<PAGE>
===========================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1995
OR
(_) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
Commission file number 1-11413
ENSERCH EXPLORATION, INC.
Texas 75-2556975
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
4849 Greenville Avenue
Suite 1500
Dallas, Texas 75206
(Address of principal executive office) (Zip Code)
Registrant's Telephone Number, Including Area Code - (214) 369-7893
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of Each Exchange
Title of Each Class on which Registered
------------------- ---------------------
Common Stock ($1.00 par value) New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
Indicate by check mark whether Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes (X) No (_)
Aggregate market value of the voting stock held by nonaffiliates of the
Registrant as of March 15, 1996: $205,800,579.
Shares of the Registrant's Common Stock outstanding as of March 15,
1996: 125,927,727 shares.
Documents incorporated by reference and the Part of the Form 10-K into
which the document is incorporated: Proxy Statement filed on or about
March 29, 1996 (Part III).
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (_)
===========================================================================
<PAGE>
<PAGE>
<TABLE>
FORM 10-K
ANNUAL REPORT
For the Fiscal Year Ended December 31, 1995
TABLE OF CONTENTS
<CAPTION>
Page
PART I
<S> <C> <C>
ITEM 1. Business . . . . . . . . . . . . . . . . . . . . . . 1
General . . . . . . . . . . . . . . . . . . . . 1
Reorganization. . . . . . . . . . . . . . . . . 1
Recent Developments . . . . . . . . . . . . . . 1
DALEN Acquisition. . . . . . . . . . . . . 1
EEX Common Stock Offering. . . . . . . . . 1
Garden Banks Project . . . . . . . . . . . 2
Green Canyon Project . . . . . . . . . . . 2
Rocky Mountain Properties. . . . . . . . . 3
International Operations . . . . . . . . . 3
Resignation. . . . . . . . . . . . . . . . 3
Sales Information . . . . . . . . . . . . . . . 3
Major Customers . . . . . . . . . . . . . . . . 3
Competition . . . . . . . . . . . . . . . . . . 3
Government Regulation . . . . . . . . . . . . . 4
Environmental Matters. . . . . . . . . . . 4
Others Laws and Regulations. . . . . . . . 5
Employees . . . . . . . . . . . . . . . . . . . 5
Offices . . . . . . . . . . . . . . . . . . . . 6
Executive Officers of Registrant. . . . . . . . 6
ITEM 2. Properties . . . . . . . . . . . . . . . . . . . . . 7
ITEM 3. Legal Proceedings. . . . . . . . . . . . . . . . . .10
ITEM 4. Submission of Matters to a Vote of Security Holders.10
PART II
ITEM 5. Market for Registrant's Common Equity and
Related Stockholder Matters. . . . . . . . . . . . .10
ITEM 6. Selected Financial Data. . . . . . . . . . . . . . .10
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . .10
ITEM 8. Financial Statements and Supplementary Data. . . . .10
ITEM 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . .10
PART III
ITEM 10. Directors and Executive Officers of the Registrant .10
ITEM 11. Executive Compensation . . . . . . . . . . . . . . .10
ITEM 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . .10
ITEM 13. Certain Relationships and Related Transactions . . .10
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K. . . . . . . . . . . . . . . . .11
APPENDIX A Financial Information. . . . . . . . . . . . . . A-1
</TABLE>
<PAGE>
<PAGE>
PART I
ITEM 1. Business
General
Enserch Exploration, Inc. ("EEX" or the "Company"), an 83.4% owned
subsidiary of ENSERCH Corporation ("ENSERCH"), 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 1,792
billion cubic feet of natural gas equivalent ("Bcfe") at January 1, 1996, as
estimated by DeGolyer and MacNaughton ("D&M"), independent petroleum
consultants. Approximately 75% of these reserves 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.
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 Enserch Exploration Partners, Ltd.
("EP"), a limited partnership in which a minority interest (less than 1% since
1989), was held by the public. At year-end 1994, pursuant to a plan for the
reorganization of EP ("Reorganization"), 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 EEX common stock. On December 30, 1994, the Reorganization was
consummated, EPO was merged into EEX, EP was liquidated and the EEX common
stock held by EP was distributed to EP's limited and general partners in
accordance with their partnership interests.
Upon the liquidation of EP and distribution of EEX common stock, public
unitholders of EP received 805,914 shares (.8%) and ENSERCH received
103,775,328 shares (99.2%) of EEX's 104,581,242 shares then outstanding.
Trading of EEX common stock began on the New York Stock Exchange under the
symbol "EEX" on January 3, 1995.
In 1995, EEX acquired ENSERCH's international and SACROC operations.
Recent Developments
DALEN Acquisition. On June 8, 1995, EEX acquired all of 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 397 Bcfe at June 30, 1995, and other
assets for cash of $340 million and assumed DALEN's bank debt of $115 million.
The DALEN Acquisition was initially funded through EEX's borrowings. DALEN's
activities are 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.
EEX Common Stock Offering. On September 26, 1995, EEX sold 20 million
shares of its common stock to the public for net proceeds of approximately
$208 million after expenses, and ENSERCH's ownership was reduced to 83.4%.
Proceeds from the sale were used to reduce borrowings incurred to finance the
DALEN Acquisition.
Garden Banks Project. In the third quarter of 1995, an affiliate of
Mobil Corporation ("Mobil") acquired a 40% working interest in EEX's Garden
Banks Block 388 project, a six-block unit located 200 miles southwest of New
Orleans, Louisiana, in 2,200 feet of water. EEX received cash, property
interests and future work commitments on the project. In addition, EEX was
relieved of capital and operating lease obligations of approximately
$140 million as well as 40% of the capital expenditures required to complete
the project. EEX now owns a 60% working interest and remains the operator of
the project.
To date, two wells that had been drilled and completed prior to the
facility moving in are producing on Block 388, and a third well, which is in
progress, is expected to begin producing in the second quarter of 1996. Two
wells have been drilled on adjacent Block 387 and are planned for subsea
completion and tie-back to the production facility, which will allow
production to commence during the second quarter of 1996. EEX plans to drill
and complete a fourth well from the platform in 1996, bringing to six the
number of wells producing by year-end.
In January 1996, the combined flow rate from two wells previously
drilled on Block 388 was equivalent to 4,000 barrels ("Bbls") of oil per day,
down from the initial production rate, which was the equivalent of
approximately 9,000 Bbls of oil per day. While a decline in daily production
from the initial rate is normal, the magnitude of the decline is being
carefully evaluated. Development plans, which may include water-injection
wells, will be dictated by characteristics of formations and reservoirs,
including flow rates and declines, which become better defined with each
additional well and each additional month of operation. Gross proved reserves
attributed thus far to this project by D&M at the beginning of 1996 were
equivalent to 39 million barrels ("MMBbls") of oil.
On September 13, 1995, EEX, together with Mobil, submitted the highest
bids and was awarded exploration and development rights on ten additional
blocks in the Garden Banks area.
Green Canyon Project. In October 1995, another affiliate of Mobil and
an affiliate of Reading & Bates Corp. purchased a 40% and 20% working
interest, respectively, in EEX's Green Canyon Block 254 project, a four-block
unit located approximately 150 miles south of New Orleans, Louisiana, in 2,200
to 3,400 feet of water. EEX received cash, an interest in a gas and oil
property and future work commitments. EEX now owns a 40% working interest and
remains the operator of the project.
Gross proved reserves attributed to this project thus far by D&M are
equivalent to nearly 72 MMBbls of oil, and work continues to further delineate
the extent of identified hydrocarbon-bearing formations. The reserves are
based on two wells and one sidetrack drilled prior to 1995 on Block 254 and a
third productive well drilled in late 1995 which flowed at a rate equivalent
to 3,000 Bbls of oil per day on a limited test. The next confirmation well is
being drilled on Block 298 and is planned to bottom on Block 297 at 17,500
feet. The well, if successful, will extend the field limits 3,000 feet to the
south and add additional proved reserves. Simultaneously, EEX and its
partners are reviewing potential production alternatives that are expected to
lead to the ultimate design and sizing of a production facility. Tentatively,
the group is examining the merits of a floating facility capable of handling
the equivalent of 70,000 Bbls of oil per day with wells connected by subsea
templates and bundled flow lines. First production is expected from Green
Canyon in 1999.
On May 10, 1995, EEX, on behalf of its Green Canyon partners, submitted
the highest bids and was awarded seven additional blocks located within ten
miles of this project.
Rocky Mountain Properties. In December 1995, EEX announced plans to
offer for sale its Rocky Mountain area properties, which are in six states,
aggregate over 250,000 net acres and had proved reserves of 169 Bcfe at
January 1, 1996. These properties were mostly acquired as part of the DALEN
Acquisition and are not within the core area of EEX's other properties. See
"Financial Review - Natural Gas and Oil Exploration and Production" in
Appendix A.
International Operations. In 1995, EEX acquired the international gas
and oil operations of ENSERCH in exchange for 1,240,000 shares of EEX common
stock and $2.6 million in cash. The acquired operations consist of
concessions in Indonesia, Malaysia and Israel and had proved reserves of
5 MMBbls of oil at January 1, 1996, all on the Indonesian properties. EEX had
previously managed these properties for ENSERCH. In 1995, EEX announced the
conclusion of a Memorandum of Understanding to form a joint venture with ONGC
Videsh Ltd., a wholly owned subsidiary of The Oil and Natural Gas Corporation
of New Delhi, India, to explore and develop hydrocarbon resources in India and
other countries.
Resignation. J. T. Williams, who was elected Vice Chairman and Chief
Executive Officer of EEX effective July 1, 1995, resigned effective
February 1, 1996. Mr. Williams was paid severance in accordance with his
employment contract which was entered into as part of the acquisition of
DALEN.
Sales Information
Sales data are set forth under "Operating Data" included in Appendix A
to this report.
Major Customers
EEX sells its gas and oil under long- and short-term contracts. In
1995, Enserch Energy Services, Inc. ("EES"), the ENSERCH natural-gas marketing
subsidiary, was EEX's largest gas customer, purchasing gas under two long-term
variable-priced contracts. A division of ENSERCH, Lone Star Gas Company,
purchases gas under a long-term fixed-priced service contract. In 1995,
approximately 10% of EEX's natural-gas volumes was sold to Lone Star Gas
Company. The continuing maturity of gas markets is causing an evolution in
the gas marketing efforts of EEX. Unbundling of services by interstate
pipelines, deregulation efforts of many state regulatory bodies and the
explosion of financial instruments tied to gas markets have radically altered
marketing opportunities for producers. EEX has concluded that it can achieve
the greatest economic benefit from using the services of gas marketing
organizations rather than having its own large staff, while maintaining a core
staff to ensure market prices are being received.
Oil sales contracts are for one year or less, and prices generally are
based upon field posted prices plus negotiated bonuses.
EEX may utilize futures contracts, commodity price swaps and other
financial instruments to reduce exposure of EEX's gas and oil production to
price volatility. See "Financial Review - Gas and Oil Market Volatility" and
Note 7 of the Notes to Consolidated Financial Statements included in
Appendix A for additional information on hedging activities.
Competition
All phases of the gas and oil industry are highly competitive. 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.
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. 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.
The Railroad Commission of Texas regulates the production of natural gas
and oil by EEX in Texas. Similar regulations are in effect in all states in
which EEX explores for and produces natural gas and oil. These regulations
generally require permits for the drilling of gas and oil wells and regulate
the spacing of the wells, the prevention of waste, the rate of production and
the prevention and cleanup of pollution and other materials.
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 1990 (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 the United
States waters. In addition, it imposes ongoing requirements on responsible
parties, including proof of financial responsibility to cover at least some
costs in a potential spill. On August 25, 1993, the Minerals Management
Service (the "MMS"), a federal agency, published an advance notice of its
intention to adopt a rule under the OPA that would require owners and
operators of offshore gas and oil facilities to establish $150 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 the 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. 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 and 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. 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.
For offshore operations, lessees must obtain the MMS and various other
federal and state agencies' approval for exploration, development and
production plans prior to the commencement of such operations. Similarly, the
MMS has promulgated other regulations governing the plugging and abandoning of
wells located offshore and the removal of all production facilities. Under
certain circumstances, including but not limited to, conditions deemed to be a
threat or harm to the environment, the MMS may also require any EEX operation
on federal leases to be suspended or terminated in the affected area.
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, maximum rates of production and unitization or pooling of oil and gas
properties.
In the aggregate, compliance with federal and state rules and
regulations is not expected to have a material adverse effect on EEX's
operations.
Employees
At December 31, 1995, EEX had 465 full-time employees.
Offices
The principal offices of EEX are located at 4849 Greenville Avenue,
Suite 1200, Dallas, Texas 75206, and its telephone number is (214) 369-7893.
Production offices are maintained in Dallas, Houston, Athens,
Bridgeport, Longview and Midland, Texas.
Executive Officers of Registrant
Set forth below is information concerning the executive officers of EEX:
<TABLE>
<CAPTION>
Name Age Title and Business Experience
---- --- -----------------------------
<S> <C> <C>
D. W. Biegler 49 Chairman and Director since September 1994
and Chief Executive Officer from September
1994 to June 1995 and since February 1996.
He also served Enserch Exploration
Holdings, Inc. ("EEH")* as Chairman since
January 1992 and a Director since September
1991. Since May 1993, Mr. Biegler has been
Chairman and President, Chief Executive
Officer of ENSERCH. He served Lone Star
Gas Company, the utility division of
ENSERCH, as President from 1985 and as
Chairman from 1989 and was elected
President and Chief Operating Officer of
ENSERCH in 1991.
Gary J. Junco 46 President, Chief Operating Officer and
Director since September 1994. He also
served EEH as President, Chief Operating
Officer since January 1991 and Director
since 1985.
R. L. Kincheloe 65 Senior Vice President, Offshore and
International, since September 1994. He
also served EEH as Senior Vice President,
Offshore and International since January
1992 and was Senior Vice President,
Drilling and Production Operations, from
April 1985 to January 1992.
B. K. Irani 44 Senior Vice President, Production and
Engineering Division, since 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.
J. P. McCormick 54 Senior Vice President and Chief Financial
Officer since June 1995. He served Lone
Star Gas Company, a division of ENSERCH, as
Senior Vice President, Transmission, from
February 1993 to June 1995 and as Senior
Vice President, Finance, from July 1991 to
1993. Prior to joining Lone Star Gas
Company, he practiced public accounting for
26 years and was a partner in KPMG Peat
Marwick and KMG Main Hurdman and served in
management positions in each firm.
Randall B. Wilson 47 Vice President and General Counsel since
June 1995. He was Vice President and
General Counsel of DALEN from June 1990 to
June 1995.
<FN>
*EEH, a Delaware corporation, was formerly named "Enserch Exploration,
Inc." and served as the Managing General Partner of EP until December 30,
1994.
</FN>
</TABLE>
There are no family relationships between any of the above officers.
All officers of the Company are elected annually by the Board of Directors.
Officers may be removed by the Board of Directors whenever, in its judgment,
the best interest of the Company will be served thereby.
ITEM 2. Properties
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
net proved reserves of EEX by region, as estimated by D&M, at January 1, 1996:
<TABLE>
<CAPTION>
Oil
Natural and Gas
Gas Liquids Total
Region (Bcf) (MMBbls) (Bcfe)
------ ------- -------- ------
<S> <C> <C> <C>
Gulf of Mexico 127.6 36.4 346.0
East Texas 846.6 7.7 892.8
North Central Texas and other 248.9 18.1 357.5
Gulf Coast 139.7 4.3 165.5
------- ---- -------
Total Domestic 1,362.8 66.5 1,761.8
International 5.0 30.0
------- ---- -------
Total 1,362.8 71.5 1,791.8
======= ==== =======
</TABLE>
See Note 12 of the Notes to Consolidated Financial Statements included
in Appendix A to this report for additional information on gas and oil
reserves.
During 1995, EEX filed Form EIA-23 with the Department of Energy
reflecting reserve estimates for the year 1994. Such reserve estimates were
not materially different from the 1994 reserve estimates reported in Note 11
of the Notes to Consolidated Financial Statements included in Appendix A to
this report.
Developed and undeveloped lease acreage as of December 31, 1995, are set
forth below:
<TABLE>
<CAPTION>
Developed Acres Undeveloped Acres
------------------ -------------------
Gross Net(1) Gross Net(1)
------- ------- --------- ---------
<S> <C> <C> <C> <C>
Domestic
Offshore 141,842 40,329 755,240 416,272
Onshore 535,294 337,790 1,541,826 901,017
------- ------- --------- ---------
Total 677,136 378,119 2,297,066 1,317,289
International 2,489,567 618,637
------- ------- --------- ---------
Total 677,136 378,119 4,786,633 1,935,926
======= ======= ========= =========
<FN>
(1) Represents the proportionate interest of EEX in the gross acres under
lease.
</FN>
</TABLE>
EEX purchased about 329,000 net acres of leasehold interests in 1995,
184,000 of which were in the Gulf of Mexico. EEX's Gulf of Mexico holdings
totaled some 457,000 net acres, with an average working interest of 49% in 212
blocks and an overriding royalty interest in 13 other blocks. EEX operates
103 offshore blocks. EEX also canceled or allowed to expire 15 Gulf of Mexico
leases during the year, which had been condemned following drilling on or near
them or after geophysical and geological findings.
EEX plans further drilling on undeveloped acreage but at this time
cannot specify the extent of the drilling or predict how successful it will be
in establishing commercial reserves sufficient to justify retention of the
acreage. The primary terms under which the undeveloped acreage can be
retained by the payment of delay rentals without the establishment of gas and
oil reserves expire as follows:
<TABLE>
<CAPTION>
Undeveloped Acres Expiring
-------------------------------------------
Domestic International
------------------- -------------------
Gross Net Gross Net
--------- ------- -------- -------
<S> <C> <C> <C> <C>
1996 663,852 380,697 273,841 68,460
1997 424,957 243,698 456,401 114,100
1998 and later 1,208,257 692,894 1,759,325 436,077
</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, 1995, EEX owned interests in 2,125 gas wells (1,384.2
net) and 2,345 oil wells (488 net) in the United States and 4 oil wells (1
net) in Indonesia. Of these, 226 gas wells (166.4 net) and 43 oil wells (34.9
net) were dual completions in single boreholes.
Drilling activity during the three years ended December 31, 1995,
including the activities of DALEN for all periods shown, is set forth below:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
Gross Net Gross Net Gross Net
----- ---- ----- ---- ----- ----
<S> <C> <C> <C> <C> <C> <C>
Exploratory Wells:
Productive 38 24.6 21 13.8 7 3.8
Dry 47 26.8 56 30.5 33 15.6
-- ---- -- ---- -- ----
Total 85 51.4 77 44.3 40 19.4
== ==== == ==== == ====
Development Wells:
Productive 41 26.4 90 63.0 131 86.6
Dry 6 3.5 15 7.5 9 4.5
-- ---- --- ---- --- ----
Total 47 29.9 105 70.5 140 91.1
== ==== === ==== === ====
<FN>
Note: Productive wells are either producing wells or wells capable of
commercial production, although currently shut-in. The term "gross"
refers to the wells in which a working interest is owned, and the term
"net" refers to gross wells multiplied by the percentage of EEX's
working interest owned therein.
</FN>
</TABLE>
At December 31, 1995, EEX was participating in 69 wells (41 net), which
were either being drilled or in some stage of completion.
The number of wells drilled is not a significant measure or indicator of
the relative success or value of a drilling program because the significance
of the reserves and economic potential may vary widely for each project. It
is also important to recognize that reported completions may not necessarily
correspond to capital expenditures, since Securities and Exchange Commission
guidelines do not allow a well to be reported as complete until it is ready
for production. In the case of offshore wells, this may be several years
following initial drilling because of the timing of construction of platforms,
pipelines and other necessary facilities.
Additional information relating to the gas and oil activities of EEX is
set forth in Note 12 of the Notes to Consolidated Financial Statements
included in Appendix A to this report.
Planned property, plant and equipment additions for 1996 total
$187 million.
EEX leases approximately 205,000 square feet of office space for its
offices in Dallas, Texas, under leases expiring in December 1998 and August
2002.
ITEM 3. Legal Proceedings
EEX is a party to lawsuits arising in the ordinary course of its
business. EEX believes, based on its current knowledge and the advice of
counsel, that all lawsuits and claims would not have a material adverse effect
on its financial condition. Additional information required hereunder is set
forth in Note 11 of the Notes to Consolidated Financial Statements included in
Appendix A to this report.
ITEM 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder
Matters
The information required hereunder is set forth under "Common Stock
Market Prices and Dividend Information" included in Appendix A to this report.
ITEM 6. Selected Financial Data
The information required hereunder is set forth under "Selected
Financial Data" included in Appendix A to this report.
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required hereunder is set forth under "Financial Review"
included in Appendix A to this report.
ITEM 8. Financial Statements and Supplementary Data
The information required hereunder is set forth under "Independent
Auditors' Report," "Management Report on Responsibility for Financial
Reporting," "Statements of Consolidated Operations," "Statements of
Consolidated Cash Flows," "Consolidated Balance Sheets," "Statements of
Owners' Equity," "Notes to Consolidated Financial Statements" and "Quarterly
Results" included in Appendix A to this report.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
ITEMS 10-13.
Pursuant to Instruction G(3) to Form 10-K, the information required in
Items 10-13 (except for information set forth at the end of Part I under
"Business - Executive Officers of Registrant") is incorporated by reference
from EEX's definitive proxy statement which is being filed pursuant to
Regulation 14A on or about March 26, 1996.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)-1 Financial Statements
The following items appear in the Financial Information section included
in Appendix A to this report:
<TABLE>
<CAPTION>
Item Page
---- ----
<S> <C>
Selected Financial Data . . . . . . . . . . . . . . . . . A-2
Operating Data. . . . . . . . . . . . . . . . . . . . . . A-4
Financial Review. . . . . . . . . . . . . . . . . . . . . A-5
Independent Auditors' Report. . . . . . . . . . . . . . . A-12
Management Report on Responsibility for Financial Reporting A-13
Financial Statements:
Statements of Consolidated Operations. . . . . . . A-14
Statements of Consolidated Cash Flows. . . . . . . A-15
Consolidated Balance Sheets. . . . . . . . . . . . A-16
Statements of Owners' Equity . . . . . . . . . . . A-17
Notes to Consolidated Financial Statements. . . . . . . A-18
Quarterly Results . . . . . . . . . . . . . . . . . . . A-32
Common Stock Market Prices and Dividend Information . . A-33
</TABLE>
(a)-2 Financial Statement Schedules
The consolidated financial statement schedules are omitted because of
the absence of the conditions under which they are required or because the
required information is included in the consolidated financial statements or
notes thereto.
(a)-3 Exhibits
3.1 Restated Articles of Incorporation of the Company as currently in
effect.
3.2 Bylaws of the Company as currently in effect.
10.1* Lease Agreement for Garden Banks 388-1 between the Company and
Enserch Exploration Holdings, Inc. (formerly Enserch Exploration,
Inc.) included as Exhibit 10.3 to the Company's Registration
Statement on Form S-4 (No. 33-56792).
10.2* Lease Agreement for Garden Banks 388-2 between the Company and
Enserch Exploration Holdings, Inc. (formerly Enserch Exploration,
Inc.) included as Exhibit 10.4 to the Company's Registration
Statement on Form S-4 (No. 33-56792).
10.3* Lease Agreement for Mississippi Canyon 441 between the Company and
Enserch Exploration Holdings, Inc. (formerly Enserch Exploration,
Inc.) included as Exhibit 10.5 to the Company's Registration
Statement on Form S-4 (No. 33-56792).
10.4* Participation Agreement between EP Operating Limited Partnership
and Mobil Producing Texas and New Mexico Inc. included as Exhibit
10.6 to the Company's Registration Statement on Form S-4
(No. 33-56792).
10.5* Stock Purchase Agreement dated as of April 12, 1995, By and
Between PG&E Enterprises, as Seller, and Registrant, as Buyer,
filed as Exhibit 10.7 to the Company's Registration Statement on
Form S-2 (No. 33-60461).
10.6* 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 the Company's Form 10-K for the
year ended December 31, 1994.
10.7* Letter Agreement regarding intercompany loans effective January 1,
1995, between the Company and ENSERCH Corporation filed as Exhibit
10.8 to the Company's Registration Statement on Form S-2
(No. 33-60461).
10.8* Natural Gas Sales and Purchase Contract between EP Operating
Limited Partnership and Enserch Gas Company, each effective
March 1, 1993, filed as Exhibit 10.9 to the Company's Registration
Statement on Form S-2 (No. 33-60461).
10.9* 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, filed as
Exhibit 10.10 to the Company's Registration Statement on Form S-2
(No. 33-60461).
10.10* Agency Agreement between EP Operating Limited Partnership and
Enserch Gas Company effective March 1, 1993, filed as
Exhibit 10.11 to the Company's Registration Statement on Form S-2
(No. 33-60461).
10.11* 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, filed as Exhibit 10.19 to the
Company's Registration Statement on Form S-2 (No. 33-60461).
10.12* Tax Sharing Agreement between ENSERCH Corporation and Enserch
Exploration, Inc., filed as Exhibit 10.21 to the Company's
Registration Statement on Form S-2 (No. 33-60461).
10.13* Amended and Restated Limited Liability Company Agreement of MIStS
Issuer L.L.C. dated August 4, 1995, filed as Exhibit 10.22 to the
Company's Registration Statement on Form S-2 (No. 33-60461).
Executive Compensation Plan and Arrangements
(Exhibits 10.14 through 10.20):
10.14* Enserch Exploration, Inc. 1994 Stock Incentive Plan, filed as
Exhibit 10.1 to the Company's Registration Statement on Form S-4
(No. 33-56792).
10.15 Performance Incentive Plan - Calendar Year 1996.
10.16 ENSERCH Corporation Deferred Compensation Plan and Amendment No. 1
dated March 28, 1995, and Amendment No. 2 dated January 1, 1996.
10.17* ENSERCH Corporation Deferred Compensation Trust, filed as
Exhibit 10.9 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1994.
10.18* ENSERCH Corporation Retirement Income Restoration Plan and
Amendment No. 1 thereto dated September 30, 1994, filed as Exhibit
10.10 to the Company's Form 10-K for the year ended December 31,
1994.
10.19* ENSERCH Corporation Retirement Income Restoration Trust, filed as
Exhibit 10.11 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1994.
10.20 Form of Change of Control Agreement executed by certain executive
officers of the Company.
21 Subsidiaries of the Company.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of DeGolyer and MacNaughton.
24 Powers of Attorney.
27 Financial Data Schedule.
99* Proxy Statement dated at or about March 29, 1996, being filed with
the Securities and Exchange Commission on or about March 29, 1996.
- --------------------
Long-term debt is described in Note 4 of the Notes to Consolidated
Financial Statements included in Appendix A to this report. EEX agrees to
provide the Commission, upon request, copies of instruments defining the
rights of holders of such long-term debt, which instruments are not filed
herewith pursuant to Paragraph (b)(4)(iii)(A) of Item 601 of Regulation S-K.
* Incorporated herein by reference and made a part hereof.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended
December 31, 1995.
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized:
ENSERCH EXPLORATION, INC.
March 26 , 1996 By /s/ D. W. Biegler
----- --------------------------
D. W. Biegler, Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the capacities
and on the date indicated.
<TABLE>
<CAPTION>
Signature and Title Date
------------------- ----
<S> <C>
D. W. Biegler, Chairman and President,
Chief Executive Officer and Director;
Gary J. Junco, President, Chief Operating
Officer and Director; Frederick S. Addy, March 26, 1996
Director; B. A. Bridgewater, Jr., Director; --
J. P. McCormick, Senior Vice President and
Chief Financial Officer; and J. W.
Pinkerton, Vice President and Controller,
Chief Accounting Officer
</TABLE>
By: /s/ D. W. Biegler
-----------------------
D. W. Biegler
Individually and As
Attorney-in-Fact
<PAGE>
<PAGE>
APPENDIX A
ENSERCH EXPLORATION, INC.
INDEX TO FINANCIAL INFORMATION
December 31, 1995
Page
Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . . . A-2
Operating Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-4
Financial Review . . . . . . . . . . . . . . . . . . . . . . . . . . . A-5
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . A-12
Management Report on Responsibility for Financial Reporting. . . . . . A-13
Financial Statements:
Statements of Consolidated Operations . . . . . . . . . . . . . . . A-14
Statements of Consolidated Cash Flows . . . . . . . . . . . . . . . A-15
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . A-16
Statements of Owners' Equity. . . . . . . . . . . . . . . . . . . . A-17
Notes to Consolidated Financial Statements. . . . . . . . . . . . . A-18
Quarterly Results. . . . . . . . . . . . . . . . . . . . . . . . . . . A-32
Common Stock Market Prices and Dividend Information. . . . . . . . . . A-33
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA-ENSERCH EXPLORATION, INC.
As of or for Year Ended December 31
-----------------------------------------------------------------------
1995(a) 1994 1993 1992 1991 1990
-----------------------------------------------------------------------
(In millions except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Natural gas revenues . . . . . . $ 157.3 $ 144.5 $ 146.4 $ 118.6 $ 123.5 $ 142.8
Oil and condensate revenues. . . 56.5 30.9 36.9 45.1 54.0 64.9
Natural gas liquids revenues.. . 4.9 2.4 4.1 6.5 2.0 2.2
Other revenues . . . . . . . . . 2.1 1.3 2.4 1.3 1.5 .4
------ -------- -------- -------- ------- --------
Total revenues. . . . . . . . . 220.8 179.1 189.8 171.5 181.0 210.3
Production and operating expenses 48.7 31.7 31.4 29.6 35.1 34.7
Exploration. . . . . . . . . . . 11.8 9.1 8.7 11.2 12.2 12.0
Depreciation and amortization. . 115.7 80.8 78.4 76.7 73.7 72.7
(Sale) write-down of inactive pipeline (7.5) 16.5
Write-down of gas and oil properties .9 10.2 53.1 .3
General, administrative and other 30.7 19.8 30.0 23.1 23.6 37.3
Taxes, other than income . . . . 19.2 13.2 15.9 15.6 17.3 16.5
-------- -------- -------- -------- -------- --------
Total expenses . . . . . . . . 227.0 147.1 174.6 172.7 215.0 173.5
Operating income (loss). . . . . (6.2) 32.0 15.2 (1.2) (34.0) 36.8
Other income (expense)-net . . . .1 (.3) 6.0 (.1)
Interest income. . . . . . . . . 1.0 .7 2.0 3.7 3.2 2.9
Interest and other financing costs (14.6) (20.9) (30.6) (20.7) (20.0) (10.6)
-------- -------- -------- -------- -------- --------
Income (loss) before income taxes (19.7) 11.5 (13.4) (18.2) (44.8) 29.0
Income taxes (benefit) . . . . (7.2) (.3) (3.4) .4 .9
-------- -------- -------- -------- -------- --------
Net income (loss). . . . . . . $ (12.5) $ 11.8 $ (10.0) $ (18.6) $ (44.8) $ 28.1
Pro Forma Information - Change in Tax Status (b):
Income (loss) before income taxes $ 11.5 $ (13.4) $ (18.2) $ (44.8) $ 29.0
Income taxes (benefit) . . . . 4.0 (4.7) (6.4) (17.0) 9.9
-------- -------- -------- -------- --------
Net income (loss). . . . . . . $ 7.5 $ (8.7) $ (11.8) $ (27.8) $ 19.1
Net income (loss) per share (pro forma
for periods prior to 1995) . $ (.11) $ .07 $ (.08) $ (.11) $ (.26) $ .18
Weighted average shares outstanding 111.1 105.8 105.8 105.8 105.8 105.8
CASH FLOW DATA
Net cash provided by operating
activities . . . . . . . . . $ 84.0 $ 61.7 $ 79.5 $ 85.2 $ 68.3 $ 84.9
Net cash used in investing
activities . . . . . . . . . (388.2) (108.8) (129.0) (58.7) (97.7) (120.6)
Net cash provided by (used in)
financing activities . . . . 305.5 47.0 48.9 (25.7) 29.2 35.8
COMMON STOCK DATA
Market Price (c)
High . . . . . . . . . . . . $ 14 7/8 $ 11 $ 12 1/4 $ 8 1/4 $ 10 $ 11 3/8
Low. . . . . . . . . . . . . 9 1/4 5 3/4 7 3/8 6 1/4 6 1/2 8 1/4
Common Shareholders' Equity per Share 7.41 6.96
Shares Outstanding at Year-end 125.9 105.8
BALANCE SHEET DATA (at year-end)
Property, plant and equipment - net $1,670.6 $1,254.0 $1,046.4 $1,018.4 $1,056.2 $1,085.1
Total assets . . . . . . . . . 1,776.8 1,381.2 1,111.5 1,068.8 1,126.7 1,156.7
CAPITAL STRUCTURE (at year-end)
Capital lease obligations (d). $ 98.0 $ 155.9 $ $ $ $
Long-term debt (d) . . . . . . 160.0 298.0 266.0 234.0 202.0
Company-obligated mandatorily redeemable
preferred securities of subsidiary 150.0
Owners' equity . . . . . . . . 932.2 736.0 630.7 671.7 721.4 797.3
-------- -------- ------- ------- ------- -------
Total. . . . . . . . . . . . $1,340.2 $ 891.9 $ 928.7 $ 937.7 $ 955.4 $ 999.3
<FN>
(a) 1995 includes results of DALEN since acquisition on June 8, 1995.
(b) Pro forma 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.
(c) Market price per share amounts for years prior to 1995 represent prices of Enserch Exploration Partners, Ltd. units.
(d) Including current portion.
</FN>
</TABLE>
A-2
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
OPERATING DATA-ENSERCH EXPLORATION, INC.
As of or for Year Ended December 31
-----------------------------------------------------------------------
1995 1994 1993 1992 1991 1990
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA
Sales volumes
Natural gas (Bcf). . . . . . . . 90.2 67.1 70.0 65.2 70.0 76.8
Oil and condensate (MMBbls). . . 3.4 2.0 2.1 2.3 2.7 2.9
Natural gas liquids (MMBbls) . . .5 .2 .3 .5 .1 .1
Total volumes (Bcfe) (a) . . . 113.4 80.5 84.9 82.2 86.7 95.0
Average sales price
Natural gas (per Mcf). . . . . . $ 1.74 $ 2.15 $ 2.09 $ 1.82 $ 1.76 $ 1.86
Oil and condensate (per Bbl) . . 16.86 15.38 17.24 19.20 20.35 22.36
Natural gas liquids (per Bbl). . 9.38 10.85 12.09 13.38 17.54 16.26
Total (per Mcfe) (a) . . . . . 1.93 2.21 2.21 2.07 2.07 2.21
Costs and expenses (per Mcfe) (a)
Production and operating (b) . . $ .43 $ .39 $ .37 $ .36 $ .40 $ .37
Exploration. . . . . . . . . . . .10 .11 .10 .14 .14 .13
Depreciation and amortization. . 1.02 1.00 .92 .93 .85 .77
General, administrative and other .27 .25 .35 .28 .27 .39
Taxes, other than income . . . . .17 .16 .19 .19 .20 .17
Net Wells
Drilled. . . . . . . . . . . . 81 74 79 19 67 53
Productive . . . . . . . . . . 51 44 64 8 52 42
Proved Reserve Data (at year-end)
Natural gas (Bcf). . . . . . . 1,362.8 1,041.7 1,086.5 1,101.4 1,168.1 1,224.1
Oil and condensate (MMBbls) (c) 71.5 50.6 39.3 39.2 40.0 31.1
Total (Bcfe) (a) . . . . . . 1,791.8 1,345.3 1,322.3 1,336.6 1,408.1 1,410.7
Standardized Measure of Discounted
Future Net Cash Flows (in millions) $ 1,227 $ 879 $ 1,103 $ 1,111 $ 1,064 $ 1,240
A-3
<PAGE>
<PAGE>
<FN>
(a) Oil and natural gas liquids are converted to Mcf equivalents (Mcfe) on the basis of one barrel equals 6.0 Mcfe.
(b) Excludes related production, severance and ad valorem taxes.
(c) Reserves include natural gas liquids attributable to leasehold interests.
</FN>
</TABLE>
A-4
<PAGE>
<PAGE>
ENSERCH EXPLORATION, INC.
FINANCIAL REVIEW
OVERVIEW
On December 30, 1994, through a series of transactions, Enserch
Exploration, Inc. (EEX) acquired all of the partnership interests of EP
Operating Limited Partnership, the 99% owned operating partnership of Enserch
Exploration Partners, Ltd. (EP). In connection with these transactions,
ENSERCH Corporation (ENSERCH) and certain of its subsidiaries (collectively,
the ENSERCH companies) received EP's interest in and assumed EP's obligations
under certain equipment lease arrangements (the equipment was simultaneously
subleased to EEX) and assumed approximately $395 million of EP's debt. In
1995, EEX acquired the international gas and oil operations and the SACROC
operations of ENSERCH, and 1994 and prior financial statements were restated.
See Note 1 of the Notes to Consolidated Financial Statements for additional
information.
On June 8, 1995, EEX acquired all of the capital stock of DALEN
Corporation (DALEN) for cash of $340 million and assumed DALEN's bank debt of
$115 million. The acquisition increased proved reserves 397 billion cubic
feet of natural-gas equivalent (Bcfe) and lowered the average reserve life of
EEX's properties by about 25%.
In the third quarter of 1995, a Mobil Corporation (Mobil) affiliate
acquired a 40% working interest in EEX's Garden Banks Block 388 project,
representing the sale of 81.2 Bcfe of proved reserves. EEX, which now owns
a 60% working interest in and remains the operator of the project, received
cash, property interests and future work commitments on the project. In
addition, EEX was relieved of capital and operating lease obligations of
approximately $140 million, as well as 40% of the capital expenditures
required to complete the project. In October 1995, another affiliate of Mobil
purchased a 40% working interest in EEX's Green Canyon Block 254 project, and
an affiliate of Reading & Bates Corp. purchased a 20% working interest in the
project. The Green Canyon transactions represented the sale of 206 Bcfe of
reserves proved during 1995. EEX, which now has a 40% working interest in and
remains the operator of the project, received cash, an interest in a gas and
oil property and future work commitments.
In December 1995, EEX announced plans to offer for sale its Rocky
Mountain area properties, which are in six states and aggregate over
250 thousand net acres. These properties were mostly acquired as part of the
DALEN acquisition and are being offered for sale because they are not within
the core area of EEX's other properties. Total reserves for the Rocky
Mountain properties at January 1, 1996, as estimated by DeGolyer and
MacNaughton (D&M), independent petroleum consultants, were 223 Bcfe, of which
169 Bcfe were proved. Production from these properties in 1995 averaged
40 million cubic feet of natural-gas equivalent per day. The sale is expected
to be concluded in the second quarter of 1996. EEX intends to use the
proceeds from the sale to reduce debt.
A-5
<PAGE>
<PAGE>
RESERVES
EEX's natural-gas reserves at January 1, 1996 were 1.36 trillion cubic
feet (Tcf), compared with 1.04 Tcf the year earlier, as estimated by D&M. The
sharply higher gas reserves are principally attributable to the DALEN
acquisition. Oil and condensate reserves, including natural gas liquids
attributable to leasehold interests, were 71 million barrels (MMBbls),
compared with the year-earlier level of 51 MMBbls. On a Bcfe basis, over 200%
of 1995 production was replaced by additions and revisions, exclusive of the
net gain from the DALEN acquisition.
RESULTS OF OPERATIONS
EEX had a net loss of $12.5 million ($.11 per share) for 1995, compared
with net income of $7.5 million ($.07 per share) for 1994 and a net loss of
$8.7 million ($.08 per share) for 1993, after income taxes on partnership
operations. Results for 1994 benefited from a $4.9 million after-tax
($7.6 million pretax) gain from the sale of assets, while 1993 results
included a $6.6 million after-tax ($10.2 million pretax) write-down of non-
U.S. gas and oil properties. Excluding these unusual items from 1994 and 1993
results, the 1995 net loss of $12.5 million ($.11 per share) compares with net
income of $2.6 million ($.02 per share) in 1994 and a net loss of $2.1 million
($.02 per share) in 1993. There was an operating loss of $6.2 million in
1995, compared with operating income, before unusual items, of $24 million in
1994 and $25 million in 1993.
Operating income is strongly influenced by fluctuations in product prices
and volumes as shown in the table of Operating Data. DALEN's operations are
included since acquisition on June 8, 1995 and contributed 1995 operating
income of $6.9 million, with revenues of $70.4 million and operating expenses
of $63.5 million. DALEN's natural-gas revenues were $49 million on sales of
31 billion cubic feet (Bcf) at an average sales price of $1.60 per thousand
cubic feet (Mcf). DALEN's oil and other revenues totaled $21 million; the
average sales price for oil was $16.61 per barrel, and oil sales volumes were
1.1 MMBbls.
The following comparisons of period-to-period operating results exclude
the impact of DALEN in 1995 and the previously noted unusual items in 1994 and
1993. There was an operating loss for 1995 of $13 million, compared with
income of $24 million for 1994 and $25 million for 1993. Revenues for 1995
were $29 million (16%) lower than in 1994, reflecting a $37 million (25%)
decrease in natural-gas revenues, but an $8 million (23%) improvement in oil
and other revenues. The average natural-gas sales price per Mcf of $1.82 in
1995, excluding DALEN, declined 15% from the 1994 average of $2.15, causing
a $23 million decline in revenues. Natural-gas sales volumes of 59 Bcf,
excluding DALEN, were 12% less than in 1994, reducing revenues by $14 million.
The lower volumes primarily resulted from less capital spending to replace gas
production due to low gas prices and the normal decline in production from
several mature fields and Mississippi Canyon Block 441 in the Gulf of Mexico.
The higher oil revenues reflect a 10% improvement in the average sales price
and a 12% increase in sales volumes from the start-up of production from the
Garden Banks project in late September and increased production from
exploration and development activities in Hardeman and Shackelford counties
in North Texas.
A-6
<PAGE>
<PAGE>
Production and operating expenses for 1995, excluding DALEN, were
$5.1 million (16%) higher than in 1994, primarily due to expenses of
$4.4 million for the Garden Banks project and higher maintenance costs. As
expected, the commencement of sales from the Garden Banks project in late
September detracted from 1995 results, producing an operating loss of
$1.9 million, as fixed operating costs exceeded revenues from the initial
levels of production. Some operating costs and amortization vary with
production, but other costs and the equipment lease costs are essentially
fixed and will decline on a per unit basis as production increases. Operating
results from the Garden Banks project are expected to improve in 1996 as
production begins from several additional development wells and the related
equipment lease and other fixed costs are spread over greater production.
Based on current prices, the Garden Banks project is expected to achieve
breakeven results when production reaches the equivalent of 11 to 12 thousand
gross barrels of oil per day, which is projected to occur by mid-year 1996.
Exploration expenses were $1.9 million higher than in the 1994 period due to
increased international exploration activity. General and administrative
(G&A) expenses increased $5.3 million from 1994, with 1995 expenses including
a $1.8 million provision for injuries and damages claims and a $1.0 million
charge for severance costs related to redundant employees of EEX as a result
of the DALEN acquisition, while 1994 expenses benefited from credits of
$2.0 million associated with litigation accruals.
Excluding the previously mentioned unusual items, the slight decrease in
operating income from 1993 to 1994 was attributable to a 6% decline in
revenues resulting from decreased sales volumes for both natural gas and oil
and lower oil prices, partially offset by slightly higher natural-gas prices.
Natural-gas sales volumes decreased 4% due to reduced production from several
high-volume fields in South Texas and offshore Louisiana. G&A expenses for
1994 were lower than in 1993 primarily due to a $9.1 million favorable
variance in the provision for injuries and damages claims. All other costs
and expense categories for 1994 were little changed from the year earlier.
The total amortization rate per thousand cubic feet of natural-gas
equivalent was $1.02 in 1995, compared with $1.00 in 1994 and $.92 in 1993.
The increase in 1995 over 1994 was primarily due to the conversion of the
Garden Banks lease from an operating to a capital lease in connection with the
year-end 1994 reorganization, partially offset by a benefit resulting from
reserve additions for Green Canyon Block 254 and DALEN. The increase in 1994
over 1993 was principally due to the conversion of the Mississippi Canyon
operating lease to a capital lease and higher onshore exploratory
expenditures. Excluding DALEN, a lower level of production caused
depreciation and amortization to be less in 1995 than in 1994 and only
slightly higher in 1994 compared with 1993.
A-7
<PAGE>
<PAGE>
Interest expense and other financing costs for 1995 were $15 million,
compared with $21 million for 1994 and $31 million for 1993. The 1995 costs
are primarily associated with the DALEN acquisition. Interest for 1994 and
1993 related to debt assumed by ENSERCH companies in connection with the
reorganization, and 1993 also included $6.0 million for interest due royalty
owners.
The following shows net income for the years ended December 31, 1994 and
1993 as adjusted for (1) the interest on the debt assumed by ENSERCH companies
and related income-tax expense and (2) income-tax expense on partnership
operations.
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------
1994 1993
---------- ---------
(In thousands)
<S> <C> <C>
Net income (loss) as shown on EEX's
statements of consolidated operations $ 11,801 $(9,960)
Interest expense included in statements
of consolidated operations on debt
assumed by ENSERCH companies 20,919 24,825
Income-tax benefit (expense) on:
Partnership operations (4,324) 1,268
Interest expense on debt assumed by
ENSERCH companies (7,322) (8,689)
-------- -------
Net income, as adjusted $ 21,074 $ 7,444
======== =======
</TABLE>
GAS AND OIL MARKET VOLATILITY
Results of operations are dependent upon the difference between the
prices received for gas and oil produced and the costs of finding and
producing such resources. On an energy equivalent basis, gas reserves at
January 1, 1996 constituted approximately 75% of total reserves, and gas
production accounted for approximately 80% of total production for 1995.
Accordingly, variations in gas prices have a more significant impact on
operations than variations in oil prices. Gas production as a percentage of
total production is expected to decrease as a result of the development of the
offshore Gulf of Mexico properties.
A portion of the risk associated with fluctuations in the price of
natural gas and oil is managed through the use of hedging techniques such as
gas and oil swaps, collars and futures agreements. In total, gas and oil
price hedging activities increased 1995 revenues by $.1 million versus
$4.3 million in 1994 but reduced revenues by $3.7 million in 1993. As a
result of a temporary cessation to the historical correlation of natural-gas
prices in the physical market that serves as the delivery point for NYMEX
futures contracts and the prices in certain other physical markets where the
Company sells a substantial portion of its natural-gas production, a
$6.0 million mark-to-market loss was recognized in the fourth quarter of 1995
on contracts that no longer served as hedges (see Note 7 of the Notes to
Consolidated Financial Statements). At December 31, 1995, EEX had outstanding
swaps, collars and futures agreements that were entered into as hedges
extending through December 31, 1996 to exchange payments on 39 Bcf of natural
A-8
<PAGE>
<PAGE>
gas and 655 thousand barrels of oil. At December 31, 1995, after giving
effect to the $6.0 million mark-to-market loss mentioned above, there were
$1.3 million of net unrealized and unrecognized hedging losses based on the
difference between the strike price and the NYMEX futures price for the
applicable trading month. In addition, there were $2.4 million of realized
losses on hedging activities which were deferred and will be applied as a
reduction in revenues in the month of physical sale of production.
CAPITALIZED COSTS
Gas and oil prices are subject to seasonal and other fluctuations. A
decline in prices from year-end 1995 levels or other factors, without
mitigating circumstances, could cause a future write-down of capitalized costs
and a non-cash charge against income under the full-cost accounting method
cost center ceiling limitation. At June 30 and September 30, 1995, EEX's
full-cost ceiling amount attributable to properties acquired in the DALEN
acquisition was significantly less than the unamortized cost of producing
properties acquired, but at December 31, 1995, the ceiling amount exceeded
costs by some $19 million. EEX believes that the DALEN properties have
significant exploration and development potential and that the unamortized
cost of the gas and oil properties acquired is recoverable from future
production. The Securities and Exchange Commission has granted a waiver of
the full-cost ceiling limitation on these properties through June 30, 1996.
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.
Cash Flows
Net cash flows from operating activities for 1995 totaled $84 million,
compared with $62 million in 1994 and $80 million in 1993. Cash flows before
changes in operating assets and liabilities were $95 million in 1995 versus
$85 million in 1994 and $75 million in 1993.
Investing activities required net cash flows of $388 million, compared
with $109 million in 1994 and $129 million in 1993. The 1995 requirement
included $333 million required for the DALEN acquisition and $86 million
provided by the collection of a note receivable from an affiliated company.
Capital expenditures of $189 million increased $57 million from 1994,
principally related to the DALEN properties. Retirements of property, plant
and equipment in 1995 include cash received in connection with the sale of
interests in the Garden Banks and Green Canyon projects.
In June 1995, EEX borrowed $500 million, including $350 million under a
four-year revolving credit agreement, 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. In September
1995, EEX sold 20 million shares of its common stock to the public for net
proceeds of $208 million, which were used to reduce the borrowing under the
revolving credit agreement. The common stock issue increased the public
A-9
<PAGE>
<PAGE>
ownership in EEX to 16.6%. In August 1995, the proceeds from $150 million of
mandatorily redeemable preferred securities issued by a subsidiary of EEX were
used to replace temporary borrowings. The dividends on the preferred
securities are included in interest and other financing costs.
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. EEX has a
$350 million four-year revolving credit agreement, $190 million of which was
unused at December 31, 1995. In addition, EEX has a $50 million borrowing
arrangement with ENSERCH to meet short-term cash needs, of which $34 million
was unused at year-end 1995. EEX does not anticipate paying cash dividends
in the foreseeable future.
Capital Structure
Total capitalization at December 31, 1995 was $1.3 billion versus
$.9 billion at December 31, 1994. Common shareholders' equity at December 31,
1995 was 70% of total capitalization. EEX intends to use the proceeds from
the sale of its Rocky Mountain area properties to reduce debt. In addition,
EEX is obligated under operating lease arrangements with ENSERCH companies for
facilities used on the Garden Banks Block 388 project (see Note 11 of the
Notes to Consolidated Financial Statements).
Capital Budget
Planned property, plant and equipment additions for 1996 total
$187 million, compared with actual expenditures of $189 million in 1995 and
$133 million in 1994.
FOURTH-QUARTER RESULTS
EEX had a fourth-quarter 1995 net loss of $5.4 million ($.04 per share),
compared with a net loss of $2.3 million ($.02 per share) for the 1994 fourth
quarter, before the $4.9 million after-tax gain from the sale of assets. The
operating loss for the 1995 fourth quarter was $4.7 million versus income of
$2.0 million for the same period of 1994, excluding the gain from the sale of
assets. The reduced fourth-quarter 1995 income reflects somewhat lower prices
for natural gas, the $6 million mark-to-market loss recognized on gas price
hedging activities and the previously noted operating loss associated with the
start-up of Garden Banks production.
A-10
<PAGE>
<PAGE>
NEW ACCOUNTING STANDARD
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
will become effective for the Company in 1996. This statement establishes
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles and goodwill. The new standard is not expected to
have a significant effect on results of operations or financial position in
the foreseeable future since EEX's gas and oil properties continue to be
separately evaluated at the end of each accounting period under full-cost
accounting rules.
A-11
<PAGE>
<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, 1995 and
1994, and the related statements of consolidated operations, cash flows and
owners' equity for each of the three years in the period ended December 31,
1995. 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. The 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 of the Notes
to the Consolidated Financial Statements.
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,
1995 and 1994, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dallas, Texas
February 9, 1996
A-12
<PAGE>
<PAGE>
MANAGEMENT REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING
The management of Enserch Exploration, Inc. is responsible for the
preparation and integrity of the financial statements and other information
contained in this report. The financial statements have been prepared in
conformity with accounting principles generally accepted in the United States
and include amounts that represent management's best estimates and judgments.
Management has established practices and procedures designed to support the
reliability of the estimates and minimize the possibility of a material
misstatement.
Management has established and maintains internal accounting controls
that provide reasonable assurance as to the integrity and reliability of the
financial statements, the protection of assets from unauthorized use or
disposition and the prevention and detection of fraudulent financial
reporting. The system of internal control is supported by written policies
and procedures and the control environment is regularly evaluated by both
ENSERCH Corporation's internal auditors and Deloitte & Touche LLP, the
Company's independent auditors. The Board of Directors maintains an Audit
Committee composed of Directors who are not employees. The Audit Committee
meets periodically with management, the independent auditors and the internal
auditors to discuss significant accounting, auditing, internal accounting
control and financial reporting matters related to Enserch Exploration, Inc.
The independent auditors and the internal auditors have free access to the
Audit Committee.
Management believes that, as of December 31, 1995, the overall system of
internal accounting controls is sufficient to accomplish the objectives
discussed herein.
/s/Gary J. Junco /s/J. Philip McCormick /s/Jerry W. Pinkerton
- ------------------- ----------------------- ---------------------
Gary J. Junco J. Philip McCormick Jerry W. Pinkerton
President and Chief Senior Vice President Vice President
Operating Officer and Chief Financial and Controller
Officer
February 9, 1996
A-13
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
ENSERCH EXPLORATION, INC.
STATEMENTS OF CONSOLIDATED OPERATIONS
Year Ended December 31
------------------------------------------
1995 1994 1993
------------------------------------------
(In thousands except per share amounts)
<S> <C> <C> <C>
Revenues
Natural gas . . . . . . . . . . . . . . . . $157,308 $144,550 $146,355
Oil and condensate. . . . . . . . . . . . . 56,525 30,880 36,863
Natural gas liquids . . . . . . . . . . . . 4,859 2,377 4,148
Other . . . . . . . . . . . . . . . . . . . 2,159 1,333 2,430
-------- -------- --------
Total . . . . . . . . . . . . . . . . . . 220,851 179,140 189,796
-------- -------- --------
Costs and Expenses
Production and operating. . . . . . . . . . 48,695 31,667 31,404
Exploration . . . . . . . . . . . . . . . . 11,848 9,136 8,668
Depreciation and amortization . . . . . . . 115,685 80,819 78,418
Sale of inactive pipeline . . . . . . . . . (7,551)
Write-down of non-U.S. gas and oil properties 929 10,191
General, administrative and other . . . . . 30,658 19,807 29,980
Taxes, other than income. . . . . . . . . . 19,189 13,233 15,950
-------- -------- --------
Total . . . . . . . . . . . . . . . . . . 227,004 147,111 174,611
-------- -------- --------
Operating Income (Loss) . . . . . . . . . . . (6,153) 32,029 15,185
Other Income (Expense) - Net. . . . . . . . . 64 (314)
Interest Income . . . . . . . . . . . . . . . 1,027 671 2,041
Interest and Other Financing Costs. . . . . . (14,617) (20,919) (30,584)
-------- -------- ---------
Income (Loss) Before Income Taxes . . . . . . (19,679) 11,467 (13,358)
Income Taxes (Benefit). . . . . . . . . . . . (7,177) (334) (3,398)
-------- -------- ---------
Net Income (Loss) . . . . . . . . . . . . . . $(12,502) $ 11,801 $ (9,960)
======== ======== =========
Pro Forma Information - Change in Tax Status:
Income (loss) before income taxes . . . . . $ 11,467 $(13,358)
Income taxes (benefit) (including income
taxes on partnership operations). . . . . 3,990 (4,666)
-------- --------
Net Income (Loss) . . . . . . . . . . . . . $ 7,477 $ (8,692)
======== ========
Net Income (Loss) Per Share (Pro forma for 1994 and 1993) $ (.11) $ .07 $ (.08)
======= ======== ========
Weighted Average Shares Outstanding . . . . . 111,137 105,821 105,821
======= ======== =======
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
A-14
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
ENSERCH EXPLORATION, INC.
STATEMENTS OF CONSOLIDATED CASH FLOWS
Year Ended December 31
------------------------------------------
1995 1994 1993
----------- --------- ---------
(In thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) . . . . . . . . . . . . . . . $ (12,502) $ 11,801 $ (9,960)
Depreciation and amortization . . . . . . . . . 115,685 80,819 78,418
Deferred income-tax benefit . . . . . . . . . . (9,520) (366) (3,494)
Sale of inactive pipeline . . . . . . . . . . . (7,551)
Write-down of non-U.S. gas and oil properties . 929 10,191
Other . . . . . . . . . . . . . . . . . . . . . (11,760) (10,332) 8,994
Changes in current operating assets and liabilities
Accounts receivable . . . . . . . . . . . . . (22,824) 3,464 3,839
Other current assets. . . . . . . . . . . . . (6,199) (26,333) (15,461)
Accounts payable. . . . . . . . . . . . . . . 33,854 11,894 10,219
Other current liabilities . . . . . . . . . . (3,673) (1,714) (3,223)
--------- -------- --------
Net cash flows from operating activities. . . 83,990 61,682 79,523
--------- -------- --------
INVESTING ACTIVITIES
Purchase of DALEN, net of cash acquired . . . . (332,888)
Additions of property, plant and equipment. . . . (189,399) (132,590) (118,759)
Retirements of property, plant and equipment . . 54,977 13,051 (598)
Collection of note receivable from affiliated company 86,077
Other . . . . . . . . . . . . . . . . . . . . . . (6,939) 10,755 (9,726)
--------- -------- --------
Net cash flows used for investing activities. (388,172) (108,784) (129,083)
--------- -------- --------
FINANCING ACTIVITIES
Borrowings under bank revolving credit agreement 380,000
Borrowings under bridge loan. . . . . . . . . . 150,000
Repayment of DALEN bank debt assumed at acquisition (115,000)
Issuance of common stock. . . . . . . . . . . . 207,940
Repayment of borrowings under bank revolving credit agreement (220,000)
Issuance of company-obligated mandatorily redeemable preferred
securities of subsidiary . . . . . . . . . . 150,000
Repayment of borrowings under bridge loan . . . (150,000)
Change in temporary advances with affiliated companies (89,609) 76,331 34,405
Proceeds from long-term notes payable to affiliated companies 11,000 32,000
Payments of capital lease obligations . . . . . (4,424)
(Decrease) increase in advances under leasing arrangements - net (32,771) 13,588
Cash distributions paid . . . . . . . . . . . . (7,842) (31,061)
Other . . . . . . . . . . . . . . . . . . . . . (3,413) 275
--------- -------- --------
Net cash flows from financing activities. . . 305,494 46,993 48,932
--------- -------- --------
Net Increase (Decrease) in Cash . . . . . . . . . 1,312 (109) (628)
Cash at Beginning of Year . . . . . . . . . . . . 234 343 971
--------- -------- --------
Cash at End of Year . . . . . . . . . . . . . . . $ 1,546 $ 234 $ 343
========= ======== ========
Amounts Paid
Interest and other financing costs (Net of amounts capitalized) $ 18,499 $ 20,248 $ 23,067
========= ======== ========
Income taxes - net. . . . . . . . . . . . . . . . $ 6,011
=========
Purchase of DALEN
Fair value of assets acquired . . . . . . . . . $ 474,755
Cash paid for acquisition . . . . . . . . . . . 332,888
---------
Liabilities assumed. . . . . . . . . . . . . . $ 141,867
=========
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
A-15
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
ENSERCH EXPLORATION, INC.
CONSOLIDATED BALANCE SHEETS
December 31
--------------------------
1995 1994
---------- ----------
(In thousands)
<S> <C> <C>
ASSETS
Current Assets
Cash. . . . . . . . . . . . . . . . . . . . . . . . . $ 1,546 $ 234
Accounts receivable - trade (net of allowance
for possible losses of $657 and $670) . . . . . . . 46,749 16,828
Accounts receivable - affiliated companies. . . . . . 20,646 11,581
Note receivable - affiliated company. . . . . . . . . 86,077
Other . . . . . . . . . . . . . . . . . . . . . . . . 14,820 5,217
---------- ----------
Total current assets . . . . . . . . . . . . . . . 83,761 119,937
---------- ----------
Property, Plant and Equipment (at cost)
Gas and oil properties (full-cost method, $243,740
and $174,951 excluded from amortization base) . . . 2,602,454 2,094,494
Other . . . . . . . . . . . . . . . . . . . . . . . . 20,684 15,582
---------- ----------
Total. . . . . . . . . . . . . . . . . . . . . . . 2,623,138 2,110,076
Less accumulated depreciation and amortization. . . . 952,538 856,062
---------- ----------
Net property, plant and equipment . . . . . . . . 1,670,600 1,254,014
---------- ----------
Other Assets. . . . . . . . . . . . . . . . . . . . . . 22,471 7,284
---------- ----------
Total. . . . . . . . . . . . . . . . . . . . . . $1,776,832 $1,381,235
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable - trade. . . . . . . . . . . . . . . $ 95,386 $ 58,593
Accounts payable - affiliated companies . . . . . . . 6,836 7,060
Temporary advances - affiliated companies . . . . . . 15,860 105,469
Current portion of capital lease obligations. . . . . 3,859 4,760
Other . . . . . . . . . . . . . . . . . . . . . . . . 9,005 1,728
---------- ----------
Total current liabilities . . . . . . . . . . . . . 130,946 177,610
---------- ----------
Bank Revolving Credit Agreement . . . . . . . . . . . . 160,000
---------- ----------
Capital Lease Obligations . . . . . . . . . . . . . . . 94,184 151,095
---------- ----------
Other Liabilities
Deferred income taxes . . . . . . . . . . . . . . . . 271,618 284,299
Other liabilities . . . . . . . . . . . . . . . . . . 37,856 32,223
---------- ----------
Total other liabilities . . . . . . . . . . . . . . 309,474 316,522
---------- ----------
Company-Obligated Mandatorily Redeemable Preferred Securities
of Subsidiary . . . . . . . . . . . . . . . . . . . . 150,000
---------- ----------
Commitments and Contingent Liabilities (Note 11). . . .
Preferred Stock-authorized 2 million shares, issued to subsidiary fifteen
shares, stated value $10 million per share (eliminated in consolidation)
Shareholders' Equity. . . . . . . . . . . . . . . . . . 932,228 736,008
---------- ----------
Total. . . . . . . . . . . . . . . . . . . . . . $1,776,832 $1,381,235
========== ==========
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
A-16
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
ENSERCH EXPLORATION,INC.
STATEMENTS OF OWNERS' EQUITY
For the Three Years Ended December 31, 1995
(In thousands)
<S> <C>
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
million shares) Unamortized Total
--------------- Restricted Share-
Shares Paid in Stock holders'
Issued Amount Capital Deficit Compensation Equity
------ ------ ------- ------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994. . . . . 105,821 $105,821 $630,187 $ $ $736,008
Net loss. . . . . . . . . . . . . (12,502) (12,502)
Adjustment for acquisition of international
and SACROC operations . . . . . (2,798) (2,798)
Additional deferred income-tax benefit
from reorganization . . . . . . 3,480 3,480
Common shares issued for
Cash sale to public . . . . . . 20,000 20,000 187,872 207,872
Stock plans . . . . . . . . . . 6 6 62 68
Unamortized Restricted Stock Compensation
Shares granted. . . . . . . . . 56 56 617 (673)
Amortization of restricted stock 100 100
Market valuation adjustments. . (22) 22
------- -------- -------- -------- ------- --------
Balance, December 31, 1995. . . . 125,883 $125,883 $819,398 $(12,502) $ (551) $932,228
======= ======== ======== ======== ======= ========
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
A-17
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Enserch Exploration, Inc. (EEX), a natural gas and oil exploration and
production company with activities focused in Texas and the Gulf of Mexico,
is 83.4% owned by ENSERCH Corporation (ENSERCH) at year-end 1995. All dollar
amounts, except per share amounts, in the notes to consolidated financial
statements are stated in thousands unless otherwise indicated.
1. ORGANIZATION AND BASIS OF PRESENTATION
Prior to December 30, 1994, the operations of 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 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 lease arrangements (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 in
exchange for 1,240,000 shares of EEX Common Stock valued at the actual net
proceeds per share of $10.45 received by EEX in the September 1995 public
offering and $2.6 million in cash 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 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 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. The restatement
resulted in an increase in revenues of $4.0 million and $4.8 million in 1994
and 1993, respectively, and a decrease in net income of $.2 million in 1994
and an increase in net loss of $6.1 million for 1993.
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
information for the change in tax status includes an adjustment for income
taxes on the partnerships' operations at the applicable statutory rate.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of EEX and its
majority-owned subsidiaries. The preparation of financial statements requires
the use of significant estimates and assumptions by management; actual results
could differ from those estimates.
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. Average shares outstanding have been
restated to include the shares issued to acquire the international gas and oil
operations of ENSERCH.
A-18
<PAGE>
<PAGE>
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 6.0% in
1995, 5.8% in 1994 and 6.0% in 1993. 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, 1995,
estimates of future site restoration, dismantlement and abandonment costs, as
assessed on an overall cost center basis, were less than estimates of future
salvage values. Therefore, no accruals were required.
Derivative Instruments - The Company frequently enters into swaps, futures,
options and other derivative contracts to hedge the impact of market
fluctuations in gas and oil prices on anticipated future gas and oil
production. The Company defers the impact of changes in the market value of
the contracts that serve as hedges until the related transaction is completed.
The Company also enters into interest-rate swaps to manage risk associated
with interest rates and reduce the Company's exposure to interest rate
fluctuations. Interest-rate swaps are valued on a periodic basis, with
resulting differences deferred and recognized as an adjustment to interest and
other financing costs over the term of the agreement.
3. DALEN ACQUISITION
On June 8, 1995, EEX acquired all the capital stock of DALEN Corporation
(DALEN) for cash of $340 million and assumed DALEN's bank debt of $115
million. The acquisition was accounted for as a purchase. The assets
acquired and the liabilities assumed were recorded at their estimated fair
value pending final evaluation. Essentially all of the valuation adjustment
was assigned to gas and oil properties.
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>
Year Ended December 31
-----------------------
1995 1994
--------- ---------
<S> <C> <C>
Revenues. . . . . . . . . . . . . $269,175 $322,536
Operating Income (Loss) . . . . . (5,746) 52,977
Net Income (Loss) . . . . . . . . (22,201) 23,680
Net Income (Loss) After Pro Forma Income Taxes
on Partnership Operations . . . (22,201) 19,356
Net Income (Loss) Per Share . . . (.20) .18
</TABLE>
A-19
<PAGE>
<PAGE>
At June 30 and September 30, 1995, EEX's full-cost ceiling amount attributable
to the properties acquired in the DALEN acquisition was significantly less
than the unamortized cost of producing properties acquired, but at
December 31, 1995, the ceiling amount exceeded costs by some $19 million. EEX
believes that the acquired 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 the major producing properties to EEX's other properties. EEX
believes that the unamortized cost of the gas and oil properties acquired is
recoverable from future production. EEX requested and was granted a waiver
of the full-cost ceiling limitation on these properties by the SEC through
June 30, 1996. If an excess exists after that date, a write-down may be
required.
4. BORROWINGS AND CREDIT AGREEMENTS
EEX has a $350 million revolving credit line with a group of banks that
matures on May 1, 1999, of which $190 million was unused at December 31, 1995.
The revolving credit 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. The interest
rate ranges from LIBOR (5.94% in effect at December 31, 1995) plus .35% to
.75% per annum, plus a facility fee of from .15% to .25% per annum, depending
upon the consolidated capitalization ratio.
EEX has a $50 million borrowing arrangement with ENSERCH to meet short-term
cash needs, of which $34 million was unused at December 31, 1995. Under these
arrangements, ENSERCH may advance funds to EEX, and EEX may advance funds to
ENSERCH. At December 31, 1995, the interest rate on these borrowings was
6.17%, based on LIBOR.
<TABLE>
<CAPTION>
Interest and Other Financing Costs: 1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Interest costs incurred. . . . . . . $19,531 $25,678 $34,841 (a)
Interest capitalized . . . . . (4,914) (4,759) (4,257)
------- ------ -------
Interest charged to expense. . $14,617 $20,919 $30,584
======= ======= =======
<FN>
(a) Includes $6 million provision for interest due royalty owners.
</FN>
</TABLE>
5. COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES
On August 4, 1995, a subsidiary (Issuer), whose common equity interests are
wholly-owned by EEX Capital L.L.C. (Capital), a limited liability company
wholly-owned by EEX, completed the private placement of $150 million of
adjustable rate mandatorily redeemable preferred securities. Issuer is a
special purpose finance subsidiary and neither Issuer nor Capital has
operations independent from EEX. The proceeds were loaned, under a Demand
Note, by Issuer to Capital. Capital used the proceeds to purchase preferred
stock from EEX, and EEX repaid the bridge loan. The EEX preferred stock and
the Demand Note are eliminated in the consolidated financial statements, and
the Issuer's preferred securities are reflected on the balance sheet as
"Company-obligated mandatorily redeemable preferred securities of subsidiary."
Dividend payments on the EEX preferred stock support the interest payments due
A-20
<PAGE>
<PAGE>
under the Demand Note loan agreement which, in turn, support the dividend
requirements of Issuer's preferred securities. The dividends on the Issuer's
preferred securities are based on LIBOR plus .696% and are reflected in
interest and other financing costs in the statement of consolidated
operations. In November 1995, the Company entered into an interest-rate swap
to effectively fix the rate for the dividend on these preferred securities at
6.49% (see Note 7). EEX has guaranteed Capital's obligations under the Demand
Note. The mandatory redemption date for Issuer's preferred securities is the
earlier of August 4, 2005 or the Demand Note repayment date.
6. STOCK OPTIONS
At December 31, 1995, EEX had 2.5 million shares of its common stock reserved
for issuance to stock plans. The Company has a stock option plan that
provides for the issuance of stock options to purchase shares of EEX common
stock and the award of restricted stock. Options granted under the plan have
an exercise price of not less than the fair market value of the common stock
on the grant date. Options become exercisable over four years and expire
after ten years. The plan covers a maximum of 2 million shares of EEX common
stock. No options were exercised in 1995 and none were exercisable at
December 31, 1995.
Summary of Stock 1995 Number of
Option Activity: Price Range Options
--------------- --------
Granted. . . . . . . . . . $9.75 - $14.50 173,000
Canceled . . . . . . . . . $9.75 3,000
-------
Outstanding - End of year. $9.75 -$14.50 170,000
=======
At December 31, 1995, a total of 56,000 shares of performance-based restricted
stock had been issued to certain officers and were outstanding. Performance
criteria for lifting the restrictions is related to a three-year total
shareholder return of EEX compared with the Dow Jones Oil Secondary Index.
7. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Company's operations involve managing market risks related to changes in
interest rates and commodity prices. Derivative financial instruments,
specifically swaps, futures, options and other contracts, are used to reduce
and manage those risks.
Interest-Rate Swaps - In November 1995, the Company entered into an interest-
rate swap on a notional amount of $150 million to fix the interest rate
associated with the company-obligated mandatorily redeemable preferred
securities of subsidiary (see Note 5). The notional amount declines on a
schedule that parallels the estimated redemption of the securities and
terminates in July 2000. Under the swap agreement, EEX is to receive interest
on the outstanding notional amount at a rate (5.94% in effect at December 31,
1995) based on LIBOR, reset quarterly, and is to pay a fixed rate of 5.8%. The
net effect of the swap fixes the rate on the preferred dividends at 6.49%. The
Company is exposed to market risk under this swap agreement due to the
possibility of exchanging a lower interest rate for a higher interest rate.
The counterparties are major financial institutions, and the risk of incurring
losses related to credit risk is considered by the Company to be remote.
A-21
<PAGE>
<PAGE>
Hedging Activities - The Company enters into swaps, futures and other
derivative contracts to hedge the price risks associated with a portion of
anticipated future gas and oil production. Under these agreements, payments
are received or made based on the differential between a fixed and a variable
product price. These agreements are settled in cash at or prior to expiration
or exchanged for physical delivery contracts. The Company does not obtain
collateral to support the agreements but monitors the financial viability of
counterparties and believes its credit risk is minimal on these transactions.
In the event of nonperformance by counterparties, the Company would be exposed
to price risk. The Company has some risk of accounting loss since the price
received for the product at the actual physical delivery point may differ from
the prevailing price at the delivery point required for settlement of the
hedging transaction.
In late December 1995, there was a temporary cessation to the historical
correlation of natural-gas prices in the physical market that serves as the
delivery point for NYMEX futures contracts and the prices in certain other
physical markets where the Company sells a substantial portion of its natural-
gas production. As a result, the Company's NYMEX futures contracts for the
first quarter of 1996 no longer served as effective hedges for the portion of
production that would be sold in market locations other than those to which
the NYMEX contracts were tied. In late December and early January, the
Company closed substantially all of its first quarter 1996 NYMEX futures
contracts and, as a result, recognized a loss of $6.0 million in 1995. For
the full year 1995, the Company recognized a net gain of $.1 million on
hedging activities related to the sale of its gas and oil production.
At December 31, 1995, EEX had outstanding swaps, collars and futures
agreements that were entered into as hedges extending through December 31,
1996 to exchange payments on 39 Bcf of natural gas and 655 MBbls of oil. The
weighted average strike price and market price per Mcf of natural gas was
$2.01 and $2.10, respectively, and the weighted average strike price and
market price per barrel of oil was $18.43 and $19.03, respectively. At
December 31, 1995, after giving effect to the $6.0 million mark-to-market loss
mentioned above, there were $1.3 million of net unrealized and unrecognized
hedging losses based on the difference between the strike price and the NYMEX
futures price for the applicable trading month. In addition, there were $2.4
million of realized losses on hedging activities which were deferred and will
be applied as a reduction in revenues in the month of physical sale of
production.
Fair Value of Financial Instruments - At December 31, 1995, the estimated cost
to terminate or otherwise settle gas and oil swaps, collars and futures
agreements was $1.3 million and interest-rate swaps was $1.8 million, which
represented their fair value. The fair value of all other financial
instruments at December 31, 1995 and 1994, including the revolving credit
agreement and the company-obligated mandatorily redeemable preferred
securities of subsidiary, approximated carrying value.
A-22
<PAGE>
<PAGE>
8. INCOME TAXES
For periods prior to 1995, except for international and SACROC operations,
the Company operated as a partnership, and the income or loss of the
partnership was includable in the tax returns of the individual partners.
Accordingly, no recognition was given to income taxes on partnership
operations. EEX, as a corporation, is a taxable entity; its operations are
included in ENSERCH's consolidated federal income-tax return. Pursuant to a
tax sharing agreement, EEX and ENSERCH make or receive payments determined as
though EEX and its subsidiaries filed a separate consolidated federal income-
tax return. The accompanying statements of operations for periods prior to
1995 include a pro forma provision for income taxes on the partnership
operations based on the applicable corporate federal statutory rate.
<TABLE>
<CAPTION>
Provision (Benefit) for
Income Taxes: 1995 1994 1993
------- ------ ------
<S> <C> <C> <C>
Federal:
Current . . . . . . . . . . . . . . . . $ 2,343 $ 32 $ 96
Deferred. . . . . . . . . . . . . . . . (9,520) (366) (3,494)
------- ------- -------
Total . . . . . . . . . . . . . . . . $(7,177) $ (334) $(3,398)
======= ======= =======
Reconciliation of Income Taxes (Benefit) Computed at the Federal Statutory
Rate to Provision for Income Taxes (Benefit):
Income (loss) before income taxes:
Domestic. . . . . . . . . . . . . . . . $(15,578) $12,623 $ (1,948)
Foreign . . . . . . . . . . . . . . . . (4,101) (1,156) (11,410)
-------- ------- --------
Total . . . . . . . . . . . . . . . . $(19,679) $11,467 $(13,358)
======== ======= ========
Income taxes (benefit) computed at the federal
statutory rate of 35% . . . . . . . . . $ (6,888) $ 4,013 $ (4,675)
Impact of 1% increase in federal statutory rate
applicable to international and SACROC operations 44
Percentage depletion. . . . . . . . . . . (322) (23) (35)
Other - net . . . . . . . . . . . . . . . 33
-------- ------- -------
Total pro forma income taxes (benefit) (7,177) 3,990 (4,666)
Less pro forma income taxes (benefit)
applicable to partnership operations. . (4,324) 1,268
-------- ------- -------
Provision for income taxes (benefit). $ (7,177) $ (334) $(3,398)
======== ======= =======
</TABLE>
A-23
<PAGE>
<PAGE>
The deferred tax effect of the difference in financial accounting basis and
income-tax basis of EEX's assets and liabilities at December 31, 1995 and 1994
was as follows:
<TABLE>
<CAPTION>
1995 1994
---------------------------------- ----------------------------------
Total Current Noncurrent Total Current Noncurrent
---------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
Deferred Tax Assets:
Retirement and other employee
benefit obligations. . $ 1,177 $ 426 $ 751 $ 956 $ 420 $ 536
Accruals and allowances. 931 230 701 898 898
Losses of controlled foreign
corporations . . . . . . 7,367 7,367 7,130 7,130
All other. . . . . . . . . 332 332 5 5
-------- ------- -------- --------- ------- -------
Total. . . . . . . . . . 9,807 656 9,151 8,989 420 8,569
-------- ------- -------- --------- ------- -------
Deferred Tax Liabilities:
Exploration and intangible
development costs. . . . 209,443 209,443 234,637 234,637
Property-related
differences. . . . . . . 71,326 71,326 58,231 58,231
-------- ------- -------- --------- -------- -------
Total. . . . . . . . . . 280,769 280,769 292,868 292,868
-------- ------- -------- --------- -------- -------
Net deferred tax
liability (asset). . . . $270,962 $ (656)(a) $271,618 $283,879 $ (420)(a) $284,299
======== ======= ======== ======== ======= ========
<FN>
(a) Included in other current assets in the balance sheet.
</FN>
</TABLE>
A-24
<PAGE>
<PAGE>
9. 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.
<TABLE>
<CAPTION>
Employee Benefit Plan Costs (in millions): 1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Pension - ENSERCH . . . . . . . . . . . . . $ 4.5 $ 6.5 $ 7.9
- Allocated to EEX. . . . . . . . . .6 1.2 .9
Postretirement health care and
life insurance - ENSERCH. . . . . . . . . $ 9.8 $ 10.2 $ 10.0
- Allocated to EEX . . . . .8 .8 .8
ENSERCH Pension Plan Information:
Valuation Assumptions:
Discount rate. . . . . . . . . . . . . . . . 7.65% 9.00% 7.25%
Rate of increase in compensation levels. . . 4.00% 4.00% 4.00%
Expected long-term rate of return on assets. 9.50% 9.50% 9.50%
Amounts Recognized (in millions):
Actuarial present value of pension benefit obligation:
Vested benefit obligation. . . . . . . . . $(297.0) $(238.0)
======= =======
Accumulated benefit obligation . . . . . . $(299.3) $(250.2)
======= =======
Projected pension benefit obligation . . . $(327.9) $(272.1)
Plan assets at fair value. . . . . . . . . . 263.1 232.2
------- -------
Projected benefit obligation in excess of plan assets (64.8) (39.9)
Unrecognized net asset at transition . . . . (6.0) (8.0)
Unrecognized prior service cost (credit) . . (3.5) (2.2)
Unrecognized net actuarial loss (gain) . . . 16.9 (3.7)
------- --------
ENSERCH accrued pension cost . . . . . . . . $ (57.4) $ (53.8)
======= =======
EEX accrued pension cost . . . . . . . . . . $ (4.3) $ (3.9)
======= =======
ENSERCH Postretirement Benefit Information:
Valuation Assumptions:
Discount rate. . . . . . . . . . . . . . . . 7.65% 9.00% 7.25%
Medical cost trend rate. . . . . . . . . . . 7.00% 12.00% 12.00%
Amounts Recognized (in millions):
Accumulated postretirement benefit obligation $ (75.5) $ (82.9)
Unrecognized obligation at transition. . . . 58.1 62.1
Unrecognized net actuarial loss. . . . . . . 10.0 15.1
------- -------
ENSERCH accrued postretirement benefit cost. $ (7.4) $ (5.7)
======= =======
EEX accrued postretirement benefit cost. . . $ (.7) $ (.5)
======= =======
</TABLE>
The assumed health care cost trend rate is 7.0% for 1995, declining gradually
to 4.5% after 1999, 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, 1995 and the net periodic
postretirement benefit costs of ENSERCH for 1995 would be increased by $4.6
million and $.4 million, respectively.
A-25
<PAGE>
<PAGE>
Investment Plan - ENSERCH provides a voluntary contributory investment plan
that is available to substantially all employees of the Company. A portion
of the employees' contributions is matched with ENSERCH or EEX common stock.
The Company's share of costs under the plan was $304, $236 and $254 in 1995,
1994 and 1993, respectively.
10. 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 costs including 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. Prior to July 1, 1994, the Company was not charged for the
cost of ENSERCH elected officer management of these functions. Costs are
determined on a basis that reasonably reflects the actual costs of 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 $2,725, $2,162 and $2,154 in 1995, 1994 and 1993, respectively.
The Company had sales to certain ENSERCH companies (Enserch Energy Services,
Inc. - formerly Enserch Gas Company, Lone Star Gas Company and Enserch
Processing Company) that aggregated $87,002, $110,036 and $110,016 in 1995,
1994 and 1993, respectively. Enserch Energy Services provides marketing
services for substantially all gas production not committed under existing
contracts.
EEX incurred interest costs, including amounts capitalized, of $3,389, $21,579
and $27,135 in 1995, 1994 and 1993, respectively, on borrowings from ENSERCH
Companies.
Interest income on notes receivable from ENSERCH Companies was $1,027, $671
and $2,041 in 1995, 1994 and 1993, respectively.
See Note 1 for information concerning transactions with ENSERCH companies in
connection with the organization of the Company and Note 11 for information
concerning lease commitments with affiliates.
A-26
<PAGE>
<PAGE>
11. COMMITMENTS AND CONTINGENT LIABILITIES
Legal Proceedings - On March 23, 1994, a lawsuit was brought in the 299th
District Court of Harris County, Texas against EPO (the Company's predecessor)
and five other defendants by 19 royalty owners under leases contained within
the Corby Gas Unit in Leon County, Texas. Defendants are working interest
owners and lessees under the leases. The 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. The Company owned a 7.1% interest in these leases.
A lawsuit was filed against ENSERCH, its utility division, EPO and EPO's
managing general partner in the 348th Judicial District Court of Tarrant
County in May 1989. Plaintiffs seek unspecified actual damages and punitive
damages in the amount of $5 million. Plaintiffs allege royalties were not
fully paid, certain expenses were improperly charged against the amount of
royalties due, negligence in the venting of gas and liquid hydrocarbons into
the air, and breach of duty of good faith and fair dealing by wrongfully
concealing certain material facts concerning sales of gas from the subject
leases to the utility division.
A lawsuit was filed on February 24, 1987, in the 112th Judicial District of
Sutton County, Texas, against certain subsidiaries and affiliates of ENSERCH,
including predecessors of EEX. The plaintiffs 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 is material for
financial reporting purposes.
Leases - The equipment and facilities used in developing and producing
reserves in the Mississippi Canyon Block 441 and the Garden Banks Block 388
projects 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), wholly-owned by ENSERCH. 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. The operating lease is for
A-27
<PAGE>
<PAGE>
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.
During most of 1995, a component of the payments to be made by EEX under the
subleases was based on a floating interest rate of LIBOR plus 1.50% per annum.
However, effective November 1995, ENSERCH entered into an interest-rate swap
to fix its costs and agreed to fix the interest rate to EEX accordingly, at
7.2%.
In the third quarter of 1995, a Mobil Corporation (Mobil) affiliate acquired
a 40% working interest in EEX's Garden Banks Block 388 project; accordingly,
EEX was relieved of capital and operating lease obligations of approximately
$140 million, as well as 40% of the capital expenditures required to complete
the project. EEX now owns a 60% working interest in the project and remains
the operator.
Estimated future minimum lease payments for the leases at December 31, 1995,
are as follows:
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
----------- ---------
<S> <C> <C>
1996 $ 14,309 $ 11,637
1997 14,206 11,567
1998 14,206 11,567
1999 14,206 11,567
2000 14,206 12,495
Thereafter 90,460 117,886
-------- --------
Total $161,593 176,719
========
Less interest factor 78,676
--------
Capital lease obligations $ 98,043
========
</TABLE>
The Company also bears an allocated share of rental expenses incurred by
ENSERCH companies under noncancelable long-term operating leases, principally
for office space and equipment. Rental expenses incurred under all operating
leases totaled $6,468, $3,102 and $5,035 in 1995, 1994 and 1993, 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,
equipment monitoring and modifications under the Clean Air Act and cleanup
obligations, cannot be fully ascertained until the regulations that implement
the applicable laws have been approved and adopted. It is management's
opinion that all such costs, when finally determined, will not have a material
adverse effect on the consolidated financial position or results of operations
of the Company.
A-28
<PAGE>
<PAGE>
12. 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>
1995 1994
---------- ----------
<S> <C> <C>
Capitalized Costs:
Proved gas and oil properties. . . . . . . . . $2,358,714 $1,919,543
Unproved gas and oil properties. . . . . . . . 243,740 174,951
---------- ----------
Total. . . . . . . . . . . . . . . . . . . . $2,602,454 $2,094,494
========== ==========
Accumulated depreciation and amortization. . . $ 940,356 $ 846,038
========== ==========
</TABLE>
<TABLE>
<CAPTION>
1995 1994 1993
------------------- ------------------ ------------------
Costs Incurred: U.S. Non-U.S. U.S. Non-U.S. U.S. Non-U.S.
--------- -------- -------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Property acquisition costs:
Proved . . . . . . . . . . . $356,326 $ $ 1,562 $ $ 8,262 $
Unproved . . . . . . . . . . 120,987 20,591 12,554 32
Exploration costs. . . . . . . 59,218 9,000 60,145 3,076 38,028 3,536
Development costs. . . . . . . 46,179 84,249 63,067
------- ------- -------- ------- -------- -------
Total. . . . . . . . . . . . $582,710 $ 9,000 $166,547 $ 3,076 $121,911 $ 3,568
======== ======= ======== ======= ======== =======
Amortization (per MMBtu)(a). . $ .98 $ .96 $ .89
======== ======== ========
<FN>
(a)Amortization expense per unit of production converted to a common unit of measure, millions of British
thermal units (MMBtu); on a per thousand cubic feet of gas equivalent (Mcfe) basis, the amounts are:
$1.00, $.98 and $.91.
</FN>
</TABLE>
Costs Excluded from the Amortizable Base as of December 31, 1995:
<TABLE>
<CAPTION>
Total at
Prior December 31,
Year Incurred 1995 1994 1993 Years 1995
-------- -------- -------- --------- ------------
<S> <C> <C> <C> <C> <C>
Property acquisition costs . $117,945 $18,760 $ 9,256 $1,899 $147,860
Exploration costs. . . . . . 20,167 14,267 3,873 1,074 39,381
Development costs. . . . . . 45,360 45,360
Interest capitalized . . . . 4,510 2,972 2,110 1,547 11,139
-------- ------- ------- ------ --------
Total. . . . . . . . . . . $142,622 $81,359 $15,239 $4,520 $243,740
======== ======= ======= ====== ========
</TABLE>
Approximately 35% of excluded costs relates to offshore activities in the Gulf
of Mexico, about 62% 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.
A-29
<PAGE>
<PAGE>
The following information is required and defined by the Financial Accounting
Standards Board. The disclosure does not represent the results of operations
based on historical financial statements. In addition to requiring different
determinations of revenues and costs, the disclosure excludes interest expense
and corporate overhead.
<TABLE>
<CAPTION>
1995 1994 1993
--------------------- -------------------- -------------------
Results of Operations: U.S. Non-U.S. U.S. Non-U.S. U.S. Non-U.S.
-------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . $218,565 $ $ 173,468 $ $191,027 $
Less:
Production costs (a) . . . . . 65,520 43,899 46,243 22
Exploration costs (b). . . . . 9,588 2,260 8,407 729 7,603 1,065
Depreciation and amortization (c) 113,624 929 79,232 77,034 10,191
Income-tax effects . . . . . . 10,119 (1,116) 14,647 (255) 21,009 (3,947)
-------- ------- --------- ------- -------- -------
Net producing activities . . $ 19,714 $(2,073) $ 27,283 $ (474) $ 39,138 $(7,331)
======== ======= ========= ======= ======== =======
<FN>
(a) Includes severance, ad valorem and production taxes.
(b) Includes internal costs that cannot be directly identified with acquisition, exploration or development
activities.
(c) Amounts for 1995 and 1993 include write-downs of non-U.S. exploratory projects of $929 and $10,191,
respectively. Amount for 1994 excludes a $7,551 gain from the sale of an inactive offshore pipeline and
facilities, which were not related to gas and oil producing activities.
</FN>
</TABLE>
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, indepen-
dent 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>
Gas (MMcf) Oil (MBbls)(a)
---------------------------------- -------------------------
U.S. Reserves: 1995 1994 1993 1995 1994 1993
--------- --------- --------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
At January 1 . . . . . . . . 1,041,736 1,086,482 1,101,426 46,486 39,349 39,231
Changes in reserves
Revisions of previous estimates 26,802 (25,106) 20,196 2,312 (499) 1,344
Extensions, discoveries and
additions. . . . . . . . 62,249 47,580 34,549 21,466 9,877 1,292
Purchase of minerals in place 336,668 787 4,379 11,417 14 3
Sales of minerals in place (14,497) (894) (4,042) (11,274) (28) (40)
Production . . . . . . . . (90,195) (67,113) (70,026) (3,870) (2,227) (2,481)
-------- --------- --------- ------ ------ ------
At December 31 . . . . . . . 1,362,763 1,041,736 1,086,482 66,537 46,486 39,349
========= ========= ========= ====== ====== ======
Proved Developed Reserves
At January 1 . . . . . . . 698,643 735,093 676,851 14,437 15,380 14,844
At December 31 . . . . . . 937,372 698,643 735,093 30,110 14,437 15,380
<FN>
(a) Includes condensate and natural gas liquids attributable to leasehold interests of 3,593 MBbls for 1995,
911 MBbls for 1994 and 1,117 MBbls for 1993.
</FN>
</TABLE>
A-30
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Oil (MBbls)
---------------
Non-U.S. Reserves: 1995 1994
----- ------
<S> <C> <C>
At January 1 . . . . . . . . 4,105
Extensions, discoveries and
additions. . . . . . . . . 858 4,105
----- -----
At December 31 . . . . . . 4,963 4,105
===== =====
Proved Developed . . . . . 0 0
===== =====
</TABLE>
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) $2.19 in 1995, $2.29 in 1994 and $2.38 in 1993; Oil
(per barrel) $16.91 in 1995, $14.07 in 1994 and $11.73 in 1993.
Because reserve estimates are imprecise and changes in the other variables are
unpredictable, the standardized measure should be interpreted as indicative of
the order of magnitude only and not as precise amounts.
<TABLE>
<CAPTION>
Standardized Measure (in millions): 1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Future cash inflows. . . . . . . . . . $4,180.7 $3,081.5 $3,047.0
Future production and development costs (1,512.7) (1,065.8) (1,057.9)
Future income-tax expense (a). . . . . (597.1) (542.6)
-------- -------- --------
Future net cash flows. . . . . . . . . 2,070.9 1,473.1 1,989.1
Less 10% annual discount . . . . . . . 843.5 593.8 886.5
-------- -------- --------
Standardized measure of discounted future
net cash flows . . . . . . . . . . . $1,227.4 $ 879.3 $1,102.6
======== ======== ========
Change in Standardized Measure (in millions):
Sales and transfers of gas and oil produced, net of
production costs . . . . . . . . . . $ (153.1) $ (120.5) $ (136.1)
Changes in prices, net of production and future
development costs. . . . . . . . . . 50.6 (33.9) (.6)
Extensions, discoveries and improved recovery,
less related costs . . . . . . . . . 175.8 158.7 41.4
Purchases of minerals in place . . . . 367.6 1.6 9.4
Revisions of previous quantity estimates (113.9) (26.5) (28.5)
Sales of minerals in place . . . . . . (59.2) (1.3)
Accretion of discount. . . . . . . . . 102.3 102.7 105.5
Net change in income taxes . . . . . . (3.1) (295.3) 1.2
Other. . . . . . . . . . . . . . . . . (18.9) (8.8) (1.0)
-------- -------- --------
Total . . . . . . . . . . . . . . . $ 348.1 $ (223.3) $ (8.7)
======== ======== ========
<FN>
(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.
</FN>
</TABLE>
As the estimates of future site restoration, dismantlement and abandonment
costs on an overall cost center basis are less than estimates of future
salvage value, such costs were not included in the standardized measure.
A-31
<PAGE>
<PAGE>
QUARTERLY RESULTS (UNAUDITED) - The results of operations of the Company by
quarters are summarized below. In the opinion of the Company's management,
all adjustments (consisting only of normal recurring accruals) necessary for
a fair presentation have been made. The 1994 financial statements include
interest charges on the debt now assumed by certain ENSERCH Companies.
Amounts for 1994 have been restated to include the acquisition of the
international and SACROC operations from ENSERCH.
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------------------
March 31 June 30 September 30 December 31
-----------------------------------------------------
<S> <C> <C> <C> <C>
1995:
Revenues . . . . . . . . $41,661 $47,987 $66,807 $64,396
Operating Income (Loss) 564 (4,969) 2,944 (4,692)
Net Income (Loss). . . . 624 (5,162) (2,611) (5,353)
Net Income (Loss) Per Share .01 (.05) (.02) (.04)
1994:
Revenues . . . . . . . . $50,737 $44,473 $41,426 $42,504
Operating Income . . . . 11,017 8,400 3,059 9,553
Net Income (Loss). . . . 4,904 5,031 (2,189) 4,055
Net Income (Loss) after
Pro Forma Income Taxes 3,139 3,179 (1,475) 2,634
Net Income (Loss) Per Share .03 .03 (.01) .02
<FN>
Includes amounts for international and SACROC operations as follows:
</FN>
Revenues . . . . . . . . $1,028 $ 1,046 $ 1,022 $ 942
Net Income (Loss). . . . (13) (154) (107) 109
</TABLE>
A-32
<PAGE>
<PAGE>
COMMON STOCK MARKET PRICES AND DIVIDEND INFORMATION
MARKET PRICES - EEX COMMON STOCK
The Company's common stock is traded principally on the New York Stock
Exchange. The following table shows the high and low sales prices per share
of the common stock of the Company reported in the New York Stock Exchange -
Composite Transactions report for the periods shown as quoted in The Wall
Street Journal.
<TABLE>
<CAPTION>
1995
--------------------
High Low
--------------------
<S> <C> <C>
First Quarter . . . . . . . . . $11 1/8 $ 9 3/8
Second Quarter. . . . . . . . . 14 7/8 10 1/8
Third Quarter . . . . . . . . . 14 3/4 10
Fourth Quarter. . . . . . . . . 11 5/8 9 1/4
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCK DATA AT YEAR-END 1995 1994
------- -------
<S> <C> <C>
Shareholders of Record 1,450 1,373
------- -------
Shares Outstanding (000's) 125,883 105,821
------- -------
</TABLE>
DIVIDENDS PER SHARE OF COMMON STOCK
There have been no dividends declared on the Company's common stock. The
declaration of future dividends will be dependent upon business conditions,
earnings, cash requirements and other relevant factors.
A-33
<PAGE> EXHIBIT 3.1
RESTATED ARTICLES OF INCORPORATION
OF
ENSERCH EXPLORATION, INC.
1. Enserch Exploration, Inc., pursuant to the provisions of Article
4.07 of the Texas Business Corporation Act, hereby adopts Restated Articles of
Incorporation which accurately copy the Articles of Incorporation and all
amendments thereto that are in effect to date and such Restated Articles of
Incorporation contain no change in any provision. thereof.
2. The Restated Articles of Incorporation were adopted by resolution
of the Board of Directors of the Corporation on December 27, 1994.
3. The Restated Articles of Incorporation and all amendments and
supplements thereto are hereby superseded by the following Restated Articles
of Incorporation which accurately copy the entire text thereof:
ARTICLE ONE
The name of the Company is Enserch Exploration, Inc.
ARTICLE TWO
The period of its duration is perpetual.
ARTICLE THREE
The purposes for which the Company is organized are:
(1) To engage in all phases of the oil and gas business and
related activities, including, but not by way of limitation, engaging in
exploration, drilling, development, and production of oil and gas
properties;
(2) To store, transport, buy and sell, oil, gas, salt, brine and
other mineral solutions and liquefied minerals;
(3) To explore for, produce, purchase and sell, store, process
and manufacture, transport and distribute oil, gas and all other
minerals;
(4) To manufacture, produce, purchase or otherwise acquire, sell
or dispose of, distribute, mortgage, pledge, lease, repair, install,
operate, deal in and with, whether as principal or agent, products,
goods, appliances, wares, merchandise, fixtures, plants, structures,
machinery, and materials of every kind and description, to lend money
for the carrying out of such purposes, and to take and hold real and
personal property for the payment of such funds so loaned; and
(5) To transact any or all lawful business for which corporations
may be incorporated under the Texas Business Corporation Act, as amended
and in effect from time to time (the "TBCA").
ARTICLE FOUR
(A) Authorized Capital Stock: The aggregate number of shares of all
classes of stock which the Company shall have authority to issue is
202,000,000 consisting of and divided into:
(i) one class of 200,000,000 shares of Common Stock, par value $1.00
per share (the "Common Stock"); and
(ii) one class of 2,000,000 shares of Preferred Stock, of no par value
(the "Preferred Stock"), which may be divided into and issued in
one or more series, as hereinafter provided.
(B) Series: The Preferred Stock may be divided into and issued in, at
any time and from time to time, one or more series as the Board of Directors
of the Company shall determine pursuant to the authority hereby vested in it.
The Board of Directors shall have the authority to establish series of
unissued shares of Preferred Stock, at any time and from time to time, by
fixing and determining the designations, preferences, limitations and relative
rights of the shares of the series, subject to and within the limitations of
the TBCA and the Articles of Incorporation, including without limitation the
following:
(a) the number of shares constituting the series and the distinctive
designation of that series;
(b) the dividend rate on shares of the series, the dividend payment
dates, whether dividends shall be cumulative (and, if so, from
which date or dates), non-cumulative, or partially cumulative, and
the relative rights of priority, if any, of payment of dividends
on the shares of the series;
(c) the amount payable to the holders of shares of the series upon any
voluntary or involuntary liquidation of the Company;
(d) the preference in the assets of the Company over any other class,
classes or series of shares upon the voluntary or involuntary
liquidation of the Company;
(e) whether the shares of the series are redeemable at the option of
the Company, the shareholder or another person or upon occurrence
of a designated event and, if so, the price payable upon
redemption of shares of the series and the terms and conditions on
which such shares are redeemable;
(f) the provisions of the sinking fund, if any, for the redemption or
purchase of shares of the series;
(g) the voting rights, if any, of the shares of the series;
(h) the terms and conditions, if any, on which such shares may be
converted, at the option of the Company, the shareholder or
another person or upon occurrence of a designated event, into
shares of any other class or series;
(i) the terms and conditions, if any, on which such shares may be
exchanged, at the option of the Company, the shareholder or
another person or upon occurrence of a designated event, for
shares, obligations, indebtedness, evidences of ownership, rights
to purchase securities or other securities of the Company or one
or more other domestic or foreign corporations or other entities
or for other property or for any combination of the foregoing; and
(j) any other special rights and qualifications, limitations or
restrictions permitted by the TBCA to be granted to or imposed on
the series.
Any of the designations, preferences, limitations and relative rights of
the shares of any series so established may be made dependent upon facts
ascertainable outside the Articles of Incorporation, which facts may include
future acts of the Company, provided that the manner in which such facts shall
operate upon the designations, preferences, limitations and relative rights of
the shares of any series shall be set forth in the resolution or resolutions
establishing the series.
All shares within the same series of Preferred Stock shall be identical
except as to the date of issue and the dates from which dividends on shares of
the series issued on different dates will cumulate, if cumulative. The Board
of Directors shall have the authority to increase or decrease the number of
shares within each series of Preferred Stock; provided, however, that the
Board of Directors may not decrease the number of shares within a series to
less than the number of shares within such series that are then issued.
(C) Preemptive Rights. No shareholder of the Company shall by reason
of the shareholder's holding shares of any class or series have any preemptive
or preferential right to purchase or subscribe to any shares of any class or
series of the Company, now or hereafter to be authorized, or any notes,
debentures, bonds or other securities convertible into or carrying options or
warrants to purchase shares of any class or series, now or hereafter to be
authorized, whether or not the issuance of any such shares, or such notes,
debentures, bonds or other securities, would adversely affect the dividend or
voting rights of such shareholders, other than such rights, if any, as the
Board of Directors in its discretion may fix; and the Board of Directors may
issue shares of any class or series of the Company, or any notes, debentures,
bonds or other securities convertible into or carrying options or warrants to
purchase shares of any class or series, without offering any such shares of
any class or series, either in whole or in part, to the existing shareholders
of any class or series.
(D) Subordination of Common Stock: The Common Stock shall be subject
and subordinate to the rights, privileges and preferences of any series of
Preferred Stock to the extent set forth in the resolution adopted by the Board
of Directors establishing the series.
(E) Other Provisions Applicable to Capital Stock:
(a) Each outstanding share of Common Stock shall be entitled to one
vote on each matter submitted to a vote at a meeting of
shareholders, except as otherwise provided by the TBCA or as set
forth in the resolutions adopted by the Board of Directors
establishing any series of Preferred Stock.
(b) At each election for directors, every shareholder entitled to vote
at such election shall have the right to vote the number of shares
owned by him for as many persons as there are directors to be
elected and for whose election he has a right to vote; provided
that cumulative voting in the election for directors is
prohibited.
(c) In the event of any dissolution, liquidation or winding up of the
Company, but subject to the rights of the holders of any series of
Preferred Stock, holders of Common Stock shall be entitled to
receive pro rata all of the remaining assets of the Company
available for distribution to its shareholders.
(d) Any action required by the TBCA to be taken at any annual or
special meeting of shareholders, or any action which may be taken
at any annual or special meeting of shareholders, may be taken
without a meeting, without prior notice, and without a vote, if a
consent or consents in writing, setting forth the action so taken,
shall be signed by the holder or holders or shares having not less
than the minimum number of votes that would be necessary to take
such action at a meeting at which the holders of all shares
entitled to vote on the action were present and voted.
(e) Subject to the rights of the holders of Preferred Stock as set
forth in the resolutions adopted by the Board of Directors
establishing any series of Preferred Stock, dividends may be paid
upon Common Stock to the exclusion of Preferred Stock out of any
assets of the Company available therefor.
ARTICLE FIVE
The Company will not commence business until it has received for the
issuance of its shares consideration of the value of at least One Thousand
Dollars ($1,000.00) consisting of money, labor done, or property actually
received.
ARTICLE SIX
The street address of its initial registered office is 300 South St.
Paul, Dallas, Texas 75201, and the name of its initial registered agent at
such address is Michael G. Fortado.
ARTICLE SEVEN
Subject to the provisions of Article Four, the number of directors
constituting the initial Board of Directors is two (2), subject to being
increased or decreased as the Bylaws of the Company may provide. The names
and addresses of the persons who are to serve as directors until the first
annual meeting of the shareholders or until their successors be elected and
qualified are:
D. W. Biegler 300 South St. Paul
Dallas, Texas 75201
G. J. Junco Energy Square II
4849 Greenville Avenue
Dallas, Texas 75206
ARTICLE EIGHT
(A) Power to Alter, Amend or Repeal Bylaws. The power to alter, amend or
repeal the Bylaws or to adopt new Bylaws shall be vested in the Board of
Directors; provided however that any Bylaw or amendment thereto as adopted by
the Board of Directors may be altered, amended or repealed by vote of the
shareholders entitled to vote for the election of directors or a new Bylaw in
lieu thereof may be adopted by vote of such shareholders. No Bylaw that has
been altered, amended or adopted by such a vote of the shareholders may be
altered, amended or repealed by vote of the directors until two years shall
have expired since such action by vote of such shareholders.
(B) Stock Ownership Restrictions. The Board of Directors of the
Company shall have the power and authority, from time to time, to adopt, alter
or amend the Bylaws of the Company to add or amend such provisions as in their
judgment may be necessary or appropriate to ensure that the Company and its
shareholders satisfy the citizenship or other requirements imposed by any
federal or state law relating to the ownership, possession or leasing of gas,
oil or other minerals, land, vessels or any other property, licenses or rights
of any nature whatsoever in which the Company or any of its subsidiaries may
have or hereafter have, or seek to have, any right or interest. Without
limiting such general powers, the Board of Directors shall have the power and
authority, from time to time, to adopt, alter or amend the Bylaws to add or
amend provisions which for such purpose impose restrictions on the transfer or
registration of transfer of the shares of the Company, including, without
limitation, restrictions which:
(1) obligate the holders of the restricted shares to offer to the
Company or to any other holders of shares of the Company or to any other
person or to any combination of the foregoing, a prior opportunity, to
be exercised within a reasonable time, to acquire the restricted shares;
(2) provide that the Company or the holders of any class of shares
of the Company must consent to any proposed transfer of the restricted
shares or approve the proposed transferee of the restricted shares
before the transfer may be effected;
(3) prohibit the transfer of the restricted shares to designated
persons or classes of persons; or
(4) maintain any tax or other status or advantage to the Company.
ARTICLE NINE
To the fullest extent permitted by law, a director of the Company shall
not be liable to the Company or its shareholders for monetary damages for any
act or omission in his capacity as a director. Any repeal or modification of
this Article shall be prospective only and shall not adversely affect any
limitation of the personal liability of a director of the Company existing at
the time of the repeal or modification.
ARTICLE TEN
The name and address of the incorporator are:
W. T. Satterwhite........300 South St. Paul
Dallas, Texas 75201
ARTICLE ELEVEN
INTERESTED DIRECTORS, OFFICERS AND SECURITYHOLDERS
(A) Validity. A contract or other transaction between the Company and
ENSERCH Corporation ("EC"), or any subsidiary or other corporation,
partnership, limited liability company or other entity in which EC is directly
or indirectly interested (collectively with EC, an "EC Person"), shall not be
invalid because of this relationship or because of the presence of a director,
officer or securityholder of an EC Person at the meeting authorizing the
contract or transaction, or such person's participation or vote in the meeting
or authorization or in a unanimous or other written consent thereto, if the
contract or other transaction is effected in accordance with any of paragraphs
(B), (C), (D), (E), (F), (G), or (H) below.
(B) Disclosure; Approval; Fairness. Paragraph (A) shall apply if:
(1) the material facts of the relationship or interest of each EC
Person or such director, officer or securityholder are known or
disclosed:
(a) to the Board of Directors of the Company, or a
committee of the Board of Directors, and it nevertheless
authorizes or ratifies the contract or transaction by a majority
of the directors present; or
(b) to the shareholders of the Company and they
nevertheless authorize or ratify the contract or transaction by a
majority of the shares present, each such EC Person or other
interested person to be counted for quorum and voting purposes; or
(2) the contract or transaction is fair to the Company as of the
time it is authorized or ratified by the Board of Directors or the
shareholders of the Company.
(C) Loans from or to an EC Person.
(1) Any EC Person may lend to the Company funds needed by the
Company for such periods of time as may be determined by the Board of
Directors of the Company or otherwise in accordance with the Bylaws of
the Company; provided, however, that such EC Person may not charge the
Company interest at a rate greater than the lesser of (i) the EC
Person's actual average interest cost (including points or other
financing charges or fees, if any), or (ii) the rate (including points
or other financing charges or fees) that would be charged the Company
(without reference to the Company's financial abilities or guaranties)
by unrelated lenders on comparable loans. The Company shall reimburse
the EC Person for any costs incurred by the EC Person in connection with
the borrowing of funds obtained by the EC Person and loaned to the
Company.
(2) The Company may lend funds to any EC Person; provided however
that the Company may not charge interest at a rate lesser than the rate
(including points or other financing charges or fees) that would be
charged the EC Person (without reference to third parties' financial
abilities or guaranties) by unrelated lenders on comparable loans.
(D) Common Personnel. Officers, directors, employees, attorneys and
agents of the Company may also serve as directors, officers, employees,
attorneys or agents of an EC Person, provided that the Company and the EC
Person shall each compensate its directors, officers, employees, attorneys and
agents in respect of the services performed for it, unless a compensation
sharing arrangement has been effected in accordance with paragraph (B).
(E) IntraCompany Transactions. EC Persons may sell gas, oil, goods and
services to, and may purchase gas, oil, goods and services from, the Company,
provided that such transactions shall be (i) on terms comparable to those
effected with unaffiliated persons or (ii) effected in accordance with
paragraph (B).
(F) Services Provided by an EC Person. An EC Person may provide the
Company with certain services including, but not limited to, the following:
accounting and treasury, internal audit, human resources (such as training,
employment and salary and benefit plan administration), tax planning and
compliance, legal, financial management, corporate development and planning,
investor relations, information systems, materials management, risk and claims
management and office services and the management of these functions. The
Company shall reimburse each EC Person for the direct and indirect costs
incurred in connection with the furnishing of such services to the Company.
Costs shall be determined on a basis reasonably calculated to reflect the
actual costs of the services performed by such EC Person 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.
(G) Purchase or Sale of Shares. An EC Person may purchase or otherwise
acquire and sell or otherwise dispose of shares or other securities of the
Company for its own account (i) in transactions with persons other than the
Company or (ii) in transactions with the Company effected in accordance with
paragraph (B).
(H) Outside Activities. Any EC Person shall be entitled to and may
have business interests and engage in business activities in addition to those
relating to the Company, may engage in the acquisition, ownership, operation
and management of working, nonparticipating or other interests or royalties in
gas and oil properties, and any other businesses or activities, including
business interests and activities in direct competition with the Company, for
their own account and for the account of others, and may own interests in the
same properties as those in which the Company owns an interest, without having
or incurring any obligation to offer any interest in such properties,
businesses or activities to the Company. Neither the Company nor any of its
shareholders shall have any preferential or other right to acquire any
interest or participate in any business venture of any EC Person.
(I) Non-Exclusive. This provision shall not be construed to invalidate
a contract or transaction that would be valid in the absence of this
provision.
Dated this 27th day of December, 1994.
ENSERCH EXPLORATION, INC.
By /s/ Gary J. Junco
--------------------------
President
<PAGE>
<PAGE>
STATEMENT OF RESOLUTION ESTABLISHING
ADJUSTABLE RATE CUMULATIVE PREFERRED STOCK, SERIES A,
OF ENSERCH EXPLORATION, INC.
To the Secretary of State of the State of Texas:
Pursuant to the provisions of Article 2.13 of the Texas Business
Corporation Act, the undersigned corporation submits the following statement
for the purpose of establishing and designating the Adjustable Rate Cumulative
Preferred Stock, Series A, of its preferred stock and fixing and determining
the relative rights and preferences thereof:
1. The name of the corporation is Enserch Exploration, Inc.
2. The following resolution, establishing and designating the
Adjustable Rate Cumulative Preferred Stock, Series A, and fixing and
determining the relative rights and preferences thereof, was duly adopted by
the Board of Directors of the Company on August 1, 1995:
RESOLVED, That the Board of Directors of this Company,
acting pursuant to Article Four of the Restated Articles of
Incorporation of this Company, hereby creates a new series of
Preferred Stock of the Company which shall consist of fifteen (15)
shares of no par value, Stated Value of $10,000,000 per share
("Stated Value"), which shall be designated and known as
"Adjustable Rate Cumulative Preferred Stock, Series A"
(hereinafter referred to as "Preferred Stock, Series A"). The
Preferred Stock, Series A shall have the terms, conditions, rights
and preferences, as follows:
1. Dividends.
(a) Dividend rates on the shares of Preferred Stock,
Series A, shall be (i) for the period (the "Initial Dividend
Period") from the date of their original issue to and
including October 31, 1995, at a rate per annum of the then
Stated Value thereof equal to 6.70% and (ii) for each
quarterly dividend period (hereinafter referred to as a
"Quarterly Dividend Period"; and the Initial Dividend Period
or any Quarterly Dividend Period being hereinafter
individually referred to as a "Dividend Period" and
collectively referred to as "Dividend Periods") thereafter,
which Quarterly Dividend Periods shall commence on February
1, May 1, August 1 and November 1 in each year and shall be
on and include the day next preceding the first day of the
next Quarterly Dividend Period, at a rate per annum of the
Stated Value thereof equal to the Applicable Rate (as
hereinafter defined) in respect of such Quarterly Dividend
Period. Dividends shall be cumulative from the date of
original issue of the shares. The amount of dividends
payable for the Initial Dividend Period or any Period
shorter than a full Quarterly Dividend Period shall be
computed on the basis of 30-day months and a 360-day year.
(b) The Applicable Rate for each Quarterly Dividend
Period shall be determined as follows:
<TABLE>
<CAPTION>
Quarterly Dividend Applicable Quarterly Dividend Applicable
Period Commencing Rate Period Commencing Rate
<S> <C> <C> <C>
November 1, 1995 LIBOR Rate + .75% February 1, 2003 LIBOR Rate + 6.25%
through May 1, 2000 May 1, 2003 LIBOR Rate + 6.75%
August 1, 2000 LIBOR Rate + 1.25% August 1, 2003 LIBOR Rate + 7.25%
November 1, 2000 LIBOR Rate + 1.75% November 1, 2003 LIBOR Rate + 7.75%
February 1, 2001 LIBOR Rate + 2.25% February 1, 2004 LIBOR Rate + 8.25%
May 1, 2001 LIBOR Rate + 2.75% May 1, 2004 LIBOR Rate + 8.75%
August 1, 2001 LIBOR Rate + 3.25% August 1, 2004 LIBOR Rate + 9.25%
November 2, 2001 LIBOR Rate + 3.75% November 1, 2004 LIBOR Rate + 9.75%
February 1, 2002 LIBOR Rate + 4.25% February 1, 2005 LIBOR Rate + 10.25%
May 1, 2002 LIBOR Rate + 4.75% May 1, 2005 and LIBOR Rate + 10.75%
August 1, 2002 LIBOR Rate + 5.25% thereafter
November 1, 2002 LIBOR Rate + 5.75%
</TABLE>
"LIBOR Rate" shall be a rate per annum (rounded upwards, if
necessary, to the nearest 1/16 of 1%) quoted by Chase Manhattan Bank,
N.A., or its successors ("Chase") at approximately 11:00 A.M., London
time (or as soon thereafter as practicable), two (2) Business Days
prior to the first day of a Quarterly Dividend Period for the
offering by Chase to leading banks in the London interbank market for
U.S. Dollar deposits having a term comparable to such Quarterly
Dividend Period. "Business Day" shall mean any date on which
dealings in U.S. Dollar deposits are carried out in the London
interbank market.
(c) If the LIBOR Rate cannot be determined for any Quarterly
Dividend Period, then the Applicable Rate for the preceding dividend
period will be continued for such Quarterly Dividend Period.
(d) The amount of dividends per share payable for each
Quarterly Dividend Period shall be computed by dividing the
Applicable Rate for such dividend period by four and applying such
rate against the Stated Value per share of the Preferred Stock,
Series A.
2. Dividends on each share of Preferred Stock, Series A, shall
commence to accrue and be cumulative, whether or not earned or declared,
from and after the date of issue of such share. So long as any of the
Preferred Stock, Series A, remains outstanding, in no event shall any
dividend (other than a dividend payable in the Common Stock of the Company)
or other distribution be paid upon or declared or set apart for the common
shares, nor shall any common shares be redeemed, purchased, retired or
otherwise acquired by the Company 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, shall have been so paid or declared and set
apart for payment, then and not otherwise dividends may be declared and
paid on the common shares when and as determined by the Board of Directors
out of any funds legally available for dividends.
3. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Company, the holders of the
Preferred Stock, Series A, shall be entitled to receive for each share
thereof an amount equal to Ten Million Dollars ($10,000,000), together with
unpaid accumulated dividends without interest, before any distribution of
the assets of the Company shall be made to the holders of common shares.
After such payment shall have been made in full to the holders of the
outstanding Preferred Stock, Series A, or funds necessary for such payment
shall have been set aside in trust for the account of the holders of the
outstanding Preferred Stock, Series A, so as to be and continue to be
available therefor, the holders of the outstanding Preferred Stock, Series
A, shall be entitled to no further participation in such distribution of
assets of the Company. Thereafter, the remaining assets of the Company
shall be divided and distributed among the holders of the common shares
then outstanding according to their respective shares. If, upon such
liquidation, dissolution or winding up, the assets of the Company
distributable as aforesaid among the holders of the Preferred Stock,
Series A, shall be insufficient to permit the payment to them of all
amounts payable thereon, the entire assets shall be distributed ratably
among the holders of the Preferred Stock, Series A, and any other series of
preferred stock of the Company which ranks equal to the Preferred Stock,
Series A. A consolidation or merger of the Company, a sale or transfer of
all or substantially all of its assets, or any purchase or redemption of
shares of the Company of any class or series, shall not be regarded as a
"liquidation, dissolution, or winding up" within the meaning of this
paragraph.
4. The Company, at the option of the Board of Directors, may
redeem, in whole or in part (including a fraction of a whole share) the
Preferred Stock, Series A, then outstanding upon notice duly given as
hereinafter provided, by paying for each share thereof an amount equal to
Ten Million Dollars ($10,000,000), together with unpaid accumulated
dividends to the date fixed for redemption. In case less than all of the
outstanding shares of Preferred Stock, Series A, are to be redeemed, the
shares to be redeemed shall be selected pro rata or by lot or by such other
equitable method as the Board of Directors may determine. Notice of
redemption of any shares of Preferred Stock, Series A, shall be mailed,
postage prepaid, to the holders of record of the shares to be redeemed at
their respective addresses then appearing on the record of shareholders of
the Company not less than fifteen (15) or more than sixty (60) days prior
to the date designated for such redemption. If such notice of redemption
shall have been duly given, and if on or before the redemption date named
therein, the funds necessary for such redemption shall have been set aside
by the Company in trust for the account of the holders of the Preferred
Stock, Series A, so called for redemption so as to be and continue
available therefor, then from and after the giving of such notice and the
setting aside of such funds, notwithstanding that any certificate for
shares of Preferred Stock, Series A, so called for redemption shall not
have been surrendered for cancellation, the shares represented thereby
shall no longer be deemed outstanding and the holders of such certificate
or certificates shall have, with respect to such shares, no rights in or
with respect to the Company except the right to receive for each share
thereof an amount equal to the redemption price per share as set forth
above, together with unpaid accrued dividends, less the sum of any
dividends paid thereon, without interest, upon the surrender of such
certificate or certificates .
5. The holders of the Preferred Stock Series A, shall have no
voting rights other than the voting rights as are specifically provided for
by law.
6. No holder of any shares of the Preferred Stock, Series A, shall
be entitled as of right to purchase or subscribe for any part of any shares
of the Company authorized by the Restated Articles of Incorporation of the
Company or of any additional shares of any class to be issued by reason of
any increase of the authorized shares of the Company, or of any bonds,
certificates or indebtedness, debentures or other securities convertible
into shares of the Company, but any shares authorized by this Certificate,
or any such additional authorized issue of new shares or of securities
convertible into shares, may be issued and disposed of and options for the
purchase thereof may be issued and disposed of, by the Board of Directors
or such persons, firms, corporations or associations for such
consideration, value or benefit and upon such terms and in such manner as
the Board of Directors may in their discretion determine, without offering
any thereof on the same terms or on any terms to the holders of the
Preferred Stock, Series A.
WITNESS THE EXECUTION HEREOF on this 1st day of August, 1995.
Enserch Exploration, Inc.
By: /s/ J. W. Pinkerton
Name: J. W. Pinkerton
Title: Vice President
<PAGE> EXHIBIT 3.2
BYLAWS OF ENSERCH EXPLORATION, INC., A
CORPORATION INCORPORATED UNDER
THE LAWS OF THE STATE OF TEXAS
--------------------------------------
PURPOSE AND SCOPE OF BYLAWS
These Bylaws shall constitute the private laws of ENSERCH EXPLORATION,
INC., a corporation duly incorporated under the laws of the State of Texas
(herein called the "corporation"), for the administration and regulation of
the affairs of the corporation.
In the event any provision of these Bylaws is or may be in conflict with
any applicable law of the United States or the State of Texas, or of any
order, rule, regulation, decree or judgment of any governmental body or power
or court having jurisdiction over this corporation, or over the subject matter
to which such provision of these Bylaws applies or may apply, such provision
of these Bylaws shall be inoperative to the extent only that the operation
thereof unavoidably conflicts with such law or order, rule, regulation, decree
or judgment, and shall in all other respects be in full force and effect.
ARTICLE I
OFFICES
Section 1. The registered office of the corporation shall be at ENSERCH
Center, 300 South St. Paul, in the City of Dallas, County of Dallas, State of
Texas, and the registered agent of the corporation at such address shall be
such person as the Board of Directors may from time to time designate.
Section 2. The corporation may also have offices at such other places
both within and without the State of Texas as the Board of Directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. All meetings of the shareholders shall be held at the
registered office of the corporation or at such other place either within or
without the State of Texas as shall be designated from time to time by the
Board of Directors.
Section 2. The initial annual meeting of shareholders shall be held on
May 14, 1996, at 2:00 P.M., and thereafter the annual meeting of shareholders
shall be held on the second Tuesday of May in each year, at 2:00 P.M., for the
election of a Board of Directors and the transaction of such other business as
may properly be brought before the meeting.
Section 3. Special meetings of the shareholders may be called by the
Chairman, the Board of Directors, or the holders of not less than one-tenth
of all the shares entitled to vote at the meetings. Business transacted at
all special meetings shall be confined to the objects stated in the notice of
meeting.
Section 4. Written or printed notice stating the place, day and hour of
the meeting, and, in case of a special meeting, the purpose or purposes for
which the meeting is called, shall be delivered not less than ten (10) nor
more than sixty (60) days before the date of the meeting, either personally or
by mail, by or at the direction of the Chairman, the Corporate Secretary, or
the officer or person calling the meeting, to each shareholder of record
entitled to vote at such meeting. If mailed, such notice shall be deemed to
be delivered when deposited in the United States mail addressed to the
shareholder at his address as it appears on the stock transfer books of the
corporation, with postage thereon prepaid.
Section 5. The officer or agent having charge of the stock transfer
books for shares of the corporation shall make, at least ten (10) days before
each meeting of shareholders, a complete list of the shareholders entitled to
vote at such meeting or any adjournment thereof, arranged in alphabetical
order, with the address of and the number of shares held by each, which list,
for a period of ten (10) days prior to such meeting, shall be kept on file at
the registered office of the corporation and shall be subject to inspection by
any shareholder at any time during usual business hours. Such list shall also
be produced and kept open at the time and place of the meeting and shall be
subject to the inspection of any shareholder during the whole time of the
meeting. The original stock transfer books shall be prima-facie evidence as
to who are the shareholders entitled to examine such list or transfer books or
to vote at any meeting of shareholders.
Section 6. The holders of a majority of the shares issued and
outstanding and entitled to vote thereat, present in person or represented by
written proxy, shall constitute a quorum at all meetings of the shareholders
for the transaction of business. If, however, such quorum shall not be
present or represented at any meeting of the shareholders, the shareholders
entitled to vote thereat, present in person or represented by proxy, shall
have power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or represented.
At such adjourned meeting at which a quorum shall be present or represented
any business may be transacted which might have been transacted at the meeting
as originally notified.
Section 7. Each outstanding share, of any class, shall be entitled to
as many votes per share as the Articles of Incorporation shall provide, on
each matter submitted to a vote at a meeting of shareholders, except to the
extent that the voting rights of the shares of any class or classes are
limited or denied by the Articles of Incorporation or these Bylaws. The vote
for the election of Directors and, upon demand by any shareholder, the vote
upon any question before the meeting shall be by ballot. Cumulative voting is
expressly prohibited.
Section 8. At any meeting of the shareholders, every shareholder having
the right to vote shall be entitled to vote in person or by proxy executed in
writing by such shareholder or by his duly authorized attorney-in-fact. No
proxy shall be valid after eleven (11) months from the date of its execution
unless otherwise provided in the proxy. All proxies shall be revocable unless
expressly provided therein to be irrevocable and are coupled with an interest
and shall be filed with the Corporate Secretary of the corporation prior to or
at the time of the meeting at which they are to be voted.
Section 9. When a quorum is present at any meeting, matters brought
before the meeting shall be determined by the shareholders in the following
manner: (a) with respect to any matter, other than the election of Directors
or a matter for which the affirmative vote of a specified portion of the
shares entitled to vote is required by the statutes, the act of the
shareholders shall be the affirmative vote of the holders of a majority of the
shares entitled to vote on, and voted for or against, that matter at a meeting
of shareholders at which a quorum is present and (b) with respect to the
election of Directors, the act of the shareholders electing the Directors
shall be a plurality of the votes cast by the holders of shares entitled to
vote in the election of Directors at a meeting of shareholders at which a
quorum is present, unless the question is one upon which, by express provision
of the statutes or of the Articles of Incorporation or of these Bylaws, a
different vote is required, in which case such express provision shall govern
and control the decision of such question. The shareholders present at a duly
organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum.
Section 10. The Chairman shall preside at all meetings of the
shareholders. In his absence, the President or an officer of the corporation
designated by the Board of Directors shall preside and perform the duties of
the Chairman at such meeting. He shall appoint two inspectors of voting to
serve at each such meeting. Before acting at any meeting, the inspectors
shall be sworn faithfully to execute their duties with strict impartiality and
according to the best of their ability. The inspectors shall determine the
number of shares outstanding, the voting power of each, the shares represented
at the meeting, the existence of a quorum, the qualification of the voters,
the authenticity, validity and effect of proxies, receive votes and ballots,
hear and determine all challenges and questions in any way arising in
connection with the vote, count and tabulate all votes and determine and
announce the result of the voting.
Section 11. At an annual meeting of the shareholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an annual meeting, business must be
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board, otherwise properly brought before the meeting by
or at the direction of the Board, or otherwise properly brought before the
meeting by a shareholder. In addition to any other applicable requirements,
for business to be properly brought before an annual meeting by a shareholder,
the shareholder must have given timely notice thereof in writing to the
Corporate Secretary. To be timely, a shareholder's notice must be delivered
to or mailed and received at the principal executive offices of the
corporation, not less than fifty (50) days nor more than seventy-five (75)
days prior to the meeting; provided, however, that in the event that less than
sixty-five (65) days' notice or prior public disclosure of the date of the
meeting is given or made to shareholders, notice by the shareholder to be
timely must be so received not later than the close of business on the 15th
day following the day on which such notice of the date of the annual meeting
was mailed or such public disclosure was made. A shareholder's notice to the
Corporate Secretary shall set forth as to each matter the shareholder proposes
to bring before the annual meeting (i) a brief description of the business
desired to be brought before the annual meeting and the reasons for conducting
such business at the annual meeting, (ii) the name and record address of the
shareholder proposing such business, (iii) the class and number of shares of
the corporation which are beneficially owned by the shareholder, and (iv) any
material interest of the shareholder in such business.
Notwithstanding anything in the Bylaws to the contrary, no business
shall be conducted at the annual meeting except in accordance with the
procedures set forth in this Section 11; provided, however, that nothing in
this Section 11 shall be deemed to preclude discussion by any shareholder of
any business properly brought before the annual meeting in accordance with
said procedure.
The chairman of an annual meeting shall, if the facts warrant, determine
and declare to the meeting that business was not properly brought before the
meeting in accordance with the provisions of this Section 11, and if he should
so determine, he shall so declare to the meeting and any such business not
properly brought before the meeting shall not be transacted.
Section 12. Only persons who are nominated in accordance with the
following procedures shall be eligible for election as Directors. Nominations
of persons for election to the Board of the corporation may be made at a
meeting of shareholders by or at the direction of the Board of Directors by
any nominating committee or person appointed by the Board or by any
shareholder of the corporation entitled to vote for the election of Directors
at the meeting who complies with the notice procedures set forth in this
Section 12. Such nominations, other than those made by or at the direction of
the Board, shall be made pursuant to timely notice in writing to the Corporate
Secretary. To be timely, a shareholder's notice shall be delivered to or
mailed and received at the principal executive offices of the corporation not
less than fifty (50) days nor more than seventy-five (75) days prior to the
meeting; provided, however, that in the event that less than sixty-five (65)
days' notice or prior public disclosure of the date of the meeting is given or
made to shareholders, notice by the shareholder to be timely must be so
received not later than the close of business on the 15th day following the
date on which such notice of the date of the meeting was mailed or such public
disclosure was made. Such shareholder's notice to the Corporate Secretary
shall set forth (a) as to each person whom the shareholder proposes to
nominate for election or re-election as a Director, (i) the name, age,
business address and residence address of the person, (ii) the principal
occupation or employment of the person, (iii) the class and number of shares
of capital stock of the corporation which are beneficially owned by the
person, and (iv) any other information relating to the person that is required
to be disclosed in solicitations for proxies for election of Directors
pursuant to Rule 14a under the Securities Exchange Act of 1934 as amended; and
(b) as to the shareholder giving the notice (i) the name and record address of
shareholder and (ii) the class and number of shares of capital stock of the
corporation which are beneficially owned by the shareholder. The corporation
may require any proposed nominee to furnish such other information as may
reasonably be required by the corporation to determine the eligibility of such
proposed nominee to serve as Director of the corporation. No person shall be
eligible for election as a Director of the corporation unless nominated in
accordance with the procedures set forth herein.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
ARTICLE III
DIRECTORS
Section 1. The business and affairs of the corporation shall be managed
by its Board of Directors who may exercise all such powers of the corporation
and do all such lawful acts and things as are not by statute or by the
Articles of Incorporation or by these Bylaws directed or required to be
exercised or done by the shareholders.
Section 2. The Board of Directors shall consist of not less than two
Directors, none of whom need be shareholders or residents of the State of
Texas; the exact number of Directors to be determined from time to time by
resolution adopted by the Board of Directors. A person shall be ineligible to
be a Director of the corporation after the date of the annual meeting of
shareholders of the corporation in the year in which such person's seventieth
birthday occurs. The Directors shall be elected at the annual meeting of the
shareholders, except as provided in Section 4 of this Article III. Unless he
shall resign or become ineligible, each Director shall hold office until his
successor shall be elected and shall qualify.
Section 3. Any Director may resign at any time either by oral tender of
resignation at any meeting of the Board of Directors or by giving written
notice thereof to the Corporate Secretary. Resignations shall take effect
when tendered or at the time specified in the tender and, unless otherwise
specified, the acceptance of a resignation shall not be necessary to make it
effective.
Section 4. Any Director may be removed either for or without cause, at
any special meeting of shareholders by the affirmative vote of the holders of
record of a majority of the shares present in person or by proxy at such
meeting and entitled to vote for such removal, if notice of the intention to
act upon such matter shall have been given in the notice calling for such
meeting. Any vacancy occurring in the Board of Directors may be filled by the
affirmative vote of a majority of the remaining Directors even though such
remaining Directors shall be less than a quorum of the Board of Directors. A
Director elected to fill a vacancy shall be elected for the unexpired term of
his predecessor in office. Any directorship to be filled by reason of an
increase in the number of directors may be filled by election at an annual
meeting or at a special meeting of shareholders called for that purpose or may
be filled by the Board of Directors for a term of office continuing until the
next election of one or more Directors by the shareholders; provided that the
Board of Directors may not fill more than two such directorships between any
two successive annual meetings of shareholders.
Section 5. The Board of Directors, by resolution adopted by a majority
of the full Board of Directors, may designate from among its members one or
more committees, each of which shall be comprised of one or more of its
members, and may designate one or more of its members as alternate members of
any committee, who may, subject to any limitations imposed by the Board of
Directors, replace absent or disqualified members at any meeting of that
committee. Any such committee, to the extent provided in such resolutions or
in the Articles of Incorporation or the Bylaws, shall have and may exercise
all of the authority of the Board of Directors, provided that no committee of
the Board of Directors shall have the authority of the Board of Directors in
reference to: (1) amending the Articles of Incorporation, except that a
committee may, to the extent provided in the resolution designating that
committee or in the Articles of Incorporation or the Bylaws, exercise the
authority of the Board of Directors vested in it in accordance with
Article 2.13 of the Texas Business Corporation Act ("Act"); (2) proposing a
reduction of the stated capital of the Corporation in the manner permitted by
Article 4.12 of the Act; (3) approving a plan of merger or share exchange of
the Corporation; (4) recommending to the shareholders the sale, lease, or
exchange of all or substantially all of the property and assets of the
Corporation otherwise than in the usual and regular course of its business;
(5) recommending to the shareholders a voluntary dissolution of the
Corporation or a revocation thereof; (6) amending, altering, or repealing the
Bylaws of the Corporation or adopting new Bylaws of the Corporation;
(7) filling vacancies in the Board of Directors; (8) filling vacancies in or
designating alternate members of any such committee; (9) filling any
directorship to be filled by reason of an increase in the number of Directors;
(10) electing or removing officers of the Corporation or members or alternate
members of any such committee; (11) fixing the compensation of any member or
alternate members of such committee; or (12) altering or repealing any
resolution of the Board of Directors that by its terms provides that it shall
not be so amendable or repealable; and, unless such resolution designating a
particular committee, the Articles of Incorporation, or the Bylaws expressly
so provide, no committee of the Board of Directors shall have the authority to
authorize a distribution or to authorize the issuance of shares of the
Corporation.
MEETINGS OF THE BOARD OF DIRECTORS
Section 6. The Directors of the corporation may hold their meetings,
both regular and special, either within or without the State of Texas.
Section 7. The first meeting of each newly elected Board of Directors
shall be held without further notice immediately following the annual meeting
of shareholders, and at the same place, unless by unanimous consent of the
Directors then elected and serving such time or place shall be changed.
Section 8. Regular meetings of the Board of Directors may be held with
or without notice at such time and place as shall from time to time be
determined by the Board of Directors.
Section 9. Special meetings of the Board of Directors may be called on
twenty-four (24) hours' notice to each Director, or such shorter period of
time as the person calling the meeting deems appropriate in the circumstances,
either personally, or by mail, or by telegram; special meetings shall be
called by the Chairman or, in the event of the inability of the Chairman to
act, the President or the Corporate Secretary in like manner and on like
notice on the written request of two Directors. Neither the business to be
transacted at, nor the purpose of, any special meeting need be specified in a
notice or waiver of notice.
Section 10. At all meetings of the Board of Directors the presence of a
majority of the Directors shall constitute a quorum for the transaction of
business and the act of a majority of the Directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors. Any
action required or permitted to be taken at a meeting of the Board of
Directors may be taken without a meeting if a consent in writing, setting
forth the action so taken, is signed by all members of the Board of Directors.
If a quorum shall not be present at any meeting of Directors, the Directors
present thereat may adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present.
Section 11. COMPENSATION OF DIRECTORS. The Board of Directors shall
have authority to establish, from time to time, the amount of compensation
which shall be paid to its members for their services as Directors.
ARTICLE IV
NOTICES
Section 1. Whenever under the provisions of the statutes or of the
Articles of Incorporation or of these Bylaws, notice is required to be given
to any Director or shareholder, and no provision is made as to how such notice
shall be given, it shall not be construed to mean personal notice, but any
such notice may be given in writing, by mail, postage prepaid, addressed to
such Director or shareholder at such address as appears on the books of the
corporation. Any notice required or permitted to be given by mail shall be
deemed to be given at the time when the same shall be thus deposited in the
United States mails as aforesaid.
Section 2. Whenever any notice is required to be given to any
shareholder or Director of the corporation under the provisions of the
statutes or of the Articles of Incorporation, or of these Bylaws, a waiver
thereof in writing signed by the person or persons entitled to such notice,
whether before or after the time stated in such notice, shall be equivalent to
the giving of such notice. Attendance of a Director at a meeting shall
constitute a waiver of notice of such meeting, except when a Director attends
a meeting for the express purpose, in writing filed at the meeting, of
objecting to the transaction of any business on the grounds that the meeting
is not lawfully called or held.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be a Chairman, a
President, one or more Executive Vice Presidents, Senior Vice Presidents or
Vice Presidents, a General Counsel, a Controller, a Corporate Secretary and a
Treasurer, all of whom shall be elected by the Board of Directors. Any two or
more offices may be held by the same person. Each such officer shall have
such authority and perform such duties in the management of the corporation as
may be determined by resolution of the Board of Directors.
Section 2. The Board of Directors may elect or appoint such other
officers and agents as it shall deem necessary, who shall hold their offices
for such term and who shall have such authority and perform such duties as may
be prescribed by the Board of Directors or the Chairman. The power to appoint
such other officers and agents may be delegated by the Board of Directors to
the Chairman to the extent the Board may delineate by resolution.
Section 3. Each officer of the corporation shall hold office until his
successor is chosen and qualified in his stead or until his death or until his
resignation, retirement or removal from office. Any officer or agent elected
or appointed by the Board of Directors may be removed by the Board of
Directors whenever in its judgment the best interests of the corporation will
be served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed. Election or appointment of an
officer or agent shall not of itself create contract rights.
Section 4. THE CHAIRMAN. The Chairman shall be the chief executive
officer of the corporation. He shall, subject to the direction and control of
the Board of Directors, be their representative and medium of communication.
He shall see that all orders, resolutions and policies adopted by the Board of
Directors are carried into effect. He shall preside at all meetings of
shareholders and at all meetings of the Board of Directors. He shall be in
complete charge with attendant responsibility and accountability of the entire
corporation and its affairs.
Section 5. THE PRESIDENT. The President shall be the chief operating
officer of the corporation. He shall, subject to the direction of the
Chairman, have responsibility for such operations and functions assigned to
him; and in the absence of the Chairman, shall preside at all meetings of the
shareholders and at all meetings of the Board of Directors.
Section 6. EXECUTIVE VICE PRESIDENTS. Each Executive Vice President
shall have such powers and responsibilities, and shall perform such duties, as
delineated by the Board or by the President. They shall be directly
responsible to such officer as the President may from time to time prescribe.
Section 7. SENIOR VICE PRESIDENT, CHIEF FINANCIAL OFFICER. The Senior
Vice President, Chief Financial Officer, shall have such powers and
responsibilities and shall perform such duties, as delineated by the Board of
Directors or by the President. He shall be responsible to the President in
said performance.
Section 8. OTHER SENIOR VICE PRESIDENTS. Other Senior Vice Presidents
shall have such powers and responsibilities, and shall perform such duties, as
delineated by the Board or by the President. They shall be directly
responsible to such officer as the President may from time to time prescribe.
Section 9. THE GENERAL COUNSEL. The General Counsel shall have
general control over all matters of a legal nature concerning the corporation
and shall perform such duties as delineated by the Board or by the President.
He shall be directly responsible to the President in said performance.
Section 10. VICE PRESIDENTS. Each Vice President shall have such
powers and responsibilities, and shall perform such duties, as may be
delineated by the Board or the President. They shall be directly responsible
to such officer as the President may from time to time prescribe.
Section 11. THE CONTROLLER. The Controller shall be in general
control of the accounts of the corporation, shall be responsible for the
making of adequate audits, shall prepare and interpret required accounting,
financial and statistical statements, and shall be directly responsible to
such officer and shall perform such other duties as the Board or President may
from time to time prescribe.
Section 12. THE CORPORATE SECRETARY. The Corporate Secretary shall
attend all meetings of the Board of Directors and shareholders and act as
secretary thereof and shall record all votes and the minutes of all
proceedings of the Board of Directors and shareholders in a book for that
purpose maintained and kept in his custody. He shall keep in his custody the
seal of the corporation and shall in general perform all the duties incident
to the office of Secretary of a corporation. He shall act as Transfer Agent
of the corporation and/or Registrar of its capital stock and other securities;
provided that the Board of Directors may by resolution appoint one or more
other persons or corporations as Transfer Agents and/or Registrars or as
Co-Transfer Agents and/or Co-Registrars. He shall be directly responsible to
such officer and shall perform such other duties as the Board or President may
from time to time prescribe.
Section 13. THE TREASURER. The Treasurer shall have custody of all the
funds and securities of the corporation and shall keep full and accurate
accounts of receipts and disbursements. He may endorse checks, notes and other
obligations on behalf of the corporation for collection and shall deposit the
same, together with all monies and other valuable effects, to the credit of
the corporation in banks or depositories as the Board of Directors may
designate by resolution or as may be established in accordance with Article
VIII of these Bylaws. He shall be directly responsible to such officer as the
President may from time to time designate and shall perform all duties
incident to the office of Treasurer of a corporation or as the Board or
President shall designate.
Section 14. ASSISTANT CORPORATE SECRETARY, ASSISTANT TREASURER,
ASSISTANT CONTROLLER. The Board of Directors may appoint one or more
Assistant Corporate Secretaries, Assistant Treasurers and Assistant
Controllers and such other appointive officers as may be appropriate and
required. They shall be directly responsible to such officer and shall
perform such duties as the Board or President may from time to time designate.
ARTICLE VI
CERTIFICATES REPRESENTING SHARES
Section 1. The shares of stock of this corporation shall be deemed
personal estate, and shall be transferable only on the books of the
corporation in such manner as these Bylaws prescribe.
Section 2. Every shareholder in the corporation shall be entitled to
have a certificate or certificates representing the number of shares owned by
him. The certificates of shares of stock of the corporation shall be numbered
and shall be entered in the books of the corporation as they are issued. They
shall exhibit the holder's name and number of shares, and shall be signed by
the Chairman, the President or a Vice President, and the Treasurer or an
Assistant Treasurer and bear the corporate seal; but the signatures of such
officers and the seal of the corporation upon such certificates may be
facsimiles, engraved or printed where such certificate is signed by a duly
authorized Transfer Agent or Co-Transfer Agent and a Registrar or Co-Registrar.
Section 3. The Board of Directors may make such rules and regulations
as it may deem expedient concerning the issue, transfer, conversion, and
registration of certificates for shares of the capital stock of the
corporation.
Section 4. LOST CERTIFICATES. The Board of Directors may direct a new
certificate representing shares to be issued in place of any certificate
theretofore issued by the corporation alleged to have been lost or destroyed,
upon the making of an affidavit of that fact by the person claiming the
certificate to be lost or destroyed. When authorizing such issue of a new
certificate, the Board of Directors, in its discretion and as a condition
precedent to the issuance thereof, may require the owner of such lost or
destroyed certificate, or his legal representative, to advertise the same in
such manner as it shall require and/or give the corporation a bond in such
form, in such sum, and with such surety or sureties as it may direct as
indemnity against any claim that may be made against the corporation and its
Transfer Agents and Registrars and its Co-Transfer Agents and Co-Registrars
with respect to the certificate alleged to have been lost or destroyed.
Section 5. TRANSFER OF SHARES. Transfers of shares of stock shall be
made on the books of the corporation only by the person named in the
certificate or by attorney, lawfully constituted in writing, and upon
surrender of the certificate therefor.
Section 6. The Board of Directors may close the stock transfer books of
the corporation for a period not to exceed sixty (60) days for the purpose of
determining shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or entitled to receive payment of any
distribution and share dividend, or in order to make a determination of
shareholders for any purpose, provided that if such books shall be closed for
the purpose of determining shareholders entitled to notice of or to vote at a
shareholders' meeting, such books shall be closed for at least ten (10) days
immediately preceding such meeting. In lieu of so closing the stock transfer
books, the Board of Directors may fix a date in advance, not exceeding sixty
(60) days preceding the date of any meeting of shareholders, or the date for
the payment of any distribution and share dividend or the date for the
allotment of rights, or the date when any change or conversion or exchange of
capital stock shall go into effect, as a record date for the respective
determination of the shareholders entitled to notice of, and to vote at, any
such meeting, or entitled to receive payment of any such distribution and
share dividend, or to any such allotment of rights, or to exercise rights in
respect of any such change, conversion or exchange of capital stock and in
such case such shareholders and only such shareholders as shall be
shareholders of record on the date so fixed shall be entitled to such notice
of, and to vote at, such meeting, or to receive payment of such distribution
and share dividend, or to receive such allotment of rights, or to exercise
such rights, as the case may be, notwithstanding any transfer of any shares of
stock on the books of the corporation after any such record date fixed as
aforesaid. In the absence of any designation with respect thereto by the
Board of Directors, the date upon which the notice of a meeting is mailed or
resolutions declaring a distribution and share dividend are adopted shall be
the record date for such determination in regard to meetings of shareholders
or declarations of distributions and share dividends.
Section 7. The corporation shall be entitled to treat the holder of
record of any share or shares of stock as the holder in fact thereof and,
accordingly, shall not be bound to recognize any equitable or other claim to
or interest in such share on the part of any other person, whether or not it
shall have express or other notice thereof, save as expressly provided by the
laws of Texas.
Section 8. BONDS, DEBENTURES AND EVIDENCES OF INDEBTEDNESS. Bonds,
debentures and other evidence of indebtedness of the corporation shall be
signed by the Chairman, the President or any Vice President and the Treasurer
or an Assistant Treasurer and shall bear the corporate seal and when so
executed shall be binding upon the corporation, but not otherwise. The seal
of the corporation thereon may be facsimile, engraved or printed, and where
any such bond, debenture or other evidence of indebtedness is authenticated
with the manual signature of an authorized officer of the corporation or
trustee appointed or named by an indenture of trust or other agreement under
which such security is issued, the signature of any of the corporation's
officers authorized to execute such security may be facsimile.
Section 9. SIGNATURES ON SHARE CERTIFICATES, BONDS, DEBENTURES AND
EVIDENCES OF INDEBTEDNESS. In case any officer who signed, or whose facsimile
signature has been placed on any certificate representing shares of stock,
bond, debenture or evidence of indebtedness of this corporation shall cease to
be an officer of the corporation for any reason before the same has been
issued or delivered by the corporation, such certificate, bond, debenture or
evidence of indebtedness may nevertheless be issued and delivered as though
the person who signed it or whose facsimile signature had been placed thereon
had not ceased to be such officer.
ARTICLE VII
DEEDS AND OTHER INSTRUMENTS OF CONVEYANCE
Section 1. Deeds and other instruments of the corporation conveying
land or any interest in land shall be signed by the Chairman, the President or
a Vice President or attorney-in-fact of the corporation when authorized by
appropriate resolution of the Board of Directors or shareholders, and when
required by law, shall be attested by the Corporate Secretary or an Assistant
Corporate Secretary and shall bear the corporate seal, and when so executed
shall be binding upon the corporation, but not otherwise.
ARTICLE VIII
CHECKS, DRAFTS AND BILLS OF EXCHANGE
Section 1. The Chairman or the President of the corporation may from
time to time establish General Bank Accounts, Depository Bank Accounts, and
such Special Bank Accounts as in the judgment of either of them may be needed
in carrying on and dispatching the business of the corporation. All checks,
drafts and bills of exchange issued in the name of the corporation and calling
for the payment of money out of said General Accounts, Depository Accounts, or
Special Accounts of the corporation shall be signed by the Controller or
Assistant Controller, or such agents and employees as the Chairman or the
President may from time to time designate and authorize to sign for the
Controller, and countersigned by the Treasurer or any Assistant Treasurer, or
such agents and employees as the Chairman or the President may from time to
time designate and authorize to sign for the Treasurer; and when so designated
by the Chairman or the President, the signature of the Treasurer or an
Assistant Treasurer may be affixed by the use of a check-signing machine;
provided that for the purpose of transferring funds from any bank or
depository at which the corporation has funds on deposit to any other bank or
depository of the corporation for credit to the corporation's account, a form
of check having plainly printed upon its face "DEPOSITORY TRANSFER CHECK," and
being by its wording payable to a bank or depository for credit to the account
of the corporation, is hereby authorized, and such checks shall require no
signature other than the name of the corporation printed at the lower right
corner; and further provided that checks, drafts and bills of exchange issued
in the name of the corporation in the amount of $5,000.00 or less need bear
only one signature and that being the signature of the Treasurer or an
Assistant Treasurer, affixed either manually or by the use of a check-signing
machine, or the manual signature of such agents and employees as the Chairman
or the President may from time to time designate and authorize to sign for the
Treasurer; and provided further that checks and drafts issued in the name of
the corporation and calling for the payment of production revenue or royalties
need bear only one signature and that being the signature of the Treasurer or
an Assistant Treasurer, affixed either manually or by the use of a check-signing
machine, or the manual signature of such agents and employees as the
Chairman or the President may from time to time designate and authorize to
sign for the Treasurer; and provided further that checks and drafts issued in
the name of the corporation and calling for payment of money out of Special
Bank Accounts established for the payment of dividends need bear only one
signature and that being the signature of the Treasurer or an Assistant
Treasurer, affixed either manually or by the use of a check-signing machine,
or the manual signature of such agents and employees as the Chairman or the
President may from time to time designate and authorize to sign for the
Treasurer; and further provided that no person authorized to sign checks or
drafts may sign a check or draft payable to himself. When signed in such
applicable manner, but not otherwise, every check, draft or bill of exchange
issued in the name of the corporation and calling for the payment of money out
of the General Bank Accounts, Depository Bank Accounts, and Special Bank
Accounts of the corporation shall be valid and enforceable according to its
wording, tenor and effect, but not otherwise. Provided, however, that for the
purpose of transferring funds between accounts of the corporation, from
accounts of the corporation to accounts of subsidiaries and affiliates, from
accounts of the corporation for the purpose of investment of corporate funds,
and from accounts of the corporation for the payment of dividends, the
Treasurer or an Assistant Treasurer, or such agents and employees as the
Chairman or the President may from time to time designate and authorize, may
make such transfer of funds by bank wire transfers through oral or written
instructions; and for the purpose of transferring funds from accounts of the
corporation to accounts of other third parties, such funds may be transferred
by bank wire transfers but only upon written instructions from the Treasurer
or an Assistant Treasurer, or such agents and employees as the Chairman or the
President may from time to time designate and authorize to sign for the
Treasurer, and countersigned by the Controller or Assistant Controller, or
such agents and employees as the Chairman or the President may from time to
time designate and authorize to sign for the Controller.
Section 2. The Treasurer of the corporation may establish special bank
accounts designated as Agent's Account in such bank or banks as in his
judgment may be needed in carrying on and dispatching the business of the
corporation, provided that the Treasurer in establishing and maintaining such
accounts shall keep only such funds therein and in such amount as may be
required for the local needs of such accounts and provided that checks or
drafts issued against or drawn on such accounts shall be valid and binding on
the corporation according to their wording, tenor and effect when signed by
either the Treasurer of the corporation or by such agent or employee of the
corporation as may be designated by the Treasurer in writing to such bank or
when signed in such manner and by such agent or employee of the corporation as
may be designated by the Chairman or the President of the corporation; and
further provided that checks and drafts issued in the name of the corporation
against funds in such Agent's Account in the amount of $1,000.00 or more must
be countersigned by two persons authorized to sign such checks or drafts.
ARTICLE IX
FISCAL YEAR
Section 1. The fiscal year shall begin on the first day of January in
each year.
ARTICLE X
DISTRIBUTIONS AND SHARE DIVIDENDS
Section 1. Distributions and share dividends upon the outstanding
shares of the corporation, subject to the provisions of the Articles of
Incorporation, if any, may be declared by the Board of Directors at any
regular or special meeting. Distributions may be paid in cash or property,
and share dividends may be paid in shares of the authorized but unissued
shares or in treasury shares, of the corporation subject to the provisions of
the Articles of Incorporation.
ARTICLE XI
RESERVES
Section 1. There may be created by resolution of the Board of Directors
out of the earned surplus of the corporation such reserve or reserves as the
Directors from time to time, in their discretion, think proper to provide for
contingencies, or to equalize dividends, or to repair or maintain any property
of the corporation, or for such other purpose as the Directors shall think
beneficial to the corporation, and the Directors may modify or abolish any
such reserve in the manner in which it was created.
ARTICLE XII
SEAL
Section 1. The corporation's seal shall have inscribed thereon the name
of the corporation, the year of the organization and the words "Corporate
Seal, Texas." Said seal may be used by causing it or a facsimile thereof to
be impressed or affixed or reproduced or otherwise.
ARTICLE XIII
INDEMNIFICATION
Section 1. The corporation shall indemnify, and advance or reimburse
reasonable expenses incurred by, any person who (1) is or was a director,
officer, employee or agent of the corporation, or (2) while a director,
officer, employee or agent of the corporation, its divisions or subsidiaries,
is or was serving at the request of the corporation, pursuant to a resolution
adopted by the Board of Directors, as a director, officer, partner, venturer,
proprietor, trustee, employee, agent or similar functionary of another foreign
or domestic corporation, partnership, joint venture, sole proprietorship,
trust, employee benefit plan or other enterprise, to the fullest extent that a
corporation may or is required to grant indemnification to a director under
the Texas Business Corporation Act. The corporation, pursuant to a resolution
adopted by the Board of Directors, may indemnify any such persons to such
further extent as permitted by law. Action by the Board of Directors to
amend, modify or terminate this ARTICLE XIII, Section 1. shall be prospective
from the effective date of such action and any rights or obligations resulting
from an event or events occurring prior thereto shall be governed by the
provisions of this ARTICLE XIII, Section 1, as of the date of such event or
events.
ARTICLE XIV
AMENDMENTS
Section 1. The power to alter, amend, suspend or repeal the Bylaws or
to adopt new Bylaws shall be vested in the Board of Directors; provided,
however, that any Bylaw or Amendment thereto as adopted by the Board of
Directors may be altered, amended, suspended or repealed by vote of the
shareholders entitled to vote for the election of Directors or a new Bylaw in
lieu thereof may be adopted by vote of such shareholders. No Bylaw which has
been altered, amended or adopted by such a vote of the shareholders may be
altered, amended, suspended or repealed by vote of the Directors until two
years after such action by vote of the shareholders.
ARTICLE XV
RESTRICTIONS ON FOREIGN OWNERSHIP
Section 1. PURPOSE AND EFFECTIVENESS. The purpose of this Article XV
is to limit ownership and control of shares of any class of capital stock of
the corporation by persons who are not Eligible Citizens in order to permit
the corporation or any of its Subsidiaries to conduct its business as a U.S.
Mineral Lessee. The Board of Directors is hereby authorized to adopt such
resolutions, and to effect any and all other measures reasonably necessary or
desirable (consistent with applicable law and the provisions of the Articles
of Incorporation) to fulfill the purpose and implement the restrictions of
this Article XV, including without limitation, requiring, as a condition
precedent to the transfer of shares on the records of the corporation,
representations and other proof as to the identity of existing or prospective
shareholders and persons on whose behalf of shares of any class of capital
stock of the corporation or any interest therein or right thereof are or are
to be held and as to whether or not such persons are Eligible Citizens.
Section 2. RESTRICTION ON TRANSFERS. Any transfer, or attempted or
purported transfer, of any shares of any class of capital stock issued by the
corporation or any interest therein or right thereof, which would result in
the ownership or control by one or more non-Eligible Citizens of the shares of
any class of capital stock of the corporation or of any interest or right
therein will, until such condition no longer exists, be void and will be
ineffective as against the corporation and the corporation will not recognize
the purported transferee as a shareholder of the corporation for any purpose
other than the transfer of such shares to a person who is an Eligible Citizen;
provided, however, that such shares may nevertheless be deemed to be shares
held or owned by non-Eligible Citizens for the purposes of this Article XV.
Section 3. SUSPENSION OF VOTING, DIVIDEND AND DISTRIBUTION RIGHTS. No
shares of the outstanding capital stock of the corporation or any class
thereof transferred to, or acquired or held by, a non-Eligible Citizen shall
be entitled to receive or accrue any rights with respect to any dividends or
other distributions of assets declared payable or paid to the holders of such
capital stock during such period. Furthermore, no shares held by or for the
benefit of any non-Eligible Citizen will be entitled to vote with respect to
any matter submitted to stockholders of the corporation so long as such
condition exists.
Section 4. REDEMPTION. If at any time (i) the corporation is named, or
is threatened to be named, as a party in a judicial or administrative
proceeding that seeks the cancellation or forfeiture of any property, lease,
right or license in which the corporation has an interest or (ii) if, in the
opinion of the Board of Directors, the corporation's ability to hold any
property, lease, right or license would be prohibited or restricted because of
the nationality, citizenship, residence, or other status, of any shareholder
of the corporation (or, in the case of a shareholder which is a corporation,
partnership or association, of any shareholder, owner, partner or member of
such shareholder), the corporation may redeem the shares held by such
shareholder at the then Current Market Price and upon such terms as shall be
determined by the Board of Directors, in their sole discretion.
Section 5. DEFINITIONS. "Current Market Price" per share of capital
stock of the corporation on any date is the average of the Quoted Prices of
such class of capital stock during the four trading weeks before the date in
question. In the absence of one or more such quotations, the Board of
Directors shall determine the current market price on the basis of such
quotations as it considers appropriate.
"Eligible Citizen" means any person (including a corporation,
partnership or other entity) whose ownership, holding or control of shares in
the corporation would not, by reason of such person's citizenship or the
citizenship of its members or owners or otherwise, (1) disqualify the
corporation or any of its Subsidiaries from owning, acquiring, holding,
possessing, or leasing oil, gas or other minerals, mineral deposits, land,
vessels or any other property, licenses, or rights of any nature whatsoever in
federal lands or leases under federal laws and regulations in effect from time
to time, (2) violate any other qualifications as the Board of Directors deems
in its reasonable discretion are necessary or appropriate to permit the
corporation and its Subsidiaries to engage in any other business activities
for which there may be qualifications or restrictions on shareholders of the
corporation or any of its Subsidiaries applicable under federal or state law.
A person is an Eligible Citizen if the applicable following requirement is
met: (1) for an individual, that he is native-born, naturalized or a
derivative Citizen of the United States or otherwise qualifies as a United
States citizen; (2) for a corporation, that is organized or existing under the
laws of the United States, a state, the District of Columbia or United States
territory or possession, that at least 75% of the ownership interest in, and
the voting power over, the corporation is held by Eligible Citizens, that the
corporation's president or other chief executive officer and the chairman of
its board of directors are United States citizens and that no more than a
minority of the number of directors required to constitute a quorum are non-
United States citizens; (3) for a partnership, that all of the interests in
the partnership, are owned by Eligible Citizens; (4) for a trust, that each of
its trustees and each of its beneficiaries is an Eligible Citizen; and (5) for
an association, joint venture, or other entity, that all members, venturers or
other equity participants are Eligible Citizens and that such association,
joint venture or other entity is capable of holding leases or other interest
in federal minerals or lands under the laws of the United States.
"Quoted Price" means, with respect to any class of capital stock of the
corporation, the last reported sales price regular way or, in case no such
reported sale takes place on such day, the average of the closing bid and
asked prices regular way for such day, in each case on the principal national
securities exchange on which the shares of such class of capital stock are
listed or admitted to trading or, if not listed or admitted to trading, the
last sale price regular way for such shares as published by NASDAQ, or if such
last price is not so published by NASDAQ or if no such sale takes place on
such day, the mean between the closing bid and asked prices for such shares as
published by NASDAQ or in the absence of any of the foregoing, the fair market
value as determined by the Board of Directors.
"Subsidiary" means any corporation more than 50% of the outstanding
capital stock of which is owned by the corporation or any Subsidiary of the
corporation.
"U.S. Mineral Lessee" means any corporation or other entity directly or
indirectly owning, acquiring, holding, possessing, or leasing oil, gas or
other minerals, mineral deposits, lands, vessels or any other property,
licenses, or rights of any nature whatsoever in federal lands or leases under
federal laws and regulations in effect from time to time, including, without
limitation, the Mineral Leasing Act of 1920, as amended, 30 U.S.C.A.
Section 181 et seq.
Revised 02/13/96
<PAGE> EXHIBIT 10.15
ENSERCH EXPLORATION, INC.
PERFORMANCE INCENTIVE PLAN
CALENDAR YEAR 1996
I. Purposes
The purposes of the Enserch Exploration, Inc. Performance Incentive Plan
(the "Plan") are to:
A. Encourage and reward improved performances by the segment.
B. Provide reward incentives for the achievement of specific perfor-
mance goals or objectives that may be periodically established.
C. Provide an appropriate level of executive compensation
commensurate with that of similar businesses.
D. Provide an incentive for key management personnel to perform in a
manner that ultimately benefits the Corporation's shareholders and
the Company's customers.
II. Eligibility
Key managers as specifically designated shall be eligible for participa-
tion in the Plan. Participation in the Plan shall occur upon the
recommendation of the Chairman of Enserch Exploration, Inc. and approval
of the Compensation Committee of Enserch Exploration, Inc.
The existence of this Plan does not prevent the existence of other bonus
plans. However, Participants in this Plan may not participate in any
other cash bonus or incentive plans or programs offered by ENSERCH, or
any of its subsidiaries or affiliates, other than compensation and
incentive plans made generally available to all executives of Enserch
Exploration, Inc. The Compensation Committee of Enserch Exploration,
Inc. may also award special bonuses on a discretionary basis to reward
meritorious performance not compensated by this Plan.
III. Definitions and Bonus Factors
Subject to the conditions and limitations described herein, bonus award
payments may be made to the Participants under the Plan as hereinafter
set out. For purposes of the Plan, the following definitions apply:
A. Participant
Each of the key management personnel of the business segment
recommended for participation by the Chairman of Enserch Explora-
tion, Inc. and approved by the Compensation Committee of Enserch
Exploration, Inc. is a Participant. Each Participant will be
individually notified of his or her participation together with
the applicable factors approved for the determination of each
individual bonus opportunity.
B. Base Salary
The annual Base Salary designated for the Participant is that
contained in the applicable payroll records and earned by the
Participant, exclusive of any payment under any bonus plan,
deferred compensation, salary deferral plan, expense reimbursement
or fringe benefit, for the annual period covered by the bonus
award.
C. Target Bonus Factor
A specified percentage of the Participant's Base Salary which
would be the bonus payable to a Participant upon 100% goal
achievement. The Target Bonus Factor applied to Base Salary is
the Target Bonus.
D. Performance Goals
Expressed, measurable goals established as the basis for bonus
awards for the annual bonus period, each having a corresponding
weighting factor expressed as a percentage. No more than five
Performance Goals will be used for any annual period. The
weighting factors for all Performance Goals for an annual period
aggregate 100%.
E. Goal Achievement Factor
A percentage representing the level of actual achievement of each
Performance Goal, calculated at the end of each Plan year
(calendar year).
F. Performance Factor
The sum of the individual weightings multiplied by the corre-
sponding Goal Achievement Factor which is applied to the Target
Bonus to derive the bonus.
G. Bonus Calculation
In summary:
Target Bonus = Base Salary x Target Factor
Bonus = Target Bonus Factor x Performance Factor
Performance Factor = Weighting1 x Goal Achievement Factor1
+ Weighting2 x Goal Achievement Factor2
+ Weighting3 x Goal Achievement Factor3
+ Weighting4 x Goal Achievement Factor4
+ Weighting5 x Goal Achievement Factor5
The minimum bonus shall be zero.
IV. Bonus Payments
A. A Participant's bonus will be paid in cash to a Participant as
follows, provided the Participant continues to be eligible under
the terms of the Plan. One-half of the bonus will be paid in
cash, in a single lump sum, less applicable withholding taxes, as
soon as practicable after the end of the calendar year to which
the bonus relates, but in any event, not later than April 1 of the
following year. The remaining one-half of the bonus will be
divided into two equal payments, each in cash, less applicable
withholding taxes, and paid not later than April 1 of each of the
two years immediately following the year of the payment of the
current award, provided the Participant remains eligible for
payments.
B. To be eligible for receipt of each payment of the bonus, a
Participant must continue to be employed by the Company at the
time each payment is to be paid, unless that Participant's
employment terminates by reason of retirement, death or
disability, or as described in D below. Participants who
terminate their employment voluntarily or who are terminated by
the Company, other than under circumstances described below, will
not be eligible to receive any portion of any bonus award which
has been granted for prior years but unpaid as of the date of
termination.
C. All bonus payments credited to a Participant under this Plan
during his or her active employment shall be paid under the terms
of the Plan to any Participant who retires at age 60 or above in
accordance with his/her employer's approved retirement plan, or to
any Participant who becomes disabled and receives disability
benefits in accordance with its long-term disability plan.
In the event of a Participant's retirement at or above age 60 or
death during a Plan year, assuming employee has worked for at
least one-half of the Plan Year, to the extent practicable, any
bonus awarded for achievement of goals to which the Participant
contributed shall be prorated and the appropriate portion paid. A
decision by the Chairman of Enserch Exploration, Inc. as to what
may be an appropriate portion shall be final and binding on all
parties.
In the event of a Participant's death, all bonus awards resulting
from a partial award for a prorated portion of the Plan Year or
those which have been credited to such Participant prior to the
date of death but remain unpaid and which would otherwise have
been received will be paid to the designated beneficiary or, if no
beneficiary is designated, to the employee's estate, in one lump
sum as soon as practicable, but no later than six months following
the death of the employee.
In the event a Participant's employment terminates for any reason
other than retirement, disability or death, or as described in D
below, prior to the time a bonus payment is paid, no bonus shall
be payable for either a portion of or for a full Plan year, or for
any unpaid bonus awards credited in prior years.
D. In the event that Enserch Exploration, Inc. shall, pursuant to
action by its Board, at any time propose to merge into,
consolidate with, or sell or otherwise transfer all or
substantially all of the assets of the segment to another corpora-
tion, in which Enserch Exploration, Inc. would be in a minority
position, all bonus awards which have been granted but remain
unpaid, and a bonus award based on a 100% performance factor the
Plan Year in which such action occurs, shall be immediately paid
to Participant and the Participant shall not be required to be
employed by the Corporation in order to receive the payment.
V. Establishment of Performance Goals
Performance Goals will be established annually by the President of
Enserch Exploration, Inc. after receiving requisite approval, with one
to five certain expressed, specific, objective and measurable goals in
such Plan defined as the Performance Goals for which bonus will be paid
if achieved. A minimum of 50% of the weighting will be applied to the
attainment of operating income goal achievement or specific oil and gas
production goals that determine operating income.
VI. Operating Income Goal Achievement
The Goal Achievement Factor pertaining to achievement of operating
income goals is standardized as follows:
If Operating Income Ratio is: Operating Income Goal
Achievement Factor will be:
less than 0.90 0% minus 0.5% for each 0.01
less than 0.90
between 0.90 and 1.00 20% plus 8% for each 0.01
greater than 0.90
above 1.00 100% plus 1% for each $1 million
greater than budgeted operating
income, as adjusted, up to a
maximum of 150%
Achievement Factors will be prorated between the amounts nearest
percentages specified above.
The following definitions apply:
Operating Income Ratio
The ratio of the applicable business unit's actual operating income for
the Plan year to the budgeted operating income, which budgeted operating
income is adjusted to take into account the effects of product price and
severance tax variations when applicable. The accrual of expense for
this Plan will be included as expense deducted for the determination of
actual operating income.
Price Adjustment
A factor used to adjust budgeted operating income such that the Partici-
pant will not benefit from or be penalized by oil, gas and NGL price
fluctuations when measuring the attainment of budgeted operating income
for the particular unit or for the Company.
In summary:
Operating Income
Ratio = (Actual Operating Income)/(Budgeted
Operating Income + Price Adjustment)
Price Adjustment = (Actual Average Oil Price - Budgeted
Oil Price) x Budgeted Net Interest
Oil Sales Volume
+ (Actual Average Gas Price -
Budgeted Gas Price) x Budgeted Net
Interest Gas Sales Volume
+ (Budgeted Severance Taxes - Actual
Severance Taxes)
VII. Reserve Addition Goal
For the purposes of defining Performance Goals related to reserve
additions, the following definitions and provisions apply.
A. Finding Cost
The cost of reserve additions utilizing the Company's
methodologies, statistics, reserve values, and accounting and
other data as calculated in the Company's sole judgment.
B. Reserve Additions
Reserve additions or reductions shall be based upon the estimates
of DeGolyer and MacNaughton submitted in the final report for a
calendar year. No adjustments will be made in future years for
revisions or adjustments made in these estimates in subsequent
years' reports.
VIII. Conflict of Interest
If at any time during the period the Participant is to receive or accrue
payments hereunder, the Participant engages in the employment, consulta-
tion or representation of any corporation, partnership, individual,
political subdivision, or any enterprise that is engaged in any action
or proceeding that could be reasonably construed as being adverse to the
interest of the Company, the Participant and his beneficiaries or heirs
shall forfeit all rights to receive payments of bonus awards provided
under this Plan regardless of whether or not such payments had been
previously approved by the Company; except that before any such termina-
tion under this section of the Participant's right to receive payments,
the Company shall notify the Participant in writing of its opinion about
the adversary situation, after which time the Participant shall have a
period of 15 days to correct the situation to the satisfaction of the
Company as to preclude benefit termination.
This provision shall apply to full-time and part-time employees of the
Company and to retired or terminated employees. For purposes of this
Plan, the Company shall determine within its sole discretion whether or
not the Participant's actions can be reasonably construed as adverse to
the Company's interests.
IX. Administrative Provisions
A. Discretion
Notwithstanding any calculation of bonus in accordance with the
foregoing provisions, the Chairman of Enserch Exploration, Inc.
may within his sole discretion alter or eliminate any bonus award
developed under this Plan in order to achieve equity in the
administration of the Plan within Enserch Exploration, Inc. as a
whole.
B. Termination
This Plan may be terminated at any time by the Company. Notifica-
tion of termination will be given to the then Participants. A
Plan termination will not prevent payment of bonuses where goal
achievement has been completed in a calendar year for which
Performance Goals had been approved. If the Plan is terminated
during a Plan year in which Performance Goals have been
established under the Plan, performance will be prorated and
bonuses paid proportionally. The Company's decision relative to
such payment shall be final and binding on all parties. Such
termination will be applicable to new bonus awards and will not
affect credited but unpaid bonus amounts from prior bonus years.
C. Effective Date
This Plan is effective with the calendar year commencing January
1, 1996 and for the ensuing calendar years until terminated.
D. No Contract
Nothing in this Performance Incentive Plan shall be deemed by
implication, action or otherwise to constitute a contract of
employment or otherwise to impose any limitation on any right of
the Corporation nor any of its operating units to terminate a
Participant's employment at any time.
E. Under provisions of the ENSERCH Retirement and Death Benefit
Program of 1969, this bonus program qualifies as an "annual
performance based incentive plan" and is to be included in "final
average pay" for purposes of pension calculations.
EXHIBIT 10.16
ENSERCH CORPORATION
DEFERRED COMPENSATION PLAN
THIS PLAN, made and executed at Dallas, Texas by ENSERCH
Corporation, a Texas corporation (the "Company"), is being
established primarily for the purpose of providing deferred
compensation for a select group of management or highly
compensated employees of the Company and its participating
affiliates.
ARTICLE I.
DEFINITIONS
Section 1.1 Definitions. Unless the context clearly
indicates otherwise, when used in this Plan:
(a) "Adjustment Date" means the last day of each
calendar quarter and such other dates as the Administrative
Committee in its discretion may prescribe.
(b) "Affiliated Company" means any corporation or
organization which together with the Company would be
treated as a single employer under Section 414 of the Code.
(c) "Administrative Committee" means the committee
designated pursuant to Section 2.1 to administer this Plan.
(d) "Board" means the Board of Directors of ENSERCH
Corporation.
(e) "Change of Control" means a change in control of a
nature that would be required to be reported in response to
Item 1(a) of the Securities and Exchange Commission Form
8-K, as in effect on the date hereof, pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934, as amended
("Exchange Act"), or would have been required to be so
reported but for the fact that such event had been
"previously reported" as that term is defined Rule 12b-2 of
Regulation 12B under the Exchange Act; provided that,
without limitation, such a change in control shall be deemed
to have occurred if (i) any Person is or becomes the
beneficial owner (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the
Company representing 20% or more of the combined voting
power of the Company's then outstanding securities
ordinarily (apart from rights accruing under special
circumstances) having the right to vote at elections of
directors ("Voting Securities"), or (ii) individuals who
constitute the Board on the date hereof (the "Incumbent
Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a
director subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was
approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board (either by a
specific vote or by approval of the proxy statement of the
Company in which such person is named as a nominee for
director, without objection to such nomination) shall be,
for purposes of this clause (ii), considered as though such
person were a member of the Incumbent Board, or (iii) a
recapitalization of the Company occurs which results in
either a decrease by 33% or more in the aggregate percentage
ownership of Voting Securities held by Independent
Shareholders (on a primary basis or on a fully diluted basis
after giving effect to the exercise of stock options and
warrants) or an increase in the aggregate percentage
ownership of Voting Securities held by non-Independent
Shareholders (on a primary basis or on a fully diluted basis
after giving effect to the exercise of stock options and
warrants) to greater than 50%. For purposes of this
subsection (e), the term "Person" shall mean and include any
individual, corporation, partnership, group, association or
other "person", as such term is used in Section 14(d) of the
Exchange Act, other than the Company, a subsidiary of the
Company or any employee benefit plan(s) sponsored or
maintained by the Company or any subsidiary thereof, and the
term "Independent Shareholder" shall mean any shareholder of
the Company except any employee(s) or director(s) of the
Company or any employee benefit plan(s) sponsored or
maintained by the Company or any subsidiary thereof.
(f) "Code" means the Internal Revenue Code of 1986, as
amended from time to time.
(g) "Company" means ENSERCH Corporation and its
successors.
(h) "Compensation Committee" means the Compensation
Committee of the Board.
(i) "Deferral Account" means the account established
and maintained on the books of an Employer to record a
Participant's interest under this Plan attributable to
amounts credited to such Participant pursuant to Plan
Section 3.1 and Section 3.2.
(j) "Disability" means total and permanent disability
of the Participant as determined under the provisions of his
or her Employer's group long-term disability plan.
(k) "Election Period" means such period immediately
prior to the beginning of a Plan Year (or, with respect to
the Plan's first Plan Year, the period immediately prior to
October 1, 1994) specified by the Administrative Committee
for the making of deferral elections for such Plan Year
pursuant to Plan Sections 3.1 and 3.2.
(l) "Eligible Employee" means any employee of an
Employer who is one of a select group of management or
highly compensated employees and (i) whose annual base
salary equals or exceeds $125,000 or (ii) whose annual base
salary equals or exceeds $100,000 and whose position is of
significant impact on the operations of his or her Employer
as determined by the Administrative Committee in its
absolute discretion.
(m) "Employer" includes the Company and any Affiliated
Company which adopts this Plan.
(n) "Participant" means an Eligible Employee or former
Eligible Employee for whom a Deferral Account is being
maintained under this Plan.
(o) "Plan" means this ENSERCH Corporation Deferred
Compensation Plan as in effect from time to time on and
after October 1, 1994.
(p) "Plan Year" means the twelve-month period
commencing January 1 and ending the following December 31.
(q) "Retirement Age" means the age used as the
retirement age for the Participant under Section 216(l) of
the Social Security Act.
ARTICLE II.
PLAN ADMINISTRATION
Section 2.1 Administrative Committee. This Plan shall be
administered by an Administrative Committee composed of at least
three individuals appointed by the Compensation Committee. Each
member of the Administrative Committee so appointed shall serve
in such office until his or her death, resignation or removal by
the Compensation Committee. The Compensation Committee may
remove any member of the Administrative Committee at any time by
giving written notice thereof to the members of the
Administrative Committee. Vacancies shall likewise be filled
from time to time by the Compensation Committee. The
Administrative Committee shall have discretionary and final
authority to interpret and implement the provisions of the Plan,
including without limitation, authority to determine eligibility
for benefits under the Plan. The Administrative Committee shall
act by a majority of its members at the time in office and such
action may be taken either by a vote at a meeting or in writing
without a meeting. The Administrative Committee may adopt such
rules and procedures for the administration of the Plan as are
consistent with the terms hereof and shall keep adequate records
of its proceedings and acts. Every interpretation, choice,
determination or other exercise by the Administrative Committee
of any power or discretion given either expressly or by
implication to it shall be conclusive and binding upon all
parties having or claiming to have an interest under the Plan or
otherwise directly or indirectly affected by such action, without
restriction, however, on the right of the Administrative
Committee to reconsider and redetermine such action.
ARTICLE III.
DEFERRED COMPENSATION PROVISIONS
Section 3.1 Compensation Deferral Election. During the
Election Period prior to the beginning of each Plan Year, an
Eligible Employee may elect to have the payment of an amount of
up to 50% of the annual base salary otherwise payable by an
Employer to such Eligible Employee for such Plan Year deferred
for payment in the manner and at the time specified in
Article IV; provided, however, that the minimum amount that may
be deferred by an Eligible Employee for a Plan Year pursuant to
this Section 3.1 is $5,000 (or such other amount as shall be
determined by the Administrative Committee in its discretion).
The amount of annual base salary a Participant elects to defer
pursuant to this Section 3.1 shall be deducted from the
Participant's pay in substantially equal amounts over all pay
periods during the Plan Year. All elections made pursuant to
this Plan Section 3.1 shall be made in writing on a form
prescribed by and filed with the Administrative Committee and
shall be irrevocable; provided, however, that effective as of the
first day of any calendar quarter during a Plan Year, an Eligible
Employee may revoke his or her deferral election and thereby
suspend further salary deferrals for the remainder of such Plan
Year by providing written notice thereof to the Administrative
Committee no later than 15 days prior to the effective date of
such suspension. Any Eligible Employee who so suspends his or
her salary deferrals pursuant to this Section shall not be
permitted to elect future salary deferrals pursuant to this
Section to be effective earlier than the first day of the next
Plan Year.
Section 3.2 Bonus Deferral Election. During the Election
Period prior to the beginning of each Plan Year (other than the
first Plan Year), an Eligible Employee may elect to have the
payment of an amount up to 100% of the cash portion of any future
bonus otherwise payable by an Employer with respect to services
to be performed by such Eligible Employee during such Plan Year
deferred for payment in the manner and at the time specified in
Article IV; provided, however, that the minimum amount that may
be deferred by an Eligible Employee pursuant to this Section 3.2
is $5,000 (or such other amount as shall be determined by the
Administrative Committee in its discretion); provided, further,
that there shall be no minimum deferral amount pursuant to this
Section 3.2 with respect to an Eligible Employee who elects to
defer in the same Plan Year at least $5,000 (or such other amount
as shall be determined by the Administrative Committee in its
discretion) pursuant to Section 3.1. All elections made pursuant
to this Plan Section 3.2 shall be made in writing on a form
prescribed by and filed with the Administrative Committee and
shall be irrevocable.
Section 3.3 Participant Deferral Accounts. An Employer
shall establish and maintain on its books a Deferral Account for
each Eligible Employee employed by such Employer who elects to
participate in this Plan. Each such Deferral Account shall be
designated by the name of the Participant for whom it is
established. The amount of any base salary and/or cash bonus
from an Employer for a Plan Year that is deferred for a
Participant pursuant to Section 3.1 and/or Section 3.2 shall be
credited by such Employer to such Participant's Deferral Account
as of the date such amount would otherwise have been paid to such
Participant by such Employer. An Employer shall continue
maintaining a Deferral Account as long as a positive balance
remains credited to such Deferral Account.
Section 3.4 Deferral Account Adjustments. As of each
Adjustment Date, the amount credited to a Deferral Account shall
be adjusted to reflect such gain, loss and/or expenses incurred
based on the experience of the investments selected by the
Participant prior to the date prescribed by the Administrative
Committee for the investment of his or her Deferral Account and
taking into account additional deferrals credited to and
distributions made from such Deferral Account since the last
Adjustment Date. The Administrative Committee shall have sole
and absolute discretion with respect to the number and type of
investment choices made available for selection by Participants
pursuant to this Section, the timing of Participant elections and
the method by which adjustments are made. The designation of
investment choices by the Administrative Committee shall be for
the sole purpose of adjusting Deferral Accounts pursuant to this
Section and this provision shall not obligate the Employers to
invest or set aside any assets for the payment of benefits
hereunder; provided, however, that an Employer may invest a
portion of its general assets in investments, including
investments which are the same as or similar to the investment
choices designated by the Administrative Committee and selected
by Participants, but any such investments shall remain part of
the general assets of such Employer and shall not be deemed or
construed to grant a property interest of any kind to any
Participant, designated beneficiary or estate. The
Administrative Committee shall notify the Participants of the
investment choices available and the procedures for making and
changing investment elections.
Section 3.5 Vesting. Subject to Section 4.6, all amounts
credited to a Participant's Deferral Account shall be fully
vested and nonforfeitable at all times.
ARTICLE IV.
BENEFITS
Section 4.1 Source of Benefit Payments. Benefit payments
to be made with respect to a Participant's Deferral Account
maintained pursuant to the Plan will be paid in cash and will be
the obligation solely of the Employer maintaining such Deferral
Account; provided, however, that whenever a payment hereunder is
to be made by an Employer, the Company may, in its discretion,
satisfy such payment obligation on behalf of such Employer, and
the Company will be obligated to satisfy any such payment
obligation in the event the Employer otherwise liable therefor
fails to pay such amount when due for any reason.
Section 4.2 Amount of Benefit Payments. The amount payable
from a Participant's Deferral Account shall be determined based
upon the amount credited to such Deferral Account as of the
Adjustment Date last preceding the date of payment plus any
deferrals credited to and less any distributions made from such
Deferral Account since such Adjustment Date. The amount of each
payment made with respect to a Deferral Account and any
forfeiture amounts applied pursuant to Section 4.6 shall be
deducted from the balance credited to such Deferral Account at
the time of payment or forfeiture.
Section 4.3 Early Termination. Upon a Participant's
termination of employment with an Employer or Affiliated Company
prior to the date which is ten years prior to such Participant's
Retirement Age for any reason other than death, Disability or
transfer to employment with another Employer or Affiliated
Company, the amount payable from such Participant's Deferral
Account, as determined in accordance with Section 4.2, shall be
paid by the Employer to such Participant in a single lump sum as
soon as practicable following such termination of employment.
Section 4.4 Death. Upon a Participant's termination of
employment by reason of death, the amount payable from such
Participant's Deferral Account, as determined in accordance with
Section 4.2, shall be paid by the Employer to the beneficiary or
beneficiaries designated by such Participant pursuant to Section
4.7 in one of the following forms as elected by the Participant
during the Participant's initial Election Period:
(a) a single lump sum to be paid as soon as
practicable following the Participant's death; or
(b) if the amount payable from a Deferral Account is
$50,000 or more as of the date of the Participant's death,
annual installments over the period certain selected by the
Participant not to exceed 15 years commencing in payment as
soon as practicable following the Participant's death with
each annual installment equal to the Deferral Account
balance multiplied by a fraction the numerator of which is
one and the denominator of which is the number of payments
remaining;
provided, however, that if a beneficiary of a deceased
Participant who is entitled to installment payments hereunder
encounters an unforeseeable emergency (as determined in
accordance with Section 4.8 hereof), the Administrative
Committee, in its absolute discretion, may direct the Employer to
accelerate such portion of the installment payments as the
Administrative Committee shall determine to be necessary to
alleviate the severe financial hardship of the beneficiary caused
by such unforeseeable emergency.
Section 4.5 Retirement or Disability. Upon a Participant's
termination of employment with an Employer or Affiliated Company
(i) on or after the date which is ten years prior to such
Participant's Retirement Age for any reason other than death or
transfer to employment with another Employer or Affiliated
Company or (ii) on account of his or her Disability, the amount
payable from such Participant's Deferral Account, as determined
in accordance with Section 4.2, shall be paid by the Employer to
such Participant (or, in the event of his or her subsequent
death, to the beneficiary or beneficiaries designated by such
Participant pursuant to Plan Section 4.7) in one of the following
forms as elected by the Participant during the Participant's
initial Election Period:
(a) a single lump sum to be paid as soon as
practicable following the Participant's termination of
employment or, in the case of termination of employment on
account of Disability or prior to Retirement Age and the
Participant so elects, the Participant's Retirement Age; or
(b) if the amount payable from a Deferral Account is
$50,000 or more as of the date of the Participant's
termination of employment, annual installments over the
period certain selected by the Participant not to exceed 15
years commencing in payment as soon as practicable following
the Participant's termination of employment or, in the case
of termination of employment on account of Disability or
prior to Retirement Age and the Participant so elects, the
Participant's Retirement Age, with each annual installment
equal to the Deferral Account balance multiplied by a
fraction the numerator of which is one and the denominator
of which is the number of payments remaining;
provided, however, that if a Participant who is entitled to a
delayed lump sum or installment payments hereunder encounters an
unforeseeable emergency (as determined in accordance with Section
4.8 hereof), the Administrative Committee, in its absolute
discretion, may direct the Employer to accelerate such portion of
the lump sum or installment payments as the Administrative
Committee shall determine to be necessary to alleviate the severe
financial hardship of the Participant caused by such
unforeseeable emergency.
Section 4.6 Option to Request Immediate Payout. In lieu
of any other benefits or payments to be made pursuant to this
Plan, each Participant (or beneficiary in the case of a deceased
Participant) shall have the right at any time to elect a lump sum
payment in an amount equal to:
(a) the amount payable from the Participant's Deferral
Account, determined in accordance with Section 4.2, minus
(b) a forfeiture amount equal to 20% of (a) above,
provided, however, that if the election is made on or within
two years following the date a Change of Control occurs,
such forfeiture amount shall be determined substituting 10%
for 20%.
A Participant's election for an immediate payout pursuant to this
Section must be in the form of a written notice provided to the
Administrative Committee. The Administrative Committee shall
notify any Employer maintaining a Deferral Account with respect
to such Participant of the election and the amount so determined
shall be paid to the Participant (or, in the case of a deceased
Participant, to the beneficiary or beneficiaries designated by
such Participant pursuant to Plan Section 4.7) by the Employers
no later than fifteen days following receipt of notice by the
Administrative Committee. Any amount remaining credited to the
Participant's Deferral Account shall be forfeited at the time
payment is made.
Section 4.7 Designation of Beneficiaries. Any amount
payable under this Plan on account of the death of a Participant
shall be paid when otherwise due hereunder to the beneficiary or
beneficiaries designated by such Participant. Such designation
of beneficiary or beneficiaries shall be made in writing on a
form prescribed by and filed with the Administrative Committee
and shall remain in effect until changed by such Participant by
the filing of a new beneficiary designation form with the
Administrative Committee. If a Participant fails to so designate
a beneficiary, or in the event all of the designated
beneficiaries are individuals who either predecease the
Participant or survive the Participant but die prior to receiving
the full amount payable under this Plan, any remaining amount
payable under this Plan shall be paid to such Participant's
estate when otherwise due hereunder.
Section 4.8 Hardship Distributions. If a Participant
encounters an unforeseeable emergency, the Administrative
Committee in its absolute discretion may direct the Employer
maintaining such Deferral Account to pay to such Participant and
deduct from such Deferral Account such portion of the amount then
credited to such Deferral Account (including, if appropriate, the
entire amount determined in accordance with Section 4.2) as the
Administrative Committee shall determine to be necessary to
alleviate the severe financial hardship of such Participant
caused by such unforeseeable emergency. For this purpose, an
"unforeseeable emergency" shall be a severe financial hardship to
the Participant resulting from a sudden and unexpected illness or
accident of the Participant or of a dependent of the Participant,
loss of the Participant's property due to casualty, or other
similar extraordinary and unforeseeable circumstances arising as
a result of events beyond the control of the Participant. The
circumstances that will constitute an unforeseeable emergency
will depend upon the facts of each case, but in any case, payment
may not be made to the extent that such hardship is or may be
relieved (i) through reimbursement or compensation by insurance
or otherwise, (ii) by liquidation of the Participant's assets, to
the extent liquidation of such assets would not itself cause
severe financial hardship, or (iii) by cessation of deferrals
under the Plan. No distribution shall be made to a Participant
pursuant to this Section 4.8 unless such Participant requests
such a distribution in writing and provides to the Administrative
Committee such information and documentation with respect to his
or her unforeseeable emergency as may be requested by the
Administrative Committee.
Section 4.9 Change of Distribution Form. Each Participant
may elect at any time after a Participant's initial Election
Period, but no more often than once during each calendar year, to
change the distribution forms elected with respect to all amounts
credited to such Participant's Deferral Account; provided,
however, that such election shall not be effective unless made by
the end of the second calendar year preceding the calendar year
in which distributions are to be made or commence to such
Participant pursuant to Sections 4.4 or 4.5 hereof.
ARTICLE V.
AMENDMENT AND TERMINATION
Section 5.1 Amendment and Termination. The Compensation
Committee shall have the right and power at any time and from
time to time to amend this Plan, in whole or in part, on behalf
of all Employers, and the Board shall have the right and power at
any time to terminate this Plan or any Employer's participation
hereunder. Any amendment to or termination of this Plan shall be
made by or pursuant to a resolution duly adopted by the
Compensation Committee or the Board, as the case may be, and
shall be evidenced by such resolution or by a written instrument
executed by such person as the Compensation Committee or the
Board, as the case may be, shall authorize for such purpose. Any
provision of this Plan to the contrary notwithstanding, no
amendment to or termination of this Plan shall reduce the amounts
actually credited to a Participant's Deferral Accounts as of the
date of such amendment or termination, or further defer the dates
for the payment of such amounts, without the consent of the
affected Participant. Upon termination of this Plan, the Board,
in its sole discretion, may require the Administrative Committee
to calculate final Deferral Account balances as of such
Adjustment Date as it may prescribe, and direct each Employer to
make immediate lump sum payments to each Participant (or
beneficiary in the case of a deceased Participant) with respect
to which such Employer maintains a Deferral Account in the amount
determined to be credited to such Participant's Deferral Account
as of such final Adjustment Date.
Section 5.2 Change of Control. The preceding provisions of
this Article to the contrary notwithstanding, no action taken on
or within two years following a Change of Control to amend or
terminate this Plan shall be effective unless written consent
thereto is obtained from a majority of the Participants.
ARTICLE VI.
MISCELLANEOUS PROVISIONS
Section 6.1 Nature of Plan and Rights. This Plan is
unfunded and maintained by the Employers primarily for the
purpose of providing deferred compensation for a select group of
management or highly compensated employees of the Employers. The
Deferral Accounts established and maintained under this Plan by
an Employer are for its accounting purposes only and shall not be
deemed or construed to create a trust fund or security interest
of any kind for or to grant a property interest of any kind to
any Participant, designated beneficiary or estate. The amounts
credited by an Employer to Deferral Accounts maintained under
this Plan are and for all purposes shall continue to be a part of
the general assets and liabilities of such Employer, and to the
extent that a Participant, designated beneficiary or estate
acquires a right to receive a payment from such Employer pursuant
to this Plan, such right shall be no greater than the right of
any unsecured general creditor of such Employer.
Section 6.2 Spendthrift Provision. No Deferral Account
balance or other right or interest under this Plan of a
Participant, designated beneficiary or estate may be assigned,
transferred or alienated, in whole or in part, either directly or
by operation of law, and no such balance, right or interest shall
be liable for or subject to any debt, obligation or liability of
such Participant, designated beneficiary or estate.
Section 6.3 Employment Noncontractual. The establishment
of this Plan shall not enlarge or otherwise affect the terms of
any Participant's employment with an Employer, and such Employer
may terminate the employment of such Participant as freely and
with the same effect as if this Plan had not been established.
Section 6.4 Adoption by Other Employers. With the consent
of the Compensation Committee, this Plan may be adopted by any
Affiliated Company, such adoption to be effective as of the date
specified by such Affiliated Company at the time of adoption.
Section 6.5 Claims Procedure. If any person (hereinafter
called the "Claimant") feels that he or she is being denied a
benefit to which he or she is entitled under this Plan, such
Claimant may file a written claim for said benefit with the
Administrative Committee. Within sixty days following the
receipt of such claim the Administrative Committee shall
determine and notify the Claimant as to whether he or she is
entitled to such benefit. Such notification shall be in writing
and, if denying the claim for benefit, shall set forth the
specific reason or reasons for the denial, make specific
reference to the pertinent provisions of this Plan, and advise
the Claimant that he or she may, within sixty days following the
receipt of such notice, in writing request to appear before the
Administrative Committee or its designated representative for a
hearing to review such denial. Any such hearing shall be
scheduled at the mutual convenience of the Administrative
Committee or its designated representative and the Claimant, and
at any such hearing the Claimant and/or his or her duly
authorized representative may examine any relevant documents and
present evidence and arguments to support the granting of the
benefit being claimed. The final decision of the Administrative
Committee with respect to the claim being reviewed shall be made
within sixty days following the hearing thereon, and
Administrative Committee shall in writing notify the Claimant of
said final decision, again specifying the reasons therefor and
the pertinent provisions of this Plan upon which said final
decision is based. The final decision of the Administrative
Committee shall be conclusive and binding upon all parties having
or claiming to have an interest in the matter being reviewed.
Section 6.6 Reimbursement of Expenses. In the event that a
dispute arises between a Participant or beneficiary and the
Participant's Employer or the Company with respect to the payment
of benefits hereunder and the Participant or beneficiary is
successful in pursuing a benefit to which he or she is entitled
under the terms of the Plan against the Participant's Employer,
the Company or any other party in the course of litigation or
otherwise and incurs attorneys' fees, expenses and costs in
connection therewith, the Participant's Employer and the Company
shall reimburse the Participant or beneficiary for the full
amount of any such attorneys' fees, expenses and costs.
Section 6.7 Withholding Tax. There shall be deducted from
all amounts paid under this Plan any taxes required to be
withheld by any Federal, state, local or other government. The
Participant and/or his or her beneficiary (including his or her
estate) shall bear all taxes on amounts paid under this Plan to
the extent that no taxes are withheld, irrespective of whether
withholding is required.
Section 6.8 Applicable Law. This Plan shall be governed
and construed in accordance with the internal laws (and not the
principles relating to conflicts of laws) of the State of Texas,
except where superseded by federal law.
IN WITNESS WHEREOF, this Plan has been executed on this 30th
day of September, 1994 to be effective as of October 1, 1994.
ENSERCH CORPORATION
By /s/ D. W. Biegler
Title: Chairman, President
and Chief Executive
Officer
<PAGE>
<PAGE>
AMENDMENT NO. 1 TO THE
ENSERCH CORPORATION
DEFERRED COMPENSATION PLAN
Pursuant to the provisions of Section 5.1 thereof, the
ENSERCH Corporation Deferred Compensation Plan (the "Plan") is
hereby amended in the following respect only:
Article III of the Plan is hereby amended effective as of
January 1, 1995 by adding the following new Section to the end
thereof:
Section 3.6 Deferred Compensation Awards. Effective
as of January 1, 1995, the President of ENSERCH Corporation
may enter into "Deferred Compensation Award Agreements" with
such Eligible Employees as may from time to time be approved
by the Compensation Committee. Such Agreements shall
provide for the grant of a deferred compensation award,
either fixed as to amount or determinable pursuant to a
formula, to the Eligible Employee subject to such vesting
requirements, including performance criteria, as shall be
approved by the Compensation Committee. The amount of any
deferred compensation award which vests pursuant to the
terms of a Deferred Compensation Award Agreement entered
into with an Eligible Employee shall be credited to such
Participant's Deferral Account as of the date of such
vesting, if such individual is an Eligible Employee as of
the date of vesting, and any such vested award so credited
to a Deferral Account shall for all purposes be considered
to be, and shall be treated in the same manner as, a
deferral credited to such Deferral Account. The
Administrative Committee may maintain separate subaccounts
within a Participant's Deferral Account for amounts
attributable to deferrals and deferred compensation awards
if separate identification is desired, but the amounts
credited to any subaccounts shall be treated the same for
all purposes of this Plan.
IN WITNESS WHEREOF, this Amendment has been executed this
28th day of March, 1995.
ENSERCH CORPORATION
By /s/ D. W. Biegler
Title: Chairman and President
<PAGE>
<PAGE>
AMENDMENT NO. 2 TO THE
ENSERCH CORPORATION
DEFERRED COMPENSATION PLAN
Pursuant to the provisions of Section 5.1 thereof, the
ENSERCH Corporation Deferred Compensation Plan (the "Plan") is
hereby amended in the following respects only:
FIRST: Effective as of January 1, 1996, Article I, Section
1.1 of the Plan is hereby amended by restating subsection (i)
thereof to read as follows:
(i) "Deferral Account" means the account established
and maintained on the books of an Employer to record a
Participant's interest under this Plan attributable to
amounts credited to such Participant pursuant to Plan
Sections 3.1, 3.2, 3.6 and 3.7.
SECOND: Effective as of January 1, 1996, Article I, Section
1.1 of the Plan is hereby amended by adding the following new
subsections to the end thereof:
(r) "Compensation" shall mean Compensation as defined
in Section 1.2(f) of the ENSERCH Corporation Employee Stock
Purchase and Savings Plan.
(s) "Contribution Service" shall mean Contribution
Service as described in Section 2.1 of the ENSERCH
Corporation Employee Stock Purchase and Savings Plan.
THIRD: Effective as of January 1, 1996, Article III of the
Plan is hereby amended by adding the following new section to the
end thereof:
Section 3.7 Employer Contributions.
(a) Matching Contributions. For each payroll period,
each Employer shall make a matching contribution to the Plan
for each Participant who is an Eligible Employee during such
pay period in an amount which will equal:
(1) with respect to a Participant who has
completed less than five years of Contribution Service
as of the end of that pay period, 30% of the amounts
deferred by such Participant pursuant to Section 3.1
for that pay period to the extent that such amounts
deferred do not exceed 2% of such Participant's
Compensation for such pay period;
(2) with respect to a Participant who has
completed at least five but less than fifteen years of
Contribution Service as of the end of that pay period,
40% of the amounts deferred by such Participant
pursuant to Section 3.1 for that pay period to the
extent that such amounts deferred do not exceed 3% of
such Participant's Compensation for such pay period;
(3) with respect to a Participant who has
completed at least fifteen but less than twenty-five
years of Contribution Service as of the end of that pay
period, 50% of the amounts deferred by such Participant
pursuant to Section 3.1 for that pay period to the
extent that such amounts deferred do not exceed 4% of
such Participant's Compensation for such pay period;
and
(4) with respect to a Participant who has
completed at least twenty-five years of Contribution
Service as of the end of that pay period, 60% of the
amounts deferred by such Participant pursuant to
Section 3.1 for that pay period to the extent that such
amounts deferred do not exceed 5% of such Participant's
Compensation for such pay period.
Employer matching contributions made under this Plan for a
Participant shall be credited each month to such
Participant's Deferral Account under the Plan.
(b) Discretionary Contributions. In addition to the
Employer contributions made pursuant to Section 3.7(a), for
each Plan Year each Employer shall contribute to the Plan as
an Employer contribution such amount, if any, to be
determined by the Compensation Committee. Any Employer
contribution made for a Plan Year pursuant to this Section
shall be credited to the Deferral Accounts of those
Participants specified by the Compensation Committee in the
manner determined by the Compensation Committee in its
absolute discretion.
IN WITNESS WHEREOF, this Amendment has been executed this
1st day of January, 1996.
ENSERCH Corporation
By /s/ D. W. Biegler
Title: President
<PAGE>
EXHIBIT 10.20
February 13, 1996
--------------------
--------------------
--------------------
Dear :
-----------------
On February 13, 1996, the Board of Directors of Enserch Exploration,
Inc. authorized the following Change in Control Agreement upon the
condition that your Change in Control Agreement with ENSERCH Corporation
dated February 21, 1989, as amended on December 4, 1995 be canceled and all
rights thereunder terminated. This new agreement replaces the above-referenced
agreement with ENSERCH Corporation in its entirety. The
principal changes in this agreement from the previous agreement with
ENSERCH Corporation are summarized in a separate list provided herewith.
Enserch Exploration, Inc. (the "Company") considers the establishment
and maintenance of a sound and vital management to be essential to
protecting and enhancing the best interest of the Company and its
shareholders. In this connection, the Company recognizes that, as is the
case with many publicly held corporations, the possibility of a change in
control may exist and that such possibility, and the uncertainty and
questions which it may raise among management, may result in the departure
or distraction of management personnel to the detriment of the Company and
its shareholders. Accordingly, the Company's Board of Directors (the
"Board") has determined that appropriate steps should be taken to reinforce
and encourage the continued attention and dedication of members of the
Company's, its division's and subsidiaries' management including yourself,
to their assigned duties without distraction in the face of the potentially
disturbing circumstances arising from the possibility of a change in
control of the Company.
In order to induce you to remain in the employ of the Company, this
Agreement sets forth certain benefits which the Company agrees will be
provided to you in the event there is a termination of your employment with
the Company that is associated with (as described in Section 3 hereof) a
"change in control of the Company" (as defined in Section 2 hereof) under
the circumstances described below.
1. TERM. This Agreement shall have an initial term expiring on the
earlier of (a) the third anniversary of the date hereof, assuming there has
been no change in control of the Company, or (b) your Normal Retirement
Date as defined herein; provided, however, that upon each anniversary date
of this Agreement the term of this Agreement under clause (a) (as the same
may be extended by this proviso) shall be automatically extended annually
for an additional period of one (1) year on a continuing basis unless
either party shall give written notice of intention not to so extend at
least six (6) months prior to such anniversary date. No notice by the
Company of its intention not to extend shall be effective if, within one
year prior to the original expiration date, or if this Agreement is in a
renewal period, within one year prior to the termination date proposed by
the Company, the Company has received notice, official or unofficial, or
otherwise has reason to believe that a Person (as defined herein) has taken
or is considering steps that would when completed bring about a change in
control of the Company. This Agreement shall in any case continue in
effect for three (3) years following a change in control of the Company.
2. CHANGE IN CONTROL. For purposes of this Agreement, a "change in
control of the Company" or a "change in control" shall mean a change in
control of a nature that would be required to be reported in response to
Item l(a) of the Current Report on Form 8-K, as in effect on the date
hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended ("Exchange Act") or would have been required to be so
reported but for the fact that such event had been "previously reported" as
that term is defined in Rule 12b-2 of Regulation 12B of the Exchange Act;
provided that, without limitation such a change in control shall be deemed
to have occurred if (a) any Person is or becomes the beneficial owner (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 20% or more of the combined voting
power of the Company's then outstanding securities ordinarily (apart from
rights accruing under special circumstances) having the right to vote at
elections of directors ("Voting Securities"), or (b) individuals who
constitute the Board on the date hereof (the "Incumbent Board") cease for
any reason to constitute at least two-thirds thereof, provided that any
person becoming a director subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was approved by a
vote of at least three-quarters of the directors comprising the Incumbent
Board (either by a specific vote or by approval of the proxy statement of
the Company in which such person is named as a nominee for director,
without objection to such nomination) shall be, for purposes of this clause
(b), considered as though such person were a member of the Incumbent Board,
or (c) a recapitalization of the Company occurs which results in either a
decrease by 33% or more in the aggregate percentage ownership of Voting
Securities held by Independent Shareholders (on a primary basis or on a
fully diluted basis after giving effect to the exercise of stock options
and warrants) or an increase in the aggregate percentage ownership of
Voting Securities held by non-Independent Shareholders (on a primary basis
or on a fully diluted basis after giving effect to the exercise of stock
options and warrants) to greater than 50%, or (d) the shareholders of the
Company have approved an agreement to merge or consolidate with or into
another corporation or an agreement to sell or otherwise dispose of all or
substantially all of the Company's assets (including a plan of
liquidation), or (e) ENSERCH Corporation reduces its ownership of the
Company's Voting Securities to below 50%, or (f) a change in control of
ENSERCH Corporation occurs during such time as ENSERCH Corporation owns 50%
or more of the Company's Voting Securities. For purposes of this
Agreement, a change in control of ENSERCH Corporation is defined in Exhibit
A hereto. For purposes of this Agreement, the term "Person" shall mean and
include any individual, corporation, partnership, group, association or
other "person," as such term is used in Section 14(d) of the Exchange Act,
other than ENSERCH Corporation, a subsidiary of ENSERCH Corporation or any
employee benefit plan(s) sponsored or maintained by ENSERCH Corporation or
any subsidiary thereof, and the term "Independent Shareholder" shall mean
any shareholder of the Company except any employee(s) or director(s) of the
Company or any employee benefit plan(s) sponsored or maintained by the
Company or any subsidiary thereof.
3. TERMINATION ASSOCIATED WITH A CHANGE IN CONTROL. If and only if
any of the events described in Section 2 hereof constituting a change in
control of the Company shall occur, you shall be entitled to the benefits
provided in Section 4 hereof upon the termination of your employment as
provided in this Section 3 within six (6) months prior to such change in
control, or within six (6) months prior to the date that the Board of
Directors of the Company authorizes a merger, consolidation or other
transaction or event that if consummated would constitute a change in
control and such action is consummated (collectively herein referenced to
as "termination preceding a change in control"), or within three (3) years
after such change in control, unless such termination is (a) because of
your death, or Retirement on or after your Normal Retirement Date (that is,
early retirement initiated by the Company shall be treated as a dismissal
and not a voluntary early retirement), (b) by the Company for Cause or
Disability or (c) by you other than for Good Reason (including voluntary
early retirement when there is no concurrent Good Reason) (In the case of
termination preceding a change in control, references in the definition of
"Good Reason" to conditions in effect immediately prior to a change in
control shall be deemed to mean conditions in effect immediately prior to
your termination.) References to actions by and employment with the
Company shall include actions by and employment with the divisions and
subsidiaries of the Company where the context so requires.
(i) Disability; Retirement.
(A) If, as a result of your incapacity due to physical or
mental illness, you shall have been unable for more than six
(6) months to perform your duties with the Company on a full
time basis, and within thirty (30) days after written notice of
termination is given you shall not have returned to the full
time performance of your duties, the Company may terminate your
employment for "Disability."
(B) Termination of your employment based on "Retirement"
shall mean retirement in accordance with the terms of the
Retirement and Death Benefit Plan of 1969 of ENSERCH
Corporation and Participating Subsidiary Companies as in effect
on January 1, 1996, or any successor plan thereto or
replacement retirement plan of the Company (the "Retirement
Plan"), including early retirement, or in accordance with any
retirement arrangement established with your consent with
respect to you. "Normal Retirement Date" as used herein shall
have the meaning provided in the Retirement Plan or any
successor or substitute plan or plans of the Company put into
effect prior to a change in control of the Company.
(ii) Cause. Termination of your employment by the Company for
"Cause" shall mean termination upon (A) the willful and continued
failure by you substantially to perform your duties with the Company
(other than any such failure resulting from your incapacity due to
physical or mental illness), after a demand for substantial
performance is delivered to you by the Chairman or President of the
Company which specifically identifies the manner in which such
executive believes that you have not substantially performed your
duties, and a reasonable period of opportunity for such substantial
performance is provided, or (B) the willful engaging by you in
illegal misconduct materially and demonstrably injurious to the
Company. For purposes of this paragraph, no act, or failure to act,
on your part shall be considered "willful" unless done, or omitted to
be done, by you not in good faith and without reasonable belief that
your action or omission was in the best interest of the Company. Any
act, or failure to act, based upon authority given pursuant to a
resolution duly adopted by the Board or based upon the advice of
counsel for the Company shall be conclusively presumed to be done, or
omitted to be done, by you in good faith and in the best interest of
the Company. Notwithstanding the foregoing, you shall not be deemed
to have been terminated for Cause unless and until there shall have
been delivered to you a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters of the entire
membership of the Board at a meeting of the Board called and held for
that purpose (after reasonable notice to you and an opportunity for
you, together with your counsel, to be heard before the Board),
finding that in the good faith opinion of the Board you were guilty
of conduct set forth above in clauses (A) or (B) in this paragraph
and specifying the particulars thereof in detail.
(iii) Good Reason. "Good Reason" for you to terminate your
employment shall mean:
(A) an adverse change in your status or position(s) as an
executive of the Company as in effect immediately prior to the change
in control, including, without limitation, any adverse change in your
status or position as a result of a material diminution in your
duties or responsibilities (other than, if applicable, any such
change directly attributable to the fact that less than 50% of the
Company's voting securities are publicly owned or the fact that your
position becomes a position with a subsidiary or division), or a
material change in your business location or the assignment to you of
any duties or responsibilities which are inconsistent with such
status or position(s), or a substantial increase in your business
travel, or any removal of you from or any failure to reappoint or
reelect you to such position(s) (except in connection with the
termination of your employment for Cause, Disability or Retirement or
as a result of your death or by you other than for Good Reason);
(B) a reduction by the Company in your base salary as in effect
immediately prior to the change in control or in the number of
vacation days to which you are then entitled under the Company's
normal vacation policy as in effect immediately prior to the change
in control;
(C) the taking of any action by the Company (including the
elimination of a plan without providing substitutes therefor or the
reduction of your awards thereunder) that would diminish or the
failure by the Company to take any action which would maintain the
aggregate projected value of your awards under the Company's bonus,
stock option or management incentive unit plans in which you were
participating at the time of a change in control of the Company;
(D) the taking of any action by the Company that would diminish
or the failure by the Company to take any action which would maintain
the aggregate value of the benefits provided you under the Company's
medical, health, dental, accident, disability, life insurance, stock
purchase or retirement plans in which you were participating at the
time of a change in control of the Company;
(E) the taking of any action by the Company that would diminish
or the failure of the Company to take any action that would maintain
indemnification or insurance for officers' liability; or
(F) a failure by the Company to obtain from any Successor (as
hereinafter defined) the assent to this Agreement contemplated by
Section 6 hereof; or
(G) any purported termination by the Company of your employ-
ment that is not effected pursuant to a Notice of Termination
satisfying the requirements of paragraph (iv) below (and, if
applicable, paragraph (ii) above); for purposes of this Agreement, no
such purported termination shall be effective.
(iv) Notice of Termination. Any termination by the Company
pursuant to paragraphs (i) or (ii) above or by you pursuant to
paragraph (iii) above shall be communicated by written Notice of
Termination to the other party hereto. In the event of termination
preceding a change in control, written Notice of Termination to the
other party hereto shall be communicated within thirty (30) days
following a change in control in order to reflect termination by the
Company pursuant to paragraphs (i) or (ii) above or by you pursuant
to paragraph (iii) above. For purposes of this Agreement, a "Notice
of Termination" shall mean a notice specifying the termination
provision in this Agreement relied upon and setting forth in
reasonable detail the facts and circumstances claimed to provide a
basis for termination of your employment under the provision so
specified.
(v) Date of Termination. "Date of Termination" shall mean (A)
if your employment is terminated for Disability, thirty (30) days
after Notice of Termination is given (provided that you shall not
have returned to the performance of your duties on a full-time basis
during such thirty (30) day period), (B) if you terminate your
employment pursuant to paragraph (iii) above, the date specified in
the Notice of Termination, (C) in the case of a termination preceding
a change in control, the date of discharge if termination is by the
Company or the date notice of intention to leave is given by the
executive in the case of termination for Good Reason, and (D) if your
employment is terminated for any other reason except death or
Retirement, the date on which Notice of Termination is given.
4. COMPENSATION UPON CHANGE IN CONTROL, TERMINATION OR DURING
DISABILITY.
(i) Compensation During Disability. During any period that
you fail to perform your duties hereunder as a result of incapacity
due to physical or mental illness, you shall continue to receive your
full base salary at the rate then in effect, and any time of service
for vesting purposes under any plan shall continue to accrue during
such period of incapacity until and if your employment is terminated
pursuant to Section 3(i) hereof (and for any longer period as may be
provided under applicable plans).
(ii) Compensation Upon Termination for Cause. If your
employment is terminated for Cause, the Company shall pay you your
full base salary and accrued vacation pay through the Date of
Termination at the rate in effect at the time Notice of Termination
is given plus any benefits or awards (including both the cash and
stock components) which pursuant to the terms of any plans have been
earned or become payable, but which have not yet been paid to you,
and shall have no further obligations to you under this Agreement.
(iii) Compensation Upon Termination Other than For Disability
or Cause or Good Reason. Subject to Section 8 hereof, if the Company
terminates your employment other than for Disability or Cause
pursuant to Section 3(i) or (ii) hereof or if you terminate your
employment for Good Reason (which termination may be effected by
Retirement prior to your Normal Retirement Date), then the Company
shall pay to you (without regard to the provisions of any benefit
plan) in a lump sum on or before the tenth business day following the
Date of Termination ("Payment Date") an amount equal to the sum of
the following paragraphs (A) through (F), reduced by any of such
amounts already paid and the value of any severance amounts agreed to
between you and the Company and paid at the time of severance from
the Company in the case of a termination preceding a change in
control:
(A) Your full base salary through the Date of
Termination at the rate in effect just prior to the time Notice
of Termination is given, plus any earned vacation time, plus
any benefits or awards (including both the cash and stock
components) which pursuant to the terms of any plans have been
earned or become payable, but which have not yet been paid to
you; plus
(B) An amount equal to the greater of your largest
target bonus during either of the two years preceding the year
in which the change in control occurs or your target bonus for
the year in which the Date of Termination occurs, prorated for
the current year; plus
(C) An amount equal to three times your "Annual
Compensation", as defined below, provided however, that such
amount shall in no event exceed the Annual Compensation you
would have otherwise received had your employment continued at
such rate until your Normal Retirement Date ("Annual
Compensation" shall mean the greater of your annual base salary
on the Date of Termination or your highest annual base salary
in effect during either of the two years immediately prior to
the change in control plus an amount equal to the greater of
your target bonus for the year in which the Date of Termination
occurs or your highest target bonus during either of the two
years immediately prior to the change in control); plus
(D) An amount equal to the balance contained in your
account in the Management Incentive Program Unit Plan; plus
(E) If you choose to receive cash for some or all
unexercised Company stock options in lieu of exercising such
options, which choice shall be communicated by you in writing
to the Company, an amount equal to the market value of the
Company's common stock on the Date of Termination or on any
other date within 180 days preceding the Date of Termination,
on whichever date the value is highest, multiplied by the
number of options granted to you prior to the Date of
Termination (you should seek legal advice before choosing to
receive cash for options held less than six (6) months) under
any stock option plan of the Company or other arrangement
pursuant to which options to purchase common stock of the
Company have been issued and which have not been exercised
through the Payment Date, less the aggregate value of the
option price of such options; and plus
(F) If you choose to receive cash for some or all
unexercised ENSERCH Corporation stock options in lieu of
exercising such options, which choice shall be communicated by
you in writing to ENSERCH Corporation, an amount equal to the
market value of ENSERCH Corporation's common stock on the Date
of Termination or on any other date within 180 days preceding
the Date of Termination, on whichever date the value is
highest, multiplied by the number of options granted to you
prior to the Date of Termination under any stock option plan of
ENSERCH Corporation or other arrangement pursuant to which
options to purchase common stock of ENSERCH Corporation have
been issued and which have not been exercised through the
Payment Date, less the aggregate value of the option price of
such options.
(iv) Discharge of Company's Obligation. The payment to you of
appropriate amounts under paragraphs (D), (E) and (F) shall be
considered for all purposes a discharge of all obligations pursuant
to such plans except as to options not cashed out under paragraphs
(E) and (F).
(v) Base Salary; Severance Pay. For purposes of this
Agreement, the term "base salary" shall include any amounts deducted
pursuant to Sections 125 and 401K of the Internal Revenue Code of
1986, as amended (the "Code"), and any amounts deducted under the
ENSERCH Corporation Deferred Compensation Plan. Amounts paid pursuant
to this paragraph shall be deemed severance pay and in lieu of any
further salary for periods subsequent to the Date of Termination.
(vi) Gross-Up Provision. In the event that you become
entitled to the payments provided by Sections 4(iii) hereof (the
"Agreement Payments"), if any of the Agreement Payments will be
subject to the tax (the "Excise Tax") imposed by Section 4999 of the
Code (or any similar tax that may hereafter be imposed), the Company
shall pay to you at the time specified in Subsection (vii) below an
additional amount (the "Gross-up Payment") such that the net amount
retained by you, after deduction of any Excise Tax on the Total
Payments (as hereinafter defined) and any federal, state and local
income tax and Excise Tax upon the Gross-up Payment provided for by
this subsection (vi), but before deduction for any federal, state or
local income tax on the Agreement Payments, shall be equal to the
"Total Payments," as defined below.
For purposes of determining whether any of the Agreement
Payments will be subject to the Excise Tax and the amount of such
Excise Tax, (a) any other payments or benefits received or to be
received by you in connection with a change in control of the Company
or your termination of employment (whether pursuant to the terms of
this Agreement or any other plan, arrangement or agreement with the
Company, any person whose actions result in a change of control of
the Company or any person affiliated with the Company or such person)
(which, together with the Agreement Payments, shall constitute the
"Total Payments") shall be treated as "parachute payments" within the
meaning of Section 280G(b)(2) of the Code, and all "excess parachute
payments" within the meaning of Section 280G(b)(l) of the Code shall
be treated as subject to the Excise Tax, unless in the opinion of tax
counsel selected by the Company's independent auditors such other
payments or benefits (in whole or in part) do not constitute
parachute payments, or such excess parachute payments (in whole or in
part) represent reasonable compensation for services actually
rendered within the meaning of Section 280G(b)(4) of the Code in
excess of the base amount within the meaning of Section 280G(b)(3) of
the Code or are otherwise not subject to the Excise Tax, (b) the
amount of the Total Payments which shall be treated as subject to the
Excise Tax shall be equal to the lesser of (1) the total amount of
the Total Payments or (2) the amount of excess parachute payments
within the meaning of Section 280G(b)(l) of the Code (after applying
clause (a), above), and (c) the value of any non-cash benefits or any
deferred payment or benefit shall be determined by the Company's
independent auditors in accordance with the principles of Sections
280(G)(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-up Payment,
you shall be deemed to pay federal income taxes at the highest
marginal rate of federal income taxation for the calendar year in
which the Gross-up Payment is to be made and the applicable state and
local income taxes at the highest marginal rate of taxation for the
calendar year in which the Gross-up Payment is to be made, net of the
maximum reduction in federal income taxes which could be obtained
from deduction of such state and local taxes. In the event that the
Excise Tax is subsequently determined to be less than the amount
taken into account hereunder at the time the Gross-up Payment is
made, you shall repay to the Company at the time that the amount of
such reduction in Excise Tax is finally determined the portion of the
Gross-up Payment attributable to such reduction (plus the portion of
the Gross-up Payment attributable to the Excise Tax and federal and
state and local income tax imposed on the portion of the Gross-up
Payment being repaid by you if such repayment results in a reduction
in Excise Tax and/or a federal and state and local income tax
deduction), plus interest on the amount of such repayment at the rate
provided in Section 1274(b)(2)(B) of the Code. In the event that the
Excise Tax is determined to exceed the amount taken into account
hereunder at the time the Gross-up Payment is made (including by
reason of any payment the existence or amount of which cannot be
determined at the time of the Gross-up Payment), the Company shall
make an additional gross-up payment in respect of such excess (plus
any interest payable with respect to such excess) at the time that
the amount of such excess is finally determined.
(vii) Time of Gross-Up Payment; Estimated Payments; Loan
Provision. The Gross-up Payment or portion thereof provided for in
Subsection (vi) above shall be paid not later than the thirtieth day
following payment of any amounts under Sections 4(iii); provided,
however, that if the amount of such Gross-up Payment or portion
thereof cannot be finally determined on or before such day, the
Company shall pay to you on such day an estimate, as determined in
good faith by the Company, of the minimum amount of such payments and
shall pay the remainder of such payments (together with interest at
the rate provided in Section 1274(b)(2)(B) of the Code) as soon as
the amount thereof can be determined, but in no event later than the
forty-fifth day after payment of any amounts under Section 4(iii).
In the event that the amount of the estimated payments exceeds the
amount subsequently determined to have been due, such excess shall
constitute a loan by the Company to you, payable on the fifth day
after demand by the Company (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code).
(viii) Continuation of Certain Benefits. If the Company
terminates your employment other than for Disability or Cause
pursuant to Section 3(i) or 3(ii) hereof or if you terminate your
employment for Good Reason (either of which termination may be
effected by Retirement prior to your Normal Retirement Date), the
Company shall assign to you any club membership held for your benefit
and the Company shall maintain in full force and effect for your
continued benefit for a period terminating on the earliest of (A)
three years after the Date of Termination or (B) your Normal Retire-
ment Date, all life, health, accident and disability insurance plans
and programs in which you were a participant immediately prior to the
Date of Termination, provided that your continued participation is
possible under the terms and provisions of such plans and programs.
In the event that your participation in any such plan or program is
barred, the Company shall provide you with benefits substantially
similar to those to which you would be entitled as a participant in
such plans and programs. Any required statutory period of COBRA
health benefit continuation that terminated employees may elect shall
not begin until the end of the period of coverage provided hereby.
The benefits provided under this Section, other than assignment of
any club membership, shall be reduced to the extent of benefits
received by you from another employer. At the end of the period of
coverage, you shall have the option to have assigned to you, at no
cost and with no apportionment of prepaid premiums, any assignable
insurance policy owned by the Company and relating specifically to
you.
(ix) Lump Sum Payment for Additional Two Years of Service. If
you are not a participant in the Retirement Income Restoration Plan
of ENSERCH Corporation ("RIRP") (the RIRP has provisions comparable to
this subparagraph (ix)) when your employment with the Company is
terminated within the first three years after a change in control, by
the Company without Cause or by you for Good Reason, you shall
receive from the Company, at the time you first receive any payment
under or with respect to the Retirement Plan, an amount (calculated
and paid in the form of a lump sum) equal to the difference between
(i) the "Lump Sum", as defined below, value of any payment you receive
at such time (or any monthly annuities that you then become entitled
to receive) from (a) the Retirement Plan and (b) from the Company
with respect to the portion, if any, of your Retirement Plan pension
which exceed the limitations on pension amounts to which the
Retirement Plan is subject and (ii) the Lump Sum value of payments
that would have been payable if it or they had been calculated as if
you had been deemed to have had two (2) additional "Years of Service",
as defined below. "Years of Service" shall be as defined in the
Retirement Plan and shall be applied as if you were a participant
thereunder at the time of your termination of employment, and "Lump
Sum" shall mean an amount calculated in accordance with the interest
rate and other actuarial assumptions set forth or used in connection
with lump sum calculations under the Retirement Plan.
(x) Lump Sum Payment if Not Vested under Retirement Plan. If
you are not vested under the Retirement Plan when your employment
with the Company is terminated within the first three years after a
change in control by the Company without Cause or by you for Good
Reason, you shall receive from the Company at the time payments are
made pursuant to paragraph (iii) above, an amount (calculated and
paid in a lump sum) equal to the Lump Sum value of any payment you
would have been entitled to receive at your Normal Retirement Date
(or any annuities that you would have been entitled to receive) from
the Retirement Plan and the RIRP calculated (a) as if you were 100%
vested under such plans and (b) using actual years of service
increased by two (2) additional Years of Service.
(xi) Mitigation. You shall not be required to mitigate the
amount of any payment provided for in this Section 4 by seeking other
employment or otherwise, nor (except as provided in Section 4(viii))
shall the amount of any payment or benefit provided for in this
Section 4 be reduced by any compensation earned or benefit received
by you as the result of employment by another employer after the Date
of Termination, or otherwise.
(xii) Deferred Payment Election. Upon entering into this
Agreement and for a period of 14 days following each anniversary of
the date hereof (the "Election Period"), you may, in writing, direct
the Company that any amounts which should become payable to you
pursuant to Section 4(iii) hereof shall be paid to you in three (3)
equal annual installments, with the first such installment payable
within five (5) business days of the Date of Termination and each
successive installment paid on the anniversary of the Date of
Termination or the next following business day if such date is not a
business day (the "Deferred Payment Election"). A Deferred Payment
Election, once made, cannot be revoked except during an Election
Period; provided, however, that no Deferred Payment Election can be
made or revoked by you during an Election Period that occurs after a
change in control of the Company or at a time when, in the judgment
of the Company, a change in control may occur within sixty (60) days
of such Election Period. Notwithstanding anything in the foregoing
to the contrary, a Deferred Payment Election shall be automatically
revoked should you terminate your employment under the circumstances
described in Section 6 below.
5. EMPLOYEE'S COMMITMENT: RIGHT TO TERMINATE.
(i) Employee's Right to Terminate. Except as otherwise
provided in paragraph (ii) below, the Company or you may terminate
your employment at any time, subject to the Company's providing the
benefits specified herein in accordance with the terms hereof.
(ii) Employee's Commitment In Event of Tender or Exchange
Offer. In the event a tender offer or exchange offer is made by a
Person for more than 20% of the combined voting power of the
Company's Voting Securities, including shares of Common Stock of the
Company, you agree that you will not leave the employ of the Company
(other than as a result of Disability or upon Normal Retirement) and
will render the services contemplated in this Agreement until such
tender offer or exchange offer has been abandoned or terminated or a
change in control of the Company has occurred.
(iii) Employee's Duty. During the life of this Agreement, you
will faithfully perform your duties to the best of your ability and
in accordance with the directions of the Chief Executive Officer and
the Board of Directors, provided that after a change in control of
the Company such directions do not constitute Good Reason for you to
terminate your employment; and you will devote to the performance of
such duties your full working time, attention and energies.
(iv) Confidential and Proprietary Information. You will not
at any time during the life of this Agreement, or thereafter,
communicate or disclose to any unauthorized person, or use for your
own account, without the written consent of the Company, any
proprietary processes, or other confidential information of the
Company or any subsidiary concerning their business or affairs,
suppliers or customers, it being understood, however, that the
obligations of this paragraph shall not apply to the extent that the
aforesaid matters (A) are disclosed in circumstances in which you are
legally required to do so or (B) become generally known to and
available for use by the public otherwise than by your wrongful act
or omission.
6. SUCCESSOR'S BINDING AGREEMENT.
(i) Successor's Binding Agreement. The Company will seek, by
written request at least five (5) business days prior to the time a
Person becomes a Successor (as hereinafter defined), to have such
Person, by agreement in form and substance satisfactory to you,
assent to the fulfillment of the Company's obligations under this
Agreement. Failure of such Person to furnish such assent by the
later of (A) three business days prior to the time such Person
becomes a Successor or (B) two business days after such person
receives a written request to so assent shall constitute Good Reason
for termination by you of your employment if a change in control of
the Company occurs or has occurred. For purposes of this Agreement,
"Successor" shall mean any Person that succeeds to, or has the
practical ability to control (either immediately or with the passage
of time), the Company's business directly, by merger or
consolidation, or indirectly, by purchase of the Company's Voting
Securities or otherwise. Whether or not such assent is given by a
Successor, this Agreement shall be binding on the Successor and its
assigns.
(ii) Enforceability by Employee's Successors. This Agreement
shall inure to the benefit of and be enforceable by your personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If you should die before all
amounts that would still be payable to you hereunder if you had
continued to live are paid, all such unpaid amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this
Agreement to your devisee, legatee, or other designee or, if there be
no such designee, to your estate.
7. FEES AND EXPENSES. The Company shall pay all legal fees,
expenses of arbitration and related expenses incurred by you in connection
with this Agreement following a change in control of the Company,
including, without limitation, (a) all such fees and expenses, if any,
incurred in contesting or disputing any termination of your employment
following a change in control or incurred by you in seeking advice with
respect to the matters set forth in Section 6 hereof or (b) your seeking to
obtain or enforce any right or benefit provided by this Agreement.
8. TAXES. All payments to be made to you under this Agreement will
be subject to required withholding of applicable federal, state and local
taxes.
9. INTEREST. All payments due under this Agreement and unpaid shall
bear interest at the rate of 10% per annum, compounded daily, beginning on
the next ensuing day
after the Payment Date or such other date as they may be due.
10. NON-ALIENABILITY. Your interest under this Agreement is not
subject to anticipation, alienation, assignment or attachment and may not
be transferred or encumbered in any manner, either voluntarily or
involuntarily, and any attempt so to anticipate, alienate, sell, transfer,
assign, pledge, encumber, or charge the same shall be null and void;
neither shall the benefits hereunder be liable for or subject to your
debts, contracts, liabilities, engagement, or torts, nor shall they be
subject to garnishment, attachment, or other legal or equitable process nor
shall they be an asset in bankruptcy, except that not amount shall be
payable hereunder until and unless any and all amounts representing debts
or other obligations owed to any company by you shall have been fully paid
and satisfied.
11. SURVIVAL. The respective obligations of, and benefits afforded
to, the Company and you as provided in Sections 4, 5, 6, 7, 8, and 15 of
this Agreement shall survive termination of this Agreement.
12. NOTICE. Notices and all other communications provided for
herein shall be in writing and shall be deemed to have been duly given when
delivered or mailed by certified or registered mail, return receipt
requested, postage prepaid addressed to the respective addresses set forth
on the first page of this Agreement or to such other address as either
party may have furnished to the other in writing in accordance herewith,
except that notices of change of address shall be effective only upon
receipt. All notices to the Company shall be directed to the attention of
the Chief Executive Officer of the Company with a copy to the Secretary of
the Company.
13. MISCELLANEOUS. This Agreement does not supersede any other plan
of the Company or agreement with the Company. No provision of this
Agreement may be modified, waived or discharged except in writing
specifically referring to such provision and signed by you and such officer
as may be specifically designated by the Board of Directors of the Company.
No waiver at any time by either party hereto of the breach of any condition
or provision of this Agreement, or of compliance by the other party with
the same, shall be deemed a waiver of any other condition or provision at
the same or at any other time. No agreement or representation still in
effect, oral or otherwise, express or implied, with respect to the subject
matter hereof has been made by either party other than (i) those set forth
expressly in this Agreement or (ii) those in any stock option agreements,
restricted stock agreements, or deferred compensation agreements. The
validity, interpretation, construction and performance of this Agreement
shall be governed by the laws of the State of Texas.
14. VALIDITY. The invalidity or unenforceability of any provisions
of this Agreement shall not affect the validity or enforceability of any
other provision of this Agreement, which shall remain in full force and
effect.
15. ARBITRATION. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration
in the city nearest to your principal residence which has an office of the
American Arbitration Association by one arbitrator in accordance with the
rules of the American Arbitration Association then in effect. Judgment may
be entered on the arbitrator's award in any court having jurisdiction;
provided, however, that you shall be entitled to seek specific performance
of your right to be paid until the Date of Termination during the pendency
of any dispute or controversy arising under or in connection with this
Agreement. The Company shall bear all costs and expenses arising in
connection with any arbitration proceeding pursuant to this Section 15.
16. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
If this letter correctly sets forth our entire agreement on the
subject matter hereof including your agreement to cancel and terminate your
Change in Control Agreement with ENSERCH Corporation dated February 21,
1989 and as amended on December 4, 1995, kindly sign and return one copy of
this letter each to the Company and to ENSERCH Corporation which will then
constitute our agreement on this subject.
Sincerely,
Enserch Exploration, Inc.
By:
-----------------------
D. W. Biegler
ENSERCH Corporation
By:
-----------------------
AGREED to as of the date
first above written.
----------------------------
<PAGE>
EXHIBIT A
A "change in control of ENSERCH Corporation" shall mean a change in
control of a nature that would be required to be reported in response to
Item l(a) of the Current Report on Form 8-K, as in effect on the date
hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended ("Exchange Act") or would have been required to be so
reported but for the fact that such event had been "previously reported" as
that term is defined in Rule 12b-2 of Regulation 12B of the Exchange Act;
provided that, without limitation such a change in control shall be deemed
to have occurred if (a) any Person is or becomes the beneficial owner (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of ENSERCH Corporation representing 20% or more of the combined
voting power of ENSERCH Corporation's then outstanding securities
ordinarily (apart from rights accruing under special circumstances) having
the right to vote at elections of directors ("Voting Securities"), or (b)
individuals who constitute the ENSERCH Corporation Board on the date hereof
(the "Incumbent Board") cease for any reason to constitute at least two-thirds
thereof, provided that any person becoming a director subsequent to
the date hereof whose election, or nomination for election by ENSERCH
Corporation's shareholders, was approved by a vote of at least three-quarters
of the directors comprising the Incumbent Board (either by a
specific vote or by approval of the proxy statement of ENSERCH Corporation
in which such person is named as a nominee for director, without objection
to such nomination) shall be, for purposes of this clause (b), considered
as though such person were a member of the Incumbent Board, or (c) a
recapitalization of ENSERCH Corporation occurs which results in either a
decrease by 33% or more in the aggregate percentage ownership of Voting
Securities held by Independent Shareholders (on a primary basis or on a
fully diluted basis after giving effect to the exercise of stock options
and warrants) or an increase in the aggregate percentage ownership of
Voting Securities held by non-Independent Shareholders (on a primary basis
or on a fully diluted basis after giving effect to the exercise of stock
options and warrants) to greater than 50%, or (d) the shareholders of
ENSERCH Corporation have approved an agreement to merge or consolidate with
or into another corporation or an agreement to sell or otherwise dispose of
all or substantially all of ENSERCH Corporation's assets (including a plan
of liquidation). The term "Person", as used in this Exhibit A, shall mean
and include any individual, corporation, partnership, group, association or
other "person," as such term is used in Section 14(d) of the Exchange Act,
other than ENSERCH Corporation, a subsidiary of ENSERCH Corporation or any
employee benefit plan(s) sponsored or maintained by ENSERCH Corporation or
any subsidiary thereof, and the term "Independent Shareholder" shall mean
any shareholder of ENSERCH Corporation except any employee(s) or direc-
tor(s) of ENSERCH Corporation or any employee benefit plan(s) sponsored or
maintained by ENSERCH Corporation or any subsidiary thereof.
<PAGE> EXHIBIT 21
Enserch Exploration, Inc., its subsidiaries and their subsidiaries and
affiliates, respectively, on March 15, 1996, are listed below.
State or Country
Name of Company Incorporation
Enserch Exploration, Inc.(1) Texas
EEX Capital L.L.C. Texas
MIStS Issuer L.L.C.(2) Texas
Enserch Offshore, Inc. Texas
Enserch Oil & Gas, Inc. Texas
Enserch Preferred Capital, Inc. Delaware
DALEN Resources California Company Delaware
Corpus Christi Energy Company Delaware
Corpus Christi Hydrocarbons Company Delaware
Enserch International Oil & Gas, Inc. Texas
Enserch International Exploration Ltd. Cayman Islands
Enserch Far East Ltd. Cayman Islands
Enserch India, Inc. Texas
Enserch Malaysia Ltd. Cayman Islands
Enserch Middle East Ltd. Texas
Enserch (U.K.) Oil & Gas Limited United Kingdom
________________________________
(1) 17% owned by public shareholders.
(2) .999% owned by EEX Capital L.L.C. and .001% owned by Enserch Preferred
Capital, Inc.
Except as noted above, the voting stock of each subsidiary company and
their subsidiaries and affiliates is wholly owned (100%) by its parent. The
financial statements of each subsidiary are included in the consolidated
financial statements except that the equity method of accounting is used for
subsidiaries in which the Company has 50% or less ownership. Such
unconsolidated subsidiaries considered in the aggregate do not constitute a
significant subsidiary.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
Enserch Exploration, Inc.:
We consent to the incorporation by reference in Registration Statement No.
33-57715 and No. 33-60587 of Enserch Exploration, Inc. on Form S-8 of our report
dated February 9, 1996, appearing in this Annual Report on Form 10-K of Enserch
Exploration, Inc. for the year ended December 31, 1995.
DELOITTE & TOUCHE LLP
Dallas, Texas
March 26, 1996
<PAGE> EXHIBIT 23.2
DeGolyer and MacNaughton
One Energy Square
Dallas, Texas 75206
March 26, 1996
Enserch Exploration, Inc.
4849 Greenville Avenue
Dallas, Texas 75206
Gentlemen:
We hereby consent to (a) the references to us in "Business - General -
Recent Developments - Garden Banks Project and Green Canyon Project," and
"Properties" in Part I and in "Financial Review" and Note 12 of the Notes to
Financial Statements in your Annual Report on Form 10-K for the fiscal year
ended December 31, 1995, and to the use of information contained in our
"Report as of January 1, 1996 on Reserves in Certain Properties owned by
Enserch Exploration, Inc." and our "Report as of January 1, 1996 on the Oil
Reserves attributable to Enserch Far East, Ltd. in the MUDI Field in East
Java, Republic of Indonesia," and (b) the incorporation by reference in
Registration Statements No. 33-57715 and No. 33-60587 on Form S-8 of the
references to us described in (a) above.
Very truly yours,
DeGOLYER and MacNAUGHTON
<PAGE> EXHIBIT 24
POWER OF ATTORNEY
WHEREAS, Enserch Exploration, Inc. ("EEX"), a Texas corporation, intends
to file with the Securities and Exchange Commission (the "Commission") under
the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K
for the year ended December 31, 1995, with such amendment or amendments
thereto in each case as may be necessary or appropriate, together with any and
all exhibits and other documents having relation to said Form 10-K;
NOW, THEREFORE, the undersigned in his capacity as a director or officer
or both, as the case may be, of EEX, does hereby appoint G. J. Junco his true
and lawful attorney to execute in his name, place and stead in his capacity
as a director or officer or both, as the case may be, of EEX, said Form 10-K
and any and all amendments thereto and all instruments necessary or incidental
in connection therewith and to file the same with the Commission. Said
attorney shall have full power and authority to do and perform in the name and
on behalf of the undersigned in any and all capacities every act whatsoever
necessary or desirable to be done in the premises as fully and to all intents
and purposes as the undersigned might or could do in person, the undersigned
hereby ratifying and approving the acts of said attorney.
IN WITNESS WHEREOF, the undersigned has executed this instrument on this
26th day of March, 1996.
/s/ D. W. Biegler
________________________________________
D. W. Biegler
<PAGE>
POWER OF ATTORNEY
WHEREAS, Enserch Exploration, Inc. ("EEX"), a Texas corporation, intends
to file with the Securities and Exchange Commission (the "Commission") under
the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K
for the year ended December 31, 1995, with such amendment or amendments
thereto in each case as may be necessary or appropriate, together with any and
all exhibits and other documents having relation to said Form 10-K;
NOW, THEREFORE, the undersigned in his capacity as a director or officer
or both, as the case may be, of EEX, does hereby appoint D. W. Biegler his
true and lawful attorney to execute in his name, place and stead in his
capacity as a director or officer or both, as the case may be, of EEX, said
Form 10-K and any and all amendments thereto and all instruments necessary or
incidental in connection therewith and to file the same with the Commission.
Said attorney shall have full power and authority to do and perform in the
name and on behalf of the undersigned in any and all capacities every act
whatsoever necessary or desirable to be done in the premises as fully and to
all intents and purposes as the undersigned might or could do in person, the
undersigned hereby ratifying and approving the acts of said attorney.
IN WITNESS WHEREOF, the undersigned has executed this instrument on this
26th day of March, 1996.
/s/ Gary J. Junco
________________________________________
Gary J. Junco
<PAGE>
POWER OF ATTORNEY
WHEREAS, Enserch Exploration, Inc. ("EEX"), a Texas corporation, intends
to file with the Securities and Exchange Commission (the "Commission") under
the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K
for the year ended December 31, 1995, with such amendment or amendments
thereto in each case as may be necessary or appropriate, together with any and
all exhibits and other documents having relation to said Form 10-K;
NOW, THEREFORE, the undersigned in his capacity as a director of EEX,
does hereby appoint D. W. Biegler or G. J. Junco, and each of them severally,
his true and lawful attorney or attorneys with power to act with or without
the other and with full power of substitution and resubstitution, to execute
in his name, place and stead in his capacity as a director of EEX, said
Form 10-K and any and all amendments thereto and all instruments necessary or
incidental in connection therewith and to file the same with the Commission.
Each of said attorneys shall have full power and authority to do and perform
in the name and on behalf of the undersigned in any and all capacities every
act whatsoever necessary or desirable to be done in the premises as fully and
to all intents and purposes as the undersigned might or could do in person,
the undersigned hereby ratifying and approving the acts of said attorneys and
each of them.
IN WITNESS WHEREOF, the undersigned has executed this instrument on this
26th day of March, 1996.
/s/ B. A. Bridgewater, Jr.
_______________________________________
B. A. Bridgewater, Jr.
<PAGE>
POWER OF ATTORNEY
WHEREAS, Enserch Exploration, Inc. ("EEX"), a Texas corporation, intends
to file with the Securities and Exchange Commission (the "Commission") under
the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K
for the year ended December 31, 1994, with such amendment or amendments
thereto in each case as may be necessary or appropriate, together with any and
all exhibits and other documents having relation to said Form 10-K;
NOW, THEREFORE, the undersigned in his capacity as a director of EEX,
does hereby appoint D. W. Biegler or G. J. Junco, and each of them severally,
his true and lawful attorney or attorneys with power to act with or without
the other and with full power of substitution and resubstitution, to execute
in his name, place and stead in his capacity as a director of EEX, said
Form 10-K and any and all amendments thereto and all instruments necessary or
incidental in connection therewith and to file the same with the Commission.
Each of said attorneys shall have full power and authority to do and perform
in the name and on behalf of the undersigned in any and all capacities every
act whatsoever necessary or desirable to be done in the premises as fully and
to all intents and purposes as the undersigned might or could do in person,
the undersigned hereby ratifying and approving the acts of said attorneys and
each of them.
IN WITNESS WHEREOF, the undersigned has executed this instrument on this
26th day of March, 1996.
/s/ Frederick S. Addy
________________________________________
Frederick S. Addy
<PAGE>
POWER OF ATTORNEY
WHEREAS, Enserch Exploration, Inc. ("EEX"), a Texas corporation, intends
to file with the Securities and Exchange Commission (the "Commission") under
the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K
for the year ended December 31, 1995, with such amendment or amendments
thereto in each case as may be necessary or appropriate, together with any and
all exhibits and other documents having relation to said Form 10-K;
NOW, THEREFORE, the undersigned in his capacity as an officer of EEX,
does hereby appoint D. W. Biegler or G. J. Junco, and each of them severally,
his true and lawful attorney or attorneys with power to act with or without
the other and with full power of substitution and resubstitution, to execute
in his name, place and stead in his capacity as an officer of EEX, said
Form 10-K and any and all amendments thereto and all instruments necessary or
incidental in connection therewith and to file the same with the Commission.
Each of said attorneys shall have full power and authority to do and perform
in the name and on behalf of the undersigned in any and all capacities every
act whatsoever necessary or desirable to be done in the premises as fully and
to all intents and purposes as the undersigned might or could do in person,
the undersigned hereby ratifying and approving the acts of said attorneys and
each of them.
IN WITNESS WHEREOF, the undersigned has executed this instrument on this
25th day of March, 1996.
/s/ J. P. McCormick
________________________________________
J. P. McCormick
<PAGE>
POWER OF ATTORNEY
WHEREAS, Enserch Exploration, Inc. ("EEX"), a Texas corporation, intends
to file with the Securities and Exchange Commission (the "Commission") under
the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K
for the year ended December 31, 1995, with such amendment or amendments
thereto in each case as may be necessary or appropriate, together with any and
all exhibits and other documents having relation to said Form 10-K;
NOW, THEREFORE, the undersigned in his capacity as an officer of EEX,
does hereby appoint D. W. Biegler or G. J. Junco, and each of them severally,
his true and lawful attorney or attorneys with power to act with or without
the other and with full power of substitution and resubstitution, to execute
in his name, place and stead in his capacity as an officer of EEX, said
Form 10-K and any and all amendments thereto and all instruments necessary or
incidental in connection therewith and to file the same with the Commission.
Each of said attorneys shall have full power and authority to do and perform
in the name and on behalf of the undersigned in any and all capacities every
act whatsoever necessary or desirable to be done in the premises as fully and
to all intents and purposes as the undersigned might or could do in person,
the undersigned hereby ratifying and approving the acts of said attorneys and
each of them.
IN WITNESS WHEREOF, the undersigned has executed this instrument on this
26th day of March, 1996.
/s/ J. W. Pinkerton
________________________________________
J. W. Pinkerton
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CIK> 0000931006
<NAME> ENSERCH EXPLORATION, INC.
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994 DEC-31-1993
<PERIOD-END> DEC-31-1995 DEC-31-1994 DEC-31-1993
<CASH> 1,546 234 0
<SECURITIES> 0 0 0
<RECEIVABLES> 67,395 114,486 0
<ALLOWANCES> (657) (670) 0
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 14,820 5,217 0
<PP&E> 2,623,138 2,110,076 0
<DEPRECIATION> (952,538) (856,062) 0
<TOTAL-ASSETS> 1,776,832 1,381,235 0
<CURRENT-LIABILITIES> 130,946 177,610 0
<BONDS> 160,000 0 0
150,000 0 0
0 0 0
<COMMON> 932,228 736,008 0
<OTHER-SE> 0 0 0
<TOTAL-LIABILITY-AND-EQUITY> 1,776,832 1,381,235 0
<SALES> 0 0 0
<TOTAL-REVENUES> 220,851 179,140 189,796
<CGS> 0 0 0
<TOTAL-COSTS> 227,004 147,111 174,611
<OTHER-EXPENSES> (64) 314 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 14,617 20,919 30,584
<INCOME-PRETAX> (19,679) 11,467 (13,358)
<INCOME-TAX> (7,177) (334) (3,398)
<INCOME-CONTINUING> (12,502) 11,801 (9,960)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (12,502) 11,801 (9,960)
<EPS-PRIMARY> (.11) .07 (.08)
<EPS-DILUTED> (.11) .07 (.08)
</TABLE>
