<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 18, 1995
REGISTRATION NO. 33-60461
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 1
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
ENSERCH EXPLORATION, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 1311 75-2556975
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
4849 GREENVILLE AVENUE M. G. FORTADO, ESQ.
SUITE 1200 300 S. ST. PAUL
DALLAS, TEXAS 75206-4186 DALLAS, TEXAS 75201
(214) 369-7893 (214) 670-2649
(ADDRESS, INCLUDING ZIP CODE, (NAME, ADDRESS, INCLUDING ZIP CODE,
AND TELEPHONE NUMBER, INCLUDING AREA AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF REGISTRANT'S PRINCIPAL CODE, OF AGENT FOR SERVICE)
EXECUTIVE OFFICES)
--------------
COPIES TO:
FRED W. FULTON, ESQ. DAVID N. BROWN, ESQ. JAMES D. PHYFE, ESQ.
JACKSON & WALKER, L.L.P. COVINGTON & BURLING DAVIS POLK & WARDWELL
901 MAIN STREET, SUITE 1201 PENNSYLVANIA AVENUE, N.W. 450 LEXINGTON AVENUE
6000 WASHINGTON, D.C. 20044-2494 NEW YORK, NY 10017
DALLAS, TEXAS 75202-3797 (202) 662-6000 (212) 450-4000
(214) 953-6000
--------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soonas
practicable after this Registration Statement becomes effective.
--------------
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 of the Securities Act of 1933,
check the following box: [_]
--------------
If the Registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this form, check the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
ENSERCH EXPLORATION, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM
NO. ITEM NUMBER AND CAPTION IN FORM S-2 LOCATION IN PROSPECTUS
---- ----------------------------------- ----------------------
<C> <S> <C>
1. Forepart of the
Registration Statement
and Outside Front Cover
Page of Prospectus..... Forepart of Registration Statement; Outside
Front Cover Page of Prospectus
2. Inside Front and
Outside Back Cover
Pages of Prospectus.... Inside Front Cover Page of Prospectus
3. Summary Information,
Risk Factors and Ratio
of Earnings to Fixed
Charges................ Prospectus Summary; Risk Factors
4. Use of Proceeds........ Use of Proceeds
5. Determination of
Offering Price......... Underwriters
6. Dilution............... Not Applicable
7. Selling Security
Holders................ Not Applicable
8. Plan of Distribution... Outside and Inside Front Cover Pages of
Prospectus; Underwriters
9. Description of
Securities to be
Registered............. Description of the Capital Stock
10. Interests of Named
Experts and Counsel.... Not Applicable
11. Information with
Respect to the
Registrant............. Outside Front Cover Page of Prospectus;
Prospectus Summary; Use of Proceeds; Market
Price of Common Stock and Dividend Policy;
Capitalization; Pro Forma Financial Information;
Selected Financial and Operating Data;
Management's Discussion and Analysis of
Financial Condition and Results of Operations;
Business; Relationship Between EEX and ENSERCH;
The Reorganization; Certain Transactions;
Description of the Capital Stock; Certain
Definitions; Financial Statements
12. Incorporation of
Certain Information by
Reference.............. Incorporation of Certain Documents by Reference
13. Disclosure of
Commission Position on
Indemnification for
Securities Act
Liabilities............ Not Applicable
</TABLE>
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be used
in connection with an offering in the United States and Canada (the "U.S.
Prospectus") and the other to be used in connection with a concurrent offering
outside the United States and Canada (the "International Prospectus"). The U.S.
Prospectus and the International Prospectus are identical in all respects
except for the front cover page.
The form of the U.S. Prospectus is included herein. The form of the alternate
front cover page for the International Prospectus follows the U.S. Prospectus.
The front cover page of the International Prospectus included herein is labeled
"Alternate Cover Page for International Prospectus."
<PAGE>
PROSPECTUS (Subject to Completion)
Issued August 18, 1995
20,000,000 Shares
[LOGO OF ENSERCH EXPLORATION INC. APPEARS HERE]
COMMON STOCK
------------
ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE COMPANY.
OF THE 20,000,000 SHARES OF COMMON STOCK BEING OFFERED, 16,000,000 SHARES ARE
BEING OFFERED FOR SALE IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS
AND 4,000,000 SHARES ARE BEING OFFERED CONCURRENTLY FOR SALE OUTSIDE THE UNITED
STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS. SEE "UNDERWRITERS." THE
COMMON STOCK IS LISTED ON THE NEW YORK STOCK EXCHANGE UNDER THE SYMBOL "EEX."
ON AUGUST 17, 1995, THE REPORTED LAST SALE PRICE OF THE COMMON STOCK ON THE NEW
YORK STOCK EXCHANGE WAS $13 3/4 PER SHARE. PRIOR TO THIS OFFERING, HOWEVER,
ONLY A LIMITED NUMBER OF SHARES HAVE TRADED PUBLICLY. FOR A DISCUSSION OF THE
FACTORS CONSIDERED IN DETERMINING THE PRICE OF THE COMMON STOCK IN THIS
OFFERING, SEE "UNDERWRITERS."
------------
SEE "RISK FACTORS" ON PAGE 7 FOR INFORMATION THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS.
------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
------------
PRICE $ A SHARE
------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
-------- --------------- -----------
<S> <C> <C> <C>
Per Share........................ $ $ $
Total(3)......................... $ $ $
</TABLE>
------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.
(2) Before deducting expenses payable by the Company estimated at
$1,250,000.
(3) The Company has granted to the U.S. Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an aggregate of
3,000,000 additional shares of Common Stock at the price to public less
underwriting discounts and commissions for the purpose of covering over-
allotments, if any. If the U.S. Underwriters exercise such option in
full, the total price to public, underwriting discounts and commissions
and proceeds to Company will be $ , $ and $ , respectively. See
"Underwriters."
------------
The shares of Common Stock are offered, subject to prior sale, when, as and
if accepted by the Underwriters named herein and subject to approval of certain
legal matters by Davis Polk & Wardwell, counsel for the Underwriters. It is
expected that delivery of the shares of Common Stock will be made on or about
, 1995 at the office of Morgan Stanley & Co. Incorporated, New York,
N.Y., against payment therefor in New York funds.
------------
MORGAN STANLEY & CO.
Incorporated
BEAR, STEARNS & CO. INC.
DEAN WITTER REYNOLDS INC.
HOWARD, WEIL, LABOUISSE, FRIEDRICHS
SMITH BARNEY INC. Incorporated
, 1995
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
<PAGE>
[Three pages containing maps follow the cover page of the prospectus.
1st Map page
------------
Enserch Exploration logo appears in upper right hand corner of page.
The page contains the heading "Offshore Gulf of Mexico Leaseholdings and Major
Deepwater Plays."
In the center of the page, there appears a map illustrating the Texas and
Louisiana coastlines. The map outlines the following offshore areas in the Gulf
of Mexico which border along the Texas coastline starting from the south and
continuing northward along the coast to the Louisiana border: South Padre
Island, North Padre Island, Mustang Island, Matagorda Island, Brazos, Galveston,
and High Island. The map also outlines the following offshore areas in the Gulf
of Mexico which border along the Gulf Coast of Louisiana from west to east: West
Cameron, East Cameron, Vermilion, South Marsh Island, Eugene Island, Ship Shoal,
South Timbalier, Grand Isle, and Main Pass. In addition, the map outlines the
following areas from west to east in the Gulf of Mexico: Corpus Christi, East
Breaks, Garden Banks, Green Canyon, Ewing Bank, and Mississippi Canyon.
The map is a representation of various gas and oil leases within the Gulf
of Mexico. Enserch Leases are depicted by yellow squares, Dalen Leases are
depicted by red squares, and the May 1995 High Bid Blocks are depicted by blue
squares. Within the Matagorda Island sector, there are six Dalen Leases and one
Enserch Lease. Within the Brazos sector, there are five Dalen Leases and three
Enserch Leases. Within the High Island sector, there are seven Enserch Leases.
Within the West Cameron sector, there are nine Dalen Leases, five Enserch
Leases, and six May 1995 High Bid Blocks. Within the East Cameron sector, there
are eight Dalen Leases, nine Enserch Leases, and eight 1995 High Bid Blocks.
Within the Vermilion sector, there are six Dalen Leases, three Enserch Leases,
and three May 1995 High Bid Blocks. Within the South Marsh Island sector, there
are five Dalen Leases and three Enserch Leases. Within the Eugene Island sector,
there are two May 1995 High Bid Blocks and one Enserch Lease. Within the Ship
Shoal sector, there are two Enserch Leases and eleven Dalen Leases. Within the
South Timbalier sector, there are three Dalen Leases, seven Enserch Leases and
one May 1995 High Bid Block. Within the Grand Isle sector, there is one Enserch
Lease. Within the Main Pass sector, there ar six Dalen Leases, one Enserch
Lease, and three May 1995 High Bid Blocks. Within the Garden Banks sector, there
are six Enserch Leases. Within the Green Canyon sector, there are eight Enserch
Leases and twenty May 1995 High Bid Blocks. Within the Ewing Bank sector, there
are two May 1995 High Bid Blocks and one Enserch Lease. Within the Mississippi
Canyon sector, there are three Enserch Leases, one Dalen Lease, and one May 1995
High Bid Block.
The first map page also portrays three enlarged inserts of the Mississippi
Canyon, Garden Banks, and Green Canyon regions, each depicting various wells and
locations. The following legend, as set forth at the top of the page, is
associated with these inserts: a gas well is depicted by a hollow sun; a gas
condensate well is depicted by a solid sun; an oil well is depicted by a solid
circle; a plugged and abandoned well is depicted by a hollow circle with a cross
through it; an abandoned location is depicted by a hollow circle with a diagonal
slash through it; a dry hole with oil show is depicted by a hollow half sun; a
P&A well with oil show is depicted by a half-filled circle with a cross through
it; and a surface location is depicted by a hollow circle.
The Mississippi Canyon insert appears to the right of the Legend column as
a three by three grid containing nine blocks. The first row consists of Block
438, Block 397, and Block 398. The second row consists of Block 482, Block 441,
and Block 442. The third row consists of Block 526, Block 485, and Block 486.
The map indicates a platform location within Block 482. Within Block 441, the
map depicts three gas condensate wells, three gas wells, three plugged and
abandoned wells, one dry hole with oil show, and one abandoned location. Block
442 depicts one surface location and one plugged and abandoned well. Block 485
depicts one gas well.
The Garden Banks insert at the bottom left of the page is depicted as a
four by two grid containing eight blocks. The first row of blocks consists of
Block 342, Block 343, Block 344, and Block 345, and the second row consists of
Block 386, Block 387, Block 388, and Block 389. Each block depicts an area three
miles wide. Block 344 depicts one gas condensate well. Block 387 depicts one
plugged and abandoned well, one oil well, two surface locations, and two P&A
wells with oil shows. Block 388 depicts four oil wells and one surface location.
Finally, the Green Canyon insert at the bottom right of the page depicts a
three by three grid containing nine blocks. The first row consists of Block 209,
Block 210, and Block 211. The second row consists of Block 253, Block 254, and
Block 255. The third row consists of Block 297, Block 298, and Block 299.
Block 254 depicts three oil wells, one gas condensate well, one plugged and
abandoned well, two P&A wells with oil shows, one surface location, and one
abandoned location.]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-
COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
[2nd and 3rd Map Pages
----------------------
On pages 2 and 3, there appears under the heading "Major Producing
Properties Onshore Field Locations," a map of most of the 48 contiguous United
States with the exception of some of the far northern states and states
bordering the east coast. The map is divided into the following three regions:
the Gulf Coast, East Texas, and North Central Texas and Other. The map depicts
various Enserch onshore field locations with a blue circle and Dalen onshore
field locations with a purple circle. The Enserch locations are identified as
follows: in the Gulf Coast Region (in the southern half of Texas), locations at
Fashing, Sheridan, and Rancho Viejo; in East Texas, locations at Freestone, Tri-
Cities, Opelika, Willow Springs, Whelan, and N. Lansing; and in North Central
Texas and Other Region, locations at Boonsville, Luther and Hardeman County. The
Dalen locations are identified as follows: in the Gulf Coast Region of Texas,
locations at Los Indios, Guerra and Provident City, NE; in the Gulf Coast Region
of Louisiana, locations at Riceville, Lake Arthur and Turtle Bayou, NE; in the
East Texas Region, one location in Texas at Bald Prairie and one location in
western Louisiana at Logansport; in the North Central Texas Region, a location
at Katz; in southeastern New Mexico, one location at Townsend Deep; in northeast
Utah, locations at River Bend and Pleasant Valley; in southwest Wyoming,
locations at Fontenelle and Wamsutter, NE; and in Western Oklahoma, one location
at Cheyenne.
Page 2 of these materials also depicts a map under the heading
"International Indonesia" of the island of Java, surrounded to the north by the
Java Sea, to the east by the Bali Sea, and to the south by the Indian Ocean.
There also appears an enlarged insert of the Tuban Block (a north central
section of the island). This insert depicts the MUDI #1 Discovery, MUDI #2,
MUDI #3, and MUDI #1-ST as three oil wells and one P&A well with oil show.]
<PAGE>
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY EEX OR ANY UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF EEX SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
REGISTERED SECURITIES TO WHICH IT RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES UNDER ANY
CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 2
Incorporation of Certain Documents by Reference........................... 2
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 7
Use of Proceeds........................................................... 10
Market Price of Common Stock and Dividend Policy.......................... 11
Capitalization ........................................................... 12
Pro Forma Financial Information........................................... 13
Selected Financial and Operating Data..................................... 19
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 21
Business.................................................................. 28
Management................................................................ 49
Security Ownership of Certain Beneficial Owners and Management............ 53
Relationship Between EEX and ENSERCH...................................... 54
The Reorganization........................................................ 55
Certain Transactions...................................................... 56
Description of the Capital Stock.......................................... 57
Certain United States Tax Consequences to Non-United States Holders....... 58
Underwriters.............................................................. 61
Legal Matters............................................................. 64
Experts................................................................... 64
Certain Definitions....................................................... 65
Index to Financial Statements............................................. F-1
</TABLE>
<PAGE>
AVAILABLE INFORMATION
EEX is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith
files reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). The reports, proxy statements and
other information filed by EEX can be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional
offices of the Commission at Seven World Trade Center, 13th Floor, New York,
New York 10048, and Northwest Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such materials can also be obtained
from the Public Reference Section of the Commission, Washington, D.C. 20549,
at prescribed rates. The Common Stock is listed on the New York Stock Exchange
("NYSE"). Reports, proxy statements and other information concerning EEX can
be inspected and copied at the offices of the NYSE at 20 Broad Street, New
York, New York 10005.
EEX has filed a Registration Statement with the Commission under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
distribution of securities described herein (the "Registration Statement").
This Prospectus does not contain all of the information set forth in or
incorporated by reference in the Registration Statement. Copies of the
Registration Statement and the exhibits thereto are on file at the offices of
the Commission and may be obtained upon payment of a prescribed fee or may be
examined without charge at the Public Reference Section of the Commission,
Washington, D.C.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Incorporated by reference in this Prospectus as of the date of its filing,
and subject in each case to information contained in this Prospectus, are the
following documents filed by EEX with the Commission pursuant to the Exchange
Act: (i) EEX's Annual Report on Form 10-K for the fiscal year ended December
31, 1994; (ii) EEX's Quarterly Report on Form 10-Q/A-1 for the fiscal quarter
ended March 31, 1995 and Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1995, and (iii) EEX's Current Reports on Form 8-K dated April
13, 1995, June 21, 1995, and August 16, 1995.
Any statement contained in a document incorporated by reference herein shall
be deemed to be modified or superseded for all purposes to the extent that a
statement contained in this Prospectus modifies or supersedes such statement.
Any statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
EEX will provide without charge to each person, including any beneficial
owner, to whom a copy of this Prospectus is delivered, upon the written or
oral request of such person, a copy of the documents incorporated in this
Prospectus by reference (other than exhibits to such documents unless such
exhibits are specifically incorporated by reference into the information that
this Prospectus incorporates). Written or telephone requests for such
documents should be directed to M. G. Fortado, Esq., Enserch Exploration,
Inc., 300 S. St. Paul, Dallas, Texas 75201, (214) 670-2649.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified in
its entirety by, the more detailed information and financial statements
(including the notes thereto) appearing elsewhere in this Prospectus. Unless
otherwise indicated, references in this Prospectus to (i) historical financial
data of EEX reflect EEX following completion of the Reorganization (see "The
Reorganization"), (ii) pro forma financial data reflect the preceding, the
DALEN Acquisition and the Garden Banks and Green Canyon Transactions (see
"Business--Recent Developments") and (iii) pro forma as adjusted financial data
reflect the preceding and the issuance of Common Stock offered hereby (assuming
no exercise of the U.S. Underwriters' over-allotment option) and the
application of the net proceeds therefrom. References to the "Offering" refer
to the shares being offered in the United States and Canada by the U.S.
Underwriters and the shares being offered concurrently outside the United
States and Canada by the International Underwriters. Unless otherwise
indicated, references in this Prospectus to reserves, acreage, production,
drilling activity and other operating data reflect the combined data of (i) EEX
following completion of the Reorganization and the Garden Banks and Green
Canyon Transactions and (ii) DALEN. Certain terms relating to the gas and oil
industry are defined in "Certain Definitions."
THE COMPANY
Enserch Exploration, Inc. ("EEX"), a 99.2% owned subsidiary of ENSERCH
Corporation ("ENSERCH"), is an independent energy company that has been engaged
in the exploration for and the development, production and sale of natural gas
and crude oil since 1918. EEX is one of the largest independent exploration and
production companies in the United States, with a reserve base of approximately
1,768.2 Bcfe at June 30, 1995. Approximately 77.2% of these reserves on an
energy equivalent basis consist of natural gas. EEX has grown through
exploration, development and acquisition activities concentrated in major
production basins located offshore in the Gulf of Mexico and onshore in East
Texas, North Central Texas and the U.S. Gulf Coast.
EEX's primary objective is to increase production, reserves and cash flows
through the full exploitation of its large portfolio of developed and
undeveloped acreage. EEX plans to achieve this objective by pursuing the
following strategy:
. Pursue balanced growth through a combination of low risk development
projects, high potential exploration activities and strategic
acquisitions.
. Apply technology to development and exploration projects to reduce risks
and efficiently produce reserves.
. Emphasize efficient exploitation of producing properties through low cost
operations.
. Utilize tight sands and subsea operating experience to expand operations
both domestically and internationally.
. Maintain a strong balance sheet to provide flexibility to pursue future
growth.
EEX has extensive experience in reservoir management and believes it has
particular competence in the exploitation and development of tight sands
reservoirs. EEX's successful completion of subsea development operations in the
deep water Gulf of Mexico using bundled flow lines to tie back to conventional
shallow water production facilities, coupled with the use of technology such as
3-D seismic, has enabled it to become one of the few independent gas and oil
companies to successfully develop deep water Gulf of Mexico reserves as well as
operate such fields. EEX's two most recent deep water Gulf of Mexico
development projects, the Garden Banks and Green Canyon projects, are currently
under development. Initial production from the Garden Banks project is expected
to commence in the fourth quarter of 1995 and from the Green Canyon project in
the next three to four years. Because of the failure of a vendor-supplied
mechanical tool for handling pipe, first production on the Garden Banks project
will not be as early as had been anticipated. A section of flexible pipe, which
facilitates oil export, was damaged and will be replaced.
3
<PAGE>
EEX is beginning to realize the benefits of its strategy, as evidenced by the
recent developments described below, each of which involves one or more
elements of EEX's strategic plan.
RECENT DEVELOPMENTS
DALEN ACQUISITION
On June 8, 1995, EEX acquired all the capital stock of DALEN Corporation
("DALEN"), an independent gas and oil company engaged in the exploration for
and the development and production of natural gas and crude oil (the "DALEN
Acquisition"). Through the DALEN Acquisition, EEX acquired proved reserves
totaling 396.8 Bcfe at June 30, 1995, and other assets for a purchase price of
$340 million and refinanced DALEN's $115 million of bank debt. The DALEN
Acquisition was funded through EEX's $350 million revolving credit facility and
a $150 million bridge financing facility. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources." DALEN's activities have been oriented primarily toward
natural gas and are concentrated in selected major production regions,
including the Gulf Coast, the Gulf of Mexico and the Mid-Continent. DALEN was
an attractive acquisition for EEX because several of DALEN's operations are
located in fields that are either near or producing from formations from which
EEX is also producing. EEX believes that DALEN's property base has significant
exploitation and development potential. The DALEN Acquisition is a key step in
EEX's growth plan from which EEX expects to realize near term benefits. The
geologic similarity and proximity of DALEN's major producing properties to
EEX's properties permit EEX to apply its expertise, particularly with respect
to tight sands reservoirs, to these properties, from which EEX expects enhanced
production and cash flows. The enhanced production capabilities which EEX
expects to apply to DALEN's property base have been reflected in an
approximately 20 Bcfe increase in proved reserves from the DALEN properties
since year-end 1994 estimates. Such increase is based on estimates as of July
1, 1995 by DeGolyer and MacNaughton, independent petroleum consultants ("D&M").
In addition, production from the DALEN properties was 32 Bcfe during the six
months ended June 30, 1995. EEX also expects to realize cost savings through
the integration of the companies' operations. Synergistic opportunities for
operating efficiencies and cost reductions are expected to result in improved
financial results for the combined companies.
GREEN CANYON PROJECT
On April 25, 1995, EEX and an affiliate of Mobil Corporation ("Mobil")
entered into a letter of intent for Mobil to purchase a 40% interest in EEX's
Green Canyon project. An affiliate of Reading & Bates Corp. had previously
signed a letter of intent to purchase a 20% interest in the project. Upon the
completion of these transactions (collectively, the "Green Canyon
Transaction"), EEX will own a 40% working interest and remain the operator of
the project. D&M has as of March 1, 1995, initially estimated gross reserves,
including royalty interests, at the Green Canyon project to be 85.5 MMBbls of
oil and 149.5 Bcf of natural gas, of which 49.2 MMBbls of oil and 102.2 Bcf of
natural gas are in the proved category. EEX's initial interest in the Green
Canyon project proved reserves, excluding royalty interests, amounted to 42.2
MMBbls of oil and 87.8 Bcf of natural gas, for a total of 341.2 Bcfe; after
completion of the Green Canyon Transaction, EEX's interest in the Green Canyon
project reserves will be 136.5 Bcfe. Based upon its experience and results to
date in the Green Canyon project, EEX intends to expand its holdings in this
area. On May 10, 1995, EEX, on behalf of its Green Canyon co-venturers,
submitted the highest bids on six blocks within ten miles of the proposed
location of the Green Canyon production facility and to date has been awarded
exploration and development rights on five of them. EEX believes it is
advantageously positioned to fully develop its Green Canyon holdings with the
backing of its partners, each of which has considerable offshore experience.
GARDEN BANKS PROJECT
In April 1995, after evaluating EEX's development plans for Garden Banks
Block 388, another affiliate of Mobil exercised its option to acquire a 40%
interest in EEX's Garden Banks project (the "Garden Banks Transaction"). The
transaction was closed on August 9, 1995. EEX's remaining interest in the
Garden Banks reserves, excluding royalty interests, is 20.5 Bcf of proved
natural gas reserves and 16.9 MMBbls of proved oil and gas liquids reserves.
Both the Garden Banks and Green Canyon Transactions illustrate EEX's strategy
4
<PAGE>
of reducing its risk by limiting its working interest participation in high-
risk ventures. These arrangements also enabled EEX to reduce its capital
commitments with respect to these projects while still participating in the
potential rewards from bringing these properties to production.
INTERNATIONAL OPERATIONS
EEX is focused on expanding its activities in areas where its experience and
technical competencies can be exploited. EEX believes that international
exploration and development activities will be an important source of growth.
On June 12, 1995, EEX announced the conclusion of a Memorandum of Understanding
to form a joint venture with ONGC Videsh Limited, a wholly-owned subsidiary of
the Oil & Natural Gas Corporation Limited of New Delhi, India, to explore and
develop hydrocarbon resources in India and other countries. Joint ventures such
as the one planned with ONGC Videsh Limited are expected to enable EEX to
broaden the utilization of its expertise in the exploitation of mature natural
gas and oil fields and to develop offshore geologic structures utilizing its
experience in subsea completion technology and floating production technology.
By combining with co-venturers that have a high degree of knowledge and
experience with geologic conditions in their local regions, EEX believes that
it can reduce the risks inherent in expanding beyond its core operations in the
United States.
EEX acquired all of its currently owned international properties in June 1995
when it purchased all the international gas and oil operations of ENSERCH,
which consisted of concessions in Indonesia, Malaysia and Israel. The
Indonesian properties contain proved reserves of 4.1 MMBbls of oil. EEX had
previously managed these properties for ENSERCH for several years.
A major effect of the above-described recent developments has been to
increase EEX's net proved reserves. See "Business--Recent Developments." The
following table sets forth EEX's net proved reserves at June 30, 1995, and its
net production for the year 1994 and present value of estimated future net
revenues as of December 31, 1994;
<TABLE>
<CAPTION>
JUNE 30, 1995 1994 DECEMBER 31, 1994
NET PROVED RESERVES NET PRODUCTION PRESENT VALUE
--------------------------- ----------------- OF ESTIMATED
OIL AND OIL AND FUTURE NET
GAS GAS LIQUIDS TOTAL GAS GAS LIQUIDS REVENUES
(BCF) (MMBBLS) (BCFE) (BCF) (MMBBLS) (IN MILLIONS)
------- ----------- ------- ----- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
EEX(1).................. 1,035.1 56.1 1,371.4 67.1 2.2 $ 860.0
DALEN................... 330.6 11.0 396.8 54.4 2.6 262.0
------- ---- ------- ----- --- --------
Pro forma combined...... 1,365.7 67.1 1,768.2 121.5 4.8 $1,122.0
======= ==== ======= ===== === ========
</TABLE>
--------
(1) Includes reserves of EEX following completion of the Reorganization and the
Garden Banks and Green Canyon Transactions.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered............. 20,000,000 shares (1)
Common Stock to be outstanding
after the Offering.............. 125,722,787 shares (1)(2)
Use of Proceeds.................. To reduce debt incurred in connection with the DALEN
Acquisition.
NYSE symbol...................... EEX
</TABLE>
--------
(1) Assumes the U.S. Underwriters' over-allotment option is not exercised.
(2) Assumes the issuance of 1,113,545 shares of Common Stock in connection with
the acquisition of the international gas and oil operations of ENSERCH,
which number of shares is subject to adjustment upon completion of this
Offering and excludes the 2,000,000 shares of Common Stock issuable under
the 1994 Stock Incentive Plan and 500,000 shares issuable under the ENSERCH
Employee Stock Purchase and Savings Plan. See "Management," "The
Reorganization" and "Certain Transactions." After the Offering, ENSERCH
will own beneficially approximately 83.4% of the outstanding Common Stock,
(approximately 81.5% assuming the U.S. Underwriters, over-allotment option
is exercised in full). See "Security Ownership of Certain Beneficial Owners
and Management."
5
<PAGE>
SUMMARY FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
EEX PRO FORMA AS ADJUSTED(1)
-------------------------------------------------------- ---------------------------
SIX
SIX MONTHS YEAR MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30, ENDED ENDED
---------------------------------- -------------------- DECEMBER 31, JUNE 30,
1992 1993 1994 1994 1995 1994 1995
---------- ---------- ---------- -------- ---------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE, OPERATING AND RESERVE DATA)
STATEMENT OF INCOME DA-
TA:
Gas and oil revenues... $ 170,257 $ 187,366 $ 177,807 $ 95,001 $ 89,380 $ 321,098 $ 137,632
Other revenues......... 1,287 2,430 1,333 209 268 1,438 340
---------- ---------- ---------- -------- ---------- ----------- ------------
Total revenues......... 171,544 189,796 179,140 95,210 89,648 322,536 137,972
Total expenses......... 172,730 174,611 147,111 75,793 94,053 269,559 142,949
---------- ---------- ---------- -------- ---------- ----------- ------------
Operating income (loss)
...................... (1,186) 15,185 32,029 19,417 (4,405) 52,977 (4,977)
Income (loss) before
income taxes.......... (18,175) (13,358) 11,467 9,737 (6,981) 45,583 (11,575)
Net income (loss)...... (18,623) (9,960) 11,801 9,935 (4,538) 30,384 (9,359)
Net income (loss),
adjusted to include
pro forma income taxes
on partnership
operations (2)........ (11,754) (8,692) 7,477 6,318 (4,538) 30,384 (9,359)
Net income (loss) per
share (2)............. (.11) (.08) .07 .06 (.04) .24 (.07)
Weighted average shares
outstanding........... 105,695 105,695 105,695 105,695 105,695 125,695 125,695
CASH FLOW DATA (IN THOU-
SANDS):
Net cash provided by
operating activities.. $ 85,246 $ 79,523 $ 61,682 $ 43,522 $ 37,827 $ 171,385 $ 59,206
Net cash used in
investing activities.. (58,702) (129,083) (108,784) (64,966) (350,606) (185,589) (11,358)
Net cash provided by
(used in) financing
activities............ (25,683) 48,932 46,993 21,614 316,670 26,334 (9,976)
EBITDA (3)............. 92,050 103,794 104,983 60,364 42,139 199,729 69,455
OPERATING DATA:
Sales volumes:
Natural gas (Bcf)...... 65.2 70.0 67.1 35.4 34.5 121.5 54.9
Oil and condensate
(MMBbls).............. 2.3 2.1 2.0 1.0 1.2 4.1 2.0
NGLs (MMBbls).......... .5 .3 .2 .1 .2 .7 .3
Total (Bcfe).......... 82.2 84.9 80.5 42.1 42.7 150.2 69.2
Average sale prices:
Natural gas (per Mcf)
(4)................... $ 1.82 $ 2.09 $ 2.15 $ 2.21 $ 1.94 $ 2.06 $ 1.81
Oil and condensate (per
Bbl).................. 19.20 17.24 15.38 15.20 16.98 15.80 17.19
NGLs (per Bbl)......... 13.38 12.09 10.85 10.01 11.01 9.28 9.34
Total (per Mcfe)...... 2.07 2.21 2.21 2.26 2.09 2.14 1.99
Costs and expenses (per
Mcfe):
Production and operat-
ing (5)............... $ .36 $ .37 $ .39 $ .37 $ .46 $ .36 $ .49
Exploration............ .14 .10 .11 .11 .13 .06 .08
Depreciation and amor-
tization.............. .93 .92 1.00 .97 1.09 1.03 1.07
General, administrative
and other............. .28 .35 .25 .19 .35 .25 .32
Taxes, other than in-
come.................. .19 .19 .16 .16 .18 .15 .11
GAS AND OIL PROVED RE-
SERVE DATA (AT PERIOD
END):
Gas (Bcf).............. 1,101.4 1,086.5 1,041.7 1,365.7
Oil (MMBbls)........... 39.2 39.3 50.6 67.1
Total (Bcfe)........... 1,336.6 1,322.3 1,345.3 1,768.2
BALANCE SHEET DATA (AT
PERIOD END):
Property, plant and
equipment--net........ $1,018,403 $1,046,360 $1,254,014 $1,746,210 $ 1,660,910
Total assets........... 1,068,811 1,111,495 1,381,235 1,841,337 1,787,337
Long-term debt,
including current
portion (6)........... 266,000 298,000 155,855 503,858 191,233
Owners' equity......... 671,706 630,685 736,008 731,333 989,958
</TABLE>
--------
(1) See "Pro Forma Financial Information" included elsewhere in this
Prospectus.
(2) Net income and per share data for periods prior to 1995 include a pro forma
provision for income taxes on partnership operations based on the
applicable federal statutory tax rate.
(3) EBITDA is earnings before interest, income taxes, depreciation and
amortization, (sale) writedown of inactive pipeline and write-off of gas
and oil assets. EBITDA is presented here to provide additional information
about EEX's ability to meet its future requirements for debt service,
capital expenditures and working capital. EBITDA should not be considered
as an alternative to net income as an indicator of operating performance or
as an alternative to cash flows as a measure of liquidity.
(4) Approximately 20% of EEX's natural gas sales are under long-term fixed
price contracts which generally exceed short-term spot market prices. A
significant portion of deliveries under these long-term fixed price
contracts are made during the winter heating season. EEX also realized
gains from hedging transactions equivalent to $.07 and $.12 per Mcf for the
year ended December 31, 1994 and the six months ended June 30, 1995,
respectively. Sales from DALEN properties are predominantly in the short-
term spot market. DALEN did not hedge its natural gas sales during these
periods. As a result, the pro forma average natural gas sales prices for
the year ended December 31, 1994 and the six months ended June 30, 1995
were 4% and 7%, respectively, below EEX's historical prices.
(5) Excludes production, severance and ad valorem taxes.
(6) Includes capital lease obligations.
6
<PAGE>
RISK FACTORS
In addition to the other information set forth elsewhere in this Prospectus,
the following factors relating to EEX and the Offering should be considered
when evaluating an investment in the shares of Common Stock offered hereby.
UNCERTAINTIES IN ESTIMATING RESERVES AND FUTURE NET CASH FLOWS
There are numerous uncertainties inherent in estimating quantities and
values of gas and oil reserves and in projecting future rates of production
and net revenues and the timing of development expenditures, including factors
involving reservoir engineering, pricing and both operating and regulatory
constraints. The reserve data included in this Prospectus represent estimates
only and should not be considered exact. Reserve assessment is a subjective
process of estimating the recovery from underground accumulations of natural
gas and other hydrocarbons that cannot be measured in an exact way.
Accordingly, reserve estimates are often different from the quantities of
natural gas and other hydrocarbons ultimately recovered. Any downward
adjustment in reserve estimates could adversely affect EEX's future prospects
and the market value of its securities.
RESERVE REPLACEMENT UNCERTAINTIES
EEX's gas and oil exploration, development and production operations involve
numerous risks that could result in the failure to find new reserves or fully
produce existing reserves. EEX's prospects for growth and profitability depend
predominantly on its ability to replace present reserves through exploration,
development and acquisition. The rate of production from gas and oil
properties generally declines as reserves are depleted. Without successful
exploration and development activities or reserve acquisitions, the proved
reserves of EEX will decline as gas and oil are produced from its existing
proved developed reserves. There can be no assurance that EEX's exploration,
development and acquisition activities will result in significant additional
reserves or that EEX will continue to be able to drill productive wells at
acceptable costs. If prevailing gas and oil prices were to increase
significantly, EEX's costs to add reserves could also be expected to increase.
While the gradual depletion of producing reserves and the need for
recompletion of wells that have multiple reservoirs with limited volume, or
workover of wells that develop mechanical problems, is neither unusual nor
unexpected in the gas and oil industry, the timing and extent of production
declines and recompletion or workover requirements for wells cannot be
predicted with any certainty.
EXPLORATION, DEVELOPMENT, PRODUCTION AND SELLING RISKS
EEX's operations are subject to the risks and uncertainties associated with
finding, acquiring and developing gas and oil properties, and producing,
transporting and selling gas and oil. EEX incurs significant expenditures in
connection with the identification and acquisition of properties and the
drilling and completion of wells. EEX's operations may be materially
curtailed, delayed or cancelled as a result of numerous factors, including
accidents, title problems, weather conditions, compliance with governmental
requirements and shortages or delays in the delivery of equipment. Drilling
may involve unprofitable efforts, not only with respect to dry wells, but also
with respect to wells that are productive but do not produce sufficient net
revenues to return a profit after drilling, operating and other costs.
Completion of a well does not assure a profit on the investment or recovery of
drilling, completion and operating costs. Various field operating conditions
may adversely affect EEX's production from successful wells. Close well
supervision and effective maintenance operations can contribute to maximizing
production rates over time, but production delays and declines from normal
field operating conditions cannot be eliminated and can be expected to affect
adversely revenue and cash flow levels to varying degrees. Most wells can be
expected to require recompletions or workovers during their productive lives.
In addition, EEX's ability to sell its gas and oil production is dependent on
the availability and capacity of gas and oil gathering systems, pipelines and
other forms of transportation. Federal and state regulation of gas and oil
production and transportation, general economic conditions, quality of the
hydrocarbons and changes in supply and demand all could materially adversely
affect EEX's ability to sell its gas and oil production. See "Business--Sales"
and "--Government Regulation."
7
<PAGE>
OPERATING HAZARDS
EEX's operations are subject to the hazards inherent in the gas and oil
industry, including fires, explosions, blow-outs, pipe failures, abnormally
pressured formations and environmental accidents such as gas leaks, oil spills,
ruptures or discharges of toxic gasses, the occurrence of any of which could
result in substantial losses to EEX due to injury or loss of life, severe
damage to or destruction of property, natural resources and equipment,
pollution or other environmental damage, clean-up responsibilities, regulatory
investigation and penalties and suspension of operations. In accordance with
customary industry practice, EEX maintains insurance against some, but not all,
of the hazards described above. There can be no assurance that any insurance
will be adequate to cover any losses or liabilities. EEX cannot predict the
continued availability of insurance, or availability at commercially acceptable
premium levels. See "Business-- Government Regulation."
DEEP WATER RISKS
EEX's offshore Gulf of Mexico gas and oil reserves include properties located
in water depths of 1,400 to 3,400 feet. Drilling operations in these depths are
by their nature more difficult than drilling operations conducted in shallower
water because they require the application of more advanced drilling
technologies, involving a higher risk of technological failure and inevitably
resulting in significantly higher drilling costs. EEX's deep water wells are
completed utilizing subsea completion techniques that involve the installation
of subsea wellheads and the use of bundled flow lines to tie back to production
facilities. The installation of these subsea wellheads and bundled flow lines
requires the use of advanced remote installation mechanics. Such operations
involve a higher risk of encountering mechanical difficulties and equipment
failures which, if encountered, could result in significant cost overruns. See
"Business--Significant Properties and Exploration and Development Activities--
Gulf of Mexico Region."
EFFECTS OF CHANGES IN GAS AND OIL PRICES AND VOLATILITY OF GAS AND OIL MARKETS
The revenues generated by EEX's operations are highly dependent upon the
prices of, and demand for, gas and oil and the costs of acquiring, developing
and producing reserves. Gas and oil prices have historically been volatile and
are likely to continue to be volatile in the future. Prices for gas and oil are
subject to fluctuations in response to relatively minor changes in supply,
market uncertainty and a variety of additional factors that are beyond the
control of EEX, including economic conditions in the United States and
elsewhere, the world political situation as it affects OPEC, the Middle East
and other producing countries, the actions of OPEC, government regulation and
taxes, the level of consumer demand, the price and availability of alternative
fuels and overall economic development. EEX engages in hedging activities with
respect to some of its projected gas and oil production through a variety of
financial arrangements designed to protect against price declines, including
swaps, collars and futures agreements. To the extent EEX engages in such
activities, it may be prevented from realizing the benefits of price increases
above the levels of the hedges. Because EEX's reserve base is approximately
77.2% natural gas on an energy equivalent basis, it is more sensitive to
fluctuations in the price of natural gas than to fluctuations in the price of
oil. Revenues, operating income and net income for EEX closely follow gas and
oil prices and production volumes, and the decline in financial results for the
six months ended June 30, 1995, as compared with the prior year period is
primarily a result of lower natural gas production and prices, partially offset
by increases in oil production and prices. EEX follows the full cost method of
accounting for gas and oil properties. A decline in gas and oil prices could
cause a future write-down of capitalized costs and a non-cash charge against
income. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Overview," "--Full Cost Ceiling" and "--Liquidity and
Capital Resources--Hedging Activities."
GOVERNMENT REGULATION
EEX's business is subject to certain federal, state and local laws and
regulations relating to the drilling for and production of gas and oil, as well
as environmental and safety matters. Such laws and regulations
8
<PAGE>
have generally become more stringent in recent years, often imposing greater
liability on an increasing number of parties. Because the requirements imposed
by such laws and regulations are frequently changed, EEX is unable to predict
the effect or cost of compliance with such requirements or their effects on gas
and oil use or prices. See "Business--Government Regulation."
ENVIRONMENTAL MATTERS
EEX believes that its properties and operations are in substantial compliance
with applicable environmental laws and regulations. The construction and
operation of facilities for drilling, transporting, processing and storing gas
and oil are subject to federal, state and local environmental laws and
regulations, including those that can impose obligations to clean up hazardous
substances at facilities EEX owns or operates or to which it has sent wastes
for disposal. In most instances, the applicable regulatory requirements relate
to water and air pollution control and solid waste management measures.
Environmental regulation can increase the cost of planning, designing,
installing and operating such facilities. Expenditures for environmental
control equipment and for remediation have not been significant in relation to
the results of operations of EEX. EEX believes, however, that it is reasonably
likely that the trend in environmental legislation and regulations will
continue to be toward stricter standards. See "Business--Government
Regulation."
COMPETITION
The oil and gas industry is highly competitive in all its phases. EEX
competes in the acquisition of properties, the search for and development of
reserves, the production and sale of oil and gas, and the securing of the labor
and equipment required to conduct operations. EEX's competitors include major
oil and gas companies, other independent oil and gas concerns and individual
producers and operators. Many of these competitors have financial and other
resources that substantially exceed those available to EEX. Oil and gas
producers also compete with other industries that supply energy and fuel.
CONTROL BY ENSERCH
After the Offering, ENSERCH will own beneficially approximately 83.4% of the
outstanding Common Stock (or approximately 81.5% if the U.S. Underwriters
exercise their over-allotment option in full), enabling it to elect all
directors of EEX. Through its ability to elect all directors of EEX, ENSERCH
will retain the ability to control all matters relating to the management of
EEX, the future issuance of Common Stock and other securities of EEX and the
payment of dividends on the Common Stock. ENSERCH will also retain effective
control over the outcome of all matters upon which EEX shareholders vote.
Certain of EEX's directors and officers are also directors and/or officers of
ENSERCH or its other subsidiaries. There is no agreement between ENSERCH and
any other party, including EEX, that would prevent ENSERCH from acquiring
additional Common Stock. See "Relationship between EEX and ENSERCH."
CONFLICTS OF INTEREST
As a result of ENSERCH's control of EEX, certain conflicts of interest arise
in relations between EEX and ENSERCH and its other subsidiaries and affiliates
(collectively, the "ENSERCH Companies"), including conflicts with respect to
the issuance of Common Stock and other voting securities of EEX, the election
of directors of EEX, the payment of dividends by EEX and various transactions
between ENSERCH Companies and EEX. For example, certain ENSERCH Companies
purchase and market natural gas produced by EEX. The interests of the ENSERCH
Companies with respect to the pricing, terms of delivery and other aspects of
these transactions are not the same as those of EEX. However, EEX believes that
the terms of these transactions have been at least as favorable to EEX as could
have been obtained from unaffiliated third parties. A number of specific types
of transactions and relationships between EEX and the ENSERCH Companies are
contemplated and permitted by Article Eleven of EEX's Restated Articles of
Incorporation. For example, Article Eleven permits EEX to enter into contracts
with any entity in which ENSERCH has a direct or
9
<PAGE>
indirect interest as long as the transaction is authorized or ratified by a
majority of the Board of Directors of EEX or a Board committee. In determining
whether this majority vote has been achieved, the vote of a director of ENSERCH
who is also a director of EEX may be counted toward the authorization or
ratification. The nature of the respective businesses of EEX and the ENSERCH
Companies may also give rise to conflicts of interest. ENSERCH has advised EEX
that it does not currently intend to engage in the acquisition or development
of, or exploration for, gas and oil except through its beneficial ownership of
Common Stock of EEX. However, as part of ENSERCH's business strategy, it may
from time to time acquire businesses primarily engaged in other activities that
also include gas and oil operations. In addition, consistent with Article
Eleven, an ENSERCH Company may engage in direct competition with EEX without
first being obligated to offer the transaction or other opportunity to EEX. See
"Relationship Between EEX and ENSERCH--Conflicts of Interest" and "Certain
Transactions."
SHARES ELIGIBLE FOR FUTURE SALE
EEX is authorized to issue additional equity and debt securities, including
shares of preferred stock. Under the current rules of the NYSE, EEX may not
issue shares of Common Stock equal to 20% or more of the then outstanding
shares in connection with any single future transaction, other than a public
sale for cash, without shareholder approval. The future sale of a substantial
number of shares of Common Stock or preferred stock in the public market could
adversely affect the shareholders' equity interest in EEX and the market price
of the Common Stock, and their interests in the assets, liabilities, results of
operations and cash flows of EEX represented by the issued and outstanding
shares of Common Stock may be diluted. The shares of Common Stock sold in the
Offering will be eligible for immediate resale in the public market without
restriction, except to the extent shares are acquired by an affiliate of EEX.
All of the shares of Common Stock owned by the ENSERCH Companies are subject to
the resale limitations of Rule 144 adopted under the Securities Act. In
general, under Rule 144 as currently in effect, a person who is an "affiliate,"
as that term is defined under the Securities Act (which term would include the
ENSERCH Companies), is entitled to sell, within any three-month period, a
number of "restricted" shares that does not exceed the greater of 1% of the
then outstanding shares of Common Stock of EEX (approximately 1,260,000 shares
immediately after this Offering) or the average weekly trading volume during
the four calendar weeks preceding such sale. If EEX or the ENSERCH Companies
should sell a substantial amount of Common Stock after the Offering, the
prevailing market price of the Common Stock could be adversely affected. The
ENSERCH Companies that hold Common Stock have agreed not to sell Common Stock
for 180 days after the date of this Prospectus, subject to certain limited
exceptions. See "Underwriters" and "Security Ownership of Certain Beneficial
Owners and Management."
LIMITED TRADING MARKET
Prior to the Offering, there has been a limited trading market for the Common
Stock. See "Underwriters--Pricing of the Offering." Although the Common Stock
is listed on the NYSE, there can be no assurance that an active trading market
for the Common Stock will develop subsequent to the Offering. After the
completion of the Offering, the market price of the Common Stock may be
influenced by many factors, including the depth and liquidity of the market for
the Common Stock, investor perceptions of EEX and general economic and other
conditions.
USE OF PROCEEDS
The net proceeds to EEX are estimated to be approximately $259 million ($298
million if the U.S. Underwriters' over-allotment option is exercised in full)
assuming a public offering price of $13.75 per share, after deducting
underwriting discounts and commissions and estimated offering expenses. The net
proceeds will be used to reduce debt incurred in connection with the DALEN
Acquisition. For a description of the terms of the debt to be repaid see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources--Cash Flows."
10
<PAGE>
MARKET PRICE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock began trading on the NYSE on January 3, 1995, under the
symbol "EEX." There were no trades in the Common Stock in any market prior to
that date. The following table sets forth for the periods indicated the high
and low sales prices of the Common Stock as reported on the NYSE Composite
Tape.
<TABLE>
<CAPTION>
MONTH OF 1995 HIGH LOW
------------- ------- -------
<S> <C> <C>
January................................. $11 1/8 $ 9 3/4
February................................ 10 1/4 9 3/8
March................................... 10 1/2 9 5/8
April................................... 13 3/4 10 1/8
May..................................... 14 3/8 13 1/2
June.................................... 14 7/8 13 1/4
July.................................... 14 3/4 13 1/2
August (through August 17).............. 14 13 1/2
</TABLE>
A recent reported last sale price per share for the Common Stock on the NYSE
is set forth on the cover page of this Prospectus. At August 15, 1995, there
were approximately 1,450 holders of record of the Common Stock.
Prior to the Offering, only a limited number of shares of Common Stock have
traded publicly. For a discussion of the factors considered in determining the
price of the Common Stock in the Offering, see "Underwriters--Pricing of the
Offering."
No dividends have been paid on the Common Stock and EEX does not anticipate
paying any cash dividends in the foreseeable future. EEX instead intends to
retain its earnings to support the growth of EEX's business. For example, EEX
is engaged in several offshore development projects that will require
significant capital investment over the next several years. Future cash
dividends will depend on EEX's earnings, capital requirements, financial
condition and other factors deemed relevant by the Board of Directors.
See "Description of Capital Stock--Common Stock" and "--Preferred Stock" for
provisions of EEX's Restated Articles of Incorporation and bank revolving
credit agreement which could affect the payment of dividends on the Common
Stock.
11
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of EEX
as of June 30, 1995, (a) on an historical basis and (b) on a pro forma basis to
reflect the completion of the Garden Banks and Green Canyon Transactions and to
give effect to the Offering (at an assumed price per share as set forth on the
cover of this Prospectus) and the application of the estimated $259 million of
net proceeds therefrom (assuming no exercise of the U.S. Underwriters' over-
allotment option). The table below should be read in conjunction with
"Business--Recent Developments," "Pro Forma Financial Information,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "The Reorganization" and EEX's financial statements and notes
thereto included in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1995
----------------------
PRO FORMA
EEX AS
HISTORICAL ADJUSTED
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt--temporary advances from ENSERCH....... $ 39,136 $ 39,136
========== ==========
Long-term debt:
Capital lease obligations (1)........................ $ 153,858 $ 99,858
Bank revolving credit agreement (2).................. 350,000 91,375
---------- ----------
Total long-term debt............................... 503,858 191,233
---------- ----------
Minority interest--subsidiary preferred stock (3)...... 150,000 150,000
---------- ----------
Preferred stock--authorized 2,000,000 shares, issued to
subsidiary 15 shares--eliminated in consolidation (3). -- --
---------- ----------
Common shareholders' equity:
Common stock--$1.00 par value, authorized 200,000,000
shares, issued and outstanding 105,722,787 shares,
125,722,787 shares as adjusted...................... 105,723 125,723
Paid in capital...................................... 630,494 869,119
Retained earnings (deficit).......................... (4,538) (4,538)
Unamortized restricted stock compensation............ (346) (346)
---------- ----------
Total common shareholders' equity.................. 731,333 989,958
---------- ----------
Total capitalization............................. $1,385,191 $1,331,191
========== ==========
</TABLE>
--------
(1) Includes current portion of $4.8 million; $54.0 million was repaid on
August 9, 1995, in conjunction with the completion of the Garden Banks
Transaction. See note (a) to the Unaudited Condensed Pro Forma Financial
Statements and "Business--Significant Properties and Exploration and
Development Activities--Gulf of Mexico."
(2) Includes current portion of $300 million estimated at June 30, 1995, to be
repaid with net proceeds from the Offering.
(3) On August 4, 1995, a subsidiary of EEX completed the private placement of
$150 million of adjustable rate redeemable preferred stock that is expected
to be redeemed by August 4, 2000. The proceeds were used to purchase $150
million of EEX Adjustable Rate Preferred Stock, Series A, and EEX repaid
the $150 million bridge loan obtained for the DALEN Acquisition which was
used to repay DALEN's bank debt and reduce advances from ENSERCH. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources--Cash Flows." In the June 30,
1995 consolidated financial statements, the EEX preferred stock is
eliminated, and the subsidiary preferred stock is reflected as minority
interest.
12
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The following unaudited condensed pro forma financial statements give effect
to the DALEN Acquisition and related financing, the completion of the Garden
Banks and Green Canyon Transactions and the Offering (assuming no exercise of
the U.S. Underwriters' over-allotment option and including the application of
the estimated net proceeds as described under "Use of Proceeds"). See
"Business--Recent Developments" and "Use of Proceeds." The unaudited condensed
pro forma balance sheet as of June 30, 1995, is based on the historical balance
sheet of EEX, which includes the assets acquired and liabilities assumed in the
DALEN Acquisition on June 8, 1995. The unaudited condensed pro forma statements
of income for the year ended December 31, 1994, and for the six months ended
June 30, 1995, assume that the DALEN Acquisition occurred at the beginning of
each period presented. The unaudited pro forma, as adjusted, financial
information includes the adjustments made to reflect the Offering and the
application of the estimated net proceeds therefrom. See "Use of Proceeds."
These unaudited condensed pro forma financial statements should be read in
conjunction with the financial statements of EEX and DALEN included elsewhere
in this Prospectus and "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The unaudited condensed pro forma
statements of income are not necessarily indicative of the financial results
that would have occurred had the above-described events been consummated on the
indicated dates, nor are they necessarily indicative of future results.
EEX has accounted for the DALEN Acquisition as a purchase. All acquired
assets, consisting principally of gas and oil properties, and liabilities
assumed are being evaluated for purposes of assigning the purchase price. It is
anticipated that essentially all of the valuation adjustments will be assigned
to gas and oil properties. DALEN followed the successful efforts method of
accounting for gas and oil properties, whereby unsuccessful exploratory costs
are charged to expense as incurred. Costs applicable to productive wells and
development dry holes are capitalized and amortized on the units-of-production
method based on estimated proved reserve quantities. EEX follows the full-cost
method of accounting for gas and oil properties, whereby all exploratory costs,
including costs of both successful and unsuccessful exploratory wells, are
capitalized and amortized on the units-of-production method based on estimated
proved reserve quantities. For purposes of presenting the unaudited condensed
pro forma financial statements of the combined entities, DALEN's statements of
operations have been converted to the full-cost method of accounting.
Although EEX expects to reduce the general and administrative expenses for
the combined operations of EEX and DALEN with the elimination of duplicative
functions, the full amount of such reduction cannot be reasonably determined at
this time.
13
<PAGE>
ENSERCH EXPLORATION, INC.
UNAUDITED CONDENSED PRO FORMA BALANCE SHEET
JUNE 30, 1995
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
EEX ADJUSTMENTS(A) AS ADJUSTED
---------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents.............. $ 4,125 $ 31,300 (a) $ 35,425
Accounts receivable--trade........ 34,924 34,924
Accounts receivable--affiliates... 18,603 18,603
Other............................. 13,437 13,437
---------- --------- ----------
Total........................... 71,089 31,300 102,389
---------- --------- ----------
Net property, plant and equipment... 1,746,210 (85,300)(a) 1,660,910
---------- --------- ----------
Other assets........................ 24,038 24,038
---------- --------- ----------
Total........................... $1,841,337 $ (54,000) $1,787,337
========== ========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable--trade........... $ 73,024 $ $ 73,024
Temporary advances--ENSERCH
Companies (net).................. 39,136 39,136
Current portion of bank revolving
credit agreement................. 300,000 (258,625)(b) 41,375
Current portion of capital lease
obligations...................... 4,760 4,760
Other............................. 16,914 16,914
---------- --------- ----------
Total........................... 433,834 (258,625) 175,209
---------- --------- ----------
Bank revolving credit agreement..... 50,000 50,000
---------- --------- ----------
Capital lease obligations........... 149,098 (54,000)(a) 95,098
---------- --------- ----------
Deferred income taxes............... 289,798 289,798
---------- --------- ----------
Other liabilities................... 37,274 37,274
---------- --------- ----------
Minority interest--subsidiary
preferred stock.................... 150,000 150,000
---------- --------- ----------
Common shareholders' equity......... 731,333 258,625 (b) 989,958
---------- --------- ----------
Total........................... $1,841,337 $ (54,000) $1,787,337
========== ========= ==========
</TABLE>
(footnotes on page 18)
14
<PAGE>
ENSERCH EXPLORATION, INC.
UNAUDITED CONDENSED PRO FORMA STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
PROPERTIES
EFFECT OF DIVESTED PRO FORMA PRO OFFERING PRO FORMA
EEX REORGANIZATION(C) DALEN IN 1994(D) ADJUSTMENTS FORMA ADJUSTMENTS AS ADJUSTED
-------- ----------------- -------- ---------- ----------- -------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Natural gas........... $144,550 $115,593 $(10,271) $249,872 $249,872
Oil and condensate.... 30,880 45,814 (11,677) 65,017 65,017
Natural gas liquids... 2,377 5,240 (1,408) 6,209 6,209
Other................. 1,333 2,341 (2,236) 1,438 1,438
-------- -------- -------- -------- --------
Total............... 179,140 168,988 (25,592) 322,536 322,536
-------- -------- -------- -------- --------
Costs and expenses:
Production and
operating............ 31,667 (704) 32,008 (9,558) 53,413 53,413
Exploration........... 9,136 24,886 (22) (24,864)(e) 9,136 9,136
Depreciation and
amortization......... 80,819 (511) 101,151 (14,826) (12,581)(e) 154,052 154,052
Sale of inactive
pipeline............. (7,551) (7,551) (7,551)
General,
administrative and
other................ 19,807 500 18,057 (598) 37,766 37,766
Taxes, other than
income taxes......... 13,233 11,525 (2,015) 22,743 22,743
-------- ------- -------- -------- -------- -------- --------
Total............... 147,111 (715) 187,627 (27,019) (37,445) 269,559 269,559
-------- ------- -------- -------- -------- -------- --------
Operating income (loss). 32,029 715 (18,639) 1,427 37,445 52,977 52,977
Other income
(expense)--net......... (314) 2,845 (2,280) 251 251
Interest income......... 671 6,211 3,656 (3,656)(f) 6,882 6,882
Interest expense........ (20,919) 21,276 (6,002) (25,848)(f) (31,493) 16,966(b) (14,527)
-------- ------- -------- -------- -------- -------- ------- --------
Income (loss) before
income taxes........... 11,467 28,202 (18,140) (853) 7,941 28,617 16,966 45,583
Income taxes (benefit).. (334) 14,195 (15,206) (299) 10,905(g) 9,261 5,938(g) 15,199
-------- ------- -------- -------- -------- -------- ------- --------
Net income (loss)....... $ 11,801 $14,007 $ (2,934) $ (554) $ (2,964) $ 19,356 $11,028 $ 30,384
======== ======= ======== ======== ======== ======== ======= ========
Pro forma information:
Income (loss) before
income taxes......... $ 11,467
Income taxes
(including income
taxes on partnership
operations).......... 3,990
--------
Net income............ $ 7,477
========
Net income per share.... $ .07 $ .24
======== ========
Weighted average shares
outstanding............ 105,695 125,695
======== ========
</TABLE>
(footnotes on page 18)
15
<PAGE>
ENSERCH EXPLORATION, INC.
UNAUDITED CONDENSED PRO FORMA STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
PRO FORMA OFFERING PRO FORMA
EEX DALEN(H) ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
------- -------- ----------- --------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Natural gas .......... $67,008 $ 32,359 $ $ 99,367 $ $ 99,367
Oil and condensate.... 20,677 14,451 35,128 35,128
Natural gas liquids... 1,695 1,442 3,137 3,137
Other................. 268 72 340 340
------- -------- -------- --------
Total............... 89,648 48,324 137,972 137,972
------- -------- -------- --------
Costs and expenses:
Production and
operating............ 19,543 14,137 33,680 33,680
Exploration........... 5,474 4,333 (4,333)(e) 5,474 5,474
Depreciation and
amortization......... 46,547 33,494 (5,787)(e) 74,254 74,254
General,
administrative and
other................ 14,743 7,052 21,795 21,795
Taxes, other than
income............... 7,746 7,746 7,746
------- -------- -------- -------- --------
Total............... 94,053 59,016 (10,120) 142,949 142,949
------- -------- -------- -------- --------
Operating income (loss). (4,405) (10,692) 10,120 (4,977) (4,977)
Other income (expense)-
net.................... (3) 181 178 178
Interest income......... 1,026 252 (252)(f) 1,026 1,026
Interest expense........ (3,599) (3,504) (9,182)(f) (16,285) 8,483(b) (7,802)
------- -------- -------- -------- ------ --------
Income (loss) before
income taxes........... (6,981) (13,763) 686 (20,058) 8,483 (11,575)
Income taxes (benefit).. (2,443) (4,817) 2,075 (g) (5,185) 2,969(g) (2,216)
------- -------- -------- -------- ------ --------
Net income (loss)....... $(4,538) $ (8,946) $ (1,389) $(14,873) $5,514 $ (9,359)
======= ======== ======== ======== ====== ========
Net income (loss) per
share.................. $ (.04) $ (.07)
======= ========
Weighted average shares
outstanding............ 105,695 125,695
======= ========
</TABLE>
16
<PAGE>
NOTES TO UNAUDITED CONDENSED PRO FORMA FINANCIAL STATEMENTS
(a) Adjusts the EEX balance sheet to reflect the completion of the Garden Banks
and Green Canyon Transactions.
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Adjustments to gas and oil properties:
Completion of Garden Banks and Green Canyon Transactions:
Reduction of capital lease obligations................... $(54,000)
Cash receipts............................................ (31,300)
--------
Total.................................................. $(85,300)
========
</TABLE>
Property and capital lease obligations were reduced by $54 million as of
August 9, 1995, when an affiliate of Mobil completed the acquisition of a
partial interest in the Garden Banks project. Also, as consideration for the
sale of partial interests in the Garden Banks and Green Canyon projects, EEX
expects to receive cash of $31.3 million, an interest in a gas and oil
property and future work commitments related to the projects. The cash
consideration will be recorded as a reduction of the carrying value of gas
and oil properties. The conveyance of an interest in the gas and oil
property and the future work commitments do not require recording in the
financial statements of EEX.
(b) Adjusts the EEX balance sheet to reflect the assumed sale of the Common
Stock offered hereby and use of the estimated net proceeds therefrom
(assuming no exercise of the U.S. Underwriters' over-allotment option) to
reduce debt incurred in connection with the DALEN Acquisition.
(c) Adjusts the 1994 EEX income statement for the effects of the Reorganization
(see "The Reorganization") that are expected to have a continuing impact on
operations as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Effects of changes in lease terms(1):
Operating expenses............................................ $ 704
Depreciation and amortization................................. 511
Interest expense.............................................. 357
Management cost allocation from ENSERCH(2)...................... (500)
Interest income on notes receivable--ENSERCH Companies(3)....... 6,211
Eliminate interest expense on long-term borrowings from ENSERCH
Companies(4)................................................... 20,919
-------
Income before income tax.................................... 28,202
-------
Income tax expense on (5):
Partnership operations........................................ 4,324
Income before income tax adjustments above.................... 9,871
-------
Total income taxes.......................................... 14,195
-------
Net income...................................................... $14,007
=======
</TABLE>
(1) ENSERCH Companies assumed EEX's interests in and obligations related to
certain offshore equipment and facilities leases, and EEX entered into
subleases for the equipment and facilities with ENSERCH Companies.
(2) To provide for the management cost allocation to be charged by ENSERCH
for management of certain services. EEX is charged for indirect costs
(principally general and administrative costs) applicable to gas and
oil operations. Prior to July 1, 1994, EEX was not charged for
management by ENSERCH of its operations, including supervision of
finance, accounting, tax and legal functions. EEX is charged
approximately $1 million annually to cover the cost of these functions.
See "Certain Transactions" and Note 6 of Notes to Financial Statements
of EEX included in this Prospectus.
(3) To include interest income on the notes receivable--ENSERCH Companies
at average balances at 7.5% interest per annum.
(footnotes on next page)
17
<PAGE>
(4) To eliminate interest expense on long-term borrowings from ENSERCH
Companies that were not assumed by EEX.
(5) To provide for income taxes on income before income tax adjustments at
the applicable statutory federal rate and to provide income taxes on
partnership operations. See Note 3 of Notes to Financial Statements of
EEX for the year ended December 31, 1994 included in this Prospectus.
(d) Eliminates revenues, expenses and a gain of $2.3 million in other income,
all as attributable to properties divested by DALEN in the third quarter of
1994.
(e) Adjusts the DALEN statements of operations from the successful efforts to
the full-cost method of accounting for gas and oil properties by
eliminating DALEN's exploratory costs from Costs and Expenses and adjusting
depreciation and amortization as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
1994 1995
------------ --------------
(IN THOUSANDS)
<S> <C> <C>
Eliminate successful efforts depreciation and
amortization.................................. $(86,325) $(33,494)
Add full cost amortization..................... 73,744 27,707
-------- --------
Net.......................................... $(12,581) $ (5,787)
======== ========
</TABLE>
DALEN's operations have been included in EEX's statement of income since
June 8, 1995, the date of acquisition. The adjustment for 1995 above is for
the year to date period prior to the date of acquisition.
(f) Adjusts interest income and interest expense to reflect EEX's financing of
a portion ($155 million) of the DALEN purchase price and refinancing of
DALEN bank debt in connection with the DALEN Acquisition.
(g) Provides income taxes on pro forma adjustments to income before income
taxes at the applicable statutory federal rate of 35%. Eliminates Section
29 tight sands gas tax credits and permanent differences recorded by DALEN
and reduces state income taxes incurred by DALEN to the rate applicable to
the ENSERCH Companies; the eliminations and reductions total $8.1 million
for the year ended December 31, 1994, and $1.8 million for the six months
ended June 30, 1995.
(h) Adjusts for DALEN's results of operations for the year to date period prior
to June 8, 1995, the date of acquisition. EEX's results include DALEN's
operations from the date of acquisition.
18
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA
The following tables set forth selected historical and pro forma as adjusted
financial data for EEX. The historical financial data for the six months ended
June 30, 1995 and 1994, are unaudited and have been derived from the
consolidated financial statements of EEX. In the opinion of Management, the
financial data for the six months ended June 30, 1995 and 1994, include all
adjustments (consisting only of normal recurring accruals) necessary to
present fairly the information set forth herein. This information is not
necessarily indicative of EEX's future performance. The following information
should be read in conjunction with the financial statements of EEX and "Pro
Forma Financial Information" included in this Prospectus. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"The Reorganization" and "Certain Transactions."
<TABLE>
<CAPTION>
PRO FORMA AS ADJUSTED
---------------------
EEX
----------------------------------------------------------------------- SIX
SIX MONTHS YEAR MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30, ENDED ENDED
--------------------------------------------------- ------------------ DECEMBER 31, JUNE 30,
1990 1991 1992 1993 1994 1994 1995 1994 1995
--------- -------- -------- --------- --------- -------- -------- ------------ --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DA-
TA:
Natural gas revenues.. $142,850 $123,438 $118,639 $146,355 $144,550 $78,417 $67,008 $249,872 $ 99,367
Oil and condensate
revenues............. 64,913 54,034 45,064 36,863 30,880 15,743 20,677 65,017 35,128
Natural gas liquids
revenues............. 2,163 1,999 6,554 4,148 2,377 841 1,695 6,209 3,137
Other revenues........ 336 1,489 1,287 2,430 1,333 209 268 1,438 340
--------- -------- -------- --------- --------- -------- -------- --------- --------
Total revenues....... 210,262 180,960 171,544 189,796 179,140 95,210 89,648 322,536 137,972
--------- -------- -------- --------- --------- -------- -------- --------- --------
Production and
operating expenses... 34,706 35,080 29,560 31,404 31,667 15,612 19,543 53,413 33,680
Exploration........... 11,993 12,253 11,164 8,668 9,136 4,534 5,474 9,136 5,474
Depreciation and
amortization......... 72,711 73,679 76,742 78,418 80,819 40,930 46,547 154,052 74,254
(Sale) write-down of
inactive pipeline.... 16,500 (7,551) (7,551)
Write-down of gas and
oil properties....... 274 53,100 10,191
General,
administrative and
other................ 37,247 23,618 23,149 29,980 19,807 7,944 14,743 37,766 21,795
Taxes, other than in-
come................. 16,513 17,320 15,615 15,950 13,233 6,773 7,746 22,743 7,746
--------- -------- -------- --------- --------- -------- -------- --------- --------
Total expenses....... 173,444 215,050 172,730 174,611 147,111 75,793 94,053 269,559 142,949
--------- -------- -------- --------- --------- -------- -------- --------- --------
Operating income
(loss) .............. 36,818 (34,090) (1,186) 15,185 32,029 19,417 (4,405) 52,977 (4,977)
Other income (ex-
pense)--net.......... (87) 6,002 (6) (314) 17 (3) 251 178
Interest income....... 2,899 3,220 3,692 2,041 671 188 1,026 6,882 1,026
Interest expense...... (10,659) (19,981) (20,675) (30,584) (20,919) (9,885) (3,599) (14,527) (7,802)
--------- -------- -------- --------- --------- -------- -------- --------- --------
Income (loss) before
income taxes......... 28,971 (44,849) (18,175) (13,358) 11,467 9,737 (6,981) 45,583 (11,575)
Income taxes (bene-
fit)................. 904 (45) 448 (3,398) (334) (198) (2,443) 15,199 (2,216)
--------- -------- -------- --------- --------- -------- -------- --------- --------
Net income (loss)..... $ 28,067 $(44,804) $(18,623) $ (9,960) $ 11,801 $ 9,935 $ (4,538) $ 30,384 $ (9,359)
========= ======== ======== ========= ========= ======== ======== ========= ========
Pro Forma Information:
Income (loss) before
income taxes......... $ 28,971 $(44,849) $(18,175) $ (13,358) $ 11,467 $ 9,737
Income taxes (benefit)
(including pro forma
income taxes on
partnership
operations).......... 9,851 (17,015) (6,421) (4,666) 3,990 3,419
--------- -------- -------- --------- --------- --------
Net income (loss)..... $ 19,120 $(27,834) $(11,754) $ (8,692) $ 7,477 $ 6,318
========= ======== ======== ========= ========= ========
Net income (loss) per
share (pro forma for
periods prior to
1995)................ $ .18 $ (.26) $ (.11) $ (.08) $ .07 $ .06 $ (.04) $ .24 $ (.07)
========= ======== ======== ========= ========= ======== ======== ========= ========
Weighted average
shares outstanding... 105,695 105,695 105,695 105,695 105,695 105,695 105,695 125,695 125,695
========= ======== ======== ========= ========= ======== ======== ========= ========
CASH FLOW DATA:
Net cash provided by
operating activities. $ 84,918 $ 68,253 $ 85,246 $ 79,523 $ 61,682 $ 43,522 $ 37,827 $ 171,385 $ 59,206
Net cash used in
investing activities
(1).................. (120,600) (97,657) (58,702) (129,083) (108,784) (64,966) (350,606) (185,589) (11,358)
Net cash provided by
(used in) financing
activities (1)....... 35,794 29,244 (25,683) 48,932 46,993 21,614 316,670 26,334 (9,976)
EBITDA (2)............ 109,716 98,691 92,050 103,794 104,983 60,364 42,139 199,729 69,455
</TABLE>
(table continued on next page)
19
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA AS ADJUSTED
---------------------
EEX
------------------------------------------------------------ SIX
SIX MONTHS YEAR MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30, ENDED ENDED
-------------------------------------------- --------------- DECEMBER 31, JUNE 30,
1990 1991 1992 1993 1994 1994 1995 1994 1995
-------- -------- -------- -------- -------- ------ -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Sales volumes:
Natural gas (Bcf)...... $ 76.8 $ 70.0 $ 65.2 $ 70.0 $ 67.1 $ 35.4 $ 34.5 $121.5 $ 54.9
Oil and condensate
(MMBbls).............. 2.9 2.7 2.3 2.1 2.0 1.0 1.2 4.1 2.0
Natural gas liquids
(MMBbls).............. .1 .1 .5 .3 .2 .1 .2 .7 .3
Total (Bcfe).......... 95.0 86.7 82.2 84.9 80.5 42.1 42.7 150.2 69.2
Average sales prices:
Natural gas (per Mcf)
(3)................... $ 1.86 $ 1.76 $ 1.82 $ 2.09 $ 2.15 $ 2.21 $ 1.94 $ 2.06 $ 1.81
Oil and condensate (per
Bbl).................. 22.36 20.35 19.20 17.24 15.38 15.20 16.98 15.80 17.19
Natural gas liquids
(per Bbl)............. 16.26 17.54 13.38 12.09 10.85 10.01 11.01 9.28 9.34
Total (per Mcfe)...... 2.21 2.07 2.07 2.21 2.21 2.26 2.09 2.14 1.99
Costs and expenses (per
Mcfe):
Production and
operating (4)......... $ .37 $ .40 $ .36 $ .37 $ .39 $ .37 $ .46 $ .36 $ .49
Exploration............ .13 .14 .14 .10 .11 .11 .13 .06 .08
Depreciation and
amortization.......... .77 .85 .93 .92 1.00 .97 1.09 1.03 1.07
General, administrative
and other............. .39 .27 .28 .35 .25 .19 .35 .25 .32
Taxes, other than
income................ .17 .20 .19 .19 .16 .16 .18 .15 .11
GAS AND OIL PROVED
RESERVE DATA
(AT PERIOD END):
Gas (Bcf).............. 1,224.1 1,168.1 1,101.4 1,086.5 1,041.7 1,365.7
Oil (MMBbls)........... 31.1 40.0 39.2 39.3 50.6 67.1
Total (Bcfe).......... 1,410.7 1,408.1 1,336.6 1,322.3 1,345.3 1,768.2
BALANCE SHEET DATA (AT
PERIOD END,
IN MILLIONS EXCEPT PER
SHARE DATA):
Property, plant and
equipment--net........ $1,085.1 $1,056.2 $1,018.4 $1,046.4 $1,254.0 $1,746.2 $1,660.9
Total assets........... 1,156.7 1,126.7 1,068.8 1,111.5 1,381.2 1,841.3 1,787.3
Capital lease
obligations (5)....... 155.9 153.9 99.9
Long-term debt (5)..... 202.0 234.0 266.0 298.0 350.0 91.4
Owners' equity......... 797.3 721.4 671.7 630.7 736.0 731.3 990.0
Owners' equity per
share................. 6.96 6.92 7.87
</TABLE>
--------
(1) Pro forma cash flow amounts exclude the $332.9 million acquisition of
DALEN and the refinancing of its $115 million of bank debt. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources--Cash Flows."
(2) EBITDA is earnings before interest, income taxes, depreciation and
amortization, (sale) writedown of inactive pipeline and write-off of gas
and oil assets. EBITDA is presented here to provide additional information
about EEX's ability to meet its future requirements for debt service,
capital expenditures and working capital. EBITDA should not be considered
as an alternative to net income as an indicator of operating performance
or as an alternative to cash flows as a measure of liquidity.
(3) Approximately 20% of EEX's natural gas sales are under long-term fixed
price contracts which generally exceed short-term spot market prices. A
significant portion of deliveries under these long-term fixed price
contracts are made during the winter heating season. EEX also realized
gains from hedging transactions equivalent to $.07 and $.12 per Mcf for
the year ended December 31, 1994 and the six months ended June 30, 1995,
respectively. Sales from DALEN properties are predominantly in the short-
term spot market. DALEN did not hedge its natural gas sales during these
periods. As a result, the pro forma average natural gas sales prices for
the year ended December 31, 1994 and the six months ended June 30, 1995
were 4% and 7%, respectively, below EEX's historical prices.
(4) Excludes production, severance and ad valorem taxes.
(5) Including current portion.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
EEX has been engaged in the exploration for and the development, production
and sale of natural gas and crude oil since 1918. On December 30, 1994, EEX
succeeded to the gas and oil business of EP through the Reorganization. All
references to 1994 and prior periods in this discussion reflect the results of
EEX, after giving effect to the Reorganization. See "The Reorganization",
"Certain Transactions" and the financial statements of EEX in this Prospectus.
The pro forma as adjusted financial information gives effect to the completion
of the Garden Banks and Green Canyon Transactions, and the Offering. See "Pro
Forma Financial Information."
As an independent gas and oil producer, EEX's results of operations are
dependent upon the difference between the prices received for gas and oil
produced and the costs of finding and producing gas and oil. Revenue, operating
profit and earnings for EEX closely follow fluctuations in gas and oil prices
and production volumes. On an energy equivalent basis, gas production has
accounted for approximately 80% of EEX's total production over the five years
and six months ended June 30, 1995, and gas reserves at June 30, 1995,
constituted 77.2% of total reserves. Accordingly, variations in gas prices have
a more significant impact on EEX's results of operations than variations in oil
prices. As EEX's production of oil increases, as is expected, from the
development of its Gulf of Mexico properties and from production from certain
DALEN properties, Management expects gas production to decrease as a percentage
of total production. EEX manages a portion of the risk associated with
fluctuations in the price of natural gas and oil through the use of hedging
techniques such as gas and oil swaps, collars and futures agreements. Normally,
30% to 70% of anticipated gas and oil production is hedged.
EEX's production has fluctuated over the last three years, increasing from
82.2 Bcfe in 1992 to 84.9 Bcfe in 1993 and declining to 80.5 Bcfe in 1994.
Production varies with the timing of development of proved reserves, the
completion of major development projects and the success of the exploration
program. These factors may offset or exceed the natural decline in production
from mature fields. Primarily as a result of the start up of production from
the Mississippi Canyon project, 1993 production increased over the prior year.
In 1994, as a result of a relatively unfavorable natural gas price environment,
EEX reduced capital expenditures related to the development of certain gas
properties, resulting in lower total production.
Operating results for 1995 are expected to be affected by the commencement of
production from the Garden Banks project in the fourth quarter of 1995.
Revenues from the initial production of the two existing wells may not 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, but other costs and the equipment
lease costs are essentially fixed and decline on a per unit basis only as
production increases. Management believes operating results will improve in
1996 as production begins from several additional development wells in the
Garden Banks project, and as the related equipment lease and other fixed costs
are spread over greater production.
EEX owned a 100% interest in both the Garden Banks and Green Canyon projects
located in deepwater offshore Louisiana in the Gulf of Mexico. Although proved
reserves have been assigned to both projects, substantial risks continue to be
associated with these projects. To reduce its risk, EEX elected to sell a
portion of its interest in each project and thus limit its working interest
participation.
Production from the Garden Banks project is expected to commence in the
fourth quarter of 1995. A project development plan is being developed for the
Green Canyon project. Since there has been no production from these projects,
EEX's historical results of operations would not have been affected by the
Garden Banks and Green Canyon transactions. Future results of operations will
be affected by the reduction in ownership in these projects because only EEX's
retained working interest percentage in the projects will be included in EEX's
results of operations.
21
<PAGE>
FULL COST CEILING
EEX follows the full cost method of accounting for gas and oil properties. At
June 30, 1995, based on a preliminary allocation of the DALEN purchase price,
EEX's full cost ceiling amount attributable to the properties acquired was
approximately $42 million ($27 million after-tax) less than the unamortized
cost of producing properties acquired. However, the margin deficiency
associated with the DALEN properties was approximately offset by the full cost
ceiling surplus on EEX's other properties at June 30, 1995. EEX believes the
DALEN properties have significant exploration and development potential. EEX
expects to be able to utilize its expertise, particularly with respect to tight
sands reservoirs, to enhance production and cash flows from these properties
because of the geologic similarity and proximity of DALEN's major producing
properties to EEX's properties. EEX believes that the unamortized cost of the
gas and oil properties acquired in the DALEN Acquisition is recoverable from
future production and was not in fact impaired at June 30, 1995. Accordingly,
EEX did not recognize a charge to earnings at June 30, 1995; however, if an
excess exists after a year of operation, a write-off may be required. In
addition, since gas and oil prices are subject to seasonal and other
fluctuations, a decline in prices from June 1995 levels or other factors,
without mitigating circumstances, could cause a future write-down of
capitalized costs and a non-cash charge against income.
EFFECTS OF REORGANIZATION
The ENSERCH Companies assumed $395 million of EP's debt in connection with
the Reorganization. EEX's consolidated financial statements for periods prior
to December 31, 1994, include interest expense on this debt. The following
presents net income of EEX for the three years ended December 31, 1994, and the
six months ended June 30, 1994 and 1995, adjusted for interest on the debt
assumed by ENSERCH Companies and related income tax expense and income tax
expense on partnership operations.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------- ----------------
1992 1993 1994 1994 1995
-------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net income (loss) as shown on
EEX's statements of
consolidated income............ $(18,623) $(9,960) $11,801 $ 9,935 $(4,538)
Interest expense included in
statements of consolidated
income on debt assumed by
ENSERCH Companies.............. 20,650 24,825 20,919 9,885 --
Income tax benefit (expense) on:
Partnership operations........ 6,869 1,268 (4,324) (3,617) --
Interest expense on debt
assumed by ENSERCH Companies. (7,021) (8,689) (7,322) (3,460) --
-------- ------- ------- ------- -------
Net income (loss), as adjusted.. $ 1,875 $ 7,444 $21,074 $12,743 $(4,538)
======== ======= ======= ======= =======
</TABLE>
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1995 TO SIX MONTHS ENDED JUNE 30, 1994
OPERATING RESULTS
EEX had a net loss of $4.5 million ($.04 per share) for the first six months
of 1995, compared with net income in the 1994 period of $6.3 million ($.06 per
share) after adjustment for income taxes on partnership operations. For the
first half of 1995, EEX had an operating loss of $4.4 million versus income of
$19.4 million for the same period a year-ago. DALEN operations, which have been
included from June 8, 1995, the date of acquisition, added operating income of
$.1 million, after a $1.0 million charge for severance costs related to the
acquisition.
22
<PAGE>
REVENUES
Total revenues for the first half of 1995 of $89.6 million were $5.6
million, or 5.8%, less than the $95.2 million for the same period of 1994,
primarily as a result of lower natural gas production and prices, partially
offset by increases in oil production and prices. Natural gas revenue
decreased $11.4 million, or 14.5%, from the 1994 period, with natural gas
sales volumes, which include DALEN production of 4.6 Bcf, declining to 34.5
Bcf, a decrease of 2.7%, from the 1994 level of 35.4 Bcf. The reduction,
exclusive of the DALEN volumes, reflects lower output from Gulf of Mexico
properties, partially due to maintenance work; lower sales volumes recognized
from East Texas fields, primarily due to timing differences on annual delivery
requirements on reserves sold in 1988; and reduced development expenditures
for replacing gas production due to the relatively low gas price environment.
Natural gas prices declined 12% from an average of $2.21 per Mcf to $1.94 per
Mcf, including the effects of hedging transactions. As a result of gas price
hedging activities, EEX realized revenue of $4.1 million, or $.12 per Mcf, in
the first half of 1995, compared with $.5 million, or $.01 per Mcf, in the
1994 period. Oil revenue for the first half of 1995 increased 31%, as prices
increased from an average of $15.20 per Bbl in 1994 to $16.98 per Bbl in 1995
and production increased 17.6% to 1.2 MMBbls, principally due to volumes
contributed by DALEN. Oil price hedging activity reduced year-to-date 1995
revenue by $.6 million, or $.46 per Bbl, and added $.3 million, or $.26 per
Bbl, in the same period of 1994.
EXPENSES
Excluding a $6.0 million increase associated with DALEN, depreciation and
amortization ("D&A") for the first half of 1995 was $.4 million below the
year-ago period, with the effects of a lower level of production for the most
part offset by a higher per unit amortization of capitalized costs related to
the conversion of the Mississippi Canyon project from an operating to a
capital lease and higher onshore exploration expenditures. On a per unit
basis, D&A increased from $.97 per Mcfe to $1.09 per Mcfe.
Production and operating costs increased $3.9 million from the 1994 period,
primarily due to DALEN expenses of $1.6 million and higher maintenance costs.
On a unit of production basis, production and operating costs increased from
$.37 per Mcfe to $.46 per Mcfe. Exclusive of the DALEN production and related
expenses, the per Mcfe cost increase reflects the impact of fixed costs and
higher maintenance costs on a lower level of production.
Exploration expense increased $.9 million, or 20.7%, to $5.5 million as a
result of increased international exploration activity.
General, administrative and other expenses ("G&A") for the first half of
1995 reflect a $1.2 million provision for injuries and damages claims and
DALEN expenses of $1.9 million, while the 1994 period benefited from non-
recurring credits of $2.0 million associated with litigation accruals.
Exclusive of these items, G&A costs increased from $9.9 million, or $.24 per
Mcfe, in 1994 to $11.6 million, or $.27 per Mcfe, in 1995.
Taxes, other than income increased $1.0 million from the 1994 period, with
the increase primarily associated with DALEN.
Interest income increased from $.2 million in the 1994 period to $1.0
million in the 1995 period due to interest on an intercompany note receivable
from an ENSERCH Company. The note was repaid in February 1995. Interest
expense decreased from $9.9 million to $3.6 million, principally due to the
assumption by ENSERCH Companies of EP's indebtedness in conjunction with the
Reorganization, partially offset by interest of $2.1 million on temporary
borrowings associated with the DALEN Acquisition.
23
<PAGE>
COMPARISON OF FISCAL YEAR 1994 TO FISCAL YEAR 1993
OPERATING RESULTS
After adjusting for income taxes on partnership operations, EEX had 1994 net
income of $7.5 million, or $.07 per share, versus a 1993 net loss of $8.7
million, or $.08 per share. Operating income increased from $15.2 million to
$32.0 million in 1994, or 110.9%, over the same period of 1993. Results for
1994 included a $4.9 million after-tax ($7.6 million pre-tax) gain from the
sale of an inactive offshore pipeline that was written-down by $10.9 million
after-tax ($16.5 million pre-tax) in 1992 and a $1.3 million after-tax ($2.0
million pre-tax) credit associated with litigation accruals. Results for 1993
included a $6.6 million after-tax ($10.2 million pre-tax) write-off of
unsuccessful foreign exploration costs and a $4.6 million after-tax ($7.1
million pre-tax) charge relating to litigation. Excluding these unusual items,
net income decreased from $2.6 million in 1993 to $1.3 million in 1994, and
operating income decreased from $32.5 million in 1993 to $22.5 million in 1994,
or 30.9%.
REVENUES
Total revenues declined from $189.8 million in 1993 to $179.1 million in
1994, or 5.6%, primarily as a result of lower natural gas and oil production
and lower oil prices, partially offset by higher natural gas prices. Natural
gas revenue decreased $1.8 million as production decreased 4.2% to 67.1 Bcf in
1994, principally due to reduced production from two fields in South Texas.
Natural gas prices increased from $2.09 per Mcf in 1993 to $2.15 per Mcf in
1994, as gas price hedging activities added $5.0 million, or $.07 per Mcf, to
1994 revenue, compared with a net decrease in revenue of $4.1 million, or $.06
per Mcf, from hedging activities in 1993. Oil revenue decreased $6.0 million as
production decreased 6.1% to 2.0 MMBbls, primarily due to the natural decline
in production. Oil prices declined from $17.24 per Bbl to $15.38 per Bbl, or
10.8%, from 1993 to 1994. Oil price hedging activities decreased 1994 revenue
by $.7 million, $.34 per Bbl, and increased 1993 revenue by $.4 million, $.18
per Bbl.
EXPENSES
D&A expense increased slightly from $78.4 million in 1993 to $80.8 million in
1994, or 3.1%, due to higher per unit amortization of capitalized costs related
to the conversion of the Mississippi Canyon project from an operating to a
capital lease and higher onshore exploration expenditures, partially offset by
the effects of lower production. On a per unit of production basis, D&A expense
increased from $.92 per Mcfe to $1.00 per Mcfe.
Production and operating costs for 1994 were slightly higher than in the 1993
period. However, on a unit of production basis, production and operating costs
increased from $.37 per Mcfe to $.39 per Mcfe, reflecting the impact of fixed
costs on a lower level of production.
Exploration expenses increased $.5 million, or 5.4%, to $9.1 million.
Expenses in 1993 were impacted by a $10.2 million write-off of unsuccessful
exploration costs associated with international operations.
G&A costs decreased from $30.0 million to $19.8 million, or 33.9%. Excluding
amounts associated with litigation, G&A costs decreased from $22.9 million to
$21.8 million, or 4.8%, as a result of a corporate reorganization and the
consolidation of job functions, resulting in G&A costs on a per unit basis, of
$.27 per Mcfe for both periods.
Taxes, other than income, decreased $2.7 million, or 17.0%, to $13.2 million
as a result of a decline in gas and oil production.
Interest income decreased $1.4 million to $.7 million in 1994. Interest
expense was $20.9 million in 1994, compared with $30.6 million in 1993.
Interest expense in 1993 included a provision of $6.0 million for interest due
royalty owners.
24
<PAGE>
COMPARISON OF FISCAL YEAR 1993 TO FISCAL YEAR 1992
OPERATING RESULTS
After adjusting for income taxes on partnership operations, EEX had a 1993
net loss of $8.7 million, or $.08 per share, compared with a 1992 net loss of
$11.8 million, or $.11 per share. Operating results improved from a loss of
$1.2 million to income of $15.2 million over the same period. Results for 1993
included a $6.6 million after-tax ($10.2 million pre-tax) write-off of
unsuccessful foreign exploration costs and a $4.6 million after-tax ($7.1
million pre-tax) charge relating to litigation. Results in 1992 included a
$10.9 million after-tax ($16.5 million pre-tax) writedown of an inactive
pipeline. Excluding these unusual items, EEX had net income of $2.6 million in
1993 versus a net loss of $.9 million in 1992. As a result, operating income
increased from $15.3 million in 1992 to $32.5 million in 1993.
REVENUES
Total revenues increased from $171.5 million in 1992 to $189.8 million in
1993, or 10.6%, primarily from increased volumes and prices of natural gas,
partially offset by lower oil volumes and prices. Natural gas revenue increased
$27.7 million as production increased 7.4% to 70.0 Bcf as a result of the
start-up of production from the Mississippi Canyon project. Natural gas prices
increased from $1.82 per Mcf in 1992 to $2.09 per Mcf in 1993. As a result of
gas price hedging activities, EEX incurred a decrease in revenue of $4.1
million, or $.06 per Mcf, in 1993 and a decrease of $.7 million, or $.01 per
Mcf, in 1992. Oil revenue decreased $8.2 million as production decreased 8.9%
to 2.1 MMBbls, primarily due to decreased production in the North Texas area.
Oil prices declined 10.2%, from $19.20 per Bbl to $17.24 per Bbl. Oil price
hedging activities increased 1993 revenue by $.4 million, or $.18 per Bbl; no
hedging activities applied to oil production in 1992.
EXPENSES
D&A expense increased from $76.7 million in 1993 to $78.4 million, or 2.2%,
due to an increase in production. On a unit of production basis, D&A decreased
from $.93 per Mcfe to $.92 per Mcfe.
Production and operating expenses increased $1.8 million, or 6.2%, to $31.4
million in 1993. However, on a unit of production basis, production and
operating costs increased slightly from $.36 per Mcfe in 1992 to $.37 per Mcfe
in 1993 due to a higher level of production.
Exploration expenses decreased by $2.5 million, or 22.4%, to $8.7 million in
1993. This decrease resulted from a cost control and reduction program
implemented in 1993. On a unit of production basis, exploration expenses were
reduced from $.14 per Mcfe in 1992 to $.10 per Mcfe in 1993.
G&A costs increased from $23.1 million in 1992 to $30.0 million in 1993, or
29.5%. Excluding the charge for litigation in 1993, G&A costs were slightly
lower than in 1992, and on a unit of production basis, G&A costs decreased from
$.28 per Mcfe in 1992 to $.27 per Mcfe in 1993.
Taxes, other than income, increased slightly from $15.6 million in 1992 to
$16.0 million in 1993 as onshore revenue increased.
Interest income decreased from $3.7 million in 1992 to $2.0 million in 1993.
Interest expense in 1993 was $30.6 million, compared with $20.7 million in
1992. Interest expense in 1993 included a provision of $6.0 million for
interest due royalty owners.
LIQUIDITY AND CAPITAL RESOURCES
EEX has funded its activities through cash provided from operations,
borrowings from bank credit facilities and ENSERCH, and both operating and
capital lease arrangements with an ENSERCH Company.
25
<PAGE>
CASH FLOWS
For the first six months of 1995, operating activities provided net cash
flows of $37.8 million, a $5.7 million decrease from the $43.5 million
provided in the first half of 1994. There was a $3.3 million reduction in
income before D&A and deferred income taxes and a $7.2 million greater
requirement related to changes in other assets and liabilities, including a
$12.9 million increase in operating lease payments on the Garden Banks project
that are being deferred until production commences. However, changes in
current operating assets and liabilities resulted in a $4.8 million year-to-
year improvement in cash flows. Investing activities required net cash flows
of $350.6 million, including $332.9 million required for the DALEN Acquisition
and $86.1 million provided by the collection of a note receivable from an
ENSERCH Company, compared with $65.0 million in the year-ago period. Capital
expenditures increased 54.6% from the year-earlier level to $90.1 million.
Net cash flows from operating activities for the year ended December 31,
1994, were $61.7 million, $17.8 million less than the $79.5 million in 1993,
principally due to an increase in operating assets and liabilities. Investing
activities in 1994 required net cash flows of $108.8 million versus $129.1
million in 1993, with a higher level of capital spending more than offset by
an increase in cash provided from the sale of properties and other investing
activities. In addition, disbursements in 1994 for the construction of the
Garden Banks facilities exceeded advances under leasing arrangements by $32.8
million. In 1994, $87.3 million was provided by advances from ENSERCH
Companies.
For the year ended December 31, 1993, net cash flows from operating
activities were $79.5 million versus $85.2 million in 1992. Investing
activities in 1993 were $129.1 million, compared with $58.7 million in 1992,
with property additions $53.9 million higher than in 1992. The net financing
requirement in 1993 of $48.9 million was provided by advances from ENSERCH
Companies and advances under leasing arrangements that temporarily exceeded
disbursements for facilities under construction.
On June 8, 1995, EEX borrowed $350 million under a four-year revolving
credit agreement and $150 million under a bridge loan to pay the purchase
price of $340 million for the capital stock of DALEN, repay DALEN's bank debt
of $115 million and reduce advances from ENSERCH by $45 million. The four-year
revolving credit agreement with a group of banks matures May 1, 1999. The
agreement limits, at all times, total debt, as defined, to the lesser of 60%
of capitalization, as defined, or $750 million, and prohibits liens on
property except under certain circumstances. Interest is charged at variable
rates depending upon the consolidated capitalization ratio, as defined. The
LIBOR-based rate to be paid ranges from LIBOR plus .35% to LIBOR plus .75% per
annum, plus a facility fee ranging from .15% to .25% per annum. The net
proceeds from the sale of the Common Stock in the Offering will be used to
reduce the borrowing under the revolving credit agreement and for other
corporate purposes. Accordingly, in preparing the June 30, 1995, balance
sheet, $300 million was estimated to be repaid with the net proceeds from the
Offering and was classified as a current liability.
The bridge loan was repaid on August 4, 1995, with the proceeds from a $150
million adjustable rate redeemable preferred stock offering by a subsidiary of
EEX. See Note 3 to EEX's financial statements for the six months ended June
30, 1995, included in this Prospectus. Accordingly, the $150 million bridge
loan has been classified as minority interest on the balance sheet. The
dividend rate on the subsidiary preferred stock, which is adjusted quarterly,
approximates LIBOR plus .625%.
EEX intends to utilize substantially all of its internally generated cash
flows for growth of the business. Internally generated cash flows may be
supplemented by borrowings to fund temporary cash deficiencies. In addition to
the revolving credit agreement, EEX has a $100 million borrowing arrangement
with ENSERCH to meet short-term cash needs, of which $39 million was
outstanding at June 30, 1995. This borrowing arrangement was formalized by a
letter agreement between EEX and ENSERCH effective as of January 1, 1995. See
"Certain Transactions" and "Capitalization". The limit of the borrowing
arrangement with ENSERCH is expected to be reduced from $100 million to $50
million upon the conclusion of the Offering. EEX does not anticipate paying
any cash dividends in the foreseeable future.
26
<PAGE>
LEASES
The equipment and facilities used in developing and producing reserves in the
Mississippi Canyon and Garden Banks projects were financed by a predecessor
company under lease arrangements with financial institutions guaranteed by
ENSERCH. In connection with the Reorganization, the leases were assigned to and
assumed by Enserch Exploration Holdings, Inc. ("EEH"), a wholly-owned
subsidiary of ENSERCH. EEX then entered into three sublease arrangements with
EEH for the offshore facilities. For accounting purposes, one of the leases is
an operating lease, and two are capital leases. 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. See "The
Reorganization" and Note 7 to EEX's financial statements in this Prospectus.
Costs for the Garden Banks facilities and equipment, including costs related
to the recent discovery on Block 387, are expected to be approximately $350
million. EEX's lease arrangements with EEH, which also include $20 million of
financing costs incurred by ENSERCH Companies prior to the sublease to EEX, are
being modified to cover the additional costs of the facilities and equipment.
Together, the Garden Banks and Green Canyon Transactions are expected to
provide cash of approximately $31 million in 1995. EEX also expects to receive
an interest in a gas and oil property and future work commitments on the Garden
Banks and Green Canyon projects. At the closing of the Garden Banks Transaction
on August 9, 1995, EEX was relieved of capital and operating lease obligations
of approximately $140 million. In addition, EEX will be relieved of a portion
of future capital expenditure requirements on the Garden Banks and Green Canyon
projects. See "Business--Significant Properties and Exploration and Development
Activities--Gulf of Mexico Region."
CAPITAL BUDGET
EEX currently expects capital expenditures for 1995 to be approximately $175
million. Capital expenditures excluding DALEN are expected to be $121 million,
compared with expenditures of $133 million in 1994 and $119 million in 1993.
Planned EEX expenditures for 1995 have been reduced $39 million from the
originally planned level of $160 million because of low natural gas prices.
Capital expenditures for 1995 exploration and development of the DALEN
properties after the acquisition are estimated to be $54 million. The
expenditures exclude costs of the floating production platform and related
facilities for the Garden Banks project, which are being provided through lease
arrangements with EEH.
HEDGING ACTIVITIES
At June 30, 1995, EEX had outstanding swaps, collars and futures agreements
extending through June 1996 to exchange payments on approximately 11.6 Bcf of
gas and 1.0 MMBbls of oil, on which EEX had $4.6 million of net unrealized
gains. At June 30, 1995, realized gains on hedging activities of $.6 million
were deferred. At December 31, 1994, EEX had outstanding swaps, collars and
futures agreements extending through December 1995 to exchange payments on
approximately 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.
27
<PAGE>
BUSINESS
GENERAL
EEX's operations represent the gas and oil exploration and production
business of ENSERCH. EEX has been engaged in the exploration for and the
development, production and sale of natural gas and crude oil since 1918, with
an original focus on augmenting the natural gas supply for ENSERCH's natural
gas distribution operations. Exploration activities gradually expanded to a
wide geographic area, including limited international activity. In 1985,
substantially all of ENSERCH's domestic gas and oil exploration and production
business was transferred to EP, a publicly traded limited partnership. Pursuant
to the Reorganization, on December 30, 1994, EEX acquired all of the operating
properties of EP in exchange for Common Stock, EP was dissolved and the Common
Stock held by EP was distributed to EP's limited and general partners in
accordance with their partnership interests. Trading of EEX shares began on the
New York Stock Exchange on January 3, 1995. See "The Reorganization."
EEX's domestic activities are focused in four regions: the Gulf of Mexico;
East Texas; North Central Texas; and the Gulf Coast Region of Texas, Louisiana,
Mississippi and Alabama. EEX's operations have been oriented primarily toward
natural gas. EEX had total proved reserves of approximately 1.8 Tcfe as of June
30, 1995, with gas reserves, on an energy equivalent basis, constituting 77.2%
of total reserves.
Unless otherwise indicated, references in this Prospectus to reserves,
acreage, production, drilling activity and other operating data reflect the
combined data of (i) EEX following completion of the Reorganization, and the
Garden Banks and Green Canyon Transactions and (ii) DALEN .
The principal offices of EEX are located at 4849 Greenville Avenue, Suite
1200, Dallas, Texas 75206, and its telephone number is (214) 369-7893.
STRATEGY
EEX's primary objective is to increase production, reserves and cash flows
through the full exploitation of its large portfolio of developed and
undeveloped acreage. EEX plans to achieve this objective by pursuing the
following strategy:
. Pursue balanced growth through a combination of low risk development
projects, high potential exploration activities and strategic
acquisitions.
. Apply technology to development and exploration projects to reduce risks
and efficiently produce reserves.
. Emphasize efficient exploitation of producing properties through low cost
operations.
. Utilize tight sands and subsea operating experience to expand operations
both domestically and internationally.
. Maintain a strong balance sheet to provide flexibility to pursue future
growth.
EEX has extensive experience in reservoir management and believes it has
particular competence in the exploitation and development of tight sands
reservoirs. EEX's successful completion of subsea development operations in the
deep water Gulf of Mexico using bundled flow lines to tie back to conventional
shallow water production facilities, coupled with the use of technology such as
3-D seismic, has enabled it to become one of the few independent gas and oil
companies to successfully develop deep water Gulf of Mexico reserves as well as
operate such fields. EEX's two most recent deep water Gulf of Mexico
development projects, the Garden Banks and Green Canyon projects, are currently
under development. Initial production from the Garden Banks project is expected
to commence in the fourth quarter of 1995 and from the Green Canyon project in
the next three to four years.
28
<PAGE>
EXPLORATION
EEX plans to concentrate its exploration activities primarily in areas in
which Management believes EEX has a competitive advantage. This advantage may
be derived from operating experience, technological expertise, geological or
geophysical knowledge, and/or an acreage position. EEX's current exploration
program is focused primarily in areas of current operations including: the Gulf
of Mexico; the North Central Texas Region, including the Hardeman Basin and
Bend Arch, the Delaware Basin in Southeast New Mexico and the Anadarko Basin in
Oklahoma; and the Gulf Coast Region, concentrating on the tertiary plays and
the Smackover Trend in Alabama. EEX plans to pursue growth through a balanced
mix of prospects that include high risk, high reserve potential prospects, as
well as prospects with lower risks and more modest reserve potential. EEX
intends to manage its risk by generally limiting its participation in high risk
ventures to a 50% or less working interest. EEX plans to deviate from this
strategy only when Management believes the potential rewards are commensurate
with the risks.
EEX plans to make substantial use of 3-D seismic technology in its
exploration activities. EEX has successfully used this technology to discover
and develop reserves both onshore and offshore.
DEVELOPMENT
EEX's portfolio of properties includes a range of fields in various stages of
development. Many of these fields are mature properties facing natural declines
in production. EEX has developed expertise in the management of these mature
fields and through active reservoir management and application of technology
has reversed or slowed their natural decline. EEX continually monitors its
producing fields in an attempt to maximize present value.
A critical component of exploiting these fields fully is cost control. EEX's
strategy is to maintain low operating costs while minimizing capital costs.
EEX's integrated approach to exploiting these fields enables it to apply
techniques and technology developed in its other operations to its mature
fields, thereby improving operating efficiency and lowering costs. The constant
monitoring of a field's response to the application of production enhancement
techniques allows EEX to design the proper combination of infill drilling,
reworking of existing wells, recompletions and enhanced recovery techniques
that is expected to improve the production of its existing fields.
EEX recently entered into a joint program with the Los Alamos National
Laboratory to study the impact of hydraulic fracturing in the Opelika Field
located in EEX's East Texas Region. This exemplifies EEX's willingness to apply
the latest technology toward enhancing field production. A successful program
at Opelika could enable EEX to apply similar technology at its other fields.
ACQUISITIONS AND DIVESTITURES
EEX plans to continuously upgrade its portfolio of properties through a
combination of acquisitions and divestitures. EEX will pursue selective
acquisitions of reserves that complement existing operations and provide an
opportunity to apply its operating and technological experience to enhance the
value of the acquired properties. Acquisitions may consist of both large
strategic acquisitions, such as the DALEN Acquisition, and smaller acquisitions
that increase EEX's ownership in core properties. Following the DALEN
Acquisition, EEX has a concentrated portfolio of reserves, with its 30 largest
onshore fields accounting for 72% of EEX's reserves. Of these 30 onshore
fields, 25 are operated by EEX.
At the same time, EEX will continuously review its portfolio of properties to
identify marginal, remote and non-strategic fields. These fields will be
targeted for disposition. At the time of the DALEN Acquisition, EEX had reduced
its number of fields from 400 in 1988 to 270. This process allows EEX to focus
in areas where it has existing infrastructure and control of operations, and
can achieve the lowest operating costs.
29
<PAGE>
RECENT DEVELOPMENTS
DALEN ACQUISITION
On June 8, 1995, EEX acquired all the capital stock of DALEN, an independent
gas and oil company engaged in the exploration for and the development and
production of natural gas and crude oil. Through the DALEN Acquisition, EEX
acquired proved reserves totaling 396.8 Bcfe at June 30, 1995, and other assets
for a purchase price of $340 million and refinanced DALEN's $115 million of
bank debt. The DALEN Acquisition was funded through EEX's $350 million
revolving credit facility and a $150 million bridge financing facility. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." DALEN's activities have been
oriented primarily toward natural gas and are concentrated in selected major
production regions, including the Gulf Coast, the Gulf of Mexico and the Mid-
Continent. DALEN was an attractive acquisition for EEX because several of
DALEN's operations are located in fields that are either near or producing from
formations from which EEX is also producing. EEX believes that DALEN's property
base has significant exploitation and development potential. The DALEN
Acquisition is a key step in EEX's growth plan from which EEX expects to
realize near term benefits. The geologic similarity and proximity of DALEN's
major producing properties to EEX's properties permit EEX to apply its
expertise, particularly with respect to tight sands reservoirs, to these
properties, from which EEX expects enhanced production and cash flows. The
enhanced production capabilities which EEX expects to apply to DALEN's property
base have been reflected in an approximately 20 Bcfe increase in proved
reserves from the DALEN properties since year-end 1994 estimates. Such increase
is based on estimates as of July 1, 1995, by D&M. In addition, production from
the DALEN properties was 32 Bcfe during the six months ended June 30, 1995. EEX
also expects to realize cost savings through the integration of the companies'
operations. Synergistic opportunities for operating efficiencies and cost
reductions are expected to result in improved financial results for the
combined companies.
GREEN CANYON PROJECT
On April 25, 1995, EEX and an affiliate of Mobil entered into a letter of
intent for Mobil to purchase a 40% interest in EEX's Green Canyon project. An
affiliate of Reading & Bates Corp. had previously signed a letter of intent to
purchase a 20% interest in the project. Upon the completion of the Green Canyon
Transaction, EEX will own a 40% working interest in the Green Canyon project
and remain the operator of the project. D&M has as of March 1, 1995, initially
estimated gross reserves, including royalty interests, at the Green Canyon
project to be 85.5 MMBbls of oil and 149.5 Bcf of natural gas, of which 49.2
MMBbls of oil and 102.2 Bcf of natural gas are in the proved category. EEX's
initial interest in the Green Canyon project proved reserves, excluding royalty
interests, amounted to 42.2 MMBbls of oil and 87.8 Bcf of natural gas, for a
total of 341.2 Bcfe; after completion of the Green Canyon Transaction, EEX's
interest in the Green Canyon project reserves will be 136.5 Bcfe. Based upon
its experience and results to date in the Green Canyon project, EEX intends to
expand its holdings in this area. On May 10, 1995, EEX, on behalf of its Green
Canyon co-venturers, submitted the highest bids on six blocks within ten miles
of the proposed location of the Green Canyon production facility and to date
has been awarded exploration and development rights on five of them. EEX
believes it is advantageously positioned to fully develop its Green Canyon
holdings with the backing of its partners, each of which has considerable
offshore experience.
GARDEN BANKS PROJECT
In April 1995, after evaluating EEX's development plans for Garden Banks
Block 388, another affiliate of Mobil exercised its option to acquire a 40%
interest in the Garden Banks project. The transaction was closed on August 9,
1995. EEX's remaining interest in the Garden Banks reserves, excluding royalty
interests, is 20.5 Bcf of proved natural gas reserves and 16.9 MMBbls of proved
oil and gas liquids reserves. Both the Garden Banks and Green Canyon
Transactions illustrate EEX's strategy of reducing its risk by limiting its
working interest participation in high-risk ventures. These arrangements also
enable EEX to reduce its capital commitments with respect to these projects
while still participating in the potential rewards from bringing these
properties to production.
30
<PAGE>
INTERNATIONAL OPERATIONS
EEX is focused on expanding its activities in areas where its experience and
technical competencies can be exploited. EEX believes that international
exploration and development activities will be an important source of growth.
On June 12, 1995, EEX announced the conclusion of a Memorandum of Understanding
to form a joint venture with ONGC Videsh Limited, a wholly-owned subsidiary of
the Oil & Natural Gas Corporation Limited of New Delhi, India, to explore and
develop hydrocarbon resources in India and other countries. Joint ventures such
as the one planned with ONGC Videsh Limited are expected to enable EEX to
broaden the utilization of its expertise in the exploitation of mature natural
gas and oil fields and to develop offshore geologic structures utilizing its
experience in subsea completion technology and floating production technology.
By combining with co-venturers that have a high degree of knowledge and
experience with geologic conditions in their local regions, EEX believes that
it can reduce the risks inherent in expanding beyond its core operations in the
United States.
EEX acquired all of its currently owned international properties in June 1995
when it purchased all the international gas and oil operations of ENSERCH,
which consisted of concessions in Indonesia, Malaysia and Israel. The
Indonesian properties contain proved reserves of 4.1 MMBbls of oil. EEX had
previously managed these properties for ENSERCH for several years.
GAS AND OIL RESERVES
A major effect of the above-described recent developments has been to
increase EEX's net proved reserves. The following table sets forth EEX's net
proved reserves as of June 30, 1995, including the effect of the recent
developments described above.
<TABLE>
<CAPTION>
NATURAL OIL AND
GAS GAS LIQUIDS TOTAL
(BCF) (MMBBLS) (BCFE)
------- ----------- -------
<S> <C> <C> <C>
EEX proved reserves at December 31, 1994:(1)
As originally reported....................... 1,041.7 46.1 1,318.6
Acquisition of ENSERCH's international and
SACROC
reserves(2)................................. -- 4.5 26.7
January through June 1995:
Additions to reserves:
Green Canyon project(3)..................... 87.8 42.2 341.2
Other(1).................................... 1.8 1.0 7.7
Production................................... (29.9) (1.2) (36.9)
Sales of reserves:
60% interest in Green Canyon project(4)...... (52.7) (25.3) (204.7)
40% interest in Garden Banks project(4)...... (13.6) (11.2) (81.2)
------- ----- -------
Total EEX proved reserves at June 30, 1995
before DALEN Acquisition.................. 1,035.1 56.1 1,371.4
DALEN proved reserves at June 30, 1995(1)(5)... 330.6 11.0 396.8
------- ----- -------
Total EEX proved reserves at June 30, 1995. 1,365.7 67.1 1,768.2
======= ===== =======
</TABLE>
--------
(1)As estimated by D&M.
(2) See "The Reorganization".
(3) Net of royalty interests. Based on D&M's report at March 1, 1995, of gross
proved reserves of 102.2 Bcf of gas and 49.2 MMBbls of oil.
(4)See "Business--Recent Developments".
(5)After production from date of acquisition of 4.6 Bcf of gas and .2 MMBbls of
oil and gas liquids.
31
<PAGE>
SIGNIFICANT PROPERTIES AND EXPLORATION AND DEVELOPMENT ACTIVITIES
EEX's domestic activities are focused in four regions: the Gulf of Mexico;
East Texas; North Central Texas; and the Gulf Coast Region of Texas, Louisiana,
Mississippi and Alabama. The following table sets forth estimated pro forma net
proved reserves of EEX by region at June 30, 1995:
<TABLE>
<CAPTION>
NATURAL OIL AND % OF TOTAL
GAS GAS LIQUIDS TOTAL PROVED
REGION (BCF) (MMBBLS) (BCFE) RESERVES
------ ------- ----------- ------- ----------
<S> <C> <C> <C> <C>
Gulf of Mexico........................ 118.0 34.8 326.5 18.5%
East Texas............................ 860.0 7.9 907.7 51.3
North Central Texas and Other......... 243.4 16.3 341.0 19.3
Gulf Coast............................ 144.3 4.0 168.4 9.5
------- ---- ------- -----
Total domestic...................... 1,365.7 63.0 1,743.6 98.6
International......................... -- 4.1 24.6 1.4
------- ---- ------- -----
Total............................... 1,365.7 67.1 1,768.2 100.0%
======= ==== ======= =====
</TABLE>
GULF OF MEXICO REGION
The Gulf of Mexico Region conducts exploration and development activities
offshore in the Gulf of Mexico. Much of EEX's recent activity has been in the
deep water (greater than 600 feet) areas of the Gulf of Mexico, which
represented 85.7% of total proved reserves in this region at June 30, 1995, and
35.8% of 1994 production. Management believes EEX is one of the few independent
exploration and development companies with the expertise to develop fields in
deep water. The Gulf of Mexico properties typically are characterized by high
initial production rates and high capital costs.
Total proved reserves in the Gulf of Mexico Region at June 30, 1995, are
326.5 Bcfe, which represents 18.5% of EEX's total proved reserves. The DALEN
Acquisition added 23.4 Bcfe of total proved reserves in this region.
<TABLE>
<CAPTION>
PROVED 1994
RESERVES PRODUCTION
(BCFE) (BCFE)
-------- ----------
<S> <C> <C>
EEX:
Proved reserves at December 31, 1994 and production for
1994:
Garden Banks project.................................. 203.0
Mississippi Canyon project............................ 23.9 8.2
Other................................................. 27.6 8.8
January through June 1995:
Additions to reserves--
Green Canyon project (1)............................ 341.2
Production............................................ (6.7)
Sales of reserves:
60% interest in Green Canyon project.................. (204.7)
40% interest in Garden Banks project.................. (81.2)
------ ----
Total EEX proved reserves at June 30, 1995 and
production for 1994................................. 303.1 17.0
------ ----
DALEN proved reserves at June 30, 1995 and
production for 1994.................................... 23.4 5.9
------ ----
Total................................................ 326.5 22.9
====== ====
</TABLE>
--------
(1) Net of royalty interests. Based on D&M's report at March 1, 1995, of gross
proved reserves of 102.2 Bcf of gas and 49.2 MMBbls of oil.
Mississippi Canyon Project. Mississippi Canyon, the first deep water
development project in the federal waters of the Gulf of Mexico that EEX has
operated, reflects EEX's use of technology, including specialized
32
<PAGE>
3-D seismic processing and remote completion and production techniques. EEX
operates and owns a 37.5% working interest in this two-block unit (Blocks 441
and 485) located approximately 50 miles south of Grand Isle, Louisiana. The
field is located in 1,410 to 1,520 feet of water just off the Outer Continental
Shelf. A shipping fairway, the Louisiana Offshore Oil Port (or LOOP), covers
the eastern three-fourths of the unit. Therefore, the field was developed
utilizing clustered high angle subsea wells that flow to a remote platform
located outside the shipping fairway in 380 feet of water. The field was placed
on production in early 1993 and is currently producing from four wells. This
project has been fully developed and although there may be deeper exploratory
potential, no additional drilling is currently planned.
Exploration activities in the Mississippi Canyon project were undertaken
based on a 3-D seismic program conducted prior to field development. The
program confirmed that the majority of the reservoir lies beneath the shipping
fairway. A production program was developed that involved drilling highly
deviated wells under the shipping fairway, subsea completing the wells and
tying them back to a conventional shallow water production platform using
bundled flowlines. The development program was completed as planned and, after
two years of production, the field has been essentially maintenance free.
Production from the field, which declined from initial levels due to
anticipated water encroachment, has stabilized at approximately 35 MMcf of
natural gas and 150 Bbls of gas liquids per day. The 3-D seismic data on
Mississippi Canyon Block 441 is being reprocessed, using depth migration and
other advanced techniques, to aid in the identification of deeper exploratory
targets, which, if successfully drilled, could add to the field reserves.
Garden Banks Project. EEX is the operator and owns a 60% working interest in
the Garden Banks project, a six-block unit (Blocks 344, 345, 386, 387, 388 and
389) located 200 miles southwest of New Orleans, Louisiana in 2,200 feet of
water. Final facility installation is currently underway. Two wells have been
completed and first production is slated for the fourth quarter of 1995.
Because of the failure of a vendor-supplied mechanical tool for handling pipe,
first production on the Garden Banks project will not be as early as had been
anticipated. A section of flexible pipe, which facilitates oil export, was
damaged and will be replaced. A total of 17 wells comprise the current
development plan.
Field development plans for the Garden Banks project incorporate subsea well
completions producing to a floating production facility ("FPF") tied back to a
traditional production facility in shallow water. Throughout 1994, EEX worked
on the conversion of a semi-submersible drilling rig to a floating drilling and
production facility for the development of the Garden Banks project. The
modification work has been completed and the facility has been moored on
location. A 24-slot subsea template has been installed, and two 12-inch gas and
oil gathering lines have been installed and tied back to the shallow water
production facility located 54 miles away. Completion operations on the two
existing wells on Garden Banks Block 388 commenced in early 1995 and these
wells will be brought on-stream after the production riser is installed. The
initial well was completed in mid-March and tested at rates that indicate the
well will likely flow at an initial daily rate of 6,000 Bbls of oil equivalent.
The second well has been completed with initial daily production rates
anticipated to be between 2,500 and 3,000 Bbls of oil equivalent. Proved
reserves on Garden Banks Block 387 established by an exploratory well drilled
last year will be developed utilizing a three-slot template connected to the
main template by bundled flowlines. First production from this template is
scheduled for the second quarter of 1996.
An affiliate of Mobil exercised its option to acquire a 40% working interest
in the Garden Banks project. The option was earned as a result of an agreement
by an affiliate of Mobil to: (i) pay a disproportionately larger share of the
cost of drilling an exploratory well in EEX's Garden Banks unit on Block 387;
(ii) conduct a long cable 3-D seismic survey over the unit to further assess
the deeper horizon correlative to the nearby Auger field discovery; and (iii)
perform certain future work on the project primarily at its risk and expense.
EEX consummated this transaction, on August 9, 1995.
EEX's Garden Banks project has attracted a great deal of industry attention
because concepts successfully used in the Mississippi Canyon project are being
further expanded to apply to a floating drilling and production environment.
EEX generated the Garden Banks Block 388 prospect and successfully acquired
interests in Blocks 387 and 388 in the 1984 Western Gulf federal lease sale.
EEX originally held a 25% working interest and through subsequent transactions
acquired a 100% working interest in 1991. At that
33
<PAGE>
point, five wells and one sidetrack had been drilled, with four of the wells
commercially successful. EEX then drilled the Garden Banks 388 No. 4 well,
formed a four-block unit, and submitted a development plan for approval. The
unit has been enlarged recently to six blocks by the addition of Garden Banks
Blocks 345 and 389 through a farm-in from Shell Oil Company ("Shell"). Those
blocks have the potential of stratigraphically trapped reservoirs based on
amplitude anomalies.
To date, eight sands have been penetrated on the Garden Banks Block 388
prospect, all of which are hydrocarbon bearing. There are two separate salt
structures that form traps on the unit. One is the salt dome centered on Block
388 and the other is the salt wall located in Block 387. D&M estimates gross
reserves for these eight sands to be 47 MMBbls of oil and 62 Bcf of natural
gas, of which 33 MMBbls of oil and 40 Bcf of natural gas are proved reserves.
EEX believes there is potential for reserve addition on the Garden Banks
prospect. First, deeper objectives, geographically correlative to the main pay
zones in Shell's Auger field, have yet to be penetrated by EEX. Based on
current 3-D seismic interpretation, EEX believes it has at least two potential
areas where significant reserves may be identified. Second, reserves may be
identified by drilling through sands that do not exhibit an amplitude response
using current seismic data. To date, 40% to 50% of the productive sands
encountered did not exhibit a corresponding seismic amplitude. Third, prospects
identified by 3-D seismic in the 13,100 foot and 14,200 foot sands have yet to
be drilled and could potentially contain productive zones. Lastly, objectives
identified by 3-D seismic are located east of a salt dome and could contain
sands trapped stratigraphically. EEX cannot predict whether or to what extent
it will be successful in identifying commercial reserves from these sources.
Green Canyon Project. EEX is the operator and after completion of the Green
Canyon Transaction will own a 40% working interest in the Green Canyon project,
which is located approximately 150 miles south of New Orleans, Louisiana
(Blocks 253, 254, 297 and 298). The field is in water depths of 2,200 to 3,400
feet. Two wells and one sidetrack have been drilled to date on this project,
and another confirmation well is currently being drilled. Provided that EEX's
expectations as to the presence of commercial reserves is confirmed, production
is expected to commence in the next three to four years. Proposed field
development incorporates clusters of subsea wells, which would flow through
bundled flowlines to a remote FPF. Full-well stream production would be
processed onboard the FPF to sales specifications, and export gas and oil lines
would carry these products to market. Currently, a nine well development plan
is anticipated.
Between 1991 and early 1995, EEX, through a series of transactions, increased
its working interest in the Green Canyon project from 25% to approximately
100%. EEX began with a 25% working interest in the project and assumed a 100%
working interest in the Green Canyon 254 well No. 4 sidetrack in 1994. The
sidetrack well was an appraisal well to a discovery well drilled in 1991 that
encountered multiple pay sands with a combined thickness of more than 300 feet
of net pay. The sidetrack operation, which was undertaken by EEX on a "sole-
risk" basis at a 100% working interest, encountered more than 400 feet of net
pay.
After the sidetrack operation, EEX acquired for cash the remaining working
interests in the project, which were subject to substantial penalties to the
partners as a result of the "sole-risk" provisions governing sidetrack
operations. In the Green Canyon Transaction, EEX entered into letters of intent
with an affiliate of Mobil and an affiliate of Reading & Bates Corp. to sell a
40% working interest and a 20% working interest, respectively, in the project.
These transactions are expected to be completed in the third or fourth quarter
of 1995.
During the first quarter of 1995, EEX completed its research on production
schemes for this development and submitted that information, along with the
well data, to D&M for reserve evaluation. D&M has estimated gross reserves at
the Green Canyon project to be 85.5 MMBbls of oil and 149.5 Bcf of natural gas,
of which 49.2 MMBbls of oil and 102.2 Bcf of natural gas are in the proved
category, including royalty interests.
Based on preliminary 3-D seismic analysis, EEX believes there are several
other prospects in the Green Canyon area. Based on this analysis, EEX, on
behalf of its Green Canyon Block 254 partners, submitted the
34
<PAGE>
highest bids on six additional blocks located within 10 miles of the proposed
location of the Green Canyon FPF. To date, EEX has been awarded five of the
six blocks. Because EEX believes it has already identified sufficient reserves
to justify installation of a FPF, EEX may be able to develop satellite fields
that would be uneconomic otherwise.
Additional Exploration in the Gulf of Mexico. Other recent discoveries in
the Gulf of Mexico have been made at Vermilion Block 273, South Timbalier
Block 252 and East Cameron Block 356. EEX believes that these discoveries
merit development and anticipates pursuing development drilling and/or the
installation of production equipment to facilitate the project development.
Exploration in the Gulf of Mexico is an important part of EEX's exploratory
program. A total of over 200 leases (over 790,000 gross acres and 390,000 net
acres) are currently held in the Gulf of Mexico. 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 these objectives.
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 follows:
<TABLE>
<CAPTION>
GULF OF MEXICO
TOTAL LEASEHOLD
ACRES EXPIRING
---------------
GROSS NET
------- -------
<S> <C> <C>
1995....................................................... 43,260 17,313
1996....................................................... 62,106 29,438
1997....................................................... 51,700 24,598
1998....................................................... 19,651 14,892
1999 and later (1)......................................... 612,283 303,759
</TABLE>
--------
(1)Includes acreage held by production.
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.
EAST TEXAS REGION
The East Texas Region conducts exploration and development in East Texas and
Northern Louisiana. The Management of EEX believes that it has proprietary
knowledge based on its experience in tight reservoirs in East Texas which
gives EEX a competitive advantage relative to its peers. EEX operates
approximately 550 wells and controls approximately 65,000 acres by virtue of
its Travis Peak, Hosston and Cotton Valley production in the region.
Historically, EEX's activities have been focused on six major fields. Since
discovery, the six fields have produced a total of 1.8 Tcf of natural gas and
40 MMBbls of oil and gas liquids. The East Texas fields are characterized by
reservoirs with large sections of interbedded, low porosity sands and shales.
EEX has combined its experience with workovers, recompletions and development
drilling in these fields with the latest hydraulic fracturing and computer
technology to offset the natural declines in these fields. The profitability
of performing these operations is sensitive to product prices. EEX is
currently conducting a joint program with Los Alamos National Laboratory to
determine more efficient methods to fracture the reservoir and potentially
enhance gas production. In East Texas, EEX's objective is to accelerate
production while preserving or increasing reserves and net present value of
the fields.
The DALEN Acquisition added 81.3 Bcfe of total proved reserves to this
region. The East Texas properties acquired in the DALEN Acquisition exhibit
similar reservoir characteristics to EEX's existing
35
<PAGE>
properties. EEX management believes that pursuing a similar exploitation
strategy on the DALEN properties will enhance the production from those fields.
Total proved reserves in the East Texas Region at June 30, 1995, are 907.7
Bcfe, which represents 51.3% of EEX's total proved reserves. Within the region,
reserves are concentrated in EEX's top eight fields, which represent
approximately 98.1% of EEX's total proved reserves in the region.
<TABLE>
<CAPTION>
PROVED 1994
RESERVES PRODUCTION
(BCFE) (BCFE)
-------- ----------
<S> <C> <C>
EEX:
Proved reserves at December 31, 1994 and production for
1994:
Opelika............................................... 241.7 6.6
Whelan................................................ 222.7 5.1
Tri-Cities............................................ 174.2 4.3
North Lansing......................................... 80.6 2.8
Freestone............................................. 58.4 3.3
Willow Springs........................................ 52.1 1.8
Other................................................. 8.0 1.2
January through June 1995--
Production............................................ (11.3)
----- ----
Total EEX proved reserves at June 30, 1995 and
production for 1994................................. 826.4 25.1
----- ----
DALEN proved reserves at June 30, 1995 and production
for 1994:
Logansport............................................ 59.7 2.0
Bald Prairie.......................................... 12.1 2.7
Other................................................. 9.5 3.1
----- ----
Total DALEN proved reserves at June 30, 1995 and
production for 1994................................. 81.3 7.8
----- ----
Total................................................ 907.7 32.9
===== ====
</TABLE>
Opelika. This field, located near Athens in Henderson County, Texas, was
discovered in 1935. EEX controls approximately 15,000 acres and operates 230
wells in this field with a 100% working interest. EEX has actively developed
this field over the past ten years. Since 1984, EEX has drilled and completed
approximately 100 wells to further develop the field. The field produces from
multiple pay zones, including the Rodessa, James Lime, Pettit, Travis Peak and
Cotton Valley formations which occur over a 4,000 foot interval. Many pay zones
remain behind pipe and will be completed at later dates. In a joint program
with the Los Alamos National Laboratory, EEX has been performing tests to
determine the induced fracture orientation within the field. This data could
allow EEX to more efficiently produce the reserves within this and other
fields.
Whelan. Located 20 miles northeast of Longview, Texas, Whelan is a long-lived
gas field producing from the Travis Peak and Pettit formations. This field was
discovered in 1949 and purchased by EEX in 1967. EEX is the operator and has a
100% working interest in 73 wells covering an area of 14,000 acres. Development
plans for 1995 include reworking eight wells and drilling four development
wells.
Tri-Cities. In this field, located near Athens in Henderson County, Texas,
EEX controls in excess of 6,500 acres and operates 80 wells currently producing
with a 100% working interest. In 1990, EEX successfully explored and developed
the deeper Cotton Valley formation. With the successful completion of the
Cotton Valley sands, the field produces from multiple pay zones that occur over
a 2,500 foot interval. EEX currently operates eight Cotton Valley wells (four
net) with a 50% working interest and is negotiating to acquire the remaining
interests in these wells. All other wells are completed in the Travis Peak and
Pettit formations. EEX currently plans to drill an additional Cotton Valley
well and may drill an additional Travis Peak well during 1995.
36
<PAGE>
North Lansing. Located near Longview, Texas, this field has an areal extent
of 10,000 acres. EEX operates 39 gas wells with a 97% working interest, which
are producing mainly from the Travis Peak, Cotton Valley and Pettit formations.
Development plans for 1995 include drilling two wells and reworking six
existing wellbores.
Freestone. In this field, located near Freestone, in Freestone County, Texas,
EEX operates 32 gas wells with a 75% average working interest, which are
currently producing from the Travis Peak, Pettit, Cotton Valley Lime and
Bossier formations. Over the past three years, EEX has successfully reworked
six wells and drilled 22 others, with four wells remaining to be drilled in
1995. EEX's share of the gas produced from this field is dedicated until 2001
to a long-term gas contract at above market prices. EEX recently began testing
the deeper potential in this field and has established commercial production in
the Cotton Valley Sand, Bossier and the Cotton Valley Lime. Full development in
these three horizons is currently being deferred.
Willow Springs. Located partially under the townsite of Longview, Texas, this
field encompasses over 15,000 acres. EEX operates 40 wells in the field, with
production predominately from the Travis Peak formation. EEX has a 6,000 acre
position, with a working interest of 50%. In 1995, EEX plans to drill three
additional wells and rework three existing wells.
Logansport. This northern Louisiana property is considered by EEX to have
significant remaining multiple pay zone development potential. EEX controls
4,500 acres in this field and operates 14 gas wells with a 95% average working
interest. Based on a successful recompletion in 1993, three wells were
recompleted and five wells were drilled in 1994, all with successful results.
Subsequently, an aggressive acquisition plan was undertaken and additional
working interests in the field were added. As a result of the expanded position
in the field, EEX anticipates drilling nine gas development wells in 1995.
Bald Prairie. EEX controls 4,500 acres in this East Texas field and operates
27 gas wells with a 60% average working interest. An active drilling program
was successfully conducted in 1991 and 1992 to qualify wells for the federal
income tax credits available for gas from tight sands. Based on experience and
log characteristics, EEX believes that substantial upside potential may exist
in this field. If preliminary work is validated, a substantial development
program will be undertaken. Gas produced from this property is dedicated
through 1998 under a contract at fixed prices above current market levels.
NORTH CENTRAL TEXAS AND OTHER REGION
The North Central Texas and Other Region conducts exploration and development
activities in North Central Texas, West Texas, Oklahoma, New Mexico and in the
Rocky Mountain Area, primarily Southwest Wyoming and Northeast Utah. EEX has a
total of 262 fields and operates properties containing approximately 74% of its
reserves in this region.
The fields in this region consist primarily of more mature fields which,
similar to other EEX fields, respond well to active reservoir management,
ongoing development drilling and workovers, and enhanced recovery techniques.
EEX is actively using 3-D seismic to pursue an exploration program in this
region designed to yield more modest oil reserve additions with lower risk and
cost than its offshore exploration program.
DALEN's total proved reserves of 215.7 Bcfe in this region accounted for
54.4% of the DALEN Acquisition's total proved reserves and are located
primarily in the Rocky Mountain area. EEX plans to conduct a thorough
engineering evaluation of these reserves and use its experience with similar
reservoirs to enhance the production from these fields.
37
<PAGE>
Total proved reserves in the North Central Texas and Other Region at June 30,
1995, are 341.0 Bcfe, which represents 19.3% of EEX's total proved reserves.
<TABLE>
<CAPTION>
PROVED 1994
RESERVES PRODUCTION
(BCFE) (BCFE)
-------- ----------
<S> <C> <C>
EEX:
Proved reserves at December 31, 1994 and production for
1994:
Boonsville............................................ 52.6 5.3
Hardeman County Area.................................. 9.5 1.6
S. E. Luther.......................................... 7.0 .5
Other................................................. 58.2 11.4
January through June 1995:
Additions to reserves................................. 7.7
Production............................................ (9.7)
----- ----
Total EEX proved reserves at June 30, 1995 and
production for 1994................................. 125.3 18.8
----- ----
DALEN proved reserves at June 30, 1995 and production
for 1994:
Wamsutter............................................. 56.9 6.3
Fontenelle............................................ 56.3 3.9
River Bend............................................ 21.2 4.7
Townsend Deep......................................... 11.2 1.2
West Cheyenne......................................... 9.6 2.8
Pleasant Valley....................................... 7.1 .8
Katz.................................................. 5.5 2.2
Other................................................. 47.9 10.9
----- ----
Total DALEN proved reserves at June 30, 1995 and
production for 1994................................. 215.7 32.8
----- ----
Total................................................ 341.0 51.6
===== ====
</TABLE>
Boonsville. EEX currently operates 260 wells with a 100% working interest and
currently controls 40,000 acres in this field located in North Central Texas.
EEX has been actively developing this field over the past 15 years. Recent
activity has proven the economic viability of down spacing the field to 80 acre
spacing. Also, EEX, in partnership with the Bureau of Economic Geology, is
using 3-D seismic data to more accurately map the Bend and Caddo conglomerates.
EEX plans to continue development drilling and has an inventory of
approximately 80 locations.
Hardeman County Area. EEX currently operates 23 of the 45 wells in which it
has an interest in this area located in Central Texas. Production in Hardeman
County is primarily from the Chapel Dolomite, with secondary production found
in the Mississippian Limestone and stray conglomerates. The Chapel Dolomite's
high permeability and extremely active water drive allows wells to flow at the
maximum allowable rate per day. EEX is successfully utilizing 3-D seismic data
to increase its drilling success rate in the area. EEX drilled seven successful
wells in 1994 and has drilled six successful wells in 1995. EEX has plans for
an additional eight wells by year end. EEX's interest in wells in this area
varies from 50% to 100%.
S. E. Luther. This field, located in West Texas, was discovered in 1952. EEX
is the operator with a 30% working interest. Production is from the Fusselman
Dolomite at a depth of 9,800 feet. Waterflood operations were initiated in
1969. There are 26 active wells, 17 producers and nine injectors, in the field.
Opportunity is believed to exist to obtain additional oil by horizontal
drilling and production optimization.
Wamsutter. Three development wells were drilled in this field located in
southwest Wyoming in 1994, following a ten-well drilling program that commenced
in late 1992. No drilling is planned for 1995. EEX operates 27 wells with a 90%
average working interest and currently owns 9,000 acres in this field.
38
<PAGE>
Fontenelle. This long-lived gas field, located in Wyoming, is largely
developed on 160-acre spacing. Offset operators have developed portions of
their productive area at 80 acres indicating the potential for future
downspacing on EEX acreage. In 1994, eight development wells were drilled. EEX
operates 104 wells with a 75% average working interest and currently owns
16,000 acres in this field.
River Bend. In 1994, one development well was drilled on this non-operated
Utah field, bringing the total to 169 wells. Future development is also being
evaluated for the Green River formation above the currently producing Wasatch
formation. EEX has a 37.5% average working interest in 16,000 acres in this
field.
Townsend Deep. EEX has a 46% working interest in ten oil wells in this
southeast New Mexico field. This field is currently being unitized for gas
reinjection to maximize oil recovery. EEX has recently completed two
exploratory oil discoveries in the area. Further drilling is awaiting the
acquisition of 3-D seismic data.
West Cheyenne. EEX controls 5,383 acres in this Oklahoma field and has
interests in 22 wells of which it operates nine with an average working
interest of 78%. In 1993, one well was drilled to the Red Fork formation that
qualified for the federal income tax credits available for gas from tight
sands. An additional drilling location has been identified; however, no wells
are planned for 1995.
Pleasant Valley. EEX controls approximately 25,000 acres and operates 49
wells with an 85% average working interest in this Utah field. In 1994, eight
wells were completed and one well was a dry hole. Five development wells are
planned for 1995. An agreement has been made with another operator to drill
ten wells on EEX acreage, which will allow the operator to earn one-half of
EEX's interest in those ten sections. Regulatory approval has been received
for the Wells Draw water flood unit for the Green River formation and
injection was begun in January 1995. A significant increase in oil recovery is
anticipated from this waterflood unit. EEX is also negotiating with another
operator to participate in one additional waterflood unit and is evaluating
other opportunities.
Katz. EEX has an interest in three producing Strawn waterflood units. Two
units are operated by EEX, consisting of 73 wells with an average working
interest of 55.2%. In 1993, EEX initiated a polymer flood in the Southwest
River unit and is studying expansion to adjacent units. In 1994, a fracture
stimulation program was undertaken to increase productivity from the middle
lobe of the Strawn sand. Based on the success of that program, an additional
12 stimulation candidates have been identified. EEX controls 6,627 acres in
this field.
Exploration in the North Central Texas and Other Region. EEX's exploration
program in the North Central Texas and Other Region is focused primarily on
Mississippian age reefs in the Hardeman Basin and Bend Arch Area, both in
Texas. EEX has extensive exploration and production experience and maintains a
production base and infrastructure in these areas.
EEX is using 3-D seismic technology to delineate smaller Mississippian age
reefs that were bypassed by earlier exploration efforts in this part of Texas,
which has long been dominated by small independents. While the reserves
targeted are relatively small (100 to 500 MBbls of oil equivalent), the
drilling success rate to date, the relatively low drilling costs and the
multiple prospects identified, justify expenditures on large 3-D seismic
projects used to delineate the numerous, but relatively smaller features.
The use of 3-D seismic has significantly improved the drilling success rate
in both the Hardeman Basin and the Bend Arch Area. Using 2-D seismic to
identify prospects, EEX drilled approximately 120 wells between 1975 and the
late 1980's in these areas with a drilling success rate of approximately 28%.
The use of 3-D seismic has improved the drilling success rate in the Hardeman
Basin to 48% and in the Bend Arch Area to 93%.
In the Hardeman Basin, for the balance of 1995, EEX plans to drill ten
additional wells and add additional prospects to its inventory. Since 1992,
EEX has acquired over 160 square miles of 3-D seismic data in the area, a
large portion of which remains to be evaluated by drilling. EEX plans to
acquire an additional 70 square miles of 3-D seismic data in 1995 and will
continue to add to its 96,000 net leasehold acres.
39
<PAGE>
In the Bend Arch Area, EEX plans to drill additional wells and also obtain
additional 3-D seismic data and acreage in 1995. EEX's land position and
seismic inventory in this area consists of 64,000 net leasehold acres and 165
square miles of 3-D seismic, of which a large portion remains to be fully
interpreted or evaluated by drilling. In 1995, EEX plans to acquire an
additional 40 square miles of 3-D seismic data in this area.
Management believes that EEX's successful history in the North Central Texas
area, its financial strength and its technological capabilities give it a
competitive advantage over its primary competition, the small, local
independents. EEX plans to continue its efforts in the Mississippian reef
plays and continue its evaluation of the shallow Palo Pinto play, also in the
Bend Arch.
Other plays of interest in the North Central Texas and Other Region are the
Delaware and Strawn plays in Southeastern New Mexico, which are being pursued
using 2-D seismic, and the Anadarko Basin in Oklahoma, where EEX has a
substantial acreage position and an extensive 2-D seismic base as a result of
the DALEN Acquisition.
GULF COAST REGION
The Gulf Coast Region conducts exploration and development activities in the
onshore Gulf Coast areas of Texas, Louisiana, Mississippi and Alabama. EEX has
a total of 126 fields and operates fields containing 72% of its reserves in
this region.
EEX has a combination of long-lived, tight sands and high production rate
fields. EEX also has an active exploration program based on 3-D seismic that
is focused on high potential prospects.
In addition to adding 76.4 Bcfe of proved reserves to this region, the DALEN
Acquisition included the Destec fee acreage. This fee acreage is located
primarily in Louisiana and consists of approximately 60,000 gross acres. EEX
believes that the existing fields and the fee acreage provide many high
potential exploration prospects.
Total proved reserves in the Gulf Coast Region at June 30, 1995, are 168.4
Bcfe, which represents 9.5% of EEX's total proved reserves.
<TABLE>
<CAPTION>
PROVED 1994
RESERVES PRODUCTION
(BCFE) (BCFE)
-------- ----------
<S> <C> <C>
EEX:
Proved reserves at December 31, 1994 and production
for 1994:
Fashing............................................ 53.0 8.3
Sheridan........................................... 4.1 .8
Ranch Viejo........................................ 3.4 .6
Other.............................................. 40.7 9.9
January through June 1995--
Production......................................... (9.2)
----- ----
Total EEX proved reserves at June 30, 1995 and
production for 1994.............................. 92.0 19.6
----- ----
DALEN proved reserves at June 30, 1995 and production
for 1994:
Riceville.......................................... 14.2 3.3
Provident City Area................................ 12.7 .2
Los Indios......................................... 10.9 1.9
North Turtle Bayou Area............................ 10.5 7.7
Lake Arthur........................................ 6.5 1.4
Guerra............................................. 5.0 1.8
Other.............................................. 16.6 6.9
----- ----
Total DALEN proved reserves at June 30, 1995 and
production for 1994.............................. 76.4 23.2
----- ----
Total............................................. 168.4 42.8
===== ====
</TABLE>
40
<PAGE>
Fashing Field. Located approximately 60 miles south of San Antonio, Texas,
the field was discovered by EEX in 1956. The areal extent of the reservoir is
approximately 7,100 acres. The field is divided into the Edwards Lime "A" and
"B" zones. There are currently 58 "A" zone completions and 22 "B" zone
completions throughout the field, of which EEX operates 43. EEX owns a 100%
working interest in the operated wells and a 47% working interest in the non-
operated wells. Net interest in the entire field is 63%. Production rates in
the field have increased almost 30% over the last few years as a result of a
successful drilling campaign. Development drilling activities, including
horizontal drilling, are currently ongoing in Fashing field.
Sheridan. This field is located in Colorado County, Texas, 80 miles west of
Houston. The field was discovered by Shell in 1940. An anticlinal feature
covering 14,900 acres provides the structural trap for
hydrocarbons in the field. More than 8,000 acres are proven productive, with
production primarily from Wilcox age sandstones. The Wilcox sands range in
gross thickness from 1,200 to 1,700 feet. EEX acquired additional interests in
the field in 1992, resulting in the current 22.8% working interest. There are
presently 39 wells producing from the Wilcox and Frio reservoirs. Exploration
and development activities, including a 3-D seismic survey, are underway to
exploit Lower Wilcox, Yequa and Frio reservoirs within the anticline. All of
these formations have produced hydrocarbons on this structure.
Rancho Viejo. The Rancho Viejo field, located in South Texas, was discovered
in 1982. The field lies at the southeastern downdip edge of the Lobo sand trend
in Webb County, approximately 30 miles east of Laredo. The Lobo section is a
sequence of sandstones and shales at a depth of 9,700 feet, with individual
sand units forming laterally continuous lobes varying from 10 to 50 feet in
thickness. Permeabilities within the sand are generally low but hydraulic
fracturing treatments have been effective in stimulating production. In 1993,
EEX acquired additional interest in and operational control of the field. EEX
currently owns interests in 25 wells, with a total working interest of 51.7%
and has under lease 3,291 acres.
Riceville. In this southwest Louisiana property, EEX has two non-operated gas
and condensate wells producing from the Cib Op reservoir at a depth of 13,000
feet. EEX's average working interest in this field is 33%.
Provident City Area. Four fields in the Wilcox trend of South Texas make up
this area--Allen Ranch, Provident City, North Provident City and Northeast
Provident City. EEX controls 6,580 acres and operates nine wells with an
average working interest of 91.6%. Further drilling in this area awaits
interpretation of a recently acquired 3-D seismic survey.
Los Indios. EEX operates 65 wells in this South Texas field and has a 100%
working interest. Utilizing a recently completed 3-D seismic survey, an
exploratory well was drilled in 1994 to test the deeper Vicksburg formation,
which has been a prolific producing formation in several nearby fields. This
well, in which EEX has a 50% working interest, was completed in October 1994.
In 1994, three additional development wells were drilled for the shallower Frio
formation. In 1995, additional drilling is planned to develop the Vicksburg
formation discovery. EEX owns 4,893 acres in this area.
North Turtle Bayou Area. Three fields located in southeast Louisiana make up
this area--North Turtle Bayou, Kent Bayou and Turtle Bayou. EEX has interests
in ten wells of which it operates five wells and has under lease 10,144 acres,
with an average working interest of 92%. Production has been established in six
different pay zones. A 3-D seismic survey has been acquired over this area and
three development wells and one exploratory well were drilled in 1994. Two
development wells were completed as gas wells, and the one exploratory well has
been temporarily abandoned. Drilling plans for 1995 include one exploratory
well and one development well.
South Lake Arthur. EEX controls 993 acres and has an interest in six wells in
this Miogyp field in South Louisiana. Three wells are operated by EEX with a
working interest of 37.7%.
Guerra. Producing from the Elvella member of the Wilcox series in South
Texas, EEX has 1,671 acres under lease and operates four wells with an average
working interest of 84.4% in this field. EEX has interests in an additional
nine non-operated wells in this field.
41
<PAGE>
Exploration in the Gulf Coast Region. In the Gulf Coast Region, EEX is using
computer technology to evaluate subsurface logs, seismic amplitudes, amplitude
versus offset and 3-D seismic surveys to create additional value and reduce
exploration risk when drilling for new production or acquiring additional
prospects or production. The 3-D seismic surveys are limited to areas large
enough to economically support 3-D acquisition costs. Presently, EEX has
interests in 16 3-D seismic surveys covering 310 square miles.
During 1995, activity in the Gulf Coast Region will be concentrated in the
Smackover Trend play in Alabama, the Planulina and Miocene plays in South
Louisiana and the Yegua, Frio and Wilcox Trends of South Texas.
In addition, EEX plans to exploit its interest in approximately 60,000 gross
(52,000 net) acres in South Louisiana acquired in the DALEN Acquisition. This
acreage represents fee mineral acres predominately in the Atchafalaya Basin of
South Louisiana. The majority of these fee mineral interests are currently
unleased and have had only a limited amount of 3-D seismic coverage.
Approximately 8,600 net acres are held by production with the majority of the
acreage considered prospective at this time. This asset provides EEX with the
competitive advantage of fee mineral ownership in a prospective area.
INTERNATIONAL
EEX's international activities are concentrated in areas which are intended
to broaden the utilization of its expertise in the exploitation of mature
natural gas and oil fields and to develop offshore properties utilizing its
experience in subsea completion technology and floating production technology.
EEX has concessions in Indonesia, Malaysia and Israel.
All of EEX's international reserves are in the Mudi discovery on the island
of Java in Indonesia. A plan of development will be submitted later this year
to the Indonesian government so that development and production may begin. To
date, three wells have been drilled and tested with flow rates between 1,350
and 5,024 Bbls of oil per day. A fourth well is currently being drilled. First
production is expected in 1997. EEX currently has a 25% non-operating working
interest, which will be reduced after cost recovery to 12.5% by government
participation.
Enserch India, Inc., an affiliate of EEX, has entered into a Memorandum of
Understanding with ONGC Videsh Limited, a wholly-owned subsidiary of the Oil &
Natural Gas Corporation Limited of New Delhi, India, which is intended to
result in the formation of a joint venture company to explore and develop
hydrocarbon resources in India and other countries. The joint venture company
would be equally owned by the EEX affiliate and ONGC Videsh Limited.
GAS AND OIL RESERVES
Reserve volumes for EEX are estimated by D&M. The present value of proved
reserves for EEX has been determined by EEX using EEX's December 1994 weighted
average sales prices of $14.05 per Bbl for oil and $2.29 per Mcf for natural
gas. Reserve volumes and the present value of proved reserves for DALEN were
estimated by Netherland, Sewell using DALEN's December 31, 1994, weighted
average sales prices of $14.33 per Bbl for oil and $1.57 per Mcf for natural
gas. The present value of estimated future net revenues (after tax) at December
31, 1994 was as follows (in millions):
<TABLE>
<S> <C>
EEX................................................................ $ 879.3
Green Canyon Transaction........................................... 19.1
Garden Banks Transaction........................................... (38.4)
--------
Total EEX...................................................... 860.0
DALEN.............................................................. 262.0
--------
Total.......................................................... $1,122.0
========
</TABLE>
42
<PAGE>
The following table sets forth estimated net proved reserves at December 31,
1994.
<TABLE>
<CAPTION>
DEVELOPED UNDEVELOPED TOTAL
--------- ----------- -------
<S> <C> <C> <C>
Natural gas (Bcf).............................. 961.5 409.3 1,370.8
Oil and gas liquids (MMBbls)................... 25.6 42.4 68.0
Total reserves (Bcfe)........................ 1,114.9 664.1 1,779.0
</TABLE>
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 8 of Notes to
Financial Statements of EEX in this Prospectus.
DRILLING ACTIVITY
Drilling activity for the years ended December 31, 1992, 1993 and 1994, is
set forth below:
<TABLE>
<CAPTION>
1992 1993 1994
---------- ---------- ----------
GROSS NET GROSS NET GROSS NET
----- ---- ----- ---- ----- ----
<S> <C> <C> <C> <C> <C> <C>
Exploratory wells:
Productive................................ 5 3.2 7 3.8 21 13.8
Dry....................................... 23 11.0 33 15.6 56 30.5
--- ---- --- ---- --- ----
Total................................... 28 14.2 40 19.4 77 44.3
=== ==== === ==== === ====
Development wells:
Productive................................ 108 47.4 131 86.6 90 63.0
Dry....................................... 15 6.3 9 4.5 15 7.5
--- ---- --- ---- --- ----
Total................................... 123 53.7 140 91.1 105 70.5
=== ==== === ==== === ====
</TABLE>
Through the first seven months of 1995, EEX had completed 69 wells (43.7 net)
and at August 1, 1995, was participating in 62 wells (33.0 net) that were
either being drilled or in some stage of completion.
The number of wells drilled is not a significant measure or indicator of the
relative success or value of a drilling program because the significance of the
reserves and economic potential may vary widely for each project. It is also
important to recognize that reported completions may not necessarily correspond
to capital expenditures, since the Commission guidelines do not allow a well to
be reported as completed until it is ready for production. In the case of
offshore wells, this may be several years following initial drilling because of
the timing of construction of platforms, pipelines and other necessary
facilities.
ACQUISITION, DEVELOPMENT AND EXPLORATION EXPENDITURES
Acquisition, development and exploration expenditures for the years ended
December 31, 1993 and 1994, are set forth below:
<TABLE>
<CAPTION>
1993 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Property acquisitions:
Proved............................................... $ 9,263 $ 15,670
Unproved............................................. 17,170 43,917
Development costs...................................... 117,734 128,720
Exploration costs...................................... 50,871 90,126
-------- --------
Total................................................ $195,038 $278,433
======== ========
</TABLE>
See Note 8 of Notes to Financial Statements of EEX in this Prospectus for
acquisition, development and exploration expenditures of EEX for the three
years ended December 31, 1994.
43
<PAGE>
ACREAGE DATA AND PRODUCTIVE WELLS
Developed and undeveloped lease acreage as of December 31, 1994, are set
forth below:
<TABLE>
<CAPTION>
DEVELOPED ACRES UNDEVELOPED ACRES
--------------- -------------------
GROSS NET GROSS NET
------- ------- --------- ---------
<S> <C> <C> <C> <C>
Domestic:
Offshore............................... 118,729 36,497 437,756 204,159
Onshore................................ 578,218 357,464 1,571,809 920,174
------- ------- --------- ---------
Total................................ 696,947 393,961 2,009,565 1,124,333
International............................ -- -- 932,811 229,448
------- ------- --------- ---------
Total................................ 696,947 393,961 2,942,376 1,353,781
======= ======= ========= =========
</TABLE>
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 follows:
<TABLE>
<CAPTION>
UNDEVELOPED ACRES EXPIRING
-------------------------------
DOMESTIC INTERNATIONAL
--------------- ---------------
GROSS NET GROSS NET
------- ------- ------- -------
<S> <C> <C> <C> <C>
1995......................................... 275,542 171,146 -- --
1996......................................... 445,354 259,177 547,896 136,974
1997 and later............................... 706,633 420,298 384,915 92,474
</TABLE>
Drilling rights with regard to a portion of the undeveloped acreage may be
allowed to expire before the expiration of primary terms specified in this
schedule by nonpayment of delay rentals.
At December 31, 1994, EEX owned interests in 4,554 wells, of which 3,028
(1,365 net) were natural gas and 1,526 (444 net) were oil. Of these, 249 were
completed and are producing from more than one horizon.
PRODUCTION AND SALES
Production and sales data for the years ended December 31, 1993 and 1994 are
set forth below:
<TABLE>
<CAPTION>
1993 1994
------ ------
<S> <C> <C>
Production data:
Natural gas (Bcf)........................................... 137.5 121.5
Oil and gas liquids (MMBbls)................................ 5.4 4.8
Total production (Bcfe)................................... 170.1 150.2
Sales (in millions):
Natural gas(1).............................................. $281.9 $249.9
Oil and gas liquids(1)...................................... 88.9 71.2
Average sales price:
Natural gas (per Mcf)(1).................................... $ 2.05 $ 2.06
Oil (per Bbl)(1)(2)......................................... 17.26 15.80
</TABLE>
--------
(1) Reflects the net effects of price hedging activities.
(2) Excludes gas liquids.
See Note 8 of Notes to Financial Statements of EEX in this Prospectus for
production and sales information for EEX for the three years ended December 31,
1994.
44
<PAGE>
MAJOR CUSTOMERS
EEX sells its gas and oil under long- and short-term contracts. Enserch Gas
Company ("EGC"), an ENSERCH subsidiary, is EEX's largest gas customer,
purchasing gas under two long-term variable price contracts. A division of
ENSERCH, Lone Star Gas Company, purchases gas under a long-term fixed price
service contract. In 1994, approximately 14.0% of EEX's natural gas volumes
(exclusive of DALEN's production) was sold to Lone Star Gas Company. A loss of
sales under this contract could have an adverse financial impact on the
earnings 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. EGC provides
marketing services for substantially all of EEX's gas production, other than
gas sold under existing long-term contracts. Presently the majority of the gas
production is sold by EGC under short-term (90 days or less) agreements at
market responsive prices. EGC is continually in search of long-term agreements
that meet the price expectations of EEX and will make such commitments with
approval of Management. In addition, EEX, through EGC, attempts to maintain a
portfolio of customer types and contract terms that maximizes value, provides
dependable outlets for EEX's production and minimizes purchaser nonperformance
and credit risk. See "Relationship Between EEX and ENSERCH" and Note 6 of Notes
to Financial Statements of EEX in this Prospectus.
Oil sales contracts are for one year or less, and prices generally are based
upon field posted prices plus negotiated bonuses.
EEX utilizes futures contracts, commodity price swaps and other financial
instruments to reduce exposure of EEX's gas and oil production to price
volatility. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources--Hedging Activities"
and Notes 2 and 8 of Notes to Financial Statements of EEX in this Prospectus.
COMPETITION
The oil and gas industry is highly competitive in all its phases. EEX
competes in the acquisition of properties, the search for and development of
reserves, the production and sale of gas and oil, and the securing of the labor
and equipment required to conduct operations. EEX's competitors include major
gas and oil companies, other independent gas and oil concerns and individual
producers and operators. Many of these competitors have financial and other
resources that substantially exceed those available to EEX. Gas and oil
producers also compete with other industries that supply energy and fuel.
TITLE TO PROPERTIES
EEX believes that it has satisfactory title to its properties in accordance
with standards generally accepted in the oil and gas industry, subject to such
exceptions which, in the opinion of EEX, are not so material as to detract
substantially from the use or value of its properties. EEX performs extensive
title review in connection with acquisitions of proved reserves and has
obtained title opinions on substantially all of its material producing
properties. As is customary in the oil and gas industry, only a perfunctory
title examination is performed in connection with acquisition of leases
covering undeveloped properties. Generally, prior to drilling a well, a more
thorough title examination of the drill site tract is conducted and curative
work is performed with respect to significant title defects, if any, before
proceeding with operations.
ROYALTIES AND OTHER INTERESTS
EEX's gas and oil properties are subject to royalty, overriding royalty,
carried, net profits, working and other similar interests and contractual
arrangements customary in the oil and gas industry. Except as otherwise
indicated, all information presented in this Prospectus is presented net of
such interests. EEX's properties are also subject to liens for current taxes
not yet due and other encumbrances. EEX believes that such burdens do not
materially detract from the value of such properties or from the respective
interests therein or materially interfere with their use in the operation of
the business.
45
<PAGE>
GOVERNMENT REGULATION
The gas and oil industry is extensively regulated by federal, state and local
authorities. Legislation affecting the gas and oil industry is under constant
review for amendment or expansion. Numerous departments and agencies, both
federal and state, have issued rules and regulations binding on the gas and oil
industry and its individual members, some of which carry substantial penalties
for the failure to comply. The legislative and regulatory burden on the gas and
oil industry increases its cost of doing business and, consequently affects its
profitability. Inasmuch as such laws and regulations are frequently amended,
reinterpreted or expanded, EEX is unable to predict the future cost or impact
of complying with such laws and regulations.
FEDERAL INCOME TAXATION
EEX's operations are significantly affected by certain provisions of the
federal income tax laws applicable to the gas and oil industry. The principal
provisions affecting EEX are those that permit EEX, subject to certain
limitations, to deduct as incurred, rather than to capitalize and amortize, a
portion of its domestic "intangible drilling and development costs" and to
claim depletion on a portion of its domestic gas and oil properties based on
l5% of its gas and oil gross income from such properties (up to an aggregate of
l,000 Bbls per day of domestic crude oil and/or energy equivalent units of
domestic natural gas) even though EEX may have little or no basis in such
properties. Under certain circumstances, however, a portion of such intangible
drilling and development costs and the percentage depletion allowed in excess
of basis will be tax preference items that will be taken into account in
computing the alternative minimum tax. EEX will be included in ENSERCH's
consolidated federal income tax returns. See "Relationship Between EEX and
ENSERCH--Tax Sharing Agreements."
ENVIRONMENTAL MATTERS
Gas and oil operations are subject to extensive federal, state and local laws
and regulations, including the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") also known as the "Superfund Law,"
and similar state statutes, and, with respect to federal leases, to
interruption or termination by governmental authorities on account of
environmental and other considerations. Regulations of the Department of the
Interior currently impose absolute liability upon the lessee under a federal
lease for the costs of clean-up of pollution resulting from a lessee's
operations, and such lessee may also be subject to possible legal liability for
pollution damages. EEX maintains insurance against costs of clean-up
operations, but is not fully insured against all such risks. A serious incident
of pollution may result in the Department of the Interior requiring lessees
under federal leases to suspend or cease operation in the affected area. With
respect to any EEX operations conducted on offshore federal leases, liability
may generally be imposed under the Outer Continental Shelf Lands Act for costs
of clean-up and damages caused by pollution resulting from such operations,
other than damages caused by acts of war or the negligence of third parties.
The Oil Pollution Act of l990 (the "OPA") and regulations thereunder impose a
variety of regulations on "responsible parties" (which includes owners and
operators of offshore facilities) related to the prevention of oil spills and
liability for damages resulting from such spills in United States waters. In
addition, it imposes ongoing requirements on responsible parties, including
proof of financial responsibility to cover at least some costs in a potential
spill. On August 25, 1993, the Mineral Management Service (the "MMS"), a
federal agency, published an advance notice of its intention to adopt a rule
under OPA that would require owners and operators of offshore gas and oil
facilities to establish $l50 million in financial responsibility. Under the
proposed rule, financial responsibility could be established through insurance,
guaranty, indemnity, surety bond, letter of credit, qualification as a self-
insurer or a combination thereof. There is substantial uncertainty as to
whether insurance companies or underwriters will be willing to provide coverage
under OPA because the statute provides for direct lawsuits against insurers who
provide financial responsibility coverage, and most insurers have strongly
protested this requirement. The financial tests or other criteria that will be
used to judge self-insurance are also uncertain. Recently, certain members of
Congress and industry representatives
46
<PAGE>
have raised substantial objections to the rules as proposed by the MMS. Various
proposals have been made to resolve the objections of industry while satisfying
environmental concerns. EEX cannot predict the final form of the financial
responsibility rule that will be adopted by the MMS, but such rule has the
potential to result in the imposition of substantial additional annual costs on
EEX or otherwise materially adversely affect EEX. The impact of the rule,
however, should not be any more adverse to EEX than it would be to other
similarly situated owners or operators in the Gulf of Mexico.
The operations of EEX are also subject to the Clean Water Act and the Clean
Air Act, as amended, and comparable state statutes. The EPA is currently
implementing regulations pursuant to the Clean Air Act, and the states are also
implementing programs. EEX may be required to incur certain capital
expenditures over the next five to ten years for air pollution control
equipment.
EEX's onshore operations are subject to numerous United States federal, state
and local laws and regulations controlling the discharge of materials into the
environment or otherwise relating to the protection of the environment,
including CERCLA. Such regulations, among other things, impose absolute
liability on the lessee under a lease for the cost of clean-up of pollution
resulting from a lessee's operations, subject the lessee to liability for
pollution damages, may require suspension or cessation of operations in
affected areas, and impose restrictions on the injection of liquids into
subsurface aquifers that may contaminate groundwater. In particular, CERCLA
imposes liability, without regard to fault on persons that are considered to
have contributed to the release of a "hazardous substance" into the
environment. These persons include the owner or operator of the disposal site
or sites where the release occurred and companies that disposed or arranged for
the disposal of hazardous substances found at the site. Persons who are or were
responsible for releases of hazardous substances under CERCLA may be subject to
joint and several liability for the remediation and clean-up costs and for
damages to natural resources. EEX has received inquiries regarding, and could
be named as a potentially responsible party at two Superfund sites. However,
EEX does not believe that any liabilities in connection with such matters will
have a material adverse effect on its business or results of operations.
In addition, the recent trend toward stricter standards in environmental
legislation and regulation may continue. For instance, if exploration and
production wastes were to be reclassified as "hazardous wastes", it would make
such wastes subject to more stringent handling, disposal and clean-up
requirements. If such legislation were to be enacted, it could have a
significant impact on the operating costs of EEX, as well as the gas and oil
industry in general. Initiatives to further regulate the disposal of gas and
oil wastes are also pending in certain states, and these initiatives could have
a similar impact on EEX.
OTHER LAWS AND REGULATIONS
Various laws and regulations require permits for drilling wells and the
maintenance of bonding requirements in order to drill or operate wells, and
also regulate the spacing and location of wells, the method of drilling and
casing wells, the surface use and restoration of properties upon which wells
are drilled, the plugging and abandoning of wells, the prevention of waste of
gas and oil, the prevention and cleanup of pollutants, the maintenance of
certain gas/oil ratios, and other matters. EEX's operations are also subject to
various conservation requirements. These include the regulation of the size and
shape of drilling and spacing units or proration units, the density of wells
which may be drilled and the unitization or pooling of oil and gas properties.
In this regard, some states allow the forced pooling or integration of tracts
to facilitate exploration while other states rely on voluntary pooling of lands
and leases. In addition, state conservation laws establish maximum rates of
production from oil and gas wells, generally prohibit the venting or flaring of
natural gas and impose certain requirements regarding the ratability of
production. The effect of these laws and regulations is to limit the amounts of
gas and oil EEX can produce from its wells and limit the number of wells or the
locations at which EEX can drill, and thereby limit its profitability.
EEX has oil and gas leases in the Gulf of Mexico, which were granted by the
federal government and are administered by the MMS. Such leases are issued
through competitive bidding, contain relatively
47
<PAGE>
standardized terms and require compliance with detailed MMS regulations and
orders (which are subject to change by the MMS). For offshore operations,
lessees must obtain MMS approval for exploration, development and production
plans prior to the commencement of such operations. In addition to permits
required from other agencies (such as the Coast Guard, the Army Corps of
Engineers and the EPA), lessees must obtain a permit from the MMS prior to the
commencement of drilling. The MMS has promulgated regulations requiring
offshore production facilities located on the outer continental shelf to meet
stringent engineering and construction specifications. Similarly, the MMS has
promulgated other regulations governing the plugging and abandoning of wells
located offshore and the removal of all production facilities. Under certain
circumstances, including but not limited to, conditions deemed to be a threat
or harm to the environment, the MMS may also require any EEX operations on
federal leases to be suspended or terminated in the affected area.
EMPLOYEES
Prior to the acquisition, EEX and DALEN had 373 and 241 employees,
respectively. After realizing some of the synergies of the acquisition, the
combined employee count of the two companies as of July 20, 1995 is 542. After
further integration of financial and other support staff is fully implemented,
an additional reduction in the number of employees is expected.
LEGAL PROCEEDINGS
See Note 7 to the EEX Financial Statements included in this Prospectus and
Note 9 to the DALEN Financial Statements included in this Prospectus for
information on legal proceedings. EEX is a party to lawsuits and claims arising
in the ordinary course of its business. EEX believes, based on its current
knowledge and the advice of its counsel, that all lawsuits and claims would not
have a material adverse effect on its financial condition.
48
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is information concerning the directors and executive
officers of EEX:
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
D. W. Biegler........... 48 Chairman and Director
J. T. Williams.......... 57 Vice Chairman, Chief Executive Officer and Director
Gary J. Junco........... 45 President, Chief Operating Officer and Director
Frederick S. Addy....... 63 Director
B. A. Bridgewater, Jr... 61 Director
B. K. Irani............. 44 Senior Vice President, Production and Engineering Division
R. L. Kincheloe......... 64 Senior Vice President, Offshore and International
J. P. McCormick......... 53 Senior Vice President and Chief Financial Officer
Randall B. Wilson....... 46 Vice President and General Counsel
</TABLE>
Mr. Biegler has served EEX as Chairman and Director since September 1994 and
served as Chief Executive Officer of EEX until June 1995. He began his career
in 1966 as a staff engineer with the exploration and production company of
ENSERCH that later became the managing general partner of EP and is referred to
herein as "EEH" and served in various positions with EEH until assigned to
other ENSERCH affiliates in 1978. 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. He also began
serving as Chairman and Chief Executive Officer of EEH in 1992. In May of 1993,
he was made Chairman and President, Chief Executive Officer of ENSERCH. Mr.
Biegler is a Director of ENSERCH, Texas Commerce Bancshares National
Association and Trinity Industries, Inc.
Mr. Williams has been Vice Chairman, Chief Executive Officer and a Director
of EEX since June 1995. Mr. Williams was President and Chief Executive Officer
of DALEN from March 1989 to June 1995. Mr. Williams previously had been with
Lear Petroleum Corporation and its subsidiaries from 1983 to 1989, where he
last held the position of President, Chief Executive Officer and Chairman. From
1981 to 1983, he was with Sovran Energy Corp., a company he founded, and from
1978 to 1981, Mr. Williams served as Senior Vice President, Acquisitions, and
later President, Administrative Division, of Mitchell Energy and Development
Corp. Prior to that, Mr. Williams had been with Chevron Corporation for 18
years where he last held the position of General Manager, Operations, for
Chevron Petroleum (U.K. Ltd.).
Mr. Junco has been President, Chief Operating Officer and Director of EEX
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. Mr. Junco held various
positions with EEH from 1977 to July 1985.
Mr. Addy has been a Director of EEX since January 1995. He is the retired
Executive Vice President and Chief Financial Officer, and Director of Amoco
Corporation, an international integrated gas and oil 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.
Mr. Bridgewater has been a Director of EEX 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.
Mr. Irani was elected Senior Vice President, Production and Engineering
Division, of EEX in June 1995. He had been Vice President, Production and
Engineering Division from September 1994 to June 1995. He also served as Vice
President, Production and Engineering of EEH since September 1988 and a Vice
President of EEH since August 1984.
49
<PAGE>
Mr. Kincheloe has been Senior Vice President, Offshore and International, of
EEX 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.
Mr. McCormick has been Senior Vice President and Chief Financial Officer of
EEX since June 1995. Mr. McCormick served Lone Star Gas Company, a division of
ENSERCH, as a Director from July 1991 to June 1993 and as Senior Vice
President, Transmission, from February 1993 to June 1995, and Senior Vice
President, Finance, from July 1991 to February 1993. Prior to joining Lone Star
Gas Company, Mr. McCormick practiced public accounting for 26 years and was a
partner in KPMG Peat Marwick and KMG Main Hurdman and served in management
positions and as a Director in each Firm.
Mr. Wilson has been Vice President and General Counsel of EEX since June
1995. He was Vice President and General Counsel of DALEN from June 1990 to June
1995. Mr. Wilson was a partner with the law firm of Jenkens & Gilchrist, P.C.
in Dallas, Texas from 1987 to 1990. He served as Vice President, General
Counsel and Secretary of Lear Petroleum Corporation from 1984 to 1987. Mr.
Wilson was with Turner, Hitchins, Webb, Hicks & Wilson and predecessor firms
from 1974 to 1984.
There are no family relationships between any of the above officers and
directors. Directors are elected at the annual meeting of shareholders.
Officers are elected annually by the Board of Directors and may be removed by
the Board of Directors whenever, in its judgment, the best interests of EEX
will be served thereby.
COMMITTEES OF THE BOARD OF DIRECTORS
The Audit Committee functions 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 certain transactions between
EEX and ENSERCH 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. 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.
50
<PAGE>
EXECUTIVE COMPENSATION
COMPENSATION TABLE
The following table sets forth the annual base salary of the Chief Executive
Officer and the four other most highly compensated executive officers (the
"named executive officers") who devote substantially their full time to EEX.
<TABLE>
<CAPTION>
NAME SALARY TITLE
---- -------- -----
<S> <C> <C>
J. T. Williams... $400,000 Vice Chairman and Chief Executive Officer
Gary J. Junco.... 325,000 President and Chief Operating Officer
R. L. Kincheloe.. 240,000 Senior Vice President, Offshore and International
J. P. McCormick.. 195,000 Senior Vice President and Chief Financial Officer
B. K. Irani...... 210,000 Senior Vice President, Production and Engineering
</TABLE>
During 1995, Messrs. Junco and Irani received bonuses for services rendered
during 1994 and discretionary bonuses totaling $221,883 and $111,804,
respectively. Mr. McCormick and Mr. Williams began employment with EEX in June
1995. Mr. Williams has an employment contract with EEX for five years providing
for a minimum salary as above stated, bonus provisions and future awards of
stock options and restricted stock (or the cash value thereof).
D. W. Biegler, Chairman of EEX, is employed as Chairman and President, Chief
Executive Officer of ENSERCH and is directly paid all of his compensation by
ENSERCH. It is anticipated that in 1996, approximately $150,000 of Mr.
Biegler's compensation will be allocated from ENSERCH to EEX under a management
cost allocation arrangement. See "Certain Transactions."
THE 1994 STOCK INCENTIVE PLAN
The 1994 Stock Incentive Plan (the "Plan") provides for the issuance of stock
options ("Options") to officers and other key employees to purchase shares of
Common Stock and the award to officers of shares that are subject to vesting
based on the achievement of performance criteria ("Restricted Stock"). Under
the Plan, (a) the Option price may not be less than the fair market value of
the shares on the date of grant, (b) options are exercisable in stages of 25%
after one year to 100% after four years and (c) options may not be exercised
after ten years from the date of grant.
The Plan covers a maximum of 2,000,000 shares of 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 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.
Awards made during 1995 to the named executive officers and Mr. Biegler of EEX
are:
51
<PAGE>
<TABLE>
<CAPTION>
STOCK OPTIONS RESTRICTED STOCK(1)
------------- -------------------
<S> <C> <C>
D. W. Biegler............................. 15,000 10,000
J. T. Williams............................ 35,000(2) 25,000(2)
Gary J. Junco............................. 25,000 15,000
B. K. Irani............................... 10,000 0
R. L. Kincheloe........................... 4,000 0
</TABLE>
--------
(1) Performance-based restricted shares will be earned after a three-year
performance period ending December 31, 1997 (June 30, 1998 for Mr.
Williams), based upon the three year total shareholder return of EEX
compared to the Dow Jones Oil-Secondary Index. All shares are earned if the
total is 110% of the Index, decreasing to no shares below 85% of the Index.
Shares earned at the end of a performance period remain restricted, subject
to continued employment for two additional years.
(2) Pursuant to an employment contract Mr. Williams will receive an equal or
greater grant of stock options and awards of restricted stock (or the cash
value thereof) each year during the five-year term of the employment
contract.
OTHER PLANS
EEX has the Plan and a bonus plan entitled the Performance Incentive Plan--
Calendar Year 1995. In addition, executive officers are entitled to participate
in the ENSERCH Employee Stock Purchase and Savings Plan, the ENSERCH Retirement
Income Restoration Plan, the Deferred Compensation Plan and in the Retirement
and Death Benefit Program of ENSERCH and Participating Subsidiaries (the
"Program"), the cost of which is charged to EEX.
The following table illustrates the amount of annual compensation benefits
payable on a normal retirement basis beginning at normal retirement age to a
person in specified average salary and years-of-service classifications under
the Program, the ENSERCH Retirement Income Restoration Plan and any annuities
previously purchased in satisfaction of pension obligations.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
-------------------------------------------------------------------
REMUNERATION(1) 15 20 25 30 35 40 45
--------------- -------- -------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
$275,000. $ 69,452 $ 92,603 $ 115,754 $ 138,905 $ 162,056 $ 168,931 $ 175,806
350,000. 89,140 118,853 148,567 178,280 207,993 216,743 225,493
425,000. 108,827 145,103 181,379 217,655 253,931 264,556 275,181
500,000. 128,515 171,353 214,192 257,030 299,868 312,368 324,868
575,000. 148,202 197,603 247,004 296,405 345,806 360,181 374,556
650,000. 167,890 223,853 279,817 335,780 391,743 407,993 424,243
725,000. 187,577 250,103 312,629 375,155 437,681 455,806 473,931
</TABLE>
--------
(1) Highest average covered compensation over any consecutive five year period.
Covered compensation under the Program includes base wages and annual-
performance based bonuses. The credited years of service under the Program, as
of June 1, 1995, for Messrs. Biegler, Williams, Junco, McCormick, Kincheloe,
and Irani are 26.9, 0, 18.1, 3.9, 36.7, and 20.4, years, respectively, and the
highest average covered compensation during any consecutive five-year period
for each of them is $598,296, $0, $306,009, $198,656, $229,484, and $172,618,
respectively. The normal retirement benefit is in the form of a benefit
guaranteed for ten years and life thereafter and is not subject to any
deduction for Social Security or other offset amounts.
52
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The beneficial ownership of Common Stock by certain beneficial owners and
each director, the named executive officers and all directors and executive
officers as a group (nine persons) as of August 15, 1995, is as follows:
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
SHARES BENEFICIALLY OWNED AFTER
OWNED PRIOR TO OFFERING(1) OFFERING(1)
------------------------------ ------------------
NAME NUMBER PERCENT NUMBER PERCENT
---- ---------------- ------------- ---------- -------
<S> <C> <C> <C> <C>
ENS Holdings Limited
Partnership (2)(5)........... 53,336,434 50.5% 53,336,434 42.4%
Enserch Exploration Holdings,
Inc. (3)(5).................. 13,883,529 13.1 13,883,529 11.0
ENSERCH Corporation (4)(5).... 37,630,512 35.6 37,630,512 29.9
D. W. Biegler................. 11,000 * 11,000 *
J. T. Williams................ 25,000 * 25,000 *
Gary J. Junco................. 15,100 * 15,100 *
Frederick S. Addy............. 2,000 * 2,000 *
B. A. Bridgewater, Jr. ....... 1,000 * 1,000 *
J. P. McCormick............... 0 0
R. L. Kincheloe............... 0 0
B. K. Irani................... 0 0
R. B. Wilson.................. 0 0
All directors and executive
officers as a group.......... 54,100 * 54,100 *
</TABLE>
--------
* Less than 1%
(1) The number of shares owned by directors and named executive officers
includes shares of Restricted Stock awarded under the Plan, where
applicable. The percentages shown assume no exercise of the U.S.
Underwriters' over-allotment option.
(2) 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 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.
(3) A wholly owned subsidiary of ENSERCH.
(4) ENSERCH has sole voting and dispositive power with respect to 37,630,512
shares of the Common Stock and, by virtue of its ownership of the
securities of EEH, the Trustee and the Trustee GP, may be deemed to share
voting and dispositive power with respect to the 67,219,963 shares of
Common Stock shown in the table as owned by EEH and the Trust. ENSERCH,
therefore, may be deemed to own beneficially, directly or indirectly,
104,850,475 shares of the Common Stock shown.
(5) The address for each party is 300 S. St. Paul, Dallas, Texas 75201.
53
<PAGE>
RELATIONSHIP BETWEEN EEX AND ENSERCH
CONTROL OF EEX
After the Offering, ENSERCH will own beneficially approximately 83.4% of the
outstanding Common Stock (or approximately 81.5% if the U.S. Underwriters
exercise their over-allotment option in full), enabling it to elect all
directors of EEX. Through its ability to elect all directors of EEX, ENSERCH
will retain the ability to control all matters relating to the management of
EEX, the future issuance of Common Stock and other securities of EEX and the
payment of dividends on the Common Stock. ENSERCH also has the ability to
control EEX's drilling, development, capital, operating and acquisition
expenditure plans. In addition, ENSERCH will retain effective control over the
outcome of all matters upon which EEX shareholders vote. Certain of EEX's
directors and officers are also directors and/or officers of ENSERCH or its
other subsidiaries. There is no agreement between ENSERCH and any other party,
including EEX, that would prevent ENSERCH from acquiring additional Common
Stock.
TAX SHARING AGREEMENT
EEX is and after the Offering will continue to be included in ENSERCH's
consolidated federal income tax returns, and EEX's federal income tax liability
will therefore be included in the consolidated federal income tax liability of
ENSERCH and its subsidiaries. EEX and ENSERCH have entered into a tax-sharing
agreement with respect to EEX's share of that tax liability. Pursuant to the
agreement, EEX and ENSERCH will make payments between them generally calculated
so that the amount of taxes to be paid by EEX with respect to any period will
be determined as though EEX and its subsidiaries filed a separate consolidated
federal income tax return.
Pursuant to the agreement, ENSERCH will be the sole and exclusive agent for
EEX in any and all matters relating to the income tax liability of EEX and its
subsidiaries, will have sole and exclusive responsibility for the preparation
and filing of consolidated federal income tax returns for the consolidated
group, and will have the power, in its sole discretion, to contest or
compromise any asserted tax adjustment or deficiency and to file, litigate or
compromise any claim for refund on behalf of EEX and its subsidiaries.
Each member of an affiliated group for federal income tax purposes is jointly
and severally liable for the federal income tax liability of each other member
of its affiliated group. Accordingly, each of EEX and its subsidiaries will
have joint and several liability for the federal income tax liability of the
ENSERCH affiliated group, including that attributable to ENSERCH.
CONFLICTS OF INTEREST
As a result of ENSERCH's control of EEX and the other subsidiaries of
ENSERCH, certain conflicts of interest arise in relations between EEX and the
ENSERCH Companies, including conflicts with respect to the issuance of Common
Stock and other voting securities of EEX, the election of directors of EEX, the
payment of dividends by EEX and various transactions between ENSERCH Companies
and EEX.
EEX and ENSERCH Companies have in the past entered into significant
transactions and agreements incident to their respective businesses. Such
transactions and agreements have related to, among other things, the purchase
and marketing of natural gas, the financing of acquisition, development and
sales activities of EEX and the provision of certain corporate services. See
"Certain Transactions" and Note 6 of Notes to Financial Statements in this
Prospectus. The terms of previous transactions between EEX and the ENSERCH
Companies were not established on an arm's-length basis and involved conflicts
of interest. Nonetheless, EEX believes that these transactions were on terms at
least as favorable to EEX as could have been obtained from unaffiliated third
parties. It is anticipated that ENSERCH Companies and EEX will enter into
material transactions and agreements from time to time in the future. EEX
intends that the terms of any future transactions and agreements between EEX
and ENSERCH Companies will be at least as favorable to EEX as could be obtained
from unaffiliated third parties.
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In addition, a number of specific types of transactions and relationships
between EEX and any entity in which ENSERCH has a direct or indirect interest
are contemplated and permitted by Article Eleven of the Restated Articles of
Incorporation of EEX, including the following:
. Any such entity may lend funds to EEX at interest rates not greater than
the lesser of the such entity's actual average interest cost of the funds
or the rate that EEX would be charged by unrelated lenders on comparable
loans. EEX may lend funds to such entities at rates not less than would
be charged by unrelated lenders on comparable loans.
. Any such entity may sell gas, oil, goods and services to, and may
purchase gas, oil, goods and services from, EEX on terms comparable to
those effected with unaffiliated persons.
Transactions on terms at variance with the terms above, and transactions not
specifically provided for in these and other provisions of Article Eleven,
including transactions that have not previously been determined to be fair, may
occur if authorized or ratified by a majority of EEX shareholders or a majority
of the EEX Board of Directors or a Board committee. ENSERCH controls a majority
of the shares of EEX. In determining whether a majority vote of the EEX Board
or a Board committee has been achieved, the vote of a director of ENSERCH who
is also a director of EEX may be counted toward the authorization or
ratification.
The nature of the respective businesses of EEX and the ENSERCH Companies may
also give rise to conflicts of interest. ENSERCH has advised EEX that it does
not currently intend to engage in the acquisition or development of, or
exploration for, gas and oil except through its beneficial ownership of Common
Stock of EEX. However, as part of ENSERCH's business strategy, it may from time
to time acquire businesses primarily engaged in other activities that also
include gas and oil operations. In addition, consistent with Article Eleven, an
ENSERCH Company may engage in direct competition with EEX without first being
obligated to offer the transaction or other opportunity to EEX.
For a discussion of transactions between EEX and ENSERCH and other ENSERCH
Companies, see "Certain Transactions."
THE REORGANIZATION
EEX's gas and oil operations represent the gas and oil exploration and
production business of ENSERCH. From 1985 through December 30, 1994, this
business was conducted primarily through EP, a limited partnership in which,
since 1989, a minority interest (less than 1%) was held by the public. At year-
end 1994, pursuant to a plan for the reorganization of EP, EEX acquired,
through a series of transactions, all of the operating properties of EP
Operating Limited Partnership ("EPO"), EP's 99%-owned operating partnership, in
exchange for shares of Common Stock. On December 30, 1994, the Reorganization
was consummated, EPO was merged into EEX, EP was liquidated, and the Common
Stock held by EP was distributed to EP's limited and general partners in
accordance with their partnership interests.
In connection with the Reorganization, EEH (which, prior to the
Reorganization was named Enserch Exploration, Inc. and was the Managing General
Partner of EP) received EP's interests in and assumed EP's obligations under
certain equipment lease arrangements relative to the Garden Banks project and
the Mississippi Canyon project, with the equipment being simultaneously
subleased to EEX. ENSERCH Companies also assumed approximately $395 million
principal amount of EP's indebtedness (including $86 million of debt owed by EP
to EPO that did not appear on EP's consolidated balance sheet), plus accrued
interest. Upon the liquidation of EP and distribution of Common Stock, public
unitholders of EP received 805,914 shares (.77%) of Common Stock, and ENSERCH
Companies received 103,775,328 shares (99.23%) of EEX's 104,581,242 shares then
outstanding.
In 1995, EEX acquired the international gas and oil properties of ENSERCH in
exchange for 1,113,545 shares of Common Stock, which number of shares is
subject to adjustment upon completion of the Offering, and acquired ENSERCH's
interest in the SACROC Unit, Kelly Field, Scurry County, Texas ("SACROC") for
approximately $1.65 million in cash. See "Certain Transactions."
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As used in this Prospectus, the "Reorganization" means the series of
transactions by which EEX acquired all of the operating properties of EP's 99%-
owned operating partnership and the acquisition by EEX of the international gas
and oil and SACROC properties of ENSERCH.
The financial statements of EEX for periods prior to December 30, 1994
include the assets, liabilities, operations and cash flows of EP, restated to
include the 1% general partners' interest in EPO and the international gas and
oil operations and the SACROC operations in a manner similar to a pooling-of-
interests since the operations were under the common control of ENSERCH prior
to the establishment of EEX. EP and EPO were partnerships and, as a result, the
income or loss of the partnerships was included 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. Pro
forma net income includes an adjustment to provide for income taxes on the
partnership's operations at the applicable statutory rate. See "Certain
Transactions" and the EEX financial statements included in this Prospectus.
CERTAIN TRANSACTIONS
The equipment and facilities used in developing and producing reserves in the
Mississippi Canyon project and the Garden Banks project were financed under
lease agreements between certain financial institutions and EPO that were
guaranteed by ENSERCH. In connection with the Reorganization, 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 Mississippi Canyon sublease has a term of five years, with EEX having an
option to purchase the subleased equipment at the end of the term. The Garden
Banks 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 the shallow-water production facility, which
has an initial term of 12 years. For additional information concerning the
subleases, see Note 7 of the Notes to Financial Statements of EEX in this
Prospectus.
In March 1995, EEX purchased the SACROC properties from ENSERCH, which
represented ENSERCH's only other domestic gas and oil property. The purchase
price of approximately $1.65 million included $1.25 million for the fair market
value of the properties, as estimated by D&M, and approximately $.40 million
for the net book value of related assets acquired and liabilities assumed.
In June 1995, EEX acquired all of the international gas and oil operations of
ENSERCH for 1,113,545 shares of Common Stock, which number of shares is subject
to adjustment upon completion of the Offering. The shares represent a purchase
price of approximately $15.6 million, including $13 million for the fair market
value of the properties, as estimated by D&M, and $2.6 million for the net book
value of the other assets acquired and liabilities assumed. The final number of
shares to be issued to ENSERCH will be determined by dividing the purchase
price by the net proceeds per share received by EEX for the Common Stock in the
Offering, as shown on the cover page of this Prospectus.
EEX and ENSERCH have entered into a letter agreement dated effective as of
January 1, 1995, to formalize borrowing arrangements between EEX and ENSERCH.
Funds may be drawn under the terms of the letter agreement until March 31,
1999, pursuant to certain limitations. The agreement provides for automatic one
year extensions beginning March 31, 1998, unless a cancellation notice has been
given by one of the parties. The aggregate amount of borrowing is limited to
$100 million outstanding at any time between May 1, 1995, and the date EEX
concludes a public offering of Common Stock and $50 million thereafter. As of
June 30, 1995, $39.1 million was outstanding under this arrangement. Beginning
May 1, 1995, EEX pays interest on the daily net balance of loans from ENSERCH
at a per annum rate equal to the average rate of all loans EEX has outstanding
under its bank facilities or if no such loans are outstanding the current one
month LIBOR rate plus the spread specified in EEX's bank facilities. If the
rate payable by EEX exceeds the rate specified by the formula in EEX's Restated
Articles of Incorporation, the rate calculated pursuant to the Restated
Articles of Incorporation will be charged. See "Relationship Between EEX and
ENSERCH."
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ENSERCH pays interest on loans from EEX at the rate it would have to pay on one
month commercial paper as of the first day of the month in which the borrowing
is outstanding. For each entity, the interest rate on any overdue amounts is
the applicable interest rate plus 2% per annum.
ENSERCH charges EEX for the general and administrative staff costs incurred
by ENSERCH in performing accounting, treasury, internal audit, income tax
planning and compliance, legal, information systems, human resources and other
functions for EEX. Costs are determined on a basis reasonably calculated to
reflect the actual costs of the services performed for EEX and may include
allocations based on such factors as net capital employed, the number of
employees or the percentage of time spent on projects or services. See Note 6
of Notes to Financial Statements of EEX in this Prospectus.
For additional discussion of transactions between EEX and its affiliates, see
"Business--Sales", "Relationship Between EEX and ENSERCH", "The Reorganization"
and Notes 6 and 7 of Notes to Financial Statements of EEX in this Prospectus.
EEX believes that all of the transactions described above were on terms at
least as favorable to EEX as could have been obtained from unaffiliated third
parties.
DESCRIPTION OF THE CAPITAL STOCK
The following description of the capital stock does not purport to be
complete and is subject to, and qualified in its entirety by reference to, the
more complete statements thereof set forth in EEX's Restated Articles of
Incorporation and its Bylaws. EEX is currently authorized by its Restated
Articles of Incorporation to issue 200,000,000 shares of Common Stock, par
value $1.00 per share, and 2,000,000 shares of Preferred Stock, of no par
value.
COMMON STOCK
Subject to the rights of the holders of any Preferred Stock that may be
outstanding from time to time and except as otherwise provided by law, holders
of Common Stock are entitled to receive such dividends as are declared by the
Board of Directors from any funds legally available therefor, to cast one vote
for each share on all matters voted upon by shareholders, including election of
directors (cumulative voting being prohibited), and to share ratably in assets
available for distribution upon any liquidation. Holders of Common Stock have
no preemptive rights and are not subject to any further call or assessment and
the Common Stock is not subject to redemption.
EEX's bank revolving credit agreement provides that EEX will not declare or
pay any dividend or distribute any assets to its shareholders during the
continuance of an Event of Default, as defined (including a default in the
payment of interest or principal, when due, various proceedings relating to
insolvency, liquidation and bankruptcy, continuing defaults or unpaid judgments
in excess of $25 million and such time as ENSERCH ceases to own, directly or
indirectly, at least 50% of the voting stock of EEX).
Generally, holders of the Common Stock are entitled to elect all members of
the Board of Directors and vote upon all corporate matters put to shareholder
vote. However, any Preferred Stock that may be issued in the future may have
voting rights. Cumulative voting is prohibited by EEX's Restated Articles of
Incorporation.
The Common Stock is listed on the New York Stock Exchange under the symbol
"EEX."
The Transfer Agent and Registrar of the Common Stock is Harris Trust Company
of New York, New York.
PREFERRED STOCK
Preferred Stock may be issued in one or more series as the Board of Directors
may from time to time determine. The Common Stock will be subject and
subordinate to the rights (including voting rights),
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privileges and preferences of any series of Preferred Stock to the extent set
forth in the resolutions adopted by the Board of Directors establishing such
series. The Board of Directors may establish series of Preferred Stock by
fixing and determining the designations, preferences, limitations and relative
rights of the shares of the series, subject to and within the limitations of
the Texas Business Corporation Act and the Restated Articles of Incorporation.
There are currently outstanding fifteen (15) shares of Adjustable Rate
Cumulative Preferred Stock, Series A ("Preferred Stock, Series A"), stated
value $10 million per share, all of which are owned by EEX Capital L.L.C., a
limited liability company wholly owned by EEX. The shares were issued in
connection with the $150 million financing that was closed on August 4,1995.
See "Capitalization." So long as any of the Preferred Stock, Series A, remains
outstanding, no dividend (other than a dividend payable in the Common Stock of
EEX) or other distribution may be paid upon or declared or set apart for the
Common Stock, nor may any Common Stock be redeemed, purchased, retired or
otherwise acquired by EEX unless and until all dividends on the then
outstanding shares of Preferred Stock, Series A, for all past quarterly
dividend periods shall have been paid or declared and set apart for payment,
but without interest, and the full dividends thereon for the then current
quarterly dividend period shall have been concurrently paid or declared and set
apart for payment. After such full dividends on the Preferred Stock, Series A,
will have been so paid or declared and set apart for payment, dividends may be
declared and paid on the Common Stock when and as determined by the Board of
Directors out of any funds legally available for dividends. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the affairs
of EEX, the holders of the Preferred Stock, Series A, will be entitled to
receive for each share thereof an amount equal to $10 million together with
unpaid accumulated dividends without interest, before any distribution of the
assets of EEX may be made to the holders of Common Stock. The holders of the
Preferred Stock, Series A, have no pre-emptive rights and have no voting rights
other than the voting rights as are specifically provided for by law.
STOCK OWNERSHIP RESTRICTIONS
The Mineral Lands Leasing Act of 1920, as amended, provides that citizens of
another country, the laws, customs or regulations of which deny similar or like
privileges to citizens or corporations of the United States, shall not by stock
ownership, stock holding or stock control, own any interest in any gas, oil or
other lease acquired thereunder. EEX is not aware of any country to which this
restriction would be applicable. Nevertheless, the Bylaws of EEX contain
provisions that restrict transfers of EEX capital stock to, and suspend voting,
dividend and distribution rights of, any persons who would cause EEX to be
disqualified under any applicable federal or state law from owning or leasing
interests in lands or leases or otherwise conducting its business.
CERTAIN UNITED STATES TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS
The following is a discussion of the principal United States federal income
and estate tax consequences of the ownership and disposition of the Common
Stock applicable to Non-United States Holders of such Common Stock. For the
purpose of this discussion, a "Non-United States Holder" is a person other than
(i) an individual who is a citizen or resident of the United States, (ii) a
corporation or partnership created or organized in the United States or under
the law of the United States or any state or (iii) an estate or trust, the
income of which is includable in gross income for United States federal income
tax purposes regardless of its source. This discussion does not deal with all
aspects of United States federal income and estate taxation and does not deal
with foreign, state and local tax consequences that may be relevant to Non-
United States Holders in light of their particular circumstances. Furthermore,
the following discussion is based on current
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provisions of the Internal Revenue Code of 1986 (the "Code") and administrative
and judicial interpretations as of the date hereof, all of which may be changed
either retroactively or prospectively.
Prospective foreign investors are urged to consult their tax advisors
regarding the United States federal, state and local, and Non-United States,
income and other tax consequences of owning and disposing of the Common Stock.
DIVIDENDS
Generally, any dividend paid to a Non-United States Holder of the Common
Stock will be subject to United States income tax which is collected through
withholding at a rate of 30% of the gross amount of the dividend or lesser
applicable income tax treaty rate. Dividends received by a Non-United States
Holder that are effectively connected with a United States trade or business
conducted by such holder are subject to tax at ordinary federal income tax
rates, and will be exempt from the withholding tax if the Non-United States
Holder files Internal Revenue Service Form 4224 with the payor. A non-United
States corporation receiving such effectively connected dividends may also be
subject to an additional "branch profits tax" which is imposed, under certain
circumstances, at a rate of 30% (or such lower rate as may be specified by an
applicable treaty) of the Non-United States corporation's effectively connected
earnings and profits, subject to certain adjustments.
Under current United States Treasury regulations, dividends paid to an
address outside the United States are presumed to be paid to a resident of such
country absent knowledge of the status of the shareholder to the contrary for
purposes of the withholding discussed above. However, under proposed United
States Treasury regulations not currently in effect, a Non-United States Holder
of Common Stock who wishes to claim the benefit of an applicable treaty rate
would be required to satisfy applicable certification and other requirements.
Dividends paid to a Non-U.S. Holder at an address within the United States
may be subject to backup withholding at the rate of 31% if the Non-U.S. Holder
fails to establish that it is entitled to an exemption or to provide a correct
taxpayer identification number and other information to the payor.
DISPOSITION OF COMMON STOCK
A Non-United States Holder generally will not be subject to United States
federal income tax on any gain realized upon the disposition of his Common
Stock unless (i) such gain is effectively connected with a United States trade
or business of the Non-United States Holder, (ii) in the case of a non-
corporate Non-United States Holder, such holder is present in the United States
for a period or periods aggregating 183 days or more during the taxable year in
which such disposition occurs, or (iii) subject to the exception discussed
below, EEX is or has been a "United States real property holding corporation"
within the meaning of section 897(c)(2) of the Code at any time within the
shorter of the five-year period preceding such disposition or such holder's
holding period.
EEX believes it currently is and may remain a U.S. real property holding
corporation. However, gain realized on a disposition of Common Stock by a Non-
U.S. Holder that is not deemed to own more than five percent of the Common
Stock during such period will not be subject to U.S. federal income tax except
as provided in the following paragraph.
The preceding discussion with respect to the tax consequences to a Non-U.S.
Holder where the Company is a U.S. real property holding corporation assumes
that the Common Stock is and always will be listed on the New York Stock
Exchange and hence will be "regularly traded" on an established securities
market (within the meaning of section 897(c)(3) of the Code) located in the
United States at the time of disposition. However, it may be possible to
interpret the Temporary U.S. Treasury regulations that define "regularly
traded" for this purpose as providing that the Common Stock will not be
"regularly traded" for any calendar
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quarter during which 100 or fewer persons (treating related persons as one
person) in the aggregate own 50% or more of the Common Stock. Because the
ENSERCH Companies currently own and may continue to own at least 50% of the
Common Stock, in the event that this interpretation is determined to be
correct, a Non-U.S. Holder (without regard to its ownership percentage of
Common Stock) may be subject to U.S. federal income tax with respect to gain
realized on any sale or other disposition of Common Stock as well as to
withholding tax (generally at a rate of 10% of the cash proceeds). Any amount
withheld pursuant to such withholding tax will be creditable against such
holder's U.S. federal income tax liability.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Under Treasury regulations, EEX must report annually to the IRS the amount of
dividends paid to each Non-United States Holder, the name and address of the
recipient and the federal income tax, if any, withheld with respect to such
dividends. A similar report is sent to the holder. Such information may be made
available by the IRS to the tax authorities in a foreign country under the
provisions of an applicable tax treaty or information exchange agreement.
Payments of dividends to a Non-United States Holder at an address outside the
United States will generally not be subject to backup withholding. The payment
of the proceeds of the disposition of Common Stock to or through the United
States office of a broker may be subject to information reporting and backup
withholding at a rate of 31% unless the owner certifies its non-United States
status under penalties of perjury or otherwise establishes an exemption. The
payment of the proceeds of the disposition by a Non-United States Holder of
Common Stock to or through a foreign office of a broker generally will not be
subject to backup withholding. However, information reporting will apply to
such payments of proceeds to or through a foreign office of a broker that is a
United States person or a United States-related person unless such broker has
documentary evidence in its files of the owner's Non-United States status or
the owner otherwise establishes an exemption.
Amounts withheld under the backup withholding rules do not constitute a
separate United States federal income tax. Rather, such amounts withheld from a
payment to a Non-United States Holder will be allowed as a credit against such
Non-United States Holder's federal income tax liability and any amounts
withheld in excess of such federal income tax liability may be refunded to such
Non-United States Holder.
ESTATE TAX
Common Stock owned, or treated as owned, by an individual who is a Non-United
States Holder at the time of his death will be included in such holder's gross
estate for United States federal estate tax purposes, unless an applicable
estate tax treaty provides otherwise.
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UNDERWRITERS
Under the terms and subject to the conditions contained in the Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the U.S.
Underwriters named below, for whom Morgan Stanley & Co. Incorporated, Bear,
Stearns & Co. Inc., Dean Witter Reynolds Inc., Howard, Weil, Labouisse,
Friedrichs, Inc. and Smith Barney Inc. are serving as U.S. Representatives,
have severally agreed to purchase, and EEX has agreed to sell to them, and the
International Underwriters named below, for whom Morgan Stanley & Co.
International Limited, Howard, Weil, Labouisse, Friedrichs Incorporated, SBC
Warburg, a division of Swiss Bank Corporation ("SBC Warburg"), Smith Barney
Inc. and UBS Limited are serving as International Representatives, have
severally agreed to purchase, and EEX has agreed to sell to them, the
respective number of shares of Common Stock set forth opposite the names of
such Underwriters below:
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
---- ----------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated.............................
Bear, Stearns & Co. Inc.......................................
Dean Witter Reynolds Inc......................................
Howard, Weil, Labouisse, Friedrichs Incorporated..............
Smith Barney Inc..............................................
----------
Subtotal.................................................... 16,000,000
----------
International Underwriters:
Morgan Stanley & Co. International Limited....................
Howard, Weil, Labouisse, Friedrichs Incorporated..............
SBC Warburg...................................................
Smith Barney Inc..............................................
UBS Limited...................................................
----------
Subtotal.................................................... 4,000,000
----------
Total..................................................... 20,000,000
==========
</TABLE>
The U.S. Underwriters and the International Underwriters are collectively
referred to as the "Underwriters," and the U.S. Representatives and the
International Representatives are collectively referred to as the
"Representatives." The Underwriting Agreement provides that the obligations of
the several Underwriters to pay for and accept delivery of the shares of Common
Stock offered hereby are subject to the approval of certain legal matters by
their counsel and to certain other conditions. The Underwriters are obligated
to take and pay for all of the shares of Common Stock offered hereby (other
than those shares covered by the U.S. Underwriters' over-allotment option
described below) if any such shares are taken.
Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions, (a)
it is not purchasing any U.S. Shares (as defined
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below) for the account of anyone other than a United States or Canadian Person
(as defined below) and (b) it has not offered or sold, and will not offer or
sell, directly or indirectly, any U.S. Shares or distribute any prospectus
relating to the U.S. Shares outside the United States or Canada or to anyone
other than a United States or Canadian Person. Pursuant to the Agreement
Between U.S. and International Underwriters, each International Underwriter has
represented and agreed that, with certain exceptions, (x) it is not purchasing
any International Shares (as defined below) for the account of any United
States or Canadian Person and (y) it has not offered or sold, and will not
offer or sell, directly or indirectly, any International Shares or distribute
any prospectus relating to the International Shares within the United States or
Canada or to any United States or Canadian Person. The foregoing limitations do
not apply to stabilization transactions or to certain other transactions
specified in the Agreement Between U.S. and International Underwriters. As used
herein, "United States or Canadian Person" means any national or resident of
the United States or Canada, or any corporation, pension, profit-sharing or
other trust or other entity organized under the laws of the United States or
Canada or of any political subdivision thereof (other than a branch located
outside the United States and Canada of any United States or Canadian Person)
and includes any United States or Canadian branch of a person who is otherwise
not a United States or Canadian Person. All shares of Common Stock to be
purchased by the U.S. Underwriters and the International Underwriters under the
Underwriting Agreement are referred to herein as the U.S. Shares and the
International Shares, respectively.
Pursuant to the Agreement Between U.S. and International Underwriters, sales
may be made between the U.S. Underwriters and the International Underwriters of
any number of shares of Common Stock to be purchased pursuant to the
Underwriting Agreement as may be mutually agreed. The per share price of any
shares so sold shall be the price to public set forth on the cover page herein,
in United States dollars, less an amount not greater than the per share amount
of the concession to dealers set forth below.
Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has
agreed not to offer or sell, any shares of Common Stock, directly or
indirectly, in Canada in contravention of the securities laws of Canada or any
province or territory thereof and, without limiting the generality of the
foregoing, has represented that any offer of Common Stock in Canada will be
made only pursuant to an exemption from the requirement to file a prospectus in
the province or territory of Canada in which such offer is made. Each U.S.
Underwriter has further agreed to send to any dealer who purchases from it any
shares of Common Stock a notice stating in substance that, by purchasing such
shares of Common Stock, such dealer represents and agrees that it has not
offered or sold, and will not offer or sell, directly or indirectly, any of
such shares of Common Stock in Canada or to, or for the benefit of, any
resident of Canada in contravention of the securities laws of Canada or any
province or territory thereof and, without limiting the generality of the
foregoing, that any offer of shares of Common Stock in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
province or territory of Canada in which such offer is made, and that such
dealer will deliver to any other dealer to whom it sells any of such shares of
Common Stock a notice to the foregoing effect.
Pursuant to the Agreement Between U.S. and International Underwriters, each
International Underwriter has represented and agreed that (i) it has not
offered or sold and will not offer or sell any shares of Common Stock to
persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995 (the "Regulations"); (ii) it has complied and will
comply with all applicable provisions of the Financial Services Act 1986 and
the Regulations with respect to anything done by it in relation to the shares
of Common Stock in, from or otherwise involving the United Kingdom; and (iii)
it has only issued or passed on and will only issue or pass on to any person in
the United Kingdom any document received by it in connection with the issue of
the shares of Common Stock if that person is of a kind described in Article
11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1995 or is a person to whom such document may otherwise
lawfully be issued or passed on.
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The Underwriters initially propose to offer part of the Common Stock directly
to the public at the price to public set forth on the cover page hereof and
part to certain dealers at a price that represents a concession not in excess
of $ a share under the public offering price. The Underwriters may allow,
and such dealers may reallow, a concession not in excess of $ a share to
other Underwriters or to certain dealers. After the initial offering of the
Common Stock, the offering price and other selling terms may be varied from
time to time by the Underwriters.
Pursuant to the Underwriting Agreement, the Company has granted to the U.S.
Underwriters an option, exercisable at any time for 30 days from the date of
the Underwriting Agreement, to purchase up to 3,000,000 additional shares of
Common Stock at the price to public set forth on the cover page hereof, less
underwriting discounts and commissions. The U.S. Underwriters may exercise such
option to purchase solely for the purpose of covering over-allotments, if any,
incurred in the sale of the shares of Common Stock offered hereby. To the
extent such option is exercised, each U.S. Underwriter will become obligated,
subject to certain conditions, to purchase approximately the same percentage of
such additional shares as the number set forth next to such U.S. Underwriter's
name in the preceding table bears to the total number of shares of Common Stock
offered by the U.S. Underwriters hereby.
EEX has agreed that, without the prior written consent of Morgan Stanley &
Co. Incorporated, it will not (a) offer, pledge, sell, contract to sell, sell
any option or contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase or otherwise transfer or dispose
of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or (b) enter
into any swap or other agreement that transfers, in whole or in part, any of
the economic consequences of ownership of the Common Stock, whether any such
transaction described in clause (a) or (b) of this sentence is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise, for a
period of 180 days after the date of this Prospectus, other than (i) the shares
of Common Stock to be sold hereby, or (ii) any shares of Common Stock issued or
sold by EEX pursuant to the ENSERCH Employee Stock Purchase and Savings Plan or
stock options granted or restricted stock awarded pursuant to the EEX 1994
Stock Incentive Plan. In addition, the beneficial owners named under "Security
Ownership of Certain Beneficial Owners and Management" holding substantially
all of the outstanding Common Stock, have agreed that, without the prior
written consent of Morgan Stanley & Co. Incorporated, they will not (a) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase or otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or (b) enter into any swap or other agreement
that transfers, in whole or in part, any of the economic consequences of
ownership of Common Stock, whether any such transaction described in clause (a)
or (b) of this sentence is to be settled by delivery of Common Stock or such
other securities, in cash or otherwise, for a period of 180 days after the date
of this Prospectus.
Certain Underwriters have from time to time performed various investment
banking services for ENSERCH, certain of its subsidiaries and EEX's
predecessor, for which compensation has been received. Within the last year,
Morgan Stanley & Co. Incorporated provided a fairness opinion in regard to the
DALEN Acquisition, provided advice and assistance in regard to EEX's potential
acquisition of another company, which acquisition was not consumated, and has
been conducting a financial advisory review of ENSERCH's shareholder relations
program. Also within the last year, Dean Witter Reynolds Inc. provided a
fairness opinion in connection with the Reorganization, and Smith Barney Inc.
served as sole underwriter of ENSERCH's $150 million principal amount 7 1/8%
Notes due 2005.
EEX has agreed to indemnify the several Underwriters against certain
liabilities, including certain liabilities arising under the Securities Act.
PRICING OF THE OFFERING
Prior to the Offering, less than 900,000 shares of Common Stock have been
held by persons unaffiliated with EEX or ENSERCH and only a limited number of
shares have traded publicly. Therefore, although the
63
<PAGE>
Common Stock is listed and traded on the NYSE, its current market price is not
considered dispositive in determining the price of the Common Stock in the
Offering. The Offering price will be determined by negotiations between EEX
and the Representatives. Among the factors to be considered in such
negotiations will be the sales, earnings and certain other financial and
operating information of EEX in recent periods, the future prospects of EEX
and its industry in general, certain ratios, market prices of securities and
financial and operating information of companies engaged in activities similar
to those of EEX and the general condition of the securities markets. For
certain recent market prices of the Common Stock, see "Market Price of Common
Stock and Dividend Policy."
LEGAL MATTERS
The validity of the issuance of the Common Stock will be passed upon for EEX
by Jackson & Walker, L.L.P., Dallas, Texas. Certain legal matters will be
passed upon for the Underwriters by Davis Polk & Wardwell, New York, New York.
EXPERTS
The consolidated balance sheet of EEX as of December 31, 1994 and 1993, and
the related statements of consolidated operations, cash flows and owners'
equity of EEX for each of the three years in the period ended December 31,
1994, included in this Prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein, and are
included in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
With respect to the unaudited interim financial information of EEX for the
periods ended June 30, 1995 and 1994, which is included in this Prospectus,
and for the periods ended March 31, 1995 and 1994 which is incorporated by
reference in this Prospectus, Deloitte & Touche LLP have applied limited
procedures in accordance with professional standards for a review of such
information. However, as stated in their reports, they did not audit and they
do not express an opinion on that interim financial information. Accordingly,
the degree of reliance on their reports on such information should be
restricted in light of the limited nature of the review procedures applied.
Deloitte & Touche LLP are not subject to the liability provisions of Section
11 of the Securities Act for their reports on the unaudited interim financial
information because those reports are not a "report" or a "part" of the
Registration Statement prepared or certified by an accountant within the
meaning of Sections 7 and 11 of the Securities Act.
The audited consolidated financial statements of DALEN and its subsidiaries
included in this Prospectus, to the extent and for the period indicated in
their report, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said report. Reference is made to said
report, which includes an explanatory paragraph with respect to the change in
method of accounting for income taxes as of January 1, 1993, as discussed in
Note 2 to the DALEN Financial Statements included in this Prospectus.
The estimates of the reserves of gas and oil of EEX made by DeGolyer and
MacNaughton, independent petroleum consultants, have been included herein in
reliance upon such estimates given upon such firm's authority as experts with
respect to the matters contained therein.
Information relating to the estimated reserves of gas and oil of DALEN and
the related estimates of future net cash flows and present values thereof for
certain periods included herein and in the Notes to the DALEN Financial
Statements included in this Prospectus have been audited by Netherland, Sewell
& Associates, Inc., independent petroleum engineers, and are included herein
and incorporated by reference herein in reliance upon the authority of such
firm as an expert in petroleum engineering.
64
<PAGE>
CERTAIN DEFINITIONS
Amplitude Anomaly--A change in seismic reflection signal strength of a specific
geologic layer, especially if attributable to an accumulation of
hydrocarbons, sometimes called a "bright spot".
Areal--Pertaining to area.
Barrel or Bbl--The unit of volume measurement used for petroleum products. One
barrel = 42 U.S. gallons.
MBbls: thousand barrels
MMBbls: million barrels
Basin--A synclinal structure in the subsurface, once the bed of a prehistoric
sea. Regarded as a good prospect for gas and oil exploration.
Behind Pipe--Oil and gas reservoirs penetrated by wells but not perforated
which therefore remain behind the pipe.
Block--Numerical designation of a specific location in an offshore area, or, an
onshore acreage "block".
Btu--British thermal unit, the quantity of heat required to raise the
temperature of one pound of water by one degree Fahrenheit.
MMBtu: million Btus
Condensate--A hydrocarbon mixture that becomes liquid and separates from
natural gas when the gas is subject to the production process; similar to
crude oil.
Confirmation Well--A well drilled to validate an initial discovery.
Cubic Foot--The amount of natural gas that occupies one cubic foot under
standard temperature and pressure conditions; standard volume measurement
for natural gas.
Mcf:thousand cubic feet
MMcf:million cubic feet
Bcf:billion cubic feet
Tcf:trillion cubic feet
Cubic Foot of Natural Gas Equivalent--The amount of oil, condensate or natural
gas liquids necessary to equal an amount of natural gas based on a
conversion ratio of one Bbl of oil, condensate or natural gas liquids to six
Mcf of gas.
Mcfe:thousand cubic feet of natural gas equivalent
MMcfe:million cubic feet of natural gas equivalent
Bcfe:billion cubic feet of natural gas equivalent
Tcfe:trillion cubic feet of natural gas equivalent
Development Drilling--The drilling and drilling-related activities undertaken
to recover gas and oil after initial discovery.
Development Well--A well drilled into a reservoir of gas or oil that contains
proved reserves.
Exploitation--The development of an existing producing area in order to
increase production, usually characterized by the drilling of infill
development wells and the reworking of old wells.
Exploratory Well--A well drilled into a previously untested geologic structure
or formation to determine the presence of gas or oil.
65
<PAGE>
Gross Acres/Gross Wells--Total acreage or total wells in which a company holds
varying interests.
Leasehold--Property or acreage offered under contract for the exploration and
production of gas, oil or other minerals.
NGL--Natural gas liquids.
Net Acres/Net Wells--Proportionate company interest in gross acres or gross
wells.
Operator--The individual or company responsible for the exploration and
production of a gas or oil well or lease. The operator typically holds the
largest working interest in the well or lease.
Overriding Royalty Interest--A royalty interest created from the working
interest which entitles the holder to a specific fractional share of gross
gas or oil production.
Proved Reserves--Reserves which can be estimated with reasonable certainty to
be recoverable under current economic conditions.
Proved Developed/Undeveloped Reserves--Proved reserves which are expected to be
recovered from existing wells (including reserves behind pipe).
Production--The phase of the petroleum industry that deals with bringing the
gas and well fluids to the surface, separating them and storing, gauging and
otherwise preparing the product for the pipeline. Also, the amount of gas or
oil produced in a given period.
Productive Wells--Either producing wells or wells capable of commercial
production, although currently shut-in.
Recompletion--A workover in which a previously productive formation or interval
is abandoned and a different interval is completed for production.
Reserves--Amount of gas or oil believed to be economically recoverable under
existing conditions.
Royalty--Mineral owner's share of the gross gas or oil production on his
property.
Spudded--The beginning of the actual drilling of a well, which involves using a
spudding bit to drill down several hundred feet to accommodate the surface
pipe.
Standardized Measure of Discounted Future Net Cash Flows After Tax--Net present
value of the estimated future revenue stream from proved gas and oil
reserves using current period prices plus contractual escalations, less
future costs to develop and produce the reserves, discounted at the
prescribed 10% rate and adjusted for income-tax effects.
3-D Seismic--Three-dimensional, computer-aided imaging of underground
formations based on acoustical data.
2-D Seismic--Two-dimensional, computer-aided imaging of underground formations
based on acoustical data.
Working Interest--A share of the ownership in drilling and production of gas
and oil.
Workover--One or more of a variety of remedial operations on a producing well
to restore or increase production by reconditioning or stimulating the
reservoir or by a recompletion.
66
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Enserch Exploration, Inc.:
As of or for the Three Years Ended December 31, 1994:
Independent Auditors' Report............................................ F-2
Statements of Consolidated Operations................................... F-3
Statements of Consolidated Cash Flows................................... F-4
Consolidated Balance Sheets as of December 31, 1994 and 1993............ F-5
Statements of Owners' Equity............................................ F-6
Notes to Financial Statements........................................... F-7
Enserch Exploration, Inc. (Unaudited):
Independent Accountants' Report......................................... F-17
Condensed Statements of Consolidated Income for the Six Months Ended
June 30, 1995 and 1994................................................. F-18
Condensed Statements of Consolidated Cash Flows for the Six Months Ended
June 30, 1995 and 1994................................................. F-19
Condensed Consolidated Balance Sheets as of June 30, 1995 and December
31, 1994............................................................... F-20
Notes to Condensed Consolidated Financial Statements.................... F-21
DALEN Corporation:
As of or for the Three Years Ended December 31, 1994:
Report of Independent Public Accountants................................ F-23
Consolidated Statements of Operations................................... F-24
Consolidated Balance Sheets............................................. F-25
Consolidated Statements of Stockholder's Equity......................... F-26
Consolidated Statements of Cash Flows................................... F-27
Notes to Consolidated Financial Statements.............................. F-28
DALEN Corporation (Unaudited):
Consolidated Statements of Operations for the Three Months Ended March
31, 1995 and 1994...................................................... F-37
Consolidated Balance Sheets as of March 31, 1995 and December 31, 1994.. F-38
Consolidated Statements of Cash Flows for the Three Months Ended March
31, 1995 and 1994...................................................... F-39
Notes to Financial Statements........................................... F-40
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of Enserch Exploration, Inc.
We have audited the accompanying consolidated balance sheets of Enserch
Exploration, Inc. and subsidiaries (the "Company") as of December 31, 1994 and
1993 and the related statements of consolidated operations, cash flows, and
owners' equity for each of the three years in the period ended December 31,
1994. These financial statements give retroactive effect to the transactions
which have been accounted for in a manner similar to a pooling-of-interests, as
described in Note 1. 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 consolidated financial position of the Company at December 31,
1994 and 1993, and the results of their operations and their cash flows 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 (June 21, 1995 as to Note 1)
F-2
<PAGE>
ENSERCH EXPLORATION, INC.
STATEMENTS OF CONSOLIDATED OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1993 1992
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Revenues
Natural gas.............................. $ 144,550 $ 146,355 $ 118,639
Oil and condensate....................... 30,880 36,863 45,064
Natural gas liquids...................... 2,377 4,148 6,554
Other.................................... 1,333 2,430 1,287
---------- ---------- ----------
Total.................................. 179,140 189,796 171,544
---------- ---------- ----------
Costs and Expenses
Production and operating................. 31,667 31,404 29,560
Exploration.............................. 9,136 8,668 11,164
Depreciation and amortization............ 80,819 78,418 76,742
(Sale) write-down of inactive pipeline... (7,551) 16,500
Write-down of non-U.S. gas and oil
properties.............................. 10,191
General, administrative and other........ 19,807 29,980 23,149
Taxes, other than income................. 13,233 15,950 15,615
---------- ---------- ----------
Total.................................. 147,111 174,611 172,730
---------- ---------- ----------
Operating Income (Loss).................... 32,029 15,185 (1,186)
Other Income (Expense)-Net................. (314) (6)
Interest Income............................ 671 2,041 3,692
Interest Expense........................... (20,919) (30,584) (20,675)
---------- ---------- ----------
Income (Loss) Before Income Taxes.......... 11,467 (13,358) (18,175)
Income Taxes (Benefit)..................... (334) (3,398) 448
---------- ---------- ----------
Net Income (Loss).......................... $ 11,801 $ (9,960) $ (18,623)
========== ========== ==========
Pro Forma Information:
Income (loss) before income taxes $ 11,467 $ (13,358) $ (18,175)
Income taxes (benefit) (including income
taxes on partnership operations)........ 3,990 (4,666) (6,421)
---------- ---------- ----------
Net Income............................... $ 7,477 $ (8,692) $ (11,754)
========== ========== ==========
Net Income (Loss) Per Share.............. $ .07 $ (.08) $ (.11)
========== ========== ==========
Weighted Average Shares Outstanding........ 105,695 105,695 105,695
========== ========== ==========
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE>
ENSERCH EXPLORATION, INC.
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1994 1993 1992
--------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating Activities
Net income (loss)............................ $ 11,801 $ (9,960) $(18,623)
Depreciation and amortization................ 80,819 78,418 76,742
Deferred income tax expense (benefit)........ (366) (3,494) (682)
(Sale) write-down of inactive pipeline....... (7,551) 16,500
Write-off of unsuccessful foreign exploration
costs....................................... 10,191
Other........................................ (10,332) 8,994 (9,659)
Changes in current operating assets and
liabilities
Accounts receivable........................ 3,464 3,839 18,648
Other current assets....................... (26,333) (15,461) (304)
Accounts payable........................... 11,894 10,219 8,284
Other current liabilities.................. (1,714) (3,223) (5,660)
--------- --------- --------
Net cash flows from operating activities... 61,682 79,523 85,246
--------- --------- --------
Investing Activities
Additions of property, plant and equipment... (132,590) (118,759) (64,831)
Retirements of property, plant and equipment. 13,051 (598) 9,532
Other........................................ 10,755 (9,726) (3,403)
--------- --------- --------
Net cash flows used for investing
activities................................ (108,784) (129,083) (58,702)
--------- --------- --------
Financing Activities
Change in temporary advances with ENSERCH
Companies................................... 76,331 34,405 (44,274)
Proceeds from long-term notes payable to
ENSERCH Companies........................... 11,000 32,000 32,000
(Decrease) increase in advances under leasing
arrangements-net............................ (32,771) 13,588 17,652
Cash distributions paid...................... (7,842) (31,061) (31,061)
Other........................................ 275
--------- --------- --------
Net cash flows from (used for) financing
activities................................ 46,993 48,932 (25,683)
--------- --------- --------
Net (Decrease) Increase in Cash and
Equivalents................................... (109) (628) 861
Cash and Equivalents at Beginning of Year...... 343 971 110
--------- --------- --------
Cash and Equivalents at End of Year............ $ 234 $ 343 $ 971
========= ========= ========
Interest Paid (Net of amounts capitalized)..... $ 20,248 $ 23,067 $ 16,983
========= ========= ========
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE>
ENSERCH EXPLORATION, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1993
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current Assets
Cash................................................... $ 234 $ 343
Accounts receivable-trade (net of allowance for
possible losses of $670 and $706)..................... 16,828 17,475
Accounts receivable-affiliated companies............... 11,581 14,093
Notes receivable-affiliated companies.................. 86,077
Materials and supplies, at average cost................ 2,168 1,853
Other.................................................. 3,049 1,803
---------- ----------
Total current assets................................. 119,937 35,567
---------- ----------
Property, Plant and Equipment (at cost)
Gas and oil properties (full-cost method, $174,951 and
$83,067 excluded from amortization base).............. 2,094,494 1,843,925
Other.................................................. 15,582 6,242
---------- ----------
Total................................................ 2,110,076 1,850,167
Less accumulated depreciation and amortization......... 856,062 803,807
---------- ----------
Net property, plant and equipment.................... 1,254,014 1,046,360
---------- ----------
Other Assets............................................. 7,284 29,568
---------- ----------
Total................................................ $1,381,235 $1,111,495
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable-trade................................. $ 58,593 $ 69,881
Accounts payable-affiliated companies.................. 7,060 3,621
Temporary advances-affiliated companies (net).......... 105,469 27,068
Current portion of capital lease obligations........... 4,760
Advances under leasing arrangements.................... 31,240
Other.................................................. 1,728 12,372
---------- ----------
Total current liabilities............................ 177,610 144,182
---------- ----------
Long-term Debt--Affiliated Companies (Note 6)............ 298,000
---------- ----------
Capital Lease Obligations................................ 151,095
---------- ----------
Other Liabilities
Deferred income taxes.................................. 284,299
Deferred royalties..................................... 25,536 28,842
Other.................................................. 6,687 9,786
---------- ----------
Total other liabilities.............................. 316,522 38,628
---------- ----------
Commitments and Contingent Liabilities (Note 7)
Owners' Equity........................................... 736,008 630,685
---------- ----------
Total................................................ $1,381,235 $1,111,495
========== ==========
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE>
ENSERCH EXPLORATION, INC.
STATEMENTS OF OWNERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<S> <C>
Balance, December 31, 1991.......................................... $721,390
Net loss.......................................................... (18,623)
Distributions declared............................................ (31,061)
---------
Balance, December 31, 1992.......................................... 671,706
Net loss.......................................................... (9,960)
Distributions declared............................................ (31,061)
---------
Balance, December 31, 1993.......................................... 630,685
Net income........................................................ 11,801
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
Assumption of deferred income taxes by EEX...................... (289,703)
---------
Balance, December 31, 1994.......................................... $ 736,008
=========
Common Stock--$1.00 par value, authorized 200,000,000 shares, issued
and outstanding
105,694,787 shares................................................. $ 105,695
Paid in Capital..................................................... 630,313
---------
Common Shareholders' Equity at December 31, 1994.................... $ 736,008
=========
</TABLE>
See Notes to Financial Statements.
F-6
<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
Prior to December 30, 1994, Enserch Exploration, Inc. ("EEX"), a corporation,
operated as Enserch Exploration Partners, Ltd. ("EP"), a partnership, and its
published financial statements were those of EP. On December 30, 1994, EEX
acquired all of the partnership interests of EP Operating Limited Partnership
("EPO"), the 99% owned operating partnership of 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. Certain affiliates of ENSERCH other than EEX
(collectively, the "ENSERCH Companies") also received EP's interest in and
assumed EP's obligations under certain equipment leases (the equipment was
simultaneously subleased to EEX) and assumed approximately $395 million
principal amount of EP's indebtedness, plus accrued interest.
In 1995, EEX acquired the international gas and oil operations of ENSERCH by
the issuance of 1,113,545 shares of EEX Common Stock and acquired the SACROC
operations of ENSERCH for $1.65 million in cash. Both transactions were based
on the value of the underlying properties as determined by independent
petroleum engineers. ENSERCH's historical carrying value of the assets acquired
and liabilities assumed has been recorded by EEX. The excess of ENSERCH's
carrying value over the purchase price of the SACROC properties has been
credited to paid in capital. The stated number of shares issued to acquire the
international operations were determined using an estimated value per share of
EEX Common Stock of $14.00. The number of shares will be adjusted in the future
based on the actual net proceeds per share received by EEX in a planned public
offering of Common Stock.
The financial statements of EEX for periods prior to December 30, 1994 include
the assets, liabilities, operations and cash flows of EP, restated to include
the 1% general partners interest in EPO, and the international gas and oil
operations and the SACROC operations in a manner similar to a pooling-of-
interests since the operations were under the common control of ENSERCH prior
to the establishment of EEX.
EP and EPO were partnerships and, as a result, the income or loss of the
partnerships was included 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. Pro forma net
income includes an adjustment to provide for income taxes on the partnerships'
operations at the applicable statutory rate.
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. Under this method, all acquisition, exploration and development
costs incurred, including salaries, benefits and other internal costs directly
attributable to these activities, are capitalized. All costs associated with
production and general corporate activities are expensed in the period
incurred. 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
F-7
<PAGE>
ENSERCH EXPLORATION, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 Activities--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
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.
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. 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. The accompanying statements of
operations include a pro forma provision for income taxes on the partnership
operations based on the applicable federal statutory rate.
Following is a reconciliation of the provision for income taxes computed at
the federal statutory rate and income tax expense (benefit):
<TABLE>
<CAPTION>
1994 1993 1992
------- -------- --------
<S> <C> <C> <C>
Income (loss) before income taxes.............. $11,467 $(13,358) $(18,175)
Federal statutory rate......................... 35% 35% 34%
------- -------- --------
Provision for income taxes computed at the
federal statutory rate........................ 4,013 (4,675) (6,180)
Impact of 1% increase on federal statutory rate
applicable to international and SACROC opera-
tions......................................... 44
Percentage depletion........................... (23) (35) (241)
------- -------- --------
Total pro forma provision for income taxes..... 3,990 (4,666) (6,421)
Less pro forma income tax (expense) benefit
applicable to partnership operations.......... (4,324) 1,268 6,869
------- -------- --------
Income tax expense (benefit)................... $ (334) $ (3,398) $ 448
======= ======== ========
</TABLE>
F-8
<PAGE>
ENSERCH EXPLORATION, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The deferred tax effect of the difference in financial accounting basis and
income tax basis of EEX's assets and liabilities at December 31, 1994 is 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) recorded
on formation of EEX ....................... 289,703 (420)(a) 290,123
Deferred tax asset applicable to property
related differences of international and
SACROC operations acquired from ENSERCH.... (5,824) (5,824)
-------- ----- --------
Total................................... $283,879 $(420) $284,299
======== ===== ========
</TABLE>
--------
(a) Included in other current assets in the balance sheet.
At December 31, 1993 EEX had a deferred tax asset applicable to property
related differences of international and SACROC operations of $5,375 which is
included in Other Assets.
4. 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.
5. EMPLOYEE BENEFIT PLANS
Substantially all personnel associated with the Company are covered by an
ENSERCH 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 $1,220, $875 and $1,078 in 1994, 1993 and 1992, respectively.
Postretirement health care and life insurance benefit costs allocated to the
Company were $824, $830 and $556 in 1994, 1993 and 1992, respectively.
F-9
<PAGE>
ENSERCH EXPLORATION, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
ENSERCH pension plan information:
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Valuation Assumptions:
Discount rate........................................... 9.0% 7.25%
Rate of increase in compensation levels................. 4.0% 4.0%
Expected long-term rate of return on assets............. 9.5% 9.5%
Amounts Recognized (in millions):
Actuarial present value of pension benefit obligation:
Vested benefit obligation............................. $(237.4) $(268.5)
======= =======
Accumulated benefit obligation........................ $(249.6) $(277.3)
======= =======
Projected pension benefit obligation.................. $(271.4) $(311.7)
Plan assets at fair value................................. 231.7 243.2
------- -------
Projected benefit obligation in excess of plan assets..... (39.7) (68.5)
Unrecognized net asset at transition...................... (8.0) (9.7)
Unrecognized prior service cost (credit).................. (2.2) 1.7
Unrecognized net actuarial loss (gain).................... (3.7) 26.3
------- -------
ENSERCH accrued pension cost.............................. $ (53.6) $ (50.2)
======= =======
EEX accrued pension cost.................................. $ (3.9) $ (3.2)
======= =======
ENSERCH postretirement benefit information:
Valuation Assumptions:
Discount rate......................................... 9.0% 7.25%
Medical cost trend rate............................... 12.0% 12.0%
Amounts Recognized (in millions):
Accumulated postretirement benefit obligation......... $ (82.9) $ (82.9)
Unrecognized obligation at transition................. 62.1 66.2
Unrecognized net actuarial loss....................... 15.1 14.8
------- -------
ENSERCH accrued postretirement benefit cost............... $ (5.7) $ (1.9)
======= =======
EEX accrued postretirement benefit cost................... $ (.5) $ (.2)
======= =======
</TABLE>
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.
6. RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Company engages in various
transactions with ENSERCH and its affiliates. The Company is charged for direct
costs incurred by ENSERCH Companies that are associated with managing the
Company's business and operations. Additionally, the Company is charged for
indirect
F-10
<PAGE>
ENSERCH EXPLORATION, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
costs. Prior to July 1, 1994, the Company was charged for the general and
administrative staff costs incurred by ENSERCH in performing accounting,
treasury, internal audit, income tax planning and compliance, legal,
information systems, human resources 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. Costs are determined on a basis that
reasonably reflects the actual costs of the services performed for EEX and may
include allocations based on such factors as net capital employed, the number
of employees or the percentage of time spent on projects or services. The
Company believes that the method used is reasonable and approximates costs that
would have been incurred if the Company had operated as an unaffiliated entity.
ENSERCH charges for all indirect costs amounted to $2,162, $2,154 and $2,048 in
1994, 1993 and 1992, respectively.
The Company had sales to certain ENSERCH Companies (Enserch Gas Company, Lone
Star Gas Company and Enserch Processing Company) 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.
EEX maintains separate short-term borrowing arrangements with ENSERCH to meet
operating needs. Under these arrangements, ENSERCH may advance funds to EEX,
and EEX may advance funds to ENSERCH. EEX had long-term notes payable to
ENSERCH Companies at December 31, 1993 of $298 million bearing interest at 5.3%
to 9.95% per annum. During 1994, the long-term notes were increased by $11
million. EEX incurred interest cost including amounts capitalized of $21.6
million, $27.1 million and $24.7 million in 1994, 1993 and 1992 on long-term
borrowings from ENSERCH Companies. In connection with the Reorganization,
ENSERCH Companies assumed EEX's long-term debt. EEX will benefit in the future
as a result of the ENSERCH Companies assumption of its debt in the
Reorganization in that interest expense will not be incurred on that debt.
The notes receivable from ENSERCH Companies at December 31, 1994, had an
interest rate of 7.5%. Interest on the temporary advance from ENSERCH 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 borrowings from ENSERCH Companies were
$23,993, $25,364 and $22,179 in 1994, 1993 and 1992, respectively.
See Note 7 for information concerning lease commitments with ENSERCH
Companies.
7. 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 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 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 and EPO's
managing general partner in the 348th Judicial District Court of Tarrant County
in May 1989. Plaintiffs seek unspecified actual damages
F-11
<PAGE>
ENSERCH EXPLORATION, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 certain 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 project and Garden Banks project were
financed under equipment leases 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
subleases with EEH for such offshore facilities. For accounting purposes, one
of the leases 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.
Estimated future minimum lease payments for the leases, based on a LIBOR rate
at December 31, 1994 of 5.625% for the Garden Banks project and 5.9375% for the
Mississippi Canyon project, 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 ENSERCH Companies' 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 leases will be modified for the additional costs.
F-12
<PAGE>
ENSERCH EXPLORATION, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Company bears an allocated share of rental expenses incurred by ENSERCH
Companies under noncancelable long-term operating leases, principally for
office space. The Company's allocated share of rental expenses totaled $3,102,
$5,035 and $3,621 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.
8. SUPPLEMENTARY GAS AND OIL INFORMATION
Gas and Oil Producing Activities--The following tables set forth information
relating to gas and oil producing activities of EEX. Reserve data for natural
gas liquids attributable to leasehold interests owned by the Company are
included in oil and condensate.
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
CAPITALIZED COSTS:
Proved gas and oil properties....................... $1,919,543 $1,760,858
Unproved gas and oil properties..................... 174,951 83,067
---------- ----------
Total............................................. $2,094,494 $1,843,925
========== ==========
Accumulated depreciation and amortization............. $ 846,038 $ 800,027
========== ==========
</TABLE>
<TABLE>
<CAPTION>
1994 1993 1992
----------------- ----------------- ----------------
U.S. NON-U.S. U.S. NON-U.S. U.S. NON-U.S.
-------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
COSTS INCURRED:
Property acquisition
costs:
Proved................ $ 1,562 $ $ 8,262 $ $ 895 $
Unproved.............. 20,591 12,554 32 9,060
Exploration costs....... 60,145 3,076 38,028 3,536 36,946 2,303
Development costs....... 84,249 63,067 16,579
-------- ------ -------- ------ ------- ------
Total............... $166,547 $3,076 $121,911 $3,568 $63,480 $2,303
======== ====== ======== ====== ======= ======
Amortization (per
MMBtu)(a).............. $ 0.96 $ 0.89 $ 0.90
======== ======== =======
</TABLE>
--------
(a) Amortization expense per unit of production converted to a common unit of
measure, millions of British thermal units (MMBtu). 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.
COSTS EXCLUDED from the amortizable base as of December 31, 1994:
<TABLE>
<CAPTION>
TOTAL AT
PRIOR DECEMBER 31,
1994 1993 1992 YEARS 1994
YEAR INCURRED -------- ------- ------- ------- ------------
<S> <C> <C> <C> <C> <C>
Property acquisition costs..... $ 20,591 $11,369 $ 4,178 $10,506 $ 46,644
Exploration costs.............. 19,338 3,797 6,794 9,021 38,950
Development costs.............. 77,380 77,380
Interest capitalized........... 4,530 3,394 3,062 991 11,977
-------- ------- ------- ------- --------
Total...................... $121,839 $18,560 $14,034 $20,518 $174,951
======== ======= ======= ======= ========
</TABLE>
F-13
<PAGE>
ENSERCH EXPLORATION, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Approximately 64% of excluded costs relates to offshore activities in the
Gulf of Mexico, about 35% is domestic onshore exploration activities and the
remainder is non-U.S. 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.
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>
1994 1993 1992
----------------- ----------------- -----------------
U.S. NON-U.S. U.S. NON-U.S. U.S. NON-U.S.
RESULTS OF OPERATIONS: -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues................. $173,468 $ $191,027 $ $170,996 $
Less:
Production costs (a)... 43,899 46,243 22 43,935 113
Exploration costs (b).. 8,407 729 7,603 1,065 9,772 1,392
Depreciation and
amortization (c)...... 79,232 77,034 10,191 75,483
Income-tax effects..... 14,647 (255) 21,009 (3,947) 13,990 (512)
-------- ----- -------- ------- -------- -----
Net producing activi-
ties................ $ 27,283 $(474) $ 39,138 $(7,331) $ 27,816 $(993)
======== ===== ======== ======= ======== =====
</TABLE>
--------
(a) Includes severance, ad valorem and production taxes.
(b) Includes internal costs that cannot be directly identified with
acquisition, exploration or development activities.
(c) Excludes a $7,551 gain from the sale of an inactive offshore pipeline and
facilities in 1994 and the $16,500 write-down of that pipeline and
facilities in 1992. The pipeline and facilities were not related to gas and
oil producing activities. 1993 includes write-off of costs related to
unsuccessful non-U.S. exploratory projects of $10,191.
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.
<TABLE>
<CAPTION>
UNITED STATES
-------------------------------------------------------
GAS (MMCF) OIL (MBBL)(A)
------------------------------- ----------------------
1994 1993 1992 1994 1993 1992
--------- --------- --------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
At January 1............ 1,086,482 1,101,426 1,168,075 39,349 39,231 40,012
Changes in reserves
Revisions of previous
estimates............ (25,106) 20,196 (6,811) (499) 1,344 552
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............ (67,113) (70,026) (65,188) (2,227) (2,481) (2,837)
--------- --------- --------- ------ ------ ------
At December 31.......... 1,041,736 1,086,482 1,101,426 46,486 39,349 39,231
========= ========= ========= ====== ====== ======
Proved Developed Re-
serves:
At January 1.......... 735,093 676,851 974,822 15,380 14,844 19,738
At December 31........ 698,643 735,093 676,851 14,437 15,380 14,844
</TABLE>
--------
(a) Includes condensate and natural gas liquids attributable to leasehold
interests of 911 MBbl for 1994, 1,117 MBbl for 1993 and 985 MBbl for 1992.
F-14
<PAGE>
ENSERCH EXPLORATION, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In 1994, foreign (non-U.S.) extensions, discoveries and additions resulted in
4,105 MBbl of oil at December 31, 1994.
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 $2.20 in 1992; Oil (per barrel) $14.07 in
1994, $11.73 in 1993 and $16.89 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>
1994 1993 1992
STANDARDIZED MEASURE (IN MILLIONS): -------- -------- --------
<S> <C> <C> <C>
Future cash inflows.............................. $3,081.5 $3,047.0 $3,080.0
Future production and development costs.......... (1,065.8) (1,057.9) (1,057.2)
Future income-tax expense (a).................... (542.6) (1.7)
-------- -------- --------
Future net cash flows............................ 1,473.1 1,989.1 2,021.1
Less 10% annual discount......................... 593.8 886.5 909.8
-------- -------- --------
Standardized measure of discounted future net
cash flows...................................... $ 879.3 $1,102.6 $1,111.3
======== ======== ========
CHANGE IN STANDARDIZED MEASURE (IN MILLIONS):
Sales and transfers of gas and oil produced, net
of production costs............................. $ (120.5) $ (136.1) $ (115.8)
Changes in prices, net of production and future
development costs............................... (33.9) (.6) 21.9
Extensions, discoveries and improved recovery,
less related costs.............................. 158.7 41.4 22.3
Other purchases of minerals in place............. 1.6 9.4 .9
Revisions of previous quantity estimates......... (26.5) (28.5) 17.3
Sale of minerals in place........................ (1.3) (4.9)
Accretion of discount............................ 102.7 105.5 102.8
Net change in income taxes....................... (295.3) 1.2 .1
Other............................................ (8.8) (1.0) 3.1
-------- -------- --------
Total........................................ $ (223.3) $ (8.7) $ 47.7
======== ======== ========
</TABLE>
--------
(a) EEX operated as a partnership, except for the international operations and
SACROC operations, until December 30, 1994. Accordingly no income taxes
were applicable to its partnership operations until December 31, 1994.
F-15
<PAGE>
ENSERCH EXPLORATION, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
9. SUPPLEMENTAL FINANCIAL INFORMATION
Quarterly Results (Unaudited)--The results of operations of the Company by
quarters are summarized below. In the opinion of the Company's management, all
adjustments (consisting only of normal recurring accruals) necessary for a fair
presentation have been made. The financial statements include interest charges
on the debt now assumed by certain ENSERCH Companies.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
1994:
Revenues.......................... $50,737 $44,473 $41,426 $42,504
Operating Income.................. 11,017 8,400 3,059 9,553
Net Income (Loss)................. 3,139 3,179 (1,475) 2,634
Net Income (Loss) Per Unit........ .03 .03 (.01) .02
1993:
Revenues.......................... $41,034 $48,982 $48,787 $50,993
Operating Income.................. 5,106 9,256 5,998 (5,175)
Net Income (Loss)................. 74 2,346 (322) (10,790)
Net Income (Loss) Per Unit........ .00 .02 .00 (.10)
</TABLE>
Reconciliation of Previously Reported Information--Amounts reported for 1994,
1993 and 1992 have been restated in a manner similar to a pooling of interests
to reflect the acquisition of the international gas and oil operations and
SACROC operations of ENSERCH under common control as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------- ANNUAL
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 TOTAL
-------- ------- ------------ ----------- -------
INCREASE (DECREASE)
<S> <C> <C> <C> <C> <C>
1994:
Revenues.............. $ 1,028 $ 1,046 $1,022 $ 942 $ 4,038
Net Income (Loss)..... (1,778) (2,006) 607 (1,312) (4,489)
1993:
Revenues.............. 1,279 1,273 1,149 1,103 4,804
Net Income (Loss)..... 714 (397) (870) (4,258) (4,811)
1992:
Revenues.............. 5,636
Net Income (Loss)..... 8,511
</TABLE>
Interest Costs--are summarized below:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Interest costs incurred....... $25,678 $34,841(a) $25,990
Interest capitalized.......... (4,759) (4,257) (5,315)
------- ------- -------
Interest charged to expense... $20,919 $30,584 $20,675
======= ======= =======
</TABLE>
--------
(a) Includes $6 million provision for interest due royalty owners.
F-16
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
Enserch Exploration, Inc.:
We have reviewed the accompanying condensed consolidated balance sheet of
Enserch Exploration, Inc. as of June 30, 1995, and the related condensed
statements of consolidated income and cash flows for the six months ended June
30, 1995 and 1994. The condensed consolidated financial statements give
retroactive effect to the transactions which have been accounted for in a
manner similar to a pooling-of-interests, as described in Note 1. These
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical review
procedures to financial data, and making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective
of which is the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to such condensed financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Enserch Exploration, Inc., as of
December 31, 1994, and the related statements of consolidated operations, cash
flows and common shareholders' equity for the year then ended; and in our
report dated February 10, 1995 (June 21, 1995 as to Note 1), we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying condensed consolidated balance
sheet as of December 31, 1994, is fairly stated in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
Deloitte & Touche LLP
Dallas, Texas
August 4, 1995
F-17
<PAGE>
ENSERCH EXPLORATION, INC.
CONDENSED STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30
----------------------
1995 1994
---------- ----------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Revenues
Natural gas.......................................... $ 67,008 $ 78,417
Oil and condensate................................... 20,677 15,743
Natural gas liquids.................................. 1,695 841
Other................................................ 268 209
---------- ----------
Total.............................................. 89,648 95,210
---------- ----------
Costs and Expenses
Production and operating............................. 19,543 15,612
Exploration.......................................... 5,474 4,534
Depreciation and amortization........................ 46,547 40,930
General, administrative and other.................... 14,743 7,944
Taxes, other than income............................. 7,746 6,773
---------- ----------
Total.............................................. 94,053 75,793
---------- ----------
Operating Income (Loss)................................ (4,405) 19,417
Other Income (Expense)--Net............................ (3) 17
Interest Income........................................ 1,026 188
Interest Expense....................................... (3,599) (9,885)
---------- ----------
Income (Loss) Before Income Taxes...................... (6,981) 9,737
Income Tax Benefit..................................... (2,443) (198)
---------- ----------
Net Income (Loss)...................................... $ (4,538) $ 9,935
========== ==========
Pro Forma Information
Income before income taxes........................... $ 9,737
Income taxes (including income taxes on partnership
operations)......................................... 3,419
----------
Net Income........................................... $ 6,318
==========
Net Income (Loss) Per Share (Pro forma for the six
months ended June 30, 1994)........................... $ (.04) $ .06
========== ==========
Weighted Average Shares Outstanding.................... 105,695 105,695
========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-18
<PAGE>
ENSERCH EXPLORATION, INC.
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
1995 1994
--------- --------
<S> <C> <C>
Operating Activities
Net income (loss)....................................... $ (4,538) $ 9,935
Depreciation and amortization........................... 46,547 40,930
Deferred income-tax expense (benefit)................... 5,499 (30)
Other................................................... (14,400) (7,191)
Changes in current operating assets and liabilities:
Accounts receivable................................... (9,273) 5,242
Other current assets.................................. (4,602) (1,144)
Accounts payable...................................... 13,075 (5,701)
Other current liabilities............................. 5,519 1,481
--------- --------
Net cash flows from operating activities.............. 37,827 43,522
--------- --------
Investing Activities
Purchase of DALEN, net of cash acquired................. (332,888)
Additions to property, plant and equipment.............. (90,057) (58,251)
Retirements of property, plant and equipment............ 2,715 2,615
Collection of note receivable from affiliated company... 86,077
Other................................................... (16,453) (9,330)
--------- --------
Net cash flows used for investing activities.......... (350,606) (64,966)
--------- --------
Financing Activities
Change in temporary advances with affiliated companies.. (66,333) 47,669
Payments of capital lease obligations................... (1,997)
Borrowings under bank revolving credit agreement........ 350,000
Borrowings under bridge loan............................ 150,000
Repayment of DALEN bank debt assumed at acquisition..... (115,000)
Proceeds from long-term notes payable to affiliated
companies.............................................. 8,000
Decrease in advances under leasing arrangements--net.... (26,212)
Cash distributions paid................................. (7,843)
--------- --------
Net cash flows from financing activities.............. 316,670 21,614
--------- --------
Net Increase in Cash...................................... 3,891 170
Cash at Beginning of Period............................... 234 343
--------- --------
Cash at End of Period..................................... $ 4,125 $ 513
========= ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-19
<PAGE>
ENSERCH EXPLORATION, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(JUNE 30, 1995 UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1995 1994
----------- ------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current Assets
Cash................................................. $ 4,125 $ 234
Accounts receivable--trade........................... 34,924 16,828
Accounts receivable--affiliated companies............ 18,603 11,581
Note receivable--affiliated company.................. 86,077
Other................................................ 13,437 5,217
----------- ----------
Total current assets............................... 71,089 119,937
----------- ----------
Property, Plant and Equipment (at cost):
Gas and oil properties (full-cost method)............ 2,630,346 2,094,494
Other................................................ 13,863 15,582
----------- ----------
Total.............................................. 2,644,209 2,110,076
Less accumulated depreciation and amortization....... 897,999 856,062
----------- ----------
Net property, plant and equipment.................. 1,746,210 1,254,014
----------- ----------
Other Assets........................................... 24,038 7,284
----------- ----------
Total.............................................. $ 1,841,337 $1,381,235
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable--trade.............................. $ 73,024 $ 58,593
Accounts payable--affiliated companies............... 7,060
Temporary advances-affiliated companies (net)........ 39,136 105,469
Current portion of bank revolving credit agreement... 300,000
Current portion of capital lease obligations......... 4,760 4,760
Other................................................ 16,914 1,728
----------- ----------
Total current liabilities.......................... 433,834 177,610
----------- ----------
Bank Revolving Credit Agreement........................ 50,000
----------- ----------
Capital Lease Obligations.............................. 149,098 151,095
----------- ----------
Deferred Income Taxes.................................. 289,798 284,299
----------- ----------
Other Liabilities...................................... 37,274 32,223
----------- ----------
Minority Interest--Subsidiary Preferred Stock.......... 150,000
----------- ----------
Common Shareholders' Equity
Common stock (200,000 shares authorized; 105,723 and
105,695 shares outstanding)......................... 105,723 105,695
Paid in capital...................................... 630,494 630,313
Retained earnings (deficit).......................... (4,538)
Unamortized restricted stock compensation............ (346)
----------- ----------
Common shareholders' equity........................ 731,333 736,008
----------- ----------
Total.............................................. $1,841,337 $1,381,235
=========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-20
<PAGE>
ENSERCH EXPLORATION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Prior to December 30, 1994, the operations of Enserch Exploration, Inc.
("EEX"), a corporation, were conducted through Enserch Exploration Partners,
Ltd. ("EP"), a partnership. EP was a publicly traded entity with published
financial statements. On December 30, 1994, through a series of transactions,
EEX (then a newly formed corporation) acquired all of the partnership interests
of EP Operating Limited Partnership ("EPO"), the 99% owned operating
partnership of 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.
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 (including $86 million of debt owed by EP to EPO that did not
appear on EP's consolidated balance sheet), plus accrued interest.
In 1995, EEX acquired the international gas and oil operations of ENSERCH by
the issuance of 1,113,545 shares of EEX Common Stock and acquired the SACROC
operations of ENSERCH for $1.65 million in cash. Both transactions were based
on the value of the underlying properties as determined by independent
petroleum engineers. ENSERCH's historical carrying value of the assets acquired
and liabilities assumed has been recorded by EEX. The excess of ENSERCH's
carrying value over the purchase price of the SACROC properties has been
credited to paid in capital. The stated number of shares issued to acquire the
international operations were determined using an estimated value per share of
EEX Common Stock of $14.00. The number of shares will be adjusted in the future
based on the actual net proceeds per share received by EEX in a planned public
offering of Common Stock.
The financial statements of EEX for periods prior to December 30, 1994 include
the assets, liabilities, operations and cash flows of EP, restated to include
the 1% general partners interest in EPO, and the international gas and oil
operations and the SACROC operations in a manner similar to a pooling-of-
interests since the operations were under the common control of ENSERCH prior
to the establishment of EEX.
EP and EPO were partnerships and, as a result, the income or loss of the
partnerships was included 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. Pro forma net
income includes an adjustment to provide for income taxes on the partnerships'
operations at the applicable statutory rate.
2. On June 8, 1995, EEX acquired all the capital stock of DALEN Corporation for
cash of $340 million and refinanced DALEN's bank debt of $115 million. The
acquisition has been accounted for as a purchase. The acquired assets,
consisting principally of gas and oil properties, and the liabilities assumed
are being evaluated for purposes of assigning the purchase price. It is
anticipated that essentially all of the valuation adjustments will be assigned
to gas and oil properties.
EEX borrowed $350 million under a four-year revolving credit agreement (at an
interest rate based on LIBOR) to pay the purchase price and reduce advances
from ENSERCH by $10 million. In addition, EEX borrowed $150 million under a
bridge loan to repay DALEN's bank debt of $115 million and reduce advances from
ENSERCH by $35 million. A registration statement for a planned offering of
approximately 20 million shares of EEX common stock has been filed with the
Securities and Exchange Commission. The borrowing under the revolving credit
agreement will be reduced with the proceeds from the offering. Accordingly,
$300 million of the borrowing under the revolving credit agreement has been
classified as a current liability. The bridge loan was repaid on August 4, 1995
with the proceeds from a $150 million preferred stock offering by subsidiary of
EEX.
F-21
<PAGE>
ENSERCH EXPLORATION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Following is a summary of pro forma results of operations of EEX assuming the
DALEN acquisition had occurred at the beginning of the periods presented:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
------------------
1995 1994
-------- --------
(IN THOUSANDS,
EXCEPT PER SHARE)
<S> <C> <C>
Revenues................................................. $137,972 $174,300
Net Income (Loss)........................................ (14,873) 7,287
Net Income, Adjusted to Include Income Taxes on
Partnership Operations.................................. 3,670
Net Income (Loss) Per Share.............................. (.14) .03
</TABLE>
3. On August 4, 1995 a subsidiary of EEX completed the private placement of
$150 million of adjustable rate redeemable preferred stock that is expected to
be redeemed by August 4, 2000. The proceeds were used to purchase $150 million
of EEX preferred stock, and EEX repaid the bridge loan. In the consolidated
financial statements, the EEX preferred stock is eliminated, and the subsidiary
preferred stock is reflected as minority interest. These transactions are
reflected in the June 30, 1995 balance sheet. The dividend rate on the
subsidiary preferred stock, which is adjusted quarterly, approximates LIBOR
plus .625%.
4. At June 30, 1995, based on a preliminary allocation of the DALEN purchase
price, EEX's full cost ceiling amount attributable to the properties acquired
was approximately $42 million ($27 million after tax) less than the unamortized
cost of producing properties acquired. EEX believes that the DALEN properties
have significant exploration and development potential. EEX expects to be able
to utilize its expertise, particularly with respect to tight sands reservoirs,
to enhance production and cash flows from these properties because of the
geologic similarity and proximity of DALEN's major producing properties to
EEX's properties. EEX believes that the unamortized cost of the gas and oil
properties acquired in the DALEN acquisition is recoverable from future
production and was not in fact impaired at June 30, 1995. Accordingly, EEX did
not recognize a charge to earnings at June 30, 1995; however, if an excess
exists after a year of operation, a write-off may be required.
5. Earnings per share applicable to common stock are based on the weighted
average number of common shares outstanding during the period, including common
equivalent shares when dilutive.
6. Components of current liabilities in the December 1994 balance sheet have
been reclassified to conform to the 1995 presentation.
7. In the opinion of management, all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation of the results for the
interim periods included herein have been made.
F-22
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
DALEN Corporation:
We have audited the accompanying consolidated balance sheets of DALEN
Corporation (formerly DALEN Resources Corp.) and subsidiaries as of December
31, 1994 and 1993 (as restated, see note 1), and the related consolidated
statements of operations, stockholder's equity and cash flows 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, the financial statements referred to above present fairly, in
all material respects, the financial position of DALEN Corporation and
subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.
As explained in Note 2 to the financial statements, effective January 1, 1993,
DALEN Corporation and subsidiaries adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." Prior year financial
statements have not been restated.
Arthur Andersen LLP
Dallas, Texas
February 24, 1995
F-23
<PAGE>
DALEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(STATED IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
REVENUES:
Natural gas.................................... $115,593 $152,488 $111,779
Oil and gas liquids............................ 51,054 73,852 82,003
Other.......................................... 2,341 5,144 5,822
-------- -------- --------
168,988 231,484 199,604
-------- -------- --------
OPERATING EXPENSES:
Lease operating................................ 43,533 56,367 52,389
General and administrative..................... 18,057 17,783 18,788
Depreciation, depletion and amortization....... 101,151 128,364 109,294
Exploration.................................... 24,886 19,453 25,278
-------- -------- --------
187,627 221,967 205,749
-------- -------- --------
OPERATING INCOME (LOSS).......................... (18,639) 9,517 (6,145)
-------- -------- --------
OTHER INCOME (EXPENSE):
Interest income................................ 3,656 1,360 1,848
Interest expense............................... (6,002) (7,255) (6,885)
Other, net..................................... 2,845 85 1,105
-------- -------- --------
499 (5,810) (3,932)
-------- -------- --------
EARNINGS (LOSS) BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE....................................... (18,140) 3,707 (10,077)
INCOME TAX BENEFIT (EXPENSE):
Current........................................ 21,859 18,997 25,656
Deferred....................................... (6,653) (13,153) (22,125)
-------- -------- --------
15,206 5,844 3,531
-------- -------- --------
NET EARNINGS (LOSS) BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE.................. (2,934) 9,551 (6,546)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE....................................... -- 7,958 --
-------- -------- --------
NET EARNINGS (LOSS).............................. $ (2,934) $ 17,509 $ (6,546)
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-24
<PAGE>
DALEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
(STATED IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents................................ $ 10,888 $ 48,117
Accounts receivable:
Oil and gas............................................. 20,009 29,934
Trade................................................... 6,030 5,537
Affiliates.............................................. 7,616 11,154
Inventories.............................................. 2,125 3,802
Prepaid expenses......................................... 3,635 6,310
-------- --------
Total current assets................................... 50,303 104,854
-------- --------
PROPERTY AND EQUIPMENT:
Oil and gas properties, based on successful efforts
method.................................................. 787,579 916,354
Other property and equipment............................. 6,671 5,808
-------- --------
794,250 922,162
Less: Accumulated depreciation, depletion and
amortization............................................ (362,548) (353,455)
-------- --------
Net property and equipment............................. 431,702 568,707
-------- --------
OTHER ASSETS............................................... 655 1,745
-------- --------
TOTAL ASSETS............................................... $482,660 $675,306
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable......................................... $ 15,394 $ 25,641
Interest payable......................................... 67 954
Accrued liabilities...................................... 10,998 12,937
-------- --------
Total current liabilities.............................. 26,459 39,532
-------- --------
DEFERRED INCOME TAXES...................................... 72,529 65,876
ABANDONMENT, DISMANTLEMENT AND OTHER LIABILITIES........... 13,864 15,156
LONG-TERM DEBT............................................. 115,000 130,000
STOCKHOLDER'S EQUITY:
Common stock, $0.01 par value, 1,000 shares authorized;
100 shares issued and outstanding....................... 1 1
Additional paid-in capital............................... 335,470 502,470
Accumulated deficit...................................... (80,663) (77,729)
-------- --------
Total stockholder's equity............................. 254,808 424,742
-------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY................. $482,660 $675,306
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-25
<PAGE>
DALEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
(STATED IN THOUSANDS OF DOLLARS, EXCEPT COMMON SHARES)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTALS
------ ------ ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1992...... 100 $ 1 $ 637,470 $(88,692) $ 548,779
Dividends to Parent........... -- -- (135,000) -- (135,000)
Net loss...................... -- -- -- (6,546) (6,546)
--- --- --------- -------- ---------
BALANCE AT DECEMBER 31, 1992.... 100 1 502,470 (95,238) 407,233
Net earnings.................. -- -- -- 17,509 17,509
--- --- --------- -------- ---------
BALANCE AT DECEMBER 31, 1993.... 100 1 502,470 (77,729) 424,742
Dividends to Parent........... -- -- (167,000) -- (167,000)
Net loss...................... -- -- -- (2,934) (2,934)
--- --- --------- -------- ---------
BALANCE AT DECEMBER 31, 1994.... 100 $ 1 $ 335,470 $(80,663) $ 254,808
=== === ========= ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-26
<PAGE>
DALEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(STATED IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1994 1993 1992
--------- -------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)........................... $ (2,934) $ 17,509 $ (6,546)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation, depletion and amortization.... 101,151 128,364 109,424
Surrendered leases and impairments.......... 9,461 9,344 12,983
Dry hole expense............................ 9,352 4,143 7,482
Deferred income taxes....................... 6,653 13,153 22,125
Loss (gain) on sale of assets............... (2,509) 146 (365)
Cumulative effect of change in accounting
principle.................................. -- (7,958) --
Other....................................... (769) (2,630) (737)
--------- -------- ---------
120,405 162,071 144,366
--------- -------- ---------
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable.. 8,563 34,869 (13,141)
Decrease (increase) in prepaid expenses..... 2,534 54 (1,461)
Decrease in accounts payable................ (9,842) (11,985) (22,279)
Increase (decrease) in interest payable..... (887) (529) 556
Decrease in accrued liabilities and other... (3,629) (544) (4,183)
--------- -------- ---------
Net cash provided by operating activities.. 117,144 183,936 103,858
--------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment........... (108,105) (94,442) (89,892)
Proceeds from sales of property and equipment. 135,732 1,540 1,907
Receivable related to acquisition............. -- -- 5,573
--------- -------- ---------
Net cash provided by (used in) investing
activities................................ 27,627 (92,902) (82,412)
--------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends to Parent........................... (167,000) -- (135,000)
Long-term debt borrowing...................... 15,000 -- 111,000
Repayment of long-term debt................... (30,000) (60,007) (6)
--------- -------- ---------
Net cash used in financing activities...... (182,000) (60,007) (24,006)
--------- -------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................... (37,229) 31,027 (2,560)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR... 48,117 17,090 19,650
--------- -------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR......... $ 10,888 $ 48,117 $ 17,090
========= ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-27
<PAGE>
DALEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
1. ORGANIZATION:
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles and include the
accounts of DALEN Corporation (formerly DALEN Resources Corp.) and its wholly-
owned subsidiaries (the "Company"). All significant intercompany balances and
transactions are eliminated in consolidation. The Company is a wholly-owned
subsidiary of PG&E Enterprises ("Parent"), which is 100% owned by Pacific Gas
and Electric Company ("PG&E"). The Company's primary business activity is the
exploration, development and production of natural gas and crude oil reserves
in the continental United States.
During 1994, the Parent determined that the Company did not fit within its
long-term corporate strategy. As a result, the Parent intends to sell its 100%
ownership interest in the Company through an initial public offering of the
Company's common stock or by other means. A registration statement was filed on
Form S-1 with the Securities and Exchange Commission during 1994 to effect the
disposition. The accompanying prior year financial statements were restated in
connection with the filing of the Form S-1, resulting in an increase in 1993
net earnings and stockholder's equity of $24.2 million.
2. ACCOUNTING POLICIES:
Property and Equipment
The Company uses the successful efforts method of accounting for oil and gas
properties. Under the successful efforts method, lease acquisition costs are
capitalized when incurred. Unproved leasehold costs are periodically assessed
on a property-by-property basis, and a loss is recognized when assessment
indicates a permanent impairment in value has occurred. Any remaining unproved
leasehold costs are charged to expense upon abandonment of the respective
leases.
Exploratory costs, excluding successful exploratory wells, are charged to
expense as incurred. Costs of drilling exploratory wells are initially
capitalized pending determination of whether the wells have found proved
reserves which justify commercial development. If proved reserves are not
found, the drilling costs are charged to expense. Costs applicable to
productive wells and development dry holes are capitalized and amortized on the
units-of-production method based on estimated proved reserve quantities.
The Company periodically reviews the carrying value of its proved oil and gas
properties for impairment in value on a company-wide basis by comparing
capitalized costs of proved oil and gas properties with undiscounted future net
cash flows, after income taxes. Under this policy, no impairment in carrying
value has been required during 1994, 1993, or 1992. However, in November 1993
the Financial Accounting Standards Board issued an exposure draft "Accounting
for the Impairment of Long-Lived Assets." Under this proposed standard, an
assessment of fair value of oil and gas properties will be required to be
performed using certain groupings of property costs. Fair value is to be
measured by market value, if an active market exists. If the market value is
not readily determinable, discounted future net cash flows, after income taxes,
are to be used to estimate fair value. The impact of adoption of this proposed
statement on the consolidated financial statements of the Company has not been
determined.
Other property and equipment are depreciated on a straight-line basis over
their estimated useful lives ranging from 5 to 20 years. Major renewals and
betterments, which improve or extend the life of the asset, are capitalized.
The costs of repairs and maintenance are charged to expense as incurred.
F-28
<PAGE>
DALEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Abandonment and Dismantlement Costs
Estimated abandonment and dismantlement costs of offshore wells and platforms
are accrued as liabilities on the units-of-production method based on estimated
proved reserves of the property. At December 31, 1994, total estimated future
abandonment and dismantlement costs associated with proved developed properties
were $11.3 million, of which $6.2 million was accrued.
Inventories
Inventories, consisting principally of equipment and oil field supplies, are
recorded at cost which approximates market value.
Gas Balancing Arrangements
The Company only recognizes revenue associated with volumes sold to which it is
entitled under respective property divisions of interest. Proceeds received for
natural gas volumes in excess of entitlements are deferred and recognized as
revenue when the gas is made up to the other interest owners. Accounts
receivable and payable resulting from gas balancing arrangements were not
significant at December 31, 1994 or 1993.
Hedging Transactions
The Company periodically enters into oil and natural gas hedging transactions
to minimize the risk of price decreases. Such hedging transactions also limit
revenues which might result from potential price increases. Under the hedging
transactions, the Company receives or makes payments based on the differential
between a specified price and the actual quote market price of oil and natural
gas. The Company does not use derivative financial instruments for trading
purposes.
Gains and losses resulting from hedging activities are recognized in the same
period that revenues on hedged volumes are recorded. Net gains (losses) of $2.4
million, ($8.9) million and ($12.8) million resulting from such transactions
are included in oil and natural gas revenues for the years ended December 31,
1994, 1993 and 1992, respectively. The Company had no open hedging positions at
December 31, 1994.
Income Taxes
The operations of the Company are ultimately included in the consolidated tax
return of PG&E. A tax-sharing agreement between PG&E and the Parent provides
that the Parent pay its proportionate share of state and federal income taxes
and that PG&E reimburse the Parent for related tax benefits to the extent
realized in the consolidated tax return. The Parent then allocates its
proportionate share of income taxes to the Company based on its contribution to
the consolidated tax liability or benefit.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"),
which requires recognition of deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in the
financial statement or tax returns. Under this method, deferred tax liabilities
and assets are determined based on the difference between the financial
statement and tax basis of assets and liabilities using enacted tax rates. The
cumulative effect of adopting SFAS No. 109 at January 1, 1993 resulted in an
increase in gas and oil properties and deferred income taxes of $22.0 million
and $14.0 million, respectively, and a cumulative gain of $8.0 million. The
financial statements for 1992 have not been restated.
Prior to 1993, the provision for income taxes was based on income and expenses
included in the consolidated statements of operations. Differences between
taxes computed on financial earnings and taxes currently payable under
applicable state and federal statutes and regulations were classified as
deferred taxes.
F-29
<PAGE>
DALEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosure about Fair
Value of Financial Instruments", defines the fair value of a financial
instrument as the amount at which the instrument could be exchanged in a
current transaction between willing parties. The Company's financial
instruments are comprised of short-term investments, accounts receivable,
accounts payable and long-term debt. The carrying amount of the Company's
financial instruments approximate fair value because of the short maturity of
the instruments or because the interest rates of the instruments are based on
current market rates.
Statements of Cash Flows
For purposes of the statements of cash flows, the Company considers all highly
liquid cash investments with an original maturity of three months or less to be
cash equivalents.
Supplemental cash flow information is as follows (stated in thousands of
dollars):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Cash paid for interest during the year............... $ 6,889 $ 7,656 $ 6,329
======= ======= =======
Cash received from Parent for income tax benefit..... $25,196 $25,041 $14,433
======= ======= =======
</TABLE>
3. RELATED PARTY TRANSACTIONS:
The Company sells natural gas to PG&E and to other affiliates. These sales were
made on terms approximating spot market prices at the time of the transactions.
During 1994, 1993 and 1992, such sales totaled approximately $1.2 million, $1.7
million and $2.8 million, respectively.
The Company's employee benefit plans and insurance programs are administered or
combined with affiliated companies under the Parent's control. The Company has
paid its proportionate share of related costs (administration fees to third
parties and premiums) which approximates the cost of obtaining such programs
from non-affiliates.
PG&E and the Parent perform certain other administrative functions, including
cash management services, for the Company. Costs associated with such services
for 1994, 1993 and 1992 were not significant. At December 31, 1994 and 1993,
$8.9 million and $46.1 million, respectively, of the Company's cash was held by
PG&E, at the Company's option, for cash management purposes. The average
interest rate received by the Company on such cash investments was 4.9% in 1994
and 3.8% in 1993, which approximates market rates.
Accounts receivable from affiliates at December 31, 1994 and 1993 result
primarily from income tax benefits due from the Parent, and are liquidated upon
the filing of the annual consolidated tax return of PG&E. Other accounts
receivable and payable to affiliates resulting from the above activities are
liquidated by receipts and payments in the normal course of business.
4. LONG-TERM DEBT:
The Company's credit agreement (the "Agreement"), as amended February 22, 1995,
provides for a two-year revolving loan (expiring February 1997), which is
convertible at the Company's option, to a five year term loan. The revolving
loan may be extended annually by consent of the banks. The Agreement has a
maximum commitment from the banks of $200 million, with actual commitment
amounts potentially limited
F-30
<PAGE>
DALEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
by the periodic determination of a "Borrowing Base" (determined based on
discounted future net revenues expected from the Company's proved oil and gas
reserves, using various parameters set forth in the Agreement). The Borrowing
Base at December 31, 1994, was approximately $168.5 million, of which $115
million in loans was outstanding.
The Agreement, at the request of the banks, shall be secured by the Company's
interest in the Borrowing Base assets, including all related property and
equipment.
Interest on loans outstanding is based on the Agent Bank's Reference Rate, as
defined, or on the Agent Bank's CD Rate, or an adjusted Offshore Rate, and is
payable quarterly. At December 31, 1994, the interest rate in effect was 7.0%.
The Company is also required to pay certain fees in connection with the
facility, as well as comply with various covenants set forth in the Agreement.
The aggregate maturities of long-term debt outstanding as of December 31, 1994
are as follows (stated in thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
------------ --------
<S> <C>
1995.......................... $ --
1996.......................... --
1997.......................... 23,000
1998.......................... 23,000
1999.......................... 23,000
Thereafter...................... 46,000
--------
$115,000
========
</TABLE>
5. INCOME TAXES:
The components of the income tax benefit (expense), before cumulative effect of
change in accounting principle, are as follows (stated in thousands of
dollars):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1994 1993 1992
------- -------- --------
<S> <C> <C> <C>
Current income taxes:
Federal....................................... $19,368 $ 17,216 $ 21,982
State......................................... 2,491 1,781 3,674
------- -------- --------
21,859 18,997 25,656
------- -------- --------
Deferred income taxes:
Federal....................................... (5,455) (11,176) (18,619)
State......................................... (1,198) (1,977) (3,506)
------- -------- --------
(6,653) (13,153) (22,125)
------- -------- --------
Total income tax benefit........................ $15,206 $ 5,844 $ 3,531
======= ======== ========
</TABLE>
F-31
<PAGE>
DALEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A reconciliation of income tax benefit computed by applying the federal
statutory income tax rate to earnings (loss) before income taxes is as follows
(stated in thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Expected federal tax benefit (expense) at
statutory rate................................... $ 6,349 $(1,297) $ 3,426
State tax benefit (expense)....................... 1,097 (224) 619
Section 29 tight sands gas tax credits............ 6,112 7,434 2,128
Permanent differences arising from acquisitions
and other........................................ 1,648 (69) (2,642)
------- ------- -------
Total income tax benefit.......................... $15,206 $ 5,844 $ 3,531
======= ======= =======
</TABLE>
The sources of deferred tax benefit (expense) and their tax effect are as
follows (stated in thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Sale of gas and oil properties................ $ 16,498 $ -- $ --
Oil and gas property impairments.............. 4,782 2,250 5,694
Depreciation, depletion and amortization...... 1,779 13,079 1,392
Intangible drilling costs..................... (29,712) (28,482) (29,211)
-------- -------- --------
Total deferred income tax expense............. $ (6,653) $(13,153) $(22,125)
======== ======== ========
</TABLE>
The net deferred tax liability reflected in the Company's consolidated balance
sheet at December 31, 1994 and 1993 results primarily from temporary
differences in the treatment of costs of oil and gas properties for financial
and income tax reporting purposes.
6. OVERRIDING ROYALTY INTEREST:
The Company's interest in certain gas properties acquired in 1991 is subject to
a previously existing undivided overriding royalty interest ("ORRI") held by an
unaffiliated party. The ORRI entitles the holder to receive natural gas
production (aggregating 4.0 Bcf at December 31, 1994) through March 1996,
subject to various daily and annual limitations. Shortfalls in production from
the wells subject to the ORRI must be made up by the Company with production
from other properties or through purchases on the spot market. At December 31,
1994, $1.6 million in accrued liabilities has been provided for future lease
operating expenses on the subject properties and for potential production
shortfalls.
7. EMPLOYEE BENEFIT PLAN:
The Company participates in a 401(k) savings plan ("Plan") sponsored by the
Parent. Under the Plan, eligible employees are permitted to defer receipt of up
to 7% of their compensation (subject to certain limitations by the Internal
Revenue Code of 1986, as amended). After one year of service, the Company will
contribute an amount equal to 5% of an employee's salary into the Plan, and the
Company will match employee contributions on a 100% basis, up to 5% of the
employee's salary. Amounts held under the Plan are invested among various
investment funds at the direction of the individual employee. Employee
contributions are 100% vested at the date of contribution. Company
contributions are vested 100% after five years of employment. For the years
ended December 31, 1994, 1993 and 1992, the Company expensed $1.1 million, $1.2
million and $1.2 million, respectively, for contributions made under the Plan.
F-32
<PAGE>
DALEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. MAJOR CUSTOMERS:
The Company markets its oil and gas production to numerous purchasers under a
combination of short and long-term contracts. One customer accounted for 11.1%
of the Company's consolidated revenues in 1993. There were no individual
customers which accounted for more than 10% of total revenues in 1994 or 1992.
Management believes that the loss of any major customers would not have a
material adverse effect on the Company due to the availability of other
purchasers for the Company's production.
9. COMMITMENTS AND CONTINGENCIES:
The Company leases office space under noncancelable leases, which extend
through 2002. In addition, certain office space no longer in use is being
subleased.
The future minimum rental payments required under the leases, net of sublease
income, are as follows (stated in thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
------------ -------
<S> <C>
1995............................... $ 1,990
1996............................... 2,075
1997............................... 1,998
1998............................... 1,703
1999............................... 1,479
Thereafter........................... 3,822
-------
$13,067
=======
</TABLE>
The Company has established a $1.9 million reserve as of December 31, 1994 for
rent payments on office space no longer in use. The reserve is net of expected
sublease proceeds of $2.5 million under sublease agreements currently in
effect.
The Company has sublet certain of the unused office space to PG&E for which
payments received aggregated $.4 million for each of the three years in the
period ended December 31, 1994. As of December 31, 1994, future sublease
payments from PG&E are expected to aggregate $1.5 million through 1998.
The Company has entered into an agreement to acquire 3-D seismic data in 1995
and 1996 for payments aggregating $3.9 million.
The Company's revenues are derived principally from uncollateralized sales to
customers in the oil and gas industry. The concentration of credit risk in a
single industry affects the Company's overall exposure to credit risk because
customers may be similarly affected by changes in economic and other
conditions. The Company has not experienced significant credit losses on such
receivables.
The Company is directly or indirectly involved in various pending lawsuits and
claims. Reserves for lawsuits and claims are provided for when a loss is
determined to be probable and the amount can be reasonably estimated. In the
opinion of management, the ultimate outcome of such claims will not have a
material impact on the results of operations of the Company.
F-33
<PAGE>
DALEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. OIL AND GAS PROPERTIES:
The following table sets forth certain information with respect to costs
incurred in connection with the Company's oil and gas producing activities
(stated in thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1993 1992
-------- ------- --------
<S> <C> <C> <C>
Property acquisitions:
Proved........................................... $ 14,119 $ 1,001 $ 14,308
Unproved......................................... 23,477 4,944 3,665
Development costs.................................. 49,050 76,099 70,771
Exploratory costs.................................. 26,921 9,653 11,263
-------- ------- --------
$113,567 $91,697 $100,007
======== ======= ========
</TABLE>
Capitalized costs for oil and gas properties are as follows (stated in
thousands of dollars):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1993
--------- ---------
<S> <C> <C>
Oil and gas properties:
Proved............................................... $ 739,361 $ 880,198
Unproved............................................. 48,218 36,156
--------- ---------
787,579 916,354
Accumulated depreciation, depletion and amortization... (359,331) (351,105)
--------- ---------
$ 428,248 $ 565,249
========= =========
</TABLE>
In the third quarter of 1994, the Company sold certain oil and gas properties
(the "Non-Strategic Properties") that did not fit within the Company's current
business strategy. The Company sold the Non-Strategic Properties, which had a
net book value of $131.7 million, to unrelated third parties for $134.0 million
in cash, resulting in a pre-tax gain of $2.3 million, which is included in
other income in the accompanying consolidated statement of operations.
In October and November 1994, the Company acquired producing and non-producing
oil and gas properties located in Louisiana, Texas and offshore Gulf of Mexico
for approximately $28.1 million in cash.
11. SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION (UNAUDITED):
The estimates of proved oil and gas reserves utilized in the preparation of the
consolidated financial statements were prepared by independent petroleum
engineers at December 31, 1994. Such estimates are in accordance with
guidelines established by the Securities and Exchange Commission and the
Financial Accounting Standards Board, which require that reserve reports be
prepared under existing economic and operating conditions with no provision for
price and cost escalations except by contractual arrangements. All of the
Company's reserves are located in the United States.
The Company emphasizes that reserve estimates are inherently imprecise.
Accordingly, the estimates are expected to change as more current information
becomes available. In addition, a portion of the Company's proved reserves is
undeveloped, which increases the imprecision inherent in estimating reserves
which may ultimately be produced.
F-34
<PAGE>
DALEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Proved oil and gas reserve information, together with the changes therein, are
as follows (oil in MBbls, gas in MMcf):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1994 1993 1992
--------------- --------------- ---------------
OIL GAS OIL GAS OIL GAS
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Proved reserves:
Beginning of year......... 20,074 364,181 23,861 414,099 23,255 406,332
Revisions................. (25) (27,253) (740) (15,631) 3,257 (11,110)
Extensions and
discoveries.............. 3,960 80,850 1,582 39,644 1,633 71,300
Purchases and minerals-in-
place.................... 557 12,529 74 2,656 433 16,900
Sales of minerals-in-
place.................... (9,346) (62,722) -- -- -- --
Production................ (3,525) (60,223) (4,703) (76,587) (4,717) (69,323)
------ ------- ------ ------- ------ -------
End of year............... 11,695 307,362 20,074 364,181 23,861 414,099
====== ======= ====== ======= ====== =======
Proved developed reserves:
Beginning of year......... 17,508 335,476 21,670 390,830 19,944 352,285
====== ======= ====== ======= ====== =======
End of year............... 11,134 262,819 17,508 335,476 21,670 390,830
====== ======= ====== ======= ====== =======
</TABLE>
The standardized measure of discounted future net cash flows relating to proved
reserves is as follows (stated in thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1994 1993 1992
--------- ---------- ----------
<S> <C> <C> <C>
Future cash inflows...................... $ 651,143 $1,073,395 $1,322,489
Future costs:
Production............................. (185,726) (313,606) (335,634)
Development............................ (45,437) (42,604) (41,961)
Income taxes........................... (74,250) (111,229) (186,259)
--------- ---------- ----------
Future net cash flows.................... 345,730 605,956 758,635
10% discount factor...................... (83,691) (156,009) (204,473)
--------- ---------- ----------
Standardized measure of discounted future
net cash flows.......................... $ 262,039 $ 449,947 $ 554,162
========= ========== ==========
</TABLE>
F-35
<PAGE>
DALEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED)
Changes in the standardized measure of discounted future net cash flows
relating to proved reserves are as follows (stated in thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Standardized measure, beginning of year.. $ 449,947 $ 554,162 $ 531,868
Net changes in sales prices, net of
production costs........................ (105,808) (64,251) 59,647
Revisions of quantity estimates.......... (22,467) (21,132) 10,585
Changes in future development costs,
including development costs incurred.... 12,722 8,155 15,504
Accretion of discount.................... 47,490 62,254 56,310
Extension and discoveries................ 69,331 44,267 91,800
Purchases of minerals-in-place........... 12,848 1,814 19,695
Sales of minerals-in-place............... (82,300)
Sales, net of production costs........... (121,457) (180,775) (156,480)
Net change in income taxes............... 679 43,429 (37,149)
Changes in timing and other.............. 1,054 2,024 (37,618)
--------- --------- ---------
Standardized measure, end of year........ $ 262,039 $ 449,947 $ 554,162
========= ========= =========
</TABLE>
F-36
<PAGE>
DALEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(STATED IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
----------------
1995 1994
------- -------
<S> <C> <C>
REVENUES:
Natural gas................................................. $19,140 $38,516
Oil and gas liquids......................................... 9,658 13,611
Other....................................................... 69 885
------- -------
28,867 53,012
------- -------
OPERATING EXPENSES:
Lease operating............................................. 8,536 13,689
General and administrative.................................. 4,280 4,761
Depreciation, depletion and amortization.................... 19,603 28,889
Exploration................................................. 2,695 3,770
------- -------
35,114 51,109
------- -------
OPERATING INCOME (LOSS)....................................... (6,247) 1,903
------- -------
OTHER INCOME (EXPENSE)
Interest expense............................................ (2,119) (1,392)
Interest income............................................. 155 525
Other, net.................................................. 144 140
------- -------
(1,820) (727)
------- -------
EARNINGS (LOSS) BEFORE TAXES.................................. (8,067) 1,176
INCOME TAX BENEFIT (EXPENSE):
Current..................................................... 5,727 5,439
Deferred.................................................... (1,316) (4,574)
------- -------
4,411 865
------- -------
NET EARNINGS (LOSS)........................................... $(3,656) $ 2,041
======= =======
</TABLE>
F-37
<PAGE>
DALEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(STATED IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
--------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................. $ 5,653 $ 10,888
Accounts receivable
Oil and gas.......................................... 11,875 20,009
Trade................................................ 6,798 6,030
Affiliates........................................... 14,708 7,616
Inventories........................................... 1,876 2,125
Prepaid expenses...................................... 2,437 3,635
--------- ---------
Total current assets............................... 43,347 50,303
--------- ---------
PROPERTY AND EQUIPMENT
Oil and gas properties, based on successful efforts
method.............................................. 802,337 787,579
Other property and equipment......................... 6,700 6,671
--------- ---------
809,037 794,250
Less: Accumulated depreciation, depletion and
amortization........................................ (381,754) (362,548)
--------- ---------
Net property and equipment.......................... 427,283 431,702
--------- ---------
OTHER ASSETS........................................... 540 655
--------- ---------
TOTAL ASSETS........................................... $ 471,170 $ 482,660
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable..................................... $ 11,954 $ 15,394
Interest payable..................................... 65 67
Accrued liabilities.................................. 10,190 10,998
--------- ---------
Total current liabilities.......................... 22,209 26,459
--------- ---------
DEFERRED INCOME TAXES.................................. 73,845 72,529
ABANDONMENT, DISMANTLEMENT AND OTHER LIABILITIES....... 8,964 13,864
LONG-TERM DEBT......................................... 115,000 115,000
STOCKHOLDER'S EQUITY
Common stock......................................... 1 1
Additional paid-in capital........................... 335,470 335,470
Accumulated deficit.................................. (84,319) (80,663)
--------- ---------
Total stockholder's equity......................... 251,152 254,808
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY............. $ 471,170 $ 482,660
========= =========
</TABLE>
F-38
<PAGE>
DALEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(STATED IN THOUSANDS DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
------------------
1995 1994
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)....................................... $ (3,656) $ 2,041
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation, depletion and amortization................. 19,603 28,889
Deferred income taxes.................................... 1,316 4,574
Dry hole expense......................................... 933 952
Surrendered leases and other impairments................. 584 1,381
Loss (gain) on sale of assets............................ (3) (10)
Other.................................................... (1,309) (532)
-------- --------
17,468 37,295
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable............... (3,540) 5,211
Decrease in prepaid expenses............................. 1,198 798
Increase (decrease) in accounts payable.................. (3,413) 170
Decrease in interest payable............................. (2) (30)
Decrease in accrued liabilities and other................ (559) (4,360)
-------- --------
Net cash provided by operating activities.............. 11,152 39,084
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment....................... (16,350) (12,358)
Decrease in drilling well accrual......................... (60) (1,576)
Proceeds from sale of property and equipment.............. 23 207
-------- --------
Net cash used in investing activities.................. (16,387) (13,727)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....... (5,235) 25,357
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............. 10,888 48,117
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD................... $ 5,653 $ 73,474
======== ========
</TABLE>
F-39
<PAGE>
DALEN CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. The accompanying consolidated financial statements of DALEN Corporation and
Subsidiaries (the "Company") have not been audited by independent public
accountants. In the opinion of management, all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation of the results of
operations for the interim periods included herein have been made. Certain
information and footnote disclosures normally included in the consolidated
financial statements have been omitted. These consolidated financial statements
should be read in conjunction with the audited consolidated financial
statements and notes thereto included elsewhere herein.
2. In April 1995, Enserch Exploration, Inc., 99.2% owned by ENSERCH, entered
into a definitive agreement to acquire 100% of the capital stock of the Company
for $340 million plus the assumption of $115 million of bank debt.
3. In the third quarter of 1994, the Company sold certain oil and gas
properties that did not fit within the Company's current business strategy. The
Company sold the properties, which had a net book value of $131.7 million, to
unrelated third parties for $134.0 million in cash, resulting in a pre-tax gain
of $2.3 million. As a result of the sale, operating results for the three
months ended March 31, 1995 are not comparable to the three months ended March
31, 1994.
F-40
<PAGE>
[LOGO OF ENSEARCH EXPLORATION INC. APPEARS HERE]
<PAGE>
PROSPECTUS (Subject to Completion)
Issued August 18, 1995
20,000,000 Shares
[LOGO OF ENSERCH EXPLORATION INC. APPEARS HERE]
COMMON STOCK
------------
ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE COMPANY.
OF THE 20,000,000 SHARES OF COMMON STOCK BEING OFFERED, 4,000,000 SHARES ARE
BEING OFFERED FOR SALE OUTSIDE THE UNITED STATES AND CANADA BY THE
INTERNATIONAL UNDERWRITERS AND 16,000,000 SHARES ARE BEING OFFERED CONCURRENTLY
FOR SALE IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS. SEE
"UNDERWRITERS." THE COMMON STOCK IS LISTED ON THE NEW YORK STOCK EXCHANGE UNDER
THE SYMBOL "EEX." ON AUGUST 17, 1995, THE REPORTED LAST SALE PRICE OF THE
COMMON STOCK ON THE NEW YORK STOCK EXCHANGE WAS $13 3/4 PER SHARE. PRIOR TO
THIS OFFERING, HOWEVER, ONLY A LIMITED NUMBER OF SHARES HAVE TRADED PUBLICLY.
FOR A DISCUSSION OF THE FACTORS CONSIDERED IN DETERMINING THE PRICE OF THE
COMMON STOCK IN THIS OFFERING SEE "UNDERWRITERS."
------------
SEE "RISK FACTORS" ON PAGE 7 FOR INFORMATION THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS.
------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
------------
PRICE $ A SHARE
------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
-------- --------------- -----------
<S> <C> <C> <C>
Per Share........................ $ $ $
Total(3)......................... $ $ $
</TABLE>
------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.
(2) Before deducting expenses payable by the Company estimated at
$1,250,000.
(3) The Company has granted to the U.S. Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an aggregate of
3,000,000 additional shares of Common Stock at the price to public less
underwriting discounts and commissions for the purpose of covering over-
allotments, if any. If the U.S. Underwriters exercise such option in
full, the total price to public, underwriting discounts and commissions
and proceeds to Company will be $ , $ and $ , respectively. See
"Underwriters."
------------
The shares of Common Stock are offered, subject to prior sale, when, as and
if accepted by the Underwriters named herein and subject to approval of certain
legal matters by Davis Polk & Wardwell, counsel for the Underwriters. It is
expected that delivery of the shares of Common Stock will be made on or about
, 1995 at the office of Morgan Stanley & Co. Incorporated, New York,
N.Y., against payment therefor in New York funds.
------------
MORGAN STANLEY & CO.
International
HOWARD, WEIL, LABOUISSE, FRIEDRICHS
Incorporated
SBC WARBURG
A DIVISION OF SWISS BANK CORPORATION
SMITH BARNEY INC.
UBS LIMITED
, 1995
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The table below sets forth the expenses expected to be incurred by the
Registrant in connection with the issuance and distribution of the shares of
Common Stock to be registered hereby, other than underwriting discounts and
commissions.
<TABLE>
<S> <C>
Commission Registration Fee...................................... $ 118,966
National Association of Securities Dealers, Inc. Filing Fee...... 30,500
NYSE Listing Fee................................................. 110,800
Printing and Engraving Expenses*................................. 325,000
Blue Sky Fees and Expenses*...................................... 20,000
Legal Fees and Expenses*......................................... 165,000
Engineering Fees and Expenses*................................... 175,000
Accounting Fees and Expenses*.................................... 200,000
Miscellaneous*................................................... 104,734
----------
Total*........................................................... $1,250,000
==========
</TABLE>
--------
* Estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Restated Articles of Incorporation provide that, to the
fullest extent permitted by Texas law, directors of the Registrant will not be
liable to the Registrant or its shareholders for monetary damages for any act
or omission occurring in their capacity as a director. Texas law does not
currently authorize the elimination or limitation of the liability of a
director to the extent the director is found liable for (i) any breach of the
director's duty of loyalty to the Registrant or its shareholders, (ii) acts or
omissions not in good faith that constitute a breach of duty of the director
to the Registrant or which involve intentional misconduct or a knowing
violation of law, (iii) transactions from which the director received an
improper benefit, whether or not the benefit resulted from an action taken
within the scope of the director's office or (iv) acts or omissions for which
the liability of a director is expressly provided by an applicable statute.
The Registrant's Bylaws grant mandatory indemnification to directors and
officers of the Registrant to the fullest extent authorized under the Texas
Business Corporation Act (the "TBCA"). Under the TCBA, a Texas corporation may
in general indemnify a director or officer who was, is or is threatened to be
made a named defendant or respondent in a proceeding by virtue of his position
in the corporation if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation,
and, in the case of criminal proceedings, had no reasonable cause to believe
his conduct was unlawful. Further, a Texas corporation may indemnify a
director or officer in an action brought by or in the right of the corporation
only if such director or officer was not found liable to the corporation,
unless or only to the extent that a court finds him to be fairly and
reasonably entitled to indemnity for such expenses as the court deems proper,
within statutory limits.
The above discussion of the Registrant's Restated Articles of Incorporation
and Bylaws and of the TBCA is not intended to be exhaustive and is qualified
in its entirety by the Restated Articles of Incorporation and Bylaws and the
TBCA.
Reference is made to the Form of Underwriting Agreement filed as Exhibit
1.1, which provides for indemnification in certain instances by the
Underwriters of the directors and officers of the Registrant signing the
Registration Statement, and of certain controlling persons of the Registrant,
against certain liabilities, including certain liabilities arising under the
Securities Act.
II-1
<PAGE>
The Registrant maintains director and officer liability insurance providing
insurance protection for specified liabilities under specified terms.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Registrant
pursuant to the foregoing provisions, the Registrant has been advised that in
the opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
1.1 Form of Underwriting Agreement
4.1 Form of Common Stock Certificate (1)
5 Opinion of Jackson & Walker, L.L.P.
10.1 Enserch Exploration, Inc. 1994 Stock Incentive Plan (1)
10.3 Lease Agreement for Garden Banks 388-1 between Registrant and Enserch
Exploration, Inc. (Delaware) (1)
10.4 Lease Agreement for Garden Banks 388-2 between Registrant and Enserch
Exploration, Inc. (Delaware) (1)
10.5 Lease Agreement for Mississippi Canyon 441 between Registrant and
Enserch Exploration, Inc. (Delaware) (1)
10.6 Participation Agreement between EP Operating Limited Partnership and
Mobil Producing Texas & New Mexico Inc. (1)
10.7 Stock Purchase Agreement dated as of April 12, 1995, By and Between
PG&E Enterprises, as Seller, and Registrant, as Buyer (2)
10.8 Letter Agreement regarding intercompany loans effective January 1,
1995, between Registrant and ENSERCH Corporation (3)
10.9 Natural Gas Sales and Purchase Contract between EP Operating Limited
Partnership and Enserch Gas Company, each effective March 1, 1993 (3)
10.10 Natural Gas Sales and Purchase Contract between EP Operating Limited
Partnership and Enserch Gas Company, effective March 1, 1993, and
amendment effective November 1, 1994 (3)
10.11 Agency Agreement between EP Operating Limited Partnership and Enserch
Gas Company effective March 1, 1993 (3)
10.12 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, filed as
Exhibit 10.5 to Registrant's Form 10-K for the year ended December 31,
1994, which exhibit is hereby incorporated herein by reference.
10.13 Enserch Exploration, Inc. 1994 Stock Incentive Plan included as
Exhibit 10.1 to the Registrant's Registration Statement on Form S-4
(No. 33-56792).
10.14 Performance Incentive Plan--Calendar Year 1995 included as Exhibit
10.7 to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994 and incorporated herein by reference.
10.15 ENSERCH Corporation Deferred Compensation Plan and Amendment No. 1
dated March 28, 1995, included as Exhibit 10.8 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994 and
incorporated herein by reference.
10.16 ENSERCH Corporation Deferred Compensation Trust, included as Exhibit
10.9 to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994 and incorporated herein by reference.
10.17 ENSERCH Corporation Retirement Income Restoration Plan and Amendment
No. 1 thereto dated September 30, 1994 included as Exhibit 10.10 to
Registrant's Annual Report on Form 10--K for the year ended December
31, 1994 and incorporated herein by reference.
10.18 ENSERCH Corporation Retirement Income Restoration Trust, included as
Exhibit 10.11 to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1994 and incorporated herein by reference.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
10.19 Credit Agreement among Enserch Exploration, Inc. as Borrower, Texas
Commerce Bank National Association, as Administrative Agent, The Chase
Manhattan Bank, N.A., as Syndication Agent, Chemical Bank, as Auction
Agent and The Lenders now or hereafter Parties hereto dated as of May
1, 1995
10.20 Employment Agreement of J. T. Williams dated June 8, 1995
10.21 Tax Sharing Agreement between ENSERCH Corporation and Enserch
Exploration, Inc.
10.22 Amended and Restated Limited Liability Company Agreement of MIStS
Issuer L.L.C. dated August 4, 1995
23.1 Consents of Deloitte & Touche LLP
23.2 Consent of Arthur Andersen LLP (2)
23.3 Consent of Jackson & Walker, L.L.P. (included in its opinion filed as
Exhibit 5)
23.4 Consent of DeGolyer and MacNaughton
23.5 Consent of Netherland, Sewell & Associates, Inc. (3)
24.1 Powers of Attorney--included on page II-4 of this Registration
Statement (3)
27.1 Restated Financial Data Schedule
</TABLE>
--------
(1) Filed as an exhibit to the Registrant's Registration Statement No. 33-56791
on Form S-4 which exhibit is hereby incorporated herein by reference.
(2) Filed as an exhibit to the ENSERCH Corporation Current Report on Form 8-K
dated May 26, 1995, which exhibit is incorporated herein by reference.
(3) Previously filed with this Registration Statement.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS
ALL OF THE REQUIREMENTS FOR FILING ON FORM S-2 AND HAS DULY CAUSED THIS
AMENDMENT NO. 1 TO THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY
THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF DALLAS, STATE OF
TEXAS ON THE 18TH DAY OF AUGUST, 1995.
Enserch Exploration, Inc.
By /s/ D.W. Biegler
----------------------------------
D.W. BIEGLER, CHAIRMAN
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
AMENDMENT NO. 1 TO REGISTRATION STATEMENT NO. 33-60461 HAS BEEN SIGNED BY THE
FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE AND TITLE DATE
------------------- ----
<S> <C>
D.W. Biegler, Chairman and Director,
J.T. Williams, Vice Chairman, Chief
Executive Officer and Director
(Principal Executive Officer),
Gary J. Junco, President, Chief
Operating Officer and Director,
F.S. Addy, Director,
B.A. Bridgewater, Jr., Director, August 18, 1995
J.P. McCormick, Senior Vice
President and Chief Financial
Officer Principal Financial Officer
and
J.W. Pinkerton, Vice President and
Controller, Principal Accounting
Officer
</TABLE>
By /s/ D.W. Biegler
-----------------------------
D.W. BIEGLER,INDIVIDUALLY AND AS
ATTORNEY-IN-FACT
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER EXHIBIT DESCRIPTION NUMBER
------- ------------------- ----------
<C> <S> <C>
1.1 Form of Underwriting Agreement
4.1 Form of Common Stock Certificate (1)
5 Opinion of Jackson & Walker, L.L.P.
10.1 Enserch Exploration, Inc. 1994 Stock Incentive Plan (1)
10.3 Lease Agreement for Garden Banks 388-1 between Registrant
and Enserch Exploration, Inc. (Delaware) (1)
10.4 Lease Agreement for Garden Banks 388-2 between Registrant
and Enserch Exploration, Inc. (Delaware) (1)
10.5 Lease Agreement for Mississippi Canyon 441 between
Registrant and Enserch Exploration, Inc. (Delaware) (1)
10.6 Participation Agreement between EP Operating Limited
Partnership and Mobil Producing Texas & New Mexico Inc.
(1)
10.7 Stock Purchase Agreement dated as of April 12, 1995, By
and Between PG&E Enterprises, as Seller, and Registrant,
as Buyer (2)
10.8 Letter Agreement regarding intercompany loans effective
January 1, 1995, between Registrant and ENSERCH
Corporation (3)
10.9 Natural Gas Sales and Purchase Contract between EP
Operating Limited Partnership and Enserch Gas Company,
each effective March 1, 1993 (3)
10.10 Natural Gas Sales and Purchase Contract between EP
Operating Limited Partnership and Enserch Gas Company,
effective March 1, 1993, and amendment effective November
1, 1994 (3)
10.11 Agency Agreement between EP Operating Limited Partnership
and Enserch Gas Company effective March 1, 1993 (3)
10.12 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, filed as Exhibit 10.5 to
Registrant's Form 10-K for the year ended December 31,
1994, which exhibit is hereby incorporated herein by
reference.
10.13 Enserch Exploration, Inc. 1994 Stock Incentive Plan
included as Exhibit 10.1 to the Registrant's Registration
Statement on Form S-4 (No. 33-56792).
10.14 Performance Incentive Plan--Calendar Year 1995 included
as Exhibit 10.7 to Registrant's Annual Report on Form 10-
K for the year ended December 31, 1994 and incorporated
herein by reference.
10.15 ENSERCH Corporation Deferred Compensation Plan and
Amendment No. 1 dated March 28, 1995, included as Exhibit
10.8 to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1994 and incorporated herein by
reference.
10.16 ENSERCH Corporation Deferred Compensation Trust, included
as Exhibit 10.9 to Registrant's Annual Report on Form 10-
K for the year ended December 31, 1994 and incorporated
herein by reference.
10.17 ENSERCH Corporation Retirement Income Restoration Plan
and Amendment No. 1 thereto dated September 30, 1994
included as Exhibit 10.10 to Registrant's Annual Report
on Form 10--K for the year ended December 31, 1994 and
incorporated herein by reference.
10.18 ENSERCH Corporation Retirement Income Restoration Trust,
included as Exhibit 10.11 to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1994 and
incorporated herein by reference.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER EXHIBIT DESCRIPTION NUMBER
------- ------------------- ----------
<C> <S> <C>
10.19 Credit Agreement among Enserch Exploration, Inc. as
Borrower, Texas Commerce Bank National Association, as
Administrative Agent, The Chase Manhattan Bank, N.A., as
Syndication Agent, Chemical Bank, as Auction Agent and
The Lenders now or hereafter Parties hereto dated as of
May 1, 1995
10.20 Employment Agreement of J. T. Williams dated June 8, 1995
10.21 Tax Sharing Agreement between ENSERCH Corporation and
Enserch Exploration, Inc.
10.22 Amended and Restated Limited Liability Company Agreement
of MIStS Issuer L.L.C. dated August 4, 1995
23.1 Consents of Deloitte & Touche LLP
23.2 Consent of Arthur Andersen LLP (3)
23.3 Consent of Jackson & Walker, L.L.P. (included in its
opinion filed as Exhibit 5)
23.4 Consent of DeGolyer and MacNaughton
23.5 Consent of Netherland, Sewell & Associates, Inc. (3)
24.1 Powers of Attorney--included on page II-4 of this
Registration Statement (3)
27.1 Restated Financial Data Schedule
</TABLE>
--------
(1) Filed as an exhibit to the Registrant's Registration Statement No. 33-56791
on Form S-4 which exhibit is hereby incorporated herein by reference.
(2) Filed as an exhibit to the ENSERCH Corporation Current Report on Form 8-K
dated May 26, 1995, which exhibit is incorporated herein by reference.
(3) Previously filed with this Registration Statement.
<PAGE>
EXHIBIT 1.1
20,000,000 Shares
ENSERCH EXPLORATION, INC.
Common Stock, Par Value $1.00 Per Share
UNDERWRITING AGREEMENT
______________, 1995
<PAGE>
___________, 1995
Morgan Stanley & Co.
Incorporated
Bear, Stearns & Co. Inc.
Dean Witter Reynolds Inc.
Howard, Weil, Labouisse, Friedrichs Incorporated
Smith Barney Inc.
c/o Morgan Stanley & Co.
Incorporated
1251 Avenue of the Americas
New York, New York 10020
Morgan Stanley & Co. International Limited
Howard, Weil, Labouisse, Friedrichs Incorporated
Smith Barney Inc.
Swiss Bank Corporation
UBS Limited
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
England
Dear Sirs:
Enserch Exploration, Inc., a Texas corporation (the "Company"),
proposes to issue and sell to the several Underwriters (as defined below)
20,000,000 shares of its Common Stock, par value $1.00 per share (the "Firm
Shares").
It is understood that, subject to the conditions hereinafter stated,
16,000,000 Firm Shares (the "U.S. Firm Shares") will be sold to the several U.S.
Underwriters named in Schedule I hereto (the "U.S. Underwriters") in connection
with the offering and sale of such U.S. Firm Shares in the United States and
Canada to United States and Canadian Persons (as these terms are defined in the
Agreement Between U.S. and International Underwriters of even date herewith),
and 4,000,000 Firm Shares (the "International Shares") will be sold to the
several International Underwriters named in Schedule II hereto (the
"International Underwriters") in connection with the offering and sale of such
International Shares outside the United States and Canada to persons other than
United States and Canadian Persons. Morgan Stanley & Co. Incorporated, Bear,
Stearns & Co. Inc., Dean Witter Reynolds Inc., Howard, Weil, Labouisse,
Friedrichs Incorporated, and Smith Barney Inc. shall act as representatives (the
<PAGE>
"U.S. Representatives") of the several U.S. Underwriters, and Morgan Stanley &
Co. International Limited, Howard, Weil, Labouisse, Friedrichs Incorporated,
Smith Barney Inc., Swiss Bank Corporation and UBS Limited, shall act as
representatives (the "International Representatives") of the several
International Underwriters. The U.S. Underwriters and the International
Underwriters are hereinafter collectively referred to as the Underwriters.
The Company also proposes to issue and sell to the several U.S.
Underwriters not more than an additional 3,000,000 shares of its Common Stock,
par value $1.00 per share (the "Additional Shares") if and to the extent that
the U.S. Representatives shall have determined to exercise, on behalf of the
U.S. Underwriters, the right to purchase such shares granted to the U.S.
Underwriters in Article II hereof. The Firm Shares and the Additional Shares
are hereinafter collectively referred to as the Shares. The shares of Common
Stock, par value $1.00 per share, of the Company to be outstanding after giving
effect to the sales contemplated hereby are hereinafter referred to as the
Common Stock.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement relating to the Shares. The registration
statement contains two prospectuses to be used in connection with the offering
and sale of the Shares: the U.S. prospectus, to be used in connection with the
offering and sale of Shares in the United States and Canada to United States and
Canadian Persons, and the international prospectus, to be used in connection
with the offering and sale of Shares outside the United States and Canada to
persons other than United States and Canadian Persons. The international
prospectus is identical to the U.S. prospectus except for the outside front
cover page. The registration statement as amended at the time it becomes
effective, including the information (if any) deemed to be part of the
registration statement at the time of effectiveness pursuant to Rule 430A under
the Securities Act of 1933, as amended (the "Securities Act"), is hereinafter
referred to as the Registration Statement; the U.S. prospectus and the
international prospectus in the respective forms first used to confirm sales of
Shares are hereinafter collectively referred to as the Prospectus; all
references to the Registration Statement or the Prospectus include documents
incorporated therein by reference. If the Company files a registration
statement to register a portion of the Shares and relies on Rule 462(b) for such
registration statement to become effective upon filing with the Commission (the
"Rule 462 Registration Statement"), then any reference to the
2
<PAGE>
"Registration Statement" shall be deemed to refer to both the registration
statement referred to above (Commission File No. 33-60461) and the Rule 462
Registration Statement, in each case as amended from time to time.
I.
The Company represents and warrants to each of the Underwriters that:
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or threatened by the
Commission.
(b) (i) Each document, if any, filed or to be filed pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
incorporated by reference in the Registration Statement or the Prospectus
complied or will comply when so filed in all material respects with the
Exchange Act and the applicable rules and regulations of the Commission
thereunder, (ii) the Registration Statement and the Prospectus comply and,
as amended or supplemented, if applicable, will comply in all material
respects with the Securities Act and the applicable rules and regulations
of the Commission thereunder, (iii) each part of the Registration
Statement, when such part became effective, did not contain and each such
part, as amended or supplemented, if applicable, will not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading and (iv) the Prospectus does not contain and, as amended or
supplemented, if applicable, will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, except that the representations and warranties set
forth in this paragraph 1(b) do not apply to statements or omissions in the
Registration Statement or the Prospectus based upon information relating to
any Underwriter furnished to the Company in writing by such Underwriter
through you expressly for use therein.
3
<PAGE>
(c) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the State of Texas, has the
corporate power and authority to own its property and conduct its business
as described in the Prospectus and is duly qualified to transact business
and is in good standing in each jurisdiction in which the conduct of its
business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so qualified or
be in good standing would not have a material adverse effect on the Company
and its subsidiaries, taken as a whole.
(d) Each subsidiary of the Company has been duly incorporated, is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to
own its property and conduct its business as described in the Prospectus
and is duly qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent that
the failure to be so qualified or be in good standing would not have a
material adverse effect on the Company and its subsidiaries, taken as a
whole.
(e) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.
(f) The shares of Common Stock outstanding prior to the issuance of
the Shares have been duly authorized and are validly issued, fully paid and
non-assessable.
(g) The Shares have been duly authorized and, when issued and
delivered in accordance with the terms of this Agreement, will be validly
issued, fully paid and non-assessable, and the issuance of such Shares will
not be subject to any preemptive or similar rights.
(h) This Agreement has been duly authorized, executed and delivered
by the Company.
(i) The execution and delivery by the Company of, and the performance
by the Company of its obligations under, this Agreement will not contravene
any provision of applicable law or the certificate of incorporation or by-
laws of the Company or any agreement or other instrument binding upon the
Company or any of its
4
<PAGE>
subsidiaries that is material to the Company and its subsidiaries, taken as
a whole, or any judgment, order or decree of any governmental body, agency
or court having jurisdiction over the Company or any subsidiary, and no
consent, approval, authorization or order of or qualification with any
governmental body or agency is required for the performance by the Company
of its obligations under this Agreement, except such as may be required in
connection with the offer and sale of the Shares, by the securities or Blue
Sky laws of the various states and the securities laws of any jurisduction
outside of the U.S. in which international shares are offered and sold.
(j) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, from that
set forth in the Prospectus.
(k) There are no legal or governmental proceedings pending or
threatened to which the Company or any of its subsidiaries is a party or to
which any of the properties of the Company or any of its subsidiaries is
subject that are required to be described in the Registration Statement or
the Prospectus and are not so described or any statutes, regulations,
contracts or other documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not described or filed as required.
(l) Each of the Company and its subsidiaries has all necessary
consents, authorizations, approvals, orders, certificates and permits of
and from, and has made all declarations and filings with, all federal,
state, local and other governmental authorities, all self-regulatory
organizations and all courts and other tribunals, to own, lease, license
and use its properties and assets and to conduct its business in the manner
described in the Prospectus, except to the extent that the failure to
obtain or file would not have a material adverse effect on the Company and
its subsidiaries, taken as a whole.
(m) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 or Rule 462 under the Securities Act, complied when so
filed in all material respects with the
5
<PAGE>
Securities Act and the applicable rules and regulations of the Commission
thereunder.
(n) The Company is not an "investment company" or an entity
"controlled" by an "investment company" as such terms are defined in the
Investment Company Act of 1940, as amended.
(o) The Company and its subsidiaries are (i) in compliance with any
and all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (ii) have received all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required permits,
licenses or other approvals or failure to comply with the terms and
conditions of such permits, licenses or approvals would not, singly or in
the aggregate, have a material adverse effect on the Company and its
subsidiaries, taken as a whole.
(p) The Company has reasonably concluded that the costs and
liabilities associated with the effect of Environmental Laws on the
business, operations and properties of the Company and its subsidiaries,
(including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with
Environmental Laws or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to third
parties) would not, singly or in the aggregate, have a material adverse
effect on the Company and its subsidiaries, taken as a whole.
(q) There are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the
Company to file a registration statement under the Securities Act with
respect to any securities of the Company or to require the Company to
include such securities with the Shares registered pursuant to the
Registration Statement.
6
<PAGE>
(r) The Company has complied to the extent necessary with all
provisions of Section 517.075, Florida Statutes (Chapter 92-198, Laws of
Florida) relating to doing business with the Government of Cuba or with any
person or affiliate located in Cuba.
(s) Each of the Company and its subsidiaries has satisfactory title
to or satisfactory leasehold interest in all of its material properties and
assets, real and personal, that are owned or used in connection with its
operations in accordance with standards generally accepted in the oil and
gas industry, except for any deficiency in title or leasehold interest
which would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole; and none of such properties or assets or
leasehold interests is subject to any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind, except as described in or
contemplated by the Prospectus, or those that, singly or in the aggregate,
are not material to the Company and its subsidiaries, taken as a whole.
II.
On the basis of the representations contained in this Agreement, and
subject to its conditions, the Company hereby agrees to sell to the several
Underwriters and the Underwriters, agree, severally and not jointly, to purchase
from the Company the respective numbers of Firm Shares set forth in Schedules I
and II hereto opposite their names at $______ a share -- the purchase price.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to sell
to the U.S. Underwriters the Additional Shares, and the U.S. Underwriters shall
have a one-time right to purchase, severally and not jointly, up to 3,000,000
Additional Shares at the purchase price. Additional Shares may be purchased as
provided in Article IV hereof solely for the purpose of covering over-allotments
made in connection with the offering of the Firm Shares. If any Additional
Shares are to be purchased, each U.S. Underwriter agrees, severally and not
jointly, to purchase the number of Additional Shares (subject to such
adjustments to eliminate fractional shares as the U.S. Representatives may
determine) that bears the same proportion to the total number of Additional
Shares to
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be purchased as the number of U.S. Firm Shares set forth in Schedule I hereto
opposite the name of such U.S. Underwriter bears to the total number of U.S.
Firm Shares. The Additional Shares to be purchased by the U.S. Underwriters
hereunder and the U.S. Firm Shares are hereinafter collectively referred to as
the U.S. Shares.
The Company hereby agrees that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will not,
during the period ending 180 days after the date of the Prospectus, (i) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase or otherwise transfer or dispose of, directly or indirectly, any shares
of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or (ii) enter into any swap or other agreement
that transfers, in whole or in part, any of the economic consequences of
ownership of the Common Stock, whether any such transaction described in clause
(i) or (ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise. The foregoing sentence shall not apply to (A)
the Shares to be sold hereunder or (B) any shares of Common Stock issued by the
Company upon the exercise of an option or warrant or the conversion of a
security outstanding on the date hereof of which the Underwriters have been
advised in writing.
III.
The Company is advised by you that the Underwriters propose to make a
public offering of their respective portions of the Shares as soon after the
Registration Statement and this Agreement have become effective as in your
judgment is advisable. The Company is further advised by you that the Shares
are to be offered to the public initially at U.S.$_____ a share (the public
offering price) and to certain dealers selected by you at a price that
represents a concession not in excess of U.S.$____ a share under the public
offering price, and that any Underwriter may allow, and such dealers may
reallow, a concession, not in excess of U.S.$____ a share, to any Underwriter or
to certain other dealers.
Each U.S. Underwriter hereby makes to and with the Company the
representations and agreements of such U.S. Underwriter contained in the fifth
and sixth paragraphs of Article III of the Agreement Between U.S. and
International Underwriters of even date herewith. Each International
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Underwriter hereby makes to and with the Company the representations and
agreements of such International Underwriter contained in the seventh, eighth,
ninth and tenth paragraphs of Article III of such Agreement.
IV.
Payment for the Firm Shares shall be made by certified or official
bank check or checks payable to the order of the Company in New York Clearing
House funds at the office of Morgan Stanley & Co. Incorporated, 1251 Avenue of
the Americas, New York, New York, at 10:00 A.M., local time, on ___________,
1995, or at such other time on the same or such other date, not later than
___________, 1995, as shall be designated in writing by you. The time and date
of such payment are hereinafter referred to as the Closing Date.
Payment for any Additional Shares shall be made by certified or
official bank check or checks payable to the order of the Company in New York
Clearing House funds at the office of Morgan Stanley & Co. Incorporated, 1251
Avenue of the Americas, New York, New York, at 10:00 A.M., local time, on such
date (which may be the same as the Closing Date but shall in no event be earlier
than the Closing Date nor later than ten business days after the giving of the
notice hereinafter referred to) as shall be designated in a written notice from
the U.S. Representatives to the Company of their determination, on behalf of the
U.S. Underwriters, to purchase a number, specified in said notice, of Additional
Shares, or on such other date, in any event not later than ___________, 1995, as
shall be designated in writing by the U.S. Representatives. The time and date
of such payment are hereinafter referred to as the Option Closing Date. The
notice of the determination to exercise the option to purchase Additional Shares
and of the Option Closing Date may be given at any time within 30 days after the
date of this Agreement.
Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than two full business days prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes payable
in connection with the transfer of the Shares
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to the Underwriters duly paid, against payment of the purchase price therefor.
V.
The obligations of the Company and the several obligations of the
Underwriters hereunder are subject to the condition that the Registration
Statement shall have become effective not later than the date hereof.
The several obligations of the Underwriters hereunder are subject to
the following further conditions:
(a) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date:
(i) there shall not have occurred any downgrading, nor shall any
notice have been given of any intended or potential downgrading or of
any review for a possible change that does not indicate the direction
of the possible change, in the rating accorded any of [THE COMPANY'S
SECURITIES OR] the securities of ENSERCH Corporation by any
"nationally recognized statistical rating organization," as such term
is defined for purposes of Rule 436(g)(2) under the Securities Act;
and
(ii) there shall not have occurred any change, or any development
involving a prospective change, in the condition, financial or
otherwise, or in the earnings, business or operations, of the Company
and its subsidiaries, taken as a whole, from that set forth in the
Registration Statement, that, in your judgment, is material and
adverse and that makes it, in your judgment, impracticable to market
the Shares on the terms and in the manner contemplated in the
Prospectus.
(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer of
the Company, to the effect set forth in clause (a)(i) above and to the
effect that the representations and warranties of the Company contained in
this Agreement are true and correct as of the Closing Date and that the
Company has complied with all of the agreements and satisfied all of the
conditions on its part to be performed or satisfied hereunder on or before
the Closing Date.
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The officer signing and delivering such certificate may rely upon the
best of his knowledge as to proceedings threatened.
(c) You shall have received on the Closing Date an opinion of
("Company Counsel"), dated the Closing Date, to the effect that
(i) the Company has been duly incorporated, is validly existing
as a corporation in good standing under the laws of the State of
Texas, has the corporate power and authority to own its property and
conduct its business as described in the Prospectus and is duly
qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent
that the failure to be so qualified or be in good standing would not
have a material adverse effect on the Company and its subsidiaries,
taken as a whole;
(ii) each subsidiary of the Company has been duly incorporated, is
validly existing as a corporation in good standing under the laws of
the jurisdiction of its incorporation, has the corporate power and
authority to own its property and conduct its business as described in
the Prospectus and is duly qualified to transact business and is in
good standing in each jurisdiction in which the conduct of its
business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so
qualified or be in good standing would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole;
(iii) this Agreement has been duly authorized, executed and
delivered by the Company;
(iv) the authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus;
(v) the shares of Common Stock outstanding prior to the issuance
of the Shares have been duly authorized and are validly issued, fully
paid and non-assessable;
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(vi) the Shares have been duly authorized and, when issued and
delivered in accordance with the terms of this Agreement, will be
validly issued, fully paid and non-assessable, and the issuance of
such Shares will not be subject to any preemptive or similar rights;
(vii) the execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement
will not contravene any provision of applicable law or the certificate
of incorporation or by-laws of the Company or, to the best of such
counsel's knowledge, any agreement or other instrument binding upon
the Company or any of its subsidiaries that is material to the Company
and its subsidiaries, taken as a whole, or, to the best of such
counsel's knowledge, any judgment, order or decree of any governmental
body, agency or court having jurisdiction over the Company or any
subsidiary, and no consent, approval, authorization or order of or
qualification with any governmental body or agency is required for the
performance by the Company of its obligations under this Agreement,
except such as may be required by the securities or Blue Sky laws of
the various states in connection with the offer and sale of the
Shares;
(viii) the statements (1) in the Prospectus under the captions
"Business -- Title to Properties, -- Royalties and Other Interests, --
Government Regulation, and -- Legal Proceedings"; "Management --
Executive Compensation -- The 1994 Stock Incentive Plan, and --
Executive Compensation -- Compensation Plans"; "Relationship Between
EEX and ENSERCH"; "The Reorganization"; "Certain Transactions";
"Description of the Capital Stock"; "Certain United States Tax
Consequences to Non-United States Holders"; and "Underwriters", and
(2) in the Registration Statement in Items 14 and 15, in each case
insofar as such statements constitute summaries of the legal matters,
documents or proceedings referred to therein, fairly present the
information called for with respect to such legal matters, documents
and proceedings and fairly summarize the matters referred to therein;
(ix) after due inquiry, such counsel does not know of any legal or
governmental proceeding
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pending or threatened to which the Company or any of its subsidiaries
is a party or to which any of the properties of the Company or any of
its subsidiaries is subject that are required to be described in the
Registration Statement or the Prospectus and are not so described or
of any statutes, regulations, contracts or other documents that are
required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement
that are not described or filed as required;
(x) each of the Company and its subsidiaries has all necessary
consents, authorizations, approvals, orders, certificates and permits
of and from, and has made all declarations and filings with, all
federal, state, local and other governmental authorities, all self-
regulatory organizations and all courts and other tribunals, to own,
lease, license and use its properties and assets and to conduct its
business in the manner described in the Prospectus, except to the
extent that the failure to obtain or file would not have a material
adverse effect on the Company and its subsidiaries, taken as a whole;
(xi) the Company is not an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in
the Investment Company Act of 1940, as amended;
(xii) the Company and its subsidiaries are (i) in compliance with
any and all applicable Environmental Laws, (ii) have received all
permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii)
are in compliance with all terms and conditions of any such permit,
license or approval, except where such noncompliance with
Environmental Laws, failure to receive required permits, licenses or
other approvals or failure to comply with the terms and conditions of
such permits, licenses or approvals would not, singly or in the
aggregate, have a material adverse effect on the Company and its
subsidiaries, taken as a whole;
(xiii) the ordinary course of its business, the Company conducts
a periodic review of the effect of Environmental Laws on the business,
operations and properties of the Company and its
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<PAGE>
subsidiaries, in the course of which it identifies and evaluates
associated costs and liabilities (including, without limitation, any
capital or operating expenditures required for clean-up, closure of
properties or compliance with Environmental Laws or any permit,
license or approval, any related constraints on operating activities
and any potential liabilities to third parties). On the basis of such
review, the Company has reasonably concluded that such associated
costs and liabilities would not, singly or in the aggregate, have a
material adverse effect on the Company and its subsidiaries, taken as
a whole;
(xiv) each of the Company and its subsidiaries has satisfactory
title to or satisfactory leasehold interest in all of its material
properties and assets, real and personal, that are owned or used in
connection with its operations in accordance with standards generally
accepted in the oil and gas industry, except for any deficiency in
title or leasehold interest which would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole; and none
of such properties or assets or leasehold interests is subject to any
mortgage, pledge, security interest, encumbrance, lien or charge of
any kind, except as described in or contemplated by the Prospectus, or
those that, singly or in the aggregate, are not material to the
Company and its subsidiaries, taken as a whole; and
(xv) such counsel (1) is of the opinion that each document, if
any, filed pursuant to the Exchange Act and incorporated by reference
in the Registration Statement or the Prospectus (except for financial
statements and schedules as to which such counsel need not express any
opinion) complied when so filed as to form in all material respects
with the Exchange Act and the applicable rules and regulations of the
Commission thereunder, (2) is of the opinion that the Registration
Statement and the Prospectus (except for financial statements and
schedules included therein as to which such counsel need not express
any opinion) comply as to form in all material respects with the
Securities Act and the applicable rules and regulations of the
Commission thereunder, (3) has no reason to believe that (except for
financial statements and schedules as
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<PAGE>
to which such counsel need not express any belief) the Registration
Statement and the prospectus included therein at the time the
Registration Statement became effective contained any untrue statement
of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading and (4) has no reason to believe that (except for financial
statements and schedules as to which such counsel need not express any
belief) the Prospectus contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they
were made, not misleading.
(d) You shall have received on the Closing Date an opinion of Davis
Polk & Wardwell, special counsel for the Underwriters, dated the Closing
Date, covering the matters referred to in subparagraph (viii) (but only as
to the statements in the Prospectus under "Description of the Capital
Stock" and "Underwriters") of paragraph (c) above and clauses (2), (3) and
(4) of subparagraph (xv) of paragraph (c) above.
With respect to subparagraph (xv) of paragraph (c) above, Company
Counsel may state that their opinion and belief are based upon their
participation in the preparation of the Registration Statement and Prospectus
and any amendments or supplements thereto and documents incorporated therein by
reference and review and discussion of the contents thereof, but are without
independent check or verification except as specified. With respect to clauses
(2), (3) and (4) of subparagraph (xv) of paragraph (c) above, Davis Polk &
Wardwell may state that their opinion and belief are based upon their
participation in the preparation of the Registration Statement and Prospectus
and any amendments or supplements thereto (other than documents incorporated
therein by reference) and review and discussion of the contents thereof
(including documents incorporated therein by reference), but are without
independent check or verification except as specified. Davis Polk & Wardwell
may state that their opinion, insofar as it may relate to matters governed by
the laws of the State of Texas, is based upon the opinion of Company Counsel
described in paragraph (c) above, without independent check or verification
except as specified.
The opinion of Company Counsel described in paragraph (c) above shall
be rendered to you at the request of the Company and shall so state therein.
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<PAGE>
(e) You shall have received, on each of the date hereof and the
Closing Date, letters dated the date hereof or the Closing Date, as the
case may be, in form and substance satisfactory to you, from Deloitte &
Touche LLP and Arthur Andersen LLP, respectively, independent public
accountants, containing statements and information of the type ordinarily
included in accountants' "comfort letters" to underwriters with respect to
the financial statements and certain financial information contained in or
incorporated by reference into the Registration Statement and the
Prospectus.
(f) The "lock-up" agreements between you and each of ENS Holdings
Limited Partnership, Enserch Exploration Holdings, Inc., ENSERCH
Corporation, [ADD NAMES OF EACH ADDITIONAL ENSERCH COMPANY THAT HOLDS
COMMON STOCK], D.W. Biegler, J.T. Williams, Gary J. Junco, Frederick S.
Addy, B.A. Bridgewater, Jr., B.K. Irani and R.L. Kincheloe, relating to
sales of shares of common stock of the Company or any securities
convertible into or exercisable or exchangeable for such common stock, in
form and substance satisfactory to you, delivered to you on or before the
date hereof, shall be in full force and effect on the Closing Date.
(g) The Company shall have complied with the provisions of Section
VI(a) hereof with respect to the furnishing of Prospectuses on the business
day next succeeding the date of this Agreement, in such quantities as you
reasonably request.
The several obligations of the U.S. Underwriters to purchase
Additional Shares hereunder are subject to the delivery to the U.S.
Representatives on the Option Closing Date of such documents as they may
reasonably request with respect to the good standing of the Company, the due
authorization and issuance of the Additional Shares and other matters related to
the issuance of the Additional Shares.
VI.
In further consideration of the agreements of the Underwriters herein
contained, the Company covenants as follows:
(a) To furnish you, without charge, eleven signed copies of the
Registration Statement (including
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exhibits thereto and documents incorporated therein by reference) and to
each other Underwriter a conformed copy of the Registration Statement
(without exhibits thereto but including documents incorporated therein by
reference) and, during the period mentioned in paragraph (c) below, as many
copies of the Prospectus, any documents incorporated therein by reference,
and any supplements and amendments thereto as you may reasonably request.
In the case of the Prospectus, to furnish copies of the Prospectus in New
York City, prior to 10:00 a.m., on the business day next succeeding the
date of this Agreement, in such quantities as you reasonably request.
(b) Before amending or supplementing the Registration Statement or
the Prospectus, to furnish to you a copy of each such proposed amendment or
supplement and to file no such proposed amendment or supplement to which
you reasonably object.
(c) If, during such period after the first date of the public
offering of the Shares as in the opinion of your counsel the Prospectus is
required by law to be delivered in connection with sales by an Underwriter
or dealer, any event shall occur or condition exist as a result of which it
is necessary to amend or supplement the Prospectus in order to make the
statements therein, in the light of the circumstances when the Prospectus
is delivered to a purchaser, not misleading, or if, in the opinion of your
counsel, it is necessary to amend or supplement the Prospectus to comply
with law, forthwith to prepare, file with the Commission and furnish, at
its own expense, to the Underwriters and to the dealers (whose names and
addresses you will furnish to the Company) to which Shares may have been
sold by you on behalf of the Underwriters and to any other dealers upon
request, either amendments or supplements to the Prospectus so that the
statements in the Prospectus as so amended or supplemented will not, in the
light of the circumstances when the Prospectus is delivered to a purchaser,
be misleading or so that the Prospectus, as amended or supplemented, will
comply with law.
(d) To endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you shall reasonably
request and to pay all expenses (including fees and disbursements of
counsel) in connection with such qualification and in connection with any
review of the offering of the
17
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Shares by the National Association of Securities Dealers, Inc.
(e) To make generally available to the Company's security holders and
to you as soon as practicable an earning statement covering the twelve-
month period ending December 31, 1996, that satisfies the provisions of
Section 11(a) of the Securities Act and the rules and regulations of the
Commission thereunder.
(f) To pay all expenses incident to the performance of its
obligations under this Agreement, including: (i) the preparation and
filing of the Registration Statement and the Prospectus and all amendments
and supplements thereto; (ii) the preparation, issuance and delivery of the
Shares, including any transfer taxes payable in connection with the
transfer of the Shares to the Underwriters; (iii) the fees and
disbursements of the Company's counsel and accountants; (iv) the
qualification of the Shares under state securities or Blue Sky laws in
accordance with the provisions of Article VI(d), including filing fees and
the fees and disbursements of counsel for the Underwriters in connection
therewith and in connection with the preparation of any Blue Sky or Legal
Investment Memoranda; (v) the printing and delivery to the Underwriters in
quantities as hereinabove stated of copies of the Registration Statement
and all amendments thereto and of each preliminary prospectus and the
Prospectus and any amendments or supplements thereto; (vi) the printing and
delivery to the Underwriters of copies of any Blue Sky or Legal Investment
Memoranda; (vii) the filing fees and expenses, if any, incurred with
respect to any filing with the National Association of Securities Dealers,
Inc. made in connection with the offering of the Shares; (viii) any
expenses incurred by the Company in connection with a "road show"
presentation to potential investors and (ix) the listing of the Common
Stock on the New York Stock Exchange, Inc.
VII.
The Company agrees to indemnify and hold harmless each Underwriter and
each person, if any, who controls any Underwriter within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act from and
against any and all losses, claims, damages and liabilities
18
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(including, without limitation, any legal or other expenses reasonably incurred
by any Underwriter or any such controlling person in connection with defending
or investigating any such action or claim) caused by any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or any amendment thereof, any preliminary prospectus or the Prospectus
(as amended or supplemented if the Company shall have furnished any amendments
or supplements thereto), or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages or liabilities are caused by any such untrue statement or omission or
alleged untrue statement or omission based upon information relating to any
Underwriter furnished to the Company in writing by such Underwriter through you
expressly for use therein.
Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, its directors, its officers who sign the Registration
Statement and each person, if any, who controls the Company within the meaning
of either Section 15 of the Securities Act or Section 20 of the Exchange Act to
the same extent as the foregoing indemnity from the Company to such Underwriter,
but only with reference to information relating to such Underwriter furnished to
the Company in writing by such Underwriter through you expressly for use in the
Registration Statement, any preliminary prospectus, the Prospectus or any
amendments or supplements thereto.
In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to either of the two preceding paragraphs, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and
19
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representation of both parties by the same counsel would be inappropriate due to
actual or potential differing interests between them. It is understood that the
indemnifying party shall not, in respect of the legal expenses of any
indemnified party in connection with any proceeding or related proceedings in
the same jurisdiction, be liable for the fees and expenses of more than one
separate firm (in addition to any local counsel) for all such indemnified
parties and that all such fees and expenses shall be reimbursed as they are
incurred. In the case of any such separate firm for the Underwriters and such
control persons of Underwriters, such firm shall be designated in writing by
Morgan Stanley & Co. Incorporated. In the case of any such separate firm for
the Company, and such directors, officers and control persons of the Company,
such firm shall be designated in writing by the Company. The indemnifying party
shall not be liable for any settlement of any proceeding effected without its
written consent, but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by reason of such
settlement or judgment. Notwithstanding the foregoing sentence, if at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel as contemplated by the second
and third sentences of this paragraph, the indemnifying party agrees that it
shall be liable for any settlement of any proceeding effected without its
written consent if (i) such settlement is entered into more than 30 days after
receipt by such indemnifying party of the aforesaid request and (ii) such
indemnifying party shall not have reimbursed the indemnified party in accordance
with such request prior to the date of such settlement. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding.
If the indemnification provided for in the first or second paragraph
of this Article VII is unavailable to an indemnified party or insufficient in
respect of any losses, claims, damages or liabilities referred to therein, then
each indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
20
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liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand and the Underwriters on the
other hand from the offering of the Shares or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company on the one hand and of the
Underwriters on the other hand in connection with the statements or omissions
that resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other hand in connection
with the offering of the Shares shall be deemed to be in the same respective
proportions as the net proceeds from the offering of the Shares (before
deducting expenses) received by the Company and the total underwriting discounts
and commissions received by the Underwriters, in each case as set forth in the
table on the cover of the Prospectus, bear to the aggregate public offering
price of the Shares. The relative fault of the Company on the one hand and the
Underwriters on the other hand shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Underwriters' respective obligations to contribute
pursuant to this Article VII are several in proportion to the respective number
of Shares they have purchased hereunder, and not joint.
The Company, ENSERCH Corporation and the Underwriters agree that it
would not be just or equitable if contribution pursuant to this Article VII were
determined by pro rata allocation (even if the Underwriters were treated as one
--- ----
entity for such purpose) or by any other method of allocation that does not take
account of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified party as a result of
the losses, claims, damages and liabilities referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Article VII, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the
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Shares underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages that such Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The remedies provided for in this Article VII are not
exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity.
The indemnity and contribution provisions contained in this Article
VII and the representations and warranties of the Company and of ENSERCH
Corporation contained in this Agreement shall remain operative and in full force
and effect regardless of (i) any termination of this Agreement, (ii) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter or by or on behalf of the Company, its officers or directors or
any person controlling the Company and (iii) acceptance of and payment for any
of the Shares.
VIII.
This Agreement shall be subject to termination by notice given by you
to the Company, if (a) after the execution and delivery of this Agreement and
prior to the Closing Date (i) trading generally shall have been suspended or
materially limited on or by, as the case may be, any of the New York Stock
Exchange, the American Stock Exchange, the National Association of Securities
Dealers, Inc., the Chicago Board of Options Exchange, the Chicago Mercantile
Exchange or the Chicago Board of Trade, (ii) trading of any securities of the
Company shall have been suspended on any exchange or in any over-the-counter
market, (iii) a general moratorium on commercial banking activities in New York
shall have been declared by either Federal or New York State authorities or (iv)
there shall have occurred any outbreak or escalation of hostilities or any
change in financial markets or any calamity or crisis that, in your judgment, is
material and adverse and (b) in the case of any of the events specified in
clauses (a)(i) through (iv), such event singly or together with any other such
event makes it, in your judgment, impracticable to market the Shares on the
terms and in the manner contemplated in the Prospectus.
22
<PAGE>
IX.
This Agreement shall become effective upon the later of (x) execution
and delivery hereof by the parties hereto and (y) release of notification of the
effectiveness of the Registration Statement by the Commission.
If, on the Closing Date or the Option Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase Shares
that it or they have agreed to purchase hereunder on such date, and the
aggregate number of Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase is not more than one-tenth of the
aggregate number of the Shares to be purchased on such date, the other
Underwriters shall be obligated severally in the proportions that the number of
Firm Shares set forth opposite their respective names in Schedule I or Schedule
II bears to the aggregate number of Firm Shares set forth opposite the names of
all such non-defaulting Underwriters, or in such other proportions as you may
specify, to purchase the Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date; provided
--------
that in no event shall the number of Shares that any Underwriter has agreed to
purchase pursuant to this Agreement be increased pursuant to this Article IX by
an amount in excess of one-ninth of such number of Shares without the written
consent of such Underwriter. If, on the Closing Date, any Underwriter or
Underwriters shall fail or refuse to purchase Firm Shares and the aggregate
number of Firm Shares with respect to which such default occurs is more than
one-tenth of the aggregate number of Firm Shares to be purchased, and
arrangements satisfactory to you and the Company for the purchase of such Firm
Shares are not made within 36 hours after such default, this Agreement shall
terminate without liability on the part of any non-defaulting Underwriter or the
Company. In any such case either you or the Company shall have the right to
postpone the Closing Date, but in no event for longer than seven days, in order
that the required changes, if any, in the Registration Statement and in the
Prospectus or in any other documents or arrangements may be effected. If, on
the Option Closing Date, any Underwriter or Underwriters shall fail or refuse to
purchase Additional Shares and the aggregate number of Additional Shares with
respect to which such default occurs is more than one-tenth of the aggregate
number of Additional Shares to be purchased, the non-defaulting Underwriters
shall have the option to (i) terminate their obligation hereunder to purchase
Additional Shares or (ii) purchase not less than the number of Additional Shares
that such non-defaulting
23
<PAGE>
Underwriters would have been obligated to purchase in the absence of such
default. Any action taken under this paragraph shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of the Company to comply
with the terms or to fulfill any of the conditions of this Agreement, or if for
any reason the Company shall be unable to perform its obligations under this
Agreement, the Company will reimburse the Underwriters or such Underwriters as
have so terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by such Underwriters in connection with this Agreement or
the offering contemplated hereunder.
This Agreement may be signed in two or more counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
24
<PAGE>
This Agreement shall be governed by and construed in accordance with
the internal laws of the State of New York.
Very truly yours,
ENSERCH EXPLORATION, INC.
By________________________
Name:
Title:
Accepted, ___________, 1995
MORGAN STANLEY & CO.
INCORPORATED
BEAR, STEARNS & CO. INC.
DEAN WITTER REYNOLDS INC.
HOWARD, WEIL, LABOUISSE,
FRIEDRICHS, INC.
SMITH BARNEY, INC.
Acting severally on behalf of themselves
and the several U.S. Underwriters
named in Schedule I hereto.
By Morgan Stanley & Co.
Incorporated
By___________________________
Name:
Title:
25
<PAGE>
MORGAN STANLEY & CO.
INTERNATIONAL LIMITED
HOWARD, WEIL, LABOUISSE,
FRIEDRICHS, INC.
SMITH BARNEY INC.
UBS LIMITED
SWISS BANK CORPORATION
Acting severally on behalf of themselves
and the several International Underwriters
named in Schedule II hereto.
By Morgan Stanley & Co.
International Limited
By____________________________
Name:
Title:
26
<PAGE>
Schedule I
U.S. Underwriters
-----------------
Number of
Firm Shares
Underwriter To Be Purchased
----------- ---------------
Morgan Stanley & Co. Incorporated......................
Bear, Stearns & Co. Inc................................
Dean Witter Reynolds Inc...............................
Howard, Weil, Labouisse,
Friedrichs, Inc......................................
Smith Barney Inc.......................................
-------------
Total U.S. Firm Shares .............................
=============
<PAGE>
Schedule II
International Underwriters
--------------------------
Number of
Firm Shares
Underwriter To Be Purchased
----------- ---------------
Morgan Stanley & Co.
International Limited.................................
Howard, Weil, Labouisse,
Friedrichs, Inc.......................................
Smith Barney Inc........................................
UBS Limited.............................................
Swiss Bank Corporation..................................
-------------
Total International Firm Shares ........
=============
<PAGE>
[Letterhead of Jackson & Walker, L.L.P. appears here]
Exhibit 5
August 18, 1995
Enserch Exploration, Inc.
4849 Greenville Avenue
Suite 1200
Dallas, Texas 75206
Gentlemen:
We have acted as counsel for Enserch Exploration, Inc., a Texas corporation
(the "Company") in connection with the registration under the Securities Act of
1933, as amended (the "Act"), by the Company of the offering of 20,000,000
shares of Common Stock, par value $1.00 per share (the "Shares"), of the
Company. An amended registration statement on Form S-2 (the "Registration
Statement") has been filed with the Securities and Exchange Commission (the
"Commission") concurrent with the delivery of this opinion.
In connection with the rendering of this opinion, we have examined and
relied upon the originals or copies, certified to our satisfaction, of such
documents, certificates and instruments as we have deemed necessary for the
expression of the opinions expressed herein, including the Articles of
Incorporation, as amended, and the Bylaws of the Company, copies of resolutions
of the Board of Directors of the Company authorizing the offering and the
issuance of the Shares and the Registration Statement, as amended, and all
exhibits thereto. In making the foregoing examinations, we have assumed the
genuineness of all signatures on original documents, the authenticity of all
documents submitted to us as originals and the conformity to original documents
of all copies submitted to us.
Based upon the foregoing examination, subject to the comments and
exceptions herein stated, and limited in all respects to the laws of the State
of Texas and the laws of the United States of America, and subject to
confirmation that the Commission has declared the Registration Statement
effective, it is our opinion that the Shares have been duly and validly
authorized by the Company, and when sold as described in the Registration
Statement, the Shares will be legally issued, fully paid and nonassessable.
<PAGE>
Enserch Exploration, Inc.
August 18, 1995
Page 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to all references to our Firm in the Registration
Statement. In giving this consent we do not thereby admit that we come within
the category of persons whose consent is required under Section 7 of the Act or
the rules and regulations of the Commission promulgated thereunder.
Very truly yours,
JACKSON & WALKER, L.L.P.
<PAGE>
EXHIBIT 10.19
CREDIT AGREEMENT
AMONG
ENSERCH EXPLORATION, INC.
AS BORROWER,
TEXAS COMMERCE BANK NATIONAL ASSOCIATION,
AS ADMINISTRATIVE AGENT,
THE CHASE MANHATTAN BANK, N.A.,
AS SYNDICATION AGENT
CHEMICAL BANK,
AS AUCTION AGENT
AND
THE LENDERS NOW OR HEREAFTER PARTIES HERETO
DATED AS OF MAY 1, 1995
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I
DEFINITIONS AND ACCOUNTING MATTERS
Section 1.01 Terms Defined Above.................. 1
Section 1.02 Certain Defined Terms................ 1
Section 1.03 Accounting Terms and Determinations.. 14
ARTICLE II
BORROWINGS
Section 2.01 Committed Loans...................... 14
Section 2.02 Borrowings, Continuations and
Conversions of Committed Loans....... 15
Section 2.03 Changes of Commitments............... 17
Section 2.04 Fees................................. 17
Section 2.05 Several Obligations.................. 17
Section 2.06 Notes................................ 17
Section 2.07 Prepayments.......................... 18
Section 2.08 Lending Offices...................... 19
Section 2.09 Competitive Loans.................... 19
Section 2.10 Designated Subsidiaries.............. 23
ARTICLE III
PAYMENTS OF PRINCIPAL AND INTEREST
Section 3.01 Repayment of Loans................... 23
Section 3.02 Interest............................. 24
ARTICLE IV
PAYMENTS; PRO RATA TREATMENT; COMPUTATIONS; ETC.
Section 4.01 Payments............................. 25
Section 4.02 Pro Rata Treatment................... 25
Section 4.03 Computations......................... 26
Section 4.04 Non-receipt of Funds by the
Administrative Agent................. 26
Section 4.05 Sharing of Payments, Etc............. 26
Section 4.06 Taxes................................ 27
i
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE V
CAPITAL ADEQUACY, ADDITIONAL COSTS, ETC.
Section 5.01 Additional Costs..................... 30
Section 5.02 Limitation on Eurodollar Loans....... 31
Section 5.03 Illegality........................... 31
Section 5.04 Base Rate Loans Pursuant to Sections
5.02 and 5.03........................ 31
Section 5.05 Compensation......................... 32
ARTICLE VI
CONDITIONS PRECEDENT
Section 6.01 Initial Funding...................... 32
Section 6.02 Initial and Subsequent Loans......... 33
Section 6.03 Loans to Designated Subsidiaries..... 33
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
Section 7.01 Corporate Existence.................. 34
Section 7.02 Financial Condition.................. 35
Section 7.03 Litigation........................... 35
Section 7.04 No Breach............................ 35
Section 7.05 Authority............................ 35
Section 7.06 Approvals............................ 36
Section 7.07 Use of Loans......................... 36
Section 7.08 ERISA................................ 36
Section 7.09 Taxes................................ 37
Section 7.10 Titles, etc.......................... 37
Section 7.11 No Material Misstatements............ 38
Section 7.12 Investment Company Act............... 38
Section 7.13 Public Utility Holding Company Act... 38
Section 7.14 Subsidiaries and Partnerships........ 38
Section 7.15 Location of Business and Offices..... 38
Section 7.16 Defaults............................. 38
Section 7.17 Environmental Matters................ 39
Section 7.18 Compliance with Laws................. 40
Section 7.19 Pari Passu........................... 40
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
ARTICLE VIII
AFFIRMATIVE COVENANTS
Section 8.01 Financial Statements................. 40
Section 8.02 Litigation........................... 42
Section 8.03 Maintenance, Etc..................... 42
Section 8.04 Environmental Matters................ 43
Section 8.05 Further Assurances................... 43
Section 8.06 ERISA Information and Compliance..... 43
Section 8.07 Lease Payments....................... 44
Section 8.08 Subsidiary Guaranty Agreements....... 44
ARTICLE IX
NEGATIVE COVENANTS
Section 9.01 Debt to Capital Ratio................ 45
Section 9.02 Liens................................ 45
Section 9.03 Investments, Loans and Advances...... 47
Section 9.04 Dividends, Distributions and
Redemptions.......................... 47
Section 9.05 Nature of Business................... 47
Section 9.06 Mergers, Etc......................... 47
Section 9.07 Proceeds of Notes.................... 48
Section 9.08 ERISA Compliance..................... 48
Section 9.09 Environmental Matters................ 49
Section 9.10 Transactions with Affiliates......... 49
Section 9.11 Restrictive Dividend Agreements...... 49
ARTICLE X
EVENTS OF DEFAULT; REMEDIES
Section 10.01 Events of Default................... 49
Section 10.02 Remedies............................ 51
ARTICLE XI
THE ADMINISTRATIVE AGENT
Section 11.01 Appointment, Powers and Immunities.. 52
Section 11.02 Reliance by Agent................... 53
Section 11.03 Defaults............................ 53
Section 11.04 Rights as a Lender.................. 53
Section 11.05 INDEMNIFICATION..................... 53
Section 11.06 Non-Reliance on the Agents and other
Lenders............................. 54
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
Section 11.07 Action by Agent....................... 54
Section 11.08 Resignation or Removal of the Agents.. 55
ARTICLE XII
MISCELLANEOUS
Section 12.01 Waiver................................ 55
Section 12.02 Notices............................... 56
Section 12.03 Payment of Expenses, Indemnities, etc. 56
Section 12.04 Amendments, Etc....................... 58
Section 12.05 Successors and Assigns................ 59
Section 12.06 Assignments and Participations........ 59
Section 12.07 Invalidity............................ 60
Section 12.08 Counterparts.......................... 60
Section 12.09 References............................ 60
Section 12.10 Survival.............................. 61
Section 12.11 Captions.............................. 61
Section 12.12 NO ORAL AGREEMENTS.................... 61
Section 12.13 GOVERNING LAW; SUBMISSION TO
JURISDICTION.......................... 61
Section 12.14 Interest.............................. 62
Section 12.15 Confidentiality....................... 63
Section 12.16 Effectiveness......................... 64
Section 12.17 EXCULPATION PROVISIONS................ 64
Annex 1 - List of Commitments
Exhibit A - Form of Committed Note
Exhibit B - Form of Competitive Note
Exhibit C - Form of Competitive Bid Request
Exhibit D - Form of Notice to Lenders of Competitive Bid
Request
Exhibit E - Form of Competitive Bid
Exhibit F - Form of Competitive Bid Administration
Questionnaire
Exhibit G - Form of Borrowing, Continuation and Conversion
Request
Exhibit H - Form of Compliance Certificate
Exhibit I - Form of Legal Opinion of Counsel for the Company
Exhibit J - Form of Legal Opinion of Counsel for the
Designated Subsidiary
Exhibit K - Form of Assignment Agreement
Exhibit L - Form of Notice of Designation of Designated
Subsidiaries
Exhibit M - Form of Permitted Subordinated Debt Subordination
Provisions
Exhibit N - Form of Legal Opinion of Counsel for the Subsidiary
Guarantor
Schedule 1.02 - Capital and Operating Lease Obligations
Schedule 7.02 - Liabilities
Schedule 7.03 - Litigation
Schedule 7.09 - Taxes
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C>
Schedule 7.10 - Titles, etc.
Schedule 7.14 - Subsidiaries and Partnerships
Schedule 7.17 - Environmental Matters
</TABLE>
v
<PAGE>
THIS CREDIT AGREEMENT dated as of May 1, 1995 is among: ENSERCH
EXPLORATION, INC., a corporation formed under the laws of the State of Texas
(the "Company"); each of the lenders that is a signatory hereto or which becomes
a signatory hereto as provided in Section 12.06 (individually, together with its
successors and assigns, a "Lender" and, collectively, the "Lenders"); TEXAS
COMMERCE BANK NATIONAL ASSOCIATION, a national banking association (in its
individual capacity, "TCB"), as administrative agent for the Lenders (in such
capacity, together with its successors in such capacity, the "Administrative
Agent"); CHEMICAL BANK, a New York banking corporation (in its individual
capacity, "Chemical"), as auction agent for the Lenders (in such capacity,
together with its successors in such capacity, the "Auction Agent"); and THE
CHASE MANHATTAN BANK, N.A., a national association (in its individual capacity,
"Chase"), as syndication agent for the Lenders (in such capacity, together with
its successors in such capacity, the "Syndication Agent").
R E C I T A L S
A. The Company has requested that the Lenders provide certain loans to
the Company and to certain of its subsidiaries; and
B. The Lenders have agreed to make such loans subject to the terms and
conditions of this Agreement.
C. In consideration of the mutual covenants and agreements herein
contained and of the loans and commitments hereinafter referred to, the parties
hereto agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING MATTERS
Section 1.01 Terms Defined Above. As used in this Agreement, the
terms "Administrative Agent," "Auction Agent," "Company," "Chase," "Chemical,"
"Lender," "Lenders," "Syndication Agent," and "TCB" shall have the meanings
indicated above.
Section 1.02 Certain Defined Terms. As used herein, the following
terms shall have the following meanings (all terms defined in this Article I or
in other provisions of this Agreement in the singular to have the same meanings
when used in the plural and vice versa):
"Additional Costs" shall have the meaning assigned such term in
Section 5.01(a).
"Affected Loans" shall have the meaning assigned such term in Section
5.04.
1
<PAGE>
"Affiliate" shall mean with respect to any Person, any other Person
that, directly or indirectly, through one or more intermediaries, controls,
or is controlled by, or is under common control with, such Person. For
purposes of the foregoing definition, "control" means the direct or
indirect ownership of more than 50% of the outstanding capital stock or
other equity interests having ordinary voting power.
"Agents" shall mean the Administrative Agent, the Syndication Agent
and/or the Auction Agent.
"Agreement" shall mean this Credit Agreement, as the same may from
time to time be amended or supplemented.
"Aggregate Commitments" at any time shall equal the sum of the
Commitments of the Lenders ($350,000,000), as the same may be reduced
pursuant to Section 2.03(a).
"Applicable Lending Office" shall mean, for each Lender, the lending
office of such Lender (or an Affiliate of such Lender) designated for each
Type of Loan on the signature pages hereof or such other offices of such
Lender (or of an Affiliate of such Lender) as such Lender may from time to
time specify to the Administrative Agent and the Company as the office by
which its Loans of such Type are to be made and maintained.
"Applicable Margin" shall mean the following rates per annum as are
applicable based upon the Debt to Capital Ratio calculated as of the last
day of a fiscal quarter of the Company to be effective for any Committed
Loan outstanding or for the facility fee during the period from the
Financial Statement Delivery Date following such fiscal quarter to but not
including the next succeeding Financial Statement Delivery Date:
<TABLE>
<CAPTION>
DEBT TO CAPITAL RATIO
---------------------------------
<S> <C> <C> <C> <C> <C>
40% 45% 50%
BUT BUT BUT
40% 45% 50% 55% 55%
---- ---- ---- ---- ----
Facility Fee .150% .175% .200% .225% .250%
Eurodollar Loans .350% .425% .500% .575% .750%
Base Rate Loans 0% 0% 0% 0% 0%
</TABLE>
"Assignment" shall have the meaning assigned such term in Section
12.06(b).
"Base Rate" shall mean, with respect to any Base Rate Loan, for any
day, the higher of (i) the Federal Funds Rate for any such day plus 1/2 of
1%
2
<PAGE>
or (ii) the Prime Rate for such day. Each change in any interest rate
provided for herein based upon the Base Rate resulting from a change in the
Base Rate shall take effect at the time of such change in the Base Rate.
"Base Rate Loans" shall mean Loans that bear interest at rates based
upon the Base Rate.
"Benefit Plan" shall mean any employee pension benefit plan, as
defined in section 3(2) of ERISA (other than a Multiemployer Plan), which
(a) is currently or hereafter sponsored, maintained or contributed to by
the Company, a Subsidiary or an ERISA Affiliate or (b) was at any time
during the six preceding years, sponsored, maintained or contributed to by
the Company, a Subsidiary or an ERISA Affiliate.
"Borrowing" shall mean a borrowing pursuant to a Borrowing Request or
a Competitive Bid Request or a continuation or a conversion pursuant to
Section 2.02 consisting, in each case, of the same Type of Loans having, in
the case of Eurodollar Loans and Fixed Rate Loans, the same Interest
Period.
"Borrowing Request" shall mean a request for a Borrowing of Committed
Loans pursuant to Section 2.02, substantially in the form attached as
Exhibit G.
"Business Day" shall mean any day other than a day on which commercial
banks are authorized or required to close in New York, New York, Dallas,
Texas, or at the location of the Principal Office and, where such term is
used in the definition of "Quarterly Date" or if such day relates to a
Borrowing or continuation of, a payment or prepayment of principal of or
interest on, or a conversion of or into, or the Interest Period for, a
Eurodollar Loan or a notice by the Company with respect to any such
Borrowing or continuation, payment, prepayment, conversion or Interest
Period, any day which is also a day on which dealings in Dollar deposits
are carried out in the London interbank market.
"Capital Lease Obligations" shall mean, as to the Company or any
Subsidiary, the obligations of such person to pay rent or other amounts
under a lease of (or other agreement conveying the right to use) real
and/or personal property which obligations are required to be classified
and accounted for as a liability for a capital lease on a balance sheet of
such Person in accordance with GAAP and, for purposes of this Agreement,
the amount of such obligations shall be the capitalized amount thereof.
"Closing Date" shall mean the as of date of this Agreement set forth
in the first paragraph hereof.
3
<PAGE>
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
any successor statute.
"Commitment" shall mean, for any Lender, its obligation to make
Committed Loans up to the amount set forth opposite such Lender's name on
Annex 1 under the caption "Commitments" (as the same may be reduced
pursuant to Section 2.03(a) pro rata to each Lender based on its Percentage
Share) as modified from time to time to reflect any assignments permitted
by Section 12.06(b).
"Committed Loan" shall mean a Loan made pursuant to Section 2.01.
"Committed Note" shall mean for each Obligor a promissory note of such
Obligor described in Section 2.06(a) payable to any Lender and being
substantially in the form of Exhibit A, evidencing the aggregate
Indebtedness of such Obligor to such Lender resulting from Committed Loans
made by such Lender, together with all renewals, extensions, modifications
and replacements thereof and substitutions therefor.
"Competitive Bid" shall mean an offer by a Lender to make a
Competitive Loan pursuant to Section 2.09.
"Competitive Bid Administrative Questionnaire" shall mean a
questionnaire in the form of Exhibit F.
"Competitive Bid Rate" shall mean, as to any Competitive Bid made by a
Lender pursuant to Section 2.09, (a) in the case of a Eurodollar Loan, the
Margin (which will be added to or subtracted from the Eurodollar Rate) and
(b) in the case of a Fixed Rate Loan, the fixed rate of interest, in each
case, offered by the Lender making such Competitive Bid.
"Competitive Bid Request" shall have the meaning assigned such term in
Section 2.09.
"Competitive Loans" shall mean the loans provided for in Section 2.09.
"Competitive Note" shall mean for each Obligor a promissory note of
such Obligor described in Section 2.06(b) payable to any Lender and being
substantially in the form of Exhibit B, evidencing the aggregate
Indebtedness of such Obligor to such Lender resulting from Competitive
Loans made by such Lender, together with all renewals, extensions,
modifications and replacements thereof and substitutions therefor.
"Consolidated Subsidiaries" shall mean each Subsidiary (whether now
existing or hereafter created or acquired) the financial statements of
which
4
<PAGE>
shall be (or should have been) consolidated with the financial statements
of the Company in accordance with GAAP.
"Debt" shall mean, for the Company or any Subsidiary the sum of the
following (without duplication): (i) all obligations for borrowed money or
evidenced by bonds, debentures, mandatorily redeemable preferred stock with
maturities before the Revolving Credit Termination Date, notes or other
similar instruments (excluding interest, fees and charges); (ii) all
obligations in respect of bankers' acceptances, unreimbursed drawings on
letters of credit, surety or other bonds; (iii) all Capital Lease
Obligations, but excluding such Capital Lease Obligations in existence as
of the Closing Date and set forth on Schedule 1.02 and any renewals and
rearrangements, but not increases in the amount thereof; (iv) all Operating
Lease Obligations, but excluding such Operating Lease Obligations in
existence as of the Closing Date and set forth on Schedule 1.02 and any
renewals and rearrangements and increases up to an additional 15% in the
amount thereof; (v) all financial guaranties in respect of Debt of
unconsolidated Affiliates and unrelated Persons; (vi) all obligations
secured by a Lien on any asset, whether or not such Debt is assumed, but
excluding obligations secured by Liens permitted by Sections 9.02(c), (e),
(f), (h), (i), (j), (k) and (l); (vii) all production payments in
connection with oil and gas properties; and (viii) all Debt of Special
Entities to the extent the Company or any Subsidiary is liable for such
Debt under GAAP or such Debt is reflected on the consolidated balance sheet
of the Company or any Subsidiary. "Debt" shall not include Permitted
Subordinated Debt.
"Debt to Capital Ratio" shall have the meaning assigned such term in
Section 9.01.
"Default" shall mean an Event of Default or an event which with notice
or lapse of time or both would become an Event of Default.
"Designated Subsidiary" shall mean a Subsidiary during the period that
it has been designated by the Company pursuant to Section 2.10 to have the
right to borrow hereunder.
"Dollars" and "$" shall mean lawful money of the United States of
America.
"Effective Date" shall mean the date on which (i) each of the
conditions precedent set forth in Article VI has been satisfied or waived
by each of the Lenders and (ii) the conditions to effectiveness set forth
in Section 12.16 have been satisfied. Subject to Section 6.01, the
Effective Date and Closing Date may be the same date.
5
<PAGE>
"Environmental Laws" shall mean any and all Governmental Requirements
pertaining to health or the environment in effect in any and all
jurisdictions in which the Company or any Subsidiary is conducting or at
any time has conducted business, or where any Property of the Company or
any Subsidiary is located, including without limitation, the Oil Pollution
Act of 1990, as amended, ("OPA"), the Clean Air Act, as amended, the
Comprehensive Environmental, Response, Compensation, and Liability Act of
1980, as amended, ("CERCLA"), the Federal Water Pollution Control Act, as
amended, the Occupational Safety and Health Act of 1970, as amended, the
Resource Conservation and Recovery Act of 1976, as amended, ("RCRA"), the
Safe Drinking Water Act, as amended, the Toxic Substances Control Act, as
amended, the Superfund Amendments and Reauthorization Act of 1986, as
amended, the Hazardous Materials Transportation Act, as amended, and other
environmental conservation or protection laws. The term "oil" shall have
the meaning specified in OPA, the terms "hazardous substance" and "release"
(or "threatened release") shall have the meanings specified in CERCLA, and
the terms "solid waste" and "disposal" (or "disposed") shall have the
meanings specified in RCRA; provided, however, that (i) in the event either
OPA, CERCLA or RCRA is amended so as to broaden the meaning of any term
defined thereby, such broader meaning shall apply subsequent to the
effective date of such amendment and (ii) to the extent the laws of the
state in which any Property of the Company or any Subsidiary is located
establish a meaning for "oil," "hazardous substance," "release," "solid
waste" or "disposal" which is broader than that specified in either OPA,
CERCLA or RCRA, such broader meaning shall apply.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended, and any successor statute.
"ERISA Affiliate" shall mean each trade or business (whether or not
incorporated) which together with the Company or a Subsidiary would be
deemed to be a "single employer" within the meaning of section 4001(b)(1)
of ERISA or subsections (b), (c), (m) or (o) of section 414 of the Code.
"ERISA Event" shall mean (i) a "Reportable Event" described in section
4043 of ERISA and the regulations issued thereunder (other than a
"Reportable Event" not subject to the provision for 30-day notice to the
PBGC), (ii) the withdrawal of the Company, a Subsidiary or any ERISA
Affiliate from a Plan during a plan year in which it was a "substantial
employer" as defined in section 4001(a)(2) of ERISA, (iii) the filing of a
notice of intent to terminate a Plan or the treatment of a Plan amendment
as a termination under section 4041 of ERISA, (iv) the institution of
proceedings to terminate a Plan by the PBGC, (v) any other event or
condition which might constitute grounds under section 4042 of ERISA for
the termination of, or the appointment of a trustee to administer, any Plan
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or (vi) the partial or complete withdrawal of the Company, a Subsidiary or
any ERISA Affiliate from a Multiemployer Plan.
"Eurodollar Loans" shall mean Loans the interest rates on which are
determined on the basis of rates referred to in the definition of
"Eurodollar Rate".
"Eurodollar Rate" shall mean, with respect to any Eurodollar Loan, the
rate per annum (rounded upwards, if necessary, to the nearest 1/16 of 1%)
quoted by the Administrative Agent at approximately 11:00 a.m. London time
(or as soon thereafter as practicable) two (2) Business Days prior to the
first day of the Interest Period for such Loan for the offering by the
Administrative Agent to leading banks in the London interbank market of
Dollar deposits having a term comparable to such Interest Period and in an
amount comparable to the principal amount of the Eurodollar Loan, if a
Committed Loan, to be made by the Administrative Agent for such Interest
Period, or, if a Competitive Loan, requested for such Interest Period.
"Event of Default" shall have the meaning assigned such term in
Section 10.01.
"Federal Funds Rate" shall mean, for any day, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the
weighted average of the rates on overnight federal funds transactions with
a member of the Federal Reserve System arranged by federal funds brokers on
such day, as published by the Federal Reserve Bank of New York on the
Business Day next succeeding such day, provided that (i) if the date for
which such rate is to be determined is not a Business Day, the Federal
Funds Rate for such day shall be such rate on such transactions on the next
preceding Business Day as so published on the next succeeding Business Day,
and (ii) if such rate is not so published for any day, the Federal Funds
Rate for such day shall be the average rate charged to the Administrative
Agent on such day on such transactions as determined by the Administrative
Agent.
"Fee Letter" shall mean collectively that certain letter agreement
from the Company to the Administrative Agent and the Syndication Agent
dated April 4, 1995 and that certain letter agreement from the Company to
the Auction Agent, both letters concerning certain fees in connection with
this Agreement and any agreements or instruments executed in connection
therewith, as the same may be amended or replaced from time to time.
"Financial Statement Delivery Date" means the date on which the
quarterly or annual financial statements of the Company are delivered
pursuant to Section 8.01(a) or (b), as the case may be.
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"Financial Statements" shall mean the financial statement or
statements of the Company and its Consolidated Subsidiaries described or
referred to in Section 7.02.
"Fixed Rate Loan" shall mean any Competitive Loan made by a Lender
pursuant to Section 2.09 bearing interest based upon an actual percentage
rate per annum offered by such Lender (as opposed to a Margin over the
Eurodollar Rate) and accepted by the Company.
"GAAP" shall mean generally accepted accounting principles in the
United States of America in effect from time to time.
"Governmental Authority" shall mean any nation or government, any
state or other political subdivision thereof and any Person exercising
executive, legislative, judicial, regulatory or administrative functions of
or pertaining to government.
"Governmental Requirement" shall mean any law, statute, code,
ordinance, order, determination, rule, regulation, judgment, decree,
injunction, franchise, permit, certificate, license, authorization or other
directive or requirement (whether or not having the force of law),
including, without limitation, Environmental Laws, energy regulations and
occupational, safety and health standards or controls, of any Governmental
Authority.
"Guarantors" shall mean the Company and the Subsidiary Guarantors.
"Guaranty Agreements" shall mean the Parent Guaranty Agreement and the
Subsidiary Guaranty Agreements.
"Highest Lawful Rate" shall mean, with respect to each Lender, the
maximum nonusurious interest rate, if any, that at any time or from time to
time may be contracted for, taken, reserved, charged or received on the
Notes or on other Indebtedness under laws applicable to such Lender which
are presently in effect or, to the extent allowed by law, under such
applicable laws which may hereafter be in effect and which allow a higher
maximum nonusurious interest rate than applicable laws now allow.
"Indebtedness" shall mean any and all amounts owing or to be owing by
the Obligors to the Administrative Agent and/or Lenders in connection with
the Loan Documents and all renewals, extensions and/or rearrangements of
any of the above.
"Indemnified Parties" shall have the meaning assigned such term in
Section 12.03(b).
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"Indemnity Matters" shall mean any and all actions, suits, proceedings
(including any investigations, litigation or inquiries), claims, demands
and causes of action made or threatened against a Person and, in connection
therewith, all losses, liabilities, damages (including, without limitation,
punitive damages except those arising from the gross negligence or wilful
misconduct of such Indemnified Party) or reasonable costs and expenses of
any kind or nature whatsoever incurred by such Person whether caused by the
negligent acts or omissions of such Person seeking indemnification.
"Initial Funding" shall mean the funding of the initial Loans pursuant
to Section 6.01.
"Interest Period" shall mean, (a) with respect to any Eurodollar Loan,
the period commencing on the date such Eurodollar Loan is made and ending
on the numerically corresponding day in the first, second, third or sixth
calendar month thereafter, as the Company may select as provided in Section
2.02 (or such longer period as may be requested by the Company and agreed
to by the Majority Lenders), except that each Interest Period which
commences on the last Business Day of a calendar month (or on any day for
which there is no numerically corresponding day in the appropriate
subsequent calendar month) shall end on the last Business Day of the
appropriate subsequent calendar month; and (b) with respect to any Fixed
Rate Loan, the period commencing on the date such Fixed Rate Loan is made
and ending on the date set forth in the Competitive Bid in which the offer
to make such Fixed Rate Loan was extended.
Notwithstanding the foregoing: (i) no Interest Period may commence
before and end after the Revolving Credit Termination Date; (ii) each
Interest Period which would otherwise end on a day which is not a Business
Day shall end on the next succeeding Business Day (or, for Eurodollar
Loans, if such next succeeding Business Day falls in the next succeeding
calendar month, on the next preceding Business Day); (iii) no Interest
Period for Eurodollar Loans shall have a duration of less than one month
and, if the Interest Period for any Eurodollar Loans would otherwise be for
a shorter period, such Loans shall not be available hereunder; and (iv) no
Interest Period for Fixed Rate Loans shall have a duration of less than one
(1) day nor more than 365 days.
"Lien" shall mean any interest in Property securing an obligation owed
to, or a claim by, a Person other than the owner of the Property, whether
such interest is based on the common law, statute or contract, and whether
such obligation or claim is fixed or contingent, and including but not
limited to (i) the lien or security interest arising from a mortgage,
encumbrance, pledge, security agreement, conditional sale or trust receipt
or a lease, consignment or bailment for security purposes or (ii)
production payments
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and the like payable out of Properties. For the purposes of this
Agreement, the Company or any Subsidiary shall be deemed to be the owner of
any Property which it has acquired or holds subject to a conditional sale
agreement, or leases under a financing lease or other arrangement pursuant
to which title to the Property has been retained by or vested in some other
Person in a transaction intended to create a financing.
"Loan Documents" shall mean this Agreement, the Notes, the Borrowing
Requests, the Competitive Bid Requests, the Fee Letter, the Guaranty
Agreements and the Notices of Designation of Designated Subsidiaries.
"Loans" shall mean Committed Loans or Competitive Loans.
"Majority Lenders" shall mean, at any time while no Committed Loans
are outstanding, Lenders having at least fifty-one percent (51%) of the
Aggregate Commitments and, at any time while Committed Loans are
outstanding, Lenders holding at least fifty-one percent (51%) of the
outstanding aggregate principal amount of the Committed Loans (without
regard to any sale by a Lender of a participation in any Loan under Section
12.06(c)).
"Margin" shall mean, as to any Competitive Bid relating to a
Eurodollar Loan, the margin (expressed as a percentage rate per annum) to
be added to or subtracted from the Eurodollar Rate in order to determine
the interest rate payable to such Lender with respect to such Eurodollar
Loan.
"Material Adverse Effect" shall mean any material and adverse change
in the financial condition, business or results of operations of the
Company and its Subsidiaries taken as a whole which makes them unable to
perform their obligations under the Loan Documents.
"Multiemployer Plan" shall mean a multiemployer plan as defined in
section 3(37) or 4001(a)(3) of ERISA which is, or within the six preceding
years was, contributed to by the Company, a Subsidiary or an ERISA
Affiliate.
"Net Worth" shall mean, as at any date, the sum of the following for
the Company and its Consolidated Subsidiaries determined (without
duplication) in accordance with GAAP:
(i) the amount of preferred stock (excluding mandatorily redeemable
preferred stock) and common stock at par plus the amount of paid
in capital of the Company, plus
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(ii) the amount of retained earnings (or, in the case of a retained
earnings deficit, minus the amount of such deficit), minus
(iii) the cost of treasury shares, minus
(iv) unamortized restricted stock compensation, plus
(v) foreign currency translation adjustment gains (or minus losses),
plus
(vi) any other additions (or minus any other deductions) to the net
worth of the Company required by GAAP.
"Notes" shall mean the Committed Notes and the Competitive Notes.
"Notice of Designation of Designated Subsidiaries" shall be
substantially in the form of Exhibit L and delivered pursuant to Section
6.03.
"Obligor" shall mean either the Company or any Designated Subsidiary.
"Operating Lease Obligations" shall mean, as to the Company or any
Subsidiary, the obligations of such person to pay rent or other amounts
under a lease of (or other agreement conveying the right to use) real
and/or personal property which obligations are not required to be
classified and accounted for as a liability for a capital lease on a
balance sheet of such Person and, for purposes of this Agreement, the
amount of such obligations shall be the discounted present value of the
lease payments, discounted in the same manner a capital lease would be
discounted according to GAAP.
"Other Taxes" shall have the meaning assigned such term in Section
4.06(b).
"Parent Guaranty Agreement" shall mean the Guaranty Agreement of even
date with this Agreement executed by the Company guaranteeing the
Indebtedness of the Designated Subsidiaries as such agreement may be
amended, supplemented or restated from time to time.
"PBGC" shall mean the Pension Benefit Guaranty Corporation, or any
successor thereto.
"Percentage Share" shall mean the percentage of the Aggregate
Commitments to be provided by a Lender under this Agreement as indicated on
Annex 1 hereto, as modified from time to time to reflect any assignments
permitted by Section 12.06(b).
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"Permitted Subordinated Debt" shall mean Debt of the Company or a
Subsidiary owing to the Company, ENSERCH Corporation or another Subsidiary
subordinated to the Indebtedness on terms substantially similar to the
terms set forth in Exhibit M or on terms and pursuant to documentation
acceptable to the Administrative Agent and the Syndication Agent.
"Person" shall mean any individual, corporation, company, limited
liability company, voluntary association, partnership, joint venture,
trust, unincorporated organization or government or any agency,
instrumentality or political subdivision thereof, or any other form of
entity.
"Plan" shall mean each Benefit Plan and Multiemployer Plan.
"Post-Default Rate" shall mean, in respect of any principal of any
Loan which is not paid when due (whether at stated maturity, by
acceleration or otherwise), a rate per annum during the period commencing
on the due date until such amount is paid in full or the default is cured
or waived equal to 2% per annum plus the Base Rate as in effect from time
to time plus the Applicable Margin (if any), but in no event to exceed the
Highest Lawful Rate provided that, if such amount in default is principal
of a Eurodollar Loan or a Fixed Rate Loan, the "Post-Default Rate" for such
principal shall be, for the period commencing on the due date and ending on
the last day of the Interest Period therefor, 2% per annum plus the
applicable interest rate for such Loan as provided in Section 3.02(b), (c)
or (d), but in no event to exceed the Highest Lawful Rate.
"Prime Rate" shall mean the rate of interest from time to time
announced publicly by the Administrative Agent at the Principal Office as
its prime rate. Such rate is set by the Administrative Agent as a general
reference rate of interest, taking into account such factors as the
Administrative Agent may deem appropriate, it being understood that many of
the Administrative Agent's commercial or other loans are priced in relation
to such rate, that it is not necessarily the lowest or best rate actually
charged to any customer and that the Administrative Agent may make various
commercial or other loans at rates of interest having no relationship to
such rate.
"Principal Office" shall mean the principal office of the
Administrative Agent, presently located at 2200 Ross Avenue, Dallas, Texas
75201, Attention: Energy Group.
"Property" shall mean any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
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"Quarterly Dates" shall mean the last day of each March, June,
September, and December, in each year, the first of which shall be June 30,
1995; provided, however, that if any such day is not a Business Day, such
Quarterly Date shall be the next succeeding Business Day.
"Regulation D" shall mean Regulation D of the Board of Governors of
the Federal Reserve System (or any successor), as the same may be amended
or supplemented from time to time.
"Regulatory Change" shall mean, with respect to any Lender, any change
after the Closing Date in any Governmental Requirement (including
Regulation D) or the adoption or making after such date of any
interpretations, directives or requests applying to a class of lenders
(including such Lender or its Applicable Lending Office) of or under any
Governmental Requirement (whether or not having the force of law) by any
Governmental Authority charged with the interpretation or administration
thereof.
"Required Payment" shall have the meaning assigned such term in
Section 4.04.
"Responsible Officer" shall mean, as to the Company or any Subsidiary,
the Chief Executive Officer, the President or any Vice President of such
Person and, with respect to financial matters, the term "Responsible
Officer" shall include the Chief Financial Officer, Controller, Treasurer
or Treasury Officer of such Person. Unless otherwise specified, all
references to a Responsible Officer herein shall mean a Responsible Officer
of the Company.
"Revolving Credit Termination Date" shall mean, unless the Commitments
are sooner terminated pursuant to Sections 2.03(a) or 10.02, May 1, 1999.
"SEC" shall mean the Securities and Exchange Commission or any
successor Governmental Authority.
"Special Entity" shall mean any joint venture, limited liability
company, general or limited partnership or any other type of partnership or
company in which the Company or one or more of its other Subsidiaries is a
member, owner, partner or joint venturer and owns at least a majority of
the equity of such entity.
"Subsidiary" shall mean any corporation of which at least a majority
of the outstanding shares of stock having by the terms thereof ordinary
voting power to elect a majority of the board of directors of such
corporation (irrespective of whether or not at the time stock of any other
class or classes
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of such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time directly or indirectly owned
or controlled by the Company or one or more of its Subsidiaries or by the
Company and one or more of its Subsidiaries.
"Subsidiary Guarantor" shall mean any Subsidiary or Special Entity
that has executed a Subsidiary Guaranty Agreement.
"Subsidiary Guaranty Agreement" shall mean any Guaranty Agreement
executed by a Subsidiary or a Special Entity as required by Section 8.08 as
such agreement may be amended, supplemented or restated from time to time.
"Taxes" shall have the meaning assigned such term in Section 4.06(a).
"Type" shall mean, with respect to any Loan, a Base Rate Loan,
Eurodollar Loan or Fixed Rate Loan.
"Withdrawal Liability" shall have the meaning given such term under
Part I of Subtitle E of Title IV of ERISA.
Section 1.03 Accounting Terms and Determinations. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
determinations with respect to accounting matters hereunder shall be made, and
all financial statements and certificates and reports as to financial matters
required to be furnished to the Administrative Agent or the Lenders hereunder
shall be prepared, in accordance with GAAP, applied on a basis consistent with
the audited financial statements of the Company referred to in Section 7.02
(except for changes concurred with by the Company's independent public
accountants).
ARTICLE II
BORROWINGS
Section 2.01 Committed Loans.
(a) Loans. Each Lender severally agrees, on the terms of this
Agreement, to make Committed Loans to any Obligor during the period from
and including (i) the Effective Date or (ii) such later date that such
Lender becomes a party to this Agreement as provided in Section 12.06(b),
to and up to, but excluding, the Revolving Credit Termination Date in an
aggregate principal amount at any one time outstanding and owing by all
Obligors up to but not exceeding the amount of such Lender's Commitment as
then in effect; provided, however, that the aggregate principal amount of
all Committed Loans and Competitive Loans by all Lenders to any or all
Obligors at any one time outstanding shall not exceed the Aggregate
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Commitments. Subject to the terms of this Agreement, during the period
from the Effective Date to and up to, but excluding, the Revolving Credit
Termination Date, any Obligor may borrow, repay and reborrow the amount
described in this Section 2.01.
(b) Limitation on Types of Loans. Subject to the other terms and
provisions of this Agreement, at the option of the Company, the Committed
Loans may be Base Rate Loans or Eurodollar Loans; provided that, without
the prior written consent of the Majority Lenders, no more than seven (7)
Eurodollar Loans which are Committed Loans to any or all Obligors by any
Lender may be outstanding at any time.
Section 2.02 Borrowings, Continuations and Conversions of Committed
Loans.
(a) Borrowings. An Obligor shall cause the Company to give the
Administrative Agent (which shall promptly notify the Lenders) advance
notice as hereinafter provided of each Borrowing of a Committed Loan
hereunder, which shall specify the name of the Obligor making such
Borrowing; the aggregate amount of such Borrowing, the Type and the date
(which shall be a Business Day) of the Committed Loans to be borrowed and
(in the case of Eurodollar Loans) the duration of the Interest Period
therefor.
(b) Minimum Amounts. All Borrowings of Base Rate Loans shall be in
amounts of at least $10,000,000 or the remaining balance of the Aggregate
Commitments, if less, or any whole multiple of $1,000,000 in excess
thereof, and all Borrowings in the form of Eurodollar Loans shall be in
amounts of at least $10,000,000 or any whole multiple of $1,000,000 in
excess thereof.
(c) Notices. All Borrowings, continuations and conversions of
Committed Loans shall require advance written notice to the Administrative
Agent (which shall promptly notify the Lenders) in the form of Exhibit G
(or telephonic notice promptly confirmed by such a written notice), which
in each case shall be irrevocable, from the Company on behalf of an Obligor
to be received by the Administrative Agent not later than 10:00 a.m.
Central time on the Business Day of each Base Rate Loan borrowing and three
Business Days prior to the date of each Eurodollar Loan borrowing,
continuation or conversion. Without in any way limiting the Company's
obligation to confirm in writing any telephonic notice, the Administrative
Agent may act without liability upon the basis of telephonic notice
believed by the Administrative Agent in good faith to be from the Company
prior to receipt of written confirmation. In each such case, each Obligor
hereby waives the right to dispute the Administrative Agent's record of the
terms of such telephonic notice except in the case of gross negligence or
willful misconduct by the Administrative Agent.
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(d) Continuation Options. With respect to Committed Loans and subject
to the provisions made in this Section 2.02(d), the Company on behalf of an
Obligor may elect to continue all or any part of any Borrowing of
Eurodollar Loans beyond the expiration of the then current Interest Period
relating thereto by giving advance notice as provided in Section 2.02(c) to
the Administrative Agent (which shall promptly notify the Lenders) of such
election, specifying the amount of such Loan to be continued and the
Interest Period therefor. In the absence of such a timely and proper
election, the Company on behalf of an Obligor shall be deemed to have
elected to convert such Eurodollar Loan to a Base Rate Loan pursuant to
Section 2.02(e). All or any part of any Eurodollar Loan may be continued
as provided herein, provided that (i) any continuation of any such Loan
shall be (as to each Borrowing as continued for an applicable Interest
Period) in amounts of at least $10,000,000 or any whole multiple of
$1,000,000 in excess thereof and (ii) no Default shall have occurred and be
continuing. If a Default shall have occurred and be continuing, each
Eurodollar Loan shall be converted to a Base Rate Loan on the last day of
the Interest Period applicable thereto.
(e) Conversion Options. With respect to Committed Loans, the Company
on behalf of an Obligor may elect to convert all or any part of any
Eurodollar Loan on the last day of the then current Interest Period
relating thereto to a Base Rate Loan by giving notice as provided in
Section 2.02(c) to the Administrative Agent (which shall promptly notify
the Lenders) of such election. Subject to the provisions made in this
Section 2.02(e), the Company on behalf of an Obligor may elect to convert
all or any part of any Base Rate Loan at any time and from time to time to
a Eurodollar Loan by giving advance notice as provided in Section 2.02(c)
to the Administrative Agent (which shall promptly notify the Lenders) of
such election. All or any part of any outstanding Base Rate Loan may be
converted as provided herein, provided that (i) any conversion of any Base
Rate Loan into a Eurodollar Loan shall be (as to each such Borrowing into
which there is a conversion for an applicable Interest Period) in amounts
of at least $10,000,000 or any whole multiple of $1,000,000 in excess
thereof and (ii) no Default shall have occurred and be continuing. If a
Default shall have occurred and be continuing, no Base Rate Loan may be
converted into a Eurodollar Loan.
(f) Advances. Not later than 1:00 p.m. (Central time) on the date
specified for each Borrowing hereunder, each Lender shall make available
the amount of the Committed Loan to be made by it on such date to the
Administrative Agent, to an account which the Administrative Agent shall
specify, in immediately available funds, for the account of the Company.
The amounts so received by the Administrative Agent shall, subject to the
terms and conditions of this Agreement, be made available to the Company on
behalf of an Obligor by depositing the same, in immediately available
funds, in an account of the Company, designated by the Company on behalf of
an Obligor and maintained at the Principal Office, or to be deposited at
the direction of the Company on behalf of an Obligor.
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Section 2.03 Changes of Commitments.
(a) The Company on behalf of an Obligor shall have the right to
terminate or to reduce the amount of the Aggregate Commitments at any time
or from time to time upon not less than two (2) Business Days' prior notice
to the Administrative Agent (which shall promptly notify the Lenders) of
each such termination or reduction, which notice shall specify the
effective date thereof and the amount of any such reduction (which shall
not be less than $10,000,000 or any whole multiple of $1,000,000 in excess
thereof) and shall be irrevocable and effective only upon receipt by the
Administrative Agent.
(b) The Aggregate Commitments once terminated or reduced may not be
reinstated.
Section 2.04 Fees.
(a) The Company shall pay to the Administrative Agent for the account
of each Lender a facility fee on the daily average amount of the Aggregate
Commitments (regardless of usage) for the period from and including the
Closing Date up to but excluding the earlier of the date the Aggregate
Commitments are terminated or the Revolving Credit Termination Date at a
rate per annum equal to the amount set forth in the definition of
Applicable Margin for the period designated therein. Accrued facility fees
shall be payable quarterly in arrears on each Quarterly Date and on the
earlier of the date the Aggregate Commitments are terminated or the
Revolving Credit Termination Date.
(b) The Company shall pay to the Administrative Agent for its own
account an administration fee of $25,000.00 per annum payable on the
Closing Date and each anniversary of the Closing Date during the term of
this Agreement.
Section 2.05 Several Obligations. The failure of any Lender to make
any Loan to be made by it on the date specified therefor shall not relieve any
other Lender of its obligation to make its Loan on such date, but no Lender
shall be responsible for the failure of any other Lender to make a Loan to be
made by such other Lender.
Section 2.06 Notes.
(a) The Committed Loans made by each Lender to an Obligor shall be
evidenced by a single promissory note of such Obligor in substantially the
form of Exhibit A, dated (i) the Closing Date or (ii) the effective date of
an Assignment pursuant to Section 12.06(b) or (iii) the date that the
Company designates a Designated Subsidiary pursuant to Section 2.10,
payable to the order of such Lender in a principal amount equal to its
Commitment and otherwise duly completed. The date, amount, Type, interest
rate and Interest Period, if any, of each Committed Loan made by each
Lender, and all payments made on account of the principal
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thereof, shall be recorded by such Lender on its books for its Committed
Note, and, prior to any transfer, endorsed by such Lender on the schedule
attached to such Committed Note or any continuation thereof. Failure to
make any such notation shall not affect the Obligor's obligations in
respect of such Loans, or affect the validity of such transfer by any
Lender of such Note.
(b) The Competitive Loans made by each Lender to an Obligor shall be
evidenced by a single promissory note of such Obligor in substantially the
form of Exhibit B, dated (i) the Closing Date or (ii) the effective date of
an Assignment pursuant to Section 12.06(b) or (iii) the date that the
Company designates a Designated Subsidiary pursuant to Section 2.10,
payable to the order of such Lender in a principal amount equal to the
Aggregate Commitments and otherwise duly completed. The date, amount,
Type, interest rate and Interest Period of each Competitive Loan made by
each Lender, and all payments made on account of the principal thereof,
shall be recorded by such Lender on its books for its Competitive Note,
and, prior to any transfer, endorsed by such Lender on the schedule
attached to such Competitive Note or any continuation thereof. Failure to
make any such notation shall not affect the Obligor's obligations in
respect of such Loans, or affect the validity of such transfer by any
Lender of such Note.
Section 2.07 Prepayments.
(a) Any Obligor may prepay its Base Rate Loans upon prior notice to
the Administrative Agent (which shall promptly notify the Lenders), which
notice shall specify the prepayment date (which shall be a Business Day)
and the amount of the prepayment (which shall be at least $5,000,000 or any
whole multiple of $1,000,000 in excess thereof or the remaining aggregate
principal balance outstanding on the Notes) and shall be irrevocable and
effective only upon receipt by the Administrative Agent, provided that
interest on the principal prepaid, accrued to the prepayment date, shall be
paid on the prepayment date. Any Obligor may prepay its Eurodollar Loans
and Fixed Rate Loans on the same condition as for Base Rate Loans and in
addition such prepayments of Eurodollar Loans and Fixed Rate Loans shall be
subject to the terms of Section 5.05 and shall be in an amount equal to all
of the Eurodollar Loans and Fixed Rate Loans for such Obligor for the
Interest Period prepaid.
(b) If, after giving effect to any termination or reduction of the
Aggregate Commitments pursuant to Section 2.03, the outstanding aggregate
principal amount of the Loans exceeds the Aggregate Commitments, the
Obligors shall prepay the Loans on the date of such termination or
reduction in an aggregate principal amount equal to the excess, together
with interest on the principal amount paid accrued to the date of such
prepayment.
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(c) Prepayments permitted or required under this Section 2.07 shall be
without premium or penalty, except as required under Section 5.05 for
prepayment of Eurodollar Loans or Fixed Rate Loans.
Section 2.08 Lending Offices. The Loans of each Type made by each
Lender shall be made and maintained at such Lender's Applicable Lending Office
for Loans of such Type.
Section 2.09 Competitive Loans.
(a) In accordance with the terms, conditions and procedures set forth
in this Section 2.09, the Company on behalf of any Obligor may on any
Business Day prior to the Revolving Credit Termination Date request
Competitive Bids.
(i) Provided, however, no Lender shall be obligated to make
Competitive Loans to an Obligor unless such Lender has irrevocably
offered to make such a Competitive Loan pursuant to Section 2.09(c);
and, provided, further, the aggregate principal amount of all
Competitive Loans to any or all Obligors at any one time outstanding
shall not, at any date, exceed an amount equal to (A) the Aggregate
Commitments as of such date, less (B) the aggregate principal amount
of the Committed Loans to any or all Obligors outstanding as of such
date. For purposes of determining the amount to be calculated
pursuant to the foregoing sentence, any Committed Loans that the
Company on behalf of an Obligor has requested be made, which have not
yet been made, shall be given effect as if made in the full requested
amount with respect thereto.
(ii) Notwithstanding the limitations on the aggregate amount of
Competitive Loans that the Obligors may borrow under this Agreement
set forth in clause (i) of this Section 2.09(a), the making of any
Competitive Loan to an Obligor by any Lender shall not be deemed to be
a utilization of such Lender's Commitment (although it shall be deemed
to be a utilization of the Aggregate Commitments for all purposes of
this Agreement).
(b) In order to request Competitive Bids, the Company on behalf of an
Obligor shall hand deliver, telex or telecopy to the Administrative Agent
and the Auction Agent a duly completed request substantially in the form of
Exhibit C, with the blanks appropriately completed (a "Competitive Bid
Request"), to be received by such Agents (i) in the case of Eurodollar
Loans, not later than 9:00 a.m. (Central time) four (4) Business Days
before the date specified for a proposed Competitive Loan, and (ii) in the
case of Fixed Rate Loans, not later than 9:00 a.m. (Central time) one (1)
Business Day before the date specified for a proposed Competitive Loan. No
Base Rate Loan shall be requested in, or made pursuant to, a Competitive
Bid Request. A Competitive Bid Request that does not conform substantially
to the format of Exhibit C may be rejected at the Auction Agent's sole
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discretion, and the Auction Agent shall promptly notify the Company of such
rejection by telex or telecopier. Each Competitive Bid Request shall in
each case refer to this Agreement and specify (A) whether the Competitive
Loans then being requested are to be Eurodollar Loans or Fixed Rate Loans,
(B) the date of such Competitive Loans (which shall be a Business Day), (C)
the aggregate principal amount thereof (which shall not be less than
$10,000,000 and shall be an integral multiple of $1,000,000), and (D) the
Interest Period with respect thereto. Promptly after its receipt of a
Competitive Bid Request that is not rejected as aforesaid, the Auction
Agent shall invite by telex or telecopier (in substantially the form set
forth in Exhibit D) the Lenders to bid, on the terms and conditions of this
Agreement, to make Competitive Loans pursuant to such Competitive Bid
Request. Notwithstanding the foregoing, the Auction Agent shall have no
obligation to invite any Lender to make a Competitive Bid pursuant to this
Section 2.09(b) until such Lender has delivered a properly completed
Competitive Bid Administrative Questionnaire to the Auction Agent.
(c) Each Lender may, in its sole discretion, make one or more
Competitive Bids to an Obligor responsive to each Competitive Bid Request.
Each Competitive Bid by a Lender must be received by the Auction Agent via
telex or telecopier, in the form of Exhibit E, (i) in the case of
Eurodollar Loans, not later than 8:30 a.m. (Central time) three (3)
Business Days before the date specified for a proposed Competitive Loan and
(ii) in the case of Fixed Rate Loans, not later than 8:30 a.m. (Central
time) on the date specified for a proposed Competitive Loan. Competitive
Bids that do not conform substantially to the format of Exhibit E may be
rejected by the Auction Agent after conferring with, and upon the
instruction of, the Company on behalf of an Obligor, and the Auction Agent
shall notify the applicable Lender of such rejection as soon as
practicable. Each Competitive Bid shall refer to this Agreement and (A)
specify the principal amount (which shall be in a minimum principal amount
of $10,000,000 and in an integral multiple of $1,000,000 and which may
equal the entire aggregate principal amount of the Competitive Loan
requested by the Company on behalf of an Obligor) of the Competitive Loan
that the applicable Lender is willing to make to such Obligor, (B) specify
the Competitive Bid Rate at which such Lender is prepared to make such
Competitive Loan and (C) confirm the Interest Period with respect thereto
specified by the Company on behalf of an Obligor in its Competitive Bid
Request. If any Lender shall elect not to make a Competitive Bid, such
Lender shall so notify the Auction Agent via telex or telecopier in the
case of Fixed Rate Loans, not later than 8:30 a.m. (Central time) on the
date of the proposed Competitive Loan and in the case of Eurodollar Loans,
not later than 8:30 a.m. (Central time) three (3) Business Days before the
date specified for a proposed Competitive Loan; provided, however, that
failure by any Lender to give such notice shall not cause such Lender to be
obligated to make any Competitive Loan. A Competitive Bid submitted by a
Lender pursuant to this Subsection 2.09(c) shall be irrevocable.
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(d) The Auction Agent shall promptly notify the Company by telex or
telecopier of all the Competitive Bids made, the Competitive Bid Rate and
the maximum principal amount of each Competitive Loan in respect of which a
Competitive Bid was made and the identity of the Lender that made each
Competitive Bid. The Auction Agent shall send a copy of all Competitive
Bids to the Company for its records as soon as practicable after completion
of the bidding process set forth in this Section 2.09.
(e) The Company on behalf of an Obligor may in the sole and absolute
discretion of the applicable Obligor, subject only to the provisions of
this Section 2.09(e), accept or reject any Competitive Bid referred to in
Section 2.09(d); provided, however, that the aggregate amount of the
Competitive Bids so accepted by the Company on behalf of an Obligor may not
exceed the principal amount of the Competitive Loan requested by the
Company on behalf of an Obligor. The Company on behalf of an Obligor shall
notify the Auction Agent by telex or telecopier whether and to what extent
the Obligor has decided to accept or reject any or all of the Competitive
Bids referred to in Section 2.09(d), (i) in the case of Eurodollar Loans,
not later than 9:30 a.m. (Central time) three (3) Business Days before the
date specified for a proposed Competitive Loan, and (ii) in the case of
Fixed Rate Loans, not later than 9:30 a.m. (Central time) on the date
specified for a proposed Competitive Loan; provided, however, that (A) the
failure by the Company on behalf of an Obligor to give such notice shall be
deemed to be a rejection of all the Competitive Bids referred to in Section
2.03(c), (B) the Company on behalf of an Obligor shall not accept a
Competitive Bid made at a particular Competitive Bid Rate if the Company on
behalf of an Obligor has decided to reject a Competitive Bid made at a
lower Competitive Bid Rate, (C) if the Company on behalf of an Obligor
shall accept Competitive Bids made at a particular Competitive Bid Rate but
shall be restricted by other conditions hereof from borrowing the maximum
principal amount of Competitive Loans in respect of which Competitive Bids
at such Competitive Bid Rate have been made, then the Company on behalf of
an Obligor shall accept a pro rata portion of each Competitive Bid made at
such Competitive Bid Rate based as nearly as possible on the respective
maximum principal amounts of Competitive Loans for which such Competitive
Bids were made and (D) no Competitive Bid shall be accepted for a
Competitive Loan unless such Competitive Loan is in a minimum principal
amount of $10,000,000 and an integral multiple of $1,000,000.
Notwithstanding the foregoing, if it is necessary for the Company on behalf
of an Obligor to accept a pro rata allocation of the Competitive Bids made
in response to a Competitive Bid Request (whether pursuant to the events
specified in clause (C) above or otherwise) and the available principal
amount of Competitive Loans to be allocated among the Lenders is not
sufficient to enable Competitive Loans to be allocated to each Lender in a
minimum principal amount of $10,000,000 and in integral multiples of
$1,000,000, then the Company on behalf of an Obligor shall select the
Lenders to be allocated such Competitive Loans and shall round allocations
up or down to the next higher or lower multiple of $1,000,000 as it shall
deem appropriate. In addition, the Company on behalf of an Obligor shall
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be permitted under the foregoing procedures to accept a Competitive Bid or
Competitive Bids in a principal amount of less than $10,000,000 (i) in
order to enable the Company on behalf of an Obligor to accept Competitive
Bids equal to (but not in excess of) the principal amount of the
Competitive Loan requested by the Company on behalf of an Obligor or (ii)
in order to enable the Company on behalf of an Obligor to accept all
remaining Competitive Bids, or all remaining Competitive Bids at a
particular Competitive Bid Rate. A notice given by the Company on behalf
of an Obligor pursuant to this Subsection (e) shall be irrevocable.
(f) The Auction Agent shall promptly notify each bidding Lender by
telex or telecopy whether or not its Competitive Bid has been accepted (and
if so, in what amount and at what Competitive Bid Rate). Each successful
bidder will thereupon become bound, subject to the other applicable
conditions hereof, to make the Competitive Loan in respect of which its
Competitive Bid has been accepted. After completing the notifications
referred to in the immediately preceding sentence, the Auction Agent shall
notify each Lender and the Administrative Agent of the aggregate principal
amount of all Competitive Bids accepted.
(g) Upon receipt from the Administrative Agent of the notice of
Eurodollar Rate applicable to any Eurodollar Loan to be made by any Lender
pursuant to a Competitive Bid that has been accepted by the Company on
behalf of an Obligor pursuant to Section 2.03(e), the Auction Agent shall
notify such Lender of (i) the applicable Eurodollar Rate and (ii) the sum
of the applicable Eurodollar Rate plus the Margin bid by such Lender.
(h) No Competitive Loan shall be made within five (5) Business Days of
the date of any other Competitive Loan, unless the Company and the Auction
Agent shall mutually agree otherwise.
(i) If the Auction Agent shall at any time have a Commitment hereunder
and shall elect to submit a Competitive Bid in its capacity as a Lender, it
shall submit such Competitive Bid directly to the Company on behalf of an
Obligor one quarter of an hour earlier than the time at which the other
Lenders are required to submit their Competitive Bids to the Auction Agent
pursuant to Section 2.09(c).
(j) All notices required by this Section 2.09 shall be made in
accordance with Section 12.02 and the Competitive Bid Administrative
Questionnaire most recently placed on file by each Lender with the Auction
Agent.
(k) No Competitive Loan may be continued or converted, except to the
extent converted to a Base Rate Loan pursuant to Section 5.04; provided,
however, a Competitive Loan may be repaid with the proceeds of a Borrowing
of Competitive Loans or Committed Loans made pursuant to the terms of this
Agreement, and the Administrative Agent is authorized to net the Borrowing
and repayments for convenience.
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(l) Not later than 12:00 noon (Central time) on the date specified for each
Borrowing hereunder, each Lender that is a successful bidder shall make
available the amount of the Competitive Loan to be made by it on such date
to the Administrative Agent, to an account which the Administrative Agent
shall specify, in immediately available funds, for the account of the
Company on behalf of an Obligor. The amounts so received by the
Administrative Agent shall, subject to the terms and conditions of this
Agreement, be made available to the Company on behalf of an Obligor by
depositing the same, in immediately available funds, in an account of the
Company on behalf of an Obligor, designated by the Company on behalf of an
Obligor and maintained at the Principal Office.
Section 2.10 Designated Subsidiaries. The Company may from time to
time designate one or more of its Subsidiaries to have the right to borrow both
Committed Loans and Competitive Loans by sending to the Administrative Agent a
Notice of Designation of a Designated Subsidiary and otherwise complying with
Section 6.03. Each Designated Subsidiary shall be liable for (i) the principal
and interest on Loans made to it as requested in any Borrowing Request or
Competitive Bid Requests signed by it or the Company on its behalf, (ii) all
fees, indemnities and reimbursement obligations as set forth in this Agreement
and (iii) to the extent the Designated Subsidiary is a Guarantor pursuant to
Section 8.08, the obligations set forth in its Subsidiary Guaranty Agreement.
No Designated Subsidiary shall be liable for any principal or interest on any
Loan to another Obligor except to the extent that such Designated Subsidiary is
a Guarantor pursuant to Section 8.08. The Company shall be liable for all
Indebtedness of all Obligors as set forth either in this Agreement or the Parent
Guaranty Agreement. As agreed to in each Notice of Designation of Designated
Subsidiary executed and delivered by the Company and each Designated Subsidiary,
each Designated Subsidiary appoints the Company as its agent to execute all
Borrowing Requests and Competitive Bid Requests, give and receive all notices on
its behalf and take whatever other action is required of it under the Loan
Documents, and the Agents and Lenders are entitled to fully rely on all action
taken and notices given by the Company on behalf of any Designated Subsidiary.
ARTICLE III
PAYMENTS OF PRINCIPAL AND INTEREST
Section 3.01 Repayment of Loans. Each Obligor will pay to the
Administrative Agent, for the account of each applicable Lender, the principal
payments required by this Section 3.01. On the last day of the Interest Period
for each Competitive Loan to an Obligor, such Obligor shall repay the
outstanding aggregate principal and accrued and unpaid interest on such Loan.
On the Revolving Credit Termination Date each Obligor shall repay the
outstanding aggregate principal and accrued and unpaid interest under its Notes.
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Section 3.02 Interest. Each Obligor will pay to the Administrative
Agent, for the account of each Lender, interest on the unpaid principal amount
of each Loan made by such Lender to such Obligor for the period commencing on
the date such Loan is made to but excluding the date such Loan shall be paid in
full, at the following rates per annum:
(a) if such Loan is a Committed Loan and a Base Rate Loan, the Base
Rate (as in effect from time to time), but in no event to exceed the
Highest Lawful Rate;
(b) if such Loan is a Committed Loan and a Eurodollar Loan, for each
Interest Period relating thereto, the Eurodollar Rate for such Loan plus
the Applicable Margin, but in no event to exceed the Highest Lawful Rate;
(c) if such Loan is a Competitive Loan and a Eurodollar Loan, for each
Interest Period relating thereto, the Eurodollar Rate for such Loan plus or
minus the Margin as accepted by the Company on behalf of an Obligor, but in
no event to exceed the Highest Lawful Rate; and
(d) if such Loan is a Competitive Loan and a Fixed Rate Loan, for each
Interest Period relating thereto, the fixed rate per annum offered by the
respective Lender in its Competitive Bid and accepted by the Company on
behalf of an Obligor pursuant to Section 2.09, but in no event to exceed
the Highest Lawful Rate.
Notwithstanding the foregoing, each Obligor will pay to the Administrative
Agent, for the account of each applicable Lender interest at the applicable
Post-Default Rate on any principal of any Loan made by such Lender to such
Obligor, which shall not be paid in full when due (whether at stated maturity,
by acceleration or otherwise), for the period commencing on the due date thereof
until the same is paid in full. To the fullest extent permitted by law, each
Obligor will pay to the Administrative Agent for the account of each applicable
Lender interest at the Base Rate on interest and any other amount payable by
such Obligor hereunder other than principal on the Loans, under any other Loan
Document or under any Note held by such Lender to or for the account of such
Lender, which shall not be paid in full when due (whether at stated maturity, by
acceleration or otherwise), for the period commencing on the due date thereof
until the same is paid in full.
Accrued interest on Base Rate Loans shall be payable on each Quarterly Date
commencing on June 30, 1995, and accrued interest on each Eurodollar Loan and
Fixed Rate Loan shall be payable on the last day of the Interest Period therefor
and, if such Interest Period is longer than three months at three-month
intervals following the first day of such Interest Period, except that interest
payable at the Post-Default Rate or otherwise accruing on past due amounts shall
be payable from time to time on demand and interest on any Eurodollar Loan or
Fixed Rate Loan that is converted into a Base Rate Loan (pursuant to Section
5.04) shall be payable on the date of conversion (but only to the extent so
converted).
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Promptly after the determination of any interest rate provided for herein
or any change therein, the Administrative Agent or the Auction Agent shall
notify the Lenders to which such interest is payable and the Company thereof.
Each determination by the Administrative Agent or the Auction Agent of an
interest rate or fee hereunder shall, except in cases of manifest error, be
final, conclusive and binding on the parties.
ARTICLE IV
PAYMENTS; PRO RATA TREATMENT; COMPUTATIONS; ETC.
Section 4.01 Payments. Except to the extent otherwise provided
herein, all payments of principal, interest and other amounts to be made by each
Obligor under this Agreement and the Notes shall be made in Dollars, in
immediately available funds, to the Administrative Agent at such account as the
Administrative Agent shall specify by notice to the Company on behalf of each
Obligor from time to time, not later than 1:00 p.m. (Central time) on the date
on which such payments shall become due (each such payment made after such time
on such due date to be deemed to have been made on the next succeeding Business
Day). Such payments shall be made without (to the fullest extent permitted by
applicable law) defense, set-off or counterclaim. Each payment received by the
Administrative Agent under this Agreement or any Note for the account of a
Lender shall be paid promptly to such Lender in immediately available funds. If
the due date of any payment under this Agreement or any Note would otherwise
fall on a day which is not a Business Day such date shall be extended to the
next succeeding Business Day and interest shall be payable for any principal so
extended for the period of such extension. At the time of each payment to the
Administrative Agent of any principal of or interest on any Borrowing, the
Company on behalf of the Obligors shall notify the Administrative Agent of the
Loans to which such payment shall apply. In the absence of such notice the
Administrative Agent may specify the Loans to which such payment shall apply,
but to the extent possible such payment or prepayment will be applied first to
the Loans comprised of Base Rate Loans.
Section 4.02 Pro Rata Treatment. Except to the extent otherwise
provided herein each Lender agrees that: (i) each Borrowing from the Lenders
under Section 2.01 shall be made from the Lenders pro rata in accordance with
their Percentage Share, each payment of facility fees under Section 2.04(a)
shall be made for the account of the Lenders pro rata in accordance with their
Percentage Share, and each termination or reduction of the amount of the
Aggregate Commitments under Section 2.03(a) shall be applied to the Commitment
of each Lender, pro rata according to the amounts of its respective Commitment;
(ii) each payment of principal of Loans by the Company on behalf of an Obligor
shall be made for the account of the Lenders pro rata in accordance with the
respective unpaid principal amount of the Loans held by the Lenders due or past
due on such date or intended to be prepaid by the Company on behalf of such
Obligor; and (iii) each payment of interest on Loans by the Company on behalf
of an Obligor shall be
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made for the account of the Lenders pro rata in accordance with the amounts of
interest due and payable to the respective Lenders.
Section 4.03 Computations. Interest on Eurodollar Loans and Fixed
Rate Loans shall be computed on the basis of a year of 360 days and actual days
elapsed (including the first day but excluding the last day) occurring in the
period for which such interest is payable, unless such calculation would exceed
the Highest Lawful Rate, in which case interest shall be calculated on the per
annum basis of a year of 365 or 366 days, as the case may be. Interest on Base
Rate Loans and fees shall be computed on the basis of a year of 365 or 366 days,
as the case may be, and actual days elapsed (including the first day but
excluding the last day) occurring in the period for which such interest or fee
is payable.
Section 4.04 Non-receipt of Funds by the Administrative Agent.
Unless the Administrative Agent shall have been notified by a Lender or the
Company on behalf of an Obligor prior to the date on which such notifying party
is scheduled to make payment to the Administrative Agent (in the case of a
Lender) of the proceeds of a Loan to be made by it hereunder or (in the case of
an Obligor) a payment to the Administrative Agent for the account of one or more
of the Lenders hereunder (such payment being herein called the "Required
Payment"), which notice shall be effective upon receipt, that it does not intend
to make the Required Payment to the Administrative Agent, the Administrative
Agent may assume that the Required Payment has been made and may, in reliance
upon such assumption (but shall not be required to), make the amount thereof
available to the intended recipient(s) on such date and, if such Lender or the
Company on behalf of an Obligor (as the case may be) has not in fact made the
Required Payment to the Administrative Agent, the recipient(s) of such payment
shall, on demand, repay to the Administrative Agent the amount so made available
together with interest thereon in respect of each day during the period
commencing on the date such amount was so made available by the Administrative
Agent until but excluding the date the Administrative Agent recovers such amount
at a rate per annum which, for any Lender as recipient, will be equal to the
Federal Funds Rate, and for an Obligor as recipient, will be equal to the Post-
Default Rate.
Section 4.05 Sharing of Payments, Etc. If after an Event of Default
and during its continuance any Lender shall obtain payment of any principal of
or interest on any Loan made by it to an Obligor under this Agreement through
whatever means other than an assignment pursuant to Section 12.06(b), and, as a
result of such payment, such Lender shall have received a greater percentage of
the principal or interest then due hereunder by such Obligor to such Lender than
the percentage received by any other Lenders, it shall promptly (i) notify the
Administrative Agent and each other Lender thereof and (ii) purchase from such
other Lenders participations in (or, if and to the extent specified by such
Lender, direct interests in) the Loans made by such other Lenders (or in
interest due thereon, as the case may be) in such amounts, and make such other
adjustments from time to time as shall be equitable, to the end that all the
Lenders shall share the benefit of such excess payment (net of any expenses
which may be incurred by such Lender in obtaining or preserving such excess
payment) pro rata in accordance with
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the unpaid principal and/or interest on the Loans to such Obligor held by each
of the Lenders. To such end all the Lenders shall make appropriate adjustments
among themselves (by the resale of participations sold or otherwise) if such
payment is rescinded or must otherwise be restored.
Section 4.06 Taxes.
(a) Payments Free and Clear. Any and all payments by an Obligor
hereunder shall be made, in accordance with Section 4.01, free and clear of
and without deduction for any and all present or future taxes, levies,
imposts, deductions, charges or withholdings, and all liabilities with
respect thereto, excluding, in the case of each Lender and the
Administrative Agent, taxes imposed on its income, and franchise or similar
taxes imposed on it, by (i) any jurisdiction (or political subdivision
thereof) of which the Administrative Agent or such Lender, as the case may
be, is a citizen or resident or in which such Lender has an Applicable
Lending Office, (ii) the jurisdiction (or any political subdivision
thereof) in which the Administrative Agent or such Lender is organized, or
(iii) any jurisdiction (or political subdivision thereof) in which such
Lender or the Administrative Agent is presently doing business which taxes
are imposed solely as a result of doing business in such jurisdiction (all
such non-excluded taxes, levies, imposts, deductions, charges, withholdings
and liabilities being hereinafter referred to as "Taxes"). If an Obligor
shall be required by law to deduct any Taxes from or in respect of any sum
payable hereunder to the Lenders or the Administrative Agent (i) the sum
payable shall be increased by the amount necessary so that after making all
required deductions (including deductions applicable to additional sums
payable under this Section 4.06) such Lender or the Administrative Agent
(as the case may be) shall receive an amount equal to the sum it would have
received had no such deductions been made, (ii) such Obligor shall make
such deductions and (iii) such Obligor shall pay the full amount deducted
to the relevant taxing authority or other Governmental Authority in
accordance with applicable law.
(b) Other Taxes. In addition, to the fullest extent permitted by
applicable law, each Obligor agrees to pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies that arise from any payment made hereunder or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement,
any Assignment or any other Loan Document (hereinafter referred to as
"Other Taxes").
(c) INDEMNIFICATION. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE
LAW, EACH OBLIGOR WILL INDEMNIFY EACH LENDER AND THE AGENTS FOR THE FULL
AMOUNT OF TAXES AND OTHER TAXES (INCLUDING, BUT NOT LIMITED TO, ANY TAXES
OR OTHER TAXES IMPOSED BY ANY GOVERNMENTAL AUTHORITY ON AMOUNTS PAYABLE
UNDER THIS SECTION 4.06) PAID BY SUCH LENDER OR ANY AGENT (ON THEIR BEHALF
OR ON BEHALF OF ANY LENDER), AS THE CASE MAY BE, AND ANY LIABILITY
(INCLUDING PENALTIES, INTEREST AND EXPENSES) ARISING THEREFROM OR WITH
RESPECT
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THERETO, WHETHER OR NOT SUCH TAXES OR OTHER TAXES WERE CORRECTLY OR LEGALLY
ASSERTED UNLESS THE PAYMENT OF SUCH TAXES WAS NOT CORRECTLY OR LEGALLY
ASSERTED AND SUCH LENDER'S PAYMENT OF SUCH TAXES OR OTHER TAXES WAS THE
RESULT OF ITS GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. ANY PAYMENT PURSUANT
TO SUCH INDEMNIFICATION SHALL BE MADE WITHIN THIRTY (30) DAYS AFTER THE
DATE ANY LENDER OR ANY AGENT, AS THE CASE MAY BE, MAKES WRITTEN DEMAND
THEREFOR. IF ANY LENDER OR ANY AGENT RECEIVES A REFUND OR CREDIT IN
RESPECT OF ANY TAXES OR OTHER TAXES FOR WHICH SUCH LENDER OR SUCH AGENT HAS
RECEIVED PAYMENT FROM AN OBLIGOR IT SHALL PROMPTLY NOTIFY THE COMPANY ON
BEHALF OF SUCH OBLIGOR OF SUCH REFUND OR CREDIT AND SHALL, IF NO DEFAULT
HAS OCCURRED AND IS CONTINUING, WITHIN THIRTY (30) DAYS AFTER RECEIPT OF A
REQUEST BY THE COMPANY ON BEHALF OF SUCH OBLIGOR (OR PROMPTLY UPON RECEIPT,
IF THE COMPANY ON BEHALF OF SUCH OBLIGOR HAS REQUESTED APPLICATION FOR SUCH
REFUND OR CREDIT PURSUANT HERETO), PAY AN AMOUNT EQUAL TO SUCH REFUND OR
CREDIT TO THE COMPANY ON BEHALF OF SUCH OBLIGOR WITHOUT INTEREST (BUT WITH
ANY INTEREST SO REFUNDED OR CREDITED), PROVIDED THAT SUCH OBLIGOR, UPON THE
REQUEST OF SUCH LENDER OR SUCH AGENT, AGREES TO RETURN SUCH REFUND OR
CREDIT (PLUS PENALTIES, INTEREST OR OTHER CHARGES) TO SUCH LENDER OR SUCH
AGENT IN THE EVENT SUCH LENDER OR SUCH AGENT IS REQUIRED TO REPAY SUCH
REFUND OR CREDIT.
(d) Lender Representations.
(i) Each Lender represents that it is either (i) a corporation
organized under the laws of the United States of America or any state
thereof or (ii) it is entitled to complete exemption from United
States withholding tax imposed on or with respect to any payments,
including fees, to be made to it pursuant to this Agreement (A) under
an applicable provision of a tax convention to which the United States
of America is a party or (B) because it is acting through a branch,
agency or office in the United States of America and any payment to be
received by it hereunder is effectively connected with a trade or
business in the United States of America. Each Lender that is not a
corporation organized under the laws of the United States of America
or any state thereof agrees to provide to the Company and the
Administrative Agent on the Closing Date, or on the date of its
delivery of the Assignment pursuant to which it becomes a Lender, and
at such other times as required by United States law or as the Company
or the Administrative Agent shall reasonably request, two accurate and
complete original signed copies of either (A) Internal Revenue Service
Form 4224 (or successor form) certifying that all payments to be made
to it hereunder will be effectively connected to a United States trade
or business (the "Form 4224 Certification") or (B) Internal Revenue
Service Form 1001 (or successor form) certifying that it is entitled
to the benefit of a provision of a tax convention to which the United
States of America is a party which completely exempts from United
States withholding tax all payments to be made to it hereunder (the
"Form 1001
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Certification"). In addition, each Lender agrees that if it
previously filed a Form 4224 Certification, it will deliver to the
Company and the Administrative Agent a new Form 4224 Certification
prior to the first payment date occurring in each of its subsequent
taxable years; and if it previously filed a Form 1001 Certification,
it will deliver to the Company and the Administrative Agent a new
certification prior to the first payment date falling in the third
year following the previous filing of such certification. Each Lender
also agrees to deliver to the Company and the Administrative Agent
such other or supplemental forms as may at any time be required as a
result of changes in applicable law or regulation in order to confirm
or maintain in effect its entitlement to exemption from United States
withholding tax on any payments hereunder, provided that the
circumstances of such Lender at the relevant time and applicable laws
permit it to do so. If a Lender determines, as a result of any change
in either (i) a Governmental Requirement or (ii) its circumstances,
that it is unable to submit any form or certificate that it is
obligated to submit pursuant to this Section 4.06, or that it is
required to withdraw or cancel any such form or certificate previously
submitted, it shall promptly notify the Company and the Administrative
Agent of such fact. If a Lender is organized under the laws of a
jurisdiction outside the United States of America, unless the Company
and the Administrative Agent have received a Form 1001 Certification
or Form 4224 Certification satisfactory to them indicating that all
payments to be made to such Lender hereunder are not subject to United
States withholding tax, the Company on behalf of each Obligor shall
withhold taxes from such payments at the applicable statutory rate.
Each Lender agrees to indemnify and hold harmless from any United
States taxes, penalties, interest and other expenses, costs and losses
incurred or payable by (i) the Administrative Agent as a result of
such Lender's failure to submit any form or certificate that it is
required to provide pursuant to this Section 4.06 or (ii) the Company
or the Administrative Agent as a result of their reliance on any such
form or certificate which such Lender has provided to them pursuant to
this Section 4.06.
(ii) For any period with respect to which a Lender required to do
so has failed to provide the Company with the form required pursuant
to this Section 4.06, if any (other than if such failure is due to a
change in a Governmental Requirement occurring subsequent to the date
on which a form originally was required to be provided), such Lender
shall not be entitled to indemnification under Section 4.06 with
respect to taxes imposed by the United States which taxes would not
have been imposed but for such failure to provide such forms;
provided, however, that should a Lender, which is otherwise exempt
from or subject to a reduced rate of withholding tax, becomes subject
to taxes because of its failure to deliver a form required hereunder,
the Company on behalf of each Obligor shall take such steps as such
Lender shall reasonably request to assist such Lender to recover such
taxes.
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(iii) Any Lender claiming any additional amounts payable
pursuant to this Section 4.06 shall use reasonable efforts (consistent
with legal and regulatory restrictions) to file any certificate or
document requested by the Company or the Administrative Agent or to
change the jurisdiction of its Applicable Lending Office or to contest
any tax imposed if the making of such a filing or change or contesting
such tax would avoid the need for or reduce the amount of any such
additional amounts that may thereafter accrue and would not, in the
sole determination of such Lender, be otherwise disadvantageous to
such Lender.
ARTICLE V
CAPITAL ADEQUACY, ADDITIONAL COSTS, ETC.
Section 5.01 Additional Costs.
(a) Regulatory Changes. In the event of any introduction of and/or
any change in any applicable law, rule, regulation (including Regulation
D), official interpretation thereof or official directive after the date of
this Agreement (whether or not having the force of law) which will result
in an increase in the cost to any Lender of making or maintaining the Loans
by reason of reserve or similar requirements, or which will result in a
reduction of amounts otherwise receivable by any Lender from any Obligor of
principal, interest or other fees and charges thereunder by reason of a
tax, levy, impost, fee, charge, withholding or similar requirements of any
kind, or modifies any capital adequacy or similar requirement (including,
without limitation, a requirement which affects any Lender's or its
parent's or its holding company's allocation of capital resources to its
obligations or commitments) and, as a result, the cost to such Lender or
its parent or holding company of making or maintaining amounts available
under this Agreement is increased or the Lender's or its parent's or
holding company's return under this Agreement or on all or any of its
capital is reduced, the Obligors will pay to the Administrative Agent for
such Lender upon notice as provided in Section 5.01(b) an amount equal to
such actual increased cost or reduction of yield allocable to this
facility.
(b) Compensation Procedure. Any Lender notifying the Company of the
incurrence of additional costs under this Section 5.01 shall in such notice
to the Company and the Administrative Agent set forth in reasonable detail
the basis and amount of its request for compensation. Determinations and
allocations by each Lender for purposes of this Section 5.01 of the effect
of any Regulatory Change pursuant to Section 5.01(a) on its costs or rate
of return of maintaining Loans or its obligation to make Loans, or on
amounts receivable by it in respect of Loans, and of the amounts required
to compensate such Lender under this Section 5.01, shall be conclusive and
binding for all purposes, provided that such determinations and
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allocations are made on a reasonable basis. Any request for additional
compensation under this Section 5.01 shall be paid by each Obligor to the
Administrative Agent for the applicable Lender within thirty (30) days of
the receipt by the Company of the notice described in this Section 5.01(b).
Section 5.02 Limitation on Eurodollar Loans. Anything herein to the
contrary notwithstanding, if, on or prior to the determination of any Eurodollar
Rate for any Interest Period:
(i) the Administrative Agent determines (which determination shall be
conclusive, absent manifest error) that quotations of interest rates for
the relevant deposits referred to in the definition of "Eurodollar Rate" in
Section 1.02 are not being provided in the relevant amounts or for the
relevant maturities for purposes of determining rates of interest for
Eurodollar Loans as provided herein; or
(ii) the Administrative Agent determines (which determination shall be
conclusive, absent manifest error) that the relevant rates of interest
referred to in the definition of "Eurodollar Rate" in Section 1.02 upon the
basis of which the rate of interest for Eurodollar Loans for such Interest
Period is to be determined are not sufficient to adequately cover the cost
to the Lenders of making or maintaining Eurodollar Loans;
then the Administrative Agent shall give the Company prompt notice thereof, and
so long as such condition remains in effect, the Lenders shall be under no
obligation to make additional Eurodollar Loans or continue or convert into
Eurodollar Loans.
Section 5.03 Illegality. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful or legally restricted for any
Lender or its Applicable Lending Office to honor its obligation to make or
maintain, continue or convert into Eurodollar Loans or Fixed Rate Loans
hereunder, then such Lender shall promptly notify the Company thereof and such
Lender's obligation to make, continue or convert into Eurodollar Loans or Fixed
Rate Loans shall be suspended until such time as such Lender may again make and
maintain, continue or convert into Eurodollar Loans or Fixed Rate Loans (in
which case the provisions of Section 5.04 shall be applicable).
Section 5.04 Base Rate Loans Pursuant to Sections 5.02 and 5.03. If
the obligation of any Lender to make, continue or convert into Eurodollar Loans
or Fixed Rate Loans shall be suspended pursuant to Sections 5.02 or 5.03
("Affected Loans"), all Affected Loans which would otherwise be made by such
Lender shall be made instead as Base Rate Loans (and, if an event referred to in
Section 5.03 has occurred and such Lender so requests by notice to the
Administrative Agent and the Company, all Affected Loans of such Lender then
outstanding shall be automatically converted into Base Rate Loans on the date
specified by such Lender in such notice) and, to the extent that Affected Loans
are so made as (or converted into) Base Rate Loans, all payments of principal
which would
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otherwise be applied to such Lender's Affected Loans shall be applied instead to
its Base Rate Loans.
Section 5.05 Compensation. Each Obligor shall pay to the
Administrative Agent for each Lender within thirty (30) days of receipt of
written request of such Lender to the Administrative Agent and the Company
(which request shall set forth, in reasonable detail, the basis for requesting
such amounts and which shall be conclusive and binding for all purposes provided
that such determinations are made on a reasonable basis), such amount or amounts
as shall compensate it for any loss, cost, expense or liability which such
Lender determines are attributable to:
(i) any payment, prepayment or conversion of a Eurodollar Loan or
Fixed Rate Loan properly made by such Lender or such Obligor for any reason
(including, without limitation, the acceleration of the Loans pursuant to
Section 10.01) on a date other than the last day of the Interest Period for
such Loan; or
(ii) any failure by such Obligor for any reason (including but not
limited to, the failure of any of the conditions precedent specified in
Article VI to be satisfied) to borrow, continue or convert into a
Eurodollar Loan that is a Committed Loan or to borrow a Competitive Loan
from such Lender on the date for such Borrowing, continuation or conversion
specified in the relevant notice given pursuant to Section 2.02 or Section
2.09.
ARTICLE VI
CONDITIONS PRECEDENT
Section 6.01 Initial Funding.
The obligation of the Lenders to make the Initial Funding is subject
to the receipt by the Administrative Agent and the Lenders of all fees payable
pursuant to Section 2.04 on or before the Closing Date and the receipt by the
Administrative Agent of the following documents and satisfaction of the other
conditions provided in this Section 6.01:
(a) A certificate of the Secretary or an Assistant Secretary of the
Company setting forth (i) resolutions of its board of directors with
respect to the authorization of the Company to execute and deliver the Loan
Documents to which it is a party and to enter into the transactions
contemplated in those documents, (ii) the officers of the Company (y) who
are authorized to sign the Loan Documents to which the Company is a party
and (z) who will, until replaced by another officer or officers duly
authorized for that purpose, act as its representative for the purposes of
signing documents and giving notices and other communications in connection
with this Agreement and the transactions contemplated hereby, (iii)
specimen signatures of
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the authorized officers, and (iv) the articles or certificate of
incorporation and bylaws of the Company, certified as being true and
complete. The Administrative Agent and the Lenders may conclusively rely
on such certificate until the Administrative Agent receives notice in
writing from the Company to the contrary.
(b) Certificates of the appropriate state agencies with respect to the
existence, qualification and good standing of the Company in the State of
Texas.
(c) A compliance certificate which shall be substantially in the form
of Exhibit H, duly and properly executed by a Responsible Officer and dated
as of the date of the Initial Funding.
(d) The Notes of the Company, duly completed and executed.
(e) The Parent Guaranty Agreement, duly completed and executed.
(f) An opinion of W. T. Satterwhite, counsel to the Company,
substantially in the form of Exhibit I hereto.
(g) A certificate of insurance for the Company and its Subsidiaries.
Section 6.02 Initial and Subsequent Loans. The obligation of
the Lenders to make Loans to any Obligor upon the occasion of each Borrowing
hereunder (including the Initial Funding) is subject to the further conditions
precedent that, as of the date of such Borrowing and after giving effect
thereto: (i) no Default shall have occurred and be continuing and (ii) the
representations and warranties made by the Company in Article VII and by each
Designated Subsidiary in its respective Notice of Designation of a Designated
Subsidiary shall be true on and as of the date of the making of such Borrowing
with the same force and effect as if made on and as of such date and following
such new Borrowing, except to the extent such representations and warranties are
expressly limited to an earlier date or the Majority Lenders have expressly
consented in writing to the contrary. Each request for a borrowing by the
Company hereunder shall constitute a certification by the Company to the effect
set forth in the preceding sentence (both as of the date of such notice and,
unless the Company otherwise notifies the Administrative Agent prior to the date
of and immediately following such Borrowing as of the date thereof).
Section 6.03 Loans to Designated Subsidiaries. The obligation of the
Lenders to make Loans to a Designated Subsidiary is subject to receipt by the
Administrative Agent of the following documents and satisfaction of the
conditions set forth in this Section 6.03 as well as the conditions set forth in
Sections 6.01 and 6.02, each of which shall be satisfactory to the
Administrative Agent in form and substance:
(a) A Notice of Designation of Designated Subsidiary executed by the
Company and such Designated Subsidiary.
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(b) A certificate of the Secretary or an Assistant Secretary of such
Designated Subsidiary setting forth (i) resolutions of its board of
directors with respect to the authorization of such Subsidiary to execute
and deliver the Loan Documents to which it is a party and to enter into the
transactions contemplated in those documents, (ii) the officers of such
Subsidiary (y) who are authorized to sign the Loan Documents to which such
Subsidiary is a party and (z) who will, until replaced by another officer
or officers duly authorized for that purpose, act as its representative for
the purposes of signing documents and giving notices and other
communications in connection with this Agreement and the transactions
contemplated hereby, (iii) specimen signatures of the authorized officers,
and (iv) the articles or certificate of incorporation and bylaws of such
Subsidiary, certified as being true and complete. The Agents and the
Lenders may conclusively rely on such certificate until the Administrative
Agent receives notice in writing from the Company to the contrary.
(c) The Notes of such Designated Subsidiary, duly completed and
executed.
(d) An opinion of counsel to such Designated Subsidiary, substantially
in the form of Exhibit J.
(e) Such Designated Subsidiary shall be a Subsidiary.
(f) The most recent unaudited balance sheet of such Designated
Subsidiary certified by a Responsible Officer.
(g) Such other documents as the Administrative Agent may reasonably
request.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to the Administrative Agent and the
Lenders that (each representation and warranty herein is given as of the Closing
Date and shall be deemed repeated and reaffirmed on the dates of each Borrowing
as provided in Section 6.02):
Section 7.01 Corporate Existence. Each of the Company and each
Designated Subsidiary and each Subsidiary Guarantor: (i) is a corporation duly
organized, legally existing and in good standing under the laws of the
jurisdiction of its incorporation; (ii) has all requisite corporate power, and
has all material governmental licenses, authorizations, consents and approvals
necessary to own its assets and carry on its business as now being or as
proposed to be conducted; and (iii) is qualified to do business in all
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jurisdictions in which the nature of the business conducted by it makes such
qualification necessary and where failure so to qualify would have a Material
Adverse Effect.
Section 7.02 Financial Condition. The audited balance sheet of the
Company as at December 31, 1994 and the related statements of operations, cash
flows and changes in partners' capital and common shareholders' equity of the
Company and its predecessor for each of the three years in the period ended on
said date, with the opinion thereon of Deloitte & Touche LLP heretofore
furnished to each of the Lenders, are complete and correct and fairly present
the financial condition of the Company as at said date and the results of
operations and cash flows of the Company and its predecessor for the stated
periods then ended, all in accordance with GAAP. Neither the Company nor any
Subsidiary has on the Closing Date any material Debt, contingent liabilities,
liabilities for taxes, unusual forward or long-term commitments or unrealized or
anticipated losses from any unfavorable commitments, except as referred to or
reflected or provided for in the Financial Statements or in Schedule 7.02.
Since December 31, 1994 to the Closing Date, there has been no change or event
having a Material Adverse Effect. Since the date of the Financial Statements to
the Closing Date, neither the business nor the Properties of the Company or any
Subsidiary have been materially and adversely affected as a result of any fire,
explosion, earthquake, flood, drought, windstorm, accident, strike or other
labor disturbance, embargo, requisition or taking of Property or cancellation of
contracts, permits or concessions by any Governmental Authority, riot,
activities of armed forces or acts of God or of any public enemy.
Section 7.03 Litigation. As of the Closing Date, except as disclosed
to the Lenders in Schedule 7.03, there is no litigation, legal, administrative
or arbitral proceeding, investigation or other action of any nature pending or,
to the knowledge of the Company threatened against or affecting the Company or
any Subsidiary which involves the possibility of any judgment or liability
against the Company or any Subsidiary not fully covered by insurance (except for
normal deductibles), and which would have a Material Adverse Effect.
Section 7.04 No Breach. Neither the execution and delivery of the
Loan Documents, nor compliance with the terms and provisions hereof will
conflict with or result in a breach of, or require any consent which has not
been obtained as of the Closing Date under, the respective charter or by-laws of
the Company or any Subsidiary, or any Governmental Requirement or any agreement
or instrument for borrowed money to which the Company or any Subsidiary is a
party or by which it is bound or to which it or its Properties are subject, or
constitute a default under any such agreement or instrument, or result in the
creation or imposition of any Lien upon any of the revenues or assets of the
Company or any Subsidiary pursuant to the terms of any such agreement or
instrument other than the Liens created by the Loan Documents.
Section 7.05 Authority. The Company and each Subsidiary have all
necessary corporate power and authority to execute, deliver and perform its
obligations under the Loan Documents to which it is a party; and the execution,
delivery and performance by the
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Company and each Subsidiary of the Loan Documents to which it is a party, have
been duly authorized by all necessary corporate action on its part; and the Loan
Documents constitute the legal, valid and binding obligations of the Company and
each Subsidiary, enforceable in accordance with their terms, except to the
extent that enforcement may be limited by bankruptcy, insolvency or similar laws
affecting the enforcement of creditor's rights generally.
Section 7.06 Approvals. No authorizations, approvals or consents of,
and no filings or registrations with, any Governmental Authority are necessary
for the execution, delivery or performance by the Company or any Subsidiary of
the Loan Documents or for the validity or enforceability thereof.
Section 7.07 Use of Loans. The proceeds of the Loans shall be used
for acquisition funding, working capital or general corporate purposes of the
Company. Neither the Company nor any Designated Subsidiary is engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose, whether immediate, incidental or ultimate, of buying or
carrying margin stock (within the meaning of Regulation G, U or X of the Board
of Governors of the Federal Reserve System). Following application of the
proceeds of each Borrowing, not more than 25 percent of the value of the assets
(either of each Obligor only or of the Company and its Subsidiaries on a
consolidated basis), which are subject to any arrangement with the
Administrative Agent or any Lender (herein or otherwise) whereby the Company's
or any Subsidiary's right or ability to sell, pledge or otherwise dispose of
assets is in any way restricted, will be margin stock (within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System).
Section 7.08 ERISA. As of the Closing Date, except as would not have
a Material Adverse Effect:
(a) The Company, the Subsidiaries and each ERISA Affiliate have
complied in all material respects with ERISA and, where applicable, the
Code regarding each Plan.
(b) No act, omission or transaction has occurred which could result in
imposition on the Company, any Subsidiary or any ERISA Affiliate (whether
directly or indirectly) of (i) either a material civil penalty assessed
pursuant to subsections (c), (i) or (l) of section 502 of ERISA or a tax
imposed pursuant to Chapter 43 of Subtitle D of the Code or (ii) breach of
fiduciary duty liability damages under section 409 of ERISA.
(c) No liability to the PBGC (other than for the payment of current
premiums which are not past due) by the Company, any Subsidiary or any
ERISA Affiliate has been or is expected by the Company, any Subsidiary or
any ERISA Affiliate to be incurred with respect to any Plan. No ERISA
Event with respect to any Plan has occurred which could result in a
liability of the Company, any Subsidiary or any ERISA Affiliate.
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(d) Full payment when due has been made of all amounts which the
Company, the Subsidiaries or any ERISA Affiliate is required under the
terms of each Plan or applicable law to have paid as contributions to such
Plan as of the date hereof, and no accumulated funding deficiency (as
defined in section 302 of ERISA and section 412 of the Code), whether or
not waived, exists with respect to any Benefit Plan.
(e) The actuarial present value of the benefit liabilities under each
Benefit Plan which is subject to Title IV of ERISA does not, as of the end
of the Company's most recently ended fiscal year, exceed the current value
of the assets (computed on a plan termination basis in accordance with
Title IV of ERISA) of such Benefit Plan allocable to such benefit
liabilities. The term "actuarial present value of the benefit liabilities"
shall have the meaning specified in section 4041 of ERISA.
(f) Neither the Company, the Subsidiaries nor any ERISA Affiliate has
received any notification (or has knowledge of any reason to expect) that
any Multiemployer Plan is in reorganization, is insolvent or has been
terminated, within the meaning of Title IV of ERISA.
(g) Neither the Company, the Subsidiaries nor any ERISA Affiliate is
required to provide security under section 401(a)(29) of the Code due to a
Plan amendment that results in an increase in current liability for the
Plan.
Section 7.09 Taxes. Except as set out in Schedule 7.09, each of the
Company and its Subsidiaries has filed all United States Federal income tax
returns and all other tax returns which are required to be filed by them and has
paid all material taxes due pursuant to such returns or pursuant to any
assessment received by the Company or any Subsidiary except for any such tax,
assessment, charge or levy the payment of which is being contested in good faith
and by proper proceedings and against which adequate reserves are being
maintained. The charges, accruals and reserves on the books of the Company and
its Subsidiaries in respect of taxes and other governmental charges are, in the
opinion of the Company, adequate. No tax lien has been filed and, to the
knowledge of the Company, no claim is being asserted with respect to any such
tax, fee or other charge.
Section 7.10 Titles, etc. To the best of the Company's knowledge:
(a) Except as set out in Schedule 7.10, each of the Company and the
Designated Subsidiaries and Subsidiary Guarantors has good and defensible
title to its material (individually or in the aggregate) Properties in all
material respects, free and clear of all Liens except Liens permitted by
Section 9.02.
(b) All leases and agreements necessary for the conduct of the
business of the Company and the Designated Subsidiaries and Subsidiary
Guarantors are valid and subsisting, in full force and effect and there
exists no default or event or circumstance which with the giving of notice
or the passage of time or both would
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give rise to a default under any such lease or leases, which would affect
in any material respect the conduct of the business of the Company and the
Designated Subsidiaries and Subsidiary Guarantors.
(c) The rights, properties and other assets presently owned, leased or
licensed by the Company and the Designated Subsidiaries and Subsidiary
Guarantors including, without limitation, all easements and rights of way,
include all rights, Properties and other assets necessary to permit the
Company and the Designated Subsidiaries and Subsidiary Guarantors to
conduct their business in all material respects in the same manner as its
business has been conducted prior to the Closing Date.
Section 7.11 No Material Misstatements. No information, exhibit or
report furnished to the Agents or the Lenders by or on behalf of the Company or
any Subsidiary in connection with the negotiation and administration of this
Agreement contains any material misstatement of fact or omits to state a
material fact necessary in order to make the statements contained therein not
misleading.
Section 7.12 Investment Company Act. Neither the Company nor any
Subsidiary is an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
Section 7.13 Public Utility Holding Company Act. Neither the Company
nor any Subsidiary is a "holding company," or a "subsidiary company" of a
"holding company," or an "affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company," or a "public utility" within the meaning of the
Public Utility Holding Company Act of 1935, as amended.
Section 7.14 Subsidiaries and Partnerships. On the Closing Date,
except as set forth on Schedule 7.14, the Company has no Subsidiaries and
neither the Company nor any Subsidiary has any interest in any general or
limited partnerships, but excluding solely tax partnerships and oil and gas
joint ventures under joint operating agreements.
Section 7.15 Location of Business and Offices. On the Closing Date,
the Company's chief executive offices are located at the address stated on the
signature page of this Agreement. On the Closing Date, the chief executive
office of each Subsidiary is located at the addresses stated on Schedule 7.14.
Section 7.16 Defaults.
(a) As of the Closing Date, neither the Company nor any Subsidiary is
in default nor has any event or circumstance occurred which, but for the
expiration of any applicable grace period or the giving of notice, or both,
would constitute a default under any agreement or instrument for borrowed
money to which the
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Company or any Subsidiary is a party or by which the Company or any
Subsidiary is bound.
(b) No Default has occurred and is continuing.
Section 7.17 Environmental Matters. As of the Closing Date except
(i) as provided in Schedule 7.17 or (ii) as would not have a Material Adverse
Effect (or with respect to (c), (d) and (e) below, where the failure to take
such actions would not have a Material Adverse Effect):
(a) Neither any Property of the Company or any Subsidiary nor the
operations conducted thereon violate any order or requirement of any court
or Governmental Authority or any Environmental Laws;
(b) Without limitation of clause (a) above, no Property of the Company
or any Subsidiary nor the operations currently conducted thereon or, to the
best knowledge of the Company, by any prior owner or operator of such
Property or operation, are in violation of or subject to any existing,
pending or threatened action, suit, investigation, inquiry or proceeding by
or before any court or Governmental Authority or to any remedial
obligations under Environmental Laws;
(c) All notices, permits, licenses or similar authorizations, if any,
required to be obtained or filed in connection with the operation or use of
any and all Property of the Company and each Subsidiary, including without
limitation past or present treatment, storage, disposal or release of a
hazardous substance or solid waste into the environment, have been duly
obtained or filed, and the Company and each Subsidiary are in compliance
with the terms and conditions of all such notices, permits, licenses and
similar authorizations;
(d) All hazardous substances, solid waste, and oil and gas exploration
and production wastes, if any, generated at any and all Property of the
Company or any Subsidiary have in the past been transported, treated and
disposed of in accordance with Environmental Laws and so as not to pose an
imminent and substantial endangerment to public health or welfare or the
environment, and, to the best knowledge of the Company, all such transport
carriers and treatment and disposal facilities have been and are operating
in compliance with Environmental Laws and so as not to pose an imminent and
substantial endangerment to public health or welfare or the environment,
and are not the subject of any existing, pending or threatened action,
investigation or inquiry by any Governmental Authority in connection with
any Environmental Laws;
(e) The Company has taken all steps reasonably necessary to determine
and has determined that no hazardous substances, solid waste, or oil and
gas exploration and production wastes, have been disposed of or otherwise
released and there has been no threatened release of any hazardous
substances on or to any
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Property of the Company or any Subsidiary except in compliance with
Environmental Laws and so as not to pose an imminent and substantial
endangerment to public health or welfare or the environment;
(f) To the extent applicable, all Property of the Company and each
Subsidiary currently satisfies all design, operation, and equipment
requirements imposed by the OPA or scheduled as of the Closing Date to be
imposed by OPA during the term of this Agreement, and the Company does not
have any reason to believe that such Property, to the extent subject to
OPA, will not be able to maintain compliance with the OPA requirements
during the term of this Agreement; and
(g) Neither the Company nor any Subsidiary has any known contingent
liability in connection with any release or threatened release of any oil,
hazardous substance or solid waste into the environment.
Section 7.18 Compliance with Laws. As of the Closing Date, neither
the Company nor any Subsidiary has violated any Governmental Requirement or
failed to obtain any license, permit, franchise or other governmental
authorization necessary for the ownership of any of its Properties or the
conduct of its business, which violation or failure would have (in the event
such violation or failure were asserted by any Person through appropriate
action) a Material Adverse Effect.
Section 7.19 Pari Passu. The Indebtedness ranks and will rank at
least pari passu in priority with all other senior debt of each Obligor, except
for secured debt permitted by Section 9.02.
ARTICLE VIII
AFFIRMATIVE COVENANTS
The Company covenants and agrees that, so long as any of the Commitments
are in effect and until payment in full of all Loans hereunder, all interest
thereon and all other amounts payable by the Obligors hereunder:
Section 8.01 Financial Statements. The Company shall deliver, or
shall cause to be delivered, to the Administrative Agent with sufficient copies
of each for the Lenders:
(a) As soon as available and in any event within one hundred twenty
(120) days after the end of each fiscal year of the Company, (i) the
Company's Form 10-K filed with the SEC or (ii) the audited consolidated
statements of income, shareholders' equity, and cash flows of the Company
and its Consolidated Subsidiaries for such fiscal year, and the related
consolidated balance sheet of the Company and its Consolidated Subsidiaries
as at the end of such fiscal year, and setting forth in each case in
comparative form the corresponding figures as of the
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end of and for the preceding fiscal year, and accompanied by the related
opinion of independent public accountants of recognized national standing
acceptable to the Administrative Agent which opinion shall state that said
financial statements fairly present the consolidated financial condition,
results of operations and cash flows of the Company and its Consolidated
Subsidiaries as at the end of, and for, such fiscal year and that such
financial statements have been prepared in accordance with GAAP except for
such changes in such principles with which the independent public
accountants shall have concurred and such opinion shall not contain a
"going concern" or like qualification or exception, and a certificate of
such accountants stating that, in making the examination necessary for
their opinion, they obtained no knowledge, except as specifically stated,
of any Default.
(b) As soon as available and in any event within sixty (60) days after
the end of each of the first three fiscal quarterly periods of each fiscal
year of the Company, (i) the Company's Form 10-Q filed with the SEC or (ii)
unaudited consolidated statements of income, shareholders' equity, and cash
flows of the Company and its Consolidated Subsidiaries for such period and
for the period from the beginning of the respective fiscal year to the end
of such period, and the related consolidated balance sheets as at the end
of such period, and setting forth in each case in comparative form the
corresponding figures as of the end of and for the corresponding period in
the preceding fiscal year, accompanied by the certificate of a Responsible
Officer, which certificate shall state that said financial statements
fairly present the consolidated financial condition, results of operations
and cash flows of the Company and its Consolidated Subsidiaries in
accordance with GAAP, as at the end of, and for, such period (subject to
normal year-end adjustments).
(c) Promptly after a Responsible Officer of the Company knows that any
Default has occurred, a notice of such Default, describing the same in
reasonable detail and the action the Company proposes to take with respect
thereto.
(d) Promptly upon its becoming available, each financial statement,
report, notice or proxy statement sent by the Company to stockholders
generally and each regular or periodic report and any registration
statement or prospectus in respect thereof filed by the Company with or
received by the Company in connection therewith from any securities
exchange or the SEC or any successor agency, including without limitation,
Form 10-K's and Form 10-Q's.
(e) As soon as available and in any event within one hundred twenty
(120) days after the end of the fiscal year of the Company, the unaudited
balance sheet of each Designated Subsidiary as at the end of the Company's
fiscal year, certified by a Responsible Officer, which certificate shall
state that said balance sheet fairly presents the financial condition of
the respective Designated Subsidiary.
The Company will furnish to the Administrative Agent, with sufficient copies for
the Lenders, at the time it furnishes each set of financial statements pursuant
to paragraph (a)
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or (b) above, a certificate substantially in the form of Exhibit H executed by a
Responsible Officer (i) certifying as to the matters set forth therein and
stating that no Default has occurred and is continuing (or, if any Default has
occurred and is continuing, describing the same in reasonable detail), (ii)
setting forth in reasonable detail the computations necessary to determine
whether the Company is in compliance with Section 9.01 as of the end of the
respective fiscal quarter or fiscal year and (iii) certifying that the Company
is in compliance with Section 8.08 or will be in compliance within the next 30
days and listing the Subsidiaries and Special Entities, if any, that will be
executing Guaranty Agreements.
Section 8.02 Litigation. The Company shall promptly give to the
Administrative Agent, with sufficient copies for the Lenders, notice of all
legal or arbitral proceedings, and of all proceedings before any Governmental
Authority affecting the Company or any Subsidiary, except proceedings which, if
adversely determined, would not have a Material Adverse Effect.
Section 8.03 Maintenance, Etc.
(a) The Company shall and shall cause each Subsidiary Guarantor and
Designated Subsidiary to: preserve and maintain the Company's corporate
existence and all of its material rights, privileges and franchises; keep
books of record and account in which full, true and correct entries will be
made of all dealings or transactions in relation to its business and
activities; comply with all Governmental Requirements if failure to comply
with such requirements will have a Material Adverse Effect; pay and
discharge all taxes, assessments and governmental charges or levies imposed
on it or on its income or profits or on any of its Property prior to the
date on which penalties attach thereto, except for any such tax,
assessment, charge or levy the payment of which is being contested in good
faith and by proper proceedings and against which adequate reserves are
being maintained; during the continuance of an Event of Default and upon
reasonable notice, permit representatives of the Administrative Agent,
during normal business hours, to examine its books and records, to inspect
its Properties, and to discuss its business and affairs with its financial
officers, all to the extent reasonably requested by the Administrative
Agent and to the extent requested by the President of the Administrative
Agent, copy and make extracts of its books and records; and keep, or cause
to be kept, insured by financially sound and reputable insurers all
Property of a character usually insured by Persons engaged in the same or
similar business similarly situated against loss or damage of the kinds and
in the amounts customarily insured against by such Persons and carry such
other insurance as is usually carried by such Persons including, without
limitation, pollution liability insurance to the extent reasonably
available.
(b) Contemporaneously with the delivery of the financial statements
required by Section 8.01(a) to be delivered for each year, the Company will
furnish or cause to be furnished to the Administrative Agent a certificate
of insurance coverage from the insurer in substantially the form provided
at the closing of this
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Agreement and, if requested, will furnish the Administrative Agent copies
of the applicable policies.
Section 8.04 Environmental Matters.
(a) The Company will and will cause each Subsidiary to establish and
implement such procedures as may be reasonably necessary to continuously
determine and assure that any failure of the following does not have a
Material Adverse Effect: (i) all Property of the Company and its
Subsidiaries and the operations conducted thereon and other activities of
the Company and its Subsidiaries are in compliance with and do not violate
the requirements of any Environmental Laws, (ii) no oil, hazardous
substances or solid wastes are disposed of or otherwise released on or to
any Property owned by any such party except in compliance with
Environmental Laws, (iii) no hazardous substance will be released on or to
any such Property in a quantity equal to or exceeding that quantity which
requires reporting pursuant to Section 103 of CERCLA, and (iv) no oil, oil
and gas exploration and production wastes or hazardous substance is
released on or to any such Property so as to pose an imminent and
substantial endangerment to public health or welfare or the environment.
(b) The Company will promptly notify the Administrative Agent and the
Lenders in writing of any threatened action, investigation or inquiry by
any Governmental Authority of which the Company has knowledge in connection
with any Environmental Laws which may have a Material Adverse Effect.
Section 8.05 Further Assurances. The Company will and will cause
each Subsidiary to cure promptly any defects in the creation and issuance of the
Notes and the execution and delivery of the other Loan Documents and this
Agreement. The Company at its expense will and will cause each Subsidiary to
promptly execute and deliver to the Administrative Agent upon request all such
other documents, agreements and instruments to comply with or accomplish the
covenants and agreements of the Company or any Subsidiary, as the case may be,
in the other Loan Documents and this Agreement, or to further evidence and more
fully describe the collateral intended as security for the Notes, or to correct
any omissions in the other Loan Documents, or to perfect, protect or preserve
any Liens created pursuant to any of the other Loan Documents, or to make any
recordings, to file any notices or obtain any consents, all as may be necessary
or appropriate in connection therewith.
Section 8.06 ERISA Information and Compliance. The Company will
promptly furnish and will cause the Subsidiaries and any ERISA Affiliate to
promptly furnish to the Administrative Agent (i) immediately upon becoming aware
of the occurrence of any ERISA Event which could result in a liability of the
Company, any Subsidiary or any ERISA Affiliate having a Material Adverse Effect
(individually or in the aggregate with respect to all ERISA Events), a written
notice signed by the President or the principal financial officer of the
Company, the Subsidiary or the ERISA Affiliate, as the case may be,
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specifying the nature thereof, what action the Company, the Subsidiary or the
ERISA Affiliate is taking or proposes to take with respect thereto, and, when
known, any action taken or proposed by the Internal Revenue Service, the
Department of Labor or the PBGC with respect thereto, (ii) promptly after
request by the Administrative Agent, a true and correct copy of each actuarial
report for any Plan and each annual report for any Multiemployer Plan, (iii)
immediately upon receipt of a notice from a Multiemployer Plan regarding the
imposition of Withdrawal Liability having a Material Adverse Effect, a true and
complete copy of such notice, (iv) immediately upon becoming aware that a
Multiemployer Plan has been terminated, that the administrator or plan sponsor
of a Multiemployer Plan intends to terminate a Multiemployer Plan, or that the
PBGC has instituted or intends to institute proceedings under section 4042 of
ERISA to terminate a Multiemployer Plan which occurrence would have a Material
Adverse Effect, a written notice signed by the President or the principal
financial officer of the Company, the Subsidiary or the ERISA Affiliate, as the
case may be, specifying the nature of such occurrence and any other information
relating thereto requested by the Administrative Agent, and (v) immediately upon
receipt thereof, copies of any notice of the PBGC's intention to terminate or to
have a trustee appointed to administer any Benefit Plan which occurrence would
have a Material Adverse Effect.
Section 8.07 Lease Payments. The Company will cause its obligations
to Enserch Exploration Holdings, Inc. to be subordinated to the Indebtedness on
terms substantially similar to the terms set forth on Exhibit M or on terms and
subject to documentation satisfactory to the Administrative Agent.
Section 8.08 Subsidiary Guaranty Agreements. The Company will cause
each of its Subsidiaries and Special Entities to execute a Subsidiary Guaranty
Agreement, except for such Subsidiaries and Special Entities that in the
aggregate do not have assets at book value in excess of 15% of the total
consolidated assets at book value of the Company. The Company shall have 30
days from the date of delivery of each Compliance Certificate to comply with
this covenant. At the time that a Subsidiary or Special Entity executes and
delivers a Subsidiary Guaranty Agreement to the Administrative Agent it shall
also deliver to the Administrative Agent the following in form and substance
acceptable to the Administrative Agent:
(a) A certificate of the Secretary or an Assistant Secretary of each
Subsidiary Guarantor setting forth (i) resolutions of its board of
directors or appropriate Persons with respect to the authorization of such
Subsidiary Guarantor to execute and deliver the Loan Documents to which it
is a party and to enter into the transactions contemplated in those
documents, (ii) the officers of such Subsidiary Guarantor (y) who are
authorized to sign the Loan Documents to which such Subsidiary Guarantor is
a party and (z) who will, until replaced by another officer or officers
duly authorized for that purpose, act as its representative for the
purposes of signing documents and giving notices and other communications
in connection with this Agreement and the transactions contemplated hereby,
(iii) specimen signatures of the authorized officers, and (iv) the articles
or certificate of
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incorporation and bylaws or appropriate document of governance of such
Subsidiary Guarantor, certified as being true and complete. The Agents and
the Lenders may conclusively rely on such certificate until they receive
notice in writing from the Company to the contrary.
(b) An opinion of counsel to the Subsidiary Guarantor, substantially
in the form of Exhibit N.
ARTICLE IX
NEGATIVE COVENANTS
The Company covenants and agrees that, so long as any of the Commitments
are in effect and until payment in full of Loans hereunder and all interest
thereon without the prior written consent of the Majority Lenders:
Section 9.01 Debt to Capital Ratio. The Company will not permit its
ratio ("Debt to Capital Ratio") expressed as a percentage of (i) Debt of the
Company and its Consolidated Subsidiaries on a consolidated basis ("Consolidated
Debt") to (ii) the sum of Consolidated Debt plus Net Worth to exceed 60% at any
time; provided that in no event will Consolidated Debt ever exceed $750,000,000.
Section 9.02 Liens. Except as expressly permitted in this Section
9.02, the Company will not at any time, directly or indirectly, create, assume
or suffer to exist, and will not cause, suffer or permit any Designated
Subsidiary or Subsidiary Guarantor as long as it remains a Designated Subsidiary
or Subsidiary Guarantor, directly or indirectly, to create, assume or suffer to
exist, except in favor of the Company, any Lien upon any of its Properties (now
owned or hereafter acquired), without making effective provision (and the
Company covenants that in any such case it will make or cause to be made
effective provision) whereby the Indebtedness and any other Debt of the Company
or any Designated Subsidiary or Subsidiary Guarantor then entitled thereto shall
be secured by such Lien equally and ratably with any and all other obligations
and indebtedness thereby secured, so long as any such other obligations or
indebtedness shall be so secured. Nothing in this Agreement shall be construed
to prevent the Company or any Designated Subsidiary or Subsidiary Guarantor
without so securing the amounts outstanding hereunder, from creating, assuming
or suffering to exist the following Liens, to which the provisions of this
paragraph shall not be applicable:
(a) Liens upon any Property presently owned or hereafter acquired,
created at the time of acquisition to secure a portion of the purchase
price thereof, or existing thereon at the date of acquisition, whether or
not assumed by the Company or one of its Designated Subsidiaries or
Subsidiary Guarantors, provided that every such Lien shall apply only to
the Property so acquired and fixed improvements thereon;
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(b) any extension, renewal, or refunding of any Lien permitted by
Section 9.02(a), if limited to the same Property subject to, and securing
not more than the amount secured by, the Lien extended, renewed or
refunded;
(c) the pledge of current assets in the ordinary course of business,
to secure current liabilities;
(d) Liens upon (i) Property, to secure obligations to pay all or a
part of the purchase price of such Property only out of or measured by the
production, or the proceeds of such production, from such Property of oil
or gas or products or by-products thereof, or (ii) the production from
Property of oil or gas or products or by-products thereof, or the proceeds
of such production, to secure obligations to pay all or a part of the
expenses of exploration, drilling or development of such Property only out
of such production or the proceeds of such production;
(e) mechanics' or materialmen's liens, good faith deposits in
connection with tenders, leases of real estate, bids or contracts (other
than contracts for the payment of money), deposits to secure public or
statutory obligations, deposits to secure, or in lieu of, surety, stay or
appeal bonds, and deposits as security for the payment of taxes or
assessments or similar charges, Liens given in connection with bid or
completion bonds; provided that such obligations secured are not yet due or
are being contested in good faith by appropriate action and against which
an adequate reserve has been established;
(f) any Lien arising by reason of deposits with, or the giving of any
form of security to, any governmental agency or any body created or
approved by law or governmental regulation for any purposes at any time as
required by law or governmental regulation as a condition to the
transaction of any business or the exercise of any privilege or license, or
to enable the Company or a Subsidiary to maintain self-insurance or to
participate in any funds established to cover any insurance risks or in
connection with workmen's compensation, unemployment insurance, old age
pensions or other social security, or to share in the privileges or
benefits required for companies participating in such arrangements;
provided that such obligations secured are not yet due or are being
contested in good faith by appropriate action and against which an adequate
reserve has been established;
(g) the pledge or assignment of accounts receivable, including
customers' installment paper, to banks or others made in the ordinary
course of business (including to or by a Subsidiary which is principally
engaged in the business of financing the business of the Company and its
Subsidiaries);
(h) the Liens of taxes or assessments for the then current year or not
at the time due, or the Liens of taxes or assessments already due but the
validity of which is being contested in good faith by appropriate action
and against which an adequate reserve has been established;
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(i) any judgment or Lien against the Company or a Designated
Subsidiary or Subsidiary Guarantor, so long as the finality of such
judgment is being contested in good faith by appropriate action and the
execution thereon is stayed;
(j) assessments or similar encumbrances, the existence of which does
not impair the value or the use of the Property subject thereto for the
purposes for which it was acquired;
(k) landlords' liens on fixtures and movable Property located on
premises leased by the Company or a Designated Subsidiary or Subsidiary
Guarantor in the ordinary course of business so long as the rent secured
thereby is not in default;
(l) Liens on the assets of any limited liability company organized
under a limited liability company act of any state in which a limited
liability company is treated as a partnership for federal income tax
purposes; provided that neither the Company nor any Designated Subsidiary
or Subsidiary Guarantor is liable for the Debt of such limited liability
company; and
(m) other Liens on any Properties of the Company or any Subsidiary
with an aggregate value not exceeding 1% of the book value of the total
assets of the Company on a consolidated basis.
Section 9.03 Investments, Loans and Advances. So long as any Loans
are outstanding, neither the Company nor any Subsidiary will make any loans or
advances to ENSERCH Corporation or any of its subsidiaries (but excluding the
Company and its Subsidiaries) after the occurrence and during the continuance of
an Event of Default or in excess of $50,000,000 in the aggregate outstanding at
any one time for greater than a 90 day period.
Section 9.04 Dividends, Distributions and Redemptions. The Company
will not declare or pay any dividend, purchase, redeem or otherwise acquire for
value any of its stock now or hereafter outstanding, return any capital to its
stockholders or make any distribution of its assets to its stockholders after
the occurrence and during the continuance of an Event of Default.
Section 9.05 Nature of Business. The Company will not allow any
material change to be made in the character of its business as an independent
oil and gas exploration and production company.
Section 9.06 Mergers, Etc. Neither the Company nor any Subsidiary
will merge into or with or consolidate with any other Person, or sell, lease or
otherwise dispose of (whether in one transaction or in a series of transactions)
all or substantially all of its Property or assets to any other Person
("Disposition") unless (i) no Default exists or would result from such merger or
Disposition and (ii) for any merger the Company is the survivor, or for any
merger or Disposition, if the surviving Person or acquiring Person is not the
Company, such surviving Person or acquiring Person assumes the Indebtedness and
all other
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obligations of the Company under the Loan Documents and is approved by the
Majority Lenders.
Section 9.07 Proceeds of Notes. The Company will not permit the
proceeds of the Notes to be used for any purpose other than those permitted by
Section 7.07. Neither the Company nor any Person acting on behalf of the
Company has taken or will take any action which might cause any of the Loan
Documents to violate Regulation G, U or X or any other regulation of the Board
of Governors of the Federal Reserve System or to violate Section 7 of the
Securities Exchange Act of 1934, as amended, or any rule or regulation
thereunder, in each case as now in effect or as the same may hereafter be in
effect.
Section 9.08 ERISA Compliance. The Company and the Subsidiaries will
not at any time:
(a) Engage in, or permit any ERISA Affiliate to engage in, any
transaction in connection with which the Company, a Subsidiary or any ERISA
Affiliate could be subjected to either a civil penalty assessed pursuant to
subsections (c), (i) or (l) of section 502 of ERISA or a tax imposed by
Chapter 43 of Subtitle D of the Code;
(b) Terminate, or permit any ERISA Affiliate to terminate, any Benefit
Plan in a manner, or take any other action with respect to any Benefit
Plan, which could result in any liability of the Company, a Subsidiary or
any ERISA Affiliate to the PBGC;
(c) Fail to make, or permit any ERISA Affiliate to fail to make, full
payment when due of all amounts which, under the provisions of any Plan,
agreement relating thereto or applicable law, the Company, a Subsidiary or
any ERISA Affiliate is required to pay as contributions thereto;
(d) Permit to exist, or allow any ERISA Affiliate to permit to exist,
any accumulated funding deficiency within the meaning of section 302 of
ERISA or section 412 of the Code, whether or not waived, with respect to
any Benefit Plan;
(e) Permit, or allow any ERISA Affiliate to permit, the actuarial
present value of the benefit liabilities under any Benefit Plan maintained
by the Company, a Subsidiary or any ERISA Affiliate which is regulated
under Title IV of ERISA to exceed the current value of the assets (computed
on a plan termination basis in accordance with Title IV of ERISA) of such
Benefit Plan allocable to such benefit liabilities. The term "actuarial
present value of the benefit liabilities" shall have the meaning specified
in section 4041 of ERISA;
(f) Incur, or permit any ERISA Affiliate to incur, a liability to or
on account of a Plan under sections 4062, 4063, or 4064 of ERISA;
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(g) Amend, or permit any ERISA Affiliate to amend, a Plan resulting in
an increase in current liability such that the Company, a Subsidiary or any
ERISA Affiliate is required to provide security to such Plan under section
401(a)(29) of the Code; or
(h) Incur or permit Withdrawal Liability and liability in connection
with a reorganization or termination of a Multiemployer Plan of the
Company, the Subsidiaries and the ERISA Affiliates;
provided, however, that the transactions, events and occurrences described in
this Section 9.08 shall be permitted so long as such transactions, events and
occurrences (individually and in the aggregate) will not result in a Material
Adverse Effect.
Section 9.09 Environmental Matters. Neither the Company nor any
Subsidiary will cause or permit any of its Property to be in violation of, or do
anything or permit anything to be done which will subject any such Property to
any remedial obligations under, any Environmental Laws, assuming disclosure to
the applicable Governmental Authority of all relevant facts, conditions and
circumstances, if any, pertaining to such Property where such violations or
remedial obligations would have a Material Adverse Effect.
Section 9.10 Transactions with Affiliates. Neither the Company nor
any Designated Subsidiary nor any Subsidiary Guarantor will enter into any
material transaction, including, without limitation, any purchase, sale, lease
or exchange of Property including the purchase or sale of oil and gas properties
and hydrocarbons or the rendering of any service, with any Affiliate unless such
transactions are in the ordinary course of its business and are upon fair and
reasonable terms no less favorable to it than it would obtain in a comparable
arm's length transaction with a Person not an Affiliate.
Section 9.11 Restrictive Dividend Agreements. Neither the Company
nor any Designated Subsidiary nor any Subsidiary Guarantor will create, incur,
assume or suffer to exist any financing agreement (other than this Agreement and
the other Loan Documents) which in any way restricts any Designated Subsidiary
or Subsidiary Guarantor from paying dividends to the Company.
ARTICLE X
EVENTS OF DEFAULT; REMEDIES
Section 10.01 Events of Default. One or more of the following events
shall constitute an "Event of Default":
(a) (i) any Obligor shall default in the payment or prepayment of any
principal on any Loan when due or (ii) any Obligor shall default in the
payment of any interest on any Loan or any facility fees payable by it
hereunder and such default, other than a default of a payment or prepayment
of principal, shall continue
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unremedied for a period of five (5) days or (iii) any Obligor shall default
in the payment of any other amount payable by it hereunder or under any
other Loan Document and such default shall continue unremedied for a period
of thirty (30) days after notice of such default by the Administrative
Agent to the Company; or
(b) the Company or any Subsidiary shall default in the payment when
due of any principal of or interest on any of its other Debt of $25,000,000
or more, or any event specified in any note, agreement, indenture or other
document evidencing or relating to any Debt of $25,000,000 or more shall
occur if the effect of such event causes, or after the giving of any notice
or the lapse of time or both, if applicable, permits the holder or holders
of such Debt (or a trustee or agent on behalf of such holder or holders) to
cause, such Debt to become due prior to its stated maturity; or
(c) any representation, warranty or certification made or deemed made
herein or in any other Loan Documents by the Company, any Designated
Subsidiary or any Subsidiary Guarantor, or any certificate furnished to any
Lender or the Administrative Agent pursuant to the provisions hereof or any
other Loan Documents, shall prove to have been false or misleading as of
the time made, deemed made or furnished in any material adverse respect; or
(d) the Company shall default in the performance of any of its
obligations under Article IX; or
(e) the Company shall default in the performance of any of its
obligations under Article VIII or any other Loan Document or any other
Article of this Agreement other than under Article IX (other than the
payment of amounts due which shall be governed by Section 10.01(a)) and
such default shall continue unremedied for a period of thirty (30) days
after the earlier to occur of (i) notice thereof to the Company by the
Administrative Agent or any Lender (through the Administrative Agent), or
(ii) a Responsible Officer of the Company otherwise becoming aware of such
default; or
(f) the Company, any Designated Subsidiary or any Subsidiary Guarantor
shall admit in writing its inability to, or be generally unable to, pay its
debts as such debts become due; or
(g) the Company, any Designated Subsidiary or any Subsidiary Guarantor
shall (i) apply for or consent to the appointment of, or the taking of
possession by, a receiver, custodian, trustee or liquidator of itself or of
all or a substantial part of its Property, (ii) make a general assignment
for the benefit of its creditors, (iii) commence a voluntary case under the
Federal Bankruptcy Code (as now or hereafter in effect), (iv) file a
petition seeking to take advantage of any other law relating to bankruptcy,
insolvency, reorganization, winding-up, or composition or readjustment of
debts, (v) fail to controvert in a timely and appropriate manner, or
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acquiesce in writing to, any petition filed against it in an involuntary
case under the Federal Bankruptcy Code, or (vi) take any corporate or
partnership action for the purpose of effecting any of the foregoing; or
(h) a proceeding or case shall be commenced, without the application
or consent of the Company, any Designated Subsidiary or any Subsidiary
Guarantor, in any court of competent jurisdiction, seeking (i) its
liquidation, reorganization, dissolution or winding-up, or the composition
or readjustment of its debts, (ii) the appointment of a trustee, receiver,
custodian, liquidator or the like of the Company, any Designated Subsidiary
or any Subsidiary Guarantor of all or any substantial part of its Property,
or (iii) similar relief in respect of the Company, any Designated
Subsidiary or any Subsidiary Guarantor under any law relating to
bankruptcy, insolvency, reorganization, winding-up, or composition or
adjustment of debts, and such proceeding or case shall continue
undismissed, or an order, judgment or decree approving or ordering any of
the foregoing shall be entered and continue unstayed and in effect, for a
period of 90 days; or (iv) an order for relief against the Company, any
Designated Subsidiary or any Subsidiary Guarantor shall be entered in an
involuntary case under the Federal Bankruptcy Code; or
(i) a judgment or judgments for the payment of money in excess of
$25,000,000 in the aggregate shall be rendered by a court against the
Company or any Subsidiary Guarantor or Designated Subsidiaries and the same
shall not be discharged (or provision shall not be made for such
discharge), or a stay of execution thereof shall not be procured, within
thirty (30) days from the date of entry thereof and the Company or such
Subsidiary shall not, within said period of 30 days, or such longer period
during which execution of the same shall have been stayed, appeal therefrom
and cause the execution thereof to be stayed during such appeal; or
(j) the Guaranty Agreements after delivery thereof shall for any
reason, except to the extent permitted by the terms thereof, cease to be in
full force and effect and valid, binding and enforceable in accordance with
their terms, except to the extent permitted by the terms of this Agreement,
or the Company or any Subsidiary Guarantor shall so state in writing; or
(k) ENSERCH Corporation shall cease to own, directly or indirectly, at
least 50% of the outstanding voting stock of the Company.
Section 10.02 Remedies.
(a) In the case of an Event of Default other than one referred to in
clauses (f), (g), or (h) of Section 10.01, the Administrative Agent may
and, upon request of the Majority Lenders, shall, by notice to the Company,
cancel the Commitments and/or declare the principal amount then outstanding
of, and the accrued interest on, the Loans and all other amounts payable by
the Company hereunder and under the Notes to be forthwith due and payable,
whereupon such amounts shall be
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immediately due and payable without presentment, demand, protest, notice of
intent to accelerate, notice of acceleration or other formalities of any
kind, all of which are hereby expressly waived by the Company.
(b) In the case of the occurrence of an Event of Default referred to
in clauses (f), (g), or (h) of Section 10.01, the Commitments shall be
automatically cancelled and the principal amount then outstanding of, and
the accrued interest on, the Loans and all other amounts payable by the
Company hereunder and under the Notes shall become automatically
immediately due and payable without presentment, demand, protest, notice of
intent to accelerate, notice of acceleration or other formalities of any
kind, all of which are hereby expressly waived by the Company.
(c) All proceeds received after maturity of the Notes, whether by
acceleration or otherwise shall be applied first to reimbursement of
expenses and indemnities provided for in this Agreement and the other Loan
Documents; second to accrued interest on the Notes; third to fees; fourth
pro rata to principal outstanding on the Notes and other Indebtedness; and
any excess shall be paid to the Company or as otherwise required by any
Governmental Requirement.
ARTICLE XI
THE ADMINISTRATIVE AGENT
Section 11.01 Appointment, Powers and Immunities. Each Lender hereby
irrevocably appoints and authorizes Texas Commerce Bank National Association, as
the Administrative Agent, and Chemical Bank, as the Auction Agent, each to act
as its agent hereunder and under the other Loan Documents with such powers as
are specifically delegated to the Administrative Agent and Auction Agent
respectively by the terms of this Agreement and the other Loan Documents,
together with such other powers as are reasonably incidental thereto. The
Syndication Agent, in such capacity, shall have no duties or responsibilities
and shall incur no liabilities under the Loan Documents. Each Agent (which term
as used in this sentence and in Section 11.05 and the first sentence of Section
11.06 shall include reference to its Affiliates and its and its Affiliates'
officers, directors, employees, attorneys, accountants, experts and agents):
(i) shall have no duties or responsibilities except those expressly set forth in
this Agreement, and shall not by reason of this Agreement be a trustee or
fiduciary for any Lender; (ii) makes no representation or warranty to any Lender
and shall not be responsible to the Lenders for any recitals, statements,
representations or warranties contained in this Agreement, or in any certificate
or other document referred to or provided for in, or received by any of them
under, this Agreement, or for the value, validity, effectiveness, genuineness,
execution, effectiveness, legality, enforceability or sufficiency of this
Agreement, any Note or any other document referred to or provided for herein or
for any failure by the Company or any other Person (other than such Agent) to
perform any of its obligations hereunder or thereunder or for the existence,
value, perfection or priority of any collateral security or the financial or
other
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condition of the Company, its Subsidiaries or any other obligor or guarantor;
(iii) except pursuant to Section 11.07 shall not be required to initiate or
conduct any litigation or collection proceedings hereunder; and (iv) shall not
be responsible for any action taken or omitted to be taken by it hereunder or
under any other document or instrument referred to or provided for herein or in
connection herewith including its own ordinary negligence, except for its own
gross negligence or willful misconduct. The Administrative Agent may employ
agents, accountants, attorneys and experts and shall not be responsible for the
negligence or misconduct of any such agents, accountants, attorneys or experts
selected by it in good faith or any action taken or omitted to be taken in good
faith by it in accordance with the advice of such agents, accountants, attorneys
or experts. Each Agent may deem and treat the payee of any Note as the holder
thereof for all purposes hereof unless and until a written notice of the
assignment or transfer thereof permitted hereunder shall have been filed with
the Administrative Agent.
Section 11.02 Reliance by Agent. Each Agent shall be entitled to
rely upon any certification, notice or other communication (including any
thereof by telephone, telex, telecopier, telegram or cable) believed by it to be
genuine and correct and to have been signed or sent by or on behalf of the
proper Person or Persons, and upon advice and statements of legal counsel,
independent accountants and other experts selected by such Agent.
Section 11.03 Defaults. No Agent shall be deemed to have knowledge
of the occurrence of a Default (other than the Administrative Agent's notice of
the non-payment of principal of or interest on Loans or of fees). In the event
that the Administrative Agent receives a notice of the occurrence of a Default
specifying such Default and stating that such notice is a "Notice of Default",
the Administrative Agent shall give prompt notice thereof to the Lenders. In
the event of a payment Default, the Administrative Agent shall give each Lender
prompt notice of each such payment Default.
Section 11.04 Rights as a Lender. With respect to its Commitments
and the Loans made by it, each Agent (and any successor acting as an Agent) in
its capacity as a Lender hereunder shall have the same rights and powers
hereunder as any other Lender and may exercise the same as though it were not
acting as an Agent, and the term "Lender" or "Lenders" shall, unless the context
otherwise indicates, include each Agent in its individual capacity. Each Agent
(and any successor acting as an Agent) and its Affiliates may (without having to
account therefor to any Lender) accept deposits from, lend money to and
generally engage in any kind of banking, trust or other business with the
Company (any and of its Affiliates) as if it were not acting as an Agent, and
each Agent and its Affiliates may accept fees and other consideration from the
Company for services in connection with this Agreement or otherwise without
having to account for the same to the Lenders.
Section 11.05 INDEMNIFICATION. THE LENDERS AGREE TO INDEMNIFY EACH
AGENT RATABLY IN ACCORDANCE WITH ITS PERCENTAGE SHARES FOR THE INDEMNITY MATTERS
AS DESCRIBED IN SECTION 12.03 TO THE EXTENT NOT INDEMNIFIED OR REIMBURSED
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BY THE COMPANY UNDER SECTION 12.03, BUT WITHOUT LIMITING THE OBLIGATIONS OF THE
COMPANY UNDER SAID SECTION 12.03 AND FOR ANY AND ALL OTHER LIABILITIES,
OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS,
EXPENSES OR DISBURSEMENTS OF ANY KIND AND NATURE WHATSOEVER WHICH MAY BE IMPOSED
ON, INCURRED BY OR ASSERTED AGAINST SUCH AGENT IN ANY WAY RELATING TO OR ARISING
OUT OF: (I) THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR ANY OTHER DOCUMENTS
CONTEMPLATED BY OR REFERRED TO HEREIN OR THE TRANSACTIONS CONTEMPLATED HEREBY,
BUT EXCLUDING, UNLESS A DEFAULT HAS OCCURRED AND IS CONTINUING, NORMAL
ADMINISTRATIVE COSTS AND EXPENSES INCIDENT TO THE PERFORMANCE OF ITS AGENCY
DUTIES HEREUNDER OR (II) THE ENFORCEMENT OF ANY OF THE TERMS OF THIS AGREEMENT,
OTHER LOAN DOCUMENTS OR OF ANY SUCH OTHER DOCUMENTS; WHETHER OR NOT ANY OF THE
FOREGOING SPECIFIED IN THIS SECTION 11.05 ARISES FROM THE SOLE OR CONCURRENT
NEGLIGENCE OF SUCH AGENT, PROVIDED THAT NO LENDER SHALL BE LIABLE FOR ANY OF THE
FOREGOING TO THE EXTENT THEY ARISE FROM THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT OF SUCH AGENT.
Section 11.06 Non-Reliance on the Agents and other Lenders. Each
Lender acknowledges and agrees that it has, independently and without reliance
on any Agent or any other Lender, and based on such documents and information as
it has deemed appropriate, made its own credit analysis of the Company and its
decision to enter into this Agreement, and that it will, independently and
without reliance upon any Agent or any other Lender, and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own analysis and decisions in taking or not taking action under this Agreement.
The Agents shall not be required to keep themselves informed as to the
performance or observance by the Company of this Agreement, the Notes, the other
Loan Documents or any other document referred to or provided for herein or to
inspect the properties or books of the Company. Except for notices, reports and
other documents and information expressly required to be furnished to the
Lenders by the Administrative Agent or Auction Agent hereunder, the Agents shall
not have any duty or responsibility to provide any Lender with any credit or
other information concerning the affairs, financial condition or business of the
Company (or any of its Affiliates) which may come into the possession of any
Agent, or any of its Affiliates.
Section 11.07 Action by Agent. Except for action or other matters
expressly required of the Administrative Agent or Auction Agent hereunder, the
Administrative Agent or Auction Agent shall in all cases be fully justified in
failing or refusing to act hereunder unless it shall (i) receive written
instructions from the Majority Lenders (or if this Agreement requires, all of
the Lenders) specifying the action to be taken, and (ii) be indemnified to its
satisfaction by the Lenders against any and all liability and expenses which may
be incurred by it by reason of taking or continuing to take any such action
except for gross negligence or wilful misconduct. The instructions of the
Majority Lenders (or if this Agreement requires, all of the Lenders) and any
action taken or failure to act pursuant thereto by the Administrative Agent or
Auction Agent shall be binding on all of the Lenders. If a Default has occurred
and is continuing, the Administrative Agent or Auction Agent shall take such
action with respect to such Default as shall be directed by the
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Majority Lenders (or if this Agreement requires, all of the Lenders) in the
written instructions (with indemnities) described in this Section 11.07,
provided that, unless and until the Administrative Agent or Auction Agent shall
have received such directions, the Administrative Agent or Auction Agent may
(but shall not be obligated to) take such action, or refrain from taking such
action, with respect to such Default as it shall deem advisable in the best
interests of the Lenders. In no event, however, shall any Agent be required to
take any action which exposes such Agent to personal liability or which is
contrary to this Agreement and the other Loan Documents or applicable law.
Section 11.08 Resignation or Removal of the Agents. Subject to the
appointment and acceptance of a successor as provided below, the Administrative
Agent or Auction Agent may resign at any time by giving notice thereof to the
Lenders and the Company, and the Administrative Agent or Auction Agent may be
removed at any time with or without cause by the Majority Lenders. Upon any
such resignation or removal, the Majority Lenders shall have the right to
appoint a successor Administrative Agent or Auction Agent as the case may be.
If no successor Administrative Agent or Auction Agent shall have been so
appointed by the Majority Lenders and shall have accepted such appointment
within thirty (30) days after the retiring Administrative Agent's or Auction
Agent's giving of notice of resignation or the Majority Lenders' removal of the
retiring Administrative Agent or Auction Agent, then the retiring Administrative
Agent or Auction Agent, as the case may be, may, on behalf of the Lenders,
appoint a respective successor Administrative Agent or Auction Agent. Upon the
acceptance of such appointment hereunder by a successor Administrative Agent or
Auction Agent, such successor Administrative Agent or Auction Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Administrative Agent or Auction Agent, as the case
may be, and the retiring Administrative Agent or Auction Agent shall be
discharged from its duties and obligations hereunder. After any retiring
Administrative Agent's or Auction Agent's resignation or removal hereunder as
Administrative Agent or Auction Agent, the provisions of this Article XI and
Section 12.03 shall continue in effect for its benefit in respect of any actions
taken or omitted to be taken by it while it was acting as the Administrative
Agent or Auction Agent.
ARTICLE XII
MISCELLANEOUS
Section 12.01 Waiver. No failure on the part of any Agent or any
Lender to exercise and no delay in exercising, and no course of dealing with
respect to, any right, power or privilege under any of the Loan Documents shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or privilege under any of the Loan Documents preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The remedies provided herein are cumulative and not exclusive of any remedies
provided by law.
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Section 12.02 Notices. All notices and other communications provided
for herein and in the other Loan Documents (including, without limitation, any
modifications of, or waivers or consents under, this Agreement or the other Loan
Documents) shall be given or made by telex, telecopy, telegraph, cable, courier
or U.S. Mail or in writing and telexed, telecopied, telegraphed, cabled, mailed
or delivered to the intended recipient at the "Address for Notices" specified
below its name on the signature pages hereof or in the other Loan Documents or,
as to any party, at such other address as shall be designated by such party in a
notice to each other party. Except as otherwise provided in this Agreement or
in the other Loan Documents, all such communications shall be deemed to have
been duly given when transmitted by telex or telecopier, delivered to the
telegraph or cable office or personally delivered or, in the case of a mailed
notice, three (3) Business Days after the date deposited in the mails, postage
prepaid, in each case given or addressed as aforesaid. The Company shall be the
agent of each Designated Subsidiary for the receiving and giving of any notices
or other communications under the Loan Documents.
Section 12.03 Payment of Expenses, Indemnities, etc. Each Obligor
agrees:
(a) whether or not the transactions hereby contemplated are
consummated, to pay all reasonable expenses of the Agents in the
administration (both before and after the execution hereof and including
advice of counsel as to the rights and duties of the Agents and the Lenders
with respect thereto) of, and in connection with the negotiation,
syndication, investigation, preparation, execution and delivery of,
recording or filing of, preservation of rights under, enforcement of, and
refinancing, renegotiation or restructuring of, the Loan Documents and any
amendment, waiver or consent relating thereto (including, without
limitation, travel, photocopy, mailing, courier, telephone and other
similar expenses of the Agents, the cost of environmental audits, surveys
and appraisals at reasonable intervals, the reasonable fees and
disbursements of counsel for the Agents and in the case of enforcement for
any of the Lenders); and promptly reimburse the Agents for the account of
the Agents and the Lenders for all amounts expended, advanced or incurred
by the Agents or the Lenders to satisfy any obligation of the Company under
this Agreement or any other Loan Document;
(b) TO INDEMNIFY EACH AGENT AND EACH LENDER AND EACH OF THEIR
AFFILIATES AND EACH OF THEIR OFFICERS, DIRECTORS, EMPLOYEES,
REPRESENTATIVES, AGENTS, ATTORNEYS, ACCOUNTANTS AND EXPERTS ("INDEMNIFIED
PARTIES") FROM, HOLD EACH OF THEM HARMLESS AGAINST AND PROMPTLY UPON DEMAND
PAY OR REIMBURSE EACH OF THEM FOR, THE INDEMNITY MATTERS WHICH MAY BE
INCURRED BY OR ASSERTED AGAINST OR INVOLVE ANY OF THEM (WHETHER OR NOT ANY
OF THEM IS DESIGNATED A PARTY THERETO) AS A RESULT OF, ARISING OUT OF OR IN
ANY WAY RELATED TO (I) ANY ACTUAL OR PROPOSED USE BY ANY OBLIGOR OF THE
PROCEEDS OF ANY OF THE LOANS, (II) THE EXECUTION, DELIVERY AND PERFORMANCE
OF THE LOAN DOCUMENTS, (III) THE OPERATIONS OF THE BUSINESS OF THE COMPANY
AND ITS SUBSIDIARIES, (IV) THE FAILURE OF THE COMPANY OR ANY SUBSIDIARY TO
COMPLY WITH THE TERMS OF ANY LOAN DOCUMENT, OR WITH ANY GOVERNMENTAL
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REQUIREMENT, (V) ANY INACCURACY OF ANY REPRESENTATION OR ANY BREACH OF ANY
WARRANTY OF THE COMPANY SET FORTH IN ANY OF THE LOAN DOCUMENTS, (VI) ANY
ASSERTION THAT THE LENDERS WERE NOT ENTITLED TO RECEIVE THE PROCEEDS
RECEIVED PURSUANT TO THE LOAN DOCUMENTS OR (VII) ANY OTHER ASPECT OF THE
LOAN DOCUMENTS, INCLUDING, WITHOUT LIMITATION, THE REASONABLE FEES AND
DISBURSEMENTS OF COUNSEL AND ALL OTHER EXPENSES INCURRED IN CONNECTION WITH
INVESTIGATING, DEFENDING OR PREPARING TO DEFEND ANY SUCH ACTION, SUIT,
PROCEEDING (INCLUDING ANY INVESTIGATIONS, LITIGATION OR INQUIRIES) OR CLAIM
AND INCLUDING ALL INDEMNITY MATTERS ARISING BY REASON OF THE ORDINARY
NEGLIGENCE OF ANY INDEMNIFIED PARTY, BUT EXCLUDING ALL INDEMNITY MATTERS
ARISING SOLELY BY REASON OF CLAIMS BETWEEN THE LENDERS OR ANY LENDER AND
ANY AGENT OR A LENDER'S SHAREHOLDERS AGAINST ANY AGENT OR LENDER OR BY
REASON OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT ON THE PART OF SUCH
INDEMNIFIED PARTY; AND
(c) TO INDEMNIFY AND HOLD HARMLESS FROM TIME TO TIME EACH INDEMNIFIED
PARTY FROM AND AGAINST ANY AND ALL LOSSES, CLAIMS, COST RECOVERY ACTIONS,
ADMINISTRATIVE ORDERS OR PROCEEDINGS, DAMAGES AND LIABILITIES TO WHICH ANY
SUCH PERSON MAY BECOME SUBJECT (I) UNDER ANY ENVIRONMENTAL LAW APPLICABLE
TO THE COMPANY OR ANY SUBSIDIARY OR ANY OF THEIR PROPERTIES, INCLUDING
WITHOUT LIMITATION THE TREATMENT OR DISPOSAL OF HAZARDOUS SUBSTANCES ON ANY
OF THEIR PROPERTIES AND RESULTING FROM THE FACT THAT THE AGENTS OR LENDERS
ARE A PARTY TO ANY LOAN DOCUMENT, (II) AS A RESULT OF THE BREACH OR NON-
COMPLIANCE BY THE COMPANY OR ANY SUBSIDIARY WITH ANY ENVIRONMENTAL LAW
APPLICABLE TO THE COMPANY OR ANY SUBSIDIARY, (III) DUE TO PAST OWNERSHIP BY
THE COMPANY OR ANY SUBSIDIARY OF ANY OF THEIR PROPERTIES OR PAST ACTIVITY
ON ANY OF THEIR PROPERTIES WHICH, THOUGH LAWFUL AND FULLY PERMISSIBLE AT
THE TIME, COULD RESULT IN PRESENT LIABILITY, (IV) THE PRESENCE, USE,
RELEASE, STORAGE, TREATMENT OR DISPOSAL OF HAZARDOUS SUBSTANCES ON OR AT
ANY OF THE PROPERTIES OWNED OR OPERATED BY THE COMPANY OR ANY SUBSIDIARY,
OR (V) ANY OTHER ENVIRONMENTAL, HEALTH OR SAFETY CONDITION IN CONNECTION
WITH THE LOAN DOCUMENTS, PROVIDED, HOWEVER, NO INDEMNITY SHALL BE AFFORDED
UNDER THIS SECTION 12.03(C) IN RESPECT OF ANY PROPERTY FOR ANY OCCURRENCE
ARISING FROM THE ACTS OR OMISSIONS OF ANY AGENT OR ANY LENDER DURING THE
PERIOD AFTER WHICH SUCH PERSON, ITS SUCCESSORS OR ASSIGNS SHALL HAVE
OBTAINED POSSESSION OF SUCH PROPERTY (WHETHER BY FORECLOSURE OR DEED IN
LIEU OF FORECLOSURE, AS MORTGAGEE-IN-POSSESSION OR OTHERWISE).
(d) No Indemnified Party may settle any claim to be indemnified
without the consent of the indemnitor, such consent not to be unreasonably
withheld; provided, that the indemnitor may not reasonably withhold consent
to any settlement that an Indemnified Party proposes, if the indemnitor
does not have the financial ability to pay all its obligations outstanding
and asserted against the indemnitor at
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that time, including the maximum potential claims against the Indemnified
Party to be indemnified pursuant to this Section 12.03.
(e) In the case of any indemnification hereunder, the Administrative
Agent or a Lender, as appropriate shall give notice to the Company of any
such claim or demand being made against such Indemnified Party and the
Company shall have the non-exclusive right to join in the defense against
any such claim or demand provided that if the Company provides a defense,
such Indemnified Party shall bear its own cost of defense unless there is a
conflict between the Company and such Indemnified Party.
(f) THE FOREGOING INDEMNITIES SHALL EXTEND TO THE INDEMNIFIED PARTIES
NOTWITHSTANDING THE NEGLIGENCE OF EVERY KIND OR CHARACTER WHATSOEVER,
WHETHER ACTIVE OR PASSIVE, WHETHER AN AFFIRMATIVE ACT OR AN OMISSION,
INCLUDING WITHOUT LIMITATION, ALL TYPES OF NEGLIGENT CONDUCT IDENTIFIED IN
THE RESTATEMENT (SECOND) OF TORTS OF ONE OR MORE OF THE INDEMNIFIED PARTIES
OR BY REASON OF STRICT LIABILITY IMPOSED WITHOUT FAULT ON ANY ONE OR MORE
OF THE INDEMNIFIED PARTIES. TO THE EXTENT THAT AN INDEMNIFIED PARTY IS
FOUND TO HAVE COMMITTED AN ACT OF GROSS NEGLIGENCE OR WILLFUL MISCONDUCT,
THIS CONTRACTUAL OBLIGATION OF INDEMNIFICATION SHALL CONTINUE BUT SHALL
ONLY EXTEND TO THE PORTION OF THE CLAIM THAT IS DEEMED TO HAVE OCCURRED BY
REASON OF EVENTS OTHER THAN THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF
THE INDEMNIFIED PARTY.
(g) Each Obligor's obligation under this Section 12.03 shall survive
any termination of this Agreement and the payment of the Notes and shall
continue thereafter in full force and effect.
(h) The Obligors shall pay any amounts due under this Section 12.03
within thirty (30) days of the receipt by the Company of notice of the
amount due.
Section 12.04 Amendments, Etc. Any provision of this Agreement or
any other Loan Document may be amended, modified or waived with the Company's
and the Majority Lenders' prior written consent; provided that (i) no amendment,
modification or waiver which extends the maturity of the Loans, or the interest
or fee payment dates, increases the Aggregate Commitments, forgives the
principal amount of any Indebtedness outstanding under this Agreement, reduces
the interest rate applicable to the Loans or the fees payable to the Lenders
generally, affects this Section 12.04 or Section 12.06(a) or modifies the
definition of "Majority Lenders" or any provision which by its terms requires
the consent or approval of all of the Lenders shall be effective without consent
of all Lenders; (ii) no amendment, modification or waiver which increases or
extends the Commitment of any Lender shall be effective without the consent of
such Lender; and (iii) no amendment, modification or waiver which modifies the
rights, duties or obligations of the Administrative Agent, Auction Agent or the
Syndication Agent shall be effective without the consent of such Agent.
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Section 12.05 Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
Section 12.06 Assignments and Participations.
(a) No Obligor may assign its rights or obligations hereunder or under
the Notes without the prior consent of all of the Lenders and the Agents.
(b) Any Lender may, upon the written consent of the Company (which
consent shall not be unreasonably withheld) assign to one or more assignees
all or a portion of its rights and obligations under this Agreement and the
other Loan Documents pursuant to an Assignment Agreement substantially in
the form of Exhibit K (an "Assignment") provided, however, that (i) any
such assignment shall be in the amount of at least $10,000,000 or such
lesser amount to which the Company has consented and (ii) the assignor or
assignee shall pay to the Administrative Agent a processing and recordation
fee of $2500 for each assignment. Any such assignment will become
effective upon the execution and delivery to the Administrative Agent of
the Assignment and the written consent of the Company. Promptly after
receipt of an executed Assignment, the Administrative Agent shall send to
the Company a copy of such executed Assignment. Upon receipt of such
executed Assignment, the Company, will, at its own expense, execute and
deliver new Notes to the assignor and/or assignee, as appropriate, in
accordance with their respective interests as they appear. Upon the
effectiveness of any assignment pursuant to this Section 12.06(b), the
assignee will become a "Lender," if not already a "Lender," for all
purposes of this Agreement and the other Loan Documents. The assignor
shall be relieved of its obligations hereunder to the extent of such
assignment (and if the assigning Lender no longer holds any rights or
obligations under this Agreement, such assigning Lender shall cease to be a
"Lender" hereunder except that its rights under Sections 4.06, 5.01, 5.05
and 12.03 shall not be affected). The Administrative Agent will prepare on
the last Business Day of each month during which an assignment has become
effective pursuant to this Section 12.06(b), a new Annex 1 giving effect to
all such assignments effected during such month, and will promptly provide
the same to the Company and each of the Lenders.
(c) Each Lender may transfer, grant or assign participations in all or
any part of such Lender's interests, rights and obligations hereunder
pursuant to this Section 12.06(c) to any Person, provided that: (i) such
Lender shall remain a "Lender" for all purposes of this Agreement and the
transferee of such participation shall not constitute a "Lender" hereunder;
and (ii) no participant under any such participation shall have rights to
approve any amendment to or waiver of any of the Loan Documents except to
the extent such amendment or waiver would (x) extend the Revolving Credit
Termination Date, (y) reduce the interest rate (other than as a result of
waiving the applicability of any post-default increases in interest rates)
or fees applicable to any of the Commitments or Loans in which such
participant is
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participating, or postpone the payment of any thereof, or (z) release all
or substantially all of the collateral (except as expressly provided in the
other Loan Documents) supporting any of the Commitments or Loans in which
such participant is participating. In the case of any such participation,
the participant shall not have any rights under this Agreement or any of
the other Loan Documents (the participant's rights against the granting
Lender in respect of such participation to be those set forth in the
agreement with such Lender creating such participation), and all amounts
payable by the Company hereunder shall be determined as if such Lender had
not sold such participation, provided that such participant shall be
entitled to receive additional amounts under Article V on the same basis as
if it were a Lender and be indemnified under Section 12.03 as if it were a
Lender. In addition, each agreement creating any participation must
include an agreement by the participant to be bound by the provisions of
Section 12.15.
(d) The Lenders may furnish any information concerning the Company in
the possession of the Lenders from time to time to assignees and
participants (including prospective assignees and participants); provided
such Persons agree in writing to be bound by the provisions of Section
12.15.
(e) Notwithstanding anything in this Section 12.06 to the contrary,
any Lender may assign and pledge its Note to any Federal Reserve Bank or
the United States Treasury as collateral security pursuant to Regulation A
of the Board of Governors of the Federal Reserve System and any operating
circular issued by such Federal Reserve System and/or such Federal Reserve
Bank. No such assignment and/or pledge shall release the assigning and/or
pledging Lender from its obligations hereunder.
(f) Notwithstanding any other provisions of this Section 12.06, no
transfer or assignment of the interests or obligations of any Lender or any
grant of participations therein shall be permitted if such transfer,
assignment or grant would require the Company to file a registration
statement with the SEC or to qualify the Loans under the "Blue Sky" laws of
any state.
Section 12.07 Invalidity. In the event that any one or more of the
provisions contained in any of the Loan Documents shall, for any reason, be held
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of the Notes, this
Agreement or any other Loan Document.
Section 12.08 Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument and any of the parties hereto may execute this Agreement by
signing any such counterpart.
Section 12.09 References. The words "herein," "hereof," "hereunder"
and other words of similar import when used in this Agreement refer to this
Agreement as a whole, and not to any particular article, section or subsection.
Any reference herein to a
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Section shall be deemed to refer to the applicable Section of this Agreement
unless otherwise stated herein. Any reference herein to an exhibit or schedule
shall be deemed to refer to the applicable exhibit or schedule attached hereto
unless otherwise stated herein.
Section 12.10 Survival. The obligations of the parties under Section
4.06, Article V, and Sections 11.05 and 12.03 shall survive the repayment of the
Loans and the termination of the Commitments. To the extent that any payments
on the Indebtedness or proceeds of any collateral are subsequently invalidated,
declared to be fraudulent or preferential, set aside or required to be repaid to
a trustee, debtor in possession, receiver or other Person under any bankruptcy
law, common law or equitable cause, then to such extent, the Indebtedness so
satisfied shall be revived and continue as if such payment or proceeds had not
been received and the Administrative Agent's and the Lenders' Liens, security
interests, rights, powers and remedies under this Agreement and each other Loan
Document shall continue in full force and effect. In such event, each Loan
Document shall be automatically reinstated and the Company shall take such
action as may be reasonably requested by the Administrative Agent and the
Lenders to effect such reinstatement.
Section 12.11 Captions. Captions and section headings appearing
herein and the table of contents hereto are included solely for convenience of
reference and are not intended to affect the interpretation of any provision of
this Agreement.
Section 12.12 NO ORAL AGREEMENTS. THE LOAN DOCUMENTS EMBODY THE
ENTIRE AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES AND SUPERSEDE ALL OTHER
AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING TO THE SUBJECT
MATTER HEREOF AND THEREOF. THE LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Section 12.13 GOVERNING LAW; SUBMISSION TO JURISDICTION.
(A) THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS EXCEPT TO THE EXTENT
THAT UNITED STATES FEDERAL LAW PERMITS ANY LENDER TO CHARGE INTEREST AT THE
RATE ALLOWED BY THE LAWS OF THE STATE WHERE SUCH LENDER IS LOCATED. TEX.
REV. CIV. STAT. ANN. ART. 5069, CH. 15 (WHICH REGULATES CERTAIN REVOLVING
CREDIT LOAN ACCOUNTS AND REVOLVING TRI-PARTY ACCOUNTS) SHALL NOT APPLY TO
THIS AGREEMENT OR THE NOTES.
(B) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THE LOAN DOCUMENTS
MAY BE BROUGHT IN THE COURTS OF THE STATE OF TEXAS OR OF THE UNITED STATES
OF AMERICA FOR THE SOUTHERN DISTRICT OF TEXAS, AND, BY EXECUTION AND
DELIVERY OF THIS AGREEMENT, THE COMPANY HEREBY ACCEPTS FOR ITSELF AND (TO
THE EXTENT PERMITTED BY LAW) IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS.
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THE COMPANY HEREBY IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT
LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF
FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF
ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS. THIS
SUBMISSION TO JURISDICTION IS NON-EXCLUSIVE AND DOES NOT PRECLUDE THE
ADMINISTRATIVE AGENT OR ANY LENDER FROM OBTAINING JURISDICTION OVER THE
COMPANY IN ANY COURT OTHERWISE HAVING JURISDICTION.
(C) NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE ADMINISTRATIVE AGENT
OR ANY LENDER OR ANY HOLDER OF A NOTE TO SERVE PROCESS IN ANY MANNER
PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED
AGAINST THE COMPANY IN ANY OTHER JURISDICTION.
(D) EACH OF THE COMPANY AND EACH LENDER HEREBY (I) IRREVOCABLY AND
UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, TRIAL BY
JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN; (II) IRREVOCABLY
WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE
TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE
OR CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL
DAMAGES; (III) CERTIFIES THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR
AGENT OF COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR
OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (IV) ACKNOWLEDGES
THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE OTHER LOAN
DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS
SECTION 12.13.
Section 12.14 Interest. It is the intention of the parties hereto
that each Lender shall conform strictly to usury laws applicable to it.
Accordingly, if the transactions contemplated hereby would be usurious as to any
Lender under laws applicable to it (including the laws of the United States of
America and the State of Texas or any other jurisdiction whose laws may be
mandatorily applicable to such Lender notwithstanding the other provisions of
this Agreement), then, in that event, notwithstanding anything to the contrary
in any of the Loan Documents or any agreement entered into in connection with or
as security for the Notes, it is agreed as follows: (i) the aggregate of all
consideration which constitutes interest under law applicable to any Lender that
is contracted for, taken, reserved, charged or received by such Lender under any
of the Loan Documents or agreements or otherwise in connection with the Notes
shall under no circumstances exceed the maximum amount allowed by such
applicable law, and any excess shall be cancelled automatically and if
theretofore paid shall be credited by such Lender on the principal amount of the
Indebtedness (or, to the extent that the principal amount of the Indebtedness
shall have been or would thereby be paid in full, refunded by such Lender to the
Company);
62
<PAGE>
and (ii) in the event that the maturity of the Notes is accelerated by reason of
an election of the holder thereof resulting from any Event of Default or
otherwise, or in the event of any required or permitted prepayment, then such
consideration that constitutes interest under law applicable to any Lender may
never include more than the maximum amount allowed by such applicable law, and
excess interest, if any, provided for in this Agreement or otherwise shall be
cancelled automatically by such Lender as of the date of such acceleration or
prepayment and, if theretofore paid, shall be credited by such Lender on the
principal amount of the Indebtedness (or, to the extent that the principal
amount of the Indebtedness shall have been or would thereby be paid in full,
refunded by such Lender to the Company). All sums paid or agreed to be paid to
any Lender for the use, forbearance or detention of sums due hereunder shall, to
the extent permitted by law applicable to such Lender, be amortized, prorated,
allocated and spread throughout the full term of the Loans evidenced by the
Notes until payment in full so that the rate or amount of interest on account of
any Loans hereunder does not exceed the maximum amount allowed by such
applicable law. If at any time and from time to time (i) the amount of interest
payable to any Lender on any date shall be computed at the Highest Lawful Rate
applicable to such Lender pursuant to this Section 12.14 and (ii) in respect of
any subsequent interest computation period the amount of interest otherwise
payable to such Lender would be less than the amount of interest payable to such
Lender computed at the Highest Lawful Rate applicable to such Lender, then the
amount of interest payable to such Lender in respect of such subsequent interest
computation period shall continue to be computed at the Highest Lawful Rate
applicable to such Lender until the total amount of interest payable to such
Lender shall equal the total amount of interest which would have been payable to
such Lender if the total amount of interest had been computed without giving
effect to this Section 12.14. To the extent that Article 5069-1.04 of the Texas
Revised Civil Statutes is relevant for the purpose of determining the Highest
Lawful Rate, such Lender elects to determine the applicable rate ceiling under
such Article by the indicated weekly rate ceiling from time to time in effect.
Section 12.15 Confidentiality. In the event that the Company
provides to the Agents or the Lenders written confidential information belonging
to the Company, if the Company shall denominate such information in writing as
"confidential", the Agents and the Lenders shall thereafter maintain such
information in confidence in accordance with the standards of care and diligence
that each utilizes in maintaining its own confidential information. This
obligation of confidence shall not apply to such portions of the information
which (i) are in the public domain, (ii) hereafter become part of the public
domain without the Agents or the Lenders breaching their obligation of
confidence to the Company, (iii) are previously known by the Agents or the
Lenders from some source other than the Company, (iv) are hereafter developed by
the Agents or the Lenders without using the Company's information, (v) are
hereafter obtained by or available to the Agents or the Lenders from a third
party who owes no obligation of confidence to the Company with respect to such
information or through any other means other than through disclosure by the
Company, (vi) are disclosed with the Company's consent, (vii) must be disclosed
either pursuant to any Governmental Requirement or to Persons regulating the
activities of the Agents or the Lenders, or (viii) as may be required by law or
regulation or order of any
63
<PAGE>
Governmental Authority in any judicial, arbitration or governmental proceeding.
Further, an Agent or a Lender may disclose any such information to any other
Lender, any Affiliate of such Agent or Lender, any independent petroleum
engineers or consultants, any independent certified public accountants, any
legal counsel employed by such Person in connection with this Agreement or any
other Loan Document, including without limitation, the enforcement or exercise
of all rights and remedies thereunder, or any assignee or participant (including
prospective assignees and participants) in the Loans; provided, however, that
such Agent or Lender imposes on the Person to whom such information is disclosed
the same obligation to maintain the confidentiality of such information as is
imposed upon it hereunder. Notwithstanding anything to the contrary provided
herein, this obligation of confidence shall cease three (3) years from the date
the information was furnished, unless the Company requests in writing at least
thirty (30) days prior to the expiration of such three year period, to maintain
the confidentiality of such information for an additional three year period.
The Company waives any and all other rights it may have to confidentiality as
against the Agents and the Lenders arising by contract, agreement, statute or
law except as expressly stated in this Section 12.15.
Section 12.16 Effectiveness. This Agreement shall not be effective
until executed by all parties hereto and delivered to and accepted by the
Administrative Agent, and the other conditions listed in the definition of
"Effective Date" have occurred.
Section 12.17 EXCULPATION PROVISIONS. EACH OF THE PARTIES HERETO
SPECIFICALLY AGREES THAT IT HAS A DUTY TO READ THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS AND AGREES THAT IT IS CHARGED WITH NOTICE AND KNOWLEDGE OF THE TERMS
OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; THAT IT HAS IN FACT READ THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS AND IS FULLY INFORMED AND HAS FULL NOTICE
AND KNOWLEDGE OF THE TERMS, CONDITIONS AND EFFECTS OF THIS AGREEMENT; THAT IT
HAS BEEN REPRESENTED BY INDEPENDENT LEGAL COUNSEL OF ITS CHOICE THROUGHOUT THE
NEGOTIATIONS PRECEDING ITS EXECUTION OF THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS; AND HAS RECEIVED THE ADVICE OF ITS ATTORNEY IN ENTERING INTO THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS; AND THAT IT RECOGNIZES THAT CERTAIN OF
THE TERMS OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS RESULT IN ONE PARTY
ASSUMING THE LIABILITY INHERENT IN SOME ASPECTS OF THE TRANSACTION AND RELIEVING
THE OTHER PARTY OF ITS RESPONSIBILITY FOR SUCH LIABILITY. EACH PARTY HERETO
AGREES AND COVENANTS THAT IT WILL NOT CONTEST THE VALIDITY OR ENFORCEABILITY OF
ANY EXCULPATORY PROVISION OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS ON THE
BASIS THAT THE PARTY HAD NO NOTICE OR KNOWLEDGE OF SUCH PROVISION OR THAT SUCH
PROVISION IS NOT "CONSPICUOUS."
The parties hereto have caused this Agreement to be duly executed as
of the day and year first above written.
64
<PAGE>
ENSERCH EXPLORATION, INC.
ATTEST:
/s/ By: /s/ A. E. Gallatin
------------------------------ --------------------------------
Assistant Corporate Secretary Name: A. E. Gallatin
Title: Vice President and Treasurer
<PAGE>
LENDER AND TEXAS COMMERCE BANK NATIONAL
ADMINISTRATIVE AGENT: ASSOCIATION
By: /s/ Dale S. Hurd
------------------------------
Name: Dale S. Hurd
Title: Senior Vice President
Lending Office for Base Rate Loans:
2200 Ross Avenue
Dallas, TX 75201
Lending Office for Eurodollar Loans:
2200 Ross Avenue
Dallas, TX 75201
Address for Notices:
2200 Ross Avenue
Dallas, TX 75201
Telecopier No.: (214) 922-2389
Telephone No.: (214) 922-2583
Attention: Dale Hurd
<PAGE>
SYNDICATION AGENT
AND LENDER: THE CHASE MANHATTAN BANK, N.A.
By: /s/ Bettylou J. Robert
---------------------------------
Name: Bettylou J.Robert
Title: Vice President
Lending Office for Base Rate Loans:
The Chase Manhattan Bank, N.A.
1 Chase Manhattan Plaza
New York, New York 10005
Lending Office for Eurodollar Loans:
The Chase Manhattan Bank, N.A.
1 Chase Manhattan Plaza
New York, New York 10005
Address for Notices:
The Chase Manhattan Bank, N.A.
2 Chase Manhattan Plaza, 5th Floor
New York, New York 10005
Telecopier No.: (212) 552-4455
Telephone No.: (212) 552-3017
Attention: Joselin Fernandes
[With copy to:]
Chase National Corporate Services, Inc.
One Houston Center
1221 McKinney, Suite 3000
Houston, Texas 77010
Telecopier No.: (713) 751-9122
Telephone No.: (713) 751-5657
Attention: Scott Porter
<PAGE>
LENDER: CITIBANK, N.A.
By: /s/ Mark J. Lyons
--------------------------------
Name: Mark. J. Lyons
Title: Vice President
Lending Office for Base Rate Loans:
Citibank, N.A.
399 Park Avenue
New York, NY 10043
Lending Office for Eurodollar Loans:
Same as above
Address for Notices:
One Court Square -- 7th Floor
Long Island City, NY 11120
Telecopier No.: (718) 248-4844
Telephone No.: (718) 248-5762
Attention: Leena Hiranandani
<PAGE>
LENDER: THE LONG-TERM CREDIT BANK OF JAPAN, LTD.
By: /s/ Satoru Otsubo
--------------------------------
Name: Satoru Otsubo
Title: Joint General Manager
Lending Office for Base Rate Loans:
The Long-Term Credit Bank of Japan, Ltd.
165 Broadway, 48th Floor
New York, NY 10006
Lending Office for Eurodollar Loans:
The Long-Term Credit Bank of Japan, Ltd.
165 Broadway, 48th Floor
New York, NY 10006
Addresses for Notices:
The Long-Term Credit Bank of Japan, Ltd.
165 Broadway, 48th Floor
New York, NY 10006
Telecopier No.: (212) 608-3452
Telephone No.: (212) 335-4801
Attention: Bob Pacifici
[With copy to:]
<PAGE>
LENDER: BANKERS TRUST COMPANY
By: /s/ Mary Jo Jolly
--------------------------------
Name: Mary Jo Jolly
Title: Assistant Vice President
Lending Office for Base Rate Loans:
130 Liberty Street
New York, NY 10006
Lending Office for Eurodollar Loans:
130 Liberty Street
New York, NY 10006
Addresses for Notices:
130 Liberty Street
Loan Division, 14th Floor
New York, NY 10006
Telecopier No.: (212) 250-6029
Telephone No.: (212) 250-7561
Attention: Stephen Snizek
[With copy to:]
Roberta K. Bohn
Bankers Trust Company
909 Fannin, Suite 3000
Houston, Texas 77010
Telecopier No.: (713) 759-6708
Telephone No.: (713) 759-6731
<PAGE>
LENDER: THE BANK OF NOVA SCOTIA
By: /s/ F.C.H. ASHBY
--------------------------------
Name: F.C.H. ASHBY
Title: SENIOR MANAGER LOAN OPERATIONS
Lending Office for Base Rate Loans:
600 PEACHTREE STREET N.E.
SUITE 2700
ATLANTA, GA 30308
Lending Office for Eurodollar Loans:
600 PEACHTREE STREET N.E.
SUITE 2700
ATLANTA, GA 30308
Addresses for Notices:
600 PEACHTREE STREET N.E.
SUITE 2700
ATLANTA, GA 30308
Telecopier No.: 404-888-8998
Telephone No.: 404-877-1549
Attention: JEFREY JONES
[With copy to:] (DOCUMENTS)
1100 LOUISIANA STREET
SUITE 3000
HOUSTON, TX 77002
ATTN: D. MATT HARRIS
<PAGE>
LENDER: CANADIAN IMPERIAL BANK OF COMMERCE
By: /s/ GARY C. GASKILL
--------------------------------
Name: GARY C. GASKILL
Title: AUTHORIZED SIGNATORY
Lending Office for Base Rate Loans:
TWO PACES WEST
2727 PACES FERRY ROAD, SUITE 1200
ATLANTA, GA 30339
Lending Office for Eurodollar Loans:
TWO PACES WEST
2727 PACES FERRY ROAD, SUITE 1200
ATLANTA, GA 30339
Addresses for Notices:
TWO PACES WEST
2727 PACES FERRY ROAD, SUITE 1200
ATLANTA, GA 30339
Telecopier No.: (404) 319-4950
Telephone No.: (404) 319-4835
Attention: MS. ADRIENNE BURCH
[With copy to:]
<PAGE>
National Westminster Bank Plc
New York Branch By: /s/ Stephen R. Parker
--------------------------------
Name: Stephen R. Parker
Title: Vice President
National Westminster Bank Plc
Nassau Branch By: /s/ Stephen R. Parker
--------------------------------
Name: Stephen R. Parker
Title: Vice President
Lending Office for Base Rate Loans:
National Westminister Bank Plc
New York Branch
Lending Office for Eurodollar Loans:
National Westminster Bank Plc
Nassau Branch
Addresses for Notices:
National Westminster Bank Plc
175 Water Street
New York, New York 10038
Telecopier No.: (212) 602-4118
Telephone No.: (212) 602-4180
Attention: Nadira Fauder
<PAGE>
LENDER: The First National Bank of Chicago
By: /s/ Dixon P. Schultz
--------------------------------
Name: Dixon P. Schultz
Title: Vice President
Lending Office for Base Rate Loans:
The First National Bank of Chicago
1 First National Plaza, Suite 0634, Floor
Chicago, Illinois 60670
Lending Office for Eurodollar Loans:
The First National Bank of Chicago
1 First National Plaza, Suite 0634, Floor
Chicago, Illinois 60670
Addresses for Notices:
The First National Bank of Chicago
1 First National Plaza, Suite 0634, Floor
Chicago, Illinois 60670
Telecopier No.: (312) 732-4840
Telephone No.: (312) 732-8705
Attention: Lynn Pozsgay
[With copy to:]
<PAGE>
LENDER: THE BANK OF NEW YORK
By: /s/ Raymond J. Palmer
--------------------------------
Name: Raymond J. Palmer
Title: Vice President
Lending Office for Base Rate Loans:
The Bank of New York
One Wall Street, 19th Fl.
New York, New York 10286
Lending Office for Eurodollar Loans:
The Bank of New York
One Wall Street, 19th Fl.
New York, New York 10286
Addresses for Notices:
The Bank of New York
One Wall Street, 19th Fl.
New York, New York 10286
Telecopier No.: (212) 635-7923
Telephone No.: (212) 635-7921
Attention: Nina Russo-Valdes
[With copy to:]
<PAGE>
LENDER: NationsBank of Texas, N.A.
By: /s/ Denise Ashford Smith
--------------------------------
Name: Denise Ashford Smith
Title: Senior Vice President
Lending Office for Base Rate Loans:
901 Main Street, 64th Floor
Dallas, TX 75202
Attn: Denise Ashford Smith
Lending Office for Eurodollar Loans:
901 Main Street, 64th Floor
Dallas, TX 75202
Attn: Denise Ashford Smith
Addresses for Notices:
Corporate Credit Services
901 Main Street, 14th Floor
Dallas, TX 75202
Telecopier No.: 214/508-1215
Telephone No.: 214/508-1225
Attention: Betty Canales
[With copy to:]
<PAGE>
LENDER: THE BANK OF TOKYO, LTD.
DALLAS AGENCY
By: /s/ John M. McIntyre
--------------------------------
Name: John M. McIntyre
Title: Vice President
Lending Office for Base Rate Loans:
The Bank of Tokyo, Ltd.
2001 Ross Avenue, Suite 3150
Dallas, Texas 75201
Lending Office for Eurodollar Loans:
The Bank of Tokyo, Ltd.
2001 Ross Avenue, Suite 3150
Dallas, Texas 75201
Addresses for Notices:
The Bank of Tokyo, Ltd.
909 Fannin, 2 Houston Center, Ste. 1104
Dallas, Texas 77010
Telecopier No.: (713) 658-8341
Telephone No.: (713) 658-1021
Attention: Nadra H. Breir
<PAGE>
LENDER: The Fuji Bank, Ltd.
By: /s/ Soichi Yoshida
--------------------------------
Name: Soichi Yoshida
Title: Vice President and Senior Manager
Lending Office for Base Rate Loans:
The Fuji Bank, Ltd.
Houston Agency
1221 McKinney St. Suite 4100
Houston, TX 77010
Lending Office for Eurodollar Loans:
The Fuji Bank, Ltd.
Houston Agency
1221 McKinney St. Suite 4100
Houston, TX 77010
Addresses for Notices:
The Fuji Bank, Ltd.
Houston Agency
1221 McKinney St. Suite 4100
Houston, TX 77010
Telecopier No.: (713) 759-0048
Telephone No.: (713) 650-7826
Attention: Teri McPherson
<PAGE>
LENDER: Union Bank of Switzerland
Houston Agency
By: /s/ Evans Swann
--------------------------------
Name: Evans Swann
Title: Managing Director
By: /s/ Alfred Imholz
--------------------------------
Name: Alfred Imholz
Title: Managing Director
Lending Office for Base Rate Loans:
1100 Louisiana, Suite 4500
Houston, TX 77002
Lending Office for Eurodollar Loans:
1100 Louisiana, Suite 4500
Houston, TX 77002
Addresses for Notices:
1100 Louisiana, Suite 4500
Houston, TX 77002
Telecopier No.: (713) 655-6555
Telephone No.: (713) 655-6500
Attention: Alfred Imholz
Managing Director
With copy to: James Broadus
Telecopier No.: (212) 821-3269
Telephone No.: (212) 821-3227
<PAGE>
LENDER: Dresdner Bank AG New York
and Grand Cayman Branches
By: /s/ J. Curtin Beaudouin
--------------------------------
Name: J. Curtin Beaudouin
Title: Vice President
By: /s/ Ernest C. Fung
--------------------------------
Name: Ernest C. Fung
Title: Vice President
Lending Office for Base Rate Loans:
Dresdner Bank AG, Grand Cayman Branch
75 Wall Street
New York, New York 10005-2889
Lending Office for Eurodollar Loans:
Dresdner Bank AG, Grand Cayman Branch
75 Wall Street
New York, New York 10005-2889
Addresses for Notices:
Dresdner Bank AG, Grand Cayman Branch
75 Wall Street
New York, New York 10005-2889
Telecopier No.: (212) 898-0524
Telephone No.: (212) 574-0183
Attention: Craig Erickson
With copy to:
Credit Department
Dresdner Bank AG, New York
Attn: Ms. Yunie Shin-Thomas
75 Wall Street
New York, NY 10005-2889
<PAGE>
CREDIT LYONNAIS CAYMAN ISLAND BRANCH
By: /s/ Xavier Ratouis
--------------------------------
Name: Xavier Ratouis
Title: Authorized Signature
Lending Office for Base Rate Loans:
Credit Lyonnais Cayman Island Branch
1301 Avenue of the Americas
New York, New York 10019
Attention: Loan Servicing
Lending Office for Eurodollar Loans:
Credit Lyonnais Cayman Island Branch
1301 Avenue of the Americas
New York, New York 10019
Attention: Loan Servicing
Addresses for Notices:
c/o Credit Lyonnais Representative Office
1000 Louisiana, Suite 5360
Houston, TX 77002
Telecopier No.: (713) 751-0307
Telephone No.: (713) 751-0500
Attention: Mr. A. David Dodd
<PAGE>
LENDER: The Industrial Bank of Japan Trust Company
By: /s/ Robert W. Ramage, Jr.
--------------------------------
Name: Robert W. Ramage, Jr.
Title: Senior Vice President
Lending Office for Base Rate Loans:
The Industrial Bank of Japan Trust Company
245 Park Avenue
New York, NY 10167
Lending Office for Eurodollar Loans:
The Industrial Bank of Japan Trust Company
245 Park Avenue
New York, NY 10167
Addresses for Notices:
The Industrial Bank of Japan Trust Company
245 Park Avenue
New York, NY 10167
Telecopier No.: (212) 949-0134
Telephone No.: (212) 309-6521
Attention: Credit Administration
[With copy to:]
<PAGE>
LENDER: Royal Bank of Canada
By: /s/ Gil J. Benard
--------------------------------
Name: Gil J. Benard
Title: Senior Manager
Lending Office for Base Rate Loans:
Royal Bank of Canada
1 Financial Square, 24th Floor
New York, New York 10005-3531
Lending Office for Eurodollar Loans:
Royal Bank of Canada
1 Financial Square, 24th Floor
New York, New York 10005-3531
Addresses for Notices:
Royal Bank of Canada
600 Wilshire Blvd., Suite 800
Los Angeles, CA 90017
Telecopier No.: (213) 955-5350
Telephone No.: (213) 955-5321
Attention: Gil J. Benard
[With copy to:]
<PAGE>
LENDER: Westdeutsche Landesbank Girozentrale
By: /s/ Richard R. Newman
--------------------------------
Name: Richard R. Newman
Title: Vice President
By: /s/ Sal Battinelli
--------------------------------
Name: Sal Battinelli
Title: Vice President
Lending Office for Base Rate Loans:
Westdeutsche Landesbank Girozentrale
1211 Avenue of the Americas
New York, New York 10036
Lending Office for Eurodollar Loans:
Westdeutsche Landesbank Girozentrale
1211 Avenue of the Americas
New York, New York 10036
Addresses for Notices:
Westdeutsche Landesbank Girozentrale
1211 Avenue of the Americas
New York, New York 10036
Telecopier No.: (212) 852-6307
Telephone No.: (212) 852-6120
Attention: Richard R. Newman
<PAGE>
LENDER: Caisse Nationale de Credit Agricole
By: /s/ David Bouhl
--------------------------------
Name: David Bouhl
Title: First Vice President and
Head of Corporate Banking -- Chicago
Lending Office for Base Rate Loans:
Caisse Nationale de Credit Agricole
55 East Monroe Street
Chicago, Illinois 60603-5702
Lending Office for Eurodollar Loans:
Caisse Nationale de Credit Agricole
55 East Monroe Street
Chicago, Illinois 60603-5702
Addresses for Notices:
Caisse Nationale de Credit Agricole
55 East Monroe Street
Chicago, Illinois 60603-5702
Telecopier No.: 312/372-3724
Telephone No.: 312/917-7560
Attention: Stacey Mannion
[With copy to:] Brian D. Knezeak
Telephone: 312/917-7546
<PAGE>
EXHIBIT 10.20
EMPLOYMENT AGREEMENT
THIS AGREEMENT by and between ENSERCH EXPLORATION, INC. (the "Company") and
JOSEPH T. WILLIAMS (the "Executive") is entered into on this 8th day of June,
1995,
W I T N E S S E T H:
WHEREAS, the Company desires to employ Joseph T. Williams, and Joseph T.
Williams is willing to serve in the employ of the Company, upon the terms and
conditions provided in this Agreement;
WHEREAS, the Board of Directors of the Company recognizes the importance of
the substantial experience and qualifications of the Executive in performing his
duties and responsibilities for the Company, and the Board considers it
essential to the best interests of the stockholders of the Company to take
appropriate steps to assure that the Company will continue to have available the
Executive's services; and
WHEREAS, in this regard, the Board recognizes that, as is the case with
many corporations, there exists the possibility of a Change of Control of the
Company, and that such possibility, and the uncertainty and questions which it
may raise, may result in the distraction of key management personnel to the
detriment of the Company and its affiliates and stockholders, and the Board has
determined that appropriate steps should be taken as set forth in this Agreement
to reinforce and encourage Executive's continued attention and dedication of his
assigned duties without distraction in the face of potentially disturbing
circumstances arising from the possibility of a Change of Control;
NOW, THEREFORE, in consideration of the mutual covenants contained in this
Agreement, the parties agree as follows:
ARTICLE I
DEFINITIONS
All words and phrases defined shall have the meanings described below
unless in the context some other meaning is clearly intended.
1.1 ''AFFILIATE'' means, with respect to any entity, another entity that
controls, is controlled by or is under common control with the first entity.
For purposes of this definition of Affiliate, the term control and its
derivatives mean with respect to any entity the direct or indirect ownership of
equity interests representing both 80% of each class of equity interests of the
entity and the power to elect 80% of the Board of Directors or other governing
body of the entity.
1
<PAGE>
1.2 "AGREEMENT" means this employment agreement entered into between the
Company and the Executive.
1.3 "BOARD" means the Board of Directors of the Company.
1.4 "CASH INCENTIVE COMPENSATION" means that compensation described in
Section 6.2.
1.5 "COMPANY GROUP" means the Company and its subsidiary Affiliates.
1.6 "COMPENSATION COMMITTEE" means the Compensation Committee of
the Board.
1.7 "CONFLICT OF INTEREST" means a condition where the loyalty of the
Executive is divided between that owed to the Company and another interest such
as an investment or other relationship that would reasonably promote the
Executive to take or refrain from taking an action that might not be in the best
interest of the Company.
1.8 "DISABILITY" means the Executive's incapacity resulting from injury
or illness, whether mental or physical, which prevents the Executive from
performing his normal duties under this Agreement. The presence or absence of
the condition is to be determined by an independent physician selected by mutual
agreement of the Company and the Executive.
1.9 "EFFECTIVE DATE" means the date of this Agreement.
1.10 "EXECUTIVE" means Joseph T. Williams.
1.11 "JUST CAUSE" means the (a) conviction of the Executive of a felony
involving moral turpitude, (b) gross negligence or willful misconduct of the
Executive which causes a substantial monetary injury to the Company or any of
its Affiliates, (c) willful and continued failure by the Executive to
substantially perform material stated duties of his position with the Company or
any of its Affiliates but only after he has been given written notice of his
failure and has been given a reasonable period, not less than 30 days, to cure
the willful and continued failure by taking such reasonable corrective action as
is reasonably within his power at the time of reference, or (d) the Executive
having participated in a Conflict of Interest that has resulted in a substantial
detriment to the Company that has not been remedied or the Executive continues
to participate in a Conflict of Interest after written notice of the Conflict of
Interest has been delivered to the Executive. No act or failure to act on
Executive's part for the purpose of this definition shall be "willful" within
the meaning of clauses (b) and (c) unless done or omitted to be done by the
Executive not in good faith and without the reasonable belief that Executive's
action or failure to act is in the best interest of the Company and its
Affiliates. Notwithstanding the foregoing (i) the Executive shall not be deemed
to have been discharged for Just Cause under clause (b) or (c) or (d) unless
there shall have been delivered to the Executive a copy of a resolution duly
adopted by the affirmative vote of not less than
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3/4 of the entire membership of the Board, excluding the Executive, at a meeting
of the Board called and held for that purpose (after reasonable notice to the
Executive and an opportunity for the Executive, together with his counsel, to be
heard before the Board), finding that in the reasonable and good faith opinion
of the Board, the Executive was guilty of the conduct described in clause (b) or
(c) or (d) and specifying the particulars in detail; and (ii) in the event of a
discharge under clause (a) if there is a final adjudication by a court of
competent jurisdiction, whether after appeal or otherwise, that overturns a
conviction described in clause (a) which led to his discharge for Just Cause,
the Executive shall be paid and provided the amounts and benefits provided in
Section 10.2 for a Termination With Cause by Executive.
1.12 "LONG TERM INCENTIVE AWARDS" means those awards described in Section
6.5.
1.13 "MINIMUM ANNUAL SALARY" means that compensation described in Section
6.1.
1.14 "NON-QUALIFIED STOCK OPTIONS" means any options to acquire stock of
the Company or the Parent granted to the Executive which do not qualify as
incentive stock options under the Internal Revenue Code of 1986, as amended,
including any successor statute.
1.15 "PARENT" means ENSERCH Corporation.
1.16 "RESTRICTED STOCK BONUSES" means the grants of restricted stock
described in Section 6.4 plus any similar grants to the Executive of stock of
the Company or the Parent.
1.17 "RETIREMENT" means the termination of the Executive's employment
with the Company and all of its Affiliates as a result of his reaching a
retirement age (not less than 63 years of age) established by the Board for his
retirement in accordance with the Company's general policy for retirement of
executives, provided that for purposes of the change of control provisions
referred to in Section 10.7 below, the retirement age shall be as specified in
the change of control agreement.
1.18 "STOCK OPTIONS" means the Non-Qualified Stock Options, if any, now
or hereafter granted to the Executive.
1.19 "SUPPLEMENTAL EXECUTIVE RETIREMENT PAY" means that compensation
described in Section 6.6.
1.20 "TERMINATION BONUS" shall mean an amount equal to a pro rata portion
of the Executive's Cash Incentive Compensation for the year of termination of
the Executive's employment with the Company (prorated based on the number of
days worked by the Executive during such year), provided that the Termination
Bonus shall not be less than the result of the following formula: (i) the
average of the Executive's Cash Incentive Compensation for the two years
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immediately preceding the year of termination, divided by (ii) 12, times (iii)
the number of months worked by the Executive during the year of termination.
1.21 "TERMINATION WITH CAUSE" means, as it pertains to a termination by
the Executive, a termination by the Executive because of (i) the failure by the
Company to maintain the Executive as the Vice Chairman and Chief Executive
Officer of the Company, (ii) the failure by the Company and its Affiliates to
maintain the Executive as the Vice Chairman and Chief Executive Officer of the
principal operating entity of the Company Group (which as of the Effective Date
is the Company), unless the election of another person to any of such offices is
approved by the Executive, (iii) a material change by the Board or by the Board
of Directors of the principal operating entity of the Company Group, if
different from the Company, of the Executive's function, duties or
responsibilities which change would cause the Executive's positions with such
entities to become of materially less dignity, responsibility, importance or
scope than the Executive's positions with the Company immediately after the
Effective Date, (iv) the relocation of the principal executive offices of the
Company or the principal operating entity of the Company Group to a location
outside the Dallas Metropolitan Area unless the relocation is approved by the
Executive or (v) the Company's continued breach of this Agreement after the
Executive shall have given the Company written notice of such breach and a
period of thirty (30) days to cure such breach.
1.22 "TERMINATION WITHOUT CAUSE" means, as it pertains to a termination
by the Executive, a termination by the Executive for any reason other than a
Termination With Cause or Death, Disability or Retirement. Termination Without
Cause means, as it pertains to a termination by the Company, a termination by
the Company for any reason other than Just Cause or Death, Disability or
Retirement.
ARTICLE II
EMPLOYMENT
The Company hereby employs the Executive and the Executive hereby accepts
employment with the Company upon the terms and conditions set forth in this
Agreement.
ARTICLE III
TERM OF AGREEMENT
This Agreement becomes effective as of the Effective Date. The initial
term of this Agreement is for a period from the Effective Date until the fifth
anniversary of the Effective Date. Any termination of the Executive's employment
with the Company shall be subject to the provisions of Article X hereof.
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ARTICLE IV
DUTIES
The Executive is hereby employed, and during the term of this
Agreement shall be employed, as Vice Chairman and Chief Executive Officer of the
Company reporting to the Chairman of the Board of the Company and the Board.
The Executive agrees to perform all of the duties normally incident to those
offices for as long as he shall hold those offices and to perform all other
duties and responsibilities as may be prescribed by the Chairman of the Board
and/or the Board from time to time and which are commensurate with his executive
capacity as Vice Chairman and Chief Executive Officer of the Company.
ARTICLE V
EXTENT OF SERVICE
The Executive is employed on a full time basis. Therefore, during the
period of his employment, except for illness, reasonable vacation periods and
reasonable leaves of absence, the Executive shall devote all of his business
time, attention, skill and efforts to the faithful performance of his duties
under this Agreement. However, the Executive may devote a small but reasonable
amount of time to pursue and monitor personal investments and, with the approval
of the Board, from time to time, Executive may serve or continue to serve on the
boards of directors of and hold any other offices or position in companies or
organizations that in the Board's reasonable judgment will not present any
Conflict of Interest with the Company or any of its Affiliates or materially
affect the performance of the Executive's duties under this Agreement.
ARTICLE VI
COMPENSATION
For services rendered by the Executive under this Agreement the
Company agrees to pay and provide to the Executive compensation and benefits
commensurate with his position and experience level within the oil and gas
industry, which compensation and benefits (i) initially shall be as set forth in
this Article VI and (ii) shall not at any time during the term of this Agreement
be less than as set forth in this Article VI.
6.1 MINIMUM ANNUAL SALARY. During each calendar year the Company
shall pay the Executive base compensation in equal semi-monthly installments
based upon the Minimum Annual Salary for the Executive of $400,000.00 which may
be increased from time to time by the Board at the Board's sole discretion. The
term "Minimum Annual Salary" as used in this Agreement shall include all
increases granted by the Board.
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6.2 CASH INCENTIVE COMPENSATION. Subject to proration as set forth
below for calendar year 1995, for each calendar year during the term of this
Agreement the Executive shall be entitled to earn an annual cash bonus of
between 0% and 82.5% of the Executive's Minimum Annual Salary for such year upon
attaining goals established yearly by the Compensation Committee. The goals
shall be established by the Compensation Committee, after consultation with the
Chairman and the Executive, consistent with the Company's standards, and shall
be established to produce a reasonable expectation in the sole judgment of the
Compensation Committee that the Executive will receive a target bonus for each
year equal to 55% of the Executive's Minimum Annual Salary for such year. In
recognition of the fact that the remainder of calendar year 1995 is a transition
year for the Company and the Executive, the Executive's bonus for calendar year
1995 shall be the amount calculated under the following formula: (i) 55% of (ii)
the Executive's Minimum Annual Salary for 1995, multiplied by (iii) a fraction
the numerator of which is the number of days remaining in 1995 after the
Effective Date and the denominator of which is 365.
6.3 STOCK OPTIONS.
(a) On or before July 1, 1995, the Company shall grant to the
Executive an option to acquire 35,000 or more shares of the common stock of the
Company pursuant to its 1994 Stock Incentive Plan or elect in lieu thereof to
take the action in (b) below. Prior to or upon each anniversary of the
Effective Date during the term of this Agreement, the Company shall either grant
to the Executive an option to acquire an additional 35,000 or more shares of the
common stock of the Company or elect in lieu thereof to take the action in (b)
below. The exercise price per share under such option shall be the fair market
value of the stock as of the date of the grant of such option. The Options
granted to the Executive during the term of this Agreement shall be Non-
Qualified Stock Options and shall be pursuant to, and conditioned upon the
execution by the Executive of, Stock Option Agreements substantially in the form
as attached hereto as Exhibit A. The Company shall cause its currently
effective registration statement on form S-8 (or comparable successor form)
covering all shares subject to Stock Options granted to the Executive to remain
effective until sixty (60) days after the later of exercise or termination of
all Stock Options granted to the Executive.
(b) In the event the Company does not grant the Options described
above, then the Company will pay to the Executive an amount equal to the amount
the Executive would have received if the Options had been granted as described
above and exercised and sold at the New York Stock Exchange closing price on the
date or dates selected by the Executive and notice is received by the Company,
with payment to be made on the day after the option date or dates selected by
the Executive.
6.4 RESTRICTED STOCK BONUSES.
(a) On or before July 1, 1995, the Company shall either award to the
Executive a grant of 25,000 or more shares of performance-based restricted stock
of the Company pursuant to its 1994 Stock Incentive Plan or elect in lieu
thereof to take the action in (b)
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below. Prior to or upon each anniversary of the Effective Date during the term
of this Agreement, the Company shall either award to the Executive a grant of an
additional 25,000 or more shares of performance-based restricted stock of the
Company (with performance requirements as determined by the Compensation
Committee that may vary from the initial award but that are consistent with
performance requirements for awards of performance-based restricted stock to
other senior executives of the Company) or elect in lieu thereof to take the
action in (b) below. Such shares shall be restricted so that no share may be
transferred or alienated in any way (except through passage under will or by the
laws of descent and distribution upon the Executive's death) until the share is
vested, at which time the restriction will lapse with respect to the vested
shares. Such awards shall be granted pursuant to, and conditioned upon,
execution by the Executive of Restricted Stock Agreements substantially in the
form attached hereto as Exhibit B. The Company shall cause its currently
effective registration statement on form S-8 (or comparable successor form)
covering all shares of restricted stock granted to the Executive as Restricted
Stock Bonuses to remain effective until sixty (60) days after the lapse of all
restrictions on the shares of restricted stock granted to the Executive as
Restricted Stock Bonuses.
(b) In the event the Company does not grant the restricted stock
described above then the Company will pay to the Executive an amount equal to
the amount the Executive would have received if the restricted stock had been
granted and earned as described above and sold at the New York Stock Exchange
closing price on the date or dates selected for sale by the Executive and notice
is received by the Company, with payment to be made on the day after the dates
selected for sale by the Executive.
6.5 LONG TERM INCENTIVE AWARDS. The Executive shall be entitled to
participate in any other long term incentive award program as is approved in the
future by the Compensation Committee.
6.6 SUPPLEMENTAL EXECUTIVE RETIREMENT PAY. The Company shall
provide to the Executive Supplemental Executive Retirement Pay that, when
combined with payments, if any, to the Executive under the Company's defined
benefit pension plan and associated non-qualified restoration plan, will pay to
the Executive after termination of employment with the Company an annual benefit
for his life equal to the result of the following formula:
(a) the sum of (i) the Minimum Annual Salary for the Executive in
effect immediately prior to his termination of employment plus (ii) 50% of the
Executive's average annual Cash Incentive Compensation for the three calendar
years prior to the year in which the Executive's employment is terminated (or
the annual average of such shorter period as the Executive has been employed by
the Company if the Executive has not been employed for three full calendar
years), times
(b) two and one-half percent (2.5%), times
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(c) years (including portions thereof) of the Executive's credited
service with the Company.
For purposes of the Executive's Supplemental Executive Retirement Pay, credited
service of the Executive shall be credited monthly with service for purposes of
vesting and benefit accrual on the basis of two months of credit for each one
month during the first five years after the Effective Date and one month of
credit for each one month of employment thereafter. The Executive shall be
vested immediately at the time of crediting of service for all benefits under
his Supplemental Retirement Pay with respect to all service that has been
credited to the Executive pursuant to the terms of this Agreement. The
Supplemental Executive Retirement Pay shall include an option for the Executive
to elect to be paid (i) the amount determined under the preceding formula for
his life, (ii) a benefit actuarially equivalent to the benefit payable under (i)
but paid in the form of an annuity for the life of the Executive with a
continuing annuity payable to his spouse if she is then living for her remaining
life equal to 50% of the annuity paid to the Executive, or (iii) at termination
of employment an immediate lump sum payment, in lieu of lifetime payments, equal
to the lump sum actuarial equivalent of the lifetime payments required under the
formula set forth above, with the option to be exercisable by the Executive's
spouse if the termination of employment is as a result of death of the
Executive. Actuarially equivalent amounts will be determined by the actuary who
determines the yearly contribution to the Company's defined benefit plan using
the actuarial assumptions set forth in such plan at the time the payment is made
or payments are to begin under this section, or, if such plan does not exist at
such time, the assumptions set forth in such plan at the time such plan
terminated.
6.7 OTHER COMPANY COMPENSATION PROGRAMS. The Executive shall be
entitled to participate at an appropriate level in all other compensation
programs adopted by the Company.
ARTICLE VII
FRINGE BENEFITS
The Company shall provide the Executive with the following fringe
benefits at a level commensurate with his position as Vice Chairman and Chief
Executive Officer of the Company and his peers in the Parent:
(a) annual physical examinations,
(b) reimbursement of dues and special assessments for membership in
the Dallas Petroleum Club and the Northwood Country Club,
(c) not less than four weeks paid vacation yearly, and
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(d) participation in health, dental, group life, disability and all
other plans and fringe benefits generally provided to Parent's executives in
comparable positions and/or other Company personnel.
ARTICLE VIII
WORKING FACILITIES
The Company shall furnish Executive with a private office and a
private secretary and all other assistance and accommodations as are suitable to
the character of Executive's position with the Company and adequate for the
performance of his duties under this Agreement.
ARTICLE IX
EXPENSES
Executive is authorized to incur reasonable expenses for the promotion
of the business of the Company including expenses for entertainment, travel and
other similar items. The Company shall pay or reimburse Executive for all
reasonable items of expense incurred by Executive in performing his obligations
under this Agreement. Executive must, however, in each case provide the Company
adequate substantiation of the expense that has been incurred by Executive.
ARTICLE X
TERMINATION OF EMPLOYMENT
In the event of a termination of the Executive's employment under this
Agreement the following provisions shall apply:
10.1 TERMINATION WITHOUT CAUSE BY EXECUTIVE. Upon Termination
Without Cause by Executive of his employment with the Company, the Company shall
pay Executive, within 30 days, a cash sum equal to that portion of his Minimum
Annual Salary which has been earned but unpaid prior to the date of Executive's
termination plus the Executive's Termination Bonus for the year of termination.
All other items of compensation shall be payable only to the extent they are
then vested or they are normally provided to an employee who voluntarily
terminates.
10.2 TERMINATION WITH CAUSE BY EXECUTIVE. Upon Termination With Cause
by Executive of employment with the Company:
(a) the Company shall pay the Executive, within 30 days, a cash sum
equal to (i) his then Minimum Annual Salary times the greater of (A) one and (B)
the number of years (including portions thereof) remaining in the initial five-
year term of this Agreement, plus (ii) the Cash Incentive Compensation that
would
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have otherwise accrued to the Executive (calculated at the target level of 55%
of the Executive's Minimum Annual Salary immediately prior to termination)
through the longer of (A) the calendar year of termination and (B) the number of
years (including portions thereof) remaining in the initial five-year term of
this Agreement, and
(b) Executive shall be entitled to, and the Company shall provide to
Executive, the benefits the Executive is entitled to under the terms of the 1994
Stock Incentive Plan as well as the following benefits:
(i) for purposes of the Executive's Supplemental Executive Retirement
Pay, the Executive immediately shall be credited with all service that would
have been credited to the Executive during the initial five-year term of this
Agreement in accordance with the provisions of Section 6.6 (i.e., a total of ten
years of credited service) plus all additional credited service, if any,
actually earned by Executive after the initial five-year term;
(ii) the Executive shall be entitled to receive his benefits, if any,
under the Company's defined benefit pension plan, and also his Supplemental
Executive Retirement Pay with respect to all credited service of the Executive
for purposes of the Executive's Supplemental Executive Retirement Pay,
including, but not limited to, service credited pursuant to clause (i) above;
(iii) annual physical examinations and medical, dental, life and
disability insurance, commensurate with that in effect for the Executive
immediately prior to termination, for the five-year term after termination at
the sole expense of the Company;
(iv) all payments under Long Term Incentive Awards, if any, that are
then vested or that would have vested through the longer of (A) one year from
the date of termination and (B) the number of years (including portions thereof)
remaining in the initial five-year term of this Agreement; and
(v) all other then vested benefits of the Executive.
10.3 TERMINATION WITHOUT CAUSE BY THE COMPANY. If there is a
Termination Without Cause of Executive by the Company, the Company shall pay and
provide to Executive the same compensation and benefits described in Section
10.2 for Termination With Cause by the Executive which shall constitute all
payments to which the Executive will be entitled.
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10.4 TERMINATION FOR JUST CAUSE BY THE COMPANY. If Executive is
terminated by the Company for Just Cause, the Company shall pay Executive,
within 30 days, a cash sum equal to that portion of his then Minimum Annual
Salary which has been earned but unpaid prior to the date of Executive's
termination plus the Executive's Termination Bonus for the year of termination
plus any other then vested benefits. No other item of compensation shall be due
Executive unless it is specifically required by law or by other agreements with
the Company.
10.5 TERMINATION FOR DISABILITY. If Executive is terminated for
Disability, the Company shall pay Executive (a) his then Minimum Annual Salary
for one year from the date of his Disability, and (b) a cash sum equal to the
Cash Incentive Compensation Executive has accrued prorated to the date of his
Disability as if the goal set by the Compensation Committee is met. In
addition, Executive shall be entitled to (i) receive any Long Term Incentive
Award which vests within one year after the date of Disability, (ii) receive his
Supplemental Executive Retirement Pay to the extent vested on the date of
Disability and (iii) receive pay for vested but unused vacation on the date of
Disability.
10.6 TERMINATION FOR DEATH. If Executive dies while in the employ
of the Company, the Company shall pay and provide to Executive's estate the same
compensation and benefits described in Section 10.5 for termination for
Disability, assuming that he became disabled on the date of his death, except
that the then Minimum Annual Salary shall be payable for three months instead of
one year.
10.7 CHANGE OF CONTROL. The Parent, Company and Executive shall
enter into the change of control agreement attached hereto as Exhibit C and the
Executive shall be entitled to the benefits therein provided upon a "Change in
Control" as therein defined. In the event of a Change in Control, Executive
shall be entitled to the benefits provided herein and in the Change in Control
Agreement, provided that in the event the terms of this Agreement and the Change
in Control Agreement provide for the same type of benefit or payment based on
the same operative event or facts then the Executive shall be entitled to the
higher benefit or payment under the agreements but not duplicate benefits or
payments; it being specifically agreed that if the Change in Control occurs
prior to the end of the initial 5 year term of this Agreement, the Executive
will be entitled to the greater of the payments of salary under this Agreement
for the remainder of such initial 5 year term or the payment of 3 times the
Executive's salary under Section 4(iii)(c) of the Change in Control Agreement.
10.8 RETIREMENT. Upon Retirement, the Company shall pay the
Executive his Minimum Annual Salary and Cash Incentive Compensation which has
been earned but is unpaid as of the date of Retirement. In addition, the
Executive shall receive all other benefits to which he is entitled under this
Agreement and other agreements with and plans of the Company.
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ARTICLE XI
POST-TERMINATION OBLIGATIONS OF EXECUTIVE
All payments and benefits due Executive under this Agreement shall be
subject to Executive's compliance with the following provisions:
11.1 ASSISTANCE IN LITIGATION, ETC. During the period of his
employment and for a reasonable period, not to exceed the greater of the term of
this Agreement or 24 months, after Executive's termination of employment,
Executive shall, upon reasonable notice, furnish all information and proper
assistance including, without limitation, testimony, to the Company as may
reasonably be required by the Company in connection with any litigation or other
administrative or regulatory proceeding in which they or any of their
subsidiaries or affiliates is, or may become, a party, or in connection with any
filing or similar obligation of the Company imposed by any taxing,
administrative or regulatory authority having jurisdiction. The Company,
however, shall be obligated to pay all of the reasonable expenses incurred by
Executive in complying with these provisions.
11.2 CONFIDENTIAL INFORMATION. Executive shall not knowingly use
for his personal benefit or disclose or reveal to any unauthorized person any
trade secret or other confidential information relating to the Company or its
Affiliates or to any of the businesses operated by them, nor take with him, upon
leaving employment with the Company, any document or other record relating to
that information. Executive confirms that such information constitutes the
exclusive property of the Company.
11.3 NO SOLICITATION OF COMPANY EMPLOYEES. Executive shall not,
during the period of his employment and for a period of six months afterwards,
intentionally solicit, induce or actively encourage any persons then employed by
the Company or any of its Affiliates to leave the employment of such entity.
Nothing in this Section shall prohibit or in any way limit Executive's right to
employ and/or discuss terms of employment with any persons who seek employment
and/or initiate discussions, if that action occurs subsequent to Executive's
termination of employment and off the business premises of the Company.
ARTICLE XII
RELIANCE ON GENERAL CREDIT OF COMPANY
All payments of Minimum Annual Salary, Cash Incentive Compensation,
Long Term Incentive Awards and Supplemental Executive Retirement Pay shall be
paid in cash from the general funds of the Company, and no special or separate
fund shall be established and no other segregation of assets shall be made to
assure payment. Executive shall have no right, title, or interest in any
investments that the Company may make to aid the Company in meeting its
obligations for these payments.
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ARTICLE XIII
PAYMENT OF LEGAL FEES; INDEMNIFICATION
The Company shall reimburse Executive for all reasonable legal fees
and expenses incurred by Executive (i) in the preparation of this Agreement or
(ii) in connection with Executive's obtaining or enforcing any right or benefit
provided by this Agreement. The reimbursement of such legal fees and expenses
shall be made within 30 days after Executive's request for payment accompanied
by evidence of the fees and expenses incurred. For a period of ten years after
the termination, for any reason, of Executive's employment with the Company, the
Company shall indemnify, hold harmless and defend Executive, to the fullest
extent permitted by applicable law, from and against any loss, cost or expense
related to or arising out of any action or claim with respect to (i) the Company
or its Affiliates or (ii) any action taken or omitted by the Executive
(INCLUDING, BUT NOT LIMITED TO, MATTERS THAT CONSTITUTE NEGLIGENCE OF THE
EXECUTIVE) for or on behalf of the Company or its Affiliates, whether, in either
case, such action or claim, or the facts and circumstances giving rise thereto,
occurred or accrued before or after such termination of employment.
ARTICLE XIV
MODIFICATION AND WAIVER
14.1 AMENDMENT OF AGREEMENT. This Agreement may not be modified or
amended except by an instrument in writing signed by the parties to this
Agreement.
14.2 WAIVER. No term or condition of this Agreement shall be deemed
to have been waived, nor shall there be any estoppel against the enforcement of
any provision of this Agreement, except by written instrument of the party
charged with waiver or estoppel. No written waiver shall be deemed a continuing
waiver unless the continuing nature of the waiver is expressly stated therein.
Each waiver shall operate only as to that specific term or condition; it will
not be deemed a waiver of future conditions or as to any act other than that
specifically waived.
ARTICLE XV
ARBITRATION
Any controversy or claim arising out of or relating to this Agreement,
or breach of it, shall be settled by arbitration in Dallas, Texas in accordance
with the Commercial Arbitration Rules of the American Arbitration Association,
and judgment upon the award rendered by the arbitrator may be entered in any
court of competent jurisdiction.
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ARTICLE XVI
GENERAL PROVISIONS
16.1 FEDERAL INCOME TAX WITHHOLDING. The Company shall withhold
from any benefits payable under this Agreement all federal, state, city, or
other taxes as shall be required under any law or governmental regulation or
ruling.
16.2 SUCCESSORS; ENFORCEABILITY.
(a) SUCCESSOR MUST ASSUME. The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation, liquidation,
dissolution or otherwise) to all or substantially all of the aggregate business
and/or assets of the Company (including consolidated subsidiaries) to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no succession had
taken place.
(b) AGREEMENT ENFORCEABLE AFTER EXECUTIVE DEATH. This Agreement
shall inure to the benefit of and be enforceable by Executive's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
16.3 NONASSIGNABILITY. Except as provided in this Section 16.3,
neither this Agreement or any right or interest granted in it shall be
assignable by either the Company or Executive, or their successors or
representatives, without the other's prior written consent. This Section shall
not preclude Executive from designating a beneficiary to receive any benefit
payable under this Agreement upon his death, or the executors, administrators,
or other legal representatives of Executive or his estate from assigning any
rights under this Agreement to the person or persons entitled to them.
16.4 NO ATTACHMENT. Except as required by law, no right to receive
payments under this Agreement shall be subject to anticipation, computation,
alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or
to execution, attachment, levy, or similar process or assignment by operation of
law. Any attempt, voluntary or involuntary, to effect any such action shall be
null, void and of no effect.
16.5 DELIVERY OF NOTICES. Any notice required to be given under
this Agreement shall be in writing and shall be deemed to have been given and
received upon the earlier of (i) receipt by the party to which the notice is
sent and (ii) delivery of the notice to the address for notice for the party to
which the notice is sent as set forth on the signature page hereof or as changed
pursuant to the terms hereof. Any address may be changed from time to time by
serving notice to the other party as required in this Section.
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16.6 SURVIVAL OF CERTAIN OBLIGATIONS. The obligations of the
Company under Section 6.6, Articles X, XIII, XV and XVI, and Executive under
Articles XI, XV and XVI, shall survive the expiration of this Agreement.
16.7 SEVERABILITY. If, for any reason, any provision of this
Agreement is held invalid, that invalidity shall not affect any other provision
of this Agreement not also held invalid, and each other provision shall to the
full extent consistent with law continue in full force and effect.
16.8 HEADINGS. The headings of Articles and Sections are included
solely for convenience of reference. The descriptive heading shall not control
the meaning or interpretation of any of the provisions of this Agreement.
16.9 GOVERNING LAW. This Agreement has been executed and delivered
in the State of Texas, and its validity, interpretation, performance, and
enforcement shall be governed by the laws of that State.
16.10 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute a single Agreement.
ARTICLE XVII
ENTIRE AGREEMENT
As of the Effective Date, this Agreement shall constitute the entire
agreement of the parties with respect to the matters covered hereby, and shall
supersede all prior written and oral agreements pertaining to the subject matter
hereof.
ARTICLE XVIII
WAIVER OF SEVERANCE PLANS OF
DALEN CORPORATION AND TERMINATION OF
PRIOR EMPLOYMENT AND CHANGE OF CONTROL AGREEMENTS
As of the Effective Date, the Executive is entitled to participate in
and receive benefits under the Employee Severance Pay Plan and the Executive
Severance Pay Plan (the "Severance Plans") of DALEN Corporation, a corporation
that, as of the Effective Date, is or will become a wholly-owned Subsidiary of
the Company. Executive hereby waives all rights he now has or may hereafter
accrue under the Severance Plans, and agrees that he shall no longer be a
participant in such plans. Executive is also a party to an Employment Agreement
(the "Former Employment Agreement") and a Change of Control Agreement (the
"Former Change of Control Agreement") with a wholly-owned subsidiary (then
operating under the name of NGC Energy Company, and now operating as DALEN
Resources Oil & Gas Company) of DALEN Corporation, each dated February
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23, 1989. Executive hereby agrees to terminate and waive all rights under the
Former Change of Control Agreement immediately. Executive also agrees, subject
to receipt of all payments and benefits accrued to Executive under the Former
Employment Agreement through the Effective Date, to voluntarily terminate the
Former Employment Agreement effective as of the Effective Date, provided that
the provisions of Sections 8, 15, 20 and 21 of the Former Employment Agreement
shall survive termination thereof. Nothing herein shall be construed as a
release or waiver of any rights the Executive may become entitled to under
existing annual bonus plans or long term incentive plans of DALEN Corporation.
The parties have caused this Agreement to be executed on the date
first written in this Agreement.
ENSERCH EXPLORATION, INC.
By: /s/
---------------------------------------
COMPANY
Address:
----------------------------------
----------------------------------
----------------------------------
By: /s/ Joseph T. Williams
-------------------------------------
EXECUTIVE
Address:
----------------------------------
----------------------------------
----------------------------------
16
<PAGE>
EXHIBIT 10.21
TAX SHARING AGREEMENT
BETWEEN
ENSERCH CORPORATION
AND
ENSERCH EXPLORATION, INC.
<PAGE>
TAX SHARING AGREEMENT
THIS AGREEMENT, effective as of January 1, 1995, is between ENSERCH
Corporation, a Texas corporation ("ENSERCH"), and Enserch Exploration, Inc. (the
"Company").
INTRODUCTION
A. ENSERCH is the common parent of an affiliated group of corporations
within the meaning of Section 1504(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), and the Company is a member of said affiliated group.
B. ENSERCH and the Company deem it appropriate to define the method by
which the Federal income tax liability of the affiliated group shall be shared
amongst the affiliated group of corporations.
ACCORDINGLY, ENSERCH and the Company hereto agree as follows:
1. Definitions
The following terms as used in this Agreement shall have the meanings
set forth below:
(a) "Consolidated Return" shall mean a consolidated Federal income tax
return filed pursuant to Section 1501 of the Code.
(b) "Consolidated Tax Liability" shall mean the consolidated Federal
income tax liability of the ENSERCH Group for any taxable year for which
the ENSERCH Group files a Consolidated Return.
(c) "ENSERCH Group" shall mean the affiliated group of corporations
within the meaning of Section 1504(a) of the Code of which ENSERCH is a
common parent.
(d) "Gain Group" shall mean a Member Group whose income exceeds
deductions, computed as if it had filed a separate (or subgroup
Consolidated Return) Federal income tax return for the applicable taxable
year.
(e) "Loss Group" shall mean a Member Group whose deductions exceed
income, computed as if it had filed a separate (or subgroup Consolidated
Return) Federal income tax return for the applicable taxable year.
(f) "Member" shall mean each includible corporation as defined in
Section 1504(b) of the Code.
(g) "Member Group" shall mean a group comprised of one or more Members
of the ENSERCH Group. Generally, a Member shall not be part of more than
one Member Group. However, the part of ENSERCH attributable to Lone Star
Gas Company, a division of ENSERCH, and the part of ENSERCH attributable to
Lone Star Pipeline Company, a division of ENSERCH, shall be included in the
utility Member Group; the part of ENSERCH, attributable to Enserch
Processing Company,
<PAGE>
a division of ENSERCH, shall be included in the processing Member Group;
the part of ENSERCH, attributable to Consolidated Enserch Exploration
Company, a division of ENSERCH, shall be included in the exploration Member
Group; and the remaining part of ENSERCH shall comprise the corporate
Member Group. A listing of the Member Groups is attached as Exhibit A.
(h) "Separate Return Tax Claim" shall mean the Federal income tax
claim (before Tax Credits) attributable to the activities of a Loss Group,
computed as if it had filed a separate (or subgroup Consolidated Return)
Federal income tax return for the applicable taxable year and its losses
were deductible in that year.
(i) "Separate Return Tax Liability" shall mean the Federal income tax
liability (before Tax Credits) attributable to the activities of a Gain
Group, computed as if it had filed a separate (or subgroup Consolidated
Return) Federal income tax return for the applicable taxable year.
(j) "Tax Credits" shall mean those nonrefundable credits including,
but not limited to, those discussed in IRC Sections 29, 38, 41 and 53.
(k) "Net Minimum Tax" shall mean the tax imposed by Section 55 of the
Code.
(l) "AMT Basis" shall mean adjustment and preferences of each Member
Group under Section 56 and Section 57 of the Code.
2. Tax Allocations
(a) At ENSERCH's direction, each Member Group shall either pay to or
receive from ENSERCH its Separate Return Tax Liability or reimbursable
Separate Return Tax Claim and Tax Credits. ENSERCH shall pay to and
receive from the Internal Revenue Service (IRS) the Federal income tax
liabilities and refunds of the ENSERCH Group.
(b) Each Gain Group shall pay its Separate Return Tax Liability.
(c-1) In the event ENSERCH Group has a Consolidated net income each
Loss Group shall receive its Separate Return Tax Claim no later than 90
days after filing of ENSERCH Consolidated Return.
(c-2) In the event ENSERCH Group has a consolidated net operating
loss, each Loss Group shall be reimbursed a portion of its Separate Return
Tax Claim. The reimbursement shall be determined by multiplying the Gain
Groups' Separate Return Tax Liabilities by a fraction, the numerator being
the Loss Group's Separate Return Tax Claim and the denominator being the
sum of the Loss Groups' Separate Return Tax Claims. If the consolidated
net operating loss can be carried to prior years, in whole or part, the IRS
refund shall be shared amongst those Loss Groups to which the net operating
loss is attributable using the formula outlined in this paragraph.
<PAGE>
(c-3) If a consolidated net operating loss is carried over and
reduces Consolidated Tax Liability, the reduction of Consolidated Tax
Liability shall be shared amongst those Loss Groups to which the net
operating loss is attributable using the formula outlined in paragraph (c-
2) for the year in which loss is generated.
(d) A Loss Group shall not be reimbursed for its allocable share of a
consolidated net operating loss until such loss is used to reduce
Consolidated Tax Liability or obtain an IRS refund.
(e-1) A Member Group shall be reimbursed for its Tax Credits, but
only after each Loss Group has received its Separate Return Tax Claim and
the Tax Credits are used to reduce Consolidated Tax Liability. In the
event ENSERCH Group carries over Tax Credits, each Member Group shall be
reimbursed only for that portion of such credits used. The reimbursement
shall be determined by multiplying the reduction of Consolidated Tax
Liability by a fraction, the numerator being the Member Group's Tax Credits
and the denominator being the sum of all Member Groups' Tax Credits.
(e-2) If Tax Credits are carried over and reduce Consolidated Tax
Liability, the reduction of Consolidated Tax Liability shall be shared
amongst those Member Groups to which the Tax Credits are attributable using
the formula outlined in paragraph (e-1) for the year in which the credits
are generated.
(f) In the event ENSERCH Group has Net Minimum Tax liability, each
Member Group shall be allocated its share of such liability. The
allocation shall be determined by multiplying the Net Minimum Tax by a
fraction, the numerator being the Member Group's AMT Basis and the
denominator being all Member Groups' AMT Basis. If a Gain Group's AMT
Basis does not exceed 75% of its federal taxable income, then its AMT Basis
shall be considered to be zero.
3. Miscellaneous Provisions
(a) This Agreement contains the entire understanding of the parties
hereto with respect to the subject matter contained herein. No alteration,
amendment or modification of any of the terms of this Agreement shall be
valid unless made by an instrument signed in writing by an authorized
officer of each party hereto.
(b) This Agreement has been made in and shall be construed and
enforced in accordance with the laws of the State of Texas.
(c) This Agreement shall be binding upon and inure to the benefit of
each party hereto and its respective successors and assigns.
(d) The headings of the paragraphs of this Agreement are inserted for
convenience only and shall not constitute a part hereof.
<PAGE>
(e) The Tax Allocations shall reflect amended consolidated Federal
income tax return items, Internal Revenue Service adjustments agreed to by
ENSERCH and any other adjustments as finally determined by proper
governmental authorities.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and their respective corporate seals to be affixed hereto.
ENSERCH CORPORATION
Attest:
______________________________ By _____________________________
Title:
ENSERCH EXPLORATION, INC.
Attest:
______________________________ By _____________________________
Title:
<PAGE>
EXHIBIT A
ATTACHMENT TO TAX SHARING AGREEMENT
Member Groups include the following (inclusive of their respective
subsidiaries where applicable):
ENSERCH (Corporate, Tower, House)
ENS Insurance Company
Enserch Exploration, Inc. (EEX Group)
Lone Star Gas Company (Utility Group)
Lone Star Energy Co.
Enserch Development Corp.
Enserch Processing Company (Processing Group)
Consolidated Enserch Exploration Company (Exploration Group)
<PAGE>
EXHIBIT 10.22
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
MISTS ISSUER L.L.C.
DATED AS OF AUGUST 4, 1995
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Article I
Defined Terms
Section 1.01. Definitions..................................... 1
Section 1.02. Headings........................................ 7
Article II
Continuation and Term; Admission of Members
Section 2.01. History and Continuation........................ 7
Section 2.02. Name............................................ 7
Section 2.03. Term............................................ 7
Section 2.04. Registered Agent and Office..................... 7
Section 2.05. Principal Place of Business..................... 7
Section 2.06. Qualification in Other Jurisdictions............ 7
Section 2.07. Assignment of Interests......................... 8
Section 2.08. Merger, Consolidation, etc. of the Company...... 8
Article III
Purpose and Powers of the Company
Section 3.01. Purpose and Powers.............................. 8
Article IV
Capital Contributions and Allocations
Section 4.01. Amount and Form of Initial Contribution......... 9
Section 4.02. Additional Contributions by the Common Members.. 9
Section 4.03. Additional Contributions by Preferred Members... 9
Section 4.04. Investment of Capital Contributions............. 9
Section 4.05. Capital Accounts................................ 9
Section 4.06. General Allocations............................. 10
Section 4.07. Special Allocations............................. 11
Section 4.08. Allocations For Income Tax Purposes............. 11
Section 4.09. Interests as Personal Property.................. 11
Section 4.10. Collection Account.............................. 12
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Article V
Members
Section 5.01. Powers of Members............................... 12
Section 5.02. Resignation; Expulsion.......................... 12
Article VI
Management
Section 6.01. Management of the Company....................... 13
Section 6.02. Reliance by Third Parties....................... 14
Section 6.03. No Management by Preferred Members.............. 14
Section 6.04. Rights of Preferred Member...................... 14
Article VII
Common Securities and Preferred Securities
Section 7.01. Common Securities and Preferred Securities...... 15
Section 7.02. Persons Deemed Preferred Members................ 16
Article VIII
Voting and Meetings
Section 8.01. Voting Rights of Preferred Members.............. 16
Section 8.02. Voting Rights of Common Members................. 18
Section 8.03. Meetings of the Members......................... 18
Article IX
Dividends and Redemption
Section 9.01. Dividends....................................... 19
Section 9.02. Limitations on Distributions..................... 20
Section 9.03. Common Distributions............................ 20
Section 9.04. Redemption and Exchange......................... 21
Article X
Books and Records
Section 10.01. Books and Records; Accounting.................. 22
Section 10.02. Fiscal Year.................................... 22
Section 10.03. Access to Records.............................. 23
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Article XI
Tax Matters
Section 11.01. Company Tax Returns............................ 23
Section 11.02. Tax Reports.................................... 23
Section 11.03. Taxation as Partnership........................ 23
Article XII
Expenses
Section 12.01. Expenses....................................... 23
Article XIII
Liability, Exculpation and Indemnification
Section 13.01. Liability of Common Members.................... 24
Section 13.02. Liability of Preferred Members................. 25
Section 13.03. Exculpation.................................... 25
Section 13.04. Fiduciary Duty................................. 25
Section 13.05. Indemnification................................ 26
Section 13.06. Expenses....................................... 26
Section 13.07. Outside Business............................... 26
Article XIV
Section 14.01 No Recourse to Trustee.......................... 27
Article XV
Dissolution, Liquidation and Termination
Section 15.01. Dissolution.................................... 27
Section 15.02. Notice of Dissolution.......................... 27
Section 15.03. Liquidation.................................... 27
Section 15.04. Certain Restrictions on Liquidation Payments... 28
Section 15.05. Termination.................................... 28
Article XVI
Miscellaneous
Section 16.01. Amendments..................................... 28
Section 16.02. Successors; Counterparts....................... 28
Section 16.03. Governing Law; Severability.................... 28
Section 16.04. Filings........................................ 29
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Section 16.05. Power of Attorney.............................. 29
Section 16.06. Additional Documents........................... 29
Section 16.07. Notices........................................ 29
</TABLE>
iv
<PAGE>
Exhibit A - Form of Preferred Security
Schedule 1 - List of Operative Documents
v
<PAGE>
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT OF
MIStS ISSUER L.L.C.
This Amended and Restated Limited Liability Company Agreement of MIStS
Issuer L.L.C. (the "Company") is made as of August 4, 1995, among EEX Capital
L.L.C., a Delaware limited liability company ("EEX Capital"), Enserch Preferred
Capital, Inc., a Delaware corporation ("Enserch Preferred Capital"), and
Wilmington Trust Company, not in its individual capacity, but solely as trustee
(in such capacity as trustee, together with any successors in such capacity, the
"Trustee") of the MIStS Issuer Trust I (the "Trust").
Recitals
A. As of August _____, 1995, EEX Capital and Enserch Preferred
Capital formed the Company pursuant to the Delaware Limited Liability Company
Act, 6 Del. C. Section 18-101, et seq., as amended from time to time (the
"Delaware Act"), by filing a Certificate of Formation with the Delaware
Secretary of State on August _____, 1995 and entering into a Limited Liability
Company Agreement dated as of August _____, 1995 (the "Original L.L.C.
Agreement").
B. EEX Capital and Enserch Preferred Capital desire to admit the
Trustee to the Company as a preferred member and the Trustee desires to become a
preferred member of the Company, subject to the terms and conditions set forth
herein.
C. EEX Capital, Enserch Preferred Capital and the Trustee desire to
amend and restate the Original L.L.C. Agreement in its entirety.
D. Now, therefore, in consideration of the agreements and obligations
set forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Members hereby agree as
follows:
ARTICLE I
DEFINED TERMS
Section 1.01. Definitions. The terms defined in this Article I
shall, for the purposes of this Agreement, have the meanings herein specified
and all terms defined in this Agreement in the singular have the same meanings
when used in the plural and vice versa.
"Additional Dividends" shall have the meaning set forth in Section
9.01(d) of this Agreement.
1
<PAGE>
"Adjusted Capital Account" shall mean the Capital Account established
for a Member, as the same is adjusted pursuant to Section 4.05 of this Agreement
or is otherwise specially computed to reflect the adjustments required or
permitted by the Treasury Regulations under Section 704(b) of the Code to be
taken into account in applying the second sentence of section 1.704-
1(b)(2)(ii)(d) of the Treasury Regulations.
"Affiliate" shall mean with respect to a specified Person, any Person
that directly or indirectly controls, is controlled by, or is under common
control with, the specified Person. As used in this definition, the term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through ownership of voting securities, by contract or otherwise.
"Agreement" shall mean this Amended and Restated Limited Liability
Company Agreement of the Company, as amended, modified, supplemented or restated
from time to time.
"Asset Coverage Ratio" shall mean, as of any day, the ratio of (i) the
outstanding principal amount of the Demand Note to (ii) the product of the
Liquidation Preference and the number of then issued and outstanding shares of
Preferred Securities.
"Business Day" shall mean any day other than a day on which commercial
banks are authorized or required to close in New York, New York and, if such day
relates to a Reset Date or a Dividend Payment Date, any day which is also a day
on which dealings in Dollar deposits are carried out in the London interbank
market.
"Capital Account" shall have the meaning set forth in Section 4.05.
"Certificate of Formation" shall mean the Certificate of Formation of
the Company, filed with the Office of the Secretary of State of the State of
Delaware by EEX Capital on August __, 1995, and any and all amendments thereto
and restatements thereof filed on behalf of the Company with the Office of the
Secretary of State of the State of Delaware pursuant to the Delaware Act.
"Certificateholder" shall have the meaning assigned such term in the
Funding Agreement.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, or any corresponding federal tax statute enacted after the date of
this Agreement. A reference to a specific section (Section) of the Code refers
not only to such specific section but also to any corresponding provision of any
federal tax statute enacted after the date of this Agreement, as such specific
section or corresponding provision is in effect on the date of application of
the provisions of this Agreement containing such reference.
"Collection Account" shall mean the MIStS Issuer Collection Account
created pursuant to Section 4.10 of this Agreement.
2
<PAGE>
"Common Member" shall mean either EEX Capital or Enserch Preferred
Capital; and "Common Members" shall mean both EEX Capital and Enserch Preferred
Capital.
"Common Securities" shall mean the Interests in the Company which
represent common limited liability company interests in the Company and are
described in Section 7.01(e) of this Agreement.
"Declaration of Trust" shall have the meaning assigned such term in
the Funding Agreement.
"Demand Note" shall mean the $150,000,000 demand note evidencing the
loan to EEX Capital from the Company of all of the proceeds of the issuance of
the Preferred Securities, which note shall mature upon demand of the holder
thereof, but in any event not later than August 4, 2005, and any extensions,
renewals, rearrangements or replacements thereof.
"Distribution" shall mean any Dividend, Additional Dividend,
Liquidation Dividend or other payments, property and distributions received by a
Member from assets of the Company in respect of its status as a member of the
Company.
"Dividend" shall mean, with respect to the Preferred Securities, any
amount due on account of yield on the Preferred Securities under Section 9.01(c)
or Section 9.01(d); and with respect to the Common Securities, any amount
allocated to the Common Members in excess of the amount of its initial
contribution under Section 4.01 of this Agreement plus any subsequent
contributions under Section 4.02 of this Agreement.
"Dividend Payment Date" shall mean, with respect to the Preferred
Securities, the last day of each Dividend Period, the first of which shall be
October 31, 1995, provided that if any such day is not a Business Day, then such
Dividend Payment Date shall be the next succeeding Business Day, unless such
next succeeding Business Day falls into the next succeeding calendar month, in
which case, such Dividend Payment Date shall be on the next preceding Business
Day.
"Dividend Period" shall mean, with respect to the Preferred
Securities, the quarterly periods ending on the last day of each January, April,
July and October in each year.
"Dollar" or "$" shall mean lawful money of the United States of
America.
"EEX" shall mean Enserch Exploration, Inc., a Texas corporation.
"Fiscal Agent" shall mean The Chase Manhattan Bank, N.A.
3
<PAGE>
"Funding Agreement" shall mean that certain Funding Agreement of even
date with this Agreement among the Trustee, the Participants, The Chase
Manhattan Bank, N.A., as agent for the Participants, The First National Bank of
Chicago, as co-agent for the Participants, and Texas Commerce Bank National
Association, as co-agent for the Participants, as the same may be amended,
modified, supplemented or restated from time to time.
"Guaranty Agreement" shall mean the Guaranty Agreement to be entered
into by EEX for the benefit of the Company to guarantee the obligations of EEX
Capital under the Demand Note, as amended from time to time.
"Indemnified Parties" shall mean each Preferred Member and each of
their Affiliates and each of their and the Common Members' officers, directors,
employees, representatives, agents, attorneys, accountants and experts.
"Interest" shall mean a limited liability company interest in the
Company, including the right of the holder thereof to any and all benefits to
which a Member may be entitled as provided in this Agreement, together with the
obligations of a Member to comply with all of the terms and provisions of this
Agreement.
"Investment Company Event" shall mean (a) either (i) a change in any
applicable United States law or regulation or in the interpretation thereof
(including but not limited to the enactment or imminent enactment of any
legislation, the publication of any judicial decisions, regulatory rulings,
regulatory procedures, or notices or announcements (including notices or
announcements of intent to adopt such procedures or regulations), or (ii) a
change in the official position or the interpretation of any law or regulation
by any legislative body, court, governmental authority or regulatory body,
irrespective of the manner in which such change is made known) shall have
occurred after August 4, 1995, and (b) that the Company or EEX Capital shall
have received an opinion of nationally recognized independent legal counsel
experienced in practice under the Investment Company Act of 1940, as amended
(the "1940 Act"), that, as a result of such change, there exists more than an
insubstantial risk that the Company is or will be considered an "investment
company" which is required to be registered under the 1940 Act.
"Lender" shall have the meaning assigned such term in the Funding
Agreement.
"Liquidation Dividend" shall mean, for each issued and outstanding
share of the Preferred Securities, an amount equal to the Liquidation Preference
plus its pro rata share of any and all other payments out of the assets of the
Company upon either voluntary or involuntary liquidation, dissolution or winding
up of the Company made in accordance with the terms of Section 15.03 and 15.04
of this Agreement.
"Liquidation Preference" shall mean, with respect to each share of the
Preferred Securities, $1,000,000.00, as set forth in Section 7.01(b) of this
Agreement.
4
<PAGE>
"LP Act" shall mean the Delaware Revised Uniform Limited Partnership
Act. 6 Del C. Section 17-101, et seq., as amended from time to time.
"Member" shall mean any Person that holds an Interest in the Company
and is admitted as a member of the Company pursuant to the provisions of this
Agreement, in its capacity as a member of the Company. For purposes of the
Delaware Act, the Common Members and the Preferred Members shall constitute
separate classes of Members.
"Net Income" and "Net Loss", respectively, for any Dividend Period,
shall mean the income and loss, respectively, of the Company for such Dividend
Period as determined in accordance with the method of accounting followed by the
Company for federal income tax purposes, including, for all purposes, any tax-
exempt income and any expenditures of the Company which are described in Section
705(a)(2)(B) of the Code (or treated as so described under Section 1.704-
1(b)(2)(iv)(i) of the Treasury Regulations); provided, however, that any item
allocated under Section 4.07 shall be excluded from the computation of Net
Income and Net Loss.
"Notes" shall mean the Demand Note and any and all promissory notes
that may be issued from time to time by any Common Member evidencing loans to
such Common Member from the Company of substantially all the proceeds of the
issuance of the Common Securities or any other capital contributions.
"Notice of Dissolution" shall mean any notice of dissolution of the
Company given pursuant to Section 15.02 of this Agreement.
"Notice of Redemption" shall have the meaning set forth in Section
9.04(d)(i) of this Agreement.
"Operative Documents" shall mean this Agreement, the Demand Note, the
Guaranty Agreement, the Preferred Securities, Declaration of Trust and the
Funding Agreement and all documents or instruments listed on Schedule 1 hereto.
"Participants" shall mean each Person that is now or hereafter a party
to the Funding Agreement as either a Lender or a Certificateholder.
"Person" shall mean any individual, corporation, association,
partnership (general or limited), joint venture, trust, estate, limited
liability company, or other legal entity or organization.
"Post-Default Rate" shall have the meaning assigned such term in the
Funding Agreement.
"Preferred Certificate" shall mean any certificate, in substantially
the form of Exhibit A to this Agreement, evidencing the Preferred Securities.
5
<PAGE>
"Preferred Member" shall mean the Trustee, and any other Person who
becomes a holder of any of the Preferred Securities under Section 2.07 of this
Agreement; and "Preferred Members" shall mean all such Persons.
"Preferred Securities" shall mean the $150,000,000 Interests which
represent preferred limited liability company interests in the Company and are
described in Section 7.01(b) of this Agreement.
"Redemption Price" shall mean, with respect to each issued and
outstanding share of the Preferred Securities, a cash redemption price equal to
the Liquidation Preference plus accumulated and unpaid Dividends (whether or not
earned or declared), including such share's pro rata amount of all Additional
Dividends, to the date fixed for redemption of such share.
"Reset Date" shall mean, for any Dividend Period, the day which is two
(2) Business Days prior to the initial Business Day in such Dividend Period.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Tax Event" shall mean (a) either (i) a change in any applicable
United States law or regulation or in the interpretation thereof (including but
not limited to the enactment or imminent enactment of any legislation, the
publication of any judicial decisions, regulatory rulings, regulatory
procedures, or notices or announcements (including notices or announcements of
intent to adopt such procedures or regulations), or (ii) a change in the
official position or the interpretation of any law or regulation by any
legislative body, court, governmental authority or regulatory body, irrespective
of the manner in which such change is made known) shall have occurred after
August 4, 1995, and (b) that the Company or EEX Capital shall have received an
opinion of nationally recognized independent legal counsel experienced in such
matters that, as a result of such change, there exists more than an
insubstantial risk that (i) the Company will be subject to federal income tax
with respect to the interest received on the Demand Note, (ii) EEX Capital (or
EEX on a consolidated basis) will be precluded from deducting the interest paid
on the Demand Note for federal income tax purposes, or (iii) the Company will be
subject to more than a de minimis amount of other taxes, duties or other
governmental charges.
"Tax Matters Partner" shall mean EEX Capital designated as such in
Section 11.01(b) of this Agreement.
"Third Party Creditors" shall have the meaning-set forth in Section
13.01 of this Agreement.
"Treasury Regulations" shall mean the regulations promulgated by the
United States Department of the Treasury pursuant to and in respect of the
provisions of the Code. All references herein to sections of the Treasury
Regulations shall included any corresponding provision or provisions of
succeeding, similar, substitute proposed or final Treasury Regulations.
6
<PAGE>
Section 1.02. Headings. The headings and subheadings in this
Agreement are included for convenience and identification only and are in no way
intended to describe, interpret, define or limit the scope, extent or intent of
this Agreement or any provision hereof.
Article II
Continuation and Term; Admission of Members
Section 2.01. History and Continuation. The Company has been
organized as a Delaware limited liability company by the filing of the
Certificate of Formation under and pursuant to the Act. The initial Members
were EEX Capital and Enserch Preferred Capital, each owning 99.9% and 0.1%,
respectively, of the total common Interests in the Company. EEX Capital,
Enserch Preferred Capital and the Trustee hereby (i) amend and restate the
Original LLC Agreement, effective as of the date of this Agreement, (ii)
continue the Company as a limited liability company under and pursuant to the
provisions of the Delaware Act and (iii) agree that the rights, duties and
liabilities of the Members shall be as provided in the Delaware Act, except as
otherwise provided herein. EEX Capital, as an authorized person within the
meaning of the Delaware Act, shall execute, deliver and file any and all
amendments to or restatements of the Certificate of Formation, as may be
required by the Delaware Act.
Section 2.02. Name. The name of the Company heretofore formed and
hereby continued is MIStS Issuer L.L.C. The business of the Company may be
conducted upon compliance with all applicable laws under any other name
designated by EEX Capital.
Section 2.03. Term. The term of the Company commenced on the date
the Certificate of Formation was filed in the office of the Secretary of State
of the State of Delaware and shall continue until August 4, 2005, unless
dissolved before such date in accordance with the provisions of this Agreement.
Section 2.04. Registered Agent and Office. The Company's registered
agent, manager and office in Delaware shall be The Corporation Trust Company,
1209 Orange Street, Wilmington, New Castle County, Delaware 19801. At any time,
EEX Capital may designate another registered agent and/or registered office.
The name and business address of each Member is set forth in Section 16.07 of
this Agreement.
Section 2.05. Principal Place of Business. The principal place of
business of the Company shall be at The Corporation Trust Company, 1209 Orange
Street, Wilmington, New Castle County, Delaware 19801. EEX Capital may change
the location of the Company's principal place of business.
Section 2.06. Qualification in Other Jurisdictions. EEX Capital
shall cause the Company to be qualified, formed or registered under assumed or
fictitious name statutes or similar laws in any jurisdiction in which the
Company conducts business and in which such qualification, formation or
registration is required by law or deemed advisable
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by EEX Capital. EEX Capital, as an authorized person within the meaning of the
Delaware Act, shall execute, deliver and file any certificates (and any
amendments and/or restatements thereof) necessary for the Company to qualify to
do business in a jurisdiction in which the Company may wish to conduct business.
Section 2.07. Assignment of Interests. No Member may sell, assign,
convey, give, exchange or otherwise dispose of its Interests without the prior
consent of the other Members, which consent may be given or withheld in its sole
discretion; provided however that the Preferred Securities may be pledged by a
Preferred Member to secure obligations of such Preferred Member. Any Person
holding such pledged Preferred Interests may take or pursue any and all remedies
permitted by applicable law with respect to such pledged Preferred Interests.
Except as provided in the foregoing proviso, any attempted disposition of any
Interests shall be null and void ab initio.
Section 2.08. Merger, Consolidation, etc. of the Company. The
Company may not consolidate with, merge with or into, or be replaced by, or
convey, transfer or lease its properties and assets as an entirety or
substantially as an entirety to any Person.
Article III
Purpose and Powers of the Company
Section 3.01. Purpose and Powers. The purposes of the Company are to
issue Interests and to use all of the proceeds from the issuance thereof and the
related capital contributions to purchase the Notes, and, except as otherwise
limited herein, to enter into, make and perform all contracts and other
undertakings, and to take any and all actions necessary, appropriate, proper,
advisable, incidental or convenient to or for the furtherance of the purposes of
the Company as set forth herein. The Company may not conduct any other business
or operations except as contemplated by the preceding sentence. The Company may
not: (a) incur, create, assume or suffer to exist any Prohibited Debt (as
defined in the Funding Agreement with respect to the Trustee), (b) create,
incur, assume or permit to exist any lien or security interest on any of its
properties (now owned or hereafter acquired), (c) sell, lease, abandon or
otherwise dispose of any of its property, (d) sell or otherwise discount the
Notes, (e) sell or issue any other preferred Interests (or create any new series
of preferred Interests), or (f) sell or issue any other Interests which have a
liquidation preference senior or equal to the Preferred Securities.
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Article IV
Capital Contributions and Allocations
Section 4.01. Amount and Form of Initial Contribution. EEX Capital
has heretofore contributed the amount of $4,640,000, in cash, and Enserch
Preferred Capital has heretofore contributed the amount of $4,640, in cash, and
no other property has been contributed to the Company. EEX Capital holds 99.9%
of the Common Securities in the Company and Enserch Preferred Capital holds 0.1%
of the Common Securities in the Company. The initial contribution of the
Preferred Members to the Company shall be cash in an amount not less than
$150,000,000.
Section 4.02. Additional Contributions by the Common Members. The
Common Members shall make such additional contributions to the Company, either
in connection with the purchase of Common Securities or otherwise, so as to
cause their respective Interests to be entitled to at least 3% of all interests
in the capital, income, gain, loss, deduction and credit of the Company at all
times. Without limitation of the foregoing, as more fully set forth in Article
XII, all expenses and loss incurred by the Company shall be paid, pro rata, by
the Common Members when due and constitute additional contributions of the
Common Members.
Section 4.03. Additional Contributions by Preferred Members. The
Preferred Members shall make the initial contribution to the Company in
accordance with the applicable terms of Section 4.01 and Section 7.01 of this
Agreement. Each Preferred Member, in its capacity as a Member of the Company,
shall not be required to make any additional contributions to the Company and
shall have no additional liability solely by reason of being a Preferred Member
in excess of its share of the Company's assets and undistributed profits.
Section 4.04. Investment of Capital Contributions. The Company shall
invest all of the proceeds from the issuance of the Preferred Securities, the
Common Securities and the related capital contributions to purchase the Notes.
Section 4.05. Capital Accounts. An individual capital account (each
a "Capital Account" and collectively, the "Capital Accounts") shall be
established and maintained on the books of the Company for each Member in
compliance with Treasury Regulation Sections 1.704-1(b)(2)(iv) and 1.704-2, as
amended. Subject to the preceding sentence, each Capital Account will be
increased by the amount of the capital contributions made by, and the Net Income
allocated to, such Member, and reduced by the amount of Distributions made by
the Company, and Net Losses allocated to the Member. In addition, a Member's
Capital Account shall be increased or decreased, as the case may be, for any
items specially allocated to such Member under Section 4.07 of this Agreement,
and each Common Member's Capital Account shall be increased to the extent that
such Common Member pays any costs or expenses of the Company directly out of
such Common Member's own funds.
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Section 4.06. General Allocations. After giving effect to the
special allocations set forth in Section 4.07 of this Agreement:
(a) Net Income. The Company's Net Income for each Dividend Period
shall be allocated, as of the close of business for such Dividend Period, as
follows:
(i) First, pro rata, to the Adjusted Capital Account of each Preferred
Member, in accordance with the percentage equal to the number of shares of
Preferred Securities held by such Preferred Member over the total number of
issued and outstanding shares of Preferred Securities, an amount equal to
the excess of (x) the amount of all Dividends (including Additional
Dividends) accrued on the Preferred Securities from the issuance of the
Preferred Securities through the close of business for such Dividend
Period, over (y) the amount of Net Income allocated to the Preferred
Members in respect of the Preferred Securities pursuant to this Section
4.06(a)(i) (and amounts, if any, allocated pursuant to Section 4.07(c) of
this Agreement) for all prior Dividend Periods.
(ii) Second, pro rata, to the Adjusted Capital Account of each
Preferred Member, in accordance with the percentage equal to the number of
shares of Preferred Securities held by such Preferred Member over the total
number of issued and outstanding shares of Preferred Securities, an amount
equal to the excess of (x) the amount of all Net Losses allocated to the
Preferred Members from the date of issuance of the Preferred Securities
through the close of business for such Dividend Period pursuant to Section
4.06(b)(ii) over (y) the amount of Net Income allocated to the Preferred
Members in respect of the Preferred Securities pursuant to this Section
4.06(a)(ii) for all prior Dividend Periods.
(iii) Any remaining Net Income shall be allocated, pro rata, to the
Adjusted Capital Account of each Common Member.
(b) Net Loss. The Company's Net Loss for each Dividend Period shall
be allocated, as of the close of business for such Dividend Period, as follows:
(i) First, pro rata, to the Adjusted Capital Account of each Common
Member until the aggregate balance of their Adjusted Capital Accounts is
reduced to zero.
(ii) Second, pro rata, to the Adjusted Capital Account of each
Preferred Member until the aggregate balance of their Adjusted Capital
Accounts is reduced to zero.
(iii) Any remaining Net Loss shall be allocated, pro rata, to the
Common Members and borne by the Common Members solely.
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(c) Liquidation Dividends. EEX Capital may make such changes to the
allocations in Sections 4.06(a) and 4.06(b) as it deems reasonably necessary so
that, immediately prior to the Company's liquidation, the positive balances in
the Capital Account of each Preferred Member shall, to the maximum extent
possible, equal its Liquidation Dividend.
Section 4.07. Special Allocations.
(a) Determinations of Net Income/Net Loss. For purposes of
determining the Net Income, Net Loss or any other items allocable to any
Dividend Period, Net Income, Net Loss and any such other items shall be
determined on a daily, monthly, quarterly or other basis, as determined by EEX
Capital using any method that is permissible under Section 706 of the Code and
the Treasury Regulations promulgated thereunder. Unless otherwise specified,
such Net Income, Net Loss or other items shall be determined for each Dividend
Period.
(b) Expenses Allocated to Common Members. All items of loss and
deduction in respect of expenses incurred by or on behalf of the Company and
paid, pro rata, by the Common Members shall be allocated entirely to the Common
Members.
(c) Adjustments for Treasury Regulations. The Members intend that the
allocations under Section 4.06 of this Agreement and this Section 4.07 conform
to Treasury Regulations Sections 1.704-1(b) and 1.704-2 (including, without
limitation and to the extent applicable, the minimum gain chargeback, chargeback
of partner nonrecourse debt minimum gain, qualified income offset and partner
nonrecourse debt provisions of such Treasury Regulations), and EEX Capital shall
make such allocations under this Section 4.07, or such changes in the
allocations under Section 4.06 of this Agreement, as it believes are reasonably
necessary to meet all applicable requirements of such Treasury Regulations.
Section 4.08. Allocations For Income Tax Purposes. The income,
gains, losses, deductions and credits of the Company shall be allocated in the
same manner as the items entering into the computation of Net Income and Net
Loss are allocated under Section 4.06 of this Agreement or as such items are
otherwise allocated under Section 4.07 of this Agreement; provided, however,
that solely for federal, state and local income and franchise tax purposes, but
not for book or Adjusted Capital Account purposes, income, gain, loss and
deductions with respect to any property properly carried on the Company's books
at a value other than the tax basis of such property shall be allocated in a
manner determined in EEX Capital's discretion, so as to take into account
(consistently with the principles of Section 704(c) of the Code) the difference
between such property's book value and its tax basis.
Section 4.09. Interests as Personal Property. Each Member hereby
agrees that its Interest shall for all purposes be personal property. A Member
has no interest in specific Company property.
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Section 4.10. Collection Account.
(a) Establishment of Account. EEX Capital hereby establishes the
Collection Account. The Collection Account shall be a general account of the
Company, maintained with the Fiscal Agent, and designated the "MIStS Issuer
Collection Account".
(b) Deposits and Applications. All monies, including, all interest on
past due amounts, paid by EEX Capital on account of the Demand Note (or by EEX
on account of the Guaranty Agreement) shall be deposited into the Collection
Account as and when received by the Company. EEX Capital shall, on each
Dividend Payment Date and on each other date on which a redemption has been
elected, apply all amounts in the Collection Account to the payment of all
amounts then due and payable under Section 9.01(c) and (d) of this Agreement, or
if a date on which a redemption is to occur, apply all amounts in the Collection
Account to the payment of all amounts due and payable under Section 9.04 of this
Agreement.
Article V
Members
Section 5.01. Powers of Members. The Members shall have the power to
exercise any and all rights or powers granted to the Members pursuant to the
express terms of this Agreement.
Section 5.02. Resignation; Expulsion. No Common Member shall have
any right to withdraw or resign from the Company; provided however that a Common
Member shall have the power to withdraw or resign at any time in violation of
this Agreement. If a Common Member exercises such power in violation of this
Agreement, (a) such Common Member shall be liable to the Company and the
Preferred Members for all monetary damages suffered by them as a result of such
withdrawal or resignation; and (b) such Common Member shall not have any rights
under Section 19-604 of the Delaware Act. Any Preferred Member may resign from
the Company prior to the liquidation, dissolution and winding up of the Company
only upon the assignment of its Interest (including any redemption, repurchase,
exchange or other acquisition by the Company of such Interest) in accordance
with the provisions of this Agreement. A resigning Member shall not be entitled
to receive any Distribution and shall not otherwise be entitled to receive the
fair value of its Interest except as otherwise expressly provided for in this
Agreement. No Member may be expelled as a Member.
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Article VI
Management
Section 6.01. Management of the Company. Except as otherwise
provided herein, the business and affairs of the Company shall be managed, and
all actions required under this Agreement shall be determined, solely and
exclusively by EEX Capital, which shall have all rights and powers on behalf and
in the name of the Company to perform all acts necessary and desirable to the
objects and purposes of the Company. Without limiting the generality of the
foregoing, EEX Capital, in its capacity as the Common Member and not by virtue
of any delegation of management power from any Member, shall have, subject to
the limitations set forth in Section 3.01 and Section 8.01 of this Agreement,
the power on behalf of the Company to:
(a) authorize and engage in transactions and dealings on behalf of the
Company, including transactions and dealings with any Preferred Member or any
Affiliate of any Member;
(b) pay all expenses incurred in forming the Company;
(c) purchase the Notes;
(d) determine and make Distributions, in cash or otherwise, on
Interests, in accordance with the provisions of this Agreement and the Delaware
Act;
(e) establish a record date with respect to all actions to be taken
hereunder that require a record date to be established, including with respect
to allocations, Dividends and voting rights;
(f) incur and pay all expenses and obligations incident to the
operation and management of the Company;
(g) open accounts and deposit, maintain and withdraw funds in the name
of the Company with the Fiscal Agent in accordance with the terms and conditions
of this Agreement;
(h) effect a dissolution of the Company and act as liquidating trustee
or the Person winding up the Company's affairs, all in accordance with the
provisions of this Agreement and the Delaware Act;
(i) bring and defend on behalf of the Company actions and proceedings
at law or equity before any court or governmental, administrative or other
regulatory agency, body or commission or otherwise;
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(j) prepare and cause to be prepared reports, statements and other
relevant information for distribution to Members as may be required or
determined to be necessary or desirable by EEX Capital from time to time;
(k) prepare and file all necessary returns and statements and pay all
taxes, assessments and other impositions applicable to the assets of the
Company; and
(l) execute all other documents or instruments, perform all duties and
powers and do all things for and on behalf of the Company in all matters
necessary or desirable or incidental to the foregoing.
EEX Capital is authorized and directed to conduct its affairs and to
operate the Company in such a way that the Company will not be deemed to be an
"investment company" required to be registered under the Investment Company Act
of 1940, as amended, or taxed as a corporation for federal income tax purposes
and so that the Demand Note will be treated as indebtedness of EEX Capital (or
EEX on a consolidated basis) for federal income tax purposes. In this
connection, EEX Capital is authorized to take any action not inconsistent with
applicable law and this Agreement that EEX Capital determines in its discretion
to be necessary or desirable for such purposes.
Section 6.02. Reliance by Third Parties. Persons dealing with the
Company are entitled to rely conclusively upon the power and authority of EEX
Capital herein set forth.
Section 6.03. No Management by Preferred Members. Except as
otherwise expressly provided herein, no Preferred Member shall take any part in
the day-to-day management, operation or control of the business and affairs of
the Company. Each Preferred Member, in its capacity as Preferred Member of the
Company, shall not be an agent of the Company or have any right, power or
authority to transact any business in the name of the Company or to act for or
on behalf of or to bind the Company.
Section 6.04. Rights of Preferred Members. Subject to the terms and
conditions set forth in Section 8.01(b) of this Agreement, the Preferred Members
shall have the right and power to enforce the Company's rights under the Demand
Note against EEX Capital, enforce the obligations undertaken with respect to the
Demand Note by EEX under its Guaranty Agreement and, to the extent permitted by
law, declare and pay Dividends on the Preferred Securities or pay Liquidation
Dividends in accordance with Section 15.04 of this Agreement, in each case, to
the extent funds of the Company are legally available therefor.
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Article VII
Common Securities and Preferred Securities
Section 7.01. Common Securities and Preferred Securities.
(a) Classes. The Interests in the Company shall be divided into two
classes, Common Securities and Preferred Securities.
(b) Preferred Securities; Designation. A total of 150 Variable Rate,
Redeemable Cumulative Minority Interest Structured Securities with a liquidation
preference of $1,000,000.00, and par value of $1.00, per security are hereby
authorized and designated as "Variable Rate, Redeemable Cumulative Minority
Interest Structured Securities" (collectively, the "Preferred Securities"). The
Preferred Securities shall not be subject to the operation of a retirement or
sinking fund.
(c) Priority of Preferred Securities. The Preferred Securities shall
rank senior to the Common Securities in respect of the right to receive
Dividends and the right to receive Liquidation Dividends. All Preferred
Securities redeemed, purchased or otherwise acquired by the Company shall be
cancelled and thereupon restored to the status of authorized but unissued
Preferred Securities.
(d) Subscription; Preemptive Rights. No Member shall be entitled as a
matter of right to subscribe for or purchase, or have any preemptive right with
respect to, any part of any new or additional issue of Common Securities or
Preferred Securities of any series whatsoever, or of securities convertible into
any Common Securities or Preferred Securities of any series whatsoever, whether
now or hereafter authorized and whether issued for cash or other consideration
or by way of dividend.
(e) Commons Securities Uncertificated. Common Securities shall not be
evidenced by any certificate or other written instrument, but shall only be
evidenced by this Agreement. Common Securities shall be non-assignable and non-
transferable, and may only be issued to and held by EEX Capital and Enserch
Preferred Capital.
(f) Preferred Securities Certificated. Preferred Securities and the
notation thereon relating to the certificate of authentication, shall be
evidenced by one or more preferred certificates, substantially in the form of
Exhibit A to this Agreement, but in such denominations as may be requested by
the Preferred Members and with such insertions, omissions, substitutions and
variations as may be permitted by or consistent with this Agreement and with
such notations, legends and endorsements as may be required by the Securities
Act or any governmental authority. The provisions of Exhibit A are part of this
Agreement. An authorized officer of EEX Capital, in its capacity as managing
member of the Company shall sign each Preferred Certificate as authentication on
behalf of the Company. No seal or stamp shall be required in connection with
the authentication, but no Preferred Security shall be valid until its has been
so executed.
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Section 7.02. Persons Deemed Preferred Members. The Company may
treat the Person in whose name any Preferred Certificate shall be registered on
the books and records of the Company as a Preferred Member and the sole holder
of such Preferred Certificate for purposes of receiving Distributions and for
all other purposes whatsoever and, accordingly, shall not be bound to recognize
any equitable or other claims to or interest in any Preferred Certificate on the
part of any other Person, whether or not the Company shall have actual or other
notice thereof.
Article VIII
Voting and Meetings
Section 8.01. Voting Rights of Preferred Members.
(a) No Rights Generally. Except as shall be otherwise provided herein
and except as otherwise required by the Delaware Act, the Preferred Members
shall have, with respect to the Preferred Securities, no right or power to vote
on any question or matter or in any proceeding or to be represented at, or to
receive notice of, any meeting of Members.
(b) Rights of Preferred Members. If (i) the Company fails to declare
or pay Dividends in full (including any arrearages and Additional Dividends) on
the Preferred Securities for any Dividend Period and such failure to declare or
pay shall continue unremedied for a period of five (5) days; (ii) a Notice of
Dissolution is issued and EEX Capital (or EEX on behalf of EEX Capital) does not
pay the then outstanding principal amount of the Demand Note within three (3)
Business Days of the giving of such notice; (iii) a Notice of Redemption is
issued and EEX Capital (or EEX on behalf of EEX Capital) does not make the
required deposit on the date designated therefor; (iv) an Event of Default (as
defined in the Demand Note) occurs and is continuing; (v) EEX is in default,
following the expiration of any applicable grace period, on any of its payment
or other obligations under the Guaranty Agreement; or (vi) the Participants have
not agreed to extend the maturity of the notes and certificates issued under the
Funding Agreement on August 4, 2000, or on any August 4th thereafter, then the
Trustee, acting at the direction of any Preferred Member or Members holding in
excess of 50% of the issued and outstanding shares of Preferred Securities, will
be entitled to, and shall, enforce the Company's rights under the Demand Note
against EEX Capital, enforce the obligations undertaken with respect to the
Demand Note by EEX under the Guaranty Agreement and, to the extent permitted by
law, declare and pay Dividends on the Preferred Securities and/or to make
Liquidation Dividends in accordance with Section 15.04 of this Agreement, in
each case, to the extent funds of the Company are legally available therefor.
For purposes of determining whether the Company has failed to pay Dividends in
full for any Dividend Period, Dividends shall be deemed to remain in arrears,
notwithstanding any partial payments in respect thereof, until all accumulated
and unpaid Dividends (including any Additional Dividends) have been or
contemporaneously are declared and paid with respect to all Dividend Periods
terminating on or prior to the date of payment of such full cumulative
Dividends.
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In furtherance of the foregoing, and without limiting the powers of
the Preferred Members and for the avoidance of any doubt concerning the powers
of the Preferred Members, the Preferred Members, or any Person acting as agent
on behalf of the Preferred Members, may institute a proceeding, including,
without limitation, any suit in equity, an action at law or other judicial or
administrative proceeding, to enforce the Company's creditor rights directly
against either EEX or EEX Capital to the same extent as the Company and on
behalf of the Company; and the Preferred Members, or their agent, may prosecute
such proceeding to judgment or final decree and enforce the same against EEX or
EEX Capital and collect, out of the property, wherever situated, of either EEX
or EEX Capital, the monies adjudged or decreed to be payable in the manner
provided by law. EEX Capital agrees to execute and deliver such documents as
may be necessary or appropriate for the Preferred Members, or their agent, to
exercise such powers.
EEX Capital shall not (i) at any time direct the time, method and
place of conducting any proceeding for any remedy available to the Preferred
Members under the Demand Note or the Guaranty Agreement, (ii) waive compliance
with, or any past default under, the Demand Note or the Guaranty Agreement,
(iii) exercise any right to rescind or annul a declaration that the principal of
the Demand Note, or any obligation under the Guaranty Agreement, shall be due
and payable, (iv) consent to any amendment or modification or forgiveness of
debt of the Demand Note or the Guaranty Agreement without, in each case,
obtaining the prior approval of the Preferred Members holding in excess of 50%
of the issued and outstanding shares of the Preferred Securities. EEX Capital
shall not revoke any action previously authorized or approved by a vote or the
consent of the Preferred Members without the approval of the Preferred Members.
EEX Capital shall notify the Preferred Members of any notice of default with
respect to either the Demand Note or the Guaranty Agreement.
(c) Other Rights. If EEX Capital proposes to effect:
(i) any action that would materially adversely affect the powers,
preferences or special rights of the Preferred Securities, whether by way
of amendment of this Agreement or otherwise (including, without limitation,
the authorization or issuance of any Interests in the Company ranking, as
to payment of Distributions senior to the Preferred Securities),
(ii) the liquidation, dissolution or winding up of the Company, or
(iii) the commencement of any voluntary bankruptcy, insolvency,
reorganization or other similar proceeding involving the Company,
then the Preferred Members will be entitled to vote on such resolution or action
of EEX Capital (but not any other resolution or action) and such amendment or
action shall not be effective except with the approval of the Preferred Members
holding in excess of 50% of the issued and outstanding shares of the Preferred
Securities. Notwithstanding any provision to the contrary herein, this Section
8.01 may only be amended with the consent
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of the Preferred Members holding in excess of 50% of the issued and outstanding
shares of the Preferred Securities.
Section 8.02. Voting Rights of Common Members. Except as otherwise
provided herein and except as otherwise required by the Delaware Act, all voting
rights of the Company shall be vested exclusively in the Common Members. The
Common Members shall have the right to vote separately as a class on any matter
on which the Common Members have the right to vote regardless of the voting
rights of any other Member.
Section 8.03. Meetings of the Members.
(a) Meetings of the Members of any class or series or of all classes
of Interests may be called at any time by EEX Capital. Except to the extent
otherwise provided, the following provisions shall apply to meetings of Members.
(b) Members may vote in person or by proxy at such meeting. Whenever
a vote, consent or approval of Members is permitted or required under this
Agreement, such vote, consent or approval may be given at a meeting of Members
or by written consent.
(c) Each Member may authorize any Person to act for it by proxy on all
matters in which a Member is entitled to vote, including waiving notice of any
meeting, or voting or participating at a meeting. Every proxy must be signed by
the Member or its attorney-in-fact and shall be revocable at the pleasure of the
Member executing it at any time before it is voted.
(d) Each meeting of Members shall be conducted by EEX Capital or by
such other Person that EEX Capital may designate.
(e) Any required approval of the Preferred Members may be given at a
separate meeting convened for such purpose or at a meeting of Members of the
Company or pursuant to written consents. EEX Capital will cause a notice of any
meeting at which the Preferred Members are entitled to vote, or of any matter
upon which action by written consent of the Preferred Members is to be taken, to
be mailed to the Preferred Members. Each such notice will include a statement
setting forth (i) the date of such meeting or the date by which such action is
to be taken, (ii) a description of any matter on which the Preferred Members are
entitled to vote or of such matter upon which written consent is sought and
(iii) instructions for the delivery of proxies or consents.
(f) Subject to Section 8.03(e), EEX Capital, in its sole discretion,
shall establish all other provisions relating to meetings of Members, including
notice of the time, place or purpose of any meeting at which any matter is to be
voted on by any Members, waiver of any such notice, action by consent without a
meeting, the establishment of a record date, quorum requirements, voting in
person or by proxy or any other matter with respect to the exercise of any such
right to vote.
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Article IX
Dividends and Redemption
Section 9.01. Dividends.
(a) Generally. Dividends on the Preferred Securities shall be
declared by EEX Capital for each Dividend Period on the Reset Date for such
Dividend Period in accordance with Sections 9.01(c) and (d), to the extent that
EEX Capital reasonably anticipates that at the time of payment the Company will
have, and must be paid by the Company to the extent that at the time of proposed
payment it has, in the Collection Account (i) funds legally available for the
payment of such Dividends and (ii) cash on hand sufficient to make such
payments. The Common Members may receive Dividends under this Agreement as
provided in Section 9.03 and in accordance with the provisions of the Delaware
Act out of funds of the Company legally available therefor.
(b) Limitations on Preferred Dividends. A Preferred Member shall not
be entitled to receive any Dividend, irrespective of whether such Dividend has
been declared by EEX Capital, prior to the date on which such Dividend is
payable (the "Dividend Payment Date") and until such time as the Company has
received the interest payment on the Demand Note for the interest payment date
corresponding to such Divided Payment Date and such monies are available for
Distribution to the Preferred Members pursuant to the terms of this Agreement
and the Delaware Act; and notwithstanding any provision of Section 18-606 of the
Delaware Act to the contrary, until such time, no Preferred Member shall have
the status of a creditor of the Company or the remedies available to a creditor
of the Company.
(c) Preferred Dividends. The Preferred Members shall be entitled to
receive cumulative cash Dividends for each Dividend Period equal to the yield
paid by the Trustee to the Certificateholders under the Funding Agreement during
such period plus the aggregate amount of interest paid to the Lenders under the
Funding Agreement for such period. Dividends shall accrue from August 4, 1995
and shall be payable in United States dollars quarterly in arrears on the last
day of each Dividend Period of each year, commencing on the initial Dividend
Payment Date of October 31, 1995. Dividends shall accrue and be cumulative
whether or not they have been earned or declared and whether or not there are
funds of the Company legally available for the payment of Dividends. Dividends
on the Preferred Securities must be declared for each Dividend Period and be
paid on each Dividend Payment Date to the extent that the Company has, in the
Collection Account, on such date, (x) funds legally available for the payment of
such Dividends and (y) cash on hand sufficient to make such payments, it being
understood that to the extent that funds are not available to pay in full all
accumulated and unpaid Dividends, the Company may pay partial Dividends to the
extent of funds legally available therefor.
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(d) Additional Dividends. Upon any Dividend arrearages in respect of
the Preferred Securities, the Company shall declare and pay in addition to the
Dividends required in Section 9.01(c), additional amounts in order to provide,
in effect, Dividend arrearages at the Post-Default Rate and such additional
amounts shall accumulate. In addition to the foregoing, the Company shall also
declare and pay, from time to time, upon demand of any Preferred Member,
additional amounts (but without duplication of any amounts included in the
calculation of Dividends) as follows:
(i) all out-of-pocket costs and expenses reasonably incurred by such
Preferred Member, the Certificateholders or the Fiscal Agent in connection
with the preparation, negotiation, execution, delivery, performance and
administration of this Agreement and the other Operative Documents,
including, but not limited to, the following: (A) fees and expenses of such
Preferred Member, the Certificateholder and the Fiscal Agent, including,
without limitation, reasonable attorneys' fees and expenses; (B) all other
amounts, including, without limitation, fees, indemnities, expenses,
compensation in respect of increased costs, capital adequacy or breakage of
any kind or description payable under the Operative Documents; (C) out-of-
pocket costs and expenses incurred by such Preferred Member, the
Certificateholders or the Fiscal Agent after the date of this Agreement
(including, without limitation, reasonable attorneys' fees and expenses and
other expenses and disbursements reasonably incurred) associated with (x)
negotiating and entering into, or the giving or withholding of, any future
amendments, supplements, waivers or consents with respect to this
Agreement; (y) any termination of this Agreement; and (z) any Event of
Default and the enforcement of the rights or remedies of the Preferred
Members under this Agreement and the other Operative Documents; and
(ii) all other out-of-pocket amounts that such Preferred Member pays
under the Operative Documents other than interest, principal, and amounts
described in the first sentence of this Section 9.01(d) and clause (i)
above.
All amounts due pursuant to this Section 9.01(d) shall be "Additional
Dividends".
Section 9.02 Limitations on Distributions. Notwithstanding any
provision to the contrary contained in this Agreement, the Company shall not
make a Distribution (including a Dividend) to any Member on account of its
Interest if such Distribution would violate Section 18-607 of the Delaware Act
or other applicable law.
Section 9.03. Common Distributions. EEX Capital may, from time to
time, declare and pay Dividends with respect to the common Interests of each
Common Member to the extent such Common Member's Adjusted Capital Account
exceeds the sum of such Common Member's initial capital contribution specified
in Section 4.01 plus the amount of any additional contributions made by such
Common Member pursuant to Section 4.02; and after all of the issued and
outstanding Preferred Securities have been redeemed in full at the Liquidation
Preference and all accrued Dividends (including Additional Dividends) have been
paid in full, the Company may redeem in full all common Interests.
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Section 9.04. Redemption and Exchange.
(a) Mandatory Redemption. Upon the earlier to occur of (i) August 4,
2005, or (ii) the repayment in full of the principal of the Demand Note, whether
by EEX Capital following the demand for payment thereof or by EEX under the
Guaranty Agreement, the Preferred Securities shall be subject to mandatory
redemption, in whole but not in part, by the Company, and the proceeds from such
repayment shall be applied to redeem each issued and outstanding Preferred
Security at the Redemption Price. In case of such repayment, the Preferred
Securities will be redeemed only when repayment of the Demand Note has actually
been received by the Company and is on deposit in the Collection Account.
(b) Optional Redemption. The Preferred Securities shall be redeemable
at the option of the Company, in whole or in part from time to time, subject to
three (3) Business Day's prior written notice, at the Redemption Price for the
shares being so redeemed; provided however that any such partial redemption be
in an amount of not less than $10,000,000 or any increment of $1,000,000 in
excess thereof. The Company may not redeem the Preferred Securities in part
unless all accumulated and unpaid Dividends (whether or not earned or declared),
including any Additional Dividends, have been paid in full on all Preferred
Securities for all Dividend Periods terminating on or prior to the date of
redemption. EEX Capital shall have the right to cause the Company to exercise
such redemption option.
(c) Other Mandatory Redemption Events. At any time after the
occurrence of a Tax Event, the Company may, or at any time after the occurrence
of an Investment Company Event, the Company shall, within 30 days following the
occurrence of such Investment Company Event, redeem, in whole but not in part,
the Preferred Securities at the Redemption Price for all issued and outstanding
shares. In addition, in the event the Asset Coverage Ratio, as of any time,
fails to be at least 1.0 to 1.0, the Company shall redeem, at the Redemption
Price, a sufficient number of shares of the Preferred Securities to restore the
Asset Coverage Ratio to at least 1.0 to 1.0.
(d) Redemption Procedures.
(i) Notice of any redemption (optional or mandatory) of the Preferred
Securities (a "Notice of Redemption") shall be irrevocable and shall be
given by the Company by facsimile transmission to be followed by U.S. mail
not fewer than 3 Business Days nor more than 30 calendar days prior to the
date fixed for redemption thereof to EEX Capital and the Preferred Members.
For purposes of the calculation of the date of redemption and the dates on
which notices are given pursuant to this Section 9.04(d)(i), a Notice of
Redemption shall be deemed to be given on the day such notice is first
transmitted by facsimile (with receipt confirmed orally) with a copy mailed
by first-class U.S. mail, postage prepaid, to the Preferred Members. A
Notice of Redemption shall be transmitted and addressed to the Preferred
Members at the facsimile number and address appearing in the books and
records of the
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Company, with a copy to the Fiscal Agent at the facsimile numbers and
addresses specified for notice to the Fiscal Agent.
(ii) If the Company issues a Notice of Redemption, then, by 12:00
noon, New York time, on the date fixed for redemption of shares, EEX
Capital will deposit into the Collection Account an amount representing
that portion of principal on the Demand Note, which, together with accrued
and unpaid interest thereon, will be an amount sufficient to pay the
Redemption Price for the Preferred Securities to be redeemed. The Company
shall immediately and irrevocably deposit such funds on the date fixed for
redemption into the Collection Account and such funds shall be paid to the
Preferred Members before 1:00 p.m. New York time on such date. If a Notice
of Redemption shall have been given and funds irrevocably deposited as
required, then immediately prior to the close of business on the date of
such deposit, all rights of the Preferred Members with respect to the
Preferred Securities so called for redemption will cease except the right
of the Preferred Members to receive the Redemption Price. In the event
that any date fixed for redemption of the Preferred Securities is not a
Business Day, then payment of the Redemption Price payable on such date
will be made on the next succeeding day which is a Business Day (with any
interest or other payment in respect of any such delay), except that if
such Business Day falls in the next calendar month, such payment will be
made on the immediately preceding Business Day. In the event that payment
of the Redemption Price is improperly withheld or refused and not paid
either by the Company or by EEX Capital or EEX (pursuant to the Guaranty
Agreement), Dividends on the Preferred Securities called for redemption
(including any Additional Dividends) will continue to accumulate at the
then applicable rate, from the original redemption date to the date that
the Redemption Price is actually paid and the Preferred Members may
exercise all of their rights under this Agreement. Any partial redemption
under Section 9.04(b) shall be allocated pro rata among the Preferred
Members in accordance with the percentage equal to the number of shares of
Preferred Securities held by such Preferred Member over the total number of
issued and outstanding shares of Preferred Securities.
Article X
Books and Records
Section 10.01. Books and Records; Accounting. EEX Capital shall keep
or cause to be kept at the address of EEX Capital (or at such other place as EEX
Capital shall determine) true and full books and records regarding the status of
the business and financial condition of the Company.
Section 10.02. Fiscal Year. The fiscal year of the Company for
federal income tax and accounting purposes shall, except as otherwise required
in accordance with the Code, end on December 31 of each year.
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Section 10.03. Access to Records. In addition to the other rights
specifically set forth in this Agreement, each Member is entitled to all
information to which that Member is entitled to have access pursuant to Section
18-305 of the Delaware Act under the circumstances and subject to the conditions
stated therein.
Article XI
Tax Matters
Section 11.01. Company Tax Returns.
(a) EEX Capital shall cause to be prepared and timely filed all tax
returns required to be filed for the Company. EEX Capital may, in its
discretion, make or refrain from making any federal, state or local income or
other tax elections for the Company that it deems necessary or advisable,
including, without limitation, any election under Section 754 of the Code or any
successor provision.
(b) EEX Capital is hereby designated as the Company's "Tax Matters
Partner" under Code Section 6231(a)(7) and shall have all the powers and
responsibilities of such position as provided in the Code. EEX Capital is
specifically directed and authorized to take whatever steps EEX Capital, in its
discretion, deems necessary or desirable to perfect such designation, including
filing any forms or documents with the Internal Revenue Service and taking such
other action as may from time to time be required under the regulations issued
under the Code. Expenses incurred by the Tax Matters Partner, in its capacity
as such, will be borne by EEX Capital.
Section 11.02. Tax Reports. EEX Capital shall, as promptly as
practicable and in any event within 120 days after the end of each fiscal year,
cause to be prepared and mailed to the Common Members and the Preferred Members,
federal income tax form K-1 and any other forms which are necessary or
advisable.
Section 11.03. Taxation as Partnership. The Members recognize that
the Company will be treated as a partnership for U.S. federal income tax
purposes, and EEX Capital shall operate the Company in such a manner as will
preserve its treatment as a partnership for U.S. federal income tax purposes.
Article XII
Expenses
Section 12.01. Expenses. Except as otherwise provided in this
Agreement, EEX Capital shall be responsible for, and shall pay, all expenses and
obligations of the Company out of funds of EEX Capital, whether such expenses or
obligations are those of
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the Company or are otherwise incurred by EEX Capital in connection with this
Agreement, including, without limitation:
(a) all costs and expenses related to the business of the Company and
all routine administrative expenses of the Company, including the maintenance of
books and records of the Company, the preparation and dispatch to the Members of
checks, financial reports, tax returns and notices required pursuant to this
Agreement and the holding of any meetings of the Members;
(b) all expenses incurred in connection with any litigation involving
the Company (including the cost of any investigation and preparation) and the
amount of any judgment or settlement paid in connection therewith (other than
expenses incurred by EEX Capital in connection with any litigation brought by or
on behalf of any Member against EEX Capital);
(c) all expenses for indemnity or contribution payable by the Company
to any Person;
(d) all expenses incurred in connection with the collection of amounts
due to the Company from any Person;
(e) all expenses incurred in connection with the preparation of
amendments to this Agreement; and
(f) all expenses incurred in connection with the liquidation,
dissolution or winding-up of the Company.
Article XIII
Liability, Exculpation and Indemnification
Section 13.01. Liability of Common Members. Each Common Member, by
acquiring its Interest and being admitted to the Company as a Common Member,
shall be liable to the creditors of the Company (other than to any Preferred
Member, in its capacity as a Member) (hereinafter referred to individually as a
"Third Party Creditor", and collectively as the "Third Party Creditors") to the
same extent that a general partner of a limited partnership formed under the LP
Act is liable under Section 17-403(b) of the LP Act to creditors of the limited
partnership (other than the other partners in their capacity as partners), as if
the Company were a limited partnership formed under the LP Act and each Common
Member was general partner of the limited partnership. In furtherance but not
in limitation of the generality of the foregoing, each Common Member is liable
for any and all debts, obligations and other liabilities of the Company, whether
arising under contract or by tort, statute, operation of law or otherwise, all
of which shall be enforceable directly and absolutely against each Common Member
by each Third Party Creditor.
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Section 13.02. Liability of Preferred Members.
(a) Except as otherwise provided by the Delaware Act, (i) the debts,
obligations and liabilities of the Company, whether arising by contract, tort,
statute, operation of law or otherwise, shall be solely the debts, obligations
and liabilities of the Company and, to the extent set forth in Section 13.01 of
this Agreement, the Common Members and (ii) no Indemnified Party shall be
obligated personally for any such debt, obligation or liability of the Company
solely by reason of being an Indemnified Party or a Preferred Member of the
Company.
(b) Each Preferred Member, in its capacity as such, shall have no
liability in excess of (i) the amount of its capital contributions, (ii) its
share of any assets and undistributed profits of the Company, (iii) any amounts
required to be paid by the Preferred Members for the Preferred Securities held
by it and (iv) the amount of any Distributions wrongfully distributed to it.
Section 13.03 Exculpation.
(a) No Indemnified Party shall be liable to the Company or any other
Indemnified Party for any loss, damage or claim incurred by reason of any act or
omission performed or omitted by such Indemnified Party in good faith on behalf
of the Company and in a manner reasonably believed to be within the scope of
authority conferred on such Indemnified Party by this Agreement, except that an
Indemnified Party shall be liable for any such loss, damage or claim incurred by
reason of such Indemnified Party's gross negligence, bad faith, recklessness or
willful misconduct.
(b) An Indemnified Party shall be fully protected in relying in good
faith upon the records of the Company and upon such information, opinions,
reports or statements presented to the Company by any Person as to matters the
Indemnified Party reasonably believes are within such other Person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Company, including information, opinions, reports or
statements as to the value and amount of the assets, liabilities, profits,
losses or any other facts pertinent to the existence and amount from which
distributions to Members might properly be paid.
Section 13.04 Fiduciary Duty.
(a) To the extent that, at law or in equity, an Indemnified Party has
duties (including fiduciary duties) and liabilities relating thereto to the
Company or to any other Indemnified Party, an Indemnified Person acting under
this Agreement shall not be liable to the Company or to any other Indemnified
Party for its good faith reliance on the provisions of this Agreement. The
provisions of this Agreement to the extent that they restrict the duties and
liabilities of an Indemnified Person otherwise existing at law or in equity, are
agreed by the parties hereto to replace such other duties and liabilities of
such Indemnified Person.
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(b) Unless otherwise expressly provided herein, (i) whenever a
conflict of interest exists or arises between Indemnified Parties, or (ii)
whenever this Agreement or any other agreement contemplated herein provides that
an Indemnified Person shall act in a manner that is, or provides terms that are,
fair and reasonable to the Company or any Member, the Indemnified Person shall
resolve such conflict of interest taking such action or providing such terms,
considering in each case the relative interest of each party (including its own
interest) to such conflict, agreement, transaction or situation and the benefits
and burdens relating to such interests, any customary or accepted industry
practices, and any applicable generally accepted accounting practices or
principles. In the absence of bad faith by the Indemnified Person, the
resolution, action or term so made, taken or provided by the Indemnified Person
shall not constitute a breach of this Agreement or any other agreement
contemplated herein or of any duty or obligation of the Indemnified Person at
law or in equity or otherwise.
(c) Whenever in this Agreement an Indemnified Person is permitted or
required to make a decision (i) in its "discretion" or under a grant of similar
authority or latitude, the Indemnified Person shall be entitled to consider only
such interests and factors as it desires, including its own interests, and shall
have no duty or obligation to give any consideration to any interest of or
factors affecting the Company or any other Person, or (ii) in its "good faith"
or under another express standard, the Indemnified Person shall act under such
express standard and shall not be subject to any other or different standard
imposed by this Agreement or other applicable law.
Section 13.05 Indemnification. To the fullest extent permitted by
applicable law, an Indemnified Person shall be entitled to indemnification from
the Company for any loss, damage or claim incurred by such Indemnified Person by
reason of any act or omission performed or omitted by such Indemnified Person in
good faith on behalf of the Company and in a manner reasonably believed to be
within the scope of authority conferred on such Indemnified Person by this
Agreement except that no Indemnified Person shall be entitled to be indemnified
in respect of any loss damage or claim incurred by such Indemnified Person by
reason of gross negligence, bad faith, recklessness or willful misconduct with
respect to such acts or omissions.
Section 13.06 Expenses. To the fullest extent permitted by
applicable law, expenses (including legal fees) incurred by an Indemnified
Person in defending any claim, demand action, suit or proceeding shall, from
time to time, be advanced by EEX Capital (which shall be deemed to be a capital
contribution) prior to the final disposition of such claim, demand, action, suit
or proceeding upon receipt by the Company (or EEX Capital) of an undertaking by
or on behalf of the Indemnified Person to repay such amount if it shall be
determined that the Indemnified Person is not entitled to be indemnified as
authorized in Section 13.05 hereof.
Section 13.07 Outside Business. Any Member or its Affiliate may
engage in or possess an interest in other business ventures of any nature or
description, independently or with others, similar or dissimilar to the business
of the Company, and the Company and the Members shall have no rights by virtue
of this Agreement in and to such independent
26
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ventures or the income or profits derived therefrom, and the pursuit of any such
venture, even if competitive with the business of the Company, shall not be
deemed wrongful or improper. No Member or its Affiliate shall be obligated to
present any particular investment opportunity to the Company even if such
opportunity is of character that, if presented to the Company, could be taken by
the Company, and any Member or its Affiliate shall have the right to take for
its own account (individually or as a partner or fiduciary) or to recommend to
others any such particular investment opportunity.
Article XIV
No Recourse to Trustee
Section 14.01 No Recourse to Trustee. It is expressly understood and
agreed by the parties that (a) this Agreement and the other Operative Documents
to which the Trustee is a party are executed and delivered by Wilmington, not
individually or personally, but solely as trustee of the MIStS Issuer Trust I
under the Declaration of Trust in the exercise of the powers and authority
conferred and vested in it, (b) each of the representations, undertakings and
agreements herein made on the part of the Trustee is made and intended not as
personal representations, undertakings and agreements by Wilmington, but is made
and intended solely for the purpose of binding the Trust estate, (c) nothing
herein contained shall be construed as creating any liability on Wilmington,
individually or personally, to perform any covenant, either expressed or implied
herein, all such liability, if any, being expressly waived by the parties hereto
and by any Person claiming by, through or under the parties hereto and (d) under
no circumstances shall Wilmington be personally liable for the payment of any
amount due under this Agreement or the expenses of the Trust or be liable for
the breach or failure of any obligation, representation, warranty or covenant
made or undertaken by the Trust or the Trustee under this Agreement or the other
Operative Documents to which it is a party, except for its own willful
misconduct or gross negligence.
Article XV
Dissolution, Liquidation and Termination
Section 15.01. Dissolution. The Company shall be dissolved upon the
withdrawal, retirement, resignation, expulsion, bankruptcy or dissolution of any
Member.
Section 15.02. Notice of Dissolution. Upon the dissolution of the
Company, EEX Capital shall promptly notify the Members of such dissolution.
Section 15.03. Liquidation. Upon dissolution of the Company, EEX
Capital, as liquidating trustee, shall immediately commence to wind-up the
Company's affairs; provided, however, that a reasonable time shall be allowed
for the orderly liquidation of the
27
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assets of the Company and the satisfaction of liabilities to creditors so as to
enable the Members to minimize the normal losses attendant upon a liquidation.
The proceeds of liquidation shall be distributed, as realized, in the manner
provided in Section 18-804 of the Delaware Act, subject to Section 15.04 of this
Agreement.
Section 15.04. Certain Restrictions on Liquidation Payments. In the
event of any voluntary or involuntary liquidation, dissolution or winding-up of
the Company, the Preferred Members will be entitled to receive out of the assets
of the Company legally available for Distribution to Members, after satisfaction
of liabilities to creditors as required by the Delaware Act but before any
Distribution of assets is made to any Common Member, for each and every
Preferred Security then issued and outstanding, an amount equal to the
Liquidation Preference, plus all accumulated and unpaid Dividends (whether or
not earned or declared), including any Additional Dividends, to the date of
payment.
Section 15.05. Termination. The Company shall terminate when all of
the assets of the Company have been distributed in the manner provided for in
this Article XV, and the Certificate of Formation shall have been cancelled in
the manner required by the Delaware Act.
Article XVI
Miscellaneous
Section 16.01. Amendments. Except as otherwise provided in this
Agreement, this Agreement may be amended by, and only by, a written instrument
executed by the Common Members and the Preferred Members.
Section 16.02. Successors; Counterparts. This Agreement (a) shall be
binding as to the executors, administrators, estates, heirs and legal
successors, or nominees or representatives, of the Members and (b) may be
executed in several counterparts with the same effect as if the parties
executing the several counterparts had all executed one counterpart. No Person
other than the Members and their respective legal successors or assigns, or
their nominees or representatives, shall obtain any rights by virtue of this
Agreement.
Section 16.03. Governing Law; Severability. This Agreement shall be
governed by and construed in accordance with the laws of the State of Delaware
without giving effect to the principles of conflict of laws thereof. In
particular, this Agreement shall be construed to the maximum extent possible to
comply with all of the terms and conditions of the Delaware Act. If,
nevertheless, it shall be determined by a court of competent jurisdiction that
any provisions or wording of this Agreement shall be invalid or unenforceable
under the Delaware Act or other applicable law, such invalidity or
unenforceability shall not invalidate the entire Agreement. In that case, this
Agreement shall be construed so as to limit any term or provision so as to make
it enforceable or valid within the requirements of applicable law, and, in the
event such term or provisions cannot
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be so limited, this Agreement shall be construed to omit such invalid or
unenforceable provisions. If it shall be determined by a court of competent
jurisdiction that any provision relating to the Distributions and allocations of
the Company or to any fee payable by the Company is invalid or unenforceable,
this Agreement shall be construed or interpreted so as (a) to make it
enforceable or valid and (b) to make the Distributions and allocations as
closely equivalent to those set forth in this Agreement as is permissible under
applicable law.
Section 16.04. Filings. Following the execution and delivery of this
Agreement, EEX Capital shall promptly prepare any documents required to be filed
and recorded under the Delaware Act, and EEX Capital shall promptly cause each
such document to be filed and recorded in accordance with the Delaware Act and,
to the extent required by local law, to be filed and recorded or notice thereof
to be published in the appropriate place in each jurisdiction in which the
Company may hereafter establish a place of business. EEX Capital shall also
promptly cause to be filed, recorded and published such statements or other
instruments required by any provision of any applicable law of the United States
or any state or other jurisdiction which governs the conduct of its business
from time to time.
Section 16.05. Power of Attorney. Each Preferred Member does hereby
constitute and appoint EEX Capital as its true and lawful representative and
attorney-in-fact, in its name, place and stead to make, execute, sign, deliver
and file (a) any amendment of the Certificate of Formation required because of
an amendment to this Agreement or in order to effectuate any change in the
membership of the Company, and (b) all such other instruments, documents and
certificates which may from time to time be required by the laws of the United
States of America, the State of Delaware or any other jurisdiction, or any
political subdivision of agency thereof, to effectuate, implement and continue
the valid and subsisting existence of the Company or to dissolve the Company or
for any other purpose expressly provided in this Agreement.
The power of attorney granted hereby is coupled with an interest and shall
(a) survive and not be affected by the subsequent death, incapacity, disability,
dissolution, termination or bankruptcy of any Preferred Member and (b) extend to
such Preferred Member's legal successors and assigns.
Section 16.06. Additional Documents. Each Preferred Member, upon the
request, and at the expense, of EEX Capital, agrees to perform all further acts
and execute, acknowledge and deliver any documents that may be reasonably
necessary to carry out the provisions of this Agreement.
Section 16.07. Notices. All notices provided for in this Agreement
shall be in writing, duly signed by the party giving such notice, and shall be
delivered, telecopied to be followed by a copy mailed by registered or certified
mail, as follows:
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(i) If given to the Company, in care of EEX Capital at the Company's
mailing address set forth below:
EEX Capital L.L.C.
c/o Enserch Exploration, Inc.
300 South St. Paul Street
Dallas, Texas 75201
Facsimile No.: (214) 573-3351
Attention: Joseph T. Leary
(ii) If given to any Member, at the address set forth on the
registration books maintained by or on behalf of the Company.
(iii) If given to the Fiscal Agent, at the Fiscal Agent's mailing
address set forth below:
The Chase Manhattan Bank, N.A.
2 Chase Manhattan Plaza, 8th Floor
New York, New York 10081
Attention: Bettylou J. Robert
with copy to:
Chase Manhattan, Southwest
1221 McKinney, Suite 3000
Houston, Texas 77010
Attention: J. Scott Porter
Facsimile No.: (713) 751-9122
Each such notice, request or other communication shall be effective (a) if given
by telecopier, when transmitted to the number specified in such registration
books and the appropriate confirmation is received, (b) if given by mail, 72
hours after such communication is deposited in the mails with first class
postage prepaid, addressed as aforesaid, or (c) if given by any other means,
when delivered at the address specified in such registration books.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above stated.
EEX Capital L.L.C.
By:________________________________
Name:
Title:
EEX Preferred Capital, Inc.
By:_________________________________
Name:
Title:
MIStS Issuer Trust I
By: Wilmington Trust Company, not in its
individual capacity, but solely as trustee of the
MIStS Issuer Trust I
By:_________________________________
Name:
Title:
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Exhibit A
[Form of]
Certificate Evidencing the MIStS Issuer L.L.C.
Variable Rate, Redeemable Cumulative Minority Interest
Structured Security
Liquidation Preference: $1,000,000.00 per share
______ Shares Certificate No. ____
THIS CERTIFIES THAT Wilmington Trust Company, not in its individual
capacity, but solely as trustee of the _________________________________, is the
registered holder of ______ shares of fully paid and non-assessable shares of
the Variable Rate, Redeemable Cumulative Minority Interest Structured Security,
$1.00 par value per share, transferable on the books of MIStS Issuer L.L.C. (the
"Company") by the holder hereof, in person or by a duly authorized attorney,
upon surrender of this Certificate properly endorsed and accompanied by a
properly executed application for transfer for the Preferred Securities
represented by this Certificate.
IN WITNESS WHEREOF, EEX Capital has caused this Certificate to be
signed by its duly authorized officers, this ______ day of _______________,
199__.
MIStS Issuer L.L.C.
By:________________________________
Name:
Title:
1
<PAGE>
[Reverse of Certificate]
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE, AND MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR
OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH SUCH ACT AND THE RULES AND
REGULATIONS THEREUNDER AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
WITHOUT SUCH REGISTRATION, THE COMPANY WILL NOT TRANSFER SUCH SECURITIES EXCEPT
UPON RECEIPT OF A REPRESENTATION FROM THE HOLDER AND/OR OTHER EVIDENCE
REASONABLY SATISFACTORY TO THE COMPANY THAT THE REGISTRATION PROVISIONS OF SUCH
ACT HAVE BEEN COMPLIED WITH OR THAT SUCH REGISTRATION IS NOT REQUIRED AND THAT
SUCH TRANSFER WILL NOT VIOLATE ANY APPLICABLE STATE SECURITIES LAWS.
THE COMPANY IS AUTHORIZED TO ISSUE SHARES OF BOTH COMMON AND PREFERRED STOCK. A
FULL STATEMENT OF ALL OF THE DESIGNATIONS, PREFERENCES, LIMITATIONS, AND
RELATIVE RIGHTS OF THE SHARES OF BOTH CLASS AND ANY SERIES THEREOF TO THE EXTENT
THAT THEY HAVE BEEN FIXED AND DETERMINED AND THE AUTHORITY OF THE COMMON MEMBERS
OF THE COMPANY TO FIX AND DETERMINE THE RELATIVE RIGHTS AND PREFERENCES OF
SUBSEQUENT SERIES IS SET FORTH IN THE AMENDED AND RESTATED LIMITED LIABILITY
COMPANY AGREEMENT ON FILE IN THE OFFICE OF EEX CAPITAL. THE COMPANY WILL
FURNISH A COPY OF SUCH STATEMENT TO THE RECORD HOLDER OF THIS CERTIFICATE
WITHOUT CHARGE ON WRITTEN REQUEST TO THE COMPANY AT ITS PRINCIPAL PLACE OF
BUSINESS OR REGISTERED OFFICE.
FOR VALUE RECEIVED, ________________________________ hereby assigned,
conveys, sells and transfers unto ___________________________________________
---------------------------------- ------------------------------------
(Please print or typewrite name (Please insert Social Security or
and address of Assignee) other identifying number of Assignee)
_______________________________ shares of Variable Rate, Redeemable Cumulative
Minority Interest Structured Security evidenced by this Certificate and does
hereby irrevocably constitute and appoint ____________________ as its attorney-
in-fact with full power of substitution to transfer the same on the books of
MIStS Issuer L.L.C.
Date:__________________ NOTE: The signature to any endorsement hereon must
correspond with the name as written upon the
face of this Certificate in every particular,
without alteration, enlargement or change.
In presence of:
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Schedule 1
List of Operative Documents
1. Funding Agreement among the Trustee, the Agent, the Co-Agents and the
Participants.
2. Notes in favor of each of the Lenders.
3. Certificate(s) of Beneficial Ownership in the Trust in favor of the
Certificateholder.
4. Pledge Agreement by the Trustee in favor of the Agent, for the benefit of
the Participants, pledging 100% of Preferred Stock in Issuer.
5. Stock Powers relating to item 4.
6. Financing Statement relating to item 4.
7. Agency Agreement, Limited Power of Attorney and Indemnification Agreement
among EEX, the Trustee, the Agent, the Co-Agents and the Participants.
8. Declaration of Trust for MIStS Issuer Trust I.
9. Limited Liability Company Agreement for Issuer.
10. Certificate No. 1 of MIStS Issuer Preferred Stock in name of Trustee.
11. Demand Note issued by EEX Capital to the order of Issuer.
12. Guaranty Agreement executed by EEX in favor of Issuer guarantying payment
of Demand Note.
13. Credit Agreement between MIStS Funding Corp. I, as Certificateholder, and
Chase.
14. $4,500,000 Note issued by MIStS Funding Corp. I to the order of Chase.
15. Pledge Agreement by MIStS Funding Corp. I in favor of Chase.
16. Stock Powers relating to item 15.
17. Financing Statement relating to item 15.
SCH1-1
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
33-60461 on Form S-2 of Enserch Exploration, Inc. of our report dated February
10, 1995 (June 21, 1995, as to Note 1), appearing in the Prospectus, which is
part of this Registration Statement, and to the reference to us under the
heading "Experts" in such Prospectus.
Deloitte & Touche LLP
Dallas, Texas
August 18, 1995
Enserch Exploration, Inc.:
We have made a review, in accordance with standards established by the
American Institute of Certified Public Accountants, of the unaudited interim
financial information of Enserch Exploration, Inc. and subsidiaries for the
periods ended March 31, 1995 and 1994 (which financial statements were restated
after issuance to give retroactive effect to transactions accounted for in a
manner similar to a pooling-of-interests) and June 30, 1995 and 1994, as
indicated in our reports dated April 26, 1995 and August 4, 1995, respectively;
because we did not perform an audit, we expressed no opinion on that
information.
We are aware that our reports referred to above, which were included in your
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1995 and June
30, 1995, are being incorporated by reference in Amendment No. 1 to
Registration Statement No. 33-60461.
We also are aware that the aforementioned reports, pursuant to Rule 436(c)
under the Securities Act of 1933, are not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.
Deloitte & Touche LLP
Dallas, Texas
August 18, 1995
<PAGE>
EXHIBIT 23.4
DEGOLYER AND MACNAUGHTON
ONE ENERGY SQUARE
DALLAS, TEXAS 75206
August 17, 1995
Enserch Exploration, Inc.
4849 Greenville Avenue
Dallas, TX 75206
Gentlemen:
We hereby consent to the use in the Registration Statement on Form S-2 and
related Prospectus of Enserch Exploration, Inc., of information from the
following: (1) "Report as of January 1, 1995 on Proved and Probable Reserves of
Certain Properties owned by Enserch Exploration, Inc."; (2) "Report as of March
1, 1995 on the Gross Reserves of the Green Canyon Block 254 Field owned by
Enserch Exploration, Inc."; (3) "Report as of January 1, 1995 on the Proved,
Probable, and Possible Reserves of the Mudi Field in East Java, Republic of
Indonesia, attributable to Enserch Far East, Ltd."; (4) "Report as of January
1, 1995 on the Proved Reserves of the SACROC Unit, Kelly Snyder Field in Scurry
County, Texas owned by ENSERCH Corporation"; (5) "Report as of July 1, 1995 on
Reserves of Certain Properties owned by Enserch Exploration, Inc.--Selected
1995 Discoveries"; (6) "Report as of July 1, 1995 on the Reserves of Certain
Properties owned by Enserch Exploration, Inc.--DALEN Corporation Acquisition";
and (7) our letter dated February 3, 1995 regarding the fair market value of
the interest owned by Enserch Exploration, Inc. in the SACROC Unit, Kelly
Snyder Field, Scurry County, Texas, and our letter dated June 21, 1995
regarding the fair market value of the interest owned by Enserch Far East, Ltd.
in the Mudi Field, East Java, Republic of Indonesia. We also consent to the
references to us in the "Prospectus Summary," "Business," "Certain
Transactions," '"Experts," and "Notes to Financial Statements" sections of such
Registration Statement and Prospectus.
Very truly yours,
DeGOLYER and MacNAUGHTON
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<PAGE>
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