<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(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, 1996 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
FORM 10-K
COMMISSION FILE NUMBER 1-11413
----------------
ENSERCH EXPLORATION, INC.
----------------
TEXAS 75-2556975
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
6688 NORTH CENTRAL EXPRESSWAY SUITE 75206-3922
1000 DALLAS, TEXAS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICE)
(214) 692-4300
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Securities registered pursuant to section 12(b) of the Act:
COMMON STOCK ($1.00 PAR VALUE) NEW YORK STOCK EXCHANGE
(TITLE OF EACH CLASS) (NAME OF EACH EXCHANGE
ON WHICH REGISTERED)
Securities registered pursuant to section 12(b) 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 19 , 1997: $200,950,134.
Shares of the Registrant's Common Stock outstanding as of March 19, 1997:
126,172,796 shares.
Documents incorporated by reference and the Part of the Form 10-K into which
the document is incorporated:
NONE
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
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<PAGE>
FORM 10-K
ANNUAL REPORT
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
TABLE OF CONTENTS
PART I
<TABLE>
<CAPTION>
PAGE
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<C> <S> <C>
ITEM 1. Business...................................................... 1
General....................................................... 1
Recent Developments........................................... 1
ENSERCH/Texas Utilities Company Merger........................ 1
Management Changes............................................ 1
Core Areas.................................................... 2
Offshore Activities--The Cooper Project....................... 2
Offshore Activities--The Allegheny Project.................... 2
Rocky Mountain Properties..................................... 3
International Operations...................................... 3
Sales Information............................................. 3
Major Customers............................................... 3
Competition................................................... 3
Government Regulation......................................... 3
Environmental Matters......................................... 4
Others Laws and Regulations................................... 5
Employees..................................................... 5
Offices....................................................... 5
Forward Looking Statements--Uncertainties and Risks........... 5
ITEM 2. Properties.................................................... 6
ITEM 3. Legal Proceedings............................................. 8
ITEM 4. Submission of Matters to a Vote of Security Holders........... 8
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder
Matters....................................................... 8
ITEM 6. Selected Financial Data....................................... 8
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 8
ITEM 8. Financial Statements and Supplementary Data................... 8
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure...................................... 8
PART III
ITEM 10. Directors and Executive Officers of the Registrant............ 9
Directors..................................................... 9
Executive Officers............................................ 10
ITEM 11. Executive Compensation........................................ 11
Summary Compensation Table.................................... 11
Option Grants Table........................................... 13
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
Aggregated Option Exercise Table............................ 14
Long-Term Incentive Plan Awards Table....................... 14
Pension Plan Table.......................................... 15
Compensation of Directors................................... 15
Employee Contracts, Termination of Employment and Change-in-
Control Arrangements....................................... 16
Board Compensation Committee Report on Executive
Compensation................................................ 17
Performance Graph........................................... 20
Compensation Committee Interlocks and Insider
Participation............................................... 21
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 21
Security Ownership of Certain Beneficial Owners............. 21
Stock Ownership of Management and Board of Directors........ 22
ITEM 13. Certain Relationships and Related Transactions.............. 22
Section 16(a) Beneficial Ownership Reporting Compliance..... 23
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 23
APPENDIX A Financial Information...................................... A-1
</TABLE>
2
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Enserch Exploration, Inc. ("EEX" or the "Company"), an 83.3% 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. 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.
EEX is one of the largest independent exploration and production companies
in the United States, with a reserve base of 1,572 billion cubic feet of
natural gas equivalent ("Bcfe") at January 1, 1997, as estimated by DeGolyer
and MacNaughton ("D&M"), independent petroleum consultants. Approximately 77%
of these reserves consist of natural gas.
RECENT DEVELOPMENTS
ENSERCH/Texas Utilities Company Merger. In April 1996, ENSERCH announced
that it had entered into a merger agreement with Dallas-based Texas Utilities
Company ("ENSERCH/TUC Merger"). Under the terms of the agreement, a new
holding company will acquire the businesses of ENSERCH, excluding the
businesses of EEX and Lone Star Energy Plant Operations, Inc. ("LSEPO").
Immediately prior to the consummation of the ENSERCH/TUC Merger, and as a
condition thereof, EEX will be merged into LSEPO ("EEX/LSEPO Merger"), LSEPO
will change its name to "Enserch Exploration, Inc." ("New EEX"), shares of EEX
will automatically be converted into shares of New EEX on a one-for-one basis
in a tax-free transaction, and ENSERCH will distribute to its shareholders, on
a pro rata basis, all of the shares of New EEX common stock it owns
("Distribution"). LSEPO, a wholly owned subsidiary of ENSERCH, operates and
maintains, under long-term contracts, a 255-megawatt ("MW") cogeneration
facility located in Sweetwater, Texas, a 62-MW cogeneration facility located
in Buffalo, New York, and a 160-MW cogeneration facility located in
Bellingham, Washington. In the EEX/LSEPO Merger, ENSERCH will receive
approximately 778,000 shares of New EEX for the value of LSEPO.
The mergers, including the transactions contemplated by the mergers, were
approved by the shareholders of EEX, ENSERCH and TUC, in separate meetings, on
November 15, 1996. All regulatory approvals have been received except for
approval by the Securities and Exchange Commission ("SEC") under the Public
Utility Holding Company Act of 1935 where the approval process is proceeding.
The Railroad Commission of Texas ("RRC") has indicated no objection to the
ENSERCH/TUC Merger, and the Antitrust Division of the U.S. Department of
Justice ("DOJ") has notified ENSERCH and TUC that its investigation of the
proposed merger has been closed without the DOJ taking any action or requiring
TUC or ENSERCH to take any action. ENSERCH has also announced receipt of a
favorable tax ruling from the Internal Revenue Service to the effect that
neither ENSERCH nor its shareholders will recognize taxable gain in the
Distribution.
The merger and transactions related thereto are fully described in the
Company's Proxy Statement dated October 2, 1996, as filed with the SEC, which
is incorporated herein by reference.
Management Changes. On January 13, 1997, EEX named Thomas M Hamilton
Chairman and President, Chief Executive Officer of the Company, David R.
Henderson as Executive Vice President, Worldwide
1
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Exploration, and B. K. Irani as Executive Vice President, Production and
Engineering. Mr. Hamilton came to EEX from Pennzoil Company where he was
Executive Vice President and President of Pennzoil Exploration & Production
Company. He succeeded Frederick S. Addy, interim Chairman, President and Chief
Executive Officer, who continues to serve as a Director of the Company. Mr.
Henderson previously was Senior Vice President of worldwide exploration at
Pennzoil Exploration & Production Company. Mr. Irani has previously served as
Senior Vice President, Offshore and International of the Company.
Core Areas. Mr. Hamilton has initiated a review of the Company's business
with a focus on enhancing performance from the Company's core areas of
activity and the development of plans for maximizing the value of non-core
assets through optimization of cash flow and the disposition of low-return,
high-cost properties. EEX operations will be focused on existing core areas of
East Texas, the Gulf of Mexico Continental Shelf and the deep water Gulf of
Mexico. EEX also intends to vigorously pursue international opportunities. The
existing core areas account for more than 75% of EEX's proved reserves and
approximately 50% of total production. More than 90% of the Company's total
probable reserves, as estimated by D&M, are in the existing core areas.
Operating costs for properties located in core areas are relatively lower than
the overall cost profile for the Company. Assets in non-core areas will be
traded or sold with proceeds reinvested into core areas or utilized to reduce
debt.
Offshore Activities--The Cooper Project. Production began at the Cooper
Project in the Garden Banks area of the Gulf of Mexico in September 1995.
Considered a deep-water project by industry standards, the floating production
facility ("FPF") is moored in 2,200 feet of water on Block 388. A 24-slot
subsea template rests on the ocean floor directly under the FPF. The FPF is
capable of drilling and producing simultaneously and is designed to
accommodate up to 40 thousand barrels ("MBbls") of oil and 120 million cubic
feet ("MMcf") of gas per day. EEX is the operator and owns a 60% interest in
this project. An affiliate of Mobil Corporation has a 40% interest. At year-
end 1996, gross daily production at the project had reached approximately 10
MBbls of oil and condensate and 15 MMcf of natural gas per day. Additional
development and exploratory drilling of identified prospects is expected
during 1997 as a part of a long-term development plan for the Cooper Project.
In late July 1996, it was announced that mechanical problems had prevented
completion of the A-1 development well at the Cooper Project. EEX and its
partner are evaluating alternate drilling strategies to develop the extensive
proven hydrocarbon column at this location.
The A-2 development well reached total depth of 9,835 feet encountering
three pay zones in the 7,200-foot, 7,600-foot and 9,800-foot sands in January
1997. In March 1997, the well was initially completed in the 9,800-foot sand,
which has a total of 116 feet of oil pay.
The SB-3 exploratory well on Garden Banks Block 387 was also completed in
March 1997. The well was drilled to a total depth of 19,000 feet and was
completed in a 50-foot sand interval at a depth of 18,170 feet. Based on
initial flow rates, the well is expected to initially produce at rates in the
range of 20 to 25 MMcf of gas per day with associated condensate.
Offshore Activities--The Allegheny Project. This project comprises a four-
block unit in the Green Canyon area of the Gulf of Mexico and is located
approximately 150 miles south of New Orleans, Louisiana, in 2,200 to 3,400
feet of water. The Allegheny Project is located in an area of the Gulf where
there is a great deal of exploration and development activity. EEX is the
operator and has a 40% interest in this project, an affiliate of Mobil
Corporation has 40% and an affiliate of Reading & Bates Corporation has 20%.
Prior to 1996, three wells and one sidetrack had been drilled on Green
Canyon Block 254 with gross proved reserves equivalent to approximately 72
million barrels ("MMBbls") of oil attributed by D&M. During 1996, a well was
drilled on Block 298, bottoming on Block 297, reaching a total depth of 16,500
feet (measured depth), encountering 350 gross feet of pay (measured depth).
Although the well extended the field 3,000 feet to the south, subsequent
interpretation of the data revealed thinning of some previously mapped
reservoirs which, coupled with the newly discovered sands, resulted in a 20
MMBbl downward revision of reserves to 52 MMBbl gross proved reserves.
2
<PAGE>
In 1996, EEX and its partners began to identify alternative development
scenarios for the Allegheny Project. A joint project team was formed to
evaluate alternatives that are currently available for the design and
construction of production facilities. The project team will also design and
implement a development plan to optimize production from this project. The
additional engineering study and design will delay the project from its
previously planned early 1999 start-up. However, the design changes should
favorably impact the project's economics.
Rocky Mountain Properties. During 1996, EEX sold substantially all of its
Rocky Mountain area properties, which were in six states, aggregated over
250,000 net acres and had proved reserves of 148 Bcfe at January 1, 1996.
These properties were mostly acquired as part of the acquisition of DALEN
Corporation ("DALEN") in 1995 and were not considered a core area for EEX.
International Operations. In the Mudi field on the island of Java in
Indonesia, where EEX owns a 25% working interest, a development plan was
approved in 1996. Five wells have been drilled and are expected to be
completed in this field, and a stepout delineation well is being drilled.
Production is expected to commence in late 1997 or early 1998 initially at an
estimated 20 MBbls of oil per day. Gross reserves are estimated to be40 MMBbls
of oil and condensate.
SALES INFORMATION
Sales data are set forth under "Operating Data" included in Appendix A to
this report.
MAJOR CUSTOMERS
EEX sells its gas under both long- and short-term contracts. EEX markets
most of its gas through third-party gas marketing organizations while
maintaining a core staff to ensure market prices are received. In 1996,
Enserch Energy Services, Inc. ("EES"), the ENSERCH natural-gas marketing
subsidiary, was EEX's largest gas customer, purchasing gas under two long-term
variable-price contracts which terminated December 31, 1996. A division of
ENSERCH, Lone Star Gas Company ("LSG"), purchases gas under a long-term fixed-
price service contract which ends in March 1997. In 1996, approximately 34%
and 6% of EEX's natural gas volumes were sold to EES and LSG, respectively.
The termination of these contracts will not have a material adverse effect on
EEX's results of operations.
EEX sells its oil under contracts that are for one year or less. Prices
generally are based upon field posted prices plus negotiated bonuses.
EEX utilizes futures contracts, commodity price swaps and other financial
instruments to reduce exposure of its gas and oil production to price
volatility. See "Financial Review--Gas and Oil Market Volatility" and Note 10
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
3
<PAGE>
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 RRC 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 to clean-up 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 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.
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. These 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 been named as a
potentially responsible party at a Texas State Superfund site. 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 approval of the Mineral
Management Service ("MMS"), a federal agency, 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.
4
<PAGE>
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 January 1, 1997, EEX had 528 full-time employees.
OFFICES
The principal offices of EEX are located at 6688 North Central Expressway,
Suite 1000, Dallas, Texas 75206-3922, and its telephone number is (214)692-
4300.
Production offices are maintained in Dallas, Houston, Athens, and
Bridgeport, Texas.
FORWARD LOOKING STATEMENTS--UNCERTAINTIES AND RISKS
Written statements throughout this report on Form 10-K relating to EEX
management's intentions, hopes, beliefs, expectations or predictions of the
future are forward-looking statements. It is important to note that EEX's
actual results could differ materially from those projected in such forward-
looking statements. Information concerning some of the factors that could
cause actual results to differ materially from those in the forward-looking
statements are described below.
Estimating Reserves and Future Net Cash Flows. Uncertainties are inherent in
estimating quantities and values of reserves and in projecting rates of
production, net revenues and the timing of development expenditures. The
reserve data represent estimates only of the recovery of hydrocarbons from
underground accumulations and are often different from the quantities
ultimately recovered. Any downward adjustment in reserve estimates could
adversely affect EEX.
Operational Risks and Hazards. EEX's operations are subject to the risks and
uncertainties associated with finding, acquiring and developing gas and oil
properties, and producing, transporting and selling gas and oil. Operations
may be materially curtailed, delayed or canceled as a result of numerous
factors, such as accidents, weather conditions, compliance with governmental
requirements and shortages or delays in the delivery of equipment. Drilling
may involve unprofitable efforts, not only with respect to dry wells, but also
with respect to wells that are productive but do not produce sufficient net
revenues to return a profit after drilling, operating and other costs. Various
field operating hazards such as fires, explosions, blow-outs, equipment
failures, abnormally pressured formations and environmental accidents may
adversely affect production from successful wells. EEX's ability to sell its
gas and oil production is dependent on the availability and capacity of
gathering systems, pipelines and other forms of transportation.
Offshore Risks. EEX's offshore Gulf of Mexico gas and oil reserves include
properties located in water depths of 20 to 3,400 feet where operations are by
their nature more difficult than drilling operations conducted on land. Deep
water drilling and operations require the application of more advanced
technologies, involving a higher risk of mechanical failure and inevitably
resulting in significantly higher drilling and operating costs. Furthermore,
offshore operations require a significant amount of time between the time of
discovery and the time the gas or oil is actually marketed, increasing the
market risk involved with such operations.
5
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Volatility of Gas and Oil Markets. EEX's operations are highly dependent
upon the prices of, and demand for, gas and oil. These prices have been, and
are likely to continue to be, volatile. Prices are subject to fluctuations in
response to a variety of factors that are beyond the control of EEX, such as
worldwide economic and political conditions as they affect actions of OPEC and
Middle East and other producing countries, and the price and availability of
alternative fuels, EEX's hedging activities with respect to some of its
projected gas and oil production, which are designed to protect against price
declines, may prevent EEX from realizing the benefits of price increases above
the levels of the hedges and protect it from incurring the detriments of price
decreases below the level of hedges. Because EEX's reserve base is
approximately 80% natural gas on an energy equivalent basis, it is more
sensitive to fluctuations in the price of natural gas. EEX follows the full
cost method of accounting for gas and oil properties. A decline in gas and oil
prices could cause a future write-down of capitalized costs and a non-cash
charge against income. See "Financial Review--Capitalized Costs."
Government Regulation. EEX's business is subject to certain federal, state
and local laws and regulations relating to the drilling for the production of
gas and oil, as well as environmental and safety matters. See "Business --
Government Regulation."
ITEM 2. PROPERTIES
EEX's domestic activities were focused in four regions in 1996: the Gulf of
Mexico; East Texas; Mid-Continent and other; 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, 1997:
<TABLE>
<CAPTION>
OIL
NATURAL AND GAS
GAS LIQUIDS TOTAL
REGION (BCF)* (MMBBLS) BCFE
------ ------- -------- -------
<S> <C> <C> <C>
Gulf of Mexico...................................... 126.5 28.0 294.7
East Texas.......................................... 845.1 7.5 890.1
Mid-Continent and other............................. 102.8 13.7 184.9
Gulf Coast.......................................... 141.2 4.0 165.2
------- ---- -------
Total Domestic.................................. 1,215.6 53.2 1,534.9
International....................................... 0.6 6.0 36.6
------- ---- -------
Total........................................... 1,216.2 59.2 1,571.5
======= ==== =======
</TABLE>
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*Billion cubic feet.
See Note 15 of the Notes to Consolidated Financial Statements included in
Appendix A to this report for additional information on gas and oil reserves.
During 1996, EEX filed Form EIA-23 with the Department of Energy reflecting
reserve estimates for the year 1995. Such reserve estimates were not
materially different from the 1995 reserve estimates reported in Note 15 of
the Notes to Consolidated Financial Statements included in Appendix A to this
report.
Developed and undeveloped lease acreage as of December 31, 1996, are set
forth below:
<TABLE>
<CAPTION>
DEVELOPED ACRES UNDEVELOPED ACRES
--------------- -------------------
GROSS NET (1) GROSS NET (1)
------- ------- --------- ---------
<S> <C> <C> <C> <C>
Domestic
Offshore............................... 189,310 60,609 853,105 426,462
Onshore................................ 471,368 289,968 1,056,035 654,701
------- ------- --------- ---------
Total................................ 660,678 350,577 1,909,140 1,081,163
International............................ 2,489,567 618,637
------- ------- --------- ---------
Total................................ 660,678 350,577 4,398,707 1,699,800
======= ======= ========= =========
</TABLE>
--------
(1) Represents the proportionate interest of EEX in the gross acres under
lease.
6
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EEX purchased about 252,000 net acres of leasehold interests in 1996, 99,000
of which were in the Gulf of Mexico. EEX's Gulf of Mexico holdings totaled
some 487,000 net acres, with an average working interest of 43% in 234 blocks
and an overriding royalty interest in 9 blocks. EEX operates 148 offshore
blocks. EEX also canceled or allowed to expire two Gulf of Mexico leases
during 1996 following review of drilling activity on or near these areas and
after analysis of 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>
1997..................................... 551,741 312,456 730,242 182,560
1998..................................... 353,191 200,015 182,560 45,640
1999 and later........................... 1,004,208 568,692 1,576,765 390,437
</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 non-payment of delay rentals.
At December 31, 1996, EEX owned interests in 1,670 gas wells (1,121.1 net)
and 1,801 oil wells (422 net) in the United States and 5 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, 1996, including
the activities of DALEN for all periods shown, is set forth below:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
GROSS NET GROSS NET GROSS NET
----- ---- ----- ---- ----- ----
<S> <C> <C> <C> <C> <C> <C>
Exploratory Wells:
Productive................................ 42 30.0 38 24.6 21 13.8
Dry....................................... 32 20.7 47 26.8 56 30.5
--- ---- --- ---- --- ----
Total................................... 74 50.7 85 51.4 77 44.3
=== ==== === ==== === ====
Development Wells:
Productive................................ 82 54.3 41 26.4 90 63.0
Dry....................................... 5 4.0 6 3.5 15 7.5
--- ---- --- ---- --- ----
Total................................... 87 58.3 47 29.9 105 70.5
=== ==== === ==== === ====
</TABLE>
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.
At December 31, 1996, EEX was participating in 71 wells (34 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 SEC 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.
7
<PAGE>
Additional information relating to the gas and oil activities of EEX is set
forth in Note 15 of the Notes to Consolidated Financial Statements included in
Appendix A to this report.
Planned capital expenditures for 1997 are expected to range from $175
million to $200 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 14 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.
8
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
DIRECTORS
Directors are elected to hold office until the next annual election and
until their successors shall have been duly elected and shall qualify. The
following biographical information sets forth the name, age, principal
occupation or employment during the past five years, certain other
directorships held by each director, and the period during which he has served
as a director of the Company.
THOMAS M HAMILTON
Chairman and President, Chief Executive Officer of Enserch Exploration, Inc.
Mr. Hamilton, age 53, was elected Chairman and President, Chief Executive
Officer in January 1997. Previously Mr. Hamilton served Pennzoil Company for
five years where he was Executive Vice President, and President of Pennzoil
Exploration & Production Company. Pennzoil is engaged in exploration and
production, refining, marketing and franchise business.
D. W. BIEGLER
Chairman and President, Chief Executive Officer, ENSERCH Corporation
Mr. Biegler, age 50, is Chairman and President, Chief Executive Officer of
ENSERCH Corporation. Prior to his election to his present position with
ENSERCH in 1993, he served LSG, the utility division of ENSERCH, as President
from 1985 and as Chairman from 1989 and was elected President and Chief
Operating Officer of ENSERCH in 1991. He previously served as Chairman and
Chief Executive Officer of the managing general partner of EP from 1992 until
its conversion into the Company beginning in 1995. He served as Chairman and
Chief Executive Officer of the Company from its formation in September of 1994
until June 20, 1995, and was re-elected to such position as of February 1,
1996, which he held until September 1996. Mr. Biegler is a Director of
ENSERCH, Texas Commerce Bank National Association, and Trinity Industries,
Inc. He has been a Director of the Company since its formation in late 1994.
FREDERICK S. ADDY
Retired Executive Vice President, Amoco Corporation
Mr. Addy, age 65, is retired Executive Vice President, Chief Financial
Officer, and Director of Amoco Corporation, an international integrated oil
and gas company. Mr. Addy has been a Director of the Company since 1995. He
also served the Company as interim Chairman and Chief Executive Officer from
September 10, 1996, to January 13, 1997, and as President from October 30,
1996, to January 13, 1997. He is a Director of Baker, Fentress & Company and
The Pierpont Funds.
B. A. BRIDGEWATER, JR.
Chairman, President and Chief Executive Officer, Brown Group, Inc.
Mr. Bridgewater, age 63, is Chairman, President and Chief Executive Officer,
and Director of Brown Group, Inc., a footwear company. Mr. Bridgewater has
been a Director of the Company since 1995. He is also a Director of ENSERCH,
NationsBank Corporation, FMC Corporation, and McDonnell Douglas Corporation.
MICHAEL P. MALLARDI
Retired Senior Vice President, Capital Cities/ABC, Inc., and Retired President
of the Capital Cities/ABC Broadcast Group.
Mr. Mallardi, age 62, is retired Senior Vice President, Capital Cities/ABC,
Inc., and retired President of Capital Cities/ABC Broadcast Group, which are
part of the Walt Disney Company. Mr. Mallardi has been a Director since
October 1996. Mr. Mallardi is also the trustee of 18 mutual funds operated by
J.P. Morgan and Chairman of the Tri-State Health System, Inc.
9
<PAGE>
WILLIAM C. MCCORD
Retired Chairman and Chief Executive Officer, ENSERCH Corporation
Mr. McCord, age 68, is retired Chairman and Chief Executive Officer of
ENSERCH. He has been a Director of the Company since September 10, 1996. He is
also a Director of ENSERCH, Lone Star Technologies, Inc. and Pool Energy
Services, Inc.
EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
T. M Hamilton............... 53 Chairman and President, Chief Executive Officer
D. R. Henderson............. 45 Executive Vice President, Worldwide Exploration
B. K. Irani................. 45 Executive Vice President, Production and
Engineering
M. G. Fortado............... 52 Senior Vice President, General Counsel and
Corporate Secretary
J. P. McCormick............. 55 Senior Vice President and Chief Financial
Officer
M. A. McAdams............... 52 Senior Vice President, Human Resources and
Administration
</TABLE>
Mr. Hamilton was elected Chairman and President, Chief Executive Officer in
January 1997. Previously, Mr. Hamilton served Pennzoil Company for five years
where he was Executive Vice President, and President of Pennzoil Exploration &
Production Company.
Mr. Henderson was elected Executive Vice President, Worldwide Exploration in
January 1997. Previously he held the position of Senior Vice President of
Worldwide Exploration at Pennzoil Exploration & Production Company.
Mr. Irani has been Executive Vice President, Production and Engineering
since January 1997. He previously was Senior Vice President, Production and
Engineering Division since 1995 and Vice President, Production and Engineering
Division from 1994 to 1995. He also served as Vice President, Production and
Engineering, of EEH* since 1988.
Mr. Fortado has been Vice President and Corporate Secretary of EEX since its
formation in September 1994 and was designated Senior Vice President, General
Counsel and Chief Legal Officer in September 1996. He is also Vice President
and Corporate Secretary of ENSERCH, having served as Corporate Secretary since
September 1971 and Vice President since May 1988.
Mr. McCormick has been a Senior Vice President and Chief Financial Officer
since 1995. He served LSG, a division of ENSERCH, as Senior Vice President,
Transmission from 1993 to 1995 and as Senior Vice President, Finance from 1991
to 1993. Prior to joining LSG, he practiced public accounting for 26 years and
was a partner of KPMG Peat Marwick and KMG Main Hurdman and served in
management positions in each firm.
Mr. McAdams has been Senior Vice President, Human Resources and
Administration since July 1996. He was Vice President, Employee Relations of
LSG from July 1990 to July 1996.
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.
- --------
* Enserch Exploration Holdings, Inc. ("EEH") was the Managing General Partner
of EP.
10
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The table below sets forth annual compensation, long-term compensation and
all other compensation paid by the Company and its subsidiaries for services
rendered during the periods shown for each individual serving as the chief
executive officer in 1996, each of the other most highly compensated executive
officers in 1996 who were serving at the end of the year whose total salary
and bonus exceeded $100,000 and two additional persons who were executive
officers during, but not at the end of, 1996 (the "named executive officers").
The information presented does not include periods prior to 1995 since the
Company's predecessor, a limited partnership, did not have employees and no
compensation was paid to any of the named executive officers by the Company
prior to January 1, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
---------------------------------------
AWARDS PAYOUTS
---------------------------- ---------
OTHER
ANNUAL RESTRICTED SECURITIES LONG-TERM ALL OTHER
ANNUAL COMPENSATION COMPEN- STOCK UNDERLYING INCENTIVE COMPEN-
NAME AND ------------------------ SATION AWARDS OPTIONS/SARS PAYOUTS SATION
PRINCIPAL POSITION(1) YEAR SALARY($) BONUS ($) ($)(5) (#) ($) ($)(10)
- --------------------- ---- --------- ------- ------- ---------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
F.S. Addy............... 1996 0 0 25,275(3) 92,500 2,092(3) 0 0
Chairman and President, 1995 0 0 0 0 0 0 0
Chief Executive Officer
B.K. Irani.............. 1996 210,000 100,000 0 (6) 105,000 0 4,950
Executive Vice 1995 191,042 81,755 0 0 10,000 0 3,125
President, Production
and Engineering
J.P. McCormick.......... 1996 211,042 60,000 0 (6) 70,000 0 3,110
Senior Vice President 1995 113,750 57,642 0 0 0 0 1,125
and Chief Financial
Officer
G.J. Junco.............. 1996 280,833 0 0 183,750(7) 150,000(8) 338,261(9) 2,031,042
President and Chief 1995 300,000 163,125 0 (6) 25,000 0 3,125
Operating Officer
R.L. Kincheloe.......... 1996 175,692 0 351,776(4) 0 5,000 0 364,600
Senior Vice President, 1995 240,000 900 0 0 4,000 0 33,365
Offshore and
International
D.W. Biegler............ 1996 100,000(2) 0 0 173,653(2)(7) 20,000 161,895(2)(9) 4,340(2)
Chairman and Chief 1995 0 0 0 (6) 15,000 0 0
Executive Officer
J.T. Williams........... 1996 34,848 0 0 0 (6) 0 0 4,497,920
Vice Chairman and Chief 1995 227,323 124,564 0 35,000 0 72,759
Executive Officer
</TABLE>
- --------
(1) D.W. Biegler's principal employment is Chairman and Chief Executive
Officer of ENSERCH. He served as Chairman and Chief Executive Officer of
the Company from September 1994 through June 20, 1995, when J. T.
Williams was elected as Vice Chairman and Chief Executive Officer
effective June 20, 1995. Mr. Williams resigned as Vice Chairman and Chief
Executive Officer of the Company effective February 1, 1996, and D. W.
Biegler was re-elected Chief Executive Officer effective February 1,
1996. Mr. Biegler resigned as Chairman and Chief Executive Officer on
September 10, 1996, and F. S. Addy was elected interim Chairman and Chief
Executive Officer on September 10, 1996, and President on October 30,
1996. Mr. Junco resigned as President and Chief Operating Officer on
October 30, 1996. Mr. Addy ended his term as interim Chairman and
President, Chief Executive Officer, on January 13, 1997, and Mr. Thomas M
Hamilton was elected Chairman and President, Chief Executive Officer, on
January 13, 1997. Mr. Kincheloe retired on August 31, 1996.
11
<PAGE>
(2) Beginning in 1996, a portion of the aggregate compensation paid by
ENSERCH Corporation to Mr. Biegler was allocated to the Company. The
allocated charges, which were related to the services of Mr. Biegler as
the Company's Chairman and Chief Executive Officer, included: base
salary--$100,000; accrued charges resulting from acceleration of vesting
of restricted stock caused by change-in-control provisions--$283,545 for
ENSERCH restricted stock issued under the ENSERCH Corporation 1991 Stock
Incentive Plan ("1991 Plan") and $52,003 for the Company's restricted
stock issued under the Company's Revised and Amended 1996 Stock Incentive
Plan ("1996 Plan"); and accruals resulting from acceleration of vesting
caused by change-in-control provisions for deferred compensation payable
on retirement, death or disability pursuant to a special supplementary
compensation plan--$4,340.
(3) Includes $25,275 in directors' fees paid, and 2,092 Phantom Stock Units
awarded under the Phantom Stock Plan for non-employee Directors, for
services rendered by Mr. Addy as a Director prior to his election as the
interim Chairman and Chief Executive Officer on September 10, 1996.
(4) Includes $351,776 which was reimbursed for payment of taxes paid in
connection with the purchase of an annuity to fund retirement benefits
under the Income Restoration Plan.
(5) As of December 31, 1996, F. S. Addy held 10,000 shares of restricted
stock having an aggregate value at December 31, 1996, of $117,500 which
were issued pursuant to an agreement relating to his service as interim
Chairman and President, Chief Executive Officer, of the Company. At
December 31, 1996, the number and value of the aggregate restricted stock
holdings under the 1996 Plan for named executive officers with
performance-based stock were as follows: B.K. Irani: 20,000 shares,
$235,000; and J. P. McCormick: 15,000 shares, $176,250. Dividends are
payable on restricted shares at the same rate as would be paid to all
shareholders.
(6) Performance-based restricted stock awards to named executive officers
under the 1996 Plan are subject to performance-based criteria.
Performance-based restricted stock awards in 1996 to the named executive
officers that were not subject to accelerated vesting by change-in-
control provisions are reported under the "Long-Term Incentive Plan
Awards" table, and reference is made to such table for information on the
number of restricted shares awarded in 1996.
(7) Awards of restricted stock in 1996 to Mr. Junco under the 1996 Plan and
to Mr. Biegler under the 1991 Plan ($139,200) and 1996 Plan ($34,453) on
which restrictions were lifted under change-in-control provisions.
Excludes award in 1996 of 25,000 shares of restricted stock which was
relinquished by Mr. Junco at severance of employment.
(8) Relinquished by Mr. Junco at severance of employment.
(9) Accrued charges resulting from acceleration of vesting caused by change-
in-control provisions for awards made prior to 1996--for Mr. Junco,
$200,448 for ENSERCH restricted stock under the 1991 Plan and payout of
$137,813 for Company restricted stock under the 1996 Plan; and for Mr.
Biegler, $144,345 for ENSERCH restricted stock under the 1991 Plan and
$17,550 for Company restricted stock under the 1996 Plan. Values are
based on the market value of the stock on the date the restrictions were
lifted.
(10) Includes Company matching contributions to the Employee Stock Purchase
and Savings Plan and Deferred Compensation Plan, respectively, as
follows: B.K. Irani--$750, $4,200; J.P. McCormick--$675, $2,435; G.J.
Junco--$625, $5,417; R.L. Kincheloe--$600, $4,800; and J.T. Williams--
$75, $600. Also includes $4,497,245 paid to Mr. Williams in connection
with his severance of employment, $2,025,000 paid to Mr. Junco in
connection with his severance of employment and for Mr. Kincheloe
$226,000 being paid in connection with his retirement and $133,200
accrued for deferred compensation pursuant to a Special Supplemental
Compensation Plan.
12
<PAGE>
OPTION GRANTS TABLE
The table below shows, for each of the named executive officers, certain
information with respect to options granted in 1996 under the 1996 Plan.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
SECURITIES TOTAL
UNDERLYING OPTIONS/SAR'S EXERCISE
OPTIONS/SAR'S GRANTED TO PRICE GRANT DATE
GRANTED EMPLOYEES IN PER SHARE EXPIRATION PRESENT
NAME (#)(1) FISCAL YEAR ($/SH)(2) DATE VALUE(3)
---- ------------- ------------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
F. S. Addy......... 2,092(4) (4) $9.56 (4) $ --
B. K. Irani........ 30,000 1.3% 9.75 02/16/06 175,652
75,000 3.2% 9.1875 09/10/06 432,016
J. P. McCormick.... 20,000 .9% 9.75 02/16/06 117,101
50,000 2.1% 9.1875 09/10/06 288,010
G. J. Junco........ 50,000 2.1% 9.75 (5) (5)
100,000 4.3% 9.1875 (5) (5)
R. L. Kincheloe.... 5,000 .2% 9.75 02/16/06 29,275
D. W. Biegler...... 20,000 .9% 9.75 02/16/06 117,101
J. T. Williams..... 0 -- -- -- --
</TABLE>
- --------
(1) Options are exercisable in stages of 25% on the first through the fourth
anniversaries of the grant. Options become fully vested in the event of a
change in control as defined in the plan.
(2) Fair market value on the date of grant.
(3) Represents the hypothetical present value of the option determined using
Black-Scholes Option Valuation Method based upon the terms of the option
grant and the Company's stock price as of the date of the grant. The
actual value, if any, an executive may realize will depend on the excess
of the stock price over the exercise price on the date the option is
exercised and there is no assurance that the value ultimately realized
will be at or near the value estimated by the Black-Scholes Option
Valuation Method. The assumptions used to arrive at the values shown are
as follows: Risk Free Interest Rate of 5.99% for February 16, 1996, awards
and 7.09% for September 10, 1996, awards, based on the ten-year Treasury
bond rate on the date of the grant, Stock Price Volatility of 37.0% based
on the historical return volatility using weekly stock prices over the
prior three years, no dividend yield.
(4) Reflects Phantom Stock Units granted under the Phantom Stock Plan for non-
employee Directors. For a discussion of the Phantom Stock Plan, see
"Compensation of Directors."
(5) The options granted in 1996 were relinquished at Mr. Junco's severance on
October 30, 1996.
13
<PAGE>
AGGREGATED OPTION EXERCISE TABLE
The table below shows, for each of the named executive officers, the
information specified with respect to exercised, exercisable and unexercisable
options under all existing stock option plans.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES DECEMBER 31, 1996 DECEMBER 31, 1996
ACQUIRED VALUE (#) ($)
ON EXERCISE REALIZED ------------------------- -------------------------
(#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
F. S. Addy.............. 0 0 0 0 $ 0 $ 0
B. K. Irani............. 0 0 40,000 75,000 80,000 192,188
J. P. McCormick......... 0 0 20,000 50,000 40,000 128,125
G. J. Junco(1).......... 0 0 0 0 0 0
R. L. Kincheloe......... 0 0 9,000 0 18,000 0
D. W. Biegler........... 0 0 35,000 0 70,000 0
J. T. Williams.......... 0 0 35,000 0 0 0
</TABLE>
- --------
(1) Relinquished all options on severance of employment.
LONG-TERM INCENTIVE PLAN ("LTIP") AWARDS TABLE
The table below shows for each of the named executive officers, certain
information with respect to awards of performance-based restricted stock made
pursuant to the 1996 Plan.
LONG-TERM INCENTIVE PLANS--AWARD IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS UNDER
NON-STOCK PRICE BASED PLANS(1)
PERFORMANCE PERIOD ---------------------------------
NUMBER OF UNTIL MATURATION THRESHOLD(2) TARGET(2) MAXIMUM(2)
NAME SHARES OR PAYOUT(3) (#) (#) (#)
---- --------- ------------------ ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
F. S. Addy.............. 0 - 0 0 0
B. K. Irani............. 20,000 10/01/96-09/30/99 1,000 20,000 20,000
J. P. McCormick......... 15,000 10/01/96-09/30/99 750 15,000 15,000
G. J. Junco............. 20,000(4) 01/10/96-12/31/98 1,000 20,000 20,000
25,000(5) 01/01/96-09/30/99 1,250 25,000 25,000
R. L. Kincheloe......... 0 - 0 0 0
D. W. Biegler........... 15,000(4) 01/01/96-12/31/98 750 15,000 15,000
J. T. Williams.......... 0 - 0 0 0
</TABLE>
- --------
(1) Performance-based restricted shares have been awarded and will be earned
at the end of a three-year performance period based upon the three year
total shareholder return of the Company compared to the weighted average
of the total shareholder return of the Dow Jones Oil-Secondary Index.
Regular cash dividends, if any, would be paid on the restricted shares
prior to vesting at the same rate as paid to all shareholders. All
restrictions are lifted in the event of a change in control and are
subject to allocation in the event of retirement, disability or death
during the performance period.
(2) All shares are earned if at the end of the performance term the Company's
total shareholder return is at or above 110% of the weighted average of
the peer group. For each percentage point that the Company's total
shareholder return is below 110% of the weighted average of the peer group
but above 100%, 2.5% of the shares will be forfeited and for each
percentage point below 100%, 5% of the shares will be forfeited with no
shares earned below 85%.
14
<PAGE>
(3) Shares earned at the end of the three-year performance period will remain
restricted, subject to continued employment for two additional years.
(4) Approval by the Company's Board of Directors of the EEX/LSEPO Merger
constituted a change in control as defined in the 1996 Plan. As a result,
the forfeiture provisions with respect to these shares lapsed upon such
approval.
(5) This restricted stock award was relinquished at the time of Mr. Junco's
severance of employment.
PENSION PLAN TABLE
Employees of the Company participate in The Retirement and Death Benefit
Program of ENSERCH Corporation and Participating Subsidiary Companies (the
"Program") and the ENSERCH Income Restoration Plan (the "Restoration Plan").
The table below illustrates the amount of annual compensation benefit payable
on a normal retirement basis beginning at normal retirement age to a person in
specified average salary and years-of-service classifications under the
Program, the Restoration Plan, and any annuities previously purchased in
satisfaction of pension obligations.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
--------------------------------------------------------------
REMUNERATION(1) 15 20 25 30 35 40 45
- --------------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$275,000 $ 69,085 $ 92,114 $115,142 $138,170 $161,199 $168,074 $174,949
350,000 88,773 118,364 147,955 177,545 207,136 215,886 224,636
425,000 108,460 144,614 180,767 216,920 253,074 263,699 274,324
500,000 128,148 170,864 213,580 256,295 299,011 311,511 324,011
575,000 147,835 197,114 246,392 295,670 344,949 359,324 373,699
650,000 167,523 223,364 279,205 335,045 390,886 407,136 423,386
725,000 187,210 249,614 312,017 374,420 436,824 454,949 473,074
800,000 206,898 275,864 344,830 413,795 482,761 502,761 522,761
</TABLE>
- --------
(1) Highest average covered compensation over any consecutive five-year
period.
Covered compensation under the Program includes base wages and annual-
performance based bonuses. The credited years of service under the Program, as
of February 28, 1997, for Messrs. Junco, Irani, Kincheloe, McCormick and
Williams are 19.7, 22.1, 38.1, 5.6 and 0.6 years, respectively, and the
highest average covered compensation during any consecutive five-year period
for each of them is $357,698, $201,096, $240,984, $214,838 and $620,000,
respectively. In 1996, the Company did not make any contribution or incur any
charge regarding the retirement of Mr. Biegler. Mr. Addy waived participation
in the retirement plan. The normal retirement benefit is in the form of a
benefit guaranteed for ten years and life thereafter and is not subject to any
deduction for Social Security or other offset amounts.
COMPENSATION OF DIRECTORS
Directors are compensated by an annual retainer fee of $25,000 plus $1,250
for each board or committee meeting attended. In addition, a $2,500 per annum
fee is paid for services on a Board Committee, with an additional $1,000 per
annum paid to the Chairman of a Board Committee. Directors who are also
officers of the Company do not receive fees.
In 1996, the Company adopted a Phantom Stock Plan ("Director Plan") for non-
employee directors. The purpose of the Director Plan is to align the economic
interests of the Company's directors with those of shareholders by linking
part of the compensation of directors to increases in the value of the Company
and to provide a financial incentive that will help attract and retain
directors of outstanding competence. Phantom stock units were awarded to each
non-employee director (which by the terms of the Plan also included Mr. Addy
during his service as Interim Chairman and President, Chief Executive Officer
of the Company) except
15
<PAGE>
D. W. Biegler, who was serving at the time the Director Plan first became
effective. Awards are also made to non-employee directors at the time they are
first elected to the Board of Directors, and thereafter to each non-employee
director elected to the Board at the Company's annual meeting of shareholders.
Each award consists of phantom stock units ("Units"), the number of which is
determined by dividing $20,000 by the value of the Company's common stock on
the date of the grant. A Unit account, which is maintained for each director,
is adjusted to reflect changes in corporate capitalization, a stock split, a
transaction which may involve the merger, consolidation, separation, including
a spinoff, or other distribution of stock or property of the Company, a
corporate reorganization or any partial or complete liquidation of the
Company. Units are fully vested at the earlier of the director's retirement
from the board, his death or a change in control of the Company, as defined in
the Director Plan. The aggregate value payable on an account when it is closed
is determined by multiplying the value of one share of the Company's common
stock by the number of Units in the account. The sum paid out is payable in
cash or in the Company's common stock, at the director's election, and may be
deferred for up to ten years with interest to accrue on the account balance at
the prime rate as published in "The Wall Street Journal." In 1996, awards
valued at $20,000 each resulted in the credit of 2,092 Units to each of the
following non-employee directors: F. S. Addy, B. A. Bridgewater, Jr., M. P.
Mallardi and W. C. McCord.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Mr. Addy executed a Restricted Stock Agreement with the Company in
connection with his service as interim Chairman and Chief Executive Officer.
The agreement provides that Mr. Addy receive 10,000 restricted shares upon
execution of the agreement plus 2,500 shares of restricted stock for each full
quarter of service, with the 2,500 share award for a full quarter to be
prorated for services less than a full quarter. The restrictions may not be
removed until the first to occur of (a) September 10, 1999, (b) the date Mr.
Addy ceases to be a Director of the Company or (c) Mr. Addy's death. Mr. Addy
waived all employee benefits.
Messrs. Junco, Kincheloe, Irani and McCormick have executed change-in-
control agreements with the Company that provide certain benefits in the event
their employment is terminated in connection with a change in control of the
Company (as defined in the agreements). The agreements are for continuous
three-year terms until terminated by the Company upon specified notice and
continue for three years following a change in control of the Company. The
agreements provide that if the officer is terminated or if the officer elects
to terminate employment under certain circumstances during the period of six
months preceding and within three years following a change in control of the
Company, the officer shall be entitled to a lump-sum severance payment of
three times the sum of the officer's base salary and target bonus (but not in
excess of the aggregate base salary that could be earned up to the officer's
normal retirement date), a prorated bonus in the year of termination, the
value over exercise price of certain unexercised stock options, a three-year
continuation of employee benefits, the equivalent of two years of service
credit under the retirement program, and reimbursement of certain legal fees,
expenses, and any excise taxes. Under the terms of such agreement, the vote of
the shareholders to approve the EEX/LSEPO Merger caused a change in control to
occur.
Mr. Irani has entered into a retention bonus arrangement under which the
Company would pay a cash bonus of $210,000 upon the attainment of eighteen
months of continuous employment following the EEX/LSEPO Merger. The bonus
payment is payable on a prorated basis in the event that, on or prior to the
bonus payment date, the employee dies or becomes disabled, unless during such
period he is terminated for cause.
Mr. Junco and the Company entered into an agreement in connection with his
October 30, 1996, termination as an officer of the Company. Under the
agreement, Mr. Junco received payment as described in Note 10 to the Summary
Compensation Table which included settlement of a change-in-control agreement.
The Company also agreed to maintain Mr. Junco's life, health, accident and
disability insurance for one year and reimburse amounts required for excise
tax payments, if any. Mr. Junco also relinquished all rights to options and
shares of restricted stock of the Company and ENSERCH Corporation held by him.
Mr. Kincheloe and the Company entered into an agreement in connection with
his August 31, 1996 retirement. Under the agreement, which included settlement
of his change-in-control agreement, Mr. Kincheloe
16
<PAGE>
received $66,000 at his retirement, monthly payments of $20,000 for the months
of September 1996 through April 1997, the continued right to receive the net
value of options for Company common stock and ENSERCH common stock, based on
their highest value within six months prior to his retirement date and the
amount required for excise tax payments, if any.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT
In determining executive compensation, the Committee is guided by three
primary objectives:
. Offer incentive for business success by putting a significant portion of
each executive's total pay at risk, based on company performance
observing, in the short term, desirable operating results and, in the
long term, total shareholder return.
. Attract and keep outstanding executives by providing compensation
opportunities consistent with those in the Company's industry for similar
positions.
. Encourage career service by providing retirement income consistent with
industry practice.
The Committee's action regarding compensation of executives in the first
quarter of the year was consistent with past practices and the above stated
objectives. However, compensation matters were impacted by the announcement by
ENSERCH Corporation in April of 1996 of its intention to distribute to its
shareholders its 83.4% of the Company's shares, the issues that developed
while posturing the Company for the transition to a fully independent Company
and terminations that occurred during the year.
Chief Executive Officer--Cash Compensation. Mr. J. T. Williams served as
Chief Executive Officer for the first month of 1996, having served in that
position since mid-1995 in association with the Company's acquisition of DALEN
Corporation for which he served as Chief Executive Officer, and his
compensation was negotiated as part of an employment contract concluded at the
time of purchase. Mr. Williams resigned from the Company on February 1, 1996,
and was paid severance in accordance with his employment contract and an
applicable severance plan continuing from DALEN. Mr. Biegler began serving as
Chairman and Chief Executive Officer on February 1, 1996, and served in that
capacity until September 10, 1996, when it was determined by the Board, with
Mr. Biegler's concurrence, that it would better facilitate the transition to
an independent company for the Board to select an interim Chairman and Chief
Executive Officer to serve until a permanent chief executive officer could be
found. Mr. F. S. Addy, one of the Company's outside directors, was selected to
serve as interim Chairman and Chief Executive Officer on September 10, 1996.
Other than the award of stock options and performance-based restricted stock
as described in the tables, Mr. Biegler was not compensated by the Company in
1996. However, as described in the table, a portion of Mr. Biegler's cash
compensation from ENSERCH Corporation was allocated to the Company in 1996 for
his services made to the Company. Mr. Addy received no cash compensation
during his service with the Company but was paid in Company restricted stock
at the rate of 2,500 shares for each quarter of service with proportionate
shares for partial quarters and with an initial award of 10,000 shares.
Other Named Executive Officers--Cash Compensation. Salary levels for the
other named executive officers are based upon assessment of each individual's
performance, experience and value in attaining corporate financial and
strategic objectives and are set within salary ranges based on surveys of
prevailing practice with the mid-point targeted for the expected level of
performance, experience and value. The Committee compares the Company's annual
cash payments (both salary and annual incentive) for named executive officers
to recognized annual surveys of practice in its industry. Industry practice is
observed from surveys conducted by Organization Resources Counselors for the
"Energy 27" Comparator Group and William M. Mercer, Incorporated. Together
they constitute a statistically valid database for this purpose and the
Committee is guided by it. The industry specific surveys used include all but
one of those companies found in the performance graph's Dow Jones Oil-
Secondary Index. The sole use of the smaller number of companies in that peer
group produces
17
<PAGE>
pay data comparisons that are not considered as statistically meaningful or
useful for the purpose of salary comparisons, and the group of companies in
that peer group does not include all of the companies that are the Company's
most direct competitors for executive talent.
During 1996, the aggregate salaries of the named executive officers who were
still employed by the Company at year end, not including Mr. Addy, summed to
an amount equal to 14% above the sum of the size-adjusted median survey
salaries for their positions. One of the named executive officers received a
salary increase during 1996 which, on an annualized basis, amounted to 4.7% of
the named executive officer's salary.
Incentive Plan Compensation. It is the practice of the Company, which is
endorsed and effected by the Committee, to encourage both desirable annual
operating results and long-term total shareholder return by annual incentive
opportunities that put an important portion of total pay at risk subject to
the achievement of financial and operating goals. The portion of compensation
at risk is intentionally higher at higher executive levels in the Company.
Consequently much of a named executive officer's compensation is at risk, with
potential annual and long-term incentives, at target levels, placing up to 50%
of total compensation opportunity at risk. The Committee also considers
comparative data when determining the potential size of both annual and long-
term incentive awards.
By year end Messrs. Irani and McCormick were the only named executive
officers participating in the Company's Performance Incentive Plan. The level
of this opportunity is designed to be consistent with industry practice. Their
target awards in 1996 ranged from 35% to 40% of salary. In 1996, Plan awards
required the achievement of goals set by the Committee at the beginning of the
year including operating income attainment and reserve finding-cost
effectiveness. Funding, based on results, could have ranged from zero to 150%
of the target awards. However, after a review of 1996 operating results, the
various performance targets and the circumstances relating to the upcoming
spin off, the Committee determined that it would be appropriate to waive
previously approved performance factors and authorized individual participant
reviews to determine the extent to which 1996 goal achievement would be
recognized for purposes of 1996 bonus payouts. This resulted in awards for
Messrs. Irani and McCormick of 136% and 71%, respectively, of target.
Stock Incentive Plan. In February of 1996, the Company offered additional
incentive for stock price growth and total shareholder return through the
award of Performance-Based restricted stock under the Company's Stock
Incentive Plan, in which Messrs. Biegler and Junco participated, and stock
options under the Company's Stock Incentive Plan, in which Messrs. Biegler,
Junco, Irani and McCormick participated. In addition, after a decision by the
full Board regarding the need to retain and extend additional incentives to
key executives in the face of certain disruptions occurring as a result of the
upcoming spin off, in September the Company made additional awards of
Performance-Based restricted stock and stock options to Messrs. Junco, Irani
and McCormick. The awards of Performance-Based restricted stock are subject to
forfeiture in whole or in part unless specific goals which have been
determined by the Compensation Committee are achieved. The goals compare the
three year total shareholder return of the Company to the Dow Jones Oil-
Secondary Index used in the performance graph in the Company's 1996 Form 10-K.
After the three year goals are met, the restricted stock is subject to an
additional requirement of continued employment for two more years. Awards are
made to achieve the earlier stated objective of causing a significant portion
of each executive's total pay to be at risk and dependent on total shareholder
return primarily through stock price growth as well as the objective of
keeping outstanding executives by providing compensation opportunities similar
to those provided in the Company's industry. The Committee considered the
objective that the executive have an important incentive for stock price gain.
In determining the size of Performance-Based restricted stock and stock option
awards, the Committee used its discretion and was not bound by any pre-adopted
formulas. Performance-Based restricted stock and stock option awards in 1996
and options held at year end are described in the tables.
Change-in-control provisions of the Company's Stock Incentive Plan operated
in 1996 to lift the restrictions on Performance-Based restrictive stock held
by Messrs. Biegler and Junco as described in the table. Mr. Junco resigned his
position on October 31, 1996, and was paid a settlement that included
surrender of his stock options, restricted stock, rights under his change-in-
control agreement and other amounts owing to him.
18
<PAGE>
Retirement Plan. The Company encourages career employment and it is endorsed
by the Committee. Its retirement benefits are an essential part of that
policy. They are described, for the named executive officers, in the Pension
Plan Table. The Committee periodically reviews executive retirement benefits
to ensure that they continue to meet the Company's needs and are consistent
with good corporate practice.
Section 162(m). No formal policy has been adopted by the Company with
respect to qualifying compensation paid to its executive officers for
deductibility under Section 162(m) of the Internal Revenue Code. In the event
that any new compensation programs are proposed in the future, it is expected
that they will be structured with a view toward qualifying for deductibility
just as were the amendments to the 1994 Stock Incentive Plan as approved by
shareholders in 1996. The Committee does not anticipate that current
compensation levels will result in loss of any tax deductibility.
Compensation Committee
W. C. McCord, Chairman
F. S. Addy
B. A. Bridgewater, Jr.
19
<PAGE>
PERFORMANCE GRAPH
Set forth below is a line graph comparing the percentage change in the
cumulative total shareholder return on the Company's Common Stock against the
cumulative total return of the S&P 500 Composite Stock Index and the Dow Jones
Oil-Secondary Index since the Company's stock first began trading. The graph
assumes that the value of the investment in the Company's Common Stock and
each index was $100 at January 3, 1995, the date the Company's stock first
began trading, and that all dividends are reinvested. The publicly traded
units of EP for the period prior to 1995 are not included in the performance
graph because such partnership interest was valued on a different basis from
the Common Stock currently traded and any comparisons would be inappropriate.
COMPARISON OF CUMULATIVE TOTAL RETURN
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
January 3, 1995 1995 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Enserch Exploration, Inc. 100 115 114
S&P 500 100 137 169
Dow Jones Oil-Secondary Index 100 116 143
- --------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
At various times during 1996, the following individuals served as a member
of the Company's Compensation Committee: W. C. McCord, Frederick S. Addy and
B. A. Bridgewater, Jr. Except for Mr. Addy, neither of the other individuals
was or has been an officer or employee of the Company or its subsidiaries. Mr.
Addy's service on the Compensation Committee ceased in September 1996 when he
was named interim Chairman and Chief Executive Officer of the Company and its
subsidiaries.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The Company is aware of the following beneficial owners, as of December 31,
1996, of more than 5% of its Common Stock.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF SHARES PERCENT
BENEFICIAL OWNER (1) BENEFICIALLY OWNED OF CLASS
-------------------- ------------------ --------
<S> <C> <C>
ENS Holdings Limited Partnership (2)............. 53,336,434 42.3%
Enserch Exploration Holdings, Inc. (3)........... 13,883,529 11.0
ENSERCH Corporation (4).......................... 37,795,365 30.0
</TABLE>
- --------
(1) The address for each party is 300 South St. Paul, Dallas, Texas 75201
(2) ENS Holdings Limited Partnership, a Texas limited partnership, is trustee
(the "Trustee") of the ENS Holding Trust, a Texas trust (the "Trust") of
which ENSERCH is the beneficiary. ENS Holdings I, Inc., the general
partner (the "Trustee GP") of the Trustee and ENS Holdings II, Inc., the
sole limited partner of the Trustee, are each wholly owned subsidiaries of
ENSERCH. The Trustee has voting and dispositive power with respect to the
53,336,434 shares of the outstanding Common Stock owned by the Trust and
may be deemed to beneficially own those shares. ENSERCH has the power to
revoke the Trust by giving not less than 90 days' prior notice of
revocation. Upon termination of the Trust, the assets in the Trust
(including any shares of Common Stock in the Trust at that time) would be
distributed to ENSERCH. Actions of the Trustee are effected by the Trustee
GP in its capacity a general partner of the Trustee.
(3) Enserch Exploration Holdings, Inc. is a wholly owned subsidiary of
ENSERCH.
(4) ENSERCH has sole voting and dispositive power with respect to 37,795,365
shares of the Common Stock and, by virtue if its ownership of the
securities of EEH, the Trustee and the Trustee GP, may be deemed to share
voting and dispositive power with respect to the 67,219,963 shares of
Common Stock shown in the table as owned by EEH and the Trust. ENSERCH,
therefore, may be deemed to owned beneficially, directly or indirectly,
105,015,328 shares of Common Stock.
21
<PAGE>
STOCK OWNERSHIP OF MANAGEMENT AND BOARD OF DIRECTORS
Each director, the named executive officers, and all directors and executive
officers as a group, reported beneficial ownership as of the Record Date of
Common Stock of the Company as follows:
<TABLE>
<CAPTION>
EEX ENSERCH
------------------------------------- ----------------------
NUMBER OF NUMBER OF NUMBER OF
SHARES PHANTOM SHARES
BENEFICIALLY PERCENT STOCK UNITS BENEFICIALLY PERCENT
OWNED (1) OF CLASS OWNED(2) OWNED (3) OF CLASS
------------ -------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C>
T. M Hamilton........... 100,000 * 0 0 *
F. S. Addy.............. 15,432 * 2,092 5,444 *
D. W. Biegler........... 46,000(4)(6) * 0 309,043(5) *
B. A. Bridgewater, Jr... 1,000 * 2,092 5,944 *
M. P. Mallardi.......... 0 * 2,092 0 *
W. C. McCord............ 2,000 * 2,092 66,301(5) *
R. L. Kincheloe......... 11,500(4) * 0 44,676(5) *
G. J. Junco............. 24,600 * 0 10,189(5) *
J. T. Williams.......... 35,000(4) * 0 0 *
B. K. Irani............. 61,000(4) * 0 0 *
J. P. McCormick......... 44,500(4) * 0 8,796(5) *
All Directors and Execu-
tive Officers as a
Group.................. 415,532(4) * 8,368 422,423(5) *
</TABLE>
- --------
* Less than 1%
(1) The number of shares owned includes shares held in the ENSERCH Corporation
Employee Stock Purchase and Savings Plan and restricted shares awarded
under the 1996 Plan, where applicable.
(2) Phantom Stock Units are awarded under the Company's Phantom Stock Plan to
non-employee Directors. The Plan is described in "Compensation of
Directors."
(3) The number of shares owned includes shares held in the ENSERCH Corporation
Employee Stock Purchase and Savings Plan where applicable.
(4) The totals include shares of Common Stock of the Company subject to stock
options exercisable within 60 days of the Record Date: D. W. Biegler
35,000 shares; R. L. Kincheloe 9,000 shares; J. T. Williams 35,000 shares;
B. K. Irani 40,000 shares; J. P. McCormick 20,000 shares; and all
directors and executive officers as a group 136,000 shares.
(5) The totals include shares of Common Stock of ENSERCH subject to stock
options exercisable within 60 days of the Record Date: D. W. Biegler
246,948 shares; W. C. McCord 65,000 shares; R. L. Kincheloe 34,500 shares;
J. P. McCormick 7,500 shares; and all directors and executive officers as
a group 373,748 shares.
(6) Does not include 105,015,328 shares beneficially owned by ENSERCH and its
affiliates in which Mr. Biegler, as authorized by the Board of Directors
of ENSERCH, has sole voting power.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Biegler is a Director and an executive officer, and Messrs. Bridgewater
and McCord are each Directors, of ENSERCH. The Company and ENSERCH, including
its affiliates, have in the past entered into significant arrangements with
respect to their businesses and expect to do so in the future to the extent
authorized by the Restated Articles of Incorporation of the Company.
In the ordinary course of business, the Company engages in various
transactions with ENSERCH companies. See Note 13 of the Notes to Financial
Statements in Appendix A for information on these transactions.
22
<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the officers
and directors of the Company, and persons who own more than 10% of a
registered class of the equity securities of the Company, to file reports of
beneficial ownership and changes in beneficial ownership with the SEC and the
New York Stock Exchange. Based solely on its review of the copies of such
reports received by it, or written representations from certain reporting
persons that no Forms 5 were required for those persons, the Company believes
that during 1996, its officers, directors and greater than 10% shareholders
complied with all applicable filing requirements.
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-3
Financial Review........................................................ A-4
Independent Auditors' Report............................................ A-9
Management Report on Responsibility for Financial Reporting............. A-10
Financial Statements:
Statements of Consolidated Operations................................. A-11
Statements of Consolidated Cash Flows................................. A-12
Consolidated Balance Sheets........................................... A-13
Statements of Owners' Equity.......................................... A-14
Notes to Consolidated Financial Statements............................ A-15
Quarterly Results....................................................... A-30
Common Stock Market Prices and Dividend Information..................... A-30
</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, filed as Exhibit 3.1 to the Company's Form 10-K for the year
ended December 31, 1995.
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).
23
<PAGE>
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, and Amendment No. 1, dated September 16, 1996.
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 1997.
10.16 ENSERCH Corporation Deferred Compensation Plan dated September 30, 1994
and Amendment No. 1 thereto dated March 28, 1995, Amendment No. 2 dated
January 1, 1996, Amendment No. 3 dated September 23, 1996, Amendment
No. 4 dated November 6, 1996 and Amendment No. 5 dated February 18,
1997.
10.17 ENSERCH Corporation Deferred Compensation Trust dated September 30,
1994, and Amendment No. 1 thereto effective January 1, 1996.
10.18 ENSERCH Corporation Retirement Income Restoration Plan dated December
28, 1990, and Amendment No. 1 thereto dated September 30, 1994,
Amendment No. 1-A dated February 13, 1996, and Amendment No. 2
effective January 1, 1996.
10.19 ENSERCH Corporation Retirement Income Restoration Trust dated September
30, 1994, and Amendment No. 1 thereto effective January 1, 1996.
10.20 Form of Change of Control Agreement executed by certain executive
officers of the Company.
21 Subsidiaries of the Company.
24
<PAGE>
23.1 Deloitte & Touche LLP consent letter, including consent to
incorporation by reference in Registration Statements on Form S-8 (No.
33-57715 and No. 33-60587).
23.2 Consent of DeGolyer and MacNaughton.
24 Powers of Attorney.
27 Financial Data Schedule.
99* Proxy Statement of the Company dated October 2, 1996, as filed with the
SEC.
- --------
Long-term debt is described in 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
Current Report on Form 8-K dated October 31, 1996, was filed on October 31,
1996 (Resignation of Gary J. Junco as President and Director) and Current
Report on Form 8-K dated November 22, 1996, was filed on November 22, 1996
(Results of vote on proposals at Special Meeting of Shareholders held on
November 15, 1996).
25
<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.
By: /s/ T. M Hamilton
--------------------------------
T. M Hamilton,
Chairman and President
MARCH 21, 1997
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON
THE DATE INDICATED.
SIGNATURE TITLE
T. M Hamilton, Chairman and
President, Chief Executive Officer
and Director; F. S. Addy, Director;
D. W. Biegler, Director; B. A.
Bridgewater, Jr., Director; W. C.
McCord, Director; and M. P.
Mallardi, Director
By: /s/ T. M Hamilton
-------------------------------------- March 21, 1997
T. M Hamilton
Individually and As
Attorney-in-Fact
/s/ J. P. McCormick
-------------------------------------- March 21, 1997
J. P. McCormic
Senior Vice President and
Chief Financial Officer
/s/ R. E. Schmitz
-------------------------------------- March 21, 1997
R. E. Schmitz
Vice President and Controller
26
<PAGE>
APPENDIX A
ENSERCH EXPLORATION, INC.
INDEX TO FINANCIAL INFORMATION
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Selected Financial Data.................................................... A-2
Operating Data............................................................. A-3
Financial Review........................................................... A-4
Independent Auditors' Report............................................... A-9
Management Report on Responsibility for Financial Reporting................ A-10
Financial Statements:
Statements of Consolidated Operations.................................... A-11
Statements of Consolidated Cash Flows.................................... A-12
Consolidated Balance Sheets.............................................. A-13
Statements of Owners' Equity............................................. A-14
Notes to Consolidated Financial Statements............................... A-15
Quarterly Results.......................................................... A-30
Common Stock Market Prices and Dividend Information........................ A-30
</TABLE>
A-1
<PAGE>
ENSERCH EXPLORATION, INC.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
AS OF OR FOR YEAR ENDED DECEMBER 31,
------------------------------------------------
1996 1995(A) 1994 1993 1992
-------- -------- -------- -------- --------
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Natural gas revenues........ $ 221.2 $ 157.3 $ 144.5 $ 146.4 $ 118.6
Oil and condensate
revenues................... 98.9 56.5 30.9 36.9 45.1
Natural gas liquids
revenues................... 8.2 4.9 2.4 4.1 6.5
Other revenues.............. 2.1 2.1 1.3 2.4 1.3
-------- -------- -------- -------- --------
Total revenues............. 330.4 220.8 179.1 189.8 171.5
Production and operating
expenses................... 74.0 49.8 31.7 31.4 29.6
Exploration................. 12.5 11.9 9.1 8.7 11.2
Depreciation and
amortization............... 150.4 116.6 80.8 78.4 76.7
(Sale) write down of
inactive pipeline.......... (7.5) 16.5
Write down of gas and oil
properties................. 10.2
General, administrative and
other...................... 35.0 29.9 19.8 30.0 23.1
Taxes, other than income.... 21.7 18.8 13.2 15.9 15.6
-------- -------- -------- -------- --------
Total expenses............. 293.6 227.0 147.1 174.6 172.7
Operating income (loss)..... 36.8 (6.2) 32.0 15.2 (1.2)
Other income (expense)--
net........................ 2.1 .1 (.3)
Interest income............. .1 1.0 .7 2.0 3.7
Interest and other financing
costs...................... (22.7) (14.6) (20.9) (30.6) (20.7)
-------- -------- -------- -------- --------
Income (loss) before income
taxes...................... 16.3 (19.7) 11.5 (13.4) (18.2)
Income taxes (benefit)...... 5.5 (7.2) (.3) (3.4) .4
-------- -------- -------- -------- --------
Net income (loss)........... $ 10.8 $ (12.5) $ 11.8 $ (10.0) $ (18.6)
-------- -------- -------- -------- --------
Pro Forma Information--
Change in Tax Status(b):
Income (loss) before income
taxes...................... $ 11.5 $ (13.4) $ (18.2)
Income taxes (benefit)...... 4.0 (4.7) (6.4)
-------- -------- --------
Net income (loss).......... $ 7.5 $ (8.7) $ (11.8)
======== ======== ========
Net income (loss) per share
(pro forma for periods
prior to 1995)............. $ .09 $ (.11) $ .07 $ (.08) $ (.11)
Weighted average shares
outstanding................ 125.9 111.1 105.8 105.8 105.8
CASH FLOW DATA
Net cash provided by
operating activities....... $ 134.9 $ 84.0 $ 61.7 $ 79.5 $ 85.2
Net cash used in investing
activities................. (63.0) (388.2) (108.8) (129.0) (58.7)
Net cash provided by (used
in) financing activities... (72.1) 305.5 47.0 48.9 (25.7)
COMMON STOCK DATA
Market Price(c)
High........................ $ 12 $ 14 7/8 $ 11 $ 12 1/4 $ 8 1/4
Low......................... 8 1/4 9 1/4 5 3/4 7 3/8 6 1/4
Common Shareholders' Equity
per Share.................. 7.49 7.41 6.96
Shares Outstanding at Year-
end........................ 126.0 125.9 105.8
BALANCE SHEET DATA (at year
end)
Property, plant and
equipment--net............. $1,746.7 $1,670.6 $1,254.0 $1,046.4 $1,018.4
Total assets................ 1,872.1 1,776.8 1,381.2 1,111.5 1,068.8
CAPITAL STRUCTURE (at year
end)
Capital lease
obligations(d)............. $ 245.0 $ 98.0 $ 155.9 $ $
Long term debt(d)........... 115.0 160.0 298.0 266.0
Company-obligated
mandatorily redeemable
preferred
securities of subsidiary... 150.0 150.0
Owners' equity.............. 944.2 932.2 736.0 630.7 671.7
-------- -------- -------- -------- --------
Total...................... $1,454.2 $1,340.2 $ 891.9 $ 928.7 $ 937.7
======== ======== ======== ======== ========
</TABLE>
- --------
(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 share amounts for years prior to 1995 represent prices of
Enserch Exploration Partners, Ltd. units.
(d) Including current portion.
A-2
<PAGE>
ENSERCH EXPLORATION, INC.
OPERATING DATA
<TABLE>
<CAPTION>
AS OF OR FOR YEAR ENDED DECEMBER 31
--------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Sales volumes
Natural gas (Bcf)............... 100.5 90.2 67.1 70.0 65.2
Oil and condensate (MMBbls)..... 5.1 3.4 2.0 2.1 2.3
Natural gas liquids (MMBbls).... .6 .5 .2 .3 .5
Total volumes (Bcfe) (a)...... 135.0 113.4 80.5 84.9 82.2
Average sales price
Natural gas (per Mcf)........... $ 2.20 $ 1.74 $ 2.15 $ 2.09 $ 1.82
Oil and condensate (per Bbl).... 19.47 16.86 15.38 17.24 19.20
Natural gas liquids (per Bbl)... 12.35 9.38 10.85 12.09 13.38
Total (per Mcfe) (a).......... 2.43 1.93 2.21 2.21 2.07
Costs and expenses (per Mcfe) (a)
Production and operating (b).... $ .55 $ .44 $ .39 $ .37 $ .36
Exploration..................... .09 .10 .11 .10 .14
Depreciation and amortization... 1.11 1.03 1.00 .92 .93
General, administrative and oth-
er............................. .26 .26 .25 .35 .28
Taxes, other than income........ .16 .17 .16 .19 .19
Net Wells
Drilled......................... 109 81 74 79 19
Productive...................... 84 51 44 64 8
Proved Reserve Data (at year end)
Natural Gas (Bcf)............... 1,216.2 1,362.8 1,041.7 1,086.5 1,101.4
Oil and condensate (MMBbls)
(c)............................ 59.2 71.5 50.6 39.3 39.2
Total (Bcfe) (a).............. 1,571.5 1,791.8 1,345.3 1,322.3 1,336.6
Standardized Measure of Discounted
Future Net Cash Flows (in mil-
lions)........................... $1,715.1 $1,227.4 $ 879.3 $1,102.6 $1,111.3
</TABLE>
- --------
(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.
A-3
<PAGE>
ENSERCH EXPLORATION, INC.
FINANCIAL REVIEW
1996 RESULTS OF OPERATIONS COMPARED WITH 1995
Net income was $10.8 million ($.09 per share) for 1996, compared with a net
loss of $12.5 million ($.11 per share) for 1995. Results for 1996 were
adversely impacted by nonrecurring charges of $2.8 million after tax ($4.3
million pre-tax) related to the Company's pending separation from ENSERCH
Corporation (ENSERCH) and associated management changes. The year to year
improvement is primarily attributable to higher commodity prices in 1996 and a
full year's contribution to production volumes from properties acquired in
1995 and the Cooper Project. Operating income was $36.8 million in 1996,
compared with an operating loss of $6.2 million in 1995.
Revenues for 1996 were $330 million, a $110 million (50%) increase from
1995, reflecting a $64 million (41%) increase in natural gas revenues, and a
$46 million (72%) improvement in oil and other revenues. The average natural
gas sales price per thousand cubic feet (Mcf) was $2.20 in 1996 compared with
$1.74 in 1995. Natural gas production increased to 101 billion cubic feet
(Bcf) in 1996, 11% higher than in 1995. The higher natural gas volumes
primarily resulted from 1996 operations containing a full year of production
from the properties acquired in the acquisition of DALEN Corporation in June
1995. Higher oil revenues in 1996 reflect a 15% improvement in the average
sales price and a 52% increase in sales volumes due primarily to the continued
development of the Cooper Project and the DALEN acquisition.
Production and operating expenses for 1996 were $24 million (49%) higher
than in 1995, primarily due to a full year's activity from the Cooper Project
(up $15 million), and the properties acquired in the DALEN acquisition.
Exploration expenses were slightly higher in 1996, reflecting increased costs
from international exploration activity. General and administrative expenses
increased $5.1 million from 1995, reflecting a full year's impact of the DALEN
acquisition and $3.4 million for costs associated with the Company's pending
separation from ENSERCH and related management changes.
The depreciation and amortization rate per thousand cubic feet of natural
gas equivalent (Mcfe) increased to $1.11 in 1996, from $1.03 in 1995,
principally due to the downward reserve revisions in two offshore deep water
projects.
EEX sold substantially all of its Rocky Mountain area properties in 1996.
Sales proceeds of $116.5 million, less $5.5 million in closing costs and
income from the April 1, 1996 effective date to the closing dates, were
received and used to reduce bank borrowings. The properties sold contributed
$1.6 million to 1996 operating income, with total revenues of $22.2 million
and operating expenses of $20.6 million. Natural gas revenues were $15.2
million on sales of 10.8 Bcf, and oil and natural gas liquids revenues totaled
$7.0 million on sales of 504 thousand barrels (MBbls).
Interest and other financing costs for 1996 were $23 million, compared with
$15 million in 1995. Interest in 1996 includes a full year's impact from the
debt incurred to finance the DALEN acquisition in June 1995 and the Cooper
Project capital lease, partially offset by the reduction in debt from proceeds
of property sales. Interest on the Cooper Project capital lease was deferred
through September 1995, the date of first production.
The pro forma incremental impact on 1997's results of operations, compared
with 1996, of refinancing the Cooper Project equipment and facilities in
December 1996 and capitalization of the associated operating sublease will be
a reduction in production and operating expense of some $15 million, an
increase in the amortization rate of approximately $0.05 per Mcfe, and an
increase in interest costs of some $10 million.
For the year ended December 31, 1996 the Cooper Project added $1.2 million
to operating income, but detracted $2.6 million from net income. Operating
results in 1996 were negatively impacted when the A-1 development well
encountered mechanical difficulties which prevented completion. Two additional
wells, the
A-4
<PAGE>
SB-3 exploratory well on Garden Banks Block 387 and the A-2 development well
on Garden Banks Block 388 have been completed with first production expected
in the first quarter of 1997. See Item 1: Business, for additional
information.
1995 RESULTS OF OPERATIONS COMPARED WITH 1994
EEX had a net loss of $12.5 million ($.11 per share) for 1995, compared with
pro forma net income of $7.5 million ($.07 per share) in 1994 after income
taxes on partnership operations. Results for 1994 benefitted from a $4.9
million after tax ($7.6 million pre-tax) gain from the sale of assets. There
was an operating loss of $6.2 million in 1995, compared with operating income
of $32 million in 1994.
DALEN's operations are included since their 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. Natural gas revenues were $49
million on sales of 31 Bcf at an average sales price of $1.60 per Mcf. Oil and
other revenues totaled $21 million; the average sales price for oil was $16.61
per barrel (Bbl), and oil sales volumes were 1.1 million barrels (MMBbls).
The following comparisons of 1995 and 1994 operating results exclude the
impact of DALEN in 1995 and the previously noted unusual item in 1994. There
was an operating loss for 1995 of $13 million, compared with income of $24
million for 1994. 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 the Mississippi
Canyon Block 441 in the Gulf of Mexico. 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 Cooper Project in late September, and
increased production from exploration and development activities in Hardeman
and Shackelford counties in North Texas.
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 Cooper Project and higher maintenance costs. The commencement of sales
from the Cooper 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. Exploration expenses were $1.9
million higher than in the 1994 period due to increased international
exploration activity. General and administrative 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 the DALEN acquisition, while 1994 expenses benefited from credits
of $2.0 million associated with litigation accruals.
The total amortization rate per Mcfe was $1.03 in 1995, compared with $1.00
in 1994. The increase in 1995 over 1994 was primarily due to the conversion of
a part of the Cooper Project 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 the Allegheny Project and DALEN.
Excluding DALEN, a lower level of production caused depreciation and
amortization to be less in 1995 than in 1994.
Interest and other financing costs for 1995 were $15 million, compared with
$21 million for 1994. The 1995 costs are primarily associated with the DALEN
acquisition. Interest for 1994 related to debt assumed by ENSERCH companies in
connection with the reorganization.
The pro forma impact on 1994's net income as shown on EEX's Statements of
Consolidated Operations of the incorporation of EP and the assumption of debt
by ENSERCH companies, would be to decrease interest $20.9
A-5
<PAGE>
million and increase income taxes a total of $11.6 million, $4.3 million on
partnership operations and $7.3 million on the interest reduction.
RESERVES
EEX's natural gas reserves, as estimated by DeGolyer and MacNaughton,
independent petroleum consultants (D&M), at January 1, 1997 were 1.22 trillion
cubic feet (Tcf), compared with 1.36 Tcf the year earlier. Additions to and
purchases of natural gas reserves in 1996 replaced gas produced from retained
properties after adjusting for the sale of 124 Bcf of gas reserves. As a
result, natural gas reserves at year end 1996 for retained properties were
little changed from the year earlier. Oil and condensate reserves, including
natural gas liquids, were 59 MMBbls, down 8.6 MMBbls compared with the year
earlier level of 71 MMBbls after adjusting for the sale of 3.7 MMBbls,
additions at 102% of 1996 adjusted production and downward revisions of 8.2
MMBbls at the Company's deep water projects in the Gulf of Mexico. The
downward revisions resulted from the performance of two producing wells at the
Cooper Project and the thinning of some previously mapped reservoirs as a
result of additional drilling at the Allegheny Project.
GAS AND OIL MARKET VOLATILITY
Results of operations are largely 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, 1997 constituted approximately 80% of total reserves, and gas
production accounted for approximately 77% of total production for 1996.
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. EEX fixed the price on 1996
production volumes of 43 Bcf of natural gas (43% of production) at an average
price of $2.11 per Mcf and 2.7 MMBbls of oil (52% of production) at an average
price of $19.58 per Bbl. In total, gas and oil price hedging activities
decreased 1996 revenues by $20.3 million and increased 1995 and 1994 revenues
by $.1 million and $4.3 million, respectively. At December 31, 1996, EEX had
outstanding swaps, collars and futures agreements that were entered into as
hedges extending through December 31, 1997 to exchange payments on 32 Bcf of
natural gas and 365 MBbls of oil. At December 31, 1996 there were $3.0 million
of net unrealized and unrecognized hedging gains based on the difference
between the strike price and the New York Mercantile Exchange futures price
for the applicable trading month. In addition, there were $5.1 million of
realized losses on hedging activities which were deferred and will be applied
as a reduction in revenues in January 1997, the month of physical sale of
production.
CAPITALIZED COSTS
At January 1, 1997, estimated future net cash flows, before income taxes,
from EEX's owned proved oil and gas reserves, based on average December 1996
prices of $3.37 per Mcf of natural gas and $23.33 per barrel of oil were $3.9
billion. The net present value of such cash flows after income taxes and
discounted at 10%, was $1.7 billion, which is the basis for the SEC-prescribed
cost center ceiling for the full cost accounting method. The margin between
the cost center ceiling and the unamortized capitalized costs of U.S. oil and
gas properties was about $540 million at December 31, 1996.
Product prices, production rates, levels of reserves and estimates of future
development costs all influence the calculation of the cost center ceiling,
making it difficult to project. Gas and oil prices are subject to seasonal and
other fluctuations and, from time to time, may vary significantly. Product
prices generally have the greatest impact on the cost center ceiling. At
December 31, 1996, a $0.10 per Mcf change in the price of natural gas has
about a $45 million impact on the cost center ceiling; a $1.00 per barrel
change in the oil price has about a $20 million impact.
A-6
<PAGE>
The SEC-prescribed full cost accounting rules require registrants to
calculate the cost center ceiling limitation at the end of each quarter using
current prices and costs. Prices for natural gas and oil have declined sharply
since the end of 1996. If there is not a substantial improvement in prices or
mitigating changes in the other factors involved in the calculation by the end
of the first quarter, the carrying value of EEX's oil and gas properties
almost certainly will be above the SEC-prescribed cost center ceiling. Such
conditions would necessitate a significant write-down of gas and oil
properties and a non-cash charge against earnings for the quarter. Based on
circumstances existing in March 1997 and without any pricing improvement or
mitigating changes, such a write-down could range from $225 to $250 million
after tax.
Management believes the low prices required to be used in the calculation
are not representative of the prices EEX will receive for its production in
the future. A non-cash write-down of oil and gas properties will reduce future
depreciation and amortization expense but will not impact future cash flows.
LIQUIDITY AND CAPITAL RESOURCES
During 1996, EEX took certain actions to assure its liquidity and access to
financial resources to fund its investment and growth opportunities. EEX
renewed its $350 million revolving credit facility extending it to five years.
At December 31, 1996, $235 million was unused. EEX converted its Cooper
Project equipment leases, which had been with an ENSERCH affiliate, to fifteen
year leveraged leases with third party financial institutions for $229
million. EEX also arranged a $200 million, seven year operating lease
commitment from a group of banks to finance the construction of its share of
the Allegheny Project offshore equipment and facilities, of which $182 million
was unused at year end. EEX made minor changes in other facilities to ensure
continued availability of its financial resources to meet its planned
activities. See Note 7 of the Notes to Consolidated Financial Statements for
additional information.
CASH FLOWS
EEX funded the 1996 business plan and reduced financings by $74 million,
primarily from operations and monetization of non-core assets. Net cash flows
from operating activities increased $51 million to $135 million, compared with
$84 million in 1995 and $62 million in 1994. Investing activities required net
cash flows of $63 million in 1996, compared with $388 million in 1995 and $109
million in 1994. 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. Proceeds from the disposition of
property, plant and equipment in 1996 include amounts received from the sale
of the Rocky Mountain area and other properties. In 1995, proceeds include
amounts received from the sale of interests in the Cooper and Allegheny
projects. Capital expenditures of $204 million in 1996 increased $15 million
from 1995, principally related to normal exploration and development
activities.
EEX intends to utilize substantially all of its internally generated cash
flows for growth of the business and expects to have ample cash flow from
operations and the continuous monetization of non-core assets to fund its
business plans. Borrowings under EEX's credit facilities may be used to
supplement temporary cash flow needs. EEX does not anticipate paying cash
dividends in the foreseeable future.
CAPITAL STRUCTURE
Debt and preferred securities of a subsidiary represented 35% of total
capitalization of $1.5 billion for December 31, 1996, compared to 30% of total
capitalization of $1.3 billion for December 31, 1995. This increase was due
primarily to the conversion of the operating sublease to a capital lease when
the Cooper Project leases were refinanced, offset by reduced bank borrowings
and improved shareholders' equity. See Note 7 of the Notes to Consolidated
Financial Statements for additional information.
A-7
<PAGE>
CAPITAL BUDGET
Planned 1997 capital expenditures will range from $175 million to $200
million, compared with actual expenditures of $204 million in 1996 and $189
million in 1995. Capital expenditure amounts exclude costs of offshore
equipment and facilities financed under operating lease arrangements of $25
million in 1996, $24 million in 1995, and are expected to be minimal in 1997.
FOURTH QUARTER RESULTS
Fourth quarter 1996 net income was $3.3 million ($.03 per share), compared
with a net loss of $5.4 million ($.04 per share) for the 1995 fourth quarter.
Operating income for the 1996 fourth quarter was $7.8 million versus an
operating loss of $4.7 million for the same period of 1995. The increased
fourth quarter 1996 income reflects a 44% increase in the average sales prices
per Mcfe from 1995 to 1996, partially offset by costs related to the Company's
pending separation from ENSERCH and associated management changes, and
increased amortization expense as previously noted.
A-8
<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, 1996 and
1995, and the related statements of consolidated operations, cash flows and
owners' equity for each of the three years in the period ended December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the consolidated financial position of the Company at December 31,
1996 and 1995, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dallas, Texas
February 10, 1997 (March 7, 1997 as
to the third paragraph of Note 4)
A-9
<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, 1996, the overall system of
internal accounting controls is sufficient to accomplish the objectives
described herein.
Thomas M Hamilton J. Philip McCormick
Chairman, President Senior Vice
and Chief Executive President and Chief
Officer Financial Officer
February 10, 1997
A-10
<PAGE>
ENSERCH EXPLORATION, INC.
STATEMENTS OF CONSOLIDATED OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------
1996 1995 1994
------------- ------------- -------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues
Natural gas..................... $ 221,239 $ 157,308 $ 144,550
Oil and condensate.............. 98,902 56,525 30,880
Natural gas liquids............. 8,150 4,859 2,377
Other........................... 2,150 2,159 1,333
------------- ------------- -------------
Total......................... 330,441 220,851 179,140
------------- ------------- -------------
Costs and Expenses
Production and operating........ 74,020 49,792 31,667
Exploration..................... 12,453 11,848 9,136
Depreciation and amortization... 150,435 116,614 80,819
Sale of inactive pipeline....... (7,551)
General, administrative and
other.......................... 34,995 29,937 19,807
Taxes, other than income........ 21,715 18,813 13,233
------------- ------------- -------------
Total......................... 293,618 227,004 147,111
------------- ------------- -------------
Operating Income (Loss)........... 36,823 (6,153) 32,029
Other Income (Expense)--Net....... 2,092 64 (314)
Interest Income................... 66 1,027 671
Interest and Other Financing
Costs............................ (22,667) (14,617) (20,919)
------------- ------------- -------------
Income (Loss) Before Income
Taxes............................ 16,314 (19,679) 11,467
Income Taxes (Benefit)............ 5,540 (7,177) (334)
------------- ------------- -------------
Net Income (Loss)................. $ 10,774 $ (12,502) $ 11,801
============= ============= =============
Pro Forma Information--Change in
Tax Status:
Income before income taxes...... $ 11,467
Income taxes (including income
taxes on partnership
operations).................... 3,990
-------------
Net Income...................... $ 7,477
=============
Net Income (Loss) Per Share (Pro
Forma for 1994).................. $ 0.09 $ (0.11) $ 0.07
============= ============= =============
Weighted Average Shares
Outstanding...................... 125,917 111,137 105,821
============= ============= =============
</TABLE>
See Notes to Consolidated Financial Statements.
A-11
<PAGE>
ENSERCH EXPLORATION, INC.
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1996 1995 1994
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................... $ 10,774 $ (12,502) $ 11,801
Depreciation and amortization............... 150,435 116,614 80,819
Deferred income taxes (benefit)............. 1,795 (9,520) (366)
Sale of inactive pipeline................... (7,551)
Other....................................... (12,625) (11,760) (10,332)
Changes in current operating assets and
liabilities
Accounts receivable....................... (10,808) (22,824) 3,464
Other current assets...................... (3,361) (6,199) (26,333)
Accounts payable.......................... (2,883) 33,854 11,894
Other current liabilities................. 1,579 (3,673) (1,714)
--------- --------- ---------
Net cash flows from operating activities.. 134,906 83,990 61,682
--------- --------- ---------
INVESTING ACTIVITIES
Additions of property, plant and equipment.. (204,363) (189,399) (132,590)
Proceeds from dispositions of property,
plant and equipment........................ 140,863 54,977 13,051
Purchase of DALEN, net of cash acquired..... (332,888)
Collection of note receivable from
affiliated company......................... 86,077
Other....................................... 507 (6,939) 10,755
--------- --------- ---------
Net cash flows used in investing
activities............................... (62,993) (388,172) (108,784)
--------- --------- ---------
FINANCING ACTIVITIES
Borrowings under bank revolving credit
agreement.................................. 136,000 380,000
Repayment of borrowings under bank revolving
credit agreement........................... (181,000) (220,000)
Changes in temporary advances with
affiliated companies....................... (28,993) (89,609) 76,331
Payments of capital lease obligations....... (3,832) (4,424)
Increase (Decrease) in advances under
leasing arrangements--net.................. 5,457 (32,771)
Borrowings under bridge loan................ 150,000
Repayment of DALEN bank debt assumed at
acquisition................................ (115,000)
Issuance of common stock.................... 249 207,940
Issuance of company-obligated mandatorily
redeemable preferred securities of
subsidiary................................. 150,000
Repayment of borrowings under bridge loan... (150,000)
Proceeds from long term notes payable to
affiliated companies....................... 11,000
Cash distributions paid..................... (7,842)
Other....................................... (3,413) 275
--------- --------- ---------
Net cash flows (used in) from financing
activities............................... (72,119) 305,494 46,993
--------- --------- ---------
Net Increase (Decrease) in Cash............... (206) 1,312 (109)
Cash at Beginning of Year..................... 1,546 234 343
--------- --------- ---------
Cash at End of Year........................... $ 1,340 $ 1,546 $ 234
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
A-12
<PAGE>
ENSERCH EXPLORATION, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1996 1995
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current Assets
Cash................................................... $ 1,340 $ 1,546
Accounts receivable--trade (net of allowance for
possible losses of $1,351 and $1,814)................. 61,654 46,749
Accounts receivable--affiliated companies.............. 16,549 20,646
Temporary advances--affiliated companies............... 13,133
Other.................................................. 18,181 14,820
---------- ----------
Total current assets................................. 110,857 83,761
---------- ----------
Property, Plant and Equipment (at cost)
Gas and oil properties (full cost method, $233,478 and
$243,740 excluded from amortization base)............. 2,806,536 2,602,454
Other.................................................. 21,957 20,684
---------- ----------
Total................................................ 2,828,493 2,623,138
Less accumulated depreciation and amortization......... 1,081,845 952,538
---------- ----------
Net property, plant and equipment.................... 1,746,648 1,670,600
---------- ----------
Other Assets............................................. 14,634 22,471
---------- ----------
Total................................................ $1,872,139 $1,776,832
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable--trade................................ $ 90,922 $ 95,386
Accounts payable--affiliated companies................. 8,924 6,836
Temporary advances--affiliated companies............... 15,860
Advances under leasing arrangements.................... 5,457
Current portion of capital lease obligations........... 3,250 3,859
Other.................................................. 10,584 9,005
---------- ----------
Total current liabilities............................ 119,137 130,946
---------- ----------
Bank Revolving Credit Agreement.......................... 115,000 160,000
---------- ----------
Capital Lease Obligations................................ 241,735 94,184
---------- ----------
Other Liabilities
Deferred income taxes.................................. 273,801 271,618
Other liabilities...................................... 28,249 37,856
---------- ----------
Total other liabilities.............................. 302,050 309,474
---------- ----------
Company--Obligated Mandatorily Redeemable Preferred
Securities of Subsidiary................................ 150,000 150,000
Commitments and Contingent Liabilities (Notes 7 and 14)
Preferred Stock--authorized 2 million shares, none issued
at December 31, 1996, 15 shares issued to subsidiary at
December 31, 1995 (eliminated in consolidation)
Shareholders' Equity..................................... 944,217 932,228
---------- ----------
Total................................................ $1,872,139 $1,776,832
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
A-13
<PAGE>
ENSERCH EXPLORATION, INC.
STATEMENTS OF OWNERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1996(IN THOUSANDS)
<TABLE>
<S> <C>
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
=========
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCK
($1.00 PAR
VALUE,
AUTHORIZED 200
MILLION SHARES) UNAMORTIZED
---------------- RESTRICTED TOTAL
SHARES PAID IN STOCK TREASURY SHAREHOLDERS'
ISSUED AMOUNT CAPITAL DEFICIT COMPENSATION STOCK EQUITY
------- -------- -------- -------- ------------ -------- -------------
<S> <C> <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........... 100 100
Market valuation
adjustments........... (22) 22
------- -------- -------- -------- ------- ----- --------
Balance, December 31,
1995................... 125,883 125,883 819,398 (12,502) (551) 932,228
Net income............. 10,774 10,774
Common shares issued
for stock plans....... 24 24 225 249
Unamortized restricted
stock compensation
Shares granted......... 137 137 1,145 (1,190) 92
Restrictions lifted.... 756 756
Awards canceled (25
thousand shares)...... 230 $(230)
Amortization........... 132 132
Market valuation
adjustments........... 40 (54) (14)
------- -------- -------- -------- ------- ----- --------
Balance, December 31,
1996................... 126,044 $126,044 $820,808 $ (1,728) $ (677) $(230) $944,217
======= ======== ======== ======== ======= ===== ========
</TABLE>
See Notes to Consolidated Financial Statements.
A-14
<PAGE>
ENSERCH EXPLORATION, INC.
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
83.3% owned by ENSERCH Corporation (ENSERCH) at year end 1996. 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. 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 and SACROC operations
from ENSERCH in exchange for cash and EEX Common Stock. 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. 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
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.
Gas and Oil Properties--The full cost accounting method as 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, including assets acquired under capital leases, is computed on the
unit of production method using estimated proved gas and oil reserves
quantified on the basis of their equivalent energy content. Depreciation of
other property, plant and equipment is provided principally by the straight
line method over the estimated service lives of the related assets. At
December 31, 1996, 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.
A-15
<PAGE>
ENSERCH EXPLORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 recognized as an adjustment to interest and other
financing costs over the term of the agreement.
Stock Based Employee Compensation--Statement of Financial Accounting
Standards No. 123, "Accounting for Stock Based Compensation," (SFAS123)
encourages, but does not require companies to record compensation cost for
stock based employee compensation plans at fair value. EEX has chosen to
continue to account for stock based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related Interpretations. Accordingly,
compensation cost for stock options is measured as the excess, if any, of the
quoted market price of EEX's stock at the date of the grant over the amount an
employee must pay to acquire the stock. The final compensation cost for
restricted stock awards is based on the quoted market price of EEX's stock at
the date the award becomes vested (See Note 9).
3. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest, net of amounts capitalized, was $23,422 in 1996,
$11,890 in 1995 and $20,248 in 1994. Net cash income taxes paid were $1,530 in
1996 and $6,011 in 1995.
The table below summarizes non cash investing and financing activities:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Capital asset and lease obligations assumed.... $150,775 $155,855
======== ========
Capital asset and lease obligations assumed by
others........................................ $(53,388)
========
Purchase of DALEN
Fair value of assets acquired.................. $474,755
Cash paid for acquisition...................... 332,888
--------
Liabilities assumed............................ $141,867
========
</TABLE>
4. MERGER WITH LONE STAR ENERGY PLANT OPERATIONS, INC.
On April 15, 1996, ENSERCH announced that it had entered into a merger
agreement with Texas Utilities Company (TUC), subject to shareholder and
regulatory approval. The merger is to be preceded by the distribution of
ENSERCH's approximate 83% interest in EEX to the ENSERCH shareholders.
In connection with this distribution, EEX will merge with Lone Star Energy
Plant Operations, Inc. (LSEPO), a subsidiary of ENSERCH. LSEPO operates and
maintains, under long term contracts, three cogeneration facilities. The value
of LSEPO was fixed at $7.0 million, which includes an ENSERCH working capital
guarantee of $3.5 million. The number of shares issued by the merged entity in
exchange for the outstanding LSEPO common stock will be determined by dividing
$7 million by the average of the closing sales price of EEX common stock for
the 15 trading days preceding the fifth trading day prior to the effective
time of the merger. An average market price for EEX shares of $9.00 per share
(778,000 shares) was assumed to determine the pro forma shares outstanding and
pro forma earnings per share of the combined entities.
A-16
<PAGE>
ENSERCH EXPLORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On November 15, 1996, in separate meetings, the shareholders of TUC, ENSERCH
and EEX approved the mergers and the related distribution. All regulatory
approvals have been received except for the approval by the Securities and
Exchange Commission under the Public Utility Holding Company Act of 1935 where
the approval process is proceeding. The Antitrust Division of the U.S.
Department of Justice (DOJ) has notified ENSERCH and TUC that its
investigation of the proposed merger has been closed without the DOJ taking
any action or requiring ENSERCH or TUC to take any action. In a private letter
ruling, the Internal Revenue Service notified ENSERCH that neither ENSERCH nor
its shareholders will recognize taxable gain in the distribution of EEX stock.
Following is a summary of pro forma combined results of operations of EEX
and LSEPO:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Revenues....................................... $337,953 $237,358 $191,866
Operating Income (Loss)........................ 38,299 (3,904) 33,432
Net Income (Loss).............................. 11,707 (11,132) 12,614
Net Income (Loss) After Pro Forma Income Taxes
on Partnership Operations..................... 11,707 (11,132) 8,290
Net Income (Loss) Per Share.................... .09 (.10) .08
</TABLE>
5. 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 values.
Essentially all of the valuation adjustment was assigned to gas and oil
properties.
Assuming the DALEN acquisition had occurred at the beginning of 1995, EEX
pro forma 1995 results of operations would include revenues of $269,175; an
operating loss of $5,746; a net loss of $22,201 and a net loss per share of
$0.20.
6. BORROWINGS AND CREDIT AGREEMENTS
EEX has a $350 million revolving credit line with a group of banks that
matures on August 1, 2001, of which $235 million was unused at December 31,
1996. The revolving credit agreement limits, at all times, total debt, as
defined, to the lesser of 60% of capitalization, as defined, or $900 million,
and prohibits liens on property except under certain circumstances. The
interest rate ranges from the London Inter-Bank Offered Rate (LIBOR) (5.61% in
effect at December 31, 1996) 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. Under this arrangement, ENSERCH may advance funds to EEX, and EEX
may advance funds to ENSERCH. At December 31, 1996, EEX had a receivable from
ENSERCH of $13 million under this arrangement with interest based on LIBOR
(5.6% at December 31, 1996). This agreement will terminate upon the merger of
ENSERCH and TUC.
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Interest and Other Financing Costs:
Interest costs incurred......................... $29,123 $19,531 $25,678
Interest capitalized............................ (6,456) (4,914) (4,759)
------- ------- -------
Interest charged to expense..................... $22,667 $14,617 $20,919
======= ======= =======
</TABLE>
A-17
<PAGE>
ENSERCH EXPLORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. LEASE COMMITMENTS
The equipment and facilities used in developing and producing reserves in
the Mississippi Canyon Block 441 and the Cooper Project were originally
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 was an operating lease,
and two were capital leases.
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 on a notional amount
of $150 million to fix its costs and agreed to fix the interest rate to EEX
accordingly at 7.2% (see Note 10).
In October 1996, the Mississippi Canyon Block 441 equipment and facilities
were refinanced through certain financial institutions. EEX simultaneously
entered into a lease of the facilities which extends through October 2001. For
accounting purposes, this lease is classified as a capital lease. EEX has an
option to purchase the facilities for a fixed amount at the early buy-out date
of July 22, 2000, or for fair market value at the end of the lease term. There
are no renewal options. Interest on the lease was fixed at 6.97%.
In December 1996, the Cooper Project equipment and facilities were
refinanced through certain financial institutions. EEX simultaneously entered
into two leases of the facilities extending through December 30, 2010, with
the option to renew the leases, with the consent of the lessors, for up to
five years. For accounting purposes, these leases are classified as capital
leases. The Company has the option to purchase the facilities for fair market
value on any renewal date, or for fixed amounts or fair market value at the
end of the initial lease term. The leases also contain two early buy-out
option dates on which the Company may purchase the facilities for fixed
amounts, and other special purchase options. Interest on the leases was fixed
at 6.51%. EEX is currently required to maintain a $65 million letter of credit
in support of the equity owners of the leased facilities.
In June 1996, EEX entered into an operating lease arrangement to provide
financing for the offshore platform and related facilities of its 40% owned
Green Canyon 254 (Allegheny) project. The lessor will fund the construction
cost of the facilities quarterly, up to a maximum of $200 million. As of
December 31, 1996, a total of $18 million had been advanced to EEX under the
lease as agent for the lessor, $5.5 million of which was unexpended and
reflected as a current liability. EEX will lease the facilities for an initial
period through June 29, 2003, with the option to renew the lease, with the
consent of the lessor, for up to three successive three year periods. EEX, as
agent for the lessors, will acquire, construct, and operate the leased
property and has guaranteed completion of construction of the facilities. EEX
has the option to purchase the facilities at the end of the initial lease term
and has guaranteed an estimated residual value of approximately $160 million,
assuming the full lease amounts are advanced and expended, should the lease
not be renewed. Lease payments are being deferred during the construction
period and will be amortized when production begins.
EEX also leases buildings and office space under noncancelable operating
leases that expire at various dates through 2002.
A-18
<PAGE>
ENSERCH EXPLORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Estimated future minimum payments under noncancelable operating and capital
leases with initial or remaining terms of one year or more at December 31,
1996 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- --------
<S> <C> <C>
1997..................................................... $ 5,083 $ 12,222
1998..................................................... 4,456 23,346
1999..................................................... 2,673 25,147
2000..................................................... 3,535 30,948
2001..................................................... 4,328 25,998
Thereafter............................................... 17,777 236,705
------- --------
Total.................................................. $37,852 354,366
=======
Less interest factor................................... 109,381
--------
Capital lease obligations.............................. $244,985
========
</TABLE>
Assets recorded under capital leases are as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Property and equipment................................... $249,699 $102,467
Accumulated depreciation and amortization................ (9,560) (3,450)
-------- --------
Net.................................................... $240,139 $ 99,017
======== ========
</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 $21,110, $6,468 and $3,102 in 1996, 1995 and 1994,
respectively.
8. 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. In 1996 EEX repurchased at par
the fifteen shares held by Capital for $150 million through the issuance of a
demand note in that amount. This demand note is eliminated in consolidation.
Issuer's preferred securities are reflected on the balance sheet as "Company-
obligated mandatorily redeemable preferred securities of subsidiary." Interest
payments on the EEX demand note support the interest payments due under the
Demand Note loan agreement which, in turn, support the dividend requirements
of Issuer's preferred securities. Dividends on Issuer's preferred securities
are based on LIBOR plus 0.5% to 1.0% per annum and are reflected in interest
and other financing costs in the statements of consolidated operations. In
late 1995, EEX entered into an interest rate swap which effectively fixes the
rate for the dividend on these preferred securities at 6.37% as of December
31, 1996 (see Note 10). 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.
9. STOCK PLANS
The Company's Revised and Amended 1996 Stock Incentive Plan (the "Plan"),
provides for awards to officers, directors and key employees of restricted
stock, stock options to purchase shares of common stock of
A-19
<PAGE>
ENSERCH EXPLORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
EEX, or a combination of both. EEX has reserved 3,698,500 shares of its common
stock for issuance under the Plan. 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 terms for the release of restrictions on awards of restricted
stock may be performance based, time based, or a combination of both, and each
award may have different restrictions and conditions.
The following is a summary of stock option activity under the Plan:
<TABLE>
<CAPTION>
1996 1995
------------------ ----------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
--------- -------- ------- --------
<S> <C> <C> <C> <C>
Outstanding--Beginning of year........... 170,000 $10.94 -- --
Granted................................ 1,066,500 9.33 173,000 $10.92
Exercised.............................. 10,000 9.75 -- --
Canceled............................... 255,000 9.50 3,000 9.75
--------- ------ ------- ------
Outstanding--End of year................. 971,500 $ 9.56 170,000 $10.94
========= ====== ======= ======
</TABLE>
The following is a summary of Plan stock options outstanding at December 31,
1996:
<TABLE>
<CAPTION>
EXERCISABLE OPTIONS
WEIGHTED ---------------------
NUMBER AVERAGE WEIGHTED WEIGHTED
RANGE OF OF REMAINING AVERAGE NUMBER AVERAGE
EXERCISE OPTIONS CONTRACTUAL EXERCISE OF EXERCISE
PRICES OUTSTANDING LIFE (YEARS) PRICE OPTIONS PRICE
------------- ----------- ------------ -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$8.81-$9.75 927,500 10 $ 9.34 257,500 $ 9.73
$12.69-$14.50 44,000 8 $14.34 44,000 $ 14.34
------- ----------
971,500 301,500
======= ==========
</TABLE>
A summary of restricted stock award activity follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
-----------------
1996 1995
-------- --------
<S> <C> <C>
Outstanding -- Beginning of year............................ 56,000 --
Awarded................................................... 137,000 56,000
Restrictions Lifted....................................... 98,000 --
Canceled.................................................. 25,000 --
-------- -------
Outstanding -- End of year.................................. 70,000 56,000
======== =======
</TABLE>
The weighted average grant date fair value of restricted stock awarded
during 1996 was $9.36. Fair value is equal to the common stock fair market
value on the grant date. On September 10, 1996, the Board of Directors
approved the Preliminary Plan of Merger with LSEPO. As a result, all
restrictions on outstanding shares awarded prior to that date were lifted.
In 1996 the Company adopted the Employee Stock Option Plan for eligible
employees not covered by the Plan described above. Stock options granted to
purchase shares of EEX common stock have an exercise price of not less than
the fair market value of the common stock on the grant date. EEX has reserved
1.3 million shares for issuance under this plan. Options become exercisable
over three years and expire after ten years. In 1996, the
A-20
<PAGE>
ENSERCH EXPLORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Company granted 1,102,450 options at a weighted average exercise price of
$11.00. No options were exercised or canceled in 1996 and none were
exercisable at December 31, 1996. Exercise prices range from $10.69 to $11.25
and these options have a weighted average remaining contractual life of 10
years.
Total compensation cost recognized in income for 1996 and 1995 for stock
based employee compensation awards was immaterial. Had compensation cost for
the Company's plans been determined based on the fair value at the grant dates
consistent with the method of SFAS 123, the Company's net income and earnings
per share would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
------- --------
<C> <S> <C> <C>
Net income (loss) As reported................... $10,774 $(12,502)
Pro forma..................... $ 9,682 $(12,603)
Net income (loss) per share As reported................... $ .09 $ (0.11)
Pro forma..................... $ .08 $ (0.11)
</TABLE>
The effects of applying SFAS123 in this pro forma disclosure are not
indicative of future amounts as additional awards in future years are
anticipated.
The weighted average grant date fair value of options granted during 1996
was $4.72. Fair value of options was calculated by using the Black-Scholes
options pricing model using the following weighted average assumptions for
1996 activity: risk free interest rate of 6.17%, expected life of 6 years,
expected volatility of 37% and no dividend yield.
10. 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 8). 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 (5.53% in effect at December 31,
1996) 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 6.37% at
December 31, 1996. 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 counter-parties are major financial institutions,
and the risk of incurring losses related to credit risk is considered by the
Company to be remote.
In December 1996, in connection with the refinancing of the Cooper Project
leasing arrangements (See Note 7), the Company recognized a $1.4 million after
tax ($2.2 million pre-tax) gain on the settlement of the related interest rate
swap which had been in effect since December 1995 on a notional amount of $150
million.
Commodity Hedging Activities--The Company 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
counter-parties and believes its credit risk is minimal on these transactions.
In the event of nonperformance by
A-21
<PAGE>
ENSERCH EXPLORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
counter-parties, 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.
Gas and oil hedging activities reduced revenues $20 million in 1996 and
increased revenues $.1 million and $4.3 million in 1995 and 1994,
respectively.
At December 31, 1996, EEX had outstanding swaps, collars and futures
agreements that were entered into as hedges extending through December 31,
1997 to exchange payments on 32 Bcf of natural gas and 365 MBbls of oil. The
weighted average strike price and market price per Mcf of natural gas was
$2.47 and $2.37, respectively, and the weighted average strike price and
market price per barrel of oil was $25.00 and $25.32, respectively. At
December 31, 1996 there were $3.0 million of net unrealized and unrecognized
hedging gains based on the difference between the strike price and the New
York Mercantile Exchange futures price for the applicable trading month. In
addition, there were $5.1 million of realized losses on hedging activities
which were deferred and will be applied as a reduction in revenues in January
1997, the month of physical sale of production.
Fair Value of Financial Instruments--At December 31, 1996, the estimated
proceeds the Company would have received to terminate or otherwise settle gas
and oil swaps, collars and futures agreements were $3.0 million and interest
rate swaps were $.9 million, which represented their fair value. The fair
value of all other financial instruments at December 31, 1996 and 1995,
including the revolving credit agreement and the company-obligated mandatorily
redeemable preferred securities of subsidiary, approximated carrying value.
11. 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.
PROVISION (BENEFIT) FOR INCOME TAXES:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------- -----
<S> <C> <C> <C>
Federal:
Current............................................. $3,745 $ 2,343 $ 32
Deferred............................................ 1,795 (9,520) (366)
------ ------- -----
Total............................................. $5,540 $(7,177) $(334)
====== ======= =====
</TABLE>
A-22
<PAGE>
ENSERCH EXPLORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
RECONCILIATION OF INCOME TAXES (BENEFIT) COMPUTED AT THE FEDERAL STATUTORY
RATE TO PROVISION FOR INCOME TAXES (BENEFIT):
<TABLE>
<S> <C> <C> <C>
Income (loss) before income taxes:
Domestic..................................... $18,808 $(15,578) $12,623
Foreign...................................... (2,494) (4,101) (1,156)
------- -------- -------
Total...................................... $16,314 $(19,679) $11,467
======= ======== =======
Income taxes (benefit) computed at the federal
statutory rate of 35%......................... $ 5,710 $ (6,888) $ 4,013
Percentage depletion........................... (334) (322) (23)
Other--net..................................... 164 33
------- -------- -------
Total pro forma income taxes (benefit)..... 5,540 (7,177) 3,990
Less pro forma income taxes (benefit)
applicable to partnership operations.......... (4,324)
------- -------- -------
Provision for income taxes (benefit)....... $ 5,540 $ (7,177) $ (334)
======= ======== =======
</TABLE>
The deferred tax effect of the difference in financial accounting basis and
income tax basis of EEX's assets and liabilities at December 31, 1996 and 1995
was as follows:
<TABLE>
<CAPTION>
1996 1995
------------------------------- ------------------------------
TOTAL CURRENT NONCURRENT TOTAL CURRENT NONCURRENT
-------- ------- ---------- -------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Deferred Tax Assets:
Retirement and other
employee benefit
obligations.......... $ 968 $ 625 $ 343 $ 1,177 $ 426 $ 751
Accruals and
allowances........... 473 473 931 230 701
Losses of controlled
foreign
corporations......... 8,079 8,079 7,367 7,367
All other............. 647 647 332 332
-------- ------- -------- -------- ----- --------
Total............... $ 10,167 $ 1,098 $ 9,069 $ 9,807 $ 656 $ 9,151
-------- ------- -------- -------- ----- --------
Deferred Tax
Liabilities:
Exploration and
intangible
development costs.... 187,501 187,501 209,443 209,443
Property-related
differences.......... 95,369 95,369 71,326 71,326
-------- ------- -------- -------- ----- --------
Total............... 282,870 282,870 280,769 280,769
-------- ------- -------- -------- ----- --------
Net deferred tax
liability (asset)...... $272,703 $(1,098)(a) $273,801 $270,962 $(656)(a) $271,618
======== ======= ======== ======== ===== ========
</TABLE>
- --------
(a) Included in other current assets in the balance sheet.
12. EMPLOYEE BENEFIT PLANS
At December 31, 1996, substantially all employees were 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. As a result of ENSERCH's pending
distribution of EEX stock to ENSERCH Corporation shareholders (see Note 4),
the Company intends to establish new plans which will provide substantially
the same benefits as the ENSERCH plans.
A-23
<PAGE>
ENSERCH EXPLORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
EMPLOYEE BENEFIT PLAN COSTS (in millions):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -----
<S> <C> <C> <C>
Pension--ENSERCH................................ $ 3.5 $ 4.5 $ 6.5
--Allocated to EEX................................ .8 .6 1.2
Postretirement health care and
life insurance--ENSERCH........................ $ 9.8 $ 9.8 $10.2
--Allocated to EEX............................. .8 .8 .8
ENSERCH PENSION PLAN INFORMATION:
Valuation Assumptions:
Discount rate................................... 7.75% 7.65% 9.00%
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...................... $(302.4) $(297.0)
======= =======
Accumulated benefit obligation................. $(305.0) $(299.3)
======= =======
Projected pension benefit obligation........... $(333.9) $(327.9)
Plan assets at fair value....................... 285.8 263.1
------- -------
Projected benefit obligation in excess of plan
assets......................................... (48.1) (64.8)
Unrecognized net asset at transition............ ( 3.4) (6.0)
Unrecognized prior service cost (credit)........ ( 3.6) (3.5)
Unrecognized net actuarial loss................. 3.4 16.9
------- -------
ENSERCH accrued pension cost.................... $ (51.7) $ (57.4)
======= =======
EEX accrued pension cost........................ $ (4.9) $ (4.3)
======= =======
ENSERCH POSTRETIREMENT BENEFIT INFORMATION:
Valuation Assumptions:
Discount rate................................... 7.75% 7.65% 9.00%
Medical cost trend rate......................... 6.50% 7.00% 12.00%
Amounts Recognized (in millions):
Accumulated postretirement benefit obligation... $ (73.2) $ (75.5)
Unrecognized obligation at transition........... 53.0 58.1
Unrecognized net actuarial loss................. 10.7 10.0
------- -------
ENSERCH accrued postretirement benefit cost..... $ (9.5) $ (7.4)
======= =======
EEX accrued postretirement benefit cost......... $ (1.0) $ (.7)
======= =======
</TABLE>
The assumed health care cost trend rate is 6.5% for 1996, 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, 1996 and the
net periodic postretirement benefit costs of ENSERCH for 1996 would be
increased by $4.2 million and $.3 million, respectively.
Investment Plan--At December 31, 1996 ENSERCH provided a voluntary
contributory investment plan that was available to substantially all employees
of the Company. The Company's share of costs under the plan was
A-24
<PAGE>
ENSERCH EXPLORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
$425, $304 and $236 in 1996, 1995 and 1994, respectively. The Company intends
to establish a new plan with substantially the same provisions as the ENSERCH
plan.
13. 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. ENSERCH charges for all indirect costs amounted to
$4,510, $2,725 and $2,162 in 1996, 1995 and 1994, respectively. Effective
January 1, 1997 responsibility for all management and administrative functions
previously performed by ENSERCH, along with selected ENSERCH employees, were
transferred to EEX and the ENSERCH allocations were discontinued.
The Company had sales to certain ENSERCH companies (Enserch Energy Services,
Inc., Lone Star Gas Company and Enserch Processing Company) that aggregated
$86,235, $87,002 and $110,036 in 1996, 1995 and 1994, respectively.
EEX incurred interest costs, including amounts capitalized, of $72, $3,389
and $21,579 in 1996, 1995 and 1994, respectively, on borrowings from ENSERCH
Companies.
Interest income on notes receivable from ENSERCH Companies was $66, $1,027
and $671 in 1996, 1995 and 1994, respectively.
See Note 1 for information concerning transactions with ENSERCH companies in
connection with the organization of the Company and Note 7 for information
concerning lease transactions with affiliates.
14. 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-25
<PAGE>
ENSERCH EXPLORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 initially 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. Under amended pleadings filed in January, 1997,
plaintiffs have added allegations of negligence and gross negligence in
connection with the measurement of gas, and conversion. 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.
On April 17, 1996, a subsidiary of EEX was made a third party defendant in a
lawsuit filed in the United States District Court for the Central Division of
Utah. The original suit was instituted to quiet title to an oil and gas lease
in Carbon County, Utah, which had been assigned to the plaintiffs by the
subsidiary. The defendants, previous assignees of the lease, are seeking
damages of $10 million from the subsidiary in the event the defendants lose
their rights to the lease.
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.
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.
15. 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>
CAPITALIZED COSTS 1996 1995
----------------- ---------- ----------
<S> <C> <C>
Proved gas and oil properties......................... $2,573,058 $2,358,714
Unproved gas and oil properties....................... 233,478 243,740
---------- ----------
Total............................................... $2,806,536 $2,602,454
========== ==========
Accumulated depreciation and amortization............. $1,066,771 $ 940,356
========== ==========
</TABLE>
A-26
<PAGE>
ENSERCH EXPLORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
1996 1995 1994
--------------- --------------- ---------------
NON- NON- NON-
COSTS INCURRED U.S. U.S. U.S. U.S. U.S. U.S.
-------------- -------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
Property acquisition costs:
Proved....................... $ 3,165 $356,326 $ 1,562
Unproved..................... 23,425 132,744 20,591
Exploration costs.............. 84,603 $2,781 68,321 $9,000 60,145 $3,076
Development costs.............. 100,395 628 77,601 56,767
-------- ------ -------- ------ -------- ------
Total...................... $211,588 $3,409 $634,992 $9,000 $139,065 $3,076
======== ====== ======== ====== ======== ======
Amortization (per MMBtu) (a)... $ 1.08 $ .98 $ .96
======== ======== ========
</TABLE>
- --------
(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: $1.09, $1.00
and $.98
Costs Excluded from the Amortizable Base as of December 31, 1996:
<TABLE>
<CAPTION>
YEAR INCURRED TOTAL AT
------------------------ PRIOR DECEMBER 31,
1996 1995 1994 YEARS 1996
------- -------- ------- ------- ------------
<S> <C> <C> <C> <C> <C>
Property acquisition costs...... $19,168 $ 56,520 $15,640 $ 1,261 $ 92,589
Exploration costs............... 21,825 14,243 10,504 2,733 49,305
Development costs............... 7,747 28,476 33,222 10,283 79,728
Interest capitalized............ 5,257 3,491 1,719 1,389 11,856
------- -------- ------- ------- --------
Total......................... $53,997 $102,730 $61,085 $15,666 $233,478
======= ======== ======= ======= ========
</TABLE>
Approximately 51% of excluded costs relates to offshore activities in the
Gulf of Mexico, about 45% is domestic onshore exploration activities and the
remainder is non-U.S. The anticipated timing of the inclusion of these costs
in the amortization computation will be determined by the rate at which
exploratory and development activities continue, which are expected to be
accomplished within ten years.
The following information is required and defined by the Financial
Accounting Standards Board. The disclosure does not represent the results of
operations based on historical financial statements. In addition to requiring
different determinations of revenues and costs, the disclosure excludes
interest expense and corporate overhead.
<TABLE>
<CAPTION>
1996 1995 1994
---------------- ---------------- --------------
NON- NON- NON-
U.S. U.S. U.S. U.S. U.S. U.S.
-------- ------- -------- ------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Results of Operations:
Revenues................. $348,606 $218,565 $173,468
Less:
Production costs (a).... 94,172 65,520 43,899
Exploration costs (b)... 10,176 $ 2,295 9,588 $ 2,260 8,407 $ 729
Depreciation and amorti-
zation (c)............. 147,740 113,624 929 79,232
Income tax effects...... 33,447 (803) 10,119 (1,116) 14,647 (255)
-------- ------- -------- ------- -------- -----
Net producing activi-
ties................. $ 63,071 $(1,492) $ 19,714 $(2,073) $ 27,283 $(474)
======== ======= ======== ======= ======== =====
</TABLE>
- --------
(a) Includes severance, ad valorem and production taxes.
(b) Includes internal costs that cannot be directly identified with
acquisition, exploration or development activities.
(c) Amount for 1994 excludes a $7,551 gain from the sale of an inactive
offshore pipeline and facilities, which was not related to gas and oil
producing activities.
A-27
<PAGE>
ENSERCH EXPLORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Gas and Oil Reserves (Unaudited)--The following table of estimated proved
and proved developed reserves of gas and oil has been prepared utilizing
estimates of year end reserve quantities provided by DeGolyer and MacNaughton,
independent petroleum consultants. Reserve estimates are inherently imprecise
and estimates of new discoveries are more imprecise than those of producing
gas and oil properties. Accordingly, the reserve estimates are expected to
change as additional performance data becomes available.
<TABLE>
<CAPTION>
GAS (MMCF) OIL (MBBLS) (A)
------------------------------- -----------------------
1996 1995 1994 1996 1995 1994
--------- --------- --------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
U.S. Reserves:
At January 1............ 1,362,763 1,041,736 1,086,482 66,537 46,486 39,349
Changes in reserves
Revisions of previous
estimates............ (7,935) 26,802 (25,106) (8,173) 2,312 (499)
Extensions, discover-
ies and additions.... 72,854 62,249 47,580 4,315 21,466 9,877
Purchase of minerals
in place............. 12,347 336,668 787 11,417 14
Sales of minerals in
place................ (123,861) (14,497) (894) (3,730) (11,274) (28)
Production............ (100,544) (90,195) (67,113) (5,740) (3,870) (2,227)
--------- --------- --------- ------ ------- ------
At December 31.......... 1,215,624 1,362,763 1,041,736 53,209 66,537 46,486
========= ========= ========= ====== ======= ======
Proved Developed Re-
serves
At January 1.......... 937,372 698,643 735,093 30,110 14,437 15,380
At December 31........ 859,094 937,372 698,643 27,938 30,110 14,437
</TABLE>
- --------
(a) Includes condensate and natural gas liquids of 1,103 MBbls for 1996, 3,593
MBbls for 1995 and 911 Mbbls for 1994.
<TABLE>
<CAPTION>
GAS (MMCF) OIL (MBBLS)
---------- -----------------
1996 1996 1995 1994
---------- ----- ----- -----
<S> <C> <C> <C> <C>
Non-U.S. Reserves:
At January 1....................................... -- 4,963 4,105 --
Extensions, discoveries and additions............ 618 1,045 858 4,105
--- ----- ----- -----
At December 31..................................... 618 6,008 4,963 4,105
=== ===== ===== =====
</TABLE>
Proved reserves for all periods were undeveloped.
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) $3.37 in 1996, $2.19 in 1995, and $2.29 in 1994; Oil (per
barrel) $23.33 in 1996, $16.91 in 1995, and $14.07 in 1994.
A-28
<PAGE>
ENSERCH EXPLORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Because reserve estimates are imprecise and changes in the other variables
are unpredictable, the standardized measure should be interpreted as
indicative of the order of magnitude only and not as precise amounts.
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Standardized Measure (in millions):
Future cash inflows............................ $5,474.3 $4,180.7 $3,081.5
Future production and development costs........ (1,552.9) (1,512.7) (1,065.8)
Future income tax expense...................... (1,030.2) (597.1) (542.6)
-------- -------- --------
Future net cash flows.......................... 2,891.2 2,070.9 1,473.1
Less 10% annual discount....................... 1,176.1 843.5 593.8
-------- -------- --------
Standardized measure of discounted future net
cash flows.................................... $1,715.1 $1,227.4 $ 879.3
======== ======== ========
Change in Standardized Measure (in millions):
Sales and transfers of gas and oil produced,
net of
production costs.............................. $ (254.4) $ (153.1) $ (120.5)
Changes in prices, net of production and future
development costs............................. 1,065.0 50.6 (33.9)
Extensions, discoveries and improved recovery,
less related costs............................ 185.0 175.8 158.7
Purchases of minerals in place................. 3.2 367.6 1.6
Revisions of previous quantity estimates....... (238.7) (113.9) (26.5)
Sales of minerals in place..................... (125.2) (59.2) (1.3)
Accretion of discount.......................... 144.4 102.3 102.7
Net change in income taxes..................... (329.6) (3.1) (295.3)
Other.......................................... 38.0 (18.9) (8.8)
-------- -------- --------
Total........................................ $ 487.7 $ 348.1 $ (223.3)
======== ======== ========
</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-29
<PAGE>
ENSERCH EXPLORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
1996:
Revenues....................... $75,411 $84,936 $82,736 $87,358
Operating Income............... 5,715 14,329 9,024 7,755
Net Income..................... 84 5,273 2,073 3,344
Net Income Per Share........... $ .00 $ .04 $ .02 $ .03
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)
</TABLE>
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 under the symbol "EEX". 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>
1996 1995
-------------- ------------
HIGH LOW HIGH LOW
------- ------ ------- ----
<S> <C> <C> <C> <C>
First Quarter................................. $ 12 $ 9 $11 1/8 $ 9 3/8
Second Quarter................................ 11 3/8 9 5/8 14 7/8 10 1/8
Third Quarter................................. 11 1/2 8 1/4 14 3/4 10
Fourth Quarter................................ 11 7/8 8 7/8 11 5/8 9 1/4
</TABLE>
COMMON STOCK DATA AT YEAR-END
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Shareholders of Record............................... 1,395 1,450 1,373
Shares Outstanding (000's)........................... 126,044 125,883 105,821
</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-30
<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 annual meeting of shareholders shall be held on the second
Tuesday of May in each year, at 10:00 A.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 and President, the Board of Directors, or the holders of not less than
one-tenth of all the shares entitled to vote at the meetings.
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Business transacted at all special meetings shall be confined to the subjects
stated in the notice of meeting.
Section 4. Written or printed notice stating the place, day and hour of
the meeting, and, in case of a special meeting, the purpose or purposes for
which the meeting is called, shall be delivered not less than ten (10) nor more
than sixty (60) days before the date of the meeting, either personally or by
mail, by or at the direction of the Chairman and President, 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
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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 and President shall preside at all meetings of
the shareholders. In his absence, an officer of the corporation designated by
the Board of Directors shall preside and perform the duties of the Chairman and
President 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,
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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
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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. If
the employment of an officer or employee of the corporation who is also a
Director of the corporation is terminated due to disability, retirement,
resignation, action of the Board or otherwise, then such person shall be deemed
to have contemporaneously tendered his or her resignation as a Director unless
otherwise determined by the Board of Directors.
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
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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.
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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 and President or, in the event of the inability of the Chairman and
President to act, 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.
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ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be a Chairman and
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 and President. The power to
appoint such other officers and agents may be delegated by the Board of
Directors to the Chairman and President 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. A person shall be ineligible to be
an officer of the corporation after the last day of the month in which such
person's sixty-fifth (65th) birthday occurs; provided, however, the foregoing
shall only be applicable to persons that may be required to retire under the
terms of the Age Discrimination in Employment Act.
Section 4. THE CHAIRMAN AND PRESIDENT. The Chairman and President 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. 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 Chairman and President. They shall be directly
responsible to such officer as the Chairman and President may from time to time
prescribe.
Section 6. 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
Chairman and President. He shall be responsible to the Chairman and President in
said performance.
Section 7. OTHER SENIOR VICE PRESIDENTS. Other Senior Vice Presidents shall
have such powers and responsibilities, and shall perform
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such duties, as delineated by the Board or by the Chairman and President. They
shall be directly responsible to such officer as the Chairman and President may
from time to time prescribe.
Section 8. 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 Chairman and President.
He shall be directly responsible to the Chairman and President in said
performance.
Section 9. 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 Chairman and President. They shall be directly responsible to such
officer as the Chairman and President may from time to time prescribe.
Section 10. 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 Chairman and President may from
time to time prescribe.
Section 11. 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 Chairman and President may from time to time prescribe.
Section 12. 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 Chairman and
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 Chairman and
President shall designate.
Section 13. 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
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perform such duties as the Board or Chairman and 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 and 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
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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 and 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.
11
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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 and President, 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 and 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 the Chairman and President 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 and 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 and President may from time to time designate and
authorize to sign for the Treasurer; and when so designated by the Chairman and
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 and 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 and 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 and 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,
12
<PAGE>
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 and 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 and 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
and 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
and 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.
13
<PAGE>
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.
14
<PAGE>
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.
15
<PAGE>
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.
16
<PAGE>
"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. (S) 181 et seq.
17
<PAGE>
EXHIBIT 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
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS AND ACCOUNTING MATTERS
Section 1.01 Terms Defined Above....................... 1
Section 1.02 Certain Defined Terms..................... 1
Section 1.03 Accounting Terms and Determinations....... 14
ARTICLE II
BORROWINGS
Section 2.01 Committed Loans........................... 14
Section 2.02 Borrowings, Continuations and
Conversions of Committed Loans......................... 15
Section 2.03 Changes of Commitments.................... 17
Section 2.04 Fees...................................... 17
Section 2.05 Several Obligations....................... 17
Section 2.06 Notes..................................... 17
Section 2.07 Prepayments............................... 18
Section 2.08 Lending Offices........................... 19
Section 2.09 Competitive Loans......................... 19
Section 2.10 Designated Subsidiaries................... 23
ARTICLE III
PAYMENTS OF PRINCIPAL AND INTEREST
Section 3.01 Repayment of Loans........................ 23
Section 3.02 Interest.................................. 24
ARTICLE IV
PAYMENTS; PRO RATA TREATMENT; COMPUTATIONS; ETC.
Section 4.01 Payments.................................. 25
Section 4.02 Pro Rata Treatment........................ 25
Section 4.03 Computations.............................. 26
Section 4.04 Non-receipt of Funds by the
Administrative Agent................................... 26
Section 4.05 Sharing of Payments, Etc.................. 26
Section 4.06 Taxes..................................... 27
ARTICLE V
CAPITAL ADEQUACY, ADDITIONAL COSTS, ETC.
Section 5.01 Additional Costs.......................... 30
Section 5.02 Limitation on Eurodollar Loans............ 31
Section 5.03 Illegality................................ 31
Section 5.04 Base Rate Loans Pursuant to Sections
<PAGE>
5.02 and 5.03 ......................................... 31
Section 5.05 Compensation.............................. 32
ARTICLE VI
CONDITIONS PRECEDENT
Section 6.01 Initial Funding........................... 32
Section 6.02 Initial and Subsequent Loans.............. 33
Section 6.03 Loans to Designated Subsidiaries.......... 33
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
Section 7.01 Corporate Existence....................... 34
Section 7.02 Financial Condition....................... 35
Section 7.03 Litigation................................ 35
Section 7.04 No Breach................................. 35
Section 7.05 Authority................................. 35
Section 7.06 Approvals................................. 36
Section 7.07 Use of Loans.............................. 36
Section 7.08 ERISA..................................... 36
Section 7.09 Taxes..................................... 37
Section 7.10 Titles, etc............................... 37
Section 7.11 No Material Misstatements................. 38
Section 7.12 Investment Company Act.................... 38
Section 7.13 Public Utility Holding Company Act........ 38
Section 7.14 Subsidiaries and Partnerships............. 38
Section 7.15 Location of Business and Offices.......... 38
Section 7.16 Defaults.................................. 38
Section 7.17 Environmental Matters..................... 39
Section 7.18 Compliance with Laws...................... 40
Section 7.19 Pari Passu................................ 40
ARTICLE VIII
AFFIRMATIVE COVENANTS
Section 8.01 Financial Statements...................... 40
Section 8.02 Litigation................................ 42
Section 8.03 Maintenance, Etc.......................... 42
Section 8.04 Environmental Matters..................... 43
Section 8.05 Further Assurances........................ 43
Section 8.06 ERISA Information and Compliance.......... 43
Section 8.07 Lease Payments............................ 44
Section 8.08 Subsidiary Guaranty Agreements............ 44
ARTICLE IX
NEGATIVE COVENANTS
Section 9.01 Debt to Capital Ratio..................... 45
Section 9.02 Liens..................................... 45
Section 9.03 Investments, Loans and Advances........... 47
Section 9.04 Dividends, Distributions and
Redemptions............................................ 47
<PAGE>
Section 9.05 Nature of Business........................ 47
Section 9.06 Mergers, Etc.............................. 47
Section 9.07 Proceeds of Notes......................... 48
Section 9.08 ERISA Compliance.......................... 48
Section 9.09 Environmental Matters..................... 49
Section 9.10 Transactions with Affiliates.............. 49
Section 9.11 Restrictive Dividend Agreements........... 49
ARTICLE X
EVENTS OF DEFAULT; REMEDIES
Section 10.01 Events of Default........................ 49
Section 10.02 Remedies................................. 51
ARTICLE XI
THE ADMINISTRATIVE AGENT
Section 11.01 Appointment, Powers and Immunities....... 52
Section 11.02 Reliance by Agent........................ 53
Section 11.03 Defaults................................. 53
Section 11.04 Rights as a Lender....................... 53
Section 11.05 INDEMNIFICATION.......................... 53
Section 11.06 Non-Reliance on the Agents and other.....
Lenders.................................. 54
Section 11.07 Action by Agent.......................... 54
Section 11.08 Resignation or Removal of the Agen....... 55
ARTICLE XII
MISCELLANEOUS
Section 12.01 Waiver................................... 5
Section 12.02 Notices.................................. 6
Section 12.03 Payment of Expenses, Indemnities, etc.... 6
Section 12.04 Amendments, Etc.......................... 58
Section 12.05 Successors and Assigns................... 59
Section 12.06 Assignments and Participations........... 59
Section 12.07 Invalidity............................... 60
Section 12.08 Counterparts............................. 60
Section 12.09 References............................... 60
Section 12.10 Survival................................. 61
Section 12.11 Captions................................. 61
Section 12.12 NO ORAL AGREEMENTS....................... 61
Section 12.13 GOVERNING LAW; SUBMISSION TO
JURISDICTION............................. 61
Section 12.14 Interest................................. 62
Section 12.15 Confidentiality.......................... 63
Section 12.16 Effectiveness............................ 64
Section 12.17 EXCULPATION PROVISIONS................... 64
Annex 1 - List of Commitments
Exhibit A - Form of Committed Note
Exhibit B - Form of Competitive Note
Exhibit C - Form of Competitive Bid Request
Exhibit D - Form of Notice to Lenders of Competitive Bid
<PAGE>
Request
Exhibit E - Form of Competitive Bid
Exhibit F - Form of Competitive Bid Administration
Questionnaire
Exhibit G - Form of Borrowing, Continuation and Conversion
Request
Exhibit H - Form of Compliance Certificate
Exhibit I - Form of Legal Opinion of Counsel for the Company
Exhibit J - Form of Legal Opinion of Counsel for the
Designated Subsidiary
Exhibit K - Form of Assignment Agreement
Exhibit L - Form of Notice of Designation of Designated
Subsidiaries
Exhibit M - Form of Permitted Subordinated Debt Subordination
Provisions
Exhibit N - Form of Legal Opinion of Counsel for the Subsidiary
Guarantor
Schedule 1.02 - Capital and Operating Lease Obligations
Schedule 7.02 - Liabilities
Schedule 7.03 - Litigation
Schedule 7.09 - Taxes
Schedule 7.10 - Titles, etc.
Schedule 7.14 - Subsidiaries and Partnerships
Schedule 7.17 - Environmental Matters
<PAGE>
THIS CREDIT AGREEMENT dated as of May 1, 1995 is among: ENSERCH EXPLORATION,
INC., a corporation formed under the laws of the State of Texas (the "Company");
each of the lenders that is a signatory hereto or which becomes a signatory
hereto as provided in Section 12.06 (individually, together with its successors
and assigns, a "Lender" and, collectively, the "Lenders"); TEXAS COMMERCE BANK
NATIONAL ASSOCIATION, a national banking association (in its individual
capacity, "TCB"), as administrative agent for the Lenders (in such capacity,
together with its successors in such capacity, the "Administrative Agent");
CHEMICAL BANK, a New York banking corporation (in its individual capacity,
"Chemical"), as auction agent for the Lenders (in such capacity, together with
its successors in such capacity, the "Auction Agent"); and THE CHASE MANHATTAN
BANK, N.A., a national association (in its individual capacity, "Chase"), as
syndication agent for the Lenders (in such capacity, together with its
successors in such capacity, the "Syndication Agent").
R E C I T A L S
A. The Company has requested that the Lenders provide certain loans to the
Company and to certain of its subsidiaries; and
B. The Lenders have agreed to make such loans subject to the terms and
conditions of this Agreement.
C. In consideration of the mutual covenants and agreements herein contained
and of the loans and commitments hereinafter referred to, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING MATTERS
Section 1.01 Terms Defined Above. As used in this Agreement, the terms
"Administrative Agent," "Auction Agent," "Company," "Chase," "Chemical,"
"Lender," "Lenders," "Syndication Agent," and "TCB" shall have the meanings
indicated above.
Section 1.02 Certain Defined Terms. As used herein, the following terms
shall have the following meanings (all terms defined in this Article I or in
other provisions of this Agreement in the singular to have the same meanings
when used in the plural and vice versa):
"Additional Costs" shall have the meaning assigned such term in Section
5.01(a).
"Affected Loans" shall have the meaning assigned such term in Section 5.04.
1
<PAGE>
"Affiliate" shall mean with respect to any Person, any other Person that,
directly or indirectly, through one or more intermediaries, controls, or is
controlled by, or is under common control with, such Person. For purposes of
the foregoing definition, "control" means the direct or indirect ownership of
more than 50% of the outstanding capital stock or other equity interests having
ordinary voting power.
"Agents" shall mean the Administrative Agent, the Syndication Agent and/or
the Auction Agent.
"Agreement" shall mean this Credit Agreement, as the same may from time to
time be amended or supplemented.
"Aggregate Commitments" at any time shall equal the sum of the Commitments of
the Lenders ($350,000,000), as the same may be reduced pursuant to Section
2.03(a).
"Applicable Lending Office" shall mean, for each Lender, the lending office
of such Lender (or an Affiliate of such Lender) designated for each Type of Loan
on the signature pages hereof or such other offices of such Lender (or of an
Affiliate of such Lender) as such Lender may from time to time specify to the
Administrative Agent and the Company as the office by which its Loans of such
Type are to be made and maintained.
"Applicable Margin" shall mean the following rates per annum as are
applicable based upon the Debt to Capital Ratio calculated as of the last day of
a fiscal quarter of the Company to be effective for any Committed Loan
outstanding or for the facility fee during the period from the Financial
Statement Delivery Date following such fiscal quarter to but not including the
next succeeding Financial Statement Delivery Date:
<TABLE>
<CAPTION>
DEBT TO CAPITAL RATIO
---------------------------------
40% 45% 50%
BUT BUT BUT
40% 45% 50% 55% 55%
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Facility Fee .150% .175% .200% .225% .250%
Eurodollar Loans .350% .425% .500% .575% .750%
Base Rate Loans 0% 0% 0% 0% 0%
</TABLE>
"Assignment" shall have the meaning assigned such term in Section 12.06(b).
"Base Rate" shall mean, with respect to any Base Rate Loan, for any day, the
higher of (i) the Federal Funds Rate for any such day plus 1/2 of 1%
2
<PAGE>
or (ii) the Prime Rate for such day. Each change in any interest rate provided
for herein based upon the Base Rate resulting from a change in the Base Rate
shall take effect at the time of such change in the Base Rate.
"Base Rate Loans" shall mean Loans that bear interest at rates based upon the
Base Rate.
"Benefit Plan" shall mean any employee pension benefit plan, as defined in
section 3(2) of ERISA (other than a Multiemployer Plan), which (a) is currently
or hereafter sponsored, maintained or contributed to by the Company, a
Subsidiary or an ERISA Affiliate or (b) was at any time during the six preceding
years, sponsored, maintained or contributed to by the Company, a Subsidiary or
an ERISA Affiliate.
"Borrowing" shall mean a borrowing pursuant to a Borrowing Request or a
Competitive Bid Request or a continuation or a conversion pursuant to Section
2.02 consisting, in each case, of the same Type of Loans having, in the case of
Eurodollar Loans and Fixed Rate Loans, the same Interest Period.
"Borrowing Request" shall mean a request for a Borrowing of Committed Loans
pursuant to Section 2.02, substantially in the form attached as Exhibit G.
"Business Day" shall mean any day other than a day on which commercial banks
are authorized or required to close in New York, New York, Dallas, Texas, or at
the location of the Principal Office and, where such term is used in the
definition of "Quarterly Date" or if such day relates to a Borrowing or
continuation of, a payment or prepayment of principal of or interest on, or a
conversion of or into, or the Interest Period for, a Eurodollar Loan or a notice
by the Company with respect to any such Borrowing or continuation, payment,
prepayment, conversion or Interest Period, any day which is also a day on which
dealings in Dollar deposits are carried out in the London interbank market.
"Capital Lease Obligations" shall mean, as to the Company or any Subsidiary,
the obligations of such person to pay rent or other amounts under a lease of (or
other agreement conveying the right to use) real and/or personal property which
obligations are required to be classified and accounted for as a liability for a
capital lease on a balance sheet of such Person in accordance with GAAP and, for
purposes of this Agreement, the amount of such obligations shall be the
capitalized amount thereof.
"Closing Date" shall mean the as of date of this Agreement set forth in the
first paragraph hereof.
3
<PAGE>
"Code" shall mean the Internal Revenue Code of 1986, as amended, and any
successor statute.
"Commitment" shall mean, for any Lender, its obligation to make Committed
Loans up to the amount set forth opposite such Lender's name on Annex 1 under
the caption "Commitments" (as the same may be reduced pursuant to Section
2.03(a) pro rata to each Lender based on its Percentage Share) as modified from
time to time to reflect any assignments permitted by Section 12.06(b).
"Committed Loan" shall mean a Loan made pursuant to Section 2.01.
"Committed Note" shall mean for each Obligor a promissory note of such
Obligor described in Section 2.06(a) payable to any Lender and being
substantially in the form of Exhibit A, evidencing the aggregate Indebtedness of
such Obligor to such Lender resulting from Committed Loans made by such Lender,
together with all renewals, extensions, modifications and replacements thereof
and substitutions therefor.
"Competitive Bid" shall mean an offer by a Lender to make a Competitive Loan
pursuant to Section 2.09.
"Competitive Bid Administrative Questionnaire" shall mean a questionnaire in
the form of Exhibit F.
"Competitive Bid Rate" shall mean, as to any Competitive Bid made by a Lender
pursuant to Section 2.09, (a) in the case of a Eurodollar Loan, the Margin
(which will be added to or subtracted from the Eurodollar Rate) and (b) in the
case of a Fixed Rate Loan, the fixed rate of interest, in each case, offered by
the Lender making such Competitive Bid.
"Competitive Bid Request" shall have the meaning assigned such term in
Section 2.09.
"Competitive Loans" shall mean the loans provided for in Section 2.09.
"Competitive Note" shall mean for each Obligor a promissory note of such
Obligor described in Section 2.06(b) payable to any Lender and being
substantially in the form of Exhibit B, evidencing the aggregate Indebtedness of
such Obligor to such Lender resulting from Competitive Loans made by such
Lender, together with all renewals, extensions, modifications and replacements
thereof and substitutions therefor.
"Consolidated Subsidiaries" shall mean each Subsidiary (whether now existing
or hereafter created or acquired) the financial statements of which
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shall be (or should have been) consolidated with the financial statements of the
Company in accordance with GAAP.
"Debt" shall mean, for the Company or any Subsidiary the sum of the following
(without duplication): (i) all obligations for borrowed money or evidenced by
bonds, debentures, mandatorily redeemable preferred stock with maturities before
the Revolving Credit Termination Date, notes or other similar instruments
(excluding interest, fees and charges); (ii) all obligations in respect of
bankers' acceptances, unreimbursed drawings on letters of credit, surety or
other bonds; (iii) all Capital Lease Obligations, but excluding such Capital
Lease Obligations in existence as of the Closing Date and set forth on Schedule
1.02 and any renewals and rearrangements, but not increases in the amount
thereof; (iv) all Operating Lease Obligations, but excluding such Operating
Lease Obligations in existence as of the Closing Date and set forth on Schedule
1.02 and any renewals and rearrangements and increases up to an additional 15%
in the amount thereof; (v) all financial guaranties in respect of Debt of
unconsolidated Affiliates and unrelated Persons; (vi) all obligations secured by
a Lien on any asset, whether or not such Debt is assumed, but excluding
obligations secured by Liens permitted by Sections 9.02(c), (e), (f), (h), (i),
(j), (k) and (l); (vii) all production payments in connection with oil and gas
properties; and (viii) all Debt of Special Entities to the extent the Company or
any Subsidiary is liable for such Debt under GAAP or such Debt is reflected on
the consolidated balance sheet of the Company or any Subsidiary. "Debt" shall
not include Permitted Subordinated Debt.
"Debt to Capital Ratio" shall have the meaning assigned such term in Section
9.01.
"Default" shall mean an Event of Default or an event which with notice or
lapse of time or both would become an Event of Default.
"Designated Subsidiary" shall mean a Subsidiary during the period that it has
been designated by the Company pursuant to Section 2.10 to have the right to
borrow hereunder.
"Dollars" and "$" shall mean lawful money of the United States of America.
"Effective Date" shall mean the date on which (i) each of the conditions
precedent set forth in Article VI has been satisfied or waived by each of the
Lenders and (ii) the conditions to effectiveness set forth in Section 12.16 have
been satisfied. Subject to Section 6.01, the Effective Date and Closing Date
may be the same date.
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"Environmental Laws" shall mean any and all Governmental Requirements
pertaining to health or the environment in effect in any and all jurisdictions
in which the Company or any Subsidiary is conducting or at any time has
conducted business, or where any Property of the Company or any Subsidiary is
located, including without limitation, the Oil Pollution Act of 1990, as
amended, ("OPA"), the Clean Air Act, as amended, the Comprehensive
Environmental, Response, Compensation, and Liability Act of 1980, as amended,
("CERCLA"), the Federal Water Pollution Control Act, as amended, the
Occupational Safety and Health Act of 1970, as amended, the Resource
Conservation and Recovery Act of 1976, as amended, ("RCRA"), the Safe Drinking
Water Act, as amended, the Toxic Substances Control Act, as amended, the
Superfund Amendments and Reauthorization Act of 1986, as amended, the Hazardous
Materials Transportation Act, as amended, and other environmental conservation
or protection laws. The term "oil" shall have the meaning specified in OPA, the
terms "hazardous substance" and "release" (or "threatened release") shall have
the meanings specified in CERCLA, and the terms "solid waste" and "disposal" (or
"disposed") shall have the meanings specified in RCRA; provided, however, that
(i) in the event either OPA, CERCLA or RCRA is amended so as to broaden the
meaning of any term defined thereby, such broader meaning shall apply subsequent
to the effective date of such amendment and (ii) to the extent the laws of the
state in which any Property of the Company or any Subsidiary is located
establish a meaning for "oil," "hazardous substance," "release," "solid waste"
or "disposal" which is broader than that specified in either OPA, CERCLA or
RCRA, such broader meaning shall apply.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute.
"ERISA Affiliate" shall mean each trade or business (whether or not
incorporated) which together with the Company or a Subsidiary would be deemed to
be a "single employer" within the meaning of section 4001(b)(1) of ERISA or
subsections (b), (c), (m) or (o) of section 414 of the Code.
"ERISA Event" shall mean (i) a "Reportable Event" described in section 4043
of ERISA and the regulations issued thereunder (other than a "Reportable Event"
not subject to the provision for 30-day notice to the PBGC), (ii) the withdrawal
of the Company, a Subsidiary or any ERISA Affiliate from a Plan during a plan
year in which it was a "substantial employer" as defined in section 4001(a)(2)
of ERISA, (iii) the filing of a notice of intent to terminate a Plan or the
treatment of a Plan amendment as a termination under section 4041 of ERISA, (iv)
the institution of proceedings to terminate a Plan by the PBGC, (v) any other
event or condition which might constitute grounds under section 4042 of ERISA
for the termination of, or the appointment of a trustee to administer, any Plan
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or (vi) the partial or complete withdrawal of the Company, a Subsidiary or any
ERISA Affiliate from a Multiemployer Plan.
"Eurodollar Loans" shall mean Loans the interest rates on which are
determined on the basis of rates referred to in the definition of "Eurodollar
Rate".
"Eurodollar Rate" shall mean, with respect to any Eurodollar Loan, the rate
per annum (rounded upwards, if necessary, to the nearest 1/16 of 1%) quoted by
the Administrative Agent at approximately 11:00 a.m. London time (or as soon
thereafter as practicable) two (2) Business Days prior to the first day of the
Interest Period for such Loan for the offering by the Administrative Agent to
leading banks in the London interbank market of Dollar deposits having a term
comparable to such Interest Period and in an amount comparable to the principal
amount of the Eurodollar Loan, if a Committed Loan, to be made by the
Administrative Agent for such Interest Period, or, if a Competitive Loan,
requested for such Interest Period.
"Event of Default" shall have the meaning assigned such term in Section
10.01.
"Federal Funds Rate" shall mean, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average
of the rates on overnight federal funds transactions with a member of the
Federal Reserve System arranged by federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Business Day next
succeeding such day, provided that (i) if the date for which such rate is to be
determined is not a Business Day, the Federal Funds Rate for such day shall be
such rate on such transactions on the next preceding Business Day as so
published on the next succeeding Business Day, and (ii) if such rate is not so
published for any day, the Federal Funds Rate for such day shall be the average
rate charged to the Administrative Agent on such day on such transactions as
determined by the Administrative Agent.
"Fee Letter" shall mean collectively that certain letter agreement from the
Company to the Administrative Agent and the Syndication Agent dated April 4,
1995 and that certain letter agreement from the Company to the Auction Agent,
both letters concerning certain fees in connection with this Agreement and any
agreements or instruments executed in connection therewith, as the same may be
amended or replaced from time to time.
"Financial Statement Delivery Date" means the date on which the quarterly or
annual financial statements of the Company are delivered pursuant to Section
8.01(a) or (b), as the case may be.
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"Financial Statements" shall mean the financial statement or statements of
the Company and its Consolidated Subsidiaries described or referred to in
Section 7.02.
"Fixed Rate Loan" shall mean any Competitive Loan made by a Lender pursuant
to Section 2.09 bearing interest based upon an actual percentage rate per annum
offered by such Lender (as opposed to a Margin over the Eurodollar Rate) and
accepted by the Company.
"GAAP" shall mean generally accepted accounting principles in the United
States of America in effect from time to time.
"Governmental Authority" shall mean any nation or government, any state or
other political subdivision thereof and any Person exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Governmental Requirement" shall mean any law, statute, code, ordinance,
order, determination, rule, regulation, judgment, decree, injunction, franchise,
permit, certificate, license, authorization or other directive or requirement
(whether or not having the force of law), including, without limitation,
Environmental Laws, energy regulations and occupational, safety and health
standards or controls, of any Governmental Authority.
"Guarantors" shall mean the Company and the Subsidiary Guarantors.
"Guaranty Agreements" shall mean the Parent Guaranty Agreement and the
Subsidiary Guaranty Agreements.
"Highest Lawful Rate" shall mean, with respect to each Lender, the maximum
nonusurious interest rate, if any, that at any time or from time to time may be
contracted for, taken, reserved, charged or received on the Notes or on other
Indebtedness under laws applicable to such Lender which are presently in effect
or, to the extent allowed by law, under such applicable laws which may hereafter
be in effect and which allow a higher maximum nonusurious interest rate than
applicable laws now allow.
"Indebtedness" shall mean any and all amounts owing or to be owing by the
Obligors to the Administrative Agent and/or Lenders in connection with the Loan
Documents and all renewals, extensions and/or rearrangements of any of the
above.
"Indemnified Parties" shall have the meaning assigned such term in Section
12.03(b).
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"Indemnity Matters" shall mean any and all actions, suits, proceedings
(including any investigations, litigation or inquiries), claims, demands and
causes of action made or threatened against a Person and, in connection
therewith, all losses, liabilities, damages (including, without limitation,
punitive damages except those arising from the gross negligence or wilful
misconduct of such Indemnified Party) or reasonable costs and expenses of any
kind or nature whatsoever incurred by such Person whether caused by the
negligent acts or omissions of such Person seeking indemnification.
"Initial Funding" shall mean the funding of the initial Loans pursuant to
Section 6.01.
"Interest Period" shall mean, (a) with respect to any Eurodollar Loan, the
period commencing on the date such Eurodollar Loan is made and ending on the
numerically corresponding day in the first, second, third or sixth calendar
month thereafter, as the Company may select as provided in Section 2.02 (or such
longer period as may be requested by the Company and agreed to by the Majority
Lenders), except that each Interest Period which commences on the last Business
Day of a calendar month (or on any day for which there is no numerically
corresponding day in the appropriate subsequent calendar month) shall end on the
last Business Day of the appropriate subsequent calendar month; and (b) with
respect to any Fixed Rate Loan, the period commencing on the date such Fixed
Rate Loan is made and ending on the date set forth in the Competitive Bid in
which the offer to make such Fixed Rate Loan was extended.
Notwithstanding the foregoing: (i) no Interest Period may commence before
and end after the Revolving Credit Termination Date; (ii) each Interest Period
which would otherwise end on a day which is not a Business Day shall end on the
next succeeding Business Day (or, for Eurodollar Loans, if such next succeeding
Business Day falls in the next succeeding calendar month, on the next preceding
Business Day); (iii) no Interest Period for Eurodollar Loans shall have a
duration of less than one month and, if the Interest Period for any Eurodollar
Loans would otherwise be for a shorter period, such Loans shall not be available
hereunder; and (iv) no Interest Period for Fixed Rate Loans shall have a
duration of less than one (1) day nor more than 365 days.
"Lien" shall mean any interest in Property securing an obligation owed to, or
a claim by, a Person other than the owner of the Property, whether such interest
is based on the common law, statute or contract, and whether such obligation or
claim is fixed or contingent, and including but not limited to (i) the lien or
security interest arising from a mortgage, encumbrance, pledge, security
agreement, conditional sale or trust receipt or a lease, consignment or bailment
for security purposes or (ii) production payments
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and the like payable out of Properties. For the purposes of this Agreement, the
Company or any Subsidiary shall be deemed to be the owner of any Property which
it has acquired or holds subject to a conditional sale agreement, or leases
under a financing lease or other arrangement pursuant to which title to the
Property has been retained by or vested in some other Person in a transaction
intended to create a financing.
"Loan Documents" shall mean this Agreement, the Notes, the Borrowing
Requests, the Competitive Bid Requests, the Fee Letter, the Guaranty Agreements
and the Notices of Designation of Designated Subsidiaries.
"Loans" shall mean Committed Loans or Competitive Loans.
"Majority Lenders" shall mean, at any time while no Committed Loans are
outstanding, Lenders having at least fifty-one percent (51%) of the Aggregate
Commitments and, at any time while Committed Loans are outstanding, Lenders
holding at least fifty-one percent (51%) of the outstanding aggregate principal
amount of the Committed Loans (without regard to any sale by a Lender of a
participation in any Loan under Section 12.06(c)).
"Margin" shall mean, as to any Competitive Bid relating to a Eurodollar Loan,
the margin (expressed as a percentage rate per annum) to be added to or
subtracted from the Eurodollar Rate in order to determine the interest rate
payable to such Lender with respect to such Eurodollar Loan.
"Material Adverse Effect" shall mean any material and adverse change in the
financial condition, business or results of operations of the Company and its
Subsidiaries taken as a whole which makes them unable to perform their
obligations under the Loan Documents.
"Multiemployer Plan" shall mean a multiemployer plan as defined in section
3(37) or 4001(a)(3) of ERISA which is, or within the six preceding years was,
contributed to by the Company, a Subsidiary or an ERISA Affiliate.
"Net Worth" shall mean, as at any date, the sum of the following for the
Company and its Consolidated Subsidiaries determined (without duplication) in
accordance with GAAP:
(i) the amount of preferred stock (excluding mandatorily redeemable
preferred stock) and common stock at par plus the amount of paid in capital
of the Company, plus
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(ii) the amount of retained earnings (or, in the case of a retained earnings
deficit, minus the amount of such deficit), minus
(iii) the cost of treasury shares, minus
(iv) unamortized restricted stock compensation, plus
(v) foreign currency translation adjustment gains (or minus losses), plus
(vi) any other additions (or minus any other deductions) to the net worth of
the Company required by GAAP.
"Notes" shall mean the Committed Notes and the Competitive Notes.
"Notice of Designation of Designated Subsidiaries" shall be substantially in
the form of Exhibit L and delivered pursuant to Section 6.03.
"Obligor" shall mean either the Company or any Designated Subsidiary.
"Operating Lease Obligations" shall mean, as to the Company or any
Subsidiary, the obligations of such person to pay rent or other amounts under a
lease of (or other agreement conveying the right to use) real and/or personal
property which obligations are not required to be classified and accounted for
as a liability for a capital lease on a balance sheet of such Person and, for
purposes of this Agreement, the amount of such obligations shall be the
discounted present value of the lease payments, discounted in the same manner a
capital lease would be discounted according to GAAP.
"Other Taxes" shall have the meaning assigned such term in Section 4.06(b).
"Parent Guaranty Agreement" shall mean the Guaranty Agreement of even date
with this Agreement executed by the Company guaranteeing the Indebtedness of the
Designated Subsidiaries as such agreement may be amended, supplemented or
restated from time to time.
"PBGC" shall mean the Pension Benefit Guaranty Corporation, or any successor
thereto.
"Percentage Share" shall mean the percentage of the Aggregate Commitments to
be provided by a Lender under this Agreement as indicated on Annex 1 hereto, as
modified from time to time to reflect any assignments permitted by Section
12.06(b).
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"Permitted Subordinated Debt" shall mean Debt of the Company or a Subsidiary
owing to the Company, ENSERCH Corporation or another Subsidiary subordinated to
the Indebtedness on terms substantially similar to the terms set forth in
Exhibit M or on terms and pursuant to documentation acceptable to the
Administrative Agent and the Syndication Agent.
"Person" shall mean any individual, corporation, company, limited liability
company, voluntary association, partnership, joint venture, trust,
unincorporated organization or government or any agency, instrumentality or
political subdivision thereof, or any other form of entity.
"Plan" shall mean each Benefit Plan and Multiemployer Plan.
"Post-Default Rate" shall mean, in respect of any principal of any Loan which
is not paid when due (whether at stated maturity, by acceleration or otherwise),
a rate per annum during the period commencing on the due date until such amount
is paid in full or the default is cured or waived equal to 2% per annum plus the
Base Rate as in effect from time to time plus the Applicable Margin (if any),
but in no event to exceed the Highest Lawful Rate provided that, if such amount
in default is principal of a Eurodollar Loan or a Fixed Rate Loan, the "Post-
Default Rate" for such principal shall be, for the period commencing on the due
date and ending on the last day of the Interest Period therefor, 2% per annum
plus the applicable interest rate for such Loan as provided in Section 3.02(b),
(c) or (d), but in no event to exceed the Highest Lawful Rate.
"Prime Rate" shall mean the rate of interest from time to time announced
publicly by the Administrative Agent at the Principal Office as its prime rate.
Such rate is set by the Administrative Agent as a general reference rate of
interest, taking into account such factors as the Administrative Agent may deem
appropriate, it being understood that many of the Administrative Agent's
commercial or other loans are priced in relation to such rate, that it is not
necessarily the lowest or best rate actually charged to any customer and that
the Administrative Agent may make various commercial or other loans at rates of
interest having no relationship to such rate.
"Principal Office" shall mean the principal office of the Administrative
Agent, presently located at 2200 Ross Avenue, Dallas, Texas 75201, Attention:
Energy Group.
"Property" shall mean any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.
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"Quarterly Dates" shall mean the last day of each March, June, September, and
December, in each year, the first of which shall be June 30, 1995; provided,
however, that if any such day is not a Business Day, such Quarterly Date shall
be the next succeeding Business Day.
"Regulation D" shall mean Regulation D of the Board of Governors of the
Federal Reserve System (or any successor), as the same may be amended or
supplemented from time to time.
"Regulatory Change" shall mean, with respect to any Lender, any change after
the Closing Date in any Governmental Requirement (including Regulation D) or the
adoption or making after such date of any interpretations, directives or
requests applying to a class of lenders (including such Lender or its Applicable
Lending Office) of or under any Governmental Requirement (whether or not having
the force of law) by any Governmental Authority charged with the interpretation
or administration thereof.
"Required Payment" shall have the meaning assigned such term in Section 4.04.
"Responsible Officer" shall mean, as to the Company or any Subsidiary, the
Chief Executive Officer, the President or any Vice President of such Person and,
with respect to financial matters, the term "Responsible Officer" shall include
the Chief Financial Officer, Controller, Treasurer or Treasury Officer of such
Person. Unless otherwise specified, all references to a Responsible Officer
herein shall mean a Responsible Officer of the Company.
"Revolving Credit Termination Date" shall mean, unless the Commitments are
sooner terminated pursuant to Sections 2.03(a) or 10.02, May 1, 1999.
"SEC" shall mean the Securities and Exchange Commission or any successor
Governmental Authority.
"Special Entity" shall mean any joint venture, limited liability company,
general or limited partnership or any other type of partnership or company in
which the Company or one or more of its other Subsidiaries is a member, owner,
partner or joint venturer and owns at least a majority of the equity of such
entity.
"Subsidiary" shall mean any corporation of which at least a majority of the
outstanding shares of stock having by the terms thereof ordinary voting power to
elect a majority of the board of directors of such corporation (irrespective of
whether or not at the time stock of any other class or classes
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of such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time directly or indirectly owned or
controlled by the Company or one or more of its Subsidiaries or by the Company
and one or more of its Subsidiaries.
"Subsidiary Guarantor" shall mean any Subsidiary or Special Entity that has
executed a Subsidiary Guaranty Agreement.
"Subsidiary Guaranty Agreement" shall mean any Guaranty Agreement executed by
a Subsidiary or a Special Entity as required by Section 8.08 as such agreement
may be amended, supplemented or restated from time to time.
"Taxes" shall have the meaning assigned such term in Section 4.06(a).
"Type" shall mean, with respect to any Loan, a Base Rate Loan, Eurodollar
Loan or Fixed Rate Loan.
"Withdrawal Liability" shall have the meaning given such term under Part I of
Subtitle E of Title IV of ERISA.
Section 1.03 Accounting Terms and Determinations. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
determinations with respect to accounting matters hereunder shall be made, and
all financial statements and certificates and reports as to financial matters
required to be furnished to the Administrative Agent or the Lenders hereunder
shall be prepared, in accordance with GAAP, applied on a basis consistent with
the audited financial statements of the Company referred to in Section 7.02
(except for changes concurred with by the Company's independent public
accountants).
ARTICLE II
BORROWINGS
Section 2.01 Committed Loans.
(a) Loans. Each Lender severally agrees, on the terms of this Agreement, to
make Committed Loans to any Obligor during the period from and including (i) the
Effective Date or (ii) such later date that such Lender becomes a party to this
Agreement as provided in Section 12.06(b), to and up to, but excluding, the
Revolving Credit Termination Date in an aggregate principal amount at any one
time outstanding and owing by all Obligors up to but not exceeding the amount of
such Lender's Commitment as then in effect; provided, however, that the
aggregate principal amount of all Committed Loans and Competitive Loans by all
Lenders to any or all Obligors at any one time outstanding shall not exceed the
Aggregate
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Commitments. Subject to the terms of this Agreement, during the period from the
Effective Date to and up to, but excluding, the Revolving Credit Termination
Date, any Obligor may borrow, repay and reborrow the amount described in this
Section 2.01.
(b) Limitation on Types of Loans. Subject to the other terms and provisions
of this Agreement, at the option of the Company, the Committed Loans may be Base
Rate Loans or Eurodollar Loans; provided that, without the prior written consent
of the Majority Lenders, no more than seven (7) Eurodollar Loans which are
Committed Loans to any or all Obligors by any Lender may be outstanding at any
time.
Section 2.02 Borrowings, Continuations and Conversions of Committed Loans.
(a) Borrowings. An Obligor shall cause the Company to give the
Administrative Agent (which shall promptly notify the Lenders) advance notice as
hereinafter provided of each Borrowing of a Committed Loan hereunder, which
shall specify the name of the Obligor making such Borrowing; the aggregate
amount of such Borrowing, the Type and the date (which shall be a Business Day)
of the Committed Loans to be borrowed and (in the case of Eurodollar Loans) the
duration of the Interest Period therefor.
(b) Minimum Amounts. All Borrowings of Base Rate Loans shall be in amounts
of at least $10,000,000 or the remaining balance of the Aggregate Commitments,
if less, or any whole multiple of $1,000,000 in excess thereof, and all
Borrowings in the form of Eurodollar Loans shall be in amounts of at least
$10,000,000 or any whole multiple of $1,000,000 in excess thereof.
(c) Notices. All Borrowings, continuations and conversions of Committed
Loans shall require advance written notice to the Administrative Agent (which
shall promptly notify the Lenders) in the form of Exhibit G (or telephonic
notice promptly confirmed by such a written notice), which in each case shall be
irrevocable, from the Company on behalf of an Obligor to be received by the
Administrative Agent not later than 10:00 a.m. Central time on the Business Day
of each Base Rate Loan borrowing and three Business Days prior to the date of
each Eurodollar Loan borrowing, continuation or conversion. Without in any way
limiting the Company's obligation to confirm in writing any telephonic notice,
the Administrative Agent may act without liability upon the basis of telephonic
notice believed by the Administrative Agent in good faith to be from the Company
prior to receipt of written confirmation. In each such case, each Obligor
hereby waives the right to dispute the Administrative Agent's record of the
terms of such telephonic notice except in the case of gross negligence or
willful misconduct by the Administrative Agent.
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(d) Continuation Options. With respect to Committed Loans and subject to the
provisions made in this Section 2.02(d), the Company on behalf of an Obligor may
elect to continue all or any part of any Borrowing of Eurodollar Loans beyond
the expiration of the then current Interest Period relating thereto by giving
advance notice as provided in Section 2.02(c) to the Administrative Agent (which
shall promptly notify the Lenders) of such election, specifying the amount of
such Loan to be continued and the Interest Period therefor. In the absence of
such a timely and proper election, the Company on behalf of an Obligor shall be
deemed to have elected to convert such Eurodollar Loan to a Base Rate Loan
pursuant to Section 2.02(e). All or any part of any Eurodollar Loan may be
continued as provided herein, provided that (i) any continuation of any such
Loan shall be (as to each Borrowing as continued for an applicable Interest
Period) in amounts of at least $10,000,000 or any whole multiple of $1,000,000
in excess thereof and (ii) no Default shall have occurred and be continuing. If
a Default shall have occurred and be continuing, each Eurodollar Loan shall be
converted to a Base Rate Loan on the last day of the Interest Period applicable
thereto.
(e) Conversion Options. With respect to Committed Loans, the Company on
behalf of an Obligor may elect to convert all or any part of any Eurodollar Loan
on the last day of the then current Interest Period relating thereto to a Base
Rate Loan by giving notice as provided in Section 2.02(c) to the Administrative
Agent (which shall promptly notify the Lenders) of such election. Subject to
the provisions made in this Section 2.02(e), the Company on behalf of an Obligor
may elect to convert all or any part of any Base Rate Loan at any time and from
time to time to a Eurodollar Loan by giving advance notice as provided in
Section 2.02(c) to the Administrative Agent (which shall promptly notify the
Lenders) of such election. All or any part of any outstanding Base Rate Loan
may be converted as provided herein, provided that (i) any conversion of any
Base Rate Loan into a Eurodollar Loan shall be (as to each such Borrowing into
which there is a conversion for an applicable Interest Period) in amounts of at
least $10,000,000 or any whole multiple of $1,000,000 in excess thereof and (ii)
no Default shall have occurred and be continuing. If a Default shall have
occurred and be continuing, no Base Rate Loan may be converted into a Eurodollar
Loan.
(f) Advances. Not later than 1:00 p.m. (Central time) on the date
specified for each Borrowing hereunder, each Lender shall make available the
amount of the Committed Loan to be made by it on such date to the Administrative
Agent, to an account which the Administrative Agent shall specify, in
immediately available funds, for the account of the Company. The amounts so
received by the Administrative Agent shall, subject to the terms and conditions
of this Agreement, be made available to the Company on behalf of an Obligor by
depositing the same, in immediately available funds, in an account of the
Company, designated by the Company on behalf of an Obligor and maintained at the
Principal Office, or to be deposited at the direction of the Company on behalf
of an Obligor.
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Section 2.03 Changes of Commitments.
(a) The Company on behalf of an Obligor shall have the right to terminate or
to reduce the amount of the Aggregate Commitments at any time or from time to
time upon not less than two (2) Business Days' prior notice to the
Administrative Agent (which shall promptly notify the Lenders) of each such
termination or reduction, which notice shall specify the effective date thereof
and the amount of any such reduction (which shall not be less than $10,000,000
or any whole multiple of $1,000,000 in excess thereof) and shall be irrevocable
and effective only upon receipt by the Administrative Agent.
(b) The Aggregate Commitments once terminated or reduced may not be
reinstated.
Section 2.04 Fees.
(a) The Company shall pay to the Administrative Agent for the account of each
Lender a facility fee on the daily average amount of the Aggregate Commitments
(regardless of usage) for the period from and including the Closing Date up to
but excluding the earlier of the date the Aggregate Commitments are terminated
or the Revolving Credit Termination Date at a rate per annum equal to the amount
set forth in the definition of Applicable Margin for the period designated
therein. Accrued facility fees shall be payable quarterly in arrears on each
Quarterly Date and on the earlier of the date the Aggregate Commitments are
terminated or the Revolving Credit Termination Date.
(b) The Company shall pay to the Administrative Agent for its own account an
administration fee of $25,000.00 per annum payable on the Closing Date and each
anniversary of the Closing Date during the term of this Agreement.
Section 2.05 Several Obligations. The failure of any Lender to make any
Loan to be made by it on the date specified therefor shall not relieve any other
Lender of its obligation to make its Loan on such date, but no Lender shall be
responsible for the failure of any other Lender to make a Loan to be made by
such other Lender.
Section 2.06 Notes.
(a) The Committed Loans made by each Lender to an Obligor shall be evidenced
by a single promissory note of such Obligor in substantially the form of Exhibit
A, dated (i) the Closing Date or (ii) the effective date of an Assignment
pursuant to Section 12.06(b) or (iii) the date that the Company designates a
Designated Subsidiary pursuant to Section 2.10, payable to the order of such
Lender in a principal amount equal to its Commitment and otherwise duly
completed. The date, amount, Type, interest rate and Interest Period, if any,
of each Committed Loan made by each Lender, and all payments made on account of
the principal
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thereof, shall be recorded by such Lender on its books for its Committed Note,
and, prior to any transfer, endorsed by such Lender on the schedule attached to
such Committed Note or any continuation thereof. Failure to make any such
notation shall not affect the Obligor's obligations in respect of such Loans, or
affect the validity of such transfer by any Lender of such Note.
(b) The Competitive Loans made by each Lender to an Obligor shall be
evidenced by a single promissory note of such Obligor in substantially the form
of Exhibit B, dated (i) the Closing Date or (ii) the effective date of an
Assignment pursuant to Section 12.06(b) or (iii) the date that the Company
designates a Designated Subsidiary pursuant to Section 2.10, payable to the
order of such Lender in a principal amount equal to the Aggregate Commitments
and otherwise duly completed. The date, amount, Type, interest rate and
Interest Period of each Competitive Loan made by each Lender, and all payments
made on account of the principal thereof, shall be recorded by such Lender on
its books for its Competitive Note, and, prior to any transfer, endorsed by such
Lender on the schedule attached to such Competitive Note or any continuation
thereof. Failure to make any such notation shall not affect the Obligor's
obligations in respect of such Loans, or affect the validity of such transfer by
any Lender of such Note.
Section 2.07 Prepayments.
(a) Any Obligor may prepay its Base Rate Loans upon prior notice to the
Administrative Agent (which shall promptly notify the Lenders), which notice
shall specify the prepayment date (which shall be a Business Day) and the amount
of the prepayment (which shall be at least $5,000,000 or any whole multiple of
$1,000,000 in excess thereof or the remaining aggregate principal balance
outstanding on the Notes) and shall be irrevocable and effective only upon
receipt by the Administrative Agent, provided that interest on the principal
prepaid, accrued to the prepayment date, shall be paid on the prepayment date.
Any Obligor may prepay its Eurodollar Loans and Fixed Rate Loans on the same
condition as for Base Rate Loans and in addition such prepayments of Eurodollar
Loans and Fixed Rate Loans shall be subject to the terms of Section 5.05 and
shall be in an amount equal to all of the Eurodollar Loans and Fixed Rate Loans
for such Obligor for the Interest Period prepaid.
(b) If, after giving effect to any termination or reduction of the Aggregate
Commitments pursuant to Section 2.03, the outstanding aggregate principal amount
of the Loans exceeds the Aggregate Commitments, the Obligors shall prepay the
Loans on the date of such termination or reduction in an aggregate principal
amount equal to the excess, together with interest on the principal amount paid
accrued to the date of such prepayment.
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(c) Prepayments permitted or required under this Section 2.07 shall be
without premium or penalty, except as required under Section 5.05 for prepayment
of Eurodollar Loans or Fixed Rate Loans.
Section 2.08 Lending Offices. The Loans of each Type made by each Lender
shall be made and maintained at such Lender's Applicable Lending Office for
Loans of such Type.
Section 2.09 Competitive Loans.
(a) In accordance with the terms, conditions and procedures set forth in this
Section 2.09, the Company on behalf of any Obligor may on any Business Day prior
to the Revolving Credit Termination Date request Competitive Bids.
(i) Provided, however, no Lender shall be obligated to make Competitive Loans
to an Obligor unless such Lender has irrevocably offered to make such a
Competitive Loan pursuant to Section 2.09(c); and, provided, further, the
aggregate principal amount of all Competitive Loans to any or all Obligors at
any one time outstanding shall not, at any date, exceed an amount equal to (A)
the Aggregate Commitments as of such date, less (B) the aggregate principal
amount of the Committed Loans to any or all Obligors outstanding as of such
date. For purposes of determining the amount to be calculated pursuant to the
foregoing sentence, any Committed Loans that the Company on behalf of an Obligor
has requested be made, which have not yet been made, shall be given effect as if
made in the full requested amount with respect thereto.
(ii) Notwithstanding the limitations on the aggregate amount of Competitive
Loans that the Obligors may borrow under this Agreement set forth in clause (i)
of this Section 2.09(a), the making of any Competitive Loan to an Obligor by any
Lender shall not be deemed to be a utilization of such Lender's Commitment
(although it shall be deemed to be a utilization of the Aggregate Commitments
for all purposes of this Agreement).
(b) In order to request Competitive Bids, the Company on behalf of an Obligor
shall hand deliver, telex or telecopy to the Administrative Agent and the
Auction Agent a duly completed request substantially in the form of Exhibit C,
with the blanks appropriately completed (a "Competitive Bid Request"), to be
received by such Agents (i) in the case of Eurodollar Loans, not later than 9:00
a.m. (Central time) four (4) Business Days before the date specified for a
proposed Competitive Loan, and (ii) in the case of Fixed Rate Loans, not later
than 9:00 a.m. (Central time) one (1) Business Day before the date specified for
a proposed Competitive Loan. No Base Rate Loan shall be requested in, or made
pursuant to, a Competitive Bid Request. A Competitive Bid Request that does not
conform substantially to the format of Exhibit C may be rejected at the Auction
Agent's sole
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discretion, and the Auction Agent shall promptly notify the Company of such
rejection by telex or telecopier. Each Competitive Bid Request shall in each
case refer to this Agreement and specify (A) whether the Competitive Loans then
being requested are to be Eurodollar Loans or Fixed Rate Loans, (B) the date of
such Competitive Loans (which shall be a Business Day), (C) the aggregate
principal amount thereof (which shall not be less than $10,000,000 and shall be
an integral multiple of $1,000,000), and (D) the Interest Period with respect
thereto. Promptly after its receipt of a Competitive Bid Request that is not
rejected as aforesaid, the Auction Agent shall invite by telex or telecopier (in
substantially the form set forth in Exhibit D) the Lenders to bid, on the terms
and conditions of this Agreement, to make Competitive Loans pursuant to such
Competitive Bid Request. Notwithstanding the foregoing, the Auction Agent shall
have no obligation to invite any Lender to make a Competitive Bid pursuant to
this Section 2.09(b) until such Lender has delivered a properly completed
Competitive Bid Administrative Questionnaire to the Auction Agent.
(c) Each Lender may, in its sole discretion, make one or more Competitive
Bids to an Obligor responsive to each Competitive Bid Request. Each Competitive
Bid by a Lender must be received by the Auction Agent via telex or telecopier,
in the form of Exhibit E, (i) in the case of Eurodollar Loans, not later than
8:30 a.m. (Central time) three (3) Business Days before the date specified for a
proposed Competitive Loan and (ii) in the case of Fixed Rate Loans, not later
than 8:30 a.m. (Central time) on the date specified for a proposed Competitive
Loan. Competitive Bids that do not conform substantially to the format of
Exhibit E may be rejected by the Auction Agent after conferring with, and upon
the instruction of, the Company on behalf of an Obligor, and the Auction Agent
shall notify the applicable Lender of such rejection as soon as practicable.
Each Competitive Bid shall refer to this Agreement and (A) specify the principal
amount (which shall be in a minimum principal amount of $10,000,000 and in an
integral multiple of $1,000,000 and which may equal the entire aggregate
principal amount of the Competitive Loan requested by the Company on behalf of
an Obligor) of the Competitive Loan that the applicable Lender is willing to
make to such Obligor, (B) specify the Competitive Bid Rate at which such Lender
is prepared to make such Competitive Loan and (C) confirm the Interest Period
with respect thereto specified by the Company on behalf of an Obligor in its
Competitive Bid Request. If any Lender shall elect not to make a Competitive
Bid, such Lender shall so notify the Auction Agent via telex or telecopier in
the case of Fixed Rate Loans, not later than 8:30 a.m. (Central time) on the
date of the proposed Competitive Loan and in the case of Eurodollar Loans, not
later than 8:30 a.m. (Central time) three (3) Business Days before the date
specified for a proposed Competitive Loan; provided, however, that failure by
any Lender to give such notice shall not cause such Lender to be obligated to
make any Competitive Loan. A Competitive Bid submitted by a Lender pursuant to
this Subsection 2.09(c) shall be irrevocable.
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(d) The Auction Agent shall promptly notify the Company by telex or
telecopier of all the Competitive Bids made, the Competitive Bid Rate and the
maximum principal amount of each Competitive Loan in respect of which a
Competitive Bid was made and the identity of the Lender that made each
Competitive Bid. The Auction Agent shall send a copy of all Competitive Bids to
the Company for its records as soon as practicable after completion of the
bidding process set forth in this Section 2.09.
(e) The Company on behalf of an Obligor may in the sole and absolute
discretion of the applicable Obligor, subject only to the provisions of this
Section 2.09(e), accept or reject any Competitive Bid referred to in Section
2.09(d); provided, however, that the aggregate amount of the Competitive Bids so
accepted by the Company on behalf of an Obligor may not exceed the principal
amount of the Competitive Loan requested by the Company on behalf of an Obligor.
The Company on behalf of an Obligor shall notify the Auction Agent by telex or
telecopier whether and to what extent the Obligor has decided to accept or
reject any or all of the Competitive Bids referred to in Section 2.09(d), (i) in
the case of Eurodollar Loans, not later than 9:30 a.m. (Central time) three (3)
Business Days before the date specified for a proposed Competitive Loan, and
(ii) in the case of Fixed Rate Loans, not later than 9:30 a.m. (Central time) on
the date specified for a proposed Competitive Loan; provided, however, that (A)
the failure by the Company on behalf of an Obligor to give such notice shall be
deemed to be a rejection of all the Competitive Bids referred to in Section
2.03(c), (B) the Company on behalf of an Obligor shall not accept a Competitive
Bid made at a particular Competitive Bid Rate if the Company on behalf of an
Obligor has decided to reject a Competitive Bid made at a lower Competitive Bid
Rate, (C) if the Company on behalf of an Obligor shall accept Competitive Bids
made at a particular Competitive Bid Rate but shall be restricted by other
conditions hereof from borrowing the maximum principal amount of Competitive
Loans in respect of which Competitive Bids at such Competitive Bid Rate have
been made, then the Company on behalf of an Obligor shall accept a pro rata
portion of each Competitive Bid made at such Competitive Bid Rate based as
nearly as possible on the respective maximum principal amounts of Competitive
Loans for which such Competitive Bids were made and (D) no Competitive Bid shall
be accepted for a Competitive Loan unless such Competitive Loan is in a minimum
principal amount of $10,000,000 and an integral multiple of $1,000,000.
Notwithstanding the foregoing, if it is necessary for the Company on behalf of
an Obligor to accept a pro rata allocation of the Competitive Bids made in
response to a Competitive Bid Request (whether pursuant to the events specified
in clause (C) above or otherwise) and the available principal amount of
Competitive Loans to be allocated among the Lenders is not sufficient to enable
Competitive Loans to be allocated to each Lender in a minimum principal amount
of $10,000,000 and in integral multiples of $1,000,000, then the Company on
behalf of an Obligor shall select the Lenders to be allocated such Competitive
Loans and shall round allocations up or down to the next higher or lower
multiple of $1,000,000 as it shall deem appropriate. In addition, the Company
on behalf of an Obligor shall
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be permitted under the foregoing procedures to accept a Competitive Bid or
Competitive Bids in a principal amount of less than $10,000,000 (i) in order to
enable the Company on behalf of an Obligor to accept Competitive Bids equal to
(but not in excess of) the principal amount of the Competitive Loan requested by
the Company on behalf of an Obligor or (ii) in order to enable the Company on
behalf of an Obligor to accept all remaining Competitive Bids, or all remaining
Competitive Bids at a particular Competitive Bid Rate. A notice given by the
Company on behalf of an Obligor pursuant to this Subsection (e) shall be
irrevocable.
(f) The Auction Agent shall promptly notify each bidding Lender by telex or
telecopy whether or not its Competitive Bid has been accepted (and if so, in
what amount and at what Competitive Bid Rate). Each successful bidder will
thereupon become bound, subject to the other applicable conditions hereof, to
make the Competitive Loan in respect of which its Competitive Bid has been
accepted. After completing the notifications referred to in the immediately
preceding sentence, the Auction Agent shall notify each Lender and the
Administrative Agent of the aggregate principal amount of all Competitive Bids
accepted.
(g) Upon receipt from the Administrative Agent of the notice of Eurodollar
Rate applicable to any Eurodollar Loan to be made by any Lender pursuant to a
Competitive Bid that has been accepted by the Company on behalf of an Obligor
pursuant to Section 2.03(e), the Auction Agent shall notify such Lender of (i)
the applicable Eurodollar Rate and (ii) the sum of the applicable Eurodollar
Rate plus the Margin bid by such Lender.
(h) No Competitive Loan shall be made within five (5) Business Days of the
date of any other Competitive Loan, unless the Company and the Auction Agent
shall mutually agree otherwise.
(i) If the Auction Agent shall at any time have a Commitment hereunder and
shall elect to submit a Competitive Bid in its capacity as a Lender, it shall
submit such Competitive Bid directly to the Company on behalf of an Obligor one
quarter of an hour earlier than the time at which the other Lenders are required
to submit their Competitive Bids to the Auction Agent pursuant to Section
2.09(c).
(j) All notices required by this Section 2.09 shall be made in accordance
with Section 12.02 and the Competitive Bid Administrative Questionnaire most
recently placed on file by each Lender with the Auction Agent.
(k) No Competitive Loan may be continued or converted, except to the extent
converted to a Base Rate Loan pursuant to Section 5.04; provided, however, a
Competitive Loan may be repaid with the proceeds of a Borrowing of Competitive
Loans or Committed Loans made pursuant to the terms of this Agreement, and the
Administrative Agent is authorized to net the Borrowing and repayments for
convenience.
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(l) Not later than 12:00 noon (Central time) on the date specified for each
Borrowing hereunder, each Lender that is a successful bidder shall make
available the amount of the Competitive Loan to be made by it on such date to
the Administrative Agent, to an account which the Administrative Agent shall
specify, in immediately available funds, for the account of the Company on
behalf of an Obligor. The amounts so received by the Administrative Agent
shall, subject to the terms and conditions of this Agreement, be made available
to the Company on behalf of an Obligor by depositing the same, in immediately
available funds, in an account of the Company on behalf of an Obligor,
designated by the Company on behalf of an Obligor and maintained at the
Principal Office.
Section 2.10 Designated Subsidiaries. The Company may from time to time
designate one or more of its Subsidiaries to have the right to borrow both
Committed Loans and Competitive Loans by sending to the Administrative Agent a
Notice of Designation of a Designated Subsidiary and otherwise complying with
Section 6.03. Each Designated Subsidiary shall be liable for (i) the principal
and interest on Loans made to it as requested in any Borrowing Request or
Competitive Bid Requests signed by it or the Company on its behalf, (ii) all
fees, indemnities and reimbursement obligations as set forth in this Agreement
and (iii) to the extent the Designated Subsidiary is a Guarantor pursuant to
Section 8.08, the obligations set forth in its Subsidiary Guaranty Agreement. No
Designated Subsidiary shall be liable for any principal or interest on any Loan
to another Obligor except to the extent that such Designated Subsidiary is a
Guarantor pursuant to Section 8.08. The Company shall be liable for all
Indebtedness of all Obligors as set forth either in this Agreement or the Parent
Guaranty Agreement. As agreed to in each Notice of Designation of Designated
Subsidiary executed and delivered by the Company and each Designated Subsidiary,
each Designated Subsidiary appoints the Company as its agent to execute all
Borrowing Requests and Competitive Bid Requests, give and receive all notices on
its behalf and take whatever other action is required of it under the Loan
Documents, and the Agents and Lenders are entitled to fully rely on all action
taken and notices given by the Company on behalf of any Designated Subsidiary.
ARTICLE III
PAYMENTS OF PRINCIPAL AND INTEREST
Section 3.01 Repayment of Loans. Each Obligor will pay to the
Administrative Agent, for the account of each applicable Lender, the principal
payments required by this Section 3.01. On the last day of the Interest Period
for each Competitive Loan to an Obligor, such Obligor shall repay the
outstanding aggregate principal and accrued and unpaid interest on such Loan. On
the Revolving Credit Termination Date each Obligor shall repay the outstanding
aggregate principal and accrued and unpaid interest under its Notes.
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Section 3.02 Interest. Each Obligor will pay to the Administrative Agent,
for the account of each Lender, interest on the unpaid principal amount of each
Loan made by such Lender to such Obligor for the period commencing on the date
such Loan is made to but excluding the date such Loan shall be paid in full, at
the following rates per annum:
(a) if such Loan is a Committed Loan and a Base Rate Loan, the Base Rate (as
in effect from time to time), but in no event to exceed the Highest Lawful Rate;
(b) if such Loan is a Committed Loan and a Eurodollar Loan, for each Interest
Period relating thereto, the Eurodollar Rate for such Loan plus the Applicable
Margin, but in no event to exceed the Highest Lawful Rate;
(c) if such Loan is a Competitive Loan and a Eurodollar Loan, for each
Interest Period relating thereto, the Eurodollar Rate for such Loan plus or
minus the Margin as accepted by the Company on behalf of an Obligor, but in no
event to exceed the Highest Lawful Rate; and
(d) if such Loan is a Competitive Loan and a Fixed Rate Loan, for each
Interest Period relating thereto, the fixed rate per annum offered by the
respective Lender in its Competitive Bid and accepted by the Company on behalf
of an Obligor pursuant to Section 2.09, but in no event to exceed the Highest
Lawful Rate.
Notwithstanding the foregoing, each Obligor will pay to the Administrative
Agent, for the account of each applicable Lender interest at the applicable
Post-Default Rate on any principal of any Loan made by such Lender to such
Obligor, which shall not be paid in full when due (whether at stated maturity,
by acceleration or otherwise), for the period commencing on the due date thereof
until the same is paid in full. To the fullest extent permitted by law, each
Obligor will pay to the Administrative Agent for the account of each applicable
Lender interest at the Base Rate on interest and any other amount payable by
such Obligor hereunder other than principal on the Loans, under any other Loan
Document or under any Note held by such Lender to or for the account of such
Lender, which shall not be paid in full when due (whether at stated maturity, by
acceleration or otherwise), for the period commencing on the due date thereof
until the same is paid in full.
Accrued interest on Base Rate Loans shall be payable on each Quarterly Date
commencing on June 30, 1995, and accrued interest on each Eurodollar Loan and
Fixed Rate Loan shall be payable on the last day of the Interest Period therefor
and, if such Interest Period is longer than three months at three-month
intervals following the first day of such Interest Period, except that interest
payable at the Post-Default Rate or otherwise accruing on past due amounts shall
be payable from time to time on demand and interest on any Eurodollar Loan or
Fixed Rate Loan that is converted into a Base Rate Loan (pursuant to Section
5.04) shall be payable on the date of conversion (but only to the extent so
converted).
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Promptly after the determination of any interest rate provided for herein or
any change therein, the Administrative Agent or the Auction Agent shall notify
the Lenders to which such interest is payable and the Company thereof. Each
determination by the Administrative Agent or the Auction Agent of an interest
rate or fee hereunder shall, except in cases of manifest error, be final,
conclusive and binding on the parties.
ARTICLE IV
PAYMENTS; PRO RATA TREATMENT; COMPUTATIONS; ETC.
Section 4.01 Payments. Except to the extent otherwise provided herein, all
payments of principal, interest and other amounts to be made by each Obligor
under this Agreement and the Notes shall be made in Dollars, in immediately
available funds, to the Administrative Agent at such account as the
Administrative Agent shall specify by notice to the Company on behalf of each
Obligor from time to time, not later than 1:00 p.m. (Central time) on the date
on which such payments shall become due (each such payment made after such time
on such due date to be deemed to have been made on the next succeeding Business
Day). Such payments shall be made without (to the fullest extent permitted by
applicable law) defense, set-off or counterclaim. Each payment received by the
Administrative Agent under this Agreement or any Note for the account of a
Lender shall be paid promptly to such Lender in immediately available funds. If
the due date of any payment under this Agreement or any Note would otherwise
fall on a day which is not a Business Day such date shall be extended to the
next succeeding Business Day and interest shall be payable for any principal so
extended for the period of such extension. At the time of each payment to the
Administrative Agent of any principal of or interest on any Borrowing, the
Company on behalf of the Obligors shall notify the Administrative Agent of the
Loans to which such payment shall apply. In the absence of such notice the
Administrative Agent may specify the Loans to which such payment shall apply,
but to the extent possible such payment or prepayment will be applied first to
the Loans comprised of Base Rate Loans.
Section 4.02 Pro Rata Treatment. Except to the extent otherwise provided
herein each Lender agrees that: (i) each Borrowing from the Lenders under
Section 2.01 shall be made from the Lenders pro rata in accordance with their
Percentage Share, each payment of facility fees under Section 2.04(a) shall be
made for the account of the Lenders pro rata in accordance with their Percentage
Share, and each termination or reduction of the amount of the Aggregate
Commitments under Section 2.03(a) shall be applied to the Commitment of each
Lender, pro rata according to the amounts of its respective Commitment; (ii)
each payment of principal of Loans by the Company on behalf of an Obligor shall
be made for the account of the Lenders pro rata in accordance with the
respective unpaid principal amount of the Loans held by the Lenders due or past
due on such date or intended to be prepaid by the Company on behalf of such
Obligor; and (iii) each payment of interest on Loans by the Company on behalf
of an Obligor shall be
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made for the account of the Lenders pro rata in accordance with the amounts of
interest due and payable to the respective Lenders.
Section 4.03 Computations. Interest on Eurodollar Loans and Fixed Rate
Loans shall be computed on the basis of a year of 360 days and actual days
elapsed (including the first day but excluding the last day) occurring in the
period for which such interest is payable, unless such calculation would exceed
the Highest Lawful Rate, in which case interest shall be calculated on the per
annum basis of a year of 365 or 366 days, as the case may be. Interest on Base
Rate Loans and fees shall be computed on the basis of a year of 365 or 366 days,
as the case may be, and actual days elapsed (including the first day but
excluding the last day) occurring in the period for which such interest or fee
is payable.
Section 4.04 Non-receipt of Funds by the Administrative Agent. Unless the
Administrative Agent shall have been notified by a Lender or the Company on
behalf of an Obligor prior to the date on which such notifying party is
scheduled to make payment to the Administrative Agent (in the case of a Lender)
of the proceeds of a Loan to be made by it hereunder or (in the case of an
Obligor) a payment to the Administrative Agent for the account of one or more of
the Lenders hereunder (such payment being herein called the "Required Payment"),
which notice shall be effective upon receipt, that it does not intend to make
the Required Payment to the Administrative Agent, the Administrative Agent may
assume that the Required Payment has been made and may, in reliance upon such
assumption (but shall not be required to), make the amount thereof available to
the intended recipient(s) on such date and, if such Lender or the Company on
behalf of an Obligor (as the case may be) has not in fact made the Required
Payment to the Administrative Agent, the recipient(s) of such payment shall, on
demand, repay to the Administrative Agent the amount so made available together
with interest thereon in respect of each day during the period commencing on the
date such amount was so made available by the Administrative Agent until but
excluding the date the Administrative Agent recovers such amount at a rate per
annum which, for any Lender as recipient, will be equal to the Federal Funds
Rate, and for an Obligor as recipient, will be equal to the Post-Default Rate.
Section 4.05 Sharing of Payments, Etc. If after an Event of Default and
during its continuance any Lender shall obtain payment of any principal of or
interest on any Loan made by it to an Obligor under this Agreement through
whatever means other than an assignment pursuant to Section 12.06(b), and, as a
result of such payment, such Lender shall have received a greater percentage of
the principal or interest then due hereunder by such Obligor to such Lender than
the percentage received by any other Lenders, it shall promptly (i) notify the
Administrative Agent and each other Lender thereof and (ii) purchase from such
other Lenders participations in (or, if and to the extent specified by such
Lender, direct interests in) the Loans made by such other Lenders (or in
interest due thereon, as the case may be) in such amounts, and make such other
adjustments from time to time as shall be equitable, to the end that all the
Lenders shall share the benefit of such excess payment (net of any expenses
which may be incurred by such Lender in obtaining or preserving such excess
payment) pro rata in accordance with
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the unpaid principal and/or interest on the Loans to such Obligor held by each
of the Lenders. To such end all the Lenders shall make appropriate adjustments
among themselves (by the resale of participations sold or otherwise) if such
payment is rescinded or must otherwise be restored.
Section 4.06 Taxes.
(a) Payments Free and Clear. Any and all payments by an Obligor hereunder
shall be made, in accordance with Section 4.01, free and clear of and without
deduction for any and all present or future taxes, levies, imposts, deductions,
charges or withholdings, and all liabilities with respect thereto, excluding, in
the case of each Lender and the Administrative Agent, taxes imposed on its
income, and franchise or similar taxes imposed on it, by (i) any jurisdiction
(or political subdivision thereof) of which the Administrative Agent or such
Lender, as the case may be, is a citizen or resident or in which such Lender has
an Applicable Lending Office, (ii) the jurisdiction (or any political
subdivision thereof) in which the Administrative Agent or such Lender is
organized, or (iii) any jurisdiction (or political subdivision thereof) in which
such Lender or the Administrative Agent is presently doing business which taxes
are imposed solely as a result of doing business in such jurisdiction (all such
non-excluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities being hereinafter referred to as "Taxes"). If an Obligor shall be
required by law to deduct any Taxes from or in respect of any sum payable
hereunder to the Lenders or the Administrative Agent (i) the sum payable shall
be increased by the amount necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section 4.06) such Lender or the Administrative Agent (as the case may be)
shall receive an amount equal to the sum it would have received had no such
deductions been made, (ii) such Obligor shall make such deductions and (iii)
such Obligor shall pay the full amount deducted to the relevant taxing authority
or other Governmental Authority in accordance with applicable law.
(b) Other Taxes. In addition, to the fullest extent permitted by applicable
law, each Obligor agrees to pay any present or future stamp or documentary taxes
or any other excise or property taxes, charges or similar levies that arise from
any payment made hereunder or from the execution, delivery or registration of,
or otherwise with respect to, this Agreement, any Assignment or any other Loan
Document (hereinafter referred to as "Other Taxes").
(c) INDEMNIFICATION. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH
OBLIGOR WILL INDEMNIFY EACH LENDER AND THE AGENTS FOR THE FULL AMOUNT OF TAXES
AND OTHER TAXES (INCLUDING, BUT NOT LIMITED TO, ANY TAXES OR OTHER TAXES IMPOSED
BY ANY GOVERNMENTAL AUTHORITY ON AMOUNTS PAYABLE UNDER THIS SECTION 4.06) PAID
BY SUCH LENDER OR ANY AGENT (ON THEIR BEHALF OR ON BEHALF OF ANY LENDER), AS THE
CASE MAY BE, AND ANY LIABILITY (INCLUDING PENALTIES, INTEREST AND EXPENSES)
ARISING THEREFROM OR WITH RESPECT
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THERETO, WHETHER OR NOT SUCH TAXES OR OTHER TAXES WERE CORRECTLY OR LEGALLY
ASSERTED UNLESS THE PAYMENT OF SUCH TAXES WAS NOT CORRECTLY OR LEGALLY ASSERTED
AND SUCH LENDER'S PAYMENT OF SUCH TAXES OR OTHER TAXES WAS THE RESULT OF ITS
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. ANY PAYMENT PURSUANT TO SUCH
INDEMNIFICATION SHALL BE MADE WITHIN THIRTY (30) DAYS AFTER THE DATE ANY LENDER
OR ANY AGENT, AS THE CASE MAY BE, MAKES WRITTEN DEMAND THEREFOR. IF ANY LENDER
OR ANY AGENT RECEIVES A REFUND OR CREDIT IN RESPECT OF ANY TAXES OR OTHER TAXES
FOR WHICH SUCH LENDER OR SUCH AGENT HAS RECEIVED PAYMENT FROM AN OBLIGOR IT
SHALL PROMPTLY NOTIFY THE COMPANY ON BEHALF OF SUCH OBLIGOR OF SUCH REFUND OR
CREDIT AND SHALL, IF NO DEFAULT HAS OCCURRED AND IS CONTINUING, WITHIN THIRTY
(30) DAYS AFTER RECEIPT OF A REQUEST BY THE COMPANY ON BEHALF OF SUCH OBLIGOR
(OR PROMPTLY UPON RECEIPT, IF THE COMPANY ON BEHALF OF SUCH OBLIGOR HAS
REQUESTED APPLICATION FOR SUCH REFUND OR CREDIT PURSUANT HERETO), PAY AN AMOUNT
EQUAL TO SUCH REFUND OR CREDIT TO THE COMPANY ON BEHALF OF SUCH OBLIGOR WITHOUT
INTEREST (BUT WITH ANY INTEREST SO REFUNDED OR CREDITED), PROVIDED THAT SUCH
OBLIGOR, UPON THE REQUEST OF SUCH LENDER OR SUCH AGENT, AGREES TO RETURN SUCH
REFUND OR CREDIT (PLUS PENALTIES, INTEREST OR OTHER CHARGES) TO SUCH LENDER OR
SUCH AGENT IN THE EVENT SUCH LENDER OR SUCH AGENT IS REQUIRED TO REPAY SUCH
REFUND OR CREDIT.
(d) Lender Representations.
(i) Each Lender represents that it is either (i) a corporation organized under
the laws of the United States of America or any state thereof or (ii) it is
entitled to complete exemption from United States withholding tax imposed on or
with respect to any payments, including fees, to be made to it pursuant to this
Agreement (A) under an applicable provision of a tax convention to which the
United States of America is a party or (B) because it is acting through a
branch, agency or office in the United States of America and any payment to be
received by it hereunder is effectively connected with a trade or business in
the United States of America. Each Lender that is not a corporation organized
under the laws of the United States of America or any state thereof agrees to
provide to the Company and the Administrative Agent on the Closing Date, or on
the date of its delivery of the Assignment pursuant to which it becomes a
Lender, and at such other times as required by United States law or as the
Company or the Administrative Agent shall reasonably request, two accurate and
complete original signed copies of either (A) Internal Revenue Service Form 4224
(or successor form) certifying that all payments to be made to it hereunder will
be effectively connected to a United States trade or business (the "Form 4224
Certification") or (B) Internal Revenue Service Form 1001 (or successor form)
certifying that it is entitled to the benefit of a provision of a tax convention
to which the United States of America is a party which completely exempts from
United States withholding tax all payments to be made to it hereunder (the "Form
1001
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Certification"). In addition, each Lender agrees that if it previously filed
a Form 4224 Certification, it will deliver to the Company and the Administrative
Agent a new Form 4224 Certification prior to the first payment date occurring in
each of its subsequent taxable years; and if it previously filed a Form 1001
Certification, it will deliver to the Company and the Administrative Agent a new
certification prior to the first payment date falling in the third year
following the previous filing of such certification. Each Lender also agrees to
deliver to the Company and the Administrative Agent such other or supplemental
forms as may at any time be required as a result of changes in applicable law or
regulation in order to confirm or maintain in effect its entitlement to
exemption from United States withholding tax on any payments hereunder, provided
that the circumstances of such Lender at the relevant time and applicable laws
permit it to do so. If a Lender determines, as a result of any change in either
(i) a Governmental Requirement or (ii) its circumstances, that it is unable to
submit any form or certificate that it is obligated to submit pursuant to this
Section 4.06, or that it is required to withdraw or cancel any such form or
certificate previously submitted, it shall promptly notify the Company and the
Administrative Agent of such fact. If a Lender is organized under the laws of a
jurisdiction outside the United States of America, unless the Company and the
Administrative Agent have received a Form 1001 Certification or Form 4224
Certification satisfactory to them indicating that all payments to be made to
such Lender hereunder are not subject to United States withholding tax, the
Company on behalf of each Obligor shall withhold taxes from such payments at the
applicable statutory rate. Each Lender agrees to indemnify and hold harmless
from any United States taxes, penalties, interest and other expenses, costs and
losses incurred or payable by (i) the Administrative Agent as a result of such
Lender's failure to submit any form or certificate that it is required to
provide pursuant to this Section 4.06 or (ii) the Company or the Administrative
Agent as a result of their reliance on any such form or certificate which such
Lender has provided to them pursuant to this Section 4.06.
(ii) For any period with respect to which a Lender required to do so has
failed to provide the Company with the form required pursuant to this Section
4.06, if any (other than if such failure is due to a change in a Governmental
Requirement occurring subsequent to the date on which a form originally was
required to be provided), such Lender shall not be entitled to indemnification
under Section 4.06 with respect to taxes imposed by the United States which
taxes would not have been imposed but for such failure to provide such forms;
provided, however, that should a Lender, which is otherwise exempt from or
subject to a reduced rate of withholding tax, becomes subject to taxes because
of its failure to deliver a form required hereunder, the Company on behalf of
each Obligor shall take such steps as such Lender shall reasonably request to
assist such Lender to recover such taxes.
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(iii) Any Lender claiming any additional amounts payable pursuant to this
Section 4.06 shall use reasonable efforts (consistent with legal and regulatory
restrictions) to file any certificate or document requested by the Company or
the Administrative Agent or to change the jurisdiction of its Applicable Lending
Office or to contest any tax imposed if the making of such a filing or change or
contesting such tax would avoid the need for or reduce the amount of any such
additional amounts that may thereafter accrue and would not, in the sole
determination of such Lender, be otherwise disadvantageous to such Lender.
ARTICLE V
CAPITAL ADEQUACY, ADDITIONAL COSTS, ETC.
Section 5.01 Additional Costs.
(a) Regulatory Changes. In the event of any introduction of and/or any
change in any applicable law, rule, regulation (including Regulation D),
official interpretation thereof or official directive after the date of this
Agreement (whether or not having the force of law) which will result in an
increase in the cost to any Lender of making or maintaining the Loans by reason
of reserve or similar requirements, or which will result in a reduction of
amounts otherwise receivable by any Lender from any Obligor of principal,
interest or other fees and charges thereunder by reason of a tax, levy, impost,
fee, charge, withholding or similar requirements of any kind, or modifies any
capital adequacy or similar requirement (including, without limitation, a
requirement which affects any Lender's or its parent's or its holding company's
allocation of capital resources to its obligations or commitments) and, as a
result, the cost to such Lender or its parent or holding company of making or
maintaining amounts available under this Agreement is increased or the Lender's
or its parent's or holding company's return under this Agreement or on all or
any of its capital is reduced, the Obligors will pay to the Administrative Agent
for such Lender upon notice as provided in Section 5.01(b) an amount equal to
such actual increased cost or reduction of yield allocable to this facility.
(b) Compensation Procedure. Any Lender notifying the Company of the
incurrence of additional costs under this Section 5.01 shall in such notice to
the Company and the Administrative Agent set forth in reasonable detail the
basis and amount of its request for compensation. Determinations and
allocations by each Lender for purposes of this Section 5.01 of the effect of
any Regulatory Change pursuant to Section 5.01(a) on its costs or rate of return
of maintaining Loans or its obligation to make Loans, or on amounts receivable
by it in respect of Loans, and of the amounts required to compensate such Lender
under this Section 5.01, shall be conclusive and binding for all purposes,
provided that such determinations and
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allocations are made on a reasonable basis. Any request for additional
compensation under this Section 5.01 shall be paid by each Obligor to the
Administrative Agent for the applicable Lender within thirty (30) days of the
receipt by the Company of the notice described in this Section 5.01(b).
Section 5.02 Limitation on Eurodollar Loans. Anything herein to the
contrary notwithstanding, if, on or prior to the determination of any Eurodollar
Rate for any Interest Period:
(i) the Administrative Agent determines (which determination shall be
conclusive, absent manifest error) that quotations of interest rates for the
relevant deposits referred to in the definition of "Eurodollar Rate" in Section
1.02 are not being provided in the relevant amounts or for the relevant
maturities for purposes of determining rates of interest for Eurodollar Loans as
provided herein; or
(ii) the Administrative Agent determines (which determination shall be
conclusive, absent manifest error) that the relevant rates of interest referred
to in the definition of "Eurodollar Rate" in Section 1.02 upon the basis of
which the rate of interest for Eurodollar Loans for such Interest Period is to
be determined are not sufficient to adequately cover the cost to the Lenders of
making or maintaining Eurodollar Loans;
then the Administrative Agent shall give the Company prompt notice thereof, and
so long as such condition remains in effect, the Lenders shall be under no
obligation to make additional Eurodollar Loans or continue or convert into
Eurodollar Loans.
Section 5.03 Illegality. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful or legally restricted for any
Lender or its Applicable Lending Office to honor its obligation to make or
maintain, continue or convert into Eurodollar Loans or Fixed Rate Loans
hereunder, then such Lender shall promptly notify the Company thereof and such
Lender's obligation to make, continue or convert into Eurodollar Loans or Fixed
Rate Loans shall be suspended until such time as such Lender may again make and
maintain, continue or convert into Eurodollar Loans or Fixed Rate Loans (in
which case the provisions of Section 5.04 shall be applicable).
Section 5.04 Base Rate Loans Pursuant to Sections 5.02 and 5.03. If the
obligation of any Lender to make, continue or convert into Eurodollar Loans or
Fixed Rate Loans shall be suspended pursuant to Sections 5.02 or 5.03 ("Affected
Loans"), all Affected Loans which would otherwise be made by such Lender shall
be made instead as Base Rate Loans (and, if an event referred to in Section 5.03
has occurred and such Lender so requests by notice to the Administrative Agent
and the Company, all Affected Loans of such Lender then outstanding shall be
automatically converted into Base Rate Loans on the date specified by such
Lender in such notice) and, to the extent that Affected Loans are so made as (or
converted into) Base Rate Loans, all payments of principal which would
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otherwise be applied to such Lender's Affected Loans shall be applied instead to
its Base Rate Loans.
Section 5.05 Compensation. Each Obligor shall pay to the Administrative
Agent for each Lender within thirty (30) days of receipt of written request of
such Lender to the Administrative Agent and the Company (which request shall set
forth, in reasonable detail, the basis for requesting such amounts and which
shall be conclusive and binding for all purposes provided that such
determinations are made on a reasonable basis), such amount or amounts as shall
compensate it for any loss, cost, expense or liability which such Lender
determines are attributable to:
(i) any payment, prepayment or conversion of a Eurodollar Loan or Fixed Rate
Loan properly made by such Lender or such Obligor for any reason (including,
without limitation, the acceleration of the Loans pursuant to Section 10.01) on
a date other than the last day of the Interest Period for such Loan; or
(ii) any failure by such Obligor for any reason (including but not limited
to, the failure of any of the conditions precedent specified in Article VI to be
satisfied) to borrow, continue or convert into a Eurodollar Loan that is a
Committed Loan or to borrow a Competitive Loan from such Lender on the date for
such Borrowing, continuation or conversion specified in the relevant notice
given pursuant to Section 2.02 or Section 2.09.
ARTICLE VI
CONDITIONS PRECEDENT
Section 6.01 Initial Funding.
The obligation of the Lenders to make the Initial Funding is subject to the
receipt by the Administrative Agent and the Lenders of all fees payable pursuant
to Section 2.04 on or before the Closing Date and the receipt by the
Administrative Agent of the following documents and satisfaction of the other
conditions provided in this Section 6.01:
(a) A certificate of the Secretary or an Assistant Secretary of the Company
setting forth (i) resolutions of its board of directors with respect to the
authorization of the Company to execute and deliver the Loan Documents to which
it is a party and to enter into the transactions contemplated in those
documents, (ii) the officers of the Company (y) who are authorized to sign the
Loan Documents to which the Company is a party and (z) who will, until replaced
by another officer or officers duly authorized for that purpose, act as its
representative for the purposes of signing documents and giving notices and
other communications in connection with this Agreement and the transactions
contemplated hereby, (iii) specimen signatures of
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the authorized officers, and (iv) the articles or certificate of incorporation
and bylaws of the Company, certified as being true and complete. The
Administrative Agent and the Lenders may conclusively rely on such certificate
until the Administrative Agent receives notice in writing from the Company to
the contrary.
(b) Certificates of the appropriate state agencies with respect to the
existence, qualification and good standing of the Company in the State of Texas.
(c) A compliance certificate which shall be substantially in the form of
Exhibit H, duly and properly executed by a Responsible Officer and dated as of
the date of the Initial Funding.
(d) The Notes of the Company, duly completed and executed.
(e) The Parent Guaranty Agreement, duly completed and executed.
(f) An opinion of W. T. Satterwhite, counsel to the Company, substantially in
the form of Exhibit I hereto.
(g) A certificate of insurance for the Company and its Subsidiaries.
Section 6.02 Initial and Subsequent Loans. The obligation of the Lenders to
make Loans to any Obligor upon the occasion of each Borrowing hereunder
(including the Initial Funding) is subject to the further conditions precedent
that, as of the date of such Borrowing and after giving effect thereto: (i) no
Default shall have occurred and be continuing and (ii) the representations and
warranties made by the Company in Article VII and by each Designated Subsidiary
in its respective Notice of Designation of a Designated Subsidiary shall be true
on and as of the date of the making of such Borrowing with the same force and
effect as if made on and as of such date and following such new Borrowing,
except to the extent such representations and warranties are expressly limited
to an earlier date or the Majority Lenders have expressly consented in writing
to the contrary. Each request for a borrowing by the Company hereunder shall
constitute a certification by the Company to the effect set forth in the
preceding sentence (both as of the date of such notice and, unless the Company
otherwise notifies the Administrative Agent prior to the date of and immediately
following such Borrowing as of the date thereof).
Section 6.03 Loans to Designated Subsidiaries. The obligation of the
Lenders to make Loans to a Designated Subsidiary is subject to receipt by the
Administrative Agent of the following documents and satisfaction of the
conditions set forth in this Section 6.03 as well as the conditions set forth in
Sections 6.01 and 6.02, each of which shall be satisfactory to the
Administrative Agent in form and substance:
(a) A Notice of Designation of Designated Subsidiary executed by the Company
and such Designated Subsidiary.
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(b) A certificate of the Secretary or an Assistant Secretary of such
Designated Subsidiary setting forth (i) resolutions of its board of directors
with respect to the authorization of such Subsidiary to execute and deliver the
Loan Documents to which it is a party and to enter into the transactions
contemplated in those documents, (ii) the officers of such Subsidiary (y) who
are authorized to sign the Loan Documents to which such Subsidiary is a party
and (z) who will, until replaced by another officer or officers duly authorized
for that purpose, act as its representative for the purposes of signing
documents and giving notices and other communications in connection with this
Agreement and the transactions contemplated hereby, (iii) specimen signatures of
the authorized officers, and (iv) the articles or certificate of incorporation
and bylaws of such Subsidiary, certified as being true and complete. The Agents
and the Lenders may conclusively rely on such certificate until the
Administrative Agent receives notice in writing from the Company to the
contrary.
(c) The Notes of such Designated Subsidiary, duly completed and executed.
(d) An opinion of counsel to such Designated Subsidiary, substantially in the
form of Exhibit J.
(e) Such Designated Subsidiary shall be a Subsidiary.
(f) The most recent unaudited balance sheet of such Designated Subsidiary
certified by a Responsible Officer.
(g) Such other documents as the Administrative Agent may reasonably request.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to the Administrative Agent and the
Lenders that (each representation and warranty herein is given as of the Closing
Date and shall be deemed repeated and reaffirmed on the dates of each Borrowing
as provided in Section 6.02):
Section 7.01 Corporate Existence. Each of the Company and each Designated
Subsidiary and each Subsidiary Guarantor: (i) is a corporation duly organized,
legally existing and in good standing under the laws of the jurisdiction of its
incorporation; (ii) has all requisite corporate power, and has all material
governmental licenses, authorizations, consents and approvals necessary to own
its assets and carry on its business as now being or as proposed to be
conducted; and (iii) is qualified to do business in all
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jurisdictions in which the nature of the business conducted by it makes such
qualification necessary and where failure so to qualify would have a Material
Adverse Effect.
Section 7.02 Financial Condition. The audited balance sheet of the Company
as at December 31, 1994 and the related statements of operations, cash flows and
changes in partners' capital and common shareholders' equity of the Company and
its predecessor for each of the three years in the period ended on said date,
with the opinion thereon of Deloitte & Touche LLP heretofore furnished to each
of the Lenders, are complete and correct and fairly present the financial
condition of the Company as at said date and the results of operations and cash
flows of the Company and its predecessor for the stated periods then ended, all
in accordance with GAAP. Neither the Company nor any Subsidiary has on the
Closing Date any material Debt, contingent liabilities, liabilities for taxes,
unusual forward or long-term commitments or unrealized or anticipated losses
from any unfavorable commitments, except as referred to or reflected or provided
for in the Financial Statements or in Schedule 7.02. Since December 31, 1994 to
the Closing Date, there has been no change or event having a Material Adverse
Effect. Since the date of the Financial Statements to the Closing Date, neither
the business nor the Properties of the Company or any Subsidiary have been
materially and adversely affected as a result of any fire, explosion,
earthquake, flood, drought, windstorm, accident, strike or other labor
disturbance, embargo, requisition or taking of Property or cancellation of
contracts, permits or concessions by any Governmental Authority, riot,
activities of armed forces or acts of God or of any public enemy.
Section 7.03 Litigation. As of the Closing Date, except as disclosed to the
Lenders in Schedule 7.03, there is no litigation, legal, administrative or
arbitral proceeding, investigation or other action of any nature pending or, to
the knowledge of the Company threatened against or affecting the Company or any
Subsidiary which involves the possibility of any judgment or liability against
the Company or any Subsidiary not fully covered by insurance (except for normal
deductibles), and which would have a Material Adverse Effect.
Section 7.04 No Breach. Neither the execution and delivery of the Loan
Documents, nor compliance with the terms and provisions hereof will conflict
with or result in a breach of, or require any consent which has not been
obtained as of the Closing Date under, the respective charter or by-laws of the
Company or any Subsidiary, or any Governmental Requirement or any agreement or
instrument for borrowed money to which the Company or any Subsidiary is a party
or by which it is bound or to which it or its Properties are subject, or
constitute a default under any such agreement or instrument, or result in the
creation or imposition of any Lien upon any of the revenues or assets of the
Company or any Subsidiary pursuant to the terms of any such agreement or
instrument other than the Liens created by the Loan Documents.
Section 7.05 Authority. The Company and each Subsidiary have all necessary
corporate power and authority to execute, deliver and perform its obligations
under the Loan Documents to which it is a party; and the execution, delivery and
performance by the
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Company and each Subsidiary of the Loan Documents to which it is a party, have
been duly authorized by all necessary corporate action on its part; and the Loan
Documents constitute the legal, valid and binding obligations of the Company and
each Subsidiary, enforceable in accordance with their terms, except to the
extent that enforcement may be limited by bankruptcy, insolvency or similar laws
affecting the enforcement of creditor's rights generally.
Section 7.06 Approvals. No authorizations, approvals or consents of, and no
filings or registrations with, any Governmental Authority are necessary for the
execution, delivery or performance by the Company or any Subsidiary of the Loan
Documents or for the validity or enforceability thereof.
Section 7.07 Use of Loans. The proceeds of the Loans shall be used for
acquisition funding, working capital or general corporate purposes of the
Company. Neither the Company nor any Designated Subsidiary is engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose, whether immediate, incidental or ultimate, of buying or
carrying margin stock (within the meaning of Regulation G, U or X of the Board
of Governors of the Federal Reserve System). Following application of the
proceeds of each Borrowing, not more than 25 percent of the value of the assets
(either of each Obligor only or of the Company and its Subsidiaries on a
consolidated basis), which are subject to any arrangement with the
Administrative Agent or any Lender (herein or otherwise) whereby the Company's
or any Subsidiary's right or ability to sell, pledge or otherwise dispose of
assets is in any way restricted, will be margin stock (within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System).
Section 7.08 ERISA. As of the Closing Date, except as would not have a
Material Adverse Effect:
(a) The Company, the Subsidiaries and each ERISA Affiliate have complied in
all material respects with ERISA and, where applicable, the Code regarding each
Plan.
(b) No act, omission or transaction has occurred which could result in
imposition on the Company, any Subsidiary or any ERISA Affiliate (whether
directly or indirectly) of (i) either a material civil penalty assessed pursuant
to subsections (c), (i) or (l) of section 502 of ERISA or a tax imposed pursuant
to Chapter 43 of Subtitle D of the Code or (ii) breach of fiduciary duty
liability damages under section 409 of ERISA.
(c) No liability to the PBGC (other than for the payment of current premiums
which are not past due) by the Company, any Subsidiary or any ERISA Affiliate
has been or is expected by the Company, any Subsidiary or any ERISA Affiliate to
be incurred with respect to any Plan. No ERISA Event with respect to any Plan
has occurred which could result in a liability of the Company, any Subsidiary or
any ERISA Affiliate.
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(d) Full payment when due has been made of all amounts which the Company, the
Subsidiaries or any ERISA Affiliate is required under the terms of each Plan or
applicable law to have paid as contributions to such Plan as of the date hereof,
and no accumulated funding deficiency (as defined in section 302 of ERISA and
section 412 of the Code), whether or not waived, exists with respect to any
Benefit Plan.
(e) The actuarial present value of the benefit liabilities under each Benefit
Plan which is subject to Title IV of ERISA does not, as of the end of the
Company's most recently ended fiscal year, exceed the current value of the
assets (computed on a plan termination basis in accordance with Title IV of
ERISA) of such Benefit Plan allocable to such benefit liabilities. The term
"actuarial present value of the benefit liabilities" shall have the meaning
specified in section 4041 of ERISA.
(f) Neither the Company, the Subsidiaries nor any ERISA Affiliate has
received any notification (or has knowledge of any reason to expect) that any
Multiemployer Plan is in reorganization, is insolvent or has been terminated,
within the meaning of Title IV of ERISA.
(g) Neither the Company, the Subsidiaries nor any ERISA Affiliate is required
to provide security under section 401(a)(29) of the Code due to a Plan amendment
that results in an increase in current liability for the Plan.
Section 7.09 Taxes. Except as set out in Schedule 7.09, each of the Company
and its Subsidiaries has filed all United States Federal income tax returns and
all other tax returns which are required to be filed by them and has paid all
material taxes due pursuant to such returns or pursuant to any assessment
received by the Company or any Subsidiary except for any such tax, assessment,
charge or levy the payment of which is being contested in good faith and by
proper proceedings and against which adequate reserves are being maintained.
The charges, accruals and reserves on the books of the Company and its
Subsidiaries in respect of taxes and other governmental charges are, in the
opinion of the Company, adequate. No tax lien has been filed and, to the
knowledge of the Company, no claim is being asserted with respect to any such
tax, fee or other charge.
Section 7.10 Titles, etc. To the best of the Company's knowledge:
(a) Except as set out in Schedule 7.10, each of the Company and the
Designated Subsidiaries and Subsidiary Guarantors has good and defensible title
to its material (individually or in the aggregate) Properties in all material
respects, free and clear of all Liens except Liens permitted by Section 9.02.
(b) All leases and agreements necessary for the conduct of the business of
the Company and the Designated Subsidiaries and Subsidiary Guarantors are valid
and subsisting, in full force and effect and there exists no default or event or
circumstance which with the giving of notice or the passage of time or both
would
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give rise to a default under any such lease or leases, which would affect in any
material respect the conduct of the business of the Company and the Designated
Subsidiaries and Subsidiary Guarantors.
(c) The rights, properties and other assets presently owned, leased or
licensed by the Company and the Designated Subsidiaries and Subsidiary
Guarantors including, without limitation, all easements and rights of way,
include all rights, Properties and other assets necessary to permit the Company
and the Designated Subsidiaries and Subsidiary Guarantors to conduct their
business in all material respects in the same manner as its business has been
conducted prior to the Closing Date.
Section 7.11 No Material Misstatements. No information, exhibit or report
furnished to the Agents or the Lenders by or on behalf of the Company or any
Subsidiary in connection with the negotiation and administration of this
Agreement contains any material misstatement of fact or omits to state a
material fact necessary in order to make the statements contained therein not
misleading.
Section 7.12 Investment Company Act. Neither the Company nor any Subsidiary
is an "investment company" or a company "controlled" by an "investment company,"
within the meaning of the Investment Company Act of 1940, as amended.
Section 7.13 Public Utility Holding Company Act. Neither the Company nor
any Subsidiary is a "holding company," or a "subsidiary company" of a "holding
company," or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company," or a "public utility" within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
Section 7.14 Subsidiaries and Partnerships. On the Closing Date, except as
set forth on Schedule 7.14, the Company has no Subsidiaries and neither the
Company nor any Subsidiary has any interest in any general or limited
partnerships, but excluding solely tax partnerships and oil and gas joint
ventures under joint operating agreements.
Section 7.15 Location of Business and Offices. On the Closing Date, the
Company's chief executive offices are located at the address stated on the
signature page of this Agreement. On the Closing Date, the chief executive
office of each Subsidiary is located at the addresses stated on Schedule 7.14.
Section 7.16 Defaults.
(a) As of the Closing Date, neither the Company nor any Subsidiary is in
default nor has any event or circumstance occurred which, but for the expiration
of any applicable grace period or the giving of notice, or both, would
constitute a default under any agreement or instrument for borrowed money to
which the
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Company or any Subsidiary is a party or by which the Company or any Subsidiary
is bound.
(b) No Default has occurred and is continuing.
Section 7.17 Environmental Matters. As of the Closing Date except (i) as
provided in Schedule 7.17 or (ii) as would not have a Material Adverse Effect
(or with respect to (c), (d) and (e) below, where the failure to take such
actions would not have a Material Adverse Effect):
(a) Neither any Property of the Company or any Subsidiary nor the operations
conducted thereon violate any order or requirement of any court or Governmental
Authority or any Environmental Laws;
(b) Without limitation of clause (a) above, no Property of the Company or any
Subsidiary nor the operations currently conducted thereon or, to the best
knowledge of the Company, by any prior owner or operator of such Property or
operation, are in violation of or subject to any existing, pending or threatened
action, suit, investigation, inquiry or proceeding by or before any court or
Governmental Authority or to any remedial obligations under Environmental Laws;
(c) All notices, permits, licenses or similar authorizations, if any,
required to be obtained or filed in connection with the operation or use of any
and all Property of the Company and each Subsidiary, including without
limitation past or present treatment, storage, disposal or release of a
hazardous substance or solid waste into the environment, have been duly obtained
or filed, and the Company and each Subsidiary are in compliance with the terms
and conditions of all such notices, permits, licenses and similar
authorizations;
(d) All hazardous substances, solid waste, and oil and gas exploration and
production wastes, if any, generated at any and all Property of the Company or
any Subsidiary have in the past been transported, treated and disposed of in
accordance with Environmental Laws and so as not to pose an imminent and
substantial endangerment to public health or welfare or the environment, and, to
the best knowledge of the Company, all such transport carriers and treatment and
disposal facilities have been and are operating in compliance with Environmental
Laws and so as not to pose an imminent and substantial endangerment to public
health or welfare or the environment, and are not the subject of any existing,
pending or threatened action, investigation or inquiry by any Governmental
Authority in connection with any Environmental Laws;
(e) The Company has taken all steps reasonably necessary to determine and has
determined that no hazardous substances, solid waste, or oil and gas exploration
and production wastes, have been disposed of or otherwise released and there has
been no threatened release of any hazardous substances on or to any
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Property of the Company or any Subsidiary except in compliance with
Environmental Laws and so as not to pose an imminent and substantial
endangerment to public health or welfare or the environment;
(f) To the extent applicable, all Property of the Company and each Subsidiary
currently satisfies all design, operation, and equipment requirements imposed by
the OPA or scheduled as of the Closing Date to be imposed by OPA during the term
of this Agreement, and the Company does not have any reason to believe that such
Property, to the extent subject to OPA, will not be able to maintain compliance
with the OPA requirements during the term of this Agreement; and
(g) Neither the Company nor any Subsidiary has any known contingent liability
in connection with any release or threatened release of any oil, hazardous
substance or solid waste into the environment.
Section 7.18 Compliance with Laws. As of the Closing Date, neither the
Company nor any Subsidiary has violated any Governmental Requirement or failed
to obtain any license, permit, franchise or other governmental authorization
necessary for the ownership of any of its Properties or the conduct of its
business, which violation or failure would have (in the event such violation or
failure were asserted by any Person through appropriate action) a Material
Adverse Effect.
Section 7.19 Pari Passu. The Indebtedness ranks and will rank at least pari
passu in priority with all other senior debt of each Obligor, except for secured
debt permitted by Section 9.02.
ARTICLE VIII
AFFIRMATIVE COVENANTS
The Company covenants and agrees that, so long as any of the Commitments are in
effect and until payment in full of all Loans hereunder, all interest thereon
and all other amounts payable by the Obligors hereunder:
Section 8.01 Financial Statements. The Company shall deliver, or shall
cause to be delivered, to the Administrative Agent with sufficient copies of
each for the Lenders:
(a) As soon as available and in any event within one hundred twenty (120)
days after the end of each fiscal year of the Company, (i) the Company's Form
10-K filed with the SEC or (ii) the audited consolidated statements of income,
shareholders' equity, and cash flows of the Company and its Consolidated
Subsidiaries for such fiscal year, and the related consolidated balance sheet of
the Company and its Consolidated Subsidiaries as at the end of such fiscal year,
and setting forth in each case in comparative form the corresponding figures as
of the
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end of and for the preceding fiscal year, and accompanied by the related opinion
of independent public accountants of recognized national standing acceptable to
the Administrative Agent which opinion shall state that said financial
statements fairly present the consolidated financial condition, results of
operations and cash flows of the Company and its Consolidated Subsidiaries as at
the end of, and for, such fiscal year and that such financial statements have
been prepared in accordance with GAAP except for such changes in such principles
with which the independent public accountants shall have concurred and such
opinion shall not contain a "going concern" or like qualification or exception,
and a certificate of such accountants stating that, in making the examination
necessary for their opinion, they obtained no knowledge, except as specifically
stated, of any Default.
(b) As soon as available and in any event within sixty (60) days after the
end of each of the first three fiscal quarterly periods of each fiscal year of
the Company, (i) the Company's Form 10-Q filed with the SEC or (ii) unaudited
consolidated statements of income, shareholders' equity, and cash flows of the
Company and its Consolidated Subsidiaries for such period and for the period
from the beginning of the respective fiscal year to the end of such period, and
the related consolidated balance sheets as at the end of such period, and
setting forth in each case in comparative form the corresponding figures as of
the end of and for the corresponding period in the preceding fiscal year,
accompanied by the certificate of a Responsible Officer, which certificate shall
state that said financial statements fairly present the consolidated financial
condition, results of operations and cash flows of the Company and its
Consolidated Subsidiaries in accordance with GAAP, as at the end of, and for,
such period (subject to normal year-end adjustments).
(c) Promptly after a Responsible Officer of the Company knows that any
Default has occurred, a notice of such Default, describing the same in
reasonable detail and the action the Company proposes to take with respect
thereto.
(d) Promptly upon its becoming available, each financial statement, report,
notice or proxy statement sent by the Company to stockholders generally and each
regular or periodic report and any registration statement or prospectus in
respect thereof filed by the Company with or received by the Company in
connection therewith from any securities exchange or the SEC or any successor
agency, including without limitation, Form 10-K's and Form 10-Q's.
(e) As soon as available and in any event within one hundred twenty (120)
days after the end of the fiscal year of the Company, the unaudited balance
sheet of each Designated Subsidiary as at the end of the Company's fiscal year,
certified by a Responsible Officer, which certificate shall state that said
balance sheet fairly presents the financial condition of the respective
Designated Subsidiary.
The Company will furnish to the Administrative Agent, with sufficient copies for
the Lenders, at the time it furnishes each set of financial statements pursuant
to paragraph (a)
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or (b) above, a certificate substantially in the form of Exhibit H executed by a
Responsible Officer (i) certifying as to the matters set forth therein and
stating that no Default has occurred and is continuing (or, if any Default has
occurred and is continuing, describing the same in reasonable detail), (ii)
setting forth in reasonable detail the computations necessary to determine
whether the Company is in compliance with Section 9.01 as of the end of the
respective fiscal quarter or fiscal year and (iii) certifying that the Company
is in compliance with Section 8.08 or will be in compliance within the next 30
days and listing the Subsidiaries and Special Entities, if any, that will be
executing Guaranty Agreements.
Section 8.02 Litigation. The Company shall promptly give to the
Administrative Agent, with sufficient copies for the Lenders, notice of all
legal or arbitral proceedings, and of all proceedings before any Governmental
Authority affecting the Company or any Subsidiary, except proceedings which, if
adversely determined, would not have a Material Adverse Effect.
Section 8.03 Maintenance, Etc.
(a) The Company shall and shall cause each Subsidiary Guarantor and
Designated Subsidiary to: preserve and maintain the Company's corporate
existence and all of its material rights, privileges and franchises; keep books
of record and account in which full, true and correct entries will be made of
all dealings or transactions in relation to its business and activities; comply
with all Governmental Requirements if failure to comply with such requirements
will have a Material Adverse Effect; pay and discharge all taxes, assessments
and governmental charges or levies imposed on it or on its income or profits or
on any of its Property prior to the date on which penalties attach thereto,
except for any such tax, assessment, charge or levy the payment of which is
being contested in good faith and by proper proceedings and against which
adequate reserves are being maintained; during the continuance of an Event of
Default and upon reasonable notice, permit representatives of the Administrative
Agent, during normal business hours, to examine its books and records, to
inspect its Properties, and to discuss its business and affairs with its
financial officers, all to the extent reasonably requested by the Administrative
Agent and to the extent requested by the President of the Administrative Agent,
copy and make extracts of its books and records; and keep, or cause to be kept,
insured by financially sound and reputable insurers all Property of a character
usually insured by Persons engaged in the same or similar business similarly
situated against loss or damage of the kinds and in the amounts customarily
insured against by such Persons and carry such other insurance as is usually
carried by such Persons including, without limitation, pollution liability
insurance to the extent reasonably available.
(b) Contemporaneously with the delivery of the financial statements required
by Section 8.01(a) to be delivered for each year, the Company will furnish or
cause to be furnished to the Administrative Agent a certificate of insurance
coverage from the insurer in substantially the form provided at the closing of
this
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Agreement and, if requested, will furnish the Administrative Agent copies of the
applicable policies.
Section 8.04 Environmental Matters.
(a) The Company will and will cause each Subsidiary to establish and
implement such procedures as may be reasonably necessary to continuously
determine and assure that any failure of the following does not have a Material
Adverse Effect: (i) all Property of the Company and its Subsidiaries and the
operations conducted thereon and other activities of the Company and its
Subsidiaries are in compliance with and do not violate the requirements of any
Environmental Laws, (ii) no oil, hazardous substances or solid wastes are
disposed of or otherwise released on or to any Property owned by any such party
except in compliance with Environmental Laws, (iii) no hazardous substance will
be released on or to any such Property in a quantity equal to or exceeding that
quantity which requires reporting pursuant to Section 103 of CERCLA, and (iv) no
oil, oil and gas exploration and production wastes or hazardous substance is
released on or to any such Property so as to pose an imminent and substantial
endangerment to public health or welfare or the environment.
(b) The Company will promptly notify the Administrative Agent and the
Lenders in writing of any threatened action, investigation or inquiry by any
Governmental Authority of which the Company has knowledge in connection with any
Environmental Laws which may have a Material Adverse Effect.
Section 8.05 Further Assurances. The Company will and will cause each
Subsidiary to cure promptly any defects in the creation and issuance of the
Notes and the execution and delivery of the other Loan Documents and this
Agreement. The Company at its expense will and will cause each Subsidiary to
promptly execute and deliver to the Administrative Agent upon request all such
other documents, agreements and instruments to comply with or accomplish the
covenants and agreements of the Company or any Subsidiary, as the case may be,
in the other Loan Documents and this Agreement, or to further evidence and more
fully describe the collateral intended as security for the Notes, or to correct
any omissions in the other Loan Documents, or to perfect, protect or preserve
any Liens created pursuant to any of the other Loan Documents, or to make any
recordings, to file any notices or obtain any consents, all as may be necessary
or appropriate in connection therewith.
Section 8.06 ERISA Information and Compliance. The Company will promptly
furnish and will cause the Subsidiaries and any ERISA Affiliate to promptly
furnish to the Administrative Agent (i) immediately upon becoming aware of the
occurrence of any ERISA Event which could result in a liability of the Company,
any Subsidiary or any ERISA Affiliate having a Material Adverse Effect
(individually or in the aggregate with respect to all ERISA Events), a written
notice signed by the President or the principal financial officer of the
Company, the Subsidiary or the ERISA Affiliate, as the case may be,
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specifying the nature thereof, what action the Company, the Subsidiary or the
ERISA Affiliate is taking or proposes to take with respect thereto, and, when
known, any action taken or proposed by the Internal Revenue Service, the
Department of Labor or the PBGC with respect thereto, (ii) promptly after
request by the Administrative Agent, a true and correct copy of each actuarial
report for any Plan and each annual report for any Multiemployer Plan, (iii)
immediately upon receipt of a notice from a Multiemployer Plan regarding the
imposition of Withdrawal Liability having a Material Adverse Effect, a true and
complete copy of such notice, (iv) immediately upon becoming aware that a
Multiemployer Plan has been terminated, that the administrator or plan sponsor
of a Multiemployer Plan intends to terminate a Multiemployer Plan, or that the
PBGC has instituted or intends to institute proceedings under section 4042 of
ERISA to terminate a Multiemployer Plan which occurrence would have a Material
Adverse Effect, a written notice signed by the President or the principal
financial officer of the Company, the Subsidiary or the ERISA Affiliate, as the
case may be, specifying the nature of such occurrence and any other information
relating thereto requested by the Administrative Agent, and (v) immediately upon
receipt thereof, copies of any notice of the PBGC's intention to terminate or to
have a trustee appointed to administer any Benefit Plan which occurrence would
have a Material Adverse Effect.
Section 8.07 Lease Payments. The Company will cause its obligations to
Enserch Exploration Holdings, Inc. to be subordinated to the Indebtedness on
terms substantially similar to the terms set forth on Exhibit M or on terms and
subject to documentation satisfactory to the Administrative Agent.
Section 8.08 Subsidiary Guaranty Agreements. The Company will cause each of
its Subsidiaries and Special Entities to execute a Subsidiary Guaranty
Agreement, except for such Subsidiaries and Special Entities that in the
aggregate do not have assets at book value in excess of 15% of the total
consolidated assets at book value of the Company. The Company shall have 30
days from the date of delivery of each Compliance Certificate to comply with
this covenant. At the time that a Subsidiary or Special Entity executes and
delivers a Subsidiary Guaranty Agreement to the Administrative Agent it shall
also deliver to the Administrative Agent the following in form and substance
acceptable to the Administrative Agent:
(a) A certificate of the Secretary or an Assistant Secretary of each
Subsidiary Guarantor setting forth (i) resolutions of its board of directors or
appropriate Persons with respect to the authorization of such Subsidiary
Guarantor to execute and deliver the Loan Documents to which it is a party and
to enter into the transactions contemplated in those documents, (ii) the
officers of such Subsidiary Guarantor (y) who are authorized to sign the Loan
Documents to which such Subsidiary Guarantor is a party and (z) who will, until
replaced by another officer or officers duly authorized for that purpose, act as
its representative for the purposes of signing documents and giving notices and
other communications in connection with this Agreement and the transactions
contemplated hereby, (iii) specimen signatures of the authorized officers, and
(iv) the articles or certificate of
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incorporation and bylaws or appropriate document of governance of such
Subsidiary Guarantor, certified as being true and complete. The Agents and the
Lenders may conclusively rely on such certificate until they receive notice in
writing from the Company to the contrary.
(b) An opinion of counsel to the Subsidiary Guarantor, substantially in the
form of Exhibit N.
ARTICLE IX
NEGATIVE COVENANTS
The Company covenants and agrees that, so long as any of the Commitments are
in effect and until payment in full of Loans hereunder and all interest thereon
without the prior written consent of the Majority Lenders:
Section 9.01 Debt to Capital Ratio. The Company will not permit its ratio
("Debt to Capital Ratio") expressed as a percentage of (i) Debt of the Company
and its Consolidated Subsidiaries on a consolidated basis ("Consolidated Debt")
to (ii) the sum of Consolidated Debt plus Net Worth to exceed 60% at any time;
provided that in no event will Consolidated Debt ever exceed $750,000,000.
Section 9.02 Liens. Except as expressly permitted in this Section 9.02, the
Company will not at any time, directly or indirectly, create, assume or suffer
to exist, and will not cause, suffer or permit any Designated Subsidiary or
Subsidiary Guarantor as long as it remains a Designated Subsidiary or Subsidiary
Guarantor, directly or indirectly, to create, assume or suffer to exist, except
in favor of the Company, any Lien upon any of its Properties (now owned or
hereafter acquired), without making effective provision (and the Company
covenants that in any such case it will make or cause to be made effective
provision) whereby the Indebtedness and any other Debt of the Company or any
Designated Subsidiary or Subsidiary Guarantor then entitled thereto shall be
secured by such Lien equally and ratably with any and all other obligations and
indebtedness thereby secured, so long as any such other obligations or
indebtedness shall be so secured. Nothing in this Agreement shall be construed
to prevent the Company or any Designated Subsidiary or Subsidiary Guarantor
without so securing the amounts outstanding hereunder, from creating, assuming
or suffering to exist the following Liens, to which the provisions of this
paragraph shall not be applicable:
(a) Liens upon any Property presently owned or hereafter acquired, created at
the time of acquisition to secure a portion of the purchase price thereof, or
existing thereon at the date of acquisition, whether or not assumed by the
Company or one of its Designated Subsidiaries or Subsidiary Guarantors, provided
that every such Lien shall apply only to the Property so acquired and fixed
improvements thereon;
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(b) any extension, renewal, or refunding of any Lien permitted by Section
9.02(a), if limited to the same Property subject to, and securing not more than
the amount secured by, the Lien extended, renewed or refunded;
(c) the pledge of current assets in the ordinary course of business, to
secure current liabilities;
(d) Liens upon (i) Property, to secure obligations to pay all or a part of
the purchase price of such Property only out of or measured by the production,
or the proceeds of such production, from such Property of oil or gas or products
or by-products thereof, or (ii) the production from Property of oil or gas or
products or by-products thereof, or the proceeds of such production, to secure
obligations to pay all or a part of the expenses of exploration, drilling or
development of such Property only out of such production or the proceeds of such
production;
(e) mechanics' or materialmen's liens, good faith deposits in connection with
tenders, leases of real estate, bids or contracts (other than contracts for the
payment of money), deposits to secure public or statutory obligations, deposits
to secure, or in lieu of, surety, stay or appeal bonds, and deposits as security
for the payment of taxes or assessments or similar charges, Liens given in
connection with bid or completion bonds; provided that such obligations secured
are not yet due or are being contested in good faith by appropriate action and
against which an adequate reserve has been established;
(f) any Lien arising by reason of deposits with, or the giving of any form of
security to, any governmental agency or any body created or approved by law or
governmental regulation for any purposes at any time as required by law or
governmental regulation as a condition to the transaction of any business or the
exercise of any privilege or license, or to enable the Company or a Subsidiary
to maintain self-insurance or to participate in any funds established to cover
any insurance risks or in connection with workmen's compensation, unemployment
insurance, old age pensions or other social security, or to share in the
privileges or benefits required for companies participating in such
arrangements; provided that such obligations secured are not yet due or are
being contested in good faith by appropriate action and against which an
adequate reserve has been established;
(g) the pledge or assignment of accounts receivable, including customers'
installment paper, to banks or others made in the ordinary course of business
(including to or by a Subsidiary which is principally engaged in the business of
financing the business of the Company and its Subsidiaries);
(h) the Liens of taxes or assessments for the then current year or not at the
time due, or the Liens of taxes or assessments already due but the validity of
which is being contested in good faith by appropriate action and against which
an adequate reserve has been established;
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(i) any judgment or Lien against the Company or a Designated Subsidiary or
Subsidiary Guarantor, so long as the finality of such judgment is being
contested in good faith by appropriate action and the execution thereon is
stayed;
(j) assessments or similar encumbrances, the existence of which does not
impair the value or the use of the Property subject thereto for the purposes for
which it was acquired;
(k) landlords' liens on fixtures and movable Property located on premises
leased by the Company or a Designated Subsidiary or Subsidiary Guarantor in the
ordinary course of business so long as the rent secured thereby is not in
default;
(l) Liens on the assets of any limited liability company organized under a
limited liability company act of any state in which a limited liability company
is treated as a partnership for federal income tax purposes; provided that
neither the Company nor any Designated Subsidiary or Subsidiary Guarantor is
liable for the Debt of such limited liability company; and
(m) other Liens on any Properties of the Company or any Subsidiary with an
aggregate value not exceeding 1% of the book value of the total assets of the
Company on a consolidated basis.
Section 9.03 Investments, Loans and Advances. So long as any Loans are
outstanding, neither the Company nor any Subsidiary will make any loans or
advances to ENSERCH Corporation or any of its subsidiaries (but excluding the
Company and its Subsidiaries) after the occurrence and during the continuance of
an Event of Default or in excess of $50,000,000 in the aggregate outstanding at
any one time for greater than a 90 day period.
Section 9.04 Dividends, Distributions and Redemptions. The Company will not
declare or pay any dividend, purchase, redeem or otherwise acquire for value any
of its stock now or hereafter outstanding, return any capital to its
stockholders or make any distribution of its assets to its stockholders after
the occurrence and during the continuance of an Event of Default.
Section 9.05 Nature of Business. The Company will not allow any material
change to be made in the character of its business as an independent oil and gas
exploration and production company.
Section 9.06 Mergers, Etc. Neither the Company nor any Subsidiary will
merge into or with or consolidate with any other Person, or sell, lease or
otherwise dispose of (whether in one transaction or in a series of transactions)
all or substantially all of its Property or assets to any other Person
("Disposition") unless (i) no Default exists or would result from such merger or
Disposition and (ii) for any merger the Company is the survivor, or for any
merger or Disposition, if the surviving Person or acquiring Person is not the
Company, such surviving Person or acquiring Person assumes the Indebtedness and
all other
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obligations of the Company under the Loan Documents and is approved by the
Majority Lenders.
Section 9.07 Proceeds of Notes. The Company will not permit the proceeds of
the Notes to be used for any purpose other than those permitted by Section 7.07.
Neither the Company nor any Person acting on behalf of the Company has taken or
will take any action which might cause any of the Loan Documents to violate
Regulation G, U or X or any other regulation of the Board of Governors of the
Federal Reserve System or to violate Section 7 of the Securities Exchange Act of
1934, as amended, or any rule or regulation thereunder, in each case as now in
effect or as the same may hereafter be in effect.
Section 9.08 ERISA Compliance. The Company and the Subsidiaries will not at
any time:
(a) Engage in, or permit any ERISA Affiliate to engage in, any transaction in
connection with which the Company, a Subsidiary or any ERISA Affiliate could be
subjected to either a civil penalty assessed pursuant to subsections (c), (i) or
(l) of section 502 of ERISA or a tax imposed by Chapter 43 of Subtitle D of the
Code;
(b) Terminate, or permit any ERISA Affiliate to terminate, any Benefit Plan
in a manner, or take any other action with respect to any Benefit Plan, which
could result in any liability of the Company, a Subsidiary or any ERISA
Affiliate to the PBGC;
(c) Fail to make, or permit any ERISA Affiliate to fail to make, full payment
when due of all amounts which, under the provisions of any Plan, agreement
relating thereto or applicable law, the Company, a Subsidiary or any ERISA
Affiliate is required to pay as contributions thereto;
(d) Permit to exist, or allow any ERISA Affiliate to permit to exist, any
accumulated funding deficiency within the meaning of section 302 of ERISA or
section 412 of the Code, whether or not waived, with respect to any Benefit
Plan;
(e) Permit, or allow any ERISA Affiliate to permit, the actuarial present
value of the benefit liabilities under any Benefit Plan maintained by the
Company, a Subsidiary or any ERISA Affiliate which is regulated under Title IV
of ERISA to exceed the current value of the assets (computed on a plan
termination basis in accordance with Title IV of ERISA) of such Benefit Plan
allocable to such benefit liabilities. The term "actuarial present value of the
benefit liabilities" shall have the meaning specified in section 4041 of ERISA;
(f) Incur, or permit any ERISA Affiliate to incur, a liability to or on
account of a Plan under sections 4062, 4063, or 4064 of ERISA;
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(g) Amend, or permit any ERISA Affiliate to amend, a Plan resulting in an
increase in current liability such that the Company, a Subsidiary or any ERISA
Affiliate is required to provide security to such Plan under section 401(a)(29)
of the Code; or
(h) Incur or permit Withdrawal Liability and liability in connection with a
reorganization or termination of a Multiemployer Plan of the Company, the
Subsidiaries and the ERISA Affiliates;
provided, however, that the transactions, events and occurrences described in
this Section 9.08 shall be permitted so long as such transactions, events and
occurrences (individually and in the aggregate) will not result in a Material
Adverse Effect.
Section 9.09 Environmental Matters. Neither the Company nor any Subsidiary
will cause or permit any of its Property to be in violation of, or do anything
or permit anything to be done which will subject any such Property to any
remedial obligations under, any Environmental Laws, assuming disclosure to the
applicable Governmental Authority of all relevant facts, conditions and
circumstances, if any, pertaining to such Property where such violations or
remedial obligations would have a Material Adverse Effect.
Section 9.10 Transactions with Affiliates. Neither the Company nor any
Designated Subsidiary nor any Subsidiary Guarantor will enter into any material
transaction, including, without limitation, any purchase, sale, lease or
exchange of Property including the purchase or sale of oil and gas properties
and hydrocarbons or the rendering of any service, with any Affiliate unless such
transactions are in the ordinary course of its business and are upon fair and
reasonable terms no less favorable to it than it would obtain in a comparable
arm's length transaction with a Person not an Affiliate.
Section 9.11 Restrictive Dividend Agreements. Neither the Company nor any
Designated Subsidiary nor any Subsidiary Guarantor will create, incur, assume or
suffer to exist any financing agreement (other than this Agreement and the other
Loan Documents) which in any way restricts any Designated Subsidiary or
Subsidiary Guarantor from paying dividends to the Company.
ARTICLE X
EVENTS OF DEFAULT; REMEDIES
Section 10.01 Events of Default. One or more of the following events shall
constitute an "Event of Default":
(a) (i) any Obligor shall default in the payment or prepayment of any
principal on any Loan when due or (ii) any Obligor shall default in the payment
of any interest on any Loan or any facility fees payable by it hereunder and
such default, other than a default of a payment or prepayment of principal,
shall continue
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unremedied for a period of five (5) days or (iii) any Obligor shall default in
the payment of any other amount payable by it hereunder or under any other Loan
Document and such default shall continue unremedied for a period of thirty (30)
days after notice of such default by the Administrative Agent to the Company; or
(b) the Company or any Subsidiary shall default in the payment when due of
any principal of or interest on any of its other Debt of $25,000,000 or more, or
any event specified in any note, agreement, indenture or other document
evidencing or relating to any Debt of $25,000,000 or more shall occur if the
effect of such event causes, or after the giving of any notice or the lapse of
time or both, if applicable, permits the holder or holders of such Debt (or a
trustee or agent on behalf of such holder or holders) to cause, such Debt to
become due prior to its stated maturity; or
(c) any representation, warranty or certification made or deemed made herein
or in any other Loan Documents by the Company, any Designated Subsidiary or any
Subsidiary Guarantor, or any certificate furnished to any Lender or the
Administrative Agent pursuant to the provisions hereof or any other Loan
Documents, shall prove to have been false or misleading as of the time made,
deemed made or furnished in any material adverse respect; or
(d) the Company shall default in the performance of any of its obligations
under Article IX; or
(e) the Company shall default in the performance of any of its obligations
under Article VIII or any other Loan Document or any other Article of this
Agreement other than under Article IX (other than the payment of amounts due
which shall be governed by Section 10.01(a)) and such default shall continue
unremedied for a period of thirty (30) days after the earlier to occur of (i)
notice thereof to the Company by the Administrative Agent or any Lender (through
the Administrative Agent), or (ii) a Responsible Officer of the Company
otherwise becoming aware of such default; or
(f) the Company, any Designated Subsidiary or any Subsidiary Guarantor shall
admit in writing its inability to, or be generally unable to, pay its debts as
such debts become due; or
(g) the Company, any Designated Subsidiary or any Subsidiary Guarantor shall
(i) apply for or consent to the appointment of, or the taking of possession by,
a receiver, custodian, trustee or liquidator of itself or of all or a
substantial part of its Property, (ii) make a general assignment for the benefit
of its creditors, (iii) commence a voluntary case under the Federal Bankruptcy
Code (as now or hereafter in effect), (iv) file a petition seeking to take
advantage of any other law relating to bankruptcy, insolvency, reorganization,
winding-up, or composition or readjustment of debts, (v) fail to controvert in a
timely and appropriate manner, or
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acquiesce in writing to, any petition filed against it in an involuntary case
under the Federal Bankruptcy Code, or (vi) take any corporate or partnership
action for the purpose of effecting any of the foregoing; or
(h) a proceeding or case shall be commenced, without the application or
consent of the Company, any Designated Subsidiary or any Subsidiary Guarantor,
in any court of competent jurisdiction, seeking (i) its liquidation,
reorganization, dissolution or winding-up, or the composition or readjustment of
its debts, (ii) the appointment of a trustee, receiver, custodian, liquidator or
the like of the Company, any Designated Subsidiary or any Subsidiary Guarantor
of all or any substantial part of its Property, or (iii) similar relief in
respect of the Company, any Designated Subsidiary or any Subsidiary Guarantor
under any law relating to bankruptcy, insolvency, reorganization, winding-up, or
composition or adjustment of debts, and such proceeding or case shall continue
undismissed, or an order, judgment or decree approving or ordering any of the
foregoing shall be entered and continue unstayed and in effect, for a period of
90 days; or (iv) an order for relief against the Company, any Designated
Subsidiary or any Subsidiary Guarantor shall be entered in an involuntary case
under the Federal Bankruptcy Code; or
(i) a judgment or judgments for the payment of money in excess of $25,000,000
in the aggregate shall be rendered by a court against the Company or any
Subsidiary Guarantor or Designated Subsidiaries and the same shall not be
discharged (or provision shall not be made for such discharge), or a stay of
execution thereof shall not be procured, within thirty (30) days from the date
of entry thereof and the Company or such Subsidiary shall not, within said
period of 30 days, or such longer period during which execution of the same
shall have been stayed, appeal therefrom and cause the execution thereof to be
stayed during such appeal; or
(j) the Guaranty Agreements after delivery thereof shall for any reason,
except to the extent permitted by the terms thereof, cease to be in full force
and effect and valid, binding and enforceable in accordance with their terms,
except to the extent permitted by the terms of this Agreement, or the Company or
any Subsidiary Guarantor shall so state in writing; or
(k) ENSERCH Corporation shall cease to own, directly or indirectly, at least
50% of the outstanding voting stock of the Company.
Section 10.02 Remedies.
(a) In the case of an Event of Default other than one referred to in clauses
(f), (g), or (h) of Section 10.01, the Administrative Agent may and, upon
request of the Majority Lenders, shall, by notice to the Company, cancel the
Commitments and/or declare the principal amount then outstanding of, and the
accrued interest on, the Loans and all other amounts payable by the Company
hereunder and under the Notes to be forthwith due and payable, whereupon such
amounts shall be
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immediately due and payable without presentment, demand, protest, notice of
intent to accelerate, notice of acceleration or other formalities of any kind,
all of which are hereby expressly waived by the Company.
(b) In the case of the occurrence of an Event of Default referred to in
clauses (f), (g), or (h) of Section 10.01, the Commitments shall be
automatically cancelled and the principal amount then outstanding of, and the
accrued interest on, the Loans and all other amounts payable by the Company
hereunder and under the Notes shall become automatically immediately due and
payable without presentment, demand, protest, notice of intent to accelerate,
notice of acceleration or other formalities of any kind, all of which are hereby
expressly waived by the Company.
(c) All proceeds received after maturity of the Notes, whether by
acceleration or otherwise shall be applied first to reimbursement of expenses
and indemnities provided for in this Agreement and the other Loan Documents;
second to accrued interest on the Notes; third to fees; fourth pro rata to
principal outstanding on the Notes and other Indebtedness; and any excess shall
be paid to the Company or as otherwise required by any Governmental Requirement.
ARTICLE XI
THE ADMINISTRATIVE AGENT
Section 11.01 Appointment, Powers and Immunities. Each Lender hereby
irrevocably appoints and authorizes Texas Commerce Bank National Association, as
the Administrative Agent, and Chemical Bank, as the Auction Agent, each to act
as its agent hereunder and under the other Loan Documents with such powers as
are specifically delegated to the Administrative Agent and Auction Agent
respectively by the terms of this Agreement and the other Loan Documents,
together with such other powers as are reasonably incidental thereto. The
Syndication Agent, in such capacity, shall have no duties or responsibilities
and shall incur no liabilities under the Loan Documents. Each Agent (which term
as used in this sentence and in Section 11.05 and the first sentence of Section
11.06 shall include reference to its Affiliates and its and its Affiliates'
officers, directors, employees, attorneys, accountants, experts and agents): (i)
shall have no duties or responsibilities except those expressly set forth in
this Agreement, and shall not by reason of this Agreement be a trustee or
fiduciary for any Lender; (ii) makes no representation or warranty to any Lender
and shall not be responsible to the Lenders for any recitals, statements,
representations or warranties contained in this Agreement, or in any certificate
or other document referred to or provided for in, or received by any of them
under, this Agreement, or for the value, validity, effectiveness, genuineness,
execution, effectiveness, legality, enforceability or sufficiency of this
Agreement, any Note or any other document referred to or provided for herein or
for any failure by the Company or any other Person (other than such Agent) to
perform any of its obligations hereunder or thereunder or for the existence,
value, perfection or priority of any collateral security or the financial or
other
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condition of the Company, its Subsidiaries or any other obligor or guarantor;
(iii) except pursuant to Section 11.07 shall not be required to initiate or
conduct any litigation or collection proceedings hereunder; and (iv) shall not
be responsible for any action taken or omitted to be taken by it hereunder or
under any other document or instrument referred to or provided for herein or in
connection herewith including its own ordinary negligence, except for its own
gross negligence or willful misconduct. The Administrative Agent may employ
agents, accountants, attorneys and experts and shall not be responsible for the
negligence or misconduct of any such agents, accountants, attorneys or experts
selected by it in good faith or any action taken or omitted to be taken in good
faith by it in accordance with the advice of such agents, accountants, attorneys
or experts. Each Agent may deem and treat the payee of any Note as the holder
thereof for all purposes hereof unless and until a written notice of the
assignment or transfer thereof permitted hereunder shall have been filed with
the Administrative Agent.
Section 11.02 Reliance by Agent. Each Agent shall be entitled to rely upon
any certification, notice or other communication (including any thereof by
telephone, telex, telecopier, telegram or cable) believed by it to be genuine
and correct and to have been signed or sent by or on behalf of the proper Person
or Persons, and upon advice and statements of legal counsel, independent
accountants and other experts selected by such Agent.
Section 11.03 Defaults. No Agent shall be deemed to have knowledge of the
occurrence of a Default (other than the Administrative Agent's notice of the
non-payment of principal of or interest on Loans or of fees). In the event that
the Administrative Agent receives a notice of the occurrence of a Default
specifying such Default and stating that such notice is a "Notice of Default",
the Administrative Agent shall give prompt notice thereof to the Lenders. In
the event of a payment Default, the Administrative Agent shall give each Lender
prompt notice of each such payment Default.
Section 11.04 Rights as a Lender. With respect to its Commitments and the
Loans made by it, each Agent (and any successor acting as an Agent) in its
capacity as a Lender hereunder shall have the same rights and powers hereunder
as any other Lender and may exercise the same as though it were not acting as an
Agent, and the term "Lender" or "Lenders" shall, unless the context otherwise
indicates, include each Agent in its individual capacity. Each Agent (and any
successor acting as an Agent) and its Affiliates may (without having to account
therefor to any Lender) accept deposits from, lend money to and generally engage
in any kind of banking, trust or other business with the Company (any and of its
Affiliates) as if it were not acting as an Agent, and each Agent and its
Affiliates may accept fees and other consideration from the Company for services
in connection with this Agreement or otherwise without having to account for the
same to the Lenders.
Section 11.05 INDEMNIFICATION. THE LENDERS AGREE TO INDEMNIFY EACH AGENT
RATABLY IN ACCORDANCE WITH ITS PERCENTAGE SHARES FOR THE INDEMNITY MATTERS AS
DESCRIBED IN SECTION 12.03 TO THE EXTENT NOT INDEMNIFIED OR REIMBURSED
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BY THE COMPANY UNDER SECTION 12.03, BUT WITHOUT LIMITING THE OBLIGATIONS OF THE
COMPANY UNDER SAID SECTION 12.03 AND FOR ANY AND ALL OTHER LIABILITIES,
OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS,
EXPENSES OR DISBURSEMENTS OF ANY KIND AND NATURE WHATSOEVER WHICH MAY BE IMPOSED
ON, INCURRED BY OR ASSERTED AGAINST SUCH AGENT IN ANY WAY RELATING TO OR ARISING
OUT OF: (I) THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR ANY OTHER DOCUMENTS
CONTEMPLATED BY OR REFERRED TO HEREIN OR THE TRANSACTIONS CONTEMPLATED HEREBY,
BUT EXCLUDING, UNLESS A DEFAULT HAS OCCURRED AND IS CONTINUING, NORMAL
ADMINISTRATIVE COSTS AND EXPENSES INCIDENT TO THE PERFORMANCE OF ITS AGENCY
DUTIES HEREUNDER OR (II) THE ENFORCEMENT OF ANY OF THE TERMS OF THIS AGREEMENT,
OTHER LOAN DOCUMENTS OR OF ANY SUCH OTHER DOCUMENTS; WHETHER OR NOT ANY OF THE
FOREGOING SPECIFIED IN THIS SECTION 11.05 ARISES FROM THE SOLE OR CONCURRENT
NEGLIGENCE OF SUCH AGENT, PROVIDED THAT NO LENDER SHALL BE LIABLE FOR ANY OF THE
FOREGOING TO THE EXTENT THEY ARISE FROM THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT OF SUCH AGENT.
Section 11.06 Non-Reliance on the Agents and other Lenders. Each Lender
acknowledges and agrees that it has, independently and without reliance on any
Agent or any other Lender, and based on such documents and information as it has
deemed appropriate, made its own credit analysis of the Company and its decision
to enter into this Agreement, and that it will, independently and without
reliance upon any Agent or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
analysis and decisions in taking or not taking action under this Agreement. The
Agents shall not be required to keep themselves informed as to the performance
or observance by the Company of this Agreement, the Notes, the other Loan
Documents or any other document referred to or provided for herein or to inspect
the properties or books of the Company. Except for notices, reports and other
documents and information expressly required to be furnished to the Lenders by
the Administrative Agent or Auction Agent hereunder, the Agents shall not have
any duty or responsibility to provide any Lender with any credit or other
information concerning the affairs, financial condition or business of the
Company (or any of its Affiliates) which may come into the possession of any
Agent, or any of its Affiliates.
Section 11.07 Action by Agent. Except for action or other matters expressly
required of the Administrative Agent or Auction Agent hereunder, the
Administrative Agent or Auction Agent shall in all cases be fully justified in
failing or refusing to act hereunder unless it shall (i) receive written
instructions from the Majority Lenders (or if this Agreement requires, all of
the Lenders) specifying the action to be taken, and (ii) be indemnified to its
satisfaction by the Lenders against any and all liability and expenses which may
be incurred by it by reason of taking or continuing to take any such action
except for gross negligence or wilful misconduct. The instructions of the
Majority Lenders (or if this Agreement requires, all of the Lenders) and any
action taken or failure to act pursuant thereto by the Administrative Agent or
Auction Agent shall be binding on all of the Lenders. If a Default has occurred
and is continuing, the Administrative Agent or Auction Agent shall take such
action with respect to such Default as shall be directed by the
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Majority Lenders (or if this Agreement requires, all of the Lenders) in the
written instructions (with indemnities) described in this Section 11.07,
provided that, unless and until the Administrative Agent or Auction Agent shall
have received such directions, the Administrative Agent or Auction Agent may
(but shall not be obligated to) take such action, or refrain from taking such
action, with respect to such Default as it shall deem advisable in the best
interests of the Lenders. In no event, however, shall any Agent be required to
take any action which exposes such Agent to personal liability or which is
contrary to this Agreement and the other Loan Documents or applicable law.
Section 11.08 Resignation or Removal of the Agents. Subject to the
appointment and acceptance of a successor as provided below, the Administrative
Agent or Auction Agent may resign at any time by giving notice thereof to the
Lenders and the Company, and the Administrative Agent or Auction Agent may be
removed at any time with or without cause by the Majority Lenders. Upon any
such resignation or removal, the Majority Lenders shall have the right to
appoint a successor Administrative Agent or Auction Agent as the case may be. If
no successor Administrative Agent or Auction Agent shall have been so appointed
by the Majority Lenders and shall have accepted such appointment within thirty
(30) days after the retiring Administrative Agent's or Auction Agent's giving of
notice of resignation or the Majority Lenders' removal of the retiring
Administrative Agent or Auction Agent, then the retiring Administrative Agent or
Auction Agent, as the case may be, may, on behalf of the Lenders, appoint a
respective successor Administrative Agent or Auction Agent. Upon the acceptance
of such appointment hereunder by a successor Administrative Agent or Auction
Agent, such successor Administrative Agent or Auction Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Administrative Agent or Auction Agent, as the case may be, and
the retiring Administrative Agent or Auction Agent shall be discharged from its
duties and obligations hereunder. After any retiring Administrative Agent's or
Auction Agent's resignation or removal hereunder as Administrative Agent or
Auction Agent, the provisions of this Article XI and Section 12.03 shall
continue in effect for its benefit in respect of any actions taken or omitted to
be taken by it while it was acting as the Administrative Agent or Auction Agent.
ARTICLE XII
MISCELLANEOUS
Section 12.01 Waiver. No failure on the part of any Agent or any Lender to
exercise and no delay in exercising, and no course of dealing with respect to,
any right, power or privilege under any of the Loan Documents shall operate as a
waiver thereof, nor shall any single or partial exercise of any right, power or
privilege under any of the Loan Documents preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The remedies
provided herein are cumulative and not exclusive of any remedies provided by
law.
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Section 12.02 Notices. All notices and other communications provided for
herein and in the other Loan Documents (including, without limitation, any
modifications of, or waivers or consents under, this Agreement or the other Loan
Documents) shall be given or made by telex, telecopy, telegraph, cable, courier
or U.S. Mail or in writing and telexed, telecopied, telegraphed, cabled, mailed
or delivered to the intended recipient at the "Address for Notices" specified
below its name on the signature pages hereof or in the other Loan Documents or,
as to any party, at such other address as shall be designated by such party in a
notice to each other party. Except as otherwise provided in this Agreement or
in the other Loan Documents, all such communications shall be deemed to have
been duly given when transmitted by telex or telecopier, delivered to the
telegraph or cable office or personally delivered or, in the case of a mailed
notice, three (3) Business Days after the date deposited in the mails, postage
prepaid, in each case given or addressed as aforesaid. The Company shall be the
agent of each Designated Subsidiary for the receiving and giving of any notices
or other communications under the Loan Documents.
Section 12.03 Payment of Expenses, Indemnities, etc. Each Obligor agrees:
(a) whether or not the transactions hereby contemplated are consummated, to
pay all reasonable expenses of the Agents in the administration (both before and
after the execution hereof and including advice of counsel as to the rights and
duties of the Agents and the Lenders with respect thereto) of, and in connection
with the negotiation, syndication, investigation, preparation, execution and
delivery of, recording or filing of, preservation of rights under, enforcement
of, and refinancing, renegotiation or restructuring of, the Loan Documents and
any amendment, waiver or consent relating thereto (including, without
limitation, travel, photocopy, mailing, courier, telephone and other similar
expenses of the Agents, the cost of environmental audits, surveys and appraisals
at reasonable intervals, the reasonable fees and disbursements of counsel for
the Agents and in the case of enforcement for any of the Lenders); and promptly
reimburse the Agents for the account of the Agents and the Lenders for all
amounts expended, advanced or incurred by the Agents or the Lenders to satisfy
any obligation of the Company under this Agreement or any other Loan Document;
(b) TO INDEMNIFY EACH AGENT AND EACH LENDER AND EACH OF THEIR AFFILIATES AND
EACH OF THEIR OFFICERS, DIRECTORS, EMPLOYEES, REPRESENTATIVES, AGENTS,
ATTORNEYS, ACCOUNTANTS AND EXPERTS ("INDEMNIFIED PARTIES") FROM, HOLD EACH OF
THEM HARMLESS AGAINST AND PROMPTLY UPON DEMAND PAY OR REIMBURSE EACH OF THEM
FOR, THE INDEMNITY MATTERS WHICH MAY BE INCURRED BY OR ASSERTED AGAINST OR
INVOLVE ANY OF THEM (WHETHER OR NOT ANY OF THEM IS DESIGNATED A PARTY THERETO)
AS A RESULT OF, ARISING OUT OF OR IN ANY WAY RELATED TO (I) ANY ACTUAL OR
PROPOSED USE BY ANY OBLIGOR OF THE PROCEEDS OF ANY OF THE LOANS, (II) THE
EXECUTION, DELIVERY AND PERFORMANCE OF THE LOAN DOCUMENTS, (III) THE OPERATIONS
OF THE BUSINESS OF THE COMPANY AND ITS SUBSIDIARIES, (IV) THE FAILURE OF THE
COMPANY OR ANY SUBSIDIARY TO COMPLY WITH THE TERMS OF ANY LOAN DOCUMENT, OR WITH
ANY GOVERNMENTAL
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REQUIREMENT, (V) ANY INACCURACY OF ANY REPRESENTATION OR ANY BREACH OF ANY
WARRANTY OF THE COMPANY SET FORTH IN ANY OF THE LOAN DOCUMENTS, (VI) ANY
ASSERTION THAT THE LENDERS WERE NOT ENTITLED TO RECEIVE THE PROCEEDS RECEIVED
PURSUANT TO THE LOAN DOCUMENTS OR (VII) ANY OTHER ASPECT OF THE LOAN DOCUMENTS,
INCLUDING, WITHOUT LIMITATION, THE REASONABLE FEES AND DISBURSEMENTS OF COUNSEL
AND ALL OTHER EXPENSES INCURRED IN CONNECTION WITH INVESTIGATING, DEFENDING OR
PREPARING TO DEFEND ANY SUCH ACTION, SUIT, PROCEEDING (INCLUDING ANY
INVESTIGATIONS, LITIGATION OR INQUIRIES) OR CLAIM AND INCLUDING ALL INDEMNITY
MATTERS ARISING BY REASON OF THE ORDINARY NEGLIGENCE OF ANY INDEMNIFIED PARTY,
BUT EXCLUDING ALL INDEMNITY MATTERS ARISING SOLELY BY REASON OF CLAIMS BETWEEN
THE LENDERS OR ANY LENDER AND ANY AGENT OR A LENDER'S SHAREHOLDERS AGAINST ANY
AGENT OR LENDER OR BY REASON OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT ON
THE PART OF SUCH INDEMNIFIED PARTY; AND
(c) TO INDEMNIFY AND HOLD HARMLESS FROM TIME TO TIME EACH INDEMNIFIED PARTY
FROM AND AGAINST ANY AND ALL LOSSES, CLAIMS, COST RECOVERY ACTIONS,
ADMINISTRATIVE ORDERS OR PROCEEDINGS, DAMAGES AND LIABILITIES TO WHICH ANY SUCH
PERSON MAY BECOME SUBJECT (I) UNDER ANY ENVIRONMENTAL LAW APPLICABLE TO THE
COMPANY OR ANY SUBSIDIARY OR ANY OF THEIR PROPERTIES, INCLUDING WITHOUT
LIMITATION THE TREATMENT OR DISPOSAL OF HAZARDOUS SUBSTANCES ON ANY OF THEIR
PROPERTIES AND RESULTING FROM THE FACT THAT THE AGENTS OR LENDERS ARE A PARTY TO
ANY LOAN DOCUMENT, (II) AS A RESULT OF THE BREACH OR NON-COMPLIANCE BY THE
COMPANY OR ANY SUBSIDIARY WITH ANY ENVIRONMENTAL LAW APPLICABLE TO THE COMPANY
OR ANY SUBSIDIARY, (III) DUE TO PAST OWNERSHIP BY THE COMPANY OR ANY SUBSIDIARY
OF ANY OF THEIR PROPERTIES OR PAST ACTIVITY ON ANY OF THEIR PROPERTIES WHICH,
THOUGH LAWFUL AND FULLY PERMISSIBLE AT THE TIME, COULD RESULT IN PRESENT
LIABILITY, (IV) THE PRESENCE, USE, RELEASE, STORAGE, TREATMENT OR DISPOSAL OF
HAZARDOUS SUBSTANCES ON OR AT ANY OF THE PROPERTIES OWNED OR OPERATED BY THE
COMPANY OR ANY SUBSIDIARY, OR (V) ANY OTHER ENVIRONMENTAL, HEALTH OR SAFETY
CONDITION IN CONNECTION WITH THE LOAN DOCUMENTS, PROVIDED, HOWEVER, NO INDEMNITY
SHALL BE AFFORDED UNDER THIS SECTION 12.03(C) IN RESPECT OF ANY PROPERTY FOR ANY
OCCURRENCE ARISING FROM THE ACTS OR OMISSIONS OF ANY AGENT OR ANY LENDER DURING
THE PERIOD AFTER WHICH SUCH PERSON, ITS SUCCESSORS OR ASSIGNS SHALL HAVE
OBTAINED POSSESSION OF SUCH PROPERTY (WHETHER BY FORECLOSURE OR DEED IN LIEU OF
FORECLOSURE, AS MORTGAGEE-IN-POSSESSION OR OTHERWISE).
(d) No Indemnified Party may settle any claim to be indemnified without the
consent of the indemnitor, such consent not to be unreasonably withheld;
provided, that the indemnitor may not reasonably withhold consent to any
settlement that an Indemnified Party proposes, if the indemnitor does not have
the financial ability to pay all its obligations outstanding and asserted
against the indemnitor at
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that time, including the maximum potential claims against the Indemnified Party
to be indemnified pursuant to this Section 12.03.
(e) In the case of any indemnification hereunder, the Administrative Agent
or a Lender, as appropriate shall give notice to the Company of any such claim
or demand being made against such Indemnified Party and the Company shall have
the non-exclusive right to join in the defense against any such claim or demand
provided that if the Company provides a defense, such Indemnified Party shall
bear its own cost of defense unless there is a conflict between the Company and
such Indemnified Party.
(f) THE FOREGOING INDEMNITIES SHALL EXTEND TO THE INDEMNIFIED PARTIES
NOTWITHSTANDING THE NEGLIGENCE OF EVERY KIND OR CHARACTER WHATSOEVER, WHETHER
ACTIVE OR PASSIVE, WHETHER AN AFFIRMATIVE ACT OR AN OMISSION, INCLUDING WITHOUT
LIMITATION, ALL TYPES OF NEGLIGENT CONDUCT IDENTIFIED IN THE RESTATEMENT
(SECOND) OF TORTS OF ONE OR MORE OF THE INDEMNIFIED PARTIES OR BY REASON OF
STRICT LIABILITY IMPOSED WITHOUT FAULT ON ANY ONE OR MORE OF THE INDEMNIFIED
PARTIES. TO THE EXTENT THAT AN INDEMNIFIED PARTY IS FOUND TO HAVE COMMITTED AN
ACT OF GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, THIS CONTRACTUAL OBLIGATION OF
INDEMNIFICATION SHALL CONTINUE BUT SHALL ONLY EXTEND TO THE PORTION OF THE CLAIM
THAT IS DEEMED TO HAVE OCCURRED BY REASON OF EVENTS OTHER THAN THE GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT OF THE INDEMNIFIED PARTY.
(g) Each Obligor's obligation under this Section 12.03 shall survive any
termination of this Agreement and the payment of the Notes and shall continue
thereafter in full force and effect.
(h) The Obligors shall pay any amounts due under this Section 12.03 within
thirty (30) days of the receipt by the Company of notice of the amount due.
Section 12.04 Amendments, Etc. Any provision of this Agreement or any other
Loan Document may be amended, modified or waived with the Company's and the
Majority Lenders' prior written consent; provided that (i) no amendment,
modification or waiver which extends the maturity of the Loans, or the interest
or fee payment dates, increases the Aggregate Commitments, forgives the
principal amount of any Indebtedness outstanding under this Agreement, reduces
the interest rate applicable to the Loans or the fees payable to the Lenders
generally, affects this Section 12.04 or Section 12.06(a) or modifies the
definition of "Majority Lenders" or any provision which by its terms requires
the consent or approval of all of the Lenders shall be effective without consent
of all Lenders; (ii) no amendment, modification or waiver which increases or
extends the Commitment of any Lender shall be effective without the consent of
such Lender; and (iii) no amendment, modification or waiver which modifies the
rights, duties or obligations of the Administrative Agent, Auction Agent or the
Syndication Agent shall be effective without the consent of such Agent.
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Section 12.05 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
Section 12.06 Assignments and Participations.
(a) No Obligor may assign its rights or obligations hereunder or under the
Notes without the prior consent of all of the Lenders and the Agents.
(b) Any Lender may, upon the written consent of the Company (which consent
shall not be unreasonably withheld) assign to one or more assignees all or a
portion of its rights and obligations under this Agreement and the other Loan
Documents pursuant to an Assignment Agreement substantially in the form of
Exhibit K (an "Assignment") provided, however, that (i) any such assignment
shall be in the amount of at least $10,000,000 or such lesser amount to which
the Company has consented and (ii) the assignor or assignee shall pay to the
Administrative Agent a processing and recordation fee of $2500 for each
assignment. Any such assignment will become effective upon the execution and
delivery to the Administrative Agent of the Assignment and the written consent
of the Company. Promptly after receipt of an executed Assignment, the
Administrative Agent shall send to the Company a copy of such executed
Assignment. Upon receipt of such executed Assignment, the Company, will, at its
own expense, execute and deliver new Notes to the assignor and/or assignee, as
appropriate, in accordance with their respective interests as they appear. Upon
the effectiveness of any assignment pursuant to this Section 12.06(b), the
assignee will become a "Lender," if not already a "Lender," for all purposes of
this Agreement and the other Loan Documents. The assignor shall be relieved of
its obligations hereunder to the extent of such assignment (and if the assigning
Lender no longer holds any rights or obligations under this Agreement, such
assigning Lender shall cease to be a "Lender" hereunder except that its rights
under Sections 4.06, 5.01, 5.05 and 12.03 shall not be affected). The
Administrative Agent will prepare on the last Business Day of each month during
which an assignment has become effective pursuant to this Section 12.06(b), a
new Annex 1 giving effect to all such assignments effected during such month,
and will promptly provide the same to the Company and each of the Lenders.
(c) Each Lender may transfer, grant or assign participations in all or any
part of such Lender's interests, rights and obligations hereunder pursuant to
this Section 12.06(c) to any Person, provided that: (i) such Lender shall remain
a "Lender" for all purposes of this Agreement and the transferee of such
participation shall not constitute a "Lender" hereunder; and (ii) no participant
under any such participation shall have rights to approve any amendment to or
waiver of any of the Loan Documents except to the extent such amendment or
waiver would (x) extend the Revolving Credit Termination Date, (y) reduce the
interest rate (other than as a result of waiving the applicability of any post-
default increases in interest rates) or fees applicable to any of the
Commitments or Loans in which such participant is
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participating, or postpone the payment of any thereof, or (z) release all or
substantially all of the collateral (except as expressly provided in the other
Loan Documents) supporting any of the Commitments or Loans in which such
participant is participating. In the case of any such participation, the
participant shall not have any rights under this Agreement or any of the other
Loan Documents (the participant's rights against the granting Lender in respect
of such participation to be those set forth in the agreement with such Lender
creating such participation), and all amounts payable by the Company hereunder
shall be determined as if such Lender had not sold such participation, provided
that such participant shall be entitled to receive additional amounts under
Article V on the same basis as if it were a Lender and be indemnified under
Section 12.03 as if it were a Lender. In addition, each agreement creating any
participation must include an agreement by the participant to be bound by the
provisions of Section 12.15.
(d) The Lenders may furnish any information concerning the Company in the
possession of the Lenders from time to time to assignees and participants
(including prospective assignees and participants); provided such Persons agree
in writing to be bound by the provisions of Section 12.15.
(e) Notwithstanding anything in this Section 12.06 to the contrary, any
Lender may assign and pledge its Note to any Federal Reserve Bank or the United
States Treasury as collateral security pursuant to Regulation A of the Board of
Governors of the Federal Reserve System and any operating circular issued by
such Federal Reserve System and/or such Federal Reserve Bank. No such
assignment and/or pledge shall release the assigning and/or pledging Lender from
its obligations hereunder.
(f) Notwithstanding any other provisions of this Section 12.06, no transfer
or assignment of the interests or obligations of any Lender or any grant of
participations therein shall be permitted if such transfer, assignment or grant
would require the Company to file a registration statement with the SEC or to
qualify the Loans under the "Blue Sky" laws of any state.
Section 12.07 Invalidity. In the event that any one or more of the
provisions contained in any of the Loan Documents shall, for any reason, be held
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of the Notes, this
Agreement or any other Loan Document.
Section 12.08 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.
Section 12.09 References. The words "herein," "hereof," "hereunder" and
other words of similar import when used in this Agreement refer to this
Agreement as a whole, and not to any particular article, section or subsection.
Any reference herein to a
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Section shall be deemed to refer to the applicable Section of this Agreement
unless otherwise stated herein. Any reference herein to an exhibit or schedule
shall be deemed to refer to the applicable exhibit or schedule attached hereto
unless otherwise stated herein.
Section 12.10 Survival. The obligations of the parties under Section 4.06,
Article V, and Sections 11.05 and 12.03 shall survive the repayment of the Loans
and the termination of the Commitments. To the extent that any payments on the
Indebtedness or proceeds of any collateral are subsequently invalidated,
declared to be fraudulent or preferential, set aside or required to be repaid to
a trustee, debtor in possession, receiver or other Person under any bankruptcy
law, common law or equitable cause, then to such extent, the Indebtedness so
satisfied shall be revived and continue as if such payment or proceeds had not
been received and the Administrative Agent's and the Lenders' Liens, security
interests, rights, powers and remedies under this Agreement and each other Loan
Document shall continue in full force and effect. In such event, each Loan
Document shall be automatically reinstated and the Company shall take such
action as may be reasonably requested by the Administrative Agent and the
Lenders to effect such reinstatement.
Section 12.11 Captions. Captions and section headings appearing herein and
the table of contents hereto are included solely for convenience of reference
and are not intended to affect the interpretation of any provision of this
Agreement.
Section 12.12 NO ORAL AGREEMENTS. THE LOAN DOCUMENTS EMBODY THE ENTIRE
AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES AND SUPERSEDE ALL OTHER
AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING TO THE SUBJECT
MATTER HEREOF AND THEREOF. THE LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Section 12.13 GOVERNING LAW; SUBMISSION TO JURISDICTION.
(A) THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS EXCEPT TO THE EXTENT THAT UNITED
STATES FEDERAL LAW PERMITS ANY LENDER TO CHARGE INTEREST AT THE RATE ALLOWED BY
THE LAWS OF THE STATE WHERE SUCH LENDER IS LOCATED. TEX. REV. CIV. STAT. ANN.
ART. 5069, CH. 15 (WHICH REGULATES CERTAIN REVOLVING CREDIT LOAN ACCOUNTS AND
REVOLVING TRI-PARTY ACCOUNTS) SHALL NOT APPLY TO THIS AGREEMENT OR THE NOTES.
(B) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THE LOAN DOCUMENTS MAY BE
BROUGHT IN THE COURTS OF THE STATE OF TEXAS OR OF THE UNITED STATES OF AMERICA
FOR THE SOUTHERN DISTRICT OF TEXAS, AND, BY EXECUTION AND DELIVERY OF THIS
AGREEMENT, THE COMPANY HEREBY ACCEPTS FOR ITSELF AND (TO THE EXTENT PERMITTED BY
LAW) IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION
OF THE AFORESAID COURTS.
61
<PAGE>
THE COMPANY HEREBY IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT
LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF
FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY
SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS. THIS SUBMISSION TO
JURISDICTION IS NON-EXCLUSIVE AND DOES NOT PRECLUDE THE ADMINISTRATIVE AGENT OR
ANY LENDER FROM OBTAINING JURISDICTION OVER THE COMPANY IN ANY COURT OTHERWISE
HAVING JURISDICTION.
(C) NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE ADMINISTRATIVE AGENT OR ANY
LENDER OR ANY HOLDER OF A NOTE TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW
OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY IN ANY
OTHER JURISDICTION.
(D) EACH OF THE COMPANY AND EACH LENDER HEREBY (I) IRREVOCABLY AND
UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, TRIAL BY JURY IN
ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN; (II) IRREVOCABLY WAIVES, TO THE
MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER
IN ANY SUCH LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL
DAMAGES, OR DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (III)
CERTIFIES THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OF COUNSEL FOR
ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH
PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVERS, AND (IV) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS
AGREEMENT, THE OTHER LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND
THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED
IN THIS SECTION 12.13.
Section 12.14 Interest. It is the intention of the parties hereto that each
Lender shall conform strictly to usury laws applicable to it. Accordingly, if
the transactions contemplated hereby would be usurious as to any Lender under
laws applicable to it (including the laws of the United States of America and
the State of Texas or any other jurisdiction whose laws may be mandatorily
applicable to such Lender notwithstanding the other provisions of this
Agreement), then, in that event, notwithstanding anything to the contrary in any
of the Loan Documents or any agreement entered into in connection with or as
security for the Notes, it is agreed as follows: (i) the aggregate of all
consideration which constitutes interest under law applicable to any Lender that
is contracted for, taken, reserved, charged or received by such Lender under any
of the Loan Documents or agreements or otherwise in connection with the Notes
shall under no circumstances exceed the maximum amount allowed by such
applicable law, and any excess shall be cancelled automatically and if
theretofore paid shall be credited by such Lender on the principal amount of the
Indebtedness (or, to the extent that the principal amount of the Indebtedness
shall have been or would thereby be paid in full, refunded by such Lender to the
Company);
62
<PAGE>
and (ii) in the event that the maturity of the Notes is accelerated by reason of
an election of the holder thereof resulting from any Event of Default or
otherwise, or in the event of any required or permitted prepayment, then such
consideration that constitutes interest under law applicable to any Lender may
never include more than the maximum amount allowed by such applicable law, and
excess interest, if any, provided for in this Agreement or otherwise shall be
cancelled automatically by such Lender as of the date of such acceleration or
prepayment and, if theretofore paid, shall be credited by such Lender on the
principal amount of the Indebtedness (or, to the extent that the principal
amount of the Indebtedness shall have been or would thereby be paid in full,
refunded by such Lender to the Company). All sums paid or agreed to be paid to
any Lender for the use, forbearance or detention of sums due hereunder shall, to
the extent permitted by law applicable to such Lender, be amortized, prorated,
allocated and spread throughout the full term of the Loans evidenced by the
Notes until payment in full so that the rate or amount of interest on account of
any Loans hereunder does not exceed the maximum amount allowed by such
applicable law. If at any time and from time to time (i) the amount of interest
payable to any Lender on any date shall be computed at the Highest Lawful Rate
applicable to such Lender pursuant to this Section 12.14 and (ii) in respect of
any subsequent interest computation period the amount of interest otherwise
payable to such Lender would be less than the amount of interest payable to such
Lender computed at the Highest Lawful Rate applicable to such Lender, then the
amount of interest payable to such Lender in respect of such subsequent interest
computation period shall continue to be computed at the Highest Lawful Rate
applicable to such Lender until the total amount of interest payable to such
Lender shall equal the total amount of interest which would have been payable to
such Lender if the total amount of interest had been computed without giving
effect to this Section 12.14. To the extent that Article 5069-1.04 of the Texas
Revised Civil Statutes is relevant for the purpose of determining the Highest
Lawful Rate, such Lender elects to determine the applicable rate ceiling under
such Article by the indicated weekly rate ceiling from time to time in effect.
Section 12.15 Confidentiality. In the event that the Company provides to
the Agents or the Lenders written confidential information belonging to the
Company, if the Company shall denominate such information in writing as
"confidential", the Agents and the Lenders shall thereafter maintain such
information in confidence in accordance with the standards of care and diligence
that each utilizes in maintaining its own confidential information. This
obligation of confidence shall not apply to such portions of the information
which (i) are in the public domain, (ii) hereafter become part of the public
domain without the Agents or the Lenders breaching their obligation of
confidence to the Company, (iii) are previously known by the Agents or the
Lenders from some source other than the Company, (iv) are hereafter developed by
the Agents or the Lenders without using the Company's information, (v) are
hereafter obtained by or available to the Agents or the Lenders from a third
party who owes no obligation of confidence to the Company with respect to such
information or through any other means other than through disclosure by the
Company, (vi) are disclosed with the Company's consent, (vii) must be disclosed
either pursuant to any Governmental Requirement or to Persons regulating the
activities of the Agents or the Lenders, or (viii) as may be required by law or
regulation or order of any
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Governmental Authority in any judicial, arbitration or governmental proceeding.
Further, an Agent or a Lender may disclose any such information to any other
Lender, any Affiliate of such Agent or Lender, any independent petroleum
engineers or consultants, any independent certified public accountants, any
legal counsel employed by such Person in connection with this Agreement or any
other Loan Document, including without limitation, the enforcement or exercise
of all rights and remedies thereunder, or any assignee or participant (including
prospective assignees and participants) in the Loans; provided, however, that
such Agent or Lender imposes on the Person to whom such information is disclosed
the same obligation to maintain the confidentiality of such information as is
imposed upon it hereunder. Notwithstanding anything to the contrary provided
herein, this obligation of confidence shall cease three (3) years from the date
the information was furnished, unless the Company requests in writing at least
thirty (30) days prior to the expiration of such three year period, to maintain
the confidentiality of such information for an additional three year period. The
Company waives any and all other rights it may have to confidentiality as
against the Agents and the Lenders arising by contract, agreement, statute or
law except as expressly stated in this Section 12.15.
Section 12.16 Effectiveness. This Agreement shall not be effective until
executed by all parties hereto and delivered to and accepted by the
Administrative Agent, and the other conditions listed in the definition of
"Effective Date" have occurred.
Section 12.17 EXCULPATION PROVISIONS. EACH OF THE PARTIES HERETO
SPECIFICALLY AGREES THAT IT HAS A DUTY TO READ THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS AND AGREES THAT IT IS CHARGED WITH NOTICE AND KNOWLEDGE OF THE TERMS
OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; THAT IT HAS IN FACT READ THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS AND IS FULLY INFORMED AND HAS FULL NOTICE
AND KNOWLEDGE OF THE TERMS, CONDITIONS AND EFFECTS OF THIS AGREEMENT; THAT IT
HAS BEEN REPRESENTED BY INDEPENDENT LEGAL COUNSEL OF ITS CHOICE THROUGHOUT THE
NEGOTIATIONS PRECEDING ITS EXECUTION OF THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS; AND HAS RECEIVED THE ADVICE OF ITS ATTORNEY IN ENTERING INTO THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS; AND THAT IT RECOGNIZES THAT CERTAIN OF
THE TERMS OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS RESULT IN ONE PARTY
ASSUMING THE LIABILITY INHERENT IN SOME ASPECTS OF THE TRANSACTION AND RELIEVING
THE OTHER PARTY OF ITS RESPONSIBILITY FOR SUCH LIABILITY. EACH PARTY HERETO
AGREES AND COVENANTS THAT IT WILL NOT CONTEST THE VALIDITY OR ENFORCEABILITY OF
ANY EXCULPATORY PROVISION OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS ON THE
BASIS THAT THE PARTY HAD NO NOTICE OR KNOWLEDGE OF SUCH PROVISION OR THAT SUCH
PROVISION IS NOT "CONSPICUOUS."
The parties hereto have caused this Agreement to be duly executed as of the
day and year first above written.
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<PAGE>
ENSERCH EXPLORATION, INC.
ATTEST:
/s/ By: /s/ A. E. Gallatin
- ------------------------------ ------------------------------------------
Assistant Corporate Secretary Name: A. E. Gallatin
Title: Vice President and Treasurer
<PAGE>
LENDER AND TEXAS COMMERCE BANK NATIONAL
ADMINISTRATIVE AGENT: ASSOCIATION
By: /s/ Dale S. Hurd
--------------------------------------------
Name: Dale S. Hurd
Title: Senior Vice President
Lending Office for Base Rate Loans:
2200 Ross Avenue
Dallas, TX 75201
Lending Office for Eurodollar Loans:
2200 Ross Avenue
Dallas, TX 75201
Address for Notices:
2200 Ross Avenue
Dallas, TX 75201
Telecopier No.: (214) 922-2389
Telephone No.: (214) 922-2583
Attention: Dale Hurd
<PAGE>
SYNDICATION AGENT
AND LENDER: THE CHASE MANHATTAN BANK, N.A.
By: /s/ Bettylou J. Robert
---------------------------------------------
Name: Bettylou J.Robert
Title: Vice President
Lending Office for Base Rate Loans:
The Chase Manhattan Bank, N.A.
1 Chase Manhattan Plaza
New York, New York 10005
Lending Office for Eurodollar Loans:
The Chase Manhattan Bank, N.A.
1 Chase Manhattan Plaza
New York, New York 10005
Address for Notices:
The Chase Manhattan Bank, N.A.
2 Chase Manhattan Plaza, 5th Floor
New York, New York 10005
Telecopier No.: (212) 552-4455
Telephone No.: (212) 552-3017
Attention: Joselin Fernandes
[With copy to:]
Chase National Corporate Services, Inc.
One Houston Center
1221 McKinney, Suite 3000
Houston, Texas 77010
Telecopier No.: (713) 751-9122
Telephone No.: (713) 751-5657
Attention: Scott Porter
<PAGE>
LENDER: CITIBANK, N.A.
By: /s/ Mark J. Lyons
---------------------------------------------
Name: Mark. J. Lyons
Title: Vice President
Lending Office for Base Rate Loans:
Citibank, N.A.
399 Park Avenue
New York, NY 10043
Lending Office for Eurodollar Loans:
Same as above
Address for Notices:
One Court Square -- 7th Floor
Long Island City, NY 11120
Telecopier No.: (718) 248-4844
Telephone No.: (718) 248-5762
Attention: Leena Hiranandani
<PAGE>
LENDER: THE LONG-TERM CREDIT BANK OF
JAPAN, LTD.
By: /s/ Satoru Otsubo
-------------------------------------------
Name: Satoru Otsubo
Title: Joint General Manager
Lending Office for Base Rate Loans:
The Long-Term Credit Bank of Japan,
Ltd.
165 Broadway, 48th Floor
New York, NY 10006
Lending Office for Eurodollar Loans:
The Long-Term Credit Bank of Japan,
Ltd.
165 Broadway, 48th Floor
New York, NY 10006
Addresses for Notices:
The Long-Term Credit Bank of Japan,
Ltd.
165 Broadway, 48th Floor
New York, NY 10006
Telecopier No.: (212) 608-3452
Telephone No.: (212) 335-4801
Attention: Bob Pacifici
[With copy to:]
<PAGE>
LENDER: BANKERS TRUST COMPANY
By: /s/ Mary Jo Jolly
-------------------------------------------
Name: Mary Jo Jolly
Title: Assistant Vice President
Lending Office for Base Rate Loans:
130 Liberty Street
New York, NY 10006
Lending Office for Eurodollar Loans:
130 Liberty Street
New York, NY 10006
Addresses for Notices:
130 Liberty Street
Loan Division, 14th Floor
New York, NY 10006
Telecopier No.: (212) 250-6029
Telephone No.: (212) 250-7561
Attention: Stephen Snizek
[With copy to:]
Roberta K. Bohn
Bankers Trust Company
909 Fannin, Suite 3000
Houston, Texas 77010
Telecopier No.: (713) 759-6708
Telephone No.: (713) 759-6731
<PAGE>
LENDER: THE BANK OF NOVA SCOTIA
By: /s/ F.C.H. ASHBY
-------------------------------------------
Name: F.C.H. ASHBY
Title: SENIOR MANAGER LOAN
OPERATIONS
Lending Office for Base Rate Loans:
600 PEACHTREE STREET N.E.
SUITE 2700
ATLANTA, GA 30308
Lending Office for Eurodollar Loans:
600 PEACHTREE STREET N.E.
SUITE 2700
ATLANTA, GA 30308
Addresses for Notices:
600 PEACHTREE STREET N.E.
SUITE 2700
ATLANTA, GA 30308
Telecopier No.: 404-888-8998
Telephone No.: 404-877-1549
Attention: JEFREY JONES
[With copy to:] (DOCUMENTS)
1100 LOUISIANA STREET
SUITE 3000
HOUSTON, TX 77002
ATTN: D. MATT HARRIS
<PAGE>
LENDER: CANADIAN IMPERIAL BANK OF COMMERCE
By: /s/ GARY C. GASKILL
-------------------------------------------
Name: GARY C. GASKILL
Title: AUTHORIZED SIGNATORY
Lending Office for Base Rate Loans:
TWO PACES WEST
2727 PACES FERRY ROAD, SUITE 1200
ATLANTA, GA 30339
Lending Office for Eurodollar Loans:
TWO PACES WEST
2727 PACES FERRY ROAD, SUITE 1200
ATLANTA, GA 30339
Addresses for Notices:
TWO PACES WEST
2727 PACES FERRY ROAD, SUITE 1200
ATLANTA, GA 30339
Telecopier No.: (404) 319-4950
Telephone No.: (404) 319-4835
Attention: MS. ADRIENNE BURCH
[With copy to:]
<PAGE>
National Westminster Bank Plc
New York Branch
By: /s/ Stephen R. Parker
-------------------------------------------
Name: Stephen R. Parker
Title: Vice President
National Westminster Bank Plc
Nassau Branch
By: /s/ Stephen R. Parker
-------------------------------------------
Name: Stephen R. Parker
Title: Vice President
Lending Office for Base Rate Loans:
National Westminister Bank Plc
New York Branch
Lending Office for Eurodollar Loans:
National Westminster Bank Plc
Nassau Branch
Addresses for Notices:
National Westminster Bank Plc
175 Water Street
New York, New York 10038
Telecopier No.: (212) 602-4118
Telephone No.: (212) 602-4180
Attention: Nadira Fauder
<PAGE>
LENDER: The First National Bank of Chicago
By: /s/ Dixon P. Schultz
-------------------------------------------
Name: Dixon P. Schultz
Title: Vice President
Lending Office for Base Rate Loans:
The First National Bank of Chicago
1 First National Plaza, Suite 0634
Chicago, Illinois 60670
Lending Office for Eurodollar Loans:
The First National Bank of Chicago
1 First National Plaza, Suite 0634
Chicago, Illinois 60670
Addresses for Notices:
The First National Bank of Chicago
1 First National Plaza, Suite 0634
Chicago, Illinois 60670
Telecopier No.: (312) 732-4840
Telephone No.: (312) 732-8705
Attention: Lynn Pozsgay
[With copy to:]
<PAGE>
LENDER: THE BANK OF NEW YORK
By: /s/ Raymond J. Palmer
-------------------------------------------
Name: Raymond J. Palmer
Title: Vice President
Lending Office for Base Rate Loans:
The Bank of New York
One Wall Street, 19th Fl.
New York, New York 10286
Lending Office for Eurodollar Loans:
The Bank of New York
One Wall Street, 19th Fl.
New York, New York 10286
Addresses for Notices:
The Bank of New York
One Wall Street, 19th Fl.
New York, New York 10286
Telecopier No.: (212) 635-7923
Telephone No.: (212) 635-7921
Attention: Nina Russo-Valdes
[With copy to:]
<PAGE>
LENDER: NationsBank of Texas, N.A.
By: /s/ Denise Ashford Smith
-------------------------------------------
Name: Denise Ashford Smith
Title: Senior Vice President
Lending Office for Base Rate Loans:
901 Main Street, 64th Floor
Dallas, TX 75202
Attn: Denise Ashford Smith
Lending Office for Eurodollar Loans:
901 Main Street, 64th Floor
Dallas, TX 75202
Attn: Denise Ashford Smith
Addresses for Notices:
Corporate Credit Services
901 Main Street, 14th Floor
Dallas, TX 75202
Telecopier No.: 214/508-1215
Telephone No.: 214/508-1225
Attention: Betty Canales
[With copy to:]
<PAGE>
LENDER: THE BANK OF TOKYO, LTD.
DALLAS AGENCY
By: /s/ John M. McIntyre
-------------------------------------------
Name: John M. McIntyre
Title: Vice President
Lending Office for Base Rate Loans:
The Bank of Tokyo, Ltd.
2001 Ross Avenue, Suite 3150
Dallas, Texas 75201
Lending Office for Eurodollar Loans:
The Bank of Tokyo, Ltd.
2001 Ross Avenue, Suite 3150
Dallas, Texas 75201
Addresses for Notices:
The Bank of Tokyo, Ltd.
909 Fannin, 2 Houston Center, Ste. 1104
Dallas, Texas 77010
Telecopier No.: (713) 658-8341
Telephone No.: (713) 658-1021
Attention: Nadra H. Breir
<PAGE>
LENDER: The Fuji Bank, Ltd.
By: /s/ Soichi Yoshida
-------------------------------------------
Name: Soichi Yoshida
Title: Vice President and Senior
Manager
Lending Office for Base Rate Loans:
The Fuji Bank, Ltd.
Houston Agency
1221 McKinney St. Suite 4100
Houston, TX 77010
Lending Office for Eurodollar Loans:
The Fuji Bank, Ltd.
Houston Agency
1221 McKinney St. Suite 4100
Houston, TX 77010
Addresses for Notices:
The Fuji Bank, Ltd.
Houston Agency
1221 McKinney St. Suite 4100
Houston, TX 77010
Telecopier No.: (713) 759-0048
Telephone No.: (713) 650-7826
Attention: Teri McPherson
<PAGE>
LENDER: Union Bank of Switzerland
Houston Agency
By: /s/ Evans Swann
-------------------------------------------
Name: Evans Swann
Title: Managing Director
By: /s/ Alfred Imholz
-------------------------------------------
Name: Alfred Imholz
Title: Managing Director
Lending Office for Base Rate Loans:
1100 Louisiana, Suite 4500
Houston, TX 77002
Lending Office for Eurodollar Loans:
1100 Louisiana, Suite 4500
Houston, TX 77002
Addresses for Notices:
1100 Louisiana, Suite 4500
Houston, TX 77002
Telecopier No.: (713) 655-6555
Telephone No.: (713) 655-6500
Attention: Alfred Imholz Managing
Director
With copy to: James Broadus
Telecopier No.: (212) 821-3269
Telephone No.: (212) 821-3227
<PAGE>
LENDER: Dresdner Bank AG New York
and Grand Cayman Branches
By: /s/ J. Curtin Beaudouin
-------------------------------------------
Name: J. Curtin Beaudouin
Title: Vice President
By: /s/ Ernest C. Fung
-------------------------------------------
Name: Ernest C. Fung
Title: Vice President
Lending Office for Base Rate Loans:
Dresdner Bank AG, Grand Cayman Branch
75 Wall Street
New York, New York 10005-2889
Lending Office for Eurodollar Loans:
Dresdner Bank AG, Grand Cayman Branch
75 Wall Street
New York, New York 10005-2889
Addresses for Notices:
Dresdner Bank AG, Grand Cayman Branch
75 Wall Street
New York, New York 10005-2889
Telecopier No.: (212) 898-0524
Telephone No.: (212) 574-0183
Attention: Craig Erickson
With copy to:
Credit Department
Dresdner Bank AG, New York
Attn: Ms. Yunie Shin-Thomas
75 Wall Street
New York, NY 10005-2889
<PAGE>
CREDIT LYONNAIS CAYMAN ISLAND BRANCH
By: /s/ Xavier Ratouis
-------------------------------------------
Name: Xavier Ratouis
Title: Authorized Signature
Lending Office for Base Rate Loans:
Credit Lyonnais Cayman Island Branch
1301 Avenue of the Americas
New York, New York 10019
Attention: Loan Servicing
Lending Office for Eurodollar Loans:
Credit Lyonnais Cayman Island Branch
1301 Avenue of the Americas
New York, New York 10019
Attention: Loan Servicing
Addresses for Notices:
c/o Credit Lyonnais Representative
Office
1000 Louisiana, Suite 5360
Houston, TX 77002
Telecopier No.: (713) 751-0307
Telephone No.: (713) 751-0500
Attention: Mr. A. David Dodd
<PAGE>
LENDER: The Industrial Bank of Japan Trust
Company
By: /s/ Robert W. Ramage, Jr.
-------------------------------------------
Name: Robert W. Ramage, Jr.
Title: Senior Vice President
Lending Office for Base Rate Loans:
The Industrial Bank of Japan Trust
Company
245 Park Avenue
New York, NY 10167
Lending Office for Eurodollar Loans:
The Industrial Bank of Japan Trust
Company
245 Park Avenue
New York, NY 10167
Addresses for Notices:
The Industrial Bank of Japan Trust
Company
245 Park Avenue
New York, NY 10167
Telecopier No.: (212) 949-0134
Telephone No.: (212) 309-6521
Attention: Credit Administration
[With copy to:]
<PAGE>
LENDER: Royal Bank of Canada
By: /s/ Gil J. Benard
-------------------------------------------
Name: Gil J. Benard
Title: Senior Manager
Lending Office for Base Rate Loans:
Royal Bank of Canada
1 Financial Square, 24th Floor
New York, New York 10005-3531
Lending Office for Eurodollar Loans:
Royal Bank of Canada
1 Financial Square, 24th Floor
New York, New York 10005-3531
Addresses for Notices:
Royal Bank of Canada
600 Wilshire Blvd., Suite 800
Los Angeles, CA 90017
Telecopier No.: (213) 955-5350
Telephone No.: (213) 955-5321
Attention: Gil J. Benard
[With copy to:]
<PAGE>
LENDER: Westdeutsche Landesbank Girozentrale
By: /s/ Richard R. Newman
-------------------------------------------
Name: Richard R. Newman
Title: Vice President
By: /s/ Sal Battinelli
-------------------------------------------
Name: Sal Battinelli
Title: Vice President
Lending Office for Base Rate Loans:
Westdeutsche Landesbank Girozentrale
1211 Avenue of the Americas
New York, New York 10036
Lending Office for Eurodollar Loans:
Westdeutsche Landesbank Girozentrale
1211 Avenue of the Americas
New York, New York 10036
Addresses for Notices:
Westdeutsche Landesbank Girozentrale
1211 Avenue of the Americas
New York, New York 10036
Telecopier No.: (212) 852-6307
Telephone No.: (212) 852-6120
Attention: Richard R. Newman
<PAGE>
LENDER: Caisse Nationale de Credit Agricole
By: /s/ David Bouhl
-------------------------------------------
Name: David Bouhl
Title: First Vice President and
Head of Corporate Banking
-- Chicago
Lending Office for Base Rate Loans:
Caisse Nationale de Credit Agricole 55
East Monroe Street
Chicago, Illinois 60603-5702
Lending Office for Eurodollar Loans:
Caisse Nationale de Credit Agricole 55
East Monroe Street
Chicago, Illinois 60603-5702
Addresses for Notices:
Caisse Nationale de Credit Agricole 55
East Monroe Street
Chicago, Illinois 60603-5702
Telecopier No.: 312/372-3724
Telephone No.: 312/917-7560
Attention: Stacey Mannion
[With copy to:]
Brian D. Knezeak
Telephone: 312/917-7546
<PAGE>
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is among:
ENSERCH EXPLORATION, INC., a corporation formed under the laws of the State of
Texas (the "Company"); each of the Lenders (as defined in the Credit Agreement
as hereafter defined) that is a signatory hereto; THE CHASE MANHATTAN BANK, a
New York banking corporation (in its individual capacity, "Chase"), as
administrative agent for the Lenders (in such capacity, together with its
successors in such capacity, the "Administrative Agent"); as auction agent for
the Lenders (in such capacity, together with its successors in such capacity,
the "Auction Agent"); and as syndication agent for the Lenders (in such
capacity, together with its successors in such capacity, the "Syndication
Agent") and Citibank, N.A. a national banking association (in its individual
capacity, "Citibank") and as documentation agent for the Lenders (in such
capacity, together with its successors in such capacity, the "Documentation
Agent").
R E C I T A L S
A. The Company, the Agents, and the Lenders have entered into that
certain Credit Agreement dated as of May 1, 1995 (the "Credit Agree ment"),
pursuant to which the Lenders have agreed to make certain loans and extensions
of credit to the Company upon the terms and conditions as provided therein; and
B. The Company, the Agents, and the Lenders now desire to make
certain amendments to the Credit Agreement.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration and the mutual benefits, covenants and agreements herein
expressed, the parties hereto now agree as follows:
1. All capitalized terms used in this Amendment and not otherwise
defined herein shall have the meanings ascribed to such terms in the Credit
Agreement.
2. As used in the Agreement, the terms "Administrative Agent,"
"Auction Agent," "Citibank," "Documentation Agent" and Syndication Agent" shall
have the meaning indicated above.
3. The definitions of "Agents", "Debt" and "Principal Office" in
Section 1.02 of the Credit Agreement are hereby amended to read as follows:
"Agents" shall mean the Administrative Agent, the
Auction Agent, the Documentation Agent and the
Syndication Agent.
"Debt" shall mean, for the Company or any
Subsidiary the sum of the following (without
duplication): (i) all obligations for borrowed
money or evidenced by bonds, debentures,
mandatorily redeemable preferred stock (including
such stock of Affiliates) with maturities before
<PAGE>
the Revolving Credit Termination Date, notes or
other similar instruments (excluding interest, fees
and charges); (ii) all obligations in respect of
bankers' acceptances, unreimbursed drawings on
letters of credit, surety or other bonds; (iii) all
Capital Lease Obligations; (iv) all Operating Lease
Obligations; (v) all financial guaranties in
respect of Debt of unconsolidated Affiliates and
unrelated Persons; (vi) all obligations secured
by a Lien on any asset, whether or not such Debt is
assumed, but excluding obligations secured by Liens
permitted by Sections 9.02(c), (e), (f), (h), (i),
(j), (k) and (l); (vii) all production payments in
connection with oil and gas properties; and (viii)
all Debt of Special Entities to the extent the
Company or any Subsidiary is liable for such Debt
under GAAP or such Debt is reflected on the
consolidated balance sheet of the Company or any
Subsidiary. "Debt" shall not include Permitted
Subordinated Debt."
"Principal Office" shall mean 270 Park Avenue, New
York, New York 10017.
4. The definition "Revolving Credit Termination Date" in Section 1.02
of the Credit Agreement is hereby amended to read as follows:
"Revolving Credit Termination Date" shall mean, unless the
Commitments are sooner terminated pursuant to Sections 2.03(a) or 10.02,
August 1, 2001".
5. Section 1.02 of the Credit Agreement is hereby supplemented, where
alphabetically appropriate, with the addition of the following definition:
"First Amendment" shall mean that certain First Amendment
to Credit Agreement dated as of September 16, 1996, among the
Company, the Lenders and the Agents."
6. Section 8.07 of the Credit Agreement is hereby amended to read as
follows:
"Section 8.07 Lease Payments. The Company, at its
option, may cause its obligations to Enserch Exploration
Holdings, Inc. to be subordinated to the Indebtedness on terms
substantially similar to the terms set forth on Exhibit M or on
terms and subject to documentation satisfactory to the
Administrative Agent.
7. Section 9.01 of the Credit Agreement is hereby amended to read as
follows:
"Section 9.01 Debt to Capital Ratio. The Company will
not permit its ratio ("Debt to Capital Ratio") expressed as a
percentage of (i) Debt of the Company and its Consolidated
Subsidiaries on a consolidated basis ("Consolidated Debt") to
(ii) the sum of Consolidated Debt plus Net Worth to exceed 60%
<PAGE>
at any time; provided that in no event will Consolidated Debt
ever exceed $900,000,000."
8. Section 9.03 of the Credit Agreement is hereby amended by adding
the following sentence at the end of such Section:
"From and after the date that the Company ceases to be an
Affiliate of ENSERCH Corporation, neither the Company nor any
Subsidiary may make loans or advances to ENSERCH Corporation or
any of its subsidiaries, and any outstanding loans and advances
to ENSERCH Corporation and its subsidiaries from the Company
and its Subsidiaries on such date of disaffiliation shall be
immediately repaid."
9. Section 10.01(k) of the Credit Agreement is hereby amended to read
as follows:
"(k) any Change of Control shall occur. For purposes of
this Section 10.01(k), "Change of Control" shall mean other
than Enserch Corporation's ownership, the acquisition by any
Person, or two or more Persons acting in concert, of beneficial
ownership (within the meaning of the Securities Exchange Act
of 1934) of 35% or more of the outstanding share of voting
stock of the Company."
10. The first two sentences of Section 11.01 of the Credit Agreement
are hereby amended to read as follows:
"Each Lender hereby irrevocably appoints and authorizes Chase
as the Administrative Agent and the Auction Agent to act as its
agents hereunder and under the other Loan Documents with such
powers as are specifically delegated to the Administrative
Agent and the Auction Agent respectively by the terms of this
Agreement and the other Loan Documents, together with such
powers as reasonably incidental thereto. The Syndication Agent
and Documentation Agent, in such capacities, shall have no
duties or responsibilities and shall incur no liabilities under
the Loan Documents."
11. Attached to this Amendment is a new Annex 1 to the Credit
Agreement.
12. This Amendment shall become binding on the Lenders when, and only
when, the Administrative Agent shall have received each of the following in form
and substance satisfactory to the Administrative Agent or its counsel:
(a) counterparts of this Amendment executed by the Company, the
Agents and the Lenders;
(b) prepayment by the Company of all outstanding Loans, accrued
interest, accrued fees and other expenses due under the Credit Agreement
to September 16, 1996, including without limitation, payment of breakage
costs under Section 5.05 of the Credit Agreement in connection with this
prepayment of the Loans within 10 days of presentation of a bill by each
Lender;
<PAGE>
(c) refunding of the Loans prepaid in clause (b) above by the
Lenders set forth on Annex 1 attached hereto in proportion to their
respective Percentage Shares, with the Administrative Agent netting such
prepayments and fundings to the extent administratively convenient;
(d) issuance of new Notes to the Lenders on Annex 1 attached
hereto, duly completed and executed;
(e) a certificate of the Secretary or an Assistant Secretary of the
Company setting forth resolutions of its board of directors with respect
to the authorization of the Company to execute, deliver and perform this
Amendment; and
(f) such other documents as it or its counsel may reasonably
request.
13. The parties hereto hereby acknowledge and agree that, except as
specifically supplemented and amended, changed or modified hereby, the Credit
Agreement shall remain in full force and effect in accordance with its terms.
14. The Company hereby reaffirms that as of the date of this Amendment,
the representations and warranties contained in Article VII of the Credit
Agreement are true and correct on the date hereof as though made on and as of
the date of this Amendment, except as such representations and warranties are
expressly limited to an earlier date.
15. THIS AMENDMENT (INCLUDING, BUT NOT LIMITED TO, THE VALIDITY AND
ENFORCEABILITY HEREOF) SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF TEXAS, OTHER THAN THE CONFLICT OF LAWS RULES THEREOF.
16. This Amendment may be executed in two or more counterparts, and it
shall not be necessary that the signatures of all parties hereto be contained on
any one counterpart hereof; each counterpart shall be deemed an original, but
all of which together shall constitute one and the same instrument.
17. The Lenders listed on Annex 1 attached hereto are for all purposes
Lenders under the Loan Documents.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of September 16, 1996.
COMPANY: ENSERCH EXPLORATION, INC.
By: /s/ J. T. Leary
Name: J. T. Leary
Title: Vice President, Finance,
and Treasurer
LENDER AND ADMINISTRATIVE AGENT, THE CHASE MANHATTAN BANK
SYNDICATION AGENT AND
AUCTION AGENT:
By: /s/ Martha Ann Fetner
Name: Martha Ann Fetner
Title: Vice President
LENDER AND DOCUMENTATION CITIBANK, N.A.
AGENT:
By: /s/ Arezoo Jafari
Name: Arezoo Jafari
Title: Assistant Vice President
LENDERS: THE BANK OF NOVA SCOTIA
By: /s/ J. H. Youssef
Name: J. H. Youssef
Title: Senior Manager,
Finance & Administration
NATIONSBANK OF TEXAS, N.A.
By: /s/ Dale T. Wilson
Name: Dale T. Wilson
Title: Vice President
<PAGE>
ROYAL BANK OF CANADA
By: /s/ B. J. Belliveau
Name: B. J. Belliveau
Title: Senior Manager
BANKERS TRUST COMPANY
By: /s/ Robert R. Telesca
Name: Robert R. Telesca
Title: Senior Manager
CANADIAN IMPERIAL BANK OF COMMERCE
By: /s/ Gary C. Gaskill
Name: Gary C. Gaskill
Title: Authorized Signatory
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ Gail F. Scannell
Name: Gail F. Scannell
Title: Corporate Banking Officer
THE BANK OF NEW YORK
By: /s/ Ian K. Stewart
Name: Ian K. Stewart
Title: Senior Vice President
THE LONG-TERM CREDIT BANK OF JAPAN,
LTD.
By: /s/ Satoru Otsubo
Name: Satoru Otsubo
Title: Joint General Manager
THE BANK OF TOKYO-MITSUBISHI, LTD.
<PAGE>
By: /s/ Michael Meiss
Name: Michael Meiss
Title: Vice President
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Pascal Poupelle
Name: Pascal Poupelle
Title: Senior Vice President
THE INDUSTRIAL BANK OF JAPAN TRUST
COMPANY
By: /s/ Akijiro Yoshino
Name: Akijiro Yoshino
Title: Executive Vice President
THE SANWA BANK, LIMITED
By: /s/ Matthew G. Patrick
Name: Matthew G. Patrick
Title: Vice President
CAISSE NATIONALE DE CREDIT AGRICOLE
By: /s/ David Bouhl
Name: David Bouhl
Title: Head of Corporate Banking,
Chicago
THE FUJI BANK, LTD.
By: /s/ Yoshiaki Inoue
Name: Yoshiaki Inoue
Title: Vice President & Manager
TORONTO DOMINION (TEXAS), INC.
By: /s/ Lisa Allison
Name: Lisa Allison
Title: Vice President
<PAGE>
UNION BANK OF SWITZERLAND
HOUSTON AGENCY
By: /s/ Evans Swann
Name: Evans Swann
Title: Managing Director
By: /s/ J. Finley Biggerstaff
Name: J. Finley Biggerstaff
Title: Assistant Treasurer
DRESDNER BANK AG NEW YORK
AND GRAND CAYMAN BRANCHES
By: /s/ B. Craig Erickson
Name: B. Craig Erickson
Title: Vice President
By: /s/ Anthony Berti
Name: Anthony Berti
Title: Assistant Treasurer
<PAGE>
BANKS THAT WILL NO LONGER BE LENDERS AS OF SEPTEMBER 16, 1996.
NATIONAL WESTMINSTER BANK PLC
NEW YORK BRANCH
By: /s/ Paul K. Carter
Name: Paul K. Carter
Title: Manager & Vice President
NATIONAL WESTMINSTER BANK PLC
NASSAU BRANCH
By: /s/ Paul K. Carter
Name: Paul K. Carter
Title: Manager & Vice President
WESTDEUTSCHE LANDESBANK GIROZENTRALE
By: /s/ Richard R. Newman
Name: Richard R. Newman
Title: Vice President
By: /s/ R. Carino
Name: R. Carino
Title: Vice President
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION
By: /s/ Dale S. Hurd
Name: Dale S. Hurd
Title: Senior Vice President
<PAGE>
ANNEX 1
LIST OF COMMITMENTS
<TABLE>
<CAPTION>
Name of Lender Percentage Share Commitment
-------------- ---------------- ----------
<S> <C> <C>
1. The Chase Manhattan Bank 7.714285714% $27,000,000
2. Citibank, N.A. 7.714285714% $27,000,000
3. Bankers Trust Company 6.000000000% $21,000,000
4. The Bank of Nova Scotia 6.000000000% $21,000,000
5. Canadian Imperial Bank of Commerce 6.000000000% $21,000,000
6. The First National Bank of Chicago 6.000000000% $21,000,000
7. The Bank of New York 6.000000000% $21,000,000
8. NationsBank of Texas, N.A. 6.000000000% $21,000,000
9. Royal Bank of Canada 6.000000000% $21,000,000
10. The Long-Term Credit Bank of
Japan, Ltd. 4.857142857% $17,000,000
11. The Bank of Tokyo-Mitsubishi, Ltd. 4.857142857% $17,000,000
12. Credit Lyonnais New York Branch 4.857142857% $17,000,000
13. The Fuji Bank, Ltd. 4.000000000% $14,000,000
14. Union Bank of Switzerland 4.000000000% $14,000,000
15. Dresdner Bank AG 4.000000000% $14,000,000
16. The Industrial Bank of Japan, 4.000000000%
Ltd., New York Branch 4.000000000% $14,000,000
17. Caisse Nationale de Credit Agricole 4.000000000% $14,000,000
18. The Sanwa Bank, Limited 4.000000000% $14,000,000
19. Toronto Dominion (Texas), Inc. 4.000000000% $14,000,000
----------- -----------
Total 100.000000000% $350,000,000
</TABLE>
<PAGE>
EXHIBIT 10.15
ENSERCH EXPLORATION, INC.
FORM OF BONUS INCENTIVE PLAN
This Bonus Incentive Plan (the "Plan") is proprietary and constitutes a
trade secret of Enserch Exploration, Inc. (the "Company"). The Plan is
confidential and is not to be disclosed outside the Company.
I. PURPOSES
--------
The purposes of the Plan are to:
A. Encourage and reward the creation of Net Present Value through the
discovery, development, and exploitation of economic oil and gas
reserves by project teams.
B. Encourage and reward the achievement of operating goals and objectives.
C. Encourage and reward continued employment of key individuals assigned
to project teams.
D. Facilitate the recruitment or assignment of key employees who qualify
as Plan participants.
II. ELIGIBILITY
-----------
All full-time employees of the Company not included in the Company's
Performance Incentive Plan or other project bonus plans are eligible to receive
awards in accordance with the Plan. No employee covered under the Plan shall be
entitled to any award or portion thereof until such award is approved in writing
by the President, Enserch Exploration, Inc.
III. DEFINITIONS
-----------
A. Participants
------------
Participants for purposes of this program will normally be project
team members and will be determined at the time a Bonus Pool is
established pursuant to First Production from a project in which an
increase in Net Present Value has been certified. Such Participants
will be approved by the President, Enserch Exploration, Inc. upon
recommendation by the Regional Director or the Vice President,
Production.
B. Effective Date
--------------
The Plan shall be effective for all reserves resulting from wells
spudded on or after January 1, 1993. It will be reevaluated annually,
and may be amended, suspended, or terminated at any time by the
Chairman or President, Enserch Exploration, Inc. No such amendment,
suspension, or
<PAGE>
termination shall eliminate any payments under the Plan or any
previous plan which may have accrued prior to the date of any such
amendment, suspension, or termination.
C. Net Present Value (NPV)
-----------------------
NPV shall be defined as the discounted net present value of the
Company's net revenue interest in a well (or project) assuming the
Company's assessment of the appropriate rate of return for
discounting; of product prices; of operating expenses; and of all
costs of acquisition, drilling, and development including future
development costs. For purposes of discounting, time zero shall be
the initial investment in the first well drilled on an onshore
project, the filing of a DOCD for an offshore project and the
decision to proceed with full development for an international
project. The cost of investments prior to time zero shall be
compounded at current cost of capital up to time zero.
The initially assumed rate of return, which may be altered at any
time by the Company, shall be XXX percent for onshore, XXX percent
for offshore, and XXX percent for international.
D. First Production
----------------
The date an oil or gas well is completed through the meter or tank,
such that product is available for sale.
IV. BONUS POOL
----------
Awards shall be made at the discretion of the Company from a Bonus Pool,
the maximum amount of which shall be determined by the NPV of exploratory and
exploitation reserve additions as follows:
$XXXXX per million dollars of incremental NPV which results from
reserve additions, technology applications, or expense reduction.
The actual amount of the Bonus Pool will be equal to or less than the
maximum set above, with the amount awarded based upon management assessment of
relevant factors in evaluating overall team performance. Among the factors
which will be considered are the following:
1. Value added - did the team make a material contribution in an area
such as enticing a submittal, trading the deal, originating a
geologic concept, putting a land deal together, etc. which
represented an extraordinary contribution to the viability of the
project?
2. Originality - was the project the result of a new concept or an
extension of a proven concept?
3. Technical difficulty - did the project involve a unique application
of technology or leverage technical expertise from prior experience?
3
<PAGE>
V. TYPES OF AWARDS
---------------
A. Team Awards
-----------
A portion of each Bonus Pool will be made available for awards to
project team members responsible for the initiation of a project which
adds economic reserves and thereby enhances the value of the Company
as measured by NPV analysis .
Eighty shares, as defined in Section VI, of a given Bonus Pool arising
out of an NPV addition as previously defined will be allocated for
individual awards to applicable team members as described in Section
VI.,A.
(1) Onshore
-------
a. Primary Awards - will be based on the expected NPV of the
well or wells in the calendar year in which first production
occurs.
b. Subsequent Awards - subsequent NPV will be established at the
end of the second calendar year after the year of the Primary
Award evaluation and not later than five years after the year
of the Primary Award evaluation. Awards after the Primary
Award will be based on NPV enhancement for the project beyond
that which was the basis for prior awards.
(2) Offshore/International
----------------------
a. Primary Awards - will be evaluated at the end of the calendar
year in which the DOCD is filed with the MMS or international
project development approval is given and will be based on
the projected NPV proven at that time.
b. Subsequent Awards - will be based on the expected incremental
NPV of the "project" beyond that serving as the basis of the
Primary Award. These will be awarded at the end of the
calendar year in which (a) project startup occurs (initial
production); and (b) two years after project startup.
B. District Awards
---------------
A portion of each Bonus Pool awarded within a district will be made
available at the discretion of the Company for awards to eligible district
employees for contribution to the achievement of district operating goals
and objectives within a budget year. In order for discretionary District
Awards to be granted, all district operating goals and objectives must
have been achieved. District Awards will be funded through the
4
<PAGE>
allocation of a portion of each Bonus Pool generated through an NPV
increase as described in Section IV. Any such funding for District Awards
will either be granted in accordance with this provision or will expire on
an annual basis. No such pool will carry over from year to year with
respect to District Awards.
Twenty shares, as defined in Section VI, of any Bonus Pool created during
a given budget year will be eligible for allocation for discretionary
awards to eligible district employees as described in Section VI.,B.
VI. BONUS AWARDS
------------
Individual bonus awards shall be based upon the number of bonus "shares"
which are awarded to each Participant. Each Bonus Pool shall be divided into
100 equal shares, and shall be allocated for either Team or District Awards.
The value of each share shall be the total value of that Bonus Pool divided by
100.
A. Team Bonus Share Distribution
-----------------------------
The final team bonus share distribution will be determined by the
President, Enserch Exploration, Inc. in consultation with the Regional
Director or Vice President, Production. Team members, including the
Team Leader, who are Participants in a Bonus Pool will be provided a
confidential envelope addressed to the Controller, ENSERCH
Corporation. Each team member will individually suggest a bonus share
distribution for the pool. These suggestions will be tabulated and
provided anonymously to the President, Enserch Exploration, Inc. who
will consider them along with the recommendation of the Regional
Director or Vice President, Production in determining the actual bonus
share distribution.
B. District Bonus Share Distribution
---------------------------------
The final district bonus share distribution will be determined by the
President, Enserch Exploration, Inc. in consultation with the Regional
Director or Vice President, Production.
District bonus awards shall be totally discretionary. The Regional
Director and VP, Production may make recommendations as to both
participants and individual awards based upon individual contribution
to the achievement of district operating goals and objectives. They
may solicit input as appropriate from district operating personnel.
These recommendations will be submitted to the President, Enserch
Exploration, Inc. who will determine the actual bonus share
distribution.
C. Credited Awards
---------------
An award shall be "credited" at the time a determination is made as to
the Participants, the Bonus Pool, and the bonus share distribution,
upon authorization by the President, Enserch Exploration, Inc. Rights
to payments are "earned" at the time the payment is made.
5
<PAGE>
VII. PAYMENTS
--------
Each award shall be paid in equal annual payments over a three-year period
----------------------------------------------
subject to the following limitations:
A. The first payment due a Participant under an award will be made prior
to April 1 of the calendar year following the year of the Primary
Award or any Subsequent Award. Equal annual payments due will be made
by April 1 of subsequent calendar years.
B. Annual payments under the Plan will be limited to a maximum of 100
percent of a Participant's annualized base salary (exclusive of
employee benefits and any other compensation). For example, a
Participant earning an annual salary of $50,000 would not receive an
annual award payment in excess of $50,000. If any Participant earns
awards greater than his or her annualized base salary in an award
year, or has cumulative awards which if paid would result in an amount
greater than the annualized base salary, that portion of the award or
awards shall be carried forward into succeeding calendar years such
that in no calendar year will cumulative awards exceed 100 percent of
the Participant's annualized base salary. Any such award carried
forward into a succeeding calendar year will be treated the same as a
subsequent award with respect to its being "credited."
C. To be eligible for receipt of any payment, a Participant must continue
to be employed by the Corporation at the time each payment is to be
paid unless the Participant's employment terminates by reason of
retirement, death, or disability as described below:
Effect of Termination of Employment, Retirement or Death
--------------------------------------------------------
1. Participants who voluntarily terminate their employment, excluding
normal retirement, or who are terminated by the Corporation for
cause will not be eligible to receive any bonus payments under the
terms of this Plan.
2. Any Participant who takes normal retirement at age 65 or above in
accordance with the Corporation's approved retirement plan,
becomes disabled and receives disability benefits in accordance
with the Corporation's long-term disability plan, or is terminated
at the Corporation's motion not for cause shall be eligible to
receive all bonus awards credited under this Plan during his or
her active employment. Any such credited but unpaid awards will be
pooled and paid out in three (3) equal installments over the three
(3) years following such retirement, disability, or termination.
3. Any Participant who voluntarily retires after age 60 but prior to
age 65 or above shall be eligible to petition
6
<PAGE>
for payment of any credited but unpaid awards with the decision
regarding such payment to be at the discretion of the President,
Enserch Exploration, Inc.
4. In the event of a Participant's death, all bonus awards 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
is practicable but no later than six months following the death of
the employee.
5. In the event that ENSERCH Corporation shall, pursuant to action by
its Board, at any time propose to merge into, consolidate with,
sell, or otherwise transfer all or substantially all of the assets
of Enserch Exploration, Inc., to another non-related or non-
affiliated corporation, all bonus awards which have been credited
but remain unpaid shall be immediately paid to the Participant,
and the Participant shall not be required to be employed by the
Corporation in order to receive payment.
VIII. PROVEN RESERVES
---------------
Any awards shall be based on the discounted NPV of the proven reserves, as
determined and defined by DeGolyer and MacNaughton, at the time of the
evaluation, attributable to the Company's net revenue interest in each well.
The Company retains total discretion over which investments or sales it shall
make or not make which may affect this NPV.
IX. ADMINISTRATIVE PROVISIONS
-------------------------
A. Compensation Committee
----------------------
The Compensation Committee of the Board of Directors of ENSERCH
Corporation must approve any award for any Participant whose total
annual compensation, including such bonus, would exceed $150,000.
B. Discretionary
-------------
Notwithstanding any calculation of bonus in accordance with the
foregoing provisions, the President of ENSERCH Corporation 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 Corporation as a whole.
C. No Contract
-----------
Nothing in this Bonus Incentive Plan shall be deemed by implication or
otherwise to constitute a contract of employment or otherwise to
impose any limitation on any right of the
7
<PAGE>
Corporation nor any of its operating units to terminate a
Participant's employment at any time.
D. Termination of Plan
-------------------
This Plan may be terminated by the Company at any time, either in its
entirety or with respect to individual Participants. Plan termination
will not prevent payment of bonuses already credited but unpaid as of
the date of Plan termination.
E. Statement of Policies
---------------------
If at any time an eligible Participant
1. is determined to be in violation of the statement of policies of
ENSERCH Corporation, including but not limited to the Employee
Statement of Acknowledgement, Disclosure and Commitment or,
2. engages in the employment, consultation, or representation of any
corporation, partnership, individual, political subdivision, or
any enterprise that is engaged in any action or proceeding that
the Corporation considers adverse to or in competition with the
interests of the Corporation,
the Participant and his or her beneficiaries or heirs shall forfeit
all rights to receive payments or bonus awards provided under this
Plan regardless of whether or not such payments had been previously
approved by the Corporation except that before any such termination
under this section of the Participant's right to receive payments, the
Corporation shall notify the Participant in writing of this opinion
about the adverse situation, after which time the Participant shall
have a period of fifteen (15) days to correct the situation to the
satisfaction of the Corporation as to preclude benefit termination.
8
<PAGE>
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
<PAGE>
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.
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
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:
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
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>
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>
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
<PAGE>
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>
AMENDMENT NO. 3 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: Section 3.2 of the Plan is hereby amended effective as of January 1,
1996 by adding the following to the end thereof:
In addition to the above, an Eligible Employee may elect to have the
payment of an amount of up to 100% of the cash portion of any bonus or
other special payment otherwise payable by an Employer with respect to such
Eligible Employee designated by the Chairman and President of the
Corporation (or with respect to amounts otherwise payable to the Chairman
and President of the Corporation, designated by the Chairman of the
Compensation Committee) deferred for payment in the manner and at the time
specified in Article IV with the deferral election to be made at the time
and in the manner prescribed by the Chairman and President of the
Corporation (or with respect to amounts otherwise payable to the Chairman
and President of the Corporation, the Chairman of the Compensation
Committee); provided, however, that any such election must be made in
writing by the Eligible Employee prior to the time at which the Eligible
Employee otherwise is entitled to receive payment of the amount from the
Employer and shall be irrevocable.
SECOND: The second sentence of Section 3.3 of the Plan is hereby amended
effective as of January 1, 1996 by restatement in its entirety to read as
follows:
Any amount for a Plan Year that is deferred for a Participant pursuant to
Section 3.1 and/or Section 3.2 shall be credited by the Employer to such
Participant's Deferral Account as of the date such amount would otherwise
have been paid to such Participant by such Employer.
THIRD: Article IV of the Plan is hereby amended effective as of January 1,
1996 to add a new Section 4.10 to the end thereof to read as follows:
Section 4.10 Accelerated Distribution of Reclassified Amounts. In the event
that the Internal Revenue Service formally assesses a deficiency against a
Participant on the grounds that a deferral election made by such
Participant with respect to
<PAGE>
salary, bonus, special payment or other amount pursuant to this Plan is not
effective for federal income tax purposes resulting in recognition by
Participant for federal income tax purposes of an amount credited to
Participant's Deferral Account hereunder (the "Reclassified Amount")
earlier than the time payment otherwise would be made to the Participant
pursuant to this Plan, then the Administrative Committee shall direct the
Employer maintaining such Participant's Deferral Account to pay to such
Participant and deduct from such Deferral Account the Reclassified Amount.
No payment made to a Participant pursuant to this Section 4.10 shall be
subject to forfeiture as provided in Section 4.6 hereof.
IN WITNESS WHEREOF, this Amendment has been executed this 23rd day of
September, 1996.
ENSERCH CORPORATION
By: /s/ D. W. Biegler
--------------------------
Title: Chairman and President
<PAGE>
AMENDMENT NO. 4
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, Section 1.1(1) of the Plan is
hereby amended by adding a new sentence to the end thereof to read as follows:
Any provision of this Plan to the contrary notwithstanding, effective on
and after the date of a Change of Control, the term "Eligible Employee"
shall be limited to those individuals who satisfy the requirements set
forth above and who were Participants in this Plan as of the date
immediately prior to the date of such Change of Control.
SECOND: Effective as of January 1, 1996, Article II of the Plan is hereby
amended by adding a new Section 2.2 to the end thereof to read as follows:
Section 2.2 Independent Committee. Any provision of this Plan to the
contrary notwithstanding, on and after the date of a Change of Control, the
Independent Committee appointed by the Board pursuant to the provisions of
the ENSERCH Corporation Deferred Compensation Trust shall be responsible
for the administration of this Plan and shall have all of the powers,
duties, responsibilities and obligations of the Administrative Committee as
provided hereunder.
THIRD: Effective as of April 1, 1996, Section 3.7(a) of the Plan is hereby
amended by restatement in its entirety to read as follows:
(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, 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
2% of such Participant's Compensation for such pay period;
<PAGE>
(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, 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 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. Any provision of this Plan to the contrary notwithstanding,
effective as of January 1, 1997, no matching contribution shall be made
pursuant to this Section 3.7(a) for a Participant during a Plan Year unless
such Participant elects to have his or her Employer contribute to the
ENSERCH Corporation Employee Stock Purchase and Savings Plan on his or her
behalf during such Plan Year the maximum Pre-Tax Employee Contribution that
may be elected by the Participant pursuant to such plan.
FOURTH: Effective as of January 1, 1996, Article III of the Plan is hereby
amended by adding a new Section 3.8 to the end thereof to read as follows:
Section 3.8 Plan Freeze. Any provision of this Plan to the contrary
notwithstanding, effective as of the second anniversary following the date
of a Change of Control, no additional amounts of salary or bonus deferrals
or Employer contributions shall be credited to Deferral Accounts; provided,
however, that Deferral Accounts shall continue to be adjusted for earnings,
losses and expenses in accordance with the provisions of Section 3.4 of
this Plan and shall be subject to all of the remaining provisions of this
Plan.
FIFTH: Effective as of January 1, 1996, Section 4.3 of the Plan is hereby
amended by restatement in its entirety to read as follows:
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
<PAGE>
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; provided,
however, that effective with respect to terminations of employment
occurring on or after November 15, 1997, 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 (or with respect to Participants participating in the Plan
as of October 1, 1996, as elected by the Participant on or before November
15, 1996):
(a) a single lump sum to be paid as soon as practicable following
the Participant's termination of employment or 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
the Participant's Retirement Age, as elected by the Participant, 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 delayed 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.
Any provision of this Plan to the contrary notwithstanding, a
Participant shall not incur a termination of employment under this Plan
merely as a result of (i) his or her transfer of employment from the
Company to Enserch Exploration, Inc. or from Enserch Exploration, Inc. to
the Company or (ii) Enserch Exploration, Inc. no longer being an Affiliated
Company.
SIXTH: Effective as of January 1, 1996, Section 4.9 of the Plan is hereby
amended by restatement in its entirety to read as follows:
Section 4.9 Chance 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
<PAGE>
election shall not be effective unless made at least twelve months
preceding the date of the Participant's termination of employment.
SEVENTH: Effective as of January 1, 1996, Section 5.2 of the Plan is hereby
amended by restatement in its entirety to read as follows:
Section 5.2 Change of Control. The preceding provisions of this
Article to the contrary notwithstanding, no action taken on or after 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.
EIGHTH: Effective as of the date of the distribution of all shares of stock
of Enserch Exploration, Inc. owned by ENSERCH Corporation to the shareholders of
ENSERCH Corporation, Enserch Exploration, Inc. and its subsidiaries shall no
longer be participating Employers under this Plan.
IN WITNESS WHEREOF, this Amendment has been executed this day of 6th day of
November, 1996.
ENSERCH CORPORATION
By: /s/ D. W. Biegler
---------------------------
Title: Chairman and President
<PAGE>
AMENDMENT NO. 5
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, Section 4.3 of the Plan is hereby
amended by restatement in its entirety to read as follows:
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; provided, however,
that effective with respect to terminations of employment occurring on or
after November 15, 1997 (or, with respect to distribution forms elected
prior to a Change of Control, terminations of employment occurring on or
after May 15, 1997), 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 (or with
respect to Participants participating in the Plan as of October 1, 1996, as
elected by the Participant on or before November 15, 1996):
(a) a single lump sum to be paid as soon as practicable following
the Participant's termination of employment or 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
the Participant's Retirement Age, as elected by the Participant, 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
<PAGE>
Administrative Committee, in its absolute discretion, may direct the
Employer to accelerate such portion of the delayed 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.
Any provision of this Plan to the contrary notwithstanding, a
Participant shall not incur a termination of employment under this Plan
merely as a result of (i) his or her transfer of employment from the
Company to Enserch Exploration, Inc. or from Enserch Exploration, Inc. to
the Company or (ii) Enserch Exploration, Inc. no longer being an Affiliated
Company.
SECOND: Effective as of January 1, 1996, Section 4.9 of the Plan is hereby
amended by restatement in its entirety to read as follows:
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 at least twelve months preceding the date of the Participant's
termination of employment; provided, further, that in the event of a Change
of Control, any election made prior to the Change of Control shall be
effective if made at least six months preceding the date of the
Participant's termination of employment.
IN WITNESS WHEREOF, this Amendment has been executed this 18th day of
February, 1997.
ENSERCH CORPORATION
By: /s/ D. W. Biegler
---------------------------
Title: Chairman and President
<PAGE>
EXHIBIT 10.17
ENSERCH CORPORATION
DEFERRED COMPENSATION TRUST
---------------------------
This Trust Agreement made this 30th day of September, 1994, by and between
ENSERCH Corporation, a Texas corporation (the "Company") and Texas Commerce Bank
National Association, a national banking association ( the "Trustee");
WHEREAS, the Company and certain Affiliated Companies have adopted
nonqualified deferred compensation plans known as the ENSERCH Corporation
Deferred Compensation Plan (the "Executive Plan") and the ENSERCH
Corporation Deferred Compensation Plan for Directors (the "Directors'
Plan") (collectively hereinafter referred to as the "Plan" or "Plans"); and
WHEREAS, the Company has incurred or expects to incur liability under
the terms of such Plans with respect to the individuals participating in
such Plans; and
WHEREAS, the Company wishes to establish a trust (hereinafter called
the "Trust") and to contribute to the Trust assets that shall be held
therein, subject to the claims of the Company's creditors in the event of
the Company's Insolvency, as herein defined, until paid to Plan
Participants and their beneficiaries in such manner and at such times as
specified in the Plans; and
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the
Plans as unfunded plans maintained for the purpose of providing deferred
compensation for a select group of management or highly compensated
employees for purposes of Title I of the Employee Retirement Income
Security Act of 1974; and
WHEREAS, it is the intention of the Company to make contributions to
the Trust to provide itself with a source of funds to assist it in the
meeting of its liabilities under the Plans;
NOW, THEREFORE, the parties do hereby establish the Trust and agree
that the Trust shall be comprised, held and disposed of as follows:
<PAGE>
Section 1. Establishment Of Trust.
----------------------
(a) The Company hereby deposits with the Trustee in trust $1,000.00, which
shall become the principal of the Trust to be held, administered and disposed of
by the Trustee as provided in this Trust Agreement.
(b) The Trust hereby established shall be irrevocable.
(c) The Trust is intended to be a grantor trust, of which the Company is
the grantor, within the meaning of subpart E, part I, subchapter J, chapter 1,
subtitle A of the Internal Revenue Code of 1986, as amended, and shall be
construed accordingly.
(d) The principal of the Trust, and any earnings thereon shall be held
separate and apart from other funds of the Company and shall be used exclusively
for the uses and purposes of Plan Participants and general creditors as herein
set forth. Plan Participants and their beneficiaries shall have no preferred
claim on, or any beneficial ownership interest in, any assets of the Trust. Any
rights created under the Plans and this Trust Agreement shall be mere unsecured
contractual rights of Plan Participants and their beneficiaries against the
Company. Any assets held by the Trust will be subject to the claims of the
Company's general creditors under federal and state law in the event of
Insolvency, as defined in Section 4(a) herein.
(e) The Company, in its sole discretion, may at any time, or from time to
time, make additional deposits of cash or other property in trust with the
Trustee to augment the principal to be held, administered and disposed of by the
Trustee as provided in this Trust Agreement; provided, however, that the Company
shall contribute to the Trust each calendar year an amount of cash or property
at least equal in value to the total amount of deferrals credited to the
Deferral Accounts of Participants pursuant to the Executive Plan and the
Accounts of Participants pursuant to the Directors' Plan during such calendar
year.
(f) Any provision of this Trust Agreement to the contrary notwithstanding,
upon a Change of Control, as defined in the Plans, the Company shall (i) as soon
as possible, but in no event more than 30 days following the date of such Change
of Control, make an irrevocable contribution to the Trust in an amount, as
determined by an Independent Committee, as defined below, which when added to
the total value of the assets of the Trust at such time equals the total amount
credited to all Deferral Accounts
<PAGE>
under the Executive Plan and all Accounts under the Directors' Plan as of the
date on which the Change of Control occurred, and (ii) during the two-year
period following the date of the Change of Control, make monthly contributions
to the Trust in amounts sufficient, as determined by the Independent Committee,
to maintain the total value of the Trust assets at an amount equal to the total
amount credited to all Deferral Accounts under the Executive Plan and all
Accounts under the Directors' Plan.
Section 2. Payments to Plan Participants and their Beneficiaries.
-----------------------------------------------------
(a) The Administrative Committee shall deliver to the Trustee a schedule
(the "Payment Schedule") that indicates the amounts payable with respect to each
Plan Participant (and his or her beneficiaries), that provides a formula or
other instructions acceptable to the Trustee for determining the amounts so
payable, the form in which such amount is to be paid (as provided for or
available under the Plan), and the time of commencement for payment of such
amounts, if known. An updated Payment Schedule shall be provided by the
Administrative Committee to the Trustee periodically, but no less frequently
than once each calendar year. Except as otherwise provided herein, the Trustee
shall make payments to the Plan Participants and their beneficiaries in
accordance with such Payment Schedule. The Trustee shall make provision for the
reporting and withholding of any federal, state or local taxes that may be
required to be withheld with respect to the payment of benefits pursuant to the
terms of the Plans and shall pay amounts withheld to the appropriate taxing
authorities or determine that such amounts have been reported, withheld and paid
by an Employer under the Executive Plan or by the Company under the Directors'
Plan.
(b) The entitlement of a Plan Participant or his or her beneficiaries to
benefits under the Plan shall be determined by the Administrative Committee or
such other party as may be designated under the Plan, and any claim for such
benefits shall be considered and reviewed under the procedures set out in the
Plan.
(c) Employers participating in the Executive Plan or the Company with
respect to the Directors' Plan may make payments of benefits directly to Plan
Participants or their beneficiaries as they become due under the terms of the
Plan in lieu of payment from the Trust. The Administrative Committee shall
notify the Trustee of an Employer's or the Company's decision to make payments
of benefits directly prior to the time amounts are
<PAGE>
payable to Participants or their beneficiaries. In addition, if the Trust
assets are not sufficient to make payments of benefits in accordance with the
terms of the Plans, the Company shall make the balance of each such payment as
it falls due. The Trustee shall notify the Company immediately when Trust
assets are not sufficient to satisfy all payments due.
(d) Any provision of this Section 2 to the contrary notwithstanding, upon
and after a Change of Control, the Trustee shall make payments to Plan
Participants or their beneficiaries in accordance with the direction of the
Independent Committee rather than the Administrative Committee, regardless of
whether the Trustee has received a Payment Schedule or any other form of
direction from the Administrative Committee to make such payments.
Section 3. Appointment of Independent Committee. Any provision of this
Trust Agreement to the contrary notwithstanding, upon a Change of Control, an
Independent Committee consisting of at least three members shall be appointed by
the Compensation Committee of the Board of Directors of the Company subject to
the approval of a majority of the Participants of the Plans on the date of such
Change of Control. The Independent Committee shall:
(a) determine the amount of the irrevocable contributions to be made
by the Company pursuant to Section 1(f) hereof;
(b) determine in accordance with the Plans the amounts payable with
respect to each Plan Participant (and his or her beneficiaries), the form
in which such amounts are to be paid, and the time of commencement for
payment of such amounts pursuant to Section 2(a) hereof;
(c) determine the entitlement of Plan Participants and beneficiaries
to benefits under the terms of the Plans pursuant to Section 2(b) hereof;
(d) direct the Trustee to make payments to Plan Participants and their
beneficiaries pursuant to Section 2 hereof; and
(e) select a successor Trustee for the Trust if a Trustee resigns or
is removed on or within two years following the date of a Change of Control
pursuant to Section 12.
<PAGE>
Section 4. Trustee Responsibility Regarding Payments to Trust Beneficiary
--------------------------------------------------------------
when the Company Is Insolvent.
- -----------------------------
(a) The Trustee shall cease payment of benefits to Plan Participants and
their beneficiaries if the Company is Insolvent. The Company shall be considered
"Insolvent" for purposes of this Trust Agreement if (i) the Company is unable to
pay its debts as they become due, or (ii) the Company is subject to a pending
proceeding as a debtor under the United States Bankruptcy Code.
(b) At all times during the continuance of this Trust, as provided in
Section 1(d) hereof, the principal and income of the Trust shall be subject to
claims of general creditors of the Company under federal and state law as set
forth below.
(1) The Board of Directors and the Chief Executive Officer of the
Company shall have the duty to inform the Trustee in writing of the
Company's Insolvency. If a person claiming to be a creditor of the Company
alleges in writing to the Trustee that the Company has become Insolvent,
the Trustee shall determine whether the Company is Insolvent and, pending
such determination, the Trustee shall discontinue payment of benefits to
Plan Participants or their beneficiaries.
(2) Unless the Trustee has actual knowledge of the Company's
Insolvency, or has received notice from the Company or a person claiming to
be a creditor alleging that the Company is Insolvent, the Trustee shall
have no duty to inquire whether the Company is Insolvent. The Trustee may
in all events rely on such evidence concerning the Company's solvency as
may be furnished to the Trustee and that provides the Trustee with a
reasonable basis for making a determination concerning the Company's
solvency.
(3) If at any time the Trustee has determined that the Company is
Insolvent, the Trustee shall discontinue payments to Plan Participants or
their beneficiaries and shall hold the assets of the Trust for the benefit
of the Company's general creditors. Nothing in this Trust Agreement shall
in any way diminish any rights of Plan Participants or their beneficiaries
to pursue their rights as general creditors of the Company with respect to
benefits due under the Plan or otherwise.
(4) The Trustee shall resume the payment of benefits to Plan
Participants or their beneficiaries in accordance
<PAGE>
with Section 2 of this Trust Agreement only after the Trustee has
determined that the Company is not Insolvent (or is no longer Insolvent).
(c) Provided that there are sufficient assets, if the Trustee discontinues
the payment of benefits from the Trust pursuant to Section 4(b) hereof and
subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due to Plan
Participants or their beneficiaries under the terms of the Plans for the period
of such discontinuance, less the aggregate amount of any payments made to Plan
Participants or their beneficiaries by the Employers participating in the
Executive Plan or by the Company with respect to the Directors' Plan in lieu of
the payments provided for hereunder during any such period of discontinuance.
Section 5. Payments to the Company.
-----------------------
(a) Except as provided in Sections 4 and 5(b) hereof, the Company shall
have no right or power to direct the Trustee to return to the Company or to
divert to others any of the Trust assets before payment of all benefits have
been made to Plan Participants and their beneficiaries pursuant to the terms of
the Plans.
(b) To the extent that the Administrative Committee determines that the
value of the assets in the Trust based upon information provided to the
Administrative Committee by the Trustee, at any time, exceeds 110% of the
amounts credited to Participants' Deferral Accounts under the Executive Plan and
Accounts under the Directors' Plan as of the most recent Adjustment Date plus
any deferrals made since such date, the Trustee shall pay such excess to the
Company upon receipt of written request therefor from the Company; provided,
however, that no such payment of excess assets to the Company shall be made on
or within two years following the date of a Change of Control.
Section 6. Investment Authority.
--------------------
(a) The Trustee shall have full power and authority to invest and reinvest
the Trust assets, or any part thereof, in such stocks (common or preferred),
bonds, mortgages, notes, interest-bearing deposits (including such deposits with
any corporate trustee acting hereunder), options and contracts for the future or
immediate receipt or delivery of property of any
<PAGE>
kind, or other securities, producing or nonproducing oil and gas royalties and
payments and other producing and nonproducing interests in minerals, or in
commodities, life insurance policies, annuity contracts or other property of any
kind or nature whatsoever, whether real, personal or mixed, as the Trustee, in
the Trustee's absolute discretion and judgment, deems appropriate for the Trust,
and to hold cash uninvested at any time and from time to time in such amounts
and to such extent as the Trustee, in the Trustee's absolute discretion and
judgment, deems appropriate for the Trust. The Trustee shall have full power
and authority to manage, handle, invest, reinvest, sell for cash or credit, or
for part cash or part credit, exchange, hold, dispose of, lease for any period
of time (whether or not longer than the life of the Trust), improve, repair,
maintain, work, develop, use, operate, mortgage, or pledge, all or any part of
the assets and property from time to time constituting any part of the trust
funds held in trust under the Trust; borrow or loan money or securities; write
options and sell securities or other property short or for future delivery;
engage in hedging procedures; buy and sell futures contracts; execute
obligations, negotiable and nonnegotiable; vote shares of stock in person and by
proxy, with or without power of substitution; register investments in the name
of a nominee; sell, convey, lease and/or otherwise deal with any producing or
nonproducing oil, gas and mineral leases or mineral rights, payments and
royalties; pay all reasonable expenses; execute and deliver any deeds,
conveyances, leases, contracts, or written instruments of any character
appropriate to any of the powers or duties of the Trustee, and shall, in
general, have as broad power respecting the management, operation and handling
of the Trust assets and property as if the Trustee were the owner of such assets
and property in the Trustee's own right. The preceding provisions of this
paragraph to the contrary notwithstanding, the Company shall have the right and
power at any time and from time to time to give the Trustee broad guidelines
within which it shall invest the assets of the Trust; provided, however, that
upon a Change of Control and continuing for two years thereafter, the
Independent Committee, rather than the Company, shall have the sole authority to
exercise such right.
(b) All rights associated with assets of the Trust shall be exercised by
the Trustee or the person designated by the Trustee, and shall in no event be
exercisable by or rest with Plan Participants.
(c) The Company shall have the right, at any time, and from time to time in
its sole discretion, to substitute assets of
<PAGE>
equal fair market value for any asset held by the Trust; provided, however, that
effective upon a Change in Control and for a period of two years thereafter, any
assets transferred to the Trust in substitution for assets held by the Trust
must consist of cash or marketable securities and the fair market value of the
respective assets shall be determined by the Trustee. This right is exercisable
by the Company in a nonfiduciary capacity without the approval or consent of any
person in a fiduciary capacity.
Section 7. Disposition of Income. During the term of this Trust, all
---------------------
income received by the Trust, net of expenses and taxes, shall be accumulated
and reinvested.
Section 8. Accounting by Trustee. The Trustee shall keep accurate and
---------------------
detailed records of all investments, receipts, disbursements, and all other
transactions required to be made, including such specific records as shall be
agreed upon in writing between the Company and the Trustee. Within 30 days
following the close of each calendar year and within 30 days after the removal
or resignation of the Trustee, the Trustee shall deliver to the Company a
written account of its administration of the Trust during such year or during
the period from the close of the last preceding year to the date of such removal
or resignation, setting forth all investments, receipts, disbursements and other
transactions effected by it, including a description of all securities and
investments purchased and sold with the cost or net proceeds of such purchases
or sales (accrued interest paid or receivable being shown separately), and
showing all cash, securities and other property held in the Trust at the end of
such year or as of the date of such removal or resignation, as the case may be.
Section 9. Responsibility of the Trustee.
-----------------------------
(a) The Trustee shall act with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent person acting in like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims; provided, however, that the
Trustee shall incur no liability to any person for any action taken pursuant to
a direction, request or approval given by the Company which is contemplated by,
and in conformity with, the terms of the Plan or this Trust and is given in
writing by the Company. In the event of a dispute between the Company and a
party, the Trustee may apply to a court of competent jurisdiction to resolve the
dispute.
<PAGE>
(b) If the Trustee undertakes or defends any litigation arising in
connection with this Trust, the Company agrees to indemnify the Trustee against
the Trustee's costs, expenses and liabilities (including, without limitation,
attorneys' fees and expenses) relating thereto and to be primarily liable for
such payments. If the Company does not pay such costs, expenses and liabilities
in a reasonably timely manner, the Trustee may obtain payment from the Trust.
(c) The Trustee may consult with legal counsel (who may also be counsel for
the Company generally) with respect to any of its duties or obligations
hereunder.
(d) The Trustee may hire agents, accountants, actuaries, investment
advisors, financial consultants or other professionals to assist it in
performing any of its duties or obligations hereunder.
(e) The Trustee shall have, without exclusion, all powers conferred on
trustees by applicable law, unless expressly provided otherwise herein;
provided, however, that except as provided in Sections 5(b) and 6(c) hereof, if
an insurance policy is held as an asset of the Trust, the Trustee shall have no
power to name a beneficiary of the policy other than the Trust, to assign the
policy (as distinct from conversion of the policy to a different form) other
than to a successor Trustee, or to loan to any person the proceeds of any
borrowing against such policy.
(f) Notwithstanding any powers granted to the Trustee pursuant to this
Trust Agreement or applicable law, the Trustee shall not have any power that
could give this Trust the objective of carrying on a business and dividing the
gains therefrom, within the meaning of section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Internal Revenue Code.
Section 10. Compensation and Expenses of the Trustee. The Trustee shall be
----------------------------------------
paid such reasonable compensation commensurate with the services and
responsibilities involved hereunder as shall from time to time be agreed upon by
the Trustee and the Company. The Company shall pay all administrative and the
Trustee's fees and expenses, but, if not so paid, the fees and expenses shall be
paid from the Trust.
Section 11. Resignation and Removal of the Trustee.
--------------------------------------
<PAGE>
(a) The Trustee may resign at any time by written notice to the Company,
which shall be effective 30 days after receipt of such notice unless the Company
and the Trustee agree otherwise.
(b) The Trustee may be removed by the Company on 30 days notice or upon
shorter notice accepted by the Trustee; provided, however, that the Trustee may
not be removed by the Company on or within two years following a Change of
Control except with the written consent of a majority of the Participants
entitled to payment of benefits pursuant to the terms of the Plans on the date
of such Change of Control.
(c) Upon resignation or removal of the Trustee and appointment of a
successor Trustee, all assets shall subsequently be transferred to the successor
Trustee. The transfer shall be completed within 30 days after receipt of notice
of resignation, removal or transfer, unless the Company extends the time limit.
(d) If the Trustee resigns or is removed, a successor shall be appointed,
in accordance with Section 12 hereof, by the effective date of resignation or
removal under paragraph(s) (a) or (b) of this section. If no such appointment
has been made, the Trustee may apply to a court of competent jurisdiction for
appointment of a successor or for instructions. All expenses of the Trustee in
connection with the proceeding shall be allowed as administrative expenses of
the Trust.
Section 12. Appointment of Successor.
------------------------
(a) If the Trustee resigns or is removed in accordance with Section 11(a)
or (b) hereof, the Company may appoint any third party, such as a bank trust
department or other party that may be granted corporate trustee powers under
state law, as a successor to replace the Trustee upon resignation or removal;
provided, however, that if the Trustee resigns or is removed on or within two
years following the date of a Change of Control, the Independent Committee shall
select a successor Trustee in accordance with this Section 12. The appointment
shall be effective when accepted in writing by the new Trustee, who shall have
all of the rights and powers of the former Trustee, including ownership rights
in the Trust assets. The former Trustee shall execute any instrument necessary
or reasonably requested by the Company or the successor Trustee to evidence the
transfer.
(b) The successor Trustee need not examine the records and acts of any
prior Trustee and may retain or dispose of existing
<PAGE>
Trust assets, subject to Sections 8 and 9 hereof. The successor Trustee shall
not be responsible for and the Company shall indemnify and defend the successor
Trustee from any claim or liability resulting from any action or inaction of any
prior Trustee or from any other past event, or any condition existing at the
time it becomes successor Trustee.
Section 13. Amendment or Termination.
------------------------
(a) This Trust Agreement may be amended by a written instrument executed by
the Trustee and a representative of the Company so authorized by the
Compensation Committee of the Board of Directors of the Company. Notwithstanding
the foregoing, no such amendment shall conflict with the terms of the Plans or
shall make the Trust revocable.
(b) The Trust shall not terminate until the date on which Plan Participants
and their beneficiaries are no longer entitled to benefits pursuant to the terms
of the Plans. Upon termination of the Trust any assets remaining in the Trust
shall be returned to the Company.
(c) Upon written approval of at least two-thirds of the Participants and
beneficiaries entitled to payment of benefits pursuant to the terms of the
Plans, the Company may terminate this Trust prior to the time all benefit
payments under the Plans have been made. All assets in the Trust at termination
shall be returned to the Company.
(d) This Trust Agreement may not be amended by the Company on or within two
years following the date of a Change of Control, without the written consent of
a majority of the Participants entitled to payment of benefits pursuant to the
terms of the Plans on the date of such Change of Control.
Section 14. Miscellaneous.
-------------
(a) Any provision of this Trust Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
(b) Benefits payable to Plan Participants and their beneficiaries under
this Trust Agreement may not be anticipated, assigned (either at law or in
equity), alienated, pledged, encumbered or subjected to attachment, garnishment,
levy, execution or other legal or equitable process.
<PAGE>
(c) This Trust Agreement shall be governed and construed in accordance with
the internal laws (and not the principles relating to conflicts of laws) of the
State of Texas, except where superseded by federal law.
(d) Unless the context clearly indicates otherwise, when used in this Trust
Agreement:
(i) "Administrative Committee" shall mean the "Administrative
Committee" appointed pursuant to each of the Plans.
(ii) "Participant" shall mean each "Participant" as that term is
defined in the Executive Plan and each Director who has an amount credited
to his or her Account under the Directors' Plan or who has elected to have
all or any portion of his or her Annual Fee deferred under the terms of
that Plan.
(e) Except where otherwise defined, capitalized terms used herein shall
have the meaning given to them in the Plans.
(f) In the event that a dispute arises between a Plan Participant or
beneficiary and the Participant's Employer, the Company or the Trustee with
respect to the payment of amounts from the Trust and the Participant or
beneficiary is successful in pursuing a benefit to which he or she is entitled
under the terms of the Plans and this Trust against the Participant's Employer,
the Company, the Trustee or any other party in the course of litigation or
otherwise and incurs attorneys' fees, expenses and costs in connection
therewith, the Company shall reimburse the Plan Participant or beneficiary for
the full amount of any such attorneys' fees, expenses and costs.
IN WITNESS WHEREOF, this Agreement has been executed this 30th day of
September, 1994, to be effective as of October 1, 1994.
ENSERCH CORPORATION
By /s/ D. W. Biegler
Title: Chairman, President
and Chief Executive
Officer
<PAGE>
TEXAS COMMERCE BANK
NATIONAL ASSOCIATION
By /s/ Karen Epps
Title:
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, a notary public in and for said
County and State, on this day personally appeared D. W. Biegler, known to me to
be the person whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of the said ENSERCH CORPORATION, a
Texas corporation, and that he/she executed the same as the act of such
corporation for the purposes and consideration therein expressed, and in the
capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 23rd day of September, 1994.
/s/ Cherry H. Sossamon
Notary Public, State of Texas
My Commission expires:
October 31, 1996
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, a notary public in and for said
County and State, on this day personally appeared Karen
<PAGE>
Epps, known to me to be the person whose name is subscribed to the foregoing
instrument and acknowledged to me that the same was the act of the said TEXAS
COMMERCE BANK NATIONAL ASSOCIATION, a national banking association, and that
he/she executed the same as the act of such banking association for the purposes
and consideration therein expressed, and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 7th day of October, 1994.
/s/ Barbara Betik
Notary Public, State of Texas
My Commission expires:
January 30, 1997
<PAGE>
AMENDMENT NO. 1
TO THE
ENSERCH CORPORATION
DEFERRED COMPENSATION TRUST
Pursuant to the provisions of Section 13(a) thereof, the ENSERCH
Corporation Deferred Compensation Trust (the "Trust") is hereby amended in the
following respects only:
FIRST: Section l(f) of the Trust is hereby amended by restatement in its
entirety to read as follows:
(f) Any provision of this Trust Agreement to the contrary
notwithstanding, upon a Change of Control, as defined in the Plans, the
Company shall (i) as soon as possible, but in no event more than 30 days
following the date of such Change of Control, make an irrevocable
contribution to the Trust in an amount, as determined by an Independent
Committee, as defined below, which when added to the total value of the
assets of the Trust at such time equals the total amount credited to all
Deferral Accounts under the Executive Plan and all Accounts under the
Directors' Plan as of the date on which the Change of Control occurred, and
(ii) on and after the date of the Change of Control, make monthly
contributions to the Trust in amounts sufficient, as determined by the
Independent Committee, to maintain the total value of the Trust assets at
an amount equal to the total amount credited to all Deferral Accounts under
the Executive Plan and all Accounts under the Directors' Plan. Any
provision of this Trust Agreement to the contrary notwithstanding, on and
after the date of a Change of Control, the assets of this Trust, including
any additional contributions made by the Company in accordance with this
Section l(f) for the period following such Change of Control and any
earnings on the assets of the Trust, shall be held exclusively for the
benefit of those Participants in the Plans (or their beneficiaries) as of
the date immediately prior to the date of such Change of Control, subject
to the claims of general creditors of the Company under federal and state
law as set forth below.
<PAGE>
SECOND: Section 3 of the Trust is hereby amended by restatement in its
entirety to read as follows:
Section 3. Appointment of Independent Committee.
(a) Any provision of this Trust Agreement to the contrary
notwithstanding, upon a Change of Control, an Independent Committee
consisting of at least three members shall be appointed by the Board
subject to the written approval of a majority of the Participants in the
Plans on the date of such Change of Control. The Independent Committee
shall:
(i) determine the amount of the irrevocable contributions to be
made by the Company pursuant to Section l(f) hereof;
(ii) determine in accordance with the Plans the amounts payable
with respect to each Plan Participant (and his or her beneficiaries),
the form in which such amounts are to be paid, and the time of
commencement for payment of such amounts pursuant to Section 2(a)
hereof;
(iii) determine the entitlement of Plan Participants and
beneficiaries to benefits under the terms of the Plans pursuant to
Section 2(b) hereof;
(iv) direct the Trustee to make payments to Plan Participants and
their beneficiaries pursuant to Section 2 hereof; and
(v) select a successor Trustee for the Trust if a Trustee resigns
or is removed on or after the date of a Change of Control pursuant to
Section 12.
(b) Each member of the Independent Committee so appointed shall serve
in such office until his or her death, resignation or removal. The Board
may remove any member of the Independent Committee by giving written notice
thereof to all Plan Participants and all members of the Independent
Committee; provided, however, that no member of the Independent Committee
may be removed by the Board on or after a Change of Control except with the
written consent of a majority of the Plan Participants. Vacancies on the
Independent Committee shall be filled from time to time by
<PAGE>
the Board subject to the written approval of a majority of the Participants
in the Plans on the date such vacancy is filled.
(c) The Independent 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 Independent Committee may by
such majority action authorize any one or more of its members to execute
any document or documents on behalf of the Independent Committee, in which
event the Independent Committee shall notify the Trustee in writing of such
action and the name or names of its member or members so authorized to act.
Every interpretation, choice, determination or other exercise by the
Independent 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 Trust or otherwise
directly or indirectly affected by such action, without restriction,
however, on the right of the Independent Committee to reconsider and
redetermine such action.
(d) Any provision of this Trust Agreement to the contrary
notwithstanding, in the event that (i) the Board shall not appoint an
Independent Committee within 30 days following a Change of Control or a
majority of the Participants in the Plans do not approve in writing at
least three members selected by the Board to serve on an Independent
Committee within such 30-day period or (ii) the Board does not fill a
vacancy on the Independent Committee within 30 days of the date such office
becomes vacant or a majority of the Participants in the Plans do not
approve in writing the Board's selection to fill a vacancy on the
Independent Committee within such 30-day period, then the Participants in
the Plans shall elect, by majority vote, up to three individuals to the
extent necessary to ensure that the Independent Committee consists of three
members.
THIRD: Section 5(b) of the Trust is hereby amended by restatement in its
entirety to read as follows:
(b) To the extent that the Administrative Committee determines that
the value of the assets in the Trust based upon information provided to the
Administrative Committee by the Trustee, at any time, exceeds 110% of the
amounts credited to Participants' Deferral Accounts under the
<PAGE>
Executive Plan and Accounts under the Directors' Plan as of the most recent
Adjustment Date plus any deferrals made since such date, the Trustee shall
pay such excess to the Company upon receipt of written request therefor
from the Company; provided, however, that no such payment of excess assets
to the Company shall be made on or after the date of a Change of Control
without the written approval of the Plan Participants.
FOURTH: Section 6(a) of the Trust is hereby amended by restating the last
sentence thereof in its entirety to read as follows:
The preceding provisions of this paragraph to the contrary notwithstanding,
the Company shall have the right and power at any time and from time to
time to give the Trustee broad guidelines within which it shall invest the
assets of the Trust; provided, however, that on and after the date of a
Change of Control, the Independent Committee, rather than the Company,
shall have the sole authority to exercise such right.
FIFTH: Section 6(c) of the Trust is hereby amended by restating the first
sentence thereof in its entirety to read as follows:
The Company shall have the right, at any time, and from time to time in its
sole discretion, to substitute assets of equal fair market value for any
asset held by the Trust; provided, however, that on and after the date of a
Change of Control, any assets transferred to the Trust in substitution for
assets held by the Trust must consist of cash or marketable securities
acceptable to the Independent Committee and the fair market value of the
respective assets shall be determined by the Trustee.
SIXTH: Section 10 of the Trust is hereby amended by restating the last
sentence thereof in its entirety to read as follows:
<PAGE>
The Company shall pay all administrative and the Trustee's fees and
expenses, but, if not so paid, such fees and expenses shall be paid from
the Trust; provided, however, that in the event any such fees and expenses
are paid from the Trust, the Trustee shall notify the Company in writing
that such payment has been made and the Company shall reimburse the Trust
for such payment within 15 days from the date of such notice.
SEVENTH: Section ll(b) of the Trust is hereby amended by restatement in its
entirety to read as follows:
(b) The Trustee may be removed by the Company on 30 days notice or
upon shorter notice accepted by the Trustee; provided, however, that the
Trustee may not be removed by the Company on or after a Change of Control
except with the written consent of a majority of the Plan Participants.
EIGHTH: Section 12(a) of the Trust is hereby amended by restating the first
sentence thereof in its entirety to read as follows:
If the Trustee resigns or is removed in accordance with Section ll(a) or
(b) hereof, the Company may appoint any third party, such as a bank trust
department or other party that may be granted corporate trustee powers
under state law, as a successor to replace the Trustee upon resignation or
removal; provided, however, that if the Trustee resigns or is removed on or
after the date of a Change of Control, the Independent Committee shall
select a successor Trustee in accordance with this Section 12.
NINTH: Section 13(d) of the Trust is hereby amended by restatement in its
entirety to read as follows:
(d) Any provision of this Trust Agreement to the contrary
notwithstanding, this Trust Agreement may not be amended on or after the
date of a Change of Control, without the written consent of a majority of
the Plan Participants.
<PAGE>
IN WITNESS WHEREOF, this Amendment has been executed this 22nd day of
November, 1996, to be effective as of January 1, 1996.
ENSERCH CORPORATION
By: /s/ D. W. Biegler
-----------------------------------------
Title: Chairman and President
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
By: /s/ James T. Allen
-----------------------------------------
Title: Senior Vice President
and Trust Officer
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, a notary public in and for said
County and State, on this day personally appeared D. W. Biegler, known to me to
be the person whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of the said ENSERCH CORPORATION, a
Texas corporation, and that he/she executed the same as the act of such
corporation for the purposes and consideration therein expressed, and in the
capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 6th day of November, 1996.
/s/ Anita K. Brian
---------------------------
Notary Public,
State of Texas
<PAGE>
By Commission expires:
January 23, 1997
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, a notary public in and for said
County and State, on this day personally appeared James T. Allen, known to me to
be the person whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of the said TEXAS COMMERCE BANK
NATIONAL ASSOCIATION, a national banking association, and that he/she executed
the same as the act of such banking association for the purposes and
consideration therein expressed, and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 22nd day of November, 1996.
/s/ Bette Sue Farmer
---------------------------
Notary Public,
State of Texas
By Commission expires:
November 17, 1998
<PAGE>
EXHIBIT 10.18
RETIREMENT INCOME RESTORATION PLAN
OF ENSERCH CORPORATION
AND PARTICIPATING SUBSIDIARY COMPANIES
ENSERCH Corporation, a Texas corporation having its principal
executive office in Dallas, Texas, and its subsidiary, Ebasco Services
Incorporated, hereinafter referred to collectively as the "Companies," hereby
adopt the Retirement Income Restoration Plan of ENSERCH Corporation and
Participating Subsidiary Companies, hereinafter referred to as the "Plan,"
effective January 1, 1984, as follows:
Article I
---------
Definitions
-----------
Unless qualified by the context or otherwise defined herein, the terms
used herein shall have the meanings assigned to them as applicable under the
provisions of the Retirement and Death Benefit Program of 1969 of ENSERCH
Corporation and Participating Subsidiary Companies and the Ebasco Services
Incorporated Pension Plan for Salaried Employees, as now in effect and as may be
amended hereafter from time to time, hereinafter referred to collectively as the
"Basic Plans" and individually as the "Basic P]an."
"Limitations" shall mean the reductions imposed on the benefits
provided under the Basic Plans in order to comply with Sections 415 and
401(a)(17) of the Internal Revenue Code of 1986.
A "Participating Employee" is an employee who is entitled to benefits
under this Plan as a result of Limitations.
The terms "Change in Control," "Cause," and "Good Reason" shall have
the meanings assigned to them under the provisions of the change in control
agreements dated December 13, 1988, between Messrs. R. G. Fowler, W. T.
Satterwhite, et. al., and the Corporation.
"Service" shall have the meaning assigned to the terms Benefit Service
or Credited Service in and by the Basic Plans.
Article II
----------
Purpose
-------
<PAGE>
The purposes of this Plan are (a) to restore benefits to those
employees and their designated beneficiaries who are entitled to receive
benefits under the Basic Plans to the extent that those benefits are, or will
be, reduced by Limitations, and (b) if a Participating Employee's employment is
terminated by the Corporation without Cause or by the Participating Employee for
Good Reason within three years of a Change in Control of the Corporation, to
provide increased retirement benefits as set forth in Section 4.1.
Article III
-----------
Administration
--------------
This Plan shall be administered by the Compensation Committee of the
Board of Directors of ENSERCH Corporation, hereinafter referred to as the
"Committee." Subject to the provisions of Article VI hereof, the Committee
shall administer this Plan in a manner consistent with the administration of the
1969 Plan, as from time to time amended and in effect, except that this Plan
shall be administered as a plan that is not intended to meet the requirements of
Section 401(a) of the Internal Revenue Code of 1954. The Committee shall have
full power and authority to interpret, construe, and administer this P]an, and
the Committee's interpretations and constructions hereof, and its actions
hereunder, including all determinations of the amounts and the recipients of
payments to be made hereunder, shall be binding and conclusive with respect to
all persons for all purposes. No member of the Committee shall be liable to any
person for any action taken or omitted in connection with the interpretation and
administration of this Plan unless attributable to his own willful misconduct or
lack of good faith.
Article IV
----------
Benefits
--------
Section 4.1 Amount of Benefits. Subject to the provisions of Section
------------------
4.3 hereof any employee or beneficiary who is entitled to receive a benefit
under a Basic Plan shall be entitled to receive a benefit hereunder equal to the
excess, if any, of:
(i) the amount of such employee's or beneficiary's benefit under the
Basic Plan, determined without regard to the Limitations, plus the
additional benefit that would be payable under the Basic Plan if
an increase in his Service pursuant to Section 4.2 below is
applicable, less
<PAGE>
(ii) the amount of the benefit actually payable to the employee or
beneficiary under the Basic Plan and the amount of reduction of
Plan payments described in the agreement or agreements between
the Corporation and the employee relating to any individual
annuity contracts purchased on behalf of the employee by the
Corporation.
Section 4.2 Additional Service. In the event a Participating
------------------
Employee's employment is terminated within three (3) years after a Change in
Control of the Corporation by the Corporation without Cause or by the
Participating Employee for Good Reason, his years of Service for purposes of
Section 4.1 shall mean his actual years of Service plus
(a) in the case of the Chief Executive Officer of the Corporation and
Participating Employees reporting directly to him, 3 additional
years of Service; and
(b) in the case of Participating Employees other than the Chief
Executive Officer and Participating Employees reporting directly to
him, 2 additional years of Service;
provided further that (i) in no case shall any Participating Employee as a
result of this Change in Control provision be deemed to have more years of
Service than he would have had if his employment had terminated on the first of
the month coinciding with or Next following his sixty-fifth (65) birthday, and
(ii) the foregoing clauses (a) and (b) shall have no effect on the computation
of a Participating Employee's Average Monthly Earnings or are for purposes of
determining any amounts payable to him under the Basic Plan.
Section 4. 3 Payment of Benefits. Payment of benefits to an employee
-------------------
or beneficiary under this Plan shall be coincident with the payment of benefits
made to the employee or beneficiary under the Basic Plan.
Section 4.4 Employee's Rights to Benefits. An employee's rights under
-----------------------------
this Plan, including his rights to vested benefits, shall be the same as his
rights under the Basic Plan, except that no payments due under this Plan shall
be paid from any fund maintained under the Basic Plan. In no event shall an
individual who is not entitled to benefits under the Basic Plan be entitled to a
benefit under this Plan. Benefits under this Plan shall be paid sole]y from the
general assets of the Companies, and no
<PAGE>
employee or beneficiary shall have any title to or beneficial interest in any
assets of the Companies as a result of this Plan.
Article V
---------
Amendment and Termination
-------------------------
While the Companies intend to maintain this Plan in conjunction with
the Basic Plans for as long as necessary, the Board of Directors of ENSERCH
Corporation reserves the right to amend or terminate this Plan if, in its sole
judgment, amendment or termination is appropriate. However, if the Board should
amend or discontinue this Plan, the Companies shall be liable for all benefits
accrued under this Plan as of the date of such action (determined on the basis
of the assumption that on such date each employee's employment terminated).
Article XI
----------
Rights of Employees
-------------------
The Companies may, but are not required to, set aside funds for their
convenience in order to facilitate the payment of any benefits that may be due
hereunder. However, in the event that the Companies set aside funds, no
employee or beneficiary shall have any right, title or interest in such funds
while held by the Companies. Any employee or beneficiary who is entitled to
receive a benefit under this Plan shall have the rights solely of a general and
unsecured creditor.
Article VII
-----------
Miscellaneous
-------------
Section 7.1 Assignment. The interest of an employee or beneficiary may
----------
not be sold, transferred, assigned, or encumbered in any manner, either
voluntarily or involuntarily, and any attempt so to anticipate, alienate sell,
transfer, assign, pledge, encumber, or charge the same shall be null and void;
neither shall the benefits hereunder be liable for or subject to the debts,
contracts, liabilities, engagements, or torts of any person to whom such
benefits or funds are payable, nor shall they be subject to garnishment,
attachment, or other legal or equitable process nor shall they be an asset in
bankruptcy, except that no amount shall be payable hereunder until and unless
any and all amounts representing debts or other obligations owed to any Company
by the individual to whom such amount would otherwise be payable shall have been
fully paid and satisfied.
<PAGE>
Section 7.2 No Employment Rights. Nothing contained herein shall be
--------------------
construed as conferring upon any employee the right to continue in the employ of
the Companies in any capacity.
Section 7.3 Binding on Companies, Employees and Their Successors. The
----------------------------------------------------
Plan shall be binding upon and inure to the benefit of the Companies, their
successors and assigns and the employee and his heirs, executors,
administrators, and legal representatives. The provisions of the Plan shall be
applicable with respect to each Company separately, and amounts payable
hereunder shall be paid by the Company that employed the individual employee in
respect of whom benefits are due hereunder.
Section 7.4 Arbitration. Any controversy arising out of, or relating
-----------
to, the Plan or any modification thereof, including any claim for benefits,
shall be settled by arbitration in Dallas, Texas (or, if applicable law requires
some other forum, then such other forum) in accordance with the rules then
obtaining of the American Arbitration Association. The District Court of Dallas
County, Texas or, as the case may be, the United States District Court for the
Northern District of Texas shall have jurisdiction for all purposes in
connection with arbitration. Any process or notice of motion or other
application to either of said courts, and any paper in connection with
arbitration, may be served by certified mail, return receipt requested, or by
personal service or in such other manner as may be permissible under the rules
of the applicable court or arbitration tribunal, provided a reasonable time for
appearance is allowed. Arbitration proceedings must be instituted within one
year after the claimed breach occurred, and the failure to institute arbitration
proceedings within such period shall constitute an absolute bar to the
institution of any proceedings, and a waiver of all claims, with respect to such
breach.
Section 7.5 Withholding Tax. There shall be deducted from all
---------------
amounts paid under this Plan any taxes required to be withheld by any Federal,
state, local or other government. The employee and/or his beneficiary
(including his estate) shall bear all taxes on amounts paid under this Plan to
the extent that no taxes are withheld, irrespective of whether withholding is
required.
Section 7.6 Law Applicable. The Plan shall be construed in accordance
--------------
with and governed by the laws of the State of Texas.
Restated and adopted this 28th day of December, 1990.
<PAGE>
ENSERCH Corporation
By /s/ W. C. McCord
W. C. McCord
Chairman and President
<PAGE>
AMENDMENT TO THE
RETIREMENT INCOME RESTORATION PLAN
OF ENSERCH CORPORATION
AND PARTICIPATING SUBSIDIARY COMPANIES
--------------------------------------
Pursuant to the provisions of Article V thereof, the Retirement Income
Restoration Plan of ENSERCH Corporation and Participating Subsidiary Companies
(the "Plan") is hereby amended in the following respect only:
The definition of "Limitations" in the Plan is hereby amended
effective as of October 1, 1994 by restatement in its entirety to read as
follows:
"Limitations" shall mean the reductions imposed on the benefits
provided under the Basic Plans in order to comply with Sections 415 and
401(a)(17) of the Internal Revenue Code of 1986, and the reduction in
"compensation" considered for purposes of determining benefits under
the Basic Plans on account of salary and bonuses deferred by an
employee pursuant to the ENSERCH Corporation Deferred Compensation
Plan.
IN WITNESS WHEREOF, this Amendment has been executed this 30th day of
September, 1994.
ENSERCH CORPORATION
By /s/ D. W. Biegler
Title: Chairman, President
and Chief Executive
Officer
<PAGE>
AMENDMENT NO. 1--A
AMENDMENT TO THE
RETIREMENT INCOME RESTORATION PLAN
OF ENSERCH CORPORATION
AND PARTICIPATING SUBSIDIARY COMPANIES
Pursuant to the provisions of Article V thereof, the Retirement Income
Restoration Plan of ENSERCH Corporation and Participating Subsidiary Companies
(the "Plan") is hereby amended in the following respects only:
Each of the definitions of "Change in Control," "Cause," and "Good
Reason" is hereby amended as of February 13, 1996 by restatement each in its
entirety to read as follows:
"Change in Control" or "Change in Control of the 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 February 13, 1996, 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
<PAGE>
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 Corporation representing
20% or more of the combined voting power of the Corporation's then
outstanding securities ordinarily (apart from rights accruing under
special circumstances) having the right to vote at Sections of
directors ("Voting Securities"), or (b) individuals who constitute the
Board on February 13, 1996 (the "Incumbent Board") cease for any reason
to constitute at least two-thirds thereof, provided that any person
becoming a director subsequent to February 13, 1996 whose election, or
nomination for election by the 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 the 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 the
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
<PAGE>
after giving effect to the exercise of stock options and warrants) or
an increase in the aggregate percentage ownership of Voting Securities
hod 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
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 the Corporation's assets (including a
plan of liquidation). For purposes of this definition, 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 Corporation, a
subsidiary of the Corporation or any employee benefit plan(s) sponsored
or maintained by the Corporation or any subsidiary thereof, and the
term "Independent Shareholder" shall mean any shareholder of the
Corporation except any employee(s) or director(s) of the Corporation or
any employee benefit plan(s) sponsored or maintained by the Corporation
or any subsidiary thereof.
"Cause" or "termination of employment by the Corporation for
Cause" shall mean termination upon (A) the
<PAGE>
willful and continued failure by a Participating Employee substantially
to perform his or her duties with the Corporation (other than any such
failure resulting from his or ha incapacity due to physical or mental
illness), after a demand for substantial performance is delivered to
him or her by the Chairman or President of Corporation which
specifically identifies the manner in which such executive believes
that he or she has not substantially performed his or her duties, and a
reasonable period of opportunity for such substantial performance is
provided, or
(B) the willful engaging by the Participating Employee in illegal
misconduct materially and demonstrably injurious to the Corporation.
For purposes of this paragraph, no act, or failure to act, on the part
of a Participating Employee shall be considered "willful" unless done,
or omitted to be done, by the Participating Employee not in good faith
and without reasonable belief that his or her action or omission was in
the best interest of the Corporation. 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 Corporation shall be
conclusively presumed to be done, or omitted to be done, by the
Participating Employee in good faith and in the best
<PAGE>
interest of the Corporation. Notwithstanding the foregoing, the
Participating Employee shall not be deemed to have been terminated for
Cause unless and until there shall have been delivered to him or her 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 the Participating Employee and an opportunity for the Participating
Employee, together with his or her counsel, to be heard before the
Board), finding that in the good faith opinion of the Board the
Participating Employee was guilty of conduct set forth above in clauses
(A) or (B) in this paragraph and specifying the particulars thereof in
detail.
"Good Reason" for a Participating Employee to terminate his or her
employment shall mean:
(A) an adverse change in status or position(s) of a
Participating Employee as an executive of the Corporation as in
effect immediately prior to a Change in Control, including,
without limitation, any adverse change in the status or position
of such Participating Employee as a result of a material
diminution in his or her duties or responsibilities (other than,
if
<PAGE>
applicable, any such change directly attributable to the fact that
less than 50% of the Corporation's voting securities are publicly
owned or the fact that his or her position becomes a position with
a subsidiary or division), or a material change in his or her
business location or the assignment to the Participating Employee
of any duties or responsibilities which are inconsistent with such
status or position(s), or a substantial increase in his or her
business travel or any removal of the Participating Employee from
or any failure to reappoint or reelect the Participating Employee
to such position(s) (except in connection with the termination of
his or her employment for Cause, Disability or Retirement or as a
result of his or her death or by the Participating Employee other
than for Good Reason);
(B) a reduction by the Corporation in base salary of a
Participating Employee as in effect immediately prior to the
Change in Control or in the number of vacation days to which the
Participating Employee is then entitled under the Corporation's
normal vacation policy as in effect immediately prior to the
Change in Control;
<PAGE>
(C) the taking of any action by the Corporation (including the
elimination of a plan without providing substitutes therefor or
the reduction of awards thereunder) that would diminish or the
failure by the Corporation to take any action which would maintain
the aggregate projected value of the awards of a Participating
Employee under the Corporation's bonus, stock option or management
incentive unit plans in which the Participating Employee was
participating at the time of a Change in Control of the
Corporation;
(D) the taking of any action by the Corporation that would
diminish or the failure by the Corporation to take any action
which would maintain the aggregate value of the benefits provided
a Participating Employee under the Corporation's medical, health,
dental, accident, disability, life insurance, stock purchase or
retirement plans in which the Participating Employee was
participating at the time of a Change in Control of the
Corporation;
(E) the taking of any action by the Corporation that would
diminish or the failure of the Corporation
<PAGE>
to take any action that would maintain indemnification or
insurance for officers' liability; or
(F) a failure by the Corporation to obtain from any Successor
(as defined in a Participating Employee's Change in Control
Agreement) the assent to such Change in Control Agreement
contemplated by Section 7 thereof; or
(G) any purported termination by the Corporation of the
employment of a Participating Employee that is not effected
pursuant to a Notice of Termination satisfying the requirements of
paragraph (iv) (and, if applicable, paragraph (ii)) of Section 3
of such Participating Employee's Change in Control Agreement .
IN WITNESS WHEREOF, this Amendment has been executed as of 13th day of
February, 1996.
ENSERCH Corporation
By: /s/ D. W. Biegler
----------------------
Title: D. W. Biegler
Chairman, President
and Chief Executive
Officer
<PAGE>
AMENDMENT NO. 2
TO THE
RETIREMENT INCOME RESTORATION PLAN
OF ENSERCH CORPORATION AND
PARTICIPATING SUBSIDIARY COMPANIES
Pursuant to the provisions of Article V thereof, the Retirement Income
Restoration Plan of ENSERCH Corporation and Participating Subsidiary Companies
(the "Plan") is hereby amended in the following respects only:
FIRST: Article V of the Plan is hereby amended by restatement in its
entirety to read as follows:
Article V
Amendment and Termination
While the Companies intend to maintain this Plan in conjunction
with the Basic Plans for as long as necessary, the Board of Directors
of ENSERCH Corporation reserves the right to amend or terminate this
Plan if, in its sole judgment, amendment or termination is appropriate;
provided, however, that if the Board should amend or terminate this
Plan, the Companies shall be liable for all benefits accrued under this
Plan as of the date of such action determined on the basis of the
assumption that on such date each employee's employment terminated; and
provided further, that (i) no amendment may be made to Section 4.2 of
this Plan within three years after a Change in Control of the
<PAGE>
Corporation without the consent of all of the Participating Employees
and (ii) in the event of a termination of this Plan within three years
after a Change in Control of the Corporation each Participating
Employee's benefit hereunder shall be calculated as if such
Participating Employee's employment was terminated under circumstances
qualifying him for the additional years of Service provided in Section
4.2 .
SECOND: Article VII of the Plan is hereby amended by adding the
following new Section 7.7 to the end thereof:
Section 7.7 Reimbursement of Expenses. In the event that a dispute
arises with respect to the payment of benefits hereunder and the
Participating Employee (or his beneficiary) is successful in pursuing a
benefit to which he is entitled under the terms of the Plan in the
course of litigation or otherwise and incurs attorneys' fees, expenses
and costs in connection therewith, the Companies shall provide
reimbursement to the Participating Employee (or his beneficiary) for
the full amount of any such attorneys' fees, expenses and costs.
THIRD: The Plan is hereby amended by spinning off to a new plan to be
known as the Retirement Income Restoration Plan of Enserch Exploration, Inc. and
Participating Subsidiary Companies, the benefits attributable to employees and
former employees of Enserch Exploration, Inc. effective as of the date of the
<PAGE>
distribution of all shares of stock of Enserch Exploration, Inc. Owned by
ENSERCH Corporation to the shareholders of ENSERCH Corporation.
IN WITNESS WHEREOF, this Amendment has been executed this 6th day of
December, 1996 to be effective as of January 1, 1996.
ENSERCH CORPORATION
By: /s/ D. W. Biegler
----------------------
Title: Chairman and President
<PAGE>
EXHIBIT 10.19
ENSERCH CORPORATION
RETIREMENT INCOME RESTORATION TRUST
-----------------------------------
This Trust Agreement made this 30th day of September, 1994, by and between
ENSERCH Corporation, a Texas corporation (the "Company"), Enserch Exploration,
Inc., a Delaware corporation, New Enserch Exploration, Inc., a Texas
corporation, Enserch Development Corporation, a Texas corporation, Lone Star
Energy Company, a Texas corporation, and Enserch Gas Company, a Texas
Corporation, and Texas Commerce Bank National Association, a national banking
association (the "Trustee");
WHEREAS, the Company and the participating subsidiaries enumerated on
the attached Appendix A (the Company and such participating subsidiaries
are hereinafter referred to as the "Employers") have adopted or may adopt a
nonqualified deferred compensation plan known as the Retirement Income
Restoration Plan of ENSERCH Corporation and Participating Subsidiary
Companies (the "Plan"); and
WHEREAS, the Employers have incurred or expect to incur liability
under the terms of such Plan with respect to their respective eligible
employees participating in such Plan and their beneficiaries; and
WHEREAS, the Employers wish to establish a trust (hereinafter called
"Trust"), pursuant to which each Employer will contribute assets that shall
be held therein in a Separate Account, as herein defined, subject to the
claims of such Employer's creditors in the event of the Employer's
Insolvency, as herein defined, until paid to Plan Participants and their
beneficiaries in such manner and at such times as specified in the Plan;
and
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the
Plan as an unfunded plan maintained for the purpose of providing deferred
compensation for a select group of management or highly compensated
employees for purposes of Title I of the Employee Retirement Income
Security Act of 1974; and
<PAGE>
WHEREAS, it is the intention of the Employers to make contributions to
the Trust to provide a source of funds to assist them in the meeting of
their liabilities under the Plan;
NOW, THEREFORE, the parties do hereby establish the Trust and agree that
the Trust shall be comprised, held and disposed of as follows:
Section 1. Establishment Of Trust.
----------------------
(a) The Employers hereby deposit with the Trustee in trust $1,000.00, which
shall become the principal of the Trust to be held, administered and disposed of
by the Trustee as provided in this Trust Agreement.
(b) The Trust hereby established shall be irrevocable.
(c) The Trust is intended to be a grantor trust, of which each Employer is
the grantor with respect to its Separate Account, within the meaning of subpart
E, part I, subchapter J, chapter 1, subtitle A of the Internal Revenue Code of
1986, as amended, and shall be construed accordingly.
(d) The principal of the Trust, and any earnings thereon shall be held
separate and apart from other funds of the Employers and shall be used
exclusively for the uses and purposes of Plan Participants and general creditors
as herein set forth. Plan Participants and their beneficiaries shall have no
preferred claim on, or any beneficial ownership interest in, any assets of the
Trust. Any rights created under the Plan and this Trust Agreement shall be mere
unsecured contractual rights of Plan Participants and their beneficiaries
against the Employers. Any assets held in an Employer's Separate Account under
the Trust will be subject to the claims of such Employer's general creditors
under federal and state law in the event of Insolvency, as defined in Section
4(a) herein.
(e) The Employers, in their sole discretion, may at any time, or from time
to time, make additional deposits of cash or other property in trust with the
Trustee to augment the principal to be held, administered and disposed of by the
Trustee as provided in this Trust Agreement. Neither the Trustee nor any Plan
Participant or beneficiary shall have any right to compel such additional
deposits.
<PAGE>
(f) Any provision of this Trust Agreement to the contrary notwithstanding,
upon a Change of Control of the Company, as defined in the Plan, each Employer
shall (i) as soon as possible, but in no event more than 30 days following the
date of such Change of Control, make an irrevocable contribution to the Trust in
an amount, as determined by an Independent Committee, as defined below, which
when added to the total value of the assets of the Employer's Separate Account
under the Trust at such time equals the total present value of all benefits
accrued under the Plan with respect to such Employer's respective Plan
Participants and beneficiaries as of the date on which the Change of Control
occurred, and (ii) during the two-year period following the date of the Change
of Control, make monthly contributions to the Trust in amounts sufficient, as
determined by the Independent Committee, to maintain the total value of the
assets in the Employer's Separate Account under the Trust at an amount equal to
the total present value of all benefits accrued under the Plan with respect to
such Employer's respective Plan Participants and beneficiaries.
(g) Any provision of this Trust Agreement to the contrary notwithstanding,
in the event that a Participant transfers employment between Employers
participating in this Trust, (i) the Employer from which the Participant is
transferred shall as soon as possible, but in no event more than 30 days
following the date of such transfer, make an irrevocable contribution to the
Trust in an amount, as determined by the Company, which equals the total present
value of the benefits accrued under the Plan with respect to such transferring
Participant as of the date on which the transfer occurred or, if less, an amount
equal to the total present value of all benefits accrued under the Plan with
respect to such Employer's respective Plan Participants and beneficiaries, and
(ii) immediately following the Employer's contribution described in (i), the
Trustee shall transfer assets from the transferring Employer's Separate Account
to the Separate Account of the Employer to which the Participant is being
transferred in an amount equal to the total present value of the benefits
accrued under the Plan with respect to such transferring Participant as of the
date on which the transfer occurred.
Section 2. Payments to Plan Participants and their Beneficiaries.
-----------------------------------------------------
(a) The Company shall deliver to the Trustee a schedule (the "Payment
Schedule") that indicates the amounts payable with respect to each Plan
Participant (and his or her beneficiaries) and the Separate Account of the
Employer from which such amounts
<PAGE>
are payable, that provides a formula or other instructions acceptable to the
Trustee for determining the amounts so payable, the form in which such amount is
to be paid (as provided for or available under the Plan), and the time of
commencement for payment of such amounts. An updated Payment Schedule shall be
provided by the Company to the Trustee periodically, but no less frequently than
once each calendar year. Except as otherwise provided herein, the Trustee shall
make payments to the Plan Participants and their beneficiaries in accordance
with such Payment Schedule. The Trustee shall make provision for the reporting
and withholding of any federal, state or local taxes that may be required to be
withheld with respect to the payment of benefits pursuant to the terms of the
Plan and shall pay amounts withheld to the appropriate taxing authorities or
determine that such amounts have been reported, withheld and paid by the
Employer.
(b) The entitlement of a Plan Participant or his or her beneficiaries to
benefits under the Plan shall be determined by the Company or such other party
as may be designated under the Plan, and any claim for such benefits shall be
considered and reviewed under the procedures set out in the Plan.
(c) The Employers may make payments of benefits directly to Plan
Participants or their beneficiaries as they become due under the terms of the
Plan in lieu of payment from the Trust. The Company shall notify the Trustee of
an Employer's decision to make payments of benefits directly prior to the time
amounts are payable to Participants or their beneficiaries. In addition, if the
assets of an Employer's Separate Account under the Trust are not sufficient to
make payments of benefits to its respective Plan Participants and beneficiaries
in accordance with the terms of the Plan, such Employer shall make the balance
of each such payment as it falls due, and the Separate Accounts of other
Employers hereunder shall not be liable for the payment of such benefits. The
Trustee shall notify the Company immediately when the assets in an Employer's
Separate Account under the Trust are not sufficient to satisfy all payments due.
(d) Any provision of this Section 2 to the contrary notwithstanding, upon
and after a Change of Control of the Company, the Trustee shall make payments to
Plan Participants or their beneficiaries in accordance with the direction of the
Independent Committee rather than the Company, regardless of whether the Trustee
has received a Payment Schedule or any other form of direction from the Company
to make such payments.
<PAGE>
Section 3. Appointment of Independent Committee. Any provision of this
------------------------------------
Trust Agreement to the contrary notwithstanding, upon a Change of Control of the
Company, an Independent Committee consisting of at least three members shall be
appointed by the Compensation Committee of the Board of Directors of the Company
(the "Compensation Committee") subject to the approval of a majority of the
Participants in the Plan on the date of such Change of Control. The Independent
Committee shall:
(a) determine the amount of the irrevocable contributions to be made
by each Employer pursuant to Section 1(f) hereof;
(b) determine in accordance with the Plan the amounts payable with
respect to each Plan Participant (and his or her beneficiaries), the form
in which such amounts are to be paid, and the time of commencement for
payment of such amounts pursuant to Section 2(a) hereof;
(c) determine the entitlement of Plan Participants and beneficiaries
to benefits under the terms of the Plan pursuant to Section 2(b) hereof;
(d) direct the Trustee to make payments to Plan Participants and their
beneficiaries pursuant to Section 2 hereof; and
(e) select a successor Trustee for the Trust if a Trustee resigns or
is removed on or within two years following the date of a Change of Control
of the Company pursuant to Section 12.
Section 4. Trustee Responsibility Regarding Payments to Trust Beneficiary
--------------------------------------------------------------
when an Employer Is Insolvent.
- -----------------------------
(a) The Trustee shall cease payment of benefits to Plan Participants and
their beneficiaries if the Participants' Employer is Insolvent. An Employer
shall be considered "Insolvent" for purposes of this Trust Agreement if (i) the
Employer is unable to pay its debts as they become due, or (ii) the Employer is
subject to a pending proceeding as a debtor under the United States Bankruptcy
Code.
(b) At all times during the continuance of this Trust, as provided in
Section 1(d) hereof, the principal and income of each Employer's Separate
Account under the Trust shall be subject to
<PAGE>
claims of general creditors of the Employer under federal and state law as set
forth below.
(1) The Board of Directors and the Chief Executive Officer of an
Employer shall have the duty to inform the Trustee in writing of the
Employer's Insolvency. If a person claiming to be a creditor of an Employer
alleges in writing to the Trustee that the Employer has become Insolvent,
the Trustee shall determine whether the Employer is Insolvent and, pending
such determination, the Trustee shall discontinue payment of benefits to
the Employer's respective Plan Participants or their beneficiaries.
(2) Unless the Trustee has actual knowledge of an Employer's
Insolvency, or has received notice from the Employer or a person claiming
to be a creditor alleging that the Employer is Insolvent, the Trustee shall
have no duty to inquire whether the Employer is Insolvent. The Trustee may
in all events rely on such evidence concerning the Employer's solvency as
may be furnished to the Trustee and that provides the Trustee with a
reasonable basis for making a determination concerning the Employer's
solvency.
(3) If at any time the Trustee has determined that an Employer is
Insolvent, the Trustee shall discontinue payments to the Employer's
respective Plan Participants or their beneficiaries and shall hold the
assets of the Employer's Separate Account under the Trust for the benefit
of the Employer's general creditors. Nothing in this Trust Agreement shall
in any way diminish any rights of Plan Participants or their beneficiaries
to pursue their rights as general creditors of an Employer with respect to
benefits due under the Plan or otherwise.
(4) The Trustee shall resume the payment of benefits to an Employer's
respective Plan Participants or their beneficiaries in accordance with
Section 2 of this Trust Agreement only after the Trustee has determined
that the Employer is not Insolvent (or is no longer Insolvent).
(c) Provided that there are sufficient assets in an Employer's Separate
Account under the Trust, if the Trustee discontinues the payment of benefits
from the Trust pursuant to Section 4(b) hereof and subsequently resumes such
payments, the first payment following such discontinuance shall include the
aggregate amount of all payments due to Plan Participants or their beneficiaries
under the terms of the Plan for the period of
<PAGE>
such discontinuance, less the aggregate amount of any payments made to Plan
Participants or their beneficiaries by the Employer in lieu of the payments
provided for hereunder during any such period of discontinuance.
Section 5. Payments to the Employers.
-------------------------
(a) Except as provided in Sections 4 and 5(b) hereof, the Employers shall
have no right or power to direct the Trustee to return to the Employers or to
divert to others any of the Trust assets before payment of all benefits have
been made to Plan Participants and their beneficiaries pursuant to the terms of
the Plan.
(b) To the extent that an Employer determines that the value of the assets
in its Separate Account under the Trust based upon information provided to the
Employer by the Trustee, at any time, exceeds 110% of the present value of the
benefits accrued under the Plan by the Employer's respective Plan Participants,
the Trustee shall pay such excess to the Employer upon receipt of written
request therefor from the Company; provided, however, that no such payment of
excess assets to the Employer shall be made on or within two years following the
date of a Change of Control of the Company.
Section 6. Investment Authority.
--------------------
(a) The Trustee shall establish and maintain a separate account within the
Trust for each Employer (the "Separate Account"). All amounts deposited with
the Trustee by an Employer shall be allocated to such Employer's Separate
Account. The Trustee shall invest, reinvest and administer the assets allocated
to each Employer's Separate Account under the Trust as an individual, separate
fund. At the end of each calendar year and at such other times as the Company
may determine, the Trustee shall determine the fair market value of the assets
of each Employer's Separate Account. The Separate Account of each Employer
shall be adjusted to reflect the income collected, realized and unrealized
profits and losses, expenses and all other transactions affecting such Separate
Account for the valuation period then ended.
(b) The Trustee shall have full power and authority to invest and reinvest
the assets of each Employer's Separate Account, or any part thereof, in such
stocks (common or preferred), bonds, mortgages, notes, interest-bearing deposits
(including such deposits with any corporate trustee acting
<PAGE>
hereunder), options and contracts for the future or immediate receipt or
delivery of property of any kind, or other securities, producing or nonproducing
oil and gas royalties and payments and other producing and nonproducing
interests in minerals, or in commodities, life insurance policies, annuity
contracts or other property of any kind or nature whatsoever, whether real,
personal or mixed, as the Trustee, in the Trustee's absolute discretion and
judgment, deems appropriate for the Trust, and to hold cash uninvested at any
time and from time to time in such amounts and to such extent as the Trustee, in
the Trustee's absolute discretion and judgment, deems appropriate for the Trust.
The Trustee shall have full power and authority to manage, handle, invest,
reinvest, sell for cash or credit, or for part cash or part credit, exchange,
hold, dispose of, lease for any period of time (whether or not longer than the
life of the Trust), improve, repair, maintain, work, develop, use, operate,
mortgage, or pledge, all or any part of the assets and property from time to
time constituting any part of the trust funds held in trust under the Trust;
borrow or loan money or securities; write options and sell securities or other
property short or for future delivery; engage in hedging procedures; buy and
sell futures contracts; execute obligations, negotiable and nonnegotiable; vote
shares of stock in person and by proxy, with or without power of substitution;
register investments in the name of a nominee; sell, convey, lease and/or
otherwise deal with any producing or nonproducing oil, gas and mineral leases or
mineral rights, payments and royalties; pay all reasonable expenses; execute and
deliver any deeds, conveyances, leases, contracts, or written instruments of any
character appropriate to any of the powers or duties of the Trustee, and shall,
in general, have as broad power respecting the management, operation and
handling of the Trust assets and property as if the Trustee were the owner of
such assets and property in the Trustee's own right. The preceding provisions
of this paragraph to the contrary notwithstanding, the Company shall have the
right and power at any time and from time to time to give the Trustee broad
guidelines within which it shall invest the assets of the Trust; provided,
however, that upon a Change of Control of the Company and continuing for two
years thereafter, the Independent Committee, rather than the Company, shall have
the sole authority to exercise such right.
(c) All rights associated with assets of the Trust shall be exercised by
the Trustee or the person designated by the Trustee, and shall in no event be
exercisable by or rest with Plan Participants.
<PAGE>
(d) Each Employer shall have the right, at any time, and from time to time
in its sole discretion, to substitute assets of equal fair market value for any
asset held in its Separate Account under the Trust provided, however, that
effective upon a Change of Control of the Company and for a period of two years
thereafter, any assets transferred to the Trust in substitution for assets held
in an Employer's Separate Account under the Trust must consist of cash or
marketable securities and the fair market value of the respective assets shall
be determined by the Trustee. This right is exercisable by the Employer in a
nonfiduciary capacity without the approval or consent of any person in a
fiduciary capacity.
Section 7. Disposition of Income. During the term of this Trust, all
---------------------
income received by the Trust, net of expenses and taxes, shall be accumulated
and reinvested.
Section 8. Accounting by Trustee. The Trustee shall keep accurate and
---------------------
detailed records of all investments, receipts, disbursements, and all other
transactions required to be made, including such specific records as shall be
agreed upon in writing between the Company and the Trustee. Within 30 days
following the close of each calendar year and within 30 days after the removal
or resignation of the Trustee, the Trustee shall deliver to the Company a
written account of its administration of the Trust and to each Employer a
written account of its administration of the Employer's Separate Account during
such year or during the period from the close of the last preceding year to the
date of such removal or resignation, setting forth all investments, receipts,
disbursements and other transactions effected by it, including a description of
all securities and investments purchased and sold with the cost or net proceeds
of such purchases or sales (accrued interest paid or receivable being shown
separately), and showing all cash, securities and other property held in the
Trust at the end of such year or as of the date of such removal or resignation,
as the case may be.
Section 9. Responsibility of the Trustee.
-----------------------------
(a) The Trustee shall act with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent person acting in like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims; provided, however, that the
Trustee shall incur no liability to any person for any action taken pursuant to
a direction, request or approval given by an Employer
<PAGE>
which is contemplated by, and in conformity with, the terms of the Plan or this
Trust and is given in writing by the Employer. In the event of a dispute between
an Employer and a party, the Trustee may apply to a court of competent
jurisdiction to resolve the dispute.
(b) If the Trustee undertakes or defends any litigation arising in
connection with this Trust, the Employers agree to indemnify the Trustee against
the Trustee's costs, expenses and liabilities (including, without limitation,
attorneys' fees and expenses) relating thereto and to be primarily liable for
such payments. If the Employers do not pay such costs, expenses and liabilities
in a reasonably timely manner, the Trustee may obtain payment from the Trust.
(c) The Trustee may consult with legal counsel (who may also be counsel for
the Employers generally) with respect to any of its duties or obligations
hereunder.
(d) The Trustee may hire agents, accountants, actuaries, investment
advisors, financial consultants or other professionals to assist it in
performing any of its duties or obligations hereunder.
(e) The Trustee shall have, without exclusion, all powers conferred on
trustees by applicable law, unless expressly provided otherwise herein;
provided, however, that except as provided in Sections 5(b) and 6(d) hereof, if
an insurance policy is held as an asset of the Trust, the Trustee shall have no
power to name a beneficiary of the policy other than the Trust, to assign the
policy (as distinct from conversion of the policy to a different form) other
than to a successor Trustee, or to loan to any person the proceeds of any
borrowing against such policy.
(f) Notwithstanding any powers granted to the Trustee pursuant to this
Trust Agreement or applicable law, the Trustee shall not have any power that
could give this Trust the objective of carrying on a business and dividing the
gains therefrom, within the meaning of section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Internal Revenue Code.
Section 10. Compensation and Expenses of the Trustee. The Trustee shall
----------------------------------------
be paid such reasonable compensation commensurate with the services and
responsibilities involved hereunder as shall from time to time be agreed upon by
the Trustee and the Company. The Employers shall pay all administrative and the
<PAGE>
Trustee's fees and expenses, but, if not so paid, the fees and expenses shall be
paid from the Trust.
Section 11. Resignation and Removal of the Trustee.
--------------------------------------
(a) The Trustee may resign at any time by written notice to the Company,
which shall be effective 30 days after receipt of such notice unless the Company
and the Trustee agree otherwise.
(b) The Trustee may be removed by the Company on 30 days notice or upon
shorter notice accepted by the Trustee; provided, however, that the Trustee may
not be removed by the Company on or within two years following a Change of
Control of the Company except with the written consent of a majority of the
Participants entitled to payment of benefits pursuant to the terms of the Plan
on the date of such Change of Control.
(c) Upon resignation or removal of the Trustee and appointment of a
successor Trustee, all assets shall subsequently be transferred to the successor
Trustee. The transfer shall be completed within 30 days after receipt of notice
of resignation, removal or transfer, unless the Company extends the time limit.
(d) If the Trustee resigns or is removed, a successor shall be appointed,
in accordance with Section 12 hereof, by the effective date of resignation or
removal under paragraph(s) (a) or (b) of this section. If no such appointment
has been made, the Trustee may apply to a court of competent jurisdiction for
appointment of a successor or for instructions. All expenses of the Trustee in
connection with the proceeding shall be allowed as administrative expenses of
the Trust.
Section 12. Appointment of Successor.
------------------------
(a) If the Trustee resigns or is removed in accordance with Section 11(a)
or (b) hereof, the Company may appoint any third party, such as a bank trust
department or other party that may be granted corporate trustee powers under
state law, as a successor to replace the Trustee upon resignation or removal;
provided, however, that if the Trustee resigns or is removed on or within two
years following the date of a Change of Control of the Company, the Independent
Committee shall select a successor Trustee in accordance with this Section 12.
The appointment shall be effective when accepted in writing by the new Trustee,
who shall have all of the rights and powers of the former Trustee, including
ownership rights in the Trust assets. The former Trustee shall execute any
instrument necessary or
<PAGE>
reasonably requested by the Company or the successor Trustee to evidence the
transfer.
(b) The successor Trustee need not examine the records and acts of any
prior Trustee and may retain or dispose of existing Trust assets, subject to
Sections 8 and 9 hereof. The successor Trustee shall not be responsible for and
the Employers shall indemnify and defend the successor Trustee from any claim or
liability resulting from any action or inaction of any prior Trustee or from any
other past event, or any condition existing at the time it becomes successor
Trustee.
Section 13. Amendment or Termination.
------------------------
(a) This Trust Agreement may be amended by a written instrument executed by
the Trustee and the Company. Notwithstanding the foregoing, no such amendment
shall conflict with the terms of the Plan or shall make the Trust revocable.
(b) The Trust shall not terminate until the date on which Plan Participants
and their beneficiaries are no longer entitled to benefits pursuant to the terms
of the Plan. Upon termination of the Trust any assets remaining in an
Employer's Separate Account under the Trust shall be returned to such Employer.
(c) Upon written approval of at least two-thirds of the Participants and
beneficiaries entitled to payment of benefits pursuant to the terms of the Plan,
the Company may terminate this Trust prior to the time all benefit payments
under the Plan have been made. All assets in an Employer's Separate Account
under the Trust at termination shall be returned to such Employer.
(d) The Company may terminate this Trust with respect to the Separate
Account of any Employer with the written approval of at least two-thirds of the
Employer's respective Plan Participants and beneficiaries who are entitled to
payment of benefits pursuant to the terms of the Plan. All assets in an
Employer's Separate Account under the Trust on the date of such termination
shall be returned to such Employer.
(e) This Trust Agreement may not be amended by the Company on or within two
years following the date of a Change of Control of the Company, without the
written consent of a majority of the Participants entitled to payment of
benefits pursuant to the terms of the Plan on the date of such Change of
Control.
<PAGE>
Section 14. Miscellaneous.
-------------
(a) Any provision of this Trust Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
(b) Benefits payable to Plan Participants and their beneficiaries under
this Trust Agreement may not be anticipated, assigned (either at law or in
equity), alienated, pledged, encumbered or subjected to attachment, garnishment,
levy, execution or other legal or equitable process.
(c) This Trust Agreement shall be governed and construed in accordance with
the internal laws (and not the principles relating to conflicts of laws) of the
State of Texas, except where superseded by federal law.
(d) Except where otherwise defined, capitalized terms used herein shall
have the meaning given to them in the Plan.
(e) In the event that a dispute arises between a Plan Participant or
beneficiary and the Participant's Employer, the Company or the Trustee with
respect to the payment of amounts from the Trust and the Participant or
beneficiary is successful in pursuing a benefit to which he or she is entitled
under the terms of the Plan and this Trust against the Participant's Employer,
the Company, the Trustee or any other party in the course of litigation or
otherwise and incurs attorneys' fees, expenses and costs in connection
therewith, the Participant's Employer shall reimburse the Plan Participant or
beneficiary for the full amount of any such attorneys' fees, expenses and costs.
(f) Upon the written consent of the Company delivered to the Trustee, any
other affiliate of the Company which adopts the Plan may become a party to this
Trust by delivering to the Trustee a certified copy of a resolution of its board
of directors or other governing authority adopting this Trust. For purposes of
this Trust, any such affiliate which adopts this Trust with the written consent
of the Company shall be an Employer hereunder.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed this 30th day of
September, 1994, to be effective as of October 1, 1994.
ENSERCH CORPORATION
By /s/ D. W. Biegler
Title: Chairman, President
and Chief Executive
Officer
ENSERCH EXPLORATION, INC.
By /s/ D. W. Biegler
Title: Chairman and Chief
Executive Officer
NEW ENSERCH EXPLORATION, INC.
By /s/ D. W. Biegler
Title: Chairman and Chief
Executive Officer
ENSERCH DEVELOPMENT CORPORATION
By /s/ G. R. Bryan
Title: Chairman
LONE STAR ENERGY COMPANY
By /s/ D. W. Biegler
Title: Chairman and Chief
Executive Officer
ENSERCH GAS COMPANY
By /s/ D. W. Biegler
Title: Chairman and Chief
<PAGE>
Executive Officer
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION
By /s/ Karen Epps
Title:
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, a notary public in and for said
County and State, on this day personally appeared D. W. Biegler, known to me to
be the person whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of the said ENSERCH CORPORATION, a
Texas corporation, and that he/she executed the same as the act of such
corporation for the purposes and consideration therein expressed, and in the
capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 23rd day of September, 1994.
/s/ Cherry H. Sossamon
Notary Public, State of Texas
My Commission expires:
October 31, 1996
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, a notary public in and for said
County and State, on this day personally appeared D. W. Biegler, known to me to
be the person whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of the said ENSERCH EXPLORATION,
INC., a Delaware corporation, and that he/she executed the same as the act of
such
<PAGE>
corporation for the purposes and consideration therein expressed, and in the
capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 23rd day of September, 1994.
/s/ Cherry H. Sossamon
Notary Public, State of Texas
My Commission expires:
October 31, 1996
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, a notary public in and for said
County and State, on this day personally appeared D. W. Biegler, known to me to
be the person whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of the said NEW ENSERCH
EXPLORATION, INC., a Texas corporation, and that he/she executed the same as the
act of such corporation for the purposes and consideration therein expressed,
and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 23rd day of September, 1994.
/s/ Cherry H. Sossamon
Notary Public, State of Texas
My Commission expires:
October 31, 1996
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, a notary public in and for said
County and State, on this day personally appeared G. R.
<PAGE>
Bryan, known to me to be the person whose name is subscribed to the foregoing
instrument and acknowledged to me that the same was the act of the said ENSERCH
DEVELOPMENT CORPORATION, a Texas corporation, and that he/she executed the same
as the act of such corporation for the purposes and consideration therein
expressed, and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 23rd day of September, 1994.
/s/ Glynnda S. Rice
Notary Public, State of Texas
My Commission expires:
February 28, 1997
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, a notary public in and for said
County and State, on this day personally appeared D. W. Biegler, known to me to
be the person whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of the said LONE STAR ENERGY
COMPANY, a Texas corporation, and that he/she executed the same as the act of
such corporation for the purposes and consideration therein expressed, and in
the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 23rd day of September, 1994.
/s/ Cherry H. Sossamon
Notary Public, State of Texas
My Commission expires:
October 31, 1996
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
<PAGE>
BEFORE ME, the undersigned authority, a notary public in and for said
County and State, on this day personally appeared D. W. Biegler, known to me to
be the person whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of the said ENSERCH GAS COMPANY, a
Texas corporation, and that he/she executed the same as the act of such
corporation for the purposes and consideration therein expressed, and in the
capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 23rd day of September, 1994.
/s/ Cherry H. Sossamon
Notary Public, State of Texas
My Commission expires:
October 31, 1996
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, a notary public in and for said
County and State, on this day personally appeared Karen Epps, known to me to be
the person whose name is subscribed to the foregoing instrument and acknowledged
to me that the same was the act of the said TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, a national banking association, and that he/she executed the same
as the act of such banking association for the purposes and consideration
therein expressed, and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 7th day of October, 1994.
/s/ Barbara Betik
Notary Public, State of Texas
My Commission expires:
January 30, 1997
<PAGE>
APPENDIX A
TO THE
ENSERCH CORPORATION
RETIREMENT INCOME RESTORATION TRUST
PARTICIPATING SUBSIDIARIES
--------------------------
1. Enserch Exploration, Inc., a Delaware corporation
2. New Enserch Exploration, Inc., a Texas corporation
3. Enserch Development Corporation, a Texas corporation
4. Lone Star Energy Company, a Texas corporation
5. Enserch Gas Company, a Texas Corporation
<PAGE>
AMENDMENT NO. 1
TO THE
ENSERCH CORPORATION
RETIREMENT INCOME RESTORATION TRUST
Pursuant to the provisions of Section 13(a) thereof, the ENSERCH
Corporation Retirement Income Restoration Trust (the "Trust") is hereby amended
in the following respects only: FIRST: Section l(f) of the Trust is hereby
amended by restatement in its entirety to read as follows:
(f) Any provision of this Trust Agreement to the contrary
notwithstanding, upon a Change of Control of the Company, as defined in the
Plan, each Employer shall (i) as soon as possible, but in no event more
than 30 days following the date of such Change of Control, make an
irrevocable contribution to the Trust in an amount, as determined by an
Independent Committee, as defined below, which when added to the total
value of the assets of the Employer's Separate Account under the Trust at
such time equals the total present value of all benefits accrued under the
Plan with respect to such Employer's respective Plan Participants and
beneficiaries as of the date on which the Change of Control occurred, and
(ii) on and after the date of the Change of Control, make monthly
contributions to the Trust in amounts sufficient, as determined by the
Independent Committee, to maintain the total value of the assets in the
Employer's Separate Account under the Trust at an amount equal to the total
present value of all benefits accrued under the Plan with respect to such
Employer's respective Plan Participants and beneficiaries. Any provision of
this Trust Agreement to the contrary notwithstanding, on and after the date
of a Change of Control of the Company, such portion of the assets in each
Separate Account of an Employer under this Trust as of the date of the
Change of Control equal in value to the total present value of such
Employer's Plan Participants' accrued benefits under the Plan as of such
date shall be segregated into a subaccount of such Separate Account to be
used and held exclusively for the benefit of such Employer's Plan
Participants (and their beneficiaries) as of the date immediately prior to
the date of such Change of Control, subject to the claims of general
<PAGE>
creditors of the Employer under federal and state law as set forth below.
SECOND: Section 3 of the Trust is hereby amended by restatement in its
entirety to read as follows:
Section 3. Appointment of Independent Committee.
(a) Any provision of this Trust Agreement to the contrary
notwithstanding, upon a Change of Control of the Company, an Independent
Committee consisting of at least three members shall be appointed by the
Board of Directors of ENSERCH Corporation (the "Board") subject to the
written approval of a majority of the Plan Participants. The Independent
Committee shall:
(i) determine the assumptions to be used in calculating present
values of benefits accrued for purposes of this Trust;
(ii) determine the amount of the irrevocable contributions to be
made by each Employer pursuant to Section l(f) hereof;
(iii) determine in accordance with the Plan the amounts payable
with respect to each Plan Participant (and his or her beneficiaries),
the form in which such amounts are to be paid, and the time of
commencement for payment of such amounts pursuant to Section 2(a)
hereof;
(iv) determine the entitlement of Plan Participants and
beneficiaries to benefits under the terms of the Plan pursuant to
Section 2(b) hereof;
(v) direct the Trustee to make payments to Plan Participants and
their beneficiaries pursuant to Section 2 hereof; and
(vi) select a successor Trustee for the Trust if a Trustee
resigns or is removed on or after the date of a Change of Control of
the Company pursuant to Section 12.
(b) Each member of the Independent Committee so appointed shall serve
in such office until his or her death, resignation or removal. The Board
may remove any member of the Independent Committee by giving written notice
thereof to all Plan
<PAGE>
Participants and all members of the Independent Committee; provided,
however, that no member of the Independent Committee may be removed by the
Board on or after a Change of Control of the Company except with the
written consent of a majority of the Plan Participants. Vacancies on the
Independent Committee shall be filled from time to time by the Board
subject to the written approval of a majority of the Plan Participants on
the date such vacancy is filled.
(c) The Independent 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 Independent Committee may by
such majority action authorize any one or more of its members to execute
any document or documents on behalf of the Independent Committee, in which
event the Independent Committee shall notify the Trustee in writing of such
action and the name or names of its member or members so authorized to act.
Every interpretation, choice, determination or other exercise by the
Independent 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 Trust or otherwise
directly or indirectly affected by such action, without restriction,
however, on the right of the Independent Committee to reconsider and
redetermine such action.
(d) Any provision of this Trust Agreement to the contrary
notwithstanding, in the event that (i) the Board shall not appoint an
Independent Committee within 30 days following a Change of Control of the
Company or a majority of the Participants in the Plan do not approve in
writing at least three members selected by the Board to serve on an
Independent Committee within such 30-day period or (ii) the Board does not
fill a vacancy on the Independent Committee within 30 days of the date such
office becomes vacant or a majority of the Participants in the Plan do not
approve in writing the Board's selection to fill a vacancy on the
Independent Committee within such 30-day period, then the Participants in
the Plan shall elect, by majority vote, up to three individuals to the
extent necessary to ensure that the Independent Committee consists of three
members.
THIRD: Section 5(b) of the Trust is hereby amended by restatement in its
entirety to read as follows:
<PAGE>
(b) To the extent that an Employer determines that the value of the
assets in its Separate Account under the Trust based upon information
provided to the Employer by the Trustee, at any time, exceeds 110` of the
present value of the benefits accrued under the Plan by the Employer's
respective Plan Participants, the Trustee shall pay such excess to the
Employer upon receipt of written request therefor from the Company;
provided, however, that no such payment of excess assets to the Employer
shall be made on or after the date of a Change of Control of the Company
without the written approval of the Participants in the Plan.
FOURTH: Section 6(b) of the Trust is hereby amended by restating the last
sentence thereof in its entirety to read as follows:
The preceding provisions of this paragraph to the contrary notwithstanding,
the Company shall have the right and power at any time and from time to
time to give the Trustee broad guidelines within which it shall invest the
assets of the Trust; provided, however, that on and after the date of a
Change of Control of the Company, the Independent Committee, rather than
the Company, shall have the sole authority to exercise such right.
FIFTH: Section 6(d) of the Trust is hereby amended by restating the first
sentence thereof in its entirety to read as follows:
Each Employer shall have the right, at any time, and from time to time in
its sole discretion, to substitute assets of equal fair market value for
any asset held in its Separate Account under the Trust; provided, however,
that on and after the date of a Change of Control of the Company, any
assets transferred to the Trust in substitution for assets held in an
Employer's Separate Account under the Trust must consist of cash or
marketable securities acceptable to the Independent Committee and the fair
market value of the respective assets shall be determined by the Trustee.
<PAGE>
SIXTH: Section 9(b) of the Trust is hereby amended by restating the last
sentence thereof in its entirety to read as follows:
If the Employers do not pay such costs, expenses and liabilities in a
reasonably timely manner, the Trustee may obtain payment from the Trust;
provided, however, that in the event any such costs, expenses and
liabilities are paid from the Trust, the Trustee shall notify the Employers
in writing that such payment has been made and the Employers shall
reimburse the Trust for such payment within 15 days from the date of such
notice.
SEVENTH: Section 10 of the Trust is hereby amended by restating the last
sentence thereof in its entirety to read as follows:
The Employers shall pay all administrative and the Trustee's fees and
expenses, but, if not so paid, such fees and expenses shall be paid from
the Trust; provided, however, that in the event any such fees and expenses
are paid from the Trust, the Trustee shall notify the Employers in writing
that such payment has been made and the Employers shall reimburse the Trust
for such payment within 15 days from the date of such notice.
EIGHTH: Section ll(b) of the Trust is hereby amended by restatement in its
entirety to read as follows:
(b) The Trustee may be removed by the Company on 30 days notice or
upon shorter notice accepted by the Trustee; provided, however, that the
Trustee may not be removed by the Company on or after the date of a Change
of Control of the Company except with the written consent of a majority of
the Plan Participants.
NINTH: Section 12(a) of the Trust is hereby amended by restating the first
sentence thereof in its entirety to read as follows:
<PAGE>
If the Trustee resigns or is removed in accordance with Section ll(a) or
(b) hereof, the Company may appoint any third party, such as a bank trust
department or other party that may be granted corporate trustee powers
under state law, as a successor to replace the Trustee upon resignation or
removal; provided, however, that if the Trustee resigns or is removed on or
after the date of a Change of Control of the Company, the Independent
Committee shall select a successor Trustee in accordance with this Section
12.
TENTH: Section 13(e) of the Trust is hereby amended by restatement in its
entirety to read as follows:
(e) Any provision of this Trust Agreement to the contrary notwithstanding,
this Trust Agreement may not be amended on or after the date of a Change of
Control of the Company without the written consent of a majority of the
Plan Participants.
ELEVENTH: The Trust is hereby amended by spinning off to a new trust to be
known as the Enserch Exploration, Inc. Retirement Income Restoration Trust, the
assets held in the Separate Accounts of Enserch Exploration, Inc. and its
subsidiaries effective as of the date of the distribution of all shares of stock
of Enserch Exploration, Inc. owned by ENSERCH Corporation to the shareholders of
ENSERCH Corporation.
IN WITNESS WHEREOF, this Amendment has been executed this day ______ of
__________, 1996, to be effective as of January 1, 1996.
ENSERCH CORPORATION
By: /s/ D. W. Biegler
-----------------------------
Title: Chairman and President
TEXAS COMMERCE BANK NATIONAL
<PAGE>
ASSOCIATION
By:
--------------------------------------
Title:
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, a notary public in and for said
County and Stake, on this day personally appeared
D. W. Biegler, known to me to be the person whose name is subscribed to the
foregoing instrument and acknowledged to me that the same was the act of the
said ENSERCH CORPORATION, a Texas corporation, and that he/she executed the same
as the act of such corporation for the purposes and consideration therein
expressed, and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 6th day of November, 1996.
/s/ Anita K. Brian
--------------------------------------------
Notary Public,
State of Texas
My Commission expires:
January 23, 1997
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, a notary public in and for said
County and State, on this day personally appeared _____________________________,
known to me to be the person whose name is subscribed to the foregoing
instrument and acknowledged to me that the same was the act of the said TEXAS
COMMERCE BANK NATIONAL ASSOCIATION, a national banking association, and that
he/she executed the same as the act of such banking association for the
<PAGE>
purposes and consideration therein expressed, and in the capacity therein
stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this ____ day of ___________, 1996.
--------------------------------------------
Notary Public,
State of Texas
My Commission expires:
<PAGE>
EXHIBIT 10.20
EMPLOYMENT AGREEMENT
THIS AGREEMENT by and between ENSERCH EXPLORATION, INC. (the "Company") and
____________________ the "Executive") is entered into on this
_____________________, 19______.
WITNESSETH:
-----------
WHEREAS, the Company desires to employ the Executive, and the Executive is
willing to serve in the employ of the Company, upon the terms and conditions
provided in this Agreement;
WHEREAS, the Board recognizes that, as is the case with many corporations,
there exists the possibility of a change of control of the Company, and that
such possibility, and the uncertainty and questions which it may raise, may
result in the distraction of key management personnel to the detriment of the
Company and its affiliates and shareholders, and the Board has determined that
appropriate steps should be taken as set forth in this Agreement to reinforce
and encourage the Executive's continued attention and dedication of his assigned
duties without distraction in the face of potentially disturbing circumstances
arising from the possibility of a change of control;
NOW, THEREFORE, in consideration of the mutual covenants contained in this
Agreement, the parties agree as follows:
ARTICLE I
DEFINITIONS
All words and phrases defined shall have the meanings described below
unless in the context some other meaning is clearly intended.
1.1 "AFFILIATE" means, with respect to any entity, another entity that
controls, is controlled by or is under common control with the first entity.
1.2 "AGREEMENT" means this employment agreement entered into between the
Company and the Executive.
1.3 "BOARD" means the Board of Directors of the Company.
1.4 "CASH INCENTIVE COMPENSATION" means that compensation described in
Section 6.2.
1.5 "CAUSE" Termination of the Executive's employment by the Company for
"Cause" shall mean termination upon (A) the willful and continued failure by the
Executive substantially to perform his duties with the Company (other than any
such failure resulting from his incapacity due to physical or mental illness),
after a demand for substantial performance is delivered to the Executive by the
Board which specifically identifies the manner in which the Board believes that
the Executive has not substantially performed his duties, and a reasonable
period of opportunity for such
<PAGE>
substantial performance is provided, or (B) the willful engaging by the
Executive in illegal misconduct materially and demonstrably injurious to the
Company. For purposes of this paragraph, no act, or failure to act, on the
Executive's part shall be considered "willful" unless done, or omitted to be
done, by the Executive not in good faith and without reasonable belief that his
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 the Executive in good faith and
in the best interest of the Company. Notwithstanding the foregoing, the
Executive shall not be deemed to have been terminated for Cause unless and until
there shall have been delivered to the Executive a copy of a resolution duly
adopted by the affirmative vote of not less than three-quarters of the entire
membership of the Board, excluding the Executive, at a meeting of the Board
called and held for that purpose (after reasonable notice to the Executive and
an opportunity for the Executive, together with his counsel, to be heard before
the Board), finding that in the good faith opinion of the Board the Executive
was guilty of conduct set forth above in clauses (A) or (B) in this paragraph
and specifying the particulars thereof in detail.
1.6 "COMPENSATION COMMITTEE" means the Compensation Committee of the
Board.
1.7 "CONFLICT OF INTEREST" means a condition where the loyalty of the
Executive is divided between that owed to the Company and another interest such
as an investment or other relationship that would reasonably promote the
Executive to take or refrain from taking an action that might not be in the best
interest of the Company.
1.8 "DISABILITY" means the Executive's incapacity resulting from injury or
illness, whether mental or physical, which prevents the Executive from
performing his normal duties under this Agreement. The presence or absence of
the condition is to be determined by an independent physician selected by mutual
agreement of the Company and the Executive.
1.9 "EFFECTIVE DATE" means the date of this Agreement.
1.10 "EXECUTIVE" means _____________________.
1.11 "GOOD REASON" for the Executive to terminate his employment shall
mean:
(a) an adverse change in the Executive's status or position(s) as
Chairman and President, Chief Executive Officer of the Company including,
without limitation, any adverse change in the Executive's status or
position as a result of a material diminution in his duties or
responsibilities, or a material change in the Executive's business location
or the assignment to the Executive of any duties or responsibilities which
are inconsistent with such status or position(s), or any removal of the
Executive from or any failure to reappoint or reelect the Executive to such
position(s) (except in connection with the termination of his employment
for Cause, Disability or Retirement or as a result of the Executive's death
or by the Executive other than for Good Reason); provided however, a
decision by the Board to separate the office of Chairman and President
shall not be
<PAGE>
considered an adverse change as set forth in this Section 1.11(a) as long
as the Executive remains as the Chief Executive Officer of the Company with
duties and responsibilities customarily associated with that office;
(b) a reduction by the Company in the Executive's Minimum Annual
Salary or in the number of vacation days to which the Executive is entitled
hereunder;
(c) the taking of any action by the Company (including the elimination
of a plan without providing substitutes therefor or the reduction of the
Executive's awards thereunder) that would diminish or the failure by the
Company to take any action which would maintain the aggregate projected
value of the Executive's awards under the Company's bonus or stock option
or management incentive unit plans in which the Executive participates;
(d) the taking of any action by the Company that would diminish or the
failure by the Company to take any action which would maintain the
aggregate value of the benefits provided the Executive under the Company's
medical, health, dental, accident, disability, life insurance, stock
purchase or retirement plans in which the Executive participates or as
otherwise provided in this Agreement;
(e) the taking of any action by the Company that would diminish or the
failure of the Company to take any action that would maintain
indemnification or insurance for officers' liability; or
(f) a failure by the Company to obtain from any Successor (as
hereinafter defined) the assent to this Agreement contemplated by Section
16.2 hereof.
1.12 "LONG TERM INCENTIVE AWARDS" means those awards described in Section
6.6
1.13 "MINIMUM ANNUAL SALARY" means that compensation described in Section
6.1.
1.14 "NON-QUALIFIED STOCK OPTIONS" means any options to acquire stock of
the Company granted to the Executive which do not qualify as incentive stock
options under the Internal Revenue Code of 1986, as amended, including any
successor statute.
1.15 "RESTRICTED STOCK BONUSES" means the grants of shares of performance
based restricted common stock of the Company pursuant to the Stock Incentive
Plan.
1.16 "RETIREMENT" means the termination of the Executive's employment with
the Company and all of its Affiliates as a result of his reaching a retirement
age (not less than 65 years of age) established by the Board for his retirement
in accordance with the Company's general policy for retirement of executives,
provided that for purposes of the change of control provisions referred to in
Section 10.7 below, the retirement age shall be as specified in the change of
control agreement.
<PAGE>
1.17 "STOCK INCENTIVE PLAN" means the Enserch Exploration, Inc. 1996
Revised and Amended Stock Incentive Plan.
1.18 "STOCK OPTIONS" means the Non-Qualified Stock Options, if any, now or
hereafter granted to the Executive.
ARTICLE II
EMPLOYMENT
The Company hereby employs the Executive and the Executive hereby accepts
employment with the Company upon the terms and conditions set forth in this
Agreement.
ARTICLE III
TERM OF AGREEMENT
This Agreement becomes effective as of the Effective Date. The initial term
of this Agreement is for a period from the Effective Date until the third
anniversary of the Effective Date, provided, however, that upon the third
anniversary date of this Agreement and on each anniversary date thereafter the
terms of this Agreement shall be automatically extended for an additional period
of one (1) year on a continuing basis unless either party shall give written
notice of the intention not to so extend at least six (6) months prior to such
anniversary date. Any termination of the Executive's employment with the Company
shall be subject to the provisions of Article X hereof.
ARTICLE IV
DUTIES
The Executive is hereby employed, and during the term of this Agreement
shall be employed, as Chairman and President, Chief Executive Officer of the
Company reporting to the Board. The Executive agrees to perform all of the
duties normally incident to those offices for as long as he shall hold those
offices and to perform all other duties and responsibilities as may be
prescribed by the Board from time to time and which are commensurate with his
executive capacity as Chairman and President, Chief Executive Officer of the
Company.
ARTICLE V
EXTENT OF SERVICE
The Executive is employed on a full time basis. Therefore, during the
period of his employment, except for illness, reasonable vacation periods and
reasonable leaves of absence, the Executive shall devote all of his business
time, attention, skill and efforts to the faithful performance of his duties
under this Agreement. However, the Executive may devote a small but reasonable
amount of time to pursue and monitor personal investments and charitable or
community services and, with the approval of the Board, from time to time, the
Executive may serve or continue to serve on the boards of directors of and hold
any other offices or position in companies or organizations that in the Board's
reasonable judgment will not present any Conflict of Interest with the Company
or any of its Affiliates
<PAGE>
or materially affect the performance of the Executive's duties under this
Agreement.
ARTICLE VI
COMPENSATION
For services rendered by the Executive under this Agreement the Company
agrees to pay and provide to the Executive compensation and benefits
commensurate with his position and experience level within the oil and gas
industry, which compensation and benefits (i) initially shall be as set forth in
this Article VI and (ii) shall not at any time during the term of this Agreement
be less than as set forth in this Article VI.
6.1 MINIMUM ANNUAL SALARY. During each calendar year the Company shall pay
the Executive base compensation in equal semi-monthly installments based upon
the minimum annual salary for the Executive of $500,000, subject to annual
review by the Board and which may be increased but not decreased by the Board on
the basis of such review. The term "Minimum Annual Salary" as used in this
Agreement shall include all increases granted by the Board.
6.2 CASH INCENTIVE COMPENSATION. For each calendar year during the term of
this Agreement the Executive shall be entitled to earn a bonus of between 0% and
90% of the Executive's Minimum Annual Salary for such year upon attaining goals
established annually by the Compensation Committee. The goals shall be
established by the Compensation Committee, after consultation with the
Executive, shall be consistent with the Company's standards, and shall be
established to produce a reasonable expectation in the sole judgment of the
Compensation Committee that the Executive will receive a target bonus for each
year equal to 60% of the Executive's Minimum Annual Salary for such year. Bonus
factors and other provisions related to the bonus for calendar year 1997 (which
will be consistent with the Executive's position in the Company and with other
executives) will be addressed by the Compensation Committee at its meeting on
February 11, 1997. The Cash Incentive Compensation earned by the Executive for
any calendar year to the extent not deferred pursuant to Section 6.3, will be
paid to the Executive within 90 days following the end of such calendar year.
6.3 DEFERRAL ARRANGEMENT. The Executive will be permitted to defer some or
all of the Cash Incentive Compensation and up to 50% of the Minimum Annual
Salary under the ENSERCH Corporation Deferred Compensation Plan (or comparable
plan of the Company), the terms of which have been provided to the Executive.
6.4 STOCK OPTIONS. On or promptly after the Effective Date, the Company
shall grant to the Executive an initial signing bonus award of Stock Options to
acquire 1,000,000 shares of the common stock of the Company with an exercise
price based on the average of the high and low prices on the date of grant and
granted as follows: An option for 500,000 of the shares will be granted by the
Compensation Committee pursuant to the Stock Incentive Plan and shall be
conditioned upon the execution by the Executive of a stock option agreement
substantially in the form as attached hereto as Exhibit A, and an option with
substantially identical terms for the remaining 500,000 shares will be granted
by the Board by special award and shall be conditioned upon the execution by the
Executive of a stock
<PAGE>
option agreement substantially in the form as attached hereto as Exhibit B. Not
later than sixty (60) days following each anniversary of the Effective Date
during the term of this Agreement (provided the Executive continues to be
employed by the Company), the Company shall grant to the Executive a Stock
Option to acquire a number of additional shares of the common stock of the
Company with the grant in 1998 to be calculated as follows: at least the number
derived from dividing three (3) times the Executive's Minimum Annual Salary by
the fair market value on the last trading date preceding the day that the
Compensation Committee or Board takes action to grant the Option. Grants in
subsequent years shall be made in an amount equal to 115% of the Executive's
Minimum Annual Salary, in accordance with a valuation methodology selected by
the Compensation Committee, after consultation with the Executive and which
appropriately aligns the compensation that the Executive may receive through
stock price growth with the value received by shareholders from the Company's
performance. The exercise price per share under such option shall be the fair
market value of the stock as of the date of the grant of such option. The
Options granted to the Executive during the term of this Agreement beyond the
initial grant shall be Non-Qualified Stock Options and shall be pursuant to, and
conditioned upon the execution by the Executive of, stock option agreements with
terms and conditions consistent with those between the Company's other senior
executives and the Company and substantially in the form as attached hereto as
Exhibit C. No Stock Options shall be granted subsequent to termination of
employment. The Company shall use its best efforts to cause a registration
statement on form S-8 (or comparable successor form) covering all shares subject
to Stock Options granted to the Executive to remain effective until sixty (60)
days after the later of exercise or termination of all Stock Options granted to
the Executive.
6.5 RESTRICTED STOCK BONUSES. On or promptly after the Effective Date, the
Company shall award to the Executive an initial Restricted Stock Bonus for
100,000 shares of performance-based restricted stock of the Company pursuant to
its Stock Incentive Plan and conditioned upon the execution by the Executive of
a Restricted Stock Agreement substantially in the form attached hereto as
Exhibit D. Not later than sixty (60) days following each anniversary of the
Effective Date during the term of this Agreement (provided the Executive
continues to be employed by the Company), the Company shall award to the
Executive a Restricted Stock Bonus for additional shares of performance-based
restricted stock of the Company having a value equal to 35% of the Executive's
Minimum Annual Salary (with performance requirements as determined by the
Compensation Committee that may vary from the initial award but that are
consistent with performance requirements for awards of performance-based
restricted stock to other senior executives of the Company). Such shares shall
be restricted so that no share may be transferred or alienated in any way
(except through passage under will or by the laws of descent and distribution
upon the Executive's death) until the shares are vested, at which time the
restriction will lapse with respect to the vested shares. Such awards shall be
granted pursuant to, and conditioned upon, execution by the Executive of
restricted stock agreements with terms and conditions consistent with those of
other senior executives of the Company and substantially in the form attached
hereto as Exhibit E. No Restricted Stock Bonuses shall be granted subsequent to
termination of employment. The Company shall use its best efforts to cause a
registration statement on form S-8 (or comparable successor form) covering all
shares of restricted stock granted to the Executive as Restricted Stock Bonuses
to remain effective until sixty (60)
<PAGE>
days after the lapse of all restrictions on the shares of restricted stock
granted to the Executive as Restricted Stock Bonuses.
6.6 LONG TERM INCENTIVE AWARDS. The Executive shall be entitled to
participate in any other long term incentive award program as is approved in the
future by the Compensation Committee.
6.7 OTHER COMPANY COMPENSATION PROGRAMS. The Executive shall be entitled
to participate at an appropriate level in all other compensation programs
adopted by the Company.
6.8 LOAN. Within 30 days following the date that the Executive (i) makes a
Section 83(b) election with respect to any Restricted Stock Bonus received by
the Executive or (ii) such Restricted Stock Bonus becomes fully vested, upon
request by the Executive the Company will lend the Executive an amount equal to
the estimated federal, state and local tax liability the Executive will incur in
connection with making a Section 83(b) election or becoming fully vested in any
Restricted Stock Bonus. The loan will be on a full recourse basis and secured
in accordance with the terms of a security agreement (in a form mutually agreed
upon by the Executive and Company) collateralized with Restricted Stock Bonuses,
Stock Options to acquire Company stock, deferred compensation and other amounts
owing but unpaid by the Company to the Executive. The loan will bear interest
at the prime rate in effect at that time at the Chase Manhattan Bank or other
comparable bank as approved by the Compensation Committee.
ARTICLE VII
FRINGE BENEFITS
The Company shall provide the Executive, while the Executive is employed
with the Company pursuant to this Agreement, with the following fringe benefits
at a level commensurate with his position with the Company:
(a) annual physical examinations;
(b) reimbursement of dues and special assessments for membership in
one dining club and one country club;
(c) four weeks paid vacation yearly; and
(d) a customary benefit and perquisite package for a senior executive
in his position, provided however, that such package will include
at least (i) medical and dental coverage, (ii) disability
insurance covering 60% of Minimum Annual Salary, (iii) provided
that the Executive is insurable, life insurance equal to four-
times Minimum Annual Salary through the initial three-year term of
this Agreement, reduced to three-times Minimum Annual Salary until
age 60, and reduced to two-times Minimum Annual Salary thereafter,
and provided that, when authorized by the Compensation Committee,
the Company may self-insure such amount that may exceed limits of
the Company's group life insurance policy, and (iv) an excess
pension plan providing retirement benefits that the Executive
would have received under the Company's qualified retirement plans
taking into account the Executive's Minimum Annual Salary and Cash
<PAGE>
Incentive Compensation (regardless of whether or not the Executive
elects to defer any such amounts under Section 6.3) but for the
limitations on compensation and benefits under Sections 415 and
401(a)(17) of the Internal Revenue Code of 1986 relating to qualified
plans.
ARTICLE VIII
WORKING FACILITIES
The Company shall furnish the Executive with a private office and a private
secretary and all other assistance and accommodations as are suitable to the
character of the Executive's position with the Company and adequate for the
performance of his duties under this Agreement.
ARTICLE IX
EXPENSES
(a) The Executive is authorized to incur reasonable expenses for the
promotion of the business of the Company including expenses for entertainment,
travel and other similar items. The Company shall pay or reimburse the Executive
for all reasonable items of expense incurred by the Executive in performing his
obligations under this Agreement. The Executive must, however, in each case
provide the Company adequate substantiation of the expense that has been
incurred by the Executive.
(b) The Executive shall be provided temporary living and commuting expenses
for six months following the Effective Date.
(c) In addition to the Company's employee relocation assistance program
which is hereby extended to the Executive, the Company will pay to the Executive
$10,000 to use at his discretion to offset costs associated with the acquisition
of a new home (such as loan origination fees, points, etc.).
ARTICLE X
TERMINATION OF EMPLOYMENT
The following provisions specify the amounts payable under this Agreement
in the event of a termination of the Executive's employment for the reasons set
forth. In each case the payments as stated constitute all payments and benefits
to which the Executive will be entitled to under this Agreement. The benefits,
if any, the Executive is entitled to under the terms of all restricted stock
agreements, stock option agreements, the Company's defined benefit pension plan,
and all other then vested benefits of the Executive shall be governed by the
respective plans and other documents creating such benefit. The provisions in
the event of a termination of the Executive's employment under this Agreement
are as follows:
10.1 TERMINATION WITHOUT GOOD REASON BY THE EXECUTIVE. Upon Termination
Without Good Reason by the Executive of his employment with the Company, the
Company shall pay the Executive, within 30 days, a cash sum equal to that
portion of his Minimum Annual Salary and any other accrued
<PAGE>
entitlements which have been earned but unpaid prior to the date of the
Executive's termination.
10.2 TERMINATION WITH GOOD REASON BY THE EXECUTIVE.
(a) Upon termination by the Executive of employment with the Company
with Good Reason during the initial three-year term of this Agreement, the
Company shall pay the Executive, within 30 days, a cash sum equal to his
then Minimum Annual Salary times the number of years (including portions
thereof) remaining in the initial three-year term of this Agreement, plus
earned but unpaid Cash Incentive Compensation for the previous year, if
any, plus the Cash Incentive Compensation that would have accrued to the
Executive (calculated at the target level of 60 % of the Executive's
Minimum Annual Salary immediately prior to termination) through the number
of years (including portions thereof) remaining in the initial three-year
term of this Agreement; provided, however, that in no event shall the
Executive be paid less than his Minimum Annual Salary times one, plus the
Cash Incentive Compensation that would have accrued to the Executive
(calculated at the target level of 60% of the Executive's Minimum Annual
Salary immediately prior to termination) for one year.
(b) Upon termination by the Executive of employment with the Company
with Good Reason during any annual one-year extension beyond the initial
three-year term of this Agreement, the Company shall pay the Executive,
within 30 days, a cash sum equal to his then Minimum Annual Salary times
one, plus earned but unpaid Cash Incentive Compensation for the previous
year, if any, plus the Cash Incentive Compensation that would have accrued
to the Executive (calculated at the target level of 60 % of the Executive's
Minimum Annual Salary immediately prior to termination) for one year.
10.3 TERMINATION WITHOUT CAUSE BY THE COMPANY. If there is a termination
without Cause of the Executive's employment by the Company, the Company shall
pay and provide to the Executive the same compensation and benefits described in
Section 10.2 for termination with Good Reason by the Executive.
10.4 TERMINATION FOR CAUSE BY THE COMPANY. If the Executive's employment is
terminated by the Company for Cause, the Company shall pay the Executive, within
30 days, a cash sum equal to that portion of his then Minimum Annual Salary and
any other accrued entitlements which have been earned but unpaid prior to the
date of the Executive's termination for the year of termination.
10.5 TERMINATION FOR DISABILITY. If the Executive is terminated for
Disability, the Company shall pay the Executive his then Minimum Annual Salary
for one year from the date of his Disability. In addition, the Executive shall
be entitled to receive pay for vested but unused vacation on the date of
Disability.
10.6 TERMINATION FOR DEATH. If the Executive dies while in the employ of
the Company, the Company shall pay and provide to the Executive's estate the
same compensation and benefits described in Section 10.5 for termination for
Disability, assuming that he became disabled on the date of his death, except
that the then Minimum Annual Salary shall be payable for three months instead of
one year.
<PAGE>
10.7 CHANGE OF CONTROL. The Company and the Executive shall enter into the
change of control agreement substantially in the form as attached hereto as
Exhibit F and the Executive shall be entitled to the benefits therein provided
upon a "Change in Control" as therein defined. In the event of a Change in
Control, and the Executive's employment is terminated under circumstances
entitling the Executive to benefits under 10.2 or 10.3 of this Agreement and
under Section 4 of the Change in Control Agreement, the Executive shall be
entitled to the benefits provided herein and in the Change in Control Agreement,
provided that in the event the terms of this Agreement and the Change in Control
Agreement provide for the same type of benefit or payment based on the same
operative event or facts then the Executive shall be entitled to the higher
benefit or payment under the agreements but not duplicate benefits or payments;
it being specifically agreed that if the Change in Control and the qualifying
termination of employment occurs prior to the end of the initial three-year term
of this Agreement, the Executive will be entitled to the greater of the payments
of salary under this Agreement for the remainder of such initial three-year term
or the payment of three (3) times the Executive's salary under Section 4(iii)(c)
of the Change in Control Agreement.
10.8 RETIREMENT. Upon Retirement, the Company shall pay the Executive his
Minimum Annual Salary which has been earned but is unpaid as of the date of
Retirement.
ARTICLE XI
POST-TERMINATION OBLIGATIONS OF THE EXECUTIVE
All payments and benefits due the Executive under this Agreement shall be
subject to the Executive's compliance with the following provisions:
11.1 ASSISTANCE IN LITIGATION, ETC. During the period of his employment and
for a reasonable period, not to exceed the greater of the balance of the term of
this Agreement or 24 months, after the Executive's termination of employment,
the Executive shall, upon reasonable notice, furnish all information and proper
assistance including, without limitation, testimony, to the Company as may
reasonably be required by the Company in connection with any litigation or other
administrative or regulatory proceeding in which they or any of their
subsidiaries or affiliates is, or may become, a party, or in connection with any
filing or similar obligation of the Company imposed by any taxing,
administrative or regulatory authority having jurisdiction. The Company,
however, shall be obligated to pay all of the reasonable expenses (including
reasonable attorney fees) incurred by the Executive in complying with these
provisions.
11.2 CONFIDENTIAL INFORMATION. The Executive shall not knowingly use for
his personal benefit or disclose or reveal to any unauthorized person any trade
secret or other confidential information relating to the Company or its
Affiliates or to any of the businesses operated by them, nor take with him, upon
leaving employment with the Company, any document or other record relating to
such information. The Executive confirms that such information constitutes the
exclusive property of the Company.
<PAGE>
11.3 NO SOLICITATION OF COMPANY EMPLOYEES. The Executive shall not, during
the period of his employment and for a period of six months afterwards, solicit,
induce or actively encourage any persons then employed by the Company or any of
its Affiliates to leave the employment of such entity. Nothing in this Section
shall prohibit or in any way limit the Executive's right to employ and/or
discuss terms of employment with any persons who seek employment and/or initiate
discussions, if that action occurs subsequent to the Executive's termination of
employment and off the business premises of the Company.
ARTICLE XII
RELIANCE ON GENERAL CREDIT OF COMPANY
All payments to the Executive under this Agreement shall be paid in cash
from the general funds of the Company, and no special or separate fund shall be
established and no other segregation of assets shall be made to assure payment
except with respect to any deferred amounts pursuant to Section 6.3 which are
placed in a trust pursuant to the ENSERCH Corporation Deferred Compensation Plan
or comparable plan of the Company. The Executive shall have no right, title, or
interest in any investments that the Company may make to aid the Company in
meeting its obligations for these payments.
ARTICLE XIII
PAYMENT OF LEGAL FEES
The Company shall reimburse the Executive for all reasonable legal fees and
expenses incurred by the Executive in connection with the Executive's
negotiation of this Agreement up to a maximum of $15,000 and all reasonable
legal fees and expenses incurred by the Executive in connection with the
Executive's enforcing any right or benefit provided by this Agreement. The
reimbursement of such legal fees and expenses shall be made within 30 days after
the Executive's request for payment accompanied by evidence of the fees and
expenses incurred.
ARTICLE XIV
MODIFICATION AND WAIVER
14.1 AMENDMENT OF AGREEMENT. This Agreement may not be modified or amended
except by an instrument in writing signed by the parties to this Agreement.
14.2 WAIVER. No term or condition of this Agreement shall be deemed to have
been waived, nor shall there be any estoppel against the enforcement of any
provision of this Agreement, except by written instrument of the party charged
with waiver or estoppel. No written waiver shall be deemed a continuing waiver
unless the continuing nature of the waiver is expressly stated therein. Each
waiver shall operate only as to that specific term or condition; it will not be
deemed a waiver of future conditions or as to any act other than that
specifically waived.
ARTICLE XV
ARBITRATION
<PAGE>
Any controversy or claim arising out of or relating to this Agreement, or
breach of it, shall be settled by arbitration in Dallas, Texas or such other
jurisdiction as shall be mutually agreeable to the parties in accordance with
the Commercial Arbitration Rules of the American Arbitration Association, and
judgment upon the award rendered by the arbitrator may be entered in any court
of competent jurisdiction.
ARTICLE XVI
GENERAL PROVISIONS
16.1 FEDERAL INCOME TAX WITHHOLDING. The Company shall withhold from any
benefits payable under this Agreement all federal, state, city, or other taxes
as shall be required under any law or governmental regulation or ruling.
16.2 SUCCESSORS; ENFORCEABILITY.
(a) SUCCESSOR MUST ASSUME. The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation,
liquidation, dissolution or otherwise) to all or substantially all
of the aggregate business and/or assets of the Company (including
consolidated subsidiaries) to expressly assume and agree to
perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no succession
had taken place.
(b) AGREEMENT ENFORCEABLE AFTER THE EXECUTIVE'S DEATH. This Agreement
shall inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and
legatees.
16.3 NONASSIGNABILITY. Except as provided in this Section 16.3, neither
this Agreement or any right or interest granted in it shall be assignable by
either the Company or the Executive, or their successors or representatives,
without the other's prior written consent. This Section shall not preclude the
Executive from designating a beneficiary to receive any benefit payable under
this Agreement upon his death, or the executors, administrators, or other legal
representatives of the Executive or his estate from assigning any rights under
this Agreement to the person or persons entitled to them.
16.4 NO ATTACHMENT. Except as required by law, no right to receive payments
under this Agreement shall be subject to anticipation, computation, alienation,
sale, assignment, encumbrance, charge, pledge, or hypothecation or to execution,
attachment, levy, or similar process or assignment by operation of law. Any
attempt, voluntary or involuntary, to effect any such action shall be null, void
and of no effect.
16.5 DELIVERY OF NOTICES. Any notice required to be given under this
Agreement shall be in writing and shall be deemed to have been given and
received upon the earlier of (i) receipt by the party to which the notice is
sent and (ii) delivery of the notice to the address for notice for the party to
which the notice is sent as set forth on the signature page hereof or as changed
pursuant to the terms hereof. Any address may be
<PAGE>
changed from time to time by serving notice to the other party as required in
this Section.
16.6 SEVERABILITY. If, for any reason, any provision of this Agreement is
held invalid, that invalidity shall not affect any other provision of this
Agreement not also held invalid, and each other provision shall to the full
extent consistent with law continue in full force and effect.
16.7 HEADINGS. The headings of Articles and Sections are included solely
for convenience of reference. The descriptive heading shall not control the
meaning or interpretation of any of the provisions of this Agreement.
16.8 GOVERNING LAW. This Agreement has been executed and delivered in the
State of Texas, and its validity, interpretation, performance, and enforcement
shall be governed by the laws of that State.
16.9 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute a single Agreement.
ARTICLE XVII
ENTIRE AGREEMENT
As of the Effective Date, this Agreement shall constitute the entire
agreement of the parties with respect to the matters covered hereby, and shall
supersede all prior written and oral agreements pertaining to the subject matter
hereof.
The parties have caused this Agreement to be executed on the date first
written in this Agreement.
ENSERCH EXPLORATION, INC.
By:
-------------------------------------
Address:
EXECUTIVE
-------------------------------------
Address:
<PAGE>
EXHIBIT 21
Enserch Exploration, Inc., its subsidiaries and their subsidiaries and
affiliates, respectively, on March 1, 1997, are listed below.
STATE OR
COUNTRY OF
NAME OF COMPANY INCORPORATION
ENSERHC Corporation
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 Far East Ltd. Cayman Islands
Enserch India, Inc. Texas
Enserch Malaysia Ltd. Cayman Islands
Enserch Middle East Ltd. Cayman Islands
Enserch (U.K.) Oil & Gas Limited United Kingdom
Enserch International Exploration Ltd. Cayman Islands
- -----------------------
(1) 17% owned by parent corporation.
(2) .999% owned by EEX Capital L.L.C. and .001% owned by Enserch Preferred
Capital, Inc.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITOR'S CONSENT
Enserch Exploration, Inc.:
We consent to the incorporation by reference in Registration Statements No.
33-57715 and No. 33-60587 of Enserch Exploration, Inc. on Form S-8 of our report
dated February 10, 1997 (March 7, 1997 as to the third paragraph of Note 4),
appearing in this Annual Report on Form 10-K of Enserch Exploration, Inc. for
the year ended December 31, 1996.
DELOITTE & TOUCHE LLP
Dallas, Texas
March 21, 1997
<PAGE>
EXHIBIT 23.2
DeGolyer and MacNaughton
One Energy Square
Dallas, Texas 75206
March 17, 1997
Enserch Exploration, Inc.
4849 Greenville Avenue
Dallas, Texas 75206
Gentlemen:
We hereby consent to the references to our firm and to our reserves
estimates in the Annual Report on Form 10-K (the Annual Report) of Enserch
Exploration, Inc. (the Company) for the year ended December 31, 1996. Our
estimates of the oil, condensate, natural gas liquids, and natural gas reserves
of certain properties owned by the Company are contained in our report entitled
"Report as of January 1, 1997 on Reserves of Certain Properties owned by Enserch
Exploration, Inc." References to us and to our estimates are included in the
sections "Business - General - Recent Developments - Core Areas - and Offshore
Activities" and "Properties" in Part I of the Annual Report and in Note 15 of
the "Notes to Financial Statements" in the Annual Report. Additionally, we
hereby consent to the incorporation by reference in the Company's Registration
Statements nos. 33-57715 and 33-60587 on Form S-8 of such references made in the
Annual Report.
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, 1996, 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 T. M Hamilton, J. P. McCormick or M. G. Fortado, 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
11th day of March, 1997.
/s/ F. S. Addy
--------------------------------
F. 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, 1996, 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 T. M. Hamilton, J. P. McCormick or M. G. Fortado, 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
11th day of March, 1997.
/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, 1996, 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 T. M Hamilton, J. P. McCormick or M. G. Fortado, 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
11th day of March, 1997.
/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, 1996, 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 T. M Hamilton, J. P. McCormick or M. G. Fortado, 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
11th day of March, 1997.
/s/ W. C. McCord
------------------------------
W. C. McCord
<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, 1996, 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 T. M Hamilton, J. P. McCormick or M. G. Fortado, 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
11th day of March, 1997.
/s/ M. P. Mallardi
------------------------------
M. P. Mallardi
<TABLE> <S> <C>
<PAGE>
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<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995 DEC-31-1994
<PERIOD-END> DEC-31-1996 DEC-31-1995 DEC-31-1994
<CASH> 1,340 1,546 0
<SECURITIES> 0 0 0
<RECEIVABLES> 91,336 67,395 0
<ALLOWANCES> (1,351) (1,814) 0
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<CURRENT-ASSETS> 110,857 83,761 0
<PP&E> 2,828,493 2,623,138 0
<DEPRECIATION> (1,081,845) (952,538) 0
<TOTAL-ASSETS> 1,872,139 1,776,832 0
<CURRENT-LIABILITIES> 119,137 130,946 0
<BONDS> 115,000 160,000 0
150,000 150,000 0
0 0 0
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<TOTAL-REVENUES> 330,441 220,851 179,140
<CGS> 0 0 0
<TOTAL-COSTS> 293,618 227,004 147,111
<OTHER-EXPENSES> (2,092) (64) 314
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 22,667 14,617 20,919
<INCOME-PRETAX> 16,314 (19,679) 11,467
<INCOME-TAX> 5,540 (7,177) (334)
<INCOME-CONTINUING> 10,774 (12,502) 11,801
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 10,774 (12,502) 11,801
<EPS-PRIMARY> .09 (.11) .07
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