<PAGE> 1
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10-K
---------------------
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 1-9743
EOG RESOURCES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 47-0684736
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
</TABLE>
1200 SMITH STREET, SUITE 300, HOUSTON, TEXAS 77002-7361
(Address of principal executive offices) (zip code)
---------------------
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 713-651-7000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
<S> <C>
Common Stock, $.01 par value New York Stock Exchange
</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 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ].
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 voting stock held by nonaffiliates of the
registrant, based on the closing sale price in the daily composite list for
transactions on the New York Stock Exchange on February 25, 2000 was
$1,609,731,449. As of March 1, 2000, there were 117,211,873 shares of the
registrant's Common Stock, $.01 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE. Certain portions of the registrant's
definitive Proxy Statement for the May 9, 2000 Annual Meeting of Shareholders
("Proxy Statement") are incorporated in Part III by reference.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I
Item 1. Business.................................................... 1
General..................................................... 1
Business Segments........................................... 3
Exploration and Production.................................. 3
Wellhead Volumes and Prices, and Lease and Well Expenses.... 8
Competition................................................. 9
Regulation.................................................. 9
Relationship Between the Company and Enron Corp............. 12
Other Matters............................................... 12
Current Executive Officers of the Registrant................ 14
Item 2. Properties
Oil and Gas Exploration and Production Properties and
Reserves.................................................. 15
Item 3. Legal Proceedings........................................... 18
Item 4. Submission of Matters to a Vote of Security Holders......... 18
PART II
Item 5. Market for the Registrant's Common Equity and Related
Shareholder Matters....................................... 19
Item 6. Selected Financial Data..................................... 21
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 22
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 29
Item 8. Financial Statements and Supplementary Data................. 29
Item 9. Disagreements on Accounting and Financial Disclosure........ 29
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 30
Item 11. Executive Compensation...................................... 30
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 30
Item 13. Certain Relationships and Related Transactions.............. 30
PART IV
Item 14. Financial Statements and Financial Statement Schedule,
Exhibits and Reports on Form 8-K.......................... 30
</TABLE>
(i)
<PAGE> 3
PART I
ITEM 1. BUSINESS
GENERAL
EOG Resources, Inc. (the "Company"), a Delaware corporation organized in
1985, is engaged, either directly or through a marketing subsidiary with regard
to domestic operations or through various subsidiaries with regard to
international operations, in the exploration for, and the development,
production and marketing of, natural gas and crude oil primarily in major
producing basins in the United States, as well as in Canada and Trinidad and, to
a lesser extent, selected other international areas. The Company's principal
producing areas are further described under "Exploration and Production" below.
At December 31, 1999, the Company's estimated net proved natural gas reserves
were 3,175 billion cubic feet ("Bcf") and estimated net proved crude oil,
condensate and natural gas liquids reserves were 73 million barrels ("MMBbl").
(See "Supplemental Information to Consolidated Financial Statements"). At such
date, approximately 54% of the Company's reserves (on a natural gas equivalent
basis) was located in the United States, 16% in Canada and 30% in Trinidad. As
of December 31, 1999, the Company employed approximately 775 persons, including
foreign national employees.
The Company's business strategy is to maximize the rate of return on
investment of capital by controlling all operating and capital costs. This
strategy enhances the generation of both income and cash flow from each unit of
production and allows for the growth of production on a cost-effective basis by
optimizing the reinvestment of cash flow. The Company continued to focus its
1999 drilling activity toward natural gas deliverability in addition to natural
gas reserve enhancement and to a lesser extent crude oil exploitation. The
Company also continues to focus on the cost-effective utilization of advances in
technology associated with gathering, processing and interpretation of 3-D
seismic data, developing reservoir simulation models and drilling operations
through the use of new and/or improved drill bits, mud motors, mud additives,
formation logging techniques and reservoir fracturing methods. These advanced
technologies are used, as appropriate, throughout the Company to reduce the
risks associated with all aspects of oil and gas reserve exploration,
exploitation and development. The Company implements its strategy by emphasizing
the drilling of internally generated prospects in order to find and develop low
cost reserves. Achieving and maintaining the lowest possible operating cost
structure are also important goals in the implementation of the Company's
strategy.
On August 16, 1999, the Company and Enron Corp. completed the Share
Exchange Agreement ("Share Exchange") whereby the Company received 62,270,000
shares of the Company's common stock out of 82,270,000 shares owned by Enron
Corp. in exchange for all the stock of the Company's subsidiary, EOGI-India,
Inc. Prior to the Share Exchange, the Company made an indirect capital
contribution of approximately $600 million in cash, plus certain intercompany
receivables, to EOGI-India, Inc. At the time of completion of this transaction,
this subsidiary owned, through subsidiaries, all of the Company's assets and
operations in India and China. The Company recognized a $575 million tax-free
gain on the Share Exchange based on the fair value of the shares received, net
of transaction fees of $14 million. Immediately following the Share Exchange,
the Company retired the 62,270,000 shares of the Company's common stock received
in the transaction. The weighted average basis in the treasury shares retired
was first deducted from and fully eliminated existing additional paid in capital
with the remaining value deducted from retained earnings. On August 30, 1999,
the Company changed its corporate name to "EOG Resources, Inc." from "Enron Oil
& Gas Company" and has since made similar changes to its subsidiaries' names.
On July 23, 1999, the Company filed a registration statement with the
Securities and Exchange Commission for the public offering of 27,000,000 shares
of the Company's common stock. The public offering was completed on August 16,
1999, and the net proceeds were used to repay short-term borrowings used to fund
a significant portion of the cash capital contribution in connection with the
Share Exchange. As a result of the public offering and the retirement of
62,270,000 shares of the Company's common stock previously mentioned, the number
of shares of the Company's common stock issued was reduced to 124,730,000 from
160,000,000 prior to the Share Exchange. As of December 31, 1999, the Company
had in its treasury
1
<PAGE> 4
5,625,446 shares of its common stock issued, reducing the number of shares
outstanding to 119,104,554 shares.
Immediately prior to the closing of the Share Exchange, Enron Corp. owned
82,270,000 shares of the Company's common stock, representing approximately 53.5
percent of all of the shares of the Company's common stock that were
outstanding. As a result of the closing of the Share Exchange, the sale by Enron
Corp. of 8,500,000 shares of the Company's common stock as a selling stockholder
in the public offering referred to above, and the completion on August 17, 1999
and August 20, 1999 of the offering of Enron Corp. notes mandatorily
exchangeable at maturity into up to 11,500,000 shares of the Company's common
stock, Enron Corp's maximum remaining interest in the Company after the
automatic conversion of its notes on July 31, 2002, will be under two percent
(assuming the notes are exchanged for less than the 11,500,000 shares of the
Company's common stock). As a result, beginning with the Share Exchange all
transactions with Enron Corp. and its affiliates have been classified as Trade.
Effective as of August 16, 1999, the closing date of the Share Exchange,
the members of the board of directors of the Company who were officers or
directors of Enron Corp. resigned their positions as directors of the Company.
As a result of the change to the Company's portfolio of assets brought
about by the Share Exchange, the Company conducted a re-evaluation of its
overall business. As a result of this re-evaluation, some of the Company's
projects were no longer deemed central to its business. The Company incurred
non-cash charges in connection with the impairment and/or the Company's decision
to dispose of such projects of $89 million after-tax. In the United States
operating segment, a pre-tax charge of $78 million was recorded to depreciation,
depletion and amortization expense for impairment. The carrying values for
assets determined to be impaired were adjusted to estimated fair values based on
projected future discounted net cash flows for such assets. In the Other
operating segment, a pre-tax charge of $36 million was recorded to depreciation,
depletion and amortization expense to fully write-off the Company's basis and a
pre-tax charge of $19 million was recorded to other income (expense) -- other,
net for the estimated exit costs related to the Company's decision to dispose of
certain international operations. Net loss for such operations for 1999
excluding these charges was approximately $3 million. In addition, in the fourth
quarter, depreciation, depletion and amortization expense of $7 million pre-tax
was recorded in the United States operating segment resulting from a reduction
in proved reserves related to the Company's decision to defer the development of
the Big Piney Madison deep Paleozoic formation methane reserves in Wyoming for
the foreseeable future. Starting in 2000, this reserve reduction will increase
depreciation, depletion and amortization by approximately $26 million annually.
At December 31, 1998, these reserves represented approximately $100 million or
5% of the Company's Standardized Measure of Discounted Future Net Cash Flows as
adjusted for the sale of the India and China reserves as a result of the Share
Exchange.
On July 28, 1999, the Company executed a series of new credit agreements
aggregating $1.3 billion (the "Credit Facilities"). At the same time, the
Company cancelled its existing credit facilities totaling $450 million. Of the
$1.3 billion, $500 million was set to expire in 364 days (the "Interim
Facility"), $400 million was structured as a 364-day revolving credit facility
with a one-year term option subsequent to the revolving period and $400 million
was structured as a five-year revolving credit facility. The Interim Facility
was cancelled subsequent to the completion of the public offering referred to
above.
Unless the context otherwise requires, all references herein to the Company
include EOG Resources, Inc., its predecessors and subsidiaries, and any
reference to the ownership of interests or pursuit of operations in any
international areas by the Company recognizes that all such interests are owned
and operations are pursued by subsidiaries of EOG Resources, Inc. Unless the
context otherwise requires, all references herein to Enron Corp. include Enron
Corp., its predecessors and affiliates, other than the Company and its
predecessors and subsidiaries.
With respect to information on the Company's working interest in wells or
acreage, "net" oil and gas wells or acreage are determined by multiplying
"gross" oil and gas wells or acreage by the Company's working interest in the
wells or acreage. Unless otherwise defined, all references to wells are gross.
2
<PAGE> 5
BUSINESS SEGMENTS
The Company's operations are all natural gas and crude oil exploration and
production related.
EXPLORATION AND PRODUCTION
NORTH AMERICA OPERATIONS
United States. The Company's principal United States producing areas are
the Southwestern Wyoming area, Vernal area of Utah, South Texas area, East Texas
area, Mississippi Salt Basin, Offshore Gulf of Mexico area, Southeastern New
Mexico area, Val Verde Basin and Midland Basin of West Texas, and Mid Continent
area. Properties in these areas comprised approximately 95% of the Company's
United States reserves (on a natural gas equivalent basis) and 97% of the
Company's United States net natural gas deliverability as of December 31, 1999
and substantially all are operated by the Company.
The Company's other United States natural gas and crude oil producing
properties are located primarily in other areas of Texas, Utah, New Mexico,
Oklahoma, California, and Kansas.
At December 31, 1999, 85% of the Company's proved United States reserves
(on a natural gas equivalent basis) was natural gas and 15% was crude oil,
condensate and natural gas liquids. A substantial portion of the Company's
United States natural gas reserves is in long-lived fields with well-established
production histories. The Company believes that opportunities exist to increase
production in many of these fields through continued infill and other
development drilling.
Southwestern Wyoming Area. Big Piney, the Company's largest reserve
accumulation, is located in Sublette and Lincoln Counties of Southwestern
Wyoming. The Company is the holder of the largest productive acreage base in the
Big Piney area, with approximately 265,000 net acres under lease. The Company
operates approximately 824 natural gas and crude oil wells in this area with an
85% average working interest. Deliveries from the Big Piney area net to the
Company averaged 97 million cubic feet ("MMcf") per day of natural gas and 4.2
thousand barrels ("MBbl") per day of crude oil, condensate, and natural gas
liquids in 1999. At December 31, 1999, natural gas deliverability net to the
Company was approximately 95 MMcf per day.
The principal producing intervals within the Big Piney area are the Almy,
Mesaverde and Frontier formations. The Frontier formation, which occurs at 6,500
to 10,000 feet, contains approximately 60% of the Company's Big Piney proved
developed reserves. The Company drilled 47 wells in the Big Piney area in 1999
and anticipates an active drilling program will continue for several years.
During 1999, the Company drilled three wells in the Washakie Basin,
Sweetwater County, Wyoming. The Cepo Lewis 21-18 and the Powder Mountain 1-13
initially produced at a combined rate of 12 MMcf per day from the Lewis
formation, and the Cedar Chest 31-5 initially produced 5 MMcf per day from the
Almond formation. The Company owns 20,000 net leasehold acres and 220 square
miles of new 3-D seismic, and anticipates an active drilling program in the
Washakie Basin for several years. Natural gas deliveries net to the Company in
this area averaged approximately 9.1 MMcf per day in 1999, and deliverability at
December 31, 1999 was approximately 15 MMcf per day.
Vernal Area. In the Vernal area, located primarily in Uintah County, Utah,
the Company operates approximately 334 producing wells and presently controls
approximately 66,000 net acres. In 1999, natural gas deliveries net to the
Company from the Vernal area averaged 26 MMcf per day. Deliverability at
December 31, 1999, was approximately 28 MMcf per day. Production is from the
Green River and Wasatch formations located at depths between 4,500 and 8,000
feet. The Company has an average working interest of approximately 61%. Numerous
drilling opportunities will be available in this area in 2000.
South Texas Area. The Company's activities in South Texas are focused in
the Lobo/Roleta, Frio and Wilcox producing horizons. The principal areas of
activity are in the Lobo/Roleta trend which occurs primarily in Webb and Zapata
Counties and the Frio trend in Matagorda County. Utilizing newly acquired 3-D
seismic in Webb and Zapata Counties, the Company added two significant field
extensions in the Pok-A-Dot area. Thirteen wells were drilled and completed
during 1999. At December 31, 1999, net deliveries
3
<PAGE> 6
from these wells were 28 MMcf per day of natural gas. During 1999, Lobo/Roleta
net deliverability averaged approximately 39 MMcf per day of natural gas. In
Matagorda County, seven wells were completed in 1999 with a combined initial
rate of 55 MMcf per day of natural gas and 1 MBbl per day of condensate net to
the Company. During 1999, Frio net deliverability averaged approximately 34 MMcf
per day of natural gas and 1 MBbl per day of condensate.
The Company operates approximately 429 wells in the South Texas area, and
production is primarily from the Lobo, Roleta and Frio sands at depths ranging
from 5,000 to 16,000 feet. The Company owns approximately 288,000 net leasehold
acres and more than 40,000 net mineral fee acres in this area. Natural gas
deliveries net to the Company averaged approximately 142 MMcf per day in 1999.
At December 31, 1999, natural gas deliverability from this area net to the
Company was approximately 190 MMcf per day. During 1999, the Company drilled 53
wells in the South Texas area, acquired 480 square miles of new 3-D seismic and
leased 35,000 net acres. An active drilling program in this area is anticipated
to continue for several years.
East Texas Area. The Company's activities in the East Texas area are
primarily in the Carthage field, located in Panola County, the North Milton
field, located in Harris County and the Stowell/Big Hill area, located in
Jefferson and Chambers Counties. Pursuant to a property exchange with OXY USA
Inc. ("OXY") in 1999, the Company acquired working interests in 715 wells
located primarily in Gregg and Panola Counties.
The Carthage field production is from the Cotton Valley, Travis Peak and
Pettit formations. The Company owns approximately 37,000 net operated acres
under lease with an average 83% working interest in this area. The Company
drilled 17 wells in the Carthage field in 1999 and anticipates an active
drilling program will continue for several years. The Company has continued its
activity in the North Milton field where it now operates 29 wells and holds a
100% working interest in the acreage. The Company anticipates drilling
additional wells during 2000. The Company drilled 4 wells in the Stowell/Big
Hill area in 1999 and expects to continue expansion of the program in 2000.
During 1999, net deliveries from the East Texas area averaged 76 MMcf per day of
natural gas and 2.7 MBbl per day of crude oil, condensate and natural gas
liquids. At December 31, 1999, deliverability from the area was approximately
103 MMcf per day of natural gas with 5.9 MBbl per day of crude oil, condensate
and natural gas liquids both net to the Company.
Mississippi Salt Basin. The Company's activities in this basin target the
Cretaceous (Rodessa, Sligo, Hosston and Selma Chalk) formation. In Mississippi,
the Company operates 114 producing wells and owns approximately 47,000 net
acres. During 1999, the Company drilled 4 deep Cretaceous and 17 Chalk wells.
The Company plans an expanded program in 2000. Net deliveries from the area
during 1999 averaged 15 MMcf per day of natural gas and 0.6 MBbl per day of
crude oil and condensate. At December 31, 1999, net deliverability from the area
was approximately 15 MMcf per day of natural gas and 1.0 MBbl per day of crude
oil and condensate.
Offshore Gulf of Mexico Area. Development of the Eugene Island 135
discovery continued with the installation of a second platform and the drilling
of one development well in 1999. The Company anticipates drilling one additional
step-out well in 2000. At December 31, 1999, net deliverability from the block
was approximately 14 MMcf per day of natural gas. During 1999, net production
from the Matagorda Island 623 field, where the Company purchased a 19% working
interest in 1998, averaged approximately 43 MMcf per day of natural gas. The
Company expects to drill two replacement wells in this field during 2000.
During the year, the Company continued to rationalize its primary term
acreage position through third-party joint ventures. At December 31, 1999, the
Company held an interest in 135 blocks in the Offshore Gulf of Mexico area
totaling approximately 342,000 net acres with 78 primary term leases and 57
leases held by production or being developed. Of these 135 blocks, located
predominantly in federal waters offshore Texas and Louisiana, 85 are operated by
the Company. In 1999, the Company traded its interests in 4 producing blocks in
the Matagorda Island and Garden Banks area, and the member interests in an
indirect wholly owned limited liability company whose assets included interests
in 5 producing blocks in the Matagorda Island area, representing in the
aggregate 28 MMcf per day of natural gas production net to the Company, as part
of a property exchange with OXY. Natural gas deliveries from this area averaged
127 MMcf per day during 1999, inclusive of the production from the properties
traded to OXY, which transaction closed on December 31, 1999.
4
<PAGE> 7
During 1999, the Company implemented a shift in its Gulf of Mexico strategy
from exploration drilling to one of acquisition and exploitation in core areas
of the Louisiana and Texas shelf. During 2000, the Company anticipates
participating in 5 to 10 wells in this area.
Southeastern New Mexico Area. The Company's activities in this area have
been concentrated in Lea and Eddy Counties in New Mexico. Production is
primarily from the Bone Springs, Wolfcamp, Chester, Morrow, and Atoka
formations. Natural gas deliveries for 1999 averaged 35 MMcf per day and
deliveries of crude oil, condensate and natural gas liquids averaged 2.3 MBbl
per day both net to the Company. At year end 1999, deliverability, net to the
Company, was approximately 42 MMcf per day of natural gas and 2.0 MBbl per day
of crude oil, condensate and natural gas liquids. The Company holds 93,000 net
acres and has an average working interest of approximately 70%. Significant
drilling activity is planned in 2000 for this area.
Val Verde Basin. The Company's activities in this area have been
concentrated in Crockett, Terrell and Val Verde Counties in Texas. The Company
holds approximately 51,000 net acres and now operates approximately 325 natural
gas wells in this area in which it owns a 90% average working interest.
Production is from the Canyon sands and Strawn limestone at depths from 5,500 to
12,500 feet. At December 31, 1999, natural gas deliverability net to the Company
was approximately 20 MMcf per day. The Company plans to test several Val Verde
basin prospects in 2000.
Midland Basin. The Company's activities in this area have been concentrated
in Upton and Reagan Counties in Texas. Production is primarily from the Wolfcamp
and Strawn formations. In 1999, deliveries net to the Company averaged 11 MMcf
per day of natural gas and approximately 2.4 MBbl per day of crude oil,
condensate and natural gas liquids. At December 31, 1999, deliverability net to
the Company was approximately 14 MMcf per day of natural gas and 3.3 MBbl per
day of crude oil, condensate and natural gas liquids. The Company holds
approximately 40,000 net acres and has an average working interest of
approximately 95%. The Company expects to drill numerous wells in this area
during 2000.
Mid Continent Area. The Company's activities in the Mid-Continent area are
concentrated in the Oklahoma and Texas panhandles and in the deeper Anadarko
Basin. During 1999, the Company drilled 57 natural gas wells in the Oklahoma
panhandle and 5 natural gas wells in the Texas panhandle. The Company controls
over 400,000 acres in the Oklahoma panhandle including certain exploration
rights on approximately 320,000 acres by virtue of a Farmout Agreement obtained
as a part of the property exchange with OXY closed on December 31, 1999, and
27,000 acres in the Texas panhandle. Production from these areas is primarily
from the Morrow, Toronto, and Council Grove formations. Net deliveries from the
panhandle areas averaged approximately 34 MMcf per day of natural gas during
1999. At December 31, 1999 net deliveries from the panhandle areas were
approximately 42 MMcf per day of natural gas and 0.3 MBbl per day of crude oil
and condensate.
During 1999, the Company also drilled 39 wells in other areas of the
Anadarko Basin. Deliveries from this area, net to the Company, averaged
approximately 39 MMcf per day of natural gas and 0.3 MBbl per day of crude oil,
condensate and natural gas liquids in 1999. The Company anticipates an active
Mid-Continent drilling program for several years.
Canada. The Company is engaged in the exploration for and the development,
production and marketing of natural gas, natural gas liquids and crude oil in
Western Canada, principally in the provinces of Alberta, Saskatchewan, and
Manitoba. The Company conducts operations from offices in Calgary, Alberta, and
produces natural gas and crude oil from five major areas. The Sandhills area in
southwestern Saskatchewan is the Company's largest single natural gas producing
area in Canada. In 1999, 254 wells were drilled in the area and additional
acreage and wells were acquired in the area resulting in deliverability of
approximately 51 MMcf per day net to the Company at December 31, 1999. The
Blackfoot area in southeastern Alberta is the second largest natural gas
producing area in Canada for the Company. In 1999, 78 new wells were drilled and
numerous recompletions, workovers and facility optimizations were carried out
resulting in deliverability of approximately 36 MMcf per day and 0.8 MBbl per
day of crude oil and condensate net to the Company at December 31, 1999. Total
Canadian natural gas deliverability net to the Company at December 31, 1999 was
approximately 131 MMcf per day, and the Company held approximately 522,000 net
undeveloped acres in Canada. Total Canadian natural gas deliveries net to the
Company for 1999
5
<PAGE> 8
averaged approximately 115 MMcf per day. The Company expects to maintain an
active drilling program in Western Canada for several years.
OUTSIDE NORTH AMERICA OPERATIONS
The Company has producing operations offshore Trinidad and is evaluating
exploration, exploitation and development opportunities in selected other
international areas.
Trinidad. In November 1992, the Company was awarded a 95% working interest
concession in the South East Coast Consortium ("SECC") Block offshore Trinidad,
encompassing three undeveloped fields, previously held by three government-owned
energy companies. The Kiskadee and Ibis fields have since been developed, and
the Oilbird field is anticipated to be developed within the next several years.
Existing surplus processing and transportation capacity at the Pelican field
facilities owned and operated by Trinidad and Tobago government-owned companies
is being used to process and transport the production. Natural gas is being sold
into the local market under a take-or-pay agreement with the National Gas
Company of Trinidad and Tobago. In 1999, deliveries net to the Company averaged
123 MMcf per day of natural gas, which includes 21 MMcf per day of gas balancing
volumes relating to a field allocation agreement and 2.4 MBbl per day of crude
oil and condensate.
In 1996, the Company signed a production sharing contract with the
Government of Trinidad and Tobago for the Modified U(a) Block where the Company
holds a 100% working interest. The contract committed the Company to the
acquisition of 3-D seismic data and the drilling of three wells. The first well,
Osprey, was drilled in 1998 and was successful, encountering over 400 feet of
net pay. This is the largest exploration discovery in the Company's history. The
Company has booked 675 Bcfe of proved reserves in this discovery. During the
fourth quarter of 1999, the Company drilled an unsuccessful exploration well,
the Motmot, and in the first quarter of 2000, the Tanager well was determined to
be unsuccessful. These wells fulfilled the drilling obligations on the block. At
December 31, 1999, the Company held approximately 144,000 net undeveloped acres
in Trinidad.
In January 2000, the Company signed a 15-year natural gas supply contract
for over 60 MMcf per day with the National Gas Company of Trinidad and Tobago.
This natural gas will supply a 1,850 metric ton per day anhydrous ammonia plant
that is to be constructed by Caribbean Nitrogen Company Limited, a Trinidadian
company in which the Company has a 16% interest. Negotiations are currently
underway to obtain financing for the plant.
Venezuela. The Company was awarded exploration, exploitation and
development rights for a block offshore the eastern state of Sucre, Venezuela in
early 1996. The Company signed agreements with the government of Venezuela and
other participants associated with a concession awarded in the Gulf of Paria
East. The Company holds an initial 90% working interest in the joint venture and
acts as operator. One exploratory well was drilled during 1998 and encountered
hydrocarbons. The Company is presently seeking a party to complete the remaining
commitment under the concession and during 1999 impaired the carrying value to
reflect the Company's estimate of fair value.
Other International. The Company continues to evaluate other selected
conventional natural gas and crude oil opportunities outside North America
primarily by pursuing exploitation opportunities in countries where indigenous
natural gas and crude oil reserves have been identified.
MARKETING
Wellhead Marketing. The Company's North America wellhead natural gas
production is currently being sold on the spot market and under long-term
natural gas contracts at market responsive prices. In many instances, the
long-term contract prices closely approximate the prices received for natural
gas being sold on the spot market. Wellhead natural gas volumes from Trinidad
are sold at prices that are based on a fixed price schedule with annual
escalations. Prior to the Share Exchange and under terms of the production
sharing contracts, natural gas volumes in India were sold to a nominee of the
Government of India at a price linked to a basket of world market fuel oil
quotations with floor and ceiling limits.
6
<PAGE> 9
Substantially all of the Company's wellhead crude oil and condensate is
sold under various terms and arrangements at market responsive prices.
Other Marketing. EOG Resources Marketing, Inc. ("EOGM"), a wholly owned
subsidiary of the Company, is a marketing company engaging in various marketing
activities. Both the Company and EOGM contract to provide, under short and
long-term agreements, natural gas to various purchasers and then aggregate the
necessary supplies for the sales with purchases from various sources including
third-party producers, marketing companies, pipelines or from the Company's own
production and arrange for any necessary transportation to the points of
delivery. In addition, EOGM has purchased and constructed several small
gathering systems in order to facilitate its entry into the gathering business
on a limited basis. Both the Company and EOGM utilize other short and long-term
hedging and trading mechanisms including sales and purchases utilizing
NYMEX-related commodity market transactions. These marketing activities have
provided an effective balance in managing a portion of the Company's exposure to
commodity price risks for both natural gas and crude oil and condensate wellhead
prices. (See "Other Matters - Risk Management").
7
<PAGE> 10
WELLHEAD VOLUMES AND PRICES, AND LEASE AND WELL EXPENSES
The following table sets forth certain information regarding the Company's
wellhead volumes of and average prices for natural gas per thousand cubic feet
("Mcf"), crude oil and condensate, and natural gas liquids per barrel ("Bbl"),
and average lease and well expenses per thousand cubic feet equivalent ("Mcfe" -
natural gas equivalents are determined using the ratio of 6.0 Mcf of natural gas
to 1.0 Bbl of crude oil, condensate or natural gas liquids) delivered during
each of the three years in the period ended December 31:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
VOLUMES (PER DAY)
Natural Gas (MMcf)
United States(1)...................................... 654 671 657
Canada................................................ 115 105 101
Trinidad.............................................. 123 139 113
India(2).............................................. 46 56 18
------ ------ ------
Total............................................ 938 971 889
====== ====== ======
Crude Oil and Condensate (MBbl)
United States......................................... 14.4 14.0 11.7
Canada................................................ 2.6 2.6 2.5
Trinidad.............................................. 2.4 3.0 3.4
India(2).............................................. 4.1 5.1 2.3
------ ------ ------
Total............................................ 23.5 24.7 19.9
====== ====== ======
Natural Gas Liquids (MBbl)
United States......................................... 2.6 2.9 2.6
Canada................................................ 0.8 1.0 1.3
------ ------ ------
Total............................................ 3.4 3.9 3.9
====== ====== ======
AVERAGE PRICES
Natural Gas ($/Mcf)
United States(3)...................................... $ 2.12 $ 1.93 $ 2.32
Canada................................................ 1.80 1.40 1.43
Trinidad.............................................. 1.08 1.06 1.05
India(2).............................................. 1.95 2.41 2.79
Composite........................................ 1.94 1.78 2.07
Crude Oil and Condensate ($/Bbl)
United States......................................... $18.41 $12.84 $19.81
Canada................................................ 16.77 11.82 17.16
Trinidad.............................................. 16.21 12.26 18.68
India(2).............................................. 12.80 12.86 20.05
Composite........................................ 17.03 12.66 19.30
Natural Gas Liquids ($/Bbl)
United States......................................... $12.01 $ 8.38 $12.76
Canada................................................ 8.23 5.32 8.94
Composite........................................ 11.16 7.56 11.54
LEASE AND WELL EXPENSES ($/MCFE)
United States............................................ $ .21 $ .22 $ .23
Canada................................................... .40 .37 .39
Trinidad................................................. .12 .12 .16
India(2)................................................. .25 .24 .64
Composite........................................ .23 .24 .26
</TABLE>
- - ---------------
(1) Includes 48 MMcf per day in 1998 and 1997 delivered under the terms of a
volumetric production payment agreement effective October 1, 1992, as
amended. Delivery obligations were terminated in December 1998.
(2) See "Business -- General" regarding the Share Exchange.
(3) Includes an average equivalent wellhead value of $1.53 per Mcf in 1998 and
$1.73 per Mcf in 1997 for the volumes described in note (1), net of
transportation costs.
8
<PAGE> 11
COMPETITION
The Company actively competes for reserve acquisitions and
exploration/exploitation leases, licenses and concessions, frequently against
companies with substantially larger financial and other resources. To the extent
the Company's exploration budget is lower than that of certain of its
competitors, the Company may be disadvantaged in effectively competing for
certain reserves, leases, licenses and concessions. Competitive factors include
price, contract terms, and quality of service, including pipeline connection
times and distribution efficiencies. In addition, the Company faces competition
from other producers and suppliers, including competition from other world wide
energy supplies, such as natural gas from Canada.
REGULATION
United States Regulation of Natural Gas and Crude Oil Production. Natural
gas and crude oil production operations are subject to various types of
regulation, including regulation in the United States by state and federal
agencies.
United States legislation affecting the oil and gas industry is under
constant review for amendment or expansion. Also, numerous departments and
agencies, both federal and state, are authorized by statute to issue and have
issued rules and regulations which, among other things, require permits for the
drilling of wells, regulate the spacing of wells, prevent the waste of natural
gas and liquid hydrocarbon resources through proration and restrictions on
flaring, require drilling bonds and regulate environmental and safety matters.
The regulatory burden on the oil and gas industry increases its cost of doing
business and, consequently, affects its profitability.
A substantial portion of the Company's oil and gas leases in the Big Piney
area and in the Gulf of Mexico, as well as some in other areas, are granted by
the federal government and administered by the Bureau of Land Management (the
"BLM") and the Minerals Management Service (the "MMS"), both federal agencies.
Operations conducted by the Company on federal oil and gas leases must comply
with numerous statutory and regulatory restrictions concerning the above and
other matters. Certain operations must be conducted pursuant to appropriate
permits issued by the BLM and the MMS.
BLM and MMS leases contain relatively standardized terms requiring
compliance with detailed regulations and, in the case of offshore leases, orders
pursuant to the Outer Continental Shelf Lands Act (which are subject to change
by the MMS). Such offshore operations are subject to numerous regulatory
requirements, including the need for prior MMS approval for exploration,
development, and production plans, stringent engineering and construction
specifications applicable to offshore production facilities, regulations
restricting the flaring or venting of production, and regulations governing the
plugging and abandonment of offshore wells and the removal of all production
facilities. Under certain circumstances, the MMS may require operations on
federal leases to be suspended or terminated. Any such suspension or termination
could adversely affect the Company's interests.
The MMS has issued a notice of proposed rulemaking in which it proposes to
amend its regulations governing the calculation of royalties and the valuation
of crude oil produced from federal leases. This proposed rule would modify the
valuation procedures for both arm's length and non-arm's length crude oil
transactions to decrease reliance on oil posted prices and assign a value to
crude oil that, in the opinion of the MMS, better reflects its market value,
establish a new MMS form for collecting differential data, and amend the
valuation procedure for the sale of federal royalty oil. The Company cannot
predict what action the MMS will take on this matter, nor can it predict how the
Company will be affected by any change to this regulation.
The MMS recently issued a final rule to clarify the types of costs that are
deductible transportation costs for purposes of royalty valuation of production
sold off the lease. In particular, the MMS will not allow deduction of costs
associated with marketer fees, cash out and other pipeline imbalance penalties,
or long-term storage fees. The rule is under court review in two suits brought
by oil and gas trade associations. The Company cannot predict what, if any,
effect the new rule will have on its operations.
Sales of crude oil, condensate and natural gas liquids by the Company are
made at unregulated market prices.
9
<PAGE> 12
The transportation and sale for resale of natural gas in interstate
commerce are regulated pursuant to the Natural Gas Act of 1938 (the "NGA") and
the Natural Gas Policy Act of 1978 (the "NGPA"). These statutes are administered
by the Federal Energy Regulatory Commission (the "FERC"). Effective January 1,
1993, the Natural Gas Wellhead Decontrol Act of 1989 deregulated natural gas
prices for all "first sales" of natural gas, which includes all sales by the
Company of its own production. All other sales of natural gas by the Company,
such as those of natural gas purchased from third parties, remain jurisdictional
sales subject to a blanket sales certificate under the NGA, which has flexible
terms and conditions. Consequently, all of the Company's sales of natural gas
currently may be made at market prices, subject to applicable contract
provisions. The Company's jurisdictional sales, however, are subject to the
future possibility of greater federal oversight, including the possibility the
FERC might prospectively impose more restrictive conditions on such sales.
Since 1985, the FERC has endeavored to enhance competition in natural gas
markets by making natural gas transportation more accessible to natural gas
buyers and sellers on an open and nondiscriminatory basis. These efforts
culminated in Order No. 636 and various rehearing orders ("Order No. 636"),
which mandate a fundamental restructuring of interstate natural gas pipeline
sales and transportation services, including the "unbundling" by interstate
natural gas pipelines of the sales, transportation, storage, and other
components of their service, and to separately state the rates for each
unbundled service. 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. Order No. 636 does not directly
regulate the Company's activities, but has an indirect effect because of its
broad scope. Order No. 636 has ended interstate pipelines' traditional role as
wholesalers of natural gas, and substantially increased competition in natural
gas markets. In spite of this uncertainty, Order No. 636 may enhance the
Company's ability to market and transport its natural gas production, although
it may also subject the Company to more restrictive pipeline imbalance
tolerances and greater penalties for violation of such tolerances.
The Company owns, directly or indirectly, certain natural gas pipelines
that it believes meet the traditional tests the FERC has used to establish a
pipeline's status as a gatherer not subject to FERC jurisdiction under the NGA.
State regulation of gathering facilities generally includes various safety,
environmental, and in some circumstances, nondiscriminatory take requirements,
but does not generally entail rate regulation. Natural gas gathering may receive
greater regulatory scrutiny at both the state and federal levels as the pipeline
restructuring under Order No. 636 is implemented. For example, the Texas
Railroad Commission has approved changes to its regulations governing
transportation and gathering services performed by intrastate pipelines and
gatherers, which prohibit such entities from unduly discriminating in favor of
their affiliates. The Company's gathering operations could be adversely affected
should they be subject in the future to the application of state or federal
regulation of rates and services.
The Company's natural gas gathering operations also may be or become
subject to safety and operational regulations relating to the design,
installation, testing, construction, operation, replacement, and management of
facilities. Additional rules and legislation pertaining to these matters are
considered or adopted from time to time. The Company cannot predict what effect,
if any, such legislation might have on its operations, but the industry could be
required to incur additional capital expenditures and increased costs depending
on future legislative and regulatory changes.
The FERC recently began a broad review of its transportation regulations,
including how they operate in conjunction with state proposals for retail gas
marketing 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 alleviate a market bias
toward short-term contracts. This review culminated in part with the FERC's
issuance of Order No. 637 on February 9, 2000.
Order No. 637 revises the FERC's current regulatory framework for purposes
of improving the efficiency of the market and providing captive pipeline
customers with the opportunity to reduce their cost of holding long-term
pipeline capacity while continuing to protect against the exercise of market
power. Order No. 637
10
<PAGE> 13
revises FERC pricing policy by waiving price ceilings for short-term released
capacity for a two year period and permitting pipelines to file for
peak/off-peak and term differentiated rate structures. Order No. 637 does not,
however, require the allocation of all short-term capacity on the basis of
competitive auctions -- as had been proposed by the FERC. Order No. 637 adopts
changes in regulations relating to scheduling procedures, capacity segmentation
and pipeline penalties to improve the competitiveness and efficiency of the
interstate pipeline grid. It also narrows pipeline customers' right of first
refusal to remove economic biases in the current rule, while still protecting
captive customers' ability to resubscribe to long-term capacity. Finally, it
improves the FERC's reporting requirements to provide more transparent pricing
information and permit more effective monitoring of the market.
While Order No. 637, and any subsequent FERC action will affect the Company
only indirectly, the Order and related inquiries are intended to further enhance
competition in natural gas markets, while maintaining adequate consumer
protections.
The Company cannot predict the effect that any of the aforementioned orders
or the challenges to such orders will ultimately have on the Company's
operations. Additional proposals and proceedings that might affect the natural
gas industry are considered from time to time by Congress, the FERC and the
courts. The Company cannot predict when or whether any such proposals or
proceedings may become effective. It should also be noted that the natural gas
industry historically has been very heavily regulated; therefore, there is no
assurance that the less regulated approach currently being pursued by the FERC
will continue indefinitely.
Environmental Regulation. Various federal, state and local laws and
regulations covering the discharge of materials into the environment, or
otherwise relating to the protection of the environment, affect the Company's
operations and costs as a result of their effect on natural gas and crude oil
exploration, development and production operations and could cause the Company
to incur remediation or other corrective action costs in connection with a
release of regulated substances, including crude oil, into the environment.
Compliance with such laws and regulations has not had a material adverse effect
on the Company's operations or financial condition. It is not anticipated, based
on current laws and regulations, that the Company will be required in the near
future to expend amounts that are material in relation to its total exploration
and development expenditure program in order to comply with each environmental
law and regulation, but inasmuch as such laws and regulations are frequently
changed, the Company is unable to predict the ultimate cost of compliance.
Canadian Regulation. In Canada, the petroleum industry is subject to
extensive controls and operates under various provincial and federal legislation
and regulations governing land tenure, royalties, taxes, production rates,
operational standards, environmental protection, health and safety, exports and
other matters. The Company operates within this regulatory framework and
continues to monitor and evaluate the impact of the regulatory regime when
determining parameters for engaging in oil and gas activities and investments in
Canada. The price of natural gas and crude oil in Canada has been deregulated
and is determined by market conditions and negotiations between buyers and
sellers in a North American market place. The North American Free Trade
Agreement supports the on-going cross-border commercial transactions of the
natural gas and crude oil business.
Various matters relating to the transportation and export of natural gas
continue to be subject to regulation by provincial agencies and federally, by
the National Energy Board; however, the North American Free Trade Agreement may
have reduced the risk of altering existing cross-border commercial transactions
through the assurance of fair implementation of regulatory changes, minimal
disruption of contractual arrangements and the prohibition of discriminatory
order restrictions and export taxes.
Canadian governmental regulations may have a material effect on the
economic parameters for engaging in oil and gas activities in Canada and may
have a material effect on the advisability of investments in Canadian oil and
gas drilling activities. The Company is monitoring political, regulatory and
economic developments in Canada.
Other International Regulation. The Company's exploration and production
operations outside North America are subject to various types of regulations
imposed by the respective governments of the countries in
11
<PAGE> 14
which the Company's operations are conducted, and may affect the Company's
operations and costs within that country. The Company currently has operations
offshore Trinidad.
RELATIONSHIP BETWEEN THE COMPANY AND ENRON CORP.
On August 16, 1999, the Company and Enron Corp. closed the Share Exchange
in which the Company acquired 62,270,000 shares of the Company's common stock
out of 82,270,000 shares then owned by Enron Corp., and in return Enron Corp.
received all of the stock of EOGI-India, Inc., a subsidiary of the Company.
EOGI-India, Inc. owned, through subsidiaries, all of the Company's assets and
operations in India and China, and had received from the Company an indirect
$600 million cash capital contribution, plus certain intercompany receivables,
prior to the exchange. On the closing of the Share Exchange, all of Enron
Corp.'s officers and directors then serving as Company directors resigned from
the Company's board. Following the closing of the Share Exchange, Enron Corp.
sold 8,500,000 shares of Company stock pursuant to a public offering in which
the Company also sold 27,000,000 shares of its common stock. Subsequent to the
closing of the Share Exchange and the common stock offering, Enron Corp. sold
securities that are mandatorily exchangeable at maturity into a minimum of
9,746,250 EOG shares and a maximum of 11,500,000 EOG shares, the latter being an
amount equal to all of Enron Corp.'s remaining shares in the Company. The
maturity date for these securities is July 31, 2002.
The Company and Enron Corp. have in the past entered into material
transactions and agreements incident to their respective businesses. Such
transactions and agreements have related to, among other things, the purchase
and sale of natural gas and crude oil and hedging and trading activities. Many
of these agreements are still in place, and the Company and Enron Corp. may
enter into similar types of transactions and agreements in the future. The
Company intends that the terms of any future transactions and agreements with
Enron Corp. will be at least as favorable to the Company as could be obtained
from other third parties.
OTHER MATTERS
Energy Prices. Since the Company is primarily a natural gas company, it is
more significantly impacted by changes in natural gas prices than in the prices
for crude oil, condensate or natural gas liquids. During recent periods,
domestic natural gas has been priced significantly below parity with crude oil
and condensate based on the energy equivalency of, and differences in
transportation and processing costs associated with, the respective products.
This imbalance in parity has been primarily driven by, among other things, a
supply of domestic natural gas volumes in excess of demand requirements. The
Company is unable to predict when this supply imbalance may be resolved due to
the significant impacts of factors such as general economic conditions,
technology developments, weather and other international energy supplies over
which the Company has no control.
Average North America wellhead natural gas prices have fluctuated, at times
rather dramatically, during the last three years. These fluctuations resulted in
an increase in the average wellhead natural gas price for North America received
by the Company of 15% from 1996 to 1997, a decrease of 15% from 1997 to 1998,
and an increase of 11% from 1998 to 1999. Wellhead natural gas volumes from
Trinidad are sold at prices that are based on a fixed schedule with periodic
escalations. Due to the many uncertainties associated with the world political
environment, the availabilities of other world wide energy supplies and the
relative competitive relationships of the various energy sources in the view of
the consumers, the Company is unable to predict what changes may occur in
natural gas prices in the future.
Substantially all of the Company's wellhead crude oil and condensate is
sold under various terms and arrangements at market responsive prices. Crude oil
and condensate prices also have fluctuated during the last three years. Due to
the many uncertainties associated with the world political environment, the
availabilities of other world wide energy supplies and the relative competitive
relationships of the various energy sources in the view of the consumers, the
Company is unable to predict what changes may occur in crude oil and condensate
prices in the future.
Risk Management. The Company engages in price risk management activities
from time to time primarily for non-trading and to a lesser extent for trading
purposes. Derivative financial instruments
12
<PAGE> 15
(primarily price swaps and costless collars) are utilized for non-trading
purposes to hedge the impact of market fluctuations of natural gas and crude oil
market prices on net income and cash flow.
At December 31, 1999, the Company had outstanding crude oil commodity price
swap transactions, designated as hedges, covering approximately 0.5 MMBbl of
crude oil and condensate for 2000. The fair value of the positions was a
negative $2 million at December 31, 1999.
At December 31, 1999, based on the Company's tax position and the portion
of the Company's anticipated natural gas volumes for 2000 for which prices have
not, in effect, been hedged using NYMEX-related commodity market transactions
and long-term marketing contracts, the Company's net income and current
operating cash flow sensitivities to changing natural gas prices are
approximately $18 million (or $.15 per share) and $28 million, respectively, for
each $.10 per Mcf change in average wellhead natural gas prices. The Company is
not impacted as significantly by changing crude oil prices for those volumes not
otherwise hedged. The Company's net income and current operating cash flow
sensitivities are approximately $5 million (or $.04 per share) and $8 million,
respectively, for each $1.00 per barrel change in average wellhead crude oil
prices.
Tight Gas Sand Tax Credits (Section 29) and Severance Tax Exemption. United
States federal tax law provides a tax credit for production of certain fuels
produced from nonconventional sources (including natural gas produced from tight
formations), subject to a number of limitations. Fuels qualifying for the credit
must be produced from a well drilled or a facility placed in service after
November 5, 1990 and before January 1, 1993, and must be sold before January 1,
2003.
The credit, which is currently approximately $.52 per million British
thermal units ("MMBtu") of natural gas, is computed by reference to the price of
crude oil, and is phased out as the price of crude oil exceeds $23.50 in 1980
dollars (adjusted for inflation) with complete phaseout if such price exceeds
$29.50 in 1980 dollars (similarly adjusted). Under this formula, the
commencement of phaseout would be triggered if the average price for crude oil
rose above approximately $48 per barrel in current dollars. Significant benefits
from the tax credit have accrued and continue to accrue to the Company since a
portion (and in some cases a substantial portion) of the Company's natural gas
production from new wells drilled after November 5, 1990, and before January 1,
1993, on the Company's leases in several of the Company's significant producing
areas qualify for this tax credit. The Company entered into an arrangement with
a third party whereby certain Section 29 credits were sold by the Company to the
third party, and payments for such credits will be received on an as-generated
basis.
Natural gas production from wells spudded or completed after May 24, 1989
and before September 1, 1996 in tight formations in Texas qualifies for a
ten-year exemption, ending August 31, 2001, from severance taxes, subject to
certain limitations. In 1995, the drilling qualification period was extended in
a modified and somewhat reduced form from September 1996 through August 2002. In
1999, the drilling qualification period was extended eight years through August
2010. Consequently, new qualifying production will be added prospectively to
that presently qualified.
Other. All of the Company's natural gas and crude oil activities are
subject to the risks normally incident to the exploration for and development
and production of natural gas and crude oil, including blowouts, cratering and
fires, each of which could result in damage to life and property. Offshore
operations are subject to usual marine perils, including hurricanes and other
adverse weather conditions, and governmental regulations as well as interruption
or termination by governmental authorities based on environmental and other
considerations. In accordance with customary industry practices, insurance is
maintained by the Company against some, but not all, of the risks. Losses and
liabilities arising from such events could reduce revenues and increase costs to
the Company to the extent not covered by insurance.
The Company's operations outside of North America are subject to certain
risks, including expropriation of assets, risks of increases in taxes and
government royalties, renegotiation of contracts with foreign governments,
political instability, payment delays, limits on allowable levels of production
and currency exchange and repatriation losses, as well as changes in laws,
regulations and policies governing operations of foreign companies generally.
13
<PAGE> 16
CURRENT EXECUTIVE OFFICERS OF THE REGISTRANT
The current executive officers of the Company and their names and ages are
as follows (all positions are with the Company unless otherwise noted):
<TABLE>
<CAPTION>
NAME AGE POSITION
- - ---- --- --------
<S> <C> <C>
Mark G. Papa............. 53 Chairman of the Board and Chief Executive Officer;
Director
Edmund P. Segner, III.... 46 President and Chief of Staff; Director
Loren M. Leiker.......... 46 Executive Vice President, Exploration and
Development
Gary L. Thomas........... 50 Executive Vice President, North America Operations
Barry Hunsaker, Jr. ..... 49 Senior Vice President and General Counsel
Walter C. Wilson......... 57 Senior Vice President and Chief Financial Officer
Timothy K. Driggers...... 38 Vice President and Controller
</TABLE>
Mark G. Papa was elected Chairman of the Board and Chief Executive Officer
in August 1999, President and Chief Executive Officer and Director of the
Company in September 1998, President and Chief Operating Officer in September
1997, President in December 1996 and was President -- North America Operations
from February 1994 to September 1998. From May 1986 through January 1994, Mr.
Papa served as Senior Vice President -- Operations. Mr. Papa joined Belco
Petroleum Corporation, a predecessor of the Company, in 1981.
Edmund P. Segner, III became President and Chief of Staff and Director of
the Company in August 1999. He became Vice Chairman and Chief of Staff of the
Company in September 1997. Mr. Segner was a director of the Company from January
1997 to October 1997. Mr. Segner joined Enron Corp. in 1988 and was Executive
Vice President and Chief of Staff.
Loren M. Leiker joined the Company in April 1989 as Senior Vice President,
Exploration. He was elected Executive Vice President, Exploration in May 1998
and Executive Vice President, Exploration and Development in February 2000.
Gary L. Thomas was elected Executive Vice President, North America
Operations in May 1998. He was previously Senior Vice President and General
Manager of the Company's Midland Division. Mr. Thomas joined a predecessor of
the Company in July 1978.
Barry Hunsaker, Jr. has been Senior Vice President and General Counsel
since he joined the Company in May 1996. Prior to joining the Company, Mr.
Hunsaker was a partner in the law firm of Vinson & Elkins L.L.P.
Walter C. Wilson joined the Company in November 1987 and has been Senior
Vice President and Chief Financial Officer since May 1991.
Timothy K. Driggers was elected Vice President and Controller of the
Company in October 1999. He was Assistant Controller of Enron Corp. from October
1998 through September 1999. Mr. Driggers held management positions in the
Financial Planning and Reporting Department of the Company from August 1995
through September 1998. Prior to joining the Company, Mr. Driggers was a Senior
Audit Manager at Arthur Andersen LLP.
14
<PAGE> 17
ITEM 2. PROPERTIES
OIL AND GAS EXPLORATION AND PRODUCTION PROPERTIES AND RESERVES
Reserve Information. For estimates of the Company's net proved and proved
developed reserves of natural gas and liquids, including crude oil, condensate
and natural gas liquids, see "Supplemental Information to Consolidated Financial
Statements."
There are numerous uncertainties inherent in estimating quantities of
proved reserves and in projecting future rates of production and timing of
development expenditures, including many factors beyond the control of the
producer. The reserve data set forth in Supplemental Information to Consolidated
Financial Statements represent only estimates. Reserve engineering is a
subjective process of estimating underground accumulations of natural gas and
liquids, including crude oil, condensate and natural gas liquids, that cannot be
measured in an exact manner. The accuracy of any reserve estimate is a function
of the amount and quality of available data and of engineering and geological
interpretation and judgment. As a result, estimates of different engineers
normally vary. In addition, results of drilling, testing and production
subsequent to the date of an estimate may justify revision of such estimate.
Accordingly, reserve estimates are often different from the quantities
ultimately recovered. The meaningfulness of such estimates is highly dependent
upon the accuracy of the assumptions upon which they were based.
In general, the volume of production from oil and gas properties owned by
the Company declines as reserves are depleted. Except to the extent the Company
acquires additional properties containing proved reserves or conducts successful
exploration, exploitation and development activities, the proved reserves of the
Company will decline as reserves are produced. Volumes generated from future
activities of the Company are therefore highly dependent upon the level of
success in finding or acquiring additional reserves and the costs incurred in so
doing. The Company's estimates of reserves filed with other federal agencies
agree with the information set forth in Supplemental Information to Consolidated
Financial Statements.
15
<PAGE> 18
Acreage. The following table summarizes the Company's developed and
undeveloped acreage at December 31, 1999. Excluded is acreage in which the
Company's interest is limited to owned royalty, overriding royalty and other
similar interests.
<TABLE>
<CAPTION>
DEVELOPED UNDEVELOPED TOTAL
--------------------- --------------------- ---------------------
GROSS NET GROSS NET GROSS NET
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
United States
California..................... 707 395 67,896 67,584 68,603 67,979
Texas.......................... 383,296 270,130 579,393 483,082 962,689 753,212
Offshore Gulf of Mexico........ 214,772 81,770 369,551 266,462 584,323 348,232
Wyoming........................ 160,892 120,844 323,945 245,402 484,837 366,246
Oklahoma....................... 160,231 93,552 156,697 109,684 316,928 203,236
Montana........................ 119,686 560 162,616 119,990 282,302 120,550
New Mexico..................... 57,608 31,748 113,105 62,550 170,713 94,298
Utah........................... 74,617 50,474 40,870 15,881 115,487 66,355
Mississippi.................... 6,549 6,445 41,256 39,385 47,805 45,830
Kansas......................... 12,013 9,772 34,069 30,976 46,082 40,748
Colorado....................... 22,815 1,287 33,636 13,622 56,451 14,909
Louisiana...................... 6,901 6,045 7,703 4,276 14,604 10,321
Arkansas....................... 8,013 1,187 1,388 577 9,401 1,764
Other.......................... 5,177 960 996 795 6,173 1,755
--------- --------- --------- --------- --------- ---------
Total United States.... 1,233,277 675,169 1,933,121 1,460,266 3,166,398 2,135,435
Canada...........................
Saskatchewan................... 283,525 267,282 277,535 273,365 561,060 540,647
Alberta........................ 425,937 295,863 279,336 221,739 705,273 517,602
Manitoba....................... 11,863 10,026 16,848 15,436 28,711 25,462
British Columbia............... 656 164 18,680 10,865 19,336 11,029
--------- --------- --------- --------- --------- ---------
Total Canada........... 721,981 573,335 592,399 521,405 1,314,380 1,094,740
Other International
Trinidad....................... 4,200 3,990 147,233 143,490 151,433 147,480
Venezuela...................... - - 268,413 241,572 268,413 241,572
France......................... - - 168,032 168,032 168,032 168,032
--------- --------- --------- --------- --------- ---------
Total Other
International........ 4,200 3,990 583,678 553,094 587,878 557,084
--------- --------- --------- --------- --------- ---------
Total.................. 1,959,458 1,252,494 3,109,198 2,534,765 5,068,656 3,787,259
========= ========= ========= ========= ========= =========
</TABLE>
Producing Well Summary. The following table reflects the Company's
ownership in gas and oil wells located in Texas, the Gulf of Mexico, Oklahoma,
New Mexico, Utah, Wyoming, and various other states, Canada and Trinidad at
December 31, 1999. Gross gas and oil wells include 222 with multiple
completions.
<TABLE>
<CAPTION>
PRODUCTIVE WELLS
-----------------
GROSS NET
------- -------
<S> <C> <C>
Gas......................................................... 6,063 4,452
Oil......................................................... 1,098 943
----- -----
Total............................................. 7,161 5,395
===== =====
</TABLE>
16
<PAGE> 19
Drilling and Acquisition Activities. During the years ended December 31,
1999, 1998 and 1997 the Company spent approximately $467 million, $779 million
and $701 million, respectively, for exploratory and development drilling and
acquisition of leases and producing properties. The Company drilled,
participated in the drilling of or acquired wells as set out in the table below
for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1999 1998 1997
-------------- -------------- --------------
GROSS NET GROSS NET GROSS NET
----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Development Wells Completed
North America
Gas....................................... 613 515.64 478 402.80 467 352.90
Oil....................................... 53 52.02 38 34.98 94 74.85
Dry....................................... 68 58.43 79 62.16 101 80.01
--- ------ --- ------ --- ------
Total................................ 734 626.09 595 499.94 662 507.76
Outside North America
Gas....................................... 6 2.00 - - 12 3.60
Oil....................................... 6 1.90 21 6.30 6 1.80
Dry....................................... - - - - - -
--- ------ --- ------ --- ------
Total................................ 12 3.90 21 6.30 18 5.40
--- ------ --- ------ --- ------
Total Development.................... 746 629.99 616 506.24 680 513.16
--- ------ --- ------ --- ------
Exploratory Wells Completed
North America
Gas....................................... 21 14.57 5 4.40 8 5.12
Oil....................................... 2 2.00 6 5.50 - -
Dry....................................... 19 14.55 22 15.70 12 7.53
--- ------ --- ------ --- ------
Total................................ 42 31.12 33 25.60 20 12.65
Outside North America
Gas....................................... 1 0.30 1 1.00 - -
Oil....................................... - - 1 .90 - -
Dry....................................... 1 1.00 - - - -
--- ------ --- ------ --- ------
Total................................ 2 1.30 2 1.90 - -
--- ------ --- ------ --- ------
Total Exploratory.................... 44 32.42 35 27.50 20 12.65
--- ------ --- ------ --- ------
Total................................ 790 662.41 651 533.74 700 525.81
Wells in Progress at end of period............. 25 21.34 28 15.73 44 36.39
--- ------ --- ------ --- ------
Total................................ 815 683.75 679 549.47 744 562.20
=== ====== === ====== === ======
Wells Acquired*
Gas....................................... 576 380.01 333 317.23 227 82.45
Oil....................................... 422 402.34 - 1.70 48 20.50
--- ------ --- ------ --- ------
Total................................ 998 782.35 333 318.93 275 102.95
=== ====== === ====== === ======
</TABLE>
- - ---------------
* Includes the acquisition of additional interests in certain wells in which the
Company previously owned an interest.
All of the Company's drilling activities are conducted on a contract basis
with independent drilling contractors. The Company owns no drilling equipment.
17
<PAGE> 20
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries and related companies are named defendants
in numerous lawsuits and named parties in numerous governmental proceedings
arising in the ordinary course of business. While the outcome of lawsuits or
other proceedings against the Company cannot be predicted with certainty,
management does not expect these matters to have a material adverse effect on
the financial condition or results of operations of the Company.
On July 21, 1999, two stockholders of the Company filed separate lawsuits
purportedly on behalf of the Company against Enron Corp. and those individuals
who were then directors of the Company, alleging that Enron Corp. and those
directors breached their fiduciary duties of good faith and loyalty in approving
the Share Exchange. The lawsuits seek to rescind the transaction or to receive
monetary damages and costs and expenses, including reasonable attorneys' and
experts' fees. The Company, Enron Corp. and the individual defendants believe
the lawsuits are without merit and intend to vigorously contest them.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of 1999.
18
<PAGE> 21
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The following table sets forth, for the periods indicated, the high and low
sales prices per share for the common stock of the Company, as reported on the
New York Stock Exchange Composite Tape, and the amount of cash dividends paid
per share.
<TABLE>
<CAPTION>
PRICE RANGE
--------------- CASH
HIGH LOW DIVIDENDS
------ ------ ---------
<S> <C> <C> <C>
1997
First Quarter........................................... $27.00 $19.88 $0.03
Second Quarter.......................................... 21.75 17.50 0.03
Third Quarter........................................... 25.06 17.69 0.03
Fourth Quarter.......................................... 23.81 18.50 0.03
1998
First Quarter........................................... $24.13 $18.56 $0.03
Second Quarter.......................................... 24.50 18.13 0.03
Third Quarter........................................... 20.69 11.75 0.03
Fourth Quarter.......................................... 18.50 12.69 0.03
1999
First Quarter........................................... $18.38 $15.69 $0.03
Second Quarter.......................................... 21.50 16.00 0.03
Third Quarter........................................... 25.38 19.25 0.03
Fourth Quarter.......................................... 23.00 14.38 0.03
</TABLE>
As of February 15, 2000, there were approximately 410 record holders of the
Company's common stock, including individual participants in security position
listings. There are an estimated 26,600 beneficial owners of the Company's
common stock, including shares held in street name.
The Company currently intends to continue to pay quarterly cash dividends
on its outstanding shares of common stock. However, the determination of the
amount of future cash dividends, if any, to be declared and paid will depend
upon, among other things, the financial condition, funds from operations, level
of exploration, exploitation and development expenditure opportunities and
future business prospects of the Company.
RECENT SALES OF UNREGISTERED SECURITIES
On December 10, 1999, the Company sold in a private placement 100,000
shares of Series A Fixed Rate Cumulative Perpetual Senior Preferred Stock, par
value $.01 per share, liquidation preference $1,000 per share (the "Series A
Stock") to Lehman Brothers Inc., Banc of America Securities LLC and Goldman,
Sachs & Co., as initial purchasers, for resale to "qualified institutional
buyers" (as defined in Rule 144A under the Securities Act of 1933, as amended
(the "Securities Act")) and to a limited number of institutional "accredited
investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities
Act), at the aggregate offering price of approximately $98,000,000. The Company
has entered into a registration rights agreement with the initial purchasers for
the benefit of the holders of Series A Stock wherein the Company has agreed (1)
to use its reasonable best efforts to file with the Commission, within 150 days
after the initial issuance of the Series A Stock (which would be May 8, 2000), a
registration statement with respect to an offer to exchange shares of the Series
A Stock for shares of fixed rate cumulative perpetual senior preferred stock of
the Company with substantially identical terms to the Series A Stock (the
"Exchange Stock"), except that the Exchange Stock will not contain terms with
respect to, among other matters, the transfer restrictions under the Securities
Act, or the payment of additional dividends under certain circumstances relating
to the Company's obligations under the registration rights agreement and (2) to
use its reasonable best efforts to cause such registration statement to be
declared effective under the Securities Act within 180 days after the initial
issuance of the Series A Stock (which would be June 7, 2000). Promptly after
such registration
19
<PAGE> 22
statement has been declared effective, the Company intends to offer the Exchange
Stock in exchange for surrender of the Series A Stock. For each share of Series
A Stock validly tendered to the Company pursuant to the exchange offer and not
validly withdrawn by the holder thereof, the holder of such share of Series A
Stock will receive a share of the Exchange Stock having a liquidation preference
equal to the liquidation preference of the tendered Series A Stock. In the event
that applicable law or interpretations of the staff of the Commission do not
permit the Company to effect the exchange offer, or in certain other
circumstances, the Company has agreed to use its reasonable best efforts to
cause to become effective a shelf registration statement with respect to the
resale of the Series A Stock.
On December 22, 1999, the Company sold in a private placement 500 shares of
Series C Flexible Money Market Cumulative Preferred Stock, par value $.01 per
share, liquidation preference $100,000 per share (the "Series C Stock") to
Lehman Brothers Inc., as initial purchaser, for resale to "qualified
institutional buyers" (as defined in Rule 144A under the Securities Act) and to
a limited number of institutional "accredited investors" (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act), at the aggregate offering
price of approximately $49,000,000. The Company has entered into a registration
rights agreement with the initial purchaser for the benefit of the holders of
Series C Stock wherein the Company has agreed (1) to use its reasonable best
efforts to file with the Commission, within 150 days after the initial issuance
of the Series C Stock (which would be May 20, 2000), a registration statement
with respect to an offer to exchange shares of the Series C Stock for shares of
money market cumulative preferred stock of the Company with substantially
identical terms to the Series C Stock (the "Exchange Stock"), except that the
Exchange Stock will not contain terms with respect to, among other matters, the
transfer restrictions under the Securities Act or the payment of additional
dividends under certain circumstances relating to the Company's obligations
under the registration rights agreement and (2) to use its reasonable best
efforts to cause such registration statement to be declared effective under the
Securities Act within 180 days after the initial issuance of the Series C Stock
(which would be June 19, 2000). Promptly after such registration statement has
been declared effective, the Company intends to offer the Exchange Stock in
exchange for surrender of the Series C Stock. For each share of Series C Stock
validly tendered to the Company pursuant to the exchange offer and not validly
withdrawn by the holder thereof, the holder of such share of Series C Stock will
receive a share of the Exchange Stock having a liquidation preference equal to
the liquidation preference of the tendered Series C Stock. In the event that
applicable law or interpretations of the staff of the Commission do not permit
the Company to effect the exchange offer, or in certain other circumstances, the
Company has agreed to use its reasonable best efforts to cause to become
effective a shelf registration statement with respect to the resale of the
Series C Stock.
20
<PAGE> 23
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net operating revenues.......... $801,406 $769,188 $783,501 $730,648 $648,702
Operating expenses
Lease and well................ 91,540 98,868 96,064 76,618 69,463
Exploration costs............. 52,773 65,940 57,696 55,009 42,044
Dry hole costs................ 11,893 22,751 17,303 13,193 12,911
Impairment of unproved oil and
gas properties............. 31,608 32,076 27,213 21,226 23,715
Depreciation, depletion and
amortization............... 459,877(1) 315,106 278,179 251,278 216,047
General and administrative.... 82,857 69,010 54,415 56,405 56,626
Taxes other than income....... 52,670 51,776 59,856 48,089 32,587
-------- -------- -------- -------- --------
Total................. 783,218 655,527 590,726 521,818 453,393
-------- -------- -------- -------- --------
Operating income................ 18,188 113,661 192,775 208,830 195,309
Other income (expense), net..... 611,343(2) (4,800) (1,588) (5,007) 669
Interest expense (net of
interest capitalized)......... 61,819 48,579 27,717 12,861 11,924
-------- -------- -------- -------- --------
Income before income taxes...... 567,712 60,282 163,470 190,962 184,054
Income tax provision
(benefit)(3).................. (1,382) 4,111(4) 41,500(5) 50,954(6) 41,936(7)
-------- -------- -------- -------- --------
Net income...................... $569,094 $ 56,171 $121,970 $140,008 $142,118
======== ======== ======== ======== ========
Net income per share available
to common
Basic......................... $ 4.04 $ .36 $ .78 $ .88 $ .89
======== ======== ======== ======== ========
Diluted....................... $ 3.99 $ .36 $ .77 $ .87 $ .88
======== ======== ======== ======== ========
Average number of common shares
Basic......................... 140,869 154,345 157,376 159,853 159,917
======== ======== ======== ======== ========
Diluted....................... 142,352 155,054 158,160 161,525 161,132
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Oil and gas properties -- net.... $2,334,928 $2,676,363 $2,387,207 $2,099,589 $1,881,545
Total assets..................... 2,610,793 3,018,095 2,723,355 2,458,353 2,147,258
Long-term debt
Trade.......................... 990,306 942,779 548,775 466,089 147,559
Affiliate...................... -- 200,000 192,500 -- 141,520
Deferred revenue................. -- 4,198 39,918 56,383 205,453
Shareholders' equity............. 1,129,611 1,280,304 1,281,049 1,265,090 1,163,659
</TABLE>
- - ---------------
(1) See Note 16 to the Consolidated Financial Statements.
(2) See "Item 1. Business -- General" regarding the Share Exchange.
(3) Includes benefits of approximately $8 million, $12 million, $12 million, $16
million and $22 million in 1999, 1998, 1997, 1996 and 1995, respectively,
relating to tight gas sand federal income tax credits.
(4) Includes a benefit of $2 million related to the final audit assessments of
India taxes for certain prior years, a benefit of $3.8 million related to
reduced deferred franchise taxes, and $3.5 million related to Venezuela
deferred tax benefits.
(5) Includes a benefit of $15 million primarily associated with the refiling of
certain Canadian tax returns and the sale of certain international assets
and subsidiaries.
(6) Includes a benefit of $9 million primarily associated with a reassessment of
deferred tax requirements and the successful resolution on audit of Canadian
income taxes for certain prior years.
(7) Includes a benefit of approximately $14 million associated with the
successful resolution on audit of federal income taxes for certain prior
years.
21
<PAGE> 24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following review of operations for each of the three years in the
period ended December 31, 1999 should be read in conjunction with the
consolidated financial statements of the Company and notes thereto beginning
with page F-1.
RESULTS OF OPERATIONS
Net Operating Revenues. Wellhead volume and price statistics for the
specified years were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Natural Gas Volumes (MMcf per day)
United States(1).......................................... 654 671 657
Canada.................................................... 115 105 101
Trinidad.................................................. 123 139 113
India(2).................................................. 46 56 18
------ ------ ------
Total............................................. 938 971 889
====== ====== ======
Average Natural Gas Prices ($/Mcf)
United States(3).......................................... $ 2.12 $ 1.93 $ 2.32
Canada.................................................... 1.80 1.40 1.43
Trinidad.................................................. 1.08 1.06 1.05
India(2).................................................. 1.95 2.41 2.79
Composite......................................... 1.94 1.78 2.07
Crude Oil and Condensate Volumes (MBbl per day)
United States............................................. 14.4 14.0 11.7
Canada.................................................... 2.6 2.6 2.5
Trinidad.................................................. 2.4 3.0 3.4
India(2).................................................. 4.1 5.1 2.3
------ ------ ------
Total............................................. 23.5 24.7 19.9
====== ====== ======
Average Crude Oil and Condensate Prices ($/Bbl)
United States............................................. $18.41 $12.84 $19.81
Canada.................................................... 16.77 11.82 17.16
Trinidad.................................................. 16.21 12.26 18.68
India(2).................................................. 12.80 12.86 20.05
Composite......................................... 17.03 12.66 19.30
Natural Gas Equivalent Volumes (MMcfe per day)(4)
United States............................................. 757 771 743
Canada.................................................... 134 128 124
Trinidad.................................................. 138 157 133
India(2).................................................. 70 86 32
------ ------ ------
Total............................................. 1,099 1,142 1,032
====== ====== ======
Total Bcfe Deliveries....................................... 401 417 377
</TABLE>
- - ---------------
(1) Includes 48 MMcf per day in 1998 and 1997 delivered under the terms of a
volumetric production payment agreement effective October 1, 1992, as
amended. Delivery obligations were terminated in December 1998.
(2) See "Item 1. Business -- General" regarding the Share Exchange.
(3) Includes an average equivalent wellhead value of $1.53 per Mcf in 1998 and
$1.73 per Mcf in 1997 for the volumes detailed in note (1), net of
transportation costs.
(4) Includes natural gas, crude oil, condensate and natural gas liquids.
22
<PAGE> 25
1999 compared to 1998. During 1999, net operating revenues increased $31
million to $801 million. Total wellhead revenues of $823 million increased by
$68 million, or 9%, as compared to 1998.
Average wellhead natural gas prices for 1999 were approximately 9% higher
than the comparable period in 1998 increasing net operating revenues by
approximately $55 million. Average wellhead crude oil and condensate prices were
up by 35% increasing net operating revenues by $37 million. Revenues from the
sale of natural gas liquids increased $3 million primarily due to higher
wellhead prices. Wellhead natural gas volumes were approximately 3% lower than
the comparable period in 1998 decreasing net operating revenues by nearly $21
million. The decrease in volumes is primarily due to the transfer of producing
properties in the Share Exchange and decreased deliveries in Trinidad. (See
"Item 1. Business -- General" for a discussion of the Share Exchange.)
Production in Trinidad decreased 16 MMcf per day due primarily to decreased
nominations and the temporary shut-in of a well in accordance with the terms of
a field allocation agreement. North America wellhead natural gas production was
approximately 1% lower than the comparable period in 1998. Wellhead crude oil
and condensate volumes were 5% lower than in 1998 decreasing net operating
revenues by $6 million. The decrease is primarily attributable to the Share
Exchange and decreased deliveries in Trinidad.
Gains (losses) on sales of reserves and related assets and other, net
totaled a loss of $1 million during 1999 compared to a net gain of $18 million
in 1998. The difference is due primarily to an $8 million loss in 1999 related
to the anticipated disposition of certain international assets compared to a $27
million gain on sale of certain South Texas properties, partially offset by a
$14 million provision for loss on certain physical natural gas contracts in
1998.
Other marketing activities associated with sales and purchases of natural
gas, natural gas and crude oil price hedging and trading transactions, and
margins related to the volumetric production payment (in 1998) decreased net
operating revenue by $21 million during 1999, compared to a $4 million reduction
in 1998.
1998 compared to 1997. During 1998, net operating revenues decreased $14
million to $769 million. Total wellhead revenues of $755 million decreased by
$74 million, or 9%, as compared to 1997.
Average wellhead natural gas prices for 1998 were approximately 14% lower
than the comparable period in 1997 reducing net operating revenues by
approximately $104 million. Average wellhead crude oil and condensate prices
were down by 34% worldwide decreasing net operating revenues by $60 million.
Revenues from the sale of natural gas liquids decreased $6 million primarily due
to lower wellhead prices. Wellhead natural gas volumes were approximately 9%
higher than the comparable period in 1997 increasing net operating revenues by
nearly $62 million. Natural gas production in India increased 38 MMcf per day
from the Tapti and Panna fields, which did not commence deliveries until late in
the second quarter of 1997 and the first quarter of 1998, respectively.
Production in Trinidad increased 26 MMcf per day due primarily to additional
volumes above the current contract level relating to gas balancing volumes
pursuant to a field allocation agreement. North America wellhead natural gas
production was approximately 2% higher than the comparable period in 1997.
Wellhead crude oil and condensate volumes were 24% higher than in 1997
increasing net operating revenues by $34 million. Production from the Panna and
Mukta fields in India more than doubled as a result of the ongoing development
program and shut-down of crude oil production in the second quarter of 1997 to
allow for the conversion from temporary to permanent production facilities.
North America crude oil and condensate volumes increased 17% due primarily to
higher levels of liquids production in South Texas and offshore.
Other marketing activities associated with sales and purchases of natural
gas, natural gas and crude oil price hedging and trading transactions, and
margins related to the volumetric production payment decreased net operating
revenue by $4 million during 1998, compared to a $61 million reduction in 1997,
representing an improvement of $57 million.
Operating Expenses
1999 compared to 1998. During 1999, operating expenses of $783 million were
approximately $127 million higher than the $656 million incurred in 1998.
23
<PAGE> 26
Lease and well expenses decreased $7 million to $92 million primarily due
to the effects of the Share Exchange, fewer workovers, the effects of a warm
winter and a continuing focus on controlling operating costs in all areas of
Company operations. Exploration expenses of $53 million and dry hole expenses of
$12 million decreased $13 million and $11 million, respectively, from 1998
primarily due to implementation of cost provisions of certain new service
agreements in North America. Impairment of unproved oil and gas properties of
$32 million remained essentially flat compared to 1998. Depreciation, depletion
and amortization ("DD&A") expense increased approximately $145 million to $460
million in 1999 primarily due to charges of $15 million pursuant to a change in
the Company's strategy related to certain offshore operations in the second
quarter and an impairment of various North America properties in the fourth
quarter, and non-recurring charges of $114 million related primarily to assets
determined no longer central to the Company's business in the third quarter.
General and administrative ("G&A") expenses were $14 million higher than in 1998
due to non-recurring costs of $5 million related to the potential sale of the
Company, $4 million related to personnel expenses and $9 million related to the
completion of the Share Exchange partially offset by a reduction of $4 million
resulting from the discontinuance of the India and China operations as a result
of the Share Exchange.
Total operating costs per unit of production, which include lease and well,
DD&A, G&A, taxes other than income and interest expense, increased 34% to $1.87
per thousand cubic feet equivalent ("Mcfe") in 1999 from $1.40 per Mcfe in 1998.
This increase is primarily due to a higher per unit rate of DD&A expense, G&A
expenses and interest expense, partially offset by a lower per unit rate of
lease and well expense. Excluding the aforementioned charges of $15 million and
$114 million in DD&A expense and $14 million in G&A expenses, the per unit
operating costs for the Company were $1.51 per Mcfe. The adjusted per unit
operating costs were $0.11 higher compared to $1.40 per Mcfe for the comparable
period in 1998 primarily due to a higher per unit rate of interest as a result
of higher debt levels and a higher per unit rate of DD&A expense.
1998 compared to 1997. During 1998, operating expenses of $656 million were
approximately $65 million higher than the $591 million incurred in 1997.
Lease and well expenses increased $3 million to $99 million primarily due
to commencement of operations in China. Exploration expenses of $66 million and
dry hole expenses of $23 million increased $8 million and $5 million,
respectively, from 1997 primarily due to increased exploratory drilling and
other exploration activities in North America. Impairment of unproved oil and
gas properties increased $5 million to $32 million resulting from a full year of
impairment recorded on unproved leases acquired in 1997 in North America. DD&A
expense increased approximately $37 million to $315 million in 1998 primarily
reflecting a higher per unit rate in North America and increased worldwide
production volumes. G&A expenses were $15 million higher than in 1997 due to
expanded worldwide operations. Taxes other than income were down by
approximately $8 million from the prior year primarily due to lower state
severance taxes associated with decreased wellhead revenues in the United
States.
Total operating costs per unit of production, which include lease and well,
DD&A, G&A, taxes other than income and interest expense, increased 2% to $1.40
per Mcfe in 1998 from $1.37 per Mcfe in 1997. This increase is primarily due to
a higher per unit rate of interest expense, DD&A expense and G&A expenses,
partially offset by a lower per unit rate of lease and well expense and taxes
other than income.
Other Income (Expense). The other income of $611 million for 1999 included
a $575 million net gain from the Share Exchange (See Note 7 to the Consolidated
Financial Statements), a $59.6 million gain on the sale of 3.2 million options
owned by the Company to purchase Enron Corp. common stock (See Note 3 to the
Consolidated Financial Statements), and a $19.4 million charge for estimated
exit costs related to the Company's decision to dispose of certain international
assets.
Interest Expense. The increase in net interest expense of $13 million from
1998 to 1999 and $21 million from 1997 to 1998 primarily reflects a higher level
of debt outstanding due to expanded worldwide operations and common stock
repurchases. (See Note 4 to the Consolidated Financial Statements).
24
<PAGE> 27
Income Taxes. Income tax provision decreased approximately $5 million for
1999 as compared to 1998 and decreased approximately $37 million for 1998 as
compared to 1997 primarily due to lower pre-tax income year to year after
removing the gain on the Share Exchange which is non-taxable.
CAPITAL RESOURCES AND LIQUIDITY
Cash Flow. The primary sources of cash for the Company during the
three-year period ended December 31, 1999 included funds generated from
operations, proceeds from the sales of other assets, selected oil and gas
reserves and related assets, funds from new borrowings and proceeds from equity
offerings. Primary cash outflows included funds used in operations, exploration
and development expenditures, common stock repurchases, dividends paid to
Company shareholders, the repayment of debt and cash contributed to transferred
subsidiaries in the Share Exchange.
Net operating cash flows of $442 million in 1999 increased approximately
$39 million as compared to 1998 due to higher net operating revenues resulting
from higher prices net of cash operating expenses and lower current income
taxes. Changes in working capital and other liabilities decreased operating cash
flows by $18 million as compared to 1998 primarily due to changes in accounts
receivable, accrued royalties payable and accrued production taxes caused by
fluctuation of commodity prices at each year end. Net investing cash outflows of
$363 million in 1999 decreased by $396 million as compared to 1998 due primarily
to decreased exploration and development expenditures of $312 million (including
producing property acquisitions) and higher proceeds from sales of other assets
of $83 million partially offset by lower proceeds from sales of reserves and
related assets of $51 million. Changes in Components of Working Capital
Associated with Investing Activities included for all periods changes in
accounts payable related to the accrual of exploration and development
expenditures and changes in inventories which represent materials and equipment
used in drilling and related activities. Cash used in financing activities in
1999 was $60 million as compared to cash provided by financing activities of
$353 million in 1998. Financing activities in 1999 included funds used in the
Share Exchange of $609 million, dividend payments of $17 million, transaction
fees of $19 million associated with the Share Exchange and other financing
transactions, and net repayment of $152 million of long-term debt, partially
offset by net proceeds from equity offerings of $725 million and proceeds from
sales of treasury stock of $15 million.
Net operating cash flows of $404 million in 1998 decreased approximately
$127 million as compared to 1997 primarily reflecting increased working capital
for operating activities, higher interest expense, decreased operating revenues,
increased cash operating expenses and increased cash taxes. Changes in working
capital and other liabilities decreased operating cash flows by $72 million as
compared to 1997 primarily due to the payment of $25 million of income taxes due
under the 1997 tax agreement with Enron Corp. and changes in accounts
receivable, accrued royalties payable and accrued production taxes caused by
fluctuation of commodity prices at each year end. Net investing cash outflows of
$760 million in 1998 increased by $63 million as compared to 1997 due primarily
to increased exploration and development expenditures of $78 million, partially
offset by higher proceeds from sales of reserves and related assets of $24
million. Changes in Components of Working Capital Associated with Investing
Activities included for all periods changes in accounts payable related to the
accrual of exploration and development expenditures and changes in inventories
which represent materials and equipment used in drilling and related activities.
Cash provided by financing activities in 1998 was $353 million as compared to
$168 million in 1997. Financing activities in 1998 included the net issuance of
$402 million of long-term debt primarily to fund exploration and development
activities, to repurchase shares of the Company's common stock and to pay cash
dividends. Share repurchases in 1998 totaled $26 million as compared to
repurchases of $99 million in 1997. Dividend payments were approximately $19
million in each year.
Discretionary cash flow, a frequently used measure of performance for
exploration and production companies, is generally derived by adjusting net
income to eliminate the effects of depreciation, depletion and amortization,
impairment of unproved oil and gas properties, deferred income taxes, gains on
sales of oil and gas reserves and related assets, certain other non-cash
amounts, except for amortization of deferred revenue and exploration and dry
hole costs. The Company generated discretionary cash flow of approximately $476
million in 1999, $463 million in 1998, and $508 million in 1997.
25
<PAGE> 28
Exploration and Development Expenditures. The table below sets out
components of actual exploration and development expenditures for the years
ended December 31, 1999, 1998 and 1997, along with those budgeted for the year
2000.
<TABLE>
<CAPTION>
EXCLUDING INDIA AND
ACTUAL CHINA OPERATIONS
------------------ --------------------- BUDGETED
EXPENDITURE CATEGORY 1999 1998 1997 1999 1998 1997 2000
- - -------------------- ---- ---- ---- ----- ----- ----- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Capital
Drilling and Facilities.............. $320 $421 $446 $293 $374 $385
Leasehold Acquisitions............... 21 36 77 21 36 77
Producing Property Acquisitions...... 45 211 81 43 211 81
Capitalized Interest and Other....... 16 22 22 14 17 14
---- ---- ---- ---- ---- ----
Subtotal.......................... 402 690 626 371 638 557
Exploration Costs...................... 53 66 58 51 64 53
Dry Hole Costs......................... 12 23 17 12 23 17
---- ---- ---- ---- ---- ----
Total........................ $467 $779 $701 $434 $725 $627 $500-$525
==== ==== ==== ==== ==== ==== =========
</TABLE>
Exploration and development expenditures decreased $312 million in 1999 as
compared to 1998 primarily due to a reduced level of service industry costs as
well as reduced spending on the North America, Trinidad and India drilling and
acquisition program. Producing property acquisitions decreased $166 million
primarily in North America. Drilling and facilities expenditures declined by
$101 million in 1999 primarily due to implementation of cost provisions of
certain new service agreements in North America and effects of the Share
Exchange.
Exploration and development expenditures increased $78 million in 1998 as
compared to 1997 primarily due to the third quarter 1998 acquisition of
producing properties in the Gulf of Mexico for $156 million. Unproved leasehold
acquisitions decreased $41 million primarily in North America. Drilling and
facilities expenditures declined by approximately $25 million in 1998 as
decreased activity in North America and lower expenditures in India were
partially offset by new drilling in Trinidad and Venezuela. While development
activities continued in India, expenditures in 1998 were less than in 1997 due
to 1997 expenditures associated with the installation of permanent production
facilities. (See "Business -- Exploration and Production" for additional
information detailing the specific geographic locations of the Company's
drilling programs and "Outlook" below for a discussion related to 2000
exploration and development expenditure plans).
Hedging Transactions. The Company's 1999 NYMEX-related natural gas and
crude oil commodity price swaps closed with "other marketing revenue" decreases
of $7 million and $3 million pretax, respectively. At December 31, 1999, there
were open crude oil commodity price swaps for 2000 covering approximately 548
MBbl of crude oil at a weighted average price of $19.23 per barrel. There were
no open natural gas commodity price swaps.
Financing. The Company's long-term debt-to-total-capital ratio was 47% as
of December 31, 1999 and 1998.
During 1999, total long-term debt decreased $153 million to $990 million
following the issuance of two series of preferred stock with combined face value
of $150 million and the subsequent use of approximately $147 million of net
proceeds received therefrom to reduce commercial paper and bank debt borrowings.
(See Notes 4 and 6 to the Consolidated Financial Statements). The estimated fair
value of the Company's long-term debt at December 31, 1999 and 1998 was $933
million and $1,141 million, respectively, based upon quoted market prices and,
where such prices were not available, upon interest rates currently available to
the Company at year end. The Company's debt is primarily at fixed interest
rates. At December 31, 1999, a 1% change in interest rates would result in a $46
million change in the estimated fair value of the fixed rate obligations. (See
Note 14 to the Consolidated Financial Statements).
26
<PAGE> 29
Prior to August 16, 1999, the Company engaged in various transactions with
Enron Corp. that were characteristic of a consolidated group under common
control. Accordingly, the Company maintained reciprocal agreements with Enron
Corp. that provided for the borrowing by the Company of up to $200 million and
investing by the Company of surplus funds of up to $200 million at market-based
interest rates. Advances from Enron Corp. of $200 million were outstanding at
December 31, 1998, and such balances were classified as long-term based on the
Company's intent and ability to ultimately replace such amounts with other long-
term debt. The reciprocal agreements terminated on August 16, 1999 upon the
closing of the Share Exchange. There were no investments with Enron Corp. at
December 31, 1998 or 1999. (See Note 4 to the Consolidated Financial
Statements).
Outlook. Uncertainty continues to exist as to the direction of future North
America natural gas and crude oil price trends, and there remains a rather wide
divergence in the opinions held by some in the industry. This divergence in
opinion is caused by various factors including improvements in the technology
used in drilling and completing crude oil and natural gas wells that are tending
to mitigate the impacts of fewer crude oil and natural gas wells being drilled,
improvements being realized in the availability and utilization of natural gas
storage capacity and warmer than normal weather experienced in 1999 and to date
in 2000. However, the continually increasing recognition of natural gas as a
more environmentally friendly source of energy along with the availability of
significant domestically sourced supplies should result in further increases in
demand and a supporting/strengthening of the overall natural gas market over
time. Being primarily a natural gas producer, the Company is more significantly
impacted by changes in natural gas prices than by changes in crude oil and
condensate prices. (See "Business -- Other Matters -- Energy Prices"). At
December 31, 1999, based on the Company's tax position and the portion of the
Company's anticipated natural gas volumes for 2000 for which prices have not, in
effect, been hedged using NYMEX-related commodity market transactions and
long-term marketing contracts, the Company's net income and current operating
cash flow sensitivities to changing natural gas prices are approximately $18
million (or $.15 per share) and $28 million, respectively, for each $.10 per Mcf
change in average wellhead natural gas prices. The Company is not impacted as
significantly by changing crude oil prices for those volumes not otherwise
hedged. The Company's net income and current operating cash flow sensitivities
are approximately $5 million (or $.04 per share) and $8 million, respectively,
for each $1.00 per barrel change in average wellhead crude oil prices.
The Company plans to continue to focus a substantial portion of its
exploration and development expenditures in its major producing areas in North
America. However, based on the continuing uncertainty associated with North
America natural gas prices and as a result of the overall success realized in
Trinidad, the Company anticipates expending a portion of its available funds in
the further development of opportunities outside North America. In addition, the
Company expects to conduct limited exploratory activity in other areas outside
of North America and will continue to evaluate the potential for involvement in
other exploitation type opportunities. (See "Business -Exploration and
Production" for additional information detailing the specific geographic
locations of the related drilling programs). Budgeted 2000 expenditures are
anticipated to be managed within the range of $500-$525 million, addressing the
continuing uncertainty with regard to the future of the North America natural
gas and crude oil and condensate price environment. Budgeted expenditures for
2000 are structured to maintain the flexibility necessary under the Company's
continuing strategy of funding North America exploration, exploitation,
development and acquisition activities primarily from available internally
generated cash flow.
The level of exploration and development expenditures may vary in 2000 and
will vary in future periods depending on energy market conditions and other
related economic factors. Based upon existing economic and market conditions,
the Company believes net operating cash flow and available financing
alternatives in 2000 will be sufficient to fund its net investing cash
requirements for the year. However, the Company has significant flexibility with
respect to its financing alternatives and adjustment of its exploration,
exploitation, development and acquisition expenditure plans if circumstances
warrant. While the Company has certain continuing commitments associated with
expenditure plans related to operations in Trinidad, such commitments are not
anticipated to be material when considered in relation to the total financial
capacity of the Company.
27
<PAGE> 30
Environmental Regulations. Various federal, state and local laws and
regulations covering the discharge of materials into the environment, or
otherwise relating to protection of the environment, may affect the Company's
operations and costs as a result of their effect on natural gas and crude oil
exploration, exploitation, development and production operations. Compliance
with such laws and regulations has not had a material adverse effect on the
Company's operations or financial condition. It is not anticipated, based on
current laws and regulations, that the Company will be required in the near
future to expend amounts that are material in relation to its total exploration
and development expenditure program by reason of environmental laws and
regulations. However, inasmuch as such laws and regulations are frequently
changed, the Company is unable to predict the ultimate cost of compliance.
NEW ACCOUNTING PRONOUNCEMENT -- SFAS NO. 133
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133 -- "Accounting for
Derivative Instruments and Hedging Activities" effective for fiscal years
beginning after June 15, 1999. In June 1999, the FASB issued SFAS No. 137, which
delays the effective date of SFAS No. 133 for one year, to fiscal years
beginning after June 15, 2000. SFAS No. 133, as amended by SFAS No. 137, cannot
be applied retroactively and must be applied to (a) derivative instruments and
(b) certain derivative instruments embedded in hybrid contracts that were
issued, acquired or substantively modified after a transition date to be
selected by the Company of either December 31, 1997 or December 31, 1998.
The statement establishes accounting and reporting standards requiring that
every derivative instrument be recorded in the balance sheet as either an asset
or liability measured at its fair value. The statement requires that changes in
the derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the statements of income and requires a company to formally document,
designate and assess the effectiveness of transactions that receive hedge
accounting treatment.
The Company has not yet quantified the impacts of adopting SFAS No. 133 on
its financial statements and has not determined the timing of adoption. Based on
the Company's current level of derivative and hedging activities, the Company
does not expect the impact of adoption to be material.
YEAR 2000
The Company did not experience any significant operational difficulties or
incur any significant expenses in connection with the Year 2000 issue. The
Company will continue to monitor all critical systems for any incidents of
delayed complications or disruptions and problems encountered through third
parties with whom the Company deals so that they may be timely addressed.
28
<PAGE> 31
INFORMATION REGARDING FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K includes forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. All statements other than statements of
historical facts, including, among others, statements regarding the Company's
future financial position, business strategy, budgets, reserve information,
projected levels of production, exploration and development expenditures,
projected costs and plans and objectives of management for future operations,
are forward-looking statements. The Company typically uses words such as
"expect," "anticipate," "estimate," "strategy," "intend," "plan" and "believe"
or the negative of those terms or other variations of them or by comparable
terminology to identify its forward-looking statements. In particular,
statements, express or implied, concerning future operating results or the
ability to generate income or cash flows are forward-looking statements.
Although the Company believes its expectations reflected in forward-looking
statements are based on reasonable assumptions, no assurance can be given that
these expectations will be achieved. Important factors that could cause actual
results to differ materially from the expectations reflected in the
forward-looking statements include, among others: timing and extent of changes
in commodity prices for crude oil, natural gas and related products and interest
rates; extent of the Company's success in discovering, developing, marketing and
producing reserves and in acquiring oil and gas properties; political
developments around the world; and financial market conditions.
In light of these risks, uncertainties and assumptions, the events
anticipated by the Company's forward-looking statements might not occur. The
Company undertakes no obligations to update or revise its forward-looking
statements, whether as a result of new information, future events or otherwise.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to interest rate risk and commodity price risk is
discussed in "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Capital Resources and Liquidity -- Financing" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Capital Resources and Liquidity -- Outlook," respectively. The
Company's exposure to foreign currency exchange rate risks and other market
risks is insignificant.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required hereunder is included in this report as set forth
in the "Index to Financial Statements" on page F-1.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
29
<PAGE> 32
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item regarding directors is set forth in
the Proxy Statement under the caption entitled "Election of Directors," and is
incorporated herein by reference.
See list of "Current Executive Officers of the Registrant" in Part I
located elsewhere herein.
There are no family relationships among the officers listed, and there are
no arrangements or understandings pursuant to which any of them were elected as
officers. Officers are appointed or elected annually by the Board of Directors
at its first meeting following the Annual Meeting of Shareholders, each to hold
office until the corresponding meeting of the Board in the next year or until a
successor shall have been elected, appointed or shall have qualified.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is set forth in the Proxy Statement
under the caption "Compensation of Directors and Executive Officers," and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is set forth in the Proxy Statement
under the captions "Election of Directors" and "Compensation of Directors and
Executive Officers," and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is set forth in the Proxy Statement
under the caption "Certain Transactions," and is incorporated herein by
reference.
PART IV
ITEM 14. FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE, EXHIBITS AND
REPORTS ON FORM 8-K
(A)(1) AND (2) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
See "Index to Financial Statements" set forth on page F-1.
(A)(3) EXHIBITS
See pages E-1 through E-4 for a listing of the exhibits.
(B) REPORTS ON FORM 8-K
The Company filed a Report on Form 8-K on August 31, 1999, to report the
Share Exchange on August 16, 1999, in Item 2 -- Acquisition or Disposition of
Assets, the change of the Company's name on August 30, 1999, in Item 5 -- Other
Events, and pro forma financial information in Item 7 -- Financial Statements,
Pro Forma Financial Information and Exhibits.
30
<PAGE> 33
INDEX TO FINANCIAL STATEMENTS
EOG RESOURCES, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Financial Statements:
Management's Responsibility for Financial Reporting....... F-2
Report of Independent Public Accountants.................. F-3
Consolidated Statements of Income and Comprehensive Income
for Each of the Three Years in the Period Ended
December 31, 1999...................................... F-4
Consolidated Balance Sheets -- December 31, 1999 and
1998................................................... F-5
Consolidated Statements of Shareholders' Equity for Each
of the Three Years in the Period Ended December 31,
1999................................................... F-6
Consolidated Statements of Cash Flows for Each of the
Three Years in the Period Ended December 31, 1999...... F-7
Notes to Consolidated Financial Statements................ F-8
Supplemental Information to Consolidated Financial
Statements................................................ F-27
Financial Statement Schedule:
Schedule II -- Valuation and Qualifying Accounts and
Reserves.................................................. S-1
</TABLE>
Other financial statement schedules have been omitted because they are
inapplicable or the information required therein is included elsewhere in the
consolidated financial statements or notes thereto.
F-1
<PAGE> 34
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The following consolidated financial statements of EOG Resources, Inc. and
its subsidiaries were prepared by management, which is responsible for their
integrity, objectivity and fair presentation. The statements have been prepared
in conformity with generally accepted accounting principles and, accordingly,
include some amounts that are based on the best estimates and judgments of
management.
Arthur Andersen LLP, independent public accountants, was engaged to audit
the consolidated financial statements of EOG Resources, Inc. and its
subsidiaries and issue a report thereon. In the conduct of the audit, Arthur
Andersen LLP was given unrestricted access to all financial records and related
data including minutes of all meetings of shareholders, the Board of Directors
and committees of the Board. Management believes that all representations made
to Arthur Andersen LLP during the audit were valid and appropriate.
The system of internal controls of EOG Resources, Inc. and its subsidiaries
is designed to provide reasonable assurance as to the reliability of financial
statements and the protection of assets from unauthorized acquisition, use or
disposition. This system includes, but is not limited to, written policies and
guidelines including a published code for the conduct of business affairs,
conflicts of interest and compliance with laws regarding antitrust, antiboycott
and foreign corrupt practices policies, the careful selection and training of
qualified personnel, and a documented organizational structure outlining the
separation of responsibilities among management representatives and staff
groups.
The adequacy of financial controls of EOG Resources, Inc. and its
subsidiaries and the accounting principles employed in financial reporting by
the Company are under the general oversight of the Audit Committee of the Board
of Directors. No member of this committee is an officer or employee of the
Company. The independent public accountants and internal auditors have direct
access to the Audit Committee and meet with the committee from time to time to
discuss accounting, auditing and financial reporting matters. It should be
recognized that there are inherent limitations to the effectiveness of any
system of internal control, including the possibility of human error and
circumvention or override. Accordingly, even an effective system can provide
only reasonable assurance with respect to the preparation of reliable financial
statements and safeguarding of assets. Furthermore, the effectiveness of an
internal control system can change with circumstances.
It is management's opinion that, considering the criteria for effective
internal control over financial reporting and safeguarding of assets which
consists of interrelated components including the control environment, risk
assessment process, control activities, information and communication systems,
and monitoring, the Company maintained an effective system of internal control
as to the reliability of financial statements and the protection of assets
against unauthorized acquisition, use or disposition during the year ended
December 31, 1999.
<TABLE>
<S> <C> <C>
TIMOTHY K. DRIGGERS WALTER C. WILSON MARK G. PAPA
Vice President and Controller Senior Vice President and Chairman and
Chief Financial Officer Chief Executive Officer
</TABLE>
Houston, Texas
March 2, 2000
F-2
<PAGE> 35
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To EOG Resources, Inc.:
We have audited the accompanying consolidated balance sheets of EOG
Resources, Inc. (formerly Enron Oil & Gas Company, a Delaware corporation) and
subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements of income and comprehensive income, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements and the schedule referred to below are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and the schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 financial position of EOG Resources, Inc. and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The financial statement schedule listed
in the index to financial statements is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Houston, Texas
March 2, 2000
F-3
<PAGE> 36
EOG RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
NET OPERATING REVENUES
Natural Gas
Trade................................................. $588,432 $558,376 $544,181
Associated Companies.................................. 56,450 62,929 71,339
Crude Oil, Condensate and Natural Gas Liquids
Trade................................................. 156,441 120,366 121,838
Associated Companies.................................. 826 9,266 29,951
Gains (Losses) on Sales of Reserves and Related Assets
and Other, Net........................................ (743) 18,251 16,192
-------- -------- --------
Total............................................ 801,406 769,188 783,501
OPERATING EXPENSES
Lease and Well........................................... 91,540 98,868 96,064
Exploration Costs........................................ 52,773 65,940 57,696
Dry Hole Costs........................................... 11,893 22,751 17,303
Impairment of Unproved Oil and Gas Properties............ 31,608 32,076 27,213
Depreciation, Depletion and Amortization................. 459,877 315,106 278,179
General and Administrative............................... 82,857 69,010 54,415
Taxes Other Than Income.................................. 52,670 51,776 59,856
-------- -------- --------
Total............................................ 783,218 655,527 590,726
-------- -------- --------
OPERATING INCOME........................................... 18,188 113,661 192,775
OTHER INCOME (EXPENSE)
Gain on Share Exchange................................... 575,151 -- --
Other, Net............................................... 36,192 (4,800) (1,588)
-------- -------- --------
Total............................................ 611,343 (4,800) (1,588)
-------- -------- --------
INCOME BEFORE INTEREST EXPENSE AND INCOME TAXES............ 629,531 108,861 191,187
INTEREST EXPENSE
Incurred
Trade................................................. 72,157 60,701 41,399
Affiliate............................................. 256 589 24
Capitalized.............................................. (10,594) (12,711) (13,706)
-------- -------- --------
Net Interest Expense.................................. 61,819 48,579 27,717
-------- -------- --------
INCOME BEFORE INCOME TAXES................................. 567,712 60,282 163,470
INCOME TAX PROVISION (BENEFIT)............................. (1,382) 4,111 41,500
-------- -------- --------
NET INCOME................................................. 569,094 56,171 121,970
PREFERRED STOCK DIVIDENDS.................................. (535) -- --
-------- -------- --------
NET INCOME AVAILABLE TO COMMON............................. 568,559 56,171 121,970
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign Currency Translation Adjustment.................. 16,038 (16,077) (9,592)
-------- -------- --------
COMPREHENSIVE INCOME....................................... $584,597 $ 40,094 $112,378
======== ======== ========
NET INCOME PER SHARE AVAILABLE TO COMMON
Basic.................................................... $ 4.04 $ .36 $ .78
======== ======== ========
Diluted.................................................. $ 3.99 $ .36 $ .77
======== ======== ========
AVERAGE NUMBER OF COMMON SHARES
Basic.................................................... 140,869 154,345 157,376
======== ======== ========
Diluted.................................................. 142,352 155,054 158,160
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 37
EOG RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents................................. $ 24,836 $ 6,303
Accounts Receivable
Trade.................................................. 148,189 176,608
Associated Companies................................... -- 16,980
Inventories............................................... 18,816 39,581
Other..................................................... 8,660 6,878
----------- -----------
Total............................................. 200,501 246,350
OIL AND GAS PROPERTIES (Successful Efforts Method).......... 4,602,740 4,814,425
Less Accumulated Depreciation, Depletion and
Amortization........................................... (2,267,812) (2,138,062)
----------- -----------
Net Oil and Gas Properties........................ 2,334,928 2,676,363
OTHER ASSETS................................................ 75,364 95,382
----------- -----------
TOTAL ASSETS...................................... $ 2,610,793 $ 3,018,095
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable
Trade.................................................. $ 172,780 $ 159,690
Associated Companies................................... -- 46,597
Accrued Taxes Payable..................................... 19,648 20,087
Dividends Payable......................................... 4,227 4,710
Other..................................................... 21,963 31,550
----------- -----------
Total............................................. 218,618 262,634
LONG-TERM DEBT
Trade..................................................... 990,306 942,779
Affiliate................................................. -- 200,000
OTHER LIABILITIES
Trade..................................................... 46,306 21,516
Associated Companies...................................... -- 46,327
DEFERRED INCOME TAXES....................................... 225,952 260,337
DEFERRED REVENUE............................................ -- 4,198
SHAREHOLDERS' EQUITY
Preferred Stock, $.01 Par, 10,000,000 shares Authorized:
Series A, 100,000 shares Issued, Cumulative,
$100,000,000 Liquidation Preference................... 97,909 --
Series C, 500 shares Issued, Cumulative, $50,000,000
Liquidation Preference................................ 49,281 --
Common Stock, $.01 Par, 320,000,000 shares Authorized;
124,730,000 shares Issued at December 31, 1999 and
160,000,000 shares Issued at December 31, 1998......... 201,247 201,600
Additional Paid In Capital................................ -- 401,524
Unearned Compensation..................................... (1,618) (4,900)
Cumulative Foreign Currency Translation Adjustment........ (19,810) (35,848)
Retained Earnings......................................... 930,938 838,371
Common Stock Held in Treasury, 5,625,446 shares at
December 31, 1999 and 6,276,156 shares at December 31,
1998................................................... (128,336) (120,443)
----------- -----------
Total Shareholders' Equity........................ 1,129,611 1,280,304
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........ $ 2,610,793 $ 3,018,095
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 38
EOG RESOURCES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN COMMON
ADDITIONAL CURRENCY STOCK
PREFERRED COMMON PAID IN UNEARNED TRANSLATION RETAINED HELD IN
STOCK STOCK CAPITAL COMPENSATION ADJUSTMENT EARNINGS TREASURY
--------- -------- ---------- ------------ ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996...................... $ -- $201,600 $ 388,212 $(5,727) $(10,179) $697,564 $ (6,380)
Net Income................ -- -- -- -- -- 121,970 --
Dividends Paid/Declared,
$.12 per Share.......... -- -- -- -- -- (18,825) --
Translation Adjustment.... -- -- -- -- (9,592) -- --
Treasury Stock
Purchased............... -- -- -- -- -- -- (99,306)
Treasury Stock Issued
Under Stock Option
Plans................... -- -- (872) -- -- -- 6,014
Options Granted by Enron
Corp.................... -- -- 15,081 -- -- -- --
Amortization of Unearned
Compensation............ -- -- -- 1,033 -- -- --
Other..................... -- -- 456 -- -- -- --
-------- -------- --------- ------- -------- -------- -----------
Balance at December 31,
1997...................... -- 201,600 402,877 (4,694) (19,771) 800,709 (99,672)
Net Income................ -- -- -- -- -- 56,171 --
Dividends Paid/Declared,
$.12 per Share.......... -- -- -- -- -- (18,509) --
Translation Adjustment.... -- -- -- -- (16,077) -- --
Treasury Stock
Purchased............... -- -- -- -- -- -- (25,875)
Treasury Stock Issued
Under Stock Option
Plans................... -- -- (492) (1,709) -- -- 5,104
Amortization of Unearned
Compensation............ -- -- -- 1,503 -- -- --
Other..................... -- -- (861) -- -- -- --
-------- -------- --------- ------- -------- -------- -----------
Balance at December 31,
1998...................... -- 201,600 401,524 (4,900) (35,848) 838,371 (120,443)
Net Income................ -- -- -- -- -- 569,094 --
Preferred Stock Issued.... 147,175 -- -- -- -- -- --
Amortization of Preferred
Stock Discount.......... 15 -- -- -- -- -- --
Common Stock Issued....... -- 270 577,662 -- -- -- --
Preferred Stock Dividends
Accrued................. -- -- -- -- -- (535) --
Common Stock Dividends
Paid/Declared, $.12 per
Share................. -- -- -- -- -- (16,377) --
Translation Adjustment.... -- -- -- -- 16,038 -- --
Treasury Stock
Purchased............... -- -- -- -- -- -- (2,143)
Treasury Stock Received in
Share Exchange.......... -- -- -- -- -- -- (1,459,484)
Common Stock Retired...... -- (623) (978,224) -- -- (458,033) 1,436,880
Treasury Stock Issued
Under Stock Option
Plans................... -- -- (887) 136 -- (1,582) 16,854
Amortization of Unearned
Compensation............ -- -- -- 3,146 -- -- --
Other..................... -- -- (75) -- -- -- --
-------- -------- --------- ------- -------- -------- -----------
Balance at December 31,
1999...................... $147,190 $201,247 $ -- $(1,618) $(19,810) $930,938 $ (128,336)
======== ======== ========= ======= ======== ======== ===========
<CAPTION>
TOTAL
SHAREHOLDERS'
EQUITY
-------------
<S> <C>
Balance at December 31,
1996...................... $1,265,090
Net Income................ 121,970
Dividends Paid/Declared,
$.12 per Share.......... (18,825)
Translation Adjustment.... (9,592)
Treasury Stock
Purchased............... (99,306)
Treasury Stock Issued
Under Stock Option
Plans................... 5,142
Options Granted by Enron
Corp.................... 15,081
Amortization of Unearned
Compensation............ 1,033
Other..................... 456
----------
Balance at December 31,
1997...................... 1,281,049
Net Income................ 56,171
Dividends Paid/Declared,
$.12 per Share.......... (18,509)
Translation Adjustment.... (16,077)
Treasury Stock
Purchased............... (25,875)
Treasury Stock Issued
Under Stock Option
Plans................... 2,903
Amortization of Unearned
Compensation............ 1,503
Other..................... (861)
----------
Balance at December 31,
1998...................... 1,280,304
Net Income................ 569,094
Preferred Stock Issued.... 147,175
Amortization of Preferred
Stock Discount.......... 15
Common Stock Issued....... 577,932
Preferred Stock Dividends
Accrued................. (535)
Common Stock Dividends
Paid/Declared, $.12 per
Share................. (16,377)
Translation Adjustment.... 16,038
Treasury Stock
Purchased............... (2,143)
Treasury Stock Received in
Share Exchange.......... (1,459,484)
Common Stock Retired...... --
Treasury Stock Issued
Under Stock Option
Plans................... 14,521
Amortization of Unearned
Compensation............ 3,146
Other..................... (75)
----------
Balance at December 31,
1999...................... $1,129,611
==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 39
EOG RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Reconciliation of Net Income to Net Operating Cash Inflows:
Net Income................................................ $ 569,094 $ 56,171 $ 121,970
Items Not Requiring (Providing) Cash
Depreciation, Depletion and Amortization............... 459,877 315,106 278,179
Impairment of Unproved Oil and Gas Properties.......... 31,608 32,076 27,213
Deferred Income Taxes.................................. (26,252) (26,794) 16,665
Other, Net............................................. 25,583 7,761 359
Exploration Costs......................................... 52,773 65,940 57,696
Dry Hole Costs............................................ 11,893 22,751 17,303
Losses (Gains) On Sales of Reserves and Related Assets and
Other, Net............................................. 5,602 (11,191) (9,287)
Gains on Sales of Other Assets............................ (59,647) -- --
Gain on Share Exchange.................................... (575,151) -- --
Other, Net................................................ (19,081) 1,116 (2,590)
Changes in Components of Working Capital and Other
Liabilities
Accounts Receivable.................................... (12,914) 36,363 48,893
Inventories............................................ 5,180 (7,541) (11,294)
Accounts Payable....................................... 4,395 (65,249) (11,478)
Accrued Taxes Payable.................................. 2,449 (8,754) 10,287
Other Liabilities...................................... (15,438) 2,324 2,521
Other, Net............................................. (9,960) (3,620) 9,760
Amortization of Deferred Revenue.......................... -- (43,344) (43,345)
Changes in Components of Working Capital Associated with
Investing and Financing Activities..................... (7,879) 30,491 18,077
--------- --------- ---------
NET OPERATING CASH INFLOWS.................................. 442,132 403,606 530,929
INVESTING CASH FLOWS
Additions to Oil and Gas Properties....................... (402,829) (690,352) (626,198)
Exploration Costs......................................... (52,773) (65,940) (57,696)
Dry Hole Costs............................................ (11,893) (22,751) (17,303)
Proceeds from Sales of Reserves and Related Assets........ 10,934 61,858 37,521
Proceeds from Sales of Other Assets....................... 82,965 -- --
Changes in Components of Working Capital Associated with
Investing Activities................................... 7,909 (30,173) (22,454)
Other, Net................................................ 2,322 (12,262) (11,000)
--------- --------- ---------
NET INVESTING CASH OUTFLOWS................................. (363,365) (759,620) (697,130)
FINANCING CASH FLOWS
Long-Term Debt
Trade.................................................. 47,527 394,004 86,595
Affiliate.............................................. (200,000) 7,500 192,500
Proceeds from Preferred Stock Issued...................... 147,175 -- --
Proceeds from Common Stock Issued......................... 577,932 -- --
Dividends Paid............................................ (17,395) (18,504) (18,938)
Treasury Stock Purchased.................................. (2,143) (25,875) (99,306)
Proceeds from Sales of Treasury Stock..................... 14,728 2,883 5,141
Equity Contribution to Transferred Subsidiaries........... (608,750) -- --
Other, Net................................................ (19,308) (7,021) 1,895
--------- --------- ---------
NET FINANCING CASH INFLOWS (OUTFLOWS)....................... (60,234) 352,987 167,887
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ 18,533 (3,027) 1,686
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 6,303 9,330 7,644
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 24,836 $ 6,303 $ 9,330
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 40
EOG RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS UNLESS OTHERWISE INDICATED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation. The consolidated financial statements of EOG
Resources, Inc., formerly Enron Oil & Gas Company (the "Company") include the
accounts of all domestic and foreign subsidiaries. All material intercompany
accounts and transactions have been eliminated. Certain reclassifications have
been made to the consolidated financial statements for prior years to conform
with the current presentation.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents. The Company records as cash equivalents all
highly liquid short-term investments with original maturities of three months or
less. The Company had approximately $23 million of outstanding checks payable
classified as accounts payable at December 31, 1999.
Oil and Gas Operations. The Company accounts for its natural gas and crude
oil exploration and production activities under the successful efforts method of
accounting.
Oil and gas lease acquisition costs are capitalized when incurred. Unproved
properties with significant acquisition costs are assessed quarterly on a
property-by-property basis, and any impairment in value is recognized.
Amortization of any remaining costs of such leases begins at a point prior to
the end of the lease term depending upon the length of such term. Unproved
properties with acquisition costs that are not individually significant are
aggregated, and the portion of such costs estimated to be nonproductive, based
on historical experience, is amortized over the average holding period. If the
unproved properties are determined to be productive, the appropriate related
costs are transferred to proved oil and gas properties. Lease rentals are
expensed as incurred.
Oil and gas exploration costs, other than the costs of drilling exploratory
wells, are charged to expense as incurred. The costs of drilling exploratory
wells are capitalized pending determination of whether they have discovered
proved commercial reserves. If proved commercial reserves are not discovered,
such drilling costs are expensed. Costs to develop proved reserves, including
the costs of all development wells and related equipment used in the production
of natural gas and crude oil, are capitalized.
Depreciation, depletion and amortization of the cost of proved oil and gas
properties is calculated using the unit-of-production method. Estimated future
dismantlement, restoration and abandonment costs (classified as long-term
liabilities), net of salvage values, are taken into account. Certain other
assets are depreciated on a straight-line basis. Periodically, or when
circumstances indicate that an asset may be impaired, the Company compares
expected undiscounted future cash flows at a producing field level to the
unamortized capitalized cost of the asset. If the future undiscounted cash
flows, based on the Company's estimate of future crude oil and natural gas
prices and operating costs and anticipated production from proved reserves are
lower than the unamortized capitalized cost, the capitalized cost is reduced to
fair value. Fair value is calculated by discounting the future cash flows at an
appropriate risk-adjusted discount rate.
Inventories, consisting primarily of tubular goods and well equipment held
for use in the exploration for, and development and production of natural gas
and crude oil reserves, are carried at cost with adjustments made from time to
time to recognize changes in value.
Natural gas revenues are recorded on the entitlement method based on the
Company's percentage ownership of current production. Each working interest
owner in a well generally has the right to a specific percentage of production,
although actual production sold may differ from an owner's ownership percentage.
F-8
<PAGE> 41
EOG RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under entitlement accounting, a receivable is recorded when underproduction
occurs and a payable when overproduction occurs.
Gains and losses associated with the sale of in place natural gas and crude
oil reserves and related assets are classified as net operating revenues in the
consolidated statements of income and comprehensive income based on the
Company's strategy of continuing such sales in order to maximize the economic
value of its assets.
Accounting for Price Risk Management. The Company engages in price risk
management activities from time to time primarily for non-trading and to a
lesser extent for trading purposes. Derivative financial instruments (primarily
price swaps and costless collars) are utilized selectively for non-trading
purposes to hedge the impact of market fluctuations on natural gas and crude oil
market prices. Hedge accounting is utilized in non-trading activities when there
is a high degree of correlation between price movements in the derivative and
the item designated as being hedged. Gains and losses on derivative financial
instruments used for hedging purposes are recognized as revenue in the same
period as the hedged item. Gains and losses on hedging instruments that are
closed prior to maturity are deferred in the consolidated balance sheets. In
instances where the anticipated correlation of price movements does not occur,
hedge accounting is terminated and future changes in the value of the derivative
are recognized as gains or losses using the mark-to-market method of accounting.
Derivative and other financial instruments utilized in connection with trading
activities, primarily price swaps and call options, are accounted for using the
mark-to-market method, under which changes in the market value of outstanding
financial instruments are recognized as gains or losses in the period of change.
The cash flow impact of derivative and other financial instruments used for non-
trading and trading purposes is reflected as cash flows from operating
activities in the consolidated statements of cash flows.
Capitalized Interest Costs. Certain interest costs have been capitalized as
a part of the historical cost of unproved oil and gas properties and in work in
progress for exploratory drilling and related facilities with significant cash
outlays.
Income Taxes. The Company accounts for income taxes under the provisions of
SFAS No. 109 -- "Accounting for Income Taxes." SFAS No. 109 requires the asset
and liability approach for accounting for income taxes. Under this approach,
deferred tax assets and liabilities are recognized based on anticipated future
tax consequences attributable to differences between financial statement
carrying amounts of assets and liabilities and their respective tax bases (See
Note 8 "Income Taxes").
Foreign Currency Translation. For subsidiaries whose functional currency is
deemed to be other than the U.S. dollar, asset and liability accounts are
translated at year-end exchange rates and revenue and expenses are translated at
average exchange rates prevailing during the year. Translation adjustments are
included as a separate component of shareholders' equity. Any gains or losses on
transactions or monetary assets or liabilities in currencies other than the
functional currency are included in net income in the current period.
Net Income Per Share. In accordance with the provisions of SFAS No.
128 -- "Earnings per Share," basic net income per share is computed on the basis
of the weighted-average number of common shares outstanding during the periods.
Diluted net income per share is computed based upon the weighted-average number
of common shares plus the assumed issuance of common shares for all potentially
dilutive securities. (See Note 10 "Net Income Per Share Available to Common" for
additional information to reconcile the difference between the Average Number of
Common Shares outstanding for basic and diluted net income per share).
F-9
<PAGE> 42
EOG RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. NATURAL GAS AND CRUDE OIL, CONDENSATE AND NATURAL GAS LIQUIDS NET OPERATING
REVENUES
Natural gas revenues, trade for 1999, 1998 and 1997 are net of costs of
natural gas purchased for sale related to natural gas marketing activities of
$44.6 million, $44.8 million and $73.6 million, respectively. Natural gas
revenues, associated for 1999, 1998 and 1997 are net of costs of natural gas
purchased for sale related to natural gas marketing activities of $13.5 million,
$51.0 million and $47.7 million, respectively.
In March 1995, in a series of transactions with Enron Corp. and an
affiliate of Enron Corp., the Company exchanged all of its fuel supply and
purchase contracts and related price swap agreements associated with a Texas
City cogeneration plant (the "Cogen Contracts") for certain natural gas price
swap agreements of equivalent value issued by the affiliate that are designated
as hedges (the "Swap Agreements"). Such Swap Agreements were closed on March 31,
1995. As a result of the transactions, the Company was relieved of all
performance obligations associated with the Cogen Contracts. The Company
realized net operating revenues and received corresponding cash payments of
approximately $91 million during the period extending through December 31, 1999,
under the terms of the closed Swap Agreements. The estimated fair value of the
Swap Agreements was approximately $81 million at the date the Swap Agreements
were received in exchange for the Cogen Contracts. The net effect of this series
of transactions resulted in increases in net operating revenues and cash
receipts for the Company during 1995 and 1996 of approximately $13 million and
$7 million, respectively, with offsetting decreases in 1998 and 1999 versus that
anticipated under the Cogen Contracts.
3. OTHER ASSETS
In December 1997, the Company and Enron Corp. entered into an Equity
Participation and Business Opportunity Agreement. Among other things, under the
agreement, Enron Corp. granted to the Company options to purchase 3.2 million
shares of Enron Corp. common stock at a price of $39.1875 per share which was
the closing price of the stock on the date that the agreement was approved by
the Board of Directors of the Company. Other Assets at December 31, 1998
includes $23.3 million or $7.29 per share representing the estimated fair value
of the Enron Corp. stock options at the date of grant. Such estimated fair value
was determined using the Black-Scholes option-pricing model with the following
weighted-average assumptions at the date the options were issued: (1) dividend
yield of 2.5%, (2) expected volatility of 17.5%, (3) risk-free interest rate of
5.85%, and (4) expected average life of 4.0 years. Receipt of the options
represented a capital contribution from Enron Corp. and, accordingly, the fair
value received, net of tax effects of $8.2 million, was credited to Additional
Paid In Capital.
During the first and second quarters of 1999, the Company sold the 3.2
million options to purchase common stock of Enron Corp. In the first quarter of
1999, the Company sold 1.6 million options at an average price of $24.81 ($64.00
Enron Corp. stock price equivalent), realizing net proceeds of $40 million and a
gain of $28 million pre-tax ($18 million after-tax). Early in the second
quarter, the Company sold the remaining 1.6 million options at an average price
of $27.07 ($66.26 Enron Corp. stock price equivalent), realizing net proceeds of
$43 million and a gain of $32 million pre-tax ($21 million after-tax). The gain
on sale of the options is included in other income (expense) - other, net in the
Consolidated Statements of Income and Comprehensive Income. These transactions
were completed prior to Enron Corp. effecting a two-for-one stock split.
F-10
<PAGE> 43
EOG RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. LONG-TERM DEBT
Long-Term Debt at December 31 consisted of the following:
<TABLE>
<CAPTION>
1999 1998
-------- ----------
<S> <C> <C>
Commercial Paper............................................ $123,186 $ 162,539
Uncommitted Credit Facilities............................... 87,000 --
6.50% Notes due 2004........................................ 100,000 100,000
6.70% Notes due 2006........................................ 150,000 150,000
6.50% Notes due 2007........................................ 100,000 100,000
6.00% Notes due 2008........................................ 175,000 175,000
6.65% Notes due 2028........................................ 150,000 150,000
Subsidiary Debt due 2001.................................... 105,000 105,000
Other....................................................... 120 240
-------- ----------
990,306 942,779
Affiliate................................................... -- 200,000
-------- ----------
Total............................................. $990,306 $1,142,779
======== ==========
</TABLE>
During 1999, the Company entered into two new credit facilities with
domestic and foreign banks which provide for an aggregate of $800 million in
long-term committed credit, with $400 million expiring in 2000 and $400 million
expiring in 2004, and concurrently cancelled the existing $450 million facility.
With respect to the $400 million expiring in 2000, the Company may, at its
option, extend the final maturity date of any advances made under the facility
by one full year from the expiration date of the facility, effectively
qualifying such debt as long-term. Advances under both agreements bear interest,
at the option of the Company, based upon a base rate or a Eurodollar rate. At
December 31, 1999, there were no advances outstanding under either of these
agreements.
Commercial paper and short-term funding from uncommitted credit facilities
provide financing for various corporate purposes and bear interest based upon
market rates. Commercial paper and uncommitted credit are classified as
long-term debt based on the Company's intent and ability to ultimately replace
such amounts with other long-term debt. (See Note 14 "Price and Interest Rate
Risk Management").
The 6.00% to 6.70% Notes due 2004 to 2028 were issued through public
offerings and have effective interest rates of 6.14% to 6.83%. The Subsidiary
Debt due 2001 bears interest at variable market-based rates and is guaranteed by
the Company.
At December 31, 1999, the aggregate annual maturities of long-term debt
outstanding were less than $1.0 million for 2000, $105 million for 2001, none
for 2002 and 2003 and $100 million for 2004.
See Note 14 "Price and Interest Rate Risk Management."
Shelf Registration. The Company may sell from time to time up to an
aggregate of approximately $88 million in debt securities and/or common stock
pursuant to an effective "shelf" registration statement filed with the
Securities and Exchange Commission.
Financing Arrangements With Enron Corp. Prior to August 16, 1999, the
Company engaged in various transactions with Enron Corp. that were
characteristic of a consolidated group under common control. Accordingly, the
Company maintained reciprocal agreements with Enron Corp. that provided for the
borrowing by the Company of up to $200 million and investing by the Company of
surplus funds of up to $200 million at market-based interest rates. Advances
from Enron Corp. of $200 million were outstanding at December 31, 1998, and such
balances were classified as long-term based on the Company's intent and ability
F-11
<PAGE> 44
EOG RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
to ultimately replace such amounts with other long-term debt. The reciprocal
agreements terminated on August 16, 1999 upon the closing of the Share Exchange.
There were no investments with Enron Corp. at December 31, 1998 or 1999. (See
Note 14 "Price and Interest Rate Risk Management").
Fair Value Of Long-Term Debt. At December 31, 1999 and 1998, the Company
had $990 million and $1,143 million, respectively, of long-term debt which had
fair values of approximately $933 million and $1,141 million, respectively. The
fair value of long-term debt is the value the Company would have to pay to
retire the debt, including any premium or discount to the debtholder for the
differential between the stated interest rate and the year-end market rate. The
fair value of long-term debt is based upon quoted market prices and, where such
quotes were not available, upon interest rates available to the Company at
year-end.
5. VOLUMETRIC PRODUCTION PAYMENT
In September 1992, the Company sold a volumetric production payment for
$326.8 million to a limited partnership. Under the terms of the production
payment, as amended October 1, 1993, the Company conveyed a real property
interest in certain natural gas and other hydrocarbons to the purchaser.
Deliveries were scheduled at the rate of 50 billion British thermal units per
day through March 31, 1999. The Company accounted for the proceeds received in
the transaction as deferred revenue, which was amortized into revenue and income
as natural gas and other hydrocarbons were produced and delivered during the
term of the volumetric production payment agreement. In December 1998, the
Company settled the remainder of the contract in cash which was not materially
different from the recorded deferred revenue, and delivery obligations were
terminated.
6. SHAREHOLDERS' EQUITY
The Board of Directors of the Company has approved an authorization for
purchasing and holding in treasury at any time up to 1,000,000 shares of common
stock of the Company for the purpose of, but not limited to, meeting obligations
associated with the exercise of stock options granted to qualified employees
pursuant to the Company's stock option plans. The Board of Directors has also
approved the selling from time to time, subject to certain conditions, of put
options on the common stock of the Company. The 1,000,000 share limit mentioned
above applies to shares held in treasury and unexpired put options outstanding.
In February 1997, as amended in February 1998, the Board of Directors authorized
the additional purchase of up to an aggregate maximum of 10 million shares of
common stock of the Company from time to time in the open market to be held in
treasury for the purpose of, but not limited to, fulfilling any obligations
arising under the Company's stock option plans and any other approved
transactions or activities for which such common stock shall be required. At
December 31, 1999 and 1998, 5,625,446 shares and 6,276,156 shares, respectively,
were held in treasury under these authorizations. In February 2000, the Board of
Directors authorized the purchase of an aggregate maximum of 10 million shares
of common stock of the Company which replaced the remaining authorization from
February 1998. (See Note 9 "Commitments and Contingencies -- Treasury Shares").
The Company has, from time to time, entered into transactions in which it writes
put options on its own common stock. At December 31, 1999, there were no put
options outstanding. At December 31, 1998, there were put options outstanding
for 175,000 shares of common stock.
On July 23, 1999, the Company filed a registration statement with the
Securities and Exchange Commission for the public offering of 27,000,000 shares
of the Company's common stock. The public offering was completed on August 16,
1999, and the net proceeds were used to repay short-term borrowings used to fund
a significant portion of the cash capital contribution in connection with the
Share Exchange Agreement ("Share Exchange") described in Note 7 "Transactions
with Enron Corp. and Related Parties." As a result of the public offering and
the retirement of the 62,270,000 shares of the Company's common stock received
from Enron Corp. in the Share Exchange transaction, the number of shares of the
Company's common stock issued was reduced to 124,730,000 from 160,000,000 prior
to the Share Exchange.
F-12
<PAGE> 45
EOG RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In December 1999, the Company issued the following two series of preferred
stock:
Series A. On December 10, 1999 the Company issued 100,000 shares of Fixed
Rate Cumulative Perpetual Senior Preferred Stock, Series A, with a $1,000
Liquidation Preference per share, in a private transaction. Subject to the terms
of a registration rights agreement, the Company is required to register these
shares for public sale within 150 days of the issuance date. Dividends will be
payable on the shares only if declared by the Company's board of directors and
will be cumulative. If declared, dividends will be payable at a rate of $71.95
per share, per year on March 15, June 15, September 15, and December 15 of each
year beginning March 15, 2000. The dividend rate may only be adjusted in the
event that certain amendments are made to the Dividend Received Percentage
within the first 18 months of the issuance date. The Company may redeem all or a
part of the Series A preferred stock at any time beginning on December 15, 2009
at $1,000 per share, plus accrued and unpaid dividends. The shares may also be
redeemable, in whole but not in part, in the event that certain amendments are
made to the Dividend Received Percentage. The Series A preferred shares are not
convertible into, or exchangeable for, common stock of the Company.
Series C. On December 22, 1999, the Company issued 500 shares of Flexible
Money Market Cumulative Preferred Stock, Series C, with a liquidation preference
of $100,000 per share, in a private transaction. Subject to the terms of a
registration rights agreement, the Company is required to register these shares
for public sale within 150 days of the issuance date. Dividends will be payable
on the shares only if declared by the Company's board of directors and will be
cumulative. The initial dividend rate on the shares will be 6.84% until December
15, 2004 (the "Initial Period-End Dividend Payment Date"). Through the Initial
Period-End Dividend Payment Date dividends will be payable, if declared, on
March 15, June 15, September 15, and December 15 of each year beginning March
15, 2000. The cash dividend rate for each subsequent dividend period will be
determined pursuant to periodic auctions conducted in accordance with certain
auction procedures. The first auction date will be December 14, 2004. After
December 15, 2004 (unless the Company has elected a "Non-Call Period" for a
subsequent dividend period), the Company may redeem the shares, in whole or in
part, on any dividend payment date at $100,000 per share upon the payment of
accumulated and unpaid dividends. The shares may also be redeemable, in whole
but not in part, in the event that certain amendments are made to the Dividend
Received Percentage. The Series C preferred shares are not convertible into, or
exchangeable for, common stock of the Company.
7. TRANSACTIONS WITH ENRON CORP. AND RELATED PARTIES
On August 16, 1999, the Company and Enron Corp. completed the Share
Exchange whereby the Company received 62,270,000 shares of the Company's common
stock out of 82,270,000 shares owned by Enron Corp. in exchange for all the
stock of the Company's subsidiary, EOGI-India, Inc. Prior to the Share Exchange,
the Company made an indirect capital contribution of approximately $600 million
in cash, plus certain intercompany receivables, to EOGI-India, Inc. At the time
of completion of this transaction, this subsidiary owned, through subsidiaries,
all of the Company's assets and operations in India and China. The Company
recognized a $575 million tax-free gain on the Share Exchange based on the fair
value of the shares received, net of transaction fees of $14 million.
Immediately following the Share Exchange, the Company retired the 62,270,000
shares of the Company's common stock received in the transaction. The weighted
average basis in the treasury shares retired was first deducted from and fully
eliminated existing additional paid in capital with the remaining value deducted
from retained earnings. This transaction is a tax-free exchange to the Company.
On August 30, 1999, the Company changed its corporate name to "EOG Resources,
Inc." from "Enron Oil & Gas Company" and has since made similar changes to its
subsidiaries' names.
F-13
<PAGE> 46
EOG RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Immediately prior to the closing of the Share Exchange, Enron Corp. owned
82,270,000 shares of the Company's common stock, representing approximately 53.5
percent of all of the shares of the Company's common stock that were issued and
outstanding. As a result of the closing of the Share Exchange, the sale by Enron
Corp. of 8,500,000 shares of the Company's common stock as a selling stockholder
in the public offering referred to above, and the completion on August 17, 1999
and August 20, 1999 of the offering of Enron Corp. notes mandatorily
exchangeable at maturity into up to 11,500,000 shares of the Company's common
stock, Enron Corp's maximum remaining interest in the Company after the
automatic conversion of its notes on July 31, 2002, will be under two percent
(assuming the notes are exchanged for less than the 11,500,000 shares of the
Company's common stock). As a result, beginning with the Share Exchange all
transactions with Enron Corp. and its affiliates have been classified as Trade.
Effective as of August 16, 1999, the closing date of the Share Exchange,
the members of the board of directors of the Company who were officers or
directors of Enron Corp. resigned their positions as directors of the Company.
Business Opportunity Agreement. In December 1997, Enron Corp. and the
Company entered into the Equity Participation and Business Opportunity Agreement
("Business Opportunity Agreement") which defined certain obligations that Enron
Corp. owed to the Company and relieved Enron Corp. from certain obligations to
the Company that it might otherwise have, including the obligation to offer
certain business opportunities to the Company. The Business Opportunity
Agreement was approved by the Board of Directors of the Company after it was
approved unanimously by a special committee of the Board of Directors consisting
of the Company's independent directors.
The Business Opportunity Agreement provided generally that, so long as such
activities were conducted in compliance with the Business Opportunity Agreement
in all material respects, Enron Corp. could pursue business opportunities
independently of the Company.
In consideration for the Company's agreements in the Business Opportunity
Agreement, Enron Corp. provided valuable consideration to the Company, including
options to purchase common stock of Enron Corp., all of which were sold by the
Company during 1999 (see Note 3 "Other Assets").
Natural Gas and Crude Oil, Condensate and Natural Gas Liquids Net Operating
Revenues. Prior to the Share Exchange, Natural Gas and Crude Oil, Condensate and
Natural Gas Liquids Net Operating Revenues included revenues from and associated
costs paid to various subsidiaries and affiliates of Enron Corp. pursuant to
contracts which, in the opinion of management, were no less favorable than could
be obtained from third parties. (See Note 2 "Natural Gas and Crude Oil,
Condensate and Natural Gas Liquids Net Operating Revenues"). Natural Gas and
Crude Oil, Condensate and Natural Gas Liquids Net Operating Revenues also
included certain commodity price swap and NYMEX-related commodity transactions
with Enron Corp. affiliated companies, which in the opinion of management, were
no less favorable than could be received from third parties. (See Note 14 "Price
and Interest Rate Risk Management").
General and Administrative Expenses. Prior to the Share Exchange, the
Company was charged by Enron Corp. for all direct costs associated with its
operations. Such direct charges, excluding benefit plan charges (See Note 9
"Commitments and Contingencies -- Employee Benefit Plans"), totaled $10.6
million, $14.2 million and $16.1 million for the years ended December 31, 1999,
1998 and 1997, respectively. Additionally, certain administrative costs not
directly charged to any Enron Corp. operations or business segments were
allocated to the entities of the consolidated group. Approximately $3.4 million,
$5.1 million and $5.3 million was incurred by the Company for indirect general
and administrative expenses for 1999, 1998 and 1997, respectively. Management
believes that these charges were reasonable.
Financing. See Note 4 "Long-Term Debt -- Financing Arrangements with Enron
Corp." for a discussion of financing arrangements with Enron Corp.
F-14
<PAGE> 47
EOG RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES
The principal components of the Company's net deferred income tax liability
at December 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Deferred Income Tax Assets
Cogen Contract Exchange................................... $ -- $ 9,519
Net Operating Loss Carryforward, India.................... -- 44,640
Non-Producing Leasehold Costs............................. 25,199 19,411
Seismic Costs Capitalized for Tax......................... 9,912 7,687
Alternative Minimum Tax Credit Carryforward............... 21,772 17,656
Trading Activity.......................................... 1,426 4,253
Section 29 Credit Monetization............................ 15,657 --
Other..................................................... 13,993 12,084
-------- --------
Total Deferred Income Tax Assets.................. 87,959 115,250
Deferred Income Tax Liabilities
Oil and Gas Exploration and Development Costs Deducted for
Tax Over Book Depreciation, Depletion and
Amortization........................................... 299,704 360,045
Capitalized Interest...................................... 11,986 12,512
Other..................................................... 2,221 3,030
-------- --------
Total Deferred Income Tax Liabilities............. 313,911 375,587
-------- --------
Net Deferred Income Tax Liability................. $225,952 $260,337
======== ========
</TABLE>
The components of income (loss) before income taxes were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
United States.............................................. $561,841 $ (3,297) $103,831
Foreign.................................................... 5,871 63,579 59,639
-------- -------- --------
Total............................................ $567,712 $ 60,282 $163,470
======== ======== ========
</TABLE>
Total income tax provision (benefit) was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal.................................................. $ 5,510 $ 10,496 $ 50,494
State.................................................... 3,234 1,474 840
Foreign.................................................. 16,126 18,935 23,614
-------- -------- --------
Total............................................ 24,870 30,905 74,948
Deferred:
Federal.................................................. (49,474) (31,279) (32,711)
State.................................................... (502) (4,589) 348
Foreign.................................................. 23,724 9,074 (1,085)
-------- -------- --------
Total............................................ (26,252) (26,794) (33,448)
-------- -------- --------
Income Tax Provision (Benefit)............................. $ (1,382) $ 4,111 $ 41,500
======== ======== ========
</TABLE>
F-15
<PAGE> 48
EOG RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The differences between taxes computed at the U.S. federal statutory tax
rate and the Company's effective rate were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- ------
<S> <C> <C> <C>
Statutory Federal Income Tax Rate................... 35.00% 35.00% 35.00%
State Income Tax, Net of Federal Benefit............ 0.31 (3.36) 0.47
Income Tax Related to Foreign Operations............ 1.60 4.76 2.83
Tight Gas Sand Federal Income Tax Credits........... (1.45) (17.36) (7.51)
Revision of Prior Years' Tax Estimates.............. (0.21) (10.78) (4.34)
Share Exchange...................................... (35.46) -- --
Other............................................... (.03) (1.45) (1.06)
-------- ------- ------
Effective Income Tax Rate................. (0.24)% 6.81% 25.39%
======== ======= ======
</TABLE>
In 1997, the Company and Enron Corp. agreed to replace an existing tax
allocation agreement with a new tax allocation agreement. In the new agreement,
Enron Corp. agreed to refund a $13 million payment made by the Company pursuant
to the existing agreement, the Company agreed to release Enron Corp. from the
liabilities assumed related to the $13 million payment and the parties agreed to
indemnify each other in a manner consistent with a former agreement. Enron Corp.
also advanced the Company approximately $50 million to fund certain federal
income taxes related to the 1995 taxable year. This advance was scheduled to be
repaid in annual installments through January 1, 2001. Final payment to Enron
was made on August 16, 1999.
The Company's foreign subsidiaries' undistributed earnings of approximately
$275 million at December 31, 1999 are considered to be indefinitely invested
outside the U.S. and, accordingly, no U.S. federal or state income taxes have
been provided thereon. Upon distribution of those earnings in the form of
dividends, the Company may be subject to both foreign withholding taxes and U.S.
income taxes, net of allowable foreign tax credits. Determination of any
potential amount of unrecognized deferred income tax liabilities is not
practicable.
The Company has an alternative minimum tax ("AMT") credit carryforward of
$22 million which can be used to offset regular income taxes payable in future
years. The AMT credit carryforward has an indefinite carryforward period.
In 1999, the Company entered into an arrangement with a third party whereby
certain Section 29 credits were sold by the Company to the third party, and
payments for such credits will be received on an as-generated basis. As a result
of this transaction, the Company recorded a deferred tax asset representing a
tax gain on the sale of the Section 29 credit properties, which will reverse as
the operation of such properties are recognized for book purposes.
9. COMMITMENTS AND CONTINGENCIES
Employee Benefit Plans. Employees of the Company were covered by various
retirement, stock purchase and other benefit plans of Enron Corp. through August
1999. During each of the years ended December 31, 1999, 1998, and 1997, the
Company was charged $4.4 million, $6.4 million and $5.0 million, respectively,
for all such benefits, including pension expense totaling $.9 million, $1.3
million and $1.0 million, respectively, by Enron Corp.
Since August 1999, the Company has adopted defined contribution pension
plans for most of its employees in the United States. The Company's
contributions to these plans are based on various percentages of compensation,
and in some instances are based upon the amount of the employees' contributions
to the
F-16
<PAGE> 49
EOG RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
plan. From August 31, 1999 to December 31, 1999 the cost of these plans amounted
to approximately $1.2 million, a substantial part of which was funded currently.
The Company also has in effect pension and savings plans related to its
Canadian and Trinidadian subsidiaries. Activity related to these plans is not
material relative to the Company's operations.
Stock Plans
Stock Options. The Company has various stock plans ("the Plans") under
which employees of the Company and its subsidiaries and nonemployee members of
the Board of Directors have been or may be granted rights to purchase shares of
common stock of the Company at a price not less than the market price of the
stock at the date of grant. Stock options granted under the Plans vest over a
period of time based on the nature of the grants and as defined in the
individual grant agreements. Terms for stock options granted under the Plans
have not exceeded a maximum term of 10 years.
The Company accounts for the stock options under the provisions and related
interpretations of Accounting Principles Board Opinion No. 25 ("APB No.
25") -- "Accounting for Stock Issued to Employees." No compensation expense is
recognized for such options. As allowed by SFAS No. 123 -- "Accounting for
Stock-Based Compensation" issued in 1995, the Company has continued to apply APB
No. 25 for purposes of determining net income and to present the pro forma
disclosures required by SFAS No. 123.
The following table sets forth the option transactions under the Plans for
the years ended December 31 (options in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ----------------- -----------------
AVERAGE AVERAGE AVERAGE
GRANT GRANT GRANT
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1............... 15,036 $18.35 9,735 $19.99 8,796 $20.70
Granted.............................. 1,272 19.88 5,949 15.76 3,079 20.18
Exercised............................ (822) 16.22 (172) 15.14 (261) 17.16
Forfeited............................ (2,827) 18.26 (476) 20.62 (1,879) 24.06
------- ------- -------
Outstanding at December 31............. 12,659 18.66 15,036 18.35 9,735 19.99
======= ======= =======
Options Exercisable at December 31..... 8,118 19.23 7,703 19.38 5,618 19.70
======= ======= =======
Options Available for Future Grant..... 5,564 3,098 2,519
======= ======= =======
Average Fair Value of Options Granted
During Year.......................... $ 7.43 $ 4.75 $ 6.96
======= ======= =======
</TABLE>
The fair value of each option grant is estimated using the Black-Scholes
option-pricing model with the following weighted-average assumptions used for
grants in 1999, 1998, and 1997, respectively: (1) dividend yield of 0.6%, 0.6%
and 0.6%, (2) expected volatility of 28%, 26%, and 27%, (3) risk-free interest
rate of 5.9%, 5.1%, and 6.3%, and (4) expected life of 6.0 years, 4.9 years and
5.2 years.
During 1997, in response to extremely competitive conditions for technical
personnel, the Company cancelled options issued in 1996 to purchase 1,282,000
shares of common stock at an exercise price of $25.38 per share, and reissued
the same number of options with an exercise price of $18.25 per share. The
reissue did not involve any executive officers of the Company.
F-17
<PAGE> 50
EOG RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes certain information for the options
outstanding at December 31, 1999 (options in thousands):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------ --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
REMAINING GRANT GRANT
RANGE OF GRANT PRICES OPTIONS LIFE PRICE OPTIONS PRICE
- - --------------------- ------- --------- -------- -------- ---------
(YEARS)
<S> <C> <C> <C> <C> <C>
$ 9.00 to $12.99............................. 339 2 $ 9.77 339 $ 9.77
13.00 to 17.99............................. 3,923 8 15.05 1,956 15.73
18.00 to 22.99............................. 7,084 6 20.14 4,741 20.32
23.00 to 29.00............................. 1,313 5 23.78 1,082 23.77
------ -----
9.00 to 29.00............................. 12,659 6 18.66 8,118 19.23
====== =====
</TABLE>
The Company's pro forma net income and net income per share of common stock
for 1999, 1998 and 1997, had compensation costs been recorded in accordance with
SFAS No. 123, are presented below (in millions except per share data):
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- -------------------- --------------------
AS AS AS
REPORTED PRO FORMA REPORTED PRO FORMA REPORTED PRO FORMA
-------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Income Available to Common...... $568.6 $566.3 $ 56.2 $ 47.3 $122.0 $116.7
Net Income per Share Available to
Common
Basic............................. $ 4.04 $ 4.02 $ .36 $ .31 $ .78 $ .74
====== ====== ====== ====== ====== ======
Diluted........................... $ 3.99 $ 3.98 $ .36 $ .30 $ .77 $ .74
====== ====== ====== ====== ====== ======
</TABLE>
The effects of applying SFAS No. 123 in this pro forma disclosure should
not be interpreted as being indicative of future effects. SFAS No. 123 does not
apply to awards prior to 1995, and the extent and timing of additional future
awards cannot be predicted.
The Black-Scholes model used by the Company to calculate option values, as
well as other currently accepted option valuation models, were developed to
estimate the fair value of freely tradable, fully transferable options without
vesting and/or trading restrictions, which significantly differ from the
Company's stock option awards. These models also require highly subjective
assumptions, including future stock price volatility and expected time until
exercise, which significantly affect the calculated values. Accordingly,
management does not believe that this model provides a reliable single measure
of the fair value of the Company's stock option awards.
F-18
<PAGE> 51
EOG RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Restricted Stock. Under the Plans, participants may be granted restricted
stock without cost to the participant. The shares granted vest to the
participant at various times ranging from one to seven years. Upon vesting, the
shares are released to the participants. The following summarizes shares of
restricted stock granted:
<TABLE>
<CAPTION>
RESTRICTED SHARES
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Outstanding at January 1.................................... 345,334 284,000 284,000
Granted................................................... 23,000 108,500 --
Released to Participants.................................. (37,166) (14,166) --
Forfeited or Expired...................................... (66,000) (33,000) --
-------- -------- --------
Outstanding at December 31.................................. 265,168 345,334 284,000
======== ======== ========
Average Fair Value of Shares Granted During Year............ $ 21.43 $ 20.11 $ --
======== ======== ========
</TABLE>
The fair value of the restricted shares at date of grant has been recorded
in shareholders' equity as unearned compensation and is being amortized as
compensation expense. Related compensation expense for 1999, 1998 and 1997 was
approximately $3.1 million, $1.5 million and $1.0 million, respectively.
Treasury Shares. During 1999, 1998 and 1997, the Company purchased or was
tendered 130,000, 1,590,200, and 4,954,344 of its common shares, respectively,
and delivered such shares upon the exercise of stock options and awards of
restricted stock, except for shares held in treasury at December 31, 1999, 1998
and 1997. The difference between the cost of the treasury shares and the
exercise price of the options, net of federal income tax benefit of $1.4
million, $.3 million, and $.5 million for the years 1999, 1998 and 1997,
respectively, is reflected as an adjustment to Additional Paid In Capital
through August 1999 and Retained Earnings thereafter as a result of the share
retirement described in Note 7. In December 1992, as amended in September 1994
and December 1996, the Company commenced a stock repurchase program of up to
1,000,000 shares authorized by the Board of Directors to facilitate the
availability of treasury shares of common stock for, but not limited to, the
settlement of employee stock option exercises pursuant to the Plans. In February
1997 as amended in February 1998, the Board of Directors authorized the
additional purchase of up to 10 million shares for similar purposes. At December
31, 1999 and 1998, 5,625,446 and 6,276,156 shares, respectively, were held in
treasury under these authorizations. In February 2000, the Board of Directors
authorized the purchase of an aggregate maximum of 10 million shares of common
stock of the Company which replaced the remaining authorization from February
1998. (See Note 6 "Shareholders' Equity").
Letters Of Credit. At December 31, 1999 and 1998, the Company had letters
of credit and guaranties outstanding totaling approximately $118 million and
$127 million, respectively.
Contingencies. On July 21, 1999, two stockholders of the Company filed
separate lawsuits purportedly on behalf of the Company against Enron Corp. and
those individuals who were then directors of the Company, alleging that Enron
Corp. and those directors breached their fiduciary duties of good faith and
loyalty in approving the Share Exchange. The lawsuits seek to rescind the
transaction or to receive monetary damages and costs and expenses, including
reasonable attorneys' and experts' fees. The Company, Enron Corp. and the
individual defendants believe the lawsuits are without merit and intend to
vigorously contest them. There are various other suits and claims against the
Company that have arisen in the ordinary course of business. However, management
does not believe these suits and claims will individually or in the aggregate
have a material adverse effect on the financial condition or results of
operations of the Company. The Company has been named as a potentially
responsible party in certain Comprehensive Environmental Response Compensation
and Liability Act proceedings. However, management does not believe that any
potential assessments resulting from such proceedings will individually or in
the aggregate have a materially adverse effect on the financial condition or
results of operations of the Company.
F-19
<PAGE> 52
EOG RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. NET INCOME PER SHARE AVAILABLE TO COMMON
The difference between the Average Number of Common Shares outstanding for
basic and diluted net income per share of common stock is due to the assumed
issuance of approximately 1,483,132, 709,000, and 784,000 common shares relating
to employee stock options in 1999, 1998 and 1997, respectively.
11. CASH FLOW INFORMATION
On August 16, 1999, the Company and Enron Corp. completed the Share
Exchange whereby the Company received 62,270,000 shares of the Company's common
stock out of 82,270,000 shares owned by Enron Corp. in exchange for all the
stock of the Company's subsidiary, EOGI-India, Inc (see Note 7 "Transactions
with Enron Corp. and Related Parties"). Prior to the Share Exchange, the Company
made an indirect capital contribution of approximately $600 million in cash,
plus certain intercompany receivables, to EOGI-India, Inc. At the time of
completion of this transaction, the Company's net investment in EOGI-India, Inc.
was $870 million.
On December 31, 1999, the Company completed an exchange agreement with OXY
USA Inc. The acquired properties were assigned the net book value of the
properties transferred of $88 million, resulting in no gain or loss.
Cash paid for interest and income taxes was as follows for the years ended
December 31:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Interest (net of amount capitalized).................. $67,965 $51,166 $27,759
Income taxes.......................................... 19,810 38,551 28,708
</TABLE>
F-20
<PAGE> 53
EOG RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. BUSINESS SEGMENT INFORMATION
The Company's operations are all natural gas and crude oil exploration and
production related. The Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," during the fourth quarter of
1998. SFAS No. 131 establishes standards for reporting information about
operating segments in annual financial statements and requires selected
information about operating segments in interim financial reports. Operating
segments are defined as components of an enterprise about which separate
financial information is available and evaluated regularly by the chief
operating decision maker, or decision making group, in deciding how to allocate
resources and in assessing performance. The Company's chief operating decision
making group is the Executive Committee, which consists of the Chairman and
Chief Executive Officer and other key officers. This group routinely reviews and
makes operating decisions related to significant issues associated with each of
the Company's major producing areas in the United States and each significant
international location. For segment reporting purposes, the major U.S. producing
areas have been aggregated as one reportable segment due to similarities in
their operations as allowed by SFAS No. 131. Financial information by reportable
segment is presented below for the years ended December 31, or at December 31:
<TABLE>
<CAPTION>
UNITED STATES CANADA TRINIDAD INDIA(1) OTHER(2) TOTAL
------------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
1999
Net Operating Revenues............... $ 600,315(3) $ 94,739(3) $ 62,689 $ 51,554 $ (7,891) $ 801,406(3)
Depreciation, Depletion and
Amortization....................... 371,606 29,826 12,787 7,223 38,435 459,877
Operating Income (Loss).............. (7,714) 33,941 32,643 22,699 (63,381) 18,188
Interest Income...................... 113 184 626 51 63 1,037
Other Income (Expense)............... 630,872 112 128 (992) (19,814) 610,306
Interest Expense..................... 64,875 7,215 323 -- -- 72,413
Income Tax Provision (Benefit)....... (4,200) 4,637 18,484 8,858 (29,161) (1,382)
Additions to Oil and Gas
Properties......................... 298,660 63,071 8,175 23,820 9,103 402,829
Total Assets......................... 2,118,843 344,465 145,186 -- 2,299 2,610,793
1998
Net Operating Revenues............... $ 564,378 $ 68,622 $ 66,967 $ 72,826 $ (3,605) $ 769,188
Depreciation, Depletion and
Amortization....................... 265,738 25,972 12,867 8,456 2,073 315,106
Operating Income (Loss).............. 54,272 11,908 42,094 41,718 (36,331) 113,661
Interest Income...................... 216 88 507 205 131 1,147
Other Income (Expense)............... (559) -- (150) (1,761) (3,477) (5,947)
Interest Expense..................... 53,773 6,558 859 100 -- 61,290
Income Tax Provision (Benefit)....... (6,214) (1,112) 21,517 13,401 (23,481) 4,111
Additions to Oil and Gas
Properties......................... 547,209 49,142 19,347 46,657 27,997 690,352
Total Assets......................... 2,238,969 277,861 131,964 289,596 79,705 3,018,095
1997
Net Operating Revenues............... $ 603,845 $ 73,466 $ 66,000 $ 35,332 $ 4,858 $ 783,501
Depreciation, Depletion and
Amortization....................... 239,418 23,116 11,031 3,716 898 278,179
Operating Income (Loss).............. 138,213 19,983 38,968 13,794 (18,183) 192,775
Interest Income...................... 2,746 392 484 134 366 4,122
Other Income (Expense)............... (5,517) 4 (289) (848) 940 (5,710)
Interest Expense..................... 28,548 8,132 4,701 42 -- 41,423
Income Tax Provision (Benefit)....... 30,940 (3,228) 21,538 1,402 (9,152) 41,500
Additions to Oil and Gas
Properties......................... 468,168 79,789 163 67,777 10,301 626,198
Total Assets......................... 2,036,933 276,998 116,578 252,115 40,731 2,723,355
</TABLE>
- - ---------------
(1) See Note 7 "Transactions with Enron Corp. and Related Parties."
(2) Other includes China operations. See Note 7 "Transactions with Enron Corp.
and Related Parties."
(3) Sales activity with a certain purchaser in the United States and Canada
segments totaled approximately $98,100 of the consolidated Net Operating
Revenues.
F-21
<PAGE> 54
EOG RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. OTHER INCOME (EXPENSE), NET
Other income (expense), net consisted of the following for the years ended
December 31:
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- --------
<S> <C> <C> <C>
Interest Income................................... $ 1,037 $ 1,147(1) $ 4,122(1)
Financial Reserve Accruals(2)..................... (1,972) (4,350) --
Gain on Sale of Other Assets(3)................... 59,647 -- --
Gain on Share Exchange............................ 575,151 -- --
International Asset Re-evaluation(4).............. (19,375) -- --
Contract Settlement............................... -- (610) --
Litigation Provision.............................. -- -- (5,800)
Other, Net........................................ (3,145) (987) 90
-------- ------- --------
Total................................... $611,343 $(4,800) $ (1,588)
======== ======= ========
</TABLE>
- - ---------------
(1) Includes $102 in 1998 and $2,549 in 1997 from related parties.
(2) Pertains to provisions for doubtful accounts receivable associated with
certain international activities.
(3) See Note 3 "Other Assets."
(4) Relates to anticipated costs of abandonment of certain international
activity.
14. PRICE AND INTEREST RATE RISK MANAGEMENT
Periodically, the Company enters into certain trading and non-trading
activities including NYMEX-related commodity market transactions and other
contracts. The non-trading portions of these activities have been designated to
hedge the impact of market price fluctuations on anticipated commodity delivery
volumes or other contractual commitments.
Trading Activities. In 1999, no trading transactions were executed. Trading
activities in 1998 included a revenue increase of $1.1 million related to change
in market value of natural gas price swap options exercisable by a counterparty
and partially offsetting "buy" price swap positions.
During 1995, the Company entered into a NYMEX-related natural gas price
swap covering 73 trillion British thermal units ("TBtu") for the year ended
December 31, 1996. This swap contained an option to extend the price swap
covering 73 TBtu for each of the years 1997 and 1998 which was exercisable at
one time prior to December 31, 1996. The 1996 price swap was closed in the first
quarter of 1996. During 1996, this option was restructured into four options
each exercisable, in total, at one time by the counterparty before December 31,
1996, 1997, 1998 and 1999 to purchase 37 TBtu of notional natural gas for each
of the years 1997, 1998, 1999 and 2000 at an average fixed price of $1.98,
$1.98, $1.93 and $1.93 per million British thermal units ("MMBtu"),
respectively. The 1997 and 1998 options were subsequently restructured to be
exercisable monthly at a price of $2.16 and $2.07 per MMBtu, respectively. These
options cover notional volumes averaging 3 TBtu per month during 1997 and 1998.
During the fourth quarter of 1996, the 1999 and 2000 options were terminated. In
1996, the Company entered into "buy" NYMEX-related natural gas price swap
positions in the same notional quantities and maturities as are covered by the
1997 and 1998 options. The Company recognized a $1.1 million and $3.4 million
revenue increase in 1998 and 1997, respectively, related to these trading
activities.
F-22
<PAGE> 55
EOG RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the estimated fair value of financial
instruments held for trading purposes at year-end and the average during the
year:
<TABLE>
<CAPTION>
ESTIMATED FAIR VALUES
--------------------------------------------------
1999(1) 1998(1) 1997(1)
-------------- -------------- ----------------
YEAR YEAR YEAR
END AVERAGE END AVERAGE END AVERAGE
---- ------- ---- ------- ------ -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Options Written................................. $ - $ - $ - $(5.1) $(10.5) $(13.7)
NYMEX-related Natural Gas Price Swaps........... - - - 5.0 4.2 7.1
</TABLE>
- - ---------------
(1) Estimated fair values have been determined by using available market data
and valuation methodologies. Judgment is necessarily required in
interpreting market data and the use of different market assumptions or
estimation methodologies may affect the estimated fair value amounts.
Interest Rate Swap Agreements and Foreign Currency Contracts. At December
31, 1999 and 1998, a subsidiary of the Company and the Company are parties to
offsetting foreign currency and interest rate swap agreements with an aggregate
notional principal amount of $210 million. Such swap agreements are scheduled to
terminate in 2001. At December 31, 1999 and 1998, the composite fair value of
the agreements was not significant based upon termination values obtained from
third parties. In November 1998, the Company entered into two interest rate swap
agreements having notional values of $100 million each. The agreements were
entered into to hedge the base variable interest rates of the Company's
commercial paper, uncommitted credit facilities and affiliated borrowings. The
Company anticipates having such borrowings outstanding of at least the notional
amounts under the swap agreements during the term of the swap agreements. Under
the agreements, the Company will pay interest based on fixed rates of
approximately 4.96% and 5.01% and receive interest based on the three-month
LIBOR calculated on the notional value of the swap agreements. These agreements
are scheduled to terminate in November 2000. At December 31, 1999, the composite
fair value of these agreements was $2.6 million.
Hedging Transactions. With the objective of enhancing the certainty of
future revenues, the Company from time to time enters into NYMEX-related
commodity price swaps and costless collars. Using NYMEX-related commodity price
swaps, the Company receives a fixed price for the respective commodity hedged
and pays a floating market price, as defined for each transaction, to the
counterparty at settlement.
At December 31, 1999, the Company had outstanding positions covering
notional volumes of .5 million barrels ("MMBbl") of crude oil and condensate for
2000. The fair value of these positions was approximately $2 million negative.
At December 31, 1999, the Company had closed positions covering notional volumes
of approximately 4 TBtu of natural gas for each of the years 2000 through 2005.
The Company also had closed positions covering 1.7 MMBbl of crude oil and
condensate for the year 2000. At December 31, 1999, the aggregate deferred
revenue reduction for 2000, 2001 and thereafter was approximately $12 million,
$1 million and $5 million, respectively, and is classified as "Other Assets."
At December 31, 1998, the Company had outstanding positions covering
notional volumes of .7 MMBbl of crude oil and condensate for 1999. The fair
value of the positions was approximately $4 million. In 1998, the Company closed
positions covering notional volumes of approximately 4 TBtu of natural gas for
each of the years 1999 through 2005. The Company also recorded closed positions
covering 2.2 MMBbl and 1.7 MMBbl of crude oil and condensate for the years 1999
and 2000, respectively. At December 31, 1998, the aggregate deferred revenue
reduction for 1999, 2000 and thereafter was approximately $13 million, $12
million and $6 million, respectively, and is classified as "Other Assets."
F-23
<PAGE> 56
EOG RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the estimated fair value of financial
instruments and related transactions for non-trading activities at December 31,
1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
----------------------------- -----------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE(1) AMOUNT FAIR VALUE(1)
------------- ------------- ------------- -------------
(IN MILLIONS) (IN MILLIONS)
<S> <C> <C> <C> <C>
Long-Term Debt(2)................. $990.3 $933.0 $1,142.8 $1,141.0
Swap Agreements................... -- -- 4.2 4.1
NYMEX-Related Commodity Market
Positions....................... (18.0) (20.3) (30.9) (26.5)
</TABLE>
- - ---------------
(1) Estimated fair values have been determined by using available market data
and valuation methodologies. Judgment is necessarily required in
interpreting market data and the use of different market assumptions or
estimation methodologies may affect the estimated fair value amounts.
(2) See Note 4 "Long-Term Debt."
Credit Risk. While notional contract amounts are used to express the
magnitude of price and interest rate swap agreements, the amounts potentially
subject to credit risk, in the event of nonperformance by the other parties, are
substantially smaller. The Company does not anticipate nonperformance by the
other parties.
15. CONCENTRATION OF CREDIT RISK
Substantially all of the Company's accounts receivable at December 31, 1999
and 1998 result from crude oil and natural gas sales and/or joint interest
billings to affiliate and third party companies including foreign state-owned
entities in the oil and gas industry. This concentration of customers and joint
interest owners may impact the Company's overall credit risk, either positively
or negatively, in that these entities may be similarly affected by changes in
economic or other conditions. In determining whether or not to require
collateral from a customer or joint interest owner, the Company analyzes the
entity's net worth, cash flows, earnings, and credit ratings. Receivables are
generally not collateralized. Historical credit losses incurred on receivables
by the Company have been immaterial.
16. ACCOUNTING FOR CERTAIN LONG-LIVED ASSETS
As a result of the change to the Company's portfolio of assets brought
about by the Share Exchange (see Note 7 "Transactions with Enron Corp. and
Related Parties"), the Company conducted a re-evaluation of its overall
business. As a result of this re-evaluation, some of the Company's projects were
no longer deemed central to its business. The Company recorded non-cash charges
in connection with the impairment and/or the Company's decision to dispose of
such projects of $133 million pre-tax ($89 million after-tax). In addition, the
Company recorded charges of $15 million pre-tax ($10 million after-tax) pursuant
to a change in the Company's strategy related to certain offshore operations in
the second quarter and an impairment of various North America properties in the
fourth quarter to depreciation, depletion and amortization expense. In the
United States operating segment, a pre-tax impairment charge of $85 million was
recorded to depreciation, depletion and amortization expense. The carrying
values for assets determined to be impaired were adjusted to estimated fair
values based on projected future discounted net cash flows for such assets. In
the Other operating segment, a pre-tax charge of $36 million was recorded to
depreciation, depletion and amortization expense to fully write-off the
Company's basis and a pre-tax charge of $19 million was recorded to other income
(expense) -- other, net for the estimated exit costs related to the Company's
decision to dispose of certain international operations. Net loss for the Other
operating segment operations for 1999, excluding these charges, was
approximately $3 million.
F-24
<PAGE> 57
EOG RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. NEW ACCOUNTING PRONOUNCEMENT -- SFAS NO. 133
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133 -- "Accounting for
Derivative Instruments and Hedging Activities" effective for fiscal years
beginning after June 15, 1999. In June 1999, the FASB issued SFAS No. 137, which
delays the effective date of SFAS No. 133 for one year, to fiscal years
beginning after June 15, 2000. SFAS No. 133, as amended by SFAS No. 137, cannot
be applied retroactively and must be applied to (a) derivative instruments and
(b) certain derivative instruments embedded in hybrid contracts that were
issued, acquired or substantively modified after a transition date to be
selected by the Company of either December 31, 1997 or December 31, 1998.
The statement establishes accounting and reporting standards requiring that
every derivative instrument be recorded in the balance sheet as either an asset
or liability measured at its fair value. The statement requires that changes in
the derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the statements of income and requires a company to formally document,
designate and assess the effectiveness of transactions that receive hedge
accounting treatment.
The Company has not yet quantified the impacts of adopting SFAS No. 133 on
its financial statements and has not determined the timing of adoption. Based on
the Company's current level of derivative and hedging activities, the Company
does not expect the impact of adoption to be material.
18. SUBSEQUENT EVENT
On February 14, 2000, the Company's Board of Directors declared a dividend
of one preferred share purchase right (a "Right" or "Rights Agreement") for each
outstanding share of common stock, par value $.01 per share. The Board of
Directors has adopted this Rights Agreement to protect stockholders from
coercive or otherwise unfair takeover tactics. The dividend was distributed to
the stockholders of record on February 24, 2000. Each Right, expiring February
24, 2010, represents a right to buy from the Company one hundredth ( 1/100) of a
share of Series E Junior Participating Preferred Stock ("Preferred Share") for
$90, once the Rights become exercisable. This portion of a Preferred Share will
give the stockholder approximately the same dividend, voting, and liquidation
rights as would one share of common stock. Prior to exercise, the Right does not
give its holder any dividend, voting, or liquidation rights. If issued, each one
hundredth ( 1/100) of a Preferred Share (i) will not be redeemable; (ii) will
entitle holders to quarterly dividend payments of $.01 per share, or an amount
equal to the dividend paid on one share of common stock, whichever is greater;
(iii) will entitle holders upon liquidation either to receive $1 per share or an
amount equal to the amount made on one share of common stock, whichever is
greater; (iv) will have the same voting power as one share of common stock; and
(v) if shares of the Company's common stock are exchanged via merger,
consolidation, or a similar transaction, will entitle holders to a per share
payment equal to the payment made on one share of common stock.
The Rights will not be exercisable until ten days after the public
announcement that a person or group has become an acquiring person ("Acquiring
Person") by obtaining beneficial ownership of 15% or more of the Company's
common stock, or if earlier, ten business days (or a later date determined by
the Company's Board of Directors before any person or group becomes an Acquiring
Person) after a person or group begins a tender or exchange offer which, if
consummated, would result in that person or group becoming an Acquiring Person.
The Board of Directors may reduce the threshold at which a person or a group
becomes an Acquiring Person from 15% to not less than 10% of the outstanding
common stock.
If a person or group becomes an Acquiring Person, all holders of Rights
except the Acquiring Person may, for $90, purchase shares of our common stock
with a market value of $180, based on the market price of the common stock prior
to such acquisition. If the Company is later acquired in a merger or similar
transaction after the Rights become exercisable, all holders of Rights except
the Acquiring Person may, for
F-25
<PAGE> 58
EOG RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$90, purchase shares of the acquiring corporation with a market value of $180
based on the market price of the acquiring corporation's stock, prior to such
merger.
The Company's Board of Directors may redeem the Rights for $.01 per Right
at any time before any person or group becomes an Acquiring Person. If the Board
of Directors redeems any Rights, it must redeem all of the Rights. Once the
Rights are redeemed, the only right of the holders of Rights will be to receive
the redemption price of $.01 per Right. The redemption price will be adjusted if
the Company has a stock split or stock dividends of the Company's common stock.
After a person or group becomes an Acquiring Person, but before an Acquiring
Person owns 50% or more of the Company's outstanding common stock, the Board of
Directors may exchange the Rights for common stock or equivalent security at an
exchange ratio of one share of common stock or an equivalent security for each
such Right, other than Rights held by the Acquiring Person.
F-26
<PAGE> 59
EOG RESOURCES, INC.
SUPPLEMENTAL INFORMATION TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS UNLESS OTHERWISE INDICATED)
(UNAUDITED EXCEPT FOR RESULTS OF OPERATIONS FOR OIL AND GAS PRODUCING
ACTIVITIES)
OIL AND GAS PRODUCING ACTIVITIES
The following disclosures are made in accordance with SFAS No.
69 -- "Disclosures about Oil and Gas Producing Activities":
Oil and Gas Reserves. Users of this information should be aware that the
process of estimating quantities of "proved," "proved developed" and "proved
undeveloped" crude oil and natural gas reserves is very complex, requiring
significant subjective decisions in the evaluation of all available geological,
engineering and economic data for each reservoir. The data for a given reservoir
may also change substantially over time as a result of numerous factors
including, but not limited to, additional development activity, evolving
production history, and continual reassessment of the viability of production
under varying economic conditions. Consequently, material revisions to existing
reserve estimates occur from time to time. Although every reasonable effort is
made to ensure that reserve estimates reported represent the most accurate
assessments possible, the significance of the subjective decisions required and
variances in available data for various reservoirs make these estimates
generally less precise than other estimates presented in connection with
financial statement disclosures.
Proved reserves represent estimated quantities of natural gas, crude oil,
condensate, and natural gas liquids that geological and engineering data
demonstrate, with reasonable certainty, to be recoverable in future years from
known reservoirs under economic and operating conditions existing at the time
the estimates were made.
Proved developed reserves are proved reserves expected to be recovered,
through wells and equipment in place and under operating methods being utilized
at the time the estimates were made.
Proved undeveloped reserves are reserves that are expected to be recovered
from new wells on undrilled acreage, or from existing wells where a relatively
major expenditure is required for recompletion. Reserves on undrilled acreage
are limited to those drilling units offsetting productive units that are
reasonably certain of production when drilled. Proved reserves for other
undrilled units can be claimed only where it can be demonstrated with certainty
that there is continuity of production from the existing productive formation.
Estimates for proved undeveloped reserves are not attributed to any acreage for
which an application of fluid injection or other improved recovery technique is
contemplated, unless such techniques have been proved effective by actual tests
in the area and in the same reservoir.
Canadian provincial royalties are determined based on a graduated
percentage scale which varies with prices and production volumes. Canadian
reserves, as presented on a net basis, assume prices and royalty rates in
existence at the time the estimates were made, and the Company's estimate of
future production volumes. Future fluctuations in prices, production rates, or
changes in political or regulatory environments could cause the Company's share
of future production from Canadian reserves to be materially different from that
presented.
As a result of the re-evaluation of the Company's portfolio of assets
following the Share Exchange, on November 12, 1999 senior management proposed to
the Board of Directors ("the Board") of the Company to defer the development of
the Big Piney Madison deep Paleozoic formation methane reserves in Wyoming for
the foreseeable future. The basis for this recommendation was the substantial
capital cost required to develop the project relative to the Company's
anticipated spending budget for the next several years as well as the project's
anticipated rate of return compared to other investment opportunities currently
available to the Company. The Board approved the recommendation. As a result,
the 1.2 trillion cubic feet of methane reserves in the formation, which are
located on acreage owned by the Company and held by production for the
foreseeable future, and which were classified as proved undeveloped reserves at
December 31, 1998, were removed as a revision during 1999. At December 31, 1998,
these reserves represented approximately
F-27
<PAGE> 60
EOG RESOURCES, INC.
SUPPLEMENTAL INFORMATION TO CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
$100 million or 5% of the Company's Standardized Measure of Discounted Future
Net Cash Flows as adjusted for the sale of the India and China reserves as a
result of the Share Exchange.
Estimates of proved and proved developed reserves at December 31, 1999,
1998 and 1997 were based on studies performed by the engineering staff of the
Company for reserves in the United States, Canada, Trinidad, India and China
(see Note 7 to the Consolidated Financial Statements regarding operations
transferred under the Share Exchange). Opinions by DeGolyer and MacNaughton
("D&M"), independent petroleum consultants, for the years ended December 31,
1999, 1998 and 1997 covered producing areas containing 52%, 39% and 54%,
respectively, of proved reserves, excluding deep Paleozoic methane reserves in
1998 and 1997, of the Company on a net-equivalent-cubic-feet-of-gas basis. D&M's
opinions indicate that the estimates of proved reserves prepared by the
Company's engineering staff for the properties reviewed by D&M, when compared in
total on a net-equivalent-cubic-feet-of-gas basis, do not differ materially from
the estimates prepared by D&M. The deep Paleozoic methane reserves were covered
by the opinion of D&M for the year ended December 31 1995. Such estimates by D&M
in the aggregate varied by not more than 5% from those prepared by the
engineering staff of the Company. All reports by D&M were developed utilizing
geological and engineering data provided by the Company.
No major discovery or other favorable or adverse event subsequent to
December 31, 1999 is believed to have caused a material change in the estimates
of proved or proved developed reserves as of that date.
The following table sets forth the Company's net proved and proved
developed reserves at December 31 for each of the four years in the period ended
December 31, 1999, and the changes in the net proved reserves for each of the
three years in the period then ended as estimated by the engineering staff of
the Company.
NET PROVED AND PROVED DEVELOPED RESERVE SUMMARY
<TABLE>
<CAPTION>
UNITED STATES CANADA TRINIDAD SUBTOTAL INDIA(2) OTHER(3) TOTAL
------------- -------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
NATURAL GAS (BCF)(1)
Net proved reserves at December 31,
1996............................. 2,746.5 (4) 320.9 370.2 3,437.6 199.6 -- 3,637.2
Revisions of previous
estimates...................... (50.8) (1.5) (0.4) (52.7) 25.1 -- (27.6)
Purchases in place............... 60.0 67.6 -- 127.6 -- -- 127.6
Extensions, discoveries and other
additions...................... 275.9 37.8 -- 313.7 253.5 7.7 574.9
Sales in place................... (17.7) (0.4) -- (18.1) -- -- (18.1)
Production....................... (229.1) (37.0) (41.0) (307.1) (6.6) -- (313.7)
-------- -------- ------- -------- -------- -------- --------
Net proved reserves at December 31,
1997............................. 2,784.8 (4) 387.4 328.8 3,501.0 471.6 7.7 3,980.3
Revisions of previous
estimates...................... (55.9) (2.5) 4.7 (53.7) 32.3 (0.4) (21.8)
Purchases in place............... 123.0 54.9 -- 177.9 -- -- 177.9
Extensions, discoveries and other
additions...................... 272.8 62.9 693.8 1,029.5 340.9 103.0 1,473.4
Sales in place................... (37.5) -- -- (37.5) -- -- (37.5)
Production....................... (233.8) (38.5) (50.9) (323.2) (20.2) -- (343.4)
-------- -------- ------- -------- -------- -------- --------
Net proved reserves at December 31,
1998............................. 2,853.4 (4) 464.2 976.4 4,294.0 824.6 110.3 5,228.9
Revisions of previous
estimates...................... (1,199.1)(5) (1.3) 4.5 (1,195.9) -- -- (1,195.9)
Purchases in place............... 108.5 34.0 -- 142.5 -- -- 142.5
Extensions, discoveries and other
additions...................... 208.2 69.8 51.0 329.0 -- -- 329.0
Sales in place(2)................ (70.9) (1.4) -- (72.3) (807.9) (110.3) (990.5)
Production....................... (242.9) (41.8) (37.3) (322.0) (16.7) -- (338.7)
-------- -------- ------- -------- -------- -------- --------
Net proved reserves at December 31,
1999............................. 1,657.2 523.5 994.6 3,175.3 -- -- 3,175.3
======== ======== ======= ======== ======== ======== ========
</TABLE>
F-28
<PAGE> 61
EOG RESOURCES, INC.
SUPPLEMENTAL INFORMATION TO CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
UNITED STATES CANADA TRINIDAD SUBTOTAL INDIA(2) OTHER(3) TOTAL
------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
LIQUIDS (MBBL)(6)(7)
Net proved reserves at December 31,
1996............................. 28,876 7,452 8,168 44,496 10,791 -- 55,287
Revisions of previous
estimates...................... 3,515 225 (31) 3,709 19 -- 3,728
Purchases in place............... 127 1,123 -- 1,250 -- -- 1,250
Extensions, discoveries and other
additions...................... 6,037 1,590 -- 7,627 20,123 -- 27,750
Sales in place................... (1,683) -- -- (1,683) -- -- (1,683)
Production....................... (5,223) (1,384) (1,236) (7,843) (838) -- (8,681)
-------- -------- ------- -------- -------- -------- --------
Net proved reserves at December 31,
1997............................. 31,649 9,006 6,901 47,556 30,095 -- 77,651
Revisions of previous
estimates...................... (152) (504) (1,049) (1,705) 3,063 73 1,431
Purchases in place............... 3,104 -- -- 3,104 -- -- 3,104
Extensions, discoveries and other
additions...................... 9,396 448 11,429 21,273 11,501 1,089 33,863
Sales in place................... (1,039) -- -- (1,039) -- -- (1,039)
Production....................... (6,131) (1,358) (1,077) (8,566) (1,874) -- (10,440)
-------- -------- ------- -------- -------- -------- --------
Net proved reserves at December 31,
1998............................. 36,827 7,592 16,204 60,623 42,785 1,162 104,570
Revisions of previous
estimates...................... 5,085 117 (72) 5,130 -- -- 5,130
Purchases in place............... 2,753 39 -- 2,792 -- -- 2,792
Extensions, discoveries and other
additions...................... 9,520 2,416 509 12,445 -- -- 12,445
Sales in place(2)................ (121) (37) -- (158) (41,306) (1,162) (42,626)
Production....................... (6,217) (1,231) (878) (8,326) (1,479) -- (9,805)
-------- -------- ------- -------- -------- -------- --------
Net proved reserves at December 31,
1999............................. 47,847 8,896 15,763 72,506 -- -- 72,506
======== ======== ======= ======== ======== ======== ========
BCF EQUIVALENT (BCFE)(1)
Net proved reserves at December 31,
1996............................. 2,920.1 (4) 365.3 419.2 3,704.6 264.3 -- 3,968.9
Revisions of previous
estimates...................... (29.8) (0.1) (0.5) (30.4) 25.2 -- (5.2)
Purchases in place............... 60.7 74.4 -- 135.1 -- -- 135.1
Extensions, discoveries and other
additions...................... 312.1 47.4 -- 359.5 374.2 7.7 741.4
Sales in place................... (27.7) (0.4) -- (28.1) -- -- (28.1)
Production....................... (260.4) (45.3) (48.5) (354.2) (11.7) -- (365.9)
-------- -------- ------- -------- -------- -------- --------
Net proved reserves at December 31,
1997............................. 2,975.0 (4) 441.3 370.2 3,786.5 652.0 7.7 4,446.2
Revisions of previous
estimates...................... (57.0) (5.5) (1.7) (64.2) 50.8 -- (13.4)
Purchases in place............... 141.6 54.9 -- 196.5 -- -- 196.5
Extensions, discoveries and other
additions...................... 329.2 65.6 762.4 1,157.2 409.9 109.5 1,676.6
Sales in place................... (43.7) -- -- (43.7) -- -- (43.7)
Production....................... (270.6) (46.6) (57.3) (374.5) (31.4) -- (405.9)
-------- -------- ------- -------- -------- -------- --------
Net proved reserves at December 31,
1998............................. 3,074.5 (4) 509.7 1,073.6 4,657.8 1,081.3 117.2 5,856.3
Revisions of previous
estimates...................... (1,168.8)(5) (0.6) 4.1 (1,165.3) -- -- (1,165.3)
Purchases in place............... 125.1 34.3 -- 159.4 -- -- 159.4
Extensions, discoveries and other
additions...................... 265.3 84.3 54.0 403.6 -- -- 403.6
Sales in place(2)................ (71.6) (1.6) -- (73.2) (1,055.7) (117.2) (1,246.1)
Production....................... (280.2) (49.2) (42.5) (371.9) (25.6) -- (397.5)
-------- -------- ------- -------- -------- -------- --------
Net proved reserves at December 31,
1999............................. 1,944.3 576.9 1,089.2 3,610.4 -- -- 3,610.4
======== ======== ======= ======== ======== ======== ========
</TABLE>
F-29
<PAGE> 62
EOG RESOURCES, INC.
SUPPLEMENTAL INFORMATION TO CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
UNITED STATES CANADA TRINIDAD SUBTOTAL INDIA(2) TOTAL
------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NET PROVED DEVELOPED RESERVES AT
NATURAL GAS (BCF)
December 31, 1996......................... 1,325.7 319.5 370.2 2,015.4 124.6 2,140.0
December 31, 1997......................... 1,349.0 370.9 328.8 2,048.7 286.6 2,335.3
December 31, 1998......................... 1,429.7 387.4 283.0 2,100.1 407.4 2,507.5
December 31, 1999......................... 1,446.5 451.1 250.2 2,147.8 -- 2,147.8
LIQUIDS (MBBL)(7)
December 31, 1996......................... 24,868 7,452 8,168 40,488 10,791 51,279
December 31, 1997......................... 27,707 8,885 6,901 43,493 23,322 66,815
December 31, 1998......................... 33,045 7,465 4,782 45,292 33,472 78,764
December 31, 1999......................... 41,717 7,041 3,833 52,591 -- 52,591
BCF EQUIVALENTS
December 31, 1996......................... 1,474.9 364.2 419.2 2,258.3 189.3 2,447.6
December 31, 1997......................... 1,515.3 424.2 370.2 2,309.7 426.5 2,736.2
December 31, 1998......................... 1,628.0 432.1 311.7 2,371.8 608.2 2,980.0
December 31, 1999......................... 1,696.8 493.3 273.2 2,463.3 -- 2,463.3
</TABLE>
- - ---------------
(1) Billion cubic feet or billion cubic feet equivalent, as applicable.
(2) See Note 7 "Transactions with Enron Corp. and Related Parties."
(3) Other includes proved reserves for China operations only, none of which are
proved developed. See Note 7 "Transactions with Enron Corp. and Related
Parties."
(4) Includes 1,180 Bcf of proved undeveloped methane reserves contained, along
with high concentrations of carbon dioxide and other gases, in deep
Paleozoic (Madison) formations in the Big Piney area of Wyoming.
(5) Includes removal of the 1,180 Bcf of proved undeveloped methane reserves
mentioned in (4) as a result of the Company's decision to defer the
development of the Big Piney Madison deep Paleozoic formation methane
reserves in Wyoming for the foreseeable future.
(6) Thousand barrels.
(7) Includes crude oil, condensate and natural gas liquids.
Capitalized Costs Relating to Oil and Gas Producing Activities. The
following table sets forth the capitalized costs relating to the Company's
natural gas and crude oil producing activities at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1998
----------------------------------------
NORTH AMERICA
1999 AND TRINIDAD OTHER TOTAL
----------- ------------- -------- -----------
<S> <C> <C> <C> <C>
Proved Properties....................... $ 4,459,727 $ 4,352,247 $257,643 $ 4,609,890
Unproved Properties..................... 143,013 176,420 28,115 204,535
----------- ----------- -------- -----------
Total......................... 4,602,740 4,528,667 285,758 4,814,425
Accumulated depreciation, depletion and
amortization.......................... (2,267,812) (2,120,520) (17,542) (2,138,062)
----------- ----------- -------- -----------
Net capitalized costs................... $ 2,334,928 $ 2,408,147 $268,216 $ 2,676,363
=========== =========== ======== ===========
</TABLE>
F-30
<PAGE> 63
EOG RESOURCES, INC.
SUPPLEMENTAL INFORMATION TO CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
Costs Incurred in Oil and Gas Property Acquisition, Exploration and
Development Activities. The acquisition, exploration and development costs
disclosed in the following tables are in accordance with definitions in SFAS No.
19 -- "Financial Accounting and Reporting by Oil and Gas Producing Companies."
Acquisition costs include costs incurred to purchase, lease, or otherwise
acquire property.
Exploration costs include exploration expenses, additions to exploration
wells including those in progress, and depreciation of support equipment used in
exploration activities.
Development costs include additions to production facilities and equipment,
additions to development wells including those in progress and depreciation of
support equipment and related facilities used in development activities.
The following tables set forth costs incurred related to the Company's oil
and gas activities for the years ended December 31:
<TABLE>
<CAPTION>
UNITED STATES CANADA TRINIDAD OTHER SUBTOTAL INDIA(1) CHINA(1) TOTAL
------------- ------- -------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999
Acquisition Costs of Properties
Unproved....................... $ 18,964 $ 2,276 $ -- $ -- $ 21,240 $ -- $ -- $ 21,240
Proved......................... 22,092 20,838 -- -- 42,930 -- -- 42,930
-------- ------- ------- ------- -------- ------- ------ --------
Total.................... 41,056 23,114 -- -- 64,170 -- -- 64,170
Exploration Costs................ 65,070 6,516 8,425 4,350 84,361 1,083 1,014 86,458
Development Costs................ 240,590 38,832 5,615 -- 285,037 23,820 8,010 316,867
-------- ------- ------- ------- -------- ------- ------ --------
Total.................... $346,716 $68,462 $14,040 $ 4,350 $433,568 $24,903 $9,024 $467,495
======== ======= ======= ======= ======== ======= ====== ========
1998
Acquisition Costs of Properties
Unproved....................... $ 32,925 $ 3,545 $ -- $ -- $ 36,470 $ -- $ -- $ 36,470
Proved 198,006 12,896 -- -- 210,902 -- -- 210,902
-------- ------- ------- ------- -------- ------- ------ --------
Total.................... 230,931 16,441 -- -- 247,372 -- -- 247,372
Exploration Costs................ 82,248 12,375 15,217 24,183 134,023 1,278 1,282 136,583
Development Costs................ 297,904 27,822 6,157 12,016 343,899 46,657 4,532 395,088
-------- ------- ------- ------- -------- ------- ------ --------
Total.................... $611,083 $56,638 $21,374 $36,199 $725,294 $47,935 $5,814 $779,043
======== ======= ======= ======= ======== ======= ====== ========
1997
Acquisition Costs of Properties
Unproved....................... $ 69,258 $ 7,700 $ -- $ 35 $ 76,993 $ -- $ 200 $ 77,193
Proved......................... 42,386 38,949 -- 28 81,363 -- -- 81,363
-------- ------- ------- ------- -------- ------- ------ --------
Total.................... 111,644 46,649 -- 63 158,356 -- 200 158,556
Exploration Costs................ 74,360 8,279 1,344 11,407 95,390 965 4,528 100,883
Development Costs................ 333,093 30,856 163 9,185 373,297 67,777 684 441,758
-------- ------- ------- ------- -------- ------- ------ --------
Total.................... $519,097 $85,784 $ 1,507 $20,655 $627,043 $68,742 $5,412 $701,197
======== ======= ======= ======= ======== ======= ====== ========
</TABLE>
- - ---------------
(1) See Note 7 "Transactions with Enron Corp. and Related Parties."
F-31
<PAGE> 64
EOG RESOURCES, INC.
SUPPLEMENTAL INFORMATION TO CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
Results of Operations for Oil and Gas Producing Activities(1). The
following tables set forth results of operations for oil and gas producing
activities for the years ended December 31:
<TABLE>
<CAPTION>
UNITED STATES CANADA TRINIDAD SUBTOTAL INDIA(2) OTHER(3) TOTAL
------------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1999
Operating Revenues
Trade...................................... $492,308 $83,503 $55,900 $631,711 $51,554 $ 39 $683,304
Associated Companies....................... 121,790 11,161 -- 132,951 -- -- 132,951
Gains on Sales of Reserves and Related
Assets................................... 2,254 75 -- 2,329 -- (7,931) (5,602)
-------- ------- ------- -------- ------- -------- --------
Total.................................. 616,352 94,739 55,900 766,991 51,554 (7,892) 810,653
Exploration Expenses, including Dry Hole....... 49,181 5,122 5,865 60,168 1,083 3,415 64,666
Production Costs............................... 93,137 21,620 8,322 123,079 11,070 2,334 136,483
Impairment of Unproved Oil and Gas
Properties................................... 29,384 2,224 -- 31,608 -- -- 31,608
Depreciation, Depletion and Amortization....... 370,536 29,826 12,787 413,149 7,223 38,436 458,808
-------- ------- ------- -------- ------- -------- --------
Income (Loss) before Income Taxes.............. 74,114 35,947 28,926 138,987 32,178 (52,077) 119,088
Income Tax Provision (Benefit)................. 21,283 12,259 15,909 49,451 15,445 (18,227) 46,669
-------- ------- ------- -------- ------- -------- --------
Results of Operations.......................... $ 52,831 $23,688 $13,017 $89,536 $16,733 $(33,850) $ 72,419
======== ======= ======= ======== ======= ======== ========
1998
Operating Revenues
Trade...................................... $431,943 $53,485 $66,967 $552,395 $72,826 $ 52 $625,273
Associated Companies....................... 117,719 15,132 -- 132,851 -- -- 132,851
Gains on Sales of Reserves and Related
Assets................................... 29,268 (15) -- 29,253 -- (3,658) 25,595
-------- ------- ------- -------- ------- -------- --------
Total.................................. 578,930 68,602 66,967 714,499 72,826 (3,606) 783,719
Exploration Expenses, including Dry Hole....... 63,875 7,496 2,027 73,398 1,278 14,015 88,691
Production Costs............................... 98,909 19,715 7,361 125,985 13,617 3,666 143,268
Impairment of Unproved Oil and Gas
Properties................................... 29,952 2,124 -- 32,076 -- -- 32,076
Depreciation, Depletion and Amortization....... 264,927 25,972 12,867 303,766 8,456 2,073 314,295
-------- ------- ------- -------- ------- -------- --------
Income (Loss) before Income Taxes.............. 121,267 13,295 44,712 179,274 49,475 (23,360) 205,389
Income Tax Provision (Benefit)................. 22,944 3,840 24,592 51,376 23,748 (7,370) 67,754
-------- ------- ------- -------- ------- -------- --------
Results of Operations.......................... $ 98,323 $ 9,455 $20,120 $127,898 $25,727 $(15,990) $137,635
======== ======= ======= ======== ======= ======== ========
1997
Operating Revenues
Trade...................................... $448,824 $58,712 $66,000 $573,536 $35,332 $ 21 $608,889
Associated Companies....................... 206,738 15,280 -- 222,018 -- 2 222,020
Gains on Sales of Reserves and Related
Assets................................... 4,464 (13) -- 4,451 -- 4,836 9,287
-------- ------- ------- -------- ------- -------- --------
Total.................................. 660,026 73,979 66,000 800,005 35,332 4,859 840,196
Exploration Expenses, including Dry Hole....... 50,930 5,995 1,344 58,269 965 15,765 74,999
Production Costs............................... 106,395 20,073 12,256 138,724 10,505 75 149,304
Impairment of Unproved Oil and Gas
Properties................................... 24,229 2,643 -- 26,872 -- 341 27,213
Depreciation, Depletion and Amortization....... 238,765 23,116 11,032 272,913 3,716 901 277,530
-------- ------- ------- -------- ------- -------- --------
Income (Loss) before Income Taxes.............. 239,707 22,152 41,368 303,227 20,146 (12,223) 311,150
Income Tax Provision (Benefit)................. 69,252 8,130 22,752 100,134 9,670 (252) 109,552
-------- ------- ------- -------- ------- -------- --------
Results of Operations.......................... $170,455 $14,022 $18,616 $203,093 $10,476 $(11,971) $201,598
======== ======= ======= ======== ======= ======== ========
</TABLE>
- - ---------------
(1) Excludes net revenues associated with other marketing activities, interest
charges, general corporate expenses and certain gathering and handling fees
for each of the three years in the period ended December 31, 1999. The
gathering and handling fees and other marketing net revenues are directly
associated with oil and gas operations with regard to segment reporting as
defined in SFAS No. 131 -- "Disclosures about Segments of an Enterprise and
Related Information," but are not part of Disclosures about Oil and Gas
Producing Activities as defined in SFAS No. 69.
(2) See Note 7 "Transactions with Enron Corp. and Related Parties."
(3) Other includes China and other international operations. See Note 7
"Transactions with Enron Corp. and Related Parties."
F-32
<PAGE> 65
EOG RESOURCES, INC.
SUPPLEMENTAL INFORMATION TO CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved
Oil and Gas Reserves. The following information has been developed utilizing
procedures prescribed by SFAS No. 69 and based on crude oil and natural gas
reserve and production volumes estimated by the engineering staff of the
Company. It may be useful for certain comparison purposes, but should not be
solely relied upon in evaluating the Company or its performance. Further,
information contained in the following table should not be considered as
representative of realistic assessments of future cash flows, nor should the
Standardized Measure of Discounted Future Net Cash Flows be viewed as
representative of the current value of the Company.
The future cash flows presented below are based on sales prices, cost
rates, and statutory income tax rates in existence as of the date of the
projections. It is expected that material revisions to some estimates of crude
oil and natural gas reserves may occur in the future, development and production
of the reserves may occur in periods other than those assumed, and actual prices
realized and costs incurred may vary significantly from those used.
Management does not rely upon the following information in making
investment and operating decisions. Such decisions are based upon a wide range
of factors, including estimates of probable as well as proved reserves, and
varying price and cost assumptions considered more representative of a range of
possible economic conditions that may be anticipated.
F-33
<PAGE> 66
EOG RESOURCES, INC.
SUPPLEMENTAL INFORMATION TO CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the standardized measure of discounted
future net cash flows from projected production of the Company's crude oil and
natural gas reserves for the years ended December 31:
<TABLE>
<CAPTION>
UNITED STATES CANADA TRINIDAD SUBTOTAL INDIA(1) OTHER(2) TOTAL
------------- ---------- ---------- ---------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1999
Future cash inflows............... $ 4,653,014 $1,338,034 $1,455,951 $7,446,999 $ -- $ -- $ 7,446,999
Future production costs........... (1,277,485) (477,303) (486,902) (2,241,690) -- -- (2,241,690)
Future development costs.......... (175,039) (49,005) (158,778) (382,822) -- -- (382,822)
----------- ---------- ---------- ---------- ---------- -------- -----------
Future net cash flows before
income taxes.................... 3,200,490 811,726 810,271 4,822,487 -- -- 4,822,487
Future income taxes............... (630,876) (226,118) (253,373) (1,110,367) -- -- (1,110,367)
----------- ---------- ---------- ---------- ---------- -------- -----------
Future net cash flows............. 2,569,614 585,608 556,898 3,712,120 -- -- 3,712,120
Discount to present value at 10%
annual rate..................... (842,382) (207,717) (267,965) (1,318,064) -- -- (1,318,064)
----------- ---------- ---------- ---------- ---------- -------- -----------
Standardized measure of discounted
future net cash flows relating
to proved oil and gas
reserves........................ $ 1,727,232 $ 377,891 $ 288,933 $2,394,056 -- -- $ 2,394,056
=========== ========== ========== ========== ========== ======== ===========
1998
Future cash inflows............... $ 5,471,121 $ 950,151 $1,210,060 $7,631,332 $2,384,459 $179,329 $10,195,120
Future production costs........... (1,280,875) (319,938) (347,431) (1,948,244) (556,609) (127,039) (2,631,892)
Future development costs.......... (316,175) (42,252) (161,424) (519,851) (392,546) (11,325) (923,722)
----------- ---------- ---------- ---------- ---------- -------- -----------
Future net cash flows before
income taxes.................... 3,874,071 587,961 701,205 5,163,237 1,435,304 40,965 6,639,506
Future income taxes............... (903,983) (119,655) (229,281) (1,252,919) (614,297) (7,111) (1,874,327)
----------- ---------- ---------- ---------- ---------- -------- -----------
Future net cash flows............. 2,970,088 468,306 471,924 3,910,318 821,007 33,854 4,765,179
Discount to present value at 10%
annual rate..................... (1,399,541) (161,988) (234,129) (1,795,658) (434,714) (13,893) (2,244,265)
----------- ---------- ---------- ---------- ---------- -------- -----------
Standardized measure of discounted
future net cash flows relating
to proved oil and gas
reserves........................ $ 1,570,547(3) $ 306,318 $ 237,795 $2,114,660 $ 386,293 $ 19,961 $ 2,520,914
=========== ========== ========== ========== ========== ======== ===========
1997
Future cash inflows............... $ 5,186,755 $ 814,195 $ 532,318 $6,533,268 $1,633,199 $ 13,862 $ 8,180,329
Future production costs........... (1,138,401) (302,965) (106,999) (1,548,365) (422,474) (3,587) (1,974,426)
Future development costs.......... (313,463) (19,610) (400) (333,473) (102,014) (1,814) (437,301)
----------- ---------- ---------- ---------- ---------- -------- -----------
Future net cash flows before
income taxes.................... 3,734,891 491,620 424,919 4,651,430 1,108,711 8,461 5,768,602
Future income taxes............... (887,521) (92,927) (215,344) (1,195,792) (501,109) (779) (1,697,680)
----------- ---------- ---------- ---------- ---------- -------- -----------
Future net cash flows............. 2,847,370 398,693 209,575 3,455,638 607,602 7,682 4,070,922
Discount to present value at 10%
annual rate..................... (1,297,651) (121,381) (61,656) (1,480,688) (287,874) (1,906) (1,770,468)
----------- ---------- ---------- ---------- ---------- -------- -----------
Standardized measure of discounted
future net cash flows relating
to proved oil and gas
reserves........................ $ 1,549,719(3) $ 277,312 $ 147,919 $1,974,950 $ 319,728 $ 5,776 $ 2,300,454
=========== ========== ========== ========== ========== ======== ===========
</TABLE>
- - ---------------
(1) See Note 7 "Transactions with Enron Corp. and Related Parties."
(2) Other includes the standardized measure for proved reserves for China
operations only. See Note 7 "Transactions with Enron Corp. and Related
Parties."
(3) Includes approximately $55,316 and $100,294 in 1997 and 1998, respectively,
related to the reserves in the Big Piney deep Paleozoic formations, which
were removed from proved reserves in 1999.
F-34
<PAGE> 67
EOG RESOURCES, INC.
SUPPLEMENTAL INFORMATION TO CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
Changes in Standardized Measure of Discounted Future Net Cash Flows. The
following table sets forth the changes in the standardized measure of discounted
future net cash flows at December 31, for each of the three years in the period
ended December 31, 1999.
<TABLE>
<CAPTION>
UNITED STATES CANADA TRINIDAD SUBTOTAL INDIA(1) OTHER(2) TOTAL
------------- -------- -------- ---------- --------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1996....................... $ 2,491,769 (3) $225,758 $156,838 $2,874,365 $ 194,185 $ -- $ 3,068,550
Sales and transfers of oil and gas
produced, net of production costs... (518,594) (53,919) (53,744) (626,257) (24,827) -- (651,084)
Net changes in prices and production
costs............................... (1,664,174) (19,784) 4,730 (1,679,228) (34,611) -- (1,713,839)
Extensions, discoveries, additions and
improved recovery net of related
costs............................... 374,283 37,533 -- 411,816 257,256 5,616 674,688
Development costs incurred............ 52,300 1,900 -- 54,200 -- -- 54,200
Revisions of estimated development
costs............................... 3,681 4,345 1,188 9,214 (33,210) -- (23,996)
Revisions of previous quantity
estimates........................... (17,257) (101) (442) (17,800) 26,696 -- 8,896
Accretion of discount................. 327,724 26,287 30,956 384,967 31,669 -- 416,636
Net change in income taxes............ 605,769 11,097 12,734 629,600 (90,729) 160 539,031
Purchases of reserves in place........ 43,882 52,911 -- 96,793 -- -- 96,793
Sales of reserves in place............ (28,589) (379) -- (28,968) -- -- (28,968)
Changes in timing and other........... (121,075) (8,336) (4,341) (133,752) (6,701) -- (140,453)
----------- -------- -------- ---------- --------- ------- -----------
December 31, 1997....................... 1,549,719 (3) 277,312 147,919 1,974,950 319,728 5,776 2,300,454
Sales and transfers of oil and gas
produced, net of production costs... (423,733) (48,902) (59,606) (532,241) (59,209) 3,664 (587,786)
Net changes in prices and production
costs............................... (33,809) 10,891 (36,730) (59,648) (103,097) (6,961) (169,706)
Extensions, discoveries, additions and
improved recovery net of related
costs............................... 325,308 43,686 159,497 528,491 218,168 18,894 765,553
Development costs incurred............ 59,600 2,900 6,000 68,500 43,400 4,300 116,200
Revisions of estimated development
costs............................... (26,611) 690 (11,410) (37,331) (66,128) (3,233) (106,692)
Revisions of previous quantity
estimates........................... (35,216) (4,137) (1,142) (40,495) 36,877 -- (3,618)
Accretion of discount................. 174,102 30,332 28,791 233,225 53,296 562 287,083
Net change in income taxes............ 47,745 (5,822) (122) 41,801 212 (428) 41,585
Purchases of reserves in place........ 156,818 20,131 -- 176,949 -- -- 176,949
Sales of reserves in place............ (33,549) -- -- (33,549) -- -- (33,549)
Changes in timing and other........... (189,827) (20,763) 4,598 (205,992) (56,954) (2,613) (265,559)
----------- -------- -------- ---------- --------- ------- -----------
December 31, 1998....................... 1,570,547 (3) 306,318 237,795 2,114,660 386,293 19,961 2,520,914
Sales and transfers of oil and gas
produced, net of production costs... (520,961) (73,044) (47,578) (641,583) (40,484) 2,334 (679,733)
Net changes in prices and production
costs............................... 265,946 76,478 76,381 418,805 -- -- 418,805
Extensions, discoveries, additions and
improved recovery net of related
costs............................... 310,470 68,396 8,523 387,389 -- -- 387,389
Development costs incurred............ 42,500 16,100 -- 58,600 23,820 8,010 90,430
Revisions of estimated development
costs............................... 133,741 (1,127) 8,178 140,792 -- -- 140,792
Revisions of previous quantity
estimates........................... (163,423)(4) (506) 2,051 (161,878) -- -- (161,878)
Accretion of discount................. 171,588 33,815 37,790 243,193 -- -- 243,193
Net change in income taxes............ (27,883) (79,397) (22,874) (130,154) -- -- (130,154)
Purchases of reserves in place........ 102,086 18,769 -- 120,855 -- -- 120,855
Sales of reserves in place............ (81,607) (1,276) -- (82,883) (369,629) (30,305) (482,817)
Changes in timing and other........... (75,772) 13,365 (11,333) (73,740) -- -- (73,740)
----------- -------- -------- ---------- --------- ------- -----------
December 31, 1999....................... $ 1,727,232 $377,891 $288,933 $2,394,056 $ -- $ -- $ 2,394,056
=========== ======== ======== ========== ========= ======= ===========
</TABLE>
- - ---------------
(1) See Note 7 "Transactions with Enron Corp. and Related Parties."
(2) Other includes China operations only. See Note 7 "Transactions with Enron
Corp. and Related Parties."
(3) Includes approximately $222,228, $55,316 and $100,294, in 1996, 1997 and
1998, respectively, related to the reserves in the Big Piney deep Paleozoic
formations.
(4) Includes reduction of approximately $172,057, discounted before income
taxes, related to the reserves in the Big Piney deep Paleozoic formations.
F-35
<PAGE> 68
EOG RESOURCES, INC.
SUPPLEMENTAL INFORMATION TO CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
UNAUDITED QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1999
Net Operating Revenues........................... $158,954 $187,195 $226,780 $228,477
======== ======== ======== ========
Operating Income (Loss).......................... $ (9,604) $ 15,695 $(53,229) $ 65,326
======== ======== ======== ========
Income before Income Taxes....................... 3,067 32,273 484,281 48,091
Income Tax Provision (Benefit)................... (1,999) 11,635 (28,640) 17,622
-------- -------- -------- --------
Net Income....................................... $ 5,066 $ 20,638 $512,921 $ 30,469
======== ======== ======== ========
Net Income per Share Available to Common
Basic......................................... $ .03 $ .13 $ 3.75 $ .25
======== ======== ======== ========
Diluted....................................... $ .03 $ .13 $ 3.68 $ .25
======== ======== ======== ========
Average Number of Common Shares
Basic......................................... 153,733 153,825 136,750 119,169
======== ======== ======== ========
Diluted....................................... 154,615 155,271 139,204 120,226
======== ======== ======== ========
1998
Net Operating Revenues........................... $199,831 $183,307 $191,262 $194,788
======== ======== ======== ========
Operating Income................................. $ 38,286 $ 32,669 $ 19,199 $ 23,507
======== ======== ======== ========
Income before Income Taxes....................... 28,206 22,173 3,969 5,934
Income Tax Provision (Benefit)................... 1,201 8,916 (1,975) (4,031)
-------- -------- -------- --------
Net Income....................................... $ 27,005 $ 13,257 $ 5,944 $ 9,965
======== ======== ======== ========
Net Income per Share Available to Common
Basic......................................... $ .17 $ .09 $ .04 $ .06
======== ======== ======== ========
Diluted....................................... $ .17 $ .09 $ .04 $ .06
======== ======== ======== ========
Average Number of Common Shares
Basic......................................... 154,736 154,857 154,083 153,702
======== ======== ======== ========
Diluted....................................... 155,522 155,770 154,409 154,516
======== ======== ======== ========
1997
Net Operating Revenues........................... $180,651 $171,753 $193,120 $237,977
======== ======== ======== ========
Operating Income................................. $ 41,170 $ 28,619 $ 48,757 $ 74,229
======== ======== ======== ========
Income before Income Taxes....................... 37,311 24,111 40,975 61,073
Income Tax Provision (Benefit)................... 14,246 (460) 9,802 17,912
-------- -------- -------- --------
Net Income....................................... $ 23,065 $ 24,571 $ 31,173 $ 43,161
======== ======== ======== ========
Net Income per Share Available to Common
Basic......................................... $ .15 $ .16 $ .20 $ .28
======== ======== ======== ========
Diluted....................................... $ .14 $ .16 $ .20 $ .28
======== ======== ======== ========
Average Number of Common Shares
Basic......................................... 158,866 157,489 157,072 156,076
======== ======== ======== ========
Diluted....................................... 159,790 157,950 158,049 156,808
======== ======== ======== ========
</TABLE>
F-36
<PAGE> 69
SCHEDULE II
EOG RESOURCES, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- - -------- ------------ ---------- --------------- ----------
ADDITIONS DEDUCTIONS FOR
BALANCE AT CHARGED TO PURPOSE FOR BALANCE AT
BEGINNING OF COSTS AND WHICH RESERVES END OF
DESCRIPTION YEAR EXPENSES WERE CREATED YEAR
- - ----------- ------------ ---------- --------------- ----------
<S> <C> <C> <C> <C>
1999
Reserves deducted from assets to which they
apply --
Revaluation of Accounts Receivable....... $11,375 $1,972 $9,721 $ 3,626
======= ====== ====== =======
1998
Reserves deducted from assets to which they
apply --
Revaluation of Accounts Receivable....... $ 7,025 $4,350 $ -- $11,375
======= ====== ====== =======
1997
Reserves deducted from assets to which they
apply --
Revaluation of Accounts Receivable....... $ 7,030 $ -- $ 5 $ 7,025
======= ====== ====== =======
</TABLE>
S-1
<PAGE> 70
EXHIBITS
Exhibits not incorporated herein by reference to a prior filing are
designated by an asterisk (*) and are filed herewith; all exhibits not so
designated are incorporated herein by reference to the Company's Form S-1
Registration Statement, Registration No. 33-30678, filed on August 24, 1989
("Form S-1"), or as otherwise indicated.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1(a) -- Restated Certificate of Incorporation (Exhibit 3.1 to
Form S-1).
3.1(b) -- Certificate of Amendment of Restated Certificate of
Incorporation (Exhibit 4.1(b) to Form S-8 Registration
Statement No. 33-52201, filed February 8, 1994).
3.1(c) -- Certificate of Amendment of Restated Certificate of
Incorporation (Exhibit 4.1(c) to Form S-8 Registration
Statement No. 33-58103, filed March 15, 1995).
3.1(d) -- Certificate of Amendment of Restated Certificate of
Incorporation, dated June 11, 1996 (Exhibit 3(d) to Form
S-3 Registration Statement No. 333-09919, filed August 9,
1996).
3.1(e) -- Certificate of Amendment of Restated Certificate of
Incorporation, dated May 7, 1997 (Exhibit 3(e) to Form
S-3 Registration Statement No. 333-44785, filed January
23, 1998).
*3.1(f) -- Certificate of Ownership and Merger, dated August 26,
1999.
*3.1(g) -- Certificate of Designation, Preferences and Rights of
Fixed Rate Cumulative Perpetual Senior Preferred Stock,
Series A, dated December 8, 1999.
*3.1(h) -- Certificate of Designations, Preferences and Rights of
Flexible Money Market Cumulative Preferred Stock, Series
C, dated December 20, 1999.
3.1(i) -- Certificate of Designations of Series E Junior
Participating Preferred Stock, dated February 14, 2000
(Exhibit 2 to Form 8-A Registration Statement, filed
February 18, 2000).
3.2 -- By-laws, dated August 23, 1989, as amended December 12,
1990, February 8, 1994, January 19, 1996, February 13,
1997, May 5, 1998, September 7, 1999 and February 14,
2000 (Exhibit 3.1 to the Company's Current Report on Form
8-K, filed February 18, 2000).
*3.3 -- Specimen of Certificate evidencing the Common Stock.
4.3(a) -- Amended and Restated 1994 Stock Plan (Exhibit 4.3 to Form
S-8 Registration Statement No. 33-58103, filed March 15,
1995).
4.3(b) -- Amendment to Amended and Restated 1994 Stock Plan, dated
effective as of December 12, 1995 (Exhibit 4.3(a) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995).
4.3(c) -- Amendment to Amended and Restated 1994 Stock Plan, dated
effective as of December 10, 1996 (Exhibit 4.3(a) to Form
S-8 Registration Statement No. 333-20841, filed January
31, 1997).
4.3(d) -- Third Amendment to Amended and Restated 1994 Stock Plan,
dated effective as of December 9, 1997 (Exhibit 4.3(d) to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1997).
4.3(e) -- Fourth Amendment to Amended and Restated 1994 Stock Plan,
dated effective as of May 5, 1998 (Exhibit 4.3(e) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1998).
</TABLE>
E-1
<PAGE> 71
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4.3(f) -- Fifth Amendment to Amended and Restated 1994 Stock Plan,
dated effective as of December 8, 1998 (Exhibit 4.3(f) to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1998).
10.2(a) -- Stock Restriction and Registration Agreement dated as of
August 23, 1989 (Exhibit 10.2 to Form S-1).
10.2(b) -- Amendment to Stock Restriction and Registration
Agreement, dated December 9, 1997, between the Company
and Enron Corp. (Exhibit 10.2(b) to the Company's Annual
Report on Form 10-K for the year ended December 31,
1997).
10.3 -- Tax Allocation Agreement, entered into effective as of
the Deconsolidation Date, between Enron Corp., the
Company, and the subsidiaries of the Company listed
therein as additional parties (Exhibit 10.3 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1998).
10.4(a) -- Share Exchange Agreement, dated as of July 19, 1999,
between Enron Corp. and the Company (Exhibit 2 to Form
S-3 Registration Statement No. 333-83533, filed July 23,
1999).
10.4(b) -- Letter Amendment, dated July 30, 1999, to Share Exchange
Agreement, between Enron Corp. and the Company (Exhibit
2.2 to the Company's Current Report on Form 8-K, filed
August 31, 1999).
10.4(c) -- Letter Amendment, dated August 10, 1999, to Share
Exchange Agreement, between Enron Corp. and the Company
(Exhibit 2.3 to the Company's Current Report on Form 8-K,
filed August 31, 1999).
10.14(a) -- 1993 Nonemployee Directors' Stock Option Plan (Exhibit
10.14 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1992).
10.14(b) -- First Amendment to 1993 Nonemployee Directors' Stock
Option Plan (Exhibit 10.14(b) to the Company's Annual
Report on Form 10-K for the year ended December 31,
1996).
10.16 -- Interest Rate and Currency Exchange Agreement, dated as
of June 1, 1991, between Enron Risk Management Services
Corp. and Enron Oil & Gas Marketing, Inc. (Exhibit 10.17
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1991), Confirmation dated June 14,
1992 (Exhibit 10.17 to Form S-1 Registration Statement,
No. 33-50462, filed August 5, 1992) and Confirmations
dated March 25, 1991, April 25, 1991, and September 23,
1992 (assigned to Enron Risk Management Services Corp. by
Enron Finance Corp. pursuant to an Assignment and
Assumption Agreement, dated as of November 1, 1993, by
and between Enron Finance Corp., Enron Risk Management
Services Corp. and Enron Oil & Gas Marketing, Inc.).
(Exhibit 10.16 to the Company's Annual Report on Form
10-K for the year ended December 31, 1993).
10.17 -- Assignment and Assumption Agreement, dated as of November
1, 1993, by and between Enron Oil & Gas Marketing, Inc.,
the Company and Enron Risk Management Services Corp.
(Exhibit 10.17 to the Company's Annual Report on Form
10-K for the year ended December 31, 1993).
10.18 -- ISDA Master Agreement, dated as of November 1, 1993,
between the Company and Enron Risk Management Services
Corp., and Confirmation Nos. 1268.0, 1286.0, 1291.0,
1292.0, 1304.0, 1305.0, 1321.0, 1335.0, 1338.0, 1370.0,
1471.0, 1485.0, 1486.0, 1494.0, 1495.0, 1509.0, 1514.0,
1533.01, 1569.0, 1986.0, 2217.0, 2227.0, 2278.0, 2299.0,
2372.0, 2647.0 (Exhibit 10.18 to the Company's Annual
Report on Form 10-K for the year ended December 31,
1993).
</TABLE>
E-2
<PAGE> 72
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.19 -- Letter Agreement between Colorado Interstate Gas Company
and Enron Oil & Gas Marketing, Inc. dated November 1,
1990 (Exhibit 10.18 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1990).
10.23 -- Gas Purchase Agreement between the Company and Enron Oil
& Gas Marketing, Inc. dated August 22, 1989 (Exhibit
10.41 to Form S-1).
10.24 -- Gas Purchase Agreement between the Company and Enron Oil
& Gas Marketing, Inc. dated August 22, 1989 (Exhibit
10.42 to Form S-1).
10.25 -- Enron Corp. 1991 Stock Plan (Exhibit 10.08 to Enron Corp.
Annual Report on Form 10-K for the year ended December
31, 1991).
10.26 -- Enron Corp. 1988 Deferral Plan (Exhibit 10.49 to Form
S-1).
10.28 -- Enron Executive Supplemental Survivor Benefits Plan
Effective January 1, 1987 (Exhibit 10.51 to Form S-1).
10.34 -- 1992 Stock Plan (As Amended and Restated Effective June
28, 1999) (Exhibit A to the Company's Proxy Statement,
dated June 4, 1999, with respect to the Company's Annual
Meeting of Shareholders).
10.57(a) -- Letter Agreement relating to Natural Gas Swap
Transactions, dated March 31, 1995, among the Company,
Enron Corp. and Enron Capital & Trade Resources Corp
(Exhibit 10.57(a) to the Company's Annual Report on Form
10-K for the year ended December 31, 1995).
10.57(b) -- Amendment to Natural Gas Swap Transactions Letter
Agreement, dated March 31, 1995, among the Company, Enron
Corp. and Enron Capital & Trade Resources Corp (Exhibit
10.57(b) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995).
10.58 -- Confirmation Letter (revised due to adjustments to the
attached Payment Schedule), dated March 31, 1995, between
the Company and Enron Capital & Trade Resources Corp.
(ECT Transaction Reference No. 15198.00) (Exhibit 10.58
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1995).
10.59 -- Confirmation Letter (revised due to Price Change for 1998
and adjustment to the attached Payment Schedule), dated
March 31, 1995, between the Company and Enron Capital &
Trade Resources Corp. (ECT Transaction Reference No.
15198.01) (Exhibit 10.59 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1995).
10.60 -- Services Agreement, dated January 1, 1997, between Enron
Corp. and the Company (Exhibit 10.60 to the Company's
Annual Report on Form 10-K for the year ended December
31, 1997).
10.61 -- Equity Participation and Business Opportunity Agreement,
dated December 9, 1997, between the Company and Enron
Corp. (Exhibit 10 to Form S-3 Registration Statement No.
333-44785, filed January 23, 1998).
10.63(a) -- 1996 Deferral Plan (Exhibit 10.63(a) to the Company's
Annual Report on Form 10-K for the year ended December
31, 1997).
10.63(b) -- First Amendment to 1996 Deferral Plan, dated effective as
of December 9, 1997 (Exhibit 10.63(b) to the Company's
Annual Report on Form 10-K for the year ended December
31, 1997).
10.63(c) -- Second Amendment to 1996 Deferral Plan, dated effective
as of December 8, 1998 (Exhibit 10.63(c) to the Company's
Annual Report on Form 10-K for the year ended December
31, 1998).
</TABLE>
E-3
<PAGE> 73
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.64(a) -- Executive Employment Agreement between the Company and
Mark G. Papa, effective as of November 1, 1997 (Exhibit
10.64 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1997).
10.64(b) -- First Amendment to Executive Employment Agreement between
the Company and Mark G. Papa, effective as of February 1,
1999 (Exhibit 10.64(b) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1998).
*10.64(c) -- Second Amendment to Executive Agreement between the
Company and Mark G. Papa, effective as of June 28, 1999.
10.65(a) -- Executive Employment Agreement between the Company and
Edmund P. Segner, III, effective as of September 1, 1998
(Exhibit 10.65(a) to the Company's Annual Report on Form
10-K for the year ended December 31, 1998).
10.65(b) -- First Amendment to Executive Employment Agreement between
the Company and Edmund P. Segner, III, effective as of
February 1, 1999 (Exhibit 10.65(b) to the Company's
Annual Report on Form 10-K for the year ended December
31, 1998).
*10.65(c) -- Second Amendment to Executive Employment Agreement
between the Company and Edmund P. Segner, III, effective
as of June 28, 1999.
*10.66(a) -- Executive Employment Agreement between the Company and
Barry Hunsaker, Jr., effective as of September 1, 1998.
*10.66(b) -- First Amendment to Executive Employment Agreement between
the Company and Barry Hunsaker, Jr., effective as of
December 21, 1998.
*10.66(c) -- Second Amendment to Executive Employment Agreement
between the Company and Barry Hunsaker, Jr., effective as
of February 1, 1999.
*10.67(a) -- Executive Employment Agreement between the Company and
Loren M Leiker, effective as of March 1, 1998.
*10.67(b) -- First Amendment to Executive Employment Agreement between
the Company and Loren M. Leiker, effective as of February
1, 1999.
*10.68(a) -- Executive Employment Agreement between the Company and
Gary L. Thomas, effective as of September 1, 1998.
*10.68(b) -- First Amendment to Executive Employment Agreement between
the Company and Gary L. Thomas, effective as of February
1, 1999.
*12 -- Computation of Ratio of Earnings to Fixed Charges
*21 -- List of subsidiaries.
*23.1 -- Consent of DeGolyer and MacNaughton.
*23.2 -- Opinion of DeGolyer and MacNaughton dated February 8,
2000.
*23.3 -- Consent of Arthur Andersen LLP.
*24 -- Powers of Attorney.
*27 -- Financial Data Schedule.
</TABLE>
E-4
<PAGE> 74
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, on the 8th day of
March, 2000.
EOG RESOURCES, INC.
(Registrant)
By /s/ WALTER C. WILSON
-----------------------------------
(Walter C. Wilson)
Senior Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of registrant and in
the capacities with EOG Resources, Inc. indicated and on the 8th day of March,
2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ MARK G. PAPA Chairman and Chief Executive Officer and
- - ----------------------------------------------------- Director (Principal Executive Officer)
(Mark G. Papa)
/s/ WALTER C. WILSON Senior Vice President and Chief Financial
- - ----------------------------------------------------- Officer (Principal Financial Officer)
(Walter C. Wilson)
/s/ TIMOTHY K. DRIGGERS Vice President and Controller (Principal
- - ----------------------------------------------------- Accounting Officer)
(Timothy K. Driggers)
*EDMUND P. SEGNER, III President and Chief of Staff and Director
- - -----------------------------------------------------
(Edmund P. Segner, III)
*FRED C. ACKMAN Director
- - -----------------------------------------------------
(Fred C. Ackman)
*EDWARD RANDALL, III Director
- - -----------------------------------------------------
(Edward Randall, III)
*FRANK G. WISNER Director
- - -----------------------------------------------------
(Frank G. Wisner)
</TABLE>
*By /s/ PATRICIA L. EDWARDS
--------------------------------
(Patricia L. Edwards)
(Attorney-in-fact for persons
indicated)
<PAGE> 75
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1(a) -- Restated Certificate of Incorporation (Exhibit 3.1 to
Form S-1).
3.1(b) -- Certificate of Amendment of Restated Certificate of
Incorporation (Exhibit 4.1(b) to Form S-8 Registration
Statement No. 33-52201, filed February 8, 1994).
3.1(c) -- Certificate of Amendment of Restated Certificate of
Incorporation (Exhibit 4.1(c) to Form S-8 Registration
Statement No. 33-58103, filed March 15, 1995).
3.1(d) -- Certificate of Amendment of Restated Certificate of
Incorporation, dated June 11, 1996 (Exhibit 3(d) to Form
S-3 Registration Statement No. 333-09919, filed August 9,
1996).
3.1(e) -- Certificate of Amendment of Restated Certificate of
Incorporation, dated May 7, 1997 (Exhibit 3(e) to Form
S-3 Registration Statement No. 333-44785, filed January
23, 1998).
*3.1(f) -- Certificate of Ownership and Merger, dated August 26,
1999.
*3.1(g) -- Certificate of Designation, Preferences and Rights of
Fixed Rate Cumulative Perpetual Senior Preferred Stock,
Series A, dated December 8, 1999.
*3.1(h) -- Certificate of Designations, Preferences and Rights of
Flexible Money Market Cumulative Preferred Stock, Series
C, dated December 20, 1999.
3.1(i) -- Certificate of Designations of Series E Junior
Participating Preferred Stock, dated February 14, 2000
(Exhibit 2 to Form 8-A Registration Statement, filed
February 18, 2000).
3.2 -- By-laws, dated August 23, 1989, as amended December 12,
1990, February 8, 1994, January 19, 1996, February 13,
1997, May 5, 1998, September 7, 1999 and February 14,
2000 (Exhibit 3.1 to the Company's Current Report on Form
8-K, filed February 18, 2000).
*3.3 -- Specimen of Certificate evidencing the Common Stock.
4.3(a) -- Amended and Restated 1994 Stock Plan (Exhibit 4.3 to Form
S-8 Registration Statement No. 33-58103, filed March 15,
1995).
4.3(b) -- Amendment to Amended and Restated 1994 Stock Plan, dated
effective as of December 12, 1995 (Exhibit 4.3(a) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995).
4.3(c) -- Amendment to Amended and Restated 1994 Stock Plan, dated
effective as of December 10, 1996 (Exhibit 4.3(a) to Form
S-8 Registration Statement No. 333-20841, filed January
31, 1997).
4.3(d) -- Third Amendment to Amended and Restated 1994 Stock Plan,
dated effective as of December 9, 1997 (Exhibit 4.3(d) to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1997).
4.3(e) -- Fourth Amendment to Amended and Restated 1994 Stock Plan,
dated effective as of May 5, 1998 (Exhibit 4.3(e) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1998).
4.3(f) -- Fifth Amendment to Amended and Restated 1994 Stock Plan,
dated effective as of December 8, 1998 (Exhibit 4.3(f) to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1998).
10.2(a) -- Stock Restriction and Registration Agreement dated as of
August 23, 1989 (Exhibit 10.2 to Form S-1).
</TABLE>
<PAGE> 76
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.2(b) -- Amendment to Stock Restriction and Registration
Agreement, dated December 9, 1997, between the Company
and Enron Corp. (Exhibit 10.2(b) to the Company's Annual
Report on Form 10-K for the year ended December 31,
1997).
10.3 -- Tax Allocation Agreement, entered into effective as of
the Deconsolidation Date, between Enron Corp., the
Company, and the subsidiaries of the Company listed
therein as additional parties (Exhibit 10.3 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1998).
10.4(a) -- Share Exchange Agreement, dated as of July 19, 1999,
between Enron Corp. and the Company (Exhibit 2 to Form
S-3 Registration Statement No. 333-83533, filed July 23,
1999).
10.4(b) -- Letter Amendment, dated July 30, 1999, to Share Exchange
Agreement, between Enron Corp. and the Company (Exhibit
2.2 to the Company's Current Report on Form 8-K, filed
August 31, 1999).
10.4(c) -- Letter Amendment, dated August 10, 1999, to Share
Exchange Agreement, between Enron Corp. and the Company
(Exhibit 2.3 to the Company's Current Report on Form 8-K,
filed August 31, 1999).
10.14(a) -- 1993 Nonemployee Directors' Stock Option Plan (Exhibit
10.14 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1992).
10.14(b) -- First Amendment to 1993 Nonemployee Directors' Stock
Option Plan (Exhibit 10.14(b) to the Company's Annual
Report on Form 10-K for the year ended December 31,
1996).
10.16 -- Interest Rate and Currency Exchange Agreement, dated as
of June 1, 1991, between Enron Risk Management Services
Corp. and Enron Oil & Gas Marketing, Inc. (Exhibit 10.17
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1991), Confirmation dated June 14,
1992 (Exhibit 10.17 to Form S-1 Registration Statement,
No. 33-50462, filed August 5, 1992) and Confirmations
dated March 25, 1991, April 25, 1991, and September 23,
1992 (assigned to Enron Risk Management Services Corp. by
Enron Finance Corp. pursuant to an Assignment and
Assumption Agreement, dated as of November 1, 1993, by
and between Enron Finance Corp., Enron Risk Management
Services Corp. and Enron Oil & Gas Marketing, Inc.).
(Exhibit 10.16 to the Company's Annual Report on Form
10-K for the year ended December 31, 1993).
10.17 -- Assignment and Assumption Agreement, dated as of November
1, 1993, by and between Enron Oil & Gas Marketing, Inc.,
the Company and Enron Risk Management Services Corp.
(Exhibit 10.17 to the Company's Annual Report on Form
10-K for the year ended December 31, 1993).
10.18 -- ISDA Master Agreement, dated as of November 1, 1993,
between the Company and Enron Risk Management Services
Corp., and Confirmation Nos. 1268.0, 1286.0, 1291.0,
1292.0, 1304.0, 1305.0, 1321.0, 1335.0, 1338.0, 1370.0,
1471.0, 1485.0, 1486.0, 1494.0, 1495.0, 1509.0, 1514.0,
1533.01, 1569.0, 1986.0, 2217.0, 2227.0, 2278.0, 2299.0,
2372.0, 2647.0 (Exhibit 10.18 to the Company's Annual
Report on Form 10-K for the year ended December 31,
1993).
10.19 -- Letter Agreement between Colorado Interstate Gas Company
and Enron Oil & Gas Marketing, Inc. dated November 1,
1990 (Exhibit 10.18 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1990).
10.23 -- Gas Purchase Agreement between the Company and Enron Oil
& Gas Marketing, Inc. dated August 22, 1989 (Exhibit
10.41 to Form S-1).
</TABLE>
<PAGE> 77
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.24 -- Gas Purchase Agreement between the Company and Enron Oil
& Gas Marketing, Inc. dated August 22, 1989 (Exhibit
10.42 to Form S-1).
10.25 -- Enron Corp. 1991 Stock Plan (Exhibit 10.08 to Enron Corp.
Annual Report on Form 10-K for the year ended December
31, 1991).
10.26 -- Enron Corp. 1988 Deferral Plan (Exhibit 10.49 to Form
S-1).
10.28 -- Enron Executive Supplemental Survivor Benefits Plan
Effective January 1, 1987 (Exhibit 10.51 to Form S-1).
10.34 -- 1992 Stock Plan (As Amended and Restated Effective June
28, 1999) (Exhibit A to the Company's Proxy Statement,
dated June 4, 1999, with respect to the Company's Annual
Meeting of Shareholders).
10.57(a) -- Letter Agreement relating to Natural Gas Swap
Transactions, dated March 31, 1995, among the Company,
Enron Corp. and Enron Capital & Trade Resources Corp
(Exhibit 10.57(a) to the Company's Annual Report on Form
10-K for the year ended December 31, 1995).
10.57(b) -- Amendment to Natural Gas Swap Transactions Letter
Agreement, dated March 31, 1995, among the Company, Enron
Corp. and Enron Capital & Trade Resources Corp (Exhibit
10.57(b) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995).
10.58 -- Confirmation Letter (revised due to adjustments to the
attached Payment Schedule), dated March 31, 1995, between
the Company and Enron Capital & Trade Resources Corp.
(ECT Transaction Reference No. 15198.00) (Exhibit 10.58
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1995).
10.59 -- Confirmation Letter (revised due to Price Change for 1998
and adjustment to the attached Payment Schedule), dated
March 31, 1995, between the Company and Enron Capital &
Trade Resources Corp. (ECT Transaction Reference No.
15198.01) (Exhibit 10.59 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1995).
10.60 -- Services Agreement, dated January 1, 1997, between Enron
Corp. and the Company (Exhibit 10.60 to the Company's
Annual Report on Form 10-K for the year ended December
31, 1997).
10.61 -- Equity Participation and Business Opportunity Agreement,
dated December 9, 1997, between the Company and Enron
Corp. (Exhibit 10 to Form S-3 Registration Statement No.
333-44785, filed January 23, 1998).
10.63(a) -- 1996 Deferral Plan (Exhibit 10.63(a) to the Company's
Annual Report on Form 10-K for the year ended December
31, 1997).
10.63(b) -- First Amendment to 1996 Deferral Plan, dated effective as
of December 9, 1997 (Exhibit 10.63(b) to the Company's
Annual Report on Form 10-K for the year ended December
31, 1997).
10.63(c) -- Second Amendment to 1996 Deferral Plan, dated effective
as of December 8, 1998 (Exhibit 10.63(c) to the Company's
Annual Report on Form 10-K for the year ended December
31, 1998).
10.64(a) -- Executive Employment Agreement between the Company and
Mark G. Papa, effective as of November 1, 1997 (Exhibit
10.64 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1997).
</TABLE>
<PAGE> 78
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.64(b) -- First Amendment to Executive Employment Agreement between
the Company and Mark G. Papa, effective as of February 1,
1999 (Exhibit 10.64(b) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1998).
*10.64(c) -- Second Amendment to Executive Agreement between the
Company and Mark G. Papa, effective as of June 28, 1999.
10.65(a) -- Executive Employment Agreement between the Company and
Edmund P. Segner, III, effective as of September 1, 1998
(Exhibit 10.65(a) to the Company's Annual Report on Form
10-K for the year ended December 31, 1998).
10.65(b) -- First Amendment to Executive Employment Agreement between
the Company and Edmund P. Segner, III, effective as of
February 1, 1999 (Exhibit 10.65(b) to the Company's
Annual Report on Form 10-K for the year ended December
31, 1998).
*10.65(c) -- Second Amendment to Executive Employment Agreement
between the Company and Edmund P. Segner, III, effective
as of June 28, 1999.
*10.66(a) -- Executive Employment Agreement between the Company and
Barry Hunsaker, Jr., effective as of September 1, 1998.
*10.66(b) -- First Amendment to Executive Employment Agreement between
the Company and Barry Hunsaker, Jr., effective as of
December 21, 1998.
*10.66(c) -- Second Amendment to Executive Employment Agreement
between the Company and Barry Hunsaker, Jr., effective as
of February 1, 1999.
*10.67(a) -- Executive Employment Agreement between the Company and
Loren M Leiker, effective as of March 1, 1998.
*10.67(b) -- First Amendment to Executive Employment Agreement between
the Company and Loren M. Leiker, effective as of February
1, 1999.
*10.68(a) -- Executive Employment Agreement between the Company and
Gary L. Thomas, effective as of September 1, 1998.
*10.68(b) -- First Amendment to Executive Employment Agreement between
the Company and Gary L. Thomas, effective as of February
1, 1999.
*12 -- Computation of Ratio of Earnings to Fixed Charges
*21 -- List of subsidiaries.
*23.1 -- Consent of DeGolyer and MacNaughton.
*23.2 -- Opinion of DeGolyer and MacNaughton dated February 8,
2000.
*23.3 -- Consent of Arthur Andersen LLP.
*24 -- Powers of Attorney.
*27 -- Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 3.1(f)
CERTIFICATE OF OWNERSHIP
AND MERGER
MERGING
EOG RESOURCES, INC.
A DELAWARE CORPORATION
INTO
ENRON OIL & GAS COMPANY
A DELAWARE CORPORATION
(Pursuant to Section 253 of the General Corporation
Law of the State of Delaware)
Enron Oil & Gas Company, a corporation duly organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
does hereby certify:
FIRST: That Enron Oil & Gas Company (the "Company") and EOG Resources,
Inc. ("EOG") are corporations duly organized and existing under and by virtue of
the General Corporation Law of the State of Delaware.
SECOND: That the Company owns all of the issued and outstanding shares
of the capital stock of EOG.
THIRD: That the board of directors of the Company adopted the following
resolutions by unanimous written consent dated August 25, 1999, and that such
resolutions have not been rescinded and are in full force and effect on the date
hereof:
"WHEREAS, EOG Resources, Inc., a Delaware corporation ("EOG"),
is a wholly owned subsidiary of the Company;
WHEREAS, the board of directors of the Company deems it
advisable and in the best interest of the Company to merge EOG with and
into the Company, with the Company being the surviving corporation;
NOW, THEREFORE, BE IT RESOLVED, that EOG be merged with and
into the Company pursuant to Section 253 of the General Corporation Law
of the State of Delaware, and that the Company succeed to and possess
all the rights and assets of EOG and be subject to all of the
liabilities and obligations of EOG;
RESOLVED, that the Company change its corporate name by
changing Article First of the Certificate of Incorporation of the
Company to read in its entirety as follows:
"First: The name of the Corporation is EOG Resources, Inc."
<PAGE> 2
RESOLVED, that each share of common stock, $1.00 par value per
share, of EOG issued and outstanding immediately prior to the effective
date of the merger shall, upon the effective date and by virtue of the
merger, be canceled without payment therefor;
RESOLVED, that the merger shall become effective on the date
the Company files a Certificate of Ownership and Merger with respect to
such merger with the Secretary of State of the State of Delaware;
RESOLVED, that the appropriate officers of the Company are
hereby authorized and empowered to file the necessary documents with
the Secretary of State of the State of Delaware, to incur the necessary
expenses therefor and to take, or cause to be taken, all such further
action and to execute and deliver or cause to be executed and
delivered, in the name of and on behalf of the Company, all such
further instruments and documents as any such officer may deem to be
necessary or advisable in order to effect the purpose and intent of the
foregoing resolutions and to be in the best interests of the Company
(as conclusively evidenced by the taking of such action or the
execution and delivery of such instruments and documents, as the case
may be, by or under the direction of any such officer);
RESOLVED, that the prior actions of the officers and directors
of the Company in undertaking to carry out the transactions
contemplated by the foregoing resolutions be, and the same hereby are,
in all respects, approved, adopted, ratified and confirmed."
IT WITNESS WHEREOF, the Company has caused this Certificate to be
signed by its duly authorized officer this 26th day of August, 1999.
ENRON OIL & GAS COMPANY
By: /s/ W. C. WILSON
-------------------------
Walter C. Wilson
Senior Vice President and
Chief Financial Officer
2
<PAGE> 1
EXHIBIT 3.1(g)
EOG RESOURCES, INC.
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
OF
FIXED RATE CUMULATIVE PERPETUAL SENIOR PREFERRED STOCK,
SERIES A
(Liquidation Preference $1,000.00 Per Share)
-----------------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
-----------------------------
The following resolutions were duly adopted by a duly authorized
committee of the Board of Directors (the "Board of Directors" or "Board") of EOG
Resources, Inc., a Delaware corporation (the "Corporation"), by unanimous
written consent dated as of December 7, 1999 and in accordance with the
provisions of Section 151 of the Delaware General Corporation Law:
RESOLVED, that pursuant to authority conferred upon the Board of
Directors by the provisions of the Restated Certificate of Incorporation, as
amended (the "Certificate"), and the By-Laws, as amended, (the "By- Laws"), of
the Corporation, this committee of the Board of Directors hereby creates one
series of the Preferred Stock, $.01 par value per share, of the Corporation
("Senior Preferred Stock") and fixes the designation, preferences and rights of
the shares of such series as follows:
1. Designation. The designation of the series of Senior Preferred Stock
created by these resolutions shall be Fixed Rate Cumulative Perpetual Senior
Preferred Stock, Series A ("Series A Senior Preferred Stock"). The number of
authorized shares constituting the Series A Senior Preferred Stock is 100,000.
The shares of the Series A Senior Preferred Stock shall have a stated value of
$1,000.00 per share.
2. Voting Rights. The Series A Senior Preferred Stock shall not have
any voting powers, either general or special, except as required by applicable
law and as stated herein.
(a) Unless the vote or consent of the holders of a greater number of
shares shall then be required by law, the consent of the holders of at least 66
2/3% of all of the shares of Series A Senior Preferred Stock at the time
outstanding, given in person or by proxy, either in writing or by a vote at a
meeting called for the purpose at which the holders of shares of Series A Senior
Preferred Stock shall vote together as a separate class, shall be necessary for
authorizing, effecting or validating the amendment, alteration or repeal of any
of the provisions of the Certificate, of the applicable Certificate of
Designation, Preferences and Rights or of any other certificate amendatory of or
supplemental to the Certificate (including any certificate of designation,
preferences and rights or
1
<PAGE> 2
(any similar document relating to any series of Senior Preferred Stock or any
series of the Preferred Stock, $.01 par value per share, of the Corporation
("Junior Preferred Stock")) or of the By-laws of the Corporation which would
adversely affect the preferences, rights, powers or privileges of the Series A
Senior Preferred Stock;
(b) Unless the vote or consent of the holders of a greater number of
shares shall then be required by law, the consent of the holders of at least
66 2/3% of all of the then outstanding Series A Senior Preferred Stock and all
other series of Senior Preferred Stock for which dividends are cumulative
("Cumulative Senior Preferred Stock") ranking on a parity with shares of the
Series A Senior Preferred Stock, either as to dividends or upon liquidation, at
the time outstanding, given in person or by proxy, either in writing or by a
vote at a meeting called for the purpose at which the holders of shares of the
Series A Senior Preferred Stock and such other series of Cumulative Senior
Preferred Stock shall vote together as a single class without regard to series,
shall be necessary for authorizing, effecting, increasing or validating the
creation, authorization or issue of any shares of any class of stock of the
Corporation ranking prior to the shares of the Series A Senior Preferred Stock
as to dividends or upon liquidation, or the reclassification of any authorized
stock of the Corporation into any such prior shares, or the creation,
authorization or issue of any obligation or security convertible into or
evidencing the right to purchase any such prior shares.
(c) If a default in preference dividends payable on any share or shares
of the Series A Senior Preferred Stock or any other class or series of
Cumulative Senior Preferred Stock ranking on a parity with the Series A Senior
Preferred Stock, either as to dividends or upon liquidation, and upon which like
voting rights have been conferred and are exercisable (excluding any other class
or series of Cumulative Senior Preferred Stock expressly entitled to elect
additional directors to the Board by a vote separate and distinct from the vote
provided for in this paragraph (c),"Voting Cumulative Senior Preferred Stock")
shall exist, the number of directors constituting the Board shall be increased
by two (without duplication of any increase made pursuant to the terms of any
other class or series of Voting Cumulative Senior Preferred Stock), and the
holders of the Series A Senior Preferred Stock and the Voting Cumulative Senior
Preferred Stock shall have the right, voting together as a single class without
regard to class or series (to the exclusion of the holders of Common Stock,
Junior Preferred Stock and of any series of Senior Preferred Stock which is not
Voting Cumulative Senior Preferred Stock), to elect two directors of the
Corporation to fill such newly created directorships. Each director elected by
the holders of shares of Series A Senior Preferred Stock and any class or series
of Voting Cumulative Preferred Stock in an election provided for by this Section
2(c) (herein called a "Preferred Director") shall continue to serve as such
director until all accrued but unpaid dividends have been paid. Any Preferred
Director may be removed by, and shall not be removed except by, the vote of the
holders of record of the then outstanding shares of Series A Senior Preferred
Stock and Voting Cumulative Senior Preferred Stock entitled to have originally
voted for such director's election, voting together as a single class without
regard to class or series, at a meeting of the Corporation's stockholders, or of
the holders of shares of Series A Senior Preferred Stock and Voting Cumulative
Senior Preferred Stock, called for that purpose. So long as a default in any
preference dividends on the Series A Senior Preferred Stock or any class or
series of Voting Cumulative Senior Preferred Stock shall exist, (A) any vacancy
in the office of a Preferred
2
<PAGE> 3
Director may be filled (except as provided in the following clause (B)) by an
instrument in writing signed by the remaining Preferred Director and filed with
the Corporation and (B) in the case of the removal of any Preferred Director,
the vacancy may be filled by the vote of the holders of the then outstanding
shares of Series A Senior Preferred Stock and Voting Cumulative Senior Preferred
Stock entitled to have originally voted for the removed director's election,
voting together as a single class without regard to class or series, at the same
meeting at which such removal shall be voted. Each director appointed as
aforesaid shall be deemed for all purposes hereto to be a Preferred Director.
Whenever a default in preference dividends shall no longer exist, the
number of directors constituting the Board shall be reduced by two. For purposes
hereof, a "default in preference dividends" on the Series A Series Preferred
Stock or any class or series of Voting Cumulative Senior Preferred Stock shall
be deemed to have occurred whenever dividends upon the Series A Senior Preferred
Stock or such class or series of Voting Cumulative Senior Preferred Stock have
not been paid or declared and set aside for payment for the equivalent of six
consecutive full quarterly dividend periods or more and, having so occurred,
such default shall be deemed to exist thereafter until, but only until, all
dividends on the Series A Senior Preferred Stock or such other class or series
of Voting Cumulative Senior Preferred Stock have been paid or declared and set
apart for payment.
3. Preferences. The Series A Senior Preferred Stock will be fixed rate
cumulative perpetual (i.e., will be redeemable, if at all, solely at the option
of the Corporation) Senior Preferred Stock. The Corporation has not issued any
other series of Preferred Stock.
4. Dividends.
(a) If declared by the Corporation's Board of Directors, the holders of
shares of the Series A Senior Preferred Stock shall be entitled to receive cash
dividends thereon at a rate of $71.95 per share per annum which equals 7.195% of
the Series A Preferred Stock's liquidation preference payable (if declared)
quarterly out of the funds of the Corporation legally available for the payment
of dividends. Such dividends shall be payable, when, as and if declared by the
Board or a duly authorized committee thereof, on March 15, June 15, September 15
and December 15 of each year (each a "Dividend Payment Date"), commencing March
15, 2000. Each such dividend shall be paid to the holders of record of shares of
Series A Senior Preferred Stock as they appear on the stock register of the
Corporation on the close of business on such record date, which shall be not
less than five nor more than 50 days (whether or not business days) preceding
the Dividend Payment Date, as shall be fixed by the Board or a duly authorized
committee thereof. The rights of holders of the Series A Senior Preferred Stock
shall be cumulative. Accordingly, if the Board fails to declare a dividend on
the Series A Senior Preferred Stock payable on a Dividend Payment Date, then
holders of Series A Senior Preferred Stock shall have the right to receive a
dividend in respect of the dividend period ending on such Dividend Payment Date,
and the Corporation will have the obligation to pay dividends accrued for such
period, whether or not dividends on the Series A Senior Preferred Stock are
declared payable on any future Dividend Payment Date. The amount of dividends
payable for any period shorter than a full quarterly dividend period shall be
calculated on the basis of a 360-day year consisting of twelve 30-day months.
3
<PAGE> 4
(b) If, at any time prior to 18 months after the date of original
issuance of the Series A Senior Preferred Stock, one or more amendments to the
Internal Revenue Code of 1986, as amended (the "Code"), are enacted that reduce
the percentage of the dividends received deduction (generally, 70%) as specified
in Section 243(a)(1) of the Code or any successor provision (the "Dividends
Received Percentage"), the amount of each dividend payable (if declared) per
share of the Series A Senior Preferred Stock for dividend payments made on or
after the date of enactment of such change shall be increased by multiplying the
amount of the dividend payable determined as described above (before adjustment)
by a factor, which shall be the number determined in accordance with the
following formula (the "DRD Formula") and rounding the result to the nearest
cent (with one-half cent rounded up):
1 - [.35 (1 - .70)]
-------------------
1 - [.35 (1 - DRP)]
For purposes of the DRD Formula, "DRP" means the Dividends Received
Percentage applicable to the dividend in question; provided, however, that if
the Dividends Received Percentage applicable to the dividend in question is less
than 50%, then the DRP will equal 0.50. No amendment to the Code, other than a
change in the percentage of the dividends received deduction set forth in
Section 243(a)(1) of the Code or any successor provision prior to 18 months
after the date of original issuance of the Series A Senior Preferred Stock, will
give rise to an adjustment. Notwithstanding the foregoing provisions, in the
event that, with respect to any such amendment, the Corporation shall receive
either (i) an unqualified opinion of independent recognized tax counsel based
upon the legislation amending or establishing the DRP or upon a published
pronouncement of the Internal Revenue Service (the "IRS") addressing such
legislation or (ii) a private letter ruling or similar form of assurance from
the IRS, in either case to the effect that such an amendment would not apply to
dividends payable on shares of Series A Senior Preferred Stock, then any such
amendment shall not result in the adjustment provided for pursuant to the DRD
Formula. The Corporation's calculation of the dividends payable, as so adjusted
and as certified accurate as to calculation and reasonable as to method by the
independent certified public accountants then regularly engaged by the
Corporation, shall be final and not subject to review.
If any such amendment to the Code which reduces the Dividends Received
Percentage is enacted after a dividend payable on a Dividend Payment Date has
been declared but before such dividend has been paid, the amount of dividends
payable on such Dividend Payment Date shall not be increased; but instead, an
amount equal to the excess, if any, of (x) the product of the dividends paid by
the Corporation on such Dividend Payment Date and the DRD Formula (where the DRP
used in the DRD Formula would be equal to the greater of the reduced Dividends
Received Percentage and 0.50) over (y) the dividends paid by the Corporation on
such Dividend Payment Date, will be payable (if declared) on the next succeeding
Dividend Payment Date to holders of
4
<PAGE> 5
Series A Senior Preferred Stock on the record date applicable to such succeeding
Dividend Payment Date, in addition to any other amounts payable on such Dividend
Payment Date.
In addition, if any such amendment to the Code is enacted that reduces
the Dividends Received Percentage and such reduction retroactively applies to a
Dividend Payment Date as to which the Corporation previously paid dividends on
shares of Series A Senior Preferred Stock (each, an "Affected Dividend Payment
Date"), the Corporation will pay (if declared) additional dividends (the
"Retroactive Dividends") on the next succeeding Dividend Payment Date (or if
such amendment is enacted after the dividend payable on such Dividend Payment
Date has been declared, on the second succeeding Dividend Payment Date following
the date of enactment), to holders of Series A Senior Preferred Stock on the
record date applicable to such succeeding Dividend Payment Date, in an amount
equal to the excess, if any, of (x) the product of the dividends paid by the
Corporation on each Affected Dividend Payment Date and the DRD Formula (where
the DRP used in the DRD Formula would be equal to the greater of the reduced
Dividends Received Percentage and 0.50, applied to each Affected Dividend
Payment Date) over (y) the dividends paid by the Corporation on each Affected
Dividend Payment Date.
Retroactive Dividends will not be paid in respect of the enactment of
any amendment to the Code if such amendment would not result in an adjustment
due to the Corporation having received either an opinion of counsel or tax
ruling referred to in the third preceding paragraph. The Corporation will only
make one payment of Retroactive Dividends.
No adjustments in the dividends payable by the Corporation will be
made, and no Retroactive Dividends will be payable by the Corporation, because
of any amendment to the Code at any time beginning 18 months after the date of
original issuance of the Series A Senior Preferred Stock that reduces the
Dividends Received Percentage.
In the event that the amount of dividends payable per share of Series A
Senior Preferred Stock shall be adjusted pursuant to the DRD Formula and/or
Retroactive Dividends are to be paid, the Corporation will cause notice of each
such adjustment and, if applicable any Retroactive Dividends, to be sent to each
holder of record of the shares of Series A Senior Preferred Stock at such
holder's address as the same appears on the stock register of the Corporation.
(c) So long as any shares of Series A Senior Preferred Shares are
outstanding, no dividend (other than a dividend in common stock, $.01 par value
per share, of the Corporation ("Common Stock"), Junior Preferred Stock or any
other stock of the Corporation ranking junior to the Series A Senior Preferred
Stock as to dividends and upon liquidation and other than as provided in
subsection (d) of this Section 4) shall be declared or paid or set aside for
payment, nor shall any other distribution be declared or made upon the Common
Stock, Junior Preferred Stock or any other stock of the Corporation ranking
junior to or on a parity with the Series A Senior Preferred Stock as to
dividends or upon liquidation, nor shall any Common Stock, Junior Preferred
Stock or other stock of the Corporation ranking junior to or on a parity with
the Series A Senior Preferred Stock as to dividends or upon liquidation be
redeemed, purchased or otherwise acquired for any consideration
5
<PAGE> 6
(nor shall any funds be paid to, or made available for, a sinking fund for the
redemption of any shares of any such stock) by the Corporation (except by
conversion into or exchange for stock of the Corporation ranking junior to the
Series A Senior Preferred Stock as to dividends and upon liquidation) unless, in
each case, the full dividends on all outstanding shares of the Series A Senior
Preferred Stock shall have been, or contemporaneously are, paid, or declared and
a sum sufficient for the payment thereof has been or is set apart for such
payment.
(d) When dividends are not paid or declared and set aside for payment
in full, as aforesaid, upon the shares of Series A Senior Preferred Stock and
any other Senior Preferred Stock ranking on a parity as to dividends with the
Series A Senior Preferred Stock, all dividends declared upon shares of Series A
Senior Preferred Stock and any other class or series of Senior Preferred Stock
ranking on a parity as to dividends with the Series A Senior Preferred Stock
shall be declared pro rata so that the amount of dividends declared per share on
the Series A Senior Preferred Stock and such other Senior Preferred Stock shall
in all cases bear to each other the same ratio that accrued dividends per share
on the shares of Series A Senior Preferred Stock and such other Senior Preferred
Stock bear to each other.
5. Redemption.
(a) Except as described in Section 5(f) hereof, the shares of Series A
Senior Preferred Stock shall not be redeemable prior to December 15, 2009. On
and after such initial redemption date, the Corporation, at its option, may
redeem shares of the Series A Senior Preferred Stock, in whole or in part, at
any time or from time to time, at a redemption price of $1,000.00 per share,
plus accrued and unpaid dividends thereon (whether or not earned or declared) to
the redemption date, including any dividends payable due to changes in the
Dividends Received Percentage and Retroactive Dividends to the date fixed for
redemption. In the event that fewer than all the outstanding shares of Series A
Senior Preferred Stock are to be redeemed pursuant to this Section 5(a), the
number of shares to be redeemed shall be determined by the Board and the shares
to be redeemed shall be determined by lot or pro rata as may be determined by
the Board or by any other method as may be determined by the Board in its sole
discretion to be equitable.
(b) Notwithstanding the foregoing, if dividends to the redemption date
have not been declared and paid or set apart for payment on all outstanding
shares of Series A Senior Preferred Stock, no shares of Series A Senior
Preferred Stock shall be redeemed unless all outstanding shares of Series A
Senior Preferred Stock are simultaneously redeemed, and the Corporation shall
not purchase or otherwise acquire any shares of Series A Senior Preferred Stock;
provided, however, that the foregoing shall not prevent the purchase or
acquisition of shares of Series A Senior Preferred Stock pursuant to a tender or
exchange offer made on the same terms to all holders of Series A Senior
Preferred Stock and mailed to the holders of record of the Series A Senior
Preferred Stock at such holders' addresses as the same appear on the stock
register of the Corporation; provided, further, that if some, but less than all,
of the shares of the Series A Senior Preferred Stock are to be purchased or
otherwise acquired pursuant to such tender or exchange offer and the number of
shares so tendered exceeds the number of shares so to be purchased or otherwise
acquired by the
6
<PAGE> 7
Corporation, the shares of the Series A Senior Preferred Stock tendered shall be
purchased or otherwise acquired by the Corporation on a pro rata basis (with
adjustments to eliminate fractions) according to the number of such shares
tendered by each holder tendering shares of Series A Senior Preferred Stock.
(c) In the event the Corporation shall redeem shares of Series A Senior
Preferred Stock pursuant to subsection (a) of this Section 5, notice of such
redemption shall be given by first class mail, postage prepaid, mailed not less
than 30 nor more than 60 days prior to the redemption date, to each holder of
record of the shares to be redeemed, at such holder's address as the same
appears on the stock register of the Corporation. Each such notice shall state:
(i) the redemption date; (ii) the number of shares of Series A Senior Preferred
Stock to be redeemed and, if fewer than all the shares held by such holder are
to be redeemed, the number of such shares to be redeemed from such holder; (iii)
the redemption price; (iv) the place or places where certificates for such
shares are to be surrendered for payment of the redemption price; and (v) that
dividends on the shares to be redeemed will cease to accrue on such redemption
date.
(d) Notice having been mailed as aforesaid, from and after the
redemption date (unless default shall be made by the Corporation in providing
funds for the payment of the redemption price) dividends on the shares of Series
A Senior Preferred Stock so called for redemption under subsection (a) of this
Section 5 shall cease to accrue, and said shares shall no longer be deemed to be
outstanding, and all rights of the holders thereof as stockholders of the
Corporation (except the right to receive from the Corporation the redemption
price against delivery of such shares) shall cease. Upon surrender in accordance
with said notice of the certificates for any shares so redeemed (properly
endorsed or assigned for transfer, if the Board shall so require and the notice
shall so state), such shares shall be redeemed by the Corporation at the
applicable redemption price. In case fewer than all the shares represented by
any such certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares without cost to the holder thereof.
(e) If the Corporation gives notice of redemption, then, by 12:00 Noon,
Houston time, on the redemption date, the Corporation shall irrevocably deposit
with a paying agent (which may be an affiliate of the Corporation) (the "Paying
Agent"), which shall be a bank or trust company organized and in good standing
under the laws of the United States, the State of Texas or the State of New York
and having capital, surplus and undivided profits aggregating at least
$10,000,000, funds sufficient to pay the applicable redemption price, including
any accrued and unpaid dividends to the redemption date, and shall give the
Paying Agent irrevocable instructions and authority to pay the redemption price
to the holder or holders of record of the shares of Series A Senior Preferred
Stock upon surrender of certificates for such shares (properly endorsed or
assigned for transfer). If notice of redemption shall have been given, then upon
the date of such deposit, all rights of holders of the shares so called for
redemption shall cease, except the right of the holders of such shares to
receive the redemption price against delivery of such shares, but without
interest, and such shares shall cease to be outstanding. The Corporation shall
be entitled to receive, from time to time, from the Paying Agent, the interest,
if any, earned on such funds deposited with the Paying Agent, and the holders of
any shares to be redeemed with such funds shall have no claim to any such
interest. Any funds
7
<PAGE> 8
so deposited which are unclaimed at the end of two years from such redemption
date shall upon demand be repaid to the Corporation, after which the holders of
the shares of Series A Senior Preferred Stock so called for redemption shall be
entitled to look only to the Corporation for payment thereof.
(f) If at any time prior to 18 months after the original issuance date
of the Series A Senior Preferred Stock, one or more amendments to the Code are
enacted that reduce the Dividends Received Percentage to 50% or less, and, as a
result, the amount of dividends on the Series A Senior Preferred Stock payable
on any Dividend Payment Date may be adjusted upwards pursuant to Section 4(b)
hereof, the Corporation, at its option, may redeem all, but not less than all,
of the outstanding shares of the Series A Senior Preferred Stock, provided that,
within 60 days of the date on which an amendment to the Code is enacted that
reduces the Dividends Received Percentage to 50% or less, the Corporation sends
notice to the holders of the Series A Senior Preferred Stock of such redemption.
Any redemption of the Series A Senior Preferred Stock pursuant to this Section
will take place on the date specified in the notice, which will be not less than
30 nor more than 60 days from the date such notice is sent to the holders of the
Series A Senior Preferred Stock. Any such redemption of the Series A Senior
Preferred Stock will be at a redemption price of $1,050 per share, plus all
accrued and unpaid dividends (whether or not declared and including any increase
in dividends payable due to changes in the Dividends Received Percentage).
6. Liquidation Preference.
(a) Upon the dissolution, liquidation or winding up of the Corporation,
voluntary or involuntary, the holders of the then outstanding shares of Series A
Senior Preferred Stock shall be entitled to receive and be paid out of the
assets of the Corporation available for distribution to its stockholders, before
any payment or distribution of assets shall be made on the Common Stock, the
Junior Preferred Stock or any other class of stock of the Corporation ranking
junior to the Series A Senior Preferred Stock upon liquidation, the amount of
$1,000.00 per share, plus an amount equal to the sum of all accrued and unpaid
dividends (whether or not earned or declared) on such shares to the date of
final distribution.
(b) Neither the sale of all or substantially all the property or
business of the Corporation nor the merger or consolidation of the Corporation
into or with any other corporation or the merger or consolidation of any other
corporation into or with the Corporation, shall be deemed to be a dissolution,
liquidation or winding up, voluntary or involuntary, for the purposes of this
Section 6.
(c) After the payment to the holders of the shares of Series A Senior
Preferred Stock of the full preferential amounts provided for in this Section 6,
the holders of the shares of Series A Senior Preferred Stock, as such, shall
have no right or claim to any of the remaining assets of the Corporation.
(d) In the event the assets of the Corporation available for
distribution to the holders of the shares of Series A Senior Preferred Stock and
any other class or series of shares of Senior Preferred
8
<PAGE> 9
Stock ranking on a parity with the Series A Senior Preferred Stock as to such
distribution upon any dissolution, liquidation or winding up of the Corporation,
whether voluntary or involuntary, shall be insufficient to pay in full all
preferential amounts to which such holders are entitled, no such distribution
shall be made on account of the Series A Senior Preferred Stock or any shares of
any other class or series of Senior Preferred Stock ranking on a parity with the
shares of Series A Senior Preferred Stock upon such dissolution, liquidation or
winding up, unless proportionate distributive amounts shall be paid on account
of the shares of Series A Senior Preferred Stock and such shares of Senior
Preferred Stock ratably, in proportion to the full distributable amounts for
which holders of all such parity shares are respectively entitled upon such
dissolution, liquidation or winding up.
7. Conversion and Exchange. The holders of shares of the Series A
Senior Preferred Stock shall not have any rights to convert such shares into, or
to exchange such shares for, shares of Common Stock, any other class or classes
of capital stock (or any other security) or any other series of any class or
classes of capital stock (or any other security) of the Corporation.
8. Priority as to Certain Distributions. As a series of Senior
Preferred Stock, the shares of the Series A Senior Preferred Stock shall be
entitled to such rights and priorities, and subject to such limitations, as to
dividends as are set forth in these resolutions and in the Certificate.
9. Sinking Fund. No sinking fund shall be provided for the purchase or
redemption of shares of the Series A Senior Preferred Stock.
10. Ranking. Without limitation to any provision set forth in these
resolutions or in the Restated Certificate, it is hereby confirmed and expressly
declared that the Series A Senior Preferred Stock constitutes a series of Senior
Preferred Stock and, accordingly, ranks senior to all shares of Junior Preferred
Stock as to dividends and distributions of assets upon liquidation, dissolution
or winding up. For purposes hereof, any class or series or stock of the
Corporation shall be deemed to rank:
(a) prior to the Series A Senior Preferred Stock as to dividends or
distribution of assets upon liquidation, dissolution or winding up, if the
holders of such class or series shall be entitled to the receipt of dividends or
of amounts distributable upon liquidation, dissolution or winding up, as the
case may be, in preference or priority to the holders of Series A Senior
Preferred Stock;
(b) on a parity with the Series A Senior Preferred Stock as to
dividends or distribution of assets upon liquidation, dissolution or winding up,
whether or not the dividend rates, dividend payment dates, redemption prices or
liquidation preferences per share thereof are different from those of the Series
A Senior Preferred Stock, if the holders of such class or series of stock and of
the Series A Senior Preferred Stock shall be entitled to the receipt of
dividends or of amounts distributable upon liquidation, dissolution or winding
up, as the case may be, in proportion to their respective dividend amounts or
liquidation preferences, without preference or priority to the holders of Series
A Senior Preferred Stock; and
9
<PAGE> 10
(c) junior to the Series A Senior Preferred Stock as to dividends or
distribution of assets upon liquidation, dissolution or winding up, if such
stock shall be Common Stock or Junior Preferred Stock or if the holders of the
Series A Senior Preferred Stock shall be entitled to the receipt of dividends or
of amounts distributable upon liquidation, dissolution or winding up, as the
case may be, in preference or priority to the holders of shares of such class or
series.
11. Exclusion of Other Rights. Unless otherwise required by law, shares
of the Series A Senior Preferred Stock shall not have any rights, including
preemptive and subscription rights, or preferences other than those specifically
set forth herein or as provided by applicable law.
12. Miscellaneous. The Board of Directors may interpret the provisions
hereof to resolve any inconsistency or ambiguity which may arise or be revealed
and if such inconsistency or ambiguity reflects an inaccurate provision hereof,
the Board of Directors may, in appropriate circumstances, authorize the filing
of a certificate of correction pursuant to Delaware law.
13. Change in Number of Shares. As provided in the Certificate, but
subject to applicable law, the Board of Directors may increase or decrease the
number of shares of this series of Senior Preferred Stock subsequent to the
issue of shares of this series, but not below the number of shares of Series A
Senior Preferred Stock then outstanding.
FURTHER RESOLVED, that the 100,000 shares of Series A Senior Preferred
Stock authorized for issuance pursuant to the resolutions of this duly
authorized committee of the Board of Directors all constitute Preferred Stock
within the 10,000,000 shares authorized pursuant to the Certificate of the
Corporation.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by David R. Looney, its Vice President, this 8th day of December, 1999.
EOG RESOURCES, INC.
By: /s/ DAVID R. LOONEY
-----------------------------------
David R. Looney, Vice President
10
<PAGE> 1
EXHIBIT 3.1(h)
EOG RESOURCES, INC.
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
FLEXIBLE MONEY MARKET CUMULATIVE PREFERRED STOCK (MMP(R)), SERIES C
(Liquidation Preference $100,000 Per Share)
---------------------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
------------------------------------------------
The following resolutions were duly adopted by a duly authorized
committee of the Board of Directors (the "Board of Directors" or "Board") of EOG
Resources, Inc., a Delaware corporation (the "Corporation"), by unanimous
written consent dated as of December 14, 1999 and in accordance with the
provisions of Section 151 of the Delaware General Corporation Law:
RESOLVED, that pursuant to authority conferred upon the Board of
Directors by the provisions of the Restated Certificate of Incorporation, as
amended (the "Certificate"), and the By-Laws, as amended, (the "By-Laws"), of
the Corporation, this committee of the Board of Directors hereby creates a
series of the preferred stock, $0.01 par value per share, of the Corporation
("Preferred Stock") and fixes the designation, preferences and rights of the
shares of such series as follows:
1. Designation: A series of five hundred (500) shares of Preferred
Stock, par value $0.01 per share, liquidation preference $100,000 per share plus
an amount equal to accumulated but unpaid dividends (whether or not earned or
declared) thereon, is hereby designated "Flexible Money Market Cumulative
Preferred Stock (MMP(R)), Series C" (the "Shares"). The Shares shall constitute
a separate series of preferred stock of the Corporation, and shall rank on a
parity with the shares of the Series A preferred stock and prior to or on a
parity with other shares of preferred stock as to dividends and upon the
liquidation, dissolution or winding up of the Corporation, except as described
herein.
2. Definitions(1). Unless the context or use indicates another or
different meaning or intent, in this Certificate of Designations the following
terms have the following meanings, whether used in the singular or plural:
"AA Composite Commercial Paper Rate," on any date of determination,
means (i) the Interest Equivalent of the rate on commercial paper placed on
behalf of issuers whose corporate bonds are rated "AA" by S&P or "Aa" by Moody's
or the equivalent of such rating by another nationally recognized statistical
rating organization, as such rate is made available on a discount basis or
otherwise by the Federal Reserve Bank of New York for the Business Day
immediately
- - --------
(R) Registered trademark of Lehman Brothers Inc.
(1) Certain additional terms used in this Certificate of Designations are
defined in Paragraphs 2, 3 and 7 hereof.
<PAGE> 2
preceding such date, or (ii) in the event that the Federal Reserve Bank of New
York does not make available such a rate, then the arithmetic average of the
Interest Equivalent of the rate on commercial paper placed on behalf of such
issuers, as quoted on a discount basis or otherwise by the Commercial Paper
Dealer, to the Auction Agent for the close of business on the Business Day
immediately preceding such date. If the Commercial Paper Dealer does not quote a
rate required to determine the "AA" Composite Commercial Paper Rate, the "AA"
Composite Commercial Paper Rate will be determined on the basis of the quotation
or quotations furnished by any Substitute Commercial Paper Dealer or Substitute
Commercial Paper Dealers. If the number of Dividend Period Days shall be (i) 7
or more but fewer than 49 days, such rate shall be the Interest Equivalent of
the 30-day rate on such commercial paper; (ii) 49 or more but fewer than 70
days, such rate shall be the Interest Equivalent of the 60-day rate on such
commercial paper; (iii) 70 or more days but fewer than 85 days, such rate shall
be the arithmetic average of the Interest Equivalent of the 60-day and 90-day
rates on such commercial paper; (iv) 85 or more days but fewer than 99 days,
such rate shall be the Interest Equivalent of the 90-day rate on such commercial
paper; or (v) 99 or more days but fewer than 183 days, such rate shall be
determined by linear interpolation between the Interest Equivalents of the
90-day rate and the 180-day rate on such commercial paper.
"Affected Dividend Payment Date" has the meaning set forth in paragraph
3(e).
"Affiliate" means any Person known to the Auction Agent to be
controlled by, in control of, or under common control with, the Corporation.
"Agent Member" means a member of the Securities Depository that will
act on behalf of an Existing Holder, a beneficial owner, or a Potential Holder
or potential beneficial owner of one or more Shares.
"Applicable Rate" means, with respect to any Shares for any Dividend
Period therefor, the rate per annum at which cash dividends are payable on such
Shares for such Dividend Period.
"Auction" means a periodic implementation of the Auction Procedures.
"Auction Agent" means a commercial bank, trust company or other
financial institution appointed by a resolution of the Board of Directors that
has entered into an agreement with the Corporation to follow the Auction
Procedures for the purpose of determining the Applicable Rate and to act as
transfer agent, registrar, dividend disbursing agent and redemption agent for
the Shares.
"Auction Procedures" means the procedures for conducting Auctions set
forth in paragraph 7.
"beneficial ownership" or "beneficially own" shall have the meanings
ascribed to them under Rule 13d-3 under the Securities Exchange Act and
"beneficial owner" shall have a corollary meaning.
"Board of Directors" means the Board of Directors of the Corporation or
any duly authorized committee thereof.
2
<PAGE> 3
"Broker-Dealer" means any broker-dealer, or other entity permitted by
law to perform the functions required of a Broker-Dealer in paragraph 7, that
has been selected by the Corporation and has entered into a Broker-Dealer
Agreement with the Auction Agent that remains effective.
"Broker-Dealer Agreement" means an agreement between the Auction Agent
and one or more Broker-Dealers pursuant to which each such Broker-Dealer agrees
to follow the procedures specified in paragraph 7 of this Certificate of
Designations.
"Business Day" means a day on which the New York Stock Exchange, Inc.
is open for trading and which is not a day on which banks in The City of New
York are authorized or obligated by law to close.
"Certificate" means the Corporation's Certificate of Incorporation, as
amended and supplemented, on file in the office of the Secretary of State of the
State of Delaware.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commercial Paper Dealers" means such commercial paper dealer or
dealers as the Corporation may from time to time appoint, or, in lieu of any
thereof, their respective affiliates or successors.
"Common Stock" means the common stock, par value $0.01 per share, of
the Corporation.
"Corporation" means EOG Resources, Inc., a Delaware corporation, and
its successors.
"Cumulative Parity Preferred Stock" has the meaning set forth in
paragraph 6(b).
"Date of Original Issue" means, with respect to the Shares, the date on
which the Corporation originally issues such Shares.
"Dividend Non-Payment Period" has the meaning set forth in paragraph
3(b)(iii)(B).
"Dividend Payment Date," with respect to the Shares, includes each
Initial Dividend Payment Date, Subsequent Dividend Payment Date and Period-End
Dividend Payment Date.
"Dividend Period," with respect to the Shares, includes the Initial
Dividend Period and each Subsequent Dividend Period.
"Dividend Period Days," with respect to any Dividend Period, means the
calendar days included in such Dividend Period.
"Dividends Received Percentage" means the percentage of dividends
received by corporate taxpayers which may be deducted for federal income tax
purposes pursuant to Section 243(a)(1) of the Code (or any successor provision).
3
<PAGE> 4
"DRD Formula" means the amount derived from the following fraction:
1 - [.35(1-.70)]
----------------
1 - [.35(1-DRP)]
"DRD Gross-Up Provisions" has the meaning set forth in paragraph 3(e).
"DRP," as used in computing the DRD Formula, means the Dividends
Received Percentage, measured as a fraction, applicable to the dividend in
question; provided, however, that DRP shall in no event be less than .50.
"Existing Holder," with respect to the Shares, means a Person who is
listed as the owner of such Shares in the Stock Books.
"Holder" or "holder," with respect to any Shares, means the record
holder thereof.
"IRS" means the Internal Revenue Service.
"Initial Dividend Payment Dates," with respect to the Shares, means
each March 15, June 15, September 15 and December 15 of each year during the
Initial Dividend Period, commencing March 15, 2000.
"Initial Dividend Period," with respect to the Shares, means the period
from and including the Date of Original Issue for the Shares to but excluding
the Initial Period-End Dividend Payment Date for the Shares.
"Initial Dividend Rate," with respect to the Shares, means 6.84% per
annum for the Initial Dividend Period for the Shares.
"Initial Period-End Dividend Payment Date," with respect to the Shares,
means December 15, 2004.
"Interest Equivalent" means a yield on a 360-day basis of a discount
basis security which is equal to the yield on an equivalent interest-bearing
security.
"Maximum Applicable Rate" has the meaning set forth in paragraph
7(a)(vi) of this Certificate of Designations.
"Minimum Holding Period" means, at the time of reference thereto, the
minimum holding period then required for corporate taxpayers to be entitled to
the Dividends Received Deduction.
"Moody's" means Moody's Investors Service, Inc. or its successors.
"Non-Call Period," with respect to the Shares, means a specified
portion or the entirety of a Special Dividend Period for the Shares during which
the Shares shall not be subject to Optional Redemption, as selected by the
Corporation pursuant to a Notice of Special Dividend Period.
4
<PAGE> 5
"Non-Payment Period" includes any Dividend Non-Payment Period and
Redemption Price Non-Payment Period.
"Non-Payment Period Rate," with respect to the Shares, means 275% of
the Reference Rate applicable to such Shares.
"Notice of Redemption" means a written notice of redemption given
pursuant to paragraph 5.
"Notice of Revocation" has the meaning set forth in paragraph
3(c)(iii).
"Notice of Special Dividend Period" has the meaning set forth in
paragraph 3(c)(iii).
"Optional Redemption" means an optional redemption of Shares by the
Corporation pursuant to paragraph 5(a)(i) or 5(a)(ii).
"Optional Redemption Date" means the Dividend Payment Date selected by
the Corporation for an Optional Redemption, which is at least 30 days but not
more than 60 days after delivery of a Notice of Redemption with respect to such
Optional Redemption.
"Outstanding" means, as of any date, (i) with respect to the Shares,
the Shares theretofore issued by the Corporation except, without duplication,
(A) any Shares theretofore cancelled, or delivered to the Auction Agent for
cancellation, or redeemed by the Corporation, or as to which a Notice of
Redemption shall have been given and the full amount payable upon such
redemption shall have been deposited in trust by the Corporation with
irrevocable payment instructions given pursuant to paragraph 5(c), provided that
Shares as to which a Notice of Redemption has been given by the Corporation
shall be deemed to be not outstanding for purposes of any Auction for such
Shares held subsequent to the date of such Notice of Redemption and (B) any
Shares as to which the Corporation or any Affiliate shall be an Existing Holder
or beneficial owner and (ii) with respect to shares of other Preferred Stock,
has the equivalent meaning.
"Parity Preferred" means, with respect to the Shares, shares of the
Series A Preferred Stock and each other outstanding series of Preferred Stock
the holders of which, together with the Holders of the Shares, shall be entitled
to the receipt of dividends or of amounts distributable upon liquidation,
dissolution or winding up of the Corporation, as the case may be, in proportion
to the full respective preferential amounts to which they are entitled, without
preference or priority of one over the other.
"Period-End Dividend Payment Dates" include the Initial Period-End
Dividend Payment Date and each Subsequent Period-End Dividend Payment Date.
"Person" means and includes an individual, a partnership, a
corporation, a trust, an unincorporated association, a joint venture or other
entity or a government or any agency or political subdivision thereof.
"Potential Holder" means any Person who is not an Existing Holder but
who may be interested in acquiring Shares, or who is an Existing Holder but who
wishes to acquire additional Shares.
5
<PAGE> 6
"Preferred Stock" means any preferred stock of the Corporation,
including the Shares, that the Board of Directors has authority to issue under
the Certificate of Incorporation.
"Preferred Directors" has the meaning set forth in paragraph 6(c).
"Redemption Non-Payment Period" has the meaning set forth in paragraph
3(b)(iv)(C)(1).
"Reference Rate" means, (i) with respect to a Dividend Period of 49
days to 183 days, the applicable "AA" Composite Commercial Paper Rate, (ii) with
respect to a Dividend Period of 184 days to 364 days, the applicable U.S.
Treasury Bill Rate, (iii) with respect to a Dividend Period of one year to ten
years, the applicable U.S. Treasury Note Rate, and (iv) with respect to a
Dividend Period in excess of ten years, the applicable U.S. Treasury Bond Rate.
"Regular Dividend Period" means a Subsequent Dividend Period consisting
of 49 days as the same may be adjusted from time to time pursuant to paragraph
3(b)(i) in connection with requirement of, or a change of law altering the
requirements of, the Minimum Holding Period, but in no event exceeding 98 days.
"Retroactive Dividends" has the meaning set forth in Section 3(e).
"S&P" means Standard & Poor's Ratings Services or its successors.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Securities Depository" means The Depository Trust Company or any
successor Corporation or other entities elected by the Corporation as securities
depository for the Shares that agrees to follow the procedures required to be
followed by such securities depository in connection with the Shares.
"Series A Preferred Stock" means the shares of Preferred Stock, par
value $0.01 per share, liquidation preference $1,000 per shares designated as
the "Fixed Rate Cumulative Perpetual Senior Preferred Stock, Series A," of the
Corporation.
"Shares" means the shares of Preferred Stock, par value $0.01 per
share, liquidation preference $100,000 per share, plus an amount equal to
accumulated but unpaid dividends (whether or not earned or declared), designated
as the "Flexible Money Market Cumulative Preferred Stock (MMP(R)), Series C," of
the Corporation.
"Special Dividend Period" means a Subsequent Dividend Period consisting
of at least 49 days as selected by the Corporation pursuant to a Notice of
Special Dividend Period, to the extent that such selection by the Corporation
shall be available pursuant hereto and subject to adjustment from time to time
pursuant to paragraph 3(b)(i) in connection with requirements of, or a change of
law altering requirements of, the Minimum Holding Period.
6
<PAGE> 7
"Stock Books" means the books maintained by the Auction Agent setting
forth at all times a current list, as determined by the Auction Agent, of
Existing Holders.
"Subsequent Dividend Payment Date" has the meaning set forth in
paragraph 3(b)(i) of this Certificate of Designations.
"Subsequent Dividend Period" has the meaning set forth in paragraph
3(c)(i) of this Certificate of Designations.
"Subsequent Period-End Dividend Payment Date," with respect to each
Subsequent Dividend Period, means the Business Day immediately succeeding the
last day of such Subsequent Dividend Period.
"Substitute Commercial Paper Dealer" or "Substitute Commercial Paper
Dealers" means such substitute Commercial Paper Dealer or substitute Commercial
Paper Dealers as the Corporation may from time to time appoint or, in lieu of
any thereof, their respective affiliates or successors.
"Substitute Rating Agency" and "Substitute Rating Agencies" mean a
nationally recognized statistical rating organization and two nationally
recognized statistical rating organizations, respectively, each term as defined
for purpose of Rule 436(g)(2) under the Securities Act, selected by the
Corporation after consultation with each Broker-Dealer, to act as the substitute
rating agency or substitute rating agencies, as the case may be, to determine
the credit ratings of the Shares.
"Sufficient Clearing Bids" has the meaning as defined in paragraph
7(a).
"U.S. Treasury Bill Rate" on any date means (i) the Interest Equivalent
of the rate on the actively traded Treasury Bill with a maturity most nearly
comparable to the length of the related Dividend Period, as such rate is made
available on a discount basis or otherwise by the Federal Reserve Bank of New
York in its Composite 3:30 P.M. Quotations for U.S. Government Securities report
for such Business Day, or (ii) if such yield as so calculated is not available,
the Alternate Treasury Bill Rate on such date. "Alternate Treasury Bill Rate" on
any date means the Interest Equivalent of the yield as calculated by reference
to the arithmetic average of the bid price quotations of the actively traded
Treasury Bill with a maturity most nearly comparable to the length of the
related Dividend Period, as determined by bid price quotations as of any time on
the Business Day immediately preceding such date, obtained from at least three
recognized primary U.S. Government securities dealers selected by the Auction
Agent.
"U.S. Treasury Bond Rate" on any date means (i) the yield as calculated
by reference to the bid price quotation of the actively traded, current coupon
Treasury Bond with a maturity most nearly comparable to the length of the
related Dividend Period, as such bid price quotation is published on the
Business Day immediately preceding such date by the Federal Reserve Bank of New
York in its Composite 3:30 P.M. Quotations for U.S. Government Securities report
for such Business Day, or (ii) if such yield as so calculated is not available,
the Alternate Treasury Bond Rate on such date. "Alternate Treasury Bond Rate" on
any date means the yield as calculated by reference to the arithmetic average of
the bid price quotations of the actively traded, current coupon Treasury Bond
with a maturity most nearly comparable to the length of
7
<PAGE> 8
the related Dividend Period, as determined by the bid price quotations as of any
time on the Business Day immediately preceding such date, obtained from at least
three recognized primary U.S. Government securities dealers selected by the
Auction Agent.
"U.S. Treasury Note Rate" on any date means (i) the yield as calculated
by reference to the bid price quotation of the actively traded, current coupon
Treasury Note with a maturity most nearly comparable to the length of the
related Dividend Period, as such bid price quotation is published on the
Business Day immediately preceding such date by the Federal Reserve Bank of New
York in its Composite 3:30 P.M. Quotations for U.S. Government Securities report
for such Business Day, or (ii) if such yield as so calculated is not available,
the Alternate Treasury Note Rate on such date. "Alternate Treasury Note Rate" on
any date means the yield as calculated by reference to the arithmetic average of
the bid price quotations of the actively traded, current coupon Treasury Note
with a maturity most nearly comparable to the length of the related Dividend
Period, as determined by the bid price quotations as of any time on the Business
Day immediately preceding such date, obtained from at least three recognized
primary U.S. Government securities dealers selected by the Auction Agent.
"Voting Cumulative Parity Preferred Stock" has the meaning set forth in
paragraph 6(c).
3. Dividends. (a) The holders of Shares shall be entitled to receive,
when, as and if declared by the Board of Directors out of funds legally
available therefor, cumulative cash dividends at the Applicable Rate determined
as set forth in paragraph 3(c), payable on the respective Dividend Payment Dates
for the Shares.
(b) (i) Dividends on Shares shall accumulate (whether or not earned or
declared) at the Applicable Rate for such Shares from the Date of Original Issue
and shall be payable, when, as and if declared by the Board of Directors, out of
funds legally available therefor, on each Initial Dividend Payment Date for the
Shares and on the Initial Period-End Dividend Payment Date for the Shares.
Following the Initial Period-End Dividend Payment Date for the Shares, dividends
on the Shares will be payable on each Subsequent Period-End Dividend Payment
Date, and in addition, (A) with respect to any Subsequent Dividend Period of 100
days to 190 days, on the 91st day, (B) with respect to any Subsequent Dividend
Period of 191 days to 281 days, on the 91st and 182nd days, (C) with respect to
any Subsequent Dividend Period of 282 days to 364 days, on the 91st, 182nd and
273rd days, and (D) with respect to any Subsequent Dividend Period of one year
or longer, on March 15, June 15, September 15 and December 15 of each year (each
such date referred to in clause (A) through (D) above being herein referred to
as a "Subsequent Dividend Payment Date"). Notwithstanding the foregoing, if any
Dividend Payment Date is not a Business Day then such Dividend Payment Date
shall be the immediately succeeding Business Day.
Notwithstanding the foregoing, if any date on which dividends on the
Shares would be payable as described in the immediately preceding paragraph is a
day that would result in the number of Dividend Period Days in the then current
Dividend Period for the Shares not being at least equal to the then current
Minimum Holding Period, then dividends with respect to such Dividend Period
shall be payable on the first Business Day following such date on which
dividends would be so payable that results in the number of Dividend Period Days
in such Dividend Period being at least equal to the Minimum Holding Period or,
if earlier, the 98th day
8
<PAGE> 9
of such Dividend Period. Moreover, notwithstanding the foregoing, in the event
of a change in law altering the Minimum Holding Period, the Board of Directors
shall adjust, if necessary, the number of Dividend Period Days in each Regular
Dividend Period and the minimum number of days of each Special Dividend Period
commencing after the date of such change in law to equal or exceed the Minimum
Holding Period, provided that the number of Dividend Period Days in a Regular
Dividend Period shall not exceed by more than nine days the length of the
Minimum Holding Period and shall be evenly divisible by seven, and the maximum
number of Dividend Period Days in a Regular Dividend Period and the minimum
number of Dividend Period Days in a Special Dividend Period, as adjusted
pursuant hereto, shall in no event exceed 98 days. Upon any change in the number
of Dividend Period Days in any then current Dividend Period or in a Regular
Dividend Period or Special Dividend Period as a result of a change in the
Minimum Holding Period, the Corporation will mail notice of such change to all
holders of record of Shares. Although any particular Dividend Payment Date for
the Shares may not occur on the day of the week or the date originally scheduled
as a Dividend Payment Date for the Shares because of the adjustments set forth
above, each succeeding Dividend Payment Date for the Shares shall occur, subject
to such adjustments, on the day of the week or the date originally scheduled as
a Dividend Payment Date for the Shares as if each preceding Dividend Payment
Date had occurred on such day of the week or date.
(ii) On or prior to any Dividend Payment Date for the Shares, the
Corporation shall pay to the Auction Agent sufficient funds for the payment in
full of all accumulated dividends with respect to the Shares payable on such
Dividend Payment Date. Each dividend shall be paid to the holder or holders of
record of the Shares as they appear on the Stock Books of the Corporation on the
Business Day immediately preceding the applicable Dividend Payment Date.
Dividends in arrears in respect of Shares for any past Dividend Period may be
declared and paid at any time, without reference to any regular Dividend Payment
Date, to the holder or holders of such Shares as they appear on the Stock Books
on a date, not exceeding 15 days prior to the payment date therefor, as may be
fixed by the Board of Directors. Any dividend payment made on the Shares shall
be applied, without duplication, in the following order of priority:
FIRST, in or toward payment of all accumulated dividends with
respect to such earliest Dividend Period for such Shares for
which dividends have not been paid; and
SECOND, in or toward payment of all then accumulated dividends
with respect to each succeeding Dividend Period for such
Shares for which dividends have not been paid.
(iii) If the Corporation fails to pay to the Auction Agent on or prior
to any Period-End Dividend Payment Date for the Shares the full amount of all
accumulated and unpaid dividends payable on the Shares on such Period-End
Dividend Payment Date, then:
(A) if such failure to pay is cured as provided below, the
Applicable Rate for the Shares for the Dividend Period commencing on
the Period-End Dividend Payment Date on which the Corporation failed to
pay shall be equal to the dividend rate determined on the Auction Date
immediately preceding such Period-End Dividend Payment Date; and
9
<PAGE> 10
(B) if such failure to pay is not cured as provided below,
then, for the period (the "Dividend Non-Payment Period") commencing on
and including such Period-End Dividend Payment Date and ending on and
including the Business Day on which, by 12:00 noon, New York City time,
all unpaid cash dividends shall have been deposited with the Auction
Agent or otherwise made available for payment to the applicable Holders
in same day funds (provided that, at least two Business Days but no
more than 30 days prior to such Business Day, the Corporation shall
have given the Auction Agent, the Securities Depository and the
applicable Holders written notice of such deposit or availability):
(1) each Subsequent Dividend Period shall be a Regular
Dividend Period (regardless of any Special Dividend Period
election made by the Corporation) and Auctions for the Shares
shall be suspended and shall not resume, in each case until
all accumulated and unpaid dividends on the Shares for all
past Dividend Periods shall have been paid to the Auction
Agent, not later than the second Business Day immediately
preceding an Auction Date for the Shares; and
(2) the Applicable Rate for the Shares during such
Dividend Non-Payment Period shall be equal to Non-Payment
Period Rate for the Shares.
(iv) If the Corporation fails to pay to the Auction Agent on or prior
to any date set for redemption of less than all of the Shares the full amount
payable upon redemption of the Shares called for redemption, then:
(A) Auctions for the Shares shall be suspended and shall not
resume until all amounts payable upon the redemption of the Shares
called for redemption shall have been paid to the Auction Agent not
later than the second Business Day immediately preceding an Auction
Date for the Shares;
(B) if such failure to pay is cured as provided below, the
Applicable Rate for the Shares for the Dividend Period commencing after
the redemption date on which the Corporation failed to pay shall be
equal to the Maximum Applicable Rate for the Shares (as determined on
the Business Day immediately preceding the first day of such Dividend
Period) and such Dividend Period shall be a Regular Dividend Period
(regardless of any Special Dividend Period election made by the
Corporation), unless on the Auction Date for such Dividend Period,
Auctions for the Shares may be resumed as provided in clause (A) above;
and
(C) if such failure to pay is not cured as provided below,
then:
(1) each Subsequent Dividend Period shall be a
Regular Dividend Period (regardless of any Special Dividend
Period election made by the Corporation) and the Applicable
Rate for the Shares not called for redemption for each
Dividend Period, commencing on the date immediately succeeding
the redemption date on which the Corporation failed to pay, to
but excluding the Dividend Period, if any, next succeeding the
Auction Date on which Auctions for the Shares may be resumed
as provided in clause (A) above (the "Redemption Non-Payment
10
<PAGE> 11
Period"), shall be equal to the Non-Payment Period Rate for
the Shares (as determined on the Business Day immediately
preceding the first day of each such Dividend Period); and
(2) the Applicable Rate for the Shares called for
redemption for each Dividend Period for the Shares commencing
after the redemption date on which the Corporation failed to
pay shall be equal to the Non-Payment Period Rate for the
Shares (as determined on the Business Day immediately
preceding the first day of each such Dividend Period).
For purposes of paragraphs 3(b)(iii)(A) and 3(b)(iv)(B), any such
failure to pay with respect to the Shares shall be deemed cured if, not later
than 12:00 noon, New York City time, on the third Business Day immediately
succeeding such failure to pay, there shall have been paid to the Auction Agent
(i) all accumulated and unpaid dividends on the Shares including the full amount
of any dividends to be paid on the Period-End Dividend Payment Date with respect
to which such failure to pay occurred but excluding amounts accumulated after
such Period-End Dividend Payment Date, plus additional dividends in an amount
computed by multiplying (A) the Non-Payment Period Rate for the Shares (as
determined on the Business Day immediately preceding such Dividend Payment Date)
by (B) a fraction, the numerator of which shall be the number of days in respect
of which such failure to pay is not cured in accordance herewith (including the
day such failure to pay occurs and excluding the day such failure to pay is
cured) and the denominator of which shall be 360, and multiplying the rate so
obtained by the product of $100,000 and the number of Shares then outstanding
and (ii) the full amount payable upon redemption of the Shares called for
redemption that have not been so redeemed, plus (except to the extent such
amount has been paid pursuant to paragraph 3(b)(iv)(A) above) an amount computed
by multiplying (X) the Non-Payment Period Rate for the Shares (as determined on
the Business Day immediately preceding the first day of the current Dividend
Period), and (Y) a fraction, the numerator of which shall be the number of days
for which such failure to pay is not cured in accordance herewith (including the
day such failure to pay occurs and excluding the day such failure to pay is
cured) and the denominator of which shall be 360, and applying the rate so
obtained against the product of $100,000 and the number of Shares called for
redemption that have not been so redeemed.
If the Corporation fails to pay the Auction Agent on or prior to any
date for redemption of all the Shares the full amount payable upon such
redemption to the Shares, then the Applicable Rate for the Shares for each
Dividend Period or portion thereof commencing on or after the redemption date on
which the Corporation failed to pay shall be equal to the Non-Payment Period
Rate for the Shares (as determined on the Business Day immediately preceding the
first day of each such Dividend Period or portion thereof).
(c) (i) During the Initial Dividend Period, the Applicable Rate for the
Shares shall be the Initial Dividend Rate. Commencing on the Initial Period-End
Dividend Payment Date for the Shares, the Applicable Rate for the Shares for the
period commencing on and including the Initial Period-End Dividend Payment Date
and ending on and including the calendar day immediately preceding the
immediately succeeding Subsequent Period-End Dividend Payment Date and for each
period thereafter commencing on and including each Subsequent Period-End
Dividend Payment Date and ending on and including the calendar day immediately
preceding to
11
<PAGE> 12
the immediately succeeding Subsequent Period-End Dividend Payment Date (each
such period being herein referred to as a "Subsequent Dividend Period"), shall
be equal to the rate per annum that results from implementation of the Auction
Procedures with respect to Shares as the Auction Agent advises the Corporation
following the conclusion of the Auction for such Shares.
Each Subsequent Dividend Period shall be a Regular Dividend Period
unless the Corporation has duly selected a Special Dividend Period with respect
thereto pursuant to paragraph 3(c)(iii) and such selection is available
hereunder. In the event that Sufficient Clearing Bids have not been made in any
Auction under paragraph 7, then the immediately succeeding Subsequent Dividend
Period shall automatically be a Regular Dividend Period regardless of whether
the Corporation has elected a Special Dividend Period.
In the event that an Auction for any Subsequent Dividend Period with
respect to the Shares is not held for any reason (other than as a result of the
existence and continuance of a Non-Payment Period), such Subsequent Dividend
Period next succeeding the originally scheduled Auction shall automatically be a
Regular Dividend Period and the Applicable Rate for such Subsequent Dividend
Period shall be equal to the Maximum Applicable Rate on the Business Day
immediately preceding the commencement of such Subsequent Dividend Period.
The Applicable Rate for each Dividend Period commencing during a
Non-Payment Period shall be equal to the Non-Payment Period Rate, and each
Dividend Period, commencing after the first day of, and during, a Non-Payment
Period shall be a Regular Dividend Period regardless of any election made by the
Corporation for a Special Dividend Period relating thereto.
(ii) During the Initial Dividend Period and any Special Dividend Period
in excess of 364 days in duration, the amount of dividends accumulated and
payable, if declared, for each period that begins on a Dividend Payment Date and
ends on the day immediately preceding the immediately succeeding Dividend
Payment Date shall be computed by (A) multiplying the Applicable Rate for such
Dividend Period by 0.25 and (B) multiplying $100,000 by the rate so obtained.
The amount of dividends accumulated and payable, if declared, on each Share on
any Dividend Payment Date with respect to any Regular Dividend Period and any
period during the Initial Dividend Period and any Special Dividend Period in
excess of 364 days that is not set forth in clause (A) above will be computed by
(X) multiplying the Applicable Rate for such Dividend Period by a fraction, the
numerator of which is the actual number of days in the portion of such Dividend
Period prior to such Dividend Payment Date as to which dividends have not been
paid and the denominator of which is 360, and (Y) multiplying $100,000 by the
rate so obtained.
(iii) The Corporation may, at its option and to the extent permitted by
law, by written notice (a "Notice of Special Dividend Period") to the Auction
Agent and each Holder of the Shares, request that the next succeeding Dividend
Period for the Shares be a number of days, at least as long as the Minimum
Holding Period, specified in such notice, provided that such Notice of Special
Dividend Period shall be null and void if Sufficient Clearing Bids have not been
made in the relevant Auction and the Corporation may not again give a Notice of
Special Dividend Period for the Shares (and any such attempted notice shall be
null and void) until Sufficient Clearing Bids have been made in an Auction with
respect to the Shares. Such Notice of Special
12
<PAGE> 13
Dividend Period shall be sent by the Corporation, by first-class mail, postage
prepaid, to each Holder of the Shares, not less than 10 days nor more than 60
days prior to the Auction for the relevant Subsequent Dividend Period. A Notice
of Special Dividend Period with respect to the Shares will specify (A) the
Corporation's determination of the length of the Special Dividend Period (which
shall be equal to or longer than the Minimum Holding Period), (B) in the case of
any Special Dividend Period in excess of 99 days in duration, any Subsequent
Dividend Payment Date or Dates other than the Subsequent Period-End Dividend
Payment Date for such Dividend Period, (C) if the Corporation has elected that
the Shares will be subject to a Non-Call Period during such Special Dividend
Period, a statement to that effect, (D) if the Corporation has elected that the
DRD Gross-Up Provisions shall apply during such Special Dividend Period, a
statement to that effect, and (E) if the Corporation has elected to redeem the
Shares during such Special Dividend Period in accordance with paragraph
5(a)(ii), a statement to that effect. If the Corporation has given a Notice of
Special Dividend Period, the Corporation may withdraw such election by giving
telephonic and written notice of its revocation (a "Notice of Revocation") to
each Holder of the Shares by no later than 3:00 P.M., New York City time, on the
Business Day immediately preceding the date of the Auction with respect to which
such Notice of Special Dividend Period and Notice of Revocation were delivered,
and in such event such election by the Corporation of a Special Dividend Period
shall be of no force and effect. The Corporation shall deliver, or cause to be
delivered, physically, by telecopier or by other written electronic
communication, copies of each Notice of Special Dividend Period and each Notice
of Revocation to the Auction Agent at the same time such notices are transmitted
to the Holders of the Shares. In the event that the Corporation has effectively
revoked its election of a Special Dividend Period for the Shares as described
above, the next succeeding Dividend Period for the Shares shall be a Regular
Dividend Period. No defect in a Notice of Special Dividend Period or in the
mailing thereof shall affect the validity of any change in any Dividend Period.
(d) (i) Except as provided in this Certificate of Designations, Holders
shall not be entitled to any dividends, whether payable in cash, property or
stock, in excess of full cumulative dividends and applicable late charges, as
herein provided, on any Shares, and no interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend payment on any Shares that
may be in arrears.
(ii) So long as any Shares are outstanding, no dividend (other than a
dividend in Common Stock or any other capital stock of the Corporation ranking
junior to the Shares as to dividends and upon liquidation and other than as
provided in paragraph 3(d)(iii)) shall be declared or made upon any Parity
Preferred, the Common Stock or any other shares of capital stock of the
Corporation ranking junior to the Shares as to dividends or upon liquidation,
nor shall any Parity Preferred, Common Stock or any other shares of capital
stock of the Corporation ranking junior to the Shares as to dividends or upon
liquidation, be redeemed, purchased or otherwise acquired for any consideration
(nor shall any funds be paid to, or made available for, a sinking fund for the
redemption of any shares of such stock) by the Corporation (except by conversion
into or exchange for Common Stock or shares of capital stock of the Corporation
ranking junior to the Shares as to dividends or upon liquidation) unless, in
each case, the full cumulative dividends on the outstanding Shares shall have
been or contemporaneously are, paid, or declared and a sum sufficient for the
payment thereof has been or is set apart for such payment.
13
<PAGE> 14
(iii) When dividends are not paid or declared and set aside for payment
in full, as described in paragraph 3(d)(ii), upon the Shares and any Parity
Preferred, all dividends declared upon the Shares and any Parity Preferred shall
be declared pro rata so that the amount of dividends declared per share on such
Shares and Parity Preferred shall in all cases bear to each other the same ratio
that accumulated dividends per share on such Shares and Parity Preferred bear to
each other.
(e) If, at any time prior to 18 months after the Date of Original Issue
of the Shares any amendment to the Code shall have been enacted and become
effective during any period in which Shares shall be outstanding and has the
effect of changing the Dividends Received Percentage, then the Applicable Rate
with respect to such Shares for the Dividend Period in which the effective date
of such amendment to the Code occurs will, to the extent that such amendment
applies to such Dividend Period, be adjusted on and after such effective date
for the remainder of such Dividend Period by multiplying the Applicable Rate
(determined before such adjustment) by the DRD Formula and rounding the result
to the nearest basis point. No amendment to the Code, other than a change in the
percentage of the dividends received deduction set forth in Section 243(a)(1) of
the Code or any successor provision prior to 18 months after the Date of
Original Issue of the Shares, will give rise to an adjustment. Notwithstanding
the foregoing provisions, in the event that, with respect to any such amendment,
the Corporation shall receive either (1) an unqualified opinion of independent
recognized tax counsel based upon the legislation amending or establishing the
DRP or upon a published pronouncement of the IRS addressing such legislation or
(2) a private letter ruling or similar form of assurance from the IRS, in either
case to the effect that such an amendment would not apply to dividends payable
on the Shares, then any such amendment shall not result in the adjustment
provided for pursuant to the DRD Formula. The Corporation's calculation of the
dividends payable, as so adjusted and as certified accurate as to calculation
and reasonable as to method by the independent certified public accountants then
regularly engaged by the Corporation, shall be final and not subject to review.
Notwithstanding the foregoing, in no event shall the Applicable Rate for any
Dividend Period, if and as adjusted from time to time as set forth above, be
more than the Maximum Applicable Rate as of the Date of Original Issue of the
Shares or the date of the preceding Auction, as the case may be.
If any such amendment to the Code which reduces the Dividends Received
Percentage is enacted after a dividend payable on a Dividend Payment Date has
been declared but before such dividend has been paid, the amount of dividends
payable on such Dividend Payment Date shall not be increased; but instead, an
amount equal to the excess, if any, of (x) the product of the dividends paid by
the Corporation on such Dividend Payment Date and the DRD Formula (where the DRP
used in the DRD Formula would be equal to the greater of the reduced Dividends
Received Percentage and 0.50) over (y) the dividends paid by the Corporation on
such Dividend Payment Date, will be payable (if declared) on the next succeeding
Dividend Payment Date to Holders of the Shares for such succeeding Dividend
Payment Date, in addition to any other amounts payable on such Dividend Payment
Date.
If the Applicable Rate shall have been adjusted pursuant to the
provisions of this paragraph 3(e) (the "DRD Gross-Up Provisions"), the
Corporation shall send notice of such adjustment to each Holder of the Shares
and the Auction Agent the date ending 18 months after
14
<PAGE> 15
the Date of Original Issue of the Shares on or prior to the next succeeding
Dividend Payment Date for the Shares.
Unless otherwise required by the context, any reference in this
Certificate of Designations to dividends shall mean dividends adjusted pursuant
to the DRD Gross-Up Provisions. The DRD Gross-Up Provisions shall apply at any
time prior to the date ending 18 months after the Date of Original Issue of the
Shares. After such date, the DRD Gross-Up Provisions shall not apply to any
Regular Dividend Period and shall only apply to any Special Dividend Period for
the Shares if so designated by the Board of Directors in the applicable Notice
of Special Dividend Period.
In addition, if any such amendment to the Code is enacted that reduces
the Dividends Received Percentage and such reduction retroactively applies to a
Dividend Payment Date as to which the Corporation previously paid dividends on
the Shares (each, an "Affected Dividend Payment Date"), the Corporation will pay
(if declared) additional dividends (the "Retroactive Dividends") on the
immediately succeeding Dividend Payment Date (or if such amendment is enacted
after the dividend payable on such Dividend Payment Date has been declared, on
the second immediately succeeding Dividend Payment Date following the date of
enactment), to Holders of the Shares for such succeeding Dividend Payment Date,
in an amount equal to the excess, if any, of (x) the product of the dividends
paid by the Corporation on each Affected Dividend Payment Date and the DRD
Formula (where the DRP used in the DRD Formula would be equal to the greater of
the reduced Dividends Received Percentage and 0.50, applied to each Affected
Dividend Payment Date) over (y) the dividends paid by the Corporation on each
Affected Dividend Payment Date.
Retroactive Dividends will not be paid in respect of the enactment of
any amendment to the Code if such amendment would not result in an adjustment
due to the Corporation having received either an opinion of counsel or tax
ruling referred to above. The Corporation will only make one payment of
Retroactive Dividends.
No adjustments in the dividends payable by the Corporation will be
made, and no Retroactive Dividends will be payable by the Corporation, because
of any amendment to the Code at any time beginning 18 months after the Date of
Original Issue of the Shares that reduces the Dividends Received Percentage.
In the event that the amount of dividends payable per share of the
Shares shall be adjusted pursuant to the DRD Formula and/or Retroactive
Dividends are to be paid, the Corporation will cause notice of each such
adjustment and, if applicable, any Retroactive Dividends, to be sent to each
Holder of the Shares.
(f) No fractional Share shall be issued.
4. Liquidation Preference. (a) Upon the dissolution, liquidation or
winding up of the Corporation, voluntary or involuntary, the Holders of the then
outstanding Shares shall be entitled to receive and be paid out of the assets of
the Corporation available for distribution to its stockholders, before any
payment or distribution of assets shall be made on the Common Stock or any other
class of capital stock of the Corporation ranking junior to the Shares as to
dividends
15
<PAGE> 16
and upon liquidation, the amount of $100,000 per share, plus an amount equal to
the sum of all accumulated and unpaid dividends (whether or not earned or
declared) on such Shares to the date of final distribution.
(b) Neither the sale of all or substantially all the property or
business of the Corporation nor the merger or consolidation of the Corporation
into or with any other corporation or the merger or consolidation of any other
corporation into or with the Corporation, shall be deemed to be a dissolution,
liquidation or winding up, voluntary or involuntary, for the purposes of this
paragraph 4.
(c) After the payment to the Holders of the Shares of the full
preferential amounts provided for in this paragraph 4, such Holders shall have
no right or claim to any of the remaining assets of the Corporation.
(d) In the event the assets of the Corporation available for
distribution to the holders of the Shares and any Parity Preferred shall be
insufficient to pay in full all preferential amounts to which such holders are
entitled, no such distribution shall be made on account of such Shares and
Parity Preferred, unless proportionate distributive amounts shall be paid on
account of such Shares and Parity Preferred ratably, in proportion to the full
distributable amounts for which holders of all such parity shares are
respectively entitled upon dissolution, liquidation or winding up of the
Corporation.
5. Redemption. (a) The Shares shall be redeemable by the Corporation as
provided below:
(i) Upon giving a Notice of Redemption with respect to an Optional
Redemption to the Auction Agent, the Securities Depository and each holder of
record of the Shares, the Corporation at its option may redeem the Shares, in
whole or from time to time in part, out of funds legally available therefor, at
a redemption price per Share of $100,000, on an Optional Redemption Date;
provided that the Board of Directors shall have declared and shall pay on the
redemption date all accumulated and unpaid dividends in respect of such Shares
through the redemption date (whether earned or declared); and provided, further,
that subject to Section 5(a)(ii) below, no Share may be redeemed at the option
of the Corporation during (A) the Initial Dividend Period for the Shares or (B)
a Non-Call Period to which such Shares are subject. Pursuant to such right of
Optional Redemption, the Corporation may elect to redeem all or less than all of
the Shares without redeeming remaining Shares. Notwithstanding the foregoing,
the Corporation may not give a Notice of Redemption relating to, or redeem
pursuant to, an Optional Redemption as described in this paragraph 5(a)(i) if
any dividend on any Share is in arrears unless all outstanding Shares are
simultaneously redeemed. So long as any dividend on any Share in arrears remains
unpaid, the Corporation shall not purchase or otherwise acquire any Shares;
provided that the foregoing shall not prevent the purchase or acquisition of
Shares pursuant to an otherwise lawful purchase or exchange offer made on the
same terms to the holders of all outstanding Shares.
(ii) If at any time prior to 18 months after the Date of Original Issue
of the Shares, and, during any Special Dividend Period, if designated by the
Corporation and specified in the applicable Special Dividend Period Notice, one
or more amendments to the Code are enacted
16
<PAGE> 17
that reduce the Dividends Received Percentage to 50% or less, and, as a result,
the amount of dividends on the Shares payable on any Dividend Payment Date may
be adjusted upwards pursuant to paragraph 3(e) hereof, the Corporation at its
option may redeem all, but not less than all, of the outstanding shares of the
Shares, provided that, within 60 days of the date on which an amendment to the
Code is enacted that reduces the Dividends Received Percentage to 50% or less,
the Corporation sends notice to the holders of the Shares of such redemption.
Any redemption of the Shares pursuant to this paragraph 5(a)(ii) will take place
on the date specified in the notice, which will be not less than 30 nor more
than 60 days from the date such notice is sent to the holders of the Shares. Any
such redemption of the Shares will be at a redemption price of $105,000 per
share, plus all accumulated and unpaid dividends (whether or not declared and
including any increase in dividends payable due to changes in the Dividends
Received Percentage).
(b) In the event that less than all the Outstanding Shares are to be
redeemed and there is more than one Holder, the number of Shares to be redeemed
shall be determined by the Board of Directors and communicated to the Auction
Agent, and, if the Securities Depository or its nominee is the Holder of all
such Shares, each Agent Member will determine the number of Shares to be
redeemed from the account of each Holder for which it acts as agent and, if
neither the Securities Depository nor its nominee is the Holder of all such
Shares, the particular Shares to be redeemed shall be selected by the
Corporation by lot or by such other method as the Corporation shall deem fair
and equitable, provided that adjustments may be made by the Corporation with
respect to the number of Shares to be redeemed from each Holder to avoid
redemption of fractional Shares.
(c) Whenever Shares are to be redeemed pursuant to an Optional
Redemption, the Notice of Redemption shall be mailed by first-class mail,
postage prepaid, not less than 10 nor more than 45 days prior to the date fixed
for such Optional Redemption, to each Holder of such Shares to be redeemed and
the Auction Agent.
The Notice of Redemption shall set forth (i) the redemption date, (ii)
the amount of the redemption price, (iii) the aggregate number of Shares to be
redeemed, (iv) the place where Shares are to be surrendered for payment of the
redemption price, (v) a statement that dividends on the Shares to be redeemed
shall cease to accumulate on such date that the Corporation pays the full amount
payable upon redemption of such Shares, and (vi) the provision of this
Certificate of Designations pursuant to which such redemption is being made. A
Notice of Redemption, once given, is irrevocable. No defect in the Notice of
Redemption or in the mailing thereof shall affect the validity of the redemption
proceedings, except as required by applicable law.
If the Corporation gives or causes to be given a Notice of Redemption,
timely pays to the Auction Agent a sum sufficient to redeem the Shares as to
which such Notice of Redemption has been given and gives the Auction Agent
irrevocable instructions and authority to pay the full amount payable on
redemption of such Shares to the Holders of such Shares, then on the date of
such payment, all rights of the Holders of the Shares to be redeemed, as such,
will terminate (except the right of the Holders of such Shares to receive the
full amount payable upon redemption thereof upon surrender of the certificate or
certificates therefor, but without interest) and such Shares will no longer be
deemed to be outstanding for any purpose (including, without limitation, the
right of Holders of such Shares to vote on any matter or to participate, with
17
<PAGE> 18
respect to such Shares, in any subsequent Auction for the outstanding Shares).
In addition, any Shares as to which a Notice of Redemption has been given by the
Corporation will be deemed to be not outstanding for purposes of any Auction for
the Shares held subsequent to the date of such Notice of Redemption. The
Corporation will be entitled to receive from time to time from the Auction Agent
the income, if any, derived from the investment of monies or other assets paid
to it (to the extent that such income is not required to pay the redemption
price of the Shares to be redeemed), and the holders of any Shares to be
redeemed will not have any claim to such income. Any funds so paid to the
Auction Agent which are unclaimed at the end of two years from the redemption
date will be returned to the Corporation, after which the holders of the Shares
so called for redemption will look only to the Corporation for payment or the
redemption price of such Shares.
(d) So long as the Shares are held of record by the nominee of the
Securities Depository, the amounts payable upon an Optional Redemption shall be
paid to such nominee of the Securities Depository on the Optional Redemption
Date for the Shares.
6. Voting Rights. The Shares shall not have any voting powers, either
general or special, except as required by applicable law and as stated herein.
(a) Unless the vote or consent of the holders of a greater number of
shares shall then be required by law, the consent of the Holders of at least
66 2/3% of all of the Shares at the time outstanding, given in person or by
proxy, either in writing or by a vote at a meeting called for the purpose at
which the Holders of the Shares shall vote together as a separate class, shall
be necessary for authorizing, effecting or validating the amendment, alteration
or repeal of any of the provisions of the Certificate, of the applicable
Certificate of Designation, Preferences and Rights or of any other certificate
amendatory of or supplemental to the Certificate (including any certificate of
designation, preferences and rights or any similar document relating to any
series of Parity Preferred or any series of Preferred Stock of the Corporation
ranking junior to the Shares as to dividends and upon liquidation) or of the
By-laws of the Corporation which would adversely affect the preferences, rights,
powers or privileges of the Shares;
(b) Unless the vote or consent of the holders of a greater number of
shares shall then be required by law, the consent of the Holders of at least
66 2/3% of all of the of all of the Shares at the time outstanding and all other
series of Parity Preferred for which dividends are cumulative ("Cumulative
Parity Preferred Stock"), given in person or by proxy, either in writing or by a
vote at a meeting called for the purpose at which the Holders of the Shares and
such other series of Cumulative Parity Preferred Stock shall vote together as a
single class without regard to series, shall be necessary for authorizing,
effecting, increasing or validating the creation, authorization or issue of any
shares of any class of capital stock of the Corporation ranking prior to the
Shares as to dividends and upon liquidation, or the reclassification of any
authorized capital stock of the Corporation into any such prior ranking shares,
or the creation, authorization or issue of any obligation or security
convertible into or evidencing the right to purchase any such prior ranking
shares.
(c) If a default in preference dividends payable on any Shares or any
other class or series of Cumulative Parity Preferred Stock upon which like
voting rights have been conferred and are exercisable (excluding any other class
or series of Cumulative Parity Preferred Stock expressly
18
<PAGE> 19
entitled to elect additional directors to the Board by a vote separate and
distinct from the vote provided for in this paragraph (c), "Voting Cumulative
Parity Preferred Stock") shall exist, the number of directors constituting the
Board shall be increased by two (without duplication of any increase made
pursuant to the terms of any other class or series of Voting Cumulative Parity
Preferred Stock), and the holders of the Shares and the Voting Cumulative Parity
Preferred Stock shall have the right, voting together as a single class without
regard to class or series (to the exclusion of the holders of Common Stock, any
shares of capital stock of the Corporation ranking junior to the Shares as to
dividends and upon liquidation, and of any series of Parity Preferred which is
not Voting Cumulative Parity Preferred Stock), to elect two directors of the
Corporation to fill such newly created directorships. Each director elected by
the holders of the Shares and any class or series of Voting Cumulative Parity
Preferred Stock in an election provided for by this paragraph 6(c) (herein
called a "Preferred Director") shall continue to serve as such director until
all accumulated but unpaid dividends have been paid. Any Preferred Director may
be removed by, and shall not be removed except by, the vote of the holders of
record of the then outstanding Shares and Voting Cumulative Parity Preferred
Stock entitled to have originally voted for such director's election, voting
together as a single class without regard to class or series, at a meeting of
the Corporation's stockholders, or of the holders of Shares and Voting
Cumulative Parity Preferred Stock, called for that purpose. So long as a default
in any preference dividends on the Shares or any class or series of Voting
Cumulative Parity Preferred Stock shall exist, (A) any vacancy in the office of
a Preferred Director may be filled (except as provided in the following clause
(B)) by an instrument in writing signed by the remaining Preferred Director and
filed with the Corporation and (B) in the case of the removal of any Preferred
Director, the vacancy may be filled by the vote of the holders of the then
outstanding Shares and Voting Cumulative Parity Preferred Stock entitled to have
originally voted for the removed director's election, voting together as a
single class without regard to class or series, at the same meeting at which
such removal shall be voted. Each director appointed as aforesaid shall be
deemed for all purposes hereto to be a Preferred Director.
(d) Whenever a default in preference dividends shall no longer exist,
the number of directors constituting the Board shall be reduced by two. For
purposes hereof, a "default in preference dividends" on the Shares or any class
or series of Voting Cumulative Parity Preferred Stock shall be deemed to have
occurred whenever dividends upon the Shares or such class or series of Voting
Cumulative Parity Preferred Stock have not been paid or declared and set aside
for payment for the equivalent of 540 days or more and, having so occurred, such
default shall be deemed to exist thereafter until, but only until, all
accumulated and unpaid dividends on the Shares or such other class or series of
Voting Cumulative Parity Preferred Stock have been paid or declared and set
apart for payment.
7. Auction Procedures. (a) Certain Definitions. As used in this
paragraph 7, the following terms shall have the following meanings, unless the
context otherwise requires:
(i) "Auction Date" means the first Business Day preceding the first day
of each Subsequent Dividend Period for the Shares.
(ii) "Available Shares" has the meaning specified in paragraph 7(d)(i)
below.
(iii) "Bid" has the meaning specified in paragraph 7(b)(i) below.
19
<PAGE> 20
(iv) "Bidder" has the meaning specified in paragraph 7(b)(i) below.
(v) "Hold Order" has the meaning specified in paragraph 7(b)(i) below.
(vi) "Maximum Applicable Rate" for any Subsequent Dividend Period for
the Shares will be the Applicable Percentage of the Reference Rate. The
"Applicable Percentage" will be determined based on the lower of the credit
rating or ratings assigned on such date to such Shares by Moody's and S&P (or if
Moody's or S&P or both shall not make such rating available, the equivalent of
either or both of such ratings by a Substitute Rating Agency or two Substitute
Rating Agencies or, in the event that only one such rating shall be available,
such rating) as follows:
<TABLE>
<CAPTION>
Applicable
Credit Ratings Percentage of
Moody's S&P Reference Rate
------- --- --------------
<S> <C> <C>
"aa3" or higher AA- or higher 150%
"a3" to "a1" A- to A+ 200%
"baa3" to "baa1" BBB- to BBB+ 200%
Below "baa3" Below BBB- 275%
</TABLE>
provided, however, that, if at 9:00 A.M., New York City time, on any Auction
Date, (i) the rating of any Shares by Moody's shall be on the "Corporate Credit
Watch List" of Moody's with a designation of "downgrade" or "uncertain," (ii)
the rating of any Shares by S&P shall be on the "CreditWatch" of S&P with a
designation of "negative implications" or "developing" or (iii) if Moody's or
S&P, or both, shall not make such a rating available, the rating of any Shares
by any Substitute Rating Agency shall be on the substantial equivalent of clause
(i) or (ii) above, then the Maximum Applicable Rate for the Shares to which such
Auction Date relates will be determined pursuant to an Applicable Percentage
based on the credit rating that is one full level lower in the above table.
The Corporation shall take all reasonable action necessary to enable
S&P and Moody's (and, as appropriate, any Substitute Rating Agency or Substitute
Rating Agencies) to provide a rating for the Shares. If either S&P or Moody's
shall not make such a rating available, or neither S&P nor Moody's shall make
such a rating available, the Corporation, after consultation with the
Broker-Dealers or their affiliates and successors, shall select a nationally
recognized statistical rating organization or two nationally recognized
statistical rating organization to act as a Substitute Rating Agency or
Substitute Rating Agencies, as the case may be.
(vii) "Order" has the meaning specified in paragraph 7(b)(i) below.
(viii) "Sell Order" has the meaning specified in paragraph 7(b)(i)
below.
(ix) "Shares" means the Shares subject to the related Auction pursuant
to this paragraph 7.
20
<PAGE> 21
(x) "Submission Deadline" means 1:00 P.M., New York City time, on any
Auction Date or such other time on the Auction Date as may be specified by the
Auction Agent from time to time as the time by which each Broker-Dealer must
submit to the Auction Agent in writing all Orders obtained by it for the Auction
to be conducted on such Auction Date.
(xi) "Submitted Bid" has the meaning specified in paragraph 7(d)(i)
below.
(xii) "Submitted Hold Order" has the meaning specified in paragraph
7(d)(i) below.
(xiii) "Submitted Order" has the meaning specified in paragraph 7(d)(i)
below.
(xiv) "Submitted Sell Order" has the meaning specified in paragraph
7(d)(i) below.
(xv) "Sufficient Clearing Bids" has the meaning specified in paragraph
7(d)(i) below.
(xvi) "Winning Bid Rate" has the meaning specified in paragraph 7(d)(i)
below.
(b) Orders by Existing Holders and Potential Holders. (i) Beneficial
owners and potential beneficial owners may only participate in Auctions through
their Broker-Dealers. Broker-Dealers will submit the Orders of their respective
customers who are beneficial owners and potential beneficial owners to the
Auction Agent, designating themselves (unless otherwise permitted by the
Corporation) as Existing Holders in respect of Shares subject to Orders
submitted or deemed submitted to them by beneficial owners and as Potential
Holders in respect of Shares subject to Orders submitted to them by potential
beneficial owners. A Broker-Dealer may also hold Shares in its own account as a
beneficial owner or wish to purchase Shares for its own account as a potential
owner. A Broker-Dealer may thus submit Orders to the Auction Agent as a
beneficial owner or a potential beneficial owner and therefore participate in an
Auction as an Existing Holder or Potential Holder on behalf of both itself and
its customers.
Prior to the Submission Deadline on each Auction Date:
(A) each Existing Holder may submit to its Broker-Dealer
information by telephone or otherwise as to:
(1) the number of Outstanding Shares, if any, held by
such Existing Holder which such Existing Holder desires to
continue to hold without regard to the Applicable Rate for the
next succeeding Subsequent Dividend Period;
(2) the number of Outstanding Shares, if any, held by
such Existing Holder which such Existing Holder desires to
continue to hold, provided that the Applicable Rate for the
next succeeding Subsequent Dividend Period shall not be less
than the rate per annum specified by such Existing Holder;
and/or
(3) the number of Outstanding Shares if any, held by
such Existing Holder which such Existing Holder offers to sell
without regard to the Applicable Rate for the next succeeding
Subsequent Dividend Period; and
21
<PAGE> 22
(B) each Broker-Dealer will contact Potential Holders by
telephone or otherwise to determine whether such Potential Holders
desire to submit Bids in which such Potential Holders will indicate the
number of Outstanding Shares, if any, which each such Potential Holder
offers to purchase, provided that the Applicable Rate for the next
succeeding Subsequent Dividend Period shall not be less than the rate
per annum specified by such Holder.
For the purposes hereof, the communication by an Existing Holder
pursuant to clause (A) above or by a Potential Holder pursuant to clause (B)
above to a Broker-Dealer, or the communication by a Broker-Dealer acting for its
own account to the Auction Agent, of information referred to in clause (A) or
(B) of this paragraph 7(b)(i) is hereinafter referred to as an "Order" and each
Existing Holder and each Potential Holder placing an Order, including a
Broker-Dealer acting in such capacity for its own account, is hereinafter
referred to as a "Bidder"; an Order containing the information referred to in
clause (A)(1) of this paragraph 7(b)(i) is hereinafter referred to as a "Hold
Order"; an Order containing the information referred to in clause (A)(2) or (B)
of this paragraph 7(b)(i) is hereinafter referred to as a "Bid"; and an Order
containing the information referred to in clause (A)(3) of this paragraph
7(b)(i) is hereinafter referred to as a "Sell Order". Inasmuch as a
Broker-Dealer participates in an Auction as an Existing Holder or a Potential
Holder only to represent the interests of its customers or itself, the
provisions herein relating to the consequences of an Auction for Existing
Holders and Potential Holders also applies to the underlying beneficial
ownership interests represented thereby.
(ii) (A) A Bid by an Existing Holder shall constitute an irrevocable
offer to sell:
(1) the number of Outstanding Shares specified in
such Bid if the Applicable Rate determined on such Auction
Date shall be less than the rate per annum specified in such
Bid; or
(2) such number or a lesser number of Outstanding
Shares to be determined as set forth in paragraph 7(e)(i)(D)
if the Applicable Rate determined on such Auction Date shall
be equal to the rate per annum specified therein; or
(3) a lesser number of Outstanding Shares to be
determined as set forth in paragraph 7(e)(ii)(C) if such
specified rate per annum shall be higher than the Maximum
Applicable Rate and Sufficient Clearing Bids do not exist.
(B) A Sell Order by an Existing Holder shall constitute an
irrevocable offer to sell:
(1) the number of Outstanding Shares specified in
such Sell Order; or
(2) such number or a lesser number of Outstanding
Shares to be determined as set forth in paragraph 7(e)(ii)(C)
if Sufficient Clearing Bids do not exist.
(C) A Bid by a Potential Holder shall constitute an
irrevocable offer to purchase:
22
<PAGE> 23
(1) the number of Outstanding Shares specified in
such Bid if the Applicable Rate determined on such Auction
Date shall be higher than the rate per annum specified in such
Bid; or
(2) such number or a lesser number of Outstanding
Shares to be determined as set forth in paragraph 7(e)(i)(E)
if the Applicable Rate determined on such Auction Date shall
be equal to the rate per annum specified therein.
(c) Submission of Orders by Broker-Dealers to Auction Agent.
(i) Each Broker-Dealer shall submit in writing or through the Auction
Agent's auction processing system to the Auction Agent prior to the Submission
Deadline on each Auction Date all Orders obtained by such Broker-Dealer for the
Auction to be conducted on such Auction Date, designating itself (unless
otherwise permitted by the Corporation) as an Existing Holder or a Potential
Holder in respect of Shares subject to such Orders, and specifying with respect
to each Order:
(A) the name of the Bidder placing each Order (which shall be
the Broker-Dealer unless otherwise permitted by the Corporation);
(B) the aggregate number of Outstanding Shares that are the
subject of such Order;
(C) to the extent that such Bidder is an Existing Holder:
(1) the number of Outstanding Shares, if any,
subject to any Hold Order placed by such Existing Holder;
(2) the number of Outstanding Shares, if any,
subject to any Bid placed by such Existing Holder and the rate
per annum specified in such Bid; and
(3) the number of Outstanding Shares, if any,
subject to any Sell Order placed by such Existing Holder; and
(D) to the extent such Bidder is a Potential Holder, the rate
per annum specified in such Potential Holder's Bid.
(ii) If any rate per annum specified in any Bid contains more than
three figures to the right of the decimal point, the Auction Agent shall round
such rate up to the next highest one thousandth (.001) of 1%.
(iii) If an Order or Orders covering in the aggregate all of the
Outstanding Shares held by an Existing Holder are not submitted to the Auction
Agent prior to the Submission Deadline for any reason (including the failure of
a Broker-Dealer to contact any Existing Holder or to submit an Order covering
such Existing Holder's Order or Orders), the Auction Agent shall deem a Hold
Order (in the case of an Auction relating to a Regular Dividend Period) or a
Sell Order (in the case of an Auction relating to a Special Dividend Period) to
have been submitted on behalf of
23
<PAGE> 24
such Existing Holder covering the number of Outstanding Shares held by such
Existing Holder and not subject to Orders submitted to the Auction Agent.
(iv) If one or more Orders on behalf of an Existing Holder covering in
the aggregate more than the number of Outstanding Shares held by such Existing
Holder are submitted to the Auction Agent, such Order shall be considered valid
as follows and in the following order of priority:
(A) any Hold Order submitted on behalf of such Existing Holder
shall be considered valid up to and including the number of Outstanding
Shares held by such Existing Holder; provided that if more than one
Hold Order is submitted on behalf of such Existing Holder and the
number of Shares subject to such Hold Orders exceeds the number of
Outstanding Shares held by such Existing Holder, the number of Shares
subject to each of such Hold Orders shall be reduced pro rata so that
such Hold Orders, in the aggregate, will cover exactly the number of
Outstanding Shares held by such Existing Holder;
(B) (I) any Bids submitted on behalf of such Existing Holder
shall be considered valid up to and including the excess of the number
of Outstanding Shares held by such Existing Holder over the number of
Shares subject to any Hold Order referred to in paragraph 7(c)(iv)(A)
above; (II) if more than one Bid submitted on behalf of such Existing
Holder specifies the same rate per annum and together they cover more
than the remaining number of Shares that can be the subject of valid
Bids after application of paragraph 7(c)(iv)(A) above and of subclause
(I) of this paragraph 7(c)(iv)(B) to any Bid or Bids specifying a lower
rate or rates per annum, the number of Shares subject to each of such
Bids shall be reduced pro rata so that such Bids, in the aggregate,
cover exactly such remaining number of Shares; and (III) subject to
subclauses (I) and (II) above, if more than one Bid submitted on behalf
of such Existing Holder specifies different rates per annum, such Bids
shall be considered valid in the ascending order of their respective
rates per annum and in any such event the number of Shares, if any,
subject to Bids not valid under this paragraph 7(c)(iv)(B) shall be
treated as the subject of a Bid by a Potential Holder; and
(C) any Sell Order shall be considered valid up to and
including the excess of the number of Outstanding Shares held by such
Existing Holder over the number of Shares subject to Hold Orders
referred to in paragraph 7(c)(iv)(A) and valid Bids referred to in
paragraph 7(c)(iv)(B); provided that if more than one Sell Order is
submitted on behalf of any Existing Holder and the number of Shares
subject to such Sell Orders is greater than such excess, the number of
Shares subject to each of such Sell Orders shall be reduced pro rata so
that such Sell Orders, in the aggregate, cover exactly the number of
Shares equal to such excess.
(v) If more than one Bid is submitted on behalf of any Potential
Holder, each Bid submitted shall be a separate Bid with the rate per annum and
number of Shares specified.
24
<PAGE> 25
(vi) Any Order submitted by a Existing Holder or a Potential Holder to
its Broker-Dealer and any Order submitted by a Broker-Dealer to the Auction
Agent, prior to the Submission Deadline on any Auction Date, shall be
irrevocable.
(d) Determination of Sufficient Clearing Bids, Winning Bid Rate and
Applicable Rate.
(i) Not earlier than the Submission Deadline on each Auction Date, the
Auction Agent shall assemble all Orders submitted or deemed submitted by the
Broker-Dealers (each such Order as submitted or deemed submitted by a
Broker-Dealer 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:
(A) the excess of the total number of Outstanding Shares over
the number of Outstanding Shares that are the subject of Submitted Hold
Orders (such excess being hereinafter referred to as the "Available
Shares");
(B) from the Submitted Orders whether the number of
Outstanding Shares that are the subject of Submitted Bids by Potential
Holders specify one or more rates per annum equal to or lower than the
Maximum Applicable Rate exceeds or is equal to the sum of:
(1) the number of Outstanding Shares that are the
subject of Submitted Bids by Existing Holders specifying one
or more rates per annum higher than the Maximum Applicable
Rate, and
(2) the number of Outstanding Shares that are
subject to Submitted Sell Orders (if such excess or such
equality exists (other than because the number of Outstanding
Shares in clause (1) above and this clause (2) are each zero
because all of the Outstanding Shares are the subject of
Submitted Hold Orders), such Submitted Bids by Potential
Holders being hereinafter referred to collectively as
"Sufficient Clearing Bids"); and
(C) if Sufficient Clearing Bids exist, the lowest rate per
annum specified in the Submitted Bids (the "Winning Bid Rate") that,
if:
(1) each Submitted Bid from Existing Holders
specifying the Winning Bid Rate and all other Submitted Bids
from Existing Holders specifying lower rates per annum were
rejected, thus entitling such Existing Holders to continue to
hold the Shares that are the subject of such Submitted Bids,
and
(2) each Submitted Bid from Potential Holders
specifying the Winning Bid Rate and all other Submitted Bids
from Potential Holders specifying lower rates per annum were
accepted, thus entitling the Potential Holders to purchase the
Shares that are the subject of such Submitted Bids, would
result in the number of Shares subject to all Submitted Bids
specifying the Winning Bid Rate or a lower rate per annum
being at least equal to the Available Shares.
25
<PAGE> 26
(ii) Promptly after the Auction Agent has made the determinations
pursuant to paragraph 7(d)(i), the Auction Agent shall advise the Corporation of
the Maximum Applicable Rate and, based on such determinations, the Applicable
Rate for the next succeeding Dividend Period for the Shares as follows:
(A) if Sufficient Clearing Bids exist, that the Applicable
Rate for the next succeeding Subsequent Dividend Period shall be equal
to the Winning Bid Rate;
(B) if Sufficient Clearing Bids do not exist (other than
because all of the Outstanding Shares are the subject of Submitted Hold
Orders), that the Subsequent Dividend Period for such Shares next
succeeding the Auction shall automatically be a Regular Dividend Period
and the Applicable Rate for such next succeeding Subsequent Dividend
Period shall be equal to the Maximum Applicable Rate; or
(C) if all of the Outstanding Shares are the subject of
Submitted Hold Orders, that the Subsequent Dividend Period for such
Shares next succeeding the Auction shall automatically be a Regular
Dividend Period and the Applicable Rate for such next succeeding
Subsequent Dividend Period shall be equal to 59% of the Reference Rate
in effect on the date of such Auction.
(e) Acceptance and Rejection of Submitted Bids and Submitted Sell
Orders and Allocation of Shares. Based on the determinations made pursuant to
paragraph 7(d)(i) the Submitted Bids and Submitted Sell Orders shall be accepted
or rejected and the Auction Agent shall take such other action as set forth
below:
(i) If Sufficient Clearing Bids have been made, subject to the
provisions of paragraph 7(e)(iii) and paragraph 7(e)(iv), 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:
(A) the Submitted Sell Orders of Existing Holders shall be
accepted and the Submitted Bid of each of the Existing Holders
specifying any rate per annum that is higher than the Winning Bid Rate
shall be accepted, thus requiring each such Existing Holder to sell the
Outstanding Shares that are the subject of such Submitted Sell Order or
Submitted Bid;
(B) the Submitted Bid of each of the Existing Holders
specifying any rate per annum that is lower than the Winning Bid Rate
shall be rejected, thus entitling each such Existing Holder to continue
to hold the Outstanding Shares that are the subject of such Submitted
Bid;
(C) the Submitted Bid of each of the Potential Holders
specifying any rate per annum that is lower than the Winning Bid Rate
shall be accepted;
(D) the Submitted Bid of each of the Existing Holders
specifying a rate per annum that is equal to the Winning Bid Rate shall
be rejected, thus entitling each such Existing Holder to continue to
hold the Outstanding Shares that are the subject of such Submitted Bid,
unless the number of Outstanding Shares subject to all such Submitted
Bids shall be greater than the excess (the "Remaining Excess") of the
Available Shares
26
<PAGE> 27
over the number of Outstanding Shares subject to Submitted Bids
described in paragraph 7(e)(i)(B) and paragraph 7(e)(i)(C), in which
event the Submitted Bids of each such Existing Holder shall be
accepted, and each such Existing Holder shall be required to sell
Outstanding Shares, but only in an amount equal to the difference
between (1) the number of Outstanding Shares then held by such Existing
Holder subject to such Submitted Bid and (2) the number of Shares
obtained by multiplying (x) the number of Remaining Excess by (y) a
fraction the numerator of which shall be the number of Outstanding
Shares held by such Existing Holder subject to such Submitted Bid and
the denominator of which shall be the sum of the number of Outstanding
Shares subject to such Submitted Bids made by all such Existing Holders
that specified a rate per annum equal to the Winning Bid Rate; and
(E) the Submitted Bid of each of the Potential Holders
specifying a rate per annum that is equal to the Winning Bid Rate shall
be accepted but only in an amount equal to the number of Outstanding
Shares obtained by multiplying (x) the difference between the Available
Shares and the number of Outstanding Shares subject to Submitted Bids
described in paragraph 7(e)(i)(B), paragraph 7(e)(i)(C) and paragraph
7(e)(i)(D) by (y) a fraction the numerator of which shall be the number
of Outstanding Shares subject to such Submitted Bid and the denominator
of which shall be the sum of the number of Outstanding Shares subject
to such Submitted Bids made by all such Potential Holders that
specified rates per annum equal to the Winning Bid Rate.
(ii) If Sufficient Clearing Bids have not been made (other than because
all of the Outstanding Shares are subject to Submitted Hold Orders), subject to
the provisions of paragraph 7(e)(iii), Submitted Orders shall be accepted or
rejected as follows in the following order of priority and all other Submitted
Bids shall be rejected:
(A) the Submitted Bid of each Existing Holder specifying any
rate per annum that is equal to or lower than the Maximum Applicable
Rate shall be rejected, thus entitling such Existing Holder to continue
to hold the Outstanding Shares that are the subject of such Submitted
Bid;
(B) the Submitted Bid of each Potential Holder specifying any
rate per annum that is equal to or lower than the Maximum Applicable
Rate shall be accepted, thus requiring such Potential Holder to
purchase the Outstanding Shares that are the subject of such Submitted
Bid; and
(C) the Submitted Bids of each Existing Holder specifying any
rate per annum that is higher than the Maximum Applicable Rate shall be
accepted and the Submitted Sell Orders of each Existing Holder shall be
accepted, in both cases only in an amount equal to the difference
between (1) the number of Outstanding Shares then held by such Existing
Holder subject to such Submitted Bid or Submitted Sell Order and (2)
the number of Shares obtained by multiplying (x) the difference between
the Available Shares and the aggregate number of Outstanding Shares
subject to Submitted Bids described in paragraph 7(e)(ii)(A) and
paragraph 7(e)(ii)(B) by (y) a fraction the numerator of which shall be
the number of Outstanding Shares held by such Existing Holder subject
to such Submitted Bid or Submitted Sell Order and the denominator of
27
<PAGE> 28
which shall be the number of Outstanding Shares subject to all such
Submitted Bids and Submitted Sell Orders.
(iii) If, as a result of the procedures described in paragraph 7(e)(i)
or paragraph 7(e)(ii), 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 on any Auction Date, the Auction Agent shall, in such manner
as it shall determine in its sole discretion, round up or down the number of
Shares to be purchased or sold by any Existing Holder or Potential Holder on
such Auction Date so that each Outstanding Share purchased or sold by each
Existing Holder or Potential Holder on such Auction Date shall be a whole Share.
(iv) If, as a result of the procedures described in paragraph 7(e)(i),
any Potential Holder would be entitled or required to purchase less than a whole
Share on any Auction Date, the Auction Agent shall, in such manner as in its
sole discretion it shall determine, allocate Shares for purchase among Potential
Holders so that only whole Shares are purchased on such Auction Date by any
Potential Holder, even if such allocation results in one or more of such
Potential Holders not purchasing any Shares on such Auction Date.
(v) Based on the results of each Auction, the Auction Agent shall
determine, with respect to each Broker-Dealer that submitted Bids or Sell Orders
on behalf of Existing Holders or Potential Holders, the aggregate number of
Outstanding Shares to be purchased and the aggregate number of the Outstanding
Shares to be sold by such Potential Holders and Existing Holders and, to the
extent that such aggregate number of Outstanding Shares to be purchased and such
aggregate number of Outstanding Shares to be sold differ, the Auction Agent
shall determine to which other Broker-Dealer or Broker-Dealers acting for one or
more purchasers such Broker-Dealer shall deliver, or from which other
Broker-Dealer or Broker-Dealers acting for one or more sellers such
Broker-Dealer shall receive, as the case may be, Outstanding Shares.
(f) Suspension of Auction During Non-Payment Period. Upon occurrence
and during the continuance of a Non-Payment Period with respect to the Shares
that has not been duly cured by the Corporation pursuant to paragraph 3(b),
Auctions of such Shares shall be suspended and shall not resume in each case
until (A) in the case of a Dividend Non-Payment Period, all accumulated and
unpaid dividends on such Shares for all past Dividend Periods shall have been
paid to the Auction Agent, or (B) in the case of a Redemption Non-Payment Period
in connection with an Optional Redemption of less than all of the Shares, all
amounts payable upon such Optional Redemption of such Shares shall have been
paid to the Auction Agent, in each case by 12:00 noon, New York City time, on
the relevant Auction Date with respect to such Shares, provided that, at least
two Business Days but no more than 30 days prior to such Auction Date, the
Corporation shall have given the Auction Agent, the Securities Depository and
the applicable holders of record written notice of such deposit or availability.
(g) Miscellaneous. The Corporation may interpret the provisions of this
paragraph 7 to resolve any inconsistency or ambiguity, remedy any formal defect
or make any other change or modification that does not substantially adversely
affect the rights of Existing Holders of Shares. An Existing Holder (A) may
sell, transfer or otherwise dispose of Shares only pursuant to a Bid or Sell
Order in accordance with the procedures described in this paragraph 7 through a
Broker-Dealer, except that transfers of Shares may also be effected through
means other than pursuant to
28
<PAGE> 29
Auctions provided that each such transfer shall be valid and accepted by the
Auction Agent only if such Existing Holder or its Broker-Dealer or Agent Member,
as applicable, shall have advised the Auction Agent in writing of such transfer
by 3:00 P.M. on the Business Day next preceding the Auction Date with respect to
such Shares, and (B) except as otherwise required by law, shall have the
ownership of the Shares held by it maintained in book entry form by the
Securities Depository in the account of its Agent Member, which in turn will
maintain records of such Existing Holder's beneficial ownership. If an Existing
Holder shall fail to comply with the restrictions contained in such Existing
Holder's Purchaser's Letter, or if the representations and warranties contained
in an Existing Holder's Purchaser's Letter cease to be accurate, the Corporation
may require such Existing Holder to submit a Sell Order. Neither the Corporation
nor any Affiliate shall submit an Order in any Auction. Any Existing Holder that
is an Affiliate shall not sell, transfer or otherwise dispose of Shares to any
Person other than the Corporation. All of the Outstanding Shares shall be
represented by one or more certificates registered in the name of the nominee of
the Securities Depository unless otherwise required by law or unless there is no
Securities Depository. If there is no Securities Depository and during any
Non-Payment Period for any Shares, at the Corporation's option and upon its
receipt of such documents as it deems appropriate, such Shares may be registered
in the stock register in the name of the Existing Holder thereof and such
Existing Holder thereupon will be entitled to receive certificates therefor and
required to deliver certificates therefor upon transfer or exchange thereof.
8. Conversion and Exchange. The Holders of the Shares shall not have
any rights to convert such shares into, or to exchange such shares for, shares
of Common Stock, any other class or classes of capital stock (or any other
security) or any other series of any class or classes of capital stock (or any
other security) of the Corporation.
9. Priority as to Certain Distributions. As a series of Preferred
Stock, the Shares shall be entitled to such rights and priorities, and subject
to such limitations, as to dividends as are set forth in these resolutions and
in this Certificate of Designations.
10. Sinking Fund. No sinking fund shall be provided for the purchase or
redemption of the Shares.
11. Exclusion of Other Rights. Unless otherwise required by law, the
Shares shall not have any rights, including preemptive and subscription rights,
or preferences other than those specifically set forth herein or as provided by
applicable law.
12. Miscellaneous. The Board of Directors may interpret the provisions
hereof to resolve any inconsistency or ambiguity which may arise or be revealed
and if such inconsistency or ambiguity reflects an inaccurate provision hereof,
the Board of Directors may, in appropriate circumstances, authorize the filing
of a certificate of correction pursuant to Delaware law.
13. Change in Number of Shares. As provided in this Certificate of
Designations, but subject to applicable law, the Board of Directors may increase
or decrease the number of shares of this series of Preferred Stock subsequent to
the issue of shares of this series, but not below the number of shares of
Preferred Stock then outstanding. Notices. All notices or communications to the
Corporation, unless otherwise specified in the By-Laws of the Corporation or
this Certificate
29
<PAGE> 30
of Designations, shall be sufficiently given if in writing and delivered in
person or mailed by first-class mail, postage prepaid, to the Corporation at its
principal executive offices at 1200 Smith Street, Suite 300, Houston , Texas
77002, attention: Vice President, Finance. Notice shall be deemed given on the
earlier of the date received or the date seven days after such notice is mailed.
14. Securities Depository; Stock Certificates. (a) If there is a
Securities Depository, one or more certificates for all of the Shares shall be
issued to the Securities Depository and registered in the name of the Securities
Depository or its nominee. Additional certificates may be issued as necessary to
represent Shares. All such certificates shall bear a legend to the effect that
such certificates are issued subject to the provisions restricting the transfer
of Shares contained in this Certificate of Designations. Unless the Corporation
shall have elected, during a Non-Payment Period, to waive this requirement, the
Corporation will also issue stop-transfer instructions to the Auction Agent for
the Shares. Except as provided in paragraph (b) below, the Securities Depository
or its nominee will be the holder, and no Existing Holder shall receive
certificates representing its ownership interest in such SharesIf the Applicable
Rate applicable to the Shares shall be the Non-Payment Period Rate or there is
no Securities Depository, the Corporation may at its option issue one or more
new certificates with respect to such Shares (without the legend referred to in
paragraph 8(a) above) registered in the names of the Existing Holders or their
nominees and rescind the stop-transfer instructions referred to in paragraph
14(a) above with respect to such Shares.
FURTHER RESOLVED, that the 500 Shares authorized for issuance pursuant
to the resolutions of this duly authorized committee of the Board of Directors
all constitute preferred stock within the 10,000,000 shares authorized pursuant
to the Certificate of the Corporation.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by David R. Looney, its Vice President, this 20th day of December, 1999.
EOG RESOURCES, INC.
By: /s/ DAVID R. LOONEY
-----------------------------------
David R. Looney, Vice President
30
<PAGE> 1
EXHIBIT 3.3
INCORPORATED UNDER THE LAWS COMMON STOCK
OF THE STATE OF DELAWARE PAR VALUE $0.01
<TABLE>
<S> <C> <C>
NUMBER EOG RESOURCES, INC. SHARES
EOG-
CUSIP 26875P 10 1
See Reverse For
Certain Definitions
</TABLE>
THIS IS TO CERTIFY THAT
Is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF
EOG Resources, Inc. (hereinafter referred to as the "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 and the shares represented hereby are issued and shall be valid,
subject to all of the provisions of the Certificate of Incorporation, as
amended, of the Corporation (a copy of which certificate is on file with the
Transfer Agent), to all of which the holder by acceptance hereof assents. 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.
Dated:
[EOG CORPORATE SEAL]
Countersigned and Registered:
FIRST CHICAGO TRUST COMPANY OF
NEW YORK
/s/ MARK G. PAPA
- - ---------------------------------
Mark G. Papa, Transfer Agent and
Chief Executive Officer Registrar
and Chairman of the Board
By
/s/ PATRICIA L. EDWARDS
- - ---------------------------------
Patricia L. Edwards, Authorized
Vice President and Secretary Signature
<PAGE> 2
EOG RESOURCES, INC.
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 entireties
JT TEN - as joint tenants with right of survivorship and not as tenants in
common
UNIF GIFT MIN ACT -.............Custodian............
(Cust) (Minor)
Under Uniform Gifts to Minors Act....................
(State)
Additional abbreviations may also be used though not in the above list.
THE DESIGNATIONS AND THE POWERS, PREFERENCES AND RIGHTS, AND THE QUALIFICATIONS,
LIMITATIONS AND RESTRICTIONS THEREOF, OF THE SEVERAL CLASSES OF STOCK OF THE
CORPORATION ARE SET FORTH IN THE CERTIFICATE OF INCORPORATION AND THE AMENDMENTS
THERETO OF THE CORPORATION
______________________
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS,
THE DESIGNATIONS, POWERS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR
OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF OF THE CORPORATION
AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR
RIGHTS. SUCH REQUEST MAY BE MADE TO THE OFFICE OF THE SECRETARY OF THE
CORPORATION OR TO THE TRANSFER AGENT.
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 POSTAL 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
--------------------------
NOTICE: X ______________________________________
THE SIGNATURE(S) TO THE (SIGNATURE)
ASSIGNMENT MUST CORRESPOND
WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE
IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY
CHANGES WHATEVER. X ______________________________________
(SIGNATURE)
THE SIGNATURE(S) MUST 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> 1
EXHIBIT 10.64(c)
SECOND AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT
This Agreement, entered into on this 8th of July, 1999, and made
effective as of June 28, 1999, by and between ENRON OIL & GAS COMPANY
("Employer") and MARK G. PAPA ("Employee") is an amendment to that certain
Employment Agreement made effective as of November 1, 1997 (the "Employment
Agreement").
WHEREAS, the parties desire to amend the Employment Agreement as
provided herein;
NOW, THEREFORE, in consideration thereof and of the mutual covenants
contained herein, the parties agree as follows:
1. Article 3, Section 3.5 of the Employment Agreement is hereby
deleted in its entirety and the following is substituted
therefor:
"3.5 Upon an Involuntary Termination of the employment
relationship by either Employer or Employee prior to the
expiration of the Term, Employee shall be entitled, in
consideration of Employee's continuing obligations hereunder
after such termination (including, without limitation,
Employee's non-competition obligations), to receive a
severance benefit under this Agreement equal to the sum of (a)
Employee's then current Monthly Base Salary times 24; plus (b)
two times the Employee's annual bonus target award under
Employer's annual bonus program for the year in which the
termination occurs; plus (c) the value of unvested stock
options granted under Employer's 1992 Stock Plan based on the
difference between the average closing price of Employer's
stock on the ten (10) trading days prior to the date of
termination and the grant price. Notwithstanding any other
provisions of this Agreement, a termination of the employment
relationship by either the Employer or Employee which meets
the definition of Involuntary Termination under Employer's
Change of Control Severance Plan (the "Plan") shall constitute
an Involuntary Termination under this Agreement. In the event
of such Involuntary Termination which entitles Employee to
severance benefits under the Plan but for the following
severance payment by Employer to the Employee, rather than the
severance benefit described above, Employee shall receive from
Employer a severance benefit under this Agreement equal to the
sum of Employee's then current Monthly Base Salary times 12
times 2.99 plus two times the Employee's annual bonus target
award under Employer's annual bonus program for the year in
which the Change of Control Date occurs. Employee's severance
<PAGE> 2
benefit payable under the Plan, if any, shall be determined
according to the provisions thereof. Employee shall not be
under any duty or obligation to seek or accept other
employment following Involuntary Termination and the amounts
due Employee hereunder shall not be reduced or suspended if
Employee accepts subsequent employment. Employee's rights
under this Section 3.5 are Employee's sole and exclusive
rights against Employer, Enron, or their affiliates, and
Employer's sole and exclusive liability to Employee under this
Agreement, in contract, tort, or otherwise, for any
Involuntary Termination of the employment relationship.
Employee covenants not to sue or lodge any claim, demand or
cause of action against Employer for any sums for Involuntary
Termination other than those sums specified in this Section
3.5. If Employee breaches this covenant, Employer shall be
entitled to recover from Employee all sums expended by
Employer (including costs and attorneys fees) in connection
with such suit, claim, demand or cause of action."
This Agreement is the Second Amendment to the Employment Agreement, and
the parties agree that all other terms, conditions and stipulations contained in
the Employment Agreement, and any amendments thereto, shall remain in full force
and effect and without any change or modification, except as provided herein.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
ENRON OIL & GAS COMPANY
By: /s/ PATRICIA EDWARDS
-----------------------------------------
Name: Patricia Edwards
Title: V.P. Human Resources & Administration
This 8th day of July, 1999
MARK G. PAPA
/s/ MARK G. PAPA
--------------------------------------------
This 8th day of July, 1999
<PAGE> 1
EXHIBIT 10.65(c)
SECOND AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT
This Agreement, entered into on this 8th of July, 1999, and made
effective as of June 28, 1999, by and between ENRON OIL & GAS COMPANY
("Employer") and EDMUND P. SEGNER, III ("Employee") is an amendment to that
certain Employment Agreement made effective as of September 1, 1998 (the
"Employment Agreement").
WHEREAS, the parties desire to amend the Employment Agreement as
provided herein;
NOW, THEREFORE, in consideration thereof and of the mutual covenants
contained herein, the parties agree as follows:
1. Article 3, Section 3.5 of the Employment Agreement is hereby
deleted in its entirety and the following is substituted
therefor:
"3.5 Upon an Involuntary Termination of the employment
relationship by either Employer or Employee prior to the
expiration of the Term, Employee shall be entitled, in
consideration of Employee's continuing obligations hereunder
after such termination (including, without limitation,
Employee's non-competition obligations), to receive a
severance benefit under this Agreement equal to the sum of (a)
Employee's then current Monthly Base Salary times 24; plus (b)
two times the Employee's annual bonus target award under
Employer's annual bonus program for the year in which the
termination occurs; plus (c) the value of unvested stock
options granted under Employer's 1992 Stock Plan based on the
difference between the average closing price of Employer's
stock on the ten (10) trading days prior to the date of
termination and the grant price. Notwithstanding any other
provisions of this Agreement, a termination of the employment
relationship by either the Employer or Employee which meets
the definition of Involuntary Termination under Employer's
Change of Control Severance Plan (the "Plan") shall constitute
an Involuntary Termination under this Agreement. In the event
of such Involuntary Termination which entitles Employee to
severance benefits under the Plan but for the following
severance payment by Employer to the Employee, rather than the
severance benefit described above, Employee shall receive from
Employer a severance benefit under this Agreement equal to the
sum of Employee's then current Monthly Base Salary times 12
times 2.99 plus two times the Employee's annual bonus target
award under Employer's annual bonus program for the year in
which the Change of Control Date occurs. Employee's severance
<PAGE> 2
benefit payable under the Plan, if any, shall be determined
according to the provisions thereof. Employee shall not be
under any duty or obligation to seek or accept other
employment following Involuntary Termination and the amounts
due Employee hereunder shall not be reduced or suspended if
Employee accepts subsequent employment. Employee's rights
under this Section 3.5 are Employee's sole and exclusive
rights against Employer, Enron, or their affiliates, and
Employer's sole and exclusive liability to Employee under this
Agreement, in contract, tort, or otherwise, for any
Involuntary Termination of the employment relationship.
Employee covenants not to sue or lodge any claim, demand or
cause of action against Employer for any sums for Involuntary
Termination other than those sums specified in this Section
3.5. If Employee breaches this covenant, Employer shall be
entitled to recover from Employee all sums expended by
Employer (including costs and attorneys fees) in connection
with such suit, claim, demand or cause of action."
This Agreement is the Second Amendment to the Employment Agreement, and
the parties agree that all other terms, conditions and stipulations contained in
the Employment Agreement, and any amendments thereto, shall remain in full force
and effect and without any change or modification, except as provided herein.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
ENRON OIL & GAS COMPANY
By: /s/ PATRICIA EDWARDS
------------------------------------------
Name: Patricia Edwards
Title: V.P. Human Resources & Administration
This 8th day of July, 1999
EDMUND P. SEGNER, III
/s/ EDMUND P. SEGNER, III
---------------------------------------------
This 8th day of July, 1999
<PAGE> 1
EXHIBIT 10.66(a)
EXECUTIVE EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement"), including the attached Exhibit
"A," is entered into between Enron Oil & Gas Company, a Delaware corporation,
having offices at 1400 Smith Street, Houston, Texas 77002 ("Employer"), and
Barry Hunsaker, Jr., an individual currently residing at 3730 Wickersham,
Houston, Texas 77027 ("Employee"), to be effective as of September 1, 1998 (the
"Effective Date").
WITNESSETH:
WHEREAS, Employer and Employee previously entered into a letter
agreement dated April 2, 1996; and
WHEREAS, Employer is desirous of employing Employee pursuant to the
terms and conditions and for the consideration set forth in this Agreement, and
Employee is desirous of entering the employ of Employer pursuant to such terms
and conditions and for such consideration.
NOW, THEREFORE, for and in consideration of the mutual promises,
covenants, and obligations contained herein, Employer and Employee agree as
follows:
ARTICLE 1: EMPLOYMENT AND DUTIES:
1.1 Employer agrees to employ Employee, and Employee agrees to be
employed by Employer, beginning as of the Effective Date and continuing until
the date set forth on Exhibit "A" (the "Term"), subject to the terms and
conditions of this Agreement. This Agreement shall supercede and replace the
letter agreement dated April 2, 1996.
1.2 Employee shall be employed in the position set forth on Exhibit A
in the Company's headquarters location. Employee agrees to serve in the assigned
position and to perform diligently and to the best of Employee's abilities the
duties and services appertaining to such position as determined by Employer, as
well as such additional or different duties and services appropriate to such
position which Employee from time to time may be reasonably directed to perform
by Employer. Employee shall at all times comply with and be subject to such
policies and procedures as Employer may establish from time to time.
1.3 Employee shall, during the period of Employee's employment by
Employer, devote Employee's full business time, energy, and best efforts to the
business and affairs of Employer. Employee may not engage, directly or
indirectly, in any other business, investment, or activity that interferes with
Employee's performance of Employee's duties hereunder, is known to Employee to
be contrary to the interests of Employer or Enron Corp. ("Enron"), or requires
any significant portion of Employee's business time.
1
<PAGE> 2
1.4 In connection with Employee's employment by Employer, Employer
shall endeavor to provide Employee access to such confidential information
pertaining to the business and services of Employer as is appropriate for
Employee's employment responsibilities. Employer also shall endeavor to provide
to Employee the opportunity to develop business relationships with those of
Employer's clients and potential clients that are appropriate for Employee's
employment responsibilities.
1.5 Employee acknowledges and agrees that, at all times during the
employment relationship Employee owes fiduciary duties to Employer, including
but not limited to the fiduciary duties of the highest loyalty, fidelity and
allegiance to act at all times in the best interests of the Employer, to make
full disclosure to Employer of all information that pertains to Employer's
business and interests, to do no act which Employee knows or should know would
injure Employer's business, its interests, or its reputation, and to refrain
from using for Employee's own benefit or for the benefit of others any
information or opportunities pertaining to Employer's business or interests that
are entrusted to Employee or that he learned while employed by Employer.
Employee acknowledges and agrees that upon termination of the employment
relationship, Employee shall continue to refrain from using for his own benefit
or the benefit of others any information or opportunities pertaining to
Employer's business or interests that were entrusted to Employee during the
employment relationship or that he learned while employed by Employer. Employee
agrees that while employed by Employer and thereafter he shall not knowingly
take any action which interferes with the internal relationships between
Employer and its employees or representatives or interferes with the external
relationships between Employer and third parties.
1.6 It is agreed that any direct or indirect interest in, connection
with, or benefit from any outside activities, particularly commercial
activities, which interest might in any way adversely affect Employer or any of
its affiliates, involves a possible conflict of interest. In keeping with
Employee's fiduciary duties to Employer, Employee agrees that during the
employment relationship Employee shall not knowingly become involved in a
conflict of interest with Employer or its affiliates, or upon discovery thereof,
allow such a conflict to continue. Moreover, Employee agrees that Employee shall
disclose to Employer's President any facts which might involve such a conflict
of interest that has not been approved by Employer's President. Employer and
Employee recognize that it is impossible to provide an exhaustive list of
actions or interests which constitute a "conflict of interest." Moreover,
Employer and Employee recognize there are many borderline situations. In some
instances, full disclosure of facts by the Employee to Employer's President may
be all that is necessary to enable Employer or its affiliates to protect its
interests. In others, if no improper motivation appears to exist and the
interests of Employer or its affiliates have not suffered, prompt elimination of
the outside interest will suffice. In still others, it may be necessary for
Employer to terminate the employment relationship. Employer and Employee agree
that Employer's determination as to whether a conflict of interest exists shall
be conclusive. Employer reserves the right to take such action as, in its
judgment, will end the conflict.
1.7 Employee understands and acknowledges that the terms and conditions
of this Agreement constitute confidential information. Employee shall keep
confidential the terms of this Agreement and shall not disclose this
confidential information to anyone other than Employee's attorneys, tax
advisors, or as required by law. Employee acknowledges and understands that
2
<PAGE> 3
disclosure of the terms of this Agreement constitutes a material breach of this
Agreement and could subject Employee to disciplinary action, including without
limitation, termination of employment.
ARTICLE 2: COMPENSATION AND BENEFITS:
2.1 Employee's monthly base salary during the Term shall be not less
than the amount set forth under the heading "Monthly Base Salary" on Exhibit A,
subject to increase at the sole discretion of the Employer, but consistent with
increases provided to other similarly situated executives of Employer, which
shall be paid in semimonthly installments in accordance with Employer's standard
payroll practice. Any calculation to be made under this Agreement with respect
to Employee's Monthly Base Salary shall be made using the then current Monthly
Base Salary in effect at the time of the event for which such calculation is
made.
2.2 While employed by Employer (both during the Term and thereafter),
Employee shall be allowed to participate, on the same basis generally as other
employees of Employer, in all general employee benefit plans and programs,
including improvements or modifications of the same, which on the effective date
or thereafter are made available by Employer to all or substantially all of
Employer's employees. Such benefits, plans, and programs may include, without
limitation, medical, health, and dental care, life insurance, disability
protection, and pension plans. Nothing in this Agreement is to be construed or
interpreted to provide greater rights, participation, coverage, or benefits
under such benefit plans or programs than provided to similarly situated
employees pursuant to the terms and conditions of such benefit plans and
programs. Notwithstanding, Employee shall be eligible for one week of vacation
in addition to the vacation provided under Employer's annual vacation policy.
2.3 Employer shall not by reason of this Article 2 be obligated to
institute, maintain, or refrain from changing, amending, or discontinuing, any
such incentive compensation or employee benefit program or plan, so long as such
actions are similarly applicable to covered employees generally. Moreover,
unless specifically provided for in a written plan document adopted by the Board
of Directors of either Employer or Enron, none of the benefits or arrangements
described in this Article 2 shall be secured or funded in any way, and each
shall instead constitute an unfunded and unsecured promise to pay money in the
future exclusively from the general assets of Employer.
2.4 Employer may withhold from any compensation, benefits, or amounts
payable under this Agreement all federal, state, city, or other taxes as may be
required pursuant to any law or governmental regulation or ruling.
ARTICLE 3: TERMINATION PRIOR TO EXPIRATION OF TERM AND EFFECTS OF SUCH
TERMINATION:
3.1. Notwithstanding any other provisions of this Agreement, Employer
shall have the right to terminate Employee's employment under this Agreement at
any time prior to the expiration of the Term for any of the following reasons:
3
<PAGE> 4
(i) For "cause" upon the determination by the Employer's Board of
Directors or management committee (or, if there is no
management committee, the highest applicable level of
Employer's management) that "cause" exists for the termination
of the employment relationship. As used in this Section
3.1(i), the term "cause" shall mean [a] Employee's willful
misconduct in the performance of the duties and services
required of Employee pursuant to this Agreement; [b]
Employee's final conviction of a felony involving moral
turpitude; [c] Employee's willful refusal without proper legal
reason to perform the duties and responsibilities required of
Employee under this Agreement which remains uncorrected for
thirty (30) days following written notice to Employee by
Employer of such breach; [d] Employee's involvement in a
conflict of interest as referenced in Section 1.6 for which
Employer makes a determination to terminate the employment of
Employee which remains uncorrected for thirty (30) days
following written notice to Employee by Employer of such
breach; [e] Employee's willful engagement in conduct that
Employee knows or should know is materially injurious to
Employer, Enron, or any of their respective subsidiaries; [f]
Employee's material breach of any material provision of this
Agreement or corporate code or policy which remains
uncorrected for thirty (30) days following written notice to
Employee by Employer of such breach; or [g] Employee's
violation of the Foreign Corrupt Practices Act or other
applicable United States law as proscribed by Section 5.1. It
is expressly acknowledged and agreed that the decision as to
whether "cause" exists for termination of the employment
relationship by Employer is delegated to the Employer's
management committee (or, if there is no management committee,
the highest applicable level of Employer's management) for
determination. If Employee disagrees with the decision reached
by Employer's management committee (or, if there is no
management committee, the highest applicable level of
Employer's management), the dispute will be limited to whether
Employer's management committee (or, if there is no management
committee, the highest applicable level of Employer's
management) reached its decision in good faith;
(ii) for any other reason whatsoever, with or without cause, in the
sole discretion of the management committee (or, if there is
no management committee, the highest applicable level of
management) of Employer;
(iii) upon Employee's death; or
(iv) upon Employee's becoming disabled so as to entitle Employee to
benefits under Enron's long-term disability plan or, if
Employee is not eligible to participate in such plan, then
Employee is permanently and totally unable to perform
Employee's duties for Employer as a result of any medically
determinable physical or mental impairment as supported by a
written medical opinion to the foregoing effect by a physician
selected by Employer.
The termination of Employee's employment by Employer prior to the expiration of
the Term shall constitute a "Termination for Cause" if made pursuant to Section
3.1(i); the effect of such termination is specified in Section 3.4. The
termination of Employee's employment by Employer prior to the
4
<PAGE> 5
expiration of the Term shall constitute an "Involuntary Termination" if made
pursuant to Section 3.1(ii); the effect of such termination is specified in
Section 3.5. The effect of the employment relationship being terminated pursuant
to Section 3.1(iii) as a result of Employee's death is specified in Section 3.6.
The effect of the employment relationship being terminated pursuant to Section
3.1(iv) as a result of the Employee becoming incapacitated is specified in
Section 3.7.
3.2 Notwithstanding any other provisions of this Agreement except
Section 8.6, Employee shall have the right to terminate the employment
relationship under this Agreement at any time prior to the expiration of the
Term of employment for any of the following reasons:
(i) a material breach by Employer of any material provision of
this Agreement which remains uncorrected for 30 days following
written notice of such breach by Employee to Employer; or
(ii) for any other reason whatsoever, in the sole discretion of
Employee.
The termination of Employee's employment by Employee prior to the expiration of
the Term shall constitute an "Involuntary Termination" if made pursuant to
Section 3.2(i); the effect of such termination is specified in Section 3.5. The
termination of Employee's employment by Employee prior to the expiration of the
Term shall constitute a "Voluntary Termination" if made pursuant to Section
3.2(ii); the effect of such termination is specified in Section 3.3.
3.3 Upon a "Voluntary Termination" of the employment relationship by
Employee prior to expiration of the Term, Employee shall be entitled to pro rata
salary through the date of such termination, but Employee shall not be entitled
to any individual bonuses or individual incentive compensation not yet paid at
the date of such termination.
3.4 If Employee's employment hereunder shall be terminated by Employer
for Cause prior to expiration of the Term, Employee shall be entitled to pro
rata salary through the date of such termination, but Employee shall not be
entitled to any individual bonuses or individual incentive compensation not yet
paid at the date of such termination.
3.5 Upon an Involuntary Termination of the employment relationship by
either Employer or Employee prior to the expiration of the Term, Employee shall
be entitled, in consideration of Employee's continuing obligations hereunder
after such termination (including, without limitation, Employee's
non-competition obligations), to receive the greater of a) 12 months of the then
current Monthly Base Salary or b) the then current Monthly Base Salary as if
Employee's employment (which shall cease on the date of such Involuntary
Termination) had continued for the full Term of this Agreement. If such
Involuntary Termination occurs within two years after a Change of Control, as
defined in Employer's Change of Control Severance Plan, Employee shall receive a
minimum of twenty-four (24) months of the then current Monthly Base Salary.
Employee shall not be under any duty or obligation to seek or accept other
employment following Involuntary Termination and the amounts due Employee
hereunder shall not be reduced or suspended if Employee accepts subsequent
employment. Employee's rights under this Section 3.5 are Employee's sole and
exclusive rights against Employer, Enron, or their affiliates, and Employer's
sole and exclusive liability to Employee under this Agreement, in contract,
tort, or otherwise, for any
5
<PAGE> 6
Involuntary Termination of the employment relationship. Employee covenants not
to sue or lodge any claim, demand or cause of action against Employer for any
sums for Involuntary Termination other than those sums specified in this Section
3.5. If Employee breaches this covenant, Employer shall be entitled to recover
from Employee all sums expended by Employer (including costs and attorneys fees)
in connection with such suit, claim, demand or cause of action.
3.6 Upon termination of the employment relationship as a result of
Employee's death, Employee's heirs, administrators, or legatees shall be
entitled to Employee's pro rata salary through the date of such termination, but
Employee's heirs, administrators, or legatees shall not be entitled to any
individual bonuses or individual incentive compensation not yet paid to Employee
at the date of such termination.
3.7 Upon termination of the employment relationship as a result of
Employee's incapacity, Employee shall be entitled to his or her pro rata salary
through the date of such termination, but Employee shall not be entitled to any
individual bonuses or individual incentive compensation not yet paid to Employee
at the date of such termination.
3.8 In all cases, the compensation and benefits payable to Employee
under this Agreement upon termination of the employment relationship shall be
offset against any amounts to which Employee may otherwise be entitled under any
and all severance plans, and policies of Employer, Enron, or their affiliates.
3.9 Termination of the employment relationship does not terminate those
obligations imposed by this Agreement which are continuing obligations,
including, without limitation, Employee's obligations under Articles 6 and 7.
3.10 Upon termination of the employment relationship between Employee
and Employer for any reason, Employee shall be entitled to receive compensation
and benefits earned and accrued by Employee during his/her employment as are
specifically provided in any applicable employee compensation and/or benefit
plan document and any grant or award agreement thereunder.
ARTICLE 4: CONTINUATION OF EMPLOYMENT BEYOND TERM; TERMINATION AND EFFECTS OF
TERMINATION:
4.1 Should Employee remain employed by Employer beyond the expiration
of the Term specified on Exhibit "A," such employment shall convert to a
month-to-month relationship terminable at any time by either Employer or
Employee for any reason whatsoever, with or without cause. Upon such termination
of the employment relationship by either Employer or Employee for any reason
whatsoever, all future compensation to which Employee is entitled and all future
benefits for which Employee is eligible shall cease and terminate. Employee
shall be entitled to pro rata salary through the date of such termination, but
Employee shall not be entitled to any individual bonuses or individual incentive
compensation not yet paid at the date of such termination.
6
<PAGE> 7
ARTICLE 5: UNITED STATES FOREIGN CORRUPT PRACTICES ACT AND OTHER LAWS:
5.1. Employee shall at all times comply with United States laws
applicable to Employee's actions on behalf of Employer, including specifically,
without limitation, the United States Foreign Corrupt Practices Act, generally
codified in 15 USC 78 (FCPA), as the FCPA may hereafter be amended, and/or its
successor statutes. If Employee pleads guilty to or nolo contendere or admits
civil or criminal liability under the FCPA or other applicable United States
law, or if a court finds that Employee has personal civil or criminal liability
under the FCPA or other applicable United States law, or if a court finds that
Employee committed an action resulting in any Enron entity having civil or
criminal liability or responsibility under the FCPA or other applicable United
States law with knowledge of the activities giving rise to such liability or
knowledge of facts from which Employee should have reasonably inferred the
activities giving rise to liability had occurred or were likely to occur, such
action or finding shall constitute "cause" for termination under this Agreement
unless Employer's management committee (or, if there is no management committee,
the highest applicable level of Employer's management) determines that the
actions found to be in violation of the FCPA or other applicable United States
law were taken in good faith and in compliance with all applicable policies of
Employer and Enron.
ARTICLE 6: OWNERSHIP AND PROTECTION OF INFORMATION; COPYRIGHTS:
6.1 All information, ideas, concepts, improvements, discoveries, and
inventions, whether patentable or not, which are conceived, made, developed or
acquired by Employee, individually or in conjunction with others, during
Employee's employment by Employer (whether during business hours or otherwise
and whether on Employer's premises or otherwise) which relate to Employer's
business, products or services (including, without limitation, all such
information relating to corporate opportunities, research, financial and sales
data, pricing and trading terms, evaluations, opinions, interpretations,
acquisition prospects, the identity of customers or their requirements, the
identity of key contacts within the customer's organizations or within the
organization of acquisition prospects, or marketing and merchandising
techniques, prospective names, and marks) shall be disclosed to Employer and are
and shall be the sole and exclusive property of Employer. Moreover, all
drawings, memoranda, notes, records, files, correspondence, drawings, manuals,
models, specifications, computer programs, maps and all other writings or
materials of any type embodying any of such information, ideas, concepts,
improvements, discoveries, and inventions are and shall be the sole and
exclusive property of Employer.
6.2 Employee acknowledges that the business of Employer, Enron, and
their affiliates is highly competitive and that their strategies, methods,
books, records, and documents, their technical information concerning their
products, equipment, services, and processes, procurement procedures and pricing
techniques, the names of and other information (such as credit and financial
data) concerning their customers and business affiliates, all comprise
confidential business information and trade secrets which are valuable, special,
and unique assets which Employer, Enron, or their affiliates use in their
business to obtain a competitive advantage over their competitors. Employee
further acknowledges that protection of such confidential business information
and trade secrets against unauthorized disclosure and use is of critical
importance to Employer, Enron, and their affiliates in maintaining their
competitive position. Employee hereby agrees that Employee will not, at any time
during or after his or her employment by Employer, make any unauthorized
disclosure of any confidential business information or trade secrets of
Employer, Enron, or their affiliates, or make any use thereof, except in the
carrying out of his or her employment responsibilities hereunder.
7
<PAGE> 8
Enron and its affiliates shall be third party beneficiaries of Employee's
obligations under this Section. As a result of Employee's employment by
Employer, Employee may also from time to time have access to, or knowledge of,
confidential business information or trade secrets of third parties, such as
customers, suppliers, partners, joint venturers, and the like, of Employer,
Enron, and their affiliates. Employee also agrees to preserve and protect the
confidentiality of such third party confidential information and trade secrets
to the same extent, and on the same basis, as Employer's confidential business
information and trade secrets. Employee acknowledges that money damages would
not be sufficient remedy for any breach of this Article 6 by Employee, and
Employer shall be entitled to enforce the provisions of this Article 6 by
terminating any payments then owing to Employee under this Agreement and/or to
specific performance and injunctive relief as remedies for such breach or any
threatened breach. Such remedies shall not be deemed the exclusive remedies for
a breach of this Article 6, but shall be in addition to all remedies available
at law or in equity to Employer, including the recovery of damages from Employee
and his or her agents involved in such breach.
6.3 All written materials, records, and other documents made by, or
coming into the possession of, Employee during the period of Employee's
employment by Employer which contain or disclose confidential business
information or trade secrets of Employer, Enron, or their affiliates shall be
and remain the property of Employer, Enron, or their affiliates, as the case may
be. Upon termination of Employee's employment by Employer, for any reason,
Employee promptly shall deliver the same, and all copies thereof, to Employer.
6.4 If, during Employee's employment by Employer, Employee creates any
original work of authorship fixed in any tangible medium of expression which is
the subject matter of copyright (such as videotapes, written presentations on
acquisitions, computer programs, drawings, maps, architectural renditions,
models, manuals, brochures, or the like) relating to Employer's business,
products, or services, whether such work is created solely by Employee or
jointly with others (whether during business hours or otherwise and whether on
Employer's premises or otherwise), Employee shall disclose such work to
Employer. Employer shall be deemed the author of such work if the work is
prepared by Employee in the scope of his or her employment; or, if the work is
not prepared by Employee within the scope of his or her employment but is
specially ordered by Employer as a contribution to a collective work, as a part
of a motion picture or other audiovisual work, as a translation, as a
supplementary work, as a compilation, or as an instructional text, then the work
shall be considered to be work made for hire and Employer shall be the author of
the work. If such work is neither prepared by the Employee within the scope of
his or her employment nor a work specially ordered and is deemed to be a work
made for hire, then Employee hereby agrees to assign, and by these presents does
assign, to Employer all of Employee's worldwide right, title, and interest in
and to such work and all rights of copyright therein.
6.5 Both during the period of Employee's employment by Employer and
thereafter, Employee shall assist Employer and its nominee, at any time, in the
protection of Employer's worldwide right, title, and interest in and to
information, ideas, concepts, improvements, discoveries, and inventions, and its
copyrighted works, including without limitation, the execution of all formal
assignment documents requested by Employer or its nominee and the execution of
all lawful oaths and applications for applications for patents and registration
of copyright in the United States and foreign countries.
8
<PAGE> 9
ARTICLE 7: POST-EMPLOYMENT NON-COMPETITION OBLIGATIONS:
7.1 As part of the consideration for the compensation and benefits to
be paid to Employee hereunder, in keeping with Employee's duties as a fiduciary
and in order to protect Employer's interests in the confidential information of
Employer and the business relationships developed by Employee with the clients
and potential clients of Employer, and as an additional incentive for Employer
to enter into this Agreement, Employer and Employee agree to the non-competition
provisions of this Article 7. Employee agrees that during the period of
Employee's non-competition obligations hereunder, Employee will not, directly or
indirectly for Employee or for others, in any geographic area or market where
Employer or Enron or any of their affiliated companies are conducting any
business as of the date of termination of the employment relationship or have
during the previous twelve months conducted any business:
(i) engage in any business competitive with the business conducted by
Employer;
(ii) render advice or services to, or otherwise assist, any other
person, association, or entity who is engaged, directly or indirectly, in any
business competitive with the business conducted by Employer;
(iii) induce any employee of Employer or Enron or any of their
affiliates to terminate his or her employment with Employer, Enron, or their
affiliates, or hire or assist in the hiring of any such employee by person,
association, or entity not affiliated with Enron.
These non-competition obligations shall extend until the earlier of (a)
expiration of the Term or (b) one year after termination of the employment
relationship. For purposes of this Section, it is specifically understood that
Employee may return to private legal practice, and may represent companies which
compete with Employer in such private legal practice, without breaching the
provisions of this Section.
7.2 Employee understands that the foregoing restrictions may limit his
or her ability to engage in certain businesses anywhere in the world during the
period provided for above, but acknowledges that Employee will receive
sufficiently high remuneration and other benefits (e.g., the right to receive
compensation under Section 3.5 for the remainder of the Term upon Involuntary
Termination) under this Agreement to justify such restriction. Employee
acknowledges that money damages would not be sufficient remedy for any breach of
this Article 7 by Employee, and Employer shall be entitled to enforce the
provisions of this Article 7 by terminating any payments then owing to Employee
under this Agreement and/or to specific performance and injunctive relief as
remedies for such breach or any threatened breach. Such remedies shall not be
deemed the exclusive remedies for a breach of this Article 7, but shall be in
addition to all remedies available at law or in equity to Employer, including,
without limitation, the recovery of damages from Employee and his or her agents
involved in such breach.
7.3 It is expressly understood and agreed that Employer and Employee
consider the restrictions contained in this Article 7 to be reasonable and
necessary to protect the proprietary information of Employer. Nevertheless, if
any of the aforesaid restrictions are found by a court having jurisdiction to be
unreasonable, or overly broad as to geographic area or time, or otherwise
9
<PAGE> 10
unenforceable, the parties intend for the restrictions therein set forth to be
modified by such courts so as to be reasonable and enforceable and, as so
modified by the court, to be fully enforced.
ARTICLE 8: MISCELLANEOUS:
8.1 For purposes of this Agreement the terms "affiliates" or
"affiliated" means an entity who directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with
Enron or Employer.
8.2 Employee shall refrain, both during the employment relationship and
after the employment relationship terminates, from publishing any oral or
written statements about Employer, Enron, any of their respective subsidiaries
or affiliates, or any of such entities' officers, employees, agents or
representatives that are slanderous, libelous, or defamatory; or that disclose
private or confidential information about Employer, Enron, any of their
respective subsidiaries or affiliates, or any of such entities' business
affairs, officers, employees, agents, or representatives; or that constitute an
intrusion into the seclusion or private lives of Employer, Enron, any of their
respective subsidiaries or affiliates, or such entities' officers, employees,
agents, or representatives; or that give rise to unreasonable publicity about
the private lives of Employer, Enron, any of their respective subsidiaries or
affiliates, or any of such entities' officers, employees, agents, or
representatives; or that place Employer, Enron, any of their respective
subsidiaries or affiliates, or any of such entities' or its officers, employees,
agents, or representatives in a false light before the public; or that
constitute a misappropriation of the name or likeness of Employer, Enron, any of
their respective subsidiaries or affiliates, or any of such entities' or its
officers, employees, agents, or representatives. A violation or threatened
violation of this prohibition may be enjoined by the courts. The rights afforded
the Enron entities and affiliates under this provision are in addition to any
and all rights and remedies otherwise afforded by law.
8.3 For purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when personally delivered or when mailed by United States
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to Employer:
Enron Oil & Gas Company
1400 Smith Street
Houston, Texas 77002
Attention: Corporate Secretary
If to Employee, to the address shown on the first page hereof.
Either Employer or Employee may furnish a change of address to the other in
writing in accordance herewith, except that notices of changes of address shall
be effective only upon receipt.
10
<PAGE> 11
8.4 This Agreement shall be governed in all respects by the laws of the
State of Texas, excluding any conflict-of-law rule or principle that might refer
the construction of the Agreement to the laws of another State or country.
8.5 No failure by either party hereto at any time to give notice of any
breach by the other party of, or to require compliance with, any condition or
provision of this Agreement shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time.
8.6 If a dispute arises out of or related to this Agreement, other than
a dispute regarding Employee's obligations under Article 6, or Article 7, and if
the dispute cannot be settled through direct discussions, then Employer and
Employee agree to first endeavor to settle the dispute in an amicable manner by
mediation, before having recourse to any other proceeding or forum. Whatever the
means of dispute resolution, the prevailing party shall be reimbursed attorney
fees and other reasonable costs by the other party.
8.7 Each of Employer and Employee is a citizen of the State of Texas.
Employer's principal place of business is in Houston, Harris County, Texas.
Employee resides in Harris County, Texas. This Agreement was negotiated and
signed in Houston, Texas. This Agreement shall be performed in Houston, Texas.
Any litigation that may be brought by either Employer or Employee involving the
enforcement of this Agreement or the rights, duties, or obligations of this
Agreement, shall be brought exclusively in the State or federal courts sitting
in Houston, Harris County, Texas. In the event that service of process cannot be
effected upon a party, each party hereby irrevocably appoints the Secretary of
State for the State of Texas as its or his agent for service of process to
receive the summons and other pleadings in connection with any such litigation.
8.8 It is a desire and intent of the parties that the terms,
provisions, covenants, and remedies contained in this Agreement shall be
enforceable to the fullest extent permitted by law. If any such term, provision,
covenant, or remedy of this Agreement or the application thereof to any person,
association, or entity or circumstances shall, to any extent, be construed to be
invalid or unenforceable in whole or in part, then such term, provision,
covenant, or remedy shall be construed in a manner so as to permit its
enforceability under the applicable law to the fullest extent permitted by law.
In any case, the remaining provisions of this Agreement or the application
thereof to any person, association, or entity or circumstances other than those
to which they have been held invalid or unenforceable, shall remain in full
force and effect.
8.9 This Agreement shall be binding upon and inure to the benefit of
Employer and any other person, association, or entity which may hereafter
acquire or succeed to all or substantially all of the business or assets of
Employer by any means whether direct or indirect, by purchase, merger,
consolidation, or otherwise. Employee's rights and obligations under Agreement
hereof are personal and such rights, benefits, and obligations of Employee shall
not be voluntarily or involuntarily assigned, alienated, or transferred, whether
by operation of law or otherwise, without the prior written consent of Employer.
11
<PAGE> 12
8.10 There exist other agreements between Employer and Employee
relating to the employment relationship between them, e.g., the agreement with
respect to company policies contained in Employer's Conduct of Business Affairs
booklet and agreements with respect to compensation and benefit plans. This
Agreement replaces and merges previous agreements and discussions pertaining to
the following subject matters covered herein: the nature of Employee's
employment relationship with Employer and the term and termination of such
relationship. This Agreement constitutes the entire agreement of the parties
with regard to such subject matters, and contains all of the covenants,
promises, representations, warranties, and agreements between the parties with
respect such subject matters. Each party to this Agreement acknowledges that no
representation, inducement, promise, or agreement, oral or written, has been
made by either party with respect to such subject matters, which is not embodied
herein, and that no agreement, statement, or promise relating to the employment
of Employee by Employer that is not contained in this Agreement shall be valid
or binding. Any modification of this Agreement will be effective only if it is
in writing and signed by each party whose rights hereunder are affected thereby,
provided that any such modification must be authorized or approved by the Board
of Directors of Employer.
IN WITNESS WHEREOF, Employer and Employee have duly executed this
Agreement in multiple originals to be effective on the date first stated above.
ENRON OIL & GAS COMPANY
By: /s/ PATRICIA EDWARDS
-----------------------------------------
Name: Patricia Edwards
Title: V.P. Human Resources & Administration
This 8th day of October, 1998
BARRY HUNSAKER, JR.
/s/ BARRY HUNSAKER, JR.
--------------------------------------------
This 7th day of October, 1998
12
<PAGE> 13
EXHIBIT "A" TO
EXECUTIVE EMPLOYMENT AGREEMENT
BETWEEN ENRON OIL & GAS COMPANY AND BARRY HUNSAKER, JR.
Employee Name: Barry Hunsaker, Jr.
Term: September 1, 1998 through August 31, 2001
Position: Senior Vice President and General Counsel
Location: Houston, Texas
Reporting Relationship: Reports to Edmund P. Segner, III, Vice Chairman and
Chief of Staff
Monthly Base Salary: Twenty-one thousand two hundred fifty dollars ($21,250)
Bonus: Employee shall be eligible to participate in Employer's
annual bonus program, under which bonuses may be paid
in a combination of cash, stock options, and/or phantom
stock units, as determined by the Compensation
Committee of Employer's Board of Directors. Employee
shall receive bonuses consistent with other similarly
situated executives of Employer.
Long-Term Incentives: Employee shall be eligible to receive long-term
incentive grants consistent with similarly situated
executives of Employer.
Stock Option Grant: Employee shall receive a grant of 75,000 stock options,
effective September 8, 1998, vesting 20% on the Grant
Date and 20% on each of the first four anniversaries of
the Grant Date, as evidenced by an Award Agreement,
upon execution of this Agreement.
ENRON OIL & GAS COMPANY
By: /s/ PATRICIA EDWARDS
---------------------------------------------
Name: Patricia Edwards
Title: V.P. Human Resources & Administration
This 8th day of October, 1998
BARRY HUNSAKER, JR.
/s/ BARRY HUNSAKER, JR.
------------------------------------------------
This 7th day of October, 1998
13
<PAGE> 1
EXHIBIT 10.66(b)
FIRST AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT
This Agreement, entered into on this 21st of December, 1998, and made
effective as of December 21, 1998, by and between ENRON OIL & GAS COMPANY, a
Delaware corporation ("Company") having its headquarters at 1400 Smith Street,
Houston, Texas 77002, and BARRY HUNSAKER, JR. ("Employee"), an individual
residing at 3730 Wickersham, Houston, Texas 77027, is an amendment to that
certain Executive Employment Agreement between the Company and Employee entered
into the 7th day of October, 1998, and made effective as of September 1, 1998
(the "Employment Agreement").
WHEREAS, the parties desire to amend the Employment Agreement as
provided herein;
NOW, THEREFORE, in consideration thereof and of the mutual covenants
contained herein, the parties agree as follows:
1. Article 3, Section 3.5 to the Employment Agreement is hereby
deleted in its entirety and the following is inserted in its
entirety:
"Upon an Involuntary Termination of the employment
relationship be either Employer or Employee prior to the
expiration of the Term, Employee shall be entitled, in
consideration of Employee's continuing obligations hereunder
after such termination (including, without limitation,
Employee's non-competition obligations), to receive the
greater of a) 12 months of the then current Monthly Base
Salary or b) the then current Monthly Base Salary as if
Employee's employment (which shall cease on the date of such
Involuntary Termination) had continued for the full Term of
this Agreement. If such Involuntary Termination occurs within
two (2) years after a Change of Control, as defined in
Employer's Change of Control Severance Plan, Employee shall
receive a minimum of twenty-four (24) months of the then
current Monthly Base Salary. Further, in the event of
Involuntary Termination, if Employee's eligiblity for COBRA
coverage expires, Employer shall provide to Employee the cost
difference between COBRA coverage and a personal
medical/dental policy paid by Employee for the six (6) months
following the COBRA coverage or Employee's gainful employment,
whichever comes first. Employee shall not be under any duty or
obligation to seek or accept other employment following
Involuntary Termination and the amount due Employee hereunder
shall not be reduced or suspended if Employee accepts
subsequent employment. Employee's rights under this Section
3.5
-1-
<PAGE> 2
are Employee's sole and exclusive rights against Employer,
Enron, or their affiliates, and Employer's sole and exclusive
liability to Employee under this Agreement, in contract, tort,
or otherwise, for any Involuntary Termination of the
employment relationship. Employee covenants not to sue or
lodge any claim, demand or cause of action against Employer
for any sums for Involuntary Termination other than those sums
specified in this Section 3.5. If Employee breaches this
covenant, Employer shall be entitled to recover from Employee
all sums expended by Employer (including costs and attorneys
fees) in connection with such suit, claim, demand or cause of
action."
This Amendment is a First Amendment to the Employment Agreement, and
the parties agree that all other terms, conditions and stipulations contained in
the Employment Agreement, and any amendments thereto, shall remain in full force
and effect and without any change or modification, except as provided herein.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
ENRON OIL & GAS COMPANY
By: /s/ PATRICIA EDWARDS
-----------------------------------------
Name: Patricia Edwards
Title: V.P. Human Resources & Administration
This 21st day of December, 1998
BARRY HUNSAKER, JR.
/s/ BARRY HUNSAKER, JR.
--------------------------------------------
This 21st day of December, 1998
-2-
<PAGE> 1
EXHIBIT 10.66(c)
SECOND AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT
This Agreement, entered into on this 15th of March, 1999, and made
effective as of February 1, 1999, by and between ENRON OIL & GAS COMPANY
("Company" or "Employer") and BARRY HUNSAKER, JR. ("Employee") is an amendment
to that certain Employment Agreement made effective as of September 1, 1998 (the
"Employment Agreement").
WHEREAS, the parties desire to amend the Employment Agreement as
provided herein;
NOW, THEREFORE, in consideration thereof and of the mutual covenants
contained herein, the parties agree as follows:
1. Article 3, Section 3.5 of the Employment Agreement is hereby
deleted in its entirety and the following is substituted
therefor:
"3.5 Upon an Involuntary Termination of the employment
relationship by either Employer or Employee prior to the
expiration of the Term, Employee shall be entitled, in
consideration of Employee's continuing obligations hereunder
after such termination (including, without limitation,
Employee's non-competition obligations), to receive the
greater of a) 12 months of the then current Monthly Base
Salary or b) the then current Monthly Base Salary as if
Employee's employment (which shall cease on the date of such
Involuntary Termination) had continued for the full Term of
this Agreement. Notwithstanding any other provisions of this
Agreement, a termination of the employment relationship by
either the Employer or Employee which meets the definition of
Involuntary Termination under the Company's Change of Control
Severance Plan shall constitute an Involuntary Termination
under this Agreement. In the event of such Involuntary
Termination which entitles Employee to severance benefits
under said Plan, but for the following severance payment by
the Company to the Employee, Employee shall receive from the
Company a severance benefit under this Agreement equal to the
sum of Employee's then current Monthly Base Salary times 12
times 2.99 plus two times the Employee's annual bonus target
award under the Company's annual bonus program for the year in
which the Change of Control Date occurs. Employee's severance
benefit payable under said Plan, if any, shall be determined
according to the provisions thereof. Further, in the event of
Involuntary Termination, if Employee's eligibility for COBRA
coverage expires, Employer shall provide to Employee the
<PAGE> 2
cost difference between COBRA coverage and a personal
medical/dental policy paid by Employee for the six (6) months
following the COBRA coverage or Employee's gainful employment,
whichever comes first. Employee shall not be under any duty or
obligation to seek or accept other employment following
Involuntary Termination and the amounts due Employee hereunder
shall not be reduced or suspended if Employee accepts
subsequent employment. Employee's rights under this Section
3.5 are Employee's sole and exclusive rights against Employer,
Enron, or their affiliates, and Employer's sole and exclusive
liability to Employee under this Agreement, in contract, tort,
or otherwise, for any Involuntary Termination of the
employment relationship. Employee covenants not to sue or
lodge any claim, demand or cause of action against Employer
for any sums for Involuntary Termination other than those sums
specified in this Section 3.5. If Employee breaches this
covenant, Employer shall be entitled to recover from Employee
all sums expended by Employer (including costs and attorneys
fees) in connection with such suit, claim, demand or cause of
action."
2. The last paragraph of Article 7, Section 7.1 is hereby deleted
in its entirety and the following is substituted therefor:
"These non-competition obligations shall extend until the
earlier of (a) expiration of the Term or (b) one year after
termination of the employment relationship; provided, however,
that upon an Involuntary Termination as defined in the
Company's Change of Control Severance Plan, which entitles
Employee to severance benefits under said Plan, these
non-competition obligations shall expire immediately and have
no further force and effect. For purposes of this Section, it
is specifically understood that Employee may return to private
legal practice, and may represent companies which compete with
Employer in such private legal practice, without breaching the
provisions of this Section."
3. The following new Article 9 shall be inserted at the end of
the Employment Agreement:
"ARTICLE 9: U.S. EXCISE TAX INDEMNIFICATION
9.1 Indemnification. In the event it shall be determined
that any payment or distribution by the Company to or for the
benefit of Employee (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement, the
Company's Change of Control Severance Plan or otherwise, but
determined without regard to any additional payments required
under this Article 9) (a "Payment") would be subject to the
excise tax imposed by Section 4999 of the United States
Internal Revenue Code of 1986, as amended (the "Code"), or any
interest or penalties are incurred by Employee with respect to
such excise tax
<PAGE> 3
(such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the
"Excise Tax"), then Employee shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such
that after payment by Employee of all taxes (including any
interest or penalties imposed with respect to such taxes),
including, without limitation, any income and employment taxes
(and any interest and penalties imposed with respect thereto)
and Excise Tax imposed upon the Gross-Up Payment, Employee
retains an amount of the Gross-Up Payment equal to the Excise
Tax imposed upon the Payments.
9.2 Determination of Amount. Subject to the provisions
of Section 9.3, all determinations required to be made under
this Article 9, including whether and when a Gross-Up Payment
is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination,
shall be made by a public accounting firm chosen by the
Company (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and Employee if
requested by either the Company or Employee. All fees and
expenses of the Accounting Firm shall be borne solely by the
Company. Any determination by the Accounting Firm shall be
binding upon the Company and Employee. As a result of the
uncertainty in the application of Section 4999 of the Code at
the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will
not have been made by the Company should have been made
("Underpayment"), consistent with the calculations required to
be made hereunder. In the event that the Company exhausts its
remedies pursuant to Section 9.3 and Employee thereafter is
required to make a payment of any additional Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly
paid by the Company to or for the benefit of Employee.
9.3 Contest of Claims. If the Company elects to contest
a claim by the Internal Revenue Service that Excise Tax is due
from Employee, Employee shall cooperate fully with the Company
in order to effectively contest such claim, including, but not
limited to providing information reasonably requested by the
Company relating to such claim, accepting legal representation
with respect to such claim by an attorney reasonably selected
by the Company and permitting the Company to participate in
any proceedings relating to such claim. The Company shall bear
and pay directly all costs and expenses (including additional
interest and penalties) incurred in connection with such
contest and shall indemnify and hold Employee harmless, on an
after-tax basis, for any Excise Tax or other tax (including
interest and penalties with respect thereto) imposed as a
result of such representation and payment of costs and
expenses.
<PAGE> 4
9.4 Advances and Refunds. If the Company directs
Employee to pay a claim by the Internal Revenue Service and
sue for a refund, the Company shall advance the amount of such
payment to Employee on an interest-free basis and shall
indemnify and hold Employee harmless, on an after-tax basis,
from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such
advance or with respect to any imputed income with respect to
such advance. If, after the receipt by Employee of an amount
advanced by the Company pursuant to this Section 9.4, Employee
becomes entitled to receive, and receives, any refund with
respect to such claim, Employee shall promptly pay to the
Company the amount of such refund (together with any interest
paid or credited thereon after taxes applicable thereto). If,
after the receipt by Employee of an amount advanced by the
Company pursuant to this Section 9.4, a determination is made
that Employee is not entitled to any refund with respect to
such claim, then such advance shall not be required to be
repaid and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be
paid."
This Agreement is the Second Amendment to the Employment Agreement, and
the parties agree that all other terms, conditions and stipulations contained in
the Employment Agreement, and any amendments thereto, shall remain in full force
and effect and without any change or modification, except as provided herein.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
ENRON OIL & GAS COMPANY
By: /s/ PATRICIA EDWARDS
----------------------------------------------
Name: Patricia Edwards
Title: V.P. Human Resources & Administration
This 15th day of March, 1999
BARRY HUNSAKER, JR.
/s/ BARRY HUNSAKER, JR.
-------------------------------------------------
This 15th day of March, 1999
<PAGE> 1
EXHIBIT 10.67(a)
EXECUTIVE EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement"), including the attached Exhibit
"A," is entered into between Enron Oil & Gas Company, a Delaware corporation,
having offices at 1400 Smith Street, Houston, Texas 77002 ("Employer"), and
Loren M. Leiker, an individual currently residing at 5730 Tanglecircle, Houston,
Texas 77057 ("Employee"), to be effective as of March 1, 1998 (the "Effective
Date").
WITNESSETH:
WHEREAS, Employer is desirous of employing Employee pursuant to the
terms and conditions and for the consideration set forth in this Agreement, and
Employee is desirous of entering the employ of Employer pursuant to such terms
and conditions and for such consideration.
NOW, THEREFORE, for and in consideration of the mutual promises,
covenants, and obligations contained herein, Employer and Employee agree as
follows:
ARTICLE 1: EMPLOYMENT AND DUTIES:
1.1 Employer agrees to employ Employee, and Employee agrees to be
employed by Employer, beginning as of the Effective Date and continuing until
the date set forth on Exhibit "A" (the "Term"), subject to the terms and
conditions of this Agreement.
1.2 Employee initially shall be employed in the position set forth on
Exhibit A. Employer may subsequently assign Employee to a different position or
modify Employee's duties and responsibilities. Employee agrees to serve in the
assigned position and to perform diligently and to the best of Employee's
abilities the duties and services appertaining to such position as determined by
Employer, as well as such additional or different duties and services
appropriate to such position which Employee from time to time may be reasonably
directed to perform by Employer. Employee shall at all times comply with and be
subject to such policies and procedures as Employer may establish from time to
time.
1.3 Employee shall, during the period of Employee's employment by
Employer, devote Employee's full business time, energy, and best efforts to the
business and affairs of Employer. Employee may not engage, directly or
indirectly, in any other business, investment, or activity that interferes with
Employee's performance of Employee's duties hereunder, is contrary to the
interests of Employer or Enron, or requires any significant portion of
Employee's business time.
1.4 In connection with Employee's employment by Employer, Employer
shall endeavor to provide Employee access to such confidential information
pertaining to the business and services of Employer as is appropriate for
Employee's employment responsibilities. Employer also shall endeavor to provide
to Employee the opportunity to develop business relationships with those of
1
<PAGE> 2
Employer's clients and potential clients that are appropriate for Employee's
employment responsibilities.
1.5 Employee acknowledges and agrees that, at all times during the
employment relationship Employee owes fiduciary duties to Employer, including
but not limited to the fiduciary duties of the highest loyalty, fidelity and
allegiance to act at all times in the best interests of the Employer, to make
full disclosure to Employer of all information that pertains to Employer's
business and interests, to do no act which would injure Employer's business, its
interests, or its reputation, and to refrain from using for Employee's own
benefit or for the benefit of others any information or opportunities pertaining
to Employer's business or interests that are entrusted to Employee or that he
learned while employed by Employer. Employee acknowledges and agrees that upon
termination of the employment relationship, Employee shall continue to refrain
from using for his own benefit or the benefit of others any information or
opportunities pertaining to Employer's business or interests that were entrusted
to Employee during the employment relationship or that he learned while employed
by Employer. Employee agrees that while employed by Employer and thereafter he
shall not knowingly take any action which interferes with the internal
relationships between Employer and its employees or representatives or
interferes with the external relationships between Employer and third parties.
1.6 It is agreed that any direct or indirect interest in, connection
with, or benefit from any outside activities, particularly commercial
activities, which interest might in any way adversely affect Employer or any of
its affiliates, involves a possible conflict of interest. In keeping with
Employee's fiduciary duties to Employer, Employee agrees that during the
employment relationship Employee shall not knowingly become involved in a
conflict of interest with Employer or its affiliates, or upon discovery thereof,
allow such a conflict to continue. Moreover, Employee agrees that Employee shall
disclose to Employer's President any facts which might involve such a conflict
of interest that has not been approved by Employer's President. Employer and
Employee recognize that it is impossible to provide an exhaustive list of
actions or interests which constitute a "conflict of interest." Moreover,
Employer and Employee recognize there are many borderline situations. In some
instances, full disclosure of facts by the Employee to Employer's President may
be all that is necessary to enable Employer or its affiliates to protect its
interests. In others, if no improper motivation appears to exist and the
interests of Employer or its affiliates have not suffered, prompt elimination of
the outside interest will suffice. In still others, it may be necessary for
Employer to terminate the employment relationship. Employer and Employee agree
that Employer's determination as to whether a conflict of interest exists shall
be conclusive. Employer reserves the right to take such action as, in its
judgment, will end the conflict.
ARTICLE 2: COMPENSATION AND BENEFITS:
2.1 Employee's monthly base salary during the Term shall be not less
than the amount set forth under the heading "Monthly Base Salary" on Exhibit A,
subject to increase at the sole discretion of the Employer, which shall be paid
in semimonthly installments in accordance with Employer's standard payroll
practice. Any calculation to be made under this Agreement with respect to
Employee's Monthly Base Salary shall be made using the then current Monthly Base
Salary in effect at the time of the event for which such calculation is made.
2
<PAGE> 3
2.2 While employed by Employer (both during the Term and thereafter),
Employee shall be allowed to participate, on the same basis generally as other
employees of Employer, in all general employee benefit plans and programs,
including improvements or modifications of the same, which on the effective date
or thereafter are made available by Employer to all or substantially all of
Employer's employees. Such benefits, plans, and programs may include, without
limitation, medical, health, and dental care, life insurance, disability
protection, and pension plans. Nothing in this Agreement is to be construed or
interpreted to provide greater rights, participation, coverage, or benefits
under such benefit plans or programs than provided to similarly situated
employees pursuant to the terms and conditions of such benefit plans and
programs.
2.3 Employer shall not by reason of this Article 2 be obligated to
institute, maintain, or refrain from changing, amending, or discontinuing, any
such incentive compensation or employee benefit program or plan, so long as such
actions are similarly applicable to covered employees generally. Moreover,
unless specifically provided for in a written plan document adopted by the Board
of Directors of either Employer or Enron, none of the benefits or arrangements
described in this Article 2 shall be secured or funded in any way, and each
shall instead constitute an unfunded and unsecured promise to pay money in the
future exclusively from the general assets of Employer.
ARTICLE 3: TERMINATION PRIOR TO EXPIRATION OF TERM AND EFFECTS OF SUCH
TERMINATION:
3.1. Notwithstanding any other provisions of this Agreement, Employer
shall have the right to terminate Employee's employment under this Agreement at
any time prior to the expiration of the Term for any of the following reasons:
(i) For "cause" upon the determination by the Employer's Board of
Directors or Enron's management committee (or, if there is no
Enron management committee, the highest applicable level of
Enron management) that "cause" exists for the termination of
the employment relationship. As used in this Section 3.1(i),
the term "cause" shall mean [a] Employee's gross negligence or
willful misconduct in the performance of the duties and
services required of Employee pursuant to this Agreement; [b]
Employee has been convicted of a felony; [c] Employee has
willfully refused without proper legal reason to perform the
duties and responsibilities required of Employee under this
Agreement which remains uncorrected for thirty (30) days
following written notice to Employee by Employer of such
breach; [d] Employee's involvement in a conflict of interest
as referenced in Section 1.6 for which Employer makes a
determination to terminate the employment of Employee which
remains uncorrected for thirty (30) days following written
notice to Employee by Employer of such breach; [e] Employee
has willfully engaged in conduct that Employee knows or should
know is materially injurious to Employer, Enron, or any of
their respective subsidiaries; [f] Employee's material breach
of any material provision of this Agreement or corporate code
or policy which remains uncorrected for thirty (30) days
following written notice to Employee by Employer of such
breach; or [g] Employee violates the Foreign Corrupt Practices
Act or other applicable United States law as proscribed by
Section 5.1. It is expressly acknowledged and agreed that the
decision as to whether "cause" exists for termination of the
employment
3
<PAGE> 4
relationship by Employer is delegated to the Employer's
management committee (or, if there is no management committee,
the highest applicable level of Employer's management) for
determination. If Employee disagrees with the decision reached
by Employer's management committee (or, if there is no
management committee, the highest applicable level of
Employer's management), the dispute will be limited to whether
Employer's management committee (or, if there is no Enron
management committee, the highest applicable level of
Employer's management) reached its decision in good faith;
(ii) for any other reason whatsoever, with or without cause, in the
sole discretion of the management committee (or, if there is
no management committee, the highest applicable level of
management) of Employer;
(iii) upon Employee's death; or
(iv) upon Employee's becoming disabled so as to entitle Employee to
benefits under Enron's long-term disability plan or, if
Employee is not eligible to participate in such plan, then
Employee is permanently and totally unable to perform
Employee's duties for Employer as a result of any medically
determinable physical or mental impairment as supported by a
written medical opinion to the foregoing effect by a physician
selected by Employee from a list of five physicians provided
by Employer. If Employee has not selected a physician within
thirty (30) days, Employer may select one.
The termination of Employee's employment by Employer prior to the expiration of
the Term shall constitute a "Termination for Cause" if made pursuant to Section
3.1(i); the effect of such termination is specified in Section 3.4. The
termination of Employee's employment by Employer prior to the expiration of the
Term shall constitute an "Involuntary Termination" if made pursuant to Section
3.1(ii); the effect of such termination is specified in Section 3.5. The effect
of the employment relationship being terminated pursuant to Section 3.1(iii) as
a result of Employee's death is specified in Section 3.6. The effect of the
employment relationship being terminated pursuant to Section 3.1(iv) as a result
of the Employee becoming incapacitated is specified in Section 3.7.
3.2 Notwithstanding any other provisions of this Agreement
except Section 8.6, Employee shall have the right to terminate the employment
relationship under this Agreement at any time prior to the expiration of the
Term of employment for any of the following reasons:
(i) a material breach by Employer of any material provision of
this Agreement which remains uncorrected for 30 days following
written notice of such breach by Employee to Employer; or
(ii) for any other reason whatsoever, in the sole discretion of
Employee.
The termination of Employee's employment by Employee prior to the expiration of
the Term shall constitute an "Involuntary Termination" if made pursuant to
Section 3.2(i); the effect of such termination is specified in Section 3.5. The
termination of Employee's employment by Employee prior
4
<PAGE> 5
to the expiration of the Term shall constitute a "Voluntary Termination" if made
pursuant to Section 3.2(ii); the effect of such termination is specified in
Section 3.3.
3.3 Upon a "Voluntary Termination" of the employment relationship by
Employee prior to expiration of the Term, all future compensation to which
Employee is entitled and all future benefits for which Employee is eligible
shall cease and terminate as of the date of termination. Employee shall be
entitled to pro rata salary through the date of such termination, but Employee
shall not be entitled to any individual bonuses or individual incentive
compensation not yet paid at the date of such termination.
3.4 If Employee's employment hereunder shall be terminated by Employer
for Cause prior to expiration of the Term, all future compensation to which
Employee is entitled and all future benefits for which Employee is eligible
shall cease and terminate as of the date of termination. Employee shall be
entitled to pro rata salary through the date of such termination, but Employee
shall not be entitled to any individual bonuses or individual incentive
compensation not yet paid at the date of such termination.
3.5 Upon an Involuntary Termination of the employment relationship by
either Employer or Employee prior to the expiration of the Term, Employee shall
be entitled, in consideration of Employee's continuing obligations hereunder
after such termination (including, without limitation, Employee's
non-competition obligations), to receive one hundred twenty-five percent (125%)
of the then current Monthly Base Salary as if Employee's employment (which shall
cease on the date of such Involuntary Termination) had continued for the full
Term of this Agreement Employee shall not be under any duty or obligation to
seek or accept other employment following Involuntary Termination and the
amounts due Employee hereunder shall not be reduced or suspended if Employee
accepts subsequent employment. Employee's rights under this Section 3.5 are
Employee's sole and exclusive rights against Employer, Enron, or their
affiliates, and Employer's sole and exclusive liability to Employee under this
Agreement, in contract, tort, or otherwise, for any Involuntary Termination of
the employment relationship. Employee covenants not to sue or lodge any claim,
demand or cause of action against Employer for any sums for Involuntary
Termination other than those sums specified in this Section 3.5. If Employee
breaches this covenant, Employer shall be entitled to recover from Employee all
sums expended by Employer (including costs and attorneys fees) in connection
with such suit, claim, demand or cause of action.
3.6 Upon termination of the employment relationship as a result of
Employee's death, Employee's heirs, administrators, or legatees shall be
entitled to Employee's pro rata salary through the date of such termination, but
Employee's heirs, administrators, or legatees shall not be entitled to any
individual bonuses or individual incentive compensation not yet paid to Employee
at the date of such termination.
3.7 Upon termination of the employment relationship as a result of
Employee's incapacity, Employee shall be entitled to his or her pro rata salary
through the date of such termination, but Employee shall not be entitled to any
individual bonuses or individual incentive compensation not yet paid to Employee
at the date of such termination.
5
<PAGE> 6
3.8 In all cases, the compensation and benefits payable to Employee
under this Agreement upon termination of the employment relationship shall be
offset against any amounts to which Employee may otherwise be entitled under any
and all severance plans, and policies of Employer, Enron, or its affiliates.
3.9 Termination of the employment relationship does not terminate those
obligations imposed by this Agreement which are continuing obligations,
including, without limitation, Employee's obligations under Article 7.
ARTICLE 4: CONTINUATION OF EMPLOYMENT BEYOND TERM; TERMINATION AND EFFECTS OF
TERMINATION:
4.1 Should Employee remain employed by Employer beyond the expiration
of the Term specified on Exhibit "A," such employment shall convert to a
month-to-month relationship terminable at any time by either Employer or
Employee for any reason whatsoever, with or without cause. Upon such termination
of the employment relationship by either Employer or Employee for any reason
whatsoever, all future compensation to which Employee is entitled and all future
benefits for which Employee is eligible shall cease and terminate. Employee
shall be entitled to pro rata salary through the date of such termination, but
Employee shall not be entitled to any individual bonuses or individual incentive
compensation not yet paid at the date of such termination.
ARTICLE 5: UNITED STATES FOREIGN CORRUPT PRACTICES ACT AND OTHER LAWS:
5.1. Employee shall at all times comply with United States laws
applicable to Employee's actions on behalf of Employer, including specifically,
without limitation, the United States Foreign Corrupt Practices Act, generally
codified in 15 USC 78 (FCPA), as the FCPA may hereafter be amended, and/or its
successor statutes. If Employee pleads guilty to or nolo contendere or admits
civil or criminal liability under the FCPA or other applicable United States
law, or if a court finds that Employee has personal civil or criminal liability
under the FCPA or other applicable United States law, or if a court finds that
Employee committed an action resulting in any Enron entity having civil or
criminal liability or responsibility under the FCPA or other applicable United
States law with knowledge of the activities giving rise to such liability or
knowledge of facts from which Employee should have reasonably inferred the
activities giving rise to liability had occurred or were likely to occur, such
action or finding shall constitute "cause" for termination under this Agreement
unless Employer's management committee (or, if there is no management committee,
the highest applicable level of Employer's management) determines that the
actions found to be in violation of the FCPA or other applicable United States
law were taken in good faith and in compliance with all applicable policies of
Employer and Enron.
ARTICLE 6: OWNERSHIP AND PROTECTION OF INFORMATION; COPYRIGHTS:
6.1 All information, ideas, concepts, improvements, discoveries, and
inventions, whether patentable or not, which are conceived, made, developed or
acquired by Employee, individually or in conjunction with others, during
Employee's employment by Employer (whether during business hours or otherwise
and whether on Employer's premises or otherwise) which relate to Employer's
6
<PAGE> 7
business, products or services (including, without limitation, all such
information relating to corporate opportunities, research, financial and sales
data, pricing and trading terms, evaluations, opinions, interpretations,
acquisition prospects, the identity of customers or their requirements, the
identity of key contacts within the customer's organizations or within the
organization of acquisition prospects, or marketing and merchandising
techniques, prospective names, and marks) shall be disclosed to Employer and are
and shall be the sole and exclusive property of Employer. Moreover, all
drawings, memoranda, notes, records, files, correspondence, drawings, manuals,
models, specifications, computer programs, maps and all other writings or
materials of any type embodying any of such information, ideas, concepts,
improvements, discoveries, and inventions are and shall be the sole and
exclusive property of Employer.
6.2 Employee acknowledges that the business of Employer, Enron, and
their affiliates is highly competitive and that their strategies, methods,
books, records, and documents, their technical information concerning their
products, equipment, services, and processes, procurement procedures and pricing
techniques, the names of and other information (such as credit and financial
data) concerning their customers and business affiliates, all comprise
confidential business information and trade secrets which are valuable, special,
and unique assets which Employer, Enron, or their affiliates use in their
business to obtain a competitive advantage over their competitors. Employee
further acknowledges that protection of such confidential business information
and trade secrets against unauthorized disclosure and use is of critical
importance to Employer, Enron, and their affiliates in maintaining their
competitive position. Employee hereby agrees that Employee will not, at any time
during or after his or her employment by Employer, make any unauthorized
disclosure of any confidential business information or trade secrets of
Employer, Enron, or their affiliates, or make any use thereof, except in the
carrying out of his or her employment responsibilities hereunder. Enron and its
affiliates shall be third party beneficiaries of Employee's obligations under
this Section. As a result of Employee's employment by Employer, Employee may
also from time to time have access to, or knowledge of, confidential business
information or trade secrets of third parties, such as customers, suppliers,
partners, joint venturers, and the like, of Employer, Enron, and their
affiliates. Employee also agrees to preserve and protect the confidentiality of
such third party confidential information and trade secrets to the same extent,
and on the same basis, as Employer's confidential business information and trade
secrets. Employee acknowledges that money damages would not be sufficient remedy
for any breach of this Article 6 by Employee, and Employer shall be entitled to
enforce the provisions of this Article 6 by terminating any payments then owing
to Employee under this Agreement and/or to specific performance and injunctive
relief as remedies for such breach or any threatened breach. Such remedies shall
not be deemed the exclusive remedies for a breach of this Article 6, but shall
be in addition to all remedies available at law or in equity to Employer,
including the recovery of damages from Employee and his or her agents involved
in such breach.
6.3 All written materials, records, and other documents made by, or
coming into the possession of, Employee during the period of Employee's
employment by Employer which contain or disclose confidential business
information or trade secrets of Employer, Enron, or their affiliates shall be
and remain the property of Employer, Enron, or their affiliates, as the case may
be. Upon termination of Employee's employment by Employer, for any reason,
Employee promptly shall deliver the same, and all copies thereof, to Employer.
7
<PAGE> 8
6.4 If, during Employee's employment by Employer, Employee creates any
original work of authorship fixed in any tangible medium of expression which is
the subject matter of copyright (such as videotapes, written presentations on
acquisitions, computer programs, drawings, maps, architectural renditions,
models, manuals, brochures, or the like) relating to Employer's business,
products, or services, whether such work is created solely by Employee or
jointly with others (whether during business hours or otherwise and whether on
Employer's premises or otherwise), Employee shall disclose such work to
Employer. Employer shall be deemed the author of such work if the work is
prepared by Employee in the scope of his or her employment; or, if the work is
not prepared by Employee within the scope of his or her employment but is
specially ordered by Employer as a contribution to a collective work, as a part
of a motion picture or other audiovisual work, as a translation, as a
supplementary work, as a compilation, or as an instructional text, then the work
shall be considered to be work made for hire and Employer shall be the author of
the work. If such work is neither prepared by the Employee within the scope of
his or her employment nor a work specially ordered and is deemed to be a work
made for hire, then Employee hereby agrees to assign, and by these presents does
assign, to Employer all of Employee's worldwide right, title, and interest in
and to such work and all rights of copyright therein.
6.5 Both during the period of Employee's employment by Employer and
thereafter, Employee shall assist Employer and its nominee, at any time, in the
protection of Employer's worldwide right, title, and interest in and to
information, ideas, concepts, improvements, discoveries, and inventions, and its
copyrighted works, including without limitation, the execution of all formal
assignment documents requested by Employer or its nominee and the execution of
all lawful oaths and applications for applications for patents and registration
of copyright in the United States and foreign countries.
6.6 Information covered by this Article 6 does not include information
(1) known to Employee prior to or independent of Employee's employment by
Employer; (2) generally available to the public; or (3) made available to
Employee without breaching the provisions of this Article 6.
ARTICLE 7: POST-EMPLOYMENT NON-COMPETITION OBLIGATIONS:
7.1 As part of the consideration for the compensation and benefits to
be paid to Employee hereunder, in keeping with Employee's duties as a fiduciary
and in order to protect Employer's interests in the confidential information of
Employer and the business relationships developed by Employee with the clients
and potential clients of Employer, and as an additional incentive for Employer
to enter into this Agreement, Employer and Employee agree to the non-competition
provisions of this Article 7. Employee agrees that during the period of
Employee's non-competition obligations hereunder, Employee will not, directly or
indirectly for Employee or for others, in any specific geologic trend area where
Employer is conducting any exploration business as of the date of termination of
the employment relationship or has during the previous twelve months conducted
any exploration business:
(i) engage in any exploration business competitive with the exploration
business conducted by Employer;
8
<PAGE> 9
(ii) render advice or services to, or otherwise assist, any other
person, association, or entity who is engaged, directly or indirectly, in any
exploration business competitive with the exploration business conducted by
Employer;
(iii) induce any employee of Employer or Enron or any of their
affiliates to terminate his or her employment with Employer, Enron, or their
affiliates, or hire or assist in the hiring of any such employee by person,
association, or entity not affiliated with Enron.
These non-competition obligations shall extend until the earlier of (a)
expiration of the Term or (b) one year after termination of the employment
relationship. Further, Employee may exercise his right to voluntarily resign
under Section 3.2(ii) upon the occurrence of any one of the events described
below and these non-competition obligations shall expire immediately and have no
further force and effect, and the Employer shall have no further obligations to
Employee under this Agreement:
1. the Employer ceases to be an affiliate of Enron Corp. as defined at
Section 8.1;
2. the Employer undergoes a reorganization or change in business
circumstances such that Employee's duties and responsibilities are
substantially reduced; or
3. the Employee is asked to relocate outside the Houston Metropolitan
Area.
7.2 Employee understands that the foregoing restrictions may limit his
or her ability to engage in certain businesses anywhere in the world during the
period provided for above, but acknowledges that Employee will receive
sufficiently high remuneration and other benefits (e.g., the right to receive
compensation under Section 3.5 for the remainder of the Term upon Involuntary
Termination) under this Agreement to justify such restriction. Employee
acknowledges that money damages would not be sufficient remedy for any breach of
this Article 7 by Employee, and Employer shall be entitled to enforce the
provisions of this Article 7 by terminating any payments then owing to Employee
under this Agreement and/or to specific performance and injunctive relief as
remedies for such breach or any threatened breach. Such remedies shall not be
deemed the exclusive remedies for a breach of this Article 7, but shall be in
addition to all remedies available at law or in equity to Employer, including,
without limitation, the recovery of damages from Employee and his or her agents
involved in such breach.
7.3 It is expressly understood and agreed that Employer and Employee
consider the restrictions contained in this Article 7 to be reasonable and
necessary to protect the proprietary information of Employer. Nevertheless, if
any of the aforesaid restrictions are found by a court having jurisdiction to be
unreasonable, or overly broad as to geographic area or time, or otherwise
unenforceable, the parties intend for the restrictions therein set forth to be
modified by such courts so as to be reasonable and enforceable and, as so
modified by the court, to be fully enforced.
ARTICLE 8: MISCELLANEOUS:
8.1 For purposes of this Agreement the terms "affiliates" or
"affiliated" means an entity who directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with
Enron or Employer.
9
<PAGE> 10
8.2 Employee shall refrain, both during the employment relationship and
after the employment relationship terminates, from publishing any oral or
written statements about Employer, Enron, any of their respective subsidiaries
or affiliates, or any of such entities' officers, employees, agents or
representatives that are slanderous, libelous, or defamatory; or that disclose
private or confidential information about Employer, Enron, any of their
respective subsidiaries or affiliates, or any of such entities' business
affairs, officers, employees, agents, or representatives; or that constitute an
intrusion into the seclusion or private lives of Employer, Enron, any of their
respective subsidiaries or affiliates, or such entities' officers, employees,
agents, or representatives; or that give rise to unreasonable publicity about
the private lives of Employer, Enron, any of their respective subsidiaries or
affiliates, or any of such entities' officers, employees, agents, or
representatives; or that place Employer, Enron, any of their respective
subsidiaries or affiliates, or any of such entities' or its officers, employees,
agents, or representatives in a false light before the public; or that
constitute a misappropriation of the name or likeness of Employer, Enron, any of
their respective subsidiaries or affiliates, or any of such entities' or its
officers, employees, agents, or representatives. A violation or threatened
violation of this prohibition may be enjoined by the courts. The rights afforded
the Enron entities and affiliates under this provision are in addition to any
and all rights and remedies otherwise afforded by law.
8.3 For purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when personally delivered or when mailed by United States
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to Employer:
Enron Oil & Gas Company
1400 Smith Street
Houston, Texas 77002
Attention: Corporate Secretary
If to Employee, to the address shown on the first page hereof.
Either Employer or Employee may furnish a change of address to the other in
writing in accordance herewith, except that notices of changes of address shall
be effective only upon receipt.
8.4 This Agreement shall be governed in all respects by the laws of the
State of Texas, excluding any conflict-of-law rule or principle that might refer
the construction of the Agreement to the laws of another State or country.
8.5 No failure by either party hereto at any time to give notice of any
breach by the other party of, or to require compliance with, any condition or
provision of this Agreement shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time.
10
<PAGE> 11
8.6 If a dispute arises out of or related to this Agreement, other than
a dispute regarding Employee's obligations under Article 6, or Article 7, and if
the dispute cannot be settled through direct discussions, then Employer and
Employee agree to first endeavor to settle the dispute in an amicable manner by
mediation, before having recourse to any other proceeding or forum.
8.7 Each of Employer and Employee is a citizen of the State of Texas.
Employer's principal place of business is in Houston, Harris County, Texas.
Employee resides in Harris County, Texas. This Agreement was negotiated and
signed in Houston, Texas. This Agreement shall be performed in Houston, Texas.
Any litigation that may be brought by either Employer or Employee involving the
enforcement of this Agreement or the rights, duties, or obligations of this
Agreement, shall be brought exclusively in the State or federal courts sitting
in Houston, Harris County, Texas.
8.8 It is a desire and intent of the parties that the terms,
provisions, covenants, and remedies contained in this Agreement shall be
enforceable to the fullest extent permitted by law. If any such term, provision,
covenant, or remedy of this Agreement or the application thereof to any person,
association, or entity or circumstances shall, to any extent, be construed to be
invalid or unenforceable in whole or in part, then such term, provision,
covenant, or remedy shall be construed in a manner so as to permit its
enforceability under the applicable law to the fullest extent permitted by law.
In any case, the remaining provisions of this Agreement or the application
thereof to any person, association, or entity or circumstances other than those
to which they have been held invalid or unenforceable, shall remain in full
force and effect.
8.9 This Agreement shall be binding upon and inure to the benefit of
Employer and any other person, association, or entity which may hereafter
acquire or succeed to all or substantially all of the business or assets of
Employer by any means whether direct or indirect, by purchase, merger,
consolidation, or otherwise. Employee's rights and obligations under Agreement
hereof are personal and such rights, benefits, and obligations of Employee shall
not be voluntarily or involuntarily assigned, alienated, or transferred, whether
by operation of law or otherwise, without the prior written consent of Employer.
8.10 There exist other agreements between Employer and Employee
relating to the employment relationship between them, e.g., the agreement with
respect to company policies contained in Employer's Conduct of Business Affairs
booklet and agreements with respect to benefit plans. This Agreement replaces
and merges previous agreements and discussions pertaining to the following
subject matters covered herein: the nature of Employee's employment relationship
with Employer and the term and termination of such relationship. This Agreement
constitutes the entire agreement of the parties with regard to such subject
matters, and contains all of the covenants, promises, representations,
warranties, and agreements between the parties with respect such subject
matters. Each party to this Agreement acknowledges that no representation,
inducement, promise, or agreement, oral or written, has been made by either
party with respect to such subject matters, which is not embodied herein, and
that no agreement, statement, or promise relating to the employment of Employee
by Employer that is not contained in this Agreement shall be valid or binding.
Any modification of this Agreement will be effective only if it is in writing
and signed by each party whose rights hereunder are affected thereby, provided
that any such modification must be authorized or approved by the Board of
Directors of Employer.
11
<PAGE> 12
IN WITNESS WHEREOF, Employer and Employee have duly executed this
Agreement in multiple originals to be effective on the date first stated above.
ENRON OIL & GAS COMPANY
By: /s/ PATRICIA EDWARDS
-----------------------------------------
Name: Patricia Edwards
Title: V.P. Human Resources & Administration
This 26 day of May, 1998
LOREN M. LEIKER
/s/ LOREN M. LEIKER
--------------------------------------------
This 14 day of May, 1998
12
<PAGE> 13
EXHIBIT "A" TO
EXECUTIVE EMPLOYMENT AGREEMENT
BETWEEN ENRON OIL & GAS COMPANY AND LOREN M. LEIKER
Employee Name: Loren M. Leiker
Term: March 1, 1998 through February 28, 2003
Position: Senior Vice President of Exploration. Effective May
5, 1998, Employee shall be promoted to the position
of Executive Vice President of Exploration
Location: Houston, Texas
Reporting Relationship: Reports to Mark G. Papa, President & Chief
Operating Officer
Monthly Base Salary: Twenty Thousand Eight Hundred Thirty-Three and
33/100 Dollars ($20,833.33) per month.
Bonus: Employee shall be eligible for Annual Bonus at 50%
target level, but nothing guaranteed.
Long Term Incentives: Employee shall be eligible for:
a) grants of stock options and/or restricted
stock, at a frequency comparable to similarly
situated executives of Employer; and
b) a grant of 10,000 shares of restricted stock,
effective February 11, 1998, vesting 100% five
(5) years from date of grant.
ENRON OIL & GAS COMPANY
By: /s/ PATRICIA EDWARDS
-----------------------------------------
Name: Patricia Edwards
Title: V.P. Human Resources & Administration
This 26 day of May, 1998
LOREN M. LEIKER
/s/ LOREN M. LEIKER
-------------------------------------------
This 14 day of May, 1998
13
<PAGE> 1
EXHIBIT 10.67(b)
FIRST AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT
This Agreement, entered into on this 14th of March, 1999, and made
effective as of February 1, 1999, by and between ENRON OIL & GAS COMPANY
("Company" or "Employer") and LOREN M. LEIKER ("Employee") is an amendment to
that certain Employment Agreement made effective as of March 1, 1998 (the
"Employment Agreement").
WHEREAS, the parties desire to amend the Employment Agreement as
provided herein;
NOW, THEREFORE, in consideration thereof and of the mutual covenants
contained herein, the parties agree as follows:
1. Article 3, Section 3.5 of the Employment Agreement is hereby
deleted in its entirety and the following is substituted
therefor:
"3.5 Upon an Involuntary Termination of the employment
relationship by either Employer or Employee prior to the
expiration of the Term, Employee shall be entitled, in
consideration of Employee's continuing obligations hereunder
after such termination (including, without limitation,
Employee's non-competition obligations), to receive one
hundred twenty-five percent (125%) of the then current Monthly
Base Salary as if Employee's employment (which shall cease on
the date of such Involuntary Termination) had continued for
the full Term of this Agreement. Notwithstanding any other
provisions of this Agreement, a termination of the employment
relationship by either the Employer or Employee which meets
the definition of Involuntary Termination under the Company's
Change of Control Severance Plan shall constitute an
Involuntary Termination under this Agreement. In the event of
such Involuntary Termination which entitles Employee to
severance benefits under said Plan, but for the following
severance payment by the Company to the Employee, Employee
shall receive from the Company a severance benefit under this
Agreement equal to the greater of (a) one hundred twenty-five
percent (125%) of the then current Monthly Base Salary as if
Employee's employment (which shall cease on the date of such
Involuntary Termination) had continued for the full Term of
this Agreement, or (b) the sum of Employee's then current
Monthly Base Salary times 12 times 2.99 plus two times the
Employee's annual bonus target award under the Company's
annual bonus program for the year in which the Change of
Control Date occurs. Employee's severance benefit payable
under said Plan, if any, shall be determined according to the
provisions thereof. Employee shall not be under any duty or
obligation to seek or accept other employment following
Involuntary Termination and
<PAGE> 2
the amounts due Employee hereunder shall not be reduced or
suspended if Employee accepts subsequent employment.
Employee's rights under this Section 3.5 are Employee's sole
and exclusive rights against Employer, Enron, or their
affiliates, and Employer's sole and exclusive liability to
Employee under this Agreement, in contract, tort, or
otherwise, for any Involuntary Termination of the employment
relationship. Employee covenants not to sue or lodge any
claim, demand or cause of action against Employer for any sums
for Involuntary Termination other than those sums specified in
this Section 3.5. If Employee breaches this covenant, Employer
shall be entitled to recover from Employee all sums expended
by Employer (including costs and attorneys fees) in connection
with such suit, claim, demand or cause of action."
2. The last paragraph of Article 7, Section 7.1 is hereby deleted
in its entirety and the following is substituted therefor:
"These non-competition obligations shall extend until the
earlier of (a) expiration of the Term or (b) one year after
termination of the employment relationship; provided, however,
that upon an Involuntary Termination as defined in the
Company's Change of Control Severance Plan, which entitles
Employee to severance benefits under said Plan, these
non-competition obligations shall expire immediately and have
no further force and effect. Further, notwithstanding a change
of control of the Company, Employee may exercise his right to
voluntarily resign under Section 3.2(ii) upon the occurrence
of any one of the events described below and these
non-competition obligations shall expire immediately and have
no further force and effect, and the Employer shall have no
further obligations to Employee under this Agreement:
1. the Employer ceases to be an affiliate of Enron
Corp. as defined at Section 8.1;
2 the Employer undergoes a reorganization or change
in business circumstances such that Employee's duties
and responsibilities are substantially reduced; or
3. the Employee is asked to relocate outside the
Houston Metropolitan Area."
3. The following new Article 9 shall be inserted at the end of
the Employment Agreement:
"ARTICLE 9: U.S. EXCISE TAX INDEMNIFICATION
9.1 Indemnification. In the event it shall be
determined that any payment or distribution by the Company to
or for the benefit of
<PAGE> 3
Employee (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement, the
Company's Change of Control Severance Plan or otherwise, but
determined without regard to any additional payments required
under this Article 9) (a "Payment") would be subject to the
excise tax imposed by Section 4999 of the United States
Internal Revenue Code of 1986, as amended (the "Code"), or any
interest or penalties are incurred by Employee with respect to
such excise tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred
to as the "Excise Tax"), then Employee shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an
amount such that after payment by Employee of all taxes
(including any interest or penalties imposed with respect to
such taxes), including, without limitation, any income and
employment taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax imposed upon the Gross-Up
Payment, Employee retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments.
9.2 Determination of Amount. Subject to the
provisions of Section 9.3, all determinations required to be
made under this Article 9, including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up
Payment and the assumptions to be utilized in arriving at such
determination, shall be made by a public accounting firm
chosen by the Company (the "Accounting Firm") which shall
provide detailed supporting calculations both to the Company
and Employee if requested by either the Company or Employee.
All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any determination by the Accounting
Firm shall be binding upon the Company and Employee. As a
result of the uncertainty in the application of Section 4999
of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should
have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that
the Company exhausts its remedies pursuant to Section 9.3 and
Employee thereafter is required to make a payment of any
additional Excise Tax, the Accounting Firm shall determine the
amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for
the benefit of Employee.
9.3 Contest of Claims. If the Company elects to
contest a claim by the Internal Revenue Service that Excise
Tax is due from Employee, Employee shall cooperate fully with
the Company in order to effectively contest such claim,
including, but not limited to providing information reasonably
requested by the Company relating to such claim, accepting
legal representation with respect to such claim by an attorney
reasonably selected by the Company and permitting the Company
to participate in any proceedings relating to such claim. The
Company shall
<PAGE> 4
bear and pay directly all costs and expenses (including
additional interest and penalties) incurred in connection with
such contest and shall indemnify and hold Employee harmless,
on an after-tax basis, for any Excise Tax or other tax
(including interest and penalties with respect thereto)
imposed as a result of such representation and payment of
costs and expenses.
9.4 Advances and Refunds. If the Company directs
Employee to pay a claim by the Internal Revenue Service and
sue for a refund, the Company shall advance the amount of such
payment to Employee on an interest-free basis and shall
indemnify and hold Employee harmless, on an after-tax basis,
from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such
advance or with respect to any imputed income with respect to
such advance. If, after the receipt by Employee of an amount
advanced by the Company pursuant to this Section 9.4, Employee
becomes entitled to receive, and receives, any refund with
respect to such claim, Employee shall promptly pay to the
Company the amount of such refund (together with any interest
paid or credited thereon after taxes applicable thereto). If,
after the receipt by Employee of an amount advanced by the
Company pursuant to this Section 9.4, a determination is made
that Employee is not entitled to any refund with respect to
such claim, then such advance shall not be required to be
repaid and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be
paid."
This Agreement is the First Amendment to the Employment Agreement, and
the parties agree that all other terms, conditions and stipulations contained in
the Employment Agreement, and any amendments thereto, shall remain in full force
and effect and without any change or modification, except as provided herein.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
ENRON OIL & GAS COMPANY
By: /s/ PATRICIA EDWARDS
------------------------------------------
Name: Patricia Edwards
Title: V.P. Human Resources & Administration
This 15th day of March, 1999
LOREN M. LEIKER
/s/ LOREN M. LEIKER
---------------------------------------------
This 14th day of March, 1999
<PAGE> 1
EXHIBIT 10.68(a)
EXECUTIVE EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement"), including the attached Exhibit
"A," is entered into between Enron Oil & Gas Company, a Delaware corporation,
having offices at 1400 Smith Street, Houston, Texas 77002 ("Employer"), and Gary
L. Thomas, an individual currently residing at 2392 (E) Bering Drive, Houston,
Texas 77057 ("Employee"), to be effective as of September 1, 1998 (the
"Effective Date").
WITNESSETH:
WHEREAS, Employer is desirous of employing Employee pursuant to the
terms and conditions and for the consideration set forth in this Agreement, and
Employee is desirous of entering the employ of Employer pursuant to such terms
and conditions and for such consideration.
NOW, THEREFORE, for and in consideration of the mutual promises,
covenants, and obligations contained herein, Employer and Employee agree as
follows:
ARTICLE 1: EMPLOYMENT AND DUTIES:
1.1 Employer agrees to employ Employee, and Employee agrees to be
employed by Employer, beginning as of the Effective Date and continuing until
the date set forth on Exhibit "A" (the "Term"), subject to the terms and
conditions of this Agreement.
1.2 Employee initially shall be employed in the position set forth on
Exhibit A. Employer may subsequently assign Employee to a different position or
modify Employee's duties and responsibilities, provided that such assignment or
modification is consistent with that of an officer of Employer. Employee agrees
to serve in the assigned position and to perform diligently and to the best of
Employee's abilities the duties and services appertaining to such position as
determined by Employer, as well as such additional or different duties and
services appropriate to such position which Employee from time to time may be
reasonably directed to perform by Employer. Employee shall at all times comply
with and be subject to such policies and procedures as Employer may establish
from time to time.
1.3 Employee shall, during the period of Employee's employment by
Employer, devote Employee's full business time, energy, and best efforts to the
business and affairs of Employer. Employee may not engage, directly or
indirectly, in any other business, investment, or activity that interferes with
Employee's performance of Employee's duties hereunder, is contrary to the
interests of Employer or Enron Corp. ("Enron"), or requires any significant
portion of Employee's business time.
1.4 In connection with Employee's employment by Employer, Employer
shall endeavor to provide Employee access to such confidential information
pertaining to the business and services of Employer as is appropriate for
Employee's employment responsibilities. Employer also shall
1
<PAGE> 2
endeavor to provide to Employee the opportunity to develop business
relationships with those of Employer's clients and potential clients that are
appropriate for Employee's employment responsibilities.
1.5 Employee acknowledges and agrees that, at all times during the
employment relationship Employee owes fiduciary duties to Employer, including
but not limited to the fiduciary duties of the highest loyalty, fidelity and
allegiance to act at all times in the best interests of the Employer, to make
full disclosure to Employer of all information that pertains to Employer's
business and interests, to do no act which would injure Employer's business, its
interests, or its reputation, and to refrain from using for Employee's own
benefit or for the benefit of others any information or opportunities pertaining
to Employer's business or interests that are entrusted to Employee or that he
learned while employed by Employer. Employee acknowledges and agrees that upon
termination of the employment relationship, Employee shall continue to refrain
from using for his own benefit or the benefit of others any information or
opportunities pertaining to Employer's business or interests that were entrusted
to Employee during the employment relationship or that he learned while employed
by Employer. Employee agrees that while employed by Employer and thereafter he
shall not knowingly take any action which interferes with the internal
relationships between Employer and its employees or representatives or
interferes with the external relationships between Employer and third parties.
1.6 It is agreed that any direct or indirect interest in, connection
with, or benefit from any outside activities, particularly commercial
activities, which interest might in any way adversely affect Employer or any of
its affiliates, involves a possible conflict of interest. In keeping with
Employee's fiduciary duties to Employer, Employee agrees that during the
employment relationship Employee shall not knowingly become involved in a
conflict of interest with Employer or its affiliates, or upon discovery thereof,
allow such a conflict to continue. Moreover, Employee agrees that Employee shall
disclose to Employer's President any facts which might involve such a conflict
of interest that has not been approved by Employer's President. Employer and
Employee recognize that it is impossible to provide an exhaustive list of
actions or interests which constitute a "conflict of interest." Moreover,
Employer and Employee recognize there are many borderline situations. In some
instances, full disclosure of facts by the Employee to Employer's President may
be all that is necessary to enable Employer or its affiliates to protect its
interests. In others, if no improper motivation appears to exist and the
interests of Employer or its affiliates have not suffered, prompt elimination of
the outside interest will suffice. In still others, it may be necessary for
Employer to terminate the employment relationship. Employer and Employee agree
that Employer's determination as to whether a conflict of interest exists shall
be conclusive. Employer reserves the right to take such action as, in its
judgment, will end the conflict.
1.7 Employee understands and acknowledges that the terms and conditions
of this Agreement constitute confidential information. Employee shall keep
confidential the terms of this Agreement and shall not disclose this
confidential information to anyone other than Employee's attorneys, tax
advisors, or as required by law. Employee acknowledges and understands that
disclosure of the terms of this Agreement constitutes a material breach of this
Agreement and could subject Employee to disciplinary action, including without
limitation, termination of employment.
2
<PAGE> 3
ARTICLE 2: COMPENSATION AND BENEFITS:
2.1 Employee's monthly base salary during the Term shall be not less
than the amount set forth under the heading "Monthly Base Salary" on Exhibit A,
subject to increase at the sole discretion of the Employer, which shall be paid
in semimonthly installments in accordance with Employer's standard payroll
practice. Any calculation to be made under this Agreement with respect to
Employee's Monthly Base Salary shall be made using the then current Monthly Base
Salary in effect at the time of the event for which such calculation is made.
2.2 While employed by Employer (both during the Term and thereafter),
Employee shall be allowed to participate, on the same basis generally as other
employees of Employer, in all general employee benefit plans and programs,
including improvements or modifications of the same, which on the effective date
or thereafter are made available by Employer to all or substantially all of
Employer's employees. Such benefits, plans, and programs may include, without
limitation, medical, health, and dental care, life insurance, disability
protection, and pension plans. Nothing in this Agreement is to be construed or
interpreted to provide greater rights, participation, coverage, or benefits
under such benefit plans or programs than provided to similarly situated
employees pursuant to the terms and conditions of such benefit plans and
programs.
2.3 Employer shall not by reason of this Article 2 be obligated to
institute, maintain, or refrain from changing, amending, or discontinuing, any
such incentive compensation or employee benefit program or plan, so long as such
actions are similarly applicable to covered employees generally. Moreover,
unless specifically provided for in a written plan document adopted by the Board
of Directors of either Employer or Enron, none of the benefits or arrangements
described in this Article 2 shall be secured or funded in any way, and each
shall instead constitute an unfunded and unsecured promise to pay money in the
future exclusively from the general assets of Employer.
2.4 Employer may withhold from any compensation, benefits, or amounts
payable under this Agreement all federal, state, city, or other taxes as may be
required pursuant to any law or governmental regulation or ruling.
ARTICLE 3: TERMINATION PRIOR TO EXPIRATION OF TERM AND EFFECTS OF SUCH
TERMINATION:
3.1. Notwithstanding any other provisions of this Agreement, Employer
shall have the right to terminate Employee's employment under this Agreement at
any time prior to the expiration of the Term for any of the following reasons:
(i) For "cause" upon the determination by the Employer's Board of
Directors or management committee (or, if there is no
management committee, the highest applicable level of
Employer's management) that "cause" exists for the termination
of the employment relationship. As used in this Section
3.1(i), the term "cause" shall mean [a] Employee's gross
negligence or willful misconduct in the performance of the
duties and services required of Employee pursuant to this
Agreement; [b] Employee's final conviction of a felony
involving moral turpitude; [c] Employee's willful refusal
without proper legal reason to perform the duties and
responsibilities required of Employee under this Agreement
which remains uncorrected for thirty (30) days following
written notice to Employee by Employer
3
<PAGE> 4
of such breach; [d] Employee's involvement in a conflict of
interest as referenced in Section 1.6 for which Employer makes
a determination to terminate the employment of Employee which
remains uncorrected for thirty (30) days following written
notice to Employee by Employer of such breach; [e] Employee's
willful engagement in conduct that Employee knows or should
know is materially injurious to Employer, Enron, or any of
their respective subsidiaries; [f] Employee's material breach
of any material provision of this Agreement or corporate code
or policy which remains uncorrected for thirty (30) days
following written notice to Employee by Employer of such
breach; or [g] Employee's violation of the Foreign Corrupt
Practices Act or other applicable United States law as
proscribed by Section 5.1. It is expressly acknowledged and
agreed that the decision as to whether "cause" exists for
termination of the employment relationship by Employer is
delegated to the Employer's management committee (or, if there
is no management committee, the highest applicable level of
Employer's management) for determination. If Employee
disagrees with the decision reached by Employer's management
committee (or, if there is no management committee, the
highest applicable level of Employer's management), the
dispute will be limited to whether Employer's management
committee (or, if there is no management committee, the
highest applicable level of Employer's management) reached its
decision in good faith;
(ii) for any other reason whatsoever, with or without cause, in the
sole discretion of the management committee (or, if there is
no management committee, the highest applicable level of
management) of Employer;
(iii) upon Employee's death; or
(iv) upon Employee's becoming disabled so as to entitle Employee to
benefits under Enron's long-term disability plan or, if
Employee is not eligible to participate in such plan, then
Employee is permanently and totally unable to perform
Employee's duties for Employer as a result of any medically
determinable physical or mental impairment as supported by a
written medical opinion to the foregoing effect by a physician
selected by Employer.
The termination of Employee's employment by Employer prior to the expiration of
the Term shall constitute a "Termination for Cause" if made pursuant to Section
3.1(i); the effect of such termination is specified in Section 3.4. The
termination of Employee's employment by Employer prior to the expiration of the
Term shall constitute an "Involuntary Termination" if made pursuant to Section
3.1(ii); the effect of such termination is specified in Section 3.5. The effect
of the employment relationship being terminated pursuant to Section 3.1(iii) as
a result of Employee's death is specified in Section 3.6. The effect of the
employment relationship being terminated pursuant to Section 3.1(iv) as a result
of the Employee becoming incapacitated is specified in Section 3.7.
3.2 Notwithstanding any other provisions of this Agreement except
Section 8.6, Employee shall have the right to terminate the employment
relationship under this Agreement at any time prior to the expiration of the
Term of employment for any of the following reasons:
4
<PAGE> 5
(i) a material breach by Employer of any material provision of
this Agreement which remains uncorrected for 30 days following
written notice of such breach by Employee to Employer; or
(ii) for any other reason whatsoever, in the sole discretion of
Employee.
The termination of Employee's employment by Employee prior to the expiration of
the Term shall constitute an "Involuntary Termination" if made pursuant to
Section 3.2(i); the effect of such termination is specified in Section 3.5. The
termination of Employee's employment by Employee prior to the expiration of the
Term shall constitute a "Voluntary Termination" if made pursuant to Section
3.2(ii); the effect of such termination is specified in Section 3.3.
3.3 Upon a "Voluntary Termination" of the employment relationship by
Employee prior to expiration of the Term, Employee shall be entitled to pro rata
salary through the date of such termination, but Employee shall not be entitled
to any individual bonuses or individual incentive compensation not yet paid at
the date of such termination.
3.4 If Employee's employment hereunder shall be terminated by Employer
for Cause prior to expiration of the Term, Employee shall be entitled to pro
rata salary through the date of such termination, but Employee shall not be
entitled to any individual bonuses or individual incentive compensation not yet
paid at the date of such termination.
3.5 Upon an Involuntary Termination of the employment relationship by
either Employer or Employee prior to the expiration of the Term, Employee shall
be entitled, in consideration of Employee's continuing obligations hereunder
after such termination (including, without limitation, Employee's
non-competition obligations), to receive the then current Monthly Base Salary as
if Employee's employment (which shall cease on the date of such Involuntary
Termination) had continued for the full Term of this Agreement. If such
Involuntary Termination occurs within two years after a Change of Control, as
defined in Employer's Change of Control Severance Plan, Employee shall receive a
minimum of twenty-four (24) months of the then current Monthly Base Salary.
Employee shall not be under any duty or obligation to seek or accept other
employment following Involuntary Termination and the amounts due Employee
hereunder shall not be reduced or suspended if Employee accepts subsequent
employment. Employee's rights under this Section 3.5 are Employee's sole and
exclusive rights against Employer, Enron, or their affiliates, and Employer's
sole and exclusive liability to Employee under this Agreement, in contract,
tort, or otherwise, for any Involuntary Termination of the employment
relationship. Employee covenants not to sue or lodge any claim, demand or cause
of action against Employer for any sums for Involuntary Termination other than
those sums specified in this Section 3.5. If Employee breaches this covenant,
Employer shall be entitled to recover from Employee all sums expended by
Employer (including costs and attorneys fees) in connection with such suit,
claim, demand or cause of action.
3.6 Upon termination of the employment relationship as a result of
Employee's death, Employee's heirs, administrators, or legatees shall be
entitled to Employee's pro rata salary through the date of such termination, but
Employee's heirs, administrators, or legatees shall not be entitled to any
individual bonuses or individual incentive compensation not yet paid to Employee
at the date of such termination.
5
<PAGE> 6
3.7 Upon termination of the employment relationship as a result of
Employee's incapacity, Employee shall be entitled to his or her pro rata salary
through the date of such termination, but Employee shall not be entitled to any
individual bonuses or individual incentive compensation not yet paid to Employee
at the date of such termination.
3.8 In all cases, the compensation and benefits payable to Employee
under this Agreement upon termination of the employment relationship shall be
offset against any amounts to which Employee may otherwise be entitled under any
and all severance plans, and policies of Employer, Enron, or their affiliates.
3.9 Termination of the employment relationship does not terminate those
obligations imposed by this Agreement which are continuing obligations,
including, without limitation, Employee's obligations under Articles 6 and 7.
3.10 Upon termination of the employment relationship between Employee
and Employer for any reason, Employee shall be entitled to receive compensation
and benefits earned and accrued by Employee during his/her employment as are
specifically provided in any applicable employee compensation and/or benefit
plan document and any grant or award agreement thereunder.
ARTICLE 4: CONTINUATION OF EMPLOYMENT BEYOND TERM; TERMINATION AND EFFECTS OF
TERMINATION:
4.1 Should Employee remain employed by Employer beyond the expiration
of the Term specified on Exhibit "A," such employment shall convert to a
month-to-month relationship terminable at any time by either Employer or
Employee for any reason whatsoever, with or without cause. Upon such termination
of the employment relationship by either Employer or Employee for any reason
whatsoever, all future compensation to which Employee is entitled and all future
benefits for which Employee is eligible shall cease and terminate. Employee
shall be entitled to pro rata salary through the date of such termination, but
Employee shall not be entitled to any individual bonuses or individual incentive
compensation not yet paid at the date of such termination.
ARTICLE 5: UNITED STATES FOREIGN CORRUPT PRACTICES ACT AND
OTHER LAWS:
5.1. Employee shall at all times comply with United States laws
applicable to Employee's actions on behalf of Employer, including specifically,
without limitation, the United States Foreign Corrupt Practices Act, generally
codified in 15 USC 78 (FCPA), as the FCPA may hereafter be amended, and/or its
successor statutes. If Employee pleads guilty to or nolo contendere or admits
civil or criminal liability under the FCPA or other applicable United States
law, or if a court finds that Employee has personal civil or criminal liability
under the FCPA or other applicable United States law, or if a court finds that
Employee committed an action resulting in any Enron entity having civil or
criminal liability or responsibility under the FCPA or other applicable United
States law with knowledge of the activities giving rise to such liability or
knowledge of facts from which Employee should have reasonably inferred the
activities giving rise to liability had occurred or were likely to occur, such
action or finding shall constitute "cause" for termination under this Agreement
6
<PAGE> 7
unless Employer's management committee (or, if there is no management committee,
the highest applicable level of Employer's management) determines that the
actions found to be in violation of the FCPA or other applicable United States
law were taken in good faith and in compliance with all applicable policies of
Employer and Enron.
ARTICLE 6: OWNERSHIP AND PROTECTION OF INFORMATION; COPYRIGHTS:
6.1 All information, ideas, concepts, improvements, discoveries, and
inventions, whether patentable or not, which are conceived, made, developed or
acquired by Employee, individually or in conjunction with others, during
Employee's employment by Employer (whether during business hours or otherwise
and whether on Employer's premises or otherwise) which relate to Employer's
business, products or services (including, without limitation, all such
information relating to corporate opportunities, research, financial and sales
data, pricing and trading terms, evaluations, opinions, interpretations,
acquisition prospects, the identity of customers or their requirements, the
identity of key contacts within the customer's organizations or within the
organization of acquisition prospects, or marketing and merchandising
techniques, prospective names, and marks) shall be disclosed to Employer and are
and shall be the sole and exclusive property of Employer. Moreover, all
drawings, memoranda, notes, records, files, correspondence, drawings, manuals,
models, specifications, computer programs, maps and all other writings or
materials of any type embodying any of such information, ideas, concepts,
improvements, discoveries, and inventions are and shall be the sole and
exclusive property of Employer.
6.2 Employee acknowledges that the business of Employer, Enron, and
their affiliates is highly competitive and that their strategies, methods,
books, records, and documents, their technical information concerning their
products, equipment, services, and processes, procurement procedures and pricing
techniques, the names of and other information (such as credit and financial
data) concerning their customers and business affiliates, all comprise
confidential business information and trade secrets which are valuable, special,
and unique assets which Employer, Enron, or their affiliates use in their
business to obtain a competitive advantage over their competitors. Employee
further acknowledges that protection of such confidential business information
and trade secrets against unauthorized disclosure and use is of critical
importance to Employer, Enron, and their affiliates in maintaining their
competitive position. Employee hereby agrees that Employee will not, at any time
during or after his or her employment by Employer, make any unauthorized
disclosure of any confidential business information or trade secrets of
Employer, Enron, or their affiliates, or make any use thereof, except in the
carrying out of his or her employment responsibilities hereunder. Enron and its
affiliates shall be third party beneficiaries of Employee's obligations under
this Section. As a result of Employee's employment by Employer, Employee may
also from time to time have access to, or knowledge of, confidential business
information or trade secrets of third parties, such as customers, suppliers,
partners, joint venturers, and the like, of Employer, Enron, and their
affiliates. Employee also agrees to preserve and protect the confidentiality of
such third party confidential information and trade secrets to the same extent,
and on the same basis, as Employer's confidential business information and trade
secrets. Employee acknowledges that money damages would not be sufficient remedy
for any breach of this Article 6 by Employee, and Employer shall be entitled to
enforce the provisions of this Article 6 by terminating any payments then owing
to Employee under this Agreement and/or to specific performance and injunctive
relief as remedies for such breach or any threatened breach. Such remedies shall
not be deemed the exclusive remedies for
7
<PAGE> 8
a breach of this Article 6, but shall be in addition to all remedies available
at law or in equity to Employer, including the recovery of damages from Employee
and his or her agents involved in such breach.
6.3 All written materials, records, and other documents made by, or
coming into the possession of, Employee during the period of Employee's
employment by Employer which contain or disclose confidential business
information or trade secrets of Employer, Enron, or their affiliates shall be
and remain the property of Employer, Enron, or their affiliates, as the case may
be. Upon termination of Employee's employment by Employer, for any reason,
Employee promptly shall deliver the same, and all copies thereof, to Employer.
6.4 If, during Employee's employment by Employer, Employee creates any
original work of authorship fixed in any tangible medium of expression which is
the subject matter of copyright (such as videotapes, written presentations on
acquisitions, computer programs, drawings, maps, architectural renditions,
models, manuals, brochures, or the like) relating to Employer's business,
products, or services, whether such work is created solely by Employee or
jointly with others (whether during business hours or otherwise and whether on
Employer's premises or otherwise), Employee shall disclose such work to
Employer. Employer shall be deemed the author of such work if the work is
prepared by Employee in the scope of his or her employment; or, if the work is
not prepared by Employee within the scope of his or her employment but is
specially ordered by Employer as a contribution to a collective work, as a part
of a motion picture or other audiovisual work, as a translation, as a
supplementary work, as a compilation, or as an instructional text, then the work
shall be considered to be work made for hire and Employer shall be the author of
the work. If such work is neither prepared by the Employee within the scope of
his or her employment nor a work specially ordered and is deemed to be a work
made for hire, then Employee hereby agrees to assign, and by these presents does
assign, to Employer all of Employee's worldwide right, title, and interest in
and to such work and all rights of copyright therein.
6.5 Both during the period of Employee's employment by Employer and
thereafter, Employee shall assist Employer and its nominee, at any time, in the
protection of Employer's worldwide right, title, and interest in and to
information, ideas, concepts, improvements, discoveries, and inventions, and its
copyrighted works, including without limitation, the execution of all formal
assignment documents requested by Employer or its nominee and the execution of
all lawful oaths and applications for applications for patents and registration
of copyright in the United States and foreign countries.
ARTICLE 7: POST-EMPLOYMENT NON-COMPETITION OBLIGATIONS:
7.1 As part of the consideration for the compensation and benefits to
be paid to Employee hereunder, in keeping with Employee's duties as a fiduciary
and in order to protect Employer's interests in the confidential information of
Employer and the business relationships developed by Employee with the clients
and potential clients of Employer, and as an additional incentive for Employer
to enter into this Agreement, Employer and Employee agree to the non-competition
provisions of this Article 7. Employee agrees that during the period of
Employee's non-competition obligations hereunder, Employee will not, directly or
indirectly for Employee or for others, in any geographic area or market where
Employer or Enron or any of their affiliated
8
<PAGE> 9
companies are conducting any business as of the date of termination of the
employment relationship or have during the previous twelve months conducted any
business:
(i) engage in any business competitive with the business conducted by
Employer;
(ii) render advice or services to, or otherwise assist, any other
person, association, or entity who is engaged, directly or indirectly, in any
business competitive with the business conducted by Employer;
(iii) induce any employee of Employer or Enron or any of their
affiliates to terminate his or her employment with Employer, Enron, or their
affiliates, or hire or assist in the hiring of any such employee by person,
association, or entity not affiliated with Enron.
These non-competition obligations shall extend until the earlier of (a)
expiration of the Term or (b) one year after termination of the employment
relationship.
7.2 Employee understands that the foregoing restrictions may limit his
or her ability to engage in certain businesses anywhere in the world during the
period provided for above, but acknowledges that Employee will receive
sufficiently high remuneration and other benefits (e.g., the right to receive
compensation under Section 3.5 for the remainder of the Term upon Involuntary
Termination) under this Agreement to justify such restriction. Employee
acknowledges that money damages would not be sufficient remedy for any breach of
this Article 7 by Employee, and Employer shall be entitled to enforce the
provisions of this Article 7 by terminating any payments then owing to Employee
under this Agreement and/or to specific performance and injunctive relief as
remedies for such breach or any threatened breach. Such remedies shall not be
deemed the exclusive remedies for a breach of this Article 7, but shall be in
addition to all remedies available at law or in equity to Employer, including,
without limitation, the recovery of damages from Employee and his or her agents
involved in such breach.
7.3 It is expressly understood and agreed that Employer and Employee
consider the restrictions contained in this Article 7 to be reasonable and
necessary to protect the proprietary information of Employer. Nevertheless, if
any of the aforesaid restrictions are found by a court having jurisdiction to be
unreasonable, or overly broad as to geographic area or time, or otherwise
unenforceable, the parties intend for the restrictions therein set forth to be
modified by such courts so as to be reasonable and enforceable and, as so
modified by the court, to be fully enforced.
ARTICLE 8: MISCELLANEOUS:
8.1 For purposes of this Agreement the terms "affiliates" or
"affiliated" means an entity who directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with
Enron or Employer.
8.2 Employee shall refrain, both during the employment relationship and
after the employment relationship terminates, from publishing any oral or
written statements about Employer, Enron, any of their respective subsidiaries
or affiliates, or any of such entities' officers, employees, agents or
representatives that are slanderous, libelous, or defamatory; or that disclose
private or
9
<PAGE> 10
confidential information about Employer, Enron, any of their respective
subsidiaries or affiliates, or any of such entities' business affairs, officers,
employees, agents, or representatives; or that constitute an intrusion into the
seclusion or private lives of Employer, Enron, any of their respective
subsidiaries or affiliates, or such entities' officers, employees, agents, or
representatives; or that give rise to unreasonable publicity about the private
lives of Employer, Enron, any of their respective subsidiaries or affiliates, or
any of such entities' officers, employees, agents, or representatives; or that
place Employer, Enron, any of their respective subsidiaries or affiliates, or
any of such entities' or its officers, employees, agents, or representatives in
a false light before the public; or that constitute a misappropriation of the
name or likeness of Employer, Enron, any of their respective subsidiaries or
affiliates, or any of such entities' or its officers, employees, agents, or
representatives. A violation or threatened violation of this prohibition may be
enjoined by the courts. The rights afforded the Enron entities and affiliates
under this provision are in addition to any and all rights and remedies
otherwise afforded by law.
8.3 For purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when personally delivered or when mailed by United States
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to Employer:
Enron Oil & Gas Company
1400 Smith Street
Houston, Texas 77002
Attention: Corporate Secretary
If to Employee, to the address shown on the first page hereof.
Either Employer or Employee may furnish a change of address to the other in
writing in accordance herewith, except that notices of changes of address shall
be effective only upon receipt.
8.4 This Agreement shall be governed in all respects by the laws of the
State of Texas, excluding any conflict-of-law rule or principle that might refer
the construction of the Agreement to the laws of another State or country.
8.5 No failure by either party hereto at any time to give notice of any
breach by the other party of, or to require compliance with, any condition or
provision of this Agreement shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time.
8.6 If a dispute arises out of or related to this Agreement, other than
a dispute regarding Employee's obligations under Article 6, or Article 7, and if
the dispute cannot be settled through direct discussions, then Employer and
Employee agree to first endeavor to settle the dispute in an amicable manner by
mediation, before having recourse to any other proceeding or forum.
10
<PAGE> 11
8.7 Each of Employer and Employee is a citizen of the State of Texas.
Employer's principal place of business is in Houston, Harris County, Texas.
Employee resides in Harris County, Texas. This Agreement was negotiated and
signed in Houston, Texas. This Agreement shall be performed in Houston, Texas.
Any litigation that may be brought by either Employer or Employee involving the
enforcement of this Agreement or the rights, duties, or obligations of this
Agreement, shall be brought exclusively in the State or federal courts sitting
in Houston, Harris County, Texas. In the event that service of process cannot be
effected upon a party, each party hereby irrevocably appoints the Secretary of
State for the State of Texas as its or his agent for service of process to
receive the summons and other pleadings in connection with any such litigation.
8.8 It is a desire and intent of the parties that the terms,
provisions, covenants, and remedies contained in this Agreement shall be
enforceable to the fullest extent permitted by law. If any such term, provision,
covenant, or remedy of this Agreement or the application thereof to any person,
association, or entity or circumstances shall, to any extent, be construed to be
invalid or unenforceable in whole or in part, then such term, provision,
covenant, or remedy shall be construed in a manner so as to permit its
enforceability under the applicable law to the fullest extent permitted by law.
In any case, the remaining provisions of this Agreement or the application
thereof to any person, association, or entity or circumstances other than those
to which they have been held invalid or unenforceable, shall remain in full
force and effect.
8.9 This Agreement shall be binding upon and inure to the benefit of
Employer and any other person, association, or entity which may hereafter
acquire or succeed to all or substantially all of the business or assets of
Employer by any means whether direct or indirect, by purchase, merger,
consolidation, or otherwise. Employee's rights and obligations under Agreement
hereof are personal and such rights, benefits, and obligations of Employee shall
not be voluntarily or involuntarily assigned, alienated, or transferred, whether
by operation of law or otherwise, without the prior written consent of Employer.
8.10 There exist other agreements between Employer and Employee
relating to the employment relationship between them, e.g., the agreement with
respect to company policies contained in Employer's Conduct of Business Affairs
booklet and agreements with respect to compensation and benefit plans. This
Agreement replaces and merges previous agreements and discussions pertaining to
the following subject matters covered herein: the nature of Employee's
employment relationship with Employer and the term and termination of such
relationship. This Agreement constitutes the entire agreement of the parties
with regard to such subject matters, and contains all of the covenants,
promises, representations, warranties, and agreements between the parties with
respect such subject matters. Each party to this Agreement acknowledges that no
representation, inducement, promise, or agreement, oral or written, has been
made by either party with respect to such subject matters, which is not embodied
herein, and that no agreement, statement, or promise relating to the employment
of Employee by Employer that is not contained in this Agreement shall be valid
or binding. Any modification of this Agreement will be effective only if it is
in writing and signed by each party whose rights hereunder are affected thereby,
provided that any such modification must be authorized or approved by the Board
of Directors of Employer.
11
<PAGE> 12
IN WITNESS WHEREOF, Employer and Employee have duly executed this
Agreement in multiple originals to be effective on the date first stated above.
ENRON OIL & GAS COMPANY
By: /s/ PATRICIA EDWARDS
-----------------------------------------
Name: Patricia Edwards
Title: V.P. Human Resources & Administration
This 29th day of September, 1998
GARY L. THOMAS
/s/ GARY L. THOMAS
--------------------------------------------
This 25 day of September, 1998
12
<PAGE> 13
EXHIBIT "A" TO
EXECUTIVE EMPLOYMENT AGREEMENT
BETWEEN ENRON OIL & GAS COMPANY AND GARY L. THOMAS
Employee Name: Gary L. Thomas
Term: September 1, 1998 through August 31, 2001
Position: Executive Vice President, North American Operations
Location: Houston, Texas
Reporting Relationship: Reports to Mark G. Papa, President and Chief Executive
Officer
Monthly Base Salary: Twenty thousand eight hundred thirty-five dollars
($20,835)
Bonus: Employee shall be eligible to participate in
Employer's annual bonus program, under which bonuses
may be paid in a combination of cash, stock options,
and/or phantom stock units, as determined by the
Compensation Committee of Employer's Board of
Directors.
Long-Term Incentives: Employee shall be eligible to receive long-term
incentive grants consistent with similarly situated
executives of Employer.
Stock Option Grant: Employee shall receive a grant of 125,000 stock
options, effective September 8, 1998, vesting 20% on
the Grant Date and 20% on each of the first four
anniversaries of the Grant Date, as evidenced by an
Award Agreement, upon execution of this Agreement.
ENRON OIL & GAS COMPANY
By: /s/ PATRICIA EDWARDS
-----------------------------------------
Name: Patricia Edwards
Title: V.P. Human Resources & Administration
This 29th day of September, 1998
GARY L. THOMAS
/s/ GARY L. THOMAS
--------------------------------------------
This 25 day of September, 1998
13
<PAGE> 1
EXHIBIT 10.68(b)
FIRST AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT
This Agreement, entered into on this 12 of March, 1999, and made
effective as of February 1, 1999, by and between ENRON OIL & GAS COMPANY
("Company" or "Employer") and GARY L. THOMAS ("Employee") is an amendment to
that certain Employment Agreement made effective as of September 1, 1998 (the
"Employment Agreement").
WHEREAS, the parties desire to amend the Employment Agreement as
provided herein;
NOW, THEREFORE, in consideration thereof and of the mutual covenants
contained herein, the parties agree as follows:
1. Article 3, Section 3.5 of the Employment Agreement is hereby
deleted in its entirety and the following is substituted
therefor:
"3.5 Upon an Involuntary Termination of the employment
relationship by either Employer or Employee prior to the
expiration of the Term, Employee shall be entitled, in
consideration of Employee's continuing obligations hereunder
after such termination (including, without limitation,
Employee's non-competition obligations), to receive the then
current Monthly Base Salary as if Employee's employment (which
shall cease on the date of such Involuntary Termination) had
continued for the full Term of this Agreement. Notwithstanding
any other provisions of this Agreement, a termination of the
employment relationship by either the Employer or Employee
which meets the definition of Involuntary Termination under
the Company's Change of Control Severance Plan shall
constitute an Involuntary Termination under this Agreement. In
the event of such Involuntary Termination which entitles
Employee to severance benefits under said Plan, but for the
following severance payment by the Company to the Employee,
Employee shall receive from the Company a severance benefit
under this Agreement equal to the sum of Employee's then
current Monthly Base Salary times 12 times 2.99 plus two times
the Employee's annual bonus target award under the Company's
annual bonus program for the year in which the Change of
Control Date occurs. Employee's severance benefit payable
under said Plan, if any, shall be determined according to the
provisions thereof. Employee shall not be under any duty or
obligation to seek or accept other employment following
Involuntary Termination and the amounts due Employee hereunder
shall not be reduced or suspended if Employee
<PAGE> 2
accepts subsequent employment. Employee's rights under this
Section 3.5 are Employee's sole and exclusive rights against
Employer, Enron, or their affiliates, and Employer's sole and
exclusive liability to Employee under this Agreement, in
contract, tort, or otherwise, for any Involuntary Termination
of the employment relationship. Employee covenants not to sue
or lodge any claim, demand or cause of action against Employer
for any sums for Involuntary Termination other than those sums
specified in this Section 3.5. If Employee breaches this
covenant, Employer shall be entitled to recover from Employee
all sums expended by Employer (including costs and attorneys
fees) in connection with such suit, claim, demand or cause of
action."
2. The following sentence shall be inserted at the end of Article
7, Section 7.1:
"However, upon an Involuntary Termination as defined in the
Company's Change of Control Severance Plan, which entitles
Employee to severance benefits under said Plan, these
non-competition obligations shall expire immediately and have
no further force and effect."
3. The following new Article 9 shall be inserted at the end of
the Employment Agreement:
"ARTICLE 9: U.S. EXCISE TAX INDEMNIFICATION
9.1 Indemnification. In the event it shall be determined
that any payment or distribution by the Company to or for the
benefit of Employee (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement, the
Company's Change of Control Severance Plan or otherwise, but
determined without regard to any additional payments required
under this Article 9) (a "Payment") would be subject to the
excise tax imposed by Section 4999 of the United States
Internal Revenue Code of 1986, as amended (the "Code"), or any
interest or penalties are incurred by Employee with respect to
such excise tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred
to as the "Excise Tax"), then Employee shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an
amount such that after payment by Employee of all taxes
(including any interest or penalties imposed with respect to
such taxes), including, without limitation, any income and
employment taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax imposed upon the Gross-Up
Payment, Employee retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments.
9.2 Determination of Amount. Subject to the provisions
of Section 9.3, all determinations required to be made under
this Article 9,
<PAGE> 3
including whether and when a Gross-Up Payment is required and
the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by a
public accounting firm chosen by the Company (the "Accounting
Firm") which shall provide detailed supporting calculations
both to the Company and Employee if requested by either the
Company or Employee. All fees and expenses of the Accounting
Firm shall be borne solely by the Company. Any determination
by the Accounting Firm shall be binding upon the Company and
Employee. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible
that Gross-Up Payments which will not have been made by the
Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the
event that the Company exhausts its remedies pursuant to
Section 9.3 and Employee thereafter is required to make a
payment of any additional Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has
occurred and any such Underpayment shall be promptly paid by
the Company to or for the benefit of Employee.
9.3 Contest of Claims. If the Company elects to contest
a claim by the Internal Revenue Service that Excise Tax is due
from Employee, Employee shall cooperate fully with the Company
in order to effectively contest such claim, including, but not
limited to providing information reasonably requested by the
Company relating to such claim, accepting legal representation
with respect to such claim by an attorney reasonably selected
by the Company and permitting the Company to participate in
any proceedings relating to such claim. The Company shall bear
and pay directly all costs and expenses (including additional
interest and penalties) incurred in connection with such
contest and shall indemnify and hold Employee harmless, on an
after-tax basis, for any Excise Tax or other tax (including
interest and penalties with respect thereto) imposed as a
result of such representation and payment of costs and
expenses.
9.4 Advances and Refunds. If the Company directs
Employee to pay a claim by the Internal Revenue Service and
sue for a refund, the Company shall advance the amount of such
payment to Employee on an interest-free basis and shall
indemnify and hold Employee harmless, on an after-tax basis,
from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such
advance or with respect to any imputed income with respect to
such advance. If, after the receipt by
<PAGE> 4
Employee of an amount advanced by the Company pursuant to this
Section 9.4, Employee becomes entitled to receive, and
receives, any refund with respect to such claim, Employee
shall promptly pay to the Company the amount of such refund
(together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by Employee
of an amount advanced by the Company pursuant to this Section
9.4, a determination is made that Employee is not entitled to
any refund with respect to such claim, then such advance shall
not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of Gross-Up
Payment required to be paid."
This Agreement is the First Amendment to the Employment Agreement, and
the parties agree that all other terms, conditions and stipulations contained in
the Employment Agreement, and any amendments thereto, shall remain in full force
and effect and without any change or modification, except as provided herein.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
ENRON OIL & GAS COMPANY
By: /s/ PATRICIA EDWARDS
--------------------------------------
Name: Patricia Edwards
Title: V.P. Human Resources & Administration
This 15th day of March, 1999
GARY L. THOMAS
/s/ GARY L. THOMAS
-----------------------------------------
This 12 day of March, 1999
<PAGE> 1
EXHIBIT 12
EOG RESOURCES, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDENDS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
EARNINGS AVAILABLE FOR
FIXED CHARGES:
Net Income $ 569,094 $ 56,171 $ 121,970 $ 140,008 $ 142,118
Less: Capitalized Interest Expense (10,594) (12,711) (13,706) (9,136) (6,490)
Add: Fixed Charges 72,413 61,290 41,423 21,997 18,414
Income Tax Provision (1,382) 4,111 41,500 50,954 41,936
--------- --------- --------- --------- ---------
EARNINGS AVAILABLE $ 629,531 $ 108,861 $ 191,187 $ 203,823 $ 195,978
========= ========= ========= ========= =========
FIXED CHARGES:
Interest Expense $ 61,819 $ 48,463 $ 27,369 $ 12,370 $ 11,310
Capitalized Interest 10,594 12,711 13,706 9,136 6,490
Rental Expense Representative of
Interest Factor -- 116 348 491 614
--------- --------- --------- --------- ---------
TOTAL FIXED CHARGES 72,413 61,290 41,423 21,997 18,414
Preferred Dividends
Amount Accrued 535 -- -- -- --
--------- --------- --------- --------- ---------
TOTAL FIXED CHARGES AND
PREFERRED DIVIDENDS ACCRUED $ 72,948 $ 61,290 $ 41,423 $ 21,997 $ 18,414
========= ========= ========= ========= =========
RATIO OF EARNINGS TO
FIXED CHARGES
8.69 1.78 4.62 9.27 10.64
RATIO OF EARNINGS TO
FIXED CHARGES AND
PREFERRED DIVIDENDS
8.63 1.78 4.62 9.27 10.64
</TABLE>
<PAGE> 1
EXHIBIT 21
EOG RESOURCES, INC.
LISTING OF SUBSIDIARIES
AS OF JANUARY 20, 2000
COMPANY NAME
- - ----------------------------------------------------------------------
EOG Resources, Inc.
EOG Resources - Carthage, Inc.
EOG Resources Investments, Inc.
EOG Resources Property Management, Inc.
EOG Resources Acquisitions L.P.
ERSO, Inc.
EOG Expat Services, Inc.
EOG Resources Marketing, Inc.
EOG - Canada, Inc.
EOG Company of Canada
EOG Canada Company Ltd.
EOG Resources Canada Inc.
Nilo Operating Company
EOG Resources - Callaghan, Inc.
Online Energy Solutions, Inc.
EOG Resources Properties LLC
EOG Resources Holdings LLC
OXY Willow Glade LLC
EOG Resources International, Inc.
EOGI Trinidad, Inc.
EOGI Trinidad Company
EOG Resources Trinidad Limited
EOG Resources Capital Management I, Ltd.
Wilsyx International Finance B.V.
EOGI Company of Trinidad
Harfin Capital and Finance Ltd.
OCC Investment Company Ltd.
Murrott Capital Ltd.
EOGI Trinidad - U(a) Block Company
EOG Resources Trinidad - U(a) Block Limited
EOGI-Australia, Inc.
EOGI-France, Inc.
EOG Resources France S.A.
EOGI-Kazakhstan, Inc.
EOG Resources Kazakhstan Ltd.
EOGI-United Kingdom, Inc.
EOGI United Kingdom Company B.V.
EOG Resources UK Limited
EOGI - Venezuela, Inc.
EOGI Venezuela Company
EOG Resources Venezuela Ltd.
Administradora del Golfo de Paria Este, S.A.
Gulf of Paria East Operating Company
EOGI - Venezuela (Guarico), Inc.
EOGI - Mozambique, Inc.
EOG Resources Mozambique Ltd.
EOGI-Qatar, Inc.
EOGI-Uzbekistan, Inc.
EOGI - Abu Dhabi, Inc.
EOG Resources Abu Dhabi Ltd.
EOGI - Algeria, Inc.
EOG Resources Bangladesh Ltd.
<PAGE> 1
EXHIBIT 23.1
March 1, 2000
EOG Resources, Inc.
1200 Smith Street, Suite 300
Houston, Texas 77002
Gentlemen:
We hereby consent to the references to our firm and to the opinions
delivered to EOG Resources, Inc., formerly Enron Oil & Gas Company, (the
Company) regarding our comparison of estimates prepared by us with those
furnished to us by the Company of the proved oil, condensate, natural gas
liquids, and natural gas reserves of certain selected properties owned by the
Company. The opinions are contained in our letter reports dated January 13,
1998, January 11, 1999, and February 8, 2000, for estimates as of December 31,
1997, December 31, 1998, and December 31, 1999, respectively. The opinions are
referred to in the section "Supplemental Information to Consolidated Financial
Statements-Oil and Gas Producing Activities" in the Company's Annual Report on
Form 10-K for the year ended December 31, 1999, to be filed with the Securities
and Exchange Commission on or about March 8, 2000. DeGolyer and MacNaughton also
consents to the inclusion of our letter report, dated February 8, 2000,
addressed to the Company as Exhibit (23.2) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1999, to be filed with the Securities
and Exchange Commission. Additionally, we hereby consent to the incorporation by
reference of such references to our firm and to our opinions included in the
Company's Form 10-K in the Company's previously filed Registration Statement
Nos. 33-42620, 33-48358, 33-52201, 33-58103, 33-62005, 33-64055, 333-09919,
333-20841, 333-18511, 333-31715, 333-44785, 333-69483, and 333-83533.
Very truly yours,
DeGOLYER and MacNAUGHTON
<PAGE> 1
EXHIBIT 23.2
February 8, 2000
EOG Resources, Inc.
1200 Smith Street, Suite 300
Houston, Texas 77002
Gentlemen:
Pursuant to your request, we have prepared estimates of the proved oil,
condensate, natural gas liquids, and natural gas reserves, as of December 31,
1999, of certain selected properties in the United States, Canada, and Trinidad
owned by EOG Resources, Inc. (EOG). The properties consist of working and
royalty interests located in New Mexico, Texas, Utah, and Wyoming and in the
offshore waters of Texas, Louisiana, and Alabama; in Saskatchewan, Canada; and
in the offshore waters of Trinidad. The estimates are reported in detail in our
"Report as of December 31, 1999, on Proved Reserves of Certain Properties in the
United States owned by EOG Resources, Inc. - Selected Properties," our "Report
as of December 31, 1999, on Proved Reserves of Certain Properties in Canada
owned by EOG Resources, Inc. - Selected Properties," and our "Report as of
December 31, 1999, on Proved Reserves of the Kiskadee Field, Offshore Trinidad
for EOG Resources, Inc." hereinafter collectively referred to as the "Reports."
We also have reviewed information provided to us by EOG that it represents to be
EOG's estimates of the reserves, as of December 31, 1999, for the same
properties as those included in the Reports.
Proved reserves estimated by us and referred to herein are judged to be
economically producible in future years from known reservoirs under existing
economic and operating conditions and assuming continuation of current
regulatory practices using conventional production methods and equipment. Proved
reserves are defined as those that have been proved to a high degree of
certainty by reason of actual completion, successful testing, or in certain
cases by adequate core analyses and electrical-log interpretation when the
producing characteristics of the formation are known from nearby fields. These
reserves are defined areally by reasonable
<PAGE> 2
DEGOLYER AND MACNAUGHTON 2
geological interpretation of structure and known continuity of oil- or
gas-saturated material. This definition is in agreement with the definition of
proved reserves prescribed by the Securities and Exchange Commission.
EOG represents that its estimates of the proved reserves, as of
December 31, 1999, net to its interests in the properties included in the
Reports are as follows, expressed in thousands of barrels (Mbbl) or millions of
cubic feet (MMcf):
<TABLE>
<CAPTION>
OIL, CONDENSATE, AND NET
NATURAL GAS LIQUIDS NATURAL GAS EQUIVALENT
(Mbbl) (MMcf) (MMcf)
-------------------- ----------- -----------
<S> <C> <C>
37,760 1,652,235 1,878,795
</TABLE>
Note: Net equivalent million cubic feet is based on 1 barrel of
oil, condensate, or natural gas liquids being equivalent
to 6,000 cubic feet of gas.
EOG has advised us, and we have assumed, that its estimates of proved
oil, condensate, natural gas liquids, and natural gas reserves are in accordance
with the rules and regulations of the Securities and Exchange Commission.
Proved reserves net to EOG's interests estimated by us for the
properties included in the Reports, as of December 31, 1999, are as follows,
expressed in thousands of barrels (Mbbl) or millions of cubic feet (MMcf):
<TABLE>
<CAPTION>
OIL, CONDENSATE, AND NET
NATURAL GAS LIQUIDS NATURAL GAS EQUIVALENT
(Mbbl) (MMcf) (MMcf)
-------------------- ----------- ----------
<S> <C> <C>
36,110 1,627,906 1,844,566
</TABLE>
Note: Net equivalent million cubic feet is based on 1 barrel of
oil, condensate, or natural gas liquids being equivalent
to 6,000 cubic feet of gas.
In making a comparison of the detailed reserves estimates prepared by
us and by EOG of the properties involved, we have found differences, both
positive and negative, in reserves estimates for individual properties. These
differences appear to be compensating to a great extent when considering the
reserves of EOG in the properties included in our reports, resulting in overall
differences not being substantial. It is our opinion that the reserves estimates
prepared by EOG on the properties reviewed by us and referred to above, when
compared on the basis of net
<PAGE> 3
DEGOLYER AND MACNAUGHTON 3
equivalent million cubic feet of gas, do not differ materially from those
prepared by us.
Submitted,
DeGOLYER and MacNAUGHTON
-----------------------------------
Vernon E. Pringle, Jr., P.E.
Senior Vice President
DeGolyer and MacNaughton
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into EOG Resources, Inc. (formerly Enron Oil
& Gas Company) and subsidiaries' previously filed Registration Statement File
Nos. 33-42620, 33-48358, 33-52201, 33-58103, 33-62005, 33-64055, 333-09919,
333-20841, 333-18511, 333-31715, 333-44785, 333-69483 and 333-83533.
Houston, Texas
March 8, 2000
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that in connection with the filing by
EOG Resources, Inc., a Delaware corporation (the "Company") of its Annual Report
on Form 10-K for the year ended December 31, 1999 with the Securities and
Exchange Commission, the undersigned director of the Company hereby constitutes
and appoints Walter C. Wilson, Barry Hunsaker, Jr. and Patricia L. Edwards, and
each of them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, for him and on his behalf and in his name, place and
stead, in any and all capacities, to sign, execute and file such Annual Report
on Form 10-K, together with any amendments or supplements thereto, with all
exhibits and any and all documents required to be filed with respect thereto
with any regulatory authority, granting unto said attorneys, and each of them,
full power and authority to do and perform each and every act and action
requisite and necessary to be done in and about the premises in order to
effectuate the same as fully to all intents and purposes as the undersigned
might or could do if personally present, hereby ratifying and confirming all the
said attorneys-in-fact and agents, or any of them, may lawfully do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereto set his hand this 8th
day of February, 2000.
/s/ FRED C. ACKMAN
-------------------------------------
Fred C. Ackman
<PAGE> 2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that in connection with the filing by
EOG Resources, Inc., a Delaware corporation (the "Company") of its Annual Report
on Form 10-K for the year ended December 31, 1999 with the Securities and
Exchange Commission, the undersigned director of the Company hereby constitutes
and appoints Walter C. Wilson, Barry Hunsaker, Jr. and Patricia L. Edwards, and
each of them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, for him and on his behalf and in his name, place and
stead, in any and all capacities, to sign, execute and file such Annual Report
on Form 10-K, together with any amendments or supplements thereto, with all
exhibits and any and all documents required to be filed with respect thereto
with any regulatory authority, granting unto said attorneys, and each of them,
full power and authority to do and perform each and every act and action
requisite and necessary to be done in and about the premises in order to
effectuate the same as fully to all intents and purposes as the undersigned
might or could do if personally present, hereby ratifying and confirming all the
said attorneys-in-fact and agents, or any of them, may lawfully do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereto set his hand this 8th
day of February, 2000.
/s/ EDWARD RANDALL, III
-------------------------------------
Edward Randall, III
<PAGE> 3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that in connection with the filing by
EOG Resources, Inc., a Delaware corporation (the "Company") of its Annual Report
on Form 10-K for the year ended December 31, 1999 with the Securities and
Exchange Commission, the undersigned director of the Company hereby constitutes
and appoints Walter C. Wilson, Barry Hunsaker, Jr. and Patricia L. Edwards, and
each of them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, for him and on his behalf and in his name, place and
stead, in any and all capacities, to sign, execute and file such Annual Report
on Form 10-K, together with any amendments or supplements thereto, with all
exhibits and any and all documents required to be filed with respect thereto
with any regulatory authority, granting unto said attorneys, and each of them,
full power and authority to do and perform each and every act and action
requisite and necessary to be done in and about the premises in order to
effectuate the same as fully to all intents and purposes as the undersigned
might or could do if personally present, hereby ratifying and confirming all the
said attorneys-in-fact and agents, or any of them, may lawfully do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereto set his hand this 8th
day of February, 2000.
/s/ FRANK G. WISNER
-------------------------------------
Frank G. Wisner
<PAGE> 4
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that in connection with the filing by
EOG Resources, Inc., a Delaware corporation (the "Company") of its Annual Report
on Form 10-K for the year ended December 31, 1999 with the Securities and
Exchange Commission, the undersigned director of the Company hereby constitutes
and appoints Walter C. Wilson, Barry Hunsaker, Jr. and Patricia L. Edwards, and
each of them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, for him and on his behalf and in his name, place and
stead, in any and all capacities, to sign, execute and file such Annual Report
on Form 10-K, together with any amendments or supplements thereto, with all
exhibits and any and all documents required to be filed with respect thereto
with any regulatory authority, granting unto said attorneys, and each of them,
full power and authority to do and perform each and every act and action
requisite and necessary to be done in and about the premises in order to
effectuate the same as fully to all intents and purposes as the undersigned
might or could do if personally present, hereby ratifying and confirming all the
said attorneys-in-fact and agents, or any of them, may lawfully do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereto set his hand this 8th
day of February, 2000.
/s/ EDMUND P. SEGNER, III
-------------------------------------
Edmund P. Segner, III
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 24,836
<SECURITIES> 0
<RECEIVABLES> 148,189
<ALLOWANCES> 0
<INVENTORY> 18,816
<CURRENT-ASSETS> 200,501
<PP&E> 4,602,740
<DEPRECIATION> (2,267,812)
<TOTAL-ASSETS> 2,610,793
<CURRENT-LIABILITIES> 218,618
<BONDS> 0
0
147,190
<COMMON> 201,247
<OTHER-SE> 781,174
<TOTAL-LIABILITY-AND-EQUITY> 2,610,793
<SALES> 802,149
<TOTAL-REVENUES> 801,406
<CGS> 0
<TOTAL-COSTS> 783,218
<OTHER-EXPENSES> (611,343)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 61,819
<INCOME-PRETAX> 567,712
<INCOME-TAX> (1,382)
<INCOME-CONTINUING> 569,094
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 569,094
<EPS-BASIC> 4.04<F1>
<EPS-DILUTED> 3.99
<FN>
<F1>BASIC
</FN>
</TABLE>
