<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1994
OR
(_) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
Commission file number 1-11413
ENSERCH EXPLORATION, INC.
Texas 75-2556975
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
4849 Greenville Avenue
Suite 1500
Dallas, Texas 75206
(Address of principal executive office) (Zip Code)
Registrant's Telephone Number, Including Area Code - (214) 987-7878
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of Each Exchange
Title of Each Class on which Registered
------------------- ---------------------
Common Stock ($1.00 par value) New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
Indicate by check mark whether Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding twelve months
(or for such shorter period that the Registrant was required to
file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes (X) No (_)
Aggregate market value of the voting stock held by
nonaffiliates of the Registrant as of March 10, 1995: $8,048,140
Shares of the Registrant's Common Stock outstanding as of
March 10, 1995: 104,609,242
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)
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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<PAGE>
<PAGE>
FORM 10-K
ANNUAL REPORT
For the Fiscal Year Ended December 31, 1994
TABLE OF CONTENTS
Page
PART I
ITEM 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Gulf of Mexico. . . . . . . . . . . . . . . . . . . . . . .1
Onshore . . . . . . . . . . . . . . . . . . . . . . . . . .2
Competition . . . . . . . . . . . . . . . . . . . . . . . .3
Regulation. . . . . . . . . . . . . . . . . . . . . . . . .3
ITEM 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . .4
ITEM 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . .7
ITEM 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . . . . . . . . .7
PART II
ITEM 5. Market for the Registrant's Common Equity
and Related Stockholder Matters. . . . . . . . . . . . . . . . 7
ITEM 6. Selected Financial Data. . . . . . . . . . . . . . . . . . . . 7
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . . 7
ITEM 8. Financial Statements and Supplementary Data. . . . . . . . . . 7
ITEM 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . . . . . 7
PART III
ITEM 10. Directors and Executive Officers of the Registrant . . . . . . 8
Committees of the Board of Directors. . . . . . . . . . . 9
Director Compensation . . . . . . . . . . . . . . . . . . 9
ITEM 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . 9
Employee Benefit Plans. . . . . . . . . . . . . . . . . .. 9
ITEM 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . . . . 10
Stock Ownership of Certain Beneficial Owners. . . . . . . 10
Stock Ownership of Management and Board of Directors. . . 11
ITEM 13. Certain Relationships and Related Transactions . . . . . . . . 11
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . . . 13
APPENDIX A Financial Information. . . . . . . . . . . . . . . . . . . .A-1
PART I
ITEM 1. Business
Enserch Exploration, Inc. ("EEX" or the "Company") is a newly
formed publicly traded Texas corporation engaged in the exploration
for and the development, production and marketing of natural gas
and crude oil throughout Texas, offshore in the Gulf of Mexico,
onshore in the Gulf Coast and Rocky Mountain areas and in various
other areas in the United States. Activities include geological
and geophysical studies; acquisition of gas, oil and mineral
leases; drilling of exploratory wells; development and operation of
producing properties; acquisition of interests in developed or
partially developed properties; and the marketing of natural gas,
crude oil and condensate.
EEX's gas and oil operations represent the domestic gas and
oil business of ENSERCH Corporation ("ENSERCH"). During 1994,
these operations were conducted primarily through Enserch
Exploration Partners, Ltd. ("EP"), a limited partnership in which
a minority interest (less than 1%) was held by the public. At
year-end 1994, pursuant to a plan for the reorganization of EP
("Reorganization"), EEX, through a series of transactions, acquired
all of the operating properties of EP from EP's 99%-owned operating
partnership, EP Operating Limited Partnership ("EPO"), in exchange
for shares of EEX common stock. On December 30, 1994, the
Reorganization was consummated, EP was dissolved, and the EEX
common stock held by EP was distributed to EP's limited and general
partners in accordance with their partnership interests. In this
report, "EEX" or the "Company" is used to refer to either EEX or
EP, or both, when a distinction is not required.
In connection with the Reorganization, Enserch Exploration
Holdings, Inc. ("EEH")(named Enserch Exploration, Inc. and the
Managing General Partner of EP prior to the Reorganization),
received EP's interests in and assumed EP's obligations under
certain equipment lease arrangements relative to the Garden Banks
Block 388 project and the Mississippi Canyon Block 441 project,
with the equipment being simultaneously subleased to EEX. ENSERCH
affiliates also assumed approximately $395 million principal amount
of EP's indebtedness, plus accrued interest. Upon the liquidation
of EP and distribution of EEX common stock, public unitholders of
EP received 805,914 shares of EEX common stock (.77%) and ENSERCH
and its affiliates received 103,775,328 shares (99.23%) of EEX's
104,581,242 shares then outstanding. EEX common stock is listed on
the New York Stock Exchange under the symbol "EEX".
Production offices are maintained in Dallas, Houston, Athens,
Bridgeport, Longview and Midland, Texas. At December 31, 1994, EEX
had 373 employees, including 34 geologists, 20 geophysicists and 18
land representatives who investigate prospective areas, generate
drilling prospects, review submitted prospects and acquire
leasehold acreage in prospective areas. In addition, EEX maintains
a staff of 55 engineers and 45 technologists who plan and supervise
the drilling and completion of wells, evaluate prospective gas and
oil reservoirs, plan the development and management of fields and
manage the daily production of gas and oil.
Variable-priced natural-gas sales, which include monthly and
long-term sales contracts, covered about 75% of 1994 natural-gas
sales. Approximately 80% of EEX's natural-gas sales volumes (75%
of gas revenues) for the year ended December 31, 1994 was sold to
affiliated companies. Effective March 1, 1993, Enserch Gas
Company, an ENSERCH subsidiary, began marketing gas for EEX for all
gas not covered under existing contracts. In 1994, approximately
14% of EEX's natural gas sales volumes (approximately 14% of total
revenues) was sold to Lone Star Gas Company, a division of ENSERCH,
under a fixed-price service contract. A loss of sales under this
contract could have an adverse financial impact on the earnings of
EEX to the extent that the price in effect under the contract at
such time exceeds the price at which the gas may be sold by EEX to
others. Affiliated purchasers do not have a preferential right to
purchase natural gas produced by EEX other than under existing
contracts.
Sales data are set forth under "Selected Financial and
Operating Data" included in Appendix A to this report.
Following is a summary of EEX's exploration and development
activity during 1994:
Gulf of Mexico. Exploration in the Gulf of Mexico is an
important part of EEX's exploratory program. A total of 14 leases
(over 37,000 acres) were acquired in the Gulf of Mexico, primarily
the result of the Central Gulf lease sale in April 1994. These
leases were purchased based on prospects principally defined by
three-dimensional ("3-D") seismic acquired before the lease sale.
Typically, successful wells in the Gulf produce at high rates
compared with onshore wells, which is important in increasing cash
flow and improving the ratio of production to reserves. State-of-
the-art technology, including specialized 3-D seismic processing
and innovative production techniques, is being utilized to help
achieve this objective.
Mississippi Canyon Block 441, the first development project in
the Gulf of Mexico that EEX has operated, is indicative of this
approach. A 3-D seismic program, prior to field development,
confirmed that the majority of the reservoir lies beneath a
shipping fairway. A production program was developed that involved
drilling highly deviated wells under the shipping fairway, subsea
completing the deep-water wells and tying the wells back to a
conventional shallow-water production platform using bundled
flowlines. The high-angle wells required special gravel-pack
completion techniques. After two years of production, the field
has been essentially maintenance free. Production from the field,
which declined from initial levels due to expected water
encroachment, has stabilized and is expected to remain at current
levels of some 35 million cubic feet ("MMcf") of natural gas and
more than 150 barrels ("Bbls") of condensate per day for the
foreseeable future. The 3-D seismic on Mississippi Canyon
Block 441 is being reprocessed, using depth migration and other
state-of-the-art techniques to aid in the identification of deeper
exploratory targets, which, if successfully drilled, could add to
the field reserves. EEX has a 37.5% working interest in this
project.
Throughout 1994, work progressed on the conversion of a
semisubmersible rig to a floating production facility for the
development of the Garden Banks Block 388 unit. The majority of
the modification work on the major structural components has been
completed. The 24-slot subsea template has been installed, and the
two 12-inch gas and oil gathering lines have been installed and
connected to the shallow-water production facility located 54 miles
away. Completion operations on the two pre-drilled wells commenced
in early 1995 and should enable these wells to be brought on-stream
when the floating facility is moored on location and the production
riser is installed. The initial well was completed in mid-March
and tested at rates which indicate that the well will likely flow
at an initial daily rate of 6,000 barrels. The second well should
be completed in mid-1995, followed by additional development
drilling, with one such well expected to be completed in late 1995.
Initial daily oil production rates from the second pre-drilled well
is anticipated to be between 2,500 and 6,000 barrels.
Under an agreement with Mobil Producing Texas and New Mexico
Inc. ("Mobil"), an exploratory well was drilled in the third
quarter of 1994 in EEX's Garden Banks unit on Block 387,
approximately four miles from the discovery on Block 388. The
well, drilled in 2,200 feet of water to a depth of 11,893 feet,
encountered a total of 150 feet of oil pay in the two reservoirs
and added significant incremental reserve potential to the
development project. A delineation well will be drilled on Block
386 or 387 early in 1995. Subsea completions tied into the
production facility on Block 388 will be utilized to produce these
wells.
Mobil has an option to acquire a 40% interest in the entire
Garden Banks unit consisting of six blocks and in the unit's
production system. To obtain that option, Mobil drilled the
exploratory well on Block 387 and has conducted a new 3-D seismic
survey over the unit to further assess the deeper horizons
correlative to nearby prolific reserves and, to extend the original
option, Mobil has paid additional consideration. EEX, which
currently owns 100% of the project, will remain the operator.
EEX has a 100% working interest in a successful exploratory
sidetrack well on Green Canyon Block 254, which encountered more
than 400 feet of net gas and oil pay below 12,000 feet. The well
was an appraisal to a discovery well drilled in 1991 that
encountered multiple sands with a combined thickness of more than
300 feet of net pay. Additional drilling is planned for the first
half of 1995. EEX had a 25% working interest in prior work on this
project before assuming operations and a 100% working interest in
the sidetrack well. EEX also has a 25% working interest in three
adjacent blocks. Efforts are underway to acquire additional
interests in Block 254 and the adjacent blocks to raise EEX's
interest.
Onshore. In 1994, the majority of developmental drilling
activity was focused in the Freestone, Boonsville and Fashing
fields, all in Texas, where some new reserves were added by
establishing production in zones that had not produced in the past.
In Freestone, 12 successful wells were drilled. Initial potential
tests have ranged from 1.4 to 2.6 MMcf of gas per day. In the
Boonsville area, 13 wells were drilled and completed in 1994.
These include nine gas wells that had initial potentials averaging
0.8 MMcf of gas per day and four oil wells initially delivering an
average of 76 barrels per day. In Fashing field, five wells were
drilled in 1994, four of which have been completed, with initial
deliveries averaging 1.7 MMcf of gas per day. Completion
operations are in progress on the fifth well.
A large portion of the development drilling and recompletion
activity during the past several years has been in six major gas
fields in East Texas. To offset the decline rate of hundreds of
older wells, reworks, recompletions and development drilling are
required, all of which are sensitive to product prices. In East
Texas, the goal is to accelerate production while preserving or
increasing reserves and net present value of the fields. EEX's
East Texas proved reserves are currently estimated to be some 784
Bcf.
In 1994, EEX and the Los Alamos National Laboratory joined in
a first-time effort to use technology developed for energy and
national defense in the field of natural-gas exploration. Joint
goals are to employ more effective and efficient methods of
recovery of resources, to increase reserves and to develop applied
science that will be available to the entire natural-gas industry.
The EEX/Los Alamos team is testing the extent to which producing
formations have been drained by hydraulic fracturing in the Opelika
gas field located in East Texas. Los Alamos scientists are
deploying instrumentation to verify the extent of hydraulic
fracturing in the producing Travis Peak formation. It may then be
determined where additional fracturing can be used to release
trapped gas, thereby maximizing the recovery of gas reserves. The
data acquisition phase from the Opelika field has been completed,
with significant microseismic activity detected in surrounding
observation wells when the test well was hydraulically fractured.
The computation phase of the project generated encouraging
preliminary results regarding fracture orientation. Currently, Los
Alamos' instrumentation is being modified to enhance the quality of
acquired data to define fracture extent.
Competition. Competition in the natural gas and oil
exploration and production business is intense and present from a
large number of firms of varying sizes and financial resources,
some of which are much larger than EEX. Competition involves all
aspects of marketing products (including terms, prices, volumes and
length of contracts), terms relating to lease bonus and royalty
arrangements, and the schedule of future development activity.
Regulation. Environmental Protection Agency ("EPA") rules,
regulations and orders affect the operations of EEX. EPA
regulations promulgated under the Superfund Amendments and
Reauthorization Act of 1986 require EEX to report on locations and
estimates of quantities of hazardous chemicals used in EEX's
operations. The EPA has determined that most gas and oil
exploration and production wastes are exempt from the hazardous
waste management requirements of the Resource Conservation Recovery
Act. However, the EPA determined that certain exploration and
production wastes resulting from the maintenance of production
equipment and transportation are not exempt and must be managed and
disposed of as hazardous waste. Also, regulations issued by the
EPA under the Clean Water Act require a permit for "contaminated"
stormwater discharges from exploration and production facilities.
Many states have issued new regulations under authority of the
Clean Air Act Amendments of 1990, and such regulations are in the
process of being implemented. These regulations may require
certain gas and oil related installations to obtain federally
enforceable operating permits and may require the monitoring of
emissions; however, the impact of these regulations on EEX is
expected to be minor.
Several states have adopted regulations on the handling,
transportation, storage and disposal of naturally occurring
radioactive materials that are found in gas and oil operations.
Although applicable to certain EEX facilities, it is not believed
that such regulations will materially impact current or future
operations.
The Oil Pollution Act of 1990 ("OPA 90") requires responsible
parties to provide evidence of financial responsibility in the
amount of $150 million to clean up oil spills into the navigable
waters of the United States. The financial responsibility
requirements apply to offshore facilities and possibly to onshore
facilities in, on or under navigable waters. The Mineral
Management Service ("MMS") is the agency charged with the
administration and enforcement of OPA 90. The ultimate impact of
the financial responsibility requirements cannot be determined
until final regulations are issued by the MMS. Further
Congressional action on these requirements is also possible, and
the final MMS regulations could be challenged in court. The $150
million requirement will not become effective until regulations
under OPA 90 are issued, probably in 1996. The insurance industry
has indicated that insurance will not be available to evidence
financial responsibility under OPA 90 as currently written.
However, EEX has qualified as a self-insurer using the "identified
assets" test under the current $35 million financial responsibility
requirement using EEX's interest in Tri-Cities field as the
identified assets. It is believed that EEX has sufficient assets
to qualify as a self-insurer for $150 million under the identified
assets test if the current self-insurance test is included in the
OPA 90 regulations. It is unclear whether the new regulations will
allow EEX to qualify as a self-insurer. Alternatively, EEX
believes it could meet the current OPA 90 financial responsibility
requirements by the purchase of a surety bond, although the cost of
such bonds is generally much higher than insurance. The
availability of surety bonds generally could also be affected by
the requirements of the final MMS regulations.
In the aggregate, compliance with federal and state
environmental rules and regulations is not expected to have a
material adverse effect on EEX's operations.
The Railroad Commission of Texas regulates the production of
natural gas and oil by EEX in Texas. Similar regulations are in
effect in all states in which EEX explores for and produces natural
gas and oil. These regulations generally require permits for the
drilling of gas and oil wells and regulate the spacing of the
wells, the prevention of waste, the rate of production and the
prevention and cleanup of pollution and other materials.
ITEM 2. Properties
The following table sets forth a summary of certain
information relating to EEX's gas and oil properties:
<TABLE>
<CAPTION>
At December 31
--------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total Proved Developed and
Undeveloped Reserves:
Gas (Bcf)(1) . . . . . 1,041.7 1,085.5 1,100.4 1,167.3 1,223.2
Oil (MMBbl)(1)(2). . . 46.1 38.2 37.9 38.0 28.7
Estimated Future Net Cash Flows
from Proved Reserves
(in millions). . . . . $1,961.9 $1,988.8 $2,017.1 $2,061.1 $2,606.8
Present Value of Future Net Cash
Flows from Proved Reserves
(before income taxes and
discounted at 10% per annum)
(in millions). . . . . $1,140.7 $1,102.4 $1,108.4 $1,060.4 $1,229.3
-------------
<FN>
Note: Billion cubic feet ("Bcf"), million barrels ("MMBbl").
(1) Estimated by DeGolyer and MacNaughton, independent petroleum consultants.
(2) Includes oil, condensate and natural gas liquids attributable to leasehold interests.
</FN>
</TABLE>
See "Financial Review - Capital Budget" included in Appendix A
to this report for a discussion of EEX's 1995 capital spending
program. In light of the recent lack of heating weather and lower
gas prices, EEX is proceeding cautiously in implementing its
capital spending program until the amount of future cash flows can
be better ascertained. Announced 1995 capital expenditures of
$155 million could be reduced by up to $25 million if cash flows
fail to reach budgeted levels.
During 1994, EEX filed Form EIA-23 with the Department of
Energy reflecting reserve estimates for the year 1993. Such
reserve estimates were not materially different from the 1993
reserve estimates reported in Note 7 of the Notes to Financial
Statements included in Appendix A to this report.
As of December 31, 1994, EEX owned leasehold interests or
licenses in 17 states and offshore Texas and Louisiana as follows:
<TABLE>
<CAPTION>
Gross Acres Net Acres (1)
----------------------------- ---------------------------
Developed Undeveloped Total Developed Undeveloped Total
--------- ----------- ----- --------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Alabama. . . . . . 75 13,409 13,484 37 2,916 2,953
Arkansas . . . . . 19,607 19,607 11,338 11,338
Colorado . . . . . 10,349 15,866 26,215 3,257 10,711 13,968
Idaho. . . . . . . 14,730 14,730 14,730 14,730
Kansas . . . . . . 400 8,717 9,117 200 4,512 4,712
Louisiana. . . . . 1,861 31,009 32,870 681 17,941 18,622
Mississippi. . . . 4,355 31,339 35,694 2,323 12,203 14,526
Montana. . . . . . 6,415 44,903 51,318 3,201 22,372 25,573
Nebraska . . . . . 160 480 640 160 480 640
Nevada . . . . . . 90,160 90,160 39,403 39,403
New Mexico . . . . 2,600 7,827 10,427 1,862 4,301 6,163
North Dakota . . . 1,560 6,776 8,336 1,246 4,005 5,251
Ohio . . . . . . . 102 14,950 15,052
Oklahoma . . . . . 32,366 18,280 50,646 17,730 9,396 27,126
Texas. . . . . . . 262,674 590,110 852,784 197,984 356,546 554,530
Utah . . . . . . . 3,719 109,742 113,461 533 54,081 54,614
Wyoming. . . . . . 3,558 54,559 58,117 1,641 43,565 45,206
U.S. Offshore. . . 56,800 272,632 329,432 12,860 133,720 146,580
------- --------- --------- ------- ------- -------
Total. . . . . . . 386,994 1,345,096 1,732,090 243,715 742,220 985,935
======= ========= ========= ======= ======= =======
----------------
<FN>
(1) Represents the proportionate interest of EEX in the gross acres under lease.
</FN>
</TABLE>
EEX purchased about 191,000 net acres of leasehold interests
in 1994, 37,000 of which were in the Gulf of Mexico. EEX's Gulf of
Mexico holdings totaled some 147,000 net acres, with an average
working interest of 46% in 61 blocks and an overriding royalty
interest in three other blocks. EEX operates 28 offshore blocks.
EEX also canceled or allowed to expire 21 Gulf of Mexico leases
during the year, which had been condemned following drilling on or
near them or after geophysical and geological findings.
EEX plans further drilling on undeveloped acreage but at this
time cannot specify the extent of the drilling or predict how
successful it will be in establishing commercial reserves
sufficient to justify retention of the acreage. The primary terms
under which the undeveloped acreage can be retained by the payment
of delay rentals without the establishment of gas and oil reserves
expire as to 20% of undeveloped acreage in 1995, 36% in 1996, 21%
in 1997, 5% in 1998, 11% in 1999, 2% in 2000 and 5% thereafter. A
portion of the undeveloped acreage may be allowed to expire prior
to the expiration of primary terms specified in this schedule by
nonpayment of delay rentals. Aside from Texas and the Gulf of
Mexico, EEX has no material concentration of undeveloped acreage in
single areas at this time.
EEX participated in 108 wells (74 net) during 1994. Of these
wells, 58 wells (44 net) were successfully completed, resulting in
a net success rate of 59%. Of the successful wells, 13 wells (10
net) were exploratory and 45 wells (34 net) were development. At
December 31, 1994, EEX was participating in 41 wells (23 net),
which were either being drilled or in some stage of completion.
In the 1994 drilling program, 5 wells (1.5 net) were offshore.
Of these wells, 2 gas wells (.4 net) and 1 oil well (.4 net) were
successfully completed. During 1993, 16 offshore wells (4.9 net)
were drilled, of which 9 gas wells (2.6 net) and 1 oil well (.1
net) were successfully completed.
At December 31, 1994, EEX owned interests in 1,314 gas wells
(1,008 net) and 1,043 oil wells (286 net). Of these, 173 gas wells
(141 net) and 37 oil wells (32 net) were dual completions in single
boreholes.
Drilling activity during the three years ended December 31,
1994 is set forth below:
<TABLE>
<CAPTION>
Exploratory Development
Drilling Drilling
----------- -----------
<S> <C> <C> <C> <C>
Productive Wells
1994:
Gross Wells . . . . . 13.0 45.0
Net Wells . . . . . . 9.8 34.3
1993:
Gross Wells . . . . . 7.0 76.0
Net Wells . . . . . . 3.8 60.1
1992:
Gross Wells . . . . . 3.0 12.0
Net Wells . . . . . . 2.2 6.3
Nonproductive Wells
1994:
Gross Wells . . . . . 43.0 7.0
Net Wells . . . . . . 25.3 4.6
1993:
Gross Wells . . . . . 24.0 2.0
Net Wells . . . . . . 13.0 1.8
1992:
Gross Wells . . . . . 13.0 5.0
Net Wells . . . . . . 8.1 2.6
-------------------
<FN>
Note: Productive wells are either producing wells or wells
capable of commercial production, although currently
shut-in. The term "gross" refers to the wells in which
a working interest is owned, and the term "net" refers to
gross wells multiplied by the percentage of EEX's working
interest owned therein.
</FN>
</TABLE>
The number of wells drilled is not a significant measure or
indicator of the relative success or value of a drilling program
because the significance of the reserves and economic potential may
vary widely for each project. It is also important to recognize
that reported completions may not necessarily track capital
expenditures, since Securities and Exchange Commission guidelines
do not allow a well to be reported as complete until it is ready
for production. In the case of offshore wells, this may be several
years following initial drilling because of the timing of
construction of platforms, pipelines and other necessary
facilities.
Additional information relating to the gas and oil activities
of EEX is set forth in Note 7 of the Notes to Financial Statements
included in Appendix A to this report.
EEX leases approximately 91,000 square feet of office space
for its executive offices in Dallas, Texas, under a lease expiring
in December 1998.
ITEM 3. Legal Proceedings
On December 26, 1989, a lawsuit was filed against EEH and EPO
in the 130th Judicial District Court of Matagorda County, Texas.
EPO was merged into the Company in December 1994. The Plaintiff
claims that the defendants breached an alleged contract to sell a
working interest and net revenue interest in two leases located in
Matagorda County. Trial of the case resulted in a jury verdict in
favor of the plaintiff. Judgement was entered by the trial court
on October 8, 1992, ordering EEH and EPO to convey the leases to
the plaintiff and to pay damages of $3.1 million, which includes
principal, prejudgment interest, attorneys' fees and costs. In an
opinion issued June 23, 1994, the Corpus Christi Court of Appeals
reversed the decision of the trial court. The plaintiff's
application for writ of error was denied by the Texas Supreme Court
on December 8, 1994.
See Note 6 of the Notes to Financial Statements included in
Appendix A to this report for information on additional legal
proceedings. In addition, EEX is a party to lawsuits arising in
the ordinary course of its business. EEX believes, based on its
current knowledge and the advice of counsel, that all lawsuits and
claims would not have a material adverse effect on its financial
condition.
ITEM 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
ITEM 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
EEX common stock began trading on the New York Stock Exchange
on January 3, 1995 under the symbol "EEX". There were no trades in
EEX common stock in any market prior to that date.
ITEM 6. Selected Financial Data
The information required hereunder is set forth under
"Selected Financial and Operating Data" included in Appendix A to
this report.
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The information required hereunder is set forth under
"Financial Review" included in Appendix A to this report.
ITEM 8. Financial Statements and Supplementary Data
The information required hereunder is set forth under "Pro
Forma Statements of Operations," "Notes to Pro Forma Statements of
Operations," "Management Report on Responsibility for Financial
Reporting," "Independent Auditors' Report," "Balance Sheet"
"Statements of Changes in Partners' Capital and Common
Shareholders' Equity," "Statements of Operations of Predecessor,"
"Statements of Cash Flows of Predecessor," and "Notes to Financial
Statements" included in Appendix A to this report.
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
PART III
ITEM 10. Directors and Executive Officers of the Registrant
Set forth below is information concerning the directors and
executive officers of EEX:
<TABLE>
<CAPTION>
Name Age Title and Business Experience
---- --- -----------------------------
<S> <C> <C>
D. W. Biegler 48 Chairman, Chief Executive Officer and
Director since September 1994. He
also served EEH as Chairman since
January 1992 and a Director since
September 1991. Since May 1993, Mr.
Biegler has been Chairman and
President, Chief Executive Officer of
ENSERCH. He served Lone Star Gas
Company, the utility division of
ENSERCH, as President from 1985 and
as Chairman from 1989 and was elected
President and Chief Operating Officer
of ENSERCH in 1991. Mr. Biegler is a
Director of ENSERCH, Texas Commerce
Bancshares National Association and
Trinity Industries, Inc.
Gary J. Junco 45 President, Chief Operating Officer
and Director since September 1994.
He also served EEH as President,
Chief Operating Officer since January
1991 and Director since 1985 and was
Senior Vice President, Land and
Marketing Division, from July 1985 to
December 1990.
Frederick S. Addy 63 Director since January 1995. He is
the retired Executive Vice President
and Chief Financial Officer, and
Director of Amoco Corporation, an
international integrated oil and gas
company. Mr. Addy was elected to
such position with Amoco in 1990 and
retired as an officer and Director
effective April 1, 1994. He is a
Director of ENSERCH; Baker, Fentress
& Company; and The Pierpont Funds.
B. A. Bridgewater, Jr. 61 Director since January 1995. He is
Chairman, President and Chief
Executive Officer, and a Director of
Brown Group, Inc., a consumer
products company with operations in
footwear. He is a Director of
ENSERCH, Boatmen's Bancshares, Inc.,
FMC Corporation and McDonnell Douglas
Corporation.
R. L. Kincheloe 64 Senior Vice President, Offshore and
International, since September 1994.
He also served EEH as Senior Vice
President, Offshore and International
since January 1992 and was Senior
Vice President, Drilling and
Production Operations, from April
1985 to January 1992.
S. R. Singer 64 Senior Vice President, Chief
Financial Officer, since September
1994. He also served EEH as a
Director since April 1985 and has
been Senior Vice President, Finance
and Corporate Development, Chief
Financial Officer of ENSERCH since
1968.
B. K. Irani 43 Vice President, Production and
Engineering Division, since September
1994. He also served as Vice
President, Production and Engineering
of EEH since September 1988 and a
Vice President of EEI since August
1984.
</TABLE>
Committees of the Board of Directors. The functions of the Audit
Committee include meeting periodically with the independent and internal
auditors; reviewing annual financial statements and the independent
auditors' work and report thereon; reviewing the independent auditors'
report on internal controls and related matters; selecting and recommending
to the Board of Directors the appointment of the independent
auditors; reviewing the letter of engagement and statement of fees
that pertain to the scope of the annual audit and certain special
audit and non-audit work, which may be required or suggested by the
independent auditors; receiving and reviewing information
pertaining to internal audits; directing and supervising special
investigations; authorizing and reviewing transactions between EEX
and ENSERCH, its subsidiaries and affiliates (the "EC Companies");
and performing any other function deemed appropriate by the Board
of Directors. Mr. Bridgewater is the Chairman and Mr. Addy is a
member of the Audit Committee.
The Compensation Committee establishes, approves or recommends
to the Board of Directors, in those instances where their approval
is required, the compensation and major items related to
compensation of directors and of officers. The Committee also
administers the EEX 1994 Stock Incentive Plan ("Plan"). Mr. Addy
is the Chairman and Mr. Bridgewater is a member of the Compensation
Committee.
Director Compensation. Directors are compensated by an annual
retainer fee of $16,000 plus $1,000 for each board or committee meeting
attended, with a maximum of $1,500 if more than one meeting is held on
the same day. In addition, a $1,500 per annum fee is paid for services
on a committee of the Board of Directors, with an additional $750 per
annum paid to the chairman of a committee. Directors who are also
officers of EEX do not receive any fees.
ITEM 11. Executive Compensation
EEX paid no compensation to any person in 1994. The total
amount of compensation paid by EEH to all of the current executive
officers of EEX for their services to EP for the year ended
December 31, 1994 was $876,703 (3 persons). The amounts paid
include base salary, bonuses and other miscellaneous earnings
categories that were charged to EP.
The following table sets forth the annual salary as of
January 1, 1995 of the Chief Operating Officer and the other
executive officers of EEX who devote substantially their full time
to EEX and whose annual compensation exceeds $100,000.
<TABLE>
<CAPTION>
Name Salary
---- ------
<S> <C>
G. J. Junco $275,000
R. L. Kincheloe 240,000
B. K. Irani 177,000
</TABLE>
Any bonus, stock option, long-term compensation or other
compensation to be paid by EEX to its executive officers is
determined by the Compensation Committee of the Board of Directors.
D. W. Biegler, Chairman and Chief Executive Officer of EEX,
and S. R. Singer, Senior Vice President, Chief Financial Officer of
EEX, each are employed and will continue to be employed in
identical positions with ENSERCH, and each are directly paid all of
their compensation by ENSERCH. It is not presently anticipated
that D. W. Biegler or S. R. Singer will receive any direct
compensation from EEX in 1995. The salaries of D. W. Biegler and
S. R. Singer at January 1, 1995 were $550,000 and $347,000,
respectively. All other cash compensation (including bonuses) paid
by ENSERCH during 1994 under plans currently in effect for services
rendered in 1994 for D. W. Biegler and S. R. Singer totaled
$322,994 and $151,172, respectively. It is anticipated that in
1995 none of D. W. Biegler's compensation and less than $100,000 of
S. R. Singer's compensation will be allocated from ENSERCH to EEX
under the management cost allocation or under any other
arrangement.
Employee Benefit Plans. Executive officers of EEX are included
in employee benefit plans of ENSERCH. EEX does not currently have
any employee benefit plans, other than the Plan, which is described below.
The Plan provides for the granting of stock options
("Options") to officers and other key employees to purchase shares
of Common Stock and has provisions for the awarding of restricted
stock to officers, which are subject to vesting based on the
achievement of certain performance criteria ("Restricted Stock").
Options granted under the Plan, (a) shall have an option price not
less than the fair market value of the shares on the date of grant,
(b) become exercisable in stages of 25% after one year to 100%
after four years and (c) expire ten years from the date of grant.
The Plan covers a maximum of 2 million shares of EEX Common
Stock, subject to adjustment in the event of certain changes in the
capital structure of EEX. Such shares may be authorized but
unissued shares or shares held in EEX's treasury. If an Option or
an award of Restricted Stock is forfeited (where the forfeiting
participant received no benefits of ownership), expires or
terminates before being exercised, the shares covered thereby will
be available for subsequent Option or Restricted Stock grants or
awards within the maximum number stated above.
An award of Restricted Stock may be granted under the Plan,
either at no cost to the recipient or for such cost as may be
required by law or otherwise as determined by the Compensation
Committee of the Board of Directors. The terms and conditions of
the Restricted Stock will be specified at the time of the grant.
Restricted Stock may not be disposed of by the recipient until the
restrictions specified in the award expire. The Compensation
Committee will determine at the time of the award what rights, if
any, the person to whom an award of Restricted Stock is made will
have with respect to Restricted Stock during the restriction
period, including the right to vote the shares and the right to
receive any dividends or other distributions applicable to the
shares.
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management
Stock Ownership of Certain Beneficial Owners. The Company is aware
of the following beneficial owners, as of December 31, 1994, of more than
5% of the Company's Common Stock:
<TABLE>
<CAPTION>
Amount and
Name and Address Nature of
Title of Beneficial Percent
of Class Beneficial Owner Ownership of Class
--------- ----------------- ---------- --------
<S> <C> <C> <C>
Common Stock ENS Holdings Limited 53,336,434 51.00%
Partnership (1)
300 S. St. Paul Street
Dallas, TX 75201
Common Stock Enserch Exploration 13,883,529 13.28%
Holdings, Inc. (2)
300 S. St. Paul Street
Dallas, TX 75201
Common Stock ENSERCH Corporation 36,555,365 34.95%
300 S. St. Paul Street
Dallas, TX 75201
----------- -----
Total 103,775,328(3) 99.23%
---------------------
<FN>
(1) ENS Holdings Limited Partnership, a Texas limited partnership,
is trustee (the "Trustee") of the ENS Holdings Trust, a Texas
trust (the "Trust") of which ENSERCH is the beneficiary. ENS
Holdings I, Inc., the general partner (the "Trustee GP") of
the Trustee and ENS Holdings II, Inc., the sole limited
partner of the Trustee, are each wholly owned subsidiaries of
ENSERCH. The Trustee has voting and dispositive power with
respect to the 53,336,434 shares (51.00%) of the outstanding
Common Stock owned by the Trust and may be deemed to
beneficially own those shares. ENSERCH has the power to
revoke the Trust by giving not less than 90 days' prior notice
of revocation. Upon termination of the Trust, the assets in
the Trust (including any shares of Common Stock in the Trust
at that time) would be distributed to ENSERCH. Actions of the
Trustee are effected by the Trustee GP in its capacity as
general partner of the Trustee.
(2) EEH is a wholly owned subsidiary of ENSERCH.
(3) ENSERCH has sole voting and dispositive power of 36,555,365
shares (34.95%) of the outstanding Common Stock and, by virtue
of its ownership of the securities of EEH, the Trustee and the
Trustee GP may be deemed to share the voting and dispositive
power with respect to the 67,219,963 shares (64.28%) of the
outstanding Common Stock shown as owned by EEH and the Trust.
ENSERCH, therefore, may be deemed to own beneficially,
directly or indirectly, all of the 103,775,328 shares (99.23%)
of the outstanding Common Stock shown in the table.
</FN>
</TABLE>
Stock Ownership of Management and Board of Directors:
Each director, the named executive officers, and all directors
and executive officers as a group, reported beneficial ownership of
Common Stock of the Company and ENSERCH Corporation as of March 10,
1995 as follows:
<TABLE>
<CAPTION>
EEX ENSERCH
---------------------- ----------------------
Number of Number of
Shares Shares
Beneficially Percent Beneficially Percent
Name Owned (1) of Class Owned (2) of Class
---- ------------ -------- ------------ --------
<S> <C> <C> <C> <C>
D. W. Biegler 11,000 * 230,161 (3) *
G. J. Junco 15,100 * 78,670 (3) *
Frederick S. Addy 2,000 * 2,500 *
B. A. Bridgewater, Jr. 1,000 * 3,000 *
S. R. Singer 0 120,804 (3) *
R. L. Kincheloe 0 52,853 (3) *
B. K. Irani 0 19,909 (3) *
All Directors and
Executive Officers
as a Group 29,100 (3) * 507,897 (3) *
---------------------
<FN>
*Less than 1%
(1) The number of shares owned includes restricted shares awarded
under the EEX 1994 Stock Incentive Plan, where applicable.
(2) The number of shares owned includes shares held in ENSERCH
Corporation's Employee Stock Purchase and Savings Plan and
restricted shares awarded under ENSERCH's 1991 Stock Incentive
Plan, where applicable.
(3) Includes shares subject to stock options exercisable within 60
days of March 10, 1995: D. W. Biegler 168,750 shares, G. J.
Junco 60,500 shares, S. R. Singer 105,556 shares, R. L.
Kincheloe 52,853 shares and B. K. Irani 19,909 shares.
</FN>
</TABLE>
ITEM 13. Certain Relationships and Related Transactions
For information concerning the Reorganization of EP at yearend
1994, see "Business," "Financial Review," "Statements of Changes in
Partner's Capital and Common Shareholders' Equity" and Note 1 of
the Notes to Financial Statements included in Appendix A to this
report.
The equipment and facilities used in developing and producing
reserves in the Mississippi Canyon Block 441 project ("MC 441") and
Garden Banks Block 388 project ("GB 388") were financed under lease
agreements between certain financial institutions and EPO. In
connection with the Reorganization of EP, all rights and
obligations under the leases were assigned to and assumed by EEH,
with EEX entering into sublease arrangements with EEH for such
equipment and facilities. The MC 441 sublease has a term of five
years, with EEX having an option to purchase the subleased
equipment at the end of the term. The GB 388 equipment is
subleased under two subleases: one covers the floating production
facility, which has a term of 20 years, and the other covers the
subsea equipment, pipelines and shallow-water production facility,
which has an initial term of 12 years. For additional information
concerning the sublease agreements, see Note 6 of the Notes to
Financial Statements included in Appendix A to this report.
In March 1995, EEX purchased ENSERCH's interest in the SACROC
unit Kelly Snyder Field, Scurry County, Texas, which represented
the remainder of ENSERCH's domestic gas and oil properties. The
purchase price of approximately $1.65 million included
$1.25 million for the fair market value of the properties, as
determined by DeGolyer and MacNaughton, independent petroleum
consultants, and the remainder for the net book value of related
assets acquired and liabilities assumed.
A number of transactions and relationships between EEX and the
EC Companies are contemplated and specifically authorized by
Article Eleven of the Restated Articles of Incorporation of EEX,
including the following:
- Any EC Company may lend funds to EEX at interest rates not
greater than the lesser of the EC Company's actual interest
cost of the funds or the rate that EEX would be charged by
unrelated lenders on comparable loans. EEX may lend funds to
EC Companies at rates not less than would be charged by
unrelated lenders on comparable loans.
- Officers, directors, employees, attorneys and agents of the
Company may also serve as officers, directors, employees,
attorneys and agents of EC Companies. In those situations,
each party using the services will be responsible for
compensation in respect of the services performed for it.
- An EC Company may provide EEX with certain services such as:
accounting and treasury, internal audit, human resources (such
as training, employment and salary and benefit plan
administration), tax planning and compliance, legal, financial
management, corporate development and planning, investor
relations, information systems, materials management, risk and
claims management, office services and the management of these
functions. EEX will reimburse each EC Company for the direct
and indirect costs incurred with such costs to be determined
on a basis that reasonably reflects the actual costs of the
services performed.
- EC Companies may sell gas, oil, goods and services to, and may
purchase gas, oil, goods and services from, EEX in conformity
with the provisions of Article Eleven. EC Companies are
authorized to effect sales to and purchases from EEX on terms
that have not been determined to be fair as long as the
transaction is authorized or ratified by the EEX Board of
Directors.
Other transactions not specifically provided for above may
occur if authorized or ratified by the Audit Committee of the EEX
Board of Directors or the shareholders acting pursuant to the
provisions of Article Eleven.
For a discussion of related-party transactions during 1994
prior to the Reorganization, see Note 5 of the Notes to the
Financial Statements included in Exhibit A to this report.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
(a)-1 Financial Statements
The following items appear in the Financial Information
section included in Appendix A to this report:
<TABLE>
<CAPTION>
Item Page
---- ----
<S> <C>
Selected Financial and Operating Data . . . . . . . . . . . . . . .A-2
Financial Review. . . . . . . . . . . . . . . . . . . . . . . . . .A-3
Pro Forma Financial Statements (Unaudited) of
Enserch Exploration, Inc.:
Pro Forma Statements of Operations . . . . . . . . . . . . . .A-6
Note to Pro Forma Statements of Operations . . . . . . . . . .A-7
Management Report on Responsibility for Financial
Reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-8
Independent Auditors' Report. . . . . . . . . . . . . . . . . . . .A-9
Historical Financial Statements of Enserch
Exploration, Inc. and Predecessor:
Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . .A-10
Statements of Changes in Partners' Capital
and Common Shareholders' Equity . . . . . . . . . . . . . . .A-11
Statements of Operations of Predecessor. . . . . . . . . . . .A-12
Statements of Cash Flows of Predecessor. . . . . . . . . . . .A-13
Notes to Financial Statements. . . . . . . . . . . . . . . . .A-14
</TABLE>
(a)-2 Financial Statement Schedules
The financial statement schedules are omitted because of the
absence of the conditions under which they are required or because
the required information is included in the financial statements or
notes thereto.
(a)-3 Exhibits
2.1* EPO Plan of Complete Liquidation [(included as Appendix
"EPO-1" to Exhibit B to the Prospectus/Information
Statement that forms a part of Registration Statement on
Form S-4 (No. 33-56792)].
2.2* EP Plan of Complete Liquidation [(included as Appendix
"EP-1" to Exhibit C to the Prospectus/Information
Statement that forms a part of Registration Statement on
Form S-4 (No. 33-56792)].
3.1* Restated Articles of Incorporation of the Company
included as Exhibit 3 to the Company's report on Form 8-K
dated December 30, 1994.
3.2* Bylaws of the Company included as Exhibit 3.2 to the
Company's Registration Statement on Form S-4 (No. 33-
56792).
4.1* Form of Common Stock Certificate included as Exhibit 4.1
to the Company's Registration Statement on Form S-4 (No.
33-56792).
10.1* Lease Agreement for Garden Banks 388-1 between the
Company and Enserch Exploration, Inc. included as Exhibit
10.3 to the Company's Registration Statement on Form S-4
(No. 33-56792).
10.2* Lease Agreement for Garden Banks 388-2 between the
Company and Enserch Exploration, Inc. included as Exhibit
10.4 to the Company's Registration Statement on Form S-4
(No. 33-56792).
10.3* Lease Agreement for Mississippi Canyon 441 between the
Company and Enserch Exploration, Inc. included as Exhibit
10.5 to the Company's Registration Statement on Form S-4
(No. 33-56792).
10.4* Participation Agreement between EP Operating Limited
Partnership and Mobil Producing Texas and New Mexico Inc.
included as Exhibit 10.6 to the Company's Registration
Statement on Form S-4 (No. 33-56792).
10.5 Gas Purchase Contract between EP Operating Company and
Lone Star Gas Company, a division of ENSERCH Corporation,
dated January 1, 1988, Amendatory Agreement dated June 1,
1990, Amendatory Agreement dated July 1, 1992 and Letter
Amendment dated August 30, 1993.
Executive Compensation Plan and Arrangements
(Exhibits 10.6 through 10.11)
10.6* Enserch Exploration, Inc. 1994 Stock Incentive Plan
included as Exhibit 10.1 to the Company's Registration
Statement on Form S-4 (No. 33-56792).
10.7 Performance Incentive Plan - Calendar Year 1995.
10.8 ENSERCH Corporation Deferred Compensation Plan and
Amendment No. 1 dated March 28, 1995.
10.9 ENSERCH Corporation Deferred Compensation Trust.
10.10 ENSERCH Corporation Retirement Income Restoration Plan
and Amendment No. 1 thereto dated September 30, 1994.
10.11 ENSERCH Corporation Retirement Income Restoration Trust.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of DeGolyer and MacNaughton.
24 Powers of Attorney.
27 Financial Data Schedule.
--------------------
* Incorporated herein by reference and made a part hereof.
(b) Report on Form 8-K dated December 30, 1994 was filed on
January 6, 1995 (Reorganization of Enserch Exploration Partners,
Ltd. into a new corporation, Enserch Exploration, Inc.)
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:
ENSERCH EXPLORATION, INC.
March 30 , 1995 By /s/ D. W. Biegler
----- --------------------------
D. W. Biegler, Chairman
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons in
the capacities and on the date indicated.
Signature and Title Date
------------------- ----
D. W. Biegler, Chairman, Chief Executive
Officer and Director; Gary J. Junco,
President, Chief Operating Officer and
Director; Frederick S. Addy, Director;
B. A. Bridgewater, Jr., Director; S. R. March 30 , 1995
Singer, Senior Vice President, -----
Chief Financial Officer; and J. W.
Pinkerton, Vice President and Controller,
Chief Accounting Officer
By: /s/ D. W. Biegler
-----------------------
D. W. Biegler
As Attorney-in-Fact
APPENDIX A
ENSERCH EXPLORATION, INC.
INDEX TO FINANCIAL INFORMATION
December 31, 1994
Page
Selected Financial and Operating Data . . . . . . . . . . . . . . . . . A-2
Financial Review. . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-3
Pro Forma Financial Statements (Unaudited) of Enserch Exploration, Inc.:
Pro Forma Statements of Operations . . . . . . . . . . . . . . . . . . A-6
Note to Pro Forma Statements of Operations . . . . . . . . . . . . . . A-7
Management Report on Responsibility for Financial Reporting . . . . . . . A-8
Independent Auditors' Report. . . . . . . . . . . . . . . . . . . . . . . A-9
Historical Financial Statements of Enserch Exploration, Inc.
and Predecessor:
Balance Sheet at December 31, 1994 . . . . . . . . . . . . . . . . . . A-10
Statements of Changes in Partners' Capital and Common
Shareholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . A-11
Statements of Operations of Predecessor. . . . . . . . . . . . . . . . A-12
Statements of Cash Flows of Predecessor. . . . . . . . . . . . . . . . A-13
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . A-14
<PAGE>
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA
The historical selected financial information of Enserch Exploration Partners,
Ltd. (EP) set forth below is derived from the historical financial statements
of EP, the predecessor operating entity to Enserch Exploration, Inc. (EEX).
The pro forma Statement of Operations data of EEX includes adjustments as
explained in the Financial Review.
<TABLE>
<CAPTION>
As of or for Year Ended December 31
---------------------------------------------------------------------
1994 1993 1992 1991 1990
---------- --------- ---------- ---------- ----------
(Financial data in thousands except per unit and per share amounts)
<S> <C> <C> <C> <C> <C>
HISTORICAL STATEMENT OF OPERATIONS DATA OF EP
Revenues
Natural gas . . . . . . . . . . . . . . . . $ 143,099 $ 144,889 $ 117,418 $ 122,164 $ 141,287
Oil and condensate . . . . . . . . . . . . 28,578 33,920 41,179 49,344 58,721
Natural gas liquids . . . . . . . . . . . . 2,106 3,790 6,037 1,503 1,695
Other . . . . . . . . . . . . . . . . . . . 1,319 2,393 1,274 1,479 332
---------- ---------- ---------- ---------- ----------
Total . . . . . . . . . . . . . . . . . $ 175,102 $ 184,992 $ 165,908 $ 174,490 $ 202,035
========== ========== ========== ========== ==========
Operating Income (Loss) . . . . . . . . . . . .$ 32,836 $ 26,386 $ (70) $ (30,185) $ 36,457
Net Income (Loss) . . . . . . . . . . . . . . . 11,966 (3,881) (20,265) (49,644) 25,993
Net Income (Loss) per Unit. . . . . . . . . . . .12 (.04) (.20) (.48) .25
Distributions Declared per Unit . . . . . . . . .30 .30 .30 .30
Weighted Average Units Outstanding. . . . . . . 102,500 102,500 102,500 102,500 102,500
HISTORICAL CASH FLOW DATA OF EP
Net Cash Provided by Operating Activities . . .$ 62,130 $ 76,061 $ 76,790 $ 75,702 $ 81,294
Net Cash Used for Investing Activities. . . . . (105,309) (123,837) (57,155) (105,175) (116,905)
Distributions . . . . . . . . . . . . . . . . . (7,765) (31,061) (31,061) (31,061) (31,061)
HISTORICAL BALANCE SHEET DATA OF EP
Property, Plant and Equipment - Net . . . . . . $1,030,311 $ 993,038 $1,030,653 $1,043,673
Total Assets. . . . . . . . . . . . . . . . . . 1,086,303 1,039,185 1,077,619 1,109,203
Capitalization
Long-term debt - affiliated companies. . . . $ 298,000 $ 266,000 $ 234,000 $ 202,000
General and limited partners' equity
General partners . . . . . . . . . . . . . 14,532 14,882 15,396 16,203
Limited partners . . . . . . . . . . . . . 595,705 630,297 681,109 761,007
---------- ---------- ---------- ----------
Total . . . . . . . . . . . . . . . . . $ 908,237 $ 911,179 $ 930,505 $ 979,210
========== ========== ========== ==========
PRO FORMA STATEMENT OF OPERATIONS DATA
OF EEX
Revenues . . . . . . . . . . . . . . . . . $ 176,870 $ 186,861 $ 167,584 $ 176,253 $ 204,076
Operating Income (Loss). . . . . . . . . . . . 33,886 27,094 (1,065) (31,484) 35,834
Net Income (Loss). . . . . . . . . . . . . . . 26,362 16,274 1,061 (23,042) 18,137
Net Income (Loss) per Share of Common Stock. . .25 .16 .01 (.22) .17
Average Common Shares Outstanding. . . . . . . 104,581 104,581 104,581 104,581 104,581
HISTORICAL BALANCE SHEET DATA OF EEX
Property, Plant and Equipment - Net . . . . . $1,246,310
Total Assets . . . . . . . . . . . . . . . . . 1,370,012
Capital Lease Obligations. . . . . . . . . . . 155,855
Common Shareholders' Equity. . . . . . . . . . . 725,881
Common Shareholders' Equity per Share. . . . . . 6.94
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
As of or for Year Ended December 31
-------------------------------------------------------------
1994 1993 1992 1991 1990
--------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
HISTORICAL OPERATING DATA OF EP
Sales Volumes (a)
Natural gas (Bcf). . . . . . . . . . . . . . 67.1 70.0 65.2 70.0 76.8
Oil and condensate (MMBbl) . . . . . . . . . 1.9 2.0 2.2 2.4 2.7
Natural gas liquids (MMBbl). . . . . . . . . .2 .3 .5 .1 .1
Average Sales Price
Natural gas (per Mcf) . . . . . . . . . . . . $ 2.15 $ 2.09 $ 1.82 $ 1.76 $ 1.86
Oil and condensate (per Bbl). . . . . . . . . 15.30 17.20 19.18 20.36 22.29
Natural gas liquids (per Bbl) . . . . . . . . 10.91 12.11 13.36 18.79 17.84
Net Wells
Drilled . . . . . . . . . . . . . . . . . 74 79 19 66 53
Productive . . . . . . . . . . . . . . . . . 44 64 8 52 42
Proved Reserves (at December 31)
Gas (Bcf). . . . . . . . . . . . . . . . . . 1,041.7 1,085.5 1,100.4 1,167.3 1,223.2
Oil and condensate (MMBbl) . . . . . . . . . 46.1 38.2 37.9 38.0 28.7
Standardized Measure of Discounted
Future Net Cash Flows Before
Income Taxes (in millions). . . . . . . . . $1,140.7 $1,102.4 $1,108.4 $1,060.4 $1,229.3
Data in Equivalent Energy Content (MMBtu) (b)
Average sales price. . . . . . . . . . . . . .$ 2.14 $ 2.14 $ 2.02 $ 2.00 $ 2.12
Average production costs . . . . . . . . . . . .53 .54 .53 .56 .50
Amortization . . . . . . . . . . . . . . . . . .96 .91 .91 .83 .75
----------------------------
<FN>
(a) Sales volumes include the 1% interest of EP's general partner.
(b) For purposes of providing a common unit of measure, natural gas, oil and
natural gas liquids are converted to an approximate equivalent
unit on the basis of relative energy content: one Mcf of natural gas equals
1.05 MMBtu, one barrel of oil equals 5.6 MMBtu and one barrel of natural
gas liquids equals 4.2 MMBtu.
</TABLE>
<PAGE>
<PAGE>
ENSERCH EXPLORATION, INC.
FINANCIAL REVIEW
On December 30, 1994, through a series of transactions, Enserch Exploration,
Inc. (EEX) acquired all of the operating properties of Enserch Exploration
Partners, Ltd. (EP), and EP received common stock of EEX. EP was then
liquidated, and its partners received one share of EEX common stock for each
limited and general partnership interest held. The ENSERCH companies also
received EP's interests in and assumed EP's obligations under certain
equipment lease arrangements (the equipment was simultaneously subleased to
EEX) and assumed approximately $395 million principal amount of EP's
indebtedness, plus accrued interest. Upon the liquidation of EP and
distribution of EEX common stock, public unitholders of EP received
805,914 shares of EEX common stock (.77%) and the ENSERCH companies received
103,775,328 shares (99.23%) of EEX's 104,581,242 shares outstanding.
PRO FORMA RESULTS OF OPERATIONS OF EEX - EEX was formed on December 30, 1994,
and it had no operations for 1994. Pro forma results for EEX represent EP's
results adjusted to reflect (1) the assumption by ENSERCH companies of
$395 million of EP's debt, (2) the 1% general partner interest previously not
included in EP's results, (3) the changes in offshore facilities and equipment
lease terms, (4) the cost allocation for management of certain corporate
services, and (5) a provision for corporate income taxes that were not payable
by EP as a partnership. The 1994 results included a $4.9 million after-tax
($7.6 million pretax) gain from the sale of an inactive offshore pipeline that
was written-down by $11 million after-tax ($17 million pretax) in 1992.
Excluding these unusual items, operating income for 1994 was $26 million
versus $27 million in 1993 and $15 million in 1992. EP's historical results
of operations are discussed in the Financial Review. A reconciliation of EP's
historical operating results to the pro forma net income of EEX is presented
below.
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- ------- ------- ------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net income (loss) of EP $ 11,966 $ (3,881) $(20,265) $(49,644) $25,993
Pro forma adjustments:
Decrease in interest costs due to
assumption of debt by ENSERCH companies 20,919 24,825 20,650 15,630 2,044
Interest income on note receivable from an
ENSERCH affiliate 6,211 4,209 2,213 440 120
1% General partner interest 389 216 10 (338) 323
Changes in offshore facilities and
equipment lease terms 1,572 668
Cost allocation for management services (500) (1,000) (1,000) (1,000) (1,000)
Less provision for income taxes (benefit) 14,195 8,763 547 (11,870) 9,343
-------- ------- ------- -------- -------
Pro forma net income (loss) of EEX $ 26,362 $16,274 $ 1,061 $(23,042) $18,137
======== ======= ======= ======== =======
</TABLE>
RESERVES - Natural-gas reserves at January 1, 1995, were 1.04 trillion cubic
feet (Tcf), compared with 1.09 Tcf the year earlier, as estimated by DeGolyer
and MacNaughton, independent petroleum consultants. Oil and condensate
reserves, including natural gas liquids attributable to leasehold interests,
were 46 million barrels (MMBbls), compared with the year-earlier level of
38 MMBbls. The increase is associated with Garden Banks Block 388.
<PAGE>
<PAGE>
OFFSHORE DEVELOPMENT - Throughout 1994, work progressed on the conversion of
a semisubmersible rig to a floating production facility for the development
of the Garden Banks Block 388 unit. The majority of the modification work on
the major structural components has been completed. The 24-slot subsea
template has been installed, and the two 12-inch oil and gas gathering lines
have been installed and connected to the shallow-water production facility
located 54 miles away.
Completion operations on two pre-drilled wells commenced in early 1995 and
should enable these wells to be brought on-stream when the floating facility
is moored on location and the production riser is installed. These activities
should be completed in mid-1995, followed by additional development drilling,
with one such well expected to be completed in late 1995. Initial daily oil
production rates from the pre-drilled wells are anticipated to be between
2,500 and 5,000 barrels of oil per well.
Mobil Producing Texas and New Mexico Inc. (Mobil) has an option to acquire,
for consideration, a 40% interest in the entire Garden Banks unit consisting
of six blocks and in the units production system. If Mobil exercises its
option, EEX, which currently owns 100% of the project, will remain the
operator.
Operating results for 1995 are expected to be negatively impacted by the
midyear commencement of production from the two pre-drilled wells on Garden
Banks Block 388. Revenues from the early levels of production are not
expected to be sufficient to cover operating costs, amortization and the
equipment lease costs on the floating production platform and related
facilities. Some operating costs and amortization vary with production;
however, other costs and the equipment lease costs are essentially fixed.
Results are expected to improve significantly for 1996 as production begins
from several development wells and equipment lease and other fixed costs are
spread over significantly more production.
CAPITAL BUDGET - Planned property, plant and equipment additions for 1995
total $155 million, compared with expenditures of $131 million in 1994 and
$115 million in 1993. The planned expenditures exclude costs of the floating
production platform and related facilities of the Garden Banks project, which
are being provided under lease arrangements with an ENSERCH affiliate. The
leases were based on an estimated cost of $300 million, including some
$20 million of capitalized financing costs. The cost of the facilities is
expected to increase to $350 million, including capitalized financing costs,
primarily due to the recent discovery on Block 387. It is anticipated that
the lease arrangements will be modified for the additional costs.
LIQUIDITY AND FINANCIAL RESOURCES - Total capitalization at December 31, 1994
was $882 million, with common shareholders' equity representing 82% of the
total.
EEX intends to utilize substantially all of its internally generated cash flow
in connection with the growth of the company. However, internally generated
cash flow may be supplemented by borrowings to fund temporary cash
deficiencies. EEX has a temporary credit arrangement with ENSERCH pending the
expected establishment of a $200 million independent facility.
<PAGE>
<PAGE>
GAS AND OIL MARKET VOLATILITY - Results of operations are dependent upon the
difference between the prices received for gas and oil produced and the costs
of finding and producing such resources. On an energy equivalent basis, gas
reserves at January 1, 1995 constituted approximately 80% of total reserves
and gas production accounted for approximately 85% of total production for
1994. Accordingly, variations in gas prices have a more significant impact
on operations than variations in oil prices. The average gas prices received
for production ranged from a quarterly high of $2.32 per Mcf to a low of
$1.63 per Mcf over the past three years.
Gas and oil swaps, collars and futures agreements are used to hedge volatile
product prices for a portion (normally 30 to 70 percent) of anticipated future
gas and oil production. At December 31, 1994, EEX had outstanding swaps,
collars and futures agreements extending through December 1995 to exchange
payments on some 17.8 Bcf of gas and 1.2 MMBbls of oil on which EEX had
$4.1 million of net unrealized gains. At December 31, 1994, realized gains
on hedging activities of $.9 million were deferred.
The full-cost method of accounting is followed for gas and oil properties.
Product prices are subject to seasonal and other fluctuations. A decline in
prices from year-end 1994 or other factors, without mitigating circumstances,
could cause a future write-down of capitalized costs and a noncash charge
against earnings.
RESULTS OF OPERATIONS OF PREDECESSOR - EP's net income for 1994 was
$12 million, compared with a loss of $3.9 million in 1993 and a loss of
$20 million in 1992. The 1994 results included a $7.5 million gain from the
sale of an inactive offshore pipeline that was written-down by $16 million in
1992.
Operating income closely follows fluctuations in product prices and volumes,
as shown in the table of Selected Financial and Operating Data. Excluding
effects of the previously mentioned unusual items, operating income was
$25 million for 1994, $26 million for 1993 and $16 million for 1992.
Revenues for 1994 of $175 million were 5% lower than 1993, which was 12% above
1992. In 1994, natural-gas revenues decreased slightly to $143 million, with
the average natural-gas price per thousand cubic feet of $2.15 up from $2.09
in 1993 and $1.82 in 1992. Natural-gas sales volumes were 66 Bcf in 1994,
69 Bcf in 1993 and 65 Bcf in 1992. The decrease in volumes in 1994 was
principally due to reduced production from several high-volume fields in South
Texas and offshore Louisiana. The increase in volumes from 1992 to 1993 was
principally due to accelerated natural-gas development drilling in East Texas
and offshore production from Mississippi Canyon Block 441 in the Gulf of
Mexico, which went on-stream in the second quarter of 1993. Oil revenues
declined $5 million to $29 million in 1994 due to a 5% production decline and
an 11% decrease in the average sales price to $15.30 per barrel. Oil revenues
decreased to $34 million in 1993 from $41 million in 1992, as production
declined 8% and the average sales price dropped 10%. The lower volumes were
primarily the result of declining production from several North Texas
reservoirs.
<PAGE>
<PAGE>
Hedges of product prices resulted in a net increase in gas revenues of
$5.0 million in 1994, compared with a decrease of $4.0 million in 1993.
Hedges reduced oil revenues $.7 million in 1994 but added $.4 million in 1993.
Excluding the 1994 credit from the sale of the inactive pipeline and the 1992
write-down of that pipeline, costs and expenses for 1994 were $150 million,
$9 million less than 1993 and virtually the same as 1992. Expenses for 1994
reflected a $2.0 million credit associated with litigation settlements, while
1993 included provisions totaling $7.1 million relating to litigation.
Depreciation and amortization increased 3% in 1994 due to a higher-per-unit
amortization of capitalized costs, partially offset by the effects of lower
production. The overall rate of amortization was $.96 per million British
thermal units produced for 1994, compared with $.91 for both 1993 and 1992.
The Mississippi Canyon capital lease and higher onshore exploratory costs
largely account for the increase in 1994.
Interest expense for 1994 of $21 million was $10 million less than 1993 as a
result of refinancing affiliated debt at a lower interest rate. Interest
expense for 1993 included a $6 million provision for interest due royalty
owners.
FOURTH-QUARTER RESULTS OF PREDECESSOR - Net income for the fourth quarter of
1994 was $3.9 million, compared with a loss of $6.5 million for the fourth
quarter of 1993. Fourth-quarter results for 1994 included the $7.5 million
gain on the sale of the inactive offshore pipeline. Excluding the gain,
operating income for the 1994 fourth quarter was $2.3 million versus
$4.8 million for the year-earlier quarter. Revenues in the fourth quarter of
1994 of $42 million were 17% lower than 1993, reflecting a 17% decrease in
natural-gas sales volumes and a 5% lower average sales price for natural gas.
Operating expenses and interest expense were both lower than in the prior
fourth quarter, which included the previously mentioned provisions for
litigation and interest due royalty owners.
CASH FLOWS OF PREDECESSOR - Net cash flows from operating activities were
$62 million in 1994, $76 million in 1993 and $77 million in 1992, after
payment of affiliated interest charges of $20 million, $23 million and
$20 million, respectively. Investing activities required net cash flows of
$105 million, compared with $124 million in 1993 and $57 million in 1992, with
variances due to differing levels of capital spending. The financing
requirements of $43 million in 1994 and $47 million in 1993 were provided by
borrowings from affiliated companies.
<PAGE>
<PAGE>
ENSERCH EXPLORATION, INC.
PRO FORMA STATEMENTS OF OPERATIONS
(UNAUDITED)
The pro forma statements of operations of Enserch Exploration, Inc. (EEX)
are presented based on the historical results of operations of Enserch
Exploration Partners, Ltd. (EP), after certain eliminations and adjustments.
These statements should be read in conjunction with the historical financial
statements of EP.
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------
1994 1993 1992
-------- ------- -------
(In thousands except per share amounts)
<S> <C> <C> <C>
Revenues
Natural gas . . . . . . . . . . . . . . . . . . $144,544 $146,352 $118,604
Oil and condensate. . . . . . . . . . . . . . . 28,867 34,263 41,595
Natural gas liquids . . . . . . . . . . . . . . 2,127 3,828 6,098
Other . . . . . . . . . . . . . . . . . . . . . 1,332 2,418 1,287
-------- -------- --------
Total . . . . . . . . . . . . . . . . . . . . 176,870 186,861 167,584
-------- -------- --------
Costs and Expenses
Operating expenses. . . . . . . . . . . . . . . 37,839 35,273 37,436
Revenue related taxes . . . . . . . . . . . . . 7,503 9,710 9,223
Depreciation and amortization . . . . . . . . . 79,395 78,163 75,824
(Sale) write-down of inactive pipeline. . . . . (7,551) 16,500
General, administrative and other . . . . . . . 25,798 36,621 29,666
-------- -------- --------
Total . . . . . . . . . . . . . . . . . . . . 142,984 159,767 168,649
-------- -------- --------
Operating Income (Loss) . . . . . . . . . . . . . 33,886 27,094 (1,065)
Other Income (Expense) - Net. . . . . . . . . . . (314) (3)
Interest Income . . . . . . . . . . . . . . . . . 6,985 6,147 2,795
Interest Expense. . . . . . . . . . . . . . . . . (8,204) (119)
-------- -------- --------
Income Before Income Taxes. . . . . . . . . . . . 40,557 25,037 1,608
Income Taxes . . . . . . . . . . . . . . . . . . 14,195 8,763 547
-------- -------- --------
Net Income. . . . . . . . . . . . . . . . . . . . $ 26,362 $ 16,274 $ 1,061
======== ======== ========
Net Income Per Share of Common Stock. . . . . . . $ .25 $ .16 $ .01
======== ======== ========
Average Common Shares Outstanding . . . . . . . . 104,581 104,581 104,581
======== ======== ========
ENSERCH EXPLORATION, INC.
NOTE TO PRO FORMA STATEMENTS OF OPERATIONS
</TABLE>
<TABLE>
The following table reconciles net income (loss) of EP to pro forma net income of EEX.
<CAPTION>
Year Ended December 31
------------------------------------------
1994 1993 1992
-------- ------- -------
(In thousands)
<S> <C> <C> <C>
Net income (loss) reported by EP. . . . . . . . . . . . . . . . . . . . . $11,966 $(3,881) $(20,265)
Add 1% minority interest in EPO (1):
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,768 1,869 1,676
Cost and expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,433 1,597 1,671
------- ------- --------
Operating income adjustment . . . . . . . . . . . . . . . . . . . . . 335 272 5
Other income (expense) - net . . . . . . . . . . . . . . . . . . . . . (3) (56) 5
Interest income - net. . . . . . . . . . . . . . . . . . . . . . . . . 57
Effect of change in lease terms (2) . . . . . . . . . . . . . . . . . . .
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 704 2,123
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . 511 (687)
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . 357 (768)
Management cost allocation from ENSERCH (3) . . . . . . . . . . . . . . . (500) (1,000) (1,000)
Interest income on notes receivable -
affiliated companies (4). . . . . . . . . . . . . . . . . . . . . . . . 6,211 4,209 2,213
Eliminate interest expense on debt of EP (5). . . . . . . . . . . . . . . 20,919 24,825 20,650
------- ------- --------
Pro forma income before income taxes. . . . . . . . . . . . . . . . . . . 40,557 25,037 1,608
Pro forma provision for income taxes (6). . . . . . . . . . . . . . . . . 14,195 8,763 547
------- ------- --------
Pro forma net income of EEX . . . . . . . . . . . . . . . . . . . . . . . $26,362 $16,274 $ 1,061
======= ======= ========
<FN>
(1) To include revenues and costs attributable to the 1% general partner
interest in EP Operating Limited Partnership (EPO).
(2) The ENSERCH companies assumed EPO's interests in and liabilities of
certain offshore equipment and facilities lease arrangements, and EEX
entered into sublease arrangements for the equipment and facilities
with the ENSERCH companies.
(3) To provide for the management cost allocation to be charged by ENSERCH for
management of certain corporate services. EP was charged and EEX will be
charged for indirect costs (principally general and administrative costs)
applicable to gas and oil operations. Prior to July 1, 1994, EP was not
charged for management by ENSERCH of its operations, including supervision
of finance, accounting, tax and legal functions. As a separate company,
EEX will be charged approximately $1 million annually to cover the cost of
those functions.
(4) To include interest income on the notes receivable-affiliated companies at
average balances at 7.5% interest per annum.
(5) To eliminate interest expense on long-term borrowings from affiliated
companies that were not assumed by EEX.
(6) To provide for income taxes on pro forma income before taxes at the
applicable statutory federal rate.
<PAGE>
<PAGE>
MANAGEMENT REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING
The management of Enserch Exploration, Inc. is responsible for the
preparation and integrity of the financial statements and other information
contained in this report. The financial statements have been prepared in
conformity with generally accepted accounting principles and include amounts
that represent management's best estimates and judgments. Management has
established practices and procedures designed to support the reliability of
the estimates and minimize the possibility of a material misstatement.
Management has established and maintains internal accounting controls
that provide reasonable assurance as to the integrity and reliability of the
financial statements, the protection of assets from unauthorized use or
disposition, and the prevention and detection of fraudulent financial
reporting. The system of internal control is supported by written policies
and procedures and the control environment is regularly evaluated by both
Deloitte & Touche LLP, the independent auditors, and ENSERCH Corporation's
internal auditors. The Board of Directors of ENSERCH maintains an Audit
Committee composed of Directors who are not employees. The Audit Committee
met periodically with management, the independent auditors and the internal
auditors to discuss significant accounting, auditing, internal accounting
control and financial reporting matters related to Enserch Exploration
Partners, Ltd. Upon its formation, the company formed an Audit Committee.
The independent auditors and the internal auditors have free access to the
Audit Committee.
Management believes that, as of December 31, 1994, the overall system of
internal accounting controls is sufficient to accomplish the objectives
discussed herein.
/s/ David W. Bidgler /s/ Gary J. Junco /s/ J. W. Pinkerton
------------------------ ----------------- ------------------
David W. Biegler Gary J. Junco J. W. Pinkerton
Chairman, and President, Chief Vice President and
Chief Executive Officer Operating Officer Controller
February 10, 1995
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of
Enserch Exploration, Inc.
We have audited the accompanying balance sheet of Enserch Exploration, Inc.
(the Company) as of December 31, 1994, and the related statements of
operations, cash flows, and changes in partners' capital and common
shareholders' equity of the Company and its predecessor (See Note 1) for each
of the three years in the period ended December 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 1994, and the
results of operations and cash flows of the Company and its predecessor for
each of the three years in the period ended December 31, 1994, in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dallas, Texas
February 10, 1995
<PAGE>
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
ENSERCH EXPLORATION, INC.
BALANCE SHEET
December 31, 1994
(In thousands)
<S>
ASSETS
Current Assets <C>
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 227
Accounts receivable - trade (net of allowance
for possible losses of $670). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,667
Accounts receivable - affiliated companies. . . . . . . . . . . . . . . . . . . . . . . . 11,587
Notes receivable - affiliated companies . . . . . . . . . . . . . . . . . . . . . . . . . 86,077
Materials and supplies, at average cost . . . . . . . . . . . . . . . . . . . . . . . . . 1,819
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 691
----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117,068
----------
Property, Plant and Equipment (at cost)
Gas and oil properties (full-cost method,
$172,604 excluded from amortization base) . . . . . . . . . . . . . . . . . . . . . . . 2,070,051
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,346
----------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,085,397
Less accumulated depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . 839,087
----------
Net property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . 1,246,310
----------
Other Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,634
----------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,370,012
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable - trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 71,758
Accounts payable - affiliated companies. . . . . . . . . . . . . . . . . . . . . . . . . 5,042
Temporary advances - affiliated companies (net). . . . . . . . . . . . . . . . . . . . . 87,405
Current portion of capital lease obligations . . . . . . . . . . . . . . . . . . . . . . 4,760
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,725
----------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170,690
----------
Capital Lease Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151,095
----------
Other Liabilities
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 290,123
Deferred royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,536
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,687
----------
Total other liabilities 322,346
----------
Commitments and Contingent Liabilities (Note 6) . . . . . . . . . . . . . . . . . . . . . .
Common Shareholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 725,881
----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,370,012
==========
<FN>
See Notes to Financial Statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
ENSERCH EXPLORATION,INC.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL AND COMMON SHAREHOLDERS' EQUITY
<CAPTION>
Enserch Exploration Partners, Ltd.
------------------------------------- Enserch
General Limited Exploration,
Partners Partners Total Inc.
--------- --------- --------- -----------
(In thousands)
<S> <C> <C> <C> <C>
Balance, December 31, 1991 $ 15,396 $ 681,109 $ 696,505
Net loss (203) (20,062) (20,265)
Distributions declared (311) (30,750) (31,061)
-------- --------- ---------
Balance, December 31, 1992 14,882 630,297 645,179
Net loss (39) (3,842) (3,881)
Distributions declared (311) (30,750) (31,061)
-------- --------- ---------
Balance, December 31, 1993 14,532 595,705 610,237
Net income 120 11,846 11,966
Liquidation of partnership (14,652) (607,551) (622,203) $622,203
-------- --------- ---------
Balance, December 31, 1994 $ - $ - $ -
======== ========= =========
Reorganization Adjustments:
Assumption by ENSERCH Companies:
Assets and obligations of offshore facilities and leases (24,418)
EP's notes payable to other ENSERCH companies and EPO 395,077
Accrued interest on notes payable 12,566
General Partners' 1% interest in EPO 10,156
Assumption of deferred income taxes by EEX (289,703)
--------
Common Shareholders' Equity
at December 31, 1994 $725,881
========
Common Stock - $1.00 par value,
authorized 200 million shares,
issued and outstanding 104,581 shares $104,581
Paid in Capital
Excess of predecessor's capital
over par value of
common stock issued 621,300
--------
Common Shareholders' Equity
at December 31, 1994 $725,881
========
<FN>
See Notes to Financial Statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
ENSERCH EXPLORATION, INC.
STATEMENTS OF OPERATIONS OF PREDECESSOR
<CAPTION>
Year Ended December 31
-----------------------------------
1994 1993 1992
----------- ------- --------
(In thousands except per unit amounts)
<S> <C> <C> <C>
Revenues
Natural gas . . . . . . . . . . . . . . . . . $143,099 $144,889 $117,418
Oil and condensate. . . . . . . . . . . . . . 28,578 33,920 41,179
Natural gas liquids . . . . . . . . . . . . . 2,106 3,790 6,037
Other . . . . . . . . . . . . . . . . . . . . 1,319 2,393 1,274
-------- -------- --------
Total . . . . . . . . . . . . . . . . . . . 175,102 184,992 165,908
-------- -------- --------
Costs and Expenses
Operating expenses. . . . . . . . . . . . . . 38,157 37,022 37,062
Revenue related taxes . . . . . . . . . . . . 7,428 9,613 9,131
Depreciation and amortization . . . . . . . . 79,107 76,700 75,066
(Sale) write-down of inactive pipeline. . . . (7,475) 16,335
General, administrative and other . . . . . . 25,049 35,271 28,384
-------- -------- --------
Total . . . . . . . . . . . . . . . . . . . 142,266 158,606 165,978
-------- -------- --------
Operating Income (Loss) . . . . . . . . . . . . 32,836 26,386 (70)
Other Income (Expense) - Net. . . . . . . . . . (311) (3)
Interest Expense. . . . . . . . . . . . . . . . (20,559) (30,267) (20,192)
-------- -------- --------
Net Income (Loss) . . . . . . . . . . . . . . . 11,966 (3,881) (20,265)
Less 1% General Partners' Interest. . . . . . . 120 (39) (203)
-------- -------- --------
Income (Loss) Applicable to
Limited Partners' Interest. . . . . . . . . . $ 11,846 $ (3,842) $(20,062)
======== ======== ========
Net Income (Loss) Per Unit. . . . . . . . . . . $ .12 $ (.04) $ (.20)
======== ========= ========
Weighted Average Units Outstanding. . . . . . . 102,500 102,500 102,500
======== ========= ========
Distributions Declared Per Unit . . . . . . . . $ $ .30 $ .30
======== ========= ========
<FN>
See Notes to Financial Statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
ENSERCH EXPLORATION, INC.
STATEMENTS OF CASH FLOWS OF PREDECESSOR
<CAPTION>
Year Ended December 31
----------------------------------
1994 1993 1992
-------- ------- ---------
(In thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss). . . . . . . . . . . . . . . $ 11,966 $ (3,881) $(20,265)
Depreciation and amortization. . . . . . . . . 79,107 76,700 75,066
(Sale) write-down of inactive pipeline . . . . (7,475) 16,335
Other. . . . . . . . . . . . . . . . . . . . . (10,846) 9,882 (9,822)
Changes in current operating assets and
liabilities
Accounts receivable. . . . . . . . . . . . . 3,655 (2,382) 10,737
Other current assets . . . . . . . . . . . . (25,889) (15,890) (165)
Accounts payable . . . . . . . . . . . . . . 12,596 14,768 5,437
Other current liabilities. . . . . . . . . . (984) (3,136) (533)
-------- -------- --------
Net cash flows from operating activities. . 62,130 76,061 76,790
-------- -------- --------
INVESTING ACTIVITIES
Additions of property, plant and equipment . . (128,885) (113,380) (63,223)
Retirements of property, plant and equipment . 12,929 (593) 9,437
Other. . . . . . . . . . . . . . . . . . . . . 10,647 (9,864) (3,369)
-------- -------- --------
Net cash flows used for
investing activities. . . . . . . . . . . (105,309) (123,837) (57,155)
-------- -------- --------
FINANCING ACTIVITIES
Change in temporary advances with
affiliated companies . . . . . . . . . . . . . 72,305 32,756 (37,201)
Proceeds from long-term notes payable to
affiliated companies . . . . . . . . . . . . . 11,000 32,000 32,000
(Decrease) increase in advances under leasing
arrangements - net . . . . . . . . . . . . . . (32,443) 13,453 17,475
Cash distributions paid. . . . . . . . . . . . . (7,765) (31,061) (31,061)
-------- -------- -------
Net cash flows from (used for)
financing activities. . . . . . . . . . . . 43,097 47,148 (18,787)
-------- -------- -------
Net (Decrease) Increase in Cash and Equivalents . (82) (628) 848
Cash and Equivalents at Beginning of Year . . . . 309 937 89
-------- -------- --------
Cash and Equivalents at End of Year . . . . . . . $ 227 $ 309 $ 937
======== ======== ========
Interest Paid (Net of amounts capitalized). . . $ 20,559 $ 24,791 $ 20,192
======== ======== ========
<FN>
See Notes to Financial Statements.
</TABLE>
<PAGE>
<PAGE>
ENSERCH EXPLORATION, INC.
NOTES TO FINANCIAL STATEMENTS
All dollar amounts, except per share and per unit amounts, in the notes to
financial statements are stated in thousands unless otherwise indicated.
1. ORGANIZATION AND BASIS OF PRESENTATION
On December 30, 1994, Enserch Exploration Inc. (EEX) acquired all of the
partnership interests of EP Operating Limited Partnership (EPO), the 99% owned
operating partnership of Enserch Exploration Partners, Ltd. (EP), and EP
received common stock of EEX. EPO was then merged into EEX and thereafter,
EP was liquidated, and its partners received one share of EEX common stock for
each limited and general partnership interest held. The ENSERCH companies
also received EP's interest in and assumed EP's obligations under certain
equipment lease arrangements (the equipment was simultaneously subleased to
EEX) and assumed approximately $395 million principal amount of EP's
indebtedness, plus accrued interest.
The financial statements presented herein represent the historical balance
sheet of EEX, after the acquisition of the EP operating properties and the
transactions described above, and the historical financial statements of EP
as the predecessor operating entity to EEX. Prior to the acquisition, EEX had
no operations. In the notes that follow, "the Company" is used to refer to
either EEX or EP, or both, when a distinction is not required. EP followed
the proportional consolidation method whereby the financial statements
reflected EP's 99% interest in EPO's assets, liabilities and operations.
Certain prior year amounts in the statements of cash flows have been
reclassified to conform with the 1994 presentation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Gas and Oil Properties - The full-cost accounting method prescribed by the
Securities and Exchange Commission (SEC), is followed for gas and oil
properties. Costs directly associated with the acquisition and evaluation of
unproved gas and oil properties are excluded from the amortization base until
the related properties are evaluated. Such unproved properties are assessed
periodically and a provision for impairment is made to the full-cost
amortization base when appropriate. Amortization of evaluated gas and oil
properties is computed on the unit-of-production method using estimated proved
gas and oil reserves quantified on the basis of their equivalent energy
content. Amortization of gas and oil properties was approximately 5.7% in
1994, 6.0% in 1993 and 5.7% in 1992. Depreciation of other property, plant
and equipment is provided principally by the straight-line method over the
estimated service lives of the related assets. At December 31, 1994,
estimates of future site restoration, dismantlement and abandonment costs, as
assessed on an overall cost center basis, were less than estimates of future
salvage values. Therefore, no accruals were required.
Natural Gas and Oil Hedging Contracts - Gas and oil swaps, collars and futures
agreements are used to hedge volatile product prices for a portion (normally
30 to 70 percent) of anticipated future gas and oil production. The purpose
of these hedging activities is to fix the prices to be received. Under these
agreements, payments are received or made based on the differential between
a fixed and a variable product price. These agreements are settled in cash
at or prior to expiration or exchanged for physical delivery contracts.
Realized gains and losses on hedging activities are deferred and included in
revenues during the month that the related physical sale occurs. In the event
<PAGE>
<PAGE>
of nonperformance by counterparties, the Company is exposed to price risk.
The Company does not obtain collateral to support the agreements but monitors
the financial viability of counterparties. The Company has no off-balance
sheet risk of accounting loss.
Income Taxes - EP was a partnership and, as a result, the income or loss of
the partnership, which reflected differences in the timing of the deduction
of certain gas and oil drilling and development costs for federal income-tax
purposes, was includable in the tax returns of the individual partners.
Accordingly, no recognition was given to income taxes in the financial
statements of EP. EEX, as a corporation, is a taxable entity. Accordingly,
the deferred tax effect of the difference in financial accounting basis and
income tax basis of EEX's assets and liabilities was recorded upon the
formation of EEX as follows:
<TABLE>
<CAPTION>
1994
-------------------------------------
Total Current Noncurrent
-------- --------- ----------
<S> <C> <C> <C>
Deferred tax assets:
Reserves for injury
and damage claims. . . . . . . . $ 663 $ $ 663
All other. . . . . . . . . . . . . 1,190 420 770
-------- ------- -------
Total . . . . . . . . . . . . . 1,853 420 1,433
-------- ------- -------
Deferred tax liabilities:
Property-related
differences. . . . . . . . . . . 56,919 56,919
Exploration and intangible
development costs. . . . . . . . 234,637 234,637
-------- ------- --------
Total. . . . . . . . . . . . . . 291,556 291,556
-------- ------- --------
Net deferred tax liability (asset) $289,703 $ (420)(a) $290,123
======== ======= ========
<FN>
(a) Included in other current assets in the balance sheet.
</TABLE>
Fair Value of Financial Instruments - The fair value of financial instruments,
consisting primarily of cash, accounts receivable, investments, accounts
payable, temporary advances payable and other accrued liabilities,
approximates carrying value.
3. SHAREHOLDERS' EQUITY
EEX is authorized to issue 200 million shares of common stock at $1.00 par
value and 2 million shares of preferred stock.
The Company has a stock option plan that provides for the granting of stock
options to officers and key employees to purchase shares of EEX common stock
and has provisions for awarding restricted stock to officers, which are
subject to vesting based on the achievement of certain performance criteria.
Options granted under the plan have an exercise price of not less than the
fair market value of the common stock on the grant date. Options become
exercisable in stages of 25% after one year to 100% after four years and
expire after ten years. The plan covers a maximum of 2 million shares of EEX
common stock. No options or restricted stock were granted or awarded in 1994.
<PAGE>
<PAGE>
4. EMPLOYEE BENEFIT PLANS
Substantially all personnel associated with the Company are covered by an
ENSERCH Corporation pension plan and some retirees are eligible for varying
levels of health care and life insurance benefits. Employees hired after July
1, 1989 are not eligible for medical benefits when they retire. The
allocation of the costs of these plans is actuarially determined. Total
pension costs allocated to the Company were $1,208, $867 and $1,054 in 1994,
1993 and 1992, respectively. Postretirement health care and life insurance
benefit costs allocated to the Company were $816, $821 and $550 in 1994, 1993
and 1992, respectively.
<TABLE>
ENSERCH Corporation pension plan information:
<CAPTION>
1994
------
<S> <C>
Valuation Assumptions:
Discount rate . . . . . . . . . . . . . . . . . . . . . . 9.0%
Rate of increase in compensation levels . . . . . . . . . 4.0%
Expected long-term rate of return on assets . . . . . . . 9.5%
Amounts Recognized (in millions):
Actuarial present value of pension benefit obligation:
Vested benefit obligation . . . . . . . . . . . . . . . $(237.4)
=======
Accumulated benefit obligation. . . . . . . . . . . . . $(249.6)
=======
Projected pension benefit obligation. . . . . . . . . . $(271.4)
Plan assets at fair value . . . . . . . . . . . . . . . . 231.7
-------
Projected benefit obligation in excess of plan assets (39.7)
Unrecognized net asset at transition. . . . . . . . . . . (8.0)
Unrecognized prior service credit . . . . . . . . . . . . (2.2)
Unrecognized net actuarial gain . . . . . . . . . . . . . (3.7)
-------
ENSERCH accrued pension cost. . . . . . . . . . . . . . . $ (53.6)
=======
EEX accrued pension cost. . . . . . . . . . . . . . . . . $ (3.9)
=======
ENSERCH Corporation postretirement benefit information:
Valuation Assumptions:
Discount rate . . . . . . . . . . . . . . . . . . . . . . 9.0%
Medical cost trend rate . . . . . . . . . . . . . . . . . 12.0%
Amounts Recognized (in millions):
Accumulated postretirement benefit obligation . . . . . . $ (82.9)
Unrecognized obligation at transition . . . . . . . . . . 62.1
Unrecognized net actuarial loss . . . . . . . . . . . . . 15.1
-------
ENSERCH accrued postretirement benefit cost . . . . . . . $ (5.7)
=======
EEX accrued postretirement benefit cost . . . . . . . . . $ (.5)
======
</TABLE>
<PAGE>
<PAGE>
The assumed health care cost trend rate is 12.0% for 1994, declining gradually
to 6.0% in 2003, and remaining at that level thereafter. If the health care
cost trend rate were increased by 1%, the accumulated postretirement benefit
obligation of ENSERCH as of December 31, 1994 would be increased by
$4.8 million and the net periodic postretirement benefit cost for 1994 by
$.4 million.
Investment Plan - ENSERCH provides a voluntary contributory investment plan
that is available to substantially all employees and matches a portion of
employee's contribution with ENSERCH common stock. The Company's share of
costs under the plan was $236, $254 and $260 in 1994, 1993 and 1992,
respectively.
5. RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Company engages in various
transactions with ENSERCH and its affiliates. The Company was charged for
direct costs incurred by ENSERCH and affiliates that were associated with
managing the Company's business and operations. Additionally, ENSERCH
charged EP and will charge EEX for indirect costs. Prior to July 1, 1994, EP
was charged for the general and administrative staff costs incurred by ENSERCH
in performing accounting, treasury, internal audit, income tax planning and
compliance, legal and other functions, but was not charged for the cost of
higher level management (i.e. all of the elected officers of ENSERCH) of these
functions. Effective July 1, 1994, ENSERCH began charging all of its
affiliates, including EP, for the cost of management by higher level ENSERCH
personnel of these functions. ENSERCH charges for all indirect costs amounted
to $2,032, $2,026 and $1,927 in 1994, 1993 and 1992, respectively.
The Company had sales to affiliated companies (Enserch Gas Company, Lone Star
Gas Company and Enserch Processing) of $108,936, $108,916 and $32,508 in 1994,
1993 and 1992, respectively. In March 1993, the Company entered into new
contracts to sell essentially all gas production not committed under existing
contracts to Enserch Gas Company.
The notes receivable from affiliated companies had an interest rate of 7.5%.
Interest on the temporary advance from affiliated companies was based on the
30-day commercial paper rate available to ENSERCH and was 6.1% at December 31,
1994. In February 1995, the receivable and the obligation were settled.
Net interest costs incurred on affiliated borrowings were $24,266, $27,120 and
$25,336 in 1994, 1993 and 1992, respectively.
See Note 6 for information concerning lease commitments with affiliates.
6. COMMITMENTS AND CONTINGENT LIABILITIES
Legal Proceedings - On March 23, 1994, a lawsuit was brought in the 299th
District Court of Harris County, Texas against EPO (the Company's predecessor)
and five other defendants by 19 royalty owners under leases contained within
the Corby Gas Unit in Leon County, Texas. Defendants are working interest
owners and lessees under the leases. The Company owned a 7.1% interest in
<PAGE>
<PAGE>
these leases. The plaintiffs allege causes of action involving breach of
express and implied obligations under the leases, drainage, failure to explore
and develop for gas and oil under the leases, civil conspiracy, tortious
interference with contractual relationships, specific performance, negligence
and conversion. The plaintiffs seek to recover alleged actual damages in
excess of $5.4 million, punitive damages of at least ten times the actual
damages, if any, found by a jury, interest and attorneys' fees.
A lawsuit was filed against ENSERCH, its utility division, EPO (the Company's
predecessor) and EPO's managing general partner in the 348th Judicial District
Court of Tarrant County in May 1989. Plaintiffs seek unspecified actual
damages and punitive damages in the amount of $5 million. Plaintiffs allege
royalties were not fully paid, certain expenses were improperly charged
against the amount of royalties due, negligence in the venting of gas and
liquid hydrocarbons into the air, and breach of duty of good faith and fair
dealing by wrongfully concealing certain material facts concerning sales of
gas from the subject leases to the utility division.
A lawsuit was filed on February 24, 1987, in the 112th Judicial District of
Sutton County, Texas, against subsidiaries and affiliates of ENSERCH, as well
as its utility division. The plaintiffs have claimed that defendants failed
to make certain production and minimum-purchase payments under a gas-purchase
contract. In this connection, the plaintiffs have alleged a conspiracy to
violate purchase obligations, improper accounting of amounts due, fraud,
misrepresentation, duress, failure to properly market gas and failure to act
in good faith. Plaintiffs seek actual damages in excess of $5 million and
punitive damages in an amount equal to 0.5% of the consolidated gross revenues
of ENSERCH for the years 1982 through 1986 (approximately $85 million),
interest, costs and attorneys' fees.
Management believes that the named defendants have meritorious defenses to the
claims made in these and other actions brought in the ordinary course of
business. In the opinion of management, the Company will incur no liability
from these and all other pending claims and suits that would be considered
material for financial reporting purposes.
Leases - The equipment and facilities used in developing and producing
reserves in the Mississippi Canyon Block 441 Project (MC 441) and Garden Banks
Block 388 Project (GB 388) were financed under lease agreements between
certain financial institutions and EPO. In connection with the merger of EPO
into EEX, the leases were assigned to and assumed by Enserch Exploration
Holdings, Inc. (EEH). EEX entered into three sublease arrangements with EEH
for such offshore facilities. For accounting purposes, one of the lease
agreements is an operating lease, and two are capital leases, with the lease
obligations and related assets totaling approximately $156 million. The
operating lease is for twelve years, with an option to purchase the equipment
under lease at the end of the lease term at a fixed price equal to its
estimated fair value.
A component of the payments to be made by EEX under the subleases is based on
a floating interest rate of LIBOR plus 1.75% per annum.
<PAGE>
<PAGE>
Estimated future minimum lease payments for the leases, based on a LIBOR rate
at December 31, 1994 of 5.625% for GB 388 and 5.9375% for MC 441, are as
follows:
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
---------- ---------
<S> <C> <C>
1995 $ 15,784 $ 14,667
1996 18,793 17,021
1997 18,794 17,021
1998 18,794 17,021
1999 18,794 17,021
Thereafter 136,044 199,528
-------- --------
Total $227,003 282,279
Less interest factor ======== 126,424
--------
Capital lease obligations $155,855
========
</TABLE>
The cost for the Garden Banks facilities and equipment will exceed the
$300 million cost that is the basis for current lease obligations, primarily
due to the recent discovery on Block 387. The total cost of these facilities
and equipment is expected to be approximately $350 million, including
$20 million of capitalized financing costs. The Company anticipates that the
lease arrangements will be modified for the additional costs.
The Company bears an allocated share of rental expenses incurred by ENSERCH
affiliates under noncancelable long-term operating leases, principally for
office space. The Company's allocated share of rental expenses totaled
$3,071, $4,985 and $3,547 in 1994, 1993 and 1992, respectively.
Environmental Matters - The Company is subject to federal, state and local
environmental laws and regulations that regulate the discharge of materials
into the environment. Environmental expenditures are expensed or capitalized
depending on their future economic benefit. The level of future expenditures
for environmental matters, including costs of obtaining operating permits,
enhanced equipment monitoring and modifications under the Clean Air Act and
cleanup obligations, cannot be fully ascertained until the regulations that
implement the applicable laws have been approved and adopted. However, the
capital expenditures required to achieve compliances with the Clean Air Act
regulations, in their current form, have been estimated to be less than $1
million. It is management's opinion that all such costs, when finally
determined, will not have a material adverse effect on the financial position
or results of operations of the Company.
<PAGE>
<PAGE>
7. SUPPLEMENTARY GAS AND OIL INFORMATION
Gas and Oil Producing Activities - The following tables set forth information
relating to gas and oil producing activities. Reserve data for natural gas
liquids attributable to leasehold interests owned by the Company are included
in oil and condensate.
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Capitalized Costs:
Proved gas and oil properties . . . . . . . . . . . . . . . . . . $1,897,447 $1,721,345
Unproved gas and oil properties . . . . . . . . . . . . . . . . . 172,604 82,236
---------- ----------
Total. . . . . . . . . . . . . . . . $2,070,051 $1,803,581
========== ==========
Accumulated depreciation and amortization . . . . . . . . . . . . . $ 829,188 $ 775,570
========== ==========
</TABLE>
<TABLE>
<CAPTION>
1994 1993 1992
-------- ------- -------
<S> <C> <C> <C>
Costs Incurred:
Property acquisition costs:
Proved. . . . . . . . . . . . . . . . . . . . $ 1,546 $ 8,179 $ 886
Unproved. . . . . . . . . . . . . . . . . . . 20,386 12,429 8,969
Exploration costs . . . . . . . . . . . . . . . 58,163 36,397 35,030
Development costs . . . . . . . . . . . . . . . 83,346 62,401 16,355
-------- -------- -------
Total . . . . . . . . . . . . . . . . . . . .. $163,441 $119,406 $61,240
======== ======== =======
Amortization (per MMBtu)(a) . . . . . . . . . .. $ .96 $ .91 $ .91
======== ======== =======
<FN>
(a) Amortization expense per unit of production converted to a common unit of measure, millions of British thermal
units (MMBtu).
</TABLE>
Costs excluded from the amortizable base as of December 31, 1994:
<TABLE> Total at
<CAPTION> Prior December 31,
Year Incurred 1994 1993 1992 Years 1994
-------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C>
Property acquisition costs. . . . . . . . . . . . . $ 20,591 $11,369 $ 4,178 $10,506 $ 46,644
Exploration costs . . . . . . . . . . . . . . . . . 16,991 3,797 6,794 9,021 36,603
Development costs . . . . . . . . . . . . . . . . . 77,380 77,380
Interest capitalized. . . . . . . . . . . . . . . . 4,530 3,394 3,062 991 11,977
-------- ------- ------- ------- --------
Total . . . . . . . . . . . . . . . . . . . . . . $119,492 $18,560 $14,034 $20,518 $172,604
======== ======= ======= ======= ========
</TABLE>
Approximately 65% of excluded costs relates to offshore activities in the Gulf
of Mexico and the remainder relates to domestic onshore exploration activities.
The anticipated timing of the inclusion of these costs in the amortization
computation will be determined by the rate at which exploratory and development
activities continue, which are expected to be accomplished within ten years.
<PAGE>
<PAGE>
The following information is required and defined by the Financial Accounting
Standards Board. The disclosure does not represent the results of operations
based on historical financial statements. In addition to requiring different
determinations of revenues and costs, the disclosure excludes the impact of
interest expense and corporate overheads.
<TABLE>
<CAPTION>
Results of operations: 1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . $169,487 $186,224 $164,634
Less:
Production costs. . . . . . . . . . . . . . . . . . . . . . . . 43,282 45,684 43,132
Exploration costs (a) . . . . . . . . . . . . . . . . . . . . . 6,942 6,276 8,128
Depreciation and amortization . . . . . . . . . . . . . . . . . 78,123 75,917 74,378
-------- -------- --------
Net producing activities . . . . . . . . . . . . . . . . . . . $ 41,140 $ 58,347 $ 38,996
======== ======== ========
<FN>
(a) Includes internal costs that cannot be directly identified with acquisition, exploration or development
activities.
</TABLE>
Hedging Activities - At December 31, 1994, the Company had outstanding swaps,
collars and futures agreements extending through December 31, 1995 to exchange
payments on 17.8 Bcf of natural gas and 1.2 MMBbls of oil on which the Company
had $4.1 million of net unrealized gains based on the difference between the
strike price and the NYMEX futures price for the applicable trading month.
At December 31, 1994, realized gains on hedging activities of $.9 million were
deferred. The weighted average strike price and market price per Mcf of
natural gas was $2.06 and $1.84, respectively, and the weighted average strike
price and market price per barrel of oil was $17.98 and $17.82, respectively.
Gas and Oil Reserves (Unaudited) - The following table of estimated proved and
proved developed reserves of gas and oil has been prepared utilizing estimates
of year-end reserve quantities provided by DeGolyer and MacNaughton,
independent petroleum consultants. Reserve estimates are inherently imprecise
and estimates of new discoveries are more imprecise than those of producing
gas and oil properties. Accordingly, the reserve estimates are expected to
change as additional performance data become available. All reserves are
located in the United States.
<TABLE>
<CAPTION>
Gas (MMcf) Oil (MBbl)(a)
--------------------------------- -------------------------
1994 1993 1992 1994 1993 1992
--------- --------- --------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
At January 1. . . . . . . . . . . . . 1,085,466 1,100,419 1,167,284 38,218 37,939 38,037
Changes in reserves
Revisions of previous
estimates . . . . . . . . . . . . (24,104) 20,179 (7,054) 141 1,331 1,023
Extension, discoveries
and additions . . . . . . . . . . 47,580 34,549 20,817 9,877 1,292 1,444
Purchase of minerals in
place . . . . . . . . . . . . . . 787 4,379 198 14 3 102
Sales of minerals in place. . . . . (894) (4,042) (15,665) (28) (40) (42)
Production. . . . . . . . . . . . . . (67,102) (70,018) (65,161) (2,081) (2,307) (2,625)
--------- --------- --------- ------ ------ ------
At December 31. . . . . . . . . . . . 1,041,733 1,085,466 1,100,419 46,141 38,218 37,939
========= ========= ========= ====== ====== ======
Proved Developed Reserves:
At January 1. . . . . . . . . . . . 734,077 675,844 974,031 14,249 13,552 17,763
At December 31. . . . . . . . . . . 698,640 734,077 675,844 14,092 14,249 13,552
<FN>
(a) Includes condensate and natural gas liquids attributable to leasehold interests of 854
MBbl for 1994, 931 MBbl for 1993 and 789 MBbl for 1992.
</TABLE>
<PAGE>
<PAGE>
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved
Gas and Oil Reserve Quantities (Unaudited) - has been prepared using estimated
future production rates and associated production and development costs.
Continuation of economic conditions existing at the balance sheet date was
assumed. Accordingly, estimated future net cash flows were computed by
applying prices and contracts in effect in December to estimated future
production of proved gas and oil reserves, estimating future expenditures to
develop proved reserves and estimating costs to produce the proved reserves
based on average costs for the year. Average prices used in the computations
were: Gas (per Mcf) $2.29 in 1994, $2.38 in 1993 and $2.18 in 1992; Oil
(per barrel) $14.05 in 1994, $11.68 in 1993 and $18.16 in 1992.
Because reserve estimates are imprecise and changes in the other variables are
unpredictable, the standardized measure should be interpreted as indicative of
the order of magnitude only and not as precise amounts.
<TABLE>
<CAPTION>
Standardized Measure (in millions): 1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Future cash inflows . . . . . . . . . . . . . . . . . . $3,006.9 $3,031.6 $3,056.4
Future production and development costs . . . . . . . . 1,045.0 1,042.8 1,039.3
-------- -------- --------
Future net cash flows . . . . . . . . . . . . . . . . . 1,961.9 1,988.8 2,017.1
Less 10% annual discount. . . . . . . . . . . . . . . . 821.2 886.4 908.7
-------- -------- --------
Discounted future net cash flows before income tax. . . 1,140.7 $1,102.4 $1,108.4
======== ========
Future income-tax expense (524.6)
Plus 10% annual discount on income taxes. . . . . . . . 240.4
--------
Standardized measure of discounted future net
cash flows. . . . . . . . . . . . . . . . . . . . . $ 856.5
========
Change in Standardized Measure (in millions):
Sales and transfers of gas and oil produced, net of
production costs . . . . . . . . . . . . . . . . . $(120.5) $ (135.6) $ (114.5)
Changes in prices, net of production and future
development costs. . . . . . . . . . . . . . . . . (33.9) 3.6 20.7
Extensions, discoveries and improved recovery,
less related costs . . . . . . . . . . . . . . . . 125.4 41.4 22.3
Other purchases of minerals in place. . . . . . . . . . 1.6 9.4 .9
Revisions of previous quantity estimates. . . . . . . . (26.5) (29.6) 16.4
Sale of minerals in place.. . . . . . . . . . . . . . . (1.3) (4.9)
Accretion of discount . . . . . . . . . . . . . . . . . 102.7 105.1 102.4
Net change in income taxes. . . . . . . . . . . . . . . (284.2)
Other . . . . . . . . . . . . . . . . . . . . . . . . . (9.2) (.3) 4.7
------- --------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . $(245.9) $ (6.0) $ 48.0
======= ========= ========
</TABLE>
<PAGE>
<PAGE>
8. SUPPLEMENTAL FINANCIAL INFORMATION
Quarterly Results (Unaudited) - The results of operations by quarters for EP
are summarized below. In the opinion of the Company's management, all
adjustments (consisting only of normal recurring accruals) necessary for a
fair presentation have been made. The historical financial statements of EP
include interest charges on the debt now assumed by ENSERCH and do not include
provisions for income taxes as discussed in Note 2.
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------------------------------
March 31 June 30 September 30 December 31
-------- -------- ------------ ------------
<S> <C> <C> <C> <C>
1994:
Revenues. . . . . . . . . . . . . . . . $49,709 $43,427 $40,404 $41,562
Operating Income . . . . . . . . . . . 11,122 8,692 3,268 9,754
Net Income (Loss) . . . . . . . . . . . 4,917 5,185 (2,082) 3,946
Net Income (Loss) Per Unit. . . . . . . .05 .05 (.02) .04
1993:
Revenues. . . . . . . . . . . . . . . . $39,755 $47,709 $47,638 $49,890
Operating Income . . . . . . . . . . . 5,118 9,160 7,267 4,841
Net Income (Loss) . . . . . . . . . . . (640) 2,743 548 (6,532)
Net Income (Loss) Per Unit. . . . . . . (.01) .03 .01 (.06)
</TABLE>
<TABLE>
<CAPTION>
Interest Costs - are summarized below:
1994 1993 1992
------ -------- --------
<S> <C> <C> <C>
Interest costs incurred . . . . . . . . . . $25,270 $34,481(a) $25,454
Interest capitalized. . . . . . . . . . . . (4,711) (4,214) (5,262)
------- -------- --------
Interest charged to expense . . . . . . . . . $20,559 $30,267 $20,192
======= ======= =======
<FN>
(a) Includes $6 million provision for interest due royalty owners.
</TABLE>
<PAGE>
EXHIBIT 10.5
LS-T-GP #6477
GAS PURCHASE CONTRACT
BETWEEN
EP OPERATING COMPANY
"AS SELLER"
AND
LONE STAR GAS COMPANY
A DIVISION OF ENSERCH CORPORATION
"AS BUYER"
<PAGE>
<PAGE>
GAS PURCHASE CONTRACT
I N D E X
<TABLE>
<S> <C> <C>
DEFINITIONS..................................ARTICLE I Page 1
PROPERTIES COVERED...........................ARTICLE II Page 3
SUBJECT MATTER...............................ARTICLE III Page 3
RESERVATIONS BY SELLER.......................ARTICLE IV Page 4
QUALITY AND PRESSURE.........................ARTICLE V Page 5
PIPELINE CONNECTION..........................ARTICLE VI Page 7
DELIVERY POINT...............................ARTICLE VII Page 8
OPTION TO SELL TO ALTERNATIVE MARKET.........ARTICLE VIII Page 8
EQUIPMENT....................................ARTICLE IX Page 9
FIELD OPERATION..............................ARTICLE X Page 10
QUANTITY.....................................ARTICLE XI Page 11
MEASUREMENT..................................ARTICLE XII Page 13
PRICE........................................ARTICLE XIII Page 14
PAYMENT......................................ARTICLE XIV Page 16
TERM.........................................ARTICLE XV Page 18
FORCE MAJEURE................................ARTICLE XVI Page 18
TAXES........................................ARTICLE XVII Page 20
IN GENERAL...................................ARTICLE XVIII Page 21
</TABLE>
<PAGE>
<PAGE>
GAS PURCHASE CONTRACT
THIS AGREEMENT, made and entered into this 1st day of
January, 1988, by and between EP OPERATING COMPANY, hereinafter
referred to as "Seller" and LONE STAR GAS COMPANY, a Division of
ENSERCH CORPORATION, a Texas Corporation, hereinafter referred to
as "Buyer".
W I T N E S S E T H :
In consideration of the sum of One Dollar ($1.00) cash in hand
paid to Seller by Buyer, the receipt of which is hereby
acknowledged, and of the covenants and agreements herein contained,
Seller and Buyer do hereby contract and agree with each other as
follows:
ARTICLE I
DEFINITIONS:
For the purposes hereof, the words, phrases, and terms used
herein shall be used in the ordinary meaning unless the agreement
clearly indicates otherwise or unless same is hereinafter defined,
in which instance such word, phrase, or term shall have the
meaning clearly attributable to it or as defined hereinafter
below:
l. The word "gas" shall mean natural gas produced from gas
wells only and not gas produced in association with oil
(Casinghead Gas).
2. The term "casinghead gas" shall mean gas produced from a
well which is classified as an oil well under the law or by ruling
of the Railroad Commission of Texas and in the absence of any
classification under such law or ruling, such term means gas which
is associated or blended with crude petroleum oil at the time of
production from the well.
3. The word "day" shall mean a period of twenty-four (24)
consecutive hours commencing at 7:00 a.m. on one calendar day and
ending at 7:00 a.m. on the following calendar day. The reference
date for any day shall be the time at the beginning of such day.
4. The word "month" shall mean the period beginning at 7:00
a.m. on the first day of a calendar month and ending at 7:00 a.m.
on the first day of the next succeeding calendar month.
5. The term "accounting period" shall mean a period of
twelve (12) consecutive months commencing on January 1, 1988 an
each January 1 thereafter during the term of this Agreement.
6. The term "partial accounting period" shall mean any
continuous period of time during the term hereof which is not a
full accounting period.
7. The abbreviation "MCF" shall mean one thousand (l,000)
cubic feet.
8. The abbreviation "BTU" shall mean British Thermal Unit.
9. The abbreviation "MMBTU" shall mean one million
(l,000,000) BTUs.
10. The abbreviation "psia" shall mean pounds per square inch
absolute.
11. The abbreviation "psig" shall mean pounds per square inch
gauge.
12. The word "well" shall mean any well classified as a gas
well or oil well by the Texas Railroad Commission or other
governmental authority having jurisdiction. Each completion shall
be deemed to be a separate well.
13. The term "total heating value" shall mean the number of
BTU's produced by combustion at constant pressure of an amount of
gas which would occupy one (l) cubic foot at a temperature of
sixty degrees (60) Fahrenheit and a pressure of fourteen and
sixty-five hundredths (14.65) psia and water vapor saturated.
14. The term "cubic foot of gas" shall mean the volume of gas
contained in one (l) cubic foot of space at a pressure base of
fourteen and sixty-five hundredths (14.65) psia and at a
temperature of sixty degrees (60) Fahrenheit.
ARTICLE II
PROPERTIES COVERED:
Seller covenants and represents that Seller owns, or owns an
interest in, certain valid and subsisting oil and gas mining lease
or leases and/or oil and gas rights covering lands in Gregg
County, State of Texas. Subject to the provisions of Article IV,
fifty percent (50%) of Seller's interest in said lands, lease or
leases and/or rights are included within and covered by this
contract in accordance with the terms, provisions and conditions
hereof, and are more particularly described in Exhibit "A"
attached hereto, and shown within the area outlined on the Exhibit
"B" plat attached hereto. Exhibit's "A" and "B" are by reference
made a part hereof as fully and effectually as though set out in
full herein. This contract shall apply to lease extensions,
renewals and reacquisition of leases and/or rights covering
acreage described in and outlined on the Exhibits "A" and "B" by
Seller, its successors or assigns for a period of ten (10) years
from the date hereof. Waiver or release of this covenant shall be
ineffective unless expressed in writing signed by Buyer.
ARTICLE III
SUBJECT MATTER:
Subject to the terms and provisions herein set out and
specifically Article IV, Seller hereby agrees to sell and deliver
to Buyer at the point of delivery herein provided for, and Buyer
hereby agrees to purchase and receive at such point of delivery
fifty percent (50%) of Seller's interest in legally produced gas
of whatsoever kind or character as produced (including all
hydrocarbons therein contained), reasonably, practicably,
economically and profitably usable and saveable by Buyer,
collectively hereinafter referred to as the subject matter hereof,
which may be produced from all of the wells now and hereafter
drilled on the lands, leases and properties (sometimes referred to
herein as "premises") included within the areas described in and
outlined on the Exhibits "A" and "B" attached hereto, in
accordance with the terms and conditions herein stipulated.
ARTICLE IV
RESERVATIONS BY SELLER:
Seller reserves and excepts from the terms of this contract
the following:
1. A volume of gas to fulfill its obligations and previous
dedications under that certain Farmout Agreement between Seller
and Chevron U.S.A. acting through its Division Warren Petroleum
Company (or their predecessors in title) dated January 1, 1942 and
the Gas Purchase Agreement between Seller and Western Gas
Corporation dated September 1, 1987.
2. The right to use sufficient gas above ground for the
requirements in the development and operation of the properties
subject to this contract located in the field in which the
premises covered hereby are located, including, but not limited
to, use of gas for drilling, workover operations, gas lift,
treating, dehydration, and compressing.
3. The right on behalf of lessors to such other gas as
lessors are entitled to use under the terms of the leases covered
hereby.
4. The right in the producers to pool and unitize the land,
leases and properties covered by this Contract with other lands,
leases and properties of others located in the field in which the
premises covered hereby are located, and such premises included in
any pool or unit, and all of Seller's gas produced therefrom,
shall be covered by this Contract; provided that the exercise of
such right by the producers shall not diminish Buyer's right nor
increase its obligations with respect to the gas produced from the
lands covered hereby.
5. The right in the producers to operate the lands, leases,
and properties and in the Seller to operate the gathering system
covered by this Contract in such manner as they deem advisable,
including the right in the producers to drill new wells, to repair
or rework old wells, to renew in whole or in part any of the
leases covered by this Contract, and to abandon or elect not to
connect any well or surrender, release or terminate any lease not
deemed by Seller capable under normal methods of operation of
producing gas in commercial quantities.
ARTICLE V
QUALITY AND PRESSURE:
Buyer shall not be obligated to take or pay for (but shall pay
for if taken) any gas tendered to it hereunder unless the same
meets the following requirements as to quality and pressure.
l. The gas delivered hereunder shall not contain more than
five (5) grains of total sulphur, and shall not contain more than
one-fourth (o grain of hydro gen sulphide, per one hundred (l00)
cubic feet of gas.
2. The gas delivered hereunder shall not contain any oxygen
and shall not contain more than three percent (3%) by volume of
carbon dioxide, and shall be commercially free from liquid water,
crude oil, mineral seal oil, distillate and other impurities, or
noncombustible gases, which would adversely affect Buyer's service
to its ultimate consumer. The gas delivered hereunder shall be at
temperatures not in excess of one hundred twenty degrees (120)
Fahrenheit and not less than forty degrees (40) Fahrenheit.
3. The gas delivered hereunder shall not contain more than
seven pounds (7#) of water vapor per million cubic feet of gas.
Seller agrees to dehydrate such gas or cause same to be dehydrated
to meet this requirement and to install, maintain and operate or
cause to be installed, maintained and operated dehydration
facilities of sufficient capacity to do so at all times.
4. The gas delivered hereunder shall have a total heating
value of not less than one thousand (l,000) BTU's per cubic foot.
5. The gas delivered hereunder shall be at a pressure which
is sufficient to enter Buyer's pipeline at the point of delivery
to Buyer against a varying working pressure maintained therein by
Buyer up to a maximum of eleven hundred pounds (1100#) per square
inch gauge pressure. Seller agrees to dehydrate, treat and
compress such gas or cause same to meet the foregoing
specifications and to install, maintain and operate or cause to be
installed, maintained and operated the necessary facilities of
sufficient capacity to do so at all times. Seller agrees that
Buyer may furnish compression facilities upon Seller's failure to
provide gas at the pressure level set out above. Buyer may charge
a reasonable fee for such facilities.
6. The gas delivered hereunder shall have stable heating
value and specific gravity within ranges that will permit efficient
utilization thereof by Buyer in the usual conduct of its business
and in the performance of Buyer's public service obligations, and
Buyer shall not be obligated to take or pay for any gas tendered
to it hereunder which, in the judgment of Buyer, is not
interchangeable with the gas in that portion of Buyer's pipeline
system to which Seller's delivery line is connected. Buyer's
determination of such interchangeability shall be based upon a
factor which is equivalent to the quotient obtained by dividing
the total heating value of such gas, expressed in BTU's by the
square root of the specific gravity of such gas. Such factor must
be within +7% of the inter change factor established by Buyer for
its system at the point or points of delivery of the gas covered
hereunder.
ARTICLE VI
PIPELINE CONNECTION:
Buyer and Seller shall arrange for pipeline connection, and
within sixty (60) days after the date of the acknowledgement of
the official signatory for Buyer, Seller shall commence, or cause
to be commenced, procedure for the construction of the necessary
gathering facilities from Seller's well or wells to the point of
delivery and shall complete or cause such gathering facilities to
be completed with due diligence, and Buyer shall commence, or cause
to be commenced, procedure for the construction of any necessary
pipeline from its existing pipeline system to the point of delivery
and shall complete or cause the same to be completed with due
diligence. Upon completion of the aforesaid pipelines by both
Seller and Buyer, Buyer shall connect Seller's gathering
facilities with Buyer's pipeline, and all wells then completed
shall be properly equipped and promptly connected by Seller to
Seller's gathering facilities, whereupon the delivery and
reception of gas shall commence hereunder, and all wells
thereafter drilled, and completed as producers shall be by Seller
properly equipped and promptly connected to Seller's gathering
facilities as Seller deems appropriate as a prudent operator and
upon connection of such facilities Buyer shall commence taking the
gas therefrom in accordance with the terms of this contract. If it
is or becomes unprofitable to Buyer for it to do so, Buyer shall
neither be required to connect or continue connection with Seller's
gathering facilities, nor to continue operation and maintenance of
its pipeline to the field in which said delivery line is located;
provided however, such determination does not provide Buyer with
the right to reduce the price pursuant to Article XIII of the
Contract. If such determination is made by Buyer then Seller upon
thirty (30) days written notice may terminate this agreement.
ARTICLE VII
DELIVERY POINT:
The delivery point of the subject matter hereof, as aforesaid,
shall be at the inlet flange of Buyer's pipeline facilities
located at Seller's "Willow Springs Central facilities" which are
located on that certain tract of twenty (20) acres approximately
600 feet from the West line and 1100 feet from the South line of
the Marshall Mann Survey, A-256 in Gregg County, Texas. The title
to and ownership of the gas delivered hereunder shall pass to and
absolutely vest in Buyer at the point of delivery.
ARTICLE VIII
OPTION TO SELL GAS TO ALTERNATIVE MARKET:
(1.) Notwithstanding anything to the contrary contained
herein, Seller shall have the right to market to a third party
buyer all or a portion of Seller's interest in gas production
dedicated hereto which can be legally produced and which is
temporarily surplus to Buyer's requirements. Such gas is
hereinafter referred to as "Excess Available Gas". Seller shall
have no further obligation to Buyer with respect to the excess
available gas sold to Third Parties except as provided in
paragraph (3) of this Article VIII.
(2.) The term "Excess Available Gas" shall mean that volume of
gas avail able under the terms hereunder which Buyer does not
desire to purchase. The term "Purchase Gas" shall mean that volume
of gas which Seller delivers and Buyer purchases hereunder. The
amount of Excess Available Gas shall vary from time to time
depending upon Buyer's purchase requirements and upon the delivery
capacity of Seller's wells at the Point(s) of Delivery. The total
amount of gas which Seller actually delivered at the end of each
month shall be proportionately divided, based upon the dispatch
orders of Buyer and Seller's third party buyer, to determine and
distinguish Purchase Gas from Excess Available Gas as illustrated
in the attached Exhibit "C" which is incorporated herein and made
a part hereof. All gas which is not Purchase Gas hereunder shall
be deemed Excess Available Gas.
(3.) Notwithstanding the terms of this Article VIII, in the
event of an emergency and/or market demand requirement as
determined by Buyer's sole discretion Buyer shall have the right to
receive all or part of the gas available under the Contract to
satisfy its public service obligations.
(4.) Subject to the terms and conditions of this Article VIII,
Buyer hereby waives all of its rights hereunder to purchase gas
which Buyer herein deems to be Excess Available Gas.
(5.) This option to sell to a third party shall be in full
force and effect commencing with initial delivery and shall
continue for the term of this contract.
(6.) During the term of this Contract Buyer agrees to
transport such Excess Gas to a mutually agreeable point on Buyer's
S-2 Intrastate Transmission Pipeline System east of Opelika Field
in Henderson County, Texas. Such transportation shall be provided
on a reasonable efforts basis and shall be subject to the
availability of adequate excess capacity and be pursuant to a
fully executed transportation agreement between the parties.
ARTICLE IX
EQUIPMENT:
Seller agrees to furnish, install and maintain such equipment
as may be necessary for the proper, safe and efficient operation
and maintenance of Seller's well or wells and delivery line and to
enable it to make delivery of gas as provided herein. Such
equipment shall include the valves and fittings necessary to
permit Buyer to make its connections at the point of delivery and
to regulate the deliveries from Seller's delivery line according to
Buyer's requirements, including chokes and other equipment that
may be necessary to prevent freezing during the varying deliveries
from Seller's well or wells and delivery line. All such equipment
which may be required to withstand the closed-in pressures of the
wells shall be constructed with a working pressure rating at least
equal to the maximum closed-in pressures of the wells. Seller
shall also furnish, install and maintain such drips, separators and
other devices as may be necessary to prevent the admission of any
objectionable liquids or solids into the pipeline of Buyer. Such
drips, separators, delivery line and other devices shall be
constructed with a working pressure rating at least equal to the
working pressure at which lt is contemplated hereunder they will
operate and they shall be equipped with suitable safety devices
such as explosion heads to protect against excessive pressure.
Seller shall furnish any information requested by Buyer regarding
wells or equipment, and Seller shall maintain producing wells in
good condition and at all times connected to Seller's delivery line
except when disconnected for repairs.
Any distillates, condensates and/or liquid hydrocarbons
accumulating in the drips, lease separators and/or lines from the
respective wells to Buyer's respective meters shall belong to and
be owned by Seller, and all distillates, condensates and/or liquid
hydrocarbons accumulating in drips and/or lines after the same
shall have passed through Buyer's meters shall belong to and be
owned by Buyer.
ARTICLE X
FIELD OPERATIONS:
Seller shall regulate the flow of gas into Buyer's pipeline at
the point of delivery in the quantities and at the times desired
by Buyer to meet the fluctuating condition of Buyer's market, it
being understood that Buyer may from time to time find it
necessary to shut off entirely the flow of gas hereunder, and that
in such event Buyer shall not be liable to Seller for the resulting
effect thereof. Seller shall have agents or employees available at
all times to whom Buyer may verbally or otherwise make known
Buyer's current requirements for gas hereunder, and on whom Seller
shall impose the responsibility of feeding gas into Buyer's
pipeline at the point of delivery, in the amounts and at the times
requested by Buyer to meet Buyer's fluctuating market demand. Buyer
shall have the right at all reasonable times to inspect Seller's
wells and delivery line. In the event of an emergency or failure
of Seller to regulate the deliveries of gas or to shut off the
flow of gas into Buyer's pipeline system in the amounts and at the
times requested by Buyer, then Buyer shall have the right to
regulate the deliveries of gas or to shut off the flow of gas into
Buyer's pipeline system and Buyer shall not be liable for the
resulting effect thereof.
Seller retains full and continuing responsibility for the care
and condition of all wells located on the premises and Seller's
delivery line connected to Buyer's pipeline under this contract,
and Buyer does not assume nor shall it have any responsibility or
obligation with respect to the care or condition of such wells or
delivery line. Seller agrees to operate such wells and gathering
facilities in such a manner, consistent with prudent operating
standards. Seller shall have the duty of apportioning deliveries
of gas hereunder between the various wells connected to Seller's
delivery line, and when requested by Buyer, Seller shall furnish
Buyer statements of gas produced from each well.
ARTICLE XI
QUANTITY:
Buyer will endeavor to purchase gas from lands covered by this
Contract ratably on a yearly basis with its purchases of gas under
other contracts covering other lands located in the same field.
Nevertheless, Buyer undertakes no obligation to purchase gas
solely from Seller or solely within the district in which the
premises covered hereby are located, nor to purchase at all times
Seller's full quantity of gas which is available for sale; but
conversely, the amount of gas which Buyer will be able to purchase
and receive hereunder will vary from time to time and will depend
upon operating conditions of Buyer, the amount of gas purchased by
Buyer in local and other fields and procured from other sources,
pipeline and plant capacities and facilities, the requirements of
the customers supplied by Buyer's pipeline system and other
conditions and circumstances peculiar to the industry.
Tests for the purpose of determining Seller's delivery
capacity by actual measurement and calculation shall be conducted
at the point of delivery at the instance or request of either
Seller or Buyer, at intervals of approximately six (6) months or
as often as Seller and Buyer mutually agree to be necessary and
both parties shall have the right to witness any test. Seller's
delivery capacity at the point of delivery on each day during the
period between the dates of any two consecutive tests shall be
determined by the first of such tests provided such tests shall be
made only after a stabilized rate of flow for a twenty-four (24)
hour period has been achieved at the point of delivery from all
well(s) attached to Seller's delivery line by not less than
seventy-two (72) hours' flow against a stabilized pressure
maintained by Buyer as a normal operating pressure at the point of
delivery.
In the event Seller delivers gas to Buyer from wells subject
to the pricing provisions of this contract which is commingled
with other gas delivered by Seller to Buyer, or commingled with
any other gas at the point of delivery, Seller agrees to allocate
to each well its proportionate share of production in accordance
with prudent accounting and engineering principles. Seller agrees
to furnish to Buyer an allocation statement in form approved by
Buyer, on or before the tenth (lOth) workday of each calendar
month setting out the volumes attributable to each well for the
preceding calendar month. If such statement is not furnished in a
timely manner, payment to Seller shall be delayed until the next
scheduled payment date following at least fifteen (15) days from
Buyer's receipt of such statement. Further, Seller agrees to
furnish Buyer, upon Buyer's request, copies of any of Seller's
filings with the appropriate jurisdictional agency and the Federal
Energy Regulatory Commission and copies of all administrative or
judicial determinations, if any, as to the category of gas
produced by Seller's well(s).
ARTICLE XII
MEASUREMENT:
Whenever the conditions of pressure and temperature differ
from those set out herein, the volume of gas delivered shall be
converted to the pressure base of 14.65 psia and temperature base
of sixty degrees (60) Fahrenheit and properly corrected for
deviation from the Ideal Gas Laws. In gas measurement computations
Buyer may use the findings and rules of the Railroad Commission or,
with respect to flowing temperature, a flowing temperature
obtained by periodic tests conducted by Buyer (provided, however,
that either party may at its expense properly install and operate
a recording thermometer of standard make, and in this event the
flowing temperature as recorded shall be used). The total heating
value of the gas shall be determined by Buyer taking samples of the
gas at the delivery point at least semi-annually. Seller shall
have the right to witness and verify Buyer's sample. All of the
gas received hereunder shall be measured by means of meter or
meters of standard type, which shall be installed, operated and
maintained by Buyer and placed at the aforesaid point(s) of
delivery or in as close proximity thereto as practicable. Such
measurement instruments shall be at all reasonable times subject
to joint check, test and inspection. When any test shall show an
error of more than two percent (2%) in the measurement, correction
shall be made for the period during which the measurement
instruments were in error, first, by using the registration of
Seller's check meter, if installed and registering accurately; if
no check meter is installed and registering accurately or if this
period cannot be ascertained, correction shall be made for
one-half (1/2) of the period elapsed since the last date of test,
and this measuring instrument shall be adjusted immediately to
measure accurately.
Seller may at its option and expense install and operate check
meter to check Buyer's meters. Such meters shall be for check
purposes only and shall not be used in the measurement of gas for
the purposes of this agreement except as provided above. Check
meters shall be subject at all reasonable times to inspection and
examination by Buyer. The installation and operation thereof
shall, however, be done entirely by Seller.
ARTICLE XIII
PRICE:
1. For a one year period commencing January 1, 1988, Buyer
shall pay Seller a contract price of $1.75 per one million British
thermal units for gas well gas delivered hereunder, subject to the
requirements and limitations of the following paragraphs 2 and 3.
2(a). Seller recognizes that payment of any price during
the term of the Contract which is higher than the price provided
under Section 109 of the Natural Gas Policy Act of 1978 (NGPA) is
subject to Seller making a filing for and receiving a category
determination pursuant to Section 273.202 of the NGPA as provided
herein.
(b). If Seller elects to file or causes to be filed an
application(s) for determination of well category with the Texas
Railroad Commission as to "new natural gas" under Section 102 or
"new onshore production well" under Section 103 for any gas, the
contract price applicable to gas will be paid for volumes of gas
received after the date of the Railroad Commission's receipt of
such filing. Buyer's obligation to pay any rate in excess of the
Section 109 rate for gas is expressly conditioned upon Seller
furnishing Buyer a copy of the filed Form F-1 and FERC-121 within
thirty (30) days after "the date of Seller's filing" (as
hereinafter defined) with the Railroad Commission. If Buyer does
not receive a copy of Seller's filing within thirty (30) days from
the date of Seller's filing with the Railroad Commission, the
price increase pursuant to such filing for gas shall be effective
the first day of the month in which Buyer receives notice of "the
date of Seller's filing".
(c). The actual "date of Seller's filing" for a gas well
category determination as used herein shall be defined to mean
either (1) the receipt date affixed to Seller's application by an
official representative of the Railroad Commission or (2) the date
of application receipt shown on Railroad Commission correspondence
assigning a docket number to the subject well determination.
(d). Notwithstanding anything herein contained to the
contrary, Buyer shall not pay a price in excess of the maximum
lawful price established by the Natural Gas Policy Act of 1978 for
like vintage, character and category of gas covered hereby:
however, if the price herein is deemed unlawful by any final
decree or order of any judicial or administrative body asserting
jurisdiction over the premises hereof, then the price payable
hereunder shall he reduced to such lawful rate and Seller agrees
to refund to Buyer, in a reasonable period of time, with any
applicable interest, any amounts collected by Seller in excess of
any such lawful rate.
3(a). Seller or Buyer may request a renegotiation of the
price payable hereunder to be effective January 1, 1989 and at
twelve (12) months intervals thereafter; provided, however, the
price renegotiation process shall be initiated only by either party
giving the other party written notice of its desire for a price
renegotiation at least thirty (30) days preceding the date the
renegotiated price is to become effective.
(b) In the event Buyer and Seller have not reached mutual
agreement pursuant to paragraph 3(a) of this Article XIII as to
the price to be paid during any accounting period prior to the
commencement of such accounting period then either party may
terminate the Contract by providing no less than ten (10) days
prior written notice to the other party; provided, however, should
the parties not agree on a renegotiated price and should Seller
elect to terminate the Contract, Buyer will have the right to meet
any third party offer (including terms relating to take
obligations) for gas which Seller is willing to accept. Should
Buyer and Seller not agree on a renegotiated price and should Buyer
fail to meet such third party's offer, then this Contract shall
terminate at 7:00 A. M. Central Standard Time of the first day of
the applicable accounting period and shall have no further force
and effect, except that Buyer shall pay Seller for any gas
delivered hereunder prior to such day in accordance with the
Contract.
ARTICLE XIV
PAYMENT:
As soon as practicable following the end of each calendar
month during the term hereof, Buyer shall furnish the Seller with
a statement of gas delivered hereunder by Seller to Buyer during
Buyer's preceding calendar month; and Seller hereby directs Buyer
to pay
EP Operating Company
1601 Elm Street
Suite 1200
Dallas, Texas 75201-9990
who is hereby designated as Seller's representative to receive such
payment, on or before the 25th day of each calendar month, 100% of
the proceeds for all gas delivered to Buyer hereunder during the
preceding fiscal month in accordance with each such statement and
to so continue such payments until Buyer has received written
notice to the contrary at its Dallas, Texas office. Payment shall
be deemed to be delivered to Seller when addressed to Seller's
representative designated in this Article and deposited in the
United States mail, postage prepaid.
Seller agrees to cause proper settlement and accounting to be
made to all the owners of interest in the proceeds from the sale
of gas delivered to Buyer hereunder; however, Buyer shall have the
right but not the obligation at all times, or from time to time,
as it may choose, to make settlement and accounting to such owners
and deduct the amount thereof in making payment to Seller
hereunder, and, in such event, Seller agrees to refund to Buyer any
overpayments so made by Buyer. In any such case, Seller agrees to
furnish Buyer, at Seller's expense, a title opinion to date
specified by Buyer, written by an attorney acceptable to Buyer,
showing ownership of the entire leasehold interest. Buyer shall be
entitled to require an executed division order before payment.
Seller agrees to indemnify and hold Buyer harmless from and
against all loss, cost, expense or damages that Buyer may sustain
as a result of having so made payments under the provisions of
this Article.
In the event of any dispute, concerning the identity of
Seller's representative, or in the event of the filing of any
lien(s) or lawsuit(s) at any time concerning Seller's title to the
leases, or any of them, or the gas produced therefrom or proceeds
of the sale thereof, Buyer shall be entitled at any time to
suspend payment for gas purchased by it hereunder and withhold the
proceeds payable therefor, without interest, until such dispute,
defect or question of title is corrected or removed to Buyer's
satisfaction, or until the Seller furnishes security conditioned
to save Buyer harmless in form and with sureLy satisfactory to
Buyer.
If any overpayment or underpayment in any form whatsoever
shall be found and the bill therefore has been paid, Seller shall
refund the amount of the overpayment or the Buyer shall pay the
amount of the underpayment within thirty (30) days after final
determination thereof. Provided, however, any party receiving
proceeds under this Contract may not request any adjustment or
correction of any statement or payment unless written notice of
such request for adjustment or correction is furnished within two
(2) years of the date of the statement or payment.
ARTICLE XV
TERM:
Subject to the other terms and provisions hereof, this
agreement shall be effective from the date hereof and shall
thereafter continue and remain in full force and effect for a
period and primary term of ten (10) years from the date hereof and
thereafter until cancelled by Buyer or Seller by giving the other
party sixty (60) days written notice of its intention to do so.
ARTICLE XVI
FORCE MAJEURE:
In the event of either party hereto being rendered unable
wholly or in part by force majeure to carry out its obligations
under this agreement, it is agreed that on such party giving
notice and full particulars of such force majeure in writing or by
telegraph to the other party after the occurrence of the cause
relied on, then the obligations of the party giving such notice, so
far as they are affected by such force majeure, from its
inception, shall be suspended during the continuance of any
inability so caused but for no longer period, and such cause shall
be as far as possible remedied with all reasonable dispatch.
The term "force majeure" as employed herein shall mean acts of
God, strikes, lockouts or other industrial disturbances, acts of
the public enemy, wars, blockades, insurrections, riots,
epidemics, landslides, lightning, earth quakes, fires, storms,
floods, washouts, arrests and restraints of rulers and people,
arrests and restraints of the Government, either federal or state,
inability of any party hereto to obtain necessary materials,
supplies or permits due to existing or future rules, orders and
laws of governmental authorities (both federal and state),
interruptions by government or court orders, present and future
order of any regulatory body having proper jurisdiction, civil
disturbances, explosions, sabotage, breakage or accident to
machinery or lines of pipe, the necessity for making repairs or
alterations to machinery or lines of pipe, freezing of wells or
lines of pipe, any act or omission (including failure to take gas)
of a purchaser of gas from Buyer which is excused by any event or
occurrence of the character herein defined as constituting force
majeure, failure of gas supply or wholesale or retail gas markets,
partial or entire failure of wells, and any other causes, whether
of the kind herein enumerated or other wise not within the control
of the party claiming suspension and which by the exercise of due
diligence such party is unable to overcome. Such term shall also
include the inability to acquire, or the delays in acquiring, at
reasonable cost and after the exercise of reasonable diligence,
any servitudes, right-of-way grants, permits or licenses required
to be obtained to enable a party hereto to fulfill its obligation
hereunder.
It is understood and agreed that the settlement of strikes or
lockouts shall be entirely within the discretion of the party
having the difficulty, and that the above requirement of the use
of diligence in restoring normal operating conditions shall not
require the settlement of strikes or lockouts by acceding to the
terms of the opposing party when such course is inadvisable in the
discretion of the party having the difficulty.
ARTICLE XVII
TAXES:
Subject to the following provisions of this Article XVII,
Seller agrees to pay, or cause to be paid, all taxes and
assessments lawfully levied and imposed upon Seller with respect
to the gas delivered hereunder prior to its delivery to Buyer.
Buyer agrees to pay, or cause to be paid, all taxes and assessments
lawfully levied and imposed upon Buyer with respect to the gas
delivered hereunder after its receipt by Buyer. Neither party shall
be responsible or liable for any taxes or other statutory charges
levied or assessed against any of the facilities of the other
party used for the purpose of carrying out the pro visions of this
contract.
Seller shall be liable for all severance and production taxes
applicable to said gas prior to delivery to Buyer. Seller shall
make all reports and payments with respect to gross production
taxes applicable to the gas purchased under the above referenced
Gas Purchase Contract, all within the time and manner required by
law. Seller agrees to make such reports and payments promptly and
hereby agrees to indemnify and hold Buyer harmless from all loss,
cost and expense, including tax payments, penalty and interest
Buyer may suffer as a result of Seller's failure to pay taxes as
required by the Comptroller. Buyer may deduct from any amounts due
Seller under any contract between Buyer and Seller any payments,
penalty and interest which Buyer is required to pay to the
Comptroller because of Seller's failure to make payments promptly
and correctly. Prior to Buyer's payment for December production
each year, Buyer may require Seller to furnish Buyer documentation
proving Seller has paid all applicable gross production taxes for
the previous calendar year.
ARTICLE XVIII
IN GENERAL:
1. WARRANTY: Seller hereby warrants the title to the gas
delivered here under, Seller's right to sell the same and that same
is free from all liens and adverse claims.
2. RIGHT-OF-WAY: Seller hereby grants to Buyer, insofar as
Seller has the right to do so, the right of ingress and egress,
the right to lay and maintain pipelines, telephone and telegraph
lines and to install any other necessary equipment on and across
any lands covered by this agreement. All lines and other equipment
placed by Buyer on said lands shall remain the personal property
of Buyer, and subject to the terms of this contract, may be removed
by Buyer at any time.
3. INDEMNITY: As between the parties hereto, Seller shall be
in control and in possession of the gas deliverable hereunder and
responsible for any damages or injuries caused thereby until the
same shall have been delivered to Buyer at the point of delivery,
except injuries and damages which shall be occasioned solely and
proximately by the negligence of Buyer. After reception of gas,
Buyer shall be deemed to be in exclusive control and possession
thereof and responsible for any injuries or damages caused
thereby, except injuries and damages which shall be occasioned
solely and proximately by the negligence of Seller.
4. WAIVER OF BREACH: The waiver of either party of any
breach of any of the provisions of this agreement shall not
constitute a continuing waiver of other breaches of the same or
other provisions of this agreement.
5. REGULATORY BODIES: This agreement and all operations
hereunder are subject to the applicable federal and state laws and
the applicable orders, rules and regulations of the Railroad
Commission of Texas, the Federal Energy Regulatory Commission and
of any other state or federal authority having or asserting
jurisdiction; but nothing contained herein shall be construed as a
waiver of any right to question or contest any such law, order,
rule or regulation in any forum having jurisdiction in the
premises.
6. INTRASTATE: Each party warrants to the other that its (or
its agents) facilities utilized for the delivery and acceptance of
gas hereunder are wholly intrastate facilities and are not subject
to the Natural Gas Act of 1938, as heretofore amended. As a
material representation, without which both parties would not have
been willing to execute this agreement, each party warrants to the
other party that it will take no action or commit an act of
omission which will subject its facilities, this transaction, or
the other party's facilities, to jurisdiction of the Federal Energy
Regulatory Commission or its successor governmental agency under
the terms o the Natural Gas Act of 1938, as amended. The gas
delivered and accepted hereunder shall not have been nor shall be
sold, transported or otherwise utilized in interstate commerce in
a manner which will subject either party to the terms of the
Natural Gas Act of 1938, as amended. In addition to and without
excluding any remedy the aggrieved party may have at law or in
equity, the party who breached the above warranties and
representations shall be liable to the aggrieved party for all
damages, injury and reason able expense the aggrieved party may
sustain by reason of any breach hereof. Further, should either
party perform any act, or cause any act to be performed, at any
time, that results in any gas covered hereunder becoming regulated
by or subject to the jurisdictional consequences of the FERC or
successor governmental authority contrary to this Contract, this
Contract shall be deemed of its own terms to terminate on the day
before the date of such occurrence; provided, however, such
termination shall never be construed to impair any right arising
under this paragraph.
7. NOTICES: All notices provided for herein shall be in
writing and shall be deemed to be delivered to Seller when
addressed to
EP Operating Company
1600 Elm Street
Suite 1200
Dallas, Texas 75201-9990
and deposited in the United States mail, postage prepaid, and shall
be deemed to be delivered to Buyer when addressed to Lone Star Gas
Company, Contract Administration Department, 301 South Harwood
Street, Dallas, Texas 75201, and deposited in the United States
mail, postage prepaid; or to such other single name and address as
either party may by like notice give to the other party.
8. CAPTIONS: The captions or headings preceding the various
parts of this agreement are inserted and included solely for
convenience and shall never be considered or given any effect in
construing this contract or any part of this contract or in
connection with the intent, duties, obligations or liabilities of
the respective parties hereto.
9. ASSIGNMENT: All the covenants, stipulations, terms,
conditions and provisions of this agreement shall extend to and be
binding upon the respective successors, assigns, heirs, personal
representatives and representatives in bankruptcy of the parties
hereto, and shall be covenants running with the land for the full
term herein set forth; provided, however, that no assignment of
this contract by Seller, in whole or in part, shall affect or
impair the rights of Buyer nor in any case increase Buyer's
obligations under this contract. Any complete or partial
assignment of these premises by Seller shall contain a provision
obligating Seller's assignee to recognize and perform Seller's
obligations under this contract. No conveyance or transfer of any
interest of Seller or the owners of any royalty, overriding
royalty or production payments shall be binding upon Buyer until
Buyer has been furnished with written notice thereof including
such conveyance or transfer, showing marketable title in any such
transfer, all to the satisfaction of the attorneys for Buyer.
10. PROCESSING RIGHTS: Liquid hydrocarbons extracted by
Seller from the gas covered hereby shall be limited to that which
Seller may extract by the use of conventional mechanical lease
separators, but not cryogenic lean oil units or any other type of
extraction facility, prior to delivery of the gas covered hereby
to Buyer. Any distillates, condensates and/or liquid hydrocarbons
accumulating in the drips, lease separators and/or lines from the
respective wells to Buyer's respective meters shall belong to and
be owned by Seller, and all distillates, condensates and/or liquid
hydrocarbons accumulating in drips and/or lines after the same
shall have passed through Buyer's meters shall belong and and be
owned by Buyer.
11. ENTIRE AGREEMENT: This agreement supersedes any and all
other agreements, either oral or in writing, between the parties
hereto with respect to the subject matter hereof and contains all
of the covenants and agreements between the parties with respect
to said matter. Each party to this agreement acknowledges that no
representations, inducements, promises, or agreements, orally or
otherwise, have been made by any party, or anyone acting on behalf
of any party, which are not embodied herein, and that no other
agreement, statement, or promise not contained in this agreement
shall be valid or binding.
IN WITNESS WHEREOF, the parties have executed this agreement
in one or more copies or counterparts, each of which, when
executed by Buyer and any Seller, shall constitute and be an
original effective agreement between such Buyer and Seller(s)
executing same as of the date first above written, whether or not
this copy or any counterpart is signed by all the parties named
herein.
ATTEST: EP Operating Company
a Texas limited partnership
BY ENSERCH EXPLORATION, INC.
MANAGING GENERAL PARTNER
/s/ F. W. Fraley, III By /s/ G. Marc Lyons
Assistant Corporate Secretary Vice President, Market
"Seller"
ATTEST: LONE STAR GAS COMPANY, a
Division of ENSERCH
CORPORATION
/s/ M. K. Chapman By /s/ W. F. Weidler, Jr.
Assistant Corporate Secretary Vice President
"Buyer"
STATE OF TEXAS )
)
COUNTY OF DALLAS )
This instrument was acknowledged before me on this the 26th
day of April, 1988 by G. Marc Lyons, Vice President of Enserch
Exploration, Inc., Managing General Partner on behalf of EP
Operating Company, a Texas limited partnership.
My Commission Expires
9/21/91 /s/ Paula Clifton
Notary Public
State of Texas
STATE OF TEXAS
COUNTY OF DALLAS
BEFORE ME., the undersigned authority, a Notary Public in and
for the State of Texas, on this day personally appeared W. F.
Weidler, Jr., Vice President of LONE STAR GAS COMPANY, a Division
of ENSERCH CORPORATION, a Texas corporation, known to me to be the
person whose name is subscribed to the foregoing instrument, and
acknowledged to me that he executed the same for the purposes and
consideration therein expressed, in the capacity therein stated,
and as the act and deed of said corporation.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the 5th day of
July, A.D. 1988.
Commission Expires:
May 27, 1990 /s/ Nancy J. Taylor
Notary Public
In and For the State of Texas
<PAGE>
<PAGE>
LS-T-GP#6477
AMENDMENT OF GAS PURCHASE CONTRACT
THIS AMENDATORY AGREEMENT, made and entered into on this 1st
day of June, 1990, by and between EP Operating Company, hereinafter
referred to as "Seller", and LONE STAR GAS COMPANY, a Division of
Enserch Corporation, a Texas corporation, hereinafter referred to
as "Buyer",
WITNESSETH:
WHEREAS, EP Operating Company, (Seller), and Lone Star Gas
Company, a Division of Enserch Corporation, a Texas corporation
(Buyer), made and entered into a Gas Purchase Contract (Subject
Contract) dated January 1, 1988 as amended, providing for the sale
and purchase of gas from certain lands and leases in Gregg County,
Texas, to which contract, reference is hereby made for all
purposes; and
WHEREAS, Buyer and Seller had not mutually agreed to a price
to be paid under the Subject Contract for the accounting period
beginning January 1, 1990 and therefore, by letter dated December
21, 1989, Seller advised Buyer of its election to terminate the
Subject Contract effective January 1, 1990; and
WHEREAS, Buyer and Seller desire to reinstate the Subject
Contract effective June 1, 1990 and to make certain modifications,
changes, amendments and supplements thereto.
NOW THEREFORE, for and in consideration of the sum of One
Dollar ($1.00) to each in hand paid by the other party hereto, the
receipt and sufficiency of which are hereby acknowledged, and the
mutual covenants and agreements herein contained, Seller and Buyer
do hereby contract and agree, as follows:
I. Effective June 1, 1990 paragraph (2) of Article I
entitled DEFINITIONS, shall be deleted in its entirety.
II. Effective June 1, 1990, in paragraph (5) of Article I
entitled DEFINITIONS, the dates "January 1, 1988" and "January 1"
shall be deleted and the dates "June 1, 1990" and "June 1"
substituted therefore.
III. Effective June 1, 1990 Article II entitled PROPERTIES
COVERED shall be deleted in its entirety and the following
substituted therefore:
"Article II
PROPERTIES COVERED
Seller covenants and represents that Seller owns or has the
right to market gas from various sources within the state of Texas
under Seller's existing agreements. Such gas production will be
made available to Buyer under the terms and provisions of this
Contract at the point(s) of delivery hereunder."
IV. Effective June 1, 1990, Article III entitled SUBJECT
MATTER shall be deleted in its entirety and the following
substituted therefore:
"ARTICLE III
SUBJECT MATTER:
Subject to the terms and provisions herein set out Seller
hereby agrees to sell and deliver to Buyer at the point(s) of
delivery herein provided for, and Buyer hereby agrees to purchase
and receive at such point(s) of delivery legally produced gas of
whatsoever kind or character as produced (including all
hydrocarbons therein contained), collectively hereinafter referred
to as the subject matter hereof, in accordance with the terms and
conditions herein stipulated."
V. Effective June 1, 1990, Article IV entitled RESERVATIONS
BY SELLER shall be deleted in its entirety.
VI. Effective June 1, 1990, Article VI entitled PIPELINE
CONNECTION shall be deleted in its entirety and the following
substituted therefor:
"ARTICLE VI
PIPELINE CONNECTION:
The parties hereto recognize that as of June 1, 1990, all
facilities required in order to enable Seller to deliver and Buyer
to receive gas from Seller at the point(s) of delivery hereunder
are already constructed and in operation.
The parties hereto agree that Seller shall complete or cause
to be completed delivery lines which will be used by Seller to
gather the gas covered by this Contract after June 1, 1990, and
deliver said gas to Buyer at the point or points of delivery, as
provided for hereunder. If it is or becomes unprofitable to Buyer
for it to do so, Buyer shall neither be required to connect nor
continue connection with Seller's delivery line, nor to continue
operation or maintenance of its pipeline in the field in which
said delivery line is located."
VII. Effective June 1, 1990, Article VII entitled DELIVERY
POINT shall he deleted in its entirety and the following
substituted therefore:
"ARTICLE VII
DELIVERY POINT:
The Point(s) of Delivery for all gas delivered hereunder shall
be at mutual]y agreeable points on Lone Star Gas Company's
pipeline within the State of Texas. Title to all gas delivered
hereunder shall pass from Seller to Buyer at said Point(s) of
Delivery."
VIII. Effective June 1, 1990, Article IX entitled EQUIPMENT
shall be deleted in its entirety and the following substituted
therefore:
"ARTICLE IX
EQUIPMENT:
Seller agrees to furnish, install and maintain such equipment
as may be necessary for the proper, safe and efficient operation
and maintenance of Seller's delivery line and to enable it to make
delivery of gas as provided herein. Such equipment shall include
the valves and fittings necessary to permit Buyer to make its
connections at the point(s) of delivery and to regulate the
deliveries from Seller's delivery line according to Buyer's
requirements, including chokes and other equipment that may be
necessary to prevent freezing during the varying deliveries from
Seller's delivery line. Seller shall also furnish, install and
maintain such drips, separators, and other devices as may be
necessary to prevent the admission of any objectionable liquids or
solids into the pipeline of Buyer. Such drips, separators,
delivery line and other devises shall be constructed with a
working pressure rating at least equal to the working pressure at
which it Is contemplated hereunder they will operate and they
shall be equipped with suitable safety devices such as explosion
heads to protect against excessive pressure.
Any distillates, condensates and/or liquid hydrocarbons
accumulating in the drips, lease separators and/or lines of Seller
prior to delivery hereunder shall belong to and be owned by
Seller, and all distillates, condensates and/or liquid
hydrocarbons accumulating in drips and/or lines after the same
shall have passed through Buyer's meters shall belong to and be
owned by Buyer."
IX. Effective June 1, 1990, Article X entitled FIELD
OPERATIONS shall be amended by deleting the word or words as shown
below:
(A) The words "wells and" located on the seventh line of the
first paragraph on page 11 shall be deleted.
(B) The words "all wells located on the premises and" located
on the second line of the second paragraph shall be
deleted.
(C) The words "wells or" located on the fifth line of the
second paragraph shall be deleted.
(D) The words "wells and" also located on the fifth line of
the second paragraph shall be deleted.
(E) The entire last sentence of the second paragraph, such
sentence beginning with the word "Seller" and ending
with the word "well" shall be deleted in its entirety.
X. Effective June 1, 1990, Article XI entitled QUANTITY
shall be deleted in its entirety and the following substituted
therefore:
"ARTICLE XI
QUANTITY:
Buyer undertakes no obligation to purchase gas solely from
Seller or solely within the district in which the premises covered
hereby are located, nor to purchase at all times Seller' s full
quantity of gas which is available for sale; but conversely, the
amount of gas which Buyer will be able to purchase and receive
hereunder will vary from time to time and will be dependent upon:
operating conditions of Buyer, the amount of gas purchased by
Buyer in local and other fields and procured from other sources,
pipeline and plant capacities and facilities, laws and regulations
governing gas production and purchases, the requirements of the
customers supplied by Buyer's pipeline system, and other conditions
and circumstances peculiar to the industry.
This is not a take-or-pay contract; however, Buyer agrees,
subject to the terms and provisions of this contract to purchase
from Seller, if available for delivery hereunder in accordance
with the terms and provisions hereof, during each annual period of
the terms hereof, a quantity of 5475 MMCF at the point(s) of
delivery or pay Seller a higher price in accordance with the terms
hereof. Buyer shall have the right, but not the obligation to
purchase up to fifty million cubic feet (50 MMCF) of gas per day.
Buyer's purchase obligation under and pursuant to this
contract is subject to Seller's delivery capacity and ability to
deliver gas in accordance with the terms of this contract and with
state and federal laws and in compliance with the rules and
regulations of the Texas Railroad Commission or such other
regulatory body as may have jurisdiction thereof. Tests for the
purpose of determining Seller's delivery capacity by actual
measurement and calculation shall be conducted, at the instance or
request of either Seller or Buyer, at intervals of approximately
six (6) months or as often as either Seller or Buyer may deem
necessary, and Seller's delivery capacity on each day during the
period between the dates of any two consecutive tests shall be
determined by the first of such tests provided that such tests
shall be made only after a stabilized rate of flow for a
twenty-four (24) hour period has been achieved by not less than
seventy-two (72) hours' flow against a stabilized pressure
maintained by Buyer as a normal operating pressure at the point(s)
of delivery.
In the event Buyer should fail to purchase under this contract
during any annual period of the term hereof a quantity of gas
equal to or greater that 5475 MMCF subject to and pursuant to the
provisions of this contract, then Seller shall within three (3)
months following the end of such period notify Buyer regarding
Buyer's failure to purchase its obligation of gas under this
contract, accompanying such notice with an itemized statement
giving full information with respect to such deficiency and Buyer
shall then pay Seller an additional amount for gas actually taken;
such amount to equal the product of (i) the volumes expressed in
MMBTU identified as Buyer's deficiency for such annual period,
multiplied by (ii) ten percent (10%) of the MMBTU discount price
in effect under the contract during the annual period in which
such deficiency occurred (additional price); provided, however,
that the accuracy of Seller's invoice is subject to verification by
Buyer. Seller's failure to timely submit such invoice to Buyer
shall constitute a waiver by Seller of such additional price. For
purposes of this Agreement, Buyer shall receive credit for all
volumes reflected on Buyer's written dispatch orders, and should
Buyer's written dispatch orders equal at least the Contract Volume
(5475 MMCF) on an annual basis, then Buyer shall have been deemed
to have purchased its minimum obligation hereunder at the discount
price".
In the event Buyer fails to order any gas under this contract
during any annual period, then Buyer shall pay Seller a standby
charge equal to 5475 MMCF multiplied by ten percent (10%) of the
MMBTU discount price in effect under the contract during the
annual period in which Buyer failed to order any gas, such amount
in lieu of any damage Seller may suffer as a result of such
failure by Buyer to order any gas hereunder. Seller's failure to
submit a timely invoice shall constitute a waiver of such standby
charge.
XI. Effective June 1, 1990, Article XIV entitled PRICE shall
be deleted in its entirety and the following substituted therefor:
"ARTICLE XIII
PRICE:
1. For the period commencing June 1, 1990 and extending
through May 31, 1991, Buyer shall pay Seller and Seller agrees to
accept a discount price of $2.75 per one million British thermal
units for gas delivered hereunder.
2. (a) Effective June 1, 1991, Buyer agrees to pay Seller
and Seller agrees to accept from Buyer a discount price of $2.75
per MMBTU; such $2.75 per MMBTU price to be adjusted by
multiplying such price by a factor "A" (see below for
determination of factor "A"). On the first day of each subsequent
June thereafter during the term hereof the discount price shall be
adjusted to be the price resulting by multiplying the discount
price in effect immediately prior to such date by a factor "A",
where:
(the average of Buyer's monthly WACOG for the twelve (12)
months ("the Last Twelve Months") commencing fourteen
(14) months prior to the effective date of the price
adjustment and continuing through the last day of the
month which is two (2) months prior to the effective date
of the price adjustment)
A= -------------------------------------------------------
(the average of Buyer's monthly WACOG for the twelve (12)
months (the "Preceding Twelve Months") immediately
preceding the Last Twelve Months)
The parties hereto agree, however, that the price payable
hereunder during any accounting period shall not be less than
$2.75 per MMBTU. For purposes of calculating the factor "A", the
term "Buyer's monthly WACOG" shall mean the unit cost of gas
reflected on Line 1 of Schedule B of the Statement of Gas Cost
Adjustment and City Gate Rate for the month in question prepared
by Buyer in accordance with the Order of the Texas Railroad
Commission in Docket No. GUD-3543 dated November 22, 1982, as
filed with the Gas Utilities Division of such Commission; or any
similarly calculated monthly unit cost of gas if said Order is no
longer in effect or such filing pursuant thereto is no longer
required by such Commission.
(b) Notwithstanding anything herein contained to the
contrary, Buyer shall not pay a price in excess of the applicable
maximum lawful price, if any, established by the Natural Gas
Policy Act of 1978 for gas covered hereby; however, if the price
herein is deemed unlawful by any final decree or order of any
judicial or administrative body asserting jurisdiction over the
premises hereof, then the price payable hereunder shall be reduced
to such lawful rate and Seller agrees to refund to Buyer, with any
applicable interest, any amount collected by Seller in excess of
any such lawful rate."
3. The price payable hereunder shall be inclusive of taxes.
XII. Effective June 1, 1990, Article XV entitled TERM shall be
deleted in its entirety and the following substituted therefor:
"ARTICLE XV
TERM:
Subject to the other terms and provisions hereof, this
agreement shall be effective June 1, 1990 and shall thereafter
continue and remain in full force and effect for a period and
primary term of five (5) years; provided, however, either party
may cancel at the end of any year by giving the other party
written notice of its intention to do 60, at least sixty (60) days
prior to the beginning of a new annual period (60 days prior to
June 1)."
XIII. Effective June 1, 1990, Exhibits "A" and "B" shall
be deleted in their entirety.
XIV. As hereby amended, the Subject Contract is reinstated
effective June 1, 1990 and shall remain in full force and effect.
The terms and provisions hereof shall be binding upon and inure to
the benefit of the parties hereto, their heirs, representative,
successors and assigns.
IN WITNESS WHEREOF, this Amendment of Gas Purchase Contract
has been executed in duplicate originals as of the day and year
first herein written.
BUYER: SELLER:
Agreed to and Accepted this Agreed to and Accepted this
27th day of March, 1991 6th day of March, `991
LONE STAR GAS COMPANY EP OPERATING COMPANY, a
limited Partnership,
by ENSERCH EXPLORATION, INC.,
Managing General Partner
By: /s/ W. F. Weidler, Jr. By: /s/ Gary J. Junco
Printed Name: W. F. Weidler, Jr. Printed Name: Gary J. Junco
Title: Vice President Title: President
STATE OF TEXAS
COUNTY OF DALLAS
This instrument was acknowledged before me on the 6th day of
March, 1991, by Gary J. Junco, President of EP OPERATING COMPANY,
a limited Partnership, by ENSERCH EXPLORATION, INC., Managing
General Partner, known to me to be the person whose name is
subscribed to the foregoing instrument, and acknowledged to me that
he executed the same for the purposes and consideration therein
expressed, in the capacity therein stated, and as the act and deed
of said corporation.
/s/ Phyllis Fowler-Pace
Notary Public in and for the
Commission Expires: State of Texas
May 3, 1994 My commission expires: 5/3/94
Printed Name: Phyllis Fowler-Pace
STATE OF TEXAS
COUNTY OF DALLAS
This instrument was acknowledged before me on the 27th day of
March, 1991, by W. F. Weidler, Jr., Vice President of LONE STAR
COMPANY, a Texas corporation, known to me to be the person whose
name is subscribed to the foregoing instrument and acknowledged to
me that he executed the same for the purposes and consideration
therein expressed, in the capacity therein stated, and as the act
and deed of said corporation.
/s/ Nancy Taylor
Notary Public in and for
Commission Expires: the State of Texas
May 27, 1994
<PAGE>
<PAGE>
LS-T-GP#6477
EEI-GS#00788
AMENDMENT OF GAS PURCHASE CONTRACT
THIS AMENDATORY AGREEMENT, made and entered into to be
effective the 1st day of July 1992, by and between EP OPERATING
COMPANY, a Texas limited partnership, hereinafter referred to as
"Seller", and LONE STAR GAS COMPANY, a Division of ENSERCH
Corporation, a Texas corporation, hereinafter referred to as
"Buyer",
WITNESSETH:
WHEREAS, Seller and Buyer made and entered into a Gas Purchase
Contract (Subject Contract) dated January 1, 1988, as amended,
reference to which is hereby made for all purposes; and
WHEREAS, Buyer and Seller desire to further amend the Subject
contract effective July 1, 1992 making certain modifications
thereto.
NOW THEREFORE, for and in consideration of the sum of One
Dollar ($1.00) to each in hand paid by the other party hereto, the
receipt and sufficiency of which are hereby acknowledged, and the
mutual covenants and agreements herein contained, Seller and Buyer
do hereby contract and agree, as follows:
I. Effective July 1, 1992, Article II entitled PROPERTIES
COVERED, shall be deleted in its entirety and the following
substituted therefor:
"ARTICLE II
PROPERTIES COVERED
Seller covenants and represents that Seller owns Intrastate
Gas Reserves underlying certain lands and leaseholds within the
state of Texas and that such gas production will be made available
to Buyer under the terms and provisions of this Contract at the
point(s) of delivery hereunder."
II. Effective July 1, 1992, Article XI entitled QUANTITY
shall be deleted in its entirety and the following substituted
therefore:
"ARTICLE XI
QUANTITY:
Buyer undertakes no obligation to purchase gas solely from
Seller or solely within the district in which the premises covered
hereby are located, nor to purchase at all times Seller's full
quantity of gas which is available for sale: but conversely, the
amount of gas which Buyer will be able to purchase and receive
hereunder will vary from time to time and will be in Buyers sole
discretion.
This is not a take-or-pay contract; however, Buyer agrees,
subject to the terms and provisions of this Contract to purchase
from Seller, if available for delivery hereunder in accordance with
the terms and provisions hereof, during each annual period (July 1
thru June 30 of each calendar year) of the term hereof, a quantity
of 9.75 BCF.
Buyer shall have the right, but not the obligation to purchase
up to eighty million cubic feet (80 MMcf) of gas per day; provided,
however, the maximum quantity of gas which Seller is obligated to
deliver during each annual period shall be one hundred fifty
percent (150%) of the minimum quantity for such annual period as
provided above.
Buyer's purchase rights under and pursuant to this contract is
subject to Seller's delivery capacity and ability to deliver gas in
accordance with the terms of this contract and with state and
federal laws and in compliance with the rules and regulations of
the Texas Railroad Commission or such other regulatory body as may
have jurisdiction thereof.
III. Effective July 1, 1992, Article XIII entitled PRICE shall
be deleted in its entirety and the following substituted therefor:
"ARTICLE XIII
PRICE:
1. For all of Seller's gas delivered to Buyer at the
point(s) of delivery and purchased hereunder during each annual
period during the term hereof, Buyer agrees to pay Seller and
Seller agrees to accept the price(s) as shown hereunder:
<TABLE>
<CAPTION>
ANNUAL PERIOD PRICE $(MMBTU)
<S> <C>
July 1, 1992 - June 30, 1993 $2.150
July 1, 1993 - June 30, 1994 $2.375
July 1, 1994 - June 30, 1995 $2.500
July 1, 1995 - June 30, 1996 $2.625
July 1, 1996 - June 30, 1997 $2.750
</TABLE>
2. Notwithstanding anything herein contained to the
contrary, Buyer shall not pay a price in excess of the applicable
maximum lawful price, if any, established by the Natural Gas Policy
Act of 1978 for gas covered hereby: however, if any portion of the
price herein is deemed unlawful or is not approved for inclusion in
Buyer's cost of purchased gas used in the calculation of Buyer's
city gate rate as approved by the Texas Railroad Commission (the
"Cost of Purchased Gas"), or by any final decree or order of any
judicial or administrative body, then the price payable hereunder
shall be reduced to such lawful rate or to the price which is
approved by the Texas Railroad Commission for inclusion in the Cost
of Purchased Gas. Seller agrees to refund to Buyer, with
applicable interest, any amount collected by Seller in excess of
the lower of (i) such lawful rate or (ii) that portion of such
price which is approved by the Texas Railroad Commission for
inclusion in the Cost of Purchased Gas.
Should such a price reduction event occur then Seller shall
have the option to be exercised within thirty (30) days following
notification of such event to cancel this contract by giving Buyer
sixty (60) days prior written notice of its intention to do so.
3. The price payable hereunder shall be inclusive of
taxes."
IV. Effective July 1, 1992, Article XV entitled TERM shall
deleted in its entirety and the following substituted therefor:
"ARTICLE XV
TERM:
Subject to the other terms and provisions hereof, this
agreement shall be effective January 1, 1988 and shall extend and
continue and remain in full force and effect for a period and
primary term through June 30, 1997."
V. As hereby amended, the Subject Contract shall remain in
full force and effect. The terms and provisions hereof shall be
binding upon and inure to the benefit of the parties hereto, their
heirs, representative, successors and assigns.
IN WITNESS WHEREOF, this Amendment of Gas Purchase Contract
has been executed in duplicate originals as of the day and year
first herein written.
BUYER: SELLER:
Agreed to and Accepted this Agreed to and Accepted this
23rd day of April, 1992. 24th day of April, 1992.
LONE STAR GAS COMPANY, a Division EP OPERATING COMPANY, a
of ENSERCH Corporation Texas limited partnership,
by ENSERCH EXPLORATION,
INC., Managing General
Partner
By /s/ G. R. Bryan By /s/ Jeffrey B. Camp
Senior Vice President Senior Vice President
STATE OF TEXAS
COUNTY OF DALLAS
BEFORE ME, the undersigned authority, a Notary Public in and
for said State of Texas, on this day personally appeared JEFFREY B.
CAMP, Senior Vice President, of ENSERCH EXPLORATION, INC., Managing
General Partner of EP OPERATING COMPANY, a Texas limited
partnership, known to me to be the person whose name is subscribed
to the foregoing instrument, and acknowledged to me that he
executed the same for the purposes and consideration therein
expressed, in the capacity therein stated, and as the act and deed
of said partnership.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the 24th day of
April, A.D. 1992.
/s/ Tammy Sue Anderson
Commission Expires: Notary Public in and for
June 11, 1993 the State of Texas
STATE OF TEXAS
COUNTY OF DALLAS
BEFORE ME, the undersigned authority, a Notary Public in and
for the State of Texas, on this day personally appeared G. R.
BRYAN, Senior Vice President, of LONE STAR GAS COMPANY, a Division
of ENSERCH Corporation, a Texas corporation, known to me to be the
person whose name is subscribed to the foregoing instrument, and
acknowledged to me that he executed the same for the purposes and
consideration therein expressed, in the capacity therein stated,
and as the act and deed of said corporation.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the 24th day of
April, A.D. 1992.
/s/ Tammy Sue Anderson
Commission Expires: Notary Public in and for
June 11, 1993 the State of Texas
<PAGE>
<PAGE>
ENSERCH
EXPLORATION,INC.
1817 Wood Street Diane M. Fitch
Dallas, Texas 75201-5699 Director
214-748-1110 Crude Oil Marketing
Fax: 214-670-1549 and Contract Administration
Mailing Address:
P. 0. Box 2649
Dallas, Texas 75221-2649
August 30, 1993
Lone Star Gas Company
301 S. Harwood Street
Dallas, Texas 75201
Attention: Mr. R. A. Boemer
Re: Gas Purchase Contract Amendment
Various Sources
State of Texas
LS-T-GP-#6477
EEI-GS-00788
Gentlemen:
EP Operating Limited Partnership ("Seller") and Lone Star Gas
Company ("Buyer") are parties to that certain Gas Purchase Contract
dated January 1, 1988 (Contract) as further referred above. In
Amendments to the Contract dated June 1, 1990, April 1, 1991, and
July 1, 1992, Article XIII Price was replaced with an entirely new
Article XIII which included the following paragraph 3:
"3. The price payable hereunder shall be inclusive of
taxes."
Whereas, the parties intended and desire to clarify that the
value of severance, production or similar tax levied, assessed or
fixed in respect of or applicable to the sale of gas and imposed
prior to the delivery of gas by Seller to Buyer, for which Seller
is liable during any month, ("Taxes") is and has been included in
the price provided for in the Contract beginning June 1, 1990; and
Whereas, it is the mutual desire of both Buyer and Seller to
further modify the Contract.
Now Therefore, for and in consideration of the mutual
covenants and agreements contained herein, the adequacy and
sufficiency of which are hereby acknowledged, Seller and Buyer do
hereby agree to clarify and further modify the contract as follows:
1. Effective June 1, 1990, Paragraph 3. Article XIII Price is
hereby deleted in its entirety and the following substituted in
place and in lieu thereof:
"3. Buyer and Seller acknowledge that the price paid hereunder
includes, as part of that price reimbursement for severance,
production, gathering or similar taxes. Such taxes currently amount
to seven and one-half percent (7-l/2 %) of the purchase price. "
2. Effective June 1, 1993, Paragraph 4, Article V Quality and
Pressure is hereby deleted in its entirety and the following
substituted in place and in lieu thereof:
"4. The gas delivered hereunder shall have a total heating
value of not less than nine hundred fifty (950) British Thermal
Units (BTU) nor more than one thousand one hundred (1,100) BTU per
cubic foot under the conditions of measurement contained herein;
provided however, for gas transported through systems designated by
Buyer as a gathering system the heat content of the gas shall not
be less than one thousand (1,000) British Thermal Units per cubic
foot (there shall not be a maximum heat content for gas transported
through a gathering system). "
3. Effective June 1, 1993, Paragraph 9. Article XVIII Assignment
is hereby deleted in its entirety and the following substituted in
place and in lieu thereof:
"9. ASSIGNMENT: All the covenants, stipulations, terms,
conditions and provisions of this Contract shall extend to and be
binding upon the parties hereto and their respective successors,
assigns, heirs, personal representatives and representatives in
bankruptcy. Neither party shall assign this Contract without the
prior written consent of the non-assigning party, which consent
shall not be unreasonably withheld. No assignment of this Contract,
in whole or in part, shall affect or impair the rights of the
non-assigning party nor in any case increase the non-assigning
party's obligations under this Contract. Any complete or partial
assignment of this Contract by either party shall contain a
provision obligating the assignee to recognize and perform the
assigning party's obligations under this Contract. No conveyance or
transfer of any interest of Seller shall be binding upon Buyer
until Buyer has been furnished with written notice thereof
including a true copy of such conveyance or transfer or with other
proof that the claimant is legally entitled to such interest, all
to the satisfaction of Buyer's attorneys."
The Contract, as amended, shall remain in full force and
effect for the remainder of the term set forth therein. The terms
and provisions hereof shall be binding upon and inure to the
benefit of the parties hereto, their representatives, successors
and assigns.
Please acknowledge your agreement by signing both copies of
this Letter Agreement in the space provided below and by returning
one fully executed document.
Yours very truly,
SELLER
EP OPERATING LIMITED PARTNERSHIP,
BY ENSERCH EXPLORATION, INC.
Managing General Partner
/s/ Gary J. Junco
Gary J. Junco
President
Agreed To and Accepted This
7th day of September 1993.
Agreed To and Accepted This
28th day of October, 1993.
BUYER
Lone Star Gas Company
By: /s/ W. F. Weidler, Jr.
W. F. Weidler, Jr.
Vice President
STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, a Notary Public in and
for the State of Texas, on this day personally appeared Gary J.
Junco, President, of ENSERCH EXPLORATION, INC., Managing General
Partner of EP OPERATING LIMITED PARTNERSHIP, known to me to be the
person whose name is subscribed to the foregoing instrument, and
acknowledged to me that he executed the same for the purposes and
consideration therein expressed, in the capacity therein stated,
and as the act and deed of said partnership.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, on this 8th day of
September, 1993.
/s/ Tammy Sue Anderson
Commission Expires: Notary Public in and for the
June 11, 1997 State of Texas
Print Name: Tammy Sue Anderson
My Commission Expires: 6/11/97
STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, a Notary Public in and
for the State of Texas, on this day personally appeared W. F.
Weidler, Jr., Vice President of LONE STAR GAS COMPANY, a division
of ENSERCH Corporation, a Texas corporation, known to me to be the
person whose name is subscribed to the foregoing instrument, and
acknowledged to me that he executed the same for the purposes and
consideration therein expressed, in the capacity therein stated,
and as the act and deed of said partnership.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, on this 8th day of
September, 1993.
/s/ Dorothy L. Wagner
Commission Expires: Notary Public in and for the
May 12, 1997 State of Texas
Print Name: Dorothy L. Wagner
My Commission Expires: May 12, 1997
<PAGE>
EXHIBIT 10.7
ENSERCH EXPLORATION, INC.
PERFORMANCE INCENTIVE PLAN
CALENDAR YEAR 1995
I. Purposes
The purposes of the Enserch Exploration, Inc. Performance
Incentive Plan (the "Plan") are to:
A. Encourage and reward improved performances by the
segment.
B. Provide reward incentives for the achievement of specific
performance goals or objectives that may be periodically
established.
C. Provide an appropriate level of executive compensation
commensurate with that of similar businesses.
D. Provide an incentive for key management personnel to
perform in a manner that ultimately benefits the
Corporation's shareholders and the Company's customers.
II. Eligibility
Key managers as specifically designated shall be eligible for
participation in the Plan. Participation in the Plan shall
occur upon the recommendation of the Chairman of Enserch
Exploration, Inc. and approval of the Compensation Committee
of Enserch Exploration, Inc.
The existence of this Plan does not prevent the existence of
other bonus plans. However, Participants in this Plan may not
participate in any other cash bonus or incentive plans or
programs offered by ENSERCH, or any of its subsidiaries or
affiliates, other than compensation and incentive plans made
generally available to all executives of Enserch Exploration,
Inc. The Compensation Committee of Enserch Exploration, Inc.
may also award special bonuses on a discretionary basis to
reward meritorious performance not compensated by this Plan.
III. Definitions and Bonus Factors
Subject to the conditions and limitations described herein,
bonus award payments may be made to the Participants under the
Plan as hereinafter set out. For purposes of the Plan, the
following definitions apply:
A. Participant
Each of the key management personnel of the business
segment recommended for participation by the Chairman of
Enserch Exploration, Inc. and approved by the Compensa-
tion Committee of Enserch Exploration, Inc. is a Partici-
pant. Each Participant will be individually notified of
his or her participation together with the applicable
factors approved for the determination of each individual
bonus opportunity.
B. Base Salary
The annual Base Salary designated for the Participant is
that contained in the applicable payroll records and
earned by the Participant, exclusive of any payment under
any bonus plan, deferred compensation, salary deferral
plan, expense reimbursement or fringe benefit, for the
annual period covered by the bonus award.
C. Target Bonus Factor
A specified percentage of the Participant's Base Salary
which would be the bonus payable to a Participant upon
100% goal achievement. The Target Bonus Factor applied
to Base Salary is the Target Bonus.
D. Performance Goals
Expressed, measurable goals established as the basis for
bonus awards for the annual bonus period, each having a
corresponding weighting factor expressed as a percentage.
No more than five Performance Goals will be used for any
annual period. The weighting factors for all Performance
Goals for an annual period aggregate 100%.
E. Goal Achievement Factor
A percentage representing the level of actual achievement
of each Performance Goal, calculated at the end of each
Plan year (calendar year).
F. Performance Factor
The sum of the individual weightings multiplied by the
corresponding Goal Achievement Factor which is applied to
the Target Bonus to derive the bonus.
G. Bonus Calculation
In summary:
Target Bonus = Base Salary x Target Factor
Bonus = Target Bonus Factor x Performance
Factor
Performance Factor = Weighting1 x Goal Achievement
Factor1
+ Weighting2 x Goal Achievement
Factor2
+ Weighting3 x Goal Achievement
Factor3
+ Weighting4 x Goal Achievement
Factor4
+ Weighting5 x Goal Achievement
Factor5
The minimum bonus shall be zero.
IV. Bonus Payments
A. A Participant's bonus will be paid in cash to a Partici-
pant as follows, provided the Participant continues to be
eligible under the terms of the Plan. One-half of the
bonus will be paid in cash, in a single lump sum, less
applicable withholding taxes, as soon as practicable
after the end of the calendar year to which the bonus
relates, but in any event, not later than April 1 of the
following year. The remaining one-half of the bonus will
be divided into two equal payments, each in cash, less
applicable withholding taxes, and paid not later than
April 1 of each of the two years immediately following
the year of the payment of the current award, provided
the Participant remains eligible for payments.
B. To be eligible for receipt of each payment of the bonus,
a Participant must continue to be employed by the Company
at the time each payment is to be paid, unless that
Participant's employment terminates by reason of retire-
ment, death or disability, or as described in D below.
Participants who terminate their employment voluntarily
or who are terminated by the Company, other than under
circumstances described below, will not be eligible to
receive any portion of any bonus award which has been
granted for prior years but unpaid as of the date of
termination.
C. All bonus payments credited to a Participant under this
Plan during his or her active employment shall be paid
under the terms of the Plan to any Participant who
retires at age 60 or above in accordance with his/her
employer's approved retirement plan, or to any Partici-
pant who becomes disabled and receives disability
benefits in accordance with its long-term disability
plan.
In the event of a Participant's retirement at or above
age 60 or death during a Plan year, assuming employee has
worked for at least one-half of the Plan Year, to the
extent practicable, any bonus awarded for achievement of
goals to which the Participant contributed shall be
prorated and the appropriate portion paid. A decision by
the Chairman of Enserch Exploration, Inc. as to what may
be an appropriate portion shall be final and binding on
all parties.
In the event of a Participant's death, all bonus awards
resulting from a partial award for a prorated portion of
the Plan Year or those which have been credited to such
Participant prior to the date of death but remain unpaid
and which would otherwise have been received will be paid
to the designated beneficiary or, if no beneficiary is
designated, to the employee's estate, in one lump sum as
soon as practicable, but no later than six months
following the death of the employee.
In the event a Participant's employment terminates for
any reason other than retirement, disability or death, or
as described in D below, prior to the time a bonus
payment is paid, no bonus shall be payable for either a
portion of or for a full Plan year, or for any unpaid
bonus awards credited in prior years.
D. In the event that Enserch Exploration, Inc. shall,
pursuant to action by its Board, at any time propose to
merge into, consolidate with, or sell or otherwise
transfer all or substantially all of the assets of the
segment to another corporation, in which Enserch Explora-
tion, Inc. would be in a minority position, all bonus
awards which have been granted but remain unpaid, and a
bonus award based on a 100% performance factor the Plan
Year in which such action occurs, shall be immediately
paid to Participant and the Participant shall not be
required to be employed by the Corporation in order to
receive the payment.
V. Establishment of Performance Goals
Performance Goals will be established annually by the Presi-
dent of Enserch Exploration, Inc. after receiving requisite
approval, with one to five certain expressed, specific,
objective and measurable goals in such Plan defined as the
Performance Goals for which bonus will be paid if achieved.
A minimum of 50% of the weighting will be applied to the
attainment of operating income goal achievement.
VI. Operating Income Goal Achievement
The Goal Achievement Factor pertaining to achievement of
operating income goals is standardized as follows:
If Operating Income Ratio is: Operating Income Goal
Achievement Factor will be:
less than 0.90 0% minus 0.5% for each 0.01
less than 0.90
between 0.90 and 1.00 20% plus 8% for each 0.01
greater than 0.90
above 1.00 100% plus 1% for each $1 million
greater than budgeted operating
income, as adjusted, up to a
maximum of 150%
Achievement Factors will be prorated between the amounts
nearest percentages specified above.
The following definitions apply:
Operating Income Ratio
The ratio of the applicable business unit's actual operating
income for the Plan year to the budgeted operating income,
which budgeted operating income is adjusted to take into
account the effects of product price and severance tax
variations when applicable. The accrual of expense for this
Plan will be included as expense deducted for the determina-
tion of actual operating income.
Price Adjustment
A factor used to adjust budgeted operating income such that
the Participant will not benefit from or be penalized by oil,
gas and NGL price fluctuations when measuring the attainment
of budgeted operating income for the particular unit or for
the Company.
In summary:
Operating Income
Ratio = (Actual Operating Income)/(Budgeted
Operating Income + Price Adjustment)
Price Adjustment = (Actual Average Oil Price - Budgeted
Oil Price) x Budgeted Net Interest
Oil Sales Volume
+ (Actual Average Gas Price - Bud-
geted Gas Price) x Budgeted Net
Interest Gas Sales Volume
+ (Budgeted Severance Taxes - Actual
Severance Taxes)
VII. Reserve Addition Goal
For the purposes of defining Performance Goals related to
reserve additions, the following definitions and provisions
apply.
A. Finding Cost
The cost of reserve additions utilizing the Company's
methodologies, statistics, reserve values, and accounting
and other data as calculated in the Company's sole
judgment.
B. Reserve Additions
Reserve additions or reductions shall be based upon the
estimates of DeGolyer and MacNaughton submitted in the
final report for a calendar year. No adjustments will be
made in future years for revisions or adjustments made in
these estimates in subsequent years' reports.
VIII. Conflict of Interest
If at any time during the period the Participant is to receive
or accrue payments hereunder, the Participant engages in the
employment, consultation or representation of any corporation,
partnership, individual, political subdivision, or any
enterprise that is engaged in any action or proceeding that
could be reasonably construed as being adverse to the interest
of the Company, the Participant and his beneficiaries or heirs
shall forfeit all rights to receive payments of bonus awards
provided under this Plan regardless of whether or not such
payments had been previously approved by the Company; except
that before any such termination under this section of the
Participant's right to receive payments, the Company shall
notify the Participant in writing of its opinion about the
adversary situation, after which time the Participant shall
have a period of 15 days to correct the situation to the
satisfaction of the Company as to preclude benefit termina-
tion.
This provision shall apply to full-time and part-time employ-
ees of the Company and to retired or terminated employees.
For purposes of this Plan, the Company shall determine within
its sole discretion whether or not the Participant's actions
can be reasonably construed as adverse to the Company's
interests.
IX. Administrative Provisions
A. Discretion
Notwithstanding any calculation of bonus in accordance
with the foregoing provisions, the Chairman of Enserch
Exploration, Inc. may within his sole discretion alter or
eliminate any bonus award developed under this Plan in
order to achieve equity in the administration of the Plan
within Enserch Exploration, Inc. as a whole.
B. Termination
This Plan may be terminated at any time by the Company.
Notification of termination will be given to the then
Participants. A Plan termination will not prevent
payment of bonuses where goal achievement has been
completed in a calendar year for which Performance Goals
had been approved. If the Plan is terminated during a
Plan year in which Performance Goals have been estab-
lished under the Plan, performance will be prorated and
bonuses paid proportionally. The Company's decision
relative to such payment shall be final and binding on
all parties. Such termination will be applicable to new
bonus awards and will not affect credited but unpaid
bonus amounts from prior bonus years.
C. Effective Date
This Plan is effective with the calendar year commencing
January 1, 1995 and for the ensuing calendar years until
terminated.
D. No Contract
Nothing in this Performance Incentive Plan shall be
deemed by implication, action or otherwise to constitute
a contract of employment or otherwise to impose any
limitation on any right of the Corporation nor any of its
operating units to terminate a Participant's employment
at any time.
E. Under provisions of the ENSERCH Retirement and Death
Benefit Program of 1969, this bonus program qualifies as
an "annual performance based incentive plan" and is to be
included in "final average pay" for purposes of pension
calculations.
<PAGE>
EXHIBIT 10.8
ENSERCH CORPORATION
DEFERRED COMPENSATION PLAN
THIS PLAN, made and executed at Dallas, Texas by ENSERCH
Corporation, a Texas corporation (the "Company"), is being
established primarily for the purpose of providing deferred
compensation for a select group of management or highly
compensated employees of the Company and its participating
affiliates.
ARTICLE I.
DEFINITIONS
Section 1.1 Definitions. Unless the context clearly
indicates otherwise, when used in this Plan:
(a) "Adjustment Date" means the last day of each
calendar quarter and such other dates as the Administrative
Committee in its discretion may prescribe.
(b) "Affiliated Company" means any corporation or
organization which together with the Company would be
treated as a single employer under Section 414 of the Code.
(c) "Administrative Committee" means the committee
designated pursuant to Section 2.1 to administer this Plan.
(d) "Board" means the Board of Directors of ENSERCH
Corporation.
(e) "Change of Control" means a change in control of a
nature that would be required to be reported in response to
Item 1(a) of the Securities and Exchange Commission Form
8-K, as in effect on the date hereof, pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934, as amended
("Exchange Act"), or would have been required to be so
reported but for the fact that such event had been
"previously reported" as that term is defined Rule 12b-2 of
Regulation 12B under the Exchange Act; provided that,
without limitation, such a change in control shall be deemed
to have occurred if (i) any Person is or becomes the
beneficial owner (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the
Company representing 20% or more of the combined voting
power of the Company's then outstanding securities
ordinarily (apart from rights accruing under special
circumstances) having the right to vote at elections of
directors ("Voting Securities"), or (ii) individuals who
constitute the Board on the date hereof (the "Incumbent
Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a
director subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was
approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board (either by a
specific vote or by approval of the proxy statement of the
Company in which such person is named as a nominee for
director, without objection to such nomination) shall be,
for purposes of this clause (ii), considered as though such
person were a member of the Incumbent Board, or (iii) a
recapitalization of the Company occurs which results in
either a decrease by 33% or more in the aggregate percentage
ownership of Voting Securities held by Independent
Shareholders (on a primary basis or on a fully diluted basis
after giving effect to the exercise of stock options and
warrants) or an increase in the aggregate percentage
ownership of Voting Securities held by non-Independent
Shareholders (on a primary basis or on a fully diluted basis
after giving effect to the exercise of stock options and
warrants) to greater than 50%. For purposes of this
subsection (e), the term "Person" shall mean and include any
individual, corporation, partnership, group, association or
other "person", as such term is used in Section 14(d) of the
Exchange Act, other than the Company, a subsidiary of the
Company or any employee benefit plan(s) sponsored or
maintained by the Company or any subsidiary thereof, and the
term "Independent Shareholder" shall mean any shareholder of
the Company except any employee(s) or director(s) of the
Company or any employee benefit plan(s) sponsored or
maintained by the Company or any subsidiary thereof.
(f) "Code" means the Internal Revenue Code of 1986, as
amended from time to time.
(g) "Company" means ENSERCH Corporation and its
successors.
(h) "Compensation Committee" means the Compensation
Committee of the Board.
(i) "Deferral Account" means the account established
and maintained on the books of an Employer to record a
Participant's interest under this Plan attributable to
amounts credited to such Participant pursuant to Plan
Section 3.1 and Section 3.2.
(j) "Disability" means total and permanent disability
of the Participant as determined under the provisions of his
or her Employer's group long-term disability plan.
(k) "Election Period" means such period immediately
prior to the beginning of a Plan Year (or, with respect to
the Plan's first Plan Year, the period immediately prior to
October 1, 1994) specified by the Administrative Committee
for the making of deferral elections for such Plan Year
pursuant to Plan Sections 3.1 and 3.2.
(l) "Eligible Employee" means any employee of an
Employer who is one of a select group of management or
highly compensated employees and (i) whose annual base
salary equals or exceeds $125,000 or (ii) whose annual base
salary equals or exceeds $100,000 and whose position is of
significant impact on the operations of his or her Employer
as determined by the Administrative Committee in its
absolute discretion.
(m) "Employer" includes the Company and any Affiliated
Company which adopts this Plan.
(n) "Participant" means an Eligible Employee or former
Eligible Employee for whom a Deferral Account is being
maintained under this Plan.
(o) "Plan" means this ENSERCH Corporation Deferred
Compensation Plan as in effect from time to time on and
after October 1, 1994.
(p) "Plan Year" means the twelve-month period
commencing January 1 and ending the following December 31.
(q) "Retirement Age" means the age used as the
retirement age for the Participant under Section 216(l) of
the Social Security Act.
ARTICLE II.
PLAN ADMINISTRATION
Section 2.1 Administrative Committee. This Plan shall be
administered by an Administrative Committee composed of at least
three individuals appointed by the Compensation Committee. Each
member of the Administrative Committee so appointed shall serve
in such office until his or her death, resignation or removal by
the Compensation Committee. The Compensation Committee may
remove any member of the Administrative Committee at any time by
giving written notice thereof to the members of the
Administrative Committee. Vacancies shall likewise be filled
from time to time by the Compensation Committee. The
Administrative Committee shall have discretionary and final
authority to interpret and implement the provisions of the Plan,
including without limitation, authority to determine eligibility
for benefits under the Plan. The Administrative Committee shall
act by a majority of its members at the time in office and such
action may be taken either by a vote at a meeting or in writing
without a meeting. The Administrative Committee may adopt such
rules and procedures for the administration of the Plan as are
consistent with the terms hereof and shall keep adequate records
of its proceedings and acts. Every interpretation, choice,
determination or other exercise by the Administrative Committee
of any power or discretion given either expressly or by
implication to it shall be conclusive and binding upon all
parties having or claiming to have an interest under the Plan or
otherwise directly or indirectly affected by such action, without
restriction, however, on the right of the Administrative
Committee to reconsider and redetermine such action.
ARTICLE III.
DEFERRED COMPENSATION PROVISIONS
Section 3.1 Compensation Deferral Election. During the
Election Period prior to the beginning of each Plan Year, an
Eligible Employee may elect to have the payment of an amount of
up to 50% of the annual base salary otherwise payable by an
Employer to such Eligible Employee for such Plan Year deferred
for payment in the manner and at the time specified in
Article IV; provided, however, that the minimum amount that may
be deferred by an Eligible Employee for a Plan Year pursuant to
this Section 3.1 is $5,000 (or such other amount as shall be
determined by the Administrative Committee in its discretion).
The amount of annual base salary a Participant elects to defer
pursuant to this Section 3.1 shall be deducted from the
Participant's pay in substantially equal amounts over all pay
periods during the Plan Year. All elections made pursuant to
this Plan Section 3.1 shall be made in writing on a form
prescribed by and filed with the Administrative Committee and
shall be irrevocable; provided, however, that effective as of the
first day of any calendar quarter during a Plan Year, an Eligible
Employee may revoke his or her deferral election and thereby
suspend further salary deferrals for the remainder of such Plan
Year by providing written notice thereof to the Administrative
Committee no later than 15 days prior to the effective date of
such suspension. Any Eligible Employee who so suspends his or
her salary deferrals pursuant to this Section shall not be
permitted to elect future salary deferrals pursuant to this
Section to be effective earlier than the first day of the next
Plan Year.
Section 3.2 Bonus Deferral Election. During the Election
Period prior to the beginning of each Plan Year (other than the
first Plan Year), an Eligible Employee may elect to have the
payment of an amount up to 100% of the cash portion of any future
bonus otherwise payable by an Employer with respect to services
to be performed by such Eligible Employee during such Plan Year
deferred for payment in the manner and at the time specified in
Article IV; provided, however, that the minimum amount that may
be deferred by an Eligible Employee pursuant to this Section 3.2
is $5,000 (or such other amount as shall be determined by the
Administrative Committee in its discretion); provided, further,
that there shall be no minimum deferral amount pursuant to this
Section 3.2 with respect to an Eligible Employee who elects to
defer in the same Plan Year at least $5,000 (or such other amount
as shall be determined by the Administrative Committee in its
discretion) pursuant to Section 3.1. All elections made pursuant
to this Plan Section 3.2 shall be made in writing on a form
prescribed by and filed with the Administrative Committee and
shall be irrevocable.
Section 3.3 Participant Deferral Accounts. An Employer
shall establish and maintain on its books a Deferral Account for
each Eligible Employee employed by such Employer who elects to
participate in this Plan. Each such Deferral Account shall be
designated by the name of the Participant for whom it is
established. The amount of any base salary and/or cash bonus
from an Employer for a Plan Year that is deferred for a
Participant pursuant to Section 3.1 and/or Section 3.2 shall be
credited by such Employer to such Participant's Deferral Account
as of the date such amount would otherwise have been paid to such
Participant by such Employer. An Employer shall continue
maintaining a Deferral Account as long as a positive balance
remains credited to such Deferral Account.
Section 3.4 Deferral Account Adjustments. As of each
Adjustment Date, the amount credited to a Deferral Account shall
be adjusted to reflect such gain, loss and/or expenses incurred
based on the experience of the investments selected by the
Participant prior to the date prescribed by the Administrative
Committee for the investment of his or her Deferral Account and
taking into account additional deferrals credited to and
distributions made from such Deferral Account since the last
Adjustment Date. The Administrative Committee shall have sole
and absolute discretion with respect to the number and type of
investment choices made available for selection by Participants
pursuant to this Section, the timing of Participant elections and
the method by which adjustments are made. The designation of
investment choices by the Administrative Committee shall be for
the sole purpose of adjusting Deferral Accounts pursuant to this
Section and this provision shall not obligate the Employers to
invest or set aside any assets for the payment of benefits
hereunder; provided, however, that an Employer may invest a
portion of its general assets in investments, including
investments which are the same as or similar to the investment
choices designated by the Administrative Committee and selected
by Participants, but any such investments shall remain part of
the general assets of such Employer and shall not be deemed or
construed to grant a property interest of any kind to any
Participant, designated beneficiary or estate. The
Administrative Committee shall notify the Participants of the
investment choices available and the procedures for making and
changing investment elections.
Section 3.5 Vesting. Subject to Section 4.6, all amounts
credited to a Participant's Deferral Account shall be fully
vested and nonforfeitable at all times.
ARTICLE IV.
BENEFITS
Section 4.1 Source of Benefit Payments. Benefit payments
to be made with respect to a Participant's Deferral Account
maintained pursuant to the Plan will be paid in cash and will be
the obligation solely of the Employer maintaining such Deferral
Account; provided, however, that whenever a payment hereunder is
to be made by an Employer, the Company may, in its discretion,
satisfy such payment obligation on behalf of such Employer, and
the Company will be obligated to satisfy any such payment
obligation in the event the Employer otherwise liable therefor
fails to pay such amount when due for any reason.
Section 4.2 Amount of Benefit Payments. The amount payable
from a Participant's Deferral Account shall be determined based
upon the amount credited to such Deferral Account as of the
Adjustment Date last preceding the date of payment plus any
deferrals credited to and less any distributions made from such
Deferral Account since such Adjustment Date. The amount of each
payment made with respect to a Deferral Account and any
forfeiture amounts applied pursuant to Section 4.6 shall be
deducted from the balance credited to such Deferral Account at
the time of payment or forfeiture.
Section 4.3 Early Termination. Upon a Participant's
termination of employment with an Employer or Affiliated Company
prior to the date which is ten years prior to such Participant's
Retirement Age for any reason other than death, Disability or
transfer to employment with another Employer or Affiliated
Company, the amount payable from such Participant's Deferral
Account, as determined in accordance with Section 4.2, shall be
paid by the Employer to such Participant in a single lump sum as
soon as practicable following such termination of employment.
Section 4.4 Death. Upon a Participant's termination of
employment by reason of death, the amount payable from such
Participant's Deferral Account, as determined in accordance with
Section 4.2, shall be paid by the Employer to the beneficiary or
beneficiaries designated by such Participant pursuant to Section
4.7 in one of the following forms as elected by the Participant
during the Participant's initial Election Period:
(a) a single lump sum to be paid as soon as
practicable following the Participant's death; or
(b) if the amount payable from a Deferral Account is
$50,000 or more as of the date of the Participant's death,
annual installments over the period certain selected by the
Participant not to exceed 15 years commencing in payment as
soon as practicable following the Participant's death with
each annual installment equal to the Deferral Account
balance multiplied by a fraction the numerator of which is
one and the denominator of which is the number of payments
remaining;
provided, however, that if a beneficiary of a deceased
Participant who is entitled to installment payments hereunder
encounters an unforeseeable emergency (as determined in
accordance with Section 4.8 hereof), the Administrative
Committee, in its absolute discretion, may direct the Employer to
accelerate such portion of the installment payments as the
Administrative Committee shall determine to be necessary to
alleviate the severe financial hardship of the beneficiary caused
by such unforeseeable emergency.
Section 4.5 Retirement or Disability. Upon a Participant's
termination of employment with an Employer or Affiliated Company
(i) on or after the date which is ten years prior to such
Participant's Retirement Age for any reason other than death or
transfer to employment with another Employer or Affiliated
Company or (ii) on account of his or her Disability, the amount
payable from such Participant's Deferral Account, as determined
in accordance with Section 4.2, shall be paid by the Employer to
such Participant (or, in the event of his or her subsequent
death, to the beneficiary or beneficiaries designated by such
Participant pursuant to Plan Section 4.7) in one of the following
forms as elected by the Participant during the Participant's
initial Election Period:
(a) a single lump sum to be paid as soon as
practicable following the Participant's termination of
employment or, in the case of termination of employment on
account of Disability or prior to Retirement Age and the
Participant so elects, the Participant's Retirement Age; or
(b) if the amount payable from a Deferral Account is
$50,000 or more as of the date of the Participant's
termination of employment, annual installments over the
period certain selected by the Participant not to exceed 15
years commencing in payment as soon as practicable following
the Participant's termination of employment or, in the case
of termination of employment on account of Disability or
prior to Retirement Age and the Participant so elects, the
Participant's Retirement Age, with each annual installment
equal to the Deferral Account balance multiplied by a
fraction the numerator of which is one and the denominator
of which is the number of payments remaining;
provided, however, that if a Participant who is entitled to a
delayed lump sum or installment payments hereunder encounters an
unforeseeable emergency (as determined in accordance with Section
4.8 hereof), the Administrative Committee, in its absolute
discretion, may direct the Employer to accelerate such portion of
the lump sum or installment payments as the Administrative
Committee shall determine to be necessary to alleviate the severe
financial hardship of the Participant caused by such
unforeseeable emergency.
Section 4.6 Option to Request Immediate Payout. In lieu
of any other benefits or payments to be made pursuant to this
Plan, each Participant (or beneficiary in the case of a deceased
Participant) shall have the right at any time to elect a lump sum
payment in an amount equal to:
(a) the amount payable from the Participant's Deferral
Account, determined in accordance with Section 4.2, minus
(b) a forfeiture amount equal to 20% of (a) above,
provided, however, that if the election is made on or within
two years following the date a Change of Control occurs,
such forfeiture amount shall be determined substituting 10%
for 20%.
A Participant's election for an immediate payout pursuant to this
Section must be in the form of a written notice provided to the
Administrative Committee. The Administrative Committee shall
notify any Employer maintaining a Deferral Account with respect
to such Participant of the election and the amount so determined
shall be paid to the Participant (or, in the case of a deceased
Participant, to the beneficiary or beneficiaries designated by
such Participant pursuant to Plan Section 4.7) by the Employers
no later than fifteen days following receipt of notice by the
Administrative Committee. Any amount remaining credited to the
Participant's Deferral Account shall be forfeited at the time
payment is made.
Section 4.7 Designation of Beneficiaries. Any amount
payable under this Plan on account of the death of a Participant
shall be paid when otherwise due hereunder to the beneficiary or
beneficiaries designated by such Participant. Such designation
of beneficiary or beneficiaries shall be made in writing on a
form prescribed by and filed with the Administrative Committee
and shall remain in effect until changed by such Participant by
the filing of a new beneficiary designation form with the
Administrative Committee. If a Participant fails to so designate
a beneficiary, or in the event all of the designated
beneficiaries are individuals who either predecease the
Participant or survive the Participant but die prior to receiving
the full amount payable under this Plan, any remaining amount
payable under this Plan shall be paid to such Participant's
estate when otherwise due hereunder.
Section 4.8 Hardship Distributions. If a Participant
encounters an unforeseeable emergency, the Administrative
Committee in its absolute discretion may direct the Employer
maintaining such Deferral Account to pay to such Participant and
deduct from such Deferral Account such portion of the amount then
credited to such Deferral Account (including, if appropriate, the
entire amount determined in accordance with Section 4.2) as the
Administrative Committee shall determine to be necessary to
alleviate the severe financial hardship of such Participant
caused by such unforeseeable emergency. For this purpose, an
"unforeseeable emergency" shall be a severe financial hardship to
the Participant resulting from a sudden and unexpected illness or
accident of the Participant or of a dependent of the Participant,
loss of the Participant's property due to casualty, or other
similar extraordinary and unforeseeable circumstances arising as
a result of events beyond the control of the Participant. The
circumstances that will constitute an unforeseeable emergency
will depend upon the facts of each case, but in any case, payment
may not be made to the extent that such hardship is or may be
relieved (i) through reimbursement or compensation by insurance
or otherwise, (ii) by liquidation of the Participant's assets, to
the extent liquidation of such assets would not itself cause
severe financial hardship, or (iii) by cessation of deferrals
under the Plan. No distribution shall be made to a Participant
pursuant to this Section 4.8 unless such Participant requests
such a distribution in writing and provides to the Administrative
Committee such information and documentation with respect to his
or her unforeseeable emergency as may be requested by the
Administrative Committee.
Section 4.9 Change of Distribution Form. Each Participant
may elect at any time after a Participant's initial Election
Period, but no more often than once during each calendar year, to
change the distribution forms elected with respect to all amounts
credited to such Participant's Deferral Account; provided,
however, that such election shall not be effective unless made by
the end of the second calendar year preceding the calendar year
in which distributions are to be made or commence to such
Participant pursuant to Sections 4.4 or 4.5 hereof.
ARTICLE V.
AMENDMENT AND TERMINATION
Section 5.1 Amendment and Termination. The Compensation
Committee shall have the right and power at any time and from
time to time to amend this Plan, in whole or in part, on behalf
of all Employers, and the Board shall have the right and power at
any time to terminate this Plan or any Employer's participation
hereunder. Any amendment to or termination of this Plan shall be
made by or pursuant to a resolution duly adopted by the
Compensation Committee or the Board, as the case may be, and
shall be evidenced by such resolution or by a written instrument
executed by such person as the Compensation Committee or the
Board, as the case may be, shall authorize for such purpose. Any
provision of this Plan to the contrary notwithstanding, no
amendment to or termination of this Plan shall reduce the amounts
actually credited to a Participant's Deferral Accounts as of the
date of such amendment or termination, or further defer the dates
for the payment of such amounts, without the consent of the
affected Participant. Upon termination of this Plan, the Board,
in its sole discretion, may require the Administrative Committee
to calculate final Deferral Account balances as of such
Adjustment Date as it may prescribe, and direct each Employer to
make immediate lump sum payments to each Participant (or
beneficiary in the case of a deceased Participant) with respect
to which such Employer maintains a Deferral Account in the amount
determined to be credited to such Participant's Deferral Account
as of such final Adjustment Date.
Section 5.2 Change of Control. The preceding provisions of
this Article to the contrary notwithstanding, no action taken on
or within two years following a Change of Control to amend or
terminate this Plan shall be effective unless written consent
thereto is obtained from a majority of the Participants.
ARTICLE VI.
MISCELLANEOUS PROVISIONS
Section 6.1 Nature of Plan and Rights. This Plan is
unfunded and maintained by the Employers primarily for the
purpose of providing deferred compensation for a select group of
management or highly compensated employees of the Employers. The
Deferral Accounts established and maintained under this Plan by
an Employer are for its accounting purposes only and shall not be
deemed or construed to create a trust fund or security interest
of any kind for or to grant a property interest of any kind to
any Participant, designated beneficiary or estate. The amounts
credited by an Employer to Deferral Accounts maintained under
this Plan are and for all purposes shall continue to be a part of
the general assets and liabilities of such Employer, and to the
extent that a Participant, designated beneficiary or estate
acquires a right to receive a payment from such Employer pursuant
to this Plan, such right shall be no greater than the right of
any unsecured general creditor of such Employer.
Section 6.2 Spendthrift Provision. No Deferral Account
balance or other right or interest under this Plan of a
Participant, designated beneficiary or estate may be assigned,
transferred or alienated, in whole or in part, either directly or
by operation of law, and no such balance, right or interest shall
be liable for or subject to any debt, obligation or liability of
such Participant, designated beneficiary or estate.
Section 6.3 Employment Noncontractual. The establishment
of this Plan shall not enlarge or otherwise affect the terms of
any Participant's employment with an Employer, and such Employer
may terminate the employment of such Participant as freely and
with the same effect as if this Plan had not been established.
Section 6.4 Adoption by Other Employers. With the consent
of the Compensation Committee, this Plan may be adopted by any
Affiliated Company, such adoption to be effective as of the date
specified by such Affiliated Company at the time of adoption.
Section 6.5 Claims Procedure. If any person (hereinafter
called the "Claimant") feels that he or she is being denied a
benefit to which he or she is entitled under this Plan, such
Claimant may file a written claim for said benefit with the
Administrative Committee. Within sixty days following the
receipt of such claim the Administrative Committee shall
determine and notify the Claimant as to whether he or she is
entitled to such benefit. Such notification shall be in writing
and, if denying the claim for benefit, shall set forth the
specific reason or reasons for the denial, make specific
reference to the pertinent provisions of this Plan, and advise
the Claimant that he or she may, within sixty days following the
receipt of such notice, in writing request to appear before the
Administrative Committee or its designated representative for a
hearing to review such denial. Any such hearing shall be
scheduled at the mutual convenience of the Administrative
Committee or its designated representative and the Claimant, and
at any such hearing the Claimant and/or his or her duly
authorized representative may examine any relevant documents and
present evidence and arguments to support the granting of the
benefit being claimed. The final decision of the Administrative
Committee with respect to the claim being reviewed shall be made
within sixty days following the hearing thereon, and
Administrative Committee shall in writing notify the Claimant of
said final decision, again specifying the reasons therefor and
the pertinent provisions of this Plan upon which said final
decision is based. The final decision of the Administrative
Committee shall be conclusive and binding upon all parties having
or claiming to have an interest in the matter being reviewed.
Section 6.6 Reimbursement of Expenses. In the event that a
dispute arises between a Participant or beneficiary and the
Participant's Employer or the Company with respect to the payment
of benefits hereunder and the Participant or beneficiary is
successful in pursuing a benefit to which he or she is entitled
under the terms of the Plan against the Participant's Employer,
the Company or any other party in the course of litigation or
otherwise and incurs attorneys' fees, expenses and costs in
connection therewith, the Participant's Employer and the Company
shall reimburse the Participant or beneficiary for the full
amount of any such attorneys' fees, expenses and costs.
Section 6.7 Withholding Tax. There shall be deducted from
all amounts paid under this Plan any taxes required to be
withheld by any Federal, state, local or other government. The
Participant and/or his or her beneficiary (including his or her
estate) shall bear all taxes on amounts paid under this Plan to
the extent that no taxes are withheld, irrespective of whether
withholding is required.
Section 6.8 Applicable Law. This Plan shall be governed
and construed in accordance with the internal laws (and not the
principles relating to conflicts of laws) of the State of Texas,
except where superseded by federal law.
IN WITNESS WHEREOF, this Plan has been executed on this 30th
day of September, 1994 to be effective as of October 1, 1994.
ENSERCH CORPORATION
By /s/ D. W. Biegler
Title: Chairman, President
and Chief Executive
Officer
<PAGE>
<PAGE>
AMENDMENT NO. 1 TO THE
ENSERCH CORPORATION
DEFERRED COMPENSATION PLAN
Pursuant to the provisions of Section 5.1 thereof, the
ENSERCH Corporation Deferred Compensation Plan (the "Plan") is
hereby amended in the following respect only:
Article III of the Plan is hereby amended effective as of
January 1, 1995 by adding the following new Section to the end
thereof:
Section 3.6 Deferred Compensation Awards. Effective
as of January 1, 1995, the President of ENSERCH Corporation
may enter into "Deferred Compensation Award Agreements" with
such Eligible Employees as may from time to time be approved
by the Compensation Committee. Such Agreements shall
provide for the grant of a deferred compensation award,
either fixed as to amount or determinable pursuant to a
formula, to the Eligible Employee subject to such vesting
requirements, including performance criteria, as shall be
approved by the Compensation Committee. The amount of any
deferred compensation award which vests pursuant to the
terms of a Deferred Compensation Award Agreement entered
into with an Eligible Employee shall be credited to such
Participant's Deferral Account as of the date of such
vesting, if such individual is an Eligible Employee as of
the date of vesting, and any such vested award so credited
to a Deferral Account shall for all purposes be considered
to be, and shall be treated in the same manner as, a
deferral credited to such Deferral Account. The
Administrative Committee may maintain separate subaccounts
within a Participant's Deferral Account for amounts
attributable to deferrals and deferred compensation awards
if separate identification is desired, but the amounts
credited to any subaccounts shall be treated the same for
all purposes of this Plan.
IN WITNESS WHEREOF, this Amendment has been executed this
28th day of March, 1995.
ENSERCH CORPORATION
By D. W. Biegler
Title: Chairman and
President
<PAGE>
EXHIBIT 10.9
ENSERCH CORPORATION
DEFERRED COMPENSATION TRUST
This Trust Agreement made this 30th day of September, 1994,
by and between ENSERCH Corporation, a Texas corporation (the
"Company") and Texas Commerce Bank National Association, a
national banking association ( the "Trustee");
WHEREAS, the Company and certain Affiliated Companies
have adopted nonqualified deferred compensation plans known
as the ENSERCH Corporation Deferred Compensation Plan (the
"Executive Plan") and the ENSERCH Corporation Deferred
Compensation Plan for Directors (the "Directors' Plan")
(collectively hereinafter referred to as the "Plan" or
"Plans"); and
WHEREAS, the Company has incurred or expects to incur
liability under the terms of such Plans with respect to the
individuals participating in such Plans; and
WHEREAS, the Company wishes to establish a trust
(hereinafter called the "Trust") and to contribute to the
Trust assets that shall be held therein, subject to the
claims of the Company's creditors in the event of the
Company's Insolvency, as herein defined, until paid to Plan
Participants and their beneficiaries in such manner and at
such times as specified in the Plans; and
WHEREAS, it is the intention of the parties that this
Trust shall constitute an unfunded arrangement and shall not
affect the status of the Plans as unfunded plans maintained
for the purpose of providing deferred compensation for a
select group of management or highly compensated employees
for purposes of Title I of the Employee Retirement Income
Security Act of 1974; and
WHEREAS, it is the intention of the Company to make
contributions to the Trust to provide itself with a source
of funds to assist it in the meeting of its liabilities
under the Plans;
NOW, THEREFORE, the parties do hereby establish the Trust
and agree that the Trust shall be comprised, held and disposed of
as follows:
Section 1. Establishment Of Trust.
(a) The Company hereby deposits with the Trustee in trust
$1,000.00, which shall become the principal of the Trust to be
held, administered and disposed of by the Trustee as provided in
this Trust Agreement.
(b) The Trust hereby established shall be irrevocable.
(c) The Trust is intended to be a grantor trust, of which
the Company is the grantor, within the meaning of subpart E,
part I, subchapter J, chapter 1, subtitle A of the Internal
Revenue Code of 1986, as amended, and shall be construed
accordingly.
(d) The principal of the Trust, and any earnings thereon
shall be held separate and apart from other funds of the Company
and shall be used exclusively for the uses and purposes of Plan
Participants and general creditors as herein set forth. Plan
Participants and their beneficiaries shall have no preferred
claim on, or any beneficial ownership interest in, any assets of
the Trust. Any rights created under the Plans and this Trust
Agreement shall be mere unsecured contractual rights of Plan
Participants and their beneficiaries against the Company. Any
assets held by the Trust will be subject to the claims of the
Company's general creditors under federal and state law in the
event of Insolvency, as defined in Section 4(a) herein.
(e) The Company, in its sole discretion, may at any time,
or from time to time, make additional deposits of cash or other
property in trust with the Trustee to augment the principal to be
held, administered and disposed of by the Trustee as provided in
this Trust Agreement; provided, however, that the Company shall
contribute to the Trust each calendar year an amount of cash or
property at least equal in value to the total amount of deferrals
credited to the Deferral Accounts of Participants pursuant to the
Executive Plan and the Accounts of Participants pursuant to the
Directors' Plan during such calendar year.
(f) Any provision of this Trust Agreement to the contrary
notwithstanding, upon a Change of Control, as defined in the
Plans, the Company shall (i) as soon as possible, but in no event
more than 30 days following the date of such Change of Control,
make an irrevocable contribution to the Trust in an amount, as
determined by an Independent Committee, as defined below, which
when added to the total value of the assets of the Trust at such
time equals the total amount credited to all Deferral Accounts
under the Executive Plan and all Accounts under the Directors'
Plan as of the date on which the Change of Control occurred, and
(ii) during the two-year period following the date of the Change
of Control, make monthly contributions to the Trust in amounts
sufficient, as determined by the Independent Committee, to
maintain the total value of the Trust assets at an amount equal
to the total amount credited to all Deferral Accounts under the
Executive Plan and all Accounts under the Directors' Plan.
Section 2. Payments to Plan Participants and their
Beneficiaries.
(a) The Administrative Committee shall deliver to the
Trustee a schedule (the "Payment Schedule") that indicates the
amounts payable with respect to each Plan Participant (and his or
her beneficiaries), that provides a formula or other instructions
acceptable to the Trustee for determining the amounts so payable,
the form in which such amount is to be paid (as provided for or
available under the Plan), and the time of commencement for
payment of such amounts, if known. An updated Payment Schedule
shall be provided by the Administrative Committee to the Trustee
periodically, but no less frequently than once each calendar
year. Except as otherwise provided herein, the Trustee shall
make payments to the Plan Participants and their beneficiaries in
accordance with such Payment Schedule. The Trustee shall make
provision for the reporting and withholding of any federal, state
or local taxes that may be required to be withheld with respect
to the payment of benefits pursuant to the terms of the Plans and
shall pay amounts withheld to the appropriate taxing authorities
or determine that such amounts have been reported, withheld and
paid by an Employer under the Executive Plan or by the Company
under the Directors' Plan.
(b) The entitlement of a Plan Participant or his or her
beneficiaries to benefits under the Plan shall be determined by
the Administrative Committee or such other party as may be
designated under the Plan, and any claim for such benefits shall
be considered and reviewed under the procedures set out in the
Plan.
(c) Employers participating in the Executive Plan or the
Company with respect to the Directors' Plan may make payments of
benefits directly to Plan Participants or their beneficiaries as
they become due under the terms of the Plan in lieu of payment
from the Trust. The Administrative Committee shall notify the
Trustee of an Employer's or the Company's decision to make
payments of benefits directly prior to the time amounts are
payable to Participants or their beneficiaries. In addition, if
the Trust assets are not sufficient to make payments of benefits
in accordance with the terms of the Plans, the Company shall make
the balance of each such payment as it falls due. The Trustee
shall notify the Company immediately when Trust assets are not
sufficient to satisfy all payments due.
(d) Any provision of this Section 2 to the contrary
notwithstanding, upon and after a Change of Control, the Trustee
shall make payments to Plan Participants or their beneficiaries
in accordance with the direction of the Independent Committee
rather than the Administrative Committee, regardless of whether
the Trustee has received a Payment Schedule or any other form of
direction from the Administrative Committee to make such
payments.
Section 3. Appointment of Independent Committee. Any
provision of this Trust Agreement to the contrary
notwithstanding, upon a Change of Control, an Independent
Committee consisting of at least three members shall be appointed
by the Compensation Committee of the Board of Directors of the
Company subject to the approval of a majority of the Participants
of the Plans on the date of such Change of Control. The
Independent Committee shall:
(a) determine the amount of the irrevocable
contributions to be made by the Company pursuant to Section
1(f) hereof;
(b) determine in accordance with the Plans the amounts
payable with respect to each Plan Participant (and his or
her beneficiaries), the form in which such amounts are to be
paid, and the time of commencement for payment of such
amounts pursuant to Section 2(a) hereof;
(c) determine the entitlement of Plan Participants
and beneficiaries to benefits under the terms of the Plans
pursuant to Section 2(b) hereof;
(d) direct the Trustee to make payments to Plan
Participants and their beneficiaries pursuant to Section 2
hereof; and
(e) select a successor Trustee for the Trust if a
Trustee resigns or is removed on or within two years
following the date of a Change of Control pursuant to
Section 12.
Section 4. Trustee Responsibility Regarding Payments to
Trust Beneficiary when the Company Is Insolvent.
(a) The Trustee shall cease payment of benefits to Plan
Participants and their beneficiaries if the Company is Insolvent.
The Company shall be considered "Insolvent" for purposes of this
Trust Agreement if (i) the Company is unable to pay its debts as
they become due, or (ii) the Company is subject to a pending
proceeding as a debtor under the United States Bankruptcy Code.
(b) At all times during the continuance of this Trust, as
provided in Section 1(d) hereof, the principal and income of the
Trust shall be subject to claims of general creditors of the
Company under federal and state law as set forth below.
(1) The Board of Directors and the Chief Executive
Officer of the Company shall have the duty to inform the
Trustee in writing of the Company's Insolvency. If a person
claiming to be a creditor of the Company alleges in writing
to the Trustee that the Company has become Insolvent, the
Trustee shall determine whether the Company is Insolvent
and, pending such determination, the Trustee shall
discontinue payment of benefits to Plan Participants or
their beneficiaries.
(2) Unless the Trustee has actual knowledge of the
Company's Insolvency, or has received notice from the
Company or a person claiming to be a creditor alleging that
the Company is Insolvent, the Trustee shall have no duty to
inquire whether the Company is Insolvent. The Trustee may
in all events rely on such evidence concerning the Company's
solvency as may be furnished to the Trustee and that
provides the Trustee with a reasonable basis for making a
determination concerning the Company's solvency.
(3) If at any time the Trustee has determined that the
Company is Insolvent, the Trustee shall discontinue payments
to Plan Participants or their beneficiaries and shall hold
the assets of the Trust for the benefit of the Company's
general creditors. Nothing in this Trust Agreement shall in
any way diminish any rights of Plan Participants or their
beneficiaries to pursue their rights as general creditors of
the Company with respect to benefits due under the Plan or
otherwise.
(4) The Trustee shall resume the payment of benefits
to Plan Participants or their beneficiaries in accordance
with Section 2 of this Trust Agreement only after the
Trustee has determined that the Company is not Insolvent (or
is no longer Insolvent).
(c) Provided that there are sufficient assets, if the
Trustee discontinues the payment of benefits from the Trust
pursuant to Section 4(b) hereof and subsequently resumes such
payments, the first payment following such discontinuance shall
include the aggregate amount of all payments due to Plan
Participants or their beneficiaries under the terms of the Plans
for the period of such discontinuance, less the aggregate amount
of any payments made to Plan Participants or their beneficiaries
by the Employers participating in the Executive Plan or by the
Company with respect to the Directors' Plan in lieu of the
payments provided for hereunder during any such period of
discontinuance.
Section 5. Payments to the Company.
(a) Except as provided in Sections 4 and 5(b) hereof, the
Company shall have no right or power to direct the Trustee to
return to the Company or to divert to others any of the Trust
assets before payment of all benefits have been made to Plan
Participants and their beneficiaries pursuant to the terms of the
Plans.
(b) To the extent that the Administrative Committee
determines that the value of the assets in the Trust based upon
information provided to the Administrative Committee by the
Trustee, at any time, exceeds 110% of the amounts credited to
Participants' Deferral Accounts under the Executive Plan and
Accounts under the Directors' Plan as of the most recent
Adjustment Date plus any deferrals made since such date, the
Trustee shall pay such excess to the Company upon receipt of
written request therefor from the Company; provided, however,
that no such payment of excess assets to the Company shall be
made on or within two years following the date of a Change of
Control.
Section 6. Investment Authority.
(a) The Trustee shall have full power and authority to
invest and reinvest the Trust assets, or any part thereof, in
such stocks (common or preferred), bonds, mortgages, notes,
interest-bearing deposits (including such deposits with any
corporate trustee acting hereunder), options and contracts for
the future or immediate receipt or delivery of property of any
kind, or other securities, producing or nonproducing oil and gas
royalties and payments and other producing and nonproducing
interests in minerals, or in commodities, life insurance
policies, annuity contracts or other property of any kind or
nature whatsoever, whether real, personal or mixed, as the
Trustee, in the Trustee's absolute discretion and judgment, deems
appropriate for the Trust, and to hold cash uninvested at any
time and from time to time in such amounts and to such extent as
the Trustee, in the Trustee's absolute discretion and judgment,
deems appropriate for the Trust. The Trustee shall have full
power and authority to manage, handle, invest, reinvest, sell for
cash or credit, or for part cash or part credit, exchange, hold,
dispose of, lease for any period of time (whether or not longer
than the life of the Trust), improve, repair, maintain, work,
develop, use, operate, mortgage, or pledge, all or any part of
the assets and property from time to time constituting any part
of the trust funds held in trust under the Trust; borrow or loan
money or securities; write options and sell securities or other
property short or for future delivery; engage in hedging
procedures; buy and sell futures contracts; execute obligations,
negotiable and nonnegotiable; vote shares of stock in person and
by proxy, with or without power of substitution; register
investments in the name of a nominee; sell, convey, lease and/or
otherwise deal with any producing or nonproducing oil, gas and
mineral leases or mineral rights, payments and royalties; pay all
reasonable expenses; execute and deliver any deeds, conveyances,
leases, contracts, or written instruments of any character
appropriate to any of the powers or duties of the Trustee, and
shall, in general, have as broad power respecting the management,
operation and handling of the Trust assets and property as if the
Trustee were the owner of such assets and property in the
Trustee's own right. The preceding provisions of this paragraph
to the contrary notwithstanding, the Company shall have the right
and power at any time and from time to time to give the Trustee
broad guidelines within which it shall invest the assets of the
Trust; provided, however, that upon a Change of Control and
continuing for two years thereafter, the Independent Committee,
rather than the Company, shall have the sole authority to
exercise such right.
(b) All rights associated with assets of the Trust shall be
exercised by the Trustee or the person designated by the Trustee,
and shall in no event be exercisable by or rest with Plan
Participants.
(c) The Company shall have the right, at any time, and from
time to time in its sole discretion, to substitute assets of
equal fair market value for any asset held by the Trust;
provided, however, that effective upon a Change in Control and
for a period of two years thereafter, any assets transferred to
the Trust in substitution for assets held by the Trust must
consist of cash or marketable securities and the fair market
value of the respective assets shall be determined by the
Trustee. This right is exercisable by the Company in a
nonfiduciary capacity without the approval or consent of any
person in a fiduciary capacity.
Section 7. Disposition of Income. During the term of this
Trust, all income received by the Trust, net of expenses and
taxes, shall be accumulated and reinvested.
Section 8. Accounting by Trustee. The Trustee shall keep
accurate and detailed records of all investments, receipts,
disbursements, and all other transactions required to be made,
including such specific records as shall be agreed upon in
writing between the Company and the Trustee. Within 30 days
following the close of each calendar year and within 30 days
after the removal or resignation of the Trustee, the Trustee
shall deliver to the Company a written account of its
administration of the Trust during such year or during the period
from the close of the last preceding year to the date of such
removal or resignation, setting forth all investments, receipts,
disbursements and other transactions effected by it, including a
description of all securities and investments purchased and sold
with the cost or net proceeds of such purchases or sales (accrued
interest paid or receivable being shown separately), and showing
all cash, securities and other property held in the Trust at the
end of such year or as of the date of such removal or
resignation, as the case may be.
Section 9. Responsibility of the Trustee.
(a) The Trustee shall act with the care, skill, prudence
and diligence under the circumstances then prevailing that a
prudent person acting in like capacity and familiar with such
matters would use in the conduct of an enterprise of a like
character and with like aims; provided, however, that the Trustee
shall incur no liability to any person for any action taken
pursuant to a direction, request or approval given by the Company
which is contemplated by, and in conformity with, the terms of
the Plan or this Trust and is given in writing by the Company.
In the event of a dispute between the Company and a party, the
Trustee may apply to a court of competent jurisdiction to resolve
the dispute.
(b) If the Trustee undertakes or defends any litigation
arising in connection with this Trust, the Company agrees to
indemnify the Trustee against the Trustee's costs, expenses and
liabilities (including, without limitation, attorneys' fees and
expenses) relating thereto and to be primarily liable for such
payments. If the Company does not pay such costs, expenses and
liabilities in a reasonably timely manner, the Trustee may obtain
payment from the Trust.
(c) The Trustee may consult with legal counsel (who may
also be counsel for the Company generally) with respect to any of
its duties or obligations hereunder.
(d) The Trustee may hire agents, accountants, actuaries,
investment advisors, financial consultants or other professionals
to assist it in performing any of its duties or obligations
hereunder.
(e) The Trustee shall have, without exclusion, all powers
conferred on trustees by applicable law, unless expressly
provided otherwise herein; provided, however, that except as
provided in Sections 5(b) and 6(c) hereof, if an insurance policy
is held as an asset of the Trust, the Trustee shall have no power
to name a beneficiary of the policy other than the Trust, to
assign the policy (as distinct from conversion of the policy to a
different form) other than to a successor Trustee, or to loan to
any person the proceeds of any borrowing against such policy.
(f) Notwithstanding any powers granted to the Trustee
pursuant to this Trust Agreement or applicable law, the Trustee
shall not have any power that could give this Trust the objective
of carrying on a business and dividing the gains therefrom,
within the meaning of section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Internal
Revenue Code.
Section 10. Compensation and Expenses of the Trustee. The
Trustee shall be paid such reasonable compensation commensurate
with the services and responsibilities involved hereunder as
shall from time to time be agreed upon by the Trustee and the
Company. The Company shall pay all administrative and the
Trustee's fees and expenses, but, if not so paid, the fees and
expenses shall be paid from the Trust.
Section 11. Resignation and Removal of the Trustee.
(a) The Trustee may resign at any time by written notice to
the Company, which shall be effective 30 days after receipt of
such notice unless the Company and the Trustee agree otherwise.
(b) The Trustee may be removed by the Company on 30 days
notice or upon shorter notice accepted by the Trustee; provided,
however, that the Trustee may not be removed by the Company on or
within two years following a Change of Control except with the
written consent of a majority of the Participants entitled to
payment of benefits pursuant to the terms of the Plans on the
date of such Change of Control.
(c) Upon resignation or removal of the Trustee and
appointment of a successor Trustee, all assets shall subsequently
be transferred to the successor Trustee. The transfer shall be
completed within 30 days after receipt of notice of resignation,
removal or transfer, unless the Company extends the time limit.
(d) If the Trustee resigns or is removed, a successor shall
be appointed, in accordance with Section 12 hereof, by the
effective date of resignation or removal under paragraph(s) (a)
or (b) of this section. If no such appointment has been made,
the Trustee may apply to a court of competent jurisdiction for
appointment of a successor or for instructions. All expenses of
the Trustee in connection with the proceeding shall be allowed as
administrative expenses of the Trust.
Section 12. Appointment of Successor.
(a) If the Trustee resigns or is removed in accordance with
Section 11(a) or (b) hereof, the Company may appoint any third
party, such as a bank trust department or other party that may be
granted corporate trustee powers under state law, as a successor
to replace the Trustee upon resignation or removal; provided,
however, that if the Trustee resigns or is removed on or within
two years following the date of a Change of Control, the
Independent Committee shall select a successor Trustee in
accordance with this Section 12. The appointment shall be
effective when accepted in writing by the new Trustee, who shall
have all of the rights and powers of the former Trustee,
including ownership rights in the Trust assets. The former
Trustee shall execute any instrument necessary or reasonably
requested by the Company or the successor Trustee to evidence the
transfer.
(b) The successor Trustee need not examine the records and
acts of any prior Trustee and may retain or dispose of existing
Trust assets, subject to Sections 8 and 9 hereof. The successor
Trustee shall not be responsible for and the Company shall
indemnify and defend the successor Trustee from any claim or
liability resulting from any action or inaction of any prior
Trustee or from any other past event, or any condition existing
at the time it becomes successor Trustee.
Section 13. Amendment or Termination.
(a) This Trust Agreement may be amended by a written
instrument executed by the Trustee and a representative of the
Company so authorized by the Compensation Committee of the Board
of Directors of the Company. Notwithstanding the foregoing, no
such amendment shall conflict with the terms of the Plans or
shall make the Trust revocable.
(b) The Trust shall not terminate until the date on which
Plan Participants and their beneficiaries are no longer entitled
to benefits pursuant to the terms of the Plans. Upon termination
of the Trust any assets remaining in the Trust shall be returned
to the Company.
(c) Upon written approval of at least two-thirds of the
Participants and beneficiaries entitled to payment of benefits
pursuant to the terms of the Plans, the Company may terminate
this Trust prior to the time all benefit payments under the Plans
have been made. All assets in the Trust at termination shall be
returned to the Company.
(d) This Trust Agreement may not be amended by the Company
on or within two years following the date of a Change of Control,
without the written consent of a majority of the Participants
entitled to payment of benefits pursuant to the terms of the
Plans on the date of such Change of Control.
Section 14. Miscellaneous.
(a) Any provision of this Trust Agreement prohibited by law
shall be ineffective to the extent of any such prohibition,
without invalidating the remaining provisions hereof.
(b) Benefits payable to Plan Participants and their
beneficiaries under this Trust Agreement may not be anticipated,
assigned (either at law or in equity), alienated, pledged,
encumbered or subjected to attachment, garnishment, levy,
execution or other legal or equitable process.
(c) This Trust Agreement shall be governed and construed in
accordance with the internal laws (and not the principles
relating to conflicts of laws) of the State of Texas, except
where superseded by federal law.
(d) Unless the context clearly indicates otherwise, when
used in this Trust Agreement:
(i) "Administrative Committee" shall mean the
"Administrative Committee" appointed pursuant to each of the
Plans.
(ii) "Participant" shall mean each "Participant" as
that term is defined in the Executive Plan and each Director
who has an amount credited to his or her Account under the
Directors' Plan or who has elected to have all or any
portion of his or her Annual Fee deferred under the terms of
that Plan.
(e) Except where otherwise defined, capitalized terms used
herein shall have the meaning given to them in the Plans.
(f) In the event that a dispute arises between a Plan
Participant or beneficiary and the Participant's Employer, the
Company or the Trustee with respect to the payment of amounts
from the Trust and the Participant or beneficiary is successful
in pursuing a benefit to which he or she is entitled under the
terms of the Plans and this Trust against the Participant's
Employer, the Company, the Trustee or any other party in the
course of litigation or otherwise and incurs attorneys' fees,
expenses and costs in connection therewith, the Company shall
reimburse the Plan Participant or beneficiary for the full amount
of any such attorneys' fees, expenses and costs.
IN WITNESS WHEREOF, this Agreement has been executed this
30th day of September, 1994, to be effective as of October 1,
1994.
ENSERCH CORPORATION
By /s/ D. W. Biegler
Title: Chairman, President
and Chief Executive
Officer
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION
By /s/ Karen Epps
Title:
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, a notary public in and
for said County and State, on this day personally appeared D. W.
Biegler, known to me to be the person whose name is subscribed to
the foregoing instrument and acknowledged to me that the same was
the act of the said ENSERCH CORPORATION, a Texas corporation, and
that he/she executed the same as the act of such corporation for
the purposes and consideration therein expressed, and in the
capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 23rd day of
September, 1994.
/s/ Cherry H. Sossamon
Notary Public, State of Texas
My Commission expires:
October 31, 1996
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, a notary public in and
for said County and State, on this day personally appeared Karen
Epps, known to me to be the person whose name is subscribed to
the foregoing instrument and acknowledged to me that the same was
the act of the said TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a
national banking association, and that he/she executed the same
as the act of such banking association for the purposes and
consideration therein expressed, and in the capacity therein
stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 7th day of
October, 1994.
/s/ Barbara Betik
Notary Public, State of Texas
My Commission expires:
January 30, 1997
<PAGE>
EXHIBIT 10.10
RETIREMENT INCOME RESTORATION PLAN
OF ENSERCH CORPORATION
AND PARTICIPATING SUBSIDIARY COMPANIES
ENSERCH Corporation, a Texas corporation having its
principal executive office in Dallas, Texas, and its subsidiary,
Ebasco Services Incorporated, hereinafter referred to
collectively as the "Companies," hereby adopt the Retirement
Income Restoration Plan of ENSERCH Corporation and Participating
Subsidiary Companies, hereinafter referred to as the "Plan,"
effective January 1, 1984, as follows:
Article I
Definitions
Unless qualified by the context or otherwise defined herein,
the terms used herein shall have the meanings assigned to them as
applicable under the provisions of the Retirement and Death
Benefit Program of 1969 of ENSERCH Corporation and Participating
Subsidiary Companies and the Ebasco Services Incorporated Pension
Plan for Salaried Employees, as now in effect and as may be
amended hereafter from time to time, hereinafter referred to
collectively as the "Basic Plans"' and individually as the "Basic
P]an."
"Limitations" shall mean the reductions imposed on the
benefits provided under the Basic Plans in order to comply with
Sections 415 and 401(a)(17) of the Internal Revenue Code of 1986.
A "Participating Employee" is an employee who is entitled to
benefits under this Plan as a result of Limitations.
The terms "Change in Control," "Cause," and "Good Reason"
shall have the meanings assigned to them under the provisions of
the change in control agreements dated December 13, 1988, between
Messrs. R. G. Fowler, W. T. Satterwhite, et. al., and the
Corporation.
"Service" shall have the meaning assigned to the terms
Benefit Service or Credited Service in and by the Basic Plans.
Article II
Purpose
The purposes of this Plan are (a) to restore benefits to
those employees and their designated beneficiaries who are
entitled to receive benefits under the Basic Plans to the extent
that those benefits are, or will be, reduced by Limitations, and
(b) if a Participating Employee's employment is terminated by the
Corporation without Cause or by the Participating Employee for
Good Reason within three years of a Change in Control of the
Corporation, to provide increased retirement benefits as set
forth in Section 4.1.
Article III
Administration
This Plan shall be administered by the Compensation
Committee of the Board of Directors of ENSERCH Corporation,
hereinafter referred to as the "Committee." Subject to the
provisions of Article VI hereof, the Committee shall administer
this Plan in a manner consistent with the administration of the
1969 Plan, as from time to time amended and in effect, except
that this Plan shall be administered as a plan that is not
intended to meet the requirements of Section 401(a) of the
Internal Revenue Code of 1954. The Committee shall have full
power and authority to interpret, construe, and administer this
P]an, and the Committee's interpretations and constructions
hereof, and its actions hereunder, including all determinations
of the amounts and the recipients of payments to be made
hereunder, shall be binding and conclusive with respect to all
persons for all purposes. No member of the Committee shall be
liable to any person for any action taken or omitted in
connection with the interpretation and administration of this
Plan unless attributable to his own willful misconduct or lack of
good faith.
Article IV
Benefits
Section 4.1 Amount of Benefits. Subject to the provisions of
Section 4.3 hereof any employee or beneficiary who is entitled to
receive a benefit under a Basic Plan shall be entitled to receive
a benefit hereunder equal to the excess, if any, of:
(i) the amount of such employee's or beneficiary's benefit
under the Basic Plan, determined without regard to the
Limitations, plus the additional benefit that would be
payable under the Basic Plan if an increase in his
Service pursuant to Section 4.2 below is applicable,
less
(ii) the amount of the benefit actually payable to the
employee or beneficiary under the Basic Plan and the
amount of reduction of Plan payments described in the
agreement or agreements between the Corporation and the
employee relating to any individual annuity contracts
purchased on behalf of the employee by the Corporation.
Section 4.2 Additional Service. In the event a Participating
Employee's employment is terminated within three (3) years after
a Change in Control of the Corporation by the Corporation without
Cause or by the Participating Employee for Good Reason, his years
of Service for purposes of Section 4.1 shall mean his actual
years of Service plus
(a) in the case of the Chief Executive Officer of the
Corporation and Participating Employees reporting
directly to him, 3 additional years of Service; and
(b) in the case of Participating Employees other than the
Chief Executive Officer and Participating Employees
reporting directly to him, 2 additional years of
Service;
provided further that (i) in no case shall any Participating
Employee as a result of this Change in Control provision be
deemed to have more years of Service than he would have had if
his employment had terminated on the first of the month
coinciding with or Next following his sixty-fifth (65) birthday,
and (ii) the foregoing clauses (a) and (b) shall have no effect
on the computation of a Participating Employee's Average Monthly
Earnings or are for purposes of determining any amounts payable
to him under the Basic Plan.
Section 4. 3 Payment of Benefits. Payment of benefits to an
employee or beneficiary under this Plan shall be coincident with
the payment of benefits made to the employee or beneficiary under
the Basic Plan.
Section 4.4 Employee's Rights to Benefits. An employee's
rights under this Plan, including his rights to vested benefits,
shall be the same as his rights under the Basic Plan, except that
no payments due under this Plan shall be paid from any fund
maintained under the Basic Plan. In no event shall an individual
who is not entitled to benefits under the Basic Plan be entitled
to a benefit under this Plan. Benefits under this Plan shall be
paid sole]y from the general assets of the Companies, and no
employee or beneficiary shall have any title to or beneficial
interest in any assets of the Companies as a result of this Plan.
Article V
Amendment and Termination
While the Companies intend to maintain this Plan in
conjunction with the Basic Plans for as long as necessary, the
Board of Directors of ENSERCH Corporation reserves the right to
amend or terminate this Plan if, in its sole judgment, amendment
or termination is appropriate. However, if the Board should amend
or discontinue this Plan, the Companies shall be liable for all
benefits accrued under this Plan as of the date of such action
(determined on the basis of the assumption that on such date each
employee's employment terminated).
Article XI
Rights of Employees
The Companies may, but are not required to, set aside funds
for their convenience in order to facilitate the payment of any
benefits that may be due hereunder. However, in the event that
the Companies set aside funds, no employee or beneficiary shall
have any right, title or interest in such funds while held by the
Companies. Any employee or beneficiary who is entitled to receive
a benefit under this Plan shall have the rights solely of a
general and unsecured creditor.
Article VII
Miscellaneous
Section 7.1 Assignment. The interest of an employee or
beneficiary may not be sold, transferred, assigned, or encumbered
in any manner, either voluntarily or involuntarily, and any
attempt so to anticipate, alienate sell, transfer, assign,
pledge, encumber, or charge the same shall be null and void;
neither shall the benefits hereunder be liable for or subject to
the debts, contracts, liabilities, engagements, or torts of any
person to whom such benefits or funds are payable, nor shall they
be subject to garnishment, attachment, or other legal or
equitable process nor shall they be an asset in bankruptcy,
except that no amount shall be payable hereunder until and unless
any and all amounts representing debts or other obligations owed
to any Company by the individual to whom such amount would
otherwise be payable shall have been fully paid and satisfied.
Section 7.2 No Employment Rights. Nothing contained herein
shall be construed as conferring upon any employee the right to
continue in the employ of the Companies in any capacity.
Section 7. Binding on Companies, Employees and Their
Successors. The Plan shall be binding upon and inure to the
benefit of the Companies, their successors and assigns and the
employee and his heirs, executors, administrators, and legal
representatives. The provisions of the Plan shall be applicable
with respect to each Company separately, and amounts payable
hereunder shall be paid by the Company that employed the
individual employee in respect of whom benefits are due
hereunder.
Section 7.4 Arbitration. Any controversy arising out of, or
relating to, the Plan or any modification thereof, including any
claim for benefits, shall be settled by arbitration in Dallas,
Texas (or, if applicable law requires some other forum, then such
other forum) in accordance with the rules then obtaining of the
American Arbitration Association. The District Court of Dallas
County, Texas or, as the case may be, the United States District
Court for the Northern District of Texas shall have jurisdiction
for all purposes in connection with arbitration. Any process or
notice of motion or other application to either of said courts,
and any paper in connection with arbitration, may be served by
certified mail, return receipt requested, or by personal service
or in such other manner as may be permissible under the rules of
the applicable court or arbitration tribunal, provided a
reasonable time for appearance is allowed. Arbitration
proceedings must be instituted within one year after the claimed
breach occurred, and the failure to institute arbitration
proceedings within such period shall constitute an absolute bar
to the institution of any proceedings, and a waiver of all
claims, with respect to such breach.
Section 7. Withholding Tax. There shall be deducted from
all amounts paid under this Plan any taxes required to be
withheld by any Federal, state, local or other government. The
employee and/or his beneficiary (including his estate) shall bear
all taxes on amounts paid under this Plan to the extent that no
taxes are withheld, irrespective of whether withholding is
required.
Section 7.6 Law Applicable. The Plan shall be construed in
accordance with and governed by the laws of the State of Texas.
Restated and adopted this 28th day of December, 1990.
ENSERCH Corporation
By /s/ W. C. McCord
W. C. McCord
Chairman and President
<PAGE>
<PAGE>
AMENDMENT TO THE
RETIREMENT INCOME RESTORATION PLAN
OF ENSERCH CORPORATION
AND PARTICIPATING SUBSIDIARY COMPANIES
Pursuant to the provisions of Article V thereof, the
Retirement Income Restoration Plan of ENSERCH Corporation and
Participating Subsidiary Companies (the "Plan") is hereby amended
in the following respect only:
The definition of "Limitations" in the Plan is hereby
amended effective as of October 1, 1994 by restatement in its
entirety to read as follows:
"Limitations" shall mean the reductions imposed on the
benefits provided under the Basic Plans in order to comply
with Sections 415 and 401(a)(17) of the Internal Revenue
Code of 1986, and the reduction in "compensation" considered
for purposes of determining benefits under the Basic Plans
on account of salary and bonuses deferred by an employee
pursuant to the ENSERCH Corporation Deferred Compensation
Plan.
IN WITNESS WHEREOF, this Amendment has been executed this
30th day of September, 1994.
ENSERCH CORPORATION
By /s/ D. W. Biegler
Title: Chairman, President
and Chief Executive
Officer
<PAGE>
EXHIBIT 10.11
ENSERCH CORPORATION
RETIREMENT INCOME RESTORATION TRUST
This Trust Agreement made this 30th day of September, 1994,
by and between ENSERCH Corporation, a Texas corporation (the
"Company"), Enserch Exploration, Inc., a Delaware corporation,
New Enserch Exploration, Inc., a Texas corporation, Enserch
Development Corporation, a Texas corporation, Lone Star Energy
Company, a Texas corporation, and Enserch Gas Company, a Texas
Corporation, and Texas Commerce Bank National Association, a
national banking association (the "Trustee");
WHEREAS, the Company and the participating subsidiaries
enumerated on the attached Appendix A (the Company and such
participating subsidiaries are hereinafter referred to as
the "Employers") have adopted or may adopt a nonqualified
deferred compensation plan known as the Retirement Income
Restoration Plan of ENSERCH Corporation and Participating
Subsidiary Companies (the "Plan"); and
WHEREAS, the Employers have incurred or expect to incur
liability under the terms of such Plan with respect to their
respective eligible employees participating in such Plan and
their beneficiaries; and
WHEREAS, the Employers wish to establish a trust
(hereinafter called "Trust"), pursuant to which each
Employer will contribute assets that shall be held therein
in a Separate Account, as herein defined, subject to the
claims of such Employer's creditors in the event of the
Employer's Insolvency, as herein defined, until paid to Plan
Participants and their beneficiaries in such manner and at
such times as specified in the Plan; and
WHEREAS, it is the intention of the parties that this
Trust shall constitute an unfunded arrangement and shall not
affect the status of the Plan as an unfunded plan maintained
for the purpose of providing deferred compensation for a
select group of management or highly compensated employees
for purposes of Title I of the Employee Retirement Income
Security Act of 1974; and
WHEREAS, it is the intention of the Employers to make
contributions to the Trust to provide a source of funds to
assist them in the meeting of their liabilities under the
Plan;
NOW, THEREFORE, the parties do hereby establish the Trust
and agree that the Trust shall be comprised, held and disposed of
as follows:
Section 1. Establishment Of Trust.
(a) The Employers hereby deposit with the Trustee in trust
$1,000.00, which shall become the principal of the Trust to be
held, administered and disposed of by the Trustee as provided in
this Trust Agreement.
(b) The Trust hereby established shall be irrevocable.
(c) The Trust is intended to be a grantor trust, of which
each Employer is the grantor with respect to its Separate
Account, within the meaning of subpart E, part I, subchapter J,
chapter 1, subtitle A of the Internal Revenue Code of 1986, as
amended, and shall be construed accordingly.
(d) The principal of the Trust, and any earnings thereon
shall be held separate and apart from other funds of the
Employers and shall be used exclusively for the uses and purposes
of Plan Participants and general creditors as herein set forth.
Plan Participants and their beneficiaries shall have no preferred
claim on, or any beneficial ownership interest in, any assets of
the Trust. Any rights created under the Plan and this Trust
Agreement shall be mere unsecured contractual rights of Plan
Participants and their beneficiaries against the Employers. Any
assets held in an Employer's Separate Account under the Trust
will be subject to the claims of such Employer's general
creditors under federal and state law in the event of Insolvency,
as defined in Section 4(a) herein.
(e) The Employers, in their sole discretion, may at any
time, or from time to time, make additional deposits of cash or
other property in trust with the Trustee to augment the principal
to be held, administered and disposed of by the Trustee as
provided in this Trust Agreement. Neither the Trustee nor any
Plan Participant or beneficiary shall have any right to compel
such additional deposits.
(f) Any provision of this Trust Agreement to the contrary
notwithstanding, upon a Change of Control of the Company, as
defined in the Plan, each Employer shall (i) as soon as possible,
but in no event more than 30 days following the date of such
Change of Control, make an irrevocable contribution to the Trust
in an amount, as determined by an Independent Committee, as
defined below, which when added to the total value of the assets
of the Employer's Separate Account under the Trust at such time
equals the total present value of all benefits accrued under the
Plan with respect to such Employer's respective Plan Participants
and beneficiaries as of the date on which the Change of Control
occurred, and (ii) during the two-year period following the date
of the Change of Control, make monthly contributions to the Trust
in amounts sufficient, as determined by the Independent
Committee, to maintain the total value of the assets in the
Employer's Separate Account under the Trust at an amount equal to
the total present value of all benefits accrued under the Plan
with respect to such Employer's respective Plan Participants and
beneficiaries.
(g) Any provision of this Trust Agreement to the contrary
notwithstanding, in the event that a Participant transfers
employment between Employers participating in this Trust, (i) the
Employer from which the Participant is transferred shall as soon
as possible, but in no event more than 30 days following the date
of such transfer, make an irrevocable contribution to the Trust
in an amount, as determined by the Company, which equals the
total present value of the benefits accrued under the Plan with
respect to such transferring Participant as of the date on which
the transfer occurred or, if less, an amount equal to the total
present value of all benefits accrued under the Plan with respect
to such Employer's respective Plan Participants and
beneficiaries, and (ii) immediately following the Employer's
contribution described in (i), the Trustee shall transfer assets
from the transferring Employer's Separate Account to the Separate
Account of the Employer to which the Participant is being
transferred in an amount equal to the total present value of the
benefits accrued under the Plan with respect to such transferring
Participant as of the date on which the transfer occurred.
Section 2. Payments to Plan Participants and their
Beneficiaries.
(a) The Company shall deliver to the Trustee a schedule
(the "Payment Schedule") that indicates the amounts payable with
respect to each Plan Participant (and his or her beneficiaries)
and the Separate Account of the Employer from which such amounts
are payable, that provides a formula or other instructions
acceptable to the Trustee for determining the amounts so payable,
the form in which such amount is to be paid (as provided for or
available under the Plan), and the time of commencement for
payment of such amounts. An updated Payment Schedule shall be
provided by the Company to the Trustee periodically, but no less
frequently than once each calendar year. Except as otherwise
provided herein, the Trustee shall make payments to the Plan
Participants and their beneficiaries in accordance with such
Payment Schedule. The Trustee shall make provision for the
reporting and withholding of any federal, state or local taxes
that may be required to be withheld with respect to the payment
of benefits pursuant to the terms of the Plan and shall pay
amounts withheld to the appropriate taxing authorities or
determine that such amounts have been reported, withheld and paid
by the Employer.
(b) The entitlement of a Plan Participant or his or her
beneficiaries to benefits under the Plan shall be determined by
the Company or such other party as may be designated under the
Plan, and any claim for such benefits shall be considered and
reviewed under the procedures set out in the Plan.
(c) The Employers may make payments of benefits directly to
Plan Participants or their beneficiaries as they become due under
the terms of the Plan in lieu of payment from the Trust. The
Company shall notify the Trustee of an Employer's decision to
make payments of benefits directly prior to the time amounts are
payable to Participants or their beneficiaries. In addition, if
the assets of an Employer's Separate Account under the Trust are
not sufficient to make payments of benefits to its respective
Plan Participants and beneficiaries in accordance with the terms
of the Plan, such Employer shall make the balance of each such
payment as it falls due, and the Separate Accounts of other
Employers hereunder shall not be liable for the payment of such
benefits. The Trustee shall notify the Company immediately when
the assets in an Employer's Separate Account under the Trust are
not sufficient to satisfy all payments due.
(d) Any provision of this Section 2 to the contrary
notwithstanding, upon and after a Change of Control of the
Company, the Trustee shall make payments to Plan Participants or
their beneficiaries in accordance with the direction of the
Independent Committee rather than the Company, regardless of
whether the Trustee has received a Payment Schedule or any other
form of direction from the Company to make such payments.
Section 3. Appointment of Independent Committee. Any
provision of this Trust Agreement to the contrary
notwithstanding, upon a Change of Control of the Company, an
Independent Committee consisting of at least three members shall
be appointed by the Compensation Committee of the Board of
Directors of the Company (the "Compensation Committee") subject
to the approval of a majority of the Participants in the Plan on
the date of such Change of Control. The Independent Committee
shall:
(a) determine the amount of the irrevocable
contributions to be made by each Employer pursuant to
Section 1(f) hereof;
(b) determine in accordance with the Plan the amounts
payable with respect to each Plan Participant (and his or
her beneficiaries), the form in which such amounts are to be
paid, and the time of commencement for payment of such
amounts pursuant to Section 2(a) hereof;
(c) determine the entitlement of Plan Participants
and beneficiaries to benefits under the terms of the Plan
pursuant to Section 2(b) hereof;
(d) direct the Trustee to make payments to Plan
Participants and their beneficiaries pursuant to Section 2
hereof; and
(e) select a successor Trustee for the Trust if a
Trustee resigns or is removed on or within two years
following the date of a Change of Control of the Company
pursuant to Section 12.
Section 4. Trustee Responsibility Regarding Payments to
Trust Beneficiary when an Employer Is Insolvent.
(a) The Trustee shall cease payment of benefits to Plan
Participants and their beneficiaries if the Participants'
Employer is Insolvent. An Employer shall be considered
"Insolvent" for purposes of this Trust Agreement if (i) the
Employer is unable to pay its debts as they become due, or (ii)
the Employer is subject to a pending proceeding as a debtor under
the United States Bankruptcy Code.
(b) At all times during the continuance of this Trust, as
provided in Section 1(d) hereof, the principal and income of each
Employer's Separate Account under the Trust shall be subject to
claims of general creditors of the Employer under federal and
state law as set forth below.
(1) The Board of Directors and the Chief Executive
Officer of an Employer shall have the duty to inform the
Trustee in writing of the Employer's Insolvency. If a
person claiming to be a creditor of an Employer alleges in
writing to the Trustee that the Employer has become
Insolvent, the Trustee shall determine whether the Employer
is Insolvent and, pending such determination, the Trustee
shall discontinue payment of benefits to the Employer's
respective Plan Participants or their beneficiaries.
(2) Unless the Trustee has actual knowledge of an
Employer's Insolvency, or has received notice from the
Employer or a person claiming to be a creditor alleging that
the Employer is Insolvent, the Trustee shall have no duty to
inquire whether the Employer is Insolvent. The Trustee may
in all events rely on such evidence concerning the
Employer's solvency as may be furnished to the Trustee and
that provides the Trustee with a reasonable basis for making
a determination concerning the Employer's solvency.
(3) If at any time the Trustee has determined that an
Employer is Insolvent, the Trustee shall discontinue
payments to the Employer's respective Plan Participants or
their beneficiaries and shall hold the assets of the
Employer's Separate Account under the Trust for the benefit
of the Employer's general creditors. Nothing in this Trust
Agreement shall in any way diminish any rights of Plan
Participants or their beneficiaries to pursue their rights
as general creditors of an Employer with respect to benefits
due under the Plan or otherwise.
(4) The Trustee shall resume the payment of benefits
to an Employer's respective Plan Participants or their
beneficiaries in accordance with Section 2 of this Trust
Agreement only after the Trustee has determined that the
Employer is not Insolvent (or is no longer Insolvent).
(c) Provided that there are sufficient assets in an
Employer's Separate Account under the Trust, if the Trustee
discontinues the payment of benefits from the Trust pursuant to
Section 4(b) hereof and subsequently resumes such payments, the
first payment following such discontinuance shall include the
aggregate amount of all payments due to Plan Participants or
their beneficiaries under the terms of the Plan for the period of
such discontinuance, less the aggregate amount of any payments
made to Plan Participants or their beneficiaries by the Employer
in lieu of the payments provided for hereunder during any such
period of discontinuance.
Section 5. Payments to the Employers.
(a) Except as provided in Sections 4 and 5(b) hereof, the
Employers shall have no right or power to direct the Trustee to
return to the Employers or to divert to others any of the Trust
assets before payment of all benefits have been made to Plan
Participants and their beneficiaries pursuant to the terms of the
Plan.
(b) To the extent that an Employer determines that the
value of the assets in its Separate Account under the Trust based
upon information provided to the Employer by the Trustee, at any
time, exceeds 110% of the present value of the benefits accrued
under the Plan by the Employer's respective Plan Participants,
the Trustee shall pay such excess to the Employer upon receipt of
written request therefor from the Company; provided, however,
that no such payment of excess assets to the Employer shall be
made on or within two years following the date of a Change of
Control of the Company.
Section 6. Investment Authority.
(a) The Trustee shall establish and maintain a separate
account within the Trust for each Employer (the "Separate
Account"). All amounts deposited with the Trustee by an Employer
shall be allocated to such Employer's Separate Account. The
Trustee shall invest, reinvest and administer the assets
allocated to each Employer's Separate Account under the Trust as
an individual, separate fund. At the end of each calendar year
and at such other times as the Company may determine, the Trustee
shall determine the fair market value of the assets of each
Employer's Separate Account. The Separate Account of each
Employer shall be adjusted to reflect the income collected,
realized and unrealized profits and losses, expenses and all
other transactions affecting such Separate Account for the
valuation period then ended.
(b) The Trustee shall have full power and authority to
invest and reinvest the assets of each Employer's Separate
Account, or any part thereof, in such stocks (common or
preferred), bonds, mortgages, notes, interest-bearing deposits
(including such deposits with any corporate trustee acting
hereunder), options and contracts for the future or immediate
receipt or delivery of property of any kind, or other securities,
producing or nonproducing oil and gas royalties and payments and
other producing and nonproducing interests in minerals, or in
commodities, life insurance policies, annuity contracts or other
property of any kind or nature whatsoever, whether real, personal
or mixed, as the Trustee, in the Trustee's absolute discretion
and judgment, deems appropriate for the Trust, and to hold cash
uninvested at any time and from time to time in such amounts and
to such extent as the Trustee, in the Trustee's absolute
discretion and judgment, deems appropriate for the Trust. The
Trustee shall have full power and authority to manage, handle,
invest, reinvest, sell for cash or credit, or for part cash or
part credit, exchange, hold, dispose of, lease for any period of
time (whether or not longer than the life of the Trust), improve,
repair, maintain, work, develop, use, operate, mortgage, or
pledge, all or any part of the assets and property from time to
time constituting any part of the trust funds held in trust under
the Trust; borrow or loan money or securities; write options and
sell securities or other property short or for future delivery;
engage in hedging procedures; buy and sell futures contracts;
execute obligations, negotiable and nonnegotiable; vote shares of
stock in person and by proxy, with or without power of
substitution; register investments in the name of a nominee;
sell, convey, lease and/or otherwise deal with any producing or
nonproducing oil, gas and mineral leases or mineral rights,
payments and royalties; pay all reasonable expenses; execute and
deliver any deeds, conveyances, leases, contracts, or written
instruments of any character appropriate to any of the powers or
duties of the Trustee, and shall, in general, have as broad power
respecting the management, operation and handling of the Trust
assets and property as if the Trustee were the owner of such
assets and property in the Trustee's own right. The preceding
provisions of this paragraph to the contrary notwithstanding, the
Company shall have the right and power at any time and from time
to time to give the Trustee broad guidelines within which it
shall invest the assets of the Trust; provided, however, that
upon a Change of Control of the Company and continuing for two
years thereafter, the Independent Committee, rather than the
Company, shall have the sole authority to exercise such right.
(c) All rights associated with assets of the Trust shall be
exercised by the Trustee or the person designated by the Trustee,
and shall in no event be exercisable by or rest with Plan
Participants.
(d) Each Employer shall have the right, at any time, and
from time to time in its sole discretion, to substitute assets of
equal fair market value for any asset held in its Separate
Account under the Trust provided, however, that effective upon a
Change of Control of the Company and for a period of two years
thereafter, any assets transferred to the Trust in substitution
for assets held in an Employer's Separate Account under the Trust
must consist of cash or marketable securities and the fair market
value of the respective assets shall be determined by the
Trustee. This right is exercisable by the Employer in a
nonfiduciary capacity without the approval or consent of any
person in a fiduciary capacity.
Section 7. Disposition of Income. During the term of this
Trust, all income received by the Trust, net of expenses and
taxes, shall be accumulated and reinvested.
Section 8. Accounting by Trustee. The Trustee shall keep
accurate and detailed records of all investments, receipts,
disbursements, and all other transactions required to be made,
including such specific records as shall be agreed upon in
writing between the Company and the Trustee. Within 30 days
following the close of each calendar year and within 30 days
after the removal or resignation of the Trustee, the Trustee
shall deliver to the Company a written account of its
administration of the Trust and to each Employer a written
account of its administration of the Employer's Separate Account
during such year or during the period from the close of the last
preceding year to the date of such removal or resignation,
setting forth all investments, receipts, disbursements and other
transactions effected by it, including a description of all
securities and investments purchased and sold with the cost or
net proceeds of such purchases or sales (accrued interest paid or
receivable being shown separately), and showing all cash,
securities and other property held in the Trust at the end of
such year or as of the date of such removal or resignation, as
the case may be.
Section 9. Responsibility of the Trustee.
(a) The Trustee shall act with the care, skill, prudence
and diligence under the circumstances then prevailing that a
prudent person acting in like capacity and familiar with such
matters would use in the conduct of an enterprise of a like
character and with like aims; provided, however, that the Trustee
shall incur no liability to any person for any action taken
pursuant to a direction, request or approval given by an Employer
which is contemplated by, and in conformity with, the terms of
the Plan or this Trust and is given in writing by the Employer.
In the event of a dispute between an Employer and a party, the
Trustee may apply to a court of competent jurisdiction to resolve
the dispute.
(b) If the Trustee undertakes or defends any litigation
arising in connection with this Trust, the Employers agree to
indemnify the Trustee against the Trustee's costs, expenses and
liabilities (including, without limitation, attorneys' fees and
expenses) relating thereto and to be primarily liable for such
payments. If the Employers do not pay such costs, expenses and
liabilities in a reasonably timely manner, the Trustee may obtain
payment from the Trust.
(c) The Trustee may consult with legal counsel (who may
also be counsel for the Employers generally) with respect to any
of its duties or obligations hereunder.
(d) The Trustee may hire agents, accountants, actuaries,
investment advisors, financial consultants or other professionals
to assist it in performing any of its duties or obligations
hereunder.
(e) The Trustee shall have, without exclusion, all powers
conferred on trustees by applicable law, unless expressly
provided otherwise herein; provided, however, that except as
provided in Sections 5(b) and 6(d) hereof, if an insurance policy
is held as an asset of the Trust, the Trustee shall have no power
to name a beneficiary of the policy other than the Trust, to
assign the policy (as distinct from conversion of the policy to a
different form) other than to a successor Trustee, or to loan to
any person the proceeds of any borrowing against such policy.
(f) Notwithstanding any powers granted to the Trustee
pursuant to this Trust Agreement or applicable law, the Trustee
shall not have any power that could give this Trust the objective
of carrying on a business and dividing the gains therefrom,
within the meaning of section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Internal
Revenue Code.
Section 10. Compensation and Expenses of the Trustee. The
Trustee shall be paid such reasonable compensation commensurate
with the services and responsibilities involved hereunder as
shall from time to time be agreed upon by the Trustee and the
Company. The Employers shall pay all administrative and the
Trustee's fees and expenses, but, if not so paid, the fees and
expenses shall be paid from the Trust.
Section 11. Resignation and Removal of the Trustee.
(a) The Trustee may resign at any time by written notice to
the Company, which shall be effective 30 days after receipt of
such notice unless the Company and the Trustee agree otherwise.
(b) The Trustee may be removed by the Company on 30 days
notice or upon shorter notice accepted by the Trustee; provided,
however, that the Trustee may not be removed by the Company on or
within two years following a Change of Control of the Company
except with the written consent of a majority of the Participants
entitled to payment of benefits pursuant to the terms of the Plan
on the date of such Change of Control.
(c) Upon resignation or removal of the Trustee and
appointment of a successor Trustee, all assets shall subsequently
be transferred to the successor Trustee. The transfer shall be
completed within 30 days after receipt of notice of resignation,
removal or transfer, unless the Company extends the time limit.
(d) If the Trustee resigns or is removed, a successor shall
be appointed, in accordance with Section 12 hereof, by the
effective date of resignation or removal under paragraph(s) (a)
or (b) of this section. If no such appointment has been made,
the Trustee may apply to a court of competent jurisdiction for
appointment of a successor or for instructions. All expenses of
the Trustee in connection with the proceeding shall be allowed as
administrative expenses of the Trust.
Section 12. Appointment of Successor.
(a) If the Trustee resigns or is removed in accordance with
Section 11(a) or (b) hereof, the Company may appoint any third
party, such as a bank trust department or other party that may be
granted corporate trustee powers under state law, as a successor
to replace the Trustee upon resignation or removal; provided,
however, that if the Trustee resigns or is removed on or within
two years following the date of a Change of Control of the
Company, the Independent Committee shall select a successor
Trustee in accordance with this Section 12. The appointment
shall be effective when accepted in writing by the new Trustee,
who shall have all of the rights and powers of the former
Trustee, including ownership rights in the Trust assets. The
former Trustee shall execute any instrument necessary or
reasonably requested by the Company or the successor Trustee to
evidence the transfer.
(b) The successor Trustee need not examine the records and
acts of any prior Trustee and may retain or dispose of existing
Trust assets, subject to Sections 8 and 9 hereof. The successor
Trustee shall not be responsible for and the Employers shall
indemnify and defend the successor Trustee from any claim or
liability resulting from any action or inaction of any prior
Trustee or from any other past event, or any condition existing
at the time it becomes successor Trustee.
Section 13. Amendment or Termination.
(a) This Trust Agreement may be amended by a written
instrument executed by the Trustee and the Company.
Notwithstanding the foregoing, no such amendment shall conflict
with the terms of the Plan or shall make the Trust revocable.
(b) The Trust shall not terminate until the date on which
Plan Participants and their beneficiaries are no longer entitled
to benefits pursuant to the terms of the Plan. Upon termination
of the Trust any assets remaining in an Employer's Separate
Account under the Trust shall be returned to such Employer.
(c) Upon written approval of at least two-thirds of the
Participants and beneficiaries entitled to payment of benefits
pursuant to the terms of the Plan, the Company may terminate this
Trust prior to the time all benefit payments under the Plan have
been made. All assets in an Employer's Separate Account under
the Trust at termination shall be returned to such Employer.
(d) The Company may terminate this Trust with respect to
the Separate Account of any Employer with the written approval of
at least two-thirds of the Employer's respective Plan
Participants and beneficiaries who are entitled to payment of
benefits pursuant to the terms of the Plan. All assets in an
Employer's Separate Account under the Trust on the date of such
termination shall be returned to such Employer.
(e) This Trust Agreement may not be amended by the Company
on or within two years following the date of a Change of Control
of the Company, without the written consent of a majority of the
Participants entitled to payment of benefits pursuant to the
terms of the Plan on the date of such Change of Control.
Section 14. Miscellaneous.
(a) Any provision of this Trust Agreement prohibited by law
shall be ineffective to the extent of any such prohibition,
without invalidating the remaining provisions hereof.
(b) Benefits payable to Plan Participants and their
beneficiaries under this Trust Agreement may not be anticipated,
assigned (either at law or in equity), alienated, pledged,
encumbered or subjected to attachment, garnishment, levy,
execution or other legal or equitable process.
(c) This Trust Agreement shall be governed and construed in
accordance with the internal laws (and not the principles
relating to conflicts of laws) of the State of Texas, except
where superseded by federal law.
(d) Except where otherwise defined, capitalized terms used
herein shall have the meaning given to them in the Plan.
(e) In the event that a dispute arises between a Plan
Participant or beneficiary and the Participant's Employer, the
Company or the Trustee with respect to the payment of amounts
from the Trust and the Participant or beneficiary is successful
in pursuing a benefit to which he or she is entitled under the
terms of the Plan and this Trust against the Participant's
Employer, the Company, the Trustee or any other party in the
course of litigation or otherwise and incurs attorneys' fees,
expenses and costs in connection therewith, the Participant's
Employer shall reimburse the Plan Participant or beneficiary for
the full amount of any such attorneys' fees, expenses and costs.
(f) Upon the written consent of the Company delivered to
the Trustee, any other affiliate of the Company which adopts the
Plan may become a party to this Trust by delivering to the
Trustee a certified copy of a resolution of its board of
directors or other governing authority adopting this Trust. For
purposes of this Trust, any such affiliate which adopts this
Trust with the written consent of the Company shall be an
Employer hereunder.
IN WITNESS WHEREOF, this Agreement has been executed this
30th day of September, 1994, to be effective as of October 1,
1994.
ENSERCH CORPORATION
By /s/ D. W. Biegler
Title: Chairman, President
and Chief Executive
Officer
ENSERCH EXPLORATION, INC.
By /s/ D. W. Biegler
Title: Chairman and Chief
Executive Officer
NEW ENSERCH EXPLORATION, INC.
By /s/ D. W. Biegler
Title: Chairman and Chief
Executive Officer
ENSERCH DEVELOPMENT CORPORATION
By /s/ G. R. Bryan
Title: Chairman
LONE STAR ENERGY COMPANY
By /s/ D. W. Biegler
Title: Chairman and Chief
Executive Officer
ENSERCH GAS COMPANY
By /s/ D. W. Biegler
Title: Chairman and Chief
Executive Officer
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION
By /s/ Karen Epps
Title:
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, a notary public in and
for said County and State, on this day personally appeared D. W.
Biegler, known to me to be the person whose name is subscribed to
the foregoing instrument and acknowledged to me that the same was
the act of the said ENSERCH CORPORATION, a Texas corporation, and
that he/she executed the same as the act of such corporation for
the purposes and consideration therein expressed, and in the
capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 23rd day of
September, 1994.
/s/ Cherry H. Sossamon
Notary Public, State of Texas
My Commission expires:
October 31, 1996
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, a notary public in and
for said County and State, on this day personally appeared D. W.
Biegler, known to me to be the person whose name is subscribed to
the foregoing instrument and acknowledged to me that the same was
the act of the said ENSERCH EXPLORATION, INC., a Delaware
corporation, and that he/she executed the same as the act of such
corporation for the purposes and consideration therein expressed,
and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 23rd day of
September, 1994.
/s/ Cherry H. Sossamon
Notary Public, State of Texas
My Commission expires:
October 31, 1996
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, a notary public in and
for said County and State, on this day personally appeared D. W.
Biegler, known to me to be the person whose name is subscribed to
the foregoing instrument and acknowledged to me that the same was
the act of the said NEW ENSERCH EXPLORATION, INC., a Texas
corporation, and that he/she executed the same as the act of such
corporation for the purposes and consideration therein expressed,
and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 23rd day of
September, 1994.
/s/ Cherry H. Sossamon
Notary Public, State of Texas
My Commission expires:
October 31, 1996
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, a notary public in and
for said County and State, on this day personally appeared G. R.
Bryan, known to me to be the person whose name is subscribed to the
foregoing instrument and acknowledged to me that the same was the
act of the said ENSERCH DEVELOPMENT CORPORATION, a Texas
corporation, and that he/she executed the same as the act of such
corporation for the purposes and consideration therein expressed,
and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 23rd day of
September, 1994.
/s/ Glynnda S. Rice
Notary Public, State of Texas
My Commission expires:
February 28, 1997
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, a notary public in and
for said County and State, on this day personally appeared D. W.
Biegler, known to me to be the person whose name is subscribed to
the foregoing instrument and acknowledged to me that the same was
the act of the said LONE STAR ENERGY COMPANY, a Texas corporation,
and that he/she executed the same as the act of such corporation
for the purposes and consideration therein expressed, and in the
capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 23rd day of
September, 1994.
/s/ Cherry H. Sossamon
Notary Public, State of Texas
My Commission expires:
October 31, 1996
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, a notary public in and
for said County and State, on this day personally appeared D. W.
Biegler, known to me to be the person whose name is subscribed to
the foregoing instrument and acknowledged to me that the same was
the act of the said ENSERCH GAS COMPANY, a Texas corporation, and
that he/she executed the same as the act of such corporation for
the purposes and consideration therein expressed, and in the
capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 23rd day of
September, 1994.
/s/ Cherry H. Sossamon
Notary Public, State of Texas
My Commission expires:
October 31, 1996
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, a notary public in and
for said County and State, on this day personally appeared Karen
Epps, known to me to be the person whose name is subscribed to the
foregoing instrument and acknowledged to me that the same was the
act of the said TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a
national banking association, and that he/she executed the same as
the act of such banking association for the purposes and
consideration therein expressed, and in the capacity therein
stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 7th day of
October, 1994.
/s/ Barbara Betik
Notary Public, State of Texas
My Commission expires:
January 30, 1997
<PAGE>
<PAGE>
APPENDIX A
TO THE
ENSERCH CORPORATION
RETIREMENT INCOME RESTORATION TRUST
Participating Subsidiaries
1. Enserch Exploration, Inc., a Delaware corporation
2. New Enserch Exploration, Inc., a Texas corporation
3. Enserch Development Corporation, a Texas corporation
4. Lone Star Energy Company, a Texas corporation
5. Enserch Gas Company, a Texas Corporation
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
Enserch Exploration, Inc.:
We consent to the incorporation by reference in Registration
Statement No. 33-57715 of Enserch Exploration, Inc. on Form S-8 of
our report dated February 10, 1995, appearing in this Annual Report
on Form 10-K of Enserch Exploration, Inc. for the year ended
December 31, 1994.
DELOITTE & TOUCHE LLP
Dallas, Texas
March 29, 1995
<PAGE>
EXHIBIT 23.2
DeGolyer and MacNaughton
One Energy Square
Dallas, Texas 75206
March 29, 1995
Enserch Exploration, Inc.
4849 Greenville Avenue
Dallas, Texas 75206
Gentlemen:
We hereby consent to (a) the references to us in "Properties"
and "Certain Relationships and Related Transactions" in Part I and
in "Financial Review" and Note 7 of the Notes to Financial
Statement in your Annual Report on Form 10-K for the fiscal year
ended December 31, 1994, and to the use of information contained in
our "Report as of January 1, 1995 on Proved and Probable Reserves
of Certain Properties owned by Enserch Exploration, Inc." and
(b) the incorporation by reference in Registration Statement No.
33-57715 on Form S-8 of the references to us described in(a) above.
Very truly yours,
DeGOLYER and MacNAUGHTON
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
WHEREAS, Enserch Exploration, Inc. ("EEI"), a Texas
corporation, intends to file with the Securities and Exchange
Commission (the "Commission") under the Securities Exchange Act of
1934, as amended, an Annual Report on Form 10-K for the year ended
December 31, 1994, with such amendment or amendments thereto in
each case as may be necessary or appropriate, together with any and
all exhibits and other documents having relation to said Form 10-K;
NOW, THEREFORE, the undersigned in his capacity as a director
or officer or both, as the case may be, of EEI, does hereby appoint
G. J. Junco or S. R. Singer, and each of them severally, his true
and lawful attorney or attorneys with power to act with or without
the other and with full power of substitution and resubstitution,
to execute in his name, place and stead in his capacity as a
director or officer or both, as the case may be, of EEI, said
Form 10-K and any and all amendments thereto and all instruments
necessary or incidental in connection therewith and to file the
same with the Commission. Each of said attorneys shall have full
power and authority to do and perform in the name and on behalf of
the undersigned in any and all capacities every act whatsoever
necessary or desirable to be done in the premises as fully and to
all intents and purposes as the undersigned might or could do in
person, the undersigned hereby ratifying and approving the acts of
said attorneys and each of them.
IN WITNESS WHEREOF, the undersigned has executed this
instrument on this 14th day of February, 1995.
/s/ D. W. Biegler
________________________________________
D. W. Biegler
<PAGE>
POWER OF ATTORNEY
WHEREAS, Enserch Exploration, Inc. ("EEI"), a Texas
corporation, intends to file with the Securities and Exchange
Commission (the "Commission") under the Securities Exchange Act of
1934, as amended, an Annual Report on Form 10-K for the year ended
December 31, 1994, with such amendment or amendments thereto in
each case as may be necessary or appropriate, together with any and
all exhibits and other documents having relation to said Form 10-K;
NOW, THEREFORE, the undersigned in his capacity as a director
or officer or both, as the case may be, of EEI, does hereby appoint
D. W. Biegler or S. R. Singer, and each of them severally, his true
and lawful attorney or attorneys with power to act with or without
the other and with full power of substitution and resubstitution,
to execute in his name, place and stead in his capacity as a
director or officer or both, as the case may be, of EEI, said
Form 10-K and any and all amendments thereto and all instruments
necessary or incidental in connection therewith and to file the
same with the Commission. Each of said attorneys shall have full
power and authority to do and perform in the name and on behalf of
the undersigned in any and all capacities every act whatsoever
necessary or desirable to be done in the premises as fully and to
all intents and purposes as the undersigned might or could do in
person, the undersigned hereby ratifying and approving the acts of
said attorneys and each of them.
IN WITNESS WHEREOF, the undersigned has executed this
instrument on this 14th day of February, 1995.
/s/ Gary J. Junco
________________________________________
Gary J. Junco
<PAGE>
POWER OF ATTORNEY
WHEREAS, Enserch Exploration, Inc. ("EEI"), a Texas
corporation, intends to file with the Securities and Exchange
Commission (the "Commission") under the Securities Exchange Act of
1934, as amended, an Annual Report on Form 10-K for the year ended
December 31, 1994, with such amendment or amendments thereto in
each case as may be necessary or appropriate, together with any and
all exhibits and other documents having relation to said Form 10-K;
NOW, THEREFORE, the undersigned in his capacity as a director
of EEI, does hereby appoint D. W. Biegler, G. J. Junco or S. R.
Singer, and each of them severally, his true and lawful attorney or
attorneys with power to act with or without the other and with full
power of substitution and resubstitution, to execute in his name,
place and stead in his capacity as a director of EEI, said
Form 10-K and any and all amendments thereto and all instruments
necessary or incidental in connection therewith and to file the
same with the Commission. Each of said attorneys shall have full
power and authority to do and perform in the name and on behalf of
the undersigned in any and all capacities every act whatsoever
necessary or desirable to be done in the premises as fully and to
all intents and purposes as the undersigned might or could do in
person, the undersigned hereby ratifying and approving the acts of
said attorneys and each of them.
IN WITNESS WHEREOF, the undersigned has executed this
instrument on this 14th day of February, 1995.
/s/ B. A. Bridgewater, Jr.
_______________________________________
B. A. Bridgewater, Jr.
<PAGE>
POWER OF ATTORNEY
WHEREAS, Enserch Exploration, Inc. ("EEI"), a Texas
corporation, intends to file with the Securities and Exchange
Commission (the "Commission") under the Securities Exchange Act of
1934, as amended, an Annual Report on Form 10-K for the year ended
December 31, 1994, with such amendment or amendments thereto in
each case as may be necessary or appropriate, together with any and
all exhibits and other documents having relation to said Form 10-K;
NOW, THEREFORE, the undersigned in his capacity as a director
of EEI, does hereby appoint D. W. Biegler, G. J. Junco or S. R.
Singer, and each of them severally, his true and lawful attorney or
attorneys with power to act with or without the other and with full
power of substitution and resubstitution, to execute in his name,
place and stead in his capacity as a director of EEI, said
Form 10-K and any and all amendments thereto and all instruments
necessary or incidental in connection therewith and to file the
same with the Commission. Each of said attorneys shall have full
power and authority to do and perform in the name and on behalf of
the undersigned in any and all capacities every act whatsoever
necessary or desirable to be done in the premises as fully and to
all intents and purposes as the undersigned might or could do in
person, the undersigned hereby ratifying and approving the acts of
said attorneys and each of them.
IN WITNESS WHEREOF, the undersigned has executed this
instrument on this 14th day of February, 1995.
/s/ Frederick S. Addy
________________________________________
Frederick S. Addy
<PAGE>
POWER OF ATTORNEY
WHEREAS, Enserch Exploration, Inc. ("EEI"), a Texas
corporation, intends to file with the Securities and Exchange
Commission (the "Commission") under the Securities Exchange Act of
1934, as amended, an Annual Report on Form 10-K for the year ended
December 31, 1994, with such amendment or amendments thereto in
each case as may be necessary or appropriate, together with any and
all exhibits and other documents having relation to said Form 10-K;
NOW, THEREFORE, the undersigned in his capacity as an officer
of EEI, does hereby appoint D. W. Biegler or G. J. Junco, and each
of them severally, his true and lawful attorney or attorneys with
power to act with or without the other and with full power of
substitution and resubstitution, to execute in his name, place and
stead in his capacity as an officer of EEI, said Form 10-K and any
and all amendments thereto and all instruments necessary or
incidental in connection therewith and to file the same with the
Commission. Each of said attorneys shall have full power and
authority to do and perform in the name and on behalf of the
undersigned in any and all capacities every act whatsoever
necessary or desirable to be done in the premises as fully and to
all intents and purposes as the undersigned might or could do in
person, the undersigned hereby ratifying and approving the acts of
said attorneys and each of them.
IN WITNESS WHEREOF, the undersigned has executed this
instrument on this 14th day of February, 1995.
/s/ S. R. Singer
________________________________________
S. R. Singer
<PAGE>
POWER OF ATTORNEY
WHEREAS, Enserch Exploration, Inc. ("EEI"), a Texas
corporation, intends to file with the Securities and Exchange
Commission (the "Commission") under the Securities Exchange Act of
1934, as amended, an Annual Report on Form 10-K for the year ended
December 31, 1994, with such amendment or amendments thereto in
each case as may be necessary or appropriate, together with any and
all exhibits and other documents having relation to said Form 10-K;
NOW, THEREFORE, the undersigned in his capacity as an officer
of EEI, does hereby appoint D. W. Biegler, G. J. Junco or S. R.
Singer, and each of them severally, his true and lawful attorney or
attorneys with power to act with or without the other and with full
power of substitution and resubstitution, to execute in his name,
place and stead in his capacity as an officer of EEI, said
Form 10-K and any and all amendments thereto and all instruments
necessary or incidental in connection therewith and to file the
same with the Commission. Each of said attorneys shall have full
power and authority to do and perform in the name and on behalf of
the undersigned in any and all capacities every act whatsoever
necessary or desirable to be done in the premises as fully and to
all intents and purposes as the undersigned might or could do in
person, the undersigned hereby ratifying and approving the acts of
said attorneys and each of them.
IN WITNESS WHEREOF, the undersigned has executed this
instrument on this 14th day of February, 1995.
/s/ J. W. Pinkerton
________________________________________
J. W. Pinkerton
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
HISTORICAL FINANCIAL STATEMENTS OF ENSERCH EXPLORATION, INC. AND PREDECESSOR
INCLUDED IN THE ENSERCH EXPLORATION, INC. FORM 10-K FOR THE YEAR ENDED DECEMBER
31, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000931006
<NAME> ENSERCH EXPLORATION, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 227
<SECURITIES> 0
<RECEIVABLES> 114,331
<ALLOWANCES> 670
<INVENTORY> 1,819
<CURRENT-ASSETS> 117,068
<PP&E> 2,085,397
<DEPRECIATION> 839,087
<TOTAL-ASSETS> 1,370,012
<CURRENT-LIABILITIES> 170,690
<BONDS> 0
<COMMON> 725,881
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,370,012
<SALES> 0
<TOTAL-REVENUES> 175,102
<CGS> 0
<TOTAL-COSTS> 142,266
<OTHER-EXPENSES> (311)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,559
<INCOME-PRETAX> 11,966
<INCOME-TAX> 0
<INCOME-CONTINUING> 11,966
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,966
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
