" means Capital Stock that, with respect to dividends or
distributions upon Liquidation, is pari passu with the Series B Preferred Stock.
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, limited liability company, joint
venture, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Profits" means earnings and profits of the Company and its Subsidiaries
computed in accordance with Section 312 of the Code.
"Purchase Agreement" means the Purchase Agreement dated as of December
, 1998 among the Company and the purchasers named therein pursuant to which
1,500,000 shares of
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<PAGE>
Series B Preferred Stock and certain other securities are to be issued by the
Company, including all schedules and exhibits thereto.
"Purchasers" means collectively, Warburg, Pincus Equity Partners, L.P.,
Warburg, Pincus Equity Partners I, C.V. Warburg, Pincus Equity Partners II, C.V.
and Warburg, Pincus Equity Partners III, C.V.
"Record Date" is defined in Section 3(A).
"Redemption Date" is defined in Section 7(B)(i).
"Redemption Notice" is defined in Section 7(B)(i).
"Redemption Price" is defined in Section 7(A).
"Rights Agreement" means the Rights Agreement dated as of September 10,
1996 between the Company and Harris Trust Company of New York, a New York trust
company, as amended.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor statute, and the rules and regulations promulgated thereunder.
"Senior Securities" means Capital Stock that, with respect to dividends or
distributions upon Liquidation, ranks senior to the Series B Preferred Stock.
"Series B Preferred Stock" means the Series B 8% Cumulative Perpetual
Preferred Stock of the Company or successor preferred stock as contemplated by
Section 5(C)(ii)(A).
"Stated Value" is an amount equal to $100.00 per share of Series B
Preferred Stock.
"Statement of Resolution" means this Statement of Resolution of the Series
B Preferred Stock.
"Subsidiary" of a Person means (i) a corporation, a majority of whose stock
with voting power, under ordinary circumstances, to elect directors is at the
time of determination, directly or indirectly, owned by such Person or by one or
more Subsidiaries of such Person, or (ii) any other entity (other than a
corporation) in which such Person or one or more Subsidiaries of such Person,
directly or indirectly, at the date of determination thereof has a least a
majority ownership interest.
"TBCA" means the Texas Business Corporation Act, as amended, or any
successor statute or other legislation.
"Voting Stock" of a Person means Capital Stock of such Person of the class
or classes pursuant to which the holders thereof have the general voting power
under ordinary circumstances to vote in the election of the board of directors,
managers or trustees of such Person.
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<PAGE>
"Warrants" means the warrants to purchase up to 21,000,000 shares of Common
Stock, subject to certain conditions, at an initial exercise price of $12 per
share (as may be adjusted from time to time as set forth therein) which were
issued to the purchasers named in the Purchase Agreement pursuant to the
Purchase Agreement.
The foregoing definitions will be equally applicable to both the singular
and plural forms of the defined terms.
3. Dividends and Distributions.
(A) Subject to the prior preferences and other rights of any Senior
Securities, the holders of the Series B Preferred Stock shall be entitled
to receive out of the assets of the Company legally available for that
purpose, dividends at the Dividend Rate, and, except as provided in Section
3(C), no more, to be paid in accordance with the terms of this Section 3.
Such dividends shall be cumulative from the Issue Date and shall be payable
in arrears, when and as declared by the Board, on March 31, June 30,
September 30 and December 31 of each year (each such date being herein
referred to as a "Dividend Payment Date"), commencing on March 31, 1999.
The period from the Issue Date to the next Dividend Payment Date and
quarterly period between consecutive Dividend Payment Dates shall
hereinafter be referred to as a "Dividend Period." Each such dividend
shall be paid to the holders of record of the Series B Preferred Stock as
their names appear on the share register of the Company on the
corresponding Record Date. As used above, the term "Record Date" means,
with respect to the dividend payable on March 31, June 30, September 30 and
December 31, respectively, of each year, the preceding March 15, June 15,
September 15 and December 15, or such other record date designated by the
Board with respect to the dividend payable on such respective Dividend
Payment Date not exceeding 30 days preceding such Dividend Payment Date.
Dividends on account of arrears for any past Dividend Periods may be
declared and paid, together with any accrued but unpaid interest thereon to
and including the date of payment, at any time, without reference to any
Dividend Payment Date, to holders of record on a date designated by the
Board, not exceeding 30 days preceding the payment date thereof, as may be
fixed by the Board.
(B) In the event that dividends on the Series B Preferred Stock are to
be paid in cash in accordance with Sections 3(E) or 3(F), and full cash
dividends are not paid or made available to the holders of all outstanding
shares of the Series B Preferred Stock and of any Parity Securities, and
funds available shall be insufficient to permit payment in full in cash to
all such holders of the preferential amounts to which they are then
entitled, the entire amount available for payment of cash dividends shall
be distributed among the holders of the Series B Preferred Stock and of any
Parity Securities ratably in proportion to the full amount to which they
would otherwise be respectively entitled, any remainder not paid in cash to
the Holders shall cumulate as provided in Section 3(C) below.
(C) If, on any Dividend Payment Date, the Company fails to pay
dividends, then until the dividends that were scheduled to be paid on such
date are paid, such dividends shall cumulate and shall accrue additional
dividends to and including the date of payment thereof at the Dividend Rate
then in effect plus, with respect to any dividends
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<PAGE>
payable after the Dividend Reset Date, 2% per annum (but in no event higher
than the highest amount permitted under applicable law), compounded
quarterly, whether or not earned or declared, payable only in cash
(notwithstanding Section 3(E) below) with additional dividends thereon for
each succeeding full Dividend Period during which such dividends shall
remain unpaid. Unpaid dividends for any period less than a full Dividend
Period shall cumulate on a day-to-day basis and shall be computed on the
basis of a 360-day year.
(D) So long as any shares of the Series B Preferred Stock shall be
outstanding, the Company shall not and shall cause its Subsidiaries not to
(i) declare or pay any dividend whatsoever, whether in cash, property or
otherwise, set aside any cash or property for the payment of dividends, or
make any other distribution on any Junior Securities, (ii) declare or pay
any dividend whatsoever, whether in cash, property or otherwise, set aside
any cash or property for the payment of dividends, or make any other
distribution on any Parity Securities, unless declared and paid pro rata
with the Series B Preferred Stock in proportion to the full amount to which
they would otherwise be respectively entitled or (iii) repurchase, redeem
or otherwise acquire or set aside any cash or property for the repurchase
or redemption of any Junior Securities or Parity Securities, unless in each
such case all dividends to which the holders of the Series B Preferred
Stock shall have been entitled for all previous Dividend Periods shall have
been paid or declared and a sum of money sufficient for the payment thereof
shall have been set apart.
(E) Subject to the election of a Holder provided for in Section 3(F)
below and subject to Section 3(C) above, from the Issue Date through and
including the Dividend Reset Date, the Company shall pay on each Dividend
Payment Date accrued dividends, at its election, in cash, shares of Series
B Preferred Stock or shares of Common Stock. Such election shall be made
on or prior to the earlier of the date of declaration of such dividend or
the applicable record date for such dividend, with prompt notice thereafter
being given by the Company to the holders of the Series B Preferred Stock
of such election. Notwithstanding the foregoing, in the event that the
Company shall have declared or paid cash dividends on the Common Stock
during a Dividend Period, the Company shall pay on the Dividend Payment
Date for such Dividend Period accrued dividends solely in cash. The number
of shares of Series B Preferred Stock to be issued in circumstances when
dividends are paid with additional shares of Series B Preferred Stock will
equal the cash amount of the dividend payable, divided by $100, rounded to
the nearest full share, up or down, after taking into account all shares of
Series B Preferred Stock owned by the Holder provided that if the resulting
fractional share held by such Holder equals one-half of a share of Series B
Preferred Stock, such fractional share shall be rounded up to the nearest
full share. The number of shares of Common Stock to be issued in
circumstances when dividends are paid with shares of Common Stock will
equal the cash amount of the dividend payable, divided by the lesser of (i)
the Market Price of Common Stock as of the last trading day immediately
preceding the payment date or (ii) the average Market Price of Common Stock
for the twenty (20) trading days immediately preceding the payment date,
rounded up to the nearest full share. After the Dividend Reset Date, the
Company shall pay dividends on the Series B Preferred Stock only in cash,
and the Company shall be mandatorily required to pay such dividends on the
scheduled Dividend Payment Date to the fullest extent permitted by law or,
if not then permitted by law, then as soon thereafter as is legally
permitted. The
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<PAGE>
Company shall be required to pay all accrued but unpaid dividends as of the
Dividend Reset Date in cash on the next succeeding Dividend Payment Date to
the fullest extent permitted by law or, if not then permitted by law, then
as soon thereafter as is legally permitted.
(F) On any Dividend Payment Date occurring on any December 31 before
the Dividend Reset Date, Holders of a Majority of the Series B Preferred
Stock may elect, by written notice to the Company on or before five (5)
business days preceding the applicable Record Date, to have the Company pay
in cash up to the full amount of the dividend payable on such date less any
cash dividends paid with respect to the previous three Dividend Periods, or
the portion thereof as shall not exceed the Profits of the Company. To the
extent that the Company has not determined the Profits of the Company for
the fiscal year ending on December 31 of such year as of the applicable
Record Date and has determined in good faith that it is not reasonably
certain that it will have Profits sufficient to pay the cash dividends
requested in the aggregate by the Holders of the Series B Preferred Stock,
the Company may defer the payment of such dividend to the earlier of the
date of such determination or March 31 of the year following the year in
which such dividend was to be paid but such deferred cash portion of the
dividend shall accrue additional dividends thereon at the Dividend Rate.
To the extent that the aggregate cash dividends requested to be paid by all
Holders exceeds the Profits of the Company as so determined, such aggregate
cash dividends will be reduced and each Holder requesting to be paid in
cash shall be entitled to receive his pro rata portion of the aggregate
cash dividends paid based on the dollar amount of cash dividends requested
to be paid by each Holder and the remainder shall be paid at the election
of the Company in either shares of Series B Preferred Stock or shares of
Common Stock as provided in Section 3(E). In the event of the approval by
the Board of an agreement providing for a Business Combination, a Holder
may elect to have the Company suspend payment of dividends, which shall
continue to accrue as provided in Section 3(C) at the Dividend Rate. If
the proposed Business Combination is consummated within 180 days of the
date of approval by the Board of the agreement providing for such Business
Combination, at the request of Holders of a Majority of the Series B
Preferred Stock, all accrued but unpaid dividends will be paid in cash by
the Company upon consummation of such Business Combination or if the
proposed Business Combination is not consummated within 180 days of the
date of approval by the Board of the agreement providing for such Business
Combination, all accrued but unpaid dividends (including dividends that
would have been payable with respect to unpaid dividends in Series B
Preferred Stock) will be paid by the Company promptly after expiration of
such 180 day period at the Company's election in cash, shares of Series A
Preferred Stock or shares of Common Stock in accordance with Section 3(E).
4. Remarketing Procedures.
(A) Certain Definitions.
Capitalized terms not defined in this Section 4 shall have the meanings
specified elsewhere herein. As used herein, the following terms shall have the
following meanings, unless the context otherwise requires:
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"Existing Holder" shall mean a Person who is a record owner of shares of
Series B Preferred Stock as of the time in question.
"Maximum Applicable Rate" shall mean 18% per annum (but in no event higher
than the highest amount permitted under applicable law).
"Minimum Applicable Rate" shall mean 4% per annum.
"Potential Holder" shall mean a prospective purchaser of shares of Series B
Preferred Stock contacted by, or who has contacted, the Remarketing Agent or the
Company in connection with the Remarketing and who shall have executed and
delivered to the Remarketing Agent an agreement, prepared by the Remarketing
Agent, whereby such prospective purchaser shall have agreed that it will be
bound by the Remarketing Procedures and that any Bid placed by it shall
constitute an irrevocable offer by it to purchase the shares subject to such Bid
or such lesser number of shares of Series B Preferred Stock as it shall be
required to purchase as a result of such Remarketing Procedures and containing
such other matters as the Remarketing Agent shall specify that are not
inconsistent with the Remarketing Procedures.
"Qualifying Change of Control" shall mean a Change of Control if the Market
Price of one share of Common Stock immediately prior to the consummation of such
Change of Control does not exceed the Threshold Amount.
"Remarketing" shall mean the operation of the procedures set forth in this
Section 4.
"Remarketing Agent" shall mean a nationally recognized investment banking
firm or commercial bank selected by the Company (i) whose long-term unsecured
debt is rated either BBB- or better by Standard & Poor's Corporation or any
successor thereto or baa3 or better by Moody Investors Service, Inc. or any
successor thereto, (ii) that has agreed to serve hereunder as Remarketing Agent,
and (iii) notice of which selection and agreement has been given to the Existing
Holders at least 15 Business Days prior to the Submission Deadline.
"Remarketing Procedures" shall mean the procedures set forth in this
Section 4.
"Submission Deadline" shall mean the earlier of (i) 10:00 A.M., Houston,
Texas time on [seventh anniversary of the Closing Date] or, if such date is not
a Business Day, then at such time on the next succeeding Business Day or (ii)
10:00 A.M., Houston, Texas time on the thirtieth day following a Qualifying
Change of Control.
"Threshold Amount" shall mean $5.375 (provided, however, if the Company
after [Closing Date] shall (i) declare a dividend or make a distribution on its
Common Stock in shares of Common Stock, (ii) subdivide or reclassify the
outstanding shares of Common Stock into a greater number of shares, or (iii)
combine or reclassify the outstanding Common Stock into a smaller number of
shares, then such amount shall be adjusted proportionately) and increased by 8%
per annum, compounded quarterly, from [Closing Date] to the day immediately
preceding the consummation of the Change of Control.
(B) Orders by Existing Holders and Potential Holders.
(i) Prior to the Submission Deadline, the Remarketing Agent shall
contact Potential Holders to determine the number of shares, if any, of
Series B Preferred Stock
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that each such Potential Holder offers to purchase, at a price equal to the
Stated Value per share of Series B Preferred Stock plus accrued and unpaid
dividends thereon as of the Dividend Reset Date (the "Reset Price"), if the
Dividend Reset Rate is not less than the rate per annum specified by such
Potential Holder.
(ii) Prior to the Submission Deadline, each Existing Holder may submit
to the Remarketing Agent in writing information as to:
(1) the number of shares, if any, of Series B Preferred Stock
held by such Existing Holder that such Existing Holder desires to
continue to hold without regard to the Dividend Reset Rate;
(2) the number of shares, if any, of Series B Preferred Stock
held by such Existing Holder that such Existing Holder desires to
continue to hold if the Dividend Reset Rate is not less than the rate
per annum specified by such Existing Holder; and/or
(3) the number of shares, if any, of Series B Preferred Stock
held by such Existing Holder that such Existing Holder desires to sell
at the Reset Price without regard to the Dividend Reset Rate.
For purposes hereof, the communication to the Remarketing Agent of the
information referred to in this Section 4(B)(ii) is hereinafter referred to
as an "Order" and each Existing Holder and each Potential Holder placing an
Order is hereinafter referred to as a "Bidder"; an Order containing the
information referred to in clause (1) of this Section 4(B)(ii) is
hereinafter referred to as a "Hold Order"; an Order containing the
information contained in clause (2) of this Section 4(B)(ii) is hereinafter
referred to as a "Bid"; and an Order containing the information referred to
in clause (3) of this Section 4(B)(ii) is hereinafter referred to as a
"Sell Order".
(C) Deemed Submission of Orders by Existing Holders. If an Order or
Orders covering all of the shares of Series B Preferred Stock held by an
Existing Holder is not submitted to the Remarketing Agent prior to the
Submission Deadline, the Remarketing Agent shall deem a Sell Order to have
been submitted on behalf of such Existing Holder covering the number of
shares of Series B Preferred Stock held by such Existing Holder and not
subject to any Order submitted to the Remarketing Agent.
(D) Determination of Sufficient Clearing Bids, Winning Bid Rate and
Dividend Reset Rate.
(i) Promptly following the Submission Deadline, the Remarketing
Agent shall assemble all Orders submitted to it (each such Order as
submitted or deemed submitted being hereinafter referred to
individually as a "Submitted Hold Order", a "Submitted Bid" or a
"Submitted Sell Order", as the case may be, or as a "Submitted Order")
and shall determine:
(1) the excess, if any, of the total number of outstanding shares
of Series B Preferred Stock over the number of shares of Series B
Preferred Stock
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that are the subject of Submitted Hold Orders (such excess being
hereinafter referred to as the "Available Shares");
(2) from the Submitted Orders whether the number of outstanding
shares of Series B Preferred Stock that are the subject of Submitted
Bids by Potential Holders and Existing Holders specifying a rate not
higher than the Maximum Applicable Rate is equal to or exceeds the
number of outstanding shares of Series B Preferred Stock that are the
subject of Submitted Sell Orders, and if such excess or such equality
exists, such Submitted Bids are hereinafter referred to collectively
as "Sufficient Clearing Bids"); and
(3) if Sufficient Clearing Bids exist, the lowest rate specified
in the Submitted Bids (the "Winning Bid Rate") which if:
(a) each Submitted Bid from Existing Holders specifying such
Winning Bid Rate and all other Submitted Bids from Existing
Holders specifying lower rates were accepted, would entitle such
Existing Holders to continue to hold the outstanding shares of
Series B Preferred Stock that are the subject of such Submitted
Bids; and
(b) each Submitted Bid from Potential Holders specifying
such Winning Bid Rate and all other Submitted Bids from Potential
Holders specifying lower rates were accepted, would entitle such
Potential Holders to purchase the shares of Series B Preferred
Stock that are the subject of such Submitted Bids;
would result in such Existing Holders described in subclause (a)
above continuing to hold an aggregate number of outstanding shares of
Series B Preferred Stock that, when added to the number of shares of Series
B Preferred Stock to be purchased by such Potential Holders described in
subclause (b) above, would equal not less than the Available Shares.
(ii) Promptly after the Remarketing Agent has made the determinations
pursuant to Section 4(D)(i), the Remarketing Agent shall advise the Company
of the Dividend Reset Rate as follows:
(1) if Sufficient Clearing Bids exist, the Dividend Reset Rate
shall be equal to the Winning Bid Rate so determined; provided,
however, that the Winning Bid Rate shall not exceed the Maximum
Applicable Rate;
(2) if Sufficient Clearing Bids do not exist, the Dividend Reset
Rate shall be equal to the Maximum Applicable Rate;
(3) if all of the outstanding shares of Series B Preferred Stock
are subject to Submitted Hold Orders, the Dividend Reset Rate shall be
equal to the Minimum Applicable Rate.
(E) Acceptance and Rejection of Orders and Allocation of Shares.
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Based on the determinations made pursuant to Section 4(D)(i), Submitted
Sell Orders shall be accepted or rejected, and the Remarketing Agent shall take
such other action, as set forth below:
(i) if Sufficient Clearing Bids have been made in the Remarketing,
subject to the provisions of Section 4(E)(iii), Submitted Bids and
Submitted Sell Orders shall be accepted or rejected in the following order
of priority and all other Submitted Bids shall be rejected:
(1) the Submitted Sell Orders of each Existing Holder shall be
accepted and the Submitted Bids of each Existing Holder specifying any
rate that is higher than the Winning Bid Rate shall be rejected, thus
requiring each such Existing Holder to sell the outstanding shares of
Series B Preferred Stock subject to such Submitted Sell Orders or
Submitted Bids;
(2) the Submitted Bids of each Existing Holder specifying any
rate that is lower than the Winning Bid Rate shall be accepted, thus
entitling each such Existing Holder to continue to hold the
outstanding shares of Series B Preferred Stock subject to such
Submitted Bids;
(3) the Submitted Bids of each Potential Holder specifying any
rate that is lower than the Winning Bid Rate shall be accepted and
such Potential Holder shall purchase the number of shares of Series B
Preferred Stock subject to such Submitted Bids;
(4) the Submitted Bids of each Existing Holder specifying a rate
that is equal to the Winning Bid Rate shall be accepted, thus
entitling such Existing Holder to continue to hold the outstanding
shares of Series B Preferred Stock subject to such Submitted Bids,
unless the number of outstanding shares of Series B Preferred Stock
subject to all such Submitted Bids placed by Existing Holders shall be
greater than the excess of the Available Shares over the number of
shares of Series B Preferred Stock subject to Submitted Bids described
in clauses (2) and (3) of this Section 4(E)(i) (the "Remaining
Shares"). In such event such Existing Holder shall be required to
sell shares of Series B Preferred Stock subject to such Submitted
Bids, but only in an amount equal to the difference between (1) the
number of outstanding shares of Series B Preferred Stock then held by
such Existing Holder subject to such Submitted Bids and (2) the
product of (x) the number of Remaining Shares and (y) a fraction, the
numerator of which shall be the number of outstanding shares of Series
B Preferred Stock held by such Existing Holder subject to such
Submitted Bids and the denominator of which shall be the number of
outstanding shares of Series B Preferred Stock subject to such
Submitted Bids made by all such Existing Holders that specified a rate
equal to the Winning Bid Rate; and
(5) the Submitted Bids of each Potential Holder specifying a rate
that is equal to the Winning Bid Rate shall be accepted, but only in
an amount equal to the product of (i) the difference between the
Available Shares and the number of outstanding shares of Series B
Preferred Stock subject to the Submitted Bids described in clauses
(2), (3) and (4) of this Section 4(E)(i) and (ii) a fraction, the
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numerator of which shall be the number of outstanding shares of Series
B Preferred Stock subject to such Submitted Bids of such Potential
Holder and the denominator of which shall be the number of outstanding
shares of Series B Preferred Stock subject to such Submitted Bids made
by all such Potential Holders that specified a rate equal to the
Winning Bid Rate.
(ii) Subject to the provisions of Section 9(E)(iii), if Sufficient
Clearing Bids have not been made in the Remarketing, Submitted Bids and
Submitted Sell Orders shall be accepted or rejected in the following order
of priority and all other Submitted Bids shall be rejected:
(1) the Submitted Bids of each Existing Holder specifying any
rate that is equal to or lower than the Maximum Applicable Rate shall
be accepted, thus entitling such Existing Holder to continue to hold
the outstanding shares of Series B Preferred Stock subject to such
Submitted Bids;
(2) the Submitted Bids of each Potential Holder specifying any
rate that is equal to or lower than the Maximum Applicable Rate shall
be accepted, thus entitling such Existing Holder to purchase the
outstanding shares of Series B Preferred Stock subject to such
Submitted Bids; and
(3) the Submitted Sell Orders of each Existing Holder shall be
accepted, and the Submitted Bids of each Existing Holder specifying
any rate that is higher than the Maximum Applicable Rate shall be
rejected, thus requiring each such Existing Holder to sell the
outstanding shares of Series B Preferred Stock subject to such
Submitted Sell Orders and Submitted Bids, in both cases only in an
amount equal to the difference between (A) the number of outstanding
shares of Series B Preferred Stock then held by such Existing Holder
subject to such Submitted Sell Orders or Submitted Bids and (B) the
product of (x) the difference between the Available Shares and the
aggregate number of outstanding shares of Series B Preferred Stock
subject to Submitted Bids described in clauses (1) and (2) of this
Section 4(E)(ii) and (y) a fraction, the numerator of which shall be
the number of outstanding shares of Series B Preferred Stock held by
such Existing Holder subject to such Submitted Sell Orders or
Submitted Bids and the denominator of which shall be the number of
outstanding shares of Series B Preferred Stock subject to all such
Submitted Sell Orders and Submitted Bids.
(iii) If, as a result of the procedures described in this Section 4,
any Existing Holder would be entitled or required to sell, or any Potential
Holder would be entitled or required to purchase, a fraction of a share of
Series B Preferred Stock, the Remarketing Agent shall, in such manner as,
in its sole discretion, it shall determine, round up or down the number of
shares of Series B Preferred Stock to be sold or purchased by any Existing
Holder or Potential Holder of such Series B Preferred Stock so that the
number of shares of Series B Preferred Stock sold or purchased by each
Existing Holder or Potential Holder shall be whole shares of Series B
Preferred Stock.
(F) Closing of Remarketing. If any shares of Series B Preferred Stock are
to be sold pursuant to the Remarketing Procedures, then such sale shall be
consummated at the offices of the Company at 10:00 a.m. Eastern Standard Time on
the Business Day next succeeding the
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Submission Deadline (the "Dividend Reset Date"). At such closing, all Existing
Holders that are to sell shares pursuant to the Remarketing Procedures shall
deliver against payment in same day funds the appropriate stock certificates
representing the shares of Series B Preferred Stock to be sold duly endorsed or
with appropriate stock powers. If any purchaser fails to purchase shares
required to be purchased on the Dividend Reset Date (other than as a result
solely of a breach by the applicable Existing Holder of its obligations
hereunder) and, if the Remarketing Agent does not purchase such shares in lieu
of such purchaser, then the Dividend Reset Rate shall be the Maximum Applicable
Rate notwithstanding the other Remarketing Procedures.
(G) Certain Matters relating to the Remarketing Agent. If there is no
Person serving as Remarketing Agent as of the Submission Deadline or if the
Remarketing Agent resigns or otherwise refuses or is unable to act as
Remarketing Agent hereunder, then the Dividend Reset Rate shall be the Maximum
Applicable Rate.
5. Voting Rights. The Holders shall have the following voting rights with
respect thereto:
(A) Each share of Series B Preferred Stock shall entitle the holder
thereof to the voting rights required by applicable law.
(B) Until the Dividend Reset Date, Holders of shares of the Series B
Preferred Stock shall be entitled to vote upon all matters upon which
holders of Common Stock have the right to vote, and Holders shall have that
number of votes on all such matters per share of Series B Preferred Stock
as is equal to the quotient (but in no event more than 5.334) of (i)
8,000,000 divided by (ii) the number of outstanding shares of Series B
Preferred Stock (provided, however, if the Company after [Closing Date]
shall (i) declare a dividend or make a distribution on its Common Stock in
shares of Common Stock, (ii) subdivide or reclassify the outstanding shares
of Common Stock into a greater number of shares, or (iii) combine or
reclassify the outstanding Common Stock into a smaller number of shares,
then such quotient shall be adjusted proportionately) as of the record date
for the determination of the shareholders entitled to vote on such matters,
or, if no such record date is established as of the date such vote is taken
or any written consent of shareholders is solicited, such votes to be
counted together with all other shares of capital stock having general
voting powers and not separately as a class. Fractional votes shall not,
however, be permitted and any fractional voting rights resulting from the
above formula shall be rounded up to the nearest whole number.
(C) In addition to the voting rights accorded to the Holders of the
Series B Preferred Stock in Sections 4(A) and 4(B), the consent of the
Holders of at least a Majority of the Series B Preferred Stock, voting
separately as a single class, in person or by proxy, either in writing
without a meeting or at an annual or a special meeting of shareholders
called for the purpose, shall be necessary to (i) amend, by way of merger
or otherwise, the Articles, so as to (A) affect adversely the rights,
preferences or privileges of Holders or (B) authorize, create or issue any
shares of (1) Parity Securities that (x) adversely affect the rights of the
Series B Preferred Stock to vote separately as a class on any matter or (y)
with other existing Parity Securities, have an aggregate liquidation
preference in excess of $150.0 million or (2) Senior Securities (or amend
the provisions of any existing class of Capital Stock to make such class of
Capital Stock a class of (1)
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Parity Securities that (x) adversely affect the rights of the Series B
Preferred Stock to vote separately as a class on any matter or (y) with
other existing Parity Securities, have an aggregate liquidation preference
in excess of $150.0 million or (2) Senior Securities) or (ii) consummate
any Business Combination (A) unless (x) the Holders of the Series B
Preferred Stock shall have the right to receive or continue to hold in the
surviving corporation in such Business Combination the same number of
shares of preferred stock with substantially the same rights, preferences
and privileges, as correspond to the Series B Preferred Stock held
immediately prior to such Business Combination (provided, however, that if
the Company or the surviving corporation becomes a Subsidiary of another
corporation in such Business Combination and the holders of Common Stock
became entitled to receive Capital Stock in such other corporation, then
the holders of the Series B Preferred Stock shall be entitled to receive
such shares of preferred stock with substantially the same rights,
preferences and privileges in such other corporation) and (y) such
surviving or other corporation, as the case may be, has immediately after
the consummation of such Business Combination no Senior Securities or
Parity Securities (other than Parity Securities having an aggregate
liquidation preference not in excess of $150.0 million and which do not
adversely affect the rights of the Series B Preferred Stock to vote
separately as a class on any matter) and (B) unless such Business
Combination would not result in a breach of any obligations of the Company
under this Statement of Resolution. In all cases where the Holders have the
right to vote separately as a class, all such Holders shall be entitled to
one vote for each share held by them.
(D) Whenever, at any time or times, dividends payable on any of the
Series B Preferred Stock shall be in arrears in an aggregate amount
equivalent to six (6) full quarterly dividends, there shall be vested in
the Holders, voting as one class and with one vote for each share, the
right to elect two directors of the Company. Such right of the Holders to
vote for the election of two directors may be exercised at any annual
meeting or at any special meeting called for such purpose, or at any
adjournment thereof until all arrearages and dividends on the outstanding
shares of Series B Preferred Stock shall have been paid in full or declared
and funds sufficient for the payment thereof deposited in trust and when so
paid or provided for, then all rights of the Holders under this Section
5(D) shall cease. So long as such right to vote continues, the Secretary
of the Company may call, and upon written request of the Holders of ten
percent (10%) or more of the outstanding Series B Preferred Stock addressed
to him at the principal office of the Company, shall call a special meeting
of the Holders for the election of such two directors as provided herein.
Such meeting shall be held within fifty (50) days after delivery of such
request to such Secretary, at the place and upon the notice provided by law
and in the Bylaws of the Company for the holding of meetings of its
shareholders. If at any such meeting or any adjournment thereof the
Holders of at least a majority of the then outstanding shares of Series B
Preferred Stock then entitled to vote in such election shall be present or
represented by proxy, then, by vote of the Holders of at least the majority
of all such shares of Series B Preferred Stock present or represented in
such meeting, the then authorized number of directors of the Company shall
be increased by two and the Holders of such shares of Series B Preferred
Stock shall be entitled to elect such two additional directors. Directors
so elected shall serve until the next annual meeting or until their
successors shall be elected and shall qualify; provided, however,
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that whenever all arrearages and dividends on all outstanding shares of
Series B Preferred Stock shall have been paid or declared and funds
sufficient for the payment thereof deposited in trust, the term of the
office of the persons so elected as directors shall forthwith terminate,
and the number of the whole Board shall be reduced accordingly. In case of
any vacancy occurring among the directors so elected the remaining director
who shall have been so elected may appoint a successor to hold office for
the unexpired term of the director whose place shall be vacant. If both
directors so elected by the Holders shall cease to serve as directors
before their term shall expire, the Holders may, at a special meeting of
such Holders called as provided above, elect successors to hold office for
the unexpired terms of the directors whose places shall be vacant. In any
vote under this Section 5(D), each share of Series B Preferred Stock shall
be entitled to vote.
6. Liquidation Preference. In the event of any Liquidation, after payment
or provision for payment by the Company of the debts and other liabilities of
the Company and the liquidation preference of any Senior Securities, each Holder
shall be entitled to receive an amount in cash for each share of the then
outstanding Series B Preferred Stock held by such Holder equal to the Stated
Value per share plus an amount equal to all accrued but unpaid dividends
thereon, whether or not earnings are available in respect of such dividends or
such dividends have been declared, to and including the date full payment is
tendered to the Holders with respect to such Liquidation and no more (such
amount being referred to herein as the "Liquidation Preference") before any
distribution shall be made to the holders of any Junior Securities upon the
Liquidation of the Company. In case the assets of the Company available for
payment to the Holders are insufficient to pay the full Liquidation Preference
on all outstanding shares of the Series B Preferred Stock and all outstanding
Parity Securities in the amounts to which the holders of such shares are
entitled, then the entire assets of the Company available for payment to the
Holders will be distributed ratably among the Holders of the Series B Preferred
Stock and the holders of the Parity Securities, based upon the aggregate amount
due on such shares upon Liquidation. Written notice of any Liquidation of the
Company, stating a payment date and the place where the distributable amounts
shall be payable, shall be given by mail, postage prepaid, not less than 30 days
prior to the payment date stated therein, to the Holders of record of the Series
B Preferred Stock, if any, at their respective addresses as the same shall
appear on the books of the Company.
7. Redemptions.
(A) The Series B Preferred Stock may be redeemed by the Company at any
time to the extent of funds legally available therefor, in whole but not in
part, in the manner provided for in Section 7, at a redemption price per
share equal to the Stated Value plus accrued but unpaid dividends to and
including the date the redemption price is paid, payable in same day funds,
(the "Redemption Price").
(B) Notice of redemption (the "Notice of Redemption") of the Series B
Preferred Stock shall be sent by or on behalf of the Company, by first
class mail, postage prepaid, to the Holders of record of the Series B
Preferred Stock at their respective addresses as they shall appear on the
records of the Company, not less than forty-five (45) days nor more than
ninety (90) days prior to the date fixed for redemption (the "Redemption
Date") (1) notifying such holders of the election of the Company to redeem
such shares, of the Redemption Date and the Redemption Price, and (2)
stating the place
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or places at which the Series B Preferred Stock shall, upon presentation
and surrender of the certificates evidencing such shares, be redeemed.
(C) If Notice of Redemption shall have been given as hereinbefore
provided, each Holder shall be entitled to all preferences, relative and
other rights accorded by this resolution (including the right to receive
dividends) and the TBCA until and including the Redemption Date. If the
Company shall default in making payment on the Redemption Date, then each
Holder shall be entitled to all preferences, relative and other rights
accorded by this resolution (including the right to receive dividends) and
the TBCA until and including the date (the "Actual Redemption Date") when
the Company actually makes payment of the Redemption Price to the Holders.
From and after the Redemption Date or, if the Company shall default in
making payment or delivery as aforesaid, the Actual Redemption Date, the
Series B Preferred Stock shall no longer be deemed to be outstanding, and
all rights of the Holders shall cease and terminate, except the right of
the Holders, upon surrender of certificates therefor, to receipt of amounts
to be paid hereunder.
8. Limitations on Series B Preferred Stock. No share or shares of
Series B Preferred Stock the Company acquires through redemption, option,
exchange or otherwise will be reissued, and all such shares will be canceled,
retired and eliminated from the shares of Series B Preferred Stock which the
Company will be authorized to issue. The Company will not issue any further
shares of Series B Preferred Stock other than pursuant to Section 3.
9. Waivers. With the written consent of Holders of a Majority of the
Series B Preferred Stock, the obligations of the Company and the rights of the
Holders under this Statement of Resolution may be waived (either generally or in
a particular instance, either retroactively or prospectively and either for a
specified period of time or indefinitely). Upon the effectuation of each such
waiver, the Company will promptly give written notice thereof to the Holders who
have not previously consented thereto in writing.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.
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I, Joseph T. Leary, being the Vice President, Finance and Treasurer of EEX
Corporation, do hereby execute this Statement of Resolution, declaring and
certifying that the facts herein stated are true, and accordingly have hereunto
set my hand this 7th day of January, 1999.
/s/ J. T. Leary
------------------------------
Joseph T. Leary
Vice President and Treasurer
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EXHIBIT 4.6
[FORM OF SERIES A WARRANT]
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. THEY HAVE
BEEN ACQUIRED SOLELY FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF IN VIOLATION OF ANY
APPLICABLE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED, HYPOTHECATED OR OTHERWISE DISTRIBUTED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL,
SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES
LAWS.
SERIES A WARRANT
No. 1 January ___, 1999
TO PURCHASE [10,500,000] SHARES OF COMMON STOCK,
PAR VALUE $.01 PER SHARE, OF EEX CORPORATION
1. Definitions. Unless the context otherwise required, when used herein the
following terms shall have the meaning indicated.
"Affiliate" means with respect to any Person, any other Person directly, or
indirectly through one or more intermediaries, controlling, controlled by
or under common control with such Person. For purposes of this definition,
the term "control" (and correlative terms "controlling," "controlled by"
and "under common control with") means possession of the power, whether by
contract, equity ownership or otherwise, to direct the policies or
management of a Person.
"Beneficially Own" or "Beneficial Ownership" is defined in Rules 13d-3 and
13d-5 of the Exchange Act, but without taking into account any contractual
restrictions or limitations on voting or other rights.
"Board" means the Board of Directors of the Company.
"Business Combination" means (i) any consolidation, merger, share exchange
or similar business combination transaction involving the Company with any
Person or (ii) the sale, assignment conveyance, transfer, lease or other
disposition by the Company of all or substantially all of its assets.
"Business Day" means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in Houston,
Texas or New York City, New York generally are authorized or required by
law or other governmental actions to close.
"Capital Stock" means (i) with respect to any Person that is a corporation
or company, any and all shares, interests, participations or other
equivalents (however designated) of capital or capital stock of such Person
and (ii) with respect to any Person that is not a corporation or company,
any and all partnership or other equity interests of such Person.
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"Change of Control" shall mean any event constituting (a) the consummation
of any Business Combination except where (i) the shareholders of the
Company immediately prior to such Business Combination own (in
substantially the same proportion relative to each other as such
shareholders owned the Common Stock immediately prior to such consummation)
(x) forty percent (40%) or more of the Voting Stock of the surviving entity
on both a Modified Non Diluted Basis and a Modified Fully Diluted Basis
immediately after such Business Combination, and (y) forty percent (40%) or
more of the outstanding common stock of the surviving entity on both a
Modified Non Diluted Basis and a Modified Fully Diluted Basis immediately
after such Business Combination, (ii) the members of the Board immediately
prior to the entering into the agreement relating to such Business
Combination constitute at least a majority of the Board or the board of
directors of the surviving entity immediately after such Business
Combination, with no agreements or arrangements in place immediately after
such consummation that would result in the members of the Board immediately
prior to the entering into the agreement relating to such Business
Combination ceasing to constitute at least a majority of the Board or the
board of directors of the surviving entity and (iii) no Non-Financial
Person or Group of Non-Financial Persons is the Beneficial Owner of 20% or
more of the total outstanding Voting Stock or common stock of the surviving
entity and no Financial Person or Group of Financial Persons is the
Beneficial Owner of 35% or more of the total outstanding Voting Stock or
common stock of the surviving entity or (b) any Non-Financial Person or
Group of Non-Financial persons acquiring Beneficial Ownership of 20% or
more of the total outstanding Voting Stock or Common Stock of the Company
or any Financial Person or Group of Financial Persons acquiring Beneficial
Ownership of 35% or more of the total outstanding Voting Stock or Common
Stock of the Company.
"Common Stock" means the Company's common stock, par value $.01 per share,
and any Capital Stock for or into which such Common Stock hereafter is
exchanged, converted, reclassified or recapitalized by the Company or
pursuant to an agreement or Business Combination to which the Company is a
party.
"Common Stock Equivalents" means (without duplication with any other Common
Stock or common stock, as the case may be, or Common Stock Equivalents)
rights, warrants, options, convertible securities or exchangeable
securities, exercisable for or convertible or exchangeable into, directly
or indirectly, Common Stock, or common stock, as the case may be, whether
at the time of issuance or upon the passage of time or the occurrence of
some future event, including the Warrants.
"Company" means EEX Corporation, a Texas corporation.
"Early Exercise Event" means the occurrence of any of the following: (i) an
agreement providing for a Business Combination is approved by the Board if
such Business Combination, if consummated, would result in a Change of
Control, (ii) a Tender Offer for the Company's securities is approved or
recommended by the Board, (iii) Warburg, Pincus Equity Partners, L.P. and
its Affiliates Beneficially Own less than 10% of the outstanding Voting
Stock of the Company, (iv) there is a redemption, repurchase or
reacquisition by the Company of Rights issued pursuant to the Rights
Agreement or any waiver of the application of the Rights Agreement to any
Beneficial Owner or (v) any Non-Financial Person or Group of Non-Financial
Persons Beneficially Own more than 20% of the outstanding Voting Stock of
the Company or any Financial Person or Group of Financial Persons
Beneficially Own more than 35% of the outstanding Voting Stock of the
Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any successor statute, and the rules and regulations promulgated
thereunder.
"Excluded Stock" means (i) shares of Common Stock issued by the Company as
a stock dividend payable in shares of Common Stock, or upon any subdivision
or split-up of the
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outstanding shares of Capital Stock in each case with is subject to Section
13(B), or upon conversion of shares of Capital Stock (but not the issuance
of such Capital Stock which will be subject to the provisions of Section
13(A)(iii)), (ii) shares of Common Stock to be issued to employees,
consultants and advisors of the Company pursuant to options granted prior
to the date of issuance of this Warrant and pursuant to options granted
after the date of issuance of this Warrant if the exercise price per share
of Common Stock on the date of such grant equals or exceeds the Market
Price of a share of Common Stock on the date of such grant.
"Exercise Price" has the meaning given to it in Section 2.
"Expiration Time" has the meaning given to it in Section 3.
"Financial Person" means any Person that (i) is, or holds itself out as
being, engaged primarily in the business of investing, reinvesting, owning,
holding or trading in securities, and (ii) together with its Affiliates is
not engaged in (x) any significant activities other than financial
services, insurance or investment activities or (y) directly or indirectly
through Affiliates, in any industrial activities, including the oil and gas
and energy industry.
"Group" means a group as contemplated by Section 13(d)(3) of the Exchange
Act.
"Market Price" means, with respect to a particular security, on any given
day, the last reported sale price regular way or, in case no such reported
sale takes place on such day, the average of the last closing bid and asked
prices regular way, in either case on the principal national securities
exchange on which the applicable securities is listed or admitted to
trading, or if not listed or admitted to trading on any national securities
exchange, (i) the closing sale price for such day reported by the NASDAQ
Stock Market if such security is traded over-the-counter and quoted in the
NASDAQ Stock Market, or (ii) if such security is so traded, but not so
quoted, the average of the closing reported bid and asked prices of such
security as reported by the NASDAQ Stock Market or any comparable system,
or (iii) if such security is not listed on the NASDAQ Stock Market or any
comparable system, the average of the closing bid and asked prices as
furnished by two members of the National Association of Securities Dealers,
Inc. selected from time to time by the Company for that purpose. If such
security is not listed and traded in a manner that the quotations referred
to above are available for the period required hereunder, the Market Price
per share of Common Stock shall be deemed to be the fair value per share of
such security as determined in good faith by the Board of Directors of the
Company.
"Modified Fully-Diluted Basis" shall mean a calculation based on the then
outstanding shares of Voting Stock or common stock, as the case may be,
plus all shares of Voting Stock or common stock acquirable pursuant to, or
constituting, Common Stock Equivalents, but excluding 50% of the Voting
Stock or common stock acquirable pursuant to the then outstanding Warrants.
"Modified Non-Diluted Basis" shall mean a calculation based on the then
outstanding shares of Voting Stock or common stock, as the case may be, and
without giving effect to outstanding Common Stock Equivalents, but
including (i) 50% of the shares of common stock then acquirable upon
exercise of the then outstanding Warrants and (ii) the number of shares of
common stock equal to (a) the aggregate Market Price as of the date of such
Business Combination of all shares of common stock acquirable upon exercise
of all outstanding employee stock options of the relevant entity that have
an exercise price of less than the Market Price of common stock as of the
date of such Business Combination less the aggregate exercises price of all
such options divided by (b) the Market Price of common stock as of the date
of such Business Combination.
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"Non-Financial Person" means any Person that is not a Financial Person.
"Ordinary Cash Dividends" means any cash dividend or distribution which,
when combined on a per share of Common Stock basis with the per share
amounts of all other cash dividends and cash distributions paid on the
Common Stock during the 365-day period ending on the date of declaration of
such dividend or distribution (as adjusted to appropriately reflect any of
the events referred to in Section 13 and excluding cash dividends or
distributions that resulted in an adjustment to the Exercise Price), does
not exceed 5% of the Market Price of a share of Common Stock on the trading
day immediately preceding the date of declaration of such dividend or
distribution.
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, limited liability company,
joint venture, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind.
"Preferred Stock" means the Series B 8% Cumulative Perpetual Preferred
Stock of the Company or successor preferred stock as contemplated by
Section 5(C)(ii)(A) of the Statement of Resolution.
"Pro Rata Repurchases" means any purchase of shares of Common Stock by the
Company or any Affiliate thereof pursuant to any tender offer or exchange
offer subject to Section 13(e) of the Exchange Act, or pursuant to any
other offer available to substantially all holders of Common Stock, whether
for cash, shares of capital stock of the Company, other securities of the
Company, evidences of indebtedness of the Company or any other person or
any other property (including, without limitation, shares of capital stock,
other securities or evidences of indebtedness of a subsidiary of the
Company), or any combination thereof, effected while this Warrant is
outstanding; provided, however, that "Pro Rata Repurchase" shall not
include any purchase of shares by the Company or any Affiliate thereof made
in accordance with the requirements of Rule 10b-18 as in effect under the
Exchange Act. The "Effective Date" of a Pro Rata Repurchase shall mean the
date of acceptance of shares for purchase or exchange under any tender or
exchange offer which is a Pro Rata Repurchase or the date of purchase with
respect to any Pro Rata Repurchase that is not a tender or exchange offer.
"Purchase Agreement" means the Purchase Agreement, dated as of December 22,
1998, among the Company and the purchasers named therein, including all
schedules and exhibits thereto.
"Rights Agreement" means the Rights Agreement dated as of September 10,
1996 between the Company and Harris Trust Company of New York, a New York
trust company, as amended.
"Rights" is defined in Section 14.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor statute, and the rules and regulations promulgated thereunder.
"Shares" is defined in Section 2.
"Stated Value" is an amount equal to $100.00 per share of Preferred Stock.
"Statement of Resolution" means the Statement of Resolution relating to the
Preferred Stock filed with the Secretary of State of the State of Texas on
January _____, 1999.
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"Subsidiary" of a Person means (i) a corporation, a majority of whose stock
with voting power, under ordinary circumstances, to elect directors is at
the time of determination, directly or indirectly, owned by such Person or
by one or more Subsidiaries of such Person, or (ii) any other entity (other
than a corporation) in which such Person or one or more Subsidiaries of
such Person, directly or indirectly, at the date of determination thereof
has at least a majority ownership interest.
"Shares" has the meaning given to it in Section 2.
"TBCA" means the Texas Business Corporation Act, as amended, or any
successor statute or other legislation.
"Tender Offer" means any transaction to which Regulation 14D of the
Exchange Act applies.
"Voting Stock" of a Person means Capital Stock of such Person of the class
or classes pursuant to which the holders thereof have the general voting
power under ordinary circumstances to vote in the election of the board of
directors, managers or trustees of such Person.
"Warrantholder" has the meaning given to it in Section 2.
"Warrants" means collectively this Warrant, the seven year warrants to
purchase an aggregate 2,500,000 shares and the seven-year warrants to
purchase an aggregate 8,000,000 shares, all of which were issued to the
purchasers named in the Purchase Agreement pursuant to the Purchase
Agreement.
2. Number of Shares; Exercise Price. This certifies that, for value received,
[NAME OF WARBURG, PINCUS ENTITY] or its registered assigns (the
"Warrantholder") is entitled, upon the terms and subject to the conditions
hereinafter set forth, to acquire from the Company, in whole or in part, up
to an aggregate of [10,500,000] fully paid and nonassessable shares of
Common Stock, par value $0.01 per share, (the "Shares") of the Company, at
a purchase price of $12.00 per Share (the "Exercise Price"). The number of
Shares and the Exercise Price are subject to adjustment as provided herein,
and all references to "Shares", "Common Stock" and "Exercise Price" herein
shall be deemed to include any such adjustment or series of adjustments.
3. Exercise of Warrant; Term. The right to purchase the Shares represented by
this Warrant are exercisable, in whole or in part by the Warrantholder, at
any time or from time to time after the earlier of August 31, 1999 and the
occurrence of an Early Exercise Event but in no event later than 11:59 p.m.
Central Time, on January ___, 2009 (the "Expiration Time"), by (a) the
surrender of this Warrant and Notice of Exercise annexed hereto, duly
completed and executed on behalf of the Warrantholder, at the office of the
Company in Houston, Texas (or such other office or agency of the Company in
the United States as it may designate by notice in writing to the
Warrantholder at the address of the Warrantholder appearing on the books of
the Company), and (b) payment of the Exercise Price for the Shares thereby
purchased at the election of the Warrantholder in one of the following
manners:
(i) by tendering in cash, by certified or cashier's check or by wire
transfer payable to the order of the Company; or
(ii) by having the Company withhold shares of Common Stock issuable
upon exercise of the Warrant equal in value to the aggregate
Exercise Price as to which this Warrant is so exercised based on
the Market Price of the Common Stock on the trading day prior to
the date on which this Warrant and the Notice of Exercise are
delivered to the Company; or
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(iii) by tendering to the Company that number of shares of Preferred
Stock rounded to the nearest whole share equal to the aggregate
Exercise Price as to which this Warrant is so exercised divided
by the sum of (1) the Stated Value of the Preferred Stock plus
(2) any accrued but unpaid dividends thereon.
If the Warrantholder does not exercise this warrant in its entirety, the
Warrantholder will be entitled to receive from the Company within a
reasonable time, not exceeding three (3) business days, a new warrant in
substantially identical form for the purchase of that number of Shares
equal to the difference between the number of Shares subject to this
Warrant and the number of Shares as to which this Warrant is so exercised.
Notwithstanding the foregoing, if the Company fails to obtain the approval
of the Company's shareholders of the issuance of Common Stock pursuant to
this Warrant as contemplated by Section 5.9 of the Purchase Agreement, the
Warrantholder may only exercise this Warrant in the manner permitted by
Section 3(b)(ii) and upon any such exercise receive, in lieu of the shares
of Common Stock, cash in an amount equal to the product of (i) the number
of shares of Common Stock that would have been otherwise issuable and (ii)
the Market Price of the Common Stock on the trading day prior to the date
on which this Warrant and the Notice of Exercise are delivered to the
Company, such amount being paid by certified or cashiers check or by wire
transfer in same day funds on the fourth business day following such
exercise.
4. Issuance of Shares; Authorization; Listing. Certificates for Shares issued
upon exercise of this Warrant will be issued in such name or names as the
Warrantholder may designate and will be delivered to such named Person or
Persons within a reasonable time, not to exceed three (3) business days
after the date on which this Warrant has been duly exercised in accordance
with the terms of this Warrant. The Company hereby represents and warrants
that any Shares issued upon the exercise of this Warrant in accordance with
the provisions of Section 3 will, upon such exercise, be duly and validly
authorized and issued, fully paid and nonassessable and free from all
taxes, liens and charges (other than liens or charges created by or imposed
upon the Warrantholder or taxes in respect of any transfer occurring
contemporaneously therewith). The Company agrees that the Shares so issued
will be deemed to have been issued to the Warrantholder as of the close of
business on the date on which this Warrant and payment of the Exercise
Price are delivered to the Company in accordance with the terms of this
Warrant, notwithstanding that the stock transfer books of the Company may
then be closed or certificates representing such Shares may not be actually
delivered on such date. The Company will at all times reserve and keep
available, out of its authorized but unissued Common Stock, solely for the
purpose of providing for the exercise of this Warrant, the aggregate number
of shares of Common Stock issuable upon exercise of this Warrant. The
Company will (i) procure, at its sole expense, the listing of the Shares
and other securities issuable upon exercise of this Warrant, subject to
issuance or notice of issuance on all stock exchanges on which the Common
Stock or such other securities are then listed or traded and (ii) maintain
the listing of such Shares or such other securities after issuance. The
Company will take all action as may be necessary to ensure that the Shares
may be issued without violation of any applicable law or regulation or of
any requirement of any securities exchange on which the Shares are listed
or traded.
5. No Fractional Shares or Scrip. No fractional Shares or scrip representing
fractional Shares shall be issued upon any exercise of this Warrant. In
lieu of any fractional Share to which the Warrantholder would otherwise be
entitled, the Warrantholder shall be entitled to receive a cash payment
equal to the Market Price of the Common Stock less the Exercise Price for
such fractional share.
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6. No Rights as Shareholders; Transfer Books. This Warrant does not entitle
the Warrantholder to any voting rights or other rights as a shareholder of
the Company prior to the date of exercise hereof. The Company will at no
time close its transfer books against transfer of this Warrant in any
manner which interferes with the timely exercise of this Warrant.
7. Charges, Taxes and Expenses. Certificates for shares issued upon exercise
of this Warrant shall be issued in the name of the Warrantholder. Issuance
of certificates for shares upon the exercise of this Warrant shall be made
without charge to the Warrantholder for any issue or transfer tax or other
incidental expense in respect of the issuance of such certificates, all of
which taxes and expenses shall be paid by the Company.
8. Transfer/Assignment. This Warrant and any rights hereunder are not
transferable by the Warrantholder, in whole or in part, in the absence of
any effective registration statement related to this Warrant or an opinion
of counsel, satisfactory in form and substance to the Company, that such
registration is not required under the Securities Act and any applicable
state securities laws. Subject to compliance with the preceding sentence,
this Warrant and all rights hereunder are transferable, in whole or in
part, upon the books of the Company by the registered holder hereof in
person or by duly authorized attorney, and a new warrant shall be made and
delivered by the Company, of the same tenor and date as this Warrant but
registered in the name of the transferee, upon surrender of this Warrant,
duly endorsed, to the office or agency of the Company described in Section
2. All expenses, taxes (other than stock transfer taxes) and other charges
payable in connection with the preparation, execution and delivery of the
new warrants pursuant to this Section 8 shall be paid by the Company. The
restrictions imposed by the first sentence of this Section 8 shall
terminate as to the Warrant (i) when such security has been effectively
registered under the Securities Act and disposed of in accordance with the
registration statement covering such security, or (ii) when, in the opinion
of counsel for the Company, such restrictions are no longer required in
order to achieve compliance with the Securities Act.
9. Exchange and Registry of Warrant. This Warrant is exchangeable, upon the
surrender hereof by the Warrantholder at the office or agency of the
Company described in Section 2, for a new warrant or warrants of like tenor
and date representing the right to purchase in the aggregate a like number
of shares. The Company shall maintain at the office or agency described in
Section 2 a registry showing the name and address of the Warrantholder as
the registered holder of this Warrant. This Warrant may be surrendered for
exchange or exercise, in accordance with its terms, at the office of the
Company, and the Company shall be entitled to rely in all respects, prior
to written notice to the contrary, upon such registry.
10. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt by the
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and in the case of any such
loss, theft or destruction, of an indemnity letter (reasonably satisfactory
to the Company) by an institutional Warrantholder, or in other cases,
indemnity or security reasonably satisfactory to it, and in the case of
such mutilation, upon surrender and cancellation of this Warrant, the
Company will make and deliver a new warrant or warrants of like tenor and
date, in lieu of this Warrant.
11. Saturdays, Sundays, Holidays, etc. If the last or appointed day for the
taking of any action or the expiration of any right required or granted
herein shall not be a Business Day, then such action may be taken or such
right may be exercised on the next succeeding day that is a Business Day.
12. Rule 144 Information. The Company covenants that it will file the reports
required to be filed by it under the Securities Act and the Exchange Act
and the rules and regulations promulgated thereunder (or, if the Company is
not required to file such reports, it will, upon
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the request of any Warrantholder, make publicly available such
information), and it will take such further action as any Warrantholder may
reasonably request, all to the extent required from time to time to enable
such holder to sell the Warrants without registration under the Securities
Act within the limitation of the exemptions provided by (i) Rule 144 under
the Securities Act, as such Rule may be amended from time to time, or (ii)
any similar rule or regulation hereafter adopted by the Securities and
Exchange Commission. Upon the request of any Warrantholder, the Company
will deliver to such Warrantholder a written statement that it has complied
with such requirements.
13. Adjustments and Other Rights. The Exercise Price and the number of Shares
issuable upon exercise of this Warrant shall be subject to adjustment from
time to time as follows:
(A) Common Stock Issued at Less than Market Value. If the Company
issues or sells any Common Stock other than Excluded Stock without
consideration or for consideration per share less than the Market Price of
the Common Stock, on the last trading day immediately preceding such
issuance, the Exercise Price in effect immediately prior to each such
issuance or sale will immediately (except as provided below) be reduced to
the price determined by multiplying the Exercise Price, in effect
immediately prior to such issuance or sale, by a fraction, (1) the
numerator of which shall be (x) the number of shares of Common Stock
outstanding immediately prior to such issuance or sale plus (y) the number
of shares of Common Stock which the aggregate consideration received by the
Company for the total number of such additional shares of Common Stock so
issued or sold would purchase at the Market Price on the last trading day
immediately preceding such issuance or sale and (2) the denominator of
which shall be the number of shares of Common Stock outstanding immediately
after such issue or sale. In such event, the number of shares of Common
Stock issuable upon the exercise of this Warrant shall be increased to the
number obtained by dividing (i) the product of (a) the number of Shares
issuable upon the exercise of this Warrant before such adjustment, and (b)
the Exercise Price in effect immediately prior to the issuance giving rise
to this adjustment by (ii) the new Exercise Price determined in accordance
with the immediately preceding sentence. For the purposes of any adjustment
of the Exercise Price and the number of Shares issuable upon exercise of
this Warrant pursuant to this Section 13(A), the following provisions shall
be applicable:
(i) In the case of the issuance of Common Stock for cash, the
amount of the consideration received by the Company shall be deemed to
be the amount of the cash proceeds received by the Company for such
Common Stock before deducting therefrom any discounts or commissions
allowed, paid or incurred by the Company for any underwriting or
otherwise in connection with the issuance and sale thereof.
(ii) In the case of the issuance of Common Stock (otherwise
than upon the conversion of shares of Capital Stock or other
securities of the Company) for a consideration in whole or in part
other than cash, including securities acquired in exchange therefor
(other than securities by their terms so exchangeable), the
consideration other than cash shall be deemed to be the fair value
thereof as determined by the Board, provided, however, that such fair
value as determined by the Board shall not exceed the aggregate Market
Price of the shares of Common Stock being issued as of the date the
Board authorizes the issuance of such shares.
(iii) In the case of the issuance of (a) options, warrants or
other rights to purchase or acquire Common Stock (whether or not at
the time exercisable) or (b) securities by their terms convertible
into or exchangeable for Common Stock (whether or not at the time so
convertible or exchangeable) or options, warrants or rights to
purchase such convertible or exchangeable securities (whether or not
at the time exercisable):
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(1) the aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options, warrants or
other rights to purchase or acquire Common Stock shall
be deemed to have been issued at the time such
options, warrants or rights are issued and for a
consideration equal to the consideration (determined
in the manner provided in Section 13(A)(i) and (ii),
if any, received by the Company upon the issuance of
such options, warrants or rights plus the minimum
purchase price provided in such options, warrants or
rights for the Common Stock covered thereby;
(2) the aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange for any
such convertible or exchangeable securities, or upon
the exercise of options, warrants or other rights to
purchase or acquire such convertible or exchangeable
securities and the subsequent conversion or exchange
thereof, shall be deemed to have been issued at the
time such securities were issued or such options,
warrants or rights were issued and for a consideration
equal to the consideration, if any, received by the
Company for any such securities and related options,
warrants or rights (excluding any cash received on
account of accrued interest or accrued dividends),
plus the additional consideration (determined in the
manner provided in Section 13(A)(i) and (ii), if any,
to be received by the Company upon the conversion or
exchange of such securities, or upon the exercise of
any related options, warrants or rights to purchase or
acquire such convertible or exchangeable securities
and the subsequent conversion or exchange thereof;
(3) on any change in the number of shares of Common Stock
deliverable upon exercise of any such options,
warrants or rights or conversion or exchange of such
convertible or exchangeable securities or any change
in the consideration to be received by the Company
upon such exercise, conversion or exchange, but
excluding changes resulting from the anti-dilution
provisions thereof (to the extent comparable to the
anti-dilution provisions contained herein), the
Exercise Price and the number of Shares issuable upon
exercise of this Warrant as then in effect shall
forthwith be readjusted to such Exercise Price and
number of Shares as would have been obtained had an
adjustment been made upon the issuance of such
options, warrants or rights not exercised prior to
such change, or of such convertible or exchangeable
securities not converted or exchanged prior to such
change, upon the basis of such change;
(4) on the expiration or cancellation of any such options,
warrants or rights (without exercise), or the
termination of the right to convert or exchange such
convertible or exchangeable securities (without
exercise), if the Exercise Price and the number of
Shares issuable upon exercise of this Warrant shall
have been adjusted upon the issuance thereof, the
Exercise Price and the number of Shares issuable upon
exercise of this Warrant shall forthwith be readjusted
to such
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<PAGE>
Exercise Price and number of Shares as would have been
obtained had an adjustment been made upon the issuance
of such options, warrants, rights or such convertible
or exchangeable securities on the basis of the
issuance of only the number of shares of Common Stock
actually issued upon the exercise of such options,
warrants or rights, or upon the conversion or exchange
of such convertible or exchangeable securities; and
(5) if the Exercise Price and the number of Shares
issuable upon exercise of this Warrant shall have been
adjusted upon the issuance of any such options,
warrants, rights or convertible or exchangeable
securities, no further adjustment of the Exercise
Price and the number of Shares issuable upon exercise
of this Warrant shall be made for the actual issuance
of Common Stock upon the exercise, conversion or
exchange thereof; provided, however, that no increase
in the Exercise Price shall be made pursuant to
subclauses (1) or (2) of this Section 13(A) (iii).
(B) Stock Splits, Subdivisions, Reclassifications or Combinations. If
the Company shall (1) declare a dividend or make a distribution on its
Common Stock in shares of Common Stock, (2) subdivide or reclassify the
outstanding shares of Common Stock into a greater number of shares, or (3)
combine or reclassify the outstanding Common Stock into a smaller number of
shares, the number of Shares issuable upon exercise of this Warrant at the
time of the record date for such dividend or distribution or the effective
date of such subdivision, combination or reclassification shall be
proportionately adjusted so that the Warrantholder after such date shall be
entitled to purchase the number of shares of Common Stock which such holder
would have owned or been entitled to receive after such date had this
Warrant been exercised immediately prior to such date. Successive
adjustments in the Exercise Price shall be made whenever any event
specified above shall occur. In such event the Exercise Price in effect at
the time of the record date for such dividend or distribution or the
effective date of such subdivision, combination or reclassification shall
be adjusted to the number obtained by dividing (i) the product of (a) the
number of Shares issuable upon the exercise of this Warrant before such
adjustment and (b) the Exercise Price in effect immediately prior to the
issuance giving rise to this adjustment by (ii) the new number of shares
issuable upon exercise of the Warrant determined pursuant to the
immediately preceding sentence.
(C) Other Distributions. In case the Company shall fix a record date
for the making of a distribution to all holders of shares of its Common
Stock (i) of shares of any class other than its Common Stock or (ii) of
evidence of indebtedness of the Company or any Subsidiary or (iii) of
assets (excluding Ordinary Cash Dividends, and dividends or distributions
referred to in Section 13(B)), or (iv) of rights or warrants (excluding
those referred to in Section 13(B)), in each such case the Exercise Price
in effect prior thereto shall be reduced immediately thereafter
to the price determined by dividing (x) an amount equal to the difference
resulting from (1) the number of shares of Common Stock outstanding on such
record date multiplied by the Exercise Price per share on such record date,
less (2) the fair market value (as reasonably determined by the Board) of
said shares or evidences of indebtedness or assets or rights or warrants to
be so distributed, by (y) the number of shares of Common Stock outstanding
on such record date; such adjustment shall be made successively whenever
such a record date is fixed. In such event, the number of shares of Common
Stock issuable upon the exercise of this Warrant shall be increased to the
number obtained by dividing (i) the product of (a) the number of Shares
issuable upon the exercise of this Warrant before such adjustment, and (b)
the Exercise Price in effect immediately prior to
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the issuance giving rise to this adjustment by (ii) the new Exercise Price
determined in accordance with the immediately preceding sentence. In the
event that such distribution is not so made, the Exercise Price and the
number of Shares issuable upon exercise of this Warrant then in effect
shall be readjusted, effective as of the date when the Board determines not
to distribute such shares, evidences of indebtedness, assets, rights or
warrants, as the case may be, to the Exercise Price that would then be in
effect and the number of Shares that would then be issuable upon exercise
of this Warrant if such record date had not been fixed.
(D) Certain Repurchases of Common Stock. In case the Company effects
a Pro Rata Repurchase of Common Stock, then the Exercise Price shall be
reduced to the price determined by multiplying the Exercise Price in effect
immediately prior to the effective date of such Pro Rata Repurchase by a
fraction of which the numerator shall be (i) the product of (x) the number
of shares of Common Stock outstanding immediately before such Pro Rata
Repurchase and (y) the Market Price of a share of Common Stock on the
trading day immediately preceding the first public announcement by the
Company or any of its Affiliates of the intent to effect such Pro Rata
Repurchase, minus (ii) the aggregate purchase price of the Pro Rata
Repurchase, and of which the denominator shall be the product of (i) the
number of shares of Common Stock outstanding immediately prior to such Pro
Rata Repurchase minus the number of shares of Common Stock so repurchased
and (ii) the Market Price per share of Common Stock on the trading day
immediately preceding the first public announcement of such Pro Rata
Repurchase. In such event, the number of shares of Common Stock issuable
upon the exercise of this Warrant shall be increased to the number obtained
by dividing (i) the product of (a) the number of Shares issuable upon the
exercise of this Warrant before such adjustment, and (b) the Exercise Price
in effect immediately prior to the Pro Rata Repurchase giving rise to this
adjustment by (ii) the new Exercise Price determined in accordance with the
immediately preceding sentence.
(E) Business Combinations. In case of any Business Combination or
reclassification of Common Stock (other than a reclassification of Common
Stock referred to in Section 13(B)), any Shares issued or issuable upon
exercise of this Warrant after the date of such Business Combination or
reclassification be exchangeable for the number of shares of stock or other
securities or property (including cash) to which the Common Stock issuable
(at the time of such consolidation, merger, sale, lease or conveyance) upon
exercise of this Warrant immediately prior to such Business Combination or
reclassification would have been entitled upon such Business Combination or
reclassification; and in any such case, if necessary, the provisions set
forth herein with respect to the rights and interests thereafter of the
Warrantholder shall be appropriately adjusted so as to be applicable, as
nearly as may reasonably be, to any shares of stock or other securities or
property thereafter deliverable on the exercise of this Warrant. In
determining the kind and amount of stock, securities or the property
receivable upon consummation of such Business Combination, if the holders
of Common Stock have the right to elect the kind or amount of consideration
receivable upon consummation of such Business Combination, then the
Warrantholder shall have the right to make a similar election upon exercise
of this Warrant with respect to the number of shares of stock or other
securities or property which the Warrantholder will receive upon exercise
of this Warrant.
(F) Rounding of Calculations; Minimum Adjustments. All calculations
under this Section 13 shall be made to the nearest one-tenth (1/10th) of a
cent or to the nearest one-hundreth (1/100th) of a share, as the case may
be. Any provision of this Section 13 to the contrary notwithstanding, no
adjustment in the Exercise Price or the number of Shares into which this
Warrant is exercisable shall be made if the amount of such adjustment would
be less than $0.01 or one-tenth (1/10th) of a share of Common Stock,
respectively, but any such amount shall be carried forward and an
adjustment with respect thereto shall be made at the time of and together
with any subsequent adjustment which, together with such
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amount and any other amount or amounts so carried forward, shall aggregate
$0.01 or 1/10th of a share of Common Stock, respectively, or more.
(G) Timing of Issuance of Additional Common Stock Upon Certain
Adjustments. In any case in which the provisions of this Section 13 shall
require that an adjustment shall become effective immediately after a
record date for an event, the Company may defer until the occurrence of
such event (i) issuing to the Warrantholder of this Warrant exercised after
such record date and before the occurrence of such event the additional
shares of Common Stock issuable upon such exercise by reason of the
adjustment required by such event over and above the shares of Common Stock
issuable upon such exercise before giving effect to such adjustment and
(ii) paying to such Warrantholder any amount of cash in lieu of a
fractional share of Common Stock; provided, however, that the Company upon
request shall deliver to such Warrantholder a due bill or other appropriate
instrument evidencing such Warrantholder's right to receive such additional
shares, and such cash, upon the occurrence of the event requiring such
adjustment.
(H) Statement Regarding Adjustments. Whenever the Exercise Price or
the number of Shares into which this Warrant is exercisable shall be
adjusted as provided in Section 13, the Company shall forthwith file, at
the principal office of the Company a statement showing in reasonable
detail the facts requiring such adjustment and the Exercise Price that
shall be in effect and the number of Shares into which this Warrant shall
be exercisable after such adjustment and the Company shall also cause a
copy of such statement to be sent by mail, first class postage prepaid, to
each Warrantholder at the address appearing in the Company's records.
(I) Notices. In the event that the Company shall propose to take any
action of the type described in this Section 13 (but only if the action of
the type described in this Section 13 would result in an adjustment in the
Exercise Price or the number of Shares into which this Warrant is
exercisable or a change in the type of securities or property to be
delivered upon exercise of this Warrant), the Company shall give notice to
the Warrantholder, in the manner set forth in Section 13(H), which notice
shall specify the record date, if any, with respect to any such action and
the approximate date on which such action is to take place. Such notice
shall also set forth the facts with respect thereto as shall be reasonably
necessary to indicate the effect on the Exercise Price and the number, kind
or class of shares or other securities or property which shall be
deliverable upon exercise of this Warrant. In the case of any action which
would require the fixing of a record date, such notice shall be given at
least 10 days prior to the date so fixed, and in case of all other action,
such notice shall be given at least 15 days prior to the taking of such
proposed action. Failure to give such notice, or any defect therein, shall
not affect the legality or validity of any such action.
(J) No Impairment. The Company will not, by amendment of its Articles
or through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to
be observed or performed hereunder by the Company, but will at all times in
good faith assist in the carrying out of all the provisions of this Warrant
and in taking of all such action as may be necessary or appropriate in
order to protect the rights of the Warrantholder.
14. Rights. Whenever the Company shall issue shares of Common Stock upon
exercise of this Warrant, the Company shall issue, together with each such
share of Common Stock, one right to purchase Series A Junior Participating
Preferred Stock of the Company (or other securities in lieu thereof)
pursuant to the Rights Agreement, or any similar rights issued to holders
of Common Stock in addition thereto or in the replacement therefor (such
rights, together with any additional or replacement rights, being
collectively referred to as the "Rights"), whether or not such Rights shall
be exercisable at such time, but only if such Rights are issued and
outstanding and held by the other holders of Common Stock (or
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evidenced by outstanding share certificates representing Common Stock) at
such time and have not expired or been redeemed.
15. Governing Law. This Warrant shall be binding upon any successors or assigns
of the Company. This Warrant shall constitute a contract under the laws of
Texas and for all purposes shall be construed in accordance with and
governed by the laws of Texas, without giving effect to the conflict of
laws principles.
16. Attorneys' Fees. In any litigation, arbitration or court proceeding between
the Company and the Warrantholder as the holder of this Warrant relating
hereto, the prevailing party shall be entitled to reasonable attorneys'
fees and expenses incurred in enforcing this Warrant.
17. Amendments. This Warrant may be amended and the observance of any term of
this Warrant may be waived only with the written consent of the Company and
the Warrantholder.
18. Notice. All notices hereunder shall be in writing and shall be effective
(a) on the day on which delivered if delivered personally or transmitted by
telex or telegram or telecopier with evidence of receipt, (b) one Business
Day after the date on which the same is delivered to a nationally
recognized overnight courier service with evidence of receipt, or (c) five
Business Days after the date on which the same is deposited, postage
prepaid, in the U.S. mail, sent by certified or registered mail, return
receipt requested, and addressed to the party to be notified at the address
indicated below for the Company, or at the address for the Warrantholder
set forth in the registry maintained by the Company pursuant to Section 9,
or at such other address and/or telecopy or telex number and/or to the
attention of such other person as the Company or the Warrantholder may
designate by ten-day advance written notice.
19. Prohibited Actions. The Company agrees that it will not take any action
which would entitle the Warrantholder to an adjustment of the Exercise
Price if the total number of shares of Common Stock issuable after such
action upon exercise of this Warrant, together with all shares of Common
Stock then outstanding and all shares of Common Stock then issuable upon
the exercise of all outstanding options, warrants, conversion and other
rights, would exceed the total number of shares of Common Stock then
authorized by its Restated Articles of Incorporation.
20. Entire Agreement. This Warrant and the forms attached hereto contain the
entire agreement between the parties with respect to the subject matter
hereof and supersede all prior and contemporaneous arrangements or
undertakings with respect thereto.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by a
duly authorized officer.
Dated: January ____, 1999
EEX CORPORATION
--------------------------------------
J.T. Leary
Vice President - Finance and Treasurer
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[FORM OF NOTICE OF EXERCISE]
Date: ______________
TO: EEX Corporation
RE: Election to Subscribe for and Purchase Common Stock
The undersigned, pursuant to the provisions set forth in the attached
Warrant, hereby agrees to subscribe for and purchase the number of shares of the
Common Stock set forth below covered by such Warrant. The undersigned, in
accordance with Section 3 of the Warrant, hereby agrees to pay the aggregate
Exercise Price for such shares of Common Stock in the manner set forth below. A
new warrant evidencing the remaining shares of Common Stock covered by such
Warrant, but not yet subscribed for and purchased, should be issued in the name
set forth below. If the new warrant is being transferred, an opinion of counsel
is attached hereto with respect to the transfer of such warrant.
Number of Shares of Common Stock: _______________
Method of Payment of Exercise Price: ____________
Name and Address of Person to be
Issued New Warrant: _____________________________
_____________________________
_____________________________
_____________________________
Holder: __________________________
By: ______________________________
Name: ____________________________
Title: ___________________________
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EXHIBIT 4.7
[FORM OF SERIES B WARRANT]
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. THEY HAVE
BEEN ACQUIRED SOLELY FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF IN VIOLATION OF ANY
APPLICABLE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED, HYPOTHECATED OR OTHERWISE DISTRIBUTED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL,
SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES
LAWS.
SERIES B WARRANT
No. 1 January ___, 1999
TO PURCHASE [2,500,000] SHARES OF COMMON STOCK,
PAR VALUE $.01 PER SHARE, OF EEX CORPORATION
1. Definitions. Unless the context otherwise required, when used herein the
following terms shall have the meaning indicated.
"Affiliate" means with respect to any Person, any other Person directly, or
indirectly through one or more intermediaries, controlling, controlled by
or under common control with such Person. For purposes of this definition,
the term "control" (and correlative terms "controlling," "controlled by"
and "under common control with") means possession of the power, whether by
contract, equity ownership or otherwise, to direct the policies or
management of a Person.
"Beneficially Own" or "Beneficial Ownership" is defined in Rules 13d-3 and
13d-5 of the Exchange Act, but without taking into account any contractual
restrictions or limitations on voting or other rights.
"Board" means the Board of Directors of the Company.
"Business Combination" means (i) any consolidation, merger, share exchange
or similar business combination transaction involving the Company with any
Person or (ii) the sale, assignment conveyance, transfer, lease or other
disposition by the Company of all or substantially all of its assets.
"Business Day" means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in Houston,
Texas or New York City, New York generally are authorized or required by
law or other governmental actions to close.
"Capital Stock" means (i) with respect to any Person that is a corporation
or company, any and all shares, interests, participations or other
equivalents (however designated) of capital or capital stock of such Person
and (ii) with respect to any Person that is not a corporation or company,
any and all partnership or other equity interests of such Person.
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"Change of Control" shall mean any event constituting (a) the consummation
of any Business Combination except where (i) the shareholders of the
Company immediately prior to such Business Combination own (in
substantially the same proportion relative to each other as such
shareholders owned the Common Stock immediately prior to such consummation)
(x) forty percent (40%) or more of the Voting Stock of the surviving entity
on both a Modified Non Diluted Basis and a Modified Fully Diluted Basis
immediately after such Business Combination, and (y) forty percent (40%) or
more of the outstanding common stock of the surviving entity on both a
Modified Non Diluted Basis and a Modified Fully Diluted Basis immediately
after such Business Combination, (ii) the members of the Board immediately
prior to the entering into the agreement relating to such Business
Combination constitute at least a majority of the Board or the board of
directors of the surviving entity immediately after such Business
Combination, with no agreements or arrangements in place immediately after
such consummation that would result in the members of the Board immediately
prior to the entering into the agreement relating to such Business
Combination ceasing to constitute at least a majority of the Board or the
board of directors of the surviving entity and (iii) no Non-Financial
Person or Group of Non-Financial Persons is the Beneficial Owner of 20% or
more of the total outstanding Voting Stock or common stock of the surviving
entity and no Financial Person or Group of Financial Persons is the
Beneficial Owner of 35% or more of the total outstanding Voting Stock or
common stock of the surviving entity or (b) any Non-Financial Person or
Group of Non-Financial persons acquiring Beneficial Ownership of 20% or
more of the total outstanding Voting Stock or Common Stock of the Company
or any Financial Person or Group of Financial Persons acquiring Beneficial
Ownership of 35% or more of the total outstanding Voting Stock or Common
Stock of the Company.
"Common Stock" means the Company's common stock, par value $.01 per share,
and any Capital Stock for or into which such Common Stock hereafter is
exchanged, converted, reclassified or recapitalized by the Company or
pursuant to an agreement or Business Combination to which the Company is a
party.
"Common Stock Equivalents" means (without duplication with any other Common
Stock or common stock, as the case may be, or Common Stock Equivalents)
rights, warrants, options, convertible securities or exchangeable
securities, exercisable for or convertible or exchangeable into, directly
or indirectly, Common Stock, or common stock, as the case may be, whether
at the time of issuance or upon the passage of time or the occurrence of
some future event, including the Warrants.
"Company" means EEX Corporation, a Texas corporation.
"Early Exercise Event" means the occurrence of any of the following: (i) an
agreement providing for a Business Combination is approved by the Board if
such Business Combination, if consummated, would result in a Change of
Control, (ii) a Tender Offer for the Company's securities is approved or
recommended by the Board, (iii) Warburg, Pincus Equity Partners, L.P. and
its Affiliates Beneficially Own less than 10% of the outstanding Voting
Stock of the Company, (iv) there is a redemption, repurchase or
reacquisition by the Company of Rights issued pursuant to the Rights
Agreement or any waiver of the application of the Rights Agreement to any
Beneficial Owner or (v) any Non-Financial Person or Group of Non-Financial
Persons Beneficially Own more than 20% of the outstanding Voting Stock of
the Company or any Financial Person or Group of Financial Persons
Beneficially Own more than 35% of the outstanding Voting Stock of the
Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any successor statute, and the rules and regulations promulgated
thereunder.
"Excluded Stock" means (i) shares of Common Stock issued by the Company as
a stock dividend payable in shares of Common Stock, or upon any subdivision
or split-up of the
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outstanding shares of Capital Stock in each case with is subject to Section
13(B), or upon conversion of shares of Capital Stock (but not the issuance
of such Capital Stock which will be subject to the provisions of Section
13(A)(iii)), (ii) shares of Common Stock to be issued to employees,
consultants and advisors of the Company pursuant to options granted prior
to the date of issuance of this Warrant and pursuant to options granted
after the date of issuance of this Warrant if the exercise price per share
of Common Stock on the date of such grant equals or exceeds the Market
Price of a share of Common Stock on the date of such grant.
"Exercise Price" has the meaning given to it in Section 2.
"Expiration Time" has the meaning given to it in Section 3.
"Financial Person" means any Person that (i) is, or holds itself out as
being, engaged primarily in the business of investing, reinvesting, owning,
holding or trading in securities, and (ii) together with its Affiliates is
not engaged in (x) any significant activities other than financial
services, insurance or investment activities or (y) directly or indirectly
through Affiliates, in any industrial activities, including the oil and gas
and energy industry.
"Group" means a group as contemplated by Section 13(d)(3) of the Exchange
Act.
"Market Price" means, with respect to a particular security, on any given
day, the last reported sale price regular way or, in case no such reported
sale takes place on such day, the average of the last closing bid and asked
prices regular way, in either case on the principal national securities
exchange on which the applicable securities is listed or admitted to
trading, or if not listed or admitted to trading on any national securities
exchange, (i) the closing sale price for such day reported by the NASDAQ
Stock Market if such security is traded over-the-counter and quoted in the
NASDAQ Stock Market, or (ii) if such security is so traded, but not so
quoted, the average of the closing reported bid and asked prices of such
security as reported by the NASDAQ Stock Market or any comparable system,
or (iii) if such security is not listed on the NASDAQ Stock Market or any
comparable system, the average of the closing bid and asked prices as
furnished by two members of the National Association of Securities Dealers,
Inc. selected from time to time by the Company for that purpose. If such
security is not listed and traded in a manner that the quotations referred
to above are available for the period required hereunder, the Market Price
per share of Common Stock shall be deemed to be the fair value per share of
such security as determined in good faith by the Board of Directors of the
Company.
"Modified Fully-Diluted Basis" shall mean a calculation based on the then
outstanding shares of Voting Stock or common stock, as the case may be,
plus all shares of Voting Stock or common stock acquirable pursuant to, or
constituting, Common Stock Equivalents, but excluding 50% of the Voting
Stock or common stock acquirable pursuant to the then outstanding Warrants.
"Modified Non-Diluted Basis" shall mean a calculation based on the then
outstanding shares of Voting Stock or common stock, as the case may be, and
without giving effect to outstanding Common Stock Equivalents, but
including (i) 50% of the shares of common stock then acquirable upon
exercise of the then outstanding Warrants and (ii) the number of shares of
common stock equal to (a) the aggregate Market Price as of the date of such
Business Combination of all shares of common stock acquirable upon exercise
of all outstanding employee stock options of the relevant entity that have
an exercise price of less than the Market Price of common stock as of the
date of such Business Combination less the aggregate exercises price of all
such options divided by (b) the Market Price of common stock as of the date
of such Business Combination.
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<PAGE>
"Non-Financial Person" means any Person that is not a Financial Person.
"Ordinary Cash Dividends" means any cash dividend or distribution which,
when combined on a per share of Common Stock basis with the per share
amounts of all other cash dividends and cash distributions paid on the
Common Stock during the 365-day period ending on the date of declaration of
such dividend or distribution (as adjusted to appropriately reflect any of
the events referred to in Section 13 and excluding cash dividends or
distributions that resulted in an adjustment to the Exercise Price), does
not exceed 5% of the Market Price of a share of Common Stock on the trading
day immediately preceding the date of declaration of such dividend or
distribution.
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, limited liability company,
joint venture, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind.
"Preferred Stock" means the Series B 8% Cumulative Perpetual Preferred
Stock of the Company or successor preferred stock as contemplated by
Section 5(C)(ii)(A) of the Statement of Resolution.
"Pro Rata Repurchases" means any purchase of shares of Common Stock by the
Company or any Affiliate thereof pursuant to any tender offer or exchange
offer subject to Section 13(e) of the Exchange Act, or pursuant to any
other offer available to substantially all holders of Common Stock, whether
for cash, shares of capital stock of the Company, other securities of the
Company, evidences of indebtedness of the Company or any other person or
any other property (including, without limitation, shares of capital stock,
other securities or evidences of indebtedness of a subsidiary of the
Company), or any combination thereof, effected while this Warrant is
outstanding; provided, however, that "Pro Rata Repurchase" shall not
include any purchase of shares by the Company or any Affiliate thereof made
in accordance with the requirements of Rule 10b-18 as in effect under the
Exchange Act. The "Effective Date" of a Pro Rata Repurchase shall mean the
date of acceptance of shares for purchase or exchange under any tender or
exchange offer which is a Pro Rata Repurchase or the date of purchase with
respect to any Pro Rata Repurchase that is not a tender or exchange offer.
"Purchase Agreement" means the Purchase Agreement, dated as of December 22,
1998, among the Company and the purchasers named therein, including all
schedules and exhibits thereto.
"Rights Agreement" means the Rights Agreement dated as of September 10,
1996 between the Company and Harris Trust Company of New York, a New York
trust company, as amended.
"Rights" is defined in Section 14.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor statute, and the rules and regulations promulgated thereunder.
"Shares" is defined in Section 2.
"Stated Value" is an amount equal to $100.00 per share of Preferred Stock.
"Statement of Resolution" means the Statement of Resolution relating to the
Preferred Stock filed with the Secretary of State of the State of Texas on
January _____, 1999.
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<PAGE>
"Subsidiary" of a Person means (i) a corporation, a majority of whose stock
with voting power, under ordinary circumstances, to elect directors is at
the time of determination, directly or indirectly, owned by such Person or
by one or more Subsidiaries of such Person, or (ii) any other entity (other
than a corporation) in which such Person or one or more Subsidiaries of
such Person, directly or indirectly, at the date of determination thereof
has at least a majority ownership interest.
"Shares" has the meaning given to it in Section 2.
"TBCA" means the Texas Business Corporation Act, as amended, or any
successor statute or other legislation.
"Tender Offer" means any transaction to which Regulation 14D of the
Exchange Act applies.
"Voting Stock" of a Person means Capital Stock of such Person of the class
or classes pursuant to which the holders thereof have the general voting
power under ordinary circumstances to vote in the election of the board of
directors, managers or trustees of such Person.
"Warrantholder" has the meaning given to it in Section 2.
"Warrants" means collectively this Warrant, the ten year warrants to
purchase an aggregate 10,500,000 shares and the seven-year warrants to
purchase an aggregate 8,000,000 shares, all of which were issued to the
purchasers named in the Purchase Agreement pursuant to the Purchase
Agreement.
2. Number of Shares; Exercise Price. This certifies that, for value received,
[NAME OF WARBURG, PINCUS ENTITY] or its registered assigns (the
"Warrantholder") is entitled, upon the terms and subject to the conditions
hereinafter set forth, to acquire from the Company, in whole or in part, up
to an aggregate of [2,500,000] fully paid and nonassessable shares of
Common Stock, par value $0.01 per share, (the "Shares") of the Company, at
a purchase price of $12.00 per Share (the "Exercise Price"). The number of
Shares and the Exercise Price are subject to adjustment as provided herein,
and all references to "Shares", "Common Stock" and "Exercise Price" herein
shall be deemed to include any such adjustment or series of adjustments.
3. Exercise of Warrant; Term. The right to purchase the Shares represented by
this Warrant are exercisable, in whole or in part by the Warrantholder, at
any time or from time to time after the earlier of August 31, 1999 and the
occurrence of an Early Exercise Event but in no event later than 11:59 p.m.
Central Time, on January ___, 2006 (the "Expiration Time"), by (a) the
surrender of this Warrant and Notice of Exercise annexed hereto, duly
completed and executed on behalf of the Warrantholder, at the office of the
Company in Houston, Texas (or such other office or agency of the Company in
the United States as it may designate by notice in writing to the
Warrantholder at the address of the Warrantholder appearing on the books of
the Company), and (b) payment of the Exercise Price for the Shares thereby
purchased at the election of the Warrantholder in one of the following
manners:
(i) by tendering in cash, by certified or cashier's check or by wire
transfer payable to the order of the Company; or
(ii) by having the Company withhold shares of Common Stock issuable
upon exercise of the Warrant equal in value to the aggregate Exercise
Price as to which this Warrant is so exercised based on the Market Price
of the Common Stock on the trading day prior to the date on which this
Warrant and the Notice of Exercise are delivered to the Company; or
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(iii) by tendering to the Company that number of shares of Preferred
Stock rounded to the nearest whole share equal to the aggregate Exercise
Price as to which this Warrant is so exercised divided by the sum of (1)
the Stated Value of the Preferred Stock plus (2) any accrued but unpaid
dividends thereon.
If the Warrantholder does not exercise this warrant in its entirety, the
Warrantholder will be entitled to receive from the Company within a
reasonable time, not exceeding three (3) business days, a new warrant in
substantially identical form for the purchase of that number of Shares
equal to the difference between the number of Shares subject to this
Warrant and the number of Shares as to which this Warrant is so exercised.
Notwithstanding the foregoing, if the Company fails to obtain the approval
of the Company's shareholders of the issuance of Common Stock pursuant to
this Warrant as contemplated by Section 5.9 of the Purchase Agreement, the
Warrantholder may only exercise this Warrant in the manner permitted by
Section 3(b)(ii) and upon any such exercise receive, in lieu of the shares
of Common Stock, cash in an amount equal to the product of (i) the number
of shares of Common Stock that would have been otherwise issuable and (ii)
the Market Price of the Common Stock on the trading day prior to the date
on which this Warrant and the Notice of Exercise are delivered to the
Company, such amount being paid by certified or cashiers check or by wire
transfer in same day funds on the fourth business day following such
exercise.
4. Issuance of Shares; Authorization; Listing. Certificates for Shares issued
upon exercise of this Warrant will be issued in such name or names as the
Warrantholder may designate and will be delivered to such named Person or
Persons within a reasonable time, not to exceed three (3) business days
after the date on which this Warrant has been duly exercised in accordance
with the terms of this Warrant. The Company hereby represents and warrants
that any Shares issued upon the exercise of this Warrant in accordance with
the provisions of Section 3 will, upon such exercise, be duly and validly
authorized and issued, fully paid and nonassessable and free from all
taxes, liens and charges (other than liens or charges created by or imposed
upon the Warrantholder or taxes in respect of any transfer occurring
contemporaneously therewith). The Company agrees that the Shares so issued
will be deemed to have been issued to the Warrantholder as of the close of
business on the date on which this Warrant and payment of the Exercise
Price are delivered to the Company in accordance with the terms of this
Warrant, notwithstanding that the stock transfer books of the Company may
then be closed or certificates representing such Shares may not be actually
delivered on such date. The Company will at all times reserve and keep
available, out of its authorized but unissued Common Stock, solely for the
purpose of providing for the exercise of this Warrant, the aggregate number
of shares of Common Stock issuable upon exercise of this Warrant. The
Company will (i) procure, at its sole expense, the listing of the Shares
and other securities issuable upon exercise of this Warrant, subject to
issuance or notice of issuance on all stock exchanges on which the Common
Stock or such other securities are then listed or traded and (ii) maintain
the listing of such Shares or such other securities after issuance. The
Company will take all action as may be necessary to ensure that the Shares
may be issued without violation of any applicable law or regulation or of
any requirement of any securities exchange on which the Shares are listed
or traded.
5. No Fractional Shares or Scrip. No fractional Shares or scrip representing
fractional Shares shall be issued upon any exercise of this Warrant. In
lieu of any fractional Share to which the Warrantholder would otherwise be
entitled, the Warrantholder shall be entitled to receive a cash payment
equal to the Market Price of the Common Stock less the Exercise Price for
such fractional share.
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6. No Rights as Shareholders; Transfer Books. This Warrant does not entitle
the Warrantholder to any voting rights or other rights as a shareholder of
the Company prior to the date of exercise hereof. The Company will at no
time close its transfer books against transfer of this Warrant in any
manner which interferes with the timely exercise of this Warrant.
7. Charges, Taxes and Expenses. Certificates for shares issued upon exercise
of this Warrant shall be issued in the name of the Warrantholder. Issuance
of certificates for shares upon the exercise of this Warrant shall be made
without charge to the Warrantholder for any issue or transfer tax or other
incidental expense in respect of the issuance of such certificates, all of
which taxes and expenses shall be paid by the Company.
8. Transfer/Assignment. This Warrant and any rights hereunder are not
transferable by the Warrantholder, in whole or in part, in the absence of
any effective registration statement related to this Warrant or an opinion
of counsel, satisfactory in form and substance to the Company, that such
registration is not required under the Securities Act and any applicable
state securities laws. Subject to compliance with the preceding sentence,
this Warrant and all rights hereunder are transferable, in whole or in
part, upon the books of the Company by the registered holder hereof in
person or by duly authorized attorney, and a new warrant shall be made and
delivered by the Company, of the same tenor and date as this Warrant but
registered in the name of the transferee, upon surrender of this Warrant,
duly endorsed, to the office or agency of the Company described in Section
2. All expenses, taxes (other than stock transfer taxes) and other charges
payable in connection with the preparation, execution and delivery of the
new warrants pursuant to this Section 8 shall be paid by the Company. The
restrictions imposed by the first sentence of this Section 8 shall
terminate as to the Warrant (i) when such security has been effectively
registered under the Securities Act and disposed of in accordance with the
registration statement covering such security, or (ii) when, in the opinion
of counsel for the Company, such restrictions are no longer required in
order to achieve compliance with the Securities Act.
9. Exchange and Registry of Warrant. This Warrant is exchangeable, upon the
surrender hereof by the Warrantholder at the office or agency of the
Company described in Section 2, for a new warrant or warrants of like tenor
and date representing the right to purchase in the aggregate a like number
of shares. The Company shall maintain at the office or agency described in
Section 2 a registry showing the name and address of the Warrantholder as
the registered holder of this Warrant. This Warrant may be surrendered for
exchange or exercise, in accordance with its terms, at the office of the
Company, and the Company shall be entitled to rely in all respects, prior
to written notice to the contrary, upon such registry.
10. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt by the
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and in the case of any such
loss, theft or destruction, of an indemnity letter (reasonably satisfactory
to the Company) by an institutional Warrantholder, or in other cases,
indemnity or security reasonably satisfactory to it, and in the case of
such mutilation, upon surrender and cancellation of this Warrant, the
Company will make and deliver a new warrant or warrants of like tenor and
date, in lieu of this Warrant.
11. Saturdays, Sundays, Holidays, etc. If the last or appointed day for the
taking of any action or the expiration of any right required or granted
herein shall not be a Business Day, then such action may be taken or such
right may be exercised on the next succeeding day that is a Business Day.
12. Rule 144 Information. The Company covenants that it will file the reports
required to be filed by it under the Securities Act and the Exchange Act
and the rules and regulations promulgated thereunder (or, if the Company is
not required to file such reports, it will, upon
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the request of any Warrantholder, make publicly available such
information), and it will take such further action as any Warrantholder may
reasonably request, all to the extent required from time to time to enable
such holder to sell the Warrants without registration under the Securities
Act within the limitation of the exemptions provided by (i) Rule 144 under
the Securities Act, as such Rule may be amended from time to time, or (ii)
any similar rule or regulation hereafter adopted by the Securities and
Exchange Commission. Upon the request of any Warrantholder, the Company
will deliver to such Warrantholder a written statement that it has complied
with such requirements.
13. Adjustments and Other Rights. The Exercise Price and the number of Shares
issuable upon exercise of this Warrant shall be subject to adjustment from
time to time as follows:
(A) Common Stock Issued at Less than Market Value. If the Company
issues or sells any Common Stock other than Excluded Stock without
consideration or for consideration per share less than the Market Price of
the Common Stock, on the last trading day immediately preceding such
issuance, the Exercise Price in effect immediately prior to each such
issuance or sale will immediately (except as provided below) be reduced to
the price determined by multiplying the Exercise Price, in effect
immediately prior to such issuance or sale, by a fraction, (1) the
numerator of which shall be (x) the number of shares of Common Stock
outstanding immediately prior to such issuance or sale plus (y) the number
of shares of Common Stock which the aggregate consideration received by the
Company for the total number of such additional shares of Common Stock so
issued or sold would purchase at the Market Price on the last trading day
immediately preceding such issuance or sale and (2) the denominator of
which shall be the number of shares of Common Stock outstanding immediately
after such issue or sale. In such event, the number of shares of Common
Stock issuable upon the exercise of this Warrant shall be increased to the
number obtained by dividing (i) the product of (a) the number of Shares
issuable upon the exercise of this Warrant before such adjustment, and (b)
the Exercise Price in effect immediately prior to the issuance giving rise
to this adjustment by (ii) the new Exercise Price determined in accordance
with the immediately preceding sentence. For the purposes of any adjustment
of the Exercise Price and the number of Shares issuable upon exercise of
this Warrant pursuant to this Section 13(A), the following provisions shall
be applicable:
(i) In the case of the issuance of Common Stock for cash, the
amount of the consideration received by the Company shall be deemed to
be the amount of the cash proceeds received by the Company for such
Common Stock before deducting therefrom any discounts or commissions
allowed, paid or incurred by the Company for any underwriting or
otherwise in connection with the issuance and sale thereof.
(ii) In the case of the issuance of Common Stock (otherwise than
upon the conversion of shares of Capital Stock or other securities of
the Company) for a consideration in whole or in part other than cash,
including securities acquired in exchange therefor (other than
securities by their terms so exchangeable), the consideration other
than cash shall be deemed to be the fair value thereof as determined
by the Board, provided, however, that such fair value as determined by
the Board shall not exceed the aggregate Market Price of the shares of
Common Stock being issued as of the date the Board authorizes the
issuance of such shares.
(iii) In the case of the issuance of (a) options, warrants or
other rights to purchase or acquire Common Stock (whether or not at
the time exercisable) or (b) securities by their terms convertible
into or exchangeable for Common Stock (whether or not at the time so
convertible or exchangeable) or options, warrants or rights to
purchase such convertible or exchangeable securities (whether or not
at the time exercisable):
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(1) the aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options, warrants or
other rights to purchase or acquire Common Stock shall
be deemed to have been issued at the time such options,
warrants or rights are issued and for a consideration
equal to the consideration (determined in the manner
provided in Section 13(A)(i) and (ii), if any, received
by the Company upon the issuance of such options,
warrants or rights plus the minimum purchase price
provided in such options, warrants or rights for the
Common Stock covered thereby;
(2) the aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange for any
such convertible or exchangeable securities, or upon
the exercise of options, warrants or other rights to
purchase or acquire such convertible or exchangeable
securities and the subsequent conversion or exchange
thereof, shall be deemed to have been issued at the
time such securities were issued or such options,
warrants or rights were issued and for a consideration
equal to the consideration, if any, received by the
Company for any such securities and related options,
warrants or rights (excluding any cash received on
account of accrued interest or accrued dividends), plus
the additional consideration (determined in the manner
provided in Section 13(A)(i) and (ii), if any, to be
received by the Company upon the conversion or exchange
of such securities, or upon the exercise of any related
options, warrants or rights to purchase or acquire such
convertible or exchangeable securities and the
subsequent conversion or exchange thereof;
(3) on any change in the number of shares of Common Stock
deliverable upon exercise of any such options, warrants
or rights or conversion or exchange of such convertible
or exchangeable securities or any change in the
consideration to be received by the Company upon such
exercise, conversion or exchange, but excluding changes
resulting from the anti-dilution provisions thereof (to
the extent comparable to the anti-dilution provisions
contained herein), the Exercise Price and the number of
Shares issuable upon exercise of this Warrant as then
in effect shall forthwith be readjusted to such
Exercise Price and number of Shares as would have been
obtained had an adjustment been made upon the issuance
of such options, warrants or rights not exercised prior
to such change, or of such convertible or exchangeable
securities not converted or exchanged prior to such
change, upon the basis of such change;
(4) on the expiration or cancellation of any such options,
warrants or rights (without exercise), or the
termination of the right to convert or exchange such
convertible or exchangeable securities (without
exercise), if the Exercise Price and the number of
Shares issuable upon exercise of this Warrant shall
have been adjusted upon the issuance thereof, the
Exercise Price and the number of Shares issuable upon
exercise of this Warrant shall forthwith be readjusted
to such
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Exercise Price and number of Shares as would have been
obtained had an adjustment been made upon the issuance
of such options, warrants, rights or such convertible
or exchangeable securities on the basis of the issuance
of only the number of shares of Common Stock actually
issued upon the exercise of such options, warrants or
rights, or upon the conversion or exchange of such
convertible or exchangeable securities; and
(5) if the Exercise Price and the number of Shares issuable
upon exercise of this Warrant shall have been adjusted
upon the issuance of any such options, warrants, rights
or convertible or exchangeable securities, no further
adjustment of the Exercise Price and the number of
Shares issuable upon exercise of this Warrant shall be
made for the actual issuance of Common Stock upon the
exercise, conversion or exchange thereof; provided,
however, that no increase in the Exercise Price shall
be made pursuant to subclauses (1) or (2) of this
Section 13(A) (iii).
(B) Stock Splits, Subdivisions, Reclassifications or Combinations. If
the Company shall (1) declare a dividend or make a distribution on its
Common Stock in shares of Common Stock, (2) subdivide or reclassify the
outstanding shares of Common Stock into a greater number of shares, or (3)
combine or reclassify the outstanding Common Stock into a smaller number of
shares, the number of Shares issuable upon exercise of this Warrant at the
time of the record date for such dividend or distribution or the effective
date of such subdivision, combination or reclassification shall be
proportionately adjusted so that the Warrantholder after such date shall be
entitled to purchase the number of shares of Common Stock which such holder
would have owned or been entitled to receive after such date had this
Warrant been exercised immediately prior to such date. Successive
adjustments in the Exercise Price shall be made whenever any event
specified above shall occur. In such event the Exercise Price in effect at
the time of the record date for such dividend or distribution or the
effective date of such subdivision, combination or reclassification shall
be adjusted to the number obtained by dividing (i) the product of (a) the
number of Shares issuable upon the exercise of this Warrant before such
adjustment and (b) the Exercise Price in effect immediately prior to the
issuance giving rise to this adjustment by (ii) the new number of shares
issuable upon exercise of the Warrant determined pursuant to the
immediately preceding sentence.
(C) Other Distributions. In case the Company shall fix a record date
for the making of a distribution to all holders of shares of its Common
Stock (i) of shares of any class other than its Common Stock or (ii) of
evidence of indebtedness of the Company or any Subsidiary or (iii) of
assets (excluding Ordinary Cash Dividends, and dividends or distributions
referred to in Section 13(B)), or (iv) of rights or warrants (excluding
those referred to in Section 13(B)), in each such case the Exercise Price
in effect immediately prior thereto shall be reduced immediately thereafter
to the price determined by dividing (x) an amount equal to the difference
resulting from (1) the number of shares of Common Stock outstanding on such
record date multiplied by the Exercise Price per share on such record date,
less (2) the fair market value (as reasonably determined by the Board) of
said shares or evidences of indebtedness or assets or rights or warrants to
be so distributed, by (y) the number of shares of Common Stock outstanding
on such record date; such adjustment shall be made successively whenever
such a record date is fixed. In such event, the number of shares of Common
Stock issuable upon the exercise of this Warrant shall be increased to the
number obtained by dividing (i) the product of (a) the number of Shares
issuable upon the exercise of this Warrant before such adjustment, and (b)
the Exercise Price in effect immediately prior to
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the issuance giving rise to this adjustment by (ii) the new Exercise Price
determined in accordance with the immediately preceding sentence. In the
event that such distribution is not so made, the Exercise Price and the
number of Shares issuable upon exercise of this Warrant then in effect
shall be readjusted, effective as of the date when the Board determines not
to distribute such shares, evidences of indebtedness, assets, rights or
warrants, as the case may be, to the Exercise Price that would then be in
effect and the number of Shares that would then be issuable upon exercise
of this Warrant if such record date had not been fixed.
(D) Certain Repurchases of Common Stock. In case the Company effects
a Pro Rata Repurchase of Common Stock, then the Exercise Price shall be
reduced to the price determined by multiplying the Exercise Price in effect
immediately prior to the effective date of such Pro Rata Repurchase by a
fraction of which the numerator shall be (i) the product of (x) the number
of shares of Common Stock outstanding immediately before such Pro Rata
Repurchase and (y) the Market Price of a share of Common Stock on the
trading day immediately preceding the first public announcement by the
Company or any of its Affiliates of the intent to effect such Pro Rata
Repurchase, minus (ii) the aggregate purchase price of the Pro Rata
Repurchase, and of which the denominator shall be the product of (i) the
number of shares of Common Stock outstanding immediately prior to such Pro
Rata Repurchase minus the number of shares of Common Stock so repurchased
and (ii) the Market Price per share of Common Stock on the trading day
immediately preceding the first public announcement of such Pro Rata
Repurchase. In such event, the number of shares of Common Stock issuable
upon the exercise of this Warrant shall be increased to the number obtained
by dividing (i) the product of (a) the number of Shares issuable upon the
exercise of this Warrant before such adjustment, and (b) the Exercise Price
in effect immediately prior to the Pro Rata Repurchase giving rise to this
adjustment by (ii) the new Exercise Price determined in accordance with the
immediately preceding sentence.
(E) Business Combinations. In case of any Business Combination or
reclassification of Common Stock (other than a reclassification of Common
Stock referred to in Section 13(B)), any Shares issued or issuable upon
exercise of this Warrant shall after the date of such Business Combination
or reclassification be exchangeable for into the number of shares of stock
or other securities or property (including cash) to which the Common Stock
issuable (at the time of such consolidation, merger, sale, lease or
conveyance) upon exercise of this Warrant immediately prior to such
Business Combination or reclassification would have been entitled upon such
Business Combination or reclassification; and in any such case, if
necessary, the provisions set forth herein with respect to the rights and
interests thereafter of the Warrantholder shall be appropriately adjusted
so as to be applicable, as nearly as may reasonably be, to any shares of
stock or other securities or property thereafter deliverable on the
exercise of this Warrant. In determining the kind and amount of stock,
securities or the property receivable upon consummation of such Business
Combination, if the holders of Common Stock have the right to elect the
kind or amount of consideration receivable upon consummation of such
Business Combination, then the Warrantholder shall have the right to make a
similar election upon exercise of this Warrant with respect to the number
of shares of stock or other securities or property which the Warrantholder
will receive upon exercise of this Warrant.
(F) Rounding of Calculations; Minimum Adjustments. All calculations
under this Section 13 shall be made to the nearest one-tenth (1/10th) of a
cent or to the nearest one-hundreth (1/100th) of a share, as the case may
be. Any provision of this Section 13 to the contrary notwithstanding, no
adjustment in the Exercise Price or the number of Shares into which this
Warrant is exercisable shall be made if the amount of such adjustment would
be less than $0.01 or one-tenth (1/10th) of a share of Common Stock,
respectively, but any such amount shall be carried forward and an
adjustment with respect thereto shall be made at the time of and together
with any subsequent adjustment which, together with such
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amount and any other amount or amounts so carried forward, shall aggregate
$0.01 or 1/10th of a share of Common Stock, respectively, or more.
(G) Timing of Issuance of Additional Common Stock Upon Certain
Adjustments. In any case in which the provisions of this Section 13 shall
require that an adjustment shall become effective immediately after a
record date for an event, the Company may defer until the occurrence of
such event (i) issuing to the Warrantholder of this Warrant exercised after
such record date and before the occurrence of such event the additional
shares of Common Stock issuable upon such exercise by reason of the
adjustment required by such event over and above the shares of Common Stock
issuable upon such exercise before giving effect to such adjustment and
(ii) paying to such Warrantholder any amount of cash in lieu of a
fractional share of Common Stock; provided, however, that the Company upon
request shall deliver to such Warrantholder a due bill or other appropriate
instrument evidencing such Warrantholder's right to receive such additional
shares, and such cash, upon the occurrence of the event requiring such
adjustment.
(H) Statement Regarding Adjustments. Whenever the Exercise Price or
the number of Shares into which this Warrant is exercisable shall be
adjusted as provided in Section 13, the Company shall forthwith file, at
the principal office of the Company a statement showing in reasonable
detail the facts requiring such adjustment and the Exercise Price that
shall be in effect and the number of Shares into which this Warrant shall
be exercisable after such adjustment and the Company shall also cause a
copy of such statement to be sent by mail, first class postage prepaid, to
each Warrantholder at the address appearing in the Company's records.
(I) Notices. In the event that the Company shall propose to take any
action of the type described in this Section 13 (but only if the action of
the type described in this Section 13 would result in an adjustment in the
Exercise Price or the number of Shares into which this Warrant is
exercisable or a change in the type of securities or property to be
delivered upon exercise of this Warrant), the Company shall give notice to
the Warrantholder, in the manner set forth in Section 13(H), which notice
shall specify the record date, if any, with respect to any such action and
the approximate date on which such action is to take place. Such notice
shall also set forth the facts with respect thereto as shall be reasonably
necessary to indicate the effect on the Exercise Price and the number, kind
or class of shares or other securities or property which shall be
deliverable upon exercise of this Warrant. In the case of any action which
would require the fixing of a record date, such notice shall be given at
least 10 days prior to the date so fixed, and in case of all other action,
such notice shall be given at least 15 days prior to the taking of such
proposed action. Failure to give such notice, or any defect therein, shall
not affect the legality or validity of any such action.
(J) No Impairment. The Company will not, by amendment of its Articles
or through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to
be observed or performed hereunder by the Company, but will at all times in
good faith assist in the carrying out of all the provisions of this Warrant
and in taking of all such action as may be necessary or appropriate in
order to protect the rights of the Warrantholder.
14. Rights. Whenever the Company shall issue shares of Common Stock upon
exercise of this Warrant, the Company shall issue, together with each such
share of Common Stock, one right to purchase Series A Junior Participating
Preferred Stock of the Company (or other securities in lieu thereof)
pursuant to the Rights Agreement, or any similar rights issued to holders
of Common Stock in addition thereto or in the replacement therefor (such
rights, together with any additional or replacement rights, being
collectively referred to as the "Rights"), whether or not such Rights shall
be exercisable at such time, but only if such Rights are issued and
outstanding and held by the other holders of Common Stock (or
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evidenced by outstanding share certificates representing Common Stock) at
such time and have not expired or been redeemed.
15. Governing Law. This Warrant shall be binding upon any successors or assigns
of the Company. This Warrant shall constitute a contract under the laws of
Texas and for all purposes shall be construed in accordance with and
governed by the laws of Texas, without giving effect to the conflict of
laws principles.
16. Attorneys' Fees. In any litigation, arbitration or court proceeding between
the Company and the Warrantholder as the holder of this Warrant relating
hereto, the prevailing party shall be entitled to reasonable attorneys'
fees and expenses incurred in enforcing this Warrant.
17. Amendments. This Warrant may be amended and the observance of any term of
this Warrant may be waived only with the written consent of the Company and
the Warrantholder.
18. Notice. All notices hereunder shall be in writing and shall be effective
(a) on the day on which delivered if delivered personally or transmitted by
telex or telegram or telecopier with evidence of receipt, (b) one Business
Day after the date on which the same is delivered to a nationally
recognized overnight courier service with evidence of receipt, or (c) five
Business Days after the date on which the same is deposited, postage
prepaid, in the U.S. mail, sent by certified or registered mail, return
receipt requested, and addressed to the party to be notified at the address
indicated below for the Company, or at the address for the Warrantholder
set forth in the registry maintained by the Company pursuant to Section 9,
or at such other address and/or telecopy or telex number and/or to the
attention of such other person as the Company or the Warrantholder may
designate by ten-day advance written notice.
19. Prohibited Actions. The Company agrees that it will not take any action
which would entitle the Warrantholder to an adjustment of the Exercise
Price if the total number of shares of Common Stock issuable after such
action upon exercise of this Warrant, together with all shares of Common
Stock then outstanding and all shares of Common Stock then issuable upon
the exercise of all outstanding options, warrants, conversion and other
rights, would exceed the total number of shares of Common Stock then
authorized by its Restated Articles of Incorporation.
20. Entire Agreement. This Warrant and the forms attached hereto contain the
entire agreement between the parties with respect to the subject matter
hereof and supersede all prior and contemporaneous arrangements or
undertakings with respect thereto.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by a
duly authorized officer.
Dated: January ____, 1999
EEX CORPORATION
____________________________________________
J.T. Leary
Vice President - Finance and Treasurer
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[FORM OF NOTICE OF EXERCISE]
Date: _______________
TO: EEX Corporation
RE: Election to Subscribe for and Purchase Common Stock
The undersigned, pursuant to the provisions set forth in the attached
Warrant, hereby agrees to subscribe for and purchase the number of shares of the
Common Stock set forth below covered by such Warrant. The undersigned, in
accordance with Section 3 of the Warrant, hereby agrees to pay the aggregate
Exercise Price for such shares of Common Stock in the manner set forth below. A
new warrant evidencing the remaining shares of Common Stock covered by such
Warrant, but not yet subscribed for and purchased, should be issued in the name
set forth below. If the new warrant is being transferred, an opinion of counsel
is attached hereto with respect to the transfer of such warrant.
Number of Shares of Common Stock: ___________________________
Method of Payment of Exercise Price: ________________________
Name and Address of Person to be
Issued New Warrant: _________________________________________
_________________________________________
_________________________________________
_________________________________________
Holder: _________________________________
By: _________________________________
Name: _________________________________
Title: _________________________________
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EXHIBIT 4.8
[FORM OF SERIES C WARRANT]
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. THEY HAVE
BEEN ACQUIRED SOLELY FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF IN VIOLATION OF ANY
APPLICABLE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED, HYPOTHECATED OR OTHERWISE DISTRIBUTED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL,
SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES
LAWS.
SERIES C WARRANT
No. 1 January ___, 1999
TO PURCHASE [8,000,000] SHARES OF COMMON STOCK,
PAR VALUE $.01 PER SHARE, OF EEX CORPORATION
1. Definitions. Unless the context otherwise required, when used herein the
following terms shall have the meaning indicated.
"Affiliate" means with respect to any Person, any other Person directly, or
indirectly through one or more intermediaries, controlling, controlled by
or under common control with such Person. For purposes of this definition,
the term "control" (and correlative terms "controlling," "controlled by"
and "under common control with") means possession of the power, whether by
contract, equity ownership or otherwise, to direct the policies or
management of a Person.
"Beneficially Own" or "Beneficial Ownership" is defined in Rules 13d-3 and
13d-5 of the Exchange Act, but without taking into account any contractual
restrictions or limitations on voting or other rights.
"Board" means the Board of Directors of the Company.
"Business Combination" means (i) any consolidation, merger, share exchange
or similar business combination transaction involving the Company with any
Person or (ii) the sale, assignment conveyance, transfer, lease or other
disposition by the Company of all or substantially all of its assets.
"Business Day" means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in Houston,
Texas or New York City, New York generally are authorized or required by
law or other governmental actions to close.
"Capital Stock" means (i) with respect to any Person that is a corporation
or company, any and all shares, interests, participations or other
equivalents (however designated) of capital or capital stock of such Person
and (ii) with respect to any Person that is not a corporation or company,
any and all partnership or other equity interests of such Person.
"Change of Control" shall mean any event constituting (a) the consummation
of any Business
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Combination except where (i) the shareholders of the Company immediately
prior to such Business Combination own (in substantially the same
proportion relative to each other as such shareholders owned the Common
Stock immediately prior to such consummation) (x) forty percent (40%) or
more of the Voting Stock of the surviving entity on both a Modified Non
Diluted Basis and a Modified Fully Diluted Basis immediately after such
Business Combination, and (y) forty percent (40%) or more of the
outstanding common stock of the surviving entity on both a Modified Non
Diluted Basis and a Modified Fully Diluted Basis immediately after such
Business Combination, (ii) the members of the Board immediately prior to
the entering into the agreement relating to such Business Combination
constitute at least a majority of the Board or the board of directors of
the surviving entity immediately after such Business Combination, with no
agreements or arrangements in place immediately after such consummation
that would result in the members of the Board immediately prior to the
entering into the agreement relating to such Business Combination ceasing
to constitute at least a majority of the Board or the board of directors of
the surviving entity and (iii) no Non-Financial Person or Group of Non-
Financial Persons is the Beneficial Owner of 20% or more of the total
outstanding Voting Stock or common stock of the surviving entity and no
Financial Person or Group of Financial Persons is the Beneficial Owner of
35% or more of the total outstanding Voting Stock or common stock of the
surviving entity or (b) any Non-Financial Person or Group of Non-Financial
persons acquiring Beneficial Ownership of 20% or more of the total
outstanding Voting Stock or Common Stock of the Company or any Financial
Person or Group of Financial Persons acquiring Beneficial Ownership of 35%
or more of the total outstanding Voting Stock or Common Stock of the
Company.
"Common Stock" means the Company's common stock, par value $.01 per share,
and any Capital Stock for or into which such Common Stock hereafter is
exchanged, converted, reclassified or recapitalized by the Company or
pursuant to an agreement or Business Combination to which the Company is a
party.
"Common Stock Equivalents" means (without duplication with any other Common
Stock or common stock, as the case may be, or Common Stock Equivalents)
rights, warrants, options, convertible securities or exchangeable
securities, exercisable for or convertible or exchangeable into, directly
or indirectly, Common Stock, or common stock, as the case may be, whether
at the time of issuance or upon the passage of time or the occurrence of
some future event, including the Warrants.
"Company" means EEX Corporation, a Texas Corporation.
"Early Exercise Event" means the occurrence of any of the following: (i) an
agreement providing for a Business Combination is approved by the Board if
such Business Combination, if consummated, would result in a Change of
Control, (ii) a Tender Offer for the Company's securities is approved or
recommended by the Board, (iii) Warburg, Pincus Equity Partners, L.P. and
its Affiliates Beneficially Own less than 10% of the outstanding Voting
Stock of the Company, (iv) there is a redemption, repurchase or
reacquisition by the Company of Rights issued pursuant to the Rights
Agreement or any waiver of the application of the Rights Agreement to any
Beneficial Owner or (v) any Non-Financial Person or Group of Non-Financial
Persons Beneficially Own more than 20% of the outstanding Voting Stock of
the Company or any Financial Person or Group of Financial Persons
Beneficially Own more than 35% of the outstanding Voting Stock of the
Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any successor statute, and the rules and regulations promulgated
thereunder.
"Excluded Stock" means (i) shares of Common Stock issued by the Company as
a stock dividend payable in shares of Common Stock, or upon any subdivision
or split-up of the outstanding shares of Capital Stock in each case with is
subject to Section 13(B), or upon
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conversion of shares of Capital Stock (but not the issuance of such Capital
Stock which will be subject to the provisions of Section 13(A)(iii)), (ii)
shares of Common Stock to be issued to employees, consultants and advisors
of the Company pursuant to options granted prior to the date of issuance of
this Warrant and pursuant to options granted after the date of issuance of
this Warrant if the exercise price per share of Common Stock on the date of
such grant equals or exceeds the Market Price of a share of Common Stock on
the date of such grant.
"Exercise Price" has the meaning given to it in Section 2.
"Expiration Time" has the meaning given to it in Section 3.
"Financial Person" means any Person that (i) is, or holds itself out as
being, engaged primarily in the business of investing, reinvesting, owning,
holding or trading in securities, and (ii) together with its Affiliates is
not engaged in (x) any significant activities other than financial
services, insurance or investment activities or (y) directly or indirectly
through Affiliates, in any industrial activities, including the oil and gas
and energy industry.
"Group" means a group as contemplated by Section 13(d)(3) of the Exchange
Act.
"Market Price" means, with respect to a particular security, on any given
day, the last reported sale price regular way or, in case no such reported
sale takes place on such day, the average of the last closing bid and asked
prices regular way, in either case on the principal national securities
exchange on which the applicable securities is listed or admitted to
trading, or if not listed or admitted to trading on any national securities
exchange, (i) the closing sale price for such day reported by the NASDAQ
Stock Market if such security is traded over-the-counter and quoted in the
NASDAQ Stock Market, or (ii) if such security is so traded, but not so
quoted, the average of the closing reported bid and asked prices of such
security as reported by the NASDAQ Stock Market or any comparable system,
or (iii) if such security is not listed on the NASDAQ Stock Market or any
comparable system, the average of the closing bid and asked prices as
furnished by two members of the National Association of Securities Dealers,
Inc. selected from time to time by the Company for that purpose. If such
security is not listed and traded in a manner that the quotations referred
to above are available for the period required hereunder, the Market Price
per share of Common Stock shall be deemed to be the fair value per share of
such security as determined in good faith by the Board of Directors of the
Company.
"Modified Fully-Diluted Basis" shall mean a calculation based on the then
outstanding shares of Voting Stock or common stock, as the case may be,
plus all shares of Voting Stock or common stock acquirable pursuant to, or
constituting, Common Stock Equivalents, but excluding 50% of the Voting
Stock or common stock acquirable pursuant to the then outstanding Warrants.
"Modified Non-Diluted Basis" shall mean a calculation based on the then
outstanding shares of Voting Stock or common stock, as the case may be, and
without giving effect to outstanding Common Stock Equivalents, but
including (i) 50% of the shares of common stock then acquirable upon
exercise of the then outstanding Warrants and (ii) the number of shares of
common stock equal to (a) the aggregate Market Price as of the date of such
Business Combination of all shares of common stock acquirable upon exercise
of all outstanding employee stock options of the relevant entity that have
an exercise price of less than the Market Price of common stock as of the
date of such Business Combination less the aggregate exercises price of all
such options divided by (b) the Market Price of common stock as of the date
of such Business Combination.
"Non-Financial Person" means any Person that is not a Financial Person.
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<PAGE>
"Ordinary Cash Dividends" means any cash dividend or distribution which,
when combined on a per share of Common Stock basis with the per share
amounts of all other cash dividends and cash distributions paid on the
Common Stock during the 365-day period ending on the date of declaration of
such dividend or distribution (as adjusted to appropriately reflect any of
the events referred to in Section 13 and excluding cash dividends or
distributions that resulted in an adjustment to the Exercise Price), does
not exceed 5% of the Market Price of a share of Common Stock on the trading
day immediately preceding the date of declaration of such dividend or
distribution.
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, limited liability company,
joint venture, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind.
"Preferred Stock" means the Series B 8% Cumulative Perpetual Preferred
Stock of the Company or successor preferred stock as contemplated by
Section 5(C)(ii)(A) of the Statement of Resolution.
"Pro Rata Repurchases" means any purchase of shares of Common Stock by the
Company or any Affiliate thereof pursuant to any tender offer or exchange
offer subject to Section 13(e) of the Exchange Act, or pursuant to any
other offer available to substantially all holders of Common Stock, whether
for cash, shares of capital stock of the Company, other securities of the
Company, evidences of indebtedness of the Company or any other person or
any other property (including, without limitation, shares of capital stock,
other securities or evidences of indebtedness of a subsidiary of the
Company), or any combination thereof, effected while this Warrant is
outstanding; provided, however, that "Pro Rata Repurchase" shall not
include any purchase of shares by the Company or any Affiliate thereof made
in accordance with the requirements of Rule 10b-18 as in effect under the
Exchange Act. The "Effective Date" of a Pro Rata Repurchase shall mean the
date of acceptance of shares for purchase or exchange under any tender or
exchange offer which is a Pro Rata Repurchase or the date of purchase with
respect to any Pro Rata Repurchase that is not a tender or exchange offer.
"Purchase Agreement" means the Purchase Agreement, dated as of December 22,
1998, among the Company and the purchasers named therein, including all
schedules and exhibits thereto.
"Rights Agreement" means the Rights Agreement dated as of September 10,
1996 between the Company and Harris Trust Company of New York, a New York
trust company, as amended.
"Rights" is defined in Section 14.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor statute, and the rules and regulations promulgated thereunder.
"Shares" is defined in Section 2.
"Stated Value" is an amount equal to $100.00 per share of Preferred Stock.
"Statement of Resolution" means the Statement of Resolution relating to the
Preferred Stock filed with the Secretary of State of the State of Texas on
January _____, 1999.
"Subsidiary" of a Person means (i) a corporation, a majority of whose stock
with voting power, under ordinary circumstances, to elect directors is at
the time of determination,
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directly or indirectly, owned by such Person or by one or more Subsidiaries
of such Person, or (ii) any other entity (other than a corporation) in
which such Person or one or more Subsidiaries of such Person, directly or
indirectly, at the date of determination thereof has at least a majority
ownership interest.
"Shares" has the meaning given to it in Section 2.
"TBCA" means the Texas Business Corporation Act, as amended, or any
successor statute or other legislation.
"Tender Offer" means any transaction to which Regulation 14D of the
Exchange Act applies.
"Voting Stock" of a Person means Capital Stock of such Person of the class
or classes pursuant to which the holders thereof have the general voting
power under ordinary circumstances to vote in the election of the board of
directors, managers or trustees of such Person.
"Warrantholder" has the meaning given to it in Section 2.
"Warrants" means collectively this Warrant, the 10 year warrants to
purchase an aggregate 10,500,000 shares and the seven year warrants to
purchase an aggregate 2,500,000 shares, all of which were issued to the
purchasers named in the Purchase Agreement pursuant to the Purchase
Agreement.
2. Number of Shares; Exercise Price. This certifies that, for value received,
[NAME OF WARBURG, PINCUS ENTITY] or its registered assigns (the
"Warrantholder") is entitled, upon the terms and subject to the conditions
hereinafter set forth, to acquire from the Company, in whole or in part, up
to an aggregate of [8,000,000] fully paid and nonassessable shares of
Common Stock, par value $0.01 per share, (the "Shares") of the Company, at
a purchase price of $12.00 per Share (the "Exercise Price"). The number of
Shares and the Exercise Price are subject to adjustment as provided herein,
and all references to "Shares", "Common Stock" and "Exercise Price" herein
shall be deemed to include any such adjustment or series of adjustments.
3. Exercise of Warrant; Term. The right to purchase the Shares represented by
this Warrant are exercisable, in whole or in part by the Warrantholder, at
any time or from time to time after the earlier of August 31, 1999 and the
occurrence of an Early Exercise Event but in no event later than 11:59 p.m.
Central Time, on January ___, 2006 (the "Expiration Time"), by (a) the
surrender of this Warrant and Notice of Exercise annexed hereto, duly
completed and executed on behalf of the Warrantholder, at the office of the
Company in Houston, Texas (or such other office or agency of the Company in
the United States as it may designate by notice in writing to the
Warrantholder at the address of the Warrantholder appearing on the books of
the Company), and (b) payment of the Exercise Price for the Shares thereby
purchased at the election of the Warrantholder in one of the following
manners:
(i) by tendering in cash, by certified or cashier's check or by wire
transfer payable to the order of the Company; or
(ii) by having the Company withhold shares of Common Stock issuable
upon exercise of the Warrant equal in value to the aggregate Exercise Price
as to which this Warrant is so exercised based on the Market Price of the
Common Stock on the trading day prior to the date on which this Warrant and
the Notice of Exercise are delivered to the Company; or
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(iii) by tendering to the Company that number of shares of Preferred
Stock rounded to the nearest whole share equal to the aggregate Exercise
Price as to which this Warrant is so exercised divided by the sum of (1)
the Stated Value of the Preferred Stock plus (2) any accrued but unpaid
dividends thereon.
If the Warrantholder does not exercise this warrant in its entirety, the
Warrantholder will be entitled to receive from the Company within a
reasonable time, not exceeding three (3) business days, a new warrant in
substantially identical form for the purchase of that number of Shares
equal to the difference between the number of Shares subject to this
Warrant and the number of Shares as to which this Warrant is so exercised.
Notwithstanding the foregoing, unless prior to July 30, 2002, the Company
elects to permit the exercise of this Warrant as otherwise contemplated by
this Section 3 by written notice to the Warrantholders, the Warrantholder
may only exercise this Warrant in the manner permitted by Section 3(b)(ii)
and upon any such exercise receive, in lieu of the shares of Common Stock,
cash in an amount equal to the product of (i) the number of shares of
Common Stock that would have been otherwise issuable and (ii) the Market
Price on the trading day prior to the date on which this Warrant and the
Notice of Exercise are delivered to the Company, such amount being paid by
certified or cashiers check or by wire transfer in same day funds on the
fourth business day following such exercise.
4. Issuance of Shares; Authorization; Listing. Certificates for Shares issued
upon exercise of this Warrant will be issued in such name or names as the
Warrantholder may designate and will be delivered to such named Person or
Persons within a reasonable time, not to exceed three (3) business days
after the date on which this Warrant has been duly exercised in accordance
with the terms of this Warrant. The Company hereby represents and warrants
that any Shares issued upon the exercise of this Warrant in accordance with
the provisions of Section 3 will, upon such exercise, be duly and validly
authorized and issued, fully paid and nonassessable and free from all
taxes, liens and charges (other than liens or charges created by or imposed
upon the Warrantholder or taxes in respect of any transfer occurring
contemporaneously therewith). The Company agrees that the Shares so issued
will be deemed to have been issued to the Warrantholder as of the close of
business on the date on which this Warrant and payment of the Exercise
Price are delivered to the Company in accordance with the terms of this
Warrant, notwithstanding that the stock transfer books of the Company may
then be closed or certificates representing such Shares may not be actually
delivered on such date. The Company will at all times reserve and keep
available, out of its authorized but unissued Common Stock, solely for the
purpose of providing for the exercise of this Warrant, the aggregate number
of shares of Common Stock issuable upon exercise of this Warrant. The
Company will (i) procure, at its sole expense, the listing of the Shares
and other securities issuable upon exercise of this Warrant, subject to
issuance or notice of issuance on all stock exchanges on which the Common
Stock or such other securities are then listed or traded and (ii) maintain
the listing of such Shares or such other securities after issuance. The
Company will take all action as may be necessary to ensure that the Shares
may be issued without violation of any applicable law or regulation or of
any requirement of any securities exchange on which the Shares are listed
or traded.
5. No Fractional Shares or Scrip. No fractional Shares or scrip representing
fractional Shares shall be issued upon any exercise of this Warrant. In
lieu of any fractional Share to which the Warrantholder would otherwise be
entitled, the Warrantholder shall be entitled to receive a cash payment
equal to the Market Price of the Common Stock less the Exercise Price for
such fractional share.
6. No Rights as Shareholders; Transfer Books. This Warrant does not entitle
the Warrantholder to any voting rights or other rights as a shareholder of
the Company prior to the date of exercise hereof. The Company will at no
time close its transfer books against transfer of this Warrant in any
manner which interferes with the timely exercise of this Warrant.
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7. Charges, Taxes and Expenses. Certificates for shares issued upon exercise
of this Warrant shall be issued in the name of the Warrantholder. Issuance
of certificates for shares upon the exercise of this Warrant shall be made
without charge to the Warrantholder for any issue or transfer tax or other
incidental expense in respect of the issuance of such certificates, all of
which taxes and expenses shall be paid by the Company.
8. Transfer/Assignment. This Warrant and any rights hereunder are not
transferable by the Warrantholder, in whole or in part, in the absence of
any effective registration statement related to this Warrant or an opinion
of counsel, satisfactory in form and substance to the Company, that such
registration is not required under the Securities Act and any applicable
state securities laws. Subject to compliance with the preceding sentence,
this Warrant and all rights hereunder are transferable, in whole or in
part, upon the books of the Company by the registered holder hereof in
person or by duly authorized attorney, and a new warrant shall be made and
delivered by the Company, of the same tenor and date as this Warrant but
registered in the name of the transferee, upon surrender of this Warrant,
duly endorsed, to the office or agency of the Company described in Section
2. All expenses, taxes (other than stock transfer taxes) and other charges
payable in connection with the preparation, execution and delivery of the
new warrants pursuant to this Section 8 shall be paid by the Company. The
restrictions imposed by the first sentence of this Section 8 shall
terminate as to the Warrant (i) when such security has been effectively
registered under the Securities Act and disposed of in accordance with the
registration statement covering such security, or (ii) when, in the opinion
of counsel for the Company, such restrictions are no longer required in
order to achieve compliance with the Securities Act.
9. Exchange and Registry of Warrant. This Warrant is exchangeable, upon the
surrender hereof by the Warrantholder at the office or agency of the
Company described in Section 2, for a new warrant or warrants of like tenor
and date representing the right to purchase in the aggregate a like number
of shares. The Company shall maintain at the office or agency described in
Section 2 a registry showing the name and address of the Warrantholder as
the registered holder of this Warrant. This Warrant may be surrendered for
exchange or exercise, in accordance with its terms, at the office of the
Company, and the Company shall be entitled to rely in all respects, prior
to written notice to the contrary, upon such registry.
10. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt by the
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and in the case of any such
loss, theft or destruction, of an indemnity letter (reasonably satisfactory
to the Company) by an institutional Warrantholder, or in other cases,
indemnity or security reasonably satisfactory to it, and in the case of
such mutilation, upon surrender and cancellation of this Warrant, the
Company will make and deliver a new warrant or warrants of like tenor and
date, in lieu of this Warrant.
11. Saturdays, Sundays, Holidays, etc. If the last or appointed day for the
taking of any action or the expiration of any right required or granted
herein shall not be a Business Day, then such action may be taken or such
right may be exercised on the next succeeding day that is a Business Day.
12. Rule 144 Information. The Company covenants that it will file the reports
required to be filed by it under the Securities Act and the Exchange Act
and the rules and regulations promulgated thereunder (or, if the Company is
not required to file such reports, it will, upon the request of any
Warrantholder, make publicly available such information), and it will take
such further action as any Warrantholder may reasonably request, all to the
extent required from time to time to enable such holder to sell the
Warrants without registration under the Securities Act within the
limitation of the exemptions provided by (i) Rule 144 under the Securities
Act, as such Rule may be amended from time to time, or (ii) any similar
rule or
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regulation hereafter adopted by the Securities and Exchange Commission.
Upon the request of any Warrantholder, the Company will deliver to such
Warrantholder a written statement that it has complied with such
requirements.
13. Adjustments and Other Rights. The Exercise Price and the number of Shares
issuable upon exercise of this Warrant shall be subject to adjustment from
time to time as follows:
(A) Common Stock Issued at Less than Market Value. If the Company
issues or sells any Common Stock other than Excluded Stock without
consideration or for consideration per share less than the Market Price of
the Common Stock, on the last trading day immediately preceding such
issuance, the Exercise Price in effect immediately prior to each such
issuance or sale will immediately (except as provided below) be reduced to
the price determined by multiplying the Exercise Price, in effect
immediately prior to such issuance or sale, by a fraction, (1) the
numerator of which shall be (x) the number of shares of Common Stock
outstanding immediately prior to such issuance or sale plus (y) the number
of shares of Common Stock which the aggregate consideration received by the
Company for the total number of such additional shares of Common Stock so
issued or sold would purchase at the Market Price on the last trading day
immediately preceding such issuance or sale and (2) the denominator of
which shall be the number of shares of Common Stock outstanding immediately
after such issue or sale. In such event, the number of shares of Common
Stock issuable upon the exercise of this Warrant shall be increased to the
number obtained by dividing (i) the product of (a) the number of Shares
issuable upon the exercise of this Warrant before such adjustment, and (b)
the Exercise Price in effect immediately prior to the issuance giving rise
to this adjustment by (ii) the new Exercise Price determined in accordance
with the immediately preceding sentence. For the purposes of any adjustment
of the Exercise Price and the number of Shares issuable upon exercise of
this Warrant pursuant to this Section 13(A), the following provisions shall
be applicable:
(i) In the case of the issuance of Common Stock for cash, the
amount of the consideration received by the Company shall be deemed to
be the amount of the cash proceeds received by the Company for such
Common Stock before deducting therefrom any discounts or commissions
allowed, paid or incurred by the Company for any underwriting or
otherwise in connection with the issuance and sale thereof.
(ii) In the case of the issuance of Common Stock (otherwise than
upon the conversion of shares of Capital Stock or other securities of
the Company) for a consideration in whole or in part other than cash,
including securities acquired in exchange therefor (other than
securities by their terms so exchangeable), the consideration other
than cash shall be deemed to be the fair value thereof as determined
by the Board, provided, however, that such fair value as determined by
the Board shall not exceed the aggregate Market Price of the shares of
Common Stock being issued as of the date the Board authorizes the
issuance of such shares.
(iii) In the case of the issuance of (a) options, warrants or
other rights to purchase or acquire Common Stock (whether or not at
the time exercisable) or (b) securities by their terms convertible
into or exchangeable for Common Stock (whether or not at the time so
convertible or exchangeable) or options, warrants or rights to
purchase such convertible or exchangeable securities (whether or not
at the time exercisable):
(1) the aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options, warrants or
other rights to purchase or acquire Common Stock shall
be deemed to have been issued at the time such options,
warrants or rights are issued and for a consideration
equal to the
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consideration (determined in the manner provided in
Section 13(A)(i) and (ii), if any, received by the
Company upon the issuance of such options, warrants or
rights plus the minimum purchase price provided in such
options, warrants or rights for the Common Stock
covered thereby;
(2) the aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange for any
such convertible or exchangeable securities, or upon
the exercise of options, warrants or other rights to
purchase or acquire such convertible or exchangeable
securities and the subsequent conversion or exchange
thereof, shall be deemed to have been issued at the
time such securities were issued or such options,
warrants or rights were issued and for a consideration
equal to the consideration, if any, received by the
Company for any such securities and related options,
warrants or rights (excluding any cash received on
account of accrued interest or accrued dividends), plus
the additional consideration (determined in the manner
provided in Section 13(A)(i) and (ii), if any, to be
received by the Company upon the conversion or exchange
of such securities, or upon the exercise of any related
options, warrants or rights to purchase or acquire such
convertible or exchangeable securities and the
subsequent conversion or exchange thereof;
(3) on any change in the number of shares of Common Stock
deliverable upon exercise of any such options, warrants
or rights or conversion or exchange of such convertible
or exchangeable securities or any change in the
consideration to be received by the Company upon such
exercise, conversion or exchange, but excluding changes
resulting from the anti-dilution provisions thereof (to
the extent comparable to the anti-dilution provisions
contained herein), the Exercise Price and the number of
Shares issuable upon exercise of this Warrant as then
in effect shall forthwith be readjusted to such
Exercise Price and number of Shares as would have been
obtained had an adjustment been made upon the issuance
of such options, warrants or rights not exercised prior
to such change, or of such convertible or exchangeable
securities not converted or exchanged prior to such
change, upon the basis of such change;
(4) on the expiration or cancellation of any such options,
warrants or rights (without exercise), or the
termination of the right to convert or exchange such
convertible or exchangeable securities (without
exercise), if the Exercise Price and the number of
Shares issuable upon exercise of this Warrant shall
have been adjusted upon the issuance thereof, the
Exercise Price and the number of Shares issuable upon
exercise of this Warrant shall forthwith be readjusted
to such Exercise Price and number of Shares as would
have been obtained had an adjustment been made upon the
issuance of such options, warrants, rights or such
convertible or exchangeable securities on the basis of
the issuance of only the number of shares of Common
Stock actually issued upon
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the exercise of such options, warrants or rights, or
upon the conversion or exchange of such convertible or
exchangeable securities; and
(5) if the Exercise Price and the number of Shares issuable
upon exercise of this Warrant shall have been adjusted
upon the issuance of any such options, warrants, rights
or convertible or exchangeable securities, no further
adjustment of the Exercise Price and the number of
Shares issuable upon exercise of this Warrant shall be
made for the actual issuance of Common Stock upon the
exercise, conversion or exchange thereof; provided,
however, that no increase in the Exercise Price shall
be made pursuant to subclauses (1) or (2) of this
Section 13(A) (iii).
(B) Stock Splits, Subdivisions, Reclassifications or Combinations. If
the Company shall (1) declare a dividend or make a distribution on its
Common Stock in shares of Common Stock, (2) subdivide or reclassify the
outstanding shares of Common Stock into a greater number of shares, or (3)
combine or reclassify the outstanding Common Stock into a smaller number of
shares, the number of Shares issuable upon exercise of this Warrant at the
time of the record date for such dividend or distribution or the effective
date of such subdivision, combination or reclassification shall be
proportionately adjusted so that the Warrantholder after such date shall be
entitled to purchase the number of shares of Common Stock which such holder
would have owned or been entitled to receive after such date had this
Warrant been exercised immediately prior to such date. Successive
adjustments in the Exercise Price shall be made whenever any event
specified above shall occur. In such event the Exercise Price in effect at
the time of the record date for such dividend or distribution or the
effective date of such subdivision, combination or reclassification shall
be adjusted to the number obtained by dividing (i) the product of (a) the
number of Shares issuable upon the exercise of this Warrant before such
adjustment and (b) the Exercise Price in effect immediately prior to the
issuance giving rise to this adjustment by (ii) the new number of shares
issuable upon exercise of the Warrant determined pursuant to the
immediately preceding sentence.
(C) Other Distributions. In case the Company shall fix a record date
for the making of a distribution to all holders of shares of its Common
Stock (i) of shares of any class other than its Common Stock or (ii) of
evidence of indebtedness of the Company or any Subsidiary or (iii) of
assets (excluding Ordinary Cash Dividends, and dividends or distributions
referred to in Section 13(B)), or (iv) of rights or warrants (excluding
those referred to in Section 13(B)), in each such case the Exercise Price
in effect immediately prior thereto shall be reduced immediately thereafter
to the price determined by dividing (x) an amount equal to the difference
resulting from (1) the number of shares of Common Stock outstanding on such
record date multiplied by the Exercise Price per share on such record date,
less (2) the fair market value (as reasonably determined by the Board) of
said shares or evidences of indebtedness or assets or rights or warrants to
be so distributed, by (y) the number of shares of Common Stock outstanding
on such record date; such adjustment shall be made successively whenever
such a record date is fixed. In such event, the number of shares of Common
Stock issuable upon the exercise of this Warrant shall be increased to the
number obtained by dividing (i) the product of (a) the number of Shares
issuable upon the exercise of this Warrant before such adjustment, and (b)
the Exercise Price in effect immediately prior to the issuance giving rise
to this adjustment by (ii) the new Exercise Price determined in accordance
with the immediately preceding sentence. In the event that such
distribution is not so made, the Exercise Price and the number of Shares
issuable upon exercise of this Warrant then in effect shall be readjusted,
effective as of the date when the Board determines not to distribute such
shares, evidences of indebtedness, assets, rights or
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warrants, as the case may be, to the Exercise Price that would then be in
effect and the number of Shares that would then be issuable upon exercise
of this Warrant if such record date had not been fixed.
(D) Certain Repurchases of Common Stock. In case the Company effects
a Pro Rata Repurchase of Common Stock, then the Exercise Price shall be
reduced to the price determined by multiplying the Exercise Price in effect
immediately prior to the effective date of such Pro Rata Repurchase by a
fraction of which the numerator shall be (i) the product of (x) the number
of shares of Common Stock outstanding immediately before such Pro Rata
Repurchase and (y) the Market Price of a share of Common Stock on the
trading day immediately preceding the first public announcement by the
Company or any of its Affiliates of the intent to effect such Pro Rata
Repurchase, minus (ii) the aggregate purchase price of the Pro Rata
Repurchase, and of which the denominator shall be the product of (i) the
number of shares of Common Stock outstanding immediately prior to such Pro
Rata Repurchase minus the number of shares of Common Stock so repurchased
and (ii) the Market Price per share of Common Stock on the trading day
immediately preceding the first public announcement of such Pro Rata
Repurchase. In such event, the number of shares of Common Stock issuable
upon the exercise of this Warrant shall be increased to the number obtained
by dividing (i) the product of (a) the number of Shares issuable upon the
exercise of this Warrant before such adjustment, and (b) the Exercise Price
in effect immediately prior to the Pro Rata Repurchase giving rise to this
adjustment by (ii) the new Exercise Price determined in accordance with the
immediately preceding sentence.
(E) Business Combinations. In case of any Business Combination or
reclassification of Common Stock (other than a reclassification of Common
Stock referred to in Section 13(B)), any Shares issued or issuable upon
exercise of this Warrant shall after the date of such Business Combination
or reclassification be exchangeable for the number of shares of stock or
other securities or property (including cash) to which the Common Stock
issuable (at the time of such consolidation, merger, sale, lease or
conveyance) upon exercise of this Warrant immediately prior to such
Business Combination or reclassification would have been entitled upon such
Business Combination or reclassification; and in any such case, if
necessary, the provisions set forth herein with respect to the rights and
interests thereafter of the Warrantholder shall be appropriately adjusted
so as to be applicable, as nearly as may reasonably be, to any shares of
stock or other securities or property thereafter deliverable on the
exercise of this Warrant. In determining the kind and amount of stock,
securities or the property receivable upon consummation of such Business
Combination, if the holders of Common Stock have the right to elect the
kind or amount of consideration receivable upon consummation of such
Business Combination, then the Warrantholder shall have the right to make a
similar election upon exercise of this Warrant with respect to the number
of shares of stock or other securities or property which the Warrantholder
will receive upon exercise of this Warrant.
(F) Rounding of Calculations; Minimum Adjustments. All calculations
under this Section 13 shall be made to the nearest one-tenth (1/10th) of a
cent or to the nearest one-hundreth (1/100th) of a share, as the case may
be. Any provision of this Section 13 to the contrary notwithstanding, no
adjustment in the Exercise Price or the number of Shares into which this
Warrant is exercisable shall be made if the amount of such adjustment would
be less than $0.01 or one-tenth (1/10th) of a share of Common Stock,
respectively, but any such amount shall be carried forward and an
adjustment with respect thereto shall be made at the time of and together
with any subsequent adjustment which, together with such amount and any
other amount or amounts so carried forward, shall aggregate $0.01 or 1/10th
of a share of Common Stock, respectively, or more.
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(G) Timing of Issuance of Additional Common Stock Upon Certain
Adjustments. In any case in which the provisions of this Section 13 shall
require that an adjustment shall become effective immediately after a
record date for an event, the Company may defer until the occurrence of
such event (i) issuing to the Warrantholder of this Warrant exercised after
such record date and before the occurrence of such event the additional
shares of Common Stock issuable upon such exercise by reason of the
adjustment required by such event over and above the shares of Common Stock
issuable upon such exercise before giving effect to such adjustment and
(ii) paying to such Warrantholder any amount of cash in lieu of a
fractional share of Common Stock; provided, however, that the Company upon
request shall deliver to such Warrantholder a due bill or other appropriate
instrument evidencing such Warrantholder's right to receive such additional
shares, and such cash, upon the occurrence of the event requiring such
adjustment.
(H) Statement Regarding Adjustments. Whenever the Exercise Price or
the number of Shares into which this Warrant is exercisable shall be
adjusted as provided in Section 13, the Company shall forthwith file, at
the principal office of the Company a statement showing in reasonable
detail the facts requiring such adjustment and the Exercise Price that
shall be in effect and the number of Shares into which this Warrant shall
be exercisable after such adjustment and the Company shall also cause a
copy of such statement to be sent by mail, first class postage prepaid, to
each Warrantholder at the address appearing in the Company's records.
(I) Notices. In the event that the Company shall propose to take any
action of the type described in this Section 13 (but only if the action of
the type described in this Section 13 would result in an adjustment in the
Exercise Price or the number of Shares into which this Warrant is
exercisable or a change in the type of securities or property to be
delivered upon exercise of this Warrant), the Company shall give notice to
the Warrantholder, in the manner set forth in Section 13(H), which notice
shall specify the record date, if any, with respect to any such action and
the approximate date on which such action is to take place. Such notice
shall also set forth the facts with respect thereto as shall be reasonably
necessary to indicate the effect on the Exercise Price and the number, kind
or class of shares or other securities or property which shall be
deliverable upon exercise of this Warrant. In the case of any action which
would require the fixing of a record date, such notice shall be given at
least 10 days prior to the date so fixed, and in case of all other action,
such notice shall be given at least 15 days prior to the taking of such
proposed action. Failure to give such notice, or any defect therein, shall
not affect the legality or validity of any such action.
(J) No Impairment. The Company will not, by amendment of its Articles
or through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to
be observed or performed hereunder by the Company, but will at all times in
good faith assist in the carrying out of all the provisions of this Warrant
and in taking of all such action as may be necessary or appropriate in
order to protect the rights of the Warrantholder.
14. Rights. Whenever the Company shall issue shares of Common Stock upon
exercise of this Warrant, the Company shall issue, together with each such
share of Common Stock, one right to purchase Series A Junior Participating
Preferred Stock of the Company (or other securities in lieu thereof)
pursuant to the Rights Agreement, or any similar rights issued to holders
of Common Stock in addition thereto or in the replacement therefor (such
rights, together with any additional or replacement rights, being
collectively referred to as the "Rights"), whether or not such Rights shall
be exercisable at such time, but only if such Rights are issued and
outstanding and held by the other holders of Common Stock (or evidenced by
outstanding share certificates representing Common Stock) at such time and
have not expired or been redeemed.
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15. Governing Law. This Warrant shall be binding upon any successors or
assigns of the Company. This Warrant shall constitute a contract under the
laws of Texas and for all purposes shall be construed in accordance with
and governed by the laws of Texas, without giving effect to the conflict of
laws principles.
16. Attorneys' Fees. In any litigation, arbitration or court proceeding between
the Company and the Warrantholder as the holder of this Warrant relating
hereto, the prevailing party shall be entitled to reasonable attorneys'
fees and expenses incurred in enforcing this Warrant.
17. Amendments. This Warrant may be amended and the observance of any term of
this Warrant may be waived only with the written consent of the Company and
the Warrantholder.
18. Notice. All notices hereunder shall be in writing and shall be effective
(a) on the day on which delivered if delivered personally or transmitted by
telex or telegram or telecopier with evidence of receipt, (b) one Business
Day after the date on which the same is delivered to a nationally
recognized overnight courier service with evidence of receipt, or (c) five
Business Days after the date on which the same is deposited, postage
prepaid, in the U.S. mail, sent by certified or registered mail, return
receipt requested, and addressed to the party to be notified at the address
indicated below for the Company, or at the address for the Warrantholder
set forth in the registry maintained by the Company pursuant to Section 9,
or at such other address and/or telecopy or telex number and/or to the
attention of such other person as the Company or the Warrantholder may
designate by ten-day advance written notice.
19. Prohibited Actions. The Company agrees that it will not take any action
which would entitle the Warrantholder to an adjustment of the Exercise
Price if the total number of shares of Common Stock issuable after such
action upon exercise of this Warrant, together with all shares of Common
Stock then outstanding and all shares of Common Stock then issuable upon
the exercise of all outstanding options, warrants, conversion and other
rights, would exceed the total number of shares of Common Stock then
authorized by its Restated Articles of Incorporation.
20. Entire Agreement. This Warrant and the forms attached hereto contain the
entire agreement between the parties with respect to the subject matter
hereof and supersede all prior and contemporaneous arrangements or
undertakings with respect thereto.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
13
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by a
duly authorized officer.
Dated: January ____, 1999
EEX CORPORATION
--------------------------------------------
J.T. Leary
Vice President - Finance and Treasurer
14
<PAGE>
[FORM OF NOTICE OF EXERCISE]
Date: _____________________
TO: EEX Corporation
RE: Election to Subscribe for and Purchase Common Stock
The undersigned, pursuant to the provisions set forth in the attached
Warrant, hereby agrees to subscribe for and purchase the number of shares of the
Common Stock set forth below covered by such Warrant. The undersigned, in
accordance with Section 3 of the Warrant, hereby agrees to pay the aggregate
Exercise Price for such shares of Common Stock in the manner set forth below. A
new warrant evidencing the remaining shares of Common Stock covered by such
Warrant, but not yet subscribed for and purchased, should be issued in the name
set forth below. If the new warrant is being transferred, an opinion of counsel
is attached hereto with respect to the transfer of such warrant.
Number of Shares of Common Stock: ___________________
Method of Payment of Exercise Price: ________________
Name and Address of Person to be
Issued New Warrant: _________________________________
_________________________________
_________________________________
_________________________________
Holder: ____________________________________
By: ____________________________________
Name: ____________________________________
Title: ____________________________________
15
<PAGE>
EXHIBIT 10.11
FIRST AMENDMENT TO
ENSERCH EXPLORATION, INC. DEFERRED COMPENSATION PLAN
WHEREAS, EEX CORPORATION, formerly known as Enserch Exploration, Inc. (the
"Company"), has heretofore adopted and currently maintains the ENSERCH
EXPLORATION, INC. DEFERRED COMPENSATION PLAN (the "Plan") for the benefit of its
eligible employees; and
WHEREAS, the Company desires to amend the Plan;
NOW, THEREFORE, the Plan shall be amended as follows, effective as
hereinafter provided:
1. Effective as of December 19, 1997, the Plan shall be renamed as the
"EEX Corporation Deferred Compensation Plan" and all references therein to the
name of the Plan shall be amended accordingly.
2. Effective as of November 1, 1998, Section 3.2 of the Plan and the
following shall be substituted therefor:
"Section 3.2 Bonus Deferral Election. During the Election Period prior
to the beginning of each Plan Year, an Eligible Employee may elect to have
the payment of an amount up to 100% of the cash portion of any bonus
otherwise payable by an Employer during such Plan Year deferred for payment
in the manner and at the time specified in Article IV. Any provision of
this Plan to the contrary notwithstanding, (i) the minimum amount that may
be deferred by an Eligible Employee for a Plan Year pursuant to this
Section 3.2 shall be $5,000 (or such other amount as shall be determined by
the Administrative Committee in its discretion) unless such Eligible
Employee elects to defer for the same Plan Year at least $5,000 (or such
other amount as shall be determined by the Administrative Committee in its
discretion) pursuant to Section 3.1, and (ii) in no event shall the amount
deferred by a Participant pursuant to this Section 3.2 exceed the Net
Amount Payable to such Participant. All elections made pursuant to this
Section 3.2 shall be made in writing on a form prescribed by and filed with
the Administrative Committee and shall be irrevocable by the Participant."
3. As amended hereby, the Plan is specifically ratified and reaffirmed.
EXECUTED this 1st day of November, 1998.
EEX CORPORATION
By /s/ T. M Hamilton
----------------------------------------
T. M Hamilton
Chairman, President and Chief Executive
Officer
<PAGE>
EXHIBIT 10.12
SECOND AMENDMENT TO
EEX CORPORATION
DEFERRED COMPENSATION PLAN
WHEREAS, EEX CORPORATION (the "Corporation")has heretofore adopted and
currently maintains the EEX CORPORATION DEFERRED COMPENSATION PLAN, as amended
(the "Plan"), for the benefit of its eligible employees; and
WHEREAS, the Corporation desires to amend the Plan;
NOW, THEREFORE, the Plan shall be amended as follows, effective as of
December 1, 1998:
1. Section 1.1(m) of the Plan shall be amended to read as follows:
(m) "Eligible Employee" means any management or highly compensated
employee of an Employer selected and notified by the Administrative
Committee, in its sole discretion, prior to the beginning of the Election
Period for each Plan Year. Notwithstanding any provision herein to the
contrary, an individual who has become an Eligible Employee shall cease
to be entitled to defer compensation hereunder effective as of any date
designated by the Administrative Committee. Any such Administrative
Committee action shall be communicated to the affected individual prior
to the effective date of such action.
2. As amended hereby, the Plan is specifically ratified and reaffirmed.
EXECUTED this 8th day of December, 1998.
EEX CORPORATION
By: /s/ Thomas M Hamilton
--------------------------------------
Thomas M Hamilton
Chairman and President, Chief Executive
Officer
<PAGE>
EXHIBIT 10.14
ENSERCH EXPLORATION, INC.
DEFERRED COMPENSATION PLAN FOR DIRECTORS
THIS PLAN, made and executed at Dallas, Texas by Enserch Exploration, Inc.,
a Texas corporation (the "Company"), is being established primarily for the
purpose of providing members of the Enserch Exploration, Inc. Board of Directors
the ability to defer receipt of all or part of their compensation for an ensuing
calendar year.
I.
DEFINITIONS
Whenever used herein, the following terms shall have the meaning Set forth
below:
(a) "Account" means the separate memorandum account maintained by the
Company into which a Director's Annual Fee will be deposited if he or
she elects to participate in the Plan.
(b) "Adjustment Date" means the last day of each calendar quarter and such
other dates as the Administrative Committee in its discretion may
prescribe.
(c) "Administrative Committee" means a committee composed of at least
three individuals appointed by the Compensation Committee of the Board
of Directors of the Company to administer the adjustment of
participant accounts as provided herein, who shall serve in such
office until death, resignation or removal by the Compensation
Committee of the Board of Directors of the Company.
(d) "Annual Fee" means the retainer and meeting fees paid to a Director
for services rendered as a member of the Board of Directors of the
Company, including fees for services on a committee.
(e) "Board of Directors" means the Board of Directors of the Company
(f) "Competitive Business Entity" means any business, proprietorship,
partnership, or corporation engaged in business activities in the same
or similar markets in which the Company, its subsidiaries, and
affiliates operate or plan to operate.
(g) "Director" means a member of the Board of Directors.
(h) "Plan" means the Enserch Exploration, Inc. Deferred Compensation Plan
for Directors, as set forth in this instrument and as it may hereafter
be amended from time to time.
(i) "Parent" means ENSERCH Corporation, a Texas Corporation.
<PAGE>
(1) "Termination Date" means the date upon which a Director ceases to be a
member of the Board of Directors.
II.
PLAN DESCRIPTION
A Director may elect to defer receipt of all or a specified part of his or
her Annual Fee for each calendar year. The Company will maintain an Account for
each participant into which the deferred portion of earned Annual Fee payments
will be credited on the date the Director would otherwise be entitled to receive
such fee.
Each Director participating in the Plan may elect in the manner and at the
time prescribed by the Administrative Committee to have his or her Account
adjusted in one of the manners provided below:
(a) Sums credited to the Account will accrue interest from the date
they are credited at a rate equal to the prime rate of interest charged by
Citibank, N.A., of New York City as of the first business day following
each Adjustment Date. The accrued interest shall be credited to the Account
on each Adjustment Date, and shall be subject to subsequent interest
accruals.
(b) Sums credited to the Account will be adjusted as of each
Adjustment Date to reflect such gain, loss, and/or expenses incurred based
upon the experience of investments selected by the Director for the
investment of his or her Account and taking into account additional
deferrals credited to and any distributions made from such Account since
the last Adjustment Date. The Administrative Committee shall have sole and
absolute discretion with respect to the number and type of investment
choices made available for selection by Directors pursuant to this
subparagraph (b) and the method by which adjustments are made. The
designation of investment choices by the Administrative Committee shall be
for the sole purpose of adjusting Accounts and the Company shall be under
no obligation to invest or set aside any assets for the payment of benefits
hereunder; provided, however, that the Company may invest a portion of its
general assets in investments, including investments which are the same as
or similar to the investment choices designated by the Administrative
Committee and selected by Directors, but any such investment shall remain
part of the general assets of the Company and shall not be deemed or
construed to create a trust fund of any kind for or to grant a property
interest of any kind to any Director, beneficiary or estate. The
Administrative Committee shall notify the Directors of the investment
choices available and the procedures for making and changing investment
elections.
The amount payable from a participant's Account shall be determined based
upon the amount credited to such Account as of the Adjustment Date last
preceding the date of payment plus any deferrals
2
<PAGE>
credited to and less any distributions made from such Account since such
Adjustment Date. The amount of each payment made with respect to an Account and
any forfeiture amounts applied pursuant to Article X shall be deducted from the
balance credited to such Account at the time of payment or forfeiture.
The amount payable from a participant's Account, as determined in
accordance with the preceding paragraph, will be distributed to the participant,
in accordance with the participant's prior irrevocable election either (i) in
annual installments over a 10-year period or (ii) in a lump sum, with such
installments to begin or lump sum payment to be made, as soon as practicable
following the participant's Termination Date.
The Account of a participant who, subsequent to his or her Termination
Date, becomes a proprietor, officer, partner, employee, or otherwise affiliated
with a Competitive Business Entity may, if directed by the Board of Directors in
its sole discretion, be paid immediately in a lump sum, including accumulated
interest or as adjusted pursuant to subparagraph (b) above, to the participant.
Upon the death of a participant, the balance of the Account, together with
interest earned to date of payment or as adjusted pursuant to subparagraph (b)
above, shall be payable to such beneficiary or beneficiaries as the participant
shall have designated in writing to the Company (or to his or her estate if no
such beneficiary has been designated) in full as soon as practicable following
the date of his or her death.
III.
ELECTION TO BECOME A PARTICIPANT
A Director desiring to become a participant shall execute an "Election and
Agreement to Defer Director's Compensation" as described and set forth in the
attachment to this Plan, labeled Exhibit "A". This election shall be made in
advance of the performance of services during the calendar year for which an
election to participate in this Plan is being made and shall be irrevocable.
IV.
TERMINATION OF ELECTION
Participation in the Plan will be automatically terminated at the end of
each calendar year unless the participant executes an election for the following
year pursuant to Article III. All amounts credited to a participant's Account
shall remain in the Account to be distributed or forfeited in accordance with
the provisions of this Plan.
3
<PAGE>
V.
MAINTENANCE OF ACCOUNT
The Company shall maintain an Account on behalf of each participant in the
form and manner prescribed by acceptable accounting standards, and shall make a
report of same in writing within 90 days after the end of each year to each
participant.
VI.
UNFUNDED PLAN
This Plan shall be unfunded. Neither the Company nor the Board of Directors
shall be deemed to be a trustee of any amounts to be paid under this Plan. Said
amounts hereunder shall continue for all purposes to be a part of the general
funds of the Company, and no person other than the Company shall, by virtue of
the provisions of this Plan, have any interest in such funds. To the extent that
any person acquires a right to receive payments from the Company under this
Plan, such right shall be no greater than the right of any unsecured general
creditor of the Company. Any liability of the Company to any participant with
respect to a payment to be made under this Plan shall be based solely upon any
contractual obligations which may be created by or pursuant to this Plan; no
such obligation shall be deemed to be secured by any pledge or any encumbrance
on any property of the Company.
VII.
AMENDMENT AND TERMINATION OF PLAN
The Board of Directors may terminate this Plan at any time. A termination
of the Plan shall be effective at the end of the calendar year in which the
Directors vote to terminate the Plan. The Board of Directors may amend this
Plan at any time.
Any provision of this Plan to the contrary notwithstanding, no amendment to
or termination of this Plan shall reduce the amounts actually credited to a
participant's Account as of the date of such amendment or termination, or
further defer the dates for the payment of such amounts, without the consent of
the affected participant.
The preceding provisions of this Article to the contrary notwithstanding,
no action taken on or within two years following a Change of Control (as defined
below) to amend or terminate this Plan shall be effective unless written consent
thereto is obtained from a majority of the participants who were Directors
immediately prior to such Change of Control.
4
<PAGE>
VIII.
EFFECTIVE DATE AND DURATION
This Plan shall become effective on January 1, 1996. This Plan shall
remain in effect until it is terminated by the Board of Directors in accordance
with Article VII above.
IX.
GOVERNING LAW
This Plan and the rights of all persons under the Plan shall be construed
in accordance with and governed by the laws of the State of Texas.
X.
OPTION TO REQUEST IMMEDIATE PAYOUT
In lieu of any other benefits or payments to be made pursuant to this Plan,
each participant shall have the right at any time to elect a lump sum payment in
an amount equal to:
(a) the amount credited to the participant's Account, minus
(b) a forfeiture amount equal to 20% of (a) above, provided, however, that
if the election is made on or within two years following the date a Change of
Control occurs, such forfeiture amount shall be determined substituting 10% for
20%.
A "Change of Control" for purposes of this Plan means a change in control
of the Parent of a nature that would be required to be reported in response to
Item 1(a) of the Securities and Exchange Commission Form 8-K, as in effect on
the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934, as amended ("Exchange Act"), or would have been required to be so
reported but for the fact that such event had been "previously reported" as that
term is defined Rule 12b-2 of Regulation 12B under the Exchange Act; provided
that, without limitation, such a change in control shall be deemed to have
occurred if (I) any Person is or becomes the beneficial owner (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the
Parent representing 20% or more of the combined voting power of the Parent's
then outstanding securities ordinarily (apart from rights accruing under special
circumstances) having the right to vote at elections of directors ("Voting
Securities"), or (ii) individuals who constitute the board of directors of the
Parent on the date hereof (the "Incumbent Board") cease for any reason to
constitute at least a majority thereof, provided that any person becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Parent's shareholders, was approved by a vote of at least three-
quarters of the directors comprising the Incumbent Board (either by a specific
vote or by approval of the proxy statement of the Parent in which such person is
named as a nominee for director, without objection to such nomination) shall be,
for
5
<PAGE>
purposes of this clause (ii), considered as though such person were a member of
the Incumbent Board, or (iii) a recapitalization of the Parent occurs which
results in either a decrease by 33% or more in the aggregate percentage
ownership of Voting Securities held by Independent Shareholders (on a primary
basis or on a fully diluted basis after giving effect to the exercise of stock
options and warrants) or an increase in the aggregate percentage ownership of
Voting Securities held by non-Independent Shareholders (on a primary basis or on
a fully diluted basis after giving effect to the exercise of stock options and
warrants) to greater than 50%, or (iv) the Parent and its affiliates do not
collectively own voting securities of the Company representing sufficient votes
to elect a majority of the members of the Company's Board of Directors, or the
Company and its subsidiaries in the aggregate transfer substantially all of
their assets in one or more transactions to any one or more persons or entities
other than a direct or indirect subsidiary of the Company. For purposes of the
preceding sentence, the term "Person" shall mean and include any individual,
corporation, partnership, group, association or other "person", as such term is
used in Section 14(d) of the Exchange Act, other than the Parent, a subsidiary
of the Parent or any employee benefit plan(s) sponsored or maintained by the
Parent or any subsidiary thereof, and the term "Independent Shareholder" shall
mean any shareholder of the Parent except any employee(s) or director(s) of the
Parent or any employee benefit plan(s) sponsored or maintained by the Parent or
any subsidiary thereof.
A participant's election for an immediate payout pursuant to this Article
must be in the form of a written notice provided to the Administrative
Committee. The Administrative Committee shall notify the Company of the
election and the amount so determined shall be paid to the participant no later
than 15 days following receipt of notice by the Administrative Committee. Any
amount remaining credited to the participant's Account shall be forfeited at the
time payment is made.
IN WITNESS WHEREOF, this Plan has been executed on this 24th day of
October, 1995 to be effective as of January 1, 1996.
ENSERCH EXPLORATION, INC
By /s/ D. W. Biegler
-------------------------
Title: Chairman
6
<PAGE>
EXHIBIT "A"
ENSERCH EXPLORATION, INC.
DEFERRED COMPENSATION PLAN FOR DIRECTORS
ELECTION AND AGREEMENT TO DEFER DIRECTOR'S COMPENSATION
THIS AGREEMENT, made and entered into this _____ day of ___________, 19__,
by and between _________________ (hereinafter referred to as "Director") and
Enserch Exploration, Inc. (hereinafter referred to as "Enserch"), is for the
purpose of Director becoming a participant in the ENSERCH EXPLORATION, INC.
DEFERRED COMPENSATION PLAN FOR DIRECTORS (the "Plan").
NOW, THEREFORE, in consideration of the mutual promises herein contained,
and other valuable considerations, Director and Enserch agree as follows:
1. Director hereby elects to defer _________________(fill in "all" or a
specified dollar amount or percentage for deferral of less than all)
of his or her retainer and meeting fees payable for services as a
Director, including fees for service on a committee, and participate
to that extent in the Plan during the calendar year 19__. Director
also elects that the sums hereby deferred shall be paid to him or her
(check one)
[_] in annual installments over a 10-year period, or
[_] in a lump sum, all as provided in the Plan. (If neither box is
checked, payments shall be made on an installment basis.)
2. This election by Director shall be subject to the terms and conditions
of the Enserch Exploration, Inc. Deferred Compensation Plan for
Directors, which Plan is incorporated herein for all purposes as if
fully set out and made a part of the body of this Agreement. Director
agrees that this election to participate in the Plan will
automatically terminate at the end of the calendar year designated in
paragraph 1 above.
<PAGE>
______________________________________
(Name of Director)
ATTEST: ENSERCH EXPLORATION, INC.
______________________________ By____________________________________
Title:
<PAGE>
AMENDMENT NO. 1
TO THE
ENSERCH EXPLORATION, INC.
DEFERRED COMPENSATION PLAN FOR DIRECTORS
----------------------------------------
Pursuant to the provisions of Article VII thereof, the Enserch Exploration,
Inc. Deferred Compensation Plan for Directors (the "Plan") is hereby amended,
effective as of February 11, 1997, to add a new Article XI to the end thereof to
read as follows:
XI.
ACCELERATED DISTRIBUTION OF RECLASSIFIED AMOUNTS
In the event that the Internal Revenue Service formally assesses
a deficiency against a participant on the grounds that an amount
credited to the participant's Account hereunder (the "Reclassified
Amount" earlier than the time payment otherwise would be made to the
participant pursuant to this Plan, then the Company shall pay to such
participant and deduct from such Account the Reclassified Amount.
No payment or portion thereof made to a participant pursuant to this
Article shall be subject to forfeiture as provided in Article X hereof.
IN WITNESS WHEREOF, this Amendment has been executed this 11th day of
February, 1997.
ENSERCH EXPLORATION, INC.
By /s/ T. M Hamilton
------------------------------
Title: Chairman and President
<PAGE>
EXHIBIT 10.16
FORM OF
FIRST AMENDMENT TO CHANGE IN CONTROL AGREEMENT
This First Amendment to Change in Control Agreement (this "Amendment"),
dated July 27, 1998, is by and between EEX Corporation, a Texas corporation (the
"Company") as the successor to Enserch Exploration, Inc., and (the
"Executive").
RECITALS
A. The Company and the Executive are parties to that certain Change in
Control Agreement (the "Change in Control Agreement") dated .
B. The Company and the Executive now desire to make certain amendments to
the Change in Control Agreement.
NOW, THEREFORE, in consideration of the premises contained herein and for
other good and valuable consideration, the sufficiency of which is hereby
acknowledged, the Change in Control Agreement is hereby modified, adjusted and
amended 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 Change in Control
Agreement.
2. The following definition in Section 3(iii) of the Change in Control
Agreement is amended and restated in its entirety to read as follows:
1.11 "Good Reason" for the Executive to terminate his employment shall mean any
one or more of the following:
(a) an adverse change in the Executive's status or position(s) as
Chairman and President, Chief Executive Officer of the Company including,
without limitation, any adverse change in the Executive's status or
position as a result of a material diminution in his duties or
responsibilities, or a material change in the Executive's business location
or the assignment to the Executive of any duties or responsibilities which
are inconsistent with such status or position(s), or any removal of the
Executive from or any failure to reappoint or reelect the Executive to such
position(s) (except in connection with the termination of his employment
for Cause, Disability or Retirement or as a result of the Executive's death
or by the Executive other than for Good Reason); provided however, a
decision by the Board to separate the office of Chairman and President
shall not be considered an adverse change as set forth in this Section
1.11(a) as long as the Executive remains as the Chief Executive Officer of
the Company with duties and responsibilities customarily associated with
that office; or
<PAGE>
(b) a reduction by the Company in the Executives' Minimum Annual
Salary or in the number of vacation days to which the Executive is entitled
hereunder; or
(c) the undertaking of any action by the Company (including the
elimination of a plan without providing substitutes therefor or the
reduction of the Executive's awards thereunder) that would diminish or the
failure by the Company to take any action which would maintain the
aggregate projected value of the Executive's awards under the Company's
bonus or stock option or management incentive plans in which the Executive
participates; or
(d) the taking of any action by the Company that would diminish or
the failure by the Company to take any action which would maintain the
aggregate value of the benefits provided the Executive under the Company's
medical, health, dental, accident, disability, life insurance, stock
purchase or retirement plans in which the Executive participates or as
otherwise provided in this Agreement; or
(e) the taking of any action by the Company that would diminish or
the failure of the Company to take any action that would maintain
indemnification or insurance for officers' liability; or
(f) a failure by the Company to obtain from any Successor (as
hereinafter defined) the assent to this Agreement contemplated by Section
16.2 hereof.
3. The parties hereto hereby acknowledge and agree that, except as
specifically supplemented and amended, changed or modified hereby, the Change in
Control Agreement shall remain in full force and effect and in accordance with
its terms.
4. 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 CONFLICTS OF LAW RULES THEREOF.
5. This Amendment may be executed in two or more counterparts, and it
shall not be necessary that the signature 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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
2
<PAGE>
IN WITNESS HEREOF, the parties hereto have caused this Amendment to be executed
as of the date first written above.
EEX Corporation
By:
------------------------------------
Printed Name:
Title:
Executive
- ---------------------------------------
3
<PAGE>
EXHIBIT 10.18
FORM OF
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
This First Amendment to Employment Agreement (this "Amendment"), dated July
27, 1998, is by and between EEX Corporation, a Texas corporation (the "Company")
as the successor to Enserch Exploration, Inc., and (the
"Executive").
RECITALS
A. The Company and the Executive are parties to that certain Employment
Agreement (the "Employment Agreement") dated .
B. The Company and the Executive now desire to make certain amendments to
the Employment Agreement.
NOW, THEREFORE, in consideration of the premises contained herein and for
other good and valuable consideration, the sufficiency of which is hereby
acknowledged, the Employment Agreement is hereby modified, adjusted and amended
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 Employment
Agreement.
2. The following definition in Article 1.11 of the Employment Agreement is
amended and restated in its entirety to read as follows:
1.11 "Good Reason" for the Executive to terminate his employment shall mean any
one or more of the following:
(a) an adverse change in the Executive's status or position(s) as
Chairman and President, Chief Executive Officer of the Company including,
without limitation, any adverse change in the Executive's status or
position as a result of a material diminution in his duties or
responsibilities, or a material change in the Executive's business location
or the assignment to the Executive of any duties or responsibilities which
are inconsistent with such status or position(s), or any removal of the
Executive from or any failure to reappoint or reelect the Executive to such
position(s) (except in connection with the termination of his employment
for Cause, Disability or Retirement or as a result of the Executive's death
or by the Executive other than for Good Reason); provided however, a
decision by the Board to separate the office of Chairman and President
shall not be considered an adverse change as set forth in this Section
1.11(a) as long as the Executive remains as the Chief Executive Officer of
the Company with duties and responsibilities customarily associated with
that office; or
(b) a reduction by the Company in the Executives' Minimum Annual
Salary or in the number of vacation days to which the Executive is entitled
hereunder; or
<PAGE>
(c) the undertaking of any action by the Company (including the
elimination of a plan without providing substitutes therefor or the
reduction of the Executive's awards thereunder) that would diminish or the
failure by the Company to take any action which would maintain the
aggregate projected value of the Executive's awards under the Company's
bonus or stock option or management incentive plans in which the Executive
participates; or
(d) the taking of any action by the Company that would diminish or
the failure by the Company to take any action which would maintain the
aggregate value of the benefits provided the Executive under the Company's
medical, health, dental, accident, disability, life insurance, stock
purchase or retirement plans in which the Executive participates or as
otherwise provided in this Agreement; or
(e) the taking of any action by the Company that would diminish or
the failure of the Company to take any action that would maintain
indemnification or insurance for officers' liability; or
(f) a failure by the Company to obtain from any Successor (as
hereinafter defined) the assent to this Agreement contemplated by Section
16.2 hereof.
3. The parties hereto hereby acknowledge and agree that, except as
specifically supplemented and amended, changed or modified hereby, the
Employment Agreement shall remain in full force and effect and in accordance
with its terms.
4. 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 CONFLICTS OF LAW RULES THEREOF.
5. This Amendment may be executed in two or more counterparts, and it
shall not be necessary that the signature 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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
2
<PAGE>
IN WITNESS HEREOF, the parties hereto have caused this Amendment to be executed
as of the date first written above.
EEX Corporation
By:
------------------------------------
Printed Name:
Title:
Executive
- ----------------------------------------
3
<PAGE>
EXHIBIT 10.19
SECOND AMENDMENT TO EMPLOYMENT AGREEMENT
This Second Amendment to Employment Agreement (this "Amendment"), dated
July 27, 1998, is by and between EEX Corporation, a Texas corporation (the
"Company) as the successor to Enserch Exploration, Inc., and Thomas M Hamilton
(the "Executive").
RECITALS
A. The Company and the Executive are parties to that certain Employment
Agreement (the "Employment Agreement") dated January 13, 1997, as amended.
B. The Company and the Executive now desire to make certain further
amendments to the Employment Agreement.
NOW, THEREFORE, in consideration of the premises contained herein and for
other good and valuable consideration, the sufficiency of which is hereby
acknowledged, the Employment Agreement is hereby modified, adjusted and amended
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 Employment
Agreement.
2. Article 6.8 of the Employment Agreement is deleted in its entirety.
The following definitions in Articles 6.4 and 6.5 of the Employment Agreement
are amended and restated in their entirety to read as follows:
6.4 STOCK OPTIONS. On or promptly after the Effective Date, the Company shall
grant to the Executive an initial signing bonus award of Stock Options to
acquire 1,000,000 shares of the common stock of the Company with an
exercise price based on the average of the high and low prices on the date
of grant and granted as follows: An option for 500,000 of the shares will
be granted by the Compensation Committee pursuant to the Stock Incentive
Plan and shall be conditioned upon the execution by the Executive of a
stock option agreement substantially in the form as attached hereto as
Exhibit A, and an option with substantially identical terms for the
remaining 500,000 shares will be granted by the Board by special award and
shall be conditioned upon the execution by the Executive of a stock option
agreement substantially in the form as attached hereto as Exhibit B. The
exercise price per share under such option shall be the fair market value
of the stock as of the date of the grant of such option. The Options
granted to the Executive during the term of this Agreement beyond the
initial grant shall be Non-Qualified Stock Options and shall be pursuant
to, and conditioned upon the execution by the Executive of, stock option
agreements with terms and conditions consistent with those between the
Company's other senior executives and the Company. No Stock Options shall
be granted subsequent to termination of employment. The Company shall use
its best efforts to cause a registration statement on form S-8 (or
comparable successor form) covering all shares subject to Stock Options
1
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granted to the Executive to remain effective until sixty (60) days after
the later of exercise or termination of all Stock Options granted to the
Executive.
6.5 RESTRICTED STOCK BONUSES. On or promptly after the Effective Date, the
Company shall award to the Executive an initial Restricted Stock Bonus for
100,000 shares of performance-based restricted stock of the Company
pursuant to its Stock Incentive Plan and conditioned upon the execution by
the Executive of a Restricted Stock Agreement substantially in the form
attached hereto as Exhibit D.Subject to annual determinations at the
discretion of the Compensation Committee, the Company shall award annually
to the Executive Restricted Stock Bonuses for additional shares of
performance-based restricted stock of the Company with performance
requirements as determined by the Compensation Committee that may vary from
the initial award but that are consistent with performance requirements for
awards of performance-based restricted stock to other senior executives of
the Company. Such shares shall be restricted so that no share may be
transferred or alienated in any way (except through passage under will or
by the laws of descent and distribution upon the Executive's death) until
the shares are vested, at which time the restriction will lapse with
respect to the vested shares. Such awards shall be granted pursuant to,
and conditioned upon, execution by the Executive of restricted stock
agreements with terms and conditions consistent with those of other senior
executives of the Company. No Restricted Stock Bonuses shall be granted
subsequent to termination of employment. The Company shall use its best
efforts to cause a registration statement on form S-8 (or comparable
successor form) covering all shares of restricted stock granted to the
Executive as Restricted Stock Bonuses to remain effective until sixty (60)
days after the lapse of all restrictions on the shares of restricted stock
granted to the Executive as Restricted Stock Bonuses.
3. The parties hereto hereby acknowledge and agree that, except as
specifically supplemented and amended, changed or modified hereby, the
Employment Agreement shall remain in full force and effect and in accordance
with its terms.
4. 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 CONFLICTS OF LAW RULES THEREOF.
5. This Amendment may be executed in two or more counterparts, and it
shall not be necessary that the signature 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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS HEREOF, the parties hereto have caused this Amendment to be executed
as of the date first written above.
EEX CORPORATION
By:
------------------------------------
Printed Name:
Title:
THOMAS M HAMILTON
- ----------------------------------------
3
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EXHIBIT 10.20
FORM OF
FIRST AMENDMENT TO RESTRICTED STOCK AGREEMENT
This First Amendment to Restricted Stock Agreement (this "Amendment"),
dated July 27, 1998, is by and between EEX Corporation, a Texas corporation (the
"Company") as the successor to Enserch Exploration, Inc., and (the
"Executive").
RECITALS
A. The Company and the Executive are parties to that certain Restricted
Stock Agreement (the "Restricted Stock Agreement") dated .
B. The Company and the Executive now desire to make certain amendments to
the Restricted Stock Agreement.
NOW, THEREFORE, in consideration of the premises contained herein and for
other good and valuable consideration, the sufficiency of which is hereby
acknowledged, the Restricted Stock Agreement is hereby modified, adjusted and
amended 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 Restricted Stock
Agreement.
2. The following provisions of the Restricted Stock Agreement are amended
and restated in their entirety to read as follows:
(i) Performance Term: Three fiscal years ending December 31, 2000.
(ii) Performance Definition: Finding and Development Costs compared to
the Finding and Development Costs for the calendar year period 1994 through
1996 per barrel of oil equivalent as reported by John S. Herold, Inc., or
$9.88, for Enserch Exploration, Inc. (the "Benchmark Amount"). Finding and
Development Costs for purposes of comparison to the Benchmark Amount shall
be the per barrel of oil equivalent value for any calendar year during the
Performance Term as reported by John S. Herold, Inc.
(iii) Performance Level: All shares are earned if at the end of the
Performance Term the Company's Finding and Development Costs during any one
calendar year during the Performance Term as reported by John S. Herold,
Inc. are more favorable to the Company than the Benchmark Amount.
3. The parties hereto hereby acknowledge and agree that, except as
specifically supplemented and amended, changed or modified hereby, the
Restricted Stock Agreement shall remain in full force and effect and in
accordance with its terms.
4. THIS AMENDMENT (INCLUDING, BUT NOT LIMITED TO, THE VALIDITY AND
ENFORCEABILITY HEREOF) SHALL BE GOVERNED BY, AND
<PAGE>
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS, OTHER THAN THE
CONFLICTS OF LAW RULES THEREOF.
5. This Amendment may be executed in two or more counterparts, and it
shall not be necessary that the signature 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.
IN WITNESS HEREOF, the parties hereto have caused this Amendment to be executed
as of the date first written above.
EEX Corporation
By:
----------------------------------------
Printed Name:
Title:
Executive
- --------------------------------------------
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<PAGE>
EXHIBIT 10.21
FLOATING DRILLING RIG REQUIREMENT
OFFSHORE DRILLING CONTRACT
THIS CONTRACT CONTAINS PROVISIONS RELATIVE TO INDEMNITY, RELEASE OF LIABILITY
AND ALLOCATION OF RISK
This Contract is made and entered into this 15th day of October, 1998, between
EEX CORPORATION, a Texas corporation (hereinafter "COMPANY"), and GLOBAL MARINE
DRILLING COMPANY, a California corporation (hereinafter "CONTRACTOR").
RECITALS:
WHEREAS, COMPANY is authorized to carry out and conduct offshore petroleum
exploration and development operations in Federal Waters known as the Gulf of
Mexico (hereinafter the "Area of Operations"), in the territorial area of THE
UNITED STATES OF AMERICA (hereinafter "Country of Operations");
WHEREAS, COMPANY desires to have exploratory and/or appraisal wells drilled,
tested and completed, or plugged and abandoned, as specified by COMPANY, in the
Area of Operations, as set forth hereinafter;
WHEREAS, CONTRACTOR is engaged in the business of drilling, sidetracking,
testing and completing, working over, deepening, and plugging and abandoning
offshore wells; and
WHEREAS, CONTRACTOR represents that, subject to Section 7.6 of this Agreement,
it has or will have adequate resources and equipment in good working order and
fully trained personnel capable of efficiently operating such equipment and is
ready, willing and able to drill the said wells and carry out auxiliary
operations and services for COMPANY (hereinafter the "Work") and to furnish for
this purpose the floating drilling unit "GLOMAR ARCTIC I" complete with the
necessary drilling and other equipment as specified in Appendices hereto
(hereinafter "the Rig") and personnel;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter provided, the Parties hereby mutually agree as follows:
ARTICLE 1 - DEFINITIONS
SECTION 1.1 - COMMENCEMENT DATE.
"Commencement Date" means the point in time that the Rig has been released by
the prior operator and is afloat and under tight tow to COMPANY's first drilling
location under this Contract. Time is of the essence of this Contract.
SECTION 1.2 - CONTRACT PERIOD.
"Contract Period" means the total period of time during which the Work is
carried on pursuant to this Contract, starting with the Commencement Date and
continuing to the Termination Date. The Contract Period shall be extended for
the completion of a well in progress. A "well in progress" shall be construed
to include the sidetracking or re-spud of a well, lost due to mechanical,
geologic or other difficulties, to the original geologic target. The Contract
<PAGE>
Period shall also be extended in accordance with Section 2.3 (Option Periods)
and Section 2.2.4 (Excessive Downtime) and any periods of time necessary to
demobilize the Rig in accordance with Section 4.2 and offload the property and
equipment of COMPANY and its other subcontractors.
SECTION 1.3 - TERMINATION DATE.
"Termination Date" means thirty-six (36) months from the Commencement Date.
SECTION 1.4 - OPTION PERIOD.
"Option Period" means that period of time that COMPANY shall have the option
to include in the Contract Period, as provided in Section 2.3.
ARTICLE II - OBJECT, DURATION, TERMINATION
SECTION 2.1 - OBJECT.
CONTRACTOR shall conduct Work as COMPANY shall require at locations designated
by COMPANY in the Area of Operations. CONTRACTOR shall not, under any
circumstances, be required to anchor the Rig or carry out operations hereunder
at any location considered by CONTRACTOR's insurance carrier to be unsafe. At
COMPANY's request, CONTRACTOR shall also perform or permit to be performed from
the Rig activities such as, but not limited to, soil survey boring and
environmental data collection.
SECTION 2.2 - DURATION AND TERMINATION.
The term of this Contract shall be for the duration of the Contract Period,
provided that:
2.2.1 COMPANY may, at its option, terminate this Contract without obligation
or liability at 00:01 hours on September 15, 1999, if the Commencement Date has
not occurred prior to such hour and date through no fault, delay or neglect of
COMPANY, or at such earlier time when the Parties agree that the Rig will be
unable to arrive on or before such hour and date. If this Contract is
terminated pursuant to this Section 2.2.1, then CONTRACTOR shall not be entitled
to any payments whatsoever from COMPANY.
2.2.2 In the event the Rig becomes a total loss or constructive total loss
(i.e., the cost of repair exceeds the insured value of the Rig) as determined by
CONTRACTOR's underwriters and marine surveyors, this Contract shall terminate
without notice and no further amounts shall be payable to CONTRACTOR except for
rates, fees and expenses already earned or incurred. CONTRACTOR shall be
responsible, at its expense, for the removal of the Rig and its equipment and
any related debris in the event of such loss if such removal is required by law,
applicable governmental authority or if the Rig or the debris interferes with
COMPANY's continuing operations.
2.2.3 COMPANY shall have the right to terminate this Contract upon written
notice in the event that performance of drilling operations is delayed or
prevented for reasons of Force Majeure (as defined in Section 11.2 below), for a
period of sixty (60) consecutive days.
2.2.4 In the event Work cannot be performed because of, or in connection
with, repairs or modifications to the Rig or associated CONTRACTOR-furnished
equipment that exceed or are expected to exceed ninety (90) days, COMPANY, at
its option, may elect either to: (1) terminate this Agreement upon seven (7)
days written notice, or (2) extend the Contract Period by a day for each day the
Work cannot be performed due to such event, COMPANY's
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option to extend the Contract Period shall be given in writing within ten (10)
days after the Rig has recommenced Work under the Agreement, or (3) replace the
Rig with another rig proposed by the CONTRACTOR and accepted by COMPANY. In the
event CONTRACTOR and COMPANY agree to commence mobilization of another drilling
unit capable of conducting the Work of comparable or better specifications and
equipment to COMPANY's location under the terms and conditions of this Contract
within such ninety (90) days then COMPANY's right to terminate shall be without
effect.
2.2.5 N/A
2.2.6 If at any time CONTRACTOR, CONTRACTOR's Personnel, as hereinafter
defined, or the Rig should prove to be consistently poor in performance of the
Work, or if CONTRACTOR fails to fulfill any of its material obligations
hereunder, or if the Rig is not as represented in Appendix A, COMPANY shall
notify CONTRACTOR in writing and specify in detail the deficiencies. Should
CONTRACTOR fail to commence to remedy the deficiencies complained of to the
satisfaction of COMPANY within seven (7) days after such notice is given to
CONTRACTOR, then COMPANY shall have the right to direct CONTRACTOR to cease
operations for up to ten (10) days at one-half of the amount identified for the
Equipment Breakdown Rate while the deficiency is being remedied. If after ten
(10) days COMPANY is not satisfied with the remedial measures taken by
CONTRACTOR, COMPANY may continue to direct CONTRACTOR to cease operations at the
rate of one-fourth of the amount identified for the Equipment Breakdown Rate
until the deficiency is remedied.
2.2.7 In the event COMPANY elects to terminate this Contract under the
provisions of this Article 2, COMPANY will not be liable for payment of any
daily rates under this Contract with respect to any period following the
effective date of such termination, without prejudice to COMPANY's obligation to
pay rates, fees and expenses earned and incurred, including but not limited to
demobilization of the Rig. A decision by COMPANY to terminate this Contract
shall not relieve CONTRACTOR of its obligations to take such action to protect
the well on which CONTRACTOR is then at work, as COMPANY may prescribe. A
decision by COMPANY not to terminate this Contract shall not of itself be taken
as evidence that COMPANY is satisfied with CONTRACTOR's performance nor shall it
be taken as a waiver or release by COMPANY of any of CONTRACTOR's obligations
hereunder. In the event of termination, termination shall be COMPANY's sole and
exclusive remedy for CONTRACTOR's breach hereunder or deficient performance.
2.2.8 Should COMPANY fail to pay CONTRACTOR the undisputed portions of
statements under the provisions of this Contract, CONTRACTOR may terminate this
Contract by providing COMPANY, subsequent to the date on which such sums of
money were due, fifteen (15) days advance written notice of its intention to
terminate this Contract. In the event COMPANY makes payment of the uncontested
portion of the statements within the fifteen (15) day period after receipt of
notice from CONTRACTOR, this Contract shall not terminate but shall remain in
full force and effect. In the event of termination under this Section 2.2.8,
CONTRACTOR shall perform such operations as may be required by COMPANY to
prepare the well being drilled hereunder for departure of the Rig.
Page 3 of 26
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SECTION 2.3 - OPTION PERIOD(S).
COMPANY shall have the right to extend the Contract Period by two successive
one-year periods by giving one-hundred eighty (180) days prior written notice to
CONTRACTOR. The rates applicable during such Option Periods shall be by mutual
agreement, however, such rates shall be negotiated in good faith. The time
period to reach such mutual agreement shall be ten (10) business days from
CONTRACTOR's receipt of COMPANY's notice. In the event agreement is not reached
within such period, COMPANY's notice and right to extend the Contract Period
shall be null and void and without further effect.
ARTICLE 3. - COMPENSATION, INVOICES AND PAYMENT
SECTION 3.1 - COMPANY'S PAYMENT OBLIGATION.
COMPANY shall pay to CONTRACTOR during the Contract Period the amounts due
from time to time in accordance with this Article 3 and all other terms and
conditions hereof.
SECTION 3.2 - RATES OF PAYMENT.
3.2.1 OPERATING RATE. The Operating Rate specified in Appendix G shall be
payable during the Contract Period unless another rate specified herein is
applicable.
3.2.1.1 OPTION RATE. During the Option Period, the daily rates shall be as
agreed in accordance with Section 2.3.
3.2.2 STANDBY RATE. The Standby Rate specified in Appendix G shall be
payable: (1) if during Rig moves including (a) during the period from the
Commencement Date until the Rig arrives at COMPANY's first well location, all
anchors have been run and the Rig is ready to commence operations, and (b)
during periods when the Rig is moving between COMPANY's well locations and/or
the demobilization site (from the moment operations are commenced to retrieve
the first anchor at a drilling location, during the tow of the Rig, and until
the Rig is properly positioned at OPERATOR's next drilling location, or the
demobilization site as applicable, all anchors have been run and the Rig is
ready to commence operations), and (c) at the end of the Contract Period and if
the CONTRACTOR has immediate follow-on work with another operator, the period
from the moment operations are commenced to retrieve the first anchor at the
last drilling location until the Rig is under tight tow; or (2) during periods
of evacuation; or (3) during periods when operations are suspended due to
adverse sea or weather conditions.
3.2.3 EQUIPMENT BREAKDOWN RATE. The Equipment Breakdown Rate specified in
Appendix G shall be applicable during periods which operations are suspended
because of breakdown, maintenance or repair of CONTRACTOR's Rig or equipment, as
distinguished from, but not limited to, routine inspection, lubrication, change
of pump liners/swabs, repacking swivel or slipping of drilling line, (an
"Incident") as follows:
(a) Subsea Equipment - With respect to CONTRACTOR's Equipment used below
the diverter housing in the cellar deck area of the Rig (other than such
equipment used in the well bore), including but not limited to the BOP stack,
riser, telescopic joint, wellhead connector, guidelines, and umbilicals ("Subsea
Equipment"), in the event of an
Page 4 of 26
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Incident, CONTRACTOR shall have a maximum of forty-eight (48) hours at the
Equipment Breakdown Rate per Incident to restore operations.
(b) Surface Equipment - With respect to CONTRACTOR's Equipment other than
Subsea Equipment, in the event of an Incident, CONTRACTOR shall have a maximum
of twelve (12) hours at the Equipment Breakdown Rate to restore operations. The
total time at the Equipment Breakdown Rate for all Incidents under this Section
3.2.3(b) shall not exceed twenty-four (24) hours per calendar month. To the
extent the Rig is inoperable for any Incident in excess of the periods provided
above, the Equipment Breakdown Rate shall be zero (0) until the Rig is again
operable.
3.2.3.1 PARTIAL EQUIPMENT BREAKDOWN RATE. The Partial Equipment Breakdown
Rate shall be payable per day or pro rata for any part of a day during which an
event or condition has occurred that would otherwise be at the Equipment
Breakdown Rate of zero, but the parties agree that reduced portions of Work may
be conducted. The Partial Equipment Breakdown Rate shall be as mutually agreed
at the time the reduced Work scope is agreed.
3.2.4 FORCE MAJEURE RATE. The Force Majeure Rate specified in Appendix G shall
apply to the extent any of the conditions described in Article 11 apply for a
period in excess of twenty-four (24) hours.
SECTION 3.3 - LIVING ACCOMMODATIONS.
The rates set forth in Sections 3.2.1, 3.2.2, 3.2.3 and 3.2.4 above shall
include the cost of providing living accommodations and meals for up to eight
(8) persons per day designated by COMPANY who shall be COMPANY or third party
service contractor personnel. CONTRACTOR shall also provide living
accommodations and food for additional personnel designated by COMPANY for which
COMPANY shall reimburse at the rate of U.S. $14.00 per meal and U.S. $8.00 per
bed per day.
SECTION 3.4 - CALCULATION AND FINALITY OF RATES.
The Rates quoted in Appendix G shall be calculated to the nearest half-hour,
and be payable per day or pro rata for any part of a day. There shall be no
rate increases during the Contract Period except as provided in Appendix G and
as provided herein. The rates and payment herein set forth shall be revised by
the actual amount of the change in CONTRACTOR's cost if the cost of any of the
following items shall increase or decrease above CONTRACTOR'S cost thereof on
the date first entered above:
(a) labor costs, including all payroll burden and benefits paid by CONTRACTOR
for its employees, as specified in Appendix B;
(b) insurance premiums for like kind policy provisions, in the event such
increase or decrease exceeds five (5%) percent; and
(c) catering costs, in the event such increase or decrease exceeds five (5%)
percent; and
(d) if there is any change in legislation, rules or regulations, including
classification society rules, promulgated as of the date first entered above,
applicable in the Area of Operations which alters CONTRACTOR's financial burden
by more than five (5%) percent.
In calculating the increase or decrease in rates contemplated in Sections
3.4(b), (c) and (d), COMPANY shall only be charged for the incremental increase
or decrease represented by the difference between CONTRACTOR's
Page 5 of 26
<PAGE>
increased or decreased cost as a percentage and 5%. However, no revision in
rates shall be made before the first anniversary of the date first entered above
and thereafter no revision will be made in less than one year following the
previous revision for items (a), (b) and (c) above.
SECTION 3.5 - COSTS ASSOCIATED WITH SHELTERED INSPECTIONS/REPAIRS.
In the event the Rig is taken into shelter or harbor for inspection, repair,
maintenance, structural modifications or repairs of structural defects, the
related repair costs, harbor expenses and transportation costs (including, but
not limited to, harbor tugs, anchor handling, tow in and out and fuel costs)
will be for CONTRACTOR's account. In addition, if the repairs and/or inspection
occurs during the drilling of a well, CONTRACTOR shall be responsible for all
costs associated with anchor handling and bolstering. However, in the event
COMPANY's boats are available for these operations, including to tow the Rig in
and/or out, then COMPANY shall offer to provide such boats at its cost and
CONTRACTOR shall reimburse COMPANY for the associated boat and fuel costs.
SECTION 3.6 - ADDITIONAL INSPECTIONS REQUESTED BY COMPANY.
The provisions of Section 3.5 hereof shall not be applicable with respect
to additional or incidental inspections requested by COMPANY that are not
required under the provisions of this Contract. During any such inspection, the
Standby Rate shall be applicable.
SECTION 3.7 - ADDITIONAL PAYMENTS
COMPANY shall, in addition, pay to CONTRACTOR:
(a) the cost of any overtime paid by CONTRACTOR to CONTRACTOR's Personnel
in respect of the maintenance or repair on board the Rig of COMPANY's Items or
other overtime required by the COMPANY;
(b) CONTRACTOR's costs associated with waiting on COMPANY furnished
transportation or for time in excess of two hours in transit to or from the Rig,
or as a direct result of an act or instruction of COMPANY;
(c) CONTRACTOR's costs associated with evacuations and accommodations of
personnel caused by adverse sea or weather or other hazardous conditions; and
(d) CONTRACTOR's costs associated with moving CONTRACTOR's Equipment and
Personnel, and their personal effects, if CONTRACTOR is required by COMPANY to
change its operating base.
SECTION 3.8 - INVOICES.
CONTRACTOR shall invoice COMPANY in U.S. Dollars on or before the tenth day of
each calendar month in respect of reimbursable expenses incurred, items
provided, operations carried out and services rendered during the previous
month. CONTRACTOR's partners, counterparts, subcontractors or principals may
not invoice COMPANY with regard to this Contract. All invoices shall be sent to
COMPANY at its business address in Houston, Texas as set forth in Section 17.2
and shall be accompanied by time sheets showing the applicable rates and by all
third party invoices and other supporting documentation of costs incurred by
CONTRACTOR and chargeable to COMPANY. CONTRACTOR will indicate the contract
number assigned to this Contract on the face of the invoice and specify the
applicable terms/Article. CONTRACTOR will use its best endeavors to submit
invoices on a timely and regular basis. Copies of all time sheets, third party
invoices and other documentation supporting CONTRACTOR's invoices shall be
retained by CONTRACTOR for a period of two years following the termination of
this Contract.
Page 6 of 26
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SECTION 3.9 - TIME AND MANNER OF PAYMENT; DISPUTES.
3.9.1 COMPANY shall pay, or cause to be paid, CONTRACTOR's invoices in U.S.
Dollars by wire transfer within thirty (30) days after receipt thereof, to the
address provided below:
First Union Bank of North Carolina
Charlotte, North Carolina
ABA #053000219
For Credit to: Global Marine Drilling Company
Account No. 2000000372037
Such payment shall not prejudice COMPANY's right to dispute any part of an
invoice at a later date.
3.9.2 In the event COMPANY disputes an item billed, COMPANY shall, within 30
days after receipt of CONTRACTOR's invoice, notify CONTRACTOR of the item in
dispute, specifying COMPANY's complaint, and payment of that item shall be
withheld by COMPANY until resolution of the dispute. The undisputed amount,
however, shall be paid without delay. Any sums (including amounts ultimately
paid with respect to a disputed invoice) not paid within thirty days after
receipt of invoice shall bear interest at thirteen (13%) percent per annum or
the maximum allowed by law, whichever is less, from said due date until paid.
If this Contract is placed in the hands of an attorney for collection of any
sums due hereunder, or suit is brought on same or sums due hereunder are
collected through bankruptcy or arbitration proceedings, then the prevailing
Party shall be entitled to recover reasonable attorney's fees and costs.
ARTICLE 4 - MOBILIZATION, DEMOBILIZATION AND RIG MOVES
SECTION 4.1 - MOBILIZATION.
COMPANY shall be responsible for and bear for its own account the cost of
mobilizing the Rig and CONTRACTOR's Personnel, as hereinafter defined, to
COMPANY's first designated drilling location in the Area of Operations including
all costs, expenses and fees incurred in towing the Rig from its previous
location to COMPANY's first drilling location, including, but not limited to,
all port, harbor and canal charges, if applicable.
SECTION 4.2 - DEMOBILIZATION.
At the end of the Contract Period, in the event CONTRACTOR has immediate
ongoing work with another operator, CONTRACTOR shall provide for and bear for
its own account the cost of demobilizing the Rig and CONTRACTOR's Personnel, as
hereinafter defined, from COMPANY's last drilling location in the Area of
Operations after COMPANY has released the Rig, the Rig's anchors have been
retrieved and bolstered and the Rig is ready to tow. CONTRACTOR shall bear and
pay for all costs, expenses and fees incurred in towing the Rig from COMPANY's
last drilling location including, but not limited to, all port, harbor and canal
charges, if applicable. In the event no such work has been contracted, COMPANY
shall be responsible for and bear for its own account the cost of demobilizing
the Rig and CONTRACTOR's Personnel to a mutually agreed stack location (but not
further than the distance to the Port of Galveston) including all costs,
expenses and fees incurred in towing the Rig from COMPANY's last well location,
including, but not limited to, initial port, harbor and canal charges, if
applicable. Once the Rig is located at the
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stack location, all costs, expenses and fees associated with port, harbor and
canal charges become the responsibility of the CONTRACTOR.
SECTION 4.3 - RIG MOVES.
COMPANY shall provide for and bear the costs of moving the Rig from one
location within the Area of Operations to another, including the costs of tow
vessels and fuel. With respect to any such Rig move, the Standby Rate provided
herein shall be paid to CONTRACTOR in accordance with Section 3.2.2.
ARTICLE 5 - EQUIPMENT AND PERSONNEL
SECTION 5.1 - EQUIPMENT, ETC. PROVIDED BY CONTRACTOR.
5.1.1 CONTRACTOR shall: a) furnish the Rig and equipment specified in
Appendix A; b) furnish the spare parts, supplies and services shown as to be
provided by it in Appendix C; and c) carry out all required operations; all of
the foregoing being subject to the provisions of this Contract. Replenishment
of CONTRACTOR-supplied items will be arranged by CONTRACTOR at its expense
(without prejudice to COMPANY's obligation to transport such items from the
shorebase to the Rig), and CONTRACTOR shall be responsible for maintaining
adequate stock levels at all times. CONTRACTOR's Rig and equipment shall be in
such condition as to be suitable and serviceable for performance in accordance
with the terms and conditions of this Contract. COMPANY shall have the
continuing right, at its option and without relieving CONTRACTOR of its duty of
inspection, to inspect and reject for reasonable cause any items furnished by
CONTRACTOR, and CONTRACTOR shall be obligated to replace or repair the rejected
item.
5.1.2 Each Party hereto shall also provide at its expense any items of
equipment, spare parts, supplies, services or personnel that are not mentioned
in Appendices A, B or C, but that are required for the operation and maintenance
of its equipment, including the Rig as applicable, for normal offshore
drilling operations, according to good oil field practice.
SECTION 5.2 - PERSONNEL AND ADDITIONAL LABOR.
5.2.1 CONTRACTOR shall provide competent, qualified drilling crews (herein
"CONTRACTOR's Personnel") assigned to operations hereunder, as specified in
Appendix B. CONTRACTOR shall be responsible for the recruitment, training,
administration, accommodation, and health of its personnel. CONTRACTOR's
Personnel shall be able to speak in the English language, and all reports,
records and communications shall be made and kept in the English language. If
at any time CONTRACTOR fails to keep on the job a full complement of
CONTRACTOR's Personnel as provided in this Contract, the compensation due and
payable under this Contract shall be reduced by the amount that is specified in
Appendix B, notwithstanding any other available remedy. CONTRACTOR agrees to
provide prior written notice to COMPANY of any planned personnel transfers from
the Rig concerning positions inclusive of derrickman and above.
5.2.2 In the event COMPANY requests CONTRACTOR labor in addition to that
called for under this Contract, COMPANY agrees to pay CONTRACTOR's costs as
specified in Appendix B. Any additional personnel employed by CONTRACTOR
pursuant to this Section 5.2.2 shall be considered CONTRACTOR's Personnel for
the purposes of this Contract.
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SECTION 5.3 - PERSONNEL BENEFITS; MEDICAL CARE AND EVACUATION.
CONTRACTOR shall be responsible for all direct or indirect costs concerning
its personnel, and for providing all health and welfare requirements of
CONTRACTOR's Personnel including without limitation housing, food, medical
attention and other benefits, including those required by the social legislation
or regulation of any country having jurisdiction over the Rig, the Work, COMPANY
or CONTRACTOR. CONTRACTOR shall bear all costs and expenses of, and shall be
responsible for providing and arranging for, all medical care for CONTRACTOR's
Personnel. COMPANY shall provide at its cost, arrangements for the medical
evacuation of COMPANY's and CONTRACTOR's Personnel.
SECTION 5.4 - REPLACEMENT OF CONTRACTOR'S PERSONNEL.
Upon written request of COMPANY, stating the reason therefore, CONTRACTOR
shall replace any member of CONTRACTOR's Personnel who COMPANY's representative
believes is unsatisfactory. Such replacement shall be effected in the shortest
time reasonably possible and shall be at CONTRACTOR's sole expense.
SECTION 5.5 - PERSONNEL, EQUIPMENT, PARTS AND SERVICES TO BE SUPPLIED BY
COMPANY.
COMPANY shall timely provide the equipment, supplies, services and personnel
and carry out all operations shown to be provided by it in Appendix C, subject
to the provisions of this Contract. Replenishment of COMPANY supplied items
will be COMPANY's responsibility at COMPANY's expense.
SECTION 5.6 - EXAMINATION OF MATERIALS, EQUIPMENT, AND SUPPLIES.
Without prejudice to Section 9.9, CONTRACTOR agrees to examine before using
all materials, equipment and supplies furnished by COMPANY, and promptly report
to COMPANY any visual defects contained therein, to allow COMPANY to replace
same without delaying operations. CONTRACTOR shall not be responsible for
discerning latent defects in COMPANY's materials, equipment and supplies at any
time.
SECTION 5.7 - MAINTENANCE OF COMPANY'S EQUIPMENT.
CONTRACTOR shall, within normal maintenance programs and with services and
equipment available on the Rig, maintain COMPANY's equipment in good condition
and repair. Without prejudice to the provisions of Article 9, upon completion
of the operations hereunder COMPANY's equipment shall be returned to COMPANY in
as good a condition as when received by CONTRACTOR, ordinary wear and tear
excepted.
SECTION 5.8 - ADDITIONAL EQUIPMENT.
Should special tools, materials, apparatus or services, other than those
designated in the Contract or required for normal offshore operations, be
necessary for the drilling or completion of the well(s) or performance of other
operations hereunder, COMPANY and CONTRACTOR shall agree upon the cost and the
manner in which they are to be furnished beforehand in writing.
SECTION 5.9 - SUBCONTRACTORS.
CONTRACTOR shall have no authority hereunder to hire or engage others to
perform all or part of the Work without prior written permission from COMPANY.
Use of subcontractors by CONTRACTOR shall not relieve CONTRACTOR from any
liability or obligation under this Contract and all subcontracts shall clearly
stipulate that CONTRACTOR is the principal and not the agent of COMPANY.
Subject to the provisions of Section 9.11 below,
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anything provided herein in respect of CONTRACTOR's Work to be performed, the
Rig, equipment and CONTRACTOR's Personnel will likewise apply to any such
subcontractor's work to be performed, its property and personnel, as if such
property and personnel were the property and personnel of CONTRACTOR.
SECTION 5.10 - AUTHORITY TO BIND COMPANY.
CONTRACTOR shall not have authority to incur any debt, liability or obligation
on behalf of COMPANY without the prior written permission of COMPANY.
ARTICLE 6 - STANDARD OF PERFORMANCE
SECTION 6.1 - PERFORMANCE AND INSPECTION OF CONTRACTOR'S DRILLING RIG.
6.1.1 COMPANY shall have the right before the Commencement Date to observe
the Rig or any part thereof, and inspect the repair and maintenance records of
the Rig; provided, however, such right shall not in any way relieve CONTRACTOR
of its own obligations, including without limitation the obligation to inspect
and maintain the Rig and related equipment in efficient operating condition.
After the Commencement Date, COMPANY may conduct any inspections or acceptance
testing it desires at the Standby Rate. In the event there is then revealed a
defect in the Rig or its equipment which prevents the conduct of the Work upon
arrival at the COMPANY's first well location, the time spent to repair such
defects shall, notwithstanding Section 3.2.3, shall be at the Equipment
Breakdown Rate of zero (0), unless the provisions of Section 3.2.3.1 apply.
6.1.2 CONTRACTOR agrees that the Rig and related equipment shall be in a
condition to permit its continuous and efficient operation during the Contract
Period. CONTRACTOR shall bear any cost incurred in placing the Rig in a
condition to function continuously and efficiently during the entire Contract
Period. CONTRACTOR agrees to ensure that the Rig and all equipment and materials
furnished by CONTRACTOR are adequately maintained and in such condition as to
permit their continuous and efficient operation. CONTRACTOR agrees to carry out
visual inspection on, and to test or make available to COMPANY to test, at
COMPANY's cost at the Standby Rate, any of CONTRACTOR's equipment in the manner
prescribed by COMPANY, including without limitation the rig equipment checklist
in Appendix D.
6.1.3 CONTRACTOR agrees that the Rig with its equipment will be capable of
being moved for all moves contemplated under this Contract and of operating in
the Area of Operations, subject to approval of each well location by
CONTRACTOR's underwriters and surveyors. In the event that CONTRACTOR has sound
reasons to expect that the specific conditions at a certain location do not
permit safe operations, CONTRACTOR shall so notify COMPANY.
SECTION 6.2 - PERFORMANCE OF CONTRACTOR AND ITS PERSONNEL.
CONTRACTOR shall carry out operations hereunder with due diligence and in a
safe, thorough and workmanlike manner according to good oil field practice.
CONTRACTOR shall ensure that the Rig will be adequately manned with competent
personnel, as listed in Appendix B, and that the Rig will be maintained in a
state in which it can perform efficiently and continuously in accordance with
good oil field practice and at the manufacturer's rated capacity. The Work
shall be conducted 24 hours per day, seven days per week in accordance with
directions issued by
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COMPANY. Except as otherwise provided in this Contract, CONTRACTOR shall bear
any cost incurred in placing the Rig into a condition to function continuously
and efficiently.
SECTION 6.3 - INSPECTION OF DOWN-HOLE EQUIPMENT.
6.3.1 CONTRACTOR agrees that all drill pipe, drill collars and subs, bottom
hole assemblies and other downhole equipment regularly in use and constituting
CONTRACTOR's Equipment under this Contract (hereinafter the "Drill String")
shall be inspected to the T.H. Hill DS - 1 standard for premium class equipment,
just prior to the commencement of drilling operations under this Contract. At
any time during the Contract Period, COMPANY shall have the right to require a
further inspection by a recognized inspection service company at COMPANY's
expense. Any final inspections after completion of the Work shall be performed
by CONTRACTOR at CONTRACTOR's expense.
6.3.2 COMPANY shall be furnished with copies of all the inspector's reports.
Any portion of the Drill String not passing the T.H. Hill DS - 1 standard for
premium class equipment shall be rejected and replaced by equipment satisfying
such standards.
SECTION 6.4 - CONTRACTOR'S OPERATIONS OBLIGATIONS.
Except as otherwise provided in this Contract, CONTRACTOR shall be solely
responsible for the operation of the Rig and shall with CONTRACTOR's Personnel
and equipment carry out and assist with the towing operations, rigging-up after
tow, positioning on drilling locations, rigging down, loading off and on supply
vessels and including also such operations on the Rig as may be necessary to
carry out this Contract or otherwise desirable for the safety of the Rig on tow
to and between drilling locations.
SECTION 6.5 - DESIGNATION OF KEY CONTRACTOR'S PERSONNEL.
6.5.1 CONTRACTOR shall, to the extent practicable prior to the Commencement
Date, present COMPANY a list of the names of all supervisory personnel
(assistant driller, driller, rig pusher, rig superintendent, drilling
superintendent) of CONTRACTOR's Personnel who shall be in charge of the Rig's
operations. This list shall show each individual's qualifications, previous jobs
and training attendances with dates and copies of tests/certificates as
applicable. If, during the course of the Work, CONTRACTOR plans to change any of
the supervisory personnel of CONTRACTOR's Personnel from those appearing in the
original roster, then CONTRACTOR shall contact COMPANY in advance, inform it of
the intended change and give COMPANY the above-mentioned particulars of the new
individual.
6.5.2 Pursuant to Section 5.4, COMPANY reserves the right to object to
individuals on the original roster. Subsequent changes to the roster are
subject to COMPANY's objections.
SECTION 6.6 - CLAIMS.
All claims against CONTRACTOR for labor, services and other items required
or used hereunder by CONTRACTOR shall be paid promptly when due and CONTRACTOR
shall indemnify and hold harmless COMPANY from and against all such claims.
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ARTICLE 7 - WORKING CONDITIONS
SECTION 7.1 - INSTRUCTION BY COMPANY.
CONTRACTOR, without prejudice to the provisions of Section 7.3, shall
comply with all instructions of COMPANY, that may from time to time be given and
that are consistent with the provisions of this Contract, and shall be subject
to instructions by governmental agencies, classification societies and
underwriters. Such instructions will be confirmed in writing by COMPANY and may
include instructions as to drilling methods or stoppage of operations in
progress.
SECTION 7.2 - SCOPE OF OPERATIONS.
Subject to Article 4 herein, CONTRACTOR shall be responsible for the
operations involved in arranging for and carrying out the tow of its Rig to the
drilling location, the ballasting, rigging up, the complete operations of the
Rig, including anchoring, and for the overall direction of the moving operations
from the drilling location. CONTRACTOR shall perform Work in accordance with
COMPANY's overall requirements and with Appendix D. Each well site, including
the anchor pattern, shall be surveyed and marked by COMPANY so as to enable
CONTRACTOR to properly position the Rig at the location and COMPANY, at
CONTRACTOR's request, shall furnish CONTRACTOR with a copy of said survey. At
CONTRACTOR's request, COMPANY will also provide (or reimburse CONTRACTOR as
applicable) CONTRACTOR with soil and sea bottom condition surveys, soil borings,
pipeline surveys, side-scan or Mezotech surveys at each location adequate to
satisfy CONTRACTOR's marine surveyor. In the event of delay in the commencement
of drilling due to such obstructions, impediments and/or hazards, or due to
moves of the Rig in order to achieve adequate and proper seabed anchor support,
or any other delay due to denial of access to the location for any cause not
within the control of CONTRACTOR, CONTRACTOR shall be paid at the Standby Rate
during the entire period of such delay, plus the costs of any boats required by
CONTRACTOR to move or re-position the Rig. Notwithstanding any other provisions
of this Contract to the contrary, should there be any obstructions within the
anchorage area at COMPANY's drilling location and these obstructions damage the
Rig or the Rig damages these obstructions then, unless caused by CONTRACTOR's
negligence or willful misconduct; (i) to the extent such damage is not covered
by CONTRACTOR's insurance, COMPANY shall reimburse CONTRACTOR for such damage to
the Rig, and (ii) COMPANY shall indemnify, defend and hold CONTRACTOR harmless
from and against any damage to or destruction of said obstructions.
SECTION 7.3 - INDEPENDENT CONTRACTOR.
In the performance of the Work hereunder, CONTRACTOR will be an independent
contractor with the authority to control and direct the performance of the
detail of the Work, subject to COMPANY's right to give instructions and of
inspection and supervision as laid down in this Contract. The presence of and
the inspection and supervision by COMPANY's representative at the site of the
Work shall not relieve CONTRACTOR from its obligations and responsibilities
hereunder.
SECTION 7.4 - ADVERSE WEATHER.
In the event of impending adverse weather or other conditions, CONTRACTOR,
in consultation with COMPANY, shall decide whether to institute precautionary
measures in order to safeguard the well, well equipment
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and the Rig and personnel to the fullest possible extent (e.g. by pulling up the
drill string, shutting in the well, moving the Rig clear of the wellhead,
evacuation of personnel, etc.).
SECTION 7.5 - PUBLIC HOLIDAYS.
Work shall be performed on a 24-hour per day basis. Work on public holidays
shall be suspended only at COMPANY's sole discretion.
SECTION 7.6 - WELL DEPTH.
The wells shall be drilled to a depth to be specified in each case by COMPANY,
provided that if a well is to be drilled to a depth greater than 25,000 feet or
in water depth greater than 2,800 feet or less than 200 feet, CONTRACTOR's
consent shall be required, which consent shall not be unreasonably withheld.
COMPANY shall make every reasonable effort to keep CONTRACTOR duly informed with
as much advance notice as practical in this respect. COMPANY and CONTRACTOR
acknowledge that wells contained in COMPANY's exploration program exceed the
present capabilities of the Rig stated above. COMPANY and CONTRACTOR shall
negotiate and agree to a written plan to upgrade the Rig to drill wells to total
depth of 28,000 feet and in water depths up 3,400 feet and a Letter of Agreement
amending this Contract to implement same. Such plan and Letter of Agreement
shall be agreed within thirty (30) days of the date first entered above. In the
event the Parties are unable to agree such plan and Letter of Agreement within
such time provided, then either Party may terminate this Contract without
further liability to the other.
SECTION 7.7 - COMPANY WELL PROGRAMS.
For the wells, COMPANY shall provide CONTRACTOR with a "well drilling program"
that shall include (but not necessarily be limited to) hole sizes, casing
program (including specified use of protectors and drift mandrels), mud control
program and COMPANY's deviation policy. COMPANY may modify this program while
drilling is in progress. COMPANY shall make every reasonable effort to keep
CONTRACTOR duly informed with as much advance notice as practical in this
respect.
SECTION 7.8 - SAFETY REGULATIONS - WELL CONTROL POLICY.
7.8.1 Without prejudice to CONTRACTOR's general responsibility for the
safety of its operations and the personnel involved and its other obligations
under this Contract, CONTRACTOR shall exercise due diligence to observe, perform
and follow safety regulations issued by COMPANY (including COMPANY's Safety and
Occupational Health Standards and Specifications set forth in Appendix E) and
any regulatory bodies having jurisdiction over the drilling operations, the Rig
or the Area of Operations, to the extent such regulations are applicable to the
Work hereunder.
7.8.2 CONTRACTOR shall exercise due diligence to maintain well control
equipment in sound condition at all times and shall use all reasonable means to
control and prevent fires and blow outs and to protect the hole. CONTRACTOR
shall conduct such safety drills, including testing of blow out preventers, as
may be requested by COMPANY. CONTRACTOR shall instruct all of CONTRACTOR's
Personnel in the use of safety equipment and proper work procedures for the
purpose of doing everything reasonably possible to protect against personal
injury and
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damage to equipment and hole. CONTRACTOR shall ensure that its employees are
drilled in emergency procedures in case of fire, evacuation, pick up, etc., and
shall hold regular safety reviews.
SECTION 7.9 - DEPTH MEASUREMENTS.
CONTRACTOR shall measure and keep a record of the length of drill pipe and
all other tools in the hole; first, in order to determine the footage drilled;
second, before setting casing or liners and after reaching final depth; and
third, whenever requested by COMPANY.
SECTION 7.10 - CONTROL OF MUD PROGRAM.
COMPANY, at its discretion, may check and control the CONTRACTOR's
implementation of the mud program. CONTRACTOR shall take all reasonable care to
use and maintain the mud with properties in accordance with any specifications
made by, or acceptable to, COMPANY.
SECTION 7.11 - CUTTING/CORE PROGRAM.
When so requested by COMPANY, CONTRACTOR shall collect, save and identify
the cuttings and cores according to COMPANY's instructions and place them in
separate containers to be furnished by COMPANY. Such cuttings and cores shall
be made available to COMPANY at the well location.
SECTION 7.12 - OIL/GAS FORMATIONS.
In the event COMPANY encounters a formation that reasonably appears to be oil
or gas-bearing and/or of lithological importance to COMPANY, COMPANY may
instruct CONTRACTOR to stop drilling so as to give COMPANY an opportunity to
examine the formation for the purpose of determining what further operations
should be conducted. CONTRACTOR shall ensure that any such information shall be
kept confidential.
SECTION 7.13 - RECORDS TO BE FURNISHED BY CONTRACTOR.
7.13.1 CONTRACTOR shall keep and furnish to COMPANY a Daily Driller's
Report on the IADC standard form in the manner designated by COMPANY. Such
Daily Driller's Report shall correctly indicate the Contract rate distribution,
showing the numbers of half-hour periods applicable to each rate category.
CONTRACTOR shall permit COMPANY to inspect, review or take copies of all field
records relating to the Work that are kept by CONTRACTOR. Each Daily Driller's
Report will be approved and signed by a duly authorized representative of
CONTRACTOR and delivered to a duly authorized representative of COMPANY on board
the Rig for approval. Once approved and signed, the Report shall be delivered
to COMPANY in accordance with COMPANY's instructions. Upon the completion or
abandonment of a well, all data and copies thereof pertaining to the geology of
and formation encountered in the well that are in CONTRACTOR's possession shall
be delivered to COMPANY.
7.13.2 CONTRACTOR shall report to COMPANY as soon as possible all accidents
and occurrences resulting in injuries or death to CONTRACTOR's employees or
third parties, or damage to the property of third parties, arising out of or
during the course of any operations hereunder and shall supply and file any
reports necessary to conform with government regulatory requirements applicable
to CONTRACTOR. CONTRACTOR shall also furnish COMPANY with copies of any accident
reports required by law as well as those filed with CONTRACTOR's insurer(s) or
underwriters.
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7.13.3 CONTRACTOR shall keep and provide COMPANY with delivery tickets and
other warehouse records covering any materials or supplies furnished to COMPANY
by CONTRACTOR in a manner specified by COMPANY. The quantity, description and
condition of materials and supplies so furnished shall be checked and recorded
by CONTRACTOR and such records shall be properly maintained by CONTRACTOR.
SECTION 7.14 - WELL LOG.
CONTRACTOR shall assist, in accordance with the provisions of this Contract,
COMPANY or COMPANY's other contractors in the preparation of an accurate log of
the well(s) and any other pertinent information concerning each well(s).
SECTION 7.15 - ABNORMAL AND HAZARDOUS FORMATION AND/OR CONDITIONS.
If at any time while operating, CONTRACTOR believes that a continuance of the
operations will result in abnormal or hazardous conditions, it shall immediately
notify COMPANY and in the meantime exert every reasonable effort to overcome
this difficulty. In any such case CONTRACTOR is entitled to stop drilling or
other operations on the well under the safest possible conditions and consult
with COMPANY.
SECTION 7.16 - COMPANY'S REPRESENTATIVES.
COMPANY shall be entitled to designate a representative or representatives who
shall at all times have access to the Rig for the purpose of observing tests,
inspecting the Work performed by CONTRACTOR or verifying the records of items
furnished by CONTRACTOR. Such representative or representatives shall be
empowered to act for COMPANY in all matters relating to CONTRACTOR's performance
under this Contract.
SECTION 7.17 - LOCAL LAWS, ETC.
CONTRACTOR shall furnish the Rig and equipment and perform its duties under
this Contract subject to the provisions of all laws and regulations, whether
national, regional, local or otherwise, in force in all or any part of the Area
of Operations and CONTRACTOR shall be subject to the conditions of any permits,
licenses and clearances relating to its operations hereunder and whether held by
CONTRACTOR or COMPANY. Except as provided elsewhere in this Contract,
CONTRACTOR shall indemnify and hold COMPANY harmless from and against any and
all liability, damages, claims, fines, penalties and expenses of whatever nature
arising out of or resulting from violation by CONTRACTOR or CONTRACTOR's
Personnel of such laws, regulations, and conditions of permits, licenses and
clearances; and COMPANY shall indemnify and hold CONTRACTOR harmless from and
against any and all liability, damages, claims, fines, penalties and expenses of
whatever nature arising out of or resulting from violation by COMPANY or
COMPANY's Personnel of such laws, regulations, and conditions of permits,
licenses and clearances. "COMPANY's Personnel" shall include the officers,
directors, agents and employees of COMPANY and its subcontractors (other than
CONTRACTOR).
SECTION 7.18 - PERMITS.
CONTRACTOR's obligations hereunder shall not however extend to such permits
required under applicable law or regulation by COMPANY, including but not
limited to the Certificate of Financial Responsibility required pursuant to the
OCS Lands Act and/or the Oil Pollution Act of 1990 (OPA 90) as amended, and any
lease, plan of exploration, permit to drill, well plan or well abandonment plan.
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SECTION 7.19 - SOCIAL LAWS.
With regard to CONTRACTOR's Personnel in the performance of this Contract,
CONTRACTOR shall be liable for payment directly to the appropriate authorities
of all applicable amounts required or prescribed by social or labor laws or any
similar law or regulation of any government with jurisdiction over CONTRACTOR,
COMPANY, the Rig or the Area of Operations, and shall indemnify COMPANY for any
payments whatsoever made by COMPANY that CONTRACTOR is required to pay in
respect of CONTRACTOR's Personnel under any provision of such law or regulation.
SECTION 7.20 - FIREARMS; INTOXICATING LIQUORS OR CONTROLLED SUBSTANCES.
No firearms or other weapons shall be kept, and no intoxicating or controlled
substances shall be consumed, stored, dispensed or otherwise made available, in
the Area of Operations or on facilities operated or occupied by COMPANY.
SECTION 7.21 - MISCONDUCT.
No one shall by his misconduct cause a breach of peace or public disturbance
or otherwise deport himself in a manner detrimental to the Work or to the best
interests of COMPANY.
SECTION 7.22 - ENVIRONMENTAL SPECIFICATIONS.
CONTRACTOR and COMPANY recognize that they are in business by public consent
and are therefore ethically obligated to conduct their operations in an
environmentally sensitive manner. CONTRACTOR shall comply with the environmental
standards and specifications in Appendix E in conducting the Work. Without
prejudice to the provisions of Article 9, CONTRACTOR acknowledges that the
environmental standards and specifications in Appendix E are minimum standards
and that it shall have complete and ultimate responsibility for the
environmental sensitivity of its operations.
ARTICLE 8 - INSURANCE
SECTION 8.1 - CONTRACTOR'S INSURANCE
CONTRACTOR shall carry and maintain insurance coverage of the type and in the
amounts set forth in Appendix F, insuring only those liabilities specifically
assumed by CONTRACTOR under this Contract.
All references in this Contract to "insurance" of CONTRACTOR shall mean such
insurance as set forth in Appendix F. CONTRACTOR shall have the right to self-
insure any or all of that portion of insurance relating to loss or damage to
CONTRACTOR's Items.
SECTION 8.2 - CERTIFICATES
CONTRACTOR will furnish to COMPANY certificates indicating that the required
insurance is in full force and effect and that the same shall not be cancelled
or materially and adversely changed without ten (10) days prior written notice
to COMPANY.
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SECTION 8.3 - SUBROGATION
For liabilities assumed hereunder by CONTRACTOR, its insurance shall be
endorsed to provide that the underwriters waive their right of subrogation
against COMPANY, its affiliates and co-venturers, its subcontractors (other than
CONTRACTOR) and employees of each. COMPANY will, as well, cause its insurer to
waive subrogation against CONTRACTOR and CONTRACTOR's affiliates its
subcontractors and employees of each for liabilities it assumes.
SECTION 8.4 - ADDITIONAL INSURED
CONTRACTOR shall name COMPANY as additional insured, where permitted, under
its policies of insurance, but only with respect to and to the extent of the
liabilities specifically assumed by CONTRACTOR under this Contract. COMPANY
shall name CONTRACTOR as additional insured, where permitted, under its policies
of insurance, but only with respect to and to the extent of the liabilities
specifically assumed by COMPANY under this Contract.
ARTICLE 9 - LIABILITIES AND INDEMNITIES
SECTION 9.1 - CONTRACTOR'S PROPERTY AND EQUIPMENT.
Except as provided elsewhere in this Contract, any damage to or loss of
CONTRACTOR's or its subcontractor's property or equipment shall be the loss of
CONTRACTOR. CONTRACTOR hereby expressly relieves from any claim or
responsibility for such damage or loss, and indemnify and hold harmless COMPANY,
COMPANY's subcontractors (other than CONTRACTOR) and any third party to the
extent COMPANY would be contractually obligated to indemnify and hold harmless
such Party for such damage or loss
SECTION 9.2 - CONTRACTOR'S SUBSEA, MOORING AND DOWN-HOLE EQUIPMENT AND
WELLHEAD/STACK ANGLE.
9.2.1 COMPANY shall, in addition to all other payments required hereunder,
pay to CONTRACTOR the depreciated value of all of CONTRACTOR's, to the extent
CONTRACTOR's insurance does not compensate CONTRACTOR therefore, Subsea
Equipment, mooring equipment (including anchors, anchor chains and wire, pennant
wires and links) and in-hole Equipment lost or damaged in the hole or below the
diverter housing unless such loss or damage is due to or occasioned by or as the
result of the sole negligence of CONTRACTOR. For the purpose of this Contract,
depreciated value will be the replacement price less accumulated depreciation at
two (2%) percent per month from the Commencement Date for drill pipe and one
(1%) percent per month for CONTRACTOR's in-hole equipment other than drillpipe.
However, depreciation shall not exceed fifty (50%) percent of the replacement
cost. Deducts for depreciation shall not be applicable with respect to Subsea
Equipment and mooring equipment. At the time CONTRACTOR submits its invoice for
any such loss of equipment, it will also submit documentary evidence of the
replacement price. If such equipment is capable of being repaired, COMPANY will
reimburse CONTRACTOR for all costs involved in such repairs, including handling
costs, or pay the depreciated value of the equipment, whichever is the lesser
amount. For such in-hole equipment replaced, COMPANY will also reimburse
CONTRACTOR for all costs related to shipment of the replacement equipment to the
Rig.
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9.2.2 Notwithstanding any other provisions of this Contract, CONTRACTOR'S
operating practices require the BOP stack to be set at one (1) degree or less
from vertical to avoid abnormal wear and damage. In the event the stack angle
exceeds one and one-half (1-1/2) degrees from vertical, COMPANY agrees to
either: (a) re-run the stack to CONTRACTOR'S operating specification at the
Operating Rate, or (b) continue to operate the stack at such angle, provided
that COMPANY agrees to assume all responsibility for the full cost to repair or
replace any damage which may result to CONTRACTOR'S Subsea Equipment, without
deduction for depreciation. In addition, notwithstanding the provisions of
Section 3.2.3 of this Contract, the Standby Rate shall apply with respect to any
Rig down time that may occur or result from such damage.
SECTION 9.3 - LOSS OF HOLE.
Even though a hole is lost or damaged while CONTRACTOR is working on the well,
CONTRACTOR shall be paid for its Work in accordance with the terms of this
Contract. It is agreed that COMPANY shall bear all risk and responsibility for
loss of the hole provided that, if such loss or damage be the result of the
negligence or willful misconduct of CONTRACTOR, CONTRACTOR shall, as COMPANY may
elect, either drill a new hole on the same location to a depth at which the
original hole was lost or redrill such section of the hole as COMPANY may
require under all terms of this Contract at ninety (90%) percent of the
Operating Rate.
SECTION 9.4 - BLOW OUT OR CRATER.
If a well being drilled hereunder should blow out or crater from any cause,
it is understood and agreed that COMPANY shall be responsible for and bear the
entire cost and expense of killing the well or otherwise bringing it under
control. This provision applies only to the direct cost of bringing said well
under control and has no application to the loss of property, injuries or
damages caused by such blow out or crater.
SECTION 9.5 - RESERVOIR DAMAGE AND SUB-SURFACE POLLUTION LIABILITY.
(a) COMPANY agrees to be responsible for and indemnify and hold harmless
CONTRACTOR for all claims on account of loss of or damage to or impairment of
any property right in any geological formation, strata or oil or gas reservoir
or loss of, or deferral of any products, minerals, hydrocarbons or other
substances emanating therefrom resulting from the Work conducted or operations
provided herein, or for loss or damage caused by pollution of any underground
fresh water reservoir.
(b) Except as provided in Section 9.6, COMPANY agrees to indemnify and hold
harmless CONTRACTOR in respect of loss or damage arising out of any claim or
cause of action for loss or damage arising from pollution or contamination
(including control, containment, clean-up and removal), provided that CONTRACTOR
shall reimburse COMPANY up to a total of U.S. $200,000.00 per incident if such
loss or damage be the result of the sole negligence or willful misconduct of
CONTRACTOR.
SECTION 9.6 - SURFACE POLLUTION LIABILITY.
CONTRACTOR agrees to assume all responsibility for, and hold COMPANY harmless
from, loss or liability arising out of any claim or cause of action for loss or
damage arising from pollution or contamination (including control, containment
and removal) emanating from sources other than from the well from substances
that are in
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CONTRACTOR's possession and control (including, but not limited to, fuels,
lubricants, motor oils, drilling fluid, pipe dope, paints, solvents or garbage).
SECTION 9.7 - CONTRACTOR'S PERSONNEL.
CONTRACTOR hereby agrees to indemnify and hold COMPANY harmless from and
against any loss or liability arising out of any claims, demands or cause of
action on account of injuries to or death of CONTRACTOR's Personnel and its
invitees, including loss or damage to their property and equipment, caused by or
resulting from or growing out of or incidental to the Work. Notwithstanding
Section 9.10.2 below, for the purpose of this Section 9.7, CONTRACTOR's
indemnity to COMPANY shall not extend to COMPANY's other subcontractors. As
used in this Contract, the term "invitees" shall not be construed to include the
subcontractors of either COMPANY or CONTRACTOR.
SECTION 9.8 - OPERATOR'S PERSONNEL.
COMPANY hereby agrees to indemnify and hold CONTRACTOR harmless from and
against any loss or liability arising out of any claims, demands or causes of
action on account of injuries to or death of COMPANY's Personnel and its
invitees, including loss or damage to their property and equipment, caused by or
resulting from or growing out of or incidental to the Work. Except as provided
below in this Section 9.8, for purposes of this Section 9.8, the term "COMPANY's
Personnel" shall not include the personnel, employees, agents and invitees of
COMPANY's subcontractors (excluding CONTRACTOR) of any tier. The intent of
Sections 9.7 and 9.8 is to minimize disputes regarding liability for injury to,
illness or death of personnel and/or damage or loss of their personal property.
In order to fully realize the benefits of this intent, the Parties agree that
CONTRACTOR will endeavor, with the assistance of COMPANY, to enter into
Agreements for Mutual Indemnity and Waiver of Recourse with COMPANY's other
subcontractors, in the form set out in Appendix H attached hereto. In the event
that either: (a) a subcontractor has not executed such agreement, or (b) the
enforceability of such agreement is voided, in whole or in part, during a
judicial proceeding, or (c) a subcontractor fails to indemnify CONTRACTOR in
accordance with such agreement to any degree, then the term "COMPANY's
Personnel" shall include the employees, personnel, agents and invitees of such
subcontractor, and COMPANY shall indemnify and hold CONTRACTOR harmless from and
against any loss or liability arising out of any claims, demands or causes of
action on account of injuries to or death of COMPANY's Personnel, including loss
or damage to their personal property, caused by or resulting from or growing out
of or incidental to the Work.
SECTION 9.9 - OPERATOR'S PROPERTY AND EQUIPMENT
Any damage to or loss of COMPANY's or its subcontractor's property or
equipment shall be the loss of COMPANY. COMPANY hereby expressly relieves from
any claim or responsibility for such damage or loss, and indemnify and hold
harmless CONTRACTOR, CONTRACTOR's subcontractors and any third party to the
extent CONTRACTOR would be contractually obligated to indemnify and hold
harmless such party for such damage or loss.
COMPANY hereby expressly agrees to protect, indemnify, and hold CONTRACTOR
harmless from any claims, demands, and causes of action, in favor of COMPANY,
COMPANY's joint interest owners, or any other parties
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<PAGE>
arising out of any drilling commitments or obligations contained in any lease,
permit, farmout or exploration agreement, or other agreement which may be
affected by termination or breach of Contract hereunder.
SECTION 9.10 - APPLICATION OF INDEMNITIES.
9.10.1 EXCEPT AND TO THE EXTENT EXPRESSLY OTHERWISE PROVIDED IN THIS
CONTRACT, THE PARTIES INTEND AND AGREE THAT THE PHRASES "BE RESPONSIBLE FOR"
AND/OR "HOLD HARMLESS" AND/OR "INDEMNIFY" IN THIS CONTRACT MEAN THAT THE
INDEMNIFYING PARTY SHALL RELEASE, INDEMNIFY, HOLD HARMLESS AND DEFEND
(INCLUDING PAYMENT OF REASONABLE ATTORNEY'S FEES AND COSTS OF LITIGATION) THE
INDEMNIFIED PARTY FROM AND AGAINST ANY AND ALL CLAIMS, DEMANDS, CAUSES OF
ACTION, DAMAGES, JUDGMENTS AND AWARDS OF ANY KIND OR CHARACTER, WITHOUT LIMIT
(EXCEPT AS SPECIFICALLY LIMITED IN THIS CONTRACT) AND WITHOUT REGARD TO THE
CAUSE OR CAUSES THEREOF, INCLUDING PRE-EXISTING CONDITIONS, WHETHER SUCH
CONDITIONS BE PATENT OR LATENT, THE UNSEAWORTHINESS OF ANY VESSEL OR VESSELS,
BREACH OF REPRESENTATION OR WARRANTY (EXPRESSED OR IMPLIED), STRICT LIABILITY,
TORT, BREACH OF CONTRACT OR THE NEGLIGENCE TO ANY DEGREE OF ANY PERSON OR
PERSONS, INCLUDING THAT OF THE INDEMNIFIED PARTY, WHETHER SUCH NEGLIGENCE BE
SOLE, JOINT OR CONCURRENT, ACTIVE OR PASSIVE, OR ANY OTHER THEORY OF LEGAL
LIABILITY. A PARTY'S OBLIGATION TO INDEMNIFY AND HOLD THE OTHER PARTY HARMLESS
PURSUANT TO THIS CONTRACT SHALL NOT APPLY TO THE EXTENT SUCH OBLIGATION
RELATES TO A LOSS OR LIABILITY RESULTING FROM THE WILLFUL MISCONDUCT OF THE
PARTY WITH THE RIGHT TO BE INDEMNIFIED AND HELD HARMLESS.
9.10.2 AN INDEMNIFYING PARTY'S OBLIGATIONS CONTAINED IN THIS CONTRACT SHALL
ALSO EXTEND TO THE INDEMNIFIED PARTY, ITS AFFILIATED COMPANIES AND ITS
SUBCONTRACTORS (OTHER THAN CONTRACTOR FOR THE PURPOSES OF THIS SUBSECTION) AND
THE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, OWNERS, SHAREHOLDERS AND INSURERS
OF EACH AND TO ACTIONS AGAINST THE RIG, ITS LEGAL AND BENEFICIAL OWNERS,
WHETHER IN REM OR IN PERSONAM.
SECTION 9.11 - CONSEQUENTIAL DAMAGES.
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 Contract, including, without limitation, loss of profit or business
interruptions, however same may be caused. This Section shall not be construed
as a limitation upon the indemnification and hold harmless provisions of this
Contract with respect to claims or causes of actions by third parties.
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<PAGE>
SECTION 9.12 - DEFINITION.
For the purposes of the indemnities and hold harmless provisions in this
Article 9 and the provisions of Article 8, "COMPANY" means EEX CORPORATION, and
its parent companies, subsidiaries, affiliates, co-licensees and co-venturers,
and its and their officers, directors, employees, agents, underwriters and
insurers, and any subsequent assignees of COMPANY of its rights and obligations
relating to the Area of Operations; and "CONTRACTOR" means Global Marine
Drilling Company, its subcontractors, and their parent companies, subsidiaries,
and affiliates and its and their officers, directors, employees, agents,
underwriters and insurers.
ARTICLE 10 - TAXES AND DUTIES
SECTION 10.1 - PERSONNEL AND PROPERTY TAXES.
CONTRACTOR shall pay and agrees to indemnify and hold COMPANY harmless from
all taxes and related fines, penalties, and interest thereon assessed or levied
against or on account of wages, salaries or other benefits paid to CONTRACTOR'S
Personnel or employees of CONTRACTOR'S subcontractors, and all taxes assessed or
levied against or on account of any property or equipment of CONTRACTOR,
CONTRACTOR'S Personnel or CONTRACTOR'S subcontractors.
SECTION 10.2 - EXCISE, SALES OR USE TAXES.
With respect to Work conducted in the federal waters of the U.S. Gulf of
Mexico, all charges hereunder include any excise, sales or use taxes, or taxes
of a similar nature that may be legally imposed on the furnishing of equipment
and services, and CONTRACTOR shall not add the amount of any such tax for which
CONTRACTOR is legally liable to any payment required to be made by COMPANY. Such
charges levied with respect to Work conducted within state waters of the U.S.
Gulf of Mexico shall be for the account of COMPANY.
ARTICLE 11 - EMERGENCY OPERATIONS AND FORCE MAJEURE
SECTION 11.1 - EMERGENCY OPERATIONS.
CONTRACTOR agrees to exercise due care and take precautions as are necessary
in accordance with good oilfield practice to prevent fires, explosions and
blowouts, and to protect life and property. If, in COMPANY's sole opinion, an
emergency exists, including, but not limited to, blow out, fire, explosion or
any other situation, actual or potential, that indicates a need for BOP control,
COMPANY shall have the right to direct in detail the emergency procedures,
including, but not limited to, the work required to regain full control of the
well. COMPANY's representative will be the sole judge as to which course of
action shall be taken and shall have the ultimate authority to issue orders in
accordance therewith; provided, however, that CONTRACTOR, in executing such
orders, shall be solely responsible for the operation of the Rig. This Section
11.1 shall not be construed to limit or modify the provisions of Articles 6, 9
and Appendix F hereof. This provision shall not be construed to require
CONTRACTOR to drill a relief well. In such event, COMPANY agrees to obtain the
approval of CONTRACTOR's underwriters and pay or reimburse CONTRACTOR for any
additional expenses associated, including additional premiums and surveyors
costs.
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<PAGE>
SECTION 11.2 - FORCE MAJEURE.
11.2.1 Neither Party to this Contract shall be responsible for any delay
or failure in fulfilling any of its obligations hereunder, other than the
obligation to make punctual payment of sums due, if fulfillment has been
delayed, hindered or prevented by any circumstance of whatsoever nature which is
not within the control of the Party concerned and is not preventable by
reasonable diligence on its part, or by compliance by that Party with any order
or request from any national, port or local authority (referred to herein as
"Force Majeure"). CONTRACTOR shall maintain as far as possible its relevant
insurance coverage and take all reasonable precautions to protect the well
against damages or destruction as may result from blow out, bad weather,
collision with marine vessels, etc. Both Parties shall use their best efforts
to remove or mitigate the effect of the circumstance delaying, hindering or
preventing performance, however, CONTRACTOR shall not be obliged to take steps
to settle a strike which settlement in the circumstances requires unreasonable
steps to be taken by CONTRACTOR.
11.2.2 By way of illustration, Force Majeure shall include, but not be
limited to, hostilities, restraints of rulers or people, revolution, civil
commotion, strike, labor disturbances, epidemic, accident, fire, lightning,
flood, wind, storm, earthquake, explosion, blow out, crater, blockade or
embargo, lack of or failure of transportation facilities, or any law,
proclamation, regulation or ordinance, demand, or requirement of any government
or any government agency having or claiming to have jurisdiction over the
operations or with respect to the Rig or services hereunder, or over the Parties
hereto, or any act of God, or any other act of government, act or omission of
supplier or any other cause, whether of the same or different nature, existing
or future, which is beyond the reasonable control and without the fault or
negligence of the Party asserting benefit of this Section.
11.2.3 If either Party is affected by an event of Force Majeure, such Party
shall give oral and written notice thereof, without delay, to the other Party.
Such affected Party shall also notify the other Party in writing as soon as
possible, of its estimated impact, if any, of the event on the affected Party's
performance under this Contract
ARTICLE 12 - ASSIGNMENT OF CONTRACT
SECTION 12.1 - ASSIGNMENT BY COMPANY.
COMPANY shall not assign this Contract in whole or in part, without the
written consent of the CONTRACTOR, which consent will not be unreasonably
withheld. This restriction will not apply to an assignment to a parent, a
subsidiary corporation or an affiliate of COMPANY. Unless otherwise agreed in
writing by the CONTRACTOR, in the case of an assignment to a parent, subsidiary
or an affiliate of COMPANY, COMPANY agrees to guarantee to CONTRACTOR the full
performance under this Contract by the party to whom the Contract is assigned.
SECTION 12.2 - ASSIGNMENT BY CONTRACTOR.
CONTRACTOR shall not assign this Contract or any of its operations hereunder
without the prior written consent of COMPANY.
Page 22 of 26
<PAGE>
ARTICLE 13 - PATENTS, COPYRIGHTS AND TECHNOLOGY
SECTION 13.1 - PATENT INFRINGEMENT.
13.1.1 CONTRACTOR shall indemnify COMPANY from and against all claims, suits,
liabilities, losses, damages and costs (including legal costs) arising out of
any alleged infringement of patents, copyrights, trademarks or other proprietary
rights with respect to any of the equipment, processes, goods or services
provided by CONTRACTOR under this Contract, and such obligations shall survive
acceptance and payment therefor by COMPANY. If said equipment, processes, goods
or services become the subject of injunctive relief granted pursuant to any of
the foregoing causes which prevents CONTRACTOR or COMPANY from using the same
for their intended purpose, CONTRACTOR shall be liable for all resultant damages
and at COMPANY's option shall accept return of the goods and refund to COMPANY
the amounts paid to CONTRACTOR for the infringing goods and/or services or
CONTRACTOR shall, at its own expense, procure the right to use equipment,
processes, goods, or services covered by patents or copyrights.
13.1.2 COMPANY shall be responsible for dealing with all claims of
infringement related to processes or apparatus supplied by COMPANY, and COMPANY
shall protect and indemnify CONTRACTOR against any claims of contributory
infringement related to such claims.
ARTICLE 14 - CONFIDENTIALITY
SECTION 14.1 - CONFIDENTIALITY.
All information obtained by CONTRACTOR in the conduct of the Work hereunder,
including, but not limited to depth, formation penetrated, the results of
coring, testing and surveying shall be confidential and shall not be divulged by
CONTRACTOR to any third party either during the Contract Period or thereafter.
CONTRACTOR agrees to take all reasonable steps to see that CONTRACTOR's
Personnel, their families, subcontractors and agents shall maintain secrecy to
the same extent.
SECTION 14.2 - PUBLICITY.
CONTRACTOR shall obtain COMPANY's prior approval in writing of the text of any
public announcement or statement it proposes to issue in connection with the
Work or this Contract.
ARTICLE 15 - AUDIT; COMMISSIONS; PAYMENTS TO OFFICIALS
Section 15.1 - AUDIT.
To verify CONTRACTOR's compliance with the terms of this Contract, at any time
during the term of this Contract and for two years thereafter, COMPANY and its
authorized representatives shall have access to, and the right to audit, at its
sole expense, any of CONTRACTOR's and its subcontractors' or agents' books,
vouchers, receipts, invoices, correspondence, memoranda and any other records
relating to Work performed and materials consumed under this Contract.
CONTRACTOR will preserve, and will cause its subcontractors and agents to
preserve, all such records during the aforementioned period and will, upon
written request, make them available to COMPANY and its representatives. Such
audits will be conducted in accordance with generally accepted auditing
standards and will be
Page 23 of 26
<PAGE>
made during CONTRACTOR's normal working hours. COMPANY will notify CONTRACTOR of
any matters arising in an audit which necessitate making an adjustment; and such
adjustment, whether by reimbursement to COMPANY or otherwise, shall then
promptly be made. COMPANY shall also have the right to obtain assistance and
statements from any of CONTRACTOR's Personnel to the extent it deems necessary,
and CONTRACTOR and its subcontractors shall make such personnel available at
their assigned locations if still under employment with CONTRACTOR or its
subcontractors.
SECTION 15.2 - COMMISSIONS.
CONTRACTOR shall not pay any commissions, fees, or grant any rebates to any
employee or officer of COMPANY or of CONTRACTOR's subcontractors nor favor
employees or officers of COMPANY with gifts or entertainment of significant cost
or value nor enter into any business arrangements with employees or officers of
COMPANY (other than with authorized representatives of COMPANY) without
COMPANY's written approval.
SECTION 15.3 - PAYMENTS TO OFFICIALS.
During the term of this Contract, neither CONTRACTOR nor any person acting
for or on behalf of CONTRACTOR will offer, pay or agree to pay, directly or
indirectly, any consideration of any nature whatsoever to any official, agent or
employee of any government or any department, agency or instrumentality of any
government, or to any political party, or an official thereof, or to any
candidate for political office in any country to influence the act, decision or
omission of any such official, agent, employee, political party, political party
official or candidate in his or its official capacity in connection with the
performance of this Contract or the directing of business to any person. If
CONTRACTOR fails to observe the provisions of this Section 15.3, COMPANY shall
have the right to terminate this Contract immediately.
ARTICLE 16 - GOVERNING LAW
SECTION 16.1 - GOVERNING LAW.
THIS CONTRACT SHALL BE GOVERNED BY, INTERPRETED, ENFORCED AND CONSTRUED IN
ACCORDANCE WITH THE GENERAL MARITIME LAW OF THE UNITED STATES OF AMERICA, NOT
INCLUDING HOWEVER, ANY OF ITS CONFLICTS OF LAW RULES WHICH WOULD DIRECT OR REFER
TO THE LAWS OF ANY OTHER JURISDICTION. IF, FOR ANY REASON, THE GENERAL MARITIME
LAW OF THE UNITED STATES OF AMERICA IS NOT APPLICABLE, THEN THE CONTRACT WILL BE
GOVERNED BY THE LAWS OF THE STATE OF TEXAS, NOT INCLUDING, HOWEVER, ANY OF ITS
CONFLICTS OF LAW RULES WHICH WOULD DIRECT OR REFER TO THE LAWS OF ANY OTHER
JURISDICTION.
ARTICLE 17 - NOTICES
SECTION 17.1 - NOTICES.
All required notices will be properly made when delivered in person, mailed
or sent by telex, courier services or facsimile to the address set forth in
Section 17.2. Notices shall be effective upon receipt.
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<PAGE>
SECTION 17.2 - ADDRESSES.
The notice addresses of COMPANY and CONTRACTOR are as follows, unless changed
by written notice:
COMPANY: EEX CORPORATION
2500 CityWest Blvd.
Houston, Texas 77042
Telephone No.: 713-243-3219
Facsimile No.: 731-243-3191
Attention: Mr. Vernon H. Goodwin
CONTRACTOR: GLOBAL MARINE DRILLING COMPANY
777 N. Eldridge Parkway
Houston, Texas 77079-4493
Telephone: (281) 496-8000
Facsimile No.: (281) 597-9936
Attention: Mr. R. Blake Simmons
COMPANY's address shown above shall also be used by CONTRACTOR for purposes
of invoicing COMPANY. In the event of a change of address, prompt notice shall
be given by the Party concerned.
ARTICLE 18 - MISCELLANEOUS
SECTION 18.1 - ENTIRETY; AMENDMENT.
This Contract constitutes the entire agreement between the Parties and shall
replace all written and oral statements, representations and warranties that may
have been made by or on behalf of either of the Parties prior to the date
hereof. This Contract may only be amended by a clear statement in writing
signed by a duly authorized representative of each of the Parties hereto.
SECTION 18.2 - HEADINGS.
The captions and headings used in this Contract are for convenience only and
shall not be deemed to be of a substantive nature in construing this Contract.
SECTION 18.3 - WAIVERS.
The waiver on the part of any Party to this Contract of one or more of its
rights under this Contract shall not represent a continuing waiver of such
rights or prohibit such Party from demanding the full performance of the other
Party's obligations under this Contract. None of the requirements of this
Contract shall be considered waived unless waived in writing by the Party
concerned or its representative.
SECTION 18.4 - ATTACHMENTS.
All Attachments referred to in this Contract shall be attached hereto and made
a part hereof for all purposes. In the event there is a conflict between the
provisions of this Contract and the Attachments hereto, the provisions of the
main body of this Contract shall prevail.
SECTION 18.5 - YEAR 2000.
CONTRACTOR agrees that the Rig contains the functionality (including the time
and date related code and internal subroutines) needed for the December 31, 1999
millennium date change. In the event CONTRACTOR becomes aware that the Rig may
not fully comply with the above provision, CONTRACTOR agrees to notify
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<PAGE>
COMPANY and use its best efforts to modify the Rig or its equipment to ensure
full compliance with the above provision as soon as possible. In the event the
failure to comply with this provision results in a breakdown or suspension of
operations the provisions of Section 2.2 and 3.2.3 shall apply. However, this
provision shall not apply in the event the breakdown or suspension is due to the
failure of COMPANY and its other contractors to supply Year 2000 compliant data
commensurate with CONTRACTOR's obligations hereunder.
SECTION 18.6 - CONTINUING OBLIGATION
Notwithstanding the termination of this Contract, the parties shall continue
to be bound by the provisions of this Contract that reasonably require some
action or forbearance after such termination.
IN WITNESS WHEREOF, the Parties hereto have caused their duly authorized
representatives to execute this Contract, in duplicate originals, on the day,
month and year first written above.
EEX CORPORATION
/s/ D. R. Henderson /s/ Vernon H. Goodwin
___________________________________ _____________________________________
NAME: D. R. HENDERSON NAME: VERNON H. GOODWIN
TITLE: EXECUTIVE VICE PRESIDENT AND TITLE: VICE PRESIDENT, DRILLING
CHIEF OPERATING OFFICER DATE: OCTOBER 15, 1998
DATE: OCTOBER 15, 1998
GLOBAL MARINE DRILLING COMPANY
/s/ R. Blake Simmons
___________________________________
NAME: R. BLAKE SIMMONS
TITLE: VICE PRESIDENT, SALES AND CONTRACTS
DATE: OCTOBER 15, 1998
Page 26 of 26
<PAGE>
EXHIBIT 10.23
================================================================================
REGISTRATION RIGHTS AGREEMENT
BY AND AMONG
EEX CORPORATION,
WARBURG, PINCUS EQUITY PARTNERS, L.P.,
WARBURG, PINCUS NETHERLANDS EQUITY PARTNERS I, C.V.,
WARBURG, PINCUS NETHERLANDS EQUITY PARTNERS II, C.V.,
AND
WARBURG, PINCUS NETHERLANDS EQUITY PARTNERS III, C.V.
DATED AS OF JANUARY 8, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
1. Definitions............................................................. 1
2. Securities Subject to this Agreement.................................... 2
(a) Registrable Securities........................................... 2
(b) Holders of Registrable Securities................................ 2
3. Demand Registration..................................................... 2
(a) Requests for Registration........................................ 2
(b) Number of Registrations.......................................... 3
(c) Effective Registration Expenses.................................. 3
(d) No Rights of Company or Other Securityholders to Piggyback on
Demand Registrations............................................. 3
(e) Priority on Demand Registrations................................. 3
(f) Selection of Underwriters........................................ 4
(g) Other Registration Rights Agreements............................. 4
4. Piggyback Registrations................................................. 4
(a) Right to Piggyback............................................... 4
(b) Piggyback Expenses............................................... 4
(c) Priority on Primary Registrations................................ 4
(d) Priority on Secondary Registrations.............................. 5
(e) Underwritten Offering of Different Classes of Securities......... 5
(f) Selection of Underwriters........................................ 5
5. Registration on Form S-3................................................ 5
6. Holdback Agreements..................................................... 6
(a) Restrictions on Public Sale by Holder of Registrable Securities.. 6
(b) Restrictions on Public Sale by the Company....................... 6
(c) Deferral of Filing; Suspension of Shelf Registration Statement... 6
7. Registration Procedures................................................. 7
8. Registration Expenses................................................... 10
9. Indemnification; Contribution........................................... 10
(a) Indemnification by Company....................................... 10
(b) Indemnification by Holder of Registrable Securities.............. 11
(c) Conduct of Indemnification Proceedings........................... 11
(d) Contribution..................................................... 11
10. Rule 144................................................................ 12
11. Participation in Underwritten Registrations............................. 12
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12. Miscellaneous........................................................... 12
(a) Right to Suspend................................................. 12
(b) Remedies......................................................... 13
(c) Amendments and Waivers........................................... 13
(d) Registrable Securities Held by the Company or its Affiliates..... 13
(e) Notices.......................................................... 13
(f) Successors and Assigns........................................... 14
(g) Counterparts..................................................... 14
(h) Headings......................................................... 14
(i) Governing Law; Jurisdiction...................................... 14
(j) Severability..................................................... 14
(k) Entire Agreement................................................. 14
(l) Attorney's Fees.................................................. 14
ii
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered
into this 8th day of January 1999, by and among EEX Corporation, a Texas
corporation (the "Company"), and Warburg, Pincus Equity Partners, L.P., a
Delaware limited partnership, Warburg, Pincus Netherlands Equity Partners I,
C.V., a Dutch limited partnership, Warburg, Pincus Netherlands Equity Partners
II, C.V., a Dutch limited partnership, and Warburg, Pincus Netherlands Equity
Partners III, C.V., a Dutch limited partnership, (collectively, the
"Purchaser").
RECITALS:
This Agreement is made pursuant to the Purchase Agreement, dated December
22, 1998 between the Company and the Purchaser (the "Purchase Agreement"). In
order to induce the Purchaser to enter into the Purchase Agreement, the Company
has agreed to provide the registration rights set forth in this Agreement. The
execution of this Agreement is a condition to the closing under the Purchase
Agreement.
AGREEMENT:
The parties hereby agree as follows:
1. DEFINITIONS.
(a) As used in this Agreement, the following terms will have the following
meanings:
"Demand Registration" has the meaning set forth in Section 3(a).
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time.
"Majority" means 51% or more.
"Person" means any individual, partnership, corporation, trust or
unincorporated organization, or a government or agency or political subdivision
thereof.
"Piggyback Registration" has the meaning set forth in Section 4(a).
"Preferred Stock" means shares of the Company's Series B 8% Cumulative
Perpetual Preferred Stock.
"Registration Expenses" has the meaning set forth in Section 8(a).
"Registration Notice" has the meaning set forth in Section 5.
"Registrable Securities" means (i) the Shares, (ii) the Warrants and (iii)
any securities issued or issuable with respect to the Shares or the Warrants by
way of exercise, stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization.
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<PAGE>
"Restricted Securities" means the Registrable Securities upon original
issuance thereof, subject to the provisions of Section 2(a).
"Securities Act" means the Securities Act of 1933, as amended from time to
time.
"SEC" means the Securities and Exchange Commission.
"Shares" means the shares of Preferred Stock issued and sold pursuant to
the Purchase Agreement and shares of Preferred Stock or Common Stock issued or
issuable as a dividend on such shares.
"Underwritten registration" or "underwritten offering" means any
registration in which securities of the Company are sold pursuant to a firm
commitment underwriting.
"Warrants" means the warrants issued and sold pursuant to the Purchase
Ageement.
(b) All undefined capitalized terms used herein shall have the meaning set
forth in the Purchase Agreement.
2. SECURITIES SUBJECT TO THIS AGREEMENT.
(a) Registrable Securities. The securities entitled to the benefits of this
Agreement are the Registrable Securities but, with respect to any particular
Registrable Security, only so long as such security continues to be a Restricted
Security. A Registrable Security ceases to be a Restricted Security when (i) it
has been effectively registered under the Securities Act and disposed of in
accordance with the registration statement covering it, (ii) has been sold
pursuant to Rule 144 (or any similar provisions then in force) under the
Securities Act or (iii) it has otherwise been transferred and a new certificate
or other evidence of ownership for it not bearing the legend set forth in
Section 4.5 of the Purchase Agreement (or other legend of similar import) has
been delivered (not subject to any stop transfer order) by or on behalf of the
Company and no other restriction on transfer exists.
(b) Holders of Registrable Securities. A Person is deemed to be a holder of
Registrable Securities whenever such Person owns Registrable Securities or has
the right to acquire such Registrable Securities, disregarding any legal
restrictions upon the exercise of such right, whether or not such acquisition
has actually been effected.
3. DEMAND REGISTRATION.
(a) Requests for Registration. Subject to the provisions of Section 3(b),
any holder or holders of the then outstanding Registrable Securities may request
at any time a registration by the Company under the Securities Act of all or
part of his Registrable Securities (a "Demand Registration"). Within ten days
after receipt of such request, the Company will serve written notice by
overnight carrier of such registration request to all holders of Registrable
Securities and will, subject to the provisions of Section 3(b), include in such
registration all Registrable Securities with respect to which the Company has
received written requests for inclusion therein within 15 business days after
distribution to the applicable holder of the Company's notice. All requests made
pursuant to this Section 3(a) will specify the amount of Registrable Securities
to be registered and will also specify the intended method of
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<PAGE>
disposition thereof; provided, however, that such method of disposition will be
limited to an underwritten offering if requested by the holders of a Majority of
the Registrable Securities requested to be included in such registration.
(b) Number of Registrations. The holders of Registrable Securities will be
entitled to request an aggregate of three Demand Registrations. A registration
initiated as a Demand Registration will not constitute a Demand Registration (i)
unless such registration has been declared effective by the SEC and remains
effective for the period set forth in Section 7(a)(iii); provided, however,
that, if more than 10% of the Registrable Securities requested to be included in
a Demand Registration which is an underwritten registration can be excluded
therefrom by reason of the provisions of Section 3(e), the holders of
Registrable Securities will be entitled to one additional Demand Registration
(in which the Company will pay the Registration Expenses) and (ii) if after such
registration has been declared effective by the SEC it is subject to any stop
order, injunction or other adverse order or action of the SEC or other
governmental authority.
(c) Effective Registration Expenses. Except as provided in Section 3(d),
any registration initiated as a Demand Registration, the Company will pay all
Registration Expenses, whether or not the registration has been declared
effective .
(d) No Rights of Company or Other Securityholders to Piggyback on Demand
Registrations. Neither the Company nor any of its securityholders (other than
the holders of Registrable Securities in such capacity) has any right to include
any of the Company's securities in a registration statement initiated as a
Demand Registration under this Section 3, unless (i) such securities are of the
same class as the Registrable Securities being registered, (ii) the holders of a
Majority of the Registrable Securities being registered in such registration
consent to such inclusion in writing, subject to Section 3(e), (iii) if such
Demand Registration is an underwritten offering, the managing underwriters agree
that some or all of such securities can be included without adversely affecting
such offering or offering price and (iv) the Company or the selling
securityholders, as applicable, agree to sell their securities on the same terms
and conditions as apply to Registrable Securities and the holders of such
Registrable Securities. If any securityholders of the Company (other than the
holders of Registrable Securities in such capacity) register securities of the
Company in a Demand Registration (in accordance with the provisions of this
Section 3(d)), such securityholders will pay the fees and expenses of counsel to
such securityholders and their pro rata share of the Registration Expenses if
such pro rata share of the Registration Expenses for such registration are not
paid by the Company for any reason.
(e) Priority on Demand Registrations. If a Demand Registration is an
underwritten offering and the managing underwriters advise the Company and the
selling holders of the Registrable Securities in writing that in their opinion
the number of Registrable Securities requested to be included exceeds the number
of securities which can be sold in such offering without adversely affecting the
proposed offering or the offering price, the Company will include in such
registration the number of Registrable Securities which in the opinion of such
underwriters can be sold without adversely affecting the proposed offering or
the offering price, and such securities will be allocated pro rata among the
holders of Registrable Securities on the basis of the number of the Registrable
Securities requested to be included in such registration by their respective
holders. If securities (other than Registrable Securities) are proposed to be
included by the Company or its other securityholders in a Demand
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Registration which is an underwritten offering (subject to and in accordance
with the provisions of Section 3(d)) and the managing underwriters advise the
Company and the selling holders of Registrable Securities in writing that some
but not all of said other securities can be sold without adversely affecting the
proposed offering or the offering price in such underwritten offering, in
addition to all of the Registrable Securities being registered, those securities
which are permitted to be included will be allocated (i) first, to the Company
and (ii) second, to the securityholders of such securities, allocated among them
in such proportions as such securityholders and the Company may agree.
(f) Selection of Underwriters. If any Demand Registration is an
underwritten offering, or a best efforts underwritten offering, the investment
banker or investment bankers and manager or managers that will administer the
offering will be selected by the holders of a Majority of the Registrable
Securities requested to be included in such offering; provided, however, such
investment bankers and managers must be reasonably satisfactory to the Company.
(g) Other Registration Rights Agreements. Without the prior written consent
of the holders of a Majority of the Registrable Securities, the Company will
neither enter into any new registration rights agreements that conflict with the
terms of this Agreement nor permit the exercise of any other registration rights
in a manner that conflicts with the terms of the registration rights granted
hereunder.
4. PIGGYBACK REGISTRATIONS.
(a) Right to Piggyback. Whenever the Company proposes to register any
securities under the Securities Act, other than pursuant to a Demand
Registration under Section 3 (a "Piggyback Registration"), the Company will give
written notice to all holders of Registrable Securities of its intention to
effect such a registration not later than the earlier to occur of (i) the tenth
day following receipt by the Company of notice of exercise of other demand
registration rights or (ii) 45 days prior to the anticipated filing date.
Subject to the provisions of Sections 4(c) and (d), the Company will include in
such Piggyback Registration all Registrable Securities with respect to which the
Company has received written requests for inclusion therein within ten business
days after the receipt by the applicable holder of Registrable Securities of the
Company's notice. The holders of Registrable Securities will be permitted to
withdraw all or any part of such holder's Registrable Securities from a
Piggyback Registration at any time prior to the date such Piggyback Registration
becomes effective with the SEC. If a Piggyback Registration is an underwritten
offering effected under (i) Section 4(c), all Persons whose securities are
included in the Piggyback Registration will be obligated to sell their
securities on the same terms and conditions as apply to the securities being
issued and sold by the Company or (ii) Section 4(d), all Persons whose
securities are included in the Piggyback Registration will be obligated to sell
their securities on the same terms and conditions as apply to the securities
being sold by the Person or Persons who initiated the Piggyback Registration
under Section 4(d).
(b) Piggyback Expenses. The Registration Expenses of the holders of
Registrable Securities included in a Piggyback Registration will be paid by the
Company.
(c) Priority on Primary Registrations. If a Piggyback Registration is an
underwritten registration on behalf of the Company, and the managing
underwriters advise the Company in
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writing that in their opinion the total number or dollar amount of securities
requested to be included in such registration exceeds the number or dollar
amount of securities which can be sold in such offering without adversely
affecting the offering or the offering price, the Company will include in such
registration: (i) first, all securities the Company proposes to sell, (ii)
second, up to the full number or dollar amount of Registrable Securities
requested to be included in such registration in excess of the number or dollar
amount of securities the Company proposes to sell which, in the opinion of such
underwriters, can be sold without adversely affecting the offering or the
offering price (allocated pro rata among the holders of such Registrable
Securities on the basis of the dollar amount or number of Securities requested
to be included therein by each such holder) and (iii) third, such other
securities (provided such securities are of the same class as the securities
being sold by the Company) as are requested to be included in such registration
equal to the balance, if any, allocated among the holders of such securities in
such proportions as the Company and such holders may agree.
(d) Priority on Secondary Registrations. If a Piggyback Registration is an
underwritten secondary registration on behalf of holders of the Company's
securities, and the managing underwriters advise the Company in writing that in
their opinion the dollar amount or number of securities requested to be included
in such registration exceeds the dollar amount or number of securities which can
be sold in such offering without adversely affecting the offering or the
offering price, the Company will include in such registration (i) first, the
number or dollar amount of securities which in the opinion of such underwriters
can be sold without adversely affecting the offering or the offering price of
the securities intended to be included therein on behalf of the holders of the
Company's securities, allocated among the holders of such securities in such
proportions as the Company and such holders may agree, and (ii) to the extent of
the balance, if any, the Registrable Securities requested to be included in such
registration, allocated pro rata among the holders of such Registrable
Securities on the basis of the dollar amount or number of securities requested
to be included therein by each such holder.
(e) Underwritten Offering of Different Classes of Securities.
Notwithstanding anything to the contrary in this Section 4, if a Piggyback
Registration is an underwritten offering of a class of securities of the Company
different from the Registrable Securities proposed to be included in such
offering and the managing underwriters advise that in their opinion Registrable
Securities of a different class cannot be included in such offering without
adversely affecting the offering or the offering price, then the holders of the
Registrable Securities shall not be entitled to include Registrable Securities
in such registration.
(f) Selection of Underwriters. If any Piggyback Registration is an
underwritten offering, the Company will have the sole right to select the
investment banker or investment bankers and manager or managers to administer
the offering.
5. REGISTRATION ON FORM S-3.
As one of its Demand Registration rights provided in Section 3, a holder of
the Registrable Securities shall be entitled to request by a notice in writing
to the Company ("Registration Notice") that the Company register for resale all
or a portion of their Registrable Securities on Form S-3 (or any similar short
form registration) if the Company and the transaction then qualify for the use
of such short form registration. On receipt of the
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Registration Notice, the Company will notify all of the holders of Registrable
Securities entitled to notice of a proposed registration pursuant to Section
3(a) of such request. Upon receipt by the Company of the Registration Notice,
the Company will, subject to Section 6(c) and Section 12(a) use its reasonable
best efforts to file a registration statement on Form S-3 (or any similar short
form registration) in accordance with the terms of this Section 5 as soon as
practicable after receipt of such Registration Notice. The Company will, subject
to Sections 6(c) and 12(a), use its reasonable best efforts to maintain the
effectiveness of the registration statement until the earlier of (i) January 8,
2009 (to the fullest extent permitted by law) or (ii) the date on which the
holders of the Registrable Securities Beneficially Own 5% or less of the Common
Stock. All Registration Expenses shall be borne by the Company, except for
underwriting commissions and discounts attributable to Registrable Securities
sold by the holders thereof, which discounts and commissions shall be paid by
such holders. The Company and other holders of securities of the Company may not
register securities under a registration statement filed pursuant to this
Section 5, without the consent of at least a Majority of the Registrable
Securities. A holder of Registrable Securities that are covered by a
registration statement pursuant to this Section 5 will give the Company at least
48 hours written notice prior to any resales by such holder thereunder.
6. HOLDBACK AGREEMENTS.
(a) Restrictions on Public Sale by Holder of Registrable Securities. Each
holder of Registrable Securities agrees not to effect any public sale or
distribution of equity securities of the Company (other than any distribution of
equity securities, substantially pro rata, to its partners or any public sale or
distribution of Preferred Stock), including a sale pursuant to Rule 144 under
the Securities Act, during the 90-day period beginning on the effective date of
any underwritten Demand Registration or any underwritten Piggyback Registration
in which a holder of Registrable Securities is entitled to participate (except
as part of such underwritten registration), to the full extent of the
Registrable Securities requested by such holder to be included in such
registration statement. Any such restriction as contemplated by this Section
6(a) may only apply once in any twelve month period.
(b) Restrictions on Public Sale by the Company. Except for any resales by
the holder of Registrable Securities made pursuant to Section 5, the Company
agrees not to offer, register or effect any sale or distribution on behalf of
itself or on behalf of another security holder of the Company's equity
securities, or any securities convertible into or exchangeable or exercisable
for such equity securities during the 90-day period beginning on (i) the
effective date of any underwritten Demand Registration or any underwritten
Piggyback Registration (except as part of such underwritten registration or as
part of an employee benefit plan registered pursuant to registrations on Form S-
8 or any successor form to Form S-8) or (ii) the pricing of an underwritten
offering pursuant to a shelf registration statement filed pursuant to Section 5.
Any such restriction as contemplated by this Section 6(b) may only apply once in
any twelve month period.
(c) Deferral of Filing; Suspension of Shelf Registration Statement. The
Company may, subject to the last sentence of this Section 6(c), defer the filing
(but not the preparation) of a registration statement required by Section 3 or
Section 5 until a date not later than 90 days (less the number of days during
the previous twelve months that the use of a prospectus was suspended pursuant
to this Section 6(c) or Section 12(a)) after the date of receipt by the Company
of a request for a Demand Registration if at the time the Company receives such
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request the Company is engaged in confidential negotiations or other
confidential business activities, disclosure of which would be required in such
registration statement (but would not be required if such registration statement
were not filed) and the Board of Directors of the Company determines in good
faith that such disclosure would be materially detrimental to the Company and
its shareholders. A deferral of the filing of a registration statement shall be
filed forthwith if the negotiations or other activities are disclosed or
terminated. In order to defer the filing of a registration statement pursuant to
this Section 6(c), the Company shall promptly, upon determining to seek such
deferral, deliver to each requesting holder a certificate signed by the
President or Chief Financial Officer of the Company stating that the Company is
deferring such filing pursuant to this Section 6(c). Within 20 days after
receiving such certificate, the requesting holder may withdraw such request by
giving notice to the Company; if withdrawn, the request for a Demand
Registration shall be deemed not to have been made for all purposes of this
Agreement. In addition, if the Company receives notice of a proposed sale under
a shelf registration statement filed pursuant to Section 5, the Company may,
subject to the last sentence of this Section 6(c), give notice to the holder
requesting such sale that such sale under such shelf registration statement must
be deferred and not made for up to 90 days (less the number of days during the
previous twelve months that the use of a prospectus was suspended pursuant to
this Section 6(c) or Section 12(a)) after the date of receipt by the Company of
such notice of proposed sale if at the time the Company receives such notice,
the Company is engaged in confidential negotiations or other confidential
business activities, disclosure of which would be required to be made in the
prospectus included in such shelf registration statement (but would not be
required if such sale were not made) in order to prevent such prospectus from
containing any untrue statement of a material fact or omitting to state any
material fact necessary to make the statements therein not misleading and the
Board of Directors of the Company determines in good faith that such disclosure
would be materially detrimental to the Company. A deferral of such proposed sale
pursuant to this Section 6(c) shall be lifted, and the sale may be forthwith
made if the negotiations or other activities are disclosed or terminated. In
order to defer the proposed sale pursuant to this Section 6(c), the Company
shall promptly, upon determining to seek such deferral, deliver to such
requesting holder, a certificate signed by the President or Chief Financial
Officer of the Company stating that the Company is deferring such proposed sale
pursuant to this Section 6(c). The Company may defer the filing of a Demand
Registration Statement only once during any twelve month period.
7. REGISTRATION PROCEDURES.
(a) Whenever the holders of Registrable Securities have requested that any
Registrable Securities be registered in accordance with the terms and conditions
of this Agreement, the Company will use its best efforts to effect the
registration and to permit the sale of such Registrable Securities in accordance
with the intended method of disposition thereof, and pursuant thereto the
Company will as expeditiously as possible:
(i) prepare and file with the SEC, not later than 30 days after
receipt of a request to file a registration statement with respect to such
Registrable Securities, a registration statement with respect to such
Registrable Securities, and use its best efforts to cause such registration
statement to become effective; provided, however, before filing a
registration statement or prospectus or any amendments or supplements
thereto, the Company will furnish to the counsel selected in accordance
with Section 8(b) by the holders of a Majority of the Registrable
Securities being registered in such
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registration statement copies of all such documents proposed to be filed,
which documents will be subject to the review of such counsel; each such
registration statement will be on a form for which the Company then
qualifies, which is available for the sale of the Registrable Securities in
accordance with the intended method of disposition thereof and which is
reasonably satisfactory to the holders of a Majority of the Registrable
Securities being registered (or the managing underwriters in the case of a
firm or best efforts underwriting offering);
(ii) notify each seller of Registrable Securities of any stop order
issued by the SEC and take all reasonable actions required to prevent the
entry of such stop order or to remove it at the earliest possible time if
entered;
(iii) prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective for a
period of not less than 90 days, or such shorter period as may be required
if all Registrable Securities covered by such registration statement are
sold prior to the expiration of such 90-day period (except in connection
with an underwritten offering, in which case such registration statement
shall be kept effective as long as the underwriters reasonably request in
the underwriting agreement), and comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by
such registration statement during such period in accordance with the
intended methods of disposition by the sellers thereof set forth in such
registration statement;
(iv) furnish to each seller of Registrable Securities such number of
copies of such registration statement, each amendment and supplement
thereto (in each case including all exhibits thereto), the prospectus
included in such registration statement (including each preliminary
prospectus) and such other documents as such seller may reasonably request
in order to facilitate the disposition of the Registrable Securities owned
by such seller;
(v) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such
jurisdictions as any seller reasonably requests and do any and all other
acts and things which may be reasonably necessary or advisable to enable
such seller to consummate the disposition in such jurisdictions of the
Registrable Securities owned by such seller; provided, however, that the
Company will not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for
this Section 7(a)(v), (ii) subject itself to taxation in any such
jurisdiction or (iii) consent to general service of process in any such
jurisdiction;
(vi) use its best efforts to cause the Registrable Securities covered
by such registration statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to enable
the seller or sellers thereof to consummate the disposition of such
Registrable Securities;
(vii) notify each seller of such Registrable Securities, at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such
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registration statement or any document incorporated therein by reference
contains an untrue statement of a material fact or omits to state any
material fact necessary to make the statements therein not misleading, and
prepare and file promptly with the SEC a supplement or amendment to such
prospectus or any such document incorporated therein by reference so that,
as thereafter delivered to the purchasers of such Registrable Securities,
such prospectus will not contain an untrue statement of a material fact or
omit to state any material fact necessary to make the statements therein
not misleading;
(viii) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are
then listed;
(ix) provide a transfer agent and registrar for all Registrable
Securities and a CUSIP number for all such Registrable Securities, in each
case not later than the effective date of such registration statement;
(x) enter into such customary agreements (including an underwriting
agreement in customary form) and take all such other actions in connection
therewith as the holders of a Majority of the Registrable Securities being
registered or the underwriters, if any, reasonably request in order to
expedite or facilitate the disposition of such Registrable Securities;
(xi) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to
such registration statement, and any attorney, accountant or other agent
retained by any such seller or underwriter, all financial and other
records, pertinent corporate documents and properties of the Company, and
cause the Company's officers, directors and employees to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement;
(xii) obtain a cold comfort letter from the Company's independent
public accountants in customary form and covering such matters of the type
customarily covered by cold comfort letters as the holders of a Majority of
the Registrable Securities being registered or the managing underwriters
reasonably request; and
(xiii) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the SEC, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months, but not more than eighteen
months, beginning with the first month after the effective date of the
Registration Statement, which earnings statement will satisfy the
provisions of Section 11(a) of the Securities Act.
(b) The Company may require each seller of Registrable Securities as to
which any registration is being effected to furnish to the Company such
information regarding the distribution of such securities as the Company may
from time to time reasonably request.
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8. REGISTRATION EXPENSES.
(a) All expenses incident to the Company's performance of or compliance
with this Agreement, including without limitation all registration and filing
fees, fees and expenses of compliance with securities or blue sky laws
(including reasonable fees and disbursements of counsel for the underwriters in
connection with blue sky qualifications of the Registrable Securities), printing
expenses, messenger, telephone and delivery expenses, and fees and disbursements
of counsel for the Company and counsel for the sellers of the Registrable
Securities (subject to the provisions of Section 8(b)) and of all independent
certified public accountants (including the expenses of any special audit or
"cold comfort" letters required by or incident to such performance),
underwriters (excluding discounts and commissions but including liability
insurance if the Company so desires or if the underwriters so require), the
reasonable fees and expenses of any special experts retained by the Company or
at the request of the managing underwriters in connection with such registration
and fees and expenses of other Persons retained by the Company (all such
expenses being herein called "Registration Expenses"), will be borne as provided
in this Agreement, except that the Company will, in any event, pay its internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expense of
any annual audit, the expense of liability insurance referred to above and the
fees and expenses incurred in connection with the listing of the securities to
be registered on each securities exchange on which similar securities issued by
the Company are then listed.
(b) In connection with each registration hereunder, the Company will
reimburse the holders of Registrable Securities being registered in such
registration for the reasonable fees and disbursements of no more than one
counsel (or more than one counsel if an actual conflict exists among such
selling holders) chosen by the holders of a Majority of the Registrable
Securities being registered.
9. INDEMNIFICATION; CONTRIBUTION.
(a) Indemnification by Company. The Company agrees to indemnify to the full
extent permitted by law, each holder of Registrable Securities, its officers,
directors and constituent partners and each Person who controls such holder
(within the meaning of the Securities Act and the Exchange Act) against all
losses, claims, damages, liabilities and expenses (or actions in respect
thereof) arising out of or based upon any untrue or alleged untrue statement of
a material fact contained in any registration statement, prospectus or
preliminary prospectus or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as the same are contained in any
information furnished in writing to the Company by such holder expressly for use
therein or caused by such holder's failure to deliver a copy of the registration
statement or prospectus or any amendments or supplements thereto after the
Company has furnished such holder with a sufficient number of copies of the
same. The Company will reimburse each holder of Registrable Securities, its
officers, directors, constituent partners and controlling Persons for any legal
and other expenses as incurred in connection with investigating or defending any
such losses, claims, damages, liabilities, expenses or actions. In connection
with a firm commitment or best efforts underwritten offering, the Company will
indemnify the underwriters or agents, their officers,
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directors, constituent partners and each Person who controls such underwriters
(within the meaning of the Securities Act and the Exchange Act) or agents to the
same extent as provided above (or such greater extent as may be customarily
required by the managing underwriters) with respect to the indemnification of
the holders of Registrable Securities.
(b) Indemnification by Holder of Registrable Securities. In connection with
any registration statement in which a holder of Registrable Securities is
participating, each such holder will furnish to the Company in writing such
information and affidavits as the Company reasonably requests for use in
connection with any such registration statement or prospectus and agrees to
indemnify, to the extent permitted by law, the Company, its directors and
officers and each Person who controls the Company (within the meaning of the
Securities Act and the Exchange Act) against any losses, claims, damages,
liabilities and expenses resulting from any untrue or alleged untrue statement
of a material fact or any omission or alleged omission of a material fact
required to be stated in the registration statement or prospectus or any
amendment thereof or supplement thereto or necessary to make the statements
therein not misleading, to the extent, but only to the extent, that such untrue
statement or omission is contained in any written information or affidavit
furnished by such holder specifically for such registration statement and then
only to the extent of the net proceeds received by such holder of Registrable
Securities. The holders of Registrable Securities will reimburse, to the extent
of the net proceeds received by the holders of Registrable Securities, the
Company, its officers, directors and controlling persons for any legal and other
expenses as incurred in connection with investigation or defending any such
losses, claims, damages, liabilities, expenses or actions.
(c) Conduct of Indemnification Proceedings. Any Person entitled to
indemnification hereunder will (i) give prompt notice to the indemnifying party
of any claim with respect to which it seeks indemnification (but omission of
such notice shall not relieve the indemnifying party from liability hereunder
except to the extent such indemnifying party is actually prejudiced by such
failure to give notice) and (ii) unless in such indemnified party's reasonable
judgment a conflict of interest may exist between such indemnified and
indemnifying parties with respect to such claim, permit such indemnifying party
to assume the defense of such claim with counsel reasonably satisfactory to the
indemnified party. If such defense is not assumed by the indemnifying party, the
indemnifying party will not be subject to any liability for any settlement made
without its consent (but such consent will not be unreasonably withheld). No
indemnifying party will consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party of an unconditional release
from all liability in respect to such claim or litigation. An indemnifying party
who is not entitled to, or elects not to, assume the defense of a claim will not
be obligated to pay the fees and expenses of more than one counsel for all
parties indemnified by such indemnifying party with respect to such claim,
unless an actual conflict of interest exists between such indemnified party and
any other of such indemnified parties with respect to such claim, in which event
the indemnifying party will be obligated to pay the fees and expenses of such
additional counsel or counsels.
(d) Contribution. If the indemnification provided for in Section 9(a) is
unavailable or insufficient to hold harmless each of the indemnified parties
against any losses, claims, damages, liabilities and expenses (or actions in
respect thereof) to which such persons may become subject under the Securities
Act, then the indemnifying party shall, in lieu of indemnifying each party
entitled to indemnification hereunder, contribute to the amount paid or
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payable by such party as a result of such losses, claims, damages, liabilities
or expenses in such proportion as is appropriate to reflect the relative fault
of the indemnifying party on the one hand and such indemnified persons on the
other in connection with the statements or omissions or alleged statements or
omissions that resulted in such losses, claims, damages, liabilities or
expenses. The relative fault of such persons shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact, or omission or alleged omission to state a material fact, relates
to information supplied by or concerning the indemnifying party on the one hand,
or by such indemnified person on the other, and such person's relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 9(d) were determined by pro
rata allocation or by any other allocation that does not take into account the
equitable considerations referred to in this Section 9(d). No person guilty of
fraudulent misrepresentation within the meaning of the Act shall be entitled to
contribution from any person that is not guilty of such fraudulent
misrepresentation.
10. RULE 144.
The Company covenants that it will file the reports required to be filed by
it under the Securities Act and the Exchange Act and the rules and regulations
adopted by the SEC thereunder (or, if the Company is not required to file such
reports, it will, upon the request of any holder of Registrable Securities, make
publicly available such information), and it will take such further action as
any holder of Registrable Securities may reasonably request, all to the extent
required from time to time to enable such holder to sell Registrable Securities
without registration under the Securities Act within the limitation of the
exemptions provided by (i) Rule 144 under the Securities Act, as such Rule may
be amended from time to time, or (ii) any similar rule or regulation hereafter
adopted by the SEC. Upon the request of any holder of Registrable Securities,
the Company will deliver to such holder a written statement that it has complied
with such requirements.
11. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS.
No Person may participate in any underwritten registration hereunder unless
such Person (i) agrees to sell such Person's securities on the basis provided in
any underwriting arrangements approved by the Persons entitled hereunder to
approve such arrangements and (ii) completes and executes all customary
questionnaires, powers of attorney, underwriting agreements and other documents
required under the terms of such underwriting arrangements.
12. MISCELLANEOUS.
(a) Right to Suspend. The Company may, by notice in writing to each holder
of Registrable Securities, require the holder of Registrable Securities to
suspend use of any prospectus included in a registration statement filed
hereunder if the Company reasonably determines that it contains an untrue
statement of a material fact or omits to state any material fact necessary to
make the statements therein not misleading or that any transaction in which the
Company is engaged or proposes to engage would require an amendment to such
registration statement or a supplement to such prospectus (including any such
amendment or supplement made through incorporation by reference to a report
filed under Section 13 of the
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Exchange Act). Each holder of Registrable Securities agrees that, upon receipt
of any notice from the Company of the happening of any event of the kind
described in this Section 12(a), such holder will forthwith discontinue
disposition of Registrable Securities pursuant to the registration statement
covering such Registrable Securities until such holder's receipt of the copies
of a properly supplemented or amended prospectus, and, if so directed by the
Company, such holder will deliver to the Company all copies, other than
permanent file copies, then in such holder's possession, of the most recent
prospectus covering such Registrable Securities at the time of receipt of such
notice. In the event the Company gives any such notice, the time period
mentioned in Section 7(a)(iii), if applicable, will be extended by the number of
days during the period from and including the date of the giving of such notice
to and including the date when each seller of Registrable Securities covered by
such registration statement has received the copies of such supplemented or
amended prospectus. The Company agrees to use its reasonable best efforts to
cause any suspension of use of any prospectus pursuant to this paragraph to be
as short a period of time as possible.
(b) Remedies. Each holder of Registrable Securities, in addition to being
entitled to exercise all rights granted by law, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement.
(c) Amendments and Waivers. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given unless the Company has obtained the
written consent of at least a Majority of the outstanding Registrable
Securities.
(d) Registrable Securities Held by the Company or its Affiliates. For the
purposes of Section 3(b), when determining whether the required minimum
principal amount or number of Registrable Securities has been requested to be
included in a Demand Registration, Registrable Securities held by the Company or
any affiliate thereof (other than a Purchaser, if it is such an affiliate),
unless they are requested to be included in a registration statement, will not
be counted for the purposes of determining whether such required minimum number
or principal amount of Registrable Securities has been requested to be so
included. Whenever the consent or approval of holders of all or any specified
percentage of Registrable Securities is required hereunder, Registrable
Securities held by the Company or any of its affiliates (other than a Purchaser
if it is such an affiliate) will not be counted in determining whether such
consent or approval was given by such holders.
(e) Notices. All notices hereunder shall be in writing and shall be
effective (a) on the day on which delivered if delivered personally or
transmitted by telex or telegram or telecopier with evidence of receipt, (b) one
business day after the date on which the same is delivered to a nationally
recognized overnight courier service with evidence of receipt, or (c) five
business days after the date on which the same is deposited, postage prepaid, in
the U.S. mail, sent by certified or registered mail, return receipt requested,
and addressed to the party to be notified at the address indicated below for the
Company, or at the address for the holder of the Registrable Securities set
forth in a registry maintained by the Company, or at such other address and/or
telecopy or telex number and/or to the attention of such other person as the
Company or the holder of the Registrable Securities may designate by ten-day
advance written notice.
13
<PAGE>
(f) Successors and Assigns. This Agreement will inure to the benefit of and
be binding upon the successors and assigns of each of the parties, including
without limitation and without the need for an express assignment, subsequent
holders of Registrable Securities.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed will be deemed to be an original and all of which taken
together will constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
reference only and will not limit or otherwise affect the meaning hereof.
(i) Governing Law; Jurisdiction. This Agreement will be governed by and
construed in accordance with the laws of the State of Texas, without giving
effect to conflict of law principles. Any holder of Registrable Securities may
bring any action or proceeding to enforce or arising out of this Agreement or in
the instruments and agreements annexed hereto in any court of competent
jurisdiction.
(j) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein will not be affected or impaired thereby.
(k) Entire Agreement. This Agreement is intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted by the Company with respect to
the securities sold pursuant to the Purchase Agreement. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
(l) Attorney's Fees. In any action or proceeding brought to enforce any
provision of this Agreement, or where any provision hereof or thereof is validly
asserted as a defense, the successful party will be entitled to recover
reasonable attorney's fees in addition to any other available remedy.
REMAINDER OF PAGE INTENTIONALLY BLANK.
14
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
EEX CORPORATION
/s/ Richard S. Langdon
--------------------------------------------------
Richard S. Langdon
Executive Vice President, Finance and
Administration and Chief Financial Officer
WARBURG, PINCUS EQUITY PARTNERS, L.P.
By: Warburg, Pincus & Co.
Its: General Partner
/s/ Jeffrey A. Harris
--------------------------------------------------
Jeffrey A. Harris
Partner
WARBURG, PINCUS NETHERLANDS EQUITY PARTNERS I,
C.V.
By: Warburg, Pincus & Co.
Its: General Partner
/s/ Jeffrey A. Harris
--------------------------------------------------
Jeffrey A. Harris
Partner
WARBURG, PINCUS NETHERLANDS EQUITY PARTNERS II,
C.V.
By: Warburg, Pincus & Co.
Its: General Partner
/s/ Jeffrey A. Harris
--------------------------------------------------
Jeffrey A. Harris
Partner
15
<PAGE>
WARBURG, PINCUS NETHERLANDS EQUITY PARTNERS III,
C.V.
By: Warburg, Pincus & Co.
Its: General Partner
/s/ Jeffrey A. Harris
--------------------------------------------------
Jeffrey A. Harris
Partner
16
<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.
EEX Turkey B.V.
<PAGE>
EXHIBIT 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, and Form S-3 No. 333-64427 for the registration of EEX Corporation debt
securities, preferred stock, warrants, and common stock) of EEX Corporation of
our report dated February 19, 1999, with respect to the consolidated financial
statements of EEX Corporation included in this Annual Report (Form 10-K) for the
year ended December 31, 1998.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Houston, Texas
March 12, 1999
<PAGE>
[LETTERHEAD OF NETHERLAND, SEWELL & ASSOCIATES, INC. APPEARS HERE]
EXHIBIT 23.2
EEX Corporation
Suite 1400
2500 CityWest Blvd.
Houston, Texas 77042
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS AND GEOLOGISTS
We hereby consent to the filing of the Annual Report on Form 10-K, for
the year ended December 31, 1998, for EEX Corporation in accordance with the
requirements of the Securities Act of 1933. We consent to the inclusion in such
Annual Report of our reserve report incorporated therein, 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) and on Form S-3 (No. 333-64427).
NETHERLAND, SEWELL & ASSOCIATES, INC.
By: /s/ Frederic D. Sewell
-----------------------------
Frederic D. Sewell
President
Dallas, Texas
March 11, 1999
<PAGE>
EXHIBIT 23.3
DeGolyer and MacNaughton
One Energy Square
Dallas, Texas 75206
March 11, 1999
EEX Corporation
2500 City West Boulevard
Suite 1400
Houston, Texas 77042
Gentlemen:
We hereby consent to the references to our firm and to our reserves
estimates for the year ended December 31, 1996, as set forth in the Annual
Report on Form 10-K (the Annual Report) of EEX Corporation for the year ended
December 31, 1998. Our estimates of the oil, condensate, natural gas liquids,
and natural gas reserves of certain properties owned by the Company are
contained in our report entitled "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 18 of the "Notes to Consolidated 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 and No. 333-64427 on Form S-3 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>
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>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 15,588
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<RECEIVABLES> 42,530
<ALLOWANCES> 2,504
<INVENTORY> 0
<CURRENT-ASSETS> 72,358
<PP&E> 1,126,272
<DEPRECIATION> (674,887)
<TOTAL-ASSETS> 565,070
<CURRENT-LIABILITIES> 61,592
<BONDS> 222,444
0
0
<COMMON> 424
<OTHER-SE> 233,876
<TOTAL-LIABILITY-AND-EQUITY> 565,070
<SALES> 0
<TOTAL-REVENUES> 219,052
<CGS> 0
<TOTAL-COSTS> 240,049
<OTHER-EXPENSES> (81)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,987
<INCOME-PRETAX> (39,391)
<INCOME-TAX> (4,997)
<INCOME-CONTINUING> (40,926)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> (40,926)
<EPS-PRIMARY> (.97)<F1>
<EPS-DILUTED> (.97)<F1>
<FN>
<F1>A ONE-FOR-THREE REVERSE STOCK SPLIT WAS EFFECTIVE DECEMBER 8, 1998. PRIOR
FINANCIAL DATA SCHEDULES HAVE NOT BEEN RESTATED FOR THIS RECAPITALIZATION.
</FN>
</TABLE>
